INSURED RATINGS: S&P - AA- ; KBRA AA+

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1 NEW ISSUE BOOK-ENTRY ONLY BANK QUALIFIED MOODY S RATING: A1 INSURED RATINGS: S&P - AA- ; KBRA AA+ See RATINGS INSURANCE: National Public Finance Guarantee Corporation In the opinion of Sherman & Howard L.L.C., Bond Counsel, assuming continuous compliance with certain covenants described herein, interest on the Bonds is excluded from gross income under federal income tax laws pursuant to Section 103 of the Internal Revenue Code of 1986, as amended to the date of delivery of the Bonds (the Tax Code ), and interest on the Bonds is excluded from alternative minimum taxable income as defined in Section 55(b)(2) of the Tax Code, except that such interest is required to be included in calculating the adjusted current earnings adjustment applicable to corporations for purposes of computing the alternative minimum taxable income of corporations. See TAX MATTERS Federal Tax Matters. The City has designated the Bonds as qualified tax-exempt obligations for purposes of Section 265(b)(3) of the Tax Code. See FINANCIAL INSTITUTION INTEREST DEDUCTION. Dated: Date of Delivery $9,085,000 CITY OF FERNLEY, NEVADA GENERAL OBLIGATION (LIMITED TAX) WATER AND SEWER REFUNDING BONDS (ADDITIONALLY SECURED BY PLEDGED REVENUES) SERIES 2016 Due: February 1, as shown on the inside cover The Bonds (defined herein) are issued as fully registered bonds in denominations of $5,000, or any integral multiple thereof. The Bonds initially will be registered in the name of Cede & Co., as nominee of The Depository Trust Company, New York, New York ( DTC ), securities depository for the Bonds. Purchases of the Bonds are to be made in book-entry form only. Purchasers will not receive certificates representing their beneficial ownership interest in the Bonds. See THE BONDS--Book-Entry Only System. The Bonds bear interest at the rates set forth below, payable on February 1 and August 1 of each year, commencing February 1, 2017, to and including the maturity dates shown herein (unless the Bonds are redeemed earlier), to the registered owners of the Bonds (initially Cede & Co.). The principal of the Bonds will be payable upon presentation and surrender at the office of the U.S. Bank National Association, or its successor as the paying agent for the Bonds. See THE BONDS. The Bonds are subject to optional redemption prior to maturity as described in THE BONDS Redemption Provisions. Certain of the Bonds also are subject to mandatory sinking fund redemption. Proceeds of the Bonds will be used to: (i) refund a portion of the City s General Obligation (Limited Tax) Water and Sewer Bonds (Additionally Secured by Pledged Revenues), Series 2007; and (ii) pay the costs of issuing the Bonds. See SOURCES AND USES OF FUNDS. The Bonds constitute direct and general obligations of the City and the full faith and credit of the City is pledged for the payment of the principal and interest thereon, subject to the limitations imposed by the constitution and laws of the State of Nevada. The Bonds are additionally secured by a lien on the Net Revenues (defined herein) on a parity with the lien thereon of certain outstanding bonds of the City and any parity bonds issued in the future. See SECURITY FOR THE BONDS. Payment of the principal and interest on the Bonds when due will be insured by a financial guaranty insurance policy to be issued concurrently with the delivery of the Bonds by NATIONAL PUBLIC FINANCE GUARANTEE CORPORATION. See SECURITY FOR THE BONDS Bond Insurance. This cover page contains certain information for quick reference only. It is not a summary of the issue. Investors must read the entire Official Statement to obtain information essential to making an informed investment decision. The Bonds are offered when, as, and if issued by the City, subject to the approval of legality of the Bonds by Sherman & Howard L.L.C., Reno, Nevada, Bond Counsel, and the satisfaction of certain other conditions. Sherman & Howard L.L.C. has also acted as special counsel to the City in connection with the preparation of this Official Statement. Certain legal matters will be passed upon for the City by the City Attorney. JNA Consulting Group, LLC, Boulder City, Nevada, is acting as Financial Advisor to the City. It is expected that the Bonds will be available for delivery through the facilities of DTC on or about November 3, This Official Statement is dated September 28, 2016.

2 $9,085,000 CITY OF FERNLEY, NEVADA GENERAL OBLIGATION (LIMITED TAX) WATER AND SEWER REFUNDING BONDS (ADDITIONALLY SECURED BY PLEDGED REVENUES) SERIES 2016 Maturing (February 1) MATURITY SCHEDULE (CUSIP 6-digit issuer number: ) Principal Amount Interest Rate Yield 2018 $ 115, % 1.000% DY ,685, C DZ ,735, C EA ,910, C ED9 CUSIP Number $3,640,000 Term Bond at 3.000% due February 1, 2036 Yield 2.500% C CUSIP EC1 c Yield to first optional redemption date of February 1, Copyright 2016, American Bankers Association. CUSIP herein is provided by Standard & Poor s, CUSIP Service Bureau, a division of The McGraw-Hill Companies, Inc.

3 USE OF INFORMATION IN THIS OFFICIAL STATEMENT This Official Statement, which includes the cover page and the appendices, does not constitute an offer to sell or the solicitation of an offer to buy any of the Bonds in any jurisdiction in which it is unlawful to make such offer, solicitation, or sale. No dealer, salesperson, or other person has been authorized to give any information or to make any representations other than those contained in this Official Statement in connection with the offering of the Bonds, and if given or made, such information or representations must not be relied upon as having been authorized by the City. The City maintains a website; however, the information presented there is not a part of this Official Statement and should not be relied upon in making an investment decision with respect to the Bonds. The information set forth in this Official Statement has been obtained from the City and from the sources referenced throughout this Official Statement, which the City believes to be reliable. No representation is made by the City, however, as to the accuracy or completeness of information provided from sources other than the City. This Official Statement contains, in part, estimates and matters of opinion which are not intended as statements of fact, and no representation or warranty is made as to the correctness of such estimates and opinions, or that they will be realized. The information, estimates, and expressions of opinion contained in this Official Statement are subject to change without notice, and neither the delivery of this Official Statement nor any sale of the Bonds shall, under any circumstances, create any implication that there has been no change in the affairs of the City, or in the information, estimates, or opinions set forth herein, since the date of this Official Statement. This Official Statement has been prepared only in connection with the original offering of the Bonds, and not in connection with any subsequent sale or transfer of the Bonds, and may not be reproduced or used in whole or in part for any other purpose. The Bonds have not been registered with the Securities and Exchange Commission due to certain exemptions contained in the Securities Act of 1933, as amended. The Bonds have not been recommended by any federal or state securities commission or regulatory authority, and the foregoing authorities have neither reviewed nor confirmed the accuracy of this document. THE PRICES AT WHICH THE BONDS ARE OFFERED TO THE PUBLIC BY THE INITIAL PURCHASER (AND THE YIELDS RESULTING THEREFROM) MAY VARY FROM THE INITIAL PUBLIC OFFERING PRICES OR YIELDS APPEARING ON THE INSIDE COVER PAGE HEREOF. IN ADDITION, THE INITIAL PURCHASER MAY ALLOW CONCESSIONS OR DISCOUNTS FROM SUCH INITIAL PUBLIC OFFERING PRICES TO DEALERS AND OTHERS. IN ORDER TO FACILITATE DISTRIBUTION OF THE BONDS, THE INITIAL PURCHASER MAY ENGAGE IN TRANSACTIONS INTENDED TO STABILIZE THE PRICE OF THE BONDS AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.

4 CITY OF FERNLEY, NEVADA Mayor and City Council Roy Edgington, Jr., Mayor Cal Eilrich Stan Lau Dan McCassie Susan Seidl Shari Whalen City Officials Daphne Hooper, City Manager Kimberly Swanson, City Clerk Brandi Jensen, City Attorney Denise Lewis, City Treasurer/Finance Director Dave Whalen, Public Works Director FINANCIAL ADVISOR JNA Consulting Group 410 Nevada Way, Suite 200 Boulder City, NV BOND AND SPECIAL COUNSEL Sherman & Howard L.L.C. Reno, Nevada REGISTRAR AND PAYING AGENT U.S. Bank National Association Phoenix, Arizona ESCROW BANK U.S. Bank National Association Phoenix, Arizona

5 TABLE OF CONTENTS INTRODUCTION... 1 The City... 1 Changes from the Preliminary Official Statement... 1 The Bonds; Prior Redemption... 2 Authority for Issuance... 2 Purposes... 2 Security... 2 Bond Insurance... 3 Professionals... 3 Tax Matters... 4 Continuing Disclosure Undertaking... 4 Certain Bondholder Risks... 5 Forward-Looking Statements... 5 Additional Information... 5 SOURCES AND USES OF FUNDS... 6 Sources and Uses of Funds... 6 The Refunding Project... 6 THE BONDS... 7 General... 7 Payment Provisions... 7 Redemption Provisions... 8 Tax Covenant... 9 Defeasance Book-Entry Only System DEBT SERVICE REQUIREMENTS CERTAIN RISK FACTORS Certain Risks Associated With Property Taxes Certain Risks Associated With the Net Revenues Limitation of Remedies Future Changes in Laws Secondary Market SECURITY FOR THE BONDS General Obligation Net Revenues Parity Securities Historical and Estimated Net Revenues No Pledge of Property Bond Insurance UTILITY SYSTEM General Description Sewer System Facilities Water System Facilities and Sources i- Page

6 Water Supply - Local Water Supply - Regional Capital Improvement Program Customer Usage Rates and Charges Connection Charges Bond Debt Fee Customer Information Billing and Collection Other Sources of System Revenue Combined History of Water Fund and Sewer Fund Revenues and Expenses PROPERTY TAX INFORMATION Property Tax Base and Tax Roll History of Assessed Value Property Tax Collections Largest Taxpayers - City of Fernley Property Tax Limitations Required Property Tax Abatements Overlapping Tax Rates and General Obligation Indebtedness Selected Debt Ratios THE CITY General Governing Body Administration Employee Relations and Pension Benefits CITY FINANCIAL INFORMATION Annual Reports Budgeting Accounting General Fund History of City Revenues and Expenditures Management s Discussion and Analysis of Recent Financial Activity in the General Fund Investment Policy Risk Management DEBT STRUCTURE Debt Limitation Outstanding Debt and Other Obligations Additional Contemplated Indebtedness Annual Debt Service Requirements TAX MATTERS Federal Tax Matters State Tax Exemption FINANCIAL INSTITUTION INTEREST DEDUCTION LEGAL MATTERS Litigation Approval of Certain Legal Proceedings ii-

7 Police Power Sovereign Immunity RATINGS INDEPENDENT AUDITORS FINANCIAL ADVISOR UNDERWRITING OFFICIAL STATEMENT CERTIFICATION APPENDIX A - Audited Basic Financial Statements of the City for the Fiscal Year Ended June 30, A-1 APPENDIX B - Summary of Certain Provisions of the Bond Ordinance...B-1 APPENDIX C - Book-Entry Only System...C-1 APPENDIX D - Form of Continuing Disclosure Certificate... D-1 APPENDIX E - Form of Approving Opinion of Bond Counsel... E-1 APPENDIX F - Economic and Demographic Information... F-1 APPENDIX G - Specimen Municipal Bond Insurance Policy... G-1 -iii-

8 NOTE: INDEX OF TABLES Tables marked with (*) indicate Annual Financial Information to be updated by the City pursuant to SEC Rule 15c2-12, as amended. See INTRODUCTION-- Continuing Disclosure Undertaking. Page Sources and Uses of Funds... 6 Debt Service Requirements 11 *Parity Securities *Parity Securities Debt Service Requirements *Historical and Estimated Net Revenues and Debt Service Coverage (1) Capital Improvement Program *Monthly Water Service Charges Metered Customers *Monthly Sewer Service Charges Metered Customers *Bond Debt Fee Rates Metered Customers (2) *History of Water System Users and Water Usage by Customer Type *Water System User Fee Revenues by Customer Class *Sewer System User Fee Revenues by Customer Class *Ten Largest Water System Customers Ten Largest Sewer System Customers *Water Fund Summary of Revenues, Expenses and Changes in Net Position (1) *Sewer Fund Summary of Revenues, Expenses and Changes in Net Position (1) *History of Assessed Value City of Fernley *Property Tax Levies, Collections and Delinquencies *Principal Property Owning Taxpayers in the City *History of Statewide Average and Sample Overlapping Property Tax Rates Estimated Overlapping Net General Obligation Indebtedness Net Direct & Overlapping General Obligation Indebtedness Selected Direct General Obligation Debt Ratios *General Fund Summary of Revenues, Expenditures and Changes in Fund Balance (1) *Statutory Debt Limitation *Outstanding General Obligation Debt and Other Obligations *Annual Debt Service Requirements - General Obligation Bonds Population... F-1 Age Distribution... F-1 Median Household Effective Buying Income Estimates... F-2 Percent of Households by Effective Buying Income Groups 2016 Estimates... F-2 Per Capita Personal Income... F-3 Average Annual Labor Force Summary... F-3 Establishment Based Industrial Employment... F-4 Largest Employers - Lyon County, Nevada... F-4 Size Class of Industries... F-5 Taxable Sales in the County... F-5 Building Permits - City of Fernley, Nevada... F-6 Building Permits - Lyon County, Nevada... F-6 (1) Only historical information (and not estimated information) in this table is required to be updated. (2) This table to be updated for so long as such fees continue to be collected. -iv-

9 OFFICIAL STATEMENT $9,085,000 CITY OF FERNLEY, NEVADA GENERAL OBLIGATION (LIMITED TAX) WATER AND SEWER REFUNDING BONDS (ADDITIONALLY SECURED BY PLEDGED REVENUES) SERIES 2016 INTRODUCTION This Official Statement, including the cover page and the appendices, is furnished by the City of Fernley, Nevada (the City ), to provide information about the City s $9,085,000 General Obligation (Limited Tax) Water and Sewer Refunding Bonds (Additionally Secured by Pledged Revenues), Series 2016 (the Bonds ). The Bonds will be issued pursuant to an ordinance (the Bond Ordinance ) adopted by the City Council on September 7, Capitalized terms used herein that are otherwise not defined have the meanings ascribed to them in the Bond Ordinance. The offering of the Bonds is made only by way of this Official Statement, which supersedes any other information or materials used in connection with the offer or sale of the Bonds. The following introductory material is only a brief description of and is qualified by the more complete information contained throughout this Official Statement. A full review should be made of the entire Official Statement and the documents summarized or described herein. Detachment or other use of this INTRODUCTION without the entire Official Statement, including the cover page and the appendices, is unauthorized. The City The City was incorporated in 2001 under the provisions of Nevada Revised Statutes (NRS) Chapter 266. The City is located on Interstate 80, 39 miles east of Reno in the northern part of Lyon County, Nevada (the County ) and occupies a land area of approximately 164 square miles. The City serves a population of approximately 18,936 according to the Nevada State Demographer s Office s 2015 estimates. See THE CITY. As more fully described in PROPERTY TAX INFORMATION--Property Tax Base and Tax Roll, the City s assessed valuation for fiscal year is $585,627,293. Changes from the Preliminary Official Statement This Official Statement includes certain information which was not available for inclusion in the Preliminary Official Statement, dated September 19, 2016 (the Preliminary Official Statement ), including information relating to the principal amounts, maturity dates, interest rates, yields and prices, redemption provisions and other terms of the Bonds. In addition, the first sentence of the second paragraph under the heading THE CITY Employee Relations and Pension Benefits Other Postemployment Benefits was updated to include information from the City s January 1, 2016 actuarial valuation report. Such actuarial valuation report shows a reduction in the City s UAAL from $814,455 (as reported in the City s fiscal year 2015 audit) to $545,415. 1

10 The Bonds; Prior Redemption The Bonds are issued solely as fully registered certificates in denominations of $5,000, or any integral multiple thereof. The Bonds initially will be registered in the name of Cede & Co., as nominee of The Depository Trust Company, New York, New York ( DTC ), the securities depository for the Bonds. Purchases of the Bonds are to be made in book-entry form only. Purchasers will not receive certificates representing their beneficial ownership interest in the Bonds. See THE BONDS--Book-Entry Only System. The Bonds are dated as of the date of their delivery and mature and bear interest (calculated based on a 360-day year consisting of twelve 30-day months) as set forth on the inside cover page hereof. The payment of principal and interest on the Bonds is described in THE BONDS--Payment Provisions. The Bonds are subject to optional redemption prior to maturity. Certain of the Bonds also are subject to mandatory sinking fund redemption as described in THE BONDS Redemption Provisions. Authority for Issuance The Bonds are being issued pursuant to: Nevada Revised Statutes ( NRS ) through , designated as the Local Government Securities Law (the Bond Act ); Chapter 348 of NRS, NRS to , as amended from time to time, and the Bond Ordinance. Purposes Proceeds of the Bonds will be used to: (i) refund $8,995,000 outstanding aggregate principal amount of the City s General Obligation (Limited Tax) Water and Sewer Bonds (Additionally Secured by Pledged Revenues), Series 2007, maturing February 1, 2037 (the Refunded Bonds ); and (ii) pay the costs of issuing the Bonds. See SOURCES AND USES OF FUNDS. The refunding of the Refunded Bonds is referred to herein as the Refunding Project. Security General Obligations. The Bonds are direct and general obligations of the City, payable as to principal and interest from general (ad valorem) taxes (sometimes referred to herein as General Taxes ) levied against all taxable property within the City (except to the extent any other monies are made available therefor), subject to State constitutional and statutory limitations on the aggregate amount of ad valorem taxes. See PROPERTY TAX INFORMATION. Net Revenues Additionally Secure the Bonds. The Bonds are additionally secured by an irrevocable pledge of and by a lien (but not necessarily an exclusive lien) on the Net Revenues, which are defined as the Gross Revenues after provision is made for the payment of the Operation and Maintenance Expenses, on a parity with the Outstanding Parity Securities (defined below) and any other parity securities hereafter issued. Gross Revenues is defined as, generally, the revenues received by the City from the operation of its Utility System. For a further description of Gross Revenues, Net Revenues, the Utility System and Operation 2

11 and Maintenance Expenses, see SECURITY FOR THE BONDS--Net Revenues, UTILITY SYSTEM, and Appendix B - Summary of Certain Provisions of the Bond Ordinance. Parity Securities and Additional Bonds. The City currently has outstanding additional bonds payable from the Net Revenues on a parity with the Bonds (the Outstanding Parity Securities and, together with the Bonds, the Parity Securities ). Upon the issuance of the Bonds and the defeasance of the Refunded Bonds, the Parity Securities will be outstanding in the amount of $72,313,092. In addition, the City may issue additional bonds or securities with a lien on the Net Revenues that is on a parity with the lien thereon of the Bonds. See SECURITY FOR THE BONDS--Parity Securities and Appendix B Summary of Certain Provisions of the Bond Ordinance - Additional Parity Securities. The City may issue additional bonds or securities payable from the Net Revenues and having a lien thereon prior and superior to the lien thereon of the Bonds upon the satisfaction of certain conditions set forth in the Bond Ordinance, including that any such superior bonds or securities must be issued as special obligations. See Appendix B Summary of Certain Provisions of the Bond Ordinance - Superior Securities. The City intends to authorize up to $2 million of Parity Securities in January Bond Insurance Payment of the principal and interest on the Bonds when due will be guaranteed under a municipal bond insurance policy (the Financial Guaranty Insurance Policy or the Policy ) to be issued concurrently with the delivery of the Bonds by National Public Finance Guarantee Corporation (the Insurer or National ). A specimen Policy is attached hereto as Appendix G. The information in SECURITY FOR THE BONDS Bond Insurance has been furnished by the Insurer for use in this Official Statement as has the specimen Policy attached hereto as Appendix G. Such information has not been independently confirmed or verified by the City. No representation is made as to the accuracy, completeness or adequacy of such information or as to the absence of material adverse changes in such information subsequent to the date hereof, or that the information contained and incorporated herein by reference is correct, and the City assumes no responsibility therefor. Purchasers of the Bonds should be aware that issuance of the Financial Guaranty Insurance Policy gives the Insurer certain rights, including the right (subject to certain exceptions) to consent to amendments to the Bond Ordinance. See Appendix B Summary of Certain Provisions of the Bond Ordinance. No assurance can be given by the City that the Insurer will be able to meet its obligations under the Policy. Professionals Sherman & Howard L.L.C., Reno, Nevada, has acted as Bond Counsel and has also acted as Special Counsel to the City in connection with the preparation of this Official Statement. The City s financial advisor in connection with the issuance of the Bonds is JNA Consulting Group, LLC, Boulder City, Nevada (the Financial Advisor ). See FINANCIAL ADVISOR. The fees of the Financial Advisor will be paid only from Bond proceeds at closing. The audited basic financial statements of the City (contained in Appendix A to this Official Statement) include the report of HintonBurdick, PLLC, certified public accountants, St. George, Utah. See INDEPENDENT AUDITORS. U.S. Bank National Association will act as the registrar and paying agent for the Bonds (the Registrar and Paying Agent ) and as the escrow 3

