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post_os_salina_gotb_2013A In the opinion of Gilmore & Bell, P.C., Bond Counsel, under existing law and assuming continued compliance with certain requirements of the Internal Code of 1986, as amended (the “Code”), the interest on the Bonds (including any original issue discount properly allocable to an owner thereof) is included in gross income for federal income tax purposes. The interest on the Bonds is exempt from income taxation by the State of Kansas. The Bonds have not been designated as “qualified tax-exempt obligations” within the meaning of Section 265(b)(3) of the Code. See TAX MATTERS herein. New Issue Moody’s Rating- “Aa2” Book-Entry Only Not Bank Qualified $1,360,000 CITY OF SALINA, KANSAS TAXABLE GENERAL OBLIGATION INTERNAL IMPROVEMENT BONDS SERIES 2013-A Dated: February 15, 2013 Due: As Shown Herein The Series 2013-A Bonds (the “Bonds”) will be issued by the City of Salina, Kansas (the “City”) as fully registered bonds in the denomination of $5,000 or any integral multiple thereof. The Bonds shall be initially registered in the name of Cede & Co., as nominee of DTC to which payment of principal and interest will be made. Individual purchases of Bonds will be made in book-entry only form. Purchasers will not receive certificates representing their interest in the Bonds purchased. Principal on the Bonds will be payable on each October 1 in the years shown herein. Interest on the Bonds will be payable semiannually on April 1 and October 1 of each year until maturity, commencing on April 1, 2014. The principal of and interest on the Bonds will be payable by check, draft, or wire transfer from the Treasurer of the State of Kansas (the “Paying Agent”). The Bonds are subject to redemption at the option of the City as further described herein. MATURITY SCHEDULE (see inside front cover) The Bonds shall be general obligations of the City, payable as to both principal and interest in part from special assessments levied upon the property benefited by the construction of certain public improvements, and if not so paid, from ad valorem taxes which may be levied without limitation as to rate or amount upon all the taxable tangible property, real and personal, within the territorial limits of the City. The balance of the principal and interest on the Bonds is payable from ad valorem taxes which may be levied without limitation as to rate or amount upon all the taxable tangible property, real or personal, within the territorial limits of the City. The full faith, credit, and resources of the City are irrevocably pledged for the prompt payment of the principal and interest on the Bonds as the same becomes due. The Bonds are offered when, as and if issued by the City and received by the Underwriter subject to the approval of Bond Counsel. It is expected that the Bonds will be available for delivery through the facilities of DTC on or about February 26, 2013. The date of this Official Statement is February 11, 2013 THIS COVER PAGE CONTAINS INFORMATION FOR QUICK REFERENCE ONLY. IT IS NOT A SUMMARY OF THE ISSUE. INVESTORS MUST READ THE ENTIRE OFFICIAL STATEMENT TO OBTAIN INFORMATION ESSENTIAL TO THE MAKING OF AN INFORMED INVESTMENT DECISION. MATURITY SCHEDULE $1,360,000 CITY OF SALINA, KANSAS TAXABLE GENERAL OBLIGATION INTERNAL IMPROVEMENT BONDS SERIES 2013-A TERM BONDS Base CUSIP(1) Maturity Amount Rate Yield 794743 10-01-15 $120,000 0.60% 0.60% 3M4 10-01-17 160,000 1.10 1.10 3P7 10-01-19 175,000 1.65 1.65 3R3 10-01-21 180,000 2.20 2.20 3T9 10-01-23* 190,000 2.60 2.60 3V4 SERIAL BONDS Base CUSIP(1) Maturity Amount Rate Yield 794743 10-01-24* $100,000 3.20% 2.80% 3W2 10-01-25* 105,000 3.40 3.00 3X0 10-01-26* 105,000 3.65 3.20 3Y8 10-01-27* 110,000 3.35 3.40 3Z5 10-01-28* 115,000 3.55 3.60 4A9 *The Bonds maturing on or after October 1, 2023, will be subject to redemption prior to maturity at the option of the City on October 1, 2022, and thereafter, in whole or in part on any date, in principal amounts of $5,000 or any integral multiple thereof, at a price equal to 100% of the principal amount of Bonds to be redeemed plus accrued interest to the date fixed for redemption. The Term Bonds are also subject to mandatory redemption. See THE BONDS - “Redemption Provisions” herein. (1)CUSIP numbers have been assigned to this issue by Standard & Poor’s CUSIP Service Bureau, a division of the McGraw-Hill Companies, Inc., and are included solely for the convenience of the Owners of the Bonds. Neither the City nor the Underwriter shall be responsible for the selection or correctness of the CUSIP numbers set forth above. CITY OF SALINA, KANSAS 300 West Ash City/County Building - Room 206 P. O. Box 736 Salina, Kansas 67402-0736 CITY COMMISSION Norman Jennings, Mayor Barb Shirley, Vice Mayor Aaron Householter, Commissioner Kaye Crawford, Commissioner Samantha Angell, Commissioner CITY STAFF Jason Gage, City Manager Mike Schrage, Deputy City Manager Rodney Franz, Director of Finance and Administration Lieu Ann Elsey, City Clerk CITY ATTORNEY Greg Bengtson Clark, Mize & Linville, Chartered Salina, Kansas BOND COUNSEL Gilmore & Bell, P.C. Kansas City, Missouri FINANCIAL ADVISOR George K. Baum & Company Kansas City, Missouri No person has been authorized by the City or the Underwriter to give any information or to make any representations with respect to the Bonds to be issued, other than those contained in this Official Statement, and if given or made, such other information or representations not so authorized must not be relied upon as having been given or authorized by the City or the Underwriter. This Official Statement is not to be used in connection with an offer to sell or the solicitation of an offer to buy in any state in which such offer or solicitation is not authorized or in which the person making such offer or solicitation is not qualified to do so or to any person to whom it is unlawful to make such offer or solicitation. All financial and other information presented herein, except for information expressly attributed to other sources, has been provided by the City from its records and is intended to show recent historic information. Such information is not guaranteed as to accuracy or completeness. All descriptions of laws and documents contained herein are only summaries and are qualified in their entirety by reference to such laws and documents. Information and expressions of opinion herein are subject to change without notice and neither the delivery of this Official Statement nor any sale of the Bonds shall, under any circumstances, create any implication that the information contained herein has remained unchanged since the respective dates as of which such information is given. TABLE OF CONTENTS Page INTRODUCTORY STATEMENT .................................................................................................... 1 THE BONDS ...................................................................................................................................... 2 THE DEPOSITORY TRUST COMPANY ........................................................................................ 7 THE FINANCING PLAN .................................................................................................................. 8 SOURCES AND USES OF FUNDS .................................................................................................. 9 RISK FACTORS AND INVESTMENT CONSIDERATIONS ......................................................... 9 LEGAL MATTERS ........................................................................................................................... 10 TAX MATTERS ................................................................................................................................ 10 RATING ............................................................................................................................................. 12 FINANCIAL ADVISOR .................................................................................................................... 12 UNDERWRITING ............................................................................................................................. 12 ABSENCE OF MATERIAL LITIGATION ...................................................................................... 13 CONTINUING DISCLOSURE ......................................................................................................... 13 CERTIFICATION OF OFFICIAL STATEMENT ............................................................................ 13 APPENDIX A: INFORMATION CONCERNING THE CITY FINANCIAL OVERVIEW OF THE CITY .................................................................................. A-1 GENERAL INFORMATION CONCERNING THE CITY ......................................................... A-2 ECONOMIC INFORMATION CONCERNING THE CITY....................................................... A-6 DEBT SUMMARY OF THE CITY .............................................................................................. A-8 FINANCIAL INFORMATION CONCERNING THE CITY ...................................................... A-11 APPENDIX B: CONTINUING DISCLOSURE INSTRUCTIONS APPENDIX C: AUDITED FINANCIAL STATEMENTS FOR FISCAL YEAR ENDING DECEMBER 31, 2011 $1,360,000 CITY OF SALINA, KANSAS TAXABLE GENERAL OBLIGATION INTERNAL IMPROVEMENT BONDS SERIES 2013-A INTRODUCTORY STATEMENT General The purpose of this Official Statement is to present certain information concerning the City of Salina, Kansas (the “City”), and the issuance of its $1,360,000 Taxable General Obligation Internal Improvement Bonds, Series 2013-A (the “Bonds”), dated February 15, 2013. The Bonds are being issued to provide funds to finance certain water, sewer and street improvements within the Stone Lake Addition within the City. See THE FINANCING PLAN herein. The full faith, credit, and resources of the City are irrevocably pledged for the prompt payment of the principal and interest on the Bonds as the same becomes due. See THE BONDS - “Security” herein. The Appendices are an integral part of this Official Statement and should be read in their entirety. All financial and other information presented herein has been compiled by the City’s financial advisor, George K. Baum & Company, Kansas City, Missouri (the “Financial Advisor”). Such information has been provided by the City and other sources deemed to be reliable. The presentation of information herein is intended to show recent historic information and is not intended to indicate future or continuing trends in the financial position or other affairs of the City. Gilmore & Bell, P.C., Kansas City, Missouri, Bond Counsel, has not assisted in the preparation of this Official Statement, except for the sections titled INTRODUCTORY STATEMENT, THE BONDS, LEGAL MATTERS, TAX MATTERS, CONTINUING DISCLOSURE, and APPENDIX B and, accordingly, expresses no opinion as to the accuracy or sufficiency of any other information contained herein. Definitions Capitalized terms not otherwise defined herein shall have the meanings ascribed thereto in the resolution and ordinance of the governing body of the City authorizing the Bonds (jointly referred to herein as the “Bond Ordinance”), as applicable. Copies of the Bond Ordinance are available upon request to the City, the Financial Advisor, or Bond Counsel. Additional Information Additional information regarding the City or the Bonds may be obtained from George K. Baum & Company, 4801 Main Street, Kansas City, Missouri 64112, telephone 816-474-1100. 2 THE BONDS Authority The Bonds are issued pursuant to and in full compliance with the Constitution and statutes of the State of Kansas, including without limitation K.S.A. 10-101 et seq. and K.S.A. 12-6a01 et seq., all as amended, and an ordinance and resolution adopted by the City on February 11, 2013, authorizing the issuance of the Bonds (jointly referred to herein as the “Bond Resolution”). Security The Bonds shall be general obligations of the City, payable as to both principal and interest in part from special assessments levied upon the property benefited by the construction of certain improvements, and if not so paid, from ad valorem taxes which may be levied without limitation as to rate or amount upon all the taxable tangible property, real and personal, within the territorial limits of the City. The balance of the principal and interest on the Bonds is payable from ad valorem taxes which may be levied without limitation as to rate or amount upon all the taxable tangible property, real or personal, within the territorial limits of the City. The full faith, credit and resources of the City are hereby irrevocably pledged for the prompt payment of the principal of and interest on the Bonds as the same become due. Description The Bonds shall consist of fully registered book-entry-only bonds in the denomination of $5,000 or any integral multiples thereof (the “Authorized Denomination”) and shall be numbered in such manner as the Bond Registrar shall determine. All of the Bonds will be dated February 15, 2013, shall become due in the amounts, on the Stated Maturities, and subject to redemption and payment prior to their Stated Maturities, and shall bear interest at the rates per annum set forth on the inside cover page of this Official Statement. The Bonds shall bear interest (computed on the basis of twelve 30-day months) from the later of the Dated Date or the most recent Interest Payment Date to which interest has been paid on the Interest Payment Dates in the manner hereinafter set forth. Redemption Provisions Optional Redemption. At the option of the City, Bonds or portions thereof maturing on October 1, 2023 and thereafter may be called for redemption and payment prior to their Stated Maturity on October 1, 2022, and thereafter as a whole or in part (selection of maturities and the amount of Bonds of each maturity to be redeemed to be determined by the City in such equitable manner as it may determine) at any time, at the Redemption Price of 100% (expressed as a percentage of the principal amount), plus accrued interest thereon to the Redemption Date. Mandatory Redemption. The Bonds maturing in 2015, 2017, 2019, 2021 and 2023 (collectively, the “Term Bonds”) shall be subject to mandatory redemption as follows: 2015 Term Bonds. The 2015 Term Bonds shall be subject to mandatory redemption and payment prior to Stated Maturity pursuant to the mandatory redemption requirements of this Section at a Redemption Price equal to 100% of the principal amount thereof plus accrued interest to the Redemption Date. The taxes levied pursuant to the Bond Resolution which are to be deposited into the Debt Service Account shall be sufficient to redeem, and the Issuer shall redeem on October 1 in each year, the following principal amounts of such 2015 Term Bonds: Principal Amount Year $45,000 2014 75,000 2015* *Final maturity 3 2017 Term Bonds. The 2017 Term Bonds shall be subject to mandatory redemption and payment prior to Stated Maturity pursuant to the mandatory redemption requirements of this Section at a Redemption Price equal to 100% of the principal amount thereof plus accrued interest to the Redemption Date. The taxes levied pursuant to the Bond Resolution which are to be deposited into the Debt Service Account shall be sufficient to redeem, and the Issuer shall redeem on October 1 in each year, the following principal amounts of such 2017 Term Bonds: Principal Amount Year $80,000 2016 80,000 2017* *Final maturity 2019 Term Bonds. The 2019 Term Bonds shall be subject to mandatory redemption and payment prior to Stated Maturity pursuant to the mandatory redemption requirements of this Section at a Redemption Price equal to 100% of the principal amount thereof plus accrued interest to the Redemption Date. The taxes levied pursuant to the Bond Resolution which are to be deposited into the Debt Service Account shall be sufficient to redeem, and the Issuer shall redeem on October 1 in each year, the following principal amounts of such 2019 Term Bonds: Principal Amount Year $85,000 2018 90,000 2019* *Final maturity 2021 Term Bonds. The 2021 Term Bonds shall be subject to mandatory redemption and payment prior to Stated Maturity pursuant to the mandatory redemption requirements of this Section at a Redemption Price equal to 100% of the principal amount thereof plus accrued interest to the Redemption Date. The taxes levied pursuant to the Bond Resolution which are to be deposited into the Debt Service Account shall be sufficient to redeem, and the Issuer shall redeem on October 1 in each year, the following principal amounts of such 2021 Term Bonds: Principal Amount Year $90,000 2020 90,000 2021* *Final maturity 2023 Term Bonds. The 2023 Term Bonds shall be subject to mandatory redemption and payment prior to Stated Maturity pursuant to the mandatory redemption requirements of this Section at a Redemption Price equal to 100% of the principal amount thereof plus accrued interest to the Redemption Date. The taxes levied pursuant to the Bond Resolution which are to be deposited into the Debt Service Account shall be sufficient to redeem, and the Issuer shall redeem on October 1 in each year, the following principal amounts of such 2023 Term Bonds: Principal Amount Year $95,000 2022 95,000 2023* *Final maturity Selection of Bonds to be Redeemed. Bonds shall be redeemed only in an Authorized Denomination. When less than all of the Bonds are to be redeemed and paid prior to their Stated Maturity, such Bonds shall be redeemed in such manner as the City shall determine, Bonds of less than a full Stated Maturity shall be selected by the Bond Registrar in minimum Authorized Denomination in such equitable manner as the Bond Registrar may determine. In the case of a partial redemption of Bonds by lot when Bonds of denominations greater than a minimum Authorized Denomination are then Outstanding, then for all purposes in connection with such redemption each minimum 4 Authorized Denomination of face value shall be treated as though it were a separate Bond of a minimum Authorized Denomination. If it is determined that one or more, but not all, of the minimum Authorized Denomination value represented by any Bond is selected for redemption, then upon notice of intention to redeem such minimum Authorized Denomination, the Owner or the Owner’s duly authorized agent shall forthwith present and surrender such Bond to the Bond Registrar: (1) for payment of the Redemption Price and interest to the Redemption Date of such minimum Authorized Denomination value called for redemption, and (2) for exchange, without charge to the Owner thereof, for a new Bond or Bonds of the aggregate principal amount of the unredeemed portion of the principal amount of such Bond. If the Owner of any such Bond fails to present such Bond to the Paying Agent for payment and exchange as aforesaid, such Bond shall, nevertheless, become due and payable on the redemption date to the extent of the minimum Authorized Denomination value called for redemption (and to that extent only). Notice and Effect of Call for Redemption. Unless waived by any Owner of Bonds to be redeemed, if the City shall call any Bonds for redemption and payment prior to the Stated Maturity thereof, the City shall give written notice of its intention to call and pay said Bonds to the State Treasurer and the Purchaser. In addition, the City shall cause the Bond Registrar to give written notice of redemption to the Owners of said Bonds. Each of said written notices shall be deposited in the United States first class mail not less than 30 days prior to the Redemption Date. All official notices of redemption shall be dated and shall contain the following information: (a) the Redemption Date; (b) the Redemption Price; (c) if less than all Outstanding Bonds are to be redeemed, the identification (and, in the case of partial redemption of any Bonds, the respective principal amounts) of the Bonds to be redeemed; (d) a statement that on the Redemption Date the Redemption Price will become due and payable upon each such Bond or portion thereof called for redemption and that interest thereon shall cease to accrue from and after the Redemption Date; and (e) the place where such Bonds are to be surrendered for payment of the Redemption Price, which shall be the principal office of the Paying Agent. The failure of any Owner to receive notice given as heretofore provided or an immaterial defect therein shall not invalidate any redemption. Prior to any Redemption Date, the City shall deposit with the Paying Agent an amount of money sufficient to pay the Redemption Price of all the Bonds or portions of Bonds that are to be redeemed on such Redemption Date. Official notice of redemption having been given as aforesaid, the Bonds or portions of Bonds to be redeemed shall become due and payable on the Redemption Date, at the Redemption Price therein specified, and from and after the Redemption Date (unless the City defaults in the payment of the Redemption Price) such Bonds or portion of Bonds shall cease to bear interest. For so long as the Securities Depository is effecting book-entry transfers of the Bonds, the Bond Registrar shall provide the notices specified to the Securities Depository. It is expected that the Securities Depository shall, in turn, notify its Participants and that the Participants, in turn, will notify or cause to be notified the Beneficial Owners. Any failure on the part of the Securities Depository or a Participant, or failure on the part of a nominee of a Beneficial Owner of a Bond (having been mailed notice from the Bond Registrar, the Securities Depository, a Participant or otherwise) to notify the Beneficial Owner of the Bond so affected, shall not affect the validity of the redemption of such Bond. In addition to the foregoing notice, the City shall provide such notices of redemption as are required by the Disclosure Instructions. The Paying Agent is also directed to comply with any mandatory or voluntary standards then in effect for processing redemptions of municipal securities established by the State or the Bonds and Exchange Commission. Failure to comply with such standards shall not affect or invalidate the redemption of any Bond. Designation of Paying Agent and Bond Registrar The City will at all times maintain a paying agent and bond registrar meeting the qualifications set forth in the Bond Resolution. The City reserves the right to appoint a successor paying agent or bond registrar. No resignation or removal of the paying agent or bond registrar shall become effective until a successor has been appointed and has accepted the duties of paying agent or bond registrar. Every paying agent or bond registrar appointed by the City shall at all times meet the requirements of Kansas law. 5 The Treasurer of the State of Kansas, Topeka, Kansas (the “Bond Registrar” and “Paying Agent”) has been designated by the City as paying agent for the payment of principal of and interest on the Bonds and bond registrar with respect to the registration, transfer and exchange of Bonds. Registration, Transfer and Exchange of Bonds As long as any of the Bonds remain Outstanding, each Bond when issued shall be registered in the name of the Owner thereof on the Bond Register. Bonds may be transferred and exchanged only on the Bond Register as hereinafter provided. Upon surrender of any Bond at the principal office of the Bond Registrar, the Bond Registrar shall transfer or exchange such Bond for a new Bond or Bonds in any authorized denomination of the same Stated Maturity and in the same aggregate principal amount as the Bond that was presented for transfer or exchange. Bonds presented for transfer or exchange shall be accompanied by a written instrument or instruments of transfer or authorization for exchange, in a form and with guarantee of signature satisfactory to the Bond Registrar, duly executed by the Owner thereof or by the Owner’s duly authorized agent. In all cases in which the privilege of transferring or exchanging Bonds is exercised, the Bond Registrar shall authenticate and deliver Bonds in accordance with the provisions of the Bond Resolution. The City shall pay the fees and expenses of the Bond Registrar for the registration, transfer and exchange of Bonds. Any additional costs or fees that might be incurred in the secondary market, other than fees of the Bond Registrar, are the responsibility of the Owners of the Bonds. In the event any Owner fails to provide a correct taxpayer identification number to the Paying Agent, the Paying Agent may make a charge against such Owner sufficient to pay any governmental charge required to be paid as a result of such failure. The City and the Bond Registrar shall not be required (a) to register the transfer or exchange of any Bond that has been called for redemption after notice of such redemption has been mailed by the Paying Agent and during the period of 15 days next preceding the date of mailing of such notice of redemption; or (b) to register the transfer or exchange of any Bond during a period beginning at the opening of business on the day after receiving written notice from the City of its intent to pay Defaulted Interest and ending at the close of business on the date fixed for the payment of Defaulted Interest. Method and Place of Payment of the Bonds The principal of, or Redemption Price, and interest on the Bonds shall be payable in any coin or currency which, on the respective dates of payment thereof, is legal tender for the payment of public and private debts. The principal or Redemption Price of each Bond shall be paid at Maturity to the Person in whose name such Bond is registered on the Bond Register at the Maturity thereof, upon presentation and surrender of such Bond at the principal office of the Paying Agent. The interest payable on each Bond on any Interest Payment Date shall be paid to the Owner of such Bond as shown on the Bond Register at the close of business on the Record Date for such interest (a) by check or draft mailed by the Paying Agent to the address of such Owner shown on the Bond Register or at such other address as is furnished to the Paying Agent in writing by such Owner; or (b) in the case of an interest payment to Cede & Co. or any Owner of $500,000 or more in aggregate principal amount of Bonds, by electronic transfer to such Owner upon written notice given to the Bond Registrar by such Owner, not less than 15 days prior to the Record Date for such interest, containing the electronic transfer instructions including the bank, ABA routing number and account number to which such Owner wishes to have such transfer directed. Notwithstanding the foregoing, any Defaulted Interest with respect to any Bond shall cease to be payable to the Owner of such Bond on the relevant Record Date and shall be payable to the Owner in whose name such Bond is registered at the close of business on the Special Record Date for the payment of such Defaulted Interest, which Special Record Date shall be fixed as hereinafter specified. The City shall notify the Paying Agent in writing of the amount of Defaulted Interest proposed to be paid on each Bond and the date of the proposed payment (which date shall be at least 30 days after receipt of such notice by the Paying Agent) and shall deposit with the Paying Agent an amount of money equal to the aggregate amount proposed to be paid in respect of such Defaulted Interest. Following receipt of such funds the Paying Agent shall fix a Special Record Date for the payment of such Defaulted Interest which shall be not more than 15 nor less than 10 days prior to the date of the proposed payment. The Paying Agent shall notify the City 6 of such Special Record Date and shall cause notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor to be mailed, by first class mail, postage prepaid, to each Owner of a Bond entitled to such notice not less than 10 days prior to such Special Record Date. SO LONG AS CEDE & CO., REMAINS THE REGISTERED OWNER OF THE BONDS, THE PAYING AGENT SHALL TRANSMIT PAYMENTS TO THE SECURITIES DEPOSITORY, WHICH SHALL REMIT SUCH PAYMENTS IN ACCORDANCE WITH ITS NORMAL PROCEDURES. Payments Due on Saturdays, Sundays and Holidays In any case where a Bond Payment Date is not a Business Day, then payment of principal, Redemption Price or interest need not be made on such Bond Payment Date but may be made on the next succeeding Business Day with the same force and effect as if made on such Bond Payment Date, and no interest shall accrue for the period after such Bond Payment Date. Book-Entry Bonds; Securities Depository The Bonds shall initially be registered to Cede & Co., the nominee for the Securities Depository, and no Beneficial Owner will receive certificates representing their respective interests in the Bonds, except in the event the Bond Registrar issues Replacement Bonds. It is anticipated that during the term of the Bonds, the Securities Depository will make book-entry transfers among its Participants and receive and transmit payment of principal of, premium, if any, and interest on, the Bonds to the Participants until and unless the Bond Registrar authenticates and delivers Replacement Bonds to the Beneficial Owners as described in the following paragraphs The City may decide, subject to the requirements of the Operational Arrangements of DTC (or a successor Securities Depository), and the following provisions of this section to discontinue use of the system of book-entry transfers through DTC (or a successor Securities Depository): (a) If the City determines (1) that the Securities Depository is unable to properly discharge its responsibilities, or (2) that the Securities Depository is no longer qualified to act as a securities depository and registered clearing agency under the Securities and Exchange Act of 1934, as amended, or (3) that the continuation of a book-entry system to the exclusion of any Bonds being issued to any Owner other than Cede & Co. is no longer in the best interests of the Beneficial Owners of the Bonds; or (b) if the Bond Registrar receives written notice from Participants having interest in not less than 50% of the Bonds Outstanding, as shown on the records of the Securities Depository (and certified to such effect by the Securities Depository), that the continuation of a book-entry system to the exclusion of any Bonds being issued to any Owner other than Cede & Co. is no longer in the best interests of the Beneficial Owners of the Bonds, then the Bond Registrar shall notify the Owners of such determination or such notice and of the availability of certificates to owners requesting the same, and the Bond Registrar shall register in the name of and authenticate and deliver Replacement Bonds to the Beneficial Owners or their nominees in principal amounts representing the interest of each, making such adjustments as it may find necessary or appropriate as to accrued interest and previous calls for redemption; provided, that in the case of a determination under (a)(1) or (a)(2) of this section, the City, with the consent of the Bond Registrar, may select a successor securities depository as hereinafter provided to effect book-entry transfers. In such event, all references to the Securities Depository herein shall relate to the period of time when the Securities Depository has possession of at least one Bond. Upon the issuance of Replacement Bonds, all references herein to obligations imposed upon or to be performed by the Securities Depository shall be deemed to be imposed upon and performed by the Bond Registrar, to the extent applicable with respect to such Replacement Bonds. If the Securities Depository resigns and the City, the Bond Registrar or Owners are unable to locate a qualified successor of the Securities Depository, then the Bond Registrar shall authenticate and cause delivery of Replacement Bonds to Owners, as provided herein. The Bond Registrar may rely on information from the Securities Depository and its Participants as to the names of the Beneficial Owners of the Bonds. The cost of printing, registration, authentication, and delivery of Replacement Bonds shall be paid for by the City. 7 In the event the Securities Depository resigns, is unable to properly discharge its responsibilities, or is no longer qualified to act as a securities depository and registered clearing agency under the Securities and Exchange Act of 1934, as amended, the City may appoint a successor Securities Depository provided the Bond Registrar receives written evidence satisfactory to the Bond Registrar with respect to the ability of the successor Securities Depository to discharge its responsibilities. Any such successor Securities Depository shall be a securities depository which is a registered clearing agency under the Securities and Exchange Act of 1934, as amended, or other applicable statute or regulation that operates a securities depository upon reasonable and customary terms. The Bond Registrar upon its receipt of a Bond or Bonds for cancellation shall cause the delivery of the Bonds to the successor Securities Depository in appropriate denominations and form as provided in the Bond Resolution. THE DEPOSITORY TRUST COMPANY The Depository Trust Company (“DTC”), New York, NY, will act as securities depository for the Bonds. The Bonds will be issued as fully registered bonds registered in the name of Cede & Co. (DTC’s partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully-registered Bond certificate will be issued for each maturity of such series of the Bonds, in the aggregate principal amount of such maturity, and will be deposited with DTC. DTC, the world’s largest depository, is a limited-purpose trust company organized under the New York Banking Law, a “banking organization” within the meaning of the New York Banking Law; a member of the Federal Reserve System, a “clearing corporation” within the meaning of the New York Uniform Commercial Code; and a “clearing agency” registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934. DTC holds and provides asset servicing for over 3.5 million issues of U.S. and non-U.S. equity issues, corporate and municipal debt issues, and money market instruments from over 100 countries that DTC’s participants (“Direct Participants”) deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions in deposited securities, through electronic computerized book-entry transfers and pledges between Direct Participants’ accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include U.S. and non-U.S. