CITY OF SAN JUAN, TX ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED SEPTEMBER 30, 2011 TABLE OF CONTENTS

Transcription

1 Exhibit CITY OF SAN JUAN, TX ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED SEPTEMBER 30, 2011 TABLE OF CONTENTS Page Independent Auditors' Report 2 Management's Discussion and Analysis 4 Basic Financial Statements Government Wide Statements: A1 Statement of Net Assets 10 B1 Statement of Activities 11 Governmental Financial Statements: C1 Balance Sheet 13 C2 Reconciliation for C1 15 C3 Statement of Revenues, Expenditures, and Changes in Balance 16 C4 Reconciliation for C3 18 Proprietary Financial Statements: D1 Statement of Net Assets 19 D2 Statement of Revenues, Expenses, and Changes in Net Assets 20 D3 Statement of Cash Flows 21 Fiduciary Financial Statements: E1 Statement of Fiduciary Net Assets 22 Notes to the Financial Statements 23 Required Supplementary Information G1 Budgetary Comparison Schedule General 40 Combining and Individual Statements Nonmajor Governmental s: H1 Combining Balance Sheet 41 H2 Combining Statement of Revenues, Expenditures, and Changes in Balances 44 Federal Section Report on Compliance and Internal Control Over Financial Reporting Based on an audit of Financial Statements Performed in Accordance with Government Auditing Standards 47 Report on Compliance with Requirements Applicable to Each Major Program and Internal Control over Compliance in Accordance with OMB Circular A Schedule of Findings and Questioned Costs 51 Schedule of Status of Prior Findings 53 K1 Schedule of Expenditures of Federal Awards 54 Notes to Schedule of Expenditures of Federal Awards 56

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3 Reyna & Garza, PLLC Certified Public Accountants 2111 Jackson Creek Ave. Edinburg, TX To the Honorable Mayor and City Council of the City of San Juan, Tx San Juan, Tx INDEPENDENT AUDITOR S REPORT We have audited the accompanying financial statements of the governmental activities, the businesstype activities, the aggregate discretely presented component units, each major fund, and the aggregate remaining fund information of City of San Juan, Tx as of and for the year ended September 30, 2011, which collectively comprise the City s basic financial statements as listed in the table of contents. These financial statements are the responsibility of City of San Juan, Tx s management. 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 of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and the significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our 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 businesstype activities, the aggregate discretely presented component units, each major fund, and the aggregate remaining fund information of the City of San Juan, Tx, as of September 30, 2011, and the respective changes in financial position, and cash flows, where applicable, thereof for the year then ended in conformity with accounting principles generally accepted in the United States of America. In accordance with Government Auditing Standards, we have also issued our report dated May 4, 2012, on our consideration of the City of San Juan, Tx 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 and should be considered in assessing the results of our audit. Accounting principles generally accepted in the United States of America require that the management s discussion and analysis and budgetary comparison information on pages 4 through 9 and 38 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. Phone: (956) Members of Texas Society of Certified Public Accountants Fax: (956)

4 Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the City of San Juan, Tx s financial statements as a whole. The introductory section, combining and individual nonmajor fund financial statements are presented for purposes of additional analysis and are not a required part of the financial statements. The accompanying schedule of expenditures of federal awards is presented for purposes of additional analysis as required by U.S. Office of Management and Budget Circular A133, Audits of States, Local Governments, and NonProfit Organizations, and is also not a required part of the financial statements. The combining and individual nonmajor fund financial statements and the schedule of expenditures of federal awards are the responsibility of management and were derived from and relate directly to the underlying accounting and other records used to prepare the financial statements. The information 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. The introductory section has not been subjected to the auditing procedures applied in the audit of the basic financial statements and, accordingly, we do not express an opinion or provide any assurance on it. Reyna & Garza, PLLC Certified Public Accountants Edinburg, Tx May 4,

5 Management's Discussion and Analysis CITY OF SAN JUAN MANAGEMENT'S DISCUSSION AND ANALYSIS In this section of the Annual Financial and Compliance Report, we, the managers of City of San Juan, discuss and analyze the City's financial performance for the fiscal year ended September 30, Please read it in conjunction with the independent auditors' report on page 2, and the City's Basic Financial Statements, which begin on page 10. FINANCIAL HIGHLIGHTS The City's net assets: increased by $ 3,291,547 as a result of this year's operations. While net assets of our businesstype activities: increased by $ 1,756,590, or nearly 5.4 percent, net assets of our governmental activities: increased, by $ 1,534,957 or nearly 7.8 percent. During the year, the City had expenses that were $1.57 million less than the $12.78 million generated in tax and other revenues for governmental programs (before special items). In the City's businesstype activities, revenues increased from $ to $7.8 million (or 7.3 percent) while expenses increased from $6.47 million to $6.5 million (or.4 percent). Total cost of all of the City's programs decreased slightly with few changes in programs this year. The General ended the year with a fund balance of $ million. The resources available for appropriation were $ 280 thousand more than budgeted for the General. USING THIS ANNUAL REPORT This annual report consists of a series of financial statements. The governmentwide financial statements include the Statement of Net Assets and the Statement of Activities on pages 10 and 11. These provide information about the activities of the City as a whole and present a longerterm view of the City's property and debt obligations and other financial matters. They reflect the flow of total economic resources in a manner similar to the financial reports of a business enterprise. financial statements starting on page 13 report the City's operations in more detail than the governmentwide statements by providing information about the City's most significant funds. For governmental activities, these statements tell how services were financed in the short term as well as what resources remain for future spending. They reflect the flow of current financial resources, and supply the basis for tax levies and the appropriations budget. For proprietary activities, fund financial statements tell how goods or services of the City were sold to external customers and how the sales revenues covered the expenses of the goods or services. The remaining statements, fiduciary statements (if applicable), provide financial information about 4

