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May 14, 1999

TO THE CITIZENS OF LARIMER COUNTY, COLORADO

We submit, for your information and review, the Comprehensive Annual Financial Report of Larimer County, Colorado, for the year ended December 31, 1998.

This report was prepared by the Department of Accounting and Reporting of the County's Division of Financial Services. 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. To the best of our knowledge the enclosed information is accurate in all material respects and is reported in a manner designed to fairly present the financial activity and results of operations of the various funds and account groups of the County. The Staff has included all disclosures necessary to enable the reader to gain maximum understanding of the County's financial affairs. The organization, form and content of the report conform to the standards of the Governmental Accounting Standards Board, the American Institute of Certified Public Accountants, the Government Finance Officers Association and the Colorado State Auditor.

The intended purposes of the report are to:

• Officially demonstrate our accountability to you, the citizens of Larimer County: (1) financially, by presenting the results of County operations for the 1998 fiscal year and the County's financial position at December 31, 1998; and (2) legally, by presenting comparisons of actual revenues and expenditures with budgeted amounts;

• Provide County management with audited financial results of the 1998 fiscal year to assist them in continuing to make informed fiscal decisions;

• Supply all interested parties with a comprehensive picture of the County's financial condition, historical and demographical data; and

• Comply with federal and state regulations and statutes by contracting for annual independent audits of the County's financial statements and the systems utilized to generate them, as well as federally funded programs.

The Comprehensive Annual Financial Report is divided into four sections with the intent to meet the needs of a variety of users:

Larimer County is located in north central Colorado. It is the seventh largest county in Colorado, both in area and population. The County extends to the Continental Divide and covers 2,640 square miles that encompasses some of the finest irrigated farmland in the state, as well as vast stretches of scenic ranch lands, forests and high mountain peaks. Over 50% of Larimer County is publicly owned, most of which is land within Roosevelt National Forest and Rocky Mountain National Park. County population totals 234,345. Approximately 25% of County citizens reside in unincorporated areas. Larimer encompasses six incorporated towns, and a portion of a seventh town. Fort Collins (pop. 115,630) and Loveland (pop. 49,331) are the largest of these.

Larimer County provides the full range of services contemplated by State Statute. Services include judicial and public safety consisting of the Sheriff, District Attorney, operation and maintenance of the detention center, and building inspection; planning and zoning; property valuation; tax collection and distribution; vehicle licensing; construction, reconstruction and maintenance of streets, highways and bridges; health, employment and social services; parks and recreation; and general administrative services.

This report includes all activities for which the Board of County Commissioners is accountable to the citizens of Larimer County, financially or by state statute, in accordance with Governmental Accounting Standards Boards (GASB) Statement 14, "The Financial Reporting Entity". All applicable funds, organizations, institutions, agencies, departments and offices, which are not separate legal entities, are included in these financial statements as part of the "primary government" of Larimer County.

The County considers several entities as "component units" under governmental accounting standards. Although legally separate, the entities have significant operational or financial relationships with the County. The Larimer County Pest Control District, the Larimer County Building Authority and numerous general improvement districts are blended component units. Therefore, the County’s financial statements also include these entities.

Larimer County has a diversified economy ranging from agriculture in the eastern part of the County to the high mountain tourist and recreational areas of Rocky Mountain National Park in the western area. In between these two extremes are major manufacturing, industrial, and technology facilities, as well as a strong retail base. Colorado State University, located in Fort Collins, is highly recognized for its veterinary medicine teaching hospital and research facilities. Loveland and Estes Park, in particular, benefit greatly from the tourist industry. Loveland is located on the main highway leading to Rocky Mountain National Park and is renowned for its artist community. Estes Park is situated at the immediate east entrance of the Park. Fort Collins, the County seat, is the regional shopping area for the northeastern section of Colorado, southern Wyoming and western Nebraska.

Colorado’s economy registered another strong year in 1998. Growth occurred in almost all sectors of the economy. Job growth was a robust 3.5%, and occurred in both service and goods industries. Unemployment has remained below 4% since 1997, and has been 1.0 to 2.0% below the national average since 1990. Wages increased and welfare caseloads dropped significantly. Single family home construction grew at a solid 5%. The only weakness in the state economy steamed from nonresidential construction, which declined in 1998.

