CITY OF NICHOLS HILLS, OKLAHOMA COMPREHENSIVE ANNUAL FINANCIAL REPORT AND ACCOMPANYING INDEPENDENT AUDITOR S REPORTS

Transcription

1 CITY OF NICHOLS HILLS, OKLAHOMA COMPREHENSIVE ANNUAL FINANCIAL REPORT AND ACCOMPANYING INDEPENDENT AUDITOR S REPORTS AS OF AND FOR THE FISCAL YEAR ENDED JUNE 30, 2018

2 COMPREHENSIVE ANNUAL FINANCIAL REPORT AND ACCOMPANYING INDEPENDENT AUDITOR S REPORTS FOR THE FISCAL YEAR ENDED JUNE 30, 2018 Prepared By: City of Nichols Hills Department of Finance Kristi Hort, Finance Director

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4 COMPREHENSIVE ANNUAL FINANCIAL REPORT AND ACCOMPANYING INDEPENDENT AUDITOR S REPORT TABLE OF CONTENTS FOR THE FISCAL YEAR ENDED JUNE 30, 2018 INTRODUCTION SECTION: Page Letter of Transmittal 1-2 List of Principal Officials 3 City Government Organizational Chart 4 Certificate of Achievement for Excellence in Financial Reporting 5 FINANCIAL SECTION: INDEPENDENT AUDITOR S REPORT 7-8 REQUIRED SUPPLEMENTARY INFORMATION: Management s Discussion and Analysis 9-14 BASIC FINANCIAL STATEMENTS: Government-Wide Financial Statements: Statement of Net Position 15 Statement of Activities 16 Fund Financial Statements: Balance Sheet Governmental Funds 17 Reconciliation of Governmental Funds Balance Sheet to 18 Statement of Net Position Statement of Revenues, Expenditures and Changes in Fund Balance Governmental Funds 19 Reconciliation of Statement of Revenues, Expenditures, and Changes In Fund Balances of Governmental Funds to Statement of Activities 20 Statement of Net Position Proprietary Fund 21 Statement of Revenues, Expenses and Changes in Net Position - Proprietary Fund 22 Statement of Cash Flows - Proprietary Fund 23 Notes to the Financial Statements i

5 REQUIRED SUPPLEMENTARY INFORMATION: COMPREHENSIVE ANNUAL FINANCIAL REPORT AND ACCOMPANYING INDEPENDENT AUDITOR S REPORT TABLE OF CONTENTS FOR THE FISCAL YEAR ENDED JUNE 30, 2018 Budgetary Comparison Schedule (Budgetary Basis) General Fund Notes to Required Supplementary Information Budgetary Comparison Schedule Schedule of Share of Net Pension Liability Police Pension 62 Schedule of City Contributions Police Pension & Retirement System 63 Schedule of Share of Net Pension Liability Firefighter s System 64 Schedule of City Contributions Firefighter s Pension & Retirement System 65 Schedule of Changes in Net Pension Liability and Related Ratios - OkMRF 66 Schedule of Employer Contributions OkMRF 67 Schedule of Changes in Total OPEB Liability and Related Ratios 68 SUPPLEMENTARY INFORMATION: Combining Balance Sheet General Fund Accounts 69 Combining Schedule of Revenues, Expenditures, and Changes in Fund Balance General Fund Accounts 70 Combining Balance Sheet Nonmajor Governmental Funds 71 Combining Statement of Revenues, Expenditures, and Changes in Fund Balance Nonmajor Governmental Funds 72 Budgetary Comparison Schedule Nonmajor Governmental Funds 73 Budgetary Comparison Schedule Major Governmental Funds 74 Combining Schedule of Net Position NHMA Enterprise Fund Accounts 75 Combining Schedule of Revenues, Expenses, and Changes in Net Position NHMA Enterprise Fund Accounts 76 STATISTICAL SECTION: Table Net Assets/Net Position by Component - Last Ten Fiscal Years 1 78 Changes in Net Assets/Net Position - Last Ten Fiscal Years Fund Balances, Governmental Funds Last Ten Fiscal Years 3 81 ii

6 COMPREHENSIVE ANNUAL FINANCIAL REPORT AND ACCOMPANYING INDEPENDENT AUDITOR S REPORT TABLE OF CONTENTS FOR THE FISCAL YEAR ENDED JUNE 30, 2018 Changes in Fund Balances, Governmental Funds Last Ten Fiscal Years 4 82 Governmental Activities Tax Revenues by Source Last Ten Fiscal Years 5 83 Assessed Value and Estimated Actual Value of Taxable Property - Last Ten Fiscal Years 6 84 Property Tax Rates, Direct and Overlapping Governments (Per $1,000 of Assessed Value) - Ten Fiscal Years 7 85 Principal Property Taxpayers Current and Ten Years Ago 8 86 Property Tax Levies and Collections Last Ten Fiscal Years 9 87 Sales Tax Rates of Direct and Overlapping Governments Last Ten Fiscal Years Taxable Sales by Category Last Ten Fiscal Years Ratio of Outstanding Debt by Type Last Ten Fiscal Years Ratio of Net General Bonded Debt to Assessed Value and Net Bonded Debt per Capita Last Ten Fiscal Years Computation of Direct and Overlapping Debt Legal Debt Margin Information Last Ten Fiscal Years Municipal Authority Pledged Revenue Coverage Last Ten Fiscal Years Building Permits and Construction Last Ten Calendar Years Demographic and Economic Statistics Last Ten Calendar Years Principal Employers Current and Ten Years Ago Capital Asset Statistics by Function/Program Last Ten Fiscal Years Full-Time Equivalent City Government Employees by Function/Program Last Ten Fiscal Years Operating Indicators by Function/Program Last Ten Fiscal Years iii

