For Wizard Kim- 9-12

–12MD&A and Statistical Tables.

 

The MD&A for the 2013 City and County of Denver CAFR is included as 

Appendix B

 in this chapter. Following are two tables that have been adapted from the statistical section of the CAFR. Use the MD&A and the provided statistical tables to complete this case.

Required

1. What are the three largest sources of governmental funds revenue? What percentage of the governmental funds revenue is from each of these sources?

1. Sales tax is a large part of Denver’s tax revenue. Using information from the MD&A and trend information from both statistical tables provided, discuss trends in Denver’s sales tax revenues and your projection for sales tax revenues over the next two to three years.

c. What are the three largest sources of governmental funds expenditures? What percentage of the governmental funds expenditures does each of the three sources represent?

1. Compare the growth in the three largest revenue sources to the growth in the three largest expenditure sources over the past 10years. Using the information from the MD&A and the trend information discuss any changes in the overall expenditure growth patterns you have seen and would expect to see over the next two to three years.

IDENTIFY EACH QUESTION-AND-ANSWER IT

 

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Appendix B

Management’s Discussion and Analysis (MD&A)—City and County of Denver

Management of the City and County of Denver (City) offers readers of the basic financial statements this narrative overview and analysis of the financial activities of the City for the fiscal year ended December 31, 2013. Readers are encouraged to consider the information presented here in conjunction with additional information that is furnished in the letter of transmittal. The focus of the information herein is on the primary government.

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FINANCIAL HIGHLIGHTS

1. The City’s assets and deferred inflows of resources exceeded its liabilities at the close of the fiscal year by $3,086,679,000 (net position). Of this amount, $759,165,000 (unrestricted net position) may be used to meet the City’s ongoing obligations.

1. The City’s total net position increased by $188,658,000, or 6.5% from the restated beginning net position as a result of the change in accounting principle – GASB 65, Items Previously Reported as Assets and Liabilities.

1. As of close of the current fiscal year, the City’s governmental funds reported combined ending fund balances of $773,705,000, an increase of $85,460,000 from the prior year. Approximately 25.98% or $201,030,000 of the fund balance (unassigned fund balance) is available for spending at the government’s discretion.

1. At the end of the current fiscal year, unassigned fund balance of the General Fund was $201,030,000 which represents 20.7% of total General Fund expenditures, including transfers out.

1. The City’s total bonded debt increased by $529,930,000 during the year. Increases occurred in the general obligation bonds and revenue bonds.

OVERVIEW OF THE FINANCIAL STATEMENTS

This discussion and analysis is intended as an introduction to the City’s basic financial statements. The basic financial statements comprise three components: 1) government-wide financial statements, 2) fund financial statements, and 3) notes to the basic financial statements. In addition to the basic financial statements, also provided are required and other supplementary information.

Government-wide Financial Statements

The government-wide financial statements are designed to provide readers with a broad overview of the City’s finances, in a manner similar to a private-sector business.

The Statement of Net Position presents information on all of the City’s assets, liabilities, and deferred inflows/outflows of resources, with the difference reported as net position. Over time, increases or decreases in net position may serve as a useful indicator of whether the financial position of the City is improving or deteriorating.

The Statement of Activities reports how the City’s net position changed during the most recent year. All changes in net position are reported as soon as the underlying event giving rise to the change occurs, regardless of the timing of related cash flows. Thus, revenues and expenses are reported in this statement for some items that will only result in cash flows in future fiscal periods (e.g., uncollected taxes and earned but unused vacation and sick leave).

The governmental activities reflect the City’s basic services, including police, fire, public works, sanitation, economic development, culture, and recreation. Sales and property taxes finance the majority of these services.

The business-type activities reflect private sector-type operations, such as Wastewater Management; the Denver Airport System, including Denver International Airport (DIA); and Golf Courses, where fees for services typically cover all or most of the cost of operations, including depreciation.

The government-wide financial statements include not only the City itself (referred to as the primary government), but also other legally separate entities for which the City is financially accountable. Financial information for most of these component units is reported separately from the financial information presented for the primary government itself. A few component units, although legally separate, function essentially as an agency of the City and, therefore, are included as an integral part of the City.

