GRAND MISSION MUNICIPAL UTILITY DISTRICT NO. 1

Transcription

1 GRAND MISSION MUNICIPAL UTILITY DISTRICT NO. 1 FORT BEND COUNTY, TEXAS ANNUAL FINANCIAL REPORT McCALL GIBSON SWEULUND BARFOOT PLLC Certified Public Accountants

2 GRAND MISSION MUNICIPAL UTILITY DISTRICT NO. 1 FORT BEND COUNTY, TEXAS ANNUAL FINANCIAL REPORT

3 FIVE TABLE OF CONTENTS INDEPENDENT AUDITOR S REPORT 12 MANAGEMENT S DISCUSSION AND ANALYSIS 37 PAGE STATEMENT OF NET POSITION AND GOVERNMENTAL FUNDS BALANCE SHEET 813 RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET POSITION 14 STATEMENT OF ACTIVITIES AND GOVERNMENTAL FUND REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES 1516 RECONCILIATION OF THE GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES TO THE STATEMENT OF ACTIVITIES 17 NOTES TO THE FINANCIAL STATEMENTS 1839 REQUWED SUPPLEMENTARY INFORMATION SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCEBUDGET AND ACTUALGENERAL FUND AND SPECIAL REVENUE FUNDS 4144 SUPPLEMENTARY INFORMATION REQUIRED BY THE WATER DISTRICT FINANCIAL MANAGEMENT GUIDE NOTES REQUIRED BY THE WATER DISTRICT FINANCIAL MANAGEMENT GUIDE (Included in the notes to financial statements) SERVICES AND RATES 4648 GENERAL FUND EXPENDITURES 4950 INVESTMENTS 51 TAXES LEVIED AND RECEIVABLE 5253 LONGTERM DEBT SERVICE REQUIREMENTS 5463 CHANGE IN LONGTERM BOND DEBT 6465 COMPARATIVE SCHEDULE OF REVENUES AND EXPENDITURES GENERAL FUND AND DEBT SERVICE FUND YEARS 6669 BOARD MEMBERS, KEY PERSONNEL AND CONSULTANTS 7074

4 McCALL GIBSON SWEDLUND BARFOOT PLLC Certified Public Accountants Wortham Center Drive Suite 235 III Congress Avenue Houston, Texas Suite 400 (713) Austin, Texas Fax (713) (512) zozvrv.mnbyllc.conz INDEPENDENT AUDITOR S REPORT Board of Directors Grand Mission Municipal Utility District No. 1 Fort Bend County, Texas We have audited the accompanying financial statements of the governmental activities and each major fund of Grand Mission Municipal Utility District No. 1 (the District ), as of and for the year ended June 30, 2013, and the related notes to the financial statements, which collectively comprise the District s basic financial statements as listed in the table of contents. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. 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. 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 District 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. Member of American institute of Certified Public Accountants Texas Society of Certified Public Accountants

5 General Board of Directors Grand Mission Municipal Utility District No. 1 Opinions In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities and each major fund of the District as of June 30, 2013, and the respective changes in financial position for the year then ended in accordance with accounting principles generally accepted in the United States of America. Required Supplementary Information Accounting principles generally accepted in the United States of America require that Management s Discussion and Analysis on pages 3 through 7 and the Schedule of Revenues, Expenditures, and Changes in Fund Balance Budget and Actual Fund and each Special Revenue Fund on pages 41 through 44 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. Supplementary Information Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the District s basic financial statements. The supplementary information required by the Texas Commission on Environmental Quality as published in the Water District Financial Management Guide is presented for purposes of additional analysis and is not a required part of the basic financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the financial statements. The supplementary information, excluding that portion marked Unaudited on which we express no opinion or provide any assurance, has been subjected to the auditing procedures applied in the audit of the financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the financial statements or to the financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated in all material respects in relation to the financial statements as a whole. )vf%j4j McCall Gibson Swedlund Barfoot PLLC Certified Public Accountants October 14,

6 GRANT) MISSION MUNICIPAL UTILITY DISTRICT NO. 1 MANAGEMENT S DISCUSSION AND ANALYSIS FOR THE YEAR ENDED Management s discussion and analysis of Grand Mission Municipal Utility District No. l s (the District ) financial performance provides an overview of the District s financial activities for the fiscal year ended June 30, Please read it in conjunction with the District s financial statements, which begin on page 8. USING THIS ANNUAL REPORT This annual report consists of a series of financial statements. The basic financial statements include: (I) combined fund financial statements and governmentwide financial statements and (2) notes to the financial statements. The combined fund financial statements and governmentwide financial statements combine both: (1) the Statement of Net Position and Governmental Funds Balance Sheet and (2) the Statement of Activities and Governmental Fund Revenues, Expenditures and Changes in Fund Balances. This report also includes other supplementary information in addition to the basic financial statements. GOVERNMENTWIDE FINANCIAL STATEMENTS The District s annual report includes two financial statements combining the governmentwide financial statements and the fund financial statements. The governmentwide portion of these statements provides both longterm and shortterm information about the District s overall status. Financial reporting at this level uses a perspective similar to that found in the private sector with its basis in full accrual accounting and elimination or reclassification of internal activities. The first of the governmentwide statements is the Statement of Net Position. This information is found in the Statement of Net Position column on pages 8 through 13. The Statement of Net Position is the Districtwide statement of its financial position presenting information that includes all of the District s assets and liabilities, with the difference reported as net position. Over time, increases or decreases in net position may serve as a useful indicator of whether the financial position of the District as a whole is improving or deteriorating. Evaluation of the overall health of the District would extend to other nonfinancial factors. The governmentwide portion of the Statement of Activities on pages 15 and 16 reports how the District s net position changed during the current fiscal year. All current year revenues and expenses are included regardless of when cash is received or paid. FUND FINANCIAL STATEMENTS The combined statements also include fund financial statements. A fund is a grouping of related accounts that is used to maintain control over resources that have been segregated for specific activities or objectives. The District has four governmental fund types. The General Fund accounts for resources not accounted for in another fund, customer service revenues, costs and general expenditures. The Special Revenue Funds separately account for the activities as they relate to the joint ventures for operations of the water plant, wastewater treatment plant and detention facilities. The Debt Service Fund accounts for ad valorem taxes and financial 3

7 GRAND MISSION MUNICIPAL UTILITY DISTRICT NO. 1 MANAGEMENT S DISCUSSION AND ANALYSIS FOR THE YEAR ENDED FUND FINANCIAL STATEMENTS (Continued) resources restricted, committed or assigned for servicing bond debt and the cost of assessing and collecting taxes. The Capital Projects Fund accounts for financial resources restricted, committed or assigned for acquisition or construction of facilities and related costs. Since the governmentwide focus includes the longterm view, comparisons between these two perspectives may provide insight into the longterm impact of shortterm financing decisions. The adjustments columns, the Reconciliation of the Governmental Funds Balance Sheet to the Statement of Net Position on page 14 and the Reconciliation of the Governmental Funds Statement of Revenues, Expenditures and Changes in Fund Balances to the Statement of Activities on page 17 explain the differences between the two presentations and assist in understanding the differences between these two perspectives. NOTES TO TIlE FINANCIAL STATEMENTS The accompanying notes to the financial statements provide information essential to a full understanding of the governmentwide and fund financial statements. The notes to the financial statements can be found on pages 18 through 39 in this report. OTHER INFORMATION In addition to the financial statements and accompanying notes, this report also presents certain Required Supplementary Information ( RSI ). Budgetary comparison schedules are included as RSI for the General Fund and three Special Revenue Funds. GOVERNMENTWIDE FINANCIAL ANALYSIS Net position may serve over time as a useful indicator of the District s financial position. In the case of the District, assets and deferred outflows of resources exceeded liabilities by $7,188,963 as of June 30, A portion of the District s net position reflects its net investment in capital assets (water, wastewater and drainage facilities less any debt used to acquire those assets that is still outstanding). The District uses these assets to provide water and wastewater services. The following is a comparative analysis of the changes in the Statement of Net Position as of June 30, 2013, and June 30, Governmental funds are reported in each of the financial statements. The focus in the fund statements provides a distinctive view of the District s governmental funds. These statements report shortterm fiscal accountability focusing on the use of spendable resources and balances of spendable resources available at the end of the year. They are useful in evaluating annual financing requirements of the District and the commitment of spendable resources for the nearterm. 4

