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2000 Financial StatementSUMM11 couINT Y REGULAR AUDIT FOR THE YEAR ENDED DECEMBER 31, 2000 JIM PETRO AUDITOR OF 'STATE STATE OF OHIO CITY OF FAIRLAWN SUMMIT COUNTY TABLE OF CONTENTS TITLE PAGE Report of Independent Accountants..................................................... 1 Combined Balance Sheet All Fund Types and Account Groups ................................................... 4 Combined Statement of Revenues, Expenditures and Changes in Fund Balances All Governmental Fund Types......................................................... 8 Combined Statement of Revenues, Expenditures and Changes in Fund Balances Budget (Non -GAAP) and Actual All Governmental Fund Types ........................................................ 10 Notes to the General Purpose Financial Statements ........................................ 15 Report of Independent Accountants on Compliance and on Internal Control Required by Government Auditing Standards .............................. 37 This page intentionally left blank. STATE OF OHIO [OFFICE OF THE AUDITOR JIM hRTRO, AUDITOR OF SIAIT REPORT OF INDEPENDENT ACCOUNTANTS City of Fairlawn Summit County 3487 South Smith Road Fairlawn, Ohio 44333 To the Members of City Council: 111 Seeond Street, NW Fourth Floor Canton, Ohio 44702 Telephone 330-438-0617 800-443-9272 Facsimile 330-471-0001 w .auditonstate.oh.us We have audited the accompanying general purpose financial statements of the City of Fairlawn, Summit County, (the City) as of and for the year ended December 31, 2000, as listed in the table of contents. These general purpose financial statements are the responsibility of the City's management. Our responsibility is to express an opinion on these general purpose 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 GovernmentAuditingStandards, 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 opinion. In our opinion, the general purpose fmancial statements referred to above present fairly, in all material respects, the financial position of the City of Fairlawn, Summit County, as of December 31, 2000, and the results of its operations for the year then ended in conformity with accounting principles generally accepted in the United States of America. In accordance with GovernmentAuditing Standards, we have also issued our report dated July 16, 2001 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 GovernmentAuditing Standards and should be read in conjunction with this report in considering the results of our audit. Jim Petro Auditor of State July 16, 2001 This page intentionally left blank. 2 This page intentionally left blank. City of Fairlawn, Ohio Combined Balance Sheet All Fund Types and Account Groups December 31, 2000 Assets and Other Debits: Assets: Equity in Pooled Cash and Cash Equivalents Cash and Cash Equivalents In Segregated Accounts With Fiscal Agent Receivables: Taxes Accounts Special Assessments Intergovernmental Due from Other Funds Materials and Supplies Inventory Fixed Assets Other Debits: Amount Available in Debt Service Fund Amount to be Provided for Retirement of General Long -Term Obligations Total Assets and Other Debits Governmental Fund Special Debt Capital General Revenue Service Projects $8,807,228 $1,483,118 $179,491 $5,094,408 30,253 0 0 0 355,000 0 0 340,000 1,006,168 166,475 0 218,203 5,616 7,839 0 20,540 0 0 3,785,098 0 1,163,133 25,257 0 0 5,857 2,174 0 0 141,184 7,911 0 0 0 0 0 0 0 0 0 0 0 0 0 0 711,514,439 $1,692,774 $3,964,589 $5,673,151 4 Fiduciary -Fund Type Account Groups General General Totals Fixed Long -Term (Memorandum Agency Assets Obligations Only) $133,847 $0 $0 $15,698,092 12,706 0 0 42,959 0 0 0 695,000 0 0 0 1,390,846 0 0 0 33,995 0 0 0 3,785,098 0 0 0 1,188,390 0 0 0 8,031 0 0 0 149,095 0 13,701,461 0 13,701,461 0 0 179,491 179,491 0 0 9,115,133 9,115,133 7146,553 $13,701,461 $9,294,624 $45,987,591 (Continued) 5 City of Fairlawn, Ohio Combined Balance Sheet All Fund Types and Account Groups (Continued) December 31, 2000 Liabilities Fund Balances and Other Credits: Liabilities: Accounts Payable Contracts Payable Accrued Wages Compensated Absences Payable Due to Other Funds Intergovernmental Payable Deferred Revenue Undistributed Monies Loans Payable OPWC Loans Payable General Obligation Bonds Payable Special Assessment Bonds Payable with Governmental Commitment 0 0 0 0 Total Liabilities 956,767 245,870 3,785,098 107,080 Governmental Fund Fund Balances and Other Credits Investment in General Fixed Assets Special Debt Capital General Revenue Service Projects $124,092 $80,121 $0 $34,857 22,938 0 0 72,223 74,034 2,495 0 0 14,033 0 0 0 0 0 0 0 114,040 2,881 0 0 607,630 160,373 3,785,098 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 Fund Balances and Other Credits Investment in General Fixed Assets 0 0 0 0 Fund Balances: Reserved for Encumbrances 137,849 130,502 0 595,269 Reserved for Inventory 141,184 7,911 0 0 Designated for Sewer Line Repair 195,990 0 0 0 Undesignated 10,082,649 1,308,491 179,491 4,970,802 Total Fund Balances and Other Credits 10,557,672 1,446,904 179,491 5,566,071 Total Liabilities, Fund Balances and Other Credits $11,514,439 $1,692,774 $3,964,589 $5,673,151 See Accompanying Notes to the General Purpose Financial Statements 6 Fiduciary -Fund Type Account Groups General General Totals Fixed Long -Term (Memorandum Agency Assets Obligations Only) $0 $0 $0 $239,070 0 0 0 95,161 0 0 0 76,529 0 0 761,189 775,222 8,031 0 0 8,031 0 0 132,674 249,595 0 0 0 4,553,101 138,522 0 0 138,522 0 0 104,792 104,792 0 0 850,969 850,969 0 0 5,955,000 5,955,000 0 0 1,490,000 1,490,000 146,553 0 9,294,624 14,535,992 0 13,701,461 0 13,701,461 0 0 0 863,620 0 0 0 149,095 0 0 0 195,990 0 0 0 16,541,433 0 13,701,461 0 31,451,599 $146,553 $13,701,461 $9,294,624 $45,987,591 7 City of Fairlawn, Ohio Combined Statement of Revenues, Expenditures and Changes in Fund Balances All Governmental Fund Types For the Year Ended December 31. 2000 Other Financine Sources/(Uses Operating Transfers In Governmental 140,000 Operating Transfers Out Special 0 General Revenue Revenues: Excess of Revenues and Other Financing Sources Over/(Under) Municipal Income Taxes $4,894,970 $0 Property and Other Taxes 540,353 244,610 Charges for Services 85,577 213,596 Licenses, Permits and Fees 151,598 0 Fines and Forfeitures 99,827 34,236 Intergovernmental 5,981,487 471,352 Special Assessments 0 0 Interest 912,775 20,285 Rentals 0 18,148 Contributions/Donations 0 19,924 Other 27,921 0 Total Revenues 12,694,508 1,022,151 Expenditures: Current: General Government 1,698,500 28,645 Security of Persons and Property 3,214,712 438,428 Public Health Services 96,174 0 Transportation 1,514,190 333,886 Community Environment 4,453 0 Basic Utility Services 270,667 103,672 Leisure Time Activities 26,560 222,235 Intergovernmental 1,434,264 0 Capital Outlay 0 0 Debt Service: Principal Retirement 0 9,042 Interest and Fiscal Charges 0 958 Total Expenditures 8,259,520 1,136,866 Excess of Revenues Over/(Under) Expenditures 4,434,988 (114,715) Other Financine Sources/(Uses Operating Transfers In 0 140,000 Operating Transfers Out (140,000) 0 Total Other Financing Sources/(Uses) (140,000) 140,000 Excess of Revenues and Other Financing Sources Over/(Under) Expenditures and Other Financing Uses 4,294,988 25,285 Fund Balances Beginning of Year 6,243,738 1,418,704 Increase in Reserve for Inventory 18,946 2,915 Fund Balances End of Year $10,557,672 $1,446,904 See Accompanying Notes to the General Purpose Financial Statements 8 Fund Types Totals Debt Capital (Memorandum Service Projects Only) $0 $2,048,302 $6,943,272 0 72,407 857,370 0 30,935 330,108 0 61,070 212,668 0 0 134,063 0 