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HomeMy Public PortalAboutComprehensive Annual Financial Report Fiscal Year Ended 09-30-06.tifVILLAGE OF KEY BISCAYNE, FLORIDA COMPREHENSIVE ANNUAL FINANCIAL REPORT FISCAL YEAR ENDED SEPTEMBER 30, 2006 Prepared by THE FINANCE DEPARTMENT I I I I I 1 I 1 I I f I 1 1 I 1 I VILLAGE OF KEY BISCAYNE, FLORIDA COMPREHENSIVE ANNUAL FINANCIAL REPORT FISCAL YEAR ENDED SEPTEMBER 30, 2006 TABLE OF CONTENTS I. INTRODUCTORY SECTION PAGE Letter of Transmittal i Village Officials vi Certificate of Achievement for Excellence in Financial Reporting vii Organization Chart viii II. FINANCIAL SECTION REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS 1-2 MANAGEMENT'S DISCUSSION AND ANALYSIS (Required Supplementary Information) 3-10 BASIC FINANCIAL STATEMENTS: Government -Wide Financial Statements: Statement of Net Assets Statement of Activities 11 12 Fund Financial Statements: Governmental Fund Financial Statements: Balance Sheet 13 Statement of Revenues, Expenditures and Changes in Fund Balances 14 Reconciliation of the Statement of Revenues, Expenditures and Changes in Fund Balances of Governmental Funds to the Statement of Activities 15 Proprietary Fund Financial Statements: Statement of Net Assets 16 Statement of Revenues, Expenses and Changes in Net Assets 17 Statement of Cash Flows 18 Fiduciary Fund Financial Statements: Statement of Fiduciary Net Assets 19 Statement of Changes in Fiduciary Net Assets 20 Notes to Basic Financial Statements 21-42 REQUIRED SUPPLEMENTARY INFORMATION (OTHER THAN MD&A) Budgetary Comparison Schedule — General Fund 43 Note to Budgetary Comparison Schedule 44 Schedule of Funding Progress 45 Schedule of Employer Contributions 46 1 VILLAGE OF KEY BISCAYNE, FLORIDA TABLE OF CONTENTS PAGE III. STATISTICAL SECTION Net Assets by Component — Last Three Fiscal Years 47 Changes in Net Assets — Last Three Fiscal Years 48-49 Fund Balances of Governmental Funds — Last Three Fiscal Years 50 Changes in Fund Balances of Governmental Funds — Last Three Fiscal Years 51 General Governmental Tax Revenues by Source — Last Ten Fiscal Years 52 Net Assessed Value and Estimated Actual Value of Taxable Property — Last Ten Fiscal Years 53 Property Tax Rates — Direct and Overlapping Governments — Last Ten Fiscal Years 54 Principal Property Taxpayers — Current and Nine Years Ago 55 Property Tax Levies and Collections — Last Ten Fiscal Years 56 Ratios of Outstanding Debt by Type — Last Ten Fiscal Years 57 Ratios of General Bonded Debt Outstanding — Last Ten Fiscal Years 58 Direct and Overlapping Governmental Activities Debt 59 Pledged Revenue Coverage — Last Ten Fiscal Years 60 Demographic and Economic Statistics — Last Ten Fiscal Years 61 Principal Employers — Current and Nine Years Ago 62 Full -Time Equivalent Village Government Employees by Function — Last Ten Fiscal Years 63 Operating Indicators by Function/Program — Last Ten Fiscal Years 64 Capital Asset Statistics by Function/Program — Last Ten Fiscal Years 65 IV. COMPLIANCE SECTION Report of Independent Certified Public Accountants on Internal Control over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards 66-67 Management Letter in Accordance with the Rules of the Auditor General of the State of Florida 68-69 Report of Independent Certified Public Accountants on Compliance and Internal Control over Compliance Applicable to Each Major Federal Program in Accordance with OMB Circular A-133 70-71 Schedule of Expenditures of Federal Awards 72 Notes to the Schedule of Expenditures of Federal Awards 73 Summary Schedule of Prior Audit Findings 74 Schedule of Findings and Questioned Costs 75-79 I I I I I I 1 1 I I I I 1 1 I I INTRODUCTORY SECTION VILLAGE OF KEY BISCAYNE Village Council Robert L. Vernon, Mayor Jorge E. Mendia, Vice Mayor Michael Davey Enrique Garcia Steve Liedman Thomas Thornton Patricia Weinman Pillage Manager Jacqueline R. Menendez Office of the Village Manager February 15, 2007 To the Honorable Mayor, Members of the Village Council and Citizens of the Village of Key Biscayne: The Government Finance Officers Association (GFOA) recommends that all units of local government publish, within six months of the close of each fiscal year, a complete set of financial statements presented in conformity with generally accepted accounting principles (GAAP) in the United States and audited in accordance with auditing standards generally accepted in the United States and in accordance with Government Auditing Standards by a firm of licensed certified public accountants. Pursuant to that recommendation, we hereby issue the comprehensive annual financial report of the Village of Key Biscayne for the fiscal year ended September 30, 2006. This report consists of management's representation concerning the finances of the Village of Key Biscayne. Consequently, management assumes full responsibility for the completeness and reliability of all of the information presented in this report. To provide a reasonable basis for making these representations, management of the Village of Key Biscayne has established a comprehensive internal framework that is designed both to protect the Village's assets from loss, theft, or misuse and to compile sufficient reliable information for the preparation of the Village of Key Biscayne's financial statements in conformity with GAAP. Because the cost of internal controls should not outweigh their benefits, the Village of Key Biscayne's comprehensive framework of internal controls has been designed to provide reasonable, rather than absolute, assurance that the financial statements will be free from material misstatement. As management, we assert that, to the best of our knowledge and belief, this financial report is complete and reliable in all material respects. The firm of Rachlin Cohen & Holtz LLP, licensed certified public accountants has audited the Village of Key Biscayne's financial statements. The goal of the independent audit was to provide reasonable assurance that the basic financial statements of the Village of Key Biscayne for the fiscal year ended September 30, 2006 are free of material misstatement. The independent audit -1- 88 West McIntyre Street • Suite 210 • Key Biscayne, Florida 33149 • (305) 365-5500 • Fax (305) 365-8936 MISSION STATEMENT 'TO PROVIDE A SAFE, QUAI ITY COMMUNITY ENVIRONMENT FOR ALL ISLANDERS THROUGH RESPONSIBLE GOVERNMENT' www keybiscayne17 gov involved examining, on a test basis, evidence supporting the amount and disclosures in the financial statements; assessing the accounting principles used and significant estimates made by management; and evaluating the overall financial statement presentation. The independent auditor concluded, based upon the audit, that there was a reasonable basis for rendering an unqualified opinion that the Village of Key Biscayne's financial statements for the fiscal year ended September 30, 2006, are fairly presented in conformity with GAAP. The independent auditor's report is presented as the first component of the financial section of this report. GAAP requires that management provide a narrative introduction, overview, and analysis to accompany the basic financial statements in the form of Management's Discussion and Analysis (MD&A). This letter of transmittal is designed to complement MD&A and should be read in conjunction with it. The Village of Key Biscayne's MD&A can be found immediately following the report of the independent certified public accountants. Profile of the Government The Village of Key Biscayne, incorporated in 1991, is located on the southern most barrier island of the United States, Miami -Dade County, Florida approximately 7.5 miles off the coast of Miami, Florida. The Village of Key Biscayne occupies a land area of 1.25 square miles situated between Crandon Park and Bill Baggs State Recreation Area. The Village serves a population of approximately 11,100. The Village of Key Biscayne receives tax levies on real and personal property located inside its boundaries. The Village of Key Biscayne has operated under the council-manager form of government since incorporation. Policymaking and legislative authority are vested in a governing council consisting of the mayor and six other council members. The Council is responsible among other things, for passing ordinances and resolutions, adopting the annual budget, appointing the Village Manager and Village Clerk. The Village Manager is responsible for carrying out the policies and ordinances of the Council, for overseeing the daily operations of the government, and for appointing the heads of various departments. The Village of Key Biscayne offers a wide range of services, including, police protection, fire and emergency medical service, public works maintenance, a full service building, planning and zoning department, parks and recreation activities, solid waste collection, and a comprehensive storm water management system. Certain services are provided through the County School System and the County Library System through Miami -Dade County. The annual budget serves as a foundation for the Village of Key Biscayne's financial planning and control. All departments of the Village are required to submit requests for appropriations to the Village Manager and these requests are the initiation of developing the proposed budget. The Village Manager then presents this proposed budget to the Council for review. The Council is required to hold public hearings on the proposed budget and to adopt a final budget no later than September 30, the close of the Village's fiscal year. The appropriated budget is prepared by fund and department. No department may legally expend in excess of the amount appropriated for that department within an individual fund. The Village Manager may make transfers of appropriations within a department. Transfers of appropriations between departments or funds -11- require the approval of the Village Council. The Village Council approves supplemental appropriations. Budget to actual comparisons are provided in this report for the general fund for which an appropriated annual budget has been adopted. The general fund, budget to actual report, is presented in the required supplemental information section of this report. Local Economy The Village of Key Biscayne enjoys a favorable economic environment and local indicators to continued future stability. This exclusive community is comprised of well-educated and involved citizens who take a genuine interest in the social, business, cultural and governing aspects of their Village. The Village is comprised of affluent exclusive residential housing stock and three major shopping centers. There is no industrial area in the community. Long -Term Financial Planning The Village has completed all three phases of its Civic Center Project with the completion of a new Village Hall/ Police Building, a new Fire Station, and most recently, the third phase, the Village Community Center, opened in November 2004. Recent completion of a new bus shelter at Crandon Blvd and Harbor Drive was the second and largest bus shelter in the Village. Several public works projects have recently been completed yielding new sidewalks, street improvements, park improvements, and a tree replacement program. A new capital project has completed two of three phases to improve the safety of the major roadway through the Village on Crandon Boulevard. The Village utilizes a comprehensive living projection five years into the future to assess revenue trends and expenditure needs to assure a balanced stable financial program avoiding millage rate increases while addressing the various goals and objectives of the community. Cash Management Policies and Practices The Village's Cash Management strategy emphasizes immediate funds collection and deposit into the appropriate fund utilizing ACH debit or wire transfer methods in over 90% of all funds received. Cash is transferred to a centralized clearing account for all payments at the point of payment. The clearing account maintains a zero balance exclusive of these transfers. Currently, the Village's investment policy follows Chapter 218, Florida Statutes. Cash in any of the fund's operating accounts are swept into an overnight repurchase agreement, properly collateralized in accordance with Chapter 280, Florida statutes. Surplus cash is invested in certificates of deposit with qualified depositories, and with the State Board of Administration. Investment objectives are the preservation of principal, liquidity in accordance with planned cash flows, and return on investment in that order. -in- Risk Management The Village is exposed to various risks of loss related to torts, theft of or damage to and destruction of assets; errors and omissions; injuries to employees; and natural disasters. The Village participates in the Florida League of Cities Municipal Insurance Trust for workers' compensation, liability and property insurance. Flood insurance is provided by the Florida State Flood Insurance Pool. Pension Benefits The Village of Key Biscayne sponsors a defined contribution 401(a) pension plan with the International City Managers' Association, Retirement Corporation (ICMA). Each full time employee can contribute up to six percent (6%) of his or her pay to the plan; the Village contributes twelve percent (12%). In addition, the Village sponsors a 457 deferred compensation plan in which the employees may contribute on a voluntary basis. A defined benefit pension plan is available to all firefighters and sworn police officers. This plan is under the direction of a separate board of trustees, two of which are police and fire department employees. Complete details of this plan can be found in note 14 of the basic financial statements. Awards and Acknowledgements The Government Finance Officers Association (GFOA) awarded a Certificate of Achievement for Excellence in Financial Reporting to the Village of key Biscayne for its Comprehensive Annual Financial Report (CAFR) for the fiscal year ended September 30, 2005. This was the fourteenth consecutive year that the Village received this prestigious award. In order to be awarded a Certificate of Achievement, the government published an easily readable and efficiently organized CAFR. This report satisfied both GAAP and applicable legal requirements. A Certificate of Achievement is valid for a period of one year only. We believe that our current CAFR continues to meet the Certificate of Achievement Program's requirements and are submitting it to the GFOA to determine its eligibility for another certificate. In addition, the Village also received the GFOA's Distinguished Budget presentation Award for its annual budget document for the 2004-2005 fiscal year. This was the thirteenth consecutive year that the Village has received this prestigious award. In order to qualify for the Distinguished Budget Presentation Award, the Village's budget document was judged to be proficient in several categories, including as a policy document, a financial plan, an operations guide, and a communications device. The preparation of this report would not have been possible without the efficient and dedicated services of the entire staff of all departments of the Village of Key Biscayne. We would like to express our appreciation to all members of all of the departments who assisted and contributed to the preparation of this report. We would also like to express our appreciation to Rachlin Cohen & Holtz LLP, our independent auditors, for their assistance and efforts in helping the Village prepare the -lv- CAFR. Appreciation is also extended to the Mayor and the Village Council for their unfailing support for maintaining the highest standards of professionalism in the management of the Village of Key Biscayne's finances. Respectfully submitted, cqueline R. Mene illage Manager -v- Randolph G. White Finance Director VILLAGE OF KEY BISCAYNE, FLORIDA VILLAGE OFFICIALS SEPTEMBER 30, 2006 VILLAGE COUNCIL Robert Oldakowski, Mayor Robert Vernon, Vice -Mayor Enrique Garcia Steve Leidman Jorge Mendia Thomas Thornton Patricia Weineman VILLAGE MANAGER Jacqueline R. Menendez VILLAGE CLERK Conchita H. Alvarez, CMC VILLAGE ATTORNEY Weiss Serota Helfman Pastoriza Cole & Boniske, P.A. FINANCE DIRECTOR Randolph G. White, P.A. VILLAGE AUDITORS Rachlin Cohen & Holtz LLP Accountants • Advisors -VI- Certificate of Achievement for Excellence in Financial Reporting Presented to Village of Key Biscayne Florida For its Comprehensive Annual Financial Report for the Fiscal Year Ended September 30, 2005 A Certificate of Achievement for Excellence in Financial Reporting is presented by the Government Finance Officers Association of the United States and Canada to government units and public employee retirement systems whose comprehensive annual financial reports (CAFRs) achieve the highest standards in government accounting and financial reporting. President -fdeAcz, Executive Director -v1i- VILLAGE OF KEY BISCAYNE ORGANIZATIONAL CHART The Village Manager, who reports directly to the Village Council, manages the Village of Key Biscayne's day-to-day operations. The Village Manager appoints the Five Department Heads. Village Clerk Special Master VOTERS OF KEY BISCAYNE Village Council Department of Recreation illage Manage illage Attorne Assistant to Yillage Manager Local Planning Agency Police/Fire Retirement Board Department of Building, Zoning and Planning Building Zoning Planning ode Assistanc Department of Public Safety Fire Rescue Police Special Events Sports and Athletics Programs and Tours Senior Services Department of Public Works illage Enginee Contract Su • ervisor Storm water Mana • ement Refuse Collection and Recycling Department of Finance and Administrative Services Finance/ Accountin Personnel/ Benefits Risk Mana • ement z 0 H 0 W u) Z r11 es um ion as- UN NW 00 010- NO- I NS MN 110 I O I Cohen d ollz Accountants Advisors REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS Honorable Mayor, Village Council and Village Manager Village of Key Biscayne, Florida We have audited the accompanying financial statements of the governmental activities, the business -type activities, each major fund and the aggregate remaining fund information of the Village of Key Biscayne, Florida (the Village) as of September 30, 2006 and for the fiscal year then ended, which collectively comprise the Village's basic financial statements as listed in the table of contents. These financial statements are the responsibility of the Village's management. Our responsibility is to express opinions on these financial statements based on our audit We conducted our audit in accordance with auditing standards generally accepted in the United States and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States 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 purposes of expressing an opinion on the effectiveness of the Village's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinions. In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, the business -type activities, each major fund and the aggregate remaining fund information of the Village of Key Biscayne, Florida as of September 30, 2006 and the respective changes in the financial position and cash flows, where applicable, thereof for the year then ended, in conformity with accounting principles generally accepted in the United States In accordance with Government Auditing Standards, we have also issued a report dated February 15, 2007 on our consideration of the Village's internal control over financial reporting and our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be considered in assessing the results of our audit. Rachlin Cohen & Holtz LLP One Southeast Third Avenue • Tenth Floor • Miami, Florida 33131 • Phone 305.377.4228 • Fax 305.377.8331 • www.rachlin.com An Independent Member of Baker Tilly International M I A M I ■ FORT LAUDERDALE • WEST PALM BEAC H • STUART Honorable Mayor, Village Council and Village Manager Village of Key Biscayne, Florida Page Two Management's Discussion and Analysis and the required supplementary information on pages 3 through 10 and pages 43 through 46, respectively, are not a required part of the basic financial statements but are supplementary information required by accounting principles generally accepted in the United States. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation of the required supplementary information. However, we did not audit the information and express no opinion on it. Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the Village of Key Biscayne's basic financial statements. The introductory section and statistical tables are presented for purposes of additional analysis and are not a required part of the basic financial statements. Similarly, the accompanying schedule of expenditures of federal awards is presented for purposes of additional analysis as required by U.S. Office of Management and Budget Circular A-133, Audits of States, Local Governments, and Non -Profit Organization, and is not a required part of the basic financial statements. The schedule of expenditures of federal awards have been subjected to the auditing procedures applied in the audit of the basic financial statements and in our opinion, is fairly stated, in all material respects, in relation to the basic financial statements taken as a whole. The introductory section and statistical tables have not been subjected to the auditing procedures applied in the audit of the basic financial statements and, accordingly, we express no opinion on them. LzA.id(4, text,x/ it ffiel Lz,p Miami, Florida February 15, 2007 Cohen &Holtz Accountants Advisors MANAGEMENT'S DISCUSSION AND ANALYSIS (MD&A) Management's Discussion and Analysis As Management of the Village of Key Biscayne, we offer readers of the Village of Key Biscayne's (the Village) financial statements this narrative overview and analysis of the financial activities of the Village of Key Biscayne for the fiscal year ended September 30, 2006. We encourage readers to consider information presented here in conjunction with additional information that we have furnished in our letter of transmittal which can be found on pages i-v of this report. Financial Highlights • The assets of the Village of Key Biscayne exceeded its liabilities at the close of the most recent fiscal year by $37,067,208 (net assets). Of this amount, all are either reserved or designated. • The Village's total net assets increased by $2,940,117, this increase is attributable to the increase of property taxes received due to an increase in the assessed taxable values of properties in the Village, increases in revenues from the Key Biscayne Community Center programs and increased code compliance activities. • At the close of the current fiscal year, the Village of Key Biscayne's governmental funds reported an ending fund balance of $6,798,575, an increase of $800,924 in comparison with the prior year. This entire total amount is either reserved or designated for spending at the Council's direction. • The Village incurred $3,450,000 of new long-term debt during the current fiscal year. Overview of the Financial Statements This discussion and analysis are intended to serve as an introduction to the Village of Key Biscayne's basic financial statements. The Village of Key Biscayne's basic financial statements comprise three components: 1) government -wide financial statements, 2) fund financial statements, and 3) notes to the financial statements. This report also contains other supplementary information in addition to the basic financial statements themselves. Government -wide financial statements. The government -wide financial statements are designed to provide readers with a broad overview of the Village of Key Biscayne's finances, in a manner similar to a private sector business. The statement of net assets presents information on all of the Village of Key Biscayne's assets and liabilities, with a difference between the two reported as net assets. Over time, increases or decreases in net assets may serve as a useful indicator of whether the financial position of the Village of Key Biscayne is improving or deteriorating. The statement of activities presents information showing how the government's net assets changed during the most recent fiscal year. All changes in net assets are reported as soon as the underlying event giving rise to the change occurs, regardless of the timing of related cash flows. Thus, revenues and expenses are reported in this statement for some items that will only result in cash flows in future periods (e.g., uncollected taxes and earned but unused vacation leave). Both of the government -wide financial statements distinguish functions of the Village of Key Biscayne that are principally supported by taxes and intergovernmental revenues (governmental activities) from other functions that are intended to recover all or a significant portion of their costs through user fees and charges (business type activities). The governmental activities of the -3- Village of Key Biscayne include general government, public safety, public works, building planning & zoning, and parks and recreation. The government -wide financial statements include only the Village of Key Biscayne itself (known as the primary government). The government -wide financial statements can be found on pages 11 and 12 of this report. Fund Financial Statements. A fund is a grouping of related accounts that is used to maintain control over resources that have been segregated for specific activities or objectives. The Village of Key Biscayne, like other state and local governments, uses fund accounting to ensure and demonstrate compliance with finance -related legal requirements. The Village of Key Biscayne has two fund categories, the governmental funds and the enterprise funds. Governmental Funds. Governmental funds are used to account for essentially the same functions reported as governmental activities in the government -wide financial statements. However, unlike the government -wide financial statements, governmental fund financial statement focus on near -term inflows and outflows of spend able resources as well as on balances of spend able resources available at the end of the fiscal year. Such information may be useful in evaluating a government's near -term financing requirements. Because the focus of governmental funds is narrower than that of the government -wide financial statements, it is useful to compare the information presented for the governmental funds with similar information presented for governmental activities in the government -wide financial statements. By doing so, readers may better understand the long-term impact of the government's near -term financing decisions. Both the governmental fund balance sheet and the governmental fund statement of revenues, expenditures, and changes in fund balances provide a reconciliation to facilitate this comparison between governmental funds and governmental activities. The Village of Key Biscayne maintains four governmental funds, the general fund, a special revenue fund and two capital projects funds. The Village of Key Biscayne adopts an annual appropriated budget for its general fund. A budgetary comparison statement has been provided for the general fund to demonstrate compliance with this budget. The basic governmental fund financial statements can be found on pages 13 to 15 of this report. Proprietary Funds. The Village maintains one type of proprietary fund. Enterprise funds are used to report the same functions presented as business -type activities in the government -wide financial statements. The Village uses enterprise funds to account for its Stormwater, Solid Waste Collection and Sanitary Sewer Construction operations. The basic proprietary fund financial statements can be found on pages 16-18 of this report. Fiduciary Funds. Fiduciary funds are used to account for resources held for the benefit of parties outside the Village. Fiduciary funds are not reflected in the government -wide financial statements because the resources of those funds are not available to support the Village's own programs. The accounting used for fiduciary funds is much like that used for proprietary funds. The basic fiduciary fund financial statements can be found on pages 19-20 of this report. -4- Notes to the basic financial statements. The notes provide additional information that is essential to a full understanding of the data provided in the government -wide and fund financial statements. The notes to the financial statements can be found on pages 21 to 42 of this report. Other Information In addition to the basic financial statements and accompanying notes, this report also presents certain required supplementary information concerning the Village's progress in funding its obligation to provide pension benefits to its employees. Required supplementary information can be found on pages 43 to 46 of this report. Government -wide Financial Analysis As noted earlier, net assets may serve over time as a useful indicator of a government's financial position. In the case of the Village's, assets exceeded liabilities by $37,067,208 at the close of the most recent fiscal year. A portion of the Village's net assets, $70,866,285 or 88.77 %, reflects its investment in capital assets (e.g., land and equipment). The Village of Key Biscayne uses these capital assets to provide services to citizens; consequently, these assets are not available for future spending. Our analysis of the financial statements of the Village begins below. The Statement of Net Assets and the Statement of Activities report information about the Village's activities that will help answer questions about the position of the Village. A comparative analysis is provided. Governmental Activities. Governmental activities increased the Village of Key Biscayne fund balance by approximately $800,924. This net overall increase was attributable to an increase in property tax revenues due to increased assessed values of Key Biscayne real estate in general and increased code enforcement activities. All other governmental activities increased fund balance as follows: • Property taxes increased by $1,469,987 (11.0 percent) during the year. Most of this increase is the product of a minor number of new units completed and on the tax roll for the first time, along with renovated homes with increased assessed values, and residential and commercial resales. • Most department salaries increased 8 percent due to the Village's salary step program, which in fiscal year 2006 reflected a 5 percent increase in salaries and a 3 percent increase for a cost of living increase. • Debt service remained fairly level compared to the prior year, with a minor addition for interest on new debt. • The amount expended to the Village Attorney increased due to involvement with labor negotiations with the Village's Fire Rescue Department that were unforeseen at budget preparation time. For the most part, increases in expenses closely paralleled inflation and growth in the scope of services. Net Assets A summary of the Village's net assets is presented in Table A-1 and a summary of the changes in net assets is presented in Table A-2. -5- Table A - 1 Summary of Net Assets Governmental Activities Business -type Activities Total Current assets Capital assets, net Total assets Current liabilities Noncurrent liabilities Investment in capital assets, net of related debt Restricted Unrestricted Total net assets 2006 2005 $ 8,155,986 $ 8,130,755 62,377,577 57,936,791 70,533,563 66,067,546 3,561,695 2,083,737 33,009,069 33,069,703 28,676,266 359,899 4,926,634 $33,962,799 Revenues: Program revenues: Charges for services Operating grants and contributions Capital grants and contributions General revenues: 26,284,600 326,826 4,302,680 2006 2005 2006 2005 $ 809,571 $ 1,349,581 $ 8,965,557 $ 9,480,336 8,488,706 8,337,603 70,866,283 66,274,394 9,298,277 9,687,184 79,831,840 75,754,730 284,860 68,441 3,846,555 2,152,178 5,909,008 6,405,759 38,918,077 39,475,462 2,326,089 1,931,843 778,320 1,281,141 $30,914,106 $3,104,409 $3,212,984 31,002,355 28,216,443 359,899 326,826 5,704,954 5,583,821 $ 37,067,208 $ 34,127,090 Table A - 2 Summary of Changes in Net Assets Governmental Activities Business -type Activities Total 2006 2005 2006 2005 2006 2005 $ 3,238,022 $ 2,907,492 $ 1,049,332 $ 1,052,444 $ 4,287,354 $ 3,959,936 3,559,753 650,679 - - 3,559,753 650,679 517,643 - - - 517,643 Property taxes 14,830,238 13,360,251 Utility taxes - 2,346,655 2,234,402 Franchise fees - 1,088,929 705,810 Intergovernmental 996,092 978,304 Investment income and miscellaneous 45,527 41,050 351,866 578,318 Total revenues 26,366,028 21,891,849 1,094,859 1,093,494 27,460,887 22,985,343 Expenses: General government Public safety Parks and recreation Public works Building, zoning and planning Debt service Stormwater Solid waste collection Sanitary sewer construction Total expenses 14,830,238 2,346,655 1,088,929 996,092 13,360,251 2,234,402 705,810 978,304 306,339 537,268 4,252,037 2,914,734 4,252,037 2,914,734 9,222,766 9,240,670 - 9,222,766 9,240,670 2,849,434 2,614,785 2,849,434 2,614,785 4,004,651 2,189,673 4,004,651 2,189,673 1,547,042 1,235,175 - - 1,547,042 1,235,175 1,413,272 1,305,383 - 1,413,272 1,305,383 720,158 454,963 720,158 454,963 501,417 466,162 501,417 466,162 9,992 10,262 9,992 10,262 23,289,202 19,500,420 1,231,567 931,387 24,520,769 20,431,807 Changes in net assets before transfers 3,076,826 2,391,429 (136,708) 162,107 2,940,118 2,553,536 Transfers (28,133) (28,135) 28,133 28,135 Changes in net assets after transfers 3,048,693 2,363,294 (108,575) 190,242 2,940,1 18 2,553,536 Net assets, beginning 30,914,106 28,550,812 3,212,984 3,022,742 34,127,090 31,573,554 Net assets, ending $ 33,962,799 $ 30,914,106 $ 3,104,409 S 3,212,984 $ 37,067,208 $ 34,127,090 The government's net assets increased by $3,048,693 during the current fiscal year. This increase represents the results of operations for a full 12 -month period with no capital contributions from outside sources. Business -type Activities Business -type activities decreased the Village's net assets by $108,576. -6- • In fiscal 2006, one of the three business -type activities reflected operational profits. • The Stormwater Utility Fund reflected an operating loss of $16,415, due mainly to depreciation expense in the amount of $273,919. • The Solid Waste Collection Fund reported a profit of $30,550. • The Sanitary Sewer Construction Fund was dormant awaiting a resumption of construction activity. Governmental Activities Revenues by Sources- Governmental Activities Intergovernmental, $996,092 , 5% Utility Taxes, $2,346,655 , 12% Franchise Fees, $1,088,929 , 6% Investment Earnings, $351,864 , 2% Ad Valorem Taxes, $14,830,238 , 75% Charges for Services, $2,041,169 , 63% -7- Program Revenues Program Expenses Interest on Long Term Debt, $1,413,272 , 6% Building, Zoning and Planning, $1,547,042 , 7% Parks and Recreation, $2,849,434 , 12% Fire, $4,947,149 ,J 22% Licenses, Permits & Fines, $1,196,853 , 37% Public Works, $4,004,651 , 17% Police, $4,275,617 , 18% Business -type Activities Revenues- Business Type Activities Stormwater Charges, $517,365 , 49% Solid Waste Charges, r $531,967 , 51% Expenses- Business Type Activities General and Administrative - Stormwater, $533,780 , 52% General and AdministratiNte - Solid Waste, $501,417 , 48% Financial Analysis of the Government's Funds As noted earlier, the Village of Key Biscayne uses fund accounting to ensure and demonstrate compliance with finance -related legal requirements. Governmental funds. The focus of the Village of Key Biscayne's governmental funds is to provide information on near -term inflows, outflows, and balances of spend able resources. Such information is useful in assessing the Village's financing requirements. At the end of the current fiscal year, fund balance of the general fund was $6,874,310, an increase of $1,120,033 in comparison with the prior year. All of this is either reserved or designated for specific uses: (1) emergencies ($2,388,765), (2) Building Inspection Costs ($275,000), (3) Compensated Absences ($334,644), (4) Law Enforcement Seizures ($359,899), (5) Playing Field Acquisitions ($456,403), (7) Working Capital Reserves ($600,000), (8) Police/Administration Building Reserve ($5,890), (9) Fire Station Building Reserve ($5,890), (10) Community Center Equipment Reserve ($50,000), (11) Fire Vehicles Replacement Reserve -8- ($50,000), (12) Master Plan Initiatives ($1,403,597), (13) Capital Lease ($298,682), (14) Prepaid Items ($170,539), (15) Roadway Improvements ($175,000), and Recreation Facilities ($300,000). The general fund is the chief operating fund of the Village of Key Biscayne. As a measure of the general fund's liquidity, it may be useful to compare total fund balance to total fund expenditures. Total fund balance represents 30.5 percent of total general fund expenditures. A summary of the general fund's condensed balance sheet and statement of revenues, expenditures and changes in fund balance