City of Laredo, Texas Comprehensive Annual Financial Report For The Year Ended September 30, 2007 CITY OF LAREDO. TEXAS COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR THE FISCAL YEAR ENDED SEPTEMBER 30. 2007 PREPARED BY: CITY OF LAREDO FINANCIAL SERVICES DEPARTMENT ACCOUNTING DIVISION INTRODUCTION SECTION CITY OF LAREDO, TEXAS COMPREHENSIVE ANNUAL FINANCIAL REPORT For Fiscal Year Ended September 30, 2007 TABLE OF CONTENTS Page INTRODUCTION SECTION Letter of Transmittal …..………………………………………………………………….. I GFOA Certificate of Achievement………………..………………………………….…… IX Organizational Chart………………………………………………………………………. X List of Elected and Appointed Officials………………………………………………….. XI FINANCIAL SECTION Independent Auditor’s Report…………………………………………..………………….. 1 Management’s Discussion and Analysis………………………………………………… 3 Basic Financial Statements: Government-wide Financial Statements: Statement of Net Assets …...………………………………………………..…... 17 Statement of Activities………………………………………………………..…... 19 Fund Financial Statements: Balance Sheet – Governmental Funds ………………………………………… 20 Statement of Revenues, Expenditures, and Changes in Fund Balances – Governmental Funds……………………………………… 21 Reconciliation of the Statement of Revenues, Expenditures and Changes In Fund Balances of Governmental Funds to the Statements of Activities 22 Statement of Revenues, Expenditures and Changes in Fund Balances – Budget and Actual – General Fund …………………… 23 Statement of Net Assets – Proprietary Funds…………………………………. 26 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 – Fiduciary Funds……………………….. 32 Statement of Changes in Fiduciary Net Assets – Fiduciary Funds………….. 33 Notes to the Basic Financial Statements..…………………………………………… 35 Combining and Individual Fund Statements: Combining Balance Sheet – Nonmajor Governmental Funds: ……………………… 84 Combining Statement of Revenues, Expenditures and Changes in Fund Balances – Nonmajor Governmental Funds ………………….. 92 Schedules of Revenues, Expenditures, and Changes in Fund Balances – Budget and Actual: Block Grants ………………………………...…………………………………………… 99 Housing Rehabilitation………………………………………………………………….. 100 Home Investment ……….………………………………………………………………. 101 Emergency Shelter………………………………………………………………………. 102 Noise Abatement ……….……………………………………………………………….. 103 Financial Task Force…………………………………………………………………….. 104 Auto Theft Task Force……………………………………………………………….….. 105 Special Police Program ………………………………………………………………… 106 Environmental Services……………………………….………………………………… 108 Health Fund……………………………………………………………….…………….... 110 911 Emergency Communications Fund ……………………………………………... 112 International Airport ……………………………………………………………………... 114 Hazardous Materials…………………………………………………………………….. 116 Parking Meters…………………………………………………………………………… 117 Keep Laredo Beautiful, Inc. Fund ……………………………………………………... 118 Recreation Fund…………………………………………………………………………. 119 Veterans Field …………………………………………………………………………… 120 Civic Center ……………………………………………………………………………… 121 Hotel Motel Occupancy Tax…………………………………………………………….. 122 Public Access Channel………………………………………………………………….. 123 Mercado Management Fund…….……………………………………………………… 124 Laredo Convention and Visitors Bureau ……………………………………………… 125 Sport and Community Venue…………………………………………………………… 126 Noise Abatement Lease Program.……………………………………………………... 127 Friends of the Library……………………………………………………………………. 128 Subdivision Trust Fund …………………………………………………………………. 129 Police Trust Fund………………………………………………………………………… 130 Special Fire Grants………………………………………………………………………. 131 Webb County Colonias Project ………………………………………………………. 132 Airport Construction Fund ……………………………………………………………… 133 Contractual Obligations…………………………………………………………………. 134 Certificate of Obligation 1998 Issue…………………………………………………… 135 Certificate of Obligation 2000 Issue.………………………………………………… 136 Capital Improvements…………………………………………………………………… 138 Certificate of Obligation 2002 Issue…………………………………………………… 140 Certificate of Obligation 2003 Issue…………………………………………………… 141 Certificate of Obligation 2005 Issue…..……………………………………………….. 142 Certificate of Obligation 2006 Issue………………………………………………….... 143 Certificate of Obligation 2007 Issue …………………………………………………… 144 Park Capital Grant……………………………………………………………………… 145 Capital Grants……………………………………………………………………………. 146 Communication System Fund………………………………………………………….. 