Fiscal Year 2013 CAFR (PDF)

QUEEN ANNE'S COUNTY, MARYLAND

COMPREHENSIVE ANNUAL FINANCIAL REPORT

FISCAL YEAR ENDED JUNE 30, 2013

TABLE OF CONTENTS

Page(s)

INTRODUCTORY SECTION

Letter of Transmittal 1-5 Certificate of Achievement for Excellence in Financial Reporting 7 Organization Chart 8 Certain Elected and Other Officials 9

FINANCIAL SECTION

Independent Auditor's Report 11-13 Management's Discussion and Analysis (required supplementary information) 15-30

BASIC FINANCIAL STATEMENTS 31

Government-Wide Financial Statements Statement of Net Position 32-33 Statement of Activities 34-35 Governmental Fund Financial Statements Balance Sheet 36 Reconciliation of the Balance Sheet of Governmental Funds to the Statement of Net Position 37 Statement of Revenues, Expenditures and Changes in Fund Balances 38 Reconciliation of the Statement of Revenues, Expenditures, and Changes in Fund Balances of Governmental Funds to the Statement of Activities 40-41

Enterprise Fund Financial Statements Statement of Net Position 42-43 Statement of Revenues, Expenses, and Changes in Net Position 44-45 Statement of Cash Flows 46-47 Fiduciary Fund Statements Statement of Fiduciary Net Position 48 Statement of Changes in Fiduciary Net Position 49 Notes to Financial Statements 50-103

REQUIRED SUPPLEMENTARY INFORMATION 105

Other Post-Employment Benefits (OPEB) Trust Schedule of Funding Progress and Schedule of Participating Agencies' Contributions 106 Budgetary Comparisons for General Fund General Fund Schedule of Revenues, Expenditures and Changes in Fund Balances - Budget and Actual 107-109

QUEEN ANNE'S COUNTY, MARYLAND

COMPREHENSIVE ANNUAL FINANCIAL REPORT

FISCAL YEAR ENDED JUNE 30, 2013

TABLE OF CONTENTS (CONTINUED)

Page(s)

FINANCIAL SECTION (CONTINUED)

COMBINING AND INDIVIDUAL FUND STATEMENTS AND SCHEDULES

(SUPPLEMENTARY INFORMATION) 110

Non-Major Governmental Funds 111-113 Combining Balance Sheet 114-116 Combining Statement of Revenues, Expenditures, and Changes in Fund Balances 118-120 Schedule of Revenues, Expenditures, and Changes in Fund Balances - Budgetary Basis 122-127 Capital Projects Funds 128 Schedule of Appropriations and Expenditures 129-131 Non-Major Enterprise Funds 132-133 Combining Statement of Net Position 134 Combining Statement of Revenues, Expenses, and Changes in Net Position 135

Combining Statement of Cash Flows 136 Fiduciary Funds 137-139 Other Post-Employment Benefit Trust Fund Combining Statement of Fiduciary Net Position 140 Combining Statement of Changes in Fiduciary Net Position 141 Agency Funds Statement of Agency Funds Assets and Liabilities 143 Statement of Changes in Agency Funds Assets and Liabilities 144-145 Community Partnerships for Children Special Revenue Fund 147

Combining Balance Sheets - By Grantor 148-149 Schedule of Revenues, Expenditures, and Changes in Fund Balances - By Community Partnership Agreements (CPA) and Non-Community Partnership Agreements (Non-CPA) 150-153 Schedule of Revenues, Expenditures, and Changes in Fund Balances - Budgetary Basis 154-155

STATISTICAL SECTION (UNAUDITED) 157

Table 1 Net Position by Component - Government-Wide 158-159 2a Changes in Net Position - Government-Wide 160-163 2b General Tax Revenues - Governmental Activities 164 3 Fund Balances - Governmental Funds 165 4 Changes in Fund Balances - Governmental Funds 166-167 5 Assessed Value of Taxable and Exempt Property 169 6a Real Property Tax Rates - County Direct Rate 170 6b Real Property Tax Rates - County Special Taxing Districts 171

6c Real Property Tax Rates - Overlapping Governments - Towns 172-173 7 Ten Highest Commercial Property Taxpayers 174 8 Property Tax Levies and Collections 175 9 Ratios of Outstanding Debt by Type 176 10 Ratios of General Bonded Debt Outstanding 177 11 Computation of Net Direct and Overlapping Debt 179 12a Computation of Legal Debt Margin 180-181 12b Computation of Local Debt Limit 182 13 Principal Employers 183

14 Demographic Statistics 184 15 County Government Employees - Full-Time Equivalents 186 16 County Government Employees - Full-Time Only by Function 187 17 Operating Indicators by Function 188 18 Capital Asset Statistics by Function 189 Introductory Section

QUEEN ANNE’S COUNTY

DEPARTMENT OF BUDGET AND FINANCE

THE LIBERTY BUILDING

107 N LIBERTY STREET

CENTREVILLE, MARYLAND 21617

TAX DIVISION (410) 758-0414 FAX: (410) 758-4405

ACCOUNTING (410) 758-4064 FAX: (410) 758-3036

BUDGETING (410) 758-4064 FAX (410) 758-3036

COUNTY COMMISSIONERS __________________________ JONATHAN R. SEEMAN

TDD (410) 758-2126 www.qac.org DIRECTOR

VACANT – AT LARGE

DAVID L. DUNMEYER – DISTRICT 1 MARIE K. LANGE

BOB SIMMONS- DISTRICT 2 CHIEF TREASURY OFFICER

PHILIP L. DUMENIL – DISTRICT 3

DAVID OLDS – DISTRICT 4

GREGG A. TODD, COUNTY ADMINISTRATOR

MARGIE A. HOUCK, EXECUTIVE ASSISTANT TO THE COUNTY COMMISSIONERS

December 19, 2013 The Board of County Commissioners and The Citizens of Queen Anne’s County, Maryland Formal Transmittal of the Comprehensive Annual Financial Report (CAFR) State law requires that all general-purpose governments publish a complete set of financial statements presented in conformity with accounting principles generally accepted in the United States of America (GAAP) and audited in accordance with auditing standards generally accepted in the United States of

America by a firm of licensed certified public accountants. Pursuant to that requirement, we hereby issue the comprehensive annual financial report of Queen Anne’s County, Maryland for the fiscal year ended June 30, 2013.

This report consists of management’s representations concerning the finances of Queen Anne’s County.

Consequently, management assumes full responsibility for the completeness and reliability of all of the information presented in the report. To provide a reasonable basis for making these representations, the management of Queen Anne’s County has established a comprehensive internal control framework that is designed both to protect the government’s assets from loss, theft, or misuse and to compile sufficient

reliable information for the preparation of Queen Anne’s County’s financial statements in conformity with Generally Accepted Accounting Principles (GAAP). Because the cost of internal controls should not outweigh their benefits, Queen Anne’s County’s comprehensive framework of internal controls has been designed to provide a reasonable, rather than absolute, assurance that the financial statements will be free

from material misstatement. As management, we assert that, to the best of our knowledge and belief, this financial report is complete and reliable in all material respects.

Queen Anne’s County’s financial statements have been audited by CliftonLarsonAllen LLP, a firm of licensed certified public accountants. The goal of the independent audit is to provide reasonable assurance that the financial statements of Queen Anne’s County, for the fiscal year ended June 30, 2013, are free of material misstatement. The independent audit involves examining, on a test basis, evidence supporting the

amounts and disclosures in the financial statements; assessing the accounting principles used and significant estimates made by management; and evaluating the overall financial statement presentation. The independent auditor concluded, based upon the audit, that there was a reasonable basis for rendering an unqualified opinion that Queen Anne’s County’s financial statements for the fiscal year ended June 30,

2013, are fairly presented in conformity with GAAP. The independent auditor’s report is presented as the first component of the financial section of this report.

-1- The independent audit of the financial statements of Queen Anne’s County is part of a broader, federally mandated, “Single Audit” designed to meet the special needs of federal grantor agencies. The standards governing Single Audit engagements require the auditor to report not only on the fair presentation of the financial statements, but also on the audited government’s internal controls and compliance with legal

requirements, with special emphasis on internal controls and legal requirements involving the administration of federal awards. These reports are available in Queen Anne’s County’s separately issued Single Audit report.

GAAP requires that management provide a narrative introduction, overview, and analysis, entitled Management’s Discussion and Analysis (MD&A). This letter of transmittal is designed to complement the MD&A and should be read in conjunction with it. Queen Anne’s County’s MD&A can be found immediately following the report of the independent auditor.

PROFILE OF THE GOVERNMENT

Queen Anne’s County is situated on the Eastern Shore of Maryland. It is bordered to the north by Kent County, to the east by the State of Delaware, to the south by Caroline and Talbot counties, and to the west by the Chesapeake Bay. Access to the western shore of Maryland is provided by the Chesapeake Bay Bridge. The County is 373 square miles in area and has approximately 48,650 citizens. The County seat is

located in Centreville. The County Commissioners of Queen Anne’s County are empowered to levy a property tax on both real and personal properties located within its boundaries.

Queen Anne’s County was formed in 1706 and is governed by a five-member Board of County Commissioners. County code provides that one Commissioner be elected purely at large; the remaining four Commissioners must reside in specific districts, but are elected at large. The Commissioners operate under Maryland’s Code Home Rule form of government. Both the executive and legislative functions of the County are vested with the Board of County Commissioners.

Queen Anne’s County provides a full range of services including public safety (police, volunteer fire protection, emergency services, detention center, and animal control), highways and streets, solid waste, planning and zoning, economic development, culture and recreation, education, libraries, and general administrative services. In conjunction with the State, the County also operates services related to general

community health and social services. In addition, the County operates a water and wastewater utility, an airport, a golf course, and public landings and marinas.

The appropriated annual budget is prepared by fund, function (e.g. public safety), and department (e.g.

Detention Center). Department Heads may make transfers of appropriations within a department of up to $10,000 with the approval of the County Administrator. Transfers of appropriations or appropriation of new revenues in excess of $10,000 require the approval of the County Commissioners. Budget to actual comparisons are provided in this report for individual governmental funds for which an appropriated annual

budget has been adopted. The budget comparisons for the general fund are presented on pages 107 to 109 as part of the Required Supplementary Information portion of this report. For non-major funds with appropriated annual budgets, budget to actual comparisons are presented in the Supplementary Information subsection of this report on pages 122 to 127 and on pages 154 to 155.

-2-

ECONOMIC OUTLOOK AND CONDITION

The information presented in the financial statements is perhaps best understood when it is considered from the broader perspective of the specific environment within which Queen Anne’s County operates.

The unemployment rate for Queen Anne’s County is typically below the state and national averages, as shown in the chart below. The June 2013 rate for the County was 6.8%, compared to the state’s rate of 7.5% and the U.S.’s rate of 7.6%. The 2013 average rate for the County was 6.1%.

Unemployment Rate 10.0% 9.0% 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% Queen Anne's County Maryland United States

LOCAL ECONOMY

The local employment base is somewhat limited and centers on several stable manufacturers, as well as the agriculture, maritime, construction, retail, leisure, and hospitality industries. The top three largest employers are governmental units, including the County, the Board of Education, and Chesapeake College.

There is a small, but growing, base of specialty manufacturers. In addition, the County’s proximity to the Western Shore enables nearly 60% of the workforce to commute to locations outside the County, primarily to higher paying jobs in the Baltimore and Washington areas.

Property taxes remained fairly constant in fiscal year 2013, decreasing by less than 1.0%, from $65.9 million in fiscal year 2012 to $65.6 million in fiscal year 2013. Property tax revenue is projected to decline by 2.5% for fiscal year 2014, due to the result of decreasing real property assessments, remnants of the real property downturn of the past few years. Local income tax is the County’s other main revenue source.

Income tax collections increased by 9.6% in fiscal year 2013, from $36.0 million in fiscal year 2012 to $39.4 million in fiscal year 2013. The County projected an increase of 6.0% based on the rate increase from 2.85% to 3.2%, effective January 1, 2012. The remaining increase resulted from an increase in the distributions received from the State. The County does not expect the level of increased income tax

revenue to continue. Typically, when the State’s income tax distributions are high one year, the following year is often lower or with limited growth. The projected income tax revenue for fiscal year 2014 is $39.0 million, which is $0.4 million less than the income tax revenue received in fiscal year 2013.

For the past several years, County revenues related to housing activity have continued to be affected by the economic downturn affecting real estate values that began in fiscal year 2009. However, recordation tax revenue, a leading indicator of the health of the local real estate market, experienced positive growth in fiscal year 2013, compared to 2012. Recordation tax revenue increased from $3.8 million in fiscal year

-3- 2012 to $4.6 million in 2013, a 21.7% increase. The projected recordation tax revenue for fiscal year 2014 is $4.8 million.

LONG TERM FINANCIAL PLANNING

Rainy Day Fund – Ordinance No. 12-21 was adopted in January 2013 for the purpose of establishing and maintaining a Rainy Day Fund for contingencies of an emergency nature; requiring annual reports on such fund balance; providing for the appropriation of such funds to meet emergency needs; and requiring surplus revenues be used to maintain the Rainy Day Fund at a set minimum amount. The Ordinance requires the

County to maintain a Rainy Day Fund for contingencies in an amount equal to 7% of the following year’s budgeted general fund operating revenues. The County funded the Rainy Day Fund with the required amount of $7,920,443 in fiscal year 2013.

Capital Projects - The County Commissioners’ six-year capital program, starting with fiscal year 2014, prioritizes capital expenditures over these years to meet the County’s needs. The six-year program includes: $46.2 million for renovation of various school facilities; $32.7 million for administration and general services; $17.7 million for emergency services; $10.3 million for the Bay Bridge Airport; and $6.5

million for the Roads Board capital projects. Offsetting approximately 71% of the Airport’s capital costs, $7.3 million in grants are anticipated.

FINANCIAL POLICIES

Bond Ratings - The financial policies and management practices of Queen Anne’s County were recognized by two major rating agencies. Fitch Rating Service issued an AA+ bond rating and Moody’s issued a rating of Aa2.

Debt Management Policy – In calendar year 2013, the County adopted Resolution 13-04, which revised the County’s Local Debt Policy. In accordance with this policy, the Director of Budget and Finance is responsible for following certain procedures to ensure that debt limits established by the Policy are not exceeded. A key element of the Policy is that prior to the issuance of any new bonded indebtedness, the

Director must certify that existing and new General Obligation Debt will not exceed (1) 2.5% of the total taxable assessable base and (2) $3,000 per capita. This policy also stipulates that although there is some flexibility as to the acceptable percentage of debt service to general fund expenditures, and no absolute limit has been established by the rating agencies or the Government Finance Officers Association, anything

above 12% of total general fund expenditures would be a cause to carefully monitor debt service.

For fiscal year 2013, Queen Anne’s County general obligation debt was 1.21% of the total taxable assessable base, and the per capita debt measurement was $1,903. The debt service was 10.5% of the general fund operating expenditures for the year. All thresholds are well below the policy limits. In addition, general bonded debt outstanding, as a percentage of total taxable assessable base, has improved

over the last ten fiscal years, from 1.69% in fiscal year 2004 to 1.21% in fiscal year 2013.

Fund Balance Policy – Resolution 12-21 was adopted in calendar year 2012 for the purpose of establishing criteria in which year end fund balances can be used. There are five purposes for which using fund balance is permitted: (1) paygo for items/projects in the County Capital Improvement Plan, (2) as a supplement to the Rainy Day Fund if it is underfunded, (3) to pay down existing debt, (4) reserved for

future non-operating expenses related to fiscal emergencies, and (5) as one time non-recurring expenditures of capital or non-capital items.

-4-

AWARDS AND ACKNOWLEDGMENTS

The Government Finance Officers Association of the United States and Canada (GFOA) awarded a Certificate of Achievement for Excellence in Financial Reporting to Queen Anne’s County, Maryland for its comprehensive annual financial report (CAFR) for the fiscal year ended June 30, 2012. The Certificate of Achievement is a prestigious national award that recognizes conformance with the highest standards for

preparation of state and local government financial reports. In order to be awarded a Certificate of Achievement, the County must publish an easily readable and efficiently organized comprehensive annual financial report. This report must satisfy both generally accepted accounting principles and applicable legal requirements.

A Certificate of Achievement is valid for a period of one year only. Queen Anne’s County, Maryland has received a Certificate of Achievement for the last fourteen consecutive years (fiscal years 1999-2012). We believe our current comprehensive annual financial report continues to conform to the Certificate of Achievement program requirements, and we are submitting it to GFOA to determine its eligibility for

another certificate.

The preparation of the comprehensive annual financial report was made possible by the dedicated service of the entire staff of the Finance Office. Each member of the department has my sincere appreciation for the contributions made in preparation of this report. Special recognition is given to members of the Audit Team: Nichole Hepfer, who is the principle staff member responsible for preparing the report, James

Griffin, and Teresa Ward. Their dedication and professionalism in the preparation of Queen Anne’s County financial statements has resulted in consistently accurate and transparent financial reporting.

Special recognition is also given to George Harvey for his technical and creative input, including the cover design.

Respectfully submitted, Jonathan R. Seeman Director of Budget and Finance -5- -6- -7- trahC lanoitazinagrO tnemnrevoG ytnuoC s’ennA neeuQ sretoV ytnuoC s’ennA neeuQ truoC tiucriC truoC s'nahprO

YTNUOC

eciffO s'ffirehS yenrottA s'etatS

SRENOISSIMMOC

ytnuoC ytnuoC & sdraoB yenrottA rotartsinimdA snoissimmoC cilbuP ytinummoC gninnalP ytnuoC cilbuP ytefaS secivres gninoZ & noitartsinimdA skroW secivreS laminA gnigA erutlucirgA ecnaniF & tegduB gnireenignE retneC noitneteD ytinummoC & gnisuoH draoB rouqiL secruoseR namuH secivreS lareneG secivreS secivreS ycnegremE tnemeganaM lacoL gninnalP tnempoleveD nocE sgnidnaL & saniraM draoB msiruoT dna noitaerceR

stimreP / gninoZ skraP tropriA egdirB yaB cihpargoeG -

SIG

tnemeganaM ytreporP smetsyS noitamrofnI floG noreH eulB esruoC sdaoR noitacinummoC ofnI ygolonhceT tcirtsiD yratinaS

VTCAQ

etsaW diloS -8-

QUEEN ANNE’S COUNTY, MARYLAND

GOVERNMENTAL ORGANIZATION

CERTAIN ELECTED AND OTHER OFFICIALS

AS OF JUNE 30, 2013

CERTAIN ELECTED OFFICIALS

County Commissioners Vacant, At Large* David L. Dunmyer, District 1 Bob Simmons, District 2 Philip L. Dumenil, District 3 David Olds, District 4 State’s Attorney Lance G. Richardson, Esq.

Sheriff Raymond G. Hofmann

CERTAIN DEPARTMENT HEADS AND OTHER OFFICIALS

County Administrator Gregg A. Todd Director of Public Works Todd R. Mohn Director of County Administration Gregg A. Todd Director of Planning and Zoning J. Steve Cohoon Director of Community Services Catherine R. Willis Director of Budget and Finance Jonathan R. Seeman Chief Treasury Officer Marie K. Lange County Attorney Patrick E. Thompson, Esq.

Independent Auditor Bond Counsel Financial Advisor CliftonLarsonAllen LLP McKennon, Shelton Public Advisory Consultants Certified Public Accountants & Henn, LLP Baltimore, Maryland Timonium, Maryland Baltimore, Maryland *As of June 30, 2013, Steven J. Arentz occupied the At Large County Commissioner position. The position is currently vacant as Mr. Arentz was subsequently appointed to the Maryland House of

Delegates by the Governor.

-9- -10- CliftonLarsonAllen LLP www.cliftonlarsonallen.com

INDEPENDENT AUDITORS' REPORT

County Commissioners of Queen Anne’s County Maryland Centreville, Maryland Report on the Financial Statements We have audited the accompanying financial statements of the governmental activities, the businesstype activities, the aggregate discretely presented component units, each major fund, and the aggregate remaining fund information of Queen Anne’s County, Maryland (the County) as of and for the year ended June 30, 2013, and the related notes to the financial statements, which

collectively comprise the entity’s basic financial statements as listed in the table of contents.

Management’s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to

fraud or error.

Auditors’ Responsibility Our responsibility is to express opinions on these financial statements based on our audit. We did not audit the component unit financial statements of the Board of Education of Queen Anne’s County and the Queen Anne’s County Free Library, which represent 100 percent, 100 and 100 percent, respectively, of the assets, net position, and revenues of the aggregate discretely presented

component units. Those statements were audited by other auditors whose report has been furnished to us, and our opinion, insofar as it relates to the amounts included for the Board of Education of Queen Anne’s County and the Queen Anne’s County Free Library, is based solely on the report of the other auditors. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in

Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s

preparation and fair presentation of the financial statements in order to design audit procedures that 11 An independent member of Nexia International are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of

significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions.

Opinions In our opinion, based on our audit and the report of other auditors, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, the business-type activities, the aggregate discretely presented component units, each major fund, and the aggregate remaining fund information of Queen Anne’s County, Maryland as of

June 30, 2013, and the respective changes in financial position and, where applicable, cash flows thereof for the year then ended in accordance with accounting principles generally accepted in the United States of America.

Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the Management’s Discussion and Analysis, budgetary comparison information for the general fund, other post-employment benefits (OPEB) trust schedule of funding progress and schedule of participating agencies’ contributions on pages 15-30 and 106-109 be presented to supplement the

basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We and other auditors have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the

United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management’s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to

express an opinion or provide any assurance.

Other Information Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the County’s basic financial statements. The Combining and Individual Fund Statements and Schedules listed in the table of contents are presented for purposes of additional analysis and are not a required part of the basic financial statements.

The Combining and Individual Fund Statements and Schedules listed in the table of contents is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and 12 certain additional procedures, including comparing and reconciling such information directly to the

underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America by us and other auditors. In our opinion, based on our audit, the procedures described above, and the report of the other auditors, the combining and individual fund statements and Schedules listed in the table of contents is fairly

stated, in all material respects, in relation to the basic financial statements taken as a whole.

The introductory section and statistical tables listed in the table of contents have not been subjected to the auditing procedures applied in the audit of the basic financial statements, and accordingly, we do not express an opinion or provide any assurance on them.

Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated December 18, 2013, on our consideration of the County’s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and 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 result of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the County’s internal control over financial reporting and compliance.

a Baltimore, Maryland December 18, 2013 13 -14- Management’s Discussion and Analysis Introduction This section of the Comprehensive Annual Financial Report of Queen Anne’s County, Maryland (the County) presents a narrative overview and analysis of the financial activities of Queen Anne’s County Government for the fiscal year ended June 30, 2013. We encourage readers to consider the discussion and analysis along with

the other information in this report, including the transmittal letter, basic financial statements, and the notes to the financial statements.

Overview of the Financial Statements This discussion and analysis is intended to serve as an introduction to Queen Anne’s County Government’s basic financial statements. The County’s basic financial statements are comprised of three components:

Government-Wide Financial Statements Fund Financial Statements Notes to the Financial Statements This report also contains other required and non-required supplementary information in addition to the basic financial statements themselves.

Government-Wide financial statements: The government-wide financial statements are designed to provide readers with a broad overview of Queen Anne’s County Government’s finances, in a manner comparable to a private sector business.

The statement of net position presents information on all of Queen Anne’s County Government’s assets and liabilities, with the difference between the two reported as net position. Over time, increases or decreases in net position may serve as a useful indicator of whether the financial position and condition of Queen Anne’s County Government is improving or declining.

The statement of activities presents information showing how the government’s net position changed during the most recent fiscal year. All changes in net position are reported as soon as the underlying event giving rise to the change occurs, regardless of the timing of related cash flows. Thus, revenues and expenses are reported in this statement for some items that will only result in cash flows in future fiscal periods (e.g. uncollected

taxes and earned but unused vacation leave).

Both of the government-wide financial statements distinguish functions of Queen Anne’s County Government that are principally supported by taxes and intergovernmental revenue (governmental activities) from other functions that are intended to recover all or a significant portion of their costs through user fees and charges (business-type activities).

The governmental activities of Queen Anne’s County Government include general government, public safety, public works, health, social services, education, library, conservation of natural resources, and economic and community development. The business-type activities of Queen Anne’s County Government include water and sewer services, an airport, a golf course, and public landings and marinas.

The government-wide financial statements include not only Queen Anne’s County Government itself (known as the primary government), but also legally separate component units. Queen Anne’s County Government has the following discretely presented component units: Queen Anne’s County Board of Education and the Queen Anne’s County Free Library. Financial information for these component units is reported separately

from the financial information presented for the primary government itself. The government-wide financial statements can be found on pages 32 to 35 of this report.

-15- Fund Financial Statements: A fund is a group of related accounts that is used to maintain control over resources that have been segregated for specific activities or objectives. Queen Anne’s County Government, like other state and local governments, uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. All of the funds of Queen Anne’s County Government can be divided into

three categories: governmental funds, proprietary funds, and fiduciary funds. Fund financial statements can be found throughout this report, with basic statements found on pages 36 to 49.

Governmental funds: Governmental funds are used to account for essentially the same functions reported as governmental activities in the government-wide financial statements. However, unlike the government-wide financial statements, governmental fund financial statements focus on near term inflows and outflows of spendable resources available at the end of the fiscal year. Such information may be useful in evaluating a

government’s near term financing requirements.

Because the focus of governmental funds is narrower than that of the government-wide financial statements, it is useful to compare the information presented for governmental funds with similar information presented for governmental activities in the government-wide financial statements. By doing so, readers may better understand the long-term impact of the government’s near term financing decisions. Both the balance sheet

and the statement of revenues, expenditures, and changes in fund balances for governmental funds provide a reconciliation to facilitate this comparison between governmental funds and governmental activities. These two reconciliations begin with governmental fund financial data; describe all transactions that are added or subtracted to yield governmental activities; and end with governmental activities financial data. These

reconciliations can be found on pages 37 and 40 to 41.

Queen Anne’s County maintains three types of governmental funds: the general fund, a variety of special revenue funds, and five capital project funds. Information is presented separately in the governmental fund balance sheet and in the governmental fund statement of revenues, expenditures, and changes in fund balances for all governmental funds. Fund type is identified for each fund.

Queen Anne’s County adopts an annual appropriated budget for its general fund (includes the roads board);

school, fire, and parks impact fee capital projects funds; and the following special revenue funds: department of aging, housing and community services, community partnerships for children, dredging special assessments, Kent Narrows, law library, inmate welfare, agricultural transfer, rural legacy, and purchase of development rights. A budgetary comparison statement has been provided for each of these funds, which can be found on

pages 107 to 109; 122 to 127; and 154 to 155 of this report.

Proprietary funds: Queen Anne’s County maintains enterprise funds to report the same functions presented as business-type activities in the government-wide financial statements. Queen Anne’s County Government uses enterprise funds to account for its water and sewer services, airport, golf course, and public landings and marinas. The basic proprietary fund financial statements can be found on pages 42 to 47 of this report, as well

as non-major statements on pages 134 to 136.

Fiduciary funds: Fiduciary funds are used to account for resources held for the benefit of parties outside the government. Fiduciary funds are not reflected in the government-wide financial statements because the resources of those funds are not available to support Queen Anne’s County Government’s own programs. The County acts as a fiduciary for two trust and six agency funds. The accounting used for fiduciary funds is much

like that used for proprietary funds except that the agency funds report only assets and liabilities and do not report net assets or changes therein. The basic fiduciary fund financial statements can be found on pages 48 to 49 of this report, while further detail can be found on pages 140 to 145.

Notes to the financial statements: The notes provide additional information that is essential to a full understanding of the data provided in the government-wide and fund financial statements. The notes to the financial statements can be found on pages 50 to 103 of this report.

-16- Beginning fiscal year 2013, the County consolidated the programs and property management funds with the General Fund. In prior years, these funds were presented as non-major enterprise funds. The assets and liabilities for each fund are now reported in the General Fund; with the capital assets and related debt reported in Governmental Activities. The consolidation increased the General Fund balance by $340,297 and

Governmental Activities net position by $198,923, resulting in a total change of $539,220. The prior year amounts presented in the following tables reflect this change.

Government-wide Financial Analysis Statement of Net Position A summary of government-wide assets, liabilities, and net position is as follows:

Governmental Activities Business Type Activities Total Summary of Net Position 2013 2012 2013 2012 2013 2012 Current and Other Assets $ 72,425,648 $ 65,742,906 $ 23,489,553 $ 22,912,957 $ 95,915,201 $ 88,655,863 Capital Assets 143,539,192 143,555,069 94,824,534 95,100,851 238,363,726 238,655,920 Total Assets 215,964,840 209,297,975 118,314,087 118,013,808 334,278,927 327,311,783 Noncurrent liabilities 119,081,677 119,774,186 20,922,767 21,722,365 140,004,444 141,496,551

Other liabilities 9,115,919 9,663,607 2,992,320 3,422,498 12,108,239 13,086,105 Total Liabilities 128,197,596 129,437,793 23,915,087 25,144,863 152,112,683 154,582,656 Net position:

Net investment in capital assets 121,419,314 118,564,684 78,693,078 76,763,695 200,112,392 195,328,379 Restricted amounts 15,691,080 5,982,041 3,176,328 3,513,948 18,867,408 9,495,989 Unrestricted amounts (deficit) (49,343,150) ( 44,686,543) 12,529,594 12,591,302 (36,813,556) (32,095,241) Total Net Position $ 87,767,244 $ 79,860,182 $ 94,399,000 $ 92,868,945 $ 182,166,244 $ 172,729,127 The County’s total current and other assets increased by $7.3 million, or 8.2 percent, to $95.9 million. The

County’s total assets exceeded its total liabilities at the close of fiscal year 2013 by $182.2 million.

Net position is divided into three categories: net investment in capital assets; restricted amounts; and unrestricted amounts. By far the largest portion, $200.1 million, of the County’s total net position reflects its investment in capital assets (e.g. land, buildings, machinery and equipment, vehicles, and infrastructure), less any related and outstanding debt used to construct or acquire those assets. The County uses these capital assets

to provide services to citizens; consequently, they are not available for future spending. Although the County’s investment in its capital assets is reported net of related debt, it should be noted that the resources needed to repay the debt must be provided from other sources since the capital assets themselves cannot be used to liquidate these liabilities.

It is important to note that, although counties in the State of Maryland issue debt for the construction of schools, the school buildings are owned by each county’s Board of Education. Ownership reverts to the county government only if the local Board determines a building is no longer needed for educational purposes.

Therefore, while the County’s financial statements include outstanding debt related to Board of Education capital assets, those statements do not include the capital assets funded by the debt. Debt outstanding for the Board of Education amounted to $63.3 million at June 30, 2013. Absent the effect of this relationship, the County would have reported positive net position of $26.5 million on its government-wide financial

statements, rather than the negative unrestricted net assets of $36.8 million reported herein. For a multi-year view of this calculation, see the Footnote presented in Table 1 of the Statistical Section.

An additional $18.9 million of the County’s total net position represents resources that are subject to restrictions on how they may be used. For governmental activities, this amount includes: $8.8 million related to general government services; $2.2 million for conservation of natural resources; $2.1 million for economic/community development; $1.8 million restricted for educational purposes; and an additional $721

thousand for other restrictions. For business-type activities, this amount includes $2.4 million restricted to -17- meet Sanitary District debt covenants and $753 thousand restricted by Sanitary District developer exaction project requirements.

At the end of the current fiscal year, Queen Anne’s County Government reports positive balances in two out of three categories of net position, both for the government as a whole, as well as for its separate governmental activities. Business-type activities reports positive balances in all net position categories.

Statement of Activities The following table summarizes changes in net position for governmental and business-type activities during the year:

Governmental Activities Business Type Activities Total Summary of Changes in Net Position 2013 2012 2013 2012 2013 2012 Revenues:

Program revenues:

Charges for services $ 5,718,871 $ 5,009,046 $ 8,983,140 $ 9,640,096 $ 14,702,011 $ 14,649,142 Operating grants and contributions 5,841,172 4,701,361 207,135 170,238 6,048,307 4,871,599 Capital grants and contributions 2,698,872 1,949,135 4,540,242 1,147,729 7,239,114 3,096,864 General revenues:

Property taxes 65,591,225 65,937,415 - - 65,591,225 65,937,415 Local income tax 35,769,303 34,028,234 - - 35,769,303 34,028,234 Other local taxes Admission and amusement taxes 160,516 183,634 - - 160,516 183,634 Recordation taxes 4,635,789 3,809,545 - - 4,635,789 3,809,545 Hotel taxes 470,139 468,382 - - 470,139 468,382 County transfer taxes 1,351,064 1,266,716 - - 1,351,064 1,266,716 Investment income 107,095 126,650 356,374 374,665 463,469 501,315

Gain on sale of capital assets 163,426 27,627 - - 163,426 27,627 Miscellaneous 1,051,760 1,254,255 855,504 1,127,590 1,907,264 2,381,845 Total Revenues 123,559,232 118,762,000 14,942,395 12,460,318 138,501,627 131,222,318 Expenses:

Governmental Activities:

General government 14,227,799 13,421,531 - - 14,227,799 13,421,531 Public safety 26,174,144 25,469,721 - - 26,174,144 25,469,721 Public works 11,891,013 10,373,286 - - 11,891,013 10,373,286 Health 1,812,920 1,642,723 - - 1,812,920 1,642,723 Social services 5,560,196 4,526,166 - - 5,560,196 4,526,166 Education 48,354,256 53,693,309 - - 48,354,256 53,693,309 Libraries 1,304,076 1,302,163 - - 1,304,076 1,302,163

Conservation of natural resources 838,775 2,802,337 - - 838,775 2,802,337 Economic and Community development 1,108,912 887,837 - - 1,108,912 887,837 Interest and fiscal charges 4,042,236 4,196,072 - - 4,042,236 4,196,072 Business-type Activities:

Water and sewer - - 11,783,515 10,711,211 11,783,515 10,711,211 Airport - - 913,845 1,457,087 913,845 1,457,087 Golf course - - 538,420 512,460 538,420 512,460 Public landings and marinas - - 535,837 545,832 535,837 545,832 Other parks and recreation - - - 1,322,525 - 1,322,525 Total Expenses 115,314,327 118,315,145 13,771,617 14,549,115 129,085,944 132,864,260 Increase (Decrease) in Net Position before Transfers 8,244,905 446,855 1,170,778 (2,088,797) 9,415,683 (1,641,942)

Transfers in (out) (337,843) (605,996) 359,277 605,996 21,434 - Increase (Decrease) in Net Position 7,907,062 (159,141) 1,530,055 (1,482,801) 9,437,117 (1,641,942) Net Position - Beginning of Year 79,860,182 80,019,323 92,868,945 94,351,746 172,729,127 174,371,069 Net Position - End of Year $ 87,767,244 $ 79,860,182 $ 94,399,000 $ 92,868,945 $ 182,166,244 $ 172,729,127 -18- Governmental activities:

Revenues for governmental activities were $123.6 million for fiscal year 2013. The following chart depicts revenues by source for governmental activities:

Revenues by Source ‐ Governmental Activities For the Year Ended June 30, 2013 Gain on Sale of Capital County transfer taxes Assets 1.09% Investment 0.13% Miscellaneous Hotel taxes Income 0.85% Recordation taxes 0.38% 0.09% 3.75% Charges for services 4.63% Admission and amusement taxes Operating, capital & 0.13% restricted grants 6.91% Local income tax 28.96% Property taxes 53.08%

• Taxes comprise the largest source of County revenue, totaling $108.0 million (87.4 percent) of total

revenue for fiscal year 2013. Of that amount, property and local income tax together yielded $101.4 million (82.0 percent) of all revenue. Each County sets its own property and income tax rates, within parameters established by the State. For fiscal year 2013, the County’s property tax rate remained constant at $.8471 per $100 of assessed value of real property, based on full cash value of that property. The County’s local income tax rate was set at 3.2 percent, effective January 1, 2012 and

thereafter. There is no local sales tax in the State of Maryland.

• Operating grants and contributions, totaling $5.8 million, reflect grants from Federal and State

agencies that support specific County programs. Programs that benefitted the most were: social services ($2.6 million or 44.8 percent) and public safety ($1.3 million or 22.7 percent).

• Charges for services, totaling $5.7 million, reflect fees charged to County citizens. These primarily

support public works ($1.6 million or 28.6 percent), public safety ($1.4 million or 24.3 percent), general government ($1.3 million or 22.3 percent), and education ($1.1 million or 18.4 percent).

• Capital grants and contributions, totaling $2.7 million, reflect contributions from Federal and State

agencies, as well as developers. Public works benefited the most from capital grants and contributions during the year ($1.7 million or 62.6 percent).

-19- Expenses for all governmental activities were $115.3 million for fiscal year 2013. The following chart depicts expenses by function for governmental activities:

Expenses ‐ Governmental Activities For the Year Ended June 30, 2013 Economic and Community Interest and fiscal development charges 0.96% Conservation of 3.51% natural resources 0.73% General government 12.34% Libraries 1.13% Public safety 22.70% Education Public works 41.93% 10.31% Social services Health 4.82% 1.57% As noted in the chart above and the table below, by far the County’s largest program and highest priority is

education, with expenses totaling $48.4 million (41.9 percent). The following table summarizes costs and program-related revenues for the same programs in order of priority, yielding net service costs:

Expenses Program-Related Revenues Net Cost of Services Net Cost of Governmental Activities 2013 2012 2013 2012 2013 2012 Education $ 48,354,256 $ 53,693,309 $ 1,052,691 $ 1,169,425 $ (47,301,565) $ (52,523,884) Public Safety 26,174,144 25,469,721 2,965,678 2,624,888 (23,208,466) (22,844,833) General Government 14,227,799 13,421,531 2,105,551 1,940,723 (12,122,248) (11,480,808) Public Works 11,891,013 10,373,286 3,949,040 2,137,340 (7,941,973) (8,235,946)

Social Services 5,560,196 4,526,166 2,736,901 2,166,442 (2,823,295) (2,359,724) Conservation of Natural Resources 838,775 2,802,337 463,298 1,134,222 (375,477) (1,668,115) Economic and Community Development 1,108,912 887,837 985,756 486,502 (123,156) (401,335) Other 7,159,232 7,140,958 - - (7,159,232) (7,140,958) Total $ 115,314,327 $ 118,315,145 $ 14,258,915 $ 11,659,542 $ (101,055,412) $ (106,655,603)

Of the total cost of $115.3 million for governmental activities, $14.3 million (12.4 percent), of those costs were covered by program-related revenues paid by individuals and external governmental entities. Of these outside entities, individuals who benefited directly from County programs were charged user fees of $5.7 million, while governments and other organizations that benefited indirectly from these programs contributed operating

grants of $5.8 million and capital grants of $2.7 million.

County taxpayers paid for most of the remaining $101.1 million in net program costs, through a variety of County taxes, for a total of $108.0 million. Net program costs of services provided to the public, in order of net cost, were: $47.3 million for education; $23.2 million for public safety; $12.1 million for general government; $7.9 million for public works; $2.8 million for social services; $375 thousand for conservation of

natural resources; $123 thousand for economic and community development; and $7.2 million for other services. See Changes in Net Position and General Fund Budgetary Highlights for further details.

-20- Changes in net position: Government-wide revenues, less expenses, plus/minus transfers in/out, yield changes in net position. During fiscal year 2013, governmental activities increased the County’s net position overall by $7.9 million, compared to a decrease of $159 thousand in fiscal year 2012. The following discussion explains changes in net position relative to the prior fiscal year.

Revenues for governmental activities increased by $4.8 million (4.0 percent). The following key revenues changed, when compared to the prior fiscal year:

• Local income tax increased by $1.8 million (5.1 percent), from $34.0 million to $35.8 million. The

majority of the increase relates to the income tax rate increasing from 2.85% to 3.2%, effective January 1, 2012. The remaining increase relates to higher distributions of the local income tax from the State of Maryland Comptroller to Queen Anne’s County.

• Operating grants and contributions increased by $1.1 million (24.2 percent), from $4.7 million in

fiscal year 2012 to $5.8 million in fiscal year 2013. Key factors for this change are:

o Social Services increased by $538 thousand (25.9 percent). A significant portion of this increase was the result of additional grant funding received for Community Partnerships that wasn’t received in the prior year. The State encouraged Community Partnerships to use Earned Reinvestment Funds to fund programs for fiscal year 2013, rather than ending the programs. The remaining increase is split amongst other social services programs.

o Conservation of Natural Resources increased by $363 thousand (985.4 percent) as a result of federal grant funding of $337 thousand received in fiscal year 2013 for the purchase of a land conservation easement, which was not received in the prior year.

• Recordation Tax increased by $826 thousand (21.7 percent), from $3.8 million in fiscal year 2012 to

$4.6 million in fiscal year 2013. For the past several years, County revenues related to housing activity have been adversely affected by declining real estate values. However, recordation tax revenue, a leading indicator of the health of the local real estate market, experienced positive growth in fiscal year 2013, compared to 2012.

• Capital grants and contributions increased by $750 thousand (38.5 percent), from $1.9 million in fiscal

year 2012 to $2.7 million in fiscal year 2013. Key factors for this change are:

o Public Works increased by $1.1 million (211.5 percent) mainly as a result of $1.2 million received in funding for the Island Creek Road Bridge, which was not received in fiscal year 2012.

o Economic and Community Development increased by $494 thousand (602.9 percent) as a result of federal grant funding of $575 thousand received in fiscal year 2013 related to the Matapeake Professional Business Park.

o Conservation of Natural Resources decreased by $999 thousand (100.0 percent) as a result of fewer easements purchased in the current year compared to the previous year.

Expenses for governmental activities decreased by $3.0 million (2.5 percent) and transfers out to business-type activities decreased by $268 thousand. Key positive and negative expense changes, in order of relative importance, are:

• Education expenses decreased by $5.3 million (9.9 percent). This decrease was directly related to less

expenditures in fiscal year 2013 for the Sudlersville Middle School, due to the completion of the school construction.

-21-

• Conservation of Natural Resources decreased by $2.0 million (70.1 percent) due to fewer easement

acquisitions in fiscal year 2013 compared to 2012. Land development easements acquired in the Rural Legacy, Agricultural Transfer, and Purchase of Development Rights programs totaled $2.1 million in fiscal year 2012, however there were not any easements purchased for these programs in fiscal year 2013. Generally, the timing of easement purchases is affected by the evaluation process of the identified land, as well as the availability of State funds.

• Public Works expenses increased by $1.5 million (14.6 percent), mainly due to $738 thousand in

expenditures for asphalt overlays in fiscal year 2013, which there were not any expenditures for in fiscal year 2012. The remaining increase is the result of the timing of capital projects.

Business-type activities:

Revenues, transfers in, and expenses for business-type activities were $14.9 million, $359 thousand, and $13.8 million, respectively, for fiscal year 2013. The following two charts depict revenues by source and expenses by service for business-type activities:

Revenues by Source ‐ Business‐Type Activities For the Year Ended June 30, 2013 Investment income Miscellaneous 2.38% 5.73% Charges for Operating & services capital grants 60.12% & contributions 31.77% Expenses by Service ‐ Business‐Type Activities For the Year Ended June 30, 2013 Public Golf course landings and 3.91% marinas 3.89% Airport Water and 6.64% sewer 85.56% -22- Business-type activities increased the County’s net assets altogether by $1.5 million in fiscal year 2013, which

was $3.0 million more than the prior year’s decrease of $1.5 million. The fiscal year 2013 change in net assets resulted primarily from:

• Capital grants and contributions increased by $3.4 million (295.6 percent), from $1.1 million in fiscal

year 2012 to $4.5 million in fiscal year 2013. The net increase in funding resulted from changes in several projects due to the timing of the projects. Sewer related capital projects increased by $1.7 million, resulting from large contributions received in fiscal year 2013 for the Gibson’s Grant and Ellendale developments, which were not received in the previous year. In addition, capital grants and

contributions for the Bay Bridge Airport’s capital projects increased by $1.8 million in fiscal year 2013.

• Charges for services decreased by $657 thousand (6.8 percent), from $9.6 million in fiscal year 2012

to $9.0 million in fiscal year 2013. This decrease was the result of combining the programs and property management funds in with the General Fund in fiscal year 2013. The funds were previously reported as non-major enterprise funds.

• Operating expenses before transfers decreased by $778 thousand (5.3 percent), from $14.5 million in

fiscal year 2012 to $13.8 million in fiscal year 2013, for all business-type activities. The decrease is a result of several factors. First of all, there was a decrease in expenses of $1.3 million due to combining the Programs and Property Management Funds in with the General Fund in fiscal year 2013. Secondly, expenses for the Airport decreased by $543 thousand. In fiscal year 2012, there was a loss on disposal in the amount of $182 thousand, which did not occur in the current year. Also, there

was $330 thousand less expenditures for the airport in the current year related to project costs, staff costs, and other costs. Offsetting the decreases was an increase of $1.1 million in expenses for water and sewer, as a result of the disposal of obsolete fixed assets.

Financial Analysis of the Government’s Funds As noted earlier, Queen Anne’s County Government uses fund accounting to ensure and demonstrate compliance with finance related legal requirements. Detailed financial data based on the government’s fund accounting can be found in the governmental fund statements in this report.

Governmental Funds: The focus of Queen Anne’s County Government’s governmental funds is to provide information on near term inflows, outflows, and balances of spendable resources. Such information is useful in assessing Queen Anne’s County Government’s near term financing requirements. In particular, unassigned fund balance may serve as a useful measure of a government’s net resources available for spending at the end

of a fiscal year.

As of the end of the current fiscal year, Queen Anne’s County Government’s governmental funds reported combined ending fund balances of $62.1 million, compared to $51.1 million for the prior year (after adjusting for combining Programs and Property Management in with the General Fund). Approximately 9.4 percent of this total ($5.8 million) constitutes unassigned fund balance, which is available for spending. The total

unassigned fund balance of $5.8 million is comprised of $6.0 million of positive unassigned fund balance for the general fund, reduced by negative unassigned fund balances of $136 thousand in the non-major governmental funds. Additional detail on the negative unassigned balances can be found in Note 15 on page 100.

The nonspendable fund balance ($6.0 million), at 9.7 percent of the total fund balance, is not available for spending and includes amounts related to inventory, prepaid expenses, and loans receivable. Restricted fund balance of $20.8 million (33.5 percent) includes amounts that can be spent only for specific purposes stipulated by external sources or legal restrictions. Included in the restricted fund balance is $7.9 million for

the rainy day fund. Committed fund balance of $3.5 million (5.6 percent) represents those amounts that can be used only for the specific purposes of the government’s highest level of decision-making authority.

-23- The remaining 41.8 percent of fund balance ($26.0 million) constitutes assigned fund balances. These amounts are intended to be used by the government for the specific purposes of each fund.

The General Fund is the chief operating fund of Queen Anne’s County Government. At the end of the current fiscal year, the General Fund had a total fund balance of $16.0 million, which is an increase of $2.8 million from the fiscal year 2012 balance of $13.1 million. Note that the Programs and Property Management Funds are consolidated with the general fund beginning in fiscal year 2013; therefore the fiscal year 2012 fund

balances for those funds are included in the balance of $13.1 million also, for comparison purposes.

Of the total $16.0 million in fund balance, $6.0 million is unassigned, meaning that there are no constraints on how the funds can be spent. In fiscal year 2013, the County Commissioners adopted Ordinance No. 12-21 for the purpose of re-establishing the Rainy Day Fund, and requires the County to maintain a Rainy Day Fund for contingencies in an amount equal to 7% of budgeted General Fund operating revenues. As a result of that

Ordinance, $7.9 million of rainy day funds are included in the General Fund’s restricted fund balance for fiscal year 2013.

For further explanations of General Fund revenues and expenditures, see the General Fund Budgetary Highlights section of this MD&A.

The General Capital Projects Fund accounts for all capital projects related to governmental funds, except those accounted for in the Roads Capital Projects Fund, which is discussed below.

As of June 30, 2013, the General Capital Projects Fund has a total fund balance of $30.8 million, compared to $26.7 million at the end of the prior fiscal year. The $30.8 million in total fund balance is comprised of $1.3 million of nonspendable fund balance, $5.4 million in restricted fund balance, mainly for unspent bond proceeds, $2.7 million of fund balance committed for specific projects, and $21.4 million of assigned fund

balance.

The Roads Capital Projects Fund accounts for financial resources used for the construction of County Road infrastructure, as well as other large multi-year projects that relate to capital assets, and are financed mostly from roads-related capital grants and roads benefit assessments.

As of June 30, 2013, the Roads Capital Projects Fund has a total fund balance of $3.8 million, compared to $2.0 million at the end of the prior fiscal year. Of this total $3.8 million fund balance, $3.0 million has been assigned to fund ongoing projects, while $775 thousand has been contributed by local developers and is committed to fund specific infrastructure improvements. Nonspendable fund balance includes $28 thousand for

prepaid expenses.

