Loading...
HomeMy WebLinkAboutCAFR-June-30-2006City of Paducah Paducah, Kentucky Comprehensive Annual Financial Report Year Ended June 30, 2006 Issued by the Finance Department CITY OF PADUCAH, KENTUCKY COMPREHENSIVE ANNUAL FINANCIAL REPORT YEAR ENDED JUNE 30, 2006 TABLE OF CONTENTS Exhibit No. Page No. Introductory Section: Letter of Transmittal 1 - 8 Organizational Chart 9 Principal Officials 10 GFOA Certificate of Achievement 11 Financial Section: Independent Auditor’s Report 12-13 Required Supplementary Information: Management’s Discussion and Analysis 14-26 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 Funds Schedules A-1 81 Budgetary Comparison Schedule (Budgetary Basis) – General Fund A-2 82-85 Budgetary Comparison Schedule – Note to RSI – General Fund A-3 86 Budgetary Comparison Schedule (Budgetary Basis) – Special Revenue Investment Fund A-4 87 Budgetary Comparison Schedule – Note to RSI – Special Revenue Investment Fund A-5 88 Supplementary Information: Nonmajor Governmental Funds: Combining Balance Sheet B-1 89-90 Combining Statement of Revenues, Expenditures and Changes in Fund Balances B-2 91-92 Exhibit No. Page No. Supplementary Information: Detail Schedule of Revenues, Expenditures, and Changes in Fund Balance – Budget and Actual: Municipal Aid Program Fund B-3 93 Emergency Communication Service Fund B-4 94 Court Awards Fund B-5 95 Small Grant Fund B-6 96 CDBG Fund B-7 97 Hope 3 Implementation Grant Fund B-8 98 Home Grant Fund B-9 99 HUD Revolving Grant Fund B-10 100 Paducah Housing Authority Police Grant Fund B-11 101 Debt Service Fund B-12 102 Downtown Capital Improvement Fund B-13 103 Nonmajor Proprietary Funds: Combining Statement of Net Assets C-1 104 Combining Statement of Revenues, Expenses and Changes in Fund Net Assets C-2 105 Combining Statement of Cash Flows C-3 106 Internal Service Funds: Combining Statement of Net Assets D-1 107 Combining Statement of Revenues, Expenses, and Changes in Fund Net Assets D-2 108 Combining Statement of Cash Flows D-3 109 Fiduciary Funds: Combining Statement of Net Assets – Pension Trust Funds E-1 110 Combining Statement of Changes in Net Assets – Pension Trust Funds E-2 111 Combining Statement of Net Assets – Private-purpose Trust Funds E-3 112 Combining Statement of Changes in Net Assets – Private-purpose Trust Funds E-4 113 Statement of Changes in Assets and Liabilities – Agency Funds E-5 114 Table No. Page No. Statistical Section: Net Assets by Component 1 115 Changes in Net Assets 2 116-117 Fund Balances, Governmental Funds 3 118 Changes in Fund Balances, Governmental Funds 4 119 Assessed and Estimated Actual Value of Taxable Property 5 120 Property Tax Rates - Direct and Overlapping Governments 6 121 Principal Taxpayers 7 122 Secured Tax Levies and Collections 8 123 Employee License Tax Collections 9 124 Principal Employee License Taxpayers 10 125 Ratio of Outstanding Debt by Type 11 126 Ratio of Net General Bonded Debt Outstanding 12 127 Table No. Page No. Statistical Section: Direct and Overlapping Governmental Activities Debt 13 128 Legal Debt Margin Information 14 129 Schedule of Sewer Revenue Bond Coverage 15 130 Demographic and Economic Statistics 16 131 Principal Employers 17 132 City Full-Time Employees by Function 18 133 Operating Indicators by Function 19 134 Capital Asset Statistics by Function 20 135 Single Audit Section: Schedule of Expenditures of Federal Awards 136-137 Notes to the Schedule of Expenditures of Federal Awards 138 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 139 Report on Compliance with Requirements Applicable to Each Major Program and On Internal Control Over Compliance in Accordance with OMB Circular A-133 140-141 Schedule of Findings and Questioned Costs 142 CITY OF PADUCAH, KENTUCKY INTRODUCTORY SECTION COMPREHENSIVE ANNUAL FINANCIAL REPORT YEAR ENDED JUNE 30, 2006 October 13, 2006 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, 2006. 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. In the early 1990s, 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 was 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 area. In FY2006, as the following table indicates, there were over 575 jobs created and retained, and $9.25 million capital invested not to mention the added fiscal impact from the jobs created and capital invested. Additionally, World Market, Bed Bath and Beyond and numerous other retail shops opened, creating several dozen more service industry jobs, further strengthening Paducah’s retail market. Summary of Capital Investment and New/Retained Jobs FY2006 Jobs Company Capital Investment In Millions New Retained Pepsi $2.00 11 29 Ingram Barge $4.50 60 300 Marquette $2.00 12 40 A & K Construction $.75 25 100 Total $9.25 108 469 -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, disc golf, skate boarding, 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’, which 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 340 full-time employees as of June 30, 2006. 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. 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 of Paducah. The following component units have been presented as blended units because the units’ governing bodies are 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. LONG-TERM FINANCIAL PLANNING On October 1, 2005, the City’s payroll tax was increased ½ cent. As a result of the payroll tax increase, the City Commission created the Investment Fund. The Investment Fund is funded with the ½ cent increase and is dedicated to the following purposes: economic development, neighborhood redevelopment, infrastructure capital investment, and property tax relief. In addition, the ordinance levying the tax increase included a sunset clause. The tax will revert from 2% of payroll to 1 ½ % October 1, 2008 if the City Commission does not vote to extend it. In FY2006 Investment Fund expenditures and transfers out totaled $3,745,060. During the FY 2007 budget process, the Commission reviewed 49 decision packages proposed for the Investment Fund Budget with a total cost of $12.5 million; expenditures totaling $3.3 million were appropriated. The City has numerous infrastructure/capital items that will affect the long-term financial planning process. The following projects are two examples of future considerations facing the City: Floodwall Restoration. The 12.5-mile long floodwall system protecting a large portion of the Paducah- McCracken area is approaching 60 years of age. It is still in good condition long beyond its design life; however, it is in need of necessary repairs. The estimated cost of this restoration project is approximately $5.2 million. Anticipated grant funds will cover 65% of the project, but that still leaves the City with a commitment of $1.8 million. Riverfront Redevelopment Plan. The City’s Riverfront Redevelopment Plan includes proposed improvements that will provide public amenities, recreational facilities & public spaces that will tie the City’s downtown to the River. The plan includes steamboat landing redevelopment, a public marina, boat ramp, and recreational trails and shoreline enhancements, just to name a few. Completion of Phase I & Phase II of the riverfront redevelopment will cost an estimated $46.2 million. In FY2007 the City was allocated $5.3 million in federal funds for Phase 1. As the project gets underway, property acquisition, construction, and eventually operating costs will be a long-term planning consideration. -5- 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 29,920 persons employed (McCracken County) as of June 30, 2006. The June 2006 unemployment rate was 5.7% (McCracken County), which is 23% higher than the federal rate of 4.6%. The local unemployment rate of 5.7%, compares favorably to last year’s 6.4%. The number of active electric and water meters was nearly the same as the prior year. The number of building and electric permits obtained was 662 for fiscal year 2006 valued at $50.7 million, which is $7.3 million down from fiscal year 2005. CASH MANAGEMENT Idle cash in the City’s various funds, except for pension funds, is invested for terms ranging from overnight to 12 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 2006 in the General Fund was $358,950, on rates varying from 3.25% to 4.95%. 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/deductibles costing more than $1.2 million and $1.0 million in fiscal year 2006 and fiscal year 2005, 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 Kentucky 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 increase of $5,012,636, with net assets valued at $14,163,498 on June 30, 2006. In November 2005, the City issued general obligation bonds of $6.1 million to finance the Police and Firefighters’ Pension Fund estimated actuary liability. There were 3 active members and 88 retirees and/or beneficiaries in this fund as of June 30, 2006. The most recent actuarial report prepared for the PFPF was as of July l, 2006. 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 10.98% for non-hazardous and 25.01% for hazardous duty employees in fiscal year 2006. -6- The AEPF is a single-employer contributory defined benefit plan created by local ordinance under Kentucky 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, 2006. 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 $15,755 in fiscal year 2006, with net assets valued as of June 30, 2006, of $344,643. 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 seven 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 the Paducah- McCracken County Joint Sewer Authority (JSA) 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 general obligation bonds 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 Paducah-McCracken County Industrial Development Authority (IDA) in an amount nearly equal to the debt service obligation. In fiscal year 2006, the City issued $6.1 million in general obligation bonds to fully fund the Police and Firefighters Pension Fund’s unfunded pension liability. The total cash outlay requirements for debt service retirement; principal and interest, in fiscal year 2006 were $1,543,584. -7- 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, 2005. This was the fifteenth 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. -8- 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 -9- 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 -10- -11- CITY OF PADUCAH, KENTUCKY FINANCIAL SECTION COMPREHENSIVE ANNUAL FINANCIAL REPORT YEAR ENDED JUNE 30, 2006 CITY OF PADUCAH, KENTUCKY REQUIRED SUPPLEMENTARY INFORMATION COMPREHENSIVE ANNUAL FINANCIAL REPORT YEAR ENDED JUNE 30, 2006 CITY OF PADUCAH, KENTUCKY MANAGEMENT’S DISCUSSION AND ANALYSIS JUNE 30, 2006 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, 2006. 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 1-8) 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 $43.5 million at the close of the 2005-2006 fiscal year. Of this amount, $7.9 million (unrestricted net assets) may be used to meet City government’s ongoing obligations to citizens and creditors. Total net assets increased $3.4 million. At fiscal year end, City governmental funds reported a combined ending fund balance of $13.4 million. Approximately 74% of this total amount, $9.9 million, is unreserved and available for spending at the City’s discretion. Of the $9.9 million, $790,381 is in various special funds, which are earmarked for specific purposes. At the end of the current fiscal year, unreserved general fund balance was $9.2 million, of which cash makes up approximately $4.4 million. When compared to actual total appropriations, the general fund cash balance is 13%. 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). -14- 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 fifteen (15) 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 Investment Funds, all of which are considered to be major funds. Data from the other twelve (12) 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 89-103. 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. -15- 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 104-106 of this report. Individual data for the internal service funds is likewise presented in the form of combining statements on pages 107- 109 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 110-114 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 89-114 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 $43.5 million as of June 30, 2006. The largest portion of the City’s net assets (74%) 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. -16- An additional portion of City net assets (8%) represents resources that are subject to external restrictions on how they may be used. The remaining balance of unrestricted net assets (18%) may be used to meet the City’s ongoing obligations to citizens and creditors. As of June 30, 2006, 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 fourth 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 Governmental Activities Business-Type Activities Total Primary Government 2006 2005 2006 2005 (Restated) 2006 2005 (Restated) Current assets $ 29,580,305 $ 21,724,001 $ 2,586,401 $ 2,434,670 $ 32,166,706 $ 24,158,671 Capital assets 36,786,376 35,927,035 1,277,720 1,463,118 38,064,096 37,390,153 Other noncurrent assets 6,833,601 6,552,878 - - 6,833,601 6,552,878 Total Assets 73,200,282 64,203,914 3,864,121 3,897,788 77,064,403 68,101,702 Current liabilities 8,287,277 8,122,376 420,861 304,214 8,708,138 8,426,590 Noncurrent liabilities 22,822,101 17,502,282 2,033,450 2,084,531 24,855,551 19,586,813 Total liabilities 31,109,378 25,624,658 2,454,311 2,388,745 33,563,689 28,013,403 Net assets: Invested in capital assets, net of related debt 30,664,671 29,492,197 1,277,720 1,463,118 31,942,391 30,955,315 Restricted 3,708,035 1,668,022 - - 3,708,035 1,668,022 Unrestricted 7,718,198 7,419,037 132,090 45,925 7,850,288 7,464,962 TOTAL NET ASSETS $ 42,090,904 $ 38,579,256 $1,409,810 $ 1,509,043 $ 43,500,714 $ 40,088,299 A. Analysis of the City’s Operations The following table provides a summary of the City’s operations for the years ended June 30, 2006 and 2005. 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 increased the City’s net assets by $3,511,648. Business-type activities decreased the City’s net assets by $99,233. The following table provides a summary of the City’s operations for the years ended June 30, 2006 and June 30, 2005: -17- City of Paducah, Kentucky Changes in Net Assets June 30 Governmental Activities Business-Type Activities Total Primary Government Revenues: 2006 2005 2006 2005 (Restated) 2006 2005 (Restated) Program revenues: Charges for services $ 3,452,878 $ 3,305,792 $ 3,829,684 $ 3,720,332 $ 7,282,562 $ 7,026,124 Operating grants/ contributions 2,988,612 2,452,694 - - 2,988,612 2,452,694 Capital grants/ contributions 3,302,568 1,100,064 22,894 14,735 3,325,462 1,114,799 General Revenues: Property taxes 4,107,934 3,919,113 - - 4,107,934 3,919,113 Franchise taxes 282,115 269,407 - - 282,115 269,407 Telecommunications Tax 626,971 670,181 - - 626,971 670,181 Insurance premium tax 3,863,953 3,957,289 - - 3,863,953 3,957,289 Vehicle tax 518,648 540,470 - - 518,648 540,470 Bank tax 178,871 157,771 - - 178,871 157,771 Gross receipts license tax 3,899,432 3,720,784 - - 3,899,432 3,720,784 Employee licenses tax 14,794,217 11,192,445 - - 14,794,217 11,192,445 Other taxes 498,409 478,574 - - 498,409 478,574 Intergovernmental revenue 1,201,973 955,645 - - 1,201,973 955,645 Unrestricted investment earnings 462,292 290,647 85,786 51,508 548,078 342,155 Gain on sale of capital assets 8,340 - 55,337 27,500 63,677 27,500 Total revenues 40,187,213 33,010,876 3,993,701 3,814,075 44,180,914 36,824,951 Expenses: General Government 9,057,295 8,431,994 - - 9,057,295 8,431,994 Public safety 14,592,756 14,620,938 - - 14,592,756 14,620,938 Public service 8,486,662 6,249,860 - - 8,486,662 6,249,860 Park & recreation 1,044,361 1,045,024 - - 1,044,361 1,045,024 Planning & development 2,404,636 2,521,412 - - 2,404,636 2,521,412 Interest on long-term debt 974,101 775,122 - - 974,101 775,122 Solid Waste - - 3,893,013 3,683,954 3,893,013 3,683,954 Civic Center - - 45,894 39,008 45,894 39,008 TISA - - 269,781 170,264 269,781 170,264 Total expenses 36,559,811 33,644,350 4,208,688 3,893,226 40,768,499 37,537,576 Increase (decrease) in Net assets before transfers 3,627,402 (633,474) (214,987) (79,151) 3,412,415 (712,625) Transfers (115,754) (133,959) 115,754 133,959 - - Change in net assets 3,511,648 (767,433) (99,233) 54,808 3,412,415 (712,625) Net assets, July 1, restated 38,579,256 39,346,689 1,509,043 1,454,235 40,088,299 40,800,924 NET ASSETS, JUNE 30 $ 42,090,904 $ 38,579,256 $ 1,409,810 $ 1,509,043 $ 43,500,714 $ 40,088,299 -18- 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 56%Telecommunication Tax (E911) 2% Property taxes 11% Other Taxes 2% Vehicle Tax 1% Intergovernmental revenues 3%Charges for services 9% Operating grants/contributions 7% Interest Income 1% Capital grants/contributions 8% -19- C. Business-Type Activities Business-type activities decreased the City’s net assets by $99,233, in contrast to the positive position in net assets for Governmental Activities for the year. -20- Business-Type Activities Expenses and Revenues $0.0 $0.5 $1.0 $1.5 $2.0 $2.5 $3.0 $3.5 $4.0 $4.5 Solid Waste Civic Center TISAMillions Business-Type Activities Revenue by Source Charges for Service 96% Gain on sale of capital assets and transfers 1% Interest Income 2% Capital grants/contributions 1% 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 $13.4 million (see Exhibit 3). Approximately 74% of this total amount, $9.9 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 $9.9 million, $790,381 is in the debt service fund and various special revenue funds, which are earmarked for specific purposes. The remaining $3.5 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 2005-2006 fiscal year, the general fund unreserved fund balance was $9.2 million. City fiscal policy (ordinance 2005-6-6988) required that an amount not less than 8% of the General Fund’s budgeted expenditures remain undesignated in the fund balance, or $2.7 million, which leaves $6.5 million as unreserved for fiscal year 2006. While $6.5 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 27% of expenditures and transfers out ($34 million). When compared to total appropriations ($34 million), the general fund cash balance ($4.4 million) is 13%. The General Fund fund balance increased by $854 thousand during the 2005-2006 fiscal year and was the result of expenditures being held down and a strong revenue environment, thus revenues outgrew expenditures. Key factors contributing to this positive change include the following: o Strong business license collections, o Continued growth in payroll tax collections, and o A successful ‘Amnesty Program’ (netted $320,000). The General Capital Improvements Fund had a fund balance of $1.97 million all of which is reserved. The General Capital Improvements fund balance increased $1 million over last year. The fund balance increased because several capital projects that were fully funded had not yet been completed; therefore, funds remained on hand at year-end. -21- Governmental Activities Ending Fund Balances Unreserved - general fund 69% Reserved 25% Unreserved - other funds 6% The Investment Fund had a fund balance of $720 thousand, all of which is reserved for capital projects. The Investment Fund’s fund balance increased $720 thousand. The Investment Fund was authorized by the City Commission in fiscal year 2005-2006 as a special revenue fund whose use is restricted to economic development, community redevelopment and capital and infrastructure projects. The Investment Fund captures all manner of financial activities related to revenue from the ½ cent payroll tax increase, effective October 1, 2005. 