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Fund Financial Statements

A fund is a grouping of related accounts used to maintain control over resources that have been segregated for specific activities or objectives. The City uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. All of the funds of the City can be divided into three categories: governmental funds, proprietary funds, and fiduciary funds.

Governmental funds
 are used to account for essentially the same functions reported as governmental activities in the government-wide financial statements. Governmental fund financial statements focus on near term inflows and outflows of spendable resources, as well as on the balances left at year-end that are available for spending. Consequently, the governmental fund financial statements provide a detailed short-term view that helps the reader determine whether there are more or fewer financial resources that can be spent in the near future to finance the City’s programs. Because this information does not encompass the long-term focus of the government-wide statements, additional information is provided that reconciles the governmental fund financial statements to the government-wide statements explaining the relationship (or differences) between them.

The City maintains 22 individual governmental funds. Information is presented separately in the governmental funds balance sheet and in the governmental funds statement of revenues, expenditures, and changes in fund balances for the General Fund and Human Services special revenue fund, each of which is considered to be a major fund. Data from the other 20 governmental funds are combined into a single aggregated presentation. Individual fund data for these nonmajor governmental funds is provided in the form of combining statements elsewhere in this report.

The City adopts an annual appropriated budget for the General Fund and Human Services special revenue fund. A budgetary comparison schedule has been provided to demonstrate compliance with these budgets for the General Fund and Human Services fund in accordance with U.S. GAAP.

The City maintains two different types of 
proprietary funds:
 enterprise funds and internal service funds. Enterprise funds are used to report the same functions presented as business-type activities in the government-wide financial statements. The City uses enterprise funds to account for its Wastewater Management, Denver Airport System, Environmental Services, and Golf Course funds. Internal service funds are an accounting device used to accumulate and allocate costs internally among the City’s various functions. The City uses internal service funds to account for its fleet of vehicles, workers’ compensation self-insurance, and asphalt plant operations. The internal service funds provide services which predominantly benefit governmental rather than business-type functions. They have been included within governmental activities with an adjustment to reflect the consolidation for internal service fund activities related to the enterprise funds in the government-wide financial statements.

Proprietary funds provide the same type of information as the government-wide financial statements, only in more detail. The proprietary fund financial statements provide separate information for Wastewater Management and the Denver Airport System, both of which are considered to be major funds of the City. Data for the other two enterprise funds and all of the internal service funds are combined into their respective single aggregated presentations. Individual fund data for the nonmajor enterprise funds and all of the internal service funds is provided in the form of combining statements elsewhere in this report.

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The City uses 
fiduciary funds
 to account for assets held on behalf of outside parties, including other governments. When these assets are held under the terms of a formal trust agreement, a private-purpose trust fund is used.

Agency funds generally are used to account for assets that the City holds on behalf of others as their agent. Pension trust funds account for the assets of the City’s employee retirement plans.

Fiduciary funds are not reflected in the government-wide financial statements because the resources of those funds are not available to support the City’s own programs. The accounting used for fiduciary funds is much like that used for proprietary funds.

The 
notes to the basic financial statements
 provide additional information that is essential to a full understanding of the data provided in the government-wide and fund financial statements.

Other information
 in addition to the basic financial statements and accompanying notes is presented in the form of certain required supplementary information concerning the City’s budgetary comparison schedules and the implicit rate subsidy on other postemployment benefits.

The combining statements supplementary information referred to earlier in connection with nonmajor funds, internal service funds, and nonmajor component units are presented immediately following the budgetary comparison required supplementary information.

Government-wide Financial Analysis

As noted earlier, net position may serve over time as a useful indicator of a government’s financial position. In the case of the City, assets and deferred outflows exceeded liabilities and deferred inflows by approximately $3,086,679,000 at the close of the most recent fiscal year.

A portion of the City’s net position, $759,165,000 (24.6%), is unrestricted and may be used to meet the City’s ongoing financial obligations. This portion represents resources that are not restricted by external requirements nor invested in capital assets.

