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9 ELKO COUNTY MANAGEMENT S DISCUSSION AND ANALYSIS JUNE 30, 2015 The County of Elko s (the County ) discussion and analysis is designed to (a) assist the reader in focusing on significant financial issues, (b) provide an overview of the County s financial activity, (c) identify changes in the County s financial position (its ability to address the next and subsequent year challenges), (d) identify any material deviations from the financial plan (the approved budget), and (e) identify individual fund issues or concerns. The Management s Discussion and Analysis ( MD&A ) is required as an element of the annual financial report by the Governmental Accounting Standards Board (GASB) and is designed to focus on the current year s activities, resulting changes and currently known facts. Please read it and the County s financial statements (beginning on page 4). FINANCIAL HIGHLIGHTS The assets of Elko County exceeded its liabilities at the close of the most recent fiscal year by $69.8 million (net position). The auditor s report offers an unmodified opinion on the financial statements, the best opinion that can be attained except for the effects of the discretely presented component unit the Agricultural Association District No. 4. The County s net position decreased by $41 million. The governmental net position decreased by $40 million primarily related to the recording of the net pension liability, deferred outflows and outflows related to pensions, and the business-type net position decreased by $1 million primarily related to the recording of the net pension liability, deferred outflows and outflows related to pensions. This is the first year of the adoption of GASB Statement No 68, Accounting and Financial Reporting for Pensions and GASB No. 71, Pension Transition for Contributions Made Subsequent to the Measurement Date. As of the close of the current fiscal year, Elko County s governmental funds reported the combined ending fund balances of $26.3 million, a decrease of $5 million in comparison with the prior year. Approximately 37% of the total amount is available for spending at the government s discretion. At the end of the current fiscal year unassigned fund balance for the general fund was $10,089,746, or 33% of total general fund expenditures. OVERVIEW OF THE FINANCIAL STATEMENTS The discussion and analysis are intended to serve as an introduction to Elko County s basic financial statements. Elko County s basic financial statements are comprised of three components: 1) government-wide financial statements, 2) fund financial statements, and 3) notes to the financial statements. This report also contains other supplementary information in addition to the basic financial statements themselves. Government-Wide Financial Statements DRAFT The government-wide financial statements are designed to be corporate-like in that all governmental and business-type activities are consolidated into columns which add to a total for the Primary Government. The focus of the Statement of Net position (the Unrestricted Net position ) is designed to be similar to bottom line results for the County and its governmental and business-type activities. This statement, combines and consolidates governmental fund s current financial resources (short-term spendable resources) with capital assets (including infrastructure) and long term obligations. Component Units, which are other governmental units over which the County can exercise influence and/or may be obligated to provide financial subsidy, are presented as a separate column in the government-wide statements. The focus of the statements are clearly on the Primary Government and the presentation allows the user to address the relative relationship with the Component Units. The Statement of Activities is focused on both the gross and net cost of various functions (including governmental, businesstype and component unit) which are supported by the government s general tax and other revenues. This is intended to summarize and simplify the user s analysis of cost of various governmental services and or subsidy to various business-type activities and/or component unit. The Governmental Activities reflects the County s basic services, on a functional basis. Departments included within those functions are identified in the General Fund Statement. Ad valorem, consolidated taxes and other identified general revenues 3a

10 ELKO COUNTY MANAGEMENT S DISCUSSION AND ANALYSIS JUNE 30, 2015 support the majority of these services. The Business-type Activities reflect private sector type operations (Water, Wastewater, Ambulance, Transit Services and Solid Waste Management), where the fee for service typically covers all or most of the cost of operation, including depreciation. Fund Financial Statements Traditional users of governmental financial statements will find the Fund Financial Statements presentation more familiar. The focus is on Major Funds, rather than fund types. The Governmental Major Fund presentation is presented on a sources and uses of liquid resources basis. This is the manner in which the financial plan (the budget) is typically developed. The flow and availability of liquid resources is a clear and appropriate focus of any analysis of a government. Funds are established for various purposes and the Fund Financial Statements allow the demonstration of sources and uses and/or budgeting compliance associated therewith. The Fund Financial Statements also allow the government to address its Fiduciary (or Trust) Funds summarized by type. While these Funds represent trust responsibilities of the government, these assets are restricted in purpose and do not represent discretionary assets of the government. Therefore, these assets are not presented as part of the Government-Wide Financial Statements. While the Total column on the Business-type Fund Financial Statements may be the same as the Business-type column at the Government-Wide Financial Statement, the Governmental Major Funds Total column requires a reconciliation because of the different measurement focus (current financial resources versus total economic resources) which is reflected on the page following each statement. The flow of current financial resources will reflect bond proceeds and inter-fund transfers as other financing sources, as well as capital purchases and bond principal payments as expenditures. The reconciliation will eliminate these transactions and incorporate the capital assets and long-term obligation into the Governmental Activities column (in the Government-wide statements). DRAFT 3b