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 $ (33,736) Civic Center (3,612) TISA 136,710 Combined total net asset change for the three funds was $44 thousand less than last year, broken down as follows: Solid Waste ($0 thousand), Civic Center $55 thousand, and TISA ($99 thousand). Other factors concerning the proprietary enterprise funds have been addressed in the discussion of City business-type activities (III, C). V. General Fund Budgetary Highlights Differences between the original budget and the final actual amounts resulted in a $618 thousand decrease in appropriations and can be briefly summarized as follows: Appropriations Department Increase Decrease (In Thousands) General administration $ - $ 32 Finance - 38 Planning - 51 Human rights - 1 Human resources - 39 Inspection 28 - Information systems - 43 Risk management 4 - Police - 282 Fire - 76 Public works - 157 Engineering services - 170 Recreation - 61 Other 300 - Transfers out were increased $6.3 million. This net increase is broken down as follows: $300 thousand for economic development and neighborhood redevelopment; and $6 million to fund the cost of the Police and Firefighter Pension Fund (PFPF) unfunded liability. The PFPF cost is offset with the proceeds of a general obligation bond as described in the ‘Long-Term Debt’ section of this report (VI, B). The decrease in appropriations of $618 thousand, coupled with the non-PFPF portion of transfers out, or $300 thousand, affected the fund balance 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 economic development and neighborhood redevelopment it was necessary to reduce the cost of operations by $618 thousand and increase the non-PFPF portion of transfers out by $300 thousand, or a positive net change of $318 thousand. -22- 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, 2006, is $38.1 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. 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 2006, projects and equipment expenditures totaled nearly $4.8 million. The largest capital-type projects, in terms of dollars in fiscal year 2006, are shown in the following table: Pecan Drive improvement project $2,366,775 Equipment for Public Safety and Public Works 338,085 Noble Park Improvements & Recreation Trail 272,630 Neighborhood Redevelopment (includes Fountain & Uppertown) 177,913 Municipal Facility Improvements 174,576 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 2006 2005 2006 2005 2006 2005 Land $ 5,320,275 $ 5,420,685 $ 65,908 $ 65,908 $ 5,386,183 $ 5,486,593 Land improvements 940,577 983,401 - - 940,577 983,401 Construction in progress 3,945,451 3,641,595 - - 3,945,451 3,641,595 Buildings and improvements 7,103,751 6,612,805 267,090 186,542 7,370,841 6,799,347 Infrastructure 16,261,506 16,867,122 - - 16,261,506 16,867,122 Equipment 1,583,603 698,168 111,326 220,417 1,694,929 918,585 Furnishings and fixtures 7,112 8,379 - - 7,112 8,379 Vehicles 1,624,101 1,694,880 833,396 990,251 2,457,497 2,685,131 TOTALS $36,786,376 $ 35,927,035 $1,277,720 $1,463,118 $ 38,064,096 $ 37,390,153 Additional information on City capital assets can be found in Note 3 in the notes to financial statements on pages 62-64. B. Long-Term Debt At year-end, the City had $24,083,707 in outstanding bonds, accrued compensated absences and notes payable, compared to $18,506,727 at June 30, 2005 with maturities extending through 2026. During the year, the City’s total debt increased by $5,576,980, as shown in the following table: -23- Governmental Activities General Obligation Bonds: 2006 2005 Convention and Performing Arts Center – 2001 $ 8,130,000 $ 8,380,000 Kentucky League of Cities – 2003 3,110,441 3,247,853 Infiniti Media Building – 2004 4,680,000 4,840,000 General Fund accrued compensated absences 1,854,481 1,783,453 KACO – 2005 208,785 255,421 Police/Firefighter Pension Fund Liability – 2005 6,100,000 - TOTALS $24,083,707 $18,506,727 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. In fiscal year 2006, the City issued $6.1 million in general obligation bonds to finance the police and firefighter’s pension fund estimated pension liability. These bonds are to be fully paid within 20 years and are backed by the full faith and credit of the City. 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 $175,093,068. 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. In fiscal year 2006, less than 5.5% 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. -24- VII. Economic Factors and Next Year’s Budgets and Rates. A. General Comments. Paducah continued to experience steady-growth in the local economy as compared to the national economy in fiscal year 2006. It is estimated that over 575 jobs were created or retained in fiscal year 2006 along with $9.25 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) in 2004 at a cost in excess of $35 million. During fiscal 2006, approximately $2.4 million was spent on the Pecan Drive Improvements project in the western part of the City. This roadway project will cost more than $6 million when fully completed in fiscal 2007. It consists of 1.8 miles of roadway designed to accommodate modern-day traffic flow near the City’s retail areas and opens up over 160 acres for development. Major capital projects over the past few years have significantly increased the flow of commerce, tourism and traffic flow in the City. B. Unemployment Rate. The unemployment rate for the City of Paducah (McCracken County) as of June 2006 was 5.7%. 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 333 qualified businesses, which have pledged expenditures of $107 million in addition to creating 395- targeted jobs. All the above factors, in addition to current and future needs of the City, were considered when the 2006-2007 Budget for the City of Paducah was prepared. The beginning general fund balance for fiscal year 2006-2007 is $9,157,310 (cash balance was $4,401,832). The City has estimated an ending fund balance of $8,820,380 (cash balance $4,100,000 or 14% of projected general fund expenditures). An increase in employee payroll withholding tax went into effect October 2005. The increase grossed over $1.8 million during the first year of implementation and over $3.9 million is anticipated in 2006-2007. At the present time, the City is in good financial condition. -25- VIII. Requests for Information This financial report is designed to provide a general financial overview for those interested in the City of Paducah government finances. Questions or requests for additional financial information may be addressed to Jonathan Perkins, Finance Director, City of Paducah, 500 South 5th Street, Paducah, KY 42001. -26- CITY OF PADUCAH, KENTUCKY BASIC FINANCIAL STATEMENTS GOVERNMENT-WIDE FINANCIAL STATEMENTS COMPREHENSIVE ANNUAL FINANCIAL REPORT YEAR ENDED JUNE 30, 2006 Exhibit 1 Governmental Business-type Component Current Assets: Activities Activities Total Units Cash and cash equivalents 7,676,769$ 947,334$ 8,624,103$ 212,259$ Investments 3,687,160 1,462,354 5,149,514 - Receivables, net: Notes 264,000 - 264,000 - Accounts 5,483,774 102,486 5,586,260 3,063,206 Grants 876,083 - 876,083 167,105 Interest 92,208 28,067 120,275 - Property tax 4,368,599 - 4,368,599 - Other - - - 989,107 Internal balances (32,728) 32,728 - - Inventory 234,635 - 234,635 1,922,611 Prepaid pension obligation 5,712,765 - 5,712,765 - Prepaid expenses 1,216,835 13,432 1,230,267 59,671 Other current assets 205 - 205 1,050,150 Total current assets 29,580,305 2,586,401 32,166,706 7,464,109 Noncurrent Assets: Investments, restricted - - - 4,454,610 Notes receivable 6,590,000 - 6,590,000 - Bond issuance costs, net 243,601 - 243,601 - Net capital assets: Land and construction in progress 9,265,726 65,908 9,331,634 2,753,851 Depreciable capital assets 27,520,650 1,211,812 28,732,462 75,900,624 Restricted assets - - - 56,702 Other assets - - - 732,165 Total noncurrent assets 43,619,977 1,277,720 44,897,697 83,897,952 Total assets 73,200,282$ 3,864,121$ 77,064,403$ 91,362,061$ Primary Government CITY OF PADUCAH, KENTUCKY STATEMENT OF NET ASSETS JUNE 30, 2006 ASSETS -27- Governmental Business-type Component Current Liabilities: Activities Activities Total Units Voucher and accounts payable 2,184,243$ 325,181$ 2,509,424$ 4,544,026$ Cash deficit - - - 367 Line of credit - - - 1,487,303 Accrued payables 504,060 32,141 536,201 527,046 Due to other taxing agencies 110,339 - 110,339 - Deferred revenue 4,227,029 - 4,227,029 774,942 Accrued compensated absences 476,839 63,539 540,378 - Accrued interest - - - 153,173 Notes payable due within one year 184,767 - 184,767 240,219 Bonds payable due within one year 600,000 - 600,000 1,320,000 Other current liabilities - - - 1,432,746 Total current liabilities 8,287,277 420,861 8,708,138 10,479,822 Noncurrent Liabilities: Accrued compensated absences 1,377,642 12,531 1,390,173 - Landfill post-closure costs - 2,020,919 2,020,919 - Other liabilities - - - 496,971 Notes payable 3,134,459 - 3,134,459 404,048 Bonds payable 18,310,000 - 18,310,000 6,304,022 Total noncurrent liabilities 22,822,101 2,033,450 24,855,551 7,205,041 Total liabilities 31,109,378 2,454,311 33,563,689 17,684,863 Invested in capital assets, net of related debt 30,664,671 1,277,720 31,942,391 69,975,499 Restricted for: Program purposes 1,018,231 - 1,018,231 - Capital projects 2,689,804 - 2,689,804 - Debt service - - - 3,459,923 Unrestricted 7,718,198 132,090 7,850,288 241,776 TOTAL NET ASSETS 42,090,904$ 1,409,810$ 43,500,714$ 73,677,198$ 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 9,057,295$ 1,618,903$ -$ 130,000$ Public safety 14,592,756 767,086 85,321 437,396 Public service 8,486,662 942,355 584,352 2,735,172 Parks and recreation 1,044,361 103,932 15,773 - Planning and development 2,404,636 20,602 2,303,166 - Interest on long-term debt 974,101 - - - Total governmental activities (See Note 1)36,559,811 3,452,878 2,988,612 3,302,568 Business-type activities: Solid Waste 3,893,013 3,696,609 - - Civic Center 45,894 26,378 - - TISA 269,781 106,697 - 22,894 Total business-type activities 4,208,688 3,829,684 - 22,894 TOTAL PRIMARY GOVERNMENT 40,768,499$ 7,282,562$ 2,988,612$ 3,325,462$ Component Units: Authorities: Paducah Water Works 6,552,696$ 6,726,647$ -$ 985,871$ Paducah Power System 46,130,501 46,882,028 - - Paducah Transit Authority 5,399,673 3,020,693 1,350,514 439,196 TOTAL COMPONENT UNITS 58,082,870$ 56,629,368$ 1,350,514$ 1,425,067$ 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 (loss) on sale of capital assets Miscellaneous Total general revenues Transfers Total general revenues and transfers Change in net assets Net assets, July 1, 2005, as previously reported Adjustment to beginning net assets (See Note 10) NET ASSETS, JUNE 30,2006 See accompanying notes to the basic financial statements. Program Revenues Capital -29- CITY OF PADUCAH, KENTUCKY Grants and Contributions FOR THE YEAR ENDED JUNE 30, 2006 STATEMENT OF ACTIVITIES Governmental Business-type Component Activities Activities Total Units (7,308,392)$ - (7,308,392)$ - (13,302,953) - (13,302,953) - (4,224,783) - (4,224,783) - (924,656) - (924,656) - (80,868) - (80,868) - (974,101) - (974,101) - (26,815,753) - (26,815,753) - - (196,404) (196,404) - - (19,516) (19,516) - - (140,190) (140,190) - - (356,110) (356,110) - (26,815,753) (356,110) (27,171,863) - - - - 1,159,822 - - - 751,527 - - - (589,270) - - - 1,322,079 4,107,934 - 4,107,934 - 282,115 - 282,115 - 626,971 - 626,971 - 3,863,953 - 3,863,953 - 518,648 - 518,648 - 178,871 - 178,871 - 3,899,432 - 3,899,432 - 14,794,217 - 14,794,217 - 498,409 - 498,409 - 1,201,973 - 1,201,973 - 462,292 85,786 548,078 199,838 8,340 55,337 63,677 (191,913) - - - 57,836 30,443,155 141,123 30,584,278 65,761 (115,754) 115,754 - - 30,327,401 256,877 30,584,278 65,761 3,511,648 (99,233) 3,412,415 1,387,840 38,579,256 1,435,470 40,014,726 72,289,358 - 73,573 73,573 - 42,090,904$ 1,409,810$ 43,500,714$ 73,677,198$ Net (Expense) Revenue and Changes in Net Assets Primary Government -30- CITY OF PADUCAH, KENTUCKY BASIC FINANCIAL STATEMENTS FUND FINANCIAL STATEMENTS COMPREHENSIVE ANNUAL FINANCIAL REPORT YEAR ENDED JUNE 30, 2006 Exhibit 3 Special General Fund Cash and cash equivalents 2,426,929$ 1,885,661$ 3,015$ Investments 1,974,903 - - Accounts receivable: Accounts 5,221,798 - 400,000 Grants 70,682 680,993 - Interest 33,876 - - Property taxes (net of allowances for uncollectibles) 4,222,083 - - Prepaid items - - - Due from other funds 1,604,987 240,018 944,058 TOTAL ASSETS 15,555,258$ 2,806,672$ 1,347,073$ Liabilities: Voucher and accounts payable 405,690$ 831,496$ 5,543$ Accrued payroll and payroll taxes 457,261 - - Due to other funds 946,366 - 621,729 Due to other taxing agencies 110,339 - - Deferred revenue 4,027,388 5,173 - Accrued compensated absences 450,904 - - Total liabilities 6,397,948 836,669 627,272 Fund Balances: Reserved for: Program purposes - - - Capital improvements - 1,970,003 719,801 Unreserved: General Fund 9,157,310 - - Special Revenue Funds - - - Debt Service Fund - - - Total fund balances 9,157,310 1,970,003 719,801 TOTAL LIABILITIES AND FUND BALANCES 15,555,258$ 2,806,672$ 1,347,073$ See accompanying notes to the basic financial statements. General Capital Improvements JUNE 30, 2006 GOVERNMENTAL FUNDS BALANCE SHEET CITY OF PADUCAH, KENTUCKY -31- Revenue Investment Fund LIABILITIES AND FUND BALANCES ASSETS 1,725,453$ 6,041,058$ 237,451 2,212,354 93,705 5,715,503 124,407 876,082 5,264 39,140 - 4,222,083 33,646 33,646 69 2,789,132 2,219,995$ 21,928,998$ 367,614$ 1,610,343$ 37,889 495,150 79,040 1,647,135 - 110,339 161,475 4,194,036 - 450,904 646,018 8,507,907 783,596 783,596 - 2,689,804 - 9,157,310 758,017 758,017 32,364 32,364 1,573,977 13,421,091 2,219,995$ 21,928,998$ Governmental -32- Nonmajor Governmental Funds Total Funds Exhibit 4 Total fund balance - total governmental funds 13,421,091$ Amounts reported for governmental activities in the Statement of Net Assets are different because: 146,516 6,405,000 23,750 168,703 5,712,765 36,786,376 $ 784,767 22,822,101 (23,606,868) (Continued) 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: JUNE 30, 2006 Due within one year Due after one year -33- 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. 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. Exhibit 4 (Continued) 243,601$ (79,428) 4,606,222$ (1,704,096) (32,728) 2,869,398 NET ASSETS OF GOVERNMENTAL ACTIVITIES 42,090,904$ See accompanying notes to the basic financial statements. 