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, 2017

2 COMPREHENSIVE ANNUAL FINANCIAL REPORT AND ACCOMPANYING INDEPENDENT AUDITOR S REPORTS FOR THE FISCAL YEAR ENDED JUNE 30, 2017 Prepared By: City of Nichols Hills Department of Finance Kristi Hort, Finance Director

3 COMPREHENSIVE ANNUAL FINANCIAL REPORT AND ACCOMPANYING INDEPENDENT AUDITOR S REPORT TABLE OF CONTENTS FOR THE FISCAL YEAR ENDED JUNE 30, 2017 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

4 REQUIRED SUPPLEMENTARY INFORMATION: COMPREHENSIVE ANNUAL FINANCIAL REPORT AND ACCOMPANYING INDEPENDENT AUDITOR S REPORT TABLE OF CONTENTS FOR THE FISCAL YEAR ENDED JUNE 30, 2017 Budgetary Comparison Schedule (Budgetary Basis) General Fund Notes to Required Supplementary Information Budgetary Comparison Schedule Schedule of Share of Net Pension Liability Police Pension 63 Schedule of City Contributions Police Pension & Retirement System 64 Schedule of Share of Net Pension Liability Firefighter s System 65 Schedule of City Contributions Firefighter s Pension & Retirement System 66 Schedule of Changes in Net Pension Liability and Related Ratios - OkMRF 67 Schedule of Employer Contributions OkMRF 68 Schedule of OPEB Status and Funding Progress 69 SUPPLEMENTARY INFORMATION: Combining Balance Sheet General Fund Accounts 70 Combining Schedule of Revenues, Expenditures, and Changes in Fund Balance General Fund Accounts 71 Combining Balance Sheet Nonmajor Governmental Funds 72 Combining Statement of Revenues, Expenditures, and Changes in Fund Balance Nonmajor Governmental Funds 73 Budgetary Comparison Schedule Nonmajor Governmental Funds 74 Budgetary Comparison Schedule Major Governmental Funds 75 Combining Schedule of Net Position NHMA Enterprise Fund Accounts 76 Combining Schedule of Revenues, Expenses, and Changes in Net Position NHMA Enterprise Fund Accounts 77 STATISTICAL SECTION: Table Net Assets/Net Position by Component - Last Ten Fiscal Years 1 80 Changes in Net Assets/Net Position - Last Ten Fiscal Years Fund Balances, Governmental Funds Last Ten Fiscal Years 3 83 ii

5 COMPREHENSIVE ANNUAL FINANCIAL REPORT AND ACCOMPANYING INDEPENDENT AUDITOR S REPORT TABLE OF CONTENTS FOR THE FISCAL YEAR ENDED JUNE 30, 2017 Changes in Fund Balances, Governmental Funds Last Ten Fiscal Years 4 84 Governmental Activities Tax Revenues by Source Last Ten Fiscal Years 5 85 Assessed Value and Estimated Actual Value of Taxable Property - Last Ten Fiscal Years 6 86 Property Tax Rates, Direct and Overlapping Governments (Per $1,000 of Assessed Value) - Ten Fiscal Years 7 87 Principal Property Taxpayers Current and Ten Years Ago 8 88 Property Tax Levies and Collections Last Ten Fiscal Years 9 89 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

6 COMPREHENSIVE ANNUAL FINANCIAL REPORT AND ACCOMPANYING INDEPENDENT AUDITOR S REPORT TABLE OF CONTENTS FOR THE FISCAL YEAR ENDED JUNE 30, 2017 THIS PAGE INTENTIONALLY LEFT BL iv