606,282 7,059,121 299,056 0 299,056 0 0 933,060 0 0 18,148 0 0 19,924 0 3,597 31,518 299,056 2,822,593 16,838,308 11,350 0 1,738,495 0 0 3,653,140 0 0 96,174 0 0 1,848,076 0 0 4,453 0 0 374,339 0 0 248,795 0 0 1,434,264 0 4,538,078 4,538,078 127,929 350,614 487,585 160,548 299,767 461,273 299,827 5,188,459 14,884,672 (771) (2,365,866) 1,953,636 0 0 140,000 0 0 (140,000) 0 0 0 (771) (2,365,866) 1,953,636 180,262 7,931,937 15,774,641 0 0 21,861 7179,491 $5,566,071 $17,750,138 Q City of Fairlawn, Ohio Combined Statement of Revenues, Expenditures and Changes in Fund Balances Budget (Non -GAAP) and Actual All Governmental Fund Types For the Year Ended December 31, 2000 General Fund Other Financing Sources/(Uses Sale of Fixed Assets Revised 0 Favorable Operating Transfers In Budget Actual (Unfavorable) Revenues: (311,270) (140,000) 171,270 Municipal Income Taxes $4,485,787 $4,862,074 $376,287 Property and Other Taxes 569,532 540,353 (29,179) Charges for Services 0 87,324 87,324 Licenses, Permits and Fees 185,000 151,598 (33,402) Fines and Forfeitures 65,000 100,126 35,126 Intergovernmental 2,477,313 5,580,163 3,102,850 Special Assessments 0 0 0 Interest 0 903,193 903,193 Rentals 0 0 0 Contributions/Donations 0 0 0 Other 0 27,385 27,385 Total Revenues 7,782,632 12,252,216 4,469,584 Expenditures: Current: General Government 2,025,066 1,845,541 179,525 Security of Persons and Property 3,543,591 3,411,005 132,586 Public Health Services 99,671 96,174 3,497 Transportation 2,372,740 1,505,516 867,224 Community Environment 26,481 4,564 21,917 Basic Utility Services 302,256 279,943 22,313 Leisure Time Activities 31,238 27,650 3,588 Intergovernmental 414,100 1,434,264 (1,020,164) Capital Outlay 0 0 0 Debt Service: Principal Retirement 0 0 0 Interest and Fiscal Charges 0 0 0 Total Expenditures 8,815,143 8,604,657 210,486 Excess of Revenues Over/(Under) Expenditures (1,032,511) 3,647,559 41680,070 Other Financing Sources/(Uses Sale of Fixed Assets 0 0 0 Operating Transfers In 0 0 0 Operating Transfers Out (311,270) (140,000) 171,270 Total Other Financing Sources/(Uses) (311,270) (140,000) 171,270 Excess of Revenues and Other Financing Sources Over (Under)/Expenditures and Other Financing Uses (1,343,781) 3,507,559 4,851,340 Fund Balances Beginning of Year 4,904,747 4,904,747 0 Unexpended Prior Year Encumbrances 481,812 481,812 0 Fund Balances End of Year $4,042,778 $8,894,118 $4,851,340 See Accompanying Notes to the General Purpose Financial Statements 10 35,467 Special Revenue Funds 15,500 Debt Service Fund 631,410 551,068 Variance 0 0 Variance Revised 0 Favorable Revised 0 Favorable Budget Actual (Unfavorable) Budget Actual (Unfavorable) $0 $0 $0 $0 $0 $0 746,342 252,048 5,706 0 0 0 202,647 210,897 8,250 0 0 0 0 0 0 0 0 0 15,755 34,983 19,228 0 0 0 421,201 472,627 51,426 0 0 0 0 0 0 320,000 299,056 (20,944) 15,000 19,528 4,528 0 0 0 21,275 18,148 (3,127) 0 0 0 18,000 19,924 1,924 0 0 0 35,467 28,645 6,822 15,500 11,350 4,150 631,410 551,068 80,342 0 0 0 0 0 0 0 0 0 412,488 361,736 50,752 0 0 0 0 0 0 0 0 0 181,811 118,880 62,931 0 0 0 244,440 221,307 23,133 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 9,042 9,042 0 127,929 127,929 0 958 958 0 160,548 160,548 0 1,515,616 1,291,636 223,980 303,977 299,827 4,150 (575,396) (263,481) 311,915 16,023 (771) (16,794) 30,000 30,000 0 0 0 0 140,000 140,000 0 0 0 0 0 0 0 0 0 0 170,000 170,000 0 0 0 0 (405,396) (93,481) 311,915 16,023 (771) (16,794) 1,277,427 1,277,427 0 180,262 180,262 0 108,584 108,584 0 0 0 0 $980,615 $1,292,530 $311,915 $196,285 $179,491 ($16,794) (Continued) 11 City of Fairlawn, Ohio Combined Statement of Revenues, Expenditures and Changes in Fund Balances Budget (Non -GAAP) and Actual (Continued) All Governmental Fund Types For the Year Ended December 31, 2000 Revenues: Municipal Income Taxes Property and Other Taxes Charges for Services Licenses, Permits and Fees Fines and Forfeitures Intergovernmental Special Assessments Interest Rentals Contributions/Donations Other Total Revenues Expenditures: Current: General Government Security of Persons and Property Public Health Services Transportation Community Environment Basic Utility Services Leisure Time Activities Intergovernmental Capital Outlay Debt Service: Principal Retirement Interest and Fiscal Charges Total Expenditures Excess of Revenues Over/(Under) Expenditures Other Financing Sources/(Uses)j Sale of Fixed Assets Operating Transfers In Operating Transfers Out Total Other Financing Sources/(Uses) Excess of Revenues and Other Financing Sources Over (Under)/Expenditures and Other Financing Uses Fund Balances Beginning of Year Unexpended Prior Year Encumbrances Fund Balances End of Year Capital Projects Funds Variance Revised Favorable Budget Actual (Unfavorable) $1,950,000 $2,032,463 $82,463 73,000 77,367 4,367 28,735 30,935 2,200 27,000 58,435 31,435 0 0 0 1,000,000 797,843 (202,157) 0 0 0 0 0 0 0 0 0 0 0 0 0 3,597 3,597 3,078,735 3,000,640 (78,095) 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 6,901,296 5,761,002 1,140,294 350,614 350,614 0 299,768 299,767 1 7,551,678 6,411,383 1,140,295 (4,472,943) (3,410,743) 1,062,200 0 0 0 0 0 0 0 0 0 0 0 0 (4,472,943) (3,410,743) 1,062,200 6,963,149 6,963,149 0 1,189,884 1,189,884 0 $3,680,090 $4,742,290 $1,062,200 See Accompanying Notes to the General Purpose Financial Statements 12 Totals (Memorandum Only) Variance Revised Favorable Budget Actual (Unfavorable) $6,435,787 $6,894,537 $458,750 888,874 869,768 (19,106) 231,382 329,156 97,774 212,000 210,033 (1,967) 80,755 135,109 54,354 3,898,514 6,850,633 2,952,119 320,000 299,056 (20,944) 15,000 922,721 907,721 21,275 18,148 (3,127) 18,000 19,974 1,974 0 30,982 30,982 12,121,587 16,580,067 4,458,480 2,076,033 1,885,536 190,497 4,175,001 3,962,073 212,928 99,671 96,174 3,497 2,785,228 1,867,252 917,976 26,481 4,564 21,917 484,067 398,823 85,244 275,678 248,957 26,721 414,100 1,434,264 (1,020,164) 6,901,296 5,761,002 1,140,294 487,585 487,585 0 461,274 461,273 1 18,186,414 16,607,503 1,578,911 (6,064,827) (27,436) 6,037,391 30,000 30,000 0 140,000 140,000 0 (311,270) (140,000) 171,270 (141,270) 30,000 171,270 (6,206,097) 2,564 6,208,661 13,325,585 13,325,585 0 1,780,280 1,780,280 0 $8,899,768 $15,108,429 $6,208,661 13 This page intentionally left blank. 14 City of Fairlawn Notes to the General Purpose Financial Statements For the Year Ended December 31, 2000 NOTE 1 - REPORTING ENTITY AND BASIS OF PRESENTATION 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 form of government. The Mayor, Council, and Finance Director are elected. A. Reporting Entity In evaluating how to define the City for financial reporting purposes, management has considered all agencies, departments, and organizations making up the City (the primary government) and its potential component units consistent with Governmental Accounting Standards Board (GASB) Statement No. 14 "The Financial Reporting Entity." The City provides various services including police and fire protection, emergency medical, recreation (including parks), planning, zoning, street maintenance and repair, and general 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. Component units are legally separate organizations for which the City is financially accountable. The City is financially accountable for an organization if the City appoints a voting majority of the organization's governing board and, (1) the City is able to significantly influence the programs of services performed or provided by the organization or (2) the City is legally entitled to or can otherwise access the organization's resources; the City is legally obligated or has otherwise assumed the responsibility to finance the deficits of, or provide financial support to the organization; or the City is obligated for the debt of the organization. Component units may also include organizations for which the City issues debt, levies taxes or determines the budget. Based on this criteria, the City has no component units. 