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 -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, 2006 Exhibit 5 Special General Revenues: Fund Taxes 5,577,715$ -$ -$ Licenses 20,602,949 - 2,829,616 Charges for services 531,141 - - Intergovernmental - 123,180 - Grants 627,020 2,971,834 - Interest 358,950 - - Miscellaneous 1,001,124 515,021 3,015 Total revenues 28,698,899 3,610,035 2,832,631 Expenditures: Current operations: General government 4,286,431 - - Public safety 13,132,320 - - Public service 5,950,974 - - Parks and recreation 1,044,299 - - Planning and development - - 472,962 Other 481,690 - - Capital outlay - 4,990,282 - Debt service: Principal requirement - - - Interest and fiscal requirement - - - Total expenditures 24,895,714 4,990,282 472,962 Excess (deficiency) of revenues over expenditures 3,803,185 (1,380,247) 2,359,669 Other Financing Sources (Uses): Long-term debt issued 6,100,000 - - Transfers in 9,132 2,725,132 1,632,230 Transfers out (9,058,709) (328,595) (3,272,098) Total other financing sources (uses) (2,949,577) 2,396,537 (1,639,868) Net change in fund balances 853,608 1,016,290 719,801 Fund balances, July 1, 2005 8,303,702 953,713 - FUND BALANCES, JUNE 30, 2006 9,157,310$ 1,970,003$ 719,801$ See accompanying notes to the basic financial statements. General Capital -35- CITY OF PADUCAH, KENTUCKY STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS FOR THE YEAR ENDED JUNE 30, 2006 Improvements Revenue Investment Fund 626,971$ 6,204,686$ - 23,432,565 122,918 654,059 1,406,699 1,529,879 2,198,646 5,797,500 43,993 402,943 325,125 1,844,285 4,724,352 39,865,917 - 4,286,431 1,234,526 14,366,846 1,467,682 7,418,656 - 1,044,299 2,072,265 2,545,227 - 481,690 12,809 5,003,091 594,047 594,047 949,537 949,537 6,330,866 36,689,824 (1,606,514) 3,176,093 - 6,100,000 1,667,576 6,034,070 (21,778) (12,681,180) 1,645,798 (547,110) 39,284 2,628,983 1,534,693 10,792,108 1,573,977$ 13,421,091$ Nonmajor Governmental -36- Funds Governmental Total Funds Exhibit 6 Net change in fund balances - total governmental funds 2,628,983$ Amounts reported for governmental activities in the Statement of Activities are different because: 61,815 (53,710) 3,779,542 (205,000) 2,019 (1,111) (319,756) 5,466,496 (Continued) 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. 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 governmental funds that do not provide current financial resources are not reported as revenues in the Statement of Activities. CITY OF PADUCAH, KENTUCKY RECONCILIATION OF THE STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES OF GOVERNMENTAL FUNDS TO THE STATEMENT OF ACTIVITIES FOR THE YEAR ENDED JUNE 30, 2006 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- Exhibit 6 (Continued) (6,100,000)$ (3,328,739) 594,047 (25,065) (43,103) 95,723 514,656$ (17,785) 462,636 959,507 CHANGE IN NET ASSETS OF GOVERNMENTAL ACTIVITIES 3,511,648$ See accompanying notes to the basic financial statements. 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. 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, 2006 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 $462,636. The issuance of long-term debt provides current financial resources to governmental funds and is reported as revenue in governmental funds. However, the proceeds are not reported in the government- wide Statement of Activities. CITY OF PADUCAH, KENTUCKY RECONCILIATION OF THE STATEMENT OF REVENUES, EXPENDITURES AND -38- Internal service funds are used by management to charge the costs of certain activities, such as insurance and fleet management, to individual funds. The net revenue of the Internal Service Funds is reported with governmental activities net of the amount allocated to business-type activities and depreciation expense. These amounts are as follows: Change in net assets business-type activities Depreciation expense Exhibit 7 Nonmajor Solid Enterprise Current Assets: Waste Funds Totals Cash and cash equivalents 822,053$ 125,281$ 947,334$ 1,635,711$ Investments 1,462,354 - 1,462,354 1,474,806 Accounts receivable 98,095 4,391 102,486 - Interest receivable 28,067 - 28,067 246,589 Prepaid expenses - 13,432 13,432 1,183,184 Inventory - - - 65,932 Total current assets 2,410,569 143,104 2,553,673 4,606,222 Noncurrent Assets: Net capital assets: Land 65,908 - 65,908 - Depreciable capital assets 903,077 308,735 1,211,812 1,635,614 Total noncurrent assets 968,985 308,735 1,277,720 1,635,614 Total assets 3,379,554 451,839 3,831,393 6,241,836 Current Liabilities: Voucher and accounts payable 315,175 9,801 324,976 494,464 Accrued payroll and payroll taxes 32,141 - 32,141 8,910 Accrued compensated absences 63,539 - 63,539 25,936 Deferred revenue - - - 32,994 Due to other funds - 205 205 1,141,792 Total current liabilities 410,855 10,006 420,861 1,704,096 Noncurrent Liabilities: Landfill post-closure costs 2,020,919 - 2,020,919 - Accrued compensated absences 12,531 - 12,531 - Total noncurrent liabilities 2,033,450 - 2,033,450 - Total liabilities 2,444,305 10,006 2,454,311 1,704,096 Invested in capital assets, net of related debt 968,985 308,735 1,277,720 1,635,614 Unrestricted (33,736) 133,098 99,362 2,902,126 TOTAL NET ASSETS 935,249$ 441,833$ 1,377,082 4,537,740$ Reconciliation to government-wide statements of net assets: Adjustment to reflect the consolidation of Internal Service Funds' activities related to Enterprise Funds 32,728 NET ASSETS OF BUSINESS-TYPE ACTIVITIES 1,409,810$ See accompanying notes to the basic financial statements. -39- Business-type Activities ASSETS LIABILITIES NET ASSETS Funds Service Internal Governmental Activities CITY OF PADUCAH, KENTUCKY STATEMENT OF NET ASSETS PROPRIETARY FUNDS JUNE 30, 2006 Exhibit 8 Nonmajor Solid Enterprise Operating Revenues: Waste Funds Totals Charges for services - internal 3,640,690$ 133,075$ 3,773,765$ 5,323,498$ Charges for services - external - - - 428,879 Miscellaneous 38,134 - 38,134 - Total operating revenues 3,678,824 133,075 3,811,899 5,752,377 Operating Expenses: Cost of sales and service 3,619,779 218,199 3,837,978 5,267,457 Depreciation and amortization 273,234 97,476 370,710 462,636 Total operating expenses 3,893,013 315,675 4,208,688 5,730,093 Operating income (loss)(214,189) (182,600) (396,789) 22,284 Nonoperating Revenues (Expenses): Interest and investment income 85,587 199 85,786 57,332 Gain (loss) on disposal of property and equipment 55,337 - 55,337 8,340 Total nonoperating revenues (expenses)140,924 199 141,123 65,672 Income (loss) before contributions and transfers (73,265) (182,401) (255,666) 87,956 Contributions and Transfers: Capital contributions - 22,894 22,894 - Transfers in - 134,254 134,254 426,700 Transfers out - (18,500) (18,500) - Total contributions and transfers - 138,648 138,648 426,700 Change in net assets (73,265) (43,753) (117,018) 514,656 Total net assets, July 1, 2005, as previously reported 934,941 485,586 4,023,084 Adjustment to beginning net assets (See Note 10)73,573 - - TOTAL NET ASSETS - JUNE 30, 2006 935,249$ 441,833$ 4,537,740$ Reconciliation to government-wide statements of net assets: Adjustment to reflect the consolidation of Internal Service Funds' activities related to Enterprise Funds 17,785 CHANGE IN NET ASSETS OF BUSINESS-TYPE ACTIVITIES (99,233)$ See accompanying notes to the basic financial statements. Internal Service Funds -40- 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, 2006 Governmental Exhibit 9 Nonmajor Solid Enterprise Cash Flows from Operating Activities: Waste Funds Totals Cash received from customers 3,633,088$ 142,232$ 3,775,320$ 5,752,258$ Payments to suppliers (2,232,136) - (2,232,136) (228,836) Payments to employees (949,357) - (949,357) (305,438) Claims paid - - - (3,431,289) Payments to internal service funds (379,607) (4,273) (383,880) - Other receipts (payments)38,134 (189,329) (151,195) (1,327,325) Net cash provided (used) by operating activities 110,122 (51,370) 58,752 459,370 Cash Flows from Noncapital Financing Activities: Transfers (to) from other funds - 115,754 115,754 426,700 Cash Flows from Capital and Related Financing Activities: Capital contributions - 22,894 22,894 - Purchase of capital assets (90,527) (100,127) (190,654) (408,539) Proceeds from sale of capital assets 60,680 - 60,680 8,340 Net cash provided (used) by capital and related financing activities (29,847) (77,233) (107,080) (400,199) Cash Flows from Investing Activities: Proceeds from sale of investment securities 1,440,000 - 1,440,000 1,445,000 Interest on cash and investments 77,144 199 77,343 48,270 Purchase of investments (1,462,354) - (1,462,354) (1,474,806) Net cash provided (used) by investing activities 54,790 199 54,989 18,464 Net increase (decrease) in cash and cash equivalents 135,065 (12,650) 122,415 504,335 Cash and cash equivalents, July 1, 2005 686,988 137,931 824,919 1,131,376 CASH AND CASH EQUIVALENTS, JUNE 30, 2006 822,053$ 125,281$ 947,334$ 1,635,711$ Reconciliation of Operating Income (Loss) to Net Cash Provided by Operating Activities: Operating income (loss) (214,189)$ (182,600)$ (396,789)$ 22,284$ Adjustments to reconcile operating income to net cash provided by operating activities: Depreciation and amortization 273,234 97,476 370,710 462,636 Change in assets and liabilities: Receivables (7,602) 9,157 1,555 (8,679) Prepaid expenses - 17,710 17,710 (15,414) Inventories - - - 2,746 Accounts payable 58,679 6,887 65,566 (4,203) NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES 110,122$ (51,370)$ 58,752$ 459,370$ See accompanying notes to the basic financial statements. -41- Governmental Activities Internal Service Business-type Activities Funds CITY OF PADUCAH, KENTUCKY STATEMENT OF CASH FLOWS PROPRIETARY FUNDS FOR THE YEAR ENDED JUNE 30, 2006 Exhibit 10 Private- Pension purpose Agency Funds Trusts Funds Cash and cash equivalents 316,175$ 5,738$ 606,178$ Receivables: Interest 81,900 - - Prepaid expenses 64,936 - - Investments at fair value 14,046,026 85,760 - Total assets 14,509,037 91,498 606,178 Voucher and accounts payable 896 - - Payroll taxes and withholdings payable - - 606,178 Total liabilities 896 - 606,178$ Held in trust for pension benefits and other purposes 14,508,141$ 91,498$ -$ See accompanying notes to the basic financial statements CITY OF PADUCAH, KENTUCKY STATEMENT OF NET ASSETS FIDUCIARY FUNDS JUNE 30, 2006 NET ASSETS Primary Government -42- ASSETS LIABILITIES Exhibit 11 Private- Pension purpose Additions: Funds Trusts Contributions: Employer 6,219,816$ -$ Plan members 16,075 - Intergovernmental revenues - 10,580 Total contributions 6,235,891 10,580 Investment income: Net increase (decrease) in fair value of investments 366,645 2,514 Interest and dividends 373,988 2,297 Net investment income 740,633 4,811 Total additions 6,976,524 15,391 Deductions: Benefits 1,867,577 - Capital outlay - 8,388 Administrative expenses 80,556 3,763 Total deductions 1,948,133 12,151 Change in net assets 5,028,391 3,240 Net assets, July 1, 2005 9,479,750 88,258 NET ASSETS, JUNE 30, 2006 14,508,141$ 91,498$ 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, 2006 CITY OF PADUCAH, KENTUCKY BASIC FINANCIAL STATEMENTS COMPONENT UNITS FINANCIAL STATEMENTS COMPREHENSIVE ANNUAL FINANCIAL REPORT YEAR ENDED JUNE 30, 2006 Exhibit 12 All Paducah Paducah Paducah Component Water Power Transit Unit Current Assets: Works System Authority Totals Cash and cash equivalents 146,861$ 65,398$ -$ 212,259$ Receivables, net: Accounts 323,864 2,680,184 59,158 3,063,206 Grants - - 167,105 167,105 Other 666,251 304,968 17,888 989,107 Inventories 605,245 1,267,875 49,491 1,922,611 Prepaid expenses - 59,671 - 59,671 Other current assets 1,050,150 - - 1,050,150 Total current assets 2,792,371 4,378,096 293,642 7,464,109 Noncurrent Assets: Investments, restricted 2,576,377 1,878,233 - 4,454,610 Net capital assets: Land and construction in progress 556,106 1,725,219 472,526 2,753,851 Depreciable capital assets 31,067,429 40,746,233 4,086,962 75,900,624 Restricted assets 56,702 - - 56,702 Other assets 66,709 665,456 - 732,165 Total noncurrent assets 34,323,323 45,015,141 4,559,488 83,897,952 Total assets 37,115,694 49,393,237 4,853,130 91,362,061 CITY OF PADUCAH, KENTUCKY STATEMENT OF NET ASSETS COMPONENT UNITS JUNE 30, 2006 ASSETS -44- All Paducah Paducah Paducah Component Water Power Transit Unit Current Liabilities: Works System Authority Totals Voucher and accounts payable 233,745$ 4,124,956$ 185,325$ 4,544,026$ Cash deficit - - 367 367 Line of credit - 1,387,326 99,977 1,487,303 Accrued payables - 460,229 66,817 527,046 Deferred revenue - 774,942 - 774,942 Accrued interest - 153,173 - 153,173 Notes payable due within one year 25,000 - 215,219 240,219 Bonds payable due within one year 950,000 370,000 - 1,320,000 Other current liabilities 908,825 520,553 3,368 1,432,746 Total current liabilities 2,117,570 7,791,179 571,073 10,479,822 Noncurrent Liabilities: Bonds payable 1,842,369 4,461,653 - 6,304,022 Notes payable 165,000 - 239,048 404,048 Other liabilities - 495,469 1,502 496,971 Total noncurrent liabilities 2,007,369 4,957,122 240,550 7,205,041 Total liabilities 4,124,939 12,748,301 811,623 17,684,863 Net Assets: Invested in capital assets, net of related debt 28,707,875 37,639,799 3,627,825 69,975,499 Restricted for: Capital projects - - - - Debt service 1,581,690 1,878,233 - 3,459,923 Unrestricted 2,701,190 (2,873,096) 413,682 241,776 TOTAL NET ASSETS 32,990,755$ 36,644,936$ 4,041,507$ 73,677,198$ 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 6,552,696$ 6,726,647$ -$ 985,871$ Paducah Power System 46,130,501 46,882,028 - - Paducah Transit Authority 5,399,673 3,020,693 1,350,514 439,196 TOTAL COMPONENT UNITS 58,082,870$ 56,629,368$ 1,350,514$ 1,425,067$ General Revenues: Unrestricted investment earnings Gain (loss) on disposal of assets Miscellaneous general Total general revenues and transfers Change in net assets Net assets, July 1, 2005 NET ASSETS, JUNE 30, 2006 See accompanying notes to the basic financial statements Operating Grants and Contributions Capital -46- CITY OF PADUCAH, KENTUCKY STATEMENT OF ACTIVITIES COMPONENT UNITS FOR THE YEAR ENDED JUNE 30, 2006 Grants and Contributions Program Revenues FUNCTIONS/PROGRAMS Paducah Paducah Paducah Water Power Transit Works System Authority Totals 1,159,822$ -$ -$ 1,159,822$ - 751,527 - 751,527 - - (589,270) (589,270) 1,159,822 751,527 (589,270) 1,322,079 111,044 74,855 13,939 199,838 - - (191,913) (191,913) - 33,881 23,955 57,836 111,044 108,736 (154,019) 65,761 1,270,866 860,263 (743,289) 1,387,840 31,719,889 35,784,673 4,784,796 72,289,358 32,990,755$ 36,644,936$ 4,041,507$ 73,677,198$ Net (Expense) Revenue and Changes in Net Assets -47- CITY OF PADUCAH, KENTUCKY NOTES TO THE FINANCIAL STATEMENTS COMPREHENSIVE ANNUAL FINANCIAL REPORT YEAR ENDED JUNE 30, 2006 CITY OF PADUCAH, KENTUCKY NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2006 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, 2006 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, 2006 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. Special Revenue Investment Fund – To account for restricted funds from employee license fee used for economic development, neighborhood redevelopment and infrastructure capital investments within 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. Fiduciary funds report resources held in trust. Pension trust funds report the receipt, investment, and distribution of retirement contributions. Private-purpose trust funds report the receipt and distribution of maintenance trust agreements. (Continued) -50- CITY OF PADUCAH, KENTUCKY NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2006 Note 1 - Summary of Significant Account Policies: Agency fund accounts for the City’s payroll wages, taxes and related withholdings. 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, pension and private-purpose trust 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, pension and private-purpose 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, 2006 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. Deferred revenue The City reports deferred revenue on its statement of net assets. Deferred revenues arise when potential revenue does not meet both the “measurable” and “available” criteria for recognition in the current period. Deferred 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 deferred revenue is removed from the statement of net assets and revenue is recognized. Allocation of Indirect Expenses The City allocates indirect expenses primarily comprised of fleet management services and various self funded insurance coverage provided to departments and employees of the city not directly allocated. Allocations are charged to functions based on use by weighted-average methodology. Budgets and Budgetary Accounting The City legal adopts annual budgets for all governmental and proprietary funds except for Section Eight Housing Fund. 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. (Continued) -52- CITY OF PADUCAH, KENTUCKY NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2006 Note 1 - Summary of Significant Accounting Policies: 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. 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, 2006. 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, grant revenue and interlocal note receivable. 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. (Continued) -53- CITY OF PADUCAH, KENTUCKY NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2006 Note 1 - Summary of Significant Accounting Policies: 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. 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. Capital Assets The accounting treatment over property, plant, and equipment (capital 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, property, plant, and equipment are accounted for as capital assets. All capital assets are valued at historical cost, or estimated historical cost if actual is unavailable, except for donated capital 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 (Continued) -54- CITY OF PADUCAH, KENTUCKY NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2006 Note 1 - Summary of Significant Accounting Policies: Fund Financial Statements In the fund financial statements, capital assets used in governmental fund operations are accounted for as capital outlay expenditures of the governmental fund upon acquisition. Capital assets used in proprietary fund operations are accounted for the same as in the government-wide statements. 