|October 14, 2002|
Mayor Susan J.M. Bauman
210 Martin Luther King Jr Blvd. Rm 403
Madison, WI 53709
Dear Mayor Bauman:
The Annual Financial Report of the City of Madison, Wisconsin, for the year ended December 31, 2001 is hereby submitted. A summary of significant financial transactions and highlights follows.
General Government Operations
The City ended 2001 operations with an unreserved, undesignated fund balance of $23,628,991 and an unreserved designated fund balance of $2,000,000. That amount was applied to the 2002 Operating Budget. This represents a continuing strong fund balance well within the City's long-term financial goals and indicators.
General Fund Revenue
General Fund revenue exceeded budget by $4,377,553. Actual 2001 revenues increased by a total of $9,700,300, or 6.29% over 2000. The variations between budgeted and actual revenues occurred in the following areas:
|Revenue categories with a significant budget variance during 2001 included:|
Licenses and Permits - Building permit revenues continued at a higher-than-anticipated level. During 2001, building permit revenue was $3,219,850 compared to a budget of $2,387,000. In 2000 building permit revenue was $3,075,370.
Fines and Forfeitures - Actual 2001 parking violations totaled $3,334,190 compared to the budgeted amount of $3,520,000. Traffic tickets totaled $833,021 compared to the budgeted amount of $1,283,200. Ordinance violations exceeded its budget amount of $400,000 by $111,538.
Charges for Services - The majority of this favorable variance originates from higher than expected cable franchise fees. Actual fees for 2001 totaled $1,665,618 compared to the budgeted amount of $1,450,000. The remaining favorable variance stems from higher than expected Ambulance fees.
Interest on Investments - Interest income exceeded budget by $151,145. It is difficult to accurately forecast interest income since it is subject to fluctuating market rates. Budgeted interest income for 2001 was $4,550,000 compared to actual interest revenue of $4,701,145.
Other Revenues - Other revenue exceeded the 2001 budgeted amount of $1,026,000 by $3,128,338. This is the result of a one-time Wisconsin Retirement Fund credit in the amount of $2,592,823.
Property Taxes and Intergovernmental Revenues – Property taxes remain the primary revenue source for City operations and have continued to grow as a percentage of total revenues, from 55.58% in 1992 to 62.55% in 2001. This increasing reliance upon the property tax comes as a result of the stagnation in state and federal general revenue sources during the same period. Since 1992, intergovernmental revenues have remained relatively constant and have, therefore, declined from 27.85% to 20.98% of total general fund revenues.
The growth in property tax collections during this decade has been matched by a corresponding strong growth in the local tax base. The City mill rate has declined, as a result, in each of the last 9 years.
|General Fund Expenditures|
Total General Fund expenditures were $158,655,495 compared to a budget of $161,450,255 for a positive variance of $2,794,760. Actual expenditures during 2001 represented a 4.6% increase over the 2000 level of $151,678,647. The increase by function follows:
|Significant budget variances include:|
|General Fund Financial Statements
Special Revenue Funds
Wisconsin State Statutes and Generally Accepted Accounting Principles (GAAP) mandate that revenues 'earmarked' for specific purposes be accounted for in a separate 'Special Revenue Fund.' The six Special Revenue Funds established by the City are: Library Fund, Urban Development Action Grant (UDAG) Fund, Community Development Block Grant (CDBG) Fund, Revolving Loans Fund, Other Grants Fund, Other Restricted Funds, and Stormwater Utility.|
Library - The 2001 Library expenditure budget was $10,146,719. Of that amount $8,070,244 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 2001 actual Library expenditures were $9,774,720. The Library ended its year with a $151,058 favorable net budget variance.
Special Revenue Funds Financial Statements
Debt Service Fund
In accordance with GAAP, the City maintains a Debt Service Fund for the accounting of debt service requirements. In 2001, the City budgeted $20,732,183 for the General Fund payment toward debt service. Overall, the City's debt service and debt management policies have contributed to the City's continued Aaa rating. Those policies center on maintaining low ratios of outstanding debt to debt limits and debt service as a percent of operating budget in conjunction with relatively short-term (10 year) debt.