Net position of $1,174,260,000 (38%) reflects investment in capital assets (e.g., land, buildings, infrastructure, machinery, and equipment) less any related debt used to acquire those assets that is still outstanding. The City uses these capital assets to provide services to citizens; consequently, these assets are not available for future spending. Although the City’s investment in its capital assets is reported net of related debt, it should be noted that the resources needed to repay this debt must be provided from other sources since the capital assets themselves cannot be used to liquidate these liabilities.

Net positions of the City also include $1,153,254,000 (37.4%) of restricted net position. These are resources subject to external restrictions as to how they may be used by the City. Table B9-1 reflects the City’s net position (dollars in thousands) as of December 31, 2013 and 2012. Table B9-2 reflects the City’s changes in net position (dollars in thousands) for the years ended December 31, 2013 and 2012.

Governmental activities increased the City’s net position by $153,090,000 for the year ended December 31, 2013. Key elements of the increase are as follows:

1. Property tax and sales and use taxes totaled 85.6% of all tax revenues and 52.7% of all governmental activities’ revenues. Property tax recorded in the governmental funds totaled $331,914,000 for an increase of $44,852,000 (15.6%) while sales and use tax revenues of $539,348,000 were up $44,853,000 (9.1%) compared to 2012, reflecting a moderate growth in the 2013 economy.

1. Investment income decreased by $8,734,000 (77.6%) due to the decrease in interest rates nationally, and a decrease in the unrealized gains for the investment portfolio.

1. Total expenses decreased by $6,788,000 (.5%) primarily due to the cost savings measures developed by the City.

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General government expenses in 2013 were $398,733,000 (26.6%) of total expenses. Public safety expenses were $563,651,000 (37.6%) of total expenses. Public works’ expenses were $92,425,000 (6.2%) of total expenses. Cultural activities were $119,018,000 (7.9%) of total expenses. Human services’ expenses were $114,624,000 (7.7%) of total expenses. The remainder of the governmental activities expenses is comprised of health with $54,453,000 (3.6%), parks and recreation with $29,687,000 (2%), community development with $35,142,000 (2.3%), economic opportunity with $21,218,000 (1.4%), and interest on long-term debt of $70,030,000 (4.7%).

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Business-type activities increased the City’s net position by $35,568,000. Key elements of this modest increase are as follows:

1. Total revenues of $963,136,000 were $29,500,000 (3.2%) higher compared to prior year amounts.

1. Total expenses of $927,293,000 increased by $48,921,000 (5.6%) when compared to the prior year. Wastewater Management expenses in 2013 totaled $105,679,000 (11.4%) of total business-type activities. Denver Airport System expenses totaled $801,786,000 (86.5%) of business-type activities. The remaining $19,828,000 (2.1%) of expenses in business-type activities were related to Environmental Services and Golf activities.

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FINANCIAL ANALYSIS OF THE GOVERNMENT’S FUNDS

As noted earlier, the City uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements.

Governmental Funds

The focus of the City’s governmental funds is to provide information on current year revenues, expenditures, and balances of spendable resources. Such information is useful in assessing the City’s near-term financing requirements. In particular, unassigned fund balance may serve as a useful measure of a government’s net resources available for spending at the end of the fiscal year.

As of December 31, 2013, the City’s governmental funds reported combined ending fund balances of $774,000, an increase of $85,460 in comparison with the prior year. Approximately 26% or $201,030,000 of the total fund balance amount constitutes unassigned fund balance, which is available for spending at the City’s discretion.

The General Fund is the chief operating fund of the City. As of December 31, 2013, unassigned fund balance of the General Fund was $201,030,000, while total fund balance was $287,335,000. As a measure of the General Fund’s liquidity, it may be useful to compare both unassigned fund balance and total fund balance to total fund expenditures. Unassigned fund balance represents 20.7% of total General Fund expenditures, including transfers out, of $971,218,000, while total fund balance represents 29.6% of the same amount.

The total fund balance of the City’s General Fund increased by $60,487,000 (26.7%) during the year ended December 31, 2013. This is a result of recovering revenues following the economic downturn and cost savings measures implemented to reduce overall expenditures.