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, notes 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. (Continued) -55- CITY OF PADUCAH, KENTUCKY NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2006 Note 1 - Summary of Significant Accounting Policies: 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. 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. (Continued) -56- CITY OF PADUCAH, KENTUCKY NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2006 Note 1 - Summary of Significant Accounting Policies: 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. 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. (Continued) -57- CITY OF PADUCAH, KENTUCKY NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2006 Note 1 - Summary of Significant Accounting Policies: 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 25% of Employee Earning Tax Economic and Capital Development For the year ended June 30, 2006, the City complied, in all material respects, with these revenue restrictions. 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, 2006, 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, 2006, are as follows: Description Date Assessment and enforceable lien January 1, 2005 Levy October 11, 2005 Face value amount payment dates 1st half by November 1, 2005 2nd half by February 1, 2006 Delinquent date - 10% penalty plus 1/2% per month 1st half - November 30, 2005 2nd half - February 28, 2006 (Continued) -58- CITY OF PADUCAH, KENTUCKY NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2006 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. 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, 2006, 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 $9,552,194 and $10,186,764, respectively. Investments As of June 30, 2006, 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) $ 5,149,514 NA $ 5,149,514 $ - $ - $ - Component Units Money Market Funds 921,208 AAA 921,208 - - - Certificates of Deposits 3,533,402 NA 3,533,402 - - - 4,454,610 Total Primary Government And Component Units $ 9,604,124 Fiduciary and Private Purpose Trust Funds Money Market Funds $ 4,002 AAA $ - $ - $ - $ - Certificates of Deposits (3) 225,000 NA 225,000 - - - Common Stock 5,594,311 NA NA NA NA NA Corporate Bonds 1,280,991 AAA/A- 599,085 487,135 194,771 - U.S. Agencies 609,085 AAA 359,582 249,503 - - Mortgage Backed Securities (4) 3,561,825 AAA/AA- 273,337 1,085,874 2,202,614 - Mutual Funds Equity 50,296 NA NA NA NA NA Fixed 31,462 NA NA NA NA NA Index 2,774,814 NA NA NA NA NA Total Fiduciary and Private Purpose Trust Funds $ 14,131,786 (Continued) -59- CITY OF PADUCAH, KENTUCKY NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2006 Note 3 - Detail Notes on Transaction Classes/Accounts: (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) Includes $640,609 of securities callable as of 6/12/06. 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 States 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. (Continued) -60- CITY OF PADUCAH, KENTUCKY NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2006 Note 3 - Detail Notes on Transaction Classes/Accounts: 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. 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, 2006 Note 3 - Detail Notes on Transaction Classes/Accounts: Capital Assets Capital asset activity for the year ended June 30, 2006, was as follows: Primary Government Balance July 1, 2005 Additions Deductions Balance June 30, 2006 Capital assets, not being depreciated: Land $ 5,420,685 $ 1,890 $ 102,300 $ 5,320,275 Construction in Progress 3,641,595 3,798,050 3,494,194 3,945,451 Total capital assets, not being depreciated: 9,062,280 3,799,940 3,596,494 9,265,726 Capital assets, being depreciated: Land improvements 1,954,953 - - 1,954,953 Building and improvements 17,157,849 987,673 221,935 17,923,587 Infrastructure 28,163,073 1,393,063 - 29,556,136 Equipment 6,005,625 1,373,871 - 7,379,496 Furnishings and fixtures 241,855 - - 241,855 Vehicles 6,785,259 399,031 68,266 7,116,024 Totals at historical cost 60,308,614 4,153,638 290,201 64,172,051 Less: Accumulated depreciation Land improvements 971,552 42,824 - 1,014,376 Buildings and improvements 10,545,044 327,722 52,930 10,819,836 Infrastructure 11,295,951 1,998,679 - 13,294,630 Equipment 5,307,457 488,436 - 5,795,893 Furnishings and fixtures 233,476 1,267 - 234,743 Vehicles 5,090,379 469,810 68,266 5,491,923 Total accumulated depreciation 33,443,859 3,328,738 121,196 36,651,401 Total capital assets, being depreciated, net: $26,864,755 $ 824,900 $ 169,005 $ 27,520,650 Primary Government Activities Capital Assets – Net $35,927,035 $ 4,624,840 $ 3,765,499 $ 36,786,376 Business-type Activities: Balance July 1, 2005 Additions Deductions Balance June 30, 2006 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, 2006 Note 3 - Detail Notes on Transaction Classes/Accounts: Business-type Activities: Balance July 1, 2005 Additions Deductions Balance June 30, 2006 Capital assets, being depreciated: Building and improvements 336,827 92,427 - 429,254 Equipment 2,125,753 7,699 - 2,133,452 Vehicles 2,223,817 90,527 149,593 2,164,751 Totals at historical cost 4,686,397 190,653 149,593 4,727,457 Less: Accumulated depreciation Buildings and improvements 150,285 11,879 - 162,164 Equipment 1,905,336 116,790 - 2,022,126 Vehicles 1,233,566 242,041 144,252 1,331,355 Total accumulated depreciation 3,289,187 370,710 144,252 3,515,645 Total capital assets, being depreciated, net: $ 1,397,210 $ (180,057) $ 5,341 $ 1,211,812 Business - Type Activities Capital Assets – Net $ 1,463,118 $ (180,057) $ 5,341 $ 1,277,720 Depreciation expense was charged to governmental activities as follows: General government: General administration $ 173,889 Finance 2,901 Planning 13,117 Human rights - Personnel 1,188 Information systems 3,931 Fleet maintenance 8,437 Total general government 203,463 Public safety: Police 112,960 Fire 29,451 Grants 149,670 Emergency 911 36,966 Court awards 19,147 Fleet Lease Trust 454,199 Total public safety 802,393 Public service: Public works 76,110 Engineering 167,829 Total public service 243,939 (Continued) -63- CITY OF PADUCAH, KENTUCKY NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2006 Note 3 - Detail Notes on Transaction Classes/Accounts: Parks and recreation $ 78,394 Planning and development: Infrastructure 1,998,678 Grants 1,871 Total planning and development 2,000,549 Total Depreciation Expense – Governmental Activities $ 3,328,738 Depreciation expense was charged to business-type activities as follows: Solid Waste Fund $ 273,234 Civic Center 11,260 TISA Fund 86,216 Total Depreciation Expense – Business-Type Activities $ 370,710 Discretely Presented Component Units: Balance July 1, 2005 Additions Deductions Balance June 30, 2006 Capital assets, not being depreciated: Land $ 1,878,096 $ - $ - $ 1,878,096 Construction in Progress 1,110,471 - 234,716 875,755 Total capital assets, not being depreciated: 2,988,567 - 234,716 2,753,851 Capital assets, being depreciated: Building and improvements 1,668,226 4,600 - 1,672,826 Equipment 5,121,710 658,935 1,048,271 4,732,374 Utility Plant 118,230,531 5,623,683 865,607 122,988,607 Totals capital assets, being depreciated: 125,020,467 6,287,218 1,913,878 129,393,807 Less: Accumulated depreciation: Buildings and improvements 325,611 107,308 - 432,919 Equipment 2,024,547 691,250 830,478 1,885,319 Utility plant 48,318,925 3,752,146 896,126 51,174,945 Total accumulated depreciation 50,669,083 4,550,704 1,726,604 53,493,183 Total capital assets, being depreciated, net: 74,351,384 1,736,514 187,274 75,900,624 Component Units Capital Assets – Net $77,339,951 $ 1,736,514 $ 421,990 $ 78,654,475 (Continued) -64- CITY OF PADUCAH, KENTUCKY NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2006 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 $ 1,250,671 Paducah Power System 2,501,475 Paducah Transit Authority 798,558 TOTAL DEPRECIATION EXPENSE BY ACTIVITY $ 4,550,704 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, 2006, the governmental long-term debt consisted of the following: General obligation bonds: Current portion $ 600,000 Noncurrent portion 18,310,000 TOTAL GENERAL OBLIGATION BOND COSTS $18,910,000 Note payable: Current portion $ 184,767 Noncurrent portion 3,134,459 TOTAL NOTE PAYABLE PAYMENTS $ 3,319,226 Accrued compensated absences: Current portion $ 476,839 Noncurrent portion 1,377,642 TOTAL ACCRUED COMPENSATED ABSENCES $ 1,854,481 (Continued) -65- CITY OF PADUCAH, KENTUCKY NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2006 Note 3 - Detail Notes on Transaction Classes/Accounts: Business-type Activities As of June 30, 2006, the long-term debt payable from proprietary fund resources consisted of the following: Accrued compensated absences: Current portion $ 63,539 Noncurrent portion 12,531 TOTAL ACCRUED COMPENSATED ABSENCES $ 76,070 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. Principal and interest payments prior to September 1, 2007, on the bonds are being split evenly between the City and the County. After September 1, 2007, the City and County will share 2.031% of the bond payments with the remaining amount being made from a sublease with Infiniti Plastic Technologies, Inc. Series 2005 Bond Issue - The City of Paducah issued general obligation bonds of $6,100,000 in November, 2005, to finance the police and firefighter’s pension fund estimated actuary liability. Interest rate is fixed at 5.35%. 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. (Continued) -66- CITY OF PADUCAH, KENTUCKY NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2006 Note 3 - Detail Notes on Transaction Classes/Accounts: 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. 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, 2006: Amounts Beginning Ending Due within Type of Debt: Balance Additions Reductions Balance One Year Governmental activities: General obligation bonds: Convention and Arts Center $ 8,380,000 $ - $ 250,000 $ 8,130,000 $ 260,000 Infiniti Media Building 4,840,000 - 160,000 4,680,000 165,000 Pension - 6,100,000 - 6,100,000 175,000 Notes payable: Kentucky League of Cities 3,247,853 - 137,412 3,110,441 137,411 Kentucky Association of Counties 105,421 - 24,136 81,285 24,856 Kentucky Association of Counties 150,000 - 22,500 127,500 22,500 Accrued compensated absences 1,783,453 504,714 433,686 1,854,481 476,839 TOTAL GENERAL LONG- TERM DEBT $18,506,727 $6,604,714 $1,027,734 $ 24,083,707 $ 1,261,606 Business-type activities: Accrued compensated absences $ 78,784 $ 54,039 $ 56,753 $ 76,070 $ 63,539 (Continued) -67- CITY OF PADUCAH, KENTUCKY NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2006 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, 2006, are as follows: Year Ending June 30 Principal Interest 2007 $ 788,942 $ 1,022,105 2008 826,485 991,496 2009 856,680 958,353 2010 866,856 923,678 2011 902,092 886,485 2012-2016 5,038,705 3,815,009 2017-2021 6,379,741 2,535,852 2022-2026 6,569,725 883,504 TOTALS $ 22,229,226 $ 12,016,482 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, 2006, are as follows: Governmental Activities Business-type Activities Accrued sick leave $ 783,149 $ 26,685 Accrued vacation leave 942,056 43,978 Applicable payroll taxes 129,276 5,407 Totals 1,854,481 76,070 Less current portion 476,839 63,539 LONG-TERM PORTION $ 1,377,642 $ 12,531 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, 2006, 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. The City reduces the liability annually for reimbursements to the County 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, 2006 Note 3 - Detail Notes on Transaction Classes/Accounts: Interfund Transactions and Balances Interfund transfers during the year ended June 30, 2006, were as follows: Governmental Funds: Interfund Transfers In Interfund Transfers Out General Fund $ 9,132 $ 9,058,709 Capital Project Fund 2,725,132 328,595 Capital Investment Fund 1,632,230 3,272,098 Nonmajor Governmental Funds 1,667,576 21,778 Internal Service Funds 426,700 - Fiduciary Funds: Appointive Employee Pension Fund 75,000 - Police and Firefighters’ Pension Fund 6,029,656 - Proprietary Funds: Nonmajor Proprietary Funds 134,254 18,500 TOTALS $12,699,680 $ 12,699,680 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, 2006: Due From Due To General Fund $1,604,987 $ 946,366 General Capital Improvements Fund 240,018 - Special Revenue Investment Fund 944,058 621,729 Nonmajor Governmental Funds 69 79,040 Nonmajor Enterprise Funds - 205 Internal Service Funds - 1,141,792 TOTALS $2,789,132 $2,789,132 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, 2006 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, 2006 June 30, 2005 June 30, 2004 Beginning NPO balance $ - $ - $ - ARC 719,348 953,044 811,401 Pension cost 719,348 953,044 811,401 Less actual contribution 6,144,816 953,044 811,401 Net change in NPO (5,425,468) - - ENDING NPO BALANCE $ (5,425,468) $ - $ - PERCENTAGE OF PENSION COST CONTRIBUTED 854% 100% 100% (Continued) -70- CITY OF PADUCAH, KENTUCKY NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2006 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, 2006 Assets: Cash and cash equivalents $ 201,833 Receivables 78,330 Prepaid expenses 63,015 Investment at fair value 13,821,026 Total assets 14,164,204 Liabilities: Voucher and accounts payable 706 Net Assets: Held in trust for pension benefits and other purposes $ 14,163,498 Statement of Changes in Net Assets Police and Firefighters’ Retirement Fund For the Year Ended June 30, 2006 Additions: Employer contributions $ 6,144,816 Plan members’ contributions 16,075 Total contributions 6,160,891 Investment earnings: Net increase in fair value of investments 366,645 Interest and dividends 361,292 Net investment earnings 727,937 Total additions 6,888,828 Deductions: Benefits 1,803,875 Administrative expenses 72,317 Total deductions 1,876,192 Change in net assets 5,012,636 Net assets, July 1, 2005 9,150,862 NET ASSETS, JUNE 30, 2006 $ 14,163,498 (Continued) -71- CITY OF PADUCAH, KENTUCKY NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2006 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, 2006. 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, 2006 June 30, 2005 June 30, 2004 Beginning NPO balance $(246,269) $(212,055) $(198,365) ARC 17,182 26,328 48,339 Interest on NPO (14,776) (12,723) (11,902) Unfunded ARC adjustment 31,566 27,181 25,426 Pension cost 33,972 40,786 61,863 Less actual contribution 75,000 75,000 75,553 Net change in NPO (41,028) (34,214) (13,690) ENDING NPO BALANCE $(287,297) $(246,269) $(212,055) PERCENTAGE OF PENSION COST CONTRIBUTED 221% 184% 122% The financial statements for the Appointive Employees’ Pension Fund are as follows: Statement of Fiduciary Net Assets Appointive Employees’ Pension Fund June 30, 2006 Assets: Cash and cash equivalents $ 114,342 Receivables 3,570 Prepaid expenses 1,921 Investment at fair value 225,000 Total assets 344,833 Liabilities: Voucher and accounts payable 190 Net Assets: Held in trust for pension benefits and other purposes $ 344,643 (Continued) -72- CITY OF PADUCAH, KENTUCKY NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2006 Note 4 - Pension Plans - City of Paducah: Statement of Changes in Net Assets Appointive Employees’ Pension Fund For the Year Ended June 30, 2006 Additions: Interest and dividends $ 12,696 Employer contributions 75,000 Total additions 87,696 Deductions: Benefits 63,702 Administrative expenses 8,239 Total deductions 71,941 Change in net assets 15,755 Net assets, July 1, 2005 328,888 NET ASSETS, JUNE 30, 2006 $ 344,643 Contribution Information A summary of actuarial assumptions at June 30, 2006, the date of the latest actuarial valuation is as follows: PFPF AEPF Valuation date 7/1/06 7/1/06 Actuarial cost method Entry age normal Aggregate (1) Amortization method Level dollar closed Level dollar closed Remaining amortization period 26 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, 2006 Note 4 - Pension Plans - City of Paducah: Membership Information Membership of each plan consisted of the following at June 30, 2006: PFPF AEPF Active participants 3 - Beneficiaries 37 8 Retired participants 51 3 TOTAL PARTICIPANTS 91 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, 2006, 2005 and 2004, the City contributed 25.01%, 22.08%, and 18.51%, respectively, of each hazardous employee’s creditable compensation and 10.98%, 8.48%, and 7.34%, 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, 2006, 2005 and 2004, were $3,460,797, $2,963,431, and $2,387,011, 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, 2006. Note 6 - Component Unit Long-Term Debt: Long-term debt of the discretely presented component units consists of the following at June 30, 2006: 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, 2006 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 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 (177,631) - (177,631) TOTALS $2,792,369 $267,415 $3,059,784 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, 2006, are as follows: Year Ending June 30 Principal Interest Fee (0.2%) Total 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 30,000 4,521 180 34,701 2012-2016 60,000 4,626 180 64,806 TOTALS $190,000 $38,014 $1,580 $229,594 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, 2006 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 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 435,000 142,083 577,083 2012-2016 2,450,000 431,620 2,881,620 2017-2021 550,000 23,375 573,375 TOTALS $5,005,000 $1,328,818 $6,333,818 Bonds payable totaling $4,831,653 are recorded net of $173,347 unamortized bond discount and advance refunding deferred charges. Notes Payable, Kentucky Association of Counties (KACO) – Paducah Transit Authority On February 13, 2004 and August 12, 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 4.25%. As of June 30, 2006, the outstanding balance was $270,947 and $173,206, respectively. On November 30, 2005, Transit Authority of the City of Paducah entered into an interest free agreement with the Sandy Valley Transportation Services, Inc. The balance outstanding as of June 30, 2006 was $10,114. 