Proprietary funds: Queen Anne’s County Government’s enterprise fund statements provide the same type of information found in the government-wide financial statements, but in more detail. Also, due to/due from other funds are combined in the government-wide statements and reported as Internal Balances between governmental and business-type activities, which net to zero.

Total unrestricted net assets of the Sanitary District Enterprise Funds at the end of fiscal year 2013 amounted to $12.8 million, which is $203 thousand more than the prior year.

Total net assets of the Sanitary District amounted to $72.2 million at the end of fiscal year 2013, which decreased by $757 thousand when compared to the prior year. A large portion of the decrease relates to the costs associated with other post-employment benefits (OPEB), which totaled $1.1 million in fiscal year 2013 for the Sanitary District.

The unrestricted net assets of the Bay Bridge Airport Enterprise Fund at year end amounted to negative $422 thousand compared to a negative $420 thousand at the end of the prior fiscal year, reflecting a decrease of $2 thousand.

-24- Total net assets of the Bay Bridge Airport amounted to $15.8 million at the end of fiscal year 2013, which increased by $2.3 million when compared to the prior year. The increase results from capital grant funding for the Airport’s capital projects.

A discussion of Enterprise Fund capital assets and long-term debt can be found in those sections presented later in this MD&A.

General Fund Budgetary Comparisons The County adopts an operating budget for the General Fund as of July 1 each year and amends that budget throughout the year in response to actual events. The Schedule of Revenues, Expenditures, and Changes in Fund Balance – Budget and Actual can be found as part of Required Supplemental Information, which is located after the Notes on pages 107 through 109. The Schedule reports original and final budgets, as well as

the variance between actual events and final budgets.

Original to Final Budget Comparisons. The final expenditure budget for the General Fund, including transfers out, totaled $117.4 million. Amendments increased spending authority by $9.4 million during fiscal year 2013, when compared to the original budget of $108.0 million.

Major components of these expenditure budget increases are as follows:

• Budgeted Transfers Out to General Capital Projects and Roads Capital Projects increased by $7.2

million during the year. As mentioned above, there are several capital projects in which the County plans to move aggressively on, and would like to have fund balance available in the General and Roads Capital Projects fund to cover a portion of the costs.

• Budgeted Miscellaneous Expenditures increased by $1.7 million due to a variety of costs, mostly

associated with Insurance and Benefits.

Budget to Actual Comparisons. Actual revenues for the General Fund, including other financing sources and before appropriated fund balance were more than final budgetary estimates by $576 thousand. Actual expenditures, and other financing uses, were less than final budgetary appropriations by $3.1 million. The net effect of these two disparities was a positive variance of actual to final budget of $3.7 million.

The most noteworthy differences between final budgeted amounts and actual amounts are summarized as follows:

Revenues:

• Charges for current services revenue was $469 thousand more than budgeted (22.2 percent), as a result

of combining the Programs and Property Management Funds in with the General Fund beginning in fiscal year 2013. The revenue related to these programs was more than expected.

• Miscellaneous revenue was $455 thousand more than expected (97.7 percent), mainly due to worker’s

compensation refunds received, which were not anticipated.

• Transfers In were $641 thousand less than the final budget (96.6 percent), as a result of the transfer in

from School Impact fees not made in the fiscal year. Management decided it was more advantageous to leave the money in the Impact Fee Fund in anticipation of future board of education projects.

-25- Expenditures:

• Final Budgeted Salaries and Benefits were $28.8 million for the year, while actual costs were $27.9

million. They were underspent at year-end by $900 thousand (3.1 percent). Of this amount, the roads department was responsible for $382 thousand of the unspent portion, detention center for $173 thousand, solid waste for $145 thousand, and finance for $145 thousand. This was due to the number of vacant positions during the fiscal year and the lapsed funds associated with the recruitment of staff.

• Final Budgeted Other Operating Charges were $88.6 million for the year, while actual costs were

$86.4 million. These costs were lower than budget at year end by $2.2 million (2.5 percent).

Operating Charges include contracted services, supplies, debt service, transfers out, and other charges.

o Contracted Services were underspent by $566 thousand, with the largest savings realized by the detention center ($156 thousand), parks ($113 thousand), and roads ($93 thousand).

o Supplies were underspent by $558 thousand, largely due to savings by roads ($426 thousand).

o Other Charges were underspent by $830 thousand, primarily due to insurance costs being underspent by $232 thousand due to savings in retiree health care costs. In addition, pension costs were underspent by $146 thousand, as these charges were delayed until the following year. The remaining savings for other charges were spread throughout the General Fund, as all departments are continuing the effort of increasing efficiencies whenever possible.

o Transfers Out were underspent by $186 thousand, primarily due to savings realized by the Department of Housing ($102 thousand) and the Golf Course Enterprise Fund ($75 thousand), which allowed these Departments to forgo this portion of their appropriation.

Capital Assets and Debt Administration Capital assets: Queen Anne’s County Government’s investment in capital assets for its governmental and business-type activities as of June 30, 2013 amounted to $238.4 million (net of accumulated depreciation).

This investment in capital assets includes land and land improvements, intangible rights, construction in progress, buildings, improvements other than buildings, infrastructure, autos, machinery, and equipment.

Capital asset activities, net of depreciation, are summarized as follows:

Governmental Activities Business Type Activities Total Capital Assets, Net of Depreciation 2013 2012 2013 2012 2013 2012 Land and Land Improvements $ 84,363,221 $ 84,108,933 $ 14,158,331 $ 14,160,131 $ 98,521,552 $ 98,269,064 Intangible Rights - Easements 786,819 786,819 6,140 6,140 792,959 792,959 Construction in Progress 2,118,314 2,567,685 2,950,830 1,443,420 5,069,144 4,011,105 Buildings 30,666,936 31,318,576 8,025,939 9,314,300 38,692,875 40,632,876

Improvements other than Buildings 6,523,721 6,678,550 8,686,182 8,878,752 15,209,903 15,557,302 Infrastructure 11,060,882 9,892,536 47,920,303 47,276,882 58,981,185 57,169,418 Auto, Machinery, and Equipment 8,019,299 8,201,970 13,076,809 14,021,226 21,096,108 22,223,196 Total $ 143,539,192 $ 143,555,069 $ 94,824,534 $ 95,100,851 $ 238,363,726 $ 238,655,920 Queen Anne’s County’s total investment in capital assets for the current fiscal year, net of depreciation,

decreased by 0.1 percent, or $292 thousand. Of this amount, governmental investment in capital assets decreased by $16 thousand, while business-type investment in capital assets decreased by $276 thousand.

-26- Changes in the County’s capital assets, with depreciation shown separately, are summarized as follows. Note that completed projects that were reclassified from construction in progress (CIP) to other asset accounts during the year net to zero and are reported in the same column.

Governmental Activities Changes in Capital Assets 2012 Additions Transfers Retirements 2013 Land and Land Improvements $ 84,108,933 $ - $ 413,960 $ (159,672) $ 84,363,221 Intangible Rights - Easements 786,819 - - - 786,819 Construction in Progress 2,567,685 1,584,865 (2,034,236) - 2,118,314 Buildings 41,445,892 233,834 35,787 - 41,715,513 Improvements other than Buildings 8,005,542 - 87,932 - 8,093,474

Infrastructure 16,910,259 - 1,496,557 (82,800) 18,324,016 Auto, Machinery, and Equipment 27,680,275 2,056,879 - (714,115) 29,023,039 Total Assets before depreciation 181,505,405 3,875,578 - (956,587) 184,424,396 Less Depreciation (37,950,336) (3,594,293) - 659,425 (40,885,204) Total Assets after depreciation $ 143,555,069 $ 281,285 $ - $ (297,162) $ 143,539,192 Business-Type Activities Changes in Capital Assets 2012 Additions Transfers Retirements 2013

Land and Land Improvements $ 14,160,131 $ - $ - $ (1,800) $ 14,158,331 Intangible Rights - Easements 6,140 - - - 6,140 Construction in Progress 1,443,420 2,582,455 (813,858) (261,187) 2,950,830 Buildings 15,992,098 - - (1,288,238) 14,703,860 Improvements other than Buildings 11,741,751 - 174,639 (2,258) 11,914,132 Infrastructure 70,156,181 2,048,768 639,219 (555,332) 72,288,836 Auto, Machinery, and Equipment 23,236,443 188,232 - (260,624) 23,164,051

Total Assets before depreciation 136,736,164 4,819,455 - (2,369,439) 139,186,180 Less Depreciation (41,635,313) (3,729,350) - 1,003,017 (44,361,646) Total Assets after depreciation $ 95,100,851 $ 1,090,105 $ - $ (1,366,422) $ 94,824,534 Noteworthy capital asset events during the current fiscal year for governmental activities included the following:

• Land and Land Improvements increased by a net amount of $254 thousand. Two infrastructure

projects were completed and placed into service: (a) Charles Street extension near Sudlersville Middle School ($339 thousand); and (b) site improvements necessary to place Island Creek Road Bridge into service ($74 thousand). Additionally, the County sold a commercial lot within the Matapeake Professional Park that had an historical cost of $155 thousand.

• Construction in Progress (CIP) decreased by a net amount of $449 thousand. The following factors

contributed to this decrease:

Costs there were reclassified from Construction in Progress to other capital asset accounts include: (a) Island Creek Road Bridge ($1.5 million); and (b) Charles Street extension near Sudlersville Middle School ($425 thousand).

Major additions to Construction in Progress include: (a) infrastructure improvements in the Matapeake Professional Park ($906 thousand); (b) County-wide upgrade to fiber optic cable ($115 thousand); and

(c) emergency services radio system upgrade ($73 thousand).

• Buildings increased by $270 thousand. Major improvements to the State’s Attorney building ($114

thousand), and two new storage facilities servicing the Sheriff and EMS departments ($113 thousand) contributed to this increase.

-27-

• Improvements Other than Buildings increased by $88 thousand. This increase relates directly to the

completion of erosion mitigation efforts at the Conquest Preserve property.

• Infrastructure increased by $1.4 million due to the completion of the Island Creek Road Bridge.

• Auto, Machinery and Equipment increased by a net amount of $1.3 million. The following factors

culminated in this change:

Additions of $2 million include the following: (a) Emergency Services department vehicle and equipment replacement ($587 thousand); (b) Public Works department vehicle and equipment replacement ($530 thousand); (c) Sheriff’s department vehicle and equipment replacement ($417 thousand); (d) landscape equipment transferred from the golf course to the parks department ($88 thousand); (e) Parks department vehicle & equipment replacement ($76 thousand); (f) heat pump

replacement at various county locations ($54 thousand); and (g) security enhancements at the Circuit Court ($36 thousand).

Retired assets of $714 thousand include the following, the majority of which were fully depreciated:

(a) obsolete equipment no longer in service at the Roads department ($355 thousand); (b) retirement

of unserviceable Sheriff’s vehicles ($210 thousand); and (c) obsolete computer software and hardware ($49 thousand).

Noteworthy capital asset events during the current fiscal year for business-type activities included the following:

• Construction in Progress increased by a net amount of $1.5 million. Costs reclassified from

construction in progress to other asset classes include: (a) Cox Creek Sewer Main ($639 thousand);

and (b) erosion control at Pelzcar Creek ($175 thousand). Major additions to construction in progress include costs to construct a runway apron at the Bay Bridge Airport ($2.4 million).

• Buildings decreased by $1.3 million due to the obsolescence of waste-water treatment facilities no

longer used by the Sanitary District.

• Improvements Other than Buildings increased by $172 thousand as shoreline erosion control work

was completed at Pelzcar Creek.

• Infrastructure increased by a net amount of $2.1 million. Increases of $2.6 million consisted of (a)

water and sewer infrastructure was contributed by commercial developers ($2 million); and (b) the Cox Creek Sewer Main was completed and placed into service ($639 thousand). Retirements include obsolete infrastructure no longer in use at the old wastewater treatment facility ($555 thousand).

Additional information on the County’s capital assets can be found in Note 6 of this report.

Long-term debt: At the end of the current fiscal year, Queen Anne’s County Government had total bonded debt, loans, capital leases, other post-employment benefit obligations, and compensated absence obligations of $140.0 million for its governmental and business-type activities.

The full faith, credit and unlimited taxing power of the County are irrevocably pledged to the levy and collection of taxes in order to provide for the payment of principal and interest due on the bonded debt.

Of this $140.0 million in debt, $20.9 million is considered to be self-supporting, in that obligations of the County’s enterprise funds will be funded through charges and assessments related to the operations of those funds. In addition, the Sanitary District’s Debt Service Fund holds total assets of $3.5 million, which are restricted to payment of the Sanitary District’s subsequent year’s debt. See Note 10 on pages 86 to 88 for

restricted assets and subsequent year debt service obligations.

-28- Debt activities are summarized as follows:

Bonded Debt, Loans, Other Post-Employment Benefit Obligation, Governmental Activities Business Type Activities Total and Compensated Absences 2013 2012 2013 2012 2013 2012 Bonds, Notes, Premiums and Deferred Debt Costs $ 91,238,855 $ 98,016,519 $ 16,258,244 $ 18,175,502 $ 107,497,099 $ 116,192,021 Other Post-Employment Benefit Obligation 25,785,783 19,566,367 4,399,415 3,263,611 30,185,198 22,829,978

Compensated Absences 2,057,039 2,191,300 265,108 283,252 2,322,147 2,474,552 Total Long-term Debt $ 119,081,677 $ 119,774,186 $ 20,922,767 $ 21,722,365 $ 140,004,444 $ 141,496,551 During the 2013 fiscal year, the County’s total net debt decreased by $1.5 million (1.1 percent). Of this amount, governmental debt decreased by $693 thousand (0.58 percent), while business-type debt decreased by $800 thousand (3.7 percent). In fiscal year 2013, the County signed a note with SunTrust Equipment

Financing & Leasing Corporation for the purchase of five replacement vehicles for the Sheriff’s Office and two ambulances for Emergency Services. The total amount of the note was $564 thousand and payable over five years. In addition, total Other Post-Employment Benefit Obligations increased by $7.4 million.

Offsetting these increases were changes in accruals, plus the County’s repayment of existing debt in accordance with established repayment schedules for bonds, notes, and capital lease agreements.

Additional information on the County’s long-term debt can be found in Note 9, pages 77 to 85, of this report.

The public local laws of Queen Anne’s County limit the amount of general obligation debt to no more than $8.0 million, unless authorized under specific legislation. Currently, approximately $6.6 million of this authority is available. All other debt has been authorized under specific legislation. Additional information on the computation of the legal debt margin can be found in Table 12 of the Statistical Section of this report.

During fiscal year 2013, Queen Anne’s County Government received an “AA+” bond rating from Fitch Rating Service and an “Aa2” bond rating from Moody’s Investors Service.

Economic Factors and Next Year’s Budget and Rates The following economic factors were considered in preparing Queen Anne’s County Government’s operating and capital budgets for the 2014 fiscal year:

• Property assessments are projected to decrease by 1.69 percent over the previous year, based on State

Assessment Office values used to compute the Constant Yield rate.

• Income tax revenue is projected to decrease slightly to $39.0 million in fiscal year 2014, which is a

1.2% decrease over actual receipts for fiscal year 2013.

The following are a few of the highlights from the fiscal year 2014 budget:

o Other Post-Employment Benefits shall continue to be funded in accordance with the approved ten year plan;

o The Board of Education will be funded at $3 million above Maintenance of Effort in fiscal year 2014;

o County employees shall receive a three percent cost of living allowance as of July 1, 2013;

and o Funding will be provided for the construction of the County Complex and Circuit Courthouse.

-29- Requests for information This financial report is designed to provide a general overview of Queen Anne’s County Government’s finances for all those with an interest in the government’s finances. Questions concerning any of the information provided in this report or requests for additional information should be addressed to the Queen Anne’s County Finance Office, 107 N. Liberty Street, Centreville, Maryland 21617. This report can also be

found on the County’s website, http://www.qac.org (see Departments, Finance, Financial Reports and Forms, Link to 2013 Comprehensive Annual Financial Report (CAFR)).

-30- Basic Financial Statements -31-

QUEEN ANNE'S COUNTY, MARYLAND

STATEMENT OF NET POSITION

JUNE 30, 2013

PRIMARY GOVERNMENT

GOVERNMENTAL BUSINESS-TYPE

ACTIVITIES ACTIVITIES TOTAL

ASSETS

Equity in Pooled Cash and Investments $ 47,569,748 $ 11,811,289 $ 59,381,037 Cash and Cash Equivalents - - - Taxes Receivable (Net) 749,775 - 749,775 Accounts and Loans Receivable (Net) 6,903,572 495,115 7,398,687 Special Assessments (Net) 942,301 - 942,301 Internal Balances 800,008 (800,008) - Due from Primary Government - - - Due from Other Governments 8,997,822 332,499 9,330,321 Bond Interest Reimbursement Receivable - Build America Bond 106,466 4,358 110,824

Inventories 609,309 607,368 1,216,677 Prepaid Items 44,956 6,738 51,694 Restricted Assets:

Equity in Pooled Cash and Investments 5,701,691 9,096,207 14,797,898 Accounts Receivable (Net) - 51,113 51,113 Special Assessments Receivable (Net) - 1,884,874 1,884,874 Capital Assets:

Nondepreciable Assets 87,268,354 17,115,301 104,383,655 Depreciable Assets, Net 56,270,838 77,709,233 133,980,071 Total Assets 215,964,840 118,314,087 334,278,927

DEFERRED OUTFLOWS - - -

LIABILITIES

Accounts Payable and Other Current Liabilities 3,379,033 446,811 3,825,844 Accrued Interest Payable 975,824 89,726 1,065,550 Due to Component Units 1,367,853 - 1,367,853 Due to Other Governmental Agencies 347,540 - 347,540 Unearned Revenue 3,045,669 575,479 3,621,148 Escrow Deposits - 40,116 40,116 Liabilities Payable from Restricted Assets:

Unearned Revenue - 1,840,188 1,840,188 Noncurrent Liabilities:

Due within One Year 8,735,578 1,838,760 10,574,338 Due in More than One Year 110,346,099 19,084,007 129,430,106 Total Liabilities 128,197,596 23,915,087 152,112,683

DEFERRED INFLOWS - - -

NET POSITION

Net Investment in Capital Assets 121,419,314 78,693,078 200,112,392 Amounts Restricted for:

General Government 8,757,351 - 8,757,351 Conservation of Natural Resources 2,244,003 - 2,244,003 Economic/Community Development 2,137,211 - 2,137,211 Education 1,831,215 - 1,831,215 Public Safety 717,035 - 717,035 Social Services 4,265 - 4,265 Debt Service - 2,423,028 2,423,028 Capital Projects - 753,300 753,300 Other Purposes - - - Unrestricted Amounts (Deficit) (49,343,150) 12,529,594 (36,813,556)

Total Net Position $ 87,767,244 $ 94,399,000 $ 182,166,244 The accompanying notes to the basic financial statements are an integral part of this statement.

-32-

QUEEN ANNE'S COUNTY, MARYLAND

STATEMENT OF NET POSITION

JUNE 30, 2013

(CONTINUED)

COMPONENT UNITS

BOARD OF FREE

EDUCATION LIBRARY

$ - $ - 9,659,185 585,249

- -

353,547 12,192

- -

- -

1,538,283 - 2,211,864 -

- -

80,844 - 8,436 17,110

- 657,010

- -

- -

7,316,910 29,850 146,330,966 1,091,899 167,500,035 2,393,310

- -

10,802,971 40,657

- -

- -

36,233 - 253,917 -

- -

- -

270,614 - 27,762,880 1,013,264 39,126,615 1,053,921

- -

153,647,876 1,121,749

- -

- -

- -

- -

- -

- -

- -

301,971 - 2 10,500 (25,576,429) 207,140 $ 128,373,420 $ 1,339,389 The accompanying notes to the basic financial statements are an integral part of this statement.

-33-

QUEEN ANNE'S COUNTY, MARYLAND

STATEMENT OF ACTIVITIES

FOR THE YEAR ENDED JUNE 30, 2013

PRIMARY GOVERNMENT

OPERATING CAPITAL

CHARGES FOR GRANTS AND GRANTS AND TOTAL

EXPENSES SERVICES CONTRIBUTIONS CONTRIBUTIONS REVENUE

PRIMARY GOVERNMENT

Governmental Activities General Government $ 14,227,799 $ 1,272,807 $ 697,712 $ 135,032 $ 2,105,551 Public Safety 26,174,144 1,387,591 1,328,493 249,594 2,965,678 Public Works 11,891,013 1,636,604 624,653 1,687,783 3,949,040 Health 1,812,920 - - - - Social Services 5,560,196 71,973 2,613,905 51,023 2,736,901 Education 48,354,256 1,052,691 - - 1,052,691 Library 1,304,076 - - - - Conservation of Natural Resources 838,775 63,105 400,193 - 463,298

Economic/Community Development 1,108,912 234,100 176,216 575,440 985,756 Interest and Fiscal Charges 4,042,236 - - - - Total Governmental Activities 115,314,327 5,718,871 5,841,172 2,698,872 14,258,915 Business-type Activities Water and Sewer 11,783,515 8,181,434 161,600 2,048,768 10,391,802 Airport 913,845 48,072 2,621 2,472,782 2,523,475 Golf Course 538,420 313,364 - - 313,364 Public Landings and Marinas 535,837 440,270 42,914 18,692 501,876

Total Business-type Activities 13,771,617 8,983,140 207,135 4,540,242 13,730,517 Total Primary Government $ 129,085,944 $ 14,702,011 $ 6,048,307 $ 7,239,114 $ 27,989,432

COMPONENT UNITS

Board of Education $ 104,060,193 $ 1,579,188 $ 12,804,375 $ - $ 14,383,563 Free Library 1,974,189 9,920 198,453 - 208,373 Total Component Units $ 106,034,382 $ 1,589,108 $ 13,002,828 $ - $ 14,591,936 General Revenues Local Property Tax Local Income Tax Other Local Taxes Admission and Amusement Taxes Recordation Taxes Hotel Taxes County Transfer Taxes Grants and Contributions Not Restricted to Specific Programs

Investment Income Gain on Sale of Capital Assets Miscellaneous Transfers In (Out) Total General Revenues and Transfers Change in Net Position Total Net Position - Beginning of Year Adjustment to Restate Beginning Net Position Total Net Position as Restated - Beginning of Year Total Net Position - End of Year The accompanying notes to the basic financial statements are an integral part of this statement.

-34-

QUEEN ANNE'S COUNTY, MARYLAND

STATEMENT OF ACTIVITIES

FOR THE YEAR ENDED JUNE 30, 2013

(CONTINUED)

NET (EXPENSE) REVENUE AND CHANGES IN NET ASSETS

PRIMARY GOVERNMENT COMPONENT UNITS

GOVERNMENTAL BUSINESS-TYPE BOARD OF FREE

ACTIVITIES ACTIVITIES TOTAL EDUCATION LIBRARY

$ (12,122,248) $ - $ (12,122,248) $ - $ - (23,208,466) - (23,208,466) - - (7,941,973) - (7,941,973) - - (1,812,920) - (1,812,920) - - (2,823,295) - (2,823,295) - - (47,301,565) - (47,301,565) - - (1,304,076) - (1,304,076) - - (375,477) - (375,477) - - (123,156) - (123,156) - - (4,042,236) - (4,042,236) - - (101,055,412) - (101,055,412) - -

- (1,391,713) (1,391,713) - -

- 1,609,630 1,609,630 - -

- (225,056) (225,056) - -

- (33,961) (33,961) - -

- (41,100) (41,100) - -

$ (101,055,412) $ (41,100) $ (101,096,512) $ - $ - $ - $ - $ - $ (89,676,630) $ -

- - - - (1,765,816)

- - - ( 89,676,630) (1,765,816)

65,591,225 - 65,591,225 - - 35,769,303 - 35,769,303 - - 160,516 - 160,516 - - 4,635,789 - 4,635,789 - - 470,139 - 470,139 - - 1,351,064 - 1,351,064 - -

- - - 79,840,382 1,412,127

107,095 356,374 463,469 18,064 3,937 163,426 - 163,426 - - 1,051,760 855,504 1,907,264 286,906 92,936 (337,843) 359,277 21,434 - - 108,962,474 1,571,155 110,533,629 80,145,352 1,509,000 7,907,062 1,530,055 9,437,117 ( 9,531,278) (256,816) 79,860,182 92,868,945 172,729,127 138,104,698 1,596,205

- - - ( 200,000) -

79,860,182 92,868,945 172,729,127 137,904,698 1,596,205 $ 87,767,244 $ 94,399,000 $ 1 82,166,244 $ 128,373,420 $ 1,339,389 The accompanying notes to the basic financial statements are an integral part of this statement.

-35-

QUEEN ANNE'S COUNTY, MARYLAND

BALANCE SHEET

GOVERNMENTAL FUNDS

JUNE 30, 2013

MAJOR FUNDS NON-MAJOR TOTAL

GENERAL GENERAL ROADS GOVERNMENTAL GOVERNMENTAL

FUND CAPITAL CAPITAL FUNDS FUNDS

ASSETS

Cash and Cash Equivalents $ 12,127,936 $ 24,986,434 $ 2,574,409 $ 7,880,969 $ 4 7,569,748 Prepaid Items 16,813 - 27,833 3 10 44,956 Receivables Taxes Receivable (Net) 401,820 347,955 - - 749,775 Accounts and Loans Receivable 271,130 1,298,114 16,119 5,318,209 6,903,572 Special Assessments (Net) - - 348,376 593,925 942,301 Due from Other Governments 6,671,143 190,134 1,306,382 830,163 8,997,822 Due from Other Funds 1,010,786 6 4,523 - - 1,075,309

Inventory 609,309 - - - 609,309 Restricted Restricted Equity in Pooled Cash - 5,701,691 - - 5,701,691 Total Assets $ 21,108,937 $ 32,588,851 $ 4,273,119 $ 14,623,576 $ 7 2,594,483

LIABILITIES AND FUND BALANCES

Liabilities Accrued Liabilities $ 2,453,607 $ 307,765 $ 60,804 $ 508,423 $ 3 ,330,599 Due to Other Funds - - - 275,301 275,301 Due to Component Units - 1,367,853 - - 1,367,853 Due to Other Governmental Agencies - - - 347,540 347,540 Deferred Revenue 2,667,934 8 0,441 408,344 1,987,602 5,144,321 Total Liabilities 5,121,541 1,756,059 469,148 3,118,866 1 0,465,614 Fund Balances Nonspendable 626,122 1,296,971 27,833 4,081,708 6,032,634

Restricted 8,111,614 5,419,232 - 7,305,627 2 0,836,473 Committed - 2,705,469 774,913 - 3,480,382 Assigned 1,284,657 21,411,120 3,001,225 252,890 2 5,949,892 Unassigned 5,965,003 - - (135,515) 5,829,488 Total Fund Balances 15,987,396 30,832,792 3,803,971 11,504,710 6 2,128,869 Total Liabilities and Fund Balances $ 21,108,937 $ 32,588,851 $ 4,273,119 $ 14,623,576 $ 7 2,594,483 The accompanying notes to the basic financial statements are an integral part of this statement.

-36-

QUEEN ANNE'S COUNTY, MARYLAND

RECONCILIATION OF THE BALANCE SHEET OF GOVERNMENTAL FUNDS

TO THE STATEMENT OF NET POSITION

JUNE 30, 2013

Total Fund Balance - Governmental Funds $ 62,128,869 Amounts reported for Governmental activities in the Statement of Net Position are different because:

Receivables not included in the governmental funds because they relate to debt.

A portion of the County’s 2009 Bond offering was issued using Build America Bonds. As an incentive to use these bonds, the Federal government offered an interest reimbursement grant, which offsets the County's debt service for interest expense. At year end, a receivable is booked for the interest reimbursement due, but not yet received, which relates to the interest expense not paid yet.

ADD Bond Interest Reimbursement Receivable - Build America Bond 106,466 Capital assets used in governmental fund activities are not current financial resources and therefore are not reported in the funds.

ADD Nondepreciable capital assets Land and Land Improvements $ 43,166,727 Infrastructure 41,983,313 Construction in Progress 2,118,314 87,268,354 ADD Depreciable capital assets Buildings 41,715,513 Improvements other than Buildings 8,093,474 Machinery and Equipment 18,758,918 Automobiles and Trucks 10,242,687 Infrastructure 18,324,016 Reassignment of capital assets from Enterprise Fund 21,434 Less Accumulated depreciation (40,885,204) 56,270,838

Revenues that are deferred in the governmental funds because they do not provide current financial resources are recognized as revenues in the Statement of Activities.

ADD Property Taxes deferred in governmental funds 134,615 ADD Income Taxes deferred in governmental funds 602,231 ADD Loans receivable deferred in governmental funds 1,361,806 2,098,652 Long-term liabilities related to governmental fund activities are not due and payable in the current period and therefore are not reported in the funds.

SUBTRACT Accrued Interest Payable (975,824) SUBTRACT Liability for Retirement Incentive (48,434) SUBTRACT Long-Term Liabilities Due within One Year Accrued Compensated Absences (1,255,528) Bonds and Notes Payable (7,480,050) (8,735,578) SUBTRACT Long-Term Liabilities Due in More than One Year Other Post-Employment Benefit Obligation (25,785,783) Accrued Compensated Absences (801,511) Bonds and Notes Payable (83,758,805) (110,346,099)

Total Net Position - Governmental Activities $ 87,767,244 The accompanying notes to the basic financial statements are an integral part of this statement.

-37-

QUEEN ANNE'S COUNTY, MARYLAND

STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES

GOVERNMENTAL FUNDS

FOR THE YEAR ENDED JUNE 30, 2013

MAJOR FUNDS NON-MAJOR TOTAL

GENERAL GENERAL ROADS GOVERNMENTAL GOVERNMENTAL

FUND CAPITAL CAPITAL FUNDS FUNDS

REVENUES

Taxes Local Property Tax $ 65,516,659 $ - $ - $ 3 7,420 $ 65,554,079 Local Income Tax 39,438,906 - - - 39,438,906 Admission and Amusement Taxes 160,516 - - - 160,516 Recordation Taxes 3,100,826 7 84,276 - 7 50,687 4,635,789 Hotel Taxes 470,139 - - - 470,139 County Transfer Taxes 675,532 6 75,532 - - 1,351,064 State Shared Taxes 478,900 - - 31,826 510,726 Licenses and Permits 1,004,774 - - - 1,004,774

Intergovernmental 2,182,473 1,506,188 1,306,382 2 ,593,648 7,588,691 Bond Interest Reimbursement - Build America Bond 406,337 - - - 406,337 Charges for Current Services 2,574,951 7 8,745 67,872 1 ,872,672 4,594,240 Fines and Forfeitures 32,420 1,255 - 86,182 119,857 Investment Income 73,201 9,793 23,901 200 107,095 Donations 5 ,738 1,000 - 29,594 3 6,332 Miscellaneous 920,309 6 7,170 8 ,641 55,640 1,051,760

Total Revenues 117,041,681 3,123,959 1,406,796 5 ,457,869 127,030,305

EXPENDITURES

Current General Government 8,748,273 5 24,010 - 10,027 9,282,310 Public Safety 20,564,983 3 59,657 - 3 50,589 21,275,229 Public Works 8,128,617 2 69,573 738,462 - 9,136,652 Health 1,811,402 - - - 1,811,402 Social Services 272,534 - - 3 ,779,207 4,051,741 Education 45,421,846 2,996,261 - - 48,418,107 Library 1,278,228 - - - 1,278,228 Conservation of Natural Resources 542,043 3 48,437 - - 890,480 Economic/Community Development 414,404 2 7,444 - 4 56,281 898,129

Recreation 479,153 - - - 479,153 Intergovernmental 1,699,230 - - - 1,699,230 Miscellaneous 3,162,959 - - - 3,162,959 Capital Outlay - 2,805,320 541,961 23,628 3,370,909 Debt Service Principal 6,897,932 - - 1 71,474 7,069,406 Debt Issuance Costs - (94) - - (94) Interest and Fiscal Charges 3,668,824 - - 6,804 3,675,628 Total Expenditures 103,090,428 7,330,608 1,280,423 4 ,798,010 116,499,469 Excess of Revenues Over (Under) Expenditures 13,951,253 ( 4,206,649) 126,373 6 59,859 10,530,836

OTHER FINANCING SOURCES (USES)

Issuance of Debt - 5 64,068 - - 564,068 Bond Premiums - (101) - - (101) Proceeds of Capital Asset Disposals 31,061 2 77,545 - 250 308,856 Insurance Proceeds 6 ,480 - - 13,590 2 0,070 Transfers In 22,608 7,472,727 1,690,000 1 ,666,569 10,851,904 Transfers Out (11,163,397) (17,228) - (47,784) (11,228,409) Other Financing Sources (Uses) (11,103,248) 8,297,011 1,690,000 1 ,632,625 516,388 Net Increase in Fund Balances 2,848,005 4,090,362 1,816,373 2 ,292,484 11,047,224

Fund Balances, July 1 13,139,391 26,742,430 1,987,598 9 ,212,226 51,081,645 Fund Balances, June 30 $ 15,987,396 $ 30,832,792 $ 3,803,971 $ 11,504,710 $ 62,128,869 The accompanying notes to the basic financial statements are an integral part of this statement.

-38- -39-

QUEEN ANNE'S COUNTY, MARYLAND

RECONCILIATION OF THE STATEMENT OF REVENUES, EXPENDITURES, AND

CHANGES IN FUND BALANCES OF GOVERNMENTAL FUNDS TO THE STATEMENT OF ACTIVITIES

FOR THE YEAR ENDED JUNE 30, 2013

Change in Fund Balances - Total governmental funds, per Statement of Revenues, Expenditures, and Changes in Fund Balances of Governmental Funds $ 11,047,224 Amounts reported for governmental activities in the Statement of Activities are different because:

Capital outlay expenditures are reported in Governmental Funds during the year. However, in the Statement of Activities, costs for capital asset purchases are allocated over the estimated useful lives of those assets and reported as depreciation expense over a number of years. Therefore, the change in assets differs from the change in fund balance by the amount of capital asset purchases that will be capitalized

and depreciated over a number of years, less the offsetting depreciation expense for the current year.

Proceeds received on disposal of capital assets are reported in Governmental Funds as current financial resources. In the Statement of Activities, only the gain or (loss) realized on disposal of capital assets is reported. Thus, the change in net assets differs from the change in fund balance by the cost of capital assets sold, net of accumulated depreciation (i.e., book value).

In addition, developer contributions of capital assets (primarily infrastructure) are not reported in Governmental Funds because they do not represent current financial resources available to cover this year's expenditures.

Thus, the change in net assets differs from the change in fund balance by the value of capital assets received.

Donated Capital Assets are not reported in Governmental Funds because they are not current financial resources.

However, in the Statement of Activities, they are recognized as capital contributions and as capital assets.

The following is a summary of the net increase in capital assets, which is detailed in Note 6 - Capital Assets - Primary Government.

ADD capital assets acquired as capital outlay $ 5 28,297 ADD capital assets resulting from general capital projects 2,805,320 ADD capital assets resulting from roads capital projects 541,961 SUBTRACT book value of disposed capital assets, net of accumulated depreciation (297,162) SUBTRACT current year depreciation expense (3,594,293) Net Increase in Capital Assets (15,877) Receivables not included in the governmental funds because they relate to debt.

A portion of the County’s 2009 Bond offering was issued using Build America Bonds. As an incentive to use these bonds, the Federal government offered an interest reimbursement grant, which offsets the County’s debt service for interest expense. Therefore, at year end, a receivable is booked for the interest reimbursement due, but not yet received.

ADD current year's bond interest reimbursement receivable - Build America Bond 106,466 SUBTRACT prior year's bond interest reimbursement receivable - Build America Bond (108,510) (2,044) Liability for retirement incentive As part of the retirement incentives offered in fiscal years 2011 and 2012, retirees were given a certain period of health insurance at no cost, rather than the normal premium.

The maxium period of no cost health insurance was three years. The liability for the benefit offered to the retirees in included in the government wide statements and adjusted each year until the benefit period is over.

SUBTRACT current year's liability for the retirement incentive (48,434) ADD prior year's liability for the retirement incentive 71,447 23,013 The accompanying notes to the basic financial statements are an integral part of this statement.

CONTINUED

-40-

QUEEN ANNE'S COUNTY, MARYLAND

RECONCILIATION OF THE STATEMENT OF REVENUES, EXPENDITURES, AND

CHANGES IN FUND BALANCES OF GOVERNMENTAL FUNDS TO THE STATEMENT OF ACTIVITIES

FOR THE YEAR ENDED JUNE 30, 2013

(CONTINUED)

Revenues that are earned but not collected within sixty days after the end of the fiscal year are not considered to be "available" to meet current cash requirements and are deferred in the Governmental Funds to the following year.

However, these revenues are recognized in the Statement of Activities. The amount by which this type of deferred revenue increased or (decreased) relative to the prior year is as follows:

ADD current year's Property Tax Deferred Revenue $ 134,615 SUBTRACT prior year's Property Tax Deferred Revenue (97,468) $ 37,147 ADD current year's Income Tax Deferred Revenue 602,231 SUBTRACT prior year's Income Tax Deferred Revenue (4,271,834) (3,669,603) Issuance of long-term debt (e.g., bonds, notes, and capital leases) provides current financial resources to Governmental Funds, while repayment of principal due for long-term debt consumes current resources.

In the Statement of Net Assets, issuing debt increases long term liabilities, while repayment reduces those liabilties.

ADD retirements and repayments made on long term debt General Bonds Payable 7,047,694 Notes Payable 306,569 Bond Premiums, Net of Issuance Costs 124,958 Deferred Refunding Costs (201,161) 7,278,060 SUBTRACT proceeds of Suntrust Financing debt (564,068) SUBTRACT College reimbursement received (267,629) ADD PHA reimbursement received 63,672 ADD County's allocation to College for debt 63,853 6,573,888

Some accrued expenses, reported in the Statement of Activities, do not require the use of current financial resources and are not reported as expenditures in the Governmental Funds. The net amount by which these accruals increased or (decreased) over the prior period is as follows:

ADD prior year's Accrued Interest Payable 974,294 SUBTRACT current year's Accrued Interest Payable (975,824) (1,530) ADD prior year's Accrued Compensated Absences 2,191,302 SUBTRACT current year's Accrued Compensated Absences (2,057,039) 134,263 ADD prior year's Accrued Other Post Employment Benefit Obligation 19,566,364 SUBTRACT current year's Accrued Other Post Employment Benefit Obligation (25,785,783)

(6,219,419) Change in Net Position - governmental activities, per Statement of Activities $ 7,907,062 The accompanying notes to the basic financial statements are an integral part of this statement.

-41-

QUEEN ANNE'S COUNTY, MARYLAND

STATEMENT OF NET POSITION

ENTERPRISE FUNDS

JUNE 30, 2013

SANITARY DISTRICT

SEWER WATER RESTRICTED

ASSETS OPERATIONS OPERATIONS FUND

Current Assets Unrestricted Equity in Pooled Cash $ 7,508,066 $ 3,643,021 $ - Accounts Receivable (Net) 283,757 1 77,080 - Due from Other Funds 378,634 - - Due from Other Governments - - - Bond Interest Reimbursement Receivable - Build America Bond - - - Inventories 537,127 - - Prepaid Expenses - - - Restricted Restricted Equity in Pooled Cash - - 6,255,739 Restricted Accounts Receivable (Net) - - 10,721

Total Current Assets 8,707,584 3,820,101 6,266,460 Noncurrent Assets Restricted Special Assessments Receivable (Net) - - 1,230,159 Capital Assets Intangible Rights - 6,140 - Land, Improved and Unimproved 814,531 - - Buildings and Improvements to Buildings 12,977,010 1 80,203 - Improvements Other Than Buildings 1,615,474 1 28,152 - Automotive Equipment 977,486 2 03,387 - Equipment 2 0,038,903 1,270,428 -

Furniture and Fixtures 47,858 6,871 - Infrastructure Improvements 50,723,757 21,565,079 - Construction in Progress - - - Capital Assets before Depreciation 87,195,019 23,360,260 - Less Accumulated Depreciation (33,028,522) (7,330,787) - Total Capital Assets, Net of Accumulated Depreciation 54,166,497 16,029,473 - Total Noncurrent Assets 54,166,497 16,029,473 1,230,159 Total Assets 6 2,874,081 19,849,574 7,496,619

LIABILITIES

Current Liabilities Payable from Unrestricted Assets Accounts Payable 263,262 81,784 - Accrued Interest Payable 61,731 1,770 - Escrow Deposits 29,966 - - Due to Other Funds - - 4,142 Unearned Revenue 573,027 - - Current Portion of Compensated Absences 103,754 40,069 - Current Portion of Bonds/Notes Payable 1,144,081 3 13,056 - Payable from Restricted Assets Current Portion of Bonds Payable - - - Total Current Liabilities 2,175,821 4 36,679 4,142

Noncurrent Liabilities Payable from Unrestricted Assets Compensated Absences 66,235 25,579 - Other Post-Employment Benefit Obligation 3,073,684 9 42,803 - Bonds/Notes Payable 12,513,844 - - Liabilities Associated with Restricted Assets Unearned Revenue - - 1,230,159 Total Noncurrent Liabilities 15,653,763 9 68,382 1,230,159 Total Liabilities 1 7,829,584 1,405,061 1,234,301

NET POSITION

Net Investment in Capital Assets 40,508,572 15,716,417 - Amounts Restricted for:

Debt Service - - - Capital Projects - - 7 53,300 Unrestricted Amounts (Deficit) 4,535,925 2,728,096 5,509,018 Total Net Position $ 45,044,497 $ 18,444,513 $ 6,262,318 The accompanying notes to the basic financial statements are an integral part of this statement.

-42-

QUEEN ANNE'S COUNTY, MARYLAND

STATEMENT OF NET POSITION

ENTERPRISE FUNDS

JUNE 30, 2013

(CONTINUED)

TOTAL

PRIMARY

SANITARY DISTRICT NON-MAJOR GOVERNMENT

DEBT SERVICE BAY BRIDGE ENTERPRISE ENTERPRISE

FUND TOTAL AIRPORT FUNDS FUNDS

$ - $ 11,151,087 $ - $ 660,202 $ 11,811,289

- 460,837 19,718 14,560 4 95,115

- 378,634 - - 3 78,634

- - 306,179 26,320 3 32,499

- - 6 89 3,669 4,358

- 537,127 62,252 7,989 6 07,368

- - - 6,738 6,738

2,840,468 9,096,207 - - 9,096,207 40,392 51,113 - - 51,113 2,880,860 21,675,005 388,838 7 19,478 22,783,321 6 54,715 1,884,874 - - 1,884,874

- 6 ,140 - - 6,140

- 814,531 10,670,168 2,673,632 14,158,331

- 13,157,213 1,233,204 3 13,443 14,703,860

- 1,743,626 4,704,779 5,465,727 11,914,132

- 1,180,873 73,470 40,881 1,295,224

- 21,309,331 47,752 4 52,036 21,809,119

- 54,729 - 4,979 59,708

- 72,288,836 - - 72,288,836

- - 2,950,830 - 2,950,830

- 110,555,279 19,680,203 8,950,698 139,186,180

- (40,359,309) (2,911,465) (1,090,872) ( 44,361,646)

- 70,195,970 16,768,738 7,859,826 94,824,534

6 54,715 72,080,844 16,768,738 7,859,826 96,709,408 3,535,575 93,755,849 17,157,576 8,579,304 119,492,729

- 345,046 74,515 27,250 4 46,811

1,655 65,156 8,168 16,402 89,726

- 29,966 10,150 - 40,116

3 74,492 378,634 493,277 3 06,731 1,178,642

- 573,027 - 2,452 5 75,479

- 143,823 715 17,273 1 61,811

- 1,457,137 43,572 1 20,088 1,620,797

56,152 56,152 - - 56,152 4 32,299 3,048,941 630,397 4 90,196 4,169,534

- 91,814 4 56 11,027 1 03,297

- 4,016,487 223,752 1 59,176 4,399,415

70,636 12,584,480 516,886 1,479,929 14,581,295 6 10,029 1,840,188 - - 1,840,188 6 80,665 18,532,969 741,094 1,650,132 20,924,195 1,112,964 21,581,910 1,371,491 2,140,328 25,093,729

- 56,224,989 16,208,280 6,259,809 78,693,078

2,422,611 2,422,611 - 417 2,423,028

- 753,300 - - 7 53,300

- 12,773,039 (422,195) 1 78,750 12,529,594

$ 2,422,611 $ 72,173,939 $ 1 5,786,085 $ 6,438,976 $ 94,399,000 The accompanying notes to the basic financial statements are an integral part of this statement.

-43-

QUEEN ANNE'S COUNTY, MARYLAND

STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN NET POSITION

ENTERPRISE FUNDS

FOR THE YEAR ENDED JUNE 30, 2013

SANITARY DISTRICT

SEWER WATER RESTRICTED

OPERATIONS OPERATIONS FUND

OPERATING REVENUES

Charges for Services $ 5,129,347 $ 2,145,165 $ 477,409 Intergovernmental 161,600 - - Bond Interest Reimbursement - Build America Bond - - - Material Sales 1,864 5,610 - Miscellaneous Revenues 46,760 142,213 - Total Operating Revenues 5 ,339,571 2,292,988 477,409

OPERATING EXPENSES

Cost of Sales and Services Collection 2 ,020,854 - - Distribution - 169,776 - Treatment 1 ,564,141 1,010,482 - Shop 1 52,970 109,184 - Airport - - - Recreation - - - Total Cost of Sales and Services 3 ,737,965 1,289,442 - Administration and Inspection 645,416 440,122 - Other Post-Employment Benefit Contributions 829,605 242,553 - Depreciation 2 ,856,701 492,104 - Total Operating Expenses 8 ,069,687 2,464,221 -

Operating Income (Loss) (2,730,116) ( 171,233) 477,409

NON-OPERATING REVENUES (EXPENSES)

Investment Income 103,742 68,562 108,952 Interest Expense (242,801) (32,158) - Loss on Disposal of Capital Assets (821,707) ( 140,920) - Total Non-Operating Revenues (Expenses) (960,766) ( 104,516) 108,952 Income (Loss) Before Contributions and Transfers (3,690,882) ( 275,749) 586,361 Capital Contributions, Fees and Grants 1 ,222,928 825,840 -

TRANSFERS

Transfers In 1 ,690,990 276,636 - Transfers Out - - (1,056,023) Net Transfers In (Out) 1 ,690,990 276,636 (1,056,023) Change in Net Position (776,964) 826,727 (469,662) Total Net Position - Beginning of Year 45,821,461 17,617,786 6,731,980 Total Net Position - End of Year $ 45,044,497 $ 18,444,513 $ 6,262,318 The accompanying notes to the basic financial statements are an integral part of this statement.

-44-

QUEEN ANNE'S COUNTY, MARYLAND

STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN NET POSITION

ENTERPRISE FUNDS

FOR THE YEAR ENDED JUNE 30, 2013

(CONTINUED)

TOTAL

PRIMARY

SANITARY DISTRICT NON-MAJOR GOVERNMENT

DEBT SERVICE BAY BRIDGE ENTERPRISE ENTERPRISE

FUND TOTAL AIRPORT FUNDS FUNDS

$ 429,513 $ 8,181,434 $ 48,072 $ 7 53,634 $ 8,983,140

- 161,600 - 28,961 190,561

- - 2 ,621 13,953 1 6,574

- 7,474 377,756 44,512 429,742

- 188,973 202,144 34,645 425,762

429,513 8,539,481 630,593 8 75,705 10,045,779

- 2,020,854 - - 2,020,854

- 169,776 - - 169,776

- 2,574,623 - - 2,574,623

- 262,154 - - 262,154

- - 644,850 - 644,850

- - - 7 56,650 756,650

- 5,027,407 644,850 7 56,650 6,428,907

- 1,085,538 - - 1,085,538

- 1,072,158 1 4,294 49,350 1,135,802

- 3,348,805 234,009 1 46,536 3,729,350

- 10,533,908 893,153 9 52,536 12,379,597

429,513 ( 1,994,427) (262,560) (76,831) (2,333,818) 74,831 356,087 287 - 356,374 (12,021) (286,980) (20,165) (83,119) (390,264)

- (962,627) (527) (38,602) (1,001,756)

62,810 (893,520) (20,405) (121,721) (1,035,646) 492,323 ( 2,887,947) (282,965) (198,552) (3,369,464)

- 2,048,768 2,472,782 18,692 4,540,242

1,056,023 3,023,649 6 2,889 2 14,707 3,301,245 ( 1,885,945) ( 2,941,968) - - (2,941,968) ( 829,922) 81,681 6 2,889 2 14,707 359,277 ( 337,599) (757,498) 2,252,706 34,847 1,530,055 2,760,210 72,931,437 13,533,379 6 ,404,129 92,868,945 $ 2,422,611 $ 72,173,939 $ 15,786,085 $ 6,438,976 $ 94,399,000 The accompanying notes to the basic financial statements are an integral part of this statement.

