SAN PERLITA INDEPENDENT SCHOOL DISTRICT

Transcription

1 SAN PERLITA INDEPENDENT SCHOOL DISTRICT ANNUAL FINANCIAL REPORT AND COMPLIANCE REPORT JUNE 30, 2018

2 Board of Trustees June 30, 2018 TRUSTEES Melissa Guadiana President Nora Vasquez Vice President Maggie Sepulveda Secretary Enedelia Cavazos Joe David Kilbourn David Rodriguez Ruben Garza, Jr. SUPERINTENDENT Albert Peña BUSINESS MANAGER Deborah Rodriguez 2

3 TABLE OF CONTENTS Table of Contents June 30, 2018 INTRODUCTORY SECTION EXHIBIT PAGE Certificate of Board FINANCIAL SECTION Independent Auditors Report 1 Management s Discussion and Analysis (Required Supplementary Information) 7 Basic Financial Statements Government wide Financial Statements Statement of Net Position A 1 16 Statement of Activities B 1 17 Fund Financial Statements Balance Sheet Governmental Funds C 1 18 Reconciliation of the Governmental Funds Balance Sheet to the Statement of Net Position C 2 19 Statement of Revenues, Expenditures, and Changes in Fund Balances Governmental Funds C 3 20 Reconciliation of the Governmental Funds Statement of Revenues, Expenditures, and Changes in Fund Balances to the Statement of Activities C 4 21 Statement of Fiduciary Net Position Fiduciary Funds E 1 22 Notes to Financial Statements 23 REQUIRED SUPPLEMENTARY INFORMATION Schedule of Revenues, Expenditures, and Changes in Fund Balance Budget and Actual General Fund G 1 59 Pension Supplementary Information Schedule of the District s Proportionate Share of the Net Pension Liability Teacher Retirement System of Texas G 2 60 Schedule of District s Contributions for Pensions Teacher Retirement System of Texas G 3 61 Other Post Employment Benefits (OPEB) Supplementary Information Schedule of the District s Proportionate Share of the Net OPEB Liability Teacher Retirement System of Texas G 4 62 Schedule of the District s OPEB Contributions Teacher Retirement System of Texas G 5 63 Notes to Required Supplementary Information 65 3

4 TABLE OF CONTENTS CONTINUED Table of Contents June 30, 2018 TEXAS EDUCATION AGENCY REQUIRED SCHEDULES EXHIBIT PAGE Schedule of Delinquent Taxes Receivable J 1 66 Schedule of Revenues, Expenditures, and Changes in Fund Balance Budget and Actual Child Nutrition Program J 2 68 Schedule of Revenues, Expenditures, and Changes in Fund Balance Budget and Actual Debt Service Fund J 3 69 COMPLIANCE SECTION Independent Auditors Report on Internal Control over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards 71 Schedule of Findings and Responses 75 Schedule of Status of Prior Findings 77 4

5 INTRODUCTORY SECTION 5

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7 FINANCIAL SECTION 7

8 INDEPENDENT AUDITORS REPORT To the Board of Trustees Report on the Financial Statements We have audited the accompanying financial statements of the governmental activities, each major fund, and the aggregate remaining fund information of the as of and for the year ended June 30, 2018, and the related notes to the financial statements, which collectively comprise the 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 auditors judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the financial statements in order to design audit procedures that 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

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10 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, as of June 30, 2018, and the respective changes in financial position for the year then ended in accordance with accounting principles generally accepted in the United States of America. Change in Accounting Principle As described in Note 2 to the financial statements, in 2018, the District adopted new accounting guidance, GASB Statement No. 75, Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions. This resulted in a prior period adjustment as described in Note 22 to the financial statements. Our opinion is not modified with respect to this matter. Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the management s discussion and analysis, budgetary comparison information, pension, and other post employment benefit, supplementary information on pages 7 15 and 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 s basic financial statements. The introductory section and the accompanying financial information listed as Texas Education Agency Required Schedules in the table of contents are presented for purposes of additional analysis and are not a required part of the basic financial statements. The Texas Education Agency Required 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, Texas Education Agency Required Schedules are fairly stated in all material respects in relation to the basic financial statements as a whole

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12 The introductory section 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. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated November 13, 2018, on our consideration of the 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 the effectiveness of s 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 s internal control over financial reporting and compliance. Harlingen, Texas November 13,

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14 Management s Discussion and Analysis As management of the, we offer this narrative overview of the District s financial performance during the fiscal year ended June 30, We encourage readers to consider the information presented here in conjunction with the independent auditors report, and the District s Basic Financial Statements which follow this section. FINANCIAL HIGHLIGHTS The District s assets and deferred outflows exceed its liabilities and deferred inflows at the close of this fiscal year by $1,976,393 (net position) which is a decrease from the prior year of $1,530,204 as previously reported. However, there was a prior period adjustment as a result of the implementation of GASB 75 for other post employment benefits (OPEB) in the amount of ($2,113,337). The beginning net position after the prior period adjustment was $1,393,260 which compared to the ending net position for the current year of $1,976,393 increased by $583,133 compared to the restated beginning net position. The impact of recording the negative non employer contributing entities (NECE) on behalf revenue and on behalf expense due to changes in benefits within the TRS care plan reduced both operating grants and contributions and expenses by $571,380. This GASB required entry at the government wide level was the largest contributing factor to variances between this year and the prior year within the statement of activities. The District s General Fund reported a fund balance this year of $3,407,526 which is an increase of $157,830. The District s Debt Service fund reported a fund balance this year of $211,994 which is an increase of $79,214. The District received an A Superior (98/100) rating for the Financial Integrity System of Texas (FIRST) for The FIRST rating evaluates quality of performance in the management of the school district s financial resources. The ratings for each year are based on the prior school year s data. For the and school years the District also received an A Superior rating. For the District received a Pass rating which was the highest rating available. Prior to the change in the rating system, the District had received nine years of superior ratings. The District s current and delinquent property tax collections were 104.3% of the levy for the current tax year. There was a problem with the prior year tax billing to the wind farm as a result of the tax value limitation agreement. A corrected statement was issued in June 2017 and paid in July 2017 which increased the taxes collected in the current period. OVERVIEW OF THE FINANCIAL STATEMENTS The Financial Section of this Annual Financial Report consists of four parts: (1) management s discussion and analysis (this section), (2) the basic financial statements, (3) required supplementary information, and (4) other supplementary information, which is the section that presents additional information required by the Texas Education Agency. The Management s Discussion and Analysis section is intended to serve as an introduction to the District s Basic Financial Statements. The District s Basic Financial Statements comprise three components: (1) Government Wide Financial Statements (2) Fund Financial Statements, and (3) Notes to the Basic Financial Statements. The basic financial statements include two kinds of statements that present different views of the District: The first two statements are government wide financial statements that provide both long term and short term information about the District s overall financial status. The remaining statements are fund financial statements that focus on individual parts of the government, reporting the District s operations in more detail than the government wide statements. 7

15 Management s Discussion and Analysis The governmental funds statements tell how general government services were financed in the short term as well as what remains for future spending. Proprietary fund statements offer short and long term financial information about the activities the government operates like businesses. The District currently does not utilize any proprietary funds. Fiduciary fund statements provide information about the financial relationships in which the District acts solely as a trustee or agent for the benefit of others, to whom the resources in question belong. The financial statements also include notes that explain some of the information in the financial statements and provide more detailed data. The statements are followed by a section of required supplementary information that further explains and supports the information in the financial statements. The remainder of this overview section of management s discussion and analysis explains the structure and contents of each of the statements. Government wide 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, liabilities, and deferred inflows/outflows of resources, with the difference 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 the 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 sick leave.) The government wide financial statements of the District are principally supported by taxes and intergovernmental revenues (governmental activities). All of the District s services are reported in the government wide financial statements, including instructional leadership, student support services, general administration, support services, and debt services. Fund Financial Statements A fund is a group of related accounts that is used to maintain control over resources that have been segregated for specific activities or objectives. The District, like other state and local governments, uses fund accounting to ensure and demonstrate compliance with finance related requirements. The fund financial statements provide more detailed information about the District s most significant funds not the District as a whole. Funds are accounting devices that the District uses to keep track of specific sources of funding and spending for particular purposes. Some funds are required by State law and by bond covenants. The Board of Trustees establishes other funds to control and manage money for particular purposes to show that it is properly using taxes and grants. The District has the following kinds of funds: Governmental funds: Government funds are used to account for essentially the same functions reported as governmental activities in the government wide financial statements. However, unlike the government wide financial statements, governmental fund financial statements focus on near term inflows and outflows of spendable resources, as well as on balances of spendable resources available at the end of the year. 8

16 Management s Discussion and Analysis Most of the District s basic services are included in governmental funds, which focus on (1) how cash and other financial assets that can readily be converted to cash flow in and out and (2) the balances left at year end that are available for spending. Consequently, the governmental fund statements provide a detailed short term view that helps you determine whether there are more or fewer financial resources that can be spent in the near future to finance the District s programs. Because this information does not encompass the additional long term focus of the government wide statements, we provide additional information at the bottom of the governmental funds statement, or on the subsequent page, that explain the relationship (or differences) between them. The District maintains 15 governmental funds. Information is presented separately in the governmental fund balance sheet and in the governmental fund statement of revenues, expenditures and changes in fund balances for the general fund, and the debt service fund, which are considered to be major funds. Data from the other governmental funds are combined in a single, aggregated presentation. The District adopts an annual appropriated budget for its General Fund, Child Nutrition Program (included in the general fund) and Debt Service Fund. A budgetary comparison schedule has been provided to demonstrate compliance with these budgets. Proprietary funds: Services for which the District charges customers a fee are generally reported in proprietary funds. Proprietary funds, like the government wide statements, provide both long term and short term financial information. The District currently does not utilize any proprietary fund types. Fiduciary funds: The District is the trustee, or fiduciary, for certain funds. The District is responsible for ensuring that the assets reported in these funds are used for their intended purposes. All of the District s fiduciary activities are reported in a separate statement of fiduciary net assets. We exclude these activities from the District s government wide financial statements because the District cannot use these assets to finance its operations. Notes to Financial Statements The notes provide additional information that is essential to a complete understanding of the data provided in the government wide and fund financial statements. Required Supplementary Information In addition to the basic financial statements and accompanying notes, this report also presents certain required supplementary information (RSI) that further explains and supports the information in the financial statements. The Required Supplementary Information includes a comparison of the original adopted budget, the final amended budget, and the actual results for the fiscal year ended for the general fund. Also included in RSI is the Schedule of the District s Proportionate Share of the Net Pension Liability of the Teacher Retirement System of Texas, the Schedule of District Contributions to the Teacher Retirement System of Texas, the Schedule of the District s Proportionate Share of the Net OPEB liability of the Teacher Retirement System of Texas and the Schedule of District OPEB Contributions to the Teacher Retirement System of Texas. Texas Education Agency Required Schedules This section contains information for the purpose for additional analysis and is not a required part of the basic financial statements. This section includes certain compliance schedules required by the Texas Education Agency. 9

17 Management s Discussion and Analysis Government Wide Financial Analysis Presented in Tables I and II below are summarized Statement of Net Position and Statement of Changes in Net Position for both current and prior year data. Our analysis focuses on the current year and the comparison of prior year amounts on the net position (Table I) and changes in net position (Table II) of the District s governmental activities. Net Position As noted earlier, net position may serve over time as a useful indicator of a government s financial position. For the year ended June 30, 2018, the District s assets and deferred outflows exceeded its liabilities and deferred inflows by $1,976,393. Table I Net Position Summary Governmental Activities Current and other assets $ 4,305,336 $ 4,595,602 Capital assets 6,784,378 6,638,762 Total assets 11,089,714 11,234,364 Deferred outflows of resources 361, ,643 Other liabilities 593, ,825 Long term liabilities 8,160,227 7,655,172 Total liabilities 8,753,439 8,110,997 Deferred inflows of revenues 721,483 73,413 Net investment in capital assets 454, ,078 Restricted 346, ,114 Unrestricted 1,175,826 2,263,405 Total net position $ 1,976,393 $ 3,506,597 As depicted in Table I, a significant portion of the District s net position, 23%, reflects its investment in capital assets less any related debt used to acquire those assets that is still outstanding. The District uses these capital assets to provide services to students; consequently, these assets are not available for future spending. Although the District s investment in capital assets is reported net of related debt, it should be noted that the resources needed to repay this debt must be provided from other sources since the capital assets themselves cannot be used to liquidate these liabilities. Also, approximately 18% of the net position of the District represents resources that are subject to external restriction on how they may be used. The remaining 59% of net position are unrestricted and may be used to meet the District s ongoing obligations. Change in Net Position The Net Position of the District decreased by $1,530,204 for the year ended June 30, 2018 primarily as a result of the prior period adjustment of ($2,113,337) that resulted from implementing GASB 75 and recording the District s share of the net OPEB liability for TRS Care plan of the Teacher Retirement System of Texas. 10

18 11 Management s Discussion and Analysis Table II Changes in Net Position Governmental Activities Revenues Program Revenues: Charges for services $ 149,933 $ 154,738 Operating grants and contributions 25, ,300 General Revenues: Property taxes 1,272,133 1,265,498 State and other grants 2,389,075 2,442,509 Investment earnings 2, Miscellaneous local intermediate 40,082 25,404 Total Revenues 3,879,321 4,532,164 Expenses Program Expenses: Instruction 1,300,160 1,927,013 Instructional resources and media services 54,960 74,570 Curriculum and instructional staff development 69,742 59,345 Instructional leadership 10,268 13,356 School leadership 153, ,481 Guidance, counseling and evaluation services 53,546 84,374 Health services 29,286 42,064 Student (pupil) transportation 64,664 64,036 Food services 157, ,210 Extracurricular activities 234, ,267 General administration 412, ,430 Facilities maintenance and operations 488, ,589 Security and monitoring services 4,345 4,820 Data processing services 19,871 24,707 Community services 3,224 3,383 Debt service 185, ,953 Payments to fiscal agent/member districts of SSA 21,950 27,562 Other governmental charges 32,169 31,094 Total Expenses 3,296,188 4,326,254 Increase (decrease) in net position 583, ,910 Beginning net position 3,506,597 3,300,687 Prior period adjustment OPEB (2,113,337) Ending net position $1,976,393 $3,506,597 The District s total revenues were $3,879,321. A significant portion, 63%, of the District s revenue comes from state aid formula grants and operating grants, 33% comes from taxes, while 4% relates to charges for services. The decrease in revenue from the prior year is primarily due to negative on behalf revenue related to the net OPEB liability, as described in Note 21 of the financial statements. Governmental Activities Property tax rates on a combined basis remained the same at $1.36 but the voters approved a TRE so that local maintenance rate increased from $1.04 to $1.17 and the debt service rate decreased from $0.32 to $0.19 per $100 of taxable property value. This shift in tax rate allowed the District to generate more funding from the state during the current year on a per student basis, although total state aid slightly decreased due to a decrease in enrollment. Average daily attendance decreased from 250 to 243 students which was primarily the result of fewer students in the Pre K class as compared to the number of graduating seniors.