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 2007 $ 215,219 $ 10,893 $ 226,112 2008 32,873 9,531 42,404 2009 33,877 8,109 41,986 2010 34,912 6,549 41,461 2011 35,979 5,142 41,121 2012-2016 101,407 6,014 107,421 TOTALS $ 454,267 $ 46,238 $ 500,505 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, 2006 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, 2006, the construction commitments were as follows: Cumulative Costs Incurred Estimated Costs Stormwater Phase II $ 30,458 $ 66,500 Pecan Drive/Buckner Land Roadway Improvement Project Funding provided by Kentucky Department of Transportation 2,114,894 4,028,927 Street Resurfacing Program 211,088 860,795 $2,356,440 $4,956,222 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 - 2005 – 2006 - 23,829 23,829 - (Continued) -77- CITY OF PADUCAH, KENTUCKY NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2006 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 $454,000 at June 30, 2006. 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 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 2005 - 2006 413,000 2,853,645 2,812,645 454,000 During the fiscal year ending June 30, 2006, several current and former firefighters of the City of Paducah filed a lawsuit for unpaid compensation benefits and related pension obligations. The range of possible financial exposure for the City is zero to six million dollars. The City intends to vigorously defend the case. In addition, 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. (Continued) -78- CITY OF PADUCAH, KENTUCKY NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2006 Note 9 - Lease Agreements: The City also leases certain other property to various lessees under non-cancelable agreements that have various expiration dates through June 30, 2011. Rental revenue received from leased property during 2006 totaled $391,292. The following is an analysis of property leased under these leases at June 30, 2006: Land $ 606,350 Buildings 3,422,262 Equipment 110,126 Total 4,138,738 Less: accumulated depreciation 811,127 NET BOOK VALUE $ 3,327,611 Depreciation expense for the year ended June 30, 2006, on leased property was $71,755. The following is a schedule of future minimum rental income from operating leases at June 30, 2006: Lease Income 2007 $ 434,185 2008 776,106 2009 843,739 2010 843,739 2011 336,151 TOTAL MINIMUM LEASE RECEIPTS $ 3,233,920 Note 10 – Reclassification of Beginning Fund Balance: Business-type Activities During the previous year, the City had not recorded receivables for refuge collections earned as of June 30th. Accordingly, a reclassification was made to the beginning fund balance as follows: Solid Waste Fund June 30, 2005, balance as previously reported $ 934,941 Fund balance adjustment 73,573 July 1, 2005, balance as restated $ 1,008,514 (Continued) -79- CITY OF PADUCAH, KENTUCKY NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2006 Note 11 – Subsequent Event Subsequent to the fiscal year ended June 30, 2006, the City was awarded $5.3 million in federal grant funds for renovations and redevelopment of the downtown riverfront. Costs of the first phase of renovations and redevelopment are estimated to be approximately $13 million. -80- CITY OF PADUCAH, KENTUCKY REQUIRED SUPPLEMENTARY INFORMATION COMPREHENSIVE ANNUAL FINANCIAL REPORT YEAR ENDED JUNE 30, 2006 Exhibit A-1 CITY OF PADUCAH, KENTUCKY REQUIRED SUPPLEMENTARY INFORMATION PENSION TRUST FUNDS SCHEDULES Schedules of Funding Progress Actuarial Actuarial Unfunded Annual UAAL as a Actuarial Value of Accrued AAL Funded Covered Percentage of Valuation Assets Liability (AAL) (UAAL) Ratio Payroll Covered Payroll Date (a) (b) (b-a) (a/b) (c) ((b-a)/c) Police and Firefighters’ Pension Fund (PFPF) (Using Entry Age Normal Method) 7/1/2001 11,346,128 15,724,236 4,378,108 72.2 356,406 1228.40 7/1/2002 10,382,216 15,550,968 5,168,752 66.8 356,304 1450.66 7/1/2003 9,460,720 15,334,484 5,873,764 61.7 320,782 1831.08 7/1/2004 9,352,299 15,204,717 5,852,418 61.5 287,923 2032.63 7/1/2005 9,150,861 15,310,380 6,159,519 59.8 198,307 3,106.05 7/1/2006 14,163,498 14,527,020 363,522 97.5 165,414 219.76 Appointive Employees’ Pension Fund (AEPF) (Using Aggregate Actuarial Method) The Aggregate Cost Method is used for the AEPF; therefore, a schedule of funding progress is not required. Schedules of Employer Contributions PFPF Year Ended June 30 Annual Required Contribution (ARC) Percent ARC Contributed Ending Net Pension Obligation (NPO) 2001 865,026 100 - 2002 806,632 100 - 2003 645,773 100 - 2004 811,401 100 - 2005 953,044 100 - 2006 719,348 854 (5,425,468) AEPF Year Ended June 30 Annual Required Contribution (ARC) Percent ARC Contributed Ending Net Pension Obligation (NPO) 2001 62,029 121 (182,940) 2002 59,297 126 (186,170) 2003 50,112 150 (198,365) 2004 48,339 156 (212,055) 2005 26,328 285 (246,269) 2006 17,182 437 (287,297) -81- Exhibit A-2 Variance with Final Budget Positive Original Final (Negative) Beginning budgetary fund balance 8,303,702$ 8,303,702$ 8,303,702$ -$ Resources (Inflows): Taxes: Real and personal, current year 4,439,500 4,476,800 4,476,860 60 Real and personal, prior year 111,000 155,000 155,545 545 Franchise 239,000 277,000 277,580 580 Bank taxes 165,000 178,870 178,870 - In lieu of tax payment 150,000 161,860 161,876 16 Penalty, interest and advertising 44,000 44,000 44,792 792 Paducah Junior College tax collections - 282,190 282,192 2 Total taxes 5,148,500 5,575,720 5,577,715 1,995 Licenses: Business licenses 3,675,000 4,065,000 4,065,570 570 Employee earnings 11,374,000 12,118,000 12,118,219 219 Comcast fees 280,000 294,000 294,432 432 Penalties 66,000 59,800 59,827 27 Alcoholic beverages 115,000 125,575 125,625 50 Insurance premium tax 3,934,600 3,863,600 3,863,953 353 Building permits 106,000 137,500 137,934 434 Electrical permits 30,500 28,500 28,518 18 Zoning change fees 4,500 4,500 4,911 411 Miscellaneous building and electrical fees 500 500 531 31 KJDA payroll rebate (77,000) (97,000) (96,571) 429 Total licenses 19,509,100 20,599,975 20,602,949 2,974 Charges for services: Tax collection fee 125,000 117,045 117,071 26 Administrative charge 252,000 252,000 252,000 - Base court revenue 50,000 58,100 58,138 38 Recreation fees 131,500 103,500 103,932 432 Total charges for services 558,500 530,645 531,141 496 (Continued) Amounts CITY OF PADUCAH, KENTUCKY BUDGETARY COMPARISON SCHEDULE (BUDGETARY BASIS) GENERAL FUND FOR THE YEAR ENDED JUNE 30, 2006 ActualBudgeted Amounts -82- Exhibit A-2 (Continued) Variance with Final Budget Actual Positive Grants:Original Final Amounts (Negative) Police State Incentive 300,000$ 272,900$ 272,939$ 39$ Fire State Incentive 276,000 295,000 295,337 337 Paducah Housing Authority after school program 26,000 53,000 53,111 111 Police supplemental grants 30,000 5,600 5,633 33 Total grants 632,000 626,500 627,020 520 Interest 115,000 358,610 358,950 340 Other: Property rent and sales 579,630 589,130 589,285 155 Property upkeep and maintenance 106,300 145,350 145,605 255 Contractual programs 4,000 8,000 8,416 416 E911 - GIS 20,000 21,000 21,222 222 Miscellaneous 318,795 236,145 236,596 451 Total other 1,028,725 999,625 1,001,124 1,499 Other financing sources: Long-term debt issued - 6,100,000 6,100,000 - Operating transfers in - 9,132 9,132 - Total other financing sources - 6,109,132 6,109,132 - Amounts available for appropriation 35,295,527 43,103,909 43,111,733 7,824 Charges to Appropriations (Outflows): General government: General administration: Mayor and Commissioners 181,560 309,465 309,401 64 City Manager 300,310 315,020 314,734 286 City Clerk 158,720 160,065 160,026 39 Corporate Counsel 187,335 164,465 164,411 54 Non-departmental 375,000 426,900 426,832 68 Memberships and contingency 250,075 46,925 46,031 894 Civic beautification 2,450 2,650 2,622 28 Total general administration 1,455,450 1,425,490 1,424,057 1,433 Finance: Finance administration 162,205 171,880 171,858 22 Accounting and payroll 332,895 313,115 313,036 79 Revenue collection 342,640 314,715 314,653 62 Total finance 837,740 799,710 799,547 163 (Continued) -83- BUDGETARY COMPARISON SCHEDULE (BUDGETARY BASIS) Budgeted Amounts GENERAL FUND FOR THE YEAR ENDED JUNE 30, 2006 CITY OF PADUCAH, KENTUCKY Exhibit A-2 (Continued) Variance with Final Budget Actual Positive General government:Original Final Amounts (Negative) Planning: Administration 238,555$ 246,205$ 246,194$ 11$ Planning 229,735 190,750 190,428 322 Grants 113,700 95,330 94,764 566 Economic development 12,500 12,500 12,500 - Total planning 594,490 544,785 543,886 899 Human rights 85,390 85,225 84,356 869 Human resources 309,440 270,470 270,000 470 Inspection: Inspection administration 160,840 161,770 161,676 94 Construction 306,270 291,800 291,677 123 Code enforcement 337,090 345,675 345,671 4 Neighborhood redevelopment - 34,165 33,417 748 Total inspection 804,200 833,410 832,441 969 Information systems 265,480 222,465 222,255 210 Risk management 105,660 109,985 109,889 96 Public safety: Police: Police administration 1,109,855 1,070,875 1,070,527 348 Patrol 5,140,695 5,017,900 5,017,583 317 Investigations 1,330,735 1,211,445 1,211,204 241 Total police 7,581,285 7,300,220 7,299,314 906 Fire: Fire administration 193,050 183,610 183,406 204 Suppression 5,415,590 5,368,545 5,368,358 187 Prevention 188,545 172,455 172,367 88 Training 111,345 108,980 108,875 105 Total fire 5,908,530 5,833,590 5,833,006 584 Public service: Public works: Public Works Administration 214,365 219,165 219,100 65 Street maintenance 2,204,910 1,981,620 1,981,391 229 Street lighting 415,000 448,500 448,389 111 (Continued) Budgeted Amounts GENERAL FUND FOR THE YEAR ENDED JUNE 30, 2006 -84- BUDGETARY COMPARISON SCHEDULE (BUDGETARY BASIS) CITY OF PADUCAH, KENTUCKY Exhibit A-2 (Continued) Variance with Final Budget Actual Positive Public service:Original Final Amounts (Negative) Public works: Facility maintenance 194,745$ 237,540$ 237,457$ 83$ Custodial service 336,065 267,410 266,937 473 Downtown maintenance 278,230 282,560 282,489 71 Landscape maintenance 1,445,000 1,505,865 1,505,818 47 Summer youth program 80,780 70,780 70,354 426 Total public works 5,169,095 5,013,440 5,011,935 1,505 Engineering services: Engineering services 669,670 551,725 551,307 418 Flood control 439,210 388,225 387,732 493 Total engineering services 1,108,880 939,950 939,039 911 Recreation: Recreation administration 585,690 572,520 572,315 205 Pools and recreation 519,860 472,005 471,984 21 Total recreation 1,105,550 1,044,525 1,044,299 226 Other: Cable authority 92,810 63,790 63,467 323 Grant match expense - - - - Leave expense - 67,600 67,531 69 Intergovernmental expense - 282,195 282,192 3 Miscellaneous property expense 88,385 68,885 68,500 385 Total other 181,195 482,470 481,690 780 Other financing uses: Operating transfers out 2,762,435 9,058,709 9,058,709 - Total charges to appropriations 28,274,820 33,964,444 33,954,423 10,021 BUDGETARY FUND BALANCE, JUNE 30, 2006 7,020,707$ 9,139,465$ 9,157,310$ 17,845$ -85- CITY OF PADUCAH, KENTUCKY BUDGETARY COMPARISON SCHEDULE (BUDGETARY BASIS) Budgeted Amounts GENERAL FUND FOR THE YEAR ENDED JUNE 30, 2006 Exhibit A-3 Note A - Explanation of Differences Between Budgetary Inflows and Outflows and GAAP Revenues and Expenditures Sources/inflows of resources: Actual amounts "available for appropriation" from the budgetary comparison schedule 43,111,733$ Differences - budget to GAAP: The beginning fund balance is a budgetary resource, but is not a current year revenue for financial reporting purposes (8,303,702) Proceeds from issuance of long-term debt are inflows of budgetary resources, but are not revenues for financial reporting purposes (6,100,000) Transfers from other funds are inflows of budgetary resources, but are not revenues for financial reporting purposes (9,132) Total revenues as reported on the statement of revenues, expenditures, and changes in fund balances- governmental funds 28,698,899$ Uses/outflows of resources: Actual amounts "total charges to appropriations" from the budgetary comparison schedule 33,954,423$ Differences - budget to GAAP: Transfers to other funds are outflows of budgetary resources, but are not expenditures for financial reporting purposes (9,058,709) Total expenditures as reported on the statement of revenues, expenditures, and changes in fund balances- governmental funds 24,895,714$ CITY OF PADUCAH, KENTUCKY -86- FOR THE YEAR ENDED JUNE 30, 2006 NOTE TO RSI BUDGETARY COMPARISON SCHEDULE GENERAL FUND Exhibit A-4 Variance with Final Budget Positive Original Final (Negative) Beginning budgetary fund balance -$ -$ -$ -$ Resources (Inflows): Licenses: Employee earnings 1,896,000 2,829,600 2,829,616 16 Total licenses 1,896,000 2,829,600 2,829,616 16 Other: Miscellaneous - 3,000 3,015 15 Total other - 3,000 3,015 15 Other financing sources: Long-term debt issued - - - - Operating transfers in 1,302,230 1,632,230 1,632,230 - Total other financing sources 1,302,230 1,632,230 1,632,230 - Amounts available for appropriation 3,198,230 4,464,830 4,464,861 31 Charges to Appropriations (Outflows): General government: Planning and development: Economic development 867,000 473,000 472,962 38 Total planning and development 867,000 473,000 472,962 38 Other financing uses: Operating transfers out 2,331,230 3,272,100 3,272,098 2 Total charges to appropriations 3,198,230 3,745,100 3,745,060 40 BUDGETARY FUND BALANCE, JUNE 30, 2006 -$ 719,730$ 719,801$ 71$ CITY OF PADUCAH, KENTUCKY BUDGETARY COMPARISON SCHEDULE (BUDGETARY BASIS) SPECIAL REVENUE INVESTMENT FUND FOR THE YEAR ENDED JUNE 30, 2006 ActualBudgeted Amounts -87- Amounts Exhibit A-5 Note A - Explanation of Differences Between Budgetary Inflows and Outflows and GAAP Revenues and Expenditures Sources/inflows of resources: Actual amounts "available for appropriation" from the budgetary comparison schedule 4,464,861$ Transfers from other funds are inflows of budgetary resources, but are not revenues for financial reporting purposes (1,632,230) Total revenues as reported on the statement of revenues, expenditures, and changes in fund balances- governmental funds 2,832,631$ Uses/outflows of resources: Actual amounts "total charges to appropriations" from the budgetary comparison schedule 3,745,060$ Differences - budget to GAAP: Transfers to other funds are outflows of budgetary resources, but are not expenditures for financial reporting purposes (3,272,098) Total expenditures as reported on the statement of revenues, expenditures, and changes in fund balances- governmental funds 472,962$ CITY OF PADUCAH, KENTUCKY -88- FOR THE YEAR ENDED JUNE 30, 2006 NOTE TO RSI BUDGETARY COMPARISON SCHEDULE SPECIAL REVENUE INVESTMENT FUND CITY OF PADUCAH, KENTUCKY SUPPLEMENTARY INFORMATION NONMAJOR GOVERNMENTAL FUNDS COMPREHENSIVE ANNUAL FINANCIAL REPORT YEAR ENDED JUNE 30, 2006 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. Downtown Capital Improvements To account for the acquisition or construction of major capital facilities related to the development of downtown Paducah. Exhibit B-1 Court Small CDBG HOPE 3 Awards Grant Grant Grant Fund Fund Fund Fund Cash and cash equivalents 192,686$ 301,848$ 227,140$ 53,348$ -$ 127,397$ Investments 237,451 - - - - - Receivables, net: Accounts - 92,111 - - - - Grants - - - 120,887 - - Interest 5,264 - - - - - Prepaid items - 33,646 - - - - Due from other funds - - - - - - TOTAL ASSETS 435,401$ 427,605$ 227,140$ 174,235$ -$ 127,397$ Liabilities: Voucher and accounts payable 147,875$ 11,182$ 150,566$98$ -$ -$ Accrued payroll and payroll taxes - 22,506 - - - - Deferred revenues - - - 161,475 - - Due to other funds - - - 9,059 - - Total liabilities 147,875 33,688 150,566 170,632 - - Fund Balances: Reserved for: Program purposes - - - 3,603 - 127,397 Unreserved 287,526 393,917 76,574 - - - Total fund balances 287,526 393,917 76,574 3,603 - 127,397 TOTAL LIABILITIES AND FUND BALANCES 435,401$ 427,605$ 227,140$ 174,235$ -$ 127,397$ See auditors report on pages 12-13. -89- Special Revenue Funds FUND BALANCES Aid Program Service Fund Emergency CITY OF PADUCAH, KENTUCKY COMBINING BALANCE SHEET NONMAJOR GOVERNMENTAL FUNDS JUNE 30, 2006 Municipal Communication LIABILITIES AND ASSETS Debt Capital Service Project Home HUD Section Debt Downtown Grant Revolving Eight Service Capital Fund Grant Fund Housing Fund Improvements -$ 238,958$ -$ 551,712$ 32,364$ -$ 1,725,453$ - - - - - - 237,451 - - - - - 