comprehensive annual financial report - City of Mobile

CITY OF MOBILE, ALABAMA

COMPREHENSIVE ANNUAL FINANCIAL REPORT

FOR THE FISCAL YEAR ENDED September 30, 2009

Samuel L. Jones, Mayor Barbara S. Malkove, Executive Director of Finance Patricia A. Aldrich, Comptroller

CITY OF MOBILE, ALABAMA COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED September 30, 2009

TABLE OF CONTENTS PAGES I. INTRODUCTORY SECTION Transmittal Letter GFOA Certificate of Achievement Organization Chart List of Principal Officers

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II. FINANCIAL SECTION Independent Auditor's Report

1-2

A. MANAGEMENT’S DISCUSSION AND ANALYSIS

3 - 15

B. BASIC FINANCIAL STATEMENTS Government-wide Financial Statements Statement of Net Assets

16

Statement of Activities

17 - 18

Fund Financial Statements Governmental Fund Financial Statements Balance Sheet Reconciliation of the Balance Sheet Governmental Funds to the Statement of Net Assets Statement of Revenues, Expenditures, and Changes in Fund Balances Reconciliation of the Statement of Revenues, Expenditures, and Changes in Fund Balances of Governmental Funds to the Statement of Activites

19 - 20 21 22 - 23 24

Proprietary Fund Financial Statements Balance Sheet Statement of Revenues, Expenses and Changes in Fund Net Assets Statement of Cash Flows

25 - 26 27 - 28 29 - 32

Component Units Financial Statements Statement of Net Assets Statement of Activities

33 34 - 35

Notes to the Financial Statements

36 - 77

C. REQUIRED SUPPLEMENTARY INFORMATION OTHER THAN MD&A Schedule of Revenues, Expenditures and Changes in Fund Balance - Budget and Actual - General Fund Notes to Schedule of Revenues, Expenditures and Changes in Fund Balance Budget and Actual - General Fund

78 - 81 82

D. COMBINING FINANCIAL STATEMENTS Combining Balance Sheet - Non-major Governmental Funds (by fund type)

83

Combining Statement of Revenues, Expenditures, and Changes in Fund Balances Non-major Governmental Funds (by fund type)

84

Non-major Special Revenue Funds Combining Balance Sheet

85 - 86

Combining Statement of Revenues, Expenditures and Changes in Fund Balances

87 - 88

Schedule of Capital Projects by Program and Disposition

89 - 90

Non-major Debt Service Funds Combining Balance Sheet

91 - 92

Combining Statement of Revenues, Expenditures, and Changes in Fund Balances

93 - 94

Non-major Capital Projects Funds Combining Balance Sheet

95 - 96

Combining Statement of Revenues, Expenditures, and Changes in Fund Balances

97 - 98


99 - 108

Internal Service Funds Combining Balance Sheet

109

Combining Statement of Revenues, Expenses and Changes in Fund Net Assets

110

Combining Statement of Cash Flows

111 - 112

Non-major Enterprise Funds Combining Balance Sheet

113 - 114

Combining Statement of Revenues, Expenses and Changes in Fund Net Assets

115 - 116

Combining Statement of Cash Flows

117 - 120


121 - 122

E. OTHER SUPPLEMENTARY INFORMATION General Fund Schedule of Revenues - Budget and Actual (Budgetary Basis) Schedule of Other Financing Sources (Uses) - Budget and Actual (Budgetary Basis)

123 - 124 125

Capital Assets Capital Assets Used in the Operation of Governmental Activities - Schedule by Source

126

Capital Assets Used in the Operation of Governmental Activities - Schedule by Function