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 Fairlawn, respectively, controls the 15 City of Fairlawn Notes to the General Purpose Financial Statements For the Year Ended December 31, 2000 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 2000 JEDD revenues were the result of the income tax levied by the JEDD effective January 1, 1999. B. Basis of Presentation - Fund Accounting The City uses funds and account groups to report its financial position and the results of its operations. Fund accounting is designed to demonstrate legal compliance and to aid financial management by segregating transactions related to certain City functions or activities. A fund is defined as a fiscal and accounting entity with a self -balancing set of accounts recording cash and other financial resources, together with all related liabilities and residual equities or balances, and changes therein, which are segregated for the purpose of carrying on specific activities or attaining certain objectives in accordance with special regulations, restrictions or limitations. An account group is a financial reporting device designed to provide accountability for certain assets and liabilities that are not recorded in the funds because they do not directly affect the net expendable available financial resources. Governmental Fund Types Governmental funds are those through which most governmental functions of the City are financed. The acquisition, use and balances of the City's expendable financial resources and the related current liabilities are accounted for through governmental funds. The following are the City's governmental fund types: • General Fund - this fund is the operating fund of the City and is used to account for all financial resources except those required to be accounted for in another fund. The general fund balance is available to the City for any purpose provided it is expended or transferred according to the general laws of Ohio. • Special Revenue Funds - these funds are established to account for the proceeds of specific revenue sources (other than amounts relating to major capital projects) that are legally restricted to expenditure for specified purposes. • Debt Service Fund - this fund is used to account for the accumulation of resources for, and the payment of, general and special assessment long-term debt principal, interest, and related costs. 16 City of Fairlawn Notes to the General Purpose Financial Statements For the Year Ended December 31, 2000 • Capital Projects Funds - these funds are used to account for financial resources to be used for the acquisition or construction of major capital facilities. Fiduciary Fund Types Fiduciary funds are used to account for assets held by the City in a trustee capacity or as an agent for individuals, private organizations, other governmental units and/or other funds. There are two types of fiduciary funds, trust and agency. The City has no trust funds. The City's agency funds are purely custodial (assets equal liabilities) and thus do not involve measurement of results of operations. Account Groups To make a clear distinction between fixed assets related to specific funds and those of general government, and between long-term liabilities related to specific funds and those of a general nature, the following account groups are used: • General Fixed Asset Account Group - this account group accounts for all general fixed assets of the City. • General Long -Term Obligations Account Group - this account group accounts for all unmatured long-term indebtedness of the City, including special assessment debt for which the City is obligated in some manner. NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The significant accounting policies followed in the preparation of these financial statements are summarized below. These policies conform to generally accepted accounting principles (GAAP) for local governmental units as prescribed in the statements issued by the GASB and other recognized authoritative sources. A. Measurement Focus and Basis of Accounting The accounting and reporting treatment applied to a fund is determined by its measurement focus. All governmental fund types are accounted for using a flow of current financial resources measurement focus. With this measurement focus, only current assets and current liabilities are generally included on the combined balance sheet. Operating statements of these funds present increases (revenues and other financing sources) and decreases (expenditures and other financing uses) in net current assets. 17 City of Fairlawn Notes to the General Purpose Financial Statements For the Year Ended December 31, 2000 Basis of accounting refers to when revenues and expenditures are recognized in the accounts and reported in the financial statements. Basis of accounting relates to the timing of the measurement made. All governmental fund types and the agency funds are accounted for using the modified accrual basis of accounting. Under this basis, revenues are recognized in the accounting period when they become measurable and available. Measurable means the amount of the transaction can be determined and available means collectable within the current year or soon enough thereafter to be used to pay liabilities of the current year. The available period for the City is thirty-one days after year-end. In applying the susceptible to accrual concept under the modified accrual basis, the following revenue sources are deemed both measurable and available: • Interest • State levied locally shared taxes (including gasoline tax) • Fines and forfeitures • Income tax withheld by employers The City reports deferred revenues on its combined balance sheet. Deferred revenues arise when a potential revenue does not meet both the measurable and available criteria for recognition in the current period. In the subsequent period, when both revenue recognition criteria are met, the liability for deferred revenue is removed from the combined balance sheet and revenue is recognized. Current and delinquent property taxes measurable as of December 31, 2000, whose availability is indeterminate and which are not intended to finance current period obligations, have been recorded as a receivable and deferred revenue. Levied special assessments are measurable, and have been recorded as a receivable. Since all assessments are due outside of the available period, the entire amount has been deferred. The measurement focus of governmental fund accounting is on decreases in net financial resources (expenditures) rather than expenses. Expenditures are recognized in the accounting period in which the fund liability is incurred, if measurable. Allocations of cost, such as depreciation and amortization, are not recognized in the governmental funds. B. Budgetary Process 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 Appropriation Ordinance, all of which are prepared on the budgetary basis of accounting. The Certificate of Estimated Resources and the Appropriation Ordinance are subject to amendment throughout the year with the legal restriction that 18 City of Fairlawn Notes to the General Purpose Financial Statements For the Year Ended December 31, 2000 appropriations cannot exceed estimated resources, as certified. All funds, other than agency funds and any activity or balance, are legally required to be budgeted and appropriated. The legal level of budgetary control has been established by City Council at the object level within each department. Any budgetary modifications at this level may only be made by resolution of the City Council. Tac Budget At the first City Council meeting in July, the Mayor presents the annual operating budget for the following fiscal year to City Council for consideration and passage. The adopted budget is submitted to the County Auditor, as Secretary of the County Budget Commission, by July 20 of each year, for the period January 1 to December 31 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 1. 