Audit - 1989/1990
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CITY OF SALINA
Salina, Kansas
WATER AND SEWERAGE DEPARTMENT
FINANCIAL STATEMENTS AND INDEPENDENT AUDITORS' REPORT
December 31, 1990 and 1989
KENNEDY AND COE
Certified Public Accountants
Salina, Kansas
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Exhibit A
Exhibit B
Exhibit C
Exhibit D
CITY OF SALINA
Salina, Kansas
WATER AND SEWERAGE DEPARTMENT
CONTENTS
INDEPENDENT AUDITORS' REPORT
BALANCE SHEETS
STATEMENTS OF INCOME
STATEMENTS OF CONTRIBUTED CAPITAL AND RETAINED EARNINGS
STATEMENTS OF CASH FLOWS
NOTES TO FINANCIAL STATEMENTS
Page
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Contents
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KENNEDY AND COE
CERTIFIED PUBLIC ACCOUNTANTS
OFFICES IN
KANSAS
NEBRASKA
OKLAHOMA
COLORADO
HOME OFFICE:
P.O. BOX 1100
SALINA, KANSAS 67402.1100
913.825.1561
INDEPENDENT AUDITORS' REPORT
To the Mayor and
The Board of City Commissioners:
We have audited the balance sheets of the Water and Sewerage Department of the City
of Salina, Kansas, as of December 31, 1990 and 1989, and the related statements of
income, contributed capital and retained earnings, and cash flows for the years then
ended. These financial statements are the responsibility of the City's management.
Our responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing standards.
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 examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the ac-
counting principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
As discussed in Note 1, the financial statements present only the Water and Sewerage
Department and are not intended to present fairly the financial position of the City
of Salina, Kansas, and the results of its operations and cash flows of its
proprietary and similar trust fund types in conformity with generally accepted
accounting principles.
In our opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of the Water and Sewerage Department of the
City of Salina, Kansas, as of December 31, 1990 and 1989, and the results of its
operations and its cash flows for the years then ended.
Respectfully submitted,
Salina, Kansas
December 17, 1991
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MEMBERS OF: AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS AND
SEC PRACTICE SECTION AND PRIVATE COMPANIES PRACTICE
SECTION OF THE AICPA DIVISION FOR CPA FIRMS
CITY OF SALINA
Salina, Kansas
WATER AND SEWERAGE DEPARTMENT
BALANCE SHEETS
ASSETS
Current Assets
Cash and cash equivalents
Accounts receivable, net of allowance for
doubtful accounts - 1990, $71,649; 1989, $61,003
Accrued interest receivable
Total Current Assets
Restricted Assets
Cash and cash equivalents - Revenue bonds accounts
Construction
Current debt service
Reserves for future debt service
Depreciation and emergency replacement
Extension and bond retirement
Total Restricted Assets
Property, Plant, and Equipment
Land
Water plant and equipment
Sewerage plant and equipment
Furniture and office equipment
Construction in progress (Notes 4 and 6)
Less accumulated depreciation
Total Property, Plant, and Equipment
Other Assets
Prepaid supplies
Deferred bond issuance costs, net of
accumulated amortization - 1990, $6,371;
1989, $101,632
Total Other Assets
Totals
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December 31,
1990 1989
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$ 4,263,778
$ 3,205,959
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442,390
27,765
4,733,933
441,763
32,592
3,680,314
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513,319 1,314,563
360,789 522,999
911,500 1,049,703
350,000
979,758 979,758
2,765,366 4,217,023
323,322 323,322
20,121,998 19,494,995
11,164,370 10,641,741
355,256 360,088
3,173,526 660,117
35,138,472 31,480,263
16,022,043 15,194,477
19,116,429 16,285,786
251,951 269,204
227,219 138,004
479,170 407,208
$27,094,898 $24,590,331
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The accompanying notes are an integral part
of these financial statements.
