PHOENIX, ARIZONA COMPREHENSIVE ANNUAL FINANCIAL REPORT FISCAL YEAR ENDED JUNE

Transcription

1 PHOENIX, ARIZONA COMPREHENSIVE ANNUAL FINANCIAL REPORT FISCAL YEAR ENDED JUNE 30, 2017 Issued by: Business and Finance Department

2 This page is intentionally left blank.

3 TABLE OF CONTENTS JUNE 30, 2017 INTRODUCTORY SECTION Page Letter of Transmittal...i Organizational Chart...vii List of Principal Officials...viii ASBO Certificate of Excellence...ix GFOA Certificate of Achievement...x FINANCIAL SECTION INDEPENDENT AUDITORS' REPORT...1 MANAGEMENT'S DISCUSSION AND ANALYSIS (MD&A)...5 BASIC FINANCIAL STATEMENTS Government-Wide Financial Statements: Statement of Net Position...18 Statement of Activities...19 Fund Based Financial Statements: Governmental Funds: Balance Sheet - Governmental Funds...22 Reconciliation of the Governmental Funds Balance Sheet to the Government-Wide Statement of Net Position...25 Statement of Revenues, Expenditures, and Changes In Fund Balances - Governmental Funds...26 Reconciliation of the Governmental Funds Statement of Revenues, Expenditures, and Changes in Fund Balances to the Government-Wide Statement of Activities...28 Fiduciary Funds: Statement of Fiduciary Assets and Liabilities...30 Notes to the Financial Statements...31 REQUIRED SUPPLEMENTARY INFORMATION Budgetary Comparison Schedule - General Fund...57 Budgetary Comparison Schedule - Classroom Site Fund...58

4 FINANCIAL SECTION (continued) TABLE OF CONTENTS JUNE 30, 2017 Schedule of the District s Proportionate Share of the Net Pension Liability...59 Schedule of District Pension Contributions...60 Schedule of Funding Progress - Other Postemployment Benefits...62 Note to Required Supplementary Information...63 OTHER SUPPLEMENTARY INFORMATION Budgetary Comparison Schedule - Bond Building Fund...67 Budgetary Comparison Schedule - Debt Service Fund...68 Combining Statements - Other Governmental Funds: Combining Balance Sheet - Other Governmental Funds...70 Combining Statement of Revenues, Expenditures, and Changes in Fund Balances - Other Governmental Funds...71 Combining Statements and Schedule - Special Revenue Funds: Special Revenue Funds - Descriptions...75 Combining Balance Sheet - Other Special Revenue Funds...78 Combining Statement of Revenues, Expenditures, and Changes in Fund Balances - Other Special Revenue Funds...84 Combining Schedule of Revenues, Expenditures, and Changes in Fund Balances - Budget and Actual - Special Revenue Funds...90 Combining Statements and Schedule - Other Capital Projects Funds: Other Capital Projects Funds - Descriptions Combining Balance Sheet - Other Capital Projects Funds Combining Statement of Revenues, Expenditures, and Changes in Fund Balances - Other Capital Projects Funds Combining Schedule of Revenues, Expenditures, and Changes in Fund Balances - Budget and Actual - Other Capital Projects Funds...116

5 FINANCIAL SECTION (concluded) Combining Statements - Agency Funds: TABLE OF CONTENTS JUNE 30, 2017 Agency Funds - Descriptions Combining Statement of Fiduciary Assets and Liabilities - Agency Funds Combining Statement of Changes in Fiduciary Assets and Liabilities - Agency Funds STATISTICAL SECTION Statistical Section - Descriptions Financial Trends: Net Position by Component Expenses, Program Revenues, and Net Expense General Revenues and Total Changes in Net Position Fund Balances - Governmental Funds Revenues - Governmental Funds Expenditures and Debt Service Ratio - Governmental Funds Other Financing Sources and Uses and Net Changes in Fund Balances - Governmental Funds Revenue Capacity: Property Tax Assessment Ratios Net Full Cash Assessed Value by Property Classification Net Assessed Property Tax Value for Secondary Tax Purposes and Estimated Actual Value of Taxable Property by Class Direct and Overlapping Property Tax Rates Principal Property Taxpayers Property Tax Levies and Collections Debt Capacity: Outstanding Debt by Type Direct and Overlapping Governmental Activities Debt Legal Debt Margin Information...146

6 STATISTICAL SECTION (concluded) Demographic and Economic Information: TABLE OF CONTENTS JUNE 30, 2017 County-wide Demographic and Economic Statistics Principal Employers - Maricopa County Full-time Equivalent District Employees by Type Average Daily Membership Operating Information: Operating Statistics Capital Asset Information...152