8 GRAM) MISSION MUNICIPAL UTILITY DISTRICT NO. 1 MANAGEMENT S DISCUSSION AND ANALYSIS FOR THE YEAR ENDED GOVERNMENTWIDE FINANCIAL ANALYSIS (Continued) Current and Other Assets Capital Assets (Net of Accumulated Depreciation) Total Assets Deferred Outflows of Resources Due to Developers Longterm Liabilities Other Liabilities Total Liabilities Net Investment in Capital Assets Restricted Unrestricted Total Net Position Summary of Changes in the Statement of Net Position Change Positive (Negative) $ 10,146,441 $ 9,830,248 $ 316,193 32,900,656 28,224,380 $ 397,732 $ 1,242,479 $ 844,747 32,647,387 30,679,892 (1,967,495) 2,920,218 1,962,195 (958,023) $ 35,965,337 $ 33,884,566 $ 609,679 $ (1,752,672) 3,335,338 3,222,570 3,243,946 2,700,164 $ 7,188,963 $ 4,170,062 The District s net position increased by $3,018,901, or 72.4%. The following table provides a comparative analysis of the District s operations for the years ending June 30, 2013, and June 30, * 4,676,276 $ 4,992,469 $ 107,203 $ (2,080,771) $ 2,362, , ,782 $ 3,018,901 Revenues Property Taxes Charges for Services Other Revenues Total Revenues Expenses for Services Change in Net Position Net Position, Beginning of Year Net Position, End of Year Summary of Changes in the Statement of Activities Change Positive (Negative) $ 2,912,405 $ 2,895,702 $ 16,703 7,537,772 3,474,362 47, ,778 4,063,410 (317,417) $ 10,497,538 $ 6,734,842 $ 3,762,696 7,478,637 5,661,520 (1,817,117) $ 3,018,901 $ 1,073,322 4,170,062 3,096,740 $ 7,188,963 $ 4,170,062 $ 1,945,579 1,073,322 $ 3,018,901 * As Adjusted, See Note 18 $ 43,047,097 $ 38,054,628 $ 107,203 $ 0 5

9 GRAND MISSION MUNICIPAL UTILITY DISTRICT NO. 1 MANAGEMENT S DISCUSSION AND ANALYSIS FOR THE YEAR ENDED FINANCIAL ANALYSIS OF THE DISTRICT S GOVERNMENTAL FUNDS The District s combined fund balances as of June 30, 2013, were $7,615,750, a decrease of $792,215, from the prior year. The General Fund fund balance increased by $452,502, primarily due to service and tax revenues exceeding operating expenditures. The Special Revenue Funds are revenue neutral. Costs incurred are billed to participants on a monthly basis. The Debt Service Fund fund balance decreased by $57,159, primarily due to the structure of the District s outstanding debt and the sale of Series 2013 Refunding bonds. The Capital Projects Fund fund balance decreased by $1,187,558, primarily due to the use of bond proceeds received in prior years and the sale of Series 2013A bonds. GENERAL FUND AND SPECIAL REVENUE FUNDS BUDGETARY HIGHLIGHTS The Board of Directors amended the General Fund budget during the current fiscal year to increase estimated property tax revenue. For the General Fund, actual revenues were $143,645 more than budgeted revenues primarily due to higher than anticipated service revenues. Actual expenditures were $56,916 more than budgeted expenditures. See the General Fund budget to actual comparison on page 41. The Water Plant, Wastewater Treatment Plant and Detention Facilities budgets were not amended and are presented on pages 42 through 44. CAPITAL ASSETS The District s investment in capital assets was $32,900,656 as of June 30, This investment in capital assets includes land, buildings and recreational facilities as well as the water, wastewater and drainage systems. Current year activity included construction of the wastewater treatment plant, phase ifi expansion and the water plant, phase II expansion. 6

10 GRANI MISSION MUNICIPAL UTILITY DISTRICT NO. 1 MANAGEMENT S DISCUSSION AND ANALYSIS FOR THE YEAR ENDED CAPITAL ASSETS (Continued) Capital Assets At YearEnd, Net of Accumulated Depreciation Change Positive (Negative) Capital Assets Not Being Depreciated: Land and Land Improvements Construction in Progress Capital Assets, Net of Accumulated Depreciation: Recreational Facilities Water System Wastewater System Drainage System Total Net Capital Assets $ 2,427,224 6,065,380 1,097,252 5,833,987 7,115,989 10,360,824 $ 32,900,656 $ 2,446,242 $ (19,018) 536,789 5,528,591 1,193,038 6,170,208 7,358,831 10,519,272 $ 28,224,380 (95,786) (336,221) (242,842) (158,448) $ 4,676,276 LONGTERM DEBT ACTIVITY As of June 30, 2013, the District had total bond debt payable of $33,285,000. debt position of the District during the fiscal year ended June 30, 2013, follows: The changes in the are summarized as Bond Debt Payable, July 1, 2012 Add: Bond Sale Series 2013 Refunding Add: Bond Sale Series 2013A Less: Bond Principal Paid/Refunded Bond Debt Payable, June 30, 2013 $ 31,495,000 7,365,000 1,825,000 7,400,000 $ 33,285,000 The District has an underlying rating of BBB. The Series 2006, 2006A, 2008, 2010, and 201 1A bonds are rated BBB as a result of the District s underlying rating. The Series 2009 Bonds carry an insured rating of AA by virtue of bond insurance issued by Assured Guaranty and the Series 2011 and Series 2013A Bonds carry an insured rating of AA by virtue of bond insurance issued by Assured Guaranty Municipal Corp. The Series 2013 Refunding bonds carry an insured rating of AA by virtue of bond insurance issued by Build America Mutual Assurance Company. The above ratings are as of June 30, 2013, and reflect all rating changes as of that date. CONTACTING THE DISTRICT S MANAGEMENT This financial report is designed to provide a general overview of the District s finances. Questions concerning any of the information provided in this report or requests for additional information should be addressed to Grand Mission Municipal Utility District No. 1, do Coats, Rose, Yale, Ryman & Lee, P.C., 3 E. Greenway Plaza, Suite 2000, Houston, Texas

11 GRAND MISSION MUNICIPAL UTILITY DISTRICT NO. 1 STATEMENT OF NET POSITION AND GOVERNMENTAL FUNDS BALANCE SHEET JUNE 30,2013 ASSETS Cash, Note 5 Investments, Note 5 Receivables: Property Taxes Penalty and Interest on Delinquent Taxes Service Accounts (Net of Allowance for Uncollectible Accounts of $0) Accrued Interest Due from Developer Due from Other Funds, Note 16 Prepaid Costs Due From Participants Advance for Water Plant Operations, Note 9 Advance for Wastewater Treatment Plant Operations, Note 10 Advance for Detention Facilities, Note 11 Land, Note 6 Construction in Progress, Note 6 Capital Assets (Net of Accumulated Depreciation), Note 6 General Fund $ 2,651, ,054 5, , ,164 6,050 65,178 53,865 9,918 Special Revenue Funds Wastewater Water Plant Treatment Plant $ 783,857 $ 1,217,658 29, , ,497 11,998 19, ,533 TOTAL ASSETS $ 3,657,466 $ 1,288,417 $ 1,569,266 The accompanying notes to the financial statements are an integral part of this report. DEFERRED OUTFLOWS OF RESOURCES Refunding Bond Interest $ 0 $ 0 $ 0 8

