city of tacoma, tacoma fleet 2010 annual...

FINANCIAL REPORT

2010Fleet ServiceS Fund

annual

Public Utility Board

ROBERT CASEY Chair

PETER THEIN

Vice-Chair

LAURA FOX Secretary

DAVID NELSON

Member

WOODROW JONES Member

WILLIAM A. GAINES Director of Utilities/CEO

THEODORE C. COATES

Power Superintendent/COO

JON EDICK Interim Manager, Fleet Services

ROBERT K. BILES Finance Director

DEPARTMENT OF PUBLIC UTILITIES

CITY OF TACOMA

CITY OF TACOMA, WASHINGTON


FLEET SERVICES FUND

TABLE OF CONTENTS MANAGEMENT DISCUSSION AND ANALYSIS ..................................... 1 - 6 FINANCIAL DATA COMPARATIVE BALANCE SHEETS .............................................. 8 - 9 STATEMENTS OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS ......................................................... 10 - 11 STATEMENT OF NET ASSETS …………………………………… .... 12 EQUITY DISTRIBUTION ……………………………………………….. 13 STATEMENTS OF CASH FLOWS .................................................. 14 - 15 NOTES TO FINANCIAL STATEMENTS .......................................... 16 - 19 STATISTICAL DATA TEN YEAR FINANCIAL REVIEW .................................................... 22- 23 FIXED ASSETS ………………………………………………………….. 24 - 25 TAXES AND EMPLOYEE WELFARE CONTRIBUTIONS ………….. 26 GRAPHS .......................................................................................... 27 - 28 MANAGER'S REPORT ............................................................................ 29 - 30

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MANAGEMENT DISCUSSION AND ANALYSIS The following discussion and analysis of the financial performance of the Fleet Services Fund provides an overview of the financial activities for the years ended December 31, 2010 and 2009. The information presented should be read in conjunction with the financial statements as a whole, including the footnotes and other supplementary information that is provided. Overview of the Financial Statements The City of Tacoma Finance Department and the management of Fleet Services are responsible for preparing the accompanying financial statements and for their integrity. The statements were prepared in accordance with generally accepted accounting principles applied on a consistent basis and include amounts that are based on management's best estimates and judgments. The basic financial statements, presented on a comparative basis for the years ended December 31, 2010 and 2009, include Balance Sheets, Statements of Revenues, Expenses and Changes in Net Assets, and Statements of Cash Flows. The Balance Sheets present information on all of the Fund’s assets and liabilities, with the difference between the two reported as net assets. The Statements of Revenues, Expenses and Changes in Net Assets report all of the revenues and expenses during the time periods indicated. The Statements of Cash Flows provide information on cash receipts and disbursements during the year and report changes in cash resulting from operations, investing and financing activities. The notes to the financial statements, presented at the end of the basic financial statements, provide additional disclosures that are essential to a full understanding of data provided in the financial statements. They are an integral part of the Fund’s presentation of financial position, results of operations, and changes in cash flows. Management has established and maintains a system of internal control that provides reasonable assurance as to the integrity and reliability of the financial statements, the protection of assets from unauthorized use or disposition and the prevention and detection of fraudulent financial reporting. The system of internal control provides for appropriate division of responsibility and is documented by written policies and procedures. The concept of reasonable assurance is based on the recognition that the cost of a system of internal control should not exceed the benefits derived. Financial Statement Analysis Net income for Fleet Services was $1.5, $1.8 and $2.3 in 2010, 2009 and 2008 respectively. Operating revenues increased $167,000 in 2010 while operating expenses increased $691,000 resulting in a net decrease in operating income of $524,000 compared to 2009. In 2009 operating revenues decreased by $332,000 while operating expenses decreased $283,000 for a net decrease in operating income of $49,000 compared to 2008.

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Selected Financial Information (000's omitted)

Revenues Fleet Services operating revenue is comprised of five categories: Maintenance, Capital Recovery, Administrative Overhead, Fuel and Fuel Loading and Pool Car Rentals. Operating revenues were $7.6, $7.5 and $7.8 million in 2010, 2009 and 2008 respectively. Maintenance revenues are mainly related to staff labor and were $2.4, $2.1, and $2.1 million in 2010, 2009 and 2008 respectively. The maintenance department was fully staffed in 2010 resulting in increased revenues of $273,000 compared to 2009. Staff shortages in 2009 caused a decrease in revenues of $48,000 which was partially offset by $17,000 in revenues from vendor services for a net decrease of $31,000 compared to 2008. Capital recovery revenues are collected on each vehicle and piece of equipment based on anticipated equipment replacement needs for each business unit. Capital recovery revenues were $4.5, $4.6 and $4.8 million in 2010, 2009 and 2008 respectively. Capital recovery revenue decreased $106,000 in 2010 compared to 2009, which had decreased $263,000 compared to 2008. The successive decreases in revenue are the result of reduced usage and a management decision to credit customers with three months replacement contributions. Fuel and fuel loading revenues are affected by year to year changes in vehicle usage and fluctuations in fuel prices. Fuel related revenues were $79,000, $67,000 and $100,000 in 2010, 2009 and 2008 respectively. Pool car revenues are based on usage and were $87,000, $93,000 and $98,000 for 2010, 2009 and 2008 respectively.

