City of Kirkwood

139 S. Kirkwood Road

Kirkwood, MO  63122-4303

(314) 822-5832

 

September 30, 2003

 

 

The Comprehensive Annual Financial Report (CAFR) of the City of Kirkwood (City), Missouri for the fiscal year ended March 31, 2003 is hereby submitted.  The City of Kirkwood’s Finance Department prepared this report.  The City is responsible for accuracy of the data and the completeness and fairness of the presentation of the financial statements and other information presented herein.  We believe the presentation is accurate in all material respects and includes all disclosures necessary to enable the reader to gain a reasonable understanding of the City’s financial activities.

 

This report has been prepared following the guidelines recommended by the Government Finance Officer’s Association of the United States and Canada.  This association awards Certificates of Achievement for Excellence in Financial Reporting to those governments whose annual financial reports are judged to conform substantially with high standards of public financial reporting including generally accepted accounting principles promulgated by the Governmental Accounting Standards Board.  It is our belief that the accompanying Fiscal Year 2003 Financial Report meets program standards, and it will be submitted to the Government Finance Officer’s Association for review. 

 

The City’s CAFR includes an introductory section, a financial section, and a statistical section.  The introductory section includes this transmittal letter, the City’s organizational chart and a list of principal officials.  The financial section includes fund and account group financial statements and schedules as well as the auditor’s report on the financial statements and schedules.  The statistical section includes selected financial, economic, and demographic information, generally presented on a multi-year basis.

 

This City’s financial reporting entity includes all funds and account groups of the City and its blended and discretely presented component units.  Component units are legally separate entities for which the primary government is financially accountable.  The City provides a full range of services, including police and fire protection; electric; water and sanitation services; construction and maintenance of highways, streets, and infrastructure; recreational activities, including a state of the art aquatic center and enclosed ice rink.  The blended component units are, in substance, part of the primary government’s operations and are included as part of the primary government.  The Public Facilities Authority, Special Business District, and the Civilian and Police Pension Funds are blended.  The Industrial Development Authority, the City’s other component unit is discretely presented. 

 

 

THE CITY OF KIRKWOOD

 

Kirkwood is located in St. Louis County, approximately 14 miles west of the City of St. Louis.  The City covers approximately 9.1 square miles and is bounded by Interstate 44 on its southern boundary and traversed by Interstate 270 near its western boundary.  Together, the interstate highways provide excellent access to all parts of the St. Louis metropolitan area.

 

Kirkwood was the first planned suburban residential area west of the Mississippi River.  The City was established in 1853, incorporated in 1865, reincorporated as a fourth class City in 1899, and as a third class city in 1930.  In 1984, the City became a home rule City as permitted under a 1971 amendment to the Missouri Constitution.

 

Known as “The Green Tree City,” the City is an attractive suburban residential community with tree-lined streets a vibrant downtown shopping district and a highly rated public school system.  The City has a diverse economic base, which includes several large retailers, limited industries, and many small specialty shops.  Kirkwood is also a scheduled stop on Amtrak’s Kansas City to St. Louis route. 

 

 

ECONOMIC CONDITION AND OUTLOOK

 

 Kirkwood has enjoyed the completion of a new development referred to as Kirkwood Commons.  It is now 100% occupied and includes Wal-Mart, Target, Lowe’s, and several smaller retail shops and restaurants.  This commercial development was part of a larger Tax Increment Financing (TIF) development that had as its goal not only economic development but invested four million dollars in residential redevelopment as well.  One half of the taxes generated by the retailers are redirected to pay off bonds and notes, the funding from which made the entire project an economic possibility.  The City evaluates the possibility of refunding debt and believes a refunding may be a possibility that has the potential to save the city hundreds of thousand s of dollars if the market holds. This development was funded with Tax Increment Financing (TIF), which means the City will see very little benefit from the sales taxes until the projected payout of the bonds estimated for 2009.  Even after the bonds and notes are totally retired, the city receives a limited amount of revenue due to unique sales tax distribution laws applicable only to St. Louis County. 

 

The City of Kirkwood has been fortunate to have negotiated a very favorable wholesale electric contract with AmerenUE in 1999.  This contract has provided the City’s Electric Fund with the opportunity to build fund equity.  The Public Service Commission reduced retail electric rates for AmerenUE in the summer of 2002. The City Council matched this reduction, which is phased-in, with first reduction effective October 2002; reducing retail electric rates by 2.84 percent.  The City will reduce retail rates again in October 2003.  This reduction will equate to  $504,000 in additional lost electric revenues.  In addition to keeping the Electric Fund fiscally healthy, the Electric Fund profits have been used to fund general government services.  Approximately 15 percent of the General Fund’s financing is from the Electric Fund.  The rate reduction and dependence on these transfers poses a significant challenge for managers, City Council, and the community.