12 Detention Debt Capital Statement of Facilities Service Fund Projects Fund Total Adjustments Net Position $ 21,363 $ 2,737,094 $ 767,134 $ 8,178,271 $ $ 8,178, , ,169,537 1,169,537 18,360 24,009 24,009 3,070 3,070 3, , ,148 1,294 1,569 1,569 11,998 11,998 2, ,135 1,153,210 (1,153,210) 6, , ,295 4, , ,544 65,178 (65,178) 53,865 (53,865) 9,918 (9,918) 2,427,224 2,427,224 6,065,380 6,065,380 24,408,052 24,408,052 $ 28,222 $ 3,654,561 $ 1,127,435 $ 11,325,367 $ 31,721,730 $ 43,047,097 $ 0 $ 0 $ 0 $ 0 $ 107,203 $ 107,203 The accompanying notes to the financial statements are an integral part of this report. 9

13 GRAND MISSION MUNICIPAL UTILITY DISTRICT NO. 1 STATEMENT OF NET POSITION AND GOVERNMENTAL FUNDS BALANCE SHEET Special Revenue Funds Wastewater General Fund Water Plant Treatment Plant LIABILITIES Accounts Payable $ 85,152 Accrued Jnterest Payable $ 125,670 $ 443,204 Due to Participants 9, , ,466 Due to Developers 9,550 57,868 Due to Other Funds, Note 16 81, , ,709 Security Deposits 233,195 Accrued Interest at Time of Sale Reserved for Wastewater Treatment Plant Operations, Note 10 81,887 Reserved for Water Plant Operations, Note 9 120,700 Reserved for Detention Facilities Operations, Note 11 LongTerm Liabilities: Due Within One Year, Note 3 Due After One Year, Note 3 TOTAL LIABILITIES $ 419,132 $ 1,288,417 $ 1,569,266 DEFERRED INFLOWS OF RESOURCES Property Taxes $ 5,649 Penalty and Interest on Delinquent Taxes $ $ TOTAL DEFERRED INFLOWS OF RESOURCES $ 5,649 $ 0 $ 0 The accompanying notes to the financial statements are an integral part of this report. 10

14 Detention Debt Capital Statement of Facilities Service Fund Projects Fund Total Adjustments Net Position $ 4,489 $ $ 9,406 $ 667,921 $ 97,633 $ 765, , ,957 1,319,153 1,319, , , ,732 24, ,061 1,153,210 (1,153,210) 233, ,195 14,796 14,796 (14,796) 81,887 (53,865) 28, ,700 (65,178) 55,522 23,733 23,733 (9,918) 13, , ,000 32,022,387 32,022,387 $ 28,222 $ 39,509 $ 337,992 $ 3,682,538 $ 32,282,799 $ 35,965,337 The accompanying notes to the financial statements are an integral part of this report. $ $ 18,360 $ $ 24,009 $ (24,009) $ 3,070 3,070 (3,070) $ 0 $ 21,430 $ 0 $ 27,079 $ (27,079) $ 0 11

15 GRAND MISSION MUNICIPAL UTILITY DISTRICT NO. 1 STATEMENT OF NET POSITION AND GOVERNMENTAL FUNDS BALANCE SHEET FUND BALANCES Nonspendable: Prepaid Costs For Water Plant Operations, Note 9 For Wastewater Treatment Plant Operations, Note 10 For Detention Facilities, Note 11 Restricted for Authorized Construction: Bond Proceeds Net Investment Revenues Restricted for Debt Service Unassigned General Fund $ 6,050 65,178 53,865 9,918 3,097,674 Special Revenue Funds Was tewater Water Plant Treatment Plant $ $ TOTAL FUND BALANCES TOTAL LIABILITIES, DEFERRED INFLOWS OF RESOURCES AND FUND BALANCES $ 3,232,685 $ 3,657,466 $ 0 $ 1,288,417 $ 0 $ 1,569,266 NET POSITION Net Investment in Capital Assets Restricted for: Debt Service Capital Projects Unrestricted TOTAL NET POSITION The accompanying notes to the financial statements are an integral part of this report. 12

16 13 Detention Debt Capital Statement of Facilities Service Fund Projects Fund Total Adjustments Net Position $ $ $ $ 6,050 $ (6,050) $ 65,178 (65,178) 53,865 (53,865) 9,918 (9,918) 686, ,199 (686,199) 103, ,244 (103,244) 3,593,622 3,593,622 (3,593,622) 3,097,674 (3,097,674) $ 0 $ 3,593,622 $ 789,443 $ 7,615,750 $ (7,615,750) $ 0 $ 28,222 $ 3,654,561 $ 1,127,435 $ 11,325,367 $ 609,679 $ 609,679 3,232,094 3,232, , ,244 3,243,946 3,243,946 $ 7,188,963 $ 7,188,963 The accompanying notes to the financial statements are an integral part of this report.

17 Governmental GRAN1 MISSION MUNICIPAL UTILITY DISTRICT NO. 1 RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET POSITION Total Fund Balances Governmental Funds $ 7,615,750 Amounts reported for governmental activities in the Statement of Net Position are different because: Prepaid bond insurance is amortized over the term of the refunding bonds. Interest paid in advance as part of a refunding bond sale is an asset in governmental activities. Land, construction in progress and capital assets used in governmental activities are not current financial resources and, therefore, are not reported as assets in the governmental funds. Deferred tax revenues and deferred penalty and interest revenues on delinquent taxes for the 2012 and prior tax levies became part of recognized revenue in the governmental activities of the District. Longterm liabilities are not due and payable in the current period and, therefore, are not reported as liabilities in the governmental funds. These liabilities at year end consist of: Due to Developer Accounts Payable Acrrued Interest Payable Bonds Payable within one year Bonds Payable after one year Total Net Position Activities $ (329,789) (97,633) (490,161) (625,000) (32,022,387) 103, ,203 32,900,656 27,079 (33,564,970) $ 7,188,963 The accompanying notes to the financial statements are an integral part of this report. 14

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19 GRAND MISSION MUNICIPAL UTILITY DISTRICT NO. 1 STATEMENT OF ACTIVITIES AND GOVERNMENTAL FUNI) REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES FOR THE YEAR ENDED REVENUES Property Taxes Water Service Wastewater Service Detention Facility Revenues Regional Water Authority Fees Penalty and Interest Tap Connection and Inspection Fees Investment Revenues Miscellaneous Revenues TOTAL REVENUES EXPENDITURES/EXPENSES Service Operations: Professional Fees Contracted Services Purchased Water Service Purchased Wastewater Service Regional Detention Facilities Costs Utilities Regional Water Authority Assessment, Note 12 Repairs and Maintenance Depreciation, Note 6 Other Capital Outlay Debt Service: Bond Issuance Costs Bond Principal Bond Interest TOTAL EXPENDITURES/EXPENSES EXCESS (DEFICIENCY) OF REVENUES OVER EXPENDITURES/EXPENSES OTHER FJNANCJNG SOURCES (USES) Transfers In(Out), Note 16 LongTerm Debt Issued, Note 17 Bond Discount Bond Premium Transfer to Refunding Escrow Agent TOTAL OTHER FINANCING SOURCES (USES) NET CHANGE IN FUND BALANCES CHANGE IN NET POSITION FUND BALANCES/NET POSITION JULY 1, 2012 FUND BALANCES/NET POSITION General Fund $ 734,378 $ 540, , ,355 36,263 99,700 6,997 25,985 $ 2,378,145 $ 103, , , ,953 43,577 5, , , ,366 $ 1, $ 456,004 55, ,106 67,709 $ 1.084,086 $ 0 $ (3,502) $ S $ (3,502) $ 452,502 $ 2,780,183 Special Revenue Funds Wastewater Water Plant Treatment Plant $ 5,637,792 S 0 $ 0 S 0 $ 3,232,685 $ 0 $ 0 $ S ,149 $ 1,084,086 $ 5,637,792 $ 46,121 21,000 26,538 45,697 $ 25,953 39, , , ,954 5,097,739 The accompanying notes to the financial statements are an integral part of this report. 15

