WILLIAMSON COUNTY WATER, SEWER, IRRIGATION AND DRAINAGE DISTRICT NO. 3

Transcription

1 WILLIAMSON COUNTY WATER, SEWER, IRRIGATION AND DRAINAGE DISTRICT NO. 3 Financial Statements and Supplemental Information for the Year Ended September 30, 2012 and Independent Auditors Report

2 TABLE OF CONTENTS Annual Filing Affidavit... 1 Independent Auditors Report... 2 Management s Discussion and Analysis... MDA-1 Basic Financial Statements Page Statement of Net Assets and Governmental Funds Balance Sheet... FS-1 Statement of Activities and Governmental Funds Revenues, Expenditures and Changes in Fund Balances... FS-2 Notes to the Basic Financial Statements... FS-3 Required Supplemental Information Budgetary Comparison Schedule... FS-18 Texas Supplemental Information (TSI) Services and Rates... TSI-1 General Fund Expenditures... TSI-2 Temporary Investments... TSI-3 Taxes Levied and Receivable... TSI-4 Long-Term Debt Service Requirements - By Years... TSI-5 Changes in Long-Term Bonded Debt... TSI-6 Comparative Schedule of Revenues and Expenditures General Fund and Debt Service Fund - Five Years... TSI-7 Board Members, Key Personnel and Consultants... TSI-8 Other Supplemental Information (OSI) Principal Taxpayers... OSI-1 Assessed Value by Classification... OSI-2

3 ANNUAL FILING AFFIDAVIT

4 ANNUAL FILING AFFIDAVIT STATE OF TEXAS COUNTY OF WILLIAMSON I, of the (Name of Duly Authorized District Representative) WILLIAMSON COUNTY WATER, SEWER, (Name of District) hereby swear, or affirm, that the District above has reviewed and approved at a meeting of the District s Board of Directors on the 13th day of February, 2013, its annual audit report for the fiscal year ended September 30, 2012 and that copies of the annual audit report have been filed in the District s office, located at: 100 Congress Ave., Suite 1300 Austin, Texas (Address of District s Office) This filing affidavit and the attached copy of the audit report will be submitted to the Texas Commission on Environmental Quality to satisfy the annual filing requirements of Texas Water Code Section Date:, By: (Signature of Representative) (Typed Name and Title of District Representative) Sworn to and subscribed to before me this day of,. (SEAL) (Signature of Notary) My Commission Expires On:,. Notary Public in the State of Texas Form TCEQ-0723 (Revised 10/2003) 1

5 INDEPENDENT AUDITORS REPORT

6 MAXWELL LOCKE & RITTER L L P Accountants and Consultants An Affiliate of CPAmerica International tel (512) fax (512) Austin: 401 Congress Avenue, Suite 1100 Austin, TX INDEPENDENT AUDITORS REPORT Round Rock: 303 East Main Street Round Rock, TX To the Board of Directors of Williamson County Water, Sewer, Irrigation and Drainage District No. 3: We have audited the accompanying financial statements of the governmental activities and each major fund of Williamson County Water, Sewer, Irrigation and Drainage District No. 3 (the District ) as of and for the year ended September 30, 2012, which collectively comprise the District s basic financial statements as listed in the table of contents. These financial statements are the responsibility of the District s management. Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinions. In our opinion, the financial statements referred to previously present fairly, in all material respects, the respective financial position of the governmental activities and each major fund of the District as of September 30, 2012, and the respective changes in financial position for the year then ended in conformity with accounting principles generally accepted in the United States of America. Accounting principles generally accepted in the United States of America require that the management s discussion and analysis and budgetary comparison information on pages MDA-1 through MDA-7 and FS-18, respectively, 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 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. Affiliated Company ML& R WEALTH MANAGEMENT L L C A Registered Investment Advisor This firm is not a CPA firm

7 Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the District s basic financial statements. The Texas supplemental information and other supplemental information listed in the table of contents is presented for purposes of additional analysis and is not a required part of the basic financial statements. Such information 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. The Texas supplemental information listed in the table of contents has been subjected to the auditing procedures applied in the audit of the basic financial statements and 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. In our opinion, the Texas supplemental information listed in the table of contents is fairly stated in all material respects in relation to the basic financial statements as a whole. The other supplemental information listed in the table of contents has 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. February 12, 2013