19 Management s Discussion and Analysis The total cost of all programs and services was $3,296,188; 65% of these costs are for instructional and student services. Table III presents the cost of each of the District s largest functions as well as each function s net cost (total cost less fees generated by the activities and intergovernmental aid). The net cost reflects what was funded by state revenues as well as local tax dollars. The cost of all governmental activities this year was $3,296,188 (which is lower than the prior year due to the negative NECE on behalf expense related to TRS Care and implementing GASB 75). The amount that our taxpayers paid for these activities through property taxes was $1,272,133. Some of the cost was paid by those who directly benefited from the programs $149,933, or by grants and contributions $25,543 (which is significantly lower this year due to the negative NECE on behalf contribution). Table III Net Cost of Selected District Functions Total Cost of Services Net Cost of Services Instruction $1,300,160 $1,927,013 $1,295,385 $1,519,439 Food services 157, ,210 (32,287) (1,431) Extracurricular activities 234, , , ,719 General administration 412, , , ,167 Facilities maintenance and operations 488, , , ,432 FINANCIAL ANALYSIS OF THE DISTRICT S FUNDS As noted earlier, the District uses fund accounting to ensure and demonstrate compliance with finance related legal requirements, bond covenants, and segregation for particular purposes. The focus of the District s governmental funds is to provide information on near term inflows, outflows, and balances of spendable 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 a fiscal year. As of June 30, 2018, the District s governmental funds reported a combined ending fund balance of $3,824,595, a decrease of $145,182 from last year. Of the total fund balance, $3,160,056, or approximately 83%, constitutes unassigned fund balance. The remainder of fund balance is nonspendable, restricted, committed or assigned for particular purposes as follows: Table IV Governmental Funds Fund Balances Nonspendable Inventories $ 3,570 Prepayments 19,669 Restricted Food service 87,231 Capital acquisition 119,990 Debt service 211,994 Committed Campus activity funds 22,085 Assigned Other assigned fund balance 200,000 Unassigned Unassigned 3,160,056 $3,824,595 12

20 Management s Discussion and Analysis General Fund Budgetary Highlights Over the course of the year, the District revised its budget three times. Actual expenditures were $265,817 below final budget amounts with no functions exceeding the approved budget amounts. The most significant positive variances resulted from staffing. Staffing is budgeted for full employment throughout the full year. Below are additional items of importance: General Fund Balance increased by $157,830. This was due primarily to the careful monitoring of all expenditures. CAPITAL ASSETS AND DEBT ADMINISTRATION Capital Assets At the end of 2018, the District had invested $6,784,378 in a broad range of capital assets, including land, buildings and improvements and equipment. Table V Capital Asset Summary Governmental Activities Land $ 99,558 $ 80,686 Buildings and improvements 8,135,222 5,335,812 Construction in progress 2,528,407 Equipment 700, ,358 Total assets at historical cost 8,935,576 8,556,263 Less accumulated depreciation (2,151,198) (1,917,501) Net capital assets $6,784,378 $6,638,762 The District held a successful bond election on November 3, 2015 where the voters approved up to $3,000,000 in school building bonds to demolish the existing middle school building, construct a new elementary school building on that site, and relocate the middle school to the cafeteria/library building constructed in The old elementary building will be repurposed at a future date. Also included in the project is the demolition of the old gym locker rooms and construction of new locker room facilities and the renovation of the lobby and guest restrooms. The new elementary building was occupied for the entire year and the gym renovations were completed in December The remaining fund balance in the capital projects fund of $119,990 will be utilized for projects that were originally excluded from the project due to estimated costs. 13

21 Management s Discussion and Analysis Long term Liabilities At year end the District had the following long term liabilities: Table VI Long term Liabilities Outstanding Governmental Activities General Obligation Bonds (net) $6,537,711 $6,777,930 Property finance contract 27,053 39,716 Net pension liability 595, ,525 Net OPEB liability 1,203,962 Total $8,364,001 $7,655,171 State statutes do not limit the tax rate or amount of local tax support for school district s bonded indebtedness. However, approval of the Attorney General of the State of Texas is required prior to the sale of bonds. Additional information on the District s long term debt can be found in the notes to the financial statements as indicated in the table of contents of this report. Pension The District reports net pension liabilities, deferred inflows of resources and deferred outflows of resources and the recognition of pension expense in accordance with the provisions of GASB Statement No. 68. The amounts recorded by the District for the current school year for net pension liability and deferred outflows of resources related to TRS decreased while the deferred inflows of resources related to TRS increased over the amounts reported at the end of the prior school year. See note 15 to the financial statements for additional information on these changes and the pension related balances at year end. Other Post Employment Benefit Plan (OPEB) The District reports net OPEB liabilities, deferred inflows of resources and deferred outflows of resources and the recognition of OPEB expense in accordance with the provisions of GASB Statement No. 75. This statement was implemented during the current school year and generated a prior period adjustment at the government wide financial statement level of ($2,113,337). Because of changes to the benefits within the TRS Care plan, the on behalf contribution by the State was negative rather than being a positive. This unique situation was addressed to GASB and the result is that all Districts are recording negative revenue and expenses at the government wide level of reporting in the Statement of Activities. See note 16 to the financial statements for additional information on the OPEB liability and related balances at year end, and Note 21 to the financial statements for additional information about the impact of the negative on behalf contributions described above. ECONOMIC FACTORS AND NEXT YEAR S BUDGETS AND RATES Appraised value used for the budget preparation is the initial certified estimate of $148,566,651 for maintenance and operations and $377,939,321 for debt service. These values were reduced in July after the budget was adopted to $107,512,752 for maintenance and operations and $336,885,422 for debt service. The current values are still a significant increase over the prior year due to the completion of Magic Valley Wind Farm II. 14

22 Management s Discussion and Analysis Our tax rate will decrease from $1.36 to $1.21 per $100 of valuation with $1.09 for maintenance and operations (M&O) and $0.12 for debt service (I&S). The District has two Chapter 313 Tax Value Limitation Agreements. The first agreement limits taxable value for M&O to $10,000,000 plus a tax credit of $50,508. The second agreement limits taxable value for M&O to $15,000,000 and does not provide for a tax credit. General operating fund spending per student increased in the budget from $14,944 to $16,211. The District s refined average daily attendance is expected to decrease slightly. The budget for was based on refined ADA of since once again more students have graduated than have been added to Pre K. These indicators were taken into account when adopting the general fund budget for Amounts available for appropriation in the general fund budget are $3,649,500 which exceeds anticipated revenues by $647,240. The revised revenues based upon updated tax values have been reduced but the District will revise the appropriations to maintain a balanced budget. CONTACTING THE DISTRICT S FINANCIAL MANAGEMENT This financial report is designed to provide our citizens, taxpayers, customers, and investors and creditors with a general overview of the District s finances and to demonstrate the District s accountability for the money it receives. If you have questions about this report or need additional financial information, contact the District s Business Office. 15

23 FINANCIAL STATEMENTS 7

24 Data Control Codes SAN PERLITA INDEPENDENT SCHOOL DISTRICT STATEMENT OF NET POSITION JUNE 30, 2018 Primary Government Governmental Activities EXHIBIT A-1 ASSETS 1110 Cash and Cash Equivalents $ 1220 Property Taxes Receivable (Delinquent) 1230 Allowance for Uncollectible Taxes 1240 Due from Other Governments 1300 Inventories 1410 Prepayments Capital Assets: 1510 Land 1520 Buildings, Net 1530 Furniture and Equipment, Net 3,322, ,339 (9,117) 786,389 3,570 19,669 99,558 6,534, , Total Assets 11,089,714 DEFERRED OUTFLOWS OF RESOURCES 1701 Deferred Charge for Refunding 1705 Deferred Outflow Related to TRS Pension 1706 Deferred Outflow Related to TRS OPEB 114, ,236 16, Total Deferred Outflows of Resources 361,601 LIABILITIES 2110 Accounts Payable 2140 Interest Payable 2150 Payroll Deductions & Withholdings 2160 Accrued Wages Payable 2177 Due to Fiduciary Funds 2180 Due to Other Governments Noncurrent Liabilities: 2501 Due Within One Year 2502 Due in More Than One Year 2540 Net Pension Liability (District's Share) 2545 Net OPEB Liability (District's Share) 33,637 81,918 31, , , ,775 6,360, ,275 1,203, Total Liabilities 8,753,439 DEFERRED INFLOWS OF RESOURCES 2603 Deferred Resource Inflow Related to TRS OPEB 2605 Deferred Inflow Related to TRS Pension 503, , Total Deferred Inflows of Resources 721,483 NET POSITION 3200 Net Investment in Capital Assets 3820 Restricted for Federal and State Programs 3850 Restricted for Debt Service 3860 Restricted for Capital Projects 3870 Restricted for Campus Activities 3900 Unrestricted 454,027 90, , ,990 22,085 1,175, Total Net Position $ 1,976,393 The notes to the financial statements are an integral part of this statement. 16

25 Data Control Codes SAN PERLITA INDEPENDENT SCHOOL DISTRICT STATEMENT OF ACTIVITIES FOR THE YEAR ENDED JUNE 30, 2018 Program Revenues EXHIBIT B-1 Net (Expense) Revenue and Changes in Net Position Expenses Charges for Services Operating Grants and Contributions Primary Gov. Governmental Activities Primary Government: GOVERNMENTAL ACTIVITIES: 11 Instruction $ 1,300,160 $ 75,682 $ (70,907) $ (1,295,385) 12 Instructional Resources and Media Services 54,960 - (9,528) (64,488) 13 Curriculum and Staff Development 69,742-35,021 (34,721) 21 Instructional Leadership 10, (10,268) 23 School Leadership 153,404 - (31,848) (185,252) 31 Guidance, Counseling and Evaluation Services 53,546 - (14,148) (67,694) 33 Health Services 29,286 - (3,311) (32,597) 34 Student (Pupil) Transportation 64,664 - (773) (65,437) 35 Food Services 157,169 4, ,642 32, Extracurricular Activities 234,413 45, (188,114) 41 General Administration 412,490 - (36,811) (449,301) 51 Facilities Maintenance and Operations 488,805 23,826 (22,841) (487,820) 52 Security and Monitoring Services 4, (4,345) 53 Data Processing Services 19,871 - (4,641) (24,512) 61 Community Services 3, (3,224) 72 Debt Service - Interest on Long Term Debt 178, (178,722) 73 Debt Service - Bond Issuance Cost and Fees 7, (7,000) 93 Payments related to Shared Services Arrangements 21, (21,950) 99 Other Intergovernmental Charges 32, (32,169) [TP] TOTAL PRIMARY GOVERNMENT: $ 3,296,188 $ 149,933 $ 25,543 (3,120,712) Data Control Codes General Revenues: MT Property Taxes: Taxes, Levied for General Purposes 1,052,190 DT Property Taxes, Levied for Debt Service 219,943 SF State Aid - Formula Grants 2,335,686 GC Grants and Contributions not Restricted 53,389 IE Investment Earnings 2,555 MI Miscellaneous Local and Intermediate Revenue 40,082 TR Total General Revenues 3,703,845 CN Change in Net Position 583,133 NB PA NE Net Position - Beginning Prior Period Adjustment Net Position--Ending $ 3,506,597 (2,113,337) 1,976,393 The notes to the financial statements are an integral part of this statement. 17

26 SAN PERLITA INDEPENDENT SCHOOL DISTRICT BALANCE SHEET GOVERNMENTAL FUNDS JUNE 30, 2018 EXHIBIT C-1 Data Control Codes 10 General Fund 50 Debt Service Fund Other Funds Total Governmental Funds ASSETS 1110 Cash and Cash Equivalents $ 3,124,129 $ 141,747 $ 56,610 $ 3,322, Property Taxes - Delinquent 149,969 32, , Allowance for Uncollectible Taxes (Credit) (7,498) (1,619) - (9,117) 1240 Receivables from Other Governments 679, , , Due from Other Funds ,247 1,205 71, Inventories 3, , Prepayments 19, , Total Assets $ 3,969,965 $ 242,745 $ 164,268 $ 4,376,978 LIABILITIES 2110 Accounts Payable $ 21,768 $ - $ 11,869 $ 33, Payroll Deductions and Withholdings Payable 31, , Accrued Wages Payable 230,566-10, , Due to Other Funds 72, , Due to Other Governments 1, , Total Liabilities 356,968-22, ,161 DEFERRED INFLOWS OF RESOURCES 2601 Unavailable Revenue - Property Taxes 142,471 30, , Total Deferred Inflows of Resources 142,471 30, , FUND BALANCES Nonspendable Fund Balance: Inventories Prepaid Items Restricted Fund Balance: Federal or State Funds Grant Restriction Capital Acquisition and Contractual Obligation Retirement of Long-Term Debt Committed Fund Balance: Other Committed Fund Balance Assigned Fund Balance: Other Assigned Fund Balance Unassigned Fund Balance 3, ,570 19, ,669 87, , , , , , ,085 22, , ,000 3,160, ,160, Total Fund Balances 3,470, , ,075 3,824, Total Liabilities, Deferred Inflows & Fund Balances $ 3,969,965 $ 242,745 $ 164,268 $ 4,376,978 The notes to the financial statements are an integral part of this statement. 18