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 Appropriation Ordinance. On or about January 1, the Certificate of Estimated Resources is amended to include unencumbered fund balances at December 31 of the preceding year. The certificate may be further amended during the year if the Finance Director determines, and the Budget Commission agrees that an estimate needs to be either increased or decreased. The amounts reported on the budgetary statements reflect the amounts in the final amended official Certificate of Estimated Resources issued during 2000. Appropriations A temporary ordinance to control expenditures may be passed on or about January 1 of each year for the period January 1 to March 31. An annual Appropriation Ordinance must be passed by April 1 of each year for the period January 1 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 information becomes available, provided that total fund appropriations do not exceed current estimated resources, as certified. The allocation of appropriations among the departments and objects within a fund may be modified during the year by an ordinance of Council. During the year, several supplemental appropriation measures were 19 City of Fairlawn Notes to the General Purpose Financial Statements For the Year Ended December 31, 2000 passed. None of these supplemental appropriations had any significant affect on the original appropriations. The budget figures which appear in the statement of budgetary comparisons represent the final appropriation amounts, including all amendments and modifications. Encumbrances As part of formal budgetary control, purchase orders, contracts, and other commitments for the expenditure of moneys are recorded as the equivalent of expenditures on the non -GAAP budgetary basis in order to reserve that portion of the applicable appropriation and to determine and maintain legal compliance. The Ohio Revised Code prohibits expenditures plus encumbrances from exceeding appropriations at the fund, department and object level. On the GAAP basis, encumbrances outstanding at year-end are reported as reservations of fund balances for subsequent year expenditures. 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. The encumbered appropriation balance is carried forward to the succeeding year and is not reappropriated. C. Cash and Cash Equivalents To improve cash management, cash received by the City is pooled. Monies for all funds are maintained in this pool. Individual fund integrity is maintained through the City's records. Each fund's interest in the pool is presented as "equity in pooled cash and cash equivalents" on the combined balance sheet. During 2000, investments were limited to overnight repurchase agreements, certificates of deposit and interest in STAR Ohio, the State Treasurer's Investment Pool. Except for nonparticipating investment contracts, investments are reported at fair value which is based on quoted market prices. Nonparticipating investment contracts such as repurchase agreements are reported at cost. The City had invested funds in the State Treasury Asset Reserve of Ohio (STAR Ohio) during 2000. 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 20 City of Fairlawn Notes to the General Purpose Financial Statements For the Year Ended December 31, 2000 1940. Investments in STAR Ohio are valued at STAR Ohio's share price, which is the price the investments could be sold for on December 31, 2000. Investment procedures are restricted by the provisions of the Ohio Revised Code. Interest revenue credited to the general fund during 2000 amounted to $912,775, which includes $444,509 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 combined balance sheet as "cash and cash equivalents in segregated accounts" since they are not required to be deposited into the City treasury. For presentation on the combined balance sheet, 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. The City has monies on deposit with Ohio Department of Transportation (ODOT) to be used for road improvement projects. This amount is presented as "cash and cash equivalents with fiscal agent" on the combined balance sheet. D. Inventory Inventories of governmental funds are stated at cost. For all funds, cost is determined on a first -in, first -out basis. The costs of inventory items are recorded as expenditures in the governmental fund types when purchased. Reported materials and supplies inventory is equally offset by a fund balance reserve in the governmental fund which indicates that it does not constitute available expendable resources even though it is a component of net current assets. E. Fixed Assets and Depreciation General fixed assets are not capitalized in the funds used to acquire or construct them. Instead, capital acquisition and construction costs are reflected as expenditures in governmental funds, and the related assets are reported in the general fixed asset account group. All purchased fixed assets are valued at cost when historical records are available and at an estimated historical cost when no historical records exist. Donated fixed assets are valued at their estimated fair market value on the date received. 21 City of Fairlawn Notes to the General Purpose Financial Statements For the Year Ended December 31, 2000 The costs of normal maintenance and repairs that do not add to the value of the asset or materially extend asset lives are not capitalized. Improvements are capitalized. Public domain (infrastructure) general fixed assets consisting of roads, bridges, curbs and gutters, streets and sidewalks, drainage systems, and lighting systems are not capitalized, as these assets are immovable and of value only to the City. Assets in the general fixed assets account group are not depreciated. F. 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 employees 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 termination 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 fiscal year end, taking into consideration any limits specified in the City's termination policy. The City records a liability for accumulated unused sick leave for all employees hired before December 31, 1990. For governmental funds, the current portion of unpaid compensated absences is the amount expected to be paid using expendable available resources. These amounts are recorded in the account "compensated absences payable" in the fund from which the employees who have accumulated unpaid leave are paid. The remainder is reported in the general long-term obligations account group. G. Intel fund Assets/Liabilities During the course of operations, numerous transactions occur between individual funds for goods provided or services rendered. These receivables and payables are classified as "due from other funds" or "due to other funds." H. Fund Balances Reserves represent those portions of fund balances not available for appropriation or expenditure and legally segregated for a specific future use. Fund balances are reserved for encumbrances and inventory. A designated fund balance has been established for sewer line repairs. 