401 mcintire rd charlottesville va

Budget & Finance

City of Charlottesville, Virginia

Comprehensive Annual Financial Report Fiscal Year Ended June 30, 2010

CITY OF CHARLOTTESVILLE, VIRGINIA

Comprehensive Annual Financial Report Fiscal Year Ended June 30, 2010

Prepared by Department of Finance

DEPARTMENT OF FINANCE

Monica L. Brumfield

John A. Chisholm

Barbara Eyrse

Elnora L. Grooms

Kathy W. Hall

Khristina S. Hammill

Linda D. Harding

Gail E. Hassmer

Michael Heny

Teresa A. Kirkdoffer

Sharon O’Hare

Michaela Roberts

Beatrice M. Segal

Peggy J. Sprouse

Bernard Wray

CITY OF CHARLOTTESVILLE, VIRGINIA

COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED JUNE 30, 2010 TABLE OF CONTENTS Exhibit or Schedule Page

INTRODUCTORY SECTION

Letter of Transmittal 1 GFOA Certificate of Achievement for Excellence in Financial Reporting 10 City Organizational Chart 11 List of Elected and Appointed Officials 12

FINANCIAL SECTION

Independent Auditors' Report 13 Management's Discussion and Analysis 15 Basic Financial Statements: Government-wide Financial Statements: Statement of Net Assets A 30 Statement of Activities B 31 Fund Financial Statements: Balance Sheet - Governmental Funds C 32 Statement of Revenues, Expenditures and Changes in Fund Balances - Governmental Funds D 34 Statement of Net Assets - Proprietary Funds E-1 36 Reconciliation of the Proprietary Funds Statement of Net Assets to the Statement of Net Assets for Business-Type Activities E-2 37 Statement of Revenues, Expenses and Changes in Fund Net Assets - Proprietary Funds E-3 38 Reconciliation of the Proprietary Funds Statement of Revenues, Expenses and Changes in Fund Net Assets to the Statement of Activities E-4 39 Statement of Cash Flows - Proprietary Funds E-5 40 Statement of Fiduciary Net Assets - Fiduciary Funds F-1 41 Statement of Changes in Fiduciary Net Assets - Fiduciary Funds F-2 42 Notes to the Financial Statements 43 Required Supplementary Information: Schedule of Revenues, Expenditures and Changes in Fund Balance - Budget and Actual - Budget Basis - General Fund G 76 Schedule of Revenues, Expenditures and Changes in Fund Balance - Budget and Actual - Budget Basis - Social Services Fund H 81 Schedule of Funding Progress and Employer Retirement Contributions - Employee Retirement and Post-Employment Benefit Plans I 82 Note to Required Supplementary Information 83 Supplementary Information: Combining and Individual Fund Statements: Combining Balance Sheet - Nonmajor Governmental Funds J 86 Combining Statement of Revenues, Expenditures and Changes in Fund Balances - Nonmajor Governmental Funds K 87 Schedule of Revenues, Expenditures and Changes in Fund Balances - Budget and Actual - Community Development Block Grant Fund K-1 88 Schedule of Revenues, Expenditures and Changes in Fund Balances - Budget and Actual - Grants Fund K-2 89 Schedule of Revenues, Expenditures and Changes in Fund Balances - Budget and Actual - Community Attention Fund K-3 90

CITY OF CHARLOTTESVILLE, VIRGINIA

COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED JUNE 30, 2010 TABLE OF CONTENTS Exhibit or Schedule Page Schedule of Revenues, Expenditures and Changes in Fund Balances - Budget and Actual - Comprehensive Services Act Fund K-4 91 Schedule of Revenues, Expenditures and Changes in Fund Balances - Budget and Actual - Transit Fund K-5 92 Schedule of Revenues, Expenditures and Changes in Fund Balances - Budget and Actual - Debt Service Fund K-6 93 Combining Statement of Net Assets - Internal Service Funds L-1 96 Combining Statement of Revenues, Expenses and Changes in Fund Net Assets - Internal Service Funds L-2 97 Combining Statement of Cash Flows - Internal Service Funds L-3 98 Schedule to Assign Internal Service Fund Assets and Liabilities in the Statement of Net Assets L-4 99 Statement of Changes in Assets and Liabilities - Agency Fund - Comprehensive Services Act Trust Fund M 102 Component Unit - School Board: Statement of Net Assets N-1 105 Statement of Activities N-2 106 Balance Sheet - Governmental Funds N-3 107 Statement of Revenues, Expenditures and Changes in Fund Balances - Governmental Funds N-4 108 Statement of Net Assets - Internal Service Fund N-5 109 Statement of Revenues, Expenditures and Changes in Fund Net Assets - Internal Service Fund N-6 110 Statement of Cash Flows - Internal Service Fund N-7 111

STATISTICAL SECTION

Financial Trends: Net Assets by Component I 114 Change in Net Assets II 115 Fund Balances of Governmental Funds III 117 Changes in Fund Balances of Governmental Funds IV 118 Revenue Capacity: Tax Revenues by Source V 119 Assessed and Estimated Market Value of Taxable Property VI 120 Property Tax Rates (per $100 of Assessed Value) VII 121 Principal Taxpayers Current Year and Nine Years Prior VIII 122 Property Tax Levies and Collections IX 123 Estimated Value of Tax-Exempt Property X 124 Debt Capacity: Ratio of Net Bonded Debt to Assessed Value and Net Bonded Debt per Capita XI 125 Ratio of Annual Debt Service Expenditures for General Bonded Debt to Governmental Expenditures and other Financing Uses XII 126 Ratios of Outstanding Debt by Type XIII 127 Computation of Legal Debt Margin XIV 128