Almost every revenue source increased slightly in 2013 due to a recovery of the economy. Total General Fund revenues, including transfers in, of $1,031,400,000 increased by $96,045,000 or 10.3%. Certain revenues in the General Fund that increased from 2012 to 2013 include:

1. Sales and use taxes earned were higher by $41,650,000. This increase is primarily attributable to improvements in the economy.

1. Motor Vehicle ownership revenue increased by $1,216,000 as a result of an increase in vehicle registrations.

1. Property taxes were higher by $29,323,000 primarily due to higher collections allowed by TABOR.

1. Licenses and permits revenues increased by $9,010,000 largely due to an increase in construction activity as well as an increase in the value of the activity.

1. Charges for services increased by $5,778,000. Factors contributing to this increase include additional revenue reimbursement from enterprise funds, growth in plan review revenue associated with improvements in local construction activity, and various other fee increases.

1. Fines and forfeitures increased by $1,591,000. Factors contributing to this increase are higher collections in Photo Radar and traffic court fines.

Some revenues in the General Fund decreased from 2012 to 2013, including:

1. Investment income decreased by $2,716,000 due to the investment portfolio securities’ unrealized gains being less at year end than the prior year.

The national and local economies continued to recover in 2013 following the recession of 2009. The City continued to monitor 2013 expenditures. Total General Fund expenditures, including transfers out, increased by $47,022,000, or 5.1%. The primary drivers of this increase are personnel cost increases and transfers out.

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The Human Services special revenue fund had a total fund balance of $40,391,000. This amounts to a net increase in fund balance of $6,950,000 during the current year. The underlying reasons for the change include increased cash and decreased liabilities at year-end when compared to 2012 due to increased property tax revenue resulting from an improving economy.

Proprietary Funds

The City’s proprietary funds provide the same type of information found in the government-wide financial statements, but in more detail.

Total net position of Wastewater Management was $542,618,000 and for the Denver Airport System net position was $573,524,000. Net position for all enterprise funds increased $36,255,000. Other significant factors concerning the finances of the enterprise funds can be found in the discussion of the City’s business-type activities.

GENERAL FUND BUDGETARY HIGHLIGHTS

Differences between the General Fund original budget and the final amended budget include a revision to both the projected revenues and expenditures.

Original revenue estimates for 2013, prepared in the summer of 2012, were based on a gradual growth in the economy. The original projection was for sales and use tax growth of 4.0% above 2012 amounts and an overall growth rate in the General Fund of 3.5% over 2012 revised figures. The revenue forecast, including transfers in, was revised upward by $66,307,000 or 7%, over original projections, during 2013 primarily due to the passage of ballot measure 2A in November 2012. The major revisions by individual revenue type are listed below:

1. Property tax collections were revised up by $32,901,000, or 44.5%, due to restoring credited mills that had been used to stay under TABOR revenue growth limits.

1. The sales and use tax estimate was revised upward by $12,181,000, or 2.6%, due to collections exceeding original growth expectations.

1. The occupational privilege tax estimate was revised upward by $825,000, or 2.0%, to better align with year-to-date collections and projected job growth for the State.

1. Licenses and permitting revenue projections were revised upward by $6,884,000, or 30.2%, due to an increase in construction activity.

1. Transfers in was revised upward by $1,851,000, or 5.3%, to account for additional Convention Center excise tax revenue being transferred to the General Fund.

Differences between the final amended budget and actual revenues and expenditures are briefly summarized in the following paragraph. While the national economy continues to slowly improve, Denver’s economy has performed stronger than anticipated and outperforms the nation.

In 2013, actual General Fund revenues, including transfers in, were approximately $23,757,000 higher than the revised budget for 2013, or 2.3%, primarily due to various revenues performing better than expected. General Fund budget basis expenditures were approximately $17,343,000 less than the final budget. This is due to achieving expected unspent appropriations, due in large part of savings measures put in place to respond to the recession, including compensation savings and equipment replacement deferrals.