147 Canseco Endowment Fund…………………………………………………………… 148 Combining Statement of Net Assets – Internal Service Funds…………….……………. 150 Combining Statement of Revenues, Expenses and Changes in Fund Net Assets - Internal Service Funds………………………………. 152 Combining Statement of Cash Flows – Internal Service Funds ………………………... 153 Risk Management…………………………………………….………………………….. 154 Health And Benefits………………………………………….………………………….. 156 Fleet Management…………………………………………….…………………………. 158 Information Technology ………………………………………………………………… 160 Capital Assets Used in the Operation of Governmental Funds: Comparative Schedules By Source. …………………………………………………… 163 Schedule by Function and Activity….………………………………………………….. 164 Schedule of Changes by Function and Activity……………………………………….. 166 Supplementary Financial Statements-for Enterprise Funds: Combining Statement of Net Assets…………………………………………….…………. 170 Combining Statement of Revenues, Expenses, and Changes in Net Assets……....... 171 Combining Statement of Cash Flows………………………………………………………. 172 Municipal Transit System…………………………………………………………….. 174 Bridge System…………………………………………………………………………. 180 Municipal Housing Corporation……………………………………………………… 184 Waterworks System……………………………………………….………………….. 188 Sewer System…………………………………………………………………………. 192 Solid Waste Management……………………………………………………………. 196 Laredo Water Corporation ……..……………………………………………………. 200 Supplementary Financial Statements-for Fiduciary Funds: Statement of Net Assets – Agency Funds...……………………………………….. 204 Combining Statement of Changes in Assets and Liabilities - Agency Funds … 206 STATISTICAL SECTION……………………………………………………………………. 209 CONTINUING DISCLOSURE INFORMATION ………………………………………...... 251 SINGLE AUDIT. ……………………………………………………………………………… 295 March 12, 2008 To the Honorable Mayor, Members of the Governing Council, and Citizens of the City Of Laredo. We are pleased to submit the Comprehensive Annual Financial Report of the City of Laredo, Texas for the fiscal year ending September 30, 2007. Responsibility for both the accuracy of the data and the completeness and fairness of the presentation, including all disclosures, rests with the City. To the best of our knowledge and belief, the enclosed data is accurate in all material aspects and is reported in a manner designed to present fairly the financial position and results of operations of the various funds of the City. All disclosures necessary to enable the reader to gain an understanding of the City's financial activities have been included. This report consists of management’s representations concerning the finances of the City of Laredo. Consequently, management assumes full responsibility for the completeness and reliability of all of the information presented in this report. To provide a reasonable basis for making these representations, management of the City of Laredo has established a comprehensive internal control framework that is designed both to protect the government’s assets from loss, theft, or misuse and to compile sufficient reliable information for the preparation of the City of Laredo’s financial statements in conformity with GAAP. Because the cost of internal controls should not outweigh their benefits, the City of Laredo’s comprehensive framework of internal controls has been 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 City of Laredo’s financial statements have been audited by Garza, Martinez & Co., L.L.P., a firm of licensed certified public accountants. The goal of the independent audit was to provide reasonable assurance that the financial statements of the City of Laredo for the fiscal year ended September 30, 2007, are free of material misstatement. The independent audit involved examining, on I 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 auditors concluded, based upon the audit, that there was a reasonable basis for rendering an unqualified opinion that the City of Laredo’s financial statements for the fiscal year ended September 30, 2007 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 Laredo was part of a broader, federally mandated “Single Audit” designed to meet the special needs of federal and state grantor agencies. The standards governing Single Audit engagements require the 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 requirements, with special emphasis on internal controls and legal requirements involving the administration of federal awards. These reports are