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LIABILITIES
Current Liabilities
Accounts payable
Customers' meter deposits
Accrued interest payable
Accrued liability for compensated absences
Revenue bonds payable due within one year (Note
Total Current Liabilities
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Long-Term Obligations
Accounts payable, construction
Revenue bonds due after one year (Note 3)
Total Liabilities
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Contributed Capital and Retained Earnings (Exhibit C)
Reserved retained earnings
Current debt service
Future debt service
Depreciation and emergency replacement
Extension and bond retirement
Total Reserved Retained Earnings
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Contributed capital and unreserved retained
earnings
Total Contributed Capital and Retained
Earnings
Totals
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Exhibit A
December 31,
1990 1989
$ 92,348 $ 117,374
74,515 66,335
265,558 149,005
160,592 146,476
3) 220,000 425,000
813,013 904,190
96,068
7,645,000
8,554,081
271,950
6,295,000
7,471,140
360,789 522,999
911,500 1,049,703
350,000
979,758 979,758
2,252,047 2,902,460
16,288,770 14,216,731
18,540,817 17,119,191
$27,094,898 $24,590,331
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CITY OF SALINA
Salina, Kansas
Exhibit B
WATER AND SEWERAGE DEPARTMENT
STATEMENTS OF INCOME
Operating Revenues
Water revenue
Sewerage revenue
Tapping, repair and other service revenue
Total Operating Revenues
Year Ended December 31,
1990 1989
$4,684,022 $4,929,583
1,402,145 1,294,645
71,973 76,036
6,158,140 6,300,264
174,488 115,737
912,299 966,673
231,825 205,860
479,648 439,858
389,211 320,910
1,012,269 1,068,559
802,746 641,937
877,708 821,478
4,880,194 4,581,012
1,277,946 1,719,252
140,357 233,334
93,864 93,864
234,221 327,198
339,104 298,943
14,068 18,290
2,933 23,821
356,105 341,054
1,156,062 1,705,396
Operating Expenses
Water supply
Softening and treatment
Pumping
Distribution
Customers' accounting and collection
Administrative and general
Sewage treatment and collection
Depreciation
Total Operating Expenses
Operating Income
Other Income
Interest on invested cash
Miscellaneous
Total Other Income
Other Expenses
Interest on revenue bonds (Note 4)
Amortization of deferred bond issuance costs
Loss on retirement of assets
Total Other Expenses
Net Income before Extraordinary Item
Extraordinary Item
Loss on advance refunding of revenue bonds
(Note 3.a.)
336,814
$ 819,248
$1,705,396
Net Income
The accompanying notes are an integral part
of these financial statements.
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CITY OF SALINA
Salina, Kansas
Exhibit C
WATER AND SEWERAGE DEPARTMENT
STATEMENTS OF CONTRIBUTED CAPITAL AND RETAINED EARNINGS
Year Ended December 31,
1990 1989
Balance, Beginning of Year
Restatement for correction of errors (Note 8)
$17,192,902
(73,711)
$15,413,795
Balance, Beginning of Year, as Restated
17,119,191
15,413,795
Additions
Net income for the year (Exhibit B)
Contributions of property, plant and equipment
819,248
602,378
$18,540,817
1,705,396
Balance, End of Year
$17,119,191
The accompanying notes are an integral part
of these financial statements.
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CITY OF SALINA
Salina, Kansas
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WATER AND SEWERAGE DEPARTMENT
STATEMENTS OF CASH FLOWS
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Cash Flows from Operating Activities
Operating income (Exhibit B)
Adjustments to reconcile operating income to
net cash provided by operating activities
Depreciation
Provision for uncollectible accounts receivable
Change in assets and liabilities
Accounts receivable
Prepaid supplies
Accounts payable
Customers' meter deposits
Accrued liability for compensated absences
Total Adjustments
Net Cash Provided by Operating Activities
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Cash Flows from Capital and Related Financing Activities
Proceeds from issuance of revenue bonds (including
interest)
Acquisition and construction of capital assets
Principal paid on maturing revenue bonds
Interest paid on revenue bonds
Bond issuance costs paid
Transfer to refunding escrow trust (Note 3.a.)