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8 INTRODUCTION SECTION

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11 LIST OF PRINCIPAL OFFICIALS JUNE 30, 2018 City Council E. Peter Hoffman, Jr., Mayor Steve Goetzinger, Vice-Mayor Sody Clements, Member Administration S. Shane Pate II City Manager Kristi Hort City Clerk Johnson Hightower City Treasurer John Michael Williams City Attorney Lindy Hough Risk Manager Randy Lawrence Director of Public Works George Decher Deputy Public Works Director Kevin Boydston Fire Chief Kenny Reyes Assistant Fire Chief Steven Cox Police Chief Casey Nix Assistant Police Chief Neil Gray Information Systems Manager Finance Department Kristi Hort Sherry Dickson Irene Cantu Nikki Brown Cecilia Ortega Finance Director Assistant Finance Director Accounts Payable Court Clerk Utility Billing Clerk 3

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15 FINANCIAL SECTION

16 INDEPENDENT AUDITOR S REPORT To the Honorable Mayor and Members of the City Council of the City of Nichols Hills, Oklahoma Report on the Financial Statements We have audited the accompanying financial statements of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City of Nichols Hills, Oklahoma, (the City ) as of and for the year ended June 30, 2018, and the related notes to the financial statements, which collectively comprise the City 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. Auditor s Responsibility Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. Opinions In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City, as of June 30, 2018, and the respective changes in financial position, and, where applicable, cash flows thereof, for the year then ended in accordance with accounting principles generally accepted in the United States of America. 309 N. Bryant Ave. Edmond, OK Fax Member of AICPA and OSCPA

17 Change in Accounting Principle As discussed in Note 1 to the financial statements, in 2018 the City adopted new accounting guidance, GASB Statement No. 75, Accounting and Financial Reporting for Postemployment Benefits Other than Pensions. 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, and the schedules related to other post-employment benefits and pension liabilities and contributions, as listed in the table of contents, 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 City s basic financial statements. The introductory section, other supplementary information, and statistical section, are presented for purposes of additional analysis and are not a required part of the basic financial statements. The other supplementary information, as listed in the table of contents, is the responsibility of management and was derived from and relate directly to the underlying accounting and other records used to prepare the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the other supplementary information is fairly stated, in all material respects, in relation to the basic financial statements as a whole. The introductory and statistical sections have not been subjected to the auditing procedures applied in the audit of the basic financial statements and, accordingly, we do not express an opinion or provide any assurance on them. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated November 29, 2018, on our consideration of the City s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the City s internal control over financial reporting and compliance. November 29, 2018

18 MANAGEMENT S DISCUSSION & ANALYSIS For the fiscal year ended June 30, 2018 Our discussion and analysis of the City of Nichols Hills financial performance provides an overview of the City s financial activities for the fiscal year ended June 30, Please read it in conjunction with the City s financial statements. FINANCIAL HIGHLIGHTS For the fiscal year ended June 30, 2018, the City s total net position increased by $1,539,269 or 5.8% from the prior year. During the year, the City s expenses for governmental activities totaled $9,777,872 and were funded by program revenues of $2,006,564 and other general revenues and transfers that totaled $9,613,644. This resulted in an increase in governmental activities net position of $1,842,336. The City s business-type activities reported revenues and transfers of $3,489,340 and expenses of $3,792,407 resulting in a decrease in net position of $303,067. At June 30, 2018, the General Fund reported an unassigned fund balance of $1,885,054, which is an increase from the prior year due to an increase in sales tax revenue. For budgetary reporting purposes, the General Fund reported resources available for appropriation under final of estimates of $263,088, or 3.3%, while expenditures were under the final appropriations by $903,581or 10.8%. During 2018, the City implemented GASB Statement No. 75, Accounting and Financial Reporting for Postemployment Benefits Other than Pensions. This new standard required the City to report certain liabilities associated with its retirement plans that had not previously been reported. OVERVIEW OF THE FINANICAL STATEMENTS The financial statements presented herein include all of the activities of the City of Nichols Hills (the City ) and its component unit using the integrated approach as prescribed by GASB. Included in this report are governmental-wide statements for each of two categories of activities governmental and business-type. The government-wide financial statements present the complete financial picture of the City from the economic resources measurement focus using the accrual basis of accounting. They present governmental activities and business-type activities separately and combined. These statements include all assets of the City (including infrastructure) and deferred outflows, as well as all liabilities (including long-term debt) and deferred inflows. Reporting the City as a Whole The Statement of Net Position and the Statement of Activities One of the most frequently asked questions about the City s finances is, Has the City s financial condition improved, declined or remained steady over the last year? The Statement of Net Position and the Statement of Activities report information about the City as a whole and about its activities in a way that helps answer this question. These statements include all assets, deferred outflows, liabilities and deferred inflows using the accrual basis of accounting. All of the current year s revenues, expenses and deferrals are taken into account regardless of when cash is received or paid. These two statements report the City s net position and changes in them from the prior year. You can think of the City s net position the difference between assets, deferred outflows, liabilities and deferred inflows as one way to measure the City s financial condition, or position. Over time, increases or decreases in the City s net position are one indicator of whether its financial health is improving or deteriorating. However, you must consider other nonfinancial factors, such as changes in the City s tax base and the condition of the City s roads, to assess the overall health of the City. As mentioned above, in the Statement of Net Position and the Statement of Activities, we divide the City into two kinds of activities: 9