12 bank in connection with the Refunding Project (the Escrow Bank ). Certain mathematical computations regarding the Escrow Account (defined below) will be verified by Causey Demgen & Moore, Inc., certified public accountants, Denver, Colorado. See SOURCES AND USES OF FUNDS--The Refunding Project - Verification of Mathematical Computations. Tax Matters In the opinion of Sherman & Howard L.L.C., Bond Counsel, assuming continuous compliance with certain covenants described herein, interest on the Bonds is excluded from gross income under federal income tax laws pursuant to Section 103 of the Internal Revenue Code of 1986, as amended to the date of delivery of the Bonds (the Tax Code ), and interest on the Bonds is excluded from alternative minimum taxable income as defined in Section 55(b)(2) of the Tax Code, except that such interest is required to be included in calculating the adjusted current earnings adjustment applicable to corporations for purposes of computing the alternative minimum taxable income of corporations. See TAX MATTERS--Federal Tax Matters. The City has designated the Bonds as qualified tax-exempt obligations for purposes of Section 265(b)(3) of the Tax Code. See FINANCIAL INSTITUTION INTEREST DEDUCTION. The Bonds, their transfer, and the income therefrom are free and exempt from taxation by the State or any subdivision thereof, except for the tax on estates imposed pursuant to Chapter 375A of NRS and the tax on generation-skipping transfers imposed pursuant to Chapter 375B of NRS. See TAX MATTERS--State Tax Exemption. Continuing Disclosure Undertaking The City will execute a continuing disclosure certificate (the Disclosure Certificate ) at the time of the closing for the Bonds. The Disclosure Certificate will be executed for the benefit of the beneficial owners of the Bonds and the City will covenant in the Bond Ordinance to comply with the terms of the Disclosure Certificate. The Disclosure Certificate will provide that so long as the Bonds remain outstanding, the City will annually provide the following information to the Municipal Securities Rulemaking Board, through the Electronic Municipal Market Access ( EMMA ) system: (i) certain financial information and operating data; and (ii) notice of certain material events, as specified in the Disclosure Certificate. The form of the Disclosure Certificate is attached hereto as Appendix D. The City has entered into similar continuing disclosure undertakings with respect to certain of its outstanding bonds (the Prior Undertakings ). The Prior Undertakings require the City to provide notice in a timely manner of certain enumerated events. On November 4, 2015, the City defeased certain of its outstanding bonds. The City s third-party paying agent for such bonds agreed to file a defeasance notice with respect to such defeasance on November 4, 2015 but such notice was not filed until August 10, The Prior Undertakings also required the City to file its annual reports within 9 months of each fiscal year end. The City s annual reports for 2013 and 2014 were initially timely filed but were later revised after the filing deadline to amend certain mathematical errors contained in the initial filings. 4

13 Certain Bondholder Risks The purchase of the Bonds involves certain investment risks that are discussed throughout this Official Statement. Each prospective investor should read this Official Statement in its entirety and give particular attention to the risks described in CERTAIN RISK FACTORS, which could affect the payment of the Bonds and could affect the market price of the Bonds to an extent that cannot be determined at this time. Forward-Looking Statements This Official Statement, particularly (but not limited to) any statements referring to unaudited, interim or estimated information for fiscal year 2016, and estimated or budgeted information for future years, contains statements relating to future results that are forwardlooking statements as defined in the Private Securities Litigation Reform Act of When used in this Official Statement, the words estimate, forecast, intend, expect and similar expressions identify forward-looking statements. Any forward-looking statement is subject to uncertainty. Accordingly, such statements are subject to risks that could cause actual results to differ, possibly materially, from those contemplated in such forward-looking statements. Inevitably, some assumptions used to develop forward-looking statements will not occur as assumed or unanticipated events and circumstances may occur. Therefore, investors should be aware that there are likely to be differences between forward-looking statements and actual results. Those differences could be materially adverse to the owners of the Bonds and could impact the availability of revenues to pay debt service on the Bonds. Additional Information This introduction is only a brief summary of the provisions of the Bonds and the Bond Ordinance; a full review of the entire Official Statement should be made by potential investors. Brief descriptions of the Bonds, the Bond Ordinance, the City, the General Taxes, the Net Revenues and the Refunding Project are included in this Official Statement. All references herein to the Bonds, the Bond Ordinance and other documents are qualified in their entirety by reference to such documents. This Official Statement speaks only as of its date and the information contained herein is subject to change. Additional information and copies of the documents referred to herein are available from the City and the Financial Advisor at the addresses set forth below: City of Fernley, Nevada Attn: City Treasurer / Finance Director 595 Silver Lace Boulevard, Suite 117 Fernley, Nevada Telephone: (775) JNA Consulting Group, LLC 410 Nevada Way, Suite 200 Boulder City, Nevada Telephone: (702)

14 SOURCES AND USES OF FUNDS Sources and Uses of Funds The proceeds of the Bonds are expected to be applied in the manner set forth in the following table. Sources and Uses of Funds SOURCES: Principal amount... $9,085, Plus original issue premium , Debt service fund for the Refunded Bonds... 95, Total... $9,470, USES: The Refunding Project... $9,181, Costs of issuance (including underwriting discount and 289, premium on the Policy for the Bonds)... Total... $9,470, Source: The Financial Advisor. The Refunding Project General. The City is undertaking the Refunding Project for net present value savings. To accomplish the Refunding Project, the City will deposit the net proceeds of the Bonds and certain other legally available funds into the Escrow Account created pursuant to the Bond Ordinance (the Escrow Account ). Pursuant to an Escrow Agreement between the City and the Escrow Bank, the amounts deposited into the Escrow Account will be invested in Federal Securities (defined herein) maturing at such times and in such amounts as are required to pay (i) the interest on the Refunded Bonds as it becomes due through February 1, 2017; and (ii) the principal of the Refunded Bonds as it becomes due upon prior redemption on February 1, Verification of Mathematical Computations. Causey Demgen & Moore P.C. ( Causey ), a firm of independent public accountants, will deliver to the City, on or before the settlement date of the Bonds, its verification report indicating that it has verified, in accordance with standards established by the American Institute of Certified Public Accountants, the accuracy of the mathematical computations of the adequacy of the maturing principal of and interest on the federal securities and cash deposited in the Escrow Account to provide for the payment of the principal of and interest on the Refunded Bonds upon maturity or prior redemption, which computations support the conclusion of Bond Counsel that the Bonds are not arbitrage bonds under Section 148 of the Tax Code. The verification performed by Causey will be solely based upon data, information and documents provided to Causey by the City and its representatives. Causey has restricted its procedures to recalculating the computations provided by the City and its representatives and has not evaluated or examined the assumptions or information used in the computations. 6

15 THE BONDS General The Bonds will be issued as fully registered bonds in denominations of $5,000 and any integral multiple thereof. The Bonds will be dated as of their date of delivery and will bear interest (calculated on the basis of a 360-day year of twelve 30-day months) and mature as set forth on the inside cover page of this Official Statement. The Bonds initially will be registered in the name of Cede & Co., as nominee for DTC, the securities depository for the Bonds. Purchases of the Bonds are to be made in book-entry only form. Purchasers will not receive certificates evidencing their beneficial ownership interest in the Bonds. See Book-Entry Only System below. Payment Provisions Interest on the Bonds is payable on each February 1 and August 1, commencing February 1, 2017, by check or draft mailed by the Paying Agent, on each interest payment date (or, if such interest payment date is not a business day, on the next succeeding business day), to the owner thereof, at his or her address as shown on the registration records kept by the Registrar as of the close of business on the fifteenth day of the calendar month next preceding each interest payment date (other than a special interest payment date hereafter fixed for payment of defaulted interest) (the Regular Record Date ); but any such interest not so timely paid or duly provided for shall cease to be payable to the owner thereof as shown on the registration records of the Registrar as of the close of business on the Regular Record Date and shall be payable to the owner thereof, at his or her address, as shown on the registration records of the Registrar as of the close of business on a date fixed to determine the names and addresses of owners for the purpose of paying defaulted interest (the Special Record Date ). Such Special Record Date and the date for payment of defaulted interest shall be fixed by the Registrar whenever moneys become available for payment of the defaulted interest, and notice of the Special Record Date and the date for payment of defaulted interest shall be given to the owners of the Bonds not less than ten days prior thereto by first-class mail to each such owner as shown on the Registrar s registration records as of a date selected by the Registrar, stating the date of the Special Record Date and the date fixed for the payment of such defaulted interest. The Paying Agent may make payments of interest on any Bond by such alternative means as may be mutually agreed to between the owner of such Bond and the Paying Agent. The principal on any Bond shall be payable to the owner thereof as shown on the registration records kept by the Registrar, upon maturity and upon presentation and surrender at the office designated by the Paying Agent or at such other office as designated by the Paying Agent. If any Bond shall not be paid upon such presentation and surrender at or after maturity, it shall continue to draw interest at the interest rate borne by the Bond until the principal thereof is paid in full. All such payments shall be made in lawful money of the United States of America without deduction for any service charges of the Paying Agent or Registrar. Notwithstanding the foregoing, payments of the principal of and interest on the Bonds will be made directly to DTC or its nominee, Cede & Co., by the Paying Agent, so long as DTC or Cede & Co. is the registered owner of the Bonds. Disbursement of such payments to DTC s Participants (defined in Appendix C) is the responsibility of DTC, and disbursements of such payments to the Beneficial Owners (defined in Appendix C) is the responsibility of DTC s 7

16 Participants and the Indirect Participants (defined in Appendix C), as more fully described herein. See Book-Entry Only System below. Redemption Provisions Optional Prior Redemption. The Bonds or portions thereof ($5,000 or any integral multiple thereof) are subject to redemption prior to their respective maturities, at the option of the City, on February 1, 2026, and on any date thereafter, in whole or in part, at any time, from any maturities selected by the City and by lot or in such manner in which the Registrar deems fair within a maturity (giving proportionate weight to Bonds in denominations larger than $5,000), at a price equal to the principal amount of each Bond, or portion thereof, so redeemed, and accrued interest thereof to the redemption date. Mandatory Sinking Fund Redemption. The Bonds maturing on February 1, 2036 (the Term Bonds ) are subject to mandatory sinking fund redemption at a redemption price equal to 100% of the principal amount thereof and accrued interest to the redemption date. As and for a sinking fund for the redemption of the Term Bonds, there shall be deposited into the Bond Fund on or before the date set forth below, a sum which, together with other moneys available in the Bond Fund, is sufficient to redeem (after credit as described below) the Term Bonds, on the dates and in the principal amounts shown below, plus accrued interest to the redemption date. *Maturity Date Redemption Date (February 1) 8 Principal Amount 2035 $1,790, ,850,000 * Not more than 60 days nor less than 30 days prior to the sinking fund payment date for the Term Bonds, the Registrar shall proceed to select for redemption (by lot in such manner as the Registrar may determine) from all Outstanding Term Bonds, a principal amount of the Term Bonds equal to the aggregate principal amount of the Term Bonds redeemable with the required sinking fund payments, and shall call such Term Bonds or portions thereof for redemption from the sinking fund on the next principal payment date, and give notice of such call for redemption as described in Notice of Redemption below. At the option of the City to be exercised by delivery of a written certificate to the Registrar not less than 60 days next preceding any sinking fund redemption date, it may (i) deliver to the Registrar for cancellation the Term Bonds, or portions thereof ($5,000 or any integral multiple thereof) in an aggregate principal amount desired by the City or, (ii) specify a principal amount of the Term Bonds, or portions thereof ($5,000 or any integral multiple thereof) which prior to said date have been redeemed (otherwise than through the operation of the sinking fund) and canceled by the Registrar and not theretofore applied as a credit against any sinking fund redemption obligation. The Term Bonds or portions thereof so delivered or previously redeemed shall be credited by the Registrar at 100% of the principal amount thereof against the obligation of the City on the sinking fund redemption dates and any excess shall be so credited against future sinking fund redemption obligations in such manner as the City determines. In the

17 event the City shall avail itself of the provisions of clause (i) of the first sentence of this paragraph, the certificate required by the first sentence of this paragraph shall be accompanied by the Term Bonds or portions thereof to be canceled or in the event the Bonds are registered in the name of Cede & Co. as provided in the Ordinance, the certificate required by the first sentence of this paragraph shall be accompanied by such direction and evidence of ownership as is satisfactory to The Depository Trust Company. Notice of Redemption. Unless waived by any registered owner of a Bond to be redeemed, notice of prior redemption shall be given electronically by the Registrar, as long as Cede & Co., or a nominee of a successor depository is registered owner of the Bonds and otherwise by first-class mail, at least 30 days but not more than 60 days prior to the redemption date to the Municipal Securities Rulemaking Board via its Electronic Municipal Market Access ( MSRB ), the insurer, and to the registered owner of any Bond (initially Cede & Co.) all or a part of which is called for prior redemption at his or her address as it last appears on the registration records kept by the Registrar. The notice shall identify the Bonds and state that on such date the principal amount thereof, and premium, if any, thereon will become due and payable at the office designated by the Paying Agent (accrued interest to the redemption date being payable by mail or as otherwise provided in the Bond Ordinance), and that after such redemption date interest will cease to accrue. After such notice and presentation of the Bonds, the Bonds called for redemption will be paid. Actual receipt of notice by the MSRB, the insurer, and any registered owner of Bonds shall not be a condition precedent to redemption of such Bonds. Failure to give such notice to the registered owner of any Bond designated for redemption, or any defect therein, shall not affect the validity of the proceedings for the redemption of any other Bond. A certificate by the Registrar that notice of call and redemption has been given as provided in this Section shall be conclusive as against all parties; and no owner whose Bond is called for redemption or any other owner of any Bond may object thereto or may object to the cessation of interest on the redemption date on the ground that he failed actually to receive such notice of redemption. Notwithstanding the provisions set forth above, any notice of redemption may contain a statement that the redemption is conditioned upon the receipt by the Paying Agent of funds on or before the date fixed for redemption sufficient to pay the redemption price of the Bonds so called for redemption, and that if such funds are not available, such redemption shall be cancelled by written notice to the owners of the Bonds called for redemption in the same manner as the original redemption notice was given. Tax Covenant In the Bond Ordinance, the City covenants for the benefit of the owners of the Bonds that it will not take any action or omit to take any action with respect to the Bonds, the proceeds thereof, any other funds of the City or any facilities refinanced with the proceeds of the Bonds if such action or omission (i) would cause the interest on the Bonds to lose its exclusion from gross income for federal income tax purposes under Section 103 of the Tax Code, or (ii) would cause interest on the Bonds to lose its exclusion from alternative minimum taxable income as defined in Section 55(b)(2) of the Tax Code, except to the extent such interest is required to be included in the adjusted current earnings adjustment applicable to corporations under Section 56 9

18 of the Tax Code in calculating corporate alternative minimum taxable income. The foregoing covenants shall remain in full force and effect notwithstanding the payment in full or defeasance of the Bonds until the date on which all obligations of the City in fulfilling the above-described covenant under the Tax Code have been met. Defeasance When all Bond Requirements of any Bond have been duly paid, the pledge, the lien, and all obligations hereunder as to that Bond shall thereby be discharged and the Bond shall no longer be deemed to be Outstanding within the meaning of the Bond Ordinance. There shall be deemed to be such due payment when the City has placed in escrow or in trust with a Trust Bank located within or without the State, an amount sufficient (including the known minimum yield available for such purpose from the Federal Securities in which such amount may be initially invested wholly or in part) to meet all Bond Requirements of the Bond, as the same become due to the final maturity of the Bond, or upon any redemption date as of which the City shall have exercised or shall have obligated itself to exercise its prior redemption option by a call of the Bond for payment then. The Federal Securities shall become due before the respective times on which the proceeds thereof shall be needed, in accordance with a schedule established and agreed upon between the City and the Trust Bank at the time of the creation of the escrow or trust, or the Federal Securities shall be subject to redemption at the option of the holders thereof to assure availability as needed to meet the schedule. For the purpose of this Section Federal Securities shall include only Federal Securities which are not callable for redemption prior to their maturities except at the option of the owner thereof. When such defeasance is accomplished the Paying Agent shall mail written notice of the defeasance to the registered owner of the Bonds at the addresses last shown on the registration records for the Bond maintained by the Registrar. Book-Entry Only System The Bonds will be available only in book-entry form in the principal amount of $5,000 or any integral multiples thereof. DTC will act as the initial securities depository for the Bonds. The ownership of one fully registered Bond for each maturity of the Bonds, as set forth on the cover page of this Official Statement, each in the aggregate principal amount of such maturity, will be registered in the name of Cede & Co., as nominee for DTC. See Appendix C - Book-Entry Only System. SO LONG AS CEDE & CO., AS NOMINEE OF DTC, IS THE REGISTERED OWNER OF THE BONDS, REFERENCES IN THIS OFFICIAL STATEMENT TO THE REGISTERED OWNERS OF THE BONDS WILL MEAN CEDE & CO. AND WILL NOT MEAN THE BENEFICIAL OWNERS. None of the City, the Registrar or the Paying Agent will have any responsibility or obligation to DTC s Participants or Indirect Participants (defined in Appendix C), or the persons for whom they act as nominees, with respect to the payments to or the providing of notice for the Direct Participants, the Indirect Participants or the beneficial owners of the Bonds as further described in Appendix C to this Official Statement. 10

19 DEBT SERVICE REQUIREMENTS The following table sets forth the annual debt service requirements for the Bonds. For an illustration of the debt service requirements on all of the City s outstanding general obligation bonds, see DEBT STRUCTURE--Annual Debt Service Requirements. Fiscal Total Year Principal Interest Debt Service $ 64, $ 64, $ 115, , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,685, , ,945, ,735, , ,949, ,790, , ,956, ,850, , ,962, ,910, , ,967, Total $9,085, $4,786, $13,871, Source: The Financial Advisor. 11