20 Detention Debt Capital Statement of Facilities Service Fund Projects Fund Total Adjustments Activities $ $ 2,180,378 $ $ 2,914,756 $ (2,351) $ 2,912,405 1,624,432 (527,651) 1,096,781 6,143,663 (314,953) 5,828,710 84,123 84,123 (43,577) 40, , ,355 10,405 46, ,680 99,700 99,700 10, ,305 21, ,056 26,056 $ 84,123 $ 2,200,973 $ 939 $ 11,386,058 $ (888,520) $ 10,497,538 $ 18,365 $ 4,845 $ 1,404 $ 199,794 $ 12,042 $ 211,836 5,100 46, , , ,651 (527,651) 314,953 (314,953) 43,577 (43,577) 174, , , ,106 60, , , , , , , ,174 2,800,674 8,159,476 (6,401,186) 1,758, , , ,769 (104,825) 492, , ,000 (575,000) 1,612,933 1,612, ,503 1,790,436 $ 84,123 $ 2,682,890 $ 2,962,249 $ 14,373,281 $ (6,894,644) $ 7,478,637 $ 0 $ (481,917) $ (2,961,310) $ (2,987,223) $ 6,006,124 $ 3,018,901 $ $ $ 3,502 $ $ 7,365,000 1,825,000 9,190,000 (9,190,000) $ (54,750) (54,750) 54,750 43,925 43,925 (43,925) (6,984,167) (6,984,167) 6,984,167 $ $ (57,159) $ (1,187,558) $ (792,215) $ 792,215 $ 3,018,901 3,018,901 3,650,781 1,977,001 8,407,965 (4,237,903) 4,170,062 $ 0 $ 3,593,622 $ 789,443 $ 7,615,750 $ (426,787) $ 7,188,963 The accompanying notes to the financial statements are an integral part of this report. $ 0 $ 424,758 $ 1,773,752 $ 2,195,008 $ (2,195,008) $ 0 16

21 GRANT) MISSION MUNICIPAL UTILITY DISTRICT NO. 1 RECONCILIATION OF THE GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES TO THE STATEMENT OF ACTIVITIES FOR THE YEAR ENDED Net Change in Fund Balances Governmental Funds $ (792,215) Amounts reported for governmental activities in the Statement of Activities are different because: Governmental funds report tax revenues when collected. However, in the Statement of Activities, revenue is recorded in the accounting period for which the taxes are levied. (2,351) Governmental funds report penalty and interest revenue on property taxes when collected. However, in the Statement of Activities, revenue is recorded when penalties and interest are assessed. 12 Governmental funds do not account for payables not paid with current financial resources. However, in the Statement of Net Position, the liability is recorded and the expense is recorded in the Statement of Activities. (12,042) Governmental funds do not account for depreciation. However, in the Statement of Net Position, capital assets are depreciated and depreciation expense is recorded in the Statement of Activities. (883,003) Governmental funds report capital expenditures as expenditures in the period purchased. However, in the Statement of Net Position, capital assets are increased by new purchases and the Statement of Activities is not affected. 6,401,186 Governmental funds report bond insurance costs as expenditures and bond discounts and bond premiums as other financing sources/uses in the year paid. However, in the Statement of Net Position, the bond insurance costs, bond discounts, and bond premiums are amortized over the life of the bonds and the current year amortized portion is recorded in the Statement of Activities. 115,650 Governmental funds report bond principal payments as expenditures. However, in the Statement of Net Position, bond principal payments are reported as decreases in longterm liabilities. 575,000 Governmental funds report interest expenditures on longterm debt as expenditures in the year paid. However, in the Statement of Net Position, interest is accrued on the longterm debt through fiscal yearend. (177,503) Governmental funds report bond proceeds as other financing sources. Issued bonds increase longterm liabilities in the Statement of Net Position. (9,190,000) Governmental funds report the payment to the refunded bond escrow agent as an other financing use. However, the refunding of outstanding bonds decreases longterm liabilities in the Statement of Net Positon. Change in Net Position Governmental Activities 6,984,167 $ 3,018,901 The accompanying notes to the financial statements are an integral part of this report. 17

22 GRAND MISSION MUNICIPAL UTILITY DISTRICT NO. 1 NOTES TO THE FINANCIAL STATEMENTS NOTE 1. CREATION OF DISTRICT Grand Mission Municipal Utility District No. 1, located in Fort Bend County, Texas, (the District ) was created on September 16, 1986, by Order of the Texas Water Commission presently known as the Texas Commission on Environmental Quality (the Commission ). Pursuant to the provisions of Chapters 49 and 54 of the Texas Water Code, the District is empowered to purchase, operate and maintain all facilities, plants and improvements necessary to provide water, sanitary sewer service, storm sewer drainage, irrigation, solid waste collection and disposal, including recycling, and to construct parks and recreational facilities for the residents of the District. The District is also empowered to contract for or employ its own peace officers with powers to malce arrests and to establish, operate and maintain a fire department to perform all firefighting activities within the District. The Board of Directors held its first meeting on November 25, 1986, and sold its first bonds on July 6, NOTE 2. SIGNIFICANT ACCOUNTING POLICIES The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America as promulgated by the Governmental Accounting Standards Board ( GASB ). In addition, the accounting records of the District are maintained generally in accordance with the Water District Financial Management Guide published by the Commission. The GASB has established the criteria for determining whether or not a given entity is a component unit. The criteria are: (1) is the potential component unit a legally separate entity, (2) does the primary government appoint a voting majority of the potential component unit s board, (3) is the primary government able to impose its will on the potential component unit, (4) is there a financial benefit or burden relationship. The District was created as an independent municipality. The District does not meet the criteria for inclusion as a component unit of any entity nor does any other entity meet the component unit criteria for inclusion in the District s basic financial statements. The District has entered into a joint venture with Fort Bend County Municipal Utility District No. 143 (District No. 143), Fort Bend County Municipal Utility District No. 165 (District No. 165) and Grand Mission Municipal Utility District No. 2 (District No. 2) for water service through joint water plants. The District has oversight over the water plants. Additional disclosure concerning this joint venture is provided in Note 9. The District has entered into a joint venture with District No. 143, District No. 165, and District No. 2 for wastewater disposal through a joint wastewater treatment plant. The District has oversight responsibility over the plant. Additional disclosure concerning this joint venture is provided in Note

