CITY OF COVINGTON, KENTUCKY COMPREHENSIVE ANNUAL FINANCIAL REPORT Year Ended June 30, 2010 Prepared By: Robert J. Due Director of Finance CITY OF COVINGTON, KENTUCKY COMPREHENSIVE ANNUAL FINANCIAL REPORT Year Ended June 30, 2010 TABLE OF CONTENTS PAGE INTRODUCTORY SECTION Letter of Transmittal 1-5 GFOA Certificate of Achievement 6 Organizational Chart 7 List of Principal Officials 8 FINANCIAL SECTION Independent Auditors' Report 9 - 10 Management's Discussion and Analysis (MD&A) 11 - 23 Basic Financial Statements Government-Wide Financial Statements Statement of Net Assets 24 Statement of Activities 25 Fund Financial Statements Balance Sheet - Governmental Funds 26 Reconciliation of the Balance Sheet - Governmental Funds to the Statement of Net Assets 27 Statement of Revenues, Expenditures and Changes in Fund Balance - Governmental Funds 28 Reconciliation of the Statement of Revenues, Expenditures, and Changes in Fund Balance - Governmental Funds to the Statement of Activities 29 Statement of Net Assets - Proprietary Funds 30 Statement of Revenues, Expenses and Changes in Fund Net Assets - Proprietary Funds 31 Statement of Cash Flows - Proprietary Funds 32 Statement of Fiduciary Net Assets - Fiduciary Funds 33 Statement of Changes in Fiduciary Net Assets - Fiduciary Funds 34 Notes to the Financial Statements 35 - 56 CITY OF COVINGTON, KENTUCKY COMPREHENSIVE ANNUAL FINANCIAL REPORT Year Ended June 30, 2010 TABLE OF CONTENTS (Continued) PAGE REQUIRED SUPPLEMENTARY INFORMATION Schedule of Revenues, Expenditures and Changes in Fund Balance Budget and Actual - General Fund 57 - 59 Budget and Actual - Community Development Block Grant 60 Budget and Actual - Home Program 61 Budget and Actual - Housing Voucher Program 62 OTHER SUPPLEMENTARY INFORMATION Combining Financial Statements - Non-Major Governmental Funds Non-Major Governmental Funds 63 - 64 Combining Balance Sheet - Non-Major Governmental Funds 65 - 66 Combining Statement of Revenues, Expenditures and Changes in Fund Balances - Non-Major Governmental Funds 67 - 68 Individual Fund Schedules - Non-Major Governmental Funds Schedule of Revenues, Expenditures and Changes in Fund Balance - Budget and Actual - Police and Fire Incentive 69 Schedule of Revenues, Expenditures and Changes in Fund Balance - Budget and Actual - Newport Steel UDAG 70 Schedule of Revenues, Expenditures and Changes in Fund Balance - Budget and Actual - Devou Park Maintenance 71 Schedule of Revenues, Expenditures and Changes in Fund Balance - Budget and Actual - Investor Program 72 Schedule of Revenues, Expenditures and Changes in Fund Balance - Budget and Actual - City Hall Operations 73 Schedule of Revenues, Expenditures and Changes in Fund Balance - Budget and Actual - Devou Park Master Plan 74 Schedule of Revenues, Expenditures and Changes in Fund Balance - Budget and Actual - Federal and State Grant Fund 75 Schedule of Revenues, Expenditures and Changes in Fund Balance - Budget and Actual - Arts District 76 Schedule of Revenues, Expenditures and Changes in Fund Balance - Budget and Actual - 501 Main Street Operations 77 Schedule of Revenues, Expenditures and Changes in Fund Balance - Budget and Actual - Police Forfeiture 78 CITY OF COVINGTON, KENTUCKY COMPREHENSIVE ANNUAL FINANCIAL REPORT Year Ended June 30, 2010 TABLE OF CONTENTS (Continued) PAGE Schedule of Revenues, Expenditures and Changes in Fund Balance - Budget and Actual - CAD System Schedule of Revenues, Expenditures and Changes in Fund Balance - Budget and Actual - Renaissance Grant Fund Schedule of Revenues, Expenditures and Changes in Fund Balance - Budget and Actual - Working Capital Reserve Schedule of Revenues, Expenditures and Changes in Fund Balance - Budget and Actual - Property Acquisitions Schedule of Revenues, Expenditures and Changes in Fund Balance - Budget and Actual - Home Consortium Fund Schedule of Revenues, Expenditures and Changes in Fund Balance - Budget and Actual - Homeless Prevention Fund Schedule of Revenues, Expenditures and Changes in Fund Balance - Budget and Actual - Neighborhood Stabilization Program Schedule of Revenues, Expenditures and Changes in Fund Balance - Budget and Actual - Capital Improvement Fund Schedule of Revenues, Expenditures and Changes in Fund Balance - Budget and Actual - KLC Series 2002 Schedule of Revenues, Expenditures and Changes in Fund Balance - Budget and Actual - 2004 Pension Obligation Bonds Schedule of Revenues, Expenditures and Changes in Fund Balance - Budget and Actual - 2005 Refunding Bonds Schedule of Revenues, Expenditures and Changes in Fund Balance - Budget and Actual - Sewer Maintenance Fees Combining Financial Statements - Proprietary Funds Combining Statement of Net Assets - Internal Service Funds Combining Statement of Revenues, Expenses and Changes in Fund Net Assets - Internal Service Funds Combining Statement of Cash Flows - Internal Service Funds Individual Fund Schedules - Proprietary Funds Schedule of Revenues, Expenses and Changes in Fund Net Assets - Budget and Actual - Liability Insurance Schedule of Revenues, Expenses and Changes in Fund Net Assets - Budget and Actual - Medical and Dental Insurance 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 CITY OF COVINGTON, KENTUCKY COMPREHENSIVE ANNUAL FINANCIAL REPORT Year Ended June 30, 2010 TABLE OF CONTENTS (Continued) PAGE STATISTICAL SECTION Statistical Section Narrative and Contents 96 Net Assets by Component 97 Change in Net Assets 98 Fund Balances, Governmental Funds 99 Changes in Fund Balance, Governmental Funds 100 Occupational License Fees - Payroll Withholding 101 Principal Occupational Payroll Tax Payers 102 Assessed Value and Estimated Actual Value of Taxable Property 103 Direct and Overlapping Property Tax Rates 104 Principal Property Tax Payers 105 Property Tax Levies and Collections 106 Ratios of Outstanding Debt by Type 107 Ratios of General Bonded Debt Outstanding 108 Legal Debt Margin Information 109 Demographic and Economic Statistics 110 Principal Employers 111 Full-Time-Equivalent City Government Employees by Function/Program 112 Operating Indicators by Function/Program 113 Capital Assets Statistics by Function/Program 114 SINGLE AUDIT SECTION Schedule of Expenditures of Federal Awards 115 Independent Auditors' Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards 116 - 117 Independent Auditors' Report on Compliance with Requirements Applicable to Each Major Program and Internal Control Over Compliance in Accordance with OMB Circular A-133 118 - 119 Schedule of Findings and Questioned Costs 120 - 121 Schedule of Status of Prior Year Findings and Questioned Costs 122 INTRODUCTORY SECTION CITY OF COVINGTON 638 0 OFFICE OF THE CITY MANAGER November 19, 2010 To the Mayor, City Commissioners and Citizens of the City of Covington, Kentucky: Formal Transmittal of the Comprehensive Annual Financial Report (CAFR) State law requires that all general-purpose iocal governments publish within six months of the close of each fiscal year a complete set of financial statements presented in conformity with generally accepted accounting principles (GAAP) in accordance with the implementation of Government Standards Board (GASB) Statement 34, and audited in accordance with generally accepted auditing standards by an independent firm of licensed certified public accountants. Pursuant to that requirement, we hereby issue the comprehensive annual financial report of the City of Covington forthe fiscal year ended June 30, 2010. This report consists of management's representations concerning the finances of the City of Covington. Consequently, management assumes full responsibility for the completeness and reliability of all of the information presented in this report. To provide a reasonable basis for making these representations, management of the City of Covington has established a comprehensive internal control framework that is designed both to protect the government's assets from loss, theft, or misuse and to compile sufficient reliable information for the preparation of the City of Covington's financial statements in conformity with GAAP. Because the cost of internal controls should not outweigh their benefits, the City of Covington's comprehensive framework of internal controis has been designed to provide reasonable rather than absolute assurance that the financial statements will be free from material misstatement. As management, we assert that, to the best of our knowledge and belief, this financial report is complete and reliable in all material respects. To the best of our knowledge and belief, this financial report is complete and reliable in all material respects and fairly presents the financial position and results of the operations of the various funds and component units of the City. All disclosures necessary to enable the reader to gain an understanding of the City's financial activities have been included in this report. The City of Covington's financial statements have been audited by Von Lehman Company, a firm of licensed codified public accountants. The goal of the independent audit was to provide reasonable assurance that the financial statements of the City of Covington for the fiscal year ended June 30, 2010, are free of material misstatement. The independent audit involved examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements; assessing the accounting principles used and significant estimates made by management; and evaluating the overall financial statement presentation. The independent auditor conctuded, based upon the audit, that there was a reasonable basis for rendering an unqualified opinion AN 859-292-2333 that the City of Covington's financial statements for the fiscal year ended June 30, 2010, are fairly presented in conformity with GAAP. The independent auditor's report is presented as the first component of the financial section of this report. The independent audit of the financial statements of the City of Covington was a part of a broader, federally mandated "Single Audit" designed to meet the special needs of federal grantor agencies. The standards governing Single Audit engagements require the independent auditor to report not only on the fair presentation of the financial statements, but also on the audited governments internal controls and compliance with legal requirements, with special emphasis on internal controls and legal requirements involving the administration of Federal awards. These reports are available in the City of Covington's Single Audit report. GAAP require that management provide a narrative introduction, overview, and analysis to accompany the basic financial statements in the form of Management's Discussion and Analysis This letter of transmittal is designed to complement and should be read in conjunction with it. The City of Covington's can be found immediately following the report of the independent auditors. Profile of the Government The City of Covington, founded in 1815, is located in the northern most part of the state, situated in Kenton County and is part of the Northern Kentucky Region, which ranks as one of the top growth areas in Kentucky. The City of Covington currently occupies a land area of 13.1 square miles and serves an estimated population of 43,235. The City of Covington is empowered to levy numerous taxes and fees. its major revenue sources include an occupational license tax levied on gross wages and net profits of businesses, an insurance premiums tax and a property tax on both real and personal properties. The City of Covington operates under the City Manager form of government. Legislative authority is vested in the City Board of Commissioners, consisting of the Mayor and four City Commission members. The Board of Commissioners is responsible for among other things. passing ordinances, adopting the budget, appointing members to various boards, and it approves the hiring of all full time employees. The City Manager reports directly to the Board of Commissioners and is responsible for carrying out policies and ordinances of the City Board of Commissioners and is responsible for the development of short and long range planning, capital improvement programs, and running the day-to-day operations of the city. The City Board of Commissioners is elected on a non-partisan basis. The Mayor serves a four year term and the City Commissioners serve two year terms. The next election for the Mayor will be held in November 2012 with the Mayor taking office on January 1, 2013. The election for the City Commissioners took place on November of 2010 and the new Board of Commissioners will take office on January 1, 2011. The next election for the Board of Commissioners will take place in November of 2012. The City of Covington provides a full range of services including a full time professional police service and full time professional fire service; advanced life support emergency services; street maintenance and improvement; waste collection services; a full range of recreational areas and activities; cultural events; planning and zoning; housing rehabilitation and development; and public nuisance and zoning code enforcement. In addition to these activities, the governing body is responsible for funding the Employees' Retirement Fund and the Police and Firemen's Retirement Funds. The annual budget serves as the foundation for the City of Covington's financial planning and control. Budget targets are set for each city department based on current revenue estimate contained in the five year plan adjusted for current trends. All departments of the City of Covington are required to submit budget requests for appropriation to the City Manager. The budget requests must be within budget targets. The City Manager uses these requests as the starting point for developing a proposed balanced budget. The City Manager then presents the proposed balanced budget to the City Commissioners for review. The final budget is adopted prior to July 1 of each year. The appropriated budget is prepared by fund and department police}. Department heads may make transfers of appropriations within a department with the approval of the City Manager. or his designee. The City Manager cannot make transfers of appropriations between departments without the approval of the City Commissioners. Expenditures may not legally exceed budgeted appropriations at the departmental level. Any revisions to the budget that would alter total revenues and department expenditures of any fund must be approved by the City Commissioners. Budget-to-actual comparisons are provided in this report for each individual governmental fund for which an appropriated annual budget has been adopted. For the general fund, this comparison is presented on pages 57-59 as part of the basic financial statements for the governmental funds. For governmental funds with appropriated annual budgets other than the general fund, this comparison is presented in the governmental fund subsection of this report, which starts on page 60. Also included in the governmental fund subsection are project-length budget-to-actual comparisons for each governmental fund for which a project-length budget has been adopted the capital projects funds). Information Useful in Assessing the Economic Condition The information presented in the financial statements is perhaps best understood when it is considered from the broader perspective of the environment within which the City of Covington operates. Local economy: Covington has maintained its efforts in developing economic resources in the Greater Kentucky region. The consistent and persistent effort put forth by Covington's elected and appointed officials and other community leaders over the past twenty years has positioned the City for economic growth in the foreseeable future. According to the 2011 Regional Economic Outlook published by the Northern Kentucky Chamber of Commerce, we have seen the end of the worst recession since the Great Depression. However. the effects linger in terms of weak employment growth. In July of 2010 the unemployment rate in the Cincinnati USA region was from a year earlier. The Northern Kentucky Chamber of Commerce estimates the regional unemployment rate to be 9.8% for 2010 and forecasts the unemployment rate to average 9.4% in 2011. In addition to a continued weakness in the labor market, the Northern Kentucky Chamber of Commerce anticipates a very slow recovery in the housing market and modest growth in economic activity. Overall, General Fund revenue for the fiscal year ended June 30, 2010 decreased 37% from the fiscal year ended June 30. 2009. Detailed information can be found in the Management Discussion 8. Analysis in the Financial Section of this report. In 2010, the City of Covington was selected to receive HUD's Community Challenge Grant in the amount of $359,300 to create :1 Downtown Action Plan and Redevelopment Framework. This highly leveraged planning process may include financial analysis, architectural and engineering design, zoning code amendments. marketing plans, market studies, and the development of incentive packages for development. The Housing Authority of Covington also secured a $17 million HOPE Vl grant for Covington's Eastside neighborhood. The $17 million grant is leveraged by an additional $23 million, a portion of which was committed by the City of Covington. The funds will be used to replace barracks style housing with homes that encourage street vitality, leverage public housing grants with private sector equity. and build a mixed income community. The opportunity to build replacement public housing within mixed income communities will create incentives for sustained investment in the Covington East Side. The $40 million investment is expected to have a $120 million ripple effect throughout the Covington economy. In July of 2009, the US Department of Housing and Urban Development as part of the Neighborhood Stabilization Program awarded the City of Covington a $5 million grant. $1.75 million of the funds have been earmarked for the development of 19 low income rental units. The balance of the funds will be used to rehabilitate 15 single family homes for resale to owner occupants. In October of 2007, a $14.4 million connector road to the Fidelity Investment Campus was officially opened. The completion of the 350,000 square foot addition to the Campus was completed during the fiscal 2008-2009 year. A total of 1,500 new jobs were to be added by the end of 2010 for a total of full time workforce of 4,250. With layoffs announced in November of 2006 and February of 2009, full time employment fell to 3,900 jobs which is still higher than the 2,750 before the expansion but short of the target of 4,250 jobs. The target date for reaching the 4,250 full time jobs has been pushed back from December 2010 to December 2013. St. Elizabeth Medical Center completed construction of a 125,600 square foot facility that will employ an additional 450 people. Total cost of the construction was $26.6 million. Waterfront development plans for Riverfront West Phase I and Riverfront Phase II have been conceptualized and are being heavily supported by local legislators, and business and residential communities. Times Star Commons is a planned public gathering space with a public market development component projected to create an economic impact of $464 million when completed. The City has received $1 million from the State for planning this project. The City of Covington was also awarded a grant in the amount of $600,000 from the United States Environmental Protection Agency for environmental site assessments and clean up of centrally located business property. The State of Kentucky awarded $450,000 to the City of Covington for the development of a Covington Artisans' Enterprise Center. Local artists will use the space for educational sessions, business plan development, marketing, and exhibits. The National Park Service has approved a $130,000 grant to implement a cultural and heritage tourism program for Covington. The program will be developed with the cooperation of local cultural and historical organizations. A series of thematic tours will be available in print, compact disc, and MP3 Player format. In addition, more than $60 million in residential development projects in the downtown area have been completed. The Ascent at Roebling Bridge is a $47 million, 80- unit, 21-story condominium tower designed by Daniel Lebskind. The Pulse is a 64-unit, $13 million loft residential project in the Seminary Square neighborhood. The Views has added 125 residential homes priced from $180,000 to $250,000. in addition smaller developments of luxury apartments and commercial storefronts are being constructed throughout the Covington Arts and Technology Zone. Financial Policies and Planning The City of Covington established a formal Audit Committee during fiscal year 2008- 2009. The Audit Committee was established in accordance with the Section 6 of the Local Government Finance Standards 1994. The primary objective of the Committee is to assist the City Commission in fulfilling its corporate governance and oversight responsibilities reiatlng to accounting and reporting practices imposed under the Local Government Act of 1993 and other relevant legislation. Six members appointed by the City Commission serve on the Committee. Awards and Acknowledgements The Government Finance Officers Association awarded a Certificate of Achievement for Excellence in Financial Reporting to the City for its comprehensive annual financial report for the fiscal year ended June 30, 2009. This was the seventeenth consecutive year that the City has received this prestigious award. In order to be awarded a Certificate of Achievement, the City published an easily readable and efficiently organized comprehensive annual financial report. This report satisfied both generally accepted accounting principles and applicable legal requirements. The preparation of this comprehensive annual financial report on a timely basis was made possible by the dedicated service of the entire staff of the Department of Finance. Each member has our sincere appreciation for the contributions made in the preparation of this report. We also acknowledge the efforts of other departments who provided information that helped to make the report far more than a presentation of numbers, with a special thanks to Von Lehman Company. Credit must also be given to the Mayor and Commissioners for their unfailing interest, support, and integrity in directing the City's financial operations. Re /etctfullysubmit d, arry Klei obert J. Due I City Manager Finance Director Certificate of Achievement for Excellence in Financial Reporting Presented to City of Covington Kentucky For its Cornprehensive Annual Financial Report for the Fiscal Year Ended June 30, 2009 A Certificate ofhchievemcnt for Excellence in Financial Reporting, is presented by the Gevemment Finance Officers Association efthe United States and Canada to government units and public employee retirement systems whose comprehensive annual financial repurts (CAI-Rs) achieve the highest standards in g-Iwerntnent accounting and linantzial rep0r1ing_ Executive Director CITY OF COVINGTON, KENTUCKY ORGANIZATIONAL CHART Citizens of Covington Mayor and Commissioners City Manager Assitant City Manager I I I I . Com munitx; of . . . Parks and Code Administration Legal Public Finance Police Fire . Development Recreation Enforcement Improvement CITY OF COVINGTON, KENTUCKY LIST OF PRINCIPAL OFFICIALS June 30, 2010 MAYOR Denny Bowman COMMISSIONERS Shawn Masters Sherry Carran Mildred Rains Jerry Stricker STAFF City Manager - Larry Klein Assistant City Manager - Larisa Sims City Solicitor - Frank Warnock City Clerk - Tracy Denham Finance Director - Robert J. Due Chief of Police - Lee Russo Fire Chief - Mark Young Director of Public Improvements/City Engineer - Tom Logan Community Development Director - Jackson Kinney Director of Code Enforcement - Keith Bales 8 FINANCIAL SECTION INDEPENDENT AUDITORS' REPORT Honorable Mayor Board of Commissioners City of Covington, Kentucky We have audited the accompanying financial statements of the governmental activities, the aggregate discretely presented component units, each major fund, and the aggregate remaining fund information of the City of Covington, Kentucky, as of and for the year ended June 30, 2010, which collectively comprise the City's basic financial statements as listed in the table of contents. These financial statements are the responsibility of City of Covington, Kentucky's management. Our responsibility is to express opinions on these financial statements based on our audit. We did not audit the financial statements of Devou Properties, Inc. (a non-profit organization), the discretely presented component unit. Those financial statements were audited by other auditors whose report thereon has been furnished to us, and our opinion, insofar as it relates to the amounts included for Devou Properties, Inc. is based on the report of the other auditors. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The financial statements of Devou Properties, Inc. were not audited in accordance with Government Auditing Standards. 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 and the report of other auditors provide a reasonable basis for our opinions. In our opinion, based on our audit and the report of other auditors, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, the aggregate discretely presented component units, each major fund, and the aggregate remaining fund information of the City of Covington, Kentucky, as of June 30, 2010, and the respective changes in financial position and cash flows, where applicable, thereof for the year then ended in conformity with accounting principles generally accepted in the United States of America. In accordance with Government Auditing Standards, we have also issued our report dated November 19, 2010, on our consideration of the City of Covington, Kentucky'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. 