CITY OF CHARLOTTESVILLE, VIRGINIA

COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED JUNE 30, 2010 TABLE OF CONTENTS Exhibit or Schedule Page Economic and Demographic Information: Property Values, Construction and Bank Deposits XV 129 Demographic Statistics XVI 130 Principal Employers Current Year and Nine Years Prior XVII 131 Operating Information: Government Employees by Function XVIII 132 Operating Indicators by Function XIX 133 Capital Asset Statistics by Function XX 135

INTRODUCTORY SECTION

Honorable Mayor and Members of City Council November 15, 2010

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THE REPORTING ENTITY AND ITS SERVICES

The City is located in Central Virginia, approximately 100 miles southwest of Washington, D.C. and 70 miles northwest of Richmond, Virginia. As the seat of both the City and Albemarle County governments, Charlottesville serves as an economic, cultural and educational center in Central Virginia. As the home of the University of Virginia, one of the most prestigious and highly-regarded universities in the country, the City derives a number of benefits, both economic and in the quality of life associated with this area. The City provides a full range of services. These services include police and fire protection, solid waste collection and disposal, education, parks, recreational and cultural activities, street and highway maintenance and construction, health and welfare, and community and economic development. In addition to these general governmental activities, the City also operates gas, water, and wastewater systems and a municipal golf course as enterprise funds and maintains a pension trust fund and a post-employment benefits fund for its employees. The financial reporting entity includes all funds of the Primary Government (i.e., the City), as well as the component units for which the City is financially accountable. The City of Charlottesville Public Schools (Schools) and the Charlottesville Economic Development Authority (CEDA) are included in the report as discretely presented component units in separate columns in the government-wide financial statements to emphasize that they are legally separate from the City and to differentiate their financial position and results of operations from that of the City. Both of these component units are administered by separate boards which are appointed by City Council. School Board members are elected At Large. The Charlottesville Redevelopment and Housing Authority (CRHA) is not included in the reporting entity because the City is not financially accountable for the CRHA.

ECONOMIC CONDITION AND OUTLOOK

Following several years of steady growth, the major revenue areas began to decline in

2008 marking the beginning of an economic slowdown in the City’s economy. By July 2008,

residential and commercial real estate assessment growth had begun to slow, and revenue from

food, lodging and sales tax experienced less significant increases than in previous years. In

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fiscal year 2009 and 2010 this trend continued with real estate assessments essentially flat and

sales, lodging and meals taxes all declining compared to the previous year. The fair market

value of commercial property decreased by 0.34% from fiscal year 2009 to fiscal year 2010,

while residential property values decreased by 2.19%. The total value of existing property

decreased by 1.55%. Total decreases with new construction were .76%. In addition, the City’s

unemployment rate continued increasing during 2010 and as of July 2010 is at a 5 year high of

7.8%, which is below the national unemployment rate of 9.7%, but slightly higher than that

state’s rate of 7.1%. The unemployment rate for the Charlottesville MSA stood at 6.3% during

this same period.

Despite the declines in revenue, the City’s situation is considerably less alarming than the

state’s projected shortfall and the outlook of other local governments. In fact, the City's sound

financial policies were confirmed again in May 2010, when both Moody's Investor Services and

Standard & Poor's gave the City their top rating (Aaa and AAA, respectively) on the City's latest

bond issue. The relative strength of the Charlottesville area is due in large part to its central

Virginia location and the nature of the local economy. Charlottesville is the commercial and

marketing center for a metropolitan area population of over 190,000. The predominant

economic sectors are healthcare, service related industries, leisure and hospitality, and education.

An emerging sector involves defense related businesses, with the relocation of 800 Defense

Intelligence Agency personnel to the area in 2010. The City has also attracted companies

specializing in printing, publishing, financial institution analysis, electronics equipment, and

computer software development.

The University of Virginia and its Medical Center continue to be the area's largest

employer by providing over 17,000 jobs and making the City a regional center for quality

education and healthcare. The University has avoided layoffs to date and recently announced

plans to grow its student enrollment at an increased rate over the next decade. This plan could

signal moderate growth in the education, service and construction sectors. In addition, the

University enjoys nationally ranked men's and women's teams in many major sports, including

football, basketball, lacrosse, and soccer. The University’s John Paul Jones Arena, which at

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15,000 seats is the largest in the Commonwealth of Virginia and, in addition to UVA athletics;

the facility hosts a variety of entertainment, annually attracts over 500,000 visitors from around

the state to the area.

The City’s downtown has shown dramatic changes during the past decade, in particular

during the past five years, as a result of both on-going public and private investment in new

construction and renovation/restoration projects. The Downtown Mall is thriving, with an

exciting combination of residential and retail units, restaurants, a movie complex, an ice skating

rink, and the Charlottesville Pavilion, as well as a number of office complexes and financial

institutions, all of which draw local residents and tourists to the area. While access to capital and

concerns over the national economy has hampered some projects, a number of significant

buildings are in various stages of planning and construction.