19 MANAGEMENT S DISCUSSION & ANALYSIS For the fiscal year ended June 30, 2018 Governmental activities -- Most of the City s basic services are reported here, including the police, fire, general administration, streets, and parks. Sales taxes, franchise fees, fines, and state and federal grants finance most of these activities. Business-type activities For these activities, the City charges a fee to customers to help cover all or most of the cost of the services it provides. The City s water and wastewater utilities are reported here. Reporting the City s Most Significant Funds Fund Financial Statements The fund financial statements provide detailed information about the most significant funds not the City as a whole. Some funds are required to be established by State law and by bond covenants. However, management establishes many other funds to help it control and manage money for particular purposes or to show that it is meeting legal responsibilities for using certain taxes, grants and other money. Governmental funds -- Most of the City s basic services are reported in governmental funds, which focus on how money flows into and out of those funds and the balances left at year-end that are available for spending. These funds are reported using an accounting method called modified accrual accounting, which measures cash and all other financial assets that can readily be converted to cash. The governmental fund statements provide a detailed short-term view of the City s general government operations and the basic services it provides. Governmental fund information helps determine whether there are more or fewer financial resources that can be spent in the near future to finance the City s programs. The differences of results in the governmental fund financial statements to those in the governmentwide financial statements are explained in a reconciliation following each governmental fund financial statement. Proprietary funds -- When the City charges customers for the services it provides whether to outside customers or to other units of the City these services are generally reported in proprietary funds. Proprietary funds are reported in the same way that business-type activities are reported in the Statement of Net Position and the Statement of Activities. In fact, the City s enterprise funds are the same as the business-type activities we report in the government-wide statements but provide more detail and additional information, such as cash flows. A FINANCIAL ANALYSIS OF THE CITY AS A WHOLE Net Position The City s combined net position increased from $26.7 million to $28.2 million between fiscal years 2017 and Looking at the net position of governmental and business-type activities separately, total net position of the governmental activities increased and the business-type activities total net position decreased. % Inc. % Inc. % Inc. Governmental Activities (Dec.) Business-Type Activities (Dec.) Total (Dec.) Current assets $ 16,761,977 $ 12,829,930-31% $ 2,755,791 $ 3,643,641 24% $ 19,517,768 $ 16,473,571-18% Capital assets, net 24,182,300 25,831,719 6% 20,397,328 19,242,295-6% 44,579,628 45,074,014 1% Total assets $ 40,944,277 $ 38,661,649-6% $ 23,153,119 $ 22,885,936-1% $ 64,097,396 $ 61,547,585-4% Deferred outflows of resources $ 1,635,760 $ 1,510,664-8% $ 195,905 $ 134,276-46% $ 1,831,665 $ 1,644,940-11% Long-term debt outstanding 30,745,434 30,070, % 137, ,337 0% 30,882,548 30,207, % Other liabilities 7,640,170 3,861,037-98% 117, ,416-8% 7,757,473 3,969,453-95% Total liabilities $ 38,385,604 $ 33,931,167-13% $ 254,417 $ 245,753-4% $ 38,640,021 $ 34,176,920-13% Deferred inflows of resources $ 536,408 $ 740,785 28% $ 65,217 $ 48,136-35% $ 601,625 $ 788,921 24% Net position Net investment in capital assets 3,955,351 4,805,952 18% 20,377,268 19,222,957-6% 24,332,619 24,028, % Restricted 1,355,422 1,158,521-17% - - 0% 1,355,422 1,158,521-17% Unrestricted (deficit) (1,652,748) (464,112) 256% 2,652,122 3,503,366 24% 999,374 3,039,254 67% Total net position $ 3,658,025 $ 5,500,361 33% $ 23,029,390 $ 22,726,323-1% $ 26,687,415 $ 28,226,684 5% 10

