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HomeMy WebLinkAboutCAFR-June-30-2005City of Paducah Paducah, Kentucky Comprehensive Annual Financial Report Year Ended June 30, 2005 Issued by the Finance Department CITY OF PADUCAH, KENTUCKY COMPREHENSIVE ANNUAL FINANCIAL REPORT YEAR ENDED JUNE 30, 2005 TABLE OF CONTENTS Exhibit No. Page No. Introductory Section: Letter of Transmittal 1 - 9 Organizational Chart 10 Principal Officials 11 GFOA Certificate of Achievement 12 Financial Section: Independent Auditor’s Report 13-14 Required Supplementary Information: Management’s Discussion and Analysis 15-26 Basic Financial Statements: Government-wide Financial Statements: Statement of Net Assets 1 27-28 Statement of Activities 2 29-30 Fund Financial Statements: Governmental Funds: Balance Sheet 3 31-32 Reconciliation of the Governmental Funds Balance Sheet to Statement of Net Assets 4 33-34 Statement of Revenues, Expenditures and Changes in Fund Balances 5 35-36 Reconciliation of the Statement of Revenues, Expenditures and Changes in Fund Balances of Governmental Funds to the Statement of Activities 6 37-38 Proprietary Funds: Statement of Net Assets 7 39 Statement of Revenues, Expenses and Changes in Fund Net Assets 8 40 Statement of Cash Flows 9 41 Fiduciary Funds: Statement of Net Assets 10 42 Statement of Changes in Net Assets 11 43 Component Units Financial Statements: Statement of Net Assets 12 44-45 Statement of Activities 13 46-47 Notes to Financial Statements 48-80 Required Supplementary Information: Pension Trust Fund Schedules A-1 81 Budgetary Comparison Schedule (Budgetary Basis) – General Fund A-2 82-85 Budgetary Comparison Schedule – Note to RSI A-3 86 Supplementary Information: Nonmajor Governmental Funds: Combining Balance Sheet B-1 87-88 Combining Statement of Revenues, Expenditures and Changes in Fund Balances B-2 89-90 Exhibit No. Page No. Supplementary Information: Detail Statement of Revenues, Expenditures, and Changes in Fund Balance – Budget and Actual: Municipal Aid Program Fund B-3 91 Emergency Communication Service Fund B-4 92 Court Awards Fund B-5 93 Small Grant Fund B-6 94 CDBG Fund B-7 95 Hope 3 Implementation Grant Fund B-8 96 Home Grant Fund B-9 97 HUD Revolving Grant Fund B-10 98 Paducah Housing Authority Police Grant Fund B-11 99 Debt Service Fund B-12 100 Nonmajor Proprietary Funds: Combining Statement of Net Assets C-1 101 Combining Statement of Revenues, Expenses and Changes in Fund Net Assets C-2 102 Combining Statement of Cash Flows C-3 103 Internal Service Funds: Combining Statement of Net Assets D-1 104 Combining Statement of Revenues, Expenses, and Changes in Fund Net Assets D-2 105 Combining Statement of Cash Flows D-3 106 Fiduciary Funds: Combining Statement of Net Assets – Pension Trust Funds E-1 107 Combining Statement of Changes in Net Assets – Pension Trust Funds E-2 108 Combining Statement of Net Assets – Private-purpose Trust Funds E-3 109 Combining Statement of Changes in Net Assets – Private-purpose Trust Funds E-4 110 Statement of Changes in Assets and Liabilities – Agency Funds E-5 111 Table No. Page No. Statistical Section: General Government Expenditures by Function 1 112 General Revenue By Source 2 113 Tax Revenue by Source 3 114 Secured Tax Levies and Collections 4 115 Assessed and Estimated Actual Value of Taxable Property 5 116 Property Tax Rates - Direct and Overlapping Governments 6 117 Ratio of Net General Bonded Debt to Assessed Value and Net Bonded Debt Per Capita 7 118 Ratio of Annual Debt Service Expenditures for General Bonded Debt to Total General Expenditures 8 119 Computation of Legal Debt Margin 9 120 Property Value, Construction and Bank Deposits 10 121 Schedule of Sewer Revenue Bond Coverage 11 122 Table No. Page No. Statistical Section: Demographic Statistics 12 123 Miscellaneous Statistical Data 13 124-125 Principal Taxpayers 14 126 Computation of Direct and Overlapping Debt 15 127 Summary of Insurance in Force 18 128 Single Audit Section: Schedule of Expenditures of Federal Awards 129-130 Notes to the Schedule of Expenditures of Federal Awards 131 Report on Internal Control Over Financial Reporting And on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards 132 Report on Compliance with Requirements Applicable to Each Major Program and On Internal Control Over Compliance in Accordance with OMB Circular A-133 133-134 Schedule of Findings and Questioned Costs 135 CITY OF PADUCAH, KENTUCKY INTRODUCTORY SECTION COMPREHENSIVE ANNUAL FINANCIAL REPORT YEAR ENDED JUNE 30, 2005 October 28, 2005 Honorable Mayor and Commissioners City of Paducah Paducah, Kentucky We are pleased to submit Paducah's Comprehensive Annual Financial Report for the year ended June 30, 2005. Responsibility for the accuracy of the presented data and the completeness and fairness of the presentation, including all disclosures, rests with the City. The major objective of this report is to describe the City’s financial condition and the financial results of its operation in a format designed to be useful to the general public, elected officials, investors and creditors. We believe the data, as presented, is accurate in all material aspects; that it is reported in a manner designed to present fairly the financial position and results of operations of the various funds. All disclosures necessary to enable the reader to gain maximum understanding of the City’s financial activities have been included. This Comprehensive Annual Financial Report consists of four sections as follows: Introductory Section - Contains a list of principal officials, an organizational chart for Paducah and this transmittal letter from the Finance Director. Financial Section - Includes the Management’s Discussion and Analysis (MD&A), basic financial statements, required supplementary information, and combining and individual fund statements and schedules, as well as the independent auditor’s report on the basic financial statements. The MD&A is a narrative introduction, overview and analysis to accompany the basic financial statements. This letter of transmittal should be read in conjunction with the MD&A, which can be found immediately following the report of the independent auditors. Statistical Section - Includes a number of statistical tables that present various financial, economic, social and demographic data about Paducah for the last ten years. Single Audit Section - Includes required data in accordance with the Single Audit Act Amendments of 1996. THE CITY Paducah was established in 1827 by explorer General William Clark and was named after local legendary Chickasaw Indian Chief “Paduke”. The City of Paducah is situated on the southern bank of the Ohio River in the north central portion of McCracken County. Paducah is the largest city both in the county and in the Jackson Purchase eight county region. The City has established itself as the cultural, economic, medical and transportation center for not only the Jackson Purchase region but for a large portion of Southern Illinois and portions of Western Tennessee and Southeastern Missouri. CITY OF PADUCAH Finance Department P.O. Box 2267 Paducah, KY 42002-2267 270-444-8512 Equal Opportunity Employer Industry The Paducah area has moved from the traditional “manufacturing industry” to a “service industry” economy. Multi-state computer services, significant banking corporations, wholesale and retail trade, river-related services, the health care industry and related services are the major employment centers. Traditional manufacturing employment is heavily concentrated in the categories of chemicals, petroleum, coal and rubber, and enriched uranium. Economic Development Activities The Greater Paducah Economic Development Council (GPEDC) coordinates the City’s efforts in strengthening and building economic development activities. Representatives of financial institutions, utilities, local government, education and the business community serve as the Board of Directors. In existence since 1987, GPEDC assumes and carries out the responsibility of working with existing industry and business, as well as identifying and recruiting new companies to the City of Paducah. Additionally, GPEDC is responsible for development of long-term strategy for economic development activities and coordinates local entities in the accomplishment of those strategies. Several years ago, the City of Paducah, the State of Kentucky and several federal agencies, in conjunction with business, developed a 650-acre ‘Information Age’ Park. This park is designed to appeal to firms needing advanced telecommunications and computing capabilities. The Info Park’s focal point is centered on the Resource Center, which was designed to coordinate resources of government, business and education. In 1997, the City of Paducah jointly with the County of McCracken acquired the ‘Industrial Park West of Paducah and McCracken County’. This park contains 218 acres with immediate access to two major railroad lines, Paducah and Louisville and Paducah and Illinois (formerly Illinois Central). The park is located within the southwest quadrant of the I-24/Cairo Road interchange. In FY2004, the Keiler family donated the Columbia and Arcade Theatre buildings valued at $740,000, and a donation of infrastructure for Industrial Park West valued at $1.1 million was received, totaling $1.84 million. Union Planters Bank donated its former main bank building, valued at $675,000, to the City, which was converted into the City’s ‘Commerce Center’. The theater buildings are being marketed for resale to further enhance the downtown. In FY2005, as the following table indicates, there were over 1,100 jobs created and retained, $69 million capital invested and an added fiscal impact estimated to exceed $128 million from the jobs created and capital invested. Additionally, Gander Mountain, Kohl’s, Best Buy and Old Navy opened, creating several hundred more service industry jobs, further strengthening Paducah’s retail market. Summary of Capital Investment and New/Retained Jobs FY2005 Company Capital Investment In Millions New & Retained Jobs Impact of New Jobs In Millions Infiniti Plastic Technologies $47.0 100 $23.6 Ulrich Medical Concepts $2.2 25 $3.5 Coca-Cola Enterprises $4.7 105 $3.0 AAA Fabricators $1.5 25 $5.9 BellSouth N/A 45 $6.3 Millwork Products $1.0 57 $1.7 AlumaKraft $1.7 473 $53.1 American Justice School of Law $11.0 300 $31.4 Total $69.1 1,130 $128.5 Source: GPEDC 2004-2005 Annual Report -2- Churches And Schools A relatively strong religious base is evident in the community, as demonstrated by the many churches in Paducah. Numerous churches, representing many of the major denominations, are located within the City. Several area churches offer televised activities as a convenience to those who do not attend church. Elementary and secondary education in Paducah is provided by the Paducah Independent School System, the McCracken County School System, Community Christian Academy, and by the St. Mary’s Parochial School System. Higher education is available locally from West Kentucky Community and Technical College (WKCTC), formerly known as Paducah Community College, a two-year institution affiliated with the University of Kentucky’s community college system. WKCTC also serves as a site for the University of Kentucky extended campus graduate programs, in addition to a four-year engineering college in conjunction with the University of Kentucky. Medical Facilities Paducah serves as the regional medical center for much of the Jackson Purchase Area of Western Kentucky, a large portion of Southern Illinois, and Northwestern Tennessee. Paducah’s medical industry has almost every major medical specialty represented in the physician population. The medical industry, represented by Lourdes Hospital and Western Baptist Hospital, provides over 640 beds for medical needs. The two largest hospitals, together, employ approximately 2,900 persons. Recreation And Culture Citizens have available a wide range of recreational and cultural activities which cater to diverse tastes. Area residents may choose from fishing on nearby Kentucky and Barkley Lakes to enjoying the performing arts. City parks provide areas for baseball, softball, golf, football, tennis, soccer and picnicking. The Parks Services Department offers a substantial number of activities for people of all ages. The ‘Dogwood Festival’, held in April, highlights the coming of spring in Paducah. Residents are encouraged to spotlight their trees to illuminate a driving tour to celebrate an abundance of dogwood trees. Paducah is the site of the American Quilter Society’s National Museum. The museum, dedicated in 1991, is the centerpiece for the quilters’ annual convention held in April. The convention attracts an estimated 30,000 visitors to Paducah annually. The ‘After Dinner Downtown Program’, began in May 1997, started out as an experiment to draw people to Paducah's downtown district. From May to September, businesses remain open late on Saturday night, while street corner musicians of all types entertain. The ‘Paducah Summer Festival’, started in 1967, is an annual celebration held during the last week in July. Some of the Festival’s activities include skydiving, hot air balloon races, a variety of music concerts, and usually concludes with a spectacular riverfront fireworks display. One of Paducah’s oldest celebrations is the ‘8th of August Emancipation Celebration’, which features African American family reunions, or a homecoming. It is a time for African Americans to pay tribute to their heritage and roots, and a time of reconciliation. The ‘Barbecue on the River’ event was started in 1995, as a way for local charities to raise funds. It attracts in excess of 20,000 participants to Paducah’s riverfront during the last weekend in September. Over time, this annual event has grown to incorporate other events, including ‘Arts in Action’, ‘LowerTown Fine Arts Festival’, ‘Marine Industry Day’ and ‘Old Market Days’. The ‘Festival of Lights’, started in 1992, is another annual event. This festival marks the beginning of the winter holiday season, with the official lighting of the trees and buildings in downtown Paducah. The season includes a ‘Holiday Parade’ and features a ‘Candle Light Christmas Trail’. -3- Paducah has an active symphony and several theater groups. The Paducah Symphony Orchestra stages concerts during the winter season, with the Market House Theater presenting several productions during the same time period. The Paducah Live Corporation annually schedules a series of concerts, which brings some of the finest artists to the Paducah stage. In addition, West Kentucky Community and Technical College’s ‘Arts in Focus’ series sponsors a variety of professional productions. The most recent addition to the City’s cultural lineup is the ‘Luther F. Carson Four Rivers Center for the Performing Arts’. The Center opened in February 2004, as a regional, multiple-purpose facility, with a 1,800- seat main hall designed to accommodate a wide variety of cultural and educational programs. The McCracken County Public Library offers a large selection of literature, special collections and programs. The West Kentucky Community and Technical College Library supplements this community resource. The combined inventories of the two libraries yield nearly 121,000 titles, not counting numerous periodicals and newspapers. THE GOVERNMENT Paducah operates under a City Manager form of government. The Paducah Board of Commissioners is made up of a Mayor and four Commissioners elected at large by the citizens on a non-partisan basis. The Mayor is elected for a four-year term and Commissioners for a two-year term. The Mayor and Commissioners have equal voting powers. The Board of Commissioners sets the policies that govern the City. It appoints advisory citizens groups that help in the decision-making process. The City Manager is appointed by the Board and assists it in formulating objectives, policies and programs. The City Manager is responsible for the day-to-day operation of the City’s 325 full-time employees as of June 30, 2005. Department managers are responsible for their respective departments and report directly to the City Manager. REPORTING ENTITY AND ITS SERVICES For financial statement purposes, as required by generally accepted accounting principles, the City’s Comprehensive Annual Financial Report includes all City of Paducah financial statements (primary government) and its component units. Component units discussed below are included in the City’s reporting entity because of the significance of their operational or financial relationships with the City of Paducah. The following component units have been presented as blended units because the units’ governing bodies substantially the same as the governing body of the City, or provide services almost entirely to the City of Paducah: the Paducah Public Improvement Corporation, whose sole purpose is to finance long-term debt; and Police and Firefighters’ Pension Fund, which was established for the benefit of police and firemen of the City. The following component units have been presented as discrete units, to emphasize that they are legally separate from the City. Paducah Water Works, Paducah Power System, and Transit Authority of the City of Paducah are all included in the City’s financial statements because of their financial relationship with the City. The City provides a full range of municipal services, including police and fire protection; maintenance of streets and infrastructure; sanitation services; storm sewer services; cultural events and recreation activities. Accounting System The City’s accounting system is organized on the basis of separate funds, each of which is considered to be a separate accounting entity. The financial activities of each fund generate a separate set of self-balancing accounts, which comprise its assets, liabilities, fund equity, revenues, and expenditures/expenses. Municipal resources are allocated to and accounted for in individual funds based upon the purposes for which they are to be spent and the means by which spending activities are controlled. -4- The City’s accounting records for the governmental funds and agency funds are maintained on a modified accrual basis, with revenues being recorded when “measurable and available” and expenditures being recorded when the services or goods are received and the liabilities are incurred. Accounting records for the City’s proprietary funds and trust funds are maintained on the accrual basis, with revenues recognized when earned and expenses recorded when the liability is incurred or economic asset used. Internal Control In developing and evaluating the City’s accounting system, consideration is given to the adequacy of internal controls. Internal controls were designed for Paducah’s accounting system to reasonably safeguard its assets against loss from unauthorized use or disposition, check the accuracy of accounting data, promote operational efficiency and encourage adherence to prescribed managerial policies. Budgetary Control Paducah’s budget process provides for input from department managers, top management, elected officials and the public to determine what programs and services will be provided for during the upcoming year. Budgetary control is maintained at the departmental level by comparing budgeted expenditures with actual expenditures on a periodic and year-to-date basis. An expenditure, which would result in an overrun of department appropriation, cannot be made until additional funds are appropriated and a budget amendment is approved. Purchase orders which result in an overrun of department appropriations cannot be honored until additional appropriations are made available. Open encumbrances at fiscal year-end, if any, are reported as reservations of fund balance. Unencumbered funds at year-end roll into the fund balance. GENERAL GOVERNMENT FUNCTIONS General Fund Revenue (Based on Fund Financial Statements) Revenue for General Government functions (General Fund) totaled $26,862,189 in fiscal year 2005, a decrease of 2.2% over fiscal year 2004. The amount of revenue from various sources, percent of total, and the increase or decrease from last year in dollars and as a percentage are shown in the following tabulation: Increase (Decrease) From FY 2004 FY 2005 Percent Dollar Revenue Sources: Amount of Total Amount Percent Taxes $ 5,346,389 19.9% $ 140,967 2.7 % Licenses and permits 19,368,765 72.1% 945,521 5.1 % Charges for services 515,192 1.9% (54,128) (9.5)% Grants 667,062 2.5% 31,537 5.0% Interest 190,901 0.7% 72,335 61.0% Miscellaneous 773,880 2.9% (1,747,853) (69.3)% TOTAL REVENUE $ 26,862,189 100.0% $ (611,621) (2.2) % The most substantial change in the revenue categories above in actual dollars is in ‘Miscellaneous’, which amounted to $1,747,853. The vast majority of the decrease was caused by a ‘one-time’ donation of $1.84 million for a building and infrastructure donated to the City in FY2004. Net of the donations in FY2004, revenues in the ‘Miscellaneous’ category increased $92,147 in FY2005. See ‘Economic Development Activities’ section on page 2 for additional details regarding the donations. The most substantial increase in the revenue categories was ‘Licenses and Permits’, which amounted to $945,521. Payroll taxes increased $566,934 or about 5.3 percent, while business license collections increased $146,764 or 4.2 percent over last year. In fiscal year 1995, $7.3 million was received in payroll tax revenues, while fiscal year 2005 revenue was $11.1 million, an average growth rate of 4.4 percent. Payroll tax revenue rate of growth was 3.4 percent for a more recent five-year period, fiscal 2000 to fiscal 2005. The FY2005 payroll tax revenue growth rate of 5.3 percent exceeds the five-year growth rate. -5- Insurance premium tax collections increased 5.0 percent or $189,425 over last year. In fiscal year 1992, $2.3 million was received, and in fiscal year 1999, the revenue hit $3.4 million, giving an average compounded growth rate of 5.7 percent a year. While insurance premium tax revenue was $3.4 million in 1999, it subsequently hit a 7-year low in 2000 at $3.0 million. In fiscal years 2001 and 2002, the insurance premium tax sustained positive growth but declined 1.1 percent in fiscal 2003. The average growth rate for the insurance premium tax over the past 4 years was 3.8 percent. While overall, ‘License and Permits’ revenue dollars grew the most, the ‘Interest’ category increased the most dramatically as a percentage of change, 61 percent or $72,335. The interest revenue increase can be attributed to the general increase in interest rate environment. General Fund Expenditures (Based on Fund Financial Statements) Expenditures for General Fund functions totaled $24,331,520, a decrease of 1.1% over fiscal year 2004. Increases and decreases in levels of expenditures by major functions compared to the preceding year are shown in the following tabulation: Increase (Decrease) From FY 2004 FY 2005 Percent Dollar Expenditures: Amount of Total Amount Percent General government $ 4,171,662 17.2% $ 280,411 7.2% Public safety 12,998,049 53.4% 1,248,031 10.6% Public service 5,654,686 23.2% 72,680 1.3% Recreation 1,045,024 4.3% 18,727 1.8 % Other 462,099 1.9% (1,881,745) (80.3)% TOTAL EXPENDITURES $24,331,520 100.0% $ (261,896) (1.1) % Expenditures decreased 1.1 percent or $261,896 between fiscal year 2004 and fiscal year 2005. Spending between fiscal year 2003 and fiscal year 2004 increased $693,178 or 3.1 percent (net of ‘one-time’ donation of $1.84 million for a building and infrastructure donated to the City in FY2004). The fiscal year 1995 expenditure per capita was $595 and changed to $728 and $839 in fiscal year 2000 and fiscal year 2003, respectively. Per capita expenditures have increased on average 4.7 percent annually since fiscal year 1995. Fiscal year 2005 General Fund expenditures decreased $10 per citizen from the fiscal year 2004 amount of $935. The most substantial increase in the expenditures categories above, in actual dollars, is in ‘Public Safety’, which amounted to $1,248,031. Over 72% of the increase is attributed to wages and related benefits, specifically wage increases ($470,800) and related pension expenses ($364,200). FOP and IAFF wage contracts provided for a 3% cost of living adjustment in fiscal year 2005. The State of Kentucky increased the City’s pension expense for hazardous-duty employees by 3.57% (a 19.3% increase) to a 22.08% contribution rate on all wages paid. The largest change in the expenditure categories above, in actual dollars, is in ‘Other’, which amounted to a decrease of $1,881,745. The vast majority of the change was caused by a ‘one-time’ donation of $1.84 million for a building and infrastructure donated to the City in fiscal year 2004. Net of the donations, expenditures in the ‘Other’ category actually decreased in FY2005 $41,745. See ‘Economic Development Activities’ section on page 2 for additional details regarding the donations. The next most significant change, in terms of dollars, was in the ’General Government’ category for $280,411, or 7.2% over last year. General Government operation expenditures include operations not involved with public safety, recreation, or public service. The most substantial increases, in terms of dollars, were in the ‘Legal’, ‘Contributions’ and ‘Inspections’ divisions, amounting to nearly $169,000. The fiscal year 2005 budget process played a significant role in identifying spending trends, and that process should be carried over into fiscal year 2006. The fiscal year 2005 expenditures more accurately reflect all costs associated with the departments that benefit from the expenditure. -6- ECONOMIC CONDITION The City continues to be aggressive in promoting economic development, since new developmental job growth is necessary to ensure the continued stability of the City’s tax base. Economic indicators and trends reflect that the area’s economy has remained steady in recent years and is expected to continue to be steady over the near-term. Area employment remains stable with 29,698 persons employed (McCracken County) as of June 30, 2005. The June 2005 unemployment rate was 6.1% (McCracken County), somewhat higher than the federal rate of 5.0%. The number of active electric and water meters was nearly the same as the prior year. The number of residential construction permits obtained was 204 units of single and multi-family dwellings, down 24% and valued at $16.6 million. The value of commercial construction permits was $41.4 million, up sharply 75% from the prior year. CASH MANAGEMENT Idle cash in the City’s various funds, except for pension funds, is invested for terms ranging from overnight to 23 months to maturity, depending upon liquidity needs. Independent money managers handle Police and Firefighters’ Pension Funds. City deposits/investments are protected by FDIC insurance and pledged U.S Government securities. The amount of interest earned in fiscal year 2005 in the General Fund was $190,901, on rates varying from 1.65% to 3.45%. RISK MANAGEMENT In recent years, attention has been focused on safety in the workplace. Working with the Kentucky League of Cities (KLC) has produced numerous enhancements in worker safety. In fiscal year 2005, a risk manager was hired in order to more aggressively address risk issues. The City has selected various insurance coverage to mitigate potential risk, with premiums costing more than $1,015,000 and $904,500 in fiscal year 2005 and fiscal year 2004, respectively, for general liability, public officials liability, auto, law enforcement and workers compensation. PENSION FUND MANAGEMENT The City of Paducah employees are covered by one of three retirement systems: (1) Police and Firefighters’ Pension Fund (PFPF); (2) County Employees’ Retirement System (CERS); and (3) Appointive Employees’ Pension Fund (AEPF). The PFPF is a single-employer contributory defined benefit plan established by local ordinance under State Statutes. Members contribute 8% of their gross earnings. The investments of this fund are managed by a six- member board of trustees, which utilizes BB&T as money managers. Monthly reports are received, and monthly meetings are held with the money managers to review investment progress and strategy. In the past year, the PFPF had a net asset decrease of $201,438, with net assets valued at $9,150,861 on June 30, 2005. There were 5 active members and 95 retirees and/or beneficiaries in this fund as of June 30, 2005. The most recent actuarial report prepared for the PFPF was as of July l, 2005. The CERS is a multiple employer cost sharing defined benefit plan administered by Kentucky Retirement System. Effective August 1, 1988, all but 21 active police and firefighters opted to transfer from the present plan to the County Employees’ Retirement System. Non-hazardous duty employees contribute 5%, while hazardous duty employees contributed 7% until August 1, 1998. Hazardous duty employees contribute 8% effective August 1, 1998, due to a change in state pension law. The City contributed 8.48% for non-hazardous and 22.08% for hazardous duty employees in fiscal year 2005. -7- The AEPF is a single-employer contributory defined benefit plan created by local ordinance under State Statute. While there are no active members in the