7 INTRODUCTORY SECTION

8 This page is intentionally left blank.

9 December 15, 2017 Citizens and Governing Board Phoenix Elementary School District No North 7th Street Phoenix, Arizona State law requires the District to undergo an annual audit and publish a complete set of financial statements in accordance with accounting principles generally accepted in the United States of America (GAAP) and audited in accordance with auditing standards generally accepted in the United States of America by a firm of licensed certified public accountants. Pursuant to that requirement, we hereby issue the comprehensive annual financial report of the Phoenix Elementary School District No. 1 (District) for the fiscal year ended June 30, Responsibility for both the accuracy of the data, and the completeness and fairness of the presentation, including all disclosures, rests with the District. To provide a reasonable basis for making these representations, management of the District has established a comprehensive internal control framework that is designed both to protect the government's assets from loss, theft, or misuse and to compile sufficient reliable information for the preparation of the District's financial statements in conformity with GAAP. Because the cost of internal controls should not outweigh the benefits, the District's comprehensive framework of internal controls has been designed to provide reasonable rather than absolute assurance that the financial statements will be free from material misstatement. As management, we assert that, to the best of our knowledge and belief, this financial report is complete and reliable in all material respects. The comprehensive annual financial report is presented in three sections: introductory, financial, and statistical. The introductory section includes this transmittal letter, the District's organization chart and a list of principal officials as of June 30, The financial section includes management's discussion and analysis; basic financial statements, combining and individual fund financial statements and schedules, as well as the auditors report on the financial statements and schedules. The statistical section includes selected financial and demographic information, generally presented on a multi-year basis. The District's financial statements have been audited by Dobridge & Company, P.C., a firm of licensed certified public accountants. The goal of the independent audit was to provide reasonable assurance that the financial statements of the District for the fiscal year ended June 30, 2017, are free of material misstatement. The independent audit involved: examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements; assessing the accounting principles used and significant estimates made by management; and evaluating the overall financial statement presentation. The independent auditor concluded, based upon the audit, that there was a reasonable basis for rendering an unmodified opinion that the District's financial statements for the fiscal year ended June 30, 2017, are fairly presented in conformity with GAAP. The independent auditors report is presented as the first component of the financial section of this report. i

10 The independent audit of the financial statements of the District is part of a broader, federally mandated "Single Audit" designed to meet the special needs of federal grantor agencies. The standards governing Single Audit engagements require the independent auditor to report not only on the fair presentation of the financial statements, but also on the audited government's internal controls and compliance with legal requirements, with special emphasis on internal controls and legal requirements involving the administration of federal awards. These reports are available in the District's separately issued Single Audit Report. 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). This letter of transmittal is designed to complement MD&A and should be read in conjunction with it. The District's MD&A can be found immediately following the report of the independent auditor. PROFILE OF THE DISTRICT Phoenix Elementary School District No. 1 is located in the central portion of Maricopa County, Arizona. The District encompasses an area of approximately sixteen and one half square miles. The District lies within the City of Phoenix. The U.S. Census Bureau population of the District was estimated to be approximately 56,909 residents in The District's boundary surrounds the downtown Phoenix business area but is primarily a residential area. No employment figures are available for the District; however, figures provided by the Arizona Department of Economic Security indicate that the average annual employment for the City of Phoenix was 720,693 in 2003 as compared with the average annual employment for the City of Phoenix of 716,821 in The Arizona Office of Employment and Population Statistics reported Arizona is projected to gain 124,999 Nonfarm jobs, representing a growth rate of 3.15 percent, over the two projected years of 2016 and An over-the-year gain of 50,400 jobs are projected for the time period. [Language taken from Industry Projection Forecast posted on ] In 2016, the Arizona Department of Administration, Office of Employment and Population Statistics, CES/LAUS Unit reported the average unemployment rate as of 4 th quarter as 5.4% for the Metro Phoenix Area. According to the Arizona Department of Commerce Workforce Informer, the 2013 average employment for Metro Phoenix was 1,952,031. This report includes the funds of all organizational entities over which the District's Governing Board is financially accountable. The District provides a full range of services. These services include: education, pupil transportation, construction and maintenance of District facilities, technology, child nutrition, as well as activities associated with community and student organizations. An operating budget for expenditures is prepared and adopted by the District each fiscal year for the General, Special Revenue, Debt Service, and Capital Projects Funds. Budgetary control is ultimately exercised at the fund level. Budgetary control is maintained through the use of periodic reports that compare actual expenditures against budgeted amounts. The expenditure budget can by revised annually, per Arizona Revised Statutes. An annual revenue budget from all sources is not prepared. The District also maintains an encumbrance accounting system as one technique of accomplishing budgetary control. Encumbered amounts lapse at year-end. As ii