Larimer County, with its diverse economic base, was a major contributor to the state’s robust economy. Countywide building permits reached a record high of 11,565. Cost of construction rose from $ 461 million in 1997 to $605 million in 1998 for an increase of 24%. Estimated values for residential, commercial and industrial, agricultural and natural resources and non-taxable real property increased an average of 6% or $1.01 billion dollars. Larimer County’s unemployment rate was 3.8% and taxable retail sales rose by 9.6%.

Along with much of the front range of Colorado, Larimer County is experiencing steady population growth as well. Between 1980 and 1990, County population increased by about 37,000. In the eight years since 1990, another 48,000 people now call Larimer County home. School enrollment increased by 22% during the same period. The State Demographer projects almost 244,000 total population by the year 2000.

The State’s economy, as well as the County’s, is expected to remain above national growth rates. Increases are anticipated in advanced technology, communications, financial services, tourism and service sectors. However, gains will be partially offset by the weak international trade market, the increased cost of living and doing business in Colorado, and lower construction industry growth. The inflation rate is predicted to increase from 2.4 percent in 1998 to 2.9 percent in 1999, but nevertheless will remain at levels below most years of the 1990's.

Land use and facilities continued to command time and attention in Larimer County in 1998. A host of other projects took the stage as well. Some of these activities are highlighted below.

New Facilities

Voters said ‘yes’ to a new Larimer County Justice Center and Detention Center Expansion in the fall of 1997. The County issued $71,010,000 in certificates of participation (COPs) in March of 1998 to finance these projects. The insured COPs received an A1 underlying debt rating from Moody's Investors Service, and an A+ from Standard & Poor's. One month later, the County broke ground for the Detention Center Expansion, which doubles the capacity of the existing facility. The project is scheduled for completion in the fall of 1999.

Mixing facilities with Human Services was the goal of the HUB, the new Health and Human Services Juvenile Assessment Center. The HUB provides a coordinated, single-entry process to respond to the needs of at-risk youth and their families in Larimer County. The Hub is a collaborative venture between Larimer County, law enforcement agencies, and the schools.

On the last day of 1998, the County celebrated the groundbreaking on the Civic Center Parking Structure. This facility is possible through a three-way partnership between Larimer County, the City of Fort Collins and the Fort Collins Downtown Development Authority.

In January of 1999, we brought out the jackhammers and had an asphalt-breaking for the new Justice Center. The approximately 151,000 square foot building will include fourteen courtrooms, office space and a law library. This project is scheduled for completion by the summer of 2000.

The County also continues to move forward on a Loveland Courthouse Facilities Project and the Sheriff's Administrative building, which are also part of the 1997 voter approved sales tax.

In the fall of 1998, voters approved a .10 percent sales tax for one year to purchase land for a new Larimer County Fairground and Events Center. As part of that sales tax, public outreach meetings are now gearing up to find out what citizens would like to see in a future facility of this nature.

Planning and Land Use

Land use has been a compelling issue for Larimer County citizens throughout the last several years. In late 1997, a Master Plan was approved which provides direction for land use and development in the unincorporated areas of the County. This plan set the stage for development of a Land Use Code to help implement the plan. Throughout 1998, the County solicited public input on a proposed code. Hundreds of citizens attended public hearings in December to debate and draw attention to various aspects of the code. Staff revised the code based on citizen input, and another round of public hearings is set for this spring and summer. The Master Plan and Land Use Code are part of the Larimer County Partnership Land Use System, or PLUS.

Larimer County has assumed a leadership role in regional coordination of land use as well. The County is developing a regional project that looks at the costs and benefits of growth. The cost-benefit growth project, or economic information system, is a partnership effort involving Larimer County, and cities and towns throughout the Larimer-Weld region. In 1998, Larimer County was a recipient of the Governor’s "Public Regional Partnerships" Smart Growth and Development Award. The award, given for innovative planning efforts, is shared jointly with the City of Fort Collins for the Fossil Creek Reservoir Area Plan. Larimer County was also a recipient of Great Outdoors Colorado grants in 1998.

In August of 1998, Larimer County adopted a Right to Farm and Ranch Policy. This policy looks at our agricultural heritage and provides guidelines for the problems that sometime occur when urban expectations are brought into rural settings.

