The "Total (Memorandum Only)" column is the aggregate of the columns being presented and does not represent consolidated financial information.

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1 City of Madison NOTES TO COMBINED FINANCIAL STATEMENTS December 31, 1999 NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The following is a summary of the City's significant accounting policies consistently applied in the preparation of the accompanying combined financial statements. 1. Basis of Accounting The modified accrual basis of accounting is used for all governmental funds, expendable trust funds and agency funds. Under the modified accrual basis, revenues are recorded when susceptible to accrual, i.e., both measurable and available. Expenditures, other than unmatured interest on long- term debt, are recorded when the liability is incurred. Property taxes are recorded as receivables and deferred revenues in the year levied; they are recognized as revenues in the succeeding year when services financed by the levy are being provided. The accrual basis of accounting is used for the proprietary funds and nonexpendable trust funds. Revenues are recognized in the accounting period in which they are earned and become measurable; expenses are recognized in the period incurred, if measurable. 2. Combined Financial Statements The "Total (Memorandum Only)" column is the aggregate of the columns being presented and does not represent consolidated financial information. 3. Interest Revenues Pursuant to administrative policy, interest revenues credited to the General Fund include amounts received from the equity in common cash and investments of the General Fund, Special Revenue Fund, Debt Service Fund, Capital Projects Funds, proprietary fund types recognizing operating transfers in, and substantially all fiduciary funds. 4. Materials and Supplies Materials and supplies of the proprietary fund types are stated at cost determined by the average cost and first-in, first-out (FIFO) methods. 5. Investment in General Fixed Assets Costs incurred for the purchase or construction of general fixed assets are recorded as expenditures in the General, Special Revenue and Capital Projects Funds. All assets that have a unit cost in excess of $250 are capitalized in the General Fixed Asset Account Group. All fixed assets are valued at historical cost or estimated historical cost if actual historical cost is not available. Donated fixed assets are assigned a value of one dollar. This departure from generally accepted accounting principles does not have a material effect on the combined financial statements. Public domain (infrastructure) fixed assets have not been capitalized. Amounts expended for fixed assets in the proprietary fund types are capitalized in the fixed asset accounts within each fund.

2 6. Depreciation Depreciation is provided for in amounts sufficient to relate the cost of depreciable assets of the proprietary fund types to operations over their estimated service lives. No depreciation is provided on the general fixed assets of the City. 7. Property Taxes Receivable and Related Deferred Revenues Property taxes receivable represent the portion of taxes levied in 1999 which is attributable to the City, reduced by the City's share of advance tax collections. Deferred Revenues-Taxes of the General Fund represent the City's 1999 tax levy, which has been included in the budget for 2000; therefore, these revenues are not available to finance 1999 expenditures. Beginning in 1999, the portion of the 1999 tax collection for other entities (Dane County, School Districts, etc.) is accounted for in an agency fund it was previously accounted for in the General Fund. 8. Accounting for Expenditures of the Special Assessment Improvement Fund The City records expenditures relating to wholly or partially assessable projects in the Capital Projects Funds. To the extent projects are assessable to the property owners and are not financed by General Fund operating transfers or by proceeds from general obligation debt, operating transfers are made from the Special Assessment Improvement Fund to the Capital Projects Funds, as needed, pursuant to Common Council resolutions or administrative policy. 9. General Fund Encumbrances Encumbrances represent commitments related to unperformed contracts for goods or services. Encumbrance accounting, under which purchase orders, contracts and other commitments for the expenditure of resources are recorded to reserve that portion of the applicable appropriation, is utilized in the governmental funds. Encumbrances outstanding at year-end are reported as reservations of fund balances and do not constitute expenditures or liabilities because the commitments will be honored during the subsequent year. 10. Tax Incremental Financing Expenditures Unrecovered costs consist of costs incurred but not yet recovered from incremental property tax revenues. Expenditures may be made against a tax incremental financing district for up to ten years after the district is created. Tax incremental revenues are used to recover the City's costs for a period of 17 years or less after the tenth year of expenditures. 11. Compensated Absences Proprietary Fund Types < Vacation and compensatory time are recorded as an expense when earned with an offsetting amount shown as an accrued liability. < Sick leave is recorded as an expense when used. The value of vested sick leave is recorded as an expense with an offsetting amount shown as an accrued liability.

3 Governmental Fund Types < The value of vacation and compensatory time plus the associated employer share of social security and Medicare taxes are recorded as expenditures when earned with equal amounts included as liabilities in the Governmental Fund. < The value of vested sick leave is recorded in the General Long-Term Debt Account Group. 12. Operating Transfers In (Out) The following is a schedule of operating transfers in (out): Fund Transferred To Fund Transferred From Amount General Fund Non-expendable Trust $ 140,000 General Fund UDAG 43,160 Library Equipment and Miscellaneous 7,000 Library Other Restricted Funds 17,536 CDBG General Fund 361,248 CDBG UDAG 325,000 Revolving Loans Revolving Loans 100,000 Revolving Loans Redevelopment and Planning 160,000 Other Grants General Fund 19,625 Other Restricted Funds Other Grants 46,014 Debt Service General Fund 18,229,511 Debt Service Library 211,182 Debt Service CDBG 309,414 Debt Service TIF Districts 1,162,860 Major Streets Special Assessments Improvements 2,344,437 Municipal Building Park Improvements 654,000 Park Improvements Special Assessments Improvements 70,000 Park Improvements Land and Improvements 590,406 Redevelopment and Planning Major Streets 100,000 Transit Utility General Fund 5,143,439 Equipment and Miscellaneous Redevelopment and Planning 553,145 Equipment and Miscellaneous Redevelopment and Planning 1,000 Ice Arenas General Fund 176,462 Civic Center General Fund 1,299,903 Convention Center Other Restricted Funds 3,692,387 City Insurance Debt Service 61,197 General Fund CDA - Component Unit 31,125 Total $ 35,850, Cash and Investments Investment of municipal funds is restricted by State Statutes. Deferred compensation plan investments are directed by plan participants and are not subject to those restrictions. Investments are stated at cost or amortized cost, except for investments in the deferred compensation agency fund, which are reported at market value.

