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2005 Comprehensive Annual Financial Report
CITY OF SOUTH BEND, INDIANA COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR THE YEAR ENEDED DECEMBER 31, 2005 TABLE OF CONTENTS INTRODUCTORY SECTION Tableof Contents ........................................................._....................,. ............................... CityOfficials .......................................................................................... ............................... Controller's Letter of Transmittal ......................................................... ............................... Certificate of Achievement for Excellence in Financial Reporting ........ ............................... OrganizationChart ................................................................................ ............................... FINANCIAL SECTION Independent Auditor's Report on Financial Statements and Supplementary Schedule of Expenditures of Federal Awards. ............................. .......... Management's Discussion and Analysis Basic Financial Statements: Government -Wide Financial Statements: Statement of Net Assets ......................................................... ............................... Statementof Activities ............................................................ ............................... Fund Financial Statements: Balance Sheet — Governmental Funds ................................... ............................... Statement of Revenues, Expenditures and Other Changes in Fund Balances —Governmental f= unds ..................................... ............................... Reconciliation of the Statement of Revenues, Expenditures and Changes in Fund Balances of Governmental Funds to the Statement of Activities........... Statement of Net Assets — Proprietary Funds ........................ ............................... Statement of Revenues, Expenses and Other Changes in Fund Net Assets — Proprietary Funds...... .......... .......... ................................. Statement of Cash Flows — Proprietary Funds...... ..... ........ ............. ................ Statement of Fiduciary Net Assets — Fiduciary Funds ............ ............................... Statement of Changes in Fiduciary Net Assets — Fiduciary Funds ........................ Notes to Financial Statements Reauired Suoolementary Information: i iv v xvii xviii 1 3 13 15 16 18 19 20 22 24 26 27 .................. ............................ 28 Schedules of Funding Progress. .............. ....................................... _ ............ ....... ................. 61 Schedules of Contributions From the Employer and Other Contributing Entities ........................ 62 Budgetary Comparison Schedules ................... ___ ........ .......... ____ ...... ____ ......................... . 63 Budget/GAAP Reconciliation_ _ _ . ........................ ........................... .................. ___ .............. 69 Combining Statements and Schedules: Nonmajor Governmental Funds: Description...................... ............................... ...................................... ............................... 70 CombiningBalance Sheet ............................................................................. ............................... 76 Combining Statement Statement of Revenues, Expenditures and Other Changes in Fund Balances................................................................................................. ............................... 84 Budgetary Comparison Schedules ................................................................ ............................... 92 Nonmajor Enterprise Funds Description.................................................................................................... ............................... 107 Combining Statement of Net Assets ............................................................. ............................... 108 Combining Statement of Revenues, Expenses and Other Changes in FundNet Assets ..................................................................................... ............................... 110 Combining Statement of Cash Flows........ ................................................... ............................... 111 a CITY OF SOUTH BEND, INDIANA COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR THE YEAR ENEDED DECEMBER 31, 2005 TABLE OF CONTENTS (Continued) FINANCIAL SECTION (Continued) Internal Service Funds: Description.................................................................................................... ............................... 113 Combining Statement of Net Assets ............................................................. ............................... 114 Combining Statement of Revenues, Expenses and Changes in FundNet Assets ...................... _............................................................ ............................... 115 Combining Statement of Cash Flows ............................................................ ............................... 116 Fiduciary Funds Description.................................................................................................... ............................... 118 Combining Statement of Fiduciary Net Assets — Pension Trust Funds ........ ............................... 119 Combining Statement of Changes in Fiduciary Net Assets — Pension Trust Funds .................... 120 Combining Statement of Changes in Assets and Liabilities —Agency Funds .............................. 121 STATISTICAL SECTION General Governmental Expenditures by Function .............................................. ............................... 123 General Revenues by Source .............................................................................. ............................... 124 Total County Option Income Tax Levy by Taxing Unit. ..... ............... ....... ................ 125 Property Tax Levies and Collections ................................................................... ............................... 126 Assessed and Estimated Actual Value of Taxable Property .............. ............................. .................... 127 Detail of Net Assessed Valuation ........................................................................ ............................... 128 Ratio of Net General Bonded Debt to Assessed Value and Net Bonded Debt Per Capita ......................................................................... ............................... 129 Computation of Legal Debt Margin. ... .......................................................... .............................. 130 Ratio of Annual Debt Service Expenditures for General Bonded Debt to Total General Governmental Expenditures ......................... ............................... 131 Schedule of Revenue Bond Coverage — Wastewater Utility Bonds ..................... ............................... 132 Schedule of Revenue Bond Coverage —Water Utility Bonds......_... ... ....... ........................... __ 133 Detail of City Tax Rate..... ....... ....................... ....... ............... ..................... .......... 134 Property Tax Rates — Direct and Overlapping Governments .............................. ............................... 135 Computation of Direct and Overlapping Debt ...................................................... ............................... 136 County Income Tax Revenue — History and Projected Distribution ..................... ............................... 137 DemographicsStatistics... .... ............................................................................................................. 138 New Construction — Number of Permits and Property Values. ............................................ .............. 139 Financial Institution Data ...................................................................................... ............................... 140 City's Ten Largest Taxpayers .............................................................................. ............................... 141 City's Ten Largest Water Customers ................................................................... ............................... 142 City's Ten Largest Sewage Works Customers...... ...................................................................... ...... 143 Comparison of Growth Rates in Personal Income for St. Joseph County, the State of Indiana and U.S. Disposable Personal Income ........................................................ ............................... 144 MiscellaneousStatistics ....................................................................................... ............................... 145 Insurance Coverage ....................................................... ............................... .............................. 147 ii CITY OF SOUTH BEND, INDIANA COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR THE YEAR ENEDED DECEMBER 31, 2005 TABLE OF CONTENTS (Continued) COMPLIANCE SECTION Independent Auditor's Report on Compliance and on Internal Control Over Financial Reporting Based on an Audit of Financial Statements Performed in Accordance With Government Auditing Standards ................. ............................... 149 Independent Auditor's Report on Compliance With Requirements Applicable to Each Major Program and Internal Control Over Compliance in Accordance With OMB Circular A- 133 .................................. ............................... 150 Schedule of Expenditures of Federal Awards ...................................................... ............................... 152 Notes to Schedule of Expenditures of Federal Awards ....................................... ............................... 155 Schedule of Findings and Questioned Costs ....................................................... ............................... 156 Auditee Prepared Schedules: Summary Schedule of Prior Audit Findings ................................................... ................ ... ............ 157 iii CITY OFFICIALS Office Official Mayor Stephen J. Luecke Controller Frederick B. 011ett, III M. Catherine Fanello City Clerk John Voorde President of the Board of Public Works Gary Gilot Common Council Members 151 District Derek D. Dieter 2I,d District Charlotte Pfeifer 3rd District Roland Kelly 41h District Ann Puzzello 5th District David Varner 6'h District Ervin Kuspa At Large Karen L. White At Large Timothy A. Rouse At Large Al (Buddy) Kirsits EV Term 01 -01 -04 to 12 -31 -07 01 -01 -04 to 04 -17 -0 5 04 -18 -05 to 12 -31 -07 01 -01 -04 to 12 -31 -07 01 -01 -05 to 12 -31 -06 01 -01 -04 to 12 -31 -07 01 -01 -04 to 12 -31 -07 01 -01 -04 to 12 -31 -07 01 -01 -04 to 12 -31 -07 01 -01 -04 to 12 -31 -07 01 -01 -04 to 12 -31 -07 01 -01 -04 to 12 -31 -07 01 -03 -05 to 12 -31 -07 01 -01 -04 to 12 -31 -07 CouNCY-QTY BUFLDII4G 227 W JEFFERSON Bwa 5oum BEND, INDIANA 46601 -1830 PtioNr 5741235 -9216 FAx 5741235 -9928 TDD 5741 23 5 -5 567 CITY OF SOUTH BEND STEPHEN J. LUECKE, MAYOR DEPARTMENT OF ADMINISTRATION AND FINANCE M. CATHERINE FANELLO CONTROLLER Junel3, 2006 To the Honorable Mayor Stephen J. Luecke, Members of the City Council, and the Residents of the City of South Bend: The comprehensive annual financial report of the City of South Bend, Indiana (the "City ") for the year ended December 31, 2005, is hereby submitted. Responsibility for both the accuracy of the data and the completeness and fairness of the presentation, including all disclosures, rests with the City. To the best of our knowledge and belief, the enclosed data is accurate in all material respects and is reported in a manner designed to present fairly the financial position and results of operations of the various funds and account groups of the City. All disclosures necessary to enable the reader to gain an understanding of the government's financial activities have been included. GAAP requires that management provide a narrative introduction, overview and analysis to accompany the basic financial statements in the form of the Management Discussion and Analysis (MD &A). This letter of transmittal is designed to complement the MD &A and should be read in conjunction with it. The City of South Bend's MD &A can be found immediately following the independent auditors report. The comprehensive annual financial report is presented in four sections: introductory information, financial information, statistical information and federal awards supplemental information. The introductory section includes this transmittal letter, the City's organizational chart, a list of principal City officials and the Certificate of Achievement for Excellence in Financial Reporting awarded to the City of South Bend for the year ended December 31, 2004. The financial section begins with the independent auditors' report on the City's financial statements and schedules, the City's management and analysis report, followed by the City's basic financial statements and accompanying footnotes. The remaining portion of this section includes the combining and individual fund and account group financial statements and schedules. The statistical section includes selected financial and demographic information generally presented on a multi -year basis, which has been provided to give the reader a broader understanding of the City. This document ends with the federal awards section, which includes the results of the supplemental audit of the City's federal awards and the internal controls necessary for compliance. The City is required to undergo an annual single audit in conformity with the provisions of the U.S. Office of Management and Budget Circular A -133, Audits of States Local Governments v and Non-Profit Organizations, the provisions of Indiana Code section 5- 11 -1 -9 and the requirements of the Indiana State Board of Accounts. Information related to the single audit, including the schedule of federal financial assistance, findings and recommendations, and the auditors' reports on the internal control structure and compliance with applicable laws and regulations, is included in this document. The following pages of this transmittal letter begin with a general overview of South Bend and the surrounding area. Also summarized are the key financial, budgetary and property tax controls with which the City is required to comply. The remainder includes a discussion of the prior year's financial challenges and accomplishments, the City's goals and objectives for this year and beyond and other key issues the City is facing along with the impact they may have on current and future budgets. GENERAL INFORMATION The City of South Bend is the county seat of St. Joseph County, Indiana, and is the fourth largest city in the state. Its 2000 U.S. Bureau of the Census population of 107,789 classifies it as a "City of thi ;Second Class" under Indiana statues (cities with a population of 35,000 to 250,000). It operates with a mayor as chief executive and a nine - member City Common Council composed of six members elected from districts and three members at- large. The City provides a full range of traditional general governmental services to its citizens. These services include police and fire protection; sanitation services; the construction and maintenance of highways, streets and infrastructure; recreational activities and cultural events. In addition to general governmental activities, the Common Council or City Board of Public Works exercises oversight over the South Bend Water Works, the South Bend Wastewater Treatment Facility, the Century Center, the College Football Hall of Fame, the Studebaker Collection, the South Bend Redevelopment Authority and several downtown parking facilities. Location St. Joseph County lies within the heartland of the manufacturing belt and metropolitan regions of the Upper Midwest and Canada. The City of South Bend is located in the north central part of Indiana, ten miles south of the Michigan state line, and is commonly known to be within the " Michiana" area. The Michiaaa area is a vibrant and diverse area with a strong economy based on a mix of agricultural, service, manufacturing, other commercial and tourism industries. This diverse economic mix creates varied employment opportunities for the area's residents while providing insulation via diversification from future economic downturns. The City is approximately 90 miles east of Chicago and 140 miles north of Indianapolis. Accessibility to transportation, including Interstate 80190, a regional airport (which is the second busiest in the State of Indiana), the South Shore rail line and a port on Lake Michigan, has supported economic growth within the community. Proximity to Chicago, the largest rail and intermodal (rail /truck/ocean/inland waterway) transfer point in the country, is a significant advantage to St. Joseph County. vi St. Joseph County 1 South Bend - Economic Conditions and Outlook St. Joseph County, with its 2000 U.S. Bureau of the Census population of 265,559, boasts a strong history of manufacturing which continues today. As a complement to that, the service industry and retail trade has also flourished, creating a balance that serves the community well. The County has experienced a net growth in population of 26,945 (11.3% increase) between 1960 and 2000. After experiencing a reduction of 2.6% during 1969 to 1983, at which time the entire Midwest was at the depth of its economic restructuring and recess, the County's population increased 4.0% between 1983 and 1990 and another 7.5% between 1990 and 2000. The total labor force in December 2005 of 136,270 in St. Joseph County is typical of the Midwest: well trained with a strong work ethic. Approximately 82.4% of the area's adult population are high school graduates or higher (as compared to the national average of 75 %) with an estimated 23.6% with a BacheIor's Degree or higher. There are ten colleges, universities and technical schools within South Bend and the surrounding area including the University of Notre Dame, Indiana University of South Bend, Saint Mary's College, Bethel College and Ivy Tech State College. At the high school level, there are school -to -work transition programs that help prepare students for the world of work. St. Joseph County is currently experiencing an average unemployment rate of around 5.3 %, which compares favorably to the December 2005 State of Indiana rates of 5.4 %. The employment profile for St. Joseph County provides a good overview of the economic make- up of this community. Employment statistics for the County's major economic sectors are as follows: Economic Sector Construction Manufacturing Transportation, Communication & Public Utilities Wholesale Trade Retail Trade Finance, Insurance & Real Estate Services Governmental (excluding Federal) Number Employed % of Total 6.2 3.06% 21.7 10.74% 4.5 2.22% 7.6 3.76% 17.3 8.56% 7.2 3.56% 121.5 60.14% 16.0 7.96% St. Joseph County presently has an estimated 98,500 households with per household income as follows: 12% with household incomes that exceed $75,000; 18% with incomes $50,000 to $75,000; 25% with incomes $35,000 to $49,999; 18% with incomes $25,000 to $34,999; 15% with incomes $15,000 to $24,999; and the remaining 12% with household incomes under $15,000 per year. The median household effective buying income (disposable income after taxes) in the County in 2000 was $40,420, which equated to more than $4.36 billion in effective buying income for this area. Health and education lead the employment statistics for St. Joseph County. The largest employers in the County as of December 2005 were as follows with approximate number of vii employees: University of Notre Dame (4,200); Memorial Health System (3,600); South Bend Community School Corporation (3,338); Saint Joseph Regional Medical (3,260); AM General (2,292); St. Joseph County (2,025); The Diocese of Fort Wayne /South Bend (1,750); City of South Bend (1,535); Indiana University of South Bend (1,400); Madison Center (1,239). The following provides a profile of the adult population residing in St. Joseph County: Gender: 48% male; 52% female Age: 11.5% 18 -24 years of age; 26.2% 25 -34 years of age; 23.1% 35 -44 years of age; 13.1% 45 -54 years of age; 7.8% 55 -64 years of age; and 13.2% 65 years or older Race: 82.4% White; 12.0% Black/African American; 5.5 %Hispanic /Latino; 1.6% Asian; and 1% Other Marital Status: 50% Married; 18% Widowed/Divorced /Separated; and 32% Single Home Ownership: 67.5% own; 26.7% rent Type of Dwelling: 78.6% single unit; 21.4% other The cost of living continues to be one of the greatest advantages of living in this community. The housing costs in South Bend are well below the national and regional averages. During the second quarter of 2005, the median sales price for a single family home (per the National and Indiana Association of Realtors) for the nation and the Midwest were $191,300 and $157,200, respectively, compared to South Bend's median price of only $93,800. For the same period, Chicago's median price was $263,300 and Indianapolis stood at $125,900. South Bend's ACCRA cost of living index for the fourth quarter of 2005 was 97.8. A further breakdown of South Bend's cost of living index for this period was as follows: grocery items - 87.8; housing costs - 102.8; utilities - 103.8; transportation — 97.1; health care - 97.9; and miscellaneous goods and services - 97.9. The City of South Bend continues to place high emphasis on a growing and diversified local economy. It has been active in developing ten, industrial parks, offering itself as a low -cost alternative to the Chicago metropolitan area to companies engaged in light manufacturing, distribution and services. More than 240 businesses operate in South Bend's industrial parks, including companies engaged in metalworking, plastics, warehousing and distribution, and professional services. The South Bend Community School Corporation serves the entire City and some of the surrounding area and has a current enrollment of approximately 21,797 students in grades kindergarten through high school. An estimated 4,441 students attend private or parochial schools within the City. The ten institutions of higher education and technical training located within the South Bend area have a total enrollment of approximately 32,3 79. Over the years, the University of Notre Dame has provided a stabilizing influence on the economy with a very significant economic impact upon the community. South Bend has continued to progress in its growth since 1842, when Father Edward Sorin named his rustic log chapel "Notre Dame du Lac" and began to teach the local Indians. Today, the chapel has grown into the University of Notre Dame. In 1852, H.C. Studebaker started the viii industry of making wagons and horse drawn buggies that evolved into the manufacturing of the Studebaker automobile. It made the name Studebaker synonymous with the area of South Bend. Another industrial firm that would later become the area's largest began in 1923 when Vincent Bendix began manufacturing automotive brakes. In 1929, the company became the Bendix Aviation Corporation, and now, as Honeywell (formerly AlliedSignal Inc.), is a leading manufacturer of automotive and aerospace products. Other special attractions within the South Bend area include the Olympic -class East Race Waterway and the East Bank area; the newly renovated Morris Performing Arts Center, which provides for the Broadway Theater League, the South Bend Symphony Orchestra with the Chamber and Pops Orchestras and the Southold Dance Theater and Patchwork Dance Company; the South Bend Civic Theater; the Studebaker National Museum; the South Bend Regional Museum of Art; the Snite Museum of Art at Notre Dame; the Northern Indiana Center for History; Copshaholm /The Oliver Mansion; the College Football Hall of Fame; Century Center; Potawatomi Zoo; the Morris Conservatory /Muessel- Ellison Tropical Gardens; Healthworks! Kids Museum; the Farmers' Market; the Belleville Softball Complex; the Firefly Performing Arts Festival. The Coveleski Regional Baseball Stadium, a 5,000 -seat facility which opened in 1987, is rated among the best in minor league baseball. It had record crowds during its seasons of play with the South Bend Silver Hawks, a minor league team of the Chicago White Sox up to the 1997 season. During 1997, the City signed on with the Arizona Diamondbacks and looks forward to continued success with its program. Additional miscellaneous information about the City of South Bend can be found at the end of this transmittal letter. Financial, Budgetary and Property Tax Controls The City's Management Team is responsible for establishing and maintaining an internal control structure designed to ensure that the assets of the government are protected from loss, theft or misuse and to ensure that adequate accounting data is compiled to allow for the preparation of financial statements in conformity with generally accepted accounting principles. The internal control structure is designed to provide reasonable, but not absolute, assurance that these objectives are met. The concept of reasonable assurance recognizes that: (1) the cost of a control should not exceed the benefits likely to be derived; and (2) the valuation of costs and benefits requires estimates and judgments by