6 activities for which the City acts solely as a trustee or agent for the benefit of those outside of the City. The notes to the financial statements (starting on page 23) provide narrative explanations or additional data needed for full disclosure in the governmentwide statements or the fund financial statements. The combining statements for nonmajor funds contain even more information about the City's individual funds. Reporting the City as a Whole The Statement of Net Assets and the Statement of Activities The analysis of the City's overall financial condition and operations begins on page 10. Its primary purpose is to show whether the City is better off or worse off as a result of the year's activities. The Statement of Net Assets includes all the City's assets and liabilities at the end of the year while the Statement of Activities includes all the revenues and expenses generated by the City's operations during the year. These apply the accrual basis of accounting which is the basis used by private sector companies. All of the current year's revenues and expenses are taken into account regardless of when cash is received or paid. The City's revenues are divided into those provided by outside parties who share the costs of some programs, such grants provided by federal or state agencies. All the City's assets are reported whether they serve the current year or future years. Liabilities are considered regardless of whether they must be paid in the current or future years. These two statements report the City's net assets and changes in them. The City's net assets (the difference between assets and liabilities) provide one measure of the City's financial health, or financial position. Over time, increases or decreases in the City's net assets are one indicator of whether its financial health is improving or deteriorating. To fully assess the overall health of the City, however, you should consider nonfinancial factors as well, such as changes in the City's property tax base and the condition of the City's facilities. In the Statement of Net Assets 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 public safety, public works, culture and recreation, economic development and assistance, and general administration. Property taxes, sales taxes, franchise taxes, charges for services, and state and federal grants finance most of these activities. Businesstype activities The City charges a fee to customers to help it cover all or most of the cost of providing services such as water, sewer, and solid waste services. 5

7 Reporting the City's Most Significant s Financial Statements The fund financial statements begin on page 13 and provide detailed information about the most significant funds not the City as a whole. Laws and/or contracts require the City to establish some funds, such as grants received from federal and state agencies. The City's administration establishes several other funds to help it control and manage money for particular purposes. The City's two kinds of funds governmental and proprietary use different accounting approaches. Governmental funds Most of the City's basic services are reported in governmental funds. These use modified accrual accounting (a method that measures the receipt and disbursement of cash and all other financial assets that can be readily converted to cash) and report balances that are available for future spending. The governmental fund statements provide a detailed shortterm view of the City's general operations and the basic services it provides. We describe the differences between governmental activities (reported in the Statement of Net Assets and the Statement of Activities) and governmental funds in reconciliation schedules following each of the fund financial statements. Proprietary funds The City reports the activities for which it charges users (whether outside customers or other units of the City) in proprietary funds using the same accounting methods employed in the Statement of Net Assets and the Statement of Activities. In fact, the City's enterprise funds (one category of proprietary funds) are the businesstype activities reported in the governmentwide statements but containing more detail and additional information, such as cash flows. GOVERNMENTWIDE FINANCIAL ANALYSIS Our analysis focuses on the net assets (Table I) and changes in net assets (Table II) of the City's governmental and businesstype activities. Net assets of the City's governmental activities increased from $ million to $ 21 million. Unrestricted net assets the part of net assets that can be used to finance daytoday operations without constraints established by debt covenants, enabling legislation, or other legal requirements was $ 5.0 million at September 30, In 2011, net assets of our businesstype activities increased by $ million, about 4.5 percent. This increase is significant to the overall operations of the City. 6