7 INTRODUCTION SECTION

8 e-./ CITYOF NICHOLS HILLS November 30, 2017 To the Honorable Mayor and Members ofthe City Council ofthe City of Nichols Hills, Oklahoma: We are pleased to submit to you the Comprehensive Annual Financial Report (hereafter referred to as CAFR) ofthe City of Nichols Hills for the fiscal year ended June 30, We believe the information, as presented, is accurate in all material aspecls and that all disclosures necessary to enable the reader to gain an adequate understanding of the City's financial affairs have been included. The Management's Discussion and Analysis on pages 9-14 provide additional narative and detailed analysis of the city's financial affairs. It is the responsibility of the management of the City to prepare the CAFR. Responsibility for the accuracy, completeness and faimess of the presentation, including all disclosures, rests rxith management. Management is responsible for establishing and maintaining an intemal control structure to ensure that the assets ofthe City are protected from loss, theft or misuse and that adequate accounting data is compiled for preparation of financial statements in conformity with generally accepted accounting principles. The intemal control structure is designed to provide reasonable, but not absolute, assurance that these objectives are met. We bolieve the information, as presented, is accurate in all material aspects and that all disclosures necessary to enable the reader to gain an adequate understanding oflhe City's financial activities have been included. The City of Nichols Hills provides many municipal services including public safety, streets, parks, general administration, and public utilities. For financial reporting purposes, all funds, agencies, boards, commissions and authorities over which the City Council has financial accountability are included in this report. Financial accountability is determined by several different factors including fiscal dependence, ability to impose will upon the entity's governing body, provision ofspecific financial burdens or bene{its and separate legal entity status. After a careful evaluation of these factors, the City has included in this financial report the Nichols Hills Municipal Authority, as well as all funds ofthe City. The General Fund, Street & alley fund, E-91I fund, Debt Service fund and Capital project funds adopt amual budgets. The GO bond fund adopts budgets by project. The City Manager's proposed operating budget for the fiscal year commencing the following July I is submitted to the City Council prior to June l. A public hearing is held p or to June l5 to obtain citizen comments. Subsequent to the public hearing but not later than seven days prior to July l, the budget is adopted by resolution ofthe City Council. The adopted budget is filed with the Office of State Auditor and lnspector. The appropriated budget is prepared by fund, function and department. All supplemental appropriations require City Council approval. The City Manager may transfer appropriations between departments without City Council approval. Supplemental appropriations must also be filed with the OIfice ofthe State Auditor and Inspector. The City maintains an encumbrance accounting system as one technique of accomplishing budgetary control. Encumbrances outstanding at year-end do not constitute expenditures or liabilities, The commitments will be honored during the subsequent year. Govcrnmental Structure The City of Nichols Hills operates as a Council/Manager form of government. The legislative authority of the City is vested in a three member elected City Council. The mayor is elected from among the council itself. The City Council also serves as trustees ofthe Nichols Hills Municipal Authority. The Mayor and Council appoint a City Manager, who is the chief executive oflicer of the city, and also appoint a City Treasurer. Responsibility for the day-to-day operations of the City rests with the City Manager. Economic Condition and Outlook Nichols Hills is a small community covering approximately two and one-half square miles, with the majority ofthe City being residential in nature. The t\ryo major sources ofoperational income are sales tax and water revenues. Declining sales tax had been at the forefront of our concern for the last several years but we now have many new tenants in the Nichols Hills Plaza resulting in a 227o increase in total sales tax revenue since Trader Joe's grocery store has shown to be a TowN HALr- ' AvoNDALE DRIVE Nrcllols HILLS, OKLAHoMA 1 ' 405/ , F^x 4O5/A42-a4O9

