Introductory Section

Letter of Transmittal

Names and Titles of Officials

Financial Section

Combined Financial Statements

General Fund

Special Revenue Funds

Debt Service Fund

Capital Projects Funds

Enterprise Funds

Internal Service Funds

Combining Balance Sheet

Account Groups

Component Unit (Community Development Authority)

Notes to Financial Statements

Statistical Section

August 27, 1999

Mayor Susan J.M. Bauman
210 Martin Luther King, Jr. Blvd.
Room 403
Madison, WI 53709

Dear Mayor Bauman:

The Annual Financial Report of the City of Madison, Wisconsin, for the year ended December 31, 1998 is hereby submitted. A summary of significant financial transactions and highlights follows.

General Fund revenue exceeded budget by $2,810,806. Actual 1998 revenues increased by a total of $6,675,290, or 4.89% over 1997. The variations between budgeted and actual revenues occurred in the following areas:

State Payment for Municipal Services -- Our estimate of $6,800,000 was developed prior to final State funding estimates; actual payments were $192,904 more than budget.

Building Permits -- Building permit revenues continued at a higher-than-anticipated level. During 1998, building permit revenue was $2,996,211 compared to a budget of $2,118,000. In 1997 building permit revenue was $2,122,353.

Interest Income -- Interest income exceeded budget by $1,291,315. It is difficult to accurately forecast interest income since it is subject to market interest rates. Budgeted interest income for 1998 was $4,150,000.

Total General Fund expenditures were $141,819,582 compared to a budget of $143,647,460 for a positive variance of $1,827,878. Actual expenditures during 1998 represented a 3.7% increase over the 1997 level of $136,809,812. The increase by function follows:

Significant budget variances include:

Typically, the City budgets and charges for 26 pay periods in a year, with charges split between two calendar years as appropriate. In past years, we have not had the necessary information to appropriately accrue or charge out benefits. Because the new payroll system now makes that data available, we have made the appropriate charges for benefits which, in some cases, contributed to the unfavorable variance shown in some agencies. The Police Department was charged $595,363 of benefits in excess of the rate budgeted. This also occurred in the Fire Department in the amount of $325,105 and $15,979 in the Council Office. These figures represent a one-time catch-up expenditure increase which will enable us to get the benefits on the proper schedule and charged to the proper year.

Other significant budget variances which occurred in 1998 were:

Library -- The original 1998 Library expenditure budget was $7,901,488. Of that amount $6,191,053 was funded by the property tax. The remainder comes from revenue collected from other communities, Dane County and grants. By adopted policy, any unspent funds at year end remain in the Library Fund for future use. In 1998 actual Library expenditures were $8,001,937 due primarily to higher-than-budgeted salaries, materials purchased, capital outlay costs and lower-than-budgeted revenues. The Library ended its year with a $123,759 unfavorable net budget variance.

The ratio of outstanding debt service payments to the total operating budget follows:

In 1998 the City issued a $22,800,000 general obligation note to fund projects contained in the 1998 Capital Budget. The interest rate on the issue was 4.35%.

Capital Improvement Funds -- Capital improvement funds are used to account for the proceeds from general obligation bonds and notes, and for direct appropriations from the general fund to approved capital improvement projects. Amounts borrowed for capital improvements are used only for the purpose(s) stated in the bond ordinance or resolution. Upon completion of a project, unexpended funds are restricted for use to pay off any outstanding debt against the project. If there is no outstanding debt, the funds are lapsed to general fund surplus and can be appropriated for other uses. The monies not currently in use on capital improvement projects are invested in short-term securities. All interest earned from investments is credited to the general fund unless specified otherwise by the Common Council.

The City of Madison had 63 active capital improvement funds during 1998. For statement purposes, these funds have been grouped into eight categories (major streets, park improvements, etc.).

Special Assessment Improvement Funds -- Special assessments and special charges are levied for improvements made and services provided by the City to private real property. Payments of assessments may be made in total or on a 5, 8 or 15 year installment basis, with interest from 6 percent to 10 percent.

Funds are transferred from the Special Assessment Fund to various Capital Improvement Funds to finance projects that are assessable wholly or in part to the property owners. Revenues for 1998 were $2,586,534. During 1998, $1,575,499 was transferred to various capital projects.

As of the end of 1998, the City had 13 active TIF districts. Total 1998 incremental taxes from all districts totaled $4,526,048 compared with $4,415,841 in 1997. The total incremental value created within those districts was $198,040,550 as of December 31, 1998.

Enterprise funds are established to account for the financing of activities of governmental units which render service on a user-fee basis to the general public. Enterprise funds are generally employed only in those instances where the cost of services, as well as the revenue derived, can be readily identified. It is the policy of the City of Madison to subsidize enterprise operations for budgeted operating losses incurred during the year, exclusive of depreciation.

Comments pertaining to specific enterprise operations follow.

Water Utility -- The Madison Water Utility had a net income of $1,085,387 in 1998 on sales of $12,628,536. From 1997 to 1998, sales increased by 2.97 percent.