Two notable privately funded projects completed in 2010 include Norcross Station phase

three, which features 30 studio apartments, and The Gleason’s Building, a major mixed use

project featuring over 100,000 square feet of retail, office and condominium units. The Gleason,

which represents one of the largest single buildings ever constructed in the city, began

construction in September 2008 just as the recession began. Also completed in spring 2010 is

455 2nd St, a 40,000 square foot, Class A commercial office building – the first in downtown

Charlottesville in a decade. Within two months of opening, this building was fully leased to

credit worthy tenants.

Despite the challenging financial environment, construction began in December 2009 on

the City’s first Whole Foods grocery store. The 45,000 square foot store will enhance sales tax

revenue and bring over 100 jobs to the City when it opens in early 2011.

Smaller renovations continue to occur at a brisk pace throughout downtown. Several

downtown storefronts have undergone extensive rehabilitation for the first time in many years in

preparation for new office use and retail tenants. The historic Jefferson Theater renovation has

been completed adding a new venue for year around musical performances and meetings

downtown.

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SNL Financial, a growing investment research firm that began leasing the former

National Ground Intelligence Center in 2003 for its new headquarters from the Charlottesville

Economic Development Authority (CEDA), continues to be a major city employer (with over

330 employees) in the downtown area. In 2010, SNL was recognized for the third straight year

by Inc. Magazine as one of the 5,000 fastest growing private companies in the United States. In

addition a number of new high technology firms have made Charlottesville home recently

including Phthisis, Hotelicopter and HemoShear.

Arts and entertainment continue to draw large numbers of visitors to Charlottesville. The

Paramount Theater, a 1,200 seat multi-purpose auditorium which was renovated and restored in

2004, now plays host to many events. This $16 million project has significantly expanded the

arts and entertainment opportunities downtown attracting more than 100,000 attendees annually.

Also attracting people downtown is the Charlottesville Pavilion, which has an annual attendance

of 95,000. The Pavilion recently completed its fifth full season featuring 20 national caliber

artists. The covered, 3,500-seat facility is expected to play a key role in continuing to attract

those seeking entertainment.

The City maintains controlling interest in over 1,500 parking spaces at two facilities

downtown. Every effort is made to keep parking available and affordable for residents, workers

and visitors alike. At current usage levels, parking supply exceeds demand allowing opportunity

for continued growth in the entertainment, retail and tourism sectors. A study to assess future

parking availability was recently completed and the results will be used to examine current

parking and to determine how new development and growth will impact downtown parking in

the future.

The West Main Street corridor and the Preston Avenue area both represent good

opportunities for additional development in the future. In 2010, a number of key properties

changed ownership likely signaling that renovation and development is eminent. Also, during

the past year, the City continued free, daily Charlottesville Trolley service connecting the

University grounds to the Downtown Mall. The West Main plan consists of a streetscape with

wide sidewalks, shade trees, cafés, shops and parking structures. The City will continue to look

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for opportunities to partner with private developers as redevelopment occurs along these

corridors.

Despite the economic challenges faced by communities throughout the country in the past

two years, we have reason to be optimistic about the continued prosperity of the City of

Charlottesville. A prime example is Waterhouse, a 90,000 square foot mixed use downtown

development featuring 10 luxury condominiums and class A office space for a 220 employee

firm. This significant development, which has broken ground this fall, signals that interest in an

urban environment remains high by both residential and commercial interests. The City’s

proactive approach in welcoming investment continues to prove effective with support from a

zoning ordinance that encourages denser, mixed-use development to help provide opportunities

to expand the tax base and encourage quality commercial development. This activity provides a

vibrant environment allowing us to continue to improve our city and the services it can provide

to citizens, in an orderly and financially responsible manner.

MAJOR INITIATIVES

For the Year The FY 2010 budget focused on the continued delivery of efficient and effective government services to the City’s citizens, businesses, and visitors, with no tax increases. After several years of real estate tax rate reductions the 2010 rate remained unchanged at $.95 per $100 of assessed value for the calendar year. The budget reflected the City's emphasis on building the community, enhancing neighborhoods, improving education, growing finances, creating more and better jobs, creating an environmentally sustainable community, building and expanding all modes of transportation, and delivering quality services to all. The City’s initiatives and achievements this year include the following:

• Expanding quality, affordable housing opportunities for our residents, • Increasing workforce development and professional growth opportunities for the

youth of our City through the Summer Youth Internship program,

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• Continuing to maintain and improve core infrastructure through an aggressive capital budget program,

• Adding several new routes to the Charlottesville Transit System

Other recent acknowledgements of Charlottesville’s success include:

• Top College Town for Student Living –“American Institute for Independent Research”

• Top “Brainiest” Metropolitan Areas – “The Atlantic”

• Number One City for Retirement – “Kiplinger.com” • Top 12 College Football Towns – “Associated Press”

• Healthiest Place to Live – “Men’s Journal magazine” 2010 • Top Place to Retire – “Kiplinger magazine” 2010

• AAA Bond Rating—Moody’s and Standard and Poor’s, 2010

For the Future Our emphasis in the upcoming year will continue to be on ensuring that Charlottesville remains a "world class" city and continues to improve. Creating innovative approaches to service delivery, providing good value to our citizens, exploring possibilities for public/private partnerships as well as privatization opportunities, and being results-oriented will be guidelines for the directions in which we move. These efforts will continue throughout the year and for many years to come. We continue to monitor closely both the state budget and the local economy. They will impact our financial planning and budget strategy in the upcoming months. We also continue to face increasing capital funding demands for a variety of areas, including the City Schools, fire station needs, strategic economic opportunities and public facilities. These and many other requests will have to be prioritized and planned for in order to assure continued success of our City. Pension Trust Fund Operations The operations of the City's Retirement Fund continued to be financially sound and the required contribution was fully funded in fiscal 2010.

