Other Auditor Reports 12/31/2003

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DEBT SERVICE FUNDS (Continued) Schedule of Special Assessment Debt: Total resources available + Scheduled property tax levies $ 4,947,214 2,564,274 $ 7,511,488 - Debt Service 15,542,650 Deficit in scheduled funding (at 12/31/03) $ (8,031,162) This deficit will need to be funded by future adopted assessment rolls, special assessment levies, investment earnings, transfers from other funds, property taxes or other available means. Factors to consider when analyzing debt service funds: • Are all the anticipated assessment rolls being adopted as soon as appropriate? • Have all the planned financing sources been identified, such as pledged amounts from the area and unit fund or future MSA funds? • Are there significant "prepayments" received from property owners? In the current investment environment, will the earnings the City will receive on these prepayments be lower than the interest rate that was being charged on the adopted assessment roll? We recommend that all Debt Service Funds of the City be reviewed at least annually by applying the above criteria. The Area & Unit Fund is committed to the debt service of some special assessment bonds as well as toward the water revenue bonds. We recommend that the City determine the full commitment of the Area and Unit Fund whenever this fund is used to pledge toward future bond issues and construction projects. Undeveloped Special Assessments As noted above in the discussion of Capital Project Deficits and Debt Service Funds, the City has many funds with current deficits or projected deficits. City staff believes many of these deficits will be eliminated as various properties are developed and can be assessed for improvements that have already been made. Currently, the City Charter allows property owners to defer special assessments on undeveloped property until it is developed and owners are using applicable services. As noted above, this results in cash flow problems for the City and can provide a road block for future expansion. We feel the City should review its Charter in regards to assessments on undeveloped property. We have seen some cities adopt a policy of only deferring assessments for a short period, say two to five years. If the City feels the Charter should not be changed, then it needs to re -think how it will pay for future projects. One possibility is to require developers to pay a larger share of infrastructure improvements. Another possibility is for the Area and Unit Fund or General Fund to loan the money to the applicable project. These funds would be paid back when the applicable properties are actually assessed. The key is the project should not get done unless the City has a plan for covering the costs of the project. (10)