9 Plaza, which we are expecting to be occupied by several new retail businesses over the next few years. We also have retail space in the Wilshire Village Plaza which continues to stay fully occupied most of the time. Water sales continue to be good at rounding out our income sources. The City has also experienced an upward trend in both residential and commercial development over the past year, which is anticipated to continue. Consequently, the City has engaged professional consultants and engineers to develop recommendations for impact fees to pay for a portion of the costs for providing water, sewer, paving, parks, and police services to new development in the City. Major Initiatives will continue use of General Obligation Bonds to improve infrastructure. Street repair and water system improvements continue to be a major focus, with the remodeling of City Hall and the redevelopment of Grand Blvd. Park being other recently completed major components of the G.O. Bond issues. The City is beginning to contemplate what projects will be presented to the voters in the next series of G.O. Bonds. The City of Nichols Hills Independent Audit The financial statements of the City and its component units forthe fiscal year ended June 30, 2017, have been audited by firm of Independent Public Accountants, and their opinion is included in the Financial Section of this report. a The financial statements are the responsibility of the City. The responsibility of the Independent Public Accountants is to express an opinion on the City's financial statements based on their audit. An audit is conducted in accordance with generally accepted auditing standards and Government Auditing Standards. Those standards require that the audit be planned and performed in a manner to obtain reasonable assurance as to whether the financial statements are free of material misstatement. Awards The Government Finance Officers Association of the United States and Canada (GFOA) awarded a Certificate of Achievement for Excellence in Financial Reporting to the City of Nichols Hills for its Comprehensive Annual Financial Report (CAFR) for the fiscal years ended June 30, 1997 through The Certificate of Achievement is a prestigious national award recognizing conformance with the highest standards for preparation of state and local govemment financial reports. In order to be awarded a Certificate of Achievement, a government unit must publish an easily readable and efficiently organized Comprehensive Annual Financial Report, the contents of which conform to program standards. The CAFR must satisff both generally accepted accounting principles and applicable legal requirements. A Certificate of Achievement is valid for a period of one year only. We believe our current report continues to conform to the Certificate of Achievement program requirements, and we are submitting it to GFOA. Acknowledgment We would like to thank our consultants, Crawford & Associates, P.C., for their professional guidance and experience. And also, thanks to our auditors, Arledge & Associates, P.C. for their assistance in this process. Finally, to the Nichols Hills City Council we extend heartfelt thanks for their support. It is their commitment to financial reporting excellence that allows the citizens of Nichols Hills to be fully informed about their municipal government finances. We are proud to convey the Council's commitment to our citizens and to all readers of the CAFR. Respectful ly submitted, 5@ 4,*d'- S. Shane Pate II City Manager Kristi Hort Finance Director 2

10 LIST OF PRINCIPAL OFFICIALS JUNE 30, 2017 City Council Sody Clements, Mayor E. Peter Hoffman, Jr, Vice-Mayor Steve Goetzinger, 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 Kevin Boydston Fire Chief Steven Cox Police Chief Casey Nix Assistant Police Chief George Decher Deputy Public Works Director Neil Gray Information Systems Manager Finance Department Kristi Hort Sherry Dickson Nikki Brown Irene Cantu Finance Director Accounts Payable/Payroll Clerk Court Clerk Utility Billing Clerk 3

11 (A City Coucil/City Manager Form of Government with a Charter) VOTERS OF THE CITY CITY COUNCIL THE CITY COUNCIL CONSISTS OF THREE COUNCILMEN ELECTED FOR COUNCIL APPOINTS THREE YEARS STAGGERED TERMS BY THE QUALIFIED ELECTORS COUNCIL APPOINTS OF THE CITY, ONE FROM EACH OF THREE WARDS. THE COUNCIL SHALL ELECT FROM ITS MEMEBERS A MAYOR AND A VICE-MAYOR. BOARD OF PARK COMMISSIONERS TREE BOARD CITY TREASURER CITY ATTORNEY BOARD OF ADJUSTMENT MUNICIPAL JUDGE CIVIL DEFENSE PLANNING COMMISSION CITY MANAGER DEPUTY CITY CLERK OKLAHOMA CITY - COUNTY HEALTH DEPARTMENT FINANCE DIRECTOR/ CITY CLERK RISK MANAGER ADA COORDINATOR POLICE DEPARTMENT FIRE DEPARTMENT PUBLIC WORKS COURT CLERK DISPATCH COMMUNICATIONS 911 EMTD STREET DIVISION WATER/SEWER DIVISION PARKS DIVISION SANITATION DIVISION CODE DIVISION ANIMAL CONTROL G/L ACCOUNTS RECEIVABLE BILLING CLERK 4