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation (“DTCC”). DTCC is the holding company for DTC, National Securities Clearing Corporation, and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries. Access to the DTC system is also available to others such as both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly (“Indirect Participants”). DTC has a Standard & Poor’s rating of AA+. The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at www.dtcc.com. Purchases of Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the Bonds on DTC’s records. The ownership interest of each actual purchaser of each Bond (“Beneficial Owner”) is in turn to be recorded on the Direct and Indirect Participants’ records. Beneficial Owners will not receive written confirmation from DTC of their purchase. Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Bonds are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in the Bonds, except in the event that use of the book-entry system for the Bonds is discontinued. To facilitate subsequent transfers, all Bonds deposited by Direct Participants with DTC are registered in the name of DTC’s partnership nominee, Cede & Co., or such other name as may be requested by an authorized representative of DTC. The deposit of Bonds with DTC and their registration in the name of Cede & Co. or such other DTC nominee do not affect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Bonds; DTC’s records reflect only the identity of the Direct Participants to whose accounts such Bonds are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers. 8 Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Redemption notices shall be sent to DTC. If less than all of the Bonds within an issue are being redeemed, DTC’s practice is to determine by lot the amount of the interest of each Direct Participant in such issue to be redeemed. Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to Bonds unless authorized by a Direct Participant in accordance with DTC’s MMI Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the City as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.’s consenting or voting rights to those Direct Participants to whose accounts Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy). Redemption proceeds, distributions, and dividend payments on the Bonds will be made to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC. DTC’s practice is to credit Direct Participants’ accounts upon DTC’s receipt of funds and corresponding detail information from the City or the Paying Agent, on the payable date in accordance with their respective holdings shown on DTC’s records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in “street name,” and will be the responsibility of such Participant and not of DTC, the Paying Agent, or the City, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of redemption proceeds, distributions, and dividend payments to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the City or the Paying Agent, disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants. A Beneficial Owner shall give notice to elect to have its Bonds purchased or tendered, through its Participant, to the Paying Agent, and shall effect delivery of such Bonds by causing the Direct Participant to transfer the Participant’s interest in the Bonds, on DTC’s records, to the Paying Agent. The requirement for physical delivery of the Bonds in connection with an optional tender or a mandatory purchase will be deemed satisfied when the ownership rights in the Bonds are transferred by Direct Participants on DTC’s records and followed by a book- entry credit of tendered Bonds to the Paying Agent’s DTC account. DTC may discontinue providing its services as depository with respect to the Bonds at any time by giving reasonable notice to the City or the Paying Agent. Under such circumstances, in the event that a successor depository is not obtained, Bond certificates are required to be printed and delivered. The City may decide to discontinue use of the system of book-entry transfers through DTC (or a successor securities depository). In that event, Bond certificates will be printed and delivered. The information in this section concerning DTC and DTC’s book-entry system has been obtained from sources that the City believes to be reliable, but the City takes no responsibility for the accuracy thereof. THE FINANCING PLAN Proceeds from the sale of the Bonds will be used to pay the costs to acquire certain water, sewer and street improvements within the Stone Lake Addition within the City and to pay the costs associated with the issuance of the Bonds. 9 SOURCES AND USES OF FUNDS Funds to be used in the Financing Plan will be provided and applied approximately as follows, exclusive of accrued interest. Sources of Funds: Bond Proceeds $1,360,000.00 Total Sources of Funds $1,360,000.00 Uses of Funds: Deposit to Improvement Fund $1,334,651.25 Costs of Issuance 25,348.75 Total Uses of Funds $1,360,000.00 RISK FACTORS AND INVESTMENT CONSIDERATIONS A PROSPECTIVE PURCHASER OF THE BONDS DESCRIBED HEREIN SHOULD BE AWARE THAT THERE ARE CERTAIN RISKS ASSOCIATED WITH THE BONDS WHICH MUST BE RECOGNIZED. THE FOLLOWING STATEMENTS REGARDING CERTAIN RISKS ASSOCIATED WITH THE OFFERING SHOULD NOT BE CONSIDERED AS A COMPLETE DESCRIPTION OF ALL RISKS TO BE CONSIDERED IN THE DECISION TO PURCHASE THE BONDS. PROSPECTIVE PURCHASERS OF THE BONDS SHOULD ANALYZE CAREFULLY THE INFORMATION CONTAINED IN THIS OFFICIAL STATEMENT AND ADDITIONAL INFORMATION IN THE FORM OF THE COMPLETE DOCUMENTS SUMMARIZED HEREIN, COPIES OF WHICH ARE AVAILABLE AND MAY BE OBTAINED FROM THE CITY OR THE UNDERWRITERS. Legal Matters Various state and federal laws, regulations and constitutional provisions apply to the obligations created by the Bonds. There is no assurance that there will not be any change in, interpretation of, or addition to such applicable laws, provisions and regulations which would have a material effect, either directly or indirectly, on the City or the taxing authority of the City. Limitations on Remedies Available to Owners of Bonds The enforceability of the rights and remedies of the owners of Bonds, and the obligations incurred by the City in issuing the Bonds, are subject to the following: the federal Bankruptcy Code and applicable bankruptcy, insolvency, reorganization, moratorium, or similar laws relating to or affecting the enforcement of creditors’ rights generally, now or hereafter in effect; usual equity principles which may limit the specific enforcement under state law of certain remedies; the exercise by the United States of America of the powers delegated to it by the United States Constitution; and the reasonable and necessary exercise, in certain unusual situations, of the police power inherent in the State of Kansas and its governmental subdivisions in the interest of serving a legitimate and significant public purpose. Bankruptcy proceedings, or the exercise of powers by the federal or state government, if initiated, could subject the owners of the Bonds to judicial discretion and interpretation of their rights in bankruptcy and otherwise, and consequently may involve risks of delay, limitation or modification of their rights. Premium on Bonds The initial offering prices of certain maturities of the Bonds that are subject to optional redemption are in excess of the respective principal amounts thereof. Any person who purchases a Bond in excess of its principal amount, whether during the initial offering or in a secondary market transaction, should consider that the Bonds are subject to redemption at par under the various circumstances described under THE BONDS – “Redemption Provisions.” 10 No Additional Interest or Mandatory Redemption upon Event of Taxability The Bond Resolution does not provide for the payment of any additional interest or penalty on the Bonds if the interest thereon becomes includable in gross income for Kansas income tax purposes. Market for the Bonds Rating. The Bonds have been assigned the financial rating set forth in the section hereof titled RATING. There is no assurance that a particular rating will remain in effect for any given period of time or that it will not be revised, either downward or upward, or withdrawn entirely, if in the judgment of the agency originally establishing such rating, circumstances so warrant. Any downward revision or withdrawal of any rating may have an adverse affect on the market price of the Bonds. Secondary Market. There is no assurance that a secondary market will develop for the purchase and sale of the Bonds. Prices of securities traded in the secondary market, though, are subject to adjustment upward and downward in response to changes in the credit markets. From time to time it may be necessary to suspend indefinitely secondary market trading in the Bonds as a result of financial condition or market position of broker- dealers, prevailing market conditions, lack of adequate current financial information about the City, or a material adverse change in the financial condition of the City, whether or not the Bonds are in default as to principal and interest payments, and other factors which may give rise to uncertainty concerning prudent secondary market practices. Recent Legislative Proposal Congress and the President are working on various proposals to increase income taxes and to reduce tax deductions and expenditures. These discussions have made it clear that the tax exemption of municipal bonds is considered a tax expenditure and as such there is no guaranty that the tax exempt status on municipal bonds will remain unchanged as a result of these discussions. If a legislative change is enacted which results in all, or a portion, of the interest on the Bonds being subjected to Federal income taxes, such legislation or proposals could affect the value or marketability of the Bonds. Prospective purchasers of the Bonds should consult their own tax advisers regarding the impact of any change in law on the Bonds. LEGAL MATTERS All matters incident to the authorization and issuance of the Bonds by the City are subject to the approval of Gilmore & Bell, P.C., Kansas City, Missouri, Bond Counsel, whose approving opinion accompanies the Bonds. The factual and financial information appearing herein has been supplied or reviewed by certain officials of the City and its certified public accountants, as referred to herein. Bond Counsel has participated in the preparation of the matters appearing in the sections of this Official Statement captioned INTRODUCTORY STATEMENT, THE BONDS, LEGAL MATTERS, TAX MATTERS, CONTINUING DISCLOSURE, and APPENDIX B. TAX MATTERS General The following is a summary of the material federal and state income tax consequences of holding and disposing of the Bonds. This summary is based upon laws, regulations, rulings and judicial decisions now in effect, all of which are subject to change (possibly on a retroactive basis). This summary does not discuss all aspects of federal income taxation that may be relevant to investors in light of their personal investment circumstances or describe the tax consequences to certain types of holders subject to special treatment under the federal income tax laws (for example, dealers in securities or other persons who do not hold the Bonds as a capital asset, tax-exempt organizations, individual retirement accounts and other tax deferred accounts, and foreign taxpayers), and, except for the income tax laws of the State of Kansas, does not discuss the consequences to an owner under state, local or foreign tax laws. The summary does not deal with the tax treatment of persons who purchase the Bonds in the secondary market at a premium or a 11 discount. Prospective investors are advised to consult their own tax advisors regarding federal, state, local and other tax considerations of holding and disposing of the Bonds. Opinion of Bond Counsel Kansas Tax Exemption. The interest on the Bonds is exempt from income taxation by the State. Interest Taxable. Interest on the Bonds is included in gross income for federal income tax purposes. Original Issue Discount. Certain maturities of the Bonds have an initial offering price below the stated redemption price at maturity as set forth on the inside cover hereof. Accordingly, some or all of such Bonds (the “Taxable OID Bonds”) may have original issue discount for federal income tax purposes. In the opinion of Bond Counsel, subject to the conditions set forth above, any original issue discount properly allocable to the owner of a Taxable OID Bond will be included in gross income for federal income tax purposes with respect to such owner. Following is a general discussion of the federal income tax consequences of the purchase, ownership, and disposition of bonds issued with original issue discount. Purchasers of the Taxable OID Bonds should consult their own tax advisors to determine the specific treatment of original issue discount for federal income tax purposes and to determine the state and local tax consequences of owning such bonds. Under Code § 1273 and applicable Regulations, original issue discount is the excess of the stated redemption price at maturity of a bond over its issue price, if such excess equals or exceeds a de minimis amount equal to ¼ of 1% of the bond’s stated redemption price at maturity multiplied by either (a) the number of complete years to stated maturity from its issue date, or (b) in the case of a bond providing for the mandatory, or in certain cases optional, payment prior to stated maturity of any amount other than qualified stated interest (as defined below), the weighted average maturity of such bond. The issue price of each bond in an issue of bonds equals the first price at which a substantial amount of such bonds are sold to the public (ignoring sales to bond houses, brokers, or similar persons or organizations acting in the capacity of underwriters). The stated redemption price at maturity of a bond is the sum of all payments provided by the bond other than “qualified stated interest” payments. The term “qualified stated interest” generally means stated interest that is unconditionally payable in cash or property (other than debt instruments of the issuer) at least annually at a single fixed rate. The owner of a Taxable OID Bond must include original issue discount in income as ordinary interest for federal income tax purposes as it accrues under a constant yield method in advance of receipt of the cash payments attributable to such income, regardless of such owner’s regular method of tax accounting. In general, the amount of original issue discount included in income by the initial owner of a Taxable OID Bond is the sum of the daily portions (as defined below) of original issue discount with respect to such Taxable OID Bond for each day during the taxable year (or portion of the taxable year) on which such owner held such Taxable OID Bond. The “daily portion” of original issue discount on any Taxable OID Bond is determined by allocating to each day in any accrual period (as defined below) a ratable portion of the original issue discount allocable to that accrual period. An “accrual period” may be of any length and the accrual periods may vary in length over the term of the Taxable OID Bond, so long as each accrual period is no longer than one year and each scheduled payment of principal or interest occurs either on the final day of an accrual period or on the first day of an accrual period. The amount of original issue discount allocable to each accrual period is generally equal to the difference between (i) the product of the Taxable OID Bond’s adjusted issue price (as defined below) at the beginning of such accrual period and its yield to maturity (determined on the basis of compounding at the close of each accrual period and appropriately adjusted to take into account the length of the particular accrual period), and (ii) the amount of any qualified stated interest payments allocable to such accrual period. The “adjusted issue price” of a Taxable OID Bond at the beginning of any accrual period is the sum of the issue price of the Taxable OID Bond plus the amount of original issue discount allocable to all prior accrual periods minus the amount of any prior payments on the Taxable OID Bond that were not qualified stated interest payments. The portion of the original issue discount included in an owner’s gross income while the owner holds a Taxable OID Bond will increase the owner’s adjusted tax basis in the Taxable OID Bond. Upon sale, exchange, redemption, or other disposition of a Taxable OID Bond, an owner generally will recognize taxable gain or loss equal to the difference between the amount realized by the owner upon such disposition and the owner’s adjusted tax basis in the Taxable OID Bond. Any such gain or loss generally will be capital gain or loss and may be long- term capital gain or loss if the owner has held the Taxable OID Bond for the required holding period (currently one 12 year). Noncorporate taxpayers currently are subject to reduced maximum income tax rates on long-term capital gains and generally are subject to income tax at ordinary income rates on short-term capital gains. An owner’s ability to deduct capital losses is subject to certain limitations. Owners should consult their own tax advisors concerning the specific tax consequences of disposing of a Taxable OID Bond. Original Issue Premium. If a Bond is purchased at a price that exceeds the stated redemption price of the Bond at maturity, the excess of the purchase price over the stated redemption price at maturity constitutes premium on the Bond, and that Bond is referred to in this discussion as a “Taxable Premium Bond.” Under Code § 171, the purchaser of a Taxable Premium Bond may elect to amortize the premium over the term of the Taxable Premium Bond using constant yield principles, based on the purchaser’s yield to maturity. An owner of a Taxable Premium Bond amortizes bond premium by offsetting the qualified stated interest allocable to an accrual period with the bond premium allocable to that accrual period. This offset occurs when the owner takes the qualified stated interest into income under the owner’s regular method of accounting. If the premium allocable to an accrual period exceeds the qualified stated interest for that period, the excess is treated by the owner as a deduction under Code § 171(a)(1). As premium is amortized, the owner’s basis in the Taxable Premium Bond will be reduced by the amount of amortizable premium properly allocable to the owner. Prospective investors should consult their own tax advisors concerning the calculation and accrual of bond premium. No Other Opinions. Bond Counsel expresses no opinion regarding other federal, state or local tax consequences arising with respect to the Bonds. RATING The Bonds and the City’s other outstanding general obligation bonds have been rated “Aa2 by Moody’s Investors Service. Any explanation of the significance of such rating may be obtained only from said rating agency. There is no assurance that the rating will remain for any given period of time or that they may not be lowered or withdrawn entirely by the rating service if, in their judgment, circumstances so warrant. Any such downward change in or withdrawal of the rating may have an adverse effect on the market price of the Bonds. FINANCIAL ADVISOR George K. Baum & Company, Kansas City, Missouri, has acted as Financial Advisor to the City in connection with the sale of the Bonds. The Financial Advisor has assisted the City in the preparation of this Official Statement and in other matters relating to the issuance of the Bonds. The fees of the Financial Advisor are contingent upon the issuance of the Bonds. UNDERWRITING The Bonds were purchased at public sale on February 11, 2013, by UMB Bank, n.a., Kansas City, Missouri (the “Underwriter”) at a price equal to the principal amount of the Bonds plus accrued interest to the date of closing. The Bonds will be offered to the public initially at the prices determined to produce the yield to maturity or applicable redemption date set forth on the inside cover page of this Official Statement. The Underwriter may offer and sell the Bonds to certain dealers (including dealers depositing the Bonds into investment trusts) at prices other than the price stated on the cover page hereof and may change the initial offering price from time to time subsequent to the date hereof. In connection with the offering, the Underwriter may overallot or effect transactions which stabilize or maintain the market price of the Bonds at a level above that which might otherwise prevail in the open market. Such stabilizing, if commenced, may be discontinued at any time. 13 ABSENCE OF MATERIAL LITIGATION The Transcript of Proceedings will contain a certificate of non-litigation dated as of the closing date and executed by the City to the effect that there is no controversy, suit, or proceeding of any kind pending or, to the knowledge of the City, threatened wherein or whereby any question is raised, or may be raised, questioning, disputing, or affecting in any way the legal organization of the City or its boundaries or the legality of any official act shown to have been done regarding the issuance of the Bonds or the constitutionality or validity of the obligation represented by the Bonds or the means provided for the payment of the Bonds. CONTINUING DISCLOSURE The Securities and Exchange Commission (the “SEC”) has promulgated amendments to Rule 15c2-12 (the “Rule”), requiring continuous secondary market disclosure. In the Bond Resolution, the City has covenanted to provide annually certain financial information and operating data and other information necessary to comply with the Rule, and to transmit the same or cause the same to be transmitted to certain repositories and the Municipal Securities Rulemaking Board, as applicable. This covenant is for the benefit of and is enforceable by the owners of the Bonds. See APPENDIX B for further details concerning continuing disclosure requirements. On June 28th, 2012 the City filed with the Municipal Securities Rulemaking Board’s Electronic Municipal Market Access system (“EMMA”) the annual financial information and operating data required pursuant to its existing continuing disclosure undertakings and complied in a timely manner with its obligations for the fiscal year ending December 31, 2011. During the prior five years the City did not always file the annual financial information and operating data within 180 days of the end of its fiscal year as required. Past failures to file the annual financial information was primarily the result of not having audited financial statements completed within 180 days of the end of the fiscal year. The required operating data was made available to the public through the City’s filing of certain official statements with the MSRB in April 2011 and 2010, July 2009 and 2008 and June 2007. The City has put into place procedures to ensure continued compliance with all undertakings with respect to the City’s note and bond issues including acceleration of the deadline for the completion of its annual audited financial statements and the formal adoption of a post issuance compliance policy. CERTIFICATION OF THIS OFFICIAL STATEMENT The preparation and distribution of this Official Statement has been authorized by the City. This Official Statement is hereby duly approved by the governing body of the City as of the date on the cover page hereof. CITY OF SALINA, KANSAS By /s/ Rod Franz Director of Finance and Administration ATTEST: /s/ Lieu Ann Elsey City Clerk (THIS PAGE LEFT BLANK INTENTIONALLY) APPENDIX A INFORMATION CONCERNING THE CITY (THIS PAGE LEFT BLANK INTENTIONALLY) A-1 APPENDIX A FINANCIAL OVERVIEW OF THE CITY 2012 Estimated Actual Valuation (1) $ 2,884,188,981 2012 Assessed Valuation $ 451,404,026 Outstanding General Obligation Bonds (2) $ 58,715,000 Population-2011 U.S. Census Bureau Estimate 47,910 General Obligation Debt Per Capita $ 1,225.53 Ratio of General Obligation Debt to Estimated Actual Valuation 2.04% Ratio of General Obligation Debt to Estimated Assessed Valuation 13.01% Outstanding Temporary Notes $ 1,485,000 Outstanding Lease Purchase Obligations $ 0.00 Outstanding Revenue Bonds $ 15,780,000 Overlapping General Obligation Debt (3) $ 66,611,731 Direct and Overlapping General Obligation Debt (4) $ 126,811,731 Direct and Overlapping Debt Per Capita $ 2,646.87 Ratio of Direct and Overlapping Debt to Estimated Actual Valuation 4.40% Ratio of Direct and Overlapping Debt to Estimated Assessed Valuation 28.09% _________________ (1) For a further description of how Estimated Actual Valuation is calculated and additional historical figures see the section titled FINANCIAL INFORMATION CONCERNING THE CITY – “Estimated Actual Valuation”. (2) Includes the Bonds. (3) For a more detailed explanation of the overlapping debt of the other jurisdictions, see DEBT SUMMARY OF THE CITY - “Overlapping Debt”. (4) Includes outstanding general obligation bonds and temporary notes of the City and overlapping jurisdictions. A-2 GENERAL INFORMATION CONCERNING THE CITY Location and Size The City of Salina is located in north central Kansas, near the geographic center of the contiguous United States. It is the seventh largest city in Kansas, with a 2011 U.S. Census Bureau estimate of 47,910. The City is the county seat for Saline County which had an estimated 2011 U.S. Census Bureau population of 55,844. Situated at the intersection of Interstate Highways 70 and 135, the City of Salina serves as the industrial, medical, retail, trade and service hub for north central Kansas. Kansas City, Kansas, and Wichita, Kansas, are 175 and 95 miles away, respectively, via the direct access of these two major highways. The City encompasses a total area of approximately 23 square miles. Government The Town of Salina was organized in 1858 under the Town and Village Act in the State of Kansas. The City has had a Commission-City Manager form of government since 1921. The Commission comprises five members elected at-large. Each year the Commission chooses one member to act as Mayor. The City Manager is appointed by the Governing Body and acts as its primary agent in accordance with state statute. Other city officers and employees are appointed by the City Manager. The Governing Body is responsible for the policy determination, and the City Manager is responsible for the administration of the municipal government. Salina became a City of the first class on July 9, 1920. There are no organized city employee unions. The present elected officials of the City, along with the expiration of their current terms of office, are as follows: Name Title Term Expires Norman Jennings Mayor 2013 Barb Shirley Vice Mayor 2015 Aaron Householter Commissioner 2015 Kaye Crawford Commissioner 2013 Samantha Angell Commissioner 2013 Retirement Systems The City participates in the Kansas Public Employees Retirement System (KPERS) established in 1962, as an instrumentality of the State, pursuant to K.S.A. 74-4901 et seq., to provide retirement and related benefits to public employees in Kansas. KPERS is governed by a board of trustees consisting of nine members, including four members appointed by the Governor subject to confirmation by the State Senate, one appointed by the President of the Senate, one appointed by the Speaker of the House of Representatives, two elected by members and retirants of the retirement system, which must be members of such system, and the State Treasurer. Members of the board of trustees serve four-year terms and elect a chairperson annually. The board of trustees appoints an Executive Director to serve as the managing officer of KPERS and employs a staff of approximately 95 people. As of June 30, 2010, KPERS serves about 277,000 members and 1,500 participating employers, including the State, school districts, counties, cities, public libraries, hospitals and other governmental units. KPERS administers the following three statewide, defined benefit retirement plans for public employees: (a) Kansas Public Employees Retirement System; (b) Kansas Police and Firemen’s Retirement System; and (c) Kansas Retirement System for Judges. These three plans are separate and distinct with different membership groups, actuarial assumptions, experience, contribution rates and benefit options. The Kansas Public Employees Retirement System is the largest of the three plans, accounting for more than 95% of the members. The Kansas Public Employees Retirement System is further divided into two separate groups, as follows: A-3 (a) State/School Group - includes members employed by the State, school districts, community colleges, vocational-technical schools and educational cooperatives. The State of Kansas makes all employer contributions for this group, 85% of which comes from the State General Fund. State legislation enacted in 2003 made certain pre-1962 Board employees (which are part of a small group of pre-1962 Board and University of Kansas Hospital Authority employees known as the “TIAA Group”), special members of the State/School Group. (b) Local Group - all participating cities, counties, library boards, water districts and political subdivisions are included in this group. Local employers contribute at a different rate than the State/School Group rate. State legislation enacted in 2003 made certain pre-1962 employees of the University of Kansas Hospital Authority (which are a part of a small group of pre-1962 Board and University of Kansas Hospital Authority employees known as the “TIAA Group”), special members of the Local Group. KPERS is a qualified, governmental, § 401(a) defined benefit pension plan, and has received IRS determination letters attesting to the plan’s qualified status dated October 14, 1999 and March 5, 2001. KPERS is also a “contributory” defined benefit plan, meaning that employees make contributions to the plan. This contrasts it from noncontributory pension plans (more common in the private sector), which are funded solely by employer contributions. The City's employees annually contribute: (a) 4% of their gross salary to the plan if such employees are KPERS Tier 1 members (covered employment prior to July 1, 2009), or (b) 6% of their gross salary to the plan if such employees are KPERS Tier 2 members (covered employment on or after July 1, 2009). The City's contribution varies from year to year based upon the annual actuarial valuation and appraisal made by KPERS, subject to legislative caps on percentage increases. The City's contribution is 8.94% of the employee’s gross salary for calendar year 2013. The City has established membership in the Kansas Police and Fire Retirement System (“KPFRS”) for its police and fire personnel. KPFRS is a division of and is administered by KPERS. Annual contributions are adjusted annually based on actuarial studies, subject to legislative caps on percentage increases. Employees contribute 7% of gross compensation and the City contributes 21.03% of employees' gross compensation for calendar year 2013. In 2012, a number of changes to KPERS were approved, including: (a) Effective January 1, 2015, the creation of a new KPERS Tier 3 category (covered employment on or after January 1, 2015) based on a cash balance plan. Each Tier 3 participant shall have a retirement annuity account to which such participant shall contribute 6% of their gross salary to the plan. The employer or State