INTRODUCTORY SECTION
DENNIS “BOOG” HIGHBERGER
www.lawrenceks.org
March 31, 2006
To the Citizens of Lawrence:
The Comprehensive Annual Financial Report (CAFR) of the City of Lawrence for the year ended December 31, 2005 is hereby submitted. The report was prepared by the Finance Department, which is responsible for the accuracy of the data and the completeness and fairness of the presentation, including all disclosures. Unless waived by the local government, Kansas Statutes require that the financial statements be presented in conformance with generally accepted accounting principles (GAAP) and be audited in accordance with generally accepted auditing standards by a firm of licensed certified public accountants.
The report consists of management’s representations concerning the finances of the City of Lawrence. The City has established a comprehensive set of internal controls that is designed to protect the government’s assets from loss and to compile sufficient reliable information for the preparation of the financial statements. Because the cost of internal controls should not exceed the benefits, the internal controls are designed to provide reasonable rather than absolute assurance that the financial statements will be free from material misstatement. As management, we assert that, to the best of our knowledge and belief, this financial report is complete and reliable in all material respects.
The financial statements have been audited by Lowenthal Singleton Webb and Wilson, a firm of licensed certified public accountants. The goal of the independent audit was to provide reasonable assurance the financial statements of the City of Lawrence for the fiscal year ended December 31, 2005 are free of material misstatement. The independent audit involved examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements; assessing the accounting principles used and significant estimates made by management; and evaluating the overall financial statement presentation. The independent auditor concluded, based upon the audit, that there was a reasonable basis for rendering an unqualified opinion that the City of Lawrence’s financial statements for the year ended December 31, 2005, are fairly presented in conformity with GAAP. The independent auditor’s report is presented as the first component of the financial section of this report.
The independent audit of the financial statements of the City of Lawrence was part of a broader, federally mandated “Single Audit” designed to meet the special needs for federal grantor agencies. The standards governing Single Audit engagements require the
We are committed to providing excellent city services that enhance the quality of life for the Lawrence Community 1
independent auditor to report not only on the fair presentation of the financial statements, but also on the audited government’s internal controls and compliance with legal and contractual requirements, with special emphasis on internal controls and legal requirements involving the administration of major federal awards. These Single Audit reports are part of this report.
GAAP requires that management provide a narrative introduction, overview, and analysis to accompany the basic financial statements in the form of Management’s Discussion and Analysis (MD&A). This letter of transmittal is designed to complement MD&A and should be read in conjunction with it. The MD&A section can be found immediately following the report of the independent auditors.
Profile of the City
The City of Lawrence was founded in 1854 as a project of the New England Emigrant Aid Society. The City’s location, thirty-eight miles west of Kansas City, Missouri, and twenty-five miles east of Topeka, the state capitol, makes it one of the fastest growing cities in Kansas. In addition, Lawrence is home to the University of Kansas, which is the largest local employer. The City encompasses approximately 31.3 square miles and had an estimated population in 2005 of 88,541.
The City of Lawrence has operated under the Commission-City Manager form of government since 1951. The five member Commission is elected at large to either a two or four year term. Each year the Commission chooses one of its members to serve as Mayor. The Commission is responsible for policy making, passing ordinances, adopting the budget, appointing committees, and hiring the City Manager. The City Manager is responsible for the day-to-day operations of the City and for hiring personnel.
The City provides a full range of services which include police and fire protection, construction and maintenance of infrastructure, community development and planning, and recreational and cultural activities. The City also operates both the water and wastewater utilities. In addition, the City provides both residential and commercial sanitation services to its citizens. The Lawrence Public Library, Lawrence Housing Authority, and Lawrence Memorial Hospital are considered component units of the City of Lawrence and thus have financial information included in this report.
The annual budget provides a foundation for financial planning and control. The City must submit its annual budget to the State of Kansas prior to the end of August. The City Commission is required to hold a public hearing to discuss the budget prior to its adoption. The budget is adopted by fund. An amendment to increase the budget is allowed up to the amount non property tax sources of revenue exceed the adopted budget. Budget to actual comparisons are provided in this report for each individual governmental fund for which an annual budget has been adopted.
Factors Affecting Financial Condition
The information presented in the financial statements is best understood when it is considered from the specific environment within which the City operates.
Local economy. The local economy is varied and diverse. Employment opportunities are provided by over 2100 local employers. Major employers include the University of Kansas, Lawrence Public Schools, Hallmark Cards, Lawrence Paper Company, Amarr Garage Doors, Berry Plastics, K-Mart Distribution Center, and Del Monte. The City Commission approved a $118 million tax abatement for Berry Plastics to manufacture a new line of plastic cups. Pearson Government Solutions announced planned to hire an additional 100 workers by the end of 2005. Protection One moved its corporate headquarters from Topeka to Lawrence. A total of 65 jobs were to be transferred to Lawrence. Berry Plastics announced plans for a significant expansion of its Lawrence plant to begin in 2006. When completed, the expansion would result in the hiring an additional 154 employees.