20 CERTAIN RISK FACTORS Certain Risks Associated With Property Taxes Delays in Property Tax Collections Could Occur. Although the Bonds are general obligations of the City, the City may only levy property taxes to pay debt service on the Bonds in accordance with State law. For a description of the State laws regulating the collection of property taxes, see PROPERTY TAX INFORMATION--Property Tax Collections. Due to the statutory process required for the levy of taxes, in any year in which the City is required to levy property taxes, there may be a delay in the availability of property tax revenues to pay debt service on the Bonds. Accordingly, although other City revenues may be available to pay debt service on the Bonds, if Net Revenues are insufficient for the Bonds, time may elapse before the City receives property taxes levied to cover any insufficiency of such pledged revenues. Certain Risks Related to Property Taxes. Numerous other factors over which the City has no control may impact the timely receipt of ad valorem property tax revenues in the future. These include the valuation of property within the City, the number of homes which are in foreclosure, bankruptcy proceedings of property taxpayers or their lenders, and the ability or willingness of property owners to pay taxes in a timely manner. The City s ability to retire the indebtedness created by the issuance of the Bonds is dependent, in part, upon the maintenance of an adequate tax base against which the City may levy and collect property tax revenues. The amount of ad valorem property taxes (sometimes referred to herein as General Taxes ) collected will be dependent upon the assessed valuation of land within the City. As illustrated in PROPERTY TAX INFORMATION, the assessed valuation of the property in the City increased 30.3% and 13.2%, respectively, in fiscal years 2015 and In fiscal year 2017, the assessed value of property in the City decreased 10.6% from the fiscal year 2016 figure, attributable in part to a reapportionment of taxes relating to the Gradient Resources geothermal energy utility facility. See PROPERTY TAX INFORMATION History of Assessed Value. While a similar reduction in assessed value is not expected in coming years, it is possible that the assessed valuation of the City could decline in future years. Certain Risks Associated With the Net Revenues General. The generation of sufficient Net Revenues by the City s Utility System (the Utility System ) is important to the timely payment on the Bonds. If the Utility System becomes inoperable due to damage, destruction, environmental restriction or for any other reason, or if the City should lack adequate water supply to serve existing customers because of drought or for any other reason, or if the City is unable to increase rates and charges for any reason or if the City incurs unanticipated expenses or reduced revenues due to power rate increases or for any other reason, the City may be unable to generate adequate revenues from the Utility System to pay debt service on the Parity Securities. Wastewater Quality and Environmental Requirements. The Utility System operates a wastewater program which is subject to numerous federal and State regulatory requirements. Those regulations are subject to change at any time. Wastewater treatment systems like a portion of the Utility System are regulated by the U.S. Environmental Protection Agency (the EPA ), and the Nevada Division of Environmental Protection ( NDEP ) has the 12

21 authority to issue permits and enforce discharge standards. The City has obtained the necessary effluent discharge permits from the State to operate its facilities. The City s discharge permits are currently valid through August 30, The permits limit the quantities of certain chemicals and other substances that may be discharged. Implementation of more stringent effluent standards in the future could result in increased Operation and Maintenance Expenses or could require substantial capital improvements to the wastewater portion of the Utility System. Should that occur, the Utility System s costs would increase; such increased costs could reduce the amount of Net Revenues available to pay debt service on the Bonds. In addition, failure to comply with regulatory changes, or the inability to comply with them in a timely manner could cause portions of the Utility System to become unavailable. Any disruption of service could negatively impact Net Revenues. In operating the Utility System, the City also may be subject to various environmental regulations which could subject the City to increased operating costs or capital expenditures. Such increased costs could reduce the amount of Net Revenues available to pay debt service on the Parity Securities. Water Quality and Environmental Requirements. The Utility System operates a public drinking water program which is subject to numerous federal and State statutory and regulatory requirements. Those laws are subject to change at any time. The City works with all regulatory agencies and personnel to stay abreast of future regulatory requirements as failure to comply with regulatory changes, or the inability to comply with them in a timely manner, could cause portions of the Utility System to be unavailable. Any disruption of service could negatively impact the Net Revenues. The most significant law governing public drinking water systems is the federal Safe Drinking Water Act. Primary enforcement authority for this act in Nevada has been delegated by the EPA to the NDEP. The EPA sets standards for ensuring safe drinking water and administers programs to protect drinking water sources. The NDEP s Bureau of Safe Drinking Water works together with the City to assure that all drinking water standards have been and will continue to be met. The City is in full compliance with all current regulatory requirements and currently is not aware of any forthcoming regulatory requirements that would significantly impact compliance costs. Limitation of Remedies Judicial Remedies. Upon the occurrence of an Event of Default under the Bond Ordinance, each owner of the Bonds is entitled to enforce the covenants and agreements of the City by mandamus, suit or other proceeding at law or in equity. Any judgment will, however, only be enforceable against the Net Revenues and other moneys held pursuant to the Bond Ordinance (including General Taxes, if any) and not against any other fund or properties of the City. The enforceability of the Bond Ordinance is also subject to equitable principles affecting the enforcement of creditors rights generally and liens securing such rights, the police powers of the State and the exercise of judicial authority by State or federal courts. Due to the delays in obtaining judicial remedies, it should not be assumed that these remedies could be accomplished rapidly. Any delays in obtaining judicial remedies to 13

22 enforce the covenants and agreements of the City under the Bond Ordinance, to the extent enforceable, could result in delays in any payment of principal of and interest on the Bonds. Bankruptcy, Federal Lien Power and Police Power. The enforceability of the rights and remedies of the owners of the Bonds and the obligations incurred by the City in issuing the Bonds are subject to the federal bankruptcy code and applicable bankruptcy, insolvency, reorganization, moratorium, or similar laws relating to or affecting the enforcement of creditors rights generally, now or hereafter in effect; usual equity principles which may limit the specific enforcement under State law of certain remedies; the exercise by the United States of America of the powers delegated to it by the federal Constitution; the power of the federal government to impose liens in certain situations; and the reasonable and necessary exercise, in certain exceptional situations, of the police power inherent in the sovereignty of the State and its governmental bodies in the interest of serving a significant and legitimate public purpose. Bankruptcy proceedings or the exercise of powers by the federal or State government, if initiated, could subject the owners of the Bonds to judicial discretion and interpretation of their rights in bankruptcy or otherwise, and consequently may entail risks of delay, limitation or modification of their rights. No Acceleration. There is no provision for acceleration of maturity of the principal of the Bonds in the event of a default in the payment of principal of or interest on the Bonds. Consequently, remedies available to the owners of the Bonds may have to be enforced from year to year. No Pledge of Property. The payment of the Bonds is not secured by an encumbrance, mortgage or other pledge of property of the City, except the proceeds of General Taxes, the Net Revenues, and any other moneys pledged for the payment of the Bonds. No property of the City, subject to such exceptions, shall be liable to be forfeited or taken in payment of the Bonds. Future Changes in Laws Various State laws apply to the imposition, collection, and expenditure of General Taxes, the Net Revenues and to other City revenues as well as to the operation and finances of the City. There is no assurance that there will not be any change in, interpretation of, or addition to the applicable laws, provisions, and regulations which would have a material effect, directly or indirectly, on the affairs of the City and the imposition, collection, and expenditure of revenues, including General Taxes and Net Revenues. For example, property tax laws have changed in recent years. See PROPERTY TAX INFORMATION--Property Tax Limitations and Required Property Tax Abatement. Secondary Market No guarantee can be made that a secondary market for the Bonds will develop or be maintained by the initial purchaser of the Bonds (the Initial Purchaser ) or others. Thus, prospective investors should be prepared to hold their Bonds to maturity. 14

23 SECURITY FOR THE BONDS General Obligation General. The Bonds are direct and general obligations of the City, and the full faith and credit of the City is pledged for the payment of principal and interest, subject to State constitutional and statutory limitations on the aggregate amount of ad valorem taxes. See PROPERTY TAX INFORMATION--Property Tax Limitations. The Bonds are payable by the City from any source legally available therefor at the times such payments are due, including the General Fund of the City. In the event, however, that such legally available sources of funds are insufficient, the City is obligated to levy a general (ad valorem) tax on all taxable property within the City for payment of the Bonds, subject to the limitations provided in the constitution and statutes of the State. Limitations on Property Tax Revenues. The constitution and laws of the State limit the total ad valorem property taxes that may be levied by all overlapping taxing units within each county (including the State, the County, the City and Lyon County School District) in each year. Those limitations are described in PROPERTY TAX INFORMATION--Property Tax Limitations. In any year in which the total property taxes levied within the City by all applicable taxing units exceed such property tax limitations, the reduction to be made by those units must be in taxes levied for purposes other than the payment of their bonded indebtedness (including the Bonds, if a tax levy is necessary to pay them), including interest on such indebtedness. See PROPERTY TAX INFORMATION--Property Tax Limitations. No Repealer. State statutes provide that no act concerning the Bonds or their security may be repealed, amended, or modified in such a manner as to impair adversely the Bonds or their security until all of the Bonds have been discharged in full or provision for their payment and redemption has been fully made. Net Revenues The Bonds are additionally secured by an irrevocable pledge of and by a lien (but not necessarily an exclusive lien) on the Net Revenues received by the City in connection with the ownership and operation of Utility System. See Appendix B--Summary of Certain Provisions of the Bond Ordinance - Additional Parity Securities for a discussion of the conditions permitting the issuance of additional bonds on a parity with the Bonds. Net Revenues with respect to the Utility System means the Gross Revenues of the Utility System after the payment of Operation and Maintenance Expenses. The lien of the Bonds on the Net Revenues is on a parity with the lien of the Outstanding Parity Securities. See Parity Securities and Historical and Estimated Net Revenues below. Parity Securities The pledge of and lien on the Net Revenues securing the Bonds is on a parity with the lien thereon of the Outstanding Parity Securities. Upon the issuance of the Bonds and the defeasance of the Refunded Bonds, the Parity Securities will be outstanding in the amount of $72,313,092. Additional bonds and securities having a parity lien on the Net Revenues with the Bonds may be issued pursuant to the terms of the Bond Ordinance under certain conditions described in Appendix B Summary of Certain Provisions of the Bond Ordinance - Additional 15

24 Parity Securities.. The City may also issue additional bonds or securities payable from the Net Revenues and having a lien thereon prior and superior to the lien thereon of the Bonds upon the satisfaction of certain conditions set forth in the Bond Ordinance, including that any such superior bonds or securities must be issued as special obligations. See Appendix B Summary of Certain Provisions of the Bond Ordinance - Additional Parity Securities. The following table shows the outstanding amounts of the Parity Securities upon the issuance of the Bonds and the defeasance of the Refunded Bonds. Parity Securities (1) Date Issued Final Maturity Original Amount Outstanding GENERAL OBLIGATION REVENUE BONDS Water & Sewer Bonds, Series /01/07 02/01/37 $50,000,000 $ 4,740,000 Water & Sewer Bonds, Series /01/08 02/01/38 32,600,000 2,395,000 Water and Sewer Refunding Bonds, Series /23/14 02/01/26 12,865,000 12,655,000 Sewer Refunding Bonds, Series 2015A 08/06/15 01/01/38 5,807,691 5,773,092 Water Refunding Bonds, Series 2015B 11/04/15 02/01/38 37,665,000 37,665,000 Water and Sewer Refunding Bonds, Series 2016 (this issue) 11/03/16 02/01/37 9,085,000 9,085,000 TOTAL PARITY SECURITIES $72,313,092 (1) Upon the issuance of the Bonds and the defeasance of the Refunded Bonds. Source: Compiled by the Financial Advisor. The following table presents the annual debt service requirements for the City s Parity Securities (upon the issuance of the Bonds and the defeasance of the Refunded Bonds).. 16

25 Fiscal Year Ended June 30 Total Debt Service on Outstanding Parity Securities Parity Securities Debt Service Requirements (1)(2) Bonds Principal Interest Total Grand Total 2017 (3) $ 4,734, $ 64,252 $ 64,252 $ 4,798, ,528,745 $ 115, , ,850 4,906, ,524, , ,550 4,785, ,531, , ,550 4,792, ,524, , ,550 4,785, ,517, , ,550 4,777, ,516, , ,550 4,777, ,517, , ,550 4,778, ,523, , ,550 4,783, ,542, , ,550 4,802, ,545, , ,550 4,806, ,561, , ,550 4,822, ,569, , ,550 4,830, ,565, , ,550 4,826, ,554, , ,550 4,815, ,550, , ,550 4,810, ,892,686 1,685, ,550 1,945,550 4,838, ,889,363 1,735, ,213 1,949,213 4,838, ,892,074 1,790, ,500 1,956,500 4,848, ,885,425 1,850, ,800 1,962,500 4,848, ,886,961 1,910,000 57,300 1,967,300 4,854, ,714, ,714,375 TOTAL $ 88,970,172 $ 9,085,000 $4,786,165 $13,871,165 $102,841,337 (1) Upon the issuance of the Bonds and the defeasance of the Refunded Bonds. (2) Totals may not add due to rounding. (3) Includes all payments made in fiscal year Source: City of Fernley, Compiled by the Financial Advisor. Historical and Estimated Net Revenues The following table sets forth: (i) a history of the Pledged Revenues for fiscal years 2011 to 2016 (ii) the debt service payable on the then-outstanding Parity Securities in each year; and (iii) the associated debt service coverage, calculated by dividing the Pledged Revenues by the debt service paid in each year. There is no assurance that the Pledged Revenues will continue to be realized in the amounts illustrated below. See Certain Risks Associated with Pledged Revenues and other factors described throughout this Official Statement. The debt service coverage ratios shown in this table for fiscal years are less than 1.0x debt service. The shortfall was attributed to the financial impacts of a catastrophic regional flood and to an oversizing of the Utility System. In response, in fiscal year 2012, the 17

26 City implemented and began collecting a Bond Debt Fee allocated to all users of the water system based on meter size. Historical and Estimated Net Revenues and Debt Service Coverage Utility System City of Fernley, Nevada Fiscal Year Ending June (Actual) 2012 (Actual) 2013 (Actual) 2014 (Actual) 2015 (Actual) 2016 (Estimated) (1) 2017 (Budgeted) (1) PLEDGED REVENUES Water Fund User Fees $ 4,580,081 $ 4,876,403 $ 4,925,752 $ 4,940,786 $ 4,822,461 $ 4,812,000 $ 4,810,000 Bond Debt Fee Revenue (2) -- 1,449,260 3,345,781 3,323,659 3,378,183 3,384,561 2,987,847 Operating Expenses (3) (2,732,162) (2,828,629) (2,818,466) (2,992,416) (3,248,559) (3,570,818) (3,602,222) Connection Charges 40,157 5,297 6,995 59, , , ,000 Other Pledged Revenues (4) 184, , , , , , ,000 Total Water Net Revenues 2,074,424 3,759,057 5,819,155 5,577,467 5,820,142 5,033,243 4,605,625 Sewer Fund User Fees $ 1,865,202 $ 1,904,073 $ 1,929,793 $ 1,981,631 $ 2,012,025 $ 2,016,348 $ 2,012,000 Operating Expenses (1,091,435) (972,831) (1,022,868) (1,164,682) (1,180,434) (1,497,615) (1,552,470) Connection Charges 31, ,474 79, , , ,000 Other Pledged Revenues 38,603 12,716 26,602 20,003 12,081 9,700 5,200 Total Sewer Net Revenues 843, , , ,317 1,391, , ,730 NET REVENUES $2,915,972 $4,703,684 $6,756,0565 $6,493,784 $7,211,666 $5,792,276 $5,320,355 EXISTING DEBT SERVICE (5) $5,372,906 $5,375,656 $5,297,668 $5,225,694 $5,141,609 $5,156,693 $4,798,464 Coverage (times) (6) (1) Estimated and budgeted figures based upon City s 2017 Budget. See INTRODUCTION--Forward-Looking Statements. (2) A Bond Debt Fee was implemented in fiscal year 2012 as water revenues were not sufficient to cover debt service for water bonds issued to cover the cost of a new water treatment plant. Fees are allocated to all users of the water system including will serves, and are based on meter size. (3) Operating expenses excludes depreciation. (4) Other pledged revenues consist of service fees, disconnect fees, return check fees, late fees, lease fees, interest income and in lieu of fees. (5) Reflects the actual debt service on Outstanding Parity Securities in the years , and the scheduled debt service on Parity Securities in 2017 after the issuance of the Bonds and giving effect to the refunding. (6) The negative coverage ratios in fiscal years are discussed in the text preceding this table. Source: Derived from the City s audited financial statements for the fiscal years and the City s fiscal year 2017 budget for the estimated fiscal year 2016 amounts and the budgeted 2017 amounts. 18

27 No Pledge of Property The payment of the Bonds is not secured by an encumbrance, mortgage or other pledge of property of the City, except the proceeds of General Taxes, the Net Revenues, and any other moneys pledged for the payment of the Bonds. No property of the City, subject to such exceptions, shall be liable to be forfeited or taken in payment of the Bonds. Bond Insurance The following information has been furnished by National Public Finance Guarantee Corporation ( National ) for use in this Official Statement. National does not accept any responsibility for the accuracy or completeness of any information or disclosure contained herein, or omitted herefrom, other than with respect to the accuracy of the information regarding National and the Financial Guaranty Insurance Policy issued by National (the Policy ). Additionally, National makes no representation regarding the Bonds or the advisability of investing in the Bonds. A specimen of the Policy is attached hereto as Appendix G. The Policy unconditionally and irrevocably guarantees the full and complete payment required to be made by or on behalf of the City to the Paying Agent or its successor of an amount equal to (i) the principal of (either at the stated maturity or by an advancement of maturity pursuant to a mandatory sinking fund payment) and interest on, the Bonds as such payments shall become due but shall not be so paid (except that in the event of any acceleration of the due date of such principal by reason of mandatory or optional redemption or acceleration resulting from default or otherwise, other than any advancement of maturity pursuant to a mandatory sinking fund payment, the payments guaranteed by the Policy shall be made in such amounts and at such times as such payments of principal would have been due had there not been any such acceleration, unless National elects in its sole discretion, to pay in whole or in part any principal due by reason of such acceleration); and (ii) the reimbursement of any such payment which is subsequently recovered from any Owner of the Bonds pursuant to a final judgment by a court of competent jurisdiction that such payment constitutes an avoidable preference to such Owner within the meaning of any applicable bankruptcy law (a Preference ). The Policy does not insure against loss of any prepayment premium which may at any time be payable with respect to any Bonds. The Policy does not, under any circumstance, insure against loss relating to: (i) optional or mandatory redemptions (other than mandatory sinking fund redemptions); (ii) any payments to be made on an accelerated basis; (iii) payments of the purchase price of Bonds upon tender by an owner thereof; or (iv) any Preference relating to (i) through (iii) above. The Policy also does not insure against nonpayment of principal of or interest on the Bonds resulting from the insolvency, negligence or any other act or omission of the Paying Agent or any other paying agent for the Bonds. National Public Finance Guarantee Corporation. National is an operating subsidiary of MBIA Inc., a New York Stock Exchange listed company. MBIA Inc. is not obligated to pay the debts of or claims against National. National is domiciled in the State of New York and is licensed to do business in and subject to regulation under the laws of all 50 states, the District of Columbia, the Commonwealth of Puerto Rico and the U.S. Virgin Islands. 19

28 The principal executive offices of National are located at 1 Manhattanville Road, Suite 301, Purchase, New York and the main telephone number at that address is (914) Regulation. As a financial guaranty insurance company licensed to do business in the State of New York, National is also subject to the New York Insurance Law which, among other things, prescribes minimum capital requirements and contingency reserves against liabilities for National, limits the classes and concentrations of investments that are made by National and requires the approval of policy rates and forms that are employed by National. State law also regulates the amount of both the aggregate and individual risks that may be insured by National, the payment of dividends by National, changes in control with respect to National and transactions among National and its affiliates. The Financial Guaranty Insurance Policy is not covered by the Property/Casualty Insurance Security Fund specified in Article 76 of the New York Insurance Law. Financial Strength Ratings of National. National s current financial strength ratings from the major rating agencies are summarized below: Agency Ratings Outlook S&P AA- Stable Moody s A3 Negative KBRA AA+ Stable Each rating of National should be evaluated independently. The ratings reflect the respective rating agency s current assessment of the creditworthiness of National and its ability to pay claims on its policies of insurance. Any further explanation as to the significance of the above ratings may be obtained only from the applicable rating agency. The above ratings are not recommendations to buy, sell or hold the Bonds, and such ratings may be subject to revision or withdrawal at any time by the rating agencies. Any downward revision or withdrawal of any of the above ratings may have an adverse effect on the market price of the Bonds. National does not guaranty the market price of the Bonds nor does it guaranty that the ratings on the Bonds will not be revised or withdrawn. Recent Litigation. In the normal course of operating its business, National may be involved in various legal proceedings. Additionally, MBIA Inc. may be involved in various legal proceedings that directly or indirectly impact National. For additional information concerning material litigation involving National and MBIA Inc., see MBIA Inc. s Annual Report on Form 10-K for the year ended December 31, 2015 and Quarterly Report on Form 10- Q for the quarter ended June 30, 2016, which is hereby incorporated by reference into this Official Statement and shall be deemed to be a part hereof, as well as the information posted on MBIA Inc. s web site at 20