12 (D Government Finance Offi cers Association Certificate of Achievement for Excellence in Financial Reporting Presented to City of Nichols Hills Oklahoma For its Comprehensive Annual Financial Report for the Fiscal Year Ended June 30r 201,6 ffiirfitu- Executive Director/CEO 5

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14 FINANCIAL SECTION

15 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, 2017, 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, 2017, 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

16 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 pension plan and other post-employment benefits funding schedules, 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 supplemental 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 supplemental 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 30, 2017, 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 30,

17 MANAGEMENT S DISCUSSION & ANALYSIS For the fiscal year ended June 30, 2017 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, 2017, the City s total net position increased by $1,940,556 or 7.7% from the prior year. During the year, the City s expenses for governmental activities totaled $9,139,588 and were funded by program revenues of $1,778,457 and other general revenues and transfers that totaled $10,101,745. This resulted in an increase in governmental activities net position of $2,740,614. The City s business-type activities reported revenues and transfers of $2,712,244 and expenses of $3,512,302 resulting in a decrease in net position of $800,058. At June 30, 2017, the General Fund reported an unassigned fund balance of $1,702,443, 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 over final of estimates of $294,482 or 4.2%, while expenditures were under the final appropriations by $287,524 or 4%. 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: 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. 9

18 MANAGEMENT S DISCUSSION & ANALYSIS For the fiscal year ended June 30, 2017 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 $25.2 million to $27.1 million between fiscal years 2016 and Looking at the net position of governmental and business-type activities separately, governmental activities increased and the business-type activities decreased. % Inc. % Inc. % Inc. Governmental Activities (Dec.) Business-Type Activities (Dec.) Total (Dec.) Current assets $ 15,343,145 $ 16,761,977 8% $ 2,415,669 $ 2,755,791 12% $ 17,758,814 $ 19,517,768 9% Capital assets, net 19,034,646 24,182,300 21% 21,598,232 20,397,328-6% 40,632,878 44,579,628 9% Total assets $ 34,377,791 $ 40,944,277 16% $ 24,013,901 $ 23,153,119-4% $ 58,391,692 $ 64,097,396 9% Deferred outflow of resources $ 564,501 $ 1,618,923 65% $ 81,924 $ 194,116 58% $ 646,425 $ 1,813,039 64% Long-term debt outstanding 28,543,813 30,340,425 6% 70,811 64,297-10% 28,614,624 30,404,722 6% Other liabilities 4,494,923 7,640,170 41% 89, ,303 23% 4,584,667 7,757,473 41% Total liabilities $ 33,038,736 $ 37,980,595 13% $ 160,555 $ 181,600 12% $ 33,199,291 $ 38,162,195 13% Deferred inflows of resources $ 597,973 $ 536,408-11% $ 34,794 $ 65,217 47% $ 632,767 $ 601,625-5% Net position Net investment in capital assets 2,039,744 3,955,351 48% 21,577,476 20,377,268-6% 23,617,220 24,332,619 3% Restricted 1,146,121 1,355,422 15% - - 0% 1,146,121 1,355,422 15% Unrestricted (deficit) (1,880,282) (1,264,576) 49% 2,323,000 2,723,150 15% 442,718 1,458,574 70% Total net position $ 1,305,583 $ 4,046,197 68% $ 23,900,476 $ 23,100,418-3% $ 25,206,059 $ 27,146,615 7% 10