8 Table I City of San Juan NET ASSETS Governmental Activities 2011 Governmental Activities 2010 Businesstype Activities 2011 Businesstype Activities 2010 Total 2011 Total 2010 Current and other assets 11,001,384 11,440,432 8,150,577 7,009,227 19,151,961 18,449,659 Capital assets 30,865,148 27,280,672 31,353,493 31,102,387 62,218,641 58,383,059 Total assets 41,866, ,104 39,504,070 38,111,614 81,370,602 76,832,718 Longterm liabilities 18,925,169 19,961,169 4,200,000 4,636,000 23,125,589 24,597,169 Other liabilities 1,930,691 1,614,642 1,443,770 1,371,904 3,374,461 2,986,546 Total liabilities 20,856,280 21,575,811 5,643,770 6,007,904 26,500,050 27,583,715 Net Assets: Invested in capital assets net of 10,938,979 6,412,615 26,717,493 25,550,972 37,656,472 31,963,587 related debt Restricted 5,048,874 6,298, ,048,874 6,298,770 Unrestricted 5,022,399 4,438,909 7,142,807 6,552,738 12,165,206 10,991,647 Total net assets 21,010,252 17,145,294 33,860,300 32,103,710 54,870,552 49,249,004 Table II City of San Juan CHANGES IN NET ASSETS Governmental Activities 2011 Governmental Activities 2010 Businesstype Activities 2011 Businesstype Activities Revenues: Program Revenues: Charges for Services 1,239, ,172 7,809,585 7,276,198 9,048,644 7,703,370 Operating grants and contributions 1,591,170 1,029, ,591,170 1,029,984 General Revenues: Maintenance and operations taxes 4,540,032 4,575, ,540,032 4,575,869 Debt service taxes 1,176,558 1,268, ,176,558 1,268,312 Sales Taxes 2,792,787 2,530, ,792,787 2,530,168 Franchise Taxes 613, , , ,401 Investment Earnings 27, , ,280 27, ,438 Miscellaneous 799, , ,885 76, , ,695 Total Revenue $12,779,848 $11,160,920 $7,946,470 $7,363,317 $20,726,318 $18,524,237 Total Total Expenses: General Government 2,469,545 2,338, ,469,545 2,338,284 Public Safety 4,453,818 3,765, ,453,818 3,765,895 Public Works 2,279,777 3,187, ,279,777 3,187,461 Culture & Recreation 490,114 1,611, ,114 1,611,260 Economic Development & Asst. 786, , , ,803 Debt Service Fiscal Agent s Fees 763,920 1, ,713 2, ,920 1, ,713 2,205 Utility Services 0 0 4,268,908 4,148,720 4,268,908 4,148,720 Solid Waste Services 0 0 2,232,340 2,323,344 2,232,340 2,323,344 Utility I&S Total Expenses $11,244,891 $12,493,621 $6,501,248 $6,472,064 $17,746,139 $18,965,685 Increase in net assets before transfers 1,534,957 (1,330,695) 1,445, ,253 3,291,547 (441,448) and special items Transfers 0 (601,417) (601,417) Special Items Resources Special ItemsPrior Period Adjustments 0 (136,149) 305,928 (942,532) 311, ,284, ,368 (136,149) 305, ,977 Net assets at 10/1/10 $19,611,444 $19,716,017 $32,103,710 $29,927,948 $51,715,154 $49,643,965 Net assets at 9/30/11 $21,010,252 $17,145,295 $33,860,300 $32,103,710 $54,870,552 $49,249,005 7

9 The cost of all governmental activities this year was $15.79 million. However, as shown in the Statement of Activities on pages 16 and 17, the amount that our taxpayers ultimately financed for these activities through City taxes was only $ 5.65 million because some of the costs were paid by those who directly benefited from the programs or by other governments and organizations that subsidized certain programs with grants and contributions; $1.095 million. THE CITY'S FUNDS As the City completed the year, its governmental funds (as presented in the balance sheet on pages 13 and 14 reported a combined fund balance of $ 8.44 million, which is less than last year's total of $ 9.29 million. Included in this year's total change in fund balance is an increase of $ 229 thousand in the City's General. Other changes in fund balances should also be noted. We issued new bonded debt, Series 2010 General Obligation Refunding Bonds/Combination Tax and Revenue Certificates of Obligation. This resource increased the available fund balances for the City as reported in the Statement of Net Assets and as discussed in the notes to the financial statements. Over the course of the year, the Board revised the City's budget several times. These budget amendments fall into one category. They involved amendments moving funds from programs that did not need all the resources originally appropriated, to programs with resource needs. The City's General balance of $ 3.39 million reported on page 13 differs from the General 's budgetary fund balance of $ 2.98 million reported in the General budgetary comparison schedule on page 19. This is principally due to cost savings and added revenues. CAPITAL ASSET AND DEBT ADMINISTRATION Capital Assets At the end of the year, the City had $ million invested in a broad range of capital assets, including facilities, land, infrastructure, vehicles, and equipment. Debt The City issued new debt in , $ 3,560,000 General Obligation Refunding Bonds and $2,345,000 Combination Tax and Limited Pledged Revenue Certificates of Obligation, Series At yearend, the City had $ 24.5 million in bonds and notes outstanding versus $ 21.5 million last year an increase of 24.7 percent. Other obligations include accrued vacation pay and sick leave. More detailed information about the City's longterm liabilities is presented in the notes to the financial statements. 8

10 ECONOMIC FACTORS AND NEXT YEAR'S BUDGETS AND RATES The City's elected and appointed officials considered many factors when setting the fiscalyear budget, tax rates. One of those factors is the economy. The City's population growth during averaged annual gains of 4 percent. More recently, unemployment has remained relatively constant. This compares with the State's unemployment rate of 7.0 percent and the national rate of 8.1 percent. These indicators were taken into account when adopting the General budget for Amounts available for appropriation in the General budget are $ 9.2 million, slightly higher than the final budget of $ 8.7 million. The City will use its revenues to finance programs we currently offer. Budgeted expenditures are expected to rise 6.8% percent to $ 9.4 million from $ 8.8 million in The City has added no major new programs or initiatives to the budget. If these estimates are realized, the City's budgetary General balance is expected to decrease modestly by the close of CONTACTING THE CITY'S FINANCIAL MANAGEMENT This financial report is designed to provide our citizens, taxpayers, customers, and investors 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's administration office, at City of San Juan, 709 S. Nebraska, San Juan, Texas. 9