22 City of Fairlawn Notes to the General Purpose Financial Statements For the Year Ended December 31, 2000 L Interfund Transactions Quasi -external transactions are accounted for as revenue and expenditures. Transactions that constitute reimbursements to a fund for expenditures initially made from it that are properly applicable to another fund are recorded as expenditures in the reimbursing fund and as reductions of expenditures in the fund that is reimbursed. Nonrecurring or non -routine permanent transfers of equity are reported as residual equity transfers. All other interfund transfers are reported as operating transfers. J. Accrued and Long -Term Liabilities In general, governmental fund payables and accrued liabilities are reported as obligations of the funds regardless of whether they will be liquidated with current resources. However, claims and judgments, compensated absences and contractually required pension contributions are reported as a liability in the general long-term obligations account group to the extent that they will not be paid with current expendable available financial resources. Payments made more than thirty-one days after year-end are generally considered not to have been paid with current available financial resources. Bonds and long-term loans are recognized as a liability of the general long-term obligations account group until due. K. Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results may differ from those estimates. L. Total Columns on General Purpose Financial Statements Total columns on General Purpose Financial Statements are captioned Memorandum Only to indicate that they are presented only to facilitate financial analysis. Data in these columns do not present financial position or results of operations, in conformity with GAAP. Neither is such data comparable to a consolidation. Interfund eliminations have not been made in the aggregation of this data. NOTE 3 - BUDGETARY BASIS OF ACCOUNTING While reporting financial position, results of operations, and changes in fund balance on the GAAP basis, the budgetary basis as provided by law is based upon accounting for transactions on a basis of cash receipts, disbursements, and encumbrances. 23 City of Fairlawn Notes to the General Purpose Financial Statements For the Year Ended December 31, 2000 The Combined Statement of Revenues, Expenditures and Changes in Fund Balances - Budget (Non -GAAP) and Actual - All Governmental Fund Types is presented on the budgetary basis to provide a relevant comparison of actual results with the budget and to demonstrate compliance with state statute. The major difference between the budget basis and the GAAP basis are as follows: 1. Revenues are recorded when received in cash (budget) as opposed to when susceptible to accrual (GAAP). 2. Expenditures are recorded when paid in cash (budget) as opposed to when the liability is incurred (GAAP). 3. Outstanding year-end encumbrances are treated as expenditures (budget) rather than as a reservation of fund balance for governmental fund types (GAAP). 4. Proceeds from and principal payments on short-term note obligations are reported on the operating statement (budget) rather than on the combined balance sheet (GAAP). The following table summarizes the adjustments necessary to reconcile the GAAP basis statements to the budgetary basis statements on a fund type basis: Excess of Revenues and Other Financing Sources Over/(hider) Expenditures and Other Financing Uses NOTE 4 - DEPOSITS AND INVESTMENTS State statutes classify monies held by the City into three categories. Active deposits are public deposits necessary to meet current demands on the treasury. Such monies must be maintained either as cash in the City Treasury, in commercial accounts payable or withdrawable on demand, including negotiable order of withdrawal (NOW) accounts, or in money market deposit accounts. 24 Special Capital General Revenue Debt Service Projects GAAP Basis $4,294,988 $25,285 $(771) $(2,365,866) Revenue Accruals (432,710) 6,761 0 178,047 Unreported Cash (9,582) (757) 0 0 Expenditure Accruals (154,182) 33,528 0 (530,806) Note Activity 0 30,000 0 0 Encumbrances (190,955) (188,298) 0 (692,118) Budget Basis $3,507,559 $(93,481) $(771) $(3,410,743) NOTE 4 - DEPOSITS AND INVESTMENTS State statutes classify monies held by the City into three categories. Active deposits are public deposits necessary to meet current demands on the treasury. Such monies must be maintained either as cash in the City Treasury, in commercial accounts payable or withdrawable on demand, including negotiable order of withdrawal (NOW) accounts, or in money market deposit accounts. 24 City of Fairlawn Notes to the General Purpose Financial Statements For the Year Ended December 31, 2000 Inactive deposits are public deposits that Council has identified as not required for use within the current period of designation of depositories. Inactive deposits must either 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 will be needed before the end of the current period of designation of depositories. Interim deposits must be evidenced by time certificates of deposit maturing not more than one year from the date of deposit or by savings or deposit accounts including pass book accounts. Protection of the City's deposits is provided by the Federal Deposit Insurance Corporation, by eligible securities pledged by the financial institution as security for repayment, by surety company bonds deposited with the treasurer by the financial institution or by a single collateral pool established by the financial institution to secure the repayment of all public monies deposited with the institution. Interim monies may be deposited or invested in the following securities: 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 and interest by the United States; 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 term of the agreement must not exceed thirty days; 4. Bonds and other obligations of the State of Ohio; 25 City of Fairlawn Notes to the General Purpose Financial Statements For the Year Ended December 31, 2000 5. No-load money market mutual funds consisting exclusively of obligations described in division (1) or (2) of this section and repurchase agreements secured by such obligations, provided that investments in securities described in this division are made only through eligible institutions; and 6. The State Treasurer's investment pool (STAR Ohio). 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 treasurer or qualified trustee, or if the securities are not represented by a certificate, upon receipt of confirmation of transfer from the custodian. Cash with Fiscal Agents The City has $695,000 on deposit with the Ohio Department of Transportation (ODOT). Information regarding the classification of ODOT's deposits and investments per GASB Statement No. 3 may be found in the State's Comprehensive Annual Financial Report for the fiscal year ended June 30, 2000. City Deposits At year-end, the carrying amount of the City's deposits was $3,170,289 and the bank balance was $3,333,079. Of the bank balance, $147,973 was covered by federal depository insurance and $3,185,106 was uninsured and uncollateralized. City 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 1 includes investments that are insured or registered or are held by the City or its agent in the City's name. Category 2 includes uninsured and unregistered investments which are held by the counterparty's trust deposit or agent in the City's name. Category 3 includes uninsured and unregistered investments which are held by the counterparty's trust department or agent but not in the City's name. STAR Ohio