Category 2010 2009 2008

Operating Revenues $7,650 $7,482 $7,815 Operating Expenses 6,991 6,300 Operating Income

6,583 659 1,182 1,232

Non Operating Revenue (Expense) 228 261 237 Transfers In 571 334 Change in Net Assets (Net Income)

847 $1,458 $1,777 $2,316

Current Assets $26,034 $23,665 $23,371 Capital Assets (Net) 19,165 18,100 Total Assets

17,666 45,199 41,765

Total Liabilities 41,037

2,728 754

Invested in Capital Assets

1,802

19,165 18,100 17,666 Restricted 24,049 23,478 23,144 Unrestricted (743) (566) Total Net Assets

(1,576) $42,471 $41,012 $39,235

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Expenses Fleet Services operating expenses is comprised of four major categories: Repairs and service, stores operations, administration and depreciation. Fleet Services expenses were $7.0, $6.3 and $6.6 million in 2010, 2009 and 2008 respectively. Repairs and service expense relates to shop operations which provide preventive and corrective maintenance and repairs to vehicles and pieces of equipment for Tacoma Public Utilities and other service groups. Repair and service expenses were $2.7, $2.0 and $1.8 million in 2010, 2009 and 2008 respectively. Shop operations costs were up $703,000 (35%) in 2010 mainly due to labor rate increases in February 2010 that were retroactive to January 2009. Shop expenses increased in 2009 by $212,000 (12%) compared to 2008 primarily due to increased rent expense. Stores operation is a parts warehouse maintained by Fleet which had expenses of $257,000, $202,000 and $546,000 in 2010, 2009 and 2008 respectively. Stores operations costs increased $55,000 (27%) in 2010 mainly due to labor rate increases in February 2010 that were retroactive to January 2009. Stores operations costs decreased $344,000 compared to 2008 largely due to a $327,000 fuel inventory adjustment in 2008. Administration expenses were $1.2, $1.1 and $1.1 in 2010, 2009 and 2008 respectively. The $89,000 increase in 2010 was primarily due to higher license and maintenance fees, $23,000, assessments, $31,000 and computer equipment purchases, $16,000. The decrease in administration costs in 2009 was mainly due to lower assessments. Depreciation expense was $2.8, $3.0 and $3.1 million in 2010, 2009 and 2008 respectively. Fluctuations in depreciation expense are the result of timing in equipment retirements, capitalization of replacements and changes in fleet size. Since 2008, fleet vehicles have declined by thirteen which combined with the timing of replacements resulted in a decrease in depreciation of $161,000 in 2010 and an increase of $100,000 in 2009.

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YEAR

OPERATING REVENUES(in millions)

Administrative, Fuel & Pool Car

Capital Recovery

Maintenance

0123456789

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YEAR

OPERATING EXPENSES(in millions)

Stores Operation/Other

Admin

Depreciation

Repair/Service

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Operating Ratio The Fund's operating ratios, a common measure of efficiency and defined as operating expenses as a percentage of revenue, for 2010, 2009, and 2008 are 91.4%, 84.2%, and 84.2%. The Fund normally needs to maintain a low operating ratio in order to generate the funds necessary for its extensive capital outlay program. The following graph shows how that percentage has fluctuated over the years.

Non-Operating Revenues (Expenses) Interest income decreased a net $154,000 from $148,000 in 2009 to ($6,000) in 2010 due to less interest earned on the revenue pool and a $135,000 GASB 31 Adjustment. Interest income in 2009 also saw a decrease of $75,000 compared to 2008. It is the practice of Fleet Services to arrange for public auction sale of vehicles and equipment that are declared surplus by the assigned sections. Fifty four of the sixty one vehicles and equipment retired 2010 were auctioned for a gain. Therefore, Fleet Services reported a net gain of $224,000, an increase of $111,000 compared to 2009. Seventy six vehicles and equipment were retired in 2009 for a net gain of $113,000, an increase of $98,000 compared to 2008. Of special note this year, in April 2010 Fleet Services was awarded a grant from the Puget Sound Clean Air Agency as authorized under the American Recovery and Reinvestment Act of 2009 to fund the Puget Sound Clean Cities Petroleum Reduction Project. This project includes a cost reimbursement program for fleet operation to facilitate the purchase of alternative fuel and advanced technology vehicles. To date, Fleet has purchased and received eleven light-duty vehicles, each with a maximum

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ENT

YEAR

OPERATING RATIOS

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reimbursable amount of $2,000 per vehicle for a total of $22,000. As Fleet is an internal service fund, $18,000 of the grant proceeds was distributed to their customers, Power, Water, Rail and Customer Services, to offset the expense of the purchases. Two of the vehicles remained in the Fleet pool. Fixed Asset Additions Purchases of fleet vehicles and equipment in 2010 were $4.0 million with seventy four vehicles and pieces of equipment placed into service compared with $3.5 million in 2009 with sixty six vehicles and pieces of equipment placed into service.