 

The Sanitation Fund provides for the collection and disposal of household solid waste, including yard waste. The collection services are provided directly by City employees; disposal/landfill operations are furnished by private contract. All residences in the City are required to use Kirkwood Sanitation service. Kirkwood Sanitation also provides limited commercial trash pick up on a competitive basis with private industry. The City’s philosophy of funding the cost of these services is that they are self-funding and not subsidized by general tax dollars. Virtually all rates charged by the City have remained static for the past 14 years, despite annual increases in operating cost and significant increases in the cost of landfill disposal.   The Sanitation Fund is projected to run in the aggregate a $335,000 deficit by the end of the coming year due to voters failing to approve a rate increase in April 2002.  In addition to a reluctance to pay more for sanitation, the election became the focal point of other issues related to a billing program that is thought to offer greater equity to customers and encourage greater recycling.  The City is currently studying those issues and voters will again be asked in April 2004 to decide not only what type of sanitation service they want in the future and how they should be charged for this service, but to establish rates sufficient to eliminate current deficits. 

 

Of greater significance than the deficiencies in operating revenue is the prospect of the privately owned landfill that Kirkwood utilizes closing in the near future. The closure of the current landfill   would require extended and costly travel by individual sanitation trucks to a more distant landfill.

This requirement would necessitate more trucks and crews to complete the routes daily.  Costs would rise rapidly and it is unlikely that Kirkwood could compete and justify remaining in the sanitation business, thus turning the service over to private industry.  In order to avoid being confronted with this situation, the City has negotiated and entered into a public-private partnership with Fred Weber Co.  to build and utilize a transfer station in the Kirkwood vicinity.  The agreement also contains a provision that will help contain disposal costs by utilizing Fred Weber Co. landfill at favorable rates.

 

 

MAJOR GOALS AND PROJECTS

 

As an organization, the City’s number one goal is service to our citizens.  This becomes more difficult and complex as we strive to offer the same level of services with the potential of significantly reduced revenues.  Numerous citizen committees have concluded that without additional revenue Kirkwood will not be able to sustain current service levels.  Kirkwood has been authorized in the past to levy a ½ cent sales tax for capital needs, including roads, sidewalks, and fire equipment. This tax will expire in 2005 without voter renewal.  Therefore, voters will be asked to renew this tax in April 2004.  Without the continuation of such funding Kirkwood’s infrastructure will deteriorate at a faster rate.

 

Voters approved a bond issue to rebuild all three fire stations in November 2000.  The first was completed earlier this year and the second is under construction with completion scheduled for April 2004.  In addition, the bond issue provided much needed funding for significant capital replacement needs within the department including a ladder truck, two ambulances, and thermal imaging units.

 

As part of the City’s Parks and Recreation function, the City, in cooperation with the cities of Oakland and Glendale, pooled resources on a proportionate scale to build and operate an outdoor aquatic center; a groundbreaking cooperative arrangement that was the first of its kind in the state.  The facility has water features for competition, children, and general leisurely water recreation activity.  This facility is proving both popular and profitable.

 

Another major goal for the City is the implementation of Governmental Accounting Standards Board Statement 34(GASB 34) effective for fiscal year ending March 31, 2004.  Understanding a change of this magnitude is a difficult task, especially for our citizen’s who may not have an extensive background in governmental accounting; therefore, the City of Kirkwood Finance Department will provide extensive GASB 34 education during the upcoming fiscal year.

 

 

FINANCIAL INFORMATION

 

The comprehensive annual financial report is being presented for the purpose of providing the Mayor and Council, management personnel and the citizens of Kirkwood a detailed and complete report of the financial activity during the fiscal year.  The report includes data for all the funds of the City.  The information is presented in such a manner as to provide the reader with an understanding of the fiscal affairs of the City.

 

The City’s basis of accounting and fund structure is defined in detail in the Notes To The Financial Statements.  The notes to the financial statement provide essential information in further understanding the fiscal affairs of the City.