is an unclassified investment since it is not evidenced by securities that exist in physical or book form. 26 City of Fairlawn Notes to the General Purpose Financial Statements For the Year Ended December 31, 2000 3 Carrying Value Fair Value Repurchase Agreements $2,270,864 $2,270,864 $2,270,864 STAR Ohio 10,299,898 10,299,898 Total Investments $2,270,864 $12,570,762 $12,570,762 The classification of cash and cash equivalents, and investments on the combined financial statements are based on criteria set forth in GASB Statement No. 9, "Reporting Cash Flows of Proprietary and Non -Expendable Trust Funds and Government Entities That Use Proprietary Fund Accounting". A reconciliation between the investments on the combined Statement No. 3 is as follows: GASB Statement No. 9 Investments which are part of the cash management pool: Repurchase Agreement STAR Ohio ODOT GASB Statement No. 3 classifications of cash and cash equivalents and financial statements and the classification per GASB NOTE 5 - PROPERTY TAXES Cash and Cash Equivalents/Deposits Investments $16,436,051 $0 (2,270,864) 2,270,864 (10,299,898) 10,299,898 (695,000) 0 $3,170,289 $12,570,762 Property taxes include amounts levied against all real, public utility, and tangible personal property located in the City. Property tax revenue received during 2000 for real and public utility property taxes represents collections of 1999 taxes. Property tax payments received during 2000 for tangible personal property (other than public utility property) are for 2000 taxes. 2000 real property taxes are levied after October 1, 2000, on the assessed value as of January 1, 2000, the lien date. Assessed values are established by State law at 35 percent of appraised market value. 2000 real property taxes are collected in and intended to finance 2001. Public utility tangible personal property currently is assessed at varying percentages of true value; public utility real property is assessed at 35 percent of true value. 2000 public utility property taxes became a lien December 31, 1999, are levied after October 1, 2000, and are collected in 2001 with real property taxes. 27 City of Fairlawn Notes to the General Purpose Financial Statements For the Year Ended December 31, 2000 2000 tangible personal property taxes are levied after October 1, 1999, on the value as of December 31, 1999. Collections are made in 2000. Tangible personal property assessments are 25 percent of true value. The full tax rate for all City operations for the year ended December 31, 2000 was $2.70 per $1,000 of assessed value. The assessed values of real and tangible personal property upon which 2000 property tax receipts were based are as follows: Assessed Value Real Estate $255,576,460 Public Utility Property 5,200,550 Tangible Personal 30,537,427 Total $291,314,437 Real property taxes are payable annually or semi-annually. If paid annually, payment is due December 31; if paid semi-annually, the first payment is due December 31, with the remainder payable by June 20. Under certain circumstances, State statute permits later payment dates to be established. Tangible personal property taxes paid by multi -county taxpayers are due September 20. Single county taxpayers may pay annually or semi-annually. If paid annually, payment is due April 30; if paid semi-annually, the first payment is due April 30, with the remainder payable September 20. The County Treasurer collects property taxes on behalf of all taxing districts in the county, including the City of Fairlawn. The County Auditor periodically remits to the City its portion of taxes. Property taxes receivable represent real and tangible personal property taxes and outstanding delinquencies which are measurable as of December 31, 2000. Although total property tax collections for the next year are measurable, amounts to be received during the available period are not subject to reasonable estimation at December 31, nor are they intended to finance 2000 operations. The receivable is offset by deferred revenue. NOTE 6 - RECEIVABLES Receivables at December 31, 2000, consisted of taxes, accounts (billings for user charged service), special assessments, and intergovernmental receivables arising from grants, entitlements, and shared revenues. Accounts, taxes, special assessments, interest, and intergovernmental receivables are deemed collectable in full. A summary of the principal items of intergovernmental receivables is as follows: 28 City of Fairlawn Notes to the General Purpose Financial Statements For the Year Ended December 31, 2000 Intergovernmental Receivable Amount General Fund: Local Government Tax $9,168 Tangible Exempt 4,206 Liquor Permits 3,497 Building Permits 13,741 Estate Tax 184,817 Akron Court Fines 2,325 JEDD Disbursements 536,246 Reimbursements for Shared Projects 355,598 Workers Compensation Premium Refund 53,245 Imobilization Fees 100 Sewer Maintenance Fees 190 Total General Fund 1,163,133 Special Revenue Funds: Gasoline Tax 11,031 Motor Vehicle 2,812 Motor Vehicle Permissive 1,141 DARE Grant 9,000 Court Fines 71 Tangible Exempt 1,202 Total Special Revenue Funds 25,257 Total $1,188,390 NOTE 7 - 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 quarterly, 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. 29 City of Fairlawn Notes to the General Purpose Financial Statements For the Year Ended December 31, 2000 NOTE 8 - FIXED ASSETS A summary of changes in the general fixed assets account group is as follows NOTE 9 - RISK MANAGEMENT The City is exposed to various risks of loss related to torts; theft of, damage to, and destruction of assets; errors and omissions; injuries to employees; and natural disasters. During 2000, the City contracted with Wichert Insurance Service, Inc. for property and general liability insurance, including boiler and machinery. Police and professional liability policies are provided by Zurich American Insurance Company with a $1,000,000 limit and a $10,000 deductible. A commercial umbrella policy through RLI Insurance Company provides additional general liability and auto liability insurance up to an $11,000,000 limit. Vehicles are covered by Personal Service Insurance Company and hold a $500 deductible for collision. Automobile liability coverage has no limit for collision, a $500,000 limit for uninsured/underinsured motorist and a $1,000,000 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 Worker's Compensation system a premium based on a rate per $100 of salaries. This rate is calculated based on accident history and administrative costs. 30 Balance Balance January 1, 2000 Additions Deletions December 31, 2000 Land $1,073,002 $0 $0 $1,073,002 Land Improvements 1,198,633 4,426 9,321 1,193,738 Buildings 2,628,085 3,926,613 0 6,554,698 Machinery and Equipment 2,520,962 659,600 314,158 2,866,404 Vehicles 1,616,072 639,465 241,918 2,013,619 Construction in Process 3,212,431 0 3,212,431 0 Total $12,249,185 $5,230,104 $3,777,828 $13,701,461 NOTE 9 - RISK MANAGEMENT The City is exposed to various risks of loss related to torts; theft of, damage to, and destruction of assets; errors and omissions; injuries to employees; and natural disasters. During 2000, the City contracted with Wichert Insurance Service, Inc. for property and general liability insurance, including boiler and machinery. Police and professional liability policies are provided by Zurich American Insurance Company with a $1,000,000 limit and a $10,000 deductible. A commercial umbrella policy through RLI Insurance Company provides additional general liability and auto liability insurance up to an $11,000,000 limit. Vehicles are covered by Personal Service Insurance Company and hold a $500 deductible for collision. Automobile liability coverage has no limit for collision, a $500,000 limit for uninsured/underinsured motorist and a $1,000,000 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 Worker's Compensation system a premium based on a rate per $100 of salaries. This rate is calculated based on accident history and administrative costs. 