Honorable Mayor and Members of City Council November 15, 2010

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The actuarially determined City contribution rate was 27.92% this year, and the fund's investment yield was 11.3% for the year. The City employs an investment advisory firm and several investment managers for the Retirement Fund’s investment portfolio. On July 1, 2007 City Council established a Post-Employment Benefits Trust in addition to the Retirement Trust, which is presented on Exhibit F-1 and F-2 of the Basic Financial Section. Additional information concerning the City’s Retirement Fund can be found in Note 11 of Notes to the Financial Statements. Cash Management Cash temporarily idle during the year (for all funds except the City’s Retirement Fund) was invested primarily in money market accounts, obligations of the U.S. Treasury, the Local Government Investment Pool (administered by the Treasurer of the Commonwealth of Virginia), and demand deposits. The average yield on cash investments was approximately 1.1%, down from 2.1% for the prior year and 4.3% in 2008. Risk Management During fiscal 2010, the City continued to use a variety of techniques to monitor and finance its risk and exposures for the activities and functions of the City and moved toward emphasis on self-insuring for smaller claims. A separate Risk Management Fund is used to finance the purchase of insurance and to pay self-insured claims. Risk control techniques in various aspects of the City's activities continue to be emphasized, as well as the City's wellness program for employee health care.

OTHER INFORMATION

Independent Audit State law requires that the financial statements of the City be audited annually by a certified public accounting firm selected by City Council. An audit of the financial records of the City has been performed by the accounting firm of Cherry, Bekaert & Holland, LLP for the year ended June 30, 2010. The audit was also designed to meet the requirements of the Single Audit Act of 1996 and the related U.S. Office of Management and Budget Circular A-133. The independent auditors' report on the government-wide financial statements and the fund financial statements and required supplementary information is included in the financial section of this report.

Certificate of

Presented to

City of Charlottesville

For its Comprehensive Annual

June 30, 2009

President

Executive Director

Financial Report for the Fiscal Year Ended

Reporting in Financial

for Excellence Achievement

Text38: Virginia

A Certificate of Achievement for Excellence in Financial Reporting is presented by the Government Finance Officers

Association of the United States and Canada to government units and public employee retirement

systems whose comprehensive annual financial reports (CAFRs) achieve the highest standards in government accounting

and financial reporting.

chisholm
Typewritten Text
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CITY OF CHARLOTTESVILLE, VIRGINIA

LIST OF ELECTED AND APPOINTED OFFICIALS

JUNE 30, 2010

ELECTED OFFICIALS

Council Members: Dave Norris Mayor

Holly Edwards Vice-Mayor David E. Brown Council Member Satyendra Huja Council Member Kristin Szakos Council Member

Constitutional Officers: Jennifer J. Brown City Treasurer R. Lee Richards Commissioner of Revenue Warner D. Chapman Commonwealth’s Attorney James E. Brown, III City Sheriff

Paul D. Garrett Clerk of Circuit Court

APPOINTED OFFICIALS

Maurice T. Jones Acting City Manager Aubrey V. Watts, Jr. COO, CFO, Director of Economic Development Leslie M. Beauregard Director, Budget and Performance Management S. Craig Brown City Attorney Paige Barfield Clerk of Council Bernard Wray Director of Finance Charles Werner Fire Chief H. Galloway Beck Director of Human Resources Karen Parker Interim Director of Information Technology James E. Tolbert Director of Neighborhood Development Services Timothy J. Longo Sr. Chief of Police Judith M. Mueller Director of Public Works Roosevelt Barbour Real Estate Assessor Brian Daly Director of Parks and Recreation Sheri L. Iachetta General Registrar Diane E. Kuknyo Interim Director of Social Services Michael Murphy Director of Human Services Ric Barrick Director of Communications

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FINANCIAL SECTION

Independent Auditors’ Report

To the Honorable Members of the City Council City of Charlottesville, Virginia We have audited the accompanying financial statements of the governmental activities, the business- type activities, the discretely presented component units, each major fund, and the aggregate remaining fund information of the City of Charlottesville, Virginia (the “City”), as of and for the year ended June 30, 2010, which collectively comprise the City’s basic financial statements as listed in the table of contents. These financial statements are the responsibility of the City’s management. Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America, the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States, and the Specifications for Audit of Counties, Cities and Towns, issued by the Auditor of Public Accounts of the Commonwealth of Virginia. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinions. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the governmental activities, the business-type activities, the discretely presented component units, each major fund, and the aggregate remaining fund information of the City as of June 30, 2010, and the respective changes in financial position, and cash flows, where applicable, thereof for the year then ended in conformity with accounting principles generally accepted in the United States of America. In accordance with Government Auditing Standards, we have also issued our report dated November 15, 2010 on our consideration of the City’s internal control over financial reporting and our tests of its compliance with certain provisions of laws, regulations, contracts, grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be considered in conjunction with this report in considering the results of our audit.

