The URL can be used to link to this page

2003 Financial Statement ,1 i>\. ~ .;, " f"" '4 L... l. ,.I'\JDITO¡¡> ,,~~~": ð~~ ~,'~m ,^,' .~, , ",A 0 u,. ,,'" "1 ~~..,I ". ':::) 0 ~ J:L.-oo?' Auditor of State . Betty Montgomery CITY OF FAIRLAWN SUMMIT COUNTY TABLE OF CONTENTS TITLE PAGE I ndependent Accountants' Report.....,.. ................................................................................................. ........ 1 Management's Discussion and Analysis................................................................ ............................... ........ 3 Basic Financial Statements: Government-Wide Financial Statements: Statement of Net .Assets.................................................................. .......................................15 Statement of Activities....... ............. ............... ........... ...,.............. ........ ........... ........... ......... ...... 16 Fund Financial Statements: Balance Sheet Governmental Funds.. ............. .................. """"""""""""'''''''''' ............ ................... ...... 17 Reconciliation of Total Governmental Fund Balances to Net Assets of Governmental Activities """"'''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''' 18 Statement of Revenues, Expenditures and Changes in Fund Balances Governmental Funds.. ..........................,.................................................... ................. ....... 19 Reconciliation of the Statement of Revenues, Expenditures and Changes in Fund Balances of Governmental Funds to the Statement of Activities Governmental Funds.... ....................................................... '''''''''''''''''''''''''''''''''''''''' ......20 Statement of Revenues, Expenditures and Changes in Fund Balance - Budget and Actual (Non-GAAP Budgetary Basis) General Fund..................... "'''''''''''''''''''''''''''''''''''''''''''''''''''""""" ........... .......... .....21 Statement of Fiduciary Net Assets Fiduciary F.unds """"'"'''''''' ........ ............................................................... .......... .............22 Notes to the Basic Financial Statements .."'''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''' 23 Independent Accountants' Report on Compliance and on Internal Control Required by Government Auditing Standards................................................................. 47 Auditor of State Betty Montgomery INDEPENDENT ACCOUNTANTS' REPORT The Honorable Mayor and Members of City Council City of Fairlawn Summit County 3487 South Smith Road Fairlawn, Ohio 44333 We have audited the accompanying financial statements of the governmental activities, each major fund, and the aggregate remaining fund information of the City of Fairlawn, Summit County, Ohio, (the City) as of and for the year ended December 31, 2003, 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'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 Govemment 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, each major fund, and the aggregate remaining fund information of the City of Fairlawn, Summit County, Ohio as of December 31,2003, and the respective changes in financial position and the budgetary comparison for the General Fund thereof for the year then ended in conformity with accounting principles generally accepted in the United States of America. As described in Note 3, during the year ended December 31, 2003, the City implemented a new financial reporting model, as required by the provisions of Governmental Accounting Standards Board Statement No. 34, Basic Financial Statements - and Management's Discussion and Analysis - for State and Local Governments. In accordance with Government Auditing Standards, we have also issued our report dated September 21, 2004, on our consideration of the City's internal control over financial reporting and our tests of its compliance with certain provisions of laws, regulations, contracts and grants. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be read in conjunction with this report in èonsidering the results of our audit. 111 Second St., N\.\, ! Fourth Floor! Canton.. on 44702 Telephone: (330) 438-0617 (300) 443.9272 Fax: (330) 47J-0001 w\v'w.auditor.sta te.oh. us 1 ~-".. --'----~~ City of Fairlawn Summit County Independent Accountants' Report Page 2 Management's Discussion and Analysis is not a required part of the basic financial statements, but is supplementary information the Governmental Accounting Standards Board requires. 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. 1J~ MMfrt~ Betty Montgomery Auditor of State September 21, 2004 2 CITY OF F AIRLA WN, OHIO MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE YEAR ENDED DECEMBER 31, 2003 UNAUDITED The discussion and analysis of the City of Fairlawn' s (the "City") financial performance provides an overa11 review of the City's financial activities for the year ended December 31, 2003. The intent of this discussion and analysis is to look at the City's financial performance as a whole; readers should also review the basic financial statements and the notes to the basic financial statements to enhance their understanding of the City's financial performance. Financial Highlights Key financial highlights for 2003 are as fo11ows: >- The total net assets of the City decreased $574,981. Net assets of governmental activities decreased $574,98J or 0.76% from 2002, to a total of$75,01 1,803 in 2003. ~ General revenues accounted for $11,317,738 of total governmental activities revenue. revenues accounted for S2,021 ,] 92 or 15.15% of total governmental activities revenue. Program specific .,. The City had $13,913,911 in expenses related to governmental activities; $2,021,]92 of these expenses was offset by program specific charges for services, grants or contributions. The remaining expenses of the governmental activities ofS] J,892,719 were offset by general revenues (primarily property taxes, income taxes and unrestricted grants and entitlements, including Joint Economic Development District (JEDD) revenue) of $] 1,3] 7,738. ~ The City has three major funds, the general fund, bond retirement service fund and capital improvement fund. The general fund, the largest major fì.md, had revenues and other financing sources of $8,756,227 in 2003. This represents a decrease of $817,809 from 2002 revenues and other financing sources, largely due to a decline in Joint Economic Development District receipts. The expenditures and other financing uses of the general fund, which totaled $11,606.758 in 2003, decreased S317,903 from 2002 primarily due to less transfers out to other funds in 2003 than in 2002. The net decrease in fund balance for the general fund was S2,782,067 or 29.56%. This decrease was primarily due to a $3,000,000 transfer to the capital improvement fund. ~ The bond retirement fund had revenues of $338,267 in 2003, The expenditures of the bond retirement fund totaled $303,337 in 2003. The net increase in fund balance for the bond retirement fund was $34,930 or 14.52%. ~ The capital improvement fund had revenues and other financing sources of $6,075,031 in 2003. The expenditures of the capital improvement fund totaled $9,566,208 in 2003. The net decrease in fund balance for the capita] improvement fund was $3,491,] 77 or 42.84%. The decrease is attributed to the construction of the Municipa] Service Center, the cost of which is expended in the fund financial statements. The fund balance at the beginning of the year was inflated due to an issuance of debt in late 2002, the proceeds of which were intended to finance the construction project. Using this Annual Financial Report This annual report consists of a series of financial statements and notes to these statements. These statements are organized so the reader can understand the City as a financial whole, an entire operating entity. The statements then proceed to provide an increasingly detailed look at specific financial activities. The statement of net assets and statement of activities provide infonnation about the activities of the City as a whole, presenting both an aggregate view of the City's finances and a longer-term view of those finances. Fund financial statements provide the next level of detail. ForgovernmentaJ funds, these statements te11 how services were financed in the short-tenn as we11 as what remains for future spending. The fund financial statements also look at the City's most significant funds with a11 other nonmajor funds presented in total in one column. 3 , ~- "'.f!' CITY OF FAIRLA WN, OHIO MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE YEAR ENDED DECEMBER 31, 2003 UNAUDITED Reporting the City as a Whole Statement lif'Net Assets and the Statement of Activities While this document contains a large number of funds used by the City to provide programs and activities, the view of the City as a whole looks at all financiaJ transactions and asks the question, "How did we do financially during 2003?" The statement of net assets and the statement of activities answer this question. These statements include all assets and liabilities using the accrual basis of accounting similar to the accounting used by most private-sector companies. This basis of accounting takes into account all of the cUlTent year's revenues and expenses regardless of when cash is received or paid. These two statements report the City's net assets and changes in those assets. This change in net assets is important because it tells the reader that, for the City as a whole, the financial position of the City has improved or diminished. The causes of this change may be the result of many factors, some financiaL some not. Non-financial factors include the City's property tax base, current property tax laws in Ohio restricting revenue growth, facility conditions, required community programs and other factors. In the statement of net assets and the statement of activities, the Governmental activities include the City's programs and services including police, fire and rescue, street maintenance, capital improvements and general administration. These services are funded primarily by property and income taxes and intergovernmental revenues including federal and state grants and other shared revenues. The City's statement of net assets and statement of activities can be found on pages 15-16 of this report. Reporting the City's Most Significant Funds Fund Financial Statements A fund is a grouping of related accounts that is used to maintain control over resources that have been segregated for specific activities or objectives. The City, like other state and local governments, uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. All of the funds of the City can be divided into two categories: governmental funds and fiduciary funds. Fund financial reports provide detailed information about the City's major funds. The City uses many funds to account for a multitude of financial transactions. However, these fund financial statements focus on the City's most significant funds. The analysis of the City's major governmental funds begins on page 9. Governmental Funds Governmental funds are used to account for essentially the same functions reported as govemmental activities in the government-wide financial statements. However, unlike the government-wide financial statements, governmental fund financial statements focus on near-term inflows and outflows of spendable resources, as well as on balances of spendable resources available at the end of the fiscal year. Such information may be useful in evaluating a government's near-term financing requirements. Because the focus of the governmental funds is nalTower than that of the government-wide financial statements, it is useful to compare the information presented for governmental funds with similar information presented for governmental activities in the government-wide financial statements. By doing so, the readers may better understand the long-tenn impact of the government's near-term financing decisions. Both the governmental fund balance sheet and the governmental fund statement of revenues, expenditures, and changes in fund balances provide a reconciliation to facilitate this comparison between governmental funds and governmental activities. 4 -,- , ~, ., ".".~ CITY OF FAIRLA WN, OHIO MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE YEAR ENDED DECEMBER 31,2003 UNAUDITED The City maintains a multitude of individual governmental funds. The City has segregated these funds into major funds and nonmajor funds. The City's major governmental funds are the general fund, debt service fund and capital improvement fund. Information for major funds is presented separately in the governmental fund balance sheet and in the governmental statement of revenues, expenditures, and changes in fund balances. Data tfom the other governmental funds are combined into a single, aggregated presentation. The basic governmental fund financial statements can be found on pages 1 7-21 of this report. Fiduciary Funds Fiduciary funds are used to account for resources held for the benefit of parties outside the City. fiduciary funds are not reflected in the government-wide financial statement because the resources of those funds are not available to support the City's own programs. The City's only fiduciary funds are agency funds. Agency funds are custodial in nature (assets equal liabilities) and do not involve the measurement of results of operations. The basic tiduciary fund financial statement can be found on page 22 of this report. Notes to the Basic Financial Statements The notes provide additional information that government-wide and fund financial statements. 