management. Single Audit. As a recipient of federal and state financial assistance, the City also is responsible for ensuring that an adequate internal control structure is in place to ensure compliance with applicable laws and regulations related to those programs. This internal control structure is subject to periodic evaluation by management of the City. As part of the City's single audit described earlier, tests are performed to determine the adequacy of the internal control structure, including that portion related to federal financial assistance programs, as well as to determine that the City has complied with applicable laws and regulations. The results of the City's single audit for the year ended December 31, 2005 disclosed no instances of significant material weaknesses in the internal control structure and no significant violations of applicable laws and 1x regulations. Budgetary Controls. In accordance with Indiana statutes, the City maintains budgetary controls integrated within the accounting system. The objective of these budgetary controls is to ensure compliance with legal provisions embodied in the annual appropriated budget (prepared on a cash basis) which is adopted by the City Council and then reviewed and approved by the Indiana's Department of Local Government and Finance. Activities of the general fund, certain special revenue and capital projects funds and the debt service funds are included in the annual budget. The level of budgetary control (that is, the level at which expenditures cannot legally exceed the appropriated amount) is established by major budget classification within funds. The City Council may transfer appropriations from one major budget classification to another within a department by ordinance as long as the total appropriations for that department are not exceeded. Transfers from one department to another, or additional appropriations in excess of the original budget, must be submitted to and approved by the Department of Local Government and Finance after these appropriations have been approved by the City Council. The City also maintains an encumbrance accounting system as one technique of accomplishing budgetary control. Encumbered amounts do not lapse at year end and are carried over to the subsequent year as a part of the subsequent year's budget. Property Tax Controls. In addition to budgetary and other controls established by Indiana statute, the City must operate within specific and rigid controls governing the amount of property tax it may levy. The property tax control program, which began in 1 973, limits the amount of property tax that may be levied by each unit of government in its legally budgeted funds. The total amount of property tax levied by the unit may increase by the six year average annual growth in Indiana personal non -farm income, as calculated by the U.S. Bureau of Economic Analysis, with a 6% maximum. In addition., if the unit finds that it cannot maintain basic governmental services for its residents within the property tax "freeze," it may appeal to the State Local Government Tax Control Board for an "excess levy" in certain specific instances. As a part of the property tax control program, the state transfers an amount generally equal to 20% of the total property tax levy (except for debt service levies as described below) to the County Auditor to be distributed to each taxing unit as a replacement for 20% of the property taxes levied. This "property tax replacement" is funded through the state sales tax. The levy for Debt Service funds is controlled via a review and approval process by the Government Tax Control Board (with a subsequent review and approval by the Department of Local Government and Finance) for each issuance of general obligation indebtedness (or lease - purchase) entered into by a taxing unit. In addition, all indebtedness incurred after 1983 no longer receives the 20% state property tax replacement funds mentioned above. A historical view of the City's tax rate and its net assessed valuation has been included in the statistical section of this document. Citywide Goals and Ob_ieetives for 2005 and Beyond The City has developed eight broad goals that focus on the following areas: economy, safety, x quality of life, trust, responsiveness, infrastructure, finance and workforce. The City has identified various objectives that are tied directly to these goals which, if achieved, will result in the attainment of these goals. The eight goals are listed below. GOAL: The Community's Economy Improve South Bend's economy to ensure a vigorous local business climate; ample employment, business and investment opportunities for all our customers; and a tax base that is sufficient to meet the needs of the City, its residents and other customers. GOAL: The Community's Public Safety and Civility Improve South Bend =s public safety and civility to ensure that every resident and other customers can live, work, play, run a business and raise a family in a humane, pleasant and safe environment; have adequate, affordable and timely access to all forms of emergency services; and can contribute and participate in a community where people of different backgrounds live in mutual respect and harmony. GOAL: The Community's Quality of Life Improve South Bend =s quality of life to ensure that every resident and every family can earn an adequate income; secure adequate housing; live in a safe, pleasant and humane neighborhood; enjoy a wide range of social, cultural and recreational opportunities; and have access to quality educational and medical services within an excellent natural and manmade environment. GOAL: Trust in City Government Improve residents' trust in City government to ensure that South Bend has a broad base of consensus and support on which to build the future, a strong foundation for collaborative action and community partnerships; and an increase in resident and customer participation in the daily public life of the community. GOAL: The City's Responsiveness, Efficiency, and Effectiveness Improve the responsiveness, efficiency, and effectiveness of City government to ensure that the City's customers get the value they expect and deserve. GOAL: The City's Infrastructure Improve the City's infrastructure to ensure that South Bend can support physical growth and economic development; and offer an excellent quality of life to all of its residents and other customers. GOAL: The City's Financial Condition xi Improve the financial condition of City government to ensure that South Bend has the financial resources necessary to achieve all its goals for the next five years. GOAL: The City's Workforce Improve the City government's existing workforce, work environment and human development systems to ensure that South Bend has the human resources necessary to achieve all its goals for the next five years. City, Mission Statement and Department Purpose Statements The City provides services to its customers through thirteen administrative departments. These departments have unique purposes that are intended to support the citywide mission statement which is "to be recognized as a model city." Each department has developed a purpose statement which identifies their specific role. Mayor's Office: Leading the community to become a model city through formulating policy, directing operations and responding to customer concerns. Common Council: Making certain that our City government is always responsive to the needs of our residents and that the betterment of South Bend is always our highest priority. City Clerk's Office: Preserving all City Ordinances and Council meeting minutes for generations yet to be, and providing fair and consistent treatment of our Ordinance Violations Bureau customers. Administration and Finance: Providing financial and organizational stability for the City through sound financial management while ensuring the existence of a safe work environment, quality employee benefits and equal treatment for all City employees. Legal Department: Providing superior, professional and ethical legal services for our client, the City of South Bend. Police Department: Protecting the life, property and personal liberties of all individuals; improving the overall quality of life by deterring criminal activity and respecting cultural diversity; delivering fair and impartial law enforcement services to all residents. Fire Department: Providing the highest level of Fire and Emergency Medical Services possible to all of our customers, saving lives and property, and striving to become a model Fire Department for other cities in an efficient and cost - effective manner. xii Code Enforcement: Maintaining and improving the physical quality of life in our neighborhoods. Park and Recreation: Offering all residents and guests of South Bend the highest quality of recreational and leisure activities, while providing well- managed parks and recreational facilities with updated programming and friendly productive service. Community and Economic Development: Creating and expanding opportunities through partnerships in neighborhood revitalization, commercial and industrial development and community enhancement. Public Works: Providing leadership in the development and delivery of engineering, fleet, transportation, sanitation, wastewater, water and other services as called upon by our customers. Building Department: Serving our customers by inspecting, informing and ensuring a safe place to work, play and live. Century Center: Providing a state-of-the-art facility with excellent services to customers while generating maximum economic benefit to our community. Building South Bend in 2005 and beyond Mayor Stephen Luecke's theme for the past several years has been "We're Building South Bend." That theme has had a major influence on the development of the 2006 budget. There were five areas of concentration that became or remained budget priorities for 2006. We're Building Neighborhoods - Mayor Luecke and the City's elected officials continued their strong commitment to neighborhoods. The City will invest $4.7 million to fund or leverage state and federal funding for housing assistance, development and home ownership programs, neighborhood public works and parks, neighborhood development for social services and organizations, and public safety initiatives. Committing these resources will help us maintain, improve and support strong neighborhood development. We're Building a Safe City - Public safety is the foundation of all the City's efforts to build South Bend. Through the targeted and creative use of available resources, the City is working to provide quality police, fire and ambulance services for the community. The crime rate has increased in several significant categories over past year. South Bend has 2.4 police officers and 2.3 firefighters per thousand population. These ratios are among the highest in the state and well above the national average. We believe that these extra officers are important for officer safety and community safety. We will also complete the long awaited and much needed design for renovation and expansion of Police Department offices. The City's Fire Department is rated one of the highest in the State. We have recently refurbished Xiii three main fire trucks to like -new status. The Mayor's top initiatives will focus on regional policing, providing in -car cameras for all patrol cars and placing more emphasis on training and recruitment for the Police and hire Departments. We're Building an Attractive City - We are working to enhance the natural and man -made beauty of our city through effective City programs. For the fifth year in a row we were named a Tree City USA. The Building Block Grant Program helps residents spruce up their neighborhoods, and aggressive Code Enforcement will continue to address deteriorated and nuisance properties. The Commercial Corridors Improvement Fund provides much needed funding to address a variety of needs along five of the City's major corridors. The City is funding major programs for curb & sidewalks, neighborhood centers, weed & seed program, and transforming a former dump into a model outdoor environmental lab. We're Building Opportunity - A key issue for any city is education and opportunity for young people. The City is committed to keeping schools open in our neighborhoods and to maximizing their use by the community. We are building partnerships that will create new strategies for enhancing our formal education system. Working together with families, student groups, school officials, neighborhoods, the faith community and civic organizations, we can support our local schools and improve the level of individual student performance. We're Building a Strong Economy - Local government plays a key role in economic development. By providing adequate infrastructure and offering targeted assistance, the City can stimulate private investment, creating business opportunities and jobs. The City's policies encourage new start-up businesses, strengthen existing business, attract new jobs, increase assessed value and emphasize direct investment in hard -to- develop areas. Efforts have been and will continue to focus on implementing the comprehensive plans for downtown and the East Bank. The City's administration will vigorously pursue the revitalization of older industrial sites, as well as the expansion of the Blackthorn area. Proprietary Operations. The City's proprietary operations comprise several separate and distinct activities accounted for in both Enterprise and Internal Service funds. The Enterprise Fund operations include the following: the City's downtown parking garages, water utility services, wastewater utility services, solid waste services, the Century Center, the consolidated St. Joseph County /South Bend Building Department and, Blackthorn Golf Course. The Internal Service Fund operations include the City's self- funded liability insurance program, the City's self - funded employee benefits program, and Central Services (a department that accounts for the expenses related to fuel, vehicle repairs and various other services and supplies provided to City departments on a cost - reimbursement basis). Fiduciary Funds. The City's fiduciary duties are accounted for in both Trust and Agency Funds. The primary trust funds are the Police and Fire Pension Funds (explained below). The Agency Fund is for payroll and related employee deductions. Pension Trust Fund Operations. Most City employees are covered by the Public Employees Retirement Fund and the 1977 Police Officers' and Firefighters' Pension Fund, both administered xiv by the State of Indiana. However, certain police officers and firelighters hired before May 1, 1977, who did not opt into the 1977 fund, continue to be members of the 1925 Police Pension Fund and the 1937 Firefighters' Pension Fund. These two funds are administered by the City. This group of police officers and firefighters will continue to decline in the future both as a total number and as a percentage of total payroll of both the police and fire departments and of the City as a whole. The 1925 and 1937 Plans are funded through a combination of property taxes levied by the City and distributions from the State Pension Relief Fund. As a result of the requirements of the state statute that created these funds, the City is legally prevented from funding them in any other way than a "pay -as- you -go" basis. The City has received an actuarial survey on these funds to provide the proper disclosures required by generally accepted accounting principles. This information is included in the following section. Cash Management. In accordance with state statute, cash temporarily idle during the year is invested in demand deposits, certificates of deposit, obligations of the U.S. Treasury and repurchase agreements that are fully collateralized by U.S. Government or U.S. Government Agency obligations. In addition to the insurance available to all depositors through the Federal government, all deposits of the City are covered by the Public Deposits Insurance Fund maintained by the State Board for Depositories. That fund, established in 1937, covers both principal and interest of all deposits and investments made by an Indiana governmental unit with approved public depositories in accordance with the Public Deposits and Investments Law. Risk Management. The City has established two self-insurance funds: the Self - Funded Employee Benefits Fund and the Liability Insurance Premium Reserve Fund. As previously mentioned, these self - insurance funds are accounted for as Internal Service Funds. The purpose of the Self - Funded Employee Benefits Fund is to pay medical claims of City employees and their covered dependents and minimize the total cost of annual medical insurance to the City. Medical claims exceeding $125,000 per insured on an annual basis are covered through a private carrier. In addition to medical claims, the fund pays premiums for life insurance and long term disability benefits for employees. The Liability Insurance Premium Reserve Fund covers automobile and comprehensive liability as well as workers' compensation costs. The City's liability for self - insurance is limited to $300,000 per person and $5,000,000 in the aggregate per occurrence in accordance with Indiana Tort Law. The accrued liability for estimated insurance claims represents an estimate of the probable loss on unpaid claims arising prior to year end. Other Information Independent Audit. In accordance with the state statute, the City is required to be audited annually by the Indiana State Board of Accounts, an agency of the State of Indiana. In addition to meeting the requirements set forth in state statutes, the audit also was designed to meet the requirements of the federal Single Audit Act of 1984 and related OMB Circular A -133 as mentioned earlier. The auditors' report on the general purpose financial statements and combining and individual fund statements and schedules is included in the financial section of xv this report. For the past fifteen years (years ended December 31, 1990 through 2004) the City has received an unqualified audit opinion. The auditors' reports related specifically to the single audit are included in a separately filed report. Awards. The Government Finance Officers Association of the United States and Canada (GFOA) awarded a Certificate of Achievement for Excellence in Financial Reporting to the City of South Bend for its comprehensive annual financial report for the fiscal year ended December 31, 2004. This was the fifteenth consecutive year that the City has achieved this prestigious award. In order to be awarded a Certificate of Achievement, a government unit must publish an easily readable and efficiently organized comprehensive annual financial report. This report must satisfy both generally accepted accounting principles and applicable legal requirements. A Certificate of Achievement is valid for a period of one year only. We believe that our current comprehensive annual financial report continues to meet the Certificate of Achievement Program's requirements, and we are submitting it to the GFOA to determine its eligibility for another certificate. Acknowledgments. The preparation of the comprehensive annual financial report was made possible by the dedicated service of the City =s fiscal officers and the entire staff of the Department of Administration and Finance. Each member of the Department has my sincere appreciation for the contributions made in the preparation of this report. In addition, I would like to thank the Field Examiners of the State Board of Accounts for their hard work and dedication in this effort. In closing, without the leadership and support of Mayor Stephen J. Luecke, the City's Department Heads, and the members of the City Council, preparation of this report would not have been possible. Sincerely, r M. Catherine Fanello, C Thomas J. Skarbek, CPA City Controller Director of Budgeting & Financial Reporting xvi Certificate of Achievement for Excellence in Financial Reporting Presented to City of South Bend, Indiana For its Comprehensive Annual Financial Report for the Fiscal Year Ended December 31, 2004 A Certificate of Achievement for Excellence in Financial Reporting is presented by the Government Finance Officers Association of the United States and Canada to government units and public employee retirement systems whose comprehensive annual financial reports (CAFRs) achieve the highest standards in government accounting and financial reporting. µGE Ofp� +c�� ♦♦P�CF1H�'+�9�r4 CNIRa STATES yN u�o c coaeoagrwrt President 0 TI ON m .s CNICAEO Executive Director Xvii [iii� 0 :111 ORGANIZATIONAL CHART s of South City Council j Mayor Century Cer Board of Board of Parks Board of Public Board of Public Safety & Recreation Works Manager: Legal Code Department Enforcement Hearing Officer Neighboi,nood Code Enforcement Abandoned Vehicles Unsafe Building Animal Control Bureau of Weights and Measures xviii Century Center City Clerk Morris Redevelopment Entertainment Authority/ Board Commission Morris Performing Fire Parks & Public police D De p. Department Recreation Wprks (Police Chief) (Fire Chief) Superintendent (Director) - Technical Services - Fire Prevention - Park Administration - Engineering Division - Administrative Division Division -investigative Services Division - Park Maintenance - Streets Division - Firefighting Division Division - Uniform Patrol Operations Division - Recreation Water Works Division - EMS Division Division Division - Cemmunity Relations - Potawatomi Zoo - Sewage Works Division Division Division - Golf Division - Central Services Division Solid Waste Division Legal Code Department Enforcement Hearing Officer Neighboi,nood Code Enforcement Abandoned Vehicles Unsafe Building Animal Control Bureau of Weights and Measures xviii Century Center City Clerk Morris Redevelopment Entertainment Authority/ Board Commission Morris Performing Community & Economic Arts Center Development (Director) (Director) - Economic _ Development - Community Development General Administration Building Administration Department & Finance ommissioner) (City Controller City Finance & Budgeting -Human Resources Benefits Management - Information Technology Safety & Risk Management - Human Rights Purchasing 0 ■ . F I % AN EQUAL OPPORTUNITY EMPLOYER STATE BOARD OF ACCOUNTS 302 WEST WASHINGTON STREET ROOM E418 INDIANAPOLIS, INDIANA 46204 -2765 Telephone: (317) 232 -2513 Fax: (317) 232 -4711 Web Site: www,in.gov /sboa INDEPENDENT AUDITOR'S REPORT ON FINANCIAL STATEMENTS AND SUPPLEMENTARY SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS TO: THE OFFICIALS OF THE CITY OF SOUTH BEND, ST. JOSEPH COUNTY, INDIANA We have audited the accompanying financial statements of the governmental activities, the business - type activities, each major fund and the aggregate remaining fund information of the City of South Bend (City), as of and for the year ended December 31, 2005, which collectively comprise the City's primary government basic financial statements. These financial statements are the responsibility of the City's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstate- ment. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinions. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the governmental activities, the business -type activities, each major fund and the aggre- gate remaining fund information of the City as of December 31, 2005, and the respective changes in financial position and cash flows, where applicable, thereof and for the year then ended, in conformity with accounting principles generally accepted in the United States of America. The Management's Discussion and Analysis, Schedules of Funding Progress, Schedules of Contribu- tions From the Employer and Other Contributing Entities and Budgetary Comparison Schedules as listed in the table of contents are not a required part of the basic financial statements but are supplementary information required by the Governmental Accounting Standards Board. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and presenta- tion of the required supplementary information. However, we did not audit the information and express no opinion on it. In accordance with Government Auditing Standards, we have also issued our report dated April 27, 2006, on our consideration of the City's internal control over financial reporting and our tests of its compliance with certain provisions of laws, regulations, contracts and grants. Our report on compliance and on internal control over financial reporting should be read along with this report. Our audit was conducted for the purpose of forming opinions on the financial statements that col- lectively comprise the City's basic financial statements. The accompanying Schedule of Expenditures of Fed- eral Awards is presented for purposes 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 not a required part of the basic financial statements. Such information has been subjected to the auditing pro- cedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated, in all material respects, in relation to the basic financial statements. INDEPENDENT AUDITOR'S REPORT ON FINANCIAL STATEMENTS AND SUPPLEMENTARY SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS (Continued) Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the City's basic financial statements. The introductory section, combining fund financial statements, other budgetary comparison schedules, and statistical tables are presented for purposes of additional analysis and are not a required part of the basic financial statements. The combining fund financial statements and other budgetary comparison schedules have been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, are fairly stated in all material respects in relation to the basic financial statements. The introductory section and statistical tables have not been subjected to the auditing procedures applied in the audit of the basic financial statements and, accord- ingly, we express no opinion on them. April 27, 2006 2 *STATE BOARD OF AO COUNTS 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, 2005. 