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CAPITAL ASSETS AND BONDED DEBT ADMINISTRATION

Capital Assets

The City’s capital assets for its governmental and business-type activities as of December 31, 2013, were $6,611,782,000 (net of accumulated depreciation). This investment in capital assets includes land and land rights, collections, buildings and improvements, equipment and other, park facilities, and, for governmental activities, infrastructure (including streets, alleys, traffic signals, bridges, fiber optic cable, and trails). Infrastructure-type assets of business-type activities are reported as buildings and improvements. The City’s capital assets by type at December 31, 2013 and 2012 are shown in Table B9–3 (dollars in thousands):

Major capital asset activity for the year ended December 31, 2013 included the following:

1. Governmental Activities – The Police Command Vehicle Garage and Justice Center Staff Services Area projects were all placed in service in 2013 as part of the Better Denver Bond projects.

1. Business-type Activities – Additions to the Wastewater Collection system of $14,734,000 occurred in 2013 and Denver Airport System continued construction on the South Terminal Redevelopment Program.

Additional information on the City’s capital asset activity for the year can be found in Note III-D in the notes to basic financial statements.

Bonded Debt

At December 31, 2013, the City had total bonded indebtedness of $5,606,654,000 (excluding GID Bond of $4,920,000). Of this amount, $903,939,000 comprises debt backed by the full faith and credit of the City. The remainder of the City’s debt, $4,702,715,000, represents bonds and commercial paper notes secured by specified revenue sources (i.e., revenue bonds of the Denver Airport System, Wastewater Management, and excise tax revenue bonds). The City has no outstanding commercial paper notes as of December 31, 2013.

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As of December 31, 2013, the City’s general obligation debt is rated AAA by Standard & Poor’s rating agency, Fitch Ratings, and Moody’s Investors Service.

On July 15, 2013, the Airport System issued $326,260,000 and $393,655,000 of Airport System Subordinate Revenue bonds Series 2013A and Series 2013B, respectively, in a fixed rate mode to finance a portion of the costs of the Airports 2013–2018 Capital Program.

Outstanding bonded debt at December 31, 2013, and 2012, is reflected in Table B9–4 (dollars in thousands):

Additional information on the City’s bonded debt for the year can be found in Note III-G in the notes to the basic financial statements.

ECONOMIC FACTORS AND NEXT YEAR’S BUDGET

The original 2014 budget assumes moderate growth in the local economy. The 2014 General Fund original revenues, including transfers in, are projected to be $1,043,457,000, which is an increase of 1.2% from actual 2013 revenues. It is anticipated that 2014 revenues will be revised upward to reflect better than expected performance in 2013 and the early part of 2014. Measures have been taken to have expenditures be in line with anticipated revenues.

It is anticipated that fund balance will increase during 2014 and the City remains committed to growing General Fund reserves.

REQUESTS FOR INFORMATION

This financial report is designed to provide a general overview of the City’s finances for all those with an interest in the government’s finances. Questions concerning the information provided in this report or requests for additional financial information should be addressed to the Controller’s Office, 201 West Colfax Avenue, Department 1109, Denver, CO 80202. The report is available online at 

www.denvergov.org/finance

.

Key Terms

Blended presentation, 355

Component unit, 354

Discrete presentation, 356

Financially accountable, 354

Financial reporting entity, 354

Fiscally dependent, 354

Intra-entity transactions, 372

Joint venture, 357

Jointly governed organizations, 357

Other comprehensive basis of accounting, (OCBOA), 374

Other stand-alone government, 357

Popular reports, 373

Primary government, 353

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Selected References

American Institute of Certified Public Accountants, Codification of Statements on Auditing Standards. New York, 2014.

American Institute of Certified Public Accountants, Audit and Accounting Guide. State and Local Governments. New York, 2014.

Crawford, Michael A. AICPA Practice Aid Series, Applying OCBOA in State and Local Governmental Financial Statements, edited by Leslye Givarz. New York: AICPA, 2003.

Governmental Accounting Standards Board. Codification of Governmental Accounting and Financial Reporting Standards, as of June 30, 2014. Norwalk, CT, 2014.