23-46 of this report. is essential to a full understanding of the data provided in the These notes to the basic financial statements can be found on pages Government-Wide Financial Analysis This is the City's first year for government-wide financial statements using the fuU accrual basis of accounting, therefore, a comparison with prior year is not available. A comparative analysis will be presented in future years when prior year information is available. The table below provides a summary of the City's net assets for 2003: Assets CUITent and other assets Capital assets, net Net Assets Governmental Activities $ 19,851,946 70,402,838 90,254,784 2,258,328 12,984,653 15,242,981 58,435,085 10,009,098 6,567,620 $ 75,011.803 5 Total assets Liabilities CUITent and other liabilities Long-term liabilities Total liabilities Net Assets Invested in capital assets, net of related debt Restricted Unrestricted Total net assets -.,- CITY OF F AIRLA WN, OHIO MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE YEAR ENDED DECEMBER 31, 2003 UNAUDITED Over time, net assets can serve as a useful indicator of a government's financial position. At December 31,2003, the City's assets exceeded liabilities by $75,011,803. Capital assets reported on the government-wide statements represent the largest portion of the City's assets. At year-end, capital assets represented 78.00% of total assets. Capital assets include land, land improvements, buildings, machinery and equipment, licensed vehicles, infrastructure and construction in progress. Capital assets, net of related debt to acquire the assets at December 31, 2003, was $58,435,085. These capital assets are used to provide services to citizens and are not available for future spending. Although the City's investment in capital assets is reported net of related debt, it should be noted that the resources to repay the debt must be provided from other sources, since capital assets may not be used to liquidate these liabilities. A portion of the City's net assets, $10,009,098, represents resources that are subject to external restriction on how they may be used. In the governmental activities, the remaining balance of unrestricted net assets of $6,567,620 may be used to meet the government's ongoing obligations to citizens and creditors. The table below shows the changes in net assets for fiscal year 2003. Since this is the first year the City has prepared financial statements following Governmental Accounting Standards Board (GASB) Statement No. 34, revenue and expense comparisons to fiscal year 2002 are not available. A comparative analysis will be provided in future years when prior year information is available. Change in Net Assets Governmental Acti viti es . Revenues Program revenues: Charges for services Operating grants and contributions Capital grants and contributions Total program revenues $ 945,974 280,174 795,044 2,021,192 General revenues: Property taxes Income taxes JEDD revenue Unrestricted grams and entitlements Investment earnings Miscellaneous 961,954 7,209,630 2,074, I 08 788,424 217,007 66,615 11,317,738 Total general revenues Total revenues 13.338,930 6 CITY OF F AIRLA WN, OHIO MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE YEAR ENDED DECEMBER 31, 2003 UNAUDITED Change in Net Assets Govemmental Activities Expenses: General government Security of persons and property Public health services Transportation Community environment Basic utility services Leisure time activity Intergovernmental Interest and fiscal charges Total expenses 2,137,747 5,423,777 109,066 3,843,338 33,676 1,048,800 46 L 916 275,412 580.179 13,913,911 Decrease in net assets S (574,981 ) Governmental Activities Govemmental activities net assets decreased 5574,981 in 2003. This decrease is a result of slightly decreasing expenses and a decrease in JEDD revenue, which is classified as intergovernmental revenue, versus amounts reported in the prior year. Security of persons and property, which primarily supports the operations of the police and fire departments accounted for $5,423,777 of the total expenses of the City. These expenses were partially funded by $221,484 in direct charges to users of the services and S27,538 in operating grant and contributions. Transportation expenses totaled $3,843,338. Transportation expenses were partially funded by $1.225 in direct charges to users of the services, and $252,636 in operating grants and contributions and $795,044 in capital grants and contributions. The state and federal government contributed to the City a total of $280, 174 in operating grants and contributions and 5795,044 in capital grants and contributions. These revenues are restricted to a particular program or purpose. Of the total operating grants and contributions, 527,538 subsidized security of persons and property and $252,636 subsidized transportation programs. Of the total capital grants and contributions, $795,044 subsidized transportation programs. General revenues totaled $11,317,738, and amounted to 84.85% of total governmental revenues. These revenues primarily consist of property and income tax revenue of $8,171 ,584. The other primary source of general revenues is grants and entitlements not restricted to specific programs, including local government, local government revenue assistance and Joint Economic Development District revenue making up S2,862,532. The statement of activities shows the cost of program services and the charges for services and grants offsetting those services. The following table shows, for governmental activities, the total cost of services and the net cost of services. That is, it identifies the cost of these services supported by tax revenue and unrestricted State grants and entitlements. The graph below illustrates the City's dependence upon general revenues as program revenues are not sufficient to cover total govemmental expenses. Comparisons to 2002 have not been presented since they are not available. 7 - CITY OF FAIRLAWN, OHIO MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE YEAR ENDED DECEMBER 31, 2003 lJNAUDITED Governmental Activities - Program Revenues vs. Total Expenses $15,000,000 $12,500,000 $10.000,000 $7,500,000 $5,000,000 $2,500,000 $- 0 Program Revenues liD Expenses Fiscal Year 2003 Governmental Activities Total Cost of Services 2003 Net Cost of Services 2003 Program Expenses: General government Security of persons and property Public health services Transportation Community environment Basic utility services Leisure time activity Intergovernmental Interest and fiscal charges S 2,137,747 5,423,777 109,066 3,843,338 33,676 1,048,800 461,916 275,412 580.179 S 13.913.911 $ 1,718,826 5,1 74,755 109,066 2,794,433 33,676 850,348 356,024 275,4J2 580,179 Total $ 11.892,7J9 The dependence upon general revenues for governmental activities is apparent, with 85.47% of expenses supported through taxes and other general revenues. The chart below illustrates the City's program revenues versus general revenues for 2003: 8 1 ,,, CITY OF FAIRLA WN, OHIO MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE YEAR ENDED DECEMBER 31, 2003 UNAUDITED Governmental Activities - General and Program Revenues $2,000,000 $- I:] Program Revenues ! Ell General Revenues $12,000,000 $10,000,000 $8,000,000 $6,000,000 $4,000,000 Fiscal Year 2003 Financial Analysis of the Government's Funds As noted earlier, the City uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. Govemmental Funds The focus of the City's governmental funds is to provide infonnation on near-term inflows, outflows, and balances of spendable resources. Such information is useful in assessing the City's financing requirements. In particular, unreserved fund balance serves as a useful measure of the City's net resources available for spending at year-end. The City's governmental funds (as presented on the balance sheet on page 17) reported a combined fund balance of $13,896,406 which is $6,128,884 less than last year's total of $20,025,290 (as restated). Fund balance for 2002 was inflated due to debt issued in September 2002, the proceeds of which were intended to finance the construction of the City's new Municipal Service Center complex. The planned decrease in fund balance is due to the construction costs of this new Municipal Service Center Complex. The state-of-the-art Service Center includes a complete service garage, office space, trash compactor and recycling facilities as well as salt and equipment storage areas. The December 31, 2002 fund balances have been restated as described in Note 3 to the basic financial statements. The schedule below indicates the fund balances and the total change in fund balances as of December 31, 2003 for all major and nonmajor governmental funds. Restated Fund Balances Fund Balances Increase 12/3 ]/03 12/3 1/02 (Decrease) Major funds: General S 6,628,657 S 9,410,724 $ (2,782,067) Bond retirement 275,476 240.546 34,930 Capital improvement 4,657,608 8,148,785 (3,49 U 77) Other nomnajor govemmental funds 2,334,665 2,225,235 109.430 Total $ ] 3.896,406 S 20,025,290 $ (6,128,884) 9 ----- CITY OF FAIRLA WN, OHIO MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE YEAR ENDED DECEMBER 31, 2003 UNAUDITED General Fund The City's general fund balance decreased 52.782,067, primarily due to transtèrs out to other tlmds in the amount of 53.357,500. The table that follows assists in illustrating the revenues of the general fund. Certain 2002 amounts have been recJassified and restated to conform to 2003 presentation. 2003 2002 Percentage Amount Amount Change Revenues Taxes $ 5,523,378 5 5,450,149 1.34 % Charges for services 17,625 6.061 190.79 % Licenses and permits 81.391 75.851 7.30 % Fines and fortèitures 201,790 184,644 9.29 % Investment income 181,945 339.588 (46.42) % Intergovernmental 2.645,175 3.363,929 (21.37) % Other 97,023 153,814 (36.92) % Total S 8.748,327 5 9,574.036 (8.62) % Tax revenue represents 63.13% of all general fund revenue. Tax revenue increased slightly by 1.34% over prior year. The decrease in investment income is due to drastic cuts in interest rates by the Federal Reserve Bank throughout the year. The decrease in intergovernmental revenue is due to a decrease in the collections of Joint Economic Development District revenue. All other revenue remained comparable to 2002. Revenues - Fiscal Year 2003 Revenues - Fiscal Year 2002 Other Rcycnues 1.]]% I ntergovem- mental 35.14% Other Fines and f()J"feitures 1.93%. Taxes 56.92% Intergovern- mental 30.24% Investment Income 1.08% Taxes 63.13'.\--;) Investment In,:ome 3.55~-o 2.3!';-;, 10 CITY OF FAIRLA WN, OHIO MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE YEAR ENDED DECEMBER 31, 2003 UNAUDITED The table that fo!lows assists in i!lustrating the expenditures of the general fund. Certain 2002 amounts have been reclassified to conform to 2003 presentation and have been restated as described in Note 3 to the basic financial statements. 2003 2002 Percentage Amount Amount Change EXDenditures General government S 2,047,151 $ 2,227,398 (8.09) % Security of persons and property 4,343,326 3,952,584 9.89 % Public health services 109,066 105,002 3.87 % Transportation 1,543,697 1,270.769 21.48 % Community environment 29,324 28,769 1.93 % Basic utility services 140,898 119,714 17.70 % Leisure time activity 35,796 33,425 7.09 % Total $ 8,249,258 $ 7,737,661 6.61 % The most significant increase was in the area of transportation. This increase is primarily due to personnel expenditures. The Department of Public Service was fu!ly staffed for a!l of 2003 after hiring 3 new employees in the year 2002. The increase in basic utility services is due to a rise in trash disposal and leaf removal costs. A!l other expenditures remained comparable to 2002. The largest expenditure line item, security of persons and property, increased due to wage and benefit increases and overa!l cost increases in purchased goods and services. Expenditures - Fiscal Year 2003 Expenditures - Fiscal Year 2002 Community enviro nment 0.36% Basic utility selìlices 171% Community Basic utility Leisure time activity 0.4:;% Public health services 1.32% SCr\'I(;ÇS ],36'% General Transport- ation 18.71'/0 Leisure time activity 0.43% Genera! government 24.82% Public health Security of persons and property 52.65% property 51.0W~~~1 Bond Retirement Fund The bond retirement fund 'had revenues of $338,267 in 2003. The expenditures of the bond retirement fund totaled $303,337 in 2003. The net increase in fund balance for the bond retirement fund was $34,930 or 14.52%. II ~ CITY OF FAIRLA WN, OHIO MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE YEAR ENDED DECEMBER 31, 2003 UNAUDITED Capital Improvement Fund The capital improvement fund had revenues and other financing sources of$6,075,031 in 2003. The expenditures of the capital improvement fund totaled $9,566,208 in 2003. The net decrease in fund balance for the capital improvement fund was $3,491,] 77 or 42.84%. The decrease is attributed to the construction of the Municipal Service Center Complex. Budgeting Highlights The City's budgeting process is prescribed by the Ohio Revised Code (ORC). Essentially the budget is the City's appropriations which are restricted by the amounts of anticipated revenues certified by the County Budget Commission in accordance with the ORe. Therefore, the City's plans or desires cannot be totally reflected in the original budget. If budgeted revenues are adjusted due to actual activity then the appropriations can be adjusted accordingl y. Budgetary information is presented for the general fund. In the general fund. one of the most significant changes was between the original and final budgeted amount in the area of revenues. which decreased $1,104,179 from $8,986,016 to $7.881,837. Actual revenues of S8,825,492 exceeded final budgeted revenues by $943,655. Budgeted revenue was reduced to reflect the dec1ine in JEDD revenue, however increases in the amounts received for property tax and income tax exceeded budget estimates. The other significant change was between the final budgeted expenditures and actual expenditures. Actual expenditures came in $775,882 lower than the final budgeted amounts due to less than full staffing in the police department; reduced transfers to the pension funds; less than anticipated consulting and professional services; and overall prudent management. Capital Assets and Debt Administration Capital Assets At the end of fiscal 2003, the City had S70,402,838 (net of accumulated depreciation) invested in land, land improvements, buildings, machinery and equipment, licensed vehicles, infrastructure and construction in progress. The following table shows fiscal 2003 balances compared to 2002: Capital Assets at December 31 (Net of Depreciation) Governmental Activities 2003 2002 Land Land improvements Buildings Machinery and equipment Licensed vehicles Infrastructure Construction in progress $ 3,234,757 544,924 I L5 72,286 1,979,632 1,802,033 50.120,341 I,] 48,865 S 2,270,717 582.988 5.138,294 1,578,180 1,947,352 50,262,238 3.819.270 Totals S 70,402,838 $ 65.599,039 12 - CITY OF F AIRLA WN, OHIO MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE YEAR ENDED DECEMBER 31,2003 UNAUDITED The following graphs show the breakdown of governmental capital assets by category for 2003 and 2002. Capital Assets - Governmental Activities 2003 Capital Assets - Governmental Activities 2002 Licensed vehicles 1% Infrastructure 71",;, Inffflstructurc 77% Machinery and ClP Licensed vehicles CIP 3% Machinery and equipment 3% 2% 6%, Land equipment 5 o.~j ...t(. -'.'0 ¡;n;, I (~¡;-. 