9 Honorable Mayor Board of Commissioners City of Covington, Kentucky Page Two Accounting principles generally accepted in the United States of America require that the management's discussion and analysis on pages 11 through 23 and budgetary comparison schedules on pages 56 through 61 be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management's responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the City of Covington, Kentucky basic financial statements. The other supplementary information, as listed in the table of contents, is presented for purposes of additional analysis and is not a required part of the basic financial statements. The supplementary schedule of expenditures of federal awards is presented for the purpose of additional analysis as required by the U.S. Office of Management and Budget Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations, and is also not a required part of the basic financial statements. The other supplementary information and the supplementary schedule of expenditures of federal awards are the responsibility of management and were derived from and relate directly to the underlying accounting and other records used to prepare the financial statements. The information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated in all material respects in relation to the basic financial statements taken as a whole. The introductory section and statistical sections, as listed in the table of contents, are presented for purposes of additional analysis and are not a required part of the basic financial statements. Such information has not been subjected to the auditing procedures applied by us and the other auditors in the audit of the basic financial statements and, accordingly, we express no opinion or provide any assurance on it. VonLehman & Company Inc. Fort Mitchell, Kentucky November 19, 2010 10 CITY OF COVINGTON, KENTUCKY MANAGEMENT'S DISCUSSION AND ANALYSIS The Management Discussion and Analysis (MD&A) of the City of Covington, Kentucky's (the City's) financial statements provides readers an overview and analysis of the City's financial position and activities for the fiscal year ended June 30, 2010. The information presented here should be read in conjunction with the City's basic financial statements which immediately follow this analysis. USING THIS ANNUAL REPORT This annual report consists of a series of financial statements. The Statement of Net Assets and the Statement of Activities (on pages 24 and 25) provide information about the activities of the City as a whole and present a longer-term view of the City's finances. Fund financial statements start on page 26. For governmental activities, these statements tell how these services were financed in the short term as well as what remains for future spending. Fund financial statements also report the City's operations in more detail than the government-wide statements by providing information about the City's most financially significant funds. This report was published under the standards for governmental financial reporting prescribed by the Governmental Accounting Standards Board in their Statement No. 34 (GASB 34). The GASB 34 model is designed to provide improved information through the elimination of fund transfers and the use of consolidated statements. This model is found in the government-wide financial statements. Financial Highlights The assets of the City exceeded its liabilities at the close of the most recent year by $48,218,683 (net assets), and represent a decrease of $5,190,664 from the prior year. This amount includes $34,539,885 that is invested in capital assets net of related debt. Another $91,138 is restricted for debt service and $13,587,660 is unrestricted and available to fund the City's future obligations, activities, and projects. An increase in accumulated depreciation of $6,225,164 is one of the reasons for the decrease in net assets and net assets invested in Capital Assets respectively. As of the close of the current fiscal year, the City's governmental funds reported a combined ending fund balance of $4,488,222, a decrease of $1,456,771 from the previous year. Of the $4,488,222 in combined fund balance, $342,498 in the General Fund was unreserved, undesignated, and available. The City has a minimum reserve retention policy of a minimum of 5% of General Fund revenue. The $342,498 in General Fund combined with the fund balance of $1,770,264 in the Working Capital Reserve Special Revenue Fund equals $2,112,762 or 4.6% of General Fund revenue. Last fiscal year, the City's fund balance in General Fund and Working Capital Reserve was $2,542,233, or 5.4% of General Fund revenue. Government-Wide Financial Statements Government-Wide financial statements include the Statement of Net Assets and the Statement of Activities. These statements utilize the accrual basis of accounting, which is similar to the accounting used by most private-sector companies. Accrual accounting means the financial statements recognize revenue when it is earned and expense when it is incurred regardless of when the cash is actually received or paid. 11 CITY OF COVINGTON, KENTUCKY MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED) The Statement of Net Assets presents information on all City assets and liabilities as of June 30, 2010. Net assets are the difference between the assets and liabilities. Over time, increases or decreases in the City's net assets are one indicator of whether its financial health is improving or deteriorating. In assessing the City's condition, other factors must be considered as well, such as changes in the City's property tax base, occupational license tax base, and the condition of the City's capital assets (roads, buildings, equipment, and sidewalks) to assess the overall health of the City. The Statement of Activities presents the City's annual revenues and expenses as well as any other transactions that increase or decrease net assets. Program revenues are offset by program expenses in order to provide net program costs that are financed by general government revenues. The government-wide statements divide the City functions into two kinds of activities: ? Governmental activities: Most of the City's basic services are reported here, including police, fire, street maintenance, parks and recreation, and general administration services. Payroll occupational license fees, property taxes, and net profit license fees, and insurance premiums license tax, and service charges finance most of these activities. ? Component Units: Devou Properties Inc. was formed to maintain and operate the Drees Pavilion at Devou Memorial Overlook for the benefit of Devou Park which is owned by the City. Although a legally separate entity, Devou Properties is included in these financial statements because of its financial accountability to the City. Fund Financial Statements Fund financial statements report the City's operations in more detail than the government-wide statements. The analysis of the City's major funds begins on page 57. The non-major fund financial statements begin on page 63. Some funds are required to be established by State law or by bond covenants. However, the City Commission may establish many other funds to help control and manage money for particular purposes (i.e., Police Forfeiture Fund, Devou Park Maintenance Fund, City Hall Operations Fund, etc.) or to show that it is meeting legal responsibilities for grant funds (i.e. Community Development Block Grant Fund, Housing Voucher Fund, HOME Program Fund, etc.). The City's reports financial activity under three kinds of funds, governmental and proprietary, and fiduciary. Governmental funds: Most of the City's basic services are reported in governmental funds, which focus on how money flows into and out of those funds and the balances left at year-end that are available for spending. These funds are reported using an accounting method called modified accrual accounting, which measures cash and all other financial assets that can readily be converted to cash. The governmental fund statements provide a detailed short-term view of the City's general government operations and the basic services it provides. Governmental fund information helps determine whether there are more or fewer financial resources that can be spent in the near future to finance the City's programs. The relationship (or differences) between governmental activities (reported in the Statement of Net Assets and the Statement of Activities) and governmental funds is described in a reconciliation attached to the fund financial statements. The City considers the General Fund, Community Development Block Grant Fund, HOME Program Fund, and Housing Voucher Fund to be major governmental funds. 12 CITY OF COVINGTON, KENTUCKY MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED) Proprietary funds: When the City charges customers for the full cost of the services it provides whether to outside customers or to other units of the City, these services are reported in proprietary funds. The subcategories of the funds include enterprise funds, which are business-type activities and internal service funds, which report services provided to internal units of government. Proprietary funds are reported in the same way that all activities are reported in the Statement of Net Assets and the Statement of Activities. The City has no enterprise funds and reports two internal service funds, the Liability Self Insurance Fund and the Medical and Dental Self Insurance Fund. Fiduciary funds: Fiduciary funds are used to account for resources held for the benefit of parties outside the government. Fiduciary funds are not reflected in the government-wide financial statements because the resources of those funds are not available to support the City of Covington's own programs. The accounting used for fiduciary funds is much like that used for proprietary funds. The City is trustee, or fiduciary for two retirement funds. The Police and Firemen's Pension Fund is a closed pension that is held solely for trust beneficiaries. The Employees' Retirement fund has two active employee members and is also held solely for trust beneficiaries. 13 CITY OF COVINGTON, KENTUCKY MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED) Statement of Net Assets For the year ended June 30, 2010, net assets changed as follows: Governmental Activities 2010 Current and other assets $ Capital assets Other Non Current Assets Total assets Current liabilities Non-current liabilities Total liabilities Net assets: Invested in capital assets, net of debt Restricted Unrestricted Total net assets $ Governmental Activities 2009 30,359,689 $ 59,534,627 8,046,616 97,940,932 13,494,421 36,227,828 49,722,249 34,539,885 91,138 13,587,660 48,218,683 $ 29,205,060 63,115,916 8,539,255 100,860,231 10,017,697 37,433,187 47,450,884 Increase (Decrease) From FYE 09 $ 36,577,167 193,693 16,638,487 53,409,347 $ 1,154,629 (3,581,289) (492,639) (2,919,299) 3,476,724 (1,205,359) 2,271,365 (2,037,282) (102,555) (3,050,827) (5,190,664) The total assets of the City on June 30, 2010 were $97.9 million, while total liabilities were $49.7 million, resulting in net assets of $48.2 million. The largest component of the City's net assets, $34.5 million, or 71.6%, reflects its investment in capital assets. Unrestricted net assets which represent funds that may be used at the City's discretion decreased $3.1 million. Total net assets decreased by $5.2 million. Budgetary constraints have caused investment in capital assets to fall significantly below current year depreciation for the second consecutive year. Decrease in capital assets make up $3.6 million of the $5.2 million decrease in net assets. Maintaining current service levels and current staffing has been the priority in lieu of infrastructure for the past two fiscal years while the slowing economy has meant no revenue growth. A Financial Recovery Plan that is currently in development has a primary goal of restoring capital investment to a higher level while maintaining a structurally balanced budget. Several federal and non federally projects extended over the end of the 2010 year and into the 2011 fiscal year resulting in higher than normal accounts payable balances and corresponding decrease in net assets. 14 CITY OF COVINGTON, KENTUCKY MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED) Statement of Activities Activities 201 0 Reven ues: P rogra m r eve nues: Ch arge s for service s Oper ati ng gran ts and contribution s Ca pital g rants G ener al revenue s: Ta xe s Intere st Other Total r evenue s $ 6,008 ,50 7 $ Activities 200 9 5,517 ,55 2 $ (Decre ase) Fr om 2009 490 ,9 55 10,727 ,97 2 1,624 ,31 2 9,664 ,17 0 1,650 ,92 0 1,063 ,8 02 (26 ,6 08) 40,338 ,23 4 25 ,09 4 1,298 ,10 8 60,022 ,22 7 41,346 ,33 1 112 ,06 4 1,495 ,81 7 59,786 ,85 4 (1,008 ,0 97) (86 ,9 70) (197 ,7 09) 235 ,3 73 E xp enses: Gene ral govern ment Police Fir e Public Imp rovemen ts Re cr eation Ho using and econ omic d evelopme n Parking G arag e Intere st on long term deb t Total expen ses 6,089 ,51 8 16,498 ,51 6 15,048 ,96 6 11,847 ,11 6 796 ,21 5 12,484 ,04 5 732 ,36 2 1,716 ,15 3 65,212 ,89 1 11,008 ,14 1 15,847 ,04 6 15,113 ,01 0 7,185 ,21 0 2,740 ,96 0 10,217 ,35 7 701 ,98 6 2,052 ,54 9 64,866 ,25 9 (4,918 ,6 23) 651 ,4 70 (64 ,0 44) 4,661 ,9 06 (1,944 ,7 45) 2,266 ,6 88 30 ,3 76 (336 ,3 96) 346 ,6 32 Increa se in ne t assets befor e tra nsfe rs an d oth er expenses Tra nsfe rs O th er expenses Increa se in ne t assets Net asse ts - Ju ly 1 Net asse ts - Ju ne 30 (5,190 ,66 4) (5,190 ,66 4) 53,409 ,34 7 48,218 ,68 3 $ (5,079 ,40 5) (5,079 ,40 5) 58,488 ,75 2 53,409 ,34 7 $ (111 ,2 59) (111 ,2 59) (5,079 ,4 05) (5,190 ,6 64) $ 15 CITY OF COVINGTON, KENTUCKY MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED) Revenues for the City's governmental activities were $60,022,227, an increase of $235,373 from the prior year. Taxes which include occupational license fees, property taxes, insurance premiums taxes, and net profit taxes decreased $1,008,907 (2.4%) and represent 67.2% of all revenue. For the first time in more than twenty five years, the revenue from the payroll tax portion of the occupational license fee was less than the prior year. $847,017 or, 3.6% less in payroll taxes were collected in fiscal year 2010 compared to fiscal year 2009. The general economic slowdown and jobless recovery has had an impact on revenue. Operating grants and contributions increased by $1,063,802. A grant awarded by the US Department of Housing and Urban Development as part of the neighborhood Stabilization Program is the reason for the increase. Funds are being used to rehabilitate and develop rental units and single family homes for resale to owner occupants. Total expenses for the City's governmental activities were $65.2 million, a 0.5% increase from the prior year. Expenses which were classified under General Government in the past now are reflected under the new Department of Public Improvements which also absorbed the recreation maintenance activities which had been part of the Recreation Department. The increase in Housing and Community Development was caused by the Neighborhood Stabilization Project referenced above as well as other federal stimulus dollars. Fund Financial Statements GENERAL FUND The following schedules and charts present a summary of the General Fund revenues and expenditures for the fiscal year ended June 30, 2010, and the amount and percentage of increases and decreases in relation to the prior year. Increase Taxes $ P ercent (Decrease) In cr ease Amou nt Reven ues Percen t FYE 201 0 Of To tal Fr om FY E 2 009 ( De crease) 1 4,1 94,342 30 .63 % $ 2 5,4 29,776 54 .88 % ( 1,1 20,553) -4.22% Intergo ve rnmen tal 6 12,863 1 .32 % (1 25,662) -17.01% Fine s an d for fe itur es 7 46,322 1 .61 % 34,250 Cha rges fo r se rvices Interest 4,9 37,078 1,353 10 .65 % 0 .00 % 4 74,101 ( 20,377) 4 22,738 0 .91 % L ice nses a nd permits Miscellan eous Total reven ues $ 4 6,3 44,472 100 .01 % $ 2 72,596 7,081 (4 78,564) 1.95% 4.80% 10.62% -93.77% 1.70% 1.02% Taxes which include real estate taxes, personal property taxes, and insurance premiums taxes increased modestly by $272,596. Total taxable assessed value increased $56.6 million, or 2.7% to a total of 2.1 billion dollars. 16 CITY OF COVINGTON, KENTUCKY MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED) Occupational License revenue includes both a payroll occupational license fee and a net profit occupational license fee on businesses. The payroll occupational license fee decreased $847,017, or 3.6% and the net profit occupational license fee decreased $271,695, or 10.6% from the prior fiscal year. The rate of decline in both the payroll and net profit occupational license fee has stopped and both seem to have leveled off during the first quarter of the 2011 fiscal year. There is a real potential however that the occupational license fees could continue flat until the end of 2011. Interest income, which by contract is tied to Federal Funds rate, decreased due to historic low near zero Federal Fund rate. 2010 General Fund Revenues Property taxes $14,194,342 0% Licenses and permits $25,429,776 1% 1% 1% 11% 31% Int ergovernment al $612,863 Charges for services $4,937,078 55% Fines $746,322 Int erest $1,353 Miscellaneous $422,738 17 CITY OF COVINGTON, KENTUCKY MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED) FYE 2010 A mount Expe nditure s Percen t Of Total In cr ease ( De crease) Fr om FYE 2 009 Per ce nt Increase (Decrease) G ener al governme nt $ P ublic sa fe ty P ublic Impr ovements Recre atio n Hou sin g and economic develo pment P arking ga rage Deb t service 2,955 ,8 69 28,336 ,9 14 6,514 ,9 05 504 ,3 09 6.83% $ 65.43% 15.05% 1.16% 33 ,8 82 1,141 ,4 91 (175 ,5 98) (2,028 ,7 94) 1 .15 % 4 .19 % -2 .62 % -80 .09 % 3,544 ,8 88 732 ,3 62 713 ,1 74 8.19% 1.69% 1.65% 2,092 ,4 50 30 ,3 76 (106 ,3 65) 144 .06 % 4 .32 % 12 .97 % Total expen ditures 43,302 ,4 21 99.99% $ 987 ,4 42 $ 2 .33 % Expenditures increased from the prior year by 2.33%, or $987,442. Personnel Costs represent 80.0% of all General Fund expenditures before transfers out to other funds. Total personnel costs increased $1,490,414, or 4.5%. The impact in personnel costs were felt across all departments but especially in public safety with a $259,386 increase in overtime costs and $632,266 increase in hazardous pension costs. All other major expense categories with the exception of personnel were less than the prior year because of cost control measures put in place to maintain current service levels and current staffing. Variations from prior year costs in Public Improvements, Recreation, and Housing and Economic Development were a result of a comprehensive reorganization of those departments. 18 CITY OF COVINGTON, KENTUCKY MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED) 2010 General Fund Expenditures General Government $2,955,869 Police $15,010,788 8% 1% Fire $13,326,126 2% 1% 7% 15% Public Improvements $6,514,905 35% Recreation $504,309 31% Code Enforcement and economic development $3,544,888 Parking Garage $732,362 Debt Service $713,174 Other Governmental Funds The City's governmental funds reported a combined ending fund balance of $4,488,222, a decrease of $1,456,771 from the previous year. General Fund Balance decreased $429,471 of the $1,456,771 total decrease. The US Department of Housing and Urban Development (HUD) is the funding source for the Housing Voucher Program. During the year, actual assistance payments to landlords exceeded payments from HUD by $690,822. A fund balance had accrued in the past which HUD had not reclaimed as unspent funds. HUD began to spend down the fund balance this current year causing the decrease in fund balance. The Sewer Maintenance Fund Special Revenue Account decreased $92,396. The Sewer Maintenance Fund Special Revenue Fund is used to retire debt owed to the Northern Kentucky Sanitation District. The debt has been retired and the fund will be closed. The increase in Newport Steel UDAG Fund is the result of payments received on Economic Development loans issued by the City. The funds received will be available to lend again in an effort to facilitate business activity and job growth. 19 CITY OF COVINGTON, KENTUCKY MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED) The Working Capital Reserve fund balance showed no change in fiscal year 2010 and no contributions were made because of budget constraints. The fund balance from the Working Capital Reserve is combined with the fund balance of the General Fund to calculate the City's progress toward a minimum 5% of General Fund revenue fund balance retention policy. Disbursements from the fund can only be made by resolution adopted by the Board of Commissioners. No disbursements from the Working Capital Reserve have been approved since its inception. General Fund Budgetary Highlights Over the course of the fiscal year, the City Commission approved revisions of the General Fund budget one time. The total budget was not changed. The General Fund revenue budget was also not changed. Only the departmental budgets were adjusted. The budget amendment was made to more closely reflect the anticipated actual expense for the year and to formally adopt as part of the budget changes in staff or activities that were approved by the City Commission during the year. General Fund revenue including "transfers in" was 99.4% of budget and General Fund expense including "transfers out" was 100.3% of budget. An unexpected spike in health care claims at the end of the fiscal year was the reason expenses exceeded budget by a small percentage. DEBT AND CAPITAL ASSET ADMINISTRATION Debt Administration At year-end, the City had $39,910,621 in outstanding notes, capital leases, bonds, and uncompensated absences compared to $42,006,452 the prior year. The following is a summary of the changes in the City's outstanding long-term debt from fiscal year 2009 to fiscal year 2010. Governmental Activities 2009 2010 Mortgage Bonds Payable (Backed by City) Note Payable (Backed by City) Capital Lease Obligation (Backed by City) Compensated Absences $ 20,300,563 $ 21,015,581 510,031 606,130 17,663,351 18,781,698 1,603,043 1,436,676 $ 39,910,621 $ 42,006,452 Totals 20 CITY OF COVINGTON, KENTUCKY MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED) The Kentucky Infrastructure Authority approved an American Recovery and Reinvestment Act loan for the Prisoner's Lake Rainwater Harvest Project. The loan shall not exceed $1.2 million. Principal forgiveness of up to 52.1% of the loan will be granted upon successful completion of the project. The project involves harvesting rainwater for irrigation by pumping water from Prisoner's Lake into a nearby irrigation pond that is located on Devou Park Golf Course. Both the Lake and the Golf Course is owned by the City of Covington. The primary purpose of the project is to eliminate outflow from Prisoner's Lake that is currently discharged into the Sanitation District combined sewer system. The project will also reduce the amount of water that is purchased to irrigate the golf course. The Sanitation District has agreed to pay 75% of principal and interest on the portion of the loan that is not forgiven. The project was complete subsequent to the end of the 2010 fiscal year. Total drawdown on the $1.2 million loan was $1,197,390 of which $623,840 will be forgiven. No other debt was issued. Principal payments of $2,980,841 were made during the year. The Kentucky Constitution states that the total principal amount of City indebtedness, which excludes self-supporting obligations, revenue bonds, special assessment debt, and non-tax supported debt, cannot exceed 10% of the value of taxable property in the City. The debt limit for the City of Covington is $206 million. Additional information on the City's long-term debt can be found on pages 45-50. Capital Assets The City's capital assets, net of depreciation as of June 30, 2010 totaled $59,534,627, a decrease of $3,581,289 from last year. This year's major capital additions are as follows: Infrastructure including street resurfacing etc Rainwater Harvest Project Building & Land Improvements Energy Savings Improvements Parking Garages Communication Systems for Public Safety Police Cruisers Ambulance $ 1,167,821 1,040,503 625,291 26,290 35,342 253,550 150,010 21 CITY OF COVINGTON, KENTUCKY MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED) The following is a summary of changes in the City's capital assets from fiscal year 2009 to fiscal year 2010. Gov ernm ental Activitie s 2 010 L and $ L and impro ve ments 14,621 ,58 1 20 09 $ 14,97 1,7 64 1,396 ,21 2 23,269 ,49 4 V ehicles O th er equip ment 8,47 7,0 32 10,436 ,04 7 B uilding Impro ve ments 23,11 4,2 94 8,797 ,19 9 B uilding 1,28 8,8 02 10,21 3,3 27 4,802 ,07 1 4,78 0,0 87 P ublic domain in fra stru cture 108,745 ,17 3 106,53 7,8 28 Con struction in pro gress TO TALS 1,040 ,56 3 173,108 ,34 0 1,24 2,0 99 170,62 5,2 33 $ $ The Engineering Department presented an evaluation of Covington's worst streets and proposed a strategy to address the funding needs. An estimate of $7.5 million of capital investment would be required to address the worst streets. An investment of this amount would also mean that future capital requirements for ongoing preventive and routine street maintenance could be budgeted at approximately $2 to $3 million annually. Budget priority will be given in fiscal year 2010-2011 to address the targeted worst streets although financial conditions will not allow full funding for ongoing preventive and routine maintenance. Additional information on the City's capital assets can be found on page 42. 