is presented in Table B-1 and B-2 for September 30, 2006 and 2005, is shown as follows: Table B-1 Summary of Condensed Balance Sheet 2006 2005 Total assets $ 8,045,610 $ 7,177,656 Total liabilities Reserved or designated fund balance Total liabilities and fund balance $ 1,171,300 $ 1,423,379 6,874,310 5,754,277 $ 8,045,610 $ 7,177,656 Table B-2 Summary of Condensed Statement of Revenues, Expenditures and Changes in Fund Balances Total revenues Total expenditures Excess of revenues over expenditures 2006 2005 $25,264,190 $21,240,012 22,554,700 19,568,607 $ 2,709,490 $ 1,671,405 The Special Revenue Fund was established to account for the construction and future maintenance of the Village's roadways. Bond revenue is the source of funding for construction of roadways, while the local option gas tax funds maintenance and the transportation surtax funds debt service. At present, the fund shows a negative fund balance which will be corrected with the Series 2006 Roadway Improvement Revenue Bonds, issued in late December 2006. The Capital Improvement Fund receives an annual budgeted transfer from the general fund to fund capital construction of infrastructure at various locations on the island. All transfers are allocated to specific projects by management and the council during the annual budgeting process. The fund balance increased by $880,206 during the current fiscal period. Fund balance is comprised of funds allocated to named projects with varied stages of completion. General Fund Budgetary Highlights There were no supplemental appropriations for the fiscal year ended September 30, 2006. -9- Capital Assets As of September 30, 2006, the Village's capital assets net of accumulated depreciation amounted to $70,866,283. The total increase in capital assets for the fiscal year was as follows: Major capital asset events during the fiscal year included the following: • Completion of the McIntyre and Crandon Intersection and Median Fountains • Second year of the Village Tree Replacement Program • Completion of drainage improvements on Harbor Drive • Completion of the Crandon Blvd Improvement. Project, phase one Additional information on the Village's capital assets can be found in Note 8 on pages 32-33 of this report. Debt Administration At September 30, 2006, the Village had bonded debt outstanding of $39,248,577. Of this amount, $5,785,000 represents bonds secured solely by specified revenue sources (Stormwater revenue bonds). The remainder is special obligation bonds that are secured by non -ad Valorem revenues through covenants to budget and appropriate. The Village's total net debt outstanding increased by $1,992,213 due to the additional borrowing required for Crandon Blvd. Phase 2 construction. Additional information on the Village's long-term debt can be found in note 9 on pages 33-38 of this report. Economic Factors and Next Years Budgets and Rates • The unemployment rate for Miami -Dade County is currently 4.5 percent, which is an increase from a rate of 4.1 percent a year ago. This compares unfavorably to the state's average unemployment rate of 3.3 percent and the national average rate of 4.6 percent. The Village's average rate remained unchanged at 3.2 percent. • The occupancy rate of the government's retail rentals and hospitality service industry has remained stable for the past several years. • Inflationary trends in the region compare favorably to national indices. All of these factors were considered in preparing the Village of Key Biscayne's budget for the 2007 fiscal year. Requests for Information This financial report is designed to provide a general overview of the Village of Key Biscayne's finances for all those with an interest in the government's finances. Questions concerning any of the information provided in this report or requests for additional financial information should be addressed to the Office of the Village Manager, 88 West McIntyre Street, Key Biscayne, Florida 33149 -10- VILLAGE OF KEY BISCAYNE, FLORIDA STATEMENT OF NET ASSETS SEPTEMBER 30, 2006 Business - Governmental type Activities Activities Total ASSETS Cash and cash equivalents $ 5,600,388 $ 931,310 $ 6,531,698 Receivables, net 898,076 443,950 1,342,026 Interest receivable 14,115 14,115 Prepaids 170,541 - 170,541 Internal balances 579,804 (579,804) - Negative net pension obligation 142,067 - 142,067 Other assets 24,919 - 24,919 Restricted assets: Cash and cash equivalents 369,261 - 369,261 Investments 370,930 - 370,930 Capital assets not being depreciated 27,025,802 888,937 27,914,739 Capital assets being depreciated, net 35,351,775 7,599,769 42,951,544 Total assets 70,533,563 9,298,277 79,831,840 LIABILITIES Accounts payable and accrued liabilities Accrued interest payable Payable to pension plan Unearned revenue Noncurrent liabilities: Due within one year Due in more than one year Total liabilities 790,085 13,259 803,344 387,319 387,319 130,680 - 130,680 269,658 17,992 287,650 1,983,953 253,609 2,237,562 33,009,069 5,909,008 38,918,077 36,570,764 6,193,868 42,764,632 NET ASSETS Invested in capital assets, net of related debt 28,676,264 2,326,089 31,002,353 Restricted for law enforcement 359,899 359,899 Unrestricted 4,926,636 778,320 5,704,956 Total net assets $ 33,962,799 $ 3,104,409 $ 37,067,208 See notes to basic financial statements -11- VILLAGE OF KEY BISCAYNE, FL ORIDA STATEME NT OF ACTIVITIES FISCAL YEAR ENDE D SEPTEMBER 30, 2006 Functions/Pi ograms Governmental activities: General government Public works Police File Pal ks and recreation Building, zoning and planning Inte rest on long-term debt Total gov ernmental activities Business -type activities: Stormwater Solid waste Sanitary sewer Total business -type activities Total Charges foi Expenses Services Program Revenues Operating Capital Grants and Grants and Contributions Contributions $ 4,252,037 $1,466,186 $ 997,274 $ 4,004,651 - 2,379,102 4,275,617 40,719 - 4,947,149 50,392 95,978 2,849,434 1,512,923 87,399 1,547,042 167,802 1,413,272 23,289,202 3,238,022 3,559,753 720,158 517,365 501,417 531,967 9,993 1,231,568 1,049,332 $ 24,520,770 $4,287,354 $ 3,559,753 $ General revenues . Pt operty taxes Franchise fees based on gross receipts Utility taxes Communications services tax Uniestncted intergovernmental revenue Umestricted investment earnings Transfers Total general revenues Change in net assets Net assets, beginning N et assets, ending See notes to basic financial statements. -12- Net (E xpe nse) Revenue and Changes in Net Assets Business - Governmental type Activities Activities Total $ (1,788,577) $ (1,625,549) (4,234,898) (4,800,779) (1,249,112) (1,379,240) (1,413,272) (16,491,427) - $ (1,788,577) (1,625,549) (4,234,898) (4,800,779) (1,249,1 12) (1,379,240) (1,413,272) (16,491,427) (202,793) 30,550 (9,993) (202,793) 30,550 (9,993) (182,236) (182,236) (16,491,427) (182,236) (16,673,663) 14,830,238 1,088,929 1,549,601 797,054 996,092 306,339 (28,133) 19,540,120 3,048,693 30,914,106 $ 33,962,799 45,527 28,133 73,660 (108,576) 3,212,985 $ 3,104,409 14,830,238 1,088,929 1,549,601 797,054 996,092 351,866 19,613,780 2,940,1 17 34,127,091 $ 37,067,208 VILLAGE OF KEY BISCAYNE, FLORIDA BALANCE SHEET GOVERNMENTAL FUNDS SEPTEMBER 30, 2006 Civic Center Total Special Capital (A Nonmaior Governmental General Revenue Improvements Fund) Funds ASSETS Cash and cash equivalents Receivables, net Due from other funds Prepaid items Restricted cash and cash equivalents Restricted investments Total assets $ 4,414,438 $ - $ 1,185,950 $ $ 5,600,388 793,115 104,961 - - 898,076 2,256,881 445,114 - 2,701,995 170,539 - - - 170,539 39,707 329,554 - 369,261 370,930 - - 370,930 $ 8,045,610 $ 434,515 $ 1,631,064 $ $ 10,11 1,189 LIABILITIES AND FUND BALANCES Liabilities: Accounts payable and accrued liabilities $ 770,962 $ 19,123 $ - $ $ 790,085 Due to other funds - 1,912,141 210,050 - 2,122,191 Payable to pension plan 130,680 - - 130,680 Deferred revenue 269,658 - - 269,658 Total liabilities 1,171,300 1,931,264 210,050 - 3,312,614 Fund balances: Reserved Unreserved, undesignated reported in: Special revenue fund Capital improvements Total fund balances (deficit) Total liabilities and fund balances 6,874,310 - 6,874,310 - (1,496,749) - (1,496,749) - 1,421,014 - 1,421,014 6,874,310 (1,496,749) 1,421,014 - 6,798,575 $ 8,045,610 $ 434,515 $ 1,631,064 $ Amounts reported for governmental activities in the statement of net assets are different because: Capital assets used in governmental activities are not financial resources and, therefore, are not reported in the funds A negative net pension obligation (NPO) is not considered to represent a financial asset and therefore is not reported in the governmental funds Long-term liabilities, including bonds payable, are not due and payable in the current period and therefore not reported in the funds Net assets of governmental activities 62,377,577 142,067 (35,355,420) $ 33,962,799 See notes to basic financial statements -13- VILLAGE OF KEY BISCAYNE, FLORIDA STA 1bMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS FISCAL YEAR ENDED SEPTEMBER 30, 2006 Revenues: Property taxes Utility taxes Communications Services tax Franchise fees Licenses and permits Intergovernmental Charges for services Interest Grants Total revenues Special General Revenue $14,830,238 $ 1,549,601 797,054 l ,088,929 1,196,853 996,092 2,041,169 285,688 2,478,566 25,264,190 Expenditures: Current: General government 2,239,052 Fire 5,117,176 Police 4,388,362 Public works 4,002,609 Building, zoning and planning 1,544,696 Parks and recreation 2,634,887 Capital outlay Debt service: Principal 1,214,646 Interest and fiscal charges 1,413,272 Total expenditures 22,554,700 Excess (deficiency) of revenues over expenditures Other financing sources (uses): Transfers in Transfers out Bonds issued Total other financing sources (uses) Net change in fund balances Fund balances (deficit), beginning Fund balances (deficit), ending 759,991 10,217 87,399 857,607 Capital Improvements 10,434 233,797 244,231 5,167,525 1,264,746 5,167,525 1,264,746 2,709,490 (4,309,918) (1,020,515) (1,589,457) 1,390 3,450,000 1,730,193 (168,870) Civic Center Total (A Nonmajor Governmental Fund) Funds $ 14,830,238 1,549,601 797,054 1,088,929 1,196,853 1,756,083 2,041,169 306,339 2,799,762 26,366,028 2,239,052 5,117,176 4,388,362 - 4,002,609 - 1,544,696 2,634,887 6,432,271 1,214,646 1,413,272 28,986,971 (2,620,943) - 1,731,583 (1,389) (1,759,716) - 3,450,000 (1,589,457) 3,451,390 1,561,323 (1,389) 3,421,867 1,120,033 (858,528) 540,808 (1,389) 800,924 5,754,277 (638,221) 880,206 1,389 5,997,651 $ 6,874,310 $ (1,496,749) $ 1,421,014 $ - $ 6,798,575 See notes to basic financial statements. -14- VILLAGE OF KEY BISCAYNE, FLORIDA RECONCILIATION OF THE STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES OF GOVERNMENTAL FUNDS TO THE STATEMENT OF ACTIVITIES FISCAL YEAR ENDED SEPTEMBER 30, 2006 Amounts reported for governmental activities in the statement of activities (Page 12) are different because: Net change in fund balances - total governmental funds (Page 14) Governmental funds report capital outlays as expenditures. However, in the statement of activities, the cost of those assets is allocated over their estimated useful lives and reported as depreciation expense. This is the amount by which capital outlays exceeded depreciation in the current period. The details of the difference are as follows: Capital outlay Depreciation expense Net adjustment The issuance of long-term debt provides current financial resources to governmental funds, while the repayment of the principal of long-term debt consumes the current financial resources of governmental funds. The detail of the differences are as follows: Debt payments Revenue bonds issued Net adjustment Some expenses reported in the statement of activities do not require current financial resources and, therefore, are not reported as expenditures in governmental funds. The details of the difference is: Compensated absences Accrued interest expense Negative net pension obligation $ 5,884,962 (1,1 89,168) 1,397,897 (3,450,000) (125,806) (4,784) (265,332) $ 800,924 4,695,794 (2,052,103) (395,922) Change in net assets of governmental activities (Page 12) $ 3,048,693 See notes to basic financial statements. -15- VILLAGE OF KEY BISCAYNE, FLORIDA STATEMENT OF NET ASSETS PROPRIETARY FUNDS SEPTEMBER 30, 2006 Business -type Activities - Enterprise Funds Solid Stormwater Sanitary Waste Utility Sewer (A Nonmajor System Construction Fund) Totals ASSETS Current assets: Cash and cash equivalents Accounts receivables, net Interest receivable Total current assets Noncurrent assets: Capital assets not being depreciated Capital assets being depreciated, net Total noncurrent assets Total assets $ 891,566 $ 129,382 14,115 1,035,063 7,599,769 888,937 7,599,769 888,937 $ 39,744 $ 931,310 314,568 443,950 14,115 354,312 1,389,375 888,937 7,599,769 8,488,706 8,634,832 888,937 354,312 9,878,081 LIABILITIES Current liabilities: Accounts payable and accrued liabilities 8,607 4,652 13,259 Due to other funds 154,782 425,022 579,804 Deferred revenue - 17,992 17,992 Current portion of revenue bonds payable 235,000 18,609 253,609 Total current liabilities 398,389 448,283 17,992 864,664 Noncurrent liabilities: Revenue bonds 5,550,000 - - 5,550,000 Revolving loan - 359,008 - 359,008 Total noncurrent liabilities 5,550,000 359,008 5,909,008 Total liabilities 5,948,389 807,291 17,992 6,773,672 NET ASSETS Invested in capital assets, net of related debt 1,814,769 511,320 2,326,089 Unrestricted 871,674 (429,673) 336,319 778,320 Total net assets $ 2,686,443 $ 81,647 $ 336,319 $ 3,104,409 See notes to basic financial statements -16- VILLAGE OF KEY BISCAYNE, FLORIDA STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS PROPRIETARY FUNDS FISCAL YEAR ENDED SEPTEMBER 30, 2006 Business -type Activities - Enterprise Funds Solid Stormwater Sanitary Waste Utility Sewer (A Nonrnajor System Construction Fund) Totals Operating revenues: Charges for services $ 517,365 $ $ 531,967 $1,049,332 Operating expenses: General and administrative 259,861 - 501,417 761,278 Depreciation 273,919 - 273,919 Total operating expenses 533,780 - 501,417 1,035,197 Operating income (loss) Non -operating revenues (expenses): Interest income Interest expense Total non -operating revenues (expenses) (16,415) 36,433 (186,378) (9,991) 30,550 14,135 9,092 45,525 (196,369) (149,945) (9,991) 9,092 (150,844) Income (loss) before transfers (166,360) (9,991) 39,642 (136,709) Transfers in - 28,133 - 28,133 Change in net assets (166,360) 18,142 39,642 (108,576) Net assets, beginning 2,852,803 63,505 296,677 3,212,985 Net assets, ending $ 2,686,443 $ 81,647 $ 336,319 $ 3,104,409 See notes to basic financial statements -17- VILLAGE OF KEY BISCAYNE, FLORIDA STATEMENT OF CASH FLOWS PROPRIETARY FUNDS FISCAL YEAR ENDED SEPTEMBER 30. 2006 Business -type Activities - Enterprise Funds Solid Stormwater Sanitary Waste Utility Sewer (A Nonma_lor System Construction Fund) Totals Cash flows from operating activities: Receipts from customers and users $ 517,366 $ 425,022 $ 543,457 $ 1,485,845 Payments to suppliers (90,767) - (626,451) (717,218) Net cash provided (used) by operating activities 426,599 425,022 (82,994) 768,627 Cash flows from non -capital financing activities: Transfers from other funds Net cash provided by non -capital financing activities Cash flows from capital and related financing activities: Net payments on revolving loan Payments for construction in progress Interest paid Net cash used by capital and related financing activities Cash flows from investing activities - Interest received Net cash provided by investing activities Net increase (decrease) in cash and cash equivalents Cash and cash equivalents, beginning Cash and cash equivalents, ending Reconciliation of operating income to net cash provided by operating activities: Operating income (loss) Adjustments to reconcile operating income to net cash provided by operating activities: Depreciation Provision for uncollectible accounts Changes in operating assets and liabilities: (increase) decrease in: Accounts receivable Interest receivable Due from other funds Increase (decrease) in: Accounts payable Deferred revenue Due to other funds Total adjustments Net cash provided (used) by operating activities 28,133 28,133 28,133 - 28,133 (225,000) (18.142) (425,022) (186,378) (9,991) (2,397) (243,142) (425,022) (198,766) (411.378) (453.155) (2,397) (866,930) 36,433 - 36,433 36,433 - 36,433 51,654 (85,391) (33,737) 839,912 - 125,135 965,047 $ 891,566 $ - $ (16,415) $ 39,744 $ 931,310 $ 30,550 $ 14,135 273,919 - - 273,919 11,490 11,490 383 - (92,860) (92.477) 4,879 - 4,879 14,467 - - 14,467 (5,416) - (42,834) (48,250) 11.060 11,060 154,782 425,022 (400) 579,404 443,014 425.022 (113,544) 754.492 $ 426,599 $ 425.022 $ (82,994) $ 768.627 See notes to basic financial statements -18- VILLAGE OF KEY BISCAYNE, FLORIDA STATEMENT OF FIDUCIARY NET ASSETS PENSION TRUST FUND SEPTEMBER 30, 2006 ASSETS Contributions receivable: Village (including State) $ 428,657 Employees 37,501 Total contributions receivable 466,158 Investments, at fair value: Money market funds Common stocks Mutual funds Total investments Total assets LIABILITIES AND NET ASSETS Liabilities Net assets held in trust for pension benefits See notes to basic financial statements. -19- 217,626 3,335,991 3,835,083 7,388,700 7,854,858 $ 7,854,858 VILLAGE OF KEY BISCAYNE, FLORIDA STATEMENT OF CHANGES IN FIDUCIARY NET ASSETS PENSION TRUST FUND FISCAL YEAR ENDED SEPTEMBER 30, 2006 ADDITIONS Contributions: Plan members Village (including State) Total contributions Investment earnings: Net increase in the fair value of investments Interest and dividends Total investments earnings Total additions DEDUCTIONS Benefits paid Administrative expenses Total deductions Change in net assets Net assets, beginning Net assets, ending See notes to basic financial statements. -20- $ 549,187 889,122 1,438,309 485,794 73,777 559,571 1,997,880 145,547 108,465 254,012 1,743,868 6,110,990 $7,854,858 NOTES TO BASIC FINANCIAL STATEMENTS VILLAGE OF KEY BISCAYNE, FLORIDA NOTES TO BASIC FINANCIAL STATEMENTS SEPTEMBER 30, 2006 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The Village of Key Biscayne, Florida (the Village), located in Miami -Dade County, is a political subdivision of the State of Flonda. The Village, which was incorporated in 1991, operates under a Council -Manager form of government. In addition to the general government function, the Village provides its residents with public works, public safety (police and fire), parks and recreation, building, zoning and planning functions, sanitation and stormwater management. The Village does not provide educational or hospital facilities; those services are provided by the Miami -Dade County School Board and Miami -Dade County, respectively. The financial statements of the Village have been prepared in conformity with accounting principles generally accepted in the United States (GAAP) as applied to governmental units. The Governmental Accounting Standards Board (GASB) is the accepted standard -setting body for establishing governmental accounting and financial reporting principles. The more significant of the Village's accounting policies are described below: A. Financial Reporting Entity The financial statements were prepared in accordance with GASB Statements related to The Financial Reporting Entity, which establishes standards for defining and reporting on the financial reporting entity. The definition of the financial reporting entity is based upon the concept that elected officials are accountable to their constituents for their actions. One of the objectives of financial reporting is to provide users of financial statements with a basis for assessing the accountability of the elected officials. The financial reporting entity consists of the Village, organizations for which the Village is financially accountable, and other organizations for which the nature and significance of their relationship with the Village are such that exclusion would cause the reporting entity's financial statements to be misleading or incomplete. The Village is financially accountable for a component unit if it appoints a voting majority of the organization's governing board and it is able to impose its will on that organization or there is a potential for the organization to provide specific financial benefits to, or impose specific financial burdens on, the Village. Based upon the application of these criteria, there were no organizations that met the criteria described above. B. Government -Wide and Fund Financial Statements The government -wide financial statements (i.e., the statement of net assets and the statement of activities) report information on all of the non -fiduciary activities of the Village. For the most part, the effect of interfund activity has been removed from these statements. 