City of Des Moines

Washington State Auditor’s Office

Financial Statements and Federal Single Audit Report

City of Des Moines King County

Audit Period January 1, 2007 through December 31, 2007

Report No. 75346

Issue Date September 29, 2008

September 29, 2008 Council City of Des Moines Des Moines, Washington Report on Financial Statements and Federal Single Audit Please find attached our report on the City of Des Moines’ financial statements and compliance with federal laws and regulations. We are issuing this report in order to provide information on the City’s financial condition. In addition to this work, we look at other areas of our audit client’s operations for compliance with state laws and regulations. The results of that audit will be included in a separately issued accountability report. Sincerely,

BRIAN SONNTAG, CGFM STATE AUDITOR

Insurance Building, P.O. Box 40021 Olympia, Washington 98504-0021 (360) 902-0370 TDD Relay (800) 833-6388 FAX (360) 753-0646 http://www.sao.wa.gov

Washington State Auditor Brian Sonntag

Table of Contents


January 1, 2007 through December 31, 2007

Federal Summary.......................................................................................................................................... 1

Independent Auditor’s Report on Internal Control over Financial Reporting and on Compliance and Other Matters in Accordance with Government Auditing Standards ........................................ 2

Independent Auditor’s Report on Compliance with Requirements Applicable to its Major Program and Internal Control over Compliance in Accordance with OMB Circular A-133............................. 4

Independent Auditor’s Report on Financial Statements ............................................................................... 6

Financial Section........................................................................................................................................... 8

Federal Summary


January 1, 2007 through December 31, 2007 The results of our audit of the City of Des Moines are summarized below in accordance with U.S. Office of Management and Budget Circular A-133. FINANCIAL STATEMENTS An unqualified opinion was issued on the financial statements of the governmental activities, the business-type activities, each major fund and the aggregate remaining fund information. Internal Control Over Financial Reporting: • Significant Deficiencies: We reported no deficiencies in the design or operation of internal

control over financial reporting that we consider to be significant deficiencies. • Material Weaknesses: We identified no significant deficiencies that we consider to be material

weaknesses. We noted no instances of noncompliance that were material to the financial statements of the City. FEDERAL AWARDS Internal Control Over Major Programs: • Significant Deficiencies: We reported no deficiencies in the design or operation of internal

control over major federal programs that we consider to be significant deficiencies. • Material Weaknesses: We identified no significant deficiencies that we consider to be material

weaknesses. We issued an unqualified opinion on the City’s compliance with requirements applicable to its major federal program. We reported no findings that are required to be disclosed under OMB Circular A-133. Identification of Major Programs: The following was a major program during the period under audit:

CFDA No. Program Title 20.205 Highway Planning and Construction The dollar threshold used to distinguish between Type A and Type B programs, as prescribed by OMB Circular A-133, was $300,000. The City did not qualify as a low-risk auditee under OMB Circular A-133.

____________________________________________________________________________________________________________Washington State Auditor's Office

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Independent Auditor’s Report on Internal Control over Financial Reporting and on

Compliance and Other Matters in Accordance with Government Auditing Standards

City of Des Moines

King County January 1, 2007 through December 31, 2007

Council City of Des Moines Des Moines, Washington We have audited the financial statements of the governmental activities, the business-type activities, each major fund and the aggregate remaining fund information of the City of Des Moines, King County, Washington, as of and for the year ended December 31, 2007, which collectively comprise the City‘s basic financial statements, and have issued our report thereon dated August 28, 2008. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to the financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. INTERNAL CONTROL OVER FINANCIAL REPORTING In planning and performing our audit, we considered the City’s internal control over financial reporting as a basis for designing our auditing procedures for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the City’s internal control over financial reporting. Accordingly, we do not express an opinion on the effectiveness of the City’s internal control over financial reporting. A control deficiency exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect misstatements on a timely basis. A significant deficiency is a control deficiency, or combination of control deficiencies, that adversely affects the City's ability to initiate, authorize, record, process or report financial data reliably in accordance with generally accepted accounting principles such that there is more than a remote likelihood that a misstatement of the City's financial statements that is more than inconsequential will not be prevented or detected by the City's internal control. A material weakness is a significant deficiency, or combination of significant deficiencies, that results in more than a remote likelihood that a material misstatement of the financial statements will not be prevented or detected by the entity’s internal control. Our consideration of internal control over financial reporting was for the limited purpose described in the first paragraph of this section and would not necessarily identify all deficiencies in internal control that might be significant deficiencies or material weaknesses. We did not identify any deficiencies in internal control over financial reporting that we consider to be material weaknesses, as defined above.


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COMPLIANCE AND OTHER MATTERS As part of obtaining reasonable assurance about whether the City’s financial statements are free of material misstatement, we performed tests of the City’s compliance with certain provisions of laws, regulations, contracts and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. This report is intended for the information and use of management, the Council, federal awarding agencies and pass-through entities. However, this report is a matter of public record and its distribution is not limited. It also serves to disseminate information to the public as a reporting tool to help citizens assess government operations.

BRIAN SONNTAG, CGFM STATE AUDITOR August 28, 2008


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Independent Auditor’s Report on Compliance with Requirements Applicable to its Major

Program and Internal Control over Compliance in Accordance with OMB Circular A-133

City of Des Moines


Council City of Des Moines Des Moines, Washington COMPLIANCE We have audited the compliance of the City of Des Moines, King County, Washington, with the types of compliance requirements described in the U.S. Office of Management and Budget (OMB) Circular A-133 Compliance Supplement that are applicable to its major federal program for the year ended December 31, 2007. The City’s major federal program is identified in the Federal Summary. Compliance with the requirements of laws, regulations, contracts and grants applicable to its major federal program is the responsibility of the City’s management. Our responsibility is to express an opinion on the City’s compliance based on our audit. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to the financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and OMB Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations. Those standards and OMB Circular A-133 require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major federal program occurred. An audit includes examining, on a test basis, evidence about the City’s compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Our audit does not provide a legal determination on the City’s compliance with those requirements. In our opinion, the City complied, in all material respects, with the requirements referred to above that are applicable to its major federal program for the year ended December 31, 2007. INTERNAL CONTROL OVER COMPLIANCE The management of the City is responsible for establishing and maintaining effective internal control over compliance with requirements of laws, regulations, contracts and grants applicable to federal programs. In planning and performing our audit, we considered the City’s internal control over compliance with the requirements that could have a direct and material effect on a major federal program in order to determine our auditing procedures for the purpose of expressing our opinion on compliance and to test and report on internal control over compliance, but not for the purpose of expressing an opinion on the


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effectiveness of internal control over compliance. Accordingly, we do not express an opinion on the effectiveness of the City's internal control over compliance. A control deficiency in an entity’s internal control over compliance exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect noncompliance with a type of compliance requirement of a federal program on a timely basis. A significant deficiency is a control deficiency, or combination of control deficiencies, that adversely affects the entity’s ability to administer a federal program such that there is a more than remote likelihood that noncompliance with a type of compliance requirement of a federal program that is more than inconsequential will not be prevented or detected by the entity’s internal control. A material weakness is a significant deficiency, or combination of significant deficiencies, that results in a more than remote likelihood that material noncompliance with a type of compliance requirement of a federal program will not be prevented or detected by the entity’s internal control. Our consideration of internal control over compliance was for the limited purpose described in the first paragraph of this section and would not necessarily identify all deficiencies in internal control that might be significant deficiencies or material weaknesses. We did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses, as defined above. This report is intended for the information of management, the Council, federal awarding agencies and pass-through entities. However, this report is a matter of public record and its distribution is not limited. It also serves to disseminate information to the public as a reporting tool to help citizens assess government operations.



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Independent Auditor’s Report on Financial Statements

City of Des Moines


Council City of Des Moines Des Moines, Washington We have audited the accompanying financial statements of the governmental activities, the business-type activities, each major fund and the aggregate remaining fund information of the City of Des Moines, King County, Washington, as of and for the year ended December 31, 2007, which collectively comprise the City’s basic financial statements as listed on page 8. These financial statements are the responsibility of the City’s management. Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinions. In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, the business-type activities, each major fund and the aggregate remaining fund information of the City of Des Moines, as of December 31, 2007, and the respective changes in financial position and, where applicable, cash flows thereof, and the respective budgetary comparison for the General, Street, Arterial Street and Municipal Capital Improvement funds, for the year then ended in conformity with accounting principles generally accepted in the United States of America. In accordance with Government Auditing Standards, we have also issued our report on our consideration of the City’s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be considered in assessing the results of our audit. The management's discussion and analysis on pages 9 through 19 is not a required part of the basic financial statements but is supplementary information presented for purposes of additional analysis. Such information has not been subjected to the auditing procedures applied in the audit of the basic financial statements and, accordingly, we express no opinion on it. Our audit was performed for the purpose of forming an opinion on the financial statements that collectively comprise the City’s basic financial statements. The accompanying Schedule of Expenditures


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of Federal Awards is presented for purposes of additional analysis as required by U.S. Office of Management and Budget Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations. This schedule is not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated, in all material respects, in relation to the basic financial statements taken as a whole.



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Financial Section


January 1, 2007 through December 31, 2007 REQUIRED SUPPLEMENTAL INFORMATION Management’s Discussion and Analysis – 2007

BASIC FINANCIAL STATEMENTS

Statement of Net Assets – 2007 Statement of Activities – 2007 Balance Sheet – Governmental Funds – 2007 Reconciliation of the Balance Sheet to the Statement of Net Assets – Governmental Funds –

2007 Statement of Revenues, Expenditures and Changes in Fund Balances – Governmental Funds –

2007 Reconciliation of the Statement of Revenues, Expenditures and Changes in Fund Balances of

Governmental Funds to the Statement of Activities – 2007 Statement of Revenues, Expenditures and Changes in Fund Balances – Budget (GAAP Basis)

and Actual – General Funds – 2007 Statement of Revenues, Expenditures and Changes in Fund Balances – Budget (GAAP Basis)

and Actual – Street Funds – 2007 Statement of Revenues, Expenditures and Changes in Fund Balances – Budget (GAAP Basis)

and Actual – Arterial Street Funds – 2007 Statement of Revenues, Expenditures and Changes in Fund Balances – Budget (GAAP Basis)

and Actual – Municipal Capital Improvements Funds – 2007 Statement of Net Assets – Proprietary Funds – 2007 Statement of Revenues, Expenses and Changes in Net Assets – Proprietary Funds – 2007 Statement of Cash Flows – Proprietary Funds – 2007 Notes to the Financial Statements – 2007

SUPPLEMENTAL INFORMATION

Schedule of Expenditures of Federal Awards – 2007 Notes to the Schedule of Expenditures of Federal Awards – 2007


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CITY OF DES MOINES, WASHINGTON Management’s Discussion and Analysis

CITY OF DES MOINES MANAGEMENT’S DISCUSSION AND ANALYSIS

For the Year Ended December 31, 2007 The management discussion and analysis section of this report provides a narrative overall review of the City of Des Moines’s (the “City”) financial performance for the fiscal year ended December 31, 2007. The intent of this discussion and analysis is to assist the reader in focusing on significant financial issues and trends impacting the current financial activities of the City and should be read in conjunction with the independent auditor’s report, basic financial statements, and notes to the financial statements. FINANCIAL HIGHLIGHTS

• Net assets, the amount by which total assets exceed total liabilities, equal $162.0 million. Of this amount, $151.2 million, or 93.3%, is invested in capital assets such as land, infrastructure, buildings, equipment, and other improvements. The remaining net assets of $10.8 million are available for debt service, capital projects, repair and replacement reserves, and to meet the government’s ongoing activities and obligations.

• The government’s net assets increased by $7 million in 2007. Government activities provided $6.1 million or 86.8% with the remainder being provided by the business-type activities.

• As of the close of the current fiscal year, the City’s governmental funds reported combined ending fund balances of $7,441,613. Approximately 99.9% of this total amount, or $7,433,636, is available for spending at the government’s discretion.

• At the end of the current fiscal year, unreserved fund balance for the general fund was $745,437, or 4.9% of total general fund expenditures, net of capital outlay and equipment and computer replacement assessments.

• The City’s total debt decreased by $1,127,053. Debt principal retirements during 2007 totaled $ 1,295,779. A final draw of $2,500 was taken against the Public Works Trust Fund pre-construction loan for the Pacific Highway Redevelopment Project. A copier was added to the 2006 contract for the leasing of citywide copiers and recognized as a capital lease totaling $7,836. The remainder of the long-term debt activity primarily relates to compensated absences.

OVERVIEW OF THE FINANCIAL STATEMENTS This discussion and analysis is intended to serve as an introduction to the City of Des Moines’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 financial statements. The first two statements, Statement of Net Assets and Statement of Activities, comprise the government-wide financial statements. These statements provide both long-term and short-term information about the City’s overall financial status. The remaining statements are fund financial statements that focus on individual parts of the city government, reporting the City’s operations in more detail than the government-wide


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statements. These statements are presented with a focus on major funds. All other nonmajor funds are presented in total in one column. The financial statements also include notes that explain some of the information in the financial statements and provide more detailed data. Figure A-1 provides a summary of the major features of the City’s financial statements, including the portion of the City government they cover and the types of information they contain. The remainder of this overview section of management’s discussion and analysis explains the structure and contents of each of the statements.

Government-wide Financial Statements The government-wide financial statements report information about the City as a whole using accounting methods similar to those used by private-sector companies. The government-wide financial statements only include activities of the City of Des Moines, Washington. The City has no component units or entities over which it exercises influence over operations or financial control or accountability.

Government-WideStatements Governmental Funds Proprietary Funds

Scope Entire City government The activities of the City that are not proprietary, such as police, public w orks, and parks

Activities the City operates similar to private businesses: Marina and the Surface Water Management Utility

Required financial Statements

●Statement of net assets ●Statement of activities

●Balance sheet ●Statement of revenues, expenditures, and changes in fund balances

●Statement of net assets ●Statement of revenues, expenses, and changes in net assets ●Statement of cash flow s

Accounting basis and measurement focus

Accrual accounting and economic resources focus

Modif ied accrual accounting and current f inancial resources focus

Accrual accounting and economic resources focus

Type of asset/liability information

All assets and liabilities, both f inancial and capital, and short-term and long-term

Only assets expected to be used up and liabilities that come due during the year or soon thereafter; no capital assets included

All assets and liabilities, both f inancial and capital, and short-term and long-term

Type of inf low /outflow information

All revenues and expenses during year, regardless of w hen cash is received or paid

Revenues for w hich cash is received during or soon after the end of the year; expenditures w hen goods or services have been received and payment is due during the year or soon thereafter

All revenues and expenses during year, regardless of w hen cash is received or paid

Fund Statements

Figure A-1Major Features of the City of Des Moines's Government-w ide and Fund Financial Statements


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The statement of net assets includes all of the City funds’ assets and liabilities. The difference between assets and liabilities is reported as net assets. All of the current year’s revenues and expenses are accounted for in the statement of activities regardless of when cash is received or paid. The two government-wide statements report the City’s net assets and how they have changed. Overtime, increases or decreases in net assets provide a measure of the financial position of the City. The change in net assets provides an indication of whether the City’s financial health is improving or deteriorating. Governmental activities include most of the City’s basic services such as public safety, engineering, public works, and building regulation (physical environment and transportation), community land use planning (economic environment), human services (mental and physical health), culture and recreation, and general administration. These activities are primarily supported by taxes, intergovernmental revenues, building permits, and plan review fees. Business-type activities are financed primarily from user fees and charges. The Marina and Surface Water Management Utility are included under this category. Fund Financial Statements Traditional users of governmental financial statements will find the Fund Financial Statements presentation familiar. However, the focus for these presentations is on major funds, rather than fund types. A fund is an accounting device for grouping related accounts used to maintain control over resources that are segregated for specific activities or objectives. Some funds are required by State law and by bond covenants. The City Council establishes other funds to control and manage money for particular purposes. All of the funds of the City can be divided into two categories: governmental funds and proprietary funds. Governmental funds. Governmental funds are used to account for essentially the same functions reported as governmental activities in the government-wide financial statements. However, unlike the government-wide financial statements, governmental fund financial statements provide a short-term view focusing on near-term inflows and outflows of spendable resources, as well as on balances of spendable resources available at the end of the fiscal year. Such information may be useful in evaluating a government’s ability to finance the City’s programs in the near future. Because the focus of the governmental funds is short-term versus long-term, we have provided additional information that explains the differences between the government-wide financial statements and the fund financial statements. This additional information is provided in a reconciliation format on both the governmental balance sheet and the governmental fund statement of revenues, expenditures, and changes in fund balances. The City of Des Moines’s maintains seventeen 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 Fund, Street Fund, Arterial Street Fund, and Municipal Capital Improvements Fund. The General Fund, Arterial Street Fund, and Municipal Capital Improvements Fund are major funds based on the criteria established by GASB Statement No. 34. The Street Fund does not meet the criteria


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for a major fund but is shown separately at the discretion of the City. All remaining nonmajor governmental funds’ data are combined into a single, aggregated presentation. The City of Des Moines adopts an annual appropriated budget for its major funds: General Fund, Street Fund, Arterial Street Fund, and Municipal Capital Improvements Fund. Budget comparison statements have been provided for these funds to demonstrate budgetary compliance. Proprietary Funds. The City of Des Moines maintains two different types of proprietary funds. Enterprise funds are use 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 Marina and Surface Water Management Utility. Internal service funds represent 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 equipment rental operations and equipment replacement, computer operations and equipment and software replacement, self-insurance programs, and unemployment compensation reserves. Because internal service funds predominantly benefit governmental rather than business-type activities, they have been included within governmental activities in the government-wide financial statements. Proprietary fund financial statements provide the same type of information as the government-wide financial statements, but in greater detail. The internal service funds are combined into a single, aggregated presentation in the proprietary fund financial statements. Notes to the Financial Statements. The notes provide additional information that is essential to a full understanding of the data provided in the government-wide and fund financial statements. GOVERNMENT-WIDE FINANCIAL ANALYSIS Net Assets. As noted earlier, net assets may serve over time as a useful indicator of a government’s financial position. For the City of Des Moines, total assets exceeded liabilities by $162,012,504 at December 31, 2007. Table A-1 displays the City’s net assets for the current fiscal year.