22 CITY OF COVINGTON, KENTUCKY MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED) ECONOMIC FACTORS AND NEXT YEAR'S BUDGET The budget for the 2011 fiscal year was developed to maintain current levels of City services and staffing. Capital investment in infrastructure and fleet and increasing the General Fund and Working Capital Reserve fund balances have been postponed to balance the fiscal year 2011 budget. Control of salary and health care costs and continuation of basic city services without any layoffs or other service reductions remain the primary goal. The City is however committed to a structurally balanced budget and will not permit further erosion of the General Fund and Working Capital Reserve fund balances Significant progress had been made on increasing the City's financial reserves. As discussed in the financial highlights, the combined fund balance in the General Fund and the Working Capital Reserve is $2,112,762, or 4.6%, of General Fund revenue. Five years ago, the combined fund balance in the General Fund and Working Capital Reserve was $235,127, or .6%, of General Fund revenue. The utilization of fund balance to offset the operating deficit from the 2010 fiscal year is a temporary measure to allow sufficient time to develop an appropriate Financial Recovery Plan. The City, however, continues to under fund its capital investment. Over the next five years an investment of $47.2 million is required. The 2011 budget includes only $3.9 million in capital investment which is well short of the $9.4 million per year average that is required. A major part of the Financial Recovery will include a more aggressive and significant investment in the City's infrastructure. The economic outlook is grim for the coming year. Revenue estimates have been reduced. The housing mortgage crisis and credit crunch will continue to dampen growth. With the economic slowdown, job expansion is not expected until after June 30, 2011. CONTACTING THE CITY'S FINANCIAL MANAGEMENT This financial report is designed to provide our citizens, taxpayers, customers, and creditors with a general overview of the City's finances and to show the City's accountability for the money it receives. If you have questions about this report or need additional financial information, contact Robert J. Due, Finance Director, 638 Madison Avenue, Covington, Kentucky 41011. Questions or requests for additional information can also be e-mailed to bdue@covingtonky.gov. 23 CITY OF COVINGTON, KENTUCKY STATEMENT OF NET ASSETS June 30, 2010 Primary Government Governmental Activities Assets Current Assets Cash and Cash Equivalents Receivables Property Taxes Intergovernmental Notes Accounts Prepaids Due from Pension Trust Funds $ 5,029,515 $ Component Unit Devou Properties, Inc. 2,165,495 845,495 1,245,312 14,979,456 6,997,736 236,899 1,025,276 30,359,689 Total Current Assets Noncurrent Assets Deferred Charges, Net Deferred Outflow - Hedges Net Pension Obligation Asset Land and Construction in Progress Depreciable Capital Assets Less Accumulated Depreciation 112,033 3,219 2,280,747 302,318 1,389,949 6,354,349 17,058,356 156,049,984 (113,573,713) 17,184 (13,818) Total Noncurrent Assets 67,581,243 3,366 Total Assets 97,940,932 2,284,113 3,235,508 3,226,299 117,521 1,654,927 187,424 1,436,676 1,163,247 2,472,819 27,278 17,319 315,630 13,494,421 360,227 16,500,104 18,337,775 1,389,949 - Total Noncurrent Liabilities 36,227,828 - Total Liabilities 49,722,249 360,227 34,539,885 91,138 13,587,660 3,366 1,920,520 48,218,683 $ 1,923,886 Liabilities Current Liabilities Accounts Payable Accrued Liabilities Accrued Interest Payable Unearned Revenue Line of Credit Accumulated Compensated Absences Current Portion of Capital Lease Obligations Current Portion of Bonds and Notes Payable Total Current Liabilities Noncurrent Liabilities Noncurrent Portion of Capital Lease Obligations Noncurrent Portion of Bonds and Notes Payable Derivative Instrument - Liability Net Assets Invested in Capital Assets, Net of Related Debt Restricted for Debt Service Unrestricted Total Net Assets $ See accompanying notes 24 - CITY OF COVINGTON, KENTUCKY STATEMENT OF ACTIVITIES Year Ended June 30, 2010 Net (Expense) Revenue and Changes in Net Assets Primary Government Governmental Component Activities Unit Program Revenue Functions/Programs Primary Government Governmental Activities General Government Police Fire Public Improvements Recreation Community Development Parking Garage Interest on Long-Term Debt Expenses $ Total Governmental Activities Total Primary Government 6,089,518 16,498,516 15,048,966 11,847,116 796,215 12,484,045 732,362 1,716,153 Operating Grants and Contributions Charges for Services $ 65,212,891 1,136,249 412,722 1,282,105 1,918,838 79,317 1,179,276 - $ 6,008,507 959,053 466,655 9,302,264 - Capital Grants and Contributions $ 10,727,972 1,058,463 78,815 487,034 - $ (3,894,806) (15,047,926) (13,766,861) (8,974,589) (796,215) (3,102,464) 446,914 (1,716,153) 1,624,312 (46,852,100) (46,852,100) $ 65,212,891 $ 6,008,507 $ 10,727,972 $ 1,624,312 $ 430,591 $ 888,544 $ - $ - Component Unit Devou Properties, Inc. $ General revenues: Taxes Real Property Taxes, Levied for General Purposes Personal Property Taxes, Levied for General Purposes Public Service Taxes Taxes, Levied for Bank Deposits Insurance Premium Taxes Payroll Taxes Net Profits Taxes Other Taxes Investment Earnings Miscellaneous 457,953 6,114,035 557,999 2,085,706 60,603 5,588,067 22,850,229 2,285,504 796,091 25,094 1,298,108 4,628 - Total General Revenues 41,661,436 4,628 Change in Net Assets (5,190,664) Net Assets June 30, 2009 462,581 53,409,347 $ Net Assets June 30, 2010 See accompanying notes 25 48,218,683 1,461,305 $ 1,923,886 CITY OF COVINGTON, KENTUCKY BALANCE SHEET GOVERNMENTAL FUNDS June 30, 2010 Community Development Block Grant General Fund Assets Cash and Cash Equivalents Receivables Taxes Intergovernmental Notes Accounts Due from Other Funds Prepaids Total Assets Liabilities and Fund Balances Liabilities Accounts Payable Accrued Liabilities Due to Other Funds Deferred Revenue $ 267,882 $ 845,495 6,037,374 2,917,709 - - Housing Voucher Program HOME Program $ 319,243 6,100,914 501,846 - 59,483 $ 91,325 6,084,027 68,576 - Non-Major Governmental Funds 966,714 $ 8,887 - 1,736,748 Total Governmental Funds $ 834,744 2,794,515 874,419 2,363,081 239,664 3,030,827 845,495 1,245,312 14,979,456 6,920,680 5,851,212 239,664 $ 10,068,460 $ 6,922,003 $ 6,303,411 $ 975,601 $ 8,843,171 $ 33,112,646 $ 2,671,049 1,531,943 2,765,861 2,757,109 $ 158,827 8,409 6,754,767 $ 18,481 6,084,027 $ 46,117 4,688 56,777 $ 353,005 2,058,943 3,354,421 $ 3,228,998 1,531,943 4,856,382 19,007,101 9,725,962 Total Liabilities 6,922,003 6,102,508 107,582 5,766,369 28,624,424 59,664 59,664 Fund Balances Reserved for: Prepaids Unreserved Undesignated, Reported In General Fund Special Revenue Funds Capital Projects Funds Debt Service Funds - - - - 342,498 - - 200,903 - 868,019 - 2,938,984 (12,984) 91,138 342,498 4,007,906 (12,984) 91,138 Total Fund Balances 342,498 - 200,903 868,019 3,076,802 4,488,222 Total Liabilities and Fund Balances $ 10,068,460 $ 6,922,003 See accompanying notes 26 $ 6,303,411 $ 975,601 $ 8,843,171 $ 33,112,646 CITY OF COVINGTON, KENTUCKY RECONCILIATION OF THE BALANCE SHEET - GOVERNMENTAL FUNDS TO THE STATEMENT OF NET ASSETS June 30, 2010 Total Fund Balance - Governmental Funds $ 4,488,222 Amounts reported for governmental activities in the Statement of Net Assets are different because: Capital assets used in governmental activities are not current financia resources and therefore are not reported in this fund financial statement but are reported in the governmental activities of the Statement of Net Assets. Cost of Capital Assets Accumulated Depreciation $ 173,108,340 (113,573,713) 59,534,627 Certain other long-term assets are not available to pay current period expenditures and are therefore deferred in the funds. 17,352,174 Internal service funds are used by management to charge the cost of certain activities, such as liability and health and dental insurance, to individual funds. The assets and liabilities of the internal service funds must be added to the statement of net assets. The assets and liabilities of the internal service funds are: Cash and Cash Equivalents Accounts Receivable Due From Other Funds Accounts Payable Estimated Liability for Claims Due to Other Funds 1,998,688 77,056 450,000 (9,275) (1,694,356) (419,554) 402,559 Deferred charges represent costs related to the issuance of new bonds and also refunding costs. Deferred charges are reported as an other use of funds in the governmental funds statements. However, on the government wide statement of net assets these costs are capitalized and reported as a deferred charge, and amortized over the life of the related bonds. 302,318 Net pension obligation asset represents contributions made to the City's pension funds in excess of the actuarially required contribution. The excess contributions are capitalized and amortized. 6,354,349 Interest payable on long term debt does not require current financial resources. Therefore accrued interest payable is not reported as a liability in the governmental funds balance sheet. (117,521) Some capital additions were financed through a line of credit. In governmental funds, a line of credit is considered a source of financing, but in the Statement of Net Assets, the obligation is reported as a liability. (187,424) Long-term liabilities, including bonds payable, are not due and payable in the current period and therefore are not reported as liabilities in the funds. Long-term liabilities at year end consist of: Bonds Payable Capital Lease Obligations Payable Compensated Absences Payable 20,810,594 17,663,351 1,436,676 (39,910,621) Total Net Assets - Governmental Activities See accompanying notes. 27 $ 48,218,683 CITY OF COVINGTON, KENTUCKY STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE GOVERNMENTAL FUNDS Year Ended June 30, 2010 General Fund Revenues Taxes Licenses and Permits Intergovernmental Charges for Services Fines and Forfeitures Investment Earnings Miscellaneous $ Community Development Block Grant Non-Major Governmental Funds Housing Voucher Program HOME Program Total Governmental Funds 14,194,342 $ 25,429,776 612,863 4,937,078 746,322 1,353 422,738 - $ 2,308,319 344,753 - $ 515,173 60 147,428 - $ 5,526,721 577 5,599 792,712 $ 3,203,571 289,995 22,449 430,835 14,987,054 25,429,776 12,166,647 5,227,073 746,322 24,439 1,351,353 46,344,472 2,653,072 662,661 5,532,897 4,739,562 59,932,664 2,955,869 15,010,788 13,326,126 6,514,905 504,309 - - - 829,845 582,706 486,808 - 3,785,714 15,593,494 13,812,934 6,514,905 504,309 3,544,888 732,362 1,037,835 - 638,533 - 6,223,719 - 730,822 - 12,175,797 732,362 503,716 209,458 - 67,000 25,740 1,573,497 - - 2,410,125 1,444,656 3,409,031 2,980,841 1,679,854 4,982,528 Total Expenditures 43,302,421 2,704,072 638,533 6,223,719 9,893,993 62,762,738 Excess (Deficit) of Revenues Over Expenditures 3,042,051 (51,000) 24,128 (5,154,431) (2,830,074) 1,231,004 9,700 (4,712,226) 368,000 (317,000) - - - - 4,797,119 155,040 1,040,563 (1,198,897) 6,028,123 532,740 1,040,563 (6,228,123) (3,471,522) 51,000 - - 4,793,825 1,373,303 (429,471) - 24,128 771,969 - 176,775 342,498 $ - $ 200,903 $ Total Revenues Expenditures Current General Government Police Fire Public Improvements Recreation Community Development Parking Garages Debt Service Principal Interest and Other Charges Capital Outlay Other Financing Sources (Uses) Transfers In Proceeds from Sale of Capital Assets Proceeds from Issuance of Debt Transfers Out Total Other Financing Sources (Uses) Net Change in Fund Balances Fund Balance July 1, 2009 Fund Balance June 30, 2010 $ See accompanying notes 28 (690,822) (690,822) 1,558,841 868,019 $ (360,606) (1,456,771) 3,437,408 5,944,993 3,076,802 $ 4,488,222 CITY OF COVINGTON, KENTUCKY RECONCILIATION OF THE STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE - GOVERNMENTAL FUNDS TO THE STATEMENT OF ACTIVITIES Year Ended June 30, 2010 $ Change in Fund Balances - Total Governmental Funds (1,456,771) Amounts reported for Governmental Activities in the Statement of Activities are different because: Capital Outlays to purchase or build capital assets are reported in governmental funds as expenditures. However, for governmental activities those costs are shown in the statement of net assets and allocated over their estimated useful lives as annual depreciation expense in the statement of activities. This is the amount by which depreciation expense exceeds capital outlays in the period. $ Depreciation Expense Capital Outlays (6,225,164) 3,290,553 (2,934,611) Governmental funds report the entire net sales price (proceeds) from sale of an asset as revenue because it provides current financial resources. In contrast, the Statement of Activities reports only the gain or loss on the sale of the assets. Thus, the change in net assets differs from the change in fund balance by the net book value of the asset sold. (646,678) Governmental funds do not present revenues that are not available to pay current obligations. In contrast, such revenues are reported in the Statement of Activities when earned. 414,324 Repayment of bond, note and capital lease principal is an expenditure in the governmental funds, but it reduces long-term liabilities in the statement of net assets and does not affect the statement of activities. 2,970,027 The Statement of Activities reports annual pension cost, which includes the actuarially required contribution along with an interest factor and adjustment of the net pension obligation asset. (1,830,832) 15,459 Accrued interest not reflected on Governmental funds. In the Statement of Activities, compensated absences (sick leave) are measured by the amounts earned during the year. In the governmental funds, however, expenditures for these items are measured by the amount of financial resources used (essentially, the amounts actually paid). The additional expense reported in the statement of activities is a result of the change in long-term accumulated sick leave. 166,367 Repayments of line of credit is an expenditure in the governmental funds, but it reduces liabilities in the statement of net assets and does not affect the statement of activities. 10,815 Some capital additions were financed through capital leases. In governmental funds, a capital lease arrangement is considered a source of financing, but in the Statement of Net Assets, the lease obligation is reported as a liability. (1,040,563) Costs related to the issuance of new bonds and deferred refunding costs are reported as an other use of funds in the governmental funds financial statements. However, on the government-wide statement of net assets, these costs are capitalized and reported as a deferred charge, and subsequently amortized over the life of the related bonds. This is the amount of current year amortization expense. (51,756) Internal service funds are used by management to charge the costs of certain activities, such as fleet maintenance and information technology, to individual funds. The net revenue (expense) of certain internal service funds is reported with governmental activities. Total Change in Net Assets - Governmental Activities See accompanying notes. 29 (806,445) $ (5,190,664) CITY OF COVINGTON, KENTUCKY STATEMENT OF NET ASSETS PROPRIETARY FUNDS June 30, 2010 Governmental Activities Internal Service Funds Assets Current Assets Cash and Cash Equivalents Accounts Receivable Due from Other Funds $ Total Assets 1,998,688 77,056 450,000 2,525,744 Liabilities Current Liabilities Accounts Payable Estimated Liability for Claims Due to Other Funds 9,275 1,694,356 419,554 Total Liabilities 2,123,185 Net Assets Unrestricted $ See accompanying notes. 30 402,559 CITY OF COVINGTON, KENTUCKY STATEMENT OF REVENUES, EXPENSES AND CHANGES IN FUND NET ASSETS PROPRIETARY FUNDS Year Ended June 30, 2010 Governmental Activities Internal Service Funds Operating Revenues Insurance Premium Payments Other Operating Revenues $ Total Operating Revenues 5,997,410 306,420 6,303,830 Operating Expenses Contractual Services Claims and Judgments 576,592 6,734,340 Total Operating Expenses 7,310,932 Operating Loss (1,007,102) Non-Operating Revenues Investment Income 657 Loss Before Transfers (1,006,445) Transfers In 200,000 Change in Net Assets (806,445) Net Assets July 1, 2009 1,209,004 Net Assets June 30, 2010 $ See accompanying notes. 31 402,559 CITY OF COVINGTON, KENTUCKY STATEMENT OF CASH FLOWS PROPRIETARY FUNDS Year Ended June 30, 2010 Governmental Activities Internal Service Funds Cash Flows From Operating Activities Cash Received from Other Funds Cash Received from Other Activities Cash Paid for Claims $ 6,956,287 306,420 (6,897,772) Net Cash Provided by Operating Activities 364,935 Cash Flows from Non-Capital Financing Activities Transfer from Other Funds 200,000 Cash Flows from Investing Activities Interest Income 657 Net Change in Cash 565,592 1,433,096 Cash and Cash Equivalents July 1, 2009 Cash and Cash Equivalents June 30, 2010 $ $ Reconciliation of Operating Loss to Net Cash Used by Operating Activities Operating Loss Change in Assets and Liabilities Accounts Receivable Due from Other Funds Accounts Payable Estimated Liability Claims Due to Other Funds 1,998,688 (1,007,102) (77,056) 643,740 6,484 406,676 392,193 $ Net Cash Provided by Operating Activities See accompanying notes. 32 364,935 CITY OF COVINGTON, KENTUCKY STATEMENT OF FIDUCIARY NET ASSETS FIDUCIARY FUNDS June 30, 2010 Fiduciary Funds Police and Firemen's Pension Employees' Retirement Assets Cash and Cash Equivalents Investments - Mutual Funds $ 311,719 3,684,603 $ 1,215,885 8,748,202 Totals $ 1,527,604 12,432,805 Total Assets 3,996,322 9,964,087 13,960,409 Liabilities Interfund Loans 177,765 847,511 1,025,276 Net Assets Held in Trust for Pension Benefits $ See accompanying notes. 33 3,818,557 $ 9,116,576 $ 12,935,133 CITY OF COVINGTON, KENTUCKY STATEMENT OF CHANGES IN FIDUCIARY NET ASSETS FIDUCIARY FUNDS Year Ended June 30, 2010 Employees' Retirement Additions Contributions Employee Contributions Impounding Lot $ 8,567 - Total Revenues Fiduciary Funds Police and Firemen's Pension $ 108,113 Totals $ 8,567 108,113 8,567 108,113 116,680 140,314 340,708 481,022 451,733 1,084,750 1,536,483 Total Investment Earnings 592,047 1,425,458 2,017,505 Total Additions 600,614 1,533,571 2,134,185 614,535 35,443 - 1,620,199 42,006 3,610 2,234,734 77,449 3,610 Total Deductions 649,978 1,665,815 2,315,793 Change in Net Assets (49,364) Investment Earnings Interest and Dividends Net Appreciation in Fair Value of Investments Deductions Benefit Payments Administration Impounding Lot Net Assets July 1, 2009 Net Assets June 30, 2010 (132,244) 3,867,921 $ 3,818,557 See accompanying notes. 34 (181,608) 9,248,820 $ 9,116,576 13,116,741 $ 12,935,133 CITY OF COVINGTON, KENTUCKY NOTES TO THE FINANCIAL STATEMENTS NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The basic financial statements of the City of Covington, Kentucky, have been prepared in conformity with U.S. generally accepted accounting principles (GAAP) as applied to government units. The Governmental Accounting Standards Board (GASB) is the accepted standard-setting body for establishing governmental accounting and financial reporting principles. The significant accounting policies of the City are described below. Financial Reporting Entity The City of Covington is a municipality that operates under a City Manager form of government. Legislative authority is vested in the elected Mayor and four City Commissioners. As required by U.S. generally accepted accounting principles, these financial statements present the government and its component units, entities for which the government is considered to be financially accountable. Blended component units, although legally separate entities are, in substance, part of the government's operations and so data from these units are combined with data of the primary government. Each blended component unit of the City has a June 30 year end. The component units discussed below are included in the City's reporting entity as part of the primary government because of the significance of its operational and/or financial relationship with the City. Blended Component Units Included Within the Reporting Entity: City of Covington Non-Uniformed Employees' Pension Fund Certain City employees participate in the non-uniformed employee pension fund. The fund functions for the benefit of these employees and is governed by a four member board of trustees. The mayor, finance director, and two appointed and approved employees constitute the board. The City and plan participants are obligated to fund all costs based upon actuarial valuations. City of Covington Police and Firemen's Pension Fund All public safety employees who retired prior to August 1, 1989 participate in the Police & Firemen's Pension Fund. The fund functions for the benefit of the retirees and is governed by a four member board of trustees, the mayor, finance director and two public safety retirees. The City is obligated to fund all costs based upon actuarial valuations. City of Covington Municipal Properties Corporation The City of Covington Municipal Properties Corporation was formed to act as an agent and to be instrumental in the financing of public improvements and projects of a capital nature for the City and for the particular purpose of acquiring real estate located within the City and constructing, acquiring and equipping thereon capital improvements, facilities, buildings, structures and related appurtenances. The Corporation finances these projects by the issuance of debt. These debt issues are secured by (1) first mortgage liens on the projects, (2) lease and option agreements between the Corporation and the City, the construction agreements and pledged receipts. The lease and option agreements require the City to pay rental, on a yearly basis with the option to renew each year, equal to the amount of bonds and interest coupons coming due in that year. If the City renews the leases from year-to-year, and pays the rentals for each year as stipulated, and when the Corporation has fully paid and retired all of the bonds, the Corporation agrees it will convey the properties to the City free and clear. 