Comprehensive Annual Financial Report - 2002
Letter of Transmittal
October 31, 2002
The Citizens of James City County:
The Comprehensive Annual Financial Report of James City County, Virginia (the County), for the fiscal year ended June 30, 2002, is presented to you as required under Section 15.1-167 of the Code of Virginia. This report presents the financial position of all fund types and account groups and component units of the County and the results of operations of the various fund types for the year then ended.
This report was prepared by the County's Department of Financial and Management Services to conform with the Standards of Financial Reporting as prescribed by the Governmental Accounting Standards Board (GASB), the Government Finance Officer's Association of the United States and Canada (GFOA), and the Auditor of Public Accounts of the Commonwealth of Virginia.
The responsibility for both the accuracy of the presented data and the completeness and fairness of the presentation, including all disclosures, rests with the County. We believe the data, as presented, is accurate in all material aspects; that it is presented in a manner designed to fairly set forth the financial position and results of operations of the County as measured by the financial activity of its various funds; and that all disclosures necessary to enable the reader to gain the maximum understanding of the County's financial affairs have been included.
FINANCIAL STATEMENT PRESENTATION
This report uses the "pyramid approach" to financial reporting whereby financial information is arranged in terms of increasing levels of detail. The report is divided in four sections: an Introductory Section, which contains a list of principal County officials, the transmittal letter, an Organization Chart, a Table of Contents and the Certificate of Achievement for the preceding fiscal year; the Financial Section, which contains the Auditors' report, the general purpose financial statements, and provides an overview of the County's financial position and operating results, followed by combining statements by fund type and other schedules that provide additional detailed information relative to the general purpose financial statements. The Statistical Section includes a number of statistical tables and charts that present various financial, economic, social and demographic data about the County. The Single Audit Section deals with the County's requirement to undergo an annual single audit in conformity with the provisions of the Single Audit Act Amendments of 1996 and the U. S. Office of Management and Budget Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations. Information related to this single audit, including the Schedule of Expenditures of Federal Awards, the Schedule of Findings and Questioned Costs, and the independent auditor's report on internal controls and report on compliance, are included in the Single Audit Section of the report. This report conforms to the "pyramid" approach noted above.
ACCOUNTING SYSTEM AND BUDGETARY CONTROL
The accounting policies of the County conform to accounting principles generally accepted in the United States of America as applicable to governmental units.
The County's accounting records for general governmental operations are maintained on a modified accrual basis, with the revenues being recorded when available and measurable and expenditures being recorded when the services or goods are received and when the liabilities are incurred with the exception of interest on debt which is expensed when due. Accounting records for the James City Service Authority are maintained on the accrual basis. Under the accrual method of accounting, revenue is recognized when earned and expenses when incurred.
In developing and updating the County's accounting system, consideration is given to the adequacy of internal accounting controls. Internal accounting controls are designed to provide reasonable assurance regarding:
- the safeguarding of assets against loss from unauthorized use or disposition; and
- the reliability of financial records for preparing financial statements and maintaining accountability for assets.
The concept of reasonable assurance recognizes that:
- the cost of control should not exceed the benefits likely to be derived; and
- the evaluation of costs and benefits requires estimates and judgments by management.
Budgetary control is maintained at the activity level of each department by the encumbrance of estimated purchase amounts prior to the release of purchase orders to vendors. Purchase orders are reviewed for adequate appropriations prior to their release to vendors. Purchase orders which result in an overrun of an account balance are not released until additional funds are made available by either an intradepartmental account transfer, authorized by the County Administrator, or by additional transfer or appropriation by the governing body. Open encumbrances are reported as reservations of fund balance at the end of the fiscal year.
As part of the annual audit, our external auditors review and assess the County's systems of internal accounting and financial management controls. We are committed to deriving the maximum benefits from this review process and will continue to actively pursue the implementation of all such recommended policy and procedural changes, where it is practical.
THE REPORTING ENTITY AND ITS SERVICES
James City County, for financial reporting purposes, as a primary government, includes all funds, account groups and component units for which the County has financial accountability. Financial accountability is defined by the ability of the County to appoint a voting majority of an organization's governing body and to impose its will on the organization, or if there is a financial benefit or burden relationship. The reporting entity also includes any organization that is fiscally dependent on the primary government. Included with the primary government of James City County are:
- James City Service Authority
- James City County Transit Company
- Colonial Community Corrections
- Williamsburg-James City County Public Schools
- James City County Industrial Development Authority
- Williamsburg Area Medical Assistance Corporation
- Virginia Peninsula Regional Jail Authority
- Middle Peninsula Juvenile Detention Commission
Not included in the County's annual report are:
- Virginia Peninsulas Public Service Authority
- Williamsburg Regional Library
A more detailed description of these entities can be found in the Notes to Financial Statements, Note 1 Summary of Significant Accounting Policies.
