2011 Annual
Financial Report
Table of Contents 2011 Overview.....................................................1 General Fund.......................................................3 Arvada Center .....................................................9 Parks Fund ........................................................ 11 Special Revenue Funds ...................................... 13 Capital Improvement Fund ............................... 15 Enterprise Funds ................................................ 16 Internal Service Funds .......................................22 City of Arvada Investment Report ....................27
overview
2011 OVERVIEW
2011 Overview Officially, the Great Recession began in December of 2007 and ended in June of 2009. As we all know, the end of this recession was quiet. It will take many state and local governments a few years to return to pre-2007 revenue levels. Having stated that, the City of Arvada fared generally better in 2011 than in 2010 and the City’s revenues are beginning to reflect 2007 levels. This means, like many citizens and businesses, the City’s revenues have remained flat or were lower than they were in 2007 and 2008.
Through savings and analyzing all available cash reserves, over $10 million was identified for one-time capital expenditures. The Council allocated portions of the available monies over a series of meetings. Between May and August 2011 the Council allocated $6.075 million. The projects included: Arterial Fencing
$475,000
Construct Missing Sidewalks
$250,000
56th Ave. Intersection
As the nation slowly recovers from the Great Recession, the City is experiencing small, but positive increases in various revenue sources. Sales tax receipts – which pay for over 50 percent of our general expenditures – increased by 3.34 percent over 2010 levels. We continued to have building activity, particularly in the multi-family area with the construction of a large facility at one of our future rail transit areas. Automobile sales were higher nationally and locally, generating over $5 million for the City; an 11 percent increase above 2010.
$2,000,000
Final Design for Indiana St. and 72 Ave.
$150,000
Ralston Road Improvements
$300,000
New Seats at Arvada Center
$200,000
Gold Line Parking
$750,000
nd
Gold Line Enhancements
$1,400,000
Section 16 Property
$300,000
Permit System Replacement
$250,000
Total
$6,075,000
Then, in January 2012 the Council completed their allocations of one-time monies with the following allocations:
The City has many ways to respond to the changing environment. The one major response has been to be ever-vigilant on ways to lower spending. In 2011 the City saved over $2 million in leaving positions vacant as employees left for different opportunities. Departments saved over $900,000 in various line items. Between 2010 and 2011, these types of savings have resulted in providing monies for major capital projects. This is the major story of 2011.
Additional Street Major Maintenance Additional City Wide Training
$2,000,000 $39,000
Restrooms at Long Lake Ranch Park
$611,000*
Traffic Calming Program
$250,000
Total
$2,900,000
*A total cost of $711,000 was authorized; Apex Recreational District has dedicated $100,000 to the project.
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A total of $8,975,000 will be appropriated for capital items above the City’s ongoing dedication of over $7 million for cash-financed capital projects and the debt requirements.1
all over the region started using it before its opening. The City joined a neighborhood in the development of the first park that will include growing of fruit trees and vegetables for sale.
The reasoning of the capital investment is twofold. The first is to ensure the City continues its assertive program of “taking care” of our current infrastructure. This ensures both the livability and the economic vitality of our community. The second is to complete projects in a variety of master plans that meet the population and demographic changes of our community.
The City initiated a neighborhood grant program that provided $50,306 for neighborhood-identified needs including signs, “get to know your neighbor” events, and landscaping projects. The City also joined one specific neighborhood in building connections to determine ways to revitalize a neighborhood. “Get to Know Your Neighbor” events were offered on weekends and evenings. The City began a major street rehabilitation to improve the walkability and appearance of the area with wider sidewalks and a reconstructed street.
There are quite a few examples of major projects. The City began the design for a major new bridge at Garrison Street to address long-term flooding challenges on Ralston Creek. This project, in turn, created the need to move and build a new, larger and very much improved indoor soccer and other sport facility in partnership with the Apex Recreational District. The City dedicated approximately $2,000,000 to help with this move and construction. This one bridge project also produced an opportunity to redevelop the entire park area of Ralston Creek in the core of the City. This also generated a movement to conduct a comprehensive plan for both transportation and other park needs in the Ralston Road corridor. One additional project from this effort will be the redevelopment of a large barren field beside the K – 8 school. This joint project with the school district will transform the south side of Ralston Corridor with an active park area. The traffic and multimodal challenges are significant. The City worked with the community throughout 2011 on various plans. This work will continue through the next few years.
The City started completing sidewalks on the east side of State Highway 121 (also known as Wadsworth Boulevard). This is one of the City’s significant transportation corridors and has no walkability on the east side. This project will provide safety for the neighborhood. The City also commenced re-construction of an aged median that will deliver additional vehicular safety on one of our major roads – 80th Avenue. This past year was a significant year for producing results towards the City’s mission of “Continuing to Build a Great Community.” Through everyday efforts of park and street maintenance, property and building code enforcement, public safety, and the myriad of other services offered to the citizens of the City, Arvada has been able to retain service levels and add amenities even as the country has faced some of the most difficult financial periods in over 50 years. With the monies set aside, continued focus on “taking lasting care” of the facilities we have and investment in the Ralston Fields, west side and transit areas, the City should easily be able to continue to be a great community for all families.
These projects join other major investments. The City purchased land for new parks in the South Central and East neighborhoods of the City; a 40,000 square foot Skate Park was nearly completed with a cost of over $2,100,000. It was finished enough that young people from 1 The difference between the $10.5 million and the noted allocations in the above section were placed in the cash reserves of the General Fund to balance future budgets. As the General Fund summary illustrates, the 2012 Budget assumed $2.616 million would be needed to balance the budget. With all the savings in 2011, we ended the year with an unallocated cash balance of $1.7 million, for future uses.
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general fund
GENERAL FUND
General Fund Overview The General Fund pays for the City’s basic services. This includes police, street maintenance, planning, transportation planning, street light maintenance and costs, building activity and general administration. In addition, the General Fund also provides operational cash to the Arvada Center and the Parks Fund, $1,607,643 and $2,740,000, respectively. In 2011 the General Fund also paid $4,628,000 in general debt payments. The General Fund contributed $3,601,260 to build new parks, streets and other general infrastructure.
Money Dedicated for 2012 2011 Budget JPPHA
The following table provides a comparison of budgeted cash balances, revenues and expenditures to the actual outcomes in these areas.