contribution varies based on longevity of participant service: (1) 3% for less than 5 years; (2) 4% for at least 5 years but less than 12 years; (3) 5% for at least 12 years but less than 24 years; and (4) 6% for 24 or more years. Such account shall receive an interest credit of 5.25% per annum, and under certain circumstances, shall receive additional interest credits. Subject to certain exceptions, a Tier 3 participant, upon retirement, shall receive a single life annuity benefit. (b) Increasing the statutory maximum employer contribution annual increase from 0.6% per year (status quo) to 0.9% per year in 2014, 1.0% in 2015, 1.1% in 2016 and 1.2% per year by 2017. (c) Effective January 1, 2014, providing additional contribution flexibility for Tier 1 participants with corresponding benefit adjustments. (d) Effective January 1, 2014, eliminating COLA adjustments for Tier 2 participants with corresponding benefit adjustments. (e) Provide additional flexibility for alternative investments for the plan (f) Provide for a single actually-determined employer contribution rate covering all three KPERS Tiers, calculated for each KPERS group. (g) Provide new State funding sources to assist in reducing UAAL. The 2012 changes did not address the Kansas Police and Firemen’s Retirement System or the Kansas Retirement System for Judges. A-4 Population The City of Salina has a population that is approaching metropolitan area status. This is defined by the U.S. Census Bureau as cities with 50,000 inhabitants or more. According to the U. S. Census Bureau, the City’s citizens had a median age of 36.4 years in 2010. The following table and graph show the population for the City for selected years as provided by the U.S. Census Bureau. U.S. Census Year Bureau Population 2010 47,707 2009 46,180 2008 45,998 2007 46,025 2006 45,898 Police and Fire Protection The City of Salina provides police and fire protection services to residents of the City and surrounding areas. Firefighting services are provided from four stations located throughout the City with 92 full-time firefighters. The fire department operates 36 vehicles and provides emergency medical services. The police department employs approximately 81 full-time police officers and operates 37 police vehicles, including patrol vehicles, motorcycles, and Cushmans. Educational Facilities The City of Salina has a very complete and diverse educational system from the primary level up to its higher educational institutions. Unified School District No. 305 provides public education through its eight elementary, two middle, and two senior high schools. Current enrollment is over 7,000. The District also operates alternative education, vocational-technical, and special education schools. Additionally, there are a number of parochial institutions that operate two grade schools, two junior high schools, and one senior high school. A military school is located in the City and operates both a grade school and high school. The City is home to five regional or private upper-level specialty schools. The Kansas Highway Patrol has a training academy located in Salina. Kansas State University at Salina. The University offers a variety of two- and four-year aviation and technology degree programs. Areas of emphasis include civil, electrical and mechanical engineering technologies, aeronautical studies, and avionics. The campus is located entirely within the boundaries of the Salina Airport Industrial Center. Approximately 716 students are currently enrolled in the school. Kansas Wesleyan University. Kansas Wesleyan University was founded in 1886 and is located within the City. Currently, Kansas Wesleyan maintains an enrollment of approximately 800 students, the majority from Kansas and surrounding states. The school, based on a liberal arts foundation, offers more than 27 major programs, including graduate studies. Evening degree completion programs for adults are also available. Kansas Wesleyan is a member of the Associated Colleges of Central Kansas, a consortium of six academic institutions within 70 miles of the University through which students may enroll in courses and utilize resources. Transportation In addition to I-70 and I-135, US-81 and US-40 also intersect Salina. Several freight companies provide motor freight service in Salina with direct and connecting schedules to all cities in the United States. Bus service is available at regular intervals during each day in all directions. A-5 Union Pacific gives the City rail service in four directions out of the City and provides daily package-car service in and out of Salina. There are approximately 8 daily freights stopping in the City. Existing terminals have adequate capacity to handle present and greatly increased future capacity. Approximately 30 miles of storage tracks are available. The City is served by the Salina Regional Airport and scheduled air service is provided by SeaPort Airlines, offering weekday and weekend flights to Kansas City and Denver. Utilities and Infrastructure Westar Energy supplies electricity and Kansas Gas Service provides natural gas to the City. The City owns its own water and sewage system. Additionally, the City is responsible for street maintenance and police and fire protection for the Airport. SBC provides telephone service. Two cellular phone companies provide service to the City. Health Facilities The City is served by Salina Regional Health Center (“SRHC”), a 330-bed regional facility divided between two Salina campuses. SRHC is an acute care facility for the diagnosis and treatment of all types of diseases and conditions, and includes a cancer treatment center and two medical office buildings. The institution is also a 50% partner in a separate surgical hospital adjacent to the Asbury campus of SRHC. Several other facilities providing mental health services, counseling, and alcohol and drug dependency treatment programs are located in the City. Financial Institutions Ten banks operating a total of 23 different facilities are located in the City. Five banks are headquartered in the City and reported combined deposits in excess of $2.35 billion as of December 31, 2011. A savings bank has a branch office in the City. Other Information Public recreation facilities available to city residents include 27 parks, a public golf course, baseball/softball fields, the Kenwood Cove Aquatic Park, the Stifel Theatre for the Performing Arts, the Salina Community Theater, two museums, tennis courts, and ice and roller skating facilities. Two private clubs provide additional recreational opportunities for residents of the City. The Bicentennial Center, a 7,500-seat facility, with over 40,000 square feet of exhibit space, nicknamed “Mid-America’s Meeting Place”, provides a venue for the region’s numerous concerts, exhibitions, conventions, and other events are also held in the Center. There are several radio stations in the City. Five standard television stations from Wichita serve the Salina area. Additionally, Cox Communications provides cable television and broadband internet service to subscribing customers. One public library with over 230,000 volumes, two college libraries, a medical library, and a law library are located within the City. A-6 ECONOMIC INFORMATION CONCERNING THE CITY Economic Characteristics The City of Salina benefits from its location at the junction of Interstate Highways 70 and 135. This convenient location has drawn numerous national and regional companies to open manufacturing or distribution centers in or adjacent to the City. Such companies include Schwan’s Global Supply Chain, Inc., Salina Vortex, GeoProbe, Bergkamp, Kasa Industrial Controls, Premier Pneumatics, Great Plains Manufacturing, PKM Steel, Crestwood Cabinets, McShares, Inc., Pepsi Cola, ElDorado Bus, Exide Battery, Advance Auto Parts Distribution Center, and Philips Lighting. Currently, manufacturing, retail trade, and service industries rank as the three primary employers in the City. No single industry is dominant. The government sector and wholesale trade industries make up the second tier of Salina employers. The City serves as a 24-county regional trade center for north central Kansas. Many individuals and businesses within a 70-mile radius travel to the City to purchase consumer goods and services. This designation as a regional trade center is supported by the fact that the City had the third highest “trade pull factor” of all Kansas counties in 2011 according to Kansas State University. City trade pull factor is computed by dividing the per capita sales tax of a city by the statewide per capita sales tax. Saline County is located in the center of one of the most productive agricultural areas in the United States. In 2007-2008, 750 farms were located on 430,000 acres. Farm crops were valued at over $38 million harvested on 210,910 acres. Cattle and milk produced was valued at over $19 million. Salina is a city centered more on industry than agriculture. Currently, there are approximately 100 manufacturing and processing companies located in the City. The City, Saline County, the Chamber of Commerce, and the Salina Airport Authority have developed several economic incentives which can be offered as inducements to opening industrial facilities. These include property tax abatement for basic industry, the waiving of building permit and inspection fees, refunding of sales tax paid on machinery and equipment, and providing training for employees through the Salina Area Technical College and the Kansas State University at Salina. Additionally, a “build-to-suit-tenant” agreement is available on sites in the Airport Industrial Center that can provide 100% financing for land and building costs. Several major commercial projects are currently under construction in Salina. Menards home improvement store recently opened a 26,420 square-foot warehouse with 162,340 square-foot of floor space. Fed Ex, currently located in the City, is building a new distribution center. Salina Community Theater, Great Plains Manufacturing, Salina Area Technical College, and Brown Mackie are all doing major remodeling and/or expansions. The community has 1,200 acres of industrial sites available in North Salina, the South Industrial District, and the Airport Industrial Center. Sites range in size from 1-to 240 acres, and are available for aviation, manufacturing, and distribution and warehouse businesses. The Salina Airport Authority The Salina Airport Authority is a body corporate and politic. The Authority was created by the City of Salina in April 1965 pursuant to the authority granted by the City by the surplus property and public airport authority act of the State of Kansas. The Authority was created for the purpose of accepting as surplus property portions of the former Schilling Air Force Base, which was closed by the United States Department of Defense in June 1965. By quitclaim deed the Authority received over 2,900 acres of land and numerous buildings for the purpose of operating and developing the Salina Municipal Airport and the Salina Airport Industrial Center. The Authority is managed and controlled by a five-member Board of Directors appointed by the Salina City Commission. In 2012, the Salina Municipal Airport was renamed the Salina Regional Airport. The Salina Regional Airport is the only commercial service airport serving Salina/Saline County and the 24-county area, which comprises North Central Kansas. The Airport also services the corporate, business, private aviation and flight training needs of industry, business and individuals in the area. The Airport is also used by Kansas State University at Salina (KSUS). The campus of KSUS is located adjacent to the Airport. The University offers degrees in professional flight training, airframe and power plant maintenance, and avionics technology. A-7 Scheduled air service is provided by SeaPort Airlines. The airline offers weekday and weekend flights to the Kansas City International hub. In 2012, the Airport enplaned 2,723 passengers and also accommodates a wide variety of aircraft including business jets, military, flight training and general aviation aircraft. In 2012, the Salina Air Traffic Control Tower logged over 97,338 aircraft operations serving the needs of over 7,000 business jets, the professional flight training department of University at Salina, general aviation and military aircraft. The two fixed base operators on the field at Salina specializing in aviation fuel delivered over 2.59 million gallons of fuel to the wide variety of aircraft utilizing the Airport in 2012. As of December 31, 2011, over 70 businesses and organizations at the Salina Regional Airport and Airport Industrial Center employed over 3,700 employees with a combined payroll in excess of $140 million. One of the primary functions of the Authority is to facilitate the continued growth of jobs and payroll at the Airport and Airport Industrial Center. The Authority works in partnership with the City of Salina, Saline County, and the Salina Area Chamber of Commerce, and the Kansas Department of Commerce for the retention of existing business and industry and the recruitment of new business and industry. Major Employers Industrial development during the past ten years has established a broad, industrial base in and around the City. A list of the major employers is as follows. All figures represent total full-time employment excluding seasonal and part-time employees. Estimated Name Product/Business Employment Schwan’s Global Supply Chain, Inc. Frozen Pizza 1,800 Unified School District No. 305 School System 1,659 Salina Regional Health Center Health Care 1,300 Exide Technologies Battery Manufacturer 750 Philips Lighting Company Fluorescent Lamps 590 City of Salina City Government 465 Wal-Mart Discount Retail 421 Dillon Stores Grocery 343 Solomon Corporation Electrical Equipment 324 ElDorado National Transit and Shuttle Busses 311 Great Plains Manufacturing Agricultural & Landscaping Equipment 258 Advance Auto Parts Distribution Center 257 Crestwood, Inc. Wooden Cabinets 219 Source: Salina Chamber of Commerce Income The following table shows the per capita personal income for residents of Saline County and the State during the years indicated: Saline State of Year County Kansas 2010 $39,384 $38,977 2009 38,752 38,301 2008 40,675 40,466 2007 36,781 37,663 2006 35,759 35,678 Source: Kansas Statistical Abstract, 2011 A-8 Labor Force According to the Kansas Department of Labor, the following table shows the labor force figures for the City of Salina and the State of Kansas. City of Salina Total Unemployment Year Labor Force Employed Unemployed Rate 2012 (Dec) 25,557 24,195 1,362 5.3% 2011 26,263 24,555 1,708 6.5 2010 26,156 24,434 1,722 6.6 2009 26,765 25,153 1,612 6.0 2008 26,339 25,321 1,018 3.9 State of Kansas Total Unemployment Year Labor Force Employed Unemployed Rate 2012 (Dec) 1,488,296 1,410,026 78,270 5.3% 2011 1,505,043 1,404,339 100,704 6.7 2010 1,504,883 1,397,208 107,675 7.2 2009 1,507,644 1,399,356 108,288 7.2 2008 1,480,875 1,415,467 65,408 4.4 DEBT SUMMARY OF THE CITY Current Indebtedness The following is an overview of the City’s outstanding indebtedness by classification as of the dated date of the Bonds. Figures do not include bonds for which payment has been provided through the creation of designated escrow accounts. General Obligation Bonds: Date Amount Final Amount Issued Series Purpose of Issue Maturity Outstanding 07-15-03 2003-A Internal Improvements $ 4,350,000 10-01-13 $ 320,000 05-01-04 2004-A Refunding 5,585,000 08-01-15 760,000 07-15-05 2005-A Internal Improvements 4,210,000 10-01-13 330,000 03-15-06 2006-A Internal Improvements 2,200,000 10-01-26 1,540,000 07-15-06 2006-B Internal Improvements 885,000 10-01-21 465,000 06-15-07 2007-A Internal Improvements 6,545,000 10-01-27 4,725,000 07-15-08 2008-A Internal Improvements 3,720,000 10-01-23 2,750,000 12-15-08 2008-B Internal Improvements 3,525,000 07-01-28 3,295,000 07-15-09 2009-A Internal Improvements 23,695,000 10-01-29 18,960,000 05-01-10 2010-A Refunding & Improvement 6,875,000 10-01-25 5,235,000 10-15-10 2010-B Refunding 7,860,000 10-01-23 6,510,000 07-15-11 2011-A Internal Improvements 6,565,000 10-01-31 6,315,000 07-15-12 2012-A Internal Improvements 2,365,000 10-01-27 2,365,000 07-15-12 2012-B Refunding 3,785,000 10-01-20 3,785,000 02-15-13 2013-A Taxable Improvements 1,360,000 10-01-28 1,360,000 $58,715,000 A portion of the City’s outstanding general obligation bonds are payable from special assessments levied upon properties benefited by certain internal improvement projects, local option sales tax and transfers from enterprise funds of the City. If such payments are not provided in a timely manner, the principal of and interest on the bonds must then be paid from the City’s ability to levy unlimited ad valorem taxes. See FINANCIAL INFORMATION - “Special Assessments” for a further description of special assessment financing. A-9 Temporary Notes: Temporary notes represent general obligation indebtedness payable ultimately from the City’s ability to levy unlimited taxes upon all taxable tangible property within its territorial limits. The City customarily redeems temporary notes with proceeds from the sale of long-term general obligation bonds or other available funds. Final Original Date Maturity Note Amount Project Series Issued Date Amount Outstanding Street, Water, and Sewer 2012-1 07-15-12 08-01-13 $1,485,000 $1,485,000 Revenue Bonds: Revenue bonds are payable solely from the net revenues derived by the City from the operation of its combined water and sewage system. Revenue bonds do not represent a general obligation indebtedness of the City for which the City’s taxing ability has been pledged. , Date Amount Final Amount Issued Purpose of Issue Maturity Outstanding 04-15-11 Improvements $16,120,000 10-01-31 $15,780,000 Overlapping Debt According to the Saline County Clerk’s office, the following table shows the overlapping general obligation indebtedness of the City. The percent of an overlapping jurisdiction’s debt that is applicable to the City is calculated by dividing the assessed valuation of that portion of the jurisdiction’s boundaries which overlap those of the City by the total assessed valuation of such jurisdiction. All debt outstanding is as of June 30, 2012. Amount Estimated Share of the City Jurisdiction Outstanding Amount Percentage Salina Airport Authority $26,170,000 $26,170,000 100.00% U.S.D. No. 305 43,200,000 40,441,731 93.62 Saline County 0 0 $66,611,731 Historical Debt Information The following table shows historical balances of outstanding general obligation bonds for the City during the most recent five-year period. Bonds Debt to Debt to U.S. Debt Outstanding Assessed Estimated Actual Census Per Year December 31 Valuation Valuation Population Capita 2012 $57,355,000 12.71% 1.99% 47,910 $1,197.14 2011 61,045,000 13.57 2.11 47,707 1,279.58 2010 60,280,000 13.44 2.09 47,707 1,263.55 2009 52,900,000 11.81 1.83 46,180 1,145.52 2008 31,645,000 7.01 1.09 45,998 687.96 A-10 Annual Debt Payments The following is a list of annual debt service requirements for the City’s currently outstanding general obligation bonded indebtedness. All amounts are rounded to the nearest whole dollar. Outstanding Bonds Series 2013-A Bonds Year Principal Interest Principal Interest Total 2013 $ 6,340,000 $ 1,902,994 $ 0 $ 0 $ 8,242,994 2014 6,025,000 1,756,056 45,000 53,127 7,879,183 2015 5,245,000 1,586,569 75,000 32,368 6,938,937 2016 5,080,000 1,429,056 80,000 31,918 6,620,974 2017 4,855,000 1,271,396 80,000 31,038 6,237,434 2018 4,930,000 1,094,259 85,000 30,158 6,139,417 2019 4,805,000 906,614 90,000 28,755 5,830,369 2020 2,980,000 757,254 90,000 27,270 3,854,524 2021 2,740,000 661,619 90,000 25,290 3,516,909 2022 2,775,000 565,469 95,000 23,310 3,458,779 2023 2,545,000 464,546 95,000 20,840 3,125,386 2024 2,240,000 368,002 100,000 18,370 2,726,372 2025 1,895,000 280,739 105,000 15,170 2,295,909 2026 1,555,000 204,712 105,000 11,600 1,876,312 2027 1,260,000 141,251 110,000 7,768 1,519,019 2028 950,000 89,602 115,000 4,082 1,158,684 2029 625,000 47,878 0 0 672,878 2030 250,000 21,675 0 0 271,675 2031 260,000 11,050 0 0 271,050 2032 0 0 0 0 0 2033 0 0 0 0 0 $57,355,000 $13,560,741 $1,360,000 $361,064 $72,636,805 Future Indebtedness The City annually prepares and adopts a five-year capital improvements plan. This plan identifies and prioritizes potential capital improvement projects within the City and includes the respective funding sources. Based on the City’s last capital improvements plan, the total cost of projects the City anticipates undertaking between now and 2014 is approximately $91.1 million, of which approximately $6.9 million is anticipated being financed through general obligation bonds. Borrowing requirements described above do not include future subdivision improvement projects financed with general obligation special assessment temporary bonds. The City typically undertakes such projects after receiving and reviewing a valid petition from property owners. See FINANCIAL INFORMATION – “Special Assessments”. The City has been involved with civil litigation concerning environmental contamination in certain areas within the boundaries of the Salina Airport Industrial Center. The contamination was caused by military activity that occurred between 1942 and 1966 when the site was operated as the Schilling Air Force Base. The City, the Salina Airport Authority, Unified School District No. 305, and Kansas State University (the “Salina Public Entities”) sued the Unites States seeking federal funds to clean up federal agency (DoD) caused contamination. The Salina Public Entities have reached a settlement agreement with the U.S. Department of Justice (DOJ) and the terms of the settlement are detailed in a Consent Decree scheduled to be filed in U.S. District Court by February 15, 2013. The Consent Decree provides for a 10% local share of initial project costs to be paid by the City. In the event funding cannot be secured in a timely fashion or in sufficient amounts, it may be necessary for the City to issue debt to relocate certain water supply wells. The exact timing and amount, if any, of such borrowing cannot be determined at this time. If City borrowing is necessary for the project, it is anticipated that utility revenue bonds will be the final type of debt considered. A-11 Debt Payment Record The City has always met principal and interest payments on all outstanding bonds and temporary notes when due and payable. Legal Debt Limits Cities within Kansas are permitted to issue bonds in an aggregate amount not to exceed 30% of the total assessed valuation of the city. Bonds issued for the purpose of improving, acquiring, enlarging, or extending municipal utilities, including storm and sanitary sewer systems; bonds issued to pay the cost of improvements to intersections and streets in front of city or school district property; bonds for bridges as authorized by a vote of the electors of a city; bonds issued to refund outstanding bonds; and bonds payable from revenue sources other than the general taxing authority of the city are not included in total aggregate debt for purposes of computing a city’s debt limitation. FINANCIAL INFORMATION CONCERNING THE CITY Financial Statement Summary The following is a summary of the combined revenues, expenditures, and fund balances for the City’s General Fund for the most recent available years as shown in the City’s Comprehensive Annual Financial Reports. This summary has not been prepared or reviewed by the City’s auditor. Audited Audited Audited Audited Revenues: 2008 2009 2010 2011 Property Taxes $ 2,546,938 $ 9,909,912 $ 8,764,040 $ 8,671,423 Sales Tax 11,985,856 11,668,987 11,117,078 11,767,400 Other Taxes 4,685,105 4,789,524 4,965,601 5,083,919 Intergovernmental 911,305 1,227,486 1,008,482 813,185 Charges for Services 5,793,253 5,375,308 7,193,831 7,822,307 Investment Revenue 244,769 0 0 28,972 Miscellaneous 496,742 356,249 352,308 501,260 Total Revenues $26,663,968 $33,327,466 $33,401,340 $34,688,466 Expenditures: General Government $ 3,336,261 $ 3,007,751 $ 3,549,487 $ 3,461,488 Public Safety 14,070,189 17,883,362 18,228,881 18,117,827 Public Works 5,239,844 6,345,981 6,245,355 6,132,020 Public Health and Sanitation 1,109,794 1,176,096 1,176,743 1,176,082 Culture and Recreation 2,297,431 2,294,894 2,599,921 2,734,957 Planning and Development 2,087,685 2,381,797 2,428,900 2,319,300 Capital Outlay 630,178 887,449 560,129 555,048 Total Expenditures $28,771,382 $33,977,330 $34,789,416 $34,496,722 Revenues Over (Under) Expenditures $(2,107,414) $ (649,864) $(1,388,076) $ 191,744 Other Sources (Uses) 806,306 (292,278) (82,124) (129,111) Net Change in Fund Balance $(1,301,108) $ (942,142) $(1,470,200) $ (62,633) Fund Balance January 1 $ 7,330,631 $ 6,029,523 $ 5,087,381 $ 3,617,181 Restatement of prior year balance - - - 156,424 Fund Balance December 31 $ 6,029,523 $ 5,087,381 $ 3,617,181 $ 3,836,238 A-12 Assessed Valuation According to the Saline County Clerk’s Office, the following table gives the November 1 assessed valuation of the City, unless otherwise noted, in the years indicated. State Total Real Personal Assessed Motor Assessed Year Estate Property (1) Utilities Vehicle Valuation 2012 $369,416,422 $18,654,394 $15,779,466 $47,553,744 $451,404,026 2011 367,750,803 19,918,188 14,685,585 47,406,062 449,760,638 2010 364,544,771 21,488,933 14,214,579 48,184,331 448,432,614 2009 358,979,211 24,760,806 13,730,609 50,330,252 447,800,878 2008 356,678,712 28,373,980 14,929,456 51,351,656 451,333,804 2007 342,045,389 34,507,464 16,175,634 50,548,706 443,277,193 2006 321,695,326 39,691,690 16,530,171 50,551,299 428,468,486 (1) Beginning in 2007, certain types of personal property were removed from the tax rolls. See footnote (3) to the table in FINANCIAL INFORMATION – “Property Assessment Rates”. Estimated Actual Valuation Based on assessment percentages provided by Kansas Statutes, real estate equalization ratios provided by the Kansas Department of Revenue (see FINANCIAL INFORMATION - “Property Assessment Rates”), and estimated actual valuation figures provided by the Saline County Appraiser’s Office, the following table provides November 1 estimated actual valuations for the City, unless otherwise noted, in the years indicated. Residential Real Estate Estimated Year Equalization Ratio Actual Value 2012 not available $2,884,188,981 2011 12.04% 2,891,461,447 2010 11.89 2,888,659,004 2009 11.67 2,893,359,541 2008 11.66 2,914,775,730 2007 11.68 2,833,709,391 2006 11.22 2,719,391,025 Special Assessments The City has pursued a policy of utilizing special benefit districts to assign the cost of certain internal improvement projects to the property that directly benefits from the construction. Kansas statutes allow for the creation of special benefit districts to pay for the cost of a variety of improvements including street construction, storm water drains, sanitary sewer system improvements, street lighting, water system improvements, recreational facilities, flood control projects, bridges, and parking facilities. The City has typically utilized special benefit districts to pay for the costs associated with constructing streets, sidewalks, curbs, gutters, and lighting in new residential developments within the City. When a developer requests the use of Special Assessments to finance public improvements, the City requires that they pay 20% of the estimated cost of the project in cash, or file a letter of credit equivalent to 35% of the estimated cost of the project. The letter of credit is released when Certificates of Occupancy have been issued for 35% of the lots in the development. Special benefit districts have also been created to pay for the cost of improvements to streets and sidewalks in the City’s downtown area. The creation of special benefit districts, the determination of property benefited, and the method of allocating the cost of the improvement is at the discretion of the City. Property owners have the ability to suggest improvements through a petition process and to comment on the final amount of their assessment. The City may or may not be included as part of the special benefit district. All property owners have the option to pay their portion of the improvement cost with a one-time payment during a 30-day assessment prepayment period or pay in annual installments with interest over a certain number of years. A-13 Upon completion of the special benefit district improvement projects and a 30-day prepayment period, the City issues general obligation bonds to provide for permanent project financing. The payment of the principal of and interest on such bonds is paid from the special assessments levied annually on the benefited property. Special assessments are paid at the same time and in the same manner as ad valorem property taxes. If at any time the special assessments received from the property owners are insufficient to provide for the payment of the principal of and interest on the bonds, the City is obligated to provide for the balance of such payments through its ability to levy unlimited ad valorem property taxes. Largest Taxpayers According to the Saline County Clerk’s Office, the following table lists the largest taxpayers in the City, their November 2012 assessed valuations, and the percentage each taxpayer comprised of the total assessed valuation of the City. % of Type of Assessed Total Company Business Valuation Valuation Schwan's Sales (Tony's Pizza) Manufacturing $ 8,050,871 1.78% Westar Energy Utility 7,852,360 1.74% Garrison Salina Owner LLC Regional Shopping Center 6,160,267 1.36% Salina Regional Health Centers Hospital and Medical Offices 4,317,497 0.96% Kansas Gas Service Utility 3,352,360 0.74% Menard Inc Home Improvement Store 3,552,249 0.79% Gateway Adams Inc. (Midstate Plaza) Shopping Center 3,551,440 0.79% Wal-Mart Stores (includes Sam’ s) Discount Retail 3,458,708 0.77% Southwestern Bell Telephone Utility 2,464,079 0.55% Great Plains Manufacturing Manufacturing 2,346,169 0.52% $45,106,000 10.00% Building Permits Issued Building permits issued by the City currently maintain steady levels. This table reflects both private developments as well as the expansion to the educational facilities in the community. The five-year history of the total value of permits issued is: Year Value 2012 $54,863,040 2011 19,752,335 2010 52,358,547 2009 12,192,481 2008 18,276,022 Tax Collections Tax statements are mailed November 1 each year and may be paid in full or one-half on or before December 20 with the remaining one-half due on or before May 10 of the following year. Taxes that are unpaid on the due dates are penalized at a statutorily prescribed rate until paid or until the property is sold for taxes. Real estate bearing unpaid taxes is advertised for sale in July of each year and is sold by the County for taxes and all legal charges on the first Tuesday in September. Properties that are sold and not redeemed within two years after the tax sale are subject to foreclosure sale, except homestead properties which are subject to foreclosure sale after three years. A-14 Personal property taxes are assessed, due and may be paid in the same manner as real estate taxes. Motor vehicle property taxes are based on valuations provided by the Kansas Department of Revenue and the county average tax rate for the county in which the vehicle is registered. Motor vehicle taxes are payable to the county treasurer at the time of the vehicle’s annual registration. Vehicle registration dates are assigned by the State in a manner such as to equal registration over a twelve-month period. Motor vehicle taxes are distributed by the county to the state, city and other taxing jurisdictions based on their proportionate tax levies. Delinquent personal and motor vehicle taxes are penalized at the same rate as delinquent real property taxes. The following is a summary of tax collections for the years shown. Current Current and Delinquent Levy Tax Taxes Tax Collections Tax Collections Year Rate Levied Amount % Amount % 2012 26.190 $10,588,130 IN PROGRESS 2011* 26.272 10,582,043 $10,276,937 97.1% $10,522,106 99.43% 2010 26.022 10,425,260 9,823,578 94.2 10,118,285 97.06% 2009 25.855 10,289,701 9,831,289 95.5 10,126,228 98.41% 2008 25.886 10,369,087 9,825,122 94.8 10,119,876 97.60% 2007 23.959 9,432,248 8,941,650 94.8 9,209,900 97.64% 2006 23.789 9,029,080 8,648,305 95.8 8,907,754 98.66% *Collections as of December 31, 2012 Tax Levies The City may levy taxes in accordance with the requirements of its adopted budget. The County Clerk determines property tax levies based upon the assessed valuations provided by the Appraiser and spreads the levies on the tax rolls. The following table gives the total tax levies for all taxing jurisdictions per $1,000.00 assessed valuation of the City for the last five years. 