27 SAN PERLITA INDEPENDENT SCHOOL DISTRICT RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET POSITION JUNE 30, 2018 Total Fund Balances - Governmental Funds 1 Capital assets used in governmental activities are not financial resources and therefore not reported in the governmental funds. The cost of these assets was $8,935,576 and the accumulated depreciation was $2,151, Property taxes receivable will be collected this year, but are not available soon enough to pay for the current period's expenditures, and therefore are unavailable revenue (deferred inflows of resources) in the governmental funds. 3 Deferred charges for refunding bonds are not financial resources and therefore are not reported in the governmental funds. 4 Long-term liabilities including bonds payable, loan payable, unamortized bond premiums and accrued interest payable are not due and payable in the current period and therefore are not reported as liabilities in the funds. Liabilities at year end include bonds payable of $5,860,000, loan payable of $27,053, unamortized bond premiums of $677,711 and accrued interest of $81, Included in the items related to debt is the recognition of the District's proportionate share of the net pension liability required by GASB 68. The net position related to TRS included a deferred resource outflow in the amount of $230,236, a deferred resource inflow in the amount of $217,863, and a net pension liability in the amount of $595,275. This resulted in a decrease in net position. 6 Included in the items related to debt is the recognition of the District's proportionate share of the net OPEB liability as required by GASB 75. The net position related to TRS included a deferred resource outflow in the amount of $16,941, a deferred resource inflow in the amount of $503,620, and a net OPEB liability in the amount of $1,203,962. This resulted in a decrease in net position. 19 Net Position of Governmental Activities $ $ EXHIBIT C-2 3,824,595 6,784, , ,424 (6,646,683) (582,902) (1,690,641) 1,976,393 The notes to the financial statements are an integral part of this statement. 19

28 Data Control Codes SAN PERLITA INDEPENDENT SCHOOL DISTRICT STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE GOVERNMENTAL FUNDS FOR THE YEAR ENDED JUNE 30, General Fund 50 Debt Service Fund Other Funds EXHIBIT C-3 Total Governmental Funds REVENUES: Total Local and Intermediate Sources $ 1,179,686 $ 324,458 $ 41,329 $ 1,545,473 State Program Revenues 2,496,097 49,806 16,618 2,562,521 Federal Program Revenues 244, , , Total Revenues 3,920, , ,981 4,592, EXPENDITURES: Current: Instruction Instructional Resources and Media Services Curriculum and Instructional Staff Development Instructional Leadership School Leadership Guidance, Counseling and Evaluation Services Health Services Student (Pupil) Transportation Food Services Extracurricular Activities General Administration Facilities Maintenance and Operations Security and Monitoring Services Data Processing Services Community Services Debt Service: Principal on Long Term Debt Interest on Long Term Debt Bond Issuance Cost and Fees Capital Outlay: Facilities Acquisition and Construction Intergovernmental: Payments to Fiscal Agent/Member Districts of SSA Other Intergovernmental Charges 1,582, ,010 1,786,653 71, ,794 56,934-52, ,576 10, , , ,346 85, ,529 36, ,772 45, , , , ,906-45, , , , , ,433 4, ,345 30, ,363 1, ,917 12, , ,664 1, , ,677-7,000-7, , ,212 21, ,950 32, , Total Expenditures 3,637, , ,207 4,737, Excess (Deficiency) of Revenues Over (Under) Expenditures OTHER FINANCING SOURCES (USES): 7915 Transfers In 8911 Transfers Out (Use) 282,830 (45,786) (382,226) (145,182) - 125, ,000 (125,000) - - (125,000) 7080 Total Other Financing Sources (Uses) (125,000) 125, Net Change in Fund Balances 157,830 79,214 (382,226) (145,182) 0100 Fund Balance - July 1 (Beginning) 3,312, , ,301 3,969, Fund Balance - June 30 (Ending) $ 3,470,526 $ 211,994 $ 142,075 $ 3,824,595 The notes to the financial statements are an integral part of this statement. 20

29 SAN PERLITA INDEPENDENT SCHOOL DISTRICT EXHIBIT C-4 RECONCILIATION OF THE GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES TO THE STATEMENT OF ACTIVITIES FOR THE YEAR ENDED JUNE 30, 2018 Total Net Change in Fund Balances - Governmental Funds Governmental funds report capital outlays as expenditures. However, in the statement of activities, the cost of assets are allocated over their estimated useful lives as depreciation expense. This is the amount by which current capital outlay $379,313 exceeded depreciation of $233,697. Repayment of bond and loan principal is an expenditure in the governmental funds but is not an expense in the statement of activities. The District paid $190,000 in bond principal and $12,663 in loan principal during the current year. Interest on long-term debt is recognized as an expenditure in the governmental funds when it is due but in the statement of activities, it is recognized as it accrues. Likewise, premiums or discounts on the sale of bonds are recognized in the governmental funds when the debt is first issued but in the statement of activities, they are amortized over the life of the debt. During the current year the change in accrued interest on long-term debt decreased by $2,074 and amortization of deferred charges on refudings of $6,337 were offset by the amortization of bond premiums of $50,219, resulting in a net increase in the change in net position. Because some property taxes will not be collected for several months after the District's year end, they are not considered "available" revenues in the governmental funds. GASB 68 required that certain plan expenditures be de-expended and recorded as deferred resource outflows. These contributions made after the measurement date of the plan caused the change in ending net position to increase by $55,975. Contributions made before the measurement date and during the previous fiscal year were also expended and recorded as a reduction in net pension liability. This caused a decrease in net position totaling $52,398. Finally, the proportionate share of the TRS pension expense on the plan as a whole had to be recorded. The net pension expense decreased the change in net position by $11,423. The net result is a decrease in the change in net position. GASB 75 required that certain plan expenditures be de-expended and recorded as deferred resource outflows. These contributions made after the measurement date of the plan caused the change in ending net position to increase by $16,751. Contributions made before the measurement date and during the previous fiscal year were also expended and recorded as a reduction in the net OPEB liability. This caused a decrease in net position totaling $12,197. Finally, the proportionate share of the TRS OPEB expense on the plan as a whole had to be recorded. The net OPEB expense increased the change in net position by $418,142. The net result is an increase in the change in net position. Change in Net Position of Governmental Activities $ $ (145,182) 145, ,663 45,956 (80,770) (7,846) 422, ,133 The notes to the financial statements are an integral part of this statement. 21

30 SAN PERLITA INDEPENDENT SCHOOL DISTRICT STATEMENT OF FIDUCIARY NET POSITION FIDUCIARY FUNDS JUNE 30, 2018 EXHIBIT E-1 Agency Fund ASSETS Cash and Cash Equivalents $ Due from Other Funds 19, Total Assets $ 19,915 LIABILITIES Due to Student Groups $ 19,915 Total Liabilities $ 19,915 The notes to the financial statements are an integral part of this statement. 22

31 Notes to Financial Statements NOTE 1: REPORTING ENTITY The (District) is governed by a seven member Board of Trustees (Board), which has governance responsibilities over all activities related to public education within the District. Because members of the Board are elected by the public; have authority to make decisions; appoint management and significantly influence operations; and have primary accountability for fiscal matters; the District is not included in any other governmental reporting entity. The accompanying financial statements present the District. There are no component units, entities for which the District is considered to be financially accountable, included within the reporting entity. The District receives funding from local, state and federal government sources and must comply with the requirements of these funding services. NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 's (the "District") basic financial statements have been prepared in conformity with generally accepted accounting principles (GAAP) as applied to governmental units in conjunction with the Texas Education Agency's Financial Accountability System Resource Guide (the "Resource Guide"). The Governmental Accounting Standards Board (GASB) is the accepted standards setting body for establishing governmental accounting and financial reporting principles. Basis of Presentation Government Wide Statements: The government wide financial statements consist of the statement of net position and the statement of activities. These statements report information on all of the non fiduciary activities of the District. The effect of the interfund activity has been removed from these statements. The statement of activities demonstrates the degree to which the direct expenses of a given function are offset by program revenues. Program revenues include charges to customers and grants used for operational requirements. Governmental activities are supported by tax revenues, state aid, charges for services, investment earnings and intergovernmental revenues such as grants. Direct expenses are those that are clearly identifiable with a specific function. Program revenues include 1) charges to customers or applicants who purchase, use or directly benefit from goods, services or privileges provided by a given function and 2) grants and contributions that are restricted to meeting operational or capital requirements of a particular function. Taxes and other items not properly included among program revenues are reported instead as general revenues. Separate financial statements are provided for governmental funds, and fiduciary funds even though the latter are excluded from the government wide financial statements. 23

32 Notes to Financial Statements NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Fund Financial Statements: The accounts of the District are organized on the basis of funds, each of which is considered a separate accounting entity. The operations of each fund are accounted for with a separate set of self balancing accounts that comprise its assets, deferred outflows of resources, liabilities, deferred inflows of resources, fund equity, revenues and expenditures, or expenses, as appropriate. Government resources are allocated to, and accounted for the purpose of, carrying on specific activities in accordance with laws, regulations, or other appropriate requirements. The emphasis of fund financial statements is on major governmental funds, each displayed in a separate column. All remaining governmental funds are aggregated and reported as non major funds. The District reports the following major governmental funds: General Fund. This is the District s primary operating fund. It accounts for all financial resources of the District except those required to be accounted for in another fund. Debt Service Fund. The District accounts for resources accumulated and payments made for principal and interest on long term general obligation debt of governmental funds in a debt service fund. Additionally, the District reports the following funds: Nonmajor Governmental Funds: Special Revenue Funds. Special Revenue Funds are the funds that account for state and federally financed programs or expenditures legally restricted for specified purposes or where unused balances are returned to the grantor at the close of specified project periods. Capital Projects Fund. The capital projects fund of the District accounts for proceeds from long term debt financing and revenues and expenditures related to authorized construction and related capital asset acquisitions. Fiduciary Funds: Agency Funds. These funds are used to report student activity funds and other resources held in a purely custodial capacity (assets equal liabilities). Agency funds typically involve only the receipt, temporary investment, and remittance of fiduciary resources to individuals, private organizations, or other governments. The District has no proprietary funds or private purpose trust funds. 24

33 Notes to Financial Statements NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Implementation of New Standards In the current fiscal year, the District implemented the following new standards: GASB Statement No. 75, Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions, applies to financial reports of all state and local governmental entities. GASB Statement No. 75 establishes standards for measuring and recognizing liabilities, deferred outflows of resources and deferred inflows of resources, and expense/expenditures for postemployment benefits other than pensions. GASB Statement No. 75 also identified the methods and assumptions that are required to be used to project benefit payments, discount projected benefit payments to their actuarial present value, and attribute that present value to periods of employee service. In addition GASB Statement No. 75 addresses the recognition and disclosure requirements for employers with liabilities to a defined benefit other postemployment benefits plan and for employers whose employees are provided with defined contribution other postemployment benefits. Recently Issued Accounting Pronouncements In June 2017, the GASB issued GASB Statement No. 87, Leases, effective for fiscal years beginning after December 15, The objective of GASB Statement No. 87 is to improve accounting and financial reporting for leases by governments by requiring recognition of certain lease assets and liabilities that previously were classified as operating leases and recognized as inflows of resources or outflows of resources based on the payment provisions of the contract. GASB Statement No. 87 establishes a single model for lease accounting based on the foundational principle that leases are financings of the right to use an underlying asset. Under GASB Statement No. 87, a lessee is required to recognize a lease liability and an intangible right to use asset, and a lessor is required to recognize a lease receivable and deferred inflow of resources. Management is evaluating the effects that the full implementation of GASB Statement No. 87 will have on its financial statements for the year ended June 30, Measurement Focus, Basis of Accounting and Financial Statement Presentation These government wide and fiduciary fund financial statements are reported using the economic resources measurement focus. The government wide and fiduciary fund financial statements are reported using the accrual basis of accounting. Revenues are recorded when earned and expenses are recorded at the time liabilities are incurred, regardless of when the related cash flows take place. Non exchange transactions, in which the District gives (or receives) value without directly receiving (or giving) equal value in exchange, include property taxes, grants, entitlements, and donations. On an accrual basis, revenue from property taxes is recognized in the fiscal year for which the taxes are levied. Revenue from grants, entitlements, and donations is recognized in the fiscal year in which all eligibility requirements have been satisfied. 25

34 Notes to Financial Statements NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Measurement Focus, Basis of Accounting and Financial Statement Presentation (Continued) Governmental funds are reported using the current financial resources measurement focus and the modified accrual basis of accounting. This basis of accounting recognizes revenues in the accounting period in which they become available and measurable. The District considers revenues as available if they are collected within the 60 days after year end. Revenues susceptible to accrual are property taxes, fiscal year state funding, and interest revenues. Expenditures are recorded when the related fund liability is incurred, except for principal and interest on general longterm debt, claims and judgments, and compensated absences, which are recognized as expenditures to the extent they have matured. General capital asset acquisitions are reported as expenditures in governmental funds. Proceeds of general long term debt and acquisitions under capital leases are reported as other financing sources. When the District incurs an expenditure or expense for which both restricted and unrestricted resources may be used, it is the District s policy to use restricted resources first, then unrestricted resources. Unearned revenue is reported in the governmental funds when a potential revenue does not meet both the measurable and available criteria for recognition in the current period. Unearned revenues also arise when resources are received by the government before it has a legal claim to them, as when grant monies are received prior to the incurrence of qualifying expenditures. In subsequent periods, when both revenue recognition criteria are met, or when the government has a legal claim to the resources, the liability for unearned revenue is removed and revenue is recognized. Budgets The official school budget was prepared for adoption for the general fund, the child nutrition fund (part of the general fund) and the debt service fund by June 20, The budget was formally adopted by the board of school trustees at a duly advertised public meeting prior to the expenditure of funds. The budget was amended by the board of school trustees throughout the year. Expenditures may not legally exceed budgeted appropriations at the function level. Cash and Cash Equivalents Investments are considered to be cash equivalents if they are highly liquid and have a maturity within three months or less. 26