-
$1,738,000
Long Lake Ranch Restrooms
-
$611,000
Traffic Calming
-
$250,000
Citywide Training
-
$39,000
Street Major Maintenance
-
$2,490,000
Other
-
$105,000
AEDA
-
$500,000
$73,525,923
$72,669,176
Total Expenditures 2011 Budget
2011 Actual
Beginning Fund Balance
$21,445,570
$21,445,570
Revenues
$68,530,794
$69,051,480
$69,925,923
$65,574,509
JPPHA
$2,600,000
$861,667
AEDA
$1,000,000
$500,000
$73,525,923
$66,936,176
$
2011 Actual
19% of 2012 Expenditures Debt Service Reserve
$13,032,920 $390,000
Use of Cash to Balance 2012
$2,616,701
Remaining Cash for Future Uses
$1,788,253
Expenditures Ongoing
As the table illustrates, we began the year with $21.4 million in cash reserves. We had expected revenue of $68.530 million and after the year, we had total revenues of $69.051 million – a very small increase of $520,686.
One Time
2011 Expenditures
Revenue highlights follow in the next section. On the expenditure side of the budget, departments saved a significant amount of money. We knew before the end
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of the year that we were going to have savings in various categories, and in a meeting on January 6th, asked the Council if we could dedicate some of the identified savings to a variety of important projects, including permanent restrooms at Long Lake Ranch, traffic calming and city-wide training. In addition, we also identified $2,000,000 in savings to dedicate to additional street maintenance. Also, each year, we have projects that were not completed in that calendar year, and the request is to re-appropriate these monies again. Appropriations lapse at calendar end, thus requests must be made. We have monies remaining for JPPHA, street maintenance and miscellaneous small requests. All of these costs must be identified prior to understanding the actual cash available for future years. These additions – new projects, re-appropriations and use of cash for 2012 – bring our total committed obligations to $72.669 million or $856,747 less than the original budget. Our current reserve policies include that we set aside cash in the amount of 19 percent of our estimated 2012 expenditures in the General Fund. Also, in the Debt Service Fund we must maintain approximately one month’s worth of the annual payment. Finally, a decision was made to use $2.616 million of our cash reserves to balance the 2012 Budget. After all these changes are made, we finally have $1.788 million remaining to be dedicated to the future needs of the City. Given the capital needs and goal of increasing street maintenance by $2 million annually, these dollars will help in balancing 2013 and beyond.
Revenue Highlights The following section highlights the sources generated to meet the operating expenditures of the General Fund. The revenue to pay for all of this comes from many sources as the graph below illustrates. More information is provided regarding sales taxes, use taxes, intergovernmental and property tax revenue.
2011 REVENUE SOURCES
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Sales Tax Sales tax revenue is beginning to recover from the Great Recession. The following graph illustrates the actual collections.
SALES TAX COLLECTIONS
Sales tax receipts were 3.4 percent above 2010 actuals. Our budget was $35,726,000; thus, statistically collections were 0.33 percent higher than our estimate or $128,169.
Use Tax The City has three prime use tax types: general, building and automobile. These are taxes paid in lieu of sales tax on purchases.
USE TAX COLLECTIONS
General Use tax was 10 percent above actual collections in 2010. In 2011 people did return to purchasing vehicles and this resulted in a 9 percent increase over the previous year. Building use, surprisingly, was also 2.7 percent above 2010. This was due primarily to a very large multi-family housing development with over 300 units. Overall these three sources of sales taxes generated $858,084 in additional revenue above our budget estimates.
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Property Tax The City’s property tax rate is 4.31 mills per $100 of valuation. In Colorado, the mill rate is placed on the assessed value. The following graph illustrates the collections over the past three years. It is evident that while our property tax collections were somewhat lower in 2011 than 2010 (0.12 percent), overall this is a very stable revenue source. The City did collect $156,985 less than we had budgeted.
PROPERTY TAX COLLECTIONS
It is evident that while our property tax collections were somewhat lower in 2011 than 2010 (0.12 percent), overall this is a very stable revenue source.
Intergovernmental Revenues There are two sources of revenue in this category: monies the state shares from gas tax receipts (also referred to as Highway Users Trust Fund) and property tax revenue Jefferson County shares for the maintenance of roads and bridges. Combined, these two revenues equal $4,585,139. The challenge with these revenues is that, overall, they are decreasing. The State of Colorado increased the tax in mid-2009, providing more dollars to the City in 2009 and 2010. Simultaneously, new vehicles are becoming more gas efficient, thus lowering the total gas consumption. The receipts between 2010 and 2011 were statistically identical. As the graph further illustrates, the Jefferson County share for road and bridge maintenance has substantially decreased. Between 2010 and 2011 the decrease from Jefferson County was 20 percent. Since 2007 the decrease has been $468,029 a year or a 37 percent decrease.
INTERGOVERNMENTAL REVENUES
This is particularly important as these monies are used to help offset the costs of street repair. The price of asphalt-related commodities rose 12 percent in 2011. Thus, our costs are increasing while the revenue source has been decreasing.
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All Other Revenue Sources As the pie chart on page 4 illustrated, the remainder of our revenue sources derive from building permits, fees on utilities, fees we place on other Funds for general services, fees and fines and miscellaneous. We would especially encourage you to read the section of this report on Investment Interest earnings. In the past, this has been a particularly good basis of revenue. However, over the past two years, this has not been a particularly healthy revenue source. In 2011 we had hoped to generate $500,000 for the General Fund. The total revenue was approximately $300,000.
Expenditure Highlights Personnel costs comprise 49 percent of our total General Fund expenditures.
GENERAL FUND EXPENDITURES
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Salary and Benefit Savings Salary and Benefits comprise over 49 percent of our budget. It is natural then that the greatest amount of savings would be in this area of the budget. The table below illustrates a total savings of $1.913 million in various salary and benefit types. These include salaries, retirement, insurance types and temporary wages.
Salary & Benefit Savings
2011
PERSONNEL
2012
Budget
Actual
Savings
Budget
$26,281,759
$24,936,880
$1,344,879
$27,062,997
861,460
705,011
156,449
877,161
Group Insurance
3,995,599
3,774,518
221,081
4,494,739
Retirement
3,004,953
2,923,914
81,039
3,081,596
Medicare
299,338
290,042
9,296
311,913
Other
697,894
597,042
100,852
714,269
$35,141,003
$33,227,406
$1,913,597
$36,542,675
Salaries & Wages Overtime
TOTAL
Fuel
2011
2012
FUEL
Budget
Actual
Savings/Deficit
Budget
CMO
$417
$798
$(381)
$430
884
568
316
911
Police Department
279,414
243,466
35,948
287,900
Public Works
205,993
201,417
4,576
212,173
17,317
16,542
775
17,837
583
484
99
600
$504,608
$463,275
$41,333
$519,851
Finance (Purch)
Comm. Dev. IT (Gen. Svcs) TOTAL
In 2011, gasoline represented 72.5% of fuel consumed by volume, with diesel at 27.2% and E85 at 0.3%
Fuel costs are one of the most volatile budgetary items. The City’s overall fuel costs increased 19.3 percent between 2010 and 2011.