35 CITY OF COVINGTON, KENTUCKY NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Discretely Presented Component Units Included Within the Reporting Entity: Devou Properties, Inc. (a non-profit organization) is included in the City's financial statements as a discretely presented component unit. Although a legally separate entity, Devou Properties, Inc. is included in these financial statements because of its financial accountability to the City. Devou Properties, Inc. was formed to maintain and operate the Drees Pavilion at Devou Memorial Overlook for the City of Covington, for the benefit of Devou Park. Devou Properties, Inc. is responsible for renting out the facilities for events, including weddings, receptions and corporate events. Directors of Devou Properties, Inc. are appointed by the City's Board of Commissioners, upon the recommendation of the Mayor. Any excess funds from operations of the facility are to be set aside to be used on Devou Park projects. As a discretely presented component unit, the financial statements of Devou Properties, Inc. are only included on the City's government-wide financial statements in a column that makes it clearly separate from the primary government. Devou Properties, Inc. operates on a calendar year-end basis therefore the financial statements for the year ended December 31, 2009 are included in the City's current financial statements. Audited financial statements of Devou Properties, Inc. are available and may be obtained by contacting the City Manager. Basis of Presentation Government-Wide Financial Statements The government-wide financial statements (i.e., the statement of net assets and the statement of activities) report information on all of the non-fiduciary activities of the primary government. For the most part, the effect of interfund activity has been removed from these statements; however interfund services provided and used are not eliminated. Governmental activities, which are normally supported by taxes and intergovernmental revenues, are reported separately from business-type activities, which rely to a significant extent on fees and charges for support. The statement of activities demonstrates the degree to which direct expenses of a given function or segments are offset by program revenues. Direct expenses are those clearly identifiable with a specific function or segment. Program revenues include 1) charges to customers or applicants who purchase, use or directly benefit from goods, services or privileges provided by a given function or segment and 2) grants and contributions that are restricted to meeting the operational or capital requirements of a particular function or segment. Taxes and other items not properly included among program revenues are reported instead as general revenues. Amounts paid to acquire capital assets are capitalized as assets in the government-wide financial statements, rather than reported as an expenditure. Proceeds of long-term debt are recorded as a liability in the government-wide financial statements, rather than as another financing source. Amounts paid to reduce long-term indebtedness of the reporting government are reported as a reduction of the related liability, rather than as an expenditure. Measurement Focus, Basis of Accounting and Financial Statement Presentation The government-wide financial statements are reported using the economic resources measurement focus and the accrual basis of accounting as are the proprietary fund financial statements. Revenues are recorded when earned and expenses are recorded when a liability is incurred, regardless of the timing of related of the cash flows. Property taxes are recognized as revenues in the year for which they are levied. Grants and similar items are recognized as revenue as soon as all eligibility requirements imposed by the provider have been met. 36 CITY OF COVINGTON, KENTUCKY NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Governmental fund financial statements are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Revenues are recognized as soon as they are both measurable and available. Revenues are considered to be available when they are collectible within the current period or soon enough thereafter to pay liabilities of the current period. For this purpose, the government considers revenues to be available if they are collected within 60 days of the end of the current fiscal period. Material revenues susceptible to accrual are payroll license fees, insurance fees and grant revenues. Expenditures generally are recorded when a liability is incurred, as under accrual accounting. However, debt service expenditures, as well as expenditures related to compensated absences and claims and judgments, are recorded only when payment is due. The government reports the following funds of the financial reporting entity: ? ? ? ? ? The general fund is the government's primary operating fund. It accounts for all financial resources of the general government, except for those required to be accounted for in another fund. The special revenue funds are used to account for the proceeds of specific revenue sources that are restricted to expenditures for specific purposes. The capital projects funds are used to account for the accumulation of specific resources that are intended to be used for future capital improvements. The debt service funds are used to account for the accumulation of resources for, and the payment of, general long-term debt principal and interest. Proprietary funds distinguish operating revenues and expenses from non-operating revenues and expenses. Operating revenues and expenses generally result from providing services in connection with a proprietary fund's principal ongoing operations. All revenues and expenses not meeting this definition are reported as non-operating revenues and expenses. The government reports the following proprietary funds: ? The City has two internal service funds. One fund is for self-insurance for the City's health and dental insurance program for City employees. The second fund is for the self-insurance of the City's liability claims. Additionally, the City reports two fiduciary funds. The two pension trust funds account for the activities of the Employees' Retirement Fund and the Police and Firemen's Pension Fund. These funds are for the accumulation of resources for pension benefit payments to qualified retired employees. The City reports the following major governmental funds: ? ? ? ? The General Fund is the government's primary operating fund. It accounts for all financial resources of the general government that are not accounted for in the other funds. The Community Development Block Grant Fund accounts for entitlements to the City under the provisions of Title 1 of the Housing and Development Act of 1974. Resources may only be used for activities which are directed toward developing urban communities and economic opportunities for persons of low and moderate income. The HOME Program Fund Accounts for resources provided by the U.S. Department of Housing and Urban Development under the HOME Program. Proceeds are used for deferred loans which are used to acquire, construct or rehabilitate housing for low income families. The Housing Voucher Fund accounts for funds provided to the City by the U.S. Department of Housing and Urban Development Section 8 rent subsidy program. Resources are used for the payment of rent subsidies to landlords on behalf of qualified tenants. 37 CITY OF COVINGTON, KENTUCKY NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Assets, Liabilities and Net Assets or Equity: Cash and Cash Equivalents Cash and cash equivalents includes amounts in demand deposits as well as short-term investments with an initial maturity date within three months of the date acquired by the City. The City is authorized by state statute to invest in: ? ? ? ? ? ? Obligations of the United States and of its Agencies and Instrumentalities Certificates of Deposits Bankers Acceptances Commercial Paper Bonds of Other State or Local Governments Mutual Funds Investments In accordance with Government Accounting Standards Board requirements, investments held at June 30, 2010 are recorded at fair value based on quoted market prices. Types of investments allowable in the Pension Trust Funds are governed by the Pension Board of Trustees. All investments are stated in accordance with GASB requirements. Property Tax Receivable Property taxes are levied as of January 1 on property values assessed as of the same date. The taxes are billed on approximately August 15 and are due and payable on September 30. On October 1, the bill becomes delinquent and penalties and interest may be assessed by the City. A lien may be placed on the property on October 1. Notes Receivable Notes receivable are carried at their unpaid principal balance. Short-Term Interfund Receivables/Payables During the course of operations, numerous transactions occur between individual funds for goods provided or services rendered. These receivables and payables are classified as "due from/to other funds" on the balance sheet. Short-term interfund loans are classified as "interfund receivables/payables". Inventories Inventories are valued at cost, which approximates market, using the first-in/first-out (FIFO) method. The costs of governmental fund-type inventories are recorded as expenditures when consumed rather than when purchased. Prepaid Items Payments made to vendors for services that will benefit periods beyond June 30, 2010 are recorded as prepaid items in both the government wide and fund statements. The consumption method is used in the fund statements. Capital Assets General capital assets are those assets not specifically related to activities reported in a propriety fund. These assets are reported in the governmental activities column of the government-wide statement of net assets. 38 CITY OF COVINGTON, KENTUCKY NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) The accounting and reporting treatment applied to capital assets associated with a fund are determined by its measurement focus. General capital assets are long-lived assets of the City as a whole. When purchased, such assets are recorded as expenditures in the governmental funds and capitalized. Infrastructure, such as streets, traffic signals and signs are capitalized, including infrastructure acquired prior to the implementation of the GASB Statement entitled "Basic Financial Statements and Management's Discussion and Analysis for State and Local Governments". The valuation basis for general capital assets are historical costs, or where historical cost is not available, estimated historical cost based on replacement cost. Donated capital assets are recorded at their fair market value on the date donated. Repairs and maintenance are recorded as expenses. Renewals and betterments are capitalized. The City maintains a capitalization threshold of one thousand dollars with the exception of Infrastructure for which the threshold is twenty-five thousand dollars. Capital assets used in operations are depreciated over their estimated useful lives using the straightline method in the government-wide financial statements. Depreciation is charged as an expense against operations and accumulated depreciation is reported on the respective balance sheet. The range of lives used for depreciation purposes for each capital asset class is as follows: Governmental Activities Estimated Lives Description Buildings Building Improvements Public Domain Infrastructure Vehicles Office Equipment 30 10 - 20 25 - 35 5 - 10 3 - 10 Years Years Years Years Years Compensated Absences Vested or accumulated vacation leave that has matured and is expected to be liquidated with expendable available financial resources is reported as an expenditure and a fund liability of the governmental fund that will pay it. In accordance with the provisions of Governmental Accounting Standards, no liability is recorded for non-vesting accumulating rights to receive sick pay benefits. Long-Term Obligations The accounting treatment of long-term debt depends on whether the assets are used in governmental fund operations or proprietary fund operations and whether they are reported in the government-wide or fund financial statements. 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 governmental activities, statement of net assets. Bond premiums and discounts, as well as issuance costs, are deferred and amortized over the life of the bonds. Long-term debt for governmental funds is not reported as liabilities in the fund financial statements. The debt proceeds are reported as revenue and payment of principal and interest reported as expenditures. The accounting for the proprietary fund is the same in the fund statements as it is in the government-wide statements. Unearned/Deferred Revenue In the government-wide financial statements, unearned revenue represents the amount for which revenue recognition criteria have not been met. In subsequent periods, when the incurrence of qualifying expenditures has been made, the liability for the unearned revenue is removed and the revenue is recognized. In the governmental fund financial statements, revenues are deferred for amounts that are unearned or unavailable. Fund Equity Net assets is the difference between assets and liabilities. Net assets invested in capital assets, net of related debt are capital assets, less accumulated depreciation and any outstanding debt related to the acquisition, construction or improvement of those assets. 39 CITY OF COVINGTON, KENTUCKY NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) In the fund financial statements, government funds report reservations of governmental funds that represent amounts that are not available for appropriation such as prepaid expenses. Restricted net assets and restricted fund equity are reported when amounts are legally restricted by outside parties for use for a specific purpose. Unrestricted net assets and fund equity may be used at the City's discretion. Revenues, Expenditures and Expenses: Operating Revenues and Expenses Operating revenues and expenses for the proprietary fund are those that result from internal insurance premiums. It also includes all revenue and expenses related to capital and related financing, non-capital financing or investing activities. Expenditures/Expenses In the government-wide financial statements, expenses are classified by function for governmental activities. In the fund financial statements, governmental funds are classified as follows: Governmental Funds - by Character Current - Further Classified by Function Debt Service Capital Outlay Proprietary Fund - by Operating and Non-Operating In the fund financial statements, governmental funds report expenditures of financial resources. Proprietary funds report expenses related to the use of economic resources. Interfund Transactions Interfund services provided/used are accounted for as revenues, expenditures or expenses. Transactions that constitute reimbursements to a fund for expenditures/expenses initially made from it that are properly applicable to another fund, are recorded as expenditures/expenses in the reimbursing fund and as reductions of expenditures/ expenses in the fund that is reimbursed. Use of Estimates The process of preparing financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect reported amounts of assets, liabilities, designated fund balances, and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenditures during the reporting period. Actual results could differ from those estimates. Budgetary Information Annual budgets are adopted on a basis consistent with U.S. generally accepted accounting principles for all governmental funds and for proprietary funds. NOTE 2 - STEWARDSHIP, COMPLIANCE AND ACCOUNTABILITY The City follows these procedures in establishing the budgetary data reflected in the financial statements: ? ? ? ? ? In accordance with City ordinance, prior to June 1, the City Manager submits to the Board of Commissioners, a proposed operating budget for the fiscal year commencing the following July 1. The operating budget includes proposed expenditures and the means of financing them for the upcoming year. A public meeting is conducted to obtain taxpayer comment. Prior to June 30, the budget is legally enacted through passage of an ordinance. The City Manager is required by Kentucky revised statutes to present a quarterly report to the Mayor and Board of Commissioners explaining any variance from the approved budget. Appropriations continue in effect until a new budget is adopted. 40 CITY OF COVINGTON, KENTUCKY NOTE 2 - STEWARDSHIP, COMPLIANCE AND ACCOUNTABILITY (Continued) The Board of Commissioners may authorize supplemental appropriations during the year. Expenditures may not legally exceed budgeted appropriations at the fund level. Any amendments to the budget that would change fund level totals must be approved by the Board of Commissioners. Encumbrance accounting is not employed by the City. During the year, the Board of Commissioners adopted two supplementary appropriation ordinances. Appropriations lapse at year end unless a new budget has not been adopted. Excess of Expenditures over Appropriations The following funds had expenditures in excess of legally adopted appropriations for the year ended June 30, 2010: Budget $42,656,326 $ 125,000 General Fund 501 Main Street Operations Actual $43,302,421 $ 129,641 NOTE 3 - DEPOSITS Cash and Cash Equivalents The City maintains deposits with financial institutions insured by the Federal Deposit Insurance Corporation (FDIC). As allowed by law, the depository bank should pledge securities along with FDIC insurance at least equal to the amount on deposit at all times. As of June 30, 2010, $250,000 of the City's deposits are insured by the FDIC, and $5,506,884 of the City's deposits are collateralized with securities held by the pledging institution's trust department but not in the City's name. As of June 30, 2010, the City did not have any deposits in excess of insured and/or collateralized amounts. As of December 31, 2009, Devou Properties, Inc. (a component unit of the City) had $1,918,004 in cash in excess of insured limits. Investments Investments are made by the City as an agent for the City Employee's Retirement Fund and the Police and Firemen's Pension Fund. The City maintains investment accounts with brokerage institutions which hold the investments registered in the City's name. As of June 30, 2010, all of the City's investments were covered by SIPC coverage or Excess SIPC coverage provided by the institution, and are therefore not subject to custodial credit risk. Custodial Credit Risk For deposits and investments, custodial credit risk is the risk that in the event of the failure of the counterparty, the City will be able to recover the value of its cash, investments or collateral securities that are in the possession of an outside party. The City has no formal policy on custodial credit risk. As of June 30, 2010, the City had $5,506,884 of deposits collateralized with securities held by the pledging institution's trust department but not in the City's name. 41 CITY OF COVINGTON, KENTUCKY NOTE 4 - CAPITAL ASSETS AND DEPRECIATION Capital asset activity for the fiscal year ended June 30, 2010 was as follows: Balance Beginning of Year Governmental Activities Capital Assets Not Being Depreciated Land Land Improvements Construction in Progress Total Capital Assets Not Being Depreciated $ - $ 107,410 1,040,563 350,183 $ 1,242,099 14,621,581 1,396,212 1,040,563 17,502,665 1,147,973 1,592,282 17,058,356 23,114,294 8,477,032 106,537,828 4,780,087 10,213,327 480,804 320,167 2,212,345 47,856 323,507 325,604 5,000 25,872 100,787 23,269,494 8,797,199 108,745,173 4,802,071 10,436,047 153,122,568 3,384,679 457,263 156,049,984 8,445,727 7,902,877 78,315,684 4,007,028 8,838,001 499,764 280,189 4,662,019 118,067 665,125 33,067 1,042 25,872 100,787 8,912,424 8,183,066 82,976,661 4,099,223 9,402,339 107,509,317 6,225,164 160,768 113,573,713 45,613,251 (2,840,485) 296,495 42,476,271 $ 63,115,916 $ (1,692,512) $ 1,888,777 $ 59,534,627 $ 17,184 $ - $ - $ 17,184 - 13,818 Less: Accumulated Depreciation Buildings Building Improvements Infrastructure Machinery and Equipment Vehicles Total Accumulated Depreciation Depreciable Capital Assets, Net Component Unit Devou Properties, Inc. Depreciable Capital Assets Property and Equipment Less: Accumulated Depreciation Property and Equipment Total Component Unit Capital Assets - Net Additions Balance End of Year 14,971,764 $ 1,288,802 1,242,099 Depreciable Capital Assets Buildings Building Improvements Infrastructure Machinery and Equipment Vehicles Total Depreciable Capital Assets Total Governmental Activities Capital Assets - Net Retirements/ Deletions 12,736 $ 4,448 $ 1,082 (1,082) $ - $ *Depreciation was charged to functions as follows: Governmental Activities Administration Police Fire General Services Parks and Recreation $ Total Governmental Activities Depreciation Expense 42 694,534 266,222 268,933 4,703,569 291,906 $ 6,225,164 3,366 CITY OF COVINGTON, KENTUCKY NOTE 5 - INTERFUND ACTIVITY Interfund receivables/payables represent short-term loans from one fund to another to cover cash overdrafts. Much of the City's revenue is received in the general fund, then transferred to various other funds in order to fund immediate expenditures. Interfund receivables/payables were as follows at June 30, 2010: Due From/To Other Funds: Receivable Fund General Fund Payable Fund CDBG HOME Program Housing Voucher Program Police and Fire Incentive Investor Program Devou Park Master Plan Federal and State Grant 501 Main Street Operations CAD System Renaissance Grant Home Consortium Neighborhood Stabilization Program Capital Improvement Fund 2004 Pension Obligation Medical Self Insurance City Employees Police and Firemen's Pension Total Due to General Fund CDBG General Newport Steel Neighborhood Stabilization Program Total Due to CDBG $ Amount 8,409 496 4,688 83,032 7,085 131,780 109,284 (5,605) 327,134 47,393 54 424,103 415,402 119,624 219,554 177,765 177 765 847,511 2,917,709 477,551 7,800 16,495 501,846 HOME Program Newport Steel Devou Park Maintenance City Hall Operations Devou Park Master Plan 501 Main Street Operations Home Consortium General General General Devou Park Maintenance General 68,576 17,971 1 46,544 18,968 267 Renaissance Grant General Capital Improvement 3,263 29,855 Total Due to Renaissance Grant Working Capital Reserve Property Acquisitions Home Consortium Fund General Rental Rehab HOME Program 43 33,118 1,770,264 7,085 17,985 (continued) CITY OF COVINGTON, KENTUCKY NOTE 5 - INTERFUND ACTIVITY (Continued) Capital Improvement Fund Renaissance Grant Liability Insurance 250,878 200,000 Total Due to Capital Improvement Medical and Dental Insurance 450,878 General 450,000 Interfund Transfers: Transfers are typically used to move unrestricted revenues collected in one fund to finance various programs accounted for in another fund in accordance with budgetary authorizations and to fund debt service payments when they become due. Much of the City's revenue is received in the general fund, then transferred to various other funds in order to fund immediate expenditures. Transfer From General Fund Transfer To Arts District Devou Park Maintenance Renaissance Grant Working Capital Reserve Liability Self Insurance Capital Improvement 501 Main Street Operating Fund Sewer Maintenance Debt Service Police and Fire Supp Pay $ Total Transfer From General Fund CAD System Sewer Maintenance CDBG Liability Self Insurance Devou Park Maintenance Capital Improvement Investor Program Renaissance Grant 4,712,226 4 712 226 General General General Capital Improvement Devou Park Master Plan Renaissance Grant Property Acquisitions Capital Improvement 914,000 4 317,000 18,967 7,965 7,085 250,876 $ 44 Amount 13,704 10,000 3,263 200,000 1,025,691 112,584 3,638 3,342,558 788 6,228,123 CITY OF COVINGTON, KENTUCKY NOTE 6 - SHORT TERM DEBT On July 1, 2009 the city issued a Tax and Revenue Anticipation Note in the amount of $3,000,000 for the purpose of providing working capital in advance of tax and revenue cash flows. This note carried a fixed interest rate of 1.84% and matured on June 30, 2010 at which time it was repaid out of the general fund. During the year the City obtained a line of credit to facilitate real estate development. The total amount of credit available is $500,000 and the debt charges interest at 5.0%. This line of credit matures August 1, 2010 and had an outstanding balance at June 30, 2010 of $187,424. During the year ended June 30, 2010, the following changes occurred in the City's short term debt: Balance July 1, 2009 Debt Issue TRAN Line of Credit Issued Redeemed Balance June 30, 2010 $ 198,239 $ 3,000,000 $ 3,000,000 $ 10,815 187,424 $ 198,239 $ 3,000,000 $ 3,010,815 $ 187,424 NOTE 7 - GENERAL LONG-TERM DEBT Capital Lease Obligations Capital lease obligations in the government-wide financial statements are reported as liabilities at lease inception. The related assets along with depreciation are reported at that time. Lease payments are reported as a reduction of the liability. For capital lease obligations in governmental funds, "Other Financing Sources - Lease Proceeds" and the expenditure are recorded at lease inception. Lease payments are recorded as expenditures. The following capital lease obligations payable are payable from governmental fund revenues. The City has entered into various lease agreements as lessee for financing the acquisition of capital assets. These lease agreements qualify as capital leases for accounting purposes and therefore, have been recorded at the present value of the future minimum lease payments as of the date of their inception. The following is an analysis of the capital assets acquired through capital leases as of June 30, 2010. Capital Assets Buildings Building Improvements Equipment Land Infrastructure Vehicles $ Total Cost Accumulated Depreciation 8,664,929 534,589 597,819 6,952,070 989,002 2,208,054 19,946,463 3,000,966 Net Book Value $ 45 16,945,497 CITY OF COVINGTON, KENTUCKY NOTE 7 - GENERAL LONG-TERM DEBT (Continued) The following is a schedule of the future minimum lease payments under these capital leases, and the present value of the net minimum lease payments at June 30, 2010. Fiscal Years Ending June 30, Amount 2011 2012 2013 2014 2015 2016-2020 2021-2025 2026-2030 $ 1,882,683 1,886,267 1,892,482 1,890,596 1,893,544 8,042,143 5,008,165 521,015 Total Minimum Lease Payments 23,016,895 Less: Amount Representing Interest (5,353,544) Present Value of Future Minimum Lease Payments 17,663,351 Less Current Portion 1,163,247 Non Current Portion $ 16,500,104 The City is the lessor of office space located in the City building. These leases are on a year to year basis with cancelable terms. The City's investment in property on operating leases and property held for lease as of June 30, 2010 is as follows: Cost $ 1,500,000 Carrying Amount $ 1,337,500 Current Depreciation $ 37,500 46 CITY OF COVINGTON, KENTUCKY NOTE 7 - GENERAL LONG-TERM DEBT (Continued) Mortgage Bonds and Notes Payable The following schedule summarizes outstanding long-term mortgage bonds and notes payable at June 30, 2010. Maturity Interest Dates Amounts Rates June 30, Issued Outstanding Purpose Mortgage Bonds 2003 Series KY Infrastructure Auth. HUD 108 2004 Series 2005 Series KY Infrastructure Auth. Refunding 2.00-4.50 % 2018 $ 4,996,000 Infrastructure 4.55 Building Project 5.13 Pension Funding Variable Refunding 3.00-3.30 2014 2015 2030 2013 460,327 1,000,000 14,410,000 7,405,000 113,031 397,000 12,750,000 3,395,000 Rainwater Project 2030 1,040,563 1,040,563 2.00 $ 3,115,000 Interest on the variable rate 2004 Series Pension Obligation Bonds is paid at the rate of interest determined by the Remarketing Agent, determined on a weekly basis. The rate was 0.650% June 30, 2010. The bonds may be called prior to maturity at rates and redemption premiums specified in each issue. Assuming no issues are called prior to maturity, the minimum obligations of the City at June 30, 2010 are as follows: Fiscal Years Ending June 30, Principal 2011 2012 2013 2014 2015 2016 - 2020 2021 - 2025 2026 - 2030 $ 2,472,819 1,994,466 2,085,429 937,796 957,069 4,200,420 3,622,901 4,539,694 $ Totals $ 20,810,594 $ 7,621,823 47 Interest 818,175 748,519 672,442 612,240 570,574 2,234,641 1,434,987 530,245 Total $ 3,290,994 2,742,985 2,757,871 1,550,036 1,527,643 6,435,061 5,057,888 5,069,939 $ 28,432,417 CITY OF COVINGTON, KENTUCKY NOTE 7 - GENERAL LONG-TERM DEBT (Continued) Changes in Noncurrent Liabilities During the year ended June 30, 2010, the following changes occurred in noncurrent liabilities: Balance July 1, 2009 Debt Issue Additions of New Debt Repayments and Defeased Balance June 30, 2010 Amounts Expected to be Paid in One Year Mortgage Bonds and Notes 1989 Series A 2003 Refunding HUD 108 KY Infrastructure Auth. 2005 Refunding Bonds 2004 Series A KIA Rainwater Harvest $ 2,581 $ 3,438,000 464,000 142,130 4,460,000 13,115,000 - - $ 1,040,563 2,581 $ 323,000 67,000 29,099 1,065,000 365,000 - - $ 3,115,000 397,000 113,031 3,395,000 12,750,000 1,040,563 340,000 67,000 30,505 1,095,000 385,000 555,314 Total Mortgage Bonds and Notes 21,621,711 1,040,563 1,851,680 20,810,594 2,472,819 Capital Lease Obligations Infrastructure/Equipment 18,781,698 - 1,118,347 17,663,351 1,163,247 1,603,043 1,101,896 1,268,263 1,436,676 1,436,676 2,142,459 $ 4,238,290 $ Compensated Absences Total Noncurrent Liabilities $ 42,006,452 $ 39,910,621 $ 5,072,742 Compensated absences will be liquidated by the City's general fund. Compensated absences are required to be used within one year, therefore the balance is classified as current liability. 