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. -21- VILLAGE OF KEY BISCAYNE, FLORIDA NOTES TO BASIC FINANCIAL STATEMENTS (Continued) NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) B. Government -Wide and Fund Financial Statements (Continued) The statement of activities demonstrates the degree to which the direct expenses of a given function or segment are offset by program revenues. Direct expenses are those that are clearly identifiable with a specific function or segment. Program revenues include 1) charges to customers or applicants who purchase, use, or directly benefit from goods, services, or privileges provided by a given function or segment and 2) grants and contributions that are restricted to meeting the operational or capital requirements of a particular function or segment. Taxes and other items not properly included among program revenues are reported instead as general revenues. 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 governmental funds and major individual enterprise funds are reported as separate columns in the fund financial statements. C. Measurement Focus, Basis of Accounting, and Financial Statement 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 and fiduciary fund financial statements. 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 Village considers revenues to be available if they are collected within 60 days of the end of the current fiscal period. Expenditures are recorded when a liability is incurred, as under accrual accounting. However, debt service expenditures, as well as expenditures related to compensated absences and claims and judgments, are recorded only when payment is due. Property taxes, franchise fees and other taxes, licenses, 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. Revenues for expenditure driven grants are recognized when the qualifying expenditures are incurred. All other revenue items are considered to be measurable and available only when cash is received by the Village VILLAGE OF KEY BISCAYNE, FLORIDA NOTES TO BASIC FINANCIAL STATEMENTS (Continued) NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) C. Measurement Focus, Basis of Accounting, and Financial Statement Presentation (Continued) The Village reports the following major governmental funds: The General Fund is the Village's primary operating fund. It accounts for all financial resources of the general government, except those required to be accounted for in another fund. The Capital Improvement Fund accounts for the acquisition or construction of various major capital projects. The Special Revenue Fund accounts for the revenues received from the transportation surtax and expenditures for related transportation costs. The Village reports the following major proprietary fund in the basic financial statements: The Stormwater Utility Fund accounts for the construction and maintenance of the Village's stormwater system. The Sanitary Sewer Fund accounts for the development and construction of a municipal sanitary sewer system to the unsewered areas of the community. Additionally, the Village reports the following fund types: The Pension Trust Fund is used to account for the Village's single -employer defined benefit pension plan covering substantially all of its police officers and firefighters. Private -sector standards of accounting and financial reporting issued prior to December 1, 1989, generally are followed in both the government -wide and proprietary fund financial statements to the extent that those standards do not conflict with or contradict guidance of the Governmental Accounting Standards Board. The Village has the option of following subsequent private -sector guidance for their business -type activities and enterprise funds, subject to this same limitation. The Village has elected not to follow subsequent private - sector guidance. As a general rule, the effect of interfund activity has been eliminated from the government - wide financial statements. Exceptions to this general rule are payments -in -lieu of taxes and other charges between the Village's various utility functions and various other functions. Elimination of these charges would distort the direct costs and program revenues reported for the various functions concerned. Amounts reported as program revenues include 1) charges to customers or applicants for goods, services, or privileges provided, 2) operating grants and contributions, and 3) capital grants and contributions. Internally dedicated resources are reported as general revenues rather than as program revenues. Likewise, general revenues include all taxes. -23- VILLAGE OF KEY BISCAYNE, FLORIDA NOTES TO BASIC FINANCIAL STATEMENTS (Continued) NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) C. Measurement Focus, Basis of Accounting, and Financial Statement Presentation (Continued) Proprietary funds distinguish operating revenues and expenses from nonoperatmng items. Operating revenues and expenses generally result from providing services and producing and delivering goods in connection with a proprietary fund's principal ongoing operations. The principal operating revenues of the Village's stormwater utility, solid waste services and sanitary sewer construction funds are charges to customers for services. Operating expenses for enterprise funds include the costs of services, administrative expenses, and depreciation on capital assets. Al] revenues and expenses not meeting this definition are reported as nonoperating revenues and expenses. When both restricted and unrestricted resources are available for use, it is the Village's policy to use restricted resources first, then unrestricted resources as they are needed. D. Assets, Liabilities, and Net Assets or Equity 1. Deposits and Investments The Village's cash and cash equivalents include cash on hand, and certificates of deposit with original maturities of three months or less from the date of acquisition and investments with the State Board Investment Pool. The Investment Pool is recorded at its value of the pool shares (2a-7 like pool) which is fair value. All other investments, including pension investments, are recorded at fair value Fair value is determined by quoted market prices. 2. Receivables and Payables Activity between funds that are representative of lending/borrowing arrangements outstanding at the end of the fiscal year are referred to as "due to/from other funds". Any residual balances outstanding between the governmental activities and business -type activities are reported in the government -wide financial statements as "internal balances". 3. Capital assets Capital assets, which include property, plant and equipment, and infrastructure assets (e.g., utility plant, roads, bridges. sidewalks, and similar items), are reported in the applicable governmental or business -type activities columns in the government -wide financial statements. Capital assets are defined by the Village as assets with an initial, individual cost of more than $750 and an estimated useful life in excess of one year. 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 All infrastructure assets have been capitalized since inception of the Village. -24- VILLAGE OF KEY BISCAYNE, FLORIDA NOTES TO BASIC FINANCIAL STATEMENTS (Continued) NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) D. Assets, Liabilities, and Net Assets or Equity (Continued) 3. Capital assets (Continued) The costs of normal maintenance and repairs that do not add to the value of the asset or materially extend asset 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 activities is included as part of the capitalized value of the asset constructed. No such costs were capitalized in 2006. Capital assets of the Village are depreciated using the straight line method over the following estimated useful lives: Assets Years Buildings 25-50 Improvements other than buildings 10-50 Furniture, fixtures and equipment 10 Stormwater utility system 50 4. Compensated absences It is the Village's policy to permit employees to accumulate within certain limits, earned but unused vacation time and sick leave, which will be paid to employees upon separation from Village service. All vacation and sick leave pay is accrued when incurred in the government -wide and proprietary fund financial statements. In the governmental funds, a liability is recorded only for vacation and sick leave payouts for employee separations that occurred pnor to September 30, 2006 and were subsequently paid with current available financial resources. The general fund typically is used to liquidate the liability for compensated absences. 5. 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 straight-line amortization method. The results of using this method do not differ significantly from the effective interest method. Bonds payable are reported net of the applicable bond premium or discount. In the fund financial statements, governmental fund types recognize bond premiums and discounts, as well as bond issuance costs, during the current period. The face amount of debt issued is reported as other financing sources. Premiums received on debt issuances -25- VILLAGE OF KEY BISCAYNE, FLORIDA NOTES TO BASIC FINANCIAL STATEMENTS (Continued) NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) D. Assets, Liabilities, and Net Assets or Equity (Continued) 5. Long -Term Obligations (Continued) 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. 6. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts of assets, liabilities, disclosures of contingent liabilities, revenues and expenditures/expenses reported in the financial statements and accompanying notes. These estimates include assessing the collectibility of receivables, the realization of pension obligations and the useful lives of capital assets. Although these estimates as well as all estimates are based on management's knowledge of current events and actions it may undertake in the future, they may ultimately differ from actual results. 7. Fund Equity In the fund financial statements, governmental funds report reservations of fund balance for amounts that are not available for appropriation or are legally restricted by outside parties for use for a specific purpose. Designations of fund balance, where noted, represent tentative management plans that are subject to change. NOTE 2. EXPLANATION OF CERTAIN DIFFERENCES BETWEEN THE GOVERNMENTAL FUND BALANCE SHEET AND THE GOVERNMENT -WIDE STATEMENT OF NET ASSETS The governmental fund balance sheet includes a reconciliation between fund balance — total governmental funds and net assets — governmental activities as reported in the government -wide statement of net assets. One element of that reconciliation explains that long-term liabilities, including bonds payable, are not due and payable in the current period and therefore are not reported in the funds. The details of this $35,355,420 difference are as follows: Bonds payable Debt issuance cost Capital leases payable Compensated absences Accrued interest payable -26- $ 33,085,960 (24,919) 615,347 1,291,713 387,319 $ 35,355,420 VILLAGE OF KEY BISCAYNE, FLORIDA NOTES TO BASIC FINANCIAL STATEMENTS (Continued) NOTE 3. EXCESS OF EXPENDITURES OVER APPROPRIATIONS The classification detail at which expenditures may not legally exceed appropriations is at the department level. For the year ended September 30, 2006, expenditures exceeded appropriations in the Fire Department by $158,352 and in the Police Department by $85,384, as presented in the budgetary comparison schedule following the notes to the basic financial statements. These overexpenditures were funded by revenues that were received in excess of estimated revenues. NOTE 4. DEPOSITS AND INVESTMENTS Deposits In addition to insurance provided by the Federal Depository Insurance Corporation, all deposits are held in banking institutions approved by the State Treasurer of the State of Florida to hold public funds. Under Florida Statutes Chapter 280, Florida Security for Public Deposits Act, the State Treasurer requires all Florida qualified public depositories to deposit with the Treasurer or another banking institution eligible collateral. In the event of a failure of a qualified public depository, the remaining public depositories would be responsible for covering any resulting losses. Accordingly, all amounts reported as deposits are insured or collateralized with securities held by the entity or its agent in the entity's name. Investments The Village is authorized to invest in obligations of the U.S. Treasury, its agencies, instrumentalities and the Local Government Surplus Funds Trust Fund administered by the State Board of Administration. The investments follow the investment rules defined in Florida Statutes Chapter 218.415. The investment policy defined in the statutes attempts to promote, through state assistance, the maximization of net interest earnings on invested surplus funds of local units of governments while limiting the nsk to which the funds are exposed. The Local Government Surplus Funds Trust Fund is governed by Ch. 19-7 of the Florida Administrative Code, which identifies the Rules of the State Board of Administration (SBA). These rules provide guidance and establish the general operating procedures for the administration of the Local Government Surplus Funds Trust Fund. Additionally, the Office of the Auditor General performs the operational audit of the activities and investments of the State Board of Administration The Local Government Surplus Funds Trust Fund is not a registrant with the Securities and Exchange Commission (SEC); however, the Board has adopted operating procedures consistent with the requirements for a 2a-7 fund. -27- VILLAGE OF KEY BISCAYNE, FLORIDA NOTES TO BASIC FINANCIAL STATEMENTS (Continued) NOTE 4. DEPOSITS AND INVESTMENTS (Continued) Investments — Village As of September 30, 2006, the Village had the following investments with its corresponding maturities in its portfolio: Investment Maturities (In Years) Fair Less Investments Value Than 1 Repurchase agreements $ 2,172,277 $ 2,172,277 Interest Rate Risk Interest rate risk refers to the portfolio's exposure to fair value losses arising from increasing interest rates. The Village does not have a formal investment policy that limits investment maturities as a means of managing its exposure to market value losses arising from increasing interest rates. Credit Risk State law and the Village's investment policy limits investments in bonds, U.S. treasuries and agency obligations, or other evidences of indebtedness to the top ratings issued by nationally recognized statistical rating organizations (NRSRO) of the United States. The Village's repurchase agreements are collateralized by U.S. agency obligations and were all rated AAA under Standard & Poor's ratings and AAA under Moody's ratings. Excess funds are also sent to the Local Government Surplus Funds Trust Fund administered by the SBA. The SBA does not have a rating from a NRSRO. Concentration of Credit Risk As of September 30, 2006, the value of each position held in the Village's portfolio comprised less than 5% of the Village investment assets. Investments — Pension Plan As of September 30, 2006, the Village's Defined Benefit Pension Plan had the following investments with its corresponding maturities in its portfolio: Investment Maturities (In Years) Investments Fair Less Value Than 1 1-5 6-10 10+ Bond mutual funds $ 2.357.980 $ 228.724 $ 1,369,986 $ 495,176 $ 264,094 -28- VILLAGE OF KEY BISCAYNE, FLORIDA NOTES TO BASIC FINANCIAL STATEMENTS (Continued) NOTE 4. DEPOSITS AND INVESTMENTS (Continued) Investments — Pension Plan (Continued) Interest Rate Risk Interest rate risk refers to the portfolio's exposure to fair value losses arising from increasing interest rates. The Plan does not have a formal investment policy that limits investment maturities as a means of managing its exposure to market value losses arising from increasing interest rates. Credit Risk State law and the Plan's investment policy limits investments in bonds, stocks, or other evidences of indebtedness issued or guaranteed by a corporation organized under the laws of the United States, any state or organized territory