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 MD &A should be considered only a part of a greater whole. The readers of this statement should tape time to read and evaluate all sections of this report, including the footnotes and the other Required Supplemental Information ( "RSI ") that is provided in addition to this MD &A. Financial Highlights The assets of the City of South Bend exceeded its liabilities at December 31, 2005 by $190,401,407. Of this amount, unrestricted net assets of $35,709,243 may be used to meet the government's ongoing obligations to citizens and creditors. The total net assets decreased by $3,839,885. Of this amount, governmental activities decreased by $ t,821,815 and business -type activities decreased by $2,018,070. Total costs of all of the City's programs were $177 million. This is an increase of $25.1 million from last year. At the end of the current fiscal year, unreserved fund balance for the general fund was $18.2 million or 30% of total general fund expenditures. The City of South Bend's total bond obligations for Governmental Activities increased by the net of $1 million. This increase was attributable to the issuance of one new mortgage and one new revenue type bond. Business -Type Revenue bond obligation decreased by $3.8 million. 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, in a manner similar to a private - sector business. The statement of net assets. This statement reports all assets and liabilities of the City as of December 31, 2005. The difference between total assets and total liabilities is reported as "net assets." Increases in net assets generally indicate an improvement in financial position while decreases may indicate a deterioration of (nancial position. The statement of activities. This statement serves the purpose of the traditional income statement. It provides consolidated reporting of the results of all activities of the City for the year ended December 31, 2005. 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 of revenues available for general purposes. Both of the government -wide financial statements distinguish functions of the City that are principally supported by taxes and intergovernmental revenues (governmental activities) from other 91 functions that are intended to recover all or a significant portion of their costs through user fees and charges (business -type activities). The major governmental activities of the City of South Bend include public safety, urban redevelopment and housing and general government. The major business -type activities of the City include the wastewater utility, water utility and solid waste. Fund financial statements. A fund is a grouping of related accounts that is used to maintain control over resources that have been segregated for specific activities or ob'ectives. The City, like other state and local governments, uses fund accounting to ensure and demonstrate compliance with finance - related legal requirements. All of the funds of the City of South Bend can be divided into three categories: governmental funds, proprietary funds and .fiduciary funds. Governmental funds. Governmental funds are used to account for essentially the same functions reported as governmental activities in the government -wide financial statements. However, unlike the government -wide financial statements, governmental -fund financial statements focus on near - term inflows and outflows of spendable resources, as well as on balances of spendable resources available at the end of the fiscal year. Such information may be useful in evaluating a government's near -term financing requirements. General Government Revenues - The following modified accrual schedule presents a summary of general revenues for the year ended December 31, 2005 and the amount and percentages. Revenues 2005 Amount % of Total Taxes. General Property $ 68,139,669 53.5% County Option Income 5,695,618 4.5% County Economic Development 3,464,152 2.7% Professional Sports Development 385,553 0.3% Community Revitalization District 965,052 0.7% Licenses and Permits 246,780 0.2% Intergovernmental 18,665,828 14.6% Charges for Services 15,293,779 12.0% Fines and Forfeits 245,680 0.2% Interest 3,543,469 2.8% Donations 550,550 0.4% Other 10,241,005 8.1% $ 127,43 7,13 5 100.0% As shown above, taxes continue to represent a significant source of revenue needed to support the services provided by the City. The City's single largest source of revenue is generated by property taxation. This revenue calculation is based on a relationship between two variables. The first variable is the assessed property valuation of industrial, commercial and residential parcels, both real and personal property. The second variable is the application of a tax rate to arrive at the total tax levy. Taxable roperty is assessed at 100% of the true tax value. The City had the ability to increase its general property tax levy by 3.9 %, which it elected to do in 2005. The above general pro erty tax revenue includes taxes collected on behalf of the following funds: General Fund, Park and Recreation Fund, Cumulative Capital Development Funds, various capital funds for the City's Redevelopment Tax Incremental Financing (TIF) Funds and a special levy to cover debt service on ggeneral obligation bonds. The increase in property taxes collected on behalf of the TIF funds was the result of an increase in net assessed value and the scheduled roll -off of tax abatements in the Airport Development Economic Area (Blackthorn) TIF. One of the major focuses for the City continues to be the need to diversify its revenue streams. This is necessary to reduce the dependency on general. property taxes and to ensure that a broad -base of i users, including nonresidents, share n the funding of basic city services. Currently the City's property taxpayers carry a disproportionate share of the cost of public safety (police & fire services) and general government functions (elected officials, a Leggl De artment and Administration and Finance Department), Approximately 71 % of the Genera 2005 total revenue was derived from property taxes. The public safety and general government functions constituted approximately 91% of the General Funds 2005 total expenditures. South Bend, like many other cities, has public safety at the top of its priority list. In order to shift part of the financial burden for these services away from the City's homeowners /property owners, new sources of revenue need to be identified. In an attempt to accomplish this, two types of income taxes have been enacted to shift this financial tax burden. Economic Development Income Tax (EDIT ) - This tax was first enacted as of July 1, 1995 at the rate of one tenth of one percent (0.1 %) of City residents' (and some nonresidents') adjusted gross income, which generated $1,382,670 and $1,466,029 for the City of South Bend in 1996 and 1997, respectively. The City's Common Council and the St. Joseph County Council passed respective ordinances that increased the rate to two tenths of one percent (0.2%), which effectively doubled the City's distribution be inning in 1998. The i received $5,462,867, $3,689,202, $3,448,688 and $3,464,152 oDIT distributions in 2002, 2003, 2004 and 2005 respectively, and is anticipating the receipt of $3.4 million from this tax in 2006. Both of the local option income taxes (EDIT and COIT) are collected and administered by the Indiana Department of State Revenue. The EDIT distribution is then remitted to the county, which then allocates these tax receipts between the county and the cities and towns in the county based on the proportionate amounts of property tax levy for each unit. The City's portion of the total county's EDIT ranged from 35.6% to 38.2% over the last four years as the proportionate property tax levies have changed. The EDIT rate will remain at the current level (0.2 %) unless further action is taken by the respective councils. The EDIT rate can legally be raised to four tenths of one percent (0.4 %). County Option Income Tax (COIT) - The City and County Councils enacted this tax effective July 1, 1997 at a rate of two tenths of one percent (0.2% ) with an increase of one tenth of one percent (0.1 %) er year during the next four years. In 2002 the rate was set to its legal limit of six tenths of one percent (0.6 %). The City would not have supported the new County Option Income Tax if it had not been accompanied by a tandem ordinance, which established an additional 6% homestead credit for property taxpayers. This additional homestead credit increased to 7% in 1999 and to 8% in 2000 (where it will remain at this level). Thus, as a result of the passage of this new tax, City propperty taxpayers were provided relief through a reduction in their property tax bills while the Cit was provided with an additional source of revenue that will eventually slow the growth of future roperry tax rate increases. The City received $9,531,190 in 2002, $8,015,302 in 2003, $7001,198 in 2004 and $5,695,618 in 2005. The City is antici ating the receipt of $5.5 million from this tax in 2006. In 2002 a one -time adjustment of 2,318,375 for conservative distribution estimates in the early years of the tax was transferred. These countywide taxes are allocated (net of homestead credits) between all taxing units within the county based on the proportionate amounts of property tax levy for each taxing unit. As mentioned earlier, the City is always looking for other sources of revenue that would reduce its reliance on property taxes. A viable source of revenue is from user fees and /or charges for services currently being performed. It is the City's desire to establish all user charges and fees at a level closely related to the full cost of providing the services while taking into consideration similar charges /fees being levied by other public and private providers. The City recalculates, on an annual basis, the full costs of activities supported by user fees (including the Parks Department programs and EMS ambulance services among others) to identify the impact of inflation and other cost increases. It then revises user fees accordingly. As a result, overall charges for services and user fee revenues are anticipated to increase in line with annual operating and capital budgets. General Government Expenditures - The City breaks its general government expenditures into six categories: general government, public safety, highways and streets, health and welfare, culture and recreation, and economic development. Information is presented separately in the governmental fund balance sheet and in the governmental fund statement of revenues, expenditures, and changes in fund balances for the general, park funds, TIF Airport and COIT which are considered major funds. Data for the other funds are combined into a single, aggregated presentation. Individual fund data for each of these non -major governmental funds is provided in the form of combining statements elsewhere in this report. Proprietary funds. The City of South Bend maintains two different types of proprietary funds. Enterprise funds are used to report the same functions presented as business -type activities in the government -wide financial statements. The City maintains seven individual enterprise funds. Information is presented separately in the proprietary statement of net assets and the proprietary statement of revenues, expense and changes in fund net assets for the Water Utility, Wastewater Utility and Century Center, which are considered major funds. Data from the other four funds are combined into a single, aggregated presentation. Individual fund data for each of these non -major proprietary funds is provided in the form of combining statements elsewhere in this report. Internal service funds are used to accumulate and allocate costs internally among the City's various functions. The City of South Bend uses internal service funds to account for its self funded liability insurance program, employee benefits program and central services ( a department that accounts for the expenses related to fuel, vehicle repairs and various other services and supplies provided to City departments on a cost - reimbursement basis). Because these services predominantly benefit governmental rather than business- type functions, they have been included within governmental activities in the government -wide financial statements but are combined into a single, aggregated presentation in the proprietary fund financial statements. Individual fund data for the internal service funds is provided in the form of combining statements elsewhere in the report. 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 statement because the resources of those tunds are not available to support the City's own programs. The accounting used for fiduciary funds is much like that used for proprietary funds. The City's fiduciary duties are accounted for in both Trust and Agency Funds. The primary trust funds are the Police and Fire Pension Funds (explained below). The Agency Fund is for payroll and related employee deductions. Pension Trust Fund Operations - Most City employees are covered by the Public Employees Retirement Fund and the 1977 Police Officers' and Firefighters' Pension Fund, both administered by the State of Indiana. However, certain police officers and firefighters hired before May 1, 1977, who did not opt into the 1977 fund, continue to be members of the 1925 Police Pension Fund and the 1937 Firefighters' Pension Fund. These two funds are administered by the City. This group of police officers and firefighters will continue to decline in the future, both as a total number and as a percentage of total payroll of both the police and fire departments and of the City as a whole. The 1925 and 1937 Plans are funded through a combination of property taxes levied by the City and distributions from the State Pension Relief Fund. As a result of the requirements of the state statute that created these funds, the City is legally prevented from funding them in any other way than a "pay-as-you-go" basis. As of January of 2005, the City received an actuarial survey on these funds to provide the proper disclosures required by generally accepted accounting principles. This information is included in the following section. Notes to the financial statements. The notes provide additional information that is essential to a full understanding of the data provided in the government -wide and fund financial statements. Other information. In addition to the basic financial statements and accompanying notes, this report also presents certain other supplementary information. The combining statements referred to earlier in connection with non -mayor funds, internal service funds and fiduciary funds are presented immediately after the basic financial statements. Also included are budget comparisons for governmental funds other than the General Fund and the Park and Recreation Fund, a major special revenue fund. Government -wide Financial Analysis The financial analysis will focus on the net assets (Table 1) and changes in net assets (Table 2) of the City's governmental and business -type activities. 6 As noted earlier, net assets may serve over time as a useful indicator of a government's financial position. At December 31, 2005, the City's assets exceeded liabilities by $190,401,407, a decrease from 2004 by $3.8 million. The majority of this decrease can be attributed to a reduction of user fee revenue in the Business -Type Activities. Effective in 2006 both Water and Sewer rates will be increased to help remediate this problem and increase available cash balances. By far the largest portion of the City's net assets (68 percent) reflects its investment in capital assets (e.g. land, roads, storm sewers, water and sewer systems, buildings and equipment }, less an related debt used to acquire those assets that is still outstanding. Capital assets are used to provide services to citizens, and they are not available for future spending Although the investment in capital assets are reported net of related debt, it should be noted that the resources needed to repay this debt must be provided from other sources, since the capital assets themselves cannot be used to liquidate these liabilities. City of South Bend's Net Assets Table 1 Governmental Business -Type Activities Activities Total 2004 2005 2004 2005 2004 2005 Current and other assets $13',859,344 $146,134,848 $35,393,136 $31,884,533 $171,252,480 178,019,381 Capital assets (net) 112,635,198 124,443,931 157,790,563 152,993,751 270,425,761 277,437,682 Total assets 248,494,542 270,578,779 193,183,699 184,878,284 441,678,241 455,457,063 Long -term liabilities outstanding 163,133,137 191,148,556 62,695,870 59,761,198 225,829,007 250,909,754 Other liabilities 16,760,834 10,557,060 4,847,108 3,588,842 21,607,942 14,145,902 Total liabilities 179,893,971 201,705,616 67,542,978 63,350,040 247,436,949 265,055,656 Net assets: Invested in capital assets, net of related debt 7,383,902 35,777,247 93,370,899 94,833,960 100,745,801 130,611,207 Restricted 1,966,388 6,138,257 13,254,447 17,942,700 15,220,835 24,080,957 Unrestricted 59,250,281 26,957,659 19,015,375 8,751,584 78,265,656 35,709,243 Total net assets $68,600,571 $68,873,163 $125,640,721 $121,528,244 $194,241,292 $190,401,407 At the end of the current fiscal year the City is able to report positive balances in all three categories of net assets, both for the government as a whole, as well as for its separate governmental and business -type activities. The net assets for government activities decreased by $1.8 from $70.6 million in 2004 to $68.8 million in 2005. Part of this decrease is attributable to a reclassification of the parking garage net book value previously recorded in business -type activity. The business- 7 type net assets activities decreased by $2.0 million, from ($123.5) million in 2004 to {$121.5) million in 2005. This decrease is due to revenue increases that are not keeping up with utility operating costs. This trend is expected to change with the planned rate changes that will take effect as explained earlier. Revenues: Program Revenues: Charges for services Operating grants and contributions Capital grants and contributions General Revenues: Property taxes Other taxes Grants and contributions not restricted to specific programs Other Revenues Total Revenues Expenses: General government Public safety Highways and streets Health and welfare Culture and recreation Economic Development Interest on long -term debt Water Wastewater Civic center City of South Bend's Changes in Net Assets Table 2 Governmental Activities 2004 2005 Business -type Activities 2004 2005 Total 2004 2005 9,343,194 6,823,577 36,530,823 35,764,874 45,874,017 42,588,451 10,718,149 12,916,362 1,165,243 1,282,780 11,883,392 14,199,142 10,326,795 9,447,723 62,279,784 72,743,697 11,483,254 10,510,375 5,133,838 5,160,298 2,259,320 14,333,639 111,544,334 131,935,671 17,523,559 15,033,018 45,799,395 72,450,941 9,855,890 9,010,971 102,314 75,352 13,689,893 8,840,970 18,102,343 22,436,802 6,209,012 5,943,021 0 0 0 0 0 0 118,953 1,479,581 10,445,748 10,927,304 0 0 0 0 0 0 362,676 2,736,481 38,177,695 41,263,716 0 0 0 0 0 0 0 0 0 0 0 0 0 0 12,275,029 12,447,141 16,125,258 18,452,785 3,592,627 3,478,359 62,279,784 11,483,254 5,133,838 2,621,996 149,722,029 17,523,559 45,799,395 9,855,890 102,314 13,689,893 18,102,343 6,209,012 12,275,029 16,125,258 3,592,627 72,743,697 10,510,375 5,160,298 17,070,120 173,199,387 15,033,018 72,450,941 9,010,971 75,352 8,840,970 22,436,802 5,943,021 12,447,141 18,452,785 3,478,359 Building departanent 0 0 1,134,986 1,047,007 1,134,986 1,047,007 Parking 0 0 1,739,235 1,165,502 1,739,235 1,165,502 Solid waste 0 0 4,015,831 4,920,464 4,015,831 4,920,464 Golf course 0 0 1,778,107 1,736,939 1,778,107 1,736,939 Total expenses 111,282,406 133,791,075 40,661,073 43,248,197 151,943,479 177,039,272 Changes in net assets before transfers 261,928 (1,855,404) (2,483,378) (1,984,481) (2,221,450) (3,839,885) Transfers 14,873 33,589 (14,873) (33,589) 0 0 Change in net assets 276,801 (1,821,815) (2,498,251) (2,018,070) (2,221,450) (3,839,885) Beginning net assets (restated) 70,418,177 70,694,978 126,044,565 123,546,314 196,462,742 194,241,292 Ending net assets 70,694,978 68,873,163 123,546,314 121,528,244 194,241,292 190,401,407 Governmental Activities Oove=entel activities net assets decreased bey $(1.8) million. Part of this decrease is due to revenues increasing by 20.3 million or 18.3 /o. Conversely, expenses increased by $22.5 million or 20.2 %. The majority of the revenue increase is due the increase in property taxes and on one time revenue distribution. The increases in expenses are due to public safety personnel increases along with conservative increase in capital investments related to parks, streets and infrastructure. Also, the City experienced increased costs related to insurance costs. Business -type Activities Business -type activities had a decrease in changes of net assets of ($2) million in 2005. The majority of the decrease is due to an income loss in the Wastewater and the Waterworks departments. The Wastewater department has needed to invest in major ca ital upgrades to both their facility and infrastructure. In 2006 new rates will go into effect that will help reduce the operational deficit as well as invest in the needed capital for both Water Works as well as Wastewater. Financial Analysis of the Governments' Funds As noted earlip. , t e City of South Beld uses fund acco nti to ensure a d dCmonstrate cpni8lt� ce wtt�i tnance- yelated ega requirements. . o t ie funds o t ie . rty can, be diva e into three categories: government tun s, proprietary rids and ucrary fun s. Governmental funds. The purpose of the City's governmental funds is to provide information on near -term inflows, outflows, and balances of spendable resources. Such information is useful in assessing the City's financing requirements. In particular, unreserved fund balance may serve as a useful measure of a government's net resources available for spending at the end of the fiscal year. At the end of the current fiscal year, the City's governmental funds reported a combined ending fund balance of $122,001,560. Of this amount, $72,921,470 (60 percent) is unreserved fund balance, which is available for spending at the City's discretion. The mgjjority of this unreserved fund balance is for major capital projects that have been designated by the City Council in the subsequent year's expenditures. The remainder of the fund balance is reserved and is not available for new spending because it has already been dedicated for various commitments. The general fund is the City's chief operating fund. At the end of the current fiscal year, unreserved fund balance of the general fund was $18,162,422, a decrease of $1,493,602. This is primarily due to higher expenditures combined with lower revenues on general funds. 