8 MANAGEMENT S DISCUSSION AND ANALYSIS

9 IRRIGATIONAND DRAINAGE DISTRICT NO. 3 MANAGEMENT S DISCUSSION AND ANALYSIS In accordance with Governmental Accounting Standards Board Statement 34 ( GASB 34 ), the management of Williamson County Water, Sewer, Irrigation and Drainage District No. 3 (the District ) offers the following discussion and analysis to provide an overview of the District s financial activities for the year ended September 30, Since this information is designed to focus on current year s activities, resulting changes, and currently known facts, it should be read in conjunction with the District s financial statements that follow. FINANCIAL HIGHLIGHTS General Fund: At the end of the current fiscal year, the fund balance was $1,434,306, an increase of $169,452 from the previous fiscal year. General Fund revenues increased from $1,807,246 in the previous fiscal year to $1,880,139 in the current fiscal year due to an increase in service revenues. Debt Service Fund: Fund balance restricted for debt service decreased from $651,399 in the previous fiscal year to $627,701 in the current fiscal year. Debt Service Fund revenues increased from $1,322,854 in the previous fiscal year to $1,557,373 in the current fiscal year due to an increase in the District assessed valuation. Capital Projects Fund: Fund balance restricted for capital projects increased from $60,200 in the previous fiscal year to $133,141 in the current fiscal year. The District issued $2,000,000 of Series 2011 Unlimited Tax Bonds during the current fiscal year. The Capital Projects Fund received $1,816,079 of bond proceeds and expended $1,743,369 for the purchase of infrastructure and bond issue costs. Governmental Activities: On a government-wide basis for governmental activities, the District had expenses net of revenues of $1,117,703. Net assets decreased from a deficit balance of $348,114 to a deficit balance of $1,465,817. OVERVIEW OF THE DISTRICT The District is a political subdivision of the State of Texas created by an order of the Texas State Legislature passed by the 70 th Legislature on May 15, The District operates under Chapters 49 and 54 of the Texas Water Code, as amended. The District consists of approximately 684 acres of land. The District is located in southeast Williamson County and northeast Travis County and lies fully within the exclusive extraterritorial jurisdiction of the City of Hutto. The District is divided among three school districts, Hutto Independent School District, Pflugerville Independent School District and Round Rock Independent School District. Access to the District is provided along FM 685. The District was created to provide retail water, wastewater and drainage services to the lands within the District. MDA-1

10 IRRIGATIONAND DRAINAGE DISTRICT NO. 3 MANAGEMENT S DISCUSSION AND ANALYSIS USING THIS ANNUAL REPORT This annual report consists of five parts: 1. Management s Discussion and Analysis (this section) 2. Basic Financial Statements 3. Notes to Basic Financial Statements 4. Required Supplementary Information 5. Texas Supplemental Information (required by the Texas Commission on Environmental Quality (the TSI section)) 6. Other Supplementary Information (the OSI section) For purposes of GASB 34, the District is considered a special purpose government. This allows the District to present the required fund and government-wide statements in a single schedule. The requirement for fund financial statements that are prepared on the modified accrual basis of accounting is met with the Governmental Funds Total column. An adjustment column includes those entries needed to convert to the full accrual basis government-wide statements. Government-wide statements are comprised of the Statement of Net Assets and the Statement of Activities. OVERVIEW OF THE BASIC FINANCIAL STATEMENTS The Statement of Net Assets and Governmental Funds Balance Sheet includes a column (titled Governmental Funds Total ) that represents a balance sheet prepared using the modified accrual basis of accounting. This method measures cash and all other financial assets that can be readily converted to cash. The adjustments column converts those balances to a balance sheet that more closely reflects a private-sector business. Over time, increases or decreases in the District s net assets will indicate financial health. The Statement of Activities and Governmental Funds Revenues, Expenditures and Changes in Fund Balances includes a column (titled Governmental Funds Total ) that derives the change in fund balances resulting from current year revenues, expenditures, and other financing sources or uses. These amounts are prepared using the modified accrual basis of accounting. The adjustments column converts those activities to full accrual, a basis that more closely represents the income statement of a privatesector business. The Notes to the Basic Financial Statements provide additional information that is essential to a full understanding of the information presented in the Statement of Net Assets and Governmental Funds Balance Sheet and the Statement of Activities and Governmental Funds Revenues, Expenditures, and Changes in Fund Balances. The Required Supplemental Information presents a comparison statement between the District s adopted budget and its actual results. MDA-2

11 IRRIGATIONAND DRAINAGE DISTRICT NO. 3 MANAGEMENT S DISCUSSION AND ANALYSIS FINANCIAL ANALYSIS OF THE DISTRICT AS A WHOLE Statement of Net Assets: The following table reflects the condensed Statement of Net Assets: Summary Statement of Net Assets Governmental Activities Change Increase (Decrease) Current and other assets $ 2,585,020 $ 2,382,998 $ 202,022 Capital and non-current assets 19,911,104 18,822,670 1,088,434 Total Assets 22,496,124 21,205,668 1,290,456 Current Liabilities 1,196,921 1,075, ,420 Long-term Liabilities 22,765,020 20,478,281 2,286,739 Total Liabilities 23,961,941 21,553,782 2,408,159 Invested in Capital Assets net of related debt (3,450,775) (2,180,411) (1,270,364) Restricted 549, ,881 (17,021) Unrestricted 1,435,098 1,265, ,682 Total Net Assets $ (1,465,817) $ (348,114) $ (1,117,703) The District s combined net assets decreased by $1,117,703 to a deficit balance of $1,465,817 from the previous year deficit balance of $348,114. Some of these assets are accounted for by capital assets or restricted for debt service. The District s unrestricted net assets, which can be used to finance day to day operations, totaled $1,435,098. MDA-3

