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OFFICE OF THE CITY CONTROLLER 106 YEARS OF HOUSTON HISTORY CITY OF HOUSTON, TEXAS Comprehensive Annual Financial Report for the fiscal year ended June 30, 2009 Prepared by: Annise D. Parker, City Controller Rudy Garcia, Deputy City Controller, Financial Reporting CITY OF HOUSTON, TEXAS COMPREHENSIVE ANNUAL FINANCIAL REPORT For the Year Ended June 30, 2009 Page Part I - Introductory Section Office of the City Controller i City Controller ii Organization Chart for the Office of the Controller iii Elected Officials iv Organization Chart for City Government v Transmittal Letter vii Certificate of Achievement for Excellence in Financial Reporting xiv Part II - Financial Section Independent Auditors' Report 1 Management's Discussion and Analysis - (unaudited) 3 Basic Financial Statements: Government-wide Financial Statements: Statement of Net Assets 14 Statement of Activities 16 Fund Financial Statements: Balance Sheet - Governmental Funds 18 Statement of Revenues, Expenditures and Changes in Fund Balances - Governmental Funds 20 Reconciliation of the Statement of Revenues, Expenditures, and Change in Fund Balance of Governmental Funds to the Statement of Activities 22 Statement of Net Assets - Proprietary Funds 24 Statement of Revenues, Expenses and Changes in Fund Net Assets - Proprietary Funds 28 Statement of Cash Flows - Proprietary Funds 30 Statement of Fiduciary Net Assets 34 Statement of Changes in Fiduciary Net Assets 35 Notes to the Basic Financial Statements 37 (See this section for Table of Content of the Notes) Required Supplementary Information (unaudited): Required Supplementary Information - General Operating Fund - Budgeted & Actual (unaudited) 115 Required Supplementary Information (Reconciliation) - General Fund Budget vs. GAAP (unaudited) 119 Required Notes to the Supplementary Information (unaudited) 120 Required Pension System Supplementary Information (unaudited) 121 Required Other Post Employment Benefits Supplementary Information (unaudited) 122 Individual Fund Statements and Schedules Governmental Funds 123 General Fund Balance Sheet 124 Statement of Revenues, Expenditures and Changes in Fund Balance 125 Debt Service Fund Balance Sheet 126 Schedule of Revenues, Expenditures and Changes in Fund Balance: Budget vs. Actual 127 Capital Projects Fund Balance Sheet 128 Statement of Revenues, Expenditures and Changes in Fund Balance 129 Grants Fund Balance Sheet 130 Statement of Revenues, Expenditures and Changes in Fund Balance 131 CITY OF HOUSTON, TEXAS COMPREHENSIVE ANNUAL FINANCIAL REPORT For the Year Ended June 30, 2009 Page Nonmajor Governmental Funds Combining Balance Sheet 132 Combining Statement of Revenues, Expenditures and Changes in Fund Balances 134 Schedule of Budgeted and Actual Revenues and Expenditures: Asset Forfeiture Fund 136 Auto Dealers Fund 137 Building Inspection Fund 138 Cable Television Fund 139 Child Safety Fund 140 Houston Transtar Fund 141 Municipal Courts Technology Fee 142 Parks Special Fund 143 Police Special Services Fund 144 Sign Administration Fund 145 Stormwater Fund 146 Houston Emergency Center Fund 147 Supplemental Environmental Project Fund 148 Enterprise Funds 149 Airport System Statement of Net Assets 150 Statement of Revenues, Expenses and Changes in Net Assets 152 Statement of Cash Flows 153 Convention & Entertainment Statement of Net Assets 154 Statement of Revenues, Expenses and Changes in Net Assets 156 Statement of Cash Flows 157 Combined Utility System Statement of Net Assets 160 Statement of Revenues, Expenses and Changes in Net Assets 162 Statement of Cash Flows 163 Nonmajor Enterprise Funds Combining Statement of Net Assets 164 Combining Statement of Revenues, Expenses and Changes in Net Assets 165 Combining Statement of Cash Flows 166 Internal Service Funds 167 Combining Statement of Net Assets 168 Combining Statement of Revenues, Expenses and Changes in Net Assets 169 Combining Statement of Cash Flows 170 Fiduciary Funds 171 Pension Trust Funds Combining Statement of Plan Net Assets 172 Combining Statement of Changes in Plan Net Assets 174 Agency Funds Combining Statement of Changes in Assets and Liabilities 176 CITY OF HOUSTON, TEXAS COMPREHENSIVE ANNUAL FINANCIAL REPORT For the Year Ended June 30, 2009 Page Discretely Presented Component Units 177 Governmental Combining Statement of Net Assets 178 Combining Statement of Activities 184 Business Type Combining Statement of Net Assets 189 Combining Statement of Activities 190 Combining Statement of Cash flows 192 Part III - Statistical Section (unaudited) Net Assets By Component 194 Changes in Net Assets 196 Fund Balances - Governmental Funds 198 General Fund Budget 200 Continuing Debt Disclosure Information 201 Changes in Fund Balances of Governmental Funds 204 Tax Revenue