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The Management’s Discussion and Analysis and the other required supplementary information included in the table of contents are not a required part of the basic financial statements but are supplementary information required by the Governmental Accounting Standards Board. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation of the required supplementary information. However, we did not audit this information and express no opinion on it. Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the City’s basic financial statements. The introductory section, combining and individual nonmajor fund statements and schedules, and statistical section, are presented for purposes of additional analysis and are not a required part of the basic financial statements. The combining and individual nonmajor fund statements and schedules have been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, are fairly stated in all material respects in relation to the basic financial statements taken as a whole. The introductory and statistical sections have not been subjected to the auditing procedures applied in the audit of the basic financial statements and, accordingly, we express no opinion on them. Richmond, Virginia November 15, 2010

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CITY OF CHARLOTTESVILLE, VIRGINIA Management’s Discussion and Analysis Year Ended June 30, 2010

This section of the City of Charlottesville’s (the City’s) annual financial report presents an overall review of the City’s financial activities for the fiscal year ended June 30, 2010. Please read it in conjunction with the transmittal letter at the front of this report and the City’s financial statements, which follow this section. The intent of this discussion and analysis is to evaluate the City’s financial performance as a whole. FINANCIAL HIGHLIGHTS FOR THE YEAR • The City's total net assets, on a government-wide basis excluding component units, totaled $243.3

million at June 30, 2010. Of this amount, $89.0 million is unrestricted. • The City’s total net assets increased by $19.6 million over the prior year. This increase is the sum of

an $18.5 million increase for the governmental activities and a $1.1 million increase for the business- type net assets.

• At June 30, 2010, the City’s governmental funds reported combined ending fund balances of $68.8 million (a decrease of $1.9 million over the prior year). Approximately 35.3 percent or $24.3 million of this amount is unreserved and undesignated.

• The General Fund, on a current financial resources basis, reported an excess of revenues and other financing sources over expenditures and other financing uses of $3.4 million, due primarily to lower than projected expenditures for a number of accounts, including landfill costs, the local match for Social Services, unspent citywide reserves and personnel costs.

• At the end of the fiscal year, undesignated fund balance for the General Fund was $24.3 million or 19.0 percent of total General Fund expenditures and other financing uses.

• The City’s total debt, consisting of general obligation bonds, literary loans and notes payable, increased by $7.2 million during the current fiscal year.

OVERVIEW OF THE FINANCIAL STATEMENTS This discussion and analysis is intended to serve as an introduction to the City of Charlottesville’s basic financial statements. The City’s basic financial statements comprise three components: • Government-wide financial statements, • Fund financial statements, • Notes to the financial statements. This report contains other supplementary information in addition to the basic financial statements themselves.

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The basic financial statements include two kinds of statements presenting different views of the City: • The first two statements are government-wide financial statements that provide both long-term and

short-term information about the City’s overall financial status. • The remaining statements are fund financial statements that focus on individual parts of the City’s

government, reporting the City’s operations in more detail than the government-wide statements. - The governmental fund statements tell how general government services like public safety

were financed in the short term as well as what amounts remain for future spending. - Proprietary fund statements offer short- and long-term financial information about the

activities the government operates like businesses, such as the public utilities (water, sewer, and gas) systems and the golf course.

- Fiduciary fund statements provide information about the financial relationship in which the City acts solely as a trustee or agent for the benefit of others, to whom the resources in question belong, like the City’s retirement plans.

The financial statements also include notes that explain some of the information in the financial statements and provide more detailed data. The statements are followed by a section of required supplementary information that further explains and supports the information in the financial statements. Figure A shows how the required parts of this Management’s Discussion and Analysis and the City’s basic financial statements are arranged and relate to one another.

Figure A Required Components of Charlottesville’s Financial Statements

Management’s Discussion and Analysis (MD&A)

Government-wide financial statements

Fund financial statements

Notes to financial statements

Notes to RSI

Required supplementary information (RSI) (other than MD&A)

The government-wide financial statements provide both long-term and short-term information about the City’s overall financial status. The fund financial statements focus on the individual parts of the City government, reporting the City’s operations in more detail than the government-wide statements. Both perspectives (government-wide and fund) allow the user to address relevant questions, broaden the basis of comparison (year-to-year or government-to-government) and enhance the City’s accountability.

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GOVERNMENT-WIDE STATEMENTS The government-wide statements report information about the City as a whole using accounting methods similar to those used by private-sector companies. The Statement of Net Assets and the Statement of Activities, which are the government-wide statements, include all of the government’s assets and liabilities using the accrual basis of accounting. All of the current year’s revenues and expenses are taken into account regardless of when cash is received or paid. These two government-wide statements report the City’s net assets and how they have changed. Net assets – the difference between the City’s assets and liabilities – is one way to measure the City’s financial health, or financial position. Over time, increases or decreases in the City’s net assets are an indicator of whether its financial health is improving or deteriorating. Other non-financial factors such as changes in the City’s property tax base and the condition of the City’s roads and other infrastructure may need to be considered to assess the overall health of the City. In the Statement of Net Assets and the Statement of Activities, the City is divided into three categories: • Governmental activities – Most of the City’s basic services are included here, such as the activities of

the police, fire, public works, social services, and parks and recreation departments, and general administration. Property taxes and state and federal grants finance most of these activities.