Parks and Open Lands

1998 saw continued acquisition of public lands through the County's Open Lands Program. The Program purchases or protects lands for open space and wildlife habitats. Funding for the program is provided by a .25% dedicated sales tax. Some of the key purchases and improvements included the following:

• Longview farm in the FC-Loveland corridor area
• Coyote Ridge Expansion in our front range mountain backdrop area
• Devil’s Backbone and the D.B. addition off Highway 34, west of Loveland
• The Smitherman conservation easement in the Estes valley
• The Bickel & Lilly Lake properties in Estes
• Partnerships in the Lake Estes & Lion Gulch Trails in Estes
• Two properties which expand Horsetooth Mountain Park
• Expansion of the South Bay Ramp and Satanka Cove at Horsetooth Reservoir

In 1999, the County is planning more regional park improvements and has purchased the Williams property near Fossil Creek, and gained conservation easements at Blue Mt. Bison Ranch and Sylvan Dale Ranch.

Local government has a major challenge in providing the programs and services desired by its residents or mandated by a higher level of government within increasingly constrained resources. Larimer County, along with all local governments in Colorado, has the additional challenge of providing these programs and services within the provisions of the 1992 TABOR ("Taxpayer's Bill of Rights") State constitutional amendment. The amendment limits increases in property tax and most other state and local government revenues to inflation as defined by the Denver/Boulder area Consumer Price Index and a factor for local growth in real property values. It also freezes all state and local government mill levies and tax yields at a maximum of their 1992 rate, unless an increase is approved by the voters.

This is the fifth year under the provisions of the TABOR Amendment and the County has managed its budget within the constraints. However, concern is high over the long-term impacts it may have on the provision of services. Because the Amendment also restricts when elections can take place, sufficient funding may also fall behind when the real need exists.

Preparing for potential complications with Year 2000, or Y2K issues is an ongoing project for Larimer County. For several years we have been updating our systems where possible, or replacing whole systems, to assure no interruption in service in January of next year. For instance, in 1995, the County mainframe, which houses many mission critical systems, was upgraded and replaced as part of a Y2K solution. The Information Management Services Division Strategic Plan created in late 1997 brought to light the importance of creating a more formal approach to solving the Y2K dilemma within the County. In 1998, we brought a Y2K Coordinator on board. To insure the County will continue to meet its responsibilities to the community before and after the year 2000, a Year 2000 Project Service Proposal funds a coordinated countywide effort.

The County has adopted a standardized approach to analyzing our systems. Our approach has five phases: Awareness, Assessment, Inventory, Renovation/Validation and Implementation. Currently, all critical systems have been assessed, inventoried, and either remediated or are scheduled to be remediated prior to December 31, 1999. Through December 31, 1998, the County had spent $2,839,196 on the Year 2000 Issue. Total costs (including 1998 expenditures) for repairs, replacement or enhancements are estimated at approximately $4,787,000. This includes costs to upgrade non-compliant systems that were already budgeted for replacement, as well as direct expenses of the Year 2000 response plan. Major County systems and their remediation status are presented in required supplementary information to the financial statements.

The County also depends on numerous third parties, such as the Federal government, the State, banking institutions and vendors in order to meet its financial and service obligations. Disruptions in the systems and services provided by third parties could adversely impact the County's ability to meet its obligations on a timely basis. Even if very little inconvenience is felt due to Y2K, providing solid information will help to lessen potential public panic. Due to this realization, Larimer County facilitated a countywide Community Y2K Steering Committee and continues to be involved in public communications outreach efforts on Y2K. Our approach to Y2K preparedness could be summarized as two-pronged, our internal systems and external factors.

Colorado’s health economy is a mixed blessing to Larimer County. Along with the benefits of growth, the County is experiencing an increasing demand for services as well as intensifying pressure on existing infrastructure and facilities. The County is implementing a myriad of approaches to manage growth and respond to new demands. These include construction of new facilities, innovative land use planning and creation of special districts.

In developing and maintaining the County's accounting system, consideration is given to the adequacy of the internal control structure to the extent considered necessary to rely on the data generated by that system. The objective of an internal control structure is to provide reasonable, but not absolute, assurance as to 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 a system of internal control should not exceed the benefits derived, and the evaluation of these factors necessarily requires estimates and judgments by management. All internal control structure evaluations occur within the above framework. We believe that the County's internal control structure adequately safeguards assets and provides reasonable assurance of proper recording of financial transactions.

The County adopts annual budgets by department for all governmental and proprietary funds. Budgets are requested and adopted on a line-item basis and controlled by the major object classifications of Personnel, Operating Costs and Capital Outlay. The Operating Cost category, in addition to operating expenditures and expenses, includes intergovernmental and debt service payments, and operating transfers to other funds. Control is maintained by the three categories at the division/department level in the General Fund and at the fund level in all other funds. Supplemental appropriations are approved by the Board of County Commissioners as needed during the year to provide for those items that were unknown or unforeseen at the time the budget was originally adopted. In 1998, one supplemental appropriation was adopted.