127 - 128

Long-Term Debt Schedule of Bonds, Warrents, And Notes Payable III.STATISTICAL SECTION Net Assets by Component Changes in Net Assets Governmental Activities Tax Revenue by Source Fund Balances of Governmental Funds Changes in Fund Balances of Governmental Funds Value of Taxable Sales Sales Tax Rates Direct and Overlapping Governments Principal Sales Taxpayers Assessed Value and Estimated Actual Value of Taxable Property Property Tax Rates Direct and Overlapping Governments Principal Property Taxpayers Property Tax Levies and Collections Ratios of Outstanding Debt by Type Ratios of General Bonded Debt Outstanding Direct and Overlapping Government Debt Legal Debt Margin Information Pledged - Revenue Coverage Demographic and Economic Statistics Principal Employers Full-time Equivalent City Government Employees by Function Operating Indicators by Function Capital Asset Statistics by Function

129 - 130

131 - 132 133 - 138 139 - 140 141 - 142 143 - 144 145 146 - 147 148 149 - 150 151 152 153 - 154 155 - 156 157 158 159 - 160 161 162 - 163 164 165 - 166 167 - 170 171

SAMUEL L. JONES MAYOR

Part I Introductory Section

CITY OF MOBILE

OFFICE OF THE CITY COUNCIL COUNCIL MEMBERS

REGGIE COPELAND, SR. PRESIDENT-DISTRICT 5

FREDRICK D. RICHARDSON, JR. VICE PRESIDENT-DISTRICT I

WILLIAM C. CARROLL, JR. DISTRICT 2

JERMAINE A. BURRELL DISTRICT 3

JOHN C. WILLIAMS DISTRICT 4

CONNIE HUDSON

SAMUEL L. JONES

DISTRICT 6

MAYOR

GINA GREGORY DISTRICT 7 CITY CLERK

LISA C. LAMBERT

March 25, 2010 TO THE CITIZENS OF THE CITY OF MOBILE, ALABAMA: The Comprehensive Annual Financial Report (CAFR) of the City of Mobile, Alabama (the City) for the fiscal year ended September 30, 2009 is hereby presented to you. The CAFR is provided to give detailed information about the financial position and activities of the City to its citizens, City Council, City staff and other readers. Responsibility for both the accuracy of the data, and the completeness and fairness of the presentation, including all disclosures, rests with the City of Mobile management. To the best of our knowledge and belief, the enclosed data are accurate in all material respects and are reported in a manner designed to present fairly the fmancial position and results of operations of the City as a whole and the various funds of the City. All disclosures necessary to enable the reader to gain an understanding of the City's financial activities have been included. Alabama state law requires an annual audit of the City's financial statements by independent certified public accountants who must conduct the audit in accordance with generally accepted auditing standards. The accounting firm of Banks, Finley, White & Co., conducted the audit and their report on the City's basic financial statements is included herein. The City is required 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 State and Local Governments," The audit has been performed and the separately issued Single Audit Report is available for review at the Federal Audit Clearinghouse. Management's discussion and analysis (MD&A) immediately follows the independent auditors' report. It provides a narrative introduction, overview and analysis to accompany the basic financial statements. This letter of transmittal is designed to complement MD&A and should be read in conjunction with it. PROFILE OF THE CITY Three hundred-year-old historic Mobile is the county seat of Mobile County and is located in the southwestern section of Alabama, at the head of Mobile Bay, thirty-one miles from the Gulf of Mexico. The city covers a land area of 179 square miles and is part of the second largest metropolitan area in