3'% 16'% 1% The City's largest capital asset category is infrastructure which includes roads, bridges, culverts, sidewalks and curbs. These items are immovable and of value only to the City, however, the annual cost of purchasing these items is quite significant. The net book value of the City's infrastructure (cost less accumulated depreciation) represents approximately 71% of the City's total governmental capital assets at December 31,2003. See Note 9 for more detail on the City's capital assets. Debt Administration The City had the following long-term obligations outstanding at December 31, 2003 and 2002: Governmental Activities 2003 2002 General obligation bonds Special assessment bonds OPWC loans Compensated absences S 10,065,000 1,180,000 722,753 1,016,900 S 10,5] 0,000 1,290,000 768,042 1,003,933 Total long-term obligations $ 12,984,653 $ 13,57L975 See Note 10 for more detail on the City's long-term obligations. 13 CITY OF FAIRLA WN, OHIO MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE YEAR ENDED DECEMBER 31, 2003 UNAUDITED Economic Conditions and Next Year's General Fund Budget Outlook The City of Fairlawn is a residential community with a strong diversified business base. The City is home to several large corporations, a multitude of small, diverse businesses, and five thriving retail centers, including Summit Mall, Rosemont Commons. the Shops at Fairlawn, the Fairlawn Towne Center, and Miller-Market Square. The City's convenient location continues to attract and retain growing businesses and it has recently welcomed Newell-Rubbennaid. The City's primary revenue source is the 2% local income tax withheld on the estimated 40.000 peopJe working in the City. The City is fortunate to be able to weather the economic conditions through its broad tax base and is projecting nominal growth for 2004. The City is proud to offer outstanding city services to its residents. In addition to excellent police and fire protection, Fairlawn safety forces are active in the community offering education programs such as Drug Awareness and Resistance Education (DARE), Fire Prevention, and Safety Town for our youngest residents. Fairlawn police support neighborhood Block Parent groups, offer residential checks and a Senior Call program to check on senior citizens living alone. The popular Strategic Traftic Enforcement Program boosts traffic control where residents most see a need. The City's highly trained emergency medical teams are outfitted with advanced medica] equipment and provide emergency medical care, free of charge to Fairlawn residents. The new Municipal Service Center Complex houses all public service functions and equipment in one area. The City provides trash and recycling services at no charge to residents at the Andrew Sombati Compactor site, an all-weather drive-thru trash compactor facility. The City operates fifty-three (53) acres of parks which offer year-round recreational programs for children and adults. The Learning Resource Center, staffed with a full-time Naturalist, offers nature-related programs and lectures to groups of an ages. The City is currently exploring the feasibility of joining forces with neighboring communities to create a joint recreational center. The City is projecting genera'] fmid revenue in 2004 to remain consistent with the prior year due to general economic conditions. Budgeted expenditures for 2004 are 3% higher than the prior year primarily due to the increase in labor costs. Programs supported by the general fund are budgeted at the same level of service as last year. Contacting the City's Financial Management This financial report is designed to provide our citizen's, taxpayers, 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 financial information, contact Mr. Jerome E. Apple, Finance Director, City of Fairlawn, 3487 S. Smith Road, Fairlawn, Ohio 44333. 14 . J."'~¡ CITY OF F AIRLA WN, OHIO ST ^ TEMENT OF NET ASSETS DECEMBER 31, 2003 Assets: Equity in pooled cash and cash equivalents. Cash and cash equivalents in segregated accounts. Receivables (net of allowances for uncollectibles): Income taxes. . . . . . . . . . . . . . . Property and other taxes. . . . . . . Accounts. . . . . . . . . . . . . . Accrued interest. . . . . . Special assessments. . . . . . . . Due from other govel11ments. . . . . . . . . Prepayments. . . Materials and supplies inventory. . . . Capital assets: Land and construction in progress. . . . . . . . Depreciable capital assets, net. . . . . . . . Total capital assets. net. . . . . . . . . . . . Total assets. . . . . . . . . . . Liabilities: Accounts payable. . . Contracts payable. . Retainage payable. . . . . Accrued wages and benefits. Due to other governments. . . Deferred revenue.. . Accrued interest payable. . . . . . . . . . . . . . . . Long-term liabilities: Due within one year. .. ........ Due in more than one year. . . . . . . . . . . . . . . . . . Totalliabilities . . Net assets: Invested in capital assets, net of related debt. . . Restricted for: Capital projects.. .................. Debt service. . . . . . . . . . . . Other purposes. . .. """" Unrestricted. . . . Total net assets. . . . . . . . . . . . . . . . . . . . . Governmental Activities $ 13,762,383 46.925 1,596.708 793,916 37,437 26,001 2,524,699 708.985 113,738 241,154 4,383,622 66.019.216 70,402.838 90,254,784 142.722 461,106 131,547 ]70,751 5]5.997 77 1,818 64,387 1,00 I ,667 11,982.986 15.242.981 58,435,085 5.558,795 2,735,788 1.714,515 6,567.620 $ 75,011.803 SEE ACCOMPANYING NOTES TO THE BASIC FINANCIAL STATEMENTS 15 CITY OF FAIRlAWN, OHIO STATEMENT OF ACTIVITIES FOR THE YEAR ENDED DECEMBER 31. 2003 Program R~v~nu~s Gov~rnmentaJ Activities: General government. . . Security of persons and property. Public health services Transportation. . . . . . . Community environment.. . . Basic utility scrvices. . . . . . Leisure time activity. . . . . Intergovernmental. . . . . .. Interest and tiscal charges. . Expens~s Charges for S~rvic~s Operating Grants and Contributions Capital Grants and Contributions $ 2.137.747 5.423,777 I 09.066 3.843338 33.676 1,048.800 461.916 275,412 580.179 $ 418.921 $ $ 221,484 27,538 ],225 252,636 795,044 198.452 105.892 .. . . " . . . . . . . Total governmental activities. . . 13.913,911 945.974 280.174 795.044 General Revenues: Property and other laxes levied for: General purposes. . . .. ....... Police and tire pension. . . . . . . Parks and recreation. . . . . Capital projects. . . . . . . . . . . . Income taxes levied for: General purposes. . . . . . . . .. ....... . . . . . . Capital projects.. , ,. "" . . . . . . . Grants and entitlements not restricted to specific programs. JEDD revenue. . Investment earnings. . . Miscellaneous. . . . . . . . . . . . . . . .. . . . . . . . . . .. .. . . Total general revenues. . . .. .. . . . . . . Change in net assets. . . . . . . . . . Net assets at beginning of year (restated) . Net assets at end of year. . . . . . . . . . . . . SEE ACCOMI'ANYING NOTES TO THE BASIC FINANCIAL STATEMENTS 16 Net (Exp~ns~) Rev~nu~ and Chang~s in N~t Ass~ts Gov~rnm~ntal Activities $ (1.718,826) (5.174.755) (109.066) (2.794.433 ) (33.676 ) (850,348) (356,024 ) (275,412) ( 580.179) (11.892.719) 624,444 163.229 108.121 66,160 4.921,998 2,287,632 788.424 2,074, I 08 217.007 66.6]5 I U 17,738 (574,981 ) 75.586.784 $ 75.011.803 CITY OF FAIRLAWN, OHIO BALANCE SHEET GOVERNMENTAL FUNDS DECEMBER 3 1,2003 Other Total Bond Capital Governmental Governmental General Retirement Improvement Funds Funds Assets: Equity in pooled cash and cash equivalents. . . . . . . . S 5,882,338 S 275,4 76 S 5.240.654 S 2,363,915 S 13,762,383 Cash and cash equivalents in segregated accounts. . . . . . . . . . . 46,925 46,925 Receivables (net of allowance for Income taxes. . . . . . . . .. .... .. 1,077 ,778 518.930 ] ,596,708 Property and other taxes. . . . . , . . . . . . 610,679 183.237 793.9] 6 Accounts.. . . . .. ... ...... 6,855 30,582 37,437 Accrued interest. .. .. . . .. - 24,406 1,595 26,001 Special assessments. . . . . . 2,524,699 2,524,699 Due from other governments. . .. . . . 569,427 6,105 133,453 708,985 Due from other funds. .. .. ..... 7,406 7,406 Prepayments. . . '" .... .... .. 113,738 113,738 Materia]s and supplies inventory. . . . . . 226,689 14,465 241.154 T alaI assets. .. . . .. .. ....... S 8.558,835 $ 2,800.] 75 $ 5.765.689 $ 2.734.653 $ 19,859352 Liabilities: Accounts payable . . . . . . S 72.38 I S $ 39.527 $ 30,814 $ 142.722 Contracts payable. . . . . .. . .. . . . . 1,199 419,781 40,126 461,106 Retainage payable. .. .. . . . . . . . . 131.547 131.547 Accrued wages and benefits. . . . . . . . 166.354 4,397 170,751 Due to other funds. . . . . . . . . 7,406 7,406 Due to other governments. . . . . . .. . ... 119,481 275,4 I 2 20,543 415,436 Deferred revenue. . . . . . . . . . . . . 1,563,357 2,524,699 241,814 304.1 08 4,633,978 T otalliabilities. . . .. . . . .. . . 1.930,178 2,524.699 1,108.08 ] 399,988 5,962,946 Fund Balances: Reserved for encumbrances. . . . . .. . . . . 278,651 ] ,205,952 ] 15,725 1,600,328 Reserved for prepayments. . . .. . . . . .. . 113,738 1]3,738 Reserved for materials and supplies inventory. . 226,689 14.465 241.154 Reserved for unclaimed monies. . 10,264 10,264 Reserved for debt service. . . . . . .. .. .. 275,476 275,476 Unreserved: Designated for sewer line repair. . . . . .. 195,990 195,990 Undesignated, reported in: General fund. . . . . . . . " .. .. .. 5,803,325 5,803,325 Special revenue funds. . 1,625,145 1.625,145 Capital projects funds. 3,451.656 579.330 4,030,986 T alaI fund balances. .. .. """" 6,628.657 275,476 4,657.608 2,334,665 13,896,406 Total liabilities and fund balances. . . . $ 8,558,835 $ 2,800. I 75 $ 5,765,689 $ 2,734.653 $ 19,859,352 SEE ACCOMPANYING NOTES TO THE BASIC FINANCIAL STATEMENTS 17 .- CITY OF F AIRLA WN, OHIO RECONCILlA TION OF TOTAL GOVERNMENTAL FUND BALANCES TO NET ASSETS OF GOVERNMENTAL ACTIVITIES DECEMBER 3 J. 2003 Total governmental fund balances Amounts reportedfhr g()\'(~,.nmental activities in the statement olllet assets are dillerel1l because: Capital assets used in govel11mcntal activities are not financial resources and therefore are not repol1ed in the ti.1I1ds. Other long-term assets are not available to pay for current period expenditures and therefore are deferred in the ti.mds. Income taxes Investment income Special assessments Licenses and pel1Tlits Rentals Other Intergovernmental revenues $ Total Long-telm liabilities are not due and payable in the current period and therefore are not repol1ed in the funds. Thc long-tenll liabilities are as follows: Accmed interest payable General obligation bonds Special assessment bonds Pension obligations OPWC loans Compensated absences (64,387) (10,065,000) (1,] 80,000) (]00,56]) (722,753) (1,016,900) Net assets of governmental activities SEE ACCOMPANYING NOTES TO THE BASIC FINANCIAL STATEMENTS 18 725.259 26,00] 2,524,699 20,387 3,450 278 562,086 $ 13,896,406 70,402,838 3,862,160 (13,149,60]) s 75,0]] ,803 CITV OF F AIRLA WI\, OHIO STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS FOR HIE YEAR ENDED DECEMBER 3 1,2003 Other Total Bond Capital Governmental Go\'ernmental General Retirement Improvement Funds Funds Revenues: Income taxes. $ 4,898,934 $ S 2,276,527 $ $ 7,175,461 Property and other taxes. . 624.444 337,5]0 961,954 Charges tor services. . . . .. . . 17.625 327,321 344,946 Licenses and permits. . . . 81.391 59,898 141,289 Fines and forfeitures. . . . . .. . . .. . . 201,790 70.873 272,663 Intergovernmental. 571.067 798,504 313.260 1,682,831 JEDD revenue. . . .. . . . 2,074. I 08 2,074, I 08 Special assessments. 338,267 338,267 Investment income. . . . , . . . 181.945 8.565 ]90,510 Rentals. . . . . . .. . ... . .. 44.850 16,226 61,076 Contributions and donations. .. .... .. 2.000 8,785 10,785 Other. . . . . ... . . 50.173 6.153 56,326 Total revenues. . . . .. . . , . . 8.748.327 338.267 3.075,03 I 1,148,591 13.310,216 Expenditures: Current: General government. 2,047,151 13.290 2,060,441 Security of persons and property . .. .. . 4.343.326 547.329 4,890,655 Public health services. . . . . . . . . . . . 109,066 109,066 Transportation. .. . . . . .. . .. .. . . 1,543,697 208.675 1,752,372 Community environment . .. ...... 29.324 29,324 Basic utility services. .. .. ...... 140.898 203,511 344.409 Leisure time activities. 35.796 267,960 303,756 ]ntergovernmental. . . . .. . . . . 275.412 275,412 Capital outlay. . . . .. .. . . . . . 8,352.957 170,843 8,523,800 Debt service: Principal retirement. . . . . . . . . . 155,289 445,000 600.289 Interest and fiscal charges. 134,758 492.839 627,597 Total expenditures. . .. . .. . . . .. . . . 8,249,258 303,337 9.566.208 1.398,318 19,517,]21 Excess (deficiency) of revenues over (under) expenditures. . . . 499,069 34.930 (6.491.1 77) (249,727) (6,206,905) Other financing sources (uses): Proceeds from sale of capital assets 7,900 7,900 Transfers in . ., . .. .... .. 3,000,000 357,500 3,357,500 Transfers out ...... ...... ... (3,357,500) (3,357,500) Total other financing sources (uses) (3,349.600) 3,000,000 357,500 7,900 Net change in fund balances. . . . . . (2,850,531) 34,930 (3,491,177) 107,773 (6,]99,005) Fund balances at beginning of year (restated), 9,410,724 240,546 8,148,785 2,225.235 20,025,290 Increase in reserve for inventory. . . . . . . . 68,464 1,657 70.121 Fund balances at end of year .. ....... . $ 6,628.657 $ 275,476 $ 4.657,608 S 2,334.665 S 13,896.406 SEE ACCOMPANYING NOTES TO HIE BASIC FINANCIAL STATEMENTS 19 CITY OF FAIRLA WN, OHIO RECONCILIATION OF THE STATEMENT OF REVENUES. EXPENDfTURES, AND CHANGES IN FUND BALANCES OF GOVERNMENTAL FUNDS TO THE STATEMENT OF ACTlVlTIES FOR THE YEAR ENDED DECEMBER 31. 2003 Net change in fund balances - total governmental funds Amounts reportedfin" governmental acNvities in the stalement of aclil'ilies are dirferel1l because: Government funds report capital outlays as expenditures. However, in the statemem of activities, the cost of those assets are allocated over their estimated useful lives as depreciation expense. This is the amount by which capital outlays ($6,596,507) exceeded depreciation expense ($1,773,371) in the current period. Governmental funds only report the disposal of capital assets to the extent proceeds are received from the sale. In the statement of activities, a gain or loss is reported for each disposal. Revenues in the statement of activities that do not provide current financial resources are not reported as revenues in the funds. Governmental funds report expendirures for inventory when purchased. However, in the statement of activities, they are rep0l1ed as an expense when consumed. Repayment of bond and loan principal is an expenditure in the governmental funds, but the repayment reduces long-term liabilities in the statement of net assets. In the statement of activities, interest is accrued on outstanding bonds and loans whereas in governmental funds, an interest expenditure is reported when due. Some expenses reported in ¡he statement of activities, such as compensated absences and pension obligations, do not require the use of current financial resources and therefore are not reported as expenditures in governmental funds. s (6,1 99.0(5) 4,823,136 (19,337) 28,714 70,121 600,289 47,418 73.683 Change in net assets of governmental activitie! (574,981) s SEE ACCOMPANYING NOTES TO THE BASIC FINANCIAL STATEMENTS 20 .... ! .