2007 2006 2007 2006 2007 2006Current and other assets 12,953,779$ 13,273,706$ 5,854,277$ 5,604,510$ 18,808,056$ 18,878,216$ Capital assets 136,145,111 129,587,749 19,119,812 18,953,366 155,264,923 148,541,115 Total assets 149,098,890 142,861,455 24,974,089 24,557,876 174,072,979 167,419,331

Long-term debt outstanding 4,097,128 4,874,751 3,491,538 4,320,968 7,588,666 9,195,719 Other liabilities 3,448,718 2,500,245 1,023,091 699,846 4,471,809 3,200,091 Total liabilities 7,545,846 7,374,996 4,514,629 5,020,814 12,060,475 12,395,810

Net assets Invested in capital assets, net of related debt 134,441,619 126,900,100 16,755,712 16,419,218 151,197,331 143,319,318 Restricted 1,647,378 1,429,888 2,405,569 2,406,683 4,052,947 3,836,571 Unrestricted 5,464,047 7,156,471 1,298,179 711,161 6,762,226 7,867,632 Total net assets 141,553,044$ 135,486,459$ 20,459,460$ 19,537,062$ 162,012,504$ 155,023,521$

City of Des Moines's Net AssetsTable A-1

GovernmentalActivities

Business-typeActivities Total


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The largest portion of the City’s net assets (93.3 percent) reflects its investment in capital assets (e.g., land, infrastructure, buildings, machinery and equipment) less any related outstanding debt to acquire those assets. A portion of the City’s net assets (2.5 percent) represents resources that are subject to constitutional or external restrictions on how they may be used. The remaining balance of unrestricted net assets may be used to meet the City’s ongoing obligations to citizens and creditors. Changes in Net Assets. Governmental activities increased the City of Des Moines’s net assets by $6,066,585, thereby accounting for 86.8 percent of the total growth in the net assets of the City. Key elements of this increase are provided in Table A-2.

2007 2006 2007 2006 2007 2006Revenues:Program revenues: Charges for services 4,341,926$ 3,458,727$ 5,423,538$ 4,912,367$ 9,765,464 8,371,094$ Operating grants and contributions 1,375,789 1,352,744 7,431 3,698 1,383,220 1,356,442 Capital grants and contributions 4,995,010 711,690 147,010 457,269 5,142,020 1,168,959 General revenues: Property taxes 4,646,958 3,392,392 - - 4,646,958 3,392,392 Retail sales and use taxes 2,897,242 2,586,570 - - 2,897,242 2,586,570 Business taxes 4,350,957 3,878,935 - - 4,350,957 3,878,935 Other taxes 1,393,386 1,490,638 - - 1,393,386 1,490,638 State entitlements 450,054 451,778 - - 450,054 451,778 Unrestricted investment earnings 491,503 465,823 266,390 246,875 757,893 712,698 Equity in income of joint venture (35,293) 13,753 - - (35,293) 13,753 Gain on sale of capital assets 21,362 16,633 - - 21,362 16,633 Loss on disposal of capital assets - - - - - - Miscellaneous 30,977 76,473 (2,787) (61,190) 28,190 15,283 Total Revenues 24,959,871 17,896,156 5,841,582 5,559,019 30,801,453 23,455,175Program expenses: General government 2,355,893 2,000,133 - - 2,355,893 2,000,133 Public safety 8,546,928 7,605,119 - - 8,546,928 7,605,119 Physical environment 1,391,151 1,119,453 - - 1,391,151 1,119,453 Transportation 3,165,527 3,129,456 - - 3,165,527 3,129,456 Economic environment 721,847 589,277 - - 721,847 589,277 Mental and physical health 342,015 329,693 - - 342,015 329,693 Culture and recreation 2,369,485 2,196,579 - - 2,369,485 2,196,579 Interest on long-term debt 110,169 146,713 - - 110,169 146,713 Marina - - 3,450,114 3,389,736 3,450,114 3,389,736 Surface Water Utility - - 1,419,323 1,226,098 1,419,323 1,226,098 Total Expenses 19,003,015 17,116,423 4,869,437 4,615,834 23,872,452 21,732,257Increase (decrease) in net assets before special items and transfers 5,956,856 779,733 972,145 943,185 6,929,001 1,722,918 Special item: insurance recoveries 17,287 703 42,695 - 59,982 703 Transfers 92,442 273,967 (92,442) (273,967) - - Increase (decrease) in net assets 6,066,585$ 1,054,403$ 922,398$ 669,218$ 6,988,983$ 1,723,621$

Table A-2City of Des Moines's Changes in Net Assets


Business-typeActivities Total


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Property and other taxes total $13,288,543 and represent 43.1 percent of the total revenues of the City. The other major revenue sources are charges for services and operating and capital grants and contributions. Combined, these revenue sources total $16,290,704, or 52.9 percent of the City’s total revenues. Figure A-2 provides the percentage distribution of revenue sources for the City. The City’s expenses cover a range of services, with about 35 percent related to public safety. Figure A-3 provides the percentage allocation of functional expenses for the City.

Figure A-2Sources of Revenue

Charges for Services

32%

Other3%

Sales Taxes9%

Other Taxes19%

State Ent it lements

1%

Operating Grants

4%

Capital Grants

17%

Property Taxes15%

Figure A-3Functional Expenses

Physical Environment

12%

M ental & Physical Health

1%

Public Safety35%

Transportat 'n 14%

Economic Environment

3%

General Government

10%Culture &

Recreat ion24%

Interest on LT Debt

1%

Governmental activities. As stated, governmental activities account for 86.8 percent of the total growth in net assets for the City. Key elements of this increase are as follows.

• Growth in property taxes, retail sales and use taxes, and business taxes.

• Capital grants and contributions related to major transportation projects.

Business-type activities. Business-type activities increased the City of Des Moines’s net assets by $922,398, accounting for 13.2 percent of the total growth in the City’s net assets. Key elements of this increase are as follows:

• Net operating income of $869,775 plus non-operating revenue of $561 account for $870,336 of the increase.

• Transfers out of $92,442 related to the Marine View Drive Bridge Culvert Replacement project.

• Capital contributions of $144,504 account for the remainder of the net change. Figure A-4 provides the elements comprising the sources of revenues in comparison to the functional expenses for the business-type activities of the City.


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FINANCIAL ANALYSIS OF THE CITY’S FUNDS As noted earlier, the City of Des Moines uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. Governmental Funds. As discussed earlier, the focus of the City of Des Moines’s governmental funds is to provide information on near-term inflows, outflows, and balances of spendable resources. Such information is useful in assessing the City of Des Moines’s financing requirements. In particular, unreserved 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 the end of the current fiscal year, the City of Des Moines’s governmental funds reported combined ending fund balances of $7,441,613. Approximately 99.9 percent of this total amount ($7,433,636) constitutes unreserved fund balance, which is available for spending at the government’s discretion. The remaining .1 percent ($7,977) of fund balance is reserved to indicate that it is not available for new spending because it has already been committed to Imprest Funds and Prepaid Items. The General Fund is the primary operating fund of the City of Des Moines. At the end of the fiscal year, total fund balance for the General Fund equaled $753,414. Unreserved fund balance, the amount considered available to spend, totaled $745,437. Of the General Fund balance, $24,756 has been designated for maintenance of the Sierra permitting system. The remaining amount $720,681 is designated for continuing appropriations. The City is required to maintain an unreserved fund balance of seven percent of the General Fund’s operating expenditures, net of capital expenditures and equipment and computer replacement assessments. At the end of the fiscal year, the unreserved fund balance of $745,437 equaled 4.9 percent of the general fund’s operating expenditures.

Figure A-4Business-type Activities

Program Revenues and Expenses

$-$500,000

$1,000,000$1,500,000$2,000,000$2,500,000$3,000,000$3,500,000$4,000,000

Revenues Expenses Revenues Expenses

Marina Surface Water Utility

Charges for Services Personal ServicesOther Income Supplies & Expenses

DepreciationOther ExpensesTransfers

REVENUES EXPENSES


15


The fund balance of the City of Des Moines’s General Fund decreased by $168,519 during the current fiscal year. Proprietary Funds. The City of Des Moines’s proprietary funds provide the same type of information found in the government-wide financial statements, but in more detail. BUDGETARY HIGHLIGHTS FOR GENERAL AND MAJOR FUNDS Differences between the General Fund original budget and the final amended budget declined by $71,893. Following are the components of the differences: Increases in budget appropriations:

• $170,000 supplemental appropriation for police overtime;

• $160,000 supplemental appropriation for real estate/economic development consultant;

• $88,500 supplemental appropriation for donated art collection;

• $35,637 supplemental appropriation for jail services;

• $30,000 supplemental appropriation for emergency management consultant;

• $21,430 supplemental appropriation for computer maintenance assessment to fund GIS Administrator position in the Computer Equipment Operations Fund;

• $17,666 supplemental appropriation for minor home repair program;

• $15,437 supplemental appropriation for fire protection services;

• $13,339 supplemental appropriation for police video camera system;

• $11,414 supplemental appropriation for legal fees;

• $7,800 supplemental appropriation for additional funding for recreation programs software purchase;

• $5,000 supplemental appropriation for additional funding for the Steven J. Underwood Memorial Park restroom project;

• $5,000 supplemental appropriation for Arts Commission events;

• $3,836 supplemental appropriation for transfer to the Computer Equipment Replacement Fund for automation fees;

• $2,000 supplemental appropriation for consultant to prepare City Council minutes.

Decreases in budget appropriations:

• $350,000 removal of appropriation for permitting system;

• $225,000 removal of appropriation for capital transfer to the Municipal Capital Improvements Fund;

• $58,952 removal of appropriations for .45 full-time equivalent Assistant Planner/GIS position;

• $25,000 removal of appropriations for Downtown Design Guidelines consultant.


16


Funding sources for the supplemental appropriations, excluding police overtime, donated art collection, and minor home repair program, primarily are from fund balance and the removal of appropriations. The police overtime is funded by a transfer to the General Fund from the Police Services Restoration Fund. The art collection includes a revenue of $88,500 recognizing the fair value of the donated art. The minor home repair program is funded by a community development block grant. The Street Fund’s supplemental appropriations include $20,830 for traffic signal maintenance, $7,662 to provide additional funding for a new chipper purchased out of the Equipment Rental Replacement Fund, and $423 additional computer maintenance assessment to fund GIS administrator position in the Computer Equipment Operations Fund. Differences between the Arterial Street Fund original budget and the final amended budget total $2,140,707 and relate to continuing appropriations for capital projects. Funding sources are grants, and transfers from the Transportation Impact Fee Fund and Local Improvement District Fund. The Municipal Capital Improvements Fund supplemental appropriations of $412,360 relate to continuing appropriations for capital projects funded primarily by grants. CAPITAL ASSET AND DEBT ADMINISTRATION Capital Assets. The City of Des Moines’s investment in capital assets for its governmental and business-type activities as of December 31, 2007 totals $155,264,923 (net of accumulated depreciation). This investment in capital assets includes land, buildings and structures, machinery and equipment, park facilities, sidewalks, roads, highways, and bridges as shown in Table A-3. During the fiscal year, major capital asset additions included:

• 16th Avenue South to 260th pedestrian and mobility improvements totaling $5,234,192.

• Saltwater State Park Bridge December 2006 windstorm repairs totaling $1,137,372.

• Vehicle and equipment acquisitions totaling $810,596.

• Slide repairs totaling $673,921 for Marine View Drive, Des Moines Memorial Drive, and Saltwater State Park Bridge.

• Des Moines Creek Basin projects totaling $320,559.

• Steven J. Underwood Memorial Park Phase 1-C restroom totaling $204,367.

• Redondo Police Department Substation Tenant Improvements totaling $154,682, plus security system totaling $11,790, and phone system totaling $12,447.

• Des Moines Beach Park Auditorium rehabilitation project totaling $150,075.

• Marine View Drive Bridge Culvert Replacement Project stream and trail improvements paid for with funds from the Des Moines Creek Basin Interlocal agreement and Surface Water Management revenues totaling $134,922.

• Des Moines Creek Trail improvements totaling $134,651.

• Art collection valued at $88,500 donated by artist Camille Patha.


17


• Field House Park renovation project totaling $65,947.

• Des Moines Beach Park buildings rehabilitation project totaling $45,473.

• Wooten Park lighting replacement totaling $30,222.

• Activity Center landscaping improvements totaling $17,987.

• Capital lease for copier totaling $7,836.

The Marina continues with its major renovations addressed in the Marina Master Plan. Additions for 2007 total $423,274 all funded by proceeds from the 2002 general obligation bond issue. Other improvements include updates to the Marina Master Plan ($13,721) and outlays for a security camera system ($100,823) using fund balance as a source of revenue. Marina equipment acquisitions for 2007 include $21,490 for accounts receivable software upgrade, $12,001 for a sewage pump-out system, and $5,016 for a one-third share of a portable stage. More detailed information about the City’s capital assets is presented in Note 6 to the financial statements.

Long-term debt. At the end of the current fiscal year, the City of Des Moines had total bonded debt outstanding of $4,940,000 which is backed by the full faith and credit of the government. Of this amount, $3,730,000 is also backed by revenues of the Marina. The remainder of the City’s debt represents Public Works Trust Fund Loans and Capital Lease. Table A-4 provides a breakdown of the City’s outstanding debt.

Total Total2007 2006 2007 2006 2007 2006

General obligation bonds 1,210,000$ 1,870,000$ 3,730,000$ 4,210,000$ 4,940,000$ 6,080,000$ Public Works Trust Fund Loans 2,040,471 2,183,705 - - 2,040,471 2,183,705 Capital Lease 35,867 36,802 4,406 5,680 40,273 42,482 Total 3,286,338$ 4,090,507$ 3,734,406$ 4,215,680$ 7,020,744$ 8,306,187$

Table A-4City of Des Moines's Outstanding Debt


Business-typeActivities

The City’s received its latest bond rating of A3 in November 2002. The rating was assigned to its 2002 Limited Tax General Obligation and Refunding Bonds. The rating and stable outlook

2007 2006 2007 2006 2007 2006Land 100,515,615$ 100,508,719$ 3,757,984$ 3,757,984$ 104,273,599$ 104,266,703$ Art Collections 88,500 - - - 88,500 - Buildings & structures 7,036,355 6,867,735 1,663,427 1,782,456 8,699,782 8,650,191 Capital lease 34,760 36,181 4,244 5,584 39,004 41,765 Other improvements 3,166,932 3,372,015 10,789,758 11,208,669 13,956,690 14,580,684 Machinery & equipment 1,676,133 1,301,297 190,275 37,557 1,866,408 1,338,854 Leasehold improvements 136,636 - 1,546,524 59,835 1,683,160 59,835 Infrastructure 15,033,917 15,609,284 - - 15,033,917 15,609,284 Construction in progress 8,439,378 1,842,396 977,389 2,008,124 9,416,767 3,850,520 Intangible assets 16,885 50,122 190,211 93,157 207,096 143,279 Total 136,145,111$ 129,587,749$ 19,119,812$ 18,953,366$ 155,264,923$ 148,541,115$

Activities Total

Table A-3City of Des Moines's Capital Assets

(net of depreciation)

Governmental Business-typeActivities


18


reflected the improved financial position of the City since voter approval of I-695 eliminated the motor vehicle excise tax revenues, a major funding source for the City. More detailed information about the City’s long-term liabilities is presented in Note 11 to the financial statements. ECONOMIC FACTORS AND NEXT YEAR’S BUDGETS AND RATES The expectation for the region’s economy is for moderate to weak growth. Factors such as the deteriorating housing market, and related financial markets, high energy prices and declining consumer confidence will have an impact on revenue forecasts for the 2008 budget. One positive factor is that the City’s residential housing remains more affordable in comparison to other regions of the Pacific Northwest. The outlook for commercial construction activity in 2008 continues strong as a number of mixed-use developments will be progressing, and the Highline School District plans to renovate one of its elementary schools. Preparation of the 2008 budget process will take into consideration these factors. Voter approval of a six-year levy lid lift ballot measure in May 2006 will provide additional property taxes of approximately $1,483,400 in 2008 to be utilized to restore police department staffing. The 2008 budget process continues to face a structural imbalance with its General and Street Funds. The initial imbalance for the 2008 base budget totaled $1,985,964. Strategies utilized to balance and reduce the deficit between recurring revenues and expenditures included operating budget reductions, identification of new recurring revenue sources, and use of one-time revenues. The strategies implemented reduced the imbalance to $498,488. Significant one-time revenues from building and development activities are expected in the next few years. Also, the Marina and Surface Water Management Utility will implement their annual rate increases on moorage and surface water management fees. REQUESTS FOR INFORMATION This financial report is designed to provide our citizens, taxpayers, customers, and investors and creditors with a general overview of the City’s finances and to demonstrate the City’s accountability for the money it receives. If you have questions about this report or need additional financial information, contact Paula A. Henderson, Finance Director, 21630 11th Ave. S., Suite A, Des Moines, Washington, 98198.


19

CITY OF DES MOINES, WASHINGTON Page 1 of 1GOVERNMENT-WIDE FINANCIAL STATEMENTS

GOVERNMENTAL BUSINESS-TYPEDESCRIPTION ACTIVITIES ACTIVITIES TOTALASSETSCash and cash equivalents 8,261,183$ 2,717,793$ 10,978,976$ Cash with fiscal agent 5,000 - 5,000 Investments 2,014,965 504,129 2,519,094 Receivables: Taxes 1,308,707 - 1,308,707 Customer accounts 436,914 291,795 728,709 Interest 17,433 3,683 21,116 Other 81,097 6,536 87,633 Due from other governments 788,729 23,586 812,315 Internal balances - - - Inventories 15,215 21,395 36,610 Prepaid items 3,377 275 3,652 Restricted assets: Cash and cash equivalents - 1,670,702 1,670,702 Investments - 504,672 504,672 Interest receivable 3,550 3,550 Other receivable 42,695 42,695 Investment in Joint Venture - - - Capital assets: Land 100,515,615 3,757,984 104,273,599 Art Collections 88,500 88,500 Depreciable capital assets, net 27,101,618 14,384,439 41,486,057 Construction in progress 8,439,378 977,389 9,416,767 Deferred charges 21,159 63,467 84,626 TOTAL ASSETS 149,098,890$ 24,974,089$ 174,072,979$

LIABILITIESAccounts payable 1,800,124$ 187,946$ 1,988,070$ Matured interest payable 5,000 - 5,000 Due to other governments 177,945 167 178,112 Accrued interest payable 10,272 13,326 23,598 Other current liabilities 1,302,424 78,498 1,380,922 Liabilities payable from restricted assets: General obligation bonds principal - 365,000 365,000 Deposits - 158,422 158,422 Deferred revenues 152,953 219,732 372,685 Long-term liabilities: Due within one year 1,906,929 1,329 1,908,258 Due in more than one year 2,190,199 3,490,209 5,680,408 TOTAL LIABILITIES 7,545,846 4,514,629 12,060,475

NET ASSETS Invested In capital assets, net of related debt 134,441,619 16,755,712 151,197,331 Restricted for: Capital projects 1,560,428 1,653,792 3,214,220 Debt service 86,950 416,742 503,692 Repair and replacement - 335,035 335,035 Unrestricted 5,464,047 1,298,179 6,762,226 TOTAL NET ASSETS 141,553,044$ 20,459,460$ 162,012,504$

The accompanying notes are an integral part of this statement.

