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August 30, 2007

To the Honorable Board of Commissioners and Citizens of Yakima County: We are pleased to present to you the Comprehensive Annual Financial Report of Yakima County for the fiscal year that ended December 31, 2006, in accordance with the provisions of Chapter 36.22 of the Revised Code of Washington. The financial statements are presented in conformity with generally accepted accounting principles (GAAP), and audited in accordance with generally accepted auditing standards by the Office of the Washington State Auditor. This annual report has been reformatted to comply with the financial reporting model developed by the Government Accounting Standards Board (GASB) Statement 34. GAAP requires that management provide a narrative introduction, overview, and analysis to accompany the basic financial statements in the form of Management’s Discussion and Analysis (MD&A). The MD&A provides “financial highlights” and interprets the financial reports by analyzing trends and by explaining changes, fluctuations, and variances in the financial data. In addition, the MD&A is intended to disclose any known significant events or decisions that affect the financial condition of the County. This letter of transmittal is designed to complement the MD&A and should be read in conjunction with the financial statements. Yakima County’s MD&A can be found immediately following the State Auditor’s report. In addition to the fund-by-fund financial information in the County’s financial statements, the report includes government-wide financial statements. The government-wide financial statements include a Statement of Net Assets that provides the total net equity of the County including infrastructure and the Statement of Activities that shows the cost of providing government services. These statements have been prepared using the accrual basis of accounting versus the modified accrual method used in the fund financial statements. The reporting model (GASB 34) includes an emphasis on the County’s major funds as shown in the Governmental Fund Statements. The County is responsible for the accuracy, completeness, and fairness of the data presented in this report, including all disclosures. We prepared this report in accordance with the following standards:

• Generally accepted accounting principles that are uniform minimum standards and guidelines for financial accounting and reporting in the United States of America.

• Government accounting and financial reporting statements, interpretations, and technical bulletins issued by the Government Accounting Standards Board (GASB).

• Budgeting, Accounting and Reporting Systems (BARS) for counties, cities and other local government entities in the State of Washington. This is issued by the Washington State Auditor’s Office.

• Guidelines recommended by the Government Finance Officers Association of the United States of America and Canada.

The Office of the Washington State Auditor, an independent arm of the State of Washington, has in accordance with state statutes audited the financial statements of Yakima County. This examination is conducted in accordance with Generally Accepted Auditing Standards, Standards of Audit of Governmental Organizations, Program, Activities, and Functions, (issued by the U.S. General Accounting Office); the Single Audit Act of 1984 (P.L. 98-502) and Circular A-133, Audits of State and Local Governments, issued by the U.S. Office of Management and Budget. The State Auditor’s report is presented as the first component of the financial section of this report.

PROFILE OF THE GOVERNMENT Yakima County was created by an act of the Legislative Assembly of the Territory of Washington on January 21, 1865. In 1870, the county seat became permanently located at Yakima City (now Union Gap). In 1887, the courthouse was moved to North Yakima (now Yakima). Yakima County is situated in south central Washington State. The County encompasses 4,296 square miles, or roughly 6.5 percent of the state’s land area, it is the second largest county in land area in Washington State and the seventh

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largest in population in the State. Yakima, the county seat, is located 145 miles southeast of Seattle which is the major metropolitan city in the State of Washington. The rich volcanic soil, unique irrigation system, abundant sunshine and an average growing season of 195 days, have made agricultural products the largest contributor to the County's economy. Of the 3,072 counties in the United States, Yakima County ranks first in the number of all fruit trees, first in the production of apples, mint, winter pears and hops, and fourth in the value of all fruits. The unique growing conditions also help make the Yakima Valley one of the few places in the world where premium vineyards thrive. There are over 50 local wineries with many gaining international acclaim for award winning wines. Yakima County’s economic base has a diversified manufacturing industry complementing a large presence of agriculture and other resource-based industries.