11 demonstrated by the statements and schedules included in the financial section of this report, the District continues to meet its responsibility for sound financial management. BUDGETING SYSTEMS AND CONTROLS The annual expenditure budget serves as the foundation for the District s financial planning and control. The objective of these budgetary controls is to ensure compliance with legal provisions embodied in the annual expenditure budget approved by the District s Governing Board. The District utilizes a Student-Based Budget Process, meaning that schools and students are budget priorities. The budget for staffing and other resources is based on the number of students enrolled at each site and funds are allocated for these needs prior to evaluating the needs for departments. These budgets are set each year based on consistent standards adopted by the Governing Board. Standards are developed and recommended to the Governing Board after receiving input from committees consisting of staff and other stakeholders involved in each particular area. The District s proposed expenditure budget is presented to the Governing Board for review prior to June 15. The Governing Board is required to hold a public hearing on the proposed budget and to adopt the final budget by no later than July 15. The expenditure budget is prepared by fund for all Governmental Funds, and includes function and object code detail for the General and some Capital Project Funds. The level of budgetary control is established at the individual fund level for all funds. The Governing Board has given staff authorization to exceed subsections of a budget, if needed, with the stipulation that expenditures never exceed the total appropriated budget in a particular fund. In order to ensure compliance with the legal provisions applicable to the annual appropriated budget, the District maintains several budgetary controls. Budget-controlled funds are monitored consistently to ensure that schools and departments stay within their allocated budgets, and that expenditures are proper for the designated fund. The Finance Director can at any time reallocate budget capacity between accounts within a fund or from the contingency fund designated for emergencies and other needs that were not identified previously. The workflow for approval of purchases, budget transfers and journal entries has several levels for review before being posted. Budgets for cash-controlled funds are updated automatically within the financial system as revenue is received and these funds are reconciled throughout the year to ensure that cash available is sufficient to meet the appropriated budget. Although not adopted, an annual revenue budget for all sources is prepared. The expenditure budget can be revised annually in accordance with Arizona Revised Statutes; however the revenue budget is not revised. Therefore a deficit budgeted fund balance can occur when the expenditure budget is increased during a revision. Funds that have over expenditures of budgeted funds have revenue earned throughout the year. The budget for these funds is simply an estimate and does not prevent the District from exceeding the budget as long as the necessary revenue is earned. The District s administration is charged with the responsibility of supervising the protection of the District s assets by employing various risk management techniques and procedures to reduce, absorb, minimize or transfer risk. The District carries insurance for general liability, auto liability and workers compensation. The administration is also responsible for directing the District s benefits program, which includes the administration of health, life and other benefits for all fulltime and some part-time employees. These activities are accounted for in the Internal Service Funds. iii

12 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 within which the District operates. Local Economy The City of Phoenix enjoys a highly diversified economic base consisting of manufacturing, agriculture, tourism, construction, education, distribution centers, finance and retailing. Tourism is an important income producer. Many world-class hotels and resorts cater to visitors. The city s light rail system offers a convenient transportation link from the airport to downtown Phoenix, with stops at the convention center and several downtown hotels. The greater Phoenix area serves as a hub for innovation and entrepreneurs by providing international access for aerospace, hightechnology, bioscience, advanced business services and sustainable technologies companies. The City of Phoenix is the Capitol and largest city of Arizona and is the county seat as well. Phoenix is also the sixth largest city in the nation, with more than 1.4 million residents and growing. The city encompasses an area approximately 519 square miles. The Phoenix metropolitan area is the population and economic activity center of the entire State. Phoenix is one of the leaders in the economics of the Southwestern area of the United States. Maricopa County is located in the south-central portion of Arizona and encompasses an area of approximately 9,226 square miles. Its boundaries encompass the cities of Phoenix, Mesa, Glendale, Scottsdale, Tempe, Chandler, Peoria, and Gilbert. The County s population is estimated at 3,944,859 or about 60 percent of the total population of the state. Maricopa County has a very wide range of economic sectors supporting its substantial growth. As of October 2016, the unemployment rate in Phoenix and Maricopa County was approximately 5.2 and 4.4 percent, respectively. Long-term Financial Planning The District incorporates shared-decision making processes into every aspect of district management and planning. The shared-decision making process allows the input of stakeholders (to include parents, employees and community members) into the planning of the District. From these processes, advisory committees are formed to evaluate and make recommendations to the Superintendent in regard to the needs of the district. One such committee is the Budget Advisory Committee. This group of stakeholders discusses financial options and makes recommendations to the Superintendent s Cabinet. The Superintendent and Governing Board have final approval over budget allocation. Although demographic studies illustrate a leveling of student growth over the next few years, fiscal planning continues to address aging facilities and buses to meet the needs of all grade configurations, and is consistent with the vision of the learning environment embraced by the stakeholders of the district. Average Daily Membership ( ADM ) for the District was 2011 (6,573), 2012 (6,862), 2013 (6,680), 2014 (6,769), 2015 (6,697), 2016 (6,385) and in 2017 it was (6,250). The District is currently experiencing slightly decreased enrollment within the District s attendance area. iv