plan, there are 11 retirees and/or beneficiaries receiving benefits from the fund as of June 30, 2005. Retirees are former non-hazardous duty municipal employees who retired prior to the statewide CERS plan. Funding was formerly provided by a special ad valorem tax, with any shortfall to be covered by a transfer from the City’s General Fund. The AEPF had a net asset increase of $5,269 in fiscal year 2005, with net assets valued as of June 30, 2005, of $328,889. SPECIAL REVENUE FUNDS Special revenue funds (Nonmajor Governmental Funds) included in this report are the Municipal Aid Program, Emergency Communication Service Fund, Court Awards Fund, and various Federal and State Grants. Revenues accounted for in these funds are restricted to specific purposes. PROPRIETARY FUNDS The City maintains eight proprietary funds which are: Solid Waste, Civic Center, Telecommunication Information System Authority (TISA) (Business-type Activities); and Fleet Maintenance, Fleet Lease Trust, Insurance and Health Insurance Funds (Internal Service Funds). In fiscal year 1990, the Solid Waste Fund and the Wastewater/Stormwater Fund were reclassified from General Government and established as proprietary funds. The City’s fleet operation was broken out as a proprietary fund in fiscal year 1992, in order to more accurately reflect the true cost of the City’s vehicle and equipment fleet maintenance program. The Civic Center’s operation was converted into a proprietary fund in fiscal year 1993. In fiscal year 1999, the City set up two new funds called Fleet Lease Trust and Health Insurance Funds in order to more accurately monitor the City’s fleet lease program and health, dental and flexible benefits programs, respectively. All these changes were made to better account for the cost of operations. The Wastewater/Stormwater Fund was closed out in fiscal year 2004, since accounts are settled with the Paducah-McCracken County Joint Sewer Authority (JSA). This agency has taken over the planning, financing, operation and maintenance of all county and city sewer systems. DEBT SERVICE FUND This fund is used to account for payment of general obligation indebtedness, which includes the following debt issues. In fiscal year 2001, the City issued $9.29 million in notes payable to fund the Julian Carroll Convention Center expansion ($6.0 million) and to assist in the financing of the Luther F. Carson Four Rivers Center (FRC) for the Performing Arts ($3.0 million). According to an interlocal agreement between the City, McCracken County and the Tourism and Convention Commission, principal and interest payments on the bonds are to be made from a 2% transient room tax collected by the County. Any excess principal and interest payments on the bonds are split equally between the City, County and the Tourism and Convention Commission. In fiscal year 2004, the City issued $3.5 million in bonds to fund a variety of capital projects, including park improvements ($1.0 million), downtown infrastructure improvements in conjunction with the FRC ($1.5 million), and City Hall, Police and other City-owned facility improvements ($1.0 million). In fiscal year 2004, the City sold $5.0 million in bonds to construct the Infiniti Media Building in the Paducah Industrial Park West, an economic development project. By interlocal agreement, McCracken County is obligated to an amount equal to 50% of the principal amount of the bonds. After the third year of the life of the bond, the Infiniti Media Company is obligated to make monthly lease payments to the City in an amount nearly equal to the debt service obligation. The total cash outlay requirements for debt service retirement; principal and interest, in fiscal year 2005 were $1,298,614. -8- INDEPENDENT AUDIT Kentucky Revised Statute 91 A-040 requires an annual audit of each fund of the City by an auditor of public accounts or a certified public accountant. The independent certified public accounting firm of Kemper CPA Group, LLP has conducted this audit and their opinion has been included in this report. The City is also subject to the Single Audit Act Amendments of 1996 reporting requirements. The Single Audit Report is included within this report. CERTIFICATE OF ACHIEVEMENT The Government Finance Officers Association of the United States and Canada (GFOA) awarded a Certificate of Achievement for Excellence in Financial Reporting to the City of Paducah, Kentucky for its comprehensive annual financial report for the fiscal year ended June 30, 2004. This was the fourteenth consecutive year that the City achieved this prestigious award. In order to be awarded a Certificate of Achievement for Excellence in Financial Reporting, a government must publish an easily readable and efficiently organized comprehensive annual financial report. This report must satisfy both generally accepted accounting principles and applicable legal requirements. A Certificate of Achievement for Excellence in Financial Reporting is valid for a period of one year only. We believe our current comprehensive annual financial report continues to meet the Certificate of Achievement Program’s requirements and we are submitting it to GFOA to determine its eligibility for another certificate. ACKNOWLEDGMENTS The preparation of this report on a timely basis could not be accomplished without the efficient and dedicated services of the entire staff of the Finance Department. We wish to express our appreciation to all members of the Finance Department who assisted and contributed to its preparation, and special thanks to Kemper CPA Group, LLP. We also thank the Mayor and City Commission for their interest and support in planning and conducting the financial operations of the City in a responsible and progressive manner. -9- CITY OF PADUCAH, KENTUCKY ORGANIZATIONAL CHART CITIZENS OF PADUCAH CITIZENS OF PADUCAH Mayor and Commissioners Advisory Board and Committees City Manager City Attorney Finance Department City Clerk Inspection Parks Department Fire Department Public Works Department Solid Waste Fleet Maintenance DivisionFacility Maintenance Division Police Department Human Resources Planning Department Engineering Department Engineering Division Flood Control Division Street Division -10- CITY OF PADUCAH, KENTUCKY PRINCIPAL OFFICIALS BOARD OF COMMISSIONERS Mayor William F. Paxton Mayor Pro tem Buz Smith Commissioner George Sirk Commissioner Robert Coleman Commissioner David Guess CITY MANAGER James Zumwalt Human Resources Herschel Dungey Finance Jonathan Perkins, C.P.A. Police Chief Randy Bratton Fire Chief Redell Benton City Engineer Richard Murphy Planning Thomas Barnett Parks Services Mark Thompson Inspections Joel Scarbrough Public Works Earnie Via Information Services Greg Mueller City Clerk Tammy Brock Risk Manager Cindy Medford -11- -12- CITY OF PADUCAH, KENTUCKY FINANCIAL SECTION COMPREHENSIVE ANNUAL FINANCIAL REPORT YEAR ENDED JUNE 30, 2005 Independent Auditor’s Report Honorable William F. Paxton, Mayor Members of the Board of Commissioners City of Paducah Paducah, Kentucky We have audited the accompanying financial statements of the governmental activities, the business-type activities, the aggregate discretely presented component units, each major fund, and the aggregate remaining fund information of the City of Paducah, Kentucky (the City), as of and for the year ended June 30, 2005, which collectively comprise the City’s basic financial statements as listed in the table of contents. These financial statements are the responsibility of the City of Paducah, Kentucky’s management. Our responsibility is to express opinions on these financial statements based on our audit. We did not audit the financial statements of the following component units: Paducah Water Works, Paducah Power System, and Transit Authority of the City of Paducah, which represent 100 percent of the assets and revenues of the Component Units column. Those financial statements were audited by other auditors whose reports have been furnished to us, and our opinion on the basic financial statements, insofar as it relates to the amounts included for Paducah Water Works, Paducah Power System, and Transit Authority of the City of Paducah, discretely presented component units, is based on the reports of the other auditors. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the basic 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 basic financial statement presentation. We believe that our audit provides a reasonable basis for our opinions. In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, the business-type activities, the aggregate discretely presented component units, each major fund, and the aggregate remaining fund information of the City of Paducah, Kentucky as of June 30, 2005, and the respective changes in financial position and cash flows, where applicable, thereof for the year then ended in conformity with accounting principles generally accepted in the United States of America. In accordance with Government Auditing Standards, we have also issued our report dated October 28, 2005, 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, grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be read in conjunction with this report in considering the results of our audit. -13- The Management’s Discussion and Analysis, Pension Trust Fund Schedules, and budgetary comparison information on pages 15 through 26 and 82 through 87, are not a required part of the basic financial statements but are supplementary information required by accounting principles generally accepted in the United States of America. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation of the supplementary information. However, we did not audit the information and express no opinion on it. Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the City of Paducah, Kentucky’s basic financial statements. The introductory section, combining and individual nonmajor fund financial statements, and statistical tables are presented for purposes of additional analysis and are not a required part of the basic financial statements. The accompanying schedule of expenditures of federal awards is presented for purposes of additional analysis as required by U.S. Office of Management and Budget Circular A-133, Audits of State, Local Governments, and Non-Profit Organizations, and is also not a required part of the basic financial statements of the City of Paducah, Kentucky. The combining and individual nonmajor fund financial statements and the schedule of expenditures of federal awards have been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, are fairly stated in all material respects in relation to the basic financial statements taken as a whole. The introductory section and statistical section have not been subjected to the auditing procedures applied in the audit of the basic financial statements and, accordingly, we express no opinion on them. Certified Public Accountants and Consultants October 28, 2005 -14- CITY OF PADUCAH, KENTUCKY REQUIRED SUPPLEMENTARY INFORMATION COMPREHENSIVE ANNUAL FINANCIAL REPORT YEAR ENDED JUNE 30, 2005 -15- CITY OF PADUCAH, KENTUCKY MANAGEMENT’S DISCUSSION AND ANALYSIS JUNE 30, 2005 The City of Paducah (“City”) offers Management’s Discussion and Analysis to provide a narrative overview and analysis of City financial activities for fiscal year ended June 30, 2005. To fully understand the entire scope of the City’s financial activities, this information should be read in conjunction with the letter of transmittal (pages 1-9) and the basic financial statements (pages 27-80) provided in this document. The City first implemented Government Accounting Standards Board Statement 34, Basic Financial Statements—and Management’s Discussion and Analysis—for State and Local Governments, for fiscal year 2003. I. Financial Highlights Assets exceeded liabilities by $40.0 million at the close of the 2004-2005 fiscal year. Of this amount, $7.4 million (unrestricted net assets) may be used to meet City government’s ongoing obligations to citizens and creditors. Total net assets decreased $712,625. At fiscal year end, City governmental funds reported a combined ending fund balance of $10.8 million. Approximately 87% of this total amount, $9.4 million, is unreserved and available for spending at the City’s discretion. Of the $9.4 million, $1,049,659 is in various special funds, which are earmarked for specific purposes. At the end of the current fiscal year, unreserved general fund balance was $8.3 million, of which cash makes up approximately $4.4 million. When compared to total appropriations, the general fund cash balance is 16.4%. II. Overview of Financial Statements This discussion and analysis serves as an introduction to the City’s basic financial statements, which consist of four components: 1) government-wide financial statements, 2) fund financial statements, 3) component unit financial statements, and 4) notes to the financial statements. This report also contains other supplementary information in addition to the basic financial statements. A. Government-Wide Financial Statements Government-wide financial statements are designed to provide readers with a broad overview of City finances in a manner similar to private-sector business. The Statement of Net Assets presents information on all City assets and liabilities, with the difference between assets and liabilities reported as net assets. Monitoring increases and/or decreases in net assets over time may serve as a useful indicator of whether the financial position of the City is improving, stagnating, or deteriorating. The Statement of Activities presents information showing how the City’s net assets changed during the fiscal year. All net asset changes are reported as soon as the underlying event giving rise to the change occurs regardless of the timing of related cash flows. Revenues and expenses are reported in the Statement of Activities for some items that will only result in cash flows in the future (e.g., uncollected taxes and earned but unused vacation leave). Both of the government-wide financial statements distinguish City functions that are primarily supported by taxes and intergovernmental revenues (governmental activities) from other City functions that are intended to recover all or a significant portion of their costs through user fees and charges (business-type activities). City governmental activities include general government, public safety, public service, park and recreation, planning and development, and interest on long-term debt. Business-type activities of the City include Solid Waste, Civic Center and Telecommunication Information System Authority (TISA). -16- Government-wide financial statements include not only the City (the primary government), but also a legally separate Paducah Water Works, Paducah Power System and Transit Authority of the City of Paducah (component units) for which the City is financially accountable. Financial information for the component units is reported separately from the financial information presented for the primary government itself. The government-wide financial statements can be found on pages 27-30 of this report. B. Fund Financial Statements A fund is a grouping of related accounts that is used to maintain control over segregated resources for specific activities or objectives. The City of Paducah, like other state and local governments, uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. City funds can be divided into three categories: 1) Governmental Funds. Governmental funds are used to account for essentially the same functions reported as governmental activities in the government-wide financial statements. Unlike government-wide financial statements, however, governmental fund financial statements focus on current sources and uses of spendable resources, as well as on balances of spendable resources available at the end of the fiscal year. This information may be useful in evaluating a city’s near- term financing requirements. The City maintains fourteen (14) individual governmental funds. Information is presented separately in the governmental fund balance sheet and in the governmental fund statement of revenues, expenditures, and changes in fund balances for the General, General Capital Improvements, and Downtown Capital Improvements Funds, all of which are considered to be major funds. Data from the other eleven (11) funds are combined into a single, aggregated presentation. Individual fund data for each of these non-major governmental funds is provided in the form of combining and individual fund statements elsewhere in this report on pages 87-100. Readers may better understand the long-term impact of the City’s near-term financing decisions by comparing the narrow-focus governmental funds financial statements with governmental activities in the government-wide financial statements. Exhibit 4 (pages 33-34) and Exhibit 6 (pages 37-38) provide a reconciliation to ease comparison between the fund financial statements and the government-wide statements. The basic governmental fund financial statements can be found on pages 31-38 of this report. 2) Proprietary Funds. The City maintains two types of proprietary funds: a. Enterprise Funds. Enterprise funds are used to report the same functions presented as business-type activities in the government-wide financial statements and are used to account for operations: That are financed and operated in a manner similar to private business enterprises where the intent of the governing body is that the costs of providing goods and services to the general public on a continuing basis be financed or recovered primarily through user charges; or Where the governing body has decided that periodic determination of revenues earned, expenses incurred, and/or net income is appropriate for capital maintenance, public policy, management control, accountability or other purposes. The City uses three enterprise funds to account for Solid Waste, Civic Center and TISA, as well as certain component units that provide electric, water, and public transit. TISA and Civic Center receive subsidy from the General Fund. -17- The City’s component unit enterprises include the Paducah Water Works, Paducah Power System and Paducah Transit Authority, which provide water, electric, light and power systems, and public transportation. These component units, each of which has their own board of directors, are also enterprise funds and are shown on pages 44-47. b. Internal Service Funds are used to accumulate and allocate costs internally among the City’s various functions. The City uses internal service funds to account for fleet services, fleet replacement, risk management (insurance) and employee health programs. Internal Service Funds have been allocated between governmental activities and business-type activities in the government-wide financial statements based on revenue earned. Proprietary funds provide the same kind of information as government-wide financial statements, but in greater detail. Individual data for the nonmajor proprietary funds is presented in the form of combining statements on pages 101-103 of this report. Individual data for the internal service funds is likewise presented in the form of combining statements on pages 99- 101 of this report. 3) Fiduciary Funds. Fiduciary funds are used to account for resources held for the benefit of parties outside the government and are not reflected in government-wide financial statements because those resources are not available to support City programs. Individual data for the City’s five (5) fiduciary funds (Appointive Employees’ Pension, Police and Firefighters’ Retirement, Oak Grove Cemetery Trust, Maintenance and Rehabilitation Trust and Payroll Agency) are presented in the form of combining statements on pages 107-111 of this report. C. Notes to the Financial Statements The notes provide additional information that is essential to fully understanding data provided in the government-wide and fund financial statements. Notes to the financial statements can be found on pages 48-80 of this report. D. Other Information In addition to basic financial statements and accompanying notes, this report also presents certain required supplementary information concerning City funding of its obligation to provide pension benefits to its employees and budgetary comparison schedules for the general and major special revenue funds. The combining statements referred to earlier in connection with nonmajor governmental funds, nonmajor proprietary funds, internal service funds and fiduciary funds are presented immediately following the required supplementary information on pensions and budgetary comparisons. Combining fund statements and schedules can be found on pages 82-106 of this report. III. Government-Wide Financial Analysis As noted earlier, net assets may serve over time as a useful indicator of the City’s financial position. City assets exceeded liabilities by $40.0 million as of June 30, 2005. The largest portion of the City’s net assets (77%) reflects its investment in capital assets (i.e., land, buildings, machinery, equipment and infrastructure) less outstanding related debt used to acquire those assets. The City uses these capital assets to provide service to citizens and, as a result, these assets are not available for future spending. The City’s capital assets investment is reported net of related debt, but the resources to pay this debt must be provided from other sources since the capital assets cannot be used to liquidate the liabilities. -18- An additional portion of City net assets (4%) represents resources that are subject to external restrictions on how they may be used. The remaining balance of unrestricted net assets ($7.4 million) may be used to meet the City’s ongoing obligations to citizens and creditors. As of June 30, 2005, the City reports positive balances in all three categories of net assets, both for the government as a whole, as well as for its separate governmental and business-type activities. In this third year of implementation of GASB Statement 34, the City is presenting comparative columns in the various comparisons and analyses for the prior year. City of Paducah, Kentucky Net Assets June 30 Business-Type Total Governmental Activities Activities Primary Government 2005 2004 2005 2004 2005 2004 (Restated) (Restated) (Restated) Current assets $21,724,001 $24,183,921 $2,361,097 $2,205,856 $24,085,098 $ 26,389,777 Capital assets 42,479,913 41,840,849 1,463,118 1,463,669 43,943,031 43,304,518 Total assets 64,203,914 66,024,770 3,824,215 3,669,525 68,028,129 69,694,295 Long-term liabilities 17,502,282 17,889,770 2,084,531 2,076,502 19,586,813 19,966,272 Other liabilities 8,122,376 8,788,311 304,214 212,361 8,426,590 9,000,672 Total liabilities 25,624,658 26,678,081 2,388,745 2,288,863 28,013,403 28,966,944 Net assets: Invested in capital assets, net of related debt 29,492,197 30,902,513 1,463,118 1,463,668 30,955,315 32,366,181 Restricted 1,668,022 4,746,340 - - 1,668,022 4,746,340 Unrestricted 7,419,037 3,697,836 (27,648) (83,006) 7,391,389 3,614,830 TOTAL NET ASSETS $38,579,256 $ 39,346,689 $1,435,470 $1,380,662 $ 40,014,726 $ 40,727,351 A. Analysis of the City’s Operations The following table provides a summary of the City’s operations for the years ended June 30, 2005 and 2004. The City first implemented GASB Statement 34, Basic Financial Statements – and Management Discussion and Analysis – for State and Local Governments in fiscal year 2003. Governmental activities decreased the City’s net assets by $767,433. Business-type activities increased the City’s net assets by $54,808. The following table provides a summary of the City’s operations for the years ended June 30, 2005 and June 30, 2004: -19- City of Paducah, Kentucky Changes in Net Assets For the Years Ended June 30 Total Governmental Activities Business-Type Activities Primary Government 2005 2004 2005 2004 2005 2004 Revenues: (Restated) (Restated) (Restated) Program revenues: Charges for services $ 3,305,792 $ 3,867,699 $ 3,720,332 $ 3,927,365 $ 7,026,124 $ 7,795,064 Operating grants/ contributions 2,452,694 3,290,134 - - 2,452,694 3,290,134 Capital grants/ contributions 1,100,064 3,874,137 14,735 24,990 1,114,799 3,899,127 General revenues Property taxes 3,919,113 4,012,168 - - 3,919,113 4,012,168 Franchise tax 269,407 244,877 - - 269,407 244,877 Telecommunication tax 670,181 665,807 - - 670,181 665,807 Insurance premium tax 3,957,289 3,794,320 - - 3,957,289 3,794,320 Vehicle tax 540,470 493,800 - - 540,470 493,800 Bank tax 157,771 161,550 - - 157,771 161,550 Gross receipts license tax 3,720,784 3,817,662 - - 3,720,784 3,817,662 Employee licenses tax 11,192,445 10,805,119 - - 11,192,445 10,805,119 Other taxes 478,574 198,106 - - 478,574 198,106 Intergovernment revenue 955,645 871,273 - - 955,645 871,273 Unrestricted investment earnings 290,647 220,992 51,508 32,826 342,155 253,818 Gain on sale of capital assets - (1,972) 27,500 34,975 27,500 33,003 Total revenues 33,010,876 36,315,672 3,814,075 4,020,156 36,824,951 40,335,828 Expenses: General government 8,431,994 7,969,027 - - 8,581,994 7,969,027 Public safety 14,620,938 13,243,912 - - 14,620,938 13,243,912 Public service 6,249,860 6,195,005 - - 6,249,860 6,195,005 Parks and recreation 1,045,024 1,026,293 - - 1,045,024 1,026,293 Planning and development 2,521,412 5,330,393 - - 2,371,412 5,330,393 Interest on long-term debt 775,122 496,049 - - 775,122 496,049 Solid Waste - - 3,683,954 3,419,464 3,683,954 3,419,464 Civic Center - - 39,008 33,181 39,008 33,181 TISA - - 170,264 184,166 170,264 184,166 Total expenses $33,644,350 34,260,679 3,893,226 3,636,811 37,537,576 37,897,490 Increase (decrease) in net assets before transfers (633,474) 2,054,993 (79,151) 383,345 (712,625) 2,438,338 Transfer (133,959) (68,964) 133,959 68,964 - - Change in net assets (767,433) 1,986,029 54,808 452,309 (712,625) 2,438,338 Net assets, July 1, restated 39,346,689 37,360,660 1,380,662 928,353 40,727,351 38,289,013 NET ASSETS, JUNE 30 $ 38,579,256 $39,346,689 $ 1,435,470 $ 1,380,662 $ 40,014,726 $ 40,727,351 -20- B. Governmental Activities Governmental Activities Expenses and Program Revenues $0 $2 $4 $6 $8 $10 $12 $14 $16 General government Public safety Public service Park and recreation Planning and development Interest on long-term debtMillionsExpenses Revenues Governmental Activities Revenue by Source Occupation Licenses 57%Telecommunication Tax (E911) 2% Property taxes 13% Other Taxes 2% Vehicle Tax 2% Intergovernmental revenues 3%Charges for services 10% Operating grants/contributions 7% Interest Income 1% Capital grants/contributions 3% -21- C. Business-Type Activities Business-type activities increased the City’s net assets by $54,808, in contrast to the negative position in net assets for Governmental Activities for the year. Business-Type Activities Revenue by Source Charges for services 98% Gain on sale of capital assets and transfers 1% Interest Income 1% Capital grants/contributions 0% Business-Type Activities Expenses and Revenues $0.0 $0.5 $1.0 $1.5 $2.0 $2.5 $3.0 $3.5 $4.0 Solid Waste Civic Center TISAMillionsExpenses Revenues -22- IV. Financial Analysis of the City’s Funds A. Governmental Funds The focus of the City’s governmental funds is to provide information on near-term inflows, outflows and balances of spendable resources. Such information is useful in determining the City’s financing requirements. Unreserved fund balance serves as a useful measure of the City’s net resources available for spending at the end of the fiscal year. At the end of the fiscal year, the City governmental funds reported combined ending fund balances of $10.8 million (see Exhibit 3). Approximately 87% of this total amount, $9.4 million, is unreserved fund balance, which is available for spending at the government’s discretion but only up to the amount represented by cash. Of the $9.4 million, $1.1 million is in the debt service fund and various grant funds. The remaining $1.4 million of fund balance is reserved for specific future uses. The general fund is the chief operating fund of the City. At the end of the 2004-2005 fiscal year, the general fund unreserved fund balance was $8.3 million. City fiscal policy (ordinance 2004-6-6827) required that an amount not less than 12.5% of the General Fund’s budgeted expenditures remain undesignated in the fund balance, or $3.4 million, which leaves $4.9 million as unreserved for fiscal year 2005. While $4.9 million represents unreserved fund balance, it is worth noting here that at year-end there was only $4.4 million available as cash, the balance is tied up in other assets including accounts receivable and property taxes collectible. As a measure of general fund liquidity, readers may compare both unreserved fund balance and total fund balance to total general fund expenditures. Unreserved General Fund fund balance represents approximately 30.7% of expenditures and transfers out ($27.1 million). When compared to total appropriations, the general fund cash balance ($4.4 million) is 16.4%. The General Fund fund balance decreased by $209 thousand during the 2004-2005 fiscal year and was the result of expenditures increasing at a more rapid rate than revenues. Key factors contributing to this decrease are: o Economic development incentives, and o State pension