20 MANAGEMENT S DISCUSSION & ANALYSIS For the fiscal year ended June 30, 2018 The decrease in governmental current assets and other liabilities is due to the GO Bond payments made after year end in the prior year. Changes in deferred outflows and inflows related to changes in all three defined benefit retirement plans and the implementation of GASB Statement 75 related to OPEB. The increase in Business-Type Activities current assets is due to the increase in investments. Change in Net Position For the year ended June 30, 2018, net position of the primary government changed as follows: Governmental Activities % Inc. Business-Type % Inc. % Inc. (Dec.) Activities (Dec.) Total (Dec.) Revenues Program revenues - Charges for services $ 1,355,731 $ 1,566,812 16% $ 4,514,808 $ 4,311,171-5% $ 5,870,539 $ 5,877, % Program revenues - Other 422, ,752 4% , ,752 4% Taxes and other general revenues: Taxes 7,917,513 8,290,076 5% - - 7,917,513 8,290,076 5% Intergovernmental 6,204 6,276 1% - - 6,204 6,276 1% Investment income 99, ,992 48% 4,205 11, % 103, ,023 53% Miscellaneous 269, ,679 21% 2,662 11, % 272, ,438 24% Total revenues 10,070,771 10,775,587 7% 4,521,675 4,333,961-4% 14,592,446 15,109,548 4% Expenses General government 2,368,320 2,495,458 5% - - 2,368,320 2,495,458 5% Public safety 3,932,395 3,997,551 2% - - 3,932,395 3,997,551 2% Highways and streets 1,032,269 1,170,398 13% - - 1,032,269 1,170,398 13% Culture and recreation 227, ,077 2% , ,077 2% Public works 1,262,936 1,205, % - - 1,262,936 1,205,996-5% Interest on long-term debt 703, ,392-4% , ,392-4% Water - - 2,647,403 2,858,698 8% 2,647,403 2,858,698 8% Wastewater , ,709 0% 935, ,709 0% Total expenses 9,527,760 9,777,872 3% 3,583,330 3,792,407 6% 13,111,090 13,570,279 4% Excess (deficiency) before transfers 543, ,715 84% 938, ,554-42% 1,481,356 1,539,269 4% Transfers 1,809, ,621-53% (1,809,431) (844,621) -53% - - Change in net position 2,352,442 1,842,336-22% (871,086) (303,067) -65% 1,481,356 1,539,269 4% Beginning net position, restated 1,305,583 3,658,025 23,900,476 23,029,390 25,206,059 26,687,415 Ending net position $ 3,658,025 $ 5,500,361 $ 23,029,390 $ 22,726,323 $ 26,687,415 $ 28,226,684 Governmental Activities To aid in the understanding of the Statement of Activities some additional explanation is given. Of particular interest is the format that is significantly different than a typical Statement of Revenues, Expenditures, and Changes in Fund Balance. You will notice that expenses are listed in the first column with revenues from that particular program reported to the right. The result is a Net (Expense)/Revenue. The reason for this kind of format is to highlight the relative financial burden of each of the functions on the City s taxpayers. It also identifies how much each function draws from the general revenues or if it is self-financing through fees and grants or contributions. All other governmental revenues are reported as general. It is important to note all taxes are classified as general revenue even if restricted for a specific purpose. 11

21 MANAGEMENT S DISCUSSION & ANALYSIS For the fiscal year ended June 30, 2018 Net Revenue (Expense) of Governmental Activities Net Revenue Net Revenue Total Expense (Expense) Total Expense (Expense) of Services of Services of Services of Services General government $2,368,320 ($2,160,385) $2,495,458 ($2,225,793) Public safety 3,932,395 (3,359,500) 3,997,551 (3,363,227) Highways and streets 1,032,269 (998,575) 1,170,398 (1,135,968) Culture and recreation 227,984 (244,645) 233,077 (229,379) Public works 1,262,936 (282,342) 1,205,996 (141,549) Interest on long-term debt 703,856 (703,856) 675,392 (675,392) Total $9,527,760 ($7,749,303) $9,777,872 ($7,771,308) For the year ended June 30, 2018, total expenses for governmental activities amounted to approximately $9.8 million. Of these total expenses, the program revenues funded $2 million through service charges and grants and other contributions, while taxpayers, transfers, and other general revenues funded the remainder of $7.8 million. Business-Type Activities Net Revenue (Expense) of Business-Type Activities Net Revenue Net Revenue Total Expense (Expense) Total Expense (Expense) of Services of Services of Services of Services Water $2,647,403 $698,684 $2,858,698 $292,684 Wastewater 935, , , ,080 Total $3,583,330 $931,478 $3,792,407 $518,764 In the business-type activities, the charges for services in FY2018 were sufficient to cover expenses. A FINANCIAL ANALYSIS OF THE CITY S FUNDS As the City completed its 2018 fiscal year, the governmental funds reported a combined fund balance of $11.7 million or a 1.8% decrease from the prior year. The enterprise fund reported net position of $22.7 million or a 1.3% decrease from At June 30, 2018, the General Fund reported an unassigned fund balance of $1,885,054, which is an increase from prior year due to an increase in tax revenue in the amount of $496,218. The Debt Service Fund decreased its fund balance by $65,645 due to less property taxes being collected. The Capital Improvement Fund had a decrease in fund balance due to increased capital expenses. The City issued Series 2018 General Obligation Bonds in the amount of $3,000,000 for capital projects, and the GO Bond Fund fund balance decreased by $188,852 due to capital projects. General Fund Budgetary Highlights Over the course of the year, the City Council made minor budget revisions. The General Fund reported resources available for appropriations over final of estimates of $25,180 (0.3%) and expenditures under final appropriations by $903,581 (10.8%). 12

22 MANAGEMENT S DISCUSSION & ANALYSIS For the fiscal year ended June 30, 2018 Capital Asset and Debt Administration Capital Assets At June 30, 2018, the City had approximately $45.1 million invested in capital assets, net of depreciation, including police and fire equipment, buildings, park facilities, water lines, sewer lines and systems. (See table below). Primary Government Capital Assets (Net of accumulated depreciation) Governmental Business-Type Activities Activities Total Land $88,000 $389,565 $195,742 $195,742 $283,742 $585,307 Buildings 469, ,362 1,390,983 1,313,029 1,860,270 1,735,391 Imp. other than buildings 24,131 35, , , , ,998 Machinery, furniture and equipment 1,680,447 1,580, , ,504 1,916,433 1,975,449 Infrastructure 16,660,292 16,390, ,660,292 16,390,067 Utility improvements ,718,379 16,156,047 17,718,379 16,156,047 Water rights ,449 42,272 44,449 42,272 Construction in progress 5,260,143 7,012, , ,619 5,777,828 7,894,483 Totals $24,182,300 $25,831,719 $20,397,328 $19,242,295 $44,579,628 $45,074,014 This year s more significant capital asset additions are various paving projects, while the depreciation expense for all assets totaled $3.3 million. See Note 3.D. for additional information. Long- Term Debt Administration At year-end, the City had approximately $28.7 million in outstanding long-term debt. (See table below). These debts are further detailed below and excludes any unamortized debt premiums and discounts. Primary Government Long-Term Debt Total Governmental Business-Type Percentage Activities Activities Total Change G.O. Bonds payable $28,585,000 $28,210,000 $ - $ - $28,585,000 $28,210, % Water rights ,060 19,338 20,060 19, % Accrued comp absences 353, ,738 30,443 30, , , % Utility deposits ,560 19,210 17,560 19, % Totals $28,938,263 $28,595,738 $ 68,063 $ 68,939 $29,006,326 $28,664, % For the year ended June 30, 2018, the City incurred an additional $3.0 million of general obligation bonds for capital improvements. See Note 3.E. for additional information. 13