35 Notes to Financial Statements NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Investments Money market investments which are short term, highly liquid debt instruments including commercial paper, bankers acceptances and U. S. Treasury and agency obligations are reported at fair value. Inventory Inventories include consumable maintenance, instructional, office and purchased food service items. These materials and supplies are carried in inventory at average cost and are subsequently charged to expenditures when consumed. Food service commodity inventory is recorded at fair market value on the date received. Commodities are recognized as revenues in the period received when all the eligibility requirements are met. Commodity inventory items are recorded as expenditures when distributed for use. A portion of fund balance is restricted to reflect minimum inventory quantities considered necessary for the District s continuing operations. Prepayments Prepayments are expenditures that will benefit periods beyond June 30, The only prepayments included are for unexpired insurance policy premiums paid by June 30, 2018, and which extend beyond that date. Capital Assets Purchased or constructed capital assets are reported at cost or estimated historical cost. Donated capital assets are recorded at their estimated fair value at the date of the donation. The cost of normal maintenance and repairs that do not add to the value of the asset or materially extend assets lives are not capitalized. A capitalization threshold of $5,000 is used. Capital assets are being depreciated using the straight line method over the following estimated useful lives: Estimated Assets Class Useful Lives Buildings and Improvements Vehicles 8 Furniture and Equipment

36 Notes to Financial Statements NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Deferred Outflows/Inflows of Resources Deferred outflows and inflows of resources are reported in the statement of financial position as described below: A deferred outflow of resources is a consumption of a government s net assets (a decrease in assets in excess of any related decrease in liabilities or an increase in liabilities in excess of any related increase in assets) by the government that is applicable to a future reporting period. The District has three items that qualify for reporting in this category: Deferred outflows of resources for refunding Reported in the government wide statement of net position, this deferred charge on refunding results from the difference in the carrying value of refunded debt and its reacquisition price. This amount is deferred and amortized over the shorter of the life of the refunded or refunding debt. Deferred outflows of resources for pension Reported in the government wide financial statement of net position, this deferred outflow results from pension plan contributions made after the measurement date of the net pension liability and the results of differences between expected and actual actuarial experiences. The deferred outflows of resources related to pensions resulting from District contributions subsequent to the measurement date will be recognized as a reduction of the net pension liability in the next fiscal year. The other pension related deferred outflows will be amortized over the expected remaining service lives of all employees (active and inactive employees) that are provided with pensions through the pension plan. Deferred outflows of resources for other post employment benefits (OPEB) Reported in the government wide statement of net position, this deferred outflow results from OPEB contributions made after the measurement date of the net OPEB liability and the results of differences between expected and actual investment earnings and changes in proportion and differences between the employer s contributions and the proportionate share of contributions. The deferred outflows of resources related to OPEB resulting from District contributions subsequent to the measurement date will be recognized as a reduction of the net OPEB liability in the next fiscal year. The other OPEB related deferred outflows will be amortized on the schedule provided by TRS. A deferred inflow of resources is an acquisition of a government s net assets (an increase in assets in excess of any related increase in liabilities or a decrease in liabilities in excess of any related decrease in assets) by the government that is applicable to a future reporting period. 28

37 Notes to Financial Statements NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) The District has three items that qualify for reporting as deferred inflows of resources: Deferred inflows of resources for unavailable revenues Reported only in the governmental funds balance sheet, unavailable revenues from property taxes arise under the modified accrual basis of accounting. These amounts are deferred and recognized as an inflow of resources in the period that the amounts become available. Deferred inflows of resources for pension Reported in the government wide financial statement of net position, these deferred inflows result primarily from differences between projected and actual earnings on pension plan investments. These amounts will be amortized over a closed five year period. Deferred inflows of resources for other post employment benefits (OPEB) Reported in the government wide statement of net position, this deferred inflow results from differences between expected and actual actuarial experiences and changes in actuarial assumptions. The OPEB related inflows will be amortized on the schedule provided by TRS. Interfund Activity Interfund activity results from loans, services provided, reimbursements or transfers between funds. Loans are reported as interfund receivables and payables as appropriate and are subject to elimination upon consolidation. Services provided are treated as revenues and expenditures or expenses. Reimbursements occur when one fund incurs a cost, charges the appropriate benefiting fund, and reduces its related cost as a reimbursement. All other interfund transactions are treated as transfers. Transfers In and Transfers Out are netted and presented as a single Transfers line on the government wide statement of activities. Long term Obligations In government wide financial statements, long term debt and other long term obligations are reported as liabilities. Bond premiums and discounts are 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. Premiums received and discounts incurred on debt issuances are reported as other financing sources and uses. Issuance costs, whether or not withheld from debt proceeds, are reported as debt service requirements in both the government wide and the fund financial statements. Use of Estimates The preparation of financial statements in conformity with GAAP requires the use of management s estimates. Actual results could differ from those estimates. 29

38 Notes to Financial Statements NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Compensated Absences It is the District s policy that vacations are to be taken in the same year they are earned, and any unused days at the end of the year are forfeited. The State of Texas has created a sick leave program with no limit on accumulation and transferability among districts for every person regularly employed in Texas public schools. The local board provides additional days beyond the State minimum. The District s policy is not to provide reimbursement upon separation from the District. Accordingly, no liability for accrued compensated absences has been established by the District. Pension The District is a member employer of the Teacher Retirement System of Texas (TRS) and, therefore, records its proportionate share of the pension liability and related accounts in these financial statements. The fiduciary net position of the Teacher Retirement System of Texas (TRS) has been determined using the flow of economic resources measurement focus and full accrual basis of accounting. This includes for purposes of measuring the net pension liability, deferred outflows of resources and deferred inflows of resources related to pensions, pension expense, and information about assets, liabilities and additions to/deductions from TRS s fiduciary net position. Benefit payments (including refunds of employee contributions) are recognized when due and payable in accordance with the benefit terms. Investments are reported at fair value. Other Post Employment Benefits The fiduciary net position of the Teacher Retirement System of Texas (TRS) TRS Care Plan has been determined using the flow of economic measurement focus and full accrual basis of accounting. This includes for purposes of measuring the net OPEB liability, deferred outflows of resources and deferred inflows of resources related to other postemployment benefits, OPEB expense, and information about assets, liabilities and additions to/deductions from TRS Care s fiduciary net position. Benefit payments are recognized when due and payable in accordance with the benefit terms. There are no investments as this is a pay as you go plan and all cash is held in a cash account. Net Position and Fund Balances Net position on the Statement of Net Position includes the following: Net Investment in Capital Assets. The component of net position that reports capital assets less both the accumulated depreciation and the outstanding balance of debt that is directly attributable to the acquisition, construction, or improvement of these capital assets. 30

39 Notes to Financial Statements NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Restricted for State and Federal Programs. The component of net position that reports the difference between assets and liabilities of the Federal and State special revenue programs that consists of assets with constraints placed on their use by granting entities. Restricted for Debt Service. The component of net position that reports the difference between assets, deferred inflows of resources and liabilities adjusted, on a government wide basis, that consists of assets with constraints placed on their use by the bond covenants. Restricted for Capital Projects. The component of net position that reports the difference between assets and liabilities that consists of assets with constraints placed on their use by the 2016 school building bond covenants. Restricted for Campus Activities. The component of net position that reports the difference between assets and liabilities that consists of assets with constraints placed on their use by the campuses. Unrestricted net position. The difference between the assets, deferred inflows of resources and liabilities that are not reported in net position invested in capital assets, or restricted net position. Net position flow assumption. Sometimes the District will fund outlays for a particular purpose from both restricted (e.g., restricted bond or grant proceeds) and unrestricted resources. In order to calculate the amounts to report as restricted net position and unrestricted net position in the government wide and proprietary fund financial statements, a flow assumption must be made about the order in which the resources are considered to be applied. It is the District s policy to consider restricted net position to have been depleted before unrestricted net position is applied. In the fund financial statements governmental funds report fund balances as either a non spendable fund balance or a spendable fund balance. Nonspendable Fund Balance Nonspendable fund is that portion of fund balance that is not expendable. Examples of non spendable fund balance include prepaid items and inventories. 31

40 Notes to Financial Statements NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Spendable Fund Balance Spendable Fund Balance. Spendable fund balance includes restricted, committed, assigned and unassigned components. These components can be described as follows: Restricted: fund balances that are constrained by external parties, constitutional provisions, or enabling legislation. Restricted fund balance includes funds for debt service, construction programs, and resources from other granting agencies. Committed: fund balances that can be used only for the specific purposes imposed by formal action through the adoption of a resolution by the Board of Trustees. Those committed amounts cannot be used for any other purpose unless the Board removes or changes the specified use by taking the same type of action (resolution) it employed to previously commit those amounts. Assigned: fund balances that contain self imposed constraints of the government to be used for a particular purpose. The Board has by board resolution authorized the Superintendent, or his designee, to assign fund balance. The Board, Superintendent or designee may also assign fund balance as it does when appropriating fund balance to cover a gap between estimated revenue and appropriations in the subsequent year s appropriated budget. Unlike commitments, assignments generally only exist temporarily. An additional action does not have to be taken for the removal of an assignment. Unassigned: fund balances are the component of spendable fund balance which may be spent for any legal purpose. This portion of the total fund balance in the general fund is available to finance operating expenditures. Fund Balance Flow Assumptions Sometimes the government will fund outlays for a particular purpose from both restricted and unrestricted resources (the total of committed, assigned, and unassigned fund balance). In order to calculate the amounts to report as restricted, committed, assigned, and unassigned fund balance in the governmental fund financial statements a flow assumption must be made about the order in which the resources are considered to be applied. It is the District s policy to consider restricted fund balance to have been depleted before using any of the components of unrestricted fund balance. Further, when the components of unrestricted fund balance can be used for the same purpose, committed fund balance is depleted first, followed by assigned fund balance. Unassigned fund balance is applied last. Accounting System In accordance with the Resource Guide, the District has adopted and installed an accounting system which meets at least the minimum requirements prescribed by the State Board of Education and approved by the State Auditor. Specifically, the District s accounting system uses codes and the code structure prescribed by TEA in the Resource Guide. Mandatory codes are recorded in the order provided in that section. 32

41 NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Data Control Codes Notes to Financial Statements Data Control Codes appear in the rows and above the columns of certain financial statements. The TEA requires the display of these codes in the financial statements filed with TEA in order to insure accuracy in building a State wide database for policy development and funding plans. NOTE 3: DEPOSITS AND INVESTMENTS The District s funds are required to be deposited and invested under the terms of a depository contract pursuant to the School Depository Act. The depository bank places approved pledged securities for safekeeping and trust with the District s agent bank in an amount sufficient to protect District funds on a day to day basis during the period of the contract. The pledge of approved securities is waived only to the extent of the depository bank s dollar amount of Federal Deposit Insurance Corporation ( FDIC ) insurance. The Public Funds Investment Act (Government Code Chapter 2256) contains specific provisions in the areas of investment practices, management reports and establishment of appropriate policies. Among other things, it requires the District to adopt, implement and publicize an investment policy. That policy must address the following areas: (1) safety of principal and liquidity, (2) portfolio diversification, (3) allowable investments, (4) acceptable risk levels, (5) expected rates of return, (6) maximum allowable stated maturity of portfolio investments, (7) maximum average dollar weighted maturity allowed based on the stated maturity date for the portfolio, (8) investment staff quality and capabilities, and (9) bid solicitation preferences for certificates of deposit. The District maintains an investment policy which authorizes the District to invest in obligations of the U.S. Treasury and U.S agencies, municipal securities and repurchase agreements and the State Treasurer s investment pool or similar public fund investment pools. The Act also requires the District to have independent auditors perform test procedures related to investment practices as provided by the Act. The District is in substantial compliance with the requirements of the Act and with local policies. In compliance with the Public Funds Investment Act, the District has adopted a deposit and investment policy. The Act determines the types of investments, which are allowable for the District. These include, with certain restrictions, (1) obligations of the U.S. Treasury, certain U.S. agencies, the state of Texas, (2) certificates of deposit, (3) certain municipal securities, (4) money market savings accounts, (5) repurchase agreements, (6) bankers acceptances, (7) mutual funds, (8) investment pools, (9) guaranteed investment contracts, and (10) common trust funds. The District policy authorizes all the State allowable investments. The District s management believes that it has complied in all material respects with the requirements of the Act and the District s investment policies. 33

42 Notes to Financial Statements NOTE 3: DEPOSITS AND INVESTMENTS (Continued) Custodial Credit Risk Deposits In the case of deposits, this is the risk that in the event of a bank failure, the government s deposits may not be returned to it. The collateral shall always be held by an independent third party with whom the District has a current custodial agreement. The District is not exposed to custodial credit risk for its deposits as all are covered by depository insurance or by pledged collateral. At June 30, 2018, the carrying amount of the District s deposits was $3,341,451 (exclusive of cash funds of $250) and the bank balance was $3,428,341. The District's cash deposits at June 30, 2018 and during the year ended, were entirely covered by FDIC insurance or by pledged collateral held by the District s agent bank in the District s name. The District utilized no investment accounts during the school year and there were no balances in investment accounts at year end. NOTE 4: PROPERTY TAX Property taxes are levied by October 1 in conformity with Subtitle E, Texas Property Tax Code. Taxes are due on receipt of the tax bill and are delinquent if not paid before February 1 of the year following the year in which imposed. On January 1 of each year, a tax lien attaches to property to secure the payment of all taxes, penalties, and interest ultimately imposed. Property tax revenues are considered available when they become due or past due and receivable within the current period. Delinquent taxes are prorated between maintenance and debt service based on rates adopted for the year of the levy. The District s 2017 tax rate was $1.17 for maintenance and $0.19 for debt service per $100 assessed valuation. The 2017 assessed valuation was $115,004,079 for debt service but only $89,891,659 for maintenance due to tax value limitation agreements with wind farm developments. Allowances for uncollectibles within the General and Debt Service Funds are based upon historical experience in collecting property taxes. Uncollectible personal property taxes are periodically reviewed and written off, but the District is prohibited from writing off real property taxes without specific statutory authority from the Texas Legislature. At June 30, 2018 outstanding taxes in the general fund and debt service fund was $149,969 and $32,370 with a corresponding allowance for doubtful accounts of $7,498 and $1,