Salary and Benefits comprise over 49 percent of our budget. It is natural then that the greatest amount of savings would be in this area of the budget.
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arvada center
ARVADA CENTER
Arvada Center Arvada Center
2011 Budget
2011 Actual
$242,307
$242,307
$6,200,006
$5,657,316
925,662
947,681
1,182,643
1,182,643
-
425,000
$1,967,270
$1,967,270
$10,275,581
$10,179,910
Ongoing
$8,308,311
$8,243,342
In-Kind
1,967,270
1,967,270
$10,275,581
$10,210,612
-
(30,702)
242,307
211,605
Goal (11% of Expenditures)
$1,130,314
$1,123,167
Excess/(Deficit)
($888,007)
($911,562)
Beginning Fund Balance REVENUES Generated SCFD City Cash Transfer-Original City Cash Transfer-Additional City In-Kind Transfer Total Revenues EXPENDITURES
Total Expenditures Income/(Loss) Ending Fund Balance
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Revenue Highlights In 2011, generated revenues fell short of budget estimates by over $500,000. The areas contributing to this shortfall were performing arts, development and education. The City made an additional cash transfer of $425,000. The history of City contributions is shown in the table below.
Expenditure Highlights Expenditures in the Arvada Center are about $64,000 less than budgeted. Insurance costs accounted for $88,000 of the savings. Expenditures in performing arts and marketing were higher than expected.
SCFD REVENUE
SCFD grant contributions increased 3.8 percent compared to 2010, however this source of revenue still has not recovered from 2008 levels.
CITY OF ARVADA CONTRIBUTIONS
The City of Arvada contributed $1,607,643 in cash support in 2011. This was a decrease of almost $306,000 from 2010. The 2012 budget assumes a transfer of $1.6 million.
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parks fund
PARKS FUND
Parks Fund Parks Fund
2011 Budget
2011 Actual
$3,830,034
$3,830,034
220,726
199,417
3,140,636
3,142,349
827,263
868,652
2,840,273
2,740,040
$7,028,898
$6,950,458
7,507,068
6,734,834
12,759
12,759
$7,519,827
$6,747,593
Income/(Loss)
(490,929)
202,865
Ending Fund Balance
3,339,105
4,032,899
827,181
742,235
$2,511,924
$3,290,664
Beginning Fund Balance REVENUES Generated Open Space APEX Reimbursement City Cash Transfer Total Revenues EXPENDITURES Ongoing Capital Total Expenditures
Goal (11% of Expenditures) Excess/(Deficit)
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Revenue Highlights Revenues for the Parks Fund were a little below budget for 2011. This was caused by a reduction in the transfer from the General Fund to the Parks Fund. This reduction was related to salary savings of $52,898 and insurance cost savings of $47,335. These amounts were retained in the General Fund since the Parks Fund did not need them to meet expenditures. The APEX reimbursement was larger than budgeted by 5 percent. The Parks department and APEX continue to build on and expand their relationship with each passing year.
Expenditure Highlights Expenditures were under budget in 2011 by 9 percent. This was caused by one main item, a $610,000 transfer to the Capital Improvement Project Fund for Park Development Fees that was not needed. The transfer was made in 2010 as part of our audit adjustments but after the budget for 2011 had already been approved. If this amount was removed from the overall budget, Parks would have been within 2.3 percent of their budget with 1.3 percent of this made up by health care and the insurance cost savings and 1 percent made up by line items. # of Parks
Total Acres
Irrigated Acres
% of total
Community and Regional Parks
2
145.62
8.32
3.9%
Facility Landscaping
21
107.14
36.36
2.8%
Golf Clubs
2
297.50
217.90
7.9%
Historic Parks
4
71.05
0.20
1.9%
Lake Recreation
1
600.00
0.00
15.9%
Majestic View Nature Center
5
79.02
7.88
2.1%
Medians and Rights-of-Way
31
80.93
62.08
2.1%
Neighborhood Parks
79
532.92
365.03
14.1%
Open Space
18
1065.73
1.63
28.2%
Special Purpose Parks
4
101.00
1.70
2.7%
Sports Complexes
10
610.88
148.96
16.2%
Trail and Trail Corridors
19
80.12
24.53
2.1%
Urban Features
5
6.23
4.40
0.2%
Water Tanks Landscaping
4
1.42
1.01
0.0%
205
3779.56
880.00
TOTALS
PARKS REVENUE
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special revenue fund SPECIAL REVENUE FUNDS
Special Revenue Funds Overview Special Revenue Funds account for revenues that are to be used for specific purposes. The following funds are considered special revenue funds: • Tax Increment Funds • Community Development • Housing
.21 and .25 Tax Increment Funds
2011 Budget
2011 Actual
Beginning Fund Balance
$11,461,000
$11,461,000
5,394,681
5,664,005
Use Tax
919,792
1,172,604
Other
314,141
292,752
$6,628,614
$7,129,361
6,668,437
6,263,208
Total Expenditures
$6,668,437
$6,263,208
Ending Fund Balance
11,421,177
12,327,153
Goal 11% of Expenditures
733,528
688,953
$10,687,649
$11,638,200
REVENUES Sales Tax
Tax Increment Funds Overview There are two tax increment funds which account for the voter-approved sales tax increases to expand police services. The first fund accounts for the .21 cent sales tax for police services and the second accounts for the .25 cent sales tax. Sources in the tax increment fund include sales tax, general use tax, auto use tax, building use and interest income. Since the tax increment is in addition to the City’s 3 percent sales tax, the revenue trends in the tax increment fund will closely follow those in the General Fund.
Total Revenues EXPENDITURES Ongoing
Revenue Highlights Sales Tax - 0.52 percent increase over 2010 Other Revenues include interest earnings, grants and recovered costs. Reimbursements from Lakewood, Jefferson County E911 Authority Board and Metro Area Theft Taskforce (MATT) represent a variety of revenues received under recovered costs.
Excess/(Deficit)
There are two tax increment funds which account for the voter-approved sales tax increases to fund expanded police services.
Expenditure Highlights Actual Expenditures - $405,229 under budget Salaries and Benefits - 83.12 percent of total actual expenditures
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Savings
Housing Fund Overview
While Salaries and Benefits reflect a minimal vacancy savings of .03 percent, there was still a savings of $162,264. The remaining expenditure savings are reflected in Supplies/Expenses, Training and Meetings, Contracts and Clothing Allowance.
