2006 Comprehensive Annual Financial Report

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Management's Discussion and Analysis As management of the City of South Bend, we offer readers of the City of South Bend's financial statements this narrative overview and analysis of the financial activities of the City of South Bend for the fiscal year ended December 31, 2006. We encourage readers to consider the information presented here in conjunction with additional. information that we have furnished in our letter of transmittal. As with other sections of this financial report, the information contained within this Management's Discussion and Analysis (MD&A) should be considered only a part of a greater whole. The readers of this statement should take the time to read and evaluate all sections of this report, including the notes to the financial statements and the other Required Supplemental Information. Financial HiEhli~hts The assets of the City of South Bend exceeded its liabilities at December 31, 2006 by $366,010,498. The ma ority of these net assets ($306,180,110) are invested in capital assets and are, therefore, not availab~e for current spending. Of the remaining net assets, $32,068,888 is in unrestricted net assets and maybe used to meet the City's ongoing obligations to citizens and creditors. Total net assets increased by $7,691,643. Of this amount, net assets of governmental activities increased by $1,844,644 and net assets of business-type activities increased by $5,846,999. The total cost of all City programs was $176 million dollars. This is a decrease of $1 million dollars from 2005. At the end 2006 the unreserved fund balance in the General Fund was $21.7 million dollars, which is 31 % of total General Fund expenditures. This is a healthy General Fund balance. The unreserved fund balance for all governmental funds was $101.5 million dollars at December 31 2006. The majority of this unreserved fund balance was accounted for in Capital Projects funds ($0,447,079): Overview of the Financial Statements This discussion and analysis are intended to serve as an introduction to the City of South Bend's basic financial statements. The City of South Bend's basic financial statements are comprised of three components: 1) government-wide financial statements, 2) fund financial statements, and 3) notes to the financial statements. The report also includes other supplementary information in addition to the basic financial statements themselves. Government-wide financial statements. The government-wide financial statements are designed to provide readers with a broad overview of the City of South Bend's finances using "accrual accounting", which is a method of accounting used by many private-sector businesses. Statement of net assets. This statement reports all assets and liabilities of the City as of December 31, 2006. The difference between total assets and total liabilities is reported as "net assets," and can generally be thought of as the net worth of the City. Increases in net assets generally indicate an improvement in financial position while decreases may indicate a deterioration of financial position. Statement of activities. This statement serves the purpose of the traditional income statement. It pprovides consolidated reporting of the results of all activities of the City for the year ended December 31, 2006. Changes in net assets are recorded in the period in which the underlying event takes place, which may differ from the period in which cash is received or disbursed. The Statement of Activities displays the expense of the City's various programs net of the related revenues, as well as a separate presentation o prevenues available for general purposes such as property and county option income taxes. Both of the government-wide financial statements distinguish between functions of the City that are principally supported by taxes and intergovernmental revenues (governmental activities) and other functions that are intended to recover all or a significant portion of their costs through user fees and 21