1,594 93,705 - - 3,520 - - - 124,407 - - - - - - 5,264 - - - - - - 33,646 - - - - - 69 69 -$ 238,958$ 3,520$ 551,712$ 32,364$ 1,663$ 2,219,995$ -$ 5,580$ -$ 52,176$ -$ 137$ 367,614$ - - - 15,383 - - 37,889 - - - - - - 161,475 - 10,666 3,520 54,269 - 1,526 79,040 - 16,246 3,520 121,828 - 1,663 646,018 - 222,712 - 429,884 - - 783,596 - - - - 32,364 - 790,381 - 222,712 - 429,884 32,364 - 1,573,977 -$ 238,958$ 3,520$ 551,712$ 32,364$ 1,663$ 2,219,995$ -90- Total Nonmajor Funds PHA Special Revenue Funds GovernmentalPolice Grant Fund Exhibit B-2 Court Small CDBG HOPE 3 Awards Grant Grant Grant Revenues: Fund Fund Fund Fund Taxes -$ 626,971$ -$ -$ -$ -$ Charges for services - 122,918 - - - - Intergovernmental 604,882 - - - - - Grants - - - 109,853 12,500 - Interest 17,582 9,878 7,581 - - - Miscellaneous 3,486 216,991 50,710 39,561 - - Total revenues 625,950 976,758 58,291 149,414 12,500 - Expenditures: Current operations: Public safety - 1,166,580 33,335 - - - Public service 1,467,682 - - - - - Planning and development - - - 175,049 12,500 3,364 Capital Outlay - - - - - - Debt Service: Principal requirement - - - - - - Interest and fiscal requirement - - - - - - Total expenditures 1,467,682 1,166,580 33,335 175,049 12,500 3,364 Excess (deficiency) of revenues over expenditures (841,732) (189,822) 24,956 (25,635) - (3,364) Other Financing Sources (Uses): Transfers in 450,000 276,741 - 24,439 - - Transfers out - - - (9,132) - - Total other financing sources (uses) 450,000 276,741 - 15,307 - - Net change in fund balances (391,732) 86,919 24,956 (10,328) - (3,364) Fund balances, July 1, 2005 679,258 306,998 51,618 13,931 - 130,761 FUND BALANCES, JUNE 30, 2006 287,526$ 393,917$ 76,574$ 3,603$ -$ 127,397$ See auditors report on pages 12-13. CITY OF PADUCAH, KENTUCKY FOR THE YEAR ENDED JUNE 30, 2006 NONMAJOR GOVERNMENTAL FUNDS AND CHANGES IN FUND BALANCES COMBINING STATEMENT OF REVENUES, EXPENDITURES Special Revenue Funds Municipal Aid Program Communication Service Fund Emergency -91- Debt Capital Service Project Home HUD Section Debt Downtown Grant Revolving Eight Service Capital Fund Grant Fund Housing Fund Improvements -$ -$ -$ -$ -$ -$ 626,971$ - - - - - - 122,918 - - - - 801,817 - 1,406,699 14,921 - 34,611 2,004,993 - 21,768 2,198,646 - 8,562 - 384 - 6 43,993 - 14,377 - - - - 325,125 14,921 22,939 34,611 2,005,377 801,817 21,774 4,724,352 - - 34,611 - - - 1,234,526 - - - - - - 1,467,682 27,567 130,801 - 1,722,984 - - 2,072,265 - - - - - 12,809 12,809 - - - - 594,047 - 594,047 - - - - 949,537 - 949,537 27,567 130,801 34,611 1,722,984 1,543,584 12,809 6,330,866 (12,646) (107,862) - 282,393 (741,767) 8,965 (1,606,514) 10,666 135,000 - - 764,326 6,404 1,667,576 - (10,666) - - - (1,980) (21,778) 10,666 124,334 - - 764,326 4,424 1,645,798 (1,980) 16,472 - 282,393 22,559 13,389 39,284 1,980 206,240 - 147,491 9,805 (13,389) 1,534,693 -$ 222,712$ -$ 429,884$ 32,364$ -$ 1,573,977$ Funds PHA Police Grant Fund Special Revenue Funds Total Nonmajor Governmental -92- Exhibit B-3 Variance with Final Budget Final Positive Revenues: Budget Actual (Negative) Intergovernmental 604,885$ 604,882$ (3)$ Interest 17,500 17,582 82 Other 3,490 3,486 (4) Total revenues 625,875 625,950 75 Expenditures: Public service 1,467,685 1,467,682 3 Excess (deficiency) of revenues over expenditures (841,810) (841,732) 78 Other Financing Sources (Uses): Operating transfers in 450,000 450,000 - Net change in fund balance (391,810)$ (391,732) 78$ Fund balance, July 1, 2005 679,258 FUND BALANCE, JUNE 30, 2006 287,526$ See auditors report on pages 12-13. -93- FOR THE YEAR ENDED JUNE 30, 2006 CITY OF PADUCAH, KENTUCKY MUNICIPAL AID PROGRAM FUND DETAIL SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL Exhibit B-4 Variance with Final Budget Final Positive Revenues: Budget Actual (Negative) Local contributions 626,900$ 626,971$ 71$ Telephone surcharges 122,900 122,918 18 Interest 9,800 9,878 78 Miscellaneous 216,990 216,991 1 Total revenues 976,590 976,758 168 Expenditures: Public safety 1,166,765 1,166,580 185 Excess (deficiency) of revenues over expenditures (190,175) (189,822) 353 Other Financing Sources (Uses): Operating transfers in 276,741 276,741 - Net change in fund balance 86,566$ 86,919 353$ Fund balance, July 1, 2005 306,998 FUND BALANCE, JUNE 30, 2006 393,917$ See auditors report on pages 12-13. -94- FOR THE YEAR ENDED JUNE 30, 2006 CITY OF PADUCAH, KENTUCKY EMERGENCY COMMUNICATION SERVICE FUND DETAIL SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL Exhibit B-5 Variance with Final Budget Final Positive Revenues: Budget Actual (Negative) Court awarded forfeitures 50,710$ 50,710$ -$ Interest 7,580 7,581 1 Total revenues 58,290 58,291 1 Expenditures: Public safety 33,350 33,335 15 Excess (deficiency) of revenues over expenditures 24,940$ 24,956 16$ Fund balance, July 1, 2005 51,618 FUND BALANCE, JUNE 30, 2006 76,574$ See auditors report on pages 12-13. -95- CITY OF PADUCAH, KENTUCKY COURT AWARDS FUND DETAIL SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL FOR THE YEAR ENDED JUNE 30, 2006 Exhibit B-6 Variance with Final Budget Final Positive Revenues: Budget Actual (Negative) Grants 109,750$ 109,853$ 103$ Other 39,655 39,561 (94) Total revenues 149,405 149,414 9 Expenditures: Planning and development 175,052 175,049 3 Excess (deficiency) of revenues over expenditures (25,647) (25,635) 12 Other Financing Sources (Uses): Operating transfers in 24,439 24,439 - Operating transfers out (9,132) (9,132) - Total other financing sources (uses) 15,307 15,307 - Net change in fund balance (10,340)$ (10,328) 12$ Fund balance, July 1, 2005 13,931 FUND BALANCE, JUNE 30, 2006 3,603$ See auditors report on pages 12-13. -96- FOR THE YEAR ENDED JUNE 30, 2006 CITY OF PADUCAH, KENTUCKY SMALL GRANT FUND DETAIL SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL Exhibit B-7 Variance with Final Budget Final Positive Revenues: Budget Actual (Negative) Grants 12,500$ 12,500$ -$ Expenditures: Planning and development 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, 2005 - FUND BALANCE, JUNE 30, 2006 -$ See auditors report on pages 12-13. -97- FOR THE YEAR ENDED JUNE 30, 2006 CITY OF PADUCAH, KENTUCKY CDBG FUND DETAIL SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL Exhibit B-8 Variance with Final Budget Final Positive Revenues: Budget Actual (Negative) Other -$ -$ -$ Expenditures: Planning and development 3,365 3,364 1 Excess (deficiency) of revenues over expenditures (3,365)$ (3,364) 1$ Fund balance, July 1, 2005 130,761 FUND BALANCE, JUNE 30, 2006 127,397$ See auditors report on pages 12-13. -98- FOR THE YEAR ENDED JUNE 30, 2006 CITY OF PADUCAH, KENTUCKY HOPE 3 IMPLEMENTATION GRANT FUND DETAIL SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL Exhibit B-9 Variance with Final Budget Final Positive Revenues: Budget Actual (Negative) Grants 14,920$ 14,921$ 1$ Total revenues 14,920 14,921 1 Expenditures: Planning and development 27,570 27,567 3 Excess (deficiency) of revenues over expenditures (12,650) (12,646) 4 Other Financing Sources (Uses): Operating transfers in 10,666 10,666 - Total other financing sources (uses) 10,666 10,666 - Net change in fund balance (1,984)$ (1,980) 4$ Fund balance, July 1, 2005 1,980 FUND BALANCE, JUNE 30, 2006 -$ See auditors report on pages 12-13. -99- FOR THE YEAR ENDED JUNE 30, 2006 CITY OF PADUCAH, KENTUCKY HOME GRANT FUND DETAIL SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL Exhibit B-10 Variance with Final Budget Final Positive Revenues: Budget Actual (Negative) Interest 8,560$ 8,562$ 2$ Other 14,380 14,377 (3) Total revenues 22,940 22,939 (1) Expenditures: Planning and development 130,805 130,801 4 Excess (deficiency) of revenues over expenditures (107,865) (107,862) 3 Other Financing Sources (Uses): Operating transfers in 135,000 135,000 - Operating transfers out (10,666) (10,666) - Total other financing sources (uses) 124,334 124,334 - Net change in fund balance 16,469$ 16,472 3$ Fund balance, July 1, 2005 206,240 FUND BALANCE, JUNE 30, 2006 222,712$ See auditors report on pages 12-13. -100- FOR THE YEAR ENDED JUNE 30, 2006 CITY OF PADUCAH, KENTUCKY HUD REVOLVING GRANT FUND DETAIL SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL Exhibit B-11 Variance with Final Budget Final Positive Revenues: Budget Actual (Negative) Grants 34,611$ 34,611$ -$ Expenditures: Public safety 34,611 34,611 - Excess (deficiency) of revenues over expenditures -$ - -$ Fund balance, July 1, 2005 - FUND BALANCE, JUNE 30, 2006 -$ See auditors report on pages 12-13. -101- FOR THE YEAR ENDED JUNE 30, 2006 CITY OF PADUCAH, KENTUCKY PADUCAH HOUSING AUTHORITY POLICE GRANT FUND DETAIL SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL Exhibit B-12 Variance with Final Budget Final Positive Revenues: Budget Actual (Negative) Intergovernmental 801,810$ 801,817$ 7$ Expenditures: Debt service: Principal requirement 594,047 594,047 - Interest and fiscal requirement 949,540 949,537 3 Total expenditures 1,543,587 1,543,584 3 Excess (deficiency) of revenues over expenditures (741,777) (741,767) 10 Other Financing Sources (Uses): Operating transfers in 764,325 764,326 1 Net change in fund balance 22,548$ 22,559 11$ Fund balance, July 1, 2005 9,805 FUND BALANCE, JUNE 30, 2006 32,364$ See auditors report on pages 12-13. -102- FOR THE YEAR ENDED JUNE 30, 2006 CITY OF PADUCAH, KENTUCKY DEBT SERVICE FUND DETAIL SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL Exhibit B-13 Variance with Final Budget Final Positive Revenues: Budget Actual (Negative) Grants 21,765$ 21,768$ 3$ Interest - 6 6 Total revenues 21,765 21,774 9 Expenditures: Capital outlay 12,810 12,809 1 Total expenditures 12,810 12,809 1 Excess (deficiency) of revenues over expenditures 8,955 8,965 10 Other Financing Sources (Uses): Operating transfers in 6,404 6,404 - Operating transfers out (1,980) (1,980) - Total other financing sources (uses) 4,424 4,424 - Net change in fund balance 13,379$ 13,389 10$ Fund balance, July 1, 2005 (13,389) FUND BALANCE, JUNE 30, 2006 -$ See auditors report on pages 12-13. -103- FOR THE YEAR ENDED JUNE 30, 2006 CITY OF PADUCAH, KENTUCKY DOWNTOWN CAPITAL IMPROVEMENT FUND DETAIL SCHEDULE 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, 2006 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 -$ 125,281$ 125,281$ Receivables, net - 4,391 4,391 Prepaid expense - 13,432 13,432 Total current assets - 143,104 143,104 Noncurrent Assets: Net depreciable capital assets 235,564 73,171 308,735 Total assets 235,564 216,275 451,839 Current Liabilities: Voucher and accounts payable 3,407 6,394 9,801 Due to other funds 205 - 205 Total liabilities 3,612 6,394 10,006 Invested in capital assets, net of related debt 235,564 73,171 308,735 Unrestricted (3,612) 136,710 133,098 TOTAL NET ASSETS 231,952$ 209,881$ 441,833$ See auditors report on pages 12-13. CITY OF PADUCAH, KENTUCKY COMBINING STATEMENT OF NET ASSETS NONMAJOR PROPRIETARY FUNDS JUNE 30, 2006 ASSETS LIABILITIES NET ASSETS -104- Total Nonmajor Enterprise Funds Exhibit C-2 Civic Center TISA Operating Revenues: Fund Fund Charges for services 26,378$ 106,697$ 133,075$ Operating Expenses: Cost of sales and service 34,634 183,565 218,199 Depreciation and amortization 11,260 86,216 97,476 Total operating expenses 45,894 269,781 315,675 Operating income (loss) (19,516) (163,084) (182,600) Non-Operating Revenues (Expenses): Interest and investment income 199 - 199 Income (loss) before contributions and transfers (19,317) (163,084) (182,401) Contributions and Operating Transfers: Capital contributions - 22,894 22,894 Transfers in 93,013 41,241 134,254 Transfers out (18,500) - (18,500) Total contributions and operating transfers 74,513 64,135 138,648 Change in net assets 55,196 (98,949) (43,753) Net assets, July 1, 2005 176,756 308,830 485,586 NET ASSETS, JUNE 30, 2006 231,952$ 209,881$ 441,833$ See auditors report on pages 12-13. COMBINING STATEMENT OF REVENUES, EXPENSES CITY OF PADUCAH, KENTUCKY Total Nonmajor Enterprise -105- FOR THE YEAR ENDED JUNE 30, 2006 NONMAJOR PROPRIETARY FUNDS AND CHANGES IN FUND NET ASSETS Funds Exhibit C-3 Civic Center TISA Cash Flows from Operating Activities: Fund Fund Cash received from customers 26,378$ 115,854$ 142,232$ Payments to internal service funds (2,271) (2,002) (4,273) Other receipts (payments) (30,134) (159,195) (189,329) Net cash provided (used) by operating activities (6,027) (45,343) (51,370) Cash Flows from Noncapital Financing Activities: Transfers (to) from other funds 74,513 41,241 115,754 Cash Flows from Capital and Related Financing Activities: Capital contributions - 22,894 22,894 Acquisition and construction of capital assets (92,427) (7,700) (100,127) Net cash used by capital and related financing activities (92,427) 15,194 (77,233) Cash Flows from Investing Activities: Interest on cash and investments 199 - 199 Net increase (decrease) in cash and cash equivalents (23,742) 11,092 (12,650) Cash and cash equivalents, July 1, 2005 23,742 114,189 137,931 CASH AND CASH EQUIVALENTS, JUNE 30, 2006 -$ 125,281$ 125,281$ Reconciliation of Operating Income (Loss) to Net Cash Provided by Operating Activities: Operating income (loss) (19,516)$ (163,084)$ (182,600)$ Adjustments to reconcile operating income (loss) to net cash provided by operating activities: Depreciation and amortization 11,260 86,216 97,476 Change in assets and liabilities: Receivables - 9,157 9,157 Prepaid expense - 17,710 17,710 Accounts payable and accrued expenses 2,229 4,658 6,887 NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES (6,027)$ (45,343)$ (51,370)$ See auditors report on pages 12-13. -106- Total Nonmajor Enterprise Funds CITY OF PADUCAH, KENTUCKY COMBINING STATEMENT OF CASH FLOWS NONMAJOR PROPRIETARY FUNDS FOR THE YEAR ENDED JUNE 30, 2006 CITY OF PADUCAH, KENTUCKY SUPPLEMENTARY INFORMATION INTERNAL SERVICE FUNDS COMPREHENSIVE ANNUAL FINANCIAL REPORT YEAR ENDED JUNE 30, 2006 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 300$ 1,153,937$-$ 481,474$ 1,635,711$ Investments - 1,474,806 - - 1,474,806 Receivables, net - 29,318 - 217,271 246,589 Prepaid expense - - 1,183,184 - 1,183,184 Inventories 65,932 - - - 65,932 Total current assets 66,232 2,658,061 1,183,184 698,745 4,606,222 Noncurrent Assets: Net depreciable capital assets 27,873 1,607,741 - - 1,635,614 Total assets 94,105 4,265,802 1,183,184 698,745 6,241,836 Current Liabilities: Voucher and accounts payable 22,621 - 11,927 459,916 494,464 Accrued payroll and payroll taxes 8,910 - - - 8,910 Accrued compensated absences 25,936 - - - 25,936 Deferred revenue - - - 32,994 32,994 Due to other funds 2,026 - 1,139,766 - 1,141,792 Total current liabilities 59,493 - 1,151,693 492,910 1,704,096 Invested in capital assets, net of related debt 27,873 1,607,741 - - 1,635,614 Unrestricted 6,739 2,658,061 31,491 205,835 2,902,126 TOTAL NET ASSETS 34,612$ 4,265,802$ 31,491$ 205,835$ 4,537,740$ See auditors report on pages 12-13. -107- CITY OF PADUCAH, KENTUCKY COMBINING STATEMENT OF NET ASSETS INTERNAL SERVICE FUNDS JUNE 30, 2006 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 361,383$ 676,884$ 1,228,049$ 3,057,182$ 5,323,498$ Charges for services - external - - - 428,879 428,879 Total operating revenues 361,383 676,884 1,228,049 3,486,061 5,752,377 Operating Expenses: Vehicle maintenance 529,320 - - - 529,320 Administrative - 5,809 - 61,676 67,485 Insurance - - 1,230,076 3,480,182 4,710,258 Leave expense (39,606) - - - (39,606) Depreciation 8,437 454,199 - - 462,636 Total operating expenses 498,151 460,008 1,230,076 3,541,858 5,730,093 Operating income (loss) (136,768) 216,876 (2,027) (55,797) 22,284 Nonoperating Revenues and (Expenses): Interest and investment income - 57,332 - - 57,332 Gain (loss) on disposal of property and equipment - 8,340 - - 8,340 Total nonoperating revenues (expenses) - 65,672 - - 65,672 Income (loss) before transfers (136,768) 282,548 (2,027) (55,797) 87,956 Contributions and Transfers: Transfers in 182,700 244,000 - - 426,700 Change in net assets 45,932 526,548 (2,027) (55,797) 514,656 Net assets, July 1, 2005 (11,320) 3,739,254 33,518 261,632 4,023,084 NET ASSETS, JUNE 30, 2006 34,612$ 4,265,802$ 31,491$ 205,835$ 4,537,740$ See auditors report on pages 12-13. -108- 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, 2006 Exhibit D-3 Health Fleet Lease Insurance Insurance Combined Cash Flows from Operating Activities: Trust Fund Fund Total Receipts from other funds for services 361,383$ 676,884$ 1,228,049$ 3,485,942$ 5,752,258$ Payments to suppliers (228,836) - - - (228,836) Payments to employees (305,438) - - - (305,438) Claims paid - - - (3,431,289) (3,431,289) Other receipts (payments) - (37,600) (1,228,049) (61,676) (1,327,325) Net cash provided (used) by operating activities (172,891) 639,284 - (7,023) 459,370 Cash Flows from Noncapital Financing Activities: Transfers from other funds 182,700 244,000 - - 426,700 Cash Flows from Capital and Related Financing Activities: Proceeds from sale of capital assets - 8,340 - - 8,340 Purchase of capital assets (9,509) (399,030) - - (408,539) Net cash used by capital and related financing (9,509) (390,690) - - (400,199) Cash Flows from Investing Activities: Proceeds from sales and maturities of investments - 1,445,000 - - 1,445,000 Interest and dividends - 48,270 - - 48,270 Purchase of investments - (1,474,806) - - (1,474,806) Net cash used by investing activities - 18,464 - - 18,464 Net increase (decrease) in cash and cash equivalents 300 511,058 - (7,023) 504,335 Cash and cash equivalents, July 1, 2005 - 642,879 - 488,497 1,131,376 