FACTORS AFFECTING FINANCIAL CONDITION The information presented in the financial statements is perhaps best understood when it is considered from the broader perspective of the specific environment in which Yakima County operates. Local Economy: The Yakima County economy had a reasonably good year in 2006. Nonagricultural employers in Yakima County provided 77,400 jobs in January 2007, that was a 2,700 job increase over the corresponding month in 2006. State employment added 70,300 jobs between January 2006 and January 2007, a 2.5 percent growth rate versus a stronger 3.6 percent clip in Yakima County. Job growth rates in Yakima County have been substantially greater than statewide job growth rates since November 2006, a good sign for the local economy. However, Yakima County is not immune to statewide economic activity, this could be an indicator that local job growth could also begin to slow in the upcoming year. Washington’s unemployment rate (not seasonally adjusted) in January 2007 was 5.9 percent. This was a four-tenth point increase above the January 2006 figure of 5.5 percent. Yakima County unemployment rates declined over-the-year in every month of 2006. Other advantages to living in Yakima include the cost of living in Yakima is lower, the commute time is 10 to 15 minutes for most employees and there is a good pool of employees that are either technically or service oriented. Positive developments also have been recorded in home sales in the County. Home sales totaled 4,832 in 2006. In the last few years, house prices have increased 33%. In 2006, house prices increased 5%. Retiring couples who sold their homes in Western Washington and are purchasing comparable ones in the Yakima Valley have had a significant impact on the price of luxury homes. Residents of Western Washington are also buying luxury condominiums in Yakima County prior to completion. Other improvements have included Yakima County’s Department of Corrections opening of the new jail. The continuing development of Pacific Northwest University of Health Sciences, a new osteopathic school planned for Yakima, could initially bring 140 to 160 high paying jobs into the community. Since 1999, Yakima County’s Supporting Investments in Economic Diversification (S.E.I.D), has invested more than $23 million, mostly in infrastructure improvements, that has led to the creation of more than 1,000 jobs countywide. An example of this investment is about $200,000 for road improvements which allowed Jeld-Wen in Yakima to complete a $6.2 million plant expansion, creating an expected 40 jobs. Agriculture: With agriculture and its bi-products being the main source of income for the Yakima Valley, ag-tourism along with other tourism is expanding and the wine country is a popular draw to people around the State and from other states. The amount of available water continues to be a concern to the growers and stabilizing the amount of water available is of great importance in Washington State. Long-Term Financial Planning. The Board of County Commissioners is committed to providing a high level of services at a reasonable cost to residents of Yakima County and to maintaining a cooperative relationship with incorporated areas of the County. The annual budget serves as the foundation for the County’s financial planning and control. At the request of the County Auditor’s office, all agencies of Yakima County are required to submit