GOVERNMENTAL STRUCTURE, LOCAL ECONOMIC CONDITION AND OUTLOOK
James City County is located in southeastern Virginia and partially surrounds the City of Williamsburg. Although much of the County's 144 square miles consists of developed suburban areas, it has retained a considerable amount of undeveloped agricultural and forest land.
The County is organized under the County Administrator Form of Government (as defined under Virginia Law). Under this form of government, the Board of Supervisors appoints a County Administrator to serve as the Chief Executive Officer of the County. The Administrator serves at the pleasure of the Board of Supervisors, implements its policies, appoints department heads, and directs business and administrative procedures.
The Board of Supervisors is a five-member body, elected by the voters of the Electoral Districts in which they live to staggered terms. The Chairman of the Board is elected annually by its members. Each member serves a four-year term. This body enacts ordinances, appropriates funds, sets tax rates and establishes policies for the administration of the County's public services.
James City County has a strong tax base and the County's estimated population has grown to more than 50,000 or 3.3 percent over last fiscal year. Although the County continues to experience growth, the effects of the national recession have been felt. Retail sales were down in FY 2002 and are not expected to recover in FY 2003. Interest earnings have been substantially diminished due to the drop in interest rates. However, the real estate market continues to be very strong with the help of those rates. The County continues to seek diversification of its economy and will weather the planned departure of the John Deere facility with the expansion of the Wal-Mart distribution center and other companies expanding and locating within the County. In FY 2002, the number of business licenses increased by 4.5 percent.
The County's strong tax base, economic diversity, and conservative financial goals translated into bond rating increases from both the Moody's Investors Service and Standard & Poor's rating agencies. James City County has bond ratings of Aa3 from Moody's and AA from Standards and Poor. These bond ratings are based on analyst recommendations after a review of economic and fiscal performance, fiscal policies and practices, current debt outstanding, and evidence of financial planning to meet future capital needs. The actual ratings are excellent for a community the size of James City County and give the County additional leverage in the bond market for potential bond buyers and investors.
MAJOR INITIATIVES
In FY 2002, the County continued to utilize its Strategic Management Plan as a framework for planning and accountability and continued to seek out new partnerships to help achieve its goal.
The County continues to balance its service demand with available resources. The County and the Virginia Peninsula Regional Jail Authority have enhanced their regional relationship by working to provide inmate resources for the maintenance of County roadways. Purchasing procedures were revised and paper transactions for purchases under $1,000 were reduced by 72 percent. The County continues to work to enhance the character of the community with the purchase of a riverfront park which gives County residents access to waterways in James City County. Promoting a healthy community is very important to the County, and grants were obtained for the purchase of automatic external defibrillators and a thermal imaging camera for the Fire Department.
Economic Development had healthy business activity in FY 2002 including the expansion of Wal-Mart Import Distribution Center by one million square feet and the creation of 150 jobs.
FOR THE FUTURE
James City County will continue to face challenges over the next several years. Several years of population growth have produced demands for public services and facilities. An indication of anticipated impacts can be seen in the adopted budget and capital improvements program for the fiscal year beginning July 1, 2003.
The five-year Capital Improvement Program totals $24,989,907 and focuses on a wide variety of needs. Long-term plans can be seen in the adopted budget and capital improvements program for the fiscal year beginning July 1, 2000. Replacement of the current radio system with an 800 MHz system for public safety dominates this list of needs which includes additional funding for Purchase of Development Rights, greenspace, replacement of the Grove Fire Station, and several school upgrades. The Purchase of Development Rights program provides an incentive for landowners to preserve the agricultural and forestal use of their land and allows them some immediate financial benefits. The program will enable the County to acquire conservation easements voluntarily offered by owners and protect open space, community character, and natural resources as outlined in the Comprehensive Plan. Construction has begun on the Government Center building, and it is expected to be completed by Spring 2003.