29 MBIA Inc. and National are defending against/pursuing the aforementioned actions and expect ultimately to prevail on the merits. There is no assurance, however, that they will prevail in these actions. Adverse rulings in these actions could have a material adverse effect on National s ability to implement its strategy and on its business, results of operations and financial condition. Other than as described above and referenced herein, there are no other material lawsuits pending or, to the knowledge of National, threatened, to which National is a party. National Financial Information. Based upon statutory financials, as of June 30, 2016, National had total net admitted assets of $4.8 billion (unaudited), total liabilities of $2.1 billion (unaudited), and total surplus of $2.7 billion (unaudited) determined in accordance with statutory accounting practices prescribed or permitted by insurance regulatory authorities. For further information concerning National, see the financial statements of MBIA Inc. and its subsidiaries as of December 31, 2015, prepared in accordance with generally accepted accounting principles, included in the Annual Report on Form 10-K of MBIA Inc. for the year ended December 31, 2015, which are hereby incorporated by reference into this Official Statement and shall be deemed to be a part hereof. Incorporation of Certain Documents by Reference. The following documents filed by MBIA Inc. with the Securities and Exchange Commission (the SEC ) are incorporated by reference into this Official Statement: 2015; MBIA Inc. s Annual Report on Form 10-K for the year ended December 31, MBIA Inc. s Quarterly Report on Form 10-Q for the quarter ended June 30, Any documents, including any financial statements of National that are included therein or attached as exhibits thereto, or any Form 8-K, filed by MBIA Inc. pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of MBIA Inc. s most recent Quarterly Report on Form 10-Q or Annual Report on Form 10-K, and prior to the termination of the offering of the Bonds offered hereby shall be deemed to be incorporated by reference in this Official Statement and to be a part hereof from the respective dates of filing such documents. Any statement contained in a document incorporated or deemed to be incorporated by reference herein, or contained in this Official Statement, shall be deemed to be modified or superseded for purposes of this Official Statement to the extent that a statement contained herein or in any other subsequently filed document which also is or is deemed to be incorporated by reference herein modifies or supersedes such statement. Any such statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Official Statement. MBIA Inc., files annual, quarterly and special reports, information statements and other information with the SEC under File No Copies of MBIA Inc. s SEC filings (MBIA Inc. s Quarterly Report on Form 10-Q for the quarter ended June 30, 2016 and MBIA 21

30 Inc. s Annual Report on Form 10-K for the year ended December 31, 2015) are available (i) over the Internet at the SEC s web site at (ii) at the SEC s public reference room in Washington D.C.; (iii) over the Internet at MBIA Inc. s web site at and (iv) at no cost, upon request to National at its principal executive offices. 22

31 UTILITY SYSTEM General Description General. The City operates a municipal water system (the Water System ) and a municipal wastewater system (the Sewer System and together with the Water System, the Utility System ), described internally as the Water and Wastewater departments. The departments are run through two associated enterprise funds. The Water and Wastewater departments provide treatment and delivery of drinking water, collection and reclamation of wastewater, laboratory testing services, utility infrastructure management, customer and billing services, as well as conservation programs. The mission of the Water and Wastewater departments is to provide water and wastewater services to the City s citizens while protecting the environment, health and prosperity of the community. Approximately 22 City employees are directly associated with the operation of the Utility System. Service Area. The service area of the Utility System is within the City s boundaries, with essentially all services located within the City proper. Within the City boundaries there are some residents that are on well and septic systems, as well as a minority that are served with only water or wastewater. These customers collectively comprise less than 1% of the Utility System s total customers. As of June 1, 2016, the Water System served 6,630 residential accounts and 305 commercial accounts, and the Sewer System served 6,081 residential accounts and 305 commercial accounts. The estimated population of the service area is approximately 19,368 people (according to 2010 census data) and includes both residential and surrounding agricultural areas. Fernley s boundary encompasses approximately 164 square miles. Regional Cooperation. The City is party to various interlocal agreements with federal, state and local governments, which may periodically affect the resources available to the Utility System, including the recently implemented Truckee River Operating Agreement implemented by the Federal Bureau of Reclamation which aims to resolve water disputes over the operation of Truckee River reservoirs and effect interstate water allocations. The City also cooperates with the Bureau of Reclamation and the Truckee-Carson Irrigation District on management of surface water rights. Sewer System Facilities The Sewer System consists of the East Wastewater Treatment Plant (the WWTP ) located in northeastern Fernley in Lyon County, Nevada. Facilities at the WWTP include influent pumping, screening and grit removal, an influent splitter box, a facultative pond treatment system, a storage pond, chlorine disinfection, and influent/effluent flow measurement. The WWTP operates under Permit No. NS (formerly NEV80011) with a permitted capacity of 3.05 million gallons per day (mgd). The WWTP currently discharges treated effluent to the Fernley Wildlife Management Area (FWMA), but historically discharged to on-site rapid infiltration basins (RIBs) for evaporation and percolation. Reuse of the treated effluent at FWMA is managed through Permit No. NS (formerly NEV98008) issued to the Nevada Department of Wildlife (NDOW) for groundwater discharge. Unit treatment processes at the WWTP consist of the following: 1) influent pumping with mechanical bar screening and grit removal; 2) pond treatment and storage; and 3) 23

32 chlorination and outfall metering. The WWTP is permitted to discharge secondary disinfected effluent to the Fernley Wildlife Management Area (FWMA) for beneficial use by discharging to groundwater for the purpose of enhancing waterfowl habitat and wetland preservation. There are also isolated areas south of the Truckee Canal which do not contribute to the flow but are on private septic systems. Septic systems in operation within the main areas of population are anomalous. The sanitary sewer collection system consists of 106 miles of sewer lines, 9 lift stations, 240 e-ones (individual residential lift stations). Water System Facilities and Sources The Water System consists of approximately 243 miles of water pipelines (ranging from 6 inches to 48 inches in diameter), 7 storage tanks, 2 pump stations, 6 municipal wells and one water treatment plant. The Water System has the capacity to produce approximately 13.7 million gallons of potable water daily. Maximum average daily demand in the summer is approximately 7 MGD, and average daily demand on an annual basis is approximately 3.25 MGD. The City s water treatment plant (the Treatment Plant ) was constructed and put into operation in The Treatment Plant has a maximum capacity of 20 MGD, with an average daily flow of 1 to 7 MGD depending upon the season. The City currently supplies all of its potable water needs using groundwater. The groundwater is pumped from a combination of municipal wells and transported via pipelines to the Treatment Plant where it is treated and distributed to above ground storage tanks and delivered to residential and commercial customers. A relatively small number of city residences are not connected to the municipal water supply system and obtain their domestic water supplies through privately owned domestic wells. Nevada regulations prohibit the drilling of a new domestic well if the property can be served by a municipal water system. In addition, NRS allows the State Engineer, in certain circumstances, to require the plugging of domestic wells within 1 year after the date that municipal water service is made available. The City has met all federal and state water quality regulations and standards since it began operating the Treatment Plant. The City obtains water for the Water System from six municipal wells. The City municipal water supply is pumped from the groundwater wells through pipelines to the City of Fernley WTP. The water is treated at the WTP to remove any potential contaminants (specifically arsenic for EPA compliance ruling). After treatment the water is transferred via potable water distribution pipes to five above ground storage tanks and then distributed to Fernley customers. The City s water storage tanks float for the Water System. This means that during low demand periods, the water tanks fill, and during peak demand periods, the water tanks drain. The tanks are thus able to gravity-feed water to the Water System for most of the City except in locations where booster stations are required. In general, there are no dedicated transmission mains connecting the wells and storage tanks, with the exception of Well 9 and 9A that pump directly to the Blend Tank near the Northeast Tank. The distribution system contains pipes ranging in size from 4 inches to 48 inches, with large (18 inch) piping connecting the storage tanks to the system. 24

33 Water Supply - Local The City currently supplies all of its potable water needs using groundwater. Presently, the City utilizes groundwater wells as its primary source of water supply. The City utilizes 6 production wells: Well 4, Well 9, Well 9A, Well 11, Well 13 and Well 14. The total production capacity of the wells is approximately 9,500 GPM (13.7 MGD) on a continuous pumping schedule. This capacity assumes well pumps are operating 24 hours per day and the groundwater system can maintain this level of pumping. Water Supply - Regional The City also holds rights to the Newlands Project Claim 3 surface water. Currently none of the water associated with these rights is used in the Water System. However, the City is currently exploring various options to allow for the use of this water. It is anticipated that surface water will be either directly conveyed from the Truckee Canal to the WTP and/or that it will be transported through existing canal laterals to one or more Aquifer Storage and Recovery ( ASR ) basins. Permits and an authorization request for an ASR project have been filed with the State Engineer and USBR and are awaiting approval. The Truckee Carson Irrigation District (the TCID ) is responsible for agricultural deliveries of Claim 3 Truckee River surface water within the City. The Orr Ditch Decree includes numerous limitations for the delivery of surface water. The Orr Ditch Decree divides surface water rights into claims. All of the City s surface water rights are Claim 3 rights under the Orr Ditch Decree. Claim 3 rights serve the entire Newlands Project, including the City, and may be used for, among other things, irrigation of the Newlands Project and supplying inhabitants of cities and towns on the project. For irrigation use, the Orr Ditch Decree limits the water that can be diverted in any one month to 25% of the total acre-feet allowed for the land for the season. According to the Orr Ditch Decree, water for irrigation is allowed to be used at any time, provided that the amount applied to the land during any calendar year does not exceed the quantity in acre feet allowed to the land. However, the Decree also restricts use by providing that no diversion of water into any ditch or canal shall be permitted except in such amount as shall be actually, reasonably necessary for the economical and beneficial use for which the right of diversion is determined and established by the decree. Through permit terms, the NDWR authorizes use of Claim 3 water rights during the portion of the irrigation season that Truckee River Claim 3 would be in priority to receive water. The irrigation season is set by the Truckee Carson Irrigation District and is typically March 15th to November 15th in a normal water year. Additionally, the City shares proportionally in reduction of deliveries during drought situations but may augment the reduced deliveries using water stored in upstream reservoirs pursuant to the terms of the Truckee River Operating Agreement ( TROA ). Capital Improvement Program The City maintains a 5-year capital improvement program (the CIP ) for the Utility System. As of July 1, 2016, total projected expenditures for the current fiscal year and the following five fiscal years are as follows: 25

34 Capital Improvement Program Water $1,271,000 $858,000 $1,205,000 $1,515,000 $1,090,000 Sewer 2,851,115 1,645, , , ,000 Total $4,122,115 $2,503,000 $1,730,000 $1,765,000 $1,340,000 The largest project in the CIP is the Hardie Lane waterline replacement in fiscal year Additional large CIP include water meter replacement, water storage tank recoating, well equipment replacements, tank demolition, pipe bride replacement, water line replacement, as well as micro filtration filter replacement. Customer Usage Rates and Charges The City is currently in the process of conducting a cost of service analysis to determine when the next rate increases and debt issuances may need to occur in order to maintain debt service coverage requirements, appropriate working capital reserves, and sufficient capital project funding. Pursuant to NRS 266, the City Council is obligated and empowered to fix rates and charges for water and wastewater services. Current Water System Rates and Charges. The Water System service charges currently in effect are set forth in the following table. 26

35 Monthly Water Service Charge Metered Customers Meter Size by Customer Class Base Charge per Meter Residential: Individually Metered (1) ¾ $ ½ Residential: Mastered Metered (2) ¾ $ ½ Commercial (3) ¾ $ ½ (1) Volume charge rates for individually metered residential customers is $2.15 for 0-8 kgal, $3.11 for 8-30 kgal, and $4.08 for 30 kgal. (2) The volume charge rate for all usage for master metered residential customers is $2.75 per kgal. (3) The volume charge rate for all usage for commercial customers is $2.79 per kgal. Current Sewer System Rates and Charges. The City imposes service charges and connection charges, along with other miscellaneous charges. Commercial users of the City s Sewer System are charged a monthly service fee plus a volume fee. Residential users are charged only a monthly service fee. effect. The following tables set forth the schedule of monthly service fees currently in 27

36 Monthly Sewer Service Charges Metered Customers Meter Size by Customer Class Base Charge per Meter Residential All Meter Sizes $ Commercial (1) ¾ $ ½ (1) The volume charge rate for commercial customers is $1.13 per kgal on amounts greater than 10 kgal. Connection Charges Connection Fees. The City charges a one-time system connection fee which is assessed and collected at the time that services are connected to the Water/Wastewater System. The Residential Water Connection Fee is $5, for each single family residential unit or for each unit in individually metered multifamily residential development. The Residential Wastewater Connection Fee is $3, for each single family residential unit or for each unit in individually metered multifamily residential development. Bond Debt Fee The City implemented a Bond Debt Fee in fiscal year 2012 in response to a shortfall in water revenues available to cover debt service on water bonds issued to finance a water treatment plant. The Bond Debt Fee is imposed on all users of the water system (including will serves) based on meter size. At the end of each fiscal year, the City provides the County with a list of the water system users subject to the Bond Debt Fee and the total annual amounts to be billed against each user. The County bills the fee annually on behalf of the City and collects it quarterly. The County remits the collected amounts to the City on a monthly basis along with certain other revenues collected by the County on behalf of the City. The following table sets forth the current rate schedule for the monthly Bond Debt Fee: 28

37 Bond Debt Fee Rates Metered Customers Meter Size Multiplier Monthly Bond Debt Fee ¾ 1.00 $ ½ Will Serve Customer Information User Information and Water Usage by Customer Type. The following table sets forth a history of the Water System users by customer type (by number of bills) and a history of water usage by customer type. History of Water System Users and Water Usage by Customer Type (1) Fiscal Year Ended June 30, Residential Accounts Billed (2) 6,070 6,101 6,338 6,378 Commercial Accounts Billed (2) Total Billed (2) 6,377 6,407 6,632 6,671 Residential Water Usage (3) Commercial Water Usage (3) Total Water Usage (3) 1,028 1,194 1,133 1,096 (1) For fiscal years 2013 to 2016, representing the years for which data is available. (2) Billing as of June 30 of each year. (3) Millions of gallons. Water System User Fee Revenues by Customer Class. The following table sets forth Water System revenues generated by customer class for the fiscal year ended June 30, 2016 (unaudited). Water System User Fee Revenues by Customer Class Customer Class Revenues Percent of Total Revenues Residential $3,610,737 76% Commercial 1,167, Total $4,777, % 29

38 Sewer System User Fee Revenues by Customer Class. The following table sets forth Sewer System revenues generated by customer class for the fiscal year ended June 30, 2016 (unaudited). Sewer System User Fee Revenues by Customer Class Customer Class Revenues Percent of Total Revenues Residential $1,672,118 83% Commercial 347, Total $2,019, % Largest Users of the Utility System. The following tables set forth the ten largest customers of the Water System and the Sewer System in fiscal year No independent investigation has been made of, and consequently there can be no representation as to, the financial condition of the largest System, customers, or their continued usage of the Utility System at significant levels. The City expects that the largest customers for fiscal year 2017 will not be materially different than fiscal year

39 Ten Largest Water System Customers 2016 Customer Total Revenue % of Total Revenues (1) City of Fernley $152, % Lyon County School District 119, Trex Manufacturing Company 96, Pilot Travel Centers, LLC 56, Veterans Cemetery 52, World Color Fernley 46, Sherwin Williams 45, Hollywood Investments 28,987.6 Blue Beacon 24,447.5 Essential Industries 21,307.4 TOTAL $644, % (1) Based on total Water user fee revenues of $4,777,889 in fiscal year 2016-unaudited. Ten Largest Sewer System Customers 2016 Customer Total Revenue % of Total Revenues (1) Trex Manufacturing Company $22, % Lyon County School District 21, Blue Beacon 10, Essential Industries, Inc. 8, Fernley Swimming Pool District 6, Trails End RV & Mobile Home Park 6, Pilot Travel Centers 5, Desert Rose RV Park 5, Fernley RV Park, LLC 3, Silverado Casino Restaurant 3, TOTAL $92, % (1) Based on total Sewer user fee revenues of $2,019,812 in fiscal year 2016-unaudited. Billing and Collection Billing Procedure. Property owners are liable for all water and wastewater services provided by the City. Failure to pay the entire amount shown on the monthly bill when due results in a late penalty charge of $10. In addition, the City is entitled to discontinue service to the customer until all delinquent bills, fees and charges have been paid. The City charges a $25 disconnect fee (or $60 for reconnection after hours). All fees due constitute a lien upon the property to which the service is rendered, as well as a debt to the City from the record owner of the property and from the person occupying the premises. This lien is enforced in compliance with the City Code and NRS Chapter 266. Collections. The collection staff consists of the same customer service specialists that take payments at the counter. Each has been trained in all collection procedures; the specialists have been assigned tasks according to the specific procedures that must be completed daily by the unit, including payment uploads, delinquency lock-offs, payment issues and liens. 31

40 Other Sources of System Revenue The City collects several other sources of revenue related to the Utility System, including service fees, disconnect fees, return check fees, late fees, lease fees and in lieu of fees. These revenues are deposited into the respective enterprise funds described below. Combined History of Water Fund and Sewer Fund Revenues and Expenses The City accounts for water and sewer system revenues in the City s water and sewer enterprise funds. The following tables present a history of the revenues, expenses and changes in net position for the City s water and sewer funds for the fiscal years ended June 30, 2012 through 2016 (unaudited). Also included are the City s budgeted figures for fiscal year 2017 based on final budgets approved by City Council on May 18, The information in this table should be read together with the City s audited financial statements and the accompanying notes for the years ended June 30, 2012 through June 30,

41 Water Fund Summary of Revenues, Expenses and Changes in Net Position 2012 (Audited) 2013 (Audited) 2014 (Audited) 2015 (Audited) 2016 (Estimated) (2) 2017 (Budgeted) (2) Fiscal Year Ended June 30, Operating Revenues Service fees $6,325,663 $4,925,752 $4,940,786 $4,822,461 $4,800,000 $4,800,000 Other revenues 97, , , , ,000 Bond debt fee revenue (1) -- 3,345, Total operating revenues 6,423,629 8,271,533 5,139,475 5,030,390 5,004,000 5,000,000 Operating Expenses Salaries and wages 858, , , , , ,375 Employee benefits 373, , , , , ,740 Service, supplies and other 1,596,547 1,703,871 1,763,567 1,921,545 2,078,565 2,171,703 Depreciation expense 3,246,418 3,230,816 3,192,486 3,167,944 3,256,000 3,256,000 Total operating expenses 6,075,047 6,049,282 6,284,902 6,416,503 6,858,222 6,826,818 Operating Income (Loss) 348,582 2,222,251 (1,045,427) (1,386,113) (1,854,222) (1,826,818) Nonoperating Revenues (Expenses) Bond debt fee revenue (1) ,323,649 3,378,183 3,384,561 2,987,847 Connection fee revenue , , , ,000 Interest income 6,631 12,910 12,631 8,541 8,000 5,000 Miscellaneous revenue 250, , Miscellaneous expense (16,810) (4,384) Other income , ,291 7,500 15,000 Gain/(loss) on disposals of capital assets , Interest expense (3,242,454) (3,231,326) (3,138,372) (2,903,107) (2,831,541) (2,490,477) Total nonoperating revenues (expenses) (3,002,538) (2,876,617) 293,800 1,135, , ,918 Income (loss) before Capital Contributions (2,653,956) (654,366) (751,627) (250,909) (1,085,702) (1,361,900) Capital Contributions 7,457 29, ,126 1,544, Changes in net position (2,646,499) (624,796) (388,501) 1,293,844 (1,085,702) (1,361,900) Net Position, July 1 73,805,706 71,159,207 70,534,411 69,998,868 69,797,210 67,216,007 Prior Period Adjustment (3) (147,042) (1,495,501) (1,495,501) (1,495,501) Net Position, June 30 $71,159,207 $70,534,411 $69,998,868 $69,797,211 $67,216,007 $64,358,606 (1) A Bond Debt Fee was implemented in fiscal year 2012 as water revenues were not sufficient to cover debt service for water bonds issued to cover the cost of a new water treatment plant. Fees are allocated to all users of the water system including will serves, and are based on meter size. The City reported receipts from the Bond Debt Fee in its operating revenues in its 2013 CAFR. In subsequent years, Bond Debt Fee revenue was reported as a nonoperating revenue. (2) Represents unaudited estimates for fiscal year 2016 and fiscal year 2017 budgeted amounts contained in the City s fiscal year 2017 final budget. See INTRODUCTION Forward Looking Statements. (3) Relates to an adjustment in sewer capital assets previously recorded by the City but determined to be owned and maintained by private owners, an adjustment to record a liability associated with a sales tax allocation overpayment by the SNWA, and the cumulative effect of implementing GASB 65. Source: Derived from the City s audited financial statements for the fiscal years and the City s fiscal year 2017 budget for the estimated fiscal year 2016 amounts and the budgeted 2017 amounts. 33