9 The park and recreation unreserved fund balance saw an increase of $149,585. The major reason for this increase is due to higher overall revenues as well as expenditures that had normal increases from the prior year. Since the Park fund is a recipient of property taxes, it has also experienced the problems that have been chronicled earlier. The TIF Airport and COIT funds are used to account for major capital construction. The unreserved fund balances changes increased $4 million and decreased (2.1) million respectively. These changes are due to the construction of multi -year projects. Individual fund data for each of the non -magr governmental funds is provided in the form of the combining statements in the Supplemental Information portion. Proprietary funds. Enterprise funds are used to report the same functions presented as business- type activities in the government -wide financial statements. The City maintains seven individual enterprise funds. The basic proprietary fund financial statements can be found later in this report. Fiduciary funds. Fiduciary funds are used to account for resources held for the benefit of parties outside the government. The basic fiduciary funds financial statements can be found later in this report. General Fund Budgetary Highlights The City adopts an annual appropriated budget for its general fund. The final budget was greater than the original budget by 5,365,442. An amended original budget can be explained by either an encumbrance rollover or a current year budget overrun. The general fund budget is reviewed throughout the year and revised as needed with the approval of the City Council. At the end of the fiscal year the actual expenditures are projected and the budget is amended to prevent any budget overruns. The City tries to work within its original budget by increasing categories that will exceed budget while decreasing other categories to cover these overruns. If this transferring will not cover these expenditures then the City must appropriate from its fund balance. Of the $5,365,442, $4.5 million was to amend the original budget to account for a capital project that the City as well as other participants will be cost sharing on. The remainder was prior year encumbrances that rolled over and were added to the original budget. The actual revenues are $4,563,641 over budget and expenditures are $2,989,572 under budget. The majority of $4.5 million can be explained by the one time reimbursement. The under spending of the expenditures can be partially attributed to the fact that the City budgets at full staff and not all positions were filled in 2005. Also, a major capital project was not completed in 2005. In all, this saving provides evidence that the City's budget has been prepared on a conservative basis and provided adequate resources to fund services provided. All cities have limited resources and, thus, limited numbers of programs and services that can be provided. We are proud to say that we have done well in terms of maintaining a solid, financially sound organization by spending within our means. Capital Asset and Debt Administration Capital assets. The Cityy's investment in capital assets for its governmental and business type activities at December 31, 2005 amounts to $277,437,682 (net of accumulated depreciation. This investment in capital assets includes land, buildings, roads, improvements, service lines, automobiles and equipment, and street lights. A detailed note of these capital assets can be found in the Notes to the Basic Financial Statements (Note III Q. Major capital asset additions during the current fiscal year include the following: - Relocation of Park Maintenance Facility. - Major road renovation at $1.75 million. - New vehicles added to fleet at a cost of $1.2 million. 10 - Expansion of workout facility at recreation center $920 thousand. - Paving Program at $1.8 million. - Upgrade to water wells at a cost of $250 thousand. City of South Bend's Capital Assets Governmental Business -type Activities Activities 2004 2005 2004 2005 Capital assets not being depreciated: Total 2004 2005 Land $11,564,931 $11,564,931 $2,656,367 $3,020,575 $14,212,298 $14,585,506 Construction in Progress 15,141,413 6,214,193 2,837,643 3,938,589 17,979,056 10,152,782 Total capital assets not being depreciated 26,706,344 17,779,124 5,494,010 6,959,164 32,200,354 24,738,288 Capital assets being depreciated: Building 79,263,073 102,625,262 95,973,045 92,513,376 175,236,118 195,138,638 Improvements other than buildings 8,190,617 8,713,737 86,802,058 88,019,697 94,992,675 96,733,434 Machinery & equipment 36,880,723 37,623,047 43,427,108 43,446,609 80,307,831 81,069,656 Roads 2,101,485 2,101,485 0 0 2,101,485 2,101,485 Totals 126,435,898 151,063,531 226,202,211 223,979,682 352,638,109 375,043,2I3 Less accumulated depreciation for: Buildings 19,102,238 20,866,539 29,879,152 30,768,132 48,981,390 51,634,671 Improvements other than buildings 3,985,236 4,489,950 17,554,984 19,158,662 21,540,220 23,648,612 Machinery & equipment 17,367,908 18,890,331 26,471,522 28,018,301 43,839,430 46,908,632 Roads 51,662 151,904 0 0 51,662 151,904 Totals 40,507,044 44,398,724 73,905,658 77,945,095 114,412,702 122,343,819 Total capital assets, being depreciated, net 85,928,854 106,664,807 152,296,553 146,034,587 238,225,407 252,699,394 Total activity capital assets, net $112,635,198 $124,443,931 $157,790,563 $152,993,751 $270,425,761 $277,437,682 Debt Administration. At December 31, 2005, the City had a number of debt issues outstanding. These issues included $320,000 of eneral obligation bonds, $84,225,000 of revenue bonds ayable from governmental funds, 35,990 000 of revenue bonds payable from enterprise funds, $28,994,057 of first mortgage bonds payable from governmental funds and $1,015,90 of first mortggage bonds payable from enterprise funds. Under the Indiana Constitution and state statute, the C it s general obligation bonded debt issuances are subject to a legal limitation based upon 2% of total assessed value of real and personal property. Since Indiana's assessment statutes call for an 11 assessed valuation of one -third of cost less depreciation, its general obligation debt limitation is one of the most conservative in the United States. The City's debt decreased by a net of $2.8 million from the prior year. This net decrease was due to the issuance of one mortgage and one revenue type bond payable from governmental activities and payment of principal. A detailed listing of this debt can be found in the Notes to the Basic Financial Statements (Note III G). A calculation of the City's legal debt limitation can be found in the statistical section of this document. Economic Factors and Next Year's Budgets and Rates As noted earlier, roperty taxes are the City's largest source of revenue. Under current legislation all Indiana cities assessed values are based on market values. Under this method some properties are still being re- assessed to reflect the changes in values. This process as weIl as the overwhelming amount of appeals is still affecting the amount of property taxes received by the City. Due to these current changes, the percentage increase the City is anticipating in 2005 will be less than in previous years. The new sewer and water rates enacted will tape effect in 2006. These rates will continue to be revised to assure that the municipal water and sewer system has sufficient revenue to cover operating and capital expenses. Many major capital projects are slated for construction in 2006. fart of the list would include downtown development which includes a new condo complex, building dernolition and development, water and sewer infrastructure upgrades and the continuation of major road enhancements. Requests for Information This financial report is designed to provide a general overview of the City of South Bend's finances for all those with an interest in the government's finances. Questions concerning any of the information provided in this report or request for additional financial information should be addressed to the Controller's Office, 227 W. 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C3 4 y H 'D O l6 C -.0 C Eao C '� ID D c a m j ym` a .Q a 00. 0 W 6 U N m C m w 3 L �_ ? m vi a ^m m'70C mam TIC- m- C cm. dmE mEma mvm� Eo`'�°o.mam�m'm m a �mm am 10a��'S C O m .. 171 E V m a C N 2 E m N m O E 3 c �?.�� E... 2''�ny�+0 q �5 nay c t't Em�E m n to cam m arm maa0m ci��icE� -tSU 0���ot�mw m L 'c 'S l9r19 c m c m m 03 cdd... ....�a i�[76UdU%�lu. -. n a 'p ❑ m Z J C � © d ^m 0000 a.0 Z 2 25 26 LO (2 _ \ 22 (( m m m c IL - - r / vo � ` - -� - - g§40 m )) ^ ` - - ° co p � 5 kLL ( - ® to @Lg(D ( /�k 2 aim [ } ° % {! 2 ) - § k2 cr f Z _ _ r in K [ � • § - i ) 0� § ® 2 2� ® CL k - ® mcm - / k � a . I _ \f] � / I a * ( 26 27 C-4 C4 N cli )\ ]/ k - - - - - $ § \ CL a a � g }�\ ® - §�k% §k [a (\ \k §¥�` 0LL 2 r I ) § « [ - ) - - ` § -k § } \ \ k ) ( \ CD { M.2 - 7 /k #) 2 4 « 3) \ `) 3 g @2 co m § 3 Z e± 3■ ) k 27 CITY OF SOUTH BENZ] NOTES TO FINANCIAL STATEMENTS Summary of Significant Accounting Policies A. Reporting Entity The City of South Bend (primary government) was established under the laws of the State of Indiana. The primary government operates under a Council -Mayor form of government and provides the fol- lowing services: public safety (police and fire), highways and streets, health, welfare and social ser- vices, culture and recreation, public improvements, planning and zoning, general administrative ser- vices, water, sewer, and urban redevelopment and housing. The accompanying financial statements present the activities of the primary government and its sig- nificant component units. The component units discussed below are included in the primary govern- ment's reporting entity because of the significance of their operational or financial relationships with the primary government. Blended component units, although legally separate entities, are in sub- stance part of the government's operations and exist solely to provide services for the government; data from these units is combined with data of the primary government. Blended Component Units The South Bend Redevelopment Authority, a legally separate entity, is a significant blended com- ponent unit of the primary government. The Redevelopment Authority's sole purpose is to finance and construct land, buildings and other improvements for use by the primary government. Financial statements for the Redevelopment Authority are available at the City Controller's Office, City of South Bend, 227 West Jefferson, 1400 County -City Building, South Bend, Indiana, 46601. The Morris Entertainment, Inc., is also a legally separate nonprofit corporation, and is a significant blended component unit of the primary government. The Morris Entertainment, Inc., main purpose is to solicit donations for the restoration and renovation of the City's Morris Civic Auditorium and the City's Palais Royale Ballroom. Financial statements for the Morris Entertainment, Inc., are available at 211 North Michigan, South Bend, Indiana, 46601, The South Bend Building Corporation, Inc., is also a legally separate nonprofit corporation, and is a significant blended component unit of the primary government. The Building Corporation's main pur- pose is to finance construction and remodeling of City buildings for the City of South Bend. Debt of the Building Corporation is repaid through lease payments from the City. Financial statements for the Building Corporation are available at the City Controller's Office. Related Oraanizations The primary government's officials are also responsible for appointing the members of the boards of other organizations, but the primary government's accountability for these organizations does not extend beyond making the appointments. The Mayor and the Common Council appoint the board members of the South Bend Housing Authority, South Bend Public Transportation Corporation (TRANSPO), Urban Enterprise Association, and the Special Funds Board of Managers. During 2005, the Special Funds Board of Managers provided $1,282,780 to the City's Century Center and $467,198 to the City's College Football Hall of Fame, to finance operating costs. 28 CITY OF SOUTH BEND NOTES TO FINANCIAL. STATEMENTS (Continued) B. Government-Wide and Fund Financial Statements Government-wide financial statements (i.e., the Statement of Net Assets and the Statement of Changes in Net Assets) report information on all of the nonfiduciary activities of the primary govern- ment. For the most part, the effect of interfund activity has been removed from these statements. Governmental activities, which normally are supported by taxes and intergovernmental revenues, are reported separately from business -type activities, which rely to a significant extent on fees and charges for support. Likewise, the primary government is reported separately from certain legally separate component units for which the primary government is financially accountable. 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 clearly identifiable with a specific function or segment. Program revenues include (1) charges to customers or applicants who pur- chase, use or directly benefit from goods, services or privileges provided by a given function or seg- ment and (2) grants and contributions that are restricted to meeting the operational or capital require- ments of a particular function or segment. Taxes and other items not properly included among program revenues are reported instead as general revenues. Separate financial statements are provided for governmental funds, proprietary funds and fiduciary funds, even though the latter are excluded from the government -wide financial statements. Major individual governmental funds and major individual enterprise funds are reported as separate columns in the fund financial statements. C. 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 and pension trust and private purpose trust fund financial statements. Agency funds have no measurement focus. Revenues are recorded when earned and expenses are recorded when a liability is incurred, regardless of the timing of the related cash flows. Property taxes are recognized 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. Governmental fund financial statements are reported using the current financial resources measure- ment 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 col- lectible within the current period or soon enough thereafter to pay liabilities of the current period. For this purpose, the primary government considers revenues to be available if they are collected within sixty days of the end of the current fiscal period. Expenditures generally are recorded when a liability is incurred, as under accrual accounting. However, debt service expenditures, as well as expendi- tures related to compensated absences, claims and judgments, are recorded only when payment is due. Property taxes, franchise taxes, licenses and interest associated with the current fiscal period are all considered to be susceptible to accrual and have been recognized as revenues of the current fiscal period. All other revenue items are considered to be measurable and available only when the primary government receives cash. The primary government reports the following major governmental funds: The general fund is the primary operating fund. It accounts for all financial resources of the gen- eral government, except those required to be accounted for in another fund. 29 CITY OF SOUTH BEND NOTES TO FINANCIAL STATEMENTS (Continued) The park and recreation fund is used to account for the operation of the City park system. Financing is provided by a specific annual property tax levy to the extent that user fees and miscellaneous revenues are insufficient to provide such financing. The tax incremental financing (TIF) airport fund is used to account for public improvement pro- jects in the airport economic development area. Financing is provided by property tax proceeds in excess of those attributable to the assessed value of the property in the district before redevelopment. The county option income tax (COIT) fund is used to account for the City's share of the county option income tax. Expenditures include land improvements and purchases of motor equipment. The primary government reports the following major proprietary funds: The water utility fund accounts for the operation of the primary government's water distribution system. The wastewater utility fund accounts for the operation of the primary government's wastewater treatment plant, pumping stations and collection systems. The Century Center fund accounts for the operation and maintenance of the City's convention center. Financing is received from various rental agreements and a subsidy from the St. Joseph County's Special Funds Board of Managers. Additionally, the primary government reports the following fund types: The internal service fund accounts for liability coverage, employee medical coverage, and central services such as fuel, vehicle repairs and various supplies provided to other departments on a cost - reimbursement basis. The pension trust funds account for the activities of the 1925 police and 1937 fire pension funds which accumulate resources for pension benefit payments. The private - purpose trust fund reports a trust arrangement under which principal and income benefits cemetery maintenance. Agency funds account for assets held by the primary government as an agent for employee payroll, pension, and payroll deductions. Private - sector standards of accounting and financial reporting issued prior to December 1, 1989, gen- erally are followed in both the government -wide and proprietary fund financial statements to the extent that those standards do not conflict with or contradict guidance of the Governmental Accounting Standards Board. Governments also have the option of following subsequent private - sector guidance for their business -type activities and enterprise funds, subject to this same limitation. The primary government has elected not to follow subsequent private - sector guidance. As a general rule, the effect of interfund activity has been eliminated from the government -wide finan- cial statements. Exceptions to this general rule are payments -in -lieu of taxes and payments of ad- ministrative costs. Elimination of these charges would distort the direct costs and program revenues reported for the various functions concerned. 30 CITY OF SOUTH BEND NOTES TO FINANCIAL STATEMENTS (Continued) Amounts reported as program revenues include (1) charges to customers or applicants for goods, services or privileges provided, (2) operating grants and contributions, and (3) capital grants and con- tributions. Internally dedicated resources are reported as general revenues rather than as program revenues. Likewise, general revenues include all taxes. Proprietary funds distinguish operating revenues from nonoperating items. Operating revenues and expenses generally result from providing services and producing and delivering goods in connection with a proprietary fund's principal ongoing operations. The principal operating revenues of the enter- prise funds are charges to customers for sales and services. Operating expenses for enterprise funds and internal service funds include the cost of sales and services, administrative expenses, and depreciation on capital assets. All revenues and expenses not meeting this definition are reported as nonoperating revenues and expenses. When both restricted and unrestricted resources are available for use, it is the primary government's policy to use restricted resources first, then unrestricted resources as they are needed. D. Assets, Liabilities and Net Assets or Equity 1. Deposits and Investments The primary government's cash and cash equivalents are considered to be cash on hand, demand deposits and short -term investments with original maturities of three months or less from the date of acquisition. State statute (IC 5 -13 -9) authorizes the primary government to invest in securities, including but not limited to, federal government securities, repurchase agreements, and certain money market mutual funds. Certain other statutory restrictions apply to all investments made by local govern- mental units. Nonparticipating certificates of deposit, demand deposits and similar nonparticipating negotiable instruments that are not reported as cash and cash equivalents are reported as investments at cost. Debt securities are reported at fair value. Debt securities are defined as securities backed by the full faith and credit of the United States Treasury or fully insured or guaranteed by the United States or any United States government agency. Open -end mutual funds are reported at fair value Money market investments that mature within one year or less at the date of their acquisition are reported at amortized cost. Other money market investments are reported at fair value. Investment income, including changes in the fair value of investments, is reported as revenue in the operating statement. 2. Interfund Transactions and Balances Activities between funds that are representative of lending /borrowing arrangements outstanding at the end of the fiscal year are referred to as " interfund receivables /payables" (i.e., the current and noncurrent portion of interfund loans). All other outstanding balances between funds are reported as "interfund services provided /used." Any residual balances outstanding between the governmental activities and business -type activities are reported in the government -wide financial statements as "internal balances." 31 CITY OF SOUTH BEND NOTES TO FINANCIAL STATEMENTS (Continued) 3. Property Taxes Property taxes levied are collected by the County Treasurer and are usually distributed to the primary government in June and in December. State statutes (IC 6- 1.1- 17 -16) require the Indiana Department of Local Government Finance to establish property tax rates and levies by February 15. These rates were based upon the preceding year's March 1 (lien date) assessed valuations adjusted for various tax credits. Taxable property is assessed at 100% of the true tax value (determined in accordance with rules and regulations adopted by the Indiana Department of Local Government Finance). Taxes may be paid in two equal installments that become delinquent if not paid by May 10 and November 10, respectively. All property taxes collected by the County Treas- urer and available for distribution were distributed to the primary government prior to December 31. Delinquent property taxes outstanding at year end for governmental and/or proprietary funds, net of allowances for uncollectible accounts, are recorded as a receivable with an offset to unearned revenue since the amounts are not considered available. 4. Inventories and Prepaid Items All inventories are valued at cost using the first in /first out (FIFO) method. Inventories of gov- ernmental funds are recorded as expenditures when consumed rather than when purchased. Certain payments to vendors reflect costs applicable to future accounting periods and are re- corded as prepaid items in both government -wide and fund financial statements. 5. Restricted Assets Certain proceeds of the enterprise fund revenue bonds, as well as certain resources set aside for their repayment, are classified as restricted assets on the statement of net assets balance sheet because their use is limited by applicable bond covenants. 6. Capital Assets Capital assets, which include property, plant, equipment and infrastructure assets (e.g., roads, bridges, sidewalks and similar items), are reported in the applicable governmental or business - type activities column in the government -wide financial statements. Capital assets are reported at actual or estimated historical cost based on appraisals or deflated current replacement cost. Contributed or donated assets are reported at estimated fair value at the time received. Capitalization thresholds (the dollar values above which asset acquisitions are added to the capi- tal asset accounts), depreciation methods and estimated useful lives of capital assets reported in the government -wide statements and proprietary funds are as follows: Capitalization Depreciation Estimated Threshold Method Useful Life Buildings and improvements $ Equipment Roads — collectors and residential Water collection systems Wastewater distribution and collection systems 32 50,000 Straight -line 20 to 30 years 5,000 Straight -line 5 to 20 years 3,000,000 Straight -line 40 to 50 years 500 Straight -line 6 to 100 years 1,000 Straight -line 6 to 100 years CITY OF SOUTH BEND NOTES TO FINANCIAL STATEMENTS (Continued) The City has not implemented retroactive reporting of its infrastructure as of December 31, 2005. For depreciated assets, the cost of normal maintenance and repairs that do not add to the value of the asset or materially extend asset lives are not capitalized. Major outlays for capital assets and improvements are capitalized as projects are constructed. Interest incurred during the construction phase of capital assets of business -type activities is included as part of the capitalized value of the assets constructed. 7. Compensated Absences a. Sick Leave — primary government employees earn sick leave at the rate of two- thirds of a day for each completed month of service. Sick leave may accumulate to a maximum of 90 days for policemen, 100 days for firemen, 60 days for teamsters, and 65 days for all other employees. Accumulated sick leave is paid to firemen, to policemen, and to teamsters, upon termination of employment, at one -half their current pay rate, at a rate of one -half the corporal's rate of pay up to a maximum of 60 days, and $25 for each accumulated sick leave day, respectively, at the time of retirement. b. Vacation Leave — primary government employees earn vacation leave at rates from 9 days to 28 days per year based upon the number of years of service, employee classification, and hire date. Vacation leave does not accumulate from year to year, except in instances where special cases are approved. Employees earn vacation leave during the year to be used the following year. Unused vacation leave is paid to employees upon termination of employment. c. Personal Leave — primary government policemen earn personal leave at the rate of 7 days per year. Personal leave does not accumulate from year to year. Unused personal leave may be rolled into sick leave. City employees under the teamster contact can use their sick leave for personal leave. d. Compensatory Leave — Policemen and firemen have accumulated overtime - compensatory leave for a variety of reasons. Unused vacation leave for all City employees, and unused sick leave and compensatory leave of firemen, policemen and teamsters is accrued when incurred and reported as a liability in the statement of net assets. Amounts due and payable at year end are included in the proprietary fund statements. No liability is recognized in the governmental fund statements. 