~-_..~- , CITY OF FAIRLAWN, OHIO STATEMENT OF REVENUES. EXPENDlTURES, AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL (NON-GAAP BUDGETARY BASIS) GENERAL FUND FOR THE YEAR ENDED DECEMBER 31, 2003 Budgeted Amounts Revenues: Income taxes. . . Property and other taxes. . . . . . . . . . Charges for services. .. .... .. Licenses and pemlits. . . . Fines and forfeitures. . . . . Intergovel11menta I . ...... JEDD revenue. .. "" Investment income. . . Rentals. . . . .. .......... Contributions and donations. . .. .. Other.. .. .. .. . Total revenues. . . Original Actual Final $ 3.783,828 668.512 9,000 65,950 172,000 782.492 3.000,000 345,147 35,000 $ 4,121,328 575,392 9,000 65,950 ] 72,000 609.520 2,050,000 195,147 35,000 $ 4.849,345 671,329 19.674 81.354 204.594 633,671 2,074,108 194.494 44,850 2,000 50.073 8.825.492 . . . - . .. .. - . . . . . . . . . 124.087 8,986,0] 6 48,500 7,881,837 .. . . . . . . . . . . . . . Expenditures: Current: Genera] govel11ment . . . . . . .. ... Security of persons and property. Public health services. . . . Transportation. . . . . . . . .. .. Community environment. . . .. """ Basic utility services. . . . . .. ...... Leisure time activities. . . . . Total expenditures. . . 2,393,132 4,858,507 108.394 1,514,555 29,\50 145,615 38.395 9,087,748 2,719.634 4.728,748 109,095 1.70 I ,244 32,900 151,655 39.726 9.483,002 2.387,074 4,378,674 109,066 1,623,678 29,324 142.748 36,556 8,707,120 Excess (deficiency) of revenues over (under) expenditures. . . . ( 10 1.732) (1,60 LI 65) 118.372 Other financing sources (uses): Proceeds from sale of capital assets. Transfers out. . . . . . . . . . . . Total other financing sources (uses) . (2,695,001 ) (2,695.00] ) 0.738.50] ) 0.738.501 ) 7,900 (3.357,500) (3.349.600) . . . . .- Net change in fund balance. . . . (2,796,733) (5.339,666) (3,231,228) Fund balance at beginning of year. " . . . . . . Prior year encumbrances appropriated. . . . . . 8,499,605 285.125 8,499,605 285,\ 25 8,499,605 285,\ 25 Fund balance at end of year. . . . . $ 5.987,997 $ 3.445,064 $ 5.553.502 """ . SEE ACCOMPANYING NOTES TO THE BASIC FINANCIAL STATEMENTS 21 >.-.- Variance with Final Budget Positive (Negative) $ 728.017 95,937 10.674 15.404 32,594 24.15] 24,108 (653) 9,850 2,000 1.573 943,655 332.560 350,074 29 77,566 3.576 8,907 3.170 775.882 1,719,537 7,900 381,00 I 388,901 2,108,438 $ 2.108,438 CITY OF FAIRLA WN. OHIO STATEMENT OF FIDUCIARY NET ASSETS FIDUCIARY FUND DECEMBER 31. 2003 Agencv Assets: Equity in pooled cash and cash equivalents. Total assets. $ 79.409 . . . . . . . . . . . . . . . . .. . . . . Liabilities: Undistlibuted monies. . .. . . . . . . . . . . . 79.409 79.409 Total liabilities . . . . . . . . . . . . s 79.409 SEE ACCOMPANYING NOTES TO THE BASIC FINANCIAL STATEMENTS - 22 CITY OF FAIRLAWN, OHIO NOTES TO THE BASIC FINANC]AL STATEMENTS FOR THE YEAR ENDED DECEMBER 3 I, 2003 NOTE I - DESCRIPTION OF THE CITY The City of Fairlawn (the "City") is a charter municipal corporation established and operated under the laws of the State of Ohio. The City is organized as a Mayor/Council lìmn of government. The Mayor, Council and Finance Director are elected. NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The basic financial statements (BFS) of the City have been prepared in conformity with accounting principles generally accepted in the United States of America (GAAP) as applied to loca] governmental units. The Governmental Accounting Standards Board (GASB) is the accepted standard-setting body for establishing governmental accounting and financial principles. The City applies Financial Accounting Standards Board (FASB) Statements and Interpretations issued on or before November 30, 1989, to its governmental activities provided they do not conflict with or contradict GASB pronouncements. The most significant of the City's accounting policies are described below. A. Reporting Entity For financial reporting purposes, the City's BFS include all funds, agencies, boards, commissions, and departments for which the City is financially accountable. financial accountability, as defined by the GASB, exists if the City appoints a voting majority of an organization's governing board and is either able to impose its will on that organization or there is a potential for the organization to provide specific financial benefits to, or impose specific burdens on, the City. The City may also be financially accountable for governmental organizations with a separately elected governing board, a goveming board appointed by another government, or a jointly appointed board that is fiscally dependent on the City. The City also took into consideration other organizations for which the nature and significance of their relationship with the City are such that exclusion would cause the City's basic financial statements to be misleading or incomplete. Based on these criteria, the City has no component units. The City provides various services including police and fire protection, emergency medical, recreation (including parks), planning, zoning, street maintenance and repair, and genera] administrative services. The operation of each of these activities is directly controlled by the Council through the budgetary process. None of these services are provided by a legally separate organization; therefore, these operations are included in the primary government. The Copley/Fairlawn City School District and the Summit County Public Library have been excluded from the City's financial statements. Both are legally separate from the City. Neither impose a financial burden nor provide a financial benefit to the City. The City cannot significantly influence the operations of these entities. The City participates in the Bath-Akron-fairlawn Joint Economic Development District (JEDD), which is a jointly governed organization. The JEDD was created to assure the continued economic viability of Bath Township. A nine-member board of directors, three appointed from Bath Township, Akron, and FairIawn, respectively, controls the operation of the JEDD. The board exercises total control over the operation of the JEDD including budgeting, appropriating, contracting and designating management. Each participant's degree of control is limited to its representation on the board. All 2003 JEDD revenues were the result of the income tax levied by the JEDD effective January I, ]999. ")' ~,) !' CITY OF F AIRLA WN, OHIO NOTES TO THE BASIC FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2003 NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued) B. Basis of Presentation - Fund Accounting The City's BFS consist of government-wide statements, including a statement of net assets and a statement of activities, and fund financial statements which provide a more detailed level of financial information. Govemment-JVide Financial Statements - The statement of net assets and the statement of activities display infonnation about the City as a whole. These statements indude the financial activities of the primary government, except for fiduciary funds. The statement of net assets presents the financial condition oftbe governmental activities of the City at year-end. The statement of activities presents a comparison between direct expenses and program revenues for each program or function of the City's governmental activities. Direct expenses are those that are specifically associated with a service, program or department and therefore clearly identifiable to a particular function. Program revenues include charges paid by the recipient of the goods or services offered by the program. grants and contributions that are restricted to meeting the operational or capital requirements of a particular program and interest earned on grants that is required to be used to support a particular program. Revenues which are not dassified as program revenues are presented as general revenues of the City, with certain limited exceptions. The comparison of direct expenses with program revenues identifies the extent to which each governmental function is se1f~financing or draw from the general revenues of the City. Fund Financial Statements - During the year, the City segregates transactions related to certain City functions or activities in separate íùnds in order to aid íinancial management and to demonstrate legal compliance. Fund financial statements are designed to present financial infonnation of the City at this more detailed level. The focus of governmental fund íinancial statements is on major funds. Each major fund is presented in a separate column. Nonmajor funds are aggregated and presented in a single column. Fiduciary funds are reported by type. C. Fund Accounting The City uses funds to maintain its financial records during the year. A fund is defined as a fiscal and accounting entity with a self balancing set of accounts. The City has two categories of funds: governmental and fiduciary. Governmental Funds - Governmental funds are those through which most governmental functions typically are financed. Governmental fund repoliing focuses on the sources, uses and balances of current financial resources. Expendable assets are assigned to the various governmental funds according to the purposes for which they mayor must be used. Current liabilities are assigned to the fund from which they will be paid. The difference between governmental fund assets and liabilities is reported as fund balance. The following are the City's major governmentaJ funds: General Fund - The general fund accounts for all financial resources except those required to be accounted for in another fund. Bond Retirement - The bond retirement fund accounts for the accumulation of resources for, and payment of, Jong-tenn debt principaJ, interest and related costs. Cavitallmvrovemenl - This fund is used to account for the acquisition and construction of major capital facilities. 24 CITY OF F AIRLA WN, OHIO NOTES TO THE BASIC FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2003 NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued) Other governmental funds of the City are used to account for (a) the accumulation ofresources for. and payment of, general long-term debt principal. interest and related costs; (b) financial resources to be used for the acquisition, construction, or improvement of capital facilities; and (C) for grants and other resources whose use is restricted to a particular purpose. Fiduciary Funds - Fiduciary fund reporting focuses on net assets and changes in net assets. The fiduciary fund category is split into four classifications: pension trust funds. investment trust funds, private-purpose trust funds and agency funds. Trust funds are used to account for assets held by the City under a trust agreement for individuals, private organizations, or other governments and are therefore not available to support the City's own programs. Agency funds are custodial in nature (assets equal liabilities) and do not involve measurement of results of operations. The City's only fiduciary funds are agency funds used to hold refundable deposits. D. Measurement Focus Government-wide Financial Statements - The government-wide financial statements are prepared using the economic resources measurement focus. All assets and all liabilities associated with the operation of the City are included on the statement of net assets. Fund Financial Statements - All governmental funds are accounted for using a flow of current financial resources measurement focus. With this measurement focus, only current assets and current liabilities generally are included on the balance sheet. The statement of revenues, expenditures and changes in fund balances reports on the sources (i.e., revenues and other financing sources) and uses (i.e., expenditures and other financing uses) of current financial resources. This approach differs from the manner in which the governmental activities of the government-wide financial statements are prepared. Governmental fund financial statements therefore include a reconciliation with brief explanations to better identify the relationship between the government-wide statements and the financial statements for governmental funds. E. Basis of Accounting Basis of accounting detennines when transactions are recorded in the financial records and reported on the financial statements. Government-wide financial statements are prepared using the accrual basis of accounting. Governmental funds use the modified accrual basis of accounting. Agency funds also use the accrual basis of accounting. Differences in the accrual and modified accrual basis of accounting arise in the recognition of revenue, the recording of deferred revenue and in the presentation of expenses versus expenditures. Revenues - Exchange and Non-exchange Transactions - Revenue resulting from exchange transactions, in which each party gives and receives essentially equal value, is recorded on the accrual basis when the exchange takes place. On a modified accrual basis, revenue is recorded in the tìscal year in which the resources are measurable and become available. Available means that the resources will be collected within the current fiscal year or are expected to be colk:cted soon enough thereafter to be used to pay liabilities of the current fiscal year. For the City, available means expected to be received within thirty-one days of year-end. 25 CITY OF FAIRLAWN, OHIO NOTES TO THE BASIC FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 3 1,2003 NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued) Nonexchange transactions, in which the City receives value without directly giving equal value in return, include income taxes, property taxes, grants, entitlements and donations. On an accrual basis, revenue from income taxes is recognized in the period in which the income is earned (See Note 7). Revenue from property taxes is recognized in the year for which the taxes are levied (See Note 6). Revenue from grants, entitlements and donations is recognized in the year in which all eligibility requirements have been satisfied. Eligibility requirements include timing requirements, which specify the year when the resources are required to be used or the year when use is first permitted, matching requirements, in which the City must provide local resources to be used for a specified purpose, and expenditure requirements, in which the resources are provided to the City on a reimbursement