42 Sewer Fund Summary of Revenues, Expenses and Changes in Net Position 2012 (Audited) 2013 (Audited) 2014 (Audited) 2015 (Audited) 2016 (Estimated) (1) 2017 (Budgeted) (1) Fiscal Year Ended June 30, Operating Revenues Service fees $1,904,073 $1,929,793 $1,981,631 $2,012,025 $2,016,348 $2,012,000 Other revenues Total operating revenues 1,904,073 1,929,793 1,981,631 2,012,286 2,016,548 2,012,200 Operating Expenses Salaries and wages 313, , , , , ,235 Employee benefits 165, , , , , ,453 Service, supplies and other 494, , , , , ,782 Depreciation expense 1,062,758 1,018, , ,995 1,060,000 1,060,000 Total operating expenses 2,035,589 2,041,264 2,159,745 2,165,429 2,557,615 2,612,470 Operating Income (Loss) (131,516) (111,471) (178,114) (153,143) 541, ,270 Nonoperating Revenues (Expenses) Connection fee revenue , , , ,000 Interest income 12,695 26,362 20,003 11,820 9, ,000 Miscellaneous revenue Gain/(loss) on disposals of capital assets Interest expense (353,802) (355,539) (333,002) (307,369) (300,422) (290,934) Total nonoperating revenues (expenses) (341,086) (328,937) (232, ,303 (40,922) (35,934) Income (loss) before Capital Contributions (472,602) (440,408) (410,770) 99,160 (581,989) (636,204) Grant income , Capital Contributions (2) 669 3, Changes in net position (471,933) (436,934) (410,770) 110,134 (581,517) (636,204) Net Position, July 1 29,922,310 29,450,377 29,013,443 28,590,458 27,974,044 26,666,079 Prior Period Adjustment (3) (12,215) (726,548) (726,548) (726,548) Net Position, June 30 $29,450,377 $29,013,443 $28,590,458 $27,974,044 $26,666,079 $25,303,327 (1) Represents unaudited estimates for fiscal year 2016 and fiscal year 2017 budgeted amounts contained in its fiscal year 2017 final budget. See INTRODUCTION--Forward Looking Statements. (2) Includes System Development Charges. (3) Relates to an adjustment in sewer capital assets previously recorded by the City but determined to be owned and maintained by private owners, an adjustment to record a liability associated with a sales tax allocation overpayment by the SNWA, and the cumulative effect of implementing GASB 65. Source: Derived from the City s audited financial statements for the fiscal years and the City s fiscal year 2017 budget for the estimated fiscal year 2016 amounts and the budgeted 2017 amounts. 34

43 Property Tax Base and Tax Roll PROPERTY TAX INFORMATION The State Department of Taxation ( Taxation ) reported the assessed valuation of property within the City for the fiscal year ending June 30, 2017 to be $585,627,293 which represents a 10.59% decrease from the assessed valuation reported for the prior fiscal year. State law requires that the County assessor reappraise, at least once every five years, all real and secured personal property (other than certain utility owned property which is centrally appraised and assessed by the Nevada Tax Commission). While the law provides that in years in which the property is not reappraised, the County assessor is to apply a factor representing typical changes in value in the area since the preceding year, it is the current policy of the County Assessor to reappraise all real and secured personal property in the County each year. State law requires that property be assessed at 35% of taxable value; that percentage may be adjusted upward or downward by the Legislature. Based on the assessed valuation for fiscal year 2017, the taxable value of all taxable property within the City is $1,673,220,837. Taxable value is defined in the statutes as the full cash value in the case of land and as the replacement cost less straight-line depreciation in the case of improvements to land and in the case of taxable personal property, less depreciation in accordance with the regulations of the Nevada Tax Commission but in no case an amount in excess of the full cash value. Depreciation of improvements to real property must be calculated at 1.5% of the cost of replacement for each year of adjusted actual age up to a maximum of 50 years. Adjusted actual age is actual age adjusted for any addition or replacement. The maximum depreciation allowed is 75% of the cost of replacement. When a substantial addition or replacement is made to depreciable property, its actual age is adjusted i.e., reduced to reflect the increased useful term of the structure. The adjusted actual age has been used on appraisals for taxes since In Nevada, county assessors are responsible for assessments in the counties except for certain properties centrally assessed by the State, which include property owned by railroads, airlines, and utility companies. History of Assessed Value The following table illustrates a history of the assessed valuation in the City. However, due to property tax abatement laws enacted in 2005 (described in Required Property Tax Abatements below) the taxes collected by taxing entities within the State are capped and there is no longer a direct correlation between tax collections and assessed value. In fiscal year 2017, after several years of growth, the total assessed valuation of the City declined by 10.6%. The decline is attributable in part to a sizable decrease in centrallyassessed valuation stemming from a reapportionment of taxes related to the Gradient Resources geothermal energy facility. The reapportionment became necessary after taxes in prior years were incorrectly apportioned based on wire miles rather than on asset location within each County as required by NRS (4). Despite the reduction in centrally-assessed value, the total assessed valuation for residential and commercial property increased for fiscal year

44 History of Assessed Value City of Fernley Fiscal Year Ended June 30 Total Assessed Valuation Percent Change 2013 $440,455, ,251, % ,659, ,969, ,627,293 (10.6) Source: Property Tax Rates for Nevada Local Governments - State of Nevada Department of Taxation, Fiscal Years through Property Tax Collections General. In Nevada, county treasurers are responsible for the collection of property taxes, and forwarding the allocable portions thereof to the overlapping taxing units within the counties. Taxes on real property are due on the third Monday in August unless the taxpayer elects to pay in installments on or before the third Monday in August and the first Mondays in October, January, and March of each fiscal year. Penalties are assessed if any taxes are not paid within 10 days of the due date as follows: 4% of the delinquent amount if one installment is delinquent, 5% of the delinquent amount plus accumulated penalties if two installments are delinquent, 6% of the delinquent amount plus accumulated penalties if three installments are delinquent and 7% of the delinquent amount plus accumulated penalties if 4 installments are delinquent. In the event of nonpayment, the county treasurer is authorized to hold the property for two years, subject to redemption upon payment of taxes, penalties and costs, together with interest at the rate of 10% per year from the date the taxes were due until paid. If delinquent taxes are not paid within the two-year redemption period, the county treasurer obtains a deed to the property free of all encumbrances. Upon receipt of a deed, the county treasurer may sell the property to satisfy the tax lien and assessments by local governments for improvements to the property. Property Tax Collection Information. A history of the County s tax roll collection record appears in the following table. The County Assessor s Office does not maintain property tax collection and delinquency figures specific to the City. This table reflects all amounts collected by the County and provides information with respect to the historic collection rates for the County. There is no assurance that collection rates will be similar to the historic collection rates depicted below. 36

45 Fiscal Year Ending June 30 Property Tax Levies, Collections and Delinquencies (1) % of Net Levy Collected Collections in Subsequent Years Total Tax Collections as % of Current Levy (2) Net Secured Roll Tax Levy Current Tax Collections Total Tax Collections 2011 $34,129,356 $32,971, % $1,085,630 $34,056, % ,956,440 33,111, ,458 33,945, ,011,119 31,337, ,788 31,962, ,491,714 30,791, ,481 31,411, ,516,862 31,980, ,836 31,312, ,617,196 33,083, n/a (3) 33,083, (1) Represents the real and personal property tax roll levies and collections; levy does not include centrally assessed property. (2) Figured on collections to net levy (actual levy less stricken taxes). (3) In process of being calculated; to be posted in FY 2016 Comprehensive Annual Financial Report. Source: Lyon County Treasurer s Office. Largest Taxpayers - City of Fernley The following table represents the ten largest property-owning taxpayers in the City based on fiscal year assessed valuations (most recent data available). The assessed valuations in this table represent both the secured tax roll (real property) and the unsecured tax roll (defined generally as taxable property which does not attach to the real estate, such as business equipment and fixtures, mobile/manufactured homes and airplanes). No independent investigation has been made of, and consequently there can be no representation as to, the financial conditions of the taxpayers listed, or that any such taxpayer will continue to maintain its status as a major taxpayer based on the assessed valuation of its property in the City. 37

46 Principal Property Owning Taxpayers in the City Fiscal Year FY Assessed Value % of Total Assessed Value (1) Taxpayer Type of Business NV Energy Utility $ 60,553, % Gradient Resources (Patua Project LLC) Utility 43,415,500 (2) 7.50 Southwest Gas Corp. Utility 16,108, Quebecor World Nevada Manufacturer 11,014, Trex Company, Inc. Manufacturer 9,605, East Newlands Dr. LLC Developer 8,754, Sherwin-Williams Acceptance Corp. Manufacturer 8,397, Peri & Peri/Desert Pearl Farms Agriculture 8,130, Nevada Cement Co. Manufacturer 7,737, Sonterra Development Co. Inc. Developer 7,699, Total $181,416, % (1) Based on the City s fiscal year assessed valuation of $578,659,270, exclusive of the net proceeds of mines. (2) Gradient Resources Inc. ( Gradient ) protested its assessed value for , and as a result, Gradient s assessed value for is substantially less. Additionally, Gradient s property is located in both Lyon County and Churchill County. Due to a calculation error with respect to amounts owed to Churchill County, Lyon County will receive no tax revenue from Gradient during fiscal years 2016 through Due to that same calculation error, the City s portion due back to Churchill County was $86, The entire amount was paid in fiscal year Source: Lyon County Assessor s Office. Property Tax Limitations Overlapping Property Tax Caps. Article X, Section 2, of the State constitution limits the total ad valorem property taxes levied by all overlapping governmental units within the boundaries of any county (i.e., the State, and any county, city, town, school district or special district) to an amount not to exceed five cents per dollar of assessed valuation ($5 per $100 of assessed valuation) of the property being taxed. Further, the combined overlapping tax rate is limited by statute to $3.64 per $100 of assessed valuation in all counties of the State with certain exceptions that (a) permit a combined overlapping tax rate of up to $4.50 per $100 of assessed valuation in the case of certain entities that are in financial difficulties (or require a combined overlapping tax rate of $5.00 per $100 of assessed valuation in certain circumstances of severe financial emergency); and (b) require that $0.02 of the statewide property tax rate of $0.17 per $100 of assessed valuation is not included in computing compliance with this $3.64 cap. (This $0.02 is, however, counted against the $5.00 cap). State statutes provide a priority for taxes levied for the payment of general obligation bonded indebtedness in any year in which the proposed tax rate to be levied by overlapping units within a county exceeds any rate limitation, and further provide that a reduction must be made by those units for purposes other than the payment of general obligation bonded indebtedness, including interest thereon. Local Government Property Tax Revenue Limitation. State statutes limit the revenues local governments, other than school districts, may receive from ad valorem property taxes for purposes other than paying certain general obligation indebtedness which is exempt

47 from such ad valorem revenue limits. These revenue limitations do not apply to ad valorem taxes levied to repay the Bonds, which are exempt from such ad valorem revenue limits. This rate is generally limited by certain factors. First, the assessed value of property is differentiated between that for property existing on the assessment rolls in the prior year (old property) and new property. Second, the property tax revenue derived in the prior year is increased by no more than 6% and the tax rate to generate the increase is determined against the current assessed value of the old property. Finally, this tax rate is applied against all taxable property to produce the allowable property tax revenues. This cap operates to limit property tax revenue dependent upon changes in the value of old property and the growth and value of new property. A local government, other than a school district, may exceed the property tax revenue limitation if the proposal is approved by its electorate at a general or special election. In addition, the Executive Director of Taxation will add, to the allowed revenue from ad valorem taxes, the amount approved by the Legislature for the costs to a local government of any substantial programs or expenses required by legislative enactment. In the event sales tax estimates from the Nevada Department of Taxation exceed actual revenues available to local governments, Nevada local governments receiving such sales tax may levy a property tax to make up the revenue shortfall. The City, the County and the other cities within the County levy various tax overrides as allowed or required by State statutes. State statutes limit the revenues school districts may receive from ad valorem property taxes for operating purposes. Pursuant to NRS , each board of county commissioners shall levy a tax of $0.75 per $100 of assessed valuation for the support of the public schools within the County school district. School districts are also allowed additional levies for voter-approved debt service and voter-approved tax overrides for capital projects. The Nevada Tax Commission monitors the impact of tax legislation on local government services. Constitutional Amendment - Abatement of Taxes for Severe Economic Hardship. At the November 5, 2002 election, the State s voters approved an amendment to the State constitution authorizing the Legislature to enact a law providing for an abatement of the tax upon or an exemption of part of the assessed value of an owner-occupied single-family residence to the extent necessary to avoid severe economic hardship to the owner of that residence. The legislation implementing that amendment provides that the owner of a singlefamily residence may file a claim with the county treasurer to postpone the payment of all or part of the property tax due against the residence if (among other requirements): the residence has an assessed value of not more than $175,000; the property owner does not own any other real property in the State with an assessed value of more than $30,000; the residence has been occupied by the owner for at least 6 months; the owner is not in bankruptcy; the owner owes no delinquent property taxes on the residence; the owner has suffered severe economic hardship caused by circumstances beyond his control (such as illness or disability expected to last for at least 12 continuous months); and the total annual income of the owner s household is at or below the federally designated poverty level. The amount of tax that may be postponed may not exceed the amount of property tax that will accrue against the residence in the succeeding three fiscal years. Any postponed property tax (and any penalties and the interest that accrue as provided in 39

48 the statue) constitutes a perpetual lien against the residence until paid. The postponed tax becomes due and payable if: the residence ceases to be occupied by the claimant or is sold; any non-postponed property tax becomes delinquent; if the claimant dies; or on the date upon which the postponement expires, as determined by the county treasurer. To date, the County Treasurer has not received material requests to postpone the payment of the property tax as described above. Potential Constitutional Amendment - Senate Joint Resolution 13. Senate Joint Resolution 13 ( SJR 13 ), adopted by the 2015 session of the Legislature, proposes to amend the Nevada Constitution. Under Nevada law, constitutional amendments require majority approval by each house of the Legislature in two separate legislative sessions and then majority approval by the general electorate. SJR 13, therefore, will be considered again in the 2017 Legislature. If it is approved again, it is expected that it will be placed on the ballot for the November 2018 general election. SJR 13 would impose certain additional limitations on property taxes on real property. SJR 13 would, among other things, limit taxes on real property to 1.25% of the base value of the property; require a new uniform and just valuation of property for taxation; generally limit increases in the property base values to the lesser of 3% per year or the rate of inflation; and require updates to the base value of real property upon certain transfers of the property. Many of the provisions of SJR 13 are unclear, however; the amendment will require additional legislation not yet introduced in order to implement. It is not possible to predict at this time whether it will become law, or what its impact will be on the City s property tax revenue if it does become law, except that by its terms it will not impact the City s property tax imposed for debt repayment purposes. Required Property Tax Abatements General. In 2005, the Legislature approved the Abatement Act (NRS to ), which established formulas to determine whether tax abatements are required for property owners in each year. The general impact of the Abatement Act is to limit increases in ad valorem property tax revenues owed by taxpayers to a maximum of 3% per year for owneroccupied residential properties (and low-income housing properties) and to 8% (or a lesser amount equal to the average annual change in taxable values over the last ten years, as determined by a formula) per year for all other properties. The Abatement Act limits do not apply to new construction. The Abatement Act formulas are applied on a parcel-by-parcel basis each year. Generally, reductions in the amount of ad valorem property tax revenues levied in the County are required to be allocated among all of the taxing entities in the County in the same proportion as the rate of ad valorem taxes levied for that taxing entity bears to the total combined rate of all ad valorem taxes levied for that fiscal year. However, abatements caused by tax rate increases are to be allocated against the entity that would benefit from the tax increase rather than among all entities uniformly. Revenues realized from new or increased ad valorem taxes that are required by any legislative act that was effective after April 6, 2005, generally are exempt from the abatement formulas. The Abatement Act provides for the recapture of previously abated property tax revenues in certain limited situations. 40

49 Levies for Debt Service. Revenues resulting from increases in the rate of ad valorem taxes for the payment of tax-secured obligations are exempt from the Abatement Act formulas if increased rates are necessary to pay debt service on the related obligation in any fiscal year if (1) the tax-secured obligations were issued before July 1, 2005; or (2) the governing body of the taxing entity and the County Debt Management Commission make findings that no increase in the rate of an ad valorem tax is anticipated to be necessary for payment of the obligations during their term. Any levy of property taxes needed to repay the Bonds is not exempt from partial abatement. General Effects of Abatement. Limitations on property tax revenues could negatively impact the finances and operations of the taxing entities in the State, including the City, to an extent that cannot be determined at this time. Overlapping Tax Rates and General Obligation Indebtedness Overlapping Tax Rates. The following table presents a history of statewide average tax rates and a representative overlapping tax rate for City. The highest overlapping tax rate in the City currently is $ in the City of Yerington. History of Statewide Average and Sample Overlapping Property Tax Rates (1) Fiscal Year Ended June 30, Average Statewide rate $ $ $ $ $ City of Fernley $ $ $ $ $ Lyon County Lyon County School District Combined Special Districts (2) State of Nevada (3) Total $ $ $ $ $ (1) Per $100 of assessed valuation. (2) Includes levies for the Fernley Swimming Pool District and the North Lyon Fire Maintenance District. (3) $ of the State rate is exempt from the $3.64 cap. See Property Tax Limitations above. Source: Property Tax Rates for Nevada Local Governments - State of Nevada, Department of Taxation, through Estimated Overlapping General Obligation Indebtedness. In addition to the general obligation indebtedness of the City, other taxing entities are authorized to incur general obligation debt within boundaries that overlap or partially overlap the boundaries of the City. In addition to the entities listed below, other governmental entities may overlap the City but have no general obligation debt outstanding. The following chart sets forth the estimated overlapping general obligation debt (including general obligation medium-term bonds) chargeable to property owners within the City as of September 1,

50 Estimated Overlapping Net General Obligation Indebtedness Total General Obligation Indebtedness Presently Self-Supporting General Obligation Indebtedness Net Direct General Obligation Indebtedness Overlapping Net General Obligation Indebtedness (3) Percent Entity (1) Applicable (2) Lyon County $12,051,918 $11,420,354 $631, % $236,174 Lyon County School District 70,110, ,110, % 26,217,682 State of Nevada 1,440,545, ,640,000 1,133,905, % 6,274,533 Total $1,522,706,918 $318,060,354 $1,204,646,564 $32,728,389 (1) Other taxing entities overlap the City and may issue general obligation debt in the future. (2) Based on fiscal year 2017 assessed valuation in the respective jurisdiction. The percent applicable is derived by dividing the assessed valuation of the City into the assessed valuation of the governmental entity (excluding redevelopment agencies). (3) Overlapping Net General Obligation Indebtedness equals total existing general obligation indebtedness less presently self-supporting general obligation indebtedness times the percent applicable. Source: Debt information compiled by the Financial Advisor; percentages calculated using information from Property Tax Rates for Nevada Local Governments - State of Nevada - Department of Taxation,