43 Notes to Financial Statements NOTE 5: DUE FROM AND TO OTHER GOVERNMENTS AND AGENCIES Amounts due from other governments and agencies are as follows: General Fund Due From Due To Texas Education Agency: Foundation Revenues $608,709 $ Summer Feeding Program Breakfast and Lunch 1,466 Indirect costs earned on federal programs 1,126 Other governmental entities Willacy County Tax Office 58,319 Comptroller s Office 1,193 E rate reimbursements 10,316 Other Governmental Funds Texas Education Agency: ESEA, Title I Part A Improving Basic Program 64,797 ESEA, Title II, Part A Supporting Effective Instruction 6,004 ESEA, Title IV, Part A Student Support and Academic Enrichment 530 Instructional Materials Allotment 2,173 U. S. Department of Education: Rural Education Achievement Program 11,122 Region One ESC: English Language Acquisition 1,479 Project RISE 20,348 Total $786,389 $ 1,193 NOTE 6: INTERFUND RECEIVABLES, PAYABLES, AND TRANSFERS Interfund receivable and payable balances at June 30, 2018 were: Due From Due To Other Funds Campus Activity General Fund $ 190 Debt Service Fund General Fund 70,247 Other Funds Special Revenue General Fund 1,205 Total Governmental Funds 71,642 Fiduciary Fund Student Activity General Fund 700 $72,342 All amounts are scheduled to be repaid within one year. There were no transfers made between funds in the current year. 35

44 Notes to Financial Statements NOTE 7: DISAGGREGATION OF RECEIVABLES AND PAYABLES Receivables at June 30, 2018, were as follows: Property Other Due From Total Taxes, Net Governments Other Funds Receivables Governmental Activities: General Fund $149,969 $679,936 $ 190 $ 830,095 Debt Service Fund 32,370 70, ,617 Nonmajor Governmental Funds 106,453 1, ,658 Total Governmental Activities $182,339 $786,389 $ 71,642 $1,040,370 Amounts not scheduled for collection during the subsequent year $136,754 $ $ $ 136,754 Payables at June 30, 2018, were as follows: Noncurrent Liabilities Salaries Accounts Payable and Due to Total Payable Current Year Benefits Other Funds Payables Governmental Activities: General Fund $ 21,768 $ 13,775 $261,855 $ 72,152 $369,550 Debt Service Fund 190, ,000 Nonmajor Governmental Funds 11,869 10, ,193 Total Governmental Activities $ 33,637 $203,775 $271,989 $ 72,342 $581,743 Amounts not scheduled for payment during the subsequent year $ $ $ $ $ NOTE 8: CAPITAL ASSETS Capital asset activity for the year ended June 30, 2018, was as follows: Beginning Retirements/ Ending Balance Additions Adjustments Balance Governmental Activities: Land $ 80,686 $ 18,872 $ $ 99,558 Buildings and improvements 5,335, ,003 2,528,407 8,135,222 Furniture and equipment 611,358 89, ,796 Construction in progress 2,528,407 (2,528,407) Totals at historic cost 8,556, ,313 8,935,576 Less accumulated depreciation for: Buildings and improvements (1,406,471) (194,564) (1,601,035) Furniture and equipment (511,030) (39,133) (550,163) Total accumulated depreciation (1,917,501) (233,697) (2,151,198) Governmental activities capital assets, net $6,638,762 $145,616 $ $6,784,378 36

45 Notes to Financial Statements NOTE 8: CAPITAL ASSETS (Continued) The District held a successful bond election on November 3, 2015 where the voters approved $3,000,000 in school building bonds to demolish the existing middle school building, construct a new elementary school building on that site, relocate the middle school to the cafeteria/library building constructed in 2004 and the old elementary building will be repurposed at a future date. Also included in the project is the demolition of the old gym locker rooms and construction of new locker room facilities and the renovation of the lobby and guest restrooms. As of June 30, 2018 the construction in progress of $2,528,407 represents approximately 90% completion of the new elementary school building which was substantially complete and used for the start of the new school year in August. The renovations to the old gym are complete with the exception of the gym floors. The cost of the total project including furniture, computers, walkways and parking is all anticipated to be covered by the bond proceeds. Depreciation was charged to the following functions: Government Activities: 11 Instruction $150, Instructional Resources and Media Services 4, School Leadership 5, Student (Pupil) Transportation 21, Food Services 7, Extracurricular Activities 39, General Administration 1, Facilities Maintenance and Operations 3, Community Services 1,307 Total depreciation expense $233,697 NOTE 9: LONG TERM LIABILITIES Long term liabilities include bonds payable and the net pension liability. Changes in long term liabilities for the year ended June 30, 2018 are as follows: Beginning Ending Balance Balance Due Within 7/01/17 Increase Decrease 6/30/18 One Year Governmental Activities: Bonds payable: Unlimited Tax School Refunding Bonds, 2012 $ 990,000 $ $ 50,000) $ 940,000 $ 50,000 Unlimited Tax School Refunding Bonds, ,410,000 (85,000) 2,325,000 85,000 Unlimited Tax School Building Bonds, ,650,000 (55,000) 2,595,000 55,000 6,050,000 (190,000) 5,860, ,000 Premium on issuance of bonds 727,930 (50,219) 677,711 Total bonds payable, net 6,777,930 (240,219) 6,537, ,000 Property finance contract 39,716 (12,663) 27,053 13,775 Total long term debt 6,817,646 (252,882) 6,564, ,775 Other long term liabilities Net pension liability 837,525 (242,250) 595,275 Net OPEB liability 2,125,534 (921,572) 1,203,962 $9,780,705 $ $(1,416,704) $8,364,001 $203,775 37

46 Notes to Financial Statements NOTE 9: LONG TERM LIABILITIES (Continued) General Obligation Bonds Bonds payable at June 30, 2018 are comprised of the following individual issues: The District issued $1,250,000 in Unlimited Tax School Refunding Bonds, Series The interest rates on the bonds range from 2% to 4% and the bonds will be retired February 15, $ 940,000 The District issued $2,430,000 in Unlimited Tax Refunding Bonds, Series 2016 with interest ranging from 2% to 4% to advance refund $2,500,000 of the 2007 School Building Bonds outstanding. These bonds mature February 15, ,325,000 The District issued $2,750,000 in Unlimited Tax School Building Bonds, Series 2016 to construct a new elementary school and renovate the old gymnasium. The interest rates on the bonds range from 2% to 4% and the bonds will mature February 15, ,595,000 $5,860,000 Advance Refunding In prior years, the District defeased certain outstanding bonds by placing the proceeds of new bonds in an irrevocable trust to provide for all future debt service payments on the old bonds. Accordingly the respective trust asset accounts and related liabilities for the defeased bonds are not included in the District s financial statements. At June 30, 2018 the following outstanding bonds are considered defeased: Series Ending Balance 2002 Building $ 995, Building $2,425,000 Property Finance Contract The District also executed a public property finance contract in a prior period to finance the purchase of a new intercom system and a new ag truck. This loan in the amount of $39,716 will be repaid in annual installments over 5 years and bears interest at 3.744%. 38

47 Notes to Financial Statements NOTE 9: LONG TERM LIABILITIES (Continued) Debt service requirements on long term debt at June 30, 2018 are as follows: Year Ending General Obligation Bonds Property Finance Contract Total Requirements June 30, Principal Interest Principal Interest Principal Interest 2019 $ 190,000 $ 219,250 $ 13,775 $ 1,013 $ 203,775 $ 220, , ,950 13, , , , , , , , , , , , , , , ,195, ,850 1,195, , ,355, ,000 1,355, , ,255, ,800 1,255, , , , , , ,000 35, ,000 35,200 Total $5,860,000 $3,088,500 $ 27,053 $ 1,565 $5,887,053 $3,090,065 NOTE 10: REVENUES FROM LOCAL AND INTERMEDIATE SOURCES During the current year, revenues from local and intermediate sources consisted of the following: General Debt Other Fund Service Funds Total Property taxes $1,034,630 $318,273 $ $1,352,903 Penalties, interest and other 34,040 6,040 40,080 Investment income 2, ,555 Food sales 4,814 4,814 Co curricular student activities 4,967 41,261 46,228 Wind farm supplemental payment requests 74,980 74,980 Other 23,913 23,913 $1,179,686 $324,458 $ 41,329 $1,545,473 39

48 Notes to Financial Statements NOTE 11: DEFERRED OUTFLOWS/INFLOWS OF RESOURCES The components of the deferred outflows of resources and deferred inflows of resources in the government wide and fund level financial statements are as follows: Statement of Net Balance Sheet Position Governmental Funds Governmental General Debt Service Activities Fund Fund Deferred outflows of resources: Deferred charge on refunding $114,424 $ $ Deferred outflows related to TRS pension 230,236 Deferred outflows related to TRS OPEB 16,941 Total deferred outflows of resources $361,601 $ $ Deferred inflows of resources: Deferred inflows related to TRS pension $217,863 $ $ Deferred inflows related to TRS OPEB 503,620 Unavailable property taxes 142,471 30,751 Total deferred inflows of resources $721,483 $142,471 $ 30,751 NOTE 12: GENERAL FUND FEDERAL SOURCE REVENUES CFDA Programs or Source Number Amount School Breakfast Program $ 77,081 National School Lunch Program ,092 USDA Donated Commodities ,637 Indirect costs earned Title I, Part C Migrant A 3 Title II, Part A Supporting Effective Instruction A 785 Project RISE Region One Incentive Strategies for Educators A 1,183 Title IV, Part A, Subpart A 563 SHARS 21,386 $244,730 40

49 Notes to Financial Statements NOTE 13: COMMITMENTS AND CONTINGENCIES The District participates in a number of grant programs funded by State and Federal Agencies. These programs are subject to compliance audits by the grantor agencies or their representatives. Audits of all of these programs for the year ended June 30, 2018 have not been conducted. Accordingly, the District's compliance with applicable grant requirements will be established at some future date. The amount, if any, of expenditures which may be disallowed by the granting agencies cannot be determined at this time although the District expects such amounts, if any, to be immaterial. The District is a party to various legal actions, none of which is believed by administration to have a material effect on the financial condition of the District. Accordingly, no provision for losses has been recorded in the accompanying combined financial statements for such contingencies. NOTE 14: COMPLIANCE AND ACCOUNTABILITY a. Finance Related Legal and Contractual Provision In accordance with GASB Statement No. 38, Certain Financial Statement Note Disclosures, violations of finance related legal and contractual provisions, if any, are reported below, along with actions taken to address such violations: Violations None noted Action Taken None necessary b. Deficit Fund Balance or Fund Net Position of Individual Funds There were no deficit fund balances or fund net position for any individual funds. 41

50 Notes to Financial Statements NOTE 15: DEFINED BENEFIT PENSION PLAN Plan Description The District participates in a cost sharing multiple employer defined benefit pension that has a special funding situation. The plan is administered by the Teacher Retirement System of Texas (TRS). TRS s defined benefit pension plan is established and administered in accordance with the Texas Constitution, Article XVI, Section 67 and Texas Government Code, Title 8, Subtitle C. The pension trust fund is a qualified pension trust under Section 401(a) of the Internal Revenue Code. The Texas Legislature establishes benefits and contribution rates within the guidelines of the Texas Constitution. The pension s Board of Trustees does not have the authority to establish or amend benefit terms. All employees of public, state supported educational institutions in Texas who are employed for one half or more of the standard work load and who are not exempted from membership under Texas Government Code, Title 8, Section are covered by the system. Pension Plan Fiduciary Net Position Detailed information about the Teacher Retirement System s fiduciary net position is available in a separately issued Comprehensive Annual Financial Report that includes financial statements and required supplementary information. That report may be obtained on the Internet at by writing to TRS at 1000 Red River Street, Austin, TX, ; or by calling (512) Benefits Provided TRS provides service and disability retirement, as well as death and survivor benefits, to eligible employees (and their beneficiaries) of public and higher education in Texas. The pension formula is calculated using 2.3% (multiplier) times the average of the five highest annual creditable salaries times years of credited service to arrive at the annual standard annuity except for members who are grandfathered, the three highest annual salaries are used. The normal service retirement is at age 65 with 5 years of credited service or when the sum of the member s age and years of credited service equals 80 or more years. Early retirement is at age 55 with 5 years of service credit or earlier than 55 with 30 years of service credit. There are additional provisions for early retirement if the sum of the member s age and years of service credit total at least 80, but the member is less than age 60 or 62 depending on date of employment, or if the member was grandfathered in under a previous rule. There are no automatic post employment benefit changes; including automatic COLAs. Ad hoc postemployment benefit changes, including ad hoc COLAs can be granted by the Texas Legislature as noted in the Plan description above. 42