of the United States, or the District of Columbia, provided the corporation is listed on any one or more of the recognized national stock exchanges or on the National Market System of the NASDAQ Stock Market and in the case of bonds only, holds a rating in one of the three highest classifications by a major rating service. The Plan's investment policy limits fixed income investments to a rating no lower than Standard & Poor's BBB or Moody's BAA. The Plan's bond mutual funds were all rated "A" or better under Standard & Poor's ratings and at least "A" under Moody's ratings. Concentration of Credit Risk The Plan's investment policy prohibits equity and fixed income securities concentrations greater than 5% and 10%, respectively, in any one issuer with the exception of U.S. government or agency issues. As of September 30, 2006, the value of each position held in the Plan's portfolio comprised less than 5% of Plan investment assets. Risks and Uncertainties The Plan invests in various investment securities. Investment securities are exposed to various risks such as interest rate, market, and credit risks. Due to the level of risk associated with certain investment securities, it is at least reasonably possible that changes in the values of investment securities will occur in the near term and that such changes could materially affect the amounts reported in the statement of plan net assets. The Plan, through its investment advisor, monitors the Plan's investment and the risks associated therewith on a regular basis which the Plan believes minimizes these risks. Plan contributions are made and the actuanal present value of accumulated plan benefits are reported based on certain assumptions pertaining to interest rates, inflation rates and employee demographics, all of which are subject to change. Due to uncertainties inherent in the estimations and assumptions process, it is at least reasonably possible that changes in these estimates and assumptions in the near term would be material to the financial statements -29- VILLAGE OF KEY BISCAYNE, FLORIDA NOTES TO BASIC FINANCIAL STATEMENTS (Continued) NOTE 5. RECEIVABLES Receivables as of September 30, 2006 for the Village's individual major funds, nonmajor funds and fiduciary fund in the aggregate, including the allowances for uncollectible accounts, are as follows: Special Storm- Solid Pension General Revenue water Waste Trust Fund Total Customers billed $ - $ - $ 129,382 $327,797 $ - $ 457,179 Contributions - 466,158 466,158 Property taxes 1 66,702 - - 166,702 Interest 1,658 - - 1,658 Intergovernmental 294,793 104,961 399,754 Other 329,962 - - - 329,962 Gross receivables 793,115 104,961 129,382 327,797 466,158 1,821,413 Less allowance for uncollectibles (13,229) (13,229) Net total receivables $793,115 $104,96] $129,382 $ 314,568 $ 466,158 $ 1 ,808,184 NOTE 6. PROPERTY TAXES Property values are assessed on a county -wide basis by the Miami -Dade County Property Appraiser as of January 1, the lien date, of each year and are due the following November 1. Taxable value of property within the Village is certified by the Property Appraiser and the Village levies a tax millage rate upon the taxable value, which will provide revenue required for the fiscal year beginning October l . Property taxes levied each November 1, by the Village and all other taxing authorities within the County, are centrally billed and collected by Miami -Dade County, with remittances to the Village of their proportionate share of collected taxes. Taxes for the fiscal year beginning October 1 are billed in the month of November, subject to a 1% per month discount for the period November through February, and are due no later than March 31. On April 1, unpaid amounts become delinquent with interest and penalties added thereafter. Beginning June 1, tax certificates representing delinquent taxes with interest and penalties are sold by Miami -Dade County, with remittance to the Village for its share of those receipts. At September 30, 2006, there were no material delinquent taxes. -30- VILLAGE OF KEY BISCAYNE, FLORIDA NOTES TO BASIC FINANCIAL STATEMENTS (Continued) NOTE 7. INTERFUND RECEIVABLES, PAYABLES, AND TRANSFERS The composition of interfund balances as of September 30, 2006 is as follows: Due from/to other funds: Receivable Fund Payable Fund General Special revenue Capital improvement Stormwater utility Sanitary sewer Capital improvements Stormwater utility Sanitary sewer Amount $1,912,141 210,050 87,562 47,127 377,895 67,219 $ 2,701,995 The outstanding balances between funds result mainly from the time lag between the dates that (1) interfund goods and services are provided or reimbursable expenditures occur, (2) transactions are recorded in the accounting system, and (3) payments between funds are made. Interfund transfers Transfers In General Capital Special Sanitary Fund Improvement Revenue Sewer Total Transfers out: General fund $ $ 1,561,323 $ - $ 28,134 $1,589,457 Civic center - 1,390 1,390 Capital improvement 168,870 - - 168,870 $168,870 $ 1,561,323 $ 1,390 $ 28,134 $ 1,759,717 Transfers are used to move unrestricted general fund revenues to finance various capital projects in accordance with budgetary authorizations. -31- VILLAGE OF KEY BISCAYNE, FLORIDA NOTES TO BASIC FINANCIAL STATEMENTS (Continued) NOTE 8. CAPITAL ASSETS Capital asset activity for the year ended September 30, 2006 was as follows: Beginning Balance Increases Decreases Ending Balance Governmental activities: Capital assets, not being depreciated: Land $ 21,833,837 $ - $ - $ 21,833,837 Construction in progress 2,200,636 5,191,965 (2,200,636) 5,191,965 Total capital assets, not being depreciated 24,034,473 5,191,965 (2,200,636) 27,025,802 Capital assets, being depreciated: Buildings Improvements other than buildings Furniture, fixtures and equipment Total capital assets, being depreciated Less accumulated depreciation for: Buildings Improvements other than buildings Furniture, fixtures and equipment Total accumulated depreciation Total capital assets, being depreciated, net Governmental activities capital assets, net Business -type activities: Capital assets, not being depreciated: Construction in progress Total capital assets, not being depreciated Capital assets, being depreciated: Stormwater utility system Total capital assets, being depreciated Less accumulated depreciation for: Stormwater utility system Total accumulated depreciation Total capital assets, being depreciated, net Business -type activities capital assets, net 23,727,322 11,932,301 4,521,846 2,158,373 610,497 (130,245) 23,727,322 14,090,674 5,002,098 40,181,469 2,768,870 (130,245) 42,820,094 (1,458,449) (479,566) (2,689,576) (304,815) (2.131,126) (404,787) (6,279,151) (1,189,168) 33,902,318 1,579,702 - (1,938,015) (2,994,391) (2,535,913) (7,468,319) (130,245) 35,351,775 $ 57,936,791 $ 6,771,667 $ (2,330,881) $ 62,377,577 $ 463,915 $ 425,022 $ 463,915 425,022 10,056,660 10,056,660 (2,182,972) (2,456,891) 7,599,769 $ 8,063,684 (273,919) (273,919) (273,919) $ 151,103 $ $ 888,937 888,937 10,056,660 10,056,660 (2,456,891) (2,456,891) 7,599,769 - $ 8,488,706 -32- VILLAGE OF KEY BISCAYNE, FLORIDA NOTES TO BASIC FINANCIAL STATEMENTS (Continued) NOTE 8. CAPITAL ASSETS (Continued) Depreciation expense was charged as functions/programs of the primary government as follows: Governmental activities: General government Police Fire Public works Building, zoning and planning Parks Total depreciation expenses - governmental activities $ 420,874 l 44,064 271,273 2,033 6,832 344,092 $ 1,189,168 Business -type activities: Stormwater $ 273,919 NOTE 9. LONG-TERM DEBT The following is a summary of changes in long-term liabilities of the Village for governmental activities for the year ended September 30, 2006: Beginning Ending Due Within Balance Additions Reductions Balance One Year Governmental Activities Bonds payable. Land acquisition and capital improvement revenue bonds, Series 1999 $ 8,880,000 $ - $ (410,000) $ 8,470,000 $ 430,000 Land acquisition and capital improvement revenue bonds, Series 2000 9,620,000 (400,000) 9,220,000 420,000 Capital improvement bonds, Series 2002 9,500,606 (404,646) 9,095,960 420,292 Land acquisition and capital improvement revenue bonds, Series 2004 2,800,000 - 2,800,000 265,028 Transportation tax revenue bonds, Series 2005 Total bonds payable Other liabilities. Capital leases 798,598 - (183,251) 615,347 194,859 Compensated absences 1,417,515 44,079 (169.885) 1,291,709 129,171 Total other liabilities 2,216,113 44,079 (353,136) 1,907,056 324.030 Governmental activities long-term liabilities $ 33,066,719 $ 3,494,079 $ (1.567,782) $ 34,993,016 $ 1.983,953 50,000 3.450,000 - 3,500,000 124,603 30.850,606 3,450,000 (1.214,646) 33,085,960 1.659,923 -33- VILLAGE OF KEY BISCAYNE, FLORIDA NOTES TO BASIC FINANCIAL STATEMENTS (Continued) NOTE 9. LONG-TERM DEBT (Continued) Land Acquisition and Capital Improvement Revenue Bonds On July 23, 1999, the Village issued $10,000,000 Land Acquisition and Capital Improvement Revenue Bonds, Series 1999, the proceeds of which were used for the acquisition of property and financing of the construction of the Civic Center project. The bonds mature on July 23, 2019. The Village has pledged non -ad valorem revenues to secure payment of the principal and interest on the bonds. The bonds are due in annual principal installments. Interest accrues at 4.715% per annum. Debt service requirements to maturity are as follows: Principal Interest Total Fiscal year ending September 30: 2007 $ 430,000 $ 389,223 $ 819,223 2008 455,000 368,359 823,359 2009 475,000 346,435 821,435 2010 500,000 323,449 823,449 2011 525,000 299,285 824,285 2012-2016 3,050,000 1,089,166 4,139,166 2017-2019 3,035,000 294,805 3,329,805 $3,110,722 $11,580,722 $ 8,470,000 Capital Improvement Revenue Bonds On July 11, 2000, the Village issued a second series of $10,000,000 Capital Improvement Revenue Bonds, Series 2000, the proceeds of which were used for the acquisition of property and financing of the construction of the Civic Center project. The bonds mature on July 11, 2020. The Village has pledged non -ad valorem revenues to secure payment of the principal and interest on the bonds. The bonds are due in annual principal installments. Interest accrues at 5.24% per annum. Debt service requirements to maturity are as follows: Principal Interest Total Fiscal year ending September 30: 2007 $ 420,000 $ 472,124 $ 892,124 2008 440,000 449,592 889,592 2009 465,000 425,881 890,881 2010 490,000 400,860 890,860 2011 515,000 374,529 889,529 2012-2016 3,005,000 1,427,769 4,432,769 2017-2020 3,885,000 529,895 4,414,895 $ 9,220,000 $ 4,080,650 $ 13,300,650 -34- VILLAGE OF KEY BISCAYNE, FLORIDA NOTES TO BASIC FINANCIAL STATEMENTS (Continued) NOTE 9. LONG-TERM DEBT (Continued) Capital Improvement Revenue Bonds (Continued) On November 1, 2002, the Village issued Capital Improvement Revenue Bonds, Series 2002 for the purpose of financing a portion of the cost of construction and equipping of a community center including a parking garage and swimming pool. The bonds mature on November 1, 2022. Interest is due quarterly at a rate of 3.95% up to November 1, 2012. From November 1, 2012 to maturity, the interest rate will become a variable rate based on certain indices. Debt service to maturity is as follows: Principal Interest Total Fiscal year ending September 30: 2007 $ 420,292 2008 435,584 2009 451,434 2010 467,860 2011 484,883 2012-2016 2,702,257 2017-2021 3,230,984 2022-2023 902,066 $ 9,095,360 Land Acquisition and Capital Improvement Revenue Bonds $ 320,907 305,615 289,765 273,339 256,316 1,003,738 475,011 24,433 $ 2,949,124 $ 741,199 741,199 741,199 741,199 741,199 3,705,995 3,705,995 926,499 $12,044,484 On December 12, 2004, the Village issued $2,800,000 of capital improvement and land acquisition revenue bonds, Senes 2004 for the purpose of completing the road construction associated with the new administration, fire and community center buildings. The bonds mature on November 1, 2022. The Village has pledged non -ad valorem revenues to secure payment of the principal and interest on the bonds. The bonds are due in quarterly principal installments. Interest accrues at 3.83% per annum. Debt service requirements to maturity are as follows: Principal Interest Total Fiscal year ending September 30. 2007 $ 265,028 $ 99,206 $ 364,234 2008 125,226 94,559 219,785 2009 130,053 89,732 219,785 2010 135,066 84,719 219,785 2011 140,272 79,513 219,785 2012-2016 786,753 312,171 1,098,924 2017-2021 950,528 148,396 1,098,924 2022-2023 267,074 7,658 274,732 $ 2,800,000 $ 915.954 $ 3,715,954 -35- VILLAGE OF KEY BISCAYNE, FLORIDA NOTES TO BASIC FINANCIAL STATEMENTS (Continued) NOTE 9. LONG-TERM DEBT (Continued) Transportation Tax Revenue Bonds On July 15, 2005, the Village issued Transportation Tax Revenue Bonds, Series 2005, for the purpose of financing a portion of the costs of road improvements within the Village (Crandon Boulevard Improvements — Phase II). The issuance was established similar to bond anticipation notes where the principal amount is the lesser of $3,500,000 or the advances made under the bond. Only the amount advanced becomes an obligation of the Village. During the fiscal year ended September, the Village drew down the remaining $3,450,000. The bonds mature on July 1, 2025 and are due in quarterly principal installments. Interest accrues at 4.09% per annum. Debt service requirements to maturity are as follows: Principal Interest Total Fiscal year ending September 30: 2007 $ 124,603 $ 141,255 $ 265,858 2008 129,778 136,080 265,858 2009 135,168 130,690 265,858 2010 140,782 125,077 265,859 2011 146,629 119,230 265,859 2012-2016 829,707 499,584 1,329,291 2017-2021 1,016,921 312,370 1,329,291 2022-2025 976,412 87,020 1,063,432 $ 3,500,000 $1,551,306 $ 5,051,306 Capital Leases On June 16, 2003, the Village entered into a Master Lease agreement, with a local financial institution as lessee for financing the acquisition of Village vehicles and equipment for the Fire -Rescue Department with a fair value of $880,963. The amount of the lease obligation is $691,744 and final payment is due on November 15, 2009. Lease payments are due annually. Interest accrues at 2.994% per annum. On December 15, 2004, the Village entered into a Master Lease agreement for financing the acquisition of Village vehicles and equipment for the Police Department with a fair value of $378,413. The amount of the lease obligation is $380,726 and final payment is due on December 15, 2007. Lease payments are due annually. Interest accrues at 3.85% per annum. On January 10, 2005, the Village entered into a Master Lease agreement for financing the acquisition of a Village vehicle and equipment for the Police Department with a fair value of $23,744. The amount of the lease obligation is $23,744 and final payment is due on January 10. 2009. Lease payments are due annually. Interest accrues at 4.20% per annum. -36- VILLAGE OF KEY BISCAYNE, FLORIDA NOTES TO BASIC FINANCIAL STATEMENTS (Continued) NOTE 9. LONG-TERM DEBT (Continued) Capital Leases (Continued) The future minimum lease obligations and the net present value of the minimum lease payments as of September 30, 2006 were as follows: Fiscal year ending September 30: 2007 $ 214,928 2008 214,928 2009 114,287 2010 114,287 Total minimum lease payments 658,430 Less amount representing interest (43,083) Present value of minimum lease payments $ 615,347 The following is a summary of changes in long-term liabilities of the Village for business - type activities for the year ended September 30, 2006: Due Beginning Ending Within Balance Additions Reductions Balance One Year Business -type Activities Bonds and loan payable: Stormwater utility revenue bonds Revolving loan Total bonds and loan payable Business -type activities long-term liabilities $ 6,010,000 $ 395,758 6,405,758 - $ (225,000) $ 5,785,000 $ 235,000 - (18,141) 377,617 18,609 (243,141) 6,162,617 253,609 $ 6,405,758 $ - $ (243,141) $ 6,162,617 $ 253,609 Storm water Utility Revenue Bonds On January 26, 1999, the Village issued $7,200,000 Stormwater Utility Revenue Bonds, Series 1999, the proceeds of which were used to pay the principal of the $7,200,000 Bond Anticipation Notes, Series 1995. The bonds mature on January 26, 2019. The Village has pledged stormwater utility fees to secure payment of the principal and interest on the bonds. The bonds are due in annual principal installments on October 1'. Interest accrues at 4.13% per annum. -37- VILLAGE OF KEY BISCAYNE, FLORIDA NOTES TO BASIC FINANCIAL STATEMENTS (Continued) NOTE 9. LONG-TERM DEBT (Continued) Storm water Utility Revenue Bonds (Continued) Debt service requirements to maturity are as follows: Principal Interest Total Fiscal year ending September 30: 2007 $ 235,000 2008 350,000 2009 365,000 2010 385,000 2011 405,000 2012-2016 2,340,000 2017-2019 1,705,000 $ 5,785,000 $ 238,921 229,215 214,760 199,686 183,785 651,301 143,104 $1,860,772 (1) Debt service requirement for the fiscal year 2006 was paid in 2005. Revolving Loan $ 473,921 579,215 579,760 584,686 588,785 2,991,301 1,848,104 $7,645,772 In June 1996, the Village entered into a loan agreement in the amount of $887,983 for the financing of the planning and engineering of the proposed sanitary sewer construction project under a State Revolving Fund Loan. The proceeds were received in fiscal year 1998. The loan is payable in semi-annual payments over 20 years beginning on April 15, 2003 at an interest rate of 2.56% per annum. The loan matures on October 15, 2022. Principal Interest Total Fiscal year ending September 30: 2007 $ 18,609 $ 9,525 $ 28,134 2008 19,088 9,046 28,134 2009 19,580 8,554 28,134 2010 20,084 8,050 28,134 2011 20,602 7,532 28,134 2012-2016 111,25] 29,419 140,670 2017-2021 127,259 14,330 141,589 2022-2023 41,144 1,058 42,202 $ 377,617 $ 87,514 $465,13] NOTE 10. COMMITMENTS AND CONTINGENCIES Construction Commitments As of September 30, 2006, the Village had outstanding construction commitments of approximately $386,000 to complete Phase II of the Crandon Boulevard project. -38- VILLAGE OF KEY BISCAYNE, FLORIDA NOTES TO BASIC FINANCIAL STATEMENTS (Continued) NOTE 10. COMMITMENTS AND CONTINGENCIES (Continued) Litigation The Village is involved in several lawsuits incidental to its operations, the outcome of which, in the opinion of management and legal counsel, would not have a material adverse effect on the financial condition of the Village. Risk Management The Village is exposed to various risks of loss related to torts, theft of, damage to and