CASH AND CASH EQUIVALENTS, JUNE 30, 2006 300$ 1,153,937$-$ 481,474$ 1,635,711$ Reconciliation of Operating Income (Loss) to Net Cash Provided by Operating Activities: Operating income (loss) (136,768)$ 216,876$ (2,027)$ (55,797)$ 22,284$ Adjustments to reconcile operating income (loss) to net cash provided (used) by operating activities: Depreciation and amortization 8,437 454,199 - - 462,636 Change in assets and liabilities: Receivables - - - (8,679) (8,679) Prepaid expense - - (29,202) 13,788 (15,414) Inventories 2,746 - - - 2,746 Accounts payable and accrued expenses (47,306) (31,791) 31,229 43,665 (4,203) NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES (172,891)$ 639,284$ -$ (7,023)$ 459,370$ See auditors report on pages 12-13. -109- Fleet Maintenance CITY OF PADUCAH, KENTUCKY COMBINING STATEMENT OF CASH FLOWS INTERNAL SERVICE FUNDS FOR THE YEAR ENDED JUNE 30, 2006 CITY OF PADUCAH, KENTUCKY SUPPLEMENTARY INFORMATION FIDUCIARY FUNDS COMPREHENSIVE ANNUAL FINANCIAL REPORT YEAR ENDED JUNE 30, 2006 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 201,833$ 114,342$ 316,175$ Receivables: Interest 78,330 3,570 81,900 Prepaid expenses 63,015 1,921 64,936 Investments at fair value 13,821,026 225,000 14,046,026 Total assets 14,164,204 344,833 14,509,037 Voucher and accounts payable 706 190 896 Held in trust for pension benefits and other purposes 14,163,498$344,643$ 14,508,141$ See auditors report on pages 12-13. AppointivePolice and CITY OF PADUCAH, KENTUCKY COMBINING STATEMENT OF FIDUCIARY NET ASSETS FIDUCIARY FUNDS - PENSION TRUST FUNDS JUNE 30, 2006 ASSETS LIABILITIES NET ASSETS -110- Employees' Retirement Fund Pension Fund Firefighters' Exhibit E-2 Additions:Totals Contributions: Employer 6,144,816$ 75,000$ 6,219,816$ Plan members 16,075 - 16,075 Total contributions 6,160,891 75,000 6,235,891 Investment earnings: Net increase in fair value of investments 366,645 - 366,645 Interest and dividends 361,292 12,696 373,988 Net investment earnings 727,937 12,696 740,633 Total additions 6,888,828 87,696 6,976,524 Deductions: Benefits 1,803,875 63,702 1,867,577 Administrative expenses 72,317 8,239 80,556 Total deductions 1,876,192 71,941 1,948,133 Change in net assets 5,012,636 15,755 5,028,391 Net assets, July 1, 2005 9,150,862 328,888 9,479,750 NET ASSETS, JUNE 30, 2006 14,163,498$ 344,643$ 14,508,141$ See auditors report on pages 12-13. -111- FIDUCIARY FUNDS - PENSION TRUST FUNDS FOR THE YEAR ENDED JUNE 30, 2006 COMBINING STATEMENT OF CHANGES IN NET ASSETS CITY OF PADUCAH, KENTUCKY Police and Appointive Retirement Fund Pension Fund Employees'Firefighters' 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 -$ 5,738$ 5,738$ Investments at fair value 85,760 - 85,760 Held in trust for other purposes 85,760$ 5,738$ 91,498$ See auditors report on pages 12-13. JUNE 30, 2006 FIDUCIARY FUNDS - PRIVATE-PURPOSE TRUST FUNDS COMBINING STATEMENT OF NET ASSETS CITY OF PADUCAH, KENTUCKY Maintenance and Rehab Trust -112- ASSETS Exhibit E-4 Oak Grove Cemetery Additions: Trust Totals Contributions: Intergovernmental revenues 2,580$ 8,000$ 10,580$ Total contributions 2,580 8,000 10,580 Investment earnings: Net increase in fair value of investments 2,514 - 2,514 Interest and dividends 2,297 - 2,297 Net investment earnings 4,811 - 4,811 Total additions 7,391 8,000 15,391 Deductions: Capital outlay 4,931 3,457 8,388 Administrative expenses 224 3,539 3,763 Total deductions 5,155 6,996 12,151 Change in net assets 2,236 1,004 3,240 Net assets, July 1, 2005 83,524 4,734 88,258 NET ASSETS, JUNE 30, 2006 85,760$ 5,738$ 91,498$ See auditors report on pages 12-13. COMBINING STATEMENT OF CHANGES IN NET ASSETS CITY OF PADUCAH, KENTUCKY -113- FOR THE YEAR ENDED JUNE 30, 2006 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 323,227$ 12,396,399$ 12,113,448$ 606,178$ Liabilities: Payroll taxes and withholdings payable 323,227$ 12,396,399$ 12,113,448$ 606,178$ See auditors report on pages 12-13. -114- FOR THE YEAR ENDED JUNE 30, 2006 Balance Balance July 1, 2005 June 30, 2006 CITY OF PADUCAH, KENTUCKY AGENCY FUND IN ASSETS AND LIABILITIES STATEMENT OF CHANGES CITY OF PADUCAH, KENTUCKY STATISTICAL SECTION COMPREHENSIVE ANNUAL FINANCIAL REPORT YEAR ENDED JUNE 30, 2006 STATISTICAL SECTION Contents Page Financial Trends 115-119 Revenue Capacity 120-125 Debt Capacity 126-130 Economic and Demographic Information 131-133 Operating Information 134-135 These schedules offer economic and demographic indicators to help the reader understand the environment within which the City's financial activities take place. These schedules contain service and infrastructure data to help the reader understand how the information in the City's financial report relates to the services the City provides and the activities it performs. Sources:Unless otherwise noted, the information in these schedules is derived from the comprehensive annual financial reports for the relevant year. The City implemented the new reporting model in the fiscal year ending June 30, 2003. Schedules presenting government- wide information include information beginning in that year. This part of the City of Paducah's comprehensive annual financial report presents detailed information as a context for understanding what the information in the financial statements, note disclosures, and required supplementary information say about the City's overall financial health. These schedules contain trend information to help the reader understand how the City's financial performance and well-being changed over time. These schedules contain information to help the reader assess the factors affecting the City's ability to generate its property and employee taxes. These schedules present information to help the reader assess the affordability of the City's current levels of outstanding debt and the City's ability to issue additional debt in the future. 2006 2005 (2) 2004 2003 Governmental activities: Invested in Capital Assets, Net of Related Debt 30,664,671$ 29,492,197$ 27,826,117$ 27,955,839$ Restricted for: Program purposes 1,018,231 727,699 714,538 713,766 Capital projects 2,689,804 940,323 4,031,802 3,583,589 Unrestricted 7,718,198 7,419,037 (406,042) 1,571,120 Total governmental activities net assets 42,090,904 38,579,256 32,166,415 33,824,314 Business-type activities: Invested in Capital Assets, Net of Related Debt 1,277,720 1,463,118 1,463,668 1,425,753 Unrestricted 132,090 (27,648) 1,979,494 1,565,100 Total business-type activities net assets 1,409,810 1,435,470 3,443,162 2,990,853 Primary government: Invested in Capital Assets, Net of Related Debt 31,942,391 30,955,315 29,289,785 29,381,592 Restricted for: Program purposes 1,018,231 727,699 714,538 713,766 Capital projects 2,689,804 940,323 4,031,802 3,583,589 Unrestricted 7,850,288 7,391,389 1,573,452 3,136,220 Total primary government net assets 43,500,714$ 40,014,726$ 35,609,577$ 36,815,167$ (1) (2) -115- Fiscal Year The City began to report accrual information when it implemented GASB Statement 34 in fiscal year 2003. Therefore, ten years of data is not available but will be accumulated over time. Significant change in governmental and business-typenet assets due to reclassification for prior year omitted receivables, capital assets and post-closure landfill expenses. (accrual basis of accounting) TABLE 1 NET ASSETS BY COMPONENT CITY OF PADUCAH, KENTUCKY Last Four Fiscal Years (1) Pages 1 of 2 2006 2005 (2) 2004 2003 Expenses Governmental activities: General government 9,057,295$ 8,431,994$ 7,969,027$ 7,396,882$ Public safety 14,592,756 14,620,938 13,243,912 12,964,120 Public service 8,486,662 6,249,860 8,618,901 7,376,791 Parks and recreation 1,044,361 1,045,024 1,026,293 975,362 Planning and development 2,404,636 2,521,412 5,330,393 3,108,192 Interest on long-term debt 974,101 775,122 496,049 428,578 Total governmental activities expenses 36,559,811 33,644,350 36,684,575 32,249,925 Business-type activities: Solid Waste 3,893,013 3,683,954 3,419,464 3,359,731 Civic Center 45,894 39,008 33,181 46,509 TISA 269,781 170,264 184,166 123,719 Total business-type activities expenses 4,208,688 3,893,226 3,636,811 3,529,959 Total primary government expenses 40,768,499$ 37,537,576$ 40,321,386$ 35,779,884$ Program Revenues Governmental activities: Charges for services: General government 1,618,903$ 1,485,005$ 1,601,414$ 1,445,383$ Public safety 767,086 794,814 1,134,386 94,386 Public service 942,355 895,155 986,618 683,119 Parks and recreation 103,932 117,317 132,388 131,355 Planning and development 20,602 13,501 12,893 15,867 Operating grants and contributions 2,988,612 2,452,694 3,290,134 4,176,548 Capital grants and contributions 3,302,568 1,100,064 3,221,637 2,213,757 Total governmental activities program revenues 9,744,058 6,858,550 10,379,470 8,760,415 Business-type activities: Solid Waste 3,696,609 3,583,417 3,790,132 3,298,964 Civic Center 26,378 32,828 36,455 20,825 TISA 106,697 104,087 100,778 93,383 Operating grants and contributions - - - - Capital grants and contributions 22,894 14,735 24,990 3,666 Total business-type activities program revenues 3,852,578 3,735,067 3,952,355 3,416,838 Total primary government program revenues 13,596,636$ 10,593,617$ 14,331,825$ 12,177,253$ Net (Expense)/Revenue Governmental activities (26,815,753)$ (26,785,800)$ (26,305,105)$ (23,489,510)$ Business-type activities (356,110) (158,159) 315,544 (113,121) Total primary government net (expense) (27,171,863)$ (26,943,959)$ (25,989,561)$ (23,602,631)$ TABLE 2 CITY OF PADUCAH, KENTUCKY CHANGES IN NET ASSETS Last Four Fiscal Years (1) (accrual basis of accounting) -116- Fiscal Year Pages 2 of 2 2006 2005 (2) 2004 2003 General Revenues and Other Changes in Net Assets Governmental activities: Taxes and licenses: Property taxes, levied for general purposes 4,107,934$ 3,919,113$ 4,012,168$ 3,893,211$ Insurance premium tax 3,863,953 3,957,289 3,767,864 3,580,964 Gross receipts license tax 3,899,432 3,720,784 3,496,438 3,404,338 Employee license tax 14,794,217 11,192,445 10,616,223 10,301,231 Other taxes 2,105,014 2,116,403 1,764,140 1,893,064 Intergovernmental revenue 1,201,973 955,645 871,273 836,132 Unrestricted investment earnings 462,292 290,647 220,992 325,811 Gain on sale of capital assets 8,340 - (1,972) 125,714 Transfers (115,754) (133,959) (68,964) 18,666 Total governmental activities 30,327,401 26,018,367 24,678,162 24,379,131 Business-type activities: Unrestricted investment earnings 85,786 51,508 32,826 39,530 Gain on sale of capital assets 55,337 27,500 34,975 24,238 Transfers 115,754 133,959 68,964 (18,666) Total business-type activities 256,877 212,967 136,765 45,102 Change in Net Assets Governmental activities:3,511,648 (767,433) (1,626,943) 889,621 Business-type activities:(99,233) 54,808 452,309 (68,019) Total primary government 3,412,415$ (712,625)$ (1,174,634)$ 821,602$ (1) (2)Significant change in governmental and business-typenet assets due to reclassification for prior year omitted receivables, capital assets and post-closure landfill expenses. -117- Fiscal Year The City began to report accrual information when it implemented GASB Statement 34 in fiscal year 2003. Therefore, ten years of data is not available but will be accumulated over time. 2006 2005 (1) 2004 2003 2002 2001 (2) 2000 1999 1998 1997General FundReserved for:Encumbrances -$ -$ -$ -$ -$ -$ -$ -$ 81,043$ 78,898$ Unreserved 9,157,310 8,303,702 4,642,073 4,925,982 4,441,662 4,229,377 3,930,807 4,498,239 5,514,441 5,610,472 Total general fund 9,157,310$ 8,303,702$ 4,642,073$ 4,925,982$ 4,441,662$ 4,229,377$ 3,930,807$ 4,498,239$ 5,595,484$ 5,689,370$ All Other Governmental FundsReserved for:Program purposes 783,596$ 498,423$ 483,423$ 695,213$ 567,096$ 604,021$ 327,925$ 411,956$ 520,769$ 496,976$ Capital improvements 2,689,804 940,323 3,886,391 3,583,589 4,211,718 9,834,405 1,520,510 1,342,071 467,765 388,065 Encumbrances - - - - - - - - 9,537 2,903 Unreserved, reported in:Special revenue funds 758,017 1,039,854 770,453 1,080,043 714,972 1,247,619 1,402,554 825,094 1,254,083 659,980 Debt service funds 32,364 9,805 30,243 46,051 244,724 232,640 935,605 1,050,400 1,127,758 1,198,704 Total all other governmental funds 4,263,781$ 2,488,405$ 5,170,510$ 5,404,896$ 5,738,510$ 11,918,685$ 4,186,594$ 3,629,521$ 3,379,912$ 2,746,628$ (1) Significant increase in general fund balance due to reclassification for prior year omitted license and tax receivables in the amount of $3,870,992. (2) Significant increase in capital improvements fund balance due to $9,290,000 bond issue for convention and arts center construction. -118-Fiscal YearTABLE 3CITY OF PADUCAH, KENTUCKYFund Balances, Governmental FundsLast Ten Fiscal Years (modified accrual basis of accounting) 2006 2005 2004 2003 (1) 2002 2001 (2) 2000 1999 1998 1997Revenues:Taxes 6,204,686$ 6,016,570$ 5,871,229$ 5,773,871$ 5,377,865$ 4,881,408$ 4,659,202$ 4,770,784$ 4,582,205$ 4,710,687$ Licenses 23,432,565 19,368,765 18,423,244 17,900,739 17,299,400 16,705,030 15,970,996 15,584,674 14,985,551 14,007,138 Charges for services 654,059 625,281 668,659 743,826 1,452,732 1,332,280 1,073,577 1,167,741 1,154,319 1,152,628 Intergovernmental 1,529,879 1,192,724 1,029,307 1,186,306 590,372 450,412 428,698 449,686 458,006 435,995 Grants 5,797,500 3,758,041 4,002,721 4,900,775 3,990,245 3,761,900 3,736,837 3,182,544 4,217,395 3,346,149 Interest 402,943 251,302 190,350 316,794 541,277 515,299 485,883 503,275 553,341 571,325 Miscellaneous 1,844,285 1,377,175 3,781,034 1,803,408 963,956 1,110,447 942,077 1,503,984 1,055,444 907,952 Total revenues 39,865,917 32,589,858 33,966,544 32,625,719 30,215,847 28,756,776 27,297,270 27,162,688 27,006,261 25,131,874 Expenditures:General government 4,286,431 4,171,662 3,891,251 3,943,031 3,446,408 3,386,330 3,436,701 4,296,935 3,531,033 3,539,738 Public safety 14,366,846 14,376,161 12,963,685 12,535,382 12,293,481 11,579,654 11,499,408 11,475,934 11,178,439 11,359,363 Public service 7,418,656 5,947,105 6,914,523 5,995,396 7,163,787 5,923,130 4,260,125 5,209,051 4,009,198 4,312,281 Parks and recreation 1,044,299 1,045,024 1,026,297 975,361 897,060 738,401 1,661,562 1,661,119 1,476,446 1,476,238 Planning and development 2,545,227 2,267,774 2,570,473 2,204,395 2,231,628 2,784,725 2,208,864 2,292,407 2,839,121 2,001,739 Other 481,690 462,099 2,343,844 645,653 323,844 99,657 95,082 90,459 141,436 122,961 Capital outlay 5,003,091 4,870,136 10,987,184 4,172,978 7,579,179 3,850,565 2,785,069 2,202,828 1,977,737 524,686 Debt service:Principal requirement 594,047 552,938 428,613 379,229 362,275 140,636 134,295 170,615 150,709 4,119,275 Interest and fiscal requirement 949,537 745,676 471,625 428,578 413,364 25,752 30,536 35,891 46,829 431,669 Total expenditures 36,689,824 34,438,575 41,597,495 31,280,003 34,711,026 28,528,850 26,111,642 27,435,239 25,350,948 27,887,950 Other Financing Sources (Uses):Bonds issued 6,100,000 - 5,000,000 - - 9,104,211 - - - - Long-term debt issued - 275,000 3,500,000 - - - - - - - Transfers in 6,034,070 3,394,420 3,939,188 2,074,459 1,788,462 3,632,867 3,473,339 3,924,453 2,866,960 2,680,771 Transfers out (12,681,180) (4,712,171) (5,295,576) (3,167,686) (3,062,056) (4,966,004) (4,064,491) (4,500,135) (3,816,173) (2,680,771) Total other financing sources (uses) (547,110) (1,042,751) 7,143,612 (1,093,227) (1,273,594) 7,771,074 (591,152) (575,682) (949,213) - Net change in fund balances 2,628,983$ (2,891,468)$ (487,339)$ 252,489$ (5,768,773)$ 7,999,000$ 594,476$ (848,233)$ 706,100$ (2,756,076)$ Capital outlay (2) 3,779,542$ 3,981,143$ 9,144,907$ 1,907,998$ -$ -$ -$ -$ -$ -$ Debt service as a percentageof noncapital expenditures 4.69% 4.26% 2.77% 2.75% 2.86% 0.67% 0.71% 0.82% 0.85% 16.63% (3)(1) The City implemented GASB 34, the new reporting standard, in fiscal year 2003.(2)(3) Significant increase in debt service as a percentage of noncapital expenditures due to the retirement of 1996 public improvement debt.-119-Fiscal YearFor reports after fiscal year 2002, capital outlay is reported on the Reconciliation of the Statement of Revenues, Expenditures, and Changes in Fund Balances of Governmental Funds to the Statement of Activities.(modified accrual basis of accounting)TABLE 4CITY OF PADUCAH, KENTUCKYChanges in Fund Balances, Governmental FundsLast Ten Fiscal Years TotalEstimatedDirectFiscal PersonalActualTax Year CommercialResidential PropertyFranchise TotalValueRate Exemptions1997 418,868,651 341,141,956 394,329,201 53,348,852 1,207,688,660$ 1,262,547,324 0.349 95.7% 54,858,664 1998 447,773,935 366,046,353 399,909,183 49,442,125 1,263,171,596 1,318,865,740 0.348 95.8% 55,694,144 1999 467,467,471 419,904,322 394,507,049 90,087,831 1,371,966,673 1,430,510,601 0.340 95.9% 58,258,356 2000 522,210,835 418,704,093 429,763,712 66,465,568 1,437,144,208 1,497,446,385 0.328 95.9% 59,328,314 2001 558,387,762 435,879,813 479,928,323 69,737,433 1,543,933,331 1,603,816,189 0.329 96.3% 58,908,995 2002 575,900,884 448,383,787 466,849,195 71,286,784 1,562,420,650 1,623,844,461 0.328 96.2% 60,449,948 2003 592,033,879 461,336,810 453,327,389 79,952,984 1,586,651,062 1,647,809,422 0.327 96.3% 60,184,497 2004 602,788,179 484,958,897 438,024,336 73,121,063 1,598,892,475 1,661,522,546 0.326 96.2% 61,656,208 2005 622,478,658 500,350,485 425,304,684 74,460,202 1,622,594,029 1,684,469,469 0.325 96.3% 60,901,557 2006 636,606,837 525,613,365 452,475,748 74,683,129 1,689,379,079 1,750,930,676 0.325 96.5% 61,551,597 Source: McCracken County Property Valuation AdministratorNotes: Property in McCracken County is reassessed once every four years on average.TABLE 5CITY OF PADUCAH, KENTUCKYASSESSED AND ESTIMATED ACTUAL VALUE OF TAXABLE PROPERTYLAST TEN FISCAL YEARSPercentAssessedAssessed Value ToReal EstateEstimatedValue-120- TotalFiscal Real Direct Real Real Real Real Real Year Estate Personal Rate Estate Personal Estate Personal Estate Personal Estate Personal Estate Personal1997 0.327 0.390 0.349 0.043 0.050 0.372 0.372 0.594 0.604 0.032 0.034 0.102 0.131 1998 0.327 0.390 0.348 0.043 0.050 0.372 0.372 0.585 0.607 0.032 0.034 0.103 0.123 1999 0.318 0.390 0.340 0.041 0.050 0.372 0.372 0.598 0.598 0.030 0.034 0.146 0.187 2000 0.300 0.390 0.328 0.040 0.050 0.385 0.385 0.590 0.599 0.029 0.034 0.146 0.187 2001 0.300 0.390 0.329 - - 0.385 0.385 0.597 0.597 0.022 0.022 0.195 0.223 2002 0.300 0.390 0.328 - - 0.385 0.385 0.600 0.603 0.022 0.022 0.196 0.237 2003 0.300 0.390 0.327 - - 0.396 0.396 0.598 0.605 0.022 0.022 0.196 0.221 2004 0.300 0.390 0.326 - - 0.394 0.394 0.617 0.617 0.021 0.021 0.190 0.199 2005 0.300 0.390 0.325 - - 0.448 0.448 0.618 0.619 0.021 0.021 0.196 0.226 2006 0.300 0.390 0.325 - - 0.433 0.433 0.631 0.631 0.020 0.021 0.197 0.236 Source: McCracken County Property Valuation Administrator and City Tax Levy Ordinance.