basis. On a modified accrual basis, revenue from nonexchange transactions must also be available before it can be recognized. Under the modified accrual basis, the following revenue sources are considered to be both measurable and available at year-end: income tax, state-levied locally shared taxes (including gasoline tax, local government funds and permissive tax), fines and forfeitures, fees and special assessments. Deferred Revenue - Deferred revenue arises when assets are recognized before revenue recognition criteria have been satisfied. Property taxes for which there is an enforceable legal claim as of December 3 L 2003, but which were levied to finance year 2004 operations, have been recorded as deferred revenue. Special assessments not received within the available period and grants and entitlements received before the eligibility requirements are met are also recorded as deferred revenue. On governmental fund financial statements, receivables that will not be collected within the available period have also been reported as deferred revenue. Expenses/Expenditures - On the accrual basis of accounting, expenses are recognized at the time they are incurred. The measurement focus of governmental fund accounting is on decreases in net financial resources (expenditures) rather than expenses. Expenditures are generally recognized in the accounting period in which the related fund liability is incurred, if measurable. Allocations of cost, such as depreciation and amortization, are not recognized in governmental funds. F. Budgetary Data The budgetary process is prescribed by provisions of the Ohio Revised Code and entails the preparation of budgetary documents within an established timetable. The major documents prepared are the tax budget, the certificate of estimated resources and the appropriations resolution, all of which are prepared on the budgetary basis of accounting. The certificate of estimated resources and the appropriations ordinance are subject to amendment throughout the year with the legal restriction that appropriations cannot exceed estimated resources, as certified. For all funds, Council appropriations are made at the object level within each department. This is known as the legal level of budgetary control. Budgetary modifications may only be made by resolution of the City Council at the legal level of control. All funds, other than agency funds, are legally required to be budgeted and appropriated. 26 CITY OF FAIRLA WN, OHIO NOTES TO THE BASIC FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2003 NOTE 2 - SUMMARY 01. SIGNIFICANT ACCOUNTING POLICIES - (Continued) Tax Budget- Alternative tax budget information of estimated revenue and expenditures for all funds is submitted to tbe Summit County Fiscal Officer, as Secretary of the County Budget Commission, by July 20 of each year, for the period January I to December 3] of the following year. Estimated Resources - The County Budget Commission determines if the budget substantiates a need to levy all or part of previously authorized taxes and reviews estimated revenue. The Commission certifies its actions to the City by September I. As part of this certification, the City receives the official certificate of estimated resources, which states the projected revenue of each fund. Prior to December 31, the City must revise its budget so that the total contemplated expenditures from any fund during the ensuing fiscal year will not exceed the amount available as stated in the certificate of estimated resources. The revised budget then serves as the basis for the annual appropriations measure. On or about January], the certificate of estimated resources is amended to include encumbrances and cash balances at December 31 of the preceding year. The certificate may be further amended during the year if the City Finance Director detennines, and the Budget Commission agrees, that an estimate needs to be either increased or decreased. The amounts reported on the budgetary statement reflect the amounts in the final amended ofíìcial certificate of estimated resources issued during 2003. Appropriations - A temporary appropriation ordinance to control expenditures may be passed on or about January I of each year for the period January I to March 31. An annual appropriation ordinance must be passed by April I of each year for the period January I to December 31. The appropriation ordinance fixes spending authority at the fund, department and object level. The appropriation ordinance may be amended during the year as new infonnation becomes available, provided that total fund appropriations do not exceed current estimated resources, as certified. The appropriations for a fund may only be modified during the year by an ordinance of Council. The amounts on the budgetary statement reflect the final appropriation amounts, including all amendments and modifications legally enacted by Council. Lapsing of Appropriations - At the close of each year, the unencumbered balance of each appropriation reverts to the respective fund from which it was appropriated and becomes subject to future appropriations. Encumbrances are carried forward and are not reappropriated as part of the subsequent year appropriations. G. Cash and Cash Equivalents Cash balances of the City's funds are pooled and invested in investments maturing within five years in order to provide improved cash management. Individual fund integrity is maintained through City records. Each fund's interest in the pooled bank account is presented as "Equity in Pooled Cash and Cash Equivalents" on the financial statements. During fiscal year 2003, investments were limited to overnight repurchase agreements, certificates of deposit, money market tùnds and investments in the State Treasury Asset Reserve of Ohio (STAR Ohio). Except for nonparticipating investment contracts, investments are reported at fair value which is based on quoted market prices. Nonparticipating investment contracts, such as nonnegotiable certiticates of deposit, are reported at cost. 27 CITY OF F AIRLA WN, OHIO NOTES TO THE BASIC FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31. 2003 NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued) The City has invested funds in STAR Ohio during fiscal 2003. STAR Ohio is an investment pool managed by the State Treasurer's Office which allows governments within the State to pool their funds for investment purposes. STAR Ohio is not registered with the SEC as an investment company, but does operate in a manner consistent with Rule 2a7 of the Investment Company Act of 1940. Investments in STAR Ohio are valued at STAR Ohio's share price which is the price the investment could be sold for on December 3 I, 2003. Under existing Ohio statutes all investment earnings are assigned to the general fund unless statutorily required to be credited to a specific fund. During fiscal 2003, interest revenue credited to the general fund amounted to $181,945 which includes $108,509 assigned from other City funds. The City has segregated bank accounts for monies held separate from the City's central bank account. These interest bearing depository accounts are presented in the financial statements as "cash and cash equivalents in segregated accounts" since they are not required to be deposited into the City treasury. For purpose of presentation on the financial statements, investments of the cash management pool and investments with original maturities of three months or less at the time they are purchased by the City are considered to be cash equivalents. Investments with an initial maturity of more than three months are reported as investments. An analysis of the City's investment account at year-end is provided in Note 4. H. Inventories of Materials and Supplies On government-wide and fund financial statements, inventories are presented at the lower of cost or market on a first-in, first-out basis and are expended when used. Inventories are accounted for using the consumption method. On the fund financial statements, reported material and supplies inventory is equally offset by a fund balance reserve in the governmental funds which indicates that it does not constitute available spendable resources even though it is a component of net current assets. Inventory consists of expendable supplies held for consumption. I. Capital Assets These assets generally result from expenditures in the governmental funds. These assets are reported in the govemmental activities column of the government-wide statement of net assets but are not reported in the fund fi¡;¡ancial statements. All capital assets are capitalized at cost (or estimated historical cost) and updated for additions and retirements during the year. Donated capital assets are recorded at their fair market values as of the date received. The City maintains a capitalization threshold of $5,000. The City's infrastructure consists of roads, bridges, curbs and gutters, streets and sidewalks, drainage systems and lighting systems. Improvements are capitalized; the costs of normal maintenance and repairs that do not add to the value of the asset or materially extend an asset's life are not. 28 CITY OF F AIRLA WN, OHIO NOTES TO THE BASIC FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31. 2003 NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued) All reported capital assets are depreciated except for land and construction in progress. Improvements are depreciated over the remaining useful lives of the related capital assets. Useful lives for infrastructure were estimated based on the City's historical records of necessary improvements and replacement. Depreciation is computed using the straight-line method over the following useful lives: DescriPtion Governmental Activities Estimated Lives Land improvements Buildings Machinery and Equipment Licensed Vehicles Infrastructure 25 - 75 years 15 - 50 years 5 - 30 years 3 - 25 years J 0 - 60 years J. Compensated Absences Vacation benefits are accrued as a liability as the benefits are earned if the employees' rights to receive compensation are attributable to services already rendered and it is probable that the City will compensate the employees for the benefits through paid time off or some other means. The City records a liability for accumulated unused vacation time when earned for all employeès with more than one year of service. Sick leave benefits are accrued as a liability using the vesting method. The liability includes employees currently eligible to receive tennination benefits and those the City has identified as probable of receiving benefits in the future. The amount is based on accumulated sick leave and the employees' wage rates at fisca] year end, taking into consideration any limits specified in the City's tennination policy. The City records a liability for accumulated unused sick leave for all employees hired before December 31, 1991. The entire compensated absence liability is reported on the government-wide financial statements. K. Accrued Liabilities and Long-Term Obligations All payables, accrued liabilities and Jong-tenn obligations are repOlied in the government-wide financial statements. In general, governmental fund payables and accrued liabilities that, once incurred, are paid in a timely manner and in full from current financial resources are reported as obligations of the funds. However, claims and judgments, compensated absences, and contractually required pension contributions that will be paid from governmental funds are reported as a liability in the fund financial statements only to the extent that they are due for payment during the current year. L. Interfund Balances On fund financial statements, receivables and payables resulting from short-tenn interfund loans are classified as "interfund receivables/payables", receivables and payabJes resulting from goods or services provided between funds are classified as "due to/from other funds" and long-tenn interfund loans are classified as "advances to/from other funds" on the balance sheet and are equally offset by a fund balance reserve account which indicates that they do not constitute available expendable resources. These amounts are eliminated in the governmental columns of the statement of net assets. 29 1- CITY OF F AIRLA WN, OHIO NOTES TO THE BASIC FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 3 ¡,20m NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued) M. Interfund Activity Exchange transactions between funds are reported as revenues in the seHer funds and as expenditures/expenses in the purchaser funds. Flows of cash or goods from one fund to another without a requirement for repayment are reported as interfund transfers. Interfund transfers are reported as other financing sources/uses in governmental funds. Repayments from funds responsible for particular expenditures/expenses to the funds that initiaHy paid for them are not presented on the BFS. N. Fund Balance Reserves and Designations Reserved or designated fund balances indicate that portion of fund equity which is not available for current appropriation or use. The unreserved and undesignated portions of fund equity reflected in the governmental tùnds are available for use within the specific purposes of the funds. The City reports a reservation of fund balance for amounts representing encumbrances outstanding, prepaid expenditures. unclaimed monies. materials and supplies inventory. and amounts restricted for debt service payments in the governmental fund financial statements. The City reports amounts set-aside by City Council for sewerline repairs as a designation of fund balance in the governmental funds. O. Estimates The preparation of the BFS in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the BFS and accompanying notes. Actual results may differ from those estimates. P. Net Assets 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 the enabling legislation adopted by the City or through external restrictions imposed by creditors, grantors or laws or regulations of other governments. The City applies restricted resources first, when an expense is incurred for purposes for which both restricted and unrestricted net assets are availab]e. 30 CITY OF FAIRLAWN, OHIO NOTES TO THE BASIC FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 3 L 2003 NOTE 3 - ACCOUNTABILITY AND COMPLIANCE Changes in Accounting Principles and Restatement of Fund Balance For fiscal year 2003, the City has implemented GASB Statement No. 34, "Basic Financial Statements - and Management's Discussion and Analvsis - for State and Local Governments", GASB Statement No. 37, "Basic Financial Statements for State and Local Governments: Omnibus", GASB Statement No. 38, "Certain Financial Statement Note