-45-

QUEEN ANNE'S COUNTY, MARYLAND

STATEMENT OF CASH FLOWS

ENTERPRISE FUNDS

FOR THE YEAR ENDED JUNE 30, 2013

SANITARY DISTRICT

SEWER WATER RESTRICTED

OPERATIONS OPERATIONS FUND

CASH FLOW FROM OPERATING ACTIVITIES

Receipts from customers and users $ 5,041,294 $ 2,140,158 $ 477,466 Receipts from other operating sources 210,224 147,823 - Receipts from bond interest reimbursement - Build America Bond - - - Payments to suppliers (2,166,306) (778,222) - Payments to employees and on behalf of employees (2,374,899) (935,659) - Net Cash Provided (Used) by Operating Activities 710,313 574,100 477,466

CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES

Transfers in from other funds 1,690,990 276,636 - Receipts from interfund loans 42,511 - 4,142 Transfers to other funds - - (1,056,023) Principal paid on interfund loans - - - Net Cash Provided (Used) by Noncapital Financing Activities 1,733,501 276,636 (1,051,881)

CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES

Proceeds (loss) from the disposition of capital assets 356,916 - - Receipts from capital grants - - - Principal paid on capital debt (1,435,465) (298,871) - Receipts from bonds, including premiums, net of issuance costs - - - Interest paid on capital debt (255,524) (21,205) - Acquisition and construction of capital assets (157,634) (118,307) - Net Cash Provided (Used) by Capital and Related Financing Activities (1,491,707) (438,383) -

CASH FLOWS FROM INVESTING ACTIVITIES

Net Cash Provided by Investing Activities - Investment Income 103,742 68,562 108,952 Net Increase (Decrease) in Cash and Cash Equivalents 1,055,849 480,915 (465,463) Balances - Beginning of the year 6,452,217 3,162,106 6,721,202 Balances - End of the year $ 7,508,066 $ 3,643,021 $ 6,255,739 Reconciliation of operating income (loss) to net cash provided by operating activities Operating income (loss) $ (2,730,116) $ (171,233) $ 477,409

Adjustments to reconcile operating income (loss) to net cash provided by operating activities:

Depreciation 2,856,701 492,104 - Effect of changes in operating assets and liabilities:

Accounts receivable, net 17,636 (5,007) 57 Special assessments receivable, net - - (244,684) Operating grants receivable - - - Build America Bonds Interest receivable - - - Inventories and Prepaid Expenses (154,611) - - Vendor accounts payable (5,853) 16,447 - Compensated absences 2,640 (764) - Other Post-Employment Benefit Obligation 829,605 242,553 - Escrow deposits payable (493) - - Deferred revenue collected in advance (105,196) - 244,684

Net Cash Provided (Used) by Operating Activities $ 710,313 $ 574,100 $ 477,466 Noncash investing, capital and financing activities:

Donation of capital assets (infrastructure) by developers $ 1,222,928 $ 825,840 $ - The accompanying notes to the basic financial statements are an integral part of this statement.

-46-

QUEEN ANNE'S COUNTY, MARYLAND

STATEMENT OF CASH FLOWS

ENTERPRISE FUNDS

FOR THE YEAR ENDED JUNE 30, 2013

(CONTINUED)

TOTAL

PRIMARY

SANITARY DISTRICT NON-MAJOR GOVERNMENT

DEBT SERVICE BAY BRIDGE ENTERPRISE ENTERPRISE

FUND TOTAL AIRPORT FUNDS FUNDS

$ 462,314 $ 8,121,232 $ 83,454 $ 739,872 $ 8,944,558

- 358,047 401,429 97,900 857,376

- - 2,634 14,024 16,658

- (2,944,528) (667,880) (423,697) (4,036,105)

- (3,310,558) (119,764) (350,642) (3,780,964)

462,314 2,224,193 (300,127) 77,457 2,001,523 1,056,023 3,023,649 62,889 214,707 3,301,245 374,492 421,145 493,277 306,732 1,221,154 (1,885,945) (2,941,968) - - (2,941,968) (421,145) (421,145) (477,846) (310,570) (1,209,561) (876,575) 81,681 78,320 210,869 370,870

- 356,916 (527) 7,750 364,139

- - 2,731,182 18,692 2,749,874

(51,854) (1,786,190) (43,735) (122,125) (1,952,050)

- - - 17,235 17,235

(12,812) (289,541) (19,667) (80,570) (389,778)

- (275,941) (2,445,733) (48,487) (2,770,161)

(64,666) (1,994,756) 221,520 (207,505) (1,980,741) 74,831 356,087 287 - 356,374 (404,096) 667,205 - 80,821 748,026 3,244,564 19,580,089 - 579,381 20,159,470 $ 2,840,468 $ 20,247,294 $ - $ 660,202 $ 20,907,496 $ 429,513 $ (1,994,427) $ (262,560) $ (76,831) $ (2,333,818)

- 3,348,805 234,009 146,536 3,729,350

37 12,723 34,362 (13,840) 33,245 462,390 217,706 - - 217,706

- - (178,471) (10,218) (188,689)

- - 13 71 84

- (154,611) (4,092) 12,510 (146,193)

- 10,594 (134,450) (14,433) (138,289)

- 1,876 (4,255) (15,765) (18,144)

- 1,072,158 14,297 49,349 1,135,804

- (493) 1,020 - 527

(429,626) (290,138) - 78 (290,060) $ 462,314 $ 2,224,193 $ (300,127) $ 77,457 $ 2,001,523 $ - $ 2,048,768 $ - $ - $ 2,048,768 The accompanying notes to the basic financial statements are an integral part of this statement.

-47-

QUEEN ANNE'S COUNTY, MARYLAND

STATEMENT OF FIDUCIARY NET POSITION

PRIVATE PURPOSE TRUST, OTHER POST-EMPLOYMENT BENEFIT TRUST, AND AGENCY FUNDS

JUNE 30, 2013

PRIVATE

PURPOSE

TRUST FUND OTHER

TAX SALE POST-EMPLOYMENT AGENCY

DEPOSITS BENEFIT TRUST FUND FUNDS

ASSETS

Cash and Cash Equivalents $ 171,074 $ 1 ,781,053 $ 608,682 Miscellaneous Receivables - - 3 3,758 Total Assets 171,074 1 ,781,053 $ 642,440

LIABILITIES

Accrued Liabilities - - $ 5 ,851 Due to Other Governments - 2 69,713 2 10,266 Deposits and Escrows - - 4 26,323 Total Liabilities - 2 69,713 $ 642,440

NET POSITION

Held in Trust $ 171,074 $ 1 ,511,340 The accompanying notes to the basic financial statements are an integral part of this statement.

-48-

QUEEN ANNE'S COUNTY, MARYLAND

STATEMENT OF CHANGES IN FIDUCIARY NET POSITION

PRIVATE PURPOSE TRUST AND OTHER POST-EMPLOYMENT BENEFIT TRUST FUND

FOR THE YEAR ENDED JUNE 30, 2013

PRIVATE

PURPOSE

TRUST FUND

TAX SALE

DEPOSITS

ADDITIONS

Total Additions - Tax Sale Collections in Excess of Tax Due $ 75,711

DEDUCTIONS

Distributions to Property Holders 24,294 Change in Assets 51,417

NET POSITION HELD IN TRUST

Net Position-Beginning of Year 119,657 Net Position-End of Year $ 171,074

OTHER

POST-EMPLOYMENT

BENEFIT TRUST FUND

ADDITIONS

CONTRIBUTIONS

Employers $ 3,102,305 Members 1,045,272

TOTAL CONTRIBUTIONS 4,147,577

Investment Income 2,083 Total Additions 4,149,660

DEDUCTIONS

Claims Paid 3,662,577 Change in Assets 487,083

NET POSITION HELD IN TRUST

Net Position-Beginning of Year 1,024,257 Net Position-End of Year $ 1,511,340 The accompanying notes to the basic financial statements are an integral part of this statement.

-49-

QUEEN ANNE'S COUNTY, MARYLAND

NOTES TO BASIC FINANCIAL STATEMENTS

INDEX

Note 1 Summary of Significant Accounting Policies 51-63 2 Budgets and Budgetary Accounting 64 3 Cash, Investments and Investment Income 65-66 4 Accounts Receivable 67-68 5 Deferred and Unearned Revenue 69 6 Capital Assets 70-74 7 Interfund Receivables and Payables 75 8 Interfund Transfers 76 9 Noncurrent Liabilities 77-85 10 Restricted Assets and Liabilities and Fund Balances 86-88 11 Risk Management 89

12 Retirement Plans 90-92 13 Deferred Compensation Plan 92 14 Other Post-Employment Benefits 93-99 15 Deficit Equity Balances 100 16 Commitments and Contingencies 101 17 Joint Venture 102 18 Pollution Remediation Obligations 103 19 Combining Funds 103 20 Prior Period Adjustment 103 -50-

QUEEN ANNE’S COUNTY, MARYLAND

NOTES TO BASIC FINANCIAL STATEMENTS

JUNE 30, 2013

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The accounting policies of the County conform to accounting principles generally accepted in the United States of America (GAAP) applicable to local government entities. The following is a summary of significant policies.

A. REPORTING ENTITY

Queen Anne’s County, Maryland (the County) was founded in 1706. The County is governed by five Commissioners who are elected to serve four-year terms. This board assumes responsibilities conferred upon them by the Maryland General Assembly under Code Home Rule and provides the following services: public safety, public facility/infrastructure maintenance and improvements, sanitation, health and social services, education, recreation and culture, library, conservation

of natural resources, economic and community development, and general administrative services.

As required by GAAP, these financial statements present the primary government and its component units, which are entities for which the primary government is considered financially accountable. The decision to include a potential component unit in the financial reporting entity was made by applying the criteria set forth in the Government Accounting Standards Board (GASB) Statements No. 14 and 39. Blended component units, although separate entities are, in substance, part of the

government’s operations. However, each discretely presented component unit is reported in a separate column in the government-wide financial statements (see note below for descriptions) to emphasize that it is legally separate from the government.

Blended Component Units The Queen Anne’s County Sanitary District serves citizens of the government and is governed by a board comprised of the government’s elected Commissioners. The rates for user charges and bond issuance authorizations are approved by the Board of Commissioners and the legal liability for the general obligation portion of the District’s debt remains with the government. The Sanitary District is reported as an enterprise fund.

The Queen Anne’s County Roads Board serves all the citizens of the government and is governed by a board comprised of the government’s elected Commissioners. All operations of the Roads Board are approved by the Board of Commissioners and the legal liability for any debt remains with the government. The Roads Operating Fund is included in with the General Fund.

Discretely Presented Component Units The Board of Education of Queen Anne’s County is a five-member body responsible for the operation of Queen Anne’s County Schools. Beginning with the November 2008 election, the members were elected by the County voters. The Board of Education is a component unit of Queen Anne’s County, Maryland by virtue of the Board’s fiscal dependency on the County through the County’s responsibility for levying taxes, issuing debt, and its budgetary control over the Board of

Education.

The Queen Anne’s County Free Library is a component unit of the Queen Anne’s County Government by virtue of the Library’s fiscal dependency on the County. The County levies taxes and approves the Library’s budget. The Library Board of Trustees governs the Library. Vacancies on the Board of Trustees are filled by vote of the remaining members of that Board.

Complete financial statements of the discretely presented component units can be obtained from their respective administrative offices listed below:

Board of Education of Queen Anne’s County Queen Anne’s County Free Library 202 Chesterfield Avenue 121 S. Commerce Street Centreville, Maryland 21617 Centreville, MD 21617 -51-

QUEEN ANNE’S COUNTY, MARYLAND

NOTES TO BASIC FINANCIAL STATEMENTS

JUNE 30, 2013

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

A. REPORTING ENTITY (CONTINUED)

Joint Venture The operation of the Midshore Regional Landfill is considered a joint venture of the County. Disclosure of the County’s participation in this joint venture is presented in Note 17.

Complete financial statements can be obtained at the joint ventures’ administrative office listed below:

Maryland Environmental Service 259 Najoles Road Millersville, Maryland 21108 Elimination of The Queen Anne’s County Housing Authority as of Discretely Presented Component Unit Effective July 1, 2012, Queen Anne’s County Housing Authority separated all operations from the County. As a result of the separation, the Housing Authority no longer met GASB 39’s requirements for a component unit; and is not included in the

County’s fiscal year 2013 Comprehensive Annual Financial Report.

B. GOVERNMENT-WIDE AND FUND FINANCIAL STATEMENTS

Government-Wide Financial Statements – The government-wide financial statements report information on all of the nonfiduciary activities of the Primary Government and its component units. Since, by definition, assets of fiduciary funds are held for the benefit of a third party (other local governments, private parties, etc.) and cannot be used to address activities or obligations of the County, these funds are not incorporated into the government-wide statements.

For the most part, the effect of interfund activity has been removed from these statements.

Governmental activities of the Primary Government, which normally are supported by taxes and intergovernmental revenues, are reported separately from business-type activities, which rely to a significant extent on fees and charges for support.

Statement of Net Position – This statement is designed to display the financial position of the reporting entity as of year-end.

Governments report all capital assets, including infrastructure, in the government-wide Statement of Net Position and report depreciation expense, the cost of “using up” capital assets, in the Statement of Activities. Net position is divided into three categories: 1) net investment in capital assets; 2) restricted amounts; and 3) unrestricted amounts. Net Investment in capital assets consists of capital assets, net of accumulated depreciation, and reduced by the outstanding balances of any bonds,

mortgages, notes, or other borrowings that are attributable to the acquisition, construction, or improvement of those capital assets. Restricted amounts are assets for which constraints are placed due to restrictions that are either (1) externally imposed by creditors, grantors, contributors, or laws and regulations of the government, or (2) imposed by law through constitutional provisions or enabling legislation. Unrestricted amounts consist of net assets that do not meet the definition of restricted or

invested in capital assets.

-52-

QUEEN ANNE’S COUNTY, MARYLAND

NOTES TO BASIC FINANCIAL STATEMENTS

JUNE 30, 2013

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

B. GOVERNMENT-WIDE AND FUND FINANCIAL STATEMENTS (CONTINUED)

Statement of Activities – This statement demonstrates the degree to which the direct expenses of a given function for the fiscal year are offset by program revenues. Therefore, this statement reflects both the gross and net costs per functional category (general government; public safety; public works; health; social services; education; parks and recreation; library;

conservation of natural resources; and economic/community development) that are otherwise supported by general revenues.

Direct expenses (including depreciation) are those that are clearly identifiable with a specific function. Program revenues include: 1) charges to customers or applicants who purchase, use, or directly benefit from goods, services, or privileges provided by a given function and 2) grants and contributions that are restricted to meeting the operational or capital requirements of a particular function. The operating grants and contributions column includes operating-specific and

discretionary (either operating or capital) grants, while the capital grants and contributions column reflects capital-specific grants. Taxes and other items not properly included among program revenues are reported as general revenues. The County does not allocate indirect expenses.

Fund Financial Statements – Separate financial statements are provided for governmental funds and proprietary funds.

Major individual governmental funds and major individual enterprise funds are reported as separate columns in the fund financial statements.

In the fund financial statements, financial transactions and accounts of the County are organized on the basis of funds, each of which is considered a separate accounting entity. The operations of each fund are accounted for with a separate set of selfbalancing accounts that comprise assets, liabilities, fund balance/net assets, revenues, and expenditures/expenses.

Governmental Fund Budget-to-Actual Comparison Statements – Demonstrating compliance with the legally adopted budget is an important component of government’s accountability to the public. The County provides a budget-to-actual comparison of the General Fund as part of the required supplementary information section located after the Notes to the basic financial statements. A budget-to-actual comparison is provided for the General Fund on a departmental level as required

supplementary information, and for all non-major governmental funds with legally adopted budgets in the supplementary information section.

The County and many other governments revise their original budgets over the course of the year for a variety of reasons; the County’s amended budget is reflected in a separate column in the budget-to-actual comparison statements. Variances are calculated based on final budgets.

C. MEASUREMENT FOCUS, BASIS OF ACCOUNTING, AND FINANCIAL STATEMENT PRESENTATION Measurement Focus and Basis of Accounting Full Accrual Basis Financial Statements – The government-wide financial statements are reported using the economic resources measurement focus and the accrual basis of accounting, as are the proprietary fund financial statements. Revenues are recorded when earned and expenses are recorded when a liability is incurred, regardless of the timing of related cash

flows. Property taxes are recognized as revenue in the year in which they are levied. Grants and similar items are recognized as revenues as soon as all eligibility requirements imposed by the provider have been met. Capital assets and related depreciation are recorded in these statements, as well as debt, accrued compensated absences, other post-employment benefits, and other accruals.

Modified Accrual Basis Financial Statements – Governmental fund financial statements are reported using the current financial resources measurement focus and the modified accrual basis of accounting.

-53-

QUEEN ANNE’S COUNTY, MARYLAND

NOTES TO BASIC FINANCIAL STATEMENTS

JUNE 30, 2013

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

C. MEASUREMENT FOCUS, BASIS OF ACCOUNTING, AND FINANCIAL STATEMENT PRESENTATION

(CONTINUED)

Revenues are recorded as soon as they are susceptible to accrual (i.e., when they are both measurable and available).

Revenues are considered to be available when they are collectible within the current period, or soon enough thereafter to pay liabilities of the current period. Expenditures generally are recorded when a liability is incurred, as under accrual accounting.

However, debt service expenditures are recorded only when payment has matured and is due. Similarly, expenditures related to claims, judgments, compensated absences, and other post-employment benefits are recorded only to the extent that they are expected to be liquidated with expendable available financial resources. Capital assets, and related depreciation, as well as long-term liabilities are not recorded in these statements.

In applying the susceptible to accrual concept to income taxes (distributed by the State), property taxes, and intergovernmental revenues other than grants, the County defines “available” as received within 60 days after year-end.

In the State of Maryland, the State has assumed responsibility for the collection of all income taxes and for distributing those collections to the respective counties. The counties set their individual tax rates within limits provided by State law.

However, collection and pursuit of delinquent taxes are the responsibility of the State. The County records estimated receivables relating to income taxes when the underlying income is earned. Amounts not received within 60 days are reported as deferred revenue. At year-end, deferred revenue relating to income taxes primarily includes the final fiscal year distribution (which is normally received in September after the fiscal year-end) and amounts related to late filers, delinquent

returns and audits, and unallocated withholding, all of which are not received within the County’s availability period. Most deferred revenue is expected to be received from the State within the next fiscal year; however, collections related to delinquent returns and audits as well as unallocated withholding may not be remitted to the County for several years.

In applying the susceptible to accrual concept to operating and capital grants, which are classified with intergovernmental revenues in the fund financial statements, the County records receivables when the applicable eligibility requirements including time requirements are met. Related revenues are recognized to the extent that cash is expected to be received within one year of year-end. Resources received before the eligibility requirements are met are reported as deferred revenue.

Licenses and permits, charges for services, and miscellaneous revenues (except earnings on investments) are generally recorded as revenues when received in cash during the year. At year-end, receivables are recorded for significant amounts due. If such amounts are received in cash after year-end within the County’s 60-day availability period, they are recognized as revenue. Benefit assessment receivables not billed at year end are reported as deferred revenue.

Fiduciary Funds – The County’s trust fund financial statements are reported using the economic resources measurement focus and accrual basis of accounting, as is used by proprietary funds. Agency funds report only assets and liabilities; they do not report changes in net assets. Therefore, agency funds are reported using the accrual basis of accounting to recognize receivables and payables. Activity during the year is accounted for as additions to and deductions from asset and liability

accounts (for Agency Funds) and Net Assets (for Private Purpose and Other Post-Employment Benefit Trust Funds). Since fiduciary funds are, by their very nature, independent of the County, they are omitted from all government-wide statements.

Financial Statement Presentation - The County reports the following major governmental and proprietary funds, as well as fiduciary funds.

-54-

QUEEN ANNE’S COUNTY, MARYLAND

NOTES TO BASIC FINANCIAL STATEMENTS

JUNE 30, 2013

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

C. MEASUREMENT FOCUS, BASIS OF ACCOUNTING, AND FINANCIAL STATEMENT PRESENTATION

(CONTINUED)

General Fund – This fund is the general operating fund of the County. It is used to account for all financial resources except those required or recommended, by GAAP, to be accounted for in another fund.

Capital Projects Funds – General Capital Projects - This fund accounts for financial resources to be used for the acquisition or construction of major capital facilities, as well as other large multi-year projects that relate to capital assets, that are financed from general governmental resources.

Roads Capital Projects - This fund accounts for financial resources to be used for the construction of County Road infrastructure, as well as other large multi-year projects that relate to capital assets, that are financed from grants received from State and Federal Governments, Highway User Tax funds, and general governmental resources.

Non-Major Governmental Funds – There are seventeen non-major governmental funds, which are used to account for and report the proceeds of specific revenue sources. Included in the seventeen non-major governmental funds are fourteen special revenue funds and three capital project funds.

Major Enterprise Funds - Enterprise Funds are used to account for those activities of the Primary Government that are financed and operated in a manner similar to private business enterprises in that all costs and expenses, including depreciation, are recovered primarily or partially through user charges. The Sanitary District Funds are intended to be self-supporting as a whole, while the Airport is intended to be only partially self-supporting. The

County reports the following major enterprise funds:

Sanitary District - Sewer Operations - This fund is used to account for the operation of the sewer system serving approximately 6,800 customers.

Water Operations - This fund is used to account for the operation of the water supply system serving approximately 4,100 customers.

Restricted Fund - This fund is used to account for the proceeds of sewer and water capacity charges (one-time allocation fees) and is used to fund capital and debt service expenses.

Debt Service Fund - This fund is used to account for the collection of special benefit assessments, and financial resources from other sources, to fund debt associated with construction of water and sewer facilities in accordance with debt covenants.

-55-

QUEEN ANNE’S COUNTY, MARYLAND

NOTES TO BASIC FINANCIAL STATEMENTS

JUNE 30, 2013

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

C. MEASUREMENT FOCUS, BASIS OF ACCOUNTING, AND FINANCIAL STATEMENT PRESENTATION

(CONTINUED)

Bay Bridge Airport – This fund is used to account for the operation of the County’s airport that serves small, private aircraft.

Non-Major Enterprise Funds – Non-major Enterprise Funds account for activities which are commercial in nature and are primarily or partially intended to be self-supporting. The County has two non-major enterprise funds, neither of which is meant to be fully self-supporting. These funds include the Golf Course and Public Landings and Marinas.

Fiduciary Funds – Fiduciary Funds are used to report assets held in a trustee or agency capacity for entities other than the County. The County reports the following fiduciary fund types:

Private-Purpose Trust Fund – This fund accounts for an arrangement under which monies received at tax sale, in excess of taxes due, are legally held in trust for property owners who have not been located within a legally-defined time frame.

Other Post-Employment Benefit Trust Fund– This fund accounts for the funding of retiree benefit plans of participating agencies, which are the Queen Anne’s County Board of Education and Queen Anne’s County Free Library. Other agencies and political subdivisions have the right to participate in this Trust Fund also, as an investment vehicle for their Other Post-Employment Benefit Plan through the pooling of investment resources. Currently, the only other agency participating is Kent County,

Maryland. The Queen Anne’s County Public Housing Authority had funds in the Trust as of June 30, 2013; however, the funds were paid out to the Housing Authority in July 2013 as they are no longer participating in the Trust.

Agency Funds - These funds are used to account for assets held in a purely custodial capacity where the County receives, temporarily invests, and remits such resources to individuals, private organizations or other governments. These monies include escrow deposits for tax ditches, zoning deposits, state and town tax collections, motor vehicle administration deposits, mid-shore recycling, and abandoned property.

GASB 62 Codification of Accounting and Financial Reporting Guidance Contained in Pre-November 30, 1989 FASB and AICPA Pronouncements, eliminates a previous election that allowed financial statements for enterprise funds and business-type activities to apply post-November 30, 1989 FASB Statements and Interpretations for the financial statements to the extent that the FASB Statements and Interpretations did not conflict with or contradict GASB

pronouncements. The County has elected not to follow any other FASB guidance.

In the process of aggregating data for the Statement of Net Position and the Statement of Activities, some amounts reported as interfund activity and balances in the funds should be eliminated or reclassified. As a general rule, the effect of interfund activity has been eliminated from the government-wide financial statements. The effect of interfund services provided and used between functions has not been eliminated in the Statement of Activities, since to do so would distort the direct costs and

program revenues reported for the various functions concerned.

Proprietary funds distinguish operating revenues and expenses from non-operating items. Operating revenues and expenses generally result from providing services and producing and delivering goods in connection with a proprietary fund’s principal ongoing operations. The principal operating revenues of the enterprise funds are charges to customers for sales and services.

Operating expenses for enterprise funds include the cost of sales and services, administrative expenses, and depreciation on capital assets. All revenues and expenses not meeting this definition are reported as non-operating revenues and expenses.

-56-

QUEEN ANNE’S COUNTY, MARYLAND

NOTES TO BASIC FINANCIAL STATEMENTS

JUNE 30, 2013

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

D. ASSETS, LIABILITIES, AND NET POSITION OR EQUITY

1) Cash and Investments

Cash and Cash Equivalents – For Statement of Cash Flows reporting purposes, the County has defined “cash equivalents” as short-term, highly liquid investments that are both readily convertible to known amounts of cash and so near their maturity that they present an insignificant risk of changes in value because of changes in interest rates. Generally, only investments with maturities of three months or less at time of purchase meet this

definition. The balance sheet classification for “cash and cash equivalents” in the Statement of Cash Flows includes the following: “Equity in pooled cash and investments,” “Cash and cash equivalents,” and “Restricted Equity in pooled cash and investments.”

2) Receivables and Payables

Due To/From Other Funds and Internal Balances – Activity between funds that are representative of lending/borrowing arrangements outstanding at the end of the year are current and are referred to as “due to/from other funds.” On the Statement of Net Position, these balances are referred to as “internal balances” and are reported as positive and negative “assets” that net to zero for the primary government as a whole.

Trade Accounts Receivable – Trade and other receivables are shown net of an allowance for uncollectible accounts. The allowance for uncollectible accounts is calculated based on historical collection data and, in some cases, specific account analysis.

3) Inventories, Prepaids, and Other Assets

Inventories consisting of materials, parts and supplies are stated at the lower of cost or market with cost determined by the first-in, first-out method. For budgetary purposes, the cost is recorded as an expenditure at the time individual inventory items are purchased (purchase method). The consumption method is used for financial reporting purposes whereby expense is recognized as the items are used (consumed). Reported

inventories are equally offset by a fund balance reserve. Inventories in the Proprietary Funds are also recorded using the consumption method.

Prepaid items are payments made to vendors for services that will benefit periods beyond the end of the fiscal year.

4) Capital Assets

Capital assets, which include property, plant, equipment, intangibles, and infrastructure assets (e.g. roads, bridges, curbs and gutters, streets and sidewalks, drainage systems, lighting systems, and similar items) are reported in the applicable governmental or business-type activities columns in the government-wide financial statements. The County defines capital assets as assets with an initial, individual cost of $5,000 ($1,000 for

computers) or more and an estimated useful life in excess of one year. Such assets are valued at cost where historical records are available and at estimated historical cost where no historical records exist. Donated capital assets are recorded at estimated fair market value at the date of donation.

The costs of normal maintenance and repairs that do not add to the value or functionality of the asset, or materially extend asset lives, are not capitalized.

Land and other inexhaustible assets such as intangible property easements and other land usage rights are capitalized but not depreciated, as these assets are expected to have indefinite useful lives.

-57-

QUEEN ANNE’S COUNTY, MARYLAND

NOTES TO BASIC FINANCIAL STATEMENTS

JUNE 30, 2013

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

D. ASSETS, LIABILITIES, AND NET POSITION OR EQUITY (CONTINUED)

4) Capital Assets (continued)

Major outlays for capital assets and improvements are capitalized as the projects are constructed. Interest is capitalized on proprietary fund assets acquired with tax-exempt debt. The amount of interest to be capitalized is calculated by offsetting interest expense, incurred from the date of the borrowing until completion of the project, with interest earned on invested proceeds over the same period. Capital projects that are under

construction and not yet ready for their intended use at year-end are classified as “construction in progress” (CIP).

Capital assets are depreciated using the straight-line method over the following estimated useful lives:

Assets Years Buildings and structures 20 - 50 Improvements other than buildings 15 - 50 Infrastructure 20 - 50 Machinery and equipment 3 - 20 Office furniture, fixtures and equipment 5 - 15 Vehicles 7 - 10

5) Other Post-Employment Benefit Obligation

The Queen Anne’s County post-employment plan provides medical insurance benefits to retirees and their eligible dependents. The Plan’s financial information is prepared based on full accrual accounting. Expenses are recognized on the accrual basis as retirees’ insurance costs are incurred.

Additional details regarding other post-employment benefits can be found in Notes 9 and 14.

Primary Government – In both the government-wide and enterprise funds, liability for other postemployment benefits is adjusted at the end of the fiscal year. For the year ended June 30, 2013, the other postemployment benefit obligation amounted to $30,185,198, including both governmental ($25,785,783) and business-type activities ($4,399,415).

Component Unit - Board of Education – For the year ended June 30, 2013, the other post-employment benefit obligation for the Board of Education amounted to $27,015,754.

Component Unit – Free Library – For the year ended June 30, 2013, the other post-employment benefit obligation for the Library amounted to $1,013,264.

-58-

QUEEN ANNE’S COUNTY, MARYLAND

NOTES TO BASIC FINANCIAL STATEMENTS

JUNE 30, 2013

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

D. ASSETS, LIABILITIES, AND NET POSITION OR EQUITY (CONTINUED)

6) Compensated Absences

Primary Government – The County’s policy is to pay employees for any unused vacation time, up to a maximum of 65 days, upon termination of employment. Compensated absences are reported in governmental funds only if they have matured, such as payments upon termination of employment, vacation, and compensatory time paid as they are used during the year. Such time is paid as regular wages. Compensated

absences are reported in enterprise funds as they are accrued. In the government-wide statements, the liability for compensated absences is adjusted at the end of each fiscal year to current salary costs. Accumulated unpaid leave of the County amounted to $2,322,147 at June 30, 2013, including both governmental ($2,057,039) and business-type activities ($265,108).

Component Unit - Board of Education – Accumulated unpaid annual leave is accrued when earned in the Unrestricted Current Expense Fund using the modified accrual basis of accounting. In fiscal year 1992, the Board adopted the practice of paying for any unused vacation time, up to the maximum number of days that employees can carry over from one year to the next, upon termination of employment. Maximum number of

days varies from 20 to 30 days, depending on classification. Liabilities for compensated absences are inventoried at the end of each fiscal year and adjusted to current salary costs. Accumulated compensated absences as of June 30, 2013 amounted to $1,001,163. Because payment of sick leave is contingent upon an employees’ future illness or retirement, the Board of Education expects its commitment to provide sick leave to

be met during the normal course of activities over the working lives of its present employees. Any accumulated unused sick leave at retirement will ultimately be taken into consideration and paid through retirement benefits by the State of Maryland.

7) Long-Term Obligations

In the government-wide financial statements and proprietary fund types in the fund financial statements, longterm debt and other long-term obligations are reported as liabilities in the applicable governmental activities, business-type activities, or proprietary fund type statements of net assets. Bond premiums and discounts are deferred and amortized over the life of the bonds using the bonds outstanding method. Bonds payable in the

proprietary fund financial statements and noncurrent liabilities in the government-wide financial statements are reported net of the applicable bond premium or discount. Bond issuance costs are generally reported as a deferred asset and amortized over the term of the related debt using the straight-line method.

In the fund financial statements, governmental fund types recognize bond premiums and discounts, as well as bond issuance costs, during the current period. The face amount of debt issued is reported as other financing sources. Premiums received on debt issuances are reported as other financing sources while discounts on debt issuances are reported as other financing uses. Issuance costs, whether or not withheld from the actual debt

proceeds received, are reported as expenditures. When debt is refunded, payments to the Bond Refunding Agent and associated bond issuance costs are reported as other financing uses.

-59-

QUEEN ANNE’S COUNTY, MARYLAND

NOTES TO BASIC FINANCIAL STATEMENTS

JUNE 30, 2013

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

D. ASSETS, LIABILITIES, AND NET POSITION OR EQUITY (CONTINUED)

8) Deferred Outflows/Inflows of Resources

In addition to assets, the statement of financial position will report a separate section for deferred outflows of resources. This separate financial statement element, deferred outflows of resources, represents a consumption of net position that applies to a future period(s) and so will not be recognized as an outflow of resources (expense/expenditure) until then.

In addition to liabilities, the statement of financial position will report a separate section for deferred inflows of resources. This separate financial statement element, deferred inflows of resources, represents an acquisition of net position that applies to a future period(s) and so will not be recognized as an inflow of resources until that time.

9) Net Position/Fund Equity

In the government-wide financial statements, the County has reported an unrestricted net deficit of $36,813,556. This deficit is due to the fact that the County issues general obligation bonded debt for purposes of capital construction on behalf of the Queen Anne’s County Board of Education. The capital assets constructed with the proceeds of this debt are reported on the financial statements of Queen Anne’s County

Board of Education. This amount is also classified as net investment in capital assets in the Board of Education column of the Component Units section of the County’s government-wide Statement of Net Position. Since the Board of Education is not authorized to borrow funds, they do not have any debt.

Since the issuance of such debt has not resulted in capital assets owned by the Primary Government, the effect of this debt is reflected in a deficit balance in unrestricted net assets in the Governmental Activities column of the government-wide Statement of Net Position. At June 30, 2013, the County has reported outstanding general obligation debt related to assets held by the Board of Education amounting to $63,283,726 (of which

$62,055,697 has been spent and the remaining $1,228,029 relates to unspent bond proceeds). Absent the effect of this relationship, the County would have reported unrestricted net assets of governmental activities in the amount of $26,470,170.

The County reports a portion of its net position in its government-wide financial statements as restricted. In this context, restricted means that, as of June 30, 2013, this portion of net position was restricted for a particular purpose either by external parties; by provision of the County Charter; or by enabling legislation. Net position restricted by enabling legislation represent legislative restrictions that a party external to the government can

compel the government to honor. For the County, such amounts represent primarily accumulated net position attributed to revenue streams that are restricted for specified purposes in the County Code. This generally includes the Rainy Day Fund, Capital Projects Fund impact fee collections and developer exactions on hand for outside entities; restricted amount for special revenue funds; and ending restricted net assets of the Sanitary

District and other enterprise funds. Such amounts, which are restricted in the government-wide statement of Net Position, are as follows at year-end:

-60-

QUEEN ANNE’S COUNTY, MARYLAND

NOTES TO BASIC FINANCIAL STATEMENTS

JUNE 30, 2013

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

D. ASSETS, LIABILITIES, AND NET POSITION OR EQUITY (CONTINUED)

9) Net Position/Fund Equity (continued)

Restricted Amounts Governmental activities $ 15,691,080 Business-type activities:

Debt Service $ 2,423,028 Capital Projects 753,300 3,176,328 Total Restricted Amounts $ 18,867,408 Note that unspent bond proceeds of $5,145,393 are included in restricted fund balance for the General Capital Projects Fund. At the Government-Wide level, the unspent bond proceeds are offset by the liability.

In the fund financial statements, fund balances of governmental funds are classified as follows:

Nonspendable – amounts that cannot be spent either because they are not in a spendable form or because they are legally or contractually required to be maintained intact. Nonspendable fund balances for the County include inventory, prepaid items, and loans receivable.

Restricted – amounts that can be spent only for specific purposes because of constitutional provisions or enabling legislation or because of constraints that are externally imposed by creditors, grantors, contributors, or the laws or regulations of other governments.

Committed – amounts that can be used only for specific purposes determined by a formal action of the Queen Anne’s County Commissioners. The Commissioners are the highest level of decision-making authority for the County. Commitments may be established, modified, or rescinded only through formal actions such as a County Ordinance approved by the County Commissioners.

Assigned – amounts that do not meet the criteria to be classified as restricted or committed but that are intended to be used for specific purposes. The assignment of funds rests with the County Commissioners. In addition, GASB 54 requires all positive residual amounts in special revenue funds to be reported as assigned.

Unassigned – all other spendable amounts; however, the General Fund is the only fund permitted to have a positive unassigned fund balance. Negative unassigned fund balances may occur in other governmental funds.

The County typically uses restricted fund balances first, followed by committed resources, and then assigned resources, as appropriate opportunities arise, but reserves the right to selectively spend unassigned resources first to defer the use of these other classified funds.

-61-

QUEEN ANNE’S COUNTY, MARYLAND

NOTES TO BASIC FINANCIAL STATEMENTS

JUNE 30, 2013

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

D. ASSETS, LIABILITIES, AND NET POSITION OR EQUITY (CONTINUED)

10) Property Tax

The County's real property tax is levied each July 1 on the assessed values certified as of that date for all taxable real property located in the County. The levy functions as a lien against the property. Assessed values are established by the Maryland State Department of Assessments and Taxation at estimated market value. A revaluation of all property is required to be completed every three years. Taxes are then billed to property

owners and collected by the County. Property represented by delinquent taxes is sold at a public auction in May of the following calendar year, with title transferring after foreclosure proceedings have been completed.

For small businesses that meet certain criteria and also principal residences, an installment plan is offered whereby total tax is paid in two equal installments. The first installment is due by September 30. Beginning October 1, a 1% penalty is charged on the first day of each month that the installment remains unpaid. This 1% penalty is based on the amount of the first installment only. The second installment is due by December 31.

Beginning January 1, the 1% penalty would then include all outstanding balances. The County accepts partial payments.

For non-principal residences, payment is due in full by September 30. Beginning October 1, a penalty is charged for each month that taxes remain unpaid.

For new construction, completed and assessed between July 1 and December 31, a supplementary tax is levied equal to half of the full-year levy. Payment in full is due by March 31. Beginning April 1, a penalty is charged for each month that taxes remain outstanding.

Real and personal property taxes are levied at rates enacted by the County Commissioners in the annual budget on the assessed value as determined by the Maryland Department of Assessments and Taxation. The rates of levy cannot exceed the constant yield rate furnished by the Maryland State Department of Assessments and Taxation without public notice and only after public hearings. The County tax rate for the fiscal year ended June 30, 2013 was $0.8471 per $100 of assessed value.

E. IMPLEMENTATION OF NEW ACCOUNTING PRINCIPLES

The County adopted the provisions of four Governmental Accounting Standards Board Statements:

Statement No. 60, “Accounting and Financial Reporting for Service Concession Arrangements”: This Statement extracts the specialized principles and practices from the AICPA insurance industry related Guides and Statements of Position and establishes financial accounting and reporting standards for insurance enterprises other than mutual life insurance enterprises, assessment enterprises, and fraternal benefit societies. Adoption of this standard has no material impact on the County’s

financial statements.

Statement No. 61, “The Financial Reporting Entity: Omnibus”: This purpose of this Statement is to improve financial reporting for a governmental financial reporting entity. The requirements of Statements No. 14, The Financial Reporting Entity, and the related financial reporting requirements of Statement No. 34, Basic Financial Statements—and Management’s Discussion and Analysis—for State and Local Governments, were amended to better meet user needs and to address

reporting entity issues that have arisen since the issuance of those Statements. Adoption of this standard has no material impact on the County’s financial statements.

-62-

QUEEN ANNE’S COUNTY, MARYLAND

NOTES TO BASIC FINANCIAL STATEMENTS

JUNE 30, 2013

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

E. IMPLEMENTATION OF NEW ACCOUNTING PRINCIPLES (CONTINUED)

Statement No. 62, “Codification of Accounting and Financial Reporting Guidance Contained in Pre-November 30, 1989 FASB and AICPA Pronouncements”: This objective of this Statement is to incorporate into GASB’s authoritative literature certain accounting and financial reporting guidance that is included in the following pronouncements issued on or before November 30, 1989, which does not conflict with or contradict GASB pronouncements:

1. Financial Accounting Standards Board (FASB) Statements and Interpretations

2. Accounting Principles Board Opinions

3. Accounting Research Bulletins of the American Institute of Certified Public Accountants’ (AICPA)

Committee on Accounting Procedure.

Hereinafter, those pronouncements collectively are referred to as the “FASB and ACIPA pronouncements.” Statement No. 63, “Financial Reporting of Deferred Outflows of Resources, Deferred Inflows of Resources, and Net Position”: This Statement provides financial reporting guidance for deferred outflows of resources and deferred inflows of resources. Concepts Statement No. 4, Elements of Financial Statements, introduced and defined those elements as a

consumption of Net Position by the government that is applicable to a future reporting period, and an acquisition of Net Position by the government that is applicable to a future reporting period, respectively. Previous financial reporting standards do not include guidance for reporting those financial statement elements, which are distinct from assets and liabilities.

In fiscal year 2014, the County plans to adopt Statement No. 65, “Items Previously Reporting as Assets and Liabilities”, and Statement No. 66, “Technical Corrections – 2012; an amendment of GASB Statements No. 10 and No. 62.” -63-

QUEEN ANNE’S COUNTY, MARYLAND

NOTES TO BASIC FINANCIAL STATEMENTS

JUNE 30, 2013

NOTE 2 - BUDGETS AND BUDGETARY ACCOUNTING

Pursuant to the Code of Public Local Laws of Queen Anne's County, the County Commissioners adopt an annual operating budget and real property tax rate prior to July 1 each year. This action, taken after public hearings, provides the spending authority for the fiscal year beginning on July 1. Unexpended and unencumbered appropriation authority expires the following June 30, except in the case of Capital Projects where appropriations lapse only upon completion or

cancellation of each project by the County Commissioners. The appropriated budgets are prepared at the fund, function, and departmental level. Expenditures/expenses may not legally exceed appropriations, based on the level at which they were adopted. For the General Fund, annual expenditure budgets are legally adopted at the departmental level. For all other Governmental Funds, for which annual budgets are adopted, expenditure budgets are legally adopted at the fund

level.

During the fiscal year, the Commissioners may adopt supplemental appropriations. For the year ended June 30, 2013, supplemental appropriations were as follows:

Original Final Supplemental Appropriations Budget Budget Increase General Fund - expenditures and transfers $ 107,991,500 $ 117,364,198 $ 9,372,698 Special Revenue Funds that adopt annual budgets Non-Major that adopt annual budgets - Department of Aging - expenditures and transfers 2,021,034 2,145,125 124,091 Housing and Community Services - expenditures 1,190,377 1,504,945 314,568 Community Partnerships for Children - expenditures 1,133,969 1,737,912 603,943

School Impact Fees - transfers 631,500 663,500 32,000 Fire Company Impact Fees - expenditures 200,500 351,658 151,158 Inmate Welfare Fund - expenditures 90,250 150,013 59,763 Dredging Special Assessments - expenditures 44,425 399,743 355,318 Total Special Revenue Funds that adopt annual budgets $ 5,312,055 $ 6,952,896 $ 1,640,841 All final budgets are presented as amended. The County Administrator may approve budget amendments of $10,000 or

less throughout the year. Amendments greater than $10,000 require the approval of the County Commissioners.

Annual operating budgets are legally adopted for the General Fund (includes the Roads Board) and the following nonmajor governmental funds: Department of Aging, Housing and Community Services, Community Partnerships for Children, Dredging Special Assessments, Kent Narrows, Law Library, Inmate Welfare, Agricultural Transfer, Rural Legacy, School Impact Fees Capital Projects, Fire Company Impact Fees Capital Projects, Parks and Recreation Impact

Fees Capital Projects, and Purchase of Development Rights Funds. Proprietary Fund budgets are adopted for management control only and include all enterprise funds. Budgets are adopted using the same method of accounting as that used for Fund reporting purposes.

Budgets for the General Capital Projects Fund and the Roads Capital Projects Fund reflect multi-year appropriations at the individual project level. Expenditures may not legally exceed appropriations at that level and appropriations lapse at the completion or cancellation of individual projects. Since these capital projects funds do not adopt an annual budget per project, a Statement of Revenues, Expenditures, and Changes in Fund Balances on a budget-to-actual basis is not

presented for these funds.

-64-

QUEEN ANNE’S COUNTY, MARYLAND

NOTES TO BASIC FINANCIAL STATEMENTS

JUNE 30, 2013

NOTE 3 – CASH, INVESTMENTS AND INVESTMENT INCOME

A. DEPOSITS AND INVESTMENTS

PRIMARY GOVERNMENT AND FIDUCIARY FUNDS

Cash and investments were as follows at year-end:

Collected Carrying Bank Balances Total Amount or Fair Value Collateral Demand Deposit Accounts, Short-Term Certificates of Deposit and Petty Cash $ 23,611,836 $ 24,253,374 $ 35,068,807 Investment in Maryland Local Government Investment Pool (MLGIP) 53,127,908 53,124,591 54,187,082 $ 76,739,744 $ 77,377,965 $ 89,255,889 Cash and investments reconcile to the basic financial statements as follows:

Primary Cash and Investments Government Fiduciary Total Unrestricted Equity in Pooled Cash and Investments $ 5 9,381,037 $ 2,560,809 $ 61,941,846 Restricted Equity in Pooled Cash and Investments 1 4,797,898 - 14,797,898 $ 7 4,178,935 $ 2,560,809 $ 76,739,744 At year-end, the carrying amount of combined deposits was $23,611,836. The collected bank balances were $24,253,374 and of those balances, $751,609 was insured by federal depository insurance (FDIC). The uninsured

balances were fully collateralized by securities placed with the respective banks’ escrow agents and held in the County’s name.

Statutes authorize the County to invest in obligations of the United States Government, Federal government agency obligations, secured time deposits in Maryland banks, bankers’ acceptances, the Maryland Local Government Investment Pool, money market mutual funds, commercial paper and repurchase agreements secured by direct government or agency obligations.

Of these options, the County participates in the Maryland Local Government Investment Pool (MLGIP), which provides all local government units of the state with a safe investment vehicle for short-term investment of funds. The State Legislature created MLGIP by enacting Section 22G of Article 94 of the Annotated Code of Maryland. PNC Financial manages the MLGIP, under administrative control of the State Treasurer. A MLGIP Advisory Committee of current

participants reviews the activities of the Fund on a quarterly basis and provides suggestions to enhance the pool. The MLGIP portfolio is managed in a manner consistent with the Securities and Exchange Commission’s Rule 2a-7 of the Investment Company Act of 1940. Standard and Poors rates the MLGIP as AAAm. The MLGIP seeks to maintain a constant value of $1 per unit with unit value computed using the amortized cost method. In addition, the net asset value

of the pool, marked to market, is calculated and maintained on a weekly basis to ensure a $1 per unit constant value.

As of June 30, 2013, the County’s investments, for both custodial and credit risk purposes, consisted solely of shares in the MLGIP. This investment is not deemed to have either risk and is in conformity with the County’s policy relating to minimal credit risk of investments.

-65-

QUEEN ANNE’S COUNTY, MARYLAND

NOTES TO BASIC FINANCIAL STATEMENTS

JUNE 30, 2013

NOTE 3 – CASH, INVESTMENTS AND INVESTMENT INCOME (CONTINUED)

A. DEPOSITS AND INVESTMENTS (CONTINUED)

COMPONENT UNITS (BOARD OF EDUCATION AND LIBRARY)

Component Unit - Board of Education - At year-end, the carrying amount of deposits was $9,659,185, including $317,000 in certificates of deposit and excluding the carrying amount of fiduciary funds. At June 30, 2013, the Board has deposits of approximately $19 million with local banks. Of the total deposits, approximately $611,000 not covered by the FDIC was collateralized by securities held by the pledging financial institution’s trust department or

agent, but not in the Board’s name.

Component Unit – Library - At year-end, the carrying amount of all bank deposits, including a $657,010 certificate of deposit, was $1,242,259, while collected bank balances were $1,269,356. Of the bank balances, $587,268 was secured by the FDIC and $682,088 was secured by collateral held by the pledging bank’s trust department but not in the Library’s name.