2008 2009 2010 2011 2012 Levy Levy Levy Levy Levy for for for for for 2009 2010 2011 2012 2013 Jurisdiction Budget Budget Budget Budget Budget City of Salina 25.886 25.855 26.022 26.272 26.190 Salina Library 5.419 5.413 5.372 5.292 5.452 State Education & Other 1.500 1.500 1.500 1.500 1.500 Unified School District No. 305 58.547 58.495 58.913 58.820 58.649 Airport Authority 2.877 4.315 4.055 4.007 4.007 Central Kansas Extension District 1.175 1.173 1.204 1.179 1.176 Saline County 29.347 31.303 31.432 32.576 34.823 Total 124.751 128.054 128.498 129.646 131.797 Sales Tax Sales tax collections are the responsibility of the Kansas Department of Revenue. The Department of Revenue distributes the local option countywide and citywide sales taxes on a monthly basis. Countywide sales taxes are distributed between the levying county and the cities located within the county based on population and relative tax levies. Citywide local option sales taxes are distributed solely to the levying city. Statewide sales taxes are retained entirely by the state. The total sales tax for goods and services in the City is 8.20%, which consists of 6.3% imposed by the State, 1% countywide local option sales tax, and .90% citywide local option sales tax. A-15 In 1982 the voters of Saline County, in accordance with Kansas statutes, approved a 1% countywide local option sales tax. In 1992 voters of the City approved a local option .50% citywide sales tax for purposes of helping fund general operations expenditures of the City. In November 1998, voters within the City approved an additional .25% restricted local option sales tax to be collected through June 1, 2004 and distributed to Unified School District No. 305 to fund educational technology. The voters renewed the .25% local option sales tax and are now using those collections for various city capital improvements. In November 2008, voters in the City of Salina approved a .40% citywide retailers dedicated sales tax to pay the costs of various City capital improvements including constructing, operating and maintaining a $12.5 million aquatic park. The .40% sales tax replaced the 2004 .25% sales tax on April 1, 2009 and terminates ten years after its commencement. The City of Salina deposits sales tax receipts from its 1992 tax into its General Fund. Sales tax receipts are used for funding general operating expenditures of the City and capital improvement projects. The following table lists the local-option sales tax receipts of the City of Salina in the years indicated. 2004 2008 1992 City’s Portion of .25% Citywide .40% Citywide .50% Citywide 1% Countywide Local Option Local Option Local Option Local Option Year Sales Tax Receipts Sales Tax Receipts Sales Tax Receipts Sales Tax Receipts 2008 $2,588,731 $ 0 $5,177,462 $6,808,395 2009 - 3,379,938 (1) 4,987,415 6,703,839 2010 - 3,861,809 4,818,398 6,339,236 2011 - 4,080,342 5,076,751 6,690,649 2012 - 4,209,889 5,241,205 6,924,075 (1) The 2008 .40% sales tax became effective April 1, 2009, at which time the 2004 sales tax stopped. This figure is the combined total receipts of the 2004 sales tax and the 2008 sales tax for 2009. Source: City Clerk Budgeting Procedures Applicable Kansas statutes require that budgets be legally adopted for all funds (including debt service and enterprise funds) unless exempted by a specific statute. All budgets are prepared utilizing the modified accrual basis further modified by the encumbrance method of accounting. For example, commitments such as purchase orders and contracts, in addition to disbursements and accounts payable, are recorded as expenditures. The statutes provide that the budget for the succeeding calendar year must be prepared on or before August 1 and published on or before August 5 of each year. A public hearing is required to be held on or before August 15, with the final budget being adopted on or before August 25 of each year. Original appropriations may be modified by supplemental appropriations and transfers among budget categories. The City Commission must approve all significant changes. Kansas law prohibits cities and other governmental units from creating indebtedness unless there is money on hand in the proper fund and unencumbered by previous commitments with which to pay the indebtedness. The execution of a contract, or the issuing of a purchase order, automatically encumbers the money in the fund for the payment of the amount represented by the commitment. It makes no difference that the amount may not have to be paid until more moneys are in the fund or until the following year. An exception to this cash basis law is the issuance of debt, in the form of bonds, notes, or warrants, pursuant to statutory authority, referendum or by the State Board of Tax Appeals. In the event debt is issued, funds need not be on hand for future payments. A-16 Appraisal and Assessment Procedures The determination of appraised and assessed valuation and the collection of property taxes for all political subdivisions in the State of Kansas are the responsibility of the various counties. The Saline County appraiser annually determines the appraised valuation of property located in the City. The appraiser’s determination is based on a number of criteria established by Kansas’s statute. All property, with the exception of agricultural land, is appraised based on estimated fair market value. Agricultural property is appraised based on productivity value. Kansas statutes require that each parcel of real property be reviewed and inspected by the county appraiser once every four years for taxation purposes. Once appraised valuations have been determined, they are multiplied by the applicable statutory assessment rates to arrive at the assessed valuations. The total assessed valuation is then used to establish property tax rates. Property Assessment Rates In order to determine the assessed valuation of a parcel of property for taxation purposes, the county appraiser multiplies the appraised value of the parcel by the applicable assessment rate. Current property assessment rates were established in 1986, effective in 1989, and slightly modified in 1992. The most significant 1992 modifications involved lowering the assessment rate on commercial and industrial real property from 30% to 25% and on residential property from 12% to 11.5%. The following table shows the current assessment rates for the different classes of taxable tangible property within the State of Kansas. Real Property: Residential 11.5% Commercial and Industrial- Real Property 25.0 Agricultural Land (1) 30.0 Agricultural Improvements 25.0 Vacant Lots 12.0 Not-for-Profit (2) 12.0 All Other 30.0 Personal Property: (3) Mobile Homes 11.5% Mineral Leaseholds (large) 30.0 Mineral Leaseholds (small) 25.0 Commercial & Industrial Machinery & Equipment 25.0 All Other 30.0 Utilities: Railroads federally mandated rate All Other Public Utilities 33.0% Motor Vehicles: 20.0% Property Exempt: Property used for the following purposes, or portions thereof, are exempt from taxation provided certain statutory requirements are met: religious, educational, literary, scientific, benevolent, alumni associations, veterans’ organizations, or charitable purposes, including parsonages and community service organizations providing humanitarian services. (1) Agricultural land is valued based on the productivity value of the property and not estimated market valuation. (2) A bill passed by the Kansas Legislature in 1994 clarified this class of property to include all property owned and operated by not-for-profit organizations not subject to federal income taxation pursuant to paragraphs (2), (3), (4), (7), (8), or (10) of Subsection C of Section 501 of the federal internal revenue code. This bill specifically established that private, not-for-profit country clubs would be assessed at 12% for all land that does not accommodate buildings or improvements. (3) The 2006 Kansas Legislature exempted from all property or ad valorem property taxes levied under the laws of the State, all commercial, industrial, telecommunications, and railroad machinery and equipment acquired by A-17 qualified purchase or lease after June 30, 2006 or transported into the State after June 30, 2006 for the purpose of expanding an existing business or creation of a new business. Equalization Ratios Annually, the Property Valuation Division of the Kansas Department of Revenue conducts a study to compare the assessed valuation of real property to estimated market value based on property sale prices. The study derives an equalization ratio which, when divided into assessed valuation, provides a means to approximate actual market value. According to the 2011 Kansas Appraisal/Sales Ratio Study, the equalization ratio for residential real property in Saline County was 12.04%, and commercial and industrial property was 28.75%. REMAINDER OF THIS PAGE LEFT BLANK INTENTIONALLY (THIS PAGE LEFT BLANK INTENTIONALLY) APPENDIX B Continuing Disclosure Instructions (THIS PAGE LEFT BLANK INTENTIONALLY) B-1 APPENDIX B CONTINUING DISCLOSURE INSTRUCTIONS $1,360,000 CITY OF SALINA, KANSAS TAXABLE GENERAL OBLIGATION INTERNAL IMPROVEMENT BONDS SERIES 2013-A DATED FEBRUARY 15, 2013 THESE CONTINUING DISCLOSURE INSTRUCTIONS (the “Disclosure Instructions”) are executed and delivered by the Issuer in connection with the issuance of the above-described bonds (the “Bonds”) which are being issued simultaneously herewith as of February 26, 2013, pursuant to the Bond Resolution, in which the Issuer covenants to enter into this undertaking to provide certain financial and other information with respect to the Bonds in order to assist the Participating Underwriter in complying with the provisions of the SEC Rule. The Issuer is the only “obligated person” with responsibility for continuing disclosure with respect to the Bonds. Section 1. Definitions. In addition to the definitions set forth in the Bond Resolution, which apply to any capitalized term used in these Disclosure Instructions, unless otherwise defined herein, the following capitalized terms shall have the following meanings: “Annual Report” means any Annual Report filed by the Issuer pursuant to, and as described in, Section 2 of these Disclosure Instructions. “Beneficial Owner” means any registered owner of any Bonds and any person which (a) has the power, directly or indirectly, to vote or consent with respect to, or to dispose of ownership of, any Bonds (including persons holding Bonds through nominees, depositories or other intermediaries), or (b) is treated as the owner of any Bonds for federal income tax purposes. “Bond Resolution” means collectively, the ordinance and the resolution of the governing body of the Issuer authorizing the issuance of the Bonds. “CAFR” means the Issuer’s Comprehensive Annual Financial Report. “Designated Agent” means Gilmore & Bell, P.C. or one or more other entities designated in writing by the Issuer to serve as a designated agent of the Issuer for purposes of these Disclosure Instructions. “Dissemination Agent” means any entity designated in writing by the Issuer to serve as dissemination agent pursuant to these Disclosure Instructions and which has filed with the Issuer a written acceptance of such designation substantially in the form attached hereto as Exhibit B. “EMMA” means the Electronic Municipal Market Access system for municipal securities disclosures established and maintained by the MSRB, which can be accessed at www.emma.msrb.org. “Financial Information” means the financial information of the Issuer described in Section 2(a)(1) hereof. B-2 “Fiscal Year” means the one year period ending December 31, or such other date or dates as may be adopted by the Issuer for its general accounting purposes. “GAAP” means generally accepted accounting principles, as applied to governmental units, as in effect at the time of the preparation of the Financial Information. “Issuer” means the City of Salina, Kansas, and any successors or assigns. “Material Events” means any of the events listed in Section 3(a) hereof. “MSRB” means the Municipal Securities Rulemaking Board. “Official Statement” means the Issuer’s Official Statement for the Bonds. “Operating Data” means the operating data of the Issuer described in Section 2(a)(2) hereof. “Participating Underwriter” means any of the original underwriters of the Bonds required to comply with the SEC Rule in connection with offering of the Bonds. “Repository” means the MSRB via EMMA. “SEC” means the Securities and Exchange Commission of the United States. “SEC Rule” means Rule 15c2-12(b)(5) adopted by the SEC under the Securities Exchange Act of 1934, as the same may be amended from time to time. Section 2. Provision of Annual Reports. (a) The Issuer shall, or shall cause the Dissemination Agent to, not later than 180 days after the end of the Issuer’s Fiscal Year, commencing with the Fiscal Year ended in 2012, file with the Repository the Issuer’s CAFR, which will contain the Financial Information and Operating Data (collectively, the “Annual Report”), as follows: (1) Financial Information. The financial statements of the Issuer for such prior Fiscal Year, accompanied by an audit report resulting from an audit conducted by an Independent Accountant in conformity with generally accepted auditing standards. Such financial statements will be prepared on a modified accrual basis of accounting other than GAAP for all governmental funds, expendable trust and agency funds. The accrual basis of accounting is used for proprietary and nonexpendable trust funds. A more detailed explanation of the accounting basis is contained in Appendix A to the Official Statement. If such audit report is not available by the time the Annual Report is required to be filed pursuant to this Section, the Annual Report shall contain unaudited financial statements and the audit report and accompanying financial statements shall be filed in the same manner as the Annual Report promptly after they become available. The method of preparation and basis of accounting of the Financial Information may not be changed to a basis less comprehensive than contained in the Official Statement, unless the Issuer provides notice of such change in the same manner as for a Material Event under Section 3(b) hereof. (2) Operating Data. Updates as of the end of the Fiscal Year of substantially all of the information and data contained in the following sections of Appendix A to the Official Statement: B-3 (i) Debt Summary (ii) Tax Levies (iii) Assessed Valuation (iv) Estimated Actual Valuation (v) Tax Collections (vi) Largest Taxpayers. together with any material adverse changes in the other portions of the section entitled “FINANCIAL INFORMATION.” Any or all of the items listed above may be included by specific reference to other documents, including official statements of debt issues with respect to which the Issuer is an “obligated person” (as defined by the SEC Rule), which have been filed with the Repository, the MSRB or the SEC. If the document included by reference is a final official statement, it must be available from the MSRB via EMMA. The Issuer shall clearly identify each such other document so included by reference. In each case, the Annual Report may be submitted as a single document or as separate documents comprising a package, and may cross-reference other information as provided in this Section; provided that the audit report and accompanying financial statements may be submitted separately from the balance of the Annual Report and later than the date required above for the filing of the Annual Report if they are not available by that date. If the Issuer’s Fiscal Year changes, it shall give notice of such change in the same manner as for a Material Event under Section 3(b). (b) If no Dissemination Agent has been appointed, the Issuer shall file the Annual Report as specified by Section 2(a) hereof; or if the Annual Report is not filed within the time period specified in Section 2(a) hereof, the Issuer shall send a notice to each Repository in substantially the form attached as Exhibit A within 10 Business Days after the date the Annual Report is required to be filed as set forth herein. Section 3. Reporting of Material Events. (a) Pursuant to the provisions of this Section, the Issuer shall give, or cause the Dissemination Agent, if any, to give, to the Repository within 10 Business Days after the occurrence of any of the following events with respect to the Bonds, notice of the following events: (1) principal and interest payment delinquencies; (2) non-payment related defaults, if material; (3) unscheduled draws on debt service reserves reflecting financial difficulties; (4) unscheduled draws on credit enhancements reflecting financial difficulties; (5) substitution of credit or liquidity providers, or their failure to perform; (6) adverse tax opinions; the issuance by the Internal Revenue Service of proposed or final determinations of taxability, Notices of Proposed Issue (IRS Form 5701-TEB) or other material notices or determinations with respect to the tax status of the Bond, or other material events affecting the tax-exempt status of the Bonds; (7) modifications to rights of Owners, if material; (8) bond calls, if material, and tender offers; B-4 (9) defeasances; (10) release, substitution or sale of property securing repayment of the Bonds, if material; (11) rating changes; (12) bankruptcy, insolvency, receivership or similar event of the Issuer; (13) the consummation of a merger, consolidation, or acquisition involving the Issuer or the sale of all or substantially all of the assets of the Issuer, other than in the ordinary course of business, the entry into a definitive agreement to undertake such an action or the termination of a definitive agreement relating to any such actions, other than pursuant to its terms, if material; and (14) appointment of a successor or additional Paying Agent or the change of name of the Paying Agent, if material. (b) Notwithstanding the foregoing, notice of Material Events described in subsections (a)(8) and (9) need not be given under this subsection any earlier than the notice (if any) of the underlying event is given to the Owners of affected Bonds pursuant to the Bond Resolution. Section 4. Dissemination Agent. (a) General. The Issuer may, from time to time, appoint or engage a Dissemination Agent to assist it in carrying out its obligations under these Disclosure Instructions, and may discharge any such Dissemination Agent, with or without appointing a successor Dissemination Agent. (b) Annual Reports. If a Dissemination Agent is appointed, not later than 15 Business Days prior to the date specified in Section 2(a) for providing the Annual Report to the Repository, the Issuer shall provide the Annual Report to the Dissemination Agent or the Repository. The Dissemination Agent shall file a report with the Issuer certifying that the Annual Report has been filed pursuant to these Disclosure Instructions, stating the date it was filed, or that the Issuer has certified to the Dissemination Agent that the Issuer has filed the Annual Report with the Repository. If the Dissemination Agent has not received an Annual Report or has not received a written notice from the Issuer that it has filed an Annual Report with the Repository, by the date required in Section 2(a), the Dissemination Agent shall send a notice to the Repository in substantially the form attached as Exhibit A. (c) Material Event Notices. (1) The Dissemination Agent shall, promptly after obtaining actual knowledge of the occurrence of any event that it believes may constitute a Material Event, contact the chief financial officer of the Issuer or his or her designee, or such other person as the Issuer shall designate in writing to the Dissemination Agent from time to time, inform such person of the event, and request that the Issuer promptly notify the Dissemination Agent in writing whether or not to report the event pursuant to Section 4(c)(3). (2) Whenever the Issuer obtains knowledge of the occurrence of an event, because of a notice from the Dissemination Agent pursuant to Section 4(c)(1) or otherwise, the Issuer shall promptly determine if such event constitutes a Material Event and shall promptly notify the Dissemination Agent of such determination. If appropriate, such writing shall instruct the Dissemination Agent to report the occurrence pursuant to Section 4(c)(3). B-5 (3) If the Dissemination Agent has been given written instructions by the Issuer to report the occurrence of a Material Event pursuant to Section 4(c)(2), the Dissemination Agent shall promptly file a notice of such Material Event with the Repository and provide a copy thereof to the Issuer. Notwithstanding the foregoing, notice of Material Events described in Sections 3(a)(8) and (9) need not be given under this subsection any earlier than the notice (if any) of the underlying event is given to the Owners of affected Bonds pursuant to the Bond Resolution. (d) Duties, Immunities and Liabilities of Dissemination Agent. The Dissemination Agent shall have only such duties as are specifically set forth in these Disclosure Instructions, and the Issuer agrees to indemnify and save the Dissemination Agent, its officers, directors, employees and agents, harmless against any loss, expense and liabilities which it may incur arising out of or in the exercise or performance of its powers and duties hereunder, including the costs and expenses (including attorneys fees) of defending against any claim of liability, but excluding liabilities due to the Dissemination Agent’s negligence or willful misconduct. The obligations of the Issuer under this Section shall survive resignation or removal of the Dissemination Agent and payment of the Bonds. The Dissemination Agent shall not be responsible in any manner for the content of any notice or report prepared by the Issuer pursuant to these Disclosure Instructions. (e) Other Designated Agents. The Issuer may, from time to time, appoint or designate a Designated Agent to submit Annual Reports, Material Event notices, and other notices or reports pursuant to these Disclosure Instructions. The Issuer hereby appoints the Dissemination Agent and the Designated Agent(s) solely for the purpose of submitting Issuer-approved Annual Reports, Material Event notices, and other notices or reports pursuant to these Disclosure Instructions. The Issuer may revoke this designation at any time upon written notice to the Designated Agent. Section 5. Termination of Reporting Obligation. The Issuer’s obligations under these Disclosure Instructions shall terminate upon the legal defeasance, prior redemption or payment in full of all of the Bonds. If the Issuer’s obligations hereunder are assumed in full by some other entity as permitted in the Bond Resolution, such person shall be responsible for compliance with under these Disclosure Instructions in the same manner as if it were the Issuer, and the Issuer shall have no further responsibility hereunder. If such termination or substitution occurs prior to the final maturity of the Bonds, the Issuer shall give notice of such termination or substitution in the same manner as for a Material Event under Section 3(b). Section 6. Amendment; Waiver. Notwithstanding any other provision of these Disclosure Instructions, the Issuer and the Dissemination Agent, if any, may amend of these Disclosure Instructions (and the Dissemination Agent shall not unreasonably refuse to execute any amendment so requested by the Issuer) and any provision of these Disclosure Instructions may be waived, provided that: (a) Bond Counsel or other counsel experienced in federal securities law matters provides the Issuer and the Dissemination Agent, if any, with its opinion that the undertaking of the Issuer contained herein, as so amended or after giving effect to such waiver, is in compliance with the SEC Rule and all current amendments thereto and interpretations thereof that are applicable to these Disclosure Instructions; (b) if the amendment or waiver relates to Sections 2(a) or 3(a), it may only be made in connection with a change in circumstances that arises from a change in law or legal requirements, or change in the identity, nature or status of an obligated person with respect to the Bonds, or the type of business conducted; and (c) the amendment or waiver is either (1) approved by the Owners of the Bonds in the same manner as provided in the Bond Resolution with consent of the Owners, or (2) does not in the opinion of Bond Counsel materially impair the interests of the Owners or Beneficial Owners of the Bonds. If there is an amendment or waiver of a provision of these Disclosure Instructions, the Issuer shall describe such amendment in the next Annual Report, and shall include, as applicable, a narrative explanation of the reason for the amendment or waiver and its impact on the type (or, in the case of a B-6 change of accounting principles, on the presentation) of Financial Information or Operating Data being presented by the Issuer. In addition, if the amendment relates to the accounting principles to be followed in preparing financial statements: (a) notice of such change shall be given in the same manner as for a Material Event under Section 3(b), and (b) the Annual Report for the year in which the change is made should present a comparison (in narrative form and also, if feasible, in quantitative form) between the financial statements as prepared on the basis of the new accounting principles and those prepared on the basis of the former accounting principles. Section 7. Additional Information. Nothing in these Disclosure Instructions shall be deemed to prevent the Issuer from disseminating any other information, using the means of dissemination set forth in these Disclosure Instructions or any other means of communication, or including any other information in any Annual Report or notice of occurrence of a Material Event, in addition to that which is required by these Disclosure Instructions. If the Issuer chooses to include any information in any Annual Report or notice of occurrence of a Material Event, in addition to that which is specifically required by these Disclosure Instructions, the Issuer shall have no obligation under these Disclosure Instructions to update such information or include it in any future Annual Report or notice of occurrence of a Material Event. Section 8. Noncompliance. In the event of a failure of the Issuer or the Dissemination Agent, if any, to comply with any provision of these Disclosure Instructions, the Participating Underwriter or any Beneficial Owner of the Bonds may take such actions as may be necessary and appropriate, including seeking mandamus or specific performance by court order, to cause the Issuer or the Dissemination Agent, if any, as the case may be, to comply with its obligations under these Disclosure Instructions. Noncompliance with the provisions of these Disclosure Instructions shall not be deemed an Event of Default under the Bond Resolution, and the sole remedy under these Disclosure Instructions in the event of any failure of the Issuer or the Dissemination Agent, if any, to comply with these Disclosure Instructions shall be an action to compel performance. Section 9. Notices. Any notices or communications to or among any of the parties referenced in these Disclosure Instructions may be given as follows: (a) To the Issuer at: 300 West Ash Salina, Kansas 67402 Fax: (785)309-5738 Attention: Clerk (b) To the Participating Underwriter(s) at the address set forth in the Bond Resolution or such other address as is furnished in writing to the other parties referenced herein. (c) To the Dissemination Agent at the address set forth on Exhibit B attached hereto. Any person may, by written notice to the other persons listed above, designate a different address or telephone number(s) to which subsequent notices or communications should be sent. Section 10. Electronic Transactions. Actions taken hereunder and the arrangement described herein may be conducted and related documents may be stored by electronic means. Section 11. Beneficiaries. These Disclosure Instructions shall inure solely to the benefit of the Issuer, the Dissemination Agent, if any, the Participating Underwriter and Beneficial Owners from time to time of the Bonds, and shall create no rights in any other person or entity. B-7 Section 12. Severability. If any provision in these Disclosure Instructions, the Bond Resolution or the Bonds relating hereto, shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. Section 13. Governing Law. These Disclosure Instructions shall be governed by and construed in accordance with the laws of the State of Kansas. CITY OF SALINA, KANSAS (SEAL) Mayor Clerk B-8 EXHIBIT A NOTICE TO REPOSITORY OF FAILURE TO FILE ANNUAL REPORT Name of Issuer: City of Salina, Kansas Name of Bond Issue: $1,360,000 Taxable General Obligation Internal Improvement Bonds, Series 2013-A, dated as of February 15, 2013 Name of Obligated Person: City of Salina, Kansas Date of Issuance: February 26, 2013 NOTICE IS GIVEN that the City of Salina, Kansas (the “Issuer”) has not provided an Annual Report with respect to the above-named Bonds as required by the Continuing Disclosure Instructions dated as of February 26, 2013. The Issuer anticipates that the Annual Report will be filed by _____________. Dated: CITY OF SALINA, KANSAS By By , as Dissemination Agent cc: City of Salina, Kansas B-9 EXHIBIT B ACCEPTANCE OF DISSEMINATION AGENT Name of Issuer: City of Salina, Kansas Name of Bond Issue: $1,360,000 Taxable General Obligation Internal Improvement Bonds, Series 2013-A, dated as of February 15, 2013 Dissemination Agent: Notice Address of Dissemination Agent: _________________________, having been duly appointed by the City of Salina, Kansas to act in the capacity of Dissemination Agent pursuant to the Continuing Disclosure Instructions to which this acceptance is attached, accepts such duties and responsibilities set forth therein. Dated: (THIS PAGE LEFT BLANK INTENTIONALLY) APPENDIX C Financial Statements Since 1992, the City’s comprehensive annual financial reports have received the Certificate of Achievement for Excellence in Financial Reporting award by the Government Finance Officers Association. The Certificate of Achievement was developed to encourage governmental units to prepare and publish an easily readable and understandable financial report covering all funds and financial transactions of the government during the fiscal year. The following is a portion of the report on examination of the City of Salina, Kansas for the fiscal year ended December 31, 2011, prepared by the firm of Mize Houser & Company, P.A., Certified Public Accountants, Topeka, Kansas. The City’s 2012 audited financial statements were not completed as of the date of this Official Statement. According to City officials, preliminary unaudited financial statements indicate an increase in the City’s General Fund unencumbered cash balance of approximately $32,000 during 2012. (THIS PAGE LEFT BLANK INTENTIONALLY) www.mizehouser.com mhco@mizehouser.com 534 S Kansas Ave, Suite 700 Topeka, KS 66603-3465 785.233.0536 p 785.233.1078 f 534 S Kansas Ave, Suite 400 Topeka, KS 66603-3454 785.234.5573 p 785.234.1037 f 7101 College Blvd, Suite 900 Overland Park, KS 66210-1984 913.451.1882 p 913.451.2211 f 120 E Ninth Lawrence, KS 66044-2682 785.842.8844 p 785.842.9049 f 900 Massachusetts, Suite 301 Lawrence, KS 66044-2868 785.749.5050 p 785.749.5061 f 1 INDEPENDENT AUDITOR’S REPORT ON THE BASIC FINANCIAL STATEMENTS Mayor and City Commissioners City of Salina, Kansas We have audited the accompanying financial statements of the governmental activities, the business-type activities, the aggregate discretely presented component units, each major fund, and the aggregate remaining fund information of the City of Salina, Kansas, as of and for the year ended December 31, 2011, which collectively comprise the City’s basic financial statements as listed in the table of contents. These financial statements are the responsibility of the City's management. Our responsibility is to express opinions on these basic financial statements based on our audit. We did not audit the financial statements of the Salina Airport Authority which statements reflect total assets of $55,525,038 as of December 31, 2011 and total revenues of $4,588,747 for the year then ended, and the Housing Authority of the City of Salina which statements reflect total assets of $8,034,589 as of June 30, 2011 and total revenues of $2,442,060 for the year then ended, which are discretely presented component units in the accompanying financial statements. Those financial statements were audited by other auditors whose reports thereon have been furnished to us, and our opinion, insofar as it relates to the amounts included for the Salina Airport Authority and the Housing Authority of the City of Salina is based solely on the reports of the other auditors. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the “Kansas Municipal Audit Guide.” Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the City’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall basic financial statement presentation. We believe that our audit provides a reasonable basis for our opinions. In our opinion, based on our audit and the reports of other auditors, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, the business- type activities, the aggregate discretely presented component units, each major fund, and the aggregate remaining fund information of the City of Salina, Kansas, at December 31, 2011, and the respective changes in financial position and cash flows, where applicable, thereof and the respective budgetary comparison for the General Fund, Flood & Drainage Improvement Fund, Tourism and Convention Fund, Special Gas Fund, Bicentennial Center Fund and the Sales Tax Capital Fund for the year then ended in conformity with accounting principles generally accepted in the United States of America. 2 Accounting principles generally accepted in the United States of America require that the management's discussion and analysis on pages 3 through 13 and the schedules of funding progress on page 52 be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management’s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the City’s financial statements as a whole. The introductory section, combining and individual nonmajor fund financial statements and schedules, and statistical tables as listed in the table of contents are presented for purposes of additional analysis and are not a required part of the basic financial statements. The combining and individual nonmajor fund financial statements and schedules are the responsibility of management and were derived from and relate directly to the underlying accounting and other records used to prepare the financial statements. The information has been subjected to the auditing procedures applied in the audit of the financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying account and other records used to prepare the financial statements or to the financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated in all material respects in relation to the financial statements as a whole. The introductory and statistical sections have not been subjected to the auditing procedures applied in the audit of the basic financial statements and, accordingly, we do not express an opinion or provide any assurance on them. October 24, 2012 3 CITY OF SALINA, KANSAS Management Discussion and Analysis Year Ended December 31, 2011 (Unaudited) Management Discussion and Analysis This section of the report contains an overview and analysis of the City of Salina’s financial statements for the fiscal year ended December 31, 2011. The information contained here, as well as the information contained in the letter of transmittal, are intended to provide the reader of the financial statements with a well rounded picture of the City’s financial condition. Financial Highlights ♦ Net Assets increased by $5,912,298. Governmental Net Assets declined by $463,769, while Business Type Net Assets increased by $6,376,067. (After prior year adjustments) ♦ Liabilities also increased substantially due to the issuance of $16,120,000 in Revenue Bonds. ♦ Sales taxes grew modestly (4.1%), a reversal of the previous two years of decline. ♦ In Business Type Activities, the Water and Sewer fund saw asset growth, despite increases in operating expenditures, due to good revenue production. ♦ The multi-year decline in fund balance for the General Fund was halted, with a slight recovery. ♦ Tax delinquency rates have declined to a relatively normal level of 2.7%. ♦ Personal property taxes continued to decline as a result of the exemption of business equipment from the tax rolls. ♦ Investment revenues continue to be very minimal, but levels have stabilized. ♦ The unemployment rate declined from 6.4% to 6.3%. The Basic Financial Statements The basic financial statements of the City include the government-wide financial statements and the fund financial statements. The notes to the financial statements follow the basic financial statements, and are essential for the reader’s understanding of the financial statements. Other supplementary information, including the combining schedules for non-major funds and the budgetary comparison reports, are at the end of this report to provide additional information for the reader. Government-wide Financial Statements The government-wide financial statements present the results of the City’s operations using the accrual basis of accounting, the same basis as is used by private sector businesses. These statements focus on the long-term financial picture of the City as a whole The Statement of Net Assets reports all of the City’s assets and liabilities. Net assets, the difference between assets and liabilities, are an important measure of the City’s overall financial health. Net assets represent the total accumulated and unused resources available to the City for the purpose of providing services. Over time, the increases and decreases in net assets can be monitored to determine if the City’s financial position is improving or deteriorating. The Statement of Activities shows how the net assets have changed during the fiscal year. One unique feature of this statement is how it shows the revenues and expenses related to specific programs and how much of those programs were supported by the general taxes of the City. Since this statement is prepared on the accrual basis of accounting, all revenues and expenses are included, regardless of when cash is actually received. Both statements show the operations of the City broken down between governmental and business type activities. Governmental activities are the operations of the City generally supported by taxes, such as Public Safety (Police, Fire, and EMS), Public Works, Public Health, and Culture & Recreation. Business-type Activities are operations of the City that are intended to recover a significant portion of their costs through user fees and charges. These include Water and Sewer, Refuse collection, the Golf Course, and operation of the City Solid Waste Facility. The government-wide financial statements include the Salina Airport Authority and Salina Housing Authority as discretely presented component units of the City. Note 1, item A in the Notes to the Financial Statements provides a more complete explanation of the relationship between these entities and the City of Salina. 4 CITY OF SALINA, KANSAS Management Discussion and Analysis Year Ended December 31, 2011 (Unaudited) Fund Financial Statements The City uses three types of funds to manage its resources: governmental funds, proprietary funds, and fiduciary funds. A fund is a fiscal entity with a set of self-balancing accounts recording financial resources together with all related liabilities and residual equities and balances, and the changes therein. These accounting entities are separated for the purpose of carrying on specific activities or attaining certain objectives in accordance with regulations, restrictions, or limitations. Governmental fund financial statements are prepared on a modified accrual basis. Under this basis, revenues are recognized when they become measurable and available, and expenditures are recognized when the related fund liability is incurred with the exception of long term debt and similar items which are recorded when due. The focus is on the short-term financial picture of the operations of the individual fund, rather than long-term citywide view provided by the government-wide statements. Major Governmental Funds are presented in individual columns, while Non-major Governmental Funds are aggregated into an “Other Governmental Funds” column. A combining statement for the Non-major funds is presented as supplementary information in the back of the report. The information presented in these statements can be compared to the governmental activities information in the government-wide statements. The reconciliation at the end of the fund financial statements details the relationship between the two types of financial statements. Proprietary funds fall into two categories: enterprise funds and internal service funds. All proprietary funds are prepared on the accrual basis of accounting, and are used to account for business-type activities. Enterprise fund statements present the same information that is in the government-wide statements for business-type activities, but in greater detail. The City of Salina currently operates four enterprise funds: Sanitation, Solid Waste Disposal, Golf Course, and Water and Sewer. Internal Service funds are used to account for the cost of operations shared by various departments of the City. The city operates five internal service funds. Three of these are for self-insurance activity: Risk Management, Workers' Compensation Reserve, and Health Insurance. The remaining two account for our Information Systems activity and for the Central Garage operation. A combining statement for these internal service funds can be found in the supplementary information following the notes to the financial statements. Fiduciary funds are used by the City to account for resources held by the City for a third party. Agency funds are a special class of Fiduciary Fund in which liabilities always equal assets, and thus there are no net assets. The City of Salina operates nine Agency funds. Schedules for these funds may be viewed in the supplementary section of this report. Permanent Funds are used to report resources that are legally restricted to the extent that only earnings, not principal, may be used. Permanent funds operated by the City include the Cemetery and Mausoleum Endowments and the Tri-centennial Commission fund. Notes to the Financial Statements The notes to the financial statements are an integral part of the basic financial statements since they contain valuable additional information necessary for gaining a complete understanding of the City’s financial statements. Other Information In addition to the basic financial statements and the notes described above, this report also presents the general fund and major special revenue fund’s budgetary statements as required supplementary information directly following the notes to the basic financial statements. The combining statements for the non-major funds are shown after the required supplementary information. Finally, the statistical section includes selected statistical data about the City’s operations and economy. The City as a Whole This section will identify, discuss, and analyze significant differences and trends that will enhance the reader’s understanding of the City’s financial position. 5 CITY OF SALINA, KANSAS Management Discussion and Analysis Year Ended December 31, 2011 (Unaudited) Tax Base and Economy The City of Salina relies on three major groups of revenues to support it’s operations. Each of these revenue streams has a different revenue base. In declining order of magnitude, they are charges for service, sales taxes, and property taxes. Sales taxes and property taxes apply primarily to Governmental Activities, while charges for services apply to both Governmental (36%) and Business-type (64%) activities. Charges for Services account for about 46% ($37,249,107) of the City’s revenue stream. Charges for Service depend on both the rate that is set for the activity, as well as the volume of services provided. The following table illustrates service volume and rate adjustments for some of the more significant services for the year ending December 31, 2011. Description2010 Volume2011 VolumeChangeRate Comments Golf Course: Rounds, 18 Hole30,420 26,782 (3,638) No fee increase Rounds, Par 33,707 3,368 (339) No fee increase Annual Golf Members33 18 (15) No fee increase River Festival Gate Count64,835 72,664 7,829 $2.00 per button increase Development Services Inspections Performed6,391 5,473 (918) Permits Issued3,031 2,678 (353) Finance/Administration EMS Runs Billed3,473 4,003 530 Five percent increase Licenses Issued1,296 1,358 62 Water Billings Issued238,635 239,448 813 Water Metered (in Billion Gallons)1.97 NA Parks and Recreation Kenwood Cove Attendance119,000 111,063 (7,937) No fee increase Youth Teams164 178 14 Adult Teams300 308 8 Special Pops Programs109 114 5 Trips/Tours offered31 54 23 Youth Tournament Teams424 388 (36) Adult Tournament Teams140 164 24 Public Works Sanitation Customers14,520 14,604 84 3% fee increase Landfill Tonnage94,907 96,178 1,271 No fee increase Street Cut and Excavation Permits181 201 20 Concrete Permits155 143 (12) Water and Wastewater Water Treated (Billion Gallons)2.30 2.30 - $2.00 per month per typical user Wastewater Treated (Billion Gallons)1.50 1.45 (0.05) $2.00 per month per typical user **In general, if not specified in the table, rates were adjusted an average of about 2% for most services. Sales taxes are the next largest component of the revenue mix, providing 20% ($15,847,742) of the total revenues. This is a slightly smaller portion than 2010 (21%). The City receives a .90% City-wide sales tax, and also a portion of the County-wide 1% sales tax. Forty-four percent, (a rate of .4%) of the City-wide sales tax is required to be used for special purposes. The remaining .5%, along with the City portion of the Countywide tax is available for general purposes. Total revenue from the sales tax in 2011 was $ 15,847,742, up from $ 15,224,888 in 2010. This 4.1% increase follows a 4.7% decline (after adjustment for a change in rate) for 2010. 6 CITY OF SALINA, KANSAS Management Discussion and Analysis Year Ended December 31, 2011 (Unaudited) A number of factors affect the sales tax. First are the regional and local economic conditions and relationships. These are most directly reflected in the proceeds of the City-wide tax, which grew by 5.8%. The City was unfavorably affected by the formula used to distribute the County-wide sales tax among participating jurisdictions (only Cities and the County participate, School and other special districts do not). The formula is based, in part, on the property tax efforts of each jurisdiction. Because the portion of the overlapping levy attributable to the City of Salina was increased for 2011, the City’s allocated portion of the County-wide sales tax was decreased from 63.3% in 2010 61.85% in 2011. Total Countywide taxes received in 2011 were approximately $6,755,629. The change in formula thus resulted in a shift of about $158,000 from the City of Salina to Saline County in 2011. On November 4, 2008, Salina voters approved an increase of the special purpose .25% tax to a .40% tax. The extended tax is to sunset March 31, 2018. The tax was also modestly re-purposed, for Capital and Economic Development purposes only. Property Taxes are the third major component of the revenue mix, accounting for 16% ($11,711,254) of total revenues. Property taxes consist of two components: Real estate and personal property taxes which are determined by the mill levy set by the city and the assessed value of the property; and motor vehicle taxes, which are established by a countywide average tax rate, and the assessed value of the vehicle. Real estate assessed value increased by 2.4%. The total City mill levy was increased slightly, by .2%, while the overlapping levy increased by .3% Tax delinquency decreased from 5.6% to 2.7%. Personal property value continued to slide, presumably as a result of removing business equipment from the tax base. Personal property value has now dropped to $19.9 million from it’s peak of $39.7 million in 2007. At the 2011 tax rate, this exemption is equivalent to $514,546 in lost revenue for 2011. Motor Vehicle value decreased by 5.8%. Motor vehicle taxes are distributed based on a formula using prior year’s tax effort (similar to the Countywide Sales Tax Distribution). The following table summarizes the comparative property assessed values and tax levy rates: Fiscal (Budget) Year20102011Change Real Estate and Personal Property Assessed Valuation397,470,626$ 402,354,576$ 4,883,950$ City Mill Levy ($ per $1,000) Operating (General Fund)20.082 19.236 [0.846] Debt Service5.773 6.786 1.013 Total City Rate25.855 26.022 0.167 Total Overlapping Levy124.707 128.498 3.791 Percent of Total Taxes Collected94.4%97.3%2.9% Ratio of Total Taxes (including delinquent collections) to taxes le97.1%99.9%2.8% Motor Vehicle Valuation50,330,252$ 47,406,072$ [2,924,180]$ Comparative Property Values and Tax Levy Rates The unemployment rate in Saline County declined very slightly from 6.4% in 2010 to 6.3% in 2011, reflecting general economic conditions. This is still slightly below the statewide and significantly below the national unemployment rate. The total labor force increased to 26,656, a change of 1.5%. In 2011, the top ten property taxpayers accounted for 11.22% of total assessed value. This is slightly more concentrated than ten years ago (at 11.18%) 7 CITY OF SALINA, KANSAS Management Discussion and Analysis Year Ended December 31, 2011 (Unaudited) Statement of Net Assets Net assets may, over time, provide an indicator of a government’s financial position. In the case of the City of Salina, assets exceeded liabilities by $187,641,000 at December 31, 2011. This represents an increase in net assets of $6,519,000 over 2010. A comparative condensed Statement of Net Assets at December 31, 2010 and 2011: 20102011201020112010 % of Total2011 % of Total 2011 Change Cash and Investments13,935$ 17,475$ 17,530$ 28,047$ 31,465$ 12%45,522$ 16%14,057$ Other Current Assets12,309$ 12,670$ 2,025$ 2,344$ 14,334$ 5%15,014$ 5%680$ Noncurrent (Capital) Assets166,122$ 164,515$ 58,273$67,639$224,395$83%232,154$ 79%7,759$ Total Assets192,366$ 194,660$ 77,828$98,030$270,194$100%292,690$ 100%22,496$ Current Liabilities21,918$ 21,687$ 3,352$ 2,944$ 25,270$ 29%24,631$ 23%(639)$ Noncurrent Liabilities52,650$ 55,639$ 10,538$24,772$63,188$ 71%80,411$ 77%17,223$ Total Liabilities74,568$ 77,326$ 13,890$27,716$88,458$ 100%105,042$ 100%16,584$ Net Assets: Invested in capital assets, net of related debt113,001$ 109,289$ 48,079$ 44,227$ 161,080$ 89%153,516$ 82%(7,564)$ Restricted for Permanent Funds417$ 427$ -$ -$ 417$ 0%427$ 0%10$ Restricted for Debt Service572$ 1,285$ 1,553$ 1,553$ 2,125$ 1%2,838$ 2%713$ Unrestricted3,808$ 6,333$ 14,306$24,534$18,114$ 10%30,867$ 16%12,753$ Total Net Assets117,798$ 117,334$ 63,938$70,314$181,736$100%187,648$ 100%5,912$ Percent of Total Assets65%63%35%37%100%100% Cash and Investments as a percentage of current liabilities64%81%523%953%125%185% Governmental Activities Business-Type ActivitiesTotal Primary Government The largest segment of the City’s net assets (82%) reflects its investment in capital assets (land, buildings, streets and drainage facilities, utility plant, vehicles, equipment, etc.), less any debt used to acquire those assets that is still outstanding. These assets are used to provide services to citizens. As a result, resources required to retire related debt can not come from liquidation of the asset. Such resources generally must be provided from other sources, such as future taxes or user charges. A small portion of net assets (2%) is restricted for debt service. The remainder (unrestricted) of net assets (16%) may be used to meet the City’s obligations to citizens and creditors. This is comparable to previous years. In 2011, the amount invested in capital assets net of related debt decreased by $7,564,000. Unrestricted net assets increased by $12,573,000. These represent diverse changes throughout the financial statement: Increases in cash in both Governmental and Business type activities, a decrease in Capital assets in Governmental Activities and an increase in Capital Assets in Business type activities. Total liabilities remained much the same in Governmental Activities, but increased significantly in Business Type Activities, attributable to the issuance of Revenue Bonds to finance the Advanced Meter Infrastructure project. During the year ended December 31, 2011, there were several significant events that changed the balance of net assets. Governmental Activities. 2011 saw an increase in cash and investments in Governmental funds. This is due to controlled expenditures for both capital and operating requirements as well as improved revenues from the Sales Tax. 8 CITY OF SALINA, KANSAS Management Discussion and Analysis Year Ended December 31, 2011 (Unaudited) Business-type Activities: The Water and Wastewater fund has a dominant influence on the Business Type Activities net assets. The increase in net assets is due to good revenue production and controlled expenses. Statement of Activities A condensed statement of activities is shown below. 20102011201020112010%2011%2010 - 2011 Program Revenues:Change Charges for Services12,306$ 13,470$ 22,419$ 23,779$ 34,725$ 48%37,249$ 47%2,524$ Operating Grants and Contributions3,415$ 2,907$ 202$ 3,415$ 5%3,109$ 4%(306)$ Capital Grants and Contributions3,804$ -$ 0%3,804$ 5%3,804$ General Revenues: Property Taxes11,179$ 11,712$ 11,179$ 16%11,712$ 15%533$ Sales Taxes15,225$ 15,848$ 15,225$ 21%15,848$ 20%623$ Other Taxes6,298$ 6,389$ 6,298$ 9%6,389$ 8%91$ Investment Revenue81$ 77$ 67$ 83$ 148$ 0%160$ 0%12$ Other Miscellaneous565$ 872$ 341$ 330$ 906$ 1%1,202$ 2%296$ Total Revenues:49,069$ 51,275$ 22,827$28,198$71,896$ 100%79,473$ 100%7,577$ Expenses:-$ General Government10,845$ 13,615$ 10,845$ 15%13,615$ 18%2,770$ Public Safety18,592$ 18,579$ 18,592$ 25%18,579$ 25%(13)$ Public Works9,782$ 9,858$ 9,782$ 13%9,858$ 13%76$ Public Health and Sanitation1,365$ 1,368$ 1,365$ 2%1,368$ 2%3$ Culture and Recreation6,572$ 6,693$ 6,572$ 9%6,693$ 9%121$ Planning and Development3,715$ 3,450$ 3,715$ 5%3,450$ 5%(265)$ Solid Waste Disposal2,925$ 2,945$ 2,925$ 4%2,945$ 4%20$ Water and Sewer14,050$ 13,597$ 14,050$ 19%13,597$ 18%(453)$ Sanitation2,261$ 2,261$ 2,261$ 3%2,261$ 3%-$ Golf Course817$ 825$ 817$ 1%825$ 1%8$ Interest on Long Term Debt2,257$ 1,650$ 2,257$ 3%1,650$ 2%(607)$ Total Expenses53,128$ 55,213$ 20,053$19,628$73,181$ 100%74,841$ 100%1,660$ Increase in net assets before transfers(4,059)$ (3,938)$ 2,774$ 8,570$ (1,285)$ 4,632$ 5,917$ Transfers and other extraordinary items92$ 2,362$ (92)$ (2,163)$ -$ 199$ 199$ Increase in Net Assets(3,967)$ (1,576)$ 2,682$ 6,407$ (1,285)$ 4,831$ 6,116$ Net Assets, January 1119,854$ 117,798$ 61,270$ 63,938$ 181,124$ 181,736$ 612$ Prior Period Adjustment1,911$ 1,112$ (14)$ (31)$ 1,897$ 1,081$ (816)$ Net Assets, January 1, restated121,765$ 118,910$ 61,256$63,907$183,021$182,817$ (204)$ Net Assets December 31117,798$ 117,334$ 63,938$70,314$181,736$187,648$ 5,912$ Condensed Comparitive Statement of Activities, 2010 and 2011 (In $000's) Governmental ActivitiesBusiness-Type Total Primary Government Governmental Activities. Total expenses for Governmental Activities for the year ending December 31, 2011 were $55,213,000 compared to $53,128,000 in 2010. Governmental activities represent 74% of the City’s total expenses. The largest element of Governmental Activity expense was Public Safety, accounting for 34% of the total. Charges for service attributable to Governmental Activities totaled $13,470,000 and operating grants for those purposes were $2,907,000. The balance was funded by general revenues. Sales taxes accounted for $15,848,000 of the general revenues, with property taxes providing $11,712,000. Net assets decreased by $1,576,000 as a result of Governmental Activities. Business Type Activities. Total expenses for Business-type Activities for the year were $19,628,000, or 26% of the City’s total expense. The majority of this expense ($13,597,000) is attributable to Water and Sewer operations, with the other activities (Solid Waste Disposal, Sanitation, and Golf Course) costing a combined total of $6,031,000. These activities are primarily supported by user charges, with only $413,000 coming from general revenues, representing largely the interest earned on fund balances held by the City. Net assets increased by $6,407,000 as a result of Business-type Activity operations. 9 CITY OF SALINA, KANSAS Management Discussion and Analysis Year Ended December 31, 2011 (Unaudited) Fund Financial Analysis Governmental Funds Fund Balances: The table below shows the Governmental Fund balances for major funds for the years ended December 31, 2010 and December 31, 2011. Fund20102011Change General3,617,181$ 3,836,238$ 219,057$ Flood and Drainage188,526$ 907$ (187,619)$ Tourism and Convention367,197$ 340,473$ (26,724)$ Special Gas1,484,641$ 1,417,743$ (66,898)$ Bicentennial Center46,048$ 142,881$ 96,833$ Sales Tax Capital2,154,367$ 1,397,571$ (756,796)$ Debt Service571,873$ 1,285,130$ 713,257$ Capital Projects(2,610,001)$ 390,852$ 3,000,853$ Other Governmental Funds2,981,652$ 2,792,546$ (189,106)$ Total8,801,484$ 11,604,341$ 2,802,857$ Governmental Fund Balances, 2010 and 2011 Total Governmental Fund balances increased by $2,802,857. The reasons for these changes are varied. The most significant change is in the Capital Projects Fund, and is largely the result of Project financing activities. General Fund balances stabilized and grew slightly in 2011. The Flood and Drainage Fund was scheduled for depletion in 2011. The Special Sales Tax Capital Outlay Fund shows a significant reduction in fund balance due to an aggressive capital improvements program, most notably the reconstruction of Marymount Road. Revenues and Expenditures: The following table shows a comparison of revenues and expenditures (including other sources and uses) for major funds for the years ending December 31, 2010 and 2011. Fund20102011Change Revenues (Including Other Financing Sources) General34,303,574$ 35,557,304$ 1,253,730$ Flood and Drainage Improvement1,312$ 18,473$ 17,161$ Tourism and Convention1,332,671$ 1,306,102$ (26,569)$ Special Gas1,569,648$ 1,546,045$ (23,603)$ Bicentennial Center1,702,066$ 1,656,762$ (45,304)$ Sales Tax Capital3,815,966$ 3,777,286$ (38,680)$ Debt Service7,943,865$ 6,844,521$ (1,099,344)$ Capital Projects5,552,906$ 9,896,198$ 4,343,292$ Other Governmental Funds*2,954,257$ 2,800,508$ (153,749)$ Total Revenues59,176,265$ 63,403,199$ 4,226,934$ Less Other Sources12,157,284$ 14,581,655$ 2,424,371$ Revenues, net of other sources47,018,981$ 48,821,544$ 1,802,563$ Expenditures (Including Other Financing Uses) General35,773,774$ 35,494,671$ (279,103)$ Flood and Drainage Improvement3,223$ 206,092$ 202,869$ Tourism and Convention1,228,789$ 1,332,826$ 104,037$ Special Gas2,138,057$ 1,612,943$ (525,114)$ Bicentennial Center1,768,246$ 1,559,929$ (208,317)$ Sales Tax Capital3,289,009$ 4,534,082$ 1,245,073$ Debt Service8,107,283$ 6,131,264$ (1,976,019)$ Capital Projects15,936,269$ 6,895,345$ (9,040,924)$ Other Governmental Funds*2,829,609$ 2,989,614$ 160,005$ Total Expenditures71,074,259$ 60,756,766$ (10,317,493)$ Less Other Uses4,983,834$ 5,692,077$ 708,243$ Expenditures, net of other uses 66,090,425$ 55,064,689$ (11,025,736)$ Consolidated Statement of Revenues and Expenditures for Major Funds, 2010 and 2011 Modified Accrual Basis 10 CITY OF SALINA, KANSAS Management Discussion and Analysis Year Ended December 31, 2011 (Unaudited) Total revenues and other sources increased by $4,226,934 from 2010 to 2011. The largest component of this change was in the Capital Projects accounts, and is related to Construction activities. Other changes include an increased General supplement for the Bi-Centennial Center and changes in temporary note activity. Expenditures generally declined, with the notable exception of the Sales Tax Capital Fund, which was committed to the Marymount Road reconstruction, along with some smaller projects. Proprietary Funds The City of Salina operates four Enterprise Funds as well as five Internal Service Funds. A summarized comparative Statement of Net Assets follows for each Enterprise Fund: 20102011Change20102011 Change Current Assets3,887$ 3,611$ (276)$ 14,755$ 25,988$ 11,233$ Capital Assets4,211$ 3,495$ (716)$ 53,075$ 63,184$ 10,109$ Total Assets8,098$ 7,106$ (992)$ 67,830$ 89,172$ 21,342$ Current Liabilities1,010$ 528$ (482)$ 2,091$ 2,363$ 272$ Noncurrent Liabilities3,192$ 2,868$ (324)$ 7,161$ 21,640$ 14,479$ Total Liabilities4,202$ 3,396$ (806)$ 9,252$ 24,003$ 14,751$ Assets Invested in Capital, net of related debt2,294$ 2,276$ (18)$ 45,567$ 40,991$ (4,576)$ Restricted Net Assets-$ -$ -$ 1,553$ 1,553$ -$ Unrestricted Net Assets1,602$ 1,434$ (168)$ 11,458$ 22,625$ 11,167$ Total Net Assets3,896$ 3,710$ (186)$ 58,578$ 65,169$ 6,591$ Current Assets as a percentage of current liabilities 385%684%706%1100% 20102011Change20102011Change Current Assets846$ 761$ (85)$ 66$ 32$ (34)$ Capital Assets639$ 646$ 7$ 348$ 314$ (34)$ Total Assets1,485$ 1,407$ (78)$ 414$ 346$ (68)$ Current Liabilities203$ 29$ (174)$ 48$ 24$ (24)$ Noncurrent Liabilities123$ 156$ 33$ 61$ 109$ 48$ Total Liabilities326$ 185$ (141)$ 109$ 133$ 24$ Assets Invested in Capital, net of related debt639$ 646$ 7$ 348$ 314$ (34)$ Restricted Net Assets-$ -$ -$ -$ -$ -$ Unrestricted Net Assets520$ 576$ 56$ (43)$ (101)$ (58)$ Total Net Assets1,159$ 1,222$ 63$ 305$ 213$ (92)$ Current Assets as a percentage of current liabilities417%2624%138%133% Comparative Summary Statement of Net Assets; 2010 - 2011 (in $000's) Solid Waste DisposalWater and Sewer SanitationGolf Course 11 CITY OF SALINA, KANSAS Management Discussion and Analysis Year Ended December 31, 2011 (Unaudited) The Golf Course Fund shows declines in total net assets, due primarily to a reduction in current assets, however, capital assets also decline. Unrestricted net assets in this fund reflect a $101,000 deficit balance, up from $43,000 a year ago. The Solid Waste fund shows decreases in assets as well as liabilities, the result of constructing an additional cell. The Water and Sewer fund shows a significant increase in long term liabilities as a result of a Revenue Bond Issue. Both Current and Capital assets increase significantly within this fund. Revenues, Expenses, and Changes in Net Assets The Water and Wastewater Funds, showed healthy results from operations, with net assets increasing significantly due to a good revenue flow (attributable to both adequate rates and favorable weather conditions) and controlled expenses. The Golf Course showed a very significant loss on the year, requiring increased transfers from the General Fund to maintain cash liquidity. The Sanitation Fund is stable. Net assets declined slightly in the Solid Waste fund. 20102011Change20102011 Change Operating Revenues2,878$ 2,929$ 51$ 16,789$ 18,361$ 1,572$ Operating Expenses2,852$ 2,829$ (23)$ 13,571$ 12,964$ (607)$ Operating Income26$ 100$ 74$ 3,218$ 5,397$ 2,179$ Non-operating revenues (expenses)(55)$ (107)$ (52)$ (433)$ (561)$ (128)$ Income (Loss) before Transfers(29)$ (7)$ 22$ 2,785$ 4,836$ 2,051$ Transfers in (out)(139)$ (180)$ (41)$ 77$ (2,030)$ (2,107)$ Capital Contributions-$ -$ -$ -$ 3,804$ 3,804$ Change in Net Assets(168)$ (187)$ (19)$ 2,862$ 6,610$ 3,748$ Net Assets, January 14,121$ 3,896$ (225)$ 55,668$ 58,578$ 2,910$ Restatement(57)$ 1$ 58$ 48$ (19)$ (67)$ Net Assets, January 1, restated4,064$ 3,897$ (167)$ 55,716$ 58,559$ 2,843$ Net Assets, December 313,896$ 3,710$ (186)$ 58,578$ 65,169$ 6,591$ 20102011Change20102011Change Operating Revenues2,311$ 2,335$ 24$ 783$ 687$ (96)$ Operating Expenses2,276$ 2,292$ 16$ 817$ 825$ 8$ Operating Income35$ 43$ 8$ (34)$ (138)$ (104)$ Non-operating revenues (expenses)18$ 32$ 14$ -$ -$ -$ Income (Loss) before Transfers53$ 75$ 22$ (34)$ (138)$ (104)$ Transfers in (out)(50)$ -$ 50$ 20$ 47$ 27$ Capital Contributions-$ -$ -$ -$ -$ -$ Change in Net Assets3$ 75$ 72$ (14)$ (91)$ (77)$ Net Assets, January 11,166$ 1,159$ (7)$ 314$ 305$ (9)$ Restatement(10)$ (12)$ (2)$ 5$ (1)$ (6)$ Net Assets, January 1, restated1,156$ 1,147$ (9)$ 319$ 304$ (15)$ Net Assets, December 311,159$ 1,222$ 63$ 305$ 213$ (92)$ Comparative Summary of Revenues, Expenses and Changes in Net Assets, 2010 and 2011 (In $000's) Solid Waste DisposalWater and Sewer SanitationGolf Course 12 CITY OF SALINA, KANSAS Management Discussion and Analysis Year Ended December 31, 2011 (Unaudited) Budgetary Highlights The objective of budgetary controls is to ensure compliance with legal provisions embodied in the annual appropriated budget approved by the City Commission. The legal level of budgetary control is maintained at the Fund level, in accordance with State Statutes. Management control is maintained at the departmental level. Within the departments, considerable discretion is permitted. The City uses an encumbrance accounting system, in which estimated purchase orders are recorded prior to the release of purchase orders to vendors. Open purchase orders are reported as reservations of budgetary basis fund balances at December 31, 2011. Formal budgetary amendments are limited to those circumstances in which the need is perceived to alter the total fund budget. Re- allocation among departments or line items are not typically recorded as budgetary amendments. However, in addition to formal amendments, departments within the City are allowed to transfer budget between line items within a department. Budgets may also be transferred from department to department within each