 

 

BUDGETARY CONTROLS

 

Missouri State Law and City ordinances require annual budgets to be prepared for the General and Special Revenue Funds on a cash basis.  For the period covered by this annual financial report, budgetary control over expenditures was exercised by the City Council throughout the entire fiscal year.  The City Council could amend the budget throughout the year provided total expenditure appropriations did not exceed projected revenues plus unencumbered reserves at the beginning of the fiscal year.  The level of budgetary control is established by law at the department level for the general fund and the fund level for other funds.

 

Appropriation transfers were made within or between departments with the approval of the Chief Administrative Officer.  All budget amendments in excess of the original budget were approved by City ordinances or by transfer from the amount appropriated for contingencies.  A City policy, which is not required by state statute, requires all budget amendments or transfers of $10,000 or more be approved by ordinance.

 

The City’s accounting system provides for internal controls to ensure that assets of the City are protected from loss, theft or misuse, and are properly accounted for.  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 the cost of a control should not exceed the benefits likely to be derived; and the valuation of costs and benefits requires estimates and judgments by management.

 

It is the opinion of management that the internal controls utilized are adequate and provide for the safeguarding of assets and assure proper recording of financial transactions.

 

 

GENERAL GOVERNMENT FUNCTIONS

 

Revenues for governmental fund types, including the General, Capital Projects, Special Revenue, (excluding Park Fund) and Debt Service funds, amounted to $23,382,317 for fiscal year 2003, which represents an increase of $1,518,763 over the prior fiscal year.

 

Major sources of revenue for the General Fund include City sales taxes, franchise fees, and a gross receipts tax on private and City owned utilities.  City tax revenue amounted to $9,163,922 or 70 percent of the total general fund revenue.  Tax receipts increased $489,585 or 5.60 percent more than the prior year.  Gross receipts tax increased  $238,452 or 8 percent more than the prior year.  Transfers from the Electric Fund accounted for 10 percent or  $1,442,368 of the General Fund’s financing sources, this represents a decrease of $1,194,183 compared with the prior fiscal year.

 

Sales Tax receipts are from a one-quarter percent City Sales Tax used for general City purposes.  One percent of the general corporate sales tax was authorized by special election in 1971 and became effective October of that year.  The one-quarter percent City sales tax was authorized by special election in November 1994 and became effective April 1995.  Sales tax revenue increased $274,050 or 7.25 percent from $3,779,538 to $4,053,588 due to increased retail sales in Kirkwood.

 

The expenditures for major functions of the General Fund of the City and the change over the preceding fiscal year are as follows:

                                                            Percent                    Increase                                 

                                                                                        Of                   (Decrease)                  

Function                      Amount                        _Total_            over prior year        

 

Administration &                  2,644,335       17 %                  75,756

                  General

 

Purchasing                  208,215           1 %                  9,482

 

Engineering                  441,188           3 %                  103,392

 

Building Maint.                  326,322           2 %                  35,547

 

Building Comm.                  556,345           4 %                  48,148

 

Police                  4,505,232       29 %                  250,703

 

Fire                  3,337,112       22 %                  303,786

 

Streets                  1,820,773       12 %                  200,482

 

Recreation                  1,580,426       10 %                  486,654

   

                  Total                  15,419,948                       1,511,950

 

Operating expenditures for the General Fund increased $1,511,950 or 2.95 percent over the preceding year.  The primary cause of this increase was due changing the Aquatic Enterprise Fund to a General Fund department.  In addition the largest increases were related to the police department, fire department, street department and engineering department. 

 

General Government and Finance Department expenditures increased $75,756.

 

The Police Department increased $250,703 which included major increases in salaries, workers compensation and employee benefits.

 

The Fire Department expenditures increased $303,786, which included major increases in salaries, overtime, and training. 

 

The Street Department expenditures increased $200,482.  Major increases were in salaries and contractual services.

 

The Recreation Department expenditures increased $486,654, which included increases in salaries and the additional expenditures associated with the aquatic facility.

 

Capital Project Funds expenditures amounted to $9,224,157 an increase of $5,521,915 over the prior year.   Construction and renovation of Firehouse #2 is substantially complete. 

 

 

PROPERTY TAXES

 

The City does not presently have a property tax levy for General Fund expenditures.  The present one percent citywide sales tax was authorized by special election in 1971 and became effective on October 1 of that year.    The property tax levy for City revenue was eliminated in the same calendar year.