23 MANAGEMENT S DISCUSSION & ANALYSIS For the fiscal year ended June 30, 2018 Economic Factors and Next Year s Budget and Rates Nichols Hills is a small community covering approximately two- and one-half square miles with the majority of the City being residential in nature. The two major sources of operational income are sales tax and water revenues. Declining sales tax had been at the forefront of our concern for several years leading up to the fiscal year; however, we now have many new tenants in the Nichols Hills Plaza, one of our primary sources of sales tax revenue. Trader Joe s grocery store has shown to be a major anchor tenant in the Plaza, several new restaurants and retail stores have opened, additional retail spaces in the Plaza have been constructed and more retail construction is underway. These developments significantly contributed to the City experiencing a 22.11% increase in sales tax collections from the prior fiscal year. Water sales continue to be good at rounding out our income sources. In 2011, the City increased water rates by $2.00 per thousand gallons of water sold to offset the losses from declining sales tax collection rates. In light of the recent increased sales tax trends, this year the City decreased water rates by $0.10 per thousand gallons. Additional water rate reductions for the next fiscal year are not presently contemplated. Contacting the City s Financial Management This financial report is designed to provide our citizens, taxpayers, customers and creditors with a general overview of the City s finances and to show the City s accountability for the money it receives. If you have questions about this report or need additional financial information, contact the City Clerk s Office at 6407 Avondale Dr., Nichols Hills, Oklahoma or phone at (405)

24 City of Nichols Hills Statement of Net Position June 30, 2018 Governmental Activities Business-type Activities Total ASSETS Cash and cash equivalents $ 5,228,280 $ 914,267 $ 6,142,547 Investments 6,785,795 1,249,384 8,035,179 Deposits with insurance pool 45,341-45,341 Interest receivable 20,143 3,803 23,946 Accounts receivable, net - 687, ,325 Franchise tax receivable 55,486-55,486 Court fines receivable, net 226, ,427 Other receivables Internal balances (670,605) 670,605 - Due from other governments 618, ,553 Net pension asset 440, , ,213 Prepaid assets 78,672-78,672 Capital assets: Non-depreciable assets 7,402,429 1,077,361 8,479,790 Depreciable assets, net 18,429,290 18,164,934 36,594,224 Total capital assets 25,831,719 19,242,295 45,074,014 Total assets 38,661,649 22,885,936 61,547,585 DEFERRED OUTFLOWS OF RESOURCES Deferred amounts related to OPEB 17,732 1,885 19,617 Deferred amounts related to pensions 1,492, ,391 1,625,323 Total deferred outflows of resources 1,510, ,276 1,644,940 LIABILITIES Accounts payable and accrued expenses 322, , ,118 Long-term liabilities Due within one year Compensated absences 38,574 3,039 41,613 Bonds and notes payable 3,535, ,536,269 Due in more than one year Meter deposit liability - 19,210 19,210 Bonds and notes payable 25,038,687 18,616 25,057,303 Compensated absences 347,164 27, ,516 Net pension liability 3,969,819-3,969,819 Total OPEB liability 678,913 72, ,072 Total liabilities 33,931, ,753 34,176,920 DEFERRED INFLOWS OF RESOURCES Deferred amounts related to OPEB 51,799 5,506 57,305 Deferred amounts related to pensions 688,986 42, , ,785 48, ,921 NET POSITION Net investment in capital assets 4,805,952 19,222,957 24,028,909 Restricted for: Debt service 1,043,051-1,043,051 Streets 88,933-88,933 Public safety 26,537-26,537 Unrestricted (deficit) (464,112) 3,503,366 3,039,254 Total net position $ 5,500,361 $ 22,726,323 $ 28,226,684 See accompanying notes to the basic financial statements 15