23 This This GRANI MISSION MUNICIPAL UTILITY DISTRICT NO. 1 NOTES TO THE FINANCIAL STATEMENTS NOTE 2. SIGNIFICANT ACCOUNTING POLICIES (Continued) The District has entered into a joint venture with District No. 143, District No. 165, and District No. 2 for construction and operation of joint detention facilities. The District has oversight responsibility over the facilities. Additional disclosure concerning this joint venture is provided in Note 11. Financial Statement Presentation These financial statements have been prepared in accordance with GASB Codification of Governmental Accounting and Financial Reporting Standards Part II, Financial Reporting. The GASB Codification sets forth standards for external financial reporting for all state and local government entities, which include a requirement for a Statement of Net Position and a Statement of Activities. It requires the classification of net position into three components: Net Investment in Capital Assets; Restricted; and Unrestricted. These classifications are defined as follows: Net Investment in Capital Assets component of net position consists of capital assets, including restricted capital assets, net of accumulated depreciation and reduced by the outstanding balances of any bonds, mortgages, notes, or other borrowings that are attributable to the acquisition, construction, or improvements of those assets. Restricted Net Position component of net position consists of external constraints placed on the use of assets imposed by creditors (such as through debt covenants), grantors, contributors, or laws or regulation of other governments or constraints imposed by law through constitutional provisions or enabling legislation. Unrestricted Net Position This component of net position consists of assets that do not meet the definition of Restricted or Net Investment in Capital Assets. When both restricted and unrestricted resources are available for use, generally it s the District s policy to use restricted resources first. GovernmentWide Financial Statements The Statement of Net Position and the Statement of Activities display information about the District as a whole. The District s Statement of Net Position and Statement of Activities are combined with the governmental fund financial statements. The District is viewed as a special purpose government and has the option of combining these financial statements. 19

24 To 20 GRAND MISSION MUNICIPAL UTILITY DISTRICT NO. 1 NOTES TO THE FINANCIAL STATEMENTS NOTE 2. SIGNIFICANT ACCOUNTING POLICIES (Continued) GovernmentWide Financial Statements (Continued) The Statement of Net Position is reported by adjusting the governmental fund types to report on the full accrual basis, economic resource basis, which recognizes all longterm assets and receivables as well as longterm debt and obligations. Any amounts recorded due to and due from other funds are eliminated in the Statement of Net Position. The Statement of Activities is reported by adjusting the governmental fund types to report only items related to current year revenues and expenditures. Items such as capital outlay are allocated over their estimated useful lives as depreciation expense. Internal activities between governmental funds, if any, are eliminated by adjustment to obtain net total revenue and expense of the governmentwide Statement of Activities. Fund Financial Sktements As discussed above, the District s fund financial statements are combined with the governmentwide statements. The fund statements include a Balance Sheet and Statement of Revenues, Expenditures and Changes in Fund Balances. Governmental Funds The District presently has six major governmental funds. General Fund account for resources not required to be accounted for in another fund, customer service revenues, costs and general expenditures. Special Revenue FundWater Plant to account for financial resources collected and administered by the District for the operation of the joint water plants which is a joint venture of the District with District No. 143, District No. 165 and District No. 2. Special Revenue FundWastewater Treatment Plant to account for financial resources collected and administered by the District for the operation of the joint wastewater treatment plant which is a joint venture of the District with District No. 143, District No. 165 and District No. 2. Special Revenue FundDetention Facilities to account for financial resources collected and administered by the District for the operation of the joint detention facilities which is a joint venture of the District with District No. 143, District No. 165 and District No. 2. Debt Service Fund To account for ad valorem taxes and financial resources restricted, committed or assigned for servicing bond debt and the cost of assessing and collecting taxes.

25 GRAND MISSION MUNICIPAL UTILITY DISTRICT NO. 1 NOTES TO THE FINANCIAL STATEMENTS NOTE 2. SIGNIFICANT ACCOUNTING POLICIES (Continued) Fund Financial Statements (Continued) Capital Projects Fund To account for financial resources restricted, committed or assigned for acquisition or construction of facilities and related costs. Basis of Accounting The District uses the modified accrual basis of accounting for governmental fund types. The modified accrual basis of accounting recognizes revenues when both measurable and available. Measurable means the amount can be determined. Available means collectable within the current period or soon enough thereafter to pay current liabilities. The District considers revenue reported in governmental funds to be available if they are collectable within 60 days after year end. Also, under the modified accrual basis of accounting, expenditures are recorded when the related fund liability is incurred, except for principal and interest on longterm debt, which are recognized as expenditures when payment is due. Property taxes considered available by the District and included in revenue include taxes collected during the year and taxes collected after yearend, which were considered available to defray the expenditures of the current year. Deferred tax revenues are those taxes which the District does not reasonably expect to be collected soon enough in the subsequent period to finance current expenditures. Amounts transferred from one fund to another fund are reported as an other financing source or use. Loans by one fund to another fund and amounts paid by one fund for another fund are reported as interfund receivables and payables in the Governmental Funds Balance Sheet if there is intent to repay the amount and if the debtor fund has the ability to repay the advance on a timely basis. Capital Assets Capital assets, which include property, plant, equipment, and infrastructure assets, are reported in the governmentwide Statement of Net Position. All capital assets are valued at historical cost or estimated historical cost if actual historical cost is not available. Donated assets are valued at their fair market value on the date donated. Repairs and maintenance are recorded as an expenditure in the governmental fund incurred and as an expense in the governmentwide Statement of Activities. Capital asset additions, improvements and preservation costs that extend the life of an asset are capitalized and depreciated over the estimated useful life of the asset. Interest costs, including developer interest, engineering fees and certain other costs are capitalized as part of the asset. 21

26 22 GRAND MISSION MUNICIPAL UTILITY DISTRICT NO. 1 NOTES TO THE FINANCIAL STATEMENTS NOTE 2. SIGNIFICANT ACCOUNTING POLICIES (Continued) Capital Assets (Continued) Assets are capitalized, including infrastructure assets, if they have an original cost greater than $5,000 and a useful life over two years. Depreciation is calculated on each class of depreciable property using the straightline method of depreciation. Estimated useful lives are as follows: Budgeting Years Buildings 40 Water System 1045 Wastewater System 1045 Drainage System 1045 All Other Equipment 320 In compliance with governmental accounting principles, the Board of Directors annually adopts an unappropriated budget for the General Fund and each Special Revenue Fund. The General Fund budget was amended during the current fiscal year. Pensions The District has not established a pension plan as the District does not have employees. The Internal Revenue Service has determined that fees of office received by Directors are considered to be wages subject to federal income tax withholding for payroll purposes only. Measurement Focus Measurement focus is a term used to describe which transactions are recognized within the various financial statements. In the governmentwide Statement of Net Position and Statement of Activities, the governmental activities are presented using the economic resources measurement focus. The accounting objectives of this measurement focus are the determination of operating income, changes in net position, financial position, and cash flows. All assets and liabilities associated with the activities are reported. Fund equity is classified as net position. Governmental fund types are accounted for on a spending or financial flow measurement focus. Accordingly, only current assets and current liabilities are included on the Balance Sheet, and the reported fund balances provide an indication of available spendable or appropriable resources. Operating statements of governmental fund types report increases and decreases in available spendable resources. Fund balances in governmental funds are classified using the following hierarchy:

27 23 GRANI MISSION MUNICIPAL UTILITY DISTRICT NO. 1 NOTES TO THE FINANCIAL STATEMENTS NOTE 2. SIGNIFICANT ACCOUNTING POLICIES (Continued) Measurement Focus (Continued) Nonspendable: amounts that cannot be spent either because they are in nonspendable form or because they are legally or contractually required to be maintained intact. Restricted: amounts that can be spent only for specific purposes because of constitutional provisions, or enabling legislation, or because of constraints that are imposed externally. Committed: amounts that can be spent only for purposes determined by a formal action of the Board of Directors. The Board is the highest level of decisionmaking authority for the District. This action must be made no later than the end of the fiscal year. Commitments may be established, modified, or rescinded only through ordinances or resolutions approved by the Board. The District does not have any committed fund balances. Assigned: amounts that do not meet the criteria to be classified as restricted or committed, but that are intended to be used for specific purposes. The District has not adopted a formal policy regarding the assignment of fund balances and does not have any assigned fund balances. Unassigned: all other spendable amounts in the General Fund. When expenditures are incurred for which restricted, committed, assigned or unassigned fund balances are available, the District considers amounts to have been spent first out of restricted funds, then committed funds, then assigned funds, and finally unassigned funds. Accounting Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenditures during the reporting period. Actual results could differ from those estimates.