B. INVESTMENT INCOME

PRIMARY GOVERNMENT

Total investment income earned in all governmental and business-type funds was credited for use as follows:

Investment Governmental Funds Income Major Governmental Funds General Fund $ 73,201 General Capital Projects 9,793 Roads Capital Projects 23,901 Non-Major Governmental Funds 200 Total Investment Income $ 107,095 Business-Type Funds Major Enterprise Funds Sanitary District $ 356,087 Airport 287 Total Investment Income $ 356,374 -66-

QUEEN ANNE’S COUNTY, MARYLAND

NOTES TO BASIC FINANCIAL STATEMENTS

JUNE 30, 2013

NOTE 4 - ACCOUNTS RECEIVABLE

Receivables as of June 30, 2013 for the governmental and business-type activities are as follows:

Total General Roads Non-Major Total Total Governmental General Capital Capital Governmental Governmental Enterprise and Enterprise Accounts Receivable Fund Projects Projects Funds Funds Funds Funds Receivables Taxes - Real Property $ 150,858 $ - $ - $ - $ 150,858 $ - $ 150,858 Taxes - Other 250,962 347,955 - - 598,917 - 598,917 Subtotal Taxes 401,820 347,955 - - 749,775 - 749,775 Other Accounts Receivable:

Queen Anne's County Public Housing Authority - 1 ,296,971 - - 1 ,296,971 - 1,296,971 Sanitary District - User and Septage Fees - - - - - 460,837 460,837 Worker's Comp 90,957 - - - 90,957 - 90,957 Board of Education 46,854 - - - 46,854 - 46,854 Retirees Insurance 36,063 - - - 36,063 - 36,063 Governmental Funds - User Fees 19,401 - 16,119 - 35,520 - 35,520 Solid Waste 24,668 - - - 24,668 - 24,668 Social Services 8,967 - - - 8,967 - 8 ,967

Airport - Fuel Sales and User and Rental Fees - - - - - 19,718 19,718 Miscellaneous Receivables 44,220 1,143 - 32,336 77,699 14,560 92,259 Subtotal Other Accounts Receivable 271,130 1,298,114 16,119 32,336 1,617,699 495,115 2,112,814 Loans Receivable - - - 5,285,873 5,285,873 - 5,285,873 Subtotal Other Accounts and Loans Receivable 271,130 1,298,114 16,119 5,318,209 6,903,572 495,115 7,398,687 Special Assessments - - 348,376 593,925 942,301 - 942,301

Intergovernmental Income Taxes Held by State 3,794,205 - - - 3 ,794,205 - 3,794,205 Grants Receivable 1,382,758 190,134 1,306,382 830,163 3,709,437 332,499 4,041,936 State-Shared Highway User Tax 132,374 - - - 132,374 - 132,374 Bonds Receivable 1,361,806 - - - 1 ,361,806 - 1,361,806 Subtotal Intergovernmental 6,671,143 190,134 1,306,382 830,163 8,997,822 332,499 9,330,321 Restricted Receivables Accounts Receivable - - - - - 51,113 51,113

Special Assessments - - - - - 1,884,874 1,884,874 Subtotal Restricted Receivables - - - - - 1,935,987 1,935,987 Total Receivables $ 7,344,093 $ 1 ,836,203 $ 1 ,670,877 $ 6,742,297 $ 1 7,593,470 $ 2 ,763,601 $ 20,357,071 The County does not have any allowance for doubtful accounts related to the above receivables.

-67-

QUEEN ANNE’S COUNTY, MARYLAND

NOTES TO BASIC FINANCIAL STATEMENTS

JUNE 30, 2013

NOTE 4 - ACCOUNTS RECEIVABLE (CONTINUED)

The County expects to receive all receivables listed in the table within one year, excluding the following items.

Intergovernmental receivables include bonds receivable from four other counties. In years 1994, 2000, and 2003, Queen Anne’s County sold $1,000,000, $2,815,000, and $710,000, respectively, of its general obligation bonds for the purpose of providing the local share of capital projects at Chesapeake College. Five counties, including Queen Anne’s County, provide local support for the College. The other four counties supporting Chesapeake College reimburse Queen Anne’s

County for their portion of the debt service. Bonds are amortized over the 20-year life of each of the original Queen Anne's County Bonds. The current carrying value for the bonds receivable from the other four counties are $64,600, $995,000, and $302,206, respectively, for a total of $1,361,806. The College bills and collects from the original five counties an amount sufficient to cover this debt service and reimburses this amount to Queen Anne’s County on a semiannual basis.

Loans receivable in the amount of $5,285,873 relate to the Housing and Community Services, Impact Fees, and Revolving Loan Special Revenue Funds. Loans receivable in the amount of $3,928,220 for Housing and Community Services will be repaid when the homes are sold, in virtually all cases. These loans support housing rehabilitation and home-ownership.

When the loans are repaid to the County, the funds are then loaned out again to serve the same purpose. Loans for the Revolving Loan Fund in the amount of $153,178 are also repaid over a number of years.

The remaining loan receivable balance of $1,204,475 relates to school, fire, and parks and recreation impact fees. In July 2007, the County began accepting promissory notes for impact fees, in certain situations, with the understanding that when certificate of occupancy was obtained, these notes would be paid in full. To ensure repayment, the notes attach to the property incurring the impact fee; therefore, payment will be required automatically prior to legal transfer of title.

Income taxes held by the State in the amount of $3,794,205 have been estimated by the State as income tax due for “tax years” 2012 and prior. It may take five years or longer for the State to receive all amounts relating to these “tax years” and remit those monies to the County. However, the State indicates that this is a reasonable estimate of their liability to the County and the County reports this amount in accordance with GAAP.

Special Assessments in the amount of $942,301 represent receivables for governmental activities. Part of this amount consists of $348,376 for assessments levied on homeowners to reimburse the County for construction or upgrade of private roads prior to their acceptance into the County Roads System. The other part of this amount consists of $593,925 for assessments levied on homeowners relating to dredging costs. Payment of these assessments is expected over a number of

years.

Restricted Special Assessments in the amount of $1,884,874 represent restricted receivables for the Sanitary District.

These receivables relate to assessments levied on homeowners for the construction of sewer and water lines, as well as for hook up costs. Only the current portion due is billed and the remaining balances are repaid over a number of years, as determined by the original agreement. As the funds are paid back, the County uses the money to repay debt.

-68-

QUEEN ANNE’S COUNTY, MARYLAND

NOTES TO BASIC FINANCIAL STATEMENTS

JUNE 30, 2013

NOTE 5 – DEFERRED OR UNEARNED REVENUE

Governmental funds report deferred revenue in connection with receivables for revenues that are not considered to be available to liquidate liabilities of the current period. In addition, governmental funds and governmental activities defer revenue recognition in connection with resources that have been received, but unearned. At the end of the current fiscal year, the components of unavailable revenue and unearned revenue were reported as follows:

Deferred Revenue Unavailable Unearned Total General Fund Income Taxes Due from State $ 602,231 $ - $ 602,231 Property Taxes Receivable 134,615 - 134,615 Property Tax Deferrals - 1 7,852 17,852 Inter-governmental Bonds Receivable 1,361,806 - 1,361,806 Grant Drawdowns in Excess of Expenditures - 3 7,041 37,041 Inspection Fees Collected in Advance - 5 14,389 514,389 Subtotal 2,098,652 5 69,282 2,667,934

General Capital Projects Fund Grant Drawdowns in excess of Expenditures - 8 0,441 80,441 Roads Capital Projects Fund Benefit Assessments Receivable Not Currently Due - 3 48,376 348,376 Benefit Assessments Paid in Advance - 5 9,968 59,968 Subtotal - 4 08,344 408,344 Non-Major Governmental Funds Grant Drawdowns in Excess of Expenditures - 1 89,202 189,202 Benefit Assessments Receivable Not Currently Due - 5 93,925 593,925

Impact Fees Loans Receivable Not Currently Due - 1 ,204,475 1,204,475 Subtotal - 1 ,987,602 1,987,602 Total Deferred Revenue $ 2,098,652 $ 3 ,045,669 $ 5,144,321 -69-

QUEEN ANNE’S COUNTY, MARYLAND

NOTES TO BASIC FINANCIAL STATEMENTS

JUNE 30, 2013

NOTE 6 – CAPITAL ASSETS

PRIMARY GOVERNMENT

Changes in the County’s capital assets for governmental activities for the year ended June 30, 2013 are summarized as follows, with depreciation shown separately. Assets resulting from completed capital projects are shown in the Transfers column. Asset retirements are show in the Decreases column.

Balance Balance Governmental Activities June 30, 2012 Increases Transfers Decreases June 30, 2013 Capital Assets, not being depreciated:

Land $ 39,087,139 $ - $ - $ (155,314) $ 3 8,931,825 Intangible Rights - Easements 786,819 - - - 7 86,819 Land Improvements 3,448,083 - - - 3 ,448,083 Construction in Progress 2,567,685 1,584,865 (2,034,236) - 2 ,118,314 Land - Inexhaustible Infrastructure Improvements 41,573,711 - 413,960 (4,358) 4 1,983,313 Total Capital Assets, not being depreciated 87,463,437 1,584,865 (1,620,276) (159,672) 8 7,268,354

Capital Assets, being depreciated:

Buildings and Building Improvements 41,445,892 233,834 35,787 - 4 1,715,513 Improvements other than Buildings 8,005,542 - 87,932 - 8 ,093,474 Vehicles 9,182,935 1,392,834 - (333,082) 1 0,242,687 Equipment 8,090,607 609,705 - (332,305) 8 ,368,007 Furniture and Fixtures 10,406,733 54,340 - (48,728) 1 0,412,345 Infrastructure Improvements - Depreciable 16,910,259 - 1,496,557 (82,800) 1 8,324,016 Total Capital Assets, being depreciated 94,041,968 2,290,713 1,620,276 (796,915) 9 7,156,042

Less Accumulated Depreciation for:

Buildings and Building Improvements 10,127,316 921,261 - - 1 1,048,577 Improvements other than Buildings 1,326,992 242,761 - - 1 ,569,753 Vehicles 6,041,017 629,323 - (299,436) 6 ,370,904 Equipment 5,533,951 442,539 - (260,414) 5 ,716,076 Furniture and Fixtures 7,903,337 1,053,382 - (39,959) 8 ,916,760 Infrastructure Improvements - Depreciable 7,017,723 305,027 - (59,616) 7 ,263,134 Total Accumulated Depreciation 37,950,336 3,594,293 - (659,425) 4 0,885,204

Total Capital Assets, being depreciated, net 56,091,632 (1,303,580) 1,620,276 (137,490) 5 6,270,838 Governmental activities Capital Assets, net $ 143,555,069 $ 281,285 $ - $ (297,162) $ 1 43,539,192 -70-

QUEEN ANNE’S COUNTY, MARYLAND

NOTES TO BASIC FINANCIAL STATEMENTS

JUNE 30, 2013

NOTE 6 – CAPITAL ASSETS (CONTINUED)

PRIMARY GOVERNMENT (CONTINUED)

Changes in the County’s capital assets for business-type activities for the year ended June 30, 2013 are summarized as follows, with depreciation shown separately. Completed projects that were reclassified from construction in progress (CIP) to other asset accounts during the year are reported in the same column, as retirements from CIP and transfers to other asset accounts.

Balance Balance Business-Type Activities June 30, 2012 Increases Transfers Decreases June 30, 2013 Capital Assets, not being depreciated:

Land $ 12,931,333 $ - $ - $ (1,800) $ 12,929,533 Land Improvements 9,500 - - - 9,500 Intangible Rights 6,140 - - - 6,140 Construction in Progress 1,443,420 2,582,455 (813,858) (261,187) 2,950,830 Land - Inexhaustible Infrastructure Improvements 1,219,298 - - - 1,219,298 Total Capital Assets, not being depreciated 15,609,691 2,582,455 (813,858) (262,987) 17,115,301 Capital Assets, being depreciated:

Buildings and Improvements to Buildings 15,992,098 - - (1,288,238) 14,703,860 Improvements other than Buildings 11,741,751 - 174,639 (2,258) 11,914,132 Vehicles 1,274,058 30,001 - (8,835) 1,295,224 Equipment 21,903,962 149,481 - (244,324) 21,809,119 Furniture and Fixtures 58,423 8,750 - (7,465) 59,708 Infrastructure Improvements - Depreciable 70,156,181 2,048,768 639,219 (555,332) 72,288,836 Total Capital Assets, being depreciated 121,126,473 2,237,000 813,858 (2,106,452) 122,070,879

Less Accumulated Depreciation for:

Buildings and Improvements to Buildings 6,677,798 612,441 - (612,318) 6,677,921 Improvements other than Buildings 2,862,999 366,682 - (1,731) 3,227,950 Vehicles 895,794 67,231 - (8,835) 954,190 Equipment 8,268,038 1,014,964 - (197,972) 9,085,030 Furniture and Fixtures 51,385 1,054 - (4,417) 48,022 Infrastructure Improvements - Depreciable 22,879,299 1,666,978 - (177,744) 24,368,533 Total Accumulated Depreciation 41,635,313 3,729,350 - (1,003,017) 44,361,646

Total Capital Assets, being depreciated, net 79,491,160 (1,492,350) 813,858 (1,103,435) 77,709,233 Business-Type activities Capital Assets, net $ 95,100,851 $ 1,090,105 $ - $ (1,366,422) $ 94,824,534 -71-

QUEEN ANNE’S COUNTY, MARYLAND

NOTES TO BASIC FINANCIAL STATEMENTS

JUNE 30, 2013

NOTE 6 – CAPITAL ASSETS (CONTINUED)

PRIMARY GOVERNMENT (CONTINUED)

Depreciation expense was charged to functions/programs of the primary government as follows:

Governmental Activities Depreciation General Government $ 233,031 Public Safety 1,588,053 Public Works 1,318,694 Health 16,517 Social Services 347,280 Library 25,848 Conservation of Natural Resources 29,089 Economic/Community Development 35,781 $ 3,594,293 Business-Type Activities Major Enterprise Funds:

Sanitary District $ 3,348,805 Airport 234,009 Non-Major Enterprise Funds: 146,536 $ 3,729,350 -72-

QUEEN ANNE’S COUNTY, MARYLAND

NOTES TO BASIC FINANCIAL STATEMENTS

JUNE 30, 2013

NOTE 6 – CAPITAL ASSETS (CONTINUED)

COMPONENT UNITS

Board of Education: Capital asset activity for the year ended June 30, 2013 is as follows:

Balance Balance Board of Education June 30, 2012 Increases Decreases June 30, 2013 Capital Assets, not being depreciated:

Land $ 6,363,040 $ - $ - $ 6,363,040 Construction in Progress 3,651,312 1,208,118 (3,905,560) 953,870 Total Capital Assets, not being depreciated 10,014,352 1,208,118 (3,905,560) 7,316,910 Capital Assets, being depreciated:

Land Improvements 5,052,832 515,527 - 5,568,359 Buildings 178,862,050 3,420,568 (284,161) 181,998,457 Furniture and Equipment 8,769,137 1,316,824 (406,490) 9,679,471 Total Capital Assets, being depreciated 192,684,019 5,252,919 (690,651) 197,246,287 Less Accumulated Depreciation for:

Land Improvements 3,625,976 180,943 - 3,806,919 Building 37,349,301 3,667,646 (284,165) 40,732,782 Furniture and Equipment 6,217,952 558,407 (400,739) 6,375,620 Total Accumulated Depreciation 47,193,229 4,406,996 (684,904) 50,915,321 Total Capital Assets, being depreciated, net 145,490,790 845,923 (5,747) 146,330,966 Capital Assets, net $ 155,505,142 $ 2,054,041 $ (3,911,307) $ 153,647,876 -73-

QUEEN ANNE’S COUNTY, MARYLAND

NOTES TO BASIC FINANCIAL STATEMENTS

JUNE 30, 2013

NOTE 6 – CAPITAL ASSETS (CONTINUED)

COMPONENT UNITS (CONTINUED)

Queen Anne’s County Free Library: Capital asset activity for the year ended June 30, 2013 is as follows:

Balance Balance Library June 30, 2012 Increases Decreases June 30, 2013 Capital Assets, not being depreciated:

Artwork $ 29,850 $ - $ - $ 2 9,850 Capital Assets, being depreciated:

Books and Media 2,374,466 156,588 (144,875) 2 ,386,179 Building Improvements 239,072 72,450 - 3 11,522 Equipment - 22,870 - 2 2,870 Total Capital Assets, being depreciated 2,613,538 251,908 (144,875) 2 ,720,571 Less Accumulated Depreciation 1,644,830 114,734 (130,892) 1 ,628,672 Total Capital Assets, being depreciated, net 968,708 137,174 (13,983) 1 ,091,899 Capital Assets, net $ 998,558 $ 137,174 $ (13,983) $ 1 ,121,749

-74-

QUEEN ANNE’S COUNTY, MARYLAND

NOTES TO BASIC FINANCIAL STATEMENTS

JUNE 30, 2013

NOTE 7 - INTERFUND RECEIVABLES AND PAYABLES

Interfund receivables and payables are usually used by the County to cover temporary cash deficits in individual funds until grant or similar resources are received. Occasionally, these receivables and payables are used in lieu of short-term external borrowing, such as for capital lease agreements.

Intra-entity receivables and payables usually relate to capital construction projects, wherein the primary government records a liability to its component unit at year-end while the component unit records a payable to the contractor.

The interfund and intra-entity receivables and payables consist of the following at June 30, 2013:

Due from Fund Total Due From General Non-Major Sanitary Bay Bridge Non-Major Other Funds / Capital Projects Governmental District Airport Enterprise Component Units Due to Fund General Fund $ - $ 210,778 $ - $ 493,277 $ 306,731 $ 1,010,786 General Capital Projects - 64,523 - - - 64,523 Sanitary District - - 378,634 - - 378,634 Board of Education - Component Unit 1,367,853 - - - - 1,367,853 Total Due to Other Funds $ 1,367,853 $ 275,301 $ 378,634 $ 493,277 $ 306,731 $ 2,821,796

In Fiscal Year 2014, the Board of Education issued a check to the County in the amount of $170,430 to repay a temporary allocation issued to the Board by the County in Fiscal Year 2013 which covered various capital improvements. The County has appropriately recorded a receivable for this amount in Fiscal Year 2013, resulting in a reconciling item with the Board of Education.

Interfund receivables and payables are reported on the Statement of Net Position as Internal Balances, net of transactions between the same types of funds.

-75-

QUEEN ANNE’S COUNTY, MARYLAND

NOTES TO BASIC FINANCIAL STATEMENTS

JUNE 30, 2013

NOTE 8 - INTERFUND TRANSFERS

Interfund transfers represent a transfer of resources from one fund to another without expectation of repayment. Usually, these transfers are undertaken to enable the receiving entity to provide services that the government has determined to be in the best interest of the County. The following interfund transfers were made during the fiscal year ended June 30, 2013:

Transfers in Fund Total General General Roads Non-Major Major Non-Major Total Transfers Out Fund Capital Projects Capital Governmental Enterprise Enterprise Transfers In Transfers Out Fund General Fund $ 11,163,397 $ - $ 7,447,551 $ 1,690,000 $ 1,666,569 $ 144,570 $ 214,707 $ 11,163,397 General Capital Projects (1) 17,228 - - - - - - - Total Major Governmental Funds 11,180,625 - 7,447,551 1,690,000 1,666,569 144,570 214,707 11,163,397

Non-Major Governmental 47,784 22,608 25,176 - - - - 47,784 Sanitary District - Restricted 1,056,023 - - - - 1,056,023 - 1,056,023 Sanitary District - Debt Service 1,885,945 - - - - 1,885,945 - 1,885,945 Total Major Enterprise Funds 2,941,968 - - - - 2,941,968 - 2,941,968 Total Transfers Out $ 14,170,377 $ 22,608 $ 7,472,727 $ 1,690,000 $ 1,666,569 $ 3,086,538 $ 214,707 $ 14,153,149

(1) In fiscal year 2013, the General Capital Projects Fund transferred 2011 bond proceeds in the amount of $17,228 to

the Public Landings and Marinas enterprise fund. This transaction was appropriately recorded in the Enterprise Fund as an increase in debt liability and in the General Capital Projects Fund as a transfer out. Since enterprise funds and governmental funds record such transactions differently, the $17,228 is reported in the above table only as a transfer out with no corresponding transfer in.

-76-

QUEEN ANNE’S COUNTY, MARYLAND

NOTES TO BASIC FINANCIAL STATEMENTS

JUNE 30, 2013

NOTE 9 - NONCURRENT LIABILITIES

A. CHANGES IN NONCURRENT LIABILITIES

During the year ended June 30, 2013, the following changes occurred in the noncurrent liabilities of the primary government’s governmental activities:

PRIMARY GOVERNMENT Retirements Due in Balance Additions and Balance Due Within More than Governmental Activities June 30, 2012 of debt Repayments June 30, 2013 One Year One Year General Bonds Payable $ 9 6,125,921 $ - $ 7,047,694 $ 89,078,227 $ 7 ,285,615 $ 81,792,612 General Bonds Payable - Related to PHA 1 ,360,643 - 63,672 1,296,971 6 6,499 1,230,472 Notes Payable 8 89,256 564,068 306,569 1,146,755 2 04,146 942,609

Bond Premiums, Net of Issuance Costs 1 ,127,146 - 124,958 1,002,188 1 24,951 877,237 Deferred Refunding Costs (1,486,447) - ( 201,161) (1,285,286) (201,161) (1,084,125) Subtotal Governmental Activities Debt 9 8,016,519 564,068 7,341,732 91,238,855 7 ,480,050 83,758,805 Other Post-Employment Benefit Obligation 1 9,566,364 7,888,198 1,668,779 25,785,783 - 25,785,783 Compensated Absences 2 ,191,302 1,117,150 1,251,413 2,057,039 1 ,255,528 801,511

Total Governmental Activities Debt $ 1 19,774,185 $ 9,569,416 10,261,924 $ 119,081,677 $ 8 ,735,578 $ 110,346,099 Less College Reimbursements ( 267,629) Total Governmental Retirements and Repayments $ 9,994,295 The reconciliation from retirements and repayments in the above table to the total principal payments on the Statement of Revenues, Expenditures, and Changes in Fund Balance is as follows:

Retirements and Repayments General Bonds Payable $ 7 ,047,694 Notes Payable 3 06,569 LESS: Distributions of 2011 Bonds (17,228) LESS: College Reimbursements (267,629) Total Principal Payments $ 7 ,069,406 The County added amounts to several bond offerings on behalf of Chesapeake College, which cannot borrow money on its own. The College reimbursed to the County $267,629 for this year’s principal and interest payments.

-77-

QUEEN ANNE’S COUNTY, MARYLAND

NOTES TO BASIC FINANCIAL STATEMENTS

JUNE 30, 2013

NOTE 9 – NONCURRENT LIABILITIES (CONTINUED)

A. CHANGES IN NONCURRENT LIABILITIES (CONTINUED)

During the year ended June 30, 2013, the following changes occurred in the noncurrent liabilities of the primary government’s business-type activities:

PRIMARY GOVERNMENT Retirements Due in Balance Additions and Balance Due Within More than Business-Type Activities June 30, 2012 of debt Repayments June 30, 2013 One Year One Year Golf Course $ 6 86,075 $ - $ 80,000 $ 606,075 $ 8 0,000 $ 526,075 Airport 6 11,235 - 43,735 567,500 4 4,583 522,917 Public Landings and Marinas 1 ,041,122 17,228 42,125 1,016,225 4 3,303 972,922 Sanitary District 1 5,883,959 - 1,786,190 14,097,769 1 ,513,289 12,584,480

Subtotal Debt 1 8,222,391 17,228 1,952,050 16,287,569 1 ,681,175 14,606,394 Bond Premiums, Net of Issuance Costs Golf Course 2 1,212 - 2,652 18,560 2 ,651 15,909 Airport 6 ,725 - 836 5,889 8 36 5,053 Public Landings and Marinas 3 91 7 23 375 2 2 353 Deferred Refunding Costs Golf Course (47,106) - ( 5,888) (41,218) (5,888) (35,330) Airport (14,778) - ( 1,847) (12,931) (1,847) (11,084) Sanitary District (13,333) - ( 13,333) - - -

Subtotal Bond Premiums, Issuance and Deferred Refunding Costs (46,889) 7 ( 17,557) (29,325) (4,226) (25,099) Subtotal Debt before Other Post-Employment Benefit Obligation and Compensated Absences 1 8,175,502 17,235 1,934,493 16,258,244 1 ,676,949 14,581,295 Other Post-Employment Benefit Obligation 3 ,263,613 1,135,802 - 4,399,415 - 4,399,415 Compensated Absences 2 83,252 145,544 163,688 265,108 1 61,811 103,297

Total Business-Type Activities Debt $ 2 1,722,367 $ 1,298,581 $ 2,098,181 $ 20,922,767 $ 1 ,838,760 $ 19,084,007 Additions of new debt listed above in the amount of $17,228 represent distributions of the 2011 bonds (see comment in Note 8).

-78-

QUEEN ANNE’S COUNTY, MARYLAND

NOTES TO BASIC FINANCIAL STATEMENTS

JUNE 30, 2013

NOTE 9 – NONCURRENT LIABILITIES (CONTINUED)

A. CHANGES IN NONCURRENT LIABILITIES (CONTINUED)

During the year ended June 30, 2013, the following changes occurred in the noncurrent liabilities of the primary government’s Component Units:

COMPONENT UNITS Retirements Due in Balance Additions and Balance Due Within More than Board of Education and Free Library June 30, 2012 of new debt Repayments June 30, 2013 One Year One Year Queen Anne's County Board of Education Retirement Incentives $ 25,256 $ - $ 8,679 $ 16,577 $ 12,490 $ 4,087 Compensated Absences 991,095 268,192 258,124 1,001,163 258,124 743,039 Other Post-Employment Benefit Obligation 20,337,878 6,677,876 - 27,015,754 - 27,015,754

Subtotal 21,354,229 6,946,068 266,803 28,033,494 270,614 27,762,880 Free Library Other Post-Employment Benefit Obligation 791,664 221,600 - 1,013,264 - 1,013,264 Total Noncurrent Liabilites: Component Units $ 22,145,893 $ 7,167,668 $ 266,803 $ 29,046,758 $ 270,614 $ 28,776,144 -79-

QUEEN ANNE’S COUNTY, MARYLAND

NOTES TO BASIC FINANCIAL STATEMENTS

JUNE 30, 2013

NOTE 9 – NONCURRENT LIABILITIES (CONTINUED)

B. GENERAL OBLIGATION BONDS, NOTES, OTHER POST-EMPLOYMENT BENEFIT OBLIGATION,

AND COMPENSATED ABSENCES

PRIMARY GOVERNMENT

All general obligation bonds are valid and legally binding general obligations of Queen Anne’s County and constitutes an irrevocable pledge of its full faith and credit and unlimited taxing power. Governmental bonds are payable from ad valorem taxes, unlimited as to rate or amount on all real, tangible, personal, and certain intangible property subject to taxation at full rate for local purposes in the County.

Business-type bonds, while representing general obligations of the County government, are to be paid from income earned by the related enterprise fund. Enterprise funds that have such debt are: Sewer Operations, Bay Bridge Airport, Blue Heron Golf Course, and Public Landings and Marinas.

During fiscal year 2009, the County implemented the provisions of Governmental Accounting Standards Board (GASB) Statement 43, Financial Reporting for Post-Employment Benefit Plans Other than Pension Plans and GASB 45, Accounting and Financial Reporting by Employers for Post-Employment Benefits Other Than Pensions. For governmental funds, the other post-employment benefit obligations are reported in the government-wide statements in

the function in which that employee usually charges their productive time. For enterprise funds, these obligations are reported in the enterprise fund in which that employee charges the majority of their productive time. Additional information can be found in Note 14, Other Post-Employment Benefits.

Compensated absences that mature during the fiscal year, in that they are paid when the employee takes vacation leave upon the employee’s termination, are typically liquidated from the governmental or enterprise fund in which that employee charges the majority of their productive time. They are paid as regular wages. Compensated absences that do not mature during the fiscal year are accrued at year-end as an adjustment to liability for compensated absences. For

governmental funds, these adjustments are reported in the government-wide statements in the function in which that employee usually charges their productive time. For enterprise funds, these adjustments are reported in the enterprise fund in which that employee charges the majority of their productive time. In the case of grant-funded activities that disallow compensated absences as an eligible cost, they are paid as administrative wages in the same Fund.

Compensated absences in governmental funds are primarily charged to the General Fund or Special Revenue Funds;

they are usually not charged to Capital Projects Funds.

-80-

QUEEN ANNE’S COUNTY, MARYLAND

NOTES TO BASIC FINANCIAL STATEMENTS

JUNE 30, 2013

NOTE 9 – NONCURRENT LIABILITIES (CONTINUED)

B. GENERAL OBLIGATION BONDS, NOTES, OTHER POST-EMPLOYMENT BENEFIT OBLIGATION,

AND COMPENSATED ABSENCES (CONTINUED)

PRIMARY GOVERNMENT (CONTINUED)

As of June 30, 2013, general obligation bonds and notes payable for governmental activities are comprised of the following, along with other post-employment benefits and accrued compensated absences:

Year Amount Outstanding Due in Paying Interest Series of Original June 30, Due Within More than Governmental Activities Fund Rate Matures Issue 2013 One Year One Year General Obligation Bonds Payable 2002 Refunding Bonds General 3.00%-5.00% 2013 6,310,000 $ 530,000 $ 5 30,000 $ - 2005 Refunding Bonds General 3.00%-5.00% 2019 30,026,336 18,191,336 3 ,310,000 14,881,336 2006 Public Facilities General 4.000%-5.375% 2027 22,510,212 17,720,496 9 54,069 16,766,427

2009 Public Facilities General 1.400%-5.625% 2030 28,499,154 24,915,205 1 ,067,861 23,847,344 2011 Public Facilities General 2.00%-4.25% 2031 21,532,570 19,993,668 7 59,819 19,233,849 2012 Refunding Bonds General 2.00%-4.00% 2023 8,010,000 7,727,522 6 63,866 7,063,656 2003 Public Facilities Due from PHA 3.50%-4.50% 2023 335,000 202,478 1 6,134 186,344 2006 Public Facilities Due from PHA 4.000%-5.375% 2027 399,728 314,674 1 6,942 297,732

2009 Public Facilities Due from PHA 1.400%-5.625% 2030 872,644 779,819 3 3,423 746,396 Subtotal Bonds Payable 90,375,198 7 ,352,114 83,023,084 Notes Payable 2009 CELP Loan General 2.00% 2015 122,780 45,826 1 8,057 27,769 State of Maryland - Price Ck. Spec. Rev. 0.00% 2021 625,000 192,000 2 4,000 168,000 State of Maryland - Grove Ck. Spec. Rev. 0.00% 2034 510,617 428,917 2 0,425 408,492 Frizz-King Property General Capital Projects 6.00% 2014 365,000 33,339 3 3,339 -

Suntrust Financing General 2.01% 2016 564,068 446,673 1 08,325 338,348 Subtotal Notes Payable 1,146,755 204,146 942,609 Subtotal Bonds and Notes Payable 91,521,953 7 ,556,260 83,965,693 Bond Premiums 1,519,642 1 67,260 1,352,382 Bond Issuance Costs (517,454) (42,309) ( 475,145) Deferred Refunding Costs (1,285,286) (201,161) ( 1,084,125) Total Governmental Activities before Other Post-Employment Benefit Obligation and Compensated Absences 91,238,855 7 ,480,050 83,758,805

Other Post-Employment Benefit Obligation 25,785,783 - 25,785,783 Compensated Absences 2,057,039 1 ,255,528 801,511 Total Governmental Activities $ 119,081,677 $ 8 ,735,578 $ 110,346,099 -81-

QUEEN ANNE’S COUNTY, MARYLAND

NOTES TO BASIC FINANCIAL STATEMENTS

JUNE 30, 2013

NOTE 9 – NONCURRENT LIABILITIES (CONTINUED)

B. GENERAL OBLIGATION BONDS, NOTES, OTHER POST-EMPLOYMENT BENEFIT OBLIGATION,

AND COMPENSATED ABSENCES (CONTINUED)

PRIMARY GOVERNMENT (CONTINUED)

The annual requirements to amortize general obligation bonds and notes payable outstanding as of June 30, 2013 for governmental activities are as follows:

Governmental Activities Year Ending Governmental Bonds Payable Governmental Notes Payable June 30, Principal Interest Total Principal Interest Total 2014 $ 7,352,114 $ 3,638,359 $ 10,990,473 $ 204,146 $ 10,394 $ 214,540 2015 7,084,590 3,390,664 10,475,254 173,372 7,334 180,706 2016 6,791,995 3,143,092 9,935,087 166,541 4,719 171,260 2017 7,074,401 2,877,830 9,952,231 159,479 2,336 161,815 2018 5,786,618 2,621,243 8,407,861 44,425 - 44,425

2019-2023 26,693,566 9,702,149 36,395,715 174,125 - 174,125 2024-2028 21,203,604 4,648,627 25,852,231 102,125 - 102,125 2029-2033 8,388,310 599,821 8,988,131 102,125 - 102,125 2034 - - - 20,417 - 20,417 $ 90,375,198 $ 30,621,785 $ 120,996,983 $ 1,146,755 $ 24,783 $ 1,171,538 These repayment schedules exclude bond premiums ($1,519,642), issuance costs (negative $517,454), and deferred refunding costs (negative $1,285,286).

For the year ended June 30, 2013, total principal, debt issuance costs, and interest incurred by governmental funds relating to general obligation bonds and notes payable, less College reimbursements, were $7,069,406, negative $94, and $3,675,628, respectively.

A portion of the County’s 2009 Bond offering was issued using Build America Bonds. As an incentive to use these bonds, the Federal government offered an interest reimbursement grant, which offsets the County’s debt service for interest expense. As a result, the County received interest reimbursements of $420,868 during fiscal year 2013, which are reported separately as a specific intergovernmental grant. The net effect of this reimbursement is shown below.

Interest Expense Interest Net Interest on 2009 Bonds Reimbursement Expense Governmental Activities $ 1,209,177 $ (404,293) $ 804,884 Business-Type Activities Airport 7 ,828 (2,621) 5,207 Public Landings and Marinas 41,671 (13,953) 27,718 Total Business-Type Activities 49,499 (16,574) 32,925 Total $ 1,258,676 $ (420,867) $ 837,809 -82-

QUEEN ANNE’S COUNTY, MARYLAND

NOTES TO BASIC FINANCIAL STATEMENTS

JUNE 30, 2013

NOTE 9 – NONCURRENT LIABILITIES (CONTINUED)

B. GENERAL OBLIGATION BONDS, NOTES, OTHER POST-EMPLOYMENT BENEFIT OBLIGATION,

AND COMPENSATED ABSENCES (CONTINUED)

PRIMARY GOVERNMENT (CONTINUED)

General obligation bonds and notes payable outstanding as of June 30, 2013 for business-type activities are comprised of the following, as well as other post-employment benefits and accrued compensated absences:

Year Amount Outstanding Due in Interest Series of Original June 30, Due Within More than Business -Type Activities Rate Matures Issue 2013 One Year One Year Golf Course 2005 Refunding Bonds 3.00%-5.00% 2019 $ 1 ,076,075 $ 606,075 $ 80,000 $ 526,075 Bond Premiums 21,288 3,041 18,247 Bond Issuance Costs ( 2,728) (390) (2,338) Deferred Refunding Costs ( 41,218) (5,888) (35,330) Subtotal Golf Course 583,417 76,763 506,654

Bay Bridge Airport 2005 Refunding Bonds 3.00%-5.00% 2019 3 37,588 167,588 25,000 142,588 2006 Public Facilities Bonds 4.000%-5.375% 2027 2 88,928 227,450 12,246 215,204 2009 Public Facilities Bonds 1.400%-5.625% 2030 1 80,501 161,300 6,913 154,387 2011 Public Facilities Bonds 2.00%-4.25% 2031 2 1,968 11,162 424 10,738 Bond Premiums 9,714 1,160 8,554 Bond Issuance Costs ( 3,825) (324) (3,501) Deferred Refunding Costs ( 12,931) (1,847) (11,084)

Subtotal Airport 560,458 43,572 516,886 Public Landings and Marinas 2006 Public Facilities Bonds 4.000%-5.375% 2027 4 1,132 32,380 1,743 30,637 2009 Public Facilities Bonds 1.400%-5.625% 2030 9 47,976 858,674 36,803 821,871 2011 Public Facilities Bonds 2.00%-4.25% 2031 1 33,908 125,171 4,757 120,414 Bond Premiums 5,338 316 5,022 Bond Issuance Costs ( 4,963) (294) (4,669) Subtotal Public Landings and Marinas 1,016,600 43,325 973,275

Sanitary District 2002 Refunding Bonds 3.00%-5.00% 2013 3 ,385,000 330,000 330,000 - Maryland Water Quality-Bay City 3.50% 2015 3 ,476,961 503,067 247,207 255,860 Maryland Water Quality-2005 Enhancement 1.00% 2027 1 8,252,291 13,137,914 879,930 12,257,984 Queenstown Bank-Cloverfields Hookup 8.13% 2015 4 35,000 72,421 39,483 32,938 Queenstown Bank-Bay City Hookup 7.90% 2015 2 05,000 54,367 16,669 37,698

Subtotal Sanitary District 14,097,769 1,513,289 12,584,480 Total Business-Type Activities before Other Post-Employment Benefit Obligation and Compensated Absences 16,258,244 1,676,949 14,581,295 Other Post-Employment Benefit Obligation 4,399,415 - 4,399,415 Compensated Absences 265,108 161,811 103,297 Total Business-Type Activities $ 20,922,767 $ 1,838,760 $ 19,084,007 -83-

QUEEN ANNE’S COUNTY, MARYLAND

NOTES TO BASIC FINANCIAL STATEMENTS

JUNE 30, 2013

NOTE 9 – NONCURRENT LIABILITIES (CONTINUED)

B. GENERAL OBLIGATION BONDS, NOTES, OTHER POST-EMPLOYMENT BENEFIT OBLIGATION,

AND COMPENSATED ABSENCES (CONTINUED)

PRIMARY GOVERNMENT (CONTINUED)

The annual requirements to amortize business-type bonds and notes outstanding at June 30, 2013, are as follows:

Business-Type Activities Year Ending Business-Type Bonds Payable Business-Type Notes Payable June 30, Principal Interest Total Principal Interest Total 2014 $ 497,886 $ 101,706 $ 599,592 $ 1,183,289 $ 219,140 $ 1,402,429 2015 175,413 87,110 262,523 1,195,536 197,010 1,392,546 2016 178,004 80,481 258,485 917,106 163,082 1,080,188 2017 180,597 73,597 254,194 906,791 153,121 1,059,912 2018 188,383 65,816 254,199 915,658 144,051 1,059,709

2019-2023 636,434 228,665 865,099 4,717,486 581,065 5,298,551 2024-2028 476,396 113,125 589,521 3,931,903 292,172 4,224,075 2029-2031 186,687 11,438 198,125 - - - $ 2,519,800 $ 761,938 $ 3,281,738 $ 13,767,769 $ 1,749,641 $ 15,517,410 These repayment schedules exclude bond premiums, net of issuance costs ($24,824) and deferred refunding costs (negative $54,149).

For the year ended June 30, 2013, total principal and interest of $1,952,050 and $390,264, respectively, was incurred by business-type activities relating to bonds and notes payable.

C. DEFEASANCE OF DEBT

2012 Refunding Bonds – During fiscal year 2012, Queen Anne’s County defeased certain 2003 Public Facilities Bonds by placing the proceeds of new bonds with an escrow agent in an irrevocable trust to provide for all future debt service payments on the old bonds.

Accordingly, the trust account assets and liability for the defeased bonds are not included in the financial statements for Queen Anne’s County. As of June 30, 2013, $7,727,522 of governmental debt outstanding from prior years is considered to be defeased.

D. MUNICIPAL LEASE

PRIMARY GOVERNMENT

In August 2012, the County signed a note with Suntrust Equipment Financing & Leasing Corporation for the purchase of five replacement vehicles for the Sheriff’s Office and two ambulances for Emergency Services. The total amount of the note was $564,068 and is payable over five years. The first payment was made in August 2012. The annual interest rate is 2.0118%.

-84-

QUEEN ANNE’S COUNTY, MARYLAND

NOTES TO BASIC FINANCIAL STATEMENTS

JUNE 30, 2013

NOTE 9 – NONCURRENT LIABILITIES (CONTINUED)

E. LEASE OBLIGATIONS

OPERATING LEASE – PRIMARY GOVERNMENT

In October 2009, Queen Anne’s County entered into an operating lease agreement as lessor for ground space at the Bay Bridge Airport. The Airport leased a parcel of land approximately 9,000 square feet to CSP Properties, LLC beginning in November 2009 for a term of twenty-five years, ending in fiscal year 2035. Included in the lease agreement is the requirement that the lessee, CSP Properties, LLC, construct an aircraft hangar at its sole expense,

subject to certain criteria. At the end of the lease, the aircraft hangar and any improvements made to it become the sole property of the Bay Bridge Airport.

Lease revenues for the year ended June 30, 2013 amounted to $5,495. Minimum future lease revenues are as follows:

Fiscal Year Ending lease June 30, payments 2014 $ 5,416 2015 5,416 2016 5,488 2017 5,525 2018 5,525 2019-2023 28,326 2024-2028 29,239 2029-2033 30,218 2034-2035 8,255 Minimum Future Rental Revenue $ 123,408

F. LOCAL DEBT POLICY

PRIMARY GOVERNMENT

In May 2013, Queen Anne’s County adopted Resolution No. 13-04, which updated and replaced Resolution No. 09-13, to continue a local debt policy in compliance with Article 95, Section 22F of the Annotated Code of Maryland. This policy requires that the County’s Director of Budget and Finance: (1) prepare a six-year capital project plan each year;

(2) propose an amount to be transferred from the General Fund operating balances to the General Capital Projects Fund

to serve as pay-as-you-go funding in the latter Fund, in order to lessen the need for future County debt; (3) limit the County’s non-bonded indebtedness to $8.0 million for general operating expenses or capital improvements; (4) certify that the sum of outstanding general bonded debt and any new general obligation debt is 2.5% or less of the total taxable assessable base and is $3,000 or less per capita; and (5) review and revise this Debt Policy as necessary no later than

September 1, 2015. This policy also stipulates that although there is some flexibility as to the acceptable percentage of debt service to general fund expenditures, and no absolute limit has been established by the rating agencies or the Government Finance Officers Association, anything above 12% of total general fund expenditures would be a cause to carefully monitor debt service.

Queen Anne’s County has complied with the above policy, and has not had any violations.

For calculations relating to this local debt policy, see Table 12-b in the Statistical Section of this document.

-85-

QUEEN ANNE’S COUNTY, MARYLAND

NOTES TO BASIC FINANCIAL STATEMENTS

JUNE 30, 2013

NOTE 10 – RESTRICTED ASSETS AND LIABILITIES AND FUND BALANCES

A. RESTRICTED ASSETS AND RELATED LIABILITIES

PRIMARY GOVERNMENT

BUSINESS-TYPE ACTIVITIES

Queen Anne’s County Sanitary District Restricted Fund - The County Commissioners created a restricted fund within the Sanitary District Enterprise Fund in November of 1989 by enabling legislation. Revenue sources to the fund are sales of water and sewer allocations and interest earned on investments. Authorized uses of restricted funds are major capital expenses for repairs, construction, plant expansion, debt service, or other similar uses within the Sanitary District. To date, such funds have been used

almost exclusively for debt service.

Debt Service Fund - Principal and interest payments for water and wastewater debt used to expand the service area are payable primarily from water and sewer special benefit assessments. These assessments, made at the time the expansion is ready for use, are created by enabling legislation and amortized over the same life as underlying debt. They constitute a lien on the served property and may be prepaid at any time. The amount of assessments collectable in future

years is recorded as benefit assessments receivable. A portion of those assessments receivable is not due currently and is recorded as unearned revenue.

Water Quality Revolving Loan Fund debt covenants stipulate that sufficient financial resources must be available in the Debt Service Fund as of June 30 of each year to cover the subsequent year’s debt service payments. If such resources are not available at that time, the covenants require that the County increase service rates, impose benefit assessments, or otherwise increase financial resources so that debt service payments are covered before they are due throughout the year.

The assets and related liabilities restricted for the above purposes at June 30, 2013 are as follows:

Sanitary District Business -Type Activities Restricted Debt Service Total Current Restricted Assets Equity in Pooled Cash $ 6,255,739 $ 2,840,468 $ 9,096,207 Accounts Receivable (Net) 10,721 40,392 51,113 Subtotal 6,266,460 2,880,860 9,147,320 LESS Current Liabilities Associated with Restricted Assets Current Portion of Bonds Payable from Restricted Assets - (56,152) (56,152) Net Current Restricted Assets 6,266,460 2,824,708 9,091,168

Noncurrent Restricted Assets Special Assessments Receivable (Net) 1,230,159 654,715 1,884,874 LESS Noncurrent Liabilities Payable from Noncurrent Restricted Assets Unearned Revenue (1,230,159) (610,029) (1,840,188) Net Noncurrent Restricted Assets - 44,686 44,686 Net Restricted Assets $ 6,266,460 $ 2,869,394 $ 9,135,854 -86-

QUEEN ANNE’S COUNTY, MARYLAND

NOTES TO BASIC FINANCIAL STATEMENTS

JUNE 30, 2013

NOTE 10 – RESTRICTED ASSETS AND LIABILITIES AND FUND BALANCES (CONTINUED)

B. RESTRICTED NET ASSETS

PRIMARY GOVERNMENT

GOVERNMENTAL ACTIVITIES

Net Investment in Capital Assets for governmental activities, is calculated as follows:

Governmental Activities Total Debt excluding Compensated Absences and OPEB Obligation $ (91,238,855) Add back: Debt relating to Board of Education Assets $ 62,055,697 Add back: Unspent portion of Bond Proceeds for Board of Education debt 1,228,029 Add back: Unspent portion of Bond Proceeds for Governmental debt 3,917,364 Add back: Debt relating to PHA 1,296,971 Add back: Debt relating to non-capital assets (Dredging) 620,916

Add back debt unrelated to Capital Assets 69,118,977 Net Assets Invested in Capital Assets 143,539,192 Net Investment in Capital Assets $ 121,419,314

BUSINESS-TYPE ACTIVITIES

Net Investment in Capital Assets, Restricted Amounts, Unrestricted Amounts, and Net Position for business-type activities, are as follows:

Sanitary District Non-Major Total Sewer Water Restricted Debt Service Total Bay Bridge Enterprise Enterprise Business-Type Activities Operating Operating Fund Fund Sanitary Airport Funds Funds Capital Assets, net of Accumulated Depreciation $ 54,166,497 $ 1 6,029,473 $ - $ - $ 70,195,970 $ 16,768,738 $ 7,859,826 $ 94,824,534 Less: Debt excluding Compensated Absences and OPEB Obligation (13,657,925) (313,056) - - (13,970,981) (560,458) (1,600,017) (16,131,456)

Net Investment in Capital Assets 40,508,572 1 5,716,417 - - 56,224,989 16,208,280 6,259,809 78,693,078 Restricted Amounts Debt Service - - - 2,422,611 2,422,611 - 417 2,423,028 Capital Projects - - 753,300 - 753,300 - - 753,300 Total Restricted Amounts - - 753,300 2,422,611 3,175,911 - 417 3,176,328 Total Unrestricted Amounts 4,535,925 2 ,728,096 5,509,018 - 12,773,039 (422,195) 178,750 12,529,594

Total Net Position $ 45,044,497 $ 1 8,444,513 $ 6,262,318 $ 2,422,611 $ 72,173,939 $ 15,786,085 $ 6,438,976 $ 94,399,000 Sanitary District debt, excluding compensated absences and OPEB obligation of $13,970,981 above, also excludes $126,788 from the Debt Service Fund, as there are no capital assets related to that debt.