19 MANAGEMENT S DISCUSSION & ANALYSIS For the fiscal year ended June 30, 2017 The increase in deferred outflows and other liabilities relates to the actual investment earnings being less than projected investment earnings in all three defined benefit retirement plans. The increase in net investment in capital assets is due to the paving and well projects that were done this year. Other liabilities increased due to bond payments made on July 1 st of the subsequent year instead of June 30 of the current year. Change in Net Position For the year ended June 30, 2017, 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 $ 1,497,723 $ 1,355,731-9% $ 4,217,173 $ 4,514,808 7% $ 5,714,896 $ 5,870,539 3% Program revenues - Other 423, ,726 0% , ,726 0% Taxes and other general revenues: Taxes 6,964,870 7,917,513 14% - - 6,964,870 7,917,513 14% Intergovernmental 6,012 6,204 3% - - 6,012 6,204 3% Investment income 73,674 99,168 35% 3,077 4,205 37% 76, ,373 35% Miscellaneous 247, ,429 9% 22,644 2,662-88% 270, ,091 1% Total revenues 9,212,859 10,070,771 9% 4,242,894 4,521,675 7% 13,455,753 14,592,446 8% Expenses General government 2,290,054 2,307,051 1% - - 2,290,054 2,307,051 1% Public safety 3,519,911 3,685,815 5% - - 3,519,911 3,685,815 5% Highways and streets 762,751 1,022,354 34% ,751 1,022,354 34% Culture and recreation 193, ,959 14% , ,959 14% Public works 1,066,659 1,200,553 13% - - 1,066,659 1,200,553 13% Interest on long-term debt 572, ,856 23% , ,856 23% Water - - 2,149,829 2,600,051 21% 2,149,829 2,600,051 21% Wastewater , ,251 25% 728, ,251 25% Total expenses 8,405,546 9,139,588 9% 2,878,360 3,512,302 22% 11,283,906 12,651,890 12% Excess (deficiency) before transfers 807, ,183 15% 1,364,534 1,009,373-26% 2,171,847 1,940,556-11% Transfers (1,698,873) 1,809, % 1,698,873 (1,809,431) -207% - - Change in net position (891,560) 2,740, % 3,063,407 (800,058) -126% 2,171,847 1,940,556-11% Beginning net position 2,197,143 1,305,583 20,837,069 23,900,476 23,034,212 25,206,059 Ending net position $ 1,305,583 $ 4,046,197 $ 23,900,476 $ 23,100,418 $ 25,206,059 $ 27,146,615 Governmental investment income increased due to accrued interest on unspent bond proceeds and interest on deposit with third party. Highway and streets expenses increased due to the paving projects in the current year. Transfer between Governmental and Business-Type activities changed due to capital contributions to Business-Type activities in the prior year. This also contributes to the large change in net position. 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. For the year ended June 30, 2017, total expenses for governmental activities amounted to approximately $9.1 million. Of these total expenses, the program revenues funded $1.8 million through service charges and grants and other contributions, while taxpayers, transfers, and other general revenues funded the remainder of $7.3 million. 11

20 MANAGEMENT S DISCUSSION & ANALYSIS For the fiscal year ended June 30, 2017 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 $2,290,054 ($2,068,759) $2,307,051 ($2,099,116) Public safety 3,519,911 (2,876,320) 3,685,815 (3,112,920) Highways and streets 762,752 (727,481) 1,022,354 (988,660) Culture and recreation 1,066,659 (46,093) 1,200,553 (236,620) Public works 193,210 (193,210) 219,959 (219,959) Interest on long-term debt 572,961 (572,961) 703,856 (703,856) Total $8,405,547 ($6,484,824) $9,139,588 ($7,361,131) 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 $2,149,829 $999,951 $2,600,051 $746,036 Wastewater 728, , , ,470 Total $2,878,360 $1,338,813 $3,512,302 $1,002,506 In the business-type activities, the charges for services in FY2017 were sufficient to cover expenses. A FINANCIAL ANALYSIS OF THE CITY S FUNDS As the City completed its 2017 fiscal year, the governmental funds reported a combined fund balance of $12 million or an 11% decrease from the prior year. The enterprise fund reported net position of $23.1 million or a 3.3% decrease from At June 30, 2017, the General Fund reported an unassigned fund balance of $1,702,443, which is an increase from prior year due to an increase in tax revenue in the amount of $668,256. The Debt Service Fund increased its fund balance by $169,645 due to property taxes collected. The Capital Improvement Fund had an increase in fund balance due to transfers from the General Fund. The City issued Series 2017 General Obligation Bonds in the amount of $4,200,000 for capital projects, and the GO Bond Fund fund balance decreased by $2,094,971 due to capital projects. 12