28 Serially 24 GRAND MISSION MUNICIPAL UTILITY DISTRICT NO. 1 NOTES TO THE FINANCIAL STATEMENTS NOTE 2. SIGNIFICANT ACCOUNTING POLICIES (Continued) New Pronouncements GASB Statement No. 63, Financial Reporting of Deferred Outflows of Resources, Deferred Inflows of Resources, and Net Position, which is effective for fiscal years beginning after December 15, 2011, provides guidance for reporting the financial statement elements of deferred outflows of resources, which represent the consumption of the District s assets that is applicable to a future reporting period, and deferred inflows of resources, which represent the District s acquisition of assets applicable to a future reporting period. GASB Statement No. 63 has been implemented in these financial statements. GASB Statement No. 65, Items Previously Reported as Assets and Liabilities, which is effective for fiscal years beginning after December 15, 2012, establishes accounting and financial reporting standards that reclassify, as deferred outflows of resources or deferred inflows of resources, certain items that were previously reported as assets and liabilities and recognizes, as outflows of resources or inflows of resources, certain items that were previously reported as assets and liabilities. GASB Statement No. 65 has been early implemented in these financial statements. NOTE 3. LONGTERM DEBT Series 2006 Series 2006A Series 2008 Amount Outstanding June 30, 2013 $ 935,000 $ 3,675,000 $ 10,565,000 Interest Rates 4.25%4.55% 4.10% 6.375% 4.70% 5.50% Maturity Dates September 1, September 1, September 1, Beginning/Ending 2013/ / /2035 Interest Payment Dates September 1/ September 1/ September 1/ March 1 March 1 March 1 Callable Dates September 1, September 1, September 1, 2013* 2013* 2015* * In whole or in part, or any date thereafter at par plus unpaid accrued interest. Series 2008 term bonds maturing on September 1, 2035, are subject to mandatory redemption by random selection beginning September 1, 2034.

29 4.875% GRAND MISSION MUNICIPAL UTILITY DISTRICT NO. 1 NOTES TO THE FINANCIAL STATEMENTS NOTE 3. LONGTERM DEBT (Continued) Series 2009 Series 2010 Series 2011 Amount Outstanding June 30, 2013 $2,595,000 $1,280,000 $ 2,475,000 Interest Rates 6.25% 7.50% 2.50% 4.00% 5.70% Maturity Dates Serially September 1, September 1, September 1, Beginning/Ending 2013/ / /2037 Interest Payment Dates September 1/ September 1/ September 1/ March 1 March 1 March 1 Callable Dates September 1, September 1, September 1, 2016* 2017* 2018* * In whole or in part, or any date thereafter at par plus unpaid accrued interest. Series 2009 term bonds maturing on September 1, 2024, and September 1, 2035, are subject to mandatory redemption by random selection beginning September 1, 2017, and September 1, 2025, respectively. Series 2010 term bonds maturing on September 1, 2020, September 1, 2025, September 1, 2029, September 1, 2033, and September 1, 2036, are subject to mandatory redemption by random selection beginning September 1, 2018, September 1, 2021, September 1, 2026, September 1, 2030, and September 1, 2034, respectively. Series 2011 term bonds maturing on September 1, 2023, September 1, 2029, September 1, 2034, and September 1, 2037, are subject to mandatory redemption by random selection beginning September 1, 2019, September 1, 2024, September 1, 2030, and September 1, 2035, respectively. 25

30 Serially GRAND MISSION MUNICIPAL UTILITY DISTRICT NO. 1 NOTES TO THE FINANCIAL STATEMENTS NOTE 3. LONGTERM DEBT (Continued) Series 2013 Series 201 IA Refunding Series 2013A Amount Outstanding June 30, 2013 $ 2,570,000 $7,365,000 $ 1,825,000 Interest Rates 3.00% 5.00% 2.00% 4.00% 3.375%5.75% Maturity Dates September 1, September 1, September 1, Beginning/Ending 2013/ / /2038 Interest Payment Dates September 1/ September 1/ September 1/ March 1 March 1 March 1 Callable Dates September 1, September 1, September 1, 2018* 2020* 2020* * In whole or in part, or any date thereafter at par plus unpaid accrued interest. Series 201 1A term bonds maturing on September 1, 2038, are subject to mandatory redemption by random selection beginning September 1, Series 2013 Refunding term bonds maturing on September 1, 2034, are subject to mandatory redemption by random selection beginning September 1, Series 2013A term bonds maturing on September 1, 2031, September 1, 2035, and September 1, 2038, are subject to mandatory redemption by random selection beginning September 1, 2024, September 1, 2032, and September 1, 2036, respectively. The following is a summary of transactions regarding bonds payable for the year ended June 30, 2013: July 1, June 30, 2012 Additions Retirements 2013 Bonds Payable $ 31,495,000 $ 9,190,000 $ 7,400,000 $ 33,285,000 Unamortized Discounts (815,108) (54,750) (188,982) (680,876) Unamortized Premiums 43, ,263 Total Bonds Payable, Net $ 30,679,892 $ 9,179,175 $ 7,211,680 $ 32,647,387 Amount Due Within One Year $ 625,000 Amount Due After One Year 32,022,387 Total Bonds Payable, Net $ 32,647,387 26

31 October January GRAND MISSION MUNICIPAL UTILITY DISTRICT NO. 1 NOTES TO THE FINANCIAL STATEMENTS NOTE 3. LONGTERM DEBT (Continued) As of June 30, 2013, the District had authorized but unissued bonds in the amount of $20,780,000 for utility facilities (including refunding bonds) and $10,500,000 for park and recreational facilities. As of June 30, 2013, the debt service requirements on the bonds outstanding were as follows: Fiscal Year Principal Interest Total $ 625, , , , ,000 4,775,000 6,005,000 7,375,000 9,260,000 2,150,000 $ 1,507,728 1,500,550 1,463,951 1,427,068 1,390,286 6,354,006 5,173,266 3,697,692 1,838,241 46,875 $ 33,285,000 $ 24,399,663 $ 2,132,728 2,205,550 2,223,951 2,227,068 2,220,286 11,129,006 11,178,266 11,072,692 11,098,241 2,196,875 $ 57,684,663 The bonds are payable from the proceeds of an ad valorem tax levied upon all property subject to taxation within the District, without limitation as to rate or amount. During the year ended June 30, 2013, the District levied an ad valorem debt service tax rate of $0.86 per $100 of assessed valuation, which resulted in a tax levy of $2,178,467 on the adjusted taxable valuation of $253,310,085 for the 2012 tax year. The bond resolutions require the District to levy and collect an ad valorem debt service tax sufficient to pay interest and principal on bonds when due and the cost of assessing and collecting taxes. See Note 7 for the maintenance tax levy. The District s tax calendar is as follows Levy Date Lien Date 1 or as soon thereafter as practicable. 1. Due Date Delinquent Date Not later than January 31 February 1, at which time the taxpayer is liable for penalty and interest. 27