-121-TABLE 6CITY OF PADUCAH, KENTUCKYPROPERTY TAX RATES - DIRECT AND OVERLAPPING GOVERNMENTS(PER $100 OF ASSESSED VALUE)LAST TEN FISCAL YEARSCity Direct Rates Overlapping RatesMcCracken Co. City of Paducah Paducah McCrackenJunior College CountyGeneral Fund Public Library School Districts School Districts (1) (2) Assessed Assessed Taxpayer Valuation Valuation Kentucky Oaks Mall 50,900,262$ 3.13% 44,131,900$ 4.05% Wal-Mart 33,968,895 2.09% 43,140,500 3.96% Amerisource 23,261,290 1.43% 47,771,075 4.38% Lourdes Medical Pavilion 18,686,197 1.15% - Sams East Inc 16,601,600 1.02% - Computer Services, Inc. 15,086,571 0.93% - Ducmall LLC 14,225,000 0.87% - Paducah Medical Investors 13,440,090 0.83% - Lowe's 13,949,835 0.86% 14,459,988 1.33% H.B. Fuller 12,519,145 0.77% 11,689,252 1.07% South Central Bell 29,612,682 2.72% Drury Inns, Inc. 15,545,579 1.43% Smith Development, Inc. 12,500,000 1.15% Citizens Bank & Turst Co. 11,815,719 1.08% Comcast Cable 9,942,815 0.91% TOTALS 212,638,885$ 13.08% 240,609,510$ 22.08% (1) Source - Property Valuation Administration; Assessed value as of January 1, 2006. (2) Source - Property Valuation Administration; Assessed value as of January 1, 1997. TABLE 7 CITY OF PADUCAH, KENTUCKY PRINCIPAL TAXPAYERS CURRENT YEAR AND NINE YEARS AGO 2006 1997 Percentage of Percentage of -122- Total Assessed Total Assessed Valuation Valuation Fiscal (1) Year Taxes Levied (1) Collections Ended for the Amount of in Subsequent Total June 30, Fiscal Year Collections Years Collections 1997 4,361,298$ 4,350,475$ 99.8% 461$ 4,350,936$ 99.8% 1998 4,417,910 4,373,272 99.0% 312 4,373,584$ 99.0% 1999 4,614,749 4,602,800 99.7% 489 4,603,289$ 99.8% 2000 4,428,970 4,384,681 99.0% 998 4,385,679$ 99.0% 2001 4,549,413 4,406,600 96.9% 3,420 4,410,020$ 96.9% 2002 4,679,795 4,532,885 96.9% 6,019 4,538,904$ 97.0% 2003 4,653,264 4,631,782 99.5% 8,935 4,640,717$ 99.7% 2004 4,890,723 4,866,871 99.5% 22,199 4,889,070$ 100.0% 2005 4,765,051 4,725,999 99.2% 39,052 4,765,051$ 100.0% 2006 4,960,947 4,887,983 98.5% - 4,887,983$ 98.5% TABLE 8 CITY OF PADUCAH, KENTUCKY SECURED TAX LEVIES AND COLLECTIONS LAST TEN FISCAL YEARS Collected within the Fiscal Year of the Levy Total Collections to Date Collected Collected -123- Percent of Percent of Levy Levy (1) Includes current year real and personal property tax, franchise, auto and bank shares. (1) Fiscal Taxes Year Collected 1997 7,799,922$ 1.50% 1998 8,657,001 1.50% 1999 8,911,588 1.50% 2000 9,451,473 1.50% 2001 9,603,106 1.50% 2002 9,873,201 1.50% 2003 10,301,231 1.50% 2004 10,616,222 1.50% 2005 11,183,157 1.50% 2006 14,947,835 2.00% (2) 101,344,736$ (1) Source - City of Paducah Finance Department - Actual collections during the fiscal year. (2) Effective October 1, 2005, employee license tax rate increased from 1.5% to 2.0%. TABLE 9 CITY OF PADUCAH, KENTUCKY EMPLOYEE LICENSE TAX COLLECTIONS LAST TEN FISCAL YEARS Direct Tax Rate -124- (1) Taxpayers Number of Percentage Taxes By Range Filers of Total Collected $0 - $50,000 1,603 97.80% 7,462,359$ 54.97% $50,001 - $100,000 19 1.16% 1,326,451 9.77% $100,001 - $500,000 15 0.92% 2,907,406 21.42% Greater than $500,000 2 0.12% 1,879,464 13.84% TOTALS 1,639 100.00% 13,575,680$ 100.00% (1) Source - City of Paducah Finance Department - Actual collections during the fiscal year. * Comparative taxpayers by range information is not available at this time. This information will be presented in future years. TABLE 10 CITY OF PADUCAH, KENTUCKY PRINCIPAL EMPLOYEE LICENSE TAXPAYERS CURRENT YEAR* 2006 Percentage of -125- Total Employee License Tax (1)Net Net Net (2)General PublicPublicRefundingTotalFiscal Obligation ImprovementCapital ImprovementRevenue PrimaryYear Bonds Debt Lease Debt Bonds Government1997 -$ -$ -$ 1,533,052$ 977,732$ 2,510,784$ 0.20 92$ 1998 - - - 1,435,581 792,924 2,228,505 0.17 82 1999 - - - 1,331,220 701,819 2,033,039 0.14 75 2000 - - - - - - - - 2001 9,057,359 - 381,330 - - 9,438,689 0.59 359 2002 8,830,276 - 234,054 - - 9,064,330 0.56 345 2003 8,803,949 - 79,825 - - 8,883,774 0.54 338 2004 13,589,757 3,428,855 - - - 17,018,612 1.02 647 2005 13,210,195 3,503,274 - - - 16,713,469 0.99 635 2006 18,877,636 3,319,227 - - - 22,196,863 1.27 844 Notes: Details regarding the city's outstanding debt can be found in the notes to the financial statements.(1) See Table 5 for estimated actual property value. This ratio is calculated using estimated property value for the prior year.(2) See Table 16 for population data.TABLE 11CITY OF PADUCAH, KENTUCKYRATIO OF OUTSTANDING DEBT BY TYPELAST TEN FISCAL YEARSGovernmental Activities Business Activities Ratio ofNet Value Capita -126-Debt to Net Actual Debt Per (1) Police and Infiniti Less (2)Convention andFire Pension Media ResourcesFiscal Art Center FundBuildingRestricted forYear Bonds Bonds Bonds Debt Service Total1997 -$ -$ -$ -$ -$ - -$ 1998 - - - - - - - 1999 - - - - - - - 2000 - - - - - - - 2001 9,290,000 - - 232,641 9,057,359 0.56 344 2002 9,075,000 - - 244,724 8,830,276 0.54 336 2003 8,850,000 - - 46,051 8,803,949 0.53 335 2004 8,620,000 - 5,000,000 30,243 13,589,757 0.82 517 2005 8,380,000 - 4,840,000 9,805 13,210,195 0.78 502 2006 8,130,000 6,100,000 4,680,000 32,364 18,877,636 1.08 718 Notes: Details regarding the city's outstanding debt can be found in the notes to the financial statements.(2) See Table 16 for population data.Net TABLE 12CITY OF PADUCAH, KENTUCKYRATIO OF NET GENERAL BONDED DEBT OUTSTANDING LAST TEN FISCAL YEARSGeneral Bonded Debt Outstanding Ratio ofNet Bonds to-127-(1) See Table 5 for estimated actual property value. This ratio is calculated using estimated property value for the prior year.Actual Bonds PerValue Capita Estimated (1) Share of Percentage Direct and Net Debt Applicable Overlapping Outstanding to the City Debt City of Paducah 22,196,863$ 100.0% 22,196,863$ Paducah Independent School District 6,530,000 100.0% 6,530,000 McCracken County 12,793,156 45.3% 5,795,300 McCracken County Board of Education 26,566,579 22.7% 6,030,613 Overlapping Debt 45,889,735 18,355,913 Total direct and overlapping debt 68,086,598$ 40,552,776$ (1) -128- 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. TABLE 13 CITY OF PADUCAH, KENTUCKY DIRECT AND OVERLAPPING GOVERNMENTAL ACTIVITIES DEBT AS OF JUNE 30, 2006 Net assessed value 1,689,379,079$ Add exemption 61,551,597 Total assessed value1,750,930,676$ Debt limit - 10% of total assessed value (1) 175,093,068$ Debt outstanding:General obligation bonds outstanding 18,910,000Notes payable 3,319,227Less debt not subject to limit - Gross bonded debt 22,229,227 Less amount available in debtservice funds 32,364 Net bonded indebtedness subjectto limit 22,196,863 Legal Debt Margin 152,896,205$ 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997Debt Limit ########## 168,349,559$ 166,054,868$ 164,683,556$ 162,287,060$ 160,284,233$ 149,647,252$ 143,022,503$ 131,886,574$ 126,254,732$ Total net debt applicable to limit 22,196,863 16,713,469 17,018,612 8,883,774 9,064,330 9,438,689 - - - - Legal debt margin########## 151,636,090$ 149,036,256$ 155,799,782$ 153,222,730$ 150,845,544$ 149,647,252$ 143,022,503$ 131,886,574$ 126,254,732$ Total net debt applicable to the limit as a percentage of debt limit 12.68% 9.93% 10.25% 5.39% 5.59% 5.89% 0.00% 0.00% 0.00% 0.00%CITY OF PADUCAH, KENTUCKYLEGAL DEBT MARGIN INFORMATIONLAST TEN FISCAL YEARSTABLE 14-129-Fiscal Year(1) "Cities shall not be authorized or permitted to incur indebtedness to an amount, including existing indebtedness, in the aggregate exceeding thefollowing named maximum percentages on the value of the taxable propertytherein, 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." (1)Fiscal Gross (2)Year RevenueExpensesPrincipal Interest Total1997 3,479,257 1,917,660 1,561,597 205,000 52,570 257,570 6.06x1998 3,382,994 1,873,558 1,509,436 210,000 45,190 255,190 5.91x1999 3,369,358 2,081,507 1,287,851 110,000 37,105 147,105 8.75x2000 * * * * * * *2001 * * * * * * *2002 * * * * * * *2003 * * * * * * *2004 * * * * * * *2005 * * * * * * *2006 * * * * * * *(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 after 1999 as all assets and liabilities of the Wastewater/Stormwater Fund were transferred to the Paducah-McCracken County Joint Sewer Agency as of July 1, 1999.TABLE 15CITY OF PADUCAH, KENTUCKYSCHEDULE OF SEWER REVENUE BOND COVERAGELAST TEN FISCAL YEARSDebt Service Coverage-130-Net RevenueAvailablefor Debt Service Requirements (1) (1) Personal Income 27,256 324,837,008$ 11,918$ 36.6 3,312 5.8% 27,256 324,837,008 11,918 36.6 3,244 4.6% 27,256 324,837,008 11,918 36.6 3,195 4.1% 27,256 324,837,008 11,918 36.6 3,289 4.4% 26,307 324,837,008 11,918 39.9 3,037 5.0% 26,307 484,496,019 18,417 39.9 2,909 6.3% 26,307 484,496,019 18,417 39.9 2,887 7.2% 26,307 484,496,019 18,417 39.9 2,977 5.8% 26,307 484,496,019 18,417 39.9 2,819 6.4% 26,307 484,496,019 18,417 39.9 2,834 5.7% 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. TABLE 16 CITY OF PADUCAH, KENTUCKY DEMOGRAPHIC AND ECONOMIC STATISTICS LAST TEN FISCAL YEARS (1) (1) (2) (3) Per Capita Median School Unemployment Enrollment Rate 1996-1997 Fiscal Year Population Income Age 1997-1998 1998-1999 1999-2000 2000-2001 2005-2006 -131- 2001-2002 2002-2003 2003-2004 2004-2005 Employer (1) Employees Western Baptist Hospital 1,660 5.55% Lourdes Hospital 1,500 5.01% Paducah Public Schools 600 2.01% Wal Mart 570 1.91% LYNX Services 390 1.30% State of Kentucky 390 1.30% City of Paducah 380 1.27% Paxton Media Group 285 0.95% NRE Acquisitions 280 0.94% West KY Community & Technical College 270 0.90% TOTALS 6,325 21.14% (1) Source – Paducah Area Chamber of Commerce (2) State of Kentucky - Office of Employment and Training. Ratio based on employment within the County of McCracken. * Comparative information is unavailable. TABLE 17 CITY OF PADUCAH, KENTUCKY PRINCIPAL EMPLOYERS CURRENT YEAR* 2006 Percentage of -132- Total Employment (2) 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997Governmental ActivitiesGeneral governmentGeneral administration8777577888Finance 14 14 13 13 13 12 12 12 12 12Planning 11 11 11 11 11 11 12 11 11 9Human resources3433344435Inspection 13 12 12 12 11 14 12 12 11 11Information Systems33332111Risk Management 1 1Public safetyPolice 93 96 94 95 94 95 94 94 83 89Fire 76 75 76 76 77 81 86 86 96 90Public serviceStreets 31 31 30 30 25 29 29 29 30 25Facilities 34 34 34 34 31 29 30 24 25 28Engineering9987788545Other5555855555Parks and recreation5555875545Planning and development11 11 11 11 11 11 12 11 11 9OtherFleet maintenance776667681011Business-type ActivitiesSolid waste 29 29 29 29 27 30 29 29 31 28Sewer/wastewater*******23 24 23Total Primary Government353 354 347 347 339 351 352 367 368 363* This information is not applicable for fiscal years after 1999 as all assets and liabilities of the Wastewater/Stormwater Fund were transferred to the Paducah-McCracken County Joint Sewer Agency as of July 1, 1999.-133-Fiscal YearTABLE 18CITY OF PADUCAH, KENTUCKYCITY FULL-TIME EMPLOYEES BY FUNCTIONLast Ten Fiscal Years 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997General governmentBuilding and electrical permits issued 1,362 1,376********Business licenses issued 3,700*********Public safetyPoliceAdult arrests 3,827*********Murder- *********Rape 15*********Robberies 35*********Burglary 211*********Auto theft 104*********Arson7*********Traffic accidents 1,815*********Traffic violations 7,468*********FireEmergency responses 2,546 3,219 3,638 3,569 2,845 1,665 1,651 937 * *Fires extinguished 181 176 189 198 194 177 247 131 * *Structure fires 53 49 64 70 72 66 69 52 * *Incidents with reported losses 91 97 106 111 129 102 94 60 * *Medical/rescue 1,589 1,997 2,266 2,290 1,551 370 319 40 * *Tours/in-services/training hours 485 485 485 485 468 558 430***Inspections 1,418 1,188 965 1,058 804 1,619 1,625 * * *Refuse collectionResidentialRefuse collected (tons per day) 100*********Customers served 9,368*********Commercial Customers served 801*********Public service911 calls received 167,847 168,712 168,427 173,536 164,661*****Police 76,144 103,500 104,622 110,310 106,244*****Fire 4,168 3,537 3,305 3,387 4,045*****Other 87,535 61,675 60,500 59,839 54,372****** Information not available.-134-Fiscal YearTABLE 19CITY OF PADUCAH, KENTUCKYOPERATING INDICATORS BY FUNCTIONLast Ten Fiscal Years 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997Public safetyPolice Stations1111111111FireStations5555555555Refuse collectionCollection trucksResidential88########Commercial44########Other public worksSanitary sewers (miles)*******125125125Combination sewers (miles)*******565656Storm sewers (miles)*******363636Streets (miles paved) 214 214 213 209 209 209 209 209 209 209Sidewalks (miles) 45 45 45 45 45 45 45 45 41 41Traffic signals 11 11 100000000Parks and recreationParks 14 14 14 20 20 20 13 13 13 13Acreage 280 280 280 320 320 320 230 230 230 230Community centers1111111111Swimming pools1113333333Public tennis courts66666610101010Public golf courses2222222222* This information is not applicable for fiscal years after 1999 as all assets and liabilities of the Wastewater/Stormwater Fund were transferred to the Paducah-McCracken County Joint Sewer Agency as of July 1, 1999.# Information not available. -135-Fiscal YearTABLE 20CITY OF PADUCAH, KENTUCKYCAPITAL ASSET STATISTICS BY FUNCTIONLast Ten Fiscal Years CITY OF PADUCAH, KENTUCKY SINGLE AUDIT SECTION COMPREHENSIVE ANNUAL FINANCIAL REPORT YEAR ENDED JUNE 30, 2006 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 1,722,984$ Passed-through Kentucky Housing Corporation: Public Housing Capital Fund 14.872 N/A 34,611 HOME Investment Partnerships Program 14.239 HR04-0198-01 6,704 Total Department of Housing and Urban Development 1,764,299 Department of Justice: Direct Programs: Edward Byrne Memorial Justice Assistance Grant Program 16.738 2005-DJBX-0259 31,339 Bulletproof Vest Partnership Program 16.607 V1820700150400 2,464 Total Department of Justice 33,803 Department of Agriculture: Passed-through Kentucky Department of Education: Summer Food Service Program for Children 10.559 N/A 45,397 Total Department of Agriculture 45,397 Department of Homeland Security: Passed-through Division of Disaster and Emergency Services: Assistance to Firefighters Grant 97.044 EMW-2005-FG-15498 10,909 97.044 EMW-2005-FG-03666 2,290 Passed-through Kentucky Department of Military Affairs: Homeland Security Grant Program 97.067 M-0624979 9,760 Buffer Zone Protection Plan 97.078 M-05489235 90,852 State Domestic Preparedness Equipment Support Program 97.004 M-03453577 2,025 Total Department of Homeland Security 115,836 (Continued) -136- Expenditures CITY OF PADUCAH, KENTUCKY SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS FOR THE YEAR ENDED JUNE 30, 2006 Federal Grantor/Pass-Through Grantor/ Federal CFDA Pass-Through Program Title: Number Grantor Number Department of the Interior: Passed-through Kentucky Governor's Office of Local Development Outdoor Recreation_Acquisition, Development and Planning 15.916 N/A 93,289 Total Department of the Interior 93,289 Department of Transportation: Direct Programs: Airport Improvement Program 20.106 N/A 110,831 Passed-through Kentucky Governor's Office of Local Development Recreational Trails Program 20.219 N/A 25,034 Occupant Protection 20.602 N/A 4,866 Passed-through to River Heritage Museum Highway Planning and Construction 20.205 N/A 25,364 Total Department of Transportation 166,095 TOTAL EXPENDITURES OF FEDERAL AWARDS 2,218,719$ See accompanying notes to schedule of expenditures of federal awards. Expenditures -137- CITY OF PADUCAH, KENTUCKY SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS FOR THE YEAR ENDED JUNE 30, 2006 Federal Grantor/Pass-Through Grantor/ CITY OF PADUCAH, KENTUCKY NOTES TO THE SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS FOR THE YEAR ENDED JUNE 30, 2006 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 subrecipients as follows: Federal CFDA Amount Program Title Number Provided Paducah Board of Education 10.559 45,397 River Heritage Museum 20.205 25,364 $ 70,761 -138- CITY OF PADUCAH, KENTUCKY SCHEDULE OF FINDINGS AND QUESTIONED COSTS FOR THE YEAR ENDED JUNE 30, 2006 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 Airport Improvement Program 20.106 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 -142-