destruction of assets, errors and omissions and natural disasters for which the Village carries commercial insurance. There was no reduction in insurance coverage from coverages in the prior year and there were no settlements that exceeded insurance coverage for each of the past three years. Grants Contingency Federal and State programs in which the Village participates are subject to audit by grantor agencies. Any disallowed claims, including amounts already collected, may constitute a liability of the applicable funds. In the opinion of management, future disallowances of grant expenditures, if any, would not have a material adverse effect on the financial condition of the Village. NOTE 11. RESERVED FUND BALANCES As of September 30, 2006, fund balances in the general fund have been reserved for the following purposes: Emergencies $ 1,918,598 Master Plan initiatives 1,873,765 Working capital 600,000 Playing fields 456,403 Law enforcement seizures 359,899 Compensated absences 334,644 Recreation facilities 300,000 Capital lease 298,682 Building inspections 275,000 Roadway improvements 175,000 Prepaids 170,539 Community Center equipment 50,000 Fire vehicle replacements 50,000 Police/Administration building 5,890 Fire Station building 5,890 $ 6,874,310 -39- VILLAGE OF KEY BISCAYNE, FLORIDA NOTES TO BASIC FINANCIAL STATEMENTS (Continued) NOTE 12. DEFICIT FUND BALANCE The Special Revenue Fund has a deficit fund balance of $1,496,749 which will be funded from the General Fund until the issuance of the Series 2006 Revenue Bonds in the amount of $4,000,000 in December 2006 (see Note 15). NOTE 13. DEFINED CONTRIBUTION PLANS The Village as a single -employer contributes to the Village of Key Biscayne Money Purchase Plans, which are defined contribution plans created in accordance with Internal Revenue Code Section 401(a). Under one Plan, which is available to Village employees, the Village contributes 12% and the employees contribute 6%. Under the second plan, which is available only to sworn or certified police officers and firefighters, the Village contributes 12% and there is no employee contribution. Beginning October 1, 1997, the police officers and firefighters, which elected to participate in the defined benefit pension plan (see Note 14), were no longer eligible to contribute to the 401(a) plan. Employer contributions for the fiscal year ended September 30, 2006 were $402,675 while the employee contributions were $132,725. Amendments to the Plan must be authorized by the Village Council. NOTE 14. DEFINED BENEFIT PENSION PLAN Plan Description Effective October 1, 1997, the Village established a single -employer Public Employee Retirement System (PERS) to provide pension benefits for its police officers and firefighters. The PERS is considered to be part of the Village's financial reporting entity and is included in the Village's financial reports as a pension trust fund. The Plan was created under Village Ordinance 97-21. The latest available actuarial valuation is as of October 1, 2005. The PERS does not issue a stand-alone financial report for the Plan. Under this plan, all full-time police officers and firefighters employed by the Village are eligible to participate. The monthly retirement benefit is equal to 3% of the average final compensation for each year of service. The calculation for the average final compensation is computed as one -twelfth of the average salary of the five highest years within the last ten years of credited service. Credited service is determined by the total number of years employed by the Village since August 1, 1993. Amendments to the Plan must be authorized by the Village Council. Members are vested after 5 years of service. Vested employees may retire at the earlier of age 55 and the completion of five years of credited service or the age of 52 and the completion of 25 years of credited service. Administrative costs of the plan are financed through investment earnings. Benefits and refunds are recognized when due and payable in accordance with the terms of the plan. Benefits are recorded when paid -40- VILLAGE OF KEY BISCAYNE, FLORIDA NOTES TO BASIC FINANCIAL STATEMENTS (Continued) NOTE 14. DEFINED BENEFIT PENSION PLAN (Continued) Plan Description (Continued) At October 1, 2005 (date of the latest actuarial valuation), Plan membership consisted of the following: Retirees and beneficiaries currently receiving benefits and terminated employees entitled to benefits but not yet receiving them 11 Current employees: Vested 34 Non -vested 34 Total 68 Funding Policy The Village's contribution rate is adjusted each year to an amount equal to the total pension cost for the year, as determined by the most recent actuarial valuation, less the amount of revenue received from the State of Florida pursuant to Chapters 175 and 185 of the Florida Statutes. The Village's contribution rate was 10.74% of covered payroll for the year ended September 30, 2006. The participant contribution rate for the year ended September 20, 2006 was 10.5%. This funding policy is designed to limit the Village's exposure to contribute to the Plan. State contributions are recognized as a revenue and expenditure in the general fund. Annual Pension Cost and Net Pension Obligation The annual pension cost and net pension obligation (asset) for the current year was as follows: Annual required contribution Interest on net pension asset Adjustment to annual required contribution Annual pension cost Contributions made Decrease in net pension asset Net pension asset, beginning of year Net pension asset, end of year -41- $ 729,857 (12,417) 16,438 733,878 729,857 4,021 (146,088) $ (142,067) VILLAGE OF KEY BISCAYNE, FLORIDA NOTES TO BASIC FINANCIAL STATEMENTS (Continued) NOTE 14. DEFINED BENEFIT PENSION PLAN (Continued) Annual Pension Cost and Net Pension Obligation (Continued) The annual required contribution for the current year was determined as part of the October 1, 2005 actuarial valuation using the entry age normal funding method. This method does not identify and separately amortize unfunded actuarial liabilities. The actuarial assumptions included (a) 8.5% investment rate of return (net of investment related expenses) and (b) projected salary increases of 9.4 to 3.5% variable per year. Both (a) and (b) included an inflation component of 4%. The actuarial value of assets was determined using the difference between actual and expected return recognized over five years. Trend Information Annual Percentage Net Pension Fiscal Year Pension of APC Obligation Ended Cost (APC) Contributed (Asset) 9/30/2004 $ 574,165 110.9% $ (149,942) 9/30/2005 768,274 99.5% (146,088) 9/30/2006 733,878 99.5% (142,067) NOTE 15. SUBSEQUENT EVENT In December 2006, the Village issued $4,000,000 of Revenue Bonds, Series 2006 for the purpose of financing a portion of the costs of road improvements within the Village (Crandon Boulevard Improvements — Phase III), for financing architectural, engineering, environmental, legal and other planning costs. -42- REQUIRED SUPPLEMENTARY INFORMATION VILLAGE OF KEY BISCAYNE, FLORIDA REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON SCHEDULE GENERAL FUND FISCAL YEAR ENDED SEPTEMBER 30. 2006 Variance Actual Actual with Final Amounts Prior Amounts on a Budget - Budgeted Amounts on a GAAP Year Budgetary Positive Original Final Basis Reserves Basis (Negative) Revenues: Property taxes $ 14,688,288 $ 14,688,288 $ 14,830.238 $ - $ 14,830,238 $ 141,950 Utility taxes 2,243,050 2,243,050 2,346,655 - 2,346,655 103,605 Franchise fees 700,000 700,000 1,088,929 - 1,088,929 388,929 Licenses and permits 919,945 919,945 1,196,853 - 1,196,853 276,908 Intergovernmental 882,500 882,500 996,092 - 996,092 113,592 Charges for services 1,454.596 1,454,596 2,041,169 - 2,041,169 586,573 Grants 7,500 7,500 2,478,566 - 2,478,566 2,471,066 Interest 225,000 225,000 285,688 - 285,688 60,688 Total revenues 21,120,879 21.120,879 25,264.190 - 25,264,190 4,143,311 Expenditures: Current: General government: Elected officials 362,912 362.912 347,397 347.397 15,515 Village Clerk 372,937 372,937 334,587 - 334,587 38,350 Administration 1.167,943 1,167,942 1,206,162 (38.220) 1.167,942 - Village Attorney 383.000 383,000 350,906 350,906 32,094 Total general government 2.286,792 2,286,791 2,239,052 (38,220) 2.200.832 85,959 Public safety: Police 4,302,975 4,302,978 4,388,362 - 4,388.362 (85,384) Fire 4,853,035 4,853.035 5,117,176 (105.789) 5,01 1.387 (158,352) Total public safety 9,156.010 9.156.013 9,505,538 (105,789) 9,399,749 (243,736) Public works 1,361,663 1,361,662 4,002,609 (3,11 1,1 14) 891,495 470,167 Building, zoning and planning 1,416.330 1,416,328 1,544,696 (128,368) 1.416,328 Parks and recreation 2.468.161 2,468,162 2,634,887 2,634,887 (166,725) Debt service: Principal 1,350,001 1,350,001 1,214,646 - 1,214,646 135,355 Interest and fiscal charges 1,351,729 1.351,729 1,413.272 - 1,413,272 (61,543) Total expenditures 19,390,686 19,390,686 22.554,700 (3,383,491) 19,171,209 219,477 Excess of revenues over expenditures 1,730,193 1,730,193 2,709,490 3,383.491 6.092,981 4,362,788 Other financing uses: Appropriation of prior years' fund balance - - - (3,383,491) Transfers out (1,730,193) (1.730,193) (1,589,457) - - 1.730,193 Total other financing uses (1,730,193) (1.730.193) (1,589,457) (3,383.491) - 1.730,193 Net change in fund balances $ - $ - $ 1,120,033 $ - $ 6.092.981 $ 6.092,981 See note to budgetary companson schedule. -43- VILLAGE OF KEY BISCAYNE, FLORIDA REQUIRED SUPPLEMENTARY INFORMATION NOTE TO BUDGETARY COMPARISON SCHEDULE FISCAL YEAR ENDED SEPTEMBER 30, 2006 NOTE 1. BUDGETS AND BUDGETARY ACCOUNTING An annual appropriated budget is prepared for the general fund. The Village prepares a budget for its special revenue fund and its capital projects fund, however, these budgets are prepared as project budgets and not as annually appropriated budgets. The Village follows these procedures in establishing the budgetary data reflected in the financial statements: (a) The Village Manager submits to the Council a proposed operating budget for the ensuing fiscal year. The operating budget includes appropriations and the means of financing them with an explanation regarding each expenditure that is not of a routine nature. (b) Public hearings are conducted to obtain taxpayer comments. (c) Prior to October 1, the budget is legally enacted through passage of an ordinance. (d) The Village Council, by motion, may make supplemental appropriations for the year up to the amount of revenues in excess of those estimated. During fiscal year ended September 30, 2006, there were no supplemental appropriations. (e) Formal budgetary integration is employed as a management control device for the general fund. (f) The budget for the general fund is adopted on a basis consistent with generally accepted accounting principles (GAAP), except for certain unbudgeted expenditures of prior year reserves and for hurricane related expenditures. (g) The Village Manager is authorized to transfer part or all of an encumbered appropriation balance within departments within a fund; however, any revisions that alter the total appropriations of any department or fund must be approved by the Village Council. (h) There were no budget amendments during fiscal year ended September 30, 2006. (i) Excess of expenditures over appropriations are described in the notes to the basic financial statements. There is no overexpenditure in debt service as the principal and interest are combined in preparation of the Village's budget. There is no overexpenditure in the parks and recreation department as the Village Council allows for up to $250,000 of overexpenditure without considering this a violation of the budget. -44- VILLAGE OF KEY BISCAYNE, FLORIDA REQUIRED SUPPLEMENTARY INFORMATION PENSION TRUST FUND SCHEDULE OF FUNDING PROGRESS Actuarial Accrued UAAL Actuarial Liability Unfunded As % of Actual Value of (AAL) - AAL Funded Covered Covered Valuation Assets Entry Age (UAAL) Ration Payroll Payroll Date (a) (b) - (a) (a) / (b) (b - a) / c 10/1/00 $1,296,095 $ 2,483,593 $1,187,498 52.2% $ 3,472,773 34.2% 10/1/01 1,824,306 4,394,237 2,569,931 41.5% 3,732,996 68.8% 10/1/02 2,360,957 5,430,198 3,069,241 43.5% 3,984,900 77.0% 10/1/03 3,309,812 6,678,603 3,368,791 49.6% 4,278,629 78 7% 10/1/04 4,400,914 8,021,413 3,620,499 54.9% 4,960,542 73.0% 10/1/05 5,703,772 9,379,732 3,675,960 60.8% 5,320,018 69.1% -45- VILLAGE OF KEY BISCAYNE, FLORIDA REQUIRED SUPPLEMENTARY INFORMATION PENSION TRUST FUND SCHEDULE OF EMPLOYER CONTRIBUTIONS Year Annual Ended Required Percentage September 30, Contribution Contributed 2001 $ 45,199 296% 2002 377,777 88% 2003 465,562 100% 2004 515,437 100% 2005 764,420 100% 2006 729,857 100% The information presented in the required supplemental schedule was determined as part of the actuarial valuation at the date indicated. Additional information as of the latest actuarial valuation follows. Valuation date 10/1/05 Actuarial cost method Entry age normal Amortization method Level percent of pay, closed Remaining amortization 30 years Asset valuation method 5 year Smoothed Market value Actuarial assumptions: Investment rate of return* 8.5% per year compounded annually, net of investment related expenses Projected salary increases* 9.4 to 3.5% variable Cost of living adjustments N/A *Includes inflation at 4% -46- z O 0 W cl) H el H ci) am um pm m no— no Me no Me do um up um— um MI— am STATISTICAL SECTION This part of the Village of Key Biscayne's comprehensive annual financial report presents detailed information as a context for understanding what the information in the financial statements, note disclosures, and required supplementary information says about the Village's overall financial health. Contents Page Financial Trends These schedules contain trend information to help the reader understand how the Village's financial performance and well-being have changed over tune These schedules include: 47-51 Revenue Capacity These schedules contain information to help the reader assess the Village's most significant local revenue source, the property tax Debt Capacity 52-56 These schedules present information to help the reader assess the affordability of the Village's current levels of outstanding debt and the Village's ability to issue additional debt in the future. 57-60 Demographic and Economic Information These schedules offer demographic and economic indicators to help the reader understand the environment within which the Village's financial activities take place. Operating Information These schedules contain service and infrastructure data to help the reader understand how the information in the Village's financial report relates to the services the Village provides and the activities it performs. Sources: Unless otherwise noted, the information in these schedules is derived from the comprehensive annual financial reports for the relevant year. 61-63 64-65 VILLAGE OF KEY BISCAYNE, FLORIDA NET ASSETS BY COMPONENT LAST THREE FISCAL YEARS (ACCRUAL BASIS OF ACCOUNTING) Fiscal Year Governmental activities: Invested in capital assets, net of related debt Restricted Unrestricted Total governmental activities net assets Business -type activities: Invested in capital assets, net of related debt Restricted Unrestricted Total business -type activities net assets Total government: Invested in capital assets, net of related debt Restricted Unrestricted Total government net assets -47- 2004 $ 27,917,792 283,180 4,064,323 32,265,295 2005 $ 26,284,600 326,826 4,302,680 30,914,106 2006 $ 28,676,266 359,899 4,926,634 33,962,799 1,768,078 1,931,844 2,326,089 1,254,664 1,281,141 778,320 3,022,742 3,212,985 3,104,409 29,685,870 283,180 5,318,987 $ 35,288,037 28,216,444 326,826 5,583,821 $ 34,127,091 31,002,355 359,899 5,704,954 $ 37,067,208 VILLAGE OF KEY BISCAYNE, FLORIDA CHANGES IN NET ASSETS LAST THREE FISCAL YEARS (ACCRUAL BASIS OF ACCOUNTING) Fiscal Year 2004 2005 2006 Expenses: Governmental activities: General government $ 1,712,899 $ 2,136,375 $ 2,239,052 Fire 4,462,601 4,749,407 5,117,176 Police 4,113,946 4,605,148 4,388,362 Building, zoning and planning 1,212,290 1,238,376 1,544,696 Public works 1,098,250 2.183,774 4,002,609 Parks and recreation 952,261 2,193,633 2,634,887 Principal on long-term debt 1,583,924 1,161,298 1,214,646 Interest on long-term debt 1,107,697 1,300,596 1,413,272 Issuance costs Total governmental activities 16,243,868 19,568,607 22,554,700 Business -type activities: Stormwater system Solid waste collection Sanitary sewer Total business -type activities Total government expenses 439,236 454,963 259,173 466,162 698,409 921,125 720,158 501,417 9,993 1,231,568 $ 16,942,277 $ 20,489,732 $ 23,786,268 Program revenues Governmental activities: Charges for services: General government $ 961,100 $ 1,257,895 $ 1,466,186 Police 197,244 212,121 40,719 Fire 6,505 7,120 50,392 Parks and recreation 35,787 1,287,806 1,512,923 Building, zoning and planning 86,455 142,550 167,802 Operating grants and contributions - 650,679 3,559,753 Capital grants and contributions 524,736 - - Total governmental activities program revenues 1,81 1,827 3,558,171 6,797,775 Business -type activities• Charges for services: Stormwater system Solid waste collection Operating grants and contributions Capital grants and contributions Total business -type activities program revenues Total program revenues -48- 520,729 - 517,365 284,900 - 531,967 805,629 - 1,049,332 2,617,456 $ 3,558.171 $ 7.847,107 (Continued) VILLAGE OF KEY BISCAYNE, FLORIDA CHANGES IN NET ASSETS (Continued) LAST THREE FISCAL YEARS (ACCRUAL BASIS OF ACCOUNTING) Fiscal Year Net (expense) revenue: Governmental activities Business -type activities Total net expense General revenues: Governmental activities: Taxes: Property taxes Utility taxes Franchise fees Communications services tax Intergovernmental Investment earnings Miscellaneous Transfers Total governmental activities Business -type activities: Investment earnings Transfers Total business -type activities Total general revenues Change in net assets: Governmental activities Business -type activities Total change in net assets -49- 2004 2005 $ (14,432,041) $ (16,010,436) 107,220 (921,125) $ (14,324,821) $ (16,931,561) $ 12,770,711 1,448,481 677,203 770,637 821,883 110,562 126,607 (28,134) 16,697,950 21,235 28,134 49,369 $ 16,747,319 $ 2,265,909 156,589 $ 2,422,498 $ 13,360,251 1,488,002 705,810 746,400 978,304 255,611 281,657 (28,135) 17,787,900 41,050 28,135 69,185 $ 17,857,085 $ 1,777,464 (851,940) $ 925,524 2006 $ (15,756,925) (182,236) $ (15,939,161) $ 14,830,238 