plan cost increases. The General Capital Improvements Fund had a fund balance of $953 thousand all of which is reserved. The General Capital Improvements fund balance increased $216 thousand over last year. The Downtown Capital Improvements Fund had a deficit fund balance of $13,389 all of which is unreimbursed expenditures for economic development projects. The Downtown Capital Improvements fund balance decreased $3.1 million. Final construction payouts for the Infiniti Media project made up $1.8 million of the change, the balance of the decrease was payouts for various infrastructure projects including the Police Building and Park facility improvements. Governmental Activities Ending Fund Balances Unreserved - other funds 10% Reserved 13% Unreserved - general fund 77% -23- B. Proprietary Funds The City’s proprietary funds provide the same information found in the government-wide financial statements, but in more detail. Unrestricted net assets of the respective proprietary funds are: Solid Waste $ (222,094) Civic Center 22,359 TISA 157,146 Combined net asset change for the three funds was $34 thousand less than last year, broken down as follows: Solid Waste ($43 thousand), Civic Center ($6 thousand), and TISA $83 thousand. Other factors concerning the proprietary enterprise funds have been addressed in the discussion of City business-type activities. V. General Fund Budgetary Highlights Differences between the original budget and the final actual amounts resulted in a $723 thousand decrease in appropriations and can be briefly summarized as follows: Appropriations Department Increase Decrease General administration $ - $272,114 Finance - 12,663 Planning - 182,703 Human rights - 10,544 Human resources - 19,440 Inspection - 36,546 Information systems - 29,236 Risk management 3,938 - Police - 102,269 Fire 73,033 - Public works - 232,568 Engineering services - 74,446 Recreation - 110,421 Other 282,869 - Transfers out were increased $722 thousand. The net decrease to appropriations and transfers out was $1,000 for the year. Overall, since expenditures and transfers out were slightly less than budgetary estimates, fund balance was affected positively. The budget is a ‘living and breathing’ plan document, which requires adjustments throughout the year. In order to meet the continuing challenge to fund the cost of economic development and infrastructure needs ($436 thousand), neighborhood redevelopment ($150 thousand) and the cost of the Police and Firefighter’s Pension plan ($122 thousand) it was necessary to reduce the cost of operations by $723 thousand and increase the transfers out appropriation by $722 thousand. VI. Capital Asset and Debt Administration A. Capital Assets The City’s investment in capital assets for governmental and business-type activities as of June 30, 2005, is $37.4 million (net of accumulated depreciation). This investment in capital assets includes land, buildings and improvements, vehicles and equipment, park facilities, roads, highways, and bridges, and construction in progress. -24- Capital improvements are included in each department budget until improvements are completed. At the end of the fiscal year, completed projects are capitalized in the Government-wide Statements. During fiscal year 2005, projects and equipment expenditures totaled nearly $7.4 million. The largest capital-type projects, in terms of dollars in fiscal year 2005, are shown in the following table: Infiniti Media building project $1,773,000 City Hall and Police Building – HVAC 814,830 Pecan Drive improvements project (row, bridges) 602,000 Park improvements (including recreation trails) 506,000 AlumaKraft/Infiniti economic development projects 440,000 Four Rivers Center parking lot and related infrastructure 233,000 AJLS land acquisition 222,000 GIS and Fire FEMA projects 172,000 In the upcoming years, several street, economic development, riverfront development, quality of life and drainage projects will continue and are estimated to cost several million dollars. Capital improvement projects including infrastructure, the continuing airport expansion, recreational facility improvements, continued neighborhood revitalization, and street and sidewalk rehabilitation are among the projects to be addressed. City of Paducah, Kentucky Capital Assets (Net of Accumulated Depreciation) June 30 Business-Type Total Governmental Activities Activities Primary Government 2005 2004 2005 2004 2005 2004 (Restated) (Restated) (Restated) Land $ 5,420,685 $ 5,420,685 $ 65,908 $ 65,908 $ 5,486,593 $ 5,486,593 Land improvements 983,401 53,502 - - 983,401 53,502 Construction in progress 3,641,595 4,143,259 - - 3,641,595 4,143,259 Buildings and improvements 6,612,805 4,298,217 186,542 194,339 6,799,347 4,492,556 Infrastructure 16,867,122 18,604,571 - - 16,867,122 18,604,571 Equipment 698,168 825,402 220,417 288,321 918,585 1,113,723 Furnishings and fixtures 8,379 1,755 - - 8,379 1,755 Vehicles 1,694,880 1,666,547 990,251 915,101 2,685,131 2,581,648 TOTALS $35,927,035 $ 35,013,938 $1,463,118 $1,463,669 $ 37,390,153 $ 36,477,607 Additional information on City capital assets can be found in Note 3 in the notes to financial statements on pages 62-63. B. Long-Term Debt At year-end, the City had $18,506,727 in outstanding bonds, accrued compensated absences and notes payable, compared to $18,793,259 at June 30, 2004 with maturities extending through 2026. During the year, the City’s total debt decreased by $286,532, as shown in the following table: Governmental Activities General Obligation Bonds: 2005 2004 Convention and Performing Arts Center – 2001 $ 8,380,000 $ 8,620,000 Kentucky League of Cities – 2003 3,247,853 3,381,211 Infiniti Media Building – 2004 4,840,000 5,000,000 General Fund accrued compensated absences 1,783,453 1,744,404 KACO – 2005 255,421 - Paducah Bank – Lowertown property - 47,644 TOTALS $18,506,727 $18,793,259 -25- In June 2001, a $9.29 million general obligation bond was added to the City’s debt obligation to finance construction of the Luther F. Carson Four Rivers Center for the Performing Arts (approximately $3.0 million) and the expansion of the Julian Carroll Convention Center (approximately $6.0 million). These bonds are required to be fully paid within 25 years from the date of issue and are backed by the full faith and credit of the City. While the City issued these bonds, 50% of the principal amount of the bonds is being issued on behalf of the County of McCracken, Kentucky. McCracken County has issued the City a general obligation note in a principal amount equal to 50% of the principal amount of the bonds. In fiscal year 2004, the City borrowed $3.5 million to fund a variety of capital projects, including park improvements ($1.0 million), downtown infrastructure improvements in conjunction with the FRC ($1.5 million), and City Hall, Police and other City-owned facility improvements ($1.0 million). In fiscal year 2004, the City sold $5.0 million in bonds to construct the Infiniti Media Building in the Paducah Industrial Park West, an economic development project. By interlocal agreement, McCracken County is obligated to an amount equal to 50% of the principal amount of the bonds. After the third year of the life of the bond, the Infiniti Media Company is obligated to make monthly lease payments to the City in an amount nearly equal to the debt service obligation. In fiscal year 2005, the County of McCracken entered into two separate agreements totaling $550,000, with the Kentucky Association of Counties (KACO) for purchase of a rail spur and construction of a speculative building in the Industrial Park West. Both notes are required to be fully paid within 5 years from date of issue and are backed jointly by the full faith and credit of the City and County. While the County issued both notes, 50% of the principal amount of both was issued on behalf of the City, which intends to participate on an equal basis with the County in accordance with an interlocal agreement. The City’s legal debt limit under §158 of the Kentucky Constitution is 10% of total assessed value of taxable property in Paducah; therefore, the debt limit is $152,230,137. The City’s latest bond rating by Moody is A2. The City has a low amount of general obligation debt, which explains our large legal debt margin. The City of Paducah, Kentucky, issues and incurs debt in order to fund capital improvement projects, purchase major capital equipment and facilities, and respond to other special funding needs. Less than 4.8% of the General Fund budget is expended for debt service, and thus has minimal impact on current and future operations. Additional information on the City’s long-term debt can be found in Note 3 in the notes to financial statements on pages 65-68. VII. Economic Factors and Next Year’s Budgets and Rates. A. General Comments. Paducah continued to experience steady-slow-growth in the local economy as compared to the national economy in fiscal year 2005. It is estimated that over 1,100 jobs were created or retained in fiscal year 2005 along with $69 million in private capital investments. Paducah continues to experience retail growth in the Kentucky Oaks Mall area and the City’s Southside in addition to job expansions in the Information Age Park and the Industrial Park West. The downtown area continues to be enhanced with the addition of new retail establishments, further expanding the property tax value base as well as the payroll tax base. Downtown was improved with the opening of the Luther F. Carson Four Rivers Center for the Performing Arts (FRC). The FRC opened in early 2004 at a cost in excess of $35 million. The State of Kentucky contributed $20 million toward the project, with the balance of the cost funded locally by government, tourism taxes and private donations. Four Rivers Behavioral Health Systems Corporate offices moving into the former J C Penney building, in 2004, which had been vacant for years, further enhanced downtown. These major additions to the downtown area will significantly increase the flow of commerce and traffic flow. -26- B. Unemployment Rate. The unemployment rate for the City of Paducah (McCracken County) as of June 2005 was 6.1%. This rate is somewhat higher than the federal and state rates of 5.0% and 5.7%, respectively. C. Inflationary Trends. Inflationary trends in the City compare favorably to state and national trends. D. Annexation Policy. The City’s major long-term concern is revenue for capital projects. Incentive investments in annexation and economic development should enable revenue to increase over the next 5-8 years. Paducah will continue to pursue its annexation efforts as these efforts will insure long-term financial stability for the City in terms of increased property taxes, payroll taxes, and business gross receipts fees through further commercial, industrial, and residential development. City policy will continue to provide annexation incentives that should pay for themselves in the long-term and serve as incentive investments in future revenues to offset the cost of providing services to the newly annexed areas. The policy of balanced and controlled growth will be one of the City’s greatest challenges in the next five to ten years. E. Strategic Fleet Acquisition Plan. The City’s effort to limit expenditure growth and seek cost savings opportunities assists our effort to insure that funds are available for future capital projects. Paducah implemented the Strategic Fleet Acquisition Plan fiscal year 1998-1999 in an effort to systematically review the City’s fleet of vehicles. This plan allows the City to make long-range plans for replacing vehicles at the optimal time to avoid high maintenance costs and take advantage of a higher resale value. F. Enterprise Zone. Since its inception, the Paducah Enterprise Zone Program has produced 325 qualified businesses, which have pledged expenditures of $91 million in addition to creating 322- targeted jobs. All the above factors, in addition to current and future needs of the City, were considered when the 2005-2006 Budget for the City of Paducah was prepared. The beginning general fund balance for fiscal year 2005-2006 is $8,303,702 (cash balance was $4,433,000). The City has estimated an ending fund balance of $6,700,000 (cash balance $2,843,000, or 10% of projected general fund expenditures). An increase in employee payroll withholding tax will go into effect October 2005 in fiscal year 2005-2006. The increase is expected to gross $1.9 million during the first year of implementation. At the present time, the City is in good financial condition. VIII. Requests for Information This financial report is designed to provide a general financial overview for those interested in the City of Paducah government finances. Questions or requests for additional financial information may be addressed to Jonathan Perkins, Finance Director, City of Paducah, 500 South 5th Street, Paducah, KY 42001. CITY OF PADUCAH, KENTUCKY BASIC FINANCIAL STATEMENTS GOVERNMENT-WIDE FINANCIAL STATEMENTS COMPREHENSIVE ANNUAL FINANCIAL REPORT YEAR ENDED JUNE 30, 2005 Exhibit 1 Governmental Business-type Component Current Assets: Activities Activities Total Units Cash and cash equivalents 6,760,578$ 824,919$ 7,585,497$ 1,360,513$ Investments 3,635,000 1,440,000 5,075,000 - Receivables, net: Note 254,000 - 254,000 - Accounts 4,666,542 30,468 4,697,010 2,385,321 Grants 258,041 - 258,041 164,501 Interest 71,196 19,625 90,821 - Property tax 4,419,087 - 4,419,087 - Other - - - 1,945,922 Internal balances (14,941) 14,941 - - Inventory 229,276 - 229,276 1,324,794 Prepaid pension obligation 246,269 - 246,269 - Prepaid expenses 1,198,953 31,144 1,230,097 44,585 Other current assets - - - 706,854 Total current assets 21,724,001 2,361,097 24,085,098 7,932,490 Noncurrent Assets: Investments, restricted - - - 4,671,716 Notes receivable 6,405,000 - 6,405,000 - Bond issuance costs, net 147,878 - 147,878 - Net capital assets: Land and construction in progress 9,062,280 65,908 9,128,188 2,988,567 Depreciable capital assets 26,864,755 1,397,210 28,261,965 74,351,384 Restricted assets - - - 56,702 Other assets - - - 728,090 Total noncurrent assets 42,479,913 1,463,118 43,943,031 82,796,459 Total assets 64,203,914$ 3,824,215$ 68,028,129$ 90,728,949$ -27- Primary Government CITY OF PADUCAH, KENTUCKY STATEMENT OF NET ASSETS JUNE 30, 2005 ASSETS Governmental Business-type Component Current Liabilities: Activities Activities Total Units Voucher and accounts payable 1,438,039$ 199,234$ 1,637,273$ 3,794,180$ Line of credit - - - 1,690,679 Accrued payables 1,021,198 48,227 1,069,425 564,568 Due to other taxing agencies 124,823 - 124,823 - Unearned revenue 4,533,871 - 4,533,871 811,117 Accrued compensated absences 410,398 56,753 467,151 - Accrued interest - - - 151,400 Notes payable due within one year 184,047 - 184,047 193,680 Bonds payable due within one year 410,000 - 410,000 1,260,000 Other current liabilities - - - 1,354,041 Total current liabilities 8,122,376 304,214 8,426,590 9,819,665 Noncurrent Liabilities: Accrued compensated absences 1,373,055 22,031 1,395,086 - Landfill post-closure costs - 2,062,500 2,062,500 - Other liabilities - - - 571,964 Notes payable 3,319,227 - 3,319,227 515,866 Bonds payable 12,810,000 - 12,810,000 7,532,096 Total noncurrent liabilities 17,502,282 2,084,531 19,586,813 8,619,926 Total liabilities 25,624,658 2,388,745 28,013,403 18,439,591 Invested in capital assets, net of related debt 29,492,197 1,463,118 30,955,315 67,915,964 Restricted for: Program purposes 727,699 - 727,699 - Capital projects 940,323 - 940,323 245,474 Debt service - - - 3,465,750 Unrestricted 7,419,037 (27,648) 7,391,389 662,170 TOTAL NET ASSETS 38,579,256$ 1,435,470$ 40,014,726$ 72,289,358$ See accompanying notes to the basic financial statements. -28- LIABILITIES NET ASSETS Primary Government Exhibit 2 FUNCTIONS/PROGRAMS Operating Charges for Grants and Primary Government: Expenses Services Contributions Governmental activities: General government 8,431,994$ 1,485,005$ -$ -$ Public safety 14,620,938 794,814 67,587 457,458 Public service 6,249,860 895,155 301,058 642,606 Parks and recreation 1,045,024 117,317 59,227 - Planning and development 2,521,412 13,501 2,024,822 - Interest on long-term debt 775,122 - - - Total governmental activities (See Note 1) 33,644,350 3,305,792 2,452,694 1,100,064 Business-type activities: Solid Waste 3,683,954 3,583,417 - - Civic Center 39,008 32,828 - - TISA 170,264 104,087 - 14,735 Total business-type activities 3,893,226 3,720,332 - 14,735 TOTAL PRIMARY GOVERNMENT 37,537,576$ 7,026,124$ 2,452,694$ 1,114,799$ Component Units: Authorities: Paducah Water Works 5,906,750$ 6,547,473$ -$ 553,404$ Paducah Power System 40,486,148 41,052,123 - - Paducah Transit Authority 5,322,710 3,190,616 1,310,341 1,020,865 TOTAL COMPONENT UNITS 51,715,608$ 50,790,212$ 1,310,341$ 1,574,269$ General revenues: Taxes and licenses: Property taxes, levied for general purposes Franchise tax Telecommunications tax Insurance premium tax Vehicle tax Bank tax Gross receipts license tax Employee license tax Other taxes Intergovernmental revenue Unrestricted investment earnings Gain on sale of capital assets Miscellaneous Total general revenues Transfers Total general revenues and transfers Change in net assets Net assets, July 1, 2004, as previously reported Adjustment to beginning net assets (See Note 10) NET ASSETS, JUNE 30,2005 See accompanying notes to the basic financial statements. -29- CITY OF PADUCAH, KENTUCKY Grants and Contributions FOR THE YEAR ENDED JUNE 30, 2005 STATEMENT OF ACTIVITIES Program Revenues Capital Governmental Business-type Component Activities Activities Total Units (6,946,989)$ - (6,946,989)$ - (13,301,079) - (13,301,079) - (4,411,041) - (4,411,041) - (868,480) - (868,480) - (483,089) - (483,089) - (775,122) - (775,122) - (26,785,800) - (26,785,800) - - (100,537) (100,537) - - (6,180) (6,180) - - (51,442) (51,442) - - (158,159) (158,159) - (26,785,800) (158,159) (26,943,959) - - - - 1,194,127 - - - 565,975 - - - 199,112 - - - 1,959,214 3,919,113 - 3,919,113 - 269,407 - 269,407 - 670,181 - 670,181 - 3,957,289 - 3,957,289 - 540,470 - 540,470 - 157,771 - 157,771 - 3,720,784 - 3,720,784 - 11,192,445 - 11,192,445 - 478,574 - 478,574 - 955,645 - 955,645 - 290,647 51,508 342,155 128,245 - 27,500 27,500 3,725 - - - 43,245 26,152,326 79,008 26,231,334 175,215 (133,959) 133,959 - - 26,018,367 212,967 26,231,334 175,215 (767,433) 54,808 (712,625) 2,134,429 32,166,415 3,443,162 35,609,577 70,154,929 7,180,274 (2,062,500) 5,117,774 - 38,579,256$ 1,435,470$ 40,014,726$ 72,289,358$ -30- Net (Expense) Revenue and Changes in Net Assets Primary Government CITY OF PADUCAH, KENTUCKY BASIC FINANCIAL STATEMENTS FUND FINANCIAL STATEMENTS COMPREHENSIVE ANNUAL FINANCIAL REPORT YEAR ENDED JUNE 30, 2005 Exhibit 3 General Fund Cash and cash equivalents 2,473,285$ 1,280,375$-$ Investments 1,960,000 - - Accounts receivable: Accounts 4,365,225 - - Grants 66,920 108,818 - Interest 23,629 - 1,975 Property taxes (net of allowances for uncollectibles) 4,271,460 - - Prepaid items - - - Due from other funds 1,279,923 50,000 - TOTAL ASSETS 14,440,442$ 1,439,193$ 1,975$ Liabilities: Voucher and accounts payable 271,988$ 227,703$ -$ Accrued payroll and payroll taxes 945,114 - - Due to other funds 50,000 - 15,364 Due to other taxing agencies 124,823 - - Unearned revenue 4,361,443 257,778 - Accrued compensated absences 383,372 - - Total liabilities 6,136,740 485,481 15,364 Fund Balances: Reserved for: Program purposes - - - Capital improvements - 953,712 (13,389) Unreserved: General Fund 8,303,702 - - Special Revenue Funds - - - Debt Service Fund - - - Total fund balances 8,303,702 953,712 (13,389) TOTAL LIABILITIES AND FUND BALANCES 14,440,442$ 1,439,193$ 1,975$ See accompanying notes to the basic financial statements. -31- Downtown Capital Improvements LIABILITIES AND FUND BALANCES ASSETS JUNE 30, 2005 GOVERNMENTAL FUNDS BALANCE SHEET CITY OF PADUCAH, KENTUCKY General Capital Improvements 1,875,543$ 5,629,203$ 230,000 2,190,000 141,725 4,506,950 82,303 258,041 3,604 29,208 - 4,271,460 31,178 31,178 - 1,329,923 2,364,353$ 18,245,963$ 412,698$ 912,389$ 61,476 1,006,590 132,125 197,489 - 124,823 209,972 4,829,193 - 383,372 816,271 7,453,856 498,423 498,423 - 940,323 - 8,303,702 1,039,854 1,039,854 9,805 9,805 1,548,082 10,792,107 2,364,353$ 18,245,963$ -32- Nonmajor Governmental Funds Total Funds Governmental Exhibit 4 Total fund balance - total governmental funds 10,792,107$ Amounts reported for governmental activities in the Statement of Net Assets are different because: 319,756 147,627 6,610,000 21,732 160,599 246,269 35,927,035 $ 594,047 17,502,282 (18,096,329) (Continued) Capital assets used in governmental activities are not current financial resources and, therefore, are not reported in the governmental funds balance sheet. This amount includes capital assets of Internal Service Funds. A prepaid pension obligation is not a current financial resource, and therefore, is not reported in the governmental funds balance sheet. CITY OF PADUCAH, KENTUCKY RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO STATEMENT OF NET ASSETS Inventory is not a current financial resource and, therefore, is not reported in the governmental funds balance sheet. Delinquent property taxes receivable are not reported in the governmental funds balance sheet since they are not considered "available" revenues. The long-term notes receivable are not reported in the governmental funds balance sheet since they are not available to pay current period expenditures. Other account receivables are not available to pay current expenditures and, therefore, are deferred in the funds. Interest receivable on the long-term notes receivable is not reported on the governmental funds balance sheet since neither the note receivable nor the interest is available to pay current period expenditures. JUNE 30, 2005 Due within one year Due after one year -33- Long-term liabilities are not due and payable in the current period and, therefore, they are not reported in the governmental funds balance sheet. This amount includes Internal Service Funds' non- current liabilities. The long-term liabilities are: Exhibit 4 (Continued) 147,878$ (54,371) 4,040,250$ (1,668,356) (14,941) 2,356,953 NET ASSETS OF GOVERNMENTAL ACTIVITIES 38,579,256$ See accompanying notes to the basic financial statements. -34- Current assets Net amount allocated to Internal service funds are used by management to charge the costs of certain activities, such as insurance and fleet management, to individual funds. The assets and liabilities of the Internal Service Funds (net of amount allocated to business-type activities) not included in other reconciling items are: Current liabilities JUNE 30, 2005 Bond issuance costs used in governmental activities are not current financial resources and, therefore, are not reported in the governmental funds balance sheet. Accrued interest payments on debt are not due and payable in the current period and, therefore, are not reported in the governmental funds balance sheet. business-type activities CITY OF PADUCAH, KENTUCKY RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO STATEMENT OF NET ASSETS Exhibit 5 General Revenues: Fund Taxes 5,346,389$ -$ -$ Licenses 19,368,765 - - Charges for services 515,192 - - Intergovernmental - 19,579 - Grants 667,062 834,348 148,936 Interest 190,901 - 31,407 Miscellaneous 773,880 198,860 - Total revenues 26,862,189 1,052,787 180,343 Expenditures: Current operations: General government 4,171,662 - - Public safety 12,998,049 - - Public service 5,654,686 - - Parks and recreation 1,045,024 - - Planning and development - - - Other 462,099 - - Capital outlay - 2,916,803 1,953,333 Debt service: Principal requirement - - - Interest and fiscal requirement - - - Total expenditures 24,331,520 2,916,803 1,953,333 Excess (deficiency) of revenues over expenditures 2,530,669 (1,864,016) (1,772,990) Other Financing Sources (Uses): Long-term debt issued - - 275,000 Transfers in - 2,348,777 39,300 Transfers out (2,740,032) (269,209) (1,702,930) Total other financing sources (uses) (2,740,032) 2,079,568 (1,388,630) Net change in fund balances (209,363) 215,552 (3,161,620) Fund balances, July 1, 2004, as previously reported 4,642,073 738,160 3,148,231 Adjustment to beginning fund balance (See Note 10) 3,870,992 - - FUND BALANCES, JUNE 30, 2005 8,303,702$ 953,712$ (13,389)$ See accompanying notes to the basic financial statements. -35- CITY OF PADUCAH, KENTUCKY STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS FOR THE YEAR ENDED JUNE 30, 2005 Improvements Downtown Capital Improvements General Capital 670,181$ 6,016,570$ - 19,368,765 110,089 625,281 1,173,145 1,192,724 2,107,695 3,758,041 28,994 251,302 404,435 1,377,175 4,494,539 32,589,858 - 4,171,662 1,378,112 14,376,161 292,419 5,947,105 - 1,045,024 2,267,774 2,267,774 - 462,099 - 4,870,136 552,938 552,938 745,676 745,676 5,236,919 34,438,575 (742,380) (1,848,717) - 275,000 1,006,343 3,394,420 - (4,712,171) 1,006,343 (1,042,751) 263,963 (2,891,468) 1,284,119 9,812,583 - 3,870,992 1,548,082$ 10,792,107$ -36- Funds Governmental Total Funds Nonmajor Governmental Exhibit 6 Net change in fund balances - total governmental funds (2,891,468)$ Amounts reported for governmental activities in the Statement of Activities are different because: 145,980 (264,141) 3,981,143 (217,500) 9,281 18,946 86,870 34,214 (Continued) FOR THE YEAR ENDED JUNE 30, 2005 Contributions for debt service received from other governments are reported as current year revenue in the governmental funds. However, receipts for long-term receivables are not considered revenue in the Statement of Activities. Governmental funds report capital outlays as expenditures. However, in the Statement of Activities, the cost of those assets is allocated over their estimated useful lives as depreciation expense. This is the amount of capital outlays in the current period. Delinquent property taxes receivable are not considered "available" revenues in the governmental funds. Interest revenue on the long-term note receivable is not reported on the governmental funds since neither the note receivable nor the interest is available to pay current period expenditures. -37- CITY OF PADUCAH, KENTUCKY RECONCILIATION OF THE STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES OF GOVERNMENTAL FUNDS TO THE STATEMENT OF ACTIVITIES Inventory purchases require the use of current financial resources and, therefore, are reported as expenditures in governmental funds. Inventory sales provide current financial resources and are reported as revenues in governmental funds. Tax revenues in the Statement of Activities that do not provide current financial resources are not reported as revenues in the governmental funds. The prepayment of a pension obligation requires the use of current financial resources and, therefore, is reported as an expenditure in governmental funds. However, the prepayment does not affect net assets in the government-wide Statement of Activities. Exhibit 6 (Continued) (3,053,435)$ 600,583 (29,572) 2,134 (7,951) 378,323$ (20,945) 460,105 817,483 CHANGE IN NET ASSETS OF GOVERNMENTAL ACTIVITIES (767,433)$ See accompanying notes to the basic financial statements. -38- Internal service funds are used by management to charge the costs of certain activities, such as insurance and fleet management, to individual funds. The net revenue of the Internal Service Funds is reported with governmental activities net of the amount allocated to business-type activities and depreciation expense. These amounts are as follows: Change in net assets business-type activities Depreciation expense Depreciation expense on capital assets is reported in the government- wide statement of activities and changes in net assets, but does not require the use of current financial resources. Therefore, depreciation expense is not reported as an expenditure in governmental funds. This amount includes Internal Service Funds' depreciation expense of $460,105. CITY OF PADUCAH, KENTUCKY RECONCILIATION OF THE STATEMENT OF REVENUES, EXPENDITURES AND Principal payments of debt require the use of current financial resources and, therefore, are reported as expenditures in governmental funds. However, principal payments of debt do not affect net assets in the government-wide Statement of Activities. CHANGES IN FUND BALANCES OF GOVERNMENTAL FUNDS TO THE STATEMENT OF ACTIVITIES FOR THE YEAR ENDED JUNE 30, 2005 Accrued interest payments on debt do not require the use of current financial resources. Accrued interest is reported as an expenditure in the government-wide statement of activities. Long-term accrued compensated absences do not require the use of current financial resources and, therefore, are not reported as expenditures in governmental funds. Net of amount allocated to Governmental funds report the effect of bond issuance costs when debt is issued, whereas these amounts are deferred and amortized in the statement of activities. Exhibit 7 Nonmajor Solid Enterprise Current Assets: Waste Funds Totals Cash and cash equivalents 686,988$ 137,931$ 824,919$ 1,131,376$ Investments 1,440,000 - 1,440,000 1,445,000 Accounts receivable 16,920 13,548 30,468 - Interest receivable 19,625 - 19,625 228,848 Prepaid expenses - 31,144 31,144 1,167,768 Inventory - - - 68,678 Total current assets 