STATEMENT OF NET ASSETSDecember 31, 2007


20

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21

CITY OF DES MOINES, WASHINGTON Page 1 of 2FUND FINANCIAL STATEMENTS

MUNICIPAL NONMAJORGENERAL STREET ARTERIAL CAPITAL GOVERNMENTAL

DESCRIPTION FUND FUND STREET IMPRV FUNDSASSETSCash and cash equivalents 1,343,122$ 424,629$ 2,253,363$ 1,666,073$ 1,400,023$ Cash with fiscal agent - - - - 5,000 Investments 300,239 300,239 701,262 Receivables: Taxes 1,195,163 1,335 - 67,109 35,998 Customer accounts 382,220 - - 4,391 50,303 Interest - - 2,600 2,600 5,608 Other 32,205 1,354 2,153 30,493 9,239 Due from other funds - - - - - Due from other governments 61,182 - 584,953 80,295 42,515 Prepaid items 3,377 - - - TOTAL ASSETS 3,017,269$ 427,318$ 3,143,308$ 2,151,200$ 2,249,948$

LIABILITIES AND FUND BALANCESLiabilities:Accounts payable 622,137$ 104,846$ 613,680$ 108,266$ 50,380$ Matured interest payable - - - - 5,000 Due to other funds - - - - - Due to other governments 7,644 - - - - Customer deposits 513,458 - - - - Other current liabilities 495,588 15,268 219,911 23,183 19,896 Deferred revenues 625,028 (483) 3,655 2,362 117,611 Total liabilities 2,263,855 119,631 837,246 133,811 192,887

Fund balances: Reserved for: Imprest funds 4,600$ -$ -$ -$ -$ Prepaid items 3,377 - - - - Unreserved, designated for: Maintenance agreement 24,756 - - - - Continuing appropriations 720,681 62,211 - - - Capital projects funds - - 1,560,428 - - Unreserved, undesignated reported in: General fund - - - - - Special revenue funds - 245,476 745,634 - 1,970,111 Debt service funds - - - - 86,950 Capital projects funds - - - 2,017,389 - Total fund balances 753,414 307,687 2,306,062 2,017,389 2,057,061 TOTAL LIABILITIES AND FUND BALANCES 3,017,269$ 427,318$ 3,143,308$ 2,151,200$ 2,249,948$


BALANCE SHEETDecember 31, 2007


22

Page 2 of 2 CITY OF DES MOINES, WASHINGTONFUND FINANCIAL STATEMENTS

TOTAL Fund balances - total governmental funds 7,441,613$ GOVERNMENTAL

FUNDS Amounts reported for governmental activities in the statement of net assets are different because:

7,087,210$ 5,000 Capital assets used in governmental activities are not financial

1,301,740 resources and therefore are not reported in the governmental funds.

1,299,605 Land 100,515,615$ 436,914 Art Collections 88,500 10,808 Depreciable capital assets, net 25,905,026 75,444 Construction in progress 8,439,378

- 134,948,519 768,945

3,377 Other assets used in governmental activities are not financial resources10,989,043$ and therefore are not reported in the governmental funds.

Other accounts receivable 11,952 Interest receivable 7,285

1,499,309$ Unamortized bond issuance costs 21,159 5,000 Investment in joint venture -

- 40,396 7,644 Current liabilities includes amounts not payable in the current

513,458 period and therefore are not reported in the governmental funds.773,846 748,173 Accounts payable and other accrued liabilities (268,837)

3,547,430 Accrued interest payable (10,272) Due to other governments (170,301)

(449,410) Deferred revenue in governmental funds is susceptible to full

4,600$ accrual and therefore are not reported in the governmental funds.3,377

Deferred revenue - current period 123,200 24,756 Deferred revenue - prior period 472,020

782,892 1,560,428 Long-term liabilities, including bonds, notes, and loans payable are

not due and payable in the current period and therefore are not reported- in fund balance in the governmental funds.

2,961,221 86,950 Governmental bonds, notes, and loans payable (3,285,079)

2,017,389 Compensated absences (784,836) 7,441,613 (4,069,915)

10,989,043$ Internal service funds are used by management to charge the costs of certain activities to individual funds. The assets and liabilities of internal service funds are included in governmental activities in the statement of net assets. 3,046,621

Net assets of governmental activities 141,553,044$

RECONCILIATION OF THE BALANCE SHEETTO THE STATEMENT OF NET ASSETS

GOVERNMENTAL FUNDSDecember 31, 2007


23


MUNICIPAL NONMAJORGENERAL STREET ARTERIAL CAPITAL GOVERNMENTAL

DESCRIPTION FUND FUND STREET IMPRV FUNDSREVENUES Taxes 9,891,185$ 217,470$ -$ 1,287,073$ 1,866,261$ Licenses and permits 1,469,961 - - - Intergovernmental 832,818 713,068 4,814,003 150,084 122,829 Charges for services 2,491,986 - 129,839 96,230 379,274 Fines and forfeits 238,350 - - - Investment income 122,476 24,084 143,075 94,885 54,252 Miscellaneous 233,155 2,351 3,699 8,327 60,115 TOTAL REVENUES 15,279,931 956,973 5,090,616 1,636,599 2,482,731

EXPENDITURESCurrent: General government 2,835,402 - - - - Public safety 7,783,418 - - - 479,979 Physical environment 1,348,149 - - 62,984 Transportation 472,515 902,660 434,825 - Economic environment 652,925 - - - 21,080 Mental and physical health 343,835 - - - Culture and recreation 1,838,306 - - 34,926 124,882 Debt service: Principal - - - 814,505 Interest and fiscal charges - - - 105,269 Capital outlay 233,551 52,361 6,828,485 872,541 131,735 TOTAL EXPENDITURES 15,508,102 955,021 7,263,310 907,467 1,740,435

Excess (deficiency) of revenues over (under) expenditures (228,171) 1,952 (2,172,694) 729,132 742,296

OTHER FINANCING SOURCES (USES)Capital related debt issued 7,836 - 2,500 - Transfers in 161,605 - 1,046,085 19,416 445,450 Transfers out (110,139) (238,362) (156,898) (706,665) (496,990) Insurance recoveries - - - 30,494 21,771 Sale of capital assets 350 - 5,000 - - TOTAL OTHER FINANCING SOURCES (USES) 59,652 (238,362) 896,687 (656,755) (29,769)

Net change in fund balances (168,519) (236,410) (1,276,007) 72,377 712,527 Fund balances beginning of year 921,933 544,097 3,582,069 1,945,012 1,344,534

FUND BALANCES END OF YEAR 753,414$ 307,687$ 2,306,062$ 2,017,389$ 2,057,061$


STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCESGOVERNMENTAL FUNDS

For the Year Ended December 31, 2007


24

Page 2 of 2 CITY OF DES MOINES, WASHINGTONFUND FINANCIAL STATEMENTS

TOTALGOVERNMENTAL Net change in fund balance - total governmental funds (896,032)$

FUNDS

13,261,989$ Amounts reported for governmental activities in the statement of1,469,961 activities are different because:6,632,802 3,097,329 Governmental funds report capital outlays as expenditures. However,

238,350 in the statement of activities, the cost of capital assets is allocated438,772 over their estimated useful lives as depreciation expense.307,647 Capital outlay 8,118,673$

25,446,850 Capital outlay contributed from business-type activities 92,442 Depreciation expense (2,023,581) Excess of capital outlay over depreciation expense 6,187,534

2,835,402 The City has an equity interest in a joint venture. This investment is not a8,263,397 current financial resource and therefore is not reported in the funds. (35,293) 1,411,133 1,810,000 The issuance of long-term debt provides current financial resources to

674,005 governmental funds, while the repayment of the principal of long-term343,835 debt consumes the current financial resources of governmental funds.

1,998,114 Neither transaction, however, has any effect on net assets. Also, governmental funds report the effect of issuance costs, premiums,

814,505 discounts and similar items when debt is first issued, whereas these105,269 amounts are deferred and amortized in the statement of activities.

8,118,673 Long-term debt issued (10,336) 26,374,334 Debt principal retirement 814,505

Amortization of issuance costs (7,360) Amortization of bond premium and discount (778)

(927,485) 796,031

Internal service funds are used by management to charge the costs of certain10,336 activities to individual funds. The net revenue (expense) of the internal service

1,672,556 funds is reported with governmental activities. 116,794 (1,709,054)

52,264 Revenues reported in the statement of activities that do not provide current5,350 financial resources are not reported as revenues in the governmental funds. (47,177)

31,452 Expenses reported in the statement of activities that do not require the use of

(896,032) current financial resources are not reported as expenditures in the 8,337,645 governmental funds. (55,272)

7,441,613$ Change in net assets of governmental activities 6,066,585$

RECONCILIATION OF THE STATEMENT OF REVENUES, EXPENDITURES,AND CHANGES IN FUND BALANCES OF GOVERNMENTAL FUNDS

TO THE STATEMENT OF ACTIVITIESFor the Year Ended December 31, 2007


25


Variance withFinal Budget -

ACTUAL PositiveDESCRIPTION ORIGINAL FINAL AMOUNTS (Negative)REVENUESTaxes 9,219,918$ 9,219,918$ 9,891,185$ 671,267$ Licenses and permits 2,434,730 1,859,730 1,469,961 (389,769) Intergovernmental 815,334 864,284 832,818 (31,466) Charges for services 3,837,247 3,837,247 2,491,986 (1,345,261) Fines and forfeits 280,000 280,000 238,350 (41,650) Investment income 119,800 119,800 122,476 2,676 Miscellaneous 159,955 253,455 233,155 (20,300) TOTAL REVENUES 16,866,984 16,434,434 15,279,931 (1,154,503)

EXPENDITURESCurrent: General government 2,887,165 2,889,938 2,835,402 54,536 Public safety 7,645,129 7,915,483 7,783,418 132,065 Physical environment 1,409,660 1,429,511 1,348,149 81,362 Transportation 568,710 569,126 472,515 96,611 Economic environment 699,351 775,541 652,925 122,616 Mental and physical health 343,701 343,304 343,835 (531) Culture and recreation 1,790,387 1,786,883 1,838,306 (51,423) Capital outlay 460,049 223,688 233,551 (9,863) TOTAL EXPENDITURES 15,804,152 15,933,474 15,508,102 425,372

Excess (deficiency) of revenues over (under) expenditures 1,062,832 500,960 (228,171) (729,131)

OTHER FINANCING SOURCES (USES)Capital related debt issued - - 7,836 7,836 Transfers in - 143,434 161,605 18,171 Transfers out (810,718) (609,503) (110,139) 499,364 Sale of capital assets - - 350 350 TOTAL OTHER FINANCING SOURCES (USES) (810,718) (466,069) 59,652 525,721

Net change in fund balances 252,114 34,891 (168,519) (203,410) Fund balances beginning of year 934,551 978,464 921,933 (56,531)

FUND BALANCES END OF YEAR 1,186,665$ 1,013,355$ 753,414$ (259,941)$


BUDGETED AMOUNTS

GENERAL FUNDSTATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES

BUDGET (GAAP BASIS) AND ACTUALFor the Year Ended December 31, 2007


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ACTUAL PositiveDESCRIPTION ORIGINAL FINAL AMOUNTS (Negative)REVENUESTaxes 213,500$ 213,500$ 217,470$ 3,970$ Intergovernmental 724,000 733,218 713,068 (20,150) Investment income 20,000 20,000 24,084 4,084 Miscellaneous 1,000 1,000 2,351 1,351 TOTAL REVENUES 958,500 967,718 956,973 (10,745)

EXPENDITURESCurrent: Transportation 916,570 937,823 902,660 35,163 Capital outlay 48,579 48,579 52,361 (3,782) TOTAL EXPENDITURES 965,149 986,402 955,021 31,381

Excess (deficiency) of revenues over (under) expenditures (6,649) (18,684) 1,952 20,636

OTHER FINANCING SOURCES (USES)Transfers out (230,700) (238,362) (238,362) - TOTAL OTHER FINANCING SOURCES (USES) (230,700) (238,362) (238,362) -

Net change in fund balances (237,349) (257,046) (236,410) 20,636 Fund balances beginning of year 586,748 546,490 544,097 (2,393)

FUND BALANCES END OF YEAR 349,399$ 289,444$ 307,687$ 18,243$


BUDGETED AMOUNTS

STREET FUNDSTATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES



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ACTUAL PositiveDESCRIPTION ORIGINAL FINAL AMOUNTS (Negative)REVENUESIntergovernmental 5,614,472$ 7,962,650$ 4,814,003$ (3,148,647)$ Charges for services - - 129,839 129,839 Investment income 103,800 103,800 143,075 39,275 Miscellaneous 135,960 135,960 3,699 (132,261) TOTAL REVENUES 5,854,232 8,202,410 5,090,616 (3,111,794)

EXPENDITURESCurrent: Transportation 830,460 994,252 434,825 559,427 Capital outlay 8,535,636 10,512,551 6,828,485 3,684,066 TOTAL EXPENDITURES 9,366,096 11,506,803 7,263,310 4,243,493

Excess (deficiency) of revenues over (under) expenditures (3,511,864) (3,304,393) (2,172,694) 1,131,699

OTHER FINANCING SOURCES (USES)Capital related debt issued - - 2,500 2,500 Transfers in 2,023,238 1,973,238 1,046,085 (927,153) Transfers out (1,512,285) (1,512,285) (156,898) 1,355,387 Sale of capital assets - - 5,000 5,000 TOTAL OTHER FINANCING SOURCES (USES) 510,953 460,953 896,687 435,734

Net change in fund balances (3,000,911) (2,843,440) (1,276,007) 1,567,433 Fund balances beginning of year 3,516,417 3,582,069 3,582,069 -

FUND BALANCES END OF YEAR 515,506$ 738,629$ 2,306,062$ 1,567,433$


BUDGETED AMOUNTS

ARTERIAL STREET FUNDSTATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES



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ACTUAL PositiveDESCRIPTION ORIGINAL FINAL AMOUNTS (Negative)REVENUESTaxes 1,250,000$ 1,250,000$ 1,287,073$ 37,073$ Intergovernmental 1,805,375 1,837,845 150,084 (1,687,761) Charges for services 437,487 437,487 96,230 (341,257) Investment income 49,800 49,800 94,885 45,085 Miscellaneous - - 8,327 8,327 TOTAL REVENUES 3,542,662 3,575,132 1,636,599 (1,938,533)

EXPENDITURESCurrent: Culture and recreation - - 34,926 (34,926) Capital outlay 4,060,276 4,472,636 872,541 3,600,095 TOTAL EXPENDITURES 4,060,276 4,472,636 907,467 3,565,169

Excess (deficiency) of revenues over (under) expenditures (517,614) (897,504) 729,132 1,626,636

OTHER FINANCING SOURCES (USES)Capital related debt issued - - - - Transfers in 234,116 244,416 19,416 (225,000) Transfers out (707,058) (707,058) (706,665) 393 Insurance recoveries 30,494 30,494 TOTAL OTHER FINANCING SOURCES (USES) (472,942) (462,642) (656,755) (194,113)

Net change in fund balances (990,556) (1,360,146) 72,377 1,432,523 Fund balances beginning of year 1,386,274 1,945,013 1,945,012 (1)

FUND BALANCES END OF YEAR 395,718$ 584,867$ 2,017,389$ 1,432,522$


BUDGETED AMOUNTS

MUNICIPAL CAPITAL IMPROVEMENTS FUNDSTATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES



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GOVERNMENTALACTIVITIES

SURFACE WATER INTERNAL SERVICEDESCRIPTION MARINA UTILITY TOTAL FUNDSASSETSCurrent assets: Cash and cash equivalents 1,418,627$ 1,299,166$ 2,717,793$ 1,173,973$ Investments 301,833 202,296 504,129 705,940 Receivables: Customer accounts, net of uncollectible amounts 236,057 55,738 291,795 - Interest 2,600 1,083 3,683 6,625 Other 670 5,866 6,536 2,803 Due from other governments 10,688 12,898 23,586 19,784 Inventories 21,395 - 21,395 15,215 Prepaid items 275 - 275 - Total current assets 1,992,145 1,577,047 3,569,192 1,924,340

Noncurrent assets: Restricted assets: Cash and cash equivalents 1,670,702 - 1,670,702 - Investments 504,672 - 504,672 - Interest receivable 3,550 - 3,550 - Other receivables 42,695 - 42,695 Capital assets: Land 3,226,925 531,059 3,757,984 - Buildings and structure 4,800,307 - 4,800,307 - Other improvements 6,684,290 15,089,168 21,773,458 - Capital leases 4,129 2,572 6,701 Leasehold improvements 149,669 149,669 - Machinery and equipment 261,595 28,582 290,177 2,937,246 Construction in progress 732,044 245,345 977,389 - Intangible assets 353,863 - 353,863 - Less accumulated depreciation and amortization (7,055,995) (5,933,741) (12,989,736) (1,740,654) Total capital assets, net 9,156,827 9,962,985 19,119,812 1,196,592 Deferred charges 63,467 - 63,467 - Total noncurrent assets 11,441,912 9,962,985 21,404,897 1,196,592 TOTAL ASSETS 13,434,057$ 11,540,032$ 24,974,089$ 3,120,932$

LIABILITIESCurrent liabilities: Accounts payable 164,661$ 23,285$ 187,946$ 31,978$ Due to other governmental units 167 - 167 - Accrued interest payable 13,326 - 13,326 - Compensated absences 7,740 6,795 14,535 810 Capital lease obligation 819 510 1,329 Other current liabilities 34,989 28,974 63,963 14,310 Total current liabilities 221,702 59,564 281,266 47,098