RESULTS OF OPERATIONS
General Fund
The General Fund had revenues of $102,889,076 for FY 2002. Actual revenue was more than budgeted by $3,194,017, which represents a 3.2 percent favorable variance. This was due to higher collections than expected in personal property taxes and delinquent real estate taxes. General Fund revenue increased by $6,036,609 or 6.2 percent over FY 2001. The increased revenue was generated as a result of the County's continued residential and commercial growth. General property taxes increased by 4.8 percent and accounted for 58.5 percent of all General Fund revenue. The following table illustrates the General Fund's revenue components compared with the prior year:
Actual Revenue |
|||||
FY 02 |
FY 01 |
% |
|||
Amount |
% |
Amount |
% |
Change |
|
General Property Taxes |
$60,271,928 |
58.5 |
$57,520,214 |
59.4 |
4.8 |
Other Local Taxes |
14.368,190 |
14.0 |
13,711,689 |
14.2 |
4.8 |
Licenses, Permits, and Fees |
5,788,162 |
5.6 |
5,333,067 |
5.5 |
8.5 |
Fines and Forfeitures |
203,714 |
0.2 |
176,803 |
0.2 |
15.2 |
Use of Money and Property |
1,195,831 |
1.2 |
1,962,869 |
2.0 |
(39.1) |
Revenue from Commonwealth |
17,755,839 |
17.3 |
15,404,256 |
15.9 |
15.3 |
Charges for Current Services |
2,680,879 |
2.6 |
2,328,716 |
2.4 |
15.1 |
Revenue from Federal Gov't. |
323,715 |
0.3 |
222,352 |
0.2 |
45.6 |
Miscellaneous |
300,818 |
0.3 |
a92,501 |
0.2 |
56.3 |
$102,889,076 |
100.0 |
$96,852,467 |
100.0 |
6.2 |
|
The percent of property taxes collected remained strong with current collections of the tax levy at 98.32 percent and total collections including delinquencies were 101.20 percent. The assessed value of taxable real property was valued at $4,983,279,400, which is an 8.7 percent increase over 2001. The large increase in Federal revenue was due to money received from the Department of Criminal Justice Services for the records system improvement for the police department.
The following table illustrates the General Fund's expenditure components compared with the prior year:
Actual Expenditures |
|||||
FY 02 |
FY 01 |
% |
|||
Amount |
% |
Amount |
% |
Change |
|
General Government |
$ 4,566,213 |
4.4 |
$ 4,190,117 |
4.6 |
9.0 |
Judicial Administration |
3,415,489 |
3.3 |
2,550,406 |
2.8 |
33.9 |
Public Safety |
12,763,826 |
12.2 |
11,837,816 |
13.0 |
7.8 |
Public Works |
3,190,367 |
3.1 |
2,789,699 |
3.1 |
14.4 |
Health and Welfare |
1,073,208 |
1.0 |
1,019,289 |
1.1 |
5.3 |
Education |
46,050,774 |
44.0 |
42,953,127 |
47.1 |
7.2 |
Parks, Recreation, and Cultural |
6,998,086 |
6.7 |
6,320,234 |
6.9 |
10.7 |
Community Development |
5,409,573 |
5.2 |
5,190,542 |
5.7 |
4.2 |
Nondepartmental |
831 |
0.0 |
25,886 |
0.0 |
(96.8) |
| Operating Transfers | 21,075,787 | 20.1 | 14,280,344 | 15.7 | 47.6 |
$104,544,154 |
100.0 |
$91,157,460 |
100.0 |
14.7 |
|
Expenditures, including transfers to the Discretely Presented Component Unit - Public Schools, totaled $104,544,154. Not included in expenditures are $1,107,476 in purchase orders and contracts where the goods or services were not received by June 30, 2002. Accordingly, the fund balance has been reserved in this amount for encumbrances. The large increase in Judicial Administration expenditures was due to the Clerk of the Circuit Court receiving a technology improvement grant. Net transfers to other funds were $21,075,787 which, combined with revenues and expenditures, resulted in an ending fund balance of $23,614,225. The County continues its commitment to Education with a 7.2 percent increase in spending in FY 2002 which equated to 44.0 percent of total County spending.
Accrued vacation and sick leave is recorded as a liability when earned, rather then when paid, in accordance with accounting principles generally accepted in the United States of America. The amount of accrued leave, $2,121,376, is recorded in the General Long-Term Debt Account Group and represents a $152,838 increase over FY 2001.
Capital Projects Fund
During the year, the Capital Projects Fund had expenditures and transfers of $9,475,092. Several school projects, construction of a new Government Center building, and the purchase of a waterfront park are included in this total.