• Business-type activities – The City charges fees to customers to cover the cost of certain services it provides. The City’s water, sewer, and gas systems as well as the golf course are included here.

• Component units – The City includes two separate legal entities in its report – the City of Charlottesville Economic Development Authority and the Charlottesville Public Schools. Although legally separate, these “component units” are important because the City is financially accountable for them and provides operating funding.

FUND FINANCIAL STATEMENTS The format of the fund financial statements will be more familiar to long-time users of government financial statements. The fund financial statements provide more detailed information about the City’s most significant funds – not the City as a whole. Funds are accounting mechanisms that the City uses to keep track of specific sources of funding and spending for particular purposes. Some funds are required by State law; City Council establishes other funds to control and manage money for particular purposes or to show that it is properly using certain grants.

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The City has three kinds of funds: ∗ Governmental funds – Most of the City’s basic services are included in governmental funds, which

focus on (1) how cash and other financial assets that can readily be converted to cash flow in and out and (2) the balances remaining at year-end that are available for spending. Consequently, the governmental fund statements provide a detailed short-term view that helps the reader determine whether there are more or fewer financial resources that can be spent in the near future to finance the City’s programs. Because this information does not encompass the long-term focus of the government-wide statements, additional information is provided on a subsequent page that explains the relationship (or differences) between the government-wide and fund statements.

∗ Proprietary funds – Services for which the City charges customers a fee are generally reported in proprietary funds. Proprietary funds, like the government-wide statements, provide both short-term and long-term financial information. The City’s enterprise funds (one type of proprietary fund) are the same as its business-type activities, with the exception of the Internal Service Funds’ allocation, but they provide more detail and additional information, such as cash flows. The City also uses internal service funds (another kind of proprietary fund) to report activities that provide supplies and services for the City’s other programs and activities – such as the Risk Management Fund and the Information Technology Fund.

∗ Fiduciary funds – Fiduciary funds are used to report assets held in a trustee or agency capacity for others outside the government. The City maintains two pension trust funds (the Retirement and Post- Employment Benefits Funds) and an agency fund. These activities are reported in a separate statement of fiduciary net assets. The City excludes this activity from its government-wide financial statements because the City cannot use these assets to finance its operations.

The Total Governmental Funds column requires reconciliation because of the different measurement focus from the government-wide statements (current financial resources versus total economic resources) which is reflected at the bottom of or following each statement. The flow of current financial resources will reflect bond proceeds and inter-fund transfers as other financing sources as well as capital expenditures and bond principal payments as expenditures. The reconciliation will eliminate these transactions and incorporate the capital assets and long-term obligations (bond and others) into the Governmental Activities column (in the government-wide statements).

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FINANCIAL ANALYSIS OF THE CITY AS A WHOLE Statement of Net Assets The following table reflects the condensed Net Assets: City of Charlottesville, Virginia Summary of Net Assets June 30, 2010 and 2009 Table I

Total Percentage

Change 2010 2009 2010 2009* 2010 2009*

Assets: Current and other assets 118,648,869$ 120,387,292$ 32,143,579$ 26,541,066$ 150,792,448$ 146,928,358$ 2.6 % Capital assets 199,884,375 175,794,364 42,641,919 42,659,833 242,526,294 218,454,197 11.0

Total assets 318,533,244 296,181,656 74,785,498 69,200,899 393,318,742 365,382,555 7.6 Liabilities: Long-term liabilities

outstanding 69,812,682 65,670,412 23,136,618 20,365,231 92,949,300 86,035,643 8.0 Other liabilities 49,318,604 49,561,977 7,704,531 6,023,580 57,023,135 55,585,557 2.6 Total liabilities 119,131,286$ 115,232,389 30,841,149 26,388,811 149,972,435 141,621,200 5.9

Net assets: Invested in capital assets,

net of related debt 132,614,179 117,881,979 21,576,238 21,006,447 154,190,417 138,888,426 11.0 Restricted

Special revenue funds, expendable 10,000 10,000 - - 10,000 10,000 -

Permanent fund, nonexpendable 162,501 162,501 - - 162,501 162,501 -

Unrestricted 66,615,278 62,894,787 22,368,111 21,805,641 88,983,389 84,700,428 5.1 Total net assets 199,401,958$ 180,949,267$ 43,944,349$ 42,812,088$ 243,346,307$ 223,761,355$ 8.8

2009-2010

Governmental Activities

Business-Type Activities Total

* Certain amounts have been restated consistent with detail in note 18. Net assets (assets over liabilities) may serve over time as a useful indicator of a government’s financial position. In the case of the City of Charlottesville, assets exceeded liabilities by $243.3 million at the close of fiscal year 2010. The largest portion of the City’s net assets (63.4%) reflects its investment in capital assets (e.g., land, buildings, equipment, and infrastructure); less accumulated depreciation and less any related outstanding debt used to acquire those assets. The City uses these assets to provide services to its citizens and consequently, these assets are not available for future spending. The resources needed to repay the debt related to these capital assets must be provided from other sources. Approximately 0.07% of the City’s net assets are subject to external restrictions. The remaining balance of unrestricted net assets ($89.0 million or 36.6%) may be used to meet the City’s ongoing obligations to citizens and creditors.