2,163,533 182,623 2,346,156 4,041,670 Noncurrent Assets: Net capital assets: Land 65,908 - 65,908 - Depreciable capital assets 1,091,127 306,083 1,397,210 1,689,710 Total noncurrent assets 1,157,035 306,083 1,463,118 1,689,710 Total assets 3,320,568 488,706 3,809,274 5,731,380 Current Liabilities: Voucher and accounts payable 196,116 3,118 199,234 471,278 Accrued payroll and payroll taxes 48,227 - 48,227 14,609 Accrued compensated absences 56,753 - 56,753 27,025 Unearned revenue - - - 24,434 Due to other funds - - - 1,132,433 Total current liabilities 301,096 3,118 304,214 1,669,779 Noncurrent Liabilities: Landfill post-closure costs 2,062,500 - 2,062,500 - Accrued compensated absences 22,031 - 22,031 38,517 Total liabilities 2,385,627 3,118 2,388,745 1,708,296 Invested in capital assets, net of related debt 1,157,035 306,083 1,463,118 1,689,710 Unrestricted (222,094) 179,505 (42,589) 2,333,374 TOTAL NET ASSETS 934,941$ 485,588$ 1,420,529 4,023,084$ Reconciliation to government-wide statements of net assets: Adjustment to reflect the consolidation of Internal Service Funds' activities related to Enterprise Funds 14,941 NET ASSETS OF BUSINESS-TYPE ACTIVITIES 1,435,470$ See accompanying notes to the basic financial statements. Governmental Activities CITY OF PADUCAH, KENTUCKY STATEMENT OF NET ASSETS PROPRIETARY FUNDS JUNE 30, 2005 -39- Business-type Activities ASSETS LIABILITIES NET ASSETS Funds Service Internal Exhibit 8 Nonmajor Solid Enterprise Operating Revenues: Waste Funds Totals Charges for services - internal 3,545,787$ 136,915$ 3,682,702$ 5,013,120$ Charges for services - external - - - 501,801 Miscellaneous 16,685 - 16,685 - Total operating revenues 3,562,472 136,915 3,699,387 5,514,921 Operating Expenses: Cost of sales and service 3,392,724 118,996 3,511,720 5,033,522 Depreciation and amortization 291,230 90,275 381,505 460,105 Total operating expenses 3,683,954 209,271 3,893,225 5,493,627 Operating income (loss)(121,482) (72,356) (193,838) 21,294 Nonoperating Revenues (Expenses): Interest and investment income 50,973 534 51,507 33,029 Gain (loss) on disposal of property and equipment 27,500 - 27,500 - Total nonoperating revenues (expenses)78,473 534 79,007 33,029 Income (loss) before contributions and transfers (43,009) (71,822) (114,831) 54,323 Contributions and Transfers: Capital contributions - 14,735 14,735 - Transfers in - 133,959 133,959 324,000 Total contributions and transfers - 148,694 148,694 324,000 Change in net assets (43,009) 76,872 33,863 378,323 Total net assets, July 1, 2004, as previously reported 3,040,450 408,716 3,644,761 Adjustment to beginning net assets (See Note 10)(2,062,500) - - TOTAL NET ASSETS - JUNE 30, 2005 934,941$ 485,588$ 4,023,084$ Reconciliation to government-wide statements of net assets: Adjustment to reflect the consolidation of Internal Service Funds' activities related to Enterprise Funds 20,945 CHANGE IN NET ASSETS OF BUSINESS-TYPE ACTIVITIES 54,808$ See accompanying notes to the basic financial statements. ActivitiesBusiness-type Activities CITY OF PADUCAH, KENTUCKY STATEMENT OF REVENUES, EXPENSES AND CHANGES IN FUND NET ASSETS PROPRIETARY FUNDS FOR THE YEAR ENDED JUNE 30, 2005 Governmental Internal Service Funds -40- Exhibit 9 Nonmajor Solid Enterprise Cash Flows from Operating Activities: Waste Funds Totals Cash received from customers 3,557,397$ 150,373$ 3,707,770$ 5,470,386$ Payments to suppliers (2,204,442) - (3,053,401) (146,619) Payments to employees (848,959) - - (279,351) Claims paid - - - (3,406,351) Payments to internal service funds (240,201) (4,416) (244,617) - Other receipts (payments)16,685 (137,970) (121,285) (1,074,528) Net cash provided (used) by operating activities 280,480 7,987 288,467 563,537 Cash Flows from Noncapital Financing Activities: Transfers (to) from other funds - 133,959 133,959 324,000 Cash Flows from Capital and Related Financing Activities: Capital contributions - 14,735 14,735 - Purchase of capital assets (322,783) (58,172) (380,955) (501,446) Proceeds from sale of capital assets 27,500 - 27,500 - Net cash provided (used) by capital and related financing activities (295,283) (43,437) (338,720) (501,446) Cash Flows from Investing Activities: Proceeds from sale of investment securities 1,200,000 - 1,200,000 1,300,000 Interest on cash and investments 36,917 534 37,451 19,383 Purchase of investments (1,440,000) - (1,440,000) (1,445,000) Net cash provided (used) by investing activities (203,083) 534 (202,549) (125,617) Net increase (decrease) in cash and cash equivalents (217,886) 99,043 (118,843) 260,474 Cash and cash equivalents, July 1, 2004 904,874 38,888 943,762 870,902 CASH AND CASH EQUIVALENTS, JUNE 30, 2005 686,988$ 137,931$ 824,919$ 1,131,376$ Reconciliation of Operating Income (Loss) to Net Cash Provided by Operating Activities: Operating income (loss)(121,482)$ (72,356)$ (193,838)$ 21,294$ Adjustments to reconcile operating income to net cash provided by operating activities: Depreciation and amortization 291,230 90,275 381,505 460,105 Change in assets and liabilities: Receivables 11,610 13,458 25,068 (68,969) Prepaid expenses - (24,148) (24,148) (152,625) Inventories - - - 29,437 Accounts payable 99,122 758 99,880 274,295 NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES 280,480$ 7,987$ 288,467$ 563,537$ See accompanying notes to the basic financial statements. CITY OF PADUCAH, KENTUCKY STATEMENT OF CASH FLOWS PROPRIETARY FUNDS FOR THE YEAR ENDED JUNE 30, 2005 -41- Governmental Activities Internal Service Business-type Activities Funds Exhibit 10 Private- Pension purpose Agency Funds Trusts Funds Cash and cash equivalents 130,077$ 4,734$ 323,227$ Receivables: Interest 56,894 - - Prepaid expenses 59,919 - - Investments at fair value 9,234,911 83,524 - Total assets 9,481,801 88,258 323,227 Voucher and accounts payable 2,051 - - Payroll taxes and withholdings payable - - 323,227 Total liabilities 2,051 - 323,227$ Held in trust for pension benefits and other purposes 9,479,750$ 88,258$ -$ See accompanying notes to the basic financial statements NET ASSETS Primary Government -42- ASSETS LIABILITIES CITY OF PADUCAH, KENTUCKY STATEMENT OF NET ASSETS FIDUCIARY FUNDS JUNE 30, 2005 Exhibit 11 Private- Pension purpose Additions: Funds Trusts Contributions: Employer 1,028,044$ -$ Plan members 23,487 - Intergovernmental revenues - 9,250 Total contributions 1,051,531 9,250 Investment income: Net increase (decrease) in fair value of investments 401,519 (2,845) Interest and dividends 293,405 5,845 Net investment income 694,924 3,000 Total additions 1,746,455 12,250 Deductions: Benefits 1,871,189 - Capital outlay - 100 Administrative expenses 71,435 4,368 Total deductions 1,942,624 4,468 Change in net assets (196,169) 7,782 Net assets, July 1, 2004 9,675,919 80,476 NET ASSETS, JUNE 30, 2005 9,479,750$ 88,258$ See accompanying notes to the basic financial statements. -43- STATEMENT OF CHANGES IN NET ASSETS CITY OF PADUCAH, KENTUCKY FIDUCIARY FUNDS FOR THE YEAR ENDED JUNE 30, 2005 CITY OF PADUCAH, KENTUCKY BASIC FINANCIAL STATEMENTS COMPONENT UNITS FINANCIAL STATEMENTS COMPREHENSIVE ANNUAL FINANCIAL REPORT YEAR ENDED JUNE 30, 2005 Exhibit 12 All Paducah Paducah Paducah Component Water Power Transit Unit Current Assets: Works System Authority Totals Cash and cash equivalents 780,767$ 142,743$ 437,003$ 1,360,513$ Receivables, net: Accounts 333,216 2,000,026 52,079 2,385,321 Grants - - 164,501 164,501 Other 660,617 1,264,622 20,683 1,945,922 Inventories 395,446 885,302 44,046 1,324,794 Prepaid expenses - 44,585 - 44,585 Other current assets 706,854 - - 706,854 Total current assets 2,876,900 4,337,278 718,312 7,932,490 Noncurrent Assets: Investments, restricted 2,598,884 2,072,832 - 4,671,716 Net capital assets:- Land and construction in progress 586,409 1,929,632 472,526 2,988,567 Depreciable capital assets 30,356,099 39,555,507 4,439,778 74,351,384 Restricted assets 56,702 - - 56,702 Other assets 85,585 642,505 - 728,090 Total noncurrent assets 33,683,679 44,200,476 4,912,304 82,796,459 Total assets 36,560,579 48,537,754 5,630,616 90,728,949 ASSETS -44- CITY OF PADUCAH, KENTUCKY STATEMENT OF NET ASSETS COMPONENT UNITS JUNE 30, 2005 All Paducah Paducah Paducah Component Water Power Transit Unit Current Liabilities: Works System Authority Totals Voucher and accounts payable 142,045$ 3,451,644$ 200,491$ 3,794,180$ Line of credit - 1,690,679 - 1,690,679 Accrued payables - 421,715 142,853 564,568 Unearned revenue - 811,117 - 811,117 Accrued interest - 151,400 - 151,400 Notes payable due within one year 25,000 - 168,680 193,680 Bonds payable due within one year 905,000 355,000 - 1,260,000 Other current liabilities 845,487 505,495 3,059 1,354,041 Total current liabilities 1,917,532 7,387,050 515,083 9,819,665 Noncurrent Liabilities: Bonds payable 2,733,158 4,798,938 - 7,532,096 Notes payable 190,000 - 325,866 515,866 Other liabilities - 567,093 4,871 571,964 Total noncurrent liabilities 2,923,158 5,366,031 330,737 8,619,926 Total liabilities 4,840,690 12,753,081 845,820 18,439,591 Net Assets: Invested in capital assets, net of related debt 27,174,935 36,331,201 4,409,828 67,915,964 Restricted for: Capital projects - 245,474 - 245,474 Debt service 1,638,392 1,827,358 3,465,750 Unrestricted 2,906,562 (2,619,360) 374,968 662,170 TOTAL NET ASSETS 31,719,889$ 35,784,673$ 4,784,796$ 72,289,358$ See accompanying notes to the basic financial statements -45- NET ASSETS LIABILITIES Exhibit 13 Charges for Authorities: Expenses Services Business-type activities: Paducah Water Works 5,906,750$ 6,547,473$ -$ 553,404$ Paducah Power System 40,486,148 41,052,123 - - Paducah Transit Authority 5,322,710 3,190,616 1,310,341 1,020,865 TOTAL COMPONENT UNITS 51,715,608$ 50,790,212$ 1,310,341$ 1,574,269$ General Revenues: Unrestricted investment earnings Gain on disposal of assets Miscellaneous general Total general revenues and transfers Change in net assets Net assets, July 1, 2004 NET ASSETS, JUNE 30, 2005 See accompanying notes to the basic financial statements -46- CITY OF PADUCAH, KENTUCKY STATEMENT OF ACTIVITIES COMPONENT UNITS FOR THE YEAR ENDED JUNE 30, 2005 Grants and Contributions Program Revenues FUNCTIONS/PROGRAMS Operating Grants and Contributions Capital Paducah Paducah Paducah Water Power Transit Works System Authority Totals 1,194,127$ -$ -$ 1,194,127$ - 565,975 - 565,975 - - 199,112 199,112 1,194,127 565,975 199,112 1,959,214 81,342 42,061 4,842 128,245 - - 3,725 3,725 - 24,088 19,157 43,245 81,342 66,149 27,724 175,215 1,275,469 632,124 226,836 2,134,429 30,444,420 35,152,549 4,557,960 70,154,929 31,719,889$ 35,784,673$ 4,784,796$ 72,289,358$ -47- Net (Expense) Revenue and Changes in Net Assets CITY OF PADUCAH, KENTUCKY NOTES TO THE FINANCIAL STATEMENTS COMPREHENSIVE ANNUAL FINANCIAL REPORT YEAR ENDED JUNE 30, 2005 CITY OF PADUCAH, KENTUCKY NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2005 Note 1 - Summary of Significant Accounting Policies: General Statement The City of Paducah (City) complies with generally accepted accounting principles (GAAP). GAAP includes all relevant Governmental Accounting Standards Board (GASB) pronouncements. In the government-wide financial statements and the fund financial statements for the proprietary funds, Financial Accounting Standards Board (FASB) pronouncements and Accounting Principles Board (APB) opinions issued on or before November 30, 1989, have been applied unless those pronouncements conflict with or contradict GASB pronouncements, in which case, GASB prevails. For enterprise funds, GASB Statement Nos. 20 and 34 provide the City the option of electing to apply FASB pronouncements issued after November 30, 1989. The City has elected not to apply those pronouncements. The accounting and reporting framework and the more significant accounting policies are discussed in subsequent subsections of this Note. The financial reporting entity, basis of accounting, and other significant policies employed by the City are summarized as follows: Financial Reporting Entity The City operates under a City Manager form of government. The Board of Commissioners consists of a Mayor and four Commissioners elected at large by the citizens on a non-partisan basis. As required by generally accepted accounting principles, the financial statements of the reporting entity include those of the City of Paducah (the primary government) and its component units. The component units discussed below are included in the City’s reporting entity because of the significance of their operational or financial relationships with the City. Blended Component Units The following component units have been presented as blended component units because the component unit’s governing body is substantially the same as the governing body of the City, or the component unit provides services almost entirely to the primary government. Paducah Public Improvement Corporation - The Mayor and Commissioners serve as the governing body for the Corporation. Although it is legally separate from the City, the Paducah Public Improvement Corporation is reported as if it were part of the primary government because its sole purpose is to finance long-term debt since the City may not legally obligate itself beyond one year. Police and Firefighters’ Pension Fund - This retirement fund was established for the benefit of the police and firemen of the City. It is administered by a Board of Trustees consisting of the Mayor, City Finance Director and representatives of the Police and Fire Departments. The Board is authorized to establish benefit levels and to approve actuarial assumptions used in the determination of contribution levels. Discretely Presented Component Units The component unit column in the basic financial statements includes the financial data of the City’s other component units. They are reported in a separate column to emphasize that they are legally separate from the City. The following component units are included in the reporting entity because of their financial relationship with the City. (Continued) -48- CITY OF PADUCAH, KENTUCKY NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2005 Note 1 - Summary of Significant Accounting Policies: Paducah Water Works - The City of Paducah Water Works Commission is appointed by the Mayor. The rates for user charges and bond issuance authorizations are subject to approval by the City Commission of the City of Paducah. Paducah Power System - The members of the Electric Plant Board are appointed by the Mayor. The system provides a financial benefit to the City through a payment in lieu of taxes. Transit Authority of the City of Paducah - The Transit Authority’s governing board is appointed by the Mayor of the City of Paducah. The City is the grantee agency receiving, on behalf of the Transit Authority, its principal revenues. The City also contributes substantially to the operation of the Authority by providing cash subsidies and facilities. Complete financial statements of the individual component units can be obtained from their respective administrative offices in the following locations: Paducah Water Works Paducah Power System Transit Authority of the 401 Washington Street 1500 Broadway City of Paducah Paducah, Kentucky 42003 Paducah, Kentucky 42001 850 Harrison Street Paducah, Kentucky 42001 Related Organizations City officials are also responsible for appointing the members of boards of other organizations, but the City’s accountability for these organizations do not extend beyond appointing authority. The organizations listed below are notable related organizations which have not been included in the City’s report. Paducah Housing Authority – The Paducah Housing Authority (PHA) is a legally separate entity that provides for construction, operation and management of low income housing projects within the City. PHA is a legally separate entity and is not financially accountable to the City. This organization is not included as a component unit of the City. Joint Sewer Agency – As of July 1, 1999, the assets and liabilities of the Wastewater/Stormwater Fund were transferred to the Paducah-McCracken County Joint Sewer Agency pursuant to a municipal order dated June 29, 1999. The Paducah-McCracken County Joint Sewer Agency is a legally separate entity and is not financially accountable to the City. This organization is not included as a component unit of the City. Forest Hills Village, Inc. – The Corporation’s purpose is to manage City of Paducah properties known as “Forest Hills Housing Development”. The City and Corporation have a lease agreement detailing the terms and conditions of operations. Forest Hills Village, Inc. is a legally separate entity and is not financially accountable to the City. This organization is not included as a component unit of the City. Paducah Junior College, Incorporated (PJC) – The College is a part of the University of Kentucky Community College System which is now administered by the Kentucky Community and Technical College System. Under this system, the University of Kentucky receives the monies from student tuition, fees and other related income and provides the financing for the operational budget of the College. A tax levied and collected by the City is a primary revenue source for the College. These funds, as well as gifts and grants made to the College, may be used for the acquisition or improvement of property or to finance programs beyond the level of those normally provided by community colleges in the University of Kentucky system. PJC is a legally separate entity and is not financially accountable to the City. This organization is not included as a component unit of the City. (Continued) -49- CITY OF PADUCAH, KENTUCKY NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2005 Note 1 - Summary of Significant Account Policies: Basis of Presentation Government-wide Financial Statements The Statement of Net Assets and Statement of Activities display information about the reporting government as a whole. They include all funds of the reporting entity except for fiduciary funds. The statements distinguish between governmental and business-type activities. Governmental activities generally are financed through taxes, intergovernmental revenues, and other nonexchange revenues. Business-type activities are financed in whole or in part by fees charged to external parties for goods or services. Fund Financial Statements Fund financial statements of the reporting entity are organized into funds, each of which is considered to be separate accounting entities. Each fund is accounted for by providing a separate set of self-balancing accounts that constitute its assets, liabilities, fund equity, revenues, and expenditure/expenses. Funds are organized into three major categories: governmental, proprietary, and fiduciary. An emphasis is placed on major funds within the governmental and proprietary categories. A fund is considered major if it is the primary operating fund of the City or meets the following criteria: a. Total assets, liabilities, revenues, or expenditures/expenses of that individual governmental or enterprise fund are at least ten percent of the corresponding total for all funds of that category or type; and b. Total assets, liabilities, revenues, or expenditures/expenses of the individual governmental fund or enterprise fund are at least five percent of the corresponding total for all governmental and enterprise funds combined. The funds of the financial reporting entity are described below: Governmental funds are those funds through which most governmental functions typically are financed. The measurement focus of governmental funds is on the sources, uses and balance of current financial resources. The City has presented the following major governmental funds: General Fund - To account for resources traditionally associated with governments which are not required to be accounted for in another fund. General Capital Improvements – To account for the acquisition or construction of major capital projects other than those financed by proprietary fund operations and special assessments. Downtown Capital Improvements – To account for the acquisition or construction of major capital facilities related to the development of downtown Paducah. The City has presented the following major proprietary fund: Solid Waste Fund – To account for the provision of refuse services to the residents of the City. Additionally, the City reports the internal service funds which are used to account for the fleet management services, self funded property and casualty self insurance and self funded health and disability insurance provided to departments of the city. (Continued) -50- CITY OF PADUCAH, KENTUCKY NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2005 Note 1 - Summary of Significant Account Policies: Fiduciary funds, which are not included in government-wide statements, include Police and Firefighters’ Retirement Fund, Appointive Employees’ Pension Fund, two private-purpose trusts, and two agency funds. Measurement Focus Measurement focus is a term used to describe “which” transactions are recorded within the various financial statements. Basis of accounting refers to “when” transactions are recorded regardless of the measurement focus applied. On the government-wide Statement of Net Assets and the Statement of Activities, both governmental and business-type activities are presented using the economic resources measurement focus as defined in item b. below. In the fund financial statements, the “current financial resources” measurement focus or the “economic resources” measurement focus is used as appropriate: a. All governmental funds utilize a “current financial resources” measurement focus. Only current financial assets and liabilities are generally included on their balance sheets. Their operating statements present sources and uses of available spendable financial resources during a given period. These funds use fund balance as their measure of available spendable financial resources at the end of the period. b. The proprietary fund utilizes an “economic resources” measurement focus. The accounting objectives of this measurement focus are the determination of operating income, changes in net assets (or cost recovery), financial position, and cash flows. All assets and liabilities (whether current or noncurrent) associated with their activities are reported. Proprietary fund equity is classified as net assets. c. Agency funds are not involved in the measurement of results of operations; therefore, measurement focus is not applicable to them. Basis of Accounting In the government-wide Statement of Net Assets and Statement of Activities, both governmental and business-type activities are presented using the accrual basis of accounting. Under the accrual basis of accounting, revenues are recognized when earned and expenses are recorded when the liability is incurred or economic asset used. In the fund financial statements, governmental funds are presented on the modified accrual basis of accounting. Under this modified accrual basis of accounting, revenues are recognized when “measurable and available.” Measurable means knowing or being able to reasonably estimate the amount. Available means collectible within the current period or within sixty days after year end. Expenditures (including capital outlay) are recorded when the related fund liability is incurred, except for general obligation bond principal and interest which are reported when due. Agency funds are presented using the accrual basis of accounting. All proprietary funds utilize the accrual basis of accounting. Under the accrual basis of accounting, revenues are recognized when earned and expenses are recorded when the liability is incurred or economic asset used. (Continued) -51- CITY OF PADUCAH, KENTUCKY NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2005 Note 1 - Summary of Significant Account Policies: 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 fiscal 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 collected soon enough thereafter to be used to pay liabilities of the current fiscal year. For the City, available means expected to be received within sixty days of year end. Non-exchange transactions, in which the City receives value without directly giving equal value in return, include employee license taxes, property taxes, grants, entitlements and donations. The City considers property taxes as available if they are collected within sixty days after year end. 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 non-exchange transactions must also be available before it can be recognized. The revenues susceptible to accrual are taxes, intergovernmental, employer and employees’ contributions to trust funds, interest revenue and charges for services. Permit revenues are not susceptible to accrual because generally they are not measurable until received in cash. Unearned revenue The City reports unearned revenue on its statement of net assets. Unearned revenues arise when potential revenue does not meet both the “measurable” and “available” criteria for recognition in the current period. Unearned revenues also arise when resources are received by the City before it has a legal claim to them, as when grant monies are received prior to the incurrence of qualifying expenditures. In subsequent periods, when both revenue recognition criteria are met, or when the City has a legal claim to the resources, the liability for unearned revenue is removed from the statement of net assets and revenue is recognized. Budgets and Budgetary Accounting The City follows these procedures in establishing the budgetary data reflected in these financial statements: 1. Prior to July, the City Manager submits to the City Commission a proposed operating budget for the fiscal year commencing on July 1. The operating budget includes proposed expenditures and the means of financing those. 2. Public hearings are conducted by the City to obtain taxpayer comments. 3. Prior to July, the budget is legally enacted through passage of an ordinance. 4. The City Manager is authorized to transfer budgeted amounts between department line items; however, any revisions that alter the total expenditures of any department must be approved by the City Commission. (Continued) -52- CITY OF PADUCAH, KENTUCKY NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2005 Note 1 - Summary of Significant Accounting Policies: 5. Formal budgetary integration is employed as a management control device during the year and the budget is legally adopted. Budget amendments are also legally adopted. 