51 Notes to Financial Statements NOTE 15: DEFINED BENEFIT PENSION PLAN (Continued) Contributions Contribution requirements are established or amended pursuant to Article 16, section 67 of the Texas Constitution which requires the Texas legislature to establish a member contribution rate of not less than 6% of the member s annual compensation and a state contribution rate of not less than 6% and not more than 10% of the aggregate annual compensation paid to members of the system during the fiscal year. Texas Government Code section prohibits benefit improvements, if as a result of the particular action, the time required to amortize TRS unfunded actuarial liabilities would be increased to a period that exceeds 31 years, or, if the amortization period already exceeds 31 years, the period would be increased by such action. Employee contribution rates are set in state statute, Texas Government Code Senate Bill 1458 of the 83 rd Texas Legislature amended Texas Government Code for member contributions and established employee contribution rates for fiscal years 2014 thru The 84 th Texas Legislature, General Appropriations Act (GAA) established the employer contribution rates for fiscal years 2014 through The 84 th Texas Legislature, General Appropriations Act (GAA) established the employer contribution rates for fiscal years 2016 and Contribution Rates Member 7.7% 7.7% Non Employer Contributing Entity (state) (NECE) 6.8% 6.8% Employer 6.8% 6.8% Contributors to the plan include members, employers and the State of Texas as the only non employer contributing entity. The State contributes to the plan in accordance with state statutes and the General Appropriations Act (GAA). Contributions as of the pension plan measurement date were as follows: Current fiscal year employer contributions $ 65,608 Current fiscal year member contributions $179, measurement year NECE on behalf contributions $122,901 As the non employer contributing entity for public education and junior colleges, the State of Texas contributes to the retirement system an amount equal to the current employer contribution rate times the aggregate annual compensation of all participating members of the pension trust fund during that fiscal year reduced by the amounts described below which are paid by the employers. Employers (public school, junior college, other entities or the State of Texas as the employer for senior universities and medical schools) are required to pay the employer contribution rate in the following instances: On the portion of the member's salary that exceeds the statutory minimum for members entitled to the statutory minimum under Section of the Texas Education Code. During a new member s first 90 days of employment. When any part or all of an employee s salary is paid by federal funding sources, a privately sponsored source, from non educational and general, or local funds. 43

52 Notes to Financial Statements NOTE 15: DEFINED BENEFIT PENSION PLAN (Continued) In addition to the employer contributions listed above, there are two additional surcharges an employer is subject to: When employing a retiree of the Teacher Retirement System the employer shall pay both the member contribution and the state contribution as an employment after retirement surcharge. When a school district or charter school does not contribute to the Federal Old Age, Survivors and Disability Insurance (OASDI) Program for certain employees, they must contribute 1.5% of the state contribution rate for certain instructional or administrative employees; and 100% of the state contribution rate for all other employees. Actuarial Assumptions The total pension liability in the August 31, 2017 actuarial valuation was determined using the following actuarial assumptions: Valuation Date August 31, 2017 Actuarial Cost Method Individual Entry Age Normal Asset Valuation Method Market Value Single Discount Rate 8.00% Long term expected Investment Rate of Return 8.00% Inflation 2.5% Salary Increases including inflation 3.5% to 9.5% Payroll Growth Rate 2.5% Benefit changes during the year None Ad hoc post employment benefit changes None The actuarial methods and assumptions are primarily based on a study of actual experience for the four year period ending August 31, 2014 and adopted on September 24, Discount Rate The discount rate used to measure the total pension liability was 8.0%. There was no change in the discount rate since the previous year. The projection of cash flows used to determine the discount rate assumed that contributions from plan members and those of the contributing employers and the non employer contributing entity are made at the statutorily required rates. Based on those assumptions, the pension plan s fiduciary net position was projected to be available to make all future benefit payments of current plan members. Therefore, the long term expected rate of return on pension plan investments was applied to all periods of projected benefit payments to determine the total pension liability. The long term rate of return on pension plan investments is 8%. The long term expected rate of return on pension plan investments was determined using a building block method in which best estimates ranges of expected future real rates of return (expected returns, net of pension plan investment expense and inflation) are developed for each major asset class. These ranges are combined to produce the long term expected rate of return by weighting the expected future real rates of return by the target asset allocation percentage and by adding expected inflation. Best estimates of geometric real rates of return for each major asset class included in the System s target asset allocation as of August 31, 2017 are summarized on the next page. 44

53 Notes to Financial Statements NOTE 15: DEFINED BENEFIT PENSION PLAN (Continued) Teacher Retirement System of Texas Asset Allocation and Long Term Expected Real Rate of Return As of August 31, 2017 Long term Expected Expected Contribution Geometric Real to Long term Target Allocation Rate of Return Portfolio Returns 1 Global Equity U. S. 18% 4.6% 1.0% Non U. S. developed 13% 5.1% 0.8% Emerging Markets 9% 5.9% 0.7% Directional Hedge Funds 4% 3.2% 0.1% Private Equity 13% 7.0% 1.1% Stable Value U. S. Treasuries 11% 0.7% 0.1% Absolute Return 0% 1.8% 0.0% Hedge Funds (Stable Value) 4% 3.0% 0.1% Cash 1% 0.2% 0.0% Real Return Global Inflation Linked Bonds 3% 0.9% 0.0% Real Assets 16% 5.1% 1.1% Energy & Natural Resources 3% 6.6% 0.2% Commodities 0% 1.2% 0.0% Risk Parity Risk Parity 5% 6.7% 0.3% Inflation Expectation 2.2% Alpha 1.0% Total 100% 8.7% 1 The Expected Contribution to Returns incorporates the volatility drag resulting from the conversion between Arithmetic and Geometric mean returns. 45

54 Notes to Financial Statements NOTE 15: DEFINED BENEFIT PENSION PLAN (Continued) Discount Rate Sensitivity Analysis The following schedule shows the impact of the Net Pension Liability if the discount rate used was 1% less than and 1% greater than the discount rate that was used (8%) in measuring the 2017 Net Pension Liability. 1% Decrease 1% Increase In Discount Discount in Discount Rate (7.0%) Rate (8.0%) Rate (9.0%) District s proportionate share of the net $1,003,515 $595,275 $255,348 pension liability Pension Liabilities, Pension Expense, and Deferred Outflows of Resources and Deferred Inflows of Resources Related to Pensions At June 30, 2018, the District reported a liability of $595,275 for its proportionate share of the TRS s net pension liability. This liability reflects a reduction for State pension support provided to the District. The amount recognized by the District as its proportionate share of the net pension liability, the related State support, and the total portion of the net pension liability that was associated with the District were as follows: District s proportionate share of the collective net pension liability $ 595,275 State s proportionate share that is associated with the District 1,201,552 Total $1,796,827 The net pension liability was measured as of August 31, 2017 and the total pension liability used to calculate the net pension liability was determined by an actuarial valuation as of that date. The employer s proportion of the net pension liability was based on the employer s contributions to the pension plan relative to the contributions of all employers to the plan for the period September 1, 2016 thru August 31, At August 31, 2017 the employer s proportion of the collective net pension liability was % which was a decrease of % from its proportion measured as of August 31, Changes Since the Prior Actuarial Valuation There were no changes to the actuarial assumptions or other inputs that affected measurement of the total pension liability since the prior measurement period. There were no changes of benefit terms that affected measurement of the total pension liability during the measurement period. For the year ended June 30, 2018, the District recognized pension expense of $155,471 and revenue of $91,650 for support provided by the State. 46

55 Notes to Financial Statements NOTE 15: DEFINED BENEFIT PENSION PLAN (Continued) At June 30, 2018, the District reports its proportionate share of the TRS s deferred outflows of resources and deferred inflows of resources related to pensions from the following sources: Deferred Deferred Outflows Inflows of Resources of Resources Differences between expected and actual economic experience $ 8,709 $ 32,102 Changes in actuarial assumptions 27,116 15,523 Difference between projected and actual investment earnings 43,383 Changes in proportion and difference between the employer s contributions and the proportionate share of contributions 138, ,855 Total net amounts per August 31, 2017 measurement date 174, ,863 Contributions paid to TRS subsequent to the measurement date 55,975 Total as of fiscal year end $230,236 $217,863 The $55,975 reported as deferred outflows of resources related to pensions resulting from District contributions subsequent to the measurement date will be recognized as a reduction of the net pension liability in the year ended June 30, The net amounts of the employer s balances of deferred outflows and inflows of resources related to pensions will be recognized in pension expense as follows: Pension Expense Pension Plan Years Ended August 31: Amount 2019 $ (6,793) , (9,711) 2022 (22,176) 2023 (21,751) Thereafter (14,376) 47

56 Notes to Financial Statements NOTE 16: DEFINED OTHER POST EMPLOYMENT BENEFIT PLANS Plan Description. The District participates in the Texas Public School Retired Employees Group Insurance Program (TRS Care). It is a multiple employer, cost sharing defined Other Post Employment Benefit (OPEB) plan that has a special funding situation. The plan is administered through a trust by the Teacher Retirement System (TRS) Board of Trustees. It is established and administered in accordance with Texas Insurance Code, Chapter OPEB Plan Fiduciary Net Position. Detail information about the TRS Care s fiduciary net position is available in the separately issued TRS Comprehensive Annual Financial Report that includes financial statements and required supplementary information. That report may be obtained on the Internet at by writing to TRS at 1000 Red River Street, Austin, Texas ; or by calling (512) Components of the net OPEB liability of the TRS Care plan as of August 31, 2017 are as follows: Net OPEB Liability Total Total OPEB Liability $43,885,784,621 Less: plan fiduciary net position 399,535,986 Net OPEB liability $43,486,248,635 Net position as a percentage of total OPEB liability 0.91% Benefits Provided. TRS Care provides a basic health insurance coverage (TRS Care 1), at no cost to all retirees from public schools, charter schools, regional education service centers and other educational districts who are members of the TRS pension plan. Optional dependent coverage is available for an additional fee. Eligible retirees and their dependents not enrolled in Medicare may pay premiums to participate in one of two optional insurance plans with more comprehensive benefits (TRS Care 2 and TRS Care 3). Eligible retirees and dependents enrolled in Medicare may elect to participate in one of the two Medicare health plans for an additional fee. To quality for TRS Care coverage, a retiree must have at least 10 years of service credit in the TRS pension system. The Board of Trustees is granted the authority to establish basic and optional group insurance coverage for participants as well as to amend benefit terms as needed under Chapter There are no automatic post employment benefit changes; including automatic COLAs. 48

57 Notes to Financial Statements NOTE 16: DEFINED OTHER POST EMPLOYMENT BENEFIT PLANS (Continued) The premium rates for the optional health insurance are based on years of service of the member. The schedule below shows the monthly rates for the average retiree with Medicare Parts A & B coverage, with 20 to 29 years of service for the basic plan and the two optional plans. TRS Care Plan Premium Rates Effective Sept. 1, 2016 Dec. 31, 2017 TRS Care 1 TRS Care 2 TRS Care 3 Basic Plan Optional Plan Optional Plan Retiree* $ $ 70 $ 100 Retiree and Spouse Retiree* and Children Retiree and Family Surviving Children Only *or surviving spouse Contributions. Contribution rates for the TRS Care plan are established in state statute by the Texas Legislature, and there is no continuing obligation to provide benefits beyond each fiscal year. The TRS Care plan is currently funded on a pay as you go basis and is subject to change based on available funding. Funding for TRS Care is provided by retiree premium contributions and contributions from the state, active employees, and school districts based upon public school district payroll. The TRS Board of Trustees does not have the authority to set or amend contribution rates. Texas Insurance Code, Section establishes the state s contribution rate which is 1.0% of the employee s salary. Section establishes the active employee s rate which is.65% of pay. Section establishes an employer contribution rate of not less than 0.25 percent or not more than 0.75 percent of the salary of each active employee of the public. The actual employer contribution rate is prescribed by the Legislature in the General Appropriations Act. The following table shows contributions to the TRS Care plan by type of contributor. Contribution Rates Active Employee 0.65% 0.65% Non Employer Contributing Entity (State) 1.00% 1.25% Employers 0.55% 0.75% Federal/Private Funding Remitted by Employers 1.00% 1.25% District s 2018 FY Employer Contributions $ 19,044 District s 2018 FY Member Contributions $ 15,126 Measurement Year NECE On Behalf Contributions $ 20,414 49

58 Notes to Financial Statements NOTE 16: DEFINED OTHER POST EMPLOYMENT BENEFIT PLANS (Continued) In addition to the employer contributions listed above, there is an additional surcharge all TRS employers are subject to (regardless of whether or not they participate in the TRS Care OPEB program). When employers hire a TRS retiree, they are required to pay to TRS Care, a monthly surcharge of $535 per retiree. TRS Care received supplemental appropriations from the State of Texas as the Non Employer Contributing Entity in the amount of $15.6 million in fiscal year House Bill 21 was passed in special session and provided a supplemental appropriation in the amount of $212 million in fiscal year The District s proportionate of share of the $212,000,000 received during the District s 2018 fiscal year is reported in the fund level financial statements as an on behalf contribution as required by GASB 85 and GASB 24. Actuarial Assumptions. The total OPEB liability in the August 31, 2017 actuarial valuation was determined using the following actuarial assumptions. The actuarial valuation of TRS Care is similar to the actuarial valuations performed for the pension plan, except that the OPEB valuation is more complex. All of the demographic assumptions, including mortality, and most of the economic assumptions are identical to those which were adopted by the Board in 2015 and are based on the 2014 actuarial experience study of TRS. The active mortality rates were based on 90 percent of the RP 2014 Employee Mortality Tables for males and females. The post retirement mortality rates were based on the 2015 TRS of Texas Healthy Pensioner Mortality Tables. The following assumptions and other inputs used for members of TRS Care are identical to the assumptions used in the August 31, 2017 TRS pension actuarial valuation: Rates of Mortality Rates of Retirement Rates of Termination Rates of Disability Incidence General Inflation Wage Inflation Expected Payroll Growth 50