Noncurrent liabilities: Liabilities payable from restricted assets: General obligation bonds principal 365,000 - 365,000 - Deposits 158,422 - 158,422 - Total liabilities payable from restricted assets 523,422 - 523,422 - General obligation bonds payable, net of unamortized premiums and discounts 3,359,808 - 3,359,808 - Compensated absences 68,681 58,642 127,323 27,213 Deferred revenues 219,732 - 219,732 - Long-term capital lease obligation 1,897 1,181 3,078 Total noncurrent liabilities 4,173,540 59,823 4,233,363 27,213 TOTAL LIABILITIES 4,395,242 119,387 4,514,629 74,311

NET ASSETSInvested in capital assets, net of related debt 6,794,418 9,961,294 16,755,712 1,196,592 Restricted for: Capital projects 965,840 687,952 1,653,792 - Debt service 416,742 - 416,742 - Repair and replacement 335,035 - 335,035 - Unrestricted 526,780 771,399 1,298,179 1,850,029 Total net assets 9,038,815 11,420,645 20,459,460 3,046,621 TOTAL LIABILITIES AND NET ASSETS 13,434,057$ 11,540,032$ 24,974,089$ 3,120,932$


BUSINESS-TYPE ACTIVITIESENTERPRISE FUNDS

PROPRIETARY FUNDSSTATEMENT OF NET ASSETS

December 31, 2007


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SURFACE WATER INTERNAL SERVICEDESCRIPTION MARINA UTILITY TOTAL FUNDSOPERATING REVENUES Charges for services 3,638,697$ 1,765,983$ 5,404,680$ 1,601,033$ Other operating revenues 13,492 6,367 19,859 11,017 TOTAL OPERATING REVENUES 3,652,189 1,772,350 5,424,539 1,612,050

OPERATING EXPENSES Personal services 788,855 592,124 1,380,979 282,448 Contractual services 73,169 128,226 201,395 36,237 Utilities 80,058 35,191 115,249 3,010 Insurance 1,081 - 1,081 425,587 Repairs and maintenance 57,391 44,617 102,008 139,026 Other supplies and expenses 1,191,897 83,628 1,275,525 360,464 Interfund services 537,605 246,401 784,006 105,062 Depreciation and amortization 406,395 288,126 694,521 296,753 TOTAL OPERATING EXPENSES 3,136,451 1,418,313 4,554,764 1,648,587

OPERATING INCOME (LOSS) 515,738 354,037 869,775 (36,537)

NON-OPERATING REVENUE (EXPENSE) Investment income 210,943 55,447 266,390 97,531 Interest and fiscal charges (168,073) (83) (168,156) - Arbitrage interest rebate (6,701) (6,701) Amortization of deferred charges (21,650) - (21,650) - Gain (loss) on sale of capital assets - - - 16,012 Other non-operating revenues (expenses) (74,545) 5,223 (69,322) 3,290 TOTAL NON-OPERATING REVENUES (EXPENSES) (60,026) 60,587 561 116,833

INCOME (LOSS) BEFORE CONTRIBUTIONS AND TRANSFERS 455,712 414,624 870,336 80,296

Capital contributions 9,582 134,922 144,504 - Transfers in - - - 43,814 Transfers out - (92,442) (92,442) (7,316) Change in net assets 465,294 457,104 922,398 116,794

Total net assets - beginning 8,573,521 10,963,541 19,537,062 2,929,827 Prior year adjustments - - - - Total net assets - beginning restated 8,573,521 10,963,541 19,537,062 2,929,827

TOTAL NET ASSETS - ENDING 9,038,815$ 11,420,645$ 20,459,460$ 3,046,621$


ENTERPRISE FUNDSBUSINESS-TYPE ACTIVITIES

STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN NET ASSETSPROPRIETARY FUNDS

For the year Ended December 31, 2007


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SURFACE WATER INTERNAL SERVICEDESCRIPTION MARINA UTILITY TOTAL FUNDSCASH FLOWS FROM OPERATING ACTIVITIES Receipts from customers 3,637,038$ 1,765,514$ 5,402,552$ 1,602,656$ Payments to suppliers (1,420,792) (278,597) (1,699,389) (963,930) Payments to employees (767,943) (577,346) (1,345,289) (271,029) Internal activity - payments to other funds (537,605) (246,401) (784,006) (105,062) NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES 910,698 663,170 1,573,868 262,636

CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES Operating subsidies and transfers from (to) other funds - - - 36,498 Insurance recoveries - - 3,290 NET CASH PROVIDED (USED) FROM NONCAPITAL FINANCING ACTIVITIES - - - 39,788

CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Capital contributions 23,554 134,922 158,476 - Proceeds from sales of capital assets - - - 16,012 Purchases of capital assets (570,882) (485,307) (1,056,189) (519,576) Reimbursements for capital assets related to other governments - 1,033,306 1,033,306 - Purchases of capital assets related to other governments - (430,498) (430,498) - Principal paid on capital debt (480,785) (489) (481,274) - Interest paid on capital debt (172,090) (83) (172,173) - NET CASH PROVIDED (USED) BY CAPITAL AND 8,936 8,936 - RELATED FINANCING ACTIVITIES (1,200,271) 260,787 (939,484) (503,564)

CASH FLOWS FROM INVESTING ACTIVITIES Purchase of investments (800,000) (200,000) (1,000,000) (700,000) Interest 198,287 52,068 250,355 84,966 NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES (601,713) (147,932) (749,645) (615,034)

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (891,286) 776,026 (115,261) (816,173) BALANCES - BEGINNING OF THE YEAR 3,980,615 523,140 4,503,755 1,990,146 BALANCES - END OF THE YEAR 3,089,329$ 1,299,166$ 4,388,495$ 1,173,973$

RECONCILIATION OF OPERATING INCOME (LOSS) TO NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES Operating income (loss) 515,738$ 354,037$ 869,775$ (36,537)$ Adjustments to reconcile operating income to net cash provided (used) by operating activities: Depreciation/amortization expense 406,395 288,126 694,521 296,753 Change in assets and liabilities: Account receivable (60,317) (10,361) (70,678) 1,390 Due from other funds/governmental units 9,775 3,368 13,143 (10,784) Inventories (4,197) - (4,197) 461 Other prepayments (275) - (275) - Accounts payable and other accrued expenses (12,722) 13,222 500 (67) Due to other funds/governmental units 167 - 167 - Accrued payroll/employee leave benefits 20,910 14,778 35,688 11,420 Customer deposits 10,800 - 10,800 - Deferred revenue 24,424 - 24,424 - NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES 910,698$ 663,170$ 1,573,868$ 262,636$

NON CASH INVESTING, CAPITAL AND FINANCING ACTIVITIES Capital assets contributed by private sources -$ -$ -$ -$ Capital assets contributed to governmental activities - (92,442) (92,442) - Increase (Decrease) in fair value of investments 1,844 1,375 3,219 2,689 Acquisition of equipment under capital lease (4,129) (2,572) (6,701) -


ENTERPRISE FUNDSBUSINESS-TYPE ACTIVITIES

STATEMENT OF CASH FLOWSPROPRIETARY FUNDS

For the year Ended December 31, 2007


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CITY OF DES MOINES, WASHINGTON Notes to the Financial Statements

CITY OF DES MOINES

NOTES TO THE FINANCIAL STATEMENTS For the Year Ended December 31, 2007

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The City of Des Moines, King County, Washington was incorporated in June 1959 and operates under the Revised Code of Washington (RCW) as an Optional Municipal Non-charter City (Title 35A RCW). The City utilizes a Council-Manager form of government. Under this form of government, the voters elect at-large, a seven member City Council, and the Council elects one of its members to serve as Mayor. All seven City Council positions are elected for terms of four years allowing for Council member consistency and staggered elections. The City Manager is appointed by the City Council to act as the chief executive officer of the City and is responsible to the City Council for proper administration of all City affairs. The City of Des Moines is a general-purpose government with its fiscal year ending December 31. The City of Des Moines is a general-purpose government and provides law enforcement, road improvement, park and recreation, judicial administration, health and social services, and general administration services. In addition, the City owns and operates a marina and a surface water management utility. Fire protection for the City of Des Moines is provided for by South King Fire and Rescue, an entity established on September 20, 2005 when voters approved the merger of King County Fire Protection District No. 26 and the Federal Way Fire Department. The financial statements of the City of Des Moines have been prepared in accordance with generally accepted accounting principles (GAAP) as applied to governmental units and are audited annually by the Washington State Auditor’s Office, Division of Audits. The Governmental Accounting Standards Board (GASB) is the accepted standard setting body for establishing governmental accounting and financial reporting principles. The City’s significant accounting policies are described in this note. In 2003, the City adopted GASB Statement No. 34 Basic Financial Statements and Management Discussion and Analysis for State and Local Governments; Statement No. 37 Basic Financial Statements and Management’s Discussion and Analysis for State and Local Governments: Omnibus; Statement No. 38 Certain Financial Statement Note Disclosures; and Statement No. 41 Budgetary Comparison Schedules – Perspective Differences. Significant changes in Statement No. 34 include the following:

• A Management Discussion and Analysis (MD&A) section providing an analysis of the City’s overall position and results of operations.

• Financial statements prepared using accrual accounting for all of the City’s activities, including infrastructure (roads, bridges, etc.).

• A change in the fund financial statements focusing on the major funds. In 2004, the City adopted GASB Statement No. 40 Deposit and Investment Risk Disclosures. Statement No. 40 addresses common deposit and investment risks related to credit risk, concentration of credit risk, interest rate risk, and foreign currency risk.


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In 2005, the City adopted GASB Statement No. 42 Accounting and Financial Reporting for Impairment of Capital Assets and for Insurance Recoveries. Statement No. 42 establishes the requirement to reduce the carrying value of a capital asset in the event of impairment other than through the application of depreciation, and provides guidance on accounting for insurance recoveries. In 2006, the City adopted GASB Statement No. 46 Net Assets Restricted by Enabling Legislation. Statement No. 46 specifies the accounting and financial reporting requirements for disclosing the portion of total net assets restricted by enabling legislation. For governmental and business-type activities, the City applies all applicable GASB pronouncements and all FASB Statements and Interpretations, Accounting Principles Board (APB) Opinions and Accounting Research Bulletins (ARB) issued on or before November 30, 1989, unless they conflict with or contradict GASB pronouncements. A. The Reporting Entity

The City’s annual financial report includes all funds, account groups, agencies and boards controlled by or dependent on the City. In conformance with Governmental Accounting Standards Board (GASB) Statement 14, “The Financial Reporting Entity”, the primary basis of determining whether outside agencies and organizations should be considered component units of the City is financial accountability. Financial accountability is defined as appointment of a voting majority of an agency’s or organization’s board, and either the City’s ability to impose will on the agency or organization, or the possibility that the agency or organization will provide a financial benefit to or impose a financial burden on the City.

There were no component units meeting any of those criteria in 2007. See Note 8 – Joint Ventures for discussion of the Mount Rainier Pool Contributors Coalition of three cities and Highline School District No. 401 that provide funding for operation of the Mt. Rainier Pool, the Mount Rainier Pool Owners’ Coalition consisting of the cities of Des Moines and Normandy Park that jointly own the Mt. Rainier Pool, and the Marine View Drive Bridge Culvert Replacement Project whereby the City is a member of the Des Moines Creek Basin Committee, an interlocal agreement to develop a basin plan for Des Moines Creek with participating members that include the City of SeaTac, King County, the Port of Seattle, and the Washington State Department of Transportation. A joint venture is a legal entity or organization which results from a contractual arrangement that is owned, operated, or governed by two or more participants as a separate entity subject to joint control, in which participants retain an ongoing financial interest or an ongoing financial responsibility. Also, see Note 14 – Risk Management for discussion of the Washington Cities Insurance Authority.

B. Basis of Presentation

The City’s basic financial statements consist of government-wide statements, including a statement of net assets and statement of activities, and fund financial statements that provide a more detailed level of financial information.

Government-wide Financial Statements

The statement of net assets and the statement of activities display information about the City as a whole. These statements include the financial activities of the government. For


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the most part, the effect of interfund activity has been removed from these statements. Governmental activities, which normally are supported by taxes and intergovernmental revenues, are reported separately from business-type activities, which rely primarily on fees and charges for support. The statement of net assets presents the financial condition of the governmental and business-type activities of the City at year end. The statement of activities presents a comparison between direct expenses and program activity of the City. Direct expenses are those that are specifically associated with a service, program or department and, therefore, clearly identifiable to a specific function. Program revenues include charges paid by the recipient of the goods or services offered by the program, grants and contributions that are restricted to meeting the operational or capital requirements of a particular function or program, and interest earned on grants that is required to be used to support a particular function or program. Revenues which are not classified as program revenues are presented as general revenues of the City. The comparison of direct expenses with program revenues identifies the extent to which each business segment or governmental function is self-financing or draws from the general revenues of the City. Fund Financial Statements During the year, the City segregates transactions related to certain City functions or activities in separate funds in order to aid financial management and to demonstrate legal compliance. Fund financial statements are designed to present financial information of the City at this more detailed level. The focus of governmental and enterprise fund financial statements is on major funds. Each major fund is presented in a separate column. Nonmajor funds are aggregated and presented in a single column. Internal service funds are combined and the totals are presented in a single column on the face of the proprietary fund financial statements.

C. Fund Accounting

The accounts of the City are organized on the basis of funds each of which is considered a separate accounting entity. Each fund is accounted for with a separate set of self-balancing accounts that comprise its assets, liabilities, fund equity, revenues and expenditures or expenses, as appropriate. The City’s resources are allocated to and accounted for in individual funds according to the purpose for which they are spent and how they are controlled. There are three categories of funds: governmental, proprietary, and fiduciary. Governmental Funds All governmental funds are accounted for on a “flow of current financial resources” measurement focus. This means that only current assets and current liabilities are generally included on their balance sheets. Their reported fund balance (net current assets) is considered a measure of “available spendable resources.” Governmental fund operating statements focus on measuring changes in financial position, rather than net income; they present increases (revenues and other financing sources) and decreases (expenditures and other financing uses) in net current assets. The following are the City’s major governmental funds: 1) The General Fund is the general operating fund of the City. It accounts for all financial

resources and transactions except those required to be accounted for in another fund.


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2) The Street Fund is a general government service fund that accounts for the receipt and disbursement of State-levied “unrestricted” motor vehicle fuel taxes. All resources of this fund are utilized for the administration of street-oriented maintenance and repair.

3) The Arterial Street Fund is established in accordance with RCW 82.36.020 for the administration of the state-levied motor vehicle half-cent gasoline tax distributed to Des Moines. Effective September 2005, all motor vehicle fuel taxes are “unrestricted” with passage of SSB 5969. The Arterial Street Fund will continue to receive a portion of the former “restrictive” fuel taxes through a transfer from the Street Fund. The City provides a portion of its real estate excise taxes as well as general taxes through a transfer from its Municipal Capital Improvements Fund.

4) The Municipal Capital Improvements Fund is established for the purpose of accumulating resources used to finance local improvements, including those listed in RCW 35.43.040. The fund receipts all real estate excise taxes authorized under RCW 82.46.010(2) and RCW 82.46.035(2).

The other governmental funds of the City account for grants and other resources whose use is restricted to a particular purpose. In 2007, the city established the Police Services Restoration Fund, a nonmajor fund, to account for property taxes generated by a property tax levy lid lift ballot measure voters approved on May 16, 2006, as authorized by RCW 84.55.050. These property taxes are to be used exclusively for restoring police department staffing to previous years levels. Proprietary Funds Proprietary Funds are accounted for on a “flow of economic resources” measurement focus. This means that all assets and liabilities (whether current or noncurrent) associated with their activity are included on their balance sheets. Proprietary fund operating statements present increases (revenues and gains) and decreases (expenses and losses) in net total assets. Proprietary funds’ measurement focus is based upon determination of net income, financial position, and cash flows. Proprietary funds distinguish operating revenues and expenses from nonoperating items. Operating revenues and expenses generally result from providing services and producing and delivering goods in connection with a proprietary fund’s principal on-going operations. The principal operating revenues of the City’s enterprise and internal service funds are charges to customers, both internal and external, for sales and services. Operating expenses for the enterprise and internal service funds include the costs 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. As described below, there are two generic fund types in this category. The City’s Enterprise Funds account for services to the general public where all or most of the costs including depreciation are to be financed or recovered from users of such services. The City maintains separate funds for the Marina and the Surface Water Management Utility. These funds are each reported as major funds in the proprietary funds’ financial statements. The City has six Internal Service Funds. The Equipment Rental Operations and Replacement Funds are used to account for the costs of maintaining and replacing all City


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vehicles and auxiliary equipment. The Computer Equipment Operations and Replacement Funds are use to account for the costs of maintaining and replacing the city-wide information systems network & computer hardware and software. The Self-Insurance Fund is used to account for the costs of the City’s liability and property coverage. The Unemployment Compensation Fund is use to account for the costs of unemployment claims. Restricted assets shown in the government-wide financial statements and the proprietary funds balance sheet include general obligation bond proceeds reserved for future capital construction, monies reserved for payment of the bond debt, and deposits for customer accounts. When both restricted and unrestricted resources are available for use, it is the City’s policy to use restricted resources first, than unrestricted resources as they are needed. The government-wide statement of net assets reported $4,052,947 of restricted net assets, of which $838,727 is restricted by enabling legislation. Fiduciary Funds Fiduciary Funds account for assets held by the City in a trustee capacity or as an agent for individuals, private organizations, other governments, and other funds. During the fiscal year, the City did not maintain any trust or agency funds.

D. Measurement Focus

The government-wide financial statements are prepared using the economic resources measurement focus. All assets and liabilities associated with the operation of the City are included on the statement of net assets. All fund financial statements are accounted for using a flow of current financial resources measurement focus. With this measurement focus, only current assets and current liabilities generally are included on the balance sheet. The statement of revenues, expenditures, and changes in fund balances reports on the sources (i.e., revenues and other financing sources) and uses (i.e., expenditures and other financing uses) of current financial resources. This approach differs from the manner in which the government activities of the government-wide financial statements are prepared. Governmental fund financial statements, therefore, include a reconciliation with brief explanations to better identify the relationship between the government-wide statements and statements for governmental funds. Like the government-wide statements, all proprietary fund types are accounted for on a flow of economic resources measurement focus. All assets and all liabilities associated with the operation of these funds are included on the statement of net assets. The statement of revenues, expenses, and changes in fund net assets presents increases (i.e., revenues) and decreases (i.e., expenses) in net total assets. The statement of cash flows provides information about how the City finances and meets the cash flow needs of its proprietary activities. Fiduciary funds are reported using the economic resources measurement focus.