6. The budget is adopted on a basis (budget basis), which differs from generally accepted accounting principles (GAAP basis). Encumbrance accounting, under which purchase orders, contracts, and other commitments for the expenditure of monies are recorded in order to reserve that portion of the applicable appropriation, is employed as an extension of formal budgetary integration in the General Fund, Special Revenue Funds, Debt Service Fund, and Capital Projects Funds. In accordance with generally accepted accounting principles (GAAP), encumbrances outstanding at year end are reported as reservations of fund balances since they do not constitute expenditures or liabilities. There are no encumbrances at June 30, 2005. Cash and Investments The City Council updated and adopted formal deposit and investment policies in January 2001. These policies apply to all City funds not contained in public trusts. Pension trust fund has investment policies separately approved by their oversight board. The private purpose trust has no adopted deposit and investment policy. For the purpose of the Statement of Net Assets, “cash and cash equivalents” includes all demand and savings accounts of the City. For the purpose of the proprietary fund Statement of Cash Flows, “cash and cash equivalents” include all demand and savings accounts, and certificates of deposit or short-term investments with an original maturity of three months or less. Investments are reported at fair value which is determined using selected bases. Short-term investments are reported at cost, which approximates fair value. Securities traded on a national or international exchange are valued at the last reported sales price at current exchange rates. Managed funds related to the pension and private purpose trust funds not listed on an established market are reported at estimated fair value as determined by the respective fund managers based on quoted sales prices of the underlying securities. Cash deposits and certificates of deposits are reported at carrying amount which reasonably estimates fair value. Additional cash and investment disclosures are presented in Note 3. Receivables In the government-wide statements, receivables consist of all revenues earned at year end and not yet received. Major receivable balances for the governmental activities include property taxes, employee earnings taxes, business licenses, insurance premiums taxes, franchise taxes and grant revenue. Business- type activities report utilities and interest earnings as their major receivables. The government-wide statements also include general obligation notes receivable related to the general obligation bonds outstanding as described in Note 3. In the fund financial statements, material receivables in governmental funds include revenue accruals such as franchise tax, employee earnings taxes, business licenses, insurance premiums taxes, grants and other similar intergovernmental revenues since they are usually both measurable and available. Nonexchange transactions collectible but not available are deferred in the fund financial statements in accordance with modified accrual, but not deferred in the government-wide financial statements in accordance with the accrual basis. Interest and investment earnings are recorded when earned only if paid within sixty days since they would be considered both measurable and available. Proprietary fund material receivables consist of all revenues earned at year end and not yet received. Utility accounts receivable and interest earnings compose the majority of proprietary fund receivables. Allowances for uncollectible accounts receivable are based upon historical trends and the periodic aging of accounts receivable. (Continued) -53- CITY OF PADUCAH, KENTUCKY NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2005 Note 1 - Summary of Significant Accounting Policies: Interfund Receivables and Payables During the course of operations, numerous transactions occur between individual funds that may result in amounts owed between funds. Those related to goods and services type transactions are classified as “due to and from other funds.” Short-term interfund loans are reported as “interfund receivables and payables.” Long-term interfund loans (noncurrent portion) are reported as “advances from and to other funds.” Interfund receivables and payables between funds within governmental activities are eliminated in the Statement of Net Assets. See Note 3 for details of interfund transactions, including receivables and payables at year end. Inventories Inventories are stated at cost on a first-in, first-out basis. Fixed Assets The accounting treatment over property, plant, and equipment (fixed assets) depends on whether the assets are used in governmental fund operations or proprietary fund operations and whether they are reported in the government-wide or fund financial statements. Government-wide Statement In the government-wide financial statements, fixed assets are accounted for as capital assets. All fixed assets are valued at historical cost, or estimated historical cost if actual is unavailable, except for donated fixed assets which are recorded at their estimated fair value at the date of donation. Estimated historical cost was used to value the majority of the assets acquired prior to June 30, 2004. Assets capitalized have an original cost of $500 or more prior to July 1, 1999, and $2,500 or more after July 1, 1999. Prior to July 1, 2002, governmental funds’ infrastructure assets were not capitalized. These assets have been valued at estimated historical cost. Capital assets of the primary government are depreciated over the estimated useful lives using the straight- line method. The estimated useful lives are as follows: Land improvements 10-20 Years Buildings 30-60 Years Building improvements 3- 7 Years Infrastructure 15-20 Years Equipment 5-25 Years Furnishings and fixtures 3-10 Years Vehicles 3- 9 Years Fund Financial Statements In the fund financial statements, fixed assets used in governmental fund operations are accounted for as capital outlay expenditures of the governmental fund upon acquisition. Fixed assets used in proprietary fund operations are accounted for the same as in the government-wide statements. (Continued) -54- CITY OF PADUCAH, KENTUCKY NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2005 Note 1 - Summary of Significant Accounting Policies: Restricted Assets Certain proceeds of enterprise fund revenue bonds, as well as certain resources set aside for their repayment, are classified as restricted assets on the balance sheet because their use is limited to applicable bond covenants. Compensated Absences Accumulated unpaid vacation, sick pay, and other employee benefit amounts are recorded as long-term debt in the government-wide statements. The current portion of accrued compensated absences is estimated based on historical trends. In the fund financial statements, governmental funds report only the compensated absence liability payable from expendable available financial resources, while the proprietary funds report the liability as it is incurred. Accumulations for vacation pay are restricted to a maximum of 50 days and provide vesting rights upon completion of six months service. Accumulations for sick pay are restricted to a maximum of 150 days and provide payment to employees or beneficiaries for accumulations in excess of 50 days and up to 120 days upon death or retirement from City service. Long-Term Debt The accounting treatment of long-term debt depends on whether the assets are used in governmental fund operations or proprietary fund operations and whether they are reported in the government-wide or fund financial statements. All long-term debt to be repaid from governmental and business-type resources is reported as liabilities in the government-wide statements. The long-term debt consists primarily of bonds payable and accrued compensated absences. Long-term debt for governmental funds is not reported as liabilities in the fund financial statements. The debt proceeds are reported as other financing sources and payment of principal and interest as expenditures. The accounting for proprietary funds is the same in the fund statements as it is in the government-wide statements. Equity Classifications Government-wide Statements Equity is classified as net assets and displayed in three components: a. Invested in capital assets, net of related debt – Consists of capital assets including restricted capital assets, net of accumulated depreciation and reduced by the outstanding balances of any bonds, mortgages, notes, or other borrowings that are attributable to the acquisition, construction, or improvement of those assets. b. Restricted net assets – Consists of net assets with constraints placed on the use either by (1) external groups such as creditors, grantors, contributors, or laws or regulations of other governments; or (2) law through constitutional provisions or enabling legislation. (Continued) -55- CITY OF PADUCAH, KENTUCKY NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2005 Note 1 - Summary of Significant Accounting Policies: c. Unrestricted net assets – All other net assets that do not meet the definition of “restricted” or “invested in capital assets, net of related debt.” Fund Statements Governmental fund equity is classified as fund balance. Fund balance is further classified as reserved and unreserved. Proprietary fund equity is classified the same as in the government-wide statements. Interfund Transactions Interfund services provided and used are accounted for as revenues, expenditures or expenses. Transactions that constitute reimbursements to a fund for expenditures/expenses initially made from it that are properly applicable to another fund, are recorded as expenditures/expenses in the reimbursing fund and as reductions of expenditures/expenses in the fund that is reimbursed. All other interfund transactions are reported as transfers. Nonrecurring or nonroutine permanent transfers of equity are reported as residual equity transfers. All other interfund transfers are reported as operating transfers. Program Revenues Amounts reported as program revenues include 1) charges to customers or applicants for goods, services, or privileges provided, 2) operating grants and contributions, and 3) capital grants and contributions, including special assessments. Internally dedicated resources are reported as general revenues rather than as program revenues. Likewise, general revenues include all taxes. Operating and Non-Operating Revenues and Expenses – Proprietary Funds Operating revenues and expenses for proprietary funds are those that result from providing services and producing and delivering goods and/or services. It also includes all revenue and expenses not related to capital and related financing, noncapital financing, or investing activities. Operating expenses for the enterprise and internal service funds include the cost of sales and services, administrative expenses, and depreciation on capital assets. All revenues and expenses not meeting this definition are reported as nonoperating revenues and expenses. Expenditures/Expenses In the government-wide financial statements, expenses are classified by function for both governmental and business-type activities. In the fund financial statements, expenditures are classified as follows: Governmental Funds - by character: Current (further classified by function) Debt Service Capital Outlay Proprietary Fund - by operating and nonoperating In the fund financial statements, governmental funds report expenditures of financial resources. Proprietary funds report expenses relating to use of economic resources. (Continued) -56- CITY OF PADUCAH, KENTUCKY NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2005 Note 1 - Summary of Significant Accounting Policies: Interfund Transfers Permanent reallocations of resources between funds of the reporting entity are classified as interfund transfers. For the purposes of the Statement of Activities, all interfund transfers between individual governmental funds have been eliminated. Statement of Cash Flows In September, 1989, the Governmental Accounting Standards Board issued Statement No. 9, Reporting Cash Flows of Proprietary and Nonexpendable Trust Funds and Governmental Entities That Use Proprietary Fund Accounting. The City adopted the provisions of the Statement in its 1991 financial statements. For purposes of the statement of cash flows, the City considers all certificates of deposit and all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make assumptions that affect reported amounts and disclosures. Accordingly, actual results could differ from those estimates. Stewardship, Compliance, and Accountability By its nature as a local government unit, the City and its component units are subject to various federal, state, and local laws and contractual regulations. An analysis of the City’s compliance with significant laws and regulations and demonstration of its stewardship over City resources follows. Fund Accounting Requirements The City complies with all state and local laws and regulations requiring the use of separate funds. Revenue Restrictions The City has various restrictions placed over certain revenue sources from state or local requirements. The primary restricted revenue sources include. Revenue Source Legal Restrictions of Use Kentucky Police Incentive Grant Salaries Kentucky Fire Incentive Grant Salaries HOME Investment Partnerships Grant Construction of Low-income Rental Units Emergency Communication Revenue E-911 Emergency Services County Bed Tax Debt Obligations Kentucky Transportation Cabinet Street Repairs and Maintenance Kentucky Housing Corporation Façade Loans Other Grants Grant Program Expenditures For the year ended June 30, 2005, the City complied, in all material respects, with these revenue restrictions. (Continued) -57- CITY OF PADUCAH, KENTUCKY NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2005 Note 1 - Summary of Significant Accounting Policies: Debt Restrictions and Covenants The City may not incur any indebtedness that would require payment from resources beyond the current fiscal year revenue without first obtaining voter approval. For the year ended June 30, 2005, the City incurred no such indebtedness. Note 2 – Property Taxes: The City bills and collects its own property taxes. The City elects to use the annual property assessment prepared by McCracken County as its base to apply the property tax rate. According to Kentucky Revised Statutes, the assessment date for the City must conform to the assessment date of McCracken County, and the annual increase in the property tax levy cannot exceed 4%. City property tax revenues are recorded as a receivable when assessed because the City has an enforceable legal claim to the resources. At this time, the receivable is offset by unearned revenue. Property tax revenues are recognized during the period for which they are levied. The due dates and collection period for all property taxes, exclusive of vehicle taxes, for the fiscal year ended June 30, 2005, are as follows: Description Date Assessment and enforceable lien January 1, 2004 Levy September 28, 2004 Face value amount payment dates 1st half by November 1, 2004 2nd half by February 1, 2005 Delinquent date - 10% penalty plus 1/2% per month 1st half - November 30, 2004 2nd half - February 28, 2005 Note 3 - Detail Notes on Transaction Classes/Accounts: The following notes present detail information to support the amounts reported in the basic financial statements for its various assets, liabilities, equity, revenues, and expenditures/expenses. Deposits Custodial credit risk for deposits is the risk that in the event of a bank failure, the City’s deposits may not be returned or the City will not be able to recover collateral securities in the possession of an outside party. The City’s investment policy requires all investments be made in accordance with applicable legal requirements with consideration of investment safety. Accordingly, the City maintains collateral agreements with its financial institutions. Deposits are 101% secured with collateral valued at market or par, whichever is lower, less the amount of the Federal Deposit Insurance Corporation insurance (FDIC). The City Council approves and designates a list of authorized depository institutions based on evaluation of solicited responses and certifications provided by financial institutions and recommendations of an evaluation committee and/or Finance Director. (Continued) -58- CITY OF PADUCAH, KENTUCKY NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2005 Note 3 - Detail Notes on Transaction Classes/Accounts: Deposits of the City’s reporting entity are insured or collateralized with securities held by the City, its agent, or by the pledging financial institution’s trust department or agent in the name of City. During the year ended June 30, 2005, the City’s only cash and cash equivalents were demand deposits. At year end, the carrying amount and the bank balance of the City’s cash and cash equivalents was $7,716,043 and $9,144,320, respectively. Investments As of June 30, 2005, the City’s reporting entity had the following investments: Fair Value/ Average Investment Maturities (In Years) (2) Carrying Credit Quality/ Less Greater Types of Investments Amount Rating (1) Than 1 1-5 6-10 Than 10 Primary Government Certificates of Deposits (3) $ 5,075,000 NA $ 5,075,000 $ - $ - $ - Component Units (4) Money Market Funds 895,215 AAA 895,215 - - - Certificates of Deposits 3,531,027 NA 2,951,751 579,276 - - 4,426,242 Total Primary Government And Component Units $ 9,501,242 Fiduciary and Private Purpose Trust Funds Money Market Funds $ 106,432 AAA $ 106,432 $ - $ - $ - Certificates of Deposits (3) 325,000 NA 325,000 - - - Common Stock 3,064,342 NA NA NA NA NA Corporate Bonds 1521,451 AAA/BB 201,214 1,109,845 210,392 - U.S. Agencies 104,499 AAA - 104,499 - - Mortgage Backed Securities (5) 2,644,664 AAA 449,485 898,155 1,297,024 - Mutual Funds Equity 14,442 NA NA NA NA NA Bonds 10,009 AAA 10,009 - - - Fixed 55,383 NA NA NA NA NA Index 1,472,213 NA NA NA NA NA Total Fiduciary and Private Purpose Trust Funds $ 9,318,435 (1) Ratings are provided where applicable to indicate associated Credit Risk. NA indicates not applicable. NR indicates that instrument is not rated. (2) Maturities are provided for debt instruments with maturity dates. NA indicates not applicable. (3) $225,000 of the fiduciary's certificates of deposits is pooled with the primary government's certificates of deposits. (4) Investments reported on Statement of Net Assets include $245,474 demand deposits restricted for capital projects. (5) Includes $515,266 of securities callable from 6/30/05 through 6/12/06. (Continued) -59- CITY OF PADUCAH, KENTUCKY NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2005 Note 3 - Detail Notes on Transaction Classes/Accounts: Investment Policies City Policy Credit Risk is the risk that an issuer or other counterparty to an investment will not fulfill its obligations. Generally, the City’s investing activities are managed under the custody of the City’s Finance Director. Investing is performed in accordance with investment policies adopted by the City Council complying with State Statutes. In accordance with the City’s investment policy and the State Statutes, the City may invest funds temporarily in excess of operating needs in the following: Kentucky Revised Statutes (KRS 66.480) authorize the City to invest in: 1. Obligations of the U.S. Treasury, agencies, and instrumentalities, including obligations subject to repurchase agreements, provided delivery of obligations subject to repurchase agreements are held by the City or through an authorized agent; 2. Obligations and contracts for future delivery or purchase of obligations backed by the full faith and credit of the United States or a United State government agency; 3. Obligations of any corporation of the United States government; 4. Bonds or certificates of indebtedness of the state of Kentucky and of its agencies and instrumentalities; 5. Certificates of deposit issued by or other interest-bearing accounts of any bank or savings and loan institution which are insured by the Federal Deposit Insurance Corporation or similar entity or which are collateralized, to the extent uninsured, by any obligations permitted by section 41.240(4) of the Kentucky Revised Statutes; 6. Securities issued by a state or local government, or any instrumentality or agency thereof, in the United States, and rated in one of the three highest categories by a national recognized rating agency. Interest Rate Risk is the risk that changes in interest rates will adversely affect the fair value of an investment. The City policy provides that to the extent practicable, investments are matched with anticipated cash flows. Investments are diversified to minimize the risk of loss resulting from over- concentration of assets in a specific maturity period, a single issuer, or an individual class of securities. Unless matched to a specific cash flow, investments are not, in general, made in securities maturing more than five years from the date of purchase. Surplus cash may be invested in securities exceeding five years if the maturity of such investments is made to coincide as nearly as practicable with the expected use of the investment. Concentration of credit risk is the risk of loss attributed to the magnitude of the City’s investment in a single issuer. The City policy does not specifically address concentration of credit risk. (Continued) -60- CITY OF PADUCAH, KENTUCKY NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2005 Note 3 - Detail Notes on Transaction Classes/Accounts: Pension Trust Policy The City’s pension trust is the Police and Firefighters’ Pension Fund (PFPF). Investment policy provide for investment manager(s) who have full discretion of assets allocated to them subject to the overall investment guidelines set out in the policy. Overall investment guidelines provide for diversification and allow investment in domestic and international common stocks, fixed income securities, and cash equivalents. Custodial credit risk is addressed by the policy providing for the engagement of a custodian who accepts possession of securities for safekeeping; collects and disburses income; collects principal of sold, matured, or called items; and provides periodic accounting to the pension board. Asset allocation guideline for the plan is as follows: PFPF Retirement Plan Minimum Target Maximum Equities 35% 50% 65% Fixed Income 35% 50% 65% The retirement plan addresses credit risk and concentration of credit risk with a policy that prohibits investment of more than 5% of its assets in the securities of any one issuer with the exception of U.S. government. Policy further prohibits investment of more than 20% in any one market sector. No more than 10% of corporate debt securities in the fixed income portfolio may be rated below-investment grade. Commercial paper must be rated A1, P1. Interest rate risk is addressed by the policy requiring the plan manager(s) to maintain both diversification and a predictable and dependent source of current income. Fixed income investments are flexibly allocated among maturities of different lengths. Private Purpose Trust The private purpose trust does not have a formal investment policy. The City established the trust in accordance with Kentucky Revised Statutes. The trust provides for an investment manager who has full discretion of assets allocated to him subject to the provisions of the trust agreement. The trust invests in domestic and international mutual funds, fixed income securities, U.S. treasury securities, and cash and equivalents. (Continued) -61- CITY OF PADUCAH, KENTUCKY NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2005 Note 3 - Detail Notes on Transaction Classes/Accounts: Capital Assets Capital asset activity for the year ended June 30, 2005, was as follows: Primary Government Balance July 1, 2004 restated Additions Deductions Balance June 30, 2005 Capital assets, not being depreciated: Land $ 5,420,685 $ - $ - $ 5,420,685 Construction in Progress 4,143,259 2,516,238 3,017,902 3,641,595 Total capital assets, not being depreciated: 9,563,944 2,516,238 3,017,902 9,062,280 Capital assets, being depreciated: Land improvements 1,005,955 948,998 - 1,954,953 Building and improvements 14,546,357 2,611,492 - 17,157,849 Infrastructure 27,946,332 216,741 - 28,163,073 Equipment 5,883,540 185,695 63,610 6,005,625 Furnishings and fixtures 232,985 8,870 - 241,855 Vehicles 6,373,537 496,400 84,678 6,785,259 Totals at historical cost 55,988,706 4,468,196 148,288 60,308,614 Less: Accumulated depreciation Land improvements 952,453 19,099 - 971,552 Buildings and improvements 10,248,139 296,905 - 10,545,044 Infrastructure 9,341,762 1,954,189 - 11,295,951 Equipment 5,058,138 312,929 63,610 5,307,457 Furnishings and fixtures 231,230 2,246 - 233,476 Vehicles 4,706,990 468,067 84,678 5,090,379 Total accumulated depreciation 30,538,712 3,053,435 148,288 33,443,859 Total capital assets, being depreciated, net: $25,449,994 $ 1,414,761 $ - $ 26,864,755 Primary Government Activities Capital Assets – Net $35,013,938 $ 3,930,999 $ 3,017,902 $ 35,927,035 Business-type Activities: Balance July 1, 2004 Additions Deductions Balance June 30, 2005 Capital assets, not being depreciated: Land $ 65,908 $ - $ - $ 65,908 (Continued) -62- CITY OF PADUCAH, KENTUCKY NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2005 Note 3 - Detail Notes on Transaction Classes/Accounts: Business-type Activities: Balance July 1, 2004 Additions Deductions Balance June 30, 2005 Capital assets, being depreciated: Building and improvements 345,783 2,629 11,585 336,827 Equipment 2,060,242 65,511 - 2,125,753 Vehicles 1,997,636 312,814 86,633 2,223,817 Totals at historical cost 4,403,661 380,954 98,218 4,686,397 Less: Accumulated depreciation Buildings and improvements 151,444 10,426 11,585 150,285 Equipment 1,771,921 133,415 - 1,905,336 Vehicles 1,082,535 237,664 86,633 1,233,566 Total accumulated depreciation 3,005,900 381,505 98,218 3,289,187 Total capital assets, being depreciated, net: $ 1,397,761 $ ( 551) $ - $ 1,397,210 Business - Type Activities Capital Assets – Net $ 1,463,669 $ (551) $ - $ 1,463,118 Depreciation expense was charged to governmental activities as follows: General government: General administration $ 161,187 Finance 4,120 Planning 12,476 Human rights 845 Personnel 1,188 Information systems 13,664 Fleet maintenance 12,006 Total general government 205,486 Public safety: Police 68,183 Fire 35,105 Grants 149,670 Emergency 911 21,040 Court awards 23,541 Fleet Lease Trust 448,099 Total public safety 745,638 Public service: Public works 70,800 Engineering 13,879 Total public service 84,679 (Continued) -63- CITY OF PADUCAH, KENTUCKY NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2005 Note 3 - Detail Notes on Transaction Classes/Accounts: Parks and recreation $ 54,174 Planning and development: Infrastructure 1,954,189 Grants 9,269 Total planning and development 1,963,458 Total Depreciation Expense – Governmental Activities $ 3,053,435 Depreciation expense was charged to business-type activities as follows: Solid Waste Fund $ 291,230 Civic Center 9,518 TISA Fund 80,757 Total Depreciation Expense – Business-Type Activities $ 381,505 Balance Balance Discretely Presented July 1, 2004 Increases Decreases June 30, 2005 Component Units: Capital assets, not being depreciated: Land $ 1,890,879 $ - $ 12,783 $ 1,878,096 Construction-in-progress 1,737,329 586,409 1,213,267 1,110,471 Total capital assets, not being depreciated 3,628,208 586,409 1,226,050 2,988,567 Capital assets, being depreciated: Buildings and improvements 1,668,226 - - 1,668,226 Equipment 4,303,694 881,386 63,370 5,121,710 Utility plant 112,733,972 6,281,503 784,944 118,230,531 Total capital assets, being depreciated 118,705,892 7,162,889 848,314 125,020,467 Less accumulated depreciation: Buildings and improvements 219,146 106,465 - 325,611 Equipment 1,547,069 536,222 58,744 2,024,547 Utility plant 45,787,671 3,434,800 903,546 48,318,925 Total accumulated depreciation 47,553,886 4,077,487 962,290 50,669,083 Total capital assets, being depreciated, net 71,152,006 3,085,402 (113,976) 74,351,384 COMPONENT UNIT CAPITAL ASSETS, NET $ 74,780,214 $3,671,811 $ 1,112,074 $ 77,339,951 (Continued) -64- CITY OF PADUCAH, KENTUCKY NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2005 Note 3 - Detail Notes on Transaction Classes/Accounts: Depreciation expense, charged to functions/programs of discretely presented major component units as follows: Paducah Water Works $ 1,233,250 Paducah Power System 2,201,550 Paducah Transit Authority 642,687 TOTAL DEPRECIATION EXPENSE BY ACTIVITY $ 4,077,487 Accounts Payable Payables in the governmental and proprietary funds are composed of payables to vendors and accrued salaries and benefits. Long-Term Debt The City’s long-term debt is segregated between the amounts to be repaid from governmental activities and amounts to be repaid from business-type activities. Governmental Activities As of June 30, 2005, the governmental long-term debt consisted of the following: General obligation bonds: Current portion $ 410,000 Noncurrent portion 12,810,000 TOTAL GENERAL OBLIGATION BOND COSTS $13,220,000 Note payable: Current portion $ 184,047 Noncurrent portion 3,319,227 TOTAL NOTE PAYABLE PAYMENTS $ 3,503,274 Accrued compensated absences: Current portion $ 410,398 Noncurrent portion 1,373,055 TOTAL ACCRUED COMPENSATED ABSENCES $ 1,783,453 (Continued) -65- CITY OF PADUCAH, KENTUCKY NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2005 Note 3 - Detail Notes on Transaction Classes/Accounts: Business-type Activities As of June 30, 2005, the long-term debt payable from proprietary fund resources consisted of the following: Accrued compensated absences: Current portion $ 56,753 Noncurrent portion 22,031 TOTAL ACCRUED COMPENSATED ABSENCES $ 78,784 General Obligation Bonds Series 2001 Bond Issue - The City of Paducah issued general obligation bonds of $9,290,000 in June, 2001, to finance construction of the new Luther F. Carson Four Rivers Center for the Performing Arts and the expansion of the Julian Carroll Convention Center. Interest rates range from 3.5% to 5%. These bonds are required to be fully paid within 25 years from the date of issue and are backed by the full faith and credit of the City. While these bonds are issued by the City, 50% of the principal amount of the bonds was issued on behalf of the County of McCracken, Kentucky which intends to participate on an equal basis with the City in financing the projects and has issued the City a general obligation note in a principal amount equal to 50% of the principal amount of the bonds and bearing interest at the same rates as the City’s bonds in order to secure the County’s obligations to the City. This note receivable is reflected in the government-wide Statement of Net Assets. In accordance with an Interlocal Cooperation Agreement between the City, McCracken County, Kentucky (the County), and the Paducah-McCracken County Tourist and Convention Commission (the Bureau), principal and interest payments on the bonds are being made from an additional 2% transient room tax collected by the County with the remaining payments split evenly between the City, the County, and the Bureau. Series 2004 Bond Issue - The City of Paducah issued general obligation bonds of $5,000,000 in June, 2004, to finance construction of the new Infiniti Media Building. Interest rates range from 2.25% to 6%. These bonds are required to be fully paid within 20 years from the date of issue and are backed by the full faith and credit of the City. While these bonds are issued by the City, 50% of the principal amount of the bonds was issued on behalf of the County of McCracken, Kentucky which intends to participate on an equal basis with the City in financing the projects and has issued the City a general obligation note in a principal amount equal to 50% of the