13 The District continues to offer an attractive open enrollment program where students outside the District are eligible to attend Phoenix Elementary School District No. 1. A long term strategic plan was developed and identifies ways to take advantage of the many efforts to revitalize the Downtown Phoenix area. The Arizona State University programs (Nursing, Public Programs) in the Mercado are directly inside the District s boundaries. The District expects to have an increase in enrollment from all of the new initiatives in the Downtown area. The District continues to effectively manage expenditures, while maintaining its current operating status and providing adequate, student learning focused, facilities. By a 75% majority from the voters, the District passed a Bond for fifty-nine and one-half ($59.5) million dollars in November Voters authorized the District to procure facility improvements to include developing a classroom of the future; upgrades to technology and pupil transportation vehicles. Bond authorization expires in The Governing Board approved a $13 million sale of School Improvement Bonds, Project of 2015, series B on May 11, By a 62% majority from the voters, the District passed a continuation of its existing Capital Override for twenty-one million dollars ($21M) in November Voters authorized the District to procure; instructional and supplemental materials, technology, buses and upgrades to existing facilities. The Capital Override is due to expire at the end of fiscal year In November 2017, voters approved the continuation of the District s existing Maintenance and Operations Override by a majority vote of 73%. The District s financial planning process is primarily driven by the budget process. This process includes the annual Maintenance & Operation Budget which is prepared on a modified zero-base budgeting process. This includes an annual base budget for all schools and departments that is subjected to a review and is increased or decreased based on revenue and expenditure forecasts. To ensure proper accountability and financial stability, the District continues to review all of its current positions and develop staffing models and job descriptions to restructure and reduce its workforce when needed, without harming the educational needs of its students. In addition, the District reviews all of its programs and long-term contracts to ensure efficiencies are being maintained. The budget process includes input from the schools, departments and employee groups, and is formally adopted by the Governing Board for the following year at the end of June. The District has aggressively pursued preventative maintenance and replacing major systems in aging school buildings. Kenilworth, the oldest school in the District was built in 1920 and is on the historic registry. By properly maintaining facilities and investing in solar power and energy management systems the District has been able to cost avoid more than $3M in 5 years. This has resulted in lower maintenance and utility costs, allowing more budget to go directly to instruction. AWARDS AND ACKNOWLEDGEMENTS The Association of School Business Officials (ASBO) awarded a Certificate of Excellence in Financial Reporting to the District for its comprehensive annual financial report for the fiscal year ended June 30, In addition, the Government Finance Officers Association of the United States and Canada (GFOA) awarded a Certificate of Achievement for Excellence in Financial Reporting to the District for its comprehensive annual financial report for the fiscal year ended June 30, In order to be awarded these certificates, the District published an easily readable and efficiently organized comprehensive annual financial report. This report satisfied both accounting principles generally accepted in the United States of America and applicable legal requirements. v

14 These certificates are valid for a period of one year only. We believe that our current comprehensive annual financial report continues to meet the programs requirements and we are submitting it to ASBO and GFOA to determine its eligibility for the fiscal year certificates. The preparation of the comprehensive annual financial report on a timely basis was made possible by the dedicated service of the entire staff of the business services and finance department. Each member of the department has our sincere appreciation for the contributions made in the preparation of this report. In closing, we would like to extend our appreciation to the Governing Board for their leadership and support in attaining the highest standards of professionalism regarding the management of the District s finances. Respectfully submitted, Rosanna Hidalgo, Assistant Superintendent for Business Services vi

15 ORGANIZATIONAL CHART Community Governing Board Superintendent Assistant Superintendent Business Services Assistant Superintendent Curriculum & Instruction Principals Director Budget & Finance Purchasing Accounts Payable Payroll Director of Assessment and Accountability Director of Student Services Instructional Enrichment Intervention Specialists Director of Federal Programs Director Child Nutrition Director of Curriculum Director Management Information Systems Director of Principal Effectiveness Director Plant Services Transportation / Warehouse Director of Teacher Effectiveness Director Human Resources Director of Coaching Effectiveness vii