25 City of Nichols Hills Statement of Activities For the Year Ended June 30, 2018 Program Revenue Net (Expense) Revenue and Changes in Net Position Primary Government Functions/Programs Expenses Charges for Services Operating Grants and Contributions Capital Grants and Contributions Governmental Activities Business-type Activities Total Primary government Governmental Activities General Government $ 2,495,458 $ 267,579 $ 2,086 $ - $ (2,225,793) $ - $ (2,225,793) Public Safety 3,997, , ,538 - (3,363,227) - (3,363,227) Highways and Streets 1,170,398-34,430 - (1,135,968) - (1,135,968) Public Works 1,205,996 1,064, (141,549) - (141,549) Culture and Recreation 233,077-3,698 - (229,379) - (229,379) Interest on Long-term debt 675, (675,392) - (675,392) Total governmental activities 9,777,872 1,566, ,752 - (7,771,308) - (7,771,308) Business-type Activities Water 2,858,698 3,151, , ,684 Wastewater 933,709 1,159, , ,080 Total business-type activities 3,792,407 4,311, , ,764 Total primary government $ 13,570,279 $ 5,877,983 $ 439,752 $ - (7,771,308) 518,764 (7,252,544) General revenues: Taxes: Sales tax 3,928,736-3,928,736 Property taxes, levied for debt service 3,990,370-3,990,370 Franchise taxes 358, ,832 E911 taxes 12,138-12,138 Intergovernment not restricted to specific programs 6,276-6,276 Unrestricted investment earnings 146,992 11, ,023 Miscellaneous 325,679 11, ,438 Transfers 844,621 (844,621) - Total general revenues and transfers 9,613,644 (821,831) 8,791,813 Change in net position 1,842,336 (303,067) 1,539,269 Net position - beginning, restated 3,658,025 23,029,390 26,687,415 Net position - ending $ 5,500,361 $ 22,726,323 $ 28,226,684 See accompanying notes to the basic financial statements 16

26 City of Nichols Hills Balance Sheet Governmental Funds June 30, 2018 General Fund Debt Service Fund Capital Improvement Fund GO Bond Fund Other Governmental Funds Total Governmental Funds ASSETS Cash and cash equivalents $ 973,320 $ 1,133,503 $ 316,361 $ 2,692,418 $ 112,678 $ 5,228,280 Investments 991, ,000 5,044,045-6,785,795 Deposits with insurance pool 45, ,341 Prepaid items 78, ,672 Receivables: Accrued interest receivable 660-2,984 16,499-20,143 Due from other funds 79, ,065-81,064 Due from other governments 508, , , ,553 Franchise taxes receivable 55, ,486 Court fines receivable, net 226, ,427 Other receivables Total assets $ 2,960,624 $ 1,239,567 $ 1,069,345 $ 7,754,027 $ 117,080 $ 13,140,643 LIABILITIES, DEFERRED INFLOWS AND FUND BALANCES Liabilities: Accounts payable $ 127,354 $ - $ 19,104 $ 116,198 $ - $ 262,656 Due to other funds 1, , ,669 Escrow liabilities 1, ,909 Retainage payable ,898-57,898 Total liabilities 130,328-19, , ,074,132 Deferred inflows of resources: Deferred revenue 200, ,362 2,984 14, ,426 Fund balances: Nonspendable 78, ,672 Restricted for: Streets ,933 88,933 Public safety ,537 26,537 Donations 36, ,527 Debt service - 1,043, ,043,051 Capital projects ,966,710-5,966,710 Assigned for: Streets ,006 1,006 Economic development 500, ,000 Insurance premiums 45, ,341 Debt service - 93, ,154 Capital projects 83,777-1,047, ,066-1,980,100 Unassigned 1,885, ,885,054 Total fund balances 2,629,371 1,136,205 1,047,257 6,815, ,476 11,745,085 Total liabilities, deferred inflows and fund balances $ 2,960,624 $ 1,239,567 $ 1,069,345 $ 7,754,027 $ 117,080 $ 13,140,643 See accompanying notes to the basic financial statements 17

27 City of Nichols Hills Reconciliation of the Governmental Funds Balance Sheet to the Statement of Net Position June 30, 2018 Total fund balance, governmental funds $ 11,745,085 Amounts reported for governmental activities in the Statement of Net Position are different because: Capital assets used in governmental activities are not current financial resources and therefore, are not reported in the funds, net of accumulated depreciation of $17,116, ,831,719 Certain other long-term assets and deferred outflows are not available to pay current fund liabilities and therefore, are deferred or not reported in the funds: Net pension asset 440,956 Deferred Outflows: Court fines receivable 200,265 Investment receivable 17,799 Deferred amount related to OPEB 17,732 Pension related deferred outflows 1,492,932 Receivable from other governments 103,362 2,273,046 Certain liabilities are not due and payable from current financial resources and therefore, they, along with the deferred inflows, are not reported in the funds: General obligation bonds payable (28,574,234) Accrued compensated absences (385,738) Net pension liability (3,969,819) Total OPEB liability (678,913) OPEB related deferred inflows (51,799) Pension related deferred inflows (688,986) (34,349,489) Net Position of Governmental Activities in the Statement of Net Position $ 5,500,361 See accompanying notes to the basic financial statements 18