Housing Fund
Beginning Fund Balance
2011 Actual
$429,737
$429,737
18,619
14,851
3,900,000
3,653,379
Cash Transfer
26,000
118,000
Interest/Other
5,305
1,136
$3,949,924
$3,787,366
374,319
390,927
3,480,000
3,382,602
27,839
53,119
$3,882,158
$3,826,648
$497,503
$390,455
Beginning Fund Balance REVENUES Recovered
Community Development Fund Overview Community Development Fund
2011 Budget
Grants
2011 Budget
2011 Actual
$7,128,009
$7,128,009
Total Revenues EXPENDITURES
REVENUES
Ongoing
Recovered
111,395
240,725
Rents
Grants
638,000
403,306
Transfers
City Cash Transfer
45,000
45,000
Interest/Other
19,500
9,375
$813,895
$698,406
Total Revenues
Total Expenditures Ending Fund Balance
EXPENDITURES
The Arvada Housing Authority assists over 500 families with rent subsidies on a monthly basis. These costs constitute a vast majority of the Fund’s expenditures (over 88 percent).
Ongoing
324,637
514,576
Essential Home Repair
375,000
181,098
Loans
125,000
-
EOC ENERGY ASSISTANCE GRANTS
Capital
108,000
-
2009-2011
$932,637
$695,674
$7,009,267
$7,130,741
Total Expenditures Ending Fund Balance
Two areas with substantial budgets in 2011 were for Capital and Loans. The Capital budget of $108,000 was budgeted to cover any final expenses related to the Creekside Park project. However, Parks was able to see its final completion in 2010. The Loans line item was in place to provide for appropriation in case opportunities arose for assistance related to multifamily housing. However, such opportunities did not materialize in 2011. The City receives money directly from Energy Outreach Colorado (EOC), a nonprofit corporation, and distributes it to low income residents in Arvada as assistance with costs related to energy. An additional $21,000 was received in the summer of 2011, which accounts for the substantial increase year-over-year.
In addition, Community Development engaged the services of Community Strategies Institute to formulate a ten-year plan for the effective use of the Apple Creek Repayment funds, which total in excess of $5 million.
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capital improvement CAPITAL IMPROVEMENT FUND
Capital Improvement Fund Overview
Capital Improvement Fund
2011 Budget
2011 Actual
Beginning Fund Balance
$43,300,346
$43,300,346
The Capital Improvement Fund is where the City keeps track of capital projects for streets, traffic, parks, and the Arvada Center.
REVENUES $7,331,811
$6,922,398
-
257,244
5,361,095
2,676,437
$12,692,906
$9,856,079
$100,000
$240,668
-
154
CIP Streets
2,643,860
1,048,913
CIP Traffic
2,714,400
5,063,631
CIP Parks
8,745,374
7,404,731
-
346,561
Total Expenditures
$14,203,634
$14,104,658
Ending Fund Balance
$41,789,618
$39,051,767
Revenue Highlights The majority of revenue in the Capital Improvement Projects (CIP) fund consists of transfers from the General Fund, Conservation Trust Fund and the Lands Dedicated Fund. Other revenues include park development fees, grant revenue and contributions from other governmental agencies.
Expenditure Highlights The majority of expenditures in this fund in 2011 relate to the final payment of the Grandview Grade Separation project ($3.8M) and various park projects. Some of the larger park projects include the Arvada Skate Park, Saddlebrook, Quaker Acres, Danny Kendricks, Indiana Equestrian and purchases of land for East and South Central parks.
Reserved Funds The CIP fund ended 2011 with a fund balance of $39 million and also has confirmed grant revenues of $5.3 million that will be received upon completion of the project. There are about 100 different CIP projects in various stages of construction totaling approximately $43 million.
Transfers in Interest Other Total Revenues EXPENDITURES CIP Administration CIP Buildings
CIP Arvada Center
Anticipated Grant Revenue
$5,273,012
ASSIGNED FOR PROJECTS: CIP Administration
$15,015,449
CIP Buildings
708,273
CIP Streets
7,308,541
CIP Traffic
6,042,027
CIP Parks
9,638,471
CIP Arvada Center
306,452
Reserved for 2012 one time CIP Reserved for Performance Based Budgeting 8% Reserve
2,191,500 500,000 1,128,373
Total Reserved
$42,839,086
Unassigned Fund Balance*
$1,485,693
* This assumes Grandview Grade Separation project closeout
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enterprise funds
ENTERPRISE FUNDS
Enterprise Funds Overview Enterprise funds account for activities that generate a fee that makes the entity self supporting. The five enterprise funds in the City are: • • • • •
Water Fund Wastewater Fund Stormwater Fund Golf Fund Hospitality Fund
Water Fund
2011 Budget
2011 Actual
Beginning Fund Balance
$59,500,000
$59,500,000
17,528,801
17,099,896
3,014,343
2,394,110
Interest
716,060
747,479
Other
775,568
1,009,783
$22,034,772
$21,251,268
15,916,667
15,044,637
Debt Service
2,264,600
2,256,495
Major Capital Maintenance
3,785,678
3,473,106
Capital
1,803,730
1,859,043
Total Expenditures
$23,770,675
$22,633,281
Ending Fund Balance
$57,764,097
$58,117,987
7,190,186
6,885,931
$50,573,911
$51,232,056
REVENUES Water Charges Tap Fees
Water Fund The Water Fund accounts for all activities within the scope of the water utility operations including administration, operations, capital water projects, financing and related debt service and billing and collection.
Total Revenues EXPENDITURES Ongoing
Revenue and Expenditure Highlights As the following table illustrates, the operating revenues of water charges, tap fees and interest are lower than we budgeted and do not cover the expenditures of the fund. As a result, the fund balance decreased by about $1.4 million. While this would not be an issue for one year, expenditures have outpaced revenue since 2008 resulting in a decrease of the fund balance from $71.6 million in 2008 to $58.1 million in 2011. This is a concern as the Moffat Water project of approximately $90 million will be starting in 2-3 years.
25% of Op. Exp. Plus Debt Service Excess
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WATER CONSUMPTION (# of gallons)
Water Consumption This chart shows water consumption from 2006-2011. Water consumption in 2011 decreased slightly from 2010. This decrease is primarily due to the three weeks of rain during the summer of 2011. Overall, water consumption continues to decrease as residents continue to implement water saving methods both in and out of the house.
WATER FUND - TAP FEES
Tap Fees This chart shows a six year history of tap fees. This is the third year of increased tap fees. Whisper Creek continues to be the area that is generating the tap fees.