16 PHOENIX ELEMENTARY SCHOOL DISTRICT NO.1 LIST OF PRINCIPAL OFFICIALS JUNE 30, 2017 GOVERNING BOARD Ms. Susan Benjamin President Ms. Lynné Almy Governing Board Member Mr. Daniil Gunitskiy Governing Board Member Dr. Ruth Ann Marston Governing Board Member Dr. Louisa Stark Governing Board Member ADMINISTRATIVE STAFF Larry Weeks Superintendent Dr. Rosanna Hidalgo Assistant Superintendent for Business Services Tom Lind Assistant Superintendent for Curriculum and Instruction viii

17 The Certificate of Excellence in Financial Reporting is presented to Phoenix Elementary School District No. 1 for its Comprehensive Annual Financial Report (CAFR) for the Fiscal Year Ended June 30, The CAFR has been reviewed and met or exceeded ASBO International s Certificate of Excellence standards. Anthony N. Dragona, Ed.D., RSBA President John D. Musso, CAE, RSBA Executive Director ix

18 x

19 FINANCIAL SECTION

20 This page is intentionally left blank.

21 Independent Auditors' Report Governing Board of Phoenix Elementary School District No. 1 Phoenix, Arizona We have audited the accompanying financial statements of the governmental activities, each major fund and the aggregate remaining fund information of Phoenix Elementary School District No. 1, (the District) as of and for the year ended June 30, 2017, and the related notes to the financial statements, which collectively comprise the District s basic financial statements as listed in the table of contents. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditors' Responsibility Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. Opinions In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, each major fund, and the aggregate remaining fund information of the District, as of year ended June 30, 2017, and the respective changes in financial position, thereof for the year then ended in accordance with accounting principles generally accepted in the United States of America S. Alma School Rd, Suite A-214 Mesa, Arizona (623) Fax: (623)

22 Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the management s discussion and analysis beginning on page 5, the budgetary comparison information beginning on page 57, the Schedule of the District s Proportionate Share of the Net Pension Liability on page 59, the Schedule of District Pension Contributions on page 60, the Schedule of Funding Progress - Other Postemployment Benefits on page 62, and the related note to required supplementary information beginning on page 63 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. Other Information Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the the District's basic financial statements. The introductory section, budgetary comparison schedules and related note, combining and individual nonmajor fund financial statements, and statistical section, are presented for purposes of additional analysis and are not a required part of the basic financial statements. The combining and individual fund financial statements and budgetary comparison schedules, are the responsibility of management and were derived from and relate directly to the underlying accounting and other records used to prepare the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and 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 combining and individual fund financial statements and budgetary comparison schedules are fairly stated, in all material respects, in relation to the basic financial statements as a whole. The introductory and statistical sections have not been subjected to the auditing procedures applied in the audit of the basic financial statements and, accordingly, we do not express an opinion or provide any assurance on them. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated December 15, 2017, on our consideration of the District s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the District s internal control over financial reporting and compliance. Certified Public Accountants Mesa, Arizona December 15,

23 MANAGEMENT S DISCUSSION AND ANALYSIS (MD&A) (Required Supplementary Information) 3

24 This page intentionally left blank. 4

25 MANAGEMENT'S DISCUSSION AND ANALYSIS (MD&A) JUNE 30, 2017 As management of the Phoenix Elementary School District No. 1 (District), we offer readers of the District s financial statements this narrative overview and analysis of the financial activities of the District for the fiscal year ended June 30, We encourage readers to consider the information presented here in conjunction with additional information that we have furnished in our letter of transmittal, which can be found in the introductory section of this report. FINANCIAL HIGHLIGHTS Key financial highlights for fiscal year June 30, 2017, were as follows: As of June 30, 2017, the District s total net position was $40.8 million. This is an increase of $6.0 million, or 17.3 percent, from fiscal year General revenues of $64.4 million accounted for 72.1 percent of all fiscal year revenues. Program specific revenues in the form of charges for services, operating grants and contributions, and capital grants and contributions of $24.9 million accounted for 27.9 percent of total fiscal year revenues. The District had $83.3 million in expenses related to governmental activities; of which $24.9 million of these expenses were offset by program specific charges for services, operating grants and contributions, and capital grants and contributions. General revenues of $64.4 million provided resources for the remaining $58.4 million of District costs. The excess between the general revenues and remaining District costs resulted in net position increasing $6.0 million. In fiscal year , the General Fund reported $52.9 million in revenues and $49.6 million in expenditures. The revenues consisted primarily of $29.5 million in property taxes and $17.7 million in state aid and grants. As a result of annual activity, the General Fund s fund balance increased $3.5 million. On July 1, 2016, the District made a $7.8 million principal payment on outstanding bonds reducing the principal owed to $53.4 million as of June 30, For further information regarding bonds, see financial statement note 10. During the fiscal year ending June 30, 2017, the District made $415,620 of principal payments on outstanding capital leases, reducing the principal owed to $1.1 million as of June 30, For further information regarding leases, see financial statement note 13. 5