P. O. BOX 1827· MOBILE, ALABAMA 36633-1827

Alabama. The latest figures from the 2000 census indicate the population of Mobile to be 198,915 and the Mobile Metropolitan Statistical Area (MSA) to be 540,258. The City of Mobile, Alabama (the City) was incorporated on January 20, 1814 under the provisions of Act 1911, No. 281, page 330; Code 1940. The City operates under a Mayor and seven-member council form of government, with the council members elected by district. Responsibility for day-to-day operations of the City rests with the Mayor. Various council committees also work closely with the Mayor and department heads. This report includes all funds of the City. The City provides a full range of services. These services include police and fire protection; the construction and maintenance of highways, streets and infrastructure; and recreational activities and cultural events. The Mobile Public Library and the Public Parks and Recreation Board (Ladd - Peebles Stadium) have both met the established criteria to be included in the reporting entity as component units, and accordingly are included in the report. The Board of Water and Sewer Commissioners of the City of Mobile, Mobile Housing Board, Mobile Airport Authority, Mobile Board of Health, Mobile Emergency Management, and Mobile Personnel Board are related entities but have not met the established criteria for inclusion in the reporting entity, and accordingly are excluded from this report. Additional information on all of these entities can be found in the notes to the financial statements (See Note 1). Policy making and legislative authority are vested in a seven member city council who are, among other things, responsible for passing local ordinances, adopting budgets, appointing committees and board members of related organizations, and approving the appointment of executive directors of the City. The Mayor is responsible for carrying out the policies and ordinances of the City Council, supervising the operation of the City and appointing executive directors. The Mayor and Council members are elected to four-year terms. All council members are elected from within their respective districts. The annual budget serves as the foundation for the City’s financial planning and control. The Mayor is required to submit a budget proposal to the City Council for most of the City’s departments and funds by August 20 of each fiscal year. The Council, after public comment and evaluation, adopts the balanced budget by the beginning of the fiscal year each October. The City maintains budgetary controls to ensure compliance with legal provisions embodied in the annual appropriated budget approved by the City’s governing body. Activities of the general fund are included in the annual appropriated budget. Project-length financial plans are adopted for the capital projects funds. The comparison between the project-length basis budget to actual expenditures for the year is not meaningful and, therefore, is not presented. The level of budgetary control is on the departmental level within an individual fund for legal and administrative control. The City also maintains an encumbrance accounting system as one technique of accomplishing budgetary control. Unencumbered amounts lapse at year-end. ECONOMIC CONDITION Along with the rest of the country the City faced an economic slowdown in 2009. Although unemployment doubled in the area between September 2008 and September 2009 (according to the Bureau of Labor Statistics) and sales tax revenues declined, the City has been able to maintain services and avoid layoffs due to the hard work and dedication of its current employees.

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This year Forbes.com listed Mobile as one of the "10 Best Cities for Recession Recovery" for mediumsized cities. To find the 10 cities that look best poised for recovery Forbes.com examined estimates from data provider Moody’s Economy.com of the projected gross domestic product of metropolitan areas across the U.S., as well as unemployment figures from the Bureau of Labor Statistics and home prices, incomes and affordability data from the National Association of Home Builders. ThyssenKrupp Steel USA, LLC continues to construct a multibillion dollar state-of-the-art carbon steel processing facility in north Mobile County, Alabama. The plant is expected to begin operation in 2010 and when fully operational will create 2,700 jobs. Mobile has always been a center of maritime activity and on April 9, 2009 held a groundbreaking ceremony for GulfQuest, an interactive maritime museum on the downtown waterfront expected to open in 2011. This museum will “celebrate the historical, economic and cultural significance of 'America’s Sea' and its coastal region.” Austal USA continues to be a key player in our current shipbuilding history. Austal builds large aluminum vessels, including everything from high-speed passenger ferries to dinner cruise yachts. Austal delivered its 121 metre Littoral Combat Ship LCS-2 “Independence” to the Navy at a commissioning ceremony on January 16, 2010. Also, in January 2010 the U S Navy awarded Mobile’s Austal USA shipyard $204.2 million for two Joint High Speed Vessels which will create 500 additional jobs in the area. Austal USA also built a new Modular Manufacturing Facility, completed in July 2009 and is currently building an Administrative Building that will accommodate 400 employees and be completed in June 2010. Mobile’s original cruise ship Holiday was replaced by the Fantasy which is 158 feet longer and carries 42% more passengers. It is expected that 17,000 passengers will travel through the port of Mobile. The conversion to the larger ship required the installation of a new gangway at the Alabama Cruise Terminal during the year. In the quality of life category, Mobile Regional Senior Community Center was opened in November 2008. The center includes state-of-the-art fitness equipment, a thermal plunge pool, a billiards room, three multipurpose activity rooms, a full kitchen and café and a computer lab. For sports events, Ladd-Peebles Stadium was renovated during the year in anticipation of the University of South Alabama’s inaugural football season which began September 5, 2009. A $2.5 million project added eleven luxury skybox suites to the 41,000 seat stadium. Unity Point Park was constructed during the year and showcases the work of Mayor Joseph Langan and civil rights leader John LeFlore. The Bring Back Broad Street Project is a step closer with this project and the boulevard and landscaping south of Government Street. LONG-TERM FINANCIAL PLANNING Moody’s Investor Service and Standard and Poor’s maintained the City’s bond ratings to A1 and AAwhich had been upgraded in 2008. This reflected the city’s financial position, a growing economic base and positive economic development trends. In addition to new and expanding industry in and around the city, citizens in the Theodore and Windmill place subdivision voted to be annexed. These annexations provided a broader tax base for the City along with increasing the City’s service area.