fund. As a result of these transfers, the original budget and the final budgets may not be the same for departments within a fund. There were a number of funds in which the budgets were amended, including the Flood and Drainage Improvement Fund, Sales Tax Capital Fund, Risk Management Fund, Central Garage Fund and the Water and Sewer Fund. The City experienced a number of significant variances from budgeted items in the General Fund, however, the total fund was within budgeted expenses. Motor vehicle taxes fell short of budget due to a delayed distribution from the County. Public Safety charges for service were significantly short of budget. This includes Court Revenues and EMS fees due from Saline County. Sales taxes exceeded budgetary levels slightly. Several expenditure items were also significantly over or under budget. Several Departments exceeded budgeted expenditures. In general, retirement system contributions exceeded budget Capital Assets and Debt Administration Capital Assets The total amount invested in Capital Assets for the City at December 31, 2011 was $232,153,260 net of accumulated depreciation. The following table illustrates the Capital Asset balance by various classes of assets at December 31, 2010 and 2011: 201020112010201120102011 Equipment, Furniture and Fixtures1,314$ 1,288$ 1,982$ 1,729$ 3,296$ 3,017$ Vehicles2,445$ 2,996$ 903$ 812$ 3,348$ 3,808$ Buildings and Improvements23,625$ 22,591$ 12,345$ 11,904$ 35,970$ 34,495$ Land 22,477$ 22,477$ 1,541$ 1,541$ 24,018$ 24,018$ Infrastructure83,712$ 82,609$ 39,985$ 40,591$ 123,697$ 123,200$ Construction in Progress32,549$ 32,554$ 1,517$ 11,062$ 34,066$ 43,616$ Total166,122$ 164,515$ 58,273$ 67,639$ 224,395$ 232,154$ * Net of Accumulated Depreciation Capital Asset Balances Net of Depreciation, 12/31/2010 and 12/31/2011 (In 000's) Governmental ActivityBusiness-type ActivityTotal 13 CITY OF SALINA, KANSAS Management Discussion and Analysis Year Ended December 31, 2011 (Unaudited) Changes to capital assets may be summarized as follows: Governmental Activity Business-Type ActivityTotal Additions547$ 10,633$ 11,180$ Retirements(3,110)$ (1,236)$ (4,346)$ Adjustments956$ (31)$ 925$ Net Additions(1,607)$ 9,366$ 7,759$ Depreciation Expense Applied4,730$ 2,653$ 7,383$ Changes to Capital Assets, 2011 (in 000's) Additional information on the City’s capital assets can be found in Note 4,D. of the notes to the basic financial statements. Debt Management The City’s general policy for General Obligation Bonds is to issue them for no more than 10 years for the City at Large portion, with some exceptions permitted for extraordinary projects. On special assessment bonds, the maturity may extend to 15 years. The outstanding General Obligation Bonds for Governmental activities at December 31, 2011 totaled $55,225,670. In addition, there were temporary notes outstanding in the amount of $3,400,000. Business-type activities had $16,193,925 in Revenue Bonds outstanding, as well as $7,217,907 in General Obligation Bonds. Revenues generated by user fees are pledged to retire all of the Bonds issued by Business-type activities. The City engaged in several debt transactions during 2011. On August 1st, the City issued $6,565,000 in internal improvement bonds. The bulk of the proceeds ($3,765,836) were used to finance an industrial fire protection system located at the Salina Airport Industrial Center. The balance of the proceeds were used to finance several residential subdivisions. Also on August 1st, the City issued $3,400,000 in temporary notes to finance public facilities to serve a commercial subdivision development. These note will be refinanced into a long term bond issue in August, 2012. Additional information on the City’s debt can be found in Note 4, E. of the notes to the basic financial statements. Requests for Information This financial report is intended to give the reader a general overview of the City’s finances. Questions about information in this report or requests for additional information should be directed to the Director of Finance, Room 206, 300 West Ash Street, Salina, Kansas, 67401. . (THIS PAGE LEFT BLANK INTENTIONALLY) BASIC FINANCIAL STATEMENTS TotalTotalTotalSalinaSalina GovernmentalBusiness-typePrimaryHousingAirport ActivitiesActivitiesGovernmentAuthorityAuthority ASSETS Currentassets: Cashandinvestments17,475,299$28,047,281$45,522,580$1,549,189$5,308,083$ Receivables(netofallowanceforuncollectibles) Accounts1,122,2211,396,6592,518,88039,676106,659 Taxes10,848,090-10,848,090-1,638,423 Interest35,8771635,893-- Inventory205,410571,702777,11215,8281,722 Restrictedcashandinvestments---196,148- Prepaidexpenses---33,224945 Deferredcharges 458,315375,179833,494-205,317 Totalcurrentassets30,145,21230,390,83760,536,0491,834,0657,261,149 Noncurrentassets: Notesreceivable---3,304- Capitalassets,nondepreciable Constructioninprogress32,554,35711,062,05543,616,412516,9451,570,190 Land22,477,1911,541,00224,018,1931,456,89110,818,059 Capitalassets,depreciable196,166,753101,308,419297,475,1727,357,62662,449,020 Less:Accumulateddepreciation86,683,78846,272,729132,956,5173,134,24226,573,380 Totalnoncurrentassets 164,514,51367,638,747232,153,2606,200,52448,263,889 Totalassets194,659,725$98,029,584$292,689,309$8,034,589$55,525,038$ Liabilities: Currentliabilities: Accountspayable788,731$294,449$1,083,180$14,447$221,039$ Retainagepayable468,309608,2191,076,528-- Accruedliabilities563,720-563,72046,395169,143 Maturedbondprincipalandinterest5,145-5,145-- Accruedinterestpayable512,680211,291723,971-404,167 PrimaryGovernment CITYOFSALINA,KANSAS STATEMENTOFNETASSETS December31,2011 ComponentUnits Thenotestothebasicfinancialstatementsareanintegralpartofthisstatement. 14 Accruedinterestpayable512,680211,291723,971-404,167 Depositspayable-163,904163,90484,154- Unearnedrevenue10,315,524-10,315,52429,1651,720,237 Duetoothergovernments---25,115- Currentportionofcompensatedabsences581,694122,301703,99516,811- Currentportionoftemporarynotespayable3,400,000-3,400,000-- Currentportionofrevenuebondspayable-343,696343,696-- Currentportionoffinancingleasespayable----42,941 Currentportionofspecialassessmentdebtpayable----21,066 Currentportionofgeneralobligationbondspayable 5,051,0381,200,0486,251,086-1,090,000 Totalcurrentliabilities21,686,8412,943,90824,630,749216,0873,668,593 Noncurrentliabilities: Accruedliabilities149,245-149,24550,090- Compensatedabsences2,507,440527,1903,034,6304,203- NetOPEBobligation2,807,425334,4583,141,883-- Revenuebondspayable-15,850,22915,850,229-- Financingleasespayable----202,617 Temporarynotespayable----- Specialassessmentdebtpayable----103,946 Generalobligationbondspayable50,174,6326,017,85956,192,491-24,718,985 Landfillpost-closurecareliabilities-2,042,2542,042,254-- Totalnoncurrentliabilities 55,638,74224,771,99080,410,73254,29325,025,548 Totalliabilities77,325,583$27,715,898$105,041,481$270,380$28,694,141$ NetAssets Investedincapitalassets,netofrelateddebt109,288,843$44,226,915$153,515,758$6,197,219$22,084,333$ Restrictedfor: Permanentfunds: Expendable426,741-426,741146,058- Debtservice1,285,1301,553,0162,838,146-- Unrestricted 6,333,42824,533,75530,867,1831,420,9324,746,564 Totalnetassets 117,334,142$70,313,686$187,647,828$7,764,209$26,830,897$ Thenotestothebasicfinancialstatementsareanintegralpartofthisstatement. 14 OperatingCapitalTotalTotalTotalSalinaSalina ChargesforGrantsandGrantsandGovernmentalBusiness-typePrimaryHousingAirport ExpensesServicesContributionsContributionsActivitiesActivitiesGovernmentAuthorityAuthority Governmentalactivities: Generalgovernment13,614,508$6,106,067$359,148$-$[7,149,293]$-$[7,149,293]$-$-$ Publicsafety18,579,0413,766,156631,417-[14,181,468]-[14,181,468]-- Publicworks9,858,199261,7071,368,577-[8,227,915]-[8,227,915]-- Publichealthandsanitation1,367,82542,729153,566-[1,171,530]-[1,171,530]-- Cultureandrecreation6,693,3413,140,025177,048-[3,376,268]-[3,376,268]-- Planninganddevelopment3,450,078153,675217,643-[3,078,760]-[3,078,760]-- Interestonlong-termdebt 1,650,426---[1,650,426]-[1,650,426]-- Totalgovernmentalactivities 55,213,41813,470,3592,907,399-[38,835,660]-[38,835,660]-- Business-typeactivities: SolidWasteDisposal2,944,7652,904,371---[40,394][40,394]-- WaterandSewer13,596,91817,904,056201,7003,803,565-8,312,4038,312,403-- Sanitation2,261,4622,334,119---72,65772,657-- GolfCourse 825,057636,202---[188,855][188,855]-- Totalbusiness-typeactivities 19,628,20223,778,748201,7003,803,565-8,155,8118,155,811-- Totalprimarygovernment74,841,620$37,249,107$3,109,099$3,803,565$[38,835,660]8,155,811[30,679,849]-- Componentunits: SalinaHousingAuthority2,256,924$624,322$1,629,627$168,427$---165,452- SalinaAirportAuthority5,548,0772,273,000-457,227----[2,817,850] Totalcomponentunits7,805,001$2,897,322$1,629,627$625,654$---165,452[2,817,850] GeneralRevenues: Propertytaxesleviedfor ChangesinNetAssets ComponentUnitsPrimaryGovernmentProgramRevenues CITYOFSALINA,KANSAS STATEMENTOFACTIVITIES FortheYearEndedDecember31,2011 Net[Expenses]Revenueand Thenotestothebasicfinancialstatementsareanintegralpartofthisstatement. 15 Propertytaxesleviedfor Generalpurposes7,782,768-7,782,768-1,795,660 Debtservice2,778,845-2,778,845-- Motorvehicletax Generalpurposes1,149,641-1,149,641-- Salestax Generalpurposes11,767,400-11,767,400-- Selectivepurposes4,080,342-4,080,342-- Othertaxes Generalpurposes6,389,878-6,389,878-- Investmentrevenues77,09583,399160,49419,6849,856 Miscellaneous871,904330,3511,202,255-53,004 Transfers,net 2,361,593[2,162,772]198,821-- Subtotalgeneralrevenues37,259,466[1,749,022]35,510,44419,6841,858,520 Changeinnetassets[1,576,194]6,406,7894,830,595185,136[959,330] Netassets-beginning117,797,91163,937,619181,735,5307,580,00327,790,227 Priorperiodadjustment1,112,425[30,722]1,081,703[930]- Netassets-beginning,restated 118,910,33663,906,897182,817,2337,579,07327,790,227 Netassets-ending117,334,142$70,313,686$187,647,828$7,764,209$26,830,897$ Thenotestothebasicfinancialstatementsareanintegralpartofthisstatement. 15 Flood&Tourism DrainageandSpecial GeneralImprovementConventionGas ASSETS Cashandinvestments3,153,960$907$2,202$1,195,840$ Receivables(net) Accounts677,815-338,271- Taxes8,094,093--312,648 Interest35,877--- Inventory89,716--- Duefromotherfunds9,375--- Cashwithfiscalagent---- Totalassets 12,060,836$907$340,473$1,508,488$ LIABILITIESANDFUNDBALANCE Liabilities: Accountspayable301,319$-$-$46,356$ Retainagepayable---44,389 BALANCESHEET CITYOFSALINA,KANSAS December31,2011 GOVERNMENTALFUNDS Retainagepayable---44,389 Deferredrevenue7,923,279--- Duetootherfunds---- Maturedprincipalandinterest---- Temporarynotespayable---- Totalliabilities 8,224,598--90,745 Fundbalance: Nonspendable89,716--- Restricted--340,4731,094,720 Committed---- Assigned292,816907-323,023 Unassigned 3,453,706--- Totalfundbalances 3,836,238907340,4731,417,743 Totalliabilitiesandfundbalance12,060,836$907$340,473$1,508,488$ OtherTotal BicentennialSalesTaxDebtCapitalGovernmentalGovernmental CenterCapitalServiceProjectsFundsFunds 117,993$1,397,571$1,236,026$4,503,053$2,773,395$14,380,947$ 54,966---51,1691,122,221 --2,441,349--10,848,090 -----35,877 -----89,716 -----9,375 --5,145--5,145 172,959$1,397,571$3,682,520$4,503,053$2,824,564$26,491,371$ 30,078$-$-$288,281$22,643$688,677$ ---423,920-468,309---423,920-468,309 --2,392,245--10,315,524 ----9,3759,375 --5,145--5,145 ---3,400,000-3,400,000 30,078-2,397,3904,112,20132,01814,887,030 -----89,716 --1,285,130-891,2543,611,577 142,881610,134-[2,477,564]1,851,292126,743 -787,437-2,868,41650,0004,322,599 -----3,453,706 142,8811,397,5711,285,130390,8522,792,54611,604,341 172,959$1,397,571$3,682,520$4,503,053$2,824,564$26,491,371$ 16 Thenotestothebasicfinancialstatementsareanintegralpartofthisstatement. TotalGovernmentalFundBalances11,604,341$ Amountsreportedforgovernmentalactivitiesinthe statementofnetassetsaredifferentbecause Bondissuancecostsareshownascurrentyearexpendituresinthefunds. Bondissuancecosts458,315 Capitalassetsusedingovernmentalactivitiesarenotfinancial resourcesandthereforearenotreportedinthefunds Thecostofcapitalassetsis250,331,663 Accumulateddepreciationis 85,844,940 164,486,723 AninternalservicefundisusedbytheCity'smanagementtochargethe costsoftheworker'scompensationprogram.Theassetsandliabilities oftheinternalservicefundareincludedwithgovernmentalactivities.2,327,348 Thefollowingliabilities,includingbondspayable,arenotdueandpayable inthecurrentperiodandthereforearenotreportedasliabilitiesinthefunds. Theseliabilitiesatyearendconsistof: Compensatedabsences2,996,810 NetOPEBobligation2,807,425 Bondspayable55,225,670 Accruedinterestonthebonds 512,680[61,542,585] NetAssetsofGovernmentalActivities 117,334,142$ CITYOFSALINA,KANSAS RECONCILIATIONOFTHETOTALGOVERNMENTALFUNDBALANCETO NETASSETSOFGOVERNMENTALACTIVITIES December31,2011 Thenotestothebasicfinancialstatementsareanintegralpartofthisstatement. 17 (THIS PAGE LEFT BLANK INTENTIONALLY) Flood&Tourism DrainageandSpecial GeneralImprovementConventionGas REVENUES: Taxes Realestatetaxes7,564,508$-$-$-$ Delinquenttaxes212,2446,016-- Motorvehicletaxes894,671--- Generalsalestaxes11,767,400--- Selectivesalestaxes---- Othertaxes5,083,919-1,305,959- Intergovernmental813,185--1,362,327 Specialassessments---- Licensesandpermits---- Chargesforservices7,822,307--- Investmentrevenue28,972-1433,718 Reimbursements---- Miscellaneous 501,26011,550-- Totalrevenues 34,688,46617,5661,306,1021,366,045 EXPENDITURES: Current Generalgovernment3,461,488--- Publicsafety18,117,827--- Publicworks6,132,0209,784-427,429 EXPENDITURESANDCHANGESINFUNDBALANCE STATEMENTOFREVENUES, CITYOFSALINA,KANSAS FortheYearEndedDecember31,2011 GOVERNMENTALFUNDS Publicworks6,132,0209,784-427,429 Publichealthandsanitation1,176,082--- Cultureandrecreation2,734,957--- Planninganddevelopment2,319,300-736,386- Miscellaneous---- Capitaloutlay555,048196,308-1,183,678 Debtservice Principalretirement---- Interestandothercharges---- Totalexpenditures 34,496,722206,092736,3861,611,107 Excess[deficiency]ofrevenueandothersources over[under]expendituresandother[uses]191,744[188,526]569,716[245,062] OTHERFINANCINGSOURCES[USES] Issuanceofbonds---- Bondpremium---- Transfersin868,838907-180,000 Transfers[out][997,949]-[596,440][1,836] Totalotherfinancingsources[uses][129,111]907[596,440]178,164 Netchangeinfundbalance 62,633[187,619][26,724][66,898] Fundbalance-Beginningofyear3,617,181188,526367,1971,484,641 Restatementofprioryearfundbalance 156,424--- FUNDBALANCE-Beginningofyear,asrestated 3,773,605188,526367,1971,484,641 Fundbalance-Endofyear 3,836,238$907$340,473$1,417,743$ OtherTotal BicentennialSalesTaxDebtCapitalGovernmentalGovernmental CenterCapitalServiceProjectsFundsFunds -$-$2,723,262$-$-$10,287,770$ --55,583--273,843 --254,970--1,149,641 -----11,767,400 -3,763,045--317,2974,080,342 -----6,389,878 ----725,6372,901,149 --1,535,487--1,535,487 ----6,2506,250 783,028---1,125,0229,730,357 1935,68313,6869,6346,62068,649 ---32,000-32,000 692-12,983-72,293598,778 783,9133,768,7284,595,97141,6342,253,11948,821,544 -----3,461,488 -----18,117,827 -----6,569,233-----6,569,233 ----153,7301,329,812 1,548,901---1,616,1705,900,028 ----288,2753,343,961 ----3535 11,0281,032,526-6,338,741529,4019,846,730 - --4,276,195-135,0004,411,195 --1,771,581151,055161,7442,084,380 1,559,9291,032,5266,047,7766,489,7962,884,35555,064,689 [776,016]2,736,202[1,451,805][6,448,162][631,236][6,243,145] ---6,565,000-6,565,000 --22,985--22,985 872,8498,5582,225,5653,289,564547,3897,993,670 -[3,501,556][83,488][405,549][105,259][5,692,077] 872,849[3,492,998]2,165,0629,449,015442,1308,889,578 96,833[756,796]713,2573,000,853[189,106]2,646,433 46,0482,154,367571,873[2,610,001]2,981,6528,801,484 -----156,424 46,0482,154,367571,873[2,610,001]2,981,6528,957,908 142,881$1,397,571$1,285,130$390,852$2,792,546$11,604,341$ 18 Thenotestothebasicfinancialstatementsareanintegralpartofthisstatement. TotalNetChangeInFundBalances-GovernmentalFunds2,646,433$ Amountsreportedforgovernmentalactivitiesinthe statementofactivitiesaredifferentbecause Capitaloutlaystopurchaseorbuildassetsarereportedingovernmentalfunds asexpenditures.However,forgovernmentalactivitiesthosecostsareshown inthestatementofnetassetsandallocatedovertheirestimatedusefullives asannualdepreciationexpensesinthestatementofactivities.Thisisthe amountbywhichcapitaloutlaysexceedsdepreciationintheperiod. Gainonsaleofassets[77,143] Proceedsfromsaleofassets[10,070] Capitaloutlays2,254,765 Depreciationexpense[4,725,361][2,557,809] Interestonlong-termdebtinthestatementofactivitiesdiffersfromtheamount reportedinthegovernmentalfundsbecauseinterestisrecordedasan expenditureinthefundswhenitisdue,andthusrequirestheuseofcurrent financialresources.Inthestatementofactivities,however,interestexpense isrecognizedastheinterestaccrues,regardlessofwhenitisdue.Thisis theamountbywhichinterestdecreased.314,150 CITYOFSALINA,KANSAS RECONCILIATIONOFTHEGOVERNMENTALFUNDSSTATEMENTOFREVENUES,EXPENDITURES, ANDCHANGESINFUNDBALANCEWITHTHEGOVERNMENT-WIDESTATEMENTOFACTIVITIES FortheYearEndedDecember31,2011 Thenotestothebasicfinancialstatementsareanintegralpartofthisstatement. 19 theamountbywhichinterestdecreased.314,150 Aninternalservicefundisusedbythecity'smanagementtochargethe costsofcertainactivitiestotheindividualfunds.Therevenuesandexpenses ofcertaininternalservicefundisreportedwithgovernmentalactivities.584,822 Someexpensesreportedinthestatementofactivities,suchascompensated absencesandotherpostemploymentbenefits,donotrequiretheuseofcurrent financialresourcesandthereforearenotreportedasexpendituresin governmentalfunds.[523,988] Bondandtemporarynoteproceedsareotherfinancingsourcesinthegovernmental funds,buttheyincreaselong-termliabilitiesinthestatementofnetassetsanddo notaffectthestatementofactivities.Also,governmentalfundsreporttheeffect ofissuancecosts,premiums,discounts,andsimilaritemswhendebtisfirst issued,whereastheseamountsaredeferredandamortizedinthestatement ofactivities.Thisamountistheneteffectofthesedifferencesinthe treatmentoflong-termdebtandrelateditems.[6,570,801] Repaymentofbondprincipalandbondissuancecostsisanexpenditure inthegovernmentalfunds,butitreduceslong-termliabilitiesinthestatement ofnetassetsanddoesnotaffectthestatementofactivities.4,530,999 ChangesInNetAssetsofGovernmentalActivities[1,576,194]$ Thenotestothebasicfinancialstatementsareanintegralpartofthisstatement. 19 TotalInternal SolidWasteWaterandEnterpriseService ASSETS DisposalSewerSanitationGolfCourseFunds Funds Currentassets: Cashandinvestments3,379,526$24,042,117$621,683$3,955$28,047,281$3,089,207$ Receivables(netofallowanceforuncollectibles) Accounts231,1231,026,364139,172-1,396,659- Interest16---16- Inventoryandprepaidsupplies-544,052-27,650571,702115,694 Deferredcharges-375,179--375,179- Totalcurrentassets 3,610,66525,987,712760,85531,60530,390,8373,204,901 Capitalassets: Nondepreciablecapitalassets: Constructioninprogress-11,062,055--11,062,055- Land682,000844,002-15,0001,541,002- Depreciablecapitalassets: Capitalassets8,278,50190,480,3721,557,447992,099101,308,419866,638 Less:accumulateddepreciation 5,465,85639,202,619911,117693,13746,272,729838,848 Totalcapitalassets 3,494,64563,183,810646,330313,96267,638,74727,790 Totalassets 7,105,310$89,171,522$1,407,185$345,567$98,029,584$3,232,691$ Liabilities: Currentliabilities Accountspayable22,192$262,444$6,859$2,954$294,449$100,054$ Retainagepayable-608,219--608,219- Business-TypeActivities: EnterpriseFunds CITYOFSALINA,KANSAS STATEMENTOFNETASSETS PROPRIETARYFUNDS December31,2011 Thenotestothebasicfinancialstatementsareanintegralpartofthisstatement. 20 Retainagepayable-608,219--608,219- Interestpayable8,514202,777--211,291- Meterdepositspayable-163,904--163,904- Currentportionofcompensatedabsencespayable11,21568,38222,20320,501122,30117,384 Currentportionofaccruedclaimspayable-----563,720 Currentportionofgeneralobligationbondspayable486,302713,746--1,200,048- Currentportionofrevenuebondspayable-343,696--343,696- Totalcurrentliabilities 528,2232,363,16829,06223,4552,943,908681,158 Noncurrentliabilities: Compensatedabsencespayable48,340294,76595,70988,376527,19074,940 Accruedclaimspayable-----149,245 NetOPEBObligation43,944209,87259,83020,812334,458- Payablefromrestrictedassets Generalobligationbondspayable732,8065,285,053--6,017,859- Revenuebondspayable-15,850,229--15,850,229- Landfillpost-closurecareliabilities 2,042,254---2,042,254- Totalnoncurrentliabilities 2,867,34421,639,919155,539109,18824,771,990224,185 Totalliabilities 3,395,567$24,003,087$184,601$132,643$27,715,898$905,343$ NetAssets Investedincapitalassets,netofrelateddebt2,275,537$40,991,086$646,330$313,962$44,226,915$27,790$ Restricted Restrictedforbondretirement-1,553,016--1,553,016- Unrestricted 1,434,20622,624,333576,254[101,038]24,533,7552,299,558 Totalnetassets 3,709,743$65,168,435$1,222,584$212,924$70,313,686$2,327,348$ Thenotestothebasicfinancialstatementsareanintegralpartofthisstatement. 20 TotalInternal SolidWasteWaterandEnterpriseService DisposalSewerSanitationGolfCourseFunds Funds Operatingrevenues Chargesforservices2,904,371$17,904,056$2,334,119$636,202$23,778,748$9,881,156$ Federalgrants-201,700--201,700- Miscellaneous 24,491255,25642450,180330,351251,196 Totaloperatingrevenues 2,928,86218,361,0122,334,543686,38224,310,79910,132,352 Operatingexpenses Generalgovernment-----9,611,278 Publicworks2,088,84311,205,1142,170,663-15,464,620- Recreation---791,488791,488- Depreciation 740,0471,758,777120,79933,5692,653,1924,698 Totaloperatingexpenses 2,828,89012,963,8912,291,462825,05718,909,3009,615,976 Operatingincome[loss]99,9725,397,12143,081[138,675]5,401,499516,376 Nonoperatingrevenues[expenses] Investmentrevenue9,07272,4521,8393683,3998,446 Debtservice[115,875][632,390]--[748,265]- Gain/[loss]ondisposaloffixedassets-2,55030,000-32,5501,129 Business-TypeActivities: EnterpriseFunds CITYOFSALINA,KANSAS STATEMENTOFREVENUES,EXPENSES ANDCHANGESINNETASSETS PROPRIETARYFUNDS FortheYearEndedDecember31,2011 Thenotestothebasicfinancialstatementsareanintegralpartofthisstatement. 21 Gain/[loss]ondisposaloffixedassets-2,55030,000-32,5501,129 Accretionofbondpremium-7,864--7,864- Amortizationofbondissuancecosts-[11,051]--[11,051]- Totalnonoperatingrevenues[expenses][106,803][560,575]31,83936[635,503]9,575 Income[loss]beforetransfers[6,831]4,836,54674,920[138,639]4,765,996525,951 Transfersfrom[to]otherfunds Transfersin---47,22847,22860,000 Transfers[out][180,000][2,030,000]--[2,210,000]- Totaltransfers[180,000][2,030,000]-47,228[2,162,772]60,000 Capitalcontributions-3,803,565--3,803,565- Changeinnetassets[186,831]6,610,11174,920[91,411]6,406,789585,951 Netassets,January13,895,81258,578,0361,159,149304,62263,937,6191,737,815 Restatement 762[19,712][11,485][287][30,722]3,582 Netassets,January1,restated 3,896,57458,558,3241,147,664304,33563,906,8971,741,397 Netassets,December313,709,743$65,168,435$1,222,584$212,924$70,313,686$2,327,348$ Thenotestothebasicfinancialstatementsareanintegralpartofthisstatement. 21 TotalInternal SolidWasteWaterandEnterpriseService DisposalSewerSanitationGolfCourseFunds Funds Cashflowsfromoperatingactivities Cashreceivedfromcustomersandusers2,948,382$17,850,055$2,332,281$636,201$23,766,919$9,786,038$ Cashpaidtosuppliersofgoodsorservices[1,722,492][7,552,182][1,616,344][391,100][11,282,118][8,955,819] Cashpaidtoemployees[454,426][2,945,574][696,074][386,401][4,482,475][631,488] Otheroperatingreceipts 24,491456,95642450,180532,051251,196 Netcashprovidedby[usedin]operatingactivities795,9557,809,25520,287[91,120]8,534,377449,927 Cashflowsfromcapitalandrelatedfinancingactivities Purchaseandconstructionofcapitalassets[23,446][11,886,827][139,452]-[12,049,725]- Capitalcontributions-3,803,565--3,803,565- Debtissuancecostsincurred-[315,426]--[315,426]- Proceedsfromsaleofcapitalassets-2,55030,000-32,5501,129 Principalpayments-generalobligationbonds[697,396][691,410]--[1,388,806]- Principalpayments-revenuebonds-[1,580,000]--[1,580,000]- Proceedsfromissuanceofrevenuebonds-16,193,925--16,193,925- Interestpaid[136,908][496,760]--[633,668]- Netcashprovidedby[usedin]capital andrelatedfinancingactivities[857,750]5,029,617[109,452]-4,062,4151,129 Cashflowsfrominvestingactivities Interestreceived 9,07272,4531,8393783,4018,445 Cashflowsfromnoncapitalfinancingactivities Business-TypeActivities: EnterpriseFunds CITYOFSALINA,KANSAS STATEMENTOFCASHFLOWS FortheYearEndedDecember31,2011 PROPRIETARYFUNDS Thenotestothebasicfinancialstatementsareanintegralpartofthisstatement. 22 Cashflowsfromnoncapitalfinancingactivities Transfersin---47,22847,22860,000 Transfers[out][180,000][2,030,000]--[2,210,000]- Netcashprovidedby[usedin]noncapitalfinancingactivities[180,000][2,030,000]-47,228[2,162,772]60,000 Netincrease[decrease]incashandcashequivalents[232,723]10,881,325[87,326][43,855]10,517,421519,501 Cashandcashequivalents,January1 3,612,24913,160,792709,00947,81017,529,8602,569,706 Cashandcashequivalents,December31 3,379,526$24,042,117$621,683$3,955$28,047,281$3,089,207$ Thenotestothebasicfinancialstatementsareanintegralpartofthisstatement. 22 TotalInternal SolidWasteWaterandEnterpriseService DisposalSewerSanitationGolfCourseFunds Funds Reconciliationofoperating[loss]incometonetcash providedby[usedin]operatingactivities Operatingincome[loss]99,972$5,397,121$43,081$[138,675]$5,401,499$516,376$ Adjustmentstoreconcileoperatingincome[loss]to netcashprovidedby[usedin]operatingactivities Depreciationexpense740,0471,758,777120,79933,5692,653,1924,698 [Increase]decreaseinaccountsreceivable44,011[79,017][1,838]-[36,844]- [Increase]decreaseininventory-31,950-[9,113]22,8376,646 Increase[decrease]inaccountspayable[218,286]35,620[120,339][1,394][304,399]14,032 Increase[decrease]inretainagepayable[12,979]591,610--578,631- Increase[decrease]inaccruedcompensatedabsences[342][1,806][35,666]19,536[18,278]3,294 Increase[decrease]inclaimspayable-----[95,119] Increase[decrease]inlandfillpostclosureliabilities133,066---133,066- Increase[decrease]innetOBEBobligation10,46649,98414,2504,95779,657- Increase[decrease]inmeterdepositspayable-25,016--25,016- Netcashprovidedby[usedin]operatingactivities795,955$7,809,255$20,287$[91,120]$8,534,377$449,927$ Business-TypeActivities: EnterpriseFunds CITYOFSALINA,KANSAS STATEMENTOFCASHFLOWS PROPRIETARYFUNDS(Continued) FortheYearEndedDecember31,2011 Thenotestothebasicfinancialstatementsareanintegralpartofthisstatement. 23 Thenotestothebasicfinancialstatementsareanintegralpartofthisstatement. 23 ASSETS Cashandinvestments 313,300$ Totalassets 313,300$ LIABILITIESANDFUNDBALANCES Liabilities Accountspayable 313,300$ Totalliabilities 313,300$ December31,2011 CITYOFSALINA,KANSAS STATEMENTOFASSETSANDLIABILITIES AGENCYFUNDS Thenotestothebasicfinancialstatementsareanintegralpartofthisstatement. 24 25 CITY OF SALINA, KANSAS NOTES TO THE BASIC FINANCIAL STATEMENTS December 31, 2011 Note 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A. Reporting Entity The City of Salina, Kansas (the City) is a municipal corporation governed by a mayor and a five-member commission. These financial statements present the City and its component units, entities for which the government is considered to be financially accountable. Each discretely presented component unit is reported in a separate column in the government wide statements to emphasize that it is legally separated from the government. Discretely Presented Component Units City of Salina Airport Authority - The Salina Airport Authority was created for the purpose of accepting as surplus property portions of the former Schilling A.F.B that was closed by the United States Department of Defense in June 1965. One of the primary functions of the Airport Authority is to facilitate the continued growth of jobs and payroll at the Airport Industrial Center. The Airport Authority is managed and controlled by a five-member Board of Directors appointed by the Salina City Commission. Any director may be removed by a majority vote of the Salina City Commission. The Airport Authority’s basic mill levy (up to 3 mills) requires the approval of the City Commission. The Commission must also approve the issuance of general obligation debt by the Airport Authority. The Airport Authority has a December 31 fiscal year end. Housing Authority of the City of Salina - The purpose of the Housing Authority of the City of Salina (Housing Authority) is to administer Public Housing Programs authorized by the United States Housing Act of 1937. The Mayor of the City of Salina appoints the governing board. The City Commission may remove commissioners of the Housing Authority. The City must issue revenue bonds for the Housing Authority. The financial liability of the Housing Authority is essentially supported by the operating and debt service subsidies received under contract from the Federal government. The Housing Authority has a June 30 fiscal year end. Information in the accompanying financial statements covers the fiscal year ended June 30, 2011. Complete financial statements for each of the individual component units may be obtained at the entity’s administrative offices. Salina Airport AuthorityHousing Authority of 3237 Arnold Ave.the City of Salina Salina, KS469 S. 5th Salina, KS Joint Ventures The City of Salina also participates with Saline County in two joint ventures. The Salina-Saline County Board of Health was organized by the City and County to promote public health. The City and County organized the Salina County-City Building Authority to acquire, operate and maintain facilities for the administrative offices of both governments. The primary governments each have an ongoing financial responsibility for the joint ventures. Separate financial statements are available from the governing boards of each joint venture. (GAAP Basis)(Kansas Prescribed Basis) Board ofBuilding HealthAuthority (Audited)(Audited) Total net assets/unencumbered cash, December 31, 20111,697,636$ 931,040$ Total change in net assets/change in unencumbered cash, year ended December 31, 2011[62,456] [247,094] Total revenues/cash receipts, year ended December 31, 20113,856,055 748,166 Total revenues/cash receipts from City of Salina1,018,101 278,756 26 CITY OF SALINA, KANSAS NOTES TO THE BASIC FINANCIAL STATEMENTS December 31, 2011 Note 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) A. Reporting Entity (Continued) Joint Ventures (Continued) Complete financial statements for each of the joint ventures may be obtained at the entity’s administrative offices. Salina-Saline County Board of HealthSalina County-City 125 West Elm StreetBuilding Authority Salina, KS300 West Ash Street Salina, KS B. Government-wide and fund financial statements The statement of net assets and the statement of activities report information on all of the nonfiduciary activities of the primary government and its component units. For the most part, the effect of interfund activity has been removed from these statements. Exceptions to this general rule are charges between the City’s governmental and business-type activities. Elimination of these charges would distort the direct costs and program revenues reported for the various functions concerned. Governmental activities, which normally are supported by taxes and intergovernmental revenues, are reported separately from business-type activities, which rely to a significant extent on fees and charges for support. Likewise, the primary government is reported separately from certain legally separate component units for which the primary government is financially accountable. The statement of activities demonstrates the degree to which the direct expenses of a given function are offset by program revenues. Direct expenses are those that are specifically associated with a service, program or department and therefore clearly identifiable to a particular function. Program revenues include charges paid by the recipient of the goods or services offered by the program and grants and contributions that are restricted to meeting the operational requirements of a particular program. Taxes and other items, which are not classified as program revenues, are presented as general revenues of the city. Separate financial statements are provided for governmental funds, proprietary funds and fiduciary funds, even though the latter are excluded from the government-wide financial statements. Major individual funds are reported as separate columns in the fund financial statements. Nonmajor funds are aggregated and presented in a single column in the fund financial statements. C. Measurement Focus, Basis of Accounting and Basis of Presentation The government-wide financial statements are reported using the economic resources measurement focus and the accrual basis of accounting, as are the proprietary fund. Revenues are recorded when earned and expenses are recorded when a liability is incurred, regardless of the timing of related cash flows. Property taxes are recognized as revenues in the year for which they are levied. Grants and similar items are recognized as revenue as soon as all eligibility requirements imposed by the provider have been met. Governmental fund financial statements are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Revenues are recognized as soon as they are both measurable and available. Revenues are considered to be available when they are collectible within the current period or soon enough thereafter to pay liabilities of the current period. For this purpose, the City considers revenues to be available if they are collected within 60 days of the end of the current fiscal period. Expenditures generally are recorded when a liability is incurred, as under accrual accounting. However, debt service expenditures, as well as expenditures related to certain compensated absences and claims and judgments are recognized when the obligations are expected to be liquidated with expendable available financial resources. 