11 CITY OF SAN JUAN, TX STATEMENT OF NET ASSETS SEPTEMBER 30, 2011 EXHIBIT A1 Governmental Activities Primary Government Business Type Activities Total ASSETS Cash and Cash Equivalents $ 3,910,652 $ 1,322,621 $ 5,233,273 Investments Current 4,973,315 4,743,773 9,717,088 Receivables (net of allowance for uncollectibles) 1,994, ,199 2,837,235 Due from Component Unit 91,838 91,838 Inventories Restricted Assets: 15,626 15,626 Temp. Restrictied Asset (specify) Capital Assets: 1,240,000 1,240,000 Land 1,849, ,978 2,133,330 Infrastructure, net 21,780,978 21,780,978 Buildings, net 3,447, ,575 3,565,636 Improvements other than Buildings, net 674,857 29,297,526 29,972,383 Machinery and Equipment, net 1,865,412 1,487,756 3,353,168 Capital Assets, net 15,871 15,871 Construction in Progress 1,247, ,787 1,397,275 Other Assets 15, ,901 Total Assets 41,866,532 39,504,070 81,370,602 LIABILITIES Accounts Payable Accrued Interest Payable Deferred Revenues Noncurrent Liabilities Due Within One Year Due in More Than One Year 881, ,755 1,246,873 28,171 28,171 9,954 9,954 39, , ,883 1,000, ,000 1,436,580 18,925,589 4,200,000 23,125,589 Total Liabilities 20,856,280 5,643,770 26,500,050 NET ASSETS Invested in Capital Assets, Net of Related Debt Restricted for: Restricted for Special Revenues Restricted for Capital Projects Restricted for Debt Service Unrestricted Net Assets 10,938,979 26,717,493 37,656,472 2,747,337 2,747,337 2,048,421 2,048, , ,116 5,022,399 7,142,807 12,165,206 Total Net Assets $ 21,010,252 $ 33,860,300 $ 54,870,552 The notes to the Financial Statements are an integral part of this statement. 10

12 CITY OF SAN JUAN, TX STATEMENT OF ACTIVITIES FOR THE YEAR ENDED SEPTEMBER 30, 2011 Program Revenues Expenses Primary Government: GOVERNMENTAL ACTIVITIES: General Government $ 2,469,545 $ Public Safety 4,453,818 Public Works 2,279,777 Culture and Recreation 490,114 Conservation and Development 786,062 Bond Interest 763,920 Fiscal Agent's Fees 1,655 Total Governmental Activities: BUSINESSTYPE ACTIVITIES: Total BusinessType Activities: Charges for Services 1,076, ,808 11,244,891 1,239,059 4,268,908 2,232,340 5,192,575 2,617,010 6,501,248 7,809,585 TOTAL PRIMARY GOVERNMENT: $ 17,746,139 $ 9,048,644 General Revenues: Taxes: Property Taxes, Levied for General Purposes Property Taxes, Levied for Debt Service Sales Taxes Franchise Taxes Other Taxes Penalty and Interest Grants and Contributions Not Restricted Miscellaneous Revenue Investment Earnings Special Item resource Total General Revenues and Special Items Change in Net Assets Net AssetsBeginning Prior Period Adjustment Net AssetsEnding The notes to the Financial Statements are an integral part of this statement. 11

13 EXHIBIT B1 Governmental Activities Net (Expense) Revenue and Changes in Net Assets Primary Government Businesstype Activities Total $ (1,393,294) $ $ (1,393,294) (4,291,010) (4,291,010) (2,279,777) (2,279,777) (490,114) (490,114) (786,062) (786,062) (763,920) (763,920) (1,655) (1,655) (10,005,832) (10,005,832) 923, , , ,670 1,308,337 1,308,337 (10,005,832) 1,308,337 (8,697,495) $ 4,540,032 4,540,032 1,176,558 1,176,558 2,792,787 2,792, , ,276 20,920 20, , ,627 1,591,170 1,591, , , ,454 27,850 27, , ,368 11,540, ,253 11,989,042 1,534,957 19,611,444 (136,149) 1,756,590 32,103,710 3,291,547 51,715,154 (136,149) 21,010,252 $ 33,860,300 $ 54,870,552 12

14 CITY OF SAN JUAN, TX BALANCE SHEET GOVERNMENTAL FUNDS SEPTEMBER 30, 2011 General Major Special Revenue Debt Service ASSETS Cash and Cash Equivalents $ (991,442) $ 1,807,110 $ (13,616) Investments Current 4,721,680 1, ,107 Interest Receivable investments 436 Taxes Receivable 1,270, ,524 Receivables (Net) 34,206 26,896 Intergovernmental Receivables 30,624 Due from Other s 7,874 Due from Component Unit Inventories 15,626 Other Assets 1,171 14,746 Total Assets $ 5,090,208 $ 1,850,105 $ 597,015 LIABILITIES AND FUND BALANCES Liabilities: Accounts Payable $ 172,336 $ 227,758 $ Wages and Salaries Payable 168,124 Due to Other s 50,147 Due to Others Deferred Revenues 1,270, ,524 Other Current Liabilities 38, Total Liabilities 1,699, , ,524 Balances: Restricted Unassigned Balance 1,622, ,491 3,390,842 Total Balances 3,390,842 1,622, ,491 Total Liabilities and Balances $ 5,090,208 $ 1,850,105 $ 597,015 The notes to the Financial Statements are an integral part of this statement. 13