8. D.R.O.P. Payable Pursuant to Indiana Statute, certain City policemen and firemen are eligible for the deferred retire- ment option plan (D.R.O.P ). Active policemen and firemen who are eligible to retire before December 31, 2007, can declare their retirement date and then receive a lump sum at retirement based on pension factors. The lump sum amounts, for those who have declared, are recognized as D. R.O. P. payable. The liability is recognized net of a 50% reduction which is the minimum that the State will reimburse in the following year. 9. Long -Term Obligations In the government-wide financial statements and proprietary fund types in the fund financial state- ments, long -term debt and other long -term obligations are reported as liabilities in the applicable governmental activities, business -type activities or proprietary fund type statement of net assets. 33 CITY OF SOUTH BEND NOTES TO FINANCIAL STATEMENTS (Continued) Bond premiums and discounts, as well as issuance costs, are deferred and amortized over the life of the bonds using the straight -line method. Bonds payable are reported net of the applicable bond premium or discount. Debt issuance costs are reported as deferred charges and amortized over the term of the related debt. In the fund financial statements, governmental fund types recognize bond premiums and dis- counts, as well as bond issuance costs, during the current period. The face amount of debt is- sued is reported as other financing sources. Premiums received on debt issuance are reported as other financing sources while discounts on debt issuances are reported as other financing uses. Issuance costs, whether or not withheld from actual debt proceeds received, are reported as debt service expenditures. 10. Fund Equity In the fund financial statements, governmental funds report reservations of fund balance for amounts that are not available for appropriation or are legally restricted by outside parties for use for a specific purpose. Designations of fund balance represent tentative management plans that are subject to change. 11. Stewardship, Compliance and Accountability A. Budgetary Information Annual budgets are adopted on the cash basis which is not consistent with accounting principles gen- erally accepted in the United States. All annual appropriations lapse at fiscal year end. Annual bud- gets are adopted for the following governmental funds: General Major governmental funds: Special revenue fund - park and recreation Capital projects fund - county option income tax (COIT) Nonmajor governmental funds: Special revenue funds - motor vehicle highway, recreation nonreverting, community development, local road and street, human rights federal, special events, college football hall of fame Debt service funds - redevelopment bond - studebaker, college football hall of fame debt service Capital projects funds - emergency medical services, park nonreverting capital, cumulative capital development, cumulative capital improvement, economic development income tax On or before August 31, the City Controller submits to the Common Council a proposed operating budget for the year commencing the following January 1. Prior to adoption, the budget is advertised and public hearings are conducted by the Common Council to obtain taxpayer comments. In September of each year, the Common Council through the passage of an ordinance approves the budget for the next year. Copies of the budget ordinance and the advertisement for funds for which property taxes are levied or highway use taxes are received are sent to the Indiana Department of Local Government Finance. The budget becomes legally enacted after the City Controller receives approval of the Indiana Department of Local Government Finance. 34 CITY OF SOUTH BEND NOTES TO FINANCIAL STATEMENTS (Continued) The primary government's management cannot transfer budgeted appropriations between object classifications of a budget without approval of the Common Council. The Department of Local Government Finance must approve any revisions to the appropriations for any fund or any department of the General Fund. The legal level of budgetary control is by object and department within the fund for the General Fund and by object within the fund for all other budgeted funds. Expenditures did not exceed appropriations for any funds or any departments within the General Fund or within the Park and Recreation Fund, or within any other nonmajor governmental fund which required legally, approved budgets. B. Deficit Fund Equity At December 31, 2005, the following funds reported deficits in fund equity, which are violations of State statute: Deficit Governmental funds: Football Hall of Fame Operating $ (1,748,899) Enterprise funds (net assets): Blackthorn Golf Course (988,666) Fund equity deficits arose primarily from expenditures or expenses exceeding revenues due to the underestimate of current requirements. It is anticipated that these deficits will be repaid from future revenues. Ill. Detailed Notes on All Funds A. Deposits and Investments 1. Deposits Custodial credit risk is the risk that in the event of a bank failure, the government's deposits may not be returned to it. Indiana Code 5- 13 -8 -1 allows a political subdivision of the State of Indiana to deposit public funds in a financial institution only if the financial institution is a depository eligible to receive state funds; and has a principal office or branch that qualifies to receive public funds of the political subdivision. At December 31, 2005, the bank balances held at Wells Fargo Bank NA and at Deutsche Bank Trust Company Americas in the amounts of $3,593,033 and $452,160 were collateralized with securities held by the pledging financial institution's trust department or agent but not in the depositor - City's name. The remaining bank balances were insured by the Federal Deposit Insurance Corporation or the Public Deposit Insurance Fund, which covers all public funds held in approved depositories. 2. Investments Authorization for investment activity is stated in Indiana Code 5 -13. As of December 31, 2005, the City had the following investments: 35 CITY OF SOUTH BEND NOTES TO FINANCIAL STATEMENTS (Continued) Primary Government Investment Maturities in s „{ , Ye ars) Investment Market Less More Type Value Than 1 1 -2 Than 2 U.S. Treasuries and Securities $ 1,776,565 $ 1,776,565 $ - $ Investment Policies Indiana Code 5 -13 -9 authorizes the City to invest in securities backed by the full faith and credit of the United States Treasury or fully guaranteed by the United States of America and issued by the United States Treasury, a federal agency, a federal instrumentality, or a federal government sponsored enterprise. Indiana Code also authorizes the unit to invest in securities fully guaranteed and issued by a federal agency, a federal instrumentality or a federal government sponsored enterprise. These investments are required by statute to have a stated final maturity of not more than two years. Indiana Code also provides for investment in money market mutual funds that are in the form of securities of or interest in an open -end, no -load, management -type investment company or investment trust registered under the provision of the federal Investment Company Act of 1940, as amended. Investments in money market mutual funds may not exceed 50% of the funds held by the City and available for investment. The portfolio of an investment company or investment trust used must be limited to direct obligations of the United States of America, obligations issued by a federal agency, a federal instrumentality, or a federal government sponsored enterprise, or repurchase agreements fully collateralized by direct obligations of the United States of America or obligations issued by a federal agency, a federal instrumentality, or a federal government spon- sored enterprise. The form of securities of or interest in an investment company or investment trust must be rated as AAA, or its equivalent, by Standard and Poor s. Corporation or its successor orAaa, or its equivalent, by Moody's Investors Service, Inc., or its successor. The form of securi- ties in an investment company or investment trust should have a stated final maturity of one day. Additionally, the City may enter into repurchase agreements with depositories designated by the State Board of Finance as depositories for state deposits involving the unit's purchase and guar- anteed resale of any interest - bearing obligations issued or fully insured or guaranteed by the United States of America, a United States of America government agency, an instrumentality of the United States of America, or a federal government sponsored enterprise. The repurchase agreement is considered to have a stated final maturity of one day. This agreement must be fully collateralized by interest - bearing obligations as determined by their current market value. Investment Custodial Credit Risk The custodial credit risk for investments is the risk that, in the event of the failure of the counter - party to a transaction, a government will not be able to recover the value of investment or col- lateral securities that are in the possession of an outside party. The City does not have a formal investment policy for custodial credit risk for investments. At December 31, 2005, the City held investments in U.S. treasuries and securities in the amount of $1,776,565. These investments were held by the counterparty's trust department or agent but not in the City's name. Kill CITY OF SOUTH BEND NOTES TO FINANCIAL STATEMENTS (Continued) Interest Rate Risk Interest rate risk is the risk that changes in interest rates will adversely affect the fair value of an investment. The City must follow state statute and limit the stated final maturities of the invest- ments to no more than two years. Credit Risk Credit risk is the risk that an issuer or other counterparty to an investment will not fulfill its obliga- tions. U.S. Treasury securities are guaranteed by the full faith and credit of the U.S. government and are recognized as the safest investment available. Concentration of Credit Risk Concentration of credit risk is the risk of loss attributed to the magnitude of a government's investment in a single issuer. The City does not have a policy in regards to concentration of credit risk. United States of America government and United States of America governmental agency securities are exempt from this policy requirement. Foreign Currency Risk The City does not have a formal policy in regards to foreign currency risk. The City does not have any foreign currency. B. Receivables The following receivable accounts have timing and credit characteristics different from typical ac- counts receivable. As of December 31, 2005, City funds recognized the following loan receivable balances. The sched- ule shows the total receivable and the portion that is not due within one year. These loans were for economic development projects. Fund Receivable Noncurrent Special revenue funds: Economic Development State Grants $ 4,089,987 $ 3,890,831 Community Development 1,972,735 1,206,286 Industrial Revolving 5,015,183 4,354,973 Totals C. Capital Assets $ 11,077,905 $ 9,452,090 Capital asset activity for the year ended December 31, 2005, was as follows: 37 CITY OF SOUTH BEND NOTES TO FINANCIAL STATEMENTS (Continued) Primary Government Governmental activities: Capital assets, not being depreciated: Land Construction in progress Total capital assets, not being depreciated Capital assets, being depreciated: Buildings Improvements other than buildings Machinery and equipment Roads being depreciated Totals Less accumulated depreciation for: Buildings Improvements other than buildings Machinery and equipment Roads being depreciated Totals Total capital assets, being depreciated, net Total governmental activities capital assets, net Business -type activities: Capital assets, not being depreciated: Land Construction in progress Total capital assets, not being depreciated Capital assets, being depreciated: Buildings Improvements other than buildings Machinery and equipment Totals 38 Beginning Ending Balance Increases Decreases Balance $ 11,564,931 $ - $ - $ 11,564,931 15,141,413 2,180,396 11,107,616 6,214,193 26,706,344 2,180,396 11,107,616 17,779,124 81,357,480 21,267,782 - 102,625,262 8,190,617 523,120 - 8,713,737 36,880,723 1,905,448 1,163,124 37,623,047 2,101,485 - - 2,101,485 128,530,305 23,696,350 1,163,124 151,063,531 19,102,238 1,764,301 - 20,866,539 3,985,236 504,714 - 4,489,950 17,367,908 2,561,491 1,039,068 18,890,331 51,662 100,242 - 151,904 1,357,822 256,876 40,507,044 4,930,748 1,039,068 44,398,724 92,600,964 88,023,261 18, 765,602 124,056 106,664,807 $ 114,729,605 $20,945,998 $ 11,231,672 $ 124,443,931 $ 3,020,575 $ - $ - $ 3,020,575 2,837,643 1,357,822 256,876 3,938,589 5,858,218 1,357,822 256,876 6,959,164 92,600,964 - 87,588 92,513,376 86,437,850 2,065,721 483,874 88,019,697 43,427,108 718,570 699,069 43,446,609 222,465,922 2,784,291 1,270,531 223,979,682 CITY OF SOUTH BEND NOTES TO FINANCIAL STATEMENTS (Continued) Beginning Ending Primary Government Balance Increases Decreases Balance Business -type activities (continued): Capital assets, being depreciated (continued): Less accumulated depreciation for: Buildings 28,601,477 2,241,271 74,616 30,768,132 Improvements other than buildings 17,554,984 1,622,676 18,998 19,158,662 Machinery and equipment 26,471,522 2,134,862 588,083 28,018,301 Totals Total capital assets, being depreciated, net Total business -type activities capital assets, net 72,627,983 5,998,809 681,697 77,945,095 149,837,939 (3,214,518) 588,834 146,034,587 $ 155,696,157 $ {1,856,696) $ 845,710 $ 152,993,751 Depreciation expense was charged to functionslprograms of the primary government as follows: Governmental activities: General government $ 231,933 Public safety 1,730,911 Highways and streets, including depreciation of general infrastructure assets 929,160 Health and welfare 11,564 Culture and recreation 1,919,446 Economic development 27,879 Internal service funds' 79,855 Total depreciation expense - governmental activities $ 4,930,748 Business -type activities: Water $ 1,645,381 Wastewater 3,443, 543 Civic center 548,235 Building permits 16,956 Parking garage 82,116 Solid waste 111,411 Golf course 151,167 Total depreciation expense - business -type activities $ 5,998,809 *Capital assets held by the primary governments internal service funds are charged to the various functions based on their usage of the assets. 39 CITY OF SOUTH BEND NOTES TO FINANCIAL STATEMENTS (Continued) D. Construction Commitments Construction work in progress is composed of the following: ►,1 Total Expended to Required Project December 31, Future Project Authorized 2005 Committed Funding Governmental activities. Riverwalk Sidewalk repair $ 293,431 $ 293,431 $ - $ - Morris Civic Marque 683,475 675,475 8,000 - St. Joseph Riverdam improvements 2,546,155 2,546,155 - - Riverside Bikeway/Walkway 446,642 446,642 - - Chapin Street Road construction 1,250,000 851,118 398,882 - United Drive relocation 500,000 438,352 61,648 O'Brien Fitness Center 920,000 702,508 217,492 - Fire Station equipment building 380,300 260,512 119,788 Total - governmental activities $ 7,020,003 $ 6,214,193 $ 805,810 $ - Business -type activities: Water Utility: Cleveland Well Field $ 300,315 $ 300,315 $ - $ - Ireland Road 48,456 48,456 - - Cleveland Well Field /Patricia) Lsine 49,150 49,150 - - River Crossing 5,480 5,480 - - Wastewater Utility' Homeland /Calvert infill housing 266,232 266,232 - - Edison Park separation 219,500 146,950 72,550 - DonaldiFox St. storm sewer ext 30,100 27,503 2,597 - Cedar /Rockne /Madison 71,600 24,141 47,459 - Model City detention basin 13,500 13,395 105 - Harter Heights separation 72,330 66,646 5,684 - Fellows /Johnson drainage study 35,500 34,864 636 - KensingtonlCrest Manor drainage 138,098 56,582 81,516 - Managed wetland CSO water 44,100 6,294 37,806 - Memorial Hospital /Lafayette drainage 221,600 108,085 113,515 - Angela River Crossing No. 5 218,011 83,471 134,540 - Douglas Road sewer extension 327,191 20,320 306,871 - Peppersllronwood sewer 151,415 123,878 27,537 - Backwater gate replacement - design 50,400 30,725 19,675 - Charles Street sewer- engineering 142,201 142,201 - - CollegelOrange - design 13,500 - 13,500 - Ireland /Miami /Chippewa Basin 46,315 46,315 - - Darden sewer extension - engineering 10,900 10,355 545 - Secondary improvement 2,327,231 2,327,231 - - Totals - business -type activities $ 4,803,125 $ 3,938,589 $ 864,536 $ - ►,1 CITY OF SOUTH BEND NOTES TO FINANCIAL STATEMENTS (Continued) E. Interfund Balances and Activity 1, Interfund Receivables and Payables The composition of interfund balances as of December 31, 2005, is as follows: Interfund balances resulted from the time tag between the dates that (1) Interfund loans are repaid, (2) Interfund goods and services are provided or reimbursable expenditures occur, (3) transactions are recorded in the accounting system and (4) payments between funds are made. 2. Advances Between Funds The advances included a loan balance due from the Hall of Fame Operating Fund, a nonmajor governmental fund, to the General Fund, $1,750,000. The loan was made during the years from 1996 to 1999. This loan is to be repaid from excess operating revenues of the College Football Hall of Fame. No payment schedule has been established. The advances also include a loan balance, $506,448, due from the Economic Development State Grants Fund to the Industrial Revolving Fund, both nonmajor governmental funds. This loan was made during 2002 for an economic development project. 3. Interfund Transfers Interfund transfers at December 31, 2005, were as follows: 41 Governmental Funds Enterprise Funds Park and Century Nonmajor Internal Receivable General Recreation COIT Nonmajor Water Wastewater Center Enterprise Service Total Governmental funds: General $ $ 3,202 $ $960 $ 44,230 $ 3,421 $ 598 $ 1,301 $ 891,229 $ 691,854 $ 1,644,795 COIT - - 48,093 - - 48,093 TIP - Airport - 1,439,500 1,439,500 Nonmajor governmental 6,496 - 6,496 Enterprise funds: Water 3,367 5,678 - 935 1,097 179 503 7,759 Wastewater 162,747 20,766 - - 183,513 Century Center 1,354 1,354 Internal service 263,510 30,885 18,306 22,517 65,803 538 49,207 58 450,824 Totals $ 430,978 $ 35,765 $ 8,960 $ 89,798 $_ _25,938 $ 115,429 $ 2.936 $ 2,380,115 $ 692,415 $ 3,782,334 Interfund balances resulted from the time tag between the dates that (1) Interfund loans are repaid, (2) Interfund goods and services are provided or reimbursable expenditures occur, (3) transactions are recorded in the accounting system and (4) payments between funds are made. 2. Advances Between Funds The advances included a loan balance due from the Hall of Fame Operating Fund, a nonmajor governmental fund, to the General Fund, $1,750,000. The loan was made during the years from 1996 to 1999. This loan is to be repaid from excess operating revenues of the College Football Hall of Fame. No payment schedule has been established. The advances also include a loan balance, $506,448, due from the Economic Development State Grants Fund to the Industrial Revolving Fund, both nonmajor governmental funds. This loan was made during 2002 for an economic development project. 3. Interfund Transfers Interfund transfers at December 31, 2005, were as follows: 41 CITY OF SOUTH BEND NOTES TO FINANCIAL STATEMENTS (Continued) Transfer To General Nonmajor Transfer From Fund COIT TIF - Airport Governmental Total General $ - $ - $ - $ 866,130 $ 866,130 Park and recreation - - - 99,$95 99, &95 COIT - - - 2,504,000 2,504,000 T1 - Airport - - - 383,921 383,921 Nonmajor governmental 250,000 9,033 7,759 4,178,415 4,445,207 Nonmajor enterprise - - 33,589 - 33,589 Totals $ 250,000 $ 9,033 $ 41,348 ",032,361 $ 8,332,742 The primary government typically uses transfers to fund ongoing operating subsidies and to transfer the portion of state - shared revenues from the general fund to the debt service fund for current -year debt service requirements. F. Leases 1. Operating Leases The primary government has entered into various operating leases having initial or remaining noncancelable terms exceeding one year for golf cart global positioning systems, vehicles, copiers, and office space. Rental expenditures for these leases were $275,492. The following is a schedule by years of future minimum rental payments as of December 31, 2005: 2006 $ 288,401 2007 160,915 2008 64,376 2009 53,708 2010 12,755 Total $ 580.155 2. Capital Leases The primary government has entered into various capital leases for various types of equipment, a softball complex, and a parking garage. The parking garage capital lease is being repaid from governmental funds. Future minimum lease payments and present values of the net minimum lease payments under these capital leases as of December 31, 2005, are as follows: 42 CITY OF SOUTH BEND NOTES TO FINANCIAL STATEMENTS (Continued) 2006 2007 2008 2009 2010 2011-2015 Total minimum lease payments Less amount representing interest Present value of net minimum lease payments Governmental Business -Type Activities Activities $ 889,595 $ 443,482 795,190 443,482 630,988 443,482 457,803 343,410 328,901 171,745 1,000,000 - 4,102,477 1,845,561 647,850 135,528 1 AKA a77 @ 4 '71n n44 Assets acquired through capital leases still in effect are as follows: Buildings Improvements other than buildings Machinery and equipment Totals Accumulated depreciation Totals Governmental Business -Type $ 1,940,044 $ 587,801 - 2,525,113 1,006,187 5,052,958 1,006,187 842,196 95,937 (Z A9107R) (t a1n7rn "Additional assets under capital leases totaling $1,024,984, with individual costs less than the capital asset threshold of $5,000, are not included in this amount. G. Long -Term Liabilities 1. General Obligation Bonds The primary government issues general obligation bonds to provide funds for the acquisition and construction of major capital facilities. General obligation bonds are direct obligations and pledge the full faith and credit of the primary government. General obligation bonds currently outstanding at year end are as follows: 43 CITY OF SOUTH BEND NOTES TO FINANCIAL STATEMENTS (Continued) Interest Purpose Rates Original Outstanding Issue 12 -31 -05 1997 Redevelopment District refunding 4.0% to 5.1% $ 4,750,000 $ 320,000 General obligation bonds payable at December 31, 2005, includes $1,847 unamortized bond discount. Annual debt service requirements to maturity for general obligation bonds are as follows: Year Ended Governmental Activities December 31 Principal Interest 2006 $ 320,000 $ 8,160 2. Mortgage Bonds 95,338 Mortgage Bonds outstanding at year end are as follows: Purpose Rates 20,500,000 920,000 Governmental Activities 1999A Fire Station 5% 1999C O'Brien Center 5% 2001 Public Works Service Center 4.63% to 5.3% 2003 New Fire StationlPolice renovations 2% to 5% 2005 Park Fitness Center renovations 3.61% Total - governmental activities Issue 12 -31 -05 $ 1,388,858 $ 234,699 570,000 95,338 8,112,250 7,244,020 21,335,000 20,500,000 920,000 920,000 $ 32,326,108 $28,994,057 Business -Tvoe Activities 2001 Public Works Service Center 4.63% to 5.3% $ 1,137,750 $ 1,015,980 Mortgage bonds at year end include the following amounts of unamortized bond discount (pre- mium): 44 CITY OF SOUTH BEND NOTES TO FINANCIAL STATEMENTS (Continued) Unamortized Balance at Discount Adjusted Purpose December 31 (Premium) Balance Governmental Activities 1999A Fire Station $ 234,699 $ - $ 234,699 1999C O'Brien Center 95,338 - 95,338 2001 Public Works Service Center 7,244,020 62,870 7,181,150 2003 New Fire Station /Police renovations 20,500,000 (536,744) 21,036,744 2005 Park Fitness Center renovations 920,000 1,379,285 920,000 45,510 48,050 Total - governmental activities $ 28,994,057 $ (473,8 $ 29,467,931 Business -Type Activities 2001 Public Works Service Center $ 1,015,980 $ 12,213 $ 1,003,767 Mortgage debt service requirements to maturity are as follows: Year Ended Governmental Activities Business -Type Activities December 31 Principal Interest Principal Interest 2006 $ 1,656,933 $ 1,279,737 $ 43,665 $ 50,112 2007 1,379,285 1,212,009 45,510 48,050 2008 1,423,375 1,165,421 47,970 45,859 2009 1,473,317 1,116,990 49,815 43,537 2010 1,522,892 1,064,546 52,275 41,112 2011 -2015 7,499,880 4,397,942 300,120 164,209 2016 -2020 9,403,780 2,485,410 386,220 77,062 2021 -2025 4,634,595 321,206 90,405 2,396 Totals $ 28,994,057 $ 13,043,261 $ 1,015,980 $ 472,337 3. Revenue Bonds The primary government issues bonds to be paid by income derived from the acquired or con- structed assets. Revenue bonds outstanding at year end are as follows: 45 CITY OF SOUTH BEND NOTES TO FINANCIAL STATEMENTS (Continued) Purpose Governmental Activities Tax Incremental Financing Revenue Bonds: 2002 TJX Special Taxing District 2003 Airport TIF 2003 SB Downtown Central Development TIF 2005 Southside TIF Redevelopment Authority Revenue Bonds: 1996 Central Development Refinancing 1998 Morris Performing Arts Center 2000 Hall of Fame Refinancing 2001 Century Center Refinancing CEDIT Revenue Bonds: 1997 CEDIT Bonds Total - governmental activities Business -Tvve Activities 1993 Water Works Improvement 1997 Water Works Improvement 2002 Water Works Improvement 2001 Sewage Works Refinancing 2004 Sewage Works Improvements 1998 Blackthorn Golf Course Refinancing Total - business -type activities Interest Original Outstanding Rates Issue 12 -31 -05 3.0 % to 4.75% $ 6,620,000 $ 5,850,000 1.6% to 5.20 % 14,420,000 13,680,000 1.6% to 5.20% 19,795,000 19,590,000 6.1 %o to 6.75% 5,485,000 5,485,000 