28 Statement of Revenues, Expenditures and Changes in Fund Balances Governmental Funds For the Year Ended June 30, 2018 General Fund Debt Service Fund Capital Improvement Fund GO Bond Fund Other Governmental Funds Total Governmental Funds REVENUES Property taxes $ - $ 3,984,566 $ - $ - $ - $ 3,984,566 Taxes 4,287, ,138 4,299,706 Fees and fines 167, ,753 Licenses and permits 266, ,716 Intergovernmental 532, , ,360 Charges for services 1,122, ,122,207 Investment earnings 27,306 31,732 15,219 68, ,762 Miscellaneous 287,161-18, ,526 Total revenues 6,691,641 4,016,298 33,584 68,505 46,568 10,856,596 EXPENDITURES Current: General government 2,090,175 1, ,092,011 Public safety 4,022, ,022,308 Highways and streets 270, , ,805 Public works 878, ,310 Culture and recreation 223, ,944 Debt service: Principal - 3,375, ,375,000 Interest and other charges - 705, ,300 Bond issuance costs ,170-66,170 Capital outlay ,639 3,272, ,115,253 Total expenditures 7,486,607 4,081, ,639 3,338,565 5,347 15,754,101 Excess (deficiency) of revenues over expenditures (794,966) (65,645) (808,055) (3,270,060) 41,221 (4,897,505) OTHER FINANCING SOURCES (USES) Proceeds of debt ,081,208-3,081,208 Transfers in 1,601, , ,095,037 Transfers out (493,180) (493,180) Total other financing sources and uses 1,108, ,180 3,081,208-4,683,065 Net change in fund balances 313,711 (65,645) (314,875) (188,852) 41,221 (214,440) Fund balances - beginning 2,315,660 1,201,850 1,362,132 7,004,628 75,255 11,959,525 Fund balances - ending $ 2,629,371 $ 1,136,205 $ 1,047,257 $ 6,815,776 $ 116,476 $ 11,745,085 See accompanying notes to the basic financial statements 19

29 City of Nichols Hills Reconciliation of the Statement of Revenues, Expenditures, and Changes in Fund Balances of Governmental Funds to the Statement of Activities For the Year Ended June 30, 2018 Net change in fund balances - total governmental funds: $ (214,440) Amounts reported for Governmental Activities in the Statement of Activities are different because: Governmental funds report capital outlays as expenditures while governmental activities report depreciation to allocate those expenditures over the life of the assets: Capital asset purchases capitalized 3,156,860 Depreciation expense (1,505,460) Loss on disposal of capital asset (1,981) 1,649,419 In the Statement of Activities, the net cost of pension benefits earned is calculated and is reported as pension expense. The fund financial statements report pension contributions as pension expenditures. This amount represents the difference between pension contributions and calculated pension expense. 136,256 Revenues in the Statement of Activities that do not provide current financial resources are not reported as revenues in the funds: Change in deferred revenue 24,602 Debt proceeds provide current financial resources to governmental funds, but issuing debt increases long-term liabilities and can also increase deferred amounts in the Statement of Net Position. Repayment of debt principal is an expenditure in the governmental funds; but the repayment reduces long-term liabilities in the Statement of Net Position: Bond proceeds received (3,000,000) General obligation bond principal payments 3,375,000 Change in bond premium (51,300) 323,700 Some expenses reported in the statement of activities do not require the use of current financial resources and these are not reported as expenditures in governmental funds: Accrued compensated absences (32,475) Total OPEB liability (44,726) (77,201) Change in net position of governmental activities $ 1,842,336 See accompanying notes to the basic financial statements 20

30 City of Nichols Hills Statement of Net Position Proprietary Fund June 30, 2018 Enterprise Fund Nichols Hills Municipal Authority ASSETS Current assets: Cash and cash equivalents $ 895,057 Restricted cash and cash equivalents 19,210 Investments 1,249,384 Accounts receivable, net 687,325 Accrued interest receivable 3,803 Due from other funds 750,000 Total current assets 3,604,779 Non-current assets: Net pension asset 118,257 Capital assets: Non-depreciable assets 1,077,361 Depreciable assets, net 18,164,934 Total non-current assets 19,360,552 Total assets 22,965,331 DEFERRED OUTFLOWS OF RESOURSES: Deferred amounts related to OPEB 1,885 Deferred amounts related to pensions 132, ,276 LIABILITIES Current liabilities: Accounts payable 104,655 Due to other funds 79,395 Compensated absences, current portion 3,039 Notes payable, current portion 722 Total current liabilities 187,811 Non-current liabilities: Compensated absences 27,352 Meter deposit liability 19,210 Notes payable, current portion 18,616 OPEB liability 72,159 Total non-current liabilities 137,337 Total liabilities 325,148 DEFERRED INFLOWS OF RESOURCES: Deferred amounts related to OPEB 5,506 Deferred amounts related to pensions 42,630 48,136 NET POSITION Net investment in capital assets 19,222,957 Net pension asset 3,503,366 Total net position $ 22,726,323 See accompanying notes to the basic financial statements 21

31 City of Nichols Hills Statement of Revenues, Expenses and Change in Fund Net Position Proprietary Fund For the Year Ended June 30, 2018 Enterprise Fund Nichols Hills Municipal Authority REVENUES Charges for services: Water charges $ 3,109,287 Wastewater charges 1,159,789 Water taps 23,736 Penalties 18,359 Miscellaneous revenue 11,759 Total operating revenues 4,322,930 OPERATING EXPENSES Administrative 792,059 Water and wastewater operations 1,037,081 Depreciation expense 1,777,053 Total operating expenses 3,606,193 Operating income 716,737 NON-OPERATING REVENUES (EXPENSES) Interest and investment revenue 11,031 Interest expense (883) Total non-operating revenues (expense) 10,148 Income before contributions and transfers 726,885 Capital contributions 571,905 Transfer out (1,601,857) Change in net position (303,067) Total net position- beginning, restated 23,029,390 Total net position - ending $ 22,726,323 See accompanying notes to the basic financial statements 22