15 EXHIBIT C1 Capital Projects Other s Total Governmental s $ 661,547 $ 2,447,053 $ 3,910,652 1,175 4,973, ,631, , ,487 48,932 79,556 50,147 58,021 91,838 91,838 15,626 15,917 $ 753,385 $ 2,768,692 $ 11,059,405 $ 129,050 $ 70,673 $ 599,817 9, ,978 7,874 58, , ,323 9,954 1,641,511 39, , ,678 2,619, ,335 2,567,014 5,048,874 3,390, ,335 2,567,014 8,439,716 $ 753,385 $ 2,768,692 $ 11,059,405 14

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17 CITY OF SAN JUAN, TX RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET ASSETS FOR THE YEAR ENDED SEPTEMBER 30, 2011 EXHIBIT C2 Total Balances Governmental s The City uses internal service funds to charge the costs of certain activities, such as selfinsurance and printing, to appropriate functions in other governmental funds. The assets and liabilities of the internal service funds are included in governmental activities in the statement of net assets. The net effect of this consolidation is to Increase (decrease) net assets. $ 8,439,716 0 Capital assets used in governmental activities are not financial resources and therefore are not reported in governmental funds. At the beginning of the year, the cost of these assets was $39,581,585 and the accumulated depreciation was $12,300,913. In addition, longterm liabilities, including bonds payable, are not due and payable in the current period, and, therefore are not reported as liabilities in the funds. The net effect of including the beginning balances for capital assets (net of depreciation) and longterm debt in the governmental activities is to increase (decrease) net assets. Current year capital outlays and longterm debt principal payments are expenditures in the fund financial statements,but they should be shown as increases in capital assets and reductions in longterm debt in the governmentwide financial statements. The net effect of including the 2011 capital outlays and debt principal payments is to increase (decrease) net assets. 8,742,616 3,178,446 The 2011 depreciation expense increases accumulated depreciation. The net effect of the current year's depreciation is to decrease net assets. (1,042,763) Various other reclassifications and eliminations are necessary to convert from the modified accrual basis of accounting to accrual basis of accounting. These include recognizing deferred revenue as revenue, eliminating interfund transactions, reclassifying the proceeds of bond sales as an increase in bonds payable, and recognizing the liabilities associated with maturing longterm debt and interest. The net effect of these reclassifications and recognitions is to increase (decrease) net assets. Net Assets of Governmental Activities $ 1,692,237 21,010,252 The notes to the Financial Statements are an integral part of this statement. 15

18 CITY OF SAN JUAN, TX STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE GOVERNMENTAL FUNDS FOR THE YEAR ENDED SEPTEMBER 30, 2011 General Major Special Revenue Debt Service REVENUES: Taxes: Property Taxes $ 4,483,525 $ $ 1,172,307 General Sales and Use Taxes 2,095, ,347 Franchise Tax 613,276 Other Taxes Penalty and Interest on Taxes 216,049 59,578 Intergovernmental Revenue and Grants 40,609 Charges for Services 1,239,059 Fines 90,893 Forfeits Special Assessments 4,875 Investment Earnings 8,266 6,416 1,468 Contributions & Donations from Private Sources 7,836 Other Revenue 224,236 25,406 Total Revenues 9,024, ,169 1,233,353 EXPENDITURES: Current: General Government Public Safety Public Works Culture and Recreation Conservation and Development Debt Service: Bond Principal Bond Interest Fiscal Agent's Fees 2,471,683 4,206, ,999 1,442,392 1,803, , ,000 65, ,853 1,655 Total Expenditures 8,743,666 1,980,275 1,580,508 Excess (Deficiency) of Revenues Over (Under) Expenditures OTHER FINANCING SOURCES (USES): Capitalrelated Debt Issued (Regular Bonds) Transfers In Premium or Discount on Issuance of Bonds Transfers Out (Use) 280,398 (1,251,106) (347,155) 3,525, ,410 (50,450) (167,410) (3,525,000) Total Other Financing Sources (Uses) (50,450) (167,410) 167,410 Net Change in Balances 229,948 (1,418,516) (179,745) Balance October 1 (Beginning) 3,160,894 2,986, ,193 Prior Period Adjustment 53,917 86,043 Balance September 30 (Ending) $ 3,390,842 $ 1,622,034 $ 235,491 The notes to the Financial Statements are an integral part of this statement. 16

19 EXHIBIT C3 Capital Projects Other s Total Governmental s $ $ $ 5,655,832 2,792, ,276 20,920 20, , , ,758 1,095,335 1,239, , , ,699 4,875 3,556 8,144 27,850 10,442 18,278 37, , , ,423 12,241,533 2,471,683 97,347 4,303,939 2,175, ,932 3,320, ,600 2,132,992 1,803, , ,920 1,655 2,175,573 1,309,879 15,789,901 (1,743,049) (487,456) (3,548,368) 2,345,000 5,870,000 50, ,860 64,327 64,327 (3,742,860) 2,409,327 50,450 2,409, ,278 (437,006) (1,139,041) (182,711) 3,004,020 9,298, , ,728 $ 624,335 $ 2,567,014 $ 8,439,716 17