-87-

QUEEN ANNE’S COUNTY, MARYLAND

NOTES TO BASIC FINANCIAL STATEMENTS

JUNE 30, 2013

NOTE 10 – RESTRICTED ASSETS AND LIABILITIES AND FUND BALANCES (CONTINUED)

C. FUND BALANCES

PRIMARY GOVERNMENT

Governmental fund balances are composed of the following:

Total General General Roads Non-Major Governmental Governmental Funds Fund Capital Capital Governmental Funds Nonspendable Inventory $ 609,309 $ - $ - $ - $ 609,309 Prepaid Items 16,813 - 27,833 310 44,956 Loans Receivable - 1,296,971 - 4,081,398 5,378,369 Subtotal Nonspendable 626,122 1,296,971 27,833 4,081,708 6,032,634 Restricted Rainy Day Fund 7,920,443 - - - 7,920,443 Unspent Bond Proceeds - 5,145,393 - - 5,145,393

Impact Fees - 248,663 - 2,522,730 2,771,393 Economic and Community Development - - - 2,137,211 2,137,211 Agricultural Easements - - - 2,073,505 2,073,505 Inmate Welfare - - - 214,844 214,844 Sheriff's Drug Task Force - - - 182,574 182,574 Critical Areas - - - 152,344 152,344 Mosquito Control 141,866 - - - 141,866 Sheriff - Federal Confiscated Funds 49,305 - - - 49,305 Vehicle Acquisition - 25,176 - - 25,176

Dredging - - - 18,154 18,154 Donor-Specified Purposes - - - 4,265 4,265 Subtotal Restricted 8,111,614 5,419,232 - 7,305,627 20,836,473 Committed Developer Exactions - 76,741 774,913 - 851,654 Rubble Surcharge - 694,348 - - 694,348 Economic Development - 319,478 - - 319,478 Courthouse Project - 1,509,661 - - 1,509,661 Business Park - 105,241 - - 105,241 Subtotal Committed - 2,705,469 774,913 - 3,480,382

Assigned Income Tax Contingency 1,284,657 - - - 1,284,657 Capital Projects - 18,929,951 2,651,225 - 21,581,176 Subsequent Years' Expenditures - 2,481,169 350,000 252,890 3,084,059 Subtotal Assigned 1,284,657 21,411,120 3,001,225 252,890 25,949,892 Unassigned General Fund 5,965,003 - - - 5,965,003 Fire Company Impact Fees - - - (64,523) (64,523) Housing and Community Services - - - (70,992) (70,992)

Subtotal Unassigned 5,965,003 - - (135,515) 5,829,488 Total Governmental Funds Balances $ 15,987,396 $ 30,832,792 $ 3,803,971 $ 11,504,710 $ 62,128,869 -88-

QUEEN ANNE’S COUNTY, MARYLAND

NOTES TO BASIC FINANCIAL STATEMENTS

JUNE 30, 2013

NOTE 11 - RISK MANAGEMENT

The County is exposed to various risks of loss related to torts; theft of, damage to, and destruction of assets; errors and omissions; and natural disasters. The government carries commercial insurance to cover such risks. Certain assets of the County such as roads, bridges, and other infrastructure are not insurable due to their nature.

General Insurance Coverage - The County is a participant in the Local Government Insurance Trust (LGIT), which is a consortium of Maryland local governments created to provide insurance coverage and services to Maryland local governments. The LGIT provides general liability, public officials’ liability, fleet insurance, and building and property insurance to its members.

Workmen’s compensation and fidelity insurance are obtained from various commercial insurance companies.

Risk Sharing - Subscribers to coverage provided by LGIT share the risk among participants of the pools. As a result, the County's annual premium requirements will be affected by the loss experience of the various insurance pools in which it participates. Also, the County may be subject to additional assessments from time to time. These amounts would be recorded as expenditures when they are probable and can be reasonably estimated. Conversely, favorable

performance of certain insurance pools may result in reduced premiums.

Health Insurance - Effective with the 1996 fiscal year, the County joined together with other Eastern Shore county governments, libraries, and Boards of Education to form the Eastern Shore of Maryland Education Consortium Health Insurance Alliance (ESMEC), a public entity risk pool currently operating as a common risk management and insurance program for health insurance coverage. CareFirst BlueCross BlueShield, of Maryland, administers this

program.

The agreement for formulation of the alliance provides that the pool will be self-sustaining through member premiums. In addition to the annual premiums, the pooling agreement provides for additional assessments, if needed, but not to exceed certain limits. No additional assessments were needed for fiscal 2013 and, as of the date of this report, it is believed that there are no outstanding claims in excess of the equity of the trust.

Settlements - For the last three years, settlements have not exceeded insurance coverage for any type of policy in effect.

-89-

QUEEN ANNE’S COUNTY, MARYLAND

NOTES TO BASIC FINANCIAL STATEMENTS

JUNE 30, 2013

NOTE 12 - RETIREMENT PLANS

Virtually all full and eligible part-time employees of Queen Anne's County, Maryland, and its related agencies are covered by one of the statewide contributory pension systems of the State of Maryland.

PRIMARY GOVERNMENT

COST-SHARING MULTIPLE-EMPLOYER DEFINED BENEFIT PENSION PLANS

Description of Plans The County participates in the following cost-sharing multiple-employer pension plans that are administered by the State of Maryland.

The Employees Pension System of the State of Maryland (Pension System) was established January 1, 1980. The Pension System covers employees hired after December 31, 1979, as well as Retirement System participants who have voluntarily joined the Pension System.

The Employees Contributory Pension System of the State of Maryland (Contributory Pension System) was established July 1, 1998. As of July 1, 1999, and retroactively to July 1, 1998, the County elected to participate in the Contributory Pension System for all service earned on or after July 1, 1998.

Effective the first payroll in fiscal year 2007, the County elected to provide its employees with the “Alternate Contributory Pension Selection Plan of the State of Maryland” (Alternate Contributory Pension System), under Title 23 of the State Pension Article. This plan is an enhanced version of the two pension systems described above, and, as such, includes provisions that originate in those plans. Eligible employees not covered by LEOPS, which is described below,

are required to participate in this alternate plan in lieu of other plans previously offered. At this time, all current employees not covered by LEOPS participate in the Alternate Contributory Pension System.

The Law Enforcement Officers Pension System (LEOPS) was established July 2, 1990 and adopted by the County on July 1, 2004. LEOPS currently covers uniformed law enforcement officers of the Sheriff’s Department.

Under the terms of the Alternate Contributory Pension System, a member may retire after 30 years of service regardless of age; at age 65 with two years of service; at age 64 with three years of service; at age 63 with four years of service; or at age 62 with at least five years of service. An employee may also take early retirement with reduced benefits at age 55 with 15 years of service. A member terminating employment before attaining retirement age, but

after completing five years of eligible service, becomes eligible for a vested pension allowance upon reaching age 62.

Under the terms of the LEOPS, a member may retire with full benefits upon attaining age 50 or after completing 25 years of eligible service regardless of age. LEOPS members are not eligible for early service retirement allowances.

A member terminating employment before attaining retirement age, but after completing five years of eligible service, becomes eligible for a vested pension allowance upon reaching age 50.

On retirement from service, a member of any of these plans shall receive an annual service retirement allowance based on the member's average final compensation (based on the highest three years’ wages) and years of creditable service multiplied by a factor. This factor varies from 1.2% to 1.8% for the Alternate Plan or 2.0% for LEOPS. The factor is applied per eligible service year, depending on employee/employer contributions and other plan-specific

provisions. Early retirement, where available, is subject to provisions that reduce the benefit received.

-90-

QUEEN ANNE’S COUNTY, MARYLAND

NOTES TO BASIC FINANCIAL STATEMENTS

JUNE 30, 2013

NOTE 12 - RETIREMENT PLANS (CONTINUED)

PRIMARY GOVERNMENT (CONTINUED)

Benefits under these plans are established under the State Personnel and Pensions Article of the Annotated Code of Maryland.

The State Retirement and Pension System of Maryland issues a comprehensive annual financial report that includes disclosures regarding: actuarial value of assets; total actuarial accrued liability; unfunded actuarial accrued liability, if any; and funded liability ratio. This report can be obtained from the agency’s office as follows:

State Retirement and Pension System of Maryland 120 E. Baltimore St, Suite 1601 Baltimore, Maryland 21202-1600 Funding Policy Obligations to contribute to the plans are established under the Annotated Code of Maryland. Employees who are members of these two plans contribute seven percent of their gross employee compensation.

Required contributions under the plans, which are not funded by employee contributions, are funded entirely by the County. Contributions by the County to both State plans take place during the fiscal year and are based upon salaries for the preceding fiscal year. The County contribution for the year ending June 30, 2013 is based on salaries for the year ending June 30, 2012. The contribution requirements of plan members of the reporting entity are established and may

be amended by the Maryland State Pension System Board of Trustees. The County’s contributions for the fiscal years ending June 30th were equal to the actuarially determined amounts as follows:

Fiscal Year Ending Retirement Plan Contributions June 30, 2013 June 30, 2012 June 30, 2011 Total Payroll $ 23,105,575 $ 24,033,001 $ 28,037,262 Covered Payroll Pension System 17,118,242 17,984,029 20,585,096

LEOPS 2,827,915 2,683,684 2,642,996

Expenditure/Expense Pension System 1,586,756 2,075,122 2,415,867

LEOPS 595,031 689,232 734,768

-91-

QUEEN ANNE’S COUNTY, MARYLAND

NOTES TO BASIC FINANCIAL STATEMENTS

JUNE 30, 2013

NOTE 12 - RETIREMENT PLANS (CONTINUED)

OTHER COMPONENT UNITS

Queen Anne’s County Board Of Education The employees of the Board of Education (other than part-time employees not eligible for participation in the plans) are covered by one of four defined-benefit retirement plans that are administered by the State Retirement and Pension System of Maryland. The Board’s share of contributions for teachers and administration employees is primarily the responsibility of the State. In fiscal year 2013, State contributions on behalf of the Board are

approximately $5,254,840. This contribution is recognized as both revenue and expenditure for the Board. An additional $1,695,900 is contributed by the Board of Education for other covered employees.

Detailed information concerning the Queen Anne's County Board Of Education retirement plan is presented in their June 30, 2013 financial statements, which are publicly available.

Queen Anne’s County Free Library The employees of the Library (other than part-time employees not eligible for participation in the plans) are covered under one of four defined-benefit retirement plans that are administered by the State Retirement and Pension System of Maryland. The Library’s share of contributions for employees is primarily the responsibility of the State. In fiscal year 2013, State contributions on behalf of the Library are approximately $103,097. These contributions are

recognized as both revenue and expenditures for the Library. An additional $60,216 is contributed by the Library for other covered employees.

Detailed information concerning the Queen Anne's County Free Library retirement plan is presented in their June 30, 2013 financial statements, which are publicly available.

NOTE 13 - DEFERRED COMPENSATION PLAN

The County offers its employees a deferred compensation plan created in accordance with Internal Revenue Code

Section 457. The

Plan, available to all County employees, permits them to defer a portion of their salary until future years. Participation in the plan is optional. The deferred compensation is not available to employees until termination, retirement, death or unforeseeable emergency.

All amounts of compensation deferred under the plan; all property and rights purchased with those amounts; and all income attributable to those amounts, property or rights are solely the property and rights of the participants. The County has no liability for losses under the plan.

Investments are managed by the plan’s administrator based on several different investment options, or combinations thereof. The choice of the investment option(s) to be used is made by each participant. The County has no management control over the assets of the plan. Accordingly, per GASB Statement No. 32, the assets of the plan are not included in these financial statements.

-92-

QUEEN ANNE’S COUNTY, MARYLAND

NOTES TO BASIC FINANCIAL STATEMENTS

JUNE 30, 2013

NOTE 14 - OTHER POST-EMPLOYMENT BENEFITS

Other Post-Employment Benefit Trust (OPEB Trust) On June 23, 2009, the County enacted County Ordinance No. 09-12, which established a Trust entity entitled “Other Post-Employment Benefit Trust – County Commissioners of Queen Anne’s County, County Commissioners of Kent County, and Participating Agencies” (OPEB Trust). The purpose of the OPEB Trust is to: (1) fund costs of health insurance and other post-employment benefits to eligible retirees of the primary government, the Queen Anne’s

County Board of Education, and the Queen Anne’s County Free Library; (2) accumulate and invest financial resources for this purpose; (3) provide health insurance and other post-employment benefits for eligible retirees; and

(4) provide related administrative services.

Other agencies and political subdivisions have the right to participate in this Trust now and in the future. Such unrelated entities may deposit funds with the Trust for investment purposes related to their OPEB plans. At June 30, 2013, funds in the amount of $156,330 were reported as a liability of the Trust to Kent County, Maryland. Kent County is holding these assets for the benefit of their plan participants. As of June 30, 2013 funds in the amount of

$113,383 were reported as a liability of the Trust to the Public Housing Authority, however, those funds were paid out to the Public Housing Authority in July 2013 as they are no longer participating in the Trust.

OPEB Trustees have exclusive authority to manage the assets of the Trust. The Board of Trustees consists of five members: two representing Queen Anne’s County Government; two representing the Queen Anne’s County Board of Education; and one representing Kent County. In lieu of separate financial statements for the OPEB Trust, Queen Anne’s County presents the Trust entity’s complete financial statements within this document.

Plan Description The County’s Other Post-Employment Benefit Plan (OPEB Plan) is an agent multiple-employer defined benefit healthcare plan that covers retired employees of the primary government, the Queen Anne’s County Board of Education, and the Queen Anne’s County Free Library. The Plan was established as specified in County Ordinance No. 09-12.

Plan descriptions and actuarial assumptions for each participant are described: (1) as follows for the primary government and (2) in financial statements issued separately for all other participants. Addresses for other participants are noted below in this Note.

-93-

QUEEN ANNE’S COUNTY, MARYLAND

NOTES TO BASIC FINANCIAL STATEMENTS

JUNE 30, 2013

NOTE 14 - OTHER POST-EMPLOYMENT BENEFITS (CONTINUED)

Plan Description (Continued) Primary Government The County’s Retiree Health Insurance Program provides medical insurance benefits to retirees and their eligible dependents. The retiree and their dependents will receive a subsidy as outlined in the tables below provided that (1) the retiree retired directly from County service with a County retirement/pension allowance, (2) has health insurance through the County prior to retirement, (3) retired with at least 15 years of County service, and (4) the retiree elects

to participate upon retirement. Retirees who retire directly from County service with a County retirement/pension with less than 15 years of County service, who have health insurance through the County prior to retirement and who elect to participate upon retirement are eligible for the County’s Retiree Health Insurance Program however are not eligible for a subsidy.

Table 1 – Subsidy for employees who retire prior to September 2, 2011 Years of County Total Subsidy Service Prior to Percentage Retirement 14 Years 0.0% 15 Years 54.0% 16 Years 57.6% 17 Years 61.2% 18 Years 64.8% 19 Years 68.4% 20 Years 72.0% 21 Years 75.6% 22 Years 79.2% 23 Years 82.8% 24 Years 86.4% 25 or more Years 90.0% (max) Table 2 – Subsidy for employees who retire between September 2, 2011 and August 31, 2012

Years of County Service Prior to Total Subsidy Percentage Retirement PPO Plan EPO Plan 14 Years 0.0% 0.0% 15 Years 54.0% 54.0% 16 Years 57.1% 57.6% 17 Years 60.2% 61.2% 18 Years 63.3% 64.8% 19 Years 66.4% 68.4% 20 Years 69.5% 72.0% 21 Years 72.6% 75.6% 22 Years 75.7% 79.2% 23 Years 78.8% 82.8% 24 Years 81.9% 86.4% 25 or more Years 85.0% (max) 90.0% (max) -94-

QUEEN ANNE’S COUNTY, MARYLAND

NOTES TO BASIC FINANCIAL STATEMENTS

JUNE 30, 2013

NOTE 14 - OTHER POST-EMPLOYMENT BENEFITS (CONTINUED)

Plan Description (Continued) Table 3 – Subsidy for employees who retire on or after September 1, 2012 Years of County Service Prior to Total Subsidy Percentage Retirement PPO Plan EPO Plan 14 Years 0.0% 0.0% 15 Years 54.0% 54.0% 16 Years 56.6% 57.1% 17 Years 59.2% 60.2% 18 Years 61.8% 63.3% 19 Years 64.4% 66.4% 20 Years 67.0% 69.5% 21 Years 69.6% 72.6% 22 Years 72.2% 75.7% 23 Years 74.8% 78.8% 24 Years 77.4% 81.9%

25 or more Years 80.0% (max) 85.0% (max) Participating Agencies The other participating entities provide medical benefits to eligible employees who retire from employment with each respective agency. Benefits and eligibility requirements vary among the different agencies. Each agency pays a percentage of the health insurance premium based on certain criteria, including length of service. In addition to

medical benefits, the Board of Education pays the cost of providing term life insurance for its retirees in varying amounts, depending upon length of service and date of retirement.

For detailed information on plan benefits provided by other participating agencies, as well as actuarial assumptions used to estimate OPEB obligations, see the agencies’ separately-issued financial statements, which can be obtained from their administrative offices as listed below:

Board of Education of Queen Anne’s County Queen Anne’s County Kent County Queen Anne’s County Free Library Housing Authority Government 202 Chesterfield Avenue 121 S. Commerce Street PO Box 280 400 High Street Centreville, Maryland 21617 Centreville, MD 21617 205 E Water Street, Suite 100 Chestertown, MD 21620 Centreville, MD 21617 -95-

QUEEN ANNE’S COUNTY, MARYLAND

NOTES TO BASIC FINANCIAL STATEMENTS

JUNE 30, 2013

NOTE 14 - OTHER POST-EMPLOYMENT BENEFITS (CONTINUED)

Plan Membership Plan membership as of the date of the most recent actuarial valuation consisted of the following:

Plan Membership Active Retirees Queen Anne's County 404 1 17 Board of Education 830 2 91 Library 13 4 Total 1,247 4 12 Basis of Accounting and Financial Statements The Plan’s financial information is prepared on the full accrual basis accounting. Expenses are recognized as retirees’ insurance costs are incurred.

For further financial information, Summary and Combining financial statements may be found on pages 48 to 49 and 140 to 141, respectively. Required Supplementary Information may be found after these Notes, on page 106.

Contributions Each participating agency has the authority to establish and amend benefit provisions that result in contribution requirements of the plan members and the agency. The Plans are contributory plans in which the agencies and their retired members and beneficiaries contribute certain amounts toward the current cost of the healthcare benefits, based on an actuarial valuation.

To avoid reporting a liability for the current year’s contribution, each employer must contribute its annual required contribution (ARC), which is an amount actuarially determined to be in accordance with the parameters of GASB Statement No. 45. The ARC represents a level of funding that, if paid on an ongoing basis, is projected to cover normal cost each year and to amortize any unfunded actuarial liabilities over a period not to exceed 30 years.

-96-

QUEEN ANNE’S COUNTY, MARYLAND

NOTES TO BASIC FINANCIAL STATEMENTS

JUNE 30, 2013

NOTE 14 - OTHER POST-EMPLOYMENT BENEFITS (CONTINUED)

Annual OPEB Cost and Net OPEB Obligation Total Queen Anne's Board of for All County Education Library Employers Actuarial accrued liability (AAL) $ 93,915,000 $ 87,399,000 $ 3,084,000 $ 184,398,000 Actuarial value of plan assets 82,000 543,000 32,000 657,000 Unfunded actuarial accrued liability (UAAL) $ 93,833,000 $ 86,856,000 $ 3,052,000 $ 183,741,000 Funded Ratio (Actuarial value of plan assets / AAL) 0.09% 0.62% 1.04% 0.36%

Annual Required Contribution (ARC) $ 9,144,000 $ 8,181,000 $ 253,000 $ 17,578,000 Interest on Net OPEB Obligations 951,000 783,000 29,000 1,763,000 Adjustment to ARC (1,071,000) (881,000) (32,000) ( 1,984,000) Total Annual OPEB Cost 9,024,000 8,083,000 250,000 17,357,000 Less: Trust Contributions (485,000) - - (485,000) Less: Pay-As-You-Go Contributions (1,183,781) (1,405,124) (28,400) ( 2,617,305)

Total Contributions (1,668,781) (1,405,124) (28,400) ( 3,102,305) Increase in Net OPEB Obligation 7,355,219 6,677,876 221,600 14,254,695 Net OPEB Obligation beginning of year 22,829,979 20,337,878 791,664 43,959,521 Net OPEB Obligation end of year $ 30,185,198 $ 27,015,754 $ 1,013,264 $ 58,214,216 Percent of Annual OPEB Cost Contributed 18.5% 17.4% 11.4% 17.9% Covered payroll $ 17,640,063 $ 30,809,561 $ 977,254 $ 49,426,878

UAAL as a percentage of Covered Payroll 531.9% 281.9% 312.3% 371.7% ((UAAL) / covered payroll) The Net OPEB Obligation (NOO) of $30,185,198 at the end of the year for the County consisted of liabilities of $25,785,783 for Governmental Activities and $4,399,415 for Business Type Activities.

The schedule of funding progress, presented as required supplementary information (RSI) on page 106 following the Notes, presents multiyear trend information that shows whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued liabilities for benefits. This relationship is represented by the funded ratio.

-97-

QUEEN ANNE’S COUNTY, MARYLAND

NOTES TO BASIC FINANCIAL STATEMENTS

JUNE 30, 2013

NOTE 14 - OTHER POST-EMPLOYMENT BENEFITS (CONTINUED)

Schedule of Participating Agencies’ Contributions The Schedule of Participating Agencies’ Contributions presents multiyear trend information that shows whether the actual ARC contributed is increasing or decreasing over time relative to the annual pension cost, as shown by the percentage of ARC contributed. Generally, the greater this percentage, the stronger the system is becoming.

Fiscal Annual Percentage Net OPEB Year Ended Postemployment ARC of ARC Obligation Participating Agency June 30 Benefit Cost Contributed Contributed (NOO) Queen Anne's County 2009 $ 5,312,000 $ 1,007,954 18.98% $ 4,304,046 2010 6,410,934 604,221 9.42% 5,806,713 2011 7,256,495 835,792 11.52% 6,420,703 2012 7,806,661 1,508,144 19.32% 6,298,517 2013 9,024,000 1,668,781 18.49% 7,355,219 35,810,090 5,624,892 15.71% 30,185,198

Board of Education 2009 5,907,000 1,534,955 25.99% 4,372,045 2010 6,340,000 1,176,586 18.56% 5,163,414 2011 6,535,000 1,276,130 19.53% 5,258,870 2012 6,953,000 1,409,451 20.27% 5,543,549 2013 8,083,000 1,405,124 17.38% 6,677,876 33,818,000 6,802,246 20.11% 27,015,754 Library 2009 178,000 38,234 21.48% 139,766 2010 212,000 12,200 5.75% 199,800 2011 234,000 12,302 5.26% 221,698 2012 250,000 19,600 7.84% 230,400

2013 250,000 28,400 11.36% 221,600 1,124,000 110,736 9.85% 1,013,264 Totals 2009 11,397,000 2,581,143 22.65% 8,815,857 2010 12,962,934 1,793,007 13.83% 11,169,927 2011 14,025,495 2,124,224 15.15% 11,901,271 2012 15,009,661 2,937,195 19.57% 12,072,466 2013 17,357,000 3,102,305 17.87% 14,254,695 $ 70,752,090 $ 12,537,874 17.72% $ 58,214,216 -98-

QUEEN ANNE’S COUNTY, MARYLAND

NOTES TO BASIC FINANCIAL STATEMENTS

JUNE 30, 2013

NOTE 14 - OTHER POST-EMPLOYMENT BENEFITS (CONTINUED)

Actuarial Methods and Assumptions The actuarial valuations of the individual plans involve estimates of the value of reported amounts and assumptions about the probability of events far into the future, such as future employment, mortality, and healthcare costs. The actuarially determined amounts regarding the funded status of the plans and the annual required contributions (ARC) of the County and other participating agencies are subject to continual revision, as actual results are compared to past

expectations and new estimates are made about the future.

Projections of benefits for financial reporting purposes are based on the substantive plan (as understood by the employer and plan members) and include the types of benefits provided at the time of valuation and the historical pattern of sharing benefit costs between employers and plan members to that point. The actuarial methods and assumptions used include techniques that are designed to reduce short-term volatility in actuarial accrued liabilities and the actuarial value

of the assets, consistent with the long-term perspective of the calculations.

Actuarial assumptions used in the actuarial valuation for the County’s plan were:

Actuarial Assumptions for Primary Government Actuarial valuation date October 1, 2011 Actuarial cost method Projected unit credit Amortization method Closed Amortization period 26 years (as of July 1, 2012) Interest Assumptions 4.00% investment rate of return Asset valuation method Market value of assets Inflation Rate 3.2% per year Salary increases 3% per year Mortality RP 2000, separate tables for males and females

Actuarial trend assumptions Based on Society of Actuaries Long Term Medical Trend Model, the 2011 rate is 7.5 percent decreasing gradually. The rate in 2050 is 5.9 percent. The ultimate rate is 5.2 percent and is attained in 2080.

-99-

QUEEN ANNE’S COUNTY, MARYLAND

NOTES TO BASIC FINANCIAL STATEMENTS

JUNE 30, 2013

NOTE 15 – DEFICIT EQUITY BALANCES

The following Non-Major Governmental Funds ended the year with deficit balances in unassigned fund balance:

Housing and Community Services Fund The Housing and Community Services Fund has a negative unassigned fund balance of $70,992 as of June 30, 2013. This negative balance will clear itself as the balance of outstanding loans receivable in the Housing and Community Services Fund decreases.

Capital Projects – Fire Company Impact Fees Fund The Capital Projects – Fire Company Impact Fees Fund has a negative unassigned fund balance of $64,523 as of June 30, 2013. This negative fund balance is the result of an overpayment to a particular fire department, and will decrease over time as the incoming revenues offset the overpayment.

The following Enterprise Funds ended the year with deficit equity balances:

Bay Bridge Airport Enterprise Fund The Bay Bridge Airport Enterprise Fund has a deficit balance in unrestricted net position of $422,195 as of June 30, 2013.

Golf Course Enterprise Fund The Golf Course Enterprise Fund has a deficit balance in unrestricted net position of $324,649 as of June 30, 2013.

Note that during the fiscal year 2013 budget process, the County Commissioners established the guideline that the Enterprise Funds should be self-supporting, to the extent possible. Therefore, a variety of measures are being evaluated in order to attempt the goal of balancing the Enterprise Funds.

-100-

QUEEN ANNE’S COUNTY, MARYLAND

NOTES TO BASIC FINANCIAL STATEMENTS

JUNE 30, 2013

NOTE 16 - COMMITMENTS AND CONTINGENCIES

PRIMARY GOVERNMENT

Grants - The County and its component units are recipients of various federal and state grant and/or loan programs, which are governed by various rules and regulations of the grantor agencies. Costs charged to the respective grant programs are subject to audit and adjustment by these grantor agencies. If the County has not complied with the rules and regulations governing the programs, refunds of money received may be required and the collectability of any

related receivable as of June 30, 2013 may be impaired. The County’s management believes that there are no significant contingent liabilities that must be recorded relating to compliance with the rules and regulations governing these programs.

Further, certain grants for capital projects, such as various park projects funded by the State, must be used for the intended purpose of the grant. If, at any time during the useful lives of these projects, the facilities cease to operate in their intended capacity, the County may be required to reimburse the granting agency that portion of the grant or note that is equal to the percentage of useful life remaining. The County’s Management believes that no such grant

reimbursements will be needed.

In fiscal year 2010, the County’s Department of Housing and Community Services received a grant of $350,000 from the Maryland Department of Housing and Community Development. This Maryland Neighborhood Conservation Initiative (NCI) Grant provided funding to be used for the acquisition and purchase of foreclosed properties for resale to qualifying homebuyers, as well as the issuance of zero percent deferred payment loans to

eligible critical service workers. Per the terms of the agreement, the grantee may reuse funds for these same activities until June 30, 2013. Funds returned to the County from program participants after June 30, 2013 must be returned to the state. Therefore, this grant has been recorded as a pass-through grant, with the County contingently liable for the return of these funds to the state at some point in time after June 30, 2013.

In accordance with the provisions of GASB Statement 54, Fund Balance Reporting and Governmental Fund Type Definitions, the County has committed certain fund balances for future construction projects. In the General Capital Projects Fund, a total of $2,705,469 has been committed, including $1,509,661 for the construction of a new County Courthouse, $694,348 for rubble surcharge, $319,478 for economic development, $105,241 for infrastructure

improvements in the Matapeake Business Park, and $76,741 for site improvements pursuant to agreements with local developers. In the Roads Capital Projects Fund, $774,913 has been contributed by developers and is committed to fund infrastructure improvements.

Income Tax Contingency - In the case of the Maryland State Comptroller of the Treasury v. Brian Wynne, Mr. Wynne challenged the Maryland statute, arguing that the statute violated the Commerce Clause of the Federal Constitution because it burdened Maryland residents that conducted interstate business. The Maryland Court of Appeals decision found that “failure to allow a credit with respect to the county taxes for out-of-state income taxes paid to other states on

pass-through income earned in those states discriminates against interstate commerce and violates the Commerce Clause of the Federal Constitution.” The Attorney General’s Office has now filed an appeal with the Supreme Court.

Based on the findings, Queen Anne’s County reduced the receivable from the State for income taxes and the offsetting deferred revenue by the estimated fiscal impact for the County for tax years 2009, 2010, and 2011, which totaled $850 thousand. The adjustment does not change the total fund balance for the General Fund. Since the County already received the money in income taxes in prior years, the amount of anticipated liability for the Wynne Case impact on the

County is assigned in the General Fund. When the State begins taking the funds back, the County will release the amount from the assigned fund balance. Queen Anne’s County also assigned an amount equal to interest at 13%, which is the annual interest rate required by Maryland State Law, Section 13-604 of the Tax-General Article, Annotated Code of Maryland. The total amount of interest calculated was $434 thousand, bringing the total assigned fund balance

associated with the income tax contingency to $1.3 million. The amount of anticipated liability is based on assessments provided by the Maryland Comptroller’s Office and the County believes these figures to be within reason.

-101-

QUEEN ANNE’S COUNTY, MARYLAND

NOTES TO BASIC FINANCIAL STATEMENTS

JUNE 30, 2013

NOTE 17 – JOINT VENTURE

In 1991, the County Commissioners, in conjunction with Talbot, Caroline, and Kent Counties, entered into a regional partnership known as the Midshore Regional Landfill Joint Venture. This venture was formed to provide a long-term, solid waste management solution for the four-county area. As part of the agreement, each of the four Counties agreed to host a solid waste facility for a twenty year period, giving the venture a total duration of eighty years. In 1991, the

Midshore Regional Landfill opened in Talbot County and served the waste management needs of the four-County area for twenty years. This facility, owned and operated by the Maryland Environmental Service (MES), closed on December 31, 2010. The second Midshore facility, Midshore II, opened in Caroline County in January 2011 and is fully operational. After the facility in Caroline County reaches capacity, another landfill will be constructed in Queen Anne's

County, with Kent County to follow in turn. Each County is required to, and has, set aside sufficient land to construct a landfill within their borders. The agreement expires when the last of the four landfills is closed.

Queen Anne’s County has a 31.04% financial interest in the Midshore Regional Landfill. In the event that expenditures exceed revenues, the County is obligated to cover the deficiency in proportion to its financial interest; however, to date additional funding from the County has not been required nor does management anticipate it.

During fiscal year 2011, the landfill located in Talbot County, Midshore I, was closed. As of June 30, 2013, total closure and post closure costs were estimated at approximately $9.4 million. Midshore II, located in Caroline County, was 7.24% filled. Closure and post closure costs for Midshore II are estimated at approximately $14.2 million.

Therefore, the total closure and post closure costs for both landfills are $23.6 million, with approximately $7.3 million attributable to Queen Anne’s County. These costs are paid from tipping fees of acceptable waste delivered by or for the account of the counties. It is currently expected that sufficient funds will be available from landfill revenues to pay future closure and post closure costs. MES has accrued and reported a long-term liability of $9.8 million as of June 30,

2013, determined by the estimated useful life of the landfill.

Similar to the post closure costs, each of the participating Counties is contingently liable for the debt related to the new facility, Midshore II. Midshore II was funded with project revenue bonds totaling $18.8 million. As of June 30, 2013, $5.8 million is attributable to Queen Anne’s County in the event of a default.

Each County is required to place its municipal waste in the landfill. The facility is also available to commercial waste disposal firms at the same price per ton as charged to the County governments. Queen Anne's County paid $338,687 in tipping fees to the facility during fiscal 2013.

MES has satisfied its financial assurance requirements based upon the local government financial ratio tests of the project participants as of June 30, 2012. MES expects to satisfy these requirements as of June 30, 2013 using the same criteria.

Due to inflation and changes in technology, laws, and regulations, estimated closure and post closure care costs may change in the future. Financial Statements of the Landfill can be obtained from MES located at 259 Najoles Road, Millersville, MD 21108.

-102-

QUEEN ANNE’S COUNTY, MARYLAND

NOTES TO BASIC FINANCIAL STATEMENTS

JUNE 30, 2013

NOTE 18 – POLLUTION REMEDIATION OBLIGATIONS

During fiscal year 2009, the County implemented the provisions of Governmental Accounting Standards Board (GASB) Statement 49, Accounting and Financial Reporting for Pollution Remediation Obligations.

During a prior fiscal year, 2008, the County agreed to a voluntary Methyl Tertiary Butyl Ether (MTBE) testing program for underground fuel tanks located at the County’s Department of Public Works’ fuel depot. This testing program was and still is approved by the Maryland Department of Environment (MDE).

Since the testing program began in 2008, the County incurred a total of $334,000 in expenses, including $92,000 in fiscal year 2013, to comply with the provisions of the program. Costs covered remediation work and consulting fees;

the latter for testing, studies, and monitoring. Remediation efforts included demolition and removal of the existing fuel depot at the Public Works Centreville Shop; remediation of the soils via excavation; offsite controlled disposal and backfill; installation of monitoring wells; in situ chemical oxidation and dual phase extraction; attorney’s fees and miscellaneous environmental consulting services.

In May 2010, MDE requested the County devise a Corrective Action Plan (CAP) to address contamination concerns at the fuel depot site. In August 2010, MDE approved the County’s CAP work which included the installation of additional monitoring wells and one year of monitoring, sampling, testing and furnishing of those reports to MDE.

In November 2011, due to uneven results from the prior year’s monitoring tests, MDE requested the County submit a technical plan to conduct an initial site injection, a measure which will include the application of decontaminating chemicals to the soil in an effort to determine the dosage rate and the corresponding reduction in pollutants that can be achieved. Based on the plan approved by MDE, the County awarded a contract for the initial injection, and performed

the remediation work in the summer of 2012. Since the results of this initial injection did not achieve the desired effects, a follow up plan is underway which includes continued quarterly monitoring, sampling, and testing. Also, communications are underway to seek closure of this site from MDE. The final scope of work is yet to be determined by the County and approved by MDE; however the County expects it to be completed by the end of calendar year 2014.

No liability has been recorded at this time since costs for both the initial and final site injections cannot be reliably estimated. None of these outlays met the requirements for capitalization noted in GASB Statement 49 and they were not capitalized.

NOTE 19 – COMBINING FUNDS

Beginning fiscal year 2013, the County consolidated the programs and property management funds with the General Fund. In prior years, these funds were presented as non-major enterprise funds. The assets and liabilities for each fund are now reported in the General Fund; with the capital assets and related debt reported in Governmental Activities. The consolidation increased the General Fund balance by $340,297 and Governmental Activities net position by $198,923,

resulting in a total change of $539,220.

NOTE 20 – PRIOR PERIOD ADJUSTMENT

COMPONENT UNIT

Queen Anne’s County Board of Education During fiscal year 2013, the Queen Anne’s County Board of Education determined that certain prior year receivables totaling $200,000 were incorrectly recorded in the Food Services Fund. To correct this error, the beginning fund balance of the Food Services Fund of $312,170 was decreased by $200,000. In addition, the beginning net position for governmental activities on the Board of Education’s financial statements of $138,104,698, as originally reported, has

been decreased to $137,904,698.

-103- -104- Required Supplementary Information -105-

QUEEN ANNE’S COUNTY, MARYLAND

REQUIRED SUPPLEMENTARY INFORMATION

JUNE 30, 2013

OTHER POST-EMPLOYMENT BENEFITS TRUST

The following required supplementary information relates to the OPEB plan described in Note 14. This information is intended to help users assess the system’s funding status on a going-concern basis; assess progress made in accumulating assets to pay benefits when due; and make comparisons among employers.

SCHEDULE OF FUNDING PROGRESS

The Schedule of Funding Progress presents multiyear trend information that shows whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued liabilities for benefits.

(A) (B - A) ((B - A) / C)

Value of (B) Unfunded UAAL as a Assets at Accrued Accrued (A / B) (C) Percentage Valuation Valuation Liability Liability Funded Covered of Covered Funding Progress Date Date (AAL) (UAAL) Ratio Payroll Payroll Queen Anne's County July 1, 2008 $ - $ 49,107,000 $ 49,107,000 0.00% $ 23,690,163 207% July 1, 2009 500,000 63,935,000 63,435,000 0.78% 23,778,696 267% July 1, 2010 500,000 70,570,000 70,070,000 0.71% 20,439,972 343%

July 1, 2011 77,000 76,949,000 76,872,000 0.10% 18,903,632 407% July 1, 2012 82,000 93,915,000 93,833,000 0.09% 17,640,063 532% Board of Education July 1, 2008 - 62,759,000 62,759,000 0.00% 24,267,735 259% July 1, 2009 500,000 67,450,000 66,950,000 0.74% 28,421,068 236% July 1, 2010 500,000 73,060,000 72,560,000 0.68% 28,329,494 256% July 1, 2011 502,358 77,831,000 77,328,642 0.65% 29,268,937 264%

July 1, 2012 543,000 87,399,000 86,856,000 0.62% 30,809,561 282% Library July 1, 2008 - 2,010,000 2,010,000 0.00% 1,050,748 191% July 1, 2009 30,000 2,614,000 2,584,000 1.15% 1,128,084 229% July 1, 2010 30,000 2,902,000 2,872,000 1.03% 1,225,057 234% July 1, 2011 30,000 3,094,000 3,064,000 0.97% 971,915 315% July 1, 2012 32,000 3,084,000 3,052,000 1.04% 977,254 312% Total July 1, 2008 - 113,876,000 113,876,000 0.00% 49,008,646 232%

July 1, 2009 1,030,000 133,999,000 132,969,000 0.77% 53,327,848 249% July 1, 2010 1,030,000 146,532,000 145,502,000 0.70% 49,994,523 291% July 1, 2011 609,358 157,874,000 157,264,642 0.39% 49,144,484 320% July 1, 2012 $ 657,000 $ 184,398,000 $ 183,741,000 0.36% $ 49,426,878 372% Analysis of the dollar amounts of plan net assets, actuarial accrued liability, and unfunded actuarial liability in isolation

can be misleading. Expressing the assets as a percentage of the actuarial accrued liability (Funded Ratio) provides one indication of the system’s funding status on a going-concern basis. Analysis of this percentage over time indicates whether the system is becoming financially stronger or weaker. Generally, the greater this percentage, the stronger the system is becoming. In this fiscal year, the Funded Ratio is 0.36 percent, down from 0.39 percent the year before. Due

to the timing of the valuation reports, the table above does not include contributions made to the Trust by Queen Anne’s County in fiscal year 2012 ($489 thousand) or 2013 ($485 thousand). The next valuation report will reflect those contributions.

Trends in the unfunded actuarial accrued liability and annual covered payroll are both affected by inflation. Expressing the unfunded accrued liability as a percentage of annual covered payroll approximately adjusts for the effects of inflation and aids analysis of the system’s progress made in accumulating sufficient assets to pay benefits when due. Generally, the smaller this percentage, the stronger the system is becoming. In this fiscal year, the UAAL as a percentage of

covered payroll is 372 percent, up from 320 percent the year before.

BUDGETARY COMPARISONS FOR THE GENERAL FUND

Required Supplementary Information provides budget-to-actual comparisons for the General Fund. Budgets are adopted using the same method of accounting as that used for reporting purposes, i.e. according to generally accepted accounting principles as used in the United States of America (GAAP).

-106-

QUEEN ANNE'S COUNTY, MARYLAND

SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES - BUDGET AND ACTUAL

GENERAL FUND

FOR THE YEAR ENDED JUNE 30, 2013

ORIGINAL FINAL POSITIVE

BUDGET BUDGET ACTUAL (NEGATIVE)

REVENUES

Taxes Local Property Tax $ 65,415,329 $ 65,415,329 $ 65,516,659 $ 101,330 Local Income Tax 32,428,656 39,423,749 39,438,906 15,157 Admission and Amusement Taxes 175,000 175,000 160,516 (14,484) Recordation Taxes 2,331,752 3,081,752 3,100,826 19,074 Hotel Taxes 420,000 420,000 470,139 50,139 County Transfer Taxes 400,000 675,000 675,532 532 State Shared Taxes 475,519 475,519 478,900 3,381 Licenses and Permits 863,602 839,546 1,004,774 165,228

Intergovernmental 2,158,536 2,274,362 2,182,473 (91,889) Bond Interest Reimbursement - Build America Bond 424,921 424,921 406,337 (18,584) Charges for Current Services 1,840,320 2,106,320 2,574,951 468,631 Fines and Forfeitures 26,800 26,800 32,420 5,620 Investment Income 50,000 50,000 73,201 23,201 Donations 8,800 8,800 5,738 (3,062) Miscellaneous 308,765 465,560 920,309 454,749 Total Revenues 107,328,000 115,862,658 117,041,681 1,179,023

EXPENDITURES

GENERAL GOVERNMENT

Legislative 353,464 353,464 335,828 17,636 Public Information 233,842 248,842 247,286 1,556 Judicial Circuit Court 469,154 449,768 388,529 61,239 Orphan's Court 66,314 71,814 70,995 819 State's Attorney 1,037,465 1,037,465 1,002,588 34,877 County Administrator 256,989 256,989 254,283 2,706 Board of Elections 445,182 445,182 416,287 28,895 Finance Office 1,036,004 1,036,004 848,124 187,880 Human Resources 467,813 467,813 443,780 24,033

Planning and Zoning 1,805,520 1,807,021 1,806,108 913 Information Technology 522,181 522,181 475,771 46,410 General Services 2,005,991 2,090,991 2,089,421 1,570 Legal Services 321,895 371,895 369,273 2,622 Total General Government 9,021,814 9,159,429 8,748,273 411,156

PUBLIC SAFETY

Sheriff's Office 5,868,560 6,089,878 6,086,593 3,285 Volunteer Fire and Rescue Services 2,958,724 2,958,724 2,917,925 40,799 Detention Center 4,308,527 4,308,527 3,887,507 421,020 Animal Control 691,709 708,662 703,327 5,335 Emergency Services 7,069,204 6,975,711 6,969,631 6,080 Total Public Safety 20,896,724 21,041,502 20,564,983 476,519

PUBLIC WORKS

Administration 256,467 256,467 249,665 6,802 Solid Waste Disposal 1,711,237 1,711,237 1,335,932 375,305 Engineering Division 580,638 580,638 515,606 65,032 Roads Division 4,884,727 4,884,727 4,064,702 820,025 Parks 2,345,704 2,321,536 1,962,712 358,824 Total Public Works 9,778,773 9,754,605 8,128,617 1,625,988

CONTINUED

-107-

QUEEN ANNE'S COUNTY, MARYLAND

SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES - BUDGET AND ACTUAL

GENERAL FUND

FOR THE YEAR ENDED JUNE 30, 2013

(CONTINUED)

ORIGINAL FINAL POSITIVE

BUDGET BUDGET ACTUAL (NEGATIVE)

HEALTH AND SOCIAL SERVICES

Health Department $ 1,799,587 $ 1,812,087 $ 1,811,402 $ 685 Social Services 280,811 280,811 272,534 8,277 Total Health and Social Services 2,080,398 2,092,898 2,083,936 8,962

EDUCATION AND LIBRARY

Board of Education 43,754,524 43,754,524 43,754,524 - Chesapeake College 1,728,777 1,667,322 1,667,322 - Queen Anne's County Free Library 1,278,293 1,278,293 1,278,228 65 Total Education and Library 46,761,594 46,700,139 4 6,700,074 65

CONSERVATION OF NATURAL RESOURCES

Cooperative Extension Service 255,624 255,624 225,610 30,014 Soil Conservation Service 134,733 161,995 159,415 2,580 Weed Control 112,103 112,103 8 9,344 22,759 4-H Park 67,878 67,878 6 7,674 204 Total Conservation of Natural Resources 570,338 597,600 542,043 55,557

ECONOMIC AND COMMUNITY DEVELOPMENT

Economic Development & Tourism 398,584 444,357 414,404 29,953 Recreation 536,818 536,818 479,153 57,665 Total Economic and Community Development and Recreation 935,402 981,175 893,557 87,618

DEBT SERVICE

School Debt Service - Principal 5,275,364 5,346,361 5,346,361 - School Debt Service - Interest 2,706,992 2,637,666 2,637,666 - County Debt Service - Principal 1,332,420 1,557,883 1,551,571 6,312 County Debt Service - Interest 1,131,842 1,033,168 1,031,158 2,010 Total Debt Service 10,446,618 10,575,078 10,566,756 8,322

INTERGOVERNMENTAL

Aid to Municipalities 228,686 228,686 228,686 - Teacher Pensions 1,105,527 1,105,527 1,105,527 - SDAT Costs from State 366,000 366,000 365,017 983 Pension Admin Costs from State 146,000 146,000 - 146,000 Total Intergovernmental 1,846,213 1,846,213 1,699,230 146,983

CONTINUED

-108-

QUEEN ANNE'S COUNTY, MARYLAND

SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES - BUDGET AND ACTUAL

GENERAL FUND

FOR THE YEAR ENDED JUNE 30, 2013

(CONTINUED)

ORIGINAL FINAL POSITIVE

BUDGET BUDGET ACTUAL (NEGATIVE)

MISCELLANEOUS

Aid to Other Agencies $ 30,954 $ 31,526 $ 30,276 $ 1,250 Insurance & Benefits / Reversions 999,236 2,199,236 2,158,506 40,730 Transfer to OPEB Fund 485,000 485,000 485,000 - Contingencies 89,900 550,782 489,177 61,605 Total Miscellaneous 1,605,090 3,266,544 3,162,959 103,585 Total Expenditures 103,942,964 106,015,183 103,090,428 2 ,924,755 Excess of Revenues Over Expenditures 3,385,036 9,847,475 13,951,253 4 ,103,778

OTHER FINANCING SOURCES (USES)

Proceeds of Capital Asset Disposals - - 3 1,061 31,061 Insurance Proceeds - - 6,480 6,480 Transfers In From:

Impact Fees - School 663,500 663,500 - (663,500) Drug Task Force - - 2 2,608 22,608 Total Transfers In 663,500 663,500 2 2,608 (640,892) Transfers Out To:

General Capital Projects Fund 1,216,546 7,447,551 7,447,551 - Roads Capital Projects Fund 690,000 1,690,000 1,690,000 - Department of Aging 1,106,804 1,082,748 1,082,748 - Department of Housing and Community Services 441,308 441,308 340,125 101,183 Community Partnerships 153,392 153,392 148,668 4,724 Law Library 6,525 6,525 1,500 5,025 Impact Fees - Fire Companies/Contingencies - 93,530 9 3,528 2 Sanitary District - Water 81,682 81,682 8 1,681 1

Airport Enterprise Fund 63,209 63,209 6 2,889 320 Golf Course Enterprise Fund 248,471 248,471 174,108 74,363 Public Landings Enterprise Fund 40,599 40,599 4 0,599 - Total Transfers Out 4,048,536 11,349,015 11,163,397 185,618 Total Other Financing Sources (Uses) (3,385,036) (10,685,515) (11,103,248) (417,733) Net Increase (Decrease) in Fund Balance $ - $ (838,040) 2,848,005 $ 3,686,045 Fund Balances, July 1 13,139,391

Fund Balances, June 30 $ 15,987,396 -109- Combining and Individual Fund Statements and Schedules The Combining and Individual Fund Statements and Schedules provide detailed information concerning the financial position, results of operations, and budgetary comparisons for the non-major funds, capital projects, and fiduciary funds.

-110- Non-Major Governmental Funds Non-Major Governmental Funds are used to account for the proceeds of specific revenue sources (other than capital projects and debt service funds) that are legally restricted to expenditures for specific purposes.

-111-

NON-MAJOR GOVERNMENTAL FUNDS

Non-major governmental funds are special revenue funds, unless otherwise noted:

Department of Aging – This fund accounts for activities funded primarily by grants to provide services for the elderly and is included in the social services function.

Housing and Community Services – This fund accounts for activities funded mostly by grants and revolving loan funds that support housing rehabilitation and home-ownership and is included in the economic and community development function.

Revolving Loan Fund – This fund accounts for activities funded by community donations and grants to promote and provide economic development loans to local businesses and is included in the economic and community development function.

Economic Development Incentive Fund – This fund accounts for activities funded with a portion of recordation taxes that support economic development in the County by attracting and investing in new and existing businesses and is included in the economic and community development function.

Community Partnerships for Children – This fund accounts for activities funded by grants allocated to the County that provide services for children and families and is included in the social services function.

Critical Areas – This fund accounts for activities funded by payments in lieu of performance bonds that support efforts to mitigate and preserve critical areas along the shoreline of tidal waters within the County and is included in the conservation of natural resources function.

Law Library – This fund accounts for activities funded by court fees, fines, and contributions from local attorneys to update legal reference materials housed in the courthouse and is included in the general government function.