32 City of Nichols Hills Statement of Cash Flow Proprietary Fund For the Year Ended June 30, 2018 Enterprise Fund Nichols Hills Municipal Authority CASH FLOWS FROM OPERATING ACTIVITIES Receipts from customers $ 4,361,833 Payments to suppliers (1,230,140) Payments to employees (602,608) Receipts of customer meter deposits 7,200 Refunds of customer meter deposits (5,550) Interfund receipts/payments (976) Net cash provided by operating activities 2,529,759 CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES Transfers to other funds (1,601,857) Net cash provided by (used in) noncapital financing activities (1,601,857) CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVIES Purchases of capital assets (50,115) Principal paid on debt (722) Interest and fiscal agent fees paid on debt (883) Net cash provided by (used in) capital and related financing activities (51,720) CASH FLOWS FROM INVESTING ACTIVITIES Sale (purchase) of investments (699,384) Interest and dividends 9,984 Net cash provided by (used in) investing activities (689,400) Net increase in cash and cash equivalents 186,782 Balances - beginning of year 727,485 Balances - end of year $ 914,267 Reconciliation to Statement of Net Position: Cash and cash equivalents $ 895,057 Restricted cash and cash equivalents - current 19,210 Total cash and cash equivalents, end of year $ 914,267 Reconciliation of operating income to net cash provided by operating activities: Operating activities: $ 716,737 Adjustments to reconcile operating income to net cash provided by operating activities: Depreciation expense 1,777,053 Change in assets and liabilities: Due to other funds (976) OPEB liability 4,752 Accounts receivable 38,903 Accounts payable (8,882) Net pension asset 574 Deposits subject to refund 1,650 Accrued compensated absences (52) Net cash provided by operating activities $ 2,529,759 Noncash Activities: Contributed capital assets $ 571,905 See accompanying notes to the basic financial statements 23

33 NOTES TO THE FINANCIAL STATEMENTS INDEX NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A. FINANCIAL REPORTING ENTITY B. BASIS OF PRESENTATION C. MEASUREMENT FOCUS AND BASIS OF ACCOUNTING D. ASSETS, DEFERRED OUTFLOWS, LIABILITIES, DEFERRED INFLOWS AND EQUITY E. REVENUES, EXPENDITURES AND EXPENSES F. INTERNAL AND INTERFUND BALANCES AND ACTIVITIES G. USE OF ESTIMATES H. PENSIONS NOTE 2. STEWARDSHIP, COMPLIANCE AND ACCOUNTABILITY A. FUND ACCOUNTING REQUIREMENTS B. REVENUE RESTRICTIONS C. DEBT RESTRICTIONS AND COVENANTS D. FUND EQUITY/NET POSITION RESTRICTIONS E. NEW ACCOUNTING PRONOUCEMENTS ADOPTED IN FISCAL YEAR 2018 NOTE 3. DETAIL NOTES - TRANSACTION CLASSES/ACCOUNTS A. CASH AND INVESTMENTS B. RESTRICTED ASSETS C. ACCOUNTS RECEIVABLE D. CAPITAL ASSETS E. LONG-TERM DEBT AND OBLIGATIONS F. INTERFUND TRANSACTIONS AND BALANCES NOTE 4. OTHER NOTES A. EMPLOYEE PENSION AND OTHER BENEFIT PLANS B. RISK MANAGEMENT C. COMMITMENTS AND CONTINGENCIES 24

34 NOTES TO BASIC FINANCIAL STATEMENTS June 30, 2018 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The City s accounting and financial reporting policies conform with accounting principles generally accepted in the United States of America (GAAP). Accounting principles generally accepted in the United States of America (GAAP) include all relevant Governmental Accounting Standards Board (GASB) pronouncements. The accounting and reporting framework and the more significant accounting policies are discussed in subsequent subsections of this Note. 1.A. FINANCIAL REPORTING ENTITY The City s financial reporting entity is comprised of the following: Primary Government: Blended Component Unit: City of Nichols Hills Nichols Hills Municipal Authority In determining the financial reporting entity, the City complies with the provisions of Governmental Accounting Standards Board Statement No. 14, The Financial Reporting Entity as amended by Statement 61, and includes all component units of which the City appointed a voting majority of the units board and the City is financially accountable. The component unit is a Public Trust established pursuant to Title 60 of Oklahoma State law. A public trust (Authority) has no taxing power. The Authority is generally created to finance City services through issuance of revenue bonds or other non-general obligation debt and to enable the City Council to delegate certain functions to the governing body (Trustees) of the Authority. The Authority generally retains title to assets which are acquired or constructed with Authority debt or other Authority generated resources. In addition, the City has leased certain existing assets at the creation of the Authority to the Trustees on a long-term basis. The City, as beneficiary of the Public Trust, receives title to any residual assets when the Public Trust is dissolved. BLENDED COMPONENT UNIT A blended component unit is a separate legal entity that meets the component unit criteria described above and whose governing body is the same or substantially the same as the City Council or the component unit provides services entirely to the City. In addition, management and staff of the City are also the management and staff of the component unit. The component unit fund is blended into those of the City s by appropriate fund category to comprise the primary government presentation. The component unit that is blended into the reporting fund categories of the City s report is presented below. Component Unit Brief Description/Inclusion Criteria Reporting Fund Nichols Hills Municipal Created December 29, 1987, to finance, Enterprise Fund Authority (NHMA) develop and operate the water and wastewater activities of the City. Current City Council serves as entire governing body (Trustees). Debt issued by the Authority requires 2/3rds approval of City Council. In addition, management and staff of the City are also the management and staff of the component unit. This component unit does not issue a separate annual financial report. 25