21 MANAGEMENT S DISCUSSION & ANALYSIS For the fiscal year ended June 30, 2017 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 $294,482 (4.2%) and expenditures under final appropriations by $287,524 (4%). Capital Asset and Debt Administration Capital Assets At June 30, 2017, the City had approximately $44.6 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 $88,000 $195,742 $195,742 $283,742 $283,742 Buildings 359, , ,948 1,390, ,457 1,860,270 Imp. other than buildings 26,785 24, , , , ,235 Machinery, furniture and equipment 2,930,340 1,680, , ,986 3,195,400 1,916,433 Infrastructure 10,923,742 16,660, ,923,742 16,660,292 Utility improvements ,322,960 17,718,379 16,322,960 17,718,379 Water rights ,626 44,449 46,626 44,449 Construction in progress 4,706,270 5,260,143 4,294, ,685 9,000,936 5,777,828 Totals $19,034,646 $24,182,300 $21,598,232 $20,397,328 $40,632,878 $44,579,628 This year s more significant capital asset additions are various paving projects totaling $4.5 million and well projects totaling over $2.3 million, while the depreciation expense for all assets totaled $3 million. See Note 3.D. for additional information. Long- Term Debt Administration At year-end, the City had approximately $29 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 $27,665,000 $28,585,000 $ - $ - $27,665,000 $28,585, % Water rights ,756 20,060 20,756 20, % Accrued comp absences 339, ,263 35,212 30, , , % Utility deposits ,060 17,560 19,060 17, % Totals $28,004,370 $28,938,263 $ 75,028 $ 68,063 $28,079,398 $29,006, % 13

22 MANAGEMENT S DISCUSSION & ANALYSIS For the fiscal year ended June 30, 2017 For the year ended June 30, 2017, the City incurred an additional $4.2 million of general obligation bonds for capital improvements. See Note 3.E. for additional information. 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 the last several years but we now have many new tenants in the Nichols Hills Plaza. Trader Joe s grocery store has shown to be a major anchor tenant for other retail businesses in the Plaza, and construction is underway to expanded retail spaces in the Plaza. Water sales continue to be good at rounding out our income sources. The City has also experienced an upward trend in bother residential and commercial development over the past year. The City has engaged professional consultants and engineers to develop recommendations for impact fees to pay for a portion of the cost for providing water, sewer, paving, parks, and police services to new development in the City. 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)

23 City of Nichols Hills Statement of Net Position June 30, 2017 Governmental Activities Business-type Activities Total ASSETS Cash and cash equivalents $ 9,071,805 $ 727,485 $ 9,799,290 Investments 7,157, ,000 7,707,899 Interest receivable 17,687 2,756 20,443 Accounts receivable, net - 726, ,228 Franchise tax receivable 53,565-53,565 Court fines receivable, net 204, ,787 Other receivables 1,419-1,419 Internal balances (669,629) 669,629 - Due from other governments 575, ,175 Net pension asset 275,786 79, ,479 Prepaid assets 73,483-73,483 Capital assets: Non-depreciable assets 5,348, ,427 6,061,570 Depreciable assets, net 18,834,157 19,683,901 38,518,058 Total capital assets 24,182,300 20,397,328 44,579,628 Total assets 40,944,277 23,153,119 64,097,396 DEFERRED OUTFLOWS OF RESOURCES Deferred amounts related to pensions 1,618, ,116 1,813,039 Total deferred outflows of resources 1,618, ,116 1,813,039 LIABILITIES Accounts payable and accrued expenses 4,229, ,537 4,343,381 Long-term liabilities Due within one year Compensated absences 35,326 3,044 38,370 Bonds and notes payable 3,375, ,375,722 Due in more than one year Meter deposit liability - 17,560 17,560 Bonds and notes payable 25,522,934 19,338 25,542,272 Compensated absences 317,937 27, ,336 Net pension liability 4,219,475-4,219,475 Net OPEB obligation 280, ,079 Total liabilities 37,980, ,600 38,162,195 DEFERRED INFLOWS OF RESOURCES Deferred amounts related to pensions 536,408 65, ,625 NET POSITION Net investment in capital assets 3,955,351 20,377,268 24,332,619 Restricted for: Debt service 1,140,428-1,140,428 Streets 200, ,175 Public safety 14,819-14,819 Unrestricted (deficit) (1,264,576) 2,723,150 1,458,574 Total net position $ 4,046,197 $ 23,100,418 $ 27,146,615 See accompanying notes to the basic financial statements 15