30 City of Fairlawn Notes to the General Purpose Financial Statements For the Year Ended December 31, 2000 NOTE 10 - DEFINED BENEFIT PENSION PLANS A. Public Employees Retirement System (PERS) All City full-time employees, other than non -administrative full-time police officers and firefighters, participate in the Public Employees Retirement System of Ohio (PERS), a cost-sharing multiple -employer public employee retirement system administered by the Public Employees Retirement Board. PERS provides basic retirement and disability benefits, annual cost of living adjustments, and death benefits to plan members and beneficiaries. Benefits are established by Chapter 145 of the Ohio Revised Code. PERS issues a stand-alone financial report which may be obtained by writing to the Public Employees Retirement System, 277 East Town Street, Columbus, Ohio 43215- 4642. Plan members, are required to contribute 8.5 percent of their annual covered salary to fund pension obligations. For calendar year 2000, PERS instituted a temporary employer rate rollback for state and local governments. The 2000 employer contribution rate for the City was 6.54 percent of covered payroll, reduced from 9.35 percent in 1999. Contributions are authorized by State statute. The contribution rates are determined actuarially. The City's required contributions to PERS for the years ended December 31, 2000, 1999, and 1998 were $ 115,321, $155,881, and $142,028, respectively. The full amount has been contributed for 1999 and 1998. 82 percent has been contributed for 2000 with the remainder being reported as a liability within the general long-term obligations account group. B. Ohio Police and Fire Pension Fund The City contributes to the Ohio Police and Fire Pension Fund (OP&F), a cost-sharing multiple employer public employee retirement system administered by the OP&F's Board of Trustees. OP&F provides retirement and disability benefits, annual cost of living adjustments and death benefits to plan members and beneficiaries. Benefit provisions are established by the Ohio State Legislature and by Chapter 742 of the Ohio Revised Code. OP&F issues a publicly available financial report that includes financial statements and required supplementary information. That report may be obtained by writing to the Ohio Police and Fire Pension Fund, 140 East Town Street, Columbus, Ohio 43215-5164. Police and firefighters are required to contribute 10 percent of their annual covered salary to fund pension obligations and the City is required to contribute 12.25 percent for police and 16.75 percent for firefighters. For 1999, the City contributions were 12.5 percent for police and 17 percent for firefighters. Contributions are authorized by State statute. The City's contributions to the OP&F for police and firefighters were 31 City of Fairlawn Notes to the General Purpose Financial Statements For the Year Ended December 31, 2000 $123,958 and $77,119 for the year ended December 31, 2000, $126,806 and $84,204 for the year ended December 31, 1999 and $121,337 and $81,264 for the year ended December 31, 1998. The full amount has been contributed for 1999 and 1998. 72.49 percent and 71.83 percent, respectively, have been contributed for 2000 with the remainder being reported as a liability in the general long-term obligations account group. C. Social Security System Effective August 3, 1992, all volunteer firefighters, not otherwise covered by another retirement system, are covered by social security. The City's liability is 6.20 percent of wages paid. NOTE 11 - POST EMPLOYMENT BENEFITS A. Public Employees Retirement System The Public Employees Retirement System of Ohio (PERS) provides postretirement health care coverage to age and service retirees with ten or more years of qualifying Ohio service credit. Health care coverage for disability recipients and primary survivor recipients is available. The health care coverage provided by the retirement system is considered an Other Postemployment Benefit (OPEB) as described in GASB Statement No. 12. A portion of each employer's contribution to the PERS is set aside for the funding of postretirement health care based on authority granted by State statute. The 2000 employer contribution rate was 10.84 percent of covered payroll; 4.30 percent was the portion that was used to fund health care for 2000. For 1999, the contribution rate was 13.55 percent of covered payroll; 4.20 percent was the portion that was used to fund health care. Benefits are advance -funded using the entry age normal cost method. Significant actuarial assumptions, based on PERS's latest actuarial review performed as of December 31,1999, include a rate of return on investments of 7.75 percent, an annual increase in active employee total payroll of 4.75 percent compounded annually (assuming no change in the number of active employees) and an additional increase in total payroll of between .54 percent and 5.1 percent based on additional annual pay increases. Health care premiums were assumed to increase 4.75 percent annually. All investments are carried at market. For actuarial valuation purposes, a smoothed market approach is used. Assets are adjusted to reflect 25 percent of unrealized market appreciation or depreciation on investment assets. The number of active contributing participants was 401,339. The City's actual contributions for 2000 which were used to fund postemployment benefits were $75,823. 32 City of Fairlawn Notes to the General Purpose Financial Statements For the Year Ended December 31, 2000 The actual contribution and the actuarially required contributions are the same. PERS's net assets available for payment of benefits at December 31, 1999, (the latest information available) were $10,805.5 million. The actuarially accrued liability and the unfunded actuarial accrued liability were $12,473.6 million and $1,668.1 million, respectively. For 2000, PERS elected to return to an actuarially pre -funded type of disclosure because it is a better presentation of PERS's actual funding methodology. Since 1997, disclosures had been based on a pay-as-you-go funding basis. 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 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 full-time or on a 2/3 basis. The health care coverage provided by the retirement system is considered an Other Postemployment Benefit 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 Ohio Police and Fire Pension Fund shall 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 7.25 percent of covered payroll was applied to the postemployment health care program during 2000. For 1999, the percent used to fund healthcare was 7 percent. In addition, since July 1, 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. The City's actual contributions for 2000 that were used to fund postemployment benefits were $73,363 for police and $33,380 for fire. The OP&F's total health care expenses for the year ended December 31, 1999, (the latest information available) were $95,004,633, which was net of member contributions of $5,518,098. The number of OP&F participants eligible to receive health care benefits as of December 31, 1999, was 12,467 for police and 9,807 for firefighters. 