Summary As a result of the successful year, Fleet Services will be able to continue the monthly replacement payment credits to their customers for the next biennium and to continue the interest refund program. Fleet management has continued to provide the high quality vehicle maintenance and management services their customers have come to expect. This financial report is designed to provide our citizens, taxpayers, customers, and investors and creditors with a general overview of the Fleet Services fund’s finances and to show accountability for the money it receives. Questions concerning any of the information provided in this report or requests for additional financial information should be addressed to the Sr. Financial Manager of the Utilities Accounting Division, 3628 South 35th Street, Tacoma, Washington, 98409. William A. Gaines Robert K. Biles Director of Utilities/CEO Finance Director

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FLEET ADDITIONS & TRANSFERS(in millions)

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FINANCIAL DATA

2010 2009ASSETS

FIXED Office Furniture and Equipment ................. 540,905 540,905 Stores and Shop Equipment ...................... 588,435 514,780 Transportation Equipment ....................... 32,062,726 30,271,705 Power-Operated Equipment ....................... 20,111,638 19,193,757 Construction Work in Progress .................. 651,799 1,121,898 Total Fixed Assets ........................... 53,955,503 51,643,045 Accumulated Depreciation ....................... (34,791,068) (33,542,874) Net Fixed Assets ............................. 19,164,435 18,100,171

CURRENT Current Fund Cash & Equity in Pooled Investments $24,784,678 $23,188,888 Accounts Receivable ............................ 3,732 3,732 Interdivision Receivable ....................... 796,738 84,696 Materials and Supplies ......................... 448,790 387,932 Prepaid Expense ................................ 201 194 Total Current Assets ......................... 26,034,139 23,665,442

TOTAL ASSETS ..................................... $45,198,574 $41,765,613

The accompanying notes are an integral part of these financial statements.

CITY OF TACOMA, WASHINGTONDEPARTMENT OF PUBLIC UTILITIES

FLEET SERVICES FUND

COMPARATIVE BALANCE SHEETSDECEMBER 31, 2010 AND DECEMBER 31, 2009

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2010 2009NET ASSETS AND LIABILITIES

NET ASSETS Invested in Capital Assets .................... $19,164,435 $18,100,171 Restricted for: Tacoma Power ............................... 16,791,766 16,452,908 Tacoma Water ............................... 6,647,600 6,415,386 Tacoma Rail ................................ 609,342 609,342 Unrestricted .................................. (742,789) (565,900)

TOTAL NET ASSETS ............................ 42,470,354 41,011,907

LIABILITIES CURRENT LIABILITIES Accounts Payable .............................. 464,261 407,956 Wages Payable ................................. 79,745 68,131 Interdivision Payable ......................... 2,009,208 112,092 Others ........................................ 19,170 498 Total Current Liabilities ................... 2,572,384 588,677

LONG-TERM LIABILITIES Employee Vacation and Sick Leave Accrual ...... 155,836 165,029 Total Long-term Liabilities ................. 155,836 165,029

TOTAL LIABILITIES ........................... 2,728,220 753,706

TOTAL NET ASSETS AND LIABILITIES ................ $45,198,574 $41,765,613

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FLEET SERVICES FUND

STATEMENTS OF REVENUE, EXPENSES AND CHANGES IN NET ASSETSDECEMBER 31, 2010 AND DECEMBER 31, 2009

DECEMBER 31,2010

OPERATING REVENUE Maintenance Revenue .......................... $198,649 Capital Recovery ............................. (905,623) Administrative Overhead ...................... 53,935 Fuel and Fuel Loading ........................ 8,014 Pool Car Rental .............................. 7,895 Total Operating Revenue .................... (637,130)

OPERATING EXPENSES Repairs and Servicing Shop Operations ............................. 223,757 Outside Services ............................ 401 Total Repairs and Servicing ................ 224,158 Stores Operations ............................ 45,098 Administration ............................... 83,051 Depreciation ................................. 233,814 Total Operating Expenses ................... 586,121

OPERATING INCOME (LOSS) ........................ (1,223,251)

NON-OPERATING REVENUES (EXPENSES) Interest Income .............................. (69,899) Gain (Loss) on Disposition of Equipment ...... - Sale of Scrap ................................ - Total Non-Operating Revenues (Expenses) .... (69,899)

Capital Contributions - Grants ............... - Total Capital Contributions -

Net Income Before Transfers .................... (1,293,150)

Transfers In ................................... 214,289

NET INCOME (LOSS) .............................. (1,078,861)

TOTAL NET ASSETS - JANUARY 1 ..............................................

TOTAL NET ASSETS - DECEMBER 31 ............................................

The accompanying notes are integral part of these financial statements.