1,549,601 1,088,929 797,054 996,092 306,339 (28,133) 19,540,120 45,527 28,133 73,660 $ 19,613,780 $ 3,783,195 (108,576) $ 3,674,619 VILLAGE OF KEY BISCAYNE, FLORIDA FUND BALANCES OF GOVERNMENTAL FUNDS LAST THREE FISCAL YEARS (MODIFIED ACCRUAL BASIS OF ACCOUNTING) Fiscal Year 2004 2005 2006 General fund: Reserved $ 4,952,188 $ 5,754,277 $ 6,874,310 Unreserved Total general fund 4,952,188 5,754,277 6,874,310 All other governmental funds. Reserved Unreserved, reported in: Special revenue funds Capital projects funds Total all other governmental funds Total governmental funds -50- 513,862 (638.221) (1,496,749) (489,979) 881,595 1.421.014 23,883 243,374 (75,735) $ 4,976.071 $ 5,997,651 $ 6,798,575 VILLAGE OF KEY BISCAYNE, FLORIDA CHANGES IN FUND BALANCES OF GOVERNMENTAL FUNDS LAST THREE FISCAL YEARS (MODIFIED ACCRUAL BASIS OF ACCOUNTING) Fiscal Year 2004 2005 2006 Revenues: Ad valorem taxes $12,770,711 $13,360,251 $14,830,238 Franchise fees 1,447,840 1,452,210 1,885,983 Utility taxes 1,448,481 1,488,002 1,549,601 Licenses and permits 961,100 1,040,130 1,196,853 Intergovernmental revenue 1,031,805 1,495,947 1,7.56,083 Charges for services 325,651 1,867,362 2,041,169 Grants 650,679 2,799,762 Investment income 110,562 255,611 306,339 Miscellaneous 441,761 281,657 Total revenues 18,537,911 21,891,849 26,366,028 Expenditures: Current: General government 1,712,899 2,136,375 2,239,052 Fire 4,462,601 4,749,407 5,1 17,176 Police 4,113,946 4,605,148 4,388,362 Public works 1,098,250 2,183,774 4,002,609 Building, planning and zoning 1,212,290 1,238,376 1,544,696 Parks and recreation 952,261 2,193,633 2,634,887 Capital outlay 10,664,348 4,527,998 6,432,271 Debt service: Principal retirement 1,583,924 1,161,298 1,214,646 Interest and other fiscal charges 1,135,384 1,300,596 1,413,272 Total expenditures 26,935,903 24,096,605 28,986,971 Excess (deficiency) of revenues over expenditures (8,397,992) (2,204,756) (2,620,943) Other financing sources (uses). Transfers in Transfers out Bonds issued Capital lease proceeds Total other financing sources (uses) Net change in fund balances Debt service as a percentage of non -capital expenditures -5I- 819,251 (847,385) 8,330,462 1,245,653 (1,273,788) 2,850,000 404,471 1,731,583 (1,759,716) 3,450,000 8,302,328 3,226,336 3,421,867 (95,664) $ 1,021,580 $ 800,924 10.10% 10.22% 9.07% VILLAGE OF KEY BISCAYNE, FLORIDA GENERAL GOVERNME NT AL TAX RE VENUES BY SOURCE LAST TE N FISCAL YEARS (MODIFIED ACCR UAL BASIS OF ACCOUNTING) F►scal Ad Valorem Year Taxes 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 $ 6,495,465 6,963,900 7,012,714 7,799,633 8,737,608 9,569,030 11,317,161 12,770,711 13,360,125 14,830,238 Franchise Taxes $ 667,815 709,067 740,03 I 729,998 738,513 639,072 611,502 677,203 705,810 1,088,929 Ut►l►ty Taxes $1,555,812 1,514,697 1,621,473 1,723,902 1,772,208 2,258,931 2,251,876 2,219,118 2,234,402 1,549,601 Souice: Village of Key Biscayne Finance Department *Includes half cent sales tax and state revenue sharing Inter- g over nmental * $ 766,638 843,812 807,924 889,704 930,169 971,136 999,391 1,031,805 1,140,599 1,756,083 Comm unications Services Tax** $ 904,475 825,739 770,637 746,400 797,054 Total $ 9,485,730 10,031,476 10,182,142 11,143,237 12,178,498 14,342,644 16,005,669 17,469,474 18,187,336 20,021,905 **Communications services taxes became effective October 1, 2001, replacing utility taxes and franchise fees on telephone and cable TV -52- VILLAGE OF KEY BISCAYNE, FLORIDA NET ASSESSED VALUE AND ESTIMATED ACTUAL VALUE OF TAXABLE PROPERTY LAST TEN FISCAL YEARS Real Property Total Fiscal Year Total Net Direct Ended Residential Commercial Personal Assessed Tax September 301 Property Property Property Value Rate 1997 $1,917,487,798 $ 60,731,327 $ 24,830,107 $2,003,049,232 3.606 1998 1,941,484,664 62,523,036 24,166,508 2,028,174,208 3.606 1999 2,137,666,293 67,704,896 27,086,715 2,232,457,904 3.606 2000 2,394,282,542 75,832,533 28,934,086 2,499,049,161 3.606 2001 2,618,160,883 82,923,284 30,749,478 2,731,833,645 3.606 2002 3,128,872,469 99,098,715 31,948,797 3,259,919,981 3.606 2003 3,506,812,044 111,068,946 43,233,556 3,661,114,546 3.606 2004 3,713,841,630 117,626,058 43,867,688 3,875,335,376 3.606 2005 4,115,175,292 130,346,736 41,852,920 4,287,374,948 3.606 2006 5,421,393,923 166,638,240 47,020,078 5,635,052,241 3.606 Note: Property in the Village is reassessed each year. Property is assessed at actual value, therefore, the assessed values are equal to actual value. Tax rates are per $1,000 of assessed value. Source: Miami -Dade County Property Appraiser's Office. -53- VILLAGE OF KEY BISCAYNE, FLORIDA PROPERTY TAX RATES - DIRECT AN D OVERLAPPIN G GOVERNMENTS LAST TEN FISCAL YEARS Fiscal Yeai Village of Key Biscayne Overlapping Rates (I ) Miami -Dade County Debt Total Tax Roll General Debt Total Operating Service County Year Operations Service Village Millage Millage Millage 1997 1996 3. 606 1998 1997 3. 606 1999 1998 3. 606 2000 1999 3.606 2001 2000 3.606 2002 2001 3. 606 2003 2002 3.606 2004 2003 3. 606 2005 2004 3.606 2006 2005 3.606 3 .606 3 .606 3 .606 3 .606 3.606 3.606 3. 606 3. 606 3. 606 3. 606 Miami -Dade Schools Debt T otal Operating Service School Millage Millage Millage Florida Inland Navigation District South Florida Water Management Total Direct and Overlapping Other Rates 6.023 0.929 6 .952 9.356 1 .106 10.462 0.050 0 .597 0.416 6 .023 0.837 6.860 9.182 0 .978 10.160 0.047 0.597 0.434 5.809 0.816 6.625 8.654 0 .990 9.644 0 .044 0 .597 0.421 5.751 0 .653 6.404 8.702 0.915 9.617 0.041 0.597 0.451 5 .713 0.552 6.265 8.528 0.848 9.376 0 .039 0.697 0.451 5 .889 0.390 6.279 8.482 0 770 9 .252 0 039 0 .697 0 .451 5 .969 0.285 6.254 8.418 0 .682 9 .100 0 .039 0.597 1.086 5.935 0.285 6.220 8.090 0 .597 8.687 0 .039 0.597 1.030 5.835 0 .285 6.120 7.947 0.491 8 .438 0.039 0.597 1 .014 5.615 0 .285 5.900 7 .691 0 .414 8 .105 0 .039 0.597 3.659 Note' All millage rates are based on $1 for every $1,000 of assessed val ue . Sources Village of Key Biscayne Finance Departmen t and Miami -Dade County Property Appraiser's Office . 22.083 21 .704 20 .937 20.716 20.434 20 .324 20.682 20.179 19.814 21.906 (I) Overlapping rates are those of local and county governments that apply to property owners within the Village of Key Biscayne. Not all overlapping rates apply to all Village of K ey Biscayne property owners (i.e. the rates for special districts apply only to the proportion of the government's property owners whose property is lo cated within the geographic boundaries of the special district). -54- rr r IMO all. me MIMI mi. rr so am r amp err MO r r a rt — r VILLAGE OF KEY BISCA YNE, FLO RI DA PRINCIPAL PROPERTY TA XPAYERS CURRENT YEAR AND NINE YEARS AGO 2006 Taxpayei Sonesta Beach Resort United Real Estate Ventures GB Hotel Partners LTD 260 Cape Florida LLC Ocean Club Community Assoc. Claudio & Yvonne Alvarez Aurelio & Berta Fernandez Garflo Investments Roger & Susana K hour► CSM Key Biscayne Equities LLC Net Assessed Value $ 44,568,400 42,064,691 34,700,000 12,663,250 12,500,000 9,202,584 7,813,741 7,361,525 6,979,000 6,438,569 $ 184,291,760 Percent of Total Village Net Assessed Rank Value 1 0.79 % 2 0 .75% 3 0.62% 4 0.22% 5 0 .22% 6 0.16 % 7 0 .14% 0 .13% 9 0 .12% 10 0 .00% 8 3.15% Source. Tax roll provided by Miami -Dade County Property Appraisers Office. 1997 Taxpayer Ocean Club Key Biscayne Grand Bay Residence of Key Bisc ayne Sonesta Beach Hotel GB Hotel Partners LTD VMS Partnership LTD Key Biscayne Shopping Center Finivest Investment, et al Key Colony Coldwell Banker Florida P ower & Light Red Dragon Sands, LTD Perc ent of Total Net Village Net Assessed Assessed Value Rank Value $ 61,893,774 1 2 77% 48,067,499 2 2.15 % 28,855,555 3 1.29% 16,842,465 4 0.75% 12,662,248 5 0.57% 9,263,589 6 0.41% 8,230,098 7 0.37% 6,385,810 8 0 .29% 5,805,342 9 0.26% 5,797,604 10 0.26% $ 203,803,984 9.12% -55- VILLAGE OF KEY BISC AY NE, FL ORIDA PROPERTY TAX LEVIES AND COLLECTIONS LAST TEN FISCAL YE ARS Fiscal Year Ended September 30, 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 Total Taxes Levied for Fiscal Year $ 6,711,642 7,222,995 7,313,596 8,050,243 9,01 1,571 9,850,992 11,755,271 13,201,979 13,974,460 15,461,356 Collected within the Fiscal Year of the Levy Amount $ 6,495,465 6,948,521 7,012,714 7,799,633 8,738,608 9,515,138 11,317,160 12,869,711 13,360,251 14,830,238 Percent of Levy 96.78% 96.20% 95.89% 96.89% 96 .97% 96 .59% 96.27% 97 .48% 95.60% 95.92% Collections in Subsequent Year's $ 9,743 10,423 10,519 11,699 13,108 14,273 16,976 19,305 20,040 22,245 Total Collections to Date Percent Amount of Levy $6,505,208 96.92% 6,958,944 96.34 % 7,023,233 96.03% 7,811,332 97.03 % 8,751,716 97 .12% 9,529,411 96.74% 11,334,136 96.42% 12,889,016 97.63% 13,380,291 95 .75 % 14,852,483 96.06% Source: Village of Key Biscayne Finance Department and Miami -Dade County Tax Collecto►'s Office . -56- EINI EN E 111. E MN E S I I Sill I MR VILL AGE OF KEY BISCAYNE, FLORI DA RATIOS OF OUTSTANDING DEBT BY TYPE LAST TEN FISCAL YE ARS Governme ntal Activities B usiness -Type Activities Fiscal Year Ge neral Percent of Ended Obligation Reven ue L oans Revenue Personal Per September 30, Bo nds Bo nds Payable Bonds Total Income (1) Capita (1) 1997 $ - $7,675,000 $ - $ $7,675,000 0 .00% $ 1998 6,850,000 - 6,850,000 0.00% - 1999 - 22,290,000 7,200,000 29,490,000 0.00% - 2000 - 21,220,000 - 7,065,000 28,285,000 0 .00% 2,742 2001 - 30,120,000 - 6,940,000 37,060,000 0 .00% 3,592 2002 - 29,935,000 - 6,810,000 36,745,000 0.00% 3,562 2003 29,271,000 - 6,625,000 35,896,000 0.00% 3,479 2004 - 29,164,892 - 6,430,000 35,594,892 0.00% 3,450 2005 30,850,606 - 6,010,000 36,860,606 0.00% 3,573 2006 - 33,085,960 - 5,785,000 38,870,960 0 .00% 3,768 Note: Details regarding the V illage's ou tstanding debt can be fo und in the notes to the fi nancial statements (1) See the Schedule of Demographic an d Economic Statistics on page 61 f or perso nal income and pop ulation data. -57- .. z F 0 W W U a a 0 U UP I- UM MO E I UM AB MN M N- MI MP MO UP OS N 11111 Cohen v2Holtz Accountants Advisors Report of Independent Certified Public Accountants on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing, Standards Honorable Mayor, Village Council and Village Manager Village of Key Biscayne, Florida We have audited the financial statements of the governmental activities, the business -type activities, each major fund, and the aggregate remaining fund information of the Village of Key Biscayne, Florida (the Village) as of September 30, 2006 and for the year then ended which collectively comprise the Village's basic financial statements, and have issued our report dated February 15, 2007. We conducted our audit in accordance with auditing standards generally accepted in the United States and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Internal Control over Financial Reporting In planning and performing our audit, we considered the Village's internal control over financial reporting in order to determine our auditing procedures for the purpose of expressing our opinion on the financial statements and not to provide an opinion on the internal control over financial reporting. However, we noted a certain matter involving the internal control over financial reporting and its operation that we consider to be a reportable condition. Reportable conditions involve matters corning to our attention relating to significant deficiencies in the design or operation of the internal control over financial reporting that, in our judgment, could adversely affect the Village's ability to initiate, record, process, and report financial data consistent with the assertions of management in the financial statements. The reportable condition is described in the accompanying schedule of findings and questioned costs as items 06-01. A material weakness is a reportable condition in which the design or operation of one or more of the internal control components does not reduce to a relatively low level the risk that misstatements caused by error or fraud in amounts that would be material in relation to the financial statements being audited may occur and not be detected within a timely period by employees in the normal course of performing their assigned functions. Our consideration of the internal control over financial reporting would not necessarily disclose all matters in the internal control that might be reportable conditions, and, accordingly, would not necessarily disclose all reportable conditions that are also considered to be material weaknesses However, we believe that none of the reportable conditions described above is a material weakness -66- Rachlin Cohen & Holtz LLP One Southeast Third Avenue • Tenth Floor • Miami, Florida 33131 • Phone 305.377.4228 • Fax 305.377.8331 • www.rachlin.com An Independent Member of Baker Tilly International M I A M I • FORT LAUDERDALE • WEST PALM BEAC H • STUART Honorable Mayor, Village Council and Village Manager Village of Key Biscayne, Florida Page Two Compliance and Other Matters As part of obtaining reasonable assurance about whether the Village's basic financial statements are free of material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements, noncompliance with which could have a direct and matenal effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit and, accordingly, we do not express such an opinion. The results of our tests disclosed no instance of noncompliance that is required to be reported under Government Auditing Standards. However, we noted one immaterial instance of noncompliance that is presented in the accompanying schedule of findings and questioned costs as item 06-02. This report is intended solely for the information and use of the Mayor, Village Council, management and regulatory agencies and is not intended to be and should not be used by anyone other than these specified parties coAe„„ aza5 Miami, Florida February 15, 2007 -67- Cohen &Holtz Accountants Advisors Cohen &Holtz Accountants Advisors Management Letter in Accordance with the Rules of the Auditor General of the State of Florida Honorable Mayor, Village Council and Village Manager Village of Key Biscayne, Florida We have audited the financial statements of the Village of Key Biscayne, Florida (the Village) as of and for the year ended September 30, 2006, and have issued our report thereon dated February 15, 2007. We conducted our audit in accordance with United States generally accepted auditing standards, and Government Auditing Standards, issued by the Comptroller General of the United States and OMB Circular A-133, Audits of States, Local Governments, and Non -Profit Organizations. We have issued our Report of Independent Certified Public Accountants on Internal Control Over Financial Reporting and on Compliance and Other Matters and our Report of Independent Certified Public Accountants on Compliance with Requirements Applicable to Each Major Federal Program and on Internal Control over Compliance in Accordance with OMB Circular A-133 and Schedule of Findings and Questioned Costs. Disclosures in these reports and schedule, which are dated February 15, 2007, should be considered in conjunction with this management letter. Additionally, our audit was conducted in accordance with provisions of Chapter 10 550, Rules of the Auditor General, which govern the conduct of local governmental entity audits performed in the State of Florida and require that certain items be addressed in this letter. The Rules of the Auditor General (Section 10.554(l)(h)1.) require that we address in the management letter, if not already addressed in the auditor's report on compliance and internal controls or schedule of findings and questioned costs, whether or not recommendations made in the preceding annual financial report have been followed The Village implemented the recommendations made in the preceding annual financial audit report. As required by the Rules of the Auditor General (Section 10.554(l)(h)2.), the scope of our audit included a review of the provisions of Section 218.415, Florida Statutes, regarding the investment of public funds. In connection with our audit, we determined that the Village complied with Section 218.415, Florida Statutes The Rules of the Auditor General (Section 10.554(1)(h)3.), require that we address in the management letter any findings and recommendations to improve financial management, accounting procedures, and internal controls In connection with our audit, the findings and recommendations are incorporated in the accompanying schedule of findings and questioned costs -68- 111 Rachlin Cohen & Holtz LLP One Southeast Third Avenue • Tenth Floor • Miami, Florida 33131 • Phone 305.377 4228 • Fax 305.377.8331 • www.rachlin.com An Independent Member of Baker Tilly International M I A M I • FO RT LAU DERDALE • WEST PALM BEAC H • STUART Honorable Mayor, Village Council and Village Manager Village of Key Biscayne, Florida Page Two The Rules of the Auditor General (Section 10.554(l)(h)4.), require disclosure in the management letter of the following matters if not already addressed in the auditor's reports on compliance and internal controls or schedule of findings and questioned costs and are not clearly inconsequential: (I) violations of laws, rules, regulations, and contractual provisions that have occurred, or are likely to have occurred; (2) improper or illegal expenditures; (3) improper or inadequate accounting procedures (e.g., the omission of required disclosures from the financials statements); (4) failures to properly record financial transactions; and (5) other inaccuracies, shortages, defalcations, and instances of fraud discovered by, or that come to the attention of the auditor. In connection with our audit, the findings and recommendations are incorporated in the accompanying schedule of findings and questioned costs. The Rules of the Auditor General (Section 10.554(1)(h)5.), also require that the name or official title and legal authority for the primary government and each component unit of the reporting entity be disclosed in the management letter, unless disclosed in the notes of the financial statements. The Village was incorporated by Laws of Florida 90-142. There are no component units related to the Village. As required by the Rules of the Auditor General (Section 10.554(1)(h)6a.), a statement must be included as to whether or not the local government entity has met one or more of the conditions described in Section 218.503(1), Florida Statutes. In connection with our audit, we determined that the Village, did not meet any of the conditions described in Section 218.503(1), Florida Statutes. As required by the Rules of the Auditor General (Section 10.554(1)(h)6.b.), we determined that the annual financial report for the Village for the fiscal year ended September 30, 2006, filed with the Florida Department of Financial Services pursuant to Section 218.32(1)(a), Florida Statutes, is in agreement with the annual financial audit report for the fiscal year ended September 30, 2006. As required by the Rules of the Auditor General (Section 10.554(h)6.c. and 10.556(7)), we applied financial assessment procedures. It is management's responsibility to monitor the entity's financial condition, and our financial condition assessment was based in part on representations made by management and the review of financial information provided by same. The assessment was done as of the fiscal year end. There were no findings that identified deteriorating financial conditions. This management letter is intended solely for the information of the Village Council, management, and the State of Florida Office of the Auditor General, and is not intended to be and should not be used by anyone other than these specified parties. Acf/,",i �oa1.