33 City of Fairlawn Notes to the General Purpose Financial Statements For the Year Ended December 31, 2000 NOTE 12 - OTHER EMPLOYEE BENEFITS A. Compensated Absences The criteria for determining 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 termination of employment. 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 1991 are eligible to receive payment for accumulated unused sick days. The exact terms vary in accordance with the negotiated collective bargaining agreement in effect. In most cases, the sick leave termination payment is limited to 90 days. Employees with a hire date subsequent to 1991 are generally not eligible to receive termination payments for sick leave. As of December 31, 2000, the total liability for unpaid compensated absences was $775,222. 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 Mutual of Northern Ohio. The employees share the cost of the monthly premium. Dental insurance is provided by the City through Delta Dental. NOTE 13 - LONG-TERM OBLIGATIONS Long-term obligations of the City as of December 31, 2000, were as follows: 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 34 Balance Balance December 31, 1999 Additions Deletions December 31, 2000 General Obligation Bonds (2.80-5.75%) $6,215,000 $0 $260,000 $5,955,000 Special Assessment Various Purpose Bond (4.80-7.00%) 1,580,000 0 90,000 1,490,000 OPWC Loans (6.00%) 888,898 0 37,929 850,969 Capital Loan (5.18%) 204,448 0 99,656 104,792 Intergovernmental Payable 159,337 132,674 159,337 132,674 Compensated Absences 703,621 160,966 103,398 761,189 Total General Long -Term Debt $9,751,304 $293,640 $750,320 $9,294,624 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 34 City of Fairlawn Notes to the General Purpose Financial Statements For the Year Ended December 31, 2000 event that a property owner fails to pay the assessment, payment will be made by the City. Compensated absences reported in the "compensated absences payable" account will be paid from the fund from which the employees' salaries are paid. Intergovernmental payable represents unfunded pension contribution not paid with current available financial resources and will be paid from the general fund and special revenue funds. The capital loan will be paid from the revenues derived from emergency medical transports in the fire equipment fund and the revenues of the capital improvement fund. Principal and interest requirements to retire long-term obligations outstanding at December 31, 2000 are as follows: NOTE 14 - CONTRACTUAL COMMITMENTS As of December 31, 2000, the City had various contractual commitments; for road improvements of $256,396, sewer cleaning and improvements of $49,705, police department/municipal building improvements of $260,076, and purchases of capital equipment for $251,326, park equipment for $9,622, furniture and fixtures for $4,555 and computer related equipment and services of $18,380. NOTE 15 - CONTINGENCIES A. Grants The City received financial assistance from federal and state agencies in the form of grants. The disbursement of funds received under these programs generally requires compliance with terms and conditions specified in the grant agreements and are subject to audit by the grantor agencies. Any disallowed claims resulting from such audits could become a liability of the general fund or other applicable funds. However, in the opinion of management, any such disallowed claims will not have a material effect on the overall financial position of the City as of December 31, 2000. 35 Special General Assessment Obligation OPWC Capital Year Ending Bond Bonds Loans Loan Total 2001 $197,150 $550,175 $90,702 $110,216 $948,243 2002 201,117 549,255 90,702 0 841,074 2003 199,345 547,583 90,702 0 837,630 2004 197,140 550,212 90,702 0 838,054 2005 199,550 546,790 90,702 0 837,042 2006-2010 986,000 2,740,623 453,509 0 4,180,132 2011- 2015 197,950 2,261,607 362,808 0 2,822,365 2016-2020 0 930,520 0 0 930,520 Total $2,178,252 $8,676,765 $1,269,827 $110,216 $12,235,060 NOTE 14 - CONTRACTUAL COMMITMENTS As of December 31, 2000, the City had various contractual commitments; for road improvements of $256,396, sewer cleaning and improvements of $49,705, police department/municipal building improvements of $260,076, and purchases of capital equipment for $251,326, park equipment for $9,622, furniture and fixtures for $4,555 and computer related equipment and services of $18,380. NOTE 15 - CONTINGENCIES A. Grants The City received financial assistance from federal and state agencies in the form of grants. The disbursement of funds received under these programs generally requires compliance with terms and conditions specified in the grant agreements and are subject to audit by the grantor agencies. Any disallowed claims resulting from such audits could become a liability of the general fund or other applicable funds. However, in the opinion of management, any such disallowed claims will not have a material effect on the overall financial position of the City as of December 31, 2000. 35 City of Fairlawn Notes to the General Purpose Financial Statements For the Year Ended December 31, 2000 B. Litigation The City is parry to legal proceedings. The City management is of the opinion that the ultimate disposition of these claims and legal proceedings will not have a material effect, if any, on the financial condition of the City. NOTE 16 - INTERFUND TRANSACTIONS Interfund balances at December 31, 2000, consist of the following: General Fund Children Adolescent SAEF - Special Revenue Fund Mayor's Court - Agency Fund Total 36 Due From Due To $5,857 $0 2,174 0 0 8,031 $8,031 $8,031 STATE OF OHIO OFFICE OF THE AUDITOR JIM hRTRO, AUDITOR OF SIAIT II I Second Street, NW Fourth Floor Canton, Ohio 44702 Telephone 330-438-0617 800-443-9272 Facsimile 330-471-0001 w .auditonstate.oh.us REPORT OF INDEPENDENT ACCOUNTANTS ON COMPLIANCE AND ON INTERNAL CONTROL REQUIRED BY GOVERNMENTA UDITING STANDARDS City of Fairlawn Summit County 3487 South Smith Road Fairlawn, Ohio 44333 To the Members of City Council: We have audited the general purpose financial statements of the City of Fairlawn, Summit County, (the City) as of and for the year ended December 31, 2000 and have issued our report thereon dated July 16, 2001. 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 GovernmentAuditing Standards, issued by the Comptroller General of the United States. Compliance As part of obtaining reasonable assurance about whether the City's financial statements are free of material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts and grants, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit and, accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance that are required to be reported under Government Auditing Standards. However, we noted certain immaterial instances ofnoncompliance that we have reported to management of the City in a separate letter dated July 16, 2001. Internal Control Over Financial Reporting In planning and performing our audit, we considered the City's internal control over financial reporting in order to determine our auditing procedures for the purpose of expressing our opinion 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. 37 City of Fairlawn Summit County Report of Independent Accountants 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 management of the City in a separate letter dated July 16, 2001. This report is intended 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. Jim Petro Auditor of State July 16, 2001 38 STATE OF OHIO OFFICE OF THE AUDITOR JIM PETRQ, AUDlTOR OF NATE CITY OF FAIRLAWN SUMMIT COUNTY 88 East Bmad Stieet P.O. Box 1140 Columbus, Ohio 43216-1140 Telephone 614-466-4514 800-282-0370 Facsimile 614466-4490 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 AUGUST 16, 2001