Water Bonds Standard and Poor’s (S&P) performed an annual review of the Water Bonds and reaffirmed the AA+ rating on the 2009 water bonds. However, S&P did inquire about the low debt service levels. As reported in 2010, the bond covenants require a debt service coverage level of 300 percent. The coverage level was 212 percent in 2010. We increased the coverage to 269 percent in 2011, but are still short of 300 percent. We will continue to work on cost cutting measures, however they will most likely need to be tied to increased revenues or an increase in water rates to achieve a 300 percent coverage level.
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Wastewater Fund
Stormwater Fund
The Wastewater Fund accounts for all activities necessary in the collection, transmission and disposal of sewage and wastewater.
The Stormwater Fund accounts for all activities necessary to maintain a stormwater management plan. Stormwater Fund
Wastewater Fund Beginning Fund Balance
2011 Budget
2011 Actual
$10,232,000
$10,232,000
Tap Fees
227,378
343,561
Other
638,777
653,068
$10,961,069
$10,687,442
3,142,063
106,059
330,231
$3,165,086
$3,472,294
1,114,320
1,028,145
933,588
933,588
6,969,000
1,396,659
Total Expenditures
$9,016,908
$3,358,392
Ending Fund Balance
$4,945,178
$10,910,902
1,212,168
1,190,624
$3,733,010
$9,720,278
Total Revenues EXPENDITURES Ongoing Debt Service
Ongoing
8,961,980
8,706,857
Major Capital Maint.
1,795,420
1,639,023
232,675
0
Total Expenditures
$10,990,075
$10,345,880
Ending Fund Balance
$10,202,994
$10,573,562
2,689,350
2,586,470
$7,513,644
$7,987,092
Excess
3,059,027
Other
EXPENDITURES
25% of Op. Exp
$10,797,000
Stormwater Fee 9,690,813
Capital
$10,797,000
REVENUES 10,094,914
Total Revenues
2011 Actual
Beginning Fund Balance
REVENUES Sewer Charges
2011 Budget
Capital
25% of Op. Exp. and Debt Service Excess
Revenue Highlights The stormwater fee and interest are the two main sources of revenue in this fund. In 2011, we received a grant for $200,000. Since the stormwater fee is based, on impervious area, this revenue remains stable at just over $3 million.
Revenue & Expenditure Highlights Wastewater revenue is slightly lower than budget estimates. However, total revenues are still sufficient to cover ongoing and capital expenditures. Expenditures are about $644K less than budgeted. The majority of the savings is in personnel ($104K) and major capital maintenance ($155K).
Expenditure Highlights Ongoing expenditures in the stormwater fund are just over $1 million each year. Annual debt service payments of approximately $933K are made each year, which represent about 2/3 of the total debt service payment on the 2005 Certificates of Participation which were issued for Stormwater and Arvada Center capital projects. We had expected to spend over $6 million for the Garrison Street Bridge project. However, the project was delayed and we will be requesting to carryover much of this money into 2012 for the same project.
Tap Fees This chart shows the history of tap fees from 20062011. Similar to the Water fund, the tap fees in this fund increased because of Whisper Creek.
WASTEWATER FUND - TAP FEES
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Golf Fund Golf Fund
2011 Budget
2011 Actual
($146,000)
($146,000)
Golf
2,629,812
2,698,794
Restaurant
1,126,806
1,108,780
213,082
213,082
$3,969,700
$4,020,656
Golf
1,967,396
1,873,653
Food
1,026,428
1,040,031
930,000
889,527
36,481
36,481
$3,960,305
$3,839,692
9,395
180,964
($136,605)
$34,964
Beginning Fund Balance REVENUES
City Cash Transfer Total Revenues EXPENDITURES
Operations Capital Total Expenditures Income/(Loss) Ending Fund Balance
Revenue Highlights Rounds at West Woods were up 5 percent, or 2,039, through September compared to 2010 but by the end of the year were down 2 percent or 915. Much of this decline was the rainy weather experienced in October and November. Rounds at Lake Arbor were up 8 percent, or 2878, through September compared to 2010 but by the end of the year were up only 1 percent or 623. Again, this year over year decline was due to weather. Both courses tried a different approach to win back golfers by issuing specials for almost every day of the week. This was successful as it did increase special rounds…but at the cost of regular rounds. The courses are currently working on 2012’s plans.
Expenditure Highlights The Golf Operations used a little more than half of their Capital funds on temporary help on bunker maintenance at West Woods and Lake Arbor. This was also the first full year without one West Woods maintenance employee and the chef at West Woods. There were operational changes and the need for increased temporary staff to fill the needs.
Both courses tried a different approach to win back golfers by issuing specials for almost every day of the week. This was successful as it did increase special rounds…but at the cost of regular rounds.
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WEST WOODS ROUNDS
LAKE ARBOR ROUNDS
WEST WOODS RESTAURANT
LAKE ARBOR RESTAURANT
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Hospitality Fund Hospitality Fund
2011 Budget
2011 Actual
Beginning Fund Balance
$929,000
$929,000
Banquets
927,231
903,140
Concessions
145,923
173,766
Miscellaneous
563,195
447,051
-
27,577
$1,636,349
$1,551,534
Overhead
376,542
331,598
Operations
1,209,587
1,243,991
Capital
102,910
-
Transfer to General Fund
125,000
125,000
$1,814,039
$1,700,589
Income/(Loss)
(177,690)
(149,055)
Ending Fund Balance
751,310
779,945
199,544
187,065
$551,766
$592,881
Revenue Highlights The Banquet facility continues to battle for events in a difficult market. While the number of events was down only 6 in 2011, the number of attendees was down 2,177. Revenues were also down in all of the categories except concessions. The increase in concessions was due to the new building and presence at Stenger Fields in 2011. This should be an area of opportunity as the recreational facility is further developed.
REVENUES
City Cash Transfer Total Revenues
Expenditure Highlights Expenditures were flat in 2011 compared to 2010. The division decided to delay the purchase of some capital items due the difficult environment they are working in. The hope is that they have hit a low point and will be able to get back on the replacement schedule. The division was able to make its overhead transfer to the General Fund in 2011, but it had to use fund balance to do it.
EXPENDITURES
Total Expenditures
ARVADA CENTER BANQUETS REVENUE
Goal (25% of Operating Expenditures)
Excess/(Deficit)
ARVADA CENTER BANQUETS EVENTS
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internal service
INTERNAL SERVICE FUNDS
Internal Service Funds Overview We have four Internal Service Funds. The following table provides the beginning fund balances, revenues, and expenditures for each of the four. These Funds charge for goods and services to each division that uses them. The Funds then pay for all associated costs of things like purchasing insurance, vehicle purchases and maintenance, computer purchases and maintenance and buildings maintenance. As illustrated, we have healthy cash reserves in each of the Funds. If we ever were faced with a significant crisis, we could tap into these reserves to meet emergency needs. However, in all cases, the reserves are closely related to future needs. These needs must be annually evaluated. The best example is currently we are setting aside monies for the replacement of our financial system. Currently, our philosophy is to maintain and upgrade our systems. A very important discussion we have each year, and will again for the 2013 – 2014 biennium, is the charges made for future replacement. We lowered those charges in 2011 and 2012. This same conversation occurs about the life of computers and vehicles.