Disclosures", GASB Statement No. 41. "Budgetarv ComDarison Schedule - Perspective Differences", and GASB Interpretation No.6, "Recognition and Measurement of Certain Liabilities and Expenditures in Governmental Fund Financial Statements". At December 3 1,2002, there was no etTect on fund balance as a result of implementing GASB Statements Nos. 37, 38 and 41. GASB Statement No. 37 clarifies certain provisions of Statement No. 34, including the required content of the Management Discussion and Analysis, the classification of program revenues and the criteria for detennining major funds. GASB Statement No. 38, modifies, establishes and rescinds certain financial statement note disclosures. GASB Statement No. 41 allows the presentation of budgetary schedules as required supplementary infonnation based on the fund, organization or program structure that the government uses for its legally adopted budget when significant budgetary perspective differences result in the City not being able to present budgetary comparisons for the general and each major special revenue fund. GASB Interpretation No.6 clarifies the application of standards for modified accrual recognition of certain liabilities and expenditures in areas where differences have arisen, or potentially could arise, in interpretation and practice. GASB Statement No. 34 creates new basic financial statements for reporting on the City's financial activities. The basic financial statements now include govemment-wide financial statements prepared on an accrual basis of accounting and fund financial statements which present infornmtion for individual major funds rather than by fund type. Nomnajor funds are presented in total in one column. The government-wide financial statements show the City's programs for governmental activities. The beginning net asset amount for governmental activities reflects the change in fund balance for governmental funds at December 31, 2002 and the conversion to the accrual basis of accounting. In addition to implementing GASB Statement No. 34, the City switched from the purchase method to the consumption method of accounting for inventory of materials and supplies. This change in accounting principle had no effect on fund balance at December 31, 2002. Governmental Activities - Restatement of Fund Balance - It was detennined that GASB Interpretation No. 6 had an effect on fund balances as previously reported at December 3 I, 2002. A restatement is also presented to include the intergovernmental payable previously reported in the general long-tenn obligations account group as a fund liability since it was due and payable at year-end. 31 ¡ T' CITY OF F AIRLA WN, OHIO NOTES TO THE BASIC FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31. 2003 NOTE 3 - ACCOUNTABILITY AND COMPLIANCE - (Continued) Bond Capital General Retirement Improvement Nonmaior Tota] Fund balance December 31, 2002 $ 9,386,555 $ 240,546 $ 8, 148,785 S 2,224,961 $20,000.847 GASB Interpretation No.6 adjustmen1s 24,169 274 24.443 Restated fund balance December 31. 2002 $ 9,4]0,724 $ 240,546 $ 8, 148,785 $2,225,235 $20.025290 The transition from governmental fund balance to net assets of the governmental activities is also presented. December 31, 2002 S 20,025,290 GASB Statement No. 34 adjustments: Capita] assets Long-term liabilities Long-term (defetTed assets) Pension obligations Accrued interest payable 65,599,039 (l3.57l.975) 3,833.446 (187,211) (111.805) Governmenta] activities net assets, December 31, 2002 $ 75,586,784 NOTE 4 - EQUITY IN POOLED CASH AND CASH EQUIVALENTS Monies held by the City are classified by State statute into three categories: Active deposits are public deposits necessary to meet cutTent demands on the treasury. Such monies must be maintained either as cash in the City Treasury, in commercial accolmts payable or withdrawable on demand, including negotiable order of withdrawal (NOW) accounts, or in money market deposit accounts. Inactive deposits are public deposits that Council has identified as not required for use within the cutTent five year period of designation of depositories. Inactive deposits must be evidenced by certificates of deposit maturing not later than the end of the current period of designation of depositories, or by savings or deposit accounts including, but not limited to, passbook accounts. Interim deposits are deposits of interim monies. Interim monies are those monies which are not needed for immediate use but which will be needed before the end of the cutTent period of designation of depositories. Interim monies may be deposited or invested in the following: 1. United States Treasury Notes, Bills, Bonds, or any other obligation or security issued by the United States Treasury or any other obligation guaranteed as to principal or interest by the United States; 32 CITY OF FAIRLAWN, OHIO NOTES TO THE BASIC FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2003 NOTE 4 - EQUITY IN POOLED CASH AND CASH EQUIVALENTS - (Continued) 2. Bonds, notes, debentures, or any other obligations or securities issued by any federal government agency or instrumentality, including but not limited to, the Federal National Mortgage Association, Federal Home Loan Bank, Federal Farm Credit Bank, Federal Home Loan Mortgage Corporation, Government National Mortgage Association, and Student Loan Marketing Association. All federal agency securities shall be direct issuances of federal government agencies or instrumentalities; 3. Written repurchase agreements in the securities listed above provided that the market value of the securities subject to the repurchase agreement must exceed the principal value of the agreement by at least two percent and be marked to market daily, and that the tenn of the agreement must not exceed thirty days; 4. Bonds and other obligations of the State of Ohio; 5. No-load money market mutual funds consisting exclusively of obligations described in division (I) or (2) and repurchase agreements secured by such obligations, provided that investments in securities described in this division are made only through eligible institutions; 6. The State Treasury Asset Reserve of Ohio investment pool (STAR Ohio); 7. High grade commercial paper for a period not to exceed 180 days in an amount not to exceed twenty- five percent of the City's interim monies available for investment; and 8. Bankers acceptances for a period not to exceed 180 days and in an amount not to exceed twenty-five percent of the City's interim monies available for investment. The City may also invest any monies not required to be used for a period of six months or more in the following: 1. Bonds of the State of Ohio; 2. Bonds of any municipal corporation, village, county, township, or other political subdivision of this state, as to which there is no default of principal, interest or coupons; 3. Obligations of the City. Protection of the City's deposits is provided by the Federal Deposit Insurance Corporation (FDIC), by eligible securities pledged by the financial institution as security for repayment, by surety company bonds deposited with the Finance Director by the financial institution or by a single collateral pool established by the financial institution to secure the repayment of all public moneys deposited with the institution. Investments in stripped principal or interest obligations, reverse repurchase agreements and derivatives are prohibited. The issuance of taxable notes for the purpose of arbitrage, the use of leverage and short selling are also prohibited. An investment must mature within five years from the date of purchase unless matched to a specific obligation or debt of the City, and must be purchased with the expectation that it will be held to maturity. Investments may only be made through specified dealers and institutions. Payment for investments may be made only upon delivery of the securities representing the investments to the Finance Director or qualified trustee or, if the securities are not represented by a certificate, upon receipt of confinnation of transfer from the custodian. 33 CITY OF FAIRLAWN, OHIO NOTES TO THE BASIC FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2003 NOTE 4 - EQUITY IN POOLED CASH AND CASH EQUIVALENTS - (Continued) Cash on Hand: At year-end, the City had S I ,400 in un-deposited cash on hand which is included on the financial statements of the City as part of "Equity in Pooled Cash and Cash Equivalents". Cash in Segregated Accounts: At year-end, the City had 52.480 deposited with a financial institution for monies related to income tax refunds and 544.445 related to the Mayors Court which is reported as a component of the City's general fund. These amounts are included in the City's depository balance below. The following information classifies deposits and investments by categories of risk as defined in GASB Statement No.3, "Deposits With Financial Institutions. Investments (including Repurchase Agreements). and Reverse Repurchase Agreements". Deposits: At year-end, the carrying amount of the City's deposits was 57,263,788 and the bank balance was 57,631,112. These amounts include 53,522,954 in nonnegotiable certificates of deposits, $4,000,000 in a money market savings account and 546,925 in cash in segregated accounts. Of the bank balance: I. 5308,158 was covered by federal depository insurance; and 2. $7,322,954 was uninsured and uncollateralized as defined by GASB even though it was covered by collateral held by third party trustees pursuant to Section 135.81, Ohio Revised Code, in single institution collateral pools securing all public funds on deposit with specific depository institutions. Although all state statutory requirements for the deposit of money had been followed, non-compliance with federal requirements could potentially subject the City to a successful claim by the FDIC. Investments: The City's investments are required to be categorized to give an indication of the level of risk assumed by the City at year-end. Category I includes investments that are insured or registered or for which the securities are held by the City or its agent in the City's name. Category 2 includes uninsured and unregistered investments for which the securities are held by the counterparty's trust department or agent in the City's name. Category 3 includes uninsured and unregistered investments for which the securities are held by the counterparty, or by its trust department or agent, but not in the City's name. Investments in STAR Ohio is an unclassified investment since it is not evidenced by securities that exist in physical or book fonn. Repurchase agreement Investment in STAR Ohio Category 3 $ 945,695 Reported Amount Fair Value 5 945,695 5,677.834 $ 945,695 5,677.834 Total investments $ 945,695 S 6,623,529 $ 6,623,529 The classification of cash and cash equivalents on the tìnancial statements is based on criteria set forth in GASB Statement No.9, "ReDorting Cash Flows of ProDrietarv and Nonexpendable Tmst Funds and Governmental Entities That Use Proprietarv Fund Accounting". 34 CITY OF F AIRLA WN, OHIO NOTES TO THE BASIC FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31,2003 NOTE 4 - EQUITY IN POOLED CASH AND CASH EQUIVALENTS - (Continued) A reconciliation between the classifications of cash and cash equivalents on the financial statements (per GASB Statement No.9) and the classifications of deposits and investments presented above per GASB Statement No.3 is as follows: GASB Statement NO.9 Investments of the cash management pool: Investment in STAR Ohio Cash and Cash Equivalents! Deoosits Investments S 13,888,717 $ (5,677,834) 5,677,834 (945,695) 945,695 (1,400) $ 7,263.788 $ 6,623.529 Repurchase agreement Cash on hand GASB Statement NO.3 NOTE 5 - INTERFUND TRANSACTIONS A. Due from!to other funds consisted of the following at December 31, 2003, as reported on the fund financial statements: ~, " Due From Due To General Nonmajor governmental s 7,406 These balances resulted from a time lag between the dates that (1) interfund goods and services are provided, (2) transactions are recorded in the accounting system, and (3) payments between funds are made. B. Interfund transfers for the year ended December 31,2003, consisted of the following, as reported in the fund financial statements: Transfers from Transfers to General Capital Improvement $ 3,000,000 Nonmajor governmental 357.500 $ 3,357,500 Transfers are used to (I) move revenues from the fund that statute or budget requires to collect them to the fund that statute or budget requires to expend them, (2) move receipts restricted to debt service from the funds collecting the receipts to the debt service fund as debt service payments become due, and (3) use unrestricted revenues collected in the general fund to finance various programs accounted for in other funds in accordance with budgetary authorizations. 35 CITY OF FAIRLAWN, OHIO NOTES TO THE BASIC FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2003 NOTE 6 - PROPERTY TAXES Property taxes include amounts levied against all real, public utility, and tangible personal property located in the City. Real property taxes and public utility taxes are levied after October 1 on the assessed value as of the prior January 1, the tax lien date. Assessed values are established by state law at 35 percent of appraised market value, as established by the County Fiscal Officer. All real property is required to be revalued every six years. The last revaluation was completed in 2000. Real property taxes are payable annually or semiannually. The first payment for 2003 was due January 1, with the remainder payable June 20. Public utility real and tangible personal property taxes collected in one calendar year are levied on assessed values as of the prior January I, the lien date. Public utility tangible personal property currently is assessed at varying percentages of true value for taxable transmission and distribution property and 25 percent of true value for all other taxable property. Public utility property taxes are payable on the same dates as real property taxes described previously. Taxes collected on tangible personal property (other than public utility) in one calendar year are levied on the assessed values and at the cJose of the most recent fiscal year of the taxpayer (for businesses in operation more than one year) or December 31. Tangible personal property used in business (except for public utilities) is currently assessed for ad valorem taxation purposes at 23 percent of true value for inventory and 25 percent of true value for capital assets. Amounts paid by multi-county taxpayers are due September 20. Single county taxpayers may pay annua]]y or semiannually. If paid annua]]y, payment is due April 30, and if paid semiannua]]y, the first payment is due April 30, with the remainder payable by September 20. The first $10,000 of taxable value is exempt from taxation for each business by state law. Public utility property taxes are assessed on tangible personal property, as we]] as land and improvements. The County Fiscal Officer co]]ects property taxes on behalf of all taxing districts in the County, incJuding the City. The County Fiscal Officer periodically remits to the City its portion of the taxes co]]ected. The fu]] rate for al1 City operations for the year ended December 31, 2003, was 52.70 per $1,000 of assessed value. The assessed values of real and tangible personal property, upon which taxes for 2003 were co]]ected, are as fol1ows: Categorv Assessed Value Residential Commercial $ 160,666,960 129,751,840 Total real estate Public utility property 290.418,800 4,186,950 Tangible personal property 23,688.303 Grand total S 1 liP 94 OSi Accrued taxes receivable represent delinquent taxes outstanding and real, tangible personal, and public utility taxes which were measurable and unpaid as of December 31, 2003. Although total property tax collections for the next fiscal year are measurable, amounts to be received during the available period are not subject to reasonable estimation at December 31 and are not intended to finance 2003 operations. Accordingly, the receivable is offset by a credit to "Deferred Revenue." 