24 City of Nichols Hills Statement of Activities For the Year Ended June 30, 2017 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 $ 2,307,051 $ 207,935 $ - $ - $ (2,099,116) $ - $ (2,099,116) Public Safety 3,685, , ,032 - (3,112,920) - (3,112,920) Highways and Streets 1,022,354-33,694 - (988,660) - (988,660) Public Works 1,200, , (236,620) - (236,620) Culture and Recreation 219, (219,959) - (219,959) Interest on Long-term debt 703, (703,856) - (703,856) Total governmental activities 9,139,588 1,355, ,726 - (7,361,131) - (7,361,131) Business-type Activities Water 2,600,051 3,346, , ,036 Wastewater 912,251 1,168, , ,470 Total business-type activities 3,512,302 4,514, ,002,506 1,002,506 Total primary government $ 12,651,890 $ 5,870,539 $ 422,726 $ - (7,361,131) 1,002,506 (6,358,625) Component Units General revenues: Taxes: Sales tax 3,453,468-3,453,468 Property taxes, levied for debt service 4,125,099-4,125,099 Franchise taxes 337, ,882 E911 taxes 1,064-1,064 Intergovernment not restricted to specific programs 6,204-6,204 Unrestricted investment earnings 99,168 4, ,373 Miscellaneous 269,429 2, ,091 Transfers 1,809,431 (1,809,431) - Total general revenues and transfers 10,101,745 (1,802,564) 8,299,181 Change in net position 2,740,614 (800,058) 1,940,556 Net position - beginning 1,305,583 23,900,476 25,206,059 Net position - ending $ 4,046,197 $ 23,100,418 $ 27,146,615 See accompanying notes to the basic financial statements 16

25 City of Nichols Hills Balance Sheet Governmental Funds June 30, 2017 General Fund Debt Service Fund Capital Improvement Fund GO Bond Fund Other Governmental Funds Total Governmental Funds ASSETS Cash and cash equivalents $ 1,717,238 $ 4,405,804 $ 110,316 $ 2,163,782 $ 72,217 $ 8,469,357 Investments - - 1,253,144 6,507,203-7,760,347 Prepaid items 73, ,483 Receivables: Accrued interest receivable - - 5,118 12,569-17,687 Due from other funds 123, ,065 1, ,004 Due from other governments 452, , , ,175 Franchise taxes receivable 53, ,565 Court fines receivable, net 204, ,787 Other receivables 1, ,419 Total assets $ 2,626,106 $ 4,525,106 $ 1,368,578 $ 8,684,619 $ 77,415 $ 17,281,824 LIABILITIES, DEFERRED INFLOWS AND FUND BALANCES Liabilities: Accounts payable $ 118,970 $ - $ 1,329 $ 658,034 $ 2,160 $ 780,493 Due to other funds 2, , ,633 Escrow liabilities 1, ,673 Due to bondholders 1, ,755 Current bond payable - 3,225, ,225,698 Retainage payable , ,225 Total liabilities 124,749 3,225,698 1,329 1,671,541 2,160 5,025,477 Deferred inflows of resources: Deferred revenue 185,697 97,558 5,118 8, ,824 Fund balances: Nonspendable 73, ,483 Restricted for: Streets ,430 59,430 Public safety ,819 14,819 Donations 39, ,734 Debt service - 1,140, ,140,428 Capital projects ,224,066-6,224,066 Assigned for: Streets ,006 1,006 Economic development 500, ,000 Debt service - 61, ,422 Capital projects - - 1,362, ,561-2,142,692 Unassigned 1,702, ,702,443 Total fund balances 2,315,660 1,201,850 1,362,131 7,004,627 75,255 11,959,523 Total liabilities, deferred inflows and fund balances $ 2,626,106 $ 4,525,106 $ 1,368,578 $ 8,684,619 $ 77,415 $ 17,281,824 See accompanying notes to the basic financial statements 17