2011 INTERNAL SERVICE FUNDS
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RISK MANAGEMENT CLAIMS BY TYPE (2009-2011)
Insurance Fund The Insurance Fund, administered by the Risk Management Division of Finance, provides the means by which the City self-insures against loss. It is funded with contributions by all City divisions based on their levels and types of exposure. The Fund is also used for programs for loss prevention, the protection of City personnel and the preservation of City property and assets. Insurance Fund
2011 Budget
2011 Actual
Beginning Fund Balance
$4,606,000
$4,606,000
Revenue Highlights The Insurance Fund receives six types of contributions from City divisions: Workers’ Compensation, Risk Management Services, as well as Property, General Liability, Auto Liability, and Auto Physical insurances. The levels of contributions are annually reallocated based on various exposure and actuarial factors. The Fund was able to lower rates in 2011 due to decreased insurance costs and Fund overhead, saving various Funds and Departments a total of $669,476.
Expenditure Highlights
REVENUES Transfers
2,681,159
2,004,571
66,000
103,992
$2,747,159
$2,108,563
RM Admin.
2,222,742
1,741,637
Risk Mgmt
673,693
553,504
Total Expenditures
$2,896,435
$2,295,141
Ending Fund Balance
$4,456,724
$4,419,422
Other Total Revenues
Claims expenditures were considerably under budget for 2011, due much in part to a drop in Auto Liability, Auto Physical, and General Liability claims. The number of property claims almost broke even. We had a 25 percent increase in the number of claims. Ironically, these were smaller cost claims, resulting in a 15 percent decrease between 2010 and 2011.
EXPENDITURES
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Information Technology & Print Services
Vehicles The Vehicles Fund provides resources for the maintenance of City vehicles and heavy equipment, as well as their replacement when various factors demand their retirement. It is funded with contributions by all City divisions based on their vehicle inventory and use.
The Computers Fund provides resources for both the ongoing maintenance and replacement of the City’s computers, network hardware, and other electronic infrastructure. It is funded with contributions by all City divisions based on their levels of use of information technology. The Print Shop Fund provides ongoing capital support for the City’s printing needs. Information Technology & Print Services
2011 Budget
Beginning Fund Balance
$8,919,000
Vehicles
2011 Budget
2011 Actual
$8,101,000
$8,101,000
Maintenance
2,132,648
2,116,450
Replacement
1,452,002
1,262,544
$3,584,650
$3,378,995
Maintenance
2,095,515
2,001,659
Replacement
3,374,285
2,557,064
Total Expenditures
$5,469,800
$4,558,723
Ending Fund Balance
$6,215,850
$6,921,272
Beginning Fund Balance REVENUES
2011 Actual
$8,919,000
Total Revenues
REVENUES
EXPENDITURES
Maintenance
1,019,181
959,000
Replacement
867,137
957,775
Print Shop
412,669
313,187
$2,298,987
$2,229,961
Total Revenues EXPENDITURES Maintenance
1,069,666
604,688
Replacement
3,118,550
1,610,208
367,530
270,211
Total Expenditures
$4,555,746
$2,485,107
Ending Fund Balance
$6,662,241
$8,663,854
Print Shop
*In 2011, Fleet purchased 16 vehicles and 18 pieces of equipment.
Revenue Highlights This Fund charges each department an annual replacement charge for each vehicle in the City’s inventory. The rate is based upon the expected life of the vehicle. The Fund also charges a maintenance fee for each vehicle based upon type and historical costs.
Revenue Highlights Computer Replacement charges to contributing Funds remained unchanged from 2011, while computer maintenance charges were reduced by 17 percent.
Expenditure Highlights In 2011, the Vehicle Fund purchased 16 vehicles and 18 pieces of equipment at a total replacement expense of over $2.5 million. Planned 2012 expenditures include the acquisition of 15 new Ford Police Interceptors, a new, purpose-built model created specifically for law enforcement.
Expenditure Highlights A number of projects are planned for 2012, including phone system replacement, police information systems upgrade, desktop virtualization, and email system replacement.
The Computers Fund provides resources for both the ongoing maintenance and replacement of the City’s computers, network hardware, and other electronic infrastructure. It is funded with contributions by all City divisions based on their levels of use of information technology.
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Building Maintenance The Buildings Fund provides resources for maintaining major portions of facility infrastructure as replacement becomes necessary. The primary types of infrastructure are HVAC equipment, parking lots, roofs, and carpet. It is funded with contributions by all City divisions based on their facility occupancy. Substantial replacements highlighting 2011 activity were the roofs at the Arvada Center and Indiana Shops. Building Maintenance Fund
2011 Budget
2011 Actual
$1,796,000
$1,796,000
Transfers
407,351
407,351
Other
111,731
131,305
$519,082
$538,656
Maintenance
681,887
668,799
Capital Lease
111,731
111,503
$793,618
$780,302
$1,521,464
$1,554,354
Beginning Fund Balance REVENUES
Total Revenues EXPENDITURES
Total Expenditures Ending Fund Balance
*Substantial expenditures were performed in 2011, including the replacement of the Arvada Center roof.
The primary types of infrastructure are HVAC equipment, parking lots, roofs, and carpet. It is funded with contributions by all City divisions based on their facility occupancy. 25
Arvada Economic Development Association Operations
2011 Budget
2011 Actual
$405,315
$405,315
Revenue
705,000
666,037
Expenditures
701,591
642,121
$408,724
$429,231
Beginning Fund Balance
Ending Fund Balance
Revenue Highlights Revenue in the AEDA Operations Fund consists of a transfer from the general fund equal to the personnel and operating expenditures.
Expenditure Highlights Expenditures in 2011 are slightly lower than budget due to lower salary costs. Expenditures also included business appreciation event, landscaping study, social media campaign, and marketing.
Program
2011
Beginning Cash Balance Revenue
$656,122 524,212
Expenditures Ending Cash Balance
(458,852) 721,482
Reserved for AEDA Loan Program
(300,000)
Reserved for Pilot AEDA Small Business Grant Program
(280,317)
Commitments
(127,345)
Ending Unallocated Cash Balance
$13,820
Revenue Highlights Revenues in 2011 reflect the second $500,000 payment of the $1,500,000 transfer from the City of Arvada for the AEDA loan program.