Encumbrance accounting is employed as an extension of formal budgetary integration. Purchase orders, contracts and commitments are recorded in order to reserve that portion of the applicable appropriation. Encumbrances outstanding at year-end are canceled.

Revenues. The following schedule presents a summary of governmental fund (General, Special Revenue, Debt Service, and Capital Projects Funds) revenues for the fiscal year ended December 31, 1998; and the amount and percentage of increases and decreases in relation to prior year revenues.

Taxes and intergovernmental revenues continue to be the major sources of County revenues. Overall, total governmental fund revenues posted a 12.18% gain in 1998. The "Interest Earnings" and "Taxes" revenue category had the largest increases. Both increases were generated primarily by capital construction projects approved by the voters in 1998. The sales tax rate increased from .25% to .65% for the capital projects, and the interest represents earnings on the construction fund. The increase in charges for services was due to a statutory increase in Clerk & Recorder fees; the decrease in intergovernmental revenues resulted from a change in the social services delivery system. Some social-service benefits now go directly to recipients from the State, rather than first being granted to the County.

Expenditures. The schedule below summarizes governmental fund (General, Special Revenue, Debt Service, and Capital Projects Funds) expenditures for fiscal years 1998 and 1997.

Expenditures for 1998 totaled $115 million, an increase of 15.06% over 1997. As in past years, health and human services was the largest single category, representing over one-fourth of governmental fund expenditures. This category showed a 15.25% decrease in expenditures because some social service - type benefits that were delivered to beneficiaries by the County are now delivered directly by the State. Increases in capital outlay, debt service, and judicial and public safety were due to the expansion of the County detention center. The capital outlay category accounted for construction costs; while debt service reflects payments of principal and interest on the certificates of participation. Judicial and public safety expenditures were increased for additional staff and equipment needed to prepare for the 1999 opening of the facility. Reductions in the Streets and Highways were primarily in operations costs and represent normal expenditure fluctuations.

The County’s general fund balance was $8.5 million as of December 31, 1998. Of this amount, $313,106 is reserved for emergencies, as required by the TABOR Amendment. The remaining $8.2 million is designated by the Board for subsequent year’s expenditures and other future purposes. The total fund balance is 20% of 1998 general fund operating expenditures plus net operating transfers. The 1998 fund balance is $1.7 million higher than the 1997 balance. The County Commissioners’ goal is to keep fund balance within the 10% - 15% range. The Board anticipates using some fund balance in 1999 for high priority expenditures.

Enterprise Fund. Larimer County maintains a single enterprise fund, the Solid Waste Fund, which accounts for the County’s solid and hazardous waste and recycling operations. The Larimer County Landfill received approximately 750 tons of refuse per day in 1998.

The Solid Waste Task Force continued its evaluation of replacement options for the landfill, which will reach its permitted capacity in approximately seven years. The group’s recommendations will be presented to the County Commissioners in spring, 1999. The Household Hazardous Waste Program removed over 1.5 million pounds of hazardous wastes from the waste stream in 1998. Approximately half of these materials were recycled. The remainder was disposed of at off-site hazardous waste facilities. The Larimer County Recycling Center processed and sold 26,184 tons of recyclables in 1998, despite low market prices. The facility has reached its maximum capacity and is facing a possible expansion. The northeast ten-acre section of the landfill, known as Phase 1, was closed with a compliant clay cap. Phase 2, a 27-acre section in the north central part of the landfill is scheduled for closure in 2000.

The landfill was again forced to increase its rates in 1998 to compensate for the revenue loss resulting from its largest customer, a commercial trash hauler, diverting most of their trash to their own landfill. Despite these increases, the landfill still has lower rates than any of the competing local landfills.

Operating revenues for this fund were $4,575,621, an increase of 12% over 1997. Operating income for the period was $975,165.

Internal Service Funds. Larimer County's internal service funds include four operating departments and four self-insurance funds. The Print Shop provides supplies and central printing services to County departments. Telecommunications provides for operation and maintenance of the phone system. The Estes Park Common Costs fund allocates the costs of office space for various branch offices located in Estes Park. Fleet Services provides vehicle and equipment maintenance and fuel to County departments. These four operating internal service departments generated a combined net income of $195,208.