E. Basis of Accounting


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Basis of accounting refers to the recognition of revenues and expenditures or expenses in the accounts and reporting them in the financial statements. Government-wide financial statements are prepared using the accrual basis of accounting. Governmental funds use the modified accrual basis of accounting. Proprietary and fiduciary funds use the accrual basis of accounting. Revenues – Exchange and Non-exchange Transactions Revenues 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. The modified accrual basis of accounting is followed in all governmental funds of the City. Under the modified accrual basis of accounting, revenues are recorded when susceptible to accrual, i.e., both measurable and available. “Measurable” means the amount of the transaction can be determined and “available” means collectible within the current period or soon enough thereafter to pay current liabilities. For the City, available means expected to be received within sixty (60) days of year end. The primary accrued revenues that meet this criterion are property taxes, sales and use taxes, business and occupation taxes, franchise fees, utility taxes, and gambling taxes. Nonexchange transactions, in which the City receives value without directly giving equal value in return, include property taxes, sales and use taxes, business and occupation taxes, franchise fees, utility taxes, gambling taxes, grants, entitlements, and donations. These revenues are on an accrual basis in the government-wide financial statements. On the accrual basis, the revenue is recognized in the period in which the income is earned. Revenue from property taxes is recognized in the fiscal year for which the taxes are levied. (See Note 4 on receivables). Other Revenue Sources Revenue sources which are not considered to meet the measurable and available criteria for revenue recognition include licenses and permits, fines and forfeitures, and other miscellaneous revenues since they are not measurable until received. Under the modified accrual basis, expenditures are recorded when the fund liability is incurred, except for principal and interest on general long-term debt and vacation and sick pay which are recorded when paid. Inventory items are reported as expenditures when consumed. The effect of interfund activity has been eliminated from the government-wide financial statements so that expenses are not reported twice. Amounts reported on the government-wide statements as program revenues include, charges to customers or applicants for goods, operating grants and contributions, and capital grants and contributions. General revenues includes all taxes. The accrual basis of accounting is followed in all proprietary funds. Under the accrual basis of accounting, revenues are recognized when earned and expenses are recorded when incurred. All assets and liabilities are recorded in the fund.

F. Budgets and Budgetary Accounting

The City of Des Moines budgets its funds in accordance with the Revised Code of Washington (RCW) Chapter 35A.33. In compliance with the code, annual appropriated


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budgets are adopted for the general, special revenue, debt service, and capital project funds. For governmental funds, there are no substantial differences between the budgetary basis and generally accepted accounting principles. Budgetary accounts are integrated in fund ledgers for all budgeted funds, but the financial statements include budgetary comparisons for annually budgeted governmental funds only. Budgets established for proprietary and trust funds are “management budgets” and are not legally required to be reported. However, for management purposes the City Council does budget the funding levels of proprietary funds in order to monitor the performance and expense levels of such funds. Annual appropriated budgets are adopted at the level of the fund and the budgets constitute the legal authority for expenditures at that level. Subsidiary revenue and expenditure records are used to compare the budgeted amounts with actual revenues and expenditures. As a management control device, the subsidiary ledgers monitor expenditures for individual functions and activities by object class. Annual appropriations for all funds lapse at year end. The City of Des Moines’s budget procedures are mandated by RCW 35A.33. The steps in the budget process are as follows: 1. By late July, notice is submitted to Departments to prepare for current level service

budgets and a preliminary financial forecast.

2. By late August, the Finance Department prepares preliminary revenue estimates to define resources available to finance coming year expenditure programs, and updates salaries, benefits, and other centralized cost projections.

3. By second week of September, Departments submit their preliminary expenditure estimates. A proposed budget is prepared for the City Manager’s review. The City Manager conducts individual budget sessions with Departments to discuss their proposed expenditures.

4. Prior to November 1, the City Manager submits to the City Council a proposed operating budget for the fiscal year commencing the following January 1.

5. Work sessions and public hearings are conducted by the City Council from October to December to review the budget and to obtain taxpayer comments.

6. During the first two weeks of November, the City Clerk publishes a notice of filing of the preliminary budget and notices of public hearings to be held during preliminary budget deliberations.

7. Two public hearings on the proposed budget are also held during November and December. Final hearings on the budget must begin on or before the first Monday of December, and may continue until the 25th day prior to the beginning of the next fiscal year.

8. By December 31, the City Council formulates its adjustments to the proposed budget

and adopts a final budget through the passage of an ordinance.

9. The final operating budget, as adopted, is published and distributed within the first three months of the following year. Copies of the adopted budget are made available to the public.


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The City Manager may authorize transfers within funds, however, the City Council must approve by ordinance any amendments that increase or decrease the total for the fund. The budget was amended once during 2007. Budget amounts presented in the basic financial statements include both the original adopted amounts and the final amended budget as approved by the City Council. Expenditure Categories General Government – includes executive, municipal court, finance, records services, personnel, legal, and facilities maintenance.

Public Safety – includes all police activities, jail services, and fire protection fees to South King Fire and Rescue.

Physical Environment – includes expenditures for building inspection activities, animal control, pollution control fees, and airport defense activities.

Transportation – includes all engineering, street, and arterial street maintenance and construction.

Economic Environment – includes the planning and development review activities.

Mental and Physical Health – includes human services, senior services, and senior recreation programs.

Culture and Recreation – includes the parks administration, parks recreation programs, parks maintenance activities, and operation and maintenance of the Mt. Rainier Pool.

Interest on Long-term Debt.

G. Encumbrances

Encumbrance accounting is not employed by the City. There is, therefore no related reservations of fund balances. Outstanding commitments will be honored during the subsequent year, with appropriations increased through the budget amendment process, if required.

H. Assets, Liabilities and Fund Equity

Cash and Cash Equivalents All cash and cash equivalents, restricted and unrestricted, consists of cash balances in the City’s checking account, imprest funds, demand deposits with banks or other financial institutions, overnight investments with KeyBank sweep account, investments with the State Treasurers Local Government Investment Pool, and investments with original maturities of less than three months. Interest earned on pooled investments is allocated to funds based on the average monthly equity in the pooled balances. Investments Investments are held separately by each of the funds with interest earned directly for the benefit of each fund, unless authorization by the City Council allows interest earnings from unrestricted sources from various other general governmental funds to be received by the General Fund. Investments are reported on the financial statements at fair value, cost or amortized cost, depending on the type and maturity length of each investment as required


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by GASB Statement No. 31. Washington State statutes provide for the City to hold investments consisting of obligations of the federal government, repurchase agreements, prime banker’s acceptances, time certificates of deposit. Gains or losses due to market valuation changes are netted against interest earnings. Premiums and discounts on investment purchases are amortized on a straight-line basis over the life of the investment, or to the first call date if one exists and the purchase is at a premium. Additional deposit and investment information is presented in Note 3. Receivables Taxes receivable consist of measurable and available locally levied property taxes, sales taxes, business and occupation taxes, utility taxes, franchise fees, real estate excise taxes and related interest and penalties. No allowance for uncollectible property taxes is established because delinquent taxes are considered fully collectible due to foreclosure requirements in State Law. Special assessments are recorded when levied. Special assessment receivables consist of deferred and delinquent assessments and related interest and penalties. Deferred assessments consist of unbilled special assessments that are liens against the property benefited. Customer accounts receivable consists of amounts owed from private individuals or organizations for goods and/or services provided by the end of the fiscal year. Uncollectible amounts are considered immaterial and the direct write-off method is primarily used. In 2006, an allowance for uncollectibles was established for Surface Water Management Fees. Due from other governments reflects measurable and available intergovernmental grants, entitlements, or state shared revenues, loans, and charges for services rendered by the City for another government unit. These amounts are reported as intergovernmental revenues in the year when the related expenditures are incurred. Interfund Transactions During the course of normal operations, the City has numerous transactions between City funds. Quasi-external transactions such as buying goods and services are recorded as revenues and expenditures. Repayments from funds responsible for particular expenditures or expenses to the funds that initially paid for them are not presented on the financial statements. Operating transfers between funds are included as “other financing sources or uses”. Interfund loans, when applicable, are recorded as receivables in the lending fund and payables in the borrowing fund. The City Council approved an interfund loan from the Revenue Stabilization Fund to the Police Services Restoration Fund, both nonmajor governmental funds, in 2007. Additional information on the interfund loan is provided in Note 5. Inventories and Prepaid Items Governmental funds use the “purchase method” whereby inventory items are considered expenditures when purchased. Inventories in proprietary funds are valued at cost using the first-in/first-out (FIFO) method. Certain payments to vendors reflect costs applicable to future accounting periods and are recorded as prepaid items in both government-wide and fund financial statements.


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Restricted Assets These monies include other resources the use of which is restricted by legal or contractual requirements, and therefore essentially beyond the government’s control. These accounts contain resources for debt service (general obligation and revenue bonds) and construction in enterprise funds. These funds can only be used for the purposes specified in the ordinances and resolutions requiring restriction. Capital Assets and Depreciation The accounting and reporting treatment applied to the capital assets associated with a fund are determined by its measurement focus. Capital assets acquired in governmental funds are accounted for as expenditures in the fund when the asset is purchased. These assets are reported in the governmental activities column of the government-wide statement of net assets but are not reported in the fund balance sheet. Capital assets utilized by the proprietary funds are reported both in the business-type activities column of the government-wide statement of net assets and in the respective proprietary fund financial statements. Capital assets include property, plant, equipment, and infrastructure assets (e.g., roads, bridges, sidewalks, and similar items). Capital assets are defined by the City as assets with an initial, individual cost of $5,000 or greater and an estimated useful life in excess of two years. Such assets are recorded at historical cost or estimated historical cost if purchased or constructed. Donated capital assets are recorded at estimated fair market value at time of acquisition. The costs of normal maintenance and repairs that do not add to the value of the asset or materially extend assets lives are not capitalized. Major outlays for capital assets and improvements are capitalized as projects are constructed. Interest incurred during the construction phase of capital assets of business-type activities is included as part of the capitalized value of the assets constructed. The total interest and fiscal charges expense for the business-type activities incurred by the City during the current fiscal year was $174,865. Of this amount, $6,709 was included as part of the cost of capital assets under construction in connection with the Marina construction projects. Depreciation is computed using the straight line method over estimated service lives, as follows:

Assets Estimated Service Life Buildings and structures 4 to 50 years Capital leases 5 Years Leasehold improvements 5 Years Other improvements 10 to 50 years Vehicles 3 to 10 years Communication systems 7 to 10 years Computer infrastructure 6 Years Machinery and equipment 7 to 24 years Infrastructure 10 to 25 years Intangible assets 5 to 10 years Storm drainage systems 25 to 50 years


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See Note 6 for additional information. Deferred Charges Deferred charges represent the unamortized portion of bond issuance costs in the government-wide financial statements for governmental activities. The deferred charges in the proprietary funds represent the unamortized portion of bond issuance costs and deferred losses on two advance refunding issues for the Marina. Compensated Absences It is the City of Des Moines’s policy to permit employees to accumulate earned but unused vacation, compensatory time, and sick leave benefits. The City records a liability for all outstanding vacation pay. The payment is based on current wages at termination. Employees other than Teamsters with the required length of service may receive cash payouts for all accumulated vacation leave to a maximum of 300 hours. Teamsters’ members with the required length of service may receive cash payouts for all accumulated vacation leave to a maximum of 315 hours. Accrued vacation pay for governmental fund employees incurred within sixty days is recorded as a fund liability in the fund financial statements. A non-exempt employee may request compensatory time off in lieu of overtime payment. Compensatory time is accrued at a rate of one and one-half hours for each hour of overtime worked, to a maximum of forty hours. Compensatory time must be used within sixty days of the time it was earned and authorized, excluding the Police Guild. Compensatory time for the Police Guild can be carried over from year to year. The City records a liability for sick leave up to 25% of the employee’s sick leave balance or 200 hours, whichever is less for those employees other than the Teamsters with at least ten years of service with the City. The entire compensated absence liability is reported on the government-wide financial statements. In the proprietary funds, the entire amount of compensated absences is reported as a fund liability. This reporting format is in compliance with GASB Statement No. 16. Short-term Debt As of December 31, 2007, the City of Des Moines had not incurred any short-term debt. Long-term Obligations In the government-wide financial statements, and proprietary fund types in the fund financial statements, long-term debt and other long-term obligations are reported as liabilities in the applicable governmental activities, business-type activities, or proprietary fund type statement of net assets. Bond premiums and discounts, as well as issuance costs, are deferred and amortized over the life of the bonds using the “bonds-outstanding” method, which approximates the “effective interest” method. Bonds payable are reported net of the applicable bond premium or discount.


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In the fund financial statements, governmental fund types recognize bond premiums and discounts, as well as bond issuance costs, during the current period. The face amount of debt issued is reported as other financing sources. Premiums or discounts received on debt issuances are reported as other financing sources. Issuance costs, whether or not withheld from the actual debt proceeds received, are reported as debt service expenditures. Deferred Revenues Deferred revenues consist of amounts collected before revenue recognition criteria are met, and receivables, which, under the modified accrual basis of accounting, are measurable but not yet available. When the receivable amounts are collected in future periods, this liability account is reduced and corresponding revenues is recorded. Fund Equity – Reserves and Designations The City recognizes in its reporting that assets are sometimes not “available spendable resources” or not at times legally available for appropriation, because they are contractually or legally restricted for some specific future use. When this is the case, as for example with imprest funds and prepaid items, fund equity is “reserved”. Designations are set aside portions of fund equity by management for future plans or administrative convenience.

NOTE 2 – STEWARDSHIP, COMPLIANCE AND ACCOUNTABILITY

Budgetary Compliance

There have been no material violations of finance-related legal or contractual provisions. Expenditures in the Hotel-Motel Tax Fund exceeded legal appropriations by $880.

NOTE 3 – DEPOSITS AND INVESTMENTS

As required by state law, all deposits and investments of the City’s funds are either obligations of the United States Government, the State Treasurer’s Local Government Investment Pool (LGIP), bankers’ acceptances, or deposits with Washington State banks or savings and loan institutions. The LGIP, which is a 2a7-like unrated pool, is a voluntary program administered by the State Treasurer’s Office. The fair value of the positions in the LGIP is the same as the value of the pool shares. Interest earned on pooled investments is credited to the participating funds in proportion to their respective cash balances in the pool. Note 1 describes the investment policies of the City.

Deposits in approved banks are covered by the Federal Deposit Insurance Corporation up to a limit of $100,000 per account. The remaining deposits are insured by the Washington Public Deposit Protection Commission (WPDPC). The WPDPC is a multiple financial institution collateral pool. State statute permits additional amounts to be assessed on a pro rata share basis to members of the pool in the event the pool’s collateral should be insufficient to cover a loss. Cash and Deposits At December 31, 2007, the City had $12,649,678 in cash and cash equivalents which consisted of investments with KeyBank Sweep Account of $178,644, investments with the State Pool $11,776,911; the City’s checking account bank balance of $460,524; KeyBank


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Money Market Savings Account of $3,953; deposits held in escrow of $219,142; ICMA forfeitures of $5,204 held by that organization; cash held with fiscal agent of $5,000 and petty cash and change funds, and investigative fund totaling $5,300. No deposits were uninsured or uncollateralized. Investments The City has few investments and chooses to disclose its investments by specifically identifying each individually. As stated in Note 1, investments are held separately by each of the funds with interest earned directly for the benefit of each fund, unless authorization by the City Council allows interest earnings from unrestricted sources from various other general governmental funds to be received by the General Fund. Investments are reported at fair value based on quoted market prices. At December 31, 2007, the City held the following investments.

Interest Rate Risk. As a means of limiting its exposure to fair value losses arising from rising interest rates, the City’s investment policy limits investment maturities to eighteen months or less unless matched to a specific cash flow. As of December 31, 2007, investments with maturities greater than eighteen months were primarily limited to capital and reserve funds. Credit Risk. State statutes and the City’s investment policy limit the types of securities authorized for investment by the City. The principal governing statutes are RCW 39.59 and RCW 39.60. Authorized investments include:

1) U.S. Treasury Securities. 2) U.S. Agency Securities (i.e., obligations of any government-sponsored corporation

eligible for collateral purposes at the Federal Reserve). 3) Certificates of Deposit, Money Market Deposit Accounts and savings deposits with

qualified depositories within statutory limits as promulgated by the WPDPC at the time of investment.

4) Bankers Acceptances (BA’s) purchased on the secondary market with a rating of A-1, P-1, it’s equivalent or better.

5) General Obligation Bonds of a state or local government which have at the time of the investment one of the three highest credit ratings of a nationally-recognized rating agency.

6) The Washington State Local Government Investment Pool (LGIP). As of December 31, 2007, the city’s Federal Home Loan Bank bond investments (FHLB), Federal Home Loan Mortgage Corporation note investments (FHLMC) were rated Aaa by Moody’s Investors Service and AAA by Standard and Poor’s.

Concentration of Credit Risk. With the exception of U.S. Treasuries, and the State Investment Pool, the City’s investment policy limits investing in a single security type or with

Item Call Date Maturity Date Fair ValueFHLMC Medium Term Notes 10/1/08 10/1/10 1,006,570$ FHLB Bonds N/A 11/21/08 1,006,875 FHLB Bonds 11/6/08 11/6/09 1,004,688 Total investments at fair value 3,018,133$ Plus net unamortized premium and discount 5,633 Total investments, net 3,023,766$


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a single financial institution to no more than 25 percent of the City’s total investment portfolio.