20 EXHIBIT C4 CITY OF SAN JUAN, TX RECONCILIATION OF THE GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES TO THE STATEMENT OF ACTIVITIES FOR THE YEAR ENDED SEPTEMBER 30, 2011 Total Net Change in Balances Governmental s The city uses some internal service funds to charge the costs of certain activities primarily to the governmental funds. The net income (loss) of these internal service funds are reported with governmental activities. The net effect of this consolidation is to increase (decrease) net assets. $ (1,139,041) 0 Current year capital outlays and longterm debt principal payments are expenditures in the fund financial statements, but they should be shown as increases in capital assets and reductions in longterm debt in the governmentwide financial statements. The net effect of removing the 2011 capital outlays and debt principal payments is to increase (decrease) net assets. Depreciation is not recognized as an expense in governmental funds since it does not require the use of current financial resources. The net effect of the current year's depreciation is to decrease net assets. 3,178,446 (1,042,763) Various other reclassifications and eliminations are necessary to convert from the modified accrual basis of accounting to accrual basis of accounting. These include recognizing deferred revenue as revenue, adjusting current year revenue to show the revenue earned from the current year's tax levy, eliminating interfund transactions, reclassifying the proceeds of bond sales, and recognizing the liabilities associated with maturing longterm debt and interest. The net effect of these reclassifications and recognitions is to increase (decrease) net assets. Change in Net Assets of Governmental Activities $ 538,315 1,534,957 The notes to the Financial Statements are an integral part of this statement. 18

21 CITY OF SAN JUAN, TX STATEMENT OF NET ASSETS PROPRIETARY FUNDS SEPTEMBER 30, 2011 BusinessType Activities Enterprise s EXHIBIT D1 Utility Solid Total Waste Enterprise s ASSETS Current Assets: Cash and Cash Equivalents $ 594,661 $ 727,960 $ 1,322,621 Investments Current Restricted Assets Current: 4,297, ,625 4,743,773 Temporarily Restricted Asset CD 1,240,000 1,240,000 Accounts ReceivableNet of Uncollectible Allowance 533, , ,199 Total Current Assets Noncurrent Assets: Capital Assets: Land Purchase and Improvements Buildings Accumulated Depreciation Buildings Improvements other than Buildings Accumulated Depreciation Other Improvements Machinery and Equipment Accumulated Depreciation Machinery & Equipment Capital Assets Accumulated Depreciation Capital Assets Construction in Progress Other Asset Define Total Noncurrent Assets 6,665,391 1,484,202 8,149, ,195 8, , ,225 54, ,844 (56,990) (11,279) (68,269) 33,952,409 74,077 34,026,486 (4,696,821) (32,139) (4,728,960) 891,038 2,854,378 3,745,416 (504,487) (1,753,173) (2,257,660) 205, ,337 (189,466) (189,466) 149, , ,159,211 1,195,266 31,354,477 Total Assets 36,824,602 2,679,468 39,504,070 LIABILITIES Current Liabilities: Accounts Payable Wages and Salaries Payable Compensated Absences Payable Accrued Interest Payable Bonds Payable Current: Revenue Bonds Payable Other Current Liabilities Total Current Liabilities NonCurrent Liabilities: Bonds Payable NonCurrent: Revenue Bonds Payable Total Noncurrent Liabilities 91, , ,251 38,331 22,574 60,905 73,042 37, ,599 26,786 1,385 28, ,000 65, , , , ,844 1,066, ,091 1,443,770 3,980, ,000 4,200,000 3,980, ,000 4,200,000 Total Liabilities 5,046, ,091 5,643,770 NET ASSETS Investments in Capital Assets, Net of Debt Unrestricted Net Assets 25,807, ,266 26,717,493 5,970,696 1,172,111 7,142,807 Total Net Assets $ 31,777,923 $ 2,082,377 $ 33,860,300 The notes to the Financial Statements are an integral part of this statement. 19

22 CITY OF SAN JUAN, TX STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN FUND NET ASSETS PROPRIETARY FUNDS FOR THE YEAR ENDED SEPTEMBER 30, 2011 BusinessType Activities Enterprise s EXHIBIT D2 Utility Solid Waste Total Enterprise s OPERATING REVENUES: Charges for Services $ 5,192,575 $ 2,617,010 $ 7,809,585 Investment Earnings 14,331 2,079 16,410 Other Revenue 99,053 21, ,475 Total Operating Revenues 5,305,959 2,640,511 7,946,470 OPERATING EXPENSES: Object Description Personnel Services Salaries and Wages 1,000, ,375 1,655,374 Personnel Services Employee Benefits 281, , ,150 Purchased Professional & Technical Services 235, , ,297 Purchased Property Services 175, , ,914 Other Operating Expenses 509, , ,991 Supplies 1,197, ,316 1,483,680 Total Revenues 3,401,990 2,011,416 5,413,406 Depreciation Interest Expense 670, , , ,389 12, ,592 Total Operating Expenses 4,268,908 2,232,340 6,501,248 Income Before Contributions 1,037, ,171 1,445,222 Capital Contributions Change in Net Assets Total Net Assets October 1 (Beginning) 282,575 28, ,368 1,319,626 30,458, ,964 1,645,413 1,756,590 32,103,710 Total Net Assets September 30 (Ending) $ 31,777,923 $ 2,082,377 $ 33,860,300 The notes to the Financial Statements are an integral part of this statement.