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requests for appropriation on or before the second Monday in August. A compilation of these requests and projections is submitted to the Board of County Commissioners before the first Tuesday in September. The Commissioners schedule a budget hearing which must begin between the first Monday in October and the first Monday in December. The hearing may be continued from day to day for no more than five days. At the conclusion of the hearing, the Commissioners adopt the budget. Yakima and Benton County Commissioners continue to support a new water storage reservoir called Black Rock. Located 40 miles east of Yakima, the 1.7 million acre feet proposed reservoir would double the existing water storage capacity in the Yakima River Basin. Yakima and Benton Counties helped fund an initial study for the project that would have profound economic and recreational benefits to the Yakima Valley. Once federal funding is allocated for the project, it could take up to 10 years to complete. Builders, developers and the public are able to access development services at a single location with the County’s Development Services Center (DSC) Pilot Project. The remodel of the Courthouse’s fourth floor is complete which allows the DSC to operate at full capacity. The Center brings together Planning, Permit Services, and other services for streamlined customer service. Previously, developers worked with each department separately for subdivision applications, resulting in multiple trips to different departments. Coordination of these services offers better service and convenience. Yakima County continues to work aggressively on its Six-Year Transportation Improvement Plan anticipating almost $170 million in expenditures on roads and bridges throughout Yakima County during the following six years. Cash management policies and practices. On April 1, 2005, Yakima County implemented an Investment Pool, which averaged a daily balance of $192 million during 2006. Since the inception of the Yakima County Investment Pool and with signed resolutions by all participants in the Pool; the County Treasurer, under authority of RCW 36.29, pools the requested funds of County departments and other special districts and public authorities to take advantage of economies of scale, simplify administration and achieve a potentially higher yield than other available programs. The pool distributed to its participants $9.37 million in interest earned for 2006. In accordance with RCW 36.48.070, the County’s Finance Committee reviews the Pool’s investment practices and policies on a regular basis. The Pool seeks to obtain a market rate of return while preserving and protecting capital. The investment pool pursues its objectives by investing in high quality securities authorized by State statute, including U.S. Treasuries, U.S. Agencies, certificates of deposit and the State of Washington’s Local Government Investment Pool. During 2006, the County’s Investment Pool realized an average gross yield of 4.85 percent. Total interest earnings of County funds in 2006 were over $5.2 million, including over $2.13 million for the General Fund. Risk Management. Yakima County is a member of the Washington Counties Risk Pool with a $250,000 deductible for each claim. The Liability Insurance Fund accounts for all claims made against the County and payments of risk pool premiums. The Voluntary Employee Benefits Fund accounts for the employer and employee premiums paid to Premera Blue Cross and Group Health Insurance for employee medical insurance. The County also pays administrative fees for the Flexible Spending Accounts for the medical and child care reimbursements program and other administrative costs for our insurance broker and Employee Assistance Program. Flex Spending Accounts of the Fund 506 accounts for employee pre-tax contributions collected and then distributed back to employees in the form of medical expense and child care expense reimbursements. In addition, Fund 509, the LEOFF fund, pays for LEOFF 1 deputies’ (active and retired) medical and Long Term Care expenses which are not otherwise covered by the County Health Insurance Plan. Yakima County insures its property (buildings and contents) through Wells Fargo Insurance Services. Full faith performance bonding is carried on the County’s employees. The County is self-insured for unemployment compensation claims. The Unemployment Compensation fund reserves accumulate at a rate of .3% of each employee’s gross wage funded by the County.

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The Workers Compensation fund operates as a co-insurance program for the first $400,000 ($500,000 for Non-LEOFF deputies) of each occurrence. Pension and Other Post-Employment Benefits. Substantially all County full time employees and qualifying part-time employees participate in one of the statewide public employee retirement systems administered by the Department of Retirement Systems (DRS), under a cost-sharing multiple-employer defined benefit public employee retirement system. The Public Safety Employees’ Retirement System (PSERS) is a new retirement system which covers public employees in limited-authority law enforcement or adult corrections occupations, who are not eligible for membership in the Law Enforcement Officers and Fire Fighters (LEOFF) retirement system. The DRS, a department within the primary government of the State of Washington, issues a publicly available comprehensive annual financial report (CAFR) that includes financial statements and required supplementary information for each plan. The State Pension Funding Council and the director of the Department of Retirement Systems, based on recommendations by the Office of the State Actuary, set employer and employee contribution rates to continue to fully fund the plan. All employers are required to contribute at the level established by State law. The methods used to determine the contribution rates are established under State statute in accordance with chapter 41.40 and 41.45 RCW. Additional information of the County’s pension arrangements and post-employment benefits can be found in the notes to the financial statements.