26 MANAGEMENT'S DISCUSSION AND ANALYSIS (MD&A) JUNE 30, 2017 OVERVIEW OF FINANCIAL STATEMENTS This annual financial report contains, in addition to this Management Discussion and Analysis, the District's basic financial statements, required supplementary information and other supplementary information. These sections provide a comprehensive overview of the District's finances. Government-wide financial statements. The government-wide financial statements are designed to provide readers with a broad overview of the District s finances, in a manner similar to a private-sector business. The Statement of Net Position presents information on all of the District s assets and liabilities, with the difference between the two reported as net position. Over time, increases or decreases in net position may serve as a useful indicator of whether the financial position of the District is improving or deteriorating. The Statement of Activities presents information showing how the District s net position changed during the most recent fiscal year. All changes in net position are reported as soon as the underlying event giving rise to the change occurs, regardless of the timing of related cash flows. Thus, revenues and expenses are reported in this statement for some items that will only result in cash flows in future fiscal periods (e.g., uncollected taxes and earned but unused compensated absences). The government-wide financial statements of the District include the Governmental activities. Most of the District s basic services are included here, such as instruction, extra-curricular activities, curriculum and staff development, and general administration. Property taxes, intergovernmental revenues and grants finance most of these activities. Fund financial statements. A fund is a grouping of related accounts that is used to maintain control over resources that have been segregated for specific activities or objectives. The District uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. All of the funds of the District can be presented in the following categories: governmental funds and fiduciary funds. Governmental funds. Governmental funds are used to account for essentially the same functions reported as governmental activities in the government-wide financial statements. However, unlike the government-wide financial statements, governmental fund financial statements focus on near-term inflows of expendable resources, as well as on balances of expendable resources available at the end of the fiscal year. Such information may be useful in evaluating the District s near-term financing requirements. Because the focus of governmental funds is narrower than that of the government-wide financial statements, it is useful to compare the information presented for governmental funds with similar information presented for governmental activities in the government-wide financial statements. By doing so, readers may better understand the long-term impact of the District s near-term financing decisions. The governmental fund Balance Sheet and the governmental fund Statement of Revenues, Expenditures, and Changes in Fund Balances provide a reconciliation to facilitate this comparison between governmental funds and governmental activities. 6

27 MANAGEMENT'S DISCUSSION AND ANALYSIS (MD&A) JUNE 30, 2017 OVERVIEW OF FINANCIAL STATEMENTS Information is presented separately in the governmental fund Balance Sheet and in the governmental fund Statement of Revenues, Expenditures, and Changes in Fund Balances for all major funds. Data from the other non-major governmental funds are combined into a single, aggregated presentation. Fiduciary funds. Fiduciary funds are used to account for resources held for the benefit of parties outside the District. Fiduciary funds are not reflected in the government-wide financial statements because the resources of those funds are not available to support the District s own programs. The accrual basis of accounting is used for fiduciary funds. Notes to the financial statements. The notes provide additional information that is essential to a full understanding of the data provided in the government-wide and fund financial statements. The notes to the financial statements can be found immediately following the basic financial statements. Other information. In addition to the basic financial statements and accompanying notes, this report also presents certain required supplementary information concerning the District s budget process. The District adopts an annual expenditure budget for all governmental funds. A budgetary comparison schedule is provided for the General Fund and any major special revenue funds beginning on page 57. Additionally, pension schedules detailing the District s proportionate share of net pension liability and pension contributions are presented beginning on page 59. In addition, the other supplemental information has been provided for informational purposes with combining and individual fund financial statements and budgetary comparison schedules and are presented immediately following the required supplementary information beginning on page 69. 7

28 MANAGEMENT'S DISCUSSION AND ANALYSIS (MD&A) JUNE 30, 2017 GOVERNMENT-WIDE FINANCIAL ANALYSIS The following table presents a two-year comparison of the District s net position for the fiscal years ended June 30, 2017 and As of June 30, 2017 As of June 30, 2016 Percent Change Change ASSETS Current assets $ 59,594,567 $ 62,972,149 $ (3,377,582) (5.4)% Capital assets 109,922, ,769,209 1,153, % Total assets 169,517, ,741,358 (2,223,802) (1.3)% DEFERRED OUTFLOWS OF RESOURCES 13,985,532 8,711,880 5,273, % LIABILITIES Current liabilities 4,182,747 3,305, , % Noncurrent liabilities 129,015, ,518,779 (7,503,777) (5.5)% Total liabilities 133,197, ,824,708 (6,626,959) (4.7)% DEFERRED INFLOW OF RESOURCES 9,516,188 5,849,217 3,666, % NET POSITION Net investment in capital assets 61,697,748 61,806,062 (108,314) (0.2)% Restricted 22,956,216 20,539,526 2,416, % Unrestricted (43,864,813) (47,566,275) 3,701, % Total net position $ 40,789,151 $ 34,779,313 $ 6,009, % 8