51 The following table sets forth the total net direct debt upon the issuance of the Bonds and the defeasance of the Refunded Bonds. Net Direct & Overlapping General Obligation Indebtedness Total General Obligation Indebtedness $72,313,092 Less: Self-supporting General Obligation Indebtedness 72,313,092 Net Direct General Obligation Indebtedness $0 Plus: Overlapping Net General Obligation Indebtedness 32,728,389 Net Direct & Overlapping Net General Obligation Indebtedness $32,728,389 Selected Debt Ratios The following table illustrates selected ratios relating to the City s outstanding general obligation debt. Selected Direct General Obligation Debt Ratios Population (1)... 18,936 Net Direct Debt (2)... $0 Overlapping Debt (3)... 32,728,389 Total Direct Debt & Overlapping Debt... $32,728,389 Per Capita Net Direct Debt... $0 Per Capita Net Total Direct Debt & Overlapping Debt... $1, Assessed Valuation (4)... $585,627,293 % Net Direct Debt to Assessed Valuation... 0% % Net Total Direct Debt & Overlapping Debt to Assessed Valuation % 2017 Taxable Value (4)... $1,673,220,837 % Net Direct Debt to Taxable Value... 0% % Net Total Direct Debt & Overlapping Debt to Taxable Value % (1) Nevada State Demographer estimate as of July 1, (2) Takes into account the issuance of the Bonds. See DEBT STRUCTURE Outstanding Debt and Other Obligations. Also see the table entitled Net Direct & Overlapping General Obligation Indebtedness above. (3) Figure is estimated based on information supplied by other taxing authorities and does not include selfsupporting general obligation debt. See the table Estimated Overlapping General Obligation Debt. (4) See Property Tax Base and Tax Roll Collection for an explanation of the Assessed Value and Taxable Value. Sources: Nevada State Demographer website and Nevada Department of Taxation, Property Tax Rates for Nevada Local Governments, Fiscal Year ; and the City. 43

52 THE CITY General The City was incorporated in 2001 under the provisions of Nevada Revised Statutes (NRS) Chapter 266. The City is located on Interstate 80, 39 miles east of Reno in the northern part of Lyon County, Nevada (the County ) and occupies a land area of approximately 164 square miles. The City serves a population of approximately 18,936 according to the Nevada State Demographer s Office s 2015 estimates. The City provides a wide range of services, including construction and maintenance of streets, storm drains and infrastructure; water and sewer services; recreational activities and events; vector and animal control; building and planning services; municipal court services; cemetery services; and general administrative and accounting services. Governing Body The City operates under the Council/Manager form of government. Policymaking and legislative authority are vested in a governing council consisting of the Mayor and five City Council members. The City Council is responsible for establishing policy, passing ordinances, adopting the budget, appointing committees and establishing the organizational structure of the City. Pursuant to NRS, the Mayor is the Chief Executive Officer of the City. The City Manager is the Chief Administrative Officer of the City. The City Manager is responsible for carrying out the policies and ordinances of the City Council, for overseeing dayto-day operations of the City and for supervising the heads of various departments. The City Council members are elected by Ward to serve four-year staggered terms. The Mayor is elected citywide to serve a four-year term. as follows: The current mayor and members of the City Council and their terms of office are First Elected/ Appointed Current Term Expires Name and Title Ward Principal Occupation Roy Edgington, Jr. At large Retired/Firefighter 11/ /2018 Shari Whalen I Civil Engineer 11/ /2018 Dan McCassie II Small Business Owner 11/ /2016 Stan Lau III Engineering Technician 11/ /2018 Susan Seidl IV Customs Director 11/ /2016 Cal Eilrich V Contractor/developer 3/ /

53 Administration The City Manager is appointed by the City Council and is charged with performing such administrative duties as the City Council may designate and may appoint such clerical and administrative assistants as he may deem necessary, subject to the approval of the City Council. The City Manager is responsible for the City s policy direction and strategic planning and also oversees the day-to-day operations of the City. Other administrative positions in City government appointed by the City Council are the City Treasurer, the City Attorney and the City Clerk. Brief biographies of selected City administrators follow. Daphne Emm-Hooper, City Manager. Daphne Hooper was appointed Fernley City Manager on March 4, She joined the City as the Human Resources Director and Risk Manager in She served as Interim City Manager from May 2012 to February 2013 during which time she planned, directed, managed, and oversaw the activities and operations of the City under the policy direction of the Mayor and the City Council. She was subsequently appointed Assistant City Manager overseeing Human Resources, Risk Management and Water Policy. Ms. Hooper holds a Master of Science in Community Economic Development from Southern New Hampshire University, a Master of Arts in Organizational Management from the University of Phoenix-Reno, and a Bachelor of Arts in Political Science from the University of California, Davis. She also holds an Associate s Degree from Shasta College. Denise Lewis, City Treasurer. Denise Lewis was appointed Fernley City Treasurer on September 5, She joined the City as the Chief Financial Officer and Director of Finance in addition to City Treasurer under the direction of the Mayor and City Council. During her time at the City, she has managed the finance department and all functions and managed the utility billing department until June Ms. Lewis holds a Master of Business Administration/Accounting from the University of Phoenix, a Bachelor of Arts in Criminal Justice Administration from the University of Nevada, Reno and an Associate Degree from Modesto Junior College. She worked in public accounting for five and a half years and was the Controller of another local government for almost six years. She has over 15 years of government accounting experience and over ten years of experience in business operations and management. Kim Swanson, City Clerk. Kim Swanson joined the City of Fernley as a part time Recording Secretary in December 2001, shortly after the City s incorporation. In July of 2004 she became the City s first Deputy City Clerk. In April 2011 Ms. Swanson was appointed Acting City Clerk and in September 2012 she was appointed Fernley City Clerk under the direction of the Mayor and City Council. Ms. Swanson earned her Certified Municipal Clerk designation in 2010 through the University of Nevada Reno and the International Institute of Municipal Clerks. Brandi Jensen, City Attorney. Brandi Jensen was appointed Fernley City Attorney on March 10, She serves the City by managing the prosecution of criminal cases and by serving as the legal advisor to the City regarding all contracts, human resources matters, financial legal issues, and public works and planning matters under the policy direction of the Mayor and the City Council. Ms. Jensen holds a Bachelor of Arts in Criminal Justice as well as 45

54 a Juris Doctorate, both from the University of Nevada, Las Vegas. Ms. Jensen has served as a governmental attorney since Employee Relations and Pension Benefits Employee Relations. As of August 1, 2016, the City had 58 full time employees and 11 part-time employees. The City is an equal-opportunity/affirmative action employer with one employee bargaining unit that covers 45 full time employees. The City has an active labor contract with IBEW Local 1245, which expires on June 30, The state of employee relations continues to be positive; the labor group has continued to work collaboratively to help maintain a balanced approach to the City s benefits and compensation structure. Benefits. The City provides certain benefits to its employees, including health, dental and vision insurance, through Anthem Blue Cross and Blue Shield, a health insurance company. The City also provides life, accidental death, workers compensation, a 457b deferred compensation plan and PERS retirement plan contributions (described below) as required by State law. Pension Matters. The State Public Employees Retirement System ( PERS ) covers substantially all public employees of the State, its agencies and its political subdivisions, including the City. PERS, established by the Legislature effective July 1, 1948, is governed by the Public Employees Retirement Board whose seven members are appointed by the Governor. Retirement Board members serve for a term of four years. Except for certain City specific information set forth below, the information in this section has been obtained from publicly-available documents provided by PERS. The City has not independently verified the information obtained from the publicly available documents provided by PERS and is not responsible for its accuracy. All public employees who meet certain eligibility requirements participate in PERS, which is a cost sharing multiple-employer defined benefit plan. Benefits, as required by statute, are determined by the number of years of accredited service at the time of retirement and the member s highest average compensation. Benefit payments to which participants may be entitled under PERS include pension benefits, disability benefits, and death benefits. PERS has several tiers based on legislative changes effective with membership dates. The following table illustrates the PERS service credit multiplier. PERS Benefit Multiplier Membership Date Service Credit Multiplier Before 07/01/01 After 07/01/01 After 01/01/10 After 07/01/15 Highest Contiguous Average Over Before July 1, % 2.67% 2.67% 2.67% 36 months After July 1, 2001, before January 1, 2010 After January 1, 2010, before July 1, % 2.67% 2.67% 36 months % 2.50% 36 months 46

55 After July 1, 2015 Regular Police/Fire % 2.50% 36 months Similarly, legislative changes have created several tiers of retirement eligibility thresholds. The following table illustrates the PERS retirement eligibility thresholds: Nevada PERS Retirement Eligibility Membership Date Regular Police/Fire Age Years of Service Age Years of Service Before January 1, Any Any After January 1, 2010, before July 1, Any Any After July 1, Any / Any /3 Nevada law requires PERS to conduct a biennial actuarial valuation showing unfunded actuarial accrued liability ( UAAL ) and the contribution rates required to fund PERS on an actuarial reserve basis. The actual employer and employee contribution rates are established in cycle with the State s biennium budget on the first full pay period of the even numbered fiscal years. By PERS policy, the system actually performs an annual actuary study. The most recent independent actuarial valuation report of PERS was completed as of June 30, The following table reflects some of the key valuation results from the last three PERS actuary studies: PERS Actuarial Report Key Valuation Results June 30, 2015 June 30, 2014 June 30, 2013 UAAL $12.35 billion $12.53 billion $12.88 billion Market Value Funding Ratio 75.1% 76.3% 68.7% Actuarial Value Funding Ratio 73.2% 71.5% 69.3% Assets Market Value $34.61 billion $33.58 billion $28.83 billion Assets Actuarial Value $33.72 billion $31.47 billion $29.11 billion For the purpose of calculating the actuarially determined contribution rate, the UAAL is amortized as a level percent of payroll over a year-by-year closed amortization period where each amortization period is set at 20 years. The amortization period prior to fiscal year 2012 was 30 years. Effective starting fiscal year 2012, the PERS Board adopted a shorter amortization period to be used to amortize new UAAL resulting from actuarial gains or losses and changes in actuarial assumptions. Any new UAAL is amortized over a period equal to the truncated average remaining amortization period of all prior UAAL layers, until the average remaining amortization period is less than 20 years; after that time, 20-year amortization periods will be used. The current combined, effective average amortization period for regular members 47

56 and police/fire members is 20.7 years. The PERS Board also adopted a five-year asset smoothing policy for net deferred gains/losses. As of June 30, 2015, PERS has unrecognized investment gains of $893 million. Unless offset by future investment losses or other unfavorable experience, the recognition of the $893 million in market gains is expected to increase the future actuarial funded ratio and decrease the future contribution rate. For the year ended June 30, 2014, PERS adopted Governmental Accounting Standards Board Statement ( GASB ) No. 67, Financial Reporting for Pension Plans-an amendment of GASB Statement No. 25 ( GASB 67 ). GASB 67 replaces the requirements of GASB Statement Nos. 25 and 50 as they relate to pension plans that are administered through trusts or equivalent arrangements that meet certain criteria. The objective of GASB 67 is to improve financial reporting by state and local governmental pension plans. It requires enhancement to footnote disclosure and required supplementary information for pension plans. Prior to these new standards, the accounting and reporting requirements of the pension related liabilities followed a long-term funding policy perspective. The new standards separate the accounting and reporting requirements from the funding decisions and require the unfunded portion of the pension liability to be apportioned among the participating employers. These standards apply for financial reporting purposes only and do not apply to contribution amounts for pension funding purposes. With the implementation of GASB 67, PERS reported its total pension liability, fiduciary net position, and net pension liability in its Comprehensive Annual Financial Report for the fiscal year ended June 30, The total pension liability for financial reporting was determined on the same basis as the Actuarial Accrued Liability measure for funding. The fiduciary net position is equal to the market value of assets. Effective with fiscal year 2015, the City was required to apply the GASB Statement No. 68, Accounting and Financial Reporting for Pensions-an amendment of GASB Statement No. 27 ( GASB 68 ), to its audited financial statements. Among other requirements, the City was required to report its proportionate share of the total PERS net pension liability in its financial statements. The following presents the net pension liability of PERS as of June 30, 2014, and the City s proportionate share of the net pension liability of PERS as of June 30, 2014, calculated using the discount rate of 8.00%, as well as what the PERS net pension liability would be if it were calculated using a discount rate that is one percentage point lower (7.00%) or one percentage point higher (9.00%) than the current discount rate. Net Pension Liability as of June 30, % Decrease in Discount Rate (7%) Discount Rate (8%) 1% Increase in Discount Rate (9%) PERS Net Pension Liability $16,207,317,042 $10,421,979,023 $5,612,889,953 City Share of PERS Net Pension Liability $7,655,761 $4,922,973 $2,651,330 48

57 The following presents the net pension liability of PERS as of June 30, 2015 and the City s proportionate share of the net pension liability of PERS as of June 30, 2015, calculated using the discount rate of 8.00%, as provided in the most recent schedule of employer allocations provided by PERS in its report dated June 29, Pension liability amounts at 7% and 9% discount rates for the City are expected to be provided in the City s upcoming audited financial statements for fiscal year Net Pension Liability as of June 30, 2015 Discount Rate (8%) PERS Net Pension Liability $11,459,436,845 City Share of PERS Net Pension Liability $5,796,699 Contribution rates to PERS are established in accordance with State statute. The statute allows for biennial increases or decreases of the actuarially determined rate. The State Legislature can increase the contribution rate for members by any amount it determines necessary. Pursuant to statute, there is no obligation on the part of the employers to pay for their proportionate share of the unfunded liability. The City is obligated to contribute all amounts due under the PERS. A history of contribution rates is shown below. Fiscal Years 2008 and 2009 Fiscal Years 2010 and 2011 Fiscal Years 2012 and 2013 Fiscal Years 2014 and 2015 Fiscal Years 2016 and 2017 Regular members Employer-pay plan 20.50% 21.50% 23.75% 25.75% 28.00% The City s contributions to PERS for the last five fiscal years are as follows: Fiscal Year Fiscal Year Fiscal Year Fiscal Year Fiscal Year $628,641 $665,231 $715,473 $780,795 $883,857 (est.) The City has budgeted $893,874 in PERS contributions for the fiscal year ended June 30, 2017, which is equal to the required contribution for that year. For the year ended June 30, 2015, the City s contribution to PERS represented approximately % of total contributions to PERS. See Note 10 in the audited financial statements attached hereto as Appendix A for additional information on PERS. In addition, copies of PERS most recent annual financial report, including audited financial statements and required supplemental information, are available from the Public Employees Retirement System of Nevada, 693 West Nye Lane, Carson City, Nevada , telephone: (775) Other Postemployment Benefits. The City also makes available certain postretirement health insurance and other non-pension benefits ( OPEB ) to employees who retire under PERS and elect to receive and pay for these benefits. Effective July 1, 2007, the City was 49

58 required to implement Governmental Accounting Standards Board Statement No Accounting and Financial Reporting by Employers for Postemployment Benefits Other Than Pensions ( GASB 45 ). GASB 45 addresses how the City should account for and report its costs related to OPEB. GASB 45 requires the City to accrue the cost of the OPEB subsidy during the period of active employment (while the benefits are being earned) and disclose the unfunded actuarial accrued liability (the UAAL ) in order to accurately account for the total future costs of OPEB and the financial impact on the City. See Note 8 of Appendix A for a detailed description of the City s OPEB plan, its funding policy, annual costs, and associated UAAL (including significant methods and assumptions of the actuarial valuation). Also see the Required Supplementary Information in Appendix A for a history of the City s UAAL and other statistical information. As of January 1, 2016, the date of the most recent actuarial evaluation, the City s pay-as-you-go UAAL was calculated to be $545,415. The actuarial value of assets as of that date was $0 because the City s subsidy historically has been funded on a pay-as-you-go basis (no trust fund has been established). The City s annual OPEB cost is calculated by adjusting the actuarially determined Annual Required Contribution ( ARC ) for interest earned and other factors. Amounts not funded by contributions increase the City s Net OPEB Obligation. The City s Annual OPEB Cost for the year ended June 30, 2013, was $99,244 and the City s contribution was $17,968, resulting in a Net OPEB Obligation of $414,056 as of June 30, For fiscal year 2014, the Annual OPEB Cost was $105,529 and the City s contribution was $20,676 resulting in a Net OPEB Obligation of $498,909 as of June 30, For fiscal year 2015, the Annual OPEB Cost was $112,077 and the City s contribution was $21,976 resulting in a Net OPEB Obligation of $589,010 as of June 30,

59 CITY FINANCIAL INFORMATION Annual Reports General. The City prepares a comprehensive annual financial report ( CAFR ) setting forth the financial condition of the City as of June 30 of each fiscal year. The CAFR is the official financial report of the City. It was prepared in accordance with accounting principles generally accepted in the United States of America ( GAAP ) as applied to governmental units. The Governmental Accounting Standards Board ( GASB ) is the standard setting body for governmental accounting and financial reporting. See Note 1 in the audited financial statements attached hereto as Appendix A for a description of the City s significant accounting policies. Audited financial statements for prior years (and the City s CAFRs) may be obtained from the sources listed in INTRODUCTION--Additional Information. The latest completed CAFR report is for the year ended June 30, The audited basic financial statements attached hereto as Appendix A are excerpted from the CAFR, but they do not include all of the information contained in the CAFR, such as individual fund financial statements and statistical data. That information may be reviewed by reviewing the entire CAFR. Awards. The Government Finance Officers Association ( GFOA ) of the United States and Canada awarded a Certificate of Achievement for Excellence in Financial Reporting to the City for its comprehensive annual financial report for the fiscal year ended June 30, This was the eleventh consecutive year that the City has received this recognition. A Certificate of Achievement is valid for a period of one year only. In order to be awarded a Certificate of Achievement, a governmental unit must publish an easily readable and efficiently organized comprehensive annual financial report with contents conforming to program standards. Such reports must satisfy both generally accepted accounting principles and applicable legal requirements. Budgeting General. The annual budget serves as the foundation for the City of Fernley s financial planning and control. All departments of the City of Fernley are required to submit requests for appropriation to the City Manager and Treasurer in January of each year. The two use those requests as the starting point for developing a proposed budget. A series of City Council workshops are held to discuss the budget and during those workshops, the City Manager, the City Treasurer and department heads present their proposed budgets to the City Council for review. The City Council is required to hold a public hearing on the proposed budget and then adopt a final budget by no later than June 1 of each year. The appropriated budget is a policy document prepared by fund, function, and department. Department heads may make transfers of appropriations and depending on the department, function and fund, the City Treasurer or the City Council may authorize the transfer of appropriations. Accounting The City s government-wide financial statements are reported using the economic resources measurement focus and the accrual basis of accounting. Revenues are recorded when 51

60 earned and expenses are recorded when a liability is incurred, regardless of the timing of related cash flows. Property taxes are recognized as revenues in the year for which they are levies. Grants and similar items are recognized as revenue as soon as all eligibility requirements imposed by the provider have been met. The City s governmental fund financial statements are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Revenues are recognized as soon as they are both measureable and available. Revenues are considered to be available when they are collectible within the current period or soon enough thereafter to pay liabilities of the current period. Accounting records for the City s utilities and other enterprises are maintained on the accrual basis. General Fund The purpose of the general fund is to finance the ordinary operations of the City (including debt service to the extent that the ad valorem tax levy is not sufficient to service general obligation debt) and to finance those operations not provided for in other funds. Included are all transactions related to the approved current operating budget, its accompanying revenue, expenditures and encumbrances, and its related asset, liability, and fund equity accounts. As shown in Appendix A, the City has numerous other funds, the largest of which are the Capital Projects Funds and the Enterprise Funds. Moneys on deposit in the Capital Projects Funds are used for the acquisition or construction of major capital facilities. Moneys on deposit in the Enterprise Funds are used for operations that are financed and operated in a manner similar to private business enterprises - where the intent of the City is that the costs (expenses, including depreciation) of providing goods and services to the general public on a continuing basis be financed or recovered primarily through user charges; or where the governing body has decided that periodic determination of revenues earned, expenses incurred, and/or net income is appropriate for capital maintenance, public policy, management control, accountability, or other purposes. GASB 54. Effective for fiscal year 2011, the City adopted the provisions of Governmental Accounting Standards Board Statement No. 54, Fund Balance Reporting and Governmental Fund Type Definitions ( GASB 54 ). GASB 54 changed the way the City reports fund balance classifications and restrictions. As prescribed by GASB 54, the governmental funds report fund balance in classifications based primarily on the extent to which the City is bound to honor constraints on the specific purposes for which amounts in the funds can be spent. For fiscal years 2011 and later, the City s General Fund balance is categorized as Nonspendable and Assigned and Unassigned. GASB 54 also allows fund balance to be categorized as Restricted and Committed. Generally, Nonspendable fund balance includes amounts that are (a) not in spendable form, or (b) legally or contractually required to be maintained intact. The not in spendable form criterion includes items that are not expected to be converted to cash, for example: inventories, prepaid amounts, and long-term notes receivable. Assigned fund balance includes amounts intended to be used by the City for specific purposes that are neither restricted nor committed. The City Manager or the Finance Director has the authority to assign fund balance for specific purposes. See Note No. 1 in the audited financial 52