36 CITY OF FAIRLAWN, OHIO NOTES TO THE BASIC FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31. 2003 NOTE 7 - LOCAL INCOME TAX The City levies a municipal income tax of 2 percent on gross salaries, wages, and other personal service compensation earned by residents of the City and on the earnings of nonresidents working within the City. This tax also applies to the net income of business operations within the City. Residents of the City are granted a credit of up to 2 percent for taxes paid to other municipalities. Employers within the City are required to withhold income tax on employee compensation and remit the tax to the City either monthly or qUaJ1erly, as required. Corporations and other individual taxpayers are required to pay their estimated tax quarterly and file a declaration annually. By City ordinance, income tax proceeds are credited as follows: the general fund receives 90 percent and the capital improvement fund receives 10 percent of the first 1.5 percent of the 2 percent income tax. The capital improvement fund receives the remaining .5 percent of the income tax. NOTE 8 - RECEIVABLES Receivables at December 31, 2003, consisted of taxes, accounts (billings for user charged services), accrued interest, special assessments. and intergovernmental receivables arising from grants, entitlements, and shared revenue. All intergovernmental receivables have been classified as "Due From Other Governments" on the BFS. Receivables have been recorded to the extent that they are measurable at December 3 I, 2003, as well as intended to finance fiscal 2003 operations. A summary of the principal items of receivables reported on the statement of net assets follows: " Governmental Activities: Income taxes Property and other taxes Accounts Accrued interest Special assessments Due from other governments S 1,596,708 793,916 37,437 26,001 2,524,699 708,985 $ 5.687.746 Total Receivables have been disaggregated on the face of the BFS. The only receivable not expected to be collected within the subsequent year are the special assessments which are collected over the life of the assessment. Delinquent special assessments due to the City were $15,591 as of December 3 1,2003. 37 CITY OF FAIRLA WN, OHIO NOTES TO THE BASIC FINANC[AL STATEMENTS FOR THE YEAR ENDED DECEMBER 3 1,2003 NOTE 9 - CAPITAL ASSETS A. The capital asset balances of the governmental activities have been restated due to errors and omissions in the amounts reported in the prior year; to account for the effect of increasing the capital asset repOliing threshold from $500 to $5,000, in 2003; and, to report accumulated depreciation and infrastructure in the governmental activities in accordance with GASB Statement No. 34. Restated Balance Balance Governmental Activities: 12/3] 102 Adiustments ]2131/02 Land $ 2,143,002 $ 127,715 $ 2,270,717 Land improvements 1,514,032 (327,268) [,186,764 Buildings 6,525,757 6,525,757 Machinery and equipment 3,589,11 [ (1,416,286) 2,172,825 Licensed vehicles 2,562,539 81,635 2.644.174 Infrastructure 67,333,429 67,333,429 Construction in progress 3,638,567 180,703 3,819,270 Less: accumulated depreciation (20,353,897) (20,353,897) Total $ 19.973,008 $ 45,626,031 $ 65,599,039 38 î- CITY OF FAIRLA WN, OHIO NOTES TO THE BASIC FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2003 NOTE 9 - CAPITAL ASSETS - (Continued) B. Capita] asset activity for the year ended December 3 I, 2003, was as follows: Construction in progress Restated Balance Balance ] 2/3 1/02 Additions Disposals 12/31103 S 2,270,717 S 964,040 $ - $ 3,234,757 3,819,270 650.624 (3,321,029) ], 148,865 6,089,987 1,614,664 (3,321,029) 4,383,622 Governmental Activities: Capital assets, not being depreciated: Land T ota] capital assets, not being depreciated Capital assets, being depreciated: Buildings Land Improvements Machinery and Equipment Licensed V chicles Infrastructure 6,525,757 6,597,73 I 13,123,488 1,186,764 1,186,764 2,172,825 546,446 (46,774) 2,672,497 2,644,174 33,672 (55,061) 2,622,785 67,333,429 I,125,023 68,458,452 79,862,949 8,302,872 (101,835) 88,063,986 Total capital assets, being depreciated Less: accumulated depreciation: Buildings Land Improvements Machinery and Equipment Licensed Vehicles Infrastructure (1,387,463) (163,739) (1,551,202) (603,776) (38,064) (641,840) (594,645) (137,282) 39,062 (692,865) (696,822) (167,366) 43,436 (820,752) (17,071,191) (1,266,920) (18,338,111) (20,353,897) (1,773,371) 82,498 (22,044,770) 59,509,052 6,529,501 (19,337) 66,019.216 Total accumulated depreciation Tota] capital assets, being depreciated, net Governmental activities capital assets, net $ 65,599,039 $ 8,144,165 S (3,340,366) $ 70,402,838 39 >r CITY OF FAIRLA WN, OHIO NOTES TO THE BASIC FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31. 2003 NOTE 9 - CAPITAL ASSETS - (Continued) Depreciation expense was charged to functions/programs of the City as follows: Governmental activities: General government Basic Utility Services Security of persons and property Transportation Community environment Leisure time activity $ 46,04 2 504,216 280.641 879,790 4,710 57,972 $ 1,773.371 Total depreciation expense - governmental activities NOTE 10 - LONG-TERM OBLIGATIONS A. The balance of the City's governmental activities long-term obligations at December 31, 2002 has been restated. The compensated absences liability increased $24,443 from S979,490 to $1,003,933 due to the implementation of GASB Interpretation No.6 described in Note 3. In addition, pension obligations of S187,211 at December 31, 2002 are not reported as a component 'of governmental activities long-tenn obligations as they are reported separately on the statement of net assets. The effect on the total governmental activities long-tenn obligations at January I, 2003 was a decrease of $162,768 from $13,734,743 to SI3,571.975. During the fiscal year 2003, the following changes occurred in governmental activities long-term obligations: Restated Amounts Interest Balance Balance at Due in Governmental Activities: Rate 12/31/02 Additions Reductions 12/3 1/03 One Year General obligation bonds 2.80-5.75% S 10,510.000 S - $(445,000) S 10,065,000 $ 500,000 Special assessment bonds 4.80-7.00% 1,290,000 (1 ] 0,000) 1,180,000 115,000 OPWC loans 6.00% 768,042 (45.289) 722,753 48,047 Compensated absences 1,003,933 69.401 (56,434) 1.016,900 338.620 Total $ 13,57] ,975 $ 69.40 I $(656,723) $ 12,984,653 $1,001,667 The general obligation bonds will be paid from income taxes receipted into the capital improvement fund. The special assessment bond and OPWC loans will be paid from the proceeds of special assessments levied against the benefited property owners. In the event that a property owner fails to pay the assessment, payment will be made by the City. Compensated absences reported in the "Iong- term liabilities" account wi]] be paid from the fund from which the employees' salaries are paid. 40 CITY OF F AIRLA WN, OHIO NOTES TO THE BASIC FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 3 J, 2003 NOTE 10 - LONG-TERM OBLIGATIONS - (Continued) Principal and interest requirements to retire long-term obligations outstanding at December 31, 2003 are follows: General Obligation Bonds Total Principal Special Assessment Bond Year Principal Interest 2004 $ 500,000 $ 430,318 $ 930,3 I 8 S 115,000 2005 5] 5,000 412,995 927,995 125,000 2006 540,000 394,898 934,898 130,000 2007 550,000 374,070 924,070 140,000 2008 575,000 352.140 927,]40 150,000 2009 - 2013 3,270,000 ] ,366,568 4,636,568 520,000 2014 - 2018 2,760,000 685,082 3,445,082 2019 - 2022 1,355,000 160,105 1,515,105 Total $10,065,000 $4,176,176 $14,241,176 $1, J 80,000 OPWC Loans Year PrincÍ¡;>al Interest Total 2004 $ 48,047 $ 42,655 $ 90,702 2005 50,972 39,729 90,701 2006 54,077 36,625 90,702 2007 57,370 33,332 90,702 2008 60,864 29,838 90,702 2009 - 2013 364,646 88,864 453,510 2014 86.777 2,924 89.701 Total S 722,753 S 273,967 S 996,720 NOTE 11 - OTHER EMPLOYEE BENEFITS A. Compensated Absences Interest $ 82,140 74,550 65,800 56,700 46,900 74,550 $ 400,640 Total $ 197,140 199,550 195,800 196,700 196,900 594,550 S 1,580,640 The criteria for detennining vested vacation and sick leave components are derived from negotiated agreements and state laws. Employees earn ten to thirty days of vacation per year, depending upon length of service. Vacation accumulation is typically limited to one year. Employees may carry over vacation earned for three years prior to the employee's retirement date. All accumulated unused vacation time is paid upon tennination of empJoyment. 4] CITY OF F AIRLA WN, OHIO NOTES TO THE BASIC FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 3 I. 2003 NOTE 11 - OTHER EMPLOYEE BENEFITS - (Continued) Employees earn sick leave at the rate of 1.25 days per month of service. Sick leave accumulation is limited to 220 days. Upon retirement, employees hired before 199 I are eligible to receive payment for accumulated unused sick days. The exact tenns vary in accordance with the negotiated collective bargaining agreement in effect. In most cases, the sick leave tennination payment is limited to 90 days. Employees with a hire date subsequent to 199 I are generally not eligible to receive termination payments for sick leave. As of December 3 1.2003, the total liability for unpaid compensated absences was $1,016,900. B, Health Care Benefits The City provides life insurance and accidental death and dismemberment insurance to most employees. The City has elected to provide employees medical/surgical benefits through Medical Mutua] of Northern Ohio. The emp]oyees share the cost of the monthly premium. Dental insurance is provided by the City through DeIta Dental. NOTE 12 - RISK MANAGEMENT The City is exposed to various risks of loss related to torts; theft of, damage to, and destruction of assets; elTors and omissions; injuries to employees; and natural disasters. During 2003, the City contracted with Wichert Insurance Service, Inc. for property and general liability insurance, including boiler and machinery. Po]ice and professional ]iability policies are provided by CNA Insurance Companies with a S],OOO,OOO limit and a SIO,OOO deductible. A commercial umbrella policy through RLI Insurance Company provides additional general liability and auto liability insurance up to an S 11,000,000 limit. Vehicles are covered by Westfield Insurance Company and hold a $1,000 deductible for collision. Automobile liability coverage has no limit for collision, a S500,000 limit for uninsured/underinsured motorist and a SI.OOO,OOO limit for bodily injury. Settled claims have not exceeded this commercial coverage in any of the past three years. There has not been a significant reduction in coverage from the prior year. Volunteer Fireman's Insurance Services covers Firemen and EMT professional liability with a limit of $1,000,000 and no deductible. The City pays the State Workers' Compensation system a premium based on a rate per SJOO of salaries. This rate is ca1cu]ated based on accident history and administrative costs. 42 CITY OF FAIRLA WN. OHIO NOTES TO THE BASIC FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2003 NOTE 13 - DEFINED BENEFIT PENSION PLANS A. Ohio Public Employees Retirement System The City participates in the Ohio Public Employees Retirement System (OPERS). OPERS administers three separate pension plans. The traditional plan is a cost-sharing. ll1uJtiple-employer cle!ìned benefit pension plan. The member-directed plan is a defined contribution plan in wlÜch the member invests both member and employer contributions (empJoy<'r contributions vest over li ve years at 20% per year). Under the member directed plan. members accumulate retirement assets equal to the value of the member and vested employer contribmions plus any investment earnings. Tbe combined plan is a cost-sharing. mul¡jple-employer defined benefit pension plan that bas elements of both a defined benetìt and a detìned contribution plan. Under the combined plan, employer contributions are invested by the retirement system to provide a formula retirement benefit similar to the traditional plan benefit. Member contributions. whose investment is seJf~dirccled by the member, accumulate retirement assets in a m¡mner similar to the member directed plan. OPERS provides retirement. disabiJity. survivor and death benefits and annual cost of living adjustments to members of the traditional and combined plans. Members of the member directed plan do not qualify tor ancj]]a¡y benetìts. Authority to establish and amend benetits is provided by Chapter 145 of the Ohio Revised Code. OPERS issues a stand-alone tìnancia] report that may be obtained by writing to OPERS, 2ï7 E. Town St., Columbus, OH 43215-4642 or by calling (614) 222-6705. For the year ended December 31, 2003. the members of all three plans, excèpt those in law enforcement or public safety participating in the traditional plan. were required to contribute 8.5 percent of ¡heir annual covered salaries. Members participating in the tradirional plan who were in law enforcement contributed 10..1 percent of their annual covered salary; members in public safety contributed 9 percent. The City's contribution rate tÖr pension benefits for 2003 was 8.55 percent, except tòr those plan members in law enforcement or public safety. For those classitìcations, the City's pension contributions were 11.7 percent of covered payroll. The Ohio Revised Code provides statutory authoriry for member and employer contributions. The City's required contributions f{Jr pension obligations to the traditional and combined plans for the years ended December 31 , 2003, 2002, and 200 J were S 204.257, 186,605, and $ 187,23 J respectively; 92.26 percent has been contributed tor 2003 and 100 percent tor 2002 and 2001. S25,604, representing the unpaid contribution for 2003, is recorded as a liability. B. Ohio Police and Fire Pension Fund The City contributes to the Ohio Police and Fire Pension Fund (OP&F), a cost-sharing muJtiple- employer detìned benefit pension plan. OP&F provides retirement and disability benefits, annual cost- of-living adjustments, and death beneììts to plan members and beneficiaries. Benefit provisions are established by the Ohio State Legislature and are codified in Chapter 742 of the Ohio Revised Code. OP&F issues a publicly available tìnancial report that includes financial information and required supplementary infom1ation for the plan. That report may be obtained by writing to the Ohio Police and Fire Pension Fund, 140 East Town Street, Columbus, Ohio 43215-5164. 