29 MANAGEMENT'S DISCUSSION AND ANALYSIS (MD&A) JUNE 30, 2017 GOVERNMENT-WIDE FINANCIAL ANALYSIS Net position may serve over time as a useful indicator of a government s financial position. In the case of the District, assets and deferred outflows of resources exceeded liabilities and deferred inflows of resources by $40.8 million as of June 30, The following represents significant information regarding changes and balances: The District's current assets decreased $3.4 million primarily due to a decrease in funds due from other governments. The District had $10.2 million in additions and $493,460 of deletions to capital assets with $481,479 of accumulated depreciation that were offset by depreciation expense of $9.0 million, resulting in an overall net increase in capital assets of $1.2 million. Current liabilities increased $876,818 primarily due to an increase in expenditures during the 60-day encumbrance period after year end as compared to the prior year. Noncurrent liabilities decreased $7.5 million primarily due to the results of investment activity and participant activity when compared to Arizona State Retirement System's estimates and payments on outstanding bonds. By far, the largest portion of the District s net position, $61.7 million, reflects its net investment in capital assets. The District uses these capital assets to provide services to its students; consequently, these assets are not available for future spending. Additionally, $23.0 million of the District's net position represents resources that are subject to external restrictions. The remaining deficit balance of net position, $43.9 million, is considered unrestricted. For additional information regarding net position, see financial statement note 1.R. 9

30 MANAGEMENT'S DISCUSSION AND ANALYSIS (MD&A) JUNE 30, 2017 GOVERNMENT-WIDE FINANCIAL ANALYSIS The following table presents a two-year comparison of the changes in net position for the fiscal years ended June 30, 2017 and Fiscal Year Ended June 30, 2017 Fiscal Year Ended June 30, 2016 Change Percent Change Revenues: Program revenues: Charges for services $ 1,288,338 $ 1,280,042 $ 8, % Operating grants and contributions 23,568,725 22,839, , % Capital grants and contributions 53, ,585 (98,368) (64.9)% General revenues: Taxes 42,931,430 41,712,467 1,218, % Revenue in lieu of tax 1,378,783 1,313,112 65, % State aid 17,951,804 18,130,814 (179,010) (1.0)% County aid 1,885,826 1,787,925 97, % Investment income 234, ,753 76, % Miscellaneous 7,543 5,314 2, % Total revenues 89,299,916 87,378,436 1,921, % Expenses: Instruction 41,924,419 41,035, , % Support services - students and staff 13,714,805 14,196,427 (481,622) (3.4)% Support services - administration 8,324,010 8,472,524 (148,514) (1.8)% Operation and maintenance of plant 10,612,442 10,164, , % Student transportation services 2,570,593 2,306, , % Operation of non-instructional services 4,365,250 4,210, , % Interest on long-term debt 1,778,559 2,116,351 (337,792) (16.0)% Total expenses 83,290,078 82,502, , % Change in net position 6,009,838 4,876,076 1,133, % Beginning net position 34,779,313 29,903,237 4,876, % Ending net position $ 40,789,151 $ 34,779,313 $ 6,009, % Net position increased $6.0 million; the following represents significant information regarding changes: Revenues increased $1.9 million primarily due to an increase in property taxes and operating grants and contributions. Expenses increased $787,718 due to increased instruction and operation and maintenance of plant expenses. 10

31 MANAGEMENT'S DISCUSSION AND ANALYSIS (MD&A) JUNE 30, 2017 GOVERNMENT-WIDE FINANCIAL ANALYSIS 11

32 MANAGEMENT'S DISCUSSION AND ANALYSIS (MD&A) JUNE 30, 2017 GOVERNMENT-WIDE FINANCIAL ANALYSIS 12

33 MANAGEMENT'S DISCUSSION AND ANALYSIS (MD&A) JUNE 30, 2017 GOVERNMENT-WIDE FINANCIAL ANALYSIS The following table displays information from the Statement of Activities governmental activities and compares the net cost of services for the two years ended June 30, 2017 and Net (Expense) Revenue Net (Expense) Revenue Percent Expense Function June 30, 2017 June 30, 2016 Change Change Instruction $ (31,154,076) $ (30,942,356) $ (211,720) (0.7)% Support services - students and staff (7,239,902) (8,117,822) 877, % Support services - administration (7,681,532) (7,322,820) (358,712) (4.9)% Operation and maintenance of plant (9,691,367) (9,265,775) (425,592) (4.6)% Student transportation services (2,490,779) (2,251,579) (239,200) (10.6)% Operation of non-instructional services 1,656,417 1,785,394 (128,977) (7.2)% Interest on long-term debt (1,778,559) (2,116,351) 337, % Total $ (58,379,798) $ (58,231,309) $ (148,489) (0.3)% The net cost of services increased $148,489, or 0.3 percent, mainly due to overall expenses increasing $787,718 while program revenues increased $639,229. The following represents significant information regarding changes and balances: Federal grants of $19.6 million and state grants of $3.5 million subsidized the government-wide expenses. The remaining net costs of governmental activities of $35.3 million of District costs are financed through general revenues, such as property taxes and state aid. 13