12 Revenues and Expenses: WILLIAMSON COUNTY WATER, SEWER, IRRIGATIONAND DRAINAGE DISTRICT NO. 3 MANAGEMENT S DISCUSSION AND ANALYSIS Summary Statement of Activities Governmental Activities Change Increase (Decrease) Service accounts $ 1,603,979 $ 1,525,765 $ 78,214 Property taxes 1,715,007 1,490, ,886 Other 122, ,585 13,569 Total Revenues 3,441,140 3,124, ,669 Water/wastewater/garbage 1,234,861 1,169,984 64,877 Other 490, ,128 49,054 Debt service 1,094,568 1,144,022 (49,454) Depreciation/amortization 1,739, ,990 1,095,242 Total Expenses 4,558,843 3,399,124 1,159,719 Change in Net Assets (1,117,703) (274,653) (843,050) Beginning Ne t Asse ts (348,114) (73,461) (274,653) Ending Net Assets $ (1,465,817) $ (348,114) $ (1,117,703) Revenues were $3,441,140 for the fiscal year ended September 30, 2012 while expenses were $4,558,843. Net assets decreased by $1,117,703. Property taxes totaled $1,715,007. Included in these taxes are real and personal property taxes which are assessed October 1 and payable before the following January 31. The District s assessed value in fiscal year 2012 was approximately $210 million compared to $193 million in fiscal year The tax rate is set after reviewing the operating and debt service requirements and appraised values determined by Williamson and Travis Counties. The ad valorem tax rate for fiscal year 2012 was $0.815 per $100 assessed valuation compared to a tax rate of $0.815 for fiscal year The District s primary revenue sources are service account fees and property taxes. MDA-4

13 IRRIGATIONAND DRAINAGE DISTRICT NO. 3 MANAGEMENT S DISCUSSION AND ANALYSIS ANALYSIS OF GOVERNMENTAL FUNDS Governmental Funds by Year Cash $ 502,360 $ 546,069 $ 349,325 $ 163,400 Cash equivalents/investments 1,849,878 1,605,210 2,102,531 2,521,876 Receivables 295, , , ,650 Total Assets $ 2,647,341 $ 2,436,964 $ 2,713,264 $ 3,664,926 Accounts payable 174, , , ,665 Other payables 277, , ,677 1,247,154 Total Liabilities 452, , ,894 1,404,819 Restricted 760, ,599 1,103,178 1,221,085 Assigned - 66, Unassigned 1,434,306 1,198,025 1,270,192 1,039,022 Total Fund Balance 2,195,148 1,976,453 2,373,370 2,260,107 Total Liabilities and Fund Balances $ 2,647,341 $ 2,436,964 $ 2,713,264 $ 3,664,926 For the fiscal year ended September 30, 2012, the District s governmental funds reflect a combined fund balance of $2,195,148. This fund balance includes a $169,452 increase to the General Fund. The Debt Service Fund reflects a decrease of $23,698 in fiscal year The Debt Service Fund remitted bond principal of $655,000 and interest of $1,094,978. The Debt Service Fund received $183,921 of bond proceeds from the District s Series 2011 Unlimited Tax Bonds. Additionally, the District issued $8,290,000 of Series 2012 Unlimited Tax Refunding Bonds to defease $3,055,000 of Series 2006 bonds, $3,550,000 of Series 2007 bonds and $780,000 of Series 2008 bonds. More detailed information about the District s debt is presented in the Notes to the Basic Financial Statements. The Capital Project Fund purchases the District s infrastructure. The Capital Projects Fund had a $72,941 increase in fund balance for fiscal year During the fiscal year, the District purchased $1,743,369 of water, wastewater, and drainage assets as well as bond issuance expenditures. BUDGETARY HIGHLIGHTS The General Fund pays for daily operating expenditures. The Board of Directors adopted a budget on September 14, 2011, including revenues of $1,670,314 as compared to expenses of $1,737,143. When comparing actual to budget, the District had a positive variance of $236,281. More detailed information about the District s budgetary comparison is presented in the Required Supplementary Information. MDA-5

14 CAPITAL ASSETS WILLIAMSON COUNTY WATER, SEWER, IRRIGATIONAND DRAINAGE DISTRICT NO. 3 MANAGEMENT S DISCUSSION AND ANALYSIS The District s governmental activities had invested $18,457,860 in infrastructure. The detail is reflected in the following schedule: Summary of Capital Assets, net 9/30/2012 9/30/2011 Capital Assets: Water/Wastewater/Drainage $ 19,998,450 $ 18,488,065 Less: Accumulated Depreciation (1,540,590) (1,132,619) Total Net Capital Assets $ 18,457,860 $ 17,355,446 More detailed information about the District s capital assets is presented in the Notes to the Basic Financial Statements. LONG TERM DEBT The District has the following balances outstanding on unlimited tax bonds: Bonds Payable Series 2006 $ 390,000 Series ,975,000 Series ,000 Series ,600,000 Series ,160,000 Series 2010A 2,490,000 Series ,995,000 Series ,225,000 Total $ 24,610,000 The District owes approximately $24.6 million to bond holders. During the year, the principal balance was reduced by $655,000. More detailed information about the District s long-term debt is presented in the Notes to the Basic Financial Statements. MDA-6

15 IRRIGATIONAND DRAINAGE DISTRICT NO. 3 MANAGEMENT S DISCUSSION AND ANALYSIS CURRENTLY KNOWN FACTS, DECISIONS, OR CONDITIONS The property tax assessed value for 2012 is approximately $241 million. The fiscal year 2013 tax rate is $0.815 on each $100 of taxable value. Approximately 16% of the property tax will fund general operating expenses, and approximately 84% of the property tax will be set aside for debt service. The adopted budget for fiscal year 2013 projects an operating fund balance increase of $128,129. REQUESTS FOR INFORMATION This financial report is designed to provide a general overview of the District s finances and to demonstrate the District s accountability for the funds it receives. Questions concerning any of the information provided in this report or requests for additional financial information should be addressed to the District in care of Armbrust & Brown, PLLC, 100 Congress Avenue, Suite 1300, Austin, Texas MDA-7

