MANAGEMENT'S DISCUSSION AND ANALYSIS
As
management of the McKinleyville Community Services District, we offer readers
of the McKinleyville Community Service District's financial statements this
narrative overview and analysis of the District's financial activity for the
year ended June 30, 2007. Please read it in conjunction with the
Report of the Independent Auditor and the District's financial statements.
FINANCIAL HIGHLIGHTS
·
The
District's Net Assets increased by $889,454 or 4.3%, as a result of this year's
operation. The District's Net Assets
are now $21,674,922. Net Assets of our business-type activities (providing
water and sewer services) increased by $519,923 or 2.9%.
·
Over
the past five years, the District's Net Assets have increased by $3,999,142. That is an average increase of 4.5% per
year.
·
The
District invested $152,018 in capital improvements during 2007. Projects during
the year included improvements at the Hiller Park Sports Complex soccer fields
and playground.
·
Other
capital projects funded by grants from the State included $24,630 for
waste-tire ground covering for the Pierson Park playground and $35,228 for
repairs to the sewer main on Railroad Avenue.
·
Additionally,
capital infrastructure (streetlights, water mains, and sewer mains) installed
by subdividers and donated to the District was valued at $252,821.
·
The
total cost of District programs was $3.7 million in 2007 compared to $3.8
million in 2006. That decrease of about 2.5% resulted from decreases in general
fund capital expenditures, the cost of water purchased from Humboldt Bay
Municipal Water District and other enterprise fund operating efficiencies.
·
During
2007, the District increased its cash and investments by $808,917 while
decreasing its liabilities (loans, notes payable, leases, and other amounts due
to customers, vendors and others) by $453,992.
·
Over
the past five years, the District has increased its cash and investments by
$1,960,915 while decreasing its liabilities by $1,817,044.
USING THIS ANNUAL REPORT
This
annual report consists of a series of financial statements. The Statement of Net Assets and the
Statement of Activities provide information about the activities of the
District as a whole and present a longer-term view of the District's finances. The fund financial statements for
governmental activities tell how these services were financed in the short term
as well as what remains for future spending.
Fund financial statements also report the District's operations in more
detail than the government-wide statements by providing information about the
District's most significant funds.
Reporting the District as a Whole
The Statement of Net Assets and the Statement of Activities
One
of the most important questions asked about the District's finances is "Is
the District as a whole better off or worse off as a result of this year's
activities?" The Statement of
Net Assets and the Statement of Activities report activities of the District as
a whole and about its activities in a way that helps answer this question. These statements include all assets and
liabilities using the accrual basis of accounting, which is similar to the
accounting used by most private-sector companies. All of the current year's revenues and expenses are taken into
account regardless of when cash is received or paid.
These
two statements report the District's net assets and changes in them. You can think of the District's net
assets--the difference between assets and liabilities--as one way to measure
the District's financial health, or financial position. Over time, increases or decreases in the
District's net assets are one indicator of whether its financial health is
improving or deteriorating. You will
need to consider other non-financial factors, however such as changes in the
District's property tax base and the condition of the District's infrastructure
to assess the overall health of the District.
In
the Statement of Net Assets and the Statement of Activities, we divide the
District into two kinds of activities:
·
Governmental
activities--The District's parks, recreation programs, open space zones,
streetlight zones and management of the District's buildings at Pierson Park
(Azalea Hall, the Activity Center, the Library and the Law Enforcement
Facility). These activities are funded
by property taxes, the Measure B Assessments (for recreational facility
development), zone assessments, grants, donations and user fees.
·
Business-type
activities--The District charges fees to customers to cover the cost of
services it provides. The District's
water and sewer systems are reported here.
Reporting the District's Most Significant Funds
Fund Financial Statements
The
fund financial statements provide information about the most significant funds,
not the District as a whole. The
District's two kinds of funds--governmental and proprietary--use different
accounting approaches.