48 CITY OF COVINGTON, KENTUCKY NOTE 7 - GENERAL LONG-TERM DEBT (Continued) Interest Rate Swap Objective of the Interest Rate Swap. As a means to lower its borrowing costs, when compared against fixed-rate bonds at the time of issuance in May, 2005, the City entered into an interest rate swap in connection with its $14.4 million 2004 Series variable-rate general obligation bonds. The intention of the swap was to effectively change the authority's variable interest rate on the bonds to a synthetic fixed rate of 4.56 percent. The interest rate swap is considered a hedging derivative instrument. Terms. The bonds mature on December 1, 2029, and the related swap agreement matures on December 1, 2014. The swap's initial notional amount of $14.4 million matched the $14.4 million variable-rate bonds on an amortizing schedule. The swap was entered at the same time the bonds were issued (December, 2004). Starting in fiscal year 2006, the notional value of the swap and the principal amount of the associated debt decline. Under the swap, the City pays the counterparty a fixed payment of 4.56 percent and receives a variable payment based on the London Interbank Offered Rate (LIBOR). Conversely, the bond's variable-rate coupons are based on a rate determined by the remarketing agent in accordance with the indenture. Fair Value. The swap had a fair value of $(1,389,949) as of June 30, 2010. The swap's fair value may be countered by a reduction in total interest payments required under the variable-rate bonds, creating a lower synthetic interest rate. Because the coupons on the City's variable-rate bonds adjust to changing interest rates, the bonds do not have a corresponding fair value increase or decrease. Credit Risk. As of June 30, 2010, the City was exposed to credit risk in the amount of the swap's fair value. The swap counterparty was rated AA by Standard & Poor's and Aa2 by Moody's Investors Service as of June 30, 2010. Swap Payments and Associated Debt. For the year ended June 30, 2010, the City did not receive any payments from the agreement. Using rates as of June 30, 2010, debt service requirements of the variable-rate debt and net swap payments, assuming current interest rates remain the same for their term, were as follows. As rates vary, variable-rate bond interest payments and net swap payments will vary Fiscal Years Ending June 30, 2011 2012 2013 2014 2015 2016 - 2020 2021 - 2025 2026 - 2030 Totals Variable-Rate Bonds Principal Interest $ Swap, Net 385,000 405,000 425,000 445,000 470,000 2,715,000 3,470,000 4,435,000 $ 75,153 79,056 76,359 73,531 70,558 302,819 202,703 74,896 $ $ 12,750,000 $ 955,075 $ 2,091,478 49 497,469 475,554 459,327 442,319 216,809 - Total $ 957,622 959,610 960,686 960,850 757,367 3,017,819 3,672,703 4,509,896 $ 15,796,553 CITY OF COVINGTON, KENTUCKY NOTE 7 - GENERAL LONG-TERM DEBT (Continued) Conduit Debt Obligations The City has issued Industrial Revenue Bonds to provide financial assistance to private-sector entities for the acquisition and construction of industrial and commercial facilities deemed to be in the public interest. The bonds are secured by the property financed and are payable solely from payments received on the underlying mortgage loans. Upon repayment of the bonds, ownership of the acquired facilities transfers to the private-sector entity served by the bond issuance. Neither the City, State, nor any political subdivision thereof, is obligated in any manner for repayment of the bonds. Accordingly, the bonds are not reported as liabilities in the accompanying financial statements. As of June 30, 2010, there were four series of Industrial Revenue Bonds outstanding, with an aggregate principal amount payable of $62.7 million. NOTE 8 - RISK MANAGEMENT The City is exposed to various risks to loss related to torts; theft of, damage to, and destruction of assets; errors and omissions; and natural disasters. The City has established a Liability Self Insurance Fund (an internal service fund) to account for and finance its uninsured risks of loss. Under this program, the Liability Self Insurance Fund provides coverage for all losses. The City purchases commercial insurance for fire and extended coverage losses. All funds of the City participate in the program and make payments to the Liability Self Insurance Fund, however the payments are not based on actuarial estimates of the amounts needed to pay prior and current-year claims but are intended to establish a reserve for catastrophic losses. That reserve was $1,211,479 at June 30, 2010 and is a designation of the Liability Self Insurance Fund retained earnings. The claims liability reported in the Fund at June 30, 2010, is based on the requirements of governmental accounting standards, which requires that a liability for claims be reported if information prior to the issuance of the financial statements indicates that it is probable that a liability has been incurred at the date of the financial statements and the amount of the loss can be reasonably estimated. Changes in the Fund's claims liability amount were: July 1, 2008 $ - Claims and Changes In Estimates $ 711,895 Claims Payments $ June 30, 2009 711,895 $ - Claims and Changes In Estimates $ Claims Payments 917,918 $ 97,095 $ June 30, 2010 820,823 The City has also established a Medical Self Insurance Fund. Employees may elect to participate in this program or certain other medical insurance programs offered by the City. Under this program the first $125,000 of a participants medical claims are payable by the medical self insurance fund. The City purchases insurance for claims in excess of coverage provided by the fund. All funds of the City participate in the program and make payments to the medical self insurance fund based on historical estimates of the amounts needed to pay prior and current year claims. The claims liability of $873,533 reported in the fund at June 30, 2010, is based upon the requirements of governmental accounting standards, as explained above. Changes in the fund's claims liability amount during the year ended June 30, 2010 were as follows: July 1, 2008 Claims and Changes In Estimates $ 1,062,031 $ 5,048,819 Claims Payments June 30, 2009 Claims and Changes In Estimates Claims Payments $ 4,823,170 $1,287,680 $ 5,816,422 $ 6,230,569 $ There have been no significant reductions in insurance coverage from the prior year. There have been no settlements in excess of insurance coverage in the past three years. 50 June 30, 2010 873,533 CITY OF COVINGTON, KENTUCKY NOTE 9 - EMPLOYEE RETIREMENT PLAN The City of Covington maintains two single employer, defined benefit pension plans: Employees' Pension Plan and Police and Firemen's Pension Plan. A separate, audited post-employment benefit plan report prepared in accordance with U.S. generally accepted accounting principles is not available for these plans. Summary of Significant Accounting Policies Basis of Accounting. The plan's financial statements are prepared using the accrual basis of accounting. Plan member contributions are recognized in the period in which the contributions are due. Employer contributions to each plan are recognized when due and the employer has made a formal commitment to provide the contributions. Benefits and refunds are recognized when due and payable in accordance with the terms of each plan. Method Used to Value Investment. Investments are reported at fair value. Short-term investments are reported at cost, which approximates fair value. Securities traded on a national or international exchange are valued at the last reported sales price at current exchange rates. Mortgages are valued on the basis of future principal and interest payments, and are discounted at prevailing interest rates for similar instruments. The fair value of real estate investments is based on independent appraisals. Investments that do not have an established market are reported at estimated fair value. The plans issued separate financial statements which may be obtained by request from the City of Covington. Plan Descriptions and Contribution Information Membership of each plan consisted of the following at the date of the latest actuarial valuation: Employees' July 1, 2009 57 Active Employees - Fully Vested - 59 Retirees and Beneficiaries Currently Receiving Benefits 90 2 Group Police and Firemen's July 1, 2010 90 Employees' Pension Plan Plan Description. The Employees Pension Plan is a single employer defined benefit pension plan that covers substantially all non-public safety employees hired prior to April 1, 1997. The plan provides retirement, disability and death benefits to plan members and their beneficiaries. Cost-ofliving adjustments (COLA) are provided at the discretion of the Board of Trustees. Benefits are provided and may be amended by City ordinance. Contributions. Plan members are required to contribute 8% of their annual covered salary. The City is required to contribute at an actuarially determined rate. Contributions requirements of the plan members and the City are established and may be amended by City ordinance. Administrative costs are financed through investment earnings. 51 CITY OF COVINGTON, KENTUCKY NOTE 9 - EMPLOYEE RETIREMENT PLAN (Continued) Police and Firemen's Pension Plan Plan Description. The Police and Firemen's Pension Plan is a single employer defined benefit pension plan that covers all retired police and firemen who were receiving benefits prior to August 1, 1989. The plan provides retirement, disability, and death benefits to plan members and their beneficiaries. Cost-of-living adjustments (COLA) are provided at the discretion of the Board of Trustees. Benefits are provided under Kentucky Revised Statutes (KRS) 95.852 to 95.991. Contributions. There are no active employees contributing to the plan. The City is required to contribute at an actuarially determined rate. Contribution requirements of the City are established under KRS 95.868. Administrative costs are financed through investment earnings. Employer Contributions Years Ended June 30, 2010 2009 2008 Employees' Pension Plan Annual Required Contributions Percentage Contribution Made Contributed Police & Firemen's Pension Plan Annual Required Contributions Percentage Contribution Made Contributed $ 304,163 - $ $ - - % - 396,747 - $ - - % - During the year ended June 30, 2005, the City issued Pension Obligation Bonds for the purpose of funding both Pension Plans. As a result, the City has a net pension obligation asset on the government-wide statement of net assets. As of June 30, 2010, the Plan liabilities in both the Police & Firemen's Pension Plan and the Employees' Pension Plan exceeded the assets. Therefore, the City did have an unfunded accrued liability in the Police & Firemen's Pension Plan or the Employees' Pension Plan. The City is required by state statute to contribute impounding lot income and required contributions into the Police & Firemen's Pension Plan each year. Funded Status and Funding Progress Actuarial Valuation Date July 1, Actuarial Value of Assets (a) Actuarial Accrued Liability (AAL) Entry Age (b) Unfunded AAL (UAAL) (b-a) Funded Ratio (a/b) Covered Payroll (c) UAAL as a Percentage of Covered Payroll [(b-a)/c] Employees' Pension Plan 2009 2007 2006 $ 3,867,919 $ 5,955,714 6,650,730 6,605,645 6,471,713 7,294,905 $ 2,087,795 (45,085) 823,192 65 % 101 88 $ 105,381 114,311 103,123 $ 2,348,675 2,723,303 (143,833) 80 % 77 101 $ 1981 % N/A 798 Police & Firemen's Pension Plan 2010 2009 2007 $ 9,116,577 $ 11,465,252 9,248,821 11,972,124 16,057,288 15,913,455 N/A N/A N/A N/A % N/A N/A An actuarial valuation report was not prepared as of July 1, 2008 or July 1, 2010 for the Employees' Pension Plan and was not prepared as of July 1, 2008 for the Police & Firemen's Pension Plan. 52 CITY OF COVINGTON, KENTUCKY NOTE 9 - EMPLOYEE RETIREMENT PLAN (Continued) Annual Pension Cost and Net Pension Obligation The City's annual pension cost and net pension obligation to each plan for the current year were as follows: Police & Firemen's Pension Plan Employees' Pension Plan Annual Required Contribution (ARC) Interest on Net Pension Obligation Adjustment to ARC $ 304,163 (195,262) 554,662 $ 396,747 (418,626) 1,189,149 Annual Pension Cost Actual Contributions Made 663,562 - 1,167,270 - Increase (Decrease) in Net Pension Obligation 663,562 1,167,270 Net Pension Obligation (Asset) - Beginning of Year Net Pension Obligation (Asset) - End of Year (2,603,497) (5,581,684) $ (1,939,935) $ (4,414,414) Three-Year Trend Information Years Ended Annual Pension Cost (APC) Percentage of APC Contributed Change In Net Pension Obligation Balance of Net Pension Obligation (Asset) Employees' Pension Plan 06/30/10 06/30/09 06/30/08 $ 663,563 334,325 311,000 - % $ 663,562 334,235 311,000 $ (1,939,935) (2,603,497) (2,937,822) $ 1,167,270 716,765 666,759 - % $ 1,167,270 716,765 666,759 $ (4,414,414) (5,581,684) (6,298,449) Police & Firemen's Pension Plan 06/30/10 06/30/09 06/30/08 53 CITY OF COVINGTON, KENTUCKY NOTE 9 - EMPLOYEE RETIREMENT PLAN (Continued) The information presented in this note was determined as part of the actuarial valuations at the dates indicated. The projected unit credit actuarial cost method is used in the valuations. Additional information as of the latest actuarial valuation follows: Employees' Pension Plan July 1, 2009 Asset Valuation Method Actuarial Assumptions: Investment Rate of Return * Projected Salary Increases* 10 Years Market Remaining Amortization Period Level Percent Closed 10 Years Amortization Method Unit Credit Level Percent Closed Actuarial Cost Method July 1, 2010 Entry Age Valuation Date Police & Firemen's Pension Plan Market 7.5 % 6 % 7.5 % N/A * Includes Inflation at - % - % Cost-of-Living Adjustments - % - % County Employees Retirement System (CERS) City employees hired subsequent to April 1, 1977 who work at least 100 hours per month participate in the County Employees Retirement System (CERS). Under the provisions of Kentucky Revised Statute 61.645, the Board of Trustees of Kentucky Retirement Systems administers the CERS. The plan issues separate financial statements which may be obtained by request from Kentucky Retirement Systems, 1260 Louisville Road, Frankfort, Kentucky 40601. Plan Description - CERS is a cost-sharing multiple-employer defined benefit pension plan that covers substantially all regular full-time members employed in positions of each county and school board, and any additional eligible local agencies electing to participate in the System. The plan provides for retirement, disability, and death benefits to plan members. Retirement benefits may be extended to beneficiaries of plan members under circumstances. Cost-of-living (COLA) adjustments are provided at the discretion of the state legislature. Non-Hazardous Contributions - For the year ended June 30, 2010, plan members were required to contribute 5% (for members before September 1, 2008) and 5% (for members on or after September 1, 2008) of their annual creditable compensation. Participating employers were required to contribute at an actuarially determined rate. Per Kentucky Revised Statute Section 61.565(3), normal contribution and past service contribution rates shall be determined by the Board on the basis of an annual valuation last proceeding the July 1 of a new biennium. The Board may amend contribution rates as of the first day of July of the second year of a biennium, if it is determined on the basis of a subsequent actuarial valuation that amended contribution rates are necessary to satisfy requirements determined in accordance with actuarial bases adopted by the Board. For the year ended June 30, 2010, participating employers contributed 16.16% of creditable compensation. Administrative costs of CERS are financed through employer contributions and investment earnings. 54 CITY OF COVINGTON, KENTUCKY NOTE 9 - EMPLOYEE RETIREMENT PLAN (Continued) Hazardous Contributions - For the year ended June 30, 2010, plan members were required to contribute 8% (for members before September 1, 2008) and 9% (for members on or after September 1, 2008) of their annual creditable compensation. The City was required to contribute at an actuarially determined rate. Per Kentucky Revised Statute Section 61.565(3), normal contribution and past service contribution rates shall be determined by the Board on the basis of an annual valuation last preceding the July 1 of the second year of a biennium, if it is determined on the basis of a subsequent actuarial valuation that amended contribution rates are necessary to satisfy requirements determined in accordance with actuarial bases adopted by the Board. For the year ended June 30, 2010, participating employers contributed 32.97% of each employee's creditable compensation. Administrative costs of CERS are financed through employer contributions and investment earnings. The required contribution and the actual percentage contributed for the City for the current and previous two years are as follows: Years Required Contribution Actual Percentage Contributed 2010 2009 2008 $ 5,788,087 5,261,517 5,617,523 100 100 100 % Deferred Compensation Plan Employees of the City of Covington may participate in a deferred compensation plan adopted under the provisions of Internal Revenue Code Section 457 (Deferred Compensation Plans with Respect to Service for State and Local Governments). The deferred compensation plan is available to all employees of the City. Under the plan, employees may elect to defer a portion of their salaries and avoid paying taxes on the deferred portion until the withdrawal date. The deferred compensation amount is not available for withdrawal by employees until termination, death, or unforeseeable emergency. The deferred compensation plan is administered by an unrelated third-party organization. Under the terms of an IRC Section 457 deferred compensation plan, all deferred compensation and income attributable to the investment of the deferred compensation amounts is held by the financial institution, until paid or made available to the employees or beneficiaries. 55 CITY OF COVINGTON, KENTUCKY NOTE 10 - CONTINGENCIES The City is a defendant in a lawsuit. The suit was filed by an individual for development rights and damages. The suit does not specify damages however; the City's counsel has advised that the case has potential for a large judgment, up to $500,000. The City's counsel has advised that at this stage in the proceeding he cannot offer an opinion as to the probable outcome. The City believes the action is without merit and intends to vigorously defend its position. The City has settled two lawsuits. The first settlement was in connection with an excessive force complaint. Rather than incur additional legal fees and other related costs, the City decided to settle this complaint. Under the terms of the settlement, the City has agreed to pay $300,000. The second settlement was in connection with a dispute over scheduled overtime related to state incentive pay for firefighters. Rather than incur additional legal fees and other related costs, the City decided to settle this suit. Under the terms of the settlement, the City has agreed to pay $520,823. Both of these settlement amounts were paid subsequent to June 30, 2010, and are accrued in the Liability Insurance Fund. The City is also a defendant in various lawsuits. Although the outcome of these lawsuits is not presently determinable, in the opinion of the City's attorney, the resolution of these matters will not have a material adverse effect on the financial condition of the City. The City is a party to a potential action to be filed by the firefighters union regarding calculation of overtime pay. The union is seeking to have its members compensated for overtime calculation over and above what was outlined in the collective bargaining agreement for the past several years. The parties have been in discussions regarding this matter, but no lawsuit has been filed at this point. The City's counsel has advised that at this stage in the proceeding he cannot offer an opinion as to the probable outcome, although an adverse outcome could potentially result in a multi-million dollar judgment against the City. The City is a defendant in a lawsuit. The suit was filed by a company for alleged damage to real property. The suit does not specify damages, however, the City's counsel has advised that the case has potential for a large judgment, up to $500,000. The City's counsel has advised that at this stage in the proceeding he cannot offer an opinion as to the probable outcome. The City believes the action is without merit and intends to vigorously defend its position. The City is a defendant in a lawsuit. The suit was filed by a company for wrongful death. The suit does not specify damages, however, the City's counsel has advised that the case has potential for a large judgment, up to $500,000. The City's counsel has advised that at this stage in the proceeding he cannot offer an opinion as to the probable outcome. The City believes the action is without merit and intends to vigorously defend its position. A potential liability exists related to the City's medical self insurance fund for a health insurance claim that the City's stop loss insurance carrier has denied. The City and its third party administrator are challenging this determination and are contemplating filing suit against the insurance carrier for payment of the claim. In the event the City is unsuccessful in this challenge, the claim, totaling $1.8 million, will be paid by the City's medical self insurance fund. At this time the City cannot offer an opinion as to the probably outcome. NOTE 11 - SUBSEQUENT EVENTS The date to which events occurring after June 30, 2010, the date of the most recent statement of net assets, have been evaluated for possible adjustment to the financial statements or disclosure is November 19, 2010 which is the date the financial statements were available to be issued. 