23 CITY OF SAN JUAN, TX STATEMENT OF CASH FLOWS PROPRIETARY FUNDS FOR THE YEAR ENDED SEPTEMBER 30, 2011 EXHIBIT D3 BusinessType Activities Utility Solid Total Waste Enterprise Cash Flows from Operating Activities: Cash Received from User Charges $ 5,234,822 $ 2,832,318 $ 8,067,140 Cash Payments to Employees for Services (1,275,445) (858,816) (2,134,261) Cash Payments for Suppliers (1,621,868) (223,400) (1,845,268) Cash Payments for Other Operating Expenses (921,670) (880,464) (1,802,134) Net Cash Provided by Operating Activities 1,415, ,638 2,285,477 Cash Flows from Capital & Related Financing Activities: Acquisition of Capital Assets Capital Contributed by Other s Net Cash Provided by (Used for) Capital & Related Financing Activities Cash Flows from Investing Activities: Purchase of Investment Securities Proceeds from Sale & Maturities of Securities Net Cash Provided by (Used for) Investing Activities s (511,127) (414,876) (926,003) 282,575 28, ,368 (228,552) (386,083) (614,635) (5,536,001) (446,000) (5,982,001) (348,000) (65,000) (413,000) (5,884,001) (511,000) (6,395,001) Net Increase(Decrease) in Cash and Cash Equivalents (4,696,714) (27,445) (4,724,159) Cash and Cash Equivalents at Beginning of the Year: 5,291, ,405 6,046,780 Cash and Cash Equivalents at the End of the Year: $ 594,661 $ 727,960 $ 1,322,621 Reconciliation of Operating Income to Net Cash Provided By Operating Activities: Operating Income: $ 1,037,051 $ 408,171 $ 1,445,222 Adjustments to Reconcile Operating Income to Net Cash Provided by Operating Activities: Depreciation Effect of Increases and Decreases in Current 670, , ,250 Assets and Liabilities: Decrease (increase) in Receivables (71,137) (16,724) (87,861) Decrease (increase) in Due from Other s 208, ,531 Increase (decrease) in Accounts Payable (482,915) (86,163) (569,078) Increase (decrease) in Payroll Deductions 7,511 (2,248) 5,263 Increase (decrease) in Accrued Interest Payable (2,548) 1,385 (1,163) Increase (decrease) in Due to Other s (208,531) (208,531) Increase (decrease) in Other Current Liab 465, , ,844 Net Cash Provided by Operating Activities $ 1,415,839 $ 869,638 $ 2,285,477 The notes to the Financial Statements are an integral part of this statement.

24 CITY OF SAN JUAN, TX STATEMENT OF FIDUCIARY NET ASSETS FIDUCIARY FUNDS SEPTEMBER 30, 2011 EXHIBIT E1 Agency ASSETS Due from Other s $ 741,509 Total Assets $ 741,509 LIABILITIES Accounts Payable $ 741,509 Total Liabilities $ 741,509 The accompanying notes are an integral part of this statement.

25 CITY OF SAN JUAN NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED SEPTEMBER 30, 2011 I. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CITY OF SAN JUAN (the "City") was incorporated on December 29, 1917, under Article XI, Section 5 of the Constitution of the State of Texas. The City operates under a City CommissionManager form of government and provides the following services as authorized by its charter. The services include public safety (police and fire), public works, sanitation, health and social services, culturerecreation, public improvements, planning and zoning, and general administrative services. Other services include utilities (water & sewer services and solid waste collection). The financial statements of the city have been prepared in conformity with generally accepted accounting principles (GAAP) as applied to governmental units. The Governmental Accounting Standards Board (GASB) is the accepted standard setting body for establishing governmental accounting and financial reporting principles. The more significant accounting policies of the City are described below: A. REPORTING ENTITY The Board of Commissioners (the "Board") is elected by the public and it has the authority to make decisions, appoint administrators and managers, and significantly influence operations. It also has the primary accountability for fiscal matters. Therefore, the City is a financial reporting entity as defined by the Governmental Accounting Standards Board ("GASB") in its Statement No. 14, "The Financial Reporting Entity." In evaluating how to define the City for financial reporting purposes, management has considered all potential component units. The decision to include a potential component unit in the reporting entity was made by applying the criteria set forth in Generally Accepted Accounting Principles (GAAP). The basicbut not the onlycriterion for including a potential component unit within the reporting entity is the governing body's ability to exercise oversight responsibility. The most significant manifestation of this ability is financial interdependency. Other manifestations of the ability to exercise oversight responsibility include, but are not limited to, the selection of governing authority, the designation of management, the ability to significantly influence operations, and accountability for fiscal matters. A second criterion used in evaluating potential component units is the scope of public service. Application of this criterion involves considering whether the activity benefits the government and/or its citizens, whether the activity is conducted within the geographic boundaries of the government and is generally available to its citizens. A third criterion used to evaluate potential component units for inclusion or exclusion is the existence of special financing relationships, regardless of whether the government is able to exercise oversight responsibilities. Based upon the application of the above criteria, the following is a brief review of the City's component unit addressed in defining the City's reporting entity. Blended Component Units Blended component units, although legally separate entities, are in substance part of the government s operations and so data from these units are combined with data of the primary government. The City s blended component unit follows. 23