27 CITY OF SALINA, KANSAS NOTES TO THE BASIC FINANCIAL STATEMENTS December 31, 2011 Note 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) C. Measurement Focus, Basis of Accounting and Basis of Presentation (Continued) Property taxes and interest associated with the current fiscal period are all considered to be susceptible to accrual and so have been recognized as revenues of the current fiscal period. Entitlements and shared revenues are recorded at the time of receipt or earlier if the susceptible to accrual criteria are met. Expenditure-driven grants are recognized as revenue when the qualifying expenditures have been incurred and all other grant requirements have been met. The City applies all applicable Governmental Accounting Standards Board (GASB) pronouncements as well as the following pronouncements issued on or before November 30, 1989, unless those pronouncements conflict with or contradict GASB pronouncements: FASB Statements and Interpretations, APB Opinions, and ARBs. Proprietary fund type operating statements present increases (revenues) and decreases (expenses) in net total assets. Proprietary funds distinguish operating revenues and expenses from nonoperating items. Operating revenues and expenses generally result from providing goods and services in connection with a proprietary fund’s ongoing operations. The principal operating revenues of the City’s proprietary funds are charges to customers for sales and services. Operating expenses for enterprise funds and internal service funds include the cost of sales and services, administrative expenses, and depreciation on capital assets. All revenue and expenses not meeting this definition are reported as nonoperating revenues and expenses. The internal service funds account for risk management, worker’s compensation, health insurance, central garage and information services that are provided to other departments or agencies of the government, or to other governments, on a cost-reimbursement basis. Agency funds are custodial in nature and do not measure results of operations or have a measurement focus. Agency funds do however use the accrual basis of accounting. Agency funds are used to account for assets held as an agent for individuals, other governmental units, private organizations and/or other funds. The City reports the following major governmental funds: General fund - To account for resources traditionally associated with government, which are not required legally, or by sound financial management to be accounted for in another fund. Flood and drainage improvement fund - To account for property tax revenues to be used for capital improvements to the flood control and stormwater drainage systems. Tourism and convention fund - To account for transient guest tax revenues, which are specifically restricted to promotion and tourism activities. Special gas fund - To account for the City's share of motor fuel tax revenues, which are legally restricted to the maintenance, or improvement of streets within the City. Bicentennial Center fund - To account for the activities of the City's convention center. Sales tax capital fund - To account for 87.5% of the 1/4 cent sales tax designated for capital, debt, and human services purposes. Debt service fund - To account for the accumulation of resources and payment of general obligation bond principal and interest from governmental resources and special assessment bond principal and interest from special assessment levies when the City is obligated in some manner for the payment. 28 CITY OF SALINA, KANSAS NOTES TO THE BASIC FINANCIAL STATEMENTS December 31, 2011 Note 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) C. Measurement Focus, Basis of Accounting and Basis of Presentation (Continued) Capital projects fund - To account for the acquisition and construction of major capital facilities other than those financed by proprietary funds and trust funds. The City reports the following major proprietary funds: Sanitation fund - To account for the operations of the City's refuse collection service. Solid waste disposal fund - To account for the activities of the City's landfill. Golf course fund - To account for the operations of the municipal golf course. Water and sewer fund - To account for the activities of the City's water and sewer operations. D. Assets, Liabilities, Fund Balance, and Net Assets 1. Pooled cash and investments The City maintains a cash and investment pool that is available for use by all funds managed by the city. Each fund type’s portion of this pool is displayed in the financial statements as “Cash and Investments.” The city’s cash and cash equivalents are considered to be cash on hand, demand deposits and short-term investments with original maturities of three months or less from the date of acquisition. Investments in the Kansas Municipal Pool are carried at fair value. Cash balances from all funds are invested to the extent available in certificates of deposit and other authorized investments. Investments with maturity dates greater than three months are stated separately. Earnings from these investments, unless specifically designated, are allocated monthly to the investing fund based on the percentage of funds invested to total investments. All investments are carried at fair value. 2. Receivables and Payables Transactions between funds that are representative of lending/borrowing arrangements outstanding at the end of the year are referred to as either “interfund receivables/payables” (i.e., the current portion of interfund loans) or “advances to/from other funds” (i.e., the non-current portion of interfund loans). All other outstanding balances between funds are reported as “due to/from other funds.” Accounts Receivable. The City records revenues when services are provided. All receivables are shown net of an allowance for doubtful accounts. Property taxes receivable. Collection of current year property tax by the County Treasurer is not completed, apportioned or distributed to the various subdivisions until the succeeding year, such procedure being in conformity with governing state statutes. Consequently, current year property taxes receivable are not available as a resource that can be used to finance the current year operations of the City and, therefore, are not susceptible to accrual. Accruals of uncollected current year property taxes are offset by deferred revenue and are identical to the adopted budget for 2012. It is not practicable to apportion delinquent taxes held by the County Treasurer at the end of the accounting period, and further, the amounts thereof are not material in relationship to the financial statements taken as a whole. 29 CITY OF SALINA, KANSAS NOTES TO THE BASIC FINANCIAL STATEMENTS December 31, 2011 Note 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) D. Assets, Liabilities and Equity (Continued) 2. Receivables and Payables (Continued) The determination of assessed valuations and the collection of property taxes for all political subdivisions in the State of Kansas are the responsibility of the various counties. The County Appraiser annually determines assessed valuations on January 1 and the County Clerk spreads the annual assessment on the tax rolls. The County Treasurer is the tax collection agent for all taxing entities within the County. In accordance with state statutes, property taxes levied during the current year are a revenue source to be used to finance the budget of the ensuing year. Property taxes are levied and liens against property are placed on November 1 of the year prior to the fiscal year for which they are budgeted. Payments are due November 1, becoming delinquent, with penalty, December 21. Payments of 50% are accepted through December 20, with the second 50% then being due on or before May 10 of the following year. This procedure eliminates the need to issue tax anticipation notes since funds will be on hand prior to the beginning of each fiscal year. The City Treasurer draws down all available funds from the County Treasurer’s office in two-month intervals. Taxes remaining due and unpaid at February 15 and July 1 are subject to collection procedures prescribed in state statutes. 3. Inventories and Prepaid Items Inventories are valued at cost using the first-in/first-out (FIFO) method. The costs of governmental fund-type inventories are recorded as expenditures when consumed. Certain payments to vendors reflect costs applicable to future accounting periods and are recorded as prepaid items. 4. Capital Assets Capital assets, which include property, plant, equipment and infrastructure assets, are reported in the applicable governmental or business-type activities columns in the government-wide financial statements. Capital assets are defined by the government as assets with an initial, individual cost of more than $5,000 and an estimated useful life in excess of two years. Such assets are recorded at historical cost or estimated historical cost if purchased or constructed. Donated capital assets are recorded at estimated fair market value at the date of donation. Capital assets used in governmental fund types of the City are recorded at cost or estimated historical cost if purchased or constructed. Donated capital assets are recorded at their estimated fair value at the date of donation. The cost of normal maintenance and repairs that do not add to the value of the assets or materially extend assets lives are not capitalized. Major outlays for capital assets and improvements are capitalized as projects are constructed. Interest incurred during the construction phase of capital assets of business-type is included in the capitalized value of the asset constructed, net of interest earned on the invested proceeds over the same period. Property, plant and equipment of the primary government, are depreciated using the straight-line method over the following estimated useful lives: Assets Years Buildings 50 Other equipment 5 -15 Vehicles 6 -10 Infrastructure 30 -50 30 CITY OF SALINA, KANSAS NOTES TO THE BASIC FINANCIAL STATEMENTS December 31, 2011 Note 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) D. Assets, Liabilities, Fund Balance, and Net Assets (Continued) 5. Compensated Absences It is the City’s policy to permit employees to accumulate earned but unused vacation and sick pay benefits. All employees of the City, except temporary and part time employees, may accumulate sick leave at a rate of 8 or 11 hours per month depending on their work duty schedule. There is no limit on the amount of sick leave that can be accumulated. Employees with more than five years of service with the City are paid for one-third of their accumulated sick leave at their current wage scale upon termination of employment in good standing. In 2001, a limited buy back policy was instituted. All regular employees are entitled to paid vacation time. Such leave is granted each year of employment. Employees must use 50% of leave accrued each calendar year and an employee's maximum accrued vacation leave balance cannot exceed 250 hours (or 350 hours for employees working 24 hour shifts). Employees are paid for all accumulated vacation leave at their current wage scale upon termination of employment. Vested or accumulated vacation leave that is expected to be liquidated with expendable available financial resources is reported as an expenditure and a fund liability in the government fund financial statements that will pay it. A liability for these amounts is reported in governmental funds only if they have matured, for example, as a result of employee resignations and retirements. Vested or accumulated vacation leave of the business-type funds and government wide financial statements are recorded as an expense and liability of those funds as the benefits accrue to employees. A liability is recorded for accumulated rights to receive sick pay benefits that are payable upon termination of employment. The General Fund, Bicentennial Center Fund, Central Garage Fund, Information Systems Fund, Sanitation Fund, Solid Waste Fund, Golf Course Fund, and Water and Sewer Fund have been used in prior years to liquidate the liability for compensated absences. 6. Temporary Notes Upon authorization for the issuance of general obligation bonds for certain improvements, Kansas law permits the temporary financing of such improvements by the issuance of temporary notes. Temporary notes issued may not exceed the aggregate amount of bonds authorized, are interest bearing and have a maturity date not later than four years from the date of issuance of such temporary notes. Temporary notes outstanding are retired from the proceeds of the sale of general obligation bonds. 7. Long-term Obligations In the government-wide financial statements, and proprietary fund types in the fund financial statements, long-term debt and other long-term obligations are reported as liabilities in the applicable governmental activities, business-type activities, or proprietary fund type statement of net assets. Bond premiums and discounts, as well as issuance costs, are deferred and amortized over the life of the bonds using the effective interest method. Bonds payable are reported net of the applicable bond premium or discount. Bond issuance costs are reported as deferred charges and amortized over the term of the related debt. In the fund financial statements, governmental fund types recognize bond premiums and discounts, as well as issuance costs, during the current period. The face amount of debt issued is reported as other financing sources. Premiums received on debt issuances are reported as other financing sources while discounts on debt issuances are reported as other financing uses. Issuance costs, whether or not withheld from the actual debt proceeds received, are reported as debt service expenditures. 31 CITY OF SALINA, KANSAS NOTES TO THE BASIC FINANCIAL STATEMENTS December 31, 2011 Note 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) D. Assets, Liabilities, Fund Balance, and Net Assets (Continued) 8. Fund Balances In the fund financial statements, governmental funds report fund balance in the following classifications: nonspendable, restricted, committed, assigned and unassigned. Nonspendable fund balance includes amounts that cannot be spent because they are either not in spendable form or legally or contractually required to be maintained intact. Restricted fund balance indicates that constraints have been placed on the use of resources either by being externally imposed by creditors, grantors, contributors, or laws or regulations of other governments or imposed by law through constitutional provisions or enabling legislation. Committed fund balances include amounts that can only be used for specific purposes pursuant to constraints imposed by formal action of the city commission. Assigned fund balances include amounts that are constrained by the City management’s intent to be used for specific purposes, but are neither restricted nor committed. Unassigned fund balance represents fund balance that has not been assigned to other funds and that has not been restricted, committed, or assigned to specific purposes within the General Fund. When an expenditure is incurred for purposes for which both restricted and unrestricted fund balance is available restricted amounts are considered to be spent first. When an expenditure is incurred for purposes for which committed, assigned, or unassigned fund balance is available, the following is the order in which resources will be expended: committed, assigned and unassigned. The following is the detail for fund balance classifications in the financial statements: Flood &TourismOtherTotal DrainageandSpecialBicentennialSales TaxDebtCapitalGovernmentalGovernmental GeneralImprovementConventionGasCenterCapitalServiceProjectsFundsFunds Fund Balances: Nonspendable for: Inventory89,716$ -$ -$ -$ -$ -$ -$ -$ -$ 89,716$ Restricted for: Public works- - - 1,094,720 - - - - - 1,094,720 Public health and sanitation- - - - - - - - 4 4 Culture and recreation- - - - - - - - 45,236 45,236 Planning and development- - 340,473 - - - - - 298,015 638,488 Debt payments- - - - - - 1,285,130 - 547,999 1,833,129 Committed for: Public safety- - - - - - - - [7,866] [7,866] Culture and recreation- - - - 142,881 - - - 524,907 667,788 Planning and development- - - - - - - - 6,102 6,102 Cemetery- - - - - - - - 421,037 421,037 Capital improvements- - - - - 610,134 - [2,477,564] 907,112 [960,318] Assigned for: General government18,450 - - - - - - - - 18,450 Public works36,755 907 - 323,023 - - - - - 360,685 Planning and development11,376 - - - - - - - - 11,376 Capital improvements226,235 - - - - 787,437 - 2,868,416 50,000 3,932,088 Unassigned:3,453,706 - - - - - - - - 3,453,706 Total Fund Balances3,836,238$ 907$ 340,473$ 1,417,743$ 142,881$ 1,397,571$ 1,285,130$ 390,852$ 2,792,546$ 11,604,341$ Major Governmental Funds 32 CITY OF SALINA, KANSAS NOTES TO THE BASIC FINANCIAL STATEMENTS December 31, 2011 Note 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) D. Assets, Liabilities, Fund Balance, and Net Assets (Continued) 9. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 10. Net Assets Net assets represent the difference between assets and liabilities. Net assets invested in capital assets, net of related debt consists of capital assets, net of accumulated depreciation, reduced by the outstanding balances of any borrowings used for the acquisition, construction or improvement of those assets. Net assets are reported as restricted when there are limitations imposed on their use either through the enabling legislation adopted by the City or through external restrictions imposed by creditors, grantors or laws or regulations of other governments. Note 2. STEWARDSHIP, COMPLIANCE AND ACCOUNTABILITY A. Budgetary Information Kansas statutes require that an annual operating budget be legally adopted for the general fund, special revenue funds (unless specifically exempted by statute), debt service fund, and enterprise funds. The statutes provide for the following sequence and timetable in the adoption of the legal annual operating budget: 1. Preparation of the budget for the succeeding year on or before August 1. 2. Publication in local newspaper of the proposed budget and notice of public hearing on the budget on or before August 5. 3. Public hearing on or before August 15, but at least ten days after publication of notice of hearing. 4. Adoption of the final budget on or before August 25. The statutes allow the governing body to increase the originally adopted budget for previously unbudgeted increases in revenue other than ad valorem property taxes. To do this, a notice of public hearing to amend the budget must be published in the local newspaper. At least ten days after publication the hearing may be held and the governing body may amend the budget at that time. The 2011 budget was amended for the Flood & Drainage Improvement Fund, Sales Tax Capital Fund, Water and Sewer Fund, Risk Management Fund and Central Garage Fund. 33 CITY OF SALINA, KANSAS NOTES TO THE BASIC FINANCIAL STATEMENTS December 31, 2011 Note 2. STEWARDSHIP, COMPLIANCE AND ACCOUNTABILITY (Continued) A. Budgetary Information (Continued) The statutes permit management to transfer budgeted amounts between line items within an individual fund. However, such statutes prohibit expenditures in excess of the total amount of the adopted budget of expenditures of individual funds. Budget comparison statements are presented for each fund showing actual receipts and expenditures compared to legally budgeted receipts and expenditures. All legal annual operating budgets are prepared using the statutory basis of accounting, in which, revenues are recognized when cash is received, and expenditures include disbursements, accounts payable, and encumbrances. Encumbrances are commitments by the municipality for future payments and are supported by a document evidencing the commitment, such as a purchase order or contract. All unencumbered appropriations (legal budget expenditure authority) lapse at year end. A legal operating budget is not required for capital projects funds, non-major debt service funds, trust funds, and the following special revenue funds: Bicentennial Center Event, HUD Community Development, Community Development Revolving, Heritage Commission, CDBG-ED, HOME V, Special Law Enforcement, Police Grants, DARE Donations, War Memorial Maintenance and Federal Care Grant. A legal operating budget is not required for the following Enterprise funds: Solid Waste Construction, Water and Sewer Principal and Interest, Water and Sewer Bond Reserve, Water and Sewer Construction and Reserve funds. A legal operating budget is also not required for the Internal Service funds. Actual to budget comparisons for these funds that present budgets to the Commissioners are shown strictly for informational purposes. Spending in funds, which are not subject to the legal annual operating budget requirements are controlled by federal regulations, other statutes, or by the use of internal spending limits established by the governing body. B. Statutory Violations Actual exceeded budgeted expenditures at December 31, 2011 in the Flood & Drainage Improvement Fund and Sales Tax Economic Development Fund, which violates KSA 79-2935. C. Legal Debt Margin The City is subject to the municipal finance law of the state of Kansas which limits the bonded debt (exclusive of revenue bonds and special assessment bonds) the city may have outstanding to 30 percent of the assessed value of all tangible taxable property within the city, as certified to the county clerk on the proceeding August 25. At December 31, 2011, the statutory limit for the City was $133,379,948, providing a debt margin of 75,990,305. 34 CITY OF SALINA, KANSAS NOTES TO THE BASIC FINANCIAL STATEMENTS December 31, 2011 Note 3. RESTATEMENT OF EQUITY The implementation of GASB 54 required the reclassification of the governmental fund balances. The following is the reclassification of fund balance as of December 31, 2010. UnreservedReservedTotal Governmental Fund: General Fund3,517,895$ 99,286$ 3,617,181$ Flood & Drainage Improvement Fund187,350 1,176 188,526 Tourism and Convention Fund367,197 - 367,197 Special Gas Fund986,224 498,417 1,484,641 Bicentennial Center Fund46,048 - 46,048 Sales Tax Capital Fund1,572,216 582,151 2,154,367 Debt Service Fund- 571,873 571,873 Capital Projects Fund[6,654,370] 4,044,369 [2,610,001] Other Governmental Funds2,365,603 616,049 2,981,652 Total Governmental Funds2,388,163$ 6,413,321$ 8,801,484$ NonspendableRestrictedCommittedAssignedUnassignedTotal Governmental Fund: General Fund87,238$ -$ -$ 99,286$ 3,430,657$ 3,617,181$ Flood & Drainage Improvement Fund- - 187,350 1,176 - 188,526 Tourism and Convention Fund- 367,197 - - - 367,197 Special Gas Fund- 986,224 - 498,417 - 1,484,641 Bicentennial Center Fund- - 46,048 - - 46,048 Sales Tax Capital Fund- - 1,572,216 582,151 - 2,154,367 Debt Service Fund- 571,873 - - - 571,873 Capital Projects Fund- - [6,654,370] 4,044,369 - [2,610,001] Other Governmental Funds- 944,240 2,031,076 6,336 - 2,981,652 Total Governmental Funds87,238$ 2,869,534$ [2,817,680]$ 5,231,735$ 3,430,657$ 8,801,484$ As of December 31, 2010, Reclassified Fund Balance Classification As of December 31, 2010 Fund Balance Classification Following the close of the previous fiscal year, it was discovered that several capital assets were misclassified or recorded incorrectly. Additionally, it was discovered that accounts receivable had not been properly recorded. Accordingly, the beginning net assets balances were restated, the effects of which are as follows: Solid WasteWater andGolfCentral GovernmentalGeneralDisposalSewerSanitationCourseGarage ActivitiesFundFundFundFundFundFund Net Assets/Fund Balance, 117,797,911$ 3,617,181$ 3,895,812$ 58,578,036$ 1,159,149$ 304,622$ 205,887$ December 31, 2010 Capital Asset Adjustment956,001 - 762 [19,712] [11,485] [287] 3,582 Accounts Receivable Adjustment156,424 156,424 - - - - - Net Assets/Fund Balance, December 31, 2010, Restated118,910,336$ 3,773,605$ 3,896,574$ 58,558,324$ 1,147,664$ 304,335$ 209,469$ 35 CITY OF SALINA, KANSAS NOTES TO THE BASIC FINANCIAL STATEMENTS December 31, 2011 Note 4. DETAILED NOTES ON ALL FUNDS A. Deposits and Investments The City’s cash is considered to be active funds by management and is invested according to KSA 9-1401. The statute requires that banks eligible to hold active funds have a main or branch bank in the county in which the City is located or in a county adjacent to the City and the banks provide an acceptable rate for active funds. Various City investments are considered to be idle funds by management and are invested according to KSA 12-1675. The statute requires that the City invest its idle funds in only temporary notes of the City, bank certificates of deposit, repurchase agreements, and if eligible banks do not offer an acceptable rate for the funds: U.S. Treasury bills or notes or the Municipal Investment Pool (KMIP). Maturities of the above investments may not exceed two years by statute. Some of the City’s investments are of bond proceeds invested pursuant to KSA 10-131. This statute allows additional investment authority beyond that of KSA 12-1675. Investments of bond proceeds may follow KSA 12-1675 or include other investments such as the KMIP, direct obligations of the U.S. government or any agency thereof, investment agreements with a financial institution the obligations of which at the time of investment are rated in either of the three highest rating categories by Moody’s investors service or Standard and Poor’s corporation, and various other investments as specified in KSA 10-131. At December 31, 2011, the City has the following investments: Investment TypeFair ValueRating Kansas Municipal Investment Pool305,158$ S&P AAAf/S1+ U.S. Government Securities22,063,739 N/A Total fair value22,368,897$ The municipal investment pool is under the oversight of the Pooled Money Investment Board. The board is comprised of the State Treasurer and four additional members appointed by the State Governor. The board reports annually to the Kansas legislature. State pooled monies may be invested in direct obligations of, or obligations that are insured as to principal and interest by the U.S. government or any agency thereof, with maturities up to four years. No more than 10 percent of those funds may be invested in mortgage-backed securities. In addition, the State pool may invest in repurchase agreements with Kansas banks or with primary government securities dealers. The City’s investment policy provides direction on concentration risk. The City policy states that funds shall be diversified to reduce the extent of losses due to having an unbalanced portfolio in terms of maturities, instrument type, and issuers. Therefore, portfolio maturities shall be staggered to avoid undue concentration of assets in a specific maturity sector. Liquidity, free of market risk, shall be assured through practices insuring that the next disbursement date and payroll date are covered through maturing investments, marketable U.S. Treasury Bills, the Municipal Investment Pool, or money market accounts. Default risk shall be minimized by requiring that all security purchases occur on a delivery vs. payment basis, and that all securities are adequately collateralized. Risk of market price volatility shall be controlled through the adoption of a "buy and hold" strategy whereby the City holds each investment to maturity, coupled with maintenance of an adequate liquidity position to insure the ability to meet normal anticipated cash flow needs. 