NOTE 4 – RECEIVABLES AND PAYABLES

Property Taxes Receivable The King County Treasurer acts as an agent to collect property taxes levied in the County for all taxing authorities. Taxes are levied annually on January 1 on all property listed as of the prior August 31 and billed on April 1 and October 1. Amounts collected by the County on the City’s behalf are remitted daily. Property taxes levied by the City and collected by the King County Treasurer (County) become a lien on the first day of the levy year and may be paid in two equal installments if the total amount exceeds thirty dollars. The first half of the real property taxes is due April 30 and the balance is due October 31. Delinquent taxes bear interest at the rate of 12% and are subject to additional penalties if not paid as scheduled. During the year, property tax revenue is recognized when cash is received. At year end, property tax revenues are recognized for collections to be distributed by the County in January and February. Property taxes not expected to be collected within 60 days after the current period are reported as deferred revenue. Under state law, cities may levy up to $3.60 per $1,000 of assessed valuation for general government services, of which $1.50 is allocated to the local fire district and $0.50 to library services. The City of Des Moines is served by South King Fire and Rescue and the King County Library System and therefore is limited to $1.60 per $1,000 of assessed valuation for general purposes. The payment of principal and interest on Limited Tax (non-voted) General Obligation Bonds issued by the City is made from the general levy. Accordingly, the issuance of Limited Tax General Obligation Bonds has the effect of reducing property taxes available for the general operations of city government. State law also provides that the City’s operating levy may not exceed 106% of the largest single levy of the previous three years. In addition, the state constitution provides that the total of all taxes upon real and personal property by the state and all taxing entities, including the City, shall not in any year exceed 1% ($10 per $1,000) of the true and fair monetary value of such property. The limitation may be exceeded upon the 60% approval of the City voters at an election in which the total vote exceeds 40% of the votes cast at the

Cash & CashEquivalents Investments Total

From Statement of Net Assets: Cash and cash equivalents 10,978,976$ -$ 10,978,976$ Cash with fiscal agent 5,000 5,000 Investments 2,519,094 2,519,094 Restricted assets: Cash and cash equivalents 1,670,702 1,670,702 Investments 504,672 504,672 Total all cash, deposits, and investments from statement of net assets 12,654,678$ 3,023,766$ 15,678,444$

Summary of All Cash, Deposits, and Investments


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last general election. As discussed in Note 1, a voter-approved ballot measure raising the property tax levy rate to $1.60 per $1,000 assessed valuation was enacted May 16, 2006 effective for the 2007 levy year. In 2007, the City levied $1.0884 per $1,000 of assessed valuation for general purposes and $0.5116 for restoring police services per the levy lid lift for a combined total levy rate of $1.60 on a total regular levy assessed value of $2,590,075,629. The City’s excess tax levy for Unlimited General Obligation Bonds was $0.2068 per $1,000 of assessed valuation, totaling $535,628. Actual property taxes levied in 2007 were as follows:

Item Property Taxes

General Levy $2,820,054Voter-Approved 1,325,561Excess Levy 528,349Total $4,673,964

Sales Taxes and Other Locally Levied Taxes During the year, sales tax, hotel-motel tax, business and occupation tax, franchise fee, utility tax, and gambling tax revenues are recognized when cash is received. Sales tax and hotel-motel tax revenues are collected by the State’s Department of Revenue and remitted monthly. Timing of receipts for sales tax and hotel-motel tax revenues follows a two month lag in reporting period. November and December 2007 revenues were remitted in January and February 2008, respectively. The City collects franchise fee, utility tax, and gambling tax revenues and they are remitted monthly following the month earned. The City implemented a business and occupation tax effective for 2005 with the adoption of Ordinance No. 1355 on December 2, 2004. A tax rate of two tenths of one cent ($.002) was established exempting businesses with annual gross receipts of $50,000 or less. Businesses earning $75,000 or more are required to file their tax returns and submit their remittances 30 days following the end of each quarter. All other active businesses file annual returns. Business and occupation taxes reported in 2007 totaled $720,878. On January 13, 2005, the City Council adopted Ordinance No. 1358 imposing a one percent (1%) hotel-motel tax per RCW 67.28.180. The hotel-motel tax is a special excise tax imposed upon the sale of or charge made for the furnishing of lodging by a hotel, rooming house, tourist court, motel, bed and breakfast, or trailer camp for less than 30 days. The hotel-motel tax revenue collections are earmarked for marketing services in promoting tourism to the City. Hotel-motel tax revenues reported in 2007 totaled $21,224. The King County Treasurer acts as an agent for the collection of the locally-imposed real estate excise taxes. Cities are authorized to levy one quarter percent and an additional one quarter percent if they are planning under the Growth Management Act. The City levies both the first ¼% and second (optional) real estate excise taxes. The tax is levied on all sales of real estate, measured by the full selling price including the amount of any liens, mortgages, and other debts given to secure the purchase. Amounts collected by the County on the City’s behalf are remitted monthly.


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During the year, real estate excise tax revenue is recognized when cash is received. At year end, unpaid taxes are recorded as a receivable. Real estate excise taxes not expected to be collected within 60 days after the current period are reported as deferred revenue. The following outlines taxes receivable for the year ended December 31, 2007.

Taxes Item Receivable

Property Taxes $ 177,483 Sales Taxes 366,943 Hotel-Motel Taxes 3,490 Business & Occupation Taxes 250,189 Franchise Fees 58,032 Utility Taxes 379,826 Gambling Taxes 5,635 Real Estate Excise Taxes 67,109 Total $ 1,308,707

Customer Accounts and Other Receivables

As of December 31, 2007, the City has included a receivable for court fines and forfeits under customer accounts for $374,600 related to 2007 and prior years. A deferred revenue for these court fines and forfeits has been established in the fund financial statements. These revenues represent the estimated collectible amount of the total court outstanding revenues of $3,564,222 at December 31, 2007. Due from Other Governments The City receives various grant awards from federal, state, and local governmental agencies. Most of the awards are reimbursable after expenditures are incurred; reimbursements not yet received at year end are reported as intergovernmental revenues and due from other governments. Grant revenues from cost reimbursement grants are considered earned and therefore available when the expenditure is incurred. Grants received before the revenue recognition criteria have been met are reported as Deferred Revenue. Due to Other Governments At December 31, 2007, the City recorded $178,112 as due to other governmental units. Included in this amount is $170,301 for interest earnings on unspent Public Works Trust Fund loan proceeds. The remainder represents amounts due the state for concealed weapons permits, overpayment due to State Department of Fish and Wildlife, and King County for fines collected that support crime victims and law library. Other Current Liabilities As of December 31, 2007, other current liabilities were as follows:


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Deferred Revenues Deferred revenue for the year ended December 31, 2007 as reported on the government-wide statement of net assets is detailed below:

NOTE 5 – INTERFUND RECEIVABLES, PAYABLES, AND TRANSFERS

There were no outstanding interfund receivables and payables at December 31, 2007.

The principal purposes for interfund transfers include interfund subsidies and transfers into debt service and capital project funds. Interfund transfers at December 31, 2007 were as follows:

Fund Category Transfers In Transfers Out

General Fund $ 161,605 $ 110,139 Street Fund 0 238,362 Arterial Street Fund 1,046,085 156,898 Municipal Capital Imprv Fund 19,416 706,665 Nonmajor Governmental Funds 445,450 496,990 Internal Service Funds 43,814 7,316 Totals $1,716,370 $1,716,370

The following describes the significant amounts transferred during 2007:

General fund transfers out:

• $51,602 operating subsidy for the Mt. Rainier Pool in the nonmajor governmental funds.

• $18,836 automation fees for Building Division computer needs in the Computer Equipment Capital Fund.

Governmental Business-TypeItem Activities Activities Total

Business Licenses 34,693$ -$ 34,693$ Recreation Programs 36,731 36,731 Crime-free Housing Program 39,014 39,014 Mt. Rainier Pool Subsidy 42,515 42,515 Customer Moorage 219,732 219,732 Total 152,953$ 219,732$ 372,685$

Arterial Municipal Nonmajor SurfaceGeneral Street Street Capital Governmental Water

Item Fund Fund Fund Imprv Fund Funds Marina Utility TotalRetainage 219,911$ 23,183$ 483$ 243,577$ Payroll 404,692 12,068 29,404 28,625 24,897 499,686 Employee Benefits 22,366 1,142 2,235 2,192 1,968 29,903 Taxes 3,125 3 87 1,618 2,109 6,942 Banking Fees 1,974 1,802 3,776 Compensated absences 40,696 2,055 2,737 7,740 6,795 60,023 Unclaimed property 7,115 70 752 7,937 Court trust bails 15,620 15,620 Customer Deposits 513,458 513,458 Total other current liabilities 1,009,046$ 15,268$ 219,911$ 23,183$ 35,016$ 42,729$ 35,769$ 1,380,922$


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• $10,300 additional funding for construction of the Steven J. Underwood Memorial Park restroom facility in the Municipal Capital Improvements Fund.

• $10,285 for copiers’ capital lease debt service in the nonmajor governmental funds.

• $10,000 reserves for telephone system in the Computer Equipment Capital Fund. • $9,116 additional funding for Field House Renovation Project in the Municipal

Capital Improvements Fund.

Street fund transfers out: • $230,700 gas taxes for transportation capital improvements in the Arterial Street

Fund. • $7,662 additional funding for new chipper in the nonmajor governmental funds.

Arterial Street fund transfers out:

• $156,898 for debt service in the nonmajor governmental funds.

Municipal Capital Improvements fund transfers out: • $480,000 to provide funding for transportation capital projects in the Arterial

Street Fund. • $226,665 for debt service in the nonmajor governmental funds.

Nonmajor fund transfers out:

• $314,241 transportation impact fees for transportation capital improvements in the Arterial Street Fund.

• $161,605 for police department overtime in the General Fund. • $21,144 for transportation related local improvement district payments to the

Arterial Street Fund. •

Interfund Loan

In 2007, authorization for an interfund loan was approved by the City Council up to $250,000 at an interest rate of 5.2% from the Revenue Stabilization Fund to the Police Services Restoration Fund, both nonmajor governmental funds, to be repaid by December 31, 2007. The purpose of the interfund loan was to provide a funding source in advance of the receipt of property taxes for police officers’ salaries, professional services for recruiting, and police equipment purchases. The amount of $45,000 was drawn against the loan and repaid on April 30, 2007 incurring interest charges of $192.33.

NOTE 6 – CAPITAL ASSETS

Capital asset activity for the year ended December 31, 2007, was as follows:


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Beginning EndingBalance Increases Decreases Balance

Governmental Activities: Capital assets not being depreciated: Land 100,508,719$ 6,896$ -$ 100,515,615$ Art Collections - 88,500 88,500 Construction in progress 1,842,396 8,042,655 (1,445,673) 8,439,378 Total capital assets not being depreciated 102,351,115 8,138,051 (1,445,673) 109,043,493

Other capital assets: Buildings & structures 8,688,822 379,379 9,068,201 Capital leases 43,417 7,836 51,253 Other improvements 5,515,728 110,414 5,626,142 Leasehold Improvements - 154,682 154,682 Machinery and equipment 3,617,715 810,597 (64,135) 4,364,177 Infrastructure 24,950,487 722,410 25,672,897 Intangible assets 209,909 209,909 Total other capital assets at historical cost 43,026,078 2,185,318 (64,135) 45,147,261

Less accumulated depreciation: Buildings & structures (1,821,088) (210,759) (2,031,847) Capital leases (7,236) (9,257) (16,493) Other improvements (2,143,712) (315,498) (2,459,210) Leasehold Improvements - (18,046) (18,046) Machinery and equipment (2,316,419) (435,759) 64,135 (2,688,043) Infrastructure (9,341,202) (1,297,778) (10,638,980) Intangible assets (159,787) (33,237) (193,024) Total accumulated depreciation (15,789,444) (2,320,334) 64,135 (18,045,643)

Other capital assets, net 27,236,634 (135,016) - 27,101,618 Governmental activities capital assets, net 129,587,749$ 8,003,035$ (1,445,673)$ 136,145,111$

Beginning EndingBalance Increases Decreases Balance

Business-type Activities: Capital assets not being depreciated: Land 3,757,984$ -$ -$ 3,757,984$ Construction in progress 2,008,124 1,334,045 (2,364,780) 977,389 Total capital assets not being depreciated 5,766,108 1,334,045 (2,364,780) 4,735,373

Other capital assets: Buildings & structures 4,800,308 4,800,308 Capital leases 6,701 6,701 Other improvements 20,189,569 91,969 20,281,538 Leasehold improvements 149,669 1,491,920 1,641,589 Machinery and equipment 106,104 184,073 290,177 Intangible assets 230,124 123,740 353,864 Total other capital assets at historical cost 25,482,475 1,891,702 - 27,374,177

Less accumulated depreciation: Buildings & structures (3,017,854) (119,029) (3,136,883) Capital leases (1,117) (1,340) (2,457) Other improvements (8,980,899) (510,880) (9,491,779) Leasehold improvements (89,834) (5,231) (95,065) Machinery and equipment (68,546) (31,356) (99,902) Intangible assets (136,967) (26,685) (163,652) Total accumulated depreciation (12,295,217) (694,521) - (12,989,738)

Other capital assets, net 13,187,258 1,197,181 - 14,384,439 Business-type activities capital assets, net 18,953,366$ 2,531,226$ (2,364,780)$ 19,119,812$


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All reported capital assets of the City are depreciated, excluding the art collection. Improvements are depreciated over the remaining useful lives of the related capital assets. Useful lives for infrastructure were estimated based on the City’s historical records of necessary improvements and replacement. Depreciation expense for 2007 was charged to functions/programs as follows:

Marine View Drive Bridge Culvert Replacement

The City of Des Moines Surface Water Management Utility manages the Marine View Drive Bridge culvert replacement project. The Marine View Drive Bridge is owned by the State of Washington. The City is a member of the Des Moines Creek Basin Committee established in 1996 by an interlocal agreement authorized by the Interlocal Cooperation Act (Chapter 39.34 RCW) to develop a basin plan for the Des Moines Creek. Other participating members include the City of SeaTac, King County, the Port of Seattle, and the Washington State Department of Transportation. The Marine View Drive Bridge culvert replacement project is one of three main Des Moines Creek Restoration projects that will be constructed, operated and maintained by the members of the Des Moines Creek Basin Committee. The two other main projects include the Regional Detention Facility, and the Stream Bypass Pipe. Construction costs for these projects total $23,602,231, with the City of Des Moines contributing $1,002,402, or 4.25%. The City of SeaTac is the Treasurer for the Committee and reimburses the City of Des Moines for all project costs, other than City incurred administrative costs and costs related to utility relocations that are reimbursed directly to the City from both private and public entities. The City of Des Moines records 18% of the Marine View Drive Bridge culvert replacement project costs for stream improvements, which represents 18% of the basin area within the city limits, and 100% of the intermodel trail and roadway improvements to construction in progress until completion. The remainder of the project costs net of reimbursements is shown as other non-operating expenses. The Marine View Drive Bridge Culvert Replacement Project activity for 2007 is as follows:

Governmental Activities: General Government 100,878$ Public Safety 192,334 Physical Environment 3,084 Transportation 1,340,578 Economic Environment 36,402 Culture and Recreation 350,305 In addition, depreciation on capital assets held by the City's internal service funds is charged to the various functions based on their usage of the assets. 296,753 Total governmental activities depreciation and amortization expense 2,320,334$

Business-type Activities: Marina 406,395$ Surface Water Utility 288,126 Total business-type activities depreciation and amortization expense 694,521$


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OtherDes Moines Governments Total

Reimbursements: City of SeaTac -$ 277,811$ 277,811$ Midway Sewer District 175,179 175,179 Total Reimbursements -$ 452,990$ 452,990$

Project Costs: Total Project Costs 134,922$ 320,854$ 455,776$

Other Non-Operating Expenses (134,922)$ 132,136$ (2,786)$

NOTE 7 – PREPAID ITEMS

As of December 31, 2007, governmental and business-type activities recorded $3,377, and $275, respectively in vendor prepayments. Prepayments include $500 fee for a children theater performance during summer 2008, $1,040 for 2008 recreation staff membership dues, $1,837 for senior program 2008 performance tickets, and $275 for the Marina’s 2008 permit for underground fuel tanks.

NOTE 8 – JOINT VENTURES

Mount Rainier Pool Contributors Coalition The coalition of the Mount Rainier Pool Contributors was established by an interlocal agreement in December 2002, authorized by the provisions and terms of the Interlocal Cooperation Act (Chapter 39.34 RCW). The coalition created by the cities of Des Moines, Normandy Park, SeaTac, and Highline School District No. 401, entered into agreements with each other and into a Pool Operation Agreement with King County, whereby King County agreed to continue operation, management, and maintenance of the pool and programs for the calendar year 2003 with the coalition contributing a portion of the operating funds. In 2004, the coalition assumed sole responsibility for the operation and maintenance of the pool through 2006. The 2007 actual contributions were as follows:

2007 2007

Operating Capital TotalDes Moines 51,602$ 51,602$ Highline School District 13,760 13,760 Normandy Park 10,320 10,320 SeaTac 17,200 17,200 Pool Owners' - 71,924 71,924 Total 92,882$ 71,924$ 164,806$

The City of Des Moines maintains a special revenue fund for the operations of the Mt. Rainier Pool which is included as a nonmajor governmental fund in the financial statements.

Mount Rainier Pool Owners Coalition The Mount Rainier Pool Owners Coalition was established December 11, 2003, when an interlocal agreement was entered into by the cities of Des Moines and Normandy Park for joint ownership of the Mt. Rainier Pool. The agreement is sanctioned by the provisions and terms of the Interlocal Cooperation Act pursuant to RCW 39.34. The intended purpose of the coalition is to assure the continued operation of the pool effective January 1, 2004 through termination of the agreement on December 31, 2006. The agreement was initiated due to King County’s decision to discontinue the operation of the pool even with subsidy


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funding provided by the Mount Rainier Pool Contributors Coalition. A Pool Transfer Agreement between King County and the Mount Rainier Pool Owners Coalition was executed in December 2003 that conveyed by deed effective as of January 1, 2004, all of its ownership interest in the Mt. Rainier Pool, and assignment of its lease with the Highline School District. The value of the pool was determined to be equal to the approximate cost of operating the pool due to the limitations in marketability and legal restriction regarding conversion of the properties to another use. The agreement establishing the Mount Rainier Pool Contributors Coalition was renewed concurrently with the Mount Rainier Pool Owners Coalition agreement to continue the individual governments’ participation in support of the pool’s operations from January 1, 2004 through December 31, 2006. The Mount Rainier Pool Owners Coalition entered into an agreement with Aquatic Management Group, Inc. (AMG) concurrently with the Mount Rainer Pool Owners and Mount Rainier Pool Contributors Coalitions’ agreements for purposes of maintaining and operating the pool for a period of three years, beginning January 1, 2004 through December 31, 2006. The City of Des Moines’s annual contribution for the term of the agreements was $75,000. The above Interlocal agreements were amended September 2006 to continue operations of the Mt. Rainier Pool through 2009 with total annual operating subsidies of $92,882 for 2007, $95,668 for 2008, and $98,538 for 2009. In 2007, remaining funds under the control of the Mount Rainier Pool Owners Coalition were distributed to the City for maintenance of the Mt. Rainier Pool.