4 14. Madison Community Development Authority The general purpose financial statements include the Madison Community Development Authority as a component unit. The Authority is a legally separate organization. The board of the Authority is appointed by the mayor of Madison. Wisconsin Statutes provide for circumstances whereby the City can impose its will on the Authority, and also create a potential financial benefit to or burden on the City. As a component unit, the Authority's financial statements have been presented as a discrete column in the general purpose financial statements. NOTE B - MORTGAGE NOTES RECEIVABLE The revolving loans special revenue fund exists to account for low interest and deferred loans, which are provided to qualified City residents for housing improvements and home purchases. Mortgage notes receivable from residents are due in various monthly installments over a period of 3 to 20 years and bear interest rates of 5.5 to 11.5 percent. A portion of these loans is deferred and becomes payable only if the property is sold or transferred to someone other than the spouse. NOTE C - RESTRICTED ASSETS Restricted assets represent principally cash and investments segregated for specific purposes in accordance with resolutions of the Common Council, various revenue bond ordinances or administrative policies. The liabilities payable from restricted assets will be paid from these assets. The Insurance Fund Investment in Joint Venture refers to the Wisconsin Municipal Mutual Insurance Company (WMMIC), which is a mutual company operating solely within the property and liability insurance industry. WMMIC provides liability insurance and risk management services to participant municipalities. The aggregate annual maximum coverage per municipality is $5,000,000. At December 31, 1999, WMMIC was owned by 13 municipalities and insured 13 municipalities. Responsibility for the operation and management of WMMIC is vested in its board of directors, which is comprised of various municipal officials. WMMIC has three full-time employees. NOTE D - EMPLOYEES' RETIREMENT SYSTEM All eligible employees are covered under a statewide, cost-sharing multi-employer defined benefit pension plan established under Chapter 40 of the Wisconsin Statutes. All employees expected to work 600 hours a year are eligible. Total payroll for the year was $117,213,017, of which $111,886,901 was covered under the retirement system. The System utilizes the "Entry Age Normal with Frozen Initial Liability" actuarial method in establishing employer contribution rates. The contribution rates required and made as a percentage of covered payroll were as follows: Current Service Prior Service General 10.2% 1.2% Elected 14.1% 0.9% Protective with FICA 19.1% 1.2% Protective without FICA 24.4% 1.3% Benefits are based on number of years of covered service and the final average earnings of the participant and are fully vested immediately except for employees hired between January 1, 1990 and April 23, 1998 who fully vest after 5 years. Normal retirement age varies from 53 to 65 by covered groups. Benefits are reduced for those electing early retirement. The total required contribution for the year 1999 was $16,570,503. This includes the employer share and employee share, all of which, except for $91,462, was paid by the City. The System utilizes the? Entry Age Normal With Frozen Initial Liability? actuarial method in establishing employer contribution rates. Under this method the Unfunded Accrued Actuarial Liability is affected only by the monthly amortization payments,

5 compound interest, the added liability created by new employer units, and any added liabilities caused by changes in benefit provisions. All actuarial gains or losses arising from the difference between actual and assumed experience are reflected in the determination of the normal cost. The unfunded liability for prior service costs for the City as of December 31, 1999 was approximately $31,761,941. The State's policy is to fund retirement contributions to meet current costs of the plan and amortize prior service costs over 40 years, on a level percentage of payroll basis, beginning January 1, Protective employees of the City hired prior to 1948 are covered under the police and fire pension funds established under Chapter 62 of the Wisconsin Statutes. The City has not obtained an actuarial valuation of these pension plans which were assumed by the Wisconsin Retirement Fund as of April 1, The total City contribution to the fund during 1999 was $318,804. The System also provides death and disability benefits for employees. Eligibility for and the amount of all benefits is determined under chapter 40 of Wisconsin statutes. The System issues an annual financial report which may be obtained by writing to the Department of Employee Trust Funds, P.O. Box 7931, Madison, WI NOTE E - LEASES The City leases various buildings and equipment from outside vendors under varying lease agreements. These obligations involve library branches and other miscellaneous equipment. The City also leases property or space, which is unneeded by City Departments, to various organizations. These obligations cover the Madison Municipal Building as well as other miscellaneous City properties. NOTE G - CONTINGENCIES The City Insurance Fund, which is included in the financial statements of the Internal Service Funds, is used for the payment of all insurance premiums, deductible amounts, self-insured losses, and special loss prevention or claims handling services. At present, there are a number of claims pending against the City which will be paid out of this fund to the extent payments are ultimately required. Payments will be made from the General Fund to the extent they are not covered by the City Insurance Fund.