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YEAR TO DATE

DECEMBER 31, DECEMBER 31, DECEMBER 31, 2010/2009 PERCENT2009 2010 2009 VARIANCE CHANGE

$187,533 $2,369,705 $2,096,838 $272,867 13.0%(846,585) 4,462,261 4,568,298 (106,037) -2.3%54,115 652,581 656,292 (3,711) -0.6%6,082 78,535 67,456 11,079 16.4%7,026 86,625 93,436 (6,811) -7.3%

(591,829) 7,649,707 7,482,320 167,387 2.2%

169,921 2,688,286 1,985,010 703,276 35.4%864 25,260 19,901 5,359 26.9%

170,785 2,713,546 2,004,911 708,635 35.3%19,261 257,075 202,206 54,869 27.1%57,254 1,181,369 1,092,601 88,768 8.1%250,328 2,838,774 2,999,842 (161,068) -5.4%497,628 6,990,764 6,299,560 691,204 11.0%

(1,089,457) 658,943 1,182,760 (523,817) -44.3%

70,530 (5,943) 148,018 (153,961) -104.0%- 224,145 112,695 111,450 98.9%- 6,230 200 6,030 -

70,530 224,432 260,913 (36,481) -14.0%

- 4,000 - 4,000 N/A- 4,000 - 4,000 N/A

(1,018,927) 887,375 1,443,673 (556,298) -38.5%

31,482 571,072 333,517 237,555 71.2%

(987,445) 1,458,447 1,777,190 ($318,743) -17.9%

.................. 41,011,907 39,234,717

.................. $42,470,354 $41,011,907

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FLEET SERVICES FUND

STATEMENT OF NET ASSETS DECEMBER 31, 2010

Invested in Capital Assets: Balance January 1, 2010 ...................... $18,100,171 Capital Additions ............................ 2,312,458 Depreciation ................................. (1,248,194)

Total Invested in Capital Assets ................. $19,164,435

Restricted Net Assets: Balance January 1, 2010 ...................... 23,477,636 Net Additions through December 31, 2010 ...... 571,072

Total Restricted Net Assets December 31, 2010 .... 24,048,708

Unrestricted Net Assets: Balance January 1, 2010 ...................... (565,900) Net Reductions through December 31, 2010 ...... (176,889)

Total Unrestricted Net Assets December 31, 2010 .. (742,789)

TOTAL NET ASSETS DECEMBER 31, 2009 ............... $42,470,354

The accompanying notes are an integral part of these financial statements.

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FLEET SERVICES FUND

EQUITY DISTRIBUTION AS OF DECEMBER 31, 2010

TACOMA TACOMA TACOMAPOWER WATER RAIL TOTAL

Balance January 1, 2010 ............ $29,522,454 $10,447,708 $1,041,745 $41,011,907Contributions During Year .......... 338,857 232,215 - 571,072

Equity Contrib. at December 31, 2010 29,861,311 10,679,923 1,041,745 41,582,979

Current Year Operations:Total Operating Revenue * .......... 5,493,360 1,964,705 191,642 7,649,707

Less: Repairs & Servicing Expense * 1,948,635 696,931 67,980 2,713,546 Administration Expense ** ... 1,058,504 337,880 42,060 1,438,444 Depreciation Expense ........ 2,084,521 691,007 63,246 2,838,774

Total Expenses ............ 5,091,660 1,725,818 173,286 6,990,764

Net Operating Revenue .............. 401,700 238,887 18,356 658,943

Add: Other Income *** .............. 164,243 58,410 5,779 228,432

Net Operating Results .............. 565,943 297,297 24,135 887,375

Total Equity ....................... $30,427,254 $10,977,220 $1,065,880 $42,470,354

* Allocated to each division based on total receipts from the divisions. ** Allocated to each division based on vehicle count. *** Allocated to each division based on total equity in the Fund.

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FLEET SERVICES FUND

STATEMENTS OF CASH FLOWS

YEAR TO DATEDECEMBER 31, DECEMBER 31,

2010 2009CASH FLOWS FROM OPERATING ACTIVITIES Cash from Customers ............................ $6,937,665 $7,439,722 Cash Paid to Suppliers ......................... 2,122,141 (2,034,643) Cash Paid to Employees ......................... (4,360,482) (2,347,224) Net Cash Provided by Operating Activities .... 4,699,324 3,057,855

CASH FLOWS FROM CAPITAL AND RELATED FINANCINGACTIVITIES Capital Expenditures, Net ...................... (3,462,485) (3,113,695) Disposition of Equipment/Scrap.................. 230,375 112,895

Net Cash Used in Financing Activities ........ (3,232,110) (3,000,800)

CASH FLOWS FROM INVESTING ACTIVITIES

Interest Received .............................. 128,576 161,611 Net Cash Provided by (Used in) Investing Activities ......................... 128,576 161,611

Net Increase (Decrease) in Cash and Equity in Pooled Investments .................... 1,595,790 218,666

Cash and Equity in Pooled Investments at January 1 23,188,888 22,970,222

Cash and Equity in Pooled Investments at December 31 $24,784,678 $23,188,888

These statements should be read in conjunction with the Notes to FinancialStatements contained in the 2010 Annual Report.