NOTE 9 – PENSION PLANS AND OTHER POST EMPLOYMENT BENEFITS Washington State Department of Retirement Systems

Substantially all of the City’s full-time and qualifying part-time employees participate in one of the following statewide retirement systems administered by the Washington State Department of Retirement Systems, under cost-sharing multiple-employer public employee defined benefit and defined contribution retirement plans. The Department of Retirement Systems (DRS), a department within the primary government of the State of Washington, issues a publicly available comprehensive annual financial report (CAFR) that includes financial statements and required supplementary information for each plan. The DRS CAFR may be obtained by writing to:

Department of Retirement Systems Communications Unit

P.O. Box 48380 Olympia, WA 98504-8380

The following disclosures are made pursuant to GASB Statement No. 27, Accounting for Pensions by State and Local Government Employers. Public Employees’ Retirement System (PERS) Plans 1, 2, and 3 Plan Description. PERS is a cost-sharing multiple-employer retirement system comprised of three separate plans for membership purposes: Plans 1 and 2 are defined benefit plans and Plan 3 is a combination defined benefit/defined contribution plan. Membership is mandatory for all City employees working 70 hours per month for five months out of the twelve month period. Membership in the system includes: elected officials; state employees; employees of the Supreme, Appeals, and Superior courts (other than judges currently in a


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judicial retirement system); employees of legislative committees; community and technical colleges, college and university employees not participating in national higher education retirement programs; judges of district and municipal courts; and employees of local governments. The PERS system includes three plans. PERS participants who joined the system by September 30, 1977 are Plan 1 members. Those who joined on or after October 1, 1977 and by either, February 28, 2002 for state and higher education employees, or August 31, 2002 for local government employees, are Plan 2 members unless they exercise an option to transfer their membership to Plan 3. PERS participants joining the system on or after March 1, 2002 for state and higher education employees, or September 1, 2002 for local government employees have the irrevocable option of choosing membership in either PERS Plan 2 or PERS Plan 3. The option must be exercised within 90 days of employment. An employee is reported in Plan 2 until a choice is made. Employees who fail to choose within 90 days default to PERS Plan 3. PERS defined benefit retirement benefits are financed from a combination of investment earnings and employer and employee contributions. PERS retirement benefit provisions are established in state statute and may be amended only by the State Legislature. Plan 1 retirement benefits are vested after an employee completes five years of eligible service. Plan 1 members are eligible for retirement at any age after 30 years of service, or at the age of 60 with five years of service, or at the age of 55 with 25 years of service. The annual pension is two percent of the average final compensation per year of service, capped at 60 percent. The average final compensation is based on the greatest compensation during any 24 eligible consecutive compensation months. Plan 1 retirements from inactive status prior to the age of 65 may receive actuarially reduced benefits. The benefit is actuarially reduced to reflect the choice of a survivor option. A cost-of-living allowance (COLA) is granted at age 66 based upon years of service times the COLA amount, increased by three percent annually. Plan 1 members may also elect to receive an additional COLA amount (indexed to the Seattle Consumer Price Index), capped at three percent annually. To offset the cost of this annual adjustment, the benefit is reduced. Plan 2 retirement benefits are vested after an employee completes five years of eligible service. Plan 2 members may retire at the age of 65 with five years of service, or at the age of 55 with 20 years of service, with an allowance of two percent of the average final compensation per year of service. The average final compensation is based on the greatest compensation during any eligible consecutive 60-month period. Plan 2 retirements prior to the age of 65 receive reduced benefits. If retirement is at age 55 or older with at least 30 years of service, a three percent per year reduction applies; otherwise an actuarial reduction will apply. The benefit is also actuarially reduced to reflect the choice of a survivor option. There is no cap on years of service credit; and a cost-of-living allowance is granted (indexed to the Seattle Consumer Price Index), capped at three percent annually. Plan 3 has a dual benefit structure. Employer contributions finance a defined benefit component, and member contributions finance a defined contribution component. The defined benefit portion provides a benefit calculated at one percent of the average final compensation per year of service. The average final compensation is based on the greatest compensation during any eligible consecutive 60-month period. Effective June 7, 2006, Plan 3 members are vested in the defined benefit portion of their plan after ten years of service; or after five years of service, if twelve months of that service are earned after age 44; or after five service credit years earned in PERS plan 2 prior to June 1, 2003. Plan 3 members are immediately vested in the defined contribution portion of their plan. Vested Plan 3 members are eligible to retire with full benefits at age 65, or at age 55 with 10 years of service. Retirements prior to the age of 65 receive reduced benefits. If retirement is at


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age 55 or older with at least 30 years of service, a three percent per year reduction applies; otherwise an actuarial reduction will apply. The benefit is also actuarially reduced to reflect the choice of a survivor option. There is no cap on years of service credit, and Plan 3 provides the same cost-of-living allowance as Plan 2. The defined contribution portion can be distributed in accordance with an option selected by the member, either as a lump sum or pursuant to other options authorized by the Employee Retirement Benefits Board. Beginning January 1, 2007 through December 31, 2007, judicial members of PERS may choose to participate in the Judicial Benefit Multiplier Program (JBM). Current justices or judges in PERS Plan 1 and 2 may make a one-time irrevocable election to pay increased contributions that would fund a retirement benefit with a 3.5 percent multiplier. The benefit would be capped at 75 percent of average financial compensation. Judges in PERS Plan 3 can elect a 1.6 percent of pay per year of service benefit, capped at 37.5 percent of average compensation. Members who choose to participate in JBM will accrue service credit at the higher multiplier beginning with the date of their election, pay higher contributions, stop contributing to the Judicial Retirement Account (JRA), and be given the option to increase the multiplier on past judicial service. Members who do not choose to participate will: continue to accrue service credit at the regular multiplier; continue to participate in JRA, if applicable; never be a participant in the JBM Program; and continue to pay contributions at the regular PERS rate. Justices and judges who are newly elected or appointed to judicial service and choose to become PERS members on or after January 1, 2007, or who have not previously opted into PERS membership, are required to participate in the JBM program. Justices and judges who are newly elected or appointed to judicial service will: return to prior PERS Plan if membership had previously been established; be mandated into Plan 2 and not have a Plan 3 transfer choice, if a new PERS member; accrue the higher multiplier for all judicial service; not contribute to JRA; and not have the option to increase the multiplier for past judicial service. There are 1,188 participating employers in PERS. Membership in PERS consisted of the following as of the latest actuarial valuation date for the plans of September 30, 2006:

Retirees and Beneficiaries Receiving Benefits 70,201Terminated Plan Members Entitled to But Not Yet Receiving Benefits 25,610Active Plan Members Vested 105,215Active Plan Members Non-vested 49,812Total 250,838

Funding Policy. Each biennium, the state Pension Funding Council adopts Plan 1 employer contribution rates, Plan 2 employer and employee contribution rates, and Plan 3 employer contribution rates. Employee contribution rates for Plan 1 are established by statute at six percent for state agencies and local government unit employees, and 7.5 percent for state government elected officers. The employer and employee contribution rates for Plan 2 and the employer contribution rate for Plan 3 are developed by the Office of the State Actuary to fully fund Plan 2 and the defined benefit portion of Plan 3. All employers are required to contribute at the level established by the Legislature. Under PERS Plan 3, employer contributions finance the defined benefit portion of the plan, and member contributions finance the defined contribution portion. The Employee Retirement Benefits Board sets Plan 3 employee contribution rates. Six rate options are available ranging from 5 to 15 percent; two of the options are graduated rates dependent on the employee’s age. As a result of the implementation of the Judicial Benefit Multiplier Program


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in January 2007, a second tier of employer and employee rates was developed to fund, along with investment earnings, the increased retirement benefits of those justices and judges that participate in the program. The methods used to determine the contribution requirements are established under state statute in accordance with chapters 41.40 and 41.45 RCW. The required contribution rates expressed as a percentage of current-year covered payroll, as of December 31, 2007, were as follows: PERS Plan 1 PERS Plan 2 PERS Plan 3 Employer* 6.13% 6.13% 6.13%** Employee 6.00% 4.15% ***

* The employer rates include the employer administrative expense fee currently set at 0.16%. ** Plan 3 defined benefit portion only. *** Variable from 5.0% minimum to 15.0% maximum based on rate selected by the PERS 3 member.

Both the City of Des Moines and the employees made the required contributions. The City’s required contributions for the years ending December 31 were as follows:

PERS Plan 1 PERS Plan 2 PERS Plan 3 2007 $27,016 $277,386 $27,299 2006 12,971 133,791 10,958 2005 7,742 78,901 6,804

Law Enforcement Officers’ & Fire Fighters’ Retirement System (LEOFF) Plans 1 and 2 Plan Description. LEOFF is a cost-sharing multiple-employer retirement system comprised of two separate defined benefit plans. Membership in the system includes all full-time, fully compensated, local law enforcement officers and firefighters. LEOFF is comprised primarily of non-state employees, with the exception of the Department of Fish and Wildlife enforcement officers, who were first included prospectively effective July 27, 2003 being the exception. In addition, effective July 24, 2005, current members of PERS who are emergency medical technicians can elect to become members of LEOFF Plan 2. LEOFF participants who joined the system by September 30, 1977 are Plan 1 members. Those who joined on or after October 1, 1977 are Plan 2 members. Effective July 1, 2003, the LEOFF Plan 2 Retirement Board was established to provide governance of LEOFF Plan 2. The Board’s duties include adopting contribution rates and recommending policy changes to the Legislature for the LEOFF Plan 2 retirement plan. LEOFF defined benefit retirement benefits are financed from a combination of investment earnings, employer and employee contributions, and a special funding situation in which the state pays through state legislative appropriations. LEOFF retirement benefit provisions are established in state statute and may be amended by the State Legislature. Plan 1 retirement benefits are vested after an employee completes five years of eligible service. Plan 1 members are eligible for retirement with five years of service at the age of 50. The benefit per year of service calculated as a percent of final average salary is as follows:

Term of Service Percent of Final Average Salary 20 or more years 2.0% 10 but less than 20 years 1.5% 5 but less than 10 years 1.0%


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The final average salary is the basic monthly salary received at the time of retirement, provided a member has held the same position or rank for 12 months preceding the date of retirement. Otherwise, it is the average of the highest consecutive 24 months’ salary within the last 10 years of service. If membership was established in LEOFF after February 18, 1974, the service retirement benefit is capped at 60 percent of final average salary. A cost-of-living allowance is granted (indexed to the Seattle Consumer Price Index). Plan 2 retirement benefits are vested after an employee completes five years of eligible service. Plan 2 members may retire at the age of 50 with 20 years of service, or at the age of 53 with five years of service, with an allowance of two percent of the final average salary per year of service. The final average salary is based on the highest consecutive 60 months. Plan 2 retirements prior to the age of 53 are actuarially reduced three percent for each year that the benefit commences prior to age 53 and to reflect the choice of a survivor option. If the member has at least 20 years of service and is age 50, the reduction is three percent for each year prior to age 53. There is no cap on years of service credit; and a cost-of-living allowance is granted (indexed to the Seattle Consumer Price Index), capped at three percent annually. There are 383 participating employers in LEOFF. Membership in LEOFF consisted of the following as of the latest actuarial valuation date for the plans of September 30, 2006:

Retirees and Beneficiaries Receiving Benefits 8,951Terminated Plan Members Entitled to But Not Yet Receiving Benefits 602Active Plan Members Vested 12,711Active Plan Members Non-vested 3,603Total 25,867

Funding Policy. Starting on July 1, 2000, Plan 1 employers and employees will contribute zero percent as long as the plan remains fully funded. Employer and employee contribution rates are developed by the Office of the State Actuary to fully fund the plan. Plan 2 employers and employees are required to pay at the level adopted by the LEOFF Plan 2 Retirement Board. All employers are required to contribute at the level required by state law. The Legislature, by means of a special funding arrangement, appropriated money from the state General Fund to supplement the current service liability and fund the prior service costs of Plan 2 in accordance with the requirements of the Pension Funding Council and the LEOFF Plan 2 Retirement Board. However, this special funding situation is not mandated by the state constitution and this funding requirement could be returned to the employers by a change of statute. The required contribution rates expressed as a percentage of current-year covered payroll, as of December 31, 2007, were as follows:

LEOFF Plan 1 LEOFF Plan 2 Employer* 0.16% 5.35%** Employee 0.00% 8.64% State n/a 3.45%

*The employer rates include the employer administrative expense fee currently set at 0.16%. **The employer rate for ports and universities is 8.80%.

Both the City of Des Moines and the employees made the required contributions. The City’s required contributions for the years ending December 31 were as follows:


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LEOFF Plan 1 LEOFF Plan 2 2007 $0 $175,897 2006 0 140,296 2005 31 112,546

Other Post Employment Benefits In addition to the pension benefits described in Note 9, the City provides post employment benefits in accordance with State statute to all LEOFF 1 (law enforcement officers) retirees. Currently, there are six LEOFF 1 retirees who receive necessary medical and hospitalization coverage. Expenditures for post employment health care benefits are recognized as retirees report claims. The City does not have a funding policy at this time and no assets are designated for this purpose. During the year, expenditures of $63,636 were recognized for post employment health care. In 2006, the City purchased a long-term care insurance policy for its LEOFF 1 retirees. The 2007 annual premium for the long-term care insurance policy was $6,738.

NOTE 10 – CAPITAL LEASES

The City of Des Moines entered into a lease agreement for copiers in March 2006. In October 2007, an addendum to the original lease was executed providing for an additional copier. This lease agreement qualifies as a capital lease for accounting purposes, and, therefore, has been recorded at the present value of the minimum lease payments as of the inception date. The copiers acquired through the capital lease are included as assets as follows:

The future minimum lease obligations and the net present value of these minimum lease payments as of December 31, 2007, were as follows:

NOTE 11 – LONG-TERM DEBT

The City of Des Moines’s long-term debt consists of governmental activities long-term debt and business-type activities long-term debt. The City is in compliance with all Washington

Governmental Business-typeYear Ending December 31 Activities Activities Total 2008 12,196 1,489 13,685 2009 12,196 1,489 13,685 2010 12,196 1,489 13,685 2011 2,033 248 2,281 Total minimum lease payments 38,621 4,715 43,336 Less: amount representing interest (2,756) (309) (3,065) Present value of minimum lease payments 35,865$ 4,406$ 40,271$

Governmental Business-typeActivities Activities Total

Capital Lease: Copiers 51,253$ 6,701$ 57,954$ Less accumulated depreciation (16,493) (2,457) (18,950) Total 34,760$ 4,244$ 39,004$


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State Debt Limitation statutes and bond indenture agreements. The City’s long-term debt is accounted for in two areas: 1. Governmental Activities Long-term Debt – Debt in this classification is paid from property

taxes, sales taxes, and real estate excise taxes, and is a general obligation of the City. The City has an A3 rating from Moody’s Investors Service for its 1997 and 1998 limited tax general obligation bonds, and an A2 rating for its 1995 unlimited tax general obligation bonds. Special Assessment Bonds are debt issued to finance capital improvements directly benefiting certain property owners and repayment is by an assessment against the benefiting property owners’ property. Public Works Trust Fund loans are low interest rate loans available from the Washington State Department of Community Development for qualifying projects.

2. Business-Type Activities Long-term debt – Operating revenues of the individual

proprietary funds are used to retire this debt. The City’s bond rating from Moody’s Investors Service is A3 for the 1993 and 2002 limited tax general obligation bonds

Special Assessment Bonds

In accordance with GASB Statement No. 6, special assessment debt is reported in the government’s financial statements. The special assessment bonds are supported solely by the property owners and the Local Improvement District Guaranty Fund and are not a general obligation of the City. As of December 31, all outstanding special assessment bonds have been redeemed. The account is funded with transfers from closed special assessment districts and interest earnings. At December 31, 2007, the Local Improvement District Guaranty Fund’s available cash totaled $12,670. Per RCW 35.54.095, a transfer to the General Fund of an amount not less than ten percent of the net outstanding obligations guaranteed by the fund is permitted. No funds were transferred to the General Fund in 2007. Public Works Trust Fund Loan – Pacific Highway South Redevelopment Project The City was awarded a Public Works Trust Fund Loan from the State of Washington in the amount of $5,000,000 in April 2004. The loan includes an interest rate of one-half percent with a term of twenty years. During 2004, the City requested two draws totaling $2,250,000. A portion of the loan proceeds was utilized to pay off a limited tax general obligation note in the amount of $1,257,401 in July 2004. The City does not intend to take additional draws under the loan agreement. As a result of the City receiving additional grant funding for the project, excess loan proceeds of $1,560,428 will be returned to the Public Works Trust Fund Board June 2008.

The following schedules summarize the long-term debt transactions of the City for the year ended December 31, 2007.

Balance 1/1/07 Added Retired Balance 12/31/07

General obligation bonds 6,075,264$ -$ 1,141,716$ 4,933,548$ Public works trust fund loans 2,183,705 2,500 145,734 2,040,471 Capital lease 42,482 7,836 10,045 40,273 Compensated absences 894,268 1,035,319 990,213 939,374 Totals 9,195,719$ 1,045,655 2,287,708 7,953,666$

Changes in Long-term Liabilities


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Federal Arbitrage Rebate The Federal Tax Reform Act of 1986 requires issuers of tax-exempt debt of over $5 million to make payments to the United States Treasury of investment interest received at yields that exceed the issuer’s tax-exempt borrowing rates. Payments of arbitrage rebate amounts due under these regulations must be made to the U.S. Treasury every five years. The City incurred $6,701 for its arbitrage yield restriction liability as of December 31, 2007 for its 2002 tax-exempt general obligation bond issue that is subject to the Tax Reform Act. Debt Service to Maturity

Following is a schedule showing the debt service requirements to maturity for the City’s long-term debt, excluding capital leases, compensated absences and unamortized bond premium and discount.