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 Yakima County for its Comprehensive Annual Financial Report (CAFR) for the December 31 year-end of all fiscal years beginning with 1986 through 2005, a total of twenty years. In order to be awarded a Certificate of Achievement, a governmental unit must publish an easily readable and efficiently organized Comprehensive Annual Financial Report, whose contents conform to program standards. Such reports must satisfy both generally accepted accounting principles and applicable legal requirements. Preparation of this report could not have been accomplished without the professional, efficient and dedicated services of the entire staff of the Auditor's Office and the various department heads and employees who assisted and contributed to its preparation. For the initial preparation of this document, Yakima County is grateful to the following Auditor's Office employees: Mike Madison, Cindy Williams, Barbara Olson, David Garent and Diana Soules and from the Commissioners’ Office employees: Forrest Smith and Craig Warner. The County would also like to thank from the Commissioners’ office: Wendy Holbrook and Ashley Benge; from Public Services: Carmen Hayter, Christie Rogers, Oda Del Rosario, Kimberly Harvey and Joanne Wells; from the Treasurer’s office: Ilene Thomson, Rick Tollackson, Laraine Rising, Theresa Roche, Kathleen Condardo and Sarah Welch and from Community Services: Kimberlee Tully. Our appreciation also goes to the County Printing Department--Robin Russell and Lori Bisconer—for their excellence in printing quality and their cooperation in getting the job done. A special thanks is extended to the Yakima Valley Visitors and Convention Bureau for the information provided from the Yakima Valley Visitors Guide mentioned in the Economic Condition and Outlook section. We also would like to acknowledge Washington State Employment Security for its information on labor issues. Further appreciation is extended to Sue Remer, Sarah Walker and Ann Strand for their continual encouragement and guidance from the State Auditor’s Office in assisting us in always improving on the previous year’s reporting. Also,

appreciation is extended to the Board of County Commissioners for their interest and support in planning and conducting the financial operations of the County in a responsible and progressive manner.

Respectfully submitted, n

Corky Mattingly Yakima County Auditor

Certificate of Achievement for Excellence

Reporting Presented to

Yakima County Washington

For its Comprehensive Annual

Financial Report

for the Fiscal Year Ended

December 3 1,2005

A Certificate of Achievement for Excellence in Financial Reporting is presented by the Government Finance Officers

Association of the United States and Canada to government units and public employee retirement

systems whose comprehensive annual financial reports (CAFRs) achieve the highest standards in government accounting

and fmancial reporting.

President

Executive Director

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Yakima County, Washington List of Elected Officials COUNTY COMMISSIONERS District No. 1 Term Ends Dec. 31, 2008 Mike Leita District No. 2 Term Ends Dec. 31, 2008 Ron Gamache District No. 3 Term Ends Dec. 31, 2006 Jesse Palacios Other County Officials

Terms End Dec. 31, 2010 Assessor Dave Cook Auditor Corky Mattingly Clerk Kim Eaton Coroner Maurice Rice Prosecuting Attorney Ron Zirkle Sheriff Ken Irwin Treasurer Ilene Thomson Judges Of The Superior Court Terms End Jan. 11, 2009 Department 1 Susan L. Hahn Department 2 James Hutton Department 3 James Gavin Department 4 Blain Gibson Department 5 Robert Hackett Department 6 Ruth Reukauf Department 7 Michael Schwab Department 8 James Lust District Court Judges

Terms End Jan. 10, 2011 Judge Michael McCarthy Judge Rodney Fitch Judge Kevin Roy Judge Donald Engel Members Of The Legislature Legislative District State Senators State Representatives 13th Janea Holmquist Judy Warnick Bill Hinkle 14th Jim Clements Mary Skinner Charles Ross 15th Jim Honeyford Bruce Chandler Dan Newhouse

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Yakima County, Washington List of Appointed Officials Administrative Services Linda Dixon Aging and Long-Term Care Helen Bradley Community Services Steve Hill Cooperative Extension Christine Jackson Department of Corrections Steve Robertson Employment and Training Patrick Baldoz Facilities Services Brad Songhurst Food Services Gerald Baldoz Horticulturist Mike Klaus Public Services Vern Redifer Purchasing Deborah Anderson Technology Services George Helton Youth Service Center Harold Delia

Yakima County Government Organizational Chart