by Source - Governmental Funds 206 Assessed Value and Estimated Value of Taxable Property 207 Direct and Overlapping Property Tax Rates 208 Principal Property Taxpayers 210 Property Tax Levies and Collections 211 Tax Supported Debt Service Funds 212 Ratios of Outstanding Debt by Type 213 Ratios of General Bonded Debt Outstanding 214 Computation of Direct and Overlapping Debt 215 Ad Valorem Tax Levies and Collections 216 Computation of Legal Debt Margin 218 Pledged-Revenue Coverage 220 Demographic and Economic Statistics 221 Principal Employers 222 Employment Statistics 224 City of Houston Employment Information 226 Operating Indicators by Function 228 Capital Asset Statistics by Function 229 Increases/Decreases to Net Assets of Pension Plans 230 Principal and Interest Payable from Ad Valorem Taxes 231 Voter-Authorized Obligations 232 Sales and Use Tax and Franchise Charges and Fees 233 Convention and Entertainment Facilities Fund Revenues and Expenses 234 Convention and Entertainment Facilities Statistics 236 Combined Utility System Fund Revenues and Expenses 242 Combined Utility System Revenue Bond Coverage 244 Combined Utility System Statistics 245 Revenues and Expenses of the Water and Sewer System 257 Airport System Fund Revenues and Expenses 258 Airport System Statistics 260 Surety Bond and Insurance Coverage 270 Salaries of Elected Officials 272 Schedule of Credits 273 CITY OF HOUSTON, TEXAS Office of the City Controller Houston City Controller Annise D. Parker is the second highest elected official in Houston City Government and its Chief Financial Officer. The Office of the Houston City Controller superintends the fiscal affairs of the City. This includes conducting audits, managing investments and debt, preparing financial statements and providing leadership on policy issues pertaining to the City’s financial health. The Controller is asked to balance the City’s fiscal needs with the politics of popular elections and acts as a check-and-balance to the Mayor and City Council, the executive and legislative branches of City government. She serves as an independently elected “financial watchdog” over City government’s fiscal affairs. The Treasury Division of the Controller’s Office manages a total investment portfolio of approximately $2.4 billion. The City’s General Investment Pool consistently receives the highest rating available from Standard and Poor’s. The character of this pool is that of a short-term bond fund that holds investments of very high credit quality. The Treasury Division is also responsible for overseeing a debt program of approximately $12.8 billion. The City has ten commercial paper programs totaling $2.6 billion, seven auction-rate security issues, ten series of variable rate demand obligation bonds, two interest rate swaps with a total notional amount of $902 million and credit agreements totaling $3.8 billion. The Standard and Poor’s rating agency recently affirmed the City’s AA credit rating on its general obligation bonds secured by the City’s property taxes. Standard and Poor’s based its rating on the City’s “sizable and diverse economic base, which has shown marked resiliency over the past year; positive financial operations with a strong general fund reserve balance, although the balance is anticipated to decline; and management's continued commitment to control expenditure growth and address the City's contingent liabilities.” Likewise, Moody’s Investor’s Service affirmed its AA rating and positive outlook for the City’s general obligation bonds. Moody’s noted the City continues to be fiscally strong with a large tax base that remains stable despite current economic conditions. The Audit Division completed 41 audits and projects in Fiscal year 2009 and initiated the first city-wide survey of citizen satisfaction with City services. The survey found citizens are most satisfied with the fire department and least satisfied with streets, drainage and air quality. The Audit Division has been reorganized to create an information technology group focusing on continuous internal auditing through the City’s financial system. The Operations and Technical Services Division of the Controller’s Office is in the process of implementing a paperless approval system for invoices and direct deposit payments to City vendors. This follows last year’s completion of a paperless payroll system that is saving the City up to a million dollars a year in reduced personnel and printing costs. The Executive Division and Controller Parker recently celebrated the launch of Bank on Houston, a City- sponsored program to connect unbanked residents with the financial mainstream. The Federal Reserve Bank, Houston Branch; the Federal Deposit Insurance Corporation; the National League of Cities; 20 banks and credit unions and numerous community