16 BASIC FINANCIAL STATEMENTS

17 STATEMENT OF NET ASSETS AND GOVERNMENTAL FUNDS BALANCE SHEET ASSETS Government - Debt Capital Governmental wide General Service Projects Funds Adjustments Statement of Fund Fund Fund Total Note 2 Net Assets Cash and cash equivalents Cash on deposit $ 502,360 $ - $ - $ 502,360 $ - $ 502,360 Cash equivalents 292, , , , ,878 Investments 735, , , ,000 Receivables - Property taxes 792 7,312-8,104-8,104 Service accounts, no provision for uncollectible accounts 218, , ,687 Interest 1, ,796-1,796 Interfund 61,121-1,200 62,321 (62,321) - Other 4, ,195-4,195 Deferred charges, net of accumulated amortization ,453,244 1,453,244 Capital assets, net of accumulated depreciation - Water/wastewater/drainage facilities ,457,860 18,457,860 TOTAL ASSETS $ 1,815,557 $ 639,605 $ 192,179 $ 2,647,341 19,848,783 22,496,124 LIABILITIES Accounts payable $ 174,640 $ - $ - $ 174,640 $ - $ 174,640 Accrued interest payable ,153 85,153 Deferred revenue - taxes 792 7,312-8,104 (8,104) - Refundable deposits 199, , ,675 Interfund payables - 4,592 57,729 62,321 (62,321) - Intergovernmental payable 6, ,144-6,144 Due to developer - - 1,309 1,309-1,309 Bonds payable - Due within one year , ,000 Due after one year ,765,020 22,765,020 TOTAL LIABILITIES 381,251 11,904 59, ,193 23,509,748 23,961,941 FUND BALANCE / NET ASSETS Fund balances: Restricted for debt service - 627, ,701 (627,701) - Restricted for capital projects , ,141 (133,141) - Unassigned 1,434, ,434,306 (1,434,306) - TOTAL FUND BALANCES 1,434, , ,141 2,195,148 (2,195,148) - TOTAL LIABILITIES AND FUND BALANCES $ 1,815,557 $ 639,605 $ 192,179 $ 2,647,341 Net assets: Invested in capital assets, net of related debt (3,450,775) (3,450,775) Restricted for debt service 549, ,860 Unrestricted 1,435,098 1,435,098 TOTAL NET ASSETS $ (1,465,817) $ (1,465,817) The accompanying notes are an integral part of this statement. FS-1

18 STATEMENT OF ACTIVITIES AND GOVERNMENTAL FUNDS REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE Government - Debt Capital Governmental wide General Service Projects Funds Adjustments Statement of Fund Fund Fund Total Note 2 Activities REVENUES: Service revenues, including penalties $ 1,603,979 $ - $ - $ 1,603,979 $ - $ 1,603,979 System connection / inspection fees 111, , ,850 Property taxes, including penalties 158,640 1,552,970-1,711,610 3,397 1,715,007 Interest 5,600 4, ,234-10,234 Other TOTAL REVENUES 1,880,139 1,557, ,437,743 3,397 3,441,140 EXPENDITURES / EXPENSES: Current: Water / wastewater purchases 1,116, ,116,796-1,116,796 Garbage collection fees 118, , ,065 Tap connection / inspection 43, ,825-43,825 Repairs and maintenance 108, , ,365 Utilities 41, ,646-41,646 Director fees, including payroll taxes and reimbursements 8, ,235-8,235 Legal fees 63, ,042-63,042 Engineering fees 36, ,256-36,256 Operations / management fees 104, , ,314 Bookkeeping fees 24, ,750-24,750 Audit fees 18, ,000-18,000 Insurance 2, ,065-2,065 Tax appraisal / collection 1,208 11,936-13,144-13,144 Financial advisor fees 244 2,407-2,651-2,651 Other 23, ,889-23,889 Debt service: Principal - 655, ,000 (655,000) - Interest - 1,094,978-1,094,978 (3,510) 1,091,468 Fiscal agent fees and other - 3,100-3,100-3,100 Bond issuance costs - 388, , ,561 (621,561) - Capital outlay - - 1,510,385 1,510,385 (1,510,385) - Depreciation , ,971 Amortization ,331,261 1,331,261 TOTAL EXPENDITURES / EXPENSES 1,710,687 2,156,011 1,743,369 5,610,067 (1,051,224) 4,558,843 Excess / (deficiency) of revenues over expenditures 169,452 (598,638) (1,743,138) (2,172,324) 1,054,621 (1,117,703) OTHER FINANCING SOURCES/(USES): Bond proceeds - 183,921 1,816,079 2,000,000 (2,000,000) - Bond premium - 283, ,368 (283,368) - Proceeds from bond refunding - 8,290,000-8,290,000 (8,290,000) - Payment to escrow agent - (8,182,349) - (8,182,349) 8,182,349 - TOTAL OTHER FINANCING SOURCES/(USES) - 574,940 1,816,079 2,391,019 (2,391,019) - Excess / (deficiency) of revenues and other financing sources over (under) expenditures and other financing uses 169,452 (23,698) 72, ,695 (1,336,398) (1,117,703) FUND BALANCE / NET ASSETS: Beginning of the year 1,264, ,399 60,200 1,976,453 (2,324,567) (348,114) End of the year $ 1,434,306 $ 627,701 $ 133,141 $ 2,195,148 $ (3,660,965) $ (1,465,817) The accompanying notes are an integral part of this statement. FS-2