56 REQUIRED SUPPLEMENTARY INFORMATION Note: The City's budget is prepared using the modified accrual basis of accounting, which is the GAAP basis used to report governmental funds. CITY OF COVINGTON, KENTUCKY SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE BUDGET AND ACTUAL (WITH VARIANCES) GENERAL FUND Year Ended June 30, 2010 Actual Budgeted Amounts Original Final Revenues Taxes Real Property Personal Property Bank Deposit Franchise Insurance Premium Licenses and Permits Payroll License Fees Net Profits License Fees Night Club Permits Liquor and Beer Licenses Building and Zoning Dog Licenses Intergovernmental Fines and Forfeitures Charges for Services Waste Fees Parking Squad Runs Rental Property Other Interest Miscellaneous $ 5,877,310 $ 600,000 62,400 2,337,485 4,900,000 5,877,310 600,000 62,400 2,337,485 4,900,000 Variance with Final Budget $ 5,901,967 557,999 60,603 2,085,706 5,588,067 $ 24,657 (42,001) (1,797) (251,779) 688,067 24,137,829 2,200,000 135,000 150,000 8,000 525,000 650,000 24,137,829 2,200,000 135,000 150,000 8,000 525,000 650,000 22,850,229 2,285,504 139,166 143,968 5,720 5,189 612,863 746,322 (1,287,600) 85,504 4,166 (6,032) 5,720 (2,811) 87,863 96,322 2,085,954 1,140,000 1,281,000 294,000 137,000 10,000 385,800 2,085,954 1,140,000 1,281,000 294,000 137,000 10,000 385,800 1,918,838 1,179,276 1,282,105 450,153 106,706 1,353 422,738 (167,116) 39,276 1,105 156,153 (30,294) (8,647) 36,938 46,916,778 46,916,778 46,344,472 (572,306) 678,605 346,477 200,415 45,950 - 678,605 346,477 200,415 45,950 - 800,685 364,925 225,037 44,449 - (122,080) (18,448) (24,622) 1,501 - 1,271,447 1,271,447 1,435,096 (163,649) 231,909 109,910 55,436 18,100 - 231,909 109,910 55,436 18,100 - 227,462 111,648 44,170 11,811 - 4,447 (1,738) 11,266 6,289 - 415,355 415,355 395,091 20,264 546,454 285,021 358,570 71,150 - 546,454 285,021 358,570 71,150 - 514,411 266,346 319,977 24,948 - 32,043 18,675 38,593 46,202 - Total Finance Department 1,261,195 1,261,195 1,125,682 135,513 Total General Government 2,947,997 2,947,997 2,955,869 Total Revenues Expenditures General Government Administration Department Payroll Employee Benefits Contractual Services Materials and Supplies Miscellaneous Total Administration Department Legal Department Payroll Employee Benefits Contractual Services Materials and Supplies Miscellaneous Total Legal Department Finance Department Payroll Employee Benefits Contractual Services Materials and Supplies Miscellaneous (Continued) 57 (7,872) CITY OF COVINGTON, KENTUCKY SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE BUDGET AND ACTUAL (WITH VARIANCES) GENERAL FUND Year Ended June 30, 2010 (Continued) Budgeted Amounts Original Final Police Payroll Employee Benefits Contractual Services Materials and Supplies Miscellaneous Total Police Fire Payroll Employee Benefits Contractual Services Materials and Supplies Miscellaneous Total Fire Public Improvements Payroll Employee Benefits Contractual Services Materials and Supplies Miscellaneous Total General Services Recreation Payroll Employee Benefits Contractual Services Materials and Supplies Miscellaneous Total Recreation Community Development Payroll Employee Benefits Contractual Services Materials and Supplies Miscellaneous Total Code Enforcement $ 8,153,096 5,173,789 812,554 461,730 - $ 8,153,096 5,173,789 812,554 461,730 - Variance with Final Budget Actual $ 8,333,728 5,343,698 925,039 408,323 - $ (180,632) (169,909) (112,485) 53,407 - 14,601,169 14,601,169 15,010,788 (409,619) 7,382,422 4,707,715 357,100 354,240 - 7,382,422 4,707,715 357,100 354,240 - 7,743,417 4,964,138 332,643 285,928 - (360,995) (256,423) 24,457 68,312 - 12,801,477 12,801,477 13,326,126 (524,649) 2,749,009 1,633,943 1,175,095 970,880 - 2,749,009 1,633,943 1,175,095 970,880 - 2,810,522 1,585,973 1,213,087 905,323 - (61,513) 47,970 (37,992) 65,557 - 6,528,927 6,528,927 6,514,905 14,022 322,888 119,329 133,500 83,500 - 322,888 119,329 133,500 83,500 - 271,012 93,515 98,638 41,144 - 51,876 25,814 34,862 42,356 - 659,217 659,217 504,309 154,908 564,406 323,843 2,067,678 26,200 - 564,406 323,843 2,067,678 26,200 - 574,843 287,034 2,157,531 20,233 - (10,437) 36,809 (89,853) 5,967 - 2,982,127 2,982,127 3,039,641 (57,514) (Continued) 58 CITY OF COVINGTON, KENTUCKY SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE BUDGET AND ACTUAL (WITH VARIANCES) GENERAL FUND Year Ended June 30, 2010 (Continued) Budgeted Amounts Original Final Economic Development Payroll Employee Benefits Contractual Services Materials and Supplies Miscellaneous $ 275,508 131,080 128,981 11,150 - $ Variance with Final Budget Actual 275,508 131,080 128,981 11,150 - $ 224,753 106,199 166,599 7,696 - $ 50,755 24,881 (37,618) 3,454 - Total Economic Development 546,719 546,719 505,247 Total Code Enforcement and Economic Development 3,528,846 3,528,846 3,544,888 742,460 10,700 742,460 10,700 728,880 3,482 13,580 7,218 753,160 753,160 732,362 20,798 - - - - - - - - 499,652 335,881 499,652 335,881 503,716 209,458 (4,064) 126,423 Total Debt Service 835,533 835,533 713,174 122,359 Total Expenditures 42,656,326 42,656,326 43,302,421 (646,095) Excess (Deficit) of Revenues Over Expenditures 4,260,452 4,260,452 3,042,051 (1,218,401) 956,000 (5,247,200) 956,000 (5,247,200) 1,231,004 9,700 (4,712,226) 534,974 (4,291,200) (4,291,200) (3,471,522) 809,978 (30,748) (30,748) (429,471) (408,423) 771,969 771,969 Parking Garages Contractual Services Materials and Supplies Total Parking Garages Capital Outlay General Government Police Fire General Services Housing Recreation Total Capital Outlay Debt Service Principal Interest Other Financing Sources (Uses) Transfers In Proceeds on Sale of Capital Assets Transfers Out Total Other Financing Sources (Uses) Net Change in Fund Balance Fund Balance July 1, 2009 Fund Balance June 30, 2010 $ (30,748) $ 59 (30,748) $ 342,498 41,472 (16,042) 275,004 $ 363,546 CITY OF COVINGTON, KENTUCKY SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE BUDGET AND ACTUAL (WITH VARIANCES) COMMUNITY DEVELOPMENT BLOCK GRANT Year Ended June 30, 2010 Actual Budgeted Amounts Original Final Revenues Intergovernmental Miscellaneous $ 1,037,835 94,753 67,000 25,741 2,241,966 67,000 25,740 1,573,497 1 668,469 3,467,295 2,704,072 763,223 338,000 (51,000) (389,000) (338,000) (338,000) 368,000 (317,000) 368,000 21,000 (338,000) Total Other Financing Sources (Uses) 1,132,588 338,000 Other Financing Sources (Uses) Proceeds from Sale of Assets Transfers Out 2,653,072 2,249,400 Excess (Deficit) of Revenues Over Expenditures 3,805,295 67,000 25,741 1,072,500 Total Expenditures $ 2,308,319 344,753 1,084,159 Expenditures Community Development Debt Service Principal Interest and Other Charges Capital Outlay 3,447,554 357,741 2,587,400 Total Revenues 2,229,659 357,741 (338,000) 51,000 389,000 $ (1,139,235) (12,988) (1,152,223) - Fund Balance July 1, 2009 $ - - - - Net Change in Fund Balance Fund Balance June 30, 2010 $ Variance with Final Budget - - - - 60 $ - $ - $ - CITY OF COVINGTON, KENTUCKY SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE BUDGET AND ACTUAL (WITH VARIANCES) HOME PROGRAM Year Ended June 30, 2010 Budgeted Amounts Original Final Revenues Intergovernmental Investment Earnings Miscellaneous $ 537,945 210,000 $ Variance with Final Budget Actual 795,212 210,000 $ 515,173 60 147,428 $ (280,039) 60 (62,572) Total Revenues 747,945 1,005,212 662,661 (342,551) Expenditures Community Development Capital Outlay 682,669 65,276 779,936 225,276 638,533 - 141,403 225,276 747,945 1,005,212 638,533 366,679 Excess (Deficit) of Revenues Over Expenditures - - 24,128 24,128 Fund Balance July 1, 2009 - - 176,775 176,775 Total Expenditures Fund Balance June 30, 2010 $ - 61 $ - $ 200,903 $ 200,903 CITY OF COVINGTON, KENTUCKY SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE BUDGET AND ACTUAL (WITH VARIANCES) HOUSING VOUCHER PROGRAM Year Ended June 30, 2010 Budgeted Amounts Original Final Revenues Intergovernmental Investment Earnings Miscellaneous $ 6,086,652 30,000 - $ Variance with Final Budget Actual 6,599,573 30,000 - $ 5,526,721 577 5,599 $ (1,072,852) (29,423) 5,599 (1,096,676) Total Revenues 6,116,652 6,629,573 5,532,897 Expenditures Community Development 6,127,184 6,629,573 6,223,719 Excess (Deficit) of Revenues Over Expenditures (10,532) Fund Balance July 1, 2009 Fund Balance June 30, 2010 - $ (10,532) 62 (690,822) $ - 405,854 (690,822) 1,558,841 $ 868,019 1,558,841 $ 868,019 OTHER SUPPLEMENTARY INFORMATION COMBINING FINANCIAL STATEMENTS NON-MAJOR GOVERNMENTAL FUNDS CITY OF COVINGTON, KENTUCKY NON-MAJOR GOVERNMENTAL FUNDS SPECIAL REVENUE FUNDS Special revenue funds are used to account for specific revenues that are legally restricted to expenditures for particular purposes. Police and Fire Incentive Pay This fund was established to account for entitlements received under the State of Kentucky's Policemen and Firemen's Supplemental Pay Programs. Newport Steel UDAG This fund is used to account for the proceeds from the repayment of a U.S. Housing and Urban Development loan to Newport Steel, Inc. The proceeds may be used for any purpose for which the Community Development Block Grant Program income may be utilized. Devou Park Maintenance This fund was established by Commissioners' ordinance in 1973 to account for the maintenance of roadways and streets within Devou Park. Investor Program This fund is used to account for resources provided by loan repayments made by loan recipients who had previously received loans from the U.S. Department of Housing and Urban Development. Those funds are then made available for rehabilitation loans to qualified property owners. City Hall Operations This fund was established to account for revenues and expenditures related to the City building. Devou Park Master Plan This fund is used to account for revenues and expenditures of funds allocated for use in Devou Park, from proceeds of the operation of the Drees Pavilion. Federal and State Grant Funds This fund was established to account for the revenues and expenditures related to grants awarded by federal and state agencies. Arts District This fund was established to provide loans for specified projects within the Arts District in the City. 501 Main Street Operations This fund was established to account for revenues and expenditures related to a City owned building at 501 Main Street. Police Forfeiture This fund was established to account for the resources provided for by police forfeitures. CAD System This fund was established to account for revenues and expenditures related to the installation of a computer assisted dispatch system, and the subsequent debt service payments for the related capital lease. Renaissance Grant Fund This fund was established to account for revenues and expenses related to renaissance grants received by the City. Working Capital Reserve This fund was established to accumulate funds to be used for future working capital needs of the City. 63 CITY OF COVINGTON, KENTUCKY NON MAJOR GOVERNMENTAL FUNDS (Continued) Property Acquisitions This fund was established to account for significant funds received and investments made by the City for real estate in connection with relocating Section 8 tenants. Home Consortium Fund This fund was established to administer a HOME Program for a consortium of non entitlement cities in Northern Kentucky, including Newport, Bellevue, Dayton, Ludlow and Bromley. HOME funds are used to provide assistance to persons to purchase a home, owner-occupied rehab programs, and housing development activities with Community Housing Development organizations. Homeless Prevention Fund This fund is used to administer U.S. Department of Housing and Urban Development funds to be used for foreclosure remediation. Neighborhood Stabilization Program This fund was established to administer a U.S. Department of Housing and Urban Development grant to develop low income rental units and owner occupied homes purchased out of foreclosure. CAPITAL PROJECTS FUNDS Capital projects funds are used to account for the accumulation of specific resources that are intended to be used for future capital improvements. Capital Improvement Fund This fund was established to account for significant funds received by the City that will be used for future capital projects. DEBT SERVICE FUNDS Debt service funds are used to account for the accumulation of resources and payment of general obligation bond principal and interest from governmental resources. KLC Series 2002 This fund was established to account for the proceeds of a BAN to finance certain projects of the City. BAN proceeds were replaced by capital lease proceeds in the prior year to finish the projects. 2004 Pension Obligation Bonds The proceeds of this issue were used to fund the Employees' Retirement Fund and the Police and Fire Retirement Fund. 2005 Refunding Bonds The proceeds of this issue were used to refund the 1995 First Mortgage Bonds. Sewer Maintenance Fees This fund was established to account for resources provided by the collection of sewer maintenance fees. These fees are to be used to retire the debt owed to the Sanitation District. 64 CITY OF COVINGTON, KENTUCKY COMBINING BALANCE SHEET NON-MAJOR GOVERNMENTAL FUNDS June 30, 2010 Newport Steel UDAG Police and Fire Incentive Assets Cash and Cash Equivalents Receivables Taxes Intergovernmental Notes Accounts Due from Other Funds Prepaids Total Assets Liabilities and Fund Balances Liabilities Accounts Payable Accrued Liabilities Due to Other Funds Deferred Revenue $ $ 285,667 $ 41,092 Investor Program $ $ 795,357 - 5,853 $ 46,544 - 5,356 $ 131,255 18,968 - - $ 213,994 - - $ 1,554,587 17,971 - $ 83,032 $ 1,858,225 $ 64,677 $ 1,298,599 $ 52,397 $ 155,579 $ 213,994 $ - $ $ 83,032 - $ $ 1,278 18,968 21,005 21 005 $ 7,451 7,085 795,357 795 357 $ 9,471 - $ 23,799 131,780 - $ 31,591 109,284 73,052 73 052 $ - $ 7,800 1,553,941 1 553 941 23,584 1 - 503,242 501 Main Street Operations Arts District 38,675 - Total Liabilities - - Police Forfeiture CAD System 223,253 $ 420,991 - - $ 223,253 $ 420,991 $ - $ 267 267 5,872 (5,605) - $ 327,134 - 83,032 809,893 9,471 155,579 213,927 - 267 - 327,134 - - - - - - - - - - 296,484 - 23,426 - 488,706 - 42,926 - - 67 - - - 223,253 - 93,857 - - $ 41,251 - Total Fund Balances 1,561,741 - Fund Balances Reserved for Prepaids Unreserved Undesignated, Reported In Special Revenue Funds Capital Projects Funds Debt Service Funds Total Liabilities and Fund Balances 44,357 Devou Park Maintenance Special Revenue Funds Devou Federal Park and State Master City Hall Grant Fund Plan Operations 296,484 23,426 488,706 42,926 - 67 - - 223,253 93,857 83,032 $ 1,858,225 223,253 $ 420,991 $ 64,677 $ 1,298,599 $ 65 52,397 $ 155,579 $ 213,994 $ - $ 267 $ CITY OF COVINGTON, KENTUCKY COMBINING BALANCE SHEET NON-MAJOR GOVERNMENTAL FUNDS June 30, 2010 (Continued) Capital Projects Special Revenue Funds Working Capital Reserve Renaissance Grant Fund Assets Cash and Cash Equivalents Receivables Taxes Intergovernmental Notes Accounts Due from Other Funds Prepaids Total Assets Liabilities and Fund Balances Liabilities Accounts Payable Accrued Liabilities Due to Other Funds Deferred Revenue $ $ 250,878 43,439 33,118 - - $ 1,770,264 - - $ 7,085 - - $ 89,800 444,571 17,985 - - $ - $ 327,435 $ 1,770,264 $ 7,085 $ 552,356 $ - $ 298,271 29,164 $ - $ 7,085 - $ 39,155 68,630 444,571 $ - Total Liabilities - $ 494,066 $ $ - KLC Series 2002 $ 419,647 450,878 239,664 - $ - 196,331 $ 3,825 - 10,606 Non-Major Governmental Funds Sewer Maintenance Fees $ - - $ - 1,736,748 834,744 2,794,515 874,419 2,363,081 239,664 494,066 $ 1,110,189 $ - $ 200,156 $ 10,606 $ - $ 8,843,171 53,467 440,598 - $ 180,921 445,257 437,331 $ - $ 119,624 - $ - $ - $ 353,005 2,058,943 3,354,421 327,435 552,356 - 494,065 1,063,509 - 119,624 - - 5,766,369 - - - - - 59,664 - - - - 59,664 1,770,264 - - - - 1 - (12,984) - - 80,532 10,606 - 2,938,984 (12,984) 91,138 - $ 7,085 - Total Fund Balances - - Fund Balances Reserved for Prepaids Unreserved Undesignated, Reported In Special Revenue Funds Capital Projects Funds Debt Service Funds Total Liabilities and Fund Balances - Capital Improvement Fund Neighborhood Stabilization Program Homeless Prevention Fund Home Consortium Fund Property Acquisitions Debt Service Funds 2004 2005 Pension Refunding Obligation Bonds Bonds 1,770,264 - - - 1 46,680 - 80,532 10,606 - 3,076,802 327,435 $ 1,770,264 $ 7,085 $ 552,356 $ - 66 $ 494,066 $ 1,110,189 $ - $ 200,156 $ 10,606 $ - $ 8,843,171 CITY OF COVINGTON, KENTUCKY COMBINING STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE NON-MAJOR GOVERNMENTAL FUNDS Year Ended June 30, 2010 Police and Fire Incentive Revenues Taxes Licenses and Permits Intergovernmental Charges for Services Fines and Forfeitures Investment Earnings Miscellaneous $ Total Revenues $ 21,789 132,750 Devou Park Maintenance $ 43 23,584 Investor Program $ 258 28,314 $ 262,124 3 - $ 131,255 $ 312,165 - 501 Main Street Operations Arts District $ - $ 17,057 - Police Forfeiture $ 78,815 152 3,200 CAD System $ 792,712 174 - 947,012 28,572 262,127 131,255 312,165 - 17,057 82,167 792,886 32,790 - 42,196 - 104,602 - 206,418 - 75,141 - 312,165 - - 14,765 - 119,287 - - - - - 16,412 75,081 - 20,000 6,689 152,065 46,994 67,882 - 26,195 - 950,227 32,790 42,196 104,602 222,830 150,222 312,165 178,754 129,641 145,482 - 121,749 (18,569) (76,030) 39,297 (18,967) - (178,754) (112,584) (63,315) 788 - - 10,000 (18,967) (7,085) - 18,967 - - 13,704 155,040 - 112,584 - - (914,000) 788 - (8,967) (7,085) - 18,967 - 168,744 112,584 - (914,000) (2,427) 121,749 (27,536) (83,115) 39,297 - - (10,010) - (63,315) (121,114) 2,427 Excess (Deficit) of Revenues Over Expenditures 23,627 - Total Expenditures 154,539 463,419 486,808 - Expenditures Current General Government Police Fire Public Improvements Recreation Community Development y p Parking Garage Debt Service Principal Interest and Other Charges Capital Outlay 174,735 50,962 571,821 3,629 - 67 10,010 - 286,568 214,971 (3,215) Other Financing Sources (Uses) Transfers In Proceeds from Sale of Capital Assets Proceeds from Issuance of Debt Transfers Out Total Other Financing Sources (Uses) Net Change in Fund Balances Fund Balance July 1, 2009 Fund Balance June 30, 2010 947,012 - Newport Steel UDAG Special Revenue Funds Devou Park Federal City Hall Master and State Operations Plan Grant Fund $ - $ 296,484 $ 23,426 $ 488,706 $ 67 42,926 $ - $ 67 $ - $ - $ 223,253 792,886 $ 93,857 CITY OF COVINGTON, KENTUCKY COMBINING STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE NON-MAJOR GOVERNMENTAL FUNDS Year Ended June 30, 2010 (Continued) Capital Projects Special Revenue Funds Working Capital Reserve Renaissance Grant Fund Revenues Taxes Licenses and Permits Intergovernmental Charges for Services Fines and Forfeitures Investment Earnings Miscellaneous $ Total Revenues $ Property Acquisitions - $ 10,814 - $ 326,093 - Homeless Prevention Fund $ 63,474 - Neighborhood Stabilization Program $ 494,066 - Capital Improvement Fund $ 675,534 111,732 KLC Series 2002 $ Debt Service Funds 2004 2005 Pension Obligation Refunding Bonds Bonds - $ - - $ - Sewer Maintenance Fees $ 30 - Non-Major Governmental Funds $ 792,712 3,203,571 289,995 22,449 430,835 306,412 787,266 - - - 30 4,739,562 - - 326,093 - 63,474 - 176,923 - - - 83,100 - - 96,060 - 829,845 582,706 486,808 730,822 - - 10,814 7,095 7 095 - - - 317,142 342,473 83,218 83 218 2,782,313 559,844 440,779 440 779 - 365,000 714,833 714 833 - 1,065,000 124,160 124 160 - - 2,410,125 1,444,656 1 444 656 3,409,031 - 17,909 326,093 63,474 494,065 3,208,004 1,000,623 1,162,933 1,189,160 96,060 9,893,993 - (7,095) - - 1 (2,420,738) (1,000,623) (1,162,933) (1,189,160) (96,030) (5,154,431) - 7,085 - - - - 1,276,569 1,040,563 (7,965) 1,000,623 - 1,152,774 1,189,160 3,638 - - 4,797,119 155,040 1,040,563 (1,198,897) (239,649) Net Change in Fund Balances 494,066 11,227 (250,876) Total Other Financing Sources (Uses) 63,474 239,649 Other Financing Sources (Uses) Transfers In Proceeds from Sale of Capital Assets Proceeds from Issuance of Debt Transfers Out 326,093 66,763 Total Expenditures 10,814 39,823 Excess (Deficit) of Revenues Over Expenditures - 26,940 - Expenditures Current General Government Police Fire Public Improvements Recreation Community Development Parking Garage Debt Service Principal Interest and Other Charges Capital Outlay - 7,085 - - - 2,309,167 1,000,623 1,152,774 1,189,160 (10) - - 1 (111,571) - (10,159) 10 - - - 158,251 - 90,691 - $ 80,532 - $ - - Fund Balance July 1, 2009 Fund Balance June 30, 2010 306,412 - Home Consortium Fund 1,770,264 - $ 1,770,264 $ - $ - $ - 68 $ 1 $ 46,680 $ (4) 3,634 - (92,396) 10,606 $ 10,606 4,793,825 (360,606) 92,396 $ - 3,437,408 $ 3,076,802 INDIVIDUAL FUND SCHEDULES NON-MAJOR GOVERNMENTAL FUNDS CITY OF COVINGTON, KENTUCKY SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE BUDGET AND ACTUAL (WITH VARIANCES) POLICE AND FIRE INCENTIVE Year Ended June 30, 2010 Budgeted Amounts Original Final Revenues Intergovernmental $ Expenditures Police Fire 967,000 $ Variance with Final Budget Actual 967,000 $ 947,012 $ (19,988) 476,500 490,500 476,500 490,500 463,419 486,808 13,081 3,692 967,000 967,000 950,227 16,773 - - Other Financing Sources (Uses) Transfers In 10,000 10,000 Net Change in Fund Balance 10,000 10,000 - - Total Expenditures Excess (Deficit) of Revenues Over Expenditures Fund Balance July 1, 2009 Fund Balance June 30, 2010 $ 10,000 $ 69 10,000 (3,215) (3,215) 788 (9,212) (2,427) 2,427 $ (12,427) 2,427 - $ (10,000) CITY OF COVINGTON, KENTUCKY SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE BUDGET AND ACTUAL (WITH VARIANCES) NEWPORT STEEL UDAG Year Ended June 30, 2010 Budgeted Amounts Original Final Revenues Investment Earnings Miscellaneous $ Total Revenues 30,000 160,000 $ Variance with Final Budget Actual 30,000 160,000 $ 21,789 132,750 $ (8,211) (27,250) 190,000 190,000 154,539 (35,461) Expenditures Community Development 250,000 250,000 32,790 217,210 Excess (Deficit) of Revenues Over Expenditures (60,000) (60,000) 121,749 181,749 60,000 60,000 174,735 114,735 Fund Balance July 1, 2009 Fund Balance June 30, 2010 $ - 70 $ - $ 296,484 $ 296,484 CITY OF COVINGTON, KENTUCKY SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE BUDGET AND ACTUAL (WITH VARIANCES) DEVOU PARK MAINTENANCE Year Ended June 30, 2010 Budgeted Amounts Original Final Revenues Investment Earnings Miscellaneous $ Total Revenues 931,517 Actual 90,000 $ 43 23,584 $ 43 (66,416) 931,517 42,196 - 32,804 - 75,000 42,196 32,804 15,000 (18,569) (33,569) 10,000 (25,000) 10,000 (18,967) 6,033 10,000 Total Other Financing Sources (Uses) 75,000 - 10,000 - Other Financing Sources (Uses) Transfers In Transfers Out (66,373) (10,000) Excess (Deficit) of Revenues Over Expenditures 23,627 941,517 Total Expenditures 90,000 110,000 831,517 Expenditures General Government Capital Outlay (15,000) (8,967) 6,033 Net Change in Fund Balance - $ - (27,536) (27,536) - Fund Balance July 1, 2009 Fund Balance June 30, 2010 $ Variance with Final Budget - 50,962 50,962 - 71 $ - $ 23,426 $ 23,426 CITY OF COVINGTON, KENTUCKY SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE BUDGET AND ACTUAL (WITH VARIANCES) INVESTOR PROGRAM Year Ended June 30, 2010 Budgeted Amounts Original Final Revenues Investment Earnings Miscellaneous $ 5,000 25,000 $ Variance with Final Budget Actual 5,000 25,000 $ 258 28,314 $ (4,742) 3,314 Total Revenues 30,000 30,000 28,572 Expenditures Community Development 375,000 350,000 104,602 245,398 (345,000) (320,000) (76,030) 243,970 Other Financing Sources (Uses) Transfers Out (25,000) (25,000) (7,085) 17,915 Net Change in Fund Balance (370,000) (345,000) (83,115) 261,885 370,000 345,000 571,821 226,821 Excess (Deficit) of Revenues Over Expenditures Fund Balance July 1, 2009 Fund Balance June 30, 2010 $ - 72 $ - $ 488,706 (1,428) $ 488,706 CITY OF COVINGTON, KENTUCKY SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE BUDGET AND ACTUAL (WITH VARIANCES) CITY HALL OPERATIONS Year Ended June 30, 2010 Budgeted Amounts Original Final Revenues Charges for Services Investment Earnings $ Total Revenues 270,933 - $ Variance with Final Budget Actual 270,933 - $ 262,124 3 $ (8,809) 3 270,933 270,933 262,127 306,857 16,495 306,857 16,495 206,418 16,412 100,439 83 Total Expenditures 323,352 323,352 222,830 100,522 Excess (Deficit) of Revenues Over Expenditures (52,419) (52,419) 39,297 91,716 Other Financing Sources (Uses) Transfers In 52,419 52,419 - Net Change in Fund Balance - - 39,297 39,297 - - 3,629 3,629 Expenditures General Government Capital Outlay Fund Balance July 1, 2009 Fund Balance June 30, 2010 $ - 73 $ - $ 42,926 (8,806) (52,419) $ 42,926 CITY OF COVINGTON, KENTUCKY SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE BUDGET AND ACTUAL (WITH VARIANCES) DEVOU PARK MASTER PLAN Year Ended June 30, 2010 Budgeted Amounts Original Final Revenues Miscellaneous $ - Expenditures General Government Capital Outlay $ Variance with Final Budget Actual 831,517 $ 131,255 $ (700,262) - 125,000 706,517 75,141 75,081 49,859 631,436 Total Expenditures - 831,517 150,222 681,295 Excess (Deficit) of Revenues Over Expenditures - - (18,967) (18,967) Other Financing Sources (Uses) Transfers In - - 18,967 18,967 Net Change in Fund Balance - - - - - - - - Fund Balance July 1, 2009 Fund Balance June 30, 2010 $ - 74 $ - $ - $ - CITY OF COVINGTON, KENTUCKY SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE BUDGET AND ACTUAL (WITH VARIANCES) FEDERAL AND STATE GRANT FUND Year Ended June 30, 2010 Budgeted Amounts Original Final Revenues Intergovernmental $ Expenditures General Government Fire 250,000 $ Variance with Final Budget Actual 500,000 $ 312,165 $ (187,835) 250,000 250,000 250,000 312,165 - (62,165) 250,000 250,000 500,000 312,165 187,835 Excess (Deficit) of Revenues Over Expenditures - - - - Fund Balance July 1, 2009 - - 67 67 Total Expenditures Fund Balance June 30, 2010 $ - 75 $ - $ 67 $ 67 CITY OF COVINGTON, KENTUCKY SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE BUDGET AND ACTUAL (WITH VARIANCES) ARTS DISTRICT Year Ended June 30, 2010 Budgeted Amounts Original Final Expenditures Debt Service Principal Interest and Other Charges Capital Outlay $ Total Expenditures $ 20,000 30,000 130,000 Actual $ 20,000 6,689 152,065 $ 23,311 (22,065) 50,000 (178,754) 1,246 39,644 - 13,704 155,040 (25,940) 155,040 39,644 168,744 129,100 (140,356) (10,010) 130,346 10,356 Fund Balance July 1, 2009 (180,000) (10,356) Net Change in Fund Balance 1,246 39,644 Total Other Financing Sources (Uses) 178,754 39,644 - Other Financing Sources (Uses) Transfers In Proceeds from Sale of Capital Assets 180,000 (50,000) Excess (Deficit) of Revenues Over Expenditures Fund Balance June 30, 2010 20,000 30,000 - Variance with Final Budget 10,356 10,010 $ - 76 $ (130,000) $ - (346) $ 130,000 CITY OF COVINGTON, KENTUCKY SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE BUDGET AND ACTUAL (WITH VARIANCES) 501 MAIN STREET OPERATIONS Year Ended June 30, 2010 Budgeted Amounts Original Final Revenues Charges for Services $ Expenditures General Government Debt Service Principal Interest and Other Charges 17,208 $ Variance with Final Budget Actual 17,208 $ 17,057 $ (151) 44,100 10,100 14,765 (4,665) 46,967 68,094 46,806 68,094 46,994 67,882 (188) 212 159,161 125,000 129,641 (4,641) (141,953) (107,792) (112,584) (4,792) Other Financing Sources (Uses) Transfers In 141,953 107,792 112,584 4,792 Net Change in Fund Balance - - - - - - - - Total Expenditures Excess (Deficit) of Revenues Over Expenditures Fund Balance July 1, 2009 Fund Balance June 30, 2010 $ - 77 $ - $ - $ - CITY OF COVINGTON, KENTUCKY SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE BUDGET AND ACTUAL (WITH VARIANCES) POLICE FORFEITURE Year Ended June 30, 2010 Budgeted Amounts Original Final Revenues Intergovernmental Investment Earnings Miscellaneous $ Total Revenues 190,000 10,000 - $ Variance with Final Budget Actual 190,000 10,000 - $ 78,815 152 3,200 $ (111,185) (9,848) 3,200 200,000 (117,833) 260,000 115,000 119,287 26,195 140,713 88,805 200,000 Total Expenditures 82,167 115,000 85,000 Expenditures