26 City of Nichols Hills Reconciliation of the Governmental Funds Balance Sheet to the Statement of Net Position June 30, 2017 Total fund balance, governmental funds $ 11,959,523 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 $15,794, ,182,300 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 275,786 Deferred Outflows: Court fines receivable 185,697 Investment receivable 13,569 Pension related deferred outflows 1,618,923 Receivable from other governments 97,558 2,191,533 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 (28,897,934) Accrued compensated absences (353,263) Net pension liability (4,219,475) Net OPEB obligation (280,079) Pension related deferred inflows (536,408) (34,287,159) Net Position of Governmental Activities in the Statement of Net Position $ 4,046,197 See accompanying notes to the basic financial statements 18

27 City of Nichols Hills Statement of Revenues, Expenditures and Changes in Fund Balances Governmental Funds For the Year Ended June 30, 2017 Debt Service Fund Capital Improvement Fund Other Governmental Funds Total Governmental Funds General Fund GO Bond Fund REVENUES Property taxes $ - $ 4,125,705 $ - $ - $ - $ 4,125,705 Taxes 3,791, ,064 3,792,414 Fees and fines 135, ,846 Licenses and permits 207, ,935 Intergovernmental 455, , ,358 Charges for services 1,020, ,020,217 Investment earnings 14,020 17,251 6,132 52,629-90,032 Miscellaneous 261,579-2, ,892 Total revenues 5,886,611 4,142,956 8,445 52,629 34,758 10,125,399 EXPENDITURES Current: General government 2,047,806 1, ,048,926 Public safety 3,658, ,658,186 Highways and streets 194, , ,671 Public works 873, ,022 Culture and recreation 213, ,143 Debt service: Principal - 3,280, ,280,000 Interest and other charges - 692, ,279 Bond issuance costs ,394-85,394 Capital outlay ,069 6,391,352-6,745,421 Total expenditures 6,986,819 3,973, ,069 6,476, ,009 17,906,042 Excess (deficiency) of revenues over expenditures (1,100,208) 169,645 (345,624) (6,424,205) (80,251) (7,780,643) OTHER FINANCING SOURCES (USES) Issuance of debt ,200,000-4,200,000 Premium on issuance of debt , ,234 Transfers in 2,024, , ,517,274 Transfers out (493,180) (493,180) Total other financing sources and uses 1,530, ,180 4,329,234-6,353,328 Net change in fund balances 430, , ,556 (2,094,971) (80,251) (1,427,315) Fund balances - beginning 1,884,954 1,032,205 1,214,575 9,099, ,506 13,386,838 Fund balances - ending $ 2,315,660 $ 1,201,850 $ 1,362,131 $ 7,004,627 $ 75,255 $ 11,959,523 See accompanying notes to the basic financial statements 19

28 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, 2017 Net change in fund balances - total governmental funds: $ (1,427,315) 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 6,481,065 Depreciation expense (1,333,411) 5,147,654 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. 164,847 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 5,800 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 (4,200,000) General obligation bond principal payments 3,280,000 Change in bond premium (108,532) Change in deferred amount of refunding of debt (32,279) (1,060,811) 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 (13,893) Other postemployment benefits (75,668) (89,561) Change in net position of governmental activities $ 2,740,614 See accompanying notes to the basic financial statements 20