32 GRAND MISSION MUNICIPAL UTILITY DISTRICT NO. 1 NOTES TO THE FINANCIAL STATEMENTS NOTE 4. SIGNIFICANT BOND RESOLUTION AND LEGAL REQUIREMENTS A. The bond resolutions state that the District is required by the Securities and Exchange Commission to provide continuing disclosure of certain general financial information and operating data, and notices of certain events, to each nationally recognized municipal securities information depository and the state information depository. This information, along with the audited annual financial statements, is to be provided within six months after the end of each fiscal year and shall continue to be provided through the life of the bonds. B. The bond resolutions state that so long as any of the bonds remain outstanding, the District covenants that it will maintain and operate the system and maintain casualty loss and other insurance on the system of a kind and in such amounts customarily carried on similar systems by municipal utility districts in the State of Texas. C. The District has covenanted that it will take all necessary steps to comply with the requirement that rebatable arbitrage earnings on the investment of the gross proceeds of the bonds, within the meaning of section 148(f) of the Internal Revenue Code, be rebated to the federal government. The minimum requirement for determination of the rebatable amount is on the five year anniversary of the issue. NOTES. DEPOSITS AND INVESTMENTS Deposits Custodial credit risk is the risk that, in the event of the failure of a depository financial institution, a government will not be able to recover deposits or will not be able to recover collateral securities that are in the possession of an outside party. The District s deposit policy for custodial credit risk requires compliance with the provisions of Texas statutes. Texas statutes require that any cash balance in any fund shall, to the extent not insured by the Federal Deposit Insurance Corporation or its successor, be continuously secured by a valid pledge to the District of securities eligible under the laws of Texas to secure the funds of the District, having an aggregate market value, including accrued interest, at all times equal to the uninsured cash balance in the fund to which such securities are pledged. At fiscal year end, the carrying amount of the District s deposits was $9,151,043 and the bank balance was $9,460,907. Of the bank balance, $1,510,639 was covered by federal depository insurance and the remaining balance was covered by the pledge of securities held in safekeeping by a thirdparty institution in the District s name. 28

33 GRAND MISSION MUNICIPAL UTILITY DISTRICT NO. 1 NOTES TO THE FINANCIAL STATEMENTS NOTES. DEPOSITS AND INVESTMENTS (Continued) Deposits (Continued) The carrying values of the deposits are included in the Governmental Funds Balance Sheet and the Statement of Net Position at June 30, 2013, as listed below: Certificates Cash of Deposit Total GENERAL FUND $ 2,651,165 $ 243,295 $ 2,894,460 SPECIAL REVENUE FUND WATER PLANT 783, ,857 SPECIAL REVENUE FUND WASTEWATER TREATMENT PLANT 1,217,658 1,217,658 SPECIAL REVENUE FUND DETENTION FACILITIES 21,363 21,363 DEBT SERVICE FUND 2,737, ,477 3,466,571 CAPITAL PROJECTS FUND 767,134 TOTAL DEPOSITS $ 8,178,271 Investments $ 972, ,134 $ 9,151,043 Under Texas law, the District is required to invest its funds under written investment policies that primarily emphasize safety of principal and liquidity and that address investment diversification, yield, maturity, and the quality and capability of investment management, and all District funds must be invested in accordance with the following investment objectives: understanding the suitability of the investment to the District s financial requirements, first; preservation and safety of principal, second; liquidity, third; marketability of the investments if the need arises to liquidate the investment before maturity, fourth; diversification of the investment portfolio, fifth; and yield, sixth. The District s investments must be made with judgment and care, under prevailing circumstances, that a person of prudence, discretion, and intelligence would exercise in the management of the person s own affairs, not for speculation, but for investment, considering the probable safety of capital and the probable income to be derived. No person may invest District funds without express written authority from the Board of Directors. Texas statutes include specifications for and limitations applicable to the District and its authority to purchase investments as defined in the Public Funds Investment Act. Authorized investments are summarized as follows: (1) obligations of the United States or its agencies and instrumentalities, (2) direct obligations of the State of Texas or its agencies and instrumentalities, 29

34 30 GRAND MISSION MUNICIPAL UTILITY DISTRICT NO. 1 NOTES TO THE FINANCIAL STATEMENTS NOTES. DEPOSITS AND INVESTMENTS (Continued) Investments (Continued) (3) certain collateralized mortgage obligations, (4) other obligations, the principal of and interest on which are unconditionally guaranteed or insured by the State of Texas or the United States or its agencies and instrumentalities, including obligations that are fully guaranteed or insured by the Federal Deposit Insurance Corporation or by the explicit full faith and credit of the United States, (5) certain A rated or higher obligations of states, agencies, counties, cities, and other political subdivisions of any state, (6) bonds issued, assumed or guaranteed by the State of Israel, (7) insured or collateralized certificates of deposit, (8) certain fully collateralized repurchase agreements secured by delivery, (9) certain bankers acceptances with limitations, (10) commercial paper rated Ai or Pi or higher and a maturity of 270 days or less, (ii) noload money market mutual funds and noload mutual funds with limitations, (12) certain guaranteed investment contracts, (13) certain qualified governmental investment pools and (14) a qualified securities lending program. All investments are recorded at cost, which the District considers to be fair value. The District invests in TexPool, an external investment pool that is not SECregistered. The State Comptroller of Public Accounts of the State of Texas has oversight of the pool. Federated Investors, Inc. manages the daily operations of the pool under a contract with the Comptroller. The fair value of the District s position in the pool is the same of the value of pool shares. As of June 30, 2013, the District had the following investments and maturities: Maturities in Years Fund and Less Than More Than Investment Type Fair Value GENERAL FUND Texpool $ 1,759 $ 1,759 $ $ $ Certificate of Deposit 243, ,295 SPECIAL REVENUE FUND WA STEWATER TREATMENT PLANT Texpool 29,574 29,574 DEBT SERVICE FUND Texpool 165, ,266 Certificates of Deposit 729, ,477 CAPITAL PROJECTS FUND Texpool TOTAL INVESTMENTS $ 1,169,537 $ 1,169,537 $ 0 $ 0 $ 0

35 GRAND MISSION MUNICIPAL UTILITY DISTRICT NO. 1 NOTES TO THE FINANCIAL STATEMENTS NOTES. DEPOSITS AND INVESTMENTS (Continued) Investments (Continued) Credit risk is the risk that the issuer or other counterparty to an investment will not fulfill its obligations. At June 30, 2013, the District s investment in TexPool is rated AAAm by Standard and Poor s. Interest rate risk is the risk that changes in interest rates will adversely affect the fair value of an investment. The District considers the investment in TexPool to have a maturity of less than one year due to the fact the share position can usually be redeemed each day at the discretion of the District. Restrictions All cash and investments of the Special Revenue Funds are restricted for the water plant, wastewater treatment plant and detention facilities operations. All cash and investments of the Debt Service Fund are restricted for the payment of debt service and the cost of assessing and collecting taxes. All cash and investments of the Capital Projects Fund are restricted for the purchase of capital assets. 31

36 GRAND MISSION MUNICIPAL UTILITY DISTRICT NO. 1 NOTES TO THE FINANCIAL STATEMENTS NOTE 6. CAPITAL ASSETS Capital asset activity for the year ended June 30, 2013: July 1,2012 Increases Decreases June 30, 2013 Capital Assets Not Being Depreciated Land and Land Improvements $ 2,446,242 $ $ 19,018 $ 2,427,224 Construction in Progress 536,789 5,952, ,009 6,065,380 Total Capital Assets Not Being Depreciated $ 2,983,031 $ 5,952,600 $ 443,027 $ 8,492,604 Capital Assets Subject to Depreciation Recreational Facilities $ 1,708,142 $ $ $ 1,708,142 Water System 8,519, , ,410 8,456,692 Wastewater System 9,045, , ,911 9,022,635 Drainage System 12,543, ,399 12,679,235 Total Capital Assets Subject to Depreciation $ 31,816,998 $ 443,027 $ 393,321 $ 31,866,704 Less Accumulated Depreciation Recreational Facilities $ 515,104 $ 95,786 $ $ 610,890 Water System 2,349, ,623 2,622,705 Wastewater System 1,686, ,747 1,906,646 Drainage System 2,024, ,847 2,318,411 Total Accumulated Depreciation $ 6,575,649 $ 883,003 $ 0 $ 7,458,652 Total Depreciable Capital Assets, Net of Accumulated Depreciation $ 25,241,349 $ (439,976) $ 393,321 $ 24,408,052 Total Capital Assets, Net of Accumulated Depreciation $ 28,224,380 $ 5,512,624 $ 836,348 $ 32,900,656 NOTE 7. MAINTENANCE TAX On May 5, 1990, the voters of the District approved the levy and collection of a maintenance tax not to exceed $1.25 per $100 of assessed valuation of taxable property within the District. On May 4, 1996, the voters of the District revoted the levy and collection of a maintenance tax at a rate determinable by the Board of Directors necessary to fund the costs of operating and maintenance of the District. During the fiscal year ended June 30, 2013, the District levied an ad valorem maintenance tax rate of $0.29 per $100 of assessed valuation, which resulted in a tax levy of $734,600 on the adjusted taxable valuation of $253,310,085 for the 2012 tax year. This maintenance tax is to be used by the General Fund to pay expenditures of operating the District s waterworks and wastewater system. 32