Police Capital Outlay 200,000 375,000 145,482 229,518 Excess (Deficit) of Revenues Over Expenditures - (175,000) (63,315) 111,685 Fund Balance July 1, 2009 - 175,000 286,568 111,568 Fund Balance June 30, 2010 $ - 78 $ - $ 223,253 $ 223,253 CITY OF COVINGTON, KENTUCKY SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE BUDGET AND ACTUAL (WITH VARIANCES) CAD SYSTEM Year Ended June 30, 2010 Budgeted Amounts Original Final Revenues Taxes Investment Earnings $ Total Revenues 637,000 2,000 Actual 923,000 2,000 $ 792,712 174 $ (130,288) (1,826) 639,000 925,000 792,886 (132,114) (639,000) Other Financing Sources (Uses) Transfers Out (925,000) (914,000) 11,000 Net Change in Fund Balance - $ - (121,114) (121,114) - Fund Balance July 1, 2009 Fund Balance June 30, 2010 $ Variance with Final Budget - 214,971 214,971 - 79 $ - $ 93,857 $ 93,857 CITY OF COVINGTON, KENTUCKY SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE BUDGET AND ACTUAL (WITH VARIANCES) RENAISSANCE GRANT FUND Year Ended June 30, 2010 Budgeted Amounts Original Final Revenues Intergovernmental $ Expenditures Community Development Capital Outlay 500,000 $ Variance with Final Budget Actual 500,000 $ 306,412 $ (193,588) 100,000 400,000 100,000 400,000 26,940 39,823 73,060 360,177 500,000 500,000 66,763 433,237 Excess (Deficit) of Revenues Over Expenditures - - 239,649 239,649 Other Financing Sources (Uses) Transfers In Transfers Out - - 11,227 (250,876) 11,227 (250,876) Total Other Financing Sources (Uses) - - (239,649) (239,649) Net Change in Fund Balance - - - - - - - - Total Expenditures Fund Balance July 1, 2009 Fund Balance June 30, 2010 $ - 80 $ - $ - $ - CITY OF COVINGTON, KENTUCKY SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE BUDGET AND ACTUAL (WITH VARIANCES) WORKING CAPITAL RESERVE Year Ended June 30, 2010 Budgeted Amounts Original Final Other Financing Sources (Uses) Transfers In $ Net Change in Fund Balance 50,000 Actual - $ - $ - 50,000 - - - - - 1,770,264 1,770,264 Fund Balance July 1, 2009 Fund Balance June 30, 2010 $ Variance with Final Budget $ 50,000 81 $ - $ 1,770,264 $ 1,770,264 CITY OF COVINGTON, KENTUCKY SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE BUDGET AND ACTUAL (WITH VARIANCES) PROPERTY ACQUISITIONS Year Ended June 30, 2010 Budgeted Amounts Original Final Revenues Charges for Services $ 125,000 $ Variance with Final Budget Actual 492,800 $ 10,814 $ (481,986) Expenditures Debt Service Principal Interest and Other Charges 125,000 7,200 492,800 7,200 10,814 7,095 481,986 105 Total Expenditures 132,200 500,000 17,909 482,091 Excess (Deficit) of Revenues Over Expenditures (7,200) (7,200) (7,095) 105 Other Financing Sources (Uses) Transfers In 7,200 7,200 7,085 (115) Net Change in Fund Balance - - (10) 10 - - 10 (10) Fund Balance July 1, 2009 Fund Balance June 30, 2010 $ - 82 $ - $ - $ - CITY OF COVINGTON, KENTUCKY SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE BUDGET AND ACTUAL (WITH VARIANCES) HOME CONSORTIUM FUND Year Ended June 30, 2010 Budgeted Amounts Original Final Revenues Intergovernmental $ Expenditures Community Development Capital Outlay 364,625 $ Variance with Final Budget Actual 440,644 $ 326,093 $ (114,551) 300,142 64,483 440,644 - 326,093 - 114,551 - 364,625 440,644 326,093 114,551 Excess (Deficit) of Revenues Over Expenditures - - - - Fund Balance July 1, 2009 - - - - Total Expenditures Fund Balance June 30, 2010 $ - 83 $ - $ - $ - CITY OF COVINGTON, KENTUCKY SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE BUDGET AND ACTUAL (WITH VARIANCES) HOMELESS PREVENTION FUND Year Ended June 30, 2010 Budgeted Amounts Original Final Revenues Intergovernmental $ Expenditures Community Development 364,625 Actual 440,644 $ 63,474 $ (377,170) 300,142 440,644 63,474 377,170 64,483 - - - - Excess (Deficit) of Revenues Over Expenditures - - - Fund Balance July 1, 2009 Fund Balance June 30, 2010 $ Variance with Final Budget $ 64,483 84 $ - $ - $ - CITY OF COVINGTON, KENTUCKY SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE BUDGET AND ACTUAL (WITH VARIANCES) NEIGHBORHOOD STABILIZATION PROGRAM Year Ended June 30, 2010 Budgeted Amounts Original Final Revenues Intergovernmental $ - Expenditures Community Development Capital Outlay $ Variance with Final Budget Actual 5,000,000 $ 494,066 $ (4,505,934) - 5,000,000 - 176,923 317,142 4,823,077 (317,142) - 5,000,000 494,065 4,505,935 Excess (Deficit) of Revenues Over Expenditures - - 1 1 Fund Balance July 1, 2009 - - - - Total Expenditures Fund Balance June 30, 2010 $ - 85 $ - $ 1 $ 1 CITY OF COVINGTON, KENTUCKY SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE BUDGET AND ACTUAL (WITH VARIANCES) CAPITAL IMPROVEMENT FUND Year Ended June 30, 2010 Budgeted Amounts Original Final Revenues Intergovernmental Miscellaneous $ Total Revenues 738,051 - $ Variance with Final Budget Actual 738,051 - $ 675,534 111,732 $ (62,517) 111,732 738,051 738,051 787,266 49,215 Expenditures Debt Service Principal Interest and Other Charges Capital Outlay 137,731 55,697 4,023,834 387,731 105,697 5,666,615 342,473 83,218 2,782,313 45,258 22,479 2,884,302 Total Expenditures 4,217,262 6,160,043 3,208,004 2,952,039 (3,479,211) (5,421,992) (2,420,738) 3,001,254 550,000 2,929,211 - 1,292,781 4,129,211 - 1,276,569 1,040,563 (7,965) (16,212) (3,088,648) (7,965) 3,479,211 5,421,992 2,309,167 (3,112,825) - - (111,571) (111,571) - - 158,251 158,251 Excess (Deficit) of Revenues Over Expenditures Other Financing Sources (Uses) Transfers In Proceeds from Issuance of Debt Transfers Out Total Other Financing Sources (Uses) Net Change in Fund Balance Fund Balance July 1, 2009 Fund Balance June 30, 2010 $ - 86 $ - $ 46,680 $ 46,680 CITY OF COVINGTON, KENTUCKY SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE BUDGET AND ACTUAL (WITH VARIANCES) KLC SERIES 2002 Year Ended June 30, 2010 Budgeted Amounts Original Final Expenditures Debt Service Principal Interest and Other Charges $ Total Expenditures 559,844 440,779 $ Variance with Final Budget Actual 559,844 440,779 $ 559,844 440,779 $ - 1,000,623 1,000,623 1,000,623 - (1,000,623) (1,000,623) (1,000,623) - Other Financing Sources (Uses) Transfers In 1,000,623 1,000,623 1,000,623 - Net Change in Fund Balance - - - - - - - - Excess (Deficit) of Revenues Over Expenditures Fund Balance July 1, 2009 Fund Balance June 30, 2010 $ - 87 $ - $ - $ - CITY OF COVINGTON, KENTUCKY SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE BUDGET AND ACTUAL (WITH VARIANCES) 2004 PENSION OBLIGATION BONDS Year Ended June 30, 2010 Budgeted Amounts Original Final Expenditures General Government Debt Service Principal Interest and Other Charges $ 75,000 $ Actual 85,000 $ 83,100 $ Variance with Final Budget 1,900 350,000 689,544 365,000 750,000 365,000 714,833 35,167 1,114,544 1,200,000 1,162,933 37,067 (1,114,544) (1,200,000) (1,162,933) 37,067 Other Financing Sources (Uses) Transfers In 1,114,544 1,200,000 1,152,774 (47,226) Net Change in Fund Balance - - (10,159) (10,159) - - 90,691 90,691 - $ - $ 80,532 $ 80,532 Total Expenditures Deficit of Revenues Over Expenditures Fund Balance July 1, 2009 Fund Balance June 30, 2010 $ 88 CITY OF COVINGTON, KENTUCKY SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE BUDGET AND ACTUAL (WITH VARIANCES) 2005 REFUNDING BONDS Year Ended June 30, 2010 Budgeted Amounts Original Final Expenditures Debt Service Principal Interest and Other Charges $ Variance with Final Budget Actual 1,065,000 $ 124,160 1,065,000 $ 124,160 1,065,000 $ 124,160 - 1,189,160 1,189,160 1,189,160 - (1,189,160) (1,189,160) (1,189,160) - Other Financing Sources (Uses) Transfers In 1,189,160 1,189,160 1,189,160 - Net Change in Fund Balance - - - - - - 10,606 10,606 - $ - $ 10,606 $ 10,606 Total Expenditures Deficit of Revenues Over Expenditures Fund Balance July 1, 2009 Fund Balance June 30, 2010 $ 89 CITY OF COVINGTON, KENTUCKY SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE BUDGET AND ACTUAL (WITH VARIANCES) SEWER MAINTENANCE FEES Year Ended June 30, 2010 Budgeted Amounts Original Final Revenues Investment Earnings $ - Expenditures General Government Principal $ Variance with Final Budget Actual - $ 30 $ 30 - Other Financing Sources (Uses) Transfers In Transfers Out 100,000 96,060 3,940 - Excess (Deficit) of Revenues Over Expenditures 96,060 - - Total Expenditures 100,000 (96,060) 100,000 (100,000) (96,030) 3,970 39,644 - 39,644 - 3,638 (4) (36,006) (4) Total Other Financing Sources (Uses) 39,644 39,644 3,634 (36,010) Net Change in Fund Balance 39,644 (60,356) (92,396) (32,040) 100,000 92,396 (7,604) Fund Balance July 1, 2009 Fund Balance June 30, 2010 $ 39,644 90 $ 39,644 $ - $ (39,644) COMBINING FINANCIAL STATEMENTS PROPRIETARY FUNDS CITY OF COVINGTON, KENTUCKY COMBINING STATEMENT OF NET ASSETS INTERNAL SERVICE FUNDS June 30, 2010 Liability Insurance Assets Current Assets Cash and Cash Equivalents Accounts Receivable Due from Other Funds $ 1,415,279 - Total Assets $ 583,409 77,056 450,000 $ Total 1,998,688 77,056 450,000 1,415,279 $ 2,525,744 5,475 873,533 219,554 9,275 1,694,356 419,554 , , 1,024,623 Total Liabilities 1,110,465 3,800 820,823 200,000 Liabilities Current Liabilities Accounts Payable Estimated Liability for Claims Due to Other Funds Net Assets Unrestricted Internal Service Funds Medical and Dental Insurance , , 1,098,562 , , 2,123,185 390,656 91 $ 11,903 $ 402,559 CITY OF COVINGTON, KENTUCKY COMBINING STATEMENT OF REVENUES, EXPENSES AND CHANGES IN FUND NET ASSETS INTERNAL SERVICE FUNDS Year Ended June 30, 2010 Liability Insurance Operating Revenues Insurance Premium Payments Other Operating Revenues $ 77,691 Total Operating Revenues Internal Service Funds Medical and Dental Insurance $ 5,997,410 228,729 $ Total 5,997,410 306,420 77,691 6,226,139 6,303,830 176,497 917,918 400,095 5,816,422 576,592 6,734,340 Total Operating Expenses 1,094,415 6,216,517 7,310,932 Operating Loss (Income) (1,016,724) Operating Expenses Contractual Services Claims and Judgments Non-Operating Revenues Investment Income 465 Loss (Income) Before Transfers 390,656 92 200,000 9,814 1,206,915 $ (1,006,445) - (816,259) Net Assets July 1, 2009 657 9,814 200,000 Change in Net Assets (1,007,102) 192 (1,016,259) Transfers In Net Assets June 30, 2010 9,622 (806,445) 2,089 $ 11,903 1,209,004 $ 402,559 CITY OF COVINGTON, KENTUCKY COMBINING STATEMENT OF CASH FLOWS INTERNAL SERVICE FUNDS Year Ended June 30, 2010 Liability Insurance Cash Flows From Operating Activities Cash Received from Other Funds Cash Received from Other Activities Cash Paid for Claims $ 220,433 77,691 (271,831) Internal Service Funds Medical and Dental Insurance $ 6,735,854 228,729 (6,625,941) $ Total 6,956,287 306,420 (6,897,772) Net Cash Provided by Operating Activities 26,293 338,642 364,935 Cash Flows from Non-Capital Financing Activities Transfer from Other Funds 200,000 - 200,000 465 192 657 226,758 338,834 565,592 1,188,521 244,575 1,433,096 Cash Flows from Investing Activities Interest Income Net Change in Cash Cash and Cash Equivalents July 1, 2009 $ Reconciliation of Operating Loss to Net Cash Provided by Operating Activities Operating (Loss) Income Change in Assets and Liabilities Accounts Receivable Due from Other Funds Accounts Payable Estimated Liability for Claims Due to Other Funds 1,415,279 1 415 279 $ 583,409 583 409 $ 1,998,688 1 998 688 $ Cash and Cash Equivalents June 30 2010 30, (1,016,724) $ 9,622 $ (1,007,102) 40,866 1,761 820,823 179,567 $ Net Cash Provided by Operating Activities 93 26,293 (77,056) 602,874 4,723 (414,147) 212,626 $ 338,642 (77,056) 643,740 6,484 406,676 392,193 $ 364,935 INDIVIDUAL FUND SCHEDULES PROPRIETARY FUNDS CITY OF COVINGTON, KENTUCKY SCHEDULE OF REVENUES, EXPENSES AND CHANGES IN FUND NET ASSETS BUDGET AND ACTUAL (WITH VARIANCES) LIABILITY INSURANCE Year Ended June 30, 2010 Budgeted Amounts Original Final Operating Revenues Other Operating Revenues $ Operating Expenses Contractual Services Claims and Judgments - $ Variance with Final Budget Actual - $ 77,691 $ 77,691 160,000 65,000 212,500 287,500 176,497 917,918 36,003 (630,418) 225,000 500,000 1,094,415 (594,415) Operating Loss (225,000) (500,000) (1,016,724) (516,724) Non-Operating Revenues Investment Income 25,000 25,000 (200,000) (475,000) 200,000 200,000 200,000 - (275,000) (816,259) - 275,000 Total Operating Expenses Income (Loss) Before Transfers Transfers In Change in Net Assets Net Assets July 1, 2009 Net Assets June 30, 2010 $ - 94 $ - 465 (24,535) (1,016,259) (541,259) (541,259) 1,206,915 $ 390,656 931,915 $ 390,656 CITY OF COVINGTON, KENTUCKY SCHEDULE OF REVENUES, EXPENSES AND CHANGES IN FUND NET ASSETS BUDGET AND ACTUAL (WITH VARIANCES) MEDICAL AND DENTAL INSURANCE Year Ended June 30, 2010 Budgeted Amounts Original Final Operating Revenues Insurance Premium Payments Other Operating Revenues $ Total Operating Revenues 5,464,212 150,000 $ Variance with Final Budget Actual 6,148,500 150,000 $ 5,997,410 228,729 $ (151,090) 78,729 5,614,212 6,298,500 6,226,139 (72,361) 391,017 5,200,000 391,017 5,884,288 400,095 5,816,422 (9,078) 67,866 5,591,017 6,275,305 6,216,517 58,788 Operating Loss 23,195 23,195 9,622 (13,573) Non-Operating Revenues Investment Income 1,500 1,500 192 (1,308) 24,695 24,695 9,814 (14,881) - - 2,089 2,089 Operating Expenses Contractual Services Claims and Judgments Total Operating Expenses Income (Loss) Before Transfers Net Assets July 1, 2009 Net Assets June 30, 2010 $ 24,695 95 $ 24,695 $ 11,903 $ (12,792) STATISTICAL SECTION (1) (1) A statistical table presenting Revenue Bond Coverage - last ten fiscal years is not included since the City has no enterprise funds. A statistical table presenting direct and overlapping debt is not included since no general obligation bonds are outstanding. A statistical table presenting special assessments billings and collections is not included since there are no special assessments. CITY OF COVINGTON, KENTUCKY STATISTICAL SECTION NARRATIVE AND CONTENTS This part of the City's comprehensive annual financial report presents detailed information as a context for understanding this year's financial statements, note disclosures, and supplementary information. This information is unaudited. Contents Financial Trends These tables contain trend information that may assist the reader in assessing the City's current financial performance by placing it in historical perspective. Revenue Capacity These tables contain information that may assist the reader in assessing the viability of the City's most significant "own-source" revenue source, property taxes. Debt Capacity These tables present information that may assist the reader in analyzing the affordability of the County's current levels of outstanding debt and the City's ability to issue additional debt in the future. Demographic and Economic Information These tables present demographic and economic information intended (I) to assist users in understanding the socioeconomic environment within which the City operates and (2) to provide information that facilitates comparisons of financial statement information over time and among cities. Operating Information These tables contain service and infrastructure indicators that can inform one's understanding how the information in the City's financial statements relates to the services the City provides and the activities it performs. Data Source: Unless otherwise noted, the information in these tables is derived from the comprehensive annual financial report for the applicable year. The City implemented GASB Statement No, 34 in fiscal year 2002 therefore tables presenting government-wide financial data include only eight years of information. 96 Schedule 1 City of Covington Net Assets by Component, Last Eight Fiscal Years (accrual basis of accounting) 2010 Governmental Activities / Primary Government Invested in Capital Assets, net of Related Debt Restricted Unrestricted Total Governmental Activities Net Asset 2009 2008 2007 34,539,885 91,138 13,587,660 48,218,683 36,577,167 193,693 16,638,487 53,409,347 41,334,965 550,682 16,603,105 58,488,752 39,709,313 888,123 17,286,863 57,884,299 Note: The city implemented GASB Statement 34 in fiscal year 2003 97 Fiscal Year 2006 40,851,867 1,307,719 15,104,828 57,264,414 2005 2004 2003 41,483,876 1,593,846 1,947,609 45,025,331 4,519,630 1,943,252 15,614,883 22,077,765 (2,888,790) 1,943,882 22,540,375 21,595,467 Schedule 2 City of Covington Changes in Net Assets, Last Eight Fiscal Years Last Seven Fiscal Years (accrual basis of accounting) Fiscal Year 2010 Expenses Governmental Activities: General Government Police Fire General Service Recreation Code Enforcement and Economic Development Parking Garage Interest on Long-term Debt Total Governmental Activities Expenses Program Revenues Governmental Activities: General Government Police Fire General Service Recreation Code Enforcement and Economic Development Parking Garage Interest on Long-term Debt Operating Grants and Contributions Capital Grants and Contributions Total Governmental Activities Expenses Total Net (expense) revenue 2009 2008 2007 2006 2005 2004 2003 6,089,518 16,498,516 15,048,966 11,847,116 796,215 12,149,528 15,593,684 14,224,985 7,185,210 2,740,960 7,807,872 15,501,195 14,753,208 5,995,347 2,426,639 6,975,709 14,873,868 13,595,531 6,001,968 2,350,546 7,781,587 14,482,761 12,512,512 5,324,831 2,325,250 9,381,965 13,660,495 11,930,245 5,561,622 2,575,568 3,939,011 13,582,260 11,286,851 8,020,228 1,045,289 4,822,043 12,712,976 10,328,208 7,440,215 787,164 12,484,045 732,362 1,716,153 65,212,891 10,217,357 701,986 2,052,549 64,866,259 9,777,154 747,677 1,935,242 58,944,334 9,345,867 734,401 1,872,816 55,750,706 9,817,626 727,419 1,919,888 54,891,874 9,086,241 803,715 1,437,434 54,437,285 9,825,619 809,425 1,171,229 49,679,912 10,876,935 743,982 1,605,271 49,316,794 1,136,249 412,722 1,282,105 1,918,838 993,267 406,557 1,077,448 1,859,171 1,145,333 382,318 1,084,825 1,464,056 1,096,558 331,579 1,073,548 1,170,789 1,215,111 372,192 912,526 1,226,952 761,041 987,802 1,092,970 - 1,928,888 344,287 546,276 1,154,023 90,465 1,737,441 516,097 510,848 1,373,968 39,525 79,317 1,179,276 37,833 1,143,276 41,860 1,120,916 114,177 1,041,332 10,727,972 1,624,312 18,360,791 9,664,170 1,650,920 16,832,642 10,823,567 2,050,654 18,113,529 8,840,224 1,279,884 14,948,091 56,017 1,059,369 9,652,316 716,322 15,210,805 (46,852,100) (48,033,617) (40,830,805) (40,802,615) (39,681,069) (38,481,130) (34,300,974) (33,912,538) 6,114,035 557,999 2,085,706 60,603 5,588,067 22,850,229 2,285,504 796,091 25,094 6,024,885 653,748 2,140,821 53,161 5,430,628 23,697,247 2,555,089 790,752 112,064 4,680,355 601,109 2,178,804 67,789 4,860,194 23,287,559 2,779,489 647,217 317,416 5,590,772 553,057 1,978,504 59,042 5,242,337 21,656,929 2,959,729 552,641 389,885 4,399,593 496,286 1,909,267 62,323 5,240,743 19,543,654 2,303,123 358,751 228,382 444,832 367,376 1,878,640 (14,275,000) 22,957,970 4,945,540 474,360 1,892,053 102,802 4,909,972 18,319,549 2,590,933 376,845 132,820 5,094,960 679,089 2,078,467 74,272 4,746,726 17,683,867 1,993,189 351,664 186,286 1,038,363 20,047,710 (345,200) 52,591,030 (15,523,160) 482,263 General Revenues and Other changes in Net Assets Governmental Activities: Taxes Real Property Taxes, Levied for General Purposes Personal Property Taxes, Levied for General Purposes Public Services Taxes Taxes, Levied for Bank Deposits Insurance Premium Taxes Payroll Taxes Net Profit Taxes Other Taxes Investment earnings Fines and Forfeitures Licenses and Permits Commissions Special item - Gain/(Loss) on Sale of Capital Assets Miscellaneous Transfers Total General Revenues and Transfers 1,298,108 1,495,817 2,015,326 214,010 2,225,594 41,661,436 42,954,212 41,435,258 41,422,500 5,913,401 589,401 2,092,335 62,232 5,324,223 21,263,831 2,554,150 490,889 310,239 576,242 1,710,802 40,887,745 Change in Net Assets Total Primary Government (5,190,664) (5,079,405) 604,453 619,885 1,206,676 Note: The city implemented GASB Statement 34 in fiscal year 2003. 98 1,312,485 1,252,755 8,754,883 3,106,704 15,956,155 1,194,146 9,218,291 902,562 15,378,938 9,114,414 799,478 15,404,256 34,783,237 18,678,492 Schedule 3 City of Covington Fund Balances, Governmental Funds, Last Ten Fiscal Years ( modified accrual basis of accounting) Fiscal Year 2009 2010 General Fund Reserved Unreserved Total general fund 342,498 342,498 All Other Governmental Funds Reserved Unreserved, reported in: Special revenue funds Capital projects funds Debt service funds Total all other governmental funds $ $ 4,007,906 (12,984) 91,138 $ 4,086,060 2008 41,414 730,555 771,969 - $ $ 4,821,080 158,251 193,693 $ 5,173,024 2007 4,483 735,839 740,322 - $ $ 4,296,812 91,947 550,682 $ 4,939,441 2006 1,611 675,320 676,931 - $ $ $ 3,713,572 469,730 888,123 $ 5,071,425 99 2005 122,892 550,513 673,405 - $ $ $ 810,353 1,307,719 $ 2,118,072 2004 5,388 229,739 235,127 - $ $ $ 1,207,276 2,801,122 291,457 291,457 - $ $ $ 2,578,865 3,745,979 1,593,846 $ 2003 $ 6,324,844 2002 920,556 920,556 - $ 2001 $ 125,771 1,204,885 1,330,656 $ $ $ 39,342 $ 115,779 1,208,499 1,324,278 - 3,439,783 4,466,029 4,053,087 $ 3,037,818 6,494,886 13,141,399 7,492,870 $ 9,572,046 $ 17,607,428 Schedule 4 City of Covington Changes in Fund Balances, Governmental Funds, Last Eight Fiscal Years (modified accrual basis of accounting) Fiscal Year 2010 2009 2008 2007 2006 2005 2004 2003 14,987,054 25,429,776 12,166,647 5,227,073 746,322 24,439 1,351,353 14,707,297 26,550,329 11,691,463 4,744,058 712,072 99,619 1,557,868 13,682,151 26,357,476 12,063,637 4,527,680 669,260 270,519 2,382,312 13,554,260 24,897,197 11,204,089 4,104,170 711,786 330,536 2,342,372 13,466,713 24,123,130 10,345,557 4,128,721 603,286 278,531 1,734,234 12,762,470 22,214,153 9,636,936 4,094,568 444,832 223,704 4,109,294 12,395,102 21,287,327 10,120,853 4,745,670 478,752 123,538 1,539,153 12,104,042 20,028,720 9,913,892 4,721,842 447,020 186,286 2,656,223 59,932,664 60,062,706 59,953,035 57,144,410 54,680,172 53,485,957 50,690,395 50,058,025 3,785,714 15,593,494 13,812,934 6,514,905 504,309 3,783,523 14,886,861 13,306,319 6,690,503 2,533,103 3,554,133 15,013,636 13,959,222 5,644,983 2,347,048 3,092,518 14,359,432 12,989,464 5,292,360 2,309,959 3,537,750 14,109,828 12,168,065 5,180,111 2,289,413 3,365,074 13,239,562 11,429,099 5,358,833 2,372,300 3,366,630 12,833,125 10,800,154 7,761,571 717,870 3,558,293 11,913,958 9,947,813 7,105,526 737,049 12,175,797 732,362 10,138,570 701,986 9,771,182 747,677 9,098,909 734,401 9,832,881 727,419 9,096,233 803,715 9,778,417 809,425 10,831,082 743,982 2,980,841 1,679,854 4,982,528 3,516,517 2,054,516 6,715,050 2,918,585 1,829,031 4,159,916 2,727,985 1,701,223 3,257,621 2,763,879 1,965,386 2,701,215 5,553,494 1,509,839 6,722,898 7,665,518 1,464,763 3,082,026 12,325,046 1,605,271 6,247,041 Total Expenditures 62,762,738 64,326,948 59,945,413 55,563,872 55,275,947 59,451,047 58,279,499 65,015,061 Excess of revenues Over (under) Expenditures (2,830,074) (4,264,242) 7,622 1,580,538 (5,965,090) (7,589,104) (14,957,036) 12,806,241 6,028,123 (6,228,123) 1,040,563 4,509,181 6,063,518 (6,747,200) 75,419 4,996,000 840,944 3,006,160 (3,051,160) 12,809,056 2,766,134 (3,111,334) Revenues Taxes Licenses and Permits Intergovernmental Charges for services Fines and Forfeitures Investment Earnings Miscellaneous Total Revenues Expenditures Current General Government Police Fire General Service Recreation Code Enforcement and Economic Development Parking Garage Debt Service Principal Interest and Other Charges Capital Outlay Other Financing Sources (Uses) Bonds issued Capital lease proceeds Transfers in Transfer out Proceeds from short tem debt Miscellaneous 5,377,180 (5,881,142) 427,747 840,563 3,900,918 Special Item Proceeds from Sale of Capital Asset 532,740 628,554 Debt service as a percentage of non capital expenditures 6,006,833 (6,252,032) 596,202 11,506,504 (25,926,704) (1,003) Total other financing sources (uses) Net change in fund balances 1,630,000 6,169,710 (6,663,029) (595,775) (1,456,771) 8.07% 265,230 9.67% (76,215) 1,136,681 351,003 (1,614,962) 5,791,944 12,463,856 (244,772) (7,580,052) (1,797,160) (2,493,180) 9.00% 13.40% 16.54% 23.70% 239,660 (68,593) 8.51% 2,956,879 8.47% Note: With the implementation of GASB statement 34 in fiscal year 2003, classification of revenue and expenditure by category were revised and not restated for earlier fiscal years 100 Schedule 5 City of Covington Occupational License Fees - Payroll Withholding Last Ten Fiscal Years Fiscal Year 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Total Gross Taxable Wages Total Withholding Fees 65,562,528,000 67,515,012,000 70,735,468,000 73,278,196,000 78,174,616,000 85,055,324,000 86,627,716,000 93,150,236,000 94,788,988,000 91,400,916,000 16,390,632 16,878,753 17,683,867 18,319,549 19,543,654 21,263,831 21,656,929 23,287,559 23,697,247 22,850,229 Total Direct Rate 0.025% 0.025% 0.025% 0.025% 0.025% 0.025% 0.025% 0.025% 0.025% 0.025% Notes: There has been no change in tax rate since adoption in 1966 101 Schedule 6 City of Covington Principal Occupational Payroll Tax Payers Current Year and Nine Years Ago Taxpayer 2010 A. C. Nielsen Atkins & Pearce Club Chef Commonwealth of Kentucky Covington Board of Education Fidelity Investments Internal Revenue Service No. Ky. Mental Health and Retardation Board Omnicare St. Elizabeth Hospital Notes: Taxpayer information is listed alphabetically. Source: City of Covington Finance Department 102 2001 A. C. Nielsen Atkins & Pearce Commonwealth of Kentucky Covington Board of Education Duro Bag Fidelity Investments Internal Revenue Service No. Ky. Mental Health and Retardation Board Rosedale Manor St. Elizabeth Hospital Schedule 7 City of Covington Assessed Value and Estimated Actual Value of Taxable Property, Last Ten Fiscal Years Fiscal Year 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Real Property Personal Property 1,240,574 1,318,915 1,374,693 1,554,730 1,600,532 1,617,670 1,687,690 1,828,664 1,861,435 1,897,368 2,014,385 Tax-Exempt Property 171,655 190,967 179,133 179,132 155,966 160,191 203,668 195,876 187,585 217,242 159,294 57,440 59,908 60,047 57,688 58,542 57,720 57,570 58,296 61,243 59,898 62,311 Total Taxable Assessed Value Total Direct Tax Rate 1,354,789 1,449,974 1,493,779 1,676,174 1,697,956 1,720,141 1,833,788 1,966,244 1,987,777 2,054,712 2,111,368 Notes: Property in Covington is reassessed once every four years. City property was last reassessed in 2007. The next reassessment will occur in 2011. The reassessment is conducted by the Kenton County Property Value Administrator. The property is assessed at 100% of value. Values are stated in thousands of dollars Tax rates are per $100 of assessed value. 