Sheriff’s Drug Task Force – This fund accounts for activities funded by drug-related forfeitures that support drug interdiction efforts by a multi-faceted task force and is included in the public safety function.

Inmate Welfare Fund – This fund accounts for activities funded by profits earned from Detention Center inmate-related services that promote the welfare of the inmates and is included in the public safety function.

Agricultural Transfer Tax – This fund accounts for activities funded primarily by the Agricultural Transfer Tax to purchase agricultural easements that preclude development and is included in the conservation of natural resources function.

Rural Legacy – This fund accounts for activities funded primarily by Maryland’s Rural Legacy Program to purchase easements that preclude development and is included in the conservation of natural resources function.

Purchase of Developments Rights Fund – This fund accounts for activities funded by Queen Anne’s County to acquire easements to restrict the use of agricultural land and woodland and is included in the conservation of natural resources function.

Dredging Special Assessments – This fund accounts for activities funded by special assessment funds collected to repay loans for specific dredging and erosion projects that benefited Price’s Creek, Grove Creek, and Narrows Pointe and is included in the conservation of natural resources function.

-112- Kent Narrows – This fund accounts for activities funded by tax revenues to repay parking improvement bonds and is included in the economic and community development function.

Capital Projects – School Impact Fees – This fund accounts for financial resources generated by new residential construction and used for the construction of public school facilities or payment of school debt relating to such construction.

Capital Projects – Fire Company Impact Fees – This fund accounts for activities funded by impact fees specifically earmarked to enhance local volunteer fire company preparedness resulting from new construction and is included in the public safety function.

Capital Projects – Parks and Recreation Impact Fees – This fund accounts for activities funded by impact fees specifically earmarked to enhance parks and recreation and is included in the parks and recreation function.

-113-

QUEEN ANNE'S COUNTY, MARYLAND

COMBINING BALANCE SHEET

NON-MAJOR GOVERNMENTAL FUNDS

JUNE 30, 2013

COMMUNITY

HOUSING AND ECONOMIC PARTNERSHIPS

DEPARTMENT COMMUNITY REVOLVING DEVELOPMENT FOR CRITICAL

OF AGING SERVICES LOAN FUND INCENTIVE CHILDREN AREAS

ASSETS

Cash and Cash Equivalents $ 88,513 $ 1,135,971 $ 427,624 $ 222,640 $ 374,767 $ 152,344 Prepaid Items 3 10 - - - - - Receivables Accounts Receivable (Net) 4,700 8,965 10,842 - - - Loans Receivable - 3,928,220 153,178 - - - Special Assessments (Net) - - - - - - Due from Other Governments 188,131 45,247 - 96,838 499,947 - Total Assets $ 281,654 $ 5,118,403 $ 591,644 $ 319,478 $ 874,714 $ 152,344

LIABILITIES AND FUND BALANCES

Liabilities Accrued Liabilities $ 81,258 $ 10,056 $ - $ - $ 244,620 $ - Due to Other Funds 128,191 82,587 - - - - Due to Other Governmental Agencies 3,011 3,131 - - 331,677 - Deferred Revenue - 43,546 - - 145,656 - Total Liabilities 212,460 139,320 - - 721,953 - Fund Balances Nonspendable 3 10 3,928,220 153,178 - - - Restricted 4,265 1,121,855 438,466 319,478 - 152,344 Assigned 64,619 - - - 152,761 -

Unassigned - (70,992) - - - - Total Fund Balances 69,194 4,979,083 591,644 319,478 152,761 152,344 Total Liabilities and Fund Balances $ 281,654 $ 5,118,403 $ 591,644 $ 319,478 $ 874,714 $ 152,344 -114-

QUEEN ANNE'S COUNTY, MARYLAND

COMBINING BALANCE SHEET

NON-MAJOR GOVERNMENTAL FUNDS

JUNE 30, 2013

(CONTINUED)

SHERIFF'S

DRUG PURCHASE OF

LAW TASK INMATE AGRICULTURAL RURAL DEVELOPMENT

LIBRARY FORCE WELFARE TRANSFER LEGACY RIGHTS

$ 36,010 $ 325,661 $ 245,770 $ 81,252 $ 419,830 $ 1,572,432

- - - - - -

- 1 25 7,563 - - -

- - - - - -

- - - - - -

- - - - - -

$ 36,010 $ 325,786 $ 253,333 $ 81,252 $ 419,830 $ 1,572,432 $ 500 $ 143,212 $ 28,768 $ 9 $ - $ -

- - - - - -

- - 9,721 - - -

- - - - - -

5 00 143,212 38,489 9 - -

- - - - - -

- 182,574 214,844 81,243 419,830 1,572,432

35,510 - - - - -

- - - - - -

35,510 182,574 214,844 81,243 419,830 1,572,432 $ 36,010 $ 325,786 $ 253,333 $ 81,252 $ 419,830 $ 1,572,432

CONTINUED

-115-

QUEEN ANNE'S COUNTY, MARYLAND

COMBINING BALANCE SHEET

NON-MAJOR GOVERNMENTAL FUNDS

JUNE 30, 2013

(CONTINUED)

CAPITAL PROJECTS

DREDGING PARKS AND TOTAL

SPECIAL KENT SCHOOL FIRE COMPANY RECREATION NON-MAJOR

ASSESSMENTS NARROWS IMPACT FEES IMPACT FEES IMPACT FEES GOVERNMENTAL

ASSETS

Cash and Cash Equivalents $ 18,013 $ 257,412 $ 1,831,215 $ 319,617 $ 371,898 $ 7,880,969 Prepaid Items - - - - 3 10 Receivables Accounts Receivable (Net) 1 41 - - - - 32,336 Loans Receivable - - 976,829 111,547 116,099 5,285,873 Special Assessments (Net) 593,925 - - - - 593,925 Due from Other Governments - - - - - 830,163 Total Assets $ 612,079 $ 257,412 $ 2,808,044 $ 431,164 $ 487,997 $ 14,623,576

LIABILITIES AND FUND BALANCES

Liabilities Accrued Liabilities $ - $ - $ - $ - $ - $ 508,423 Due to Other Funds - - - 64,523 - 275,301 Due to Other Governmental Agencies - - - - - 347,540 Deferred Revenue 593,925 - 976,829 111,547 116,099 1,987,602 Total Liabilities 593,925 - 976,829 176,070 116,099 3,118,866 Fund Balances Nonspendable - - - - - 4,081,708 Restricted 18,154 257,412 1,831,215 319,617 371,898 7,305,627 Assigned - - - - - 252,890

Unassigned - - - (64,523) - (135,515) Total Fund Balances 18,154 257,412 1,831,215 255,094 371,898 11,504,710 Total Liabilities and Fund Balances $ 612,079 $ 257,412 $ 2,808,044 $ 431,164 $ 487,997 $ 14,623,576 -116- -117-

QUEEN ANNE'S COUNTY, MARYLAND

COMBINING STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES

NON-MAJOR GOVERNMENTAL FUNDS

FOR THE YEAR ENDED JUNE 30, 2013

COMMUNITY

HOUSING AND ECONOMIC PARTNERSHIPS

DEPARTMENT COMMUNITY REVOLVING DEVELOPMENT FOR CRITICAL

OF AGING SERVICES LOAN FUND INCENTIVE CHILDREN AREAS

REVENUES

Taxes Local Property Tax $ - $ - $ - $ - $ - $ - Recordation Taxes - 139,542 - 319,136 - - State Shared Taxes - - - - - - Intergovernmental 857,724 112,737 - - 1,617,728 - Charges for Current Services 71,973 232,500 - - - 2 ,002 Fines and Forfeitures - - - - - - Investment Income 103 ( 999) (4,669) 342 327 - Donations 29,594 - - - - - Miscellaneous 1,241 - 100 - 14,927 - Total Revenues 960,635 483,780 (4,569) 319,478 1,632,982 2 ,002

EXPENDITURES

Current General Government - - - - - - Public Safety - - - - - - Social Services 2,074,696 - - - 1,704,511 - Economic/Community Development - 454,779 - - - - Capital Outlay 11,211 - - - - - Debt Service Principal - - - - - - Interest and Fiscal Charges - - - - - - Total Expenditures 2,085,907 454,779 - - 1,704,511 - Excess of Revenues Over (Under) Expenditures ( 1,125,272) 29,001 (4,569) 319,478 ( 71,529) 2 ,002

OTHER FINANCING SOURCES (USES)

Proceeds of Capital Asset Disposals 250 - - - - - Insurance Proceeds 13,590 - - - - - Transfers In 1,082,748 340,125 - - 148,668 - Transfers Out ( 25,176) - - - - - Other Financing Sources (Uses) 1,071,412 340,125 - - 148,668 - Net Increase (Decrease) in Fund Balances ( 53,860) 369,126 (4,569) 319,478 77,139 2 ,002 Fund Balances, July 1 123,054 4,609,957 596,213 - 75,622 1 50,342 Fund Balances, June 30 $ 69,194 $ 4,979,083 $ 591,644 $ 319,478 $ 152,761 $ 1 52,344

-118-

QUEEN ANNE'S COUNTY, MARYLAND

COMBINING STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES

NON-MAJOR GOVERNMENTAL FUNDS

FOR THE YEAR ENDED JUNE 30, 2013

(CONTINUED)

SHERIFF'S

DRUG PURCHASE OF

LAW TASK INMATE AGRICULTURAL RURAL DEVELOPMENT

LIBRARY FORCE WELFARE TRANSFER LEGACY RIGHTS

$ - $ - $ - $ - $ - $ -

- - - - - 292,009

- - - 3 1,826 - -

- - 5,459 - - -

11,841 - 97,955 - - - 19,932 66,250 - - - - 30 440 285 5 7 531 1,933

- - - - - -

- 1,990 37,382 - - -

31,803 68,680 141,081 3 1,883 531 293,942 10,027 - - - - -

- 62,739 136,692 - - -

- - - - - -

- - - - - -

- - 12,417 - - -

- - - - - 127,049

- - - - - 6,804

10,027 62,739 149,109 - - 133,853 21,776 5,941 ( 8,028) 3 1,883 531 160,089

- - - - - -

- - - - - -

1,500 - - - - -

- ( 22,608) - - - -

1,500 ( 22,608) - - - - 23,276 ( 16,667) ( 8,028) 3 1,883 531 160,089 12,234 199,241 222,872 4 9,360 419,299 1,412,343 $ 35,510 $ 182,574 $ 214,844 $ 8 1,243 $ 419,830 $ 1,572,432

CONTINUED

-119-

QUEEN ANNE'S COUNTY, MARYLAND

COMBINING STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES

NON-MAJOR GOVERNMENTAL FUNDS

FOR THE YEAR ENDED JUNE 30, 2013

(CONTINUED)

CAPITAL PROJECTS

DREDGING PARKS AND TOTAL

SPECIAL KENT SCHOOL FIRE COMPANY RECREATION NON-MAJOR

ASSESSMENTS NARROWS IMPACT FEES IMPACT FEES IMPACT FEES GOVERNMENTAL

REVENUES

Taxes Local Property Tax $ - $ 37,420 $ - $ - $ - $ 37,420 Recordation Taxes - - - - - 750,687 State Shared Taxes - - - - - 31,826 Intergovernmental - - - - - 2,593,648 Charges for Current Services 4 4,179 - 1,052,690 228,044 131,488 1,872,672 Fines and Forfeitures - - - - - 86,182 Investment Income 447 - 7 38 261 3 74 2 00 Donations - - - - - 29,594 Miscellaneous - - - - - 55,640 Total Revenues 4 4,626 37,420 1,053,428 228,305 131,862 5,457,869

EXPENDITURES

Current - General Government - - - - - 10,027 Public Safety - - - 151,158 - 350,589 Social Services - - - - - 3,779,207 Economic/Community Development - 1,502 - - - 456,281 Capital Outlay - - - - - 23,628 Debt Service Principal 4 4,425 - - - - 171,474 Interest and Fiscal Charges - - - - - 6,804 Total Expenditures 4 4,425 1,502 - 151,158 - 4,798,010 Excess of Revenues Over (Under) Expenditures 201 35,918 1,053,428 77,147 131,862 659,859

OTHER FINANCING SOURCES (USES)

Proceeds of Capital Asset Disposals - - - - - 2 50 Insurance Proceeds - - - - - 13,590 Transfers In - - - 93,528 - 1,666,569 Transfers Out - - - - - (47,784) Other Financing Sources (Uses) - - - 93,528 - 1,632,625 Net Increase (Decrease) in Fund Balances 201 35,918 1,053,428 170,675 131,862 2,292,484 Fund Balances, July 1 1 7,953 221,494 777,787 84,419 240,036 9,212,226 Fund Balances, June 30 $ 1 8,154 $ 257,412 $ 1,831,215 $ 255,094 $ 371,898 $ 11,504,710

-120- -121-

QUEEN ANNE'S COUNTY, MARYLAND

SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES - BUDGETARY BASIS

NON-MAJOR GOVERNMENTAL FUNDS

FOR THE YEAR ENDED JUNE 30, 2013

DEPARTMENT OF AGING HOUSING AND COMMUNITY SERVICES

VARIANCE VARIANCE

ORIGINAL FINAL POSITIVE ORIGINAL FINAL POSITIVE

BUDGET BUDGET ACTUAL (NEGATIVE) BUDGET BUDGET ACTUAL (NEGATIVE)

REVENUES

Taxes Local Property Tax $ - $ - $ - $ - $ - $ - $ - $ - Recordation Taxes - - - - 77,500 77,500 139,542 62,042 State Shared Taxes - - - - - - - - Intergovernmental 809,380 904,511 857,724 (46,787) 166,853 179,651 112,737 (66,914) Charges for Current Services 62,850 76,850 71,973 (4,877) 155,000 387,500 232,500 (155,000) Fines and Forfeitures - - - - - - - - Investment Income - - 103 103 - - (999) (999)

Donations 41,000 41,000 29,594 (11,406) 3,000 3,000 - (3,000) Miscellaneous 1,000 1,000 1,241 241 - - - - Total Revenues 914,230 1,023,361 960,635 (62,726) 402,353 647,651 483,780 (163,871)

EXPENDITURES

Current Operating Expenditures 2,021,034 2,109,860 2,074,696 35,164 1,190,377 1,504,945 454,779 1,050,166 Capital Outlay - 10,089 11,211 (1,122) - - - - Debt Service Principal - - - - - - - - Interest and Fiscal Charges - - - - - - - - Total Expenditures 2,021,034 2,119,949 2,085,907 34,042 1,190,377 1,504,945 454,779 1,050,166 Excess of Revenues Over (Under) Expenditures (1,106,804) ( 1,096,588) ( 1,125,272) (28,684) (788,024) (857,294) 29,001 886,295

OTHER FINANCING SOURCES (USES)

Issuance of Debt - - - - - - - - Proceeds of Capital Asset Disposals - 250 250 - - - - - Insurance Proceeds - 13,590 13,590 - - - - - Transfers In 1,106,804 1,082,748 1,082,748 - 441,308 441,308 340,125 (101,183) Transfers Out - ( 25,176) ( 25,176) - - - - - Total Other Financing Sources (Uses) 1,106,804 1,071,412 1,071,412 - 441,308 441,308 340,125 (101,183) Net Increase (Decrease) in Fund Balances $ - $ ( 25,176) ( 53,860) $ (28,684) $ (346,716) $ (415,986) 369,126 $ 785,112

Fund Balances, July 1 123,054 4,609,957 Fund Balances, June 30 $ 69,194 $ 4,979,083 -122-

QUEEN ANNE'S COUNTY, MARYLAND

SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES - BUDGETARY BASIS

NON-MAJOR GOVERNMENTAL FUNDS

FOR THE YEAR ENDED JUNE 30, 2013

(CONTINUED)

COMMUNITY PARTNERSHIPS FOR CHILDREN LAW LIBRARY INMATE WELFARE

VARIANCE VARIANCE VARIANCE

ORIGINAL FINAL POSITIVE ORIGINAL FINAL POSITIVE ORIGINAL FINAL POSITIVE BUDGET BUDGET ACTUAL (NEGATIVE) BUDGET BUDGET ACTUAL (NEGATIVE) BUDGET BUDGET ACTUAL (NEGATIVE) $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ -

- - - - - - - - - - - -

- - - - - - - - - - - -

980,577 1,584,520 1,617,728 33,208 - - - - - 5,458 5,459 1

- - - - 1 4,000 14,000 11,841 ( 2,159) 6 0,000 97,900 97,955 55

- - - - 1 9,325 19,325 19,932 607 - - - -

- - 327 327 2 5 25 30 5 2 50 250 285 35

- - - - - - - - - - - -

- - 14,927 14,927 2 5,000 18,475 - ( 18,475) 3 0,000 35,156 37,382 2,226

980,577 1,584,520 1,632,982 48,462 5 8,350 51,825 31,803 ( 20,022) 9 0,250 138,764 141,081 2,317 1,133,969 1,737,912 1,704,511 33,401 5 8,350 58,350 10,027 48,323 9 0,250 135,013 136,692 (1,679)

- - - - - - - - - 15,000 12,417 2,583

- - - - - - - - - - - -

- - - - - - - - - - - -

1,133,969 1,737,912 1,704,511 33,401 5 8,350 58,350 10,027 48,323 9 0,250 150,013 149,109 904 (153,392) ( 153,392) (71,529) 81,863 - (6,525) 21,776 28,301 - (11,249) (8,028) 3,221

- - - - - - - - - - - -

- - - - - - - - - - - -

- - - - - - - - - - - -

153,392 153,392 148,668 (4,724) - 6,525 1,500 ( 5,025) - - - -

- - - - - - - - - - - -

153,392 153,392 148,668 (4,724) - 6,525 1,500 ( 5,025) - - - - $ - $ - 77,139 $ 77,139 $ - $ - 23,276 $ 23,276 $ - $ (11,249) (8,028) $ 3,221 75,622 12,234 222,872 $ 152,761 $ 35,510 $ 214,844

CONTINUED

-123-

QUEEN ANNE'S COUNTY, MARYLAND

SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES - BUDGETARY BASIS

NON-MAJOR GOVERNMENTAL FUNDS

FOR THE YEAR ENDED JUNE 30, 2013

(CONTINUED)

AGRICULTURAL TRANSFER RURAL LEGACY

VARIANCE VARIANCE

ORIGINAL FINAL POSITIVE ORIGINAL FINAL POSITIVE

BUDGET BUDGET ACTUAL (NEGATIVE) BUDGET BUDGET ACTUAL (NEGATIVE)

REVENUES

Taxes Local Property Tax $ - $ - $ - $ - $ - $ - $ - $ - Recordation Taxes - - - - - - - - State Shared Taxes 80,000 80,000 31,826 (48,174) - - - - Intergovernmental - - - - - - - - Charges for Current Services - - - - - - - - Fines and Forfeitures - - - - - - - - Investment Income - - 57 57 - - 5 31 531 Donations - - - - - - - - Miscellaneous - - - - - - - - Total Revenues 80,000 80,000 31,883 (48,117) - - 5 31 531

EXPENDITURES

Current Operating Expenditures 80,000 80,000 - 80,000 - - - - Capital Outlay - - - - - - - - Debt Service Principal - - - - - - - - Interest and Fiscal Charges - - - - - - - - Total Expenditures 80,000 80,000 - 80,000 - - - - Excess of Revenues Over (Under) Expenditures - - 31,883 31,883 - - 5 31 531

OTHER FINANCING SOURCES (USES)

Issuance of Debt - - - - - - - - Proceeds of Capital Asset Disposals - - - - - - - - Insurance Proceeds - - - - - - - - Transfers In - - - - - - - - Transfers Out - - - - - - - - Total Other Financing Sources (Uses) - - - - - - - - Net Increase (Decrease) in Fund Balances $ - $ - 31,883 $ 31,883 $ - $ - 5 31 $ 531 Fund Balances, July 1 49,360 419,299 Fund Balances, June 30 $ 81,243 $ 419,830 -124-

QUEEN ANNE'S COUNTY, MARYLAND

SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES - BUDGETARY BASIS

NON-MAJOR GOVERNMENTAL FUNDS

FOR THE YEAR ENDED JUNE 30, 2013

(CONTINUED)

PURCHASE OF DEVELOPMENT RIGHTS DREDGING SPECIAL ASSESSMENTS KENT NARROWS

VARIANCE VARIANCE VARIANCE

ORIGINAL FINAL POSITIVE ORIGINAL FINAL POSITIVE ORIGINAL FINAL POSITIVE BUDGET BUDGET ACTUAL (NEGATIVE) BUDGET BUDGET ACTUAL (NEGATIVE) BUDGET BUDGET ACTUAL (NEGATIVE) $ - $ - $ - $ - $ - $ - $ - $ - $ 38,000 $ 38,000 $ 37,420 $ (580) 312,545 312,545 292,009 (20,536) - - - - - - - -

- - - - - - - - - - - -

- - - - - - - - - - - -

- - - - 44,425 44,425 44,179 (246) - - - -

- - 1,933 1,933 - - - - - - - -

- - - - - - 447 447 - - - -

- - - - - - - - - - - -

- - - - - - - - - - - -

312,545 312,545 293,942 (18,603) 44,425 44,425 44,626 201 38,000 38,000 37,420 (580)

- - - - - 355,318 - 355,318 38,000 38,000 1,502 36,498

- - - - - - - - - - - -

127,057 127,057 127,049 8 44,425 44,425 44,425 - - - - - 6,796 6,796 6,804 (8) - - - - - - - - 133,853 133,853 133,853 - 44,425 399,743 44,425 355,318 38,000 38,000 1,502 36,498 178,692 178,692 160,089 (18,603) - (355,318) 201 355,519 - - 35,918 35,918

- - - - - 355,318 - (355,318) - - - -

- - - - - - - - - - - -

- - - - - - - - - - - -

- - - - - - - - - - - -

- - - - - - - - - - - -

- - - - - 355,318 - (355,318) - - - -

$ 178,692 $ 178,692 160,089 $ (18,603) $ - $ - 201 $ 201 $ - $ - 35,918 $ 35,918 1 ,412,343 17,953 221,494 $ 1 ,572,432 $ 18,154 $ 257,412

CONTINUED

-125-

QUEEN ANNE'S COUNTY, MARYLAND

SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES - BUDGETARY BASIS

NON-MAJOR GOVERNMENTAL FUNDS

FOR THE YEAR ENDED JUNE 30, 2013

(CONTINUED)

CAPITAL PROJECTS - SCHOOL IMPACT FEES CAPITAL PROJECTS - FIRE COMPANY IMPACT FEES

VARIANCE VARIANCE

ORIGINAL FINAL POSITIVE ORIGINAL FINAL POSITIVE

BUDGET BUDGET ACTUAL (NEGATIVE) BUDGET BUDGET ACTUAL (NEGATIVE)

REVENUES

Taxes Local Property Tax $ - $ - $ - $ - $ - $ - $ - $ - Recordation Taxes - - - - - - - - State Shared Taxes - - - - - - - - Intergovernmental - - - - - - - - Charges for Current Services 6 29,500 661,500 1,052,690 391,190 200,000 200,000 228,044 28,044 Fines and Forfeitures - - - - - - - - Investment Income 2 ,000 2,000 738 (1,262) 500 500 261 (239) Donations - - - - - - - - Miscellaneous - - - - - - - -

Total Revenues 6 31,500 663,500 1,053,428 389,928 200,500 200,500 228,305 27,805

EXPENDITURES

Current Operating Expenditures - - - - 200,500 351,658 151,158 200,500 Capital Outlay - - - - - - - - Debt Service Principal - - - - - - - - Interest and Fiscal Charges - - - - - - - - Total Expenditures - - - - 200,500 351,658 151,158 200,500 Excess of Revenues Over (Under) Expenditures 6 31,500 663,500 1,053,428 389,928 - (151,158) 77,147 228,305

OTHER FINANCING SOURCES (USES)

Issuance of Debt - - - - - - - - Proceeds of Capital Asset Disposals - - - - - - - - Insurance Proceeds - - - - - - - - Transfers In - - - - - 93,530 93,528 (2) Transfers Out (631,500) ( 663,500) - 663,500 - - - - Total Other Financing Sources (Uses) (631,500) ( 663,500) - 663,500 - 93,530 93,528 (2) Net Increase (Decrease) in Fund Balances $ - $ - 1,053,428 $ 1,053,428 $ - $ (57,628) 170,675 $ 228,303

Fund Balances, July 1 777,787 84,419 Fund Balances, June 30 $ 1,831,215 $ 255,094 -126-

QUEEN ANNE'S COUNTY, MARYLAND

SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES - BUDGETARY BASIS

NON-MAJOR GOVERNMENTAL FUNDS

FOR THE YEAR ENDED JUNE 30, 2013

(CONTINUED)

CAPITAL PROJECTS - PARKS & RECREATION IMPACT FEES

VARIANCE

ORIGINAL FINAL POSITIVE

BUDGET BUDGET ACTUAL (NEGATIVE)

$ - $ - $ - $ -

- - - -

- - - -

- - - -

80,000 80,000 131,488 51,488

- - - -

400 400 374 (26)

- - - -

- - - -

80,400 80,400 131,862 51,462

- - - -

- - - -

- - - -

- - - -

- - - -

80,400 80,400 131,862 51,462

- - - -

- - - -

- - - -

- - - -

( 80,400) ( 80,400) - 80,400 ( 80,400) ( 80,400) - 80,400 $ - $ - 131,862 $ 131,862 240,036 $ 371,898 -127-

CAPITAL PROJECTS FUNDS

Capital Projects Funds are used for the acquisition or construction of major capital facilities, as well as other large multi-year projects that relate to capital assets, that are financed from general governmental resources.

We do not amend closed projects in the General Capital Projects Fund or Roads Capital Projects Fund. The names of these projects begin with a CLS. Once the project is closed, it is considered null and void and there is no remaining authority, and therefore we do not amend those after the fact.

Force in kind capital projects do not contain any budget authority. These projects are only intended as a tracking tool. Most costs associated with force in kind projects are related to staff costs and the project is attached to the employee’s normal activity, which contains the budget authority.

General Capital Projects – This fund accounts for capital project activities funded by all governmental resources, except those reserved for use in the Roads Capital Projects Fund, noted below.

Roads Capital Projects - This fund accounts for capital project activities funded by governmental resources specifically reserved for use in the Roads Capital Projects Fund. These resources consist of State-Shared Highway User Tax, which is mandated for this use, plus federal, state, and local roads-related grants and transfers, and also governmental resources.

-128-

QUEEN ANNE'S COUNTY MARYLAND

CAPITAL PROJECTS FUNDS

SCHEDULE OF APPROPRIATIONS AND EXPENDITURES

FOR THE YEAR ENDED JUNE 30, 2013

EXPENDITURES INCLUDED IN CAPITALIZED

TOTAL PRIOR CURRENT UNEXPENDED CONSTRUCTION CURRENT

PROJ # GENERAL CAPITAL PROJECTS: APPROPRIATION YEARS YEAR TOTAL APPROPRIATIONS IN PROGRESS YEAR

GENERAL GOVERNMENT

400003 County Facilities Program $ 1 ,300,446 $ 9 14,985 $ 3 10,010 $ 1,224,995 $ 75,451 $ - $ 211,096 400007 GASB/Tax System Update 3 19,000 1 17,233 5 2,117 169,350 149,650 - - 400015 County Wide Mapping 9 25,000 6 50,296 1 22,808 773,104 151,896 - 16,808 400027 Strategic Planning 5 76,602 386,834 - 386,834 189,768 - - 400031 Mgt Info Systems Network 9 77,375 7 25,664 6 4,426 790,090 187,285 - 8,122

400233 CLS-Rec Mgmt Sys - Non Fin 2 05,000 1 59,661 - 159,661 45,339 - - 400269 Tax Ditches - Beaverdam 8 4,500 4 3,496 1 5,714 59,210 25,290 - - 400271 Tax Ditches - Longmarsh 8 9,000 5 3,140 4 ,950 58,090 30,910 - - 400359 Public Drainage 5 75,000 - 2 5,867 25,867 549,133 - - 400363 CLS-Church Hill Pond Stabilization 2 00,000 7 2,739 3 ,465 76,204 123,796 - - 400375 CLS-Sustainable Communities Council 5 ,000 1 ,701 - 1,701 3,299 - -

400377 CLS-BNR Septic Retrofit Grant 5 ,000 - - - 5,000 - - 400449 CLS-Nesbit Road ER Infrastructure 3 ,000,000 2 ,474,123 5 1,115 2,525,238 474,762 - 51,115 400457 GIS & Strategic Plan Land Use 9 0,000 2 2,471 1 90 22,661 67,339 - - 400491 Emergency Generators 8 0,000 - - - 80,000 - - 400559 Courthouse Property 2 ,852,775 1 ,343,114 - 1,343,114 1,509,661 - - 400619 CLS-DNR Natural Filters 1 00,000 4 3,912 4 4,020 87,932 12,068 - 44,020

400635 CLS-Coastal Bays Grant - Town of Centreville 7 0,000 1 9,084 5 0,916 70,000 - - - 400637 CLS-Coastal Bays Grant - Corsica River Conservancy 2 00,000 1 9,581 - 19,581 180,419 - - 400645 CLS-Benefits & Compensation Studies 3 5,000 3 0,000 - 30,000 5,000 - - 400647 Watershed Improvement Program 1 50,000 - - - 150,000 - - 400649 CLS-ECO Restoration 3 5,000 3 4,584 4 15 34,999 1 - - 400653 Coastal Community Initiative 7 0,705 1 9,012 4 5,486 64,498 6,207 - -

400675 IT Fiber Infrastructure 3 80,000 - 1 14,652 114,652 265,348 114,652 114,652 400685 CLS-Xray Scanner - Circuit Court 2 3,000 - 2 2,476 22,476 524 - 22,476 400691 PHA Debt Charge - - 63,672 63,672 (63,672) - - Total General Government 1 2,348,403 7 ,131,630 992,299 8,123,929 4,224,474 114,652 468,289

PUBLIC SAFETY

400217 Transfer to VFDs 1 ,537,390 1 ,084,689 340,470 1,425,159 112,231 - - 400281 Detention Center Furniture & Carpet 3 0,000 - - - 30,000 - - 400313 County Wide Mapping - 911 8 15,530 7 94,469 - 794,469 21,061 - - 400499 Railroad Avenue Building Renovation 6 57,700 6 06,819 1 9,187 626,006 31,694 - - 400661 Fiber Optic - Detention Center 5 0,000 - 8 ,840 8,840 41,160 8,840 8,840 400663 Sheriff Cars - Replacement 3 47,345 - 3 47,345 347,345 - - 347,345

400665 EMS - Supervisor Rechassis 5 1,169 - 5 1,169 51,169 - - 51,169 400667 EMS - Rt 8 Garage 6 8,000 - 6 4,550 64,550 3,450 - 64,550 400669 EMS - Hardware Replacement 9 5,580 - 9 2,206 92,206 3,374 88,752 92,206 400671 EMS - Wireless Network 3 4,420 - 3 4,414 34,414 6 34,414 34,414 400673 EMS - Radio System Upgrade 7 2,834 - 7 2,834 72,834 - 72,834 72,834 400683 EMS - Lifepak 12 Upgrade 3 5,156 - - - 35,156 - -

400711 EMS - Replacement Vehicles 4 09,996 - 4 09,996 409,996 - - 409,996 Total Public Safety 4 ,205,120 2 ,485,977 1 ,441,011 3,926,988 278,132 204,840 1,081,354

CONTINUED

-129-

QUEEN ANNE'S COUNTY MARYLAND

CAPITAL PROJECTS FUNDS

SCHEDULE OF APPROPRIATIONS AND EXPENDITURES

FOR THE YEAR ENDED JUNE 30, 2013

(CONTINUED)

EXPENDITURES INCLUDED IN CAPITALIZED

TOTAL PRIOR CURRENT UNEXPENDED CONSTRUCTION CURRENT

PROJ # GENERAL CAPITAL PROJECTS: APPROPRIATION YEARS YEAR TOTAL APPROPRIATIONS IN PROGRESS YEAR

PUBLIC WORKS

400077 Wetlands Mitigation $ 2 16,560 $ 1 54,626 $ 5 ,274 $ 159,900 $ 56,660 $ - $ - 400079 CLS-Roof Repair / Replacement 4 54,647 4 52,586 - 452,586 2,061 - - 400091 DPW - Fee In Lieu 2 0,000 2 0,000 - 20,000 - - - 400215 Preventive Park Maintenance 1 ,070,480 8 06,473 5 7,319 863,792 206,688 - - 400221 Parks Capital Equipment 2 90,479 182,484 1 07,995 290,479 - - 95,297 400235 Solid Waste Capital Equipment 3 28,001 1 73,039 1 46,975 320,014 7,987 - 134,570

400241 Cash Deposit Agreements 3 5,748 3 5,748 - 35,748 - - - 400305 White Marsh Park 2 ,397,291 2 ,378,951 1 ,722 2,380,673 16,618 - - 400391 Cross County Connec Trail PS1 1 ,932,688 6 0,935 - 60,935 1,871,753 60,935 - 400393 Davidson Property Improvements 8 58,444 7 7,112 - 77,112 781,332 77,112 - 400501 DPW Yard MTBE Remediation 2 00,000 4 3,570 9 1,835 135,405 64,595 - - 400509 Solid Waste Loader Replacement 6 3,626 - - - 63,626 - -

400513 Bay City/Matapeake Trail 3 0,000 - - - 30,000 - - 400519 Talisman/Kudner Improvements 6 ,855 - - - 6,855 - - 400521 County Complex Land 3 ,184,120 1 ,614,074 1 3,268 1,627,342 1,556,778 13,268 13,268 400529 Chesapeake Pool Improvements 1 00,000 7 9,473 9 41 80,414 19,586 - - 400541 CLS-Sudlersville Middle Infrastructure 7 80,588 760,884 - 760,884 19,704 - - 400607 Grasonville Tennis Courts 4 0,000 - - - 40,000 - -

400621 YMCA Fundraising Study 2 5,000 - - - 25,000 - - 400657 BOE Tournament Field Maintenance 2 0,670 - 4 ,438 4,438 16,232 - - 400659 QAC Tournament Field Maintenance 4 2,158 - 5 70 570 41,588 - - 400677 Transfer Station Improvements 5 0,000 - 1 6,128 16,128 33,872 16,128 16,128 400681 Ferry Point - Habitat Enhancement 8 93,303 - 5 6,435 56,435 836,868 56,435 56,435 400689 CLS-RT 18 Trails - Phase II 3 0,000 - 3 0,000 30,000 - - -

400693 Coastsmart Initiative 5 5,000 - 4 5,688 45,688 9,312 - - 400701 Rt 18 Trails - Phase III 3 7,630 - - - 37,630 - - 400703 Old Love Point Park 3 0,000 - - - 30,000 - - 400705 Conquest Greenhouse 2 6,885 - 6 ,683 6,683 20,202 - - 400707 Rubble Surcharge 6 95,944 - 3 3,760 33,760 662,184 - 33,760 Total Public Works 1 3,916,117 6 ,839,955 619,031 7,458,986 6,457,131 223,878 349,458

SOCIAL SERVICES

400679 Aging - Transportation Development Plan 1 00,000 - - - 100,000 - - 400699 Aging - Vehicle Replacement 2 5,176 - - - 25,176 - - Total Social Services 1 25,176 - - - 125,176 - -

EDUCATION

ALLOCATIONS TO COMPONENT UNIT -

BOARD OF EDUCATION

400543 CLS-Sudlersville Middle Infrastructure 6 94,177 6 94,177 - 694,177 - - - 700061 CLS-Matapeake Middle 1 6,909,456 16,838,271 - 16,838,271 71,185 - - 700151 Bayside Elementary HVAC 1 ,064,153 1 ,039,789 - 1,039,789 24,364 - - 700157 QACHS Field Upgrades 5 19,532 5 11,777 - 511,777 7,755 - - 700161 Financial Hardware System 6 0,000 5 6,650 3 ,314 59,964 36 - - 700169 New Sudlersville Middle School (1) 2 8,585,930 15,832,669 190,624 16,023,293 12,562,637 - -

700177 BOE Security Entrance & Cameras 1 60,000 1 57,980 2 ,020 160,000 - - - 700179 Centreville Middle Boiler 2 24,917 9 1,348 - 91,348 133,569 - - 700183 Centreville Elementary - Resurface Playcourts 2 9,766 2 9,516 - 29,516 250 - - 700187 Kennard Elementary Addition (1) 4 ,412,354 1 ,338,073 6 13,510 1,951,583 2,460,771 - - 700193 Security Entrance & Cameras 6 5,000 6 3,507 1 ,493 65,000 - - - 700195 Equipment & Vehicles 2 ,200,000 6 95,624 1 ,486,076 2,181,700 18,300 - -

700205 CLS-BOE Phone System 6 0,000 5 4,664 - 54,664 5,336 - - 700207 CLS-QACHS Bleachers 1 45,000 1 31,684 - 131,684 13,316 - - 700215 KIHS Roof Repairs 1 04,729 9 7,278 - 97,278 7,451 - - 700221 Warehouse Lot Paving 1 00,000 - - - 100,000 - - 700223 BOE Parking Lot Expansion 2 5,000 - - - 25,000 - - 700227/700229 Relocatable Classrooms 2 24,300 5 1,353 109,468 160,821 63,479 - - 700231 Stevensville Middle 1 ,000,000 - 589,756 589,756 410,244

Total Education 5 6,584,314 37,684,360 2 ,996,261 40,680,621 15,903,693 - -

CONSERVATION

400293 4-H Park Improvements 6 47,555 570,746 1 6,255 587,001 60,554 - - 400553 Ag Preservation - Emerson Property 4 16,861 - - - 416,861 - - 400555 Ag Preservation - Frizz King Property 5 72,000 5 72,000 - 572,000 - - - 400571 Ag Preservation - Brown's Branch 9 68,166 9 68,166 - 968,166 - - - 400631 CREP Easements 1 ,532,705 1 ,511,297 - 1,511,297 21,408 - - 400643 4-H Parking Phase II 1 00,000 1 00,000 - 100,000 - - -

400687 Ag Preservation - Milliken Farm 3 36,832 4 ,650 332,182 336,832 - - - Total Conservation 4 ,574,119 3 ,726,859 3 48,437 4,075,296 498,823 - -

CONTINUED

-130-

QUEEN ANNE'S COUNTY MARYLAND

CAPITAL PROJECTS FUNDS

SCHEDULE OF APPROPRIATIONS AND EXPENDITURES

FOR THE YEAR ENDED JUNE 30, 2013

(CONTINUED)

EXPENDITURES INCLUDED IN CAPITALIZED

TOTAL PRIOR CURRENT UNEXPENDED CONSTRUCTION CURRENT

PROJ # GENERAL CAPITAL PROJECTS: APPROPRIATION YEARS YEAR TOTAL APPROPRIATIONS IN PROGRESS YEAR

ECONOMIC/COMMUNITY DEVELOPMENT

400201 Land Sales Proceeds (See Transfers) $ 3 0,345 $ 3 0,345 $ - $ 30,345 $ - $ - $ - 400207 Housing & Community Service Transfer (See Transfers) 1 00,000 1 00,000 - 100,000 - - - 400573 Housing - NCI - 107 Watkins (See Transfers) 2 30,159 2 16,900 - 216,900 13,259 - - 400583 Matapeake Business Park 1 ,640,000 1 91,285 9 06,219 1,097,504 542,496 1,097,504 906,219 400709 Homeless Shelter Addition 7 57,284 - 2 7,444 27,444 729,840 - -

Total Economic/Community Development 2 ,757,788 5 38,530 9 33,663 1,472,193 1,285,595 1,097,504 906,219

DEBT SERVICE

400613 2011 Bond Issuance Costs 2 73,472 2 56,244 1 7,134 273,378 94 - - 400655 2012 Refunding Bonds 8 ,724,048 8 ,719,850 - 8,719,850 4,198 - - Total Debt Service 8 ,997,520 8 ,976,094 1 7,134 8,993,228 4,292 - -

TRANSFERS TO OTHER FUNDS

400045 Land Preservation Transfers 4 05,000 4 05,000 - 405,000 - - - 400127 Public Landings Allocation 2 00,000 200,000 - 200,000 - - - 400167 Enterprise Transfer/Allocation 3 ,336,695 3 ,236,490 - 3,236,490 100,205 - - 400201 Land Sale Proceeds 1 25,000 1 25,000 - 125,000 - - - 400207 Housing & Comm Svc Transfer - to Housing Services 5 50,000 4 50,000 - 450,000 100,000 - - 400213 Loan Fund Transfers 4 60,000 4 60,000 - 460,000 - - -

400217 Transfer to VFD's 1 62,410 1 62,410 - 162,410 - - - 400551 Transfer to/from General Fund 8 ,310,000 8 ,310,000 - 8,310,000 - - - 400469 Sanitary District Transfer/Allocation 2 33,000 2 33,000 - 233,000 - - - Total Transfers 1 3,782,105 13,581,900 - 13,581,900 200,205 - - Total General Capital Projects $ 1 17,290,662 $ 80,965,305 $ 7 ,347,836 $ 88,313,141 $ 28,977,521 $ 1,640,874 $ 2,805,320

PROJ # ROADS BOARD CAPITAL PROJECTS:

PUBLIC WORKS

820005 Asphalt Overlays - Upgrade $ 2 ,828,957 $ 9 86,282 $ 7 38,062 $ 1,724,344 $ 1,104,613 $ - $ - 820151 CLS-Island Creek Road Bridge 1 ,485,985 1 ,272,036 2 13,902 1,485,938 47 - 213,902 820221 Taylor Mill Road Bridge 1 97,500 4 50 - 450 197,050 450 - 820291 Carmichael Road Improvements 2 03,669 1 54,243 - 154,243 49,426 154,243 - 820295 Fogwell Road Improvements 5 3,215 - - - 53,215 - - 820297 Rt

18-552 Improvements 1 ,450,248 2 36,244 - 236,244 1,214,004 236,244 -

820303 Roads - Capital Equipment 6 85,000 - 3 28,459 328,459 356,541 - 328,059 Total Public Works - Roads 6 ,904,574 2 ,649,255 1 ,280,423 3,929,678 2,974,896 390,937 541,961

TRANSFERS TO OTHER FUNDS

820209 County Wide Mapping II 8 0,000 8 0,000 - 80,000 - - - Total Transfers to Other Funds 8 0,000 8 0,000 - 80,000 - - - Total Roads Board Capital Projects $ 6 ,984,574 $ 2 ,729,255 $ 1 ,280,423 $ 4,009,678 $ 2,974,896 $ 390,937 $ 541,961 Total General and Roads Capital Projects $ 1 24,275,236 $ 83,694,560 $ 8 ,628,259 $ 92,322,819 $ 31,952,417 $ 2,031,811 $ 3,347,281 Force in Kind Capital Projects reported in

non-capital projects Funds and added to CIP 400306 White March Park FIC $ 4 12,129 $ 411,085 $ 1 ,044 $ 412,129 $ - $ - $ - 400392 Cross County Conn II FIC 2 9,557 2 9,557 - 29,557 - 27,634 - 400394 Davidson Property FIC 4 3,809 4 3,470 3 39 43,809 - 43,470 - 400626 CLS-Coastal Bays Health Dept Parking - FIC 1 8,584 1 8,545 3 9 18,584 - - - 400630 CLS-Kirwan Creek WMP IMPL - FIC 4 3,845 4 3,809 3 6 43,845 - - -

400690 CLS-RT 18 Park Trail - FIC 2 ,118 - 2 ,118 2,118 - - - 400480 CLS - Kent Is South Trail Maintenance Equipment - FIC 4 26 - 4 26 426 - - - $ 5 50,468 $ 5 46,466 $ 4 ,002 $ 550,468 $ - $ 71,104 $ - Total Construction in Progress and Capitalized Current Year $ 2,102,915 $ 3,347,281

(1) The total appropriation given is for both the Board of Eductation & County.

-131-

NON-MAJOR ENTERPRISE FUNDS

Non-Major Enterprise funds account for activities which are commercial in nature and are primarily or partially intended to be self-supporting. Each fund sets its rates and service charges at a level sufficient to:

(1) meet all of its operating expenses; (2) provide for depreciation from wear and obsolescence; and (3) to

the extent that funds are not borrowed, finance the cost of expansion of physical facilities.

-132-

NON-MAJOR ENTERPRISE FUNDS

Non-major enterprise funds include the following funds:

Blue Heron Golf Course – This fund accounts for operation and maintenance of an 18-hole public golf course that is owned and operated by the County.

Public Landings and Marinas – This fund accounts for operation, maintenance, and major repairs of public landings, bulkheads, and public marinas. For a fee, the general public has access to these landings to launch small craft into the many waterways that surround the County and can also access the marinas for temporary mooring.

-133-

QUEEN ANNE'S COUNTY, MARYLAND

COMBINING STATEMENT OF NET POSITION

NON-MAJOR ENTERPRISE FUNDS

JUNE 30, 2013

PUBLIC TOTAL

GOLF LANDINGS NON-MAJOR

ASSETS COURSE AND MARINAS ENTERPRISE

Current Assets Equity in Pooled Cash $ - $ 660,202 $ 660,202 Accounts Receivable (Net) - 14,560 14,560 Due from Other Governments - 26,320 26,320 Bond Interest Reimbursement Receivable - Build America Bond - 3,669 3,669 Inventories 7,989 - 7,989 Prepaid Expenses - 6,738 6,738 Total Current Assets 7,989 711,489 719,478 Capital Assets Land, Improved and Unimproved 1,904,522 769,110 2,673,632 Buildings and Improvements to Buildings 313,443 - 313,443

Improvements Other Than Buildings 122,268 5,343,459 5,465,727 Automotive Equipment - 40,881 40,881 Equipment 395,222 56,814 452,036 Furniture and Fixtures - 4,979 4,979 Capital Assets before Depreciation 2,735,455 6,215,243 8,950,698 Less Accumulated Depreciation (518,179) (572,693) ( 1,090,872) Total Capital Assets, Net of Accumulated Depreciation 2,217,276 5,642,550 7,859,826 Total Noncurrent Assets 2,217,276 5,642,550 7,859,826

Total Assets 2,225,265 6,354,039 8,579,304

LIABILITIES

Current Liabilities Accounts Payable 9,485 17,765 27,250 Accrued Interest Payable 4,186 12,216 16,402 Due to Other Funds 306,731 - 306,731 Unearned Revenue 2,452 - 2,452 Current Portion of Compensated Absences 5,717 11,556 17,273 Current Portion of Bonds/Notes Payable 76,763 43,325 120,088 Total Current Liabilities 405,334 84,862 490,196 Noncurrent Liabilities Compensated Absences 3,650 7,377 11,027

Other Post-Employment Benefit Obligation - 159,176 159,176 Bonds/Notes Payable 506,654 973,275 1,479,929 Total Noncurrent Liabilities 510,304 1,139,828 1,650,132 Total Liabilities 915,638 1,224,690 2,140,328

NET POSITION

Net Investment in Capital Assets 1,633,859 4,625,950 6,259,809 Amounts Restricted for:

Donations 417 - 417 Unrestricted Amounts (324,649) 503,399 178,750 Total Net Position $ 1,309,627 $ 5,129,349 $ 6,438,976 -134-

QUEEN ANNE'S COUNTY, MARYLAND

COMBINING STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN NET POSITION

NON-MAJOR ENTERPRISE FUNDS

FOR THE YEAR ENDED JUNE 30, 2013

PUBLIC TOTAL

GOLF LANDINGS NON-MAJOR

COURSE AND MARINAS ENTERPRISE

OPERATING REVENUES

Charges for Services $ 313,364 $ 440,270 $ 753,634 Intergovernmental - 28,961 2 8,961 Bond Interest Reimbursement - Build America Bond - 13,953 1 3,953 Material Sales 44,512 - 4 4,512 Miscellaneous Revenues 6,437 28,208 3 4,645 Total Operating Revenues 364,313 511,392 875,705

OPERATING EXPENSES

Cost of Sales and Services Recreation 430,349 326,301 756,650 Other Post-Employment Benefit Contributions - 49,350 4 9,350 Depreciation 33,603 112,933 146,536 Total Operating Expenses 463,952 488,584 952,536 Operating Income (Loss) (99,639) 22,808 (76,831)

NON-OPERATING (EXPENSES)

Interest Expense (35,866) (47,253) (83,119) Loss on Disposal of Capital Assets (38,602) - (38,602) Total Non-Operating (Expenses) (74,468) (47,253) ( 121,721) (Loss) Before Contributions and Transfers (174,107) (24,445) ( 198,552) Capital Contributions, Fees and Grants - 18,692 1 8,692 Transfers In 174,108 40,599 214,707 Change in Net Position 1 34,846 3 4,847 Total Net Position - Beginning of Year 1,309,626 5,094,503 6,404,129

Total Net Position - End of Year $ 1,309,627 $ 5 ,129,349 $ 6,438,976 -135-

QUEEN ANNE'S COUNTY, MARYLAND

COMBINING STATEMENT OF CASH FLOWS

NON-MAJOR ENTERPRISE FUNDS

FOR THE YEAR ENDED JUNE 30, 2013

PUBLIC TOTAL

GOLF LANDINGS NON-MAJOR

COURSE AND MARINAS ENTERPRISE

CASH FLOWS FROM OPERATING ACTIVITIES

Receipts from customers and users $ 313,442 $ 426,430 $ 739,872 Receipts from other operating revenues 50,949 46,951 97,900 Receipts from Build America Bond interest reimbursement - 14,024 14,024 Payments to suppliers (320,961) ( 102,736) (423,697) Payments to employees and on behalf of employees (108,268) (242,374) (350,642) Net Cash Provided (Used) by Operating Activities (64,838) 142,295 77,457

CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES

Transfers from other funds 174,108 40,599 214,707 Loan proceeds from interfund loans 306,732 - 306,732 Principal paid on interfund loans (310,570) - (310,570) Net Cash Provided by Noncapital Financing Activities 170,270 40,599 210,869

CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES

Proceeds from the disposition of capital assets 7,750 - 7,750 Receipts from capital grants and contributions - 18,692 18,692 Principal paid on capital debt (80,000) ( 42,125) (122,125) Receipts from bonds, including premiums, net of issuance costs - 17,235 17,235 Interest paid on capital debt (33,182) ( 47,388) (80,570) Acquisition and Construction of Capital Assets - ( 48,487) (48,487) Net Cash (Used) by Capital and Related Financing Activities (105,432) (102,073) (207,505)

CASH FLOWS FROM INVESTING ACTIVITIES

Investment income - - - Net Cash Provided (Used) by Investing Activities - - - Net increase in cash and cash equivalents - 80,821 80,821 Balances - Beginning of year - 579,381 579,381 Balances - End of year $ - $ 660,202 $ 660,202 Reconciliation of operating income (loss) to net cash provided by operating activities Operating income (loss) $ (99,639) $ 22,808 $ (76,831) Adjustments to reconcile operating income (loss)

to net cash provided (used) by operating activities:

Depreciation 33,603 112,933 146,536 Changes in assets and liabilities:

Accounts receivable, net - ( 13,840) (13,840) Operating grants receivable - ( 10,218) (10,218) Build America Bonds Interest receivable - 71 71 Inventories and Prepaid Expenses 19,248 ( 6,738) 12,510 Vendor accounts payable (18,791) 4,358 (14,433) Compensated absences 663 ( 16,428) (15,765) Other Post-Employment Benefit Obligation - 49,349 49,349 Deferred revenue collected in advance 78 - 78 Net Cash Provided (Used) by Operating Activities $ (64,838) $ 142,295 $ 77,457

Noncash investing, capital and financing activities:

Donation of capital assets (infrastructure) by developers $ - $ - $ - -136-

FIDUCIARY FUNDS

Fiduciary funds account for assets held for others, in a trustee or agency capacity, which cannot be used to support other government programs.