43 1 CITY OF FAIRLA WN, OHIO NOTES TO THE BASIC F]NANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31. 2003 NOTE 13 - DEFINED BENEFIT PENSION PLANS - (Continued) Plan members are required to contribute 10 percent of their annual covered salary to fund pension obligations while the City is required to contribute 11.75 percent for police officers and 16.25 percent for firefighters. Contributions are authorized by State statute. The City's contributions to the Fund for po1ice and firefighters were $146,130 and $126,]57 for the year ended December 31, 2003, $]41,067 and $] I ],917 for the year ended December 31, 2002, and $135,7]8 and $96,404 for the year ended December 3 I. 2001. The fun amount has been contributed for 2002 and 2001. 76 percent for police and firefighters has been contributed for 2003 with the remainder of S64,6 1 6 being reported as a liability. C. Socia] Security System Effective August 3, 1992, an volunteer firefighters, not otherwise covered by another retirement system, are covered by socia] security. The City's liability is 6.20 percent of wages paid. NOTE 14 - POSTRETIREMENT BENEFIT PLANS A. Ohio Public Employees Retirement System The Ohio Public Employees Retirement System (OPERS) provides postretirement health care coverage to age and service retirees with ten or more years of qualifying Ohio service credit with either the traditional or combined plans. Health care coverage for disability recipients and primary survivor recipients is available. Members of the member-directed plan do not qualify for postretirement health care coverage. The health care coverage provided by the retirement system is considered an Other Postemployment Benefit as described in GASB Statement No. 12. A portion of each employer's contribution to the traditional or combined plans is set aside for the funding of postretirement health care based on authority granted by State statute. The 2003 local government employer contribution rate was 13.55 percent of covered payron (J6.7 percent for public safety and law enforcement); 5.00 percent of covered payroJI was the portion that was used to fund health care. Benefits are advance-funded using the entry age norma] actuarial cost method. Significant actuarial assumptions, based on OPERS's latest actuarial review performed as of December 31, 2002, include a rate of return on investments of 8.00 percent, an annual increase in active employee tota] payroJl of 4.00 percent compounded annuaJly (assuming no change in the number of active employees) and an additional increase in total payroJl of between .50 percent and 6.3 percent based on additional annual pay increases. Health care premiums were assumed to increase 4.00 percent annuaJly. An investments are carried at market. For actuaria] valuation purposes, a smoothed market approach is used. Assets are adjusted to reflect 25 percent of unrealized market appreciation or depreciation on investment assets annuany. The number of active contributing participants in the traditional and combined plans was 364,881. Actual employer contributions for 2003 which were used to fund postemployment benefits were $119,449. The actual contribution and the actuariaJly required contribution amounts are the same. OPERS's net assets available for payment of benefits at December 31,2002, (the latest information available) were $10.0 bilJion. The actuariaJly accrued liability and the unfunded actuarial accrued liability were $18.7 biJlion and $8.7 biIJion, respectively. 44 CITY OF F AIRLA WN, OHIO NOTES TO THE BASIC FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2003 NOTE 14 - POSTRETIREMENT BENEFIT PLANS - (Continued) In December 200 I, the Board adopted the Health Care "Choices" Plan. The Choices Plan will be offered to all persons newly hired in an OPERS covered position after January 1,2003, with no prior service credit accumulated toward health care coverage. Choices will incorporate a cafeteria approach, offering a broader range of health care options. The Plan uses a graded scale from ten to thirty years to calculate a monthly health care benefit. This is in contrast to the ten-year "cliff' eligibility standard for the present Plan. The benefit recipient will be free to select the option that best meets their needs. Recipients will fund health care costs in excess of their monthly health care benefit. The Plan will also offer a spending account feature, enabling the benefit recipient to apply their allowance toward specific medical expenses, much like a Medical Spending Account. B. Ohio Police and Fire Pension Fund The Ohio Police and Fire Pension Fund (OP&F) provides postretirement health care coverage to any person who receives or is eligible to receive a monthly service, disability or survivor benefit check or is a spouse or eligible dependent child of such person. An eligible dependent child is any child under the age of 18 whether or not the child is attending school, or under the age of 22 if attending school fuIl-time or on a 2/3 basis. The health care coverage provided by the retirement system is considered an Other Postemployment Benefit (OPEB) as described in GASB Statement No. 12. The Ohio Revised Code provides the authority allowing the Ohio Police and Fire Pension Fund's board of trustees to provide health care coverage and states that health care costs paid from the funds of OP&F shaIl be included in the employer's contribution rate. Health care funding and accounting is on a pay-as-you-go basis. The total police employer contribution rate is 19.5 percent of covered payroll and the total firefighter employer contribution rate is 24 percent of covered payroll, of which 7.75 percent of covered payroIl was applied to the postemployment health care program during 2003. In addition, since July I, 1992, most retirees have been required to contribute a portion of the cost of their health care coverage through a deduction from their monthly benefit payment. Beginning in 2001, all retirees and survivors have monthly health care contributions. The City's actual contributions for 2003 that were used to fund postemployment benefits were $93,275 for police and $58.226 for firefighters. The OP&F's total health care expense for the year ended December 31,2002, (the latest information available) was $141,028,006, which was net of member contributions of 512,623,875. The number of OP&F participants eligible to receive health care benefits as of December 31, 2002, was 13,527 for police and 10,396 for firefighters. NOTE 15 - BUDGETARY BASIS OF ACCOUNTING While the City is reporting financial position, results of operations and changes in fund balance on the basis of generally accepted accounting principles (GAAP), the budgetary basis as provided by law is based upon accounting for certain transactions on a basis of cash receipts, disbursements and encumbrances. The Statement of Revenues, Expenditures and Changes in Fund Balances - Budget and Actual (Non-GAAP Budgetary Basis) presented for the general fund is presented on the budgetary basis to provide a meaningful comparison of actual results with the budget. The major differences between the budget basis and GAAP basis are as follows: I. Revenues and Other Financing Sources are recorded when received in cash (budget) as opposed to when susceptible to accrual (GAAP). . 45 .., CITY OF FAIRLAWN, OHIO NOTES TO THE BASIC FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31,2003 NOTE 15 - BUDGETARY BASIS OF ACCOUNTING - (Continued) 2. Expenditures and Other Financing Uses are recorded when paid in cash (budget) as opposed to when the liability is incurred (GAAP). 3. Encumbrances are treated as expenditures (budget) rather than as a reservation of fund balance (GAAP). 4. Unreported cash represents amounts received but not included as revenue on the budget basis operating statements. These amounts are included as revenue on the GAAP basis operating statement. The following table summarizes the adjustments necessary to reconcile the GAAP basis statements (as reported in the fund financial statements) to the budgetary basis statements for all governmental funds for which a budgetary basis statement is presented. Net Change in .Fund Balance General Budget basis $ (3,231,228) Net adjustment for revenue accruals (77,165) Net adjustment for expenditure accruals 135,235 Adjustment for encumbrances 322,627 GAAP basis $ (2,850,531) NOTE 16 - CONTINGENCIES A. Grants The City receives significant financial assistance from numerous federal and state agencies in the form of grants. The disbursement of funds received under these programs generany requires compliance with te11llS and conditions specified in the grant agreements and is subject to audit by the grantor agencies. Any disallowed claims resulting trom such audits could become a liability of the general fund or other applicable funds. However, in the opinion of management, any such disanowed claims will not have a material effect on any of the financial statements of the individual fund types included herein or on the overall financial position of the City at December 31, 2003. B. Litigation The City is currently not involved in litigation that the City's legal counsel anticipates a significant loss. NOTE 17 - CONTRACTUAL COMMITMENTS As of December 31, 2003, the City had various contractual commitments; for road maintenance and improvements of $995,016; sewer cleaning and improvements of $87,267; building improvements of $632,092; purchases of various capital equipment of $15,783; computer equipment of $27,620; and park equipment and improvements of$53,812. 46 " Auditor of State . Betty Montgomery INDEPENDENT ACCOUNTANTS' REPORT ON COMPLIANCE AND ON INTERNAL CONTROL REQUIRED BY GOVERNMENT AUDITING STANDARDS The Honorable Mayor and Members of City Council City of Fairlawn Summit County 3487 South Smith Road Fairlawn, Ohio 44333 We have audited the financial statements of the governmental activities, each major fund and the aggregate remaining fund information of the City of Fairlawn, Summit County, Ohio, (the City) as of and for the year ended December 31, 2003, which collectively comprise the City's basic financial statements and have issued our report thereon dated September 21, 2004, in which we noted the City adopted Governmental Accounting Standards Board Statement No. 34. 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. Compliance ", ~;~:; P,' As part of obtaining reasonable assurance about whether the City's financial statements are free of material misstatement, we tested its compliance with certain provisions of laws, regulations, contracts and grants, noncompliance with which could directly and materially affect 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 are required to be reported under Government Auditing Standards. However, we noted certain immaterial instances of noncompliance that we have reported to the City's management in a separate letter dated September 21, 2004. Internal Control Over Financial Reporting In planning and performing our audit, we considered the City's internal control over financial reporting to determine our auditing procedures for the purpose of expressing our opinions on the financial statements and not to provide assurance on the internal control over financial reporting. Our consideration of the internal control over financial reporting would not necessarily disclose all matters in the internal control over financial reporting that might be material weaknesses. A material weakness is a condition in which the design or operation of one or more of the internal control components does not reduce to a relatively low level the risk that misstatements in amounts that would be material in relation to the financial statements being audited may occur and not be detected within a timely period by employees in the normal course of performing their assigned functions. We noted no matters involving the internal control over financial reporting and its operation that we consider to be material weaknesses. .:_" 111 Second St., NW ! Fourth Flüor / Canton. on 44702 Tek'phone: (330) 438-0617 (300) 443-9272 Fax, (330) 471.0(){)J wvvw.aud itor.sta tc.oh. us 47 City of Fairlawn Summit County Independent Accountants' Report on Compliance and on Internal Control Required by Government Auditing Standards Page 2 However, we noted other matters involving the internal control over financial reporting that do not require inclusion in this report that we have reported to the City's management in a separate letter dated September 21, 2004. This report is intended solely for the information and use of management and City Council, and is not intended to be and should not be used by anyone other than these specified parties. 1J1Mrt tkMht~ Betty Montgomery Auditor of State September 21,2004 48 ßö L::h\ B,'(",d ~{¡);.:;:¡ v.().(".;;-;, ;.1 '~'.' Auditor of State . Betty Montgomery <>;¡,~),Ò¡j~, ~)¡n;' .43-216 ìH~ T\'k'Fh"'",,, Öj~4':,,6'-fj!.~ R{ii'.',2~Q (=:;;', ;'),;:,;,¡),,;, Ú14.,¡C;':;,'¡'W¡) CITY OF FAIRLAWN SUMMIT COUNTY CLERK'S CERTIFICATION This is a true and correct copy of the report which is required to be filed in the Office of the Auditor of State pursuant to Section 117.26, Revised Code, and which is filed in Columbus, Ohio. ~~ CLERK OF THE BUREAU CERTIFIED NOVEMBER 4, 2004 t>-\}Dlro/? ~~ 0", ý.." ~ 0 ~- ""'-~~ ;I,~m "' ~-:-li" >-- 0 ((I ;.;.-".: . ;.-::;;? "I' ~~- ,~,":S c ~~ ":t l'-"o~ Auditor of State . Betty Montgomery Office of the Auditor of State of Ohio Betty Montgomery, Auditor of State 88 E. Broad Street Columbus, Ohio 43216-1140 (800) 282-0370 www.auditor.state.oh.us