59 Notes to Financial Statements NOTE 16: DEFINED OTHER POST EMPLOYMENT BENEFIT PLANS (Continued) Additional Actuarial Methods and Assumptions: Valuation Date August 31, 2017 Actuarial Cost Method Individual Entry Age Normal Inflation 2.50% Discount Rate 3.42% Aging Factors Based on Plan Specific Experience Expenses Third party administrative expenses related to the delivery of health care benefits are included in the age adjusted claims costs. Payroll Growth Rate 2.50% Projected Salary Increases % Healthcare Trend Rates 4.50% 12.00% Election Rates Normal Retirement: 70% participation prior to age 65 and 75% participation after age 65. Ad hoc Post Employment Benefit Changes None *Source: Fixed income municipal bonds with 20 years to maturity that include only federal taxexempt municipal bonds as reported in Fidelity Index s 20 Year Municipal GO AA Index as of August 31, ** Includes inflation at 2.50% ***Initial trend rates are 7.00% for non Medicare retirees; 10.00% for Medicare retirees and 12.00% for prescriptions for all retirees. Initial trend rates decrease to an ultimate trend rate of 4.50% over a period of 10 years. Discount Rate. A single discount rate of 3.42% was used to measure the total OPEB liability. There was a change of.44 percent in the discount rate since the previous year. Because the plan is essentially a payas you go plan, the single discount rate is equal to the prevailing municipal bond rate. The projection of cash flows used to determine the discount rate assumed that contributions from active members and those of the contributing employers and the non employer contributing entity are made at the statutorily required rates. Based on those assumptions, the OPEB plan s fiduciary net position was projected to not be able to make all future benefit payments of current plan members. Therefore, the municipal bond rate was applied to all periods of projected benefit payments to determine the total OPEB liability. The source of the municipal bond rate was fixed income municipal bonds with 20 years to maturity that include only federally tax exempt municipal bonds as reported in Fidelity Index s 20 year Municipal GO AA Index as of August 31,

60 Notes to Financial Statements NOTE 16: DEFINED OTHER POST EMPLOYMENT BENEFIT PLANS (Continued) Sensitivity of the Net OPEB Liability: Discount Rate Sensitivity Analysis. The following schedule shows the impact of the Net OPEB Liability if the discount rate used was 1% less than and 1% greater than the discount rate that was used (3.42%) in measuring the Net OPEB Liability. 1% Decrease in 1% Increase in Discount Rate Discount Rate Discount Rate (2.42%) (3.42%) (4.42%) District s proportionate share of the Net OPEB Liability $1,420,974 $1,203,962 $1,029,533 Healthcare Cost Trend Rates Sensitivity Analysis The following presents the net OPEB liability of the plan using the assumed healthcare cost trend rate, as well as what the net OPEB liability would be if it were calculated using a trend rate that is one percentage point lower or one percentage point higher than the assumed healthcare cost trend rate. Current Healthcare 1% Decrease Cost Trend Rate 1% Increase District s proportionate share of the Net OPEB Liability $1,002,418 $1,203,962 $1,468,412 OPEB Liabilities, OPEB Expense, and Deferred Outflows of Resources and Deferred Inflows of Resources Related to OPEBs. At June 30, 2018, the District reported a liability of $1,203,962 for its proportionate share of the TRS s Net OPEB Liability. This liability reflects a reduction for State OPEB support provided to the District. The amount recognized by the District as its proportionate share of the net OPEB liability, the related State support, and the total portion of the net OPEB liability that was associated with the District were as follows: District s Proportionate share of the collective net OPEB liability $1,203,962 State s proportionate share that is associated with the District 1,707,515 $2,911,477 The Net OPEB Liability was measured as of August 31, 2017 and the Total OPEB Liability used to calculate the Net OPEB Liability was determined by an actuarial valuation as of that date. The employer s proportion of the Net OPEB Liability was based on the employer s contributions to the OPEB plan relative to the contributions of all employers to the plan for the period September 1, 2016 through August 31,

61 Notes to Financial Statements NOTE 16: DEFINED OTHER POST EMPLOYMENT BENEFIT PLANS (Continued) At August 31, 2017 the employer s proportion of the collective Net OPEB Liability was %. Since this is the first year of implementation, the District does not have the proportion measured as of August 31, The Notes to the Financial Statements for August 31, 2016 for TRS stated that the change in proportion was immaterial and, therefore, disregarded this year. Changes Since the Prior Actuarial Valuation The following were changes to the actuarial assumptions or other inputs that affected measurement of the Total OPEB liability since the prior measurement period. Significant plan changes were adopted during the fiscal year ending June 30, Effective January 1, 2018, only one health plan option will exist (instead of three), and all retirees will be required to contribute monthly premiums for coverage. The health plan changes triggered changes to several of the assumptions, including participation rates, retirement rates, and spousal participation rates. The August 31, 2016 valuation had assumed that the savings related to the Medicare Part D reimbursements would phase out by This assumption was removed for the August 31, 2017 valuation. Although there is uncertainty regarding these federal subsidies, the new assumption better reflects the current substantive plan. This change was unrelated to the plan amendment, and its impact was included as an assumption change in the reconciliation of the total OPEB liability. This change significantly lowered the OPEB liability. The discount rate changed from 2.98 percent as of August 31, 2016 to 3.42 percent as of August 31, This change lowered the total OPEB liability. In this valuation the impact of the Cadillac Tax has been calculated as a portion of the trend assumption. Assumptions and methods used to determine the impact of the Cadillac Tax include: 2018 thresholds of $850/$2,292 were indexed annually by 2.50 percent. Premium data submitted was not adjusted for permissible exclusions to the Cadillac Tax. There were no special adjustments to the dollar limit other than those permissible for non Medicare retirees over 55. Results indicate that the value of the excise tax would be reasonably represented by a 25 basis point addition to the long term trend rate assumption. Future actuarial measurements may differ significantly from the current measurements due to such factors as the following: plan experience differing from that anticipated by the economic or demographic assumptions; changes in economic or demographic assumptions; increases or decreases expected as part of the natural operation of the methodology used for these measurements; and changes in plan provisions or applicable law. There were no changes of benefit terms that affected measurement of the Total OPEB liability during the measurement period. 53

62 Notes to Financial Statements NOTE 16: DEFINED OTHER POST EMPLOYMENT BENEFIT PLANS (Continued) For the year ended June 30, 2018, the District recognized OPEB expense of $(977,325) and revenue of $(571,380) for support provided by the State. At June 30, 2018, the District reported its proportionate share of the TRS s deferred outflows of resources and deferred inflows of resources related to other post employment benefits from the following sources: Deferred Outflows of Resources Deferred Inflows of Resources Differences between expected and actual actuarial experiences $ $ 25,134 Changes in actuarial assumptions 478,486 Differences between projected and actual investment earnings 183 Changes in proportion and differences between the employer s contributions and the proportionate share of contributions 7 Total as of August 31, 2017 measurement date ,620 Contributions paid to TRS subsequent to the measurement date 16,751 Total as of fiscal year end 16, ,620 The net amounts of the employer s balances of deferred outflows and inflows of resources related to OPEB will be recognized in OPEB expense as follows: Fiscal Year ended June 30, OPEB Expense Amount 2019 $ (66,428) 2020 (66,428) 2021 (66,428) 2022 (66,428) 2023 (66,474) Thereafter (171,244) 54

63 Notes to Financial Statements NOTE 17: RISK MANAGEMENT The District is exposed to various risks of loss related to torts; theft of, damage to and destruction of assets; errors and omissions; injuries to employees; and natural disasters for which the District carries commercial insurance. In addition, the District is a member of the Texas Association of School Boards Joint Account Self Insurance Fund (Fund). The Fund was created to formulate, develop and administer a program of modified self funding for the property and/or liability coverage for its membership, provide claims administration, and develop a comprehensive loss control program. The District pays contributions to the Fund for its general and legal liability, workers compensation, unemployment compensation, auto liability and auto physical damage coverage. The District s agreement with the Fund provides that the Fund will be self sustaining through member premiums and will provide, through commercial companies, reinsurance contracts. There were no significant reductions in coverage in the past fiscal year. Health Coverage Effective October 1, 2002, the District entered into a health insurance contract with TRS Active Care. The plan is a statewide health coverage program for public school employees and their dependents. The plan is available to all public school districts, charter schools, education service centers and certain other employers. The District pays premiums of $274, respectively per month per employee to the plan, and the employees, at their option, may authorize payroll withholdings to pay premiums for dependents. Terms of coverage and premium costs are included in the contractual provisions. NOTE 18: JOINT VENTURE SHARED SERVICE ARRANGEMENTS The District participates in several shared service arrangements and has neither a joint ownership interest in fixed assets purchased by the fiscal agents nor a net equity interest in the fiscal agents. The fiscal agents are neither accumulating significant financial resources nor fiscal exigencies that would give rise to a future additional benefit or burden to. The fiscal agent manager is responsible for all financial activities of the shared services arrangement. The District participates in the Wil Cam Pupil Services Cooperative to provide special education services. The District contributed $21,950 to the cooperative for school year 2018 and the funds were expended for 6100 payroll costs $14,329; 6200 purchased and contracted services $3,038; 6300 supplies and materials $2,433; and 6400 miscellaneous operating expenses $2,150. The District also participates with Region Two ESC in a SSA for the Career and Technical Basic Grant. The District received grant revenue of $750 for school year 2018 and the funds were expended for 6300 supplies and materials. 55

64 Notes to Financial Statements NOTE 19: FUND BALANCES The District has classified its fund balances with the following hierarchy: Nonspendable: The District has inventories of $3,570 and prepaid insurance of $19,669 totaling $23,239. Spendable: The District has classified spendable fund balances as Restricted, Committed, Assigned and Unassigned and considered each to have been spent when expenditures are incurred. Restricted for Federal and State Programs and Debt Service Federal laws, Texas statutes and local ordinances require that certain revenues be specifically designed for the purposes of federal and state programs and debt service. The funds have been included in the restricted category of fund balance. Committed for Campus Activity Funds the School Board has taken action to commit the fund balance in the campus activity fund to the respective campus. Unassigned The unassigned fund balance has no constraints. Other Governmental Funds Total General Debt Other Governmental Fund Service Funds Funds Fund balances: Nonspendable: Inventories Food service $ 3,570 $ $ $ 3,570 Prepaid insurance: General fund 19,669 19,669 Restricted: Food service 87,231 87,231 Capital acquisition and contractual obligation 119, ,990 Debt service 211, ,994 Committed: Campus activity funds 22,085 22,085 Assigned: Projects not covered by bonds 200, ,000 Unassigned: 3,160,056 3,160,056 $3,470,526 $211,994 $142,075 $3,824,595 56

65 Notes to Financial Statements NOTE 20: CHAPTER 313 AGREEMENTS The District entered into an agreement with Magic Valley Wind Farms I, LLC (MVWFI) on December 12, The agreement was for MVWFI to invest capital estimated at $38,115,000 on a long term basis with a valuation limit of $10,000,000 on maintenance and operations (M&O) taxes after a two year qualifying period. For fiscal year 2018, which is year six of the agreement, the M&O tax rate is $1.17 per $100, with property valued at $35,112,420 being taxed at $10,000,000. The District forgoes collecting $298,838 in tax revenue. However, the loss in tax revenue will be partially offset by an increase in state funding through the FSP funding formula. In addition to the tax abatement, MVWFI also receives a tax credit of $50,507 under the terms of the agreement which is offset in full to the District by additional state funding. The District also received $24,980 from MVWFI as an ADA payment under the terms of the agreement. The District entered into an agreement with Magic Valley Wind Farms II, LLC (MVWFII) on December 13, The agreement is for MVWFII to invest capital of $224,348,214 on a long term basis for a valuation limit of $15,000,000. For fiscal year 2018, there is no investment by MVWFII that is taxable. For fiscal year 2019 the investment will be taxed at 100% for I & S purposes but will be limited to 15,000,000 for M & O purposes. There is no qualifying period on this agreement. The value limitation and supplemental ADA payments are in effect as of the execution of the agreement. The District received $50,000 from MVWFII during the current school year as a supplemental payment under the terms of the agreement. The supplemental payment will continue in school year In addition, the District will receive tax revenues beginning in this school year. NOTE 21: OPERATING GRANTS AND CONTRIBUTIONS STATEMENT OF ACTIVITIES Expense activity is required to be recorded by districts who are participants in cost sharing pension and OPEB benefit plans with a special funding situation where non employer contributing entities (NECE) also participate in contributions to the plans. TRS retirement and TRS care benefit plans are both cost sharing plans with special funding situations. Therefore, on behalf expense activity of the NECE must be recorded at the government wide level of reporting on the Statement of Activities in accordance with GASBs 68 and 75. During the year under audit, the NECE expense was negative due to changes in benefits within the TRS care plan. The accrual for the proportionate share of that expense was a negative on behalf revenue and negative on behalf expense. This resulted in significantly reduced revenue for operating grants and contributions on the Statement of Activities. According to guidance provided directly from GASB, this is the correct reporting. 57

66 Notes to Financial Statements NOTE 21: OPERATING GRANTS AND CONTRIBUTIONS STATEMENT OF ACTIVITIES (Continued) Following are the effects on the Statement of Activities as a result of the negative on behalf accruals recorded: Operating Grants Operating and Contributions Grants and Negative On (excluding on behalf Contributions Behalf Accruals accruals) 11 Instruction $ (70,907) $(353,376) $282, Instructional Resources and Media Services (9,528) (11,473) 1, Curriculum and Staff Development 35,021 (21,219) 56, School Leadership (31,848) (38,351) 6, Guidance, Counseling and Evaluation Services (14,148) (17,037) 2, Health Services (3,311) (3,988) Student (Pupil) Transportation (773) (930) Food Services 184,642 (44,982) 229, Extracurricular 688 (2,604) 3, General Administration (36,811) (44,327) 7, Facilities Maintenance and Operations (22,841) (27,505) 4, Data Processing Services (4,641) (5,588) 947 $ 25,543 $(571,380) $596,923 NOTE 22: PRIOR PERIOD ADJUSTMENT During fiscal year 2018, the District adopted GASB Statement No. 75 for Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions. With GASB 75, the District must assume their proportionate share of the Net OPEB liability of the Teacher Retirement System of Texas. Adoption of GASB 75 required a prior period adjustment to report the effect of GASB 75 retroactively. This resulted in the need for a prior period adjustment to recognize the beginning net OPEB liability of $2,125,534, and the beginning deferred outflows of resource related to the OPEB of $12,197, for a net prior period adjustment totaling $(2,113,337). This resulted in restated beginning net position balance of $1,393,