Pension and Other Employee Benefit Trust Funds account for resources that are required to be held in trust for the members and beneficiaries of defined benefit pension plans, defined contribution plans, other postemployment benefit plans, or other employee benefit plans. The County’s one Other Post-Employment Benefit (OPEB) Trust Fund accounts for retiree benefit plans and is reported as part of the Basic Financial

Statements. Additional combining schedules for the OPEB Trust Fund are included in this section.

Agency Funds account for assets held by the County on behalf of individuals, private organizations, or other governments and/or funds. Additional combining schedules for the County’s Agency Funds are included in this section.

-137-

OTHER POST-EMPLOYMENT BENEFIT (OPEB) TRUST FUND

The County established a Trust entity, entitled “Other Post-Employment Benefit Trust – County Commissioners of Queen Anne's County, County Commissioners of Kent County, and Participating Agencies” (OPEB Trust), to accumulate resources and account for and report retiree benefit plans for the participating agencies.

Participating agencies in the OPEB Trust Fund are as follows:

Queen Anne's County Queen Anne's County Board of Education Queen Anne’s County Library Queen Anne’s County Public Housing Authority Kent County

AGENCY FUNDS

Agency funds are as follows:

Tax Ditch – This fund accounts for special taxing district revenues that are used to maintain drainage ditches located in parts of the County.

Zoning Deposits – This fund accounts for performance deposits required under various sections of the Zoning Ordinance.

State and Town Tax Collections – This fund accounts for collections received by the County on behalf of the State of Maryland and incorporated towns located within the County. These taxes are collected by the County along with County taxes and are then remitted to the proper jurisdiction.

Motor Vehicle Administration Deposits – This fund accounts for funds collected by the County for State vehicle registration fees.

Mid-shore Regional Recycling Program (MRRP) – This fund accounts for activities of the regional recycling effort that is supported by four counties, including Queen Anne’s County.

Escheat – Abandoned Property – This fund accounts for stale-dated County payroll and disbursements checks that are voided by the County and remitted to the State after three years as abandoned property. In accordance with State statutes, these funds are available to be claimed by the original payee or they revert to the State.

-139-

QUEEN ANNE'S COUNTY, MARYLAND

COMBINING STATEMENT OF FIDUCIARY NET POSITION

OTHER POST-EMPLOYMENT BENEFIT TRUST FUND

JUNE 30, 2013

QUEEN ANNE'S TOTAL

COUNTY QUEEN ANNE'S PUBLIC OPEB

QUEEN ANNE'S BOARD OF COUNTY HOUSING KENT TRUST

COUNTY EDUCATION LIBRARY AUTHORITY COUNTY FUND

ASSETS

Cash and Cash Equivalents $ 976,790 $ 504,292 $ 3 0,258 $ 1 13,383 $ 1 56,330 $ 1,781,053 Total Assets 976,790 504,292 30,258 1 13,383 1 56,330 1,781,053

LIABILITIES

Due to Other Governments - - - 1 13,383 1 56,330 2 69,713 Total Liabilities - - - 1 13,383 1 56,330 2 69,713 NET POSITION HELD IN TRUST $ 976,790 $ 504,292 $ 3 0,258 $ - $ - $ 1,511,340 -140-

QUEEN ANNE'S COUNTY, MARYLAND

COMBINING STATEMENT OF CHANGES IN FIDUCIARY NET POSITION

OTHER POST-EMPLOYMENT BENEFIT TRUST FUND

FOR THE YEAR ENDED JUNE 30, 2013

QUEEN ANNE'S TOTAL

COUNTY QUEEN ANNE'S OPEB

QUEEN ANNE'S BOARD OF COUNTY TRUST

COUNTY EDUCATION LIBRARY FUND

ADDITIONS

Contributions Employers $ 1,668,781 $ 1 ,405,124 $ 2 8,400 $ 3,102,305 Members 2 51,724 793,548 - 1,045,272 Total Contributions 1,920,505 2 ,198,672 2 8,400 4,147,577 Investment Income 1 ,088 938 57 2 ,083 Total Additions 1,921,593 2 ,199,610 2 8,457 4,149,660

DEDUCTIONS

Claims Paid 1,435,505 2 ,198,672 2 8,400 3,662,577 Change in Assets 4 86,088 938 57 487,083

NET POSITION HELD IN TRUST

Net Position - Beginning of Year 490,702 503,354 3 0,201 1,024,257 Net Position - End of Year $ 976,790 $ 5 04,292 $ 3 0,258 $ 1,511,340 -141-

QUEEN ANNE'S COUNTY, MARYLAND

STATEMENT OF AGENCY FUNDS ASSETS AND LIABILITIES

AGENCY FUNDS

JUNE 30, 2013

STATE MOTOR

TAX & TOWN VEHICLE MIDSHORE ESCHEAT - TOTAL

DITCH ZONING TAX ADMIN REGIONAL ABANDONED AGENCY

FUND DEPOSITS COLLECTIONS DEPOSITS RECYCLING PROPERTY FUNDS

ASSETS

Cash and Cash Equivalents $ 1 09,111 $ 323,063 $ 1 56,669 $ 6 ,862 $ - $ 12,977 $ 608,682 Miscellaneous Receivables - - - - 3 3,758 - 33,758 Total Assets $ 1 09,111 $ 323,063 $ 1 56,669 $ 6 ,862 $ 3 3,758 $ 12,977 $ 642,440

LIABILITIES

Accrued Liabilities $ - $ 5,851 $ - $ - $ - $ - $ 5,851 Due to Other Governments - - 1 56,669 6 ,862 3 3,758 12,977 210,266 Deposits and Escrows 1 09,111 317,212 - - - - 426,323 Total Liabilities $ 1 09,111 $ 323,063 $ 1 56,669 $ 6 ,862 $ 3 3,758 $ 12,977 $ 642,440 -143-

QUEEN ANNE'S COUNTY, MARYLAND

STATEMENT OF CHANGES IN AGENCY FUNDS ASSETS AND LIABILITIES

AGENCY FUNDS

FOR THE YEAR ENDED JUNE 30, 2013

Cash and Miscellaneous Total Cash Equivalents Receivables Assets

TAX DITCH FUND

Balance 7-1-12 $ 120,991 $ - $ 120,991 Additions 22,226 - 22,226 Deductions ( 34,106) - (34,106) Balance 6-30-13 $ 109,111 $ - $ 109,111

ZONING DEPOSITS

Balance 7-1-12 $ 267,511 $ - $ 267,511 Additions 91,011 - 91,011 Deductions ( 35,459) - (35,459) Balance 6-30-13 $ 323,063 $ - $ 323,063

STATE AND TOWN TAX COLLECTIONS

Balance 7-1-12 $ 79,781 $ - $ 79,781 Additions 12,717,089 - 12,717,089 Deductions (12,640,201) - (12,640,201) Balance 6-30-13 $ 156,669 $ - $ 156,669

MOTOR VEHICLE ADMIN DEPOSITS

Balance 7-1-12 $ 5,480 $ - $ 5,480 Additions 325,623 - 325,623 Deductions (324,241) - (324,241) Balance 6-30-13 $ 6,862 $ - $ 6,862

MIDSHORE REGIONAL RECYCLING

Balance 7-1-12 $ 5,661 $ 101,686 $ 107,347 Additions 136,104 33,758 169,862 Deductions (141,765) (101,686) (243,451) Balance 6-30-13 $ - $ 33,758 $ 33,758

ESCHEAT - ABANDONED PROPERTY

Balance 7-1-12 $ 2,766 $ - $ 2,766 Additions 12,977 - 12,977 Deductions ( 2,766) - (2,766) Balance 6-30-13 $ 12,977 $ - $ 12,977

TOTAL AGENCY FUNDS

Balance 7-1-12 $ 482,190 $ 101,686 $ 583,876 Additions 13,305,030 33,758 13,338,788 Deductions (13,178,538) (101,686) (13,280,224) Balance 6-30-13 $ 608,682 $ 33,758 $ 642,440 -144-

QUEEN ANNE'S COUNTY, MARYLAND

STATEMENT OF CHANGES IN AGENCY FUNDS ASSETS AND LIABILITIES

AGENCY FUNDS

FOR THE YEAR ENDED JUNE 30, 2013

(CONTINUED)

Due to Accrued Liabilities Other and Total Governments Deposits and Escrows Liabilities $ - $ 120,991 $ 120,991

- 22,226 22,226

- (34,106) (34,106)

$ - $ 109,111 $ 109,111 $ - $ 267,511 $ 267,511

- 91,011 91,011

- (35,459) (35,459)

$ - $ 323,063 $ 323,063 $ 79,781 $ - $ 79,781 12,717,089 - 12,717,089 (12,640,201) - ( 12,640,201) $ 156,669 $ - $ 156,669 $ 5,480 $ - $ 5,480 325,063 - 325,063 (323,681) - (323,681) $ 6,862 $ - $ 6,862 $ 107,347 $ - $ 107,347 33,758 - 33,758 (107,347) - (107,347) $ 33,758 $ - $ 33,758 $ 2,766 $ - $ 2,766 12,977 - 12,977 ( 2,766) - (2,766) $ 12,977 $ - $ 12,977 $ 195,374 $ 388,502 $ 583,876 13,088,887 113,237 13,202,124

(13,073,995) (69,565) ( 13,143,560) $ 210,266 $ 432,174 $ 642,440 -145- Community Partnerships for Children Community Partnerships for Children is reported as a Non-Major Special Revenue Fund in the County’s financial statements. In lieu of preparing separate audited financial statements for the Partnership, additional schedules have been added to the County’s financial statements to meet requirements of the

Partnership’s grantor agencies.

-147-

QUEEN ANNE'S COUNTY

COMMUNITY PARTNERSHIPS FOR CHILDREN SPECIAL REVENUE FUND

COMBINING BALANCE SHEETS

BY GRANTOR

JUNE 30, 2013 (with Summarized Totals as of June 30, 2012) Fed/State Federal GOCCP Family State Admin GOC Support Ctr OTHER

ASSETS

Cash and cash equivalents $ 13,378 $ 240,753 $ 4,131 $ 3 3,908 Accounts receivable - - - - Due from State governmental agencies 65,000 406,801 - - Due from Federal governmental agencies - 28,146 - - Total Assets $ 78,378 $ 675,700 $ 4,131 $ 3 3,908

LIABILITIES AND FUND BALANCES

LIABILITIES

Accounts payable and accrued expenditures $ 8,644 $ 235,976 $ - $ - Due to other funds - - - - Due to State governmental agencies 2,175 291,463 4,131 3 3,908 Deferred revenue - 145,656 - - Total Liabilities 10,819 673,095 4,131 3 3,908

FUND BALANCES

Assigned 67,559 2,605 - - Total Fund Balances 67,559 2,605 - - Total Liabilities and Fund Balances $ 78,378 $ 675,700 $ 4,131 $ 3 3,908 -148-

QUEEN ANNE'S COUNTY

COMMUNITY PARTNERSHIPS FOR CHILDREN SPECIAL REVENUE FUND

COMBINING BALANCE SHEETS

BY GRANTOR

JUNE 30, 2013 (with Summarized Totals as of June 30, 2012)

(CONTINUED)

Total Returned 2012 Community Reinvestment 2013 Summarized Partnerships Fund Total Total $ 292,170 $ 82,597 $ 3 74,767 $ 912,515

- - - 9,954

471,801 - 471,801 87,399 28,146 - 28,146 77,216 $ 792,117 $ 82,597 $ 8 74,714 $ 1,087,084 $ 244,620 $ - $ 2 44,620 $ 217,255

- - - 3,096

331,677 - 331,677 345,455 145,656 - 145,656 445,656 721,953 - 721,953 1,011,462 70,164 82,597 152,761 75,622 70,164 82,597 152,761 75,622 $ 792,117 $ 82,597 $ 8 74,714 $ 1,087,084 -149-

QUEEN ANNE'S COUNTY

COMMUNITY PARTNERSHIPS FOR CHILDREN SPECIAL REVENUE FUND

SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES

BY COMMUNITY PARTNERSHIP AGREEMENTS (CPA) and NON-COMMUNITY PARTNERSHIP AGREEMENTS (NON-CPA) FOR THE YEAR ENDED JUNE 30, 2013 (with Summarized Totals for the Year Ended June 30, 2012) Federal/State GOCCP/GOC Healthy CASA Resource Chesapeake Fam/Home Family Administrative Start Promotion Helps Visiting Navigators

REVENUES

CPA

Intergovernmental

GOC $ 65,000 $ 58,228 $ 5,848 $ 145,747 $ 56,177 $ 1 68,752

Miscellaneous - - - - - - Subtotal CPA 65,000 58,228 5,848 145,747 56,177 1 68,752 Non-CPA Intergovernmental Federal GOCCP Youth Strategies - 56,235 - - - - GOC - non-CPA - - - - - - State GOCCP - non-CPA - - - - - - Other State Grant Funding - - - - 296,372 - Investment Income - - - - - - Earned Reinvestment Donations - - - - - - Miscellaneous 12,856 - - - - - Subtotal Non-CPA 12,856 56,235 - - 296,372 -

Total Revenues 77,856 114,463 5,848 145,747 352,549 1 68,752

EXPENDITURES

CPA

Program Contracted Services - - 5,848 145,747 - 1 68,752 Other Expenditures Salaries 59,995 - - - - - Fringe Benefit Costs 5,005 - - - - - Office Supplies - - - - - - Training - - - - - - Marketing/Promotions - - - - - - Other Charges - 58,228 - - 56,177 - Subtotal CPA Expenditures 65,000 58,228 5,848 145,747 56,177 1 68,752 Non-CPA Program Contracted Services - 46,435 - - 296,372 - Other Expenditures

Salaries 73,928 - - - - - Fringe Benefit Costs 54,538 - - - - - Auditing - - - - - - Consultants - - - - - - Equipment Rental 4,958 - - - - - Postage 407 - - - - - Office Supplies 602 - - - - - Equipment Operation 1,216 - - - - - Business Travel 500 - - - - - Meetings & Conferences 11,530 - - - - - Training - 9,800 - - - - Board's Expenditures 6,071 - - - - - Marketing/Promotions - - - - - - Communications 1,310 - - - - -

Other Charges - - - - - - Capital Outlay - - - - - - Subtotal Non-CPA Expenditures 155,060 56,235 - - 296,372 - Total Expenditures 220,060 114,463 5,848 145,747 352,549 1 68,752 Excess of Revenues Over (Under) Expenditures (142,204) - - - - -

OTHER FINANCING SOURCES (USES)

Transfers In within Partnerships - - - - - - Transfers (Out) within Partnerships - - - - - - Transfers In (Out) for Program Contracted Services - In 142,204 - - - - - Program Contracted Services - Out - - - - - - Other Financing Sources 142,204 - - - - - Net Increase in Fund Balances $ - $ - $ - $ - $ - $ - -150-

QUEEN ANNE'S COUNTY

COMMUNITY PARTNERSHIPS FOR CHILDREN SPECIAL REVENUE FUND

SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES

BY COMMUNITY PARTNERSHIP AGREEMENTS (CPA) and NON-COMMUNITY PARTNERSHIP AGREEMENTS (NON-CPA) FOR THE YEAR ENDED JUNE 30, 2013 (with Summarized Totals for the Year Ended June 30, 2012)

(CONTINUED)

Federal/State GOCCP/GOC

MD GOCCP/GOC

After School Character Care Operating Fund Opportunity Counts Program RDEF Total $ 52,244 $ 28,360 $ - $ - $ 515,356

- - - - -

52,244 28,360 - - 515,356

- - 55,328 - 111,563

- - - 300,000 300,000

- - 7 ,592 - 7,592

- - - - 296,372

- - - - -

- - - - -

- 2,071 - - 2,071

- 2,071 62,920 300,000 717,598

52,244 30,431 62,920 300,000 1,232,954 52,244 - - - 372,591

- 25,360 - - 25,360

- 3,000 - - 3,000

- - - - -

- - - - -

- - - - -

- - - - 114,405

52,244 28,360 - - 515,356

- - 62,616 - 405,423

- 4,577 - - 4,577

- 1,927 - - 1,927

- - - - -

- - - - -

- - - - -

- - - - -

- 287 - - 287

- - - - -

- - 3 04 - 304

- (904) - - (904)

- - - - 9,800

- - - - -

- 2,648 - - 2,648

- - - - -

- - - 300,000 300,000

- - - - -

- 8,535 62,920 300,000 724,062

52,244 36,895 62,920 300,000 1,239,418

- (6,464) - - (6,464)

- - - - -

- - - - -

- 6,464 - - 6,464

- - - - -

- 6,464 - - 6,464

$ - $ - $ - $ - $ -

CONTINUED

-151-

QUEEN ANNE'S COUNTY

COMMUNITY PARTNERSHIPS FOR CHILDREN SPECIAL REVENUE FUND

SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES

BY COMMUNITY PARTNERSHIP AGREEMENTS (CPA) and NON-COMMUNITY PARTNERSHIP AGREEMENTS (NON-CPA) FOR THE YEAR ENDED JUNE 30, 2013 (with Summarized Totals for the Year Ended June 30, 2012)

(CONTINUED)

State GOC All Programs CPA Non-CPA Subtotal Subtotal Subtotal

REVENUES

CPA

Intergovernmental

GOC $ 5 80,356 $ 5 80,356 $ -

Donations - - - Subtotal CPA 5 80,356 5 80,356 - Non-CPA Intergovernmental Federal GOCCP Youth Strategies 1 11,563 - - GOC - non-CPA 3 00,000 - 300,000 State GOCCP - non-CPA 7 ,592 - - Other 2 96,372 - - Investment Income - - - Earned Reinvestment Donations - - - Miscellaneous 14,927 - - Subtotal Non-CPA 7 30,454 - 300,000 Total Revenues 1 ,310,810 5 80,356 300,000

EXPENDITURES

CPA

Program Contracted Services 3 72,591 3 72,591 - Other Expenditures Salaries 85,355 8 5,355 - Fringe Benefit Costs 8 ,005 8 ,005 - Office Supplies - - - Training - - - Marketing/Promotions - - - Other Charges 1 14,405 1 14,405 - Subtotal CPA Expenditures 5 80,356 5 80,356 - Non-CPA Program Contracted Services 4 05,423 - - Other Expenditures Salaries 78,505 - - Fringe Benefit Costs 56,465 - - Auditing - - -

Consultants - - - Equipment Rental 4 ,958 - - Postage 4 07 - - Office Supplies 8 89 - - Equipment Operation 1 ,216 - - Business Travel 8 04 - - Meetings & Conferences 10,626 - - Training 9 ,800 - - Board's Expenditures 6 ,071 - - Marketing/Promotions 2 ,648 - - Communications 1 ,310 - - Other Charges 3 00,000 - 300,000 Capital Outlay - - - Subtotal Non-CPA Expenditures 8 79,122 - 300,000 Total Expenditures 1 ,459,478 5 80,356 300,000

Excess of Revenues Over (Under) Expenditures (148,668) - -

OTHER FINANCING SOURCES (USES)

Transfers In within Partnerships - - - Transfers (Out) within Partnerships - - - Transfers In (Out) for Program Contracted Services - In 148,668 - - Program Contracted Services - Out - - - Other Financing Sources 1 48,668 - - Net Increase in Fund Balances - - - Fund Balances, July 1 70,164 6 07,286 ( 6,429) Fund Balances, June 30 $ 70,164 $ 6 07,286 $ ( 6,429)

CONTINUED

-152-

QUEEN ANNE'S COUNTY

COMMUNITY PARTNERSHIPS FOR CHILDREN SPECIAL REVENUE FUND

SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES

BY COMMUNITY PARTNERSHIP AGREEMENTS (CPA) and NON-COMMUNITY PARTNERSHIP AGREEMENTS (NON-CPA) FOR THE YEAR ENDED JUNE 30, 2013 (with Summarized Totals for the Year Ended June 30, 2012)

(CONTINUED)

State Federal Total GOCCP GOCCP Federal Other Community Returned 2012 Non-CPA Youth Drug Free Non-CPA Partnerships Reinvestment 2013 Summarized Subtotal Strategies Community State Grants Other Operating Funds Fund Total Total $ - $ - $ - $ - $ - $ 580,356 $ - $ 580,356 $ 557,839

- - - - - - 321,845 321,845 -

- - - - - 580,356 321,845 902,201 557,839

- 111,563 - - - 111,563 - 111,563 178,099

- - - - - 300,000 - 300,000 -

7,592 - - - - 7,592 - 7,592 24,199

- - - 296,372 - 296,372 - 296,372 301,892

- - - - - - 327 327 53

- - - - - - - - 1,535

- - - - 14,927 14,927 - 14,927 19,640

7,592 111,563 - 296,372 14,927 730,454 327 730,781 525,418 7,592 111,563 - 296,372 14,927 1,310,810 322,172 1,632,982 1,083,257

- - - - - 372,591 - 372,591 355,453

- - - - - 85,355 - 85,355 77,690

- - - - - 8,005 - 8,005 6,978

- - - - - - - - 445

- - - - - - - - 250

- - - - - - - - 4,637

- - - - - 114,405 - 114,405 112,386

- - - - - 580,356 - 580,356 557,839

7,592 101,459 - 296,372 - 405,423 - 405,423 404,510

- - - - 78,505 78,505 - 78,505 115,467

- - - - 56,465 56,465 - 56,465 68,302

- - - - - - - - 1,180

- - - - - - - - 900

- - - - 4,958 4,958 - 4,958 5,860

- - - - 407 407 - 407 587

- - - - 889 889 - 889 1,101

- - - - 1,216 1,216 - 1,216 180

- 304 - - 500 804 - 804 2,294

- - - - 10,626 10,626 - 10,626 8,351

- 9,800 - - - 9,800 - 9,800 819

- - - - 6,071 6,071 - 6,071 4,928

- - - - 2,648 2,648 - 2,648 -

- - - - 1,310 1,310 - 1,310 1,635

- - - - - 300,000 245,033 545,033 11,465

- - - - - - - - 23,457

7,592 111,563 - 296,372 163,595 879,122 245,033 1,124,155 651,036 7,592 111,563 - 296,372 163,595 1,459,478 245,033 1,704,511 1,208,875

- - - - (148,668) (148,668) 77,139 (71,529) (125,618)

- - - - - - - - 8,317

- - - - - - - - (8,317)

- - - - 148,668 148,668 - 148,668 147,265

- - - - - - - - (21,594)

- - - - 148,668 148,668 - 148,668 125,671

- - - - - - 77,139 77,139 53

3,491 1 (1,525) - (532,660) 70,164 5,458 75,622 75,569 $ 3,491 $ 1 $ (1,525) $ - $ (532,660) $ 70,164 $ 82,597 $ 152,761 $ 75,622 -153-

QUEEN ANNE'S COUNTY

COMMUNITY PARTNERSHIPS FOR CHILDREN SPECIAL REVENUE FUND

SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES - BUDGETARY BASIS

FOR THE YEAR ENDED JUNE 30, 2013

COMMUNITY PARTNERSHIPS FOR CHILDREN RETURNED REINVESTMENT FUND

Variance with Variance with Final Budget Final Budget Original Final Positive Original Final Positive Budget Budget Actual (Negative) Budget Budget Actual (Negative)

REVENUES

Intergovernmental GOC - CPA and Non-CPA $ 5 86,886 $ 886,886 $ 880,356 $ (6,530) $ - $ - $ - $ - State GOCCP Non-CPA - 12,500 7,592 (4,908) - - - - Federal GOCCP Youth Strategies 9 7,319 137,199 111,563 (25,636) - - - - Other 2 96,372 296,372 296,372 - - 251,563 321,845 70,282 Investment Income - - - - - - 327 327 Miscellaneous - - 14,927 14,927 - - - - Total Revenues 9 80,577 1,332,957 1,310,810 (22,147) - 251,563 322,172 70,609

EXPENDITURES

Program Contracted Services 8 17,817 847,593 778,014 69,579 - - - - Other Expenditures Salaries 1 69,119 169,119 163,860 5,259 - - - - Fringe Benefit Costs 6 3,966 63,966 64,470 (504) - - - - Auditing 2 ,988 2,988 - 2,988 - - - - Equipment Rental 5 ,920 5,920 4,958 962 - - - - Postage 3 ,614 3,614 407 3,207 - - - - Office Supplies 5 ,346 5,346 889 4,457 - - - - Equipment Operation 5 00 500 1,216 (716) - - - -

Business Travel 5 00 9,216 804 8,412 - - - - Meetings & Conferences - 3,150 10,626 (7,476) - - - - Training - 10,738 9,800 938 - - - - Board's Expenditures 5 ,060 5,060 6,071 (1,011) - - - - Marketing/Promotions - - 2,648 (2,648) - - - - Communications 1 ,523 1,523 1,310 213 - - - - Other Charges 5 7,616 357,616 414,405 (56,789) - 251,563 245,033 6,530 Total Expenditures 1 ,133,969 1,486,349 1,459,478 26,871 - 251,563 245,033 6,530

Excess of Revenues Over (Under) Expenditures (153,392) ( 153,392) ( 148,668) 4,724 - - 77,139 77,139

OTHER FINANCING SOURCES (USES)

Transfers In (Out) for:

Program Contracted Services - In 1 53,392 153,392 148,668 (4,724) - - - - Other Financing Sources (Uses) 1 53,392 153,392 148,668 (4,724) - - - - Net Increase in Fund Balances/Net Assets $ - $ - - $ - $ - $ - 77,139 $ 77,139 Fund Balances, July 1 70,164 5,458 Fund Balances, June 30 $ 70,164 $ 82,597 - -154-

QUEEN ANNE'S COUNTY

COMMUNITY PARTNERSHIPS FOR CHILDREN SPECIAL REVENUE FUND

SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES - BUDGETARY BASIS

FOR THE YEAR ENDED JUNE 30, 2013

(CONTINUED)

TOTAL

Variance with Final Budget Original Final Positive Budget Budget Actual (Negative) $ 586,886 $ 886,886 $ 880,356 $ (6,530)

- 12,500 7,592 (4,908)

97,319 137,199 111,563 (25,636) 296,372 547,935 618,217 70,282

- - 327 327

- - 14,927 14,927

980,577 1,584,520 1,632,982 48,462 817,817 847,593 778,014 69,579 169,119 169,119 163,860 5,259 63,966 63,966 64,470 (504) 2,988 2,988 - 2,988 5,920 5,920 4,958 962 3,614 3,614 407 3,207 5,346 5,346 889 4,457 500 500 1,216 (716) 500 9,216 804 8,412

- 3,150 10,626 (7,476)

- 10,738 9,800 938

5,060 5,060 6,071 (1,011)

- - 2,648 (2,648)

1,523 1,523 1,310 213 57,616 609,179 659,438 (50,259) 1,133,969 1,737,912 1,704,511 33,401 (153,392) (153,392) ( 71,529) 81,863 153,392 153,392 148,668 (4,724) 153,392 153,392 148,668 (4,724) $ - $ - 77,139 $ 77,139 75,622 $ 152,761 -155- Fresh Maryland Bluecrabs! Steam ‘em up!

STATISTICAL SECTION

The Statistical Section, which fully incorporates information mandated by Governmental Accounting Standards Board (GASB) Statement No. 44, Economic Condition Reporting: The Statistical Section, presents detailed information for the primary government in the following areas, as a context for understanding what the information in the Financial Section says about the County’s overall financial health:

FINANCIAL TRENDS – Information to help the reader understand how the County’s financial performance and well-being have changed over time.

REVENUE CAPACITY – Information to help the reader assess the County’s most significant local revenue sources – the property tax and income tax.

DEBT CAPACITY – Information to help the reader assess the affordability of the County’s current levels of outstanding debt and the County’s ability to issue additional debt in the future.

DEMOGRAPHIC AND ECONOMIC INFORMATION – Indicators to help the reader understand the environment within which the County’s financial activities take place.

OPERATING INFORMATION – Service and infrastructure data to help the reader understand how the information in the County’s financial report relates to the services the County provides and the activities it performs.

Many of these tables cover more than two fiscal years and present data from outside the accounting records. Therefore, the Statistical Section is unaudited.

-157-

QUEEN ANNE'S COUNTY, MARYLAND

FINANCIAL TRENDS

NET POSITION BY COMPONENT - GOVERNMENT-WIDE

(GOVERNMENTAL AND BUSINESS-TYPE ACTIVITIES)

LAST TEN FISCAL YEARS

Table 1 2004 2005 2006 2007 2008 Governmental Activities:

Net Investment in Capital Assets (2) $ 82,209,646 $ 85,784,267 $ 95,644,000 $ 103,657,227 $ 117,831,360 Restricted 8 ,118,231 8 ,418,254 9 ,842,795 18,012,695 15,376,330 Unrestricted (deficit) (1) (14,178,514) (6,161,281) 7 ,339,567 (3,740,905) (15,075,202) Total Governmental Activities Net Position (2) 76,149,363 88,041,240 112,826,362 117,929,017 118,132,488 Business-type Activities:

Net Investment in Capital Assets (2) 52,094,337 55,612,719 69,672,273 74,463,912 77,237,512 Restricted 7 ,857,202 7 ,742,890 11,733,254 19,133,485 18,276,271 Unrestricted - - - - - Total Business-type Activities Net Position (2) 59,951,539 63,355,609 81,405,527 93,597,397 95,513,783 Primary Government:

Net Investment in Capital Assets (2) 134,303,983 141,396,986 165,316,273 178,121,139 195,068,872 Restricted 15,975,433 16,161,144 21,576,049 37,146,180 33,652,601 Unrestricted (deficit) (1) (14,178,514) (6,161,281) 7 ,339,567 (3,740,905) (15,075,202) Total Primary Government Net Position (2) $ 136,100,902 $ 151,396,849 $ 194,231,889 $ 211,526,414 $ 213,646,271

NOTES:

* Government-wide net position information is reported on the accrual basis of accounting.

* Accounting standards require that net position be reported in three components in the financial

statements: net investment in capital assets, restricted; and unrestricted. Net position is considered restricted when (1) an external party, such as the state or federal government, places a restriction on how the resources may be used, or (2) enabling legislation is enacted by the County.

* Source: Statement of Net Position, pages 32-33.

(1) In the government-wide financial statements, the County has reported negative unrestricted amounts for some years.

This is due to the fact that the County issues general obligation bonded debt for purposes of capital construction on behalf of the Queen Anne's County Board of Education. Absent the effect of this relationship, the County would have reported positive net position for its governmental activities and for government-wide purposes. Governmentwide unrestricted net position would have been:

Unrestricted (deficit) net position reported above $ (14,178,514) $ (6,161,281) $ 7,339,567 $ (3,740,905) $ (15,075,202) Debt issued for capital on behalf of others 51,839,220 47,345,646 44,460,306 57,496,385 53,758,049 County net position effect of this relationship $ 37,660,706 $ 41,184,365 $ 51,799,873 $ 53,755,480 $ 38,682,847

(2) In fiscal year 2013, the County implemented GASB Statement No. 63, which required the change from the Statement of Net Assets

to the Statement of Net Position.

-158-

QUEEN ANNE'S COUNTY, MARYLAND

FINANCIAL TRENDS

NET POSITION BY COMPONENT - GOVERNMENT-WIDE

(GOVERNMENTAL AND BUSINESS-TYPE ACTIVITIES)

LAST TEN FISCAL YEARS

Table 1

(CONTINUED)

2009 2010 2011 2012 2013 $ 123,217,989 $ 121,702,025 $ 118,274,533 $ 117,436,984 $ 121,419,314 16,582,660 22,290,307 22,399,514 5 ,982,041 15,691,080 (26,672,299) (45,795,597) (61,193,944) (44,098,063) (49,343,150) 113,128,350 98,196,735 79,480,103 79,320,962 87,767,244 77,146,688 79,032,373 78,069,061 77,891,395 78,693,078 19,886,675 18,180,809 16,821,905 3 ,513,948 3 ,176,328

- - - 12,002,822 12,529,594

97,033,363 97,213,182 94,890,966 93,408,165 94,399,000 200,364,677 200,734,398 196,343,594 195,328,379 200,112,392 36,469,335 40,471,116 39,221,419 9 ,495,989 18,867,408 (26,672,299) (45,795,597) (61,193,944) (32,095,241) (36,813,556) $ 210,161,713 $ 195,409,917 $ 174,371,069 $ 172,729,127 $ 182,166,244 $ (26,672,299) $ (45,795,597) $ (61,193,944) $ (32,095,241) $ (36,813,556) 50,291,243 57,677,186 72,437,047 68,278,842 63,283,726

$ 23,618,944 $ 11,881,589 $ 11,243,103 $ 36,183,601 $ 26,470,170 -159-

QUEEN ANNE'S COUNTY, MARYLAND

FINANCIAL TRENDS

CHANGES IN NET POSITION - GOVERNMENT-WIDE (GOVERNMENTAL AND BUSINESS-TYPE ACTIVITIES)

LAST TEN FISCAL YEARS

Table 2-a 2004 2005 2006 2007 2008 Expenses Governmental Activities:

General Government $ 8,902,751 $ 8,774,831 $ 9,071,760 $ 9,854,468 $ 11,167,743 Public Safety 13,064,686 14,255,183 17,534,652 19,149,388 20,721,185 Public Works 7,512,277 8,303,570 8,898,010 9,913,917 10,420,547 Health 1,123,795 1,284,216 1,377,717 1,450,866 1,441,143 Social Services 4,084,308 4,786,130 4,420,205 4,474,784 4,978,883 Education 46,142,006 40,377,624 42,303,087 56,118,585 58,034,317

Parks & Recreation (3) 3,810,546 2,385,014 2,562,890 3,158,455 3,330,087 Library 1,020,653 1,073,222 1,168,232 1,266,183 1,270,718 Conservation of Natural Resources 537,207 591,986 478,426 497,926 2,172,443 Economic/Community Development 1,634,749 1,546,516 1,575,099 3,258,876 3,527,908 Interest and Fiscal Charges 2,981,403 2,288,442 2,508,070 2,864,493 3,033,416 Total Governmental Activities Expenses 90,814,381 85,666,734 91,898,148 112,007,941 120,098,390

Business-type Activities:

Water and Sewer 6,975,749 6,974,968 7,127,140 7,802,798 9,621,784 Golf Course (4) 2,007,419 2,524,904 2,509,783 3,273,986 2,179,157 Public Landings and Marinas (5) - - - 57,372 27,344 Airport 522,863 529,755 713,896 674,337 812,067 Total Business-type Activities Expenses 9,506,031 10,029,627 10,350,819 11,808,493 12,640,352 Total Primary Government Expenses 100,320,412 95,696,361 102,248,967 123,816,434 132,738,742

Program Revenues Governmental Activities:

General Government Charges for Services 1,007,791 1,124,756 1,139,531 1,127,737 1,047,371 Operating Grants and Contributions 185,597 312,136 454,948 377,412 295,898 Capital Grants and Contributions 61,448 22,747 60,000 5,000 757,975 Total Revenue 1,254,836 1,459,639 1,654,479 1,510,149 2,101,244 Public Safety Charges for Services 1,197,844 968,857 1,595,738 1,642,258 3,167,090 Operating Grants and Contributions 887,519 1,443,474 1,743,073 1,255,307 1,254,611

Capital Grants and Contributions 493,132 271,867 456,993 272,497 1,171 Total Revenue 2,578,495 2,684,198 3,795,804 3,170,062 4,422,872 Public Works Charges for Services 782,252 1,666,335 1,189,117 871,962 1,014,600 Operating Grants and Contributions 3,624,359 4,130,984 3,710,398 5,572,760 6,304,965 Capital Grants and Contributions 168,092 461,499 57,000 1,838,101 544,610 Total Revenue 4,574,703 6,258,818 4,956,515 8,282,823 7,864,175

Health Operating Grants and Contributions - - 150,966 - - Social Services Charges for Services 188,032 162,958 58,467 73,497 64,041 Operating Grants and Contributions 2,769,345 3,035,511 2,550,840 2,589,967 2,911,796 Capital Grants and Contributions 829,082 24,388 - 172,732 613,804 Total Revenue 3,786,459 3,222,857 2,609,307 2,836,196 3,589,641 Education Charges for Services 1,277,905 917,387 1,696,657 963,216 1,011,013

Operating Grants and Contributions - - 18,000 - - Capital Grants and Contributions - - - - - Total Revenue 1,277,905 917,387 1,714,657 963,216 1,011,013 Parks & Recreation Charges for Services 14,532 21,724 68,051 158,447 302,195 Operating Grants and Contributions 4,619 - 42,690 58,485 72,659 Capital Grants and Contributions 3,103,241 297,537 5,998,982 4,363,393 5,666,226 Total Revenue 3,122,392 319,261 6,109,723 4,580,325 6,041,080

Conservation of Natural Resources Charges for Services 109,527 150,052 119,580 100,488 88,534 Operating Grants and Contributions 324,573 371,960 680,396 597,613 322,718 Capital Grants and Contributions 5,211 28,535 - - - Total Revenue 439,311 550,547 799,976 698,101 411,252 Economic/Community Development Charges for Services 17,615 23,728 11,086 4,083 5,249 Operating Grants and Contributions 465,989 247,404 121,497 120,254 163,245

Capital Grants and Contributions - - - - - Total Revenue 483,604 271,132 132,583 124,337 168,494 Total Governmental Activities Program Revenues 17,517,705 15,683,839 21,924,010 22,165,209 25,609,771 -160-

QUEEN ANNE'S COUNTY, MARYLAND

FINANCIAL TRENDS

CHANGES IN NET POSITION - GOVERNMENT-WIDE (GOVERNMENTAL AND BUSINESS-TYPE ACTIVITIES)

LAST TEN FISCAL YEARS

Table 2-a

(CONTINUED)

2009 2010 2011 2012 2013 $ 13,317,683 $ 14,089,387 $ 15,968,633 $ 13,421,531 $ 14,227,799 23,570,049 25,361,341 25,413,678 25,469,721 26,174,144 10,237,718 9,432,489 9,098,949 10,373,286 11,891,013 1,590,004 1,663,321 1,701,677 1,642,723 1,812,920 5,617,621 5,554,667 5,001,240 4,526,166 5,560,196 53,296,238 53,491,659 57,506,341 53,693,309 48,354,256 5,060,018 3,618,427 3,090,228 - - 1,414,008 1,473,689 1,457,336 1,302,163 1,304,076

2,473,308 5,281,372 3,811,748 2,802,337 838,775 2,197,116 2,001,306 1,893,570 887,837 1,108,912 2,831,002 3,510,678 4,078,105 4,196,072 4,042,236 121,604,765 125,478,336 129,021,505 118,315,145 115,314,327 10,689,782 10,610,705 10,905,989 10,711,211 11,783,515 2,178,163 2,789,901 4,099,507 2,269,933 538,420 38,050 96,739 67,395 110,884 535,837 879,906 1,017,780 1,167,655 1,457,087 913,845 13,785,901 14,515,125 16,240,546 14,549,115 13,771,617

135,390,666 139,993,461 145,262,051 132,864,260 129,085,944 1,055,945 1,261,230 1,086,641 1,081,808 1,272,807 403,018 546,176 694,347 742,205 697,712 5,567 44,743 118,100 116,710 135,032 1,464,530 1,852,149 1,899,088 1,940,723 2,105,551 1,394,463 1,263,212 1,090,545 1,320,647 1,387,591 1,266,869 1,891,120 1,461,080 1,113,018 1,328,493 273,176 303,566 82,885 191,223 249,594 2,934,508 3,457,898 2,634,510 2,624,888 2,965,678

714,765 791,796 872,352 1,107,426 1,636,604 7,566,648 632,923 546,719 488,027 624,653 298,500 264,078 901,289 541,887 1,687,783 8,579,913 1,688,797 2,320,360 2,137,340 3,949,040

- - - - -

68,386 67,423 69,382 71,655 71,973 2,928,291 2,666,917 2,050,062 2,076,096 2,613,905 348,124 2,688,245 215,748 18,691 51,023 3,344,801 5,422,585 2,335,192 2,166,442 2,736,901 740,213 852,201 755,443 1,169,425 1,052,691 8,050 433,000 - - - 161,673 - - - - 909,936 1,285,201 755,443 1,169,425 1,052,691 240,954 177,568 187,901 - - 509 123,336 1,868 - - 1,087,329 631,504 199,698 - - 1,328,792 932,408 389,467 - -

97,481 101,019 75,354 98,593 63,105 55,847 93,002 1,006,138 36,872 400,193 691,085 4,191,024 1,923,471 998,757 - 844,413 4,385,045 3,004,963 1,134,222 463,298 4,786 - 4,236 159,492 234,100 641,305 - 239,893 245,143 176,216

- - 110,561 81,867 575,440

646,091 - 354,690 486,502 985,756 20,052,984 19,024,083 13,693,713 11,659,542 14,258,915

CONTINUED

-161-

QUEEN ANNE'S COUNTY, MARYLAND

FINANCIAL TRENDS

CHANGES IN NET POSITION - GOVERNMENT-WIDE (GOVERNMENTAL AND BUSINESS-TYPE ACTIVITIES)

LAST TEN FISCAL YEARS

Table 2-a

(CONTINUED)

2004 2005 2006 2007 2008 Business-type Activities:

Water and Sewer Charges for Services $ 7,206,833 $ 6,704,817 $ 8,057,402 $ 12,169,440 $ 8,014,366 Operating Grants and Contributions - 541,052 - - - Capital Grants and Contributions 868,581 994,303 12,576,490 5,015,603 2,584,371 Total Revenue 8,075,414 8,240,172 20,633,892 17,185,043 10,598,737 Golf Course (4) Charges for Services 1,051,908 1,099,161 1,576,001 1,581,030 1,459,725 Operating Grants and Contributions - 330,204 387,270 1,279,648 55,953

Capital Grants and Contributions 145,975 4,000 469,624 144,844 95,890 Total Revenue 1,197,883 1,433,365 2,432,895 3,005,522 1,611,568 Public Landings and Marinas (5) Charges for Services - - - 108,100 105,900 Operating Grants and Contributions - - - 92,348 3,710 Capital Grants and Contributions - - - - - Total Revenue - - - 200,448 109,610 Airport Charges for Services 149,601 182,092 23,661 32,683 46,960

Operating Grants and Contributions - - 4,448 1,112 - Capital Grants and Contributions 23,636 69,595 6,368,327 667,166 382,945 Total Revenue 173,237 251,687 6,396,436 700,961 429,905 Total Business-type Activities Program Revenues 9,446,534 9,925,224 29,463,223 21,091,974 12,749,820 Total Primary Government Program Revenues 26,964,239 25,609,063 51,387,233 43,257,183 38,359,591 Net (Expense) Revenue (1)

Governmental activities ( 73,296,676) ( 69,982,895) ( 69,974,138) ( 89,842,732) ( 94,488,619) Business-type activities (59,497) (104,403) 19,112,404 9,283,481 109,468 Total Primary Government Net Expense $ ( 73,356,173) $ ( 70,087,298) $ ( 50,861,734) $ ( 80,559,251) $ ( 94,379,151) General Revenues and Other Changes in Net Position Governmental Activities:

Taxes (2) $ 75,137,137 $ 80,932,258 $ 87,157,631 $ 90,910,849 $ 91,853,216 Grants and Contributions Not Restricted to Specific Programs - 88,750 - - - Investment income 285,279 682,682 1,738,114 3,162,830 2,128,509 Gain (Loss) on Sale of Capital Assets (452,997) - 2,983,087 13,605 - Miscellaneous 724,069 1,063,336 997,032 1,928,398 721,946 Transfers In (Out) (154,916) ( 3,055,362) 2,396,851 ( 1,070,297) (11,581)

Special Items - Gain 215,000 - - - - Extraordinary Loss - - (477,707) - - Total Governmental Activities 75,753,572 79,711,664 94,795,008 94,945,385 94,692,090 Business-type Activities:

Investment income 635,674 634,413 771,883 956,687 875,509 Gain (Loss) on Sale of Capital Assets - - - 4,691 - Miscellaneous 915,879 772,083 562,482 876,714 919,828 Transfers In (Out) 154,916 3,055,362 ( 2,396,851) 1,070,297 11,581 Special items - (Loss) - (953,385) - - - Extraordinary Gain 951,460 - - - - Total Business-type Activities 2,657,929 3,508,473 ( 1,062,486) 2,908,389 1,806,918 Total Primary Government 78,411,501 83,220,137 93,732,522 97,853,774 96,499,008

Change in Net Position (6) Governmental activities 2,456,896 9,728,769 24,820,870 5,102,653 203,471 Business-type activities 2,598,432 3,404,070 18,049,918 12,191,870 1,916,386 Total Primary Government $ 5,055,328 $ 13,132,839 $ 42,870,788 $ 17,294,523 $ 2,119,857

NOTES:

* Government-wide net position information is reported on the accrual basis of accounting.

* Source: Statement of Activities, pages 34-35.

(1) Net (expense)/revenue is the difference between the expenses and program revenues of a function or program. It indicates

the degree to which a function or program is supported with its own fees and program-specific grants versus its reliance upon funding from taxes and general revenues. Numbers in parentheses indicate that expenses were greater than program revenues and therefore general revenues were needed to finance that function or program. Numbers without parentheses mean that program revenues were more than sufficient to cover expenses.

(2) See Table 2-b for detail of General Tax Revenues.

(3) Beginning in FY12, Parks & Recreation governmental activities will be included in public works.

(4) Prior to FY13, this section included data for the Golf Course, Recreation Programs, Public Landings,

and Property Management Funds. Beginning in FY13, this section will only include Golf Course Fund data.

(5) Prior to FY13, this section only included data for the Public Marinas Funds. Beginning in FY13, this section will include

data for both Public Marinas and Public Landings, as these funds were combined to form one fund.