11 ELKO COUNTY MANAGEMENT S DISCUSSION AND ANALYSIS JUNE 30, 2015 The following table reflects a summary of Net position compared to prior year: Table 1 Summary of Net position As of June 30, 2014 and 2013 Governmental Activities Business-type Activities Total Primary Government * * * Current and other assets $34,789,237 $38,824,452 $ 3,003,362 $ 2,760,869 $37,792,599 $41,585,321 Capital assets 75,687,843 74,536,561 9,665,107 10,046,582 85,352,950 84,583,143 Total assets 110,477, ,361,013 12,668,469 12,807, ,145, ,168,464 Deferred Outflows related related to Pensions 5,584, ,040-5,770,174 - Current and other liabilities 5,472,356 4,411, , ,937 5,653,910 4,735,026 Long-term liabilites 41,567,479 8,156,226 3,081,734 2,046,348 44,649,213 10,202,574 Total liabilities 47,039,835 12,567,315 3,263,288 2,370,285 50,303,123 14,937,600 Deferred inflows related To Pensions 8,525, ,032-8,809,527 - Net position: Invested in capital assets net of related debt 74,980,667 73,777,245 8,023,397 8,340,991 83,004,064 82,118,236 Restricted 12,738,530 13,035,751 32,657 26,390 12,771,187 13,062,141 Unrestricted (27,223,313) 13,980,702 1,251,135 2,069,785 (25,972,178) 16,050,487 Total net position $60,495,884 $100,793,698 $9,307,189 $10,437,166 $69,803,073 $111,230,864 *The 2014 balances have not been restated due to the impact of the implementation of GASB Statement No 68, Accounting and Financial Reporting for Pensions and GASB No. 71, Pension Transition for Contributions Made Subsequent to the Measurement Date. For more detailed information see the Statement of Net position. Normal Impacts DRAFT There are six basic (normal) transactions that will affect the comparability of the Net position summary presentation. Net Results of Activities which will impact (increase/decrease) current assets and unrestricted net position. Borrowing for Capital which will increase current assets and long-term debt. Spending Borrowed Proceeds on New Capital which will reduce current assets and increase capital assets. There is a second impact, an increase in capital assets and an increase in related net debt which will not change the net investment in capital assets investment. Principal Payment on Debt which will (a) reduce current assets and reduce long-term debt and (b) reduce unrestricted net position and increase net investment in capital assets. Reduction of Capital Assets through Depreciation which will reduce capital assets and invested in capital assets, net of debt. 3c