26 Included in the Reporting Entity The San Juan Economic Development Corporation (the "EDC") was incorporated on May 31,1996, under the Development Corporation Act of 1979, of the State of Texas. The EDC operates as a Component Unit of the City of San Juan, Texas (the City ). The EDC s purpose is to promote economic development and encourage employment and public welfare on behalf of the City by developing, implementing, providing and financing projects under the Act as defined in Section 4B of the Act. B. GOVERNMENTWIDE AND FUND FINANCIAL STATEMENTS The Statement of Net Assets and the Statement of Activities are governmentwide financial statements. They report information on all of the CITY OF SAN JUAN nonfiduciary activities with most of the interfund activities removed. Governmental activities include programs supported primarily by taxes, State funds, grants and other intergovernmental revenues. Businesstype activities include operations that rely to a significant extent on fees and charges for support. The Statement of Activities demonstrates how other people or entities that participate in programs the City operates have shared in the payment of the direct costs. The "charges for services" column includes payments made by parties that purchase, use, or directly benefit from goods or services provided by a given function or segment of the City. The "grants and contributions" column includes amounts paid by organizations outside the City to help meet the operational or capital requirements of a given function. If a revenue is not a program revenue, it is a general revenue used to support all of the City's functions. Taxes are always general revenues. Interfund activities between governmental funds and between governmental funds and proprietary funds appear as due to/due froms on the Governmental Balance Sheet and Proprietary Statement of Net Assets and as other resources and other uses on the governmental fund Statement of Revenues, Expenditures and Changes in Balance and on the Proprietary Statement of Revenues, Expenses and Changes in Net Assets. All interfund transactions between governmental funds are eliminated on the governmentwide statements. Interfund activities between governmental funds and enterprise funds remain on the governmentwide statements and appear on the governmentwide Statement of Net Assets as internal balances and on the Statement of Activities as interfund transfers. Interfund activities between governmental funds and fiduciary funds remain as due to/due froms on the governmentwide Statement of Activities. The fund financial statements provide reports on the financial condition and results of operations for three fund categories governmental, proprietary, and fiduciary. Since the resources in the fiduciary funds cannot be used for City operations, they are not included in the governmentwide statements. The City considers some governmental and enterprise funds major and reports their financial condition and results of operations in a separate column. Proprietary funds distinguish operating revenues and expenses from nonoperating items. Operating revenues result from providing goods and services in connection with a proprietary fund's principal ongoing operations; they usually come from exchange or exchangelike transactions. All other revenues are nonoperating. Operating expenses can be tied specifically to the production of the goods and services, such as materials and labor and direct overhead. Other expenses are nonoperating. 24

27 C. MEASUREMENT FOCUS, BASIS OF ACCOUNTING, AND FINANCIAL STATEMENT PRESENTATION The governmentwide financial statements use the economic resources measurement focus and the accrual basis of accounting, as do the proprietary fund and fiduciary fund financial statements. Revenues are recorded when earned and expenses are recorded when a liability is incurred, regardless of the timing of the related cash flows. Property taxes are recognized as revenues in the year for which they are levied. Grants and similar items are recognized as revenue as soon as all eligibility requirements imposed by the provider have been met. Governmental fund financial statements use the current financial resources measurement focus and the modified accrual basis of accounting. With this measurement focus, only current assets, current liabilities and fund balances are included on the balance sheet. Operating statements of these funds present net increases and decreases in current assets (i.e., revenues and other financing sources and expenditures and other financing uses). The modified accrual basis of accounting recognizes revenues in the accounting period in which they become both measurable and available, and it recognizes expenditures in the accounting period in which the fund liability is incurred, if measurable, except for unmatured interest and principal on longterm debt, which is recognized when due. The expenditures related to certain compensated absences and claims and judgments are recognized when the obligations are expected to be liquidated with expendable available financial resources. The City considers all revenues available if they are collectible within 60 days after year end. Revenues from local sources consist primarily of property taxes. Property tax revenues and revenues received from the State are recognized under the "susceptible to accrual" concept, that is, when they are both measurable and available. The City considers them "available" if they will be collected within 60 days of the end of the fiscal year. Miscellaneous revenues are recorded as revenue when received in cash because they are generally not measurable until actually received. Investment earnings are recorded as earned, since they are both measurable and available. Grant funds are considered to be earned to the extent of expenditures made under the provisions of the grant. Accordingly, when such funds are received, they are recorded as deferred revenues until related and authorized expenditures have been made. If balances have not been expended by the end of the project period, grantors some times require the City to refund all or part of the unused amount. The Proprietary Types and Fiduciary s are accounted for on a flow of economic resources measurement focus and utilize the accrual basis of accounting. This basis of accounting recognizes revenues in the accounting period in which they are earned and become measurable and expenses in the accounting period in which they are incurred and become measurable. The City applies all GASB pronouncements as well as the Financial Accounting Standards Board pronouncements issued on or before November 30, 1989, unless these pronouncements conflict or contradict GASB pronouncements. With this measurement focus, all assets and all liabilities associated with the operation of these funds are included on the fund statement of Net Assets. The fund equity is segregated into invested in capital assets net of related debt, restricted net assets, and unrestricted net assets. D. FUND ACCOUNTING The City reports the following major governmental funds: 1. The General The general fund is the City's primary operating fund. It accounts for all financial resources except those required to be accounted for in another fund. 25