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Governmental Activities Net assets of the City’s governmental activities increased from $180.9 million to $199.4 million as a result of the increase in net assets of $18.5 million as shown on the Statement of Activities. This increase was largely due to the lower than anticipated expenditures in a number of accounts, including landfill costs, the local match for Social Services, unspent citywide reserves and personnel costs. Long-term liabilities increased due to issuance of new debt instruments. Business-type Activities The net assets of the City’s business-type activities increased by $1.1 million, as restated, primarily due to the operating gain in the City’s gas system (the result of the colder and snowier winter). These resources are not to be used to make up for any net asset deficit in governmental activities. In general, the City can only use these net assets to finance the continued operations of its enterprise operations, which include the Water, Sewer, Gas and Meadowcreek Golf Course enterprise funds.

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Statement of Activities The following table shows the revenues and expenses of the governmental and business-type activities: City of Charlottesville, Virginia Changes In Net Assets For the Years Ended June 30, 2010 and 2009 Table II

Total Percentage

Change 2010 2009 2010 2009** 2010 2009**

Revenues: Program Revenues: Charges for services 16,533,315$ 16,252,727$ 49,012,901$ 56,281,594$ 65,546,216$ 72,534,321$ (9.6) % Operating grants and

contributions 30,041,750 29,928,495 - - 30,041,750 29,928,495 0.4 Capital grants and

contributions 13,937,735 11,741,986 - - 13,937,735 11,741,986 18.7 General Revenues: Property taxes 55,625,137 57,299,828 - - 55,625,137 57,299,828 (2.9) Other taxes 36,280,784 37,273,727 - - 36,280,784 37,273,727 - Grants and contributions* 25,160,421 21,166,672 54,667 58,838 25,215,088 21,225,510 18.8 Interest and investment-

earnings 918,853 1,435,592 240,142 246,926 1,158,995 1,682,518 (31.1)

Total revenues 178,497,995 175,099,027 49,307,710 56,587,358 227,805,705 231,686,385 (1.7)

Expenses: General government 20,575,390 25,817,176 - - 20,575,390 25,817,176 (20.3) Public safety 30,547,357 30,527,165 - - 30,547,357 30,527,165 - Community services 21,602,923 20,577,112 - - 21,602,923 20,577,112 5.0 Health and welfare 31,358,502 30,161,585 - - 31,358,502 30,161,585 4.0 Parks, recreation and culture 9,546,796 9,561,694 - - 9,546,796 9,561,694 (0.2) Education 41,990,709 41,558,411 - - 41,990,709 41,558,411 1.0 Conservation and Development 6,985,191 8,588,251 - - 6,985,191 8,588,251 (18.7)

Interest on long term debt 2,454,390 2,235,928 - - 2,454,390 2,235,928 9.8 Water - - 8,009,139 7,416,972 8,009,139 7,416,972 8.0 Sewer - - 8,840,500 7,090,366 8,840,500 7,090,366 24.7 Gas - - 25,111,699 34,388,021 25,111,699 34,388,021 (27.0) Golf Course - - 1,198,157 1,210,638 1,198,157 1,210,638 (1.0)

Total expenses 165,061,258 169,027,322 43,159,495 50,105,997 208,220,753 219,133,319 (5.0)

Change in net assets before transfers 13,436,737 6,071,705 6,148,215 6,481,361 19,584,952 12,553,066 56.0

Transfers 5,015,954 4,768,644 (5,015,954) (4,768,644) - - - Change in net assets 18,452,691 10,840,349 1,132,261 1,712,717 19,584,952 12,553,066 56.0

Net assets - beginning of year 180,949,267 170,108,918 42,812,088 41,099,371 223,761,355 211,208,289 5.9

Net assets - end of year 199,401,958$ 180,949,267$ 43,944,349$ 42,812,088$ 243,346,307$ 223,761,355$ 8.8

2009-2010

Governmental Activities

Business-Type Activities Total

∗ Not restricted to specific programs. ** Certain amounts have been restated consistent with detail in note 18.

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Governmental Activities The City’s total revenues from governmental activities were $178.5 million for the fiscal year ended June 30, 2010, an increase of $3.4 million. The more significant changes are the following:

• Property taxes – a decrease of $1.7 million, primarily from real estate taxes and personal property taxes.

• Grants and Contributions – an increase of $4.0 million, primarily from Revenue Sharing with Albemarle County.

• Capital Grants and Contributions – an increase of $2.2 million, primarily from transit. Transit received grant funds from the American Recovery Reinvestment Act.

Approximately 51.7% of the City’s revenue from governmental activities comes from property and other taxes. (54% in 2009). Revenues by Source – Governmental Activities

Property taxes 31.3%

Other taxes 20.4%

Charges for services

8.1%Interest and investments

0.5%

Fees and permits 0.9%

Grants and contributions

38.8%

City of Charlottesville Sources of Revenue for Fiscal Year 2010

Governmental Activities

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The City's expenses decreased by $4.0 million in 2010. Expenses for fiscal year 2010 cover a wide range of services, with 19.0% or $31.4 million related to health and welfare, 25.4% or $42.0 million for education (primarily payments to the Public Schools, a component unit), and 18.5% or $30.5 million related to public safety. For fiscal year 2010, the City changed its spending in the following areas:

• Health and welfare – an increase of $1.2 million, representing increased spending under the Comprehensive Services Act Program and Community Attention.