·
Governmental
funds--The District's parks, recreation programs, open space zones, streetlight
zones and building management functions are reported in governmental funds,
which focus on how money flows into and out of those funds and the balances
left at year-end that are available for spending. These funds are reported using an accounting method called
modified accrual accounting, which measures cash and all other financial assets
that can be readily converted to cash.
The governmental fund statements provide a detailed short-term view of
the District's general governmental operations and the basic services it
provides. Governmental fund information
helps you determine whether there are more or fewer financial resources, which
can be spent in the near future to finance the District's programs. We describe the relationship (or
differences) between governmental activities (reported in the Statement of Net
Assets and the Statement of Activities) and governmental funds in a
reconciliation at the bottom of the fund financial statements.
·
Proprietary
funds--When the District charges customers for the services it provides, these
services are generally reported in proprietary funds. Proprietary funds are reported in the same way that all
activities are reported in the Statement of Net Assets and the Statement of
Activities. In fact, the District's
enterprise fund is the same as the business-type activities we report in the
government-wide statements but provide more detail and additional information
such as cash flows.
THE DISTRICT AS A WHOLE
For
the year ended June 30, 2007, net assets changed as follows:
|
|
Governmental |
Business-type |
|
|
|
Activities |
Activities |
Total |
|
|
|
|
|
|
Beginning Net
Assets |
$2,899,679 |
$17,885,789 |
$20,785,468 |
|
Increase in Net
Assets |
$369,531 |
$519,923 |
$889,454 |
|
|
------------ |
------------ |
------------- |
|
Ending Net Assets |
$3,269,210 |
$18,405,712 |
$21,674,922 |
That reflects an increase of 4.8% for governmental activities and an increase of 2.9% for business-type activities. The overall increase of $889,454 represents a 4.3% increase in the net assets of the District as a whole. Over the past five years, the net assets of the District as a whole increased by $3,999,142. That is an average annual increase of 4.5%.
Governmental Activities
Following
is a comparison of revenues and expenses for governmental activities, which
includes operation of the District's parks, recreation programs, open space
zones, streetlight zones and building management functions. It also includes revenues from fees assessed
for operation of those programs, general property tax revenues and property
assessments for the development and operation of the District's sports fields
and recreation programs.
Recreation
program revenues, at about $267,000, remained about the same as the previous
year. Compared with FY06, General Fund revenues increased by $133,600 (12%) and
expenditures decreased by $88,868 (8%).
Property Tax revenues totaling about $267,000 were appropriated by the
State in FY05 and FY06 as a result of Proposition 1a. That revenue stream was restored in FY07 as property tax revenues
increased by $122,212 compared with FY06.
General Fund Net Income |
|
|
Increase |
|
|
|
|
|
(Decrease) |
Percent |
|
|
FYE
6/30/07 |
Percent |
from |
Increase |
|
|
Amount |
of
Total |
FYE
6/30/06 |
(Decrease) |
|
Revenues: |
|
|
|
|
|
Recreation
Programs Fees |
266,947 |
21% |
(242) |
0% |
|
Property Taxes |
403,353 |
32% |
122,212 |
43% |
|
Measure B
Assessments |
190,262 |
15% |
5,017 |
3% |
|
Donations and
State Grants |
133,921 |
10% |
(30,198) |
-18% |
|
Park and Building
Rentals and Services |
75,333 |
6% |
9,785 |
15% |
|