Expenditure Highlights Expenditures in 2011 reflect 1 new loan, 14 pilot small business grants, 3 public improvement grants, and seed funding for the AEDA microloan program.
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investment report
CITY OF ARVADA INVESTMENT REPORT
Investment Portfolio Objectives
Dec 2010 Dec 2011
Pursuant to the City’s investment policy, the primary objectives of the City’s investment activities, in priority order, are safety, liquidity, and yield. Consistent with this policy, the portfolio of securities are invested in US Treasuries, US Agency debt, local government investment pools (LGIP’s), commercial paper, and corporate debt subject to rating and concentration limits. The City’s investment portfolio is managed to provide sufficient liquidity to meet all reasonably anticipated operating cash needs without selling securities prior to maturity.
Difference
YTD Return
1.387
1.119
-27 basis points
YTD Benchmark Return
.59
.58
-1 basis points
2.401m
2.256m
-.145m
Interest Booked YTD
Examples of contributors to these performance results are provided below: 1. Fed leaves rates at very low levels. 2008 saw some of the most aggressive cuts by the Fed in recent history, sending rates down by 400 basis points (bps) by the end of the year. Throughout 2011, the discount rate has remained steady at .25 percent and the Fed has announced we will experience these low rates through 2013 and possibly into 2014. The Federal Reserve will keep rates unchanged until the dynamics of our economy significantly change.
Investment Portfolio Performance For 2011, the portfolio managed a yield of 1.119 percent following annualized yields of 1.227 percent in the first quarter, 1.130 percent for the second quarter, and 1.060 percent for the third quarter of 2011. The benchmark yield for the City’s portfolio, as established in the investment policy, is a weighted benchmark of allowable securities. For the year, the weighted benchmark return was .58 percent, constructed using the average of 2011 monthly returns. The City’s portfolio yield continued to decline from its previous rolling four quarters, as evidenced by the considerable reduction in investment income and unfavorable reinvestment environment. The following table shows a year-over-year comparison with several key portfolio metrics:
2. Securities were called. For 2011, 23 securities totaling $101.245 million were called, representing 82 percent of all securities that rolled out of the portfolio in 2011. This is an increase from comparable months in 2010, which totaled 19 securities worth $77 million. The increase in called securities is due to a few reasons. Securities purchased in earlier years saw “lockout periods” expire. Although the Fed has not adjusted the key borrowing rate in 2011, there is a continuing consensus among the financial markets that a “flight to safety” strategy is still in play. The resulting outcome is increased reinvestment risk of securities being called.
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3. Money market yields putting a drag on interest income. As indicated by the table below, the past year has seen a drop in money market yields, ranging from .18 percent in December 2010 to .08 percent in December 2011. This signifies a loss of more than 57 percent of income interest today compared with one year ago in this investment category. Average Yield
Dec ‘10
Mar ‘11
Jun ‘11
Sep ‘11
Dec ‘11
1 Year Treasury
.27%
.25%
.19%
.12%
.12%
CSAFE LGIP
.18%
.15%
.11%
.06%
.07%
Colotrust LGIP
.19%
.14%
.11%
.08%
.08%
*Average yields on 1yr Treasuries calculated by using mean of first and last days of each noted month ** LGIP rates taken per statement as of last day of noted month
Investment Environment 2011 has proven to be a challenge regarding the City’s investment portfolio. The effects of Fed rate cuts in 2008 continued to be realized in 2011, reducing interest income as well as providing fodder for issuers to call bonds away from the portfolio. In August the Federal Open Market Committee (FOMC) announced that federal funds rates would remain between 0 percent and .25 percent through mid 2013. In October, the FOMC announced “Operation Twist” which extended the average maturity of the Federal portfolio. $400 billion of treasuries were to be sold with a maturity range of three years and under by June, 2012, this would flatten the treasury curve on the longer end. Maturing mortgage debt would be reinvested in Agency Mortgage Backed Securities to support the mortgage market. This lead to the decrease of treasury rates anywhere from 10bps to 286bps from the start of the year to the end of the year. The City saw $101.245 million in security calls during the year with reinvestment in lower yielding securities. The City has focused on the 3 to 5 year maturity range of the curve by purchasing “cushion calls” and “step coupons” that had a high probability of being called; however, we were able to garner a better than average coupon before the lockout expired, followed by an immediate call. Another note worth mentioning is the decrease of yields in the money market funds, for example, in December 2010, Colotrust yields were at .19 percent at the end of 2011, this yield decreased to .08 percent, or a 57.90 percent decrease. One indirect benefit to the Arvada portfolio has been the capital appreciation that has been attained in this time, even though this is considered as “paper gains” and has no profound affect on the yield we use to benchmark. The 2011 gain was $653,654 which is an increase of $180,505 over the 2010 gain of $473,149. Corporate credit ratings are sill not coming back; The City is permitted to purchase “AA” or better ratings, with our preference to purchase “AAA” credit ratings as they provide a “cushion” in the event of a downgrade. When “AA” rated investments can be found, they are sold at large premiums making investment for the City prohibitive.
Portfolio Changes-2011 The City’s portfolio decreased 1.1 million from December, 2010 to December, 2011. LGIP balances increased by $4.9 million due to investment calls and timing of reinvesting the funds. Changes in the portfolio from December 2010 to December 2011 are shown in the chart below: Security Sector
Dec 31, 2010 Balance
% of Portfolio
Dec 31, 2011 Balance
% of Portfolio
% of Change
Savings
$17,084,994.27
8.13%
$21,135,849.35
10.11%
+23.7%
9,097,316.63
4.33%
19,185,914.72
9.18%
+110.1%
Corporate
27,000,000.00
12.84%
21,000,000.00
10.05%
-22.2%
LGIP
62,042,876.51
29.51%
66,953,062.71
32.04%
+8.0%
US Agency
88,000,000.00
41.86%
73,700,000.00
35.27%
-16.20%
US Treasury
7,000,000.00
3.33%
7,000,000.00
3.35%
0.00%
Certificate of Deposit
Total
$210,225,187.41
$208,974,826.78
28
-.5%
Investment in Certificates of Deposit, with a maximum duration of one year, increased 110.1 percent in 2011. This provided a gain in yield over the Local Government Investment Pools. US Agency investments decreased 16.20 percent in 2011 due to agency investments called in late 2011 and not reinvested until 2012. We have been investing in callable agency securities with a call lock-out period to enhance yield, many times these investments are called on the call date. During 2011 we focused on purchasing callable securities in the three to five year maturity range with call lock out periods to gain yield, understanding that many will be called on the call date. The December 31, 2011 portfolio maturity breakdown is shown in the graph below:
PORTFOLIO DISTRIBUTION BY MATURITY RANGE December 2011
The City’s portfolio as of December 31, 2011 is shown on the next page, which includes credit ratings as of December31, face value and interest and dividend earnings for 2011.