Interest Due WithinItem Rates Maturity Authorized 1/1/07 Issued Redeemed 12/31/07 One Year

Governmental Activities:General Obligation Bonds:1995 Unlimited G.O. - police facility 4.90%-5.25% 12/1/07 3,350,000$ 500,000$ -$ 500,000$ -$ -$ 1997 Limited G.O. - City Hall expansion 4.30%-5.25% 12/1/17 1,640,000 1,100,000 75,000 1,025,000 80,000 1998 Limited G.O. - park land 4.00%-4.80% 6/1/09 1,225,000 270,000 85,000 185,000 90,000 Unamortized premium on bonds - - - - Unamortized discount on bonds - (2,038) (778) (1,260) - Total general obligation bonds 6,215,000 1,867,962 - 659,222 1,208,740 170,000

General Obligation Notes and Loans:1992 PWTF Loan - street improvements 1.00% 4/1/08 384,000 48,376 24,188 24,188 24,188 2003 PWTF Loan - Pac Hwy pre-construction 0.50% 7/1/08 10,000 3,750 2,500 3,125 3,125 3,125 2004 PWTF Loan-Pac Hwy construction 0.50% 4/1/04 5,000,000 2,131,579 118,421 2,013,158 1,678,849 2006 Capital Lease - Copiers 4.23% 3/1/06 43,417 36,802 8,252 28,550 8,608 2007 Capital Lease - Copier 6.14% 10/1/07 7,836 - 7,836 519 7,317 2,159 Total general obligation notes and loans 5,445,253 2,220,507 10,336 154,505 2,076,338 1,716,929

Compensated Absences: 786,282 859,282 833,514 812,050 20,000 Governmental activities long-term liabilities 11,660,253$ 4,874,751$ 869,618$ 1,647,241$ 4,097,128$ 1,906,929$

……………………………….………….Outstanding……………………………………Detail of Outstanding Long-term Debt

Interest Due WithinItem Rates Maturity Authorized 1/1/06 Issued Redeemed 12/31/06 One Year

Business-type Activities:General Obligation Bonds:1993 Limited G.O. - Marina 3.80%-5.40% 12/1/07 990,000$ 125,000$ -$ 125,000$ -$ -$ 2002 Limited G.O. - Marina 2.50%-4.70% 12/1/22 5,420,000 4,085,000 355,000 3,730,000 365,000 Unamortized premium on bonds 7,004 3,260 3,744 - Unamortized discount on bonds (9,702) (766) (8,936) - Total general obligation bonds 6,410,000 4,207,302 - 482,494 3,724,808 365,000

2006 Capital Leases - Copiers 4.23% 3/1/06 6,701 5,680 1,274 4,406 1,329

Compensated Absences: 107,986 176,037 156,699 127,324 - Business-type activities long-term liabilities 6,416,701$ 4,320,968$ 176,037$ 640,467$ 3,856,538$ 366,329$

Total governmental and business-type activities long-term liabilities 18,076,954$ 9,195,719$ 1,045,655$ 2,287,708$ 7,953,666$ 2,273,258$

Detail of Outstanding Long-term Debt……………………………….………….Outstanding……………………………………


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Marina Bond Reserve Requirements

The Marina is required by Ordinance No. 1312 to maintain the least of (1) 1.25 times the average annual debt service of all outstanding bonds; (2) maximum annual debt service; or (3) 10% of the proceeds of all outstanding bonds for the 2002 limited tax general obligation and refunding bonds. As of December 31, 2007, the Marina’s debt service reserve requirement was $373,000.

Bond Reserve 1.25 * Ave Annual Maximum Annual 10% Proceeds

Item 12/31/07 Debt Service Debt Service Outstanding Bonds 2002 GO Bonds $ 373,000 $ 441,943 $ 524,903 $ 373,000

Debt Limit Capacities State law provides that debt cannot be incurred in excess of the following percentages of the value of the taxable property of the City: 1.5% without a vote of the people; 2.5% with a vote of the people; 5.0% with a vote of the people, provided the indebtedness in excess of 2.5% is for utilities; 7.5% with a vote of the people, provided the indebtedness in excess of 5.0% is for parks or open space development. At December 31, 2007, the debt limits for the City were as follows:

Year Principal Interest Principal Interest Principal Interest2008 170,000 58,563 1,706,162 10,324 1,876,162 68,887 2009 180,000 50,513 20,895 1,672 200,895 52,185 2010 100,000 44,248 20,895 1,567 120,895 45,815 2011 100,000 39,248 20,895 1,463 120,895 40,711 2012 100,000 34,248 20,895 1,358 120,895 35,606

2013-2017 560,000 91,410 104,471 5,224 664,471 96,634 2018-2022 - - 104,470 2,611 104,470 2,611 2023-2027 - - 41,788 313 41,788 313

Totals 1,210,000$ 318,230$ 2,040,471$ 24,532$ 3,250,471$ 342,762$

…………………….Governmental Activities…………………………

TotalsObligation DebtGeneral Public Works Trust

Fund Loans

Year Principal Interest Principal Interest2008 365,000 159,903 365,000 159,903 2009 185,000 147,128 185,000 147,128 2010 190,000 140,190 190,000 140,190 2011 195,000 132,590 195,000 132,590 2012 205,000 124,595 205,000 124,595

2013-2017 1,155,000 488,180 1,155,000 488,180 2018-2022 1,435,000 207,848 1,435,000 207,848 2023-2027 - - - -

Totals 3,730,000$ 1,400,434$ 3,730,000$ 1,400,434$

Obligation Debt Totals

…………………….Business-type Activities……………………….General


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NOTE 12 – RESERVATION AND DESIGNATIONS OF FUND EQUITY

Following is an analysis of fund equity reservations and designations by type for each of the City’s fund groups.

The City is required to reserve seven percent of the cumulative total of the general and street operating funds for continuing appropriations. The seven percent consists of two percent operating reserve generally designated for unanticipated expenditures that have been incurred during the fiscal year, with the five percent operating reserve intended to account for unanticipated revenue shortfalls. As of December 31, 2007, the amount of $782,892 was available for continuing appropriations and represents 70 percent of the total required operating reserves.

NOTE 13 – RESTRICTED ASSETS

The City’s Marina Fund 2007 restricted assets are detailed below.

Item Total Customer Deposits $ 158,422 Facility Repair, Improvement & Replacement 336,006 Current Bond Principal & Interest 16,388 Debt Service Reserves 373,000 Construction Account 1,337,803 Total Restricted Assets $2,221,619

General Special CapitalItem Fund Revenue Projects Total

Reservations:Imprest funds 4,600$ -$ -$ 4,600$ Prepaid items 3,377 - - 3,377 Total reservations 7,977$ -$ -$ 7,977$ Designations: - Maintenance agreement 24,756$ -$ -$ 24,756$ Continuing appropriations 720,681 62,211 - 782,892 Capital improvements - - 1,560,428 1,560,428 Total Designations 745,437$ 62,211$ 1,560,428$ 2,368,076$

Without a VoteItem 1.5% 2.5% 5.0% 7.5%

Legal Limit 38,851,134$ 64,751,891$ 129,503,781$ 194,255,672$

Less:Limited tax debt outstanding (7,014,292) (7,014,292) (7,014,292) (7,014,292) Unlimited tax debt outstanding - - - Add:Cash available in debt service funds 16,261 29,627 45,888 45,888 Delinquent property taxes - 23,416 23,416 23,416 Remaining legal debt capacity 31,853,103$ 57,790,642$ 122,558,793$ 187,310,684$

With a Vote of the People


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NOTE 14 – CONTRACTUAL OBLIGATIONS, CONTINGENCIES AND LITIGATION

As of December 31, 2007, there were a small number of claims for damages and lawsuits pending against the City. In the opinion of the City’s legal counsel, however, neither the potential liability for any single claim or lawsuit, nor the aggregate potential liability arising from all actions currently pending would materially affect the financial condition of the City. The City has active construction projects as of December 31, 2007. At year end, the City’s significant commitments with contractors are as follows:

NOTE 15 – RISK MANAGEMENT

Public Entity Risk Pool The City of Des Moines is a member of the Washington Cities Insurance Authority (WCIA). Utilizing Chapter 48.62 RCW (self-insurance regulation) and Chapter 39.34 RCW (Interlocal Cooperation Act), nine cities originally formed WCIA on January 1, 1981. WCIA was created for the purpose of providing a pooling mechanism for jointly purchasing insurance, jointly self-insuring, and/or jointly contracting for risk management services. WCIA currently has a total of 126 members. New members initially contract for a three-year term, and thereafter automatically renew on an annual basis. A one-year withdrawal notice is required before membership can be terminated. Termination does not relieve a former member from its unresolved loss history incurred during membership. Liability coverage is written on an occurrence basis without deductibles. Coverage includes general, automobile, public officials’ errors or omissions, stop-gap, and employee benefits liability. Limits are $3 million per occurrence self insured layer, and $12 million per occurrence in the re-insured excess layer. The excess layer is insured by the purchase of reinsurance and is subject to aggregate limits. Total limits are $15 million per occurrence subject to aggregate sublimits in the excess layers. The Board of Directors determines the limits and terms of coverage annually. Insurance coverage for property, automobile physical damage, fidelity, inland marine, and boiler and machinery are purchased on a group basis. Insurance coverage for underground storage tanks are purchased under a separate policy. Various deductibles apply by type of coverage. Property insurance and auto physical damage coverage are self-funded from the members’ deductible to $500,000, for all perils other than flood and earthquake, and insured above that amount by the purchase of reinsurance. In-house services include risk management consultation, loss control field services, claims and litigation administration, and loss analyses. WCIA contracts for claims investigation consultants for personnel issues and land use problems, insurance brokerage, and lobbyist services. WCIA is fully funded by its members who make annual assessments on a prospectively rated basis, as determined by an outside, independent actuary. The assessment covers

1,149,157$ 16th Ave. So. Improvements


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loss, loss adjustment, and administrative expenses. As outlined in the interlocal, WCIA retains the right to additionally assess the membership for any funding shortfall. An investment committee, using investment brokers, produces additional revenue by investment of WCIA’s assets in financial instruments which comply with all State guidelines. These revenues directly offset portions of the membership’s annual assessment. WCIA is governed by a Board of Directors, which is comprised of one designated representative from each member. The Board elects an Executive Committee and appoints a Treasurer to provide general policy direction for the organization. The WCIA Executive Director reports to the Executive Committee and is responsible for conducting the day to day operations of the WCIA. Self-Insurance Fund In addition to the insurance coverage afforded through the Washington Cities Insurance Authority, the City is exposed to risks of losses to property not covered by the insurance pool. To provide additional cash reserves to fund those losses not covered by the insurance pool the City established a Self-Insurance Fund. The main activities of the Self-Insurance Fund consist of (1) employee education (2) disbursing premium payments for insurance pool and commercial insurance coverage (3) disbursing of claims for property and vehicle damage and (4) pay deductibles, litigation defense costs and/or damage claims against the City for which coverage may be denied by insurance carriers. Funding revenues are primarily contributions from other funds based on each fund or department’s assumed risk. The City recognizes insurance claims expenses based upon claims reported. At December 31, 2007, there was $113,690 in cash reserves available to pay for future uninsured claims and to provide training in risk management to city personnel. For claims not covered by the insurance pool, a liability for a claim is established if information indicates that it is probable that a liability has been incurred at the date of the financial statements and the amount of loss is reasonably estimable. As of December 31, 2007, there were no outstanding obligations in the Self Insurance Fund. There were no significant reductions in insurance coverage from coverage in 2006 in any of the major categories of risk. Also, the amount of settlements has not exceeded insurance coverage for the past three years. In 2004, the City joined the Association of Washington Cities’ (AWC) Worker’s Compensation Retrospective Rating Program. The program provides cities with expertise and services to lower their claims experience resulting in potential refund of a portion of their Washington State Department of Labor and Industries (L&I) premiums. Membership criteria includes being a member of the AWC, be in good standing with L&I, adoption of the AWC membership agreement, once a year attendance at a regional training workshop, and a return to work/light duty policy. Fees are 6.5% of the City’s prior year’s L&I premium. The 6.5% fee is refunded to the City the following year if the group receives a refund from L&I. The City’s 2007 Worker’s Compensation Retrospective payment was $8,490. The City accrued a receivable in 2007 for a refund received in 2008 totaling $10,880 representing excess claims over premiums for the year 2006. Unemployment Insurance Fund


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The second self-insurance fund that the City utilizes is the Unemployment Compensation Insurance Fund. The purpose of the fund is to accumulate money for the payment of claims for unemployment compensation. Unemployment claims are processed by the State of Washington and billed to the City on a quarterly basis. Through the budget process each department contributes 0.25% of its annual payroll to cover future claims. Ordinance No. 879 adopted in 1991 established the reserve requirement for the payment of unemployment claims. The optimum reserve calculation is based on a formula derived by multiplying the average number of employees’ times five percent times the annual maximum unemployment benefits per employee times three years plus the average annual payout for the last ten years. As of December 31, 2007, the optimum reserve is $360,184. Cash and investments at December 31, 2007 total $348,543 representing 97 percent of the optimum reserve. The amounts payable at December 31, 2007 represent unemployment claims for the fourth quarter.

The City’s changes in estimated claims liabilities for 2007 and 2006 is provided below:

NOTE 16 – SUBSEQUENT EVENTS On May 22, 2008, the City Council approved the First Addendum to the First Development Agreement with the Port of Seattle regarding compensation for dedicated and deeded rights of way within the Des Moines Creek Business Park. The total acreage vacated is 11.63 acres with a total appraised value of $3,799,522. Per the terms of the agreement, payment by the Port will occur within 30 days of the City approving the developer’s master plan and the second development agreement, except that if such approvals have not occurred by October 1, 2008, then the value of the vacated property will be placed into an interest bearing escrow account with interest accruing to the City. On March 25, 2008, during a seismic retrofit and safety upgrade inspection of the North Twin Bridge, a large void due to soil settling was discovered below the southern intermediate pier spread footing resulting in closure of the bridge for emergency temporary repairs. The bridge was reopened on April 23, 2008 with a 10 ton weight restriction. The permanent footing repairs is estimated to cost $771,040, requiring a 2008 budget amendment reallocating funds from previously approved transportation capital improvement projects.

Item 2007 2006 2007 2006Claims liabilities at beginning of year -$ -$ 660$ 6,944$ Claims expenses: Current year and changes in estimates - 189,175 3,798 6,665 Claims payments - (189,175) (4,004) (12,949) Claims liabilities at end of the year -$ -$ 454$ 660$

InsuranceSelf- InsuranceUnemployment


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MCAG NO. 0388 Schedule 16

1 2 3 4 5 6

Federal Program CFDA Other I.D. From From Foot-Federal Agency Name/Pass Through Agency Name Name Number Number Pass-Through Direct Total note

Awards Awards Ref

U.S. Department of JusticeBullet Proof Vest Partnership Program 16.607 OMB1121-0235 -$ 2,679$ 2,679$ 2

U.S. Department of Justice Domestic Violence 16.525 2007-DJ-BX-0926 11,671 11,671 2U.S. Department of Justice Violence Against Women 16.526 2007-WF-AX-0008 557 557 2 Subtotal U.S. Department of Justice -$ 14,907$ 14,907$

U.S. Department of Housing and Urban Development (HUD)/pass-through from King County Department of Community & Human Services

Community Development Block Grant - Joint Minor Home Repair Program 14.218 D37833D 16,721$ 16,721$ 2

16,721$ -$ 16,721$

U.S. Department of Transportation/pass-through from WA DOT

Federal Highway Administration Highway Planning & Construction 20.205 LA06206 72,656 72,656 2









Subtotal U.S. Department of Transportation 1,214,272$ -$ 1,214,272$

U.S. Department of Homeland Security/pass-through from WA State Military Department

Emergency Management/December 2006 Storm Assistance 97.042 E07907 35,144$ 35,144$ 2

U.S. Department of Homeland Security/pass-through from WA State Military Department

Emergency Management/November 2006 Flood Assistance 97.042 E07745 14,438 14,438 2

Subtotal U.S. Department of Homeland Security 49,582$ -$ 49,582$

TOTAL FEDERAL AWARDS EXPENDED 1,280,575$ 14,907$ 1,295,482$

The accompanying notes to the Schedule of Expendiitures of Federal Awards are an integral part of this schedule.

Subtotal U.S. Department of Housing & Urban Development

CITY OF DES MOINES, WASHINGTONSCHEDULE OF EXPENDITURES OF FEDERAL AWARDS

For Year Ended December 31, 2007

Expenditures


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MCAG NO. 0388 SCHEDULE 16

NOTE 1 - BASIS OF ACCOUNTING

NOTE 2 - PROGRAM COSTS

The amounts shown as current year expenditures represent only (federal/state/local) grant portions of the program costs. Entire program costs, including the city's portion, may be more than shown.

CITY OF DES MOINES, WASHINGTONNOTES TO THE SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS

FOR THE YEAR ENDED DECEMBER 31, 2007

These schedules are prepared on the same basis of accounting as the city's financial statements. The city uses the modified accrual basis of accounting for governmental funds. The accrual basis of accounting is followed in all proprietary funds.


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(SAO FACTS.DOC - Rev. 05/08)

ABOUT THE STATE AUDITOR'S OFFICE

The State Auditor's Office is established in the state's Constitution and is part of the executive branch of state government. The State Auditor is elected by the citizens of Washington and serves four-year terms. Our mission is to work in cooperation with our audit clients and citizens as an advocate for government accountability. As an elected agency, the State Auditor's Office has the independence necessary to objectively perform audits and investigations. Our audits are designed to comply with professional standards as well as to satisfy the requirements of federal, state, and local laws. The State Auditor's Office has 300 employees who are located around the state to deliver our services effectively and efficiently. Approximately 65 percent of our staff are certified public accountants or hold other certifications and advanced degrees. Our regular audits look at financial information and compliance with state, federal and local laws on the part of all local governments, including schools, and all state agencies, including institutions of higher education. We also perform fraud and whistleblower investigations. In addition, we have the authority to conduct performance audits of state agencies and local governments. The results of our audits are widely distributed through a variety of reports, which are available on our Web site. We continue to refine our reporting efforts to ensure the results of our audits are useful and understandable. We take our role as partners in accountability seriously. We provide training and technical assistance to governments and have an extensive program to coordinate audit efficiency and to ensure high-quality audits. State Auditor Brian Sonntag, CGFM Chief of Staff Ted Rutt Chief Policy Advisor Jerry Pugnetti Director of Administration Doug Cochran Director of State and Local Audits Chuck Pfeil, CPA Director of Performance Audit Linda Long, CPA, CGFM Director of Special Investigations Jim Brittain, CPA Director for Legal Affairs Jan Jutte Local Government Liaison Mike Murphy Communications Director Mindy Chambers Public Records Officer Mary Leider Main number (360) 902-0370 Toll-free hotline for government efficiency (866) 902-3900 Web Site www.sao.wa.gov