67 REQUIRED SUPPLEMENTARY INFORMATION 56

68 Data Control Codes SAN PERLITA INDEPENDENT SCHOOL DISTRICT SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE BUDGET AND ACTUAL - GENERAL FUND FOR THE YEAR ENDED JUNE 30, 2018 Original Budgeted Amounts Final Actual Amounts (GAAP BASIS) EXHIBIT G-1 Variance With Final Budget Positive or (Negative) REVENUES: Total Local and Intermediate Sources $ 1,108,109 $ 1,169,526 $ 1,179,686 $ 10,160 State Program Revenues 2,282,119 2,507,713 2,496,097 (11,616) Federal Program Revenues 249, , ,730 (5,070) 5020 Total Revenues 3,640,028 3,927,039 3,920,513 (6,526) EXPENDITURES: Current: Instruction Instructional Resources and Media Services Curriculum and Instructional Staff Development Instructional Leadership School Leadership Guidance, Counseling and Evaluation Services Health Services Student (Pupil) Transportation Food Services Extracurricular Activities General Administration Facilities Maintenance and Operations Security and Monitoring Services Data Processing Services Community Services Debt Service: Principal on Long Term Debt Interest on Long Term Debt Intergovernmental: Payments to Fiscal Agent/Member Districts of Other Intergovernmental Charges 1,572,000 1,649,000 1,582,643 66,357 76,000 79,000 71,794 7,206 58,500 63,500 56,934 6,566 15,000 15,000 10,268 4, , , ,346 17,654 92,500 98,500 85,529 12,971 43,500 46,500 36,772 9,728 54,000 54,000 45,401 8, , , ,307 6, , , , , , ,315 30, , , ,433 37,567 10,000 10,000 4,345 5,655 32,000 34,000 30,363 3,637 4,000 4,000 1,917 2,083 14,000 43,000 12,664 30,336 1,000 2,000 1, ,000 32,000 21,950 10,050 32,000 37,000 32,169 4, Total Expenditures 3,727,500 3,903,500 3,637, , Excess (Deficiency) of Revenues Over Expenditures OTHER FINANCING SOURCES (USES): 8911 Transfers Out (Use) (87,472) 23, , ,291 - (125,000) (125,000) Net Change in Fund Balances (87,472) (101,461) 157, , Fund Balance - July 1 (Beginning) 3,312,696 3,312,696 3,312, Fund Balance - June 30 (Ending) $ 3,225,224 $ 3,211,235 $ 3,470,526 $ 259,291 59

69 SAN PERLITA INDEPENDENT SCHOOL DISTRICT SCHEDULE OF THE DISTRICT'S PROPORTIONATE SHARE OF THE NET PENSION LIABILITY TEACHER RETIREMENT SYSTEM OF TEXAS FOR THE YEAR ENDED JUNE 30, 2018 EXHIBIT G-2 Measurement Year Ended August 31, District's Proportion of the Net Pension Liability (Asset) % % % % District's Proportionate Share of Net Pension Liability (Asset) $ 595,275 $ 837,525 $ 856,852 $ 402,567 States Proportionate Share of the Net Pension Liability (Asset) 1,201,552 1,487,256 1,353,950 1,211,864 associated with the District Total $ 1,796,827 $ 2,324,781 $ 2,210,802 $ 1,614,431 District's Covered Payroll $ 2,268,229 $ 2,367,360 $ 2,258,387 $ 2,232,418 District's Proportionate Share of the Net Pension Liability (Asset) 26.24% 35.38% 37.94% 18.03% as a percentage of its Covered Payroll Plan Fiduciary Net Position as a percentage of the Total Pension Liability 82.17% 78.00% 78.43% 83.25% Note: Only four years of data is presented in accordance with GASB #68, paragraph 138. "The information for all periods for the 10-year schedules that are required to be presented as required supplementary information may not be available initially. In these cases, during the transition period, that information should be presented for as many years as are available. The schedules should not include information that is not measured in accordance with the requirements of this Statement." 0 60

70 SAN PERLITA INDEPENDENT SCHOOL DISTRICT SCHEDULE OF THE DISTRICT'S CONTRIBUTIONS FOR PENSIONS TEACHER RETIREMENT SYSTEM OF TEXAS FOR THE YEAR ENDED JUNE 30, 2018 EXHIBIT G-3 Fiscal Year Ended June 30, Contractually Required Contribution $ 65,608 $ 61,701 $ 70,721 $ 68,571 Contribution in Relation to the Contractually Required Contribution (65,608) (61,701) (70,721) (68,571) Contribution Deficiency (Excess) $ - $ - $ - $ - District's Covered Payroll $ 2,327,115 $ 2,261,545 $ 2,356,425 $ 2,262,418 Contributions as a percentage of Covered Payroll 2.82% 2.73% 3.00% 3.03% Note: Only four years of data is presented in accordance with GASB #68, paragraph 138. "The information for all periods for the 10-year schedules that are required to be presented as required supplementary information may not be available initially. In these cases, during the transition period, that information should be presented for as many years as are available. The schedules should not include information that is not measured in accordance with the requirements of this Statement." 0 61

71 EXHIBIT G-4 SAN PERLITA INDEPENDENT SCHOOL DISTRICT SCHEDULE OF THE DISTRICT'S PROPORTIONATE SHARE OF THE NET OPEB LIABILITY TEACHER RETIREMENT SYSTEM OF TEXAS FOR THE YEAR ENDED JUNE 30, 2018 Measurement Year Ended August 31, 2017 District's Proportion of the Net OPEB Liability (Asset) % District's Proportionate Share of the Net OPEB Liability (Asset) $ 1,203,962 State's Proportionate Share of the Net OPEB Liability (Asset) associated with the District 1,707,515 Total $ 2,911,477 District's Covered Payroll $ 2,268,229 District's Proportionate Share of the Net OPEB Liability (Asset) 53.08% as a percentage of its Covered Payroll Plan Fiduciary Net Position as a percentage of the Total OPEB Liability 0.91% Note: Only one year of data is presented in accordance with GASB #75, paragraph 245. "The information for all fiscal years for the 10-year schedules that are required to be presented as required supplementary information may not be available initially. In these cases, during the transition period, that information should be presented for as many years as are available. The schedules should not include information that is not measured in accordance with the requirements of this Statement." 0 62

72 SAN PERLITA INDEPENDENT SCHOOL DISTRICT SCHEDULE OF THE DISTRICT'S OPEB CONTRIBUTIONS TEACHER RETIREMENT SYSTEM OF TEXAS FOR THE YEAR ENDED JUNE 30, 2018 EXHIBIT G-5 Fiscal Year Ended June 30, 2018 Contractually Required Contribution $ 19,044 Contribution in Relation to the Contractually Required Contribution (19,044) Contribution Deficiency (Excess) $ - District's Covered Payroll $ 2,327,115 Contributions as a percentage of Covered Payroll 0.82% Note: Only one year of data is presented in accordance with GASB #75, paragraph 245. "The information for all fiscal years for the 10-year schedules that are required to be presented as required supplementary information may not be available initially. In these cases, during the transition period, that information should be presented for as many years as are available. The schedules should not include information that is not measured in accordance with the requirements of this Statement." 0 63

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74 Notes to Required Supplementary Information I. Budgetary information The Board adopts an appropriated budget on a basis consistent with GAAP for the general fund and debt service fund. At a minimum, the District is required to present the original and the final amended budgets for revenues and expenditures compared to actual revenues and expenditures for these two funds. The following procedures are followed in establishing the budgetary data reflected in the general purpose financial statements: Prior to June 20 for a fiscal year start date of July 1, the District prepares a budget based on the modified zero based budgeting concept for the next succeeding fiscal year. The operating budget includes proposed expenditures and the means of financing them. After one or more budget workshops with the Board, a meeting is called for the purpose of adopting the proposed budget. At least ten days but not more than 30 days public notice of the meeting is required. Prior to June 30 for a fiscal year start date of July 1, the Board legally adopts the budget for the general fund and debt service fund. After the budget for the above listed funds is approved, any amendment that causes an increase or decrease in a fund or functional spending category or total revenue or other resources object category requires Board approval prior to the fact. These amendments are presented to the Board at its regular monthly meeting and are reflected in the official minutes. Because the District has a policy of careful budgetary control, two budgetary amendments were necessary throughout the year. Expenditure budgets are controlled at the expenditure functional and object level by the appropriate administrator. Transfers may be authorized within functional and organizational categories that do not affect the total functional and organizational appropriation. All budget appropriations lapse at year end. Encumbrance accounting, under which purchase orders, contracts and other commitments are recorded in order to reserve that portion of the applicable appropriation, is used in all governmental funds. Encumbrances outstanding at year end are commitments that do not constitute expenditures or liabilities. Since appropriations lapse at the end of each year, outstanding encumbrances are appropriately provided for in the subsequent fiscal year s budget to provide for the liquidation of the prior commitments. II. Pension Changes of benefit terms There were no changes of benefit terms that affected measurement of the total pension liability during the measurement period. Changes of assumptions There were no changes to the actuarial assumptions or other inputs that affected measurement of the total pension liability during the measurement period. III. Other Post Employment Benefits (OPEB) Changes of benefit terms There were no changes of benefit terms that affected measurement of the total OPEB liability during the measurement period. Changes of assumptions There were no changes to the actuarial assumptions or other inputs that affected measurement of the total OPEB liability during the measurement period. 65

75 TEXAS EDUCATION AGENCY REQUIRED SCHEDULES 61

76 SAN PERLITA INDEPENDENT SCHOOL DISTRICT SCHEDULE OF DELINQUENT TAXES RECEIVABLE FISCAL YEAR ENDED JUNE 30, 2018 Last 10 Years (1) (2) (3) Assessed/Appraised Tax Rates Value for School Maintenance Debt Service Tax Purposes 2009 and prior years Various Various $ Various ,037, ,240, ,368, ,843, ,829, ,588, ,227, ,018, (School year under audit) ,004, TOTALS 66

77 EXHIBIT J-1 (10) (20) (31) (32) (40) (50) Current Entire Year's Maintenance Debt Service Year's Total Levy Collections Collections Adjustments Beginning Balance 7/1/2017 Ending Balance 6/30/2018 $ 46,916 $ - $ 9,487 $ 1,047 $ (6,521) $ 29,861 6,914-1, (1,467) 3,486 7,159-1, (1,491) 3,696 7,703-1, (1,548) 4,186 9,515-1, (1,652) 5,942 11,933-2, (1,891) 6,806 15,161-3, (1,968) 8,241 19,199-5,573 1,286 (1,891) 10, ,860-19,185 96,734 (14,159) 12,782-1,320, , ,291 (20,230) 96,890 $ 267,360 $ 1,320,982 $ 1,034,852 $ 318,333 $ (52,818) $ 182,339 67

78 Data Control Codes SAN PERLITA INDEPENDENT SCHOOL DISTRICT SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE BUDGET AND ACTUAL - CHILD NUTRITION PROGRAM FOR THE YEAR ENDED JUNE 30, 2018 Original Budgeted Amounts Final Actual Amounts (GAAP BASIS) EXHIBIT J-2 Variance With Final Budget Positive or (Negative) REVENUES: Total Local and Intermediate Sources $ - $ 5,000 $ 4,814 $ (186) State Program Revenues 1,200 7,200 13,947 6,747 Federal Program Revenues 228, , ,810 (7,990) 5020 Total Revenues 230, , ,571 (1,429) 0035 EXPENDITURES: Food Services 235, , ,615 6, Total Expenditures 235, , ,615 6, Net Change in Fund Balances (5,000) - 4,956 4, Fund Balance - July 1 (Beginning) 85,844 85,844 85, Fund Balance - June 30 (Ending) $ 80,844 $ 85,844 $ 90,800 $ 4,956 68

79 Data Control Codes SAN PERLITA INDEPENDENT SCHOOL DISTRICT SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE BUDGET AND ACTUAL - DEBT SERVICE FUND FOR THE YEAR ENDED JUNE 30, 2018 Original Budgeted Amounts Final Actual Amounts (GAAP BASIS) EXHIBIT J-3 Variance With Final Budget Positive or (Negative) REVENUES: Total Local and Intermediate Sources $ 401,000 $ 277,000 $ 324,458 $ 47,458 State Program Revenues 19,000 19,000 49,806 30, Total Revenues 420, , ,264 78, EXPENDITURES: Debt Service: Principal on Long Term Debt Interest on Long Term Debt Bond Issuance Cost and Fees 190, , , , , ,050-6,950 7,950 7, Total Expenditures 420, , , Excess (Deficiency) of Revenues Over Expenditures OTHER FINANCING SOURCES (USES): 7915 Transfers In - (125,000) (45,786) 79, , , Net Change in Fund Balances ,214 79, Fund Balance - July 1 (Beginning) 132, , , Fund Balance - June 30 (Ending) $ 132,780 $ 132,780 $ 211,994 $ 79,214 69

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81 COMPLIANCE SECTION 98

82 INDEPENDENT AUDITORS REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS To the Board of Trustees We have audited, in accordance with the 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, the financial statements of the governmental activities, each major fund, and the aggregate remaining fund information of the San Perlita Independent School District as of and for the year ended June 30, 2018, and the related notes to the financial statements, which collectively comprise the s basic financial statements and have issued our report thereon dated November 13, Internal Control over Financial Reporting In planning and performing our audit of the financial statements, we considered the San Perlita Independent School District s internal control over financial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the San Perlita Independent School District s internal control. Accordingly, we do not express an opinion on the effectiveness of the s internal control. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control such that there is a reasonable possibility that a material misstatement of the entity s financial statements will not be prevented, or detected and corrected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies and therefore, material weaknesses or significant deficiencies may exist that were not identified. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses. 71