12 ELKO COUNTY MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE YEAR ENDED JUNE 30, 2015 Table 2 Summary of Changes in Net Assets For the Year Ended June 30, 2015 and 2014 Governmental Activities Business-Type Activities Total Primary Government * 2, * * REVENUES Program Revenues: Charges for services $ 6,349,453 $ 6,610,096 $ 2,953,579 $ 2,181,017 $ 9,303,032 $ 8,791,113 Operating grants and contributions 1,995,329 1,572, , ,868 2,600,748 2,177,413 Capital grants and contributions 243, , , , , ,486 General Revenues: Ad valorem taxes 14,629,362 14,549, ,629,362 14,549,353 Consolidated taxes 15,383,446 14,866, ,383,446 14,866,060 Motor vehicle fuel taxes 5,186,031 5,152, ,186,031 5,152,211 Other Taxes 3,633,417 3,925, ,633,417 3,925,016 Investment income 281, ,463 15,047 14, , ,321 Other general revenues 243, , , ,527 Total Revenues 47,944,924 47,949,268 3,697,071 3,104,232 51,641,995 51,053,500 EXPENSES Program Activities Primary Government: General government 9,610,696 9,388, ,610,696 9,388,379 Judicial 12,153,627 11,442, ,153,627 11,442,698 Public safety 15,162,319 14,075, ,162,319 14,075,414 Public works 8,775,532 8,024, ,775,532 8,024,882 Health 725, , , ,893 Welfare 2,247,392 2,243, ,247,392 2,243,190 Culture and recreation 2,202,228 2,116, ,202,228 2,116,543 Community support 431, , , ,772 Interest 3,488 5, ,488 5,530 Business-type Activities: Water , , , ,841 Sewer , , , ,034 Ambulance - - 1,757,056 1,764,007 1,757,056 1,764,007 Transit Services , , , ,797 Solid Waste , , , ,425 DRAFT Total Expenses 51,312,617 48,413,301 3,623,409 3,572,104 54,936,026 51,985,405 Excess (Deficiency) of revenues over expenses before transfers (3,367,693) (464,033) 73,662 (467,872) (3,294,031) (931,905) Transfers (25,849) (575,369) 25, , Change in Net Position (3,393,542) (1,039,402) 99, ,497 (3,294,031) (931,905) Net Position, Beginning of Year, as Previously Stated 100,793, ,833,100 10,437,166 10,329, ,230, ,162,769 Prior Period Adjustment (36,904,272) - (1,229,488) - (38,133,760) - Net Position - Beginning of Year As Restated 63,889, ,833,100 9,207,678 10,329,669 73,097, ,162,769 Net Position - End of Year $ 60,495,884 $ 100,793,698 $ 9,307,189 $ 10,437,166 $ 69,803,073 $ 111,230,864 *The 2014 balances have not been restated due to the impact of the implementation of GASB Statement No 68, Accounting and Financial Reporting for Pensions and GASB No. 71, Pension Transition for Contributions Made Subsequent to the Measurement Date. 3d

13 ELKO COUNTY MANAGEMENT S DISCUSSION AND ANALYSIS JUNE 30, 2015 Total Revenues Total revenue increased from the prior year revenue by 1%. Total governmental activity revenue were flat while total business-type activity revenues increased by 19%. The increase in business-type revenues is due to operating and capital grants awards during the year. General revenues, mainly comprised of taxes and sales tax, represent 76% of total revenue. Program revenues are revenues directly related to service activities of a function and include charges for services, grants and contributions, and related investment earnings, when restricted for use in programs. Total General Revenues General revenues were similar compared to the prior fiscal year. Investment earnings decreased due to a decrease in the national economy which have a direct impact based upon decisions made by the Federal Reserve Board. Also, County investments are written up or down to a fair market value basis (mark to market rule). This mark to market rule will fluctuate with the changes in interest rates. Program revenues Total program revenues related to specific functions provided an average of 17% of the resources necessary to pay costs of providing program services. The remaining program costs were financed from general revenues. The graphs on this and the following page demonstrate governmental and business-type program revenue expense coverage on a functional and segment basis. $16,000,000 $14,000,000 $12,000,000 $10,000,000 $8,000,000 $6,000,000 $4,000,000 $2,000,000 $0 Governmental Activities Program Revenues and Expenses General government DRAFT Judicial Public Safety Expenses Public works Health Program revenue Welfare Culture and recreation Community support Interest and fiscal charges 3e

14 ELKO COUNTY MANAGEMENT S DISCUSSION AND ANALYSIS JUNE 30, 2015 Business-type Activities Program Revenues and Expenses $2,500,000 $2,000,000 Expenses Program revenue $1,500,000 $1,000,000 $500,000 $0 Business-type activity charges for services provided 81% of the resources to finance the operations. The value of capital contributions from developers for water and sewer infrastructure assets is included in program revenues for the Water and Wastewater Funds. Total Revenue by Source Governmental Activities DRAFT Governmental Activities: The two largest revenue sources for the County are ad valorem taxes and consolidated taxes, which comprise 60% of total revenues. Ad valorem taxes increased.05% from the prior year due to an increase in assessed value. 3f