The ratio of General Fund debt service payments to total expenditures follows:
|The City's general outstanding debt as a percentage of assessed value for the last two years is:|
|In 2001, the City issued a $23,245,000 general obligation note to fund projects contained in the 2001 Capital Budget. The interest rate on the issue is 4.375%.|
Debt Service Fund Financial Statements
Capital Project Funds
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 approximately 60 active capital improvement funds during 2001. 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 rates ranging 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 2001 were $2,122,096. During 2001, $2,484,996 was transferred to various capital projects.
Tax Incremental Financing Funds - A tax incremental financing (TIF) district represents a development zone designated by the Common Council. The City spends funds within the zone to promote private development. The underlying assumption of tax incremental financing is that without the City's participation, no development would take place. The revenues generated from the increase in property values (incremental revenues) are used to recover the City's investment. Allowable costs include direct and indirect expenditures, imputed staff time and interest expense. After the City has recovered its investment or an average of 18 years has elapsed, the district is dissolved. The increased property values are then added to the general tax base.
At year-end, the City had 12 active TIF districts. Total 2001 incremental taxes from all districts totaled $7,680,117 compared with $6,464,739 in 2000. The total incremental value created within those districts was $358,945,450 as of December 31, 2001.
Capital Projects Funds Financial Statements
Enterprise Fund Operations
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.
The City's enterprise funds are operated on the full accrual accounting basis. Current accounting principles dictate that accounting for enterprise operations be the same as if the operation were privately owned. The purpose of this accounting method is to present the financial status of these activities in a manner comparable to that used for private enterprises. The full operating statement, therefore, includes such items as depreciation, debt service, and payments in lieu of taxes, where applicable.
Comments pertaining to specific enterprise operations follow.
Water Utility - The Madison Water Utility had a net income of $1,469,221 in 2001 on sales of $14,524,192. From 2000 to 2001, sales increased by 1.35 percent.
Water Utility Financial Statements
Sewer Utility - In 2001, the Sewer Utility had a net income of $1,082,889. This compares with net income for 2000 of $1,269,156. The landfill remediation fee collected from Sewer ratepayers 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 2001 was $2,723,273.
Sewer Utility Financial Statements
Parking Utility - In 2001, the Parking Utility had net income of $307,332. This compares with a net income for 2000 of $667,801. Revenues in 2001 were $6,947,420. This represents a 1.64 percent increase over 2000.
Parking Utility Financial Statements
Transit Utility - Operating expenses of the Transit Utility, including depreciation, totaled $40,455,916 in 2001, while operating revenues totaled $8,523,193 resulting in an operating loss of $31,932,723. The City of Madison's operating transfer was $6,436,748 compared to a 2000 transfer of $6,205,753. The balance of the loss was paid by state, federal and other municipal operating assistance. The City of Madison's total cash contribution to the Transit Utility, including operating subsidy and capital contribution, was $7,348,000 in 2001. This figure compares with a cash contribution of $6,833,340 in 2000.
Transit Utility Financial Statements
Golf Courses - In 2001, the municipal golf courses had net income of $408,070 on sales of $2,515,610 compared with a net income of $232,511 on sales of $2,390,322 in 2000.
Golf Course Financial Statements
Ice Arenas - During 2001, ice arena operations incurred a net loss before subsidy of $241,498. This compares with a 2000 loss of $350,427. Total General Fund cash support for the ice arenas' operations and capital contributions was $222,950 in 2001. In 2000, General Fund cash support was $231,375 – a decrease of 3.64 percent.
Ice Arena Financial Statements
Civic Center – For the first half of 2001, the Civic Center generated $1,975,653 in revenue. As of July 1, 2001, Civic Center operations were transferred to the Madison Cultural Arts District – a discretely presented component unit in the general purpose financial statements.