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MAJOR INITIATIVES Subsequent to year end the City borrowed $23 million for the construction of GulfQuest Maritime Museum, a parking facility and a fire station. The City also refinanced $56 million in debt from a 2002 bond issue. Recovery Zone Economic Development Bonds, a new type of bond created by the American Recovery and Reinvestment Act (ARRA) were used to finance these government projects with economic development outcomes. This program allocates the authority to issue bonds and sell tax credits to bond and tax credit investors in order to finance economic development activities; it is not a direct funding program that allocates public dollars. The City of Mobile used the funds to help finance projects in 2009. In addition to the Recovery Zone Bonds we participated in the new Build American Bonds. Traditionally, tax-exempt bonds provide a critical source of capital for state and local governments, but the recession has sharply reduced their ability to finance new projects. Supplementing this existing market, the Build America Bond program was designed to provide a federal subsidy for a larger portion of the borrowing costs of state and local governments than traditional tax-exempt bonds in order to stimulate the economy and encourage investments in capital projects in 2009 and 2010. At the election of the state and local governments, the Treasury Department will make a direct payment to the state or local governmental issuer in an amount equal to 35 percent of the interest payment on the Build America Bonds. As a result of this federal subsidy payment, state and local governments will have lower net borrowing costs and will be able to reach more sources of borrowing than with more traditional tax-exempt or tax credit bonds. RELEVANT FINANCIAL POLICIES Management of the City is responsible for establishing and maintaining internal control designed to ensure that the assets of the City are protected from loss, theft or misuse and to ensure that adequate accounting data are compiled to allow for the preparation of financial statements in conformity with generally accepted accounting principles. Internal control is designed to provide reasonable, but not absolute, assurance that these objectives are met. The concept of reasonable assurance recognizes that: (1) the cost of control should not exceed the benefits likely to be derived; and (2) the valuation of costs and benefits requires estimates and judgments by management. Single Audit. As a recipient of Federal and State awards, the City also is responsible for ensuring that adequate internal control is in place to ensure compliance with applicable laws and regulations related to those programs. This internal control is subject to periodic evaluation by the City. As a part of the City’s single audit, tests are made to determine the adequacy of internal control, including that portion related to Federal awards, as well as to determine that the City’s single audit for the fiscal year ended September 30, 2009 provided no instances of material weaknesses in internal control or significant violations of applicable laws and regulations. Cash Management. Cash temporarily idle during the fiscal year was invested in government securities and bank certificates of deposit. The City’s investment policy is to minimize credit and market risks while maintaining a competitive yield on its portfolio. Accordingly, deposits were either insured by Federal Depository Insurance or collateralized. The deposits that were not insured by Federal Depository Insurance were covered under the Security for Alabama Funds Enhancement (SAFE) program. Each of the banks holding the City’s deposits is a certified participant in the SAFE program. Through the SAFE program, all public funds are protected through a collateral pool administered by the Alabama State Treasury. iv

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