�. /J4-I LLP Miami, Florida February 15, 2007 -69- Cohen &Holtz Accountants Advisors Accountants y Advisors Report of Independent Certified Public Accountants on Compliance and Internal Control over Compliance Applicable to Each Major Federal Program in Accordance with OMB Circular A-133 Honorable Mayor, Village Council and Village Manager Village of Key Biscayne, Florida Compliance We have audited the compliance of the Village of Key Biscayne, Florida (the Village) with the types of compliance requirements described in the U S. Office of Management and Budget (OMB) Circular A-133 Compliance Supplement, that are applicable to its major federal program for the year ended September 30, 2006. The Village's major federal program is identified in the summary of auditor's results section of the accompanying Schedule of Findings and Questioned Costs. Compliance with the requirements of laws, regulations, contracts and grants applicable to its major federal program is the responsibility of the Village's management. Our responsibility is to express an opinion on the Village's compliance based on our audit. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States; the standards applicable to financial audits contained in Government Auditing Standards, Issued by the Comptroller General of the United States; and OMB Circular A-133, Audits of States, Local Governments, and Non -Profit Organizations. Those standards and OMB Circular A-133 require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have direct and material effect on a major federal program occurred. An audit includes examining, on a test basis, evidence about the Village's compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Our audit does not provide a legal determination on the Village's compliance with those requirements. In our opinion, the Village complied, in all material aspects, with the requirements referred to above that are applicable to its major federal program for the year ended September 30, 2006 Internal Control over Compliance The management of the Village is responsible for establishing and maintaining effective internal control over compliance with the requirements of laws, regulations, contracts and grants applicable to federal programs In planning and performing our audit, we considered the Village's internal control over compliance with requirements that could have a direct and material effect on a major federal program -70- Rachlin Cohen & Holtz LLP One Southeast Third Avenue • Tenth Floor • Miami, Florida 33131 • Phone 305.377 4228 • Fax 305.377 8331 • www.rachlin.com An Independent Member of Baker Tilly International M I A M I • FORT LAUDERDALE • WEST PALM BEAC H • STUART Honorable Mayor, Village Council and Village Manager Village of Key Biscayne, Florida Page Two in order to determine our auditing procedures for the purpose of expressing our opinion on compliance and to test and report on internal control over compliance in accordance with OMB Circular A-133. Our consideration of the internal control over compliance would not necessarily disclose all matters in the internal control that might be material weaknesses. A material weakness is a reportable condition in which the design or operation of one or more of the internal control components does not reduce to a relatively low level the risk that noncompliance with applicable requirements of laws, regulations, contracts and grants caused by error or fraud that would be material in relation to a major federal program being audited may occur and not be detected within a timely period by employees in the normal course of performing their assigned functions. We noted no matters involving the internal control over compliance and its operation that we consider to be material weaknesses. This report is intended solely for the information and use of the Mayor, Village Council, management and federal awarding agencies and pass -through entities and is not intended to be and should not be used by anyone other than these specified parties. ettht 2' / if6,1 LL P Miami, Florida February 15, 2007 -71- Cohen ccl-Ioltz Accountants Advisors VILLAGE OF KEY BISCAYNE, FLORIDA SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS FISCAL YEAR ENDED SEPTEMBER 30, 2006 Grant/ CFDA Contract Federal Grantor/Pass Through Grantor Programs Number Number Department of Homeland Security Federal Emergency Management Agency Pass through State of Florida Department of Community Affairs Disaster Relief Funding Agreement - Wilma Expenditures 97.036 06-WL-&K-11-23-02-863 $ 2,270,704 Total Expenditures of Federal Awards $ 2,270,704 See note to the schedule of expenditures of federal awards. -72- VILLAGE OF KEY BISCAYNE, FLORIDA NOTE TO THE SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS FISCAL YEAR ENDED SEPTEMBER 30, 2006 NOTE 1. BASIS OF PRESENTATION The accompanying schedule of expenditures of federal awards includes the federal grant activity of the Village of Key Biscayne and is presented on the accrual basis of accounting. The information in this schedule is presented in accordance with the requirements of OMB Circular A-133, Audits of States, Local Governments, and Non -Profit Organization. Therefore, some amounts presented in this schedule may differ from amounts presented in, or used in the preparation of the financial statements. -73- VILLAGE OF KEY BISCAYNE, FLORIDA SUMMARY SCHEDULE OF PRIOR AUDIT FINDINGS FISCAL YEAR ENDED SEPTEMBER 30, 2006 PRIOR AUDIT FINDINGS AND STATUS The following addresses the status of financial statement findings reported in the fiscal year ended September 30, 2005 schedule of findings and questioned costs: Matters that are not repeated in the accompanying schedule of findings and questioned costs • Acquisition of a capital asset software system that will allow the Village to more effectively and efficiently track and maintain their acquired and constructed capital assets -74- VILLAGE OF KEY BISCAYNE, FLORIDA SCHEDULE OF FINDINGS AND QUESTIONED COSTS FISCAL YEAR ENDED SEPTEMBER 30, 2006 SECTION I - SUMMARY OF AUDITOR'S RESULTS Financial Statements Type of auditor's report issued: Unqualified Opinion Internal control over financial reporting: Material weakness(es) identified? yes X no Reportable condition(s) identified not considered to be material weakness? X yes none reported Noncompliance material to financial statements noted? Federal Awards ProRrams yes X no Internal control over the major programs: Material weaknesses) identified? yes X no Reportable condition(s) identified not considered to be material weakness? yes X none reported Type of auditor's report issued on compliance for the major programs: Unqualified Opinion Any audit findings disclosed that are required to be reported in accordance with Circular A-133, Section .510(a)? yes X no Identification of major federal awards program: Federal Awards Program CFDA No. Disaster Relief Funding Agreement 97.036 Dollar threshold used to distinguish between Type A and Type B programs: $300,000 Auditee qualified as low risk auditee for audit of federal awards programs? yes X no -75- VILLAGE OF KEY BISCAYNE, FLORIDA SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) SECTION II — FINANCIAL STATEMENT FINDINGS Reportable Condition 06-01 Village Credit Cards Condition When performing a test over the process of the Village personnel and their use of Village issued credit cards, we noted in various instances that there was no support attached or in adequate support attached to the credit card statement identifying the business purpose of the transaction. In those instances, sign offs of responsible officials were noted on the credit card statement In addition, we noted that the Village does not have a written credit card policy so there is no standardized adherence to Village policies and procedures. Criteria The Village has the responsibility to safeguard their assets from loss or misuse. Cause Lack of adequate internal controls over credit cards stemming from lack of a written defined policy. Even with a formal policy, internal controls would have to be in place to ensure compliance with the stated policies. Effect Inadequately supported transactions of expenses paid with the Village credit cards Reconznzendation We recommend that the Village establish written policies and procedures for the proper safeguarding and usage of the Village credit card. Examples of what the written policy may include are as follows adequate oversight and internal controls should include safeguarding the actual credit card; ensuring only authorized personnel have access to the credit card; sufficient documentation of all credit cards purchases should be maintained in the form of invoices and/or receipts and in the rare instance where a receipt is lost or cannot be obtained, s sign off by a responsible Village official; monthly credit cards statements should be reconciled to the receipts on hand by a person other than the individual who are authorized to use the credit card and documentation should support a valid business purpose; payments should be remitted to the credit card vendor in a timely fashion to avoid late fees and charges. Subsequent to the reporting of this matter, the Village prepared and provided the auditors a written policy. Views of Responsible Officials and Planned Corrective Actions The Village, since incorporation, has had a verbal policy governing credit card use between management and department heads The policy is understood to require receipts and a department head approval for all charges appearing on the periodic statement. In the case where a receipt is not produced, the responsible department head will describe the nature of the purchase and sign off its validity as a legitimate Village operating expense directly associated to Village operations -76- VILLAGE OF KEY BISCAYNE, FLORIDA SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) SECTION II — FINANCIAL STATEMENT FINDINGS (Continued) The Village has since put this policy into a written policy. Compliance 06-02 Cash Disbursements Condition When performing our tests over cash disbursements, we noted one (1) instance where a check for $160,000 was not signed by two authorized signatories as prescribed by the Village's Resolution. Also, we noted two (2) checks that were less than $10,000 each had no signature and were cashed by the bank. The three checks noted above were to vendors of the Village and did not appear to be of an emergency nature. Criteria To comply with the Village's Resolution requiring two (2) signatures on each check issued for more than $10,000 and prudent business practice would dictate that at least one signature on checks issued for less than $10,000. Effect Although disbursements were determined to be business related expenses, the Village should ensure that it has the controls in place to safeguard assets from loss or misuse. Reconzmendation We recommend that a person independent of the bank reconciliation should review all checks prior to mailing to ensure checks contain the authorized signatory(ies), as required by the Village's resolution and prudent business practice We did not audit the information provided below in the "Views of Responsible Officials and Planned Corrective Actions". Views of Responsible Officials and Planned Corrective Actions One single check that exceeded $10,000 was released to a vendor without bearing two signatures. A check in November 2005 in payment for Hurricane Wilma debris removal hauling was fully documented with complete support This check was reviewed by the previous Mayor who signed the check to the vendor In the haste and confusion of the aftermath of this devastating storm, the check was hand delivered to the hauler without the signature of the manager or clerk The Manager did however approve the payment by way of signature on the actual check request This was a single incident in a field of over 3,500 checks issued during the year SECTION III — FEDERAL AWARDS FINDINGS AND QUESTIONED COSTS None -77- VILLAGE OF KEY BISCAYNE, FLORIDA SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) SECTION IV - NEW PRONOUNCEMENT Governmental Accounting Standards Board Statement No. 45 — Accounting and Financial Reporting by Employers for Post -Employment Benefits Other than Pensions As part of the total compensation offered to attract and retain the services of qualified employees, many state and local governmental employers, in addition to pensions, provide other post -employment benefits (OPEB). OPEB includes post -employment healthcare, as well as other forms of post -employment benefits when provided separately from a pension plan. The Governmental Accounting Standards Board has issued Statement No. 45 which establishes standards for the measurement, recognition, and display of OPEB expenses/expenditures and related liabilities (assets), note disclosures, and if applicable, required supplementary information (RSI) in the financial reports of state and local governmental employers. Post -employment benefits (OPEB) are part of an exchange of salaries and benefits for employee services rendered, and are taken after the employee's services have ended. From an accrual accounting perspective, the cost of OPEB should be associated with the periods in which the exchange occurs, rather than with the periods, often many years later, when benefits are paid or provided. However, in current practice, most OPEB plans are financed on a pay-as-you-go basis, and financial statements generally do not report financial effects of OPEB until the promised benefits are paid. As a result, current financial reporting generally fails to recognize the cost of the benefits in periods when the related services are received by the employer, provide information about the actuarial accrued liabilities for promised benefits associated with past services and whether and to what extent those benefits have been funded and provide information useful in assessing potential demands on the employer's future cash flows. This Statement improves the relevance and usefulness of financial reporting by (a) requiring systematic, accrual basis measurement and recognition of OPEB expense over a period that approximates employees' years of service and (b) providing information about actuarial accrued liabilities associated with OPEB and whether and to what extent progress is being made in funding the plan. OPEB expenditures for governmental funds should be recognized on the modified accrual basis. The amount recognized should be equal to the amount contributed to the plan or expected to be liquidated with expendable available resources. Essentially, there is no change from current practice for governmental funds. However, for government -wide financial statements, the accrual basis must be used. The accrual method will require the calculations to be made using actuarial computations and will result in the recognition of a present value liability which measures the value of OPEB benefits earned by employees during their tenure with the government and likely to be paid upon retirement. This calculation will result in substantial amounts, due to the current cost of such benefits and their escalating costs. It should also be emphasized that there is no requirement to fund these benefits with current resources. The Statement merely requires the reporting of the value of the benefit primarily in the government -wide financial statements. The computations can be extremely complex and the use of an actuary will invariably be required. An alternative measurement method exists for a sole employer in a plan with fewer than one hundred total plan members (including employees in active service, terminated employees who have accumulated benefits but are not yet receiving them, and retirees and beneficiaries currently receiving benefits) has the option to apply a simplified alternative measurement method instead of obtaining actuarial valuations -78- VILLAGE OF KEY BISCAYNE, FLORIDA SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) NEW PRONOUNCEMENT (Continued) This alternative method includes the same broad measurement steps as an actuarial valuation (projecting future cash outlays for benefits, discounting projected benefits to present value, and allocating the present value of benefits to periods using an actuarial cost method). However, it permits simplification of certain assumptions to make the method potentially usable by nonspecialists. The Statement would permit prospective implementation, that is, employers would be permitted to set the beginning net OPEB obligation at zero as of the beginning of the initial year. Implementation would occur in three phases based on the government's total annual revenues in the first fiscal year ending after June 15, 1999. The definitions and cutoff points for that purpose otherwise would be the same as in GASB's Statement No. 34, Basic Financial Statements — and Management's Discussion and Analysis — for State and Local Governments. For the District, this Statement is effective for the fiscal year ended September 30, 2009. Recommendation The contents of this statement are highly complex and will require significant lead time to implement on the respective implementation date. We would suggest that the Town obtain a thorough understanding of the requirements and initiate planning for implementation in a prudent manner. -79-