principal amount of the bonds and bearing interest at the same rates as the City’s bonds in order to secure the County’s obligations to the City. This note receivable is reflected in the government-wide Statement of Net Assets. In accordance with a Capital Sublease Agreement between McCracken County, Kentucky (the County) and Infiniti Plastic Technologies, Inc., principal and interest payments prior to June 1, 2007, on the bonds are being split evenly between the City and the County. After June 1, 2007, The County will pay 2.031% of the bond payments with the remaining amount being made from Infiniti’s lease payments. Notes Payable Kentucky League of Cities - On July 1, 2003, the City entered into an agreement in the amount of $3,500,000 with the Kentucky League of Cities to finance the acquisition and installation of various public projects. Interest is charged at a rate of approximately 2.98%. The note is required to be fully paid within 20 years from the date of issue and is backed by the full faith and credit of the City. (Continued) -66- CITY OF PADUCAH, KENTUCKY NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2005 Note 3 - Detail Notes on Transaction Classes/Accounts: Paducah Bank - On April 1, 2003, the City entered into a note for up to $70,000 with Paducah Bank & Trust Company to help finance the purchase of property located at 233 North 6th Street, which is part of the LowerTown property acquired for resell. Interest is charged at a rate of 3.25% with the full amount of the note due to be paid in a lump sum on April 1, 2006. The City retired the note during the current fiscal year. Kentucky Association of Counties - The County of McCracken, Kentucky entered into an agreement in the amount of $300,000 in May, 2005, with the Kentucky Association of Counties for purchase of a rail spur in the Industrial Park West. Interest rates range from 2.175% to 4.250%. This note is required to be fully paid within 5 years from the date of issue and is backed jointly by the full faith and credit of the City and the County. While this note is issued by the County, 50% of the principal amount of the note was issued on behalf of the City which intends to participate on an equal basis with the County in accordance with an Interlocal Cooperation Agreement between the City and McCracken County, Kentucky on June 1, 2004. Kentucky Association of Counties - The County of McCracken, Kentucky entered into an agreement in the amount of $250,000 in August, 2004, with the Kentucky Association of Counties to assist the Paducah- McCracken County Industrial Development Authority finance construction of the new speculative building in Industrial Park West. Interest rate is 4.250%. This note is required to be fully paid within 5 years from the date of issue and is backed jointly by the full faith and credit of the City and the County. While this note is issued by the County, 50% of the principal amount of the note was issued on behalf of the City which intends to participate on an equal basis with the County in accordance with an Interlocal Cooperation Agreement between the City and McCracken County, Kentucky on June 1, 2004. Changes in Long-Term Debt The following is a summary of changes in long-term debt for the year ended June 30, 2005: Amounts Beginning Ending Due within Type of Debt: Balance Additions Reductions Balance One Year Governmental activities: General obligation bonds: Convention and Arts Center $ 8,620,000 $ - $ 240,000 $ 8,380,000 $ 250,000 Infiniti Media Building 5,000,000 - 160,000 4,840,000 160,000 Notes payable: Kentucky League of Cities 3,381,211 - 133,358 3,247,853 137,411 Paducah Bank 47,644 - 47,644 - - Kentucky Association of Counties - 125,000 19,579 105,421 24,136 Kentucky Association of Counties - 150,000 - 150,000 22,500 Accrued compensated absences 1,744,404 409,177 370,128 1,783,453 410,398 TOTAL GENERAL LONG- TERM DEBT $18,793,259 $ 684,177 $ 970,709 $ 18,506,727 $ 1,004,445 Business-type activities: Accrued compensated absences $ 65,187 $ 64,782 $ 51,185 $ 78,784 $ 56,753 (Continued) -67- CITY OF PADUCAH, KENTUCKY NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2005 Note 3 - Detail Notes on Transaction Classes/Accounts: Annual Debt Service Requirements The annual debt service requirements to maturity, excluding obligations associated with compensated absences, for long-term debt as of June 30, 2005, are as follows: Year Ending June 30 Principal Interest 2006 $ 594,047 $ 719,609 2007 613,942 700,436 2008 641,485 679,457 2009 661,680 656,479 2010 661,856 632,504 2011-2015 3,625,443 2,755,424 2016-2020 4,504,821 1,918,419 2021-2025 4,805,000 809,471 2026-2030 615,000 30,750 TOTALS $16,723,274 $ 8,902,549 Accrued Compensated Absences Compensated absence obligations arise from amounts due to City employees for vested amounts of vacation pay and sick pay which will be payable in the future. Amounts accrued at June 30, 2005, are as follows: Governmental Business-type Activities Activities Accrued sick leave $ 772,691 $ 22,112 Accrued vacation leave 885,480 51,074 Applicable payroll taxes 125,282 5,598 Totals 1,783,453 78,784 Less current portion 410,398 56,753 LONG-TERM PORTION $1,373,055 $ 22,031 Landfill Closure and Post-Closure Costs The County of McCracken, Kentucky (County) closed the local landfill to the public on June 30, 1995. The County must comply with established state and federal landfill closure procedures and must perform maintenance and monitoring procedures at the site for thirty years after closure. The 30-year period will begin upon approval from the Commonwealth of Kentucky regarding the environmental condition of the landfill site. As of June 30, 2005, approval had not yet been granted. The County estimated post-closure care costs totaling $4,125,000 or $125,000 per year plus 10% for inflation. Actual costs may be higher due to inflation, changes in technology, or changes in regulations. In the year ending June 30, 2001, the City entered into an inter-local agreement to share equally the costs for post-closure costs and accordingly, has recorded a long-term liability for 50% of the estimated closure expense (See Note 10). The City reimburses the County annually for its share of closure costs incurred during the fiscal year. It is anticipated that post-closure costs will be paid out of the Solid Waste Fund to the extent that funds are available with any excess costs being funded using long-term borrowing. (Continued) -68- CITY OF PADUCAH, KENTUCKY NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2005 Note 3 - Detail Notes on Transaction Classes/Accounts: Interfund Transactions and Balances Interfund transfers during the year ended June 30, 2005, were as follows: Interfund Interfund Governmental Funds: Transfers In Transfers Out General Fund $ - $2,740,032 Capital Project Fund 2,348,777 269,209 Downtown Capital Project Fund 39,300 1,702,930 Nonmajor Governmental Funds 1,006,343 - Internal Service Funds 324,000 - Fiduciary Funds: Appointive Employee Pension Fund 75,000 - Police and Firefighters’ Pension Fund 784,792 - Proprietary Funds: Nonmajor Proprietary Funds 133,959 - TOTALS $4,712,171 $4,712,171 Transfers are used to (a) move revenues from the fund that statute or budget requires to collect them to the fund that statute or budget requires to expend them and to (b) use unrestricted revenues collected in the general fund to finance various programs accounted for in other funds in accordance with budgetary authorizations. Due To/From Balances Due to/from balances used to cover current operating expenses were as follows as of June 30, 2005: Due From Due To General Fund $1,279,923 $ 50,000 General Capital Improvement Fund 50,000 - Downtown Capital Improvement Fund - 15,364 Nonmajor Governmental Funds - 132,125 Internal Service Funds - 1,132,434 TOTALS $1,329,923 $1,329,923 Note 4 - Pension Plans - City of Paducah: The City provides retirement benefits to its employees through three pension funds. Two of these funds are single-employer defined benefit funds and are administered by the City. These funds are Police and Firefighters’ Pension Fund (PFPF) and Appointive Employee’ Pension Fund (AEPF). The other pension is a multi-employer public employee retirement fund administered by the Kentucky County Employees Retirement System (CERS). The City also participates in two deferred compensation plans. Information regarding these plans follows: (Continued) -69- CITY OF PADUCAH, KENTUCKY NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2005 Note 4 - Pension Plans - City of Paducah: Single Employer Defined Benefit Funds Basis of Accounting - The financial statements are prepared using the accrual basis of accounting. Plan member and employer contributions are recognized in the period in which the contributions are due. Benefits and refunds are recognized when due and payable in accordance with the terms of each plan. Funding - The Appointive Employee’s Pension Fund Board and the City of Paducah Police and Firefighter’s Pension Fund Board are responsible for establishing or amending contribution rates and requirements for their respective plans. Valuation of Investments - Investments are reported at fair value. Investments are composed of securities valued at current market prices. Police and Firefighters’ Pension Fund Plan Description: PFPF is a single-employer defined benefit plan. On August 1, 1988, the plan was closed to new entrants and current active duty police and firemen of the City were given a choice of remaining in this plan or transferring into the CERS. Effective August 1, 1988, the PFPF covered 21 active duty members; all other active duty members elected coverage under CERS. PFPF provides retirement, disability and death benefits to plan members and their beneficiaries. These benefits are determined by Kentucky Revised Statutes (KRS) sections 95.851 to 95.884. The plan financial statements are included in this audit report. Contributions: Plan members are required to contribute 8% of their annual covered salary. A member reserve is established for member contributions, less amounts transferred to reserves for retirement and disability and amounts refunded to terminated employees. Components of annual pension cost for PFPF are as follows: Year Ended Year Ended Year Ended Component June 30, 2005 June 30, 2004 June 30, 2003 Beginning NPO balance $ - $ - $ - ARC 953,044 811,401 645,773 Pension cost 953,044 811,401 645,773 Less actual contribution 953,044 811,401 645,773 Net change in NPO - - - ENDING NPO BALANCE $ - $ - $ - PERCENTAGE OF PENSION COST CONTRIBUTED 100% 100% 100% (Continued) -70- CITY OF PADUCAH, KENTUCKY NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2005 Note 4 - Pension Plans - City of Paducah: The financial statements for the Police and Firefighters’ Pension Fund are as follows: Statement of Fiduciary Net Assets Police and Firefighters’ Retirement Fund June 30, 2005 Assets: Cash and cash equivalents $ 32,563 Receivables 54,363 Prepaid expenses 58,117 Investment at fair value 9,007,869 Total assets 9,152,912 Liabilities: Voucher and accounts payable 2,051 Net Assets: Held in trust for pension benefits and other purposes $9,150,861 Statement of Changes in Net Assets Police and Firefighters’ Retirement Fund For the Year Ended June 30, 2005 Additions: Employer contributions $ 953,044 Plan members’ contributions 23,487 Total contributions 976,531 Investment earnings: Net increase in fair value of investments 401,519 Interest and dividends 285,918 Net investment earnings 687,437 Total additions 1,663,968 Deductions: Benefits 1,801,913 Administrative expenses 63,493 Total deductions 1,865,406 Change in net assets (201,438) Net assets, July 1, 2004 9,352,299 NET ASSETS, JUNE 30, 2005 $9,150,861 (Continued) -71- CITY OF PADUCAH, KENTUCKY NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2005 Note 4 - Pension Plans - City of Paducah: Appointive Employees’ Pension Fund Plan Description: AEPF is a single-employer defined benefit plan which covers past appointed employees of the City. In 1975, the City froze admission of new entrants into the plan. There are no active participants in the plan at June 30, 2005. The plan financial statements are included in this audit report. Contributions: Since there are only retired employees and beneficiaries receiving benefits, the City expects little or no additional pension obligation. The City has pledged to maintain benefits and the financial soundness of the plan by appropriations from the General Fund, as necessary. Components of annual pension cost for AEPF are as follows: Year Ended Year Ended Year Ended Component June 30, 2005 June 30, 2004 June 30, 2003 Beginning NPO balance $(212,055) $(198,365) $(186,170) ARC 26,328 48,339 50,112 Interest on NPO (12,723) (11,902) (11,170) Unfunded ARC adjustment 27,181 25,426 23,863 Pension cost 40,786 61,863 62,805 Less actual contribution 75,000 75,553 75,000 Net change in NPO (34,214) (13,690) (12,195) ENDING NPO BALANCE $(246,269) $(212,055) $(198,365) PERCENTAGE OF PENSION COST CONTRIBUTED 184% 122% 120% Statement of Fiduciary Net Assets Appointive Employees’ Pension Fund June 30, 2005 Assets: Cash and cash equivalents $ 97,514 Receivables 2,531 Prepaid expenses 1,802 Investment at fair value 227,042 Total assets 328,889 Liabilities: Voucher and accounts payable - Net Assets: Held in trust for pension benefits and other purposes $328,889 (Continued) -72- CITY OF PADUCAH, KENTUCKY NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2005 Note 4 - Pension Plans - City of Paducah: Statement of Changes in Net Assets Appointive Employees’ Pension Fund For the Year Ended June 30, 2005 Additions: Interest and dividends $ 7,487 Employer contributions 75,000 Total additions 82,487 Deductions: Benefits 69,276 Administrative expenses 7,942 Total deductions 77,218 Change in net assets 5,269 Net assets, July 1, 2004 323,620 NET ASSETS, JUNE 30, 2005 $328,889 Contribution Information A summary of actuarial assumptions at June 30, 2005, the date of the latest actuarial valuation is as follows: PFPF AEPF Valuation date 7/1/05 7/1/05 Actuarial cost method Entry age normal Aggregate (1) Amortization method Level dollar closed Level dollar closed Remaining amortization period 27 Years 10 Years Asset valuation method Market value Market value Actuarial assumptions: Investment rate of return 7.75% 6.0% Projected salary increases 4.00% (2) Inflation rates adjustments 3.00% (2) (1) The Aggregate Method does not identify or separately amortize the unfunded actuarial liabilities. (2) The plan has no active participants. The pension cost for each year is determined as an amortization of the unfunded actuarial accrued liability over the lesser of 10 years or the weighted average of expected term of payment of plan benefits. (Continued) -73- CITY OF PADUCAH, KENTUCKY NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2005 Note 4 - Pension Plans - City of Paducah: Membership Information Membership of each plan consisted of the following at June 30, 2005: PFPF AEPF Active participants 5 - Beneficiaries 41 8 Retired participants 54 3 TOTAL PARTICIPANTS 100 11 Cost-Sharing Multiple-Employer Defined Benefit Plan County Employees’ Retirement System Plan Description: The City is a participant in the County Employees Retirement System (CERS), a cost sharing, multi-employer public employee retirement system. CERS provides retirement, disability, and death benefits to plan members. Retirement benefits may be extended to beneficiaries of plan members under certain circumstances. Cost-of-living adjustments are provided at the discretion of the State legislature. Kentucky Retirement Systems issues a publicly available financial report that includes financial statements and required supplementary information for CERS. That report may be obtained by writing to Kentucky Retirement Systems, Perimeter Park West, 1260 Louisville Road, Frankfort, Kentucky 40601-6124 or by calling 1-502-564-4646. Funding Policy: Hazardous position employees are required to contribute 8% to the plan and nonhazardous position employees are required to contribute 5% of their creditable compensation by State statute. The City is required by the same statute to contribute the remaining amounts necessary to pay benefits when due. For the years ended June 30, 2005, 2004 and 2003, the City contributed 22.08%, 18.51%, and 16.28%, respectively, of each hazardous employee’s creditable compensation and 8.48%, 7.34%, and 6.34%, respectively, of each nonhazardous employee’s creditable compensation. These actuarially determined rates are set by the Board of Trustees of Kentucky Retirement Systems. The City’s contributions to CERS for the years ending June 30, 2005, 2004 and 2003, were $2,963,431, $2,387,011, and $2,104,841, respectively, equal to the required contributions for each year. Note 5 – Appropriations Deficit: No departments that adopted budgets annually had excess expenditures over appropriations for the fiscal year ended June 30, 2005. Note 6 - Component Unit Long-Term Debt: Long-term debt of the discretely presented component units consists of the following at June 30, 2005: Refunding Revenue Bonds of 1991 - Paducah Water Works The City of Paducah, Kentucky Refunding Bonds, Series of 1991, in the amount of $10,775,000 were issued for the purpose of defeasing certain bonds of the Revenue Refunding Bonds, Series of 1985. During the year ended June 30, 1998, Paducah Water Works refunded a portion ($6,075,000) of the 1991 bond issue by issuing $6,780,000 of 1997 revenue refunding bonds, Series 1997. At June 30, 2004, the total bonds that are considered extinguished under an in-substance defeasance (refund) are $11,790,000. The bonds are secured by a first pledge of the revenues of Paducah Water Works. City bond ordinances require that net revenues, as defined in the ordinances, equal or exceed 130% of the maximum annual debt service. Payment of bonds and related interest is fully guaranteed by the Municipal Investors Assurance Corporation. (Continued) -74- CITY OF PADUCAH, KENTUCKY NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2005 Note 6 - Component Unit Long-Term Debt: The following schedule summarizes the debt service requirements for the Refunding Revenue Bonds, Series of 1991, maturing July 1, 2009 bearing interest rates of 4.375% to 4.450%: Total Debt Fiscal Year Principal Interest Service 2006 $ 905,000 $171,510 $1,076,510 2007 950,000 131,690 1,081,690 2008 990,000 89,890 1,079,890 2009 1,030,000 45,835 1,075,835 Less deferred debit arising from advanced refunding (236,842) - (236,842) TOTALS $3,638,158 $438,925 $4,077,083 Note Payable, Kentucky Infrastructure Authority (KIA) – Paducah Water Works In connection with a merger with Reidland Water District, Paducah Water Works assumed a loan from the KIA. Interest rates range from 3.16% to 5.19%, with a .2% annual service fee. The annual requirements to amortize the outstanding debt as of June 30, 2005, are as follows: Year Ending June 30 Principal Interest Fee (0.2%) Total 2006 $ 25,000 $ 9,456 $ 430 $ 34,886 2007 25,000 8,666 380 34,046 2008 25,000 7,769 330 33,099 2009 25,000 6,759 280 32,039 2010 25,000 5,673 230 30,903 2011-2016 90,000 9,147 360 99,507 TOTALS $215,000 $47,470 $2,010 $264,480 Paducah Electric Plant Board 1991 Bond Issue On November 1, 1998, the Utility issued $3.35 million in special revenue refunding bonds with interest rates between 3.75% and 4.20%. The Utility issued the bonds to advance refund $3.06 million of the outstanding Series 1991 general obligation bonds with a 6.30% interest rate and were secured by all assets of the Utility. The Utility used the net proceeds along with other resources to purchase the U. S. Government Securities. These securities were deposited in an irrevocable trust to provide for all future debt service on the refunded portion of the 1991 Series bonds maturing on or after January 1, 2002. As a result, that portion of the 1991 Series bonds is considered defeased and the Utility has removed the liability from its books. On November 9, 2001, the System issued $3.32 million in special revenue refunding bonds with interest rates between 3.00% and 4.25% and is secured by a first pledge of the net revenues of the System. The System issued the bonds to finance construction of a fiber optic network in the community. (Continued) -75- CITY OF PADUCAH, KENTUCKY NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2005 Note 6 - Component Unit Long-Term Debt: The following schedule summarizes the remaining debt service requirements for the Paducah Electric Plant Board 2001 and 1998 Bond Issues: Total Debt Fiscal Year Principal Interest Service 2006 $ 355,000 $ 219,607 $ 574,607 2007 370,000 205,758 575,758 2008 385,000 191,117 576,117 2009 400,000 175,533 575,533 2010 415,000 159,332 574,332 2011-2015 2,355,000 527,803 2,882,803 2016-2018 1,080,000 69,275 1,149,275 TOTALS $5,360,000 $1,548,425 $6,908,425 Bonds payable totaling $5,153,938 are recorded net of $206,062 unamortized bond discount and advance refunding deferred charges. Notes Payable, Kentucky Association of Counties (KACO) – Paducah Transit Authority On February 13, 2004 and February 22, 2005, the Transit Authority of the City of Paducah entered into agreements with the KACO in connection with a grant match projects. Interest rates on these agreements are 2.175%. As of June 30, 2005, the outstanding balance was $350,570 and $143,976, respectively. The following schedule summarizes the remaining debt service requirements for the Transit Authority of the City of Paducah notes payable: Total Debt Fiscal Year Principal Interest Service 2006 $ 168,680 $ 17,764 $ 186,444 2007 48,280 12,689 60,969 2008 38,173 11,068 49,241 2009 39,339 9,416 48,755 2010 40,540 7,721 48,261 2011-2015 159,534 12,954 172,488 TOTALS $ 494,546 $ 71,612 $ 566,158 Note 7 - Commitments and Contingencies: Grant Contingencies Amounts received from grantor agencies are subject to audit and adjustment by grantor agencies, principally the federal government. Any disallowed claims, including amounts already collected, may constitute a liability of the applicable funds. The amount, if any, of expenditures which may be disallowed by the grantor cannot be determined at this time although the government expects such amounts, if any, to be immaterial. (Continued) -76- CITY OF PADUCAH, KENTUCKY NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2005 Note 7 - Commitments and Contingencies: Construction Commitments The City has various on-going contracts for construction, renovations, paving materials, equipment, and labor. As of June 30, 2005, the construction commitments were as follows: Cumulative Costs Incurred Estimated Costs Amphitheater Park Renovations $ 58,455 $ 199,520 Pecan Drive/Buckner Land Roadway Improvement Project Funding provided by Kentucky Department of Transportation - 3,636,376 Pecan Drive Bridge Construction Project Funding provided by Kentucky Department of Transportation 881,188 883,956 Street Resurfacing Program 66,215 685,065 $1,005,858 $5,404,917 Note 8 - Risk Management and Litigation: 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. The City obtains coverage from commercial insurance companies to handle the risk of loss. There have been no decreases in insurance coverage from the prior year. There have been no settlements in excess of insurance coverage during the prior three years. An analysis of claims activity is presented below: Current Year Beginning of Claims and Actual Balance at Fiscal Year Changes in Claim Fiscal Liability Estimates Payments Year End 1997 - 1998 $ - $ 96,101 $ 96,101 $ - 1998 - 1999 - 26,457 26,457 - 1999 - 2000 - 26,455 26,455 - 2000 - 2001 - 102,380 102,380 - 2001 - 2002 - 2,879 2,879 - 2002 - 2003 - 3,277 3,277 - 2003 - 2004 - 133,383 133,383 - 2004 - 2005 - 1,004 1,004 - (Continued) -77- CITY OF PADUCAH, KENTUCKY NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2005 Note 8 - Risk Management and Litigation: During fiscal year 1999, the City established the Health Insurance Fund (an internal service fund) to account for and finance employee medical costs relating to the City’s employee self-insured medical benefit plan that went into effect as of July 1, 1999. The health insurance provides coverage for up to $150,000 for each covered individual. The City purchases commercial insurance (reinsurance) for claims in excess of the coverage provided per individual or in excess of the maximum aggregate limit of $2,000,000. Self-insurance costs are accrued based on claims reported within 90 days of the balance sheet date as well as an estimated liability for claims incurred but not reported. The total accrued liability for self-insurance costs was $413,000 at June 30, 2005. The analysis of claims activity is presented below: Current Year Beginning of Claims and Actual Balance at Fiscal Year Changes in Claim Fiscal Liability Estimates Payments Year End 2000 - 2001 $ - $2,636,969 $2,351,969 $285,000 2001 - 2002 285,000 2,601,988 2,601,988 285,000 2002 - 2003 285,000 3,257,340 3,210,340 332,000 2003 - 2004 332,000 2,217,067 2,199,067 350,000 2004 - 2005 350,000 2,994,673 2,931,673 413,000 Several lawsuits are pending involving citizens’ complaints and the City of Paducah. Various allegations have been made seeking damages which the legal counsel of the City, along with its management, has determined to be immaterial to the City’s financial position. Note 9 - Lease Agreements: The City is leasing land to the Luther F. Carson Four Rivers Center for the Performing Arts (Center) for a primary term of 99 years. No rental revenue is being collected from this lease. The rental for the primary term of the lease is the construction of the performing arts center. The building will be deemed the property of the City upon termination of the lease. In December, 2003, with the authorization of the City, the Center secured financing of $6.5 million subject to a mortgage against the leasehold and real property on which the performing arts center is located. The City also consented to an assignment of the lease as security for the loan. The City is leasing land and a building to Infiniti Media, Incorporated for use by Infiniti Plastic Technologies, Incorporated for a primary term of 20 years. No rental revenue is collected for the first three years of the lease term. Rental payments will commence on September 1, 2007, at a monthly payment of $33,816 and end with the final payment due May 1, 2024. Infiniti Media may purchase the property during the term of lease by paying off the related indebtedness. In addition, at the end of the lease term, Infiniti Media may purchase the property for $1. Infiniti Media has the option to cancel this lease at any time after the sixth year of the lease term by providing written notice 18 months prior to the date of termination. The City also leases certain other property to various lessees under non-cancelable agreements that have various expiration dates through June 30, 2079. Rental revenue received from leased property during 2005 totaled $331,292. (Continued) -78- CITY OF PADUCAH, KENTUCKY NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2005 Note 9 - Lease Agreements: The following is an analysis of property leased under these leases at June 30, 2005: Land $ 606,350 Buildings 3,422,262 Equipment 110,126 Total 4,138,738 Less: accumulated depreciation 739,371 NET BOOK VALUE $ 3,399,367 Depreciation expense for the year ended June 30, 2005, on leased property was $67,507. The following is a schedule of future minimum rental income from operating leases at June 30, 2005: Lease Income 2006 $ 402,565 2007 424,173 2008 758,286 2009 825,919 2010 825,919 Future years 322,786 TOTAL MINIMUM LEASE RECEIPTS $ 3,559,648 Note 10 - Reclassification of Beginning Fund Balance: Governmental Funds During the previous year, the City had not recorded receivables for payroll taxes, insurance taxes & business licenses earned as of June 30th under the modified accrual basis of accounting. Accordingly, a reclassification was made to the beginning fund balance as follows: General Fund June 30, 2004, balance as previously reported $ 4,642,073 Fund balance adjustment 3,870,992 JULY 1, 2004, BALANCE AS RESTATED $ 8,513,065 (Continued) -79- CITY OF PADUCAH, KENTUCKY NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2005 Note 10 - Reclassification of Beginning Fund Balance: Business-type Activities In October of 2000, the City entered into an inter-local agreement with the County of McCracken, Kentucky to share equally the expenses related to the closure of the County landfill. Accordingly, a reclassification was made to the beginning fund balance as follows: Solid Waste Fund June 30, 2004, balance as previously reported $ 3,040,450 Fund balance adjustment (2,062,500) JULY 1, 2004, BALANCE AS RESTATED $ 977,950 Statement of Net Assets During the previous year, the City had not recorded receivables for payroll taxes, insurance taxes & business licenses earned as of June 30th under the accrual basis of accounting. In addition, capital assets were inadvertently omitted. Accordingly, a reclassification was made to the beginning fund balance as follows: Total Governmental Activities June 30, 2004, balance as previously reported $ 32,166,415 Taxes and license receivables 4,103,878 Construction in progress and fixed assets 3,076,396 JULY 1, 2004, BALANCE AS RESTATED $ 