4% to 5.85% 3,790,000 2,935,000 4.5% to 5.1 %a 13,300,000 9,915,000 4.45% to 6.0% 15,370,000 12,565,000 2.9% to 5.0 % 6,825,000 5,545,000 3.9% to 7.25% 11,870,000 8,660,000 $ 97,475,000 $ 84,225,000 3.4 % to 5.1 %a $ 5,100,000 $ 1,490,000 4.35% to 4.75% 22,500,000 11,420,000 3.5 % to 5.0 % 5,975,000 5,375,000 3.0% to 4.25% 5,240,000 2,440,000 2.5% to 4.75% 11,425,000 11,035,000 3.25% to 4.8% 6,135,000 4,230,000 $ 56,375,000 $ 35,990,000 Unamortized Unamortized Balance at Discount Loss (Gain) on Adjusted Purpose December 31 (Premium)_ Refunding Balance Governmental Activities Tax Incremental Financing Revenue Bonds: 2002 TJX Special Taxing District 2003 Airport TIF 2003 SB Downtown Central Development TIF 2005 Southside TIF Redevelopment Authority Revenue Bonds: 1996 Central Development Area Refinancing 1998 Morris Performing Arts Center 2000 Hall of Fame Refinancing 2001 Century Center Refinancing CEDIT Revenue Bonds: 1997 CEDIT Bonds Total - governmental activities ,• $ 5,850,000 $ 56,015 $ - $ 5,793,985 13,680,000 - 13,680,000 19,590,000 - - 19,590,000 5,485,000 68,398 5,416,602 2,935,000 4,657 51,653 2,878,690 9,915,000 80,500 - 9,834,500 12,565,000 43,143 (12,557) 12,534,414 5,545,000 42,738 319,545 5,182,717 8,660,000 _ 84,130 - 8,575,870 $ 84,225,000 $ 379,581 $ 358,641 $ 83,486,778 CITY OF SOUTH BEND NOTES TO FINANCIAL STATEMENTS (Continued) Total - business -type activities $ 35,990,000 $ 82 $ 223,940 $ 35,765,978 Revenue bonds debt service requirements to maturity are as follows: Year Ended December 31 Governmental Activities Business -Type Activities Principal Interest Principal Interest 2006 $ 3,540,000 $ Unamortized Unamortized $ 1,152, 042 2007 Balance at Discount Loss (Gain) on Adjusted Purpose 31 (Premium) Refunding Balance 2009 Business -Type Activities 3,631,892 3,570,000 1,101,823 2010 1993 Water Works Improvement $ 1,490,000 $ 1,794 $ 1,488,206 1997 Water Works Improvement 11,420,000 14,552 - 11,405,448 2002 Water Works Improvement 5,375,000 9,588 - 5,365,412 2001 Sewage Works Refinancing 2,444,000 (2(3,742) 72,221 2,397,521 2004 Sewage Works Improvement 11,035,000 (28,212) - 11,063,212 1998 Blackthorn Golf Course Refinancing 4,230,000 32,102 151,719 4,046,179 Total - business -type activities $ 35,990,000 $ 82 $ 223,940 $ 35,765,978 Revenue bonds debt service requirements to maturity are as follows: Year Ended December 31 Governmental Activities Business -Type Activities Principal Interest Principal Interest 2006 $ 3,540,000 $ 4,140,205 $ 1,625, 000 $ 1,152, 042 2007 3,690,000 3,987,255 4,035,000 1,466,208 2008 4,015,000 3,818,510 4,240,000 1,289,334 2009 4,380,000 3,631,892 3,570,000 1,101,823 2010 4,780,000 3,420,849 3,170,000 952,618 2011 -2015 27,745,000 13,315,378 9,885,000 2,985,438 2016 -2020 22,110,000 6,287,222 4,970,000 1,753,913 2021 -2025 13,065,000 1,922,873 4,495,000 488,689 2026 -2030 900,000 61,763 - - 1,317,498 389,589 5,159,720 Totals $ 84,225,000 $ 40,585,947 $ 35,990,000 $ 11,190,065 4. Notes and Loans Payable The primary government has entered into various noteslloans. Annual debt service requirements to maturity for the notes/loans are as follows: Year Ended Governmental Activities Business-Type Activities December 31 Principal Interest Principal Interest 2006 $ 1,028,647 $ 406,727 $ 1,316,500 $ 1,083,779 2007 941,820 364,590 1 ,427,122 1,041,952 2008 998,952 327,200 1,470,765 965,307 2009 996,143 286,298 1,509,514 886,234 2010 1,045,693 242,294 1,553,371 805,023 2011 -2015 2,224,188 707,541 8,222,872 2,729,466 2016 -2020 1,317,498 389,589 5,159,720 531,693 2021 -2025 986,830 128,454 _ - Totals $ 9,539,771 $ 2,852,693 $ 20,659,864 $ 8,043,454 47 CITY OF SOUTH BEND NOTES TO FINANCIAL STATEMENTS (Continued) 5. Changes in Long -Term Liabilities Long -term liability activity for the year ended December 31, 2005, was as follows: Compensated absences for governmental activities typically have been liquidated from the gen- eral fund and special revenue funds. All of the December 31, 2005, business -type activities' com- pensated absences are due within one year. H. Segment Information The primary government issued revenue bonds to finance Blackthorn Golf Course improvements. Investors in the revenue bonds rely solely on the revenue generated by the individual activities for repayment. Summary financial information for the Blackthorn Golf Course is presented below. 48 Due Beginning Ending Within Prim,a„ry Government Balance Additions Reductions Balance One Year ... Governmental activities: Bonds payable: General obligation $ 935,000 $ $ 615,000 $ 320,000 $ 320,000 Revenue 82,135,000 5,485,000 3,395,000 84,225,000 3,540,000 Mortgage 29,525,289 920,000 1,451,232 28,994,057 1,656,933 Total bonds payable 112,595,289 6,405,000 5,461,232 113,539,057 5,516,933 Notes and loans payable 7,948,868 2,510,278 919,375 9,539,771 1,028,647 Capital leases 2,971,007 1,177,900 694,280 3,454,627 740,870 Compensated absences 3,815,919 3,975,595 3,135,211 4,656,303 3,297,602 Net pension obligation 40,669,182 19,555,811 - 60,224,993 Total governmental activities long -term liabilities $ 168,000,265 $ 33,624,584 $ 10,210,098 $ 191,414,751 $ 10,584,052 Business -type activities: Revenue bonds payable: Water Utility $ 20,530,000 $ $ 2,245,000 $ 18,285,000 $ - Wastewater Utility 14,625,000 1,150,000 13,475,000 1,180,000 Blackthorn Golf Course 4,660,000 - 430,000 4,230,000 445,000 Total revenue bonds payable 39,815,000 - 3,825,000 35,990,000 1,625,000 Mortgage bonds payable 1,056,415 - 42,435 1,015,980 43,665 Capital leases payable 520,389 1,571,605 381,961 1,710,033 390,833 Notes and loans payable 21730,271 421,175 1,491,582 20,659,864 1,316,500 Total business -type activities long -term liabilities $ 63,124,075 $ 1,992,780 $ 5,740,978 $$ 59375,877 $ 3,375,998 Compensated absences for governmental activities typically have been liquidated from the gen- eral fund and special revenue funds. All of the December 31, 2005, business -type activities' com- pensated absences are due within one year. H. Segment Information The primary government issued revenue bonds to finance Blackthorn Golf Course improvements. Investors in the revenue bonds rely solely on the revenue generated by the individual activities for repayment. Summary financial information for the Blackthorn Golf Course is presented below. 48 CITY OF SOUTH BEND NOTES TO FINANCIAL STATEMENTS (Continued) Total assets $ 4,572,278 Liabilities: Current liabilities $ 1,449,478 Current liabilities payable from restricted assets 510,287 Noncurrent liabilities 3,601,179 Total liabilities $ 5,560,944 Net assets: Invested in capital assets, net of related debt $ (970,449) Restricted 1,207, 362 Unrestricted (1,225, 579) Total net assets $ (988,666) Condensed Statement of Revenues, Expenses and Changes in Net Assets Operating revenues $ 1,546,515 Depreciation expense 151,167 Other operating expenses 1,357,045 Operating income 38,303 Nonoperating revenues (expenses) Investment earnings 34,578 Interest expense (224,392) Amortization (4,335) Transfers (33,589) Change in net assets (189,435) Beginning net assets (799,231) Ending net assets $ 988,666) ,. CITY OF SOUTH BEND NOTES TO FINANCIAL STATEMENTS (Continued) Condensed Statement of Cash Flows Net cash provided (used) by: Operating activities $ 199,029 Noncapital financing activities 454,411 Capital and related financing activities (653,639) Investing activities 38,424 Net increase (decrease) 38,225 Beginning cash and cash equivalents 1,413,347 Ending cash and cash equivalents $ 1,451,572 I. Restricted Assets The balances of restricted asset accounts in the enterprise funds are as follows: Cash, cash equivalents, and investments Repair fund $ 118,360 Customer deposits 1,267,867 Revenue bond covenant accounts 5,727,665 Capital outlay accounts 11,466,966 Capital outlay accounts - investments 841,974 Repair fund receivable 116,373 Total restricted assets $ 19,539,205 J. Restatements and Reclassifications For the year ended December 31, 2005, certain changes have been made to the financial statements to more appropriately reflect financial activity of the primary government. The following schedule pre- sents a summary of restated beginning balances. Prior period adjustments represent capital assets previously reported incorrectly in business -type activities. Balance Balance as Reported Prior as Restated December 31, Period January 1, Fund Type _ 2004 Adjustments 2005 Governmental activities: Net Assets $ 68,600,571 $ 2,094,407 $ 70,694,978 Business -type activities: Net Assets $ 125,640,721 $ (2,094,407) $ 123.546.314 50 CITY OF SOUTH BEND NOTES TO FINANCIAL STATEMENTS (Continued) K. Loss on Sale /Leaseback of Leighton Parking Garage During 2000, the City completed construction of the Leighton Parking Garage and capitalized the cost of the garage, $11,439,712, in the Parking Garage Fund, an enterprise fund. On December 1, 2000, the City sold the garage to the South Bend Transportation Company (TRANSPO) for $3,000,000 as part of a sale /leaseback agreement. The proceeds were receipted into the County Option Income Tax Fund. This fund is also making the future lease payments to TRANSPO. The present value of the lease, $1,960,044, was the new basis for the parking garage. As part of this salelleaseback, the Parking Garage Fund recognized a deferred loss of $8,439,712, which is being amortized over the 15 year life of the lease. L. Property Held For Resale The City's Redevelopment Commission has purchased properties in blighted areas for redevelopment and subsequent resale. At December 31, 2005, the market value of these properties was not known. These properties are recognized as assets at cost in the funds that purchased the property. IV. Other Information A. Risk Management The primary government is exposed to various risks of loss related to torts; theft of, damage to, and destruction of assets; errors and omissions; job related illnesses or injuries to employees; medical benefits to employees, retirees, and dependents; and natural disasters. The risks of torts; theft of, damage to, and destruction of assets; errors and omissions; and natural disasters are covered by commercial insurance from independent third parties. Settled claims from these risks have not exceeded commercial insurance coverage for the past three years. There were no significant reductions in insurance by major category of risk. Liability Insurance The primary government has chosen to establish a risk financing fund for risks associated with job related illnesses or injuries to employees, automobile liability, and comprehensive liability. The risk financing fund is accounted for in the Liability Insurance Premium Reserve Fund, an internal service fund, where assets are set aside for claim settlements. An excess policy through commercial insur- ance covers individual claims in excess of $250,000 per year for job related illnesses or injuries to employees and $50,000 per year for damage to and destruction of assets. Settled claims resulting from this risk did not exceed commercial insurance coverage in the past three years. A premium is charged to each fund based on a study of paid claims and based on the number of employees and percent of the total budget. Provisions are also made for unexpected and unusual claims. Claim expenditures and liabilities of the fund are reported when it is probable that a loss has occurred and the amount of the loss can be reasonably estimated. These losses include an estimate of claims that have been incurred but not reported (IBNRs). Claim liabilities are calculated considering the effects of inflation, recent claim settlement trends including frequency and amounts of pay outs and other economic and social factors. 51 CITY OF SOUTH BEND NOTES TO FINANCIAL STATEMENTS (Continued) Changes in the balance of claim liabilities during the past two years are as follows: 2004 2005 Unpaid claims, beginning of fiscal year $ 414,884 $ 756,221 Incurred claims and changes in estimates 1,959,330 1,955,208 Claim payments 1,617,993 2,323,227 Unpaid claims, end of fiscal year $ 756,221 $ 388,202 Group Health Insurance The primary government has chosen to establish a risk financing fund for risks associated with medical benefits of employees and their covered dependents. The risk financing fund is accounted for in the Self Funded Employee Benefits Fund, an internal service fund, where assets are set aside for benefit costs. An excess policy through commercial insurance covers individual claims in excess of $125,000 per year. Settled claims resulting from this risk did not exceed commercial insurance coverage in the past three years. A premium is charged to each fund bases on the number of em- ployees and estimated costs exceeding the employees' contributions. Provisions are also made for unexpected and unusual claims. Claim expenditures and liabilities of the fund are reported when it is probable thata loss has occurred and the amount of the loss can be reasonably estimated. These losses include an estimate of claims that have been incurred but not reported (IBNRs). Claim liabilities are calculated considering the effects of inflation, recent claim settlement trends including frequency and amounts of pay outs and other economic and social factors. Changes in the balance of claim liabilities during the past two years are as follows: 2004 2005 Unpaid claims, beginning of fiscal year $ 778,500 $ 892,815 Incurred claims and changes in estimates 9,093,235 10,107,876 Claim payments 8,978,920 10,186,370 Unpaid claims, end of fiscal year $ 892,815 $ 814,321 During 2005, the employee medical benefits' administrator, Healthcare Resources Group (HRG), failed to pay $1,111,899 in health care claims for City employees. The City had paid HRG for the claims. HRG was purchased by another business that has filed bankruptcy. The City has been notified by the bankruptcy court that the court has received approximately 70% of the total claims and the City has recognized a receivable for this percent of the total claims. The remaining claims, $333,570 have been recognized as a loss by the City. In the future, the City may receive more pay- ments from the bankruptcy court. The City may also receive restitution from a pending criminal case. 52 CITY OF SOUTH BEND NOTES TO FINANCIAL STATEMENTS (Continued) B. Subsequent Events On February 8, 2006, the City issued $2,440,000 tax incremental financing (TIF) bonds. The pro- ceeds will be used to finance improvements in the southeast TIF area. The City has set May 23, 2006, as the date to sell $4,710,000 waterworks revenue bonds. The pro- ceeds will be used to finance improvements to the water utility. The City has also set May 23, 2006, as an anticipated bond sale date to sell $7,630,000 sewage works revenue bonds. The proceeds will be used to finance improvements to the wastewater utility. This is the first of a series of bonds, with the total not to exceed $56,380,000. During 2005, the City approved a loan from the U.S. Department of Housing and Urban Development for $9,180,000 to finance economic development activities. During March 2006, the City received $500,000 as the first draw on the loan. Also during 2005, the City approved the sale of real estate commonly called the Studebaker Stamping Plant, to the South Bend Transportation Company (TRANSPO). TRANSPO paid the City $1,000,000 during 2005 and will pay the $3,000,000 balance to the City after demolition and infrastructure improvements are completed (estimated late in 2007). C. Contingent liabilities Colleae Football Hall of Fame Operations The City's General Fund has advanced a total of $1,750,000 to the College Football Hall of Fame Fund in various amounts during the years from 1996 to 1999. The City has always recognized that these advances would be repaid from excess operating revenues of the Hall of Fame. No payment schedule has been established. Beginning with 1996, the first full year of operations, through 2000, the Hall of Fame financial statements show net losses ranging from $521,345 to $1,481,657. During 2001, the City turned over the operations of the Hall of Fame to the National Football Founda- tion and College Football Hall of Fame, Inc. (NFF). The interim agreement authorizing the NFF to operate the Hall of Fame shows that NFF has contributed $1,900,000 to cover operating deficits of the Hall of Fame during the period prior to December 31, 2000. The interim agreement is in effect until December 31, 2005. At thattime, the NFF can terminate their participation in the operations and the City shall reimburse the NFF the full amount of the NFF contri- butions towards operations. The reimbursement will be made in five annual installments beginning December 31, 2005. The interim agreement has been extended to May 15, 2006. If the NFF elects to continue their participation, then the City will resume operating the Hall of Fame as it had done from 1996 to 2001. The $1,900,000 contingent liability to the NFF is not recognized on the financial state- ments. Project Future The Common Council approved Resolution 3037 -02 in which the City pledges support to Project Future through the year 2006. Project Future promotes the City for economic development purposes. The City has committed $110,000 for each year from 2003 through 2006 contingent upon the fiscal condition of the City. 53 CITY OF SOUTH BEND NOTES TO FINANCIAL STATEMENTS (Continued) Lawsuits Several lawsuits are pending in which the City is involved. The City is in various court proceedings phases or settlement phase on lawsuits; the City Attorney estimates that the potential damages against the City may exceed $2,300,000. D. Conduit Debt Obligation From time to time, the primary government 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 primary government, the State, nor any political subdivision thereof is obligated in any manner for the repayment of the bonds. Accordingly, the bonds are not reported as liabilities in the accompanying financial statements. As of December 31, 2005, there were several series of industrial revenue bonds outstanding. The aggregate principal amount payable is not available to the City. During 2005, the City approved three series of industrial revenue bonds in the total amount of $17,200,000. E. Postemployment Benefits In addition to the pension benefits described below, the primary government provides postemploy- ment healthcare benefits, as authorized by Indiana Code 5 -10 -8, to retired police officers and fire- fighters who reach normal retirement while working forthe City. Currently, 91 retirees meetthese eli- gibility requirements and are covered by the postemployment program. The retirees must pay the em- ployee and employer assessments. During the year ended December 31, 2005, expenditures of $825,468 were recognized for postemployment benefits. F. Pension Plans 1. A gent Multiple-Employer and Single-Employer Defined Benefit Pension Plans a. Public Employees' Retirement Fund Plan_ Description The primary government contributes to the Indiana Public Employees' Retirement Fund (PERF), a defined benefit pension plan. PERF is an agent multiple - employer public em- ployee retirement system, which provides retirement benefits to plan members and bene- ficiaries. All full -time employees are eligible to participate in the defined benefit plan. State statutes (IC 5 -10.2 and 5 -10.3) govern, through the PERF Board, most requirements of the system and give the primary government authority to contribute to the plan. The PERF retire- ment benefit consists of the pension provided by employer contributions plus an annuity pro- vided by the member's annuity savings account. The annuity savings account consists of member's contributions, set by state statute at 3% of compensation, plus the interest credited to the member's account. The employer may elect to make the contributions on behalf of the member. 54 CITY OF SOUTH BEND NOTES TO FINANCIAL. STATEMENTS (Continued) PERF administers the plan and issues a publicly available financial reportthat includes finan- cial statements and required supplementary information for the plan as a whole and for its participants. The report may be obtained by contacting; Public Employees' Retirement Fund Harrison Building, Room 800 143 West Market Street Indianapolis, IN 46204 Ph. (317) 233 -4162 Funding Policy and Annual Pension Cost The contribution requirements of plan members for PERF are established by the Board of Trustees of PERF. The primary government's annual pension cost and related information, as provided by the actuary, is presented in this note. Information to segregate the assets /liabilities and the actuarial study figures between the primary government and the Utilities is not available. Therefore, the Net Pension Asset is considered an obligation of the primary government and is presented in the governmental activities of the financial statements and is not presented as an asset of the proprietary funds. b. 1925 Police Officers' Pension Plan Plan Descriotion The primary government contributes to the 1925 Police Officers' Pension Plan which is a single- employer defined benefit pension plan. The plan is administered by the local pension board as authorized by state statute (IC 36 -8-6). The plan provides retirement, disability, and death benefits to plan members and beneficiaries. The plan was established by the plan ad- ministrator, as provided by state statute. The plan administrator does not issue a publicly available financial report that includes financial statements and required supplementary infor- mation of the plan. Funding Policy and_Annual Pension Cost The contribution requirements of plan members for the 1925 Police Officers' Pension Plan are established by state statute. The primary government's annual pension cost and related information as provided by the actuary is presented in this note. The Net Pension Obligation (NPO) is considered an obligation of the City and is reflected in the Statement of Net Assets. As provided by state statute, all administrative costs are paid from employer contributions to the fund. c. 1937 Firefighters' Pension Plan Plan Description The primary government contributes to the 1937 Firefighters' Pension Plan which is a single - employer defined benefit pension plan. The plan is administered by the local pension board as authorized by state statute (IC 36 -8 -7). The plan provides retirement, disability, and death benefits to plan members and beneficiaries. The plan was established by the plan adminis- trator, as provided by state statute. The plan administrator does not issue a publicly available financial reportthat includes financial statements and required supplementary information of the plan. 55 CITY OF SOUTH BEND NOTES TO FINANCIAL STATEMENTS (Continued) Funding Policy and Annual Pension Cost The contribution requirements of plan members for the 1937 Firefighters' Pension Plan are established by state statute. The primary government's annual pension cost and related information, as provided by the actuary, is presented in this note. The Net Pension Obligation (NPO) is considered an obligation of the City and is reflected in the Statement of Net Assets. As provided by state statute, all administrative costs are paid from employer contributions to the fund. Actuarial Information for the Above Plans Contribution rates: City Plan members Actuarial valuation date Actuarial cost method Amortization method Amortization period Amortization period (from date) Asset valuation method 4.13% 3% 07 -01 -05 Entry age Level percentage of projected payroll, closed 40 years 07 -1 -97 75 %fl of expected actuarial value plus 25% of market value 56 917% 6 % 01 -01 -05 Entry age Level percentage of projected payroll, closed 30 years 01 -01 -05 4 year phase in of unrealized and realized capital 1,261 % 6 % 01 -01 -05 Entry age Level percentage of projected payroll, closed 30 years 01 -01 -05 4 year phase in of unrealized and realized capital 1925 Police 1937 Officers' Firefighters' PERF Pension Pension Annual required contribution $ 1,195,669 $ 9,623,400 $ 8,172,300 Interest on net pension obligation (17,786) 1,878,700 1,720,500 Adjustment to annual required contribution 20,269 (3,282,200) (3,005,700) Annual pension cost 1,198,152 8,219,900 6,887,100 Contributions made 1,090,429 4,171,092 4,032,357 Increase in net pension obligation 107,723 4,048,808 2,854,743 Net pension obligation, beginning of year (245,325) 27,832,919 25,488,523 Net pension obligation, end of year $ (137,602) $ 31,881,727 $ 28,343,266 1925 Police 1937 Officers' F=irefighters' PERF Pension Pension Contribution rates: City Plan members Actuarial valuation date Actuarial cost method Amortization method Amortization period Amortization period (from date) Asset valuation method 4.13% 3% 07 -01 -05 Entry age Level percentage of projected payroll, closed 40 years 07 -1 -97 75 %fl of expected actuarial value plus 25% of market value 56 917% 6 % 01 -01 -05 Entry age Level percentage of projected payroll, closed 30 years 01 -01 -05 4 year phase in of unrealized and realized capital 1,261 % 6 % 01 -01 -05 Entry age Level percentage of projected payroll, closed 30 years 01 -01 -05 4 year phase in of unrealized and realized capital CITY OF SOUTH BEND NOTES TO FINANCIAL STATEMENTS (Continued) Actuarial Assurn 1925 Police 1937 Officers' Firefighters' PERF Pension Pension Investment rate of return 7.25% 6% 6% Projected future salary increases: Total 5% 4% 4% Attributed to inflation 4% 4% 4% Attributed to meritlseniority 1% 0% 