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YEAR TO DATEDECEMBER 31, DECEMBER 31,

2010 2009Reconciliation of Operating Income to Net Cash Provided by Operating Activities:

Operating Income (Loss) ............................ $658,943 $1,182,760

Adjustments to Reconcile Operating Income to Net Cash Provided by Operating Activities:

Depreciation and Amortization ................... 2,838,774 2,999,842 Accounts Receivable ............................. - 1,578 Receivables from Affiliates ..................... (712,042) (44,176) Materials and Supplies .......................... (60,858) (33,814) Other Current Assets ............................ (7) 156 Taxes and Other Payables ........................ 57,662 296,744 Payables to Affiliates .......................... 1,897,116 (1,366,479) Salaries, Fringe Benefits and Compensated Absences Payable ............................... 19,736 21,244

Total Adjustments ............................ 4,040,381 1,875,095

Net Cash Provided by Operating Activities .......... $4,699,324 $3,057,855

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CITY OF TACOMA, WASHINGTON DEPARTMENT OF PUBLIC UTILITIES

FLEET SERVICES FUND

NOTES TO FINANCIAL STATEMENTS

NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The Fleet Services Fund was established in 1984 by City of Tacoma Ordinance No. 23295. On

January 1, 1985, most vehicles owned by the Tacoma Power, Tacoma Water and Tacoma Rail were transferred to this Fund. The purpose of the Fund is to provide for scheduled maintenance, repair, and replacement of Department vehicles.

Basis of Financial Statements. The Fleet Service Fund is an Internal Service Fund of the

City of Tacoma used for the operation of the Department of Public Utilities consolidated fleet management program with responsibilities for all vehicle administration under a fleet manager.

The Fund accounts for its financial operation by using a self-balancing set of accounts

established primarily for handling transactions of a nature peculiar to Fleet Service operations. A description of the Fund's principal accounting policies follows.

Fixed Assets. Fixed assets are stated at cost and are depreciated primarily using a straight-

line method over the estimated useful life of the asset. Inventory. The inventory is valued on the moving average cost method. Revenues. Revenues are based on services rendered through the end of the year. Cash and Equity in Pooled Investments and Investments. The Fund's cash balances are a

deposit with the City Treasurer’s Tacoma Investment Pool (TIP) for the purpose of maximizing interest earnings through pooled investment activities. Cash and equity in pooled investments in the TIP are reported at fair value and changes in unrealized gains and losses are recorded in the Statements of Revenues, Expenses and Changes in Net Assets. Interest earned on such pooled investments is allocated daily to the participating funds based on each fund’s daily equity in the TIP.

The TIP operates like a demand deposit account in that all City departments, including the

Fund, have fund balances which are their equity in the TIP. Accordingly, balances are considered to be cash equivalents.

The City of Tacoma Investment Policy permits legal investments as authorized by state law including Certificates of Deposit with qualified public depositories (as defined in Chaper 39.58 RCW), obligations of the U.S. Treasury, Government Sponsored Agencies and Instrumentalities, bonds issued by Washington State and its Local Governments with an A or better rating, general obligation bonds issued by any State or Local Government with an A or better rating, Bankers’ Acceptances, Commercial Paper, Repurchase and Reverse Repurchase agreements, and the Washington State Local Government Investment Pool (LGIP). Daily liquidity requirement to meet the City’s daily obligations is maintained by investing a portion of the City’s Investment Pool in the WA State LGIP and/or a Municipal Investor interest bearing demand deposit account maintained with U.S. Bank.

The Fund's equity in that portion of the City of Tacoma Investment Pool held in qualified public depositories at December 31, 2010 and 2009 is entirely covered by the Federal Deposit Insurance Corporation (FDIC) and the Washington State Public Deposit Protection Commission.

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FLEET SERVICES FUND NOTES TO FINANCIAL STATEMENTS

(continued)

Interest rate risk is the risk that changes in market interest rates will adversely affect the fair value of an investment. Generally, longer term investments have greater exposure to changes in market interest rates. The City of Tacoma investment policy allows for authorized investments up to 60 months to maturity. One way the City manages its exposure to interest rate risk is by timing cash flows from maturities so that portions of the portfolio are maturing over time to provide cash flow and liquidity needed for operations.

NOTE 2 TACOMA EMPLOYEES’ RETIREMENT SYSTEM FUND (TERS) Employees of the Division are covered by the Tacoma Employees’ Retirement System (the

System), an actuarially funded system operated by the City. The following information is provided on a city-wide basis.

This note emphasizes the employer disclosures and detailed information presented in an

independent CAFR issued by the Retirement System. Further detailed information regarding these disclosures can be found in that report which may be obtained by writing to Tacoma Employees’ Retirement System, 3628 South 35th Street, Tacoma, Washington 98409.

1. Plan Description and Contribution Information: The System is a single employer, defined

benefit retirement plan covering employees of the City of Tacoma and is administered in accordance with Revised Code of Washington (RCW) Chapter 41.28 and Chapter 1.30 of the Tacoma Municipal Code. There are 1,894 vested retirees and beneficiaries of deceased retirees currently receiving benefits and 378 vested terminated employees entitled to future benefits and 3,112 active members of the Tacoma Employees’ Retirement System, as of December 31, 2010.