15 ELKO COUNTY MANAGEMENT S DISCUSSION AND ANALYSIS JUNE 30, 2015 Consolidated taxes increased 3.5% due to increased taxable sales related to the overall economic activity in Elko County. This economic activity is related to the mining industry located within the region. Investment income decreased due to County investments being written up or down to a fair market value basis (mark to market rule). This mark to market rule will fluctuate with the changes in interest rates. Elko County holds the majority of investments to maturity thereby reducing the market risk and receiving full interest earnings and investment value. Payment in Lieu of Taxes received from the Federal Government was reauthorized by Congress for fiscal year Total Revenues by Source Business Type Activities DRAFT Business Type Activities: Charges for services increased by $773 thousand. These increases are related to Ambulance collection increases. Capital contributions consist of contributions from customers in the form of hookup fees and grant funds related to water and sewer construction projects and matching funds for Transit Services. Expenses negotiated contractual increases. Salaries and wages comprise approximately 46% of total expenses and employee benefits average 29%. Elko County has six employee associations which negotiate periodically for salary adjustments related to merit. Employee benefits average approximately 29% of salaries and wages. Health insurance costs increased for the year due to the rising cost of medical inflation and claims costs. The merit increases also impacted employee benefit costs due to 3g

16 ELKO COUNTY MANAGEMENT S DISCUSSION AND ANALYSIS JUNE 30, 2015 Services and supplies comprise 25% of total expenses. Details regarding variances on a fund level are available in separate reports. Depreciation expense represents the cost of using capital assets over their estimated useful lives. This information is included in the various functions in order to more closely approximate the cost of providing services. More detail is provided in the footnotes to the financial statement. Interest/issuance cost expense includes interest and other fiscal charges paid on outstanding debt. Financial Analysis of Elko County Major Funds Elko County uses fund accounting and budgetary integration to ensure and demonstrate compliance with finance-related legal requirements. Governmental Funds: The focus of Elko County s governmental funds is to provide information on current inflows, outflows, and balances of spendable resources. Such information is useful in assessing the County s current funding requirements. In particular, unassigned fund balance may serve as a useful measure of net resources available for spending at the end of the fiscal year. As of the current fiscal year the County s governmental funds reported combined ending fund balances of $26.3 million, a decrease of $5 million from the prior year. The General Fund is the primary operating fund of the County. At the end of the current fiscal year, fund balance of the General Fund was $14.2 million. As a measure of the General Fund s liquidity, it may be useful to compare fund balance to total fund expenditures. Fund balance represents 47% of total fund expenditures. The fund balance of the General Fund decreased by $647 thousand. Key factors in this change are related to a decrease in economic activity related to the mining industry which is reflected in the decrease in resources related to consolidated taxes and refunds of advance payments of the net proceeds of mines taxes. Town of Jackpot, General Fund is the primary operating fund of the Town of Jackpot Nevada. At the end of the current fiscal year, fund balance of the General Fund was $791 thousand. As a measure of the Town General Fund s liquidity, it may be useful to compare fund balance to total fund expenditures. Fund balance represents 47% of total fund expenditures. DRAFT General County Capital Projects Fund accounts for resources received from the General Fund and bond proceeds for the purpose of constructing capital projects as determined by the Board of County Commissioners. Elko County maintains a five year capital project plan (available upon request). All major projects started in prior years are completed. The Fund has a fund balance of $680 thousand. A transfer in from the General Fund of $500,000 was provided in FY2015. Regional Street and Highway Fund accounts for resources received from a locally assessed gas tax rate of 9 cents. The taxes collected are allocated to County, Cities and Towns within Elko County. The resources are utilized for road repair and construction. The Fund has a fund balance of $4.7 million. General County Road Construction Fund accounts for resources received from the motor vehical fuel tax of 1.25 cents. The resources received are utlized for road repair and construction projects on County roadways. The Fund has a fund balance of $233 thousand at year end. Proprietary Funds: The proprietary fund statements provide the same type of information found in the government-wide financial statements, but in more detail. The Town of Jackpot Sewer Fund was established for the purpose of accounting for the Town of Jackpot-owned and operated sewer system. Unrestricted net position at the end of the year amounted to $331 thousand. The Town of Jackpot Water Fund was established for the purpose of accounting for the Town of Jackpot-owned and operated water system. Unrestricted net position at the end of the year amounted to $891 thousand. 3h