Miscellaneous income
Net Cash Used for Capital and Related Financing
Activities
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Cash Flows from Investing Activities
Interest on invested cash
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Net Increase (Decrease) in Cash and Cash Equivalents
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Cash and Cash Equivalents at Beginning of Year
Cash and Cash Equivalents at End of Year
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End of Year Cash and Cash Equivalents comprised of
Current
Restricted
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Total
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Exhibit D
Year Ended December 31,
1990 1989
$1,277,946
$1,719,252
877 , 708
21,270
821,478
24,218
(21,897)
17,253
(25,026)
8,180
14,116
891,604
2,169,550
(83,522)
(55,751)
66,932
2,725
(41)
776,039
2,495,291
7,891,556 3,024,493
(3,188,036) (2,281,933)
(275,000) (390,000)
(267,988) (522,156)
(233,590) (4,575)
(6,816,191)
93,864 93,864
(2,795,385) (80,307)
231,997 409,940
(393,838) 2,824,924
7,422,982 4,598,058
$7,029,144 $7,422,982
$4,263,778 $3,205,959
2,765,366 4,217,023
$7,029,144 $7,422,982
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CITY OF SALINA
Salina, Kansas
Exhibit D (Contd.)
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WATER AND SEWERAGE DEPARTMENT
STATEMENT OF CASH FLOWS
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Noncash Capital and Financing Activities
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Property, plant and equipment with a net book value of $2,933 and $23,821 was
disposed of during the years ended December 31, 1990 and 1989, respectively.
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Deferred bond issuance costs were amortized during the year as follows:
1990 1989
Capitalized as interest $ 3,660 $ 2,674
Charged to other expenses 14,068 18,290
Total $ 17 , 728 $ 20,964
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Deferred bond issuance costs of $126,647 were charged off during the year ended
December 31, 1990, to the extraordinary loss on the advance refunding of the
related revenue bonds.
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The accompanying notes are an integral part
of these financial statements.
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CITY OF SALINA
Salina, Kansas
WATER AND SEWERAGE DEPARTMENT
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NOTES TO FINANCIAL STATEMENTS
December 31, 1990 and 1989
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1. Summary of Significant Accounting Policies
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a. Fund Accounting: The City maintains its accounting records in accordance
with the principles of fund accounting in order, to ensure observance
of limitations and restrictions placed on the use of resources available.
Resources are classified for accounting and reporting into funds
established according to their nature and purposes. The Water and
Sewerage Department of the City of Salina is a separate fund of the
City which is supported by user charges from its customers rather than
by tax monies.
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The Department uses the accrual method of accounting in the preparation
of its financial statements. Revenue is recorded as earned and expenses
as incurred.
b. Deferred Bond Issuance Costs: Deferred bond issuance costs are
amortized to expense over the term of the related revenue bonds.
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c. Property, Plant, and Equipment and Depreciation: Property, plant, and
equipment are stated at cost. Assets acquired prior to 1981 have been
adjusted to reflect cost as determined by a firm of professional
appraisers.
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Interest is capitalized on property, plant and equipment acquired with
revenue bonds proceeds. The amount of interest capitalized is calculated
by offsetting interest expense incurred from the date of the borrowing
until completion of the project with interest earned on invested proceeds
over the same period.
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Depreciation is determined using the straight-line method over the
estimated useful life of each asset.
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d. Cash Equivalents: For purposes of the statement of cash flows, the
City considers all highly liquid investments (including restricted
assets) with a maturity of six months or less when purchased to be
cash equivalents.
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e. Restricted Assets: Certain proceeds of revenue bonds, as well as
certain resources set aside for their repayment, are classified as
restricted assets on the balance sheet because their use is limited by
terms of applicable bond ordinances. The "construction" account includes
proceeds of revenue bond issuances that are restricted for use in
construction. The "current debt service" account is used to segregate
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resources accumulated for debt service payments over the next twelve
months. The "reserves for future debt service" account is used to report
resources set aside to make up potential future deficiencies in the
revenue bond current debt service account. The "depreciation and emergency
replacement" account and the "extension and bond retirement" account are
resources set aside for operation, maintenance, repair, improvement and
debt service purposes, as specified by certain bond ordinances.
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2. Cash and Cash Equivalents
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The City of Salina invests funds in time certificates of deposit, repurchase
agreements, and United States Treasury bills or notes with maturities not
exceeding six months, all of which are authorized investments under Kansas
statutes.