Sewer Utility -- In 1998, the Sewer Utility had a net income of $409,649. This compares with net income for 1997 of $617,289. The landfill remediation fee collected from Sewer rate payers was transferred to the landfill capital project fund to contribute toward the costs of bringing City landfills in conformance with governmental regulations. The amount of the fee collected in 1998 was $1,934,187.

Parking Utility -- In 1998, the Parking Utility had net income of $738,267. This compares with a net income for 1997 of $43,342. Revenues in 1998 were $6,528,412. This represents a 3.94 percent increase over 1997.

Golf Courses -- In 1998, the municipal golf courses had net income of $186,750 on sales of $2,418,588 compared with a net income of $364,646 on sales of $2,361,834 in 1997.

Civic Center -- The Madison Civic Center began operation in February of 1980, providing a variety of facilities for the presentation of the arts in Madison. Facilities include the 2,200 seat Oscar Mayer Theater and the 347 seat Isthmus Playhouse. In 1998, total income generated from the facilities at the Civic Center was $2,844,887. This compares with the total income of $2,783,583 generated in 1997 for an increase of 2.20 percent.

During 1998, the Civic Center operations incurred an operating loss before City subsidy of $1,808,985 compared with the 1997 loss of $1,478,696. General Fund support for the Civic Center amounted to $1,254,773 in 1998 and $1,260,828 in 1997.

Convention Center -- Monona Terrace had a very good year. Operating revenues were $2,148,605, over budget by $1,144,453. Operating expenditures were $4,497,554, over budget by $481,391. During 1998, Monona Terrace operations incurred an operating loss before City subsidy of $4,097,514. General Fund support for Monona Terrace amounted to $702,527 in 1998.

Internal service funds are established to account for services and supplies furnished by one agency to other agencies of the same governmental unit. They are distinguished from general support agencies such as Personnel, Attorney, Accounting, etc., which are accounted for in the General Fund. The quantity of service furnished by an internal service fund is readily quantifiable and is controlled by the user agency.

The City of Madison utilized internal service funds for the following three agencies.

Motor Equipment -- All City motor vehicles (except those owned by the Transit Utility, Water Utility and Community Development Authority) are owned and maintained by the central garage. All user agencies are billed for vehicle usage based on miles driven or hours in service. These billing rates are adjusted periodically to reflect increases in fuel, vehicle costs and maintenance charges. Beginning in 1982, the replacement reserve which normally was transferred to the General Fund for vehicle purchases remained within Motor Equipment. In 1998, the Motor Equipment Fund realized a net loss of $330,682 compared with a net loss of $620,257 in 1997.

City Insurance -- The office of Risk Management has been established as an internal service fund. The responsibility of Risk Management is to provide insurance coverage for all City agencies. An appropriate charge is billed to the user agencies for the cost of this service.

Trust and agency funds are established to account for revenue from sources other than taxes or enterprise operations which have been designated by the Common Council for specific uses. These funds are also utilized to account for money received from third parties and held by the City in the capacity of trustee, custodian or agent to ensure that funds are utilized as directed by the donor.

There are three common types of trust funds: expendable, nonexpendable and investment. The entire balance of an expendable trust fund may be utilized by the City for the purposes designated. Disbursements from nonexpendable funds are restricted to the income that is earned by the fund. The principal must remain intact. There are also several variations of this, such as a fund where half of the earnings can be utilized and the other half is added to the principal until the fund reaches a certain balance. The accumulated balance may then be utilized for the intended purpose. Investment trusts are accounted for in essentially the same manner as proprietary funds since capital maintenance is crucial.

As of the end of 1998, 19 trust and agency funds were in existence. One such fund is Forest Hill Cemetery Perpetual Care, which the City owns and operates. Sales of cemetery lots are treated as revenue to the General Fund. In addition to the sale price of lots, the City charges a perpetual care fee. Revenue from the fee is placed in a trust fund. Earnings from the fund may be used to offset maintenance costs.

Total assets held in trust were $14,361,858 at the end of 1998 compared to $10,411,548 at the end of 1997.

Account groups have been established to record general fixed assets and long-term debt. The general fixed asset account group is used to record all assets not used in proprietary fund operations (i.e., enterprise or internal service funds) or accounted for in trust funds. The long-term debt account group is used to account for all debt intended to be financed from governmental funds.

The Community Development Authority (CDA) of the City of Madison operates several types of public housing projects throughout the City of Madison. The types of projects are Conventional Low Rent Public Housing, Section 8 New Construction, and the Section 8 Certificate and Voucher programs.

Under the Section 8 Certificate and Voucher programs, HUD contracts to pay eligible landlords the difference between the fair market rent and what the tenant can afford to pay, up to a maximum of 30 percent of their adjusted monthly income. The CDA administers these programs by certifying eligible tenants, inspecting rental units and contracting with approved landlords. The total subsidy amounted to $4,692,803 in 1998 compared to $4,864,116 in 1997.

Budgetary control is maintained by a formal appropriation and encumbrance system. Encumbrances are made against appropriation balances for purchase orders prior to their release to vendors, except in the special revenue fund. Purchase orders which exceed appropriation balances are not released until additional appropriations are made available or until a budgetary transfer is approved.

Respectfully submitted,

Gale Dushack

Comptroller

Mayor - Susan J.M. Bauman