19 NOTES TO THE BASIC FINANCIAL STATEMENTS

20 NOTES TO THE BASIC FINANCIAL STATEMENTS 1. SIGNIFICANT ACCOUNTING POLICIES The accounting and reporting policies of Williamson County Water, Sewer, Irrigation and Drainage District No. 3 (the District ) relating to the funds included in the accompanying financial statements conform to generally accepted accounting principles ( GAAP ) as applied to governmental entities. GAAP for local governments include those principles prescribed by the Governmental Accounting Standards Board ( GASB ), which constitutes the primary source of GAAP for governmental units. The more significant of these accounting policies are described below and, where appropriate, subsequent pronouncements will be referenced. Reporting Entity - The District was created by an order of the Texas State Legislature and passed by the 70 th Legislature on May 15, The District operates under Chapters 49 and 54 of the Texas Water Code pursuant to Article 16, Section 59 of the Texas Constitution. The reporting entity of the District encompasses those activities and functions over which the District s elected officials exercise significant oversight or control. The District is governed by a five member Board of Directors (the Board ) which has been elected by District residents or appointed by the Board. The District is not included in any other governmental reporting entity as defined by GASB Statement No. 14, since Board members are elected by the public and have decision making authority, the power to designate management, the responsibility to significantly influence operations and primary accountability for fiscal matters. In addition, there are no component units as defined in GASB Statement No. 14 which are included in the District s reporting entity. Basis of Presentation - Government-wide and Fund Financial Statements - The basic financial statements are prepared in conformity with GASB Statement No. 34, and include a column for government-wide (based upon the District as a whole) and fund financial statement presentations. GASB Statement No. 34 also requires as supplementary information Management s Discussion and Analysis, which includes an analytical overview of the District s financial activities. In addition, a budgetary comparison statement is presented that compares the adopted General Fund budget with actual results. Government-wide Financial Statements: The District s Statement of Net Assets includes both non-current assets and non-current liabilities of the District, which were previously recorded in the General Fixed Assets Account Group and the General Long-Term Debt Account Group. In addition, the government-wide Statement of Activities column reflects depreciation expense on the District s capital assets, including infrastructure. The government-wide focus is more on the sustainability of the District as an entity and the change in aggregate financial position resulting from financial activities of the fiscal period. The focus of the fund financial statements is on the individual funds of the governmental categories. Each presentation provides valuable information that can be analyzed and compared to enhance the usefulness of the information. FS-3

21 NOTES TO THE BASIC FINANCIAL STATEMENTS 1. SIGNIFICANT ACCOUNTING POLICIES (continued) - Fund Financial Statements: Fund based financial statement columns are provided for governmental funds. GASB Statement No. 34 sets forth minimum criteria (percentage of assets, liabilities, revenues or expenditures of either fund category) for the determination of major funds. All of the District s funds are reported as major funds. Governmental Fund Types - The accounts of the District are organized and operated on the basis of funds, each of which is considered to be a separate accounting entity. The operations of each fund are accounted for with a self-balancing set of accounts that comprise its assets, liabilities, fund balances, revenues and expenditures. The various funds are grouped by category and type in the financial statements. The District maintains the following fund types: General Fund - The General Fund accounts for financial resources in use for general types of operations which are not encompassed within other funds. This fund is established to account for resources devoted to financing the general services that the District provides for its residents. Tax revenues and other sources of revenue used to finance the fundamental operations of the District are included in this fund. Debt Service Fund - The Debt Service Fund is used to account for the accumulation of resources for, and the payment of, debt principal, interest and related costs. Capital Projects Fund - The Capital Projects Fund is used to account for financial resources to be used for the acquisition or construction of major capital facilities. Non-current Governmental Assets and Liabilities - GASB Statement No. 34 eliminates the presentation of Account Groups, but provides for these records to be maintained and incorporates the information into the government-wide financial statement column in the Statement of Net Assets. Basis of Accounting Governmental Funds Government-wide Statements - The government-wide financial statement column is reported using the economic resources measurement focus and the accrual basis of accounting. Revenues are recorded when earned and expenses are recorded when a liability is incurred, regardless of the timing of the related cash flows. Property taxes are recognized as revenues in the year for which they are levied. FS-4