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Deposits or investments with qualifying financial institutions are to be
secured by a bond or by the pledge of certain types of securities specified
by statute. Cash deposits of the City of Salina with financial institutions
were 100% insured or collateralized by securities provided by such depository
financial institutions at December 31, 1990.
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Cash and investments of the Water and Sewerage Department are
other funds of the City for deposit and investment purposes.
equivalents of the City included petty cash, cash in checking
accounts, repurchase agreements, certificates of deposit, and
bills as of December 31, 1990 and 1989.
pooled with
Cash and cash
and savings
U.S. Treasury
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3. Revenue Bonds Payable
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Revenue bonds payable are comprised of the following:
December 31,
1990 1989
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Combined Water and Sewage System Revenue
Bonds, Series 1990 (the 1990 Bonds),
matures serially each October 1 through
2008, maturities bear interest at rates
varying from 6.0% to 7.1% per annum
$7,865,000
$
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Combined Water and Sewage System Refunding
Revenue Bonds, Series of 1984 (the 1984
Bonds), matures serially each February 15
through 1994, remaining maturities bear
interest at rates varying from 9% to
9 3/4% per annum.
$1,280,000
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Combined Water and Sewage System Revenue
Bonds, Series of 1987 (the 1987 Bonds),
mature serially each October 1 through
2007, maturities bear interest at rates
varying from 7% to 8 1/2% per annum.
2,505,000
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December 31,
1990 1989
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Combined Water and Sewage System Revenue
Bonds, Series 1988 (the 1988 Bonds),
mature serially each October 1 through
2008, maturities bear interest at rates
varying from 6% to 9 1/2% per annum
$
7,865,000
220,000
$7,645,000
$2,935,000
6, 720,000
425,000
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Less amounts due within one year
Amounts Due After One Year
$6,295,000
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Aggregate maturities of the above obligations in subsequent years are as follows:
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Year
Amount
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1991
1992
1993
1994
1995
Thereafter
$ 220,000
265,000
285,000
300,000
320,000
6,475,000
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Total Bonds Outstanding,
December 31, 1990
$7,865,000
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The City has established certain reserve accounts pursuant to the 1990 bond
ordinance to provide funds for the retirement of the bonds and payment of
interest thereon and for making replacements to the system in the event
other funds are not available. The gross revenues of the Department are
pledged to secure payment of the bonds; however, the pledge is subordinate
to a similar pledge to secure payment of certain defeased bonds.
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The amounts required to be maintained in the reserve accounts established by
the 1990 bond ordinance have been provided and the total revenues of the
system for 1990 appear sufficient to meet the requirements of the ordinance.
a.
Advance Refunding
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The City designated $5,655,000 of the 1990 Bonds as Combined Water and
Sewage System Revenue Refunding Bonds, Series 1990-A. The net proceeds
from the Series 1990-A Bonds of $5,487,410 (after payment of issuance
costs of $167,590) plus $1,327,462 of cash from certain bond reserve
accounts were used to purchase U.S. government securities. These
securities plus $1,319 cash were deposited in irrevocable escrow trusts
on July 19, 1990, with an escrow trustee to provide for all future debt
service payments on the following then outstanding revenue bonds.
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1984 Bonds
1987 Bonds
1988 Bonds
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Total Bonds Advance Refunded
$1,005,000
2,505,000
2,935,000
$6,445,000
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As a result, the above bonds are considered to be defeased and the
liability for these bonds has been removed from the financial
statements.
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Although the advance refunding resulted in recognition of an accounting
loss of $336,814 for the year ended December 31, 1990, the City in
effect reduced its total debt service payments by approximately $100,000
over the remaining term of the bonds and obtained an economic gain (dif-
ference between the present values of the debt service payments on the
old and new debt) of approximately $120,000.
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b. Defeasance of Debt
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In the current and prior years, the City defeased certain revenue bond
issues by placing the proceeds of new bonds and cash and certain in-
vestments in irrevocable trusts to provide for all future debt service
payments on the old bonds. Accordingly, the trust accounts assets and
the liability for the defeased bonds are not included in the Depart-
ment's financial statements. On December 31, 1990, a total of
$13,097,000 of revenue bonds outstanding are considered defeased.