The fund balance is $19,726,753 which is available to complete existing projects in various stages of planning and construction.
Enterprise Fund
Included in this report is one enterprise fund. The Financial Statements of the James City Service Authority (JCSA) are included in this report in accordance with accounting principles generally accepted in the United States of America. The JCSA, for legal and management purposes, issues its own comprehensive annual financial report which is audited and available from the Department of Financial and Management Services. The following table illustrates the results of operations of the Enterprise Fund compared with the prior year:
FY 02 |
FY 01 |
% |
|
Operating Revenues |
$ 8,130,426 |
$ 7,045,290 |
15.4 |
Operating Expense (excluding depreciation |
7,394,450 |
5,679,512 |
30.2 |
Depreciation and Amortization |
3,566,260 |
3,405,700 |
4.7 |
Operating Loss |
(2,830,284) |
(2,039,922) |
38.7 |
Net Nonoperating Revenue |
4,172,063 |
4,933,389 |
(15.4) |
Net Income |
1,341,779 |
2,893,467 |
(53.6) |
Retained Earnings, Beginning |
15,185,377 |
9,693,442 |
56.7 |
Depreciation on Contributed Fixed Assets |
2,474,856 |
2,598,468 |
(4.8) |
Retained Earnings, Ending |
$19,002,012 |
$15,185,377 |
25.1 |
Service charge revenue increased by 16.0 percent, while the net miscellaneous revenues decreased by 2.8 percent. The combination of service charge revenue and miscellaneous revenue reflected an operating revenue increase of 15.4 percent. During FY 01, JCSA implemented GASB Statement No. 33 and as a result, water and sewer facility fees are shown as nonoperating revenues. Net nonoperating revenue decreased due to changes in investments. Operating expenses increased by 30.2 percent, and the net result of operations was an increase in the operating loss by 38.7 percent.
The Board of Directors has authorized water and sewer operations for the JCSA within the Primary Service Area (PSA) in the County. The JCSA also provides water and/or sewer service to limited sections of York County and the City of Williamsburg with the concurrence of the appropriate governing bodies. The JCSA's operating funds are self-supporting, and the JCSA receives no share of any local or property tax levies.
The JCSA's water system includes the central water system with 29 well facilities and 7 independent water systems with 8 well facilities. There are approximately 274 miles of water transmission and distribution lines throughout the entire system. The water system facilities supply approximately 4.4 million gallons of water per day to 14,158 water customers.
The JCSA's sewer system includes 76 pump stations with approximately 329 miles of sewer collection lines. The sewer system facilities collect and move approximately 4.5 million gallons of sewage per day for 15,249 sewer customers. The JCSA has no sewage treatment facilities. Sewage treatment for areas served by the JCSA, as well as for other Hampton Roads communities, is provided by the Hampton Roads Sanitation District.
The JCSA Board of Directors has approved a Water Supply Plan that provides that the JCSA pursue a 5.0 mgd desalination facility. The JCSA completed a feasibility study of a desalination facility with the assistance of an engineering consultant in February 1998. The study indicated that a 4.0 mgd desalination facility using reverse osmosis technology is feasible. The study recommended using the Potomac Aquifer which is not potable without treatment as a water supply and locating the facility in the Five Forks area of the County.
In the spring of 2001, the JCSA began drilling exploratory wells for the planned desalination facility. The information obtained from the well drilling project will be used to support the JCSA's application for a Groundwater Treatment Permit issued by the Department of Environmental Quality. Once assurances are received that the permit will be issued, the JCSA will proceed with the construction of a 5.0 million gallon per day desalination facility estimated to cost $16 million. A decision on the groundwater withdrawal permit by the Department of Environmental Quality is expected in November 2002.
Trust and Agency Funds
Trust and Agency Funds account for money and property held in a fiduciary capacity for individuals, organizations, other governmental entities and other funds. The County has three trust funds, the Donation Trust Fund, the Bicentennial Trust Fund, and the Deferred Compensation Plan. The County has five agency funds, the Special Welfare Fund, the Williamsburg Area Medical Assistance Corporation ("WAMAC"), the Virginia Peninsula Regional Jail Authority, Regional Bikeways, and the Middle Peninsula Juvenile Detention Commission. The total assets held by the County in a fiduciary capacity as of June 30, 2002 were $12,893,590.