2. Basis of Accounting: The financial statements are prepared using the accrual basis of

accounting. Employee and employer contributions are recognized as revenues in the period in which employee services are performed and expenses are recorded when the corresponding liabilities are incurred, regardless of when payment is made. The employer contribution rate is determined by the actuarial funding method identified as the “entry age cost method”.

3. Method Used to Value Investments: Equity securities, fixed income securities, real

estate, and short-term investments are all reported at fair market value. Fair market value was determined by our custodian bank utilizing standard industry practices and verified by the performance consultant. No investment in any one corporation or organization exceeded five percent of net assets available for benefits.

4. Investments and Contracts: The System has no securities of the employer or related

parties included in the plan assets. The System has not made any loans to the employer in the form of notes, bonds or other instruments.

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(continued)

5. Contributions: Covered employees are required by Chapter 1.30 of the Tacoma City Code to contribute a percentage of their gross wages to the System, and the employer contributes an additional percentage. The contribution rates are provided in the following table:

Applicable Period Employer Rate Member Rate Total Rate 1/1/2001 to 2/1/2009 7.56% 6.44% 14.00% 2/2/2009 to 12/31/2009 8.64 7.36 16.00 1/1/2001 to 12/31/2010 9.72 8.28 18.00 1/1/2001 to 12/31/2011 10.26 8.74 19.00 1/1/2012 Forward 10.80 9.20 20.00

Contributions city-wide totaled $402 million in 2010 ($21.3 million employer contributions and $18.9 million employee contributions) and totaled $33.7 million in 2009 ($18 million employer contributions and $15.7 million employee contributions).

6. Funding Status and Progress: Historical trend information about TERS is presented herewith as supplementary information. This information is based on the most recent actuarial valuation performed, dated January 1, 2009, and is intended to help assess TERS funding status on a going-concern basis, assess progress made in accumulating assets to pay benefits when due, and make comparisons with other public employee retirement systems.

7. Actuarial Methods and Significant Actuarial Assumptions: Valuation Date: January 1, 2009 Actuarial Cost Method: Entry Age Amortization Method: Level Percentage of the System’s Projected Payroll Remaining Amortization Period: 30 years; open Asset Valuation Method: Assets are valued at market value, with a four-year smoothing of all market value gains and losses. Actuarial Assumptions: Investment Rate of Return 7.75% Projected Salary Increases 4.25% Includes Inflation at 3.25% Post-Retirement Benefit Increases 2.125%

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(continued)

SCHEDULE OF FUNDING PROGRESS: ($ in millions)

Actuarial Valuation

Date

Actuarial Value of Assets

(a)

Actuarial Accrued Liability (AAL)

Entry Age (b)

Unfunded AAL

(UAAL) (b-a)

Funded Ratio (a/b)

Covered Payroll

(c)

UAAL as a Percentage of Covered

Payroll (b-a/c)

1/1/2005 $807.3 $754.3 ($53.0) 107.0% $172.5 (30.7%) 1/1/2007 $1,021.3 $895.8 ($125.5) 114.0% $175.0 (71.7%) 1/1/2009 $1,097.3 $1,002.3 ($95.0) 109.5% $197.4 (48.1%)

ANNUAL PENSION COST AND NET PENSION OBLIGATION: The City’s annual pension cost and net pension obligation to the Retirement System for 2009 were as follows: ($ in millions) Annual Required Contribution (ARC) $15.2 Interest on Net Pension Obligation (0.1) Adjustment to ARC 0.1 Annual Pension Cost (APC) 15.2 Contributions made 18.0 Increase (Decrease) in Pension Obligation (2.8) Net Pension Obligation at beginning of year (1.0) Net Pension Obligation at end of year $ (3.8)

TREND INFORMATION ($ in millions)

Year

Ending Annual Pension

Cost (APC) % of APC

Contributed Net Pension Obligation

12/31/2007 $13.6 100% $(0.4) 12/31/2008 $14.3 104% $(1.0) 12/31/2009 $15.2 118% $(3.8)

NOTE 3 FLEET SERVICES REFUND. Fleet Services’ management makes an annual assessment of the capital replacement reserve balance for appropriate funding levels. It is the Fund's policy to maintain the Fund's maximum balance at a level that will provide adequate purchasing power for two budget cycles and to return any excess funds to customers based on their scheduled monthly payments. The solvency of the Replacement Fund also allowed Fleet Services to return a portion of the interest earned on fund investments for the year to their customers. In 2010 and 2009, Fleet Services returned 75% of the interest earned on the capital replacement reserve to the appropriate users. The amounts refunded in 2010 and 2009 were $384,004 and $472,925, respectively.