The average unemployment of the Lawrence MSA in 2005 was 4.0%. The total civilian labor force was 62,929. The average annual unemployment rate for 2001, 2002, 2003, and 2004 was 4.4%, 4.2%, 4.7% and 4.2%, respectively. The number of homes sold in Lawrence during 2005 was 1,581, a decrease of 1.8% compared to 2004. The average selling price for a home was $190,591 during the year, an increase of 5.6% from the 2004 average.
Long-term financial planning. As Lawrence continues to grow the need to build new infrastructure and maintain existing streets and storm sewers becomes very important. The City has experienced a significant number of special benefit districts to finance streets and sidewalks in the Northwestern part of the City. The City typically allows benefit district projects to be financed over a ten year period. If the property taxes are not paid by the property owners in the benefit district, the cost of the principal and interest payments are covered by the public at-large. The City Commission approved construction of Lawrence’s fifth fire station. Plans for the construction of a second public library facility are being evaluated.
The City Commission recently adopted a new ten year capital improvement plan for the water and sanitary sewer utility. The plan includes over $130 million in projects with the largest cost being $80 million for the City’s second wastewater treatment plant. A rate study to determine the cost of service and level of water and sanitary sewer rates for the next five years was completed in June of 2004 and approved by the City Commission in December 2004. The current plan calls for annual rate increases of 4.0% for water service and 9.0% for sanitary sewer service over the next four years. The projects will be financed with a combination of cash and revenue bonds.
The State of Kansas completed widening a one mile portion of Highway 40 in the Northwest part of the City. The project would widen the existing highway to four lanes and cost the City over $3.3 million. The project is expected to lead to additional retail and residential development in that part of the City.
The City Commission is provided with a projection of the revenue, expenditures, and fund balances of the property tax supported funds as part of the budget deliberations. The main purpose is to avoid large fluctuations in the property tax levy and to warn of the potential and enhance revenue sources and/or reduce the growth of expenditures. The City Commission has adopted a policy to maintain the fund balance in the General Fund at a level no less than 25% of expenditures.
Cash management policies and practices. Cash temporarily idle during the year was invested in certificates of deposit, obligations of Federal agencies, and the Kansas Municipal Investment Pool. The maturities of investments varied from three months to four years with an average maturity just over one year. The weighted average yield on investments during the year was 2.7%. The City’s cash management policy was certified by the Municipal Treasurer’s Association in 2002. In addition, the State’s Pooled Money Investment Board has granted the City expanded investment powers.
Risk Management. The City of Lawrence self insures for the majority of our risks. General and automobile liability over $300,000 per occurrence and $1 million in aggregate are covered by third parties. The City also maintains insurance policies covering certain high cost items such as fire trucks. To lessen the budgetary impact of large settlements, the City has maintained a liability reserve fund totaling over $1.3 million.
Pension and other postemployment benefits. The City of Lawrence full time employees participate in a defined benefit retirement system sponsored by the State of Kansas. Both the employee and employer contribute. State statutes establish the various contribution levels. There are different plans for public safety employees and all other city employees. Currently, the rates paid are not sufficient to adequately fund the system. As a result, the unfunded liabilities of the plans have been increasing.
The City also contributes up to 20% of the cost of retiree health care. The benefit is funded on a pay-as-you-go basis. GAAP does not currently require the City to report a liability in the financial statements in connection with an employer’s obligation to provide these benefits. However, the Governmental Accounting Standards Board has recently issued GASB 45 initiating such a requirement.
Awards and Acknowledgements
The Government Finance Officers Association (GFOA) awarded a Certificate of Achievement for Excellence in Financial Reporting to the City of Lawrence for its comprehensive annual financial report (CAFR) for the year ended December 31, 2004. This was the fourteenth consecutive year that the City has received this prestigious award. In order to be awarded a Certificate of Achievement, the government published an easily readable and efficiently organized CAFR. This report satisfied both GAAP and applicable legal requirements.
A Certificate of Achievement is valid for a period of one year only. We believe that our current CAFR 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.
In addition, the City also received the GFOA’s Distinguished Budget Presentation Award for its 2005 annual budget document. In order to qualify for the Distinguished Budget Presentation Award, the budget document was judged to be proficient in several categories, including as a policy document, a financial plan, an operations guide, and a communications device.
The preparation of this report would not have been possible without the efficient and dedicated services of the Finance Department. We would like to express our appreciation to all members of the department who assisted and contributed to the preparation of this report. Special acknowledgement must be given to the work of Laura Warner. In closing, without the leadership and support of the governing body of the City, preparation of this report would not have been possible.
Respectfully submitted,
A. Ed Mullins Finance Director