0% Cost -of- living adjustments 2% 2.75 %14 %" 2.75 %14 %* - 2.75% for converted members; 4% for nonconverted members Three Year Trend Information Annual Percentage Net Pension Cost of APC Pension Year Ending (APQ Contributed Obligation PERF 06 -30 -03 $ 1,149,141 67% $ (264,711) 06 -30 -04 940,596 98% (245,325) 06 -30 -05 1,198,152 116% (137,602) 1925 Police Officers' Pension Plan 12 -31 -02 7,760,500 40% 24,076,968 12-31-03 7,909,900 53% 27, 832, 919 12 -31 -04 8,219,900 51% 31,881,727 1937 Firefighters' Pension Plan 12 -31 -02 6,995,800 43% 22,566,016 12 -31 -03 6,903,600 58% 25,488,523 12 -31 -04 6,887,100 59% 28, 343,266 Membership in the 1925 Police Officers' Pension Plan and the 1937 Firefighters' Pension Plan at January 1, 2005, was comprised of the following: 1925 Police 1937 Officers' Firefighters' Pension Pension Retires and beneficiaries currently receiving benefits 224 214 Terminated employees entitled to but not yet receiving benefits - - Current active employees 12 7 57 CITY OF SOUTH BEND NOTES TO FINANCIAL STATEMENTS (Continued) d. Financial Statements for Defined Benefit Plans Statements of _Fiduciary Net Assets Assets Cash and cash equivalents Receivables: Taxes Intergovernmental Total assets Liabilities Accounts payable Noncurrent liabilities: DROP payable - due within one year DROP payable - long -term Total liabilities 1925 Police 1937 Officers' Firefighters' Pension Pension $ 842,625 $ 1,547,957 193,485 215,427 4,320 4,810 1,040,430 1,768,194 87 - 153,198 258,910 803,586 959,829 956,871 1,218,739 Net Assets Held in trust for pension benefit obligations $ 83,559 $ 549,455 Statements of Changes in Fiduciary Net Assets: Additions: Contributions: Employer $ 4,275,696 $ 4,136,726 Plan members 62,936 38,891 Other 4,795 1,775 Total contributions Investment income: Interest Total additions IMN 4,343,427 4,177,392 116,105 122,376 4,459, 532 4,299,768 CITY OF SOUTH BEND NOTES TO FINANCIAL STATEMENTS (Continued) Statements of Changes in Fiduciary Net Assets (continued): Deductions: Benefits and refunds paid to plan members and beneficiaries Administrative expenses Total deductions Changes in net assets Net assets - beginning Net assets — ending 1925 Police 1937 Officers' Firefighters' Pension Pension 5,262,782 4,578,073 27,923 12,884 5,290,705 4,590,957 .............. (831,173) (291,189) 914,732 840,644 $ 83,559 $ 549,455 2. Cost, - Sharing Multiple- Empfoyer Defined Benefit Pension Plan 1977 Police, Officers' and Firefighters' Pension and Disability Fund , Offi,,,.,...._ Plan Description The primary government contributes to the 1977 Police Officers' and Firefighters' Pension and Disability Fund, a cost- sharing multiple - employer defined benefit pension plan administered by the Indiana Public Employees' Retirement Plan (PERF) for all police officers and firefighters hired after April 30, 1977. State statute (IC 36 -8 -8) regulates the operations of the system, including benefits, vesting and requirements for contributions by employers and by employees. Covered employees may retire at age 55 with 20 years of service. An employee with 20 years of service may leave service, but will not receive benefits until reaching age 55. The plan also provides for death and disability benefits. PERF issues a publicly available financial report that includes financial statements and required supplementary information for the plan as a whole and for its participants. That report may be obtained by contacting: Public Employees' Retirement Fund Harrison Building, Room 800 143 West Market Street Indianapolis, IN 46204 Ph, (317) 233 -4162 59 CITY OF SOUTH BEND NOTES TO FINANCIAL STATEMENTS (Continued) Funding Policy and Annual Pension Cost Plan members are required to contribute 6% of the first -class police officers' and firefighters' salary and the primary government is to contribute at an actuarially determined rate. The current rate, which has not changed since the inception of the plan, is 21 % of the first -class police offi- cers' and firefighters' salary. The contribution requirements of plan members and the primary government are established by the Board of Trustees of PERF. The primary government's contri- butions to the plan for the years ending December 31, 2005, 2004, and 2003, were $3,540,711, $3,068,934, and $2,873,958, respectively, equal to the required contributions for each year. 60 ❑ L Z� w' CO � F 0 LL 1 }fl � �^ C 1 � CL ;Z I z :LL 3 LL O 1 w r� �p !W SU io �a (U �a 070 La ) N 47 p ^ a) 0 y� `' 0 0 o a e a O N m N ..., t i s 0 0 0 w J O 0 2' N Z R J U O L �' N LL�7 N [D V fD ? J N 0 La N COV ~ O C7M) A " ¢ a Lo LO Lp r LD co �?¢ a Qa mac¢ mU� m ,��vmvW Q �U� `° Lvv Lvoo° OMO f-MNMt7M hC?NMOm r CD CD m w CO LO m to LO m m 0 00 i+1 Ln (D v_ 00 O N 1`Nh N COO 0000 rLLO-4 N O V m ate) m CO•OV" 0 U ti d' m 7 N U V L') M O C? 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N to O N O O lr r C') (D V_ (p O N. )• (t0 0 (1D N V 4] -O t6 N- C3 LO I,- co m tO U)Lo0 It Cl) NMc0 04 00 CO (D z r w (ND W .�- M N N �7 '�7 r M O0 m ._ `-CO N N M ru0•- O _- N N r ap r (p V 2 %71 07 G1 P) O) O) `m `m 0 N C C C U) rz ca C C ut C (n C -O .. N d) - u! T C N) N y (n to N ` c(D (Duu'i va (°n ��'(�(ppv�i LoE(D wa`- ��a)uw zcN Zm cn C •�' (n (� d) O?. N d) O y ,U (y N (D N �q N d) In y U rN d) w d) W tl' a) w C N N C d) N fO 7 C .� y 7 C d V) (n L C N of V C d) cb O .V °ofnt 70��y2ELL 'a�E12n =dl 'Dcl ��°rsad`) r°namw rn .U.. V (D 'C U d) m ..L_. d) L E d) L t t a7 a'�.. Y 0) 7 L E d) S 'C LL I m IL U Q o dam) U CL x w 65 d) Cfl X d) C O d) C O U Z L Omt Q J D 1 0 W t A 0 U Z Z LLJ } Z f �aU) I Z Fr 0 i Q J O Ll L) . U m u1 w C �C7= 3 i Cl d' L u� a tl � N r C M m 3 E � U N 7 � O 7 CD C '� - S �) C LL c 3 m °- Z f6 rte+ tl1 ! 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N c C O a N C O U (O M M M ' M M N M M_ m Q1 m P- (D O ( Ci r M (n N m M h � m _ a '= m m °v dr ago (n (a } m 4. 7 Z N h h E9 N M N LO M O T (O V N m h (D to co h h Vi N (D M U) (a (D (D N N C! T M to N { m N (D ,m C M h O .- 1l- M N (D (O N GO 7 a W N N V M r I- h LO a) N N N m N N Ca cP N h U) Q m Q •"' M m fis co (D LL) LL7 (O O V' V' M F If N (D (D L V a) a) O to V M Ci as N (D (D M G� (f) O N M e- N C Lo N N Oq (A N N co M N � O It N M T E v HT 'a a m O LD 0 N (i1 Lo X) (O t() co O N r (C) (D 0 (D ((] r r-- — N a) T h m M N m m ._ S O N LO M h a) D N M h co V N (D D � � v M N cn a a C C (V N w m C c m m m T m m in 0 m 'O � C) C) ' W U C N C: Q O m ., W , O m N N '(7 U N E 7 C 7 CD 2 C (D ID 0 5 `n Z N m l:1 a 0 Z°� 6 1 a w C rn a ,v_ d C W 0 N j U 7 N N rig C N p a U m` m N 7 0 N w N .Q CD CL N N U7 Q p 00 (A00 m c�0 c0 t(5 m c c C> U H D CL Z x c c W LL LL 67 N QI m L]. N c C O a N C O U U) 0 Z 0 Z W O W = Q Z o o jN c) LU W M Z Z LLI — -0 Mp -Z(j E � � U) 0w <0:-0 LL W po 0 -j0 w U z LUWZF- 5 0 LL LL CYm_j W Z W U' .b C#.. C O !0 IY c co a N N Of y efl U C O p Or l4 rn N U co @ U - 0w 7, C C C p N y N N t? w N °0i ra ?- 7 0) C C n 0) qq� 03 C co D C 0I U N d C N O O Al N t 7 e 0) li3 0) p :i= it U LL 0 � U Z 'o 'o X si ri 68 1� m tD En N CO h m a (D a6 00 m n caMS°+�m v 00:oC\ 0000 Cl) C °o r.- rr�p �- {O m -'r M N' T h N V r r6 rte.. D O 0) r Cy} 69 M tp m m N 0 rh h to N w tp hOD P'1m m 1'- (0 rtom m CA h m to t!) r r M V CA m O co W 00 U1 V h h to to O M tD h N V V m co h It N U mm O htDh r 04 N 00 O h mMrh N rY tf1 N h to N Qm� ¢ h N u o co LO 0 O M -;r co a to to h et to ap C7 to t. O O It r m 00 00 N CO tp h rn d ui 00 m i r� (D n M v W ao ,n is o tD of g "Y m to m tp sF o C ;i u� h co ID h g O v a) co h 00 h v O t() V ■^- M O f 7 r h N W .N.. O 00 N h r N N N Lo to 0 O N CD N (D 0 to m M tQ m N U) O O o It M M to O 00 iti t+J v m I co v_ to k to a to h 70 C V' 0 O ID r- M tD fD r� N LO m p co — tC) m 00 rD O tC) tf> r m M O h 00 i` h O CV O N r h CO to to h 0 00 N hrN O N N Of y efl U C O p Or l4 rn N U co @ U - 0w 7, C C C p N y N N t? w N °0i ra ?- 7 0) C C n 0) qq� 03 C co D C 0I U N d C N O O Al N t 7 e 0) li3 0) p :i= it U LL 0 � U Z 'o 'o X si ri 68 Z ! \ zi ± 0: aE \, I z72; §\0 Dzw 0w2, _ 2 CL 0- (§/! ve§: ] a; I m, \ m: ƒ a cu \ c 2 ƒ Cd 7 cn \ \ 69 © f % co fa /m% / § }) k § 2 f ms % CN co V) a ( 2 § 7a # p \ _ _ (D zs ) // §ƒ k k cum to in £g .§§ L) \ % R a o� § § Q\\ � \m\ \\ CD k / \\ [ ƒ } �] z Lm N 1 a f C I _ t NONMAJOR GOVERNMENTAL FUNDS Special revenue funds Motor Vehicle Highway - To account for street construction and the operations of the street main- tenance department. Financing is provided by state motor vehicle highway distributions. Recreation Nonreverting - To account for fees and related expenses from park department activities. Housing Maintenance - To account for a loan program financed by monies from the Housing Author- ity which are paid in lieu of property taxes. The loans may be for external maintenance needs of single- family rental units owned by the Housing Authority. Studebaker /Oliver Revitalization Grants — To account for expenditures related to the Studebaker and Oliver revitaliza- tion projects. Financing is provided by federal and state grants and loans and loans from other organizations. Economic Development State Grants - To account for expenditures related to projects promoting economic de- velopment. Financing is provided by state grants and loan payments. Ex- penditures include grants and related expenses. Community Development - To account for revenues received from the U.S. Department of Housing and Urban Development related to community improvement. Police f=ederal Grant - To account for expenditures relating to federal and state grants. Police State Seizure - To account for law enforcement expenditures financed by the authorized state or local agencies' sale of confiscated property. Juvenile Positive Assistance - To account for monies received from penalties paid for curfew violations. Expenditures include Drug Abuse Resistance Education and Juvenile Aid Bureau. Law Enforcement Continuing Education - To account for police fees collected to finance police officers' continuing education, training, and supplies and equipment. Build Indiana - To account for state grants used to finance various projects. General Grant - To account for grants and donations used solely for the purposes specified in the grant application or by the donor. Local Road and Street - To account for operation and maintenance of local and arterial road and street systems. Financing is provided by state gasoline tax distributions. Human Rights - Federal - To account for expenditures to prevent discrimination and to promote human rights. Financing is provided by federal grants. 70 NONMAJOR GOVERNMENTAL FUNDS (Continued) Special revenue funds [continued) East Race Waterway - To account for donations for the promotion and development of the East Race Waterway. Special Events - To account for revenues and expenditures relating to the operation of special events sponsored or organized by the City. Police Block Grants - To account for a federal grant used to finance police activities. Economic Development Commission - To account for administrative expenditures of the Economic Development Commission. Financing is provided by fees from businesses applying for Economic Development Revenue Bonds. Hazmat - To account for monies generated by the South Bend Fire Department's response to hazardous materials incidents. Funds are used to purchase, repair, or replace haz -mat equipment, or for training and supplies. Indiana River Rescue - To account for expenditures related to river rescue training. Financing is provided by registration fees. COPS Block Grant II - To account for federal grants which provide financing for police activities. Regional Police Academy - To account for revenues (tuition) and expenditures (seminars, travel, lectures, and career days) related to the advancement of present and future police officers. COPS MORE Grant - To account for a COPS MORE grant which provides financing for police activities. Federal Drug Enforcement - To account for expenditures for drug enforcement. Financing is provided by distributions from the authorized federal agencies' confiscated property sale. Urban Development Action Grant - To account for economic development expenditures which are financed by federal grants and loan repayments. Leaf Collection and Removal - To account for the expenditures of a program to remove leaves from the City each fail. Financing is provided by a monthly service fee charged to all City residents. Police K -9 Unit - To account for donations for development and maintenance of the K -9 unit. 71 NONMAJOR GOVERNMENTAL FUNDS (Continued) Special revenue funds (continued) College Football Hall of Fame - To account for Hotel /Motel Tax and Professional Sports Development Tax revenues dedicated towards the College Football Hall of Fame. Based on an agreement with the National Football Foundation (NFF), the City pays the NFF to assist with the operation and capital costs. Football Hall Of Fame Operating To account for the former enterprise fund. This fund accounts for the ad- vance from the General Fund which may be repaid from future operating surpluses. Rainy Day - To account for unused and unencumbered funds that are transferred from a fund that has a tax levy. Revenues in this fund also include special distri- butions of county option income tax (COIT) and county economic develop- ment income tax (CEDIT). Industrial Revolving - To account for the revenue and expenditures of providing special loans to qualifying local firms. Financing was originally provided by a $5,000,000 Economic Adjustment Assistance Grant from the U.S. Department of Com- merce. Debt service funds Redevelopment Bond - Studebaker - To accumulate monies for payment of Redevelopment District general obli- gation bonds, which are serial bonds due in annual installments through 2006. Financing is to be provided by an annual property tax levy. College Football Hall of Fame Debt Service - To accumulate monies for the payment of Redevelopment Authority bonds issued to refinance bonds issued for construction of the College Football Hall of Fame. Financing is to be provided by an annual property tax levy. Redevelopment District Bond - To accumulate monies as a reserve for the payment of Redevelopment Authority bonds. EDIT Bond — Plaza Garage - Tax Exempt To accumulate monies to meet the required debt service reserve for the Series A, Economic Development Income Tax Revenue (EDIT) Bonds of 1997. EDIT Bond — Plaza Garage - Taxable To accumulate monies to meet the required debt service reserve for the Series B, Taxable Economic Development Income Tax (EDIT) Revenue Bonds of 1997. 72 NONMAJOR GOVERNMENTAL FUNDS (Continued) Debt service funds continued Redevelopment Authority Debt Service - To accumulate monies for the payment of Redevelopment Authority bonds issued to refinance bonds issued for construction of a parking garage facility, bonds issued for central developmentarea land acquisition and con- struction of pubiic improvements, bonds issued to purchase the Palais Royale, bonds issued to refinance bonds issued for construction of Century Center improvements, and bonds issued for renovations to the Morris Performing Art Center. South Bend Building Corporation Debt Service - To account for debt retirement of the Building Corporation's Mortgage Bonds. Funding is provided by transfers from other City funds. TIF South Side Debt Service - To account for debt retirement of the south side tax incremental financing (TIF) disc €ict. Financing is provided by transfers from the TIF south side de- velopment fund. Capital proiects funds Emergency Medical Services - To account for purchases of necessary equipment for the Fire Department and Emergency Medical Services Department. Financing is provided by ambulance fees. Central Development Area Bond Proceeds - To account for expenses financed by a 2003 revenue bond issue. Coveleski Stadium Capital - To account for expenditures related to the maintenance and improvement of the baseball stadium. Financing is provided by a rental paid by the semi -pro baseball team. Zoo Endowment - To account for construction projects at the City's zoo. Financing is provided by gifts and donations. Park Nonreverting Capital - To account for specific revenues used to finance capital improvements at the City parks. Cumulative Capital Development - To account for expenditures relating to the purchase or lease of capital improvements in the City. Financing is provided by a specific property tax levy. Cumulative Capital Improvement - To account for state cigarette tax distributions used for improvement projects. 73 NONMAJOR GOVERNMENTAL FUNDS (Continued) Capital projects funds (continued) Economic Development Income Tax - To account for the City's share of the County Economic Development Tax. Expenditures include construction, acquisition and related costs for eco- nomic development projects. Cumulative Sewer - To account for financial resources for the construction or repairing of storm sewers or sewage disposal plants and sanitary sewers. Tax Incremental Financing (TIF) - Sarnple /Ewing - To account for expenditures for public improvements in the Sample /Ewing tax incremental district. Financing is provided by property tax proceeds in excess of those attributable to the assessed value of the property in the district before redevelopment (tax increment). Morris Performing Art Center Capital - To accumulate monies for major repairs and capital improvements to the Morris Civic Auditorium. Financing is provided by a surcharge on ticket sales for events held at the auditorium. Tax Incremental Financing (TIF) - Downtown - To account for expenditures for public improvements in the central business tax incremental district. Also, operating transfers are made to debt service funds to meet debt obligations as they mature. Financing is provided by property tax proceeds in excess of those attributable to the assessed valuation of the property in the district before redevelopment. 'fax Incremental Financing (TIF) -- West Washington - To account for expenditures for public improvement projects in the West Washington Economic Development Area. Financing is provided by prop- erty tax proceeds in excess of those attributable to the assessed value of the property in the district before redevelopment. Redevelopment General - To account for eligible redevelopment activities in the Studebaker Corridor financed by proceeds from land sales or leases. Community Revitalization Enhancement District - To account for public improvements in the Studebaker /Oliver Community Revitalization Enhancement District. Financing is provided by income tax and gross retail tax increments in the district. Tax Incremental Financing (TIF) — Southside Development - To account for expenditures for improvements in the southside development tax incremental district. Financing is provided by property tax proceeds in excess of those attributable to the assessed valuation of the property in the district before redevelopment. 74 NONMAJOR GOVERNMENTAL FUNDS (Continued) Capital projects finds (continued) Redevelopment District Allocation Area Capital - To account for local public improvements in the Airport Economic Development District. Financing is provided by a 2003 bond issue. Tax Incremental Financing (TIF) - Central Medical Service Area - To account for expenditures for public improvements in the central business tax incremental district, medical service area. Financing is provided by property tax proceeds in excess of those attributable to the assessed valu- ation of the property in the district before redevelopment. Equipment Leasing - To account for proceeds from capita( lease - purchase agreements used to finance major equipment needs of the City. Century Center 2001 Construction - To account for construction and related costs of improvements to the City's Century Center. Financing was provided by a 2001 bond issue. Morris Entertainment - To account for donations received by Morris Entertainment, Inc., a nonprofit corporation formed to solicit donations to finance improvements to the City's Morris Performing Art Center. 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N N m C7Zi�Fb 2 i 102 O W cr W m m NLL C71 •}-- .N mM M N m m N N ' .0 9 z .N.. m r C•7 w r IQ r rn [1 W LU m h Lo m m co m 'cJ' n p m 10 m C .y v [V I- N m h m N V w u1 47 w r- w a) f� m p a 7 V i p m Ln W h V V m h N M h m p7 c r h v m N cc 70 z a H m Q Q u) r h N m m N N ELI m r LL fA m H9 /y LL `n °n V1Q0 w FZisi (G O C r r m C7 a rn c�1• N o O� ��N 3 LL m o r W N m m[rnV m R C p m to N LLi h Z g w A y ¢ es •-• •- �r Z> N =Z, v a Gi M O c M V V m mm N C m (7 N V DwOOO a •� mN o co m ti m m 0�-�U p N F:°• i s W m •� Q a sn to mun N m c u o rn In LL 5 US C7 Az...,zW �w <�m a F LLa } ULo N ¢VI- 0 c rn LLE ' 3{Q-O� m �n a t< -0 u Q N 7 N 2 w c� Q P dl LL M� A m < a U m C 6 C G O (0 f9 o C N k0 O a Qi a `� a •c = w r2 N 7 �, N •� fi w�- 'rn Ul v C z, a w= C C w O 7 m m m _ m c m c m m O a�mm ~ ~ Hip ~UA d) UU' "z c az -f�- z x LL LL m 102 103 \� \/ to .k �E ]�§G 722\ _ 2�f | b \{§#7 �DaS8 �E - -- k -#- 22#77 {peer a \ ai 2 - - CL LE 0 s 2:E § } ° k ( �n ]W Z _ 1004 V 92§ k }�E 2LL / 2 @Z© - ) - - - 2 § §(` ¥iB® � ) m co �� §$ / §k CD - - ) Lo cli } OD «[ o §/§ � / § \kj ° "U ( $k\ z 2 � [ - ° \ _ ( ) ± \ \ % [ / _22 F2 (b » 5 \ a \ (§§ 4)0 z ƒ ) } ) ) 103 \� \/ to .k �E ]�§G 722\ _ 2�f | b \{§#7 �DaS8 �E - -- k -#- 22#77 {peer a \ ai 2 104 to +•- rn d• N n v o N r n N m n rn m to to m m a v m m m nr r m o 0 C ry ? n t:! fp » Lo N w fi7 m i+ r r (A m O m f M n m r N r Z U W 6 Z t3>nm I a) o N W O M m N M 0 r V n CO o r sT m m n m tD M n €•-• Qm '4J 3 n M 'r O N I- n O m m to tp N m m N v tL7 N o0 m N N n m n �7 N (,) mm� O =n mo m m m m V ux O amrr.m m V, V7 N O ©A Q m r r LL ¢ LZL. Lu fA Vi V3 4Y J Q m47 m Na O V N N't ti vi C L mvv N mN ttc �t7 C~0 m �C It nn m 04Lq lco o co m lz C w b tl• M E OUj d LLI Z > N u1 to if] m N co m r n (� K m W I- m r to i• N M w Z¢ U O '6 C M sue^ I- fU n D) v O N m � N d o m n Nr Q a' !Y3 .- h Ip V •� Y- � OZZW �' �' W 10,; m a. _, C a U�CaZ >.1 W � LL ,..cc U U fA f" m •° � n ZOL11LL v Q Np G 1.F! C N LL L'1 J U C C C u ,FO O r m O L] ¢ M= N O @ nN' m t9 B U G E Z z ¢ E N .O W C.1 . to E E a, � H C N rn iii ff] N N Uf N O t D. N UC M m q p d O U C) C U L] :3 X L d 'C7 •d N O F (p N a f4 sa 16 ID t6 w w ?~ G �0 aU Z c a d o 0 o DZF -i-H Z LL LL L d 104 105 I-.. \ \ \ z \ \ \ { //0 �� >§ �z ) _ _ z ci m 0 0 ED OD LO OD Clt � 0 } gg3 kfmR � _ _ - �2i N Lo m2� §/] - § - - 2 7f - § §5§ E 2 §7Sƒk - - LL, D - �/ » 2 7777 uo o23 - - ���)) M12 zmm £ § \\ LL r §R/ £G kk& e�E k / Q =, $ j) 2 �_ , \ \ �) \(D C \ k -* )2 ° k \f\ � = »�\ - - ra ( \§ )0 z \ 279 j ) \ J in 105 I-.. \ \ \ z 114014 a� y c M M o, b m M M M 61 r h l.L OI L N w in W M (C W M q. N 'V' co w G1 7�ma _ w `9 U N M Lo M m m i0 N 10 l!7 w 0) 'tY ! W N O e1' m l!] N OD LLh'Y 1hU h N Q N N V' t!1 b N N h o� h{ m 01 tO m (D v ecf M b O' u-, b Y- on uy m m m .- ui ni Z Z O CQ Q to Lk- 1IL Z to e) O f!I N 1i} h N o a0 W Z N O N T m�p a m n �. C ate- h r V N O 2 N LL [C•1 0, Zd b Q m M m lty ..., cq W � y <Z LL+ U m up © [Y C Lo N N o P-L ob N ti ti Sri o m m Q�oZ� CQ N r-, C''1 m ('O L 0 m m 7 N N 0 0 oz W Z H7 E9 � V 2 Q Y Z t w m U LL F E m 3Qy O tS ° Z g U LL Q G N b QG 4 2 � o ro u 8� O C Z W r2 Q 61 `y a-r UI C C C .L LL[ � G �` _im C y N 8p� a C � y O CL m U U v; Y N al 61 O G1 p .Q Qf O UO V (p jp N fi N V F F j aU Z "� Z F F Fes^ Z m 6 LL zi LL m 114014 Al r . . ........ PE I It --e- Air ;K6-' -Airf PE I It --e- NONMAJOR ENTERPRISE FUNDS Consolidated Building - To account for the operation of the consolidated St. Joseph County /South Bend Building Department. Parking Garage - To account for the operation and maintenance of the City's parking garages. Solid Waste - To account for the provision of solid waste services. Btackthorn Golf Course - To account for the operation and maintenance of the City's Blackthorn Golf Course. 107 100 to m Q t�tl C 7} C O C.1 in m LO to l] o m to M b m m v O m v M m V Lr m tn o m � uo n Y1 h G P m N (o N U'j m G W C7 m M N LfS to tc Ct) V! CV LO r to h Pi tR N to co h C N ui m u7 V_ to v m V n' O r- C � SO Q' N M n O nm m N ) (b M m � to to M Q N h V U N V to o to O r N M M V Z m LL ^J N O to W m n m C. n N t+1 M m M to w to n cn m m ro m m n Cn Uv a) C14 m O u7 0 V' o m n M M co M a. in 7 N w w u] { !] N h h h n Q O N o o N n N m N pf N S' a C to to o N N N tN7 M to 100 tp co- N m m Zz �j Ll U u] r N M m m LU Z to ad o N 'O ' N' N ' ' 1 F- M w ��"' C co G O o m to 4 O 'C3 co Oh6 ti ti N zoo c� U- 0 z z w w (U N z ro N Q A ro 6 m 13 M -p0 N O C N O N G ro ro N l0 O C O U LV tU G C I 1 4D ro C. 7 N y {] w fyn C O py O V rn N N N r. IVO N N L W a N j n iif� C 7. N f�s1 11 y G N .? N G��1 l0 b N N N . N m y t1Ht�yt C> 4p tE E N Vr C N ro N G C 0] L} q" U y m ro s V C ro 0 0 y ro2'U Q t,Qf C C Q 'a tii G O 10 m U E QQScr U H c>p m�O U Q U z 100 to m Q t�tl C 7} C O C.1 2 Wf m ; � F 0 U LL ; lyy) F F� U i 111M 0 4r O.N- 0NID mu)M h m NN0M m m m O ma) ovm v O co ran is m i. m W O �D mc+�rnn N eh ai {�6 LO CO y r- o m O h V- h N h N O w r Q r er v m N O m N m m m O- N N N r r p CO m m N m V� O N u7 .R? m N y, ° a) m W.- n L C m 1M y C T N IO d O N ..�.. M r d' m Cl) is h w n CL a v m m a (b 3) '- t a s 42 � w a a) 64 �o�pp.'cs Q 7 Ca Q m o m o' 0 Z V ) N ' m �q Q v w oil CD 0h O N Di to Ir[v'rn 7 fmm D o m M ID m V ' W w N 1'1'4 C0 LO u7 m ' N O h LL"i [D 3 h m h O m ' 4'1 ' O u) O V' O' m N O O O) h ui m m r O O fD N m t7 ^ N f0 m 'V' co y} 7 r t�7 rjD r N h m 1 lfl r) N n rn f Y oo N o N N N m OD m d V` ri v h o � )m a ti N N c'3 cDNm u] m m m [(D o coo M N m m N Vm' m m m co rn �E� am n U xs 111M rn c N oC 'D C C ai {�6 .X m S7 c rn- c m N �omE ° m o m L °^ G) (u A d C T W G) N Q7 Y) Ll ffi.