Civic Center Financial Statements
Convention Center - Operating revenues were $2,971,523 in 2001. This represents an increase from the $2,537,474 in operating revenues generated in 2000. During 2001, Monona Terrace operations incurred an operating loss before subsidy of $5,031,498.
Convention Center Financial Statements
Internal Service Funds
Internal service funds are established to account for services and supplies furnished by an 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) are maintained by the central garage. 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 2001, the Motor Equipment Fund realized a net loss of $4,265 compared with a net income of $269,859 in 2000.
Motor Equipment Fund Financial Statements
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.
The statements present current year billings and expenses, but do not include salary or fringe benefit costs. These outlays are included in the Comptroller's Office expenditures in the General Fund.
Insurance Fund Financial Statements
Worker's Compensation - A Worker's Compensation fund has been established as an internal service fund. Prior to 1995, the City self-administered its Worker's Compensation program. However, in 1995, the City contracted with a third party administrator and an appropriate charge is billed to the user agencies for the cost of this service. In 2001, the Worker's Compensation fund expended $2,566,311, which constituted a 19.13 percent increase from 2000 expenditures of $2,154,143.
Worker's Compensation Fund Financial Statements
Trust and Agency Funds
Trust and agency funds are established to account for revenue from sources other than taxes or enterprise operations that 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 2001, 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.
Beginning in 1999, the portion of the annual tax collection for other entities (Dane County, School Districts, etc.) is accounted for in an agency fund; it was previously accounted for in the General Fund.
Total assets held in trust were $239,047,011 at the end of 2001.
Trust and Agency Funds Financial Statements
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.
General Fixed Asset Account Group Financial Statements
General Long-Term Debt Account Group Financial Statements
The City of Madison has two component units. The Governmental component unit represents the Business Improvement District and the Madison Cultural Arts District. The Enterprise component unit represents the Community Development Authority. Component units are legally separate organizations from the City; however, state statutes provide for circumstances where the City can impose its will on the districts. Therefore, the districts' financial information has been presented in discrete columns in the financial statements.
The Business Improvement District (BID) is an area of contiguous commercial properties that was created, in accordance with Wisconsin Statute 66.1109, to establish a plan and a funding mechanism to maintain and promote the area. Each participant is assessed annually to finance the operating of the district. Expenditures may only be made in accordance with the plan.
In 2001, the City created the Madison Cultural Arts District (Arts District). The purpose of the Arts District is to develop the Overture Center, specifically Block 65, into a world-class cultural arts facility while limiting taxpayer contributions. The Arts District is a separate unit of government formed under Chapter 229 of the Wisconsin Statutes.
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.
The Low Rent Public Housing Projects are owned and operated by the CDA for qualified low rent tenants. Rents are based upon the tenants' ability to pay, up to a maximum of 30 percent of their adjusted monthly income. In 2001, the operating subsidy provided by the Federal Government amounted to $870,090 compared with $701,687 in 2000.
Section 8 New Construction projects are owned and operated by the CDA. In these projects, the tenants' rents are also based upon the ability to pay up to a maximum of 30 percent of their adjusted monthly income. The federal Department of Housing and Urban Development (HUD) enters into contracts with the CDA to pay the difference between the fair market rent and the amount the tenant pays. This subsidy was $469,092 in 2001 compared to $462,669 in 2000.
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 $5,326,074 in 2001 compared to $4,800,589 in 2000.
Component Unit Enterprise Financial Statements
Component Unit Governmental Financial Statements
Accounting Systems and Reporting
The City's accounting records for general government operations, special revenue funds, debt service, capital project funds, and expendable trust and agency funds are maintained on a modified accrual basis, with property tax revenues being recorded when earned and expenditures (except interest on long-term debt) being recorded when incurred. Accounting records for the City's utilities, nonexpendable trust funds, internal service funds and other enterprise operations are maintained on a full accrual basis.
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.
An independent Certified Public Accounting firm audits all of the City's books of account, financial records and transactions. The 2000 and 2001 financial statements in this report have been audited.