39,346,689 Note 11 – Subsequent Event Subsequent to June 30, 2005, the City Commission approved an ordinance effectively increasing employee earnings license fee from 1 ½% to 2% effective October 1, 2005. -80- CITY OF PADUCAH, KENTUCKY REQUIRED SUPPLEMENTARY INFORMATION COMPREHENSIVE ANNUAL FINANCIAL REPORT YEAR ENDED JUNE 30, 2005 Exhibit A-1 CITY OF PADUCAH, KENTUCKY REQUIRED SUPPLEMENTARY INFORMATION PENSION TRUST FUNDS SCHEDULES Schedules of Funding Progress Actuarial Actuarial Unfunded Annual UAAL as a Actuarial Value of Accrued AAL Funded Covered Percentage of Valuation Assets Liability (AAL) (UAAL) Ratio Payroll Covered Payroll Date (a) (b) (b-a) (a/b) (c) ((b-a)/c) Police and Firefighters’ Pension Fund (PFPF) (Using Entry Age Normal Method) 7/1/2000 11,914,754 15,923,034 4,008,280 74.8 345,500 1160.14 7/1/2001 11,346,128 15,724,236 4,378,108 72.2 356,406 1228.40 7/1/2002 10,382,216 15,550,968 5,168,752 66.8 356,304 1450.66 7/1/2003 9,460,720 15,334,484 5,873,764 61.7 320,782 1831.08 7/1/2004 9,352,299 15,204,717 5,852,418 61.5 287,923 2032.63 7/1/2005 9,150,861 15,310,380 6,159,519 59.8 198,307 3,106.05 Appointive Employees’ Pension Fund (AEPF) (Using Aggregate Actuarial Method) The Aggregate Cost Method is used for the AEPF; therefore, a schedule of funding progress is not required. Schedules of Employer Contributions PFPF AEPF Year Annual Required Percent Annual Required Percent Ending Ended Contribution ARC Contribution ARC Net Pension June 30 (ARC) Contributed (ARC) Contributed Obligation (NPO) 2000 649,274 100 66,716 112 (182,405) 2001 865,026 100 62,029 121 (182,940) 2002 806,632 100 59,297 126 (186,170) 2003 645,773 100 50,112 150 (198,365) 2004 811,401 100 48,339 156 (212,055) 2005 953,044 100 26,328 285 (246,269) -81- Exhibit A-2 Original Final Beginning budgetary fund balance 4,925,982$ 8,513,065$ 8,513,065$ -$ Resources (Inflows): Taxes: Real and personal, current year 4,284,000 4,284,000 4,303,297 19,297 Real and personal, prior year 110,000 110,000 141,140 31,140 Franchise 234,000 234,000 264,932 30,932 Bank taxes 165,000 165,000 157,771 (7,229) In lieu of tax payment 150,450 150,450 146,936 (3,514) Penalty, interest and advertising 41,000 41,000 51,225 10,225 Paducah Junior College tax collections - - 281,088 281,088 Total taxes 4,984,450 4,984,450 5,346,389 361,939 Licenses: Business licenses 3,535,000 3,565,500 3,643,200 77,700 Employee earnings 11,000,000 11,000,000 11,183,157 183,157 Comcast fees 280,000 280,000 275,024 (4,976) Penalties 65,000 65,000 71,584 6,584 Alcoholic beverages 110,500 110,500 116,725 6,225 Insurance premium tax 3,820,000 3,820,000 3,957,289 137,289 Building permits 100,000 100,000 139,681 39,681 Electrical permits 32,000 32,000 38,713 6,713 Zoning change fees 4,000 4,000 3,813 (187) Miscellaneous building and electrical fees 500 500 1,452 952 KJDA payroll rebate (64,450) (64,450) (61,873) 2,577 Total licenses 18,882,550 18,913,050 19,368,765 455,715 Charges for services: Tax collection fee 115,000 115,000 109,713 (5,287) Administrative charge 240,700 240,700 242,580 1,880 Base court revenue 69,865 69,865 45,582 (24,283) Recreation fees 134,500 134,500 117,317 (17,183) Total charges for services 560,065 560,065 515,192 (44,873) (Continued) Final Budget Variance with -82- CITY OF PADUCAH, KENTUCKY BUDGETARY COMPARISON SCHEDULE (BUDGETARY BASIS) GENERAL FUND FOR THE YEAR ENDED JUNE 30, 2005 Actual PositiveBudgeted Amounts Amounts (Negative) Exhibit A-2 (Continued) Actual Grants:Original Final Amounts Police State Incentive 299,000$ 299,000$ 272,871$ (26,129)$ Fire State Incentive 276,000 276,000 265,422 (10,578) Paducah Housing Authority - after school program 26,000 26,000 65,048 39,048 Police supplemental grants 99,000 99,000 63,721 (35,279) Total grants 700,000 700,000 667,062 (32,938) Interest 112,300 112,300 190,901 78,601 Other: Property rent and sales 528,525 533,150 532,099 (1,051) Property upkeep and maintenance 119,150 119,150 135,895 16,745 Contractual programs 4,000 4,000 4,337 337 E911 - GIS 20,600 20,600 20,604 4 Miscellaneous 298,170 305,840 80,945 (224,895) Total other 970,445 982,740 773,880 (208,860) Amounts available for appropriation 31,135,792 34,765,670 35,375,254 609,584 Charges to Appropriations (Outflows): General government: General administration: Mayor and Commissioners 196,530 192,660 192,654 6 City Manager 254,415 257,795 257,725 70 City Clerk 141,550 144,930 144,927 3 Corporate Counsel 172,330 204,865 204,734 131 Non-departmental 295,000 338,350 338,333 17 Memberships and contingency 373,055 24,580 24,576 4 Civic beautification 2,500 500 317 183 Total general administration 1,435,380 1,163,680 1,163,266 414 Finance: Finance administration 155,745 157,565 157,417 148 Accounting and payroll 317,110 303,370 302,765 605 Revenue collection 289,575 289,600 289,585 15 Total finance 762,430 750,535 749,767 768 (Continued) CITY OF PADUCAH, KENTUCKY BUDGETARY COMPARISON SCHEDULE (BUDGETARY BASIS) GENERAL FUND FOR THE YEAR ENDED JUNE 30, 2005 Variance with Budgeted Amounts Final Budget Positive (Negative) -83- Exhibit A-2 (Continued) Actual General government:Original Final Amounts Planning: Administration 263,520$ 245,205$ 245,189$ 16$ Planning 412,635 256,740 256,551 189 Grants 108,145 94,965 94,949 16 Economic development 262,500 267,410 267,408 2 Total planning 1,046,800 864,320 864,097 223 Human rights 104,395 93,970 93,851 119 Human resources 319,575 303,430 300,135 3,295 Inspection: Inspection administration 157,510 151,240 151,215 25 Construction 283,970 284,075 283,894 181 Code enforcement 351,945 321,825 321,770 55 Total inspection 793,425 757,140 756,879 261 Information systems 268,965 245,480 239,729 5,751 Risk management - 3,950 3,938 12 Public safety: Police: Police administration 1,227,635 1,182,690 1,171,307 11,383 Patrol 4,923,970 4,933,525 4,932,918 607 Investigations 1,265,755 1,210,870 1,210,866 4 Total police 7,417,360 7,327,085 7,315,091 11,994 Fire: Fire administration 182,300 171,095 165,467 5,628 Suppression 5,089,025 5,221,060 5,220,892 168 Prevention 191,300 150,685 150,495 190 Training 147,300 146,110 146,104 6 Total fire 5,609,925 5,688,950 5,682,958 5,992 Public service: Public works: Public Works Administration 256,695 226,830 226,737 93 Street maintenance 2,130,430 1,958,205 1,953,724 4,481 Street lighting 415,000 449,060 449,058 2 (Continued) CITY OF PADUCAH, KENTUCKY Budgeted Amounts Final Budget Positive GENERAL FUND FOR THE YEAR ENDED JUNE 30, 2005 -84- Variance with (Negative) BUDGETARY COMPARISON SCHEDULE (BUDGETARY BASIS) Exhibit A-2 (Continued) Actual Public service:Original Final Amounts Public works: Facility maintenance 258,930$ 222,355$ 222,157$ 198$ Custodial service 293,745 281,520 281,479 41 Downtown maintenance 63,130 99,610 99,603 7 Landscape maintenance 1,448,775 1,435,395 1,435,335 60 Summer youth program 99,310 65,435 65,354 81 Total public works 4,966,015 4,738,410 4,733,447 4,963 Engineering services: Engineering services 590,650 468,070 467,924 146 Flood control 405,035 453,350 453,315 35 Total engineering services 995,685 921,420 921,239 181 Recreation: Recreation administration 602,580 587,085 587,005 80 Pools and recreation 552,865 458,085 458,019 66 Total recreation 1,155,445 1,045,170 1,045,024 146 Other: Cable authority 112,990 79,660 79,547 113 Grant match expense - - (1,797) 1,797 Leave expense - 38,000 37,616 384 Intergovernmental expense - 281,200 281,088 112 Miscellaneous property expense 66,240 65,650 65,645 5 Total other 179,230 464,510 462,099 2,411 Other financing uses: Operating transfers out 2,017,985 2,769,765 2,740,032 29,733 Total charges to appropriations 27,072,615 27,137,815 27,071,552 66,263 BUDGETARY FUND BALANCE, JUNE 30, 2005 4,063,177$ 7,627,855$ 8,303,702$ 675,847$ Variance with FOR THE YEAR ENDED JUNE 30, 2005 Budgeted Amounts GENERAL FUND -85- CITY OF PADUCAH, KENTUCKY (Negative) BUDGETARY COMPARISON SCHEDULE (BUDGETARY BASIS) Final Budget Positive Exhibit A-3 Note A - Explanation of Differences Between Budgetary Inflows and Outflows and GAAP Revenues and Expenditures General Sources/inflows of resources:Fund Actual amounts "available for appropriation" from the budgetary comparison schedule 35,375,254$ Differences - budget to GAAP: The beginning fund balance is a budgetary resource, but is not a current year revenue for financial reporting purposes (8,513,065) Total revenues as reported on the statement of revenues, expenditures, and changes in fund balances- governmental funds 26,862,189$ Uses/outflows of resources: Actual amounts "total charges to appropriations" from the budgetary comparison schedule 27,071,552$ Differences - budget to GAAP: Transfers to other funds are outflows of budgetary resources, but are not expenditures for financial reporting purposes (2,740,032) Total expenditures as reported on the statement of revenues, expenditures, and changes in fund balances- governmental funds 24,331,520$ CITY OF PADUCAH, KENTUCKY -86- FOR THE YEAR ENDED JUNE 30, 2005 NOTE TO RSI BUDGETARY COMPARISON SCHEDULE CITY OF PADUCAH, KENTUCKY SUPPLEMENTARY INFORMATION NONMAJOR GOVERNMENTAL FUNDS COMPREHENSIVE ANNUAL FINANCIAL REPORT YEAR ENDED JUNE 30, 2005 COMBINING FINANCIAL STATEMENTS NONMAJOR GOVERNMENTAL FUNDS Special Revenue Funds Municipal Aid Program - to account for revenues and expenditures of Kentucky gas tax refunds. Emergency Communication Service Fund - to account for revenues associated with 911 program. Court Awards Fund - to account for revenues associated with judicial system confiscations. Federal, State, and Local Grants - to account for the grant programs awarded to the City of Paducah from agencies of the Federal Government and the Commonwealth of Kentucky. Debt Service Fund To account for the payment of bond principal and interest, note principal and interest, and capital lease payments. Exhibit B-1 Court Small CDBG Awards Grant Grant Fund Fund Fund Cash and cash equivalents 581,823$ 219,941$ 186,448$ 164,436$ 50,000$ Investments 230,000 - - - - Receivables, net: Accounts - 141,725 - - - Grants - - - 11,097 - Interest 3,604 - - - - Prepaid items - 31,178 - - - TOTAL ASSETS 815,427$ 392,844$ 186,448$ 175,533$ 50,000$ Liabilities: Voucher and accounts payable 136,168$ 41,422$ 134,830$-$ -$ Accrued payroll and payroll taxes - 44,425 - - - Unearned revenue - - - 137,163 - Due to other funds - - - 24,439 50,000 Total liabilities 136,168 85,847 134,830 161,602 50,000 Fund Balances: Reserved for: Program purposes - - - 13,931 - Unreserved 679,259 306,997 51,618 - - Total fund balances 679,259 306,997 51,618 13,931 - TOTAL LIABILITIES AND FUND BALANCES 815,427$ 392,844$ 186,448$ 175,533$ 50,000$ See auditors report on pages 13-14. -87- ASSETS Municipal Communication LIABILITIES AND CITY OF PADUCAH, KENTUCKY COMBINING BALANCE SHEET NONMAJOR GOVERNMENTAL FUNDS JUNE 30, 2005 FUND BALANCES Special Revenue Funds Aid Program Service Fund Emergency Debt Service HOPE 3 Home HUD Section Debt Grant Grant Revolving Eight Service Fund Fund Grant Fund Housing Fund 130,761$ -$ 206,262$ -$ 326,067$ 9,805$ 1,875,543$ - - - - - - 230,000 - - - - - - 141,725 - 68,257 - 2,949 - - 82,303 - - - - - - 3,604 - - - - - - 31,178 130,761$ 68,257$ 206,262$ 2,949$ 326,067$ 9,805$ 2,364,353$ -$ 45,394$ 22$ -$ 54,862$ -$ 412,698$ - - - - 17,051 - 61,476 - 7,555 - - 65,254 - 209,972 - 13,328 - 2,949 41,409 - 132,125 - 66,277 22 2,949 178,576 - 816,271 130,761 - 206,240 - 147,491 - 498,423 - 1,980 - - - 9,805 1,049,659 130,761 1,980 206,240 - 147,491 9,805 1,548,082 130,761$ 68,257$ 206,262$ 2,949$ 326,067$ 9,805$ 2,364,353$ -88- GovernmentalPolice Grant Fund Total Nonmajor Funds PHA Special Revenue Funds Exhibit B-2 Court Small CDBG Awards Grant Grant Revenues: Fund Fund Fund Taxes -$ 670,181$ -$ -$ -$ Charges for services - 110,089 - - - Intergovernmental 383,822 - - - - Grants 61,879 - - - 12,500 Interest 16,590 3,422 3,984 - - Miscellaneous 17,571 265,214 32,568 27,525 - Total revenues 479,862 1,048,906 36,552 27,525 12,500 Expenditures: Current operations: Public safety - 1,306,049 37,044 - - Public service 292,419 - - - - Planning and development - - - 28,274 12,500 Debt Service: Principal requirement - - - - - Interest and fiscal requirement - - - - - Total expenditures 292,419 1,306,049 37,044 28,274 12,500 Excess (deficiency) of revenues over expenditures 187,443 (257,143) (492) (749) - Other Financing Sources (Uses): Transfers in - 337,613 - 12,377 - Total other financing sources (uses) - 337,613 - 12,377 - Net change in fund balances 187,443 80,470 (492) 11,628 - Fund balances, July 1, 2004 491,816 226,527 52,110 2,303 - FUND BALANCES, JUNE 30, 2005 679,259$ 306,997$ 51,618$ 13,931$ -$ See auditors report on pages 13-14. FOR THE YEAR ENDED JUNE 30, 2005 CITY OF PADUCAH, KENTUCKY COMBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES NONMAJOR GOVERNMENTAL FUNDS -89- Emergency Municipal Aid Program Communication Service Fund Special Revenue Funds Debt Service HOPE 3 Home HUD Section Debt Grant Grant Revolving Eight Service Fund Fund Grant Fund Housing Fund -$ -$ -$ -$ -$ -$ 670,181$ - - - - - - 110,089 - - - - - 789,323 1,173,145 - 158,089 - 35,019 1,840,208 - 2,107,695 - - 4,099 - 899 - 28,994 - - 61,557 - - - 404,435 - 158,089 65,656 35,019 1,841,107 789,323 4,494,539 - - - 35,019 - - 1,378,112 - - - - - - 292,419 - 156,109 239,759 - 1,831,132 - 2,267,774 - - - - - 552,938 552,938 - - - - - 745,676 745,676 - 156,109 239,759 35,019 1,831,132 1,298,614 5,236,919 - 1,980 (174,103) - 9,975 (509,291) (742,380) - - 167,500 - - 488,853 1,006,343 - - 167,500 - - 488,853 1,006,343 - 1,980 (6,603) - 9,975 (20,438) 263,963 130,761 - 212,843 - 137,516 30,243 1,284,119 130,761$ 1,980$ 206,240$ -$ 147,491$ 9,805$ 1,548,082$ -90- Total Nonmajor Governmental Funds PHA Police Grant Fund Special Revenue Funds Exhibit B-3 Final Revenues: Budget Actual Intergovernmental 383,000$ 383,822$ 822$ Grants 46,000 61,879 15,879 Interest 8,400 16,590 8,190 Other - 17,571 17,571 Total revenues 437,400 479,862 42,462 Expenditures: Public service 292,450 292,419 31 Excess (deficiency) of revenues over expenditures 144,950 187,443 42,493 Fund balance, July 1, 2004 491,816 FUND BALANCE, JUNE 30, 2005 679,259$ See auditors report on pages 13-14. FOR THE YEAR ENDED JUNE 30, 2005 CITY OF PADUCAH, KENTUCKY MUNICIPAL AID PROGRAM FUND DETAIL STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL Variance with -91- (Negative) Positive Final Budget Exhibit B-4 Final Revenues: Budget Actual Local contributions 650,000$ 670,181$ 20,181 Telephone surcharges 100,000 110,089 10,089 Interest 1,530 3,422 1,892 Miscellaneous 172,585 265,214 92,629 Total revenues 924,115 1,048,906 124,791 Expenditures: Public safety 1,323,925 1,306,049 17,876 Excess (deficiency) of revenues over expenditures (399,810) (257,143) 142,667 Other Financing Sources (Uses): Operating transfers in 341,600 337,613 (3,987) Net change in fund balance (58,210)$ 80,470 138,680$ Fund balance, July 1, 2004 226,527 FUND BALANCE, JUNE 30, 2005 306,997$ See auditors report on pages 13-14. -92- FOR THE YEAR ENDED JUNE 30, 2005 CITY OF PADUCAH, KENTUCKY EMERGENCY COMMUNICATION SERVICE FUND DETAIL STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL Variance with (Negative) Positive Final Budget Exhibit B-5 Final Revenues: Budget Actual Court awarded forfeitures 25,000$ 32,568$ 7,568$ Interest 1,000 3,984 2,984 Total revenues 26,000 36,552 10,552 Expenditures: Public safety 37,045 37,044 1 Excess (deficiency) of revenues over expenditures (11,045)$ (492) 10,553$ Fund balance, July 1, 2004 52,110 FUND BALANCE, JUNE 30, 2005 51,618$ See auditors report on pages 13-14. -93- CITY OF PADUCAH, KENTUCKY COURT AWARDS FUND DETAIL STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL FOR THE YEAR ENDED JUNE 30, 2005 (Negative) Positive Final Budget Variance with Exhibit B-6 Final Revenues: Budget Actual Grants -$ -$ -$ Other - 27,525 27,525 Total revenues - 27,525 27,525 Expenditures: Planning and development 33,475 28,274 5,201 Excess (deficiency) of revenues over expenditures (33,475) (749) 32,726 Other Financing Sources (Uses): Operating transfers in 12,500 12,377 (123) Net change in fund balance (20,975)$ 11,628 32,603$ Fund balance, July 1, 2004 2,303 FUND BALANCE, JUNE 30, 2005 13,931$ See auditors report on pages 13-14. -94- FOR THE YEAR ENDED JUNE 30, 2005 CITY OF PADUCAH, KENTUCKY SMALL GRANT FUND DETAIL STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL Variance with (Negative) Positive Final Budget Exhibit B-7 Final Revenues: Budget Actual Grants 25,000$ 12,500$ (12,500)$ Expenditures: Planning and development 25,000 12,500 12,500 Excess (deficiency) of revenues over expenditures - - - Other Financing Sources (Uses): Operating transfers out - - - Net change in fund balance -$ - -$ Fund balance, July 1, 2004 - FUND BALANCE, JUNE 30, 2005 -$ See auditors report on pages 13-14. -95- FOR THE YEAR ENDED JUNE 30, 2005 CITY OF PADUCAH, KENTUCKY CDBG FUND DETAIL STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL Variance with (Negative) Positive Final Budget Exhibit B-8 Final Revenues: Budget Actual Other -$ -$ -$ Expenditures: Planning and development - - - Excess (deficiency) of revenues over expenditures -$ - -$ Fund balance, July 1, 2004 130,761 FUND BALANCE, JUNE 30, 2005 130,761$ See auditors report on pages 13-14. -96- (Negative) Positive Final Budget Variance with FOR THE YEAR ENDED JUNE 30, 2005 CITY OF PADUCAH, KENTUCKY HOPE 3 IMPLEMENTATION GRANT FUND DETAIL STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL Exhibit B-9 Final Revenues: Budget Actual Grants 130,600$ 158,089$ 27,489$ Total revenues 130,600 158,089 27,489 Expenditures: Planning and development 156,115 156,109 6 Excess (deficiency) of revenues over expenditures (25,515) 1,980 27,495 Fund balance, July 1, 2004 - FUND BALANCE, JUNE 30, 2005 1,980$ See auditors report on pages 13-14. FOR THE YEAR ENDED JUNE 30, 2005 CITY OF PADUCAH, KENTUCKY HOME GRANT FUND DETAIL STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL Variance with -97- (Negative) Positive Final Budget Exhibit B-10 Final Revenues: Budget Actual Interest -$ 4,099$ 4,099$ Other - 61,557 61,557 Total revenues - 65,656 65,656 Expenditures: Planning and development 239,760 239,759 1 Excess (deficiency) of revenues over expenditures (239,760) (174,103) 65,657 Other Financing Sources (Uses): Operating transfers in 150,000 167,500 17,500 Total other financing sources (uses) 150,000 167,500 17,500 Net change in fund balance (89,760)$ (6,603) 83,157$ Fund balance, July 1, 2004 212,843 FUND BALANCE, JUNE 30, 2005 206,240$ See auditors report on pages 13-14. -98- FOR THE YEAR ENDED JUNE 30, 2005 CITY OF PADUCAH, KENTUCKY HUD REVOLVING GRANT FUND DETAIL STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL Variance with (Negative) Positive Final Budget Exhibit B-11 Final Revenues: Budget Actual Grants 29,125$ 35,019$ 5,894$ Expenditures: Public safety 35,040 35,019 21 Excess (deficiency) of revenues over expenditures (5,915)$ - 5,915$ Fund balance, July 1, 2004 - FUND BALANCE, JUNE 30, 2005 -$ See auditors report on pages 13-14. -99- FOR THE YEAR ENDED JUNE 30, 2005 CITY OF PADUCAH, KENTUCKY PADUCAH HOUSING AUTHORITY POLICE GRANT FUND DETAIL STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL Variance with (Negative) Positive Final Budget Exhibit B-12 Final Revenues: Budget Actual Intergovernmental 795,600$ 789,323$ (6,277)$ Expenditures: Debt service: Principal requirement 552,940 552,938 2 Interest and fiscal requirement 752,760 745,676 7,084 Total expenditures 1,305,700 1,298,614 7,086 Excess (deficiency) of revenues over expenditures (510,100) (509,291) 809 Other Financing Sources (Uses): Operating transfers in 488,660 488,853 193 Net change in fund balance (21,440)$ (20,438) 1,002$ Fund balance, July 1, 2004 30,243 FUND BALANCE, JUNE 30, 2005 9,805$ See auditors report on pages 13-14. (Negative) -100- FOR THE YEAR ENDED JUNE 30, 2005 Final Budget Positive Variance with CITY OF PADUCAH, KENTUCKY DEBT SERVICE FUND DETAIL STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL CITY OF PADUCAH, KENTUCKY SUPPLEMENTARY INFORMATION NONMAJOR PROPRIETARY FUNDS COMPREHENSIVE ANNUAL FINANCIAL REPORT YEAR ENDED JUNE 30, 2005 COMBINING FINANCIAL STATEMENTS NONMAJOR PROPRIETARY FUNDS Civic Center Fund – to account for the operation of the Civic Center. TISA Fund – to account for revenues and expenses associated with the operation of the Paducah- McCracken County telecommunications and information systems. Exhibit C-1 Civic Center TISA Current Assets: Fund Fund Cash and cash equivalents 23,742$ 114,189$ 137,931$ Receivables, net - 13,548 13,548 Prepaid expense - 31,144 31,144 Total current assets 23,742 158,881 182,623 Noncurrent Assets: Net depreciable capital assets 154,397 151,686 306,083 Total assets 178,139 310,567 488,706 Current Liabilities: Voucher and accounts payable 1,383 1,735 3,118 Total liabilities 1,383 1,735 3,118 Invested in capital assets, net of related debt 154,397 151,686 306,083 Unrestricted 22,359 157,146 179,505 TOTAL NET ASSETS 176,756$ 308,832$ 485,588$ See auditors report on pages 13-14. ASSETS LIABILITIES NET ASSETS -101- Total Nonmajor Enterprise Funds CITY OF PADUCAH, KENTUCKY COMBINING STATEMENT OF NET ASSETS NONMAJOR PROPRIETARY FUNDS JUNE 30, 2005 Exhibit C-2 Civic Center TISA Operating Revenues: Fund Fund Charges for services 32,828$ 104,087$ 136,915$ Operating Expenses: Cost of sales and service 29,490 89,506 118,996 Depreciation and amortization 9,518 80,757 90,275 Total operating expenses 39,008 170,263 209,271 Operating income (loss) (6,180) (66,176) (72,356) Non-Operating Revenues (Expenses): Interest and investment income 534 - 534 Income (loss) before contributions and transfers (5,646) (66,176) (71,822) Contributions and Operating Transfers: Capital contributions - 14,735 14,735 Transfers in - 133,959 133,959 Total contributions and operating transfers - 148,694 148,694 Change in net assets (5,646) 82,518 76,872 Net assets, July 1, 2004 182,402 226,314 408,716 NET ASSETS, JUNE 30, 2005 176,756$ 308,832$ 485,588$ See auditors report on pages 13-14. -102- FOR THE YEAR ENDED JUNE 30, 2005 NONMAJOR PROPRIETARY FUNDS AND CHANGES IN FUND NET ASSETS Funds COMBINING STATEMENT OF REVENUES, EXPENSES CITY OF PADUCAH, KENTUCKY Total Nonmajor Enterprise Exhibit C-3 Civic Center TISA Cash Flows from Operating Activities: Fund Fund Cash received from customers 32,828$ 117,545$ 150,373$ Payments to internal service funds (2,361) (2,055) (4,416) Other receipts (payments) (27,181) (110,789) (137,970) Net cash provided (used) by operating activities 3,286 4,701 7,987 Cash Flows from Noncapital Financing Activities: Transfers (to) from other funds - 133,959 133,959 Cash Flows from Capital and Related Financing Activities: Capital contributions - 14,735 14,735 Acquisition and construction of capital assets (2,629) (55,543) (58,172) Net cash used by capital and related financing activities (2,629) (40,808) (43,437) Cash Flows from Investing Activities: Interest on cash and investments 534 - 534 Net increase (decrease) in cash and cash equivalents 1,191 97,852 99,043 Cash and cash equivalents, July 1, 2004 22,551 16,337 38,888 CASH AND CASH EQUIVALENTS, JUNE 30, 2005 23,742$ 114,189$ 137,931$ Reconciliation of Operating Income (Loss) to Net Cash Provided by Operating Activities: Operating income (loss) (6,180)$ (66,176)$ (72,356)$ Adjustments to reconcile operating income (loss) to net cash provided by operating activities: Depreciation and amortization 9,518 80,757 90,275 Change in assets and liabilities: Receivables - 13,458 13,458 Prepaid expense - (24,148) (24,148) Accounts payable and accrued expenses (52) 810 758 NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES 3,286$ 4,701$ 7,987$ See auditors report on pages 13-14. CITY OF PADUCAH, KENTUCKY COMBINING STATEMENT OF CASH FLOWS NONMAJOR PROPRIETARY FUNDS FOR THE YEAR ENDED JUNE 30, 2005 -103- Total Nonmajor Enterprise Funds CITY OF PADUCAH, KENTUCKY SUPPLEMENTARY INFORMATION INTERNAL SERVICE FUNDS COMPREHENSIVE ANNUAL FINANCIAL REPORT YEAR ENDED JUNE 30, 2005 INTERNAL SERVICE FUNDS Fleet Maintenance – to account for costs of operating a maintenance facility for automotive equipment used by other City departments. Fleet Lease Trust – to account for the financing of vehicle acquisitions provided by one department or agency to other departments or agencies of the government and to other governmental units, on a cost reimbursement basis. Insurance Fund – to account for the costs of obtaining insurance for other City departments. Health Insurance Fund – to account for the costs associated with the City’s health insurance activities. The intent of the City of Paducah is that the cost of providing insurance coverage on a continuing basis be financed primarily through user charges. Exhibit D-1 Health Fleet Lease Insurance Insurance Combined Current Assets: Trust Fund Fund Total Cash and cash equivalents -$ 642,879$ -$ 488,497$ 1,131,376$ Investments - 1,445,000 - - 1,445,000 Receivables, net - 20,256 - 208,592 228,848 Prepaid expense - - 1,153,980 13,788 1,167,768 Inventories 68,678 - - - 68,678 Total current assets 68,678 2,108,135 1,153,980 710,877 4,041,670 Noncurrent Assets: Net depreciable capital assets 26,801 1,662,909 - - 1,689,710 Total assets 95,479 3,771,044 1,153,980 710,877 5,731,380 Current Liabilities: Voucher and accounts payable 12,230 31,790 2,448 424,810 471,278 Accrued payroll and payroll taxes 14,609 - - - 14,609 Accrued compensated absences 27,025 - - - 27,025 Unearned revenue - - - 24,434 24,434 Due to other funds 14,419 - 1,118,014 - 1,132,433 Total current liabilities 68,283 31,790 1,120,462 449,244 1,669,779 Noncurrent Liabilities: Accrued compensated absences 38,517 - - - 38,517 Total liabilities 106,800 31,790 1,120,462 449,244 1,708,296 Invested in capital assets, net of related debt 26,801 1,662,909 - - 1,689,710 Unrestricted (38,122) 2,076,345 33,518 261,633 2,333,374 TOTAL NET ASSETS (11,321)$ 3,739,254$ 33,518$ 261,633$ 4,023,084$ See auditors report on pages 13-14. -104- CITY OF PADUCAH, KENTUCKY COMBINING STATEMENT OF NET ASSETS INTERNAL SERVICE FUNDS JUNE 30, 2005 LIABILITIES ASSETS NET ASSETS Fleet Maintenance Exhibit D-2 Health Fleet Lease Insurance Insurance Combined Trust Fund Fund Total Operating Revenues: Charges for services - internal 319,061$ 653,165$ 1,041,230$ 2,999,664$ 5,013,120$ Charges for services - external - - - 501,801 501,801 Total operating revenues 319,061 653,165 1,041,230 3,501,465 5,514,921 Operating Expenses: Vehicle maintenance 484,978 4,364 - - 489,342 Administrative - 4,980 - 55,745 60,725 Insurance - - 1,024,514 3,455,374 4,479,888 Leave expense 3,567 - - - 3,567 Depreciation 12,006 448,099 - - 460,105 Total operating expenses 500,551 457,443 1,024,514 3,511,119 5,493,627 Operating income (loss) (181,490) 195,722 16,716 (9,654) 21,294 Nonoperating Revenues and (Expenses): Interest and investment income - 33,029 - - 33,029 Total nonoperating revenues (expenses) - 33,029 - - 33,029 Income (loss) before transfers (181,490) 228,751 16,716 (9,654) 54,323 Contributions and Transfers: Transfers in 108,000 216,000 - - 324,000 Change in net assets (73,490) 444,751 16,716 (9,654) 378,323 Net assets, July 1, 2004 62,169 3,294,503 16,802 271,287 3,644,761 NET ASSETS, JUNE 30, 2005 (11,321)$ 3,739,254$ 33,518$ 261,633$ 4,023,084$ See auditors report on pages 13-14. -105- Fleet Maintenance CITY OF PADUCAH, KENTUCKY COMBINING STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN FUND NET ASSETS INTERNAL SERVICE FUNDS FOR THE YEAR ENDED JUNE 30, 2005 Exhibit D-3 Health Fleet Lease Insurance Insurance Combined Cash Flows from Operating Activities: Trust Fund Fund Total Receipts from other funds for services 319,061$ 653,165$ 1,041,230$ 3,456,930$ 5,470,386$ Payments to suppliers (146,619) - - - (146,619) Payments to employees (279,351) - - - (279,351) Claims paid - - - (3,406,351) (3,406,351) Other receipts (payments) - 22,447 (1,041,230) (55,745) (1,074,528) Net cash provided (used) by operating activities (106,909) 675,612 - (5,166) 563,537 Cash Flows from Noncapital Financing Activities: Transfers from other funds 108,000 216,000 - - 324,000 Cash Flows from Capital and Related Financing Activities: Purchase of capital assets (5,046) (496,400) - - (501,446) Net cash used by capital and related financing (5,046) (496,400) - - (501,446) Cash Flows from Investing Activities: Proceeds from sales and maturities of investments - 1,300,000 - - 1,300,000 Interest and dividends - 19,383 - - 19,383 Purchase of investments - (1,445,000) - - (1,445,000) Net cash used by investing activities - (125,617) - - (125,617) Net increase (decrease) in cash and cash equivalents (3,955) 269,595 - (5,166) 260,474 Cash and cash equivalents, July 1, 2004 3,955 373,284 - 493,663 870,902 CASH AND CASH EQUIVALENTS, JUNE 30, 2005 -$ 642,879$ -$ 488,497$ 1,131,376$ Reconciliation of Operating Income (Loss) to Net Cash Provided by Operating Activities: Operating income (loss) (181,490)$ 195,722$ 16,716$ (9,654)$ 21,294$ Adjustments to reconcile operating income (loss) to net cash provided (used) by operating activities: Depreciation and amortization 12,006 448,099 - - 460,105 Change in assets and liabilities: Receivables - - - (68,969) (68,969) Prepaid expense - - (138,837) (13,788) (152,625) Inventories 29,437 - - - 29,437 Accounts payable and accrued expenses 33,138 31,791 122,121 87,245 274,295 NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES (106,909)$ 675,612$ -$ (5,166)$ 563,537$ See auditors report on pages 13-14. -106- Fleet Maintenance CITY OF PADUCAH, KENTUCKY COMBINING STATEMENT OF CASH FLOWS INTERNAL SERVICE FUNDS FOR THE YEAR ENDED JUNE 30, 2005 CITY OF PADUCAH, KENTUCKY SUPPLEMENTARY INFORMATION FIDUCIARY FUNDS COMPREHENSIVE ANNUAL FINANCIAL REPORT YEAR ENDED JUNE 30, 2005 FIDUCIARY FUNDS Pension Trust Funds Police and Firefighters’ Retirement Fund and Appointive Employees’ Pension Fund – to account for the accumulation of resources to be used for retirement payments at appropriate amounts and times in the future. Resources are contributed by employees and by the City at amounts determined by Kentucky Statutes and/or City Commission decisions. Exhibit E-1 Total Cash and cash equivalents 32,563$ 97,514$ 130,077$ Receivables: Interest 54,363 2,531 56,894 Prepaid expenses 58,117 1,802 59,919 Investments at fair value 9,007,869 227,042 9,234,911 Total assets 9,152,912 328,889 9,481,801 Voucher and accounts payable 2,051 - 2,051 Held in trust for pension benefits and other purposes 9,150,861$328,889$ 9,479,750$ See auditors report on pages 13-14. ASSETS LIABILITIES NET ASSETS -107- Employees' Retirement Fund Pension Fund Firefighters' AppointivePolice and CITY OF PADUCAH, KENTUCKY COMBINING STATEMENT OF FIDUCIARY NET ASSETS FIDUCIARY FUNDS - PENSION TRUST FUNDS JUNE 30, 2005 Exhibit E-2 Additions:Totals Contributions: Employer 953,044$ 75,000$ 1,028,044$ Plan members 23,487 - 23,487 Total contributions 976,531 75,000 1,051,531 Investment earnings: Net increase in fair value of investments 401,519 - 401,519 Interest and dividends 285,918 7,487 293,405 Net investment earnings 687,437 7,487 694,924 Total additions 1,663,968 82,487 1,746,455 Deductions: Benefits 1,801,913 69,276 1,871,189 Administrative expenses 63,493 7,942 71,435 Total deductions 1,865,406 77,218 1,942,624 Change in net assets (201,438) 5,269 (196,169) Net assets, July 1, 2004 9,352,299 323,620 9,675,919 NET ASSETS, JUNE 30, 2005 9,150,861$ 328,889$ 9,479,750$ See auditors report on pages 13-14. CITY OF PADUCAH, KENTUCKY Police and Appointive Retirement Fund Pension Fund Employees'Firefighters' -108- FIDUCIARY FUNDS - PENSION TRUST FUNDS FOR THE YEAR ENDED JUNE 30, 2005 COMBINING STATEMENT OF CHANGES IN NET ASSETS FIDUCIARY FUNDS Private-purpose Trust Funds Oak Grove Cemetery Trust and Maintenance and Rehab Trust – to account for assets held by the City in the capacity of trustee for specified purposes. Exhibit E-3 Oak Grove Cemetery Trust Total Cash and cash equivalents -$ 4,734$ 4,734$ Investments at fair value 83,524 - 83,524 Held in trust for other purposes 83,524$ 4,734$ 88,258$ See auditors report on pages 13-14. Maintenance and Rehab Trust -109- ASSETS JUNE 30, 2005 FIDUCIARY FUNDS - PRIVATE-PURPOSE TRUST FUNDS COMBINING STATEMENT OF NET ASSETS CITY OF PADUCAH, KENTUCKY Exhibit E-4 Oak Grove Cemetery Additions: Trust Totals Contributions: Intergovernmental revenues 2,250$ 7,000$ 9,250$ Total contributions 2,250 7,000 9,250 Investment earnings: Net decrease in fair value of investments (2,845) - (2,845) Interest and dividends 5,845 - 5,845 Net investment earnings 3,000 - 3,000 Total additions 5,250 7,000 12,250 Deductions: Capital outlay - 100 100 Administrative expenses 1,300 3,068 4,368 Total deductions 1,300 3,168 4,468 Change in net assets 3,950 3,832 7,782 Net assets, July 1, 2004 79,574 902 80,476 NET ASSETS, JUNE 30, 2005 83,524$ 4,734$ 88,258$ See auditors report on pages 13-14. COMBINING STATEMENT OF CHANGES IN NET ASSETS CITY OF PADUCAH, KENTUCKY -110- FOR THE YEAR ENDED JUNE 30, 2005 FIDUCIARY FUNDS - PRIVATE-PURPOSE TRUST FUNDS Maintenance and Rehab Trust FIDUCIARY FUNDS Agency Fund Payroll Agency Fund – to account for disbursements relative to the City payroll. The various City departments transfer amounts to this fund to cover routine payroll and the related benefits and taxes. All payroll disbursements are made from this fund. Exhibit E-5 Payroll Fund: Additions Deductions Assets: Cash and cash equivalents 306,560$ 11,122,281$ 11,105,614$ 323,227$ Liabilities: Payroll taxes and withholdings payable 306,560$ 11,122,281$ 11,105,614$ 323,227$ See auditors report on pages 13-14. CITY OF PADUCAH, KENTUCKY AGENCY FUND IN ASSETS AND LIABILITIES STATEMENT OF CHANGES -111- FOR THE YEAR ENDED JUNE 30, 2005 Balance Balance July 1, 2004 June 30, 2005 CITY OF PADUCAH, KENTUCKY STATISTICAL SECTION COMPREHENSIVE ANNUAL FINANCIAL REPORT YEAR ENDED JUNE 30, 2005 General Public Public Parks andTotal Safety Service Recreation Other17,737,044$ 2,595,564$ 9,329,445$ 4,211,915$ 1,505,497$ 94,623$ 19,823,351 3,539,738 10,372,133 4,312,281 1,476,238 122,961 18,787,240 3,531,033 9,629,127 4,009,198 1,476,446 141,436 21,306,659 4,296,935 10,049,095 5,209,051 1,661,119 90,459 19,817,326 3,436,701 10,363,856 4,260,125 1,661,562 95,082 20,677,530 3,386,330 10,530,012 5,923,130 738,401 99,657 22,904,317 3,446,408 11,076,152 7,163,787 897,060 320,910 22,836,738 3,943,031 11,277,297 5,995,396 975,361 645,653 25,925,933 3,891,251 11,750,018 6,914,523 1,026,297 2,343,844 24,623,940 4,171,662 12,998,049 5,947,106 1,045,024 462,099Note: This table includes the General Fund and the Municipal Aid Fund.2003-2004-112-2001-20022002-20031997-19981998-19991999-20002000-20012004-2005TABLE 1CITY OF PADUCAH, KENTUCKYGENERAL GOVERNMENT EXPENDITURES BY FUNCTIONLAST TEN FISCAL YEARS1995-19961996-1997Fiscal Year Government ChargesforTotal Taxes Licenses Services Grants Interest Other21,773,167 5,555,183 13,715,804 746,562 361,995 822,581 300,491 270,551 21,973,605 4,710,687 14,007,138 723,337 405,995 1,267,998 353,422 505,028 22,282,146 4,582,205 14,985,551 713,872 428,006 727,386 443,355 401,771 23,320,631 4,770,784 15,584,674 716,181 419,686 786,865 413,480 628,961 23,624,074 4,659,202 15,970,996 566,145 418,698 966,715 438,707 603,611 24,125,224 4,736,568 16,705,030 578,482 437,439 723,626 436,598 507,481 24,893,770 5,006,538 17,299,400 657,826 399,977 665,614 256,900 607,515 25,751,276 5,022,069 17,900,739 652,791 373,022 591,652 185,538 1,025,46528,363,313 5,205,422 18,423,244 569,320 405,763 916,775 133,488 2,709,30127,342,051 5,346,389 19,368,765 515,192 383,822 728,941 207,491 791,451Note: This table includes the General Fund and the Municipal Aid Fund.Fiscal Year Revenues2003-2004-113-2001-20022002-20031997-19981998-19991999-20002000-20012004-2005TABLE 2CITY OF PADUCAH, KENTUCKYGENERAL REVENUE BY SOURCELAST TEN FISCAL YEARS1995-19961996-1997Inter-Governmental Real and Real andPersonal Personal # In Lieu Penalty,(Current (Prior Bank of Tax InterestTotal Year) Year) Franchise Taxes Payments & Adv.5,642,653 4,846,606 90,680 195,259 236,744 123,243 62,651 87,470 4,801,595 4,012,661 81,368 239,973 210,218 109,522 56,945 90,908 4,676,361 4,029,124 92,287 81,875 215,996 111,872 51,052 94,155 4,875,017 3,977,703 82,589 310,110 232,398 115,344 52,640 104,233 4,770,504 3,982,872 135,215 211,860 189,949 119,938 19,368 111,302 4,850,327 3,973,898 157,508 257,095 175,607 136,864 35,596 113,759 5,127,176 4,088,805 291,515 259,451 184,629 134,055 48,084 120,637 5,137,849 4,185,862 209,645 280,734 165,186 139,754 40,888 115,780 5,317,282 4,471,467 140,776 233,854 161,550 146,145 51,630 111,860 5,175,014 4,303,297 141,140 264,932 157,771 146,936 51,225 109,713Note: This table includes only the General Fund collections.#was based on the deposits held by each bank.2002-2003Bank tax for fiscal years 1995-1996 was based on the value of each bank's stock. Bank tax for fiscal year 1997 and after1998-19991999-20002000-20012001-20022003-20042004-20051995-19961996-19971997-1998-114-Fiscal YearCollections% ChargeOn SchoolTaxTABLE 3CITY OF PADUCAH, KENTUCKYTAX REVENUE BY SOURCELAST TEN FISCAL YEARS (1) (1) Total Total Fiscal Year Levy Collections 1995-1996 5,040,252 5,022,419 99.6% 1996-1997 4,361,298 4,350,475 97.8% 1997-1998 4,417,910 4,373,272 99.0% 1998-1999 4,614,749 4,602,800 99.7% 1999-2000 4,428,970 4,384,681 99.0% 2000-2001 4,549,413 4,406,600 96.9% 2001-2002 4,679,795 4,532,885 96.9% 2002-2003 4,653,264 4,631,782 99.5% 2003-2004 4,890,723 4,866,871 99.5% 2004-2005 4,765,051 4,725,999 99.2% -115- Percent of Levy Collected TABLE 4 CITY OF PADUCAH, KENTUCKY SECURED TAX LEVIES AND COLLECTIONS LAST TEN FISCAL YEARS (1) Includes current year real and personal property tax, franchise, auto and bank shares. Estimated FCVReal Personal Bank Actual BankEstate Property Franchise Shares Total Value Exemptions Shares705,705,231 390,678,518 54,782,324 115,233,874 1,266,399,947 1,332,467,639 95.0% 53,941,397 127,360,169 760,010,607 394,329,201 53,348,852 * 1,207,688,660 1,262,547,324 95.7% 54,858,664 *813,820,288 399,909,183 49,442,125 * 1,263,171,596 1,318,865,740 95.8% 55,694,144 *887,837,493 394,507,049 90,087,831 * 1,372,432,373 1,430,510,601 95.9% 58,258,356 *940,914,928 429,763,712 66,465,568 * 1,437,144,208 1,497,446,385 95.9% 59,328,314 *994,267,575 479,928,323 69,737,433 * 1,543,933,331 1,603,816,189 96.3% 58,908,995 *1,024,284,671 466,849,195 71,286,784 * 1,562,420,650 1,623,844,461 96.2% 60,449,948 *1,053,370,689 453,327,389 79,952,984 * 1,586,651,062 1,647,809,422 96.3% 60,184,497 *1,087,747,076 438,024,336 73,121,063 * 1,598,892,475 1,661,522,546 96.2% 61,656,208 *1,122,829,143 425,304,684 74,460,202 * 1,622,594,029 1,684,469,469 96.3% 60,901,557 ** The tax on bank shares was eliminated after fiscal year 1997 and replaced with a bank deposit tax. The bank deposit assessment is not included in this table due toincomparability with prior years and the unrealistic impact it would have on Table 7.1996-1997-116-2003-20042001-20022002-20031997-19981998-19991999-20002000-2001AssessedToAssessed Value1995-19962004-2005TABLE 5CITY OF PADUCAH, KENTUCKYASSESSED AND ESTIMATED ACTUAL VALUE OF TAXABLE PROPERTYLAST TEN FISCAL YEARSEstimatedFiscal YearValuePercent Real Real Real Real Real RealEstate Personal Estate Personal Estate Personal Estate Personal Estate Personal Estate Personal.436 .390 .045 .050 .013 - .600 .600 .032 .034 1.126 1.074.327 .390 .043 .050 - - .594 .604 .032 .034 .966 1.078.327 .390 .043 .050 - - .585 .607 .032 .034 .987 1.081.318 .390 .041 .050 - - .598 .598 .030 .034 .987 1.072.300 .390 .040 .050 - - .590 .590 .029 .034 .959 1.064.300 .390 - - - - .597 .597 .022 .022 .919 1.009.300 .390 - - - - .600 .603 .022 .022 .922 1.015.300 .390 - - - - .598 .605 .022 .022 .920 1.017.300 .390 - - - - .617 .617 .021 .021 .938 1.028.300 .390 - - - - .618 .619 .021 .021 .938 1.030Source - Tax Levy Ordinance. X-15.11999-20002003-20042000-20012001-20022002-2003-117-1995-19961996-19971997-19981998-1999School Districts Junior College CombinedFiscal Year2004-2005TABLE 6CITY OF PADUCAH, KENTUCKYPROPERTY TAX RATES - DIRECT AND OVERLAPPING GOVERNMENTS(PER $100 OF ASSESSED VALUE)LAST TEN FISCAL YEARSPaducahGeneral Fund Public Library Pension Trust Gross NetAssessed Bonded BondedValue Debt Debt27,256 1,266,399,947$ 4,072,981$ 40,182$ 0.003 1.47 27,256 1,207,688,660 70,625 - - - 27,256 1,263,171,596 42,375 - - - 27,256 1,372,432,373 - - - - 27,256 1,437,144,208 - - - - 26,307 1,543,933,331 9,290,000 9,057,359 0.59 344.29 26,307 1,562,420,650 9,075,000 8,830,276 0.57 335.66 26,307 1,586,651,062 8,850,000 8,803,949 0.56 334.66 26,307 1,598,892,475 17,048,855 17,018,612 1.06 646.92 26,307 1,622,594,029 16,723,274 16,713,469 1.03 635.32 (1) Source:Bureau of the Census Count - 1990 and 2000.2003-20042000-20012001-20022002-2003-118-1995-1996Fiscal Year1996-19971997-19981998-1999CapitaDebt to Net Bonded2004-2005Population(1) Assessed Debt PerValue1999-2000TABLE 7CITY OF PADUCAH, KENTUCKYRATIO OF NET GENERAL BONDED DEBTTO ASSESSED VALUE AND NET BONDED DEBT PER CAPITALAST TEN FISCAL YEARSRatio ofNet Bonded Total Debt Principal Interest Service 438,141$ 355,361$ 793,502$ 17,737,044$ 4.5% 4,119,275 * 431,669 4,550,944 19,823,351 22.9% 150,709 46,829 197,538 18,787,240 1.1% 170,615 35,891 206,506 21,306,659 1.0% 134,295 30,536 164,831 19,817,326 0.8% 140,636 25,752 166,388 20,677,530 0.8% 362,275 413,364 775,639 22,904,317 3.4% 379,229 428,578 807,807 22,836,738 3.5% 428,613 471,625 900,238 25,925,933 3.5% 552,938 745,676 1,298,614 24,623,940 5.3% (1) Includes the General Fund and Municipal Aid Fund * Includes in-substance defeasance of Kentucky League of Cities - Pooled Leasing debt. Fiscal Year 2003-2004 2004-2005 1995-1996 1996-1997 -119- 2001-2002 2002-2003 1997-1998 1998-1999 1999-2000 2000-2001 Expenditures Expenditures Total To Total General Governmental Government Fund Type LAST TEN FISCAL YEARS Ratio of (1) Debt Service TABLE 8 CITY OF PADUCAH, KENTUCKY RATIO OF ANNUAL DEBT SERVICE EXPENDITURES FOR GENERAL BONDED DEBT TO TOTAL GENERAL EXPENDITURES Net assessed value 1,622,594,029$ Add exemption 60,901,557 Total assessed value 1,683,495,586$ Debt limit - 10% of total assessed value (1) 168,349,559$ Debt outstanding: General obligation bonds outstanding 13,220,000 Notes payable 3,503,274 Less debt not subject to limit - Gross bonded debt 16,723,274 Less amount available in debt service funds 9,805 Net bonded indebtedness subject to limit 16,713,469 Legal Debt Margin 151,636,090$ (1) Section 158 of the Commonwealth of Kentucky states: -120- "Cities shall not be authorized or permitted to incur indebtedness to an amount, including existing indebtedness, in the aggregate exceeding the following named maximum percentages on the value of the taxable property therein, to be estimated by the assessment previous to the incurring of the indebtedness: Cities of the first and second classes, and of the third class having a population exceeding fifteen hundred, ten per centum." TABLE 9 CITY OF PADUCAH, KENTUCKY COMPUTATION OF LEGAL DEBT MARGIN FOR THE YEAR ENDED JUNE 30, 2005 No. No.CommercialResidential Exemptions Total Units Value Units Value385,729,011$ 319,976,220$ 53,941,397$ 759,646,628$ 293 50,578,040$ 298 12,381,735$*418,868,651 341,141,956 54,858,664 814,869,271 236 37,274,349 330 9,857,980 858,034$447,773,935 366,046,353 55,694,144 869,514,432 285 32,398,583 348 11,332,887 879,579 467,467,471 419,904,322 58,258,356 945,630,149 309 29,708,999 310 10,840,325 948,147 522,210,835 418,704,093 59,328,314 1,000,243,242 171 38,001,115 211 9,288,734 767,477 558,387,762 435,879,813 58,908,995 1,053,176,570 126 16,330,078 187 10,117,794 706,842 575,900,884 448,383,787 60,449,948 1,084,734,619 116 43,006,170 191 8,524,556 753,577 592,114,279 521,440,907 60,184,497 1,173,739,683 166 35,896,704 231 9,795,159 659,388 602,788,179 484,958,897 61,656,208 1,149,403,284 130 23,635,207 268 17,872,216 659,388 622,478,658 500,350,485 60,901,577 1,183,730,720 148 41,430,152 204 16,598,570 627,285 * Unavailable(1) Sources:Through fiscal year 1997 - Federal Deposit Insurance CorporationFiscal year 1998 and after - Kentucky Revenue Cabinet-121-1995-19961996-19972003-20042001-20022002-20031997-19981998-19991999-20002000-2001(1)Property Value Construction Construction Bank2004-2005TABLE 10CITY OF PADUCAH, KENTUCKYPROPERTY VALUE, CONSTRUCTION AND BANK DEPOSITSLAST TEN FISCAL YEARSDepositsFiscal Year(in thousands)CommercialResidential (1)Gross (2)Revenue Expenses Principal Interest Total3,529,784$1,778,177$1,751,607$195,000$ 59,200$254,200$6.89x3,479,257 1,917,660 1,561,597 205,000 52,570 257,570 6.06x3,382,994 1,873,558 1,509,436 210,000 45,190 255,190 5.91x3,369,358 2,081,507 1,287,851 110,000 37,105 147,105 8.75x******************************************(1)Gross revenue includes only sewer charges received from customers.(2)Total expenses are exclusive of depreciation and bond interest.*This information is not applicable for fiscal years 2000 through 2005 since all assets and liabilities of the Wastewater/Stormwater Fund were transferred to the Paducah-McCracken County Joint Sewer Agency as of July 1, 1999.2003-20042001-20022002-20031997-19981998-19991999-20002000-2001Availablefor Debt Service Requirements -122-1995-19961996-19972004-2005TABLE 11CITY OF PADUCAH, KENTUCKYSCHEDULE OF SEWER REVENUE BOND COVERAGELAST TEN FISCAL YEARSFiscal Year Debt Service CoverageNet Revenue (1) 27,256 11,918 36.6 3,320 4.4% 27,256 11,918 36.6 3,312 5.5% 27,256 11,918 36.6 3,244 4.3% 27,256 11,918 36.6 3,195 3.2% 27,256 11,918 36.6 3,289 3.8% 26,307 11,918 39.9 3,037 4.2% 26,307 18,417 39.9 2,909 5.2% 26,307 18,417 39.9 2,887 6.0% 26,307 18,417 39.9 2,977 4.0% 26,307 18,417 39.9 2,819 6.1% Sources: (1) Bureau of the Census Count - 1990 and 2000. (2) Board of Education; represents elementary and secondary public schools. (3) Kentucky Cabinet for Human Resources, Department for Employment Services. -123- 1995-1996 1996-1997 1997-1998 1998-1999 1999-2000 2000-2001 2001-2002 2002-2003 2003-2004 Enrollment RateFiscal Year Population Income Age Per Capita Median School Unemployment 2004-2005 TABLE 12 CITY OF PADUCAH, KENTUCKY DEMOGRAPHIC STATISTICS LAST TEN FISCAL YEARS (1) (1) (2) (3) Miscellaneous: Date of incorporation 1830 Form of government City Manager, Mayor and Commissioners Area - square miles 19.99 Miles of streets/paved 215 Miles of sidewalks 45 Population 26,307 Registered voters 20,253 Votes cast last general election 12,103 Number of hospitals 2 Schools: Number of public schools: High school 1 Middle school 1 Elementary 4 Head Start 1 Alternative learning center 1 Adult education 1 Students 2,819 Teachers 228 Administrative personnel 21 Support personnel 244 Parks and Recreation: Number of parks 14 Acres of parks 280 Public golf courses 2 Public swimming pools 1 Public tennis courts 6 -124- TABLE 13 CITY OF PADUCAH, KENTUCKY MISCELLANEOUS STATISTICAL DATA JUNE 30, 2005 Police and Fire Protection: Number of employees: Policemen 74 Firefighters 73 Number of fire stations 5 Utilities: Water utility: Number of users 22509 Annual consumption 2,498,264,800 Gallons Distribution lines 480.5 Miles Employees 46.5 Sewer utility: Plant capacity main plant 9,000,000 Gallons/Day Miles of collection system: Sanitary sewers 300 Miles Combination sewers 56 Miles Storm sewers 38 Miles Employees 31 Electric utility: Number of street lights 4612 Number of city maintained traffic light intersections 10 Employees 61 -125- TABLE 13 CITY OF PADUCAH, KENTUCKY MISCELLANEOUS STATISTICAL DATA JUNE 30, 2005 (1) Assessed Taxpayer Valuation Kentucky Oaks Mall Mall 42,611,499$ 3.07% Wal-Mart Retailer 33,968,895 2.45% Amerisource Drug Wholesaler 21,489,621 1.55% Lourdes Medical Pavilion Healthcare 15,982,400 1.15% Sams East Inc Retailer 14,711,574 1.06% Ducmall LLC Mall 14,225,000 1.03% Paducah Medical Investors Healthcare 13,440,090 0.97% Lowe's Retailer 12,136,826 0.88% Computer Services, Inc. Bank Data Processor 9,083,185 0.66% Alliant Foodservice, Inc. Food wholesaler 8,156,900 0.59% TOTALS 185,805,990$13.41% (1) Source - Property Valuation Administration; Assessed value as of January 1, 2005. -126- Percentage of Total Assessed Type of Business Valuation TABLE 14 CITY OF PADUCAH, KENTUCKY PRINCIPAL TAXPAYERS JANUARY 1, 2005 Net Debt Outstanding City of Paducah 16,723,274 9,805$ 16,713,469$ 100.0% Paducah Independent School District 7,075,000 - 7,075,000 100.0% McCracken County 11,664,348 - 11,664,348 47.7% McCracken County Board of Education 27,684,761 - 27,684,761 23.9% Overlapping Debt 46,424,109 - 46,424,109 TOTALS 63,147,383$ 9,805$ 63,137,578$ (1) -127- Available Applicable Bonds/Loans Debt Service to City Outstanding Funds of Paducah Applicable percentage is determined by ratio of assessed valuation of property subject to taxation in overlapping unit to valuation of property subject to taxation in reporting unit. (1) Amount Percentage TABLE 15 CITY OF PADUCAH, KENTUCKY COMPUTATION OF DIRECT AND OVERLAPPING DEBT JUNE 30, 2005 LiabilityInsurer Policy No. Limits Policy Term PremiumGeneral liability KLC L5429-011020 2,000,000$ 7/1/04 - 7/1/05 145,164$Property KLC P5429-011020 48,969,934 7/1/04 - 7/1/05 89,082 Commercial auto KLC L5429-011020 2,000,000 7/1/04 - 7/1/05 211,954 Public officials liability KLC L5429-011020 2,000,000 7/1/04 - 7/1/05 107,026 Law enforcement liability KLC L5429-011020 2,000,000 7/1/04 - 7/1/05 87,371 Workers' compensationKLC Workers' Comp. TrustW5429-011020 4,000,000 7/1/04 - 7/1/05 374,545 Type of Coverage-128-TABLE 16CITY OF PADUCAH, KENTUCKYSUMMARY OF INSURANCE IN FORCEJUNE 30, 2005 CITY OF PADUCAH, KENTUCKY SINGLE AUDIT SECTION COMPREHENSIVE ANNUAL FINANCIAL REPORT YEAR ENDED JUNE 30, 2005 Federal CFDA Pass-Through Program Title: Number Grantor Number Department of Housing and Urban Development: Direct Programs: Section 8 Housing Choice Vouchers 14.871 N/A 1,831,132$ Passed-through Kentucky Housing Corporation: HOME Investment Partnerships 14.239 M-01-SG-2101-36-00 Program M-01-SG-2101-05-00 HR04-0198-01 156,109 Total Department of Housing and Urban Development 1,987,241 Department of Justice: Direct Programs: Local Law Enforcement Block Grants Program 16.592 N/A 11,752 Bulletproof Vest Partnership Program 16.607 N/A 4,926 Total Department of Justice 16,678 Department of Agriculture: Passed-through Kentucky Department of Education: Summer Food Service Program for Children 10.559 079V70999SU 22,191 Total Department of Agriculture 22,191 Department of Homeland Security: Passed-through Division of Disaster and Emergency Services: Assistance to Firefighters Grant 97.044 EMW-2003-FG-12050 83,510 Passed-through Kentucky Department of Military Affairs: State Domestic Preparedness Equipment Support Program 97.004 M-03453577 17,196 Total Department of Homeland Security 100,706 (Continued) CITY OF PADUCAH, KENTUCKY SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS FOR THE YEAR ENDED JUNE 30, 2005 Federal Grantor/Pass-Through Grantor/ -129- Expenditures Federal CFDA Pass-Through Program Title: Number Grantor Number Department of Transportation: Direct Programs: Airport Improvement Program 20.106 N/A 5,199 Total Department of Transportation 5,199 TOTAL EXPENDITURES OF FEDERAL AWARDS 2,132,015$ See accompanying notes to schedule of expenditures of federal awards. Expenditures -130- CITY OF PADUCAH, KENTUCKY SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS FOR THE YEAR ENDED JUNE 30, 2005 Federal Grantor/Pass-Through Grantor/ CITY OF PADUCAH, KENTUCKY NOTES TO THE SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS FOR THE YEAR ENDED JUNE 30, 2005 Note 1 - Basis of Presentation: The accompanying schedule of expenditures of federal awards includes the federal grant activity of the City of Paducah and is presented on the accrual basis of accounting. The information in this schedule is presented in accordance with the requirements of OMB Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations. Therefore, some amounts presented in this schedule may differ from amounts presented in, or used in the preparation of, the financial statements. Note 2 – Subrecipients: The City of Paducah provided federal awards to a subrecipient as follows: Federal CFDA Amount Program Title Number Provided Paducah Board of Education 10.559 22,191 $ 22,191 -131- Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards Honorable William F. Paxton, Mayor Members of the Board of Commissioners City of Paducah Paducah, Kentucky We have audited the financial statements of the governmental activities, the business-type activities, the aggregate discretely presented component units, each major fund, and the aggregate remaining fund information of the City of Paducah, Kentucky, as of and for the year ended June 30, 2005, which collectively comprise the City of Paducah, Kentucky’s basic financial statements and have issued our report thereon dated October 28, 2005. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Internal Control Over Financial Reporting In planning and performing our audit, we considered the City of Paducah, Kentucky’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 that are considered to 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 caused by error or fraud 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. However, we noted other matters involving the internal control over financial reporting that we have reported to management of the City of Paducah, Kentucky, in a separate letter dated October 28, 2005. Compliance and Other Matters As part of obtaining reasonable assurance about whether the City of Paducah, Kentucky’s financial statements are free of material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit and, accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. However, we noted certain matters that we reported to management of the City of Paducah, Kentucky, in a separate letter dated October 28, 2005. This report is intended for the information and use of the Board of Commissioners of the City of Paducah, Kentucky, management, others within the organization, and federal awarding agencies and pass-through entities and is not intended to be and should not be used by anyone other than these specified parties. Certified Public Accountants and Consultants October 28, 2005 -132- Report on Compliance with Requirements Applicable to Each Major Program and On Internal Control Over Compliance in Accordance with OMB Circular A-133 Honorable William F. Paxton, Mayor Members of the Board of Commissioners City of Paducah Paducah, Kentucky Compliance We have audited the compliance of the City of Paducah, Kentucky, with the types of compliance requirements described in the U.S. Office of Management and Budget (OMB) Circular A-133 Compliance Supplement that are applicable to each of its major federal programs for the year ended June 30, 2005. The City of Paducah, Kentucky’s major federal program is identified in the summary of auditor’s results section of the accompanying schedule of findings and questioned costs. Compliance with the requirements of laws, regulations, contracts and grants applicable to each of its major federal programs is the responsibility of the City of Paducah, Kentucky’s management. Our responsibility is to express an opinion on the City of Paducah, Kentucky’s compliance based on our audit. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and OMB Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations. Those standards and OMB Circular A-133 require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major federal program occurred. An audit includes examining, on a test basis, evidence about the City of Paducah Kentucky’s compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Our audit does not provide a legal determination of the City of Paducah, Kentucky’s compliance with those requirements. In our opinion, the City of Paducah, Kentucky complied, in all material respects, with the requirements referred to above that are applicable to each of its major federal programs for the year ended June 30, 2005. Internal Control Over Compliance The management of the City of Paducah, Kentucky, is responsible for establishing and maintaining effective internal control over compliance with requirements of laws, regulations, contracts and grants applicable to federal programs. In planning and performing our audit, we considered the City of Paducah, Kentucky’s internal control over compliance with requirements that could have a direct and material effect on a major federal program in order to determine our auditing procedures for the purpose of expressing our opinion on compliance and to test and report on internal control over compliance in accordance with OMB Circular A- 133. -133- Our consideration of the internal control over compliance would not necessarily disclose all matters in the internal control 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 noncompliance with applicable requirements of laws, regulations, contracts and grants caused by error or fraud that would be material in relation to a major federal program 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 compliance and its operation that we consider to be material weaknesses. This report is intended solely for the information and use of the Board of Commissioners of the City of Paducah, Kentucky, management, others within the organization, and federal awarding agencies and pass- through entities and is not intended to be and should not be used by anyone other than these specified parties. Certified Public Accountants and Consultants October 28, 2005 -134- CITY OF PADUCAH, KENTUCKY SCHEDULE OF FINDINGS AND QUESTIONED COSTS FOR THE YEAR ENDED JUNE 30, 2005 A. Summary of Audit Results: 1. The auditor’s report expresses an unqualified opinion on the basic financial statements of the City of Paducah, Kentucky. 2. No reportable conditions were disclosed during the audit of the basic financial statements of the City of Paducah, Kentucky. 3. No instances of noncompliance material to the basic financial statements of the City of Paducah, Kentucky were disclosed during the audit. 4. No reportable conditions were disclosed during the audit of the major federal award programs. 5. The auditor’s report on compliance for the major federal award programs for the City of Paducah, Kentucky expresses an unqualified opinion. 6. There are no audit findings relative to the major federal awards program to be reported. 7. The programs tested as major programs included: Name CFDA # Section 8 Housing Choice Vouchers 14.871 8. The threshold for distinguishing Types A and B programs was $300,000. 9. The City of Paducah, Kentucky was determined to be a low-risk auditee. B. Findings - Basic Financial Statements Audit: None C. Findings and Questioned Costs - Major Federal Award Programs: None -135-