61 statements attached hereto as Appendix A for further details regarding each of these fund balance categories. History of City Revenues and Expenditures General. The following table presents a history of the City s General Fund revenues, expenditures and changes in fund balance for the fiscal years ended June 30, 2011 through The table also provides the City s estimated amounts for fiscal year 2016 and budgeted amounts for fiscal year The information in this table is provided for informational purposes only and does not imply that all of the revenues shown below are legally available to pay debt service on the Bonds. The information in this table should be read together with the City s audited financial statements for the year ended June 30, 2015, and the accompanying notes, which are included as Appendix A hereto. Financial statements for prior years can be obtained from the sources listed in INTRODUCTION--Additional Information. 53

62 General Fund Summary of Revenues, Expenditures and Changes in Fund Balance 2012 (Audited) 2013 (Audited) 2014 (Audited) 2015 (Audited) 2016 Estimated (1) 2017 Budgeted (1) Fiscal Year Ended June 30, Revenues Taxes $1,868,511 $1,909,538 $2,143,338 $2,231,326 $2,405,620 $2,332,108 Licenses and permits 1,483,489 1,578,429 1,867,564 1,798,242 1,859,000 1,936,000 Intergovernmental revenue 869, , ,212 1,059, ,331 3,147,808 Fines & forfeitures 147,010 85, , , , ,733 Other revenues 91, , , ,218 64,405 72,680 Total Revenues 4,459,641 4,174,748 5,153,840 5,526,257 5,468,431 7,705,329 Expenditures General government 1,629,090 2,276,007 1,933,656 1,974,369 1,940,711 2,127,046 Public works 0 0 1,013,580 1,053,634 1,631,682 4,848,839 Judicial 200, , , , , ,886 Health 200, , , , , ,266 Culture & Recreation 617, , , , , ,350 Community development 434, , , , , ,416 Debt service 4,390, , , , , ,573 Capital outlay 800,340 56, Total Expenditures 8,272,545 3,930,646 4,511,647 4,945,917 5,571,332 9,167,376 Excess (deficiency) of revenues over expenditures (3,812,904) 244, , ,340 (102,901) (1,462,047) Other Financing (Uses) Operating Transfers In/Out ,507 11, Contingency (275,021) Proceeds Sale of Capital Assets Proceeds from insurance -- 40, Proceeds from bond issuance 4,010, Capital projects fund Total 4,010,205 40, ,507 11, (275,021) Excess (Def.) of Rev. over Expend. & Other Financing Uses 197, , , ,391 (102,901) (1,737,068) Fund Balance, July 1 1,594,029 1,791,330 2,408,436 3,156,136 3,808,619 3,804,324 Prior Period Adjustment , , Fund Balance, June 30 $1,791,330 $2,408,436 $3,156,136 $3,808,619 $3,804,324 $2,067,256 Committed (2) ,541,178 2,982,946 2,845,196 1,442,851 Restricted (2) 342, , , , , ,614 Assigned (2) 1,449,207 1,449, ,310 47, , Nonspendable (2) ,250 10,812 29,922 30,000 Unassigned (2) , , , , ,791 (1) Represents unaudited estimates for fiscal year 2016 and fiscal year 2017 budgeted amounts contained in its fiscal year 2017 final budget. See INTRODUCTION--Forward Looking Statements. (2) The implementation of GASB 54 has changed the categories for restriction of fund balance. Source: Derived from the City s audited financial statements for the fiscal years and the City s fiscal year 2017 budget for the estimated fiscal year 2016 amounts and the budgeted 2017 amounts. 54

63 Management s Discussion and Analysis of Recent Financial Activity in the General Fund General. An overview of the financial activity and overall financial condition of the City is presented in the City of Fernley Management s Discussion and Analysis for fiscal year ended June 30, 2015, which is attached to this Official Statement as Appendix A. The City s General Fund is the primary operating fund of the City. It accounts for all financial resources of the general government, except for those accounted for in another fund. During the last five years, the City has been able to increase its fund balance from $1.6M to $3.8M. This has been accomplished due to a staff that is committed to providing fiscally responsible financial management and one that is committed to adhering to budget compliance. Currently, the City has adequate funds to pay all current obligations and those coming due. Fund balance for the year ending 2016 is estimated to remain stable at $3.8M. For the year ending 2017, due to capital and other projects that have been planned for and saved for, fund balance is estimated at $2.1M. The City adheres to its fund balance policy, which states that unassigned fund balance in the General Fund shall be maintained at a minimum of 8.3% of total general fund budgeted expenditures, less capital outlay. The City considers a fund balance of less than 8.3% to be cause for concern and procedures are in place to restore the balance should it fall below the required minimum. Investment Policy Cash temporarily idle during the year is invested in the Local Government Pooled Long-Term Investment Account (NVEST) and the Nevada Local Government Investment Pool (LGIP). In investing public monies, the City follows NRS investment guidelines. The City s investment policy is to minimize credit and market risks while maintaining a competitive yield on its portfolio. The City s bank deposits are covered by FDIC insurance and are collateralized. LGIP and NVEST deposits are collateralized by the Office of the State Treasurer/Nevada Collateral Pool. Risk Management State and local governments are subject to many types of claims such as workers compensation, contractual actions, personal injuries, property damage and employee benefits. The City has joined together with similar public agencies (cities, counties and special districts) throughout the State of Nevada to create a pool under the Nevada Interlocal Cooperation Act. The Nevada Public Agency Insurance Pool (Pool) is a public entity risk pool currently operating as a common risk management and insurance program for its members. The City pays an annual premium and specific deductibles, as necessary, to the Pool for its general insurance coverage. The Pool is considered a self-sustaining risk pool that will provide coverage for its members for up to $10,000,000 per event and a $13,000,000 general aggregate per member. The City has also joined together with similar public agencies, under the Nevada Interlocal Cooperation Act, to create an intergovernmental self-insured association for worker s compensation insurance, the Public Agency Compensation Trust (PACT). The City pays premiums based on payroll costs to the PACT. The PACT is considered a self-sustaining pool that will provide coverage based on established statutory limits. 55

64 The City continues to carry commercial insurance for other risks of loss, including specific risks of loss not covered by the Pool, including bonding and employee health and accident insurance. Settled claims resulting from these risks have not exceeded commercial coverage for the past three years. 56

65 DEBT STRUCTURE Debt Limitation State statutes limit the aggregate principal amount of the City s general obligation debt to 30% of the City s total assessed valuation. The following table presents a record of the City s outstanding general obligation indebtedness with respect to its statutory debt limitation. Fiscal Year Ended June 30 Statutory Debt Limitation Additional Statutory Debt Capacity Assessed Valuation (1) Debt Limit Outstanding General Obligation Debt (1) 2011 $448,105,998 $134,431,799 $78,951,241 $55,480, ,273, ,482,044 77,186,912 60,295, ,455, ,136,799 75,435,000 56,701, ,251, ,275,589 73,690,000 59,585, ,659, ,597,781 73,005, ,592, ,969, ,490,731 72,249, ,241, ,627, ,688,188 72,313,092 (2) 103,375,096 (1) The City s outstanding general obligation debt consists entirely of general obligation revenue bonds. (2) Upon the issuance of the Bonds and the defeasance of the Refunded Bonds. See Outstanding Indebtedness and Other Obligations below. Source: The City; compiled by the Financial Advisor. 57

66 Outstanding Debt and Other Obligations Outstanding Debt. The following table presents the outstanding indebtedness of the City upon the issuance of the Bonds and the defeasance of the Refunded Bonds. Outstanding General Obligation Debt and Other Obligations (1) Date Issued Final Maturity Original Amount Amount Outstanding GENERAL OBLIGATION REVENUE BONDS (2) Water & Sewer Bonds, Series /01/07 02/01/37 $50,000,000 $4,740,000 Water & Sewer Bonds, Series /01/08 02/01/38 32,600,000 2,395,000 Water and Sewer Refunding Bonds, Series /23/14 02/01/26 12,865,000 12,655,000 Sewer Refunding Bonds, Series 2015A 08/06/15 01/01/38 5,807,691 5,773,092 Water Refunding Bonds, Series 2015B 11/04/15 02/01/38 37,665,000 37,665,000 Water and Sewer Refunding Bonds, Series 2016 (this issue) 11/03/16 02/01/37 9,085,000 9,085,000 TOTAL $72,313,092 (1) Upon the issuance of the Bonds or the defeasance of the Refunded Bonds. (2) General obligation bonds secured by the full faith, credit and taxing power of the City. The ad valorem tax available to pay these bonds is limited to the $3.64 statutory and the $5.00 constitutional limit. See PROPERTY TAX INFORMATION--Property Tax Limitations. These bonds are additionally secured by specified pledged revenues; if revenues are not sufficient, the City is obligated to pay the difference between such revenues and the debt service requirements of the respective bonds. Source: The City; compiled by the Financial Advisor. Other Obligations. In addition to the obligations illustrated in the table above, the City currently has an installment purchase agreement outstanding in the aggregate principal amount of $3,274,000 for a refunding of a City Hall project. The City s obligation under this agreement is payable from legally available City revenues and is subject to annual appropriation by the City. The City also records long-term liabilities for compensated absences, OPEB liability, and other claims payable. See Note 7 in the audited financial statements attached hereto as Appendix A for further information. Additional Contemplated Indebtedness The City may issue general obligation bonds by means of authority granted to it by its electorate or the State Legislature or, under certain circumstances, without an election as provided in existing statutes. The City reserves the privilege of issuing general obligation bonds or other securities any time legal requirements are satisfied. In addition, the City reserves the ability to issue bonds for refunding purposes at any time. The City is contemplating the refinancing of the remaining 2007 and 2008 Bonds after this transaction is complete. The City is in the process of authorizing an additional $2 million of general obligation sewer bonds which are expected to be sold to the State Revolving Fund in January

67 Annual Debt Service Requirements Set forth below is a summary of the debt service requirements for the City s outstanding general obligation bonds, upon the issuance of the Bonds and the defeasance of the Refunded Bonds. Annual Debt Service Requirements - General Obligation Bonds (1)(2) Fiscal Year Ending General Obligation Revenue Bonds June 30 Principal Interest Total 2017(3) $ 2,267,295 2,531,169 $ 4,798, ,474,354 2,432,241 4,906, ,457,318 2,328,202 4,785, ,568,640 2,223,532 4,792, ,679,719 2,105,550 4,785, ,794,146 1,983,465 4,777, ,888,587 1,888,582 4,777, ,987,436 1,790,574 4,778, ,068,321 1,715,671 4,783, ,164,227 1,638,763 4,802, ,251,946 1,554,260 4,806, ,421,518 1,400,801 4,822, ,560,636 1,269,769 4,830, ,693,154 1,133,333 4,826, ,790,150 1,024,894 4,815, ,901, ,400 4,810, ,052, ,063 4,838, ,188, ,025 4,838, ,339, ,148 4,848, ,489, ,557 4,848, ,644, ,003 4,854, ,656,127 58,248 1,714,375 Total $72,339,087 $30,502,250 $102,841,337 (1) Upon the issuance of the Bonds and the defeasance of the Refunded Bonds. (2) Totals may not add due to rounding. (3) Includes all payments made in fiscal year Source: Compiled by the Financial Advisor. 59

68 TAX MATTERS Federal Tax Matters In the opinion of Bond Counsel, assuming continuous compliance with certain covenants described below, interest on the Bonds is excluded from gross income under federal income tax laws pursuant to Section 103 of the Tax Code and interest on the Bonds is excluded from alternative minimum taxable income as defined in Section 55(b)(2) of the Tax Code except that such interest is required to be included in calculating the adjusted current earnings adjustment applicable to corporations for purposes of computing the alternative minimum taxable income of corporations as described below. The Tax Code imposes several requirements which must be met with respect to the Bonds in order for the interest thereon to be excluded from gross income and alternative minimum taxable income (except to the extent of the aforementioned adjustment applicable to corporations). Certain of these requirements must be met on a continuous basis throughout the term of the Bonds. These requirements include: (a) limitations as to the use of proceeds of the Bonds; (b) limitations on the extent to which proceeds of the Bonds may be invested in higher yielding investments; and (c) a provision, subject to certain limited exceptions, that requires all investment earnings on the proceeds of the Bonds above the yield on the Bonds to be paid to the United States Treasury. The City will covenant and represent in the Bond Ordinance that it will take all steps to comply with the requirements of the Tax Code to the extent necessary to maintain the exclusion of interest on the Bonds, respectively, from gross income and alternative minimum taxable income (except to the extent of the aforementioned adjustment applicable to corporations) under such federal income tax laws in effect when the Bonds are delivered. Bond Counsel s opinion as to the exclusion of interest on the Bonds from gross income and alternative minimum taxable income (to the extent described above) is rendered in reliance on these covenants, and assumes continuous compliance therewith. The failure or inability of the City to comply with these requirements could cause the interest on the Bonds to be included in gross income, alternative minimum taxable income or both from the date of issuance. Bond Counsel s opinion also is rendered in reliance upon certifications of the City and other certifications furnished to Bond Counsel. Bond Counsel has not undertaken to verify such certifications by independent investigation. Section 55 of the Tax Code contains a 20% alternative minimum tax on the alternative minimum taxable income of corporations. Under the Tax Code, 75% of the excess of a corporation s adjusted current earnings over the corporation s alternative minimum taxable income (determined without regard to this adjustment and the alternative minimum tax net operating loss deduction) is included in the corporation s alternative minimum taxable income for purposes of the alternative minimum tax applicable to the corporation. Adjusted current earnings includes interest on the Bonds. The Tax Code contains numerous provisions which may affect an investor s decision to purchase the Bonds. Owners of the Bonds should be aware that the ownership of taxexempt obligations by particular persons and entities, including, without limitation, financial institutions, insurance companies, recipients of Social Security or Railroad Retirement benefits, taxpayers who may be deemed to have incurred or continued indebtedness to purchase or carry tax-exempt obligations, foreign corporations doing business in the United States and certain subchapter S corporations may result in adverse federal and state tax consequences. Under 60

69 Section 3406 of the Tax Code, backup withholding may be imposed on payments on the Bonds made to any owner who fails to provide certain required information, including an accurate taxpayer identification number, to certain persons required to collect such information pursuant to the Tax Code. Backup withholding may also be applied if the owner underreports reportable payments (including interest and dividends) as defined in Section 3406, or fails to provide a certificate that the owner is not subject to backup withholding in circumstances where such a certificate is required by the Tax Code. All of the Bonds were sold at a premium, representing a difference between the original offering price of those Bonds and the principal amount thereof payable at maturity. Under certain circumstances, an initial owner of such bonds (if any) may realize a taxable gain upon their disposition, even though such bonds are sold or redeemed for an amount equal to the owner s acquisition cost. Bond Counsel s opinion relates only to the exclusion of interest on the Bonds from gross income and alternative minimum taxable income as described above and will state that no opinion is expressed regarding other federal tax consequences arising from the receipt or accrual of interest on or ownership of the Bonds. Owners of the Bonds should consult their own tax advisors as to the applicability of these consequences. The opinions expressed by Bond Counsel are based on existing law as of the delivery date of the Bonds. No opinion is expressed as of any subsequent date nor is any opinion expressed with respect to pending or proposed legislation. Amendments to the federal or state tax laws may be pending now or could be proposed in the future that, if enacted into law, could adversely affect the value of the Bonds, the exclusion of interest on the Bonds from gross income or alternative minimum taxable income or both from the date of issuance of the Bonds or any other date, the tax value of that exclusion for different classes of taxpayers from time to time, or that could result in other adverse tax consequences. In addition, future court actions or regulatory decisions could affect the tax treatment or market value of the Bonds. Owners of the Bonds are advised to consult with their own tax advisors with respect to such matters. The Internal Revenue Service (the Service ) has an ongoing program of auditing tax-exempt obligations to determine whether, in the view of the Service, interest on such taxexempt obligations is includable in the gross income of the owners thereof for federal income tax purposes. No assurances can be given as to whether or not the Service will commence an audit of the Bonds. If an audit is commenced, the market value of the Bonds may be adversely affected. Under current audit procedures the Service will treat the City as the taxpayer and the Bond owners may have no right to participate in such procedures. The City has covenanted in the Bond Ordinance not to take any action that would cause the interest on the Bonds to lose its exclusion from gross income for federal income tax purposes or lose its exclusion from alternative minimum taxable income except to the extent described above for the owners thereof for federal income tax purposes. None of the City, the Financial Advisor, Bond Counsel or Special Counsel is responsible for paying or reimbursing any Bond owner with respect to any audit or litigation costs relating to the Bonds. State Tax Exemption The Bonds, their transfer, and the income therefrom are free and exempt from taxation by the State or any subdivision thereof except for the tax on estates imposed pursuant to Chapter 375A of NRS and the tax on generation-skipping transfers imposed pursuant to Chapter 375B of NRS. 61

70 FINANCIAL INSTITUTION INTEREST DEDUCTION The Tax Code generally provides that a financial institution may not deduct that portion of its interest expense which is allocable to tax-exempt interest. The interest expense which is allocable to tax-exempt interest is an amount which bears the same ratio to the institution s interest expense as the institution s average adjusted basis of tax-exempt obligations acquired after August 7, 1986 bears to the average adjusted basis of all assets of the institution. Tax-exempt obligations may be treated as if issued prior to August 7, 1986 (and therefore are not subject to this rule), if they are qualified tax-exempt obligations as defined in the Tax Code and are designated for this purpose by the City. The City has designated the Bonds for this purpose; however, under provisions of the Tax Code dealing with financial institution preference items, certain financial institutions, including banks, are denied 20% of their otherwise allowable deduction for interest expense with respect to obligations incurred or continued to purchase or carry the Bonds. In general, interest expense with respect to obligations incurred or continued to purchase or carry the Bonds will be in an amount which bears the same ratio as the institution s average adjusted basis in the Bonds bears to the average adjusted basis of all assets of the institution. Amendments to the Tax Code could be enacted in the future and there is no assurance that any such future amendments which may be made to the Tax Code will not adversely affect the ability of banks or other financial institutions to deduct any portion of its interest expense allocable to tax-exempt interest. Litigation LEGAL MATTERS In the opinion of the City Attorney, there is no litigation or controversy of any nature now pending, or to the knowledge of the City Attorney threatened: (i) restraining or enjoining the issuance, sale, execution or delivery of the Bonds or (ii) in any way contesting or affecting the validity of the Bonds or any proceedings of the City taken with respect to the issuance or sale thereof or the pledge or application of any moneys or security provided for the payment of the Bonds, including the Net Revenues. Further, the City Attorney states that as of the date hereof, to the best of his knowledge, although the City is subject to certain pending or threatened litigation or administrative proceedings, these matters either are adequately covered by insurance or, to the extent not insured, the final settlement thereof is not expected to materially, adversely affect the financial position of the City. Approval of Certain Legal Proceedings The approving opinion of Sherman & Howard L.L.C., as Bond Counsel, will be delivered with the Bonds. The form of the Bond Counsel opinion is attached to this Official Statement as Appendix E. The opinion will include statements that the obligations of the City are subject to the reasonable exercise in the future by the State and its governmental bodies of the police power inherent in the sovereignty of the State and to the exercise by the United States of the powers delegated to it by the federal constitution, including bankruptcy. Sherman & Howard L.L.C. has also acted as Special Counsel to the City in connection with this Official Statement. Certain matters will be passed upon for the City by the City Attorney. 62