General Fixed Asset Account Group
The investment in general fixed assets of the County is $74,403,985 (historical costs) at June 30, 2002. These assets are used in the performance of general governmental operations, excluding the assets of the Enterprise Funds. Depreciation is not recorded for general fixed assets. The net additions and retirements during FY 2002 for the County were $6,997,563. The increase reflected the additions to land, building and improvements, equipment and vehicles, and construction in progress.
General Long-Term Debt Group
The General Long-Term Debt Account Group accounts for general obligation debt, capitalized leases and direct obligations with the State of Virginia. In addition, the balance of these accounts also includes the compensated absences payable and the landfill closure and postclosure care cost as of June 30, 2002. Total long-term debt as of June 30, 2002 was $88,083,758, a decrease of $5,050,036 from June 30, 2001, which was primarily due to bond obligations being met for the current year.
DEBT ADMINISTRATION
The ratio of net bonded debt to assessed valuation and the amount of bonded debt per capita are useful indicators of the County's debt portion to County management, citizens, and investors. These debts for the County as of June 30, 2002 and 2001, are as follows:
Amount |
Ratio of Debt to |
Debt Per |
|
2002 Net Bonded Debt |
$74,208,314 |
.0129 |
$1,459 |
2001 Net Bonded Debt |
78,893,952 |
.0148 |
1,602 |
The County is authorized to issue general obligation bonds to finance general Capital Improvement Projects. Except for school construction bonds financed with the assistance of the State, all other general obligation bonds require voter approval. In FY 2001, Moody's Investors Services upgraded the County's credit rating from A1 to AA3. This credit rating indicates that bonds issued by the County are judged to be of high quality by all standards.
TREASURY MANAGEMENT
A conservative cash management system is carried out by the County Treasurer. Temporary idle funds are automatically invested overnight in repurchase agreements that are secured or collateralized by government securities as required by the Code of Virginia. Funds that are available for a longer period of time are part of a comprehensive investment strategy that maximizes short and medium term interest rates. During the year, the above system and use of a competitive bidding process for Certificates of Deposit yielded the County $1,195,831 in investment income in the General Fund. During June, overnight investment averaged 1.98 percent and funds in the investment portfolios earned 3.25 percent.
RISK MANAGEMENT
In our opinion, the County maintains a practical insurance program through a variety of vendors which affords adequate protection against loss and includes comprehensive public liability insurance for bodily injury and property damage in amounts approved by our Risk Consultant.
INDEPENDENT AUDIT
Section 15.1-67 of the Code of Virginia (1950, as amended) requires the County to have an annual audit of the books of account, financial records, and transactions of the County. KPMG LLP was selected and approved by the Board of Supervisors to perform the required audit. The unqualified report of KPMG LLP the highest possible result of the audit process, accompanies the financial statements in this report.
SINGLE AUDIT
As a recipient of Federal and State financial assistance, the County also is responsible for ensuring that an adequate internal control structure is in place to ensure compliance with applicable laws and regulations related to those programs. This internal control structure is subject to periodic evaluation by management.
As part of the County's single audit, tests are made to assess the internal control structure, including the portion related to Federal Awards programs, as well as to determine that the County has complied with applicable laws and regulations. The results of the County's single audit for the fiscal year ended June 30, 2002, indicated no instances of material weakness in the internal control structure or material violations of applicable laws and regulations.
AWARDS OF ACHIEVEMENT
The GFOA awarded a Certificate of Achievement for Excellence in Financial Reporting to James City County for its Comprehensive Annual Financial Report for the fiscal year ended June 30, 2001.
In order to be awarded a Certificate of Achievement, the County must publish an easily readable and efficiently organized comprehensive annual financial report, whose contents conform to program standards. Such reports must satisfy both accounting principles generally accepted in the United States of America and applicable legal requirements.
A Certificate of Achievement is valid for a period of one year only. We believe our current report continues to conform to Certificate of Achievement Program requirements, and we are submitting it to the GFOA to determine its eligibility for another certificate.
ACKNOWLEDGMENTS
The County has established and continues to maintain a strong and stable financial position through progressive management of financial operations and through sound accounting and financial reporting practices. Appreciation is expressed to the Members of the James City County Board of Supervisors and all of the Constitutional Officers for their interest and support in planning and conducting the financial operations of the County in a responsible and progressive manner.
The preparation of this report could not have been accomplished without the extensive effort and efficient services of the staff of Financial and Management Services. We would like to express our appreciation to each employee of the Department who assisted with the annual audit and preparation of the financial statements.
Respectfully submitted,
Sanford B. Wanner
County Administrator
John E. McDonald
Manager of Financial and Management Services
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