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STATISTICAL DATA

BALANCE SHEET 2010 2009 2008 2007

ASSETS

Fixed - Net ................... 19,164,435 18,100,171 17,666,394 17,162,675

Current ....................... $26,034,139 $23,665,442 $23,370,520 $20,805,271

TOTAL ASSETS .................... 45,198,574 41,765,613 41,036,914 37,967,946

LIABILITIES

Current ....................... 2,728,220 753,706 1,802,197 1,049,064

NET ASSETS ...................... 42,470,354 41,011,907 39,234,717 36,918,882

TOTAL LIABILITIES AND NET ASSETS $45,198,574 $41,765,613 $41,036,914 $37,967,946

STATEMENT OF INCOME

OPERATING REVENUES

Maintenance Revenue ........... $2,369,705 $2,096,838 $2,128,335 $2,110,494

Capital Recovery .............. 4,462,261 4,568,298 4,831,680 4,048,384

Pool Car Rental ............... 86,625 93,436 98,226 69,371

Administrative and Fuel ....... 731,116 723,748 756,571 868,384

Total Operating Revenues .... 7,649,707 7,482,320 7,814,812 7,096,633

OPERATING EXPENSES

Repairs and Servicing ......... 2,713,546 2,004,911 1,793,119 1,781,438

Stores Operations ............. 257,075 202,206 546,055 165,065

Administration ................ 1,181,369 1,092,601 1,143,615 997,401

Depreciation .................. 2,838,774 2,999,842 3,100,034 3,230,966

Other ......................... - - - -

Total Operating Expenses .... 6,990,764 6,299,560 6,582,823 6,174,870

OPERATING INCOME (LOSS) ......... 658,943 1,182,760 1,231,989 921,763

NON-OPERATING INCOME (EXPENSE)

Interest Income ............... (5,943) 148,018 222,535 420,599 Net Other Income (Expense) .... 230,375 112,895 14,828 63,918

Total Non-Operating Income (Expense) ........... 224,432 260,913 237,363 484,517

Net Income (Loss) Before

Contributions & Transfers ... 883,375 1,443,673 1,469,352 1,406,280

Total Capital Contributions 4,000 - - -

Transfers In * .................. 571,072 333,517 846,483 428,922

NET INCOME (LOSS) ............... $1,458,447 $1,777,190 $2,315,835 $1,835,202

* Beginning with 2001, results have been classified to conform to the new GASB No. 34, Financial Reporting Model for Local Governments.



FLEET SERVICES FUND

TEN-YEAR FINANCIAL REVIEW

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2006 2005 2004 2003 2002 2001

15,026,707 16,560,346 17,669,199 18,263,218 19,306,053 19,294,171

$20,585,239 $17,817,969 $16,332,680 $14,446,226 $12,893,546 $11,560,255

35,611,946 34,378,315 34,001,879 32,709,444 32,199,599 30,854,426

528,266 655,569 1,070,185 1,171,879 766,848 484,540

35,083,680 33,722,746 32,931,694 31,537,565 31,432,751 30,369,886

$35,611,946 $34,378,315 $34,001,879 $32,709,444 $32,199,599 $30,854,426

$1,913,593 $1,755,173 $1,753,175 $2,405,224 $2,730,983 $2,324,922

3,974,155 3,820,736 3,709,522 3,598,191 3,061,835 1,271,330

67,295 47,586 67,074 52,858 59,574 44,651

854,802 853,431 743,301 1,446,323 1,379,388 1,401,698

6,809,845 6,476,926 6,273,072 7,502,596 7,231,780 5,042,601

1,880,979 1,732,938 1,499,328 2,254,952 2,559,123 2,338,574

176,562 195,254 231,506 809,795 908,506 906,319

952,489 895,638 862,827 1,143,390 768,024 806,536

3,309,694 3,366,900 3,520,908 4,059,602 2,366,697 2,324,316

- - - 28,128 96,736 5,187

6,319,724 6,190,730 6,114,569 8,295,867 6,699,086 6,380,932

490,121 286,196 158,503 (793,271) 532,694 (1,338,331)

334,788 (70,738) (6,838) 133,332 6,877 187,91586,438 65,961 66,379 50,177 (18,796) (48,549)

421,226 (4,777) 59,541 183,509 (11,919) 139,366

911,347 281,419 218,044 (609,762) 520,775 (1,198,965)

- - - - - -

458,891 509,633 1,176,085 714,576 542,090 1,054,064

$1,370,238 $791,052 $1,394,129 $104,814 $1,062,865 ($144,901)

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FLEET SERVICES FUND

FLEET PLANT IN SERVICEFOR THE YEAR ENDED DECEMBER 31, 2010

FIXED ASSET ACCOUNTS

Book Cost Additions1/1/10 2010

Office Furniture and Equipment ................ $540,905 $ -

Stores and Shop Equipment ..................... 514,780 36,307

Transportation Equipment ...................... 30,271,705 2,913,428

Power-Operated Equipment ...................... 19,193,757 566,845

Construction Work in Progress.................. 1,121,898 651,799

TOTAL FIXED ASSETS ........................ $51,643,045 $4,168,379

ACCUMULATED DEPRECIATION ACCOUNTS

Depreciation AccumulatedRate Depreciation% 1/1/10

Office Furniture and Equipment ................ Various $540,905

Stores and Shop Equipment ..................... Various 488,300

Transportation Equipment ...................... Various 18,703,630

Power-Operated Equipment ...................... Various 13,810,039

TOTAL ACCUMULATED DEPRECIATION ............ $33,542,874

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Retirements Transfers & Book Cost2010 Adjustments 12/31/10