36 CITY OF SALINA, KANSAS NOTES TO THE BASIC FINANCIAL STATEMENTS December 31, 2011 Note 4. DETAILED NOTES ON ALL FUNDS (Continued) A. Deposits and Investments (Continued) When advantageous, it is allowable to sell investments to realize a gain due to price fluctuations; however, such transactions shall not be a part of the normal course of business. The City recognizes that investment risks can result from issuer defaults, market price changes or various technical complications leading to temporary illiquidity. Portfolio diversification is employed as a way to control risk due to issuer default. In the event of a default by a specific issuer, the Director of Finance and Administration shall review, and, if appropriate, proceed to liquidate securities having comparable credit risks. Custodial credit risk is the risk that in the event of a bank failure, the City’s deposits may not be returned to it. The City’s deposit policy for custodial credit risk require that the depository banks will maintain 100% security in the form of FDIC coverage and pledged collateral according to KSA 9-1402. B. Receivables Receivables as of year end, including the applicable allowances for doubtful accounts, are as follows: Tourism andSpecialBicentennialDebt GeneralConventionGasCenterServiceSubtotal Primary Government Receivables: Accounts2,889,545$ 338,271$ -$ 54,966$ -$ 3,282,782$ Taxes8,094,093 - 312,648 - 2,441,349 10,848,090 Interest 35,877 - - - - 35,877 Gross receivables11,019,515 338,271 312,648 54,966 2,441,349 14,166,749 Less: allowance for uncollectibles[2,211,730] - - - - [2,211,730] Total8,807,785$ 338,271$ 312,648$ 54,966$ 2,441,349$ 11,955,019$ SolidWater OtherWasteand GovernmentalSanitationDisposalSewerTotal Primary Government Receivables: Accounts52,151$ 201,973$ 231,123$ 1,489,511$ 5,257,540$ Taxes- - - - 10,848,090 Interest- - 16 - 35,893 Gross receivables52,151 201,973 231,139 1,489,511 16,141,523 Less: allowance for uncollectibles[982] [62,801] - [463,147] [2,738,660] Total51,169$ 139,172$ 231,139$ 1,026,364$ 13,402,863$ Component Units Salina Airport Authority Accounts107,643$ Less: allowance for uncollectibles[984] 106,659 Taxes 1,638,423 Total Salina Airport Authority 1,745,082 Salina Housing Authority Accounts37,957 Other 1,719 Total Salina Housing Authority39,676 Total1,784,758$ 37 CITY OF SALINA, KANSAS NOTES TO THE BASIC FINANCIAL STATEMENTS December 31, 2011 Note 4. DETAILED NOTES ON ALL FUNDS (Continued) C. Interfund Receivables and Payables The composition of interfund balances as of December 31, 2011, is as follows: Fund TypesDue FromDue To General Fund9,375$ -$ Other Government Funds- 9,375 9,375$ 9,375$ The City uses interfund receivables and payables as needed when pooled cash is negative within a fund until investments mature or grant proceeds are received. All payables are cleared in less than one year. 38 CITY OF SALINA, KANSAS NOTES TO THE BASIC FINANCIAL STATEMENTS December 31, 2011 Note 4. DETAILED NOTES ON ALL FUNDS (Continued) D. Capital Assets Capital asset activity for the year ended December 31, 2011, was as follows: BalanceAdj. Bal.Balance 12/31/2010Adjustments12/31/2010AdditionsRetirements12/31/2011 City governmental activities: Governmental activities: Capital assets, not being depreciated Construction in progress32,549,155$ 81,670$ 32,630,825$ 2,945,099$ 3,021,567$ 32,554,357$ Land 22,477,191 - 22,477,191 - - 22,477,191 Capital assets, being depreciated Infrastructure144,316,296 - 144,316,296 1,829,401 - 146,145,697 Buildings and improvements36,233,800 - 36,233,800 - - 36,233,800 Vehicles7,480,033 810,889 8,290,922 255,156 216,023 8,330,055 Equipment, furniture and fixtures5,353,682 92,755 5,446,437 246,676 235,912 5,457,201 Total capital assets248,410,157 985,314 249,395,471 5,276,332 3,473,502 251,198,301 Less accumulated depreciation for: Infrastructure60,603,797 [30,296] 60,573,501 2,964,133 - 63,537,634 Buildings and improvements12,609,132 10,741 12,619,873 1,023,364 - 13,643,237 Vehicles5,035,374 [40,529] 4,994,845 513,718 174,927 5,333,636 Equipment, furniture and fixtures4,039,705 89,397 4,129,102 228,844 188,665 4,169,281 Total accumulated depreciation82,288,008 29,313 82,317,321 4,730,059 363,592 86,683,788 Governmental activities capital assets, net166,122,149$ 956,001$ 167,078,150$ 546,273$ 3,109,910$ 164,514,513$ Business-type activities: Capital assets, not being depreciated Construction in progress1,516,604$ -$ 1,516,604$ 10,781,482$ 1,236,031$ 11,062,055$ Land1,541,002 - 1,541,002 - - 1,541,002 Capital assets, being depreciated Infrastructure68,957,665 11,932 68,969,597 2,333,997 - 71,303,594 Buildings and improvements22,587,106 - 22,587,106 - - 22,587,106 Vehicles2,987,740 [41,385] 2,946,355 139,452 102,647 2,983,160 Equipment, furniture and fixtures4,376,725 27,010 4,403,735 30,824 - 4,434,559 Total capital assets101,966,842 [2,443] 101,964,399 13,285,755 1,338,678 113,911,476 Less accumulated depreciation for: Infrastructure28,973,288 [34,750] 28,938,538 1,774,866 - 30,713,404 Buildings and improvements10,241,870 17,027 10,258,897 424,276 - 10,683,173 Vehicles2,084,391 9,460 2,093,851 179,756 102,647 2,170,960 Equipment, furniture and fixtures2,394,356 36,542 2,430,898 274,294 - 2,705,192 Total accumulated depreciation43,693,905 28,279 43,722,184 2,653,192 102,647 46,272,729 Business-type activities capital assets, net58,272,937$ [30,722]$ 58,242,215$ 10,632,563$ 1,236,031$ 67,638,747$ 39 CITY OF SALINA, KANSAS NOTES TO THE BASIC FINANCIAL STATEMENTS December 31, 2011 Note 4. DETAILED NOTES ON ALL FUNDS (Continued) D. Capital Assets (Continued) The City’s depreciation expense was charged to governmental functions as follows: Governmental Activities: General government8,990$ Public safety507,826 Public works3,265,341 Public health38,013 Culture and recreation 803,772 Planning and development 106,117 Total depreciation 4,730,059$ Business-type Activities: Solid Waste Disposal 740,047$ Water and Sewer1,758,777 Sanitation120,799 Golf Course Division 33,569 Total depreciation 2,653,192$ E. Long-Term Debt Following is a summary of changes in long-term debt for fiscal year 2011: BalanceBalanceAmounts January 1, December 31,Due Within 2011AdditionsDeletions2011One Year Governmental activities: General obligation bonds53,120,953$ 6,587,986$ 4,483,269$ 55,225,670$ 5,051,038$ Accrued compensation3,230,488 440,340 581,694 3,089,134 581,694 Temporary notes2,500,000 3,400,000 2,500,000 3,400,000 3,400,000 Total58,851,441$ 10,428,326$ 7,564,963$ 61,714,804$ 9,032,732$ Business-type activities: General obligation bonds8,614,577$ -$ 1,396,670$ 7,217,907$ 1,200,048$ Revenue bonds1,580,000 16,193,925 1,580,000 16,193,925 343,696 Accrued compensation667,768 104,025 122,302 649,491 122,301 Total10,862,345$ 16,297,950$ 3,098,972$ 24,061,323$ 1,666,045$ Component Units: General obligation bonds12,792,154$ 14,056,831$ 1,040,000$ 25,808,985$ 1,090,000$ Financing lease285,796 - 40,238 245,558 42,941 Temporary notes11,652,467 - 11,652,467 - - Special assessment debt145,299 - 20,287 125,012 21,066 Total component units24,875,716$ 14,056,831$ 12,752,992$ 26,179,555$ 1,154,007$ 40 CITY OF SALINA, KANSAS NOTES TO THE BASIC FINANCIAL STATEMENTS December 31, 2011 Note 4. DETAILED NOTES ON ALL FUNDS (Continued) E. Long-Term Debt (Continued) The following is a detailed listing of the city’s long-term debt including general obligation bonds, revenue bonds, temporary notes and loans payable: Primary GovernmentOriginalInterestBonds General Obligation BondsIssueRatesOutstanding Internal Improvements 2002B, due 10/1/20171,980,000$ 2.70% to 4.50%165,000$ Internal Improvements 2003A, due 10/1/20184,350,000 2.13% to 3.85%1,765,000 Refunding 2004A, due 8/1/20155,585,000 2.10% to 4.00%1,170,000 Internal Improvements 2004B, due 10/1/20194,053,000 3.00% to 4.00%1,390,000 Internal Improvements 2005A, due 10/1/20204,210,000 2.95% to 4.25%2,200,000 Internal Improvements 2006A, due 10/1/20262,200,000 3.55% to 5.50%1,650,000 Internal Improvements 2006B, due 10/1/2021885,000 4.00% to 4.50%535,000 Internal Improvements 2007A, due 10/1/20276,545,000 4.25% to 4.625%5,085,000 Internal Improvements 2008A, due 10/1/20233,720,000 3.25% to 4.00%3,000,000 Internal Improvements 2008B, due 7/1/20283,525,000 3.65% to 5.00%3,415,000 Internal Improvements 2009A, due 10/1/202923,695,000 2.00% to 5.00%21,877,424 Internal Improvements 2010A, due 10/1/20256,916,592 2.00% to 3.875%6,138,819 Internal Improvements 2010B, due 10/1/20237,973,044 0.50% to 3.00%7,464,348 Internal Improvements 2011A, due 10/1/20316,587,985 2.00% to 5.00%6,587,986 Total general obligation bonds62,443,577$ Revenue Bonds Revenue 2011, due 10/1/3116,193,925$ 2.00% to 4.60%16,193,925$ Total revenue bonds16,193,925$ Temporary Notes Series 2011-1, due 8/1/20123,400,000$ 0.40%3,400,000$ Total revenue bonds3,400,000$ 41 CITY OF SALINA, KANSAS NOTES TO THE BASIC FINANCIAL STATEMENTS December 31, 2011 Note 4. DETAILED NOTES ON ALL FUNDS (Continued) E. Long-Term Debt (Continued) OriginalInterestBonds IssueRatesOutstanding Component Unit Salina Airport Authority General Obligation Bonds General Obligation 2001A, due 20121,385,000$ 4.45% to 5.60%175,000$ General Obligation 2002A, due 20122,635,000 2.45% to 3.70%305,000 General Obligation 2005A, due 20203,635,000 4.75% to 5.25%2,935,000 General Obligation 2007A, due 20221,005,000 4.60% to 6.00%800,000 General Obligation 2009A, due 20292,025,000 4.20% to 4.25%1,932,154 General Obligation 2009B, due 20266,080,000 3.00% to 5.50%5,605,000 General Obligation 2011A, due 203011,820,000 4.64%11,603,309 General Obligation 2011B, due 20312,505,000 4.28%2,453,522 Total general obligation bonds 25,808,985 Special Assessment Debt Airport Industrial Center, due 2016565,235 3.79%104,691 Hangar 600 Sanitary Sewer, due 202127,599 4.47%20,321 Total special assessment debt 125,012 Financing Lease, due 2015425,000 6.609%245,558 Total 26,179,555$ Annual debt service requirements to maturity for general obligation bonds to be paid with tax levies: Bonds Interest YearOutstandingDueTotal 20126,251,086$ 2,299,881$ 8,550,967$ 20136,286,086 2,026,639 8,312,725 20145,961,086 1,802,699 7,763,785 20155,161,086 1,611,107 6,772,193 20165,001,086 1,440,080 6,441,166 2017-202119,865,428 4,617,544 24,482,972 2022-2026 10,541,564 1,805,185 12,346,749 2027-2031 3,376,155 307,047 3,683,202 Total 62,443,577$ 15,910,181$ 78,353,758$ General Obligation - Primary Government 42 CITY OF SALINA, KANSAS NOTES TO THE BASIC FINANCIAL STATEMENTS December 31, 2011 Note 4. DETAILED NOTES ON ALL FUNDS (Continued) E. Long-Term Debt (Continued) Bonds Interest YearOutstandingDueTotal 20121,090,000$ 1,169,829$ 2,259,829$ 2013895,000 1,096,914 1,991,914 2014925,000 1,067,866 1,992,866 2015955,000 1,036,264 1,991,264 2016990,000 1,001,531 1,991,531 2017-20215,600,000 4,370,941 9,970,941 2022-20266,965,000 3,006,746 9,971,746 2027-2031 8,750,000 1,218,234 9,968,234 Total 26,170,000$ 13,968,325$ 40,138,325$ General Obligation - Component Units Annual debt service requirements to maturity for revenue bonds to be paid with utility revenues: Bonds Interest YearOutstandingDueTotal 2012343,696$ 596,991$ 940,687$ 2013623,696 590,191 1,213,887 2014633,696 577,791 1,211,487 2015643,696 565,191 1,208,887 2016663,696 549,191 1,212,887 2017-20213,638,480 2,433,862 6,072,342 2022-20264,323,480 1,738,821 6,062,301 2027-2031 5,323,485 743,320 6,066,805 Total16,193,925$ 7,795,358$ 23,989,283$ Revenue Bonds - Primary Government Annual debt service requirements to maturity for temporary notes - to be paid through the issuance of general obligation bonds: Bonds Interest YearOutstandingDueTotal 20123,400,000$ 14,204$ 3,414,204$ Temporary Notes - Primary Government 43 CITY OF SALINA, KANSAS NOTES TO THE BASIC FINANCIAL STATEMENTS December 31, 2011 Note 4. DETAILED NOTES ON ALL FUNDS (Continued) E. Long-Term Debt (Continued) Annual debt service requirements to maturity for financing lease - to be paid from rental revenue: LeaseInterest YearOutstandingDueTotal 201242,941$ 15,531$ 58,472$ 201345,826 12,646 58,472 201448,905 9,567 58,472 201552,190 6,282 58,472 2016 55,696 2,776 58,472 Total245,558$ 46,802$ 292,360$ Financing Lease - Component Units Annual debt service requirement to maturity for Special Assessment Debt to be paid from rental revenue: AssessmentInterest YearOutstandingDueTotal 201221,066$ 4,876$ 25,942$ 201321,876 4,067 25,943 201422,717 3,226 25,943 201523,590 2,352 25,942 201624,497 1,446 25,943 2017-2021 11,266 1,555 12,821 Total 125,012$ 17,522$ 142,534$ Special Assessment Debt - Component Units 44 CITY OF SALINA, KANSAS NOTES TO THE BASIC FINANCIAL STATEMENTS December 31, 2011 Note 4. DETAILED NOTES ON ALL FUNDS (Continued) E. Long-Term Debt (Continued) Special assessments. As provided by Kansas statutes, projects financed in part by special assessments are financed through general obligation bonds of the City and are retired from the debt service fund. Special assessments paid prior to the issuance of bonds are recorded as revenue in the appropriate project. Special assessments received after the issuance of bonds are recorded as revenue in the debt service fund. The special assessments are not recorded as revenue when levied against the respective property owners as such amounts are not available to finance current year operations. The special assessment debt is a contingent obligation of the City to the extent of property owner defaults, which have historically been immaterial. Conduit debt. The City has entered into several conduit debt arrangements wherein the City issues industrial revenue bonds to finance a portion of the construction of facilities by private enterprises. In return, the private enterprises have executed mortgage notes or leases with the City. The City is not responsible for payment of the original bonds, but rather the debt is secured only by the cash payments agreed to be paid by the private enterprises under the terms of the mortgage or lease agreements. Generally, the conduit debt is arranged so that payments required by the private enterprises are equal to the mortgage payments schedule related to the original debt. At December 31, 2011, total outstanding conduit debt was $86,472,423. Defeased debt. In prior years, the City has defeased certain other outstanding debt obligations by placing the proceeds of new bonds in an irrevocable trust to provide for all future debt service payments on the old bonds. Accordingly, the trust accounts and the defeased bonds are not included in the City’s financial statements. At December 31, 2011, the City had $325,000 of outstanding defeased debt. F. Reconciliation of Transfers A reconciliation of interfund transfers follows: Transfer InTransfer Out Major Funds: General fund868,838$ 997,949$ Flood and drainage improvement fund907 - Tourism and convention fund- 596,440 Special gas fund180,000 1,836 Bicentennial center fund872,849 - Sales tax capital fund8,558 3,501,556 Debt service2,225,565 83,488 Capital projects fund3,289,564 405,549 Other governmental funds547,389 105,259 Agency funds- 198,821 Solid waste disposal fund- 180,000 Water and sewer fund- 2,030,000 Golf course fund47,228 - Central garage fund 60,000 - Total Transfers 8,100,898$ 8,100,898$ The City uses interfund transfers to share administrative costs between funds. 45 CITY OF SALINA, KANSAS NOTES TO THE BASIC FINANCIAL STATEMENTS December 31, 2011 Note 5. OTHER INFORMATION A. Defined Benefit Pension Plan Plan description. The City participates in the Kansas Public Employees Retirement System (KPERS) and the Kansas Police and Firemen’s Retirement System (KP&F). Both are cost-sharing multiple-employer defined benefit pension plans as provided by Kansas statutes (KSA 74-4901 et seq). KPERS and KP&F provide retirement benefits, life insurance, disability income benefits and death benefits. Kansas law established and amends benefit provisions. KPERS and KP&F issue a publicly available financial report that includes financial statements and required supplementary information. Those reports may be obtained by writing to 611 South Kansas, Suite 100; Topeka, Kansas 66603 or by calling 1-888-275-5737. Funding Policy. K.S.A. 74-4919 establishes the KPERS member-employee contribution rate at up to 6% of covered salary. K.S.A. 74-4975 establishes the KP&F member-employee contribution rate at 7% of covered salary. The employer collects and remits member-employee contributions according to the provisions of section 414 (h) of the Internal Revenue Code. State law provides that the employer contribution rates be determined annually based on the results of an annual actuarial valuation. KPERS and KP&F are funded on an actuarial reserve basis. State law sets a limitation on annual increases in the employer contribution rates. The KPERS employer rate was 6.96% from January 1 to December 31, 2011. The City employer contributions to KPERS for the years ending December 31, 2011, 2010, and 2009 were $987,826, $1,039,728 and $831,493, respectively, equal to the required contributions for each year. The KP&F employer rate established for fiscal years beginning in 2011 is 17.68%. Employers participating in KP&F also make contributions to amortize the liability for past service costs, if any, which are determined separately for each participating employer. The City's contributions to KP&F for the years ended December 31, 2011, 2010, and 2009 were $1,787,801, $1,664,356 and $1,769,379, respectively, equal to the required contributions for each year. B. Deferred Compensation Plan The City offers its employees a deferred compensation plan ("Plan") created in accordance with Internal Revenue Code Section 457. The Plan, available to all City employees, permits them to defer a portion of their salary until future years. The deferred compensation is not available to employees until termination, retirement, death, or unforeseeable emergency. Plan assets are transferred to a plan agent in a custodial trust and are not available to the claims of the City's general creditors. C. Flexible Benefit Plan (I.R.C. Section 125) The City Commission has adopted by resolution a salary reduction flexible benefit plan ("Plan") under Section 125 of the Internal Revenue Code. All City employees working more than 20 hours per week are eligible to participate in the Plan beginning after two full months of employment. Each participant may elect to reduce his or her salary to purchase benefits offered through the Plan. Benefits offered through the Plan include various insurance and disability benefits. D. Risk Management The City is exposed to various risks of loss related to torts; theft of, damage to and destruction of assets; errors and omissions; natural disasters and other events for which the City carries commercial insurance. No significant reductions in insurance coverage from that of the prior year have occurred. Settlements have not exceeded insurance coverage for each of the past three years. 46 CITY OF SALINA, KANSAS NOTES TO THE BASIC FINANCIAL STATEMENTS December 31, 2011 Note 5. OTHER INFORMATION (Continued) D. Risk Management (Continued) The City has established a limited risk management program for workers’ compensation. The program covers all City employees. Premiums are paid into the Workers’ Compensation Reserve Fund by all other funds and are available to pay claims, claim reserves and administrative costs of the program. An excess coverage insurance policy covers individual claims in excess of $250,000 ($350,000 for claims involving employees classified as policemen or firemen). Incurred claims, including incurred but not reported claims, have been accrued based primarily upon subsequent payments. Claim liabilities are calculated considering the effects of inflation, recent claim settlement trends including frequency and amounts of payouts and other economic and social factors. The liability for claims and judgments is reported in the Workers' Compensation Reserve Fund because it is expected to be liquidated with expendable available financial resources. Of the liability, $172,545 is considered to be due within one year. Changes in the balances of claims liabilities during the past two years are as follows: 20112010 Unpaid claims, January 1425,582$ 372,610$ Incurred claims (including IBNRs)126,625 409,801 Claim payments[230,417] [356,829] Unpaid claims, December 31321,790$ 425,582$ The City established a limited risk management program for employee health and dental insurance in 1997. The program covers eligible City employees. Premiums are paid into the health insurance fund by all other funds and are available to pay claims, claim reserves and administrative costs of the program. An excess coverage insurance policy covers individual claims in excess of $50,000. Incurred claims, including incurred but not reported claims, have been accrued based primarily upon subsequent payments. Claim liabilities are calculated considering the effects of inflation, recent claim settlement trends including frequency and amounts of payouts and other economic and social factors. The liability for claims and judgments in the Health Insurance Fund because it is expected to be liquidated with expendable available financial resources. Therefore, all of the liability is considered to be due within one year. Changes in the balances of claims liabilities during the past two years are as follows: 20112010 Unpaid claims, January 1382,502$ 421,530$ Incurred claims (including IBNRs)4,229,571 4,198,012 Claim payments[4,220,898] [4,237,040] Unpaid claims, December 31391,175$ 382,502$ 47 CITY OF SALINA, KANSAS NOTES TO THE BASIC FINANCIAL STATEMENTS December 31, 2011 Note 5. OTHER INFORMATION (Continued) E. Capital Projects Capital projects often extend over two or more fiscal years. The following is a schedule, which compares the project authorization including allowable interest revenue to total project expenditures from project inception to December 31, 2011. ProjectAuthorizationExpenditures N Ohio Grade Separation6,617,581$ 6,523,786$ Bicentennial Improvements2,500,000 2,505,636 Markley, Magnolia, Valleyview Sanitary Sewer Improvements and Manhole and Wastewater Pump Station Rehabilitation5,150,000 1,070,277 Grand Prairie Addition1,618,096 1,479,406 Magnolia Commons3,415,564 3,003,051 South 9th Corridor, Phase IV6,500,000 6,201,014 Scoular Addition Waterline Imp.75,453 48,673 Stone Creek Addition440,193 324,404 Riffel # 2 Infrastructure977,917 893,024 East Magnolia Road Replacement4,500,000 432,128 Aviation Service Center5,500,000 3,737,322 Fire Station # 11,787,000 226,131 Project overages in the Bicentennial Improvements project will be reimbursed by special sales tax proceeds. F. Contingent Liabilities The City receives significant financial assistance from numerous federal and state governmental agencies in the form of grants and state pass-through aid. The disbursement of funds received under these programs generally requires compliance with terms and conditions specified in the grant agreements and is subject to audit. Any disallowed claims resulting from such audits could become a liability of the General Fund or other applicable funds. However, in the opinion of management, any such disallowed claims would not have a material effect on any of the financial statements of the City at December 31, 2011. The City is a defendant in various lawsuits. Although the outcome of these lawsuits is not presently determinable, it is the opinion of the City's legal counsel that resolution of these matters will not have a material adverse effect on the financial condition of the City. G. Municipal Solid Waste Landfill State and federal laws and regulations require the City to place a final cover on its landfill site when it stops accepting waste, and to perform certain maintenance and monitoring functions at the site for thirty years after closure. Although closure and postclosure care costs will be paid only near or after the date that the landfill stops accepting waste, the City reports a portion of these closure and postclosure care costs as an operating expense of the solid waste fund in each period based on landfill capacity used as of each balance sheet date. The $2,042,254 reported as landfill closure and postclosure care liability at December 31 represents the cumulative amount reported to date based on the use of 29.5% of the estimated capacity of the landfill. 48 CITY OF SALINA, KANSAS NOTES TO THE BASIC FINANCIAL STATEMENTS December 31, 2011 Note 5. OTHER INFORMATION (Continued) G. Municipal Solid Waste Landfill (Continued) The City's solid waste fund will recognize the remaining estimate cost of closure and postclosure care of $4,891,330 as the remaining estimated capacity is filled over the remaining life expectancy of 68.8 years. These amounts are based on what it would cost to perform all closure and postclosure care in 2011. Actual cost may be higher due to inflation, changes, in technology or changes in regulations. The City is required by State and Federal laws and regulations to provide assurances of financial responsibility for closure and post- closure care. The City has elected to utilize the Local Government Financial test promulgated by the U.S. Environmental Protection Agency (at 40 CFR 258.74(f)) and the Kansas Department of Health and Environment to provide these assurances. Any future closure or post-closure care costs will be provided through the normal budgeting and rate setting process, including the issuance of general obligation bonds, if necessary. H. Environmental Matters The Kansas Department of Health and Environment (KDHE) issued a report in 1994 indicating the presence of volatile organic compounds at levels requiring remediation at the Salina Public Water Supply Wells Site. The City adopted a proactive Policy and Action Plan to remediate the groundwater contamination, and on December 7, 1994, the City and KDHE entered into a Consent Order and Settlement Agreement under which the City assumed primary responsibility for the further investigation and remediation of the groundwater contamination. Field testing work has been completed. The necessary remediation work will be conducted over the next several years at a yet undetermined cost to the City's Water and Sewer Fund. The U.S. Department of Defense transferred property located at the former Schilling Air Force Base (the Base or Site) to the City on or about September 9, 1966. The property is now known to contain areas of extensive soil and groundwater contamination, which is a result of the use and disposal of chlorinated solvents during military operations at the Base from 1942 until Base closure in 1965. The U.S. Department of Defense is responsible for the investigation and remediation of contamination caused by military activities at current and former military bases. The U.S. Army Corps of Engineers (Corps) is the lead agency for the Department at formerly used defense sites. The Corps has investigated the soil and groundwater contamination at the Site under the regulatory oversight of the U.S. Environmental Protection Agency (EPA) and the Kansas Department of Health and Environment (KDHE). The Site is not designated as a National Priority List Superfund site, but investigation and remediation are required to be in compliance with the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA). Potential liability for contamination under CERCLA extends broadly to parties associated with the release or presence of hazardous substances, including not only those entities involved with contaminant use and disposal, but in some cases other current and former owners and operators of contaminated sites. As a current owner of extensive amounts of property at the Site, the City is potentially liable under CERCLA, although the City believes that it has meritorious defenses to such liability. The City is under no administrative orders from the EPA or KDHE. The City is considered to be a Potentially Responsible Party (PRP) for the Site, primarily due to its status as a property owner. The Salina Airport Authority, City of Salina, Unified School District No. 305 and the Kansas Board of Regents (Kansas State University at Salina) (collectively Salina Public Entities) currently own over 90% of the nearly 4,000 acres of the Base property. 49 CITY OF SALINA, KANSAS NOTES TO THE BASIC FINANCIAL STATEMENTS December 31, 2011 Note 5. OTHER INFORMATION (Continued) H. Environmental Matters (Continued) Beginning in August 2007, the Salina Public Entities initiated settlement negotiations with the U.S. Federal Government. The negotiation objectives at that time included transferring the responsibility for completing the cleanup from the U.S. to the Salina Public Entities. The local objective was to reach a settlement agreement with the U.S. that provides the Salina Public Entities sufficient funds to complete cleanup operations over a 30-year period. During calendar year 2008, the Salina Public Entities, by and through its environmental consultant, prepared a detailed Cost to Complete Estimate (CTC). The CTC preparation included consultation with the EPA and KDHE. The Salina Public Entities’ CTC was completed in June of 2008 and submitted to the Corps. Subsequently, on January 23, 2009, the Salina Public Entities delivered a demand letter to the Corps. The letter demanded that settlement negotiations begin immediately with the U.S. Department of Justice. On May 14, 2009 the City was notified that the Corp referred the Base demand letter to the U.S. Department of Justice on May 12, 2009. The Salina Public Entities delivered on or about May 10, 2010, a settlement offer and a draft of a lawsuit complaint to the attorney for the U.S. Department of Justice. The Salina Public Entities planned to file suit against the U.S. if the matter was not settled by the end of May, 2010. The Salina Public Entities did not intend to cut off settlement negotiations by the filing of suit, and this has been communicated to the U.S. No remedial action plan or record of decision has been adopted by the EPA or KDHE. On or about May 27, 2010, the Salina Public Entities filed their Complaint against the United States of America, the United States Department of Defense and Secretary of Defense, Robert M. Gates, in his official capacity (collectively, "Defendants"). On or about September 22, 2010, the Salina Public Entities filed their First Amended Complaint in four counts: Count I Citizen Suit Claim Pursuant to 42 U.S.C.§ 9659(a)(2), Count II Citizen Suit Claim Pursuant to 42 U.S.C.§ 9659(a)(1), Count III Claim for Recovery of Response Costs Pursuant to 42 U.S.C.§ 9607(a) and Count IV Claim for Declaratory Judgment Pursuant to 42 U.S.C.§ 9613(g)(2). On or about October 6, 2010, Defendants filed their motion to dismiss and to strike, primarily with respect to the citizen suit claims. On or about March 25, 2011, Judge Murguia entered his Memorandum and Order. The Judge granted the Defendants' motion to dismiss Counts I and II (citizen suit claims) for lack of subject matter jurisdiction. He also granted the Defendants' motion to dismiss the Salina Public Entities' requests for attorney fees, with the exception of non-litigation attorney fees. He denied the Defendants' motion to strike the Salina Public Entities' allegations of a conflict of interest. The Salina Public Entities' claims under Counts III and IV for response costs under CERCLA 9607(a) are not affected by the Judge's rulings. The Salina Public Entities disagree with most of the Judge's filings and, if necessary, plan to take an interlocutory appeal to the Tenth Circuit to contest the rulings. On or about April 22, 2011, Defendants filed their Answer to First Amended Complaint and Counterclaim against the Salina Public Entities. Count I of the Counterclaim alleges a claim for contribution under CERCLA, 42 U.S.C.§ 9613(f)(1). Count II of the Counterclaim alleges a claim for cost recovery under CERCLA, 42 U.S.C.§ 9607(a)(1). Count II alleges costs incurred by the U.S. Environmental Protection Agency of approximately $1,838,241 as of September 30, 2007, and alleges costs incurred by the Corps of approximately $14,915,228 as of April 17, 2009. The Salina Public Entities intend to vigorously contest the claims brought against them and will assert, among other defenses, the third party defense under 42 U.S.C.§ 9607(b)(3). 50 CITY OF SALINA, KANSAS NOTES TO THE BASIC FINANCIAL STATEMENTS December 31, 2011 Note 5. OTHER INFORMATION (Continued) H. Environmental Matters (Continued) Since the lawsuit remains pending without a final settlement, the City intends to vigorously pursue its claims and contest the claims brought against it. Based on presently known information, the City has determined that while a possible liability exists, at this time no reasonable estimate of the possible liability can be made. Therefore, no liability related to that matter has been recorded. I. Postemployment Health Care Plan Plan Description. The City operates a single employer defined benefit healthcare plan administered by the City. The Employee Benefit Plan (the Plan) provides medical and dental benefits to eligible early retirees and their spouses. KSA 12-5040 requires all local governmental entities in the state that provide a group health care plan to make participation available to all retirees and dependents until the retiree reaches the age of 65 years. No separate financial report is issued for the Plan. Funding Policy. The contribution requirements of plan participants and the City are established and amended by the City. The required contribution is based on projected pay-as-you-go financing requirements. Plan participants contributed approximately $229,000 to the Plan (approximately 100% of total premiums) through their required contribution of $425 per month for retiree-only coverage and $1,141 for family coverage. Annual OPEB Cost and Net OPEB Obligation. The City’s annual other postemployment benefit (OPEB) cost (expense) is calculated based on the annual required contribution of the employer (ARC), an amount actuarially determined in accordance with the parameters of GASB Statement 45. The ARC represents a level of funding that, if paid on an ongoing basis, is projected to cover normal cost each year and amortize any unfunded actuarial liabilities (or funding excess) over a period not to exceed thirty years. The following table shows the components of the City’s annual OPEB cost for the Plan for the year, the amount actually contributed to the plan, and the changes in the City’s net OPEB obligation to the Plan: Annual required contribution961,335$ Interest on Net OPEB Obligation95,743 Adjustment to Annual Required Contribution[79,786] Annual OPEB cost (expense)977,292 Benefit payments229,000 Change in net OPEB obligation748,292 Net OPEB obligation - beginning of year2,393,591 Net OPEB obligation - end of year3,141,883$ 51 CITY OF SALINA, KANSAS NOTES TO THE BASIC FINANCIAL STATEMENTS December 31, 2011 Note 5. OTHER INFORMATION (Continued) I. Postemployment Health Care Plan (Continued) The City’s annual OPEB cost, the percentage of annual OPEB cost contributed to the Plan, and the net OPEB obligation for the year ended December 31, 2011 was as follows: Annual FiscalAnnualOPEBNet YearOPEBCostOPEB EndedCostContributedObligation December 31, 2008910,418$ 96,672$ 813,746$ December 31, 2009957,353 100,000 1,671,099 December 31, 2010921,492 199,000 2,393,591 December 31, 2011977,292 229,000 3,141,883 Funding Status and Funding Progress. As of the year ended December 31, 2011, the most recent actuarial valuation date, the Plan was not funded. The actuarial accrued liability for benefits was $9,019,806 and the actuarial value of asset was $0, resulting in an unfunded actuarial accrued liability (UAAL) of $9,019,806. The covered payroll (annual payroll of active employees covered by the plan) was $21,942,428, and the ratio of the UAAL to the covered payroll was 41.11%. Actuarial valuations of an ongoing plan involve estimates of the value of reported amounts and assumptions about the probability of occurrence of events far into the future. Examples include assumptions about future employment, mortality, and the healthcare cost trend. Amounts determined regarding the funded status of the plan and the annual required contributions of the employer are subject to continual revision as actual results are compared with past expectations and new estimates are made about the future. The schedule of funding progress, presented as required supplementary information following the notes to the financial statement, presents multiyear trend information about whether the actuarial value of plan assets (if any) are increasing or decreasing over time relative to the actuarial accrued liabilities for benefits. Actuarial Methods and Assumptions. Projections of benefits for financial reporting purposes are based on the substantive plan (the plan as understood by the employer and the plan participants) and include the types of benefits provided at the time of each valuation and the historical pattern of sharing of benefit costs between the employer and plan participants to that point. The actuarial methods and assumptions used include techniques that are designed to reduce the effects of short-term volatility in actuarial accrued liabilities and the actuarial value of assets, consistent with the long-term perspective of the calculations. In the year ended December 31, 2011, actuarial valuation, the projected unit credit actuarial cost method was used. The actuarial assumptions include a 4.00% investment rate of return, which is the rate of the employer’s own investments as there are no plan assets and an initial annual medical and dental healthcare cost trend of 9.30%, reduced by decrements to an ultimate rate 4.70% after eighty-two years. The UAAL is being amortized as a level dollar over an open thirty-year period. (THIS PAGE LEFT BLANK INTENTIONALLY)