Streetlight Zone
Fees |
57,447 |
5% |
1,630 |
3% |
|
Open Space Zone
Fees |
64,579 |
5% |
12,718 |
25% |
|
Interest Income |
22,554 |
2% |
8,597 |
62% |
|
Other Revenues |
61,800 |
5% |
4,081 |
7% |
|
|
----------------- |
|
----------------- |
|
|
Total
Revenues |
$1,276,196 |
100% |
$133,600 |
12% |
|
|
|
|
|
|
|
Expenditures: |
|
|
|
|
|
Principal and
Interest on Debt |
226,566 |
22% |
(3,481) |
-2% |
|
Recreation
Programs |
217,772 |
21% |
(11,990) |
-5% |
|
Capital
Expenditures |
80,614 |
8% |
(150,889) |
-65% |
|
Building
Operations |
118,672 |
11% |
4,707 |
4% |
|
Streetlight Zones |
60,886 |
6% |
5,334 |
10% |
|
Open Space Zone
Maintenance |
44,557 |
4% |
14,365 |
48% |
|
Other Salaries
and Benefits |
214,397 |
21% |
15,153 |
8% |
|
Other
Expenditures |
70,164 |
7% |
34,452 |
96% |
|
|
----------------- |
|
----------------- |
|
|
Total
Expenditures |
$1,033,629 |
100% |
$(92,348) |
-8% |
|
|
----------------- |
|
----------------- |
|
Net Income |
$242,569 |
|
$225,950 |
|
Business-type Activities
In
reviewing departmental net revenue, it should be noted that McKinleyville
continues to grow at a high rate. Water
and sewer connection (capacity) fees for new construction totaled
$219,809. Connection fees tend to be
somewhat cyclical, and this was an increase of $20,139 compared with last
year. Connection fees to the sewer
system for this year were equivalent to 115 new residences. That is a 2% annual growth rate. The
District has sustained an approximate 2% growth rate over the past ten
years. It is clear that there will be
increasing demand on the District's facilities as McKinleyville continues to
grow. Overall operating revenues
increased by 7% while operating expenses decreased by less than 1%. Cost decrease came from the water supply
contract from the Humboldt Bay Municipal Water District, operating efficiencies
and non-recurring expenditures in FY06. The net operating income for the year
was $270,036. District staff has
implemented a formal preventive maintenance and asset replacement programs and
facilities are maintained in excellent condition.
Business-type Activities (Enterprise)
|
|
|
Increase |
|
|
|
|
|
(Decrease) |
Percent |
|
|
FYE
6/30/07 |
Percent |
from |
Increase |
|
|
Amount |
of
Total |
FYE
6/30/06 |
(Decrease) |
|
Operating
Revenues: |
|
|
|
|
|
User Fees for
Water |
1,306,106 |
45% |
81,056 |
7% |
|
User Fees for
Sewer |
1,161,794 |
40% |
26,977 |
2% |
|
Connection,
Extension and Other Fees |
402,691 |
14% |
54,930 |
16% |
|
Other |
46,198 |
2% |
1,697 |
4% |
|
|
----------------- |
|
----------------- |
|
|
Total
Operating Revenues |
2,916,789 |
100% |
164,660 |
6% |
|
|
|
|
|
|
|
Operating
Expenses: |
|
|
|
|
|
Salaries and
Benefits |
1,192,497 |
44% |
82,214 |
7% |
|
Purchased Water |
352,935 |
13% |
(34,845) |
-9% |
|
Utilities,
Maintenance and Repairs |
332,607 |
12% |
(8,156) |
-2% |
|
Depreciation of
Plant |
621,027 |
23% |
1,285 |
0% |
|
Other Operating
Expenses |
183,259 |
7% |
(29,547) |
-14% |
|
|
----------------- |
|
----------------- |
|
|
Total
Operating Expenses |
2,682,325 |
100% |
(10,951) |
0% |
|
|
----------------- |
|
----------------- |
|
|
Net
Operating Income |
234,464 |
|
153,709 |
|
THE DISTRICT'S FUNDS
Debt
At
year-end, the District had $5,901,345 in outstanding State, Federal and
commercial loans and a capital lease agreement compared with $6,350,618 last
year. That is a decrease of $449,273 or
7.1% of the principal balance. No additional debt is anticipated in the
upcoming year.
Variations from Final and Amended Budget for the General Fund
MCSD's budget was not amended during the year. Salaries and benefits were about 4.9% under budget for the year and overall expenditures were 0.5% below budget.