• Community services – an increase of $1.0 million, representing construction of new sidewalks, contributions to road construction, the Ivy Landfill and transit.

• General government – a decrease of $5.2 million, representing reduced expenditures on the Juvenile and Domestic Relations Court and reduced local match required for the Meadowcreek Parkway.

Expenses by Function – Governmental Activities

General government

12.5%

Public safety 18.5%

Community services 13.1%

Health and welfare 19.0%

Parks, recreation and culture

5.8%

Education 25.4%

Conservation and

development 4.2%Interest

1.5%

City of Charlottesville Functional Expenses for Fiscal Year 2010

Governmental Activites

Business-Type Activities Net assets for the City’s business-type activities increased by $1.1 million (as restated, note 18) primarily due to higher volumes for the City’s gas system (the result of the colder and snowier winter). Gas wholesale prices remained steady during fiscal year 2010, starting with a price of $3.949 per the NYMEX index in July 2009 and ending with a price of $4.155 in June 2010. While the City’s gas prices

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remained steady during fiscal year 2010, they had decreased dramatically from the all time high prices of FY2009. According to NYMEX the first seven months of fiscal year 2009 averaged $4.17 higher than the first seven months of fiscal year 2010. This combined with conservation efforts of citizens reduced gas revenues in fiscal year 2010. The wholesale cost of water and sewage treatment rose due to a rate increase from Rivanna Water and Sewer Authority; City water and sewer rates rose correspondingly, resulting in higher revenues.

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

Water Sewer Gas Golf Course

M ill io n

D o lla rs

City of Charlottesville Expenses and Program Revenues

Business-type Activities

Program Revenues

Expenses

FINANCIAL ANALYSIS OF THE CITY’S FUNDS The City of Charlottesville uses fund accounting to ensure and demonstrate compliance with finance- related legal requirements. Governmental Funds The focus of Charlottesville’s governmental funds is to provide information on near-term inflows, outflows and balances of spendable resources. In particular, unreserved fund balance may serve as a useful measure of a city’s net resources available at the end of a fiscal year. For the fiscal year ended June 30, 2010, the governmental funds reported combined ending fund balances of $68.8 million, a decrease of $2.0 million in comparison with the prior year. Included in this are the following major transactions:

• $28.7 million spent in the Capital Projects Fund for capital outlay to fund Forest Hills Recreation

Building, Single Room Occupancy Housing project, Smith Pool, Avon Transit Station, Ivy Rd/Fontaine Ave Fire Station, neighborhood and housing initiatives, bridge, road and sidewalk construction and other projects.

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• $41.1 million contributed by the City’s governmental funds to finance the Public Schools’ operations.

Approximately $52.9 million of the combined total fund balances constitutes unreserved fund balance, which generally is available for spending at the government’s discretion. Of this amount, $1.3 million is designated for non-major governmental funds of which $9.5 million is for debt service. The remainder of the unreserved fund balance at June 30, 2010, not designated for a specific purpose, is $24.3 million in the General Fund. This amount represents 19.0% of General Fund expenditures and transfers as a measure of the General Fund’s liquidity. Total fund balance of the General Fund increased by $3.4 million in fiscal year 2010. Proprietary Funds The City of Charlottesville’s proprietary fund statements provide the same type of information found in the government-wide financial statements, but in more detail. The Water Fund had an increase in net assets of $.5 million. The Sewer Fund had a decrease in net assets of $.4 million. The Gas Fund also had an increase of $.9 million. GENERAL FUND BUDGETARY HIGHLIGHTS General Fund For the Year Ended June 30, 2010 Table III

Variance Original Amended Positive Budget Budget Actual (Negative)

Revenues Property taxes 58,135,398$ 58,135,398$ 57,520,194$ (615,204)$ Other taxes 34,979,446 34,979,446 34,731,264 (248,182) Intergovernmental 30,515,537 30,612,660 30,462,577 (150,083) Other 8,099,602 8,573,753 8,431,720 (142,033)

Total 131,729,983 132,301,257 131,145,755 (1,155,502) Expenditures and transfers (net)

Expenditures 111,418,097 118,537,172 108,868,320 9,668,852 Transfers (net) 16,251,602 20,296,381 18,907,210 1,389,171

Total 127,669,699 138,833,553 127,775,530 11,058,023

Change in Fund Balance 4,060,284$ (6,532,296)$ 3,370,225$ 9,902,521$

The City's budget ordinance includes, as part of the original budget for expenditures, the amount of $643,413 for encumbrances reappropriated from June 30, 2009, as well as continuing appropriations from the prior year totaling $3,158,736, and $1,492,461 for Landfill Remediation Reserve. Differences between the original and the final amended budget for the City's General Fund for expenditures and other financing uses, net, totaled $11,163,854. This difference is primarily due to the continuing appropriations from the prior year and supplemental appropriations during the year. Actual total revenues were less than the amended budget by $1.1 million, primarily due to lower than estimated tax revenues and current economic conditions. Expenditures and transfers were below budget by $11 million.

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