 

Property taxes are levied for certain special purposes.  City property taxes have historically accounted for less than 10 percent of a property owner’s total property tax bill.  The allocation of the City and library’s property tax for fiscal year 2002 and the two preceding fiscal years is as follows:

 

 

                                                                                          Amounts per

                                                                                    $100/assessed value

                 Purpose                                                2002/03                 2001/02            2000/01

 

The Kirkwood Public Library                              .223                    .223                    .240

The Kirkwood Park Board                                 .130                    .130                    .130

The Police and Fire Retirement Fund                   .168                    .167                    .180

Debt Service Fund                                             .287                    .297                    .110

 

            Total tax rate                                        .808                    .817                   .660

 

The assessed valuations have varying assessment ratios, depending on the type of property.  The assessment ratio for residential property is 19 percent, commercial is 32 percent and agricultural property is 12 percent.  The assessed valuation for calendar year 2001, upon which the tax rate of $.808 applies, is $503,583,955.

 

 

CAPITAL PROJECTS FUNDS

 

The proceeds of general obligation bond issues are accounted for in Capital Projects Funds until the expenditures for specific improvements have been completed.  At the end of the fiscal year assets are transferred as appropriate.

 

 A one-half cent Capital Improvement Sales Tax that includes a 10-year sunset provision expires in 2005.  This tax was approved by the voters in November 1994.  This tax is a point-of-sales sales tax with 15 percent of the tax contributed to the St. Louis County sales tax pool.   The City uses the Capital Improvement Sales Tax to pay for the principal and interest on general obligation bonds that were issued to finance street projects and to pay for other capital improvements of the City.

 

A $3,000,000 bond issue in 1996 and a $2,000,000 bond issue in 1998 was sold and utilized primarily for street and sidewalk improvements.

 

On April 7, 1998, voters approved a one-half cent sales tax for Parks and Recreation.  The City began receiving funds from this tax in October 1998.  The tax is a point-of-sale tax with 100 percent of the revenues distributed to the City other than collection fees.  The City intends to use the revenues from the Park/Recreation Sales Tax in the following priority (i) to pay debt service on outstanding Series 1998 Leasehold Revenue Bonds, (ii) to finance the cost of capital projects for Parks and Recreation,  (iii) to pay a portion of the cost of operating and maintaining parks and recreation activities.  An $11,675,000 bond issue was sold in 1999 and utilized for a state-of-the- art aquatic facility and to enclose our ice skating facility.  The Recreation Station Aquatic Center was a joint venture with the City of Glendale and the City of Oakland.  Glendale’s share of the debt service is 16 percent while Oakland’s share is just over 4 percent.

 

In 2001, following the November 2000 passage of a fire bond issue election, the City issued and sold $6,750,000 in general obligation bonds to be utilized to fund the demolition and rebuilding of three fire stations in addition to purchasing fire equipment.  The debt will be serviced in the debt service fund by a dedicated property tax that will expire when the bonds are retired.

 

 

ENTERPRISE OPERATIONS

 

Comparative data for each utility for the past two fiscal years in dollars are as follows:

 

 

                                                                        2003                            2002                Difference

Electric

            Operating Revenues            14,461,828            13,975,598            486,230                                 

            Operating Expenses            11,083,815            10,855,125        228,690

           

Water

            Operating Revenues     3,499,071        3,355,584       143,487

           

Operating Expenses     2,846,577        2,533,399        313,178

           

Sanitation

            Operating Revenues     1,638,782        1,689,447        (50,665)

           

Operating Expenses     1,937,164        1,822,654        114,510

           

           

ELECTRIC

 

The operating income of the electric utility amounted to $3,378,013 as compared to $3,120,473 in the preceding year, an increase of $257,540.

 

Operating revenue of $14,461,828 reflects an increase of $486,230. 

 

Operating expenses of $11,083,815 increased $228,690 over the previous fiscal year.

 

Transfers to other funds from the Electric Fund operations amounted to $2,268,060 in fiscal year 2003 as compared to an operating transfer of $4,360,586 in the preceding fiscal year.  The utility normally makes operating transfers to the City’s General Fund to assist in financing general government operations. 

 

 

WATER

 

The operating income of the water utility to $652,494 as compared to the operating income of $991,065 in the preceding year. 

 

Operating revenue of $3,499,071 was $143,487 more than the prior year, an increase of 4.28 percent. 

 

 

Operating expenses of $2,846,577 increased $313,178, an increase of 12.36 percent.  

 

An operating transfer of $330,000 was made to the Capital Improvement Fund to assist in financing general governmental capital needs.