$ - $ - $540,905

- 37,348 588,435

(1,349,661) 227,254 32,062,726

(289,060) 640,096 20,111,638

- (1,121,898) 651,799

($1,638,721) ($217,200) $53,955,503

Annual AccumulatedAccrual Transfers & Depreciation

Cr. Adjustments 12/31/10

$ - $ - $540,905

7,562 - 495,862

2,043,794 (1,305,471) 19,441,953

787,418 (285,109) 14,312,348

$2,838,774 ($1,590,580) $34,791,068

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FLEET SERVICES FUND

TAXES AND EMPLOYEE WELFARE CONTRIBUTIONSFOR THE YEAR 2010

FEDERAL Social Security (FICA) ...................... $168,484

STATE OF WASHINGTON Retail Sales Tax ............................ 377,695 State Employment Security ................... 6,660 Total .................................... 384,355

TOTAL TAXES ...................................... $552,839

Taxes as a % of Total Revenues of $7,649,707...... 7.23%

EMPLOYEE WELFARE CONTRIBUTIONS Industrial Insurance and Medical Aid ........ $15,681 City of Tacoma Pension Fund ................. 203,379 Washington Dental Service .................. 45,242 Pierce County Medical Bureau ................ 351,432

TOTAL EMPLOYEE WELFARE CONTRIBUTIONS ............. $615,734

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TOTAL OPERATING REVENUESYear to Date - December 2010 ($7,649,707)

Maintenance Revenues

31%

Capital Recovery58%

All Others11%

TOTAL OPERATING REVENUESYear to Date - December 2009 ($7,482,320)

Maintenance Revenues

28%

Capital Recovery61%

All Others11%

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TOTAL OPERATING EXPENSESYear to Date - December 2010 ($6,990,764)

Repairs39%

Depreciation40%

Administration17%

Stores Operations4%

TOTAL OPERATING EXPENSESYear to Date - December 2009 ($6,299,560)

Repairs32%

Depreciation48%

Administration17%

Stores Operations3%

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FLEET MANAGER’S REPORT Fleet Services completed a successful year providing vehicle and equipment maintenance and management services to our customers. Fleet Finance Fleet Services continues to credit customers for vehicle and equipment replacement contributions. Customers were credited three months replacement contributions. This was possible because of a decision to keep the fund’s maximum balance at a level that will provide adequate purchasing power for two budget cycles and return any excess funds to customers based on their scheduled monthly payments. The three-month credits amounted to $1,394,834.22. The solvency of the Replacement Fund also allowed Fleet Services to return interest earned on fund investments for the year to our customers. A total of $384,003.95 was credited to individual vehicle replacement funds through December 2010, with the allocation based on the amount each had paid into the fund. After returning these funds to customers, the Fleet Fund ended the year with a $24,784,678.02 cash and investment balance. This amount will allow us to continue monthly replacement payment credits in the next biennium. Fleet Services worked with customers during the year to assure they had the vehicles and equipment needed to perform their duties. Specification and purchasing procedures were completed for 60 pieces of equipment. Fleet Services arranged for public auction sale of 62 pieces of equipment that were declared surplus by the assigned sections. Fleet Maintenance Fleet Services maintenance shop performed 1,940 preventive maintenance services and inspections and 5,025 corrective work orders on Public Utilities and General Government equipment. Fleet Services also performed state-mandated emissions testing on 380 vehicles without any failures. Fleet Initiatives In April 2010, Fleet Services was awarded a grant from the Puget Sound Clean Air Agency as authorized under the American Recovery and Reinvestment Act of 2009 to fund the Puget Sound Clean Cities Petroleum Reduction Project, which includes a cost reimbursement program for fleet operations to facilitate the purchase of alternative fuel and advanced technology vehicles. The maximum total reimbursed amount Tacoma Public Utilities shall receive under this

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agreement is $504,000 for up to 21 hybrid vehicles. As a result of this grant award, TPU has recovered $22,000 in reimbursements for light duty hybrid electric vehicle purchases. We anticipate the remaining vehicle purchases and reimbursements to be completed in 2011 Fleet Services worked with our customers in the Water division to establish a proprietary motor pool located at the Distribution office. As a result, nine underutilized vehicles were eliminated from their fleet and more than $107,000 will be saved in projected annual maintenance costs. An additional $66,000 for the internal transfer of three of the vehicles to the motor pool plus nearly $190,000 in accumulated replacement funds were reapportioned for vehicles and equipment that were underfunded. The combined net benefit to the Water division is approximately $363,000.00. Fleet Parts Fleet Services parts warehouse issued $973,802.00 in parts in support of the maintenance shop. Of this amount, 41.8 percent ($395,627) was issued from stock and 58.1 percent ($565,899) was ordered non-stock from vendors. The Fleet parts warehouse accomplished 14,481 issue transactions totaling 41,350 items. Fleet Staff Development Fleet Services employees received an average of 44.6 hours of technical, personal development, and safety-oriented training per person. The Fleet Services Tool and Training Committee helped specify and obtain tools and shop equipment designed to increase productivity and safety. Jon Edick Interim Fleet Manager

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