- N .R? m N y, ° a) m W.- n L C m 1M y C T N IO d O N ..�.. C y M d. 'D C y g y N w n CL a v m m a (b 3) '- t a s 42 � w a a) �o�pp.'cs Q 7 Ca Q F EL ca 7 N a 0 Z m r- U� �q Q v w oil 111M 110 N CO V tC) G N a N +- (O �fl Lff u! O) m m Rm N V i� ] u] N N r d' u7 cP u} 4] V 67 (tl m o N cr1 r h h a1 r tp M Cn V] �'f m u] a_ 7o N m M �0 C) V 10 r N m m 'V' o h m r cp �O o0 N h r f� •1' 47 h m m A o I i m v fi of m N Q r n h VI r M h p] M a h N, Lq 1+ u3 u1 O m ti m r r w � 1 m N lfl 0] f6 m N 4A (p rC N N N N X17 N l0 h m N O m h m M LI1 07 m T V m G7 in m m N (F/} 0 p U IO f0 _ h(0 m u'f a0 OJ m V N V �, v C m u1 Ch m ai m T m rn m LL N v (/] 0 r Q m � V3 d1 ' m C] N Oy CO O N m m N m m a N h 4 V C7 M N T QoQ ?� h m 1L1 N r a0 C2 C3 C V� cr) IL (!� 7 R M � r W f ' V LO ' W m N n E� n h a h It C\l O �r hc Q 4 N C, c7 N 0 CG M N N m o 10 JID ICI Gi m 0 W i- m V V N v w t"i 01 C3 N a C7 m n uj 60 OFt�m O W N O m N a1 N Ip ti "3 10 07 O O m m W O m Z N « m �? m O lc N N 47 m h m O C7 m (C h a h m m r0 m (0 N m m m = Q' Q V N m m M 10 r2 r I+ to m N N Of CI o C) 7u �Wn cm - O�Fa •- r U u4 V3 W W W yLL no F UL} O Z m � ZW u.€ LY. LL O h F C @ L LU N C R Q N N N � X ,O z CCXL N uJ N 41 � 7 N� N m G1 N O r2 M C @ O W N O C x N C C N C U 2 I_b N lC Eitl N E cg �amx A 11 C }� a� m • r» W m C 'o a O O 5 m W .N C W V 0 •` G a rn N p�p C O @ m m F F O F CS c O G7C90 OQQ C3 c c¢ a m O z 0 0 O 110 111 N R qs C ° .n C U W 7 at iL1 m � m t- m t0 m n aa m Co L i.. u'� v N N n N �n m L cd G la, [G p O to M a tp M p p W Im r cD [h to m N l0 O] W C V N '-� C IN' p ry N N 6% y3 C Lo l!I 4 b W W a O -M ) O turn V t"Y O O Ui C, M �D N 'tl: N N ~ N co Clil M W W M d m t17 W m lLD - M O v r p75 �`' s<r m o E rn m m LL o m m N N M to � ry O N µnj U N CA OD ti 40 fD 1D VJ w ° m V ro n r W r to N u m M v R' Vi 69 F- z LU N IL , O N m N N OI h N sp Oq N N (- � N N cly `- CL tff z Z .o sv s9 m Z E N in N n l6 N I!1 M m N W N N m 1 i V W tl p u°'J }y G1 N O ,6 = '0 W m to tr ry 0 M N to n U. LL Z3 C xv D m v3 Uami w ULL� m 0 C C O C '0 411 y LU 1� m � c N R C 0 U�1 nCn1L1 m m n ° 4 ? m C c N —0 y v C13 a U w 06 N m ttl D AM m O O p C rC�-. 10 .•��.. U C w U in a Lea E c 0EEwy. 3 o 0° m ,c 2Eo� 'y am o. G? c `aom i4 ,r�r a otic� EooQ3p n E o n°t Em am w wr�q °NOR Q S0Yct w N �ma NC m aa�nEEE y L�nnw� omm� me�'�' � 3� � crni3c�w nCmm m � cip�mc% gy=m z -a d)i L° z c° � « z °? c0i E a, m � y'c y a'LL'tL3d NQ2'1- NQLL.E N N} m cni U U U U Z L) U 111 N R qs C ° .n C U 112 N o- V a rnM U) Mmin N rn c N c d' m c h O1 N rn m t- m M o e! a d o V; m co ° T v ao w o � 01 tt1 N N N v N m O ca a Cl) O rn c rn C M A c r io co p c0 N N , M a M t- C ° •� U M 4] N m .N..+ .- m o QI m O pc si w u> LL `-u� m mn� mom I-- m M m n �2 c v ti m a O f0 o aatl w ;G N p sll N covr vm O N m N co raft LL' i31 e'1 64 �R ii l ➢ fD 1 0 i r r O r r N M N (C a O N C ` N C c N m M N M Q WOa m E � V f] fS7 0 m o O o 0 r s to W m rn t'- a m CQ m c O ° '3 m a N o LL o U m c O zn W ° Va10t U � �- d z� 2 uJ ti L N { W O N Q c E Vl ° d . W 2 U m G1 A7 U) aNi N N Ol t7 :3 R (D i. ) .y C rcp a) fl 'y a m a a v vmi :o m r'cc v N a°i nm •V 9 b '�� N 9} mC EEL N y L cu CL L N r EE v N 7 y ?+ ° 8 ac aymy {ate �'' �+w 52 c o m C O U N a E pO m tit p-0 m L rr3 u 13 c 4° c y v v w m w v E rn ° > ut m o a a m c m as ca L) o qC O p in ¢U N U a� z z 112 qF6 rn E ;1 INTERNAL SERVICE FUNDS Liability Insurance Premium Reserve - To account for expenses related to maintaining the City's self- funded liability insurance including administrative costs, claims and premiums. Funding is provided by assessments to certain other City funds. Self-Funded Employee Benefits - To account for employer and employees' contributions for a medical insur- ance plan. Central Services - To account for expenses related to fuel, vehicle repairs and various supplies provided to City departments on a cost - reimbursement basis. 113 C) P €LU 0� W hik 0L F U( 114 N M V M m M to N 0 M 0) N M h N MI m O N M mu M F!] M O m m m O r p m Oi N 0 N N m h l0 tp O N O 47 r C 0 O W O m M LO h N N if) O ~ fMD V m O d' )(3 m m r QD M N M m t� N r M IO Eft 69i r m Vt m r M N ,A 0) N ID h 04 u9 N m O 0) N h m m O N O M N Y7 " 03 m m N M M N N W O O) V r i7 h V r r W GD M m m at (D O V) _ U) N o 7 h m m Cl) @ C7 O h CNO O 03 A) M V m N tO ID M P- U y r r N r fH ? ' N N Lo 7 r r r m m O r Cl) h m cm N m L r V to q S? O st r J r a o y LO N r h � r r N r a N O O O v m ,u )n S LE fR � J v 'm7 n tmO C r W~ O CO0 r �vE� - = = r V to w ©r r N m m co N W II'1 N OJ N O m[+i N 90 t7 �V ! V G J f0 d N N N In O) Ciff J E V J N n C H m CL N C C N C @ f0 N N N m y n a 2 0 a m N E a$v'm c N N Ct d] N ti vi j Un7l Vl p�j iU y W w} N N C m 1p y O v C_ c� � aLiyo �aEi V N c�a a aQ;o a w co H C C 't O p fE=.l i3 A C C U) 4� N T.7 y m .� m a' w °� c a ,=3 t y N m y 2. a 'n w f0 co m >2 H m0 m °r-) c dcW `-R u"'i c a) �U c¢ c c cd U 0Q �'¢ c y Q U I-� (3 H Z CD m F 114 115 (o C W (0 o r u7 m W u7 N(R W W h M M M h O O h O M b N d O_ C W O 7 1 'C h 10 f'i co m 7 LL7 Y] [O u7 o) m [p M h [� h © O M r r M N m G m u7 to tl m 1p M m W O -qL Q r v N w (o N cT7 [V W r N N r u'i eY to cn us ' d' m •Y m M N LO Cl) N m W -C4) O o M m �s Q U Lo (Q Ol O 06 Oi C F^" •� (O m 7 N h m M N Of Lu z () N N N N .._. r z M M m z ,� y ro W �m ro m N h fWO t- in m M k co -!. n o a) m m m h m o h o m In m M Lo M v v m m W o W N . G C m M P7 M O li7 m V N LO ZW Ljl r O U W N r o W tp m >L 0 aD ❑ y.. Z l; L � N N N m r r h LL7 N 3 N m 12 J CLLR N N r IV WOIl .0 m¢ E U v� w5 m D U- co � y 0a¢ut U w Y ID z —� W p LL w LL m^ Q w W m x a) wp—� H E 2 �� c y m m v m H c C C C d � .Np.. X� !D pT Uf 'vi m rn f0 N m E pp y N O N N tll N 'O C Qd C E N N W N W G C D C N 10 ' U p N ` Vi n }n'' .0 G 'C7 N d C tl7 6t pl L. ,C T- `i a(Q- LO N N H �°0 �❑ F c O n a c3o N U a) c yW U © z ►p 115 116 CL Q N C C Q N c a U m m Rom 06 tl0 0 0 a ti m N m L2 m p? V M m arh•• O N m (tl 'tt' N o tp h h �G t+ DO o M M W 20 n O m r e^^ m W 't m M M O m O M O m co a m O V 0 M [V M f(1 H hvr�mu� a mm o a ' m cq ML a CR m cNO n °v_ °M a y Z 4N] �' m c ff 0 V ) N `. ID tp IL fa N m .- m fo m N co N LJ U tl pJ 3 ti Oi t-. m m m M h V O m l0 m CV o0 N b E m m co N in m M -+ ri w m N 6g 69 2 N W V 00 m O 4 � M H�'J m W�} a 'E m m zr rn M N }O C a w U- C) Lo X avw L m U } ED W Y U W � m w c C m m _ m N K C } a N N TJ 1p U G ?+ a W ry7 �N. N »"5 lu A R U .0 c E pEEmm u°7i Cc om E°� E o o .2-2-0 E o o a� E o E t N O d W N m o m'_ E E E v 3 'P r- 3° r� a mme}a °? y m m L�xan.n. N s55 HI zQ t rn R L N o r t N U U U U 2 m U 116 CL Q N C C Q N c a U 117 cn C] W mNam 0vO ;4p 47 /D W W 't W N W N h v o r A o o W fD i7 N) N tc c9 V Dc r oct A 11 !rp h DS Di 07 N 47 dl M N v W M W O © h L7 N m r W r � N u) W W N a' m o W W ' Y7 m fD . 7 h N CO 64 © fA o m W t M M N W 'd' vi O 47 r fD O • C U O c•1 D) v m N Lo D) N h N V W v h M z � 6g W of 64 U O 'aj y o � w ' .� 13 O y W Lo o cq h �f) h N v 0 n N O) CS J a) W O M v b7 � LLl LL1 v 64 b3 F!a uj i L]ZtJ Z Q) r cfDp {ap m ��r 0) m E t_6 E N �` r In o) D) rn r ~ d cD C y C U3 "C7 U LL 0VW� LL v o U m jr- m y LU w c� u, c a uFgj E V O O q) U I6 C vD Z N T N G Q G N Q y tl) 6 a) C T(D co W I6 C Ol X d N W c0 O A W. X rC C W N d d l�6 E N qUj ' U N 3 p) N 0 N m _ o a E "E5 m I m o E E a ca N c .c N y c y U Q d v Q U lu p a t. Q ¢ O At H U 12 N Z b Z 117 i rrq r Yr ■ a i T_ T� 0 FIDUCIARY FUNDS Pension trust funds 1925 Police Pension - To account for the provision of retirement and disability benefits to police officers hired prior to May 1, 1977. Financing is provided by mandatory con- tributions by active members, state pension relief distributions, and a specific annual property tax levy. 1937 Firefighters' Pension - To account for the provision of retirement and disability benefits to fire- fighters hired prior to May 1, 1977. Financing is provided by mandatory con- tributions by active members, state pension relief distributions, and a specific annual property tax levy. Agency fund Payroll - To account for the payroll of City employees and pension benefits of the Police and Firefighters' Pension Funds. Gross payroll and pension benefits are treated as expenditures in other City funds and transferred into this fund, which serves as a clearing account. 118 0 §] ([ /) §� ({ o. �\ �\ }) !J 119 r ) E § k f / k j k - cfj 2 0� - Cl Ra) -- - - ` - - m — a N e j _ K \r \ \� \ \ \\ \ \ \ ) ` p 2 $ £ )00 —f� \ ) \Lu )) \ § §3 / — 0 0 ) 6. p ƒ 2 Ln \ƒ k /� \ \ \/ m m 119 r ) E § k f / k j k cfj 2 0� 3 119 K - •` E ai t to ` p 2 $ £ )00 \ ) \Lu )) \ § §3 / — 0 0 ) p ƒ 120 - - 14i Tri 3�] - - - U� Cl) LO LO k2 (p 00 a 3 - ® 2 ®c �£¥ - (D 00 - - - - - 2 -/) + ¥ — z _ _ \ § r - - - - - 7a CD ]�® _ _ a Lu \ ^ \k(k cn b .-33 (0fn of »� { } co § � .. mCLr / ) G r k / § ) k i \ k ƒ 2 ) R m @ 3 I a 3 a# k) 120 O 2 m O 7L O F !1A 1n Q H W 2 g U LL. V) w (D 2 Si F Z 57.1 2 W F F y M N E m m N 0 LL co M N n [MO N r (U fO M v m to m l nmti ,`' ©ec n 4 r co v "- w d m m m �A 69 d9 eA 0. 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L= c03i " N o3F-wQ91 147 1 r f� - L f I I ~ SUPPLEMENTAL AUDIT OF FEDERAL AWARDS 148 STATE OF INDIANA AN EQUAL OPPORTUNITY EMPLOYER STATE BOARD OF ACCOUNTS 302 WEST WASHINGTON STREET ROOM E418 INDIANAPOLIS, INDIANA 46204 -2765 Telephone: (317) 232 -2513 Fax: (317) 232 -4711 Web Site: www.in.gov /sboa INDEPENDENT AUDITOR'S REPORT ON COMPLIANCE AND ON INTERNAL CONTROL OVER FINANCIAL REPORTING BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS TO: THE OFFICIALS OF THE CITY OF SOUTH BEND, ST. JOSEPH COUNTY, INDIANA We have audited the financial statements of the City of South Bend (City), as of and for the year ended December 31, 2005, and have issued our report thereon dated April 27, 2006. We conducted our audit in accordance with auditing standards generally accepted in the United States and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Compliance As part of obtaining reasonable assurance about whether the City's financial statements are free of material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts and grants, 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 that are required to be reported under Government Auditing Standards. Internal Control Over Financial Reoortin In planning and performing our audit, we considered the City's internal control over financial reporting in order to determine our auditing procedures for the purpose of expressing our opinion on the financial statements and not to provide assurance on the internal control over financial reporting. Our consideration of the internal control over financial reporting would not necessarily disclose all matters in the internal control over financial reporting that might be material weaknesses. A material weakness is a condition in which the design or operation of one or more of the internal control components does not reduce to a relatively low level the risk that misstatements in amounts that would be material in relation to the financial statements being audited may occur and not be detected within a timely period by employees in the normal course of performing their assigned functions. We noted no matters involving the internal control over financial reporting and its operation that we consider to be material weaknesses. This report is intended solely for the information and use of the City's management and federal awarding agencies and pass - through entities and is not intended to be and should not be used by anyone other than these specified parties. In accordance with Indiana Code 5- 11 -5 -1, this report is apart of the public records of the State Board of Accounts and of the office examined. April 27, 2006 149 STATE BOARD OF ACCOUNTS STATE OF INDIANA AN EQUAL OPPORTUNITY EMPLOYER STATE BOARD OF ACCOUNTS 302 WEST WASHINGTON STREET ROOM E418 INDIANAPOLIS, INDIANA 46204 -2765 Telephone: (317) 232 -2513 Fax: (317) 232 -4711 Web Site: www.in.gov /sboa INDEPENDENT AUDITOR'S REPORT ON COMPLIANCE WITH REQUIREMENTS APPLICABLE TO EACH MAJOR PROGRAM AND INTERNAL CONTROL OVER COMPLIANCE IN ACCORDANCE WITH OMB CIRCULAR A -133 TO: THE OFFICIALS OF THE CITY OF SOUTH BEND, ST. JOSEPH COUNTY, INDIANA Compliance We have audited the compliance of the City of South Bend (City) with the types of compliance require- ments described in the U.S. Office of Management and Budget OMB CircularA -133 Compliance Supplemen t that are applicable to its major federal program for the year ended December 31, 2005. The City's major fed- eral program is identified in the Summary of Auditor's Results section of the accompanying Schedule of Find- ings and Questioned Costs. Compliance with the requirements of laws, regulations, contracts and grants applicable to its major federal program is the responsibility of the City's management. Our responsibility is to express an opinion on the City's compliance based on our audit. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and OMB CircularA -133, Audits of States. Local Gov- ernments, 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 occur- red. An audit includes examining, on a test basis, evidence about the City's compliance with those require- ments 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 of the City's compliance with those requirements. In our opinion, the City complied in all material respects with the requirements referred to above that are applicable to its major federal program for the year ended December 31, 2005. Internal Control Over Compliance The management of the City is responsible for establishing and maintaining effective internal control over compliance with requirements of laws, regulations, contracts and grants applicable to federal programs. In planning and performing our audit, we considered the City's internal control over compliance with require- ments that could have a direct and material effect on a major federal program in order to determine our audit- ing 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. 116111 INDEPENDENT AUDITOR'S REPORT ON COMPLIANCE WITH REQUIREMENTS APPLICABLE TO EACH MAJOR PROGRAM AND INTERNAL CONTROL OVER COMPLIANCE IN ACCORDANCE WITH OMB CIRCULAR A -133 (Continued) Our consideration of the internal control over compliance would not necessarily disclose all matters in the internal control that might be material weaknesses. A material weakness is a condition in which the design or operation of one or more of the internal control components does not reduce to a relatively low level the risk that noncompliance with applicable requirements of laws, regulations, contracts and grants that would be material in relation to a major federal program being audited may occur and not be detected within a timely period by employees in the normal course of performing their assigned functions. We noted no matters involv- ing the internal control over compliance and its operation that we consider to be material weaknesses. This report is intended solely for the information and use of the City's management and federal awarding agencies and pass - through entities and is not intended to be and should not be used by anyone other than these specified parties. In accordance with Indiana Code 5- 11 -5 -1, this report is apart of the public records of the State Board of Accounts and of the office examined. April 27, 2006 151 STATE BOARD OF ACCOUNTS CITY OF SOUTH BEND SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS For The Year Ended December 31, 2005 Total for cluster Emergency Shelter Grants Program Total for program Shelter Plus Care Total for program Community Development Block Grants /Brownfieids Economic Development Initiative Fair Housing Assistance Program - State and Local Total for program Neighborhood Initiative Projects Total for federal grantor agency U.S. DEPARTMENT OF JUSTICE Direct grant Local Law Enforcement Block Grants Program Total for program Community Capacity Development Office Total for program Public Safety Partnership and Community Policing Grants Edward Byrne MemorW Justice Assistance Grant Program B- 04 -MC -18 -0011 3,259,005 Pass - Through 332,530 FF- 205 -K -055 -014 Federal Entity (or Other) Total Federal Grantor Agency/Pass-Through Entity CFDA Identifying Federal Awards Cluster Title/Program Titielftject Title Number Number Expended IN36 -C960- 101 -96 U.S. DEPARTMENT OF COMMERCE IN36 -C400 -001 3,357 IN36 -0400 -005 Direct grant IN36 -C400 -008 10,259 16.738 Public Works and Economic Development Cluster 22,057 Economic Adjustment Assistance 11.307 06.19- 01251 $ 209,973 U.S. DEPARTMENT OF HOUSING AND URBAN QEVELOPMENT Direct grant CDBG - Entitlement and (HUD - Administered) Small Cities Cluster Community Development Block Grants /Entitlement Grants 14.218 Section 108 # 7 21,746 Total for cluster Emergency Shelter Grants Program Total for program Shelter Plus Care Total for program Community Development Block Grants /Brownfieids Economic Development Initiative Fair Housing Assistance Program - State and Local Total for program Neighborhood Initiative Projects Total for federal grantor agency U.S. DEPARTMENT OF JUSTICE Direct grant Local Law Enforcement Block Grants Program Total for program Community Capacity Development Office Total for program Public Safety Partnership and Community Policing Grants Edward Byrne MemorW Justice Assistance Grant Program B- 04 -MC -18 -0011 3,259,005 B- 05MC -18 -0011 332,530 FF- 205 -K -055 -014 3,613,281 14.231 S- 04 -MC -18 -0011 17,567 S- 05 -MC- 18.0011 108,939 2004- WS -Q04 -0089 126,506 14.238 IN36- C300.008 48,728 IN36 -C300 -009 22,501 IN36 -C960- 101 -96 12,609 IN36 -C400 -001 3,357 IN36 -0400 -005 21,849 IN36 -C400 -008 10,259 119,303 14.246 B- 04 -SP -IN -0248 68,043 14.401 FF- 205 -K- 325 -014 68,169 FF- 205 -K -055 -014 44,396 112,565 14.Unknown B- 01- N1 -IN -SB -001 25,955 4,065,653 16.592 03 Ibbx 2275 129,924 04 Ibbx 1293 199 130,123 16.595 2004- WS -Q04 -0089 167,055 2005- WS- Q05 -OD56 54,194 2005 -WS- 005.0237 13,847 235,096 16.710 04 shwx 0083 _ 99,408 16.738 05 djbx 0375 22,057 The accompanying notes are an integral part of the Schedule of Expenditures of Federal Awards_ 152 CITY OF SOUTH BEND SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS For The Year Ended December 31, 2005 (Continued) Total for program Violence Against Women Formula Grants Total for program Motor Vehicle Theft Protection Act Program Total for program Total for federal grantor agency U.$ -DEPARTMENT OF TRANSPORTATION Pass - Through Indiana Governor's Council on Impaired and Dangerous Driving Highway Safety Cluster State and Community Highway Safety Alcohol Traffic Safety and Drunk Driving Prevention Incentive Grants Safety Incentive Grants for Use of Seatbelts Total for federal grantor agency U.S. EQUAL EMPLOYMENT OPPORTUNITY COMMISSION Direct grant Employment Discrimination - State and Local Fair Employment Practices Agency Contracts U.S. ENVIRONMENTAL PROTECTION AGENCY Direct grant Brownfield Pilots Cooperative Agreements Brownfields Assessment and Cleanup Cooperative Agreements Total for program Pass - Through Entity (or Other) Identifying 03 }b 010 04 -VA -012 04 -VA -138 04 -VA -139 04 -VA -140 05 -VA -116 05 -VA -117 05 -VA -116 16.588 04 st 052 04 st 063 O5 st 050 05 st 051 16.597 03 gp 001 03 gp 002 03 gp 006 03 gp 012 04 gp 001 04 gp 002 Total Federal Awards Expended 45,027 23,099 1,182 4,125 47,107 12,363 6,176 1,190 95,242 13,595 18,381 4,857 7,245 44,078 141 28,960 19,532 667 4,615 32,071 85,986 757,017 20.600 PT- 06- 04.07 -48 21,932 20.601 154 a105- 03 -03 -35 50,644 20.604 IN-05-02-03-45 18,750 91,326 $0.002 4 FP SLIP 0153 70,731 66.611 BF- 965- 293 -01 -1 24,609 66.818 SF- 965 - 546 -01 4,156 BF- 965 - 597 -01 $62 SF- 965 - 645 -01 951 5,669 The accompanying notes are an integral part of the Schedule of Expenditures of Federal Awards. 153 Federal Federal Grantor Agency/Pass-Through Entity CFDA Cluster Title /Program TitielProiect Title Number U.S. DEPARTMENT OF JUSTICE (continued) Pass - Through Indiana Criminal Justice Institute Juvenile Accountability Incentive Block Grants 16.523 Crime Victim Assistance 16.575 Total for program Violence Against Women Formula Grants Total for program Motor Vehicle Theft Protection Act Program Total for program Total for federal grantor agency U.$ -DEPARTMENT OF TRANSPORTATION Pass - Through Indiana Governor's Council on Impaired and Dangerous Driving Highway Safety Cluster State and Community Highway Safety Alcohol Traffic Safety and Drunk Driving Prevention Incentive Grants Safety Incentive Grants for Use of Seatbelts Total for federal grantor agency U.S. EQUAL EMPLOYMENT OPPORTUNITY COMMISSION Direct grant Employment Discrimination - State and Local Fair Employment Practices Agency Contracts U.S. ENVIRONMENTAL PROTECTION AGENCY Direct grant Brownfield Pilots Cooperative Agreements Brownfields Assessment and Cleanup Cooperative Agreements Total for program Pass - Through Entity (or Other) Identifying 03 }b 010 04 -VA -012 04 -VA -138 04 -VA -139 04 -VA -140 05 -VA -116 05 -VA -117 05 -VA -116 16.588 04 st 052 04 st 063 O5 st 050 05 st 051 16.597 03 gp 001 03 gp 002 03 gp 006 03 gp 012 04 gp 001 04 gp 002 Total Federal Awards Expended 45,027 23,099 1,182 4,125 47,107 12,363 6,176 1,190 95,242 13,595 18,381 4,857 7,245 44,078 141 28,960 19,532 667 4,615 32,071 85,986 757,017 20.600 PT- 06- 04.07 -48 21,932 20.601 154 a105- 03 -03 -35 50,644 20.604 IN-05-02-03-45 18,750 91,326 $0.002 4 FP SLIP 0153 70,731 66.611 BF- 965- 293 -01 -1 24,609 66.818 SF- 965 - 546 -01 4,156 BF- 965 - 597 -01 $62 SF- 965 - 645 -01 951 5,669 The accompanying notes are an integral part of the Schedule of Expenditures of Federal Awards. 153 CITY OF SOUTH BEND SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS For The Year Ended December 31, 2005 (Continued) Pass - Through Indiana Department of Homeland Security State Domestic Preparedness Equipment Support Program 97.004 02 -ttcx -0145 Total for federal grantor agency Total federal awards expended The accompanying notes are an integral part of the Schedule of Expenditures of Federal Awards. 154 180,851 442,904 $ 5,798,317 Pass - Through Federal Entity (or Other) Total Federal Grantor Agency /Pass- Through Entity CFDA Identifying Federal Awards Cluster Title/Program TitlelPro ect Title Number Number Expended U.S. ENVIRONMENTAL PROTECTION AGENCY (continued) Pass - Through Indiana Department of Environmental Management Capitalization Grants for Clean Water State Revolving Funds 66.458 130,435 Total for federal grantor agency 160,713 U.S. DEPARTMENT OF HOMELAND SECURITY Direct grant Assistance to Firefighters Grant 97.044 EMW- 2004 -FG -14 -391 262,053 Pass - Through Indiana Department of Homeland Security State Domestic Preparedness Equipment Support Program 97.004 02 -ttcx -0145 Total for federal grantor agency Total federal awards expended The accompanying notes are an integral part of the Schedule of Expenditures of Federal Awards. 154 180,851 442,904 $ 5,798,317 CITY OF SOUTH BEND NOTES TO SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS Note I. Basis of Presentation The accompanying Schedule of Expenditures of Federal Awards includes the federal grant activity of the City of South Bend (primary government) and is presented in accordance with the requirements of OMB CircularA -133, Audits of States, Local Governments, and Non - Profit Organizations. Accord- ingly, the amount of federal awards expended is based on when the activity related to the award occurs. Therefore, some amounts presented in this schedule may differ from amounts presented in, or used in the preparation of, the basic financial statements. Note II. Subrecipients Of the federal expenditures presented in the schedule, the primary government provided federal awards to subrecipients as follows for the year ended December 31, 2005: Program Title CDBG -- Entitlement and (HUD Administered) Small Cities Cluster Crime Victim Assistance Violence Against Women Formula Grants 155 Federal Amount CFDA Provided to Number Subrecipients 14.218 $ 1,918,527 16.575 95,242 16.588 44,078 CITY OF SOUTH BEND SCHEDULE OF FINDINGS AND QUESTIONED COSTS Section I — Summary of Auditor's Results Financial Statements: Type of auditor's report issued: Unqualified Internal control over financial reporting: Material weaknesses identified? no Reportable conditions identified that are not considered to be material weaknesses? none reported Noncompliance material to financial statements noted? no Federal Awards: Internal control over major programs: Material weaknesses identified? no Reportable conditions identified that are not considered to be material weaknesses? none reported Type of auditor's report issued on compliance for major programs: Unqualified Any audit findings disclosed that are required to be reported in accordance with Section 510(a) of Circular A -133? no Identification of Major Programs: CFDA Number Name of Federal Program or Cluster CDBG — Entitlement and (MUD Administered) Small Cities Cluster Dollar threshold used to distinguish between Type A and Type B programs: $300,000 Auditee qualified as low -risk auditee? Section II — Financial Statement Findings No matters are reportable. no Section III — Federal Award Findings and Questioned Costs No matters are reportable. 156 CITY OF SOUTH BEND SUMMARY SCHEDULE OF PRIOR AUDIT FINDINGS No matters are reportable. 157 I 1 7 ■ ■ 1 VKo III r. � .. -.Jm � LM