17 ELKO COUNTY MANAGEMENT S DISCUSSION AND ANALYSIS JUNE 30, 2015 The Elko Area Transportation System Fund was established for the purpose of accounting for an on demand public transportation system in the Elko area. It is funded with Federal Transportation grants and local funding. The Elko Ambulance Fund was established for the purpose of operations of an emergency medical transport service in Elko County. General Fund Budgetary Highlights Functions represent the legal level of budgetary control. The final amended budget appropriations are greater than the original budget. The main factor of the increase in appropriations was related to receipt of State and Federal grant funds. Capital Assets and Debt Administration Capital Assets: The County s investment in capital assets for its governmental and business-type activities as of June 30, 2015 amounts to $85.4 million (net of accumulated depreciation). This investment in capital assets includes land, buildings and improvements, machinery and equipment, construction in progress and infrastructure. The total increase in the County s investment in capital assets for the current fiscal year was 2%. Table 4 Elko County Capital Assets (Net of Depreciation) Governmental Activities Business-type Activities Land $ 5,550,514 $ 540 $ 5,551,054 Construction in progress 282, ,352 Buildings / improvements 58,040,009 15,511,535 73,551,544 Machinery and equipment 22,007,664 2,685,213 24,692,877 Infrastructure 66,214, ,287 66,384,796 Accumulated depreciation (76,407,205) (8,702,468) (85,109,673) DRAFT Total $ 75,687,843 $ 9,665,107 $ 85,352,950 Major additions for the current fiscal year for Elko County were the addition of the Elko County Jail Men s and Women s Housing Unit, infrastructure and equipment additions. The major projects were related to buildings, improvements and purchases of equipment. Additional information on the County s capital assets can be found in Note 5. Table 5 Elko County Outstanding Debt General Obligation Bonds, Revenue Bonds, Leases and Notes Governmental Activities Business-type Activities Total General Obligation Revenue Backed $ - $ 1,641,710 $ 1,641,710 Notes Payable 707, ,176 $ 707,176 $ 1,641,710 $ 2,348,886 3i

18 ELKO COUNTY MANAGEMENT S DISCUSSION AND ANALYSIS JUNE 30, 2015 State statute (NRS 244A.059) limits the amount of general obligation debt a government entity may issue to 10% of its total assessed valuation. The current limitation for Elko County is $190 million, which is significantly in excess of Elko County s outstanding general obligation debt. Additional information on Elko County s long- term debt can be found in Note 10 which is included in this report. Economic Factors The County s primary revenue sources are ad valorem property taxes and consolidated taxes. Property taxes were consistent in the last fiscal year due to the mining economy within our region. The 2015 assessed valuation is $1.8 billion and has increased over the last year. At the same time the 2011 Legislative change to collection of net proceeds has reduced current resources in the net proceeds of mines revenue related to prepayment of the tax. The County s current operating tax rate is below the statutorily allowed rate. Consolidated tax consists of six different tax sources, the largest being city/county sales taxes. Gross taxable sales have been relativly flat in prior years and are now starting to slightly decrease. Projections for FY2016 indicate a slight decrease in this revenue source. The Northeastern Nevada Railport industrial area is currently operating and has assisted in diversifying the economic base of Elko County by expanding the tax base and job availability for this region. Due to the budgetary constraints of the State of Nevada the 2011 Legislature required Elko County to provide fiscal support to multiple state services. The fiscal impact for FY2016 is approximately $1.5 million. These and other factors were taken into consideration in the preparation of the 2016 fiscal year budget. At this time Elko County has proposed and passed a one quarter of one percent sales tax increase to fund fire equipment and county roads and for proprietary operations user rates to fund the operations will be addressed. Elko County may suffer economic decline related to the rules and regulations passed by the Federal Government related to Sage Grouse. Mining activity is expanding with the construction of Long Canyon Mine located in the Pequop Mountain located in Elko County. Requests for Information DRAFT This report is designed to provide a general overview of Elko County s finances for all interested parties. Questions concerning the information provided in this report or requests for additional financial information should be addressed to Cash A. Minor, Assistant County Manager / Chief Financial Officer, 540 Court Street, Elko, Nevada Questions concerning the information provided in this report or requests for additional financial information concerning the Agricultural Association District No. 4 component unit should be addressed to the District at P.O. Box 1167, Elko, Nevada j

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