(6) In fiscal year 2013, the County implemented GASB Statement No. 63, which required the change from the Statement of Net Assets

to the Statement of Net Position.

-162-

QUEEN ANNE'S COUNTY, MARYLAND

FINANCIAL TRENDS

CHANGES IN NET POSITION - GOVERNMENT-WIDE (GOVERNMENTAL AND BUSINESS-TYPE ACTIVITIES)

LAST TEN FISCAL YEARS

Table 2-a

(CONTINUED)

2009 2010 2011 2012 2013 $ 7,695,100 $ 8,224,428 $ 8,192,471 $ 7,977,667 $ 8,181,434

- 98,492 - 55,728 161,600

682,935 208,115 837,426 347,573 2,048,768 8,378,035 8,531,035 9,029,897 8,380,968 10,391,802 1,526,244 1,633,203 1,568,227 1,501,550 313,364 45,824 41,838 39,572 52,915 - 69,068 289,895 196,487 28,680 - 1,641,136 1,964,936 1,804,286 1,583,145 313,364 100,250 62,600 84,987 102,290 440,270

- 29,017 16,241 14,183 42,914

- 545,123 588,326 78,314 18,692

100,250 636,740 689,554 194,787 501,876 34,907 50,585 37,955 58,589 48,072

- 33,922 3,715 47,412 2,621

289,112 1,519,810 448,600 693,162 2,472,782 324,019 1,604,317 490,270 799,163 2,523,475 10,443,440 12,737,028 12,014,007 10,958,063 13,730,517 30,496,424 31,761,111 25,707,720 22,617,605 27,989,432 ( 101,551,781) ( 106,454,253) ( 115,327,792) ( 106,655,603) ( 101,055,412) ( 3,342,461) ( 1,778,097) ( 4,226,539) ( 3,591,052) (41,100) $ (104,894,242) $ (108,232,350) $ (119,554,331) $ (110,246,655) $ (101,096,512)

$ 95,530,316 $ 90,469,883 $ 96,093,533 $ 105,693,926 $ 107,978,036

- - - - -

642,472 144,553 136,523 126,650 107,095 1,540,404 26,731 281,158 27,627 163,426 2,182,525 786,719 711,868 1,254,255 1,051,760 ( 3,348,074) (559,331) (611,922) (605,996) (337,843)

- - - - -

- - - - -

96,547,643 90,868,555 96,611,160 106,496,462 108,962,474 595,279 436,045 407,629 374,665 356,374

- - - - -

918,688 962,540 884,772 1,127,590 855,504 3,348,074 559,331 611,922 605,996 359,277

- - - - -

- - - - -

4,862,041 1,957,916 1,904,323 2,108,251 1,571,155 101,409,684 92,826,471 98,515,483 108,604,713 110,533,629 ( 5,004,138) ( 15,585,698) ( 18,716,632) (159,141) 7,907,062 1,519,580 179,819 ( 2,322,216) ( 1,482,801) 1,530,055 $ ( 3,484,558) $ ( 15,405,879) $ ( 21,038,848) $ ( 1,641,942) $ 9,437,117 -163-

QUEEN ANNE'S COUNTY, MARYLAND

FINANCIAL TRENDS

GENERAL TAX REVENUES - GOVERNMENTAL ACTIVITIES

LAST TEN FISCAL YEARS

Table 2-b 2004 2005 2006 2007 2008 Local Property Taxes $ 39,784,933 $ 42,121,614 $ 44,688,709 $ 46,185,050 $ 50,021,587 Local Income Tax 27,738,830 29,957,555 31,959,096 35,346,494 35,700,111 Other Local Taxes 7,613,374 8,853,089 10,509,826 9,379,305 6,131,518 Total Taxes - Governmental Activities $ 75,137,137 $ 80,932,258 $ 87,157,631 $ 90,910,849 $ 91,853,216 2009 2010 2011 2012 2013 Local Property Taxes $ 55,362,114 $ 59,267,240 $ 60,070,368 $ 65,937,415 $ 65,591,225

Local Income Tax 34,834,937 25,715,247 30,624,679 34,028,234 35,769,303 Other Local Taxes 5,333,265 5,487,396 5,398,486 5,728,277 6,617,508 Total Taxes - Governmental Activities $ 95,530,316 $ 90,469,883 $ 96,093,533 $ 105,693,926 $ 107,978,036

NOTES:

* Government-wide general tax revenue information is reported on the accrual basis of accounting.

* Source: Statement of Activities, pages 34-35.

-164-

QUEEN ANNE'S COUNTY, MARYLAND

FINANCIAL TRENDS

FUND BALANCES - GOVERNMENTAL FUNDS

LAST TEN FISCAL YEARS

Table 3 2004 2005 2006 2007 2008 General Fund:

Reserved $ 5,766,939 $ 5,705,316 $ 6,169,255 $ 7 ,140,303 $ 8 ,948,231 Unreserved 5,669,161 4,104,926 14,944,399 1 5,302,827 3 ,972,847 Total General Fund 11,436,100 9,810,242 21,113,654 2 2,443,130 1 2,921,078 All Other Governmental Funds:

Reserved 12,329,623 15,075,521 13,751,478 2 0,060,988 1 6,706,954 Unreserved, reported in:

Capital Projects Fund 11,835,783 11,706,521 13,579,649 1 7,618,012 1 4,409,216 Special Revenue Funds 2,698,617 3,156,479 2,810,027 3 ,019,522 2 ,185,304 Total All Other Governmental Funds 26,864,023 29,938,521 30,141,154 4 0,698,522 3 3,301,474 Total All Governmental Funds $ 38,300,123 $ 39,748,763 $ 51,254,808 $ 6 3,141,652 $ 4 6,222,552 2009 2010 2011 2012 2013 General Fund:

Reserved $ 8,643,600 $ 7,734,692 $ - $ - $ - Unreserved 6,381,843 6,296,418 - - - Nonspendable (1) - - 4,000 5 55,215 6 26,122 Restricted (1) - - 333,798 3 40,670 8 ,111,614 Committed (1) - - 657,068 6 95,944 - Assigned (1) - - 70,000 - 1 ,284,657 Unassigned (1) - - 4,753,656 1 1,207,265 5 ,965,003 Total General Fund 15,025,443 14,031,110 5,818,522 1 2,799,094 1 5,987,396 All Other Governmental Funds:

Reserved 17,007,368 15,153,381 - - - Unreserved, reported in:

Capital Projects Funds 1,723,066 12,538,916 - - - Special Revenue Funds 2,751,120 7,842,939 - - - Nonspendable (1) - - 4,401,483 5 ,136,024 5 ,406,512 Restricted (1) - - 22,065,716 1 2,255,292 1 2,724,859 Committed (1) - - 1,820,818 2 ,054,749 3 ,480,382 Assigned (1) - - 14,745,215 1 8,654,017 2 4,665,235 Unassigned (1) - - ( 172,381) (157,828) (135,515) Total All Other Governmental Funds 21,481,554 35,535,236 42,860,851 3 7,942,254 4 6,141,473

Total All Governmental Funds $ 36,506,997 $ 49,566,346 $ 48,679,373 $ 5 0,741,348 $ 6 2,128,869

NOTES:

* Fund balance information for governmental funds is reported on the modified accrual basis of accounting.

* Source: Balance Sheet, page 36.

(1) As of June 30, 2011, fund balance classifications changed due to the implementation of GASB 54.

-165-

QUEEN ANNE'S COUNTY, MARYLAND

FINANCIAL TRENDS

CHANGES IN FUND BALANCES - GOVERNMENTAL FUNDS

LAST TEN FISCAL YEARS

Table 4 2004 2005 2006 2007 2008 Revenues Taxes Local Property Taxes $ 39,771,711 $ 42,191,297 $ 44,657,603 $ 46,208,342 $ 50,007,054 Local Income Taxes 26,765,483 28,237,534 31,633,987 34,980,663 34,767,725 Other Local Taxes 7,613,374 8,853,089 10,509,826 9,379,305 6,131,518 State Shared Taxes 3,660,145 4,528,046 4,233,139 5,125,419 5,306,763 Licenses and Permits 647,633 829,784 824,917 895,931 890,821

Intergovernmental 9,261,854 6,049,496 11,476,325 10,661,130 12,199,511 Bond Interest Reimbursement - Build America Bond - - - - - Charges for Current Services 3,464,771 3,394,626 4,864,374 3,806,563 4,049,902 Fines and Forfeitures 38,798 48,654 77,008 239,194 1,759,370 Special Assessments (7,528) - - - - Investment Income 410,845 907,275 1,738,139 3,162,830 2,128,509 Donations 93,178 104,093 98,610 74,694 247,002

Miscellaneous 954,621 1,567,883 1,346,669 1,853,706 719,067 Total Revenues 92,674,885 96,711,777 111,460,597 116,387,777 118,207,242 Expenditures Current General Government (1) 8,851,440 8,933,985 9,516,299 8,772,229 10,128,699 Public Safety 11,970,575 13,199,057 16,356,949 17,918,740 19,292,661 Public Works 7,872,914 9,055,472 9,168,186 9,167,362 9,182,618 Health 1,101,713 1,261,488 1,355,057 1,428,395 1,430,670

Social Services 4,922,755 4,367,736 4,294,781 4,260,927 4,747,491 Education 46,689,001 40,421,109 42,346,958 56,163,966 58,086,283 Parks and Recreation 6,266,051 2,481,296 9,096,593 2,809,748 3,083,038 Library 997,043 1,049,612 1,144,622 1,242,573 1,247,108 Conservation of Natural Resources 565,218 578,426 508,606 483,810 2,177,820 Economic/Community Development 1,809,329 1,552,689 1,558,978 3,188,316 3,513,153

Miscellaneous - - - 915,542 731,771 Capital Outlay 1,173,687 1,280,650 1,049,361 14,291,416 13,676,569 Debt Service Principal 4,029,332 5,928,559 3,677,307 3,795,769 4,888,405 Debt Issuance Costs - - - 236,899 3,972 Interest and Fiscal Charges 2,780,312 2,555,411 2,569,650 2,257,928 3,147,529 Total Expenditures 99,029,370 92,665,490 102,643,347 126,933,620 135,337,787 Excess (Deficiency) of Revenues over (under) Expenditures (6,354,485) 4,046,287 8,817,250 ( 10,545,843) ( 17,130,545)

Other Financing Sources (Uses) Issuance of Debt 16,602,500 30,026,336 - 23,219,790 510,617 Re-allocation of 2006 Bonds - - - - (345,955) Bond Premiums - 1,069,864 - 236,899 3,972 Payments to Bond Refunding Agent - - - - - Bond Issuance Costs - (159,647) - - - Proceeds of Capital Asset Disposals 135,520 154,787 1,176,860 88,535 45,494 Insurance Proceeds - - - - 8,898 Capital Contributions - Developer - 88,750 - - -

Transfers In 9,647,582 10,661,440 8,578,135 13,131,736 17,014,307 Transfers Out ( 9,802,498) ( 13,716,802) ( 6,181,284) ( 14,202,033) ( 17,025,888) Defeasance of debt - ( 30,722,375) - - - Total Other Financing Sources (Uses) 16,583,104 ( 2,597,647) 3,573,711 22,474,927 211,445 Special and Extraordinary Items Special Item 215,000 - - - - Extraordinary Gains (Losses) - - (477,707) (42,242) - Total Special Items and Extraordinary Gains (Losses) 215,000 - (477,707) (42,242) -

Net Increase (Decrease) in Fund Balances $ 10,443,619 $ 1,448,640 $ 11,913,254 $ 11,886,842 $ (16,919,100) Debt service as a percentage of non-capital expenditures (2, 3) 7.12% 9.22% 6.66% 5.31% 6.49%

NOTES:

* Governmental fund information is reported on the modified accrual basis of accounting.

* Source: Statement of Revenues, Expenditures and Changes in Fund Balances, page 38,

and the Reconciliation of the Statement of Revenues, Expenditures, and Changes in Fund Balances of Governmental Funds to the Statement of Activities, pages 40-41.

(1) For all fiscal years, "General Government" includes amounts previously classified as "Miscellaneous," "Intergovernmental" and/or "Contingency."

(2) Only the principal and interest components of debt service expenditures are included in the calculation of the ratio of total debt service expenditures to noncapital expenditures.

(3) Noncapital expenditures represents Total Expenditures above, less the Net Increase in Capital Assets from the Reconciliation between the Government-Wide Statement of Activities

and the Statement of Revenues, Expenditures, and Changes in Fund Balance.

-166-

QUEEN ANNE'S COUNTY, MARYLAND

FINANCIAL TRENDS

CHANGES IN FUND BALANCES - GOVERNMENTAL FUNDS

LAST TEN FISCAL YEARS

Table 4

(CONTINUED)

2009 2010 2011 2012 2013 $ 55,374,053 $ 59,242,742 $ 60,097,959 $ 65,918,832 $ 65,554,079 35,988,334 29,647,125 29,527,496 35,969,879 39,438,906 5,333,265 5,487,396 5,398,486 5,728,277 6,617,508 7,591,829 508,138 230,401 306,235 510,726 874,639 863,782 919,663 877,365 1,004,774 8,049,695 12,061,066 8,777,729 5,867,211 7,588,691

- 193,567 438,022 432,212 406,337

3,326,696 3,396,080 3,143,846 3,908,998 4,594,240 115,658 258,937 78,345 222,683 119,857

- - - - -

642,472 144,553 136,523 126,650 107,095 76,867 140,731 109,342 46,332 36,332 2,182,525 786,719 708,455 1,254,255 1,051,760 119,556,033 112,730,836 109,566,267 120,658,929 127,030,305 10,841,479 10,608,976 10,397,457 9,171,830 9,282,310 20,483,238 21,344,575 21,127,321 20,985,077 21,275,229 8,678,715 7,671,352 7,277,767 7,733,226 9,615,805 1,572,848 1,637,101 1,670,222 1,604,462 1,811,402 5,029,493 4,767,647 4,098,650 3,533,022 4,051,741

53,348,513 53,545,597 57,566,865 53,755,497 48,418,107 3,145,367 3,055,335 2,521,175 - - 1,390,398 1,424,078 1,433,725 1,277,993 1,278,228 2,445,352 5,263,577 3,872,916 2,794,262 890,480 1,968,587 1,847,195 1,715,524 758,089 898,129 706,792 1,373,090 4,699,452 3,704,702 4,862,189 8,594,972 7,868,741 4,838,581 2,755,949 3,370,909 5,089,347 4,948,144 6,964,558 7,095,307 7,069,406 (423) 145,884 129,671 162,021 (94)

2,778,490 3,114,505 3,629,426 4,116,939 3,675,628 126,073,168 128,615,797 131,943,310 119,448,376 116,499,469 ( 6,517,135) (15,884,961) ( 22,377,043) 1,210,553 10,530,836 122,780 29,299,154 21,897,570 8,010,000 564,068

- - - - -

(423) 157,800 139,136 713,235 (101)

- - - ( 8,557,455) -

- - - - -

64,089 3 0,861 582,601 47,396 308,856 44,907 1 5,826 99,028 11,631 20,070

- - - - -

5,449,499 18,184,911 5,386,256 9,635,881 10,851,904 ( 8,879,272) (18,744,242) ( 6,614,521) ( 10,369,909) ( 11,228,409)

- - - - -

( 3,198,420) 28,944,310 21,490,070 (509,221) 516,388

- - - 1,360,643 -

- - - - -

- - - 1,360,643 -

$ ( 9,715,555) $ 13,059,349 $ ( 886,973) $ 2,061,975 $ 11,047,224 6.48% 6.55% 8.08% 9.30% 9.22% -167-

QUEEN ANNE'S COUNTY, MARYLAND

REVENUE CAPACITY

ASSESSED VALUE OF TAXABLE AND EXEMPT PROPERTY

LAST TEN FISCAL YEARS

Table 5 Real Property (2) Personal Property Total Total Total Public Utility Taxable Taxable and Fiscal Commercial Residential (1) Total Direct Assessed Assessed Exempt Exempt Year Assessed Value Assessed Value Assessed Value Tax Rate (3) Value (2) (4) Value Property Property 2004 $ 771,054,050 $ 3,208,049,692 $ 3,979,103,742 $ 0.9760 $ 59,945,270 $ 4,039,049,012 $ 297,843,389 $ 4,336,892,401 2005 849,272,884 3,690,010,496 4,539,283,380 0 .9260 5 7,382,490 4,596,665,870 3 30,840,259 4,927,506,129

2006 950,694,704 4,051,000,772 5,001,695,476 0 .8700 5 9,360,390 5,061,055,866 3 69,542,935 5,430,598,801 2007 1,104,093,458 4,526,502,291 5,630,595,749 0 .8000 6 3,168,480 5,693,764,229 4 19,303,486 6,113,067,715 2008 1,291,356,759 5,045,464,776 6,336,821,535 0 .7700 6 1,729,010 6,398,550,545 4 74,798,401 6,873,348,946 2009 1,503,024,419 5,518,534,961 7,021,559,380 0 .7700 6 1,513,370 7,083,072,750 5 47,163,868 7,630,236,618

2010 1,606,785,131 5,911,287,556 7,518,072,687 0 .7700 6 2,858,590 7,580,931,277 5 96,219,654 8,177,150,931 2011 1,625,886,760 6,054,844,995 7,680,731,755 0 .7671 5 9,364,960 7,740,096,715 6 44,654,739 8,384,751,454 2012 1,485,091,345 6,139,645,414 7,624,736,759 0 .8471 6 0,635,440 7,685,372,199 6 94,372,116 8,379,744,315 2013 1,567,115,297 5,990,170,828 7,557,286,125 0 .8471 6 3,194,130 7,620,480,255 7 32,300,804 8,352,781,059

NOTES:

* Tax exempt property is included for purposes of calculating total assessed value, which is used on Table 12-a.

(1) Residential real property includes single-family homes, townhouses, condominiums, and apartment dwellings. The assessed value shown

above has been reduced for the Homestead Credit assessment.

(2) Real property and personal property assessments are done every three years and every year, respectively, by the State

Department of Assessments and Taxation at 100% of estimated fair value.

(3) See Table 6-a for real property direct tax rates. Tax Rates are applied per $100 of assessed value.

(4) The personal property tax rate for Queen Anne's County is zero.

Source: State of Maryland, Department of Assessments and Taxation.

-169-

QUEEN ANNE'S COUNTY, MARYLAND

REVENUE CAPACITY

REAL PROPERTY TAX RATES - COUNTY DIRECT RATE

LAST TEN FISCAL YEARS

Table 6-a County Fiscal Direct Year Rate (1) 2004 $ 0 .9760 2005 0 .9260 2006 0 .8700 2007 0 .8000 2008 0 .7700 2009 0 .7700 2010 0 .7700 2011 0 .7671 2012 0 .8471 2013 0 .8471

NOTES:

* No discounts are allowed.

* Taxes are levied as of July 1, are due by September 30, and become delinquent October 1.

* Owner occupied properties may elect to pay on an annual basis. If no election is made,

taxes are paid on a semi-annual basis with payment due by September 30 and December 31.

* Non-owner occupied properties must pay on an annual basis.

* Interest at one percent per month is assessed on delinquent tax bills.

* Revised tax bills based upon certifications from the State received after September 1

may be paid within thirty days without interest.

* Delinquent taxes on real property are collected by sale.

* Costs of tax sale, which vary, are added to the redemption.

* Tax sale date: Third Tuesday in May.

* The personal property tax rate for Queen Anne's County is zero.

(1) Tax Rates are applied per $100 of assessed value.

-170-

QUEEN ANNE'S COUNTY, MARYLAND

REVENUE CAPACITY

REAL PROPERTY TAX RATES - COUNTY SPECIAL TAXING DISTRICTS

LAST TEN FISCAL YEARS

Table 6-b Kent Narrows Commercial Management Fiscal and Waterfront Year Improvement District 2004 $ 0 .0600 2005 0 .0600 2006 0 .0600 2007 0 .0600 2008 0 .0600 2009 0 .0600 2010 0 .0600 2011 0 .0600 2012 0 .0600 2013 0 .0600

NOTES:

* Tax rates are per $100 of assessed value.

* The personal property tax rate for Queen Anne's County is zero.

-171-

QUEEN ANNE'S COUNTY, MARYLAND

REVENUE CAPACITY

REAL PROPERTY TAX RATES - OVERLAPPING GOVERNMENTS - TOWNS

LAST TEN FISCAL YEARS

Table 6-c Fiscal Town of Town of Town of Town of Town of Year Centreville Barclay Church Hill Millington Queen Anne 2004 $ 0 .4800 $ 0 .1000 $ 0 .3400 $ 0 .2800 $ 0 .1800 2005 0 .4800 0 .1000 0 .3400 0 .2800 0 .1800 2006 0 .4800 0 .1000 0 .3400 0 .2800 0 .1800 2007 0 .4700 0 .1000 0 .3400 0 .2800 0 .1800 2008 0 .4300 0 .1000 0 .3400 0 .2800 0 .1800 2009 0 .3950 0 .1000 0 .3400 0 .2800 0 .1800 2010 0 .3800 0 .1000 0 .3400 0 .2800 0 .1800

2011 0 .3800 0 .1000 0 .3400 0 .2800 0 .1800 2012 0 .3800 0 .2000 0 .3400 0 .2800 0 .1800 2013 0 .3800 0 .2000 0 .3400 0 .2800 0 .1800

NOTES:

* Tax rates are per $100 of assessed value.

* The personal property tax rate for Queen Anne's County is zero.

* Taxes collected by the County for other fiscal units, including overlapping governments, are remitted

based on actual collections.

-172-

QUEEN ANNE'S COUNTY, MARYLAND

REVENUE CAPACITY

REAL PROPERTY TAX RATES - OVERLAPPING GOVERNMENTS - TOWNS

LAST TEN FISCAL YEARS

Table 6-c

(CONTINUED)

Town of Town of Town of Queenstown Sudlersville Templeville $ 0 .2000 $ 0 .1760 $ 0.1420 0 .2000 0 .1670 0 .1330 0 .2000 0 .1670 0 .1220 0 .2000 0 .1670 0 .2520 0 .2000 0 .1670 0 .2520 0 .2000 0 .1670 0 .3600 0 .1810 0 .1670 0 .3600 0 .1904 0 .1670 0 .3600 0 .1890 0 .1670 0 .3600 0 .1890 0 .1670 0 .3600 -173-

QUEEN ANNE'S COUNTY, MARYLAND

REVENUE CAPACITY

TEN HIGHEST COMMERCIAL PROPERTY TAXPAYERS

CURRENT FISCAL YEAR AND NINE YEARS AGO

Table 7 For the Fiscal Year Ended June 30, 2013 Ratio:

Taxpayer Base to Total Assessable Base Assessable Base Second Horizon Group Limited Partnership $ 54,272,000 0.71 % KRM Development Corporation 34,678,700 0.46 The Aspen Institute 24,220,600 0.32 White's Heritage LLC 16,771,688 0.22 Great American Life Insurance Company 15,721,000 0.21 Beach Harbor Campers Cooperative Inc 13,653,800 0.18 Queenstown Bank 12,294,487 0.16 K Hovnanian at Kent Island LLC 11,500,000 0.15

Kent Towne Market LLC 10,943,734 0.14 Mears Point Association 10,832,300 0.14 Total $ 204,888,309 2.69 % Total Assessable Base $ 7,620,480,255 100.00 % For the Fiscal Year Ended June 30, 2004 Ratio:

Taxpayer Base to Total Assessable Base Assessable Base Second Horizon Group Limited Partnership $ 30,533,500 0.76 % KRM Development 14,594,592 0.36 Mears Point Association 8,113,110 0.20 Washington Brick & Terra Cotta Company 7,761,550 0.19 Bay Bridge Limited 7,484,466 0.19 213 Centreville LLC 7,084,900 0.18 Beach Harbor Campground 6,906,580 0.17 Pasquale Didonato 6,838,936 0.17 TC Shopping Center 6,534,197 0.16

Hunter's Oak LLC 6,307,300 0.16 Total $ 102,159,131 2.54 % Total Assessable Base $ 4,039,049,012 1 00.00 % Source: State of Maryland Department of Assessments and Taxation -174-

QUEEN ANNE'S COUNTY, MARYLAND

REVENUE CAPACITY

PROPERTY TAX LEVIES AND COLLECTIONS

LAST TEN FISCAL YEARS

Table 8 Collected within the Taxes Levied Fiscal Year of the Levy Collections in Total Collections to Date Fiscal for the Percentage of Subsequent Percentage of Year Fiscal Year Amount Original Levy Years Amount Original Levy 2004 $ 38,135,222 $ 38,052,633 99.78% $ 82,589 $ 38,135,222 100.00% 2005 40,608,914 40,542,167 99.84% 66,747 40,608,914 100.00% 2006 43,208,732 43,107,941 99.77% 100,564 43,208,505 100.00%

2007 44,500,414 44,401,745 99.78% 98,450 44,500,195 100.00% 2008 48,575,431 48,505,180 99.86% 69,081 48,574,261 100.00% 2009 53,839,023 53,756,369 99.85% 80,367 53,836,736 100.00% 2010 57,788,231 57,720,564 99.88% 64,129 57,784,693 99.99% 2011 58,758,234 58,696,129 99.89% 58,675 58,754,804 99.99% 2012 64,549,671 64,459,862 99.86% 53,961 64,513,823 99.94% 2013 63,904,147 63,596,067 99.52% - 63,596,067 99.52%

NOTES:

* This table includes data for all property taxes billed applicable to all funds for Queen Anne's County, Maryland to include General,

Special Revenue, and Enterprise Funds. Property taxes billed for the State of Maryland and various municipalities are excluded.

-175-

QUEEN ANNE'S COUNTY, MARYLAND

DEBT CAPACITY

RATIOS OF OUTSTANDING DEBT BY TYPE

LAST TEN FISCAL YEARS

Table 9 Governmental Activities General Total Fiscal Obligation Notes Capital Governmental Year Bonds Payable Leases Activities 2004 $ 62,467,858 $ 3,245,500 $ 114,331 $ 6 5,827,689 2005 59,257,383 684,000 - 5 9,941,383 2006 55,564,104 622,500 - 5 6,186,604 2007 74,717,649 561,000 248,460 7 5,527,109 2008 69,637,468 822,617 202,978 7 0,663,063 2009 64,411,805 913,183 155,482 6 5,480,470 2010 87,967,432 1,652,082 105,884 8 9,725,398

2011 102,791,729 1,070,632 54,089 1 03,916,450 2012 97,127,263 889,256 - 9 8,016,519 2013 90,092,100 1,146,755 - 9 1,238,855 Business-type Activities Ratios Debt to General Total Total Total Outstanding Fiscal Obligation Notes Capital Business-type Primary Personal Debt per Year Bonds Payable Leases Activities Government Income (1) Capita (1) 2004 $ 5,620,614 $ 5,879,764 $ - $ 1 1,500,378 $ 77,328,067 4.89% $ 1,784

2005 5,142,702 5,343,775 - 1 0,486,477 70,427,860 4.40% 1,586 2006 4,734,164 14,580,581 - 1 9,314,745 75,501,349 6.77% 1,661 2007 4,430,817 22,516,916 - 2 6,947,733 102,474,842 5.50% 2,216 2008 3,947,915 21,058,076 - 2 5,005,991 95,669,054 4.76% 1,998 2009 3,458,660 19,624,863 - 2 3,083,523 88,563,993 4.19% 1,881 2010 3,445,366 18,166,367 - 2 1,611,733 111,337,131 6.47% 2,289 2011 3,458,828 16,692,171 - 2 0,150,999 124,067,449 7.20% 2,590

2012 2,936,543 15,238,959 - 1 8,175,502 116,192,021 6.95% 2,431 2013 2,490,475 13,767,769 - 1 6,258,244 107,497,099 6.12% 2,210

NOTES:

(1) See Table 14 for personal income and population data, which are used in calculating these ratios.

-176-

QUEEN ANNE'S COUNTY, MARYLAND

DEBT CAPACITY

RATIOS OF GENERAL BONDED DEBT OUTSTANDING

LAST TEN FISCAL YEARS

Table 10 Percentage of Fiscal General Total Taxable Per Year Bonded Debt (1) Assessable Base (2) Capita (3) 2004 $ 68,088,472 1.69% $ 1,571 2005 64,400,085 1.40% 1 ,451 2006 60,298,268 1.19% 1 ,327 2007 79,148,466 1.39% 1 ,712 2008 73,585,383 1.15% 1 ,537 2009 67,870,465 0.96% 1 ,441 2010 91,412,798 1.21% 1 ,879 2011 106,250,557 1.37% 2 ,218 2012 100,063,806 1.30% 2 ,093 2013 92,582,575 1.21% 1 ,903

NOTES:

* General Bonded Debt includes all general obligation debt, regardless of

purpose or repayment source, and other bonded debt financed with general government resources. Other debt is excluded because it is not in the form of bonds.

(1) General Bonded Debt is comprised of both governmental and businesstype activities from Table 9.

(2) See Table 5 for taxable assessable base.

(3) See Table 14 for population data.

-177-

QUEEN ANNE'S COUNTY, MARYLAND

DEBT CAPACITY

COMPUTATION OF NET DIRECT AND OVERLAPPING DEBT

AS OF JUNE 30, 2013

Table 11 Name of Jurisdiction Gross Debt Queen Anne's County:

County Government Total Net Direct Debt (1) $ 91,238,855 Towns: (2) Centreville (100%) 13,163,443 Millington (100%) 1,287,315 Queenstown (100%) 6 84,436 Sudlersville (100%) 2,158,686 Total Net Overlapping Debt 17,293,880 Total Net Direct and Overlapping Debt $ 108,532,735

NOTES:

(1) Net direct debt of the County includes Governmental Activities general obligation bonds, notes payable, and capital leases. See Table 9.

Overlapping debt is the debt of other governmental entities located within the County that is payable in whole or in part by taxpayers of the County.

(2) Entities are located wholly within Queen Anne's County. Debt information reported by municipalities.

-179-

QUEEN ANNE'S COUNTY, MARYLAND

DEBT CAPACITY

COMPUTATION OF LEGAL DEBT MARGIN

LAST TEN FISCAL YEARS

Table 12-a 2004 2005 2006 Computation of Legal Debt Margin - for Queen Anne's County Other than Debt related to the Sanitary District:

Authorized debt limit under Title 5 (Subtitle 4) (1) $ 8,000,000 $ 8,000,000 $ 8,000,000 Authorized bonded debt under specific public laws Enterprise Funds, excluding Sanitary District (4) 1 ,440,000 1 ,349,878 1 ,354,131 General Obligation Debt (4) 62,467,858 59,257,383 55,564,104 Subtotal 63,907,858 60,607,261 56,918,235 Total authorized debt under Title 5 and specific public laws 71,907,858 68,607,261 64,918,235

LESS Outstanding bonds, notes payable, and capital leases (5) 77,328,067 70,427,860 75,501,349 Less: Sanitary District debt (4) 10,005,867 9 ,088,902 17,919,731 Subtotal 67,322,200 61,338,958 57,581,618 Legal Debt Margin - Other than the Sanitary District $ 4,585,658 $ 7,268,303 $ 7,336,617 Debt related to the Sanitary District Proprietary Fund:

Total taxable assessed value (3) $ 4,039,049,012 $ 4,596,665,870 $ 5,061,055,866 Plus exempt property (3) 297,843,389 330,840,259 369,542,935 Total assessed value $ 4,336,892,401 $ 4,927,506,129 $ 5,430,598,801 Debt Limit - 6% of total assessed value (2) $ 260,213,544 $ 295,650,368 $ 325,835,928 LESS Sanitary District 10,005,867 9 ,266,078 18,069,698 Less: Restricted Cash and Investments in the Debt Service Fund available for payment of principal 4 ,289,452 4 ,105,842 3 ,940,626

5 ,716,415 5 ,160,236 14,129,072 Legal Debt Margin - Sanitary District $ 254,497,129 $ 290,490,132 $ 311,706,856

NOTES:

(1) Title 5, Subtitle 4 (1), of the Code of Public Local Laws of Queen Anne's County authorizes the County to borrow up to $8,000,000 for

general operating and capital improvement expenditures. This authority is in addition to any bonded debt authorized under specific public local laws.

(2) Title 24, Subtitle 1, Section 24-146(A) of the Code of Public Local Laws of Queen Anne's County authorizes the County to borrow an amount not to

exceed 6% of the total value of property assessed. The proceeds of such borrowings must be used for sewer and water system construction payments.

(3) See Table 5.

(4) See Note 9, Section B.

(5) See Note 9.

-180-

QUEEN ANNE'S COUNTY, MARYLAND

DEBT CAPACITY

COMPUTATION OF LEGAL DEBT MARGIN

LAST TEN FISCAL YEARS

Table 12-a

(CONTINUED)

2007 2008 2009 2010 2011 2012 2013 $ 8,000,000 $ 8,000,000 $ 8,000,000 $ 8,000,000 $ 8,000,000 $ 8,000,000 $ 8,000,000 1 ,483,571 1 ,458,458 1 ,446,993 1,862,866 2,340,495 2,304,876 2,160,475 74,717,649 69,637,468 64,411,805 87,967,432 102,791,729 97,127,263 90,092,100 76,201,220 71,095,926 65,858,798 89,830,298 105,132,224 99,432,139 92,252,575 84,201,220 79,095,926 73,858,798 97,830,298 113,132,224 107,432,139 100,252,575

102,474,842 95,669,054 88,563,993 111,337,131 124,067,449 116,192,021 107,497,099 25,430,093 23,520,278 21,616,088 19,735,239 17,803,690 15,870,626 14,097,769 78,072,206 72,148,776 66,947,905 91,601,892 106,263,759 100,321,395 93,399,330 $ 7,404,931 $ 6,947,150 $ 6,910,893 $ 6,228,406 $ 6,868,465 $ 7,110,744 $ 6,853,245 $ 5,693,764,229 $ 6,398,550,545 $ 7,083,072,750 $ 7,580,931,277 $ 7,740,096,715 $ 7,685,372,199 $ 7,620,480,255

419,303,486 474,798,401 547,163,868 596,219,654 644,654,739 694,372,116 732,300,804 $ 6,113,067,715 $ 6,873,348,946 $ 7,630,236,618 $ 8,177,150,931 $ 8,384,751,454 $ 8,379,744,315 $ 8,352,781,059 $ 366,784,063 $ 412,400,937 $ 457,814,197 $ 490,629,056 $ 503,085,087 $ 502,784,659 $ 501,166,864 25,552,847 23,520,278 21,616,088 19,735,239 17,803,690 15,870,626 14,097,769 4 ,746,865 4 ,551,821 4 ,180,188 3,925,026 3,658,194 3,244,564 2,840,468

20,805,982 18,968,457 17,435,900 15,810,213 14,145,496 12,626,062 11,257,301 $ 345,978,081 $ 393,432,480 $ 440,378,297 $ 474,818,843 $ 488,939,591 $ 490,158,597 $ 489,909,563 -181-

QUEEN ANNE'S COUNTY, MARYLAND

DEBT CAPACITY

COMPUTATION OF LOCAL DEBT LIMIT

LAST FIVE FISCAL YEARS

Table 12-b 2009 2010 2011 2012 2013 Computation of Local Debt Limit, as Authorized under Article 95, Section 22F of the Annotated Code of Maryland and per criteria established by Queen Anne's County Resolution No. 13-04, as adopted May 2013.

CALCULATION PER FIRST FINANCIAL CRITERIA:

The sum of all outstanding and new general obligation and/or bonded debt is 2.5% or less of the total taxable assessed base.

Total Taxable Assessed Base (1) $ 7,083,072,750 $ 7,580,931,277 $ 7,740,096,715 $ 7,685,372,199 $ 7,620,480,255 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% of Total Taxable Assessed Base $ 177,076,819 $ 189,523,282 $ 193,502,418 $ 192,134,305 $ 190,512,006 LESS Outstanding and New General Obligation Debt (2) (3) Enterprise Funds' Debt - Bonds and Notes $ 23,083,523 $ 21,611,733 $ 20,150,999 $ 18,175,502 $ 16,258,244

General Obligation Debt - Bonds and Notes 65,324,988 89,619,514 103,862,361 98,016,519 91,238,855 Total Outstanding and New General Obligation Debt $ 88,408,511 $ 111,231,247 $ 124,013,360 $ 116,192,021 $ 107,497,099 2.5% of Total Taxable Assessed Base in Excess of Total Outstanding and New General Obligation Debt $ 88,668,308 $ 78,292,035 $ 69,489,058 $ 75,942,284 $ 83,014,907

CALCULATION PER SECOND FINANCIAL CRITERIA:

The sum of all outstanding and new general obligation and/or bonded debt is $3,000 or less per capita.

Total County Population (4) 47,091 48,650 47,899 47,798 48,650 $3,000 Per Capita $ 3,000 $ 3,000 $ 3,000 $ 3,000 $ 3,000 $ 141,273,000 $ 145,950,000 $ 143,697,000 $ 143,394,000 $ 145,950,000 LESS Outstanding and New General Obligation Debt (1) $ 88,408,511 $ 111,231,247 $ 124,013,360 $ 116,192,021 $ 107,497,099 $3,000 Per Capita in Excess of Total Outstanding and New General Obligation Debt $ 52,864,489 $ 34,718,753 $ 19,683,640 $ 27,201,979 $ 38,452,901

NOTES:

(1) See Table 5 - Total Taxable Assessed Value.

(2) See Note 9 A - Changes in Noncurrent Liabilities.

(3) General Obligation Debt includes debt relating to the Sanitary District, because such debt is backed by the full faith

and credit of the County, but excludes all capital leases, which are collateralized by the equipment purchased with such leases.

(4) See Table 14 - Population.

In May, 2013, as described in Note 9 F, Queen Anne’s County adopted Resolution No. 13-04, thereby continuing a local debt policy in compliance with Article 95, Section 22F of the Annotated Code of Maryland.

This policy requires that the County’s Director of Budget and Finance take the following steps:

(a) prepare a six-year capital project plan each year;

(b) propose an amount to be transferred from the General Fund operating balance to the General Capital Projects

Fund to serve as pay-as-you-go funding in the latter Fund, in order to lessen the need for future County debt;

(c) limit the County’s non-bonded indebtedness to $8.0 million for general operating expenses or capital

improvements;

(d) certify that the sum of outstanding general bonded debt and any new general obligation debt is 2.5% or less

of the total taxable assessed base and is $3,000 or less per capita; and

(e) review and revise this Debt Policy as necessary, but no later than September 1, 2015.

This policy also stipulates that although there is some flexibility as to the acceptable percentage of debt service to general fund expenditures, and no absolute limit has been established by the rating agencies or the Government Finance Officers Association, anything above 12% of total general fund expenditures would be a cause to carefully monitor debt service.

-182-

QUEEN ANNE'S COUNTY, MARYLAND

DEMOGRAPHIC AND ECONOMIC INFORMATION

PRINCIPAL EMPLOYERS

CURRENT FISCAL YEAR AND NINE YEARS AGO

Table 13 For the Fiscal Year Ended June 30, 2013 Percentage of Total County Employer Employees Rank Employment Queen Anne's County Board of Education 926 1 8.20% Chesapeake College 485 2 4.30% Queen Anne's County Government 427 3 3.78% S.E.W. Friel 275 4 2.44% Paul Reed Smith Guitars 250 5 2.21% Reeb Millwork 180 6 1.59% Cracker Barrel Old Country Store 170 7 1.51% Safeway 150 8 1.33% Fisherman's Inn 1 35 9 1.20%

Genesis Healthcare 134 10 1.19% Total 3,132 27.75% For the Fiscal Year Ended June 30, 2004 Percentage of Total County Employer Employees Rank Employment Queen Anne's County Board of Education 8 43 1 8.69% Queen Anne's County Government 4 67 2 4.82% S.E.W. Friel 2 75 3 2.84% Fisherman's Crab Deck 2 25 4 2.32% Chesapeake College 2 15 5 2.22% Paul Reed Smith Guitars 1 77 6 1.83% Harris Crab House 1 60 7 1.65%

Delmarva Sash & Door, Inc. 1 50 8 1.55% Acme Markets 1 47 9 1.52% Sisk Mailing Services 1 45 10 1.50% Total 2,804 28.94% Source: Queen Anne's County Economic Development Office; Table 15.

-183-

QUEEN ANNE'S COUNTY, MARYLAND

DEMOGRAPHIC AND ECONOMIC INFORMATION

DEMOGRAPHIC STATISTICS

LAST TEN FISCAL YEARS

Table 14 Average Total Registered Fiscal Personal Per Capita Unemployment Number of Year Population (1) Income (2) Income (3) Rate (3) Pupils (4) 2004 43,350 $ 1,582,275,000 $ 3 6,500 3.10% 7 ,530 2005 44,392 1,601,707,752 3 6,081 3.50% 7 ,649 2006 45,450 1,114,661,250 2 4,525 3.50% 7 ,162 2007 46,241 1,861,755,142 4 0,262 3.50% 7 ,774 2008 47,886 2,009,392,332 4 1,962 4.00% 7 ,790 2009 47,091 2,113,538,262 4 4,882 6.70% 7 ,774

2010 48,650 1,721,674,850 3 5,389 6.50% 7 ,723 2011 47,899 1,722,448,040 3 5,960 7.00% 7 ,722 2012 47,798 1,672,547,616 3 4,992 6.60% 7 ,757 2013 48,650 1,757,238,000 3 6,120 6.80% 7 ,717

NOTES:

(1) Source: Queen Anne's County Division of Land Use and Zoning

(2) Personal income derived by multiplying population by per capita income.

(3) Source: Maryland Department of Labor, Licensing, and Regulation - as of June.

(4) Source: Queen Anne's County Board of Education.

-184- One of our ever popular and graceful residents...an Osprey on the beach at Terrapin Park.

QUEEN ANNE'S COUNTY, MARYLAND

OPERATING INFORMATION

COUNTY GOVERNMENT EMPLOYEES - FULL-TIME EQUIVALENTS

LAST TEN FISCAL YEARS

Table 15 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Number of Exempt Employees 33 35 35 36 31 29 29 26 26 28 Number of Full Time Employees 413 420 432 470 481 475 461 406 395 391 Number of Part Time Employees (FTE) 21 21 23 25 20 18 17 10 9 8 Total County Government Employees 467 476 490 531 532 522 507 442 430 427

NOTES:

Source: Queen Anne's County Finance Office.

-186-

QUEEN ANNE'S COUNTY, MARYLAND

OPERATING INFORMATION

COUNTY GOVERNMENT EMPLOYEES - FULL-TIME ONLY BY FUNCTION

LAST SEVEN FISCAL YEARS

Table 16 2007 2008 2009 2010 2011 2012 2013 Governmental Activities:

General Government 90 90 89 87 77 74 82 Public Safety:

Police 49 53 52 50 49 53 56 Fire - Emergency Management Services 69 68 69 67 64 61 64 Detention Center 37 38 42 42 41 42 41 Animal Services 11 11 8 8 10 10 6 Public Works 87 91 85 79 61 51 51 Health 1 1 1 1 1 1 1 Social Services 40 38 38 37 32 36 32 Parks (1) 44 44 45 45 31 27 27 Conservation of Natural Resources 3 3 3 3 3 3 4 Economic/Community Development 12 12 10 9 7 3 6 Total Governmental Activities 443 449 442 428 376 361 370

Business-Type Activities:

Sanitary District 47 46 45 45 44 45 45 Bay Bridge Airport 3 3 3 3 3 3 1 Golf - - - - - - 1 Public Landings 3 3 3 3 3 3 2 Total Business-Type Activities 53 52 51 51 50 51 49 Total Full-Time County Employees 496 501 493 479 426 412 419

NOTES:

(1) Due to the consolidation of the Property Management and Recreation enterprise funds with the General Fund in

fiscal year 2013, the respective employees of those funds are now reported with the Parks function of the Governmental Activities.

- Only full-time County employees are represented in this Table; data relating to full-time equivalents

for part-time employees is not available at this time.

- Employees of the County's component units have been excluded from this table.

- As data becomes available in future years, this Table will be updated to include data for up to ten fiscal years.

Source: Queen Anne's County Finance Office.

-187-

QUEEN ANNE'S COUNTY, MARYLAND

OPERATING INFORMATION

OPERATING INDICATORS BY FUNCTION

LAST TEN FISCAL YEARS

Table 17 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Governmental Activities:

General Government:

Planning & Zoning:

Number of commercial permits issued 295 272 256 235 23 40 35 27 99 75 Number of residential permits issued:

Single Family Permits 271 247 224 160 138 90 153 106 119 161 Multi Family Permits - 1 - - - 13 28 4 20 21 Renovations and Additions Permits 745 680 608 541 539 324 304 295 207 312 Total residential permits issued 1,016 928 832 701 677 427 485 405 346 494 Public Safety:

Fire and Rescue:

Number of volunteer members 649 630 630 600 663 663 689 689 689 689 Police:

Uniformed Police Officers 50 49 49 49 53 54 54 55 59 61 Number of law violations:

Physical arrests 1,112 1,536 1,115 1,413 1,373 1,429 917 1,216 848 1,144 Traffic violations 4,363 5,307 4,962 5,310 5,745 8,276 6,183 5,760 5,818 5,915 Detention Center:

Detention Center Officers 32 30 31 33 35 37 39 40 38 40 Average yearly prison population 92 96 9 9 1 13 1 12 97 102 103 86 128 Public Works:

Wastewater Treated - Daily (mgd) 1.5 1.5 1.5 1.5 1.6 1.7 2.1 1.7 1.9 2.0 Education:

Number of Personnel Teachers 459 479 496 501 522 528 533 530 537 546 Administrators 39 39 39 40 40 38 37 37 39 39 Support 302 321 318 327 338 338 336 310 300 294 Other 43 53 59 55 77 76 76 64 47 47 Number of Students 7,530 7,649 7,162 7,774 7,790 7,774 7,723 7,722 7,757 7,717 Number of High School Graduates N/A N/A 514 563 560 590 562 566 598 537

NOTES:

N/A - Data not readily available, or not available in a manner consistent with this display.

Source: Various County departments.

-188-

QUEEN ANNE'S COUNTY, MARYLAND

OPERATING INFORMATION

CAPITAL ASSET STATISTICS BY FUNCTION

LAST TEN FISCAL YEARS

Table 18 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Governmental Activities:

Public Safety:

Fire and Rescue:

Number of volunteer stations 9 10 1 0 1 0 1 0 10 10 10 10 9 Equipment:

Engines 16 17 1 7 1 6 1 6 16 17 17 17 18 Tankers 7 7 7 9 9 9 9 9 9 9 Aerial Units 4 4 4 4 4 4 5 5 5 5 Rescue Units 5 5 5 5 6 6 7 7 7 8 Brush Units 7 7 7 8 8 8 8 8 8 8 Air Units (MD State Police) 8 1 1 1 3 3 - - - - Boats 5 5 5 3 1 1 5 5 5 5 Ambulance/Medic Units 15 15 1 8 2 0 1 6 16 17 17 17 17 Cars/Other 20 20 2 0 1 6 1 7 17 22 22 22 22 Police:

Number of Stations 1 1 1 1 1 1 1 1 1 1 Number of Vehicles Patrol 58 43 34 54 57 64 60 53 62 62 Other 6 15 26 15 7 13 17 21 3 3 Detention Center Capacity 104 104 104 104 104 104 148 148 148 148 Public Works:

County Maintained Roads and Streets Paved (miles) 522 524 534 536 530 539 540 540 540 541 Unpaved (miles) 13 13 13 12 15 12 12 12 12 12 County Owned Water and Wastewater Facilities Water Miles of Mains 47 47 49 51 56 57 58 59 59 61 Water Treatment Plants 10 10 10 10 11 11 11 11 11 11 Booster Stations 2 2 2 2 2 2 2 2 2 2 Wastewater Miles of Mains 105 105 107 109 114 116 117 118 118 120 Wastewater Treatment Plants 1 1 1 1 1 1 1 1 1 1

Wastewater Collection, Lift, and Pumping Stations 29 29 29 29 31 31 31 31 31 31 Education:

Number of Schools High Schools 2 2 2 2 2 2 2 2 2 2 Middle Schools 3 3 3 3 3 4 4 4 4 4 Elementary Schools 7 8 8 8 8 8 8 8 8 8 Parks and Recreation:

Parks 24 24 28 29 32 33 33 33 33 33 Park Acreage 2,024 2,024 2,579 2,572 2,633 2,633 2,915 2,915 2,915 2,915 Public Landings 22 21 21 21 21 20 20 21 21 19 Library:

Number of Libraries 3 3 3 3 3 3 3 3 3 3

NOTES:

Source: Various County departments.

-189- You can always find fresh, award-winning local produce at the Farmer’s Markets and produce stands spread throughout the County.