Investment in Certificates of Deposit, with a maximum duration of one year, increased 110.1 percent in 2011. This provided a gain in yield over the Local Government Investment Pools.
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City of Arvada Portfolio as of December 31, 2011 Description
CUSIP/Ticker
Credit Rating 12/31/2011
Face Value
Interest/ Dividends 2011
CHASE
N/A
16,119,605.84
48,150.35
WELLSFARGO
N/A
5,016,243.51
2,704.73
$21,135,849.35
$50,855.08
HIGH YIELD SAVINGS JPMorgan Chase Bank Savings Wells Fargo Savings Sub Total Savings CERTIFICATE OF DEPOSIT FIRSTBANK 0.5 7/27/2012
CD5343
N/A
5,010,948.70
10,948.70
FIRSTBANK 0.3 5/30/2012
CD7273F
N/A
4,054,143.47
10049.56
FIRSTBANK 0.4 11/30/2012
CD7281E
N/A
5,097,342.13
44,119.41
FIRSTBANK 0.7 5/3/2012
CD4673
N/A
5,023,480.42
23,480.42
$19,185,914.72
$88,598.09
Sub Total Certificate of Deposit CORPORATE Berkshire Hathaway 4.75 5/15/2012-08
084670AS7
AA+
3,000,000.00
142,500.00
Berkshire Hathaway Fin Corp 5 8/15/2013
084664BG5
AA+
3,000,000.00
75,000.00
Citigroup Inc 2.125 4/30/2012
17313UAE9
AA+
5,000,000.00
106,250.00
General Electric 2.2 6/8/2012
36967HAH0
AA+
5,000,000.00
110,000.00
General Electric Co 5 2/1/2013
369604AY9
AA+
2,000,000.00
0
US Bankccorp 2.25 3/13/2012
91160HAA5
AA+
3,000,000.00
67,500.00
$21,000,000.00
$501,250.00
Sub Total Corporate
Chart continues next page
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CUSIP/Ticker
Credit Rating 12/31/2011
Face Value
Interest/ Dividends 2011
FFCB 0.73 10/17/2014-12
31331KF47
AAA
5,000,000.00
0
FFCB 1.45 8/3/2015-12
31331KTP5
AAA
6,000,000.00
0
FFCB 1.5 8/24/2016-12
31331KWA4
AAA
5,000,000.00
0
FFCB 2.09 7/18/2016-12
31331KRN2
AAA
5,000,000.00
0
FFCB 3.875 11/13/2012
31331GEJ4
AAA
3,000,000.00
116,250.00
FHLB 1.375 1/27/2014-12
313372GM0
AAA
5,650,000.00
38,843.75
FHLB 1.5 3/21/2014-12
313372UJ1
AAA
3,000,000.00
22,125.00
FHLB 2.125 12/28/2015
3133727K4
AAA
2,000,000.00
42,500.00
FHLB Step 10/27/2015-12
313375XN2
AAA
3,300,000.00
0
FHLB Step 9/30/2013-12
313375RG4
AAA
5,000,000.00
0
FHLB Step 9/30/2016-11
313375RT6
AAA
5,000,000.00
0
FNMA 1.05 10/21/2015-13
3136FTDG1
AAA
5,000,000.00
0
FNMA 1.05 9/9/2013-11
3136FPEL7
AAA
5,000,000.00
52,500.00
FNMA 1.35 8/24/2016-12
3136FRT52
AAA
5,000,000.00
0
FNMA Step 10/20/2014-12
3136FTCT4
AAA
1,750,000.00
0
FNMA Step 9/14/2016-12
3136FRV26
AAA
5,000,000.00
0
FNMA Step 9/9/2014-12
3136FRX99
AAA
4,000,000.00
0
$73,700,000.00
$272,218.75
Description US AGENCY
Sub Total US Agency US TREASURY T-Bond 2.625 6/30/2014
912828KY5
AAA
2,000,000.00
26,250.00
T-Note 1.375 3/15/2013
912828MT4
AAA
5,000,000.00
68,750.00
$7,000,000.00
$95,000.00
$142,021,764.07
$1,007,921.92
Sub Total US Treasury Total
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Investment Management Focus- 2011 2011 continued to be a struggle for the capital markets. We will continue to monitor the four items of focus we have highlighted below. 1. Diversification of maturities- Focus in the next year will be to move money away from the LGIP’s as much as possible to reduce balances and capture better interest income. We will focus on the “blended” strategy, which calls for emphasis in short term positions as well as long term positions (5 years in the City’s case), but also staggering maturities in between to smooth the income stream. Our rationale for this strategy is as follows: • We want to be able to capitalize on investment opportunities if/when yields begin to recover. • Keep duration extension limited should the yield curve flatten (shorter duration means we get our cash flows back sooner). • Have ample cash should City operations experience unexpected needs. • Take advantage of better coupons in longer maturity buckets. Currently, we have ample cash to invest, resulting from securities being called. As of December 31st, the City held a total of $88 mm in LGIP and bank funds. 2. Agency spreads are tighter, callables will get better yield- Call provisions are primarily used by issuers to refinance debt at cheaper levels. Since the Fed, however, cannot institute a large cut (max is 25bps from .25 percent to 0 percent) in the near future, our focus is to buy callable securities, with a “lock-out” period, that will enhance investment income over LGIP funds. 3. Treasuries continue to produce meager yields- Treasuries are directly impacted by the FOMC’s actions. During 2008, the Fed Funds rate had been cut by 400 bps, reflecting a reduction in yield of comparable Treasuries by a significant amount. From Dec 2010 through Dec 2011, the 2 year and 5 year Treasuries have seen a decrease in yields of 36 bps and 118 bps respectively. This has persuaded the City to move some funds to three to five year maturity securities with a callable “lock-out” period. The City would effectively be “losing out” on interest income if we continue to keep the same balance in LGIP funds. Since the Fed has announced rates are expected to stay low into 2014, we feel that LGIP rates will continue to stay low as well. 4. LGIP yields still very low- Our LGIP balances increased in 2011 from $62,042,877 to $66,953,063. This increase resulted from bonds being called late in the year with reinvestment happening in 2012. We will continue to look for callable investments with a “lock-out” period to reduce LGIP balances and enhance yield.
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Finance Department • 8001 Ralston Road • Arvada, Colorado 80002 (720) 898-7120 • www.arvada.org