103 0.322 0.322 0.322 0.299 0.299 0.299 0.299 0.284 0.292 0.299 0.299 Schedule 8 City of Covington Direct and Overlapping Property Tax Rates, Last Ten Fiscal Years (rate per $100 of assessed value) School Districts Fiscal Year 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 City Direct Rate 0.3223 0.3223 0.2990 0.2990 0.2990 0.2990 0.2842 0.2924 0.2995 0.2995 Covington Independent 0.890 0.865 0.894 0.925 0.942 0.922 0.961 0.961 0.989 1.026 Kenton County 0.477 0.492 0.548 0.558 0.556 0.556 0.564 0.564 0.558 0.558 County 0.1310 0.1310 0.1310 0.1350 0.1360 0.1380 0.1410 0.1420 0.1420 0.1480 State 0.136 0.135 0.133 0.131 0.131 0.128 0.124 0.124 0.122 0.122 Other 0.1100 0.1120 0.1150 0.1320 0.1350 0.1410 0.1488 0.1488 0.1530 0.1650 Totals Covington Kenton Schools County Area Schools Area 1.5893 1.5420 1.5720 1.6220 1.6430 1.6132 1.6590 1.6682 1.7055 1.7605 Notes: Portions of the City of Covington are located in Kenton County Common School District and pay taxes to that entity instead of Covington Independent School District. Consequently both rates are shown. The city's basic property tax may be increased up to the compensating rate plus 4% without being subject to a voter referendum. The compensating rate is defined as that rate which when applied to the current years assessment of property subject to taxation excluding new property and personal property produces an amount of revenue equal to that produced in the preceding year. 104 1.1763 1.1690 1.2260 1.2550 1.2570 1.2472 1.2620 1.2712 1.2745 1.2925 Schedule 9 City of Covington Principal Property Tax Payers, Current Year and Nine Years Ago 2010 2000 Taxable Assessed Value Rank Fidelity Properties Inc CPX-Rivercenter Dev/Corp Scott Street Land Co. Inc OZRE Lodging I LLC Atkins & Pearce Manu. J & S Latonia Centre KY LLC Packaging Unlimited CCC LLC Latonia Plaza KY LLC Truss Realty Atria Highland Crossing J G Covington Hotel, LLC Bluffs Apartments, LLC Gibson Greeting Card A.C.C.D. Co. Inc. $ 195,571,500 140,213,500 14,960,900 13,947,100 10,900,000 10,482,000 8,691,500 6,812,500 6,565,000 6,550,000 1 2 3 4 5 6 7 8 9 10 Total Percentage of Total City Taxable Assessed Value $ 414,694,000 Taxpayer 9.41% 6.75% 0.72% 0.67% 0.52% 0.50% 0.42% 0.33% 0.32% 0.32% 19.96% 105 Taxable Assessed Value $ Rank Percentage of Total City Taxable Assessed Value 61,406,500 105,948,100 1 2 6.03% 3.49% 12,432,500 10,649,000 3 4 0.71% 0.61% 7,758,500 10,100,000 9,600,000 7,575,000 7,118,000 6,486,000 7 5 6 8 9 10 0.58% 0.44% 0.55% 0.43% 0.41% 0.37% $ 239,073,600 13.62% Schedule 10 City of Covington Property Tax Levies and Collections, Last Eight Fiscal Years Fiscal Year Ended June 30 2003 2004 2005 2006 2007 2008 2009 2010 Taxes Levied for the Fiscal Year $ 5,011,764 $ 5,076,892 5,143,225 5,483,028 5,656,394 5,900,071 6,222,001 6,385,509 Collected within the Fiscal Year of the Levy Percentage Amount of Levy 4,824,742 4,907,183 4,926,477 5,293,287 5,469,125 5,672,319 5,970,349 6,027,733 96.27% 96.66% 95.79% 96.54% 96.69% 96.14% 95.96% 94.40% Collections in Subsequent Years $ $ $ $ $ $ $ 176,745 $ 153,061 $ 187,646 $ 140,888 $ 111,616 $ 124,295 $ 64,302 $ $ Total Collections to Date Percentage Amount of Levy 5,001,487 5,060,244 5,114,123 5,434,175 5,580,741 5,796,614 6,034,651 6,027,733 Note: Data was not available in the same format presented with the implementation of GASB Statement 44 prior to 2003. 106 99.79% 99.67% 99.43% 99.11% 98.66% 98.25% 96.99% 94.40% Schedule 11 City of Covington Ratios of Outstanding Debt by Type, Last Eight Fiscal Years (dollars in thousands, except per capita) General Obligation Bonds Fiscal Year 2003 2004 2005 2006 2007 2008 2009 2010 $ 4,962 26,487 27,907 25,888 23,790 21,622 20,811 Total Primary Government Capital Leases $ 36,734 29,344 19,415 15,231 16,153 15,271 18,782 17,663 $ Percentage of Personal Income (a) 36,734 34,306 45,902 43,138 42,041 39,061 40,404 38,474 Note: Details of city's outstanding debt can be found in the notes to the financial statements. Data was not available in the same format presented with the implementation of GASB Statement 44 prior to 2003. (a) See Schedule 12 for personal income and population data. 107 3.40% 3.18% 4.26% 4.00% 3.90% 3.62% 3.75% 4.16% Per Capita (a) $ $ $ $ $ $ $ $ 847 791 1,058 995 970 901 932 893 Schedule 12 City of Covington Ratios of General Bonded Debt Outstanding, Last Eight Fiscal Years (dollars in thousands, except per capita) General Obligation Bonds Fiscal Year 2003 2004 2005 2006 2007 2008 2009 2010 Percentage of Actual Taxable Value of Property $ 4,962 26,487 27,907 25,888 23,790 21,622 20,811 0.00% $ 0.29% 1.54% 1.52% 1.32% 1.20% 1.05% 0.99% Note: The City had no General Obligation Bonds prior to fiscal year 2003. 108 Per Capita 114.41 643.46 596.86 596.91 548.54 498.55 483.06 Schedule 13 City of Covington Legal Debt Margin Information, Last Eight Fiscal Years (dollars in thousands) Legal Debt Margin Calculation for Fiscal Year 2010 Assessed value $ 2,077,462 Debt limit (10% of assessed value) $ 207,746 Debt applicable to limit: General Obligation $ 20,811 Total net debt applicable to limit Legal debt margin $ $ 20,811 186,935 Fiscal Year 2010 Debt limit $ Total net debt applicable to limit Legal debt margin Total net debt applicable to the limit as a percentage of debt limit 207,746 2009 $ 20,811 $ 186,935 10.02% 205,471 2008 $ 21,622 $ 183,849 198,778 2007 $ 23,790 $ 10.52% 174,988 11.97% Note: The City had no total debt applicable to limit prior to fiscal year 2003. 109 196,624 2006 $ 25,888 $ 170,736 13.17% 183,379 2005 $ 27,907 $ 155,472 15.22% 172,014 2004 $ 26,487 $ 145,527 15.40% 169,796 2003 $ 4,962 $ 164,834 2.92% 167,618 - $ 167,618 0.00% Schedule 14 City of Covington Demographic and Economic Statistics, Last Ten Fiscal Years Fiscal Year Population (a) 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 43,370 43,370 43,370 43,370 43,370 43,370 43,370 43,370 43,370 43,235 43,082 Personal Income (a) (thousands of dollars) Per Capita Personal Income (a) 1,077,787 1,077,787 1,077,787 1,077,787 1,077,787 1,077,787 1,077,787 1,077,787 1,077,787 928,212 924,927 24,851 24,851 24,851 24,851 24,851 24,851 24,851 24,851 24,581 21,469 21,469 Median Age (a) 33.1 33.1 33.1 33.1 33.1 33.1 33.1 33.1 33.1 35.9 35.9 Sources: (a) U. S. Department of the Census (2010 Census) & (1996 Census) 2009 Data U. S. Census Bureau 2006-2008 American Community Survey 3-Year Estimate (b) Kentucky Department of Education (c) Kentucky Cabinet for Workforce Development 110 School Enrollment (b) Unemployment Rate (c) 4,660 4,415 4,299 4,190 4,034 3,889 3,975 3,937 3,958 4,002 4,066 3.3% 3.2% 4.6% 6.0% 5.7% 5.6% 5.2% 4.5% 5.6% 10.4% 10.2% Schedule 15 City of Covington Principal Employers, Current Year 2010 Employer Employees Internal Revenue Service Fidelity Investments Covington Board of Education St. Elizabeth Hospital A. C. Nielsen State of Kentucky Ommicare Club Chef No. KY MH-MR Board Atkins & Pearce Mftg 4,500 3,900 925 800 400 360 325 300 280 225 Total 12,015 Note: Data is unavailable for nine years ago. Source: City of Covington Finance Department 111 Rank 1 2 3 4 5 6 7 8 9 10 Percentage of Total City Employment 20.74% 17.97% 4.26% 3.69% 1.84% 1.66% 1.50% 1.38% 1.29% 1.04% 55.37% Schedule 16 City of Covington Full-Time-Equivalent City Government Employees by Function/Program, Last Ten Fiscal Years Full-time-Equivalent Employees as of June 30 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 Function/Program General government Management services Finance Economic development Code enforcement Housing 16 13 7 12 16 16 14 7 11 16 16 14 7 11 16 16 14 6 9 16 17 15 5 10 16 17 15 5 10 16 18 16 7 10 18 17 15 6 9 20 15 15 5 12 14 4 24 24 Officers Civilians 116 31 116 31 116 31 116 33 116 34 116 34 116 32 113 31 113 31 110 31 Firefighters and officers Civilians 118 1 118 1 118 1 118 1 118 1 118 1 117 1 117 1 117 1 117 1 51 4 2 35 4 20 35 4 20 35 3 18 36 2 20 38 2 20 38 3 20 38 3 20 52 3 3 49 3 3 387 389 389 385 390 392 396 390 379 368 Police Fire Other public works Public works Engineering Parks and recreation Total Source: City of Covington Finance Department 112 Schedule 17 City of Covington Operating Indicators by Function/Program, Last Ten Fiscal Years Fiscal Year 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 Function/Program Police Physical arrests Parking violations Traffic violation 5,899 13,926 5,796 5,248 15,873 5,116 5,321 14,230 5,856 5,762 14,863 5,778 5,819 15,622 5,721 5,342 14,721 5,894 5,017 13,016 5,714 5,167 13,775 5,581 4,942 15,494 5,919 5,177 14,216 5,478 2,657 8,595 1,966 2,818 10,542 2,212 3,658 11,549 2,440 3,752 10,246 2,540 3,985 9,742 2,576 4,167 8,602 2,521 3,951 7,927 2,696 4,209 7,931 2,618 4,376 7,755 3,291 4,218 7,435 2,348 Fire Fire responses Ambulance runs Inspections Source: City of Covington Police and Fire Record Management System 113 Schedule 18 City of Covington Capital Assets Statistics by Function/Program, Last Ten Fiscal Years Fiscal Year 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 Function/Program Police Stations Zone offices Patrol units Fire stations 1 4 83 1 4 83 1 4 83 1 4 83 1 4 83 1 4 83 1 5 83 1 5 83 1 5 83 1 5 83 5 5 5 5 5 5 5 5 5 5 120 3,246 120 3,246 120 3,246 120 3,246 130 3,246 126 3,246 126 3,246 120 3,246 120 3,246 120 3,246 850 28 10 5 4 850 28 10 5 4 850 28 10 5 4 850 28 10 5 4 850 28 10 5 4 850 28 10 5 4 850 28 10 5 4 850 28 10 5 4 850 28 10 5 4 850 28 10 5 4 Other public works Streets (miles) Streetlights Parks and recreation Acreage Playgrounds Baseball/softball diamonds Soccer/football fields Swimming pools Source: City of Covington Engineering Department 114 SINGLE AUDIT SECTION CITY OF COVINGTON, KENTUCKY SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS Year Ended June 30, 2010 Federal Grantor/Program Title U.S. Department of HUD Direct Programs Section 8 Housing Choice Vouchers Federal CFDA Number Pass-Through Grantor's Number Fund Balance at June 30, 2009 14.871 KY-133-VO-0054-0F04 $ Community Development Block Grants/ Entitlement Grants 14.218 (M) B-02-MC-21-0001 Emergency Shelter Program (HPRP) (ARRA) 14.231 HOME Program 14.239 (M) Neighborhood Stabilization Program (ARRA) 14.256 (M) U.S. Department of Transportation Pass Through From Kentucky Transportation Cabinet Streetscapes State and Community Highway Safety U.S. U S Department of the Interior Direct Programs Historic Preservation Fund U.S. Environmental Protection Agency Direct Programs Erosion Project Brownfield Assessments and Cleanup - $ 1,558,841 - Revenues Expenditures 5,526,721 (F) $ 6,175 (NF) 5,526,721 (F) $ 696,997 (NF) 2,308,319 (F) 712,753 (NF) 2,308,319 (F) 712,753 (NF) 63,474 (F) 63,474 (F) 147,488 (NF) 515,173 (F) 494,066 (F) 123,360 (NF) 515,173 (F) 494,066 (F) - 31,858 (F) 25,000 (F) 31,858 (F) 25,000 (F) - M-02-MC-21-0200 M-03-MC-21-0200 105,766 176,775 - 20.200 20.600 15.904 (M) 66.202 66.818 - Total Federal Financial Assistance $ Fund Balance at June 30, 2010 1,735,616 $ (F) 12,560 (F) 254,185 (F) 9,337,122 (F) 866,416 (NF) $ 200,903 - - 105,766 - 12,560 (F) 254,185 (F) - 9,337,122 (F) 1,533,110 (NF) $ F - Federal Funds NF - Non-Federal Funds M - Major Program Note to Schedule of Federal Awards Basis of Presentation - The accompanying Schedule of Federal Awards includes federal grant activity of the City and is presented on the accrual basis of accounting. The information in this schedule is presented in accordance with the requirements of OMB Circular A-133, therefore some amounts presented in this schedule may differ from amounts presented in or used in the preparation of the basic financial statements. 115 868,019 1,068,922 INDEPENDENT AUDITORS' REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS Honorable Mayor Board of Commissioners City of Covington, Kentucky We have audited the financial statements of the governmental activities, the aggregate discretely presented component units, each major fund, and the aggregate remaining fund information of City of Covington, Kentucky as of and for the year ended June 30, 2010, which collectively comprise the City of Covington, Kentucky's basic financial statements and have issued our report thereon dated November 19, 2010. 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. Other auditors audited the financial statements of Devou Properties, Inc. as described in our report on the City of Covington, Kentucky's financial statements. The financial statements of Devou Properties, Inc. were not audited in accordance with Government Auditing Standards. Internal Control Over Financial Reporting In planning and performing our audit, we considered the City of Covington, Kentucky'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 of Covington, Kentucky's internal control over financial reporting. Accordingly, we do not express an opinion on the effectiveness of the City of Covington, Kentucky's internal control over financial reporting. A deficiency in internal control 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 and correct misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control such that there is a reasonable possibility that a material misstatement of the entity's financial statements will not be prevented, or detected and corrected on a timely basis. 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. 116 Honorable Mayor Board of Commissioners City of Covington, Kentucky Page Two Compliance and Other Matters As part of obtaining reasonable assurance about whether the City of Covington, Kentucky's financial statements are free of material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. We noted certain matters that we reported to management of The City of Covington, Kentucky, in a separate letter dated November 19, 2010. This report is intended solely for the information and use of the finance committee, management, others within the organization, the Mayor and Board of Commissioners and federal awarding agencies and passthrough entities and is not intended to be and should not be used by anyone other than these specified parties. VonLehman & Company Inc. Fort Mitchell, Kentucky November 19, 2010 117 INDEPENDENT AUDITORS' REPORT ON COMPLIANCE WITH REQUIREMENTS APPLICABLE TO EACH MAJOR PROGRAM AND INTERNAL CONTROL OVER COMPLIANCE IN ACCORDANCE WITH OMB CIRCULAR A-133 Honorable Mayor Board of Commissioners City of Covington, Kentucky Compliance We have audited the compliance of the City of Covington, Kentucky with the types of compliance requirements described in the U.S. Office of Management and Budget (OMB) Circular A-133 Compliance Supplement that are applicable to each of its major federal programs for the year ended June 30, 2010. The City of Covington, Kentucky's major federal programs are identified in the summary of auditor's results section of the accompanying schedule of findings and questioned costs. Compliance with the requirements of laws, regulations, contracts and grants applicable to each of its major federal programs is the responsibility of the City of Covington, Kentucky's management. Our responsibility is to express an opinion on City of Covington, Kentucky's compliance based on our audit. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and OMB Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations. Those standards and OMB Circular A-133 require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major federal program occurred. An audit includes examining, on a test basis, evidence about the City of Covington, Kentucky's compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Our audit does not provide a legal determination on the City of Covington, Kentucky's compliance with those requirements. In our opinion, the City of Covington, Kentucky complied, in all material respects, with the requirements referred to above that are applicable to each of its major federal programs for the year ended June 30, 2010. Internal Control Over Compliance The management of the City of Covington, Kentucky is responsible for establishing and maintaining effective internal control over compliance with requirements of laws, regulations, contracts and grants applicable to federal programs. In planning and performing our audit, we considered the City of Covington, Kentucky's internal control over compliance with requirements that could have a direct and material effect on a major federal program in order to determine our auditing procedures for the purpose of expressing our opinion on compliance and to test and report on internal control over compliance in accordance with OMB Circular A-133, but not for the purpose of expressing an opinion on the effectiveness of internal control over compliance. Accordingly, we do not express an opinion on the effectiveness of the City of Covington, Kentucky's internal control over compliance. 118 Honorable Mayor Board of Commissioners City of Covington, Kentucky Page Two Our consideration of internal control over compliance was for the limited purpose described in the preceding paragraph and was not designed to identify all deficiencies in internal control over compliance that might be significant deficiencies or material weaknesses and therefore, there can be no assurance that all deficiencies, significant deficiencies, or material weaknesses have been identified. However, as discussed below, we identified certain deficiencies in internal control over compliance that we consider to be significant deficiencies. A deficiency in internal control over compliance exists when the design or operation of a control over compliance does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect and correct noncompliance with a type of compliance requirement of a federal program on a timely basis. A material weakness in internal control over compliance is a deficiency, or combination of deficiencies, in internal control over compliance, such that there is a reasonable possibility that material noncompliance with a type of compliance requirement of a federal program will not be prevented, or detected and corrected, on a timely basis. We do not consider the deficiency described in the accompany schedule of findings and questioned costs to be a material weakness. A significant deficiency in internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance with a type of compliance requirement of a federal program that is less severe than a material weakness in internal control over compliance, yet important enough to merit attention by those charged with governance. We consider the deficiency in internal control over compliance described in the accompanying schedule of findings and questioned costs as item 2010-1 to be a significant deficiency. The City of Covington's response to the finding identified in our audit is described in the accompanying schedule of findings and questioned costs. We did not audit the City of Covington's response and, accordingly, we express no opinion on it. This report is intended solely for the information and use of the finance committee, management, others within the organization, the Mayor and Board of Commissioners and federal awarding agencies and passthrough entities and is not intended to be, and should not be, used by anyone other than these specified parties. VonLehman & Company Inc. Fort Mitchell, Kentucky November 19, 2010 119 CITY OF COVINGTON, KENTUCKY SCHEDULE OF FINDINGS AND QUESTIONED COSTS Year Ended June 30, 2010 SECTION I - SUMMARY OF AUDITORS' RESULTS FINANCIAL STATEMENTS Type of Financial Statement Opinion Were there any significant deficiencies in internal control reported at the financial statements level (GAGAS)? Were there any material weaknesses reported at the financial statement level (GAGAS)? Was there any reported material noncompliance at the financial statement level (GAGAS)? FEDERAL AWARDS Were there any significant deficiencies in internal control reported for major federal programs? Were there any material weaknesses reported for major federal programs? Type of Major Programs Compliance Opinion Is there any audit findings disclosed that are required to be reported in accordance with Circular A-133, Section .510? Major Programs (list): Dollar Threshold: Type A/B Programs Low Risk Auditee? Unqualified No No No Yes None Reported Unqualified Yes Community Development Block Grants [CFDA 14.218], HOME Program [CFDA 14.239], Neighborhood Stabilization Program [CFDA 14.256], Historic Preservation Fund [CFDA 15.904] Type A: > $300,000 Type B: > all others Yes 120 CITY OF COVINGTON, KENTUCKY SCHEDULE OF FINDINGS AND QUESTIONED COSTS (CONTINUED) Year Ended June 30, 2010 SECTION II - FINANCIAL STATEMENT FINDINGS No matters to be reported. SECTION III - FEDERAL AWARD FINDINGS AND QUESTIONED COSTS Internal Control Over Compliance HOME Investment Partnership Program - CFDA No. 14.239; Grant No. M-03-MC-21-0200; Grant Period; Year Ended June 30, 2010. 2010-1 Condition: A haphazard sample of 40 loan files was selected. Our tests disclosed that 2 of the 40 files did not contain proper documentation of the recorded loans. The total amount of the federal grant for the year was $515,173, and the outstanding balance of loans in the HOME program was $6,084,027 as of June 30, 2010. Criteria: Loans should be recorded with the county to ensure the City's interest in the property is documented in case of default. Effect: $13,000 of the HOME Program loans are questioned for proper recording documentation not available for our examination. We consider this to be immaterial to the program. Cause: The City's standard policies and procedures were not followed. Recommendation: Appropriate written policies and procedures should be established and enforced to ensure proper recording of each loan originated and documentation is obtained. Management's Response: A policy is in place effective July 1, 2010 to review HOME Homebuyer Assistance Program files, As part of the review, Grants Administrator verifies the status of City mortgages. Review Procedure: ? Grants Administrator utilizes a checklist for file review after homebuyer loans close and funds disburse. An item on the checklist relates to verification of mortgage recording ? Within 30 days of City loan closing with homebuyer, Grants Administrator reviews Property Valuation Administration (PVA) website to verify: o Property has transferred to the HOME program homebuyer o City mortgage has been recorded (deed book and page are noted on the file checklist) ? If property has not transferred, file returned to HOME program staff to contact homebuyer to determine cause of delay. If closing is not going forward, City checks are voided and file is closed. If closing will proceed, the file is marked for follow up based on timing provided by homebuyer. ? If property has transferred but City's mortgage not recorded: o Finance Department contacted to determine if recorded mortgage has been returned to the City o If mortgage has not been returned, HOME program staff contacts title company that handled closing to determine status. If title company has the City's mortgage but has failed to record it, the HOME program staff will direct title company to return the mortgage to the City for filing o If City mortgage cannot be located, HOME program staff will contact homebuyer to sign new mortgage and will record it. 121 CITY OF COVINGTON, KENTUCKY SCHEDULE OF STATUS OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS Year Ended June 30, 2010 PRIOR YEAR - FINANCIAL STATEMENT FINDINGS No matters were reported. PRIOR YEAR - FEDERAL AWARD FINDINGS AND QUESTIONED COSTS Internal Control Over Compliance HOME Investment Partnership Program - CFDA No. 14.239; Grant No. M-03-MC-21-0200; Grant Period; Year Ended June 30, 2009. 2009-1 Condition: A haphazard sample of 40 loan files was selected. Our tests disclosed that 2 of the 40 files did not contain proper income and debt verifications. The total amount of the federal grant for the year was $1,106,412, and the outstanding balance of loans in the HOME program was $5,537,760 as of June 30, 2009. Criteria: Income and debt verification should be gathered to ensure participants are eligible and able to repay amounts within the terms of the program. Effect: $109,280 of the HOME Program loans are questioned for income and debt verification documentation not available for our examination. We consider this to be material to the program. Cause: The City's standard policies and procedures were not followed. Recommendation: Appropriate written policies and procedures should be established and enforced to ensure proper income and debt verification documentation is obtained. Management's Response: Internal review of compliance with standard policy and procedures will be implemented including checklists for required documentation. Current Year Status: This condition appears to have been corrected. 122