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4. Interest Cost
A summary of interest cost follows:
Interest Expense
Year Ended December 31,
1990 1989
$519,009 $542,751
(179,905) (243,808)
$339,104 $298,943
$179,905 $243,808
(86,813) (186,391)
$ 93,092 $ 57,417
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Total interest cost
Capitalized interest cost
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Capitalized interest cost
Related interest earned on unexpended
bond proceeds whose use is limited
Net Interest Cost Capitalized
I 5. Defined Benefit Pension Plan
Substantially all full-time employees of the City of Salina participate in
the Kansas Public Employees Retirement System ("System"), a multiple-
employer public employees retirement system. The payroll for employees of
the Water and Sewerage Department covered by the System for the years ended
December 31, 1990 and 1989, respectively, was $1,131,153 and $1,154,727; the
total payroll for the Department was $1,257,683 and $1,253,597.
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Substantially all employees of the City of Salina are eligible to participate
in the System after one year of employment. Employees who retire at or after
age 65 are entitled to a retirement benefit, payable monthly for life, equal
to 1 percent of their final average salary for each year of "prior" service
and 1.25 to 1.5 percent for each year of "participating" service depending
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upon the number of years of service. Final average salary is the employee's
average salary over the highest four years of credited service. Benefits
fully vest on reaching 10 years of service. Vested employees may retire at
age 55 to 65 with 10 years of credited service and receive reduced retire-
ment benefits. The system also provides death and disability benefits.
Benefits are established by State statute.
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Covered employees are required by State statute to contribute 4% of their
salary to the plan; in addition, there are various options available to
covered employees, where the employees may make additional contributions.
The employer is required by the same statute to contribute the remaining
amounts necessary to pay benefits when due. The Water and Sewerage
Department's contribution requirement for the year ended December 31, 1990,
was $77,373 which consisted of $29,410 from the employer and $47,963 from
employees; these contributions represented 2.6% and 4.2% of covered
payroll, respectively. The Water and Sewerage Department's contribution
requirement for the year ended December 31, 1989 was $77,218, which
consisted of $22,805 from the employer and $54,413 from employees; these
contributions represented 2.0% and 4.7% of covered payroll, respectively.
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The "pension benefit obligation" is a standardized disclosure measure of
the present value of pension benefits, adjusted for the effects of projected
salary increases and step-rate benefits, estimated to be payable in the
future as a result of employee service to date. The measure, which is the
actuarial present value of credited projected benefits, is intended to help
users assess the System's funding status on a going-concern basis and assess
progress made in accumulating sufficient assets to pay benefits when due.
The System does not make separate measurements of assets and pension benefit
obligation for individual employers. The pension benefit obligation at
January 1, 1990, for the System as a whole, determined through an actuarial
valuation performed as of that date, was $3.384 billion. The System's net
assets available for benefits on that date were estimated to be $3.458
billion, leaving no unfunded pension benefit obligation. The net assets
available for benefits exceeded the pension benefit obligation by $74
million.
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Other information related to the system can be found in the System's 1990
comprehensive annual financial report.
I 6. Commitments
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The Department has entered into contractual commitments totaling $583,443 to
complete certain projects included in construction in process at December 31,
1990.
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7. Related Party Transactions
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Transactions with other funds and departments of the City included in the
Statements of Income are summarized on the following page.
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Year Ended December 31,
1990 1989
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Administrative and General Expense
Franchise fees
Overhead
Risk management
$233,500
220,500
65,556
$240,000
197,000
97,210
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Customers' Accounting and Collection
Data processing
Risk management
55,826
8,170
53,500
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Other Departments
Risk management
37,801
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8. Restatement and Reclassifications
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The accompanying 1989 financial statements have been restated to reflect the
reclassification of certain construction projects completed by December 31,
1989, from construction in progress to the proper property, plant and equip-
ment accounts. In addition, depreciation expense and interest capitalized
on such projects has been restated in the 1989 financial statements. The
effect of the restatement is to decrease 1989 net income by $73,711.
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9.
Contingencies
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Certain claims have been filed against the City alleging negligence in the
clean-up effort of a chemical spill into the City's sanitary sewer system.
The ultimate resolution of these pending claims cannot be presently
determined.
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