22 NOTES TO THE BASIC FINANCIAL STATEMENTS 1. SIGNIFICANT ACCOUNTING POLICIES (continued) - Governmental Funds (continued) - Fund Financial Statements - The accounting and financial reporting treatment applied to a fund is determined by its measurement focus. All governmental fund types are accounted for using a current financial resources measurement focus. With this measurement focus, only current assets and current liabilities generally are included on the balance sheet. Operating statements of these funds present increases (i.e., revenues and other financing sources) and decreases (i.e., expenditures and other financing uses) in the net current assets. Governmental funds are accounted for on the modified accrual basis of accounting. Under the modified accrual basis of accounting, revenues are recorded when susceptible to accrual (i.e., both measurable and available). Measurable means that the amount of the transaction can be determined and available means the amount of the transaction is collectible within the current period or soon enough thereafter to be used to pay liabilities of the current period. Expenditures, if measurable, are generally recognized on the accrual basis of accounting when the related fund liability is incurred. Exceptions to this general rule include the unmatured principal and interest on general obligation long-term debt which is recognized when due. This exception is in conformity with generally accepted accounting principles. Property tax revenues are recognized when they become available. In this case, available means when due, or past due and receivable within the current period and collected within the current period or soon enough thereafter to be used to pay liabilities of the current period. Such time thereafter shall not exceed 60 days. Tax collections expected to be received subsequent to the 60-day availability period are reported as deferred revenue. All other revenues of the District are recorded on the accrual basis in all funds. No accrual for property taxes collected within sixty days of year end has been made as such amounts are deemed immaterial; delinquent property taxes at year end are reported as deferred revenue. The District reports deferred revenue on its combined balance sheet. Deferred revenues arise when a potential revenue does not meet both the measurable and available criteria for recognition in the current period. In subsequent periods, when revenue recognition criteria are met, the liability for deferred revenue is removed from the combined balance sheet and revenue is recognized. FS-5

23 NOTES TO THE BASIC FINANCIAL STATEMENTS 1. SIGNIFICANT ACCOUNTING POLICIES (continued) - Budgets and Budgetary Accounting - A budget was adopted on September 14, 2011, for the General Fund on a basis consistent with generally accepted accounting principles. The District s Board utilizes the budget as a management tool for planning and cost control purposes. All annual appropriations lapse at fiscal year-end. Cash and Cash Equivalents - Cash and cash equivalents include cash on deposit as well as investments with maturities of three months or less. The investments, consisting of obligations in the State Treasurer s Investment Pool are recorded at cost, which approximates fair market value. Capital Assets - Capital assets, which include Water, Wastewater and Drainage Facilities, are reported in the government-wide column in the Statement of Net Assets. Public domain ( infrastructure ) capital assets including water, wastewater and drainage facilities, are capitalized. Items purchased or acquired are reported at historical cost or estimated historical cost. Contributed fixed assets are recorded as capital assets at estimated fair market value at the time received. Interest incurred during construction of capital facilities is not capitalized. Capital assets are depreciated using the straight-line method over the following estimated useful lives: Asset Years Water, Wastewater and Drainage Facilities Interfund Transactions - Transfers from one fund to another fund are reported as interfund receivables and payables if there is intent to repay that amount and if the debtor fund has the ability to repay the advance on a timely basis. Operating transfers represent legally authorized transfers from the fund receiving resources to the fund through which the resources are to be expended. Long-Term Debt - Combination unlimited tax bonds, which have been issued to fund capital projects, are to be repaid from tax revenues of the District. In the government-wide financial statements, long-term debt and other long-term obligations are reported as liabilities in the applicable governmental activities. Bond premiums and discounts, as well as issuance costs, are deferred and amortized over the life of the bonds using the straight line method. Bonds payable are reported net of the applicable bond premium or discount. Bond issuance costs are reported as deferred charges and amortized over the term of the related debt. 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 and discounts on debt issuances are reported as other financing sources and uses. Issuance costs, whether or not withheld from the actual debt proceeds received, are reported as expenditures. FS-6

24 NOTES TO THE BASIC FINANCIAL STATEMENTS 1. SIGNIFICANT ACCOUNTING POLICIES (continued) - Fund Equity - The District complies with GASB Statement No. 54, Fund Balance Reporting and Governmental Fund Type Definitions, which establishes fund balance classifications that comprise a hierarchy based primarily on the extent to which a government is bound to observe constraints imposed upon the use of the resources reported in governmental funds. See Note 10 for additional information on those fund balance classifications. Accounting Estimates - The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenditures during the reporting period. Actual results could differ from those estimates. Recently Issued Accounting Pronouncements - In June 2011, the GASB issued GASB Statement No. 63, Financial Reporting of Deferred Outflows of Resources, Deferred Inflows of Resources, and Net Position, effective for fiscal years beginning after December 15, The objective of GASB Statement No. 63 is to provide financial reporting guidance for deferred outflows of resources and deferred inflows of resources. GASB Concepts Statement No. 4, Elements of Financial Statements, introduced and defined those elements as a consumption of net assets by the government that is applicable to a future reporting period, and an acquisition of net assets 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. Concepts Statement No. 4 also identifies net position as the residual of all other elements presented in a statement of financial position. This Statement amends the net asset reporting requirements in GASB Statement No. 334, Basic Financial Statements - and Management s Discussion and Analysis - for State and Local Governments, and other pronouncements by incorporating deferred outflows of resources and deferred inflows of resources into the definitions of the required components of the residual measure and by renaming that measure as net position, rather than net assets. Management is still evaluating the effects that the full implementation of GASB Statement No. 63 will have on its financial statement for the year ended September 30, In March 2012, the GASB issued GASB Statement No. 65, Items Previously Reported as Assets and Liabilities, effective for fiscal years beginning after December 15, The objective of GASB Statement No. 65 is to establish accounting and financial reporting standards that reclassify, as deferred outflows of resources or deferred inflows of resources, certain items that were previously reported as assets and liabilities and to recognize, as outflows of resources or inflows of resources, certain items that were previously reported as assets and liabilities, such as deferred bond issuance costs. Management is still evaluating the effects that the full implementation of GASB Statement No. 65 will have on its financial statement for the year ended September 30, FS-7