37 GRAN1 MISSION MUNICIPAL UTILITY DISTRICT NO. 1 NOTES TO THE FINANCIAL STATEMENTS NOTE 8. EMERGENCY AND INTERIM WATER SUPPLY AGREEMENTS On June 18, 2003, the District entered into an Emergency Water Supply agreement with Fort Bend County Municipal Utility District No. 122 (District No. 122) and Fort Bend County Municipal Utility District No. 123 (District No. 123) providing for water on an emergency basis, defined as a maximum period of 30 days, between the districts. The District will be responsible for maintenance of the interconnect facilities with each district sharing the cost of maintenance equally. Each district will be responsible for the maintenance of their respective water line. The term of this agreement is 40 years. On December 21, 2005, the District, District No. 122 and District No. 123 executed the First Amendment to Emergency Water Supply Agreement. The amendment provided for the removal of District No. 123 as a party to the Agreement. On June 20, 2007, the District executed the Second Amendment to Emergency Water Supply Agreement. This amendment allowed for repayment of water to the supplying district in kind or $1.00 per 1,000 gallons of water plus a passthrough of the North Fort Bend Regional Water Authority fees. On May 16, 2012, the District executed the Third Amendment to Emergency Water Supply Agreement which allowed for a second connection point between the districts. On May 1, 2006, Fort Bend County Municipal Utility District No. 143 executed an emergency water supply contract with Fort Bend County Municipal Utility District No. 118 and for notice and consent purposes Fort Bend County Municipal Utility District No. 165, Grand Mission Municipal Utility District No. 2 and the District. The parties agree to furnish water to each other on an emergency basis for a maximum period of 30 days unless otherwise agreed in writing between the districts. The price to be paid for water delivered is $1.00 per 1,000 gallons of water supplied, plus an additional amount necessary to cover North Fort Bend Water Authority pumpage charges. The term of the agreement is 40 years and will be automatically extended year to year unless cancelled by a participating district. NOTE 9. JOINT FINANCING, CONSTRUCTION, AND MAINTENANCE OF WATER FACILITIES On June 24, 2003, the District executed a Financing, Construction, Operation and Maintenance of Water Facilities Agreement with Fort Bend County Municipal Utility District No. 143 (District No. 143). Pursuant to this agreement, the District sold 236 equivalent singlefamily connections ( ESFC ) to District No. 143 at a cost of $2,000 per ESFC, for a total of $472,000. The District holds title to the water plant. District No. 143 constructed a water transmission line. The District reimbursed District No. 143 for the cost of oversizing the water transmission line. District No. 143 holds title to the water transmission line and the District has an equitable prorata ownership interest. Each District maintains the portion of the line that is within its own boundary. 33

38 GRAN1 MISSION MUNICIPAL UTILITY DISTRICT NO. 1 NOTES TO THE FINANCIAL STATEMENTS NOTE 9. JOINT FINANCING, CONSTRUCTION, AND MAINTENANCE OF WATER FACILITIES (Continued) On April 5, 2005, the District, District No. 143 and Grand Mission Municipal Utility District No. 2 (District No. 2) executed an Amended and Restated Agreement for Financing, Construction, Ownership, Operations and Maintenance of Water Facilities. The Agreement provided for the expansion of the existing plant to serve a minimum of 1,392 equivalent singlefamily connections with each district to fund its pro rata share of the cost of the expansion. On May 22, 2006, the District, District No. 143, District No. 2 and Fort Bend County Municipal Utility District No. 165 (District No. 165) executed the Second Amended and Restated Agreement for Financing, Construction, Ownership, Operation and Maintenance of Water Facilities. The Agreement provides for the expansion of the existing plant to serve a minimum of 4,285 equivalent singlefamily connections with each district to fund its pro rata share of the expansion costs. Each district currently has the following capacity and reserves: Percentage Ownership Reserves The District 44.99% $ 65,178 District No ,277 District No ,554 District No Total % $ 120,700 On June 11, 2007, November 26, 2007, and December 1, 2012, the District, District No. 143, District No. 2 and District No. 165 executed the First Amendment, Second Amendment and Third Amendment to the Second Amended and Restated Agreement for Financing, Construction, Ownership, Operation and Maintenance of Water Facilities. The amendments provide for the construction of additional water plant facilities to serve a minimum of 6,336 ESFC s with each district to fund its pro rata share of the construction costs and for changes in the pro rata share of construction cost to be funded by each district. The District is responsible for routine maintenance of the water plant. The routine cost of operating and maintaining the water plant is shared based on metered water usage within each District. Nonroutine repairs and maintenance, defined as that work estimated to cost over $5,000, is shared based on ownership prorations on the water plant and requires approval of all participating Districts. Customary and standard insurance costs are shared based on ownership prorations. Payment is due within thirty days of billing or a penalty of the unpaid balance shall be assessed. The term of this agreement is 40 years. 34

39 35 GRAND MISSION MUNICIPAL UTILITY DISTRICT NO. 1 NOTES TO THE FINANCIAL STATEMENTS NOTE 10. AGREEMENT FOR CONSTRUCTION OF WASTEWATER TREATMENT FACILITIES On August 1, 2005, the District executed three separate agreements titled Contract for Financing, Construction and Operation of Regional Wastewater Treatment Facilities. The participants with the District in the three separate contracts are District No. 143, District No. 165, and District No. 2. The individual participants in the Grand Mission Waste Disposal System (the system ) have capacity rights in the system; however, ownership of the system belongs to the District. Each participant in the system has the right to plan for expansion of the facilities in order to meet the needs of each respective participant in the plant. On March 12, 2007, November 26, 2007, July 1, 2008, June 1, 2009, January 1, 2010, and April 1, 2011, the agreements were amended. Unless terminated by mutual agreement of the participants, the contracts will continue in force and effect as long as the participants are in existence. Monthly billings are comprised of two components: a fixed capacity charge and a charge for operations. The participants pay a fixed monthly capacity charge of $1.50 per 1,000 gallons (average daily flow) of treatment capacity in the system reserved to each participant. The participants also pay an operating charge per 1,000 gallons (currently $12.95) based on a budget which is developed to include all operation and maintenance costs reasonably expected to be incurred by the District in the operation and maintenance of the system. Each year the participants calculate their respective best estimates on a monthly basis of the number of units or equivalent units to be actually connected to their respective collection systems during the succeeding period after commencement of sewage services to the beginning of the next calendar year. On the basis of such budget and information, and after considering the fixed monthly capacity charges to be paid, the District arrives at a projected unit cost for waste disposal services expressed in terms of cost per unit or equivalent unit and shall bill each participant monthly to the beginning of the next calendar year. No later than 60 days prior to the end of each year the District will prepare the annual operating budget for the upcoming calendar year based upon the amount of excesses or deficiencies in operating funds received during the previous year and shall adjust or revise the unit cost. Each district currently has the following capacity and reserves: Percentage Ownership Reserves The District 48.56% $ 53,865 District No District No ,022 District No Total % $ 81,887