 

 

SANITATION

 

An  operating loss of $298,382 on operating revenues of $1,638,782 was realized during the fiscal year and compares to a net loss of $92,456 on operating revenues of $1,689,447 for the preceding fiscal year.

 

Operating transfers of $65,000 were made to the Capital Improvement Fund to assist in financing general governmental capital needs.

 

 

PENSION TRUST FUNDS

 

The City maintains two defined contribution pension trust funds, the Civilian Employees Retirement Fund and the Police and Fire Retirement Fund, which cover all regular full-time employees of the City of Kirkwood, the Kirkwood Park Board and the Kirkwood Public Library.

 

The Civilian Employees Retirement Fund receives contributions from the City, Park and Library equal to five percent of participant employees’ gross wages.  Contributions for the fiscal year amounted to $395,897.

 

The Police and Fire Retirement Fund is funded from property taxes levied for such purposes, and provides 5 percent to each commissioned police and fire employee’s retirement account annually.   Contributions for the fiscal year 2003 amounted to $612,075 while property tax collections for Police and Fire pension fund was $812,401.  Additionally commissioned police and fire employees may contribute up to 7.65 percent of their wages.  This rate fluctuates with the Social Security and medicare rates.  The fund contributes an amount equal to the employee contribution, which is termed a “supplemental account in lieu of Social Security.”  The fund also contributes an additional five percent to each employee’s account.  The intent is to provide overall pension contributions for commissioned police and firefighters equivalent to the Social Security and pension contributions for those employees under the social security system. 

 

GENERAL FIXED ASSETS

 

The general fixed assets of the City have been acquired for general governmental purposes.  The assets, when purchased, are recorded as expenditures in the General Fund and are capitalized at cost in the general fixed assets group of accounts.  The amount of general fixed assets as of March 31, 2003, was $39,273,323.  No depreciation has been provided on the general fixed assets.  The City has elected not to capitalize streets, curbs, sidewalks, drainage systems and lighting systems.

 

 

RISK MANAGEMENT

 

The City manages its own risk under a self-insurance program for medical and workers’ compensation coverage.  In addition, the City purchases commercial insurance coverage to protect the majority of its other risks.  Major coverage include general liability, worker’s compensation, excess liability over the underlying general and auto liability and worker’s compensation, public official liability and commercial insurance which covers all buildings, content and certain equipment against losses due to fire, flood, collapse and earthquake.  An accident prevention program has been recently implemented in addition to the hiring of a safety manager to make employees more aware of accident hazards to help control losses. 

 

 

DEBT ADMINISTRATION

 

The bonded debt of the City, net of assets available in the Debt Service Fund, and the overlapping debt of other taxing authorities as a percentage of the assessed value and the debt per capita can be found in the statistical section.

 

As of March 31, 2002, $13,930,000 general obligation bonds were outstanding.  Principal payments of $1,515,000 were made during the year reducing the debt to $12,415,000 as of March 31, 2003.

 

The City has consistently maintained an Aa bond rating from Moody’s Investors Service since 1952.  Moody’s reviewed the City’s financial condition in early 2000 relative to a $11,875,000 bond issue and obtained an Aa rating on the issue.  The City also received an AA rating from Standard and Poors Corporation for the issue.

 

 

CASH MANAGEMENT

 

The Finance Department works with a certified investment advisor for the investment of the City’s idle funds.  All funds, except pension funds and the TIF proceeds for Kirkwood Commons/Meacham Parks Tax Increment Financing District, are pooled for investment purposes.  Certificates of deposit and repurchase agreements are the two types of investments, which the City has recently used. 

 

INDEPENDENT AUDIT

 

State Statutes and the City Charter require an annual audit by independent certified public accountants.  The accounting firm of Rubin, Brown, Gornstein & Co. LLP was selected by the City Council for this year’s audit.  The auditor’s report on the general-purpose financial statements and combining and individual fund statements and schedules is included in the financial section of this report. 

 

 

ACKNOWLEDGMENTS

 

The preparation of the Comprehensive Annual Financial Report was made possible by the dedicated service of the entire staff of the finance department.  Each member of the department and all City employees who supplied information have our sincere appreciation for the contributions made in the preparation of this report.

 

In closing, without the leadership, interest and support of the Mayor and City Council, preparation of this report would not have been possible.

 

Respectfully submitted,

 

 

 

Michael G. Brown

Chief Administrative Officer

 

 

 

John Adams

Director of Finance