25 NOTES TO THE BASIC FINANCIAL STATEMENTS 2. RECONCILIATION OF THE GOVERNMENTAL FUNDS Adjustments to convert the Governmental Funds Balance Sheet to the Statement of Net Assets are as follows: Fund balances - total governmental funds $ 2,195,148 Capital assets used in governmental activities are not financial resources and, therefore, are not reported in the governmental funds - Deferred charges, net of accumulated amortization 1,453,244 Governmental capital assets 19,998,450 Less: Accumulated depreciation (1,540,590) 18,457,860 Revenue is recognized when earned in the government-wide statements, regardless of availability. Governmental funds report deferred revenue for revenues earned but not available. 8,104 Long-term liabilities are not due and payable in the current period and, therefore, are not reported in the government funds - Bonds payable (24,610,000) Issuance discounts, net 293,438 Issuance premium, net (274,668) Deferred charges, net of accumulated amortization 1,096,210 Accrued interest payable (85,153) (23,580,173) Net assets of governmental activities $ (1,465,817) FS-8

26 NOTES TO THE BASIC FINANCIAL STATEMENTS 2. RECONCILIATION OF THE GOVERNMENTAL FUNDS (continued) - Adjustments to convert the Governmental Funds, Revenues, Expenditures and Changes in Fund Balances to the Statement of Activities are as follows: Changes in Fund Balances - Governmental Funds $ 218,695 Amounts reported for governmental activities in the Statement of Activities are different because: Governmental funds report - Capital expenditures in year paid 1,510,385 Bond issuance costs in year paid 621,561 Bond principal in year paid 655,000 Interest expenditures in year paid 3,510 Tax revenue when collected 3,397 Bond sales and related bond premium as other financing sources/(uses) (2,391,019) 402,834 Governmental funds do not report - Depreciation (407,971) Amortization (1,331,261) (1,739,232) Changes in net assets of governmental activities $ (1,117,703) 3. CASH AND INVESTMENTS The investment policies of the District are governed by State statute and an adopted District Investment Policy that includes depository contract provisions and custodial contract provisions. Major provisions of the District s investment policy include: depositories must be FDIC-insured Texas banking institutions; depositories must fully insure or collateralize all demand and time deposits; securities collateralizing time deposits are held by independent third party trustees. Cash - At September 30, 2012, the carrying amount of the District's deposits was $502,360 and the bank balance was $600,912. The bank balance was covered by federal depository insurance and other pledged collateral. Investments - Interest rate risk. In accordance with its investment policy, the District manages its exposure to declines in fair values through investment diversification and limiting investments as follows: Money market mutual funds are required to have weighted average maturities of 90 days or fewer; and Other mutual fund investments are required to have weighted average maturities of less than two years. FS-9

27 NOTES TO THE BASIC FINANCIAL STATEMENTS 3. CASH AND INVESTMENTS (continued) - Credit risk. The District s investment policy requires the application of the prudent-person rule: Investments are made as a prudent person would be expected to act, with discretion and intelligence, and considering the probable safety of their capital as well as the probable income to be derived. The District s investment policy requires that District funds be invested in: Obligations of the United States Government and/or its agencies and instrumentalities; Money market mutual funds with investment objectives of maintaining a stable net asset value of $1 per share; Mutual funds rated in one of the three highest categories by a nationally recognized rating agency; and Securities issued by a State or local government or any instrumentality or agency thereof, in the United States, and rated in one of the three highest categories by a nationally recognized rating agency; and Public funds investment pools rated AAA or AAA-m by a nationally recognized rating agency. At September 30, 2012, the District held the following investments: Investment Fair Market Value at 9/30/2012 Investment Rating Weighted Average Maturity (Days) Rating Rating Agency TexPool $ 423,923 1 AAA Standard & Poors Money Market 445,955 1 Various Various Certificates of Deposit 980, Various Various $ 1,849,878 FS-10