34 MANAGEMENT'S DISCUSSION AND ANALYSIS (MD&A) JUNE 30, 2017 GOVERNMENT-WIDE FINANCIAL ANALYSIS FINANCIAL ANALYSIS OF THE DISTRICT S FUNDS The focus of the District s governmental funds is to provide information on near-term inflows, outflows, and balances of expendable resources. Such information is useful in assessing the District s financing requirements. In particular, unassigned fund balance may serve as a useful measure of the District s net resources available for spending at the end of the fiscal year. The following table provides analysis of the District's major and other governmental funds' fund balances and the total change in fund balances for the two years ended June 30, 2017 and Fund June 30, 2017 June 30, 2016 Change Percent Change General Fund $ 13,957,624 $ 10,497,828 $ 3,459, % Classroom Site Fund 8,584,183 6,820,406 1,763, % Bond Building Fund 8,453,915 18,460,476 (10,006,561) (54.2)% Debt Service Fund 704, ,190 (158,539) (18.4)% Other Governmental Funds 12,982,069 12,941,676 40, % Total $ 44,682,442 $ 49,583,576 $ (4,901,134) (9.9)% Overall governmental fund balance decreased $4.9 million. The following represents significant information regarding changes: The General Fund's fund balance increased $3.5 million, or 33.0 percent, primarily due to an increase in property tax revenues and federal revenue for E-Rate. The Classroom Site Fund's fund balance increased $1.8 million, or 25.9 percent, due to revenues exceeding expenditures in the current year. The Bond Building Fund's fund balance decreased $10.0 million, or 54.2 percent, primarily due to increased capital outlay expenditures for building renovations and new school buses. The Debt Service Fund's fund balance decreased $158,539, or 18.4 percent, due to expenditures exceeding revenues in the current year. The Other Governmental Funds' fund balances increased $40,393, or 0.3 percent, due to revenues exceeding expenditures in the current year. GENERAL FUND BUDGETARY HIGHLIGHTS The District's budget is prepared annually according to Arizona law. The General Fund Budgetary Comparison Schedule presents the budgeted amounts, as well as the variances between the final budget and the actual expenditures incurred. The actual amounts expended in the General Fund were $47.3 million, which is $5.6 million, or 10.6 percent, less than the final budget. This difference was primarily due to instructional expenditures being less than anticipated. 14

35 MANAGEMENT'S DISCUSSION AND ANALYSIS (MD&A) JUNE 30, 2017 CAPITAL ASSETS As of June 30, 2017, the District had invested $109.9 million in capital assets (net of accumulated depreciation) including school buildings, athletic facilities, buses, computers, and other equipment. The following schedule presents a two year comparison of the capital asset balances for the two years ended June 30, 2017 and Governmental activities: June 30, 2017 June 30, 2016 Change Percent Change Land $ 3,511,348 $ 3,511,348 $ - - % Construction in progress 784, , , % Land improvements 7,370,893 6,699, , % Buildings and improvements 201,138, ,817,196 7,321, % Vehicles, furniture, and equipment 12,992,993 11,790,906 1,202, % Total 225,797, ,090,256 9,707, % Less: accumulated depreciation (115,874,916) (107,321,047) (8,553,869) (8.0)% Capital assets, net $ 109,922,989 $ 108,769,209 $ 1,153, % A more in-depth analysis of material activity within capital assets is presented within the analysis of the Statement of Net Position earlier in the Management's Discussion and Analysis. Detailed information on the District s capital assets can be found in financial statement note 5. LONG-TERM DEBT The following schedule presents a two-year comparison of long-term debt for the two years ended June 30, 2017 and June 30, 2017 June 30, 2016 Change Percent Change Bonds payable $ 53,430,000 $ 61,195,000 $ (7,765,000) (12.7)% Bond premium 2,180,715 2,744,562 (563,847) (20.5)% Net pension liability 70,426,431 69,263,472 1,162, % Capital lease 1,068,441 1,484,061 (415,620) (28.0)% Compensated absences 1,909,415 1,831,684 77, % Total $129,015,002 $136,518,779 $ (7,503,777) (5.5)% 15