The County is self-insured against certain losses and risks. Dental, Unemployment, Risk Management (Workers' Compensation and Property and Casualty) self-insurance funds had a combined net loss of $129,234. The Self-Insured Reserve Fund, which accounts for the accumulation of any surpluses generated and finances any deficits incurred in the self-insurance programs, closed out 1998 with $4.5 million in fund equity. This balance is unchanged from the previous year. The adequacy of worker’s compensation and property and casualty reserves are actuarially determined.

The maximum personal injury limit is $150,000 per person and $600,000 per occurrence as stated in the Colorado Governmental Immunity Act. Property insurance is provided by a commercial insurance company. The policy has a $10,000 deductible and a limit of liability per occurrence of $75,000,000. In 1998, the County purchased commercial excess liability coverage with a $3,000,000 limit and a self-insured retention of $500,000. The self-insured worker's compensation liability is $300,000 per person. Any excess is covered by commercial insurance.

Larimer County has no general obligation bonded debt. Colorado Revised Statutes provide for a general obligation debt limit of 1.5% of assessed valuation. The County therefore had a debt capacity of over $29 million in 1998.

At December 31, 1998, Larimer County had the following outstanding long-term debt:

Of the $73.3 million in long-term debt outstanding, only the first item is funded from general revenues. The Larimer County Building Authority certificates of participation are funded by a .4% sales tax, approved by the voters in 1997. The Open Lands note is payable from a .25% sales tax which is dedicated to the purchase and maintenance of open space. The Solid Waste (an enterprise fund) capital lease will fund the cost of the capital lease agreement to construct the Recycling Center through the sale of recyclables and dumping fees at the landfill. Special assessment bonds and notes are be funded by payments from property owners benefiting from the capital improvements constructed with debt proceeds.

The County Treasurer, by State Statute, is responsible for the collection, distribution and investment of monies for most County funds. Available monies are pooled and invested in a wide variety of secure, legally authorized investments. Interest earned on investments reverts to the General Fund or to other funds for specific purposes when approved by the Board of County Commissioners.

Interest earnings for all County funds amounted to $5.8 million dollars in 1998. Interest earned on Treasurer's investments was $3.3 million dollars, a 13.54% increase over 1997. The average yield on investments was 5.56%. Earnings on pooled investments were allocated as follows:

Other interest earned includes paid on special assessments receivable, interest earned by the Sheriff Special Services expendable trust fund, and interest on building authority funds.

Colorado law requires that the County's financial statements be audited by an independent certified public accountant or firm of certified public accountants licensed to practice in the State of Colorado. In compliance with this statute, the County engaged the firm of Anderson and Whitney, Certified Public Accountants, to conduct the audit for the year ended December 31, 1998. Anderson and Whitney has issued an unqualified opinion on the County's 1998 financial statements. Their opinion is included in the Financial Section of this report.

The County has adopted the "Single Audit concept" provided for in the Single Audit Act of 1984 and the Office of Management and Budget Circular A-133 for the audit of federally assisted programs. Results of the Single Audit are included in the Single Audit Schedules Section of this report.

The County's 1998 Comprehensive Annual Financial Report (CAFR) was prepared following the guidelines recommended by the Government Finance Officers Association of the United States and Canada (GFOA). GFOA awards Certificates of Achievement for Excellence in Financial Reporting to governmental units who publish an easily readable and efficiently organized CAFR that satisfies all legal requirements and conforms to generally accepted accounting principals. Larimer County has received fifteen consecutive Certificates of Achievement for its 1982 through 1997 CAFRs. Each Certificate is valid for a one-year period. We believe our current report continues to conform to Certificate Program requirements, and we are submitting it to GFOA to determine its eligibility for another certificate.

Preparation of this Comprehensive Annual Financial Report was made possible by the dedicated and conscientious efforts of the entire staff of the Department of Accounting and Reporting. The Accounting Operations Section of the department ensures that transactions are processed and reported in an accurate and timely manner. The Financial Reporting Section has the direct responsibility for preparation of the CAFR in accordance with relevant guidelines and standards; and the Administrative Support Section turns scratches and scribbles into a professional and award-winning document. By working together as an interrelated, highly effective team, these individuals promote the excellence we strive for.

Appreciation is also expressed to the Board of County Commissioners who establish the policies which provide for sound financial management, and to all the other elected officials, division directors, department heads and County employees for their cooperation and assistance in matters pertaining to the financial affairs of the County and the preparation of this report.

Respectfully submitted,

Carol L. Block

Financial Services Director

Back to 1998 Financial Report