28 NOTES TO THE BASIC FINANCIAL STATEMENTS 3. CASH AND INVESTMENTS (continued) - The Comptroller of Public Accounts is the sole officer and director of the Texas Treasury Safekeeping Trust Company, which is authorized to operate the Texas Local Government Investment Pool ( TexPool ). Although TexPool is not registered with the SEC as an investment company, they operate in a manner consistent with the SEC s Rule 2a-7 of the Investment Company Act of These investments are stated at fair value which is the same as the value of the pool shares. TexPool also has an advisory board to advise on TexPool s investment policy. This board is made up equally of participants and nonparticipants who do not have a business relationship with TexPool. Federated Investors is the investment manager for the pool and manages daily operations of TexPool under a contract with the Comptroller. TexPool s investment policy stipulates that it must invest in accordance with the Public Funds Investment Act. Concentration of credit risk. In accordance with the District s investment policy, investments in individual securities are to be limited to ensure that potential losses on individual securities do not exceed the income generated from the remainder of the portfolio. As of September 30, 2012, the District did not own any investments in individual securities. Custodial credit risk-deposits. Custodial credit risk is the risk that in the event of a bank failure, the District s deposits may not be returned to it. The government s investment policy requires that the District s deposits be fully insured by FDIC insurance or collateralized with Obligations of the United States or its agencies and instrumentalities. As of September 30, 2012, the District s bank deposits were covered by FDIC insurance and other pledged collateral. 4. PROPERTY TAXES Property taxes attach as an enforceable lien on January 1. Taxes are levied on or about October 1, are due on November 1, and are past due the following February 1. The Williamson County Appraisal District and Travis County Appraisal District established appraisal values in accordance with requirements of the Texas Legislature. The District levies taxes based upon the appraised values. The Williamson County Tax Assessor Collector and Travis County Tax Collector bills and collects the District's property taxes. The Board set current tax rates on September 14, The property tax rates, established in accordance with state law, were based on 100% of the net assessed valuation of real property within the District on the 2011 tax roll. The tax rate, based on total taxable assessed valuation of $209,800,052 was $0.815 on each $100 valuation and was allocated to the General Fund and Debt Service Fund at $ and $0.7401, respectively. The maximum allowable maintenance tax of $1.00 was established by the voters on November 13, FS-11

29 NOTES TO THE BASIC FINANCIAL STATEMENTS 4. PROPERTY TAXES (continued) - Property taxes receivable at September 30, 2012, consisted of the following: General Debt Service Fund Fund Total Current year levy $ 598 $ 5,915 $ 6,513 Prior years' levies 194 1,397 1,591 $ 792 $ 7,312 $ 8,104 The District is prohibited from writing off real property taxes without specific authority from the Texas Legislature. 5. CHANGES IN CAPITAL ASSETS A summary of changes in capital assets follows: Balance Balance 10/1/2011 Additions Deletions 9/30/2012 Capital assets: Water/Wastewater/Drainage Facilities 18,488,065 1,510,385-19,998,450 Total capital assets 18,488,065 1,510,385-19,998,450 Less accumulated depreciation for: Water/Wastewater/Drainage Facilities (1,132,619) (407,971) - (1,540,590) Total accumulated depreciation (1,132,619) (407,971) - (1,540,590) Total capital assets, net of accumulated depreciation $ 17,355,446 $ 1,102,414 $ - $ 18,457,860 FS-12

30 NOTES TO THE BASIC FINANCIAL STATEMENTS 6. BONDED DEBT The following is a summary of bond transactions of the District for the year ended September 30, 2012: Combination Unlimited Tax and Revenue Bonds payable at October 1, 2011 $ 22,360,000 Bonds issued 10,290,000 Bonds refunded (7,385,000) Bonds retired (655,000) Bond discount, net of accumulated amortization (293,438) Bond premium, net of accumulated amortization 274,668 Deferred charge, net of accumulated amortization (1,096,210) Bonds payable at September 30, 2012 $ 23,495,020 Bonds payable at September 30, 2012, were comprised of the following issues: Unlimited Tax Bonds: $3,875, Unlimited Tax Bonds partially refunded and payable serially through the year 2015 at interest rates which range from 3.70% to 4.85%. $6,250, Unlimited Tax Bonds partially refunded and payable serially through the year 2031 at interest rates which range from 5.00% to 6.50%. $5,225, Unlimited Tax Bonds partially refunded and payable serially through the year 2017 at interest rates which range from 6.00% to 7.50%. $4,900, Unlimited Tax Bonds payable serially through the year 2033 at interest rates which range from 4.30% to 6.25%. $2,500, A Unlimited Tax Bonds payable serially through the year 2034 at interest rates which range from 2.00% to 5.10%. $2,000, Unlimited Tax Bonds payable serially through the year 2035 at interest rates which range from 2.75% to 4.50%. FS-13

31 NOTES TO THE BASIC FINANCIAL STATEMENTS 6. BONDED DEBT (continued) - Unlimited Tax Refunding Bonds: $4,350, Unlimited Tax Refunding Bonds payable serially through the year 2028 at interest rates which range from 3.00% to 4.70%. $8,290, Unlimited Tax Refunding Bonds payable serially through the year 2030 at interest rates which range from 2.00% to 4.00%. The annual requirements to amortize all bonded debt at September 30, 2012, including interest, are as follows: Year Ended Annual Requirements for All Series September 30, Principal Interest Total 2013 $ 730,000 $ 1,047,576 $ 1,777, ,000 1,010,877 1,750, , ,606 1,758, , ,687 1,766, , ,961 1,769, ,825,000 4,025,915 8,850, ,155,000 3,040,756 9,195, ,685,000 1,614,458 8,299, ,990, ,965 3,271,965 $ 24,610,000 $ 13,831,801 $ 38,441,801 $627,701 is available in the Debt Service Fund to service the bonded debt. Bonds authorized but not issued amounted to $16,400,000 at September 30, On December 22, 2011, the District issued $2,000,000 in Unlimited Tax Bonds, Series 2011, with interest rates ranging from 2.75% to 4.50%. The net proceeds of $1,782,443 (after payment of underwriting fees, insurance and other issuance costs) were deposited in the District s investment account to provide payments for capital assets and future debt service payments. FS-14