71 Police Power The obligations of the City are subject to the reasonable exercise in the future by the State and its governmental bodies of the police power and powers of taxation inherent in the sovereignty of the State, and to the exercise by the United States of the powers delegated to it by the federal constitution (including bankruptcy). Sovereign Immunity Pursuant to State statute (NRS ), an award for damages in an action sounding in tort against the City may not include any amount as exemplary or punitive damages and is limited to $100,000 per cause of action. The limitation does not apply to federal actions brought under federal law such as civil rights actions under 42 U.S.C. Section 1983 and actions under The Americans with Disabilities Act of 1990 (P.L ), or to actions in other states. RATINGS Moody s Investors Service ( Moody s ) has assigned the Bonds the rating of A1, which is the highest of the rating based on the delivery of the Financial Guaranty Insurance Policy or the published underlying rating of the City. Based on the delivery of the Financial Guaranty Insurance Policy, S&P Global Ratings ( S&P ) and Kroll Bond Rating Agency, Inc. ( KBRA ) have assigned the Bonds the insured rating of AA-, and AA+, respectively. An explanation of the significance of any rating given by Moody s may be obtained from Moody s at 7 World Trade Center at 250 Greenwich Street, New York, New York An explanation of the significance of any rating given by S&P may be obtained from S&P at 55 Water Street, New York, New York An explanation of the significance of any rating given by KBRA may be obtained from KBRA at 1 Manhattanville Road, Suite 301, Purchase, New York Such ratings, when received, reflect only the views of such rating agencies, and there is no assurance that any rating, once received, will continue for any given period of time or that the rating will not be revised downward or withdrawn entirely by the applicable rating agency if, in its judgment, circumstances so warrant. Any such downward revision or withdrawal of such ratings may have an adverse effect on the market price of the Bonds. Except for its responsibilities under the Disclosure Certificate, the City has not undertaken any responsibility to bring to the attention of the owners of the Bonds any proposed change in or withdrawal of such ratings once received or to oppose any such proposed revision. INDEPENDENT AUDITORS The audited basic financial statements of the City as of and for the year ended June 30, 2015, and the reports rendered thereon by HintonBurdick, PLLC, certified public accountants, St. George, Utah, have been included in this Official Statement as Appendix A. The audited financial statements of the City are public documents and pursuant to State law, no consent from the auditors is required to be obtained prior to inclusion of the audited financial statements in this Official Statement. The City has not requested that the auditor provide consent for inclusion of its audited financial statements in this Official Statement. The auditor has also not participated in any way in the preparation of this Official Statement. 63

72 Further, since the date of its report, the auditor has not been engaged to perform nor has it performed any procedures on the financial statements addressed in its report, nor has it performed any procedures relating to this Official Statement. FINANCIAL ADVISOR JNA Consulting Group, LLC is serving as financial advisor to the City in connection with the Bonds. The Financial Advisor has not audited, authenticated or otherwise verified the information set forth in the Official Statement, or any other related information available to the City, with respect to the accuracy and completeness of disclosure of such information and no guaranty, warranty or other representation is made by JNA Consulting Group, LLC respecting accuracy and completeness of the Official Statement or any other matter related to the Official Statement. UNDERWRITING The City sold the Bonds at public sale to Piper Jaffray & Co. (the Initial Purchaser ) at a purchase price equal to $9,232, (equal to the par amount of the Bonds, plus original issue premium of $290,158.10, and less underwriting discount of $143,121.81). OFFICIAL STATEMENT CERTIFICATION The undersigned official of the City hereby confirms that the execution and delivery of this Official Statement and its use in connection with the offering and sale of the Bonds have been duly authorized by the Council. CITY OF FERNLEY, NEVADA By: /s/ Denise Lewis Chief Financial Officer 64

73 APPENDIX A AUDITED BASIC FINANCIAL STATEMENTS OF THE CITY AS OF AND FOR THE FISCAL YEAR ENDED JUNE 30, 2015 A-1

74 COMPREHENSIVE ANNUAL FINANCIAL REPORT FISCAL YEAR ENDED JUNE 30, 2015 City of Fernley Nevada

75 CITY OF FERNLEY, NEVADA COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED JUNE 30, 2015 Prepared by: City of Fernley Finance Department

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77 CITY OF FERNLEY, NEVADA Table of Contents Page INTRODUCTORY SECTION Letter of Transmittal... i Organizational Chart... vi List of Principal Officials... vii GFOA Certificate of Achievement... viii FINANCIAL SECTION Independent Auditors Report... 1 Management s Discussion and Analysis... 5 Basic Financial Statements: Government-wide Financial Statements: Statement of Net Position Statement of Activities Fund Financial Statements: Balance Sheet Governmental Funds Reconciliation of the Balance Sheet of Governmental Funds to the Statement of Net Position Statement of Revenues, Expenditures, and Changes in Fund Balances Governmental Funds Reconciliation of the Statement of Revenues, Expenditures, and Changes in Fund Balances of Governmental Funds to the Statement of Activities Statement of Net Position Proprietary Funds Statement of Revenues, Expenses, and Changes in Net Position Proprietary Funds Statement of Cash Flows Proprietary Funds Statement of Net Position Fiduciary Fund Notes to the Financial Statements Required Supplementary Information: Schedule of the Proportionate Share of the Net Pension Liability Schedule of Contributions Schedule of Funding Progress Other Post Employment Plans Schedule of Revenues, Expenditures (Expenses), and Changes in Fund Balances Budget and Actual: General Fund Grants Special Revenue Fund... 68

78 CITY OF FERNLEY, NEVADA Table of Contents (Continued) Supplementary Information: Combining and Individual Fund Statements and Schedules: Combining Balance Sheet Non-major Governmental Funds Combining Statement of Revenues, Expenditures and Changes in Fund Balances Non-major Governmental Funds Schedules of Revenues, Expenditures, and Changes in Fund Balances Budget and Actual Non-major Governmental Funds: Municipal Court Administrative Fees Special Revenue Fund Municipal Court Facilities Fees Special Revenue Fund Transient Lodging Tax Special Revenue Fund Capital Projects Fund Capital Improvement Capital Projects Fund Schedules of Revenues, Expenses, and Changes in Net Position Budget and Actual Enterprise Funds: Water Utility Enterprise Fund Sewer Utility Enterprise Fund Agency Funds: Municipal Trust Fund Statement of Changes in Assets and Liabilities STATISTICAL SECTION Financial Trends: Net Position by Component Change in Net Position Fund Balances of Governmental Funds Changes in Fund Balances of Governmental Funds Revenue Capacity: Assessed and Estimated Actual Value of Taxable Property Property Tax Rates Direct and Overlapping Governments Principal Property Owners Water User Fees Principal Water Users... 95

79 CITY OF FERNLEY, NEVADA Table of Contents (Continued) Debt Capacity: Ratios of Outstanding Debt by Type Ratios of General Bonded Debt Outstanding Computation of General Obligation Direct and Overlapping Debt Computation of Legal Debt Margin Water and Sewer Funds Revenue Bond Coverage Demographic and Economic Information: Demographic Statistics Major Employers Operating Information: Full-time Equivalent City Government Employees by Function/Program Operating Indicators by Function/Program Capital Asset Statistics by Function/Program COMPLIANCE SECTION: Independent Auditors Report on Internal Control over Financial Reporting and on Compliance and Other Matters Independent Auditors Report on Compliance Applicable to Each Major Program and on Internal Control over Compliance in Accordance with OMB Circular A Summary of Auditors Results Financial Statement Findings Federal Award Findings and Questioned Costs Summary of Prior Year Findings and Questioned Costs Schedule of Expenditures of Federal Awards Notes to the Schedule of Expenditures of Federal Awards Independent Auditors Report on Compliance with State Fiscal Laws Schedule of Fees Imposed Subject to the Provisions of NRS Limitation of Fees for Business Licenses

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81 City of Fernley Finance Department Treasury Budgeting Accounting Payroll Accounts Payable Debt Management Investment Mgmt. November 24, 2015 To the Honorable Mayor, Members of the City Council, and Residents of the City of Fernley Nevada: The comprehensive annual financial report (CAFR) for the City of Fernley for the fiscal year ended June 30, 2015 is hereby submitted. State law requires that local governments provide for an annual audit by independent certified public accountants of its financial statements in accordance with auditing standards generally accepted in the United States of America. This report consists of management s representations concerning the finances of the City of Fernley. Consequently, management assumes full responsibility for the completeness and reliability of all the information presented in the report. To provide a reasonable basis for making these representations, management of the City of Fernley has established a comprehensive internal control framework that is designed both to protect the City s assets from loss, theft, or misuse and to compile sufficient reliable information for the preparation of the City of Fernley s financial statements in conformity with accounting principles generally accepted in the United States of America (GAAP). Because the cost of internal controls should not outweigh their benefits, the City of Fernley s comprehensive framework of internal controls has been designed to provide reasonable rather than absolute assurance that the financial statements will be free from material misstatement. As management, we assert that, to the best of our knowledge and belief, this financial report is complete and reliable in all material respects. The City of Fernley s financial statements have been audited by Hinton, Burdick CPAs & Advisors, a firm of licensed certified public accountants. The goal of the independent audit was to provide reasonable assurance that the financial statements of the City of Fernley for the fiscal year ended June 30, 2015 are free of material misstatement. The independent audit involved examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements; assessing the accounting principles used and significant estimates made by management; and evaluating the overall financial statement presentation. The independent auditor concluded based upon the audit, that there was a reasonable basis for rendering an unqualified opinion that the City of Fernley s financial statements for the fiscal year ended June 30, 2015, are fairly presented in conformity with 595 Silver Lace Blvd. Fernley NV Telephone: (775) Fax: (775)

82 City of Fernley Finance Department GAAP. The independent auditor s report is presented as the first component of the financial section of this report. This is the eighth consecutive year the City has required the single audit. Because the City of Fernley expended more that $500,000 in federal financial assistance during the fiscal year ended June 30, 2015, the City of Fernley was required to have the federally mandated Single Audit designed to meet the special needs of federal grantor agencies. The standards governing Single Audit engagements require the independent auditors to report not only on the fair presentation of the financial statements, but also on the audited government s internal controls and compliance with legal requirements, with special emphasis on internal controls and legal requirements involving the administration of federal awards. GAAP requires that management provide a narrative introduction, overview, and analysis to accompany the basic financial statements in the form of a Management s Discussion and Analysis (MD&A). This letter of transmittal is designed to complement the MD&A and should be read in conjunction with it. The City of Fernley s MD&A can be found immediately following the report of the independent auditors. Profile of the Government The City of Fernley the City was incorporated in 2001 under the provisions of Nevada Revised Statutes (NRS) Chapter 266. The City is located in western Nevada, occupies a land area of 164 square miles and serves a population of 19,368 according to the United States Census taken in The City is empowered to levy a property tax on both real and personal properties located within its boundaries. The City operates under the Council/Manager form of government. Policy-making and legislative authority are vested in a governing council consisting of the Mayor and five City Council members. The City Council is responsible for establishing policy, passing ordinances, adopting the budget, appointing committees and establishing the organizational structure of the City. Pursuant to NRS, the Mayor is the Chief Executive Officer of the City. The City Manager is the Chief Administrative Officer of the City. This individual is responsible for carrying out the policies and ordinances of the City Council, for overseeing the day-to-day operations of the City and for supervising the heads of various departments. The City Council members are elected by Ward to serve four-year staggered terms. The Mayor is elected citywide to serve a four-year term. The City provides a wide range of services, including construction and maintenance of streets and infrastructure; water and sewer services; recreational activities and events; vector and animal control; building and planning services; municipal court services; cemetery services; and general administrative services. The City of Fernley contracts with the Lyon County Sheriff for law enforcement services. The City contracts with Lyon ii

83 City of Fernley Finance Department County for animal shelter services. Fire protection services are provided through the legally separate North Lyon County Fire Protection District. The Fernley Swimming Pool District owns and operates a swimming pool in Fernley. Lyon County and the Lyon County School District also provide regional services in Fernley. The annual budget serves as the foundation for the City of Fernley s financial planning and control. All departments of the City of Fernley are required to submit requests for appropriation to the City Manager and Treasurer in January of each year. The two use these requests as the starting point for developing a proposed budget. A series of City Council workshops are held to discuss the budget and during these workshops, the City Manager, the City Treasurer and department heads present their proposed budgets to the City Council for review. The City Council is required to hold a public hearing on the proposed budget and then adopt a final budget by no later than June 1 of each year. The appropriated budget is a policy document prepared by fund, function, and department. Department heads may make transfers of appropriations and depending on the department, function and fund, the City Treasurer or the City Council may authorize the transfer of appropriations. Factors Affecting Financial Condition and Outlook The information presented in the financial statements is perhaps best understood when it is considered from the broader perspective of the specific environment within which the City of Fernley operates. Local Economy The City of Fernley is the largest city in rural Nevada and the 6 th largest in the State of Nevada. Fernley is 35% of the current population in Lyon County with a Median Age of 34.8, reflecting a younger work force in comparison with other Nevada cities. Fernley is within a 600-mile, one-day service radius of major western cities such as Los Angeles, San Francisco, Portland and Las Vegas and benefits from a varied manufacturing and industrial base that adds to the relative stability of employment. Major employers within the City s boundaries include Trex, Honeywell, MSC, World Color Printing and Sherwin-Williams. Firms seeking a business friendly environment turn to Fernley, due in part to its proximity to Interstate 80, rail service, U.S. 50A, U.S. 95A and the Reno-Tahoe International Airport. The City of Fernley and its economic development partners are aggressive in recruiting new businesses, and retaining existing ones. Elected officials and staff work with these partners and institutions of higher education to identify and market Fernley to potential investors. iii

84 City of Fernley Finance Department Long-term financial planning The City of Fernley has many long range plans and City Council has established key priorities as follows: Road improvement and maintenance Community development/permitting Consolidated tax Parks improvement and maintenance Storm drains Water management/water rights Water meters Fire hydrants Water and sewer infrastructure maintenance Water and sewer rate study Sewer equipment maintenance Sewer preventative maintenance Management of the City of Fernley annually updates the Capital Improvement Plan required by state statute and continues to prepare the necessary facilities plans for ultimate development of a more comprehensive Capital Improvement Plan. Relevant Financial Policies Cash Management Policies and Practices: Cash utilized for current operations and payment of bond and other debt is held in the City s operating bank account. Cash temporarily idle during the year is invested in the Local Government Pooled Long-Term Investment Account (NVEST) and the Nevada Local Government Investment Pool (LGIP). The City follows NRS investment guidelines when it comes to investing public monies. The City s investment policy is to minimize credit and market risks while maintaining a competitive yield on its portfolio. The City s bank deposits are covered by FDIC insurance and are collateralized. LGIP and NVEST deposits are collateralized by the Office of the State Treasurer/Nevada Collateral Pool. Risk Management: As authorized by state law, the City does not self-insure its unemployment insurance benefits but participates in the State unemployment system. The City participates in the Nevada Public Agency Insurance Pool for risk of loss related to torts, property damage/loss, errors and omissions, and natural disasters. The City participates in the Public Agency Compensation Trust for workers compensation coverage. The City provides employee health and dental insurance through Anthem Blue iv

85

86 Organizational Chart The City of Fernley is a hybrid between a Strong Mayor and a City-Manager form of government. The Mayor serves as the Chief Executive Officer of the organization, while the City Manager services as the Chief Administrative Officer overseeing the day-to-day administration of the City staff. The City Council is the legislative body, establishes goals and guidance, and establishes the budget for the organization. There are five appointed City officials including the City Treasurer, the City Clerk, the City Attorney, the Municipal Court Judge, and the City Manager. The Fernley Municipal Code and the Nevada Revised Statutes outline the responsibilities for these positions. The City of Fernley has previously had 58 employees to deliver services required for City government. The proposed organizational chart requests FTEs, although one position (one building inspector) is unfunded. The proposed organizational chart for the City of Fernley is as follows: vi

87 CITY OF FERNLEY, NEVADA LIST OF PRINCIPAL OFFICIALS City Council Mayor Council Member Ward 1 Council Member Ward 2 Council Member Ward 3 Council Member Ward 4 Council Member Ward 5 Roy Edgington Shari Whalen Dan McCassie Stan Lau Susan Seidl Cal Eilrich The Fernley City Council meets in regular session the first and third Wednesday of the month in the Council chambers in City Hall located at 595 Silver Lace Boulevard, Fernley, Nevada. Staff City Manager Daphne Hooper City Attorney Brandi Jensen City Treasurer Denise Lewis Municipal Court Judge Lori Matheus City Clerk Kim Swanson Community Development Director Mojra Hauenstein Public Works Director Dave Whalen vii

88 viii

89 FINANCIAL SECTION

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91 MEMBERS: CHAD B. ATKINSON, CPA MORRIS J PEACOCK, CPA KRIS J. BRAUNBERGER, CPA PHILLIP S. PEINE, CPA ROBERT S. COX, CPA MICHAEL K. SPILKER, CPA TODD B. FELTNER, CPA KEVIN L. STEPHENS, CPA K. MARK FROST, CPA MARK E. TICHENOR, CPA STEVEN D PALMER, CPA Independent Auditors Report The Honorable Mayor and City Council City of Fernley, Nevada Report on the Financial Statements We have audited the accompanying financial statements of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City of Fernley, Nevada, as of and for the year ended June 30, 2015, and the related notes to the financial statements, which collectively comprise the City s basic financial statements as listed in the table of contents. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor s Responsibility Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. Opinions In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City of Fernley, as of June 30, 2015, and the respective changes in financial position, and where applicable, cash flows thereof for the year then ended in accordance with accounting principles generally accepted in the United States of America. 1 CEDAR CITY FLAGSTAFF HURRICANE MESQUITE PHOENIX RICHFIELD ST. GEORGE

92 Change in Accounting Principle As described in note 1 to the financial statements, the City of Fernley implemented GASB Statement No. 68, Accounting and Financial Reporting for Pensions, as amended by GASB Statement No. 71, Pension Transition for Contributions Made Subsequent to the Measurement Date. Our opinion is not modified with respect to this matter. Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the management s discussion and analysis on pages 5-17, the schedule of the proportionate share of the net pension liability on page 60, the schedule of contributions on page 61, the schedule of funding progress-other postemployment benefit plans on page 62, and the budgetary comparison information on pages 64-68, be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Other Information Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the City of Fernley s basic financial statements. The introductory section, combining statements and individual nonmajor fund and enterprise fund budgetary comparison schedules, and statistical section are presented for purposes of additional analysis and are not a required part of the basic financial statements. The schedule of expenditures of federal awards is presented for purposes of additional analysis as required by U.S. Office of Management and Budget Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations, and is also not a required part of the financial statements. The combining statements and individual nonmajor fund and enterprise fund budgetary comparison schedules 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 basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the combining statements, individual nonmajor fund and enterprise fund budgetary comparison schedules, and the schedule of expenditures of federal awards are fairly stated in all material respects in relation to the basic financial statements as a whole. The introductory section and statistical section have not been subjected to the auditing procedures applied in the audit of the basic financial statements and, accordingly, we do not express an opinion or provide any assurance on them. 2

93 Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated November 16, 2015, on our consideration of the City of Fernley s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the City of Fernley s internal control over financial reporting and compliance. HintonBurdick, PLLC St. George, Utah November 16,

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95 Management s Discussion and Analysis As management of the City of Fernley (City), we offer readers of the City s financial statements this narrative overview and analysis of the City s financial performance during the fiscal year ended June 30, This report provides financial information on the City as a whole and by fund. We encourage readers to consider the information presented here in conjunction with the City s letter of transmittal and the financial statements, which follow this section. Financial Highlights The City s total net position was $136,899,140 at June 30, 2015 The City s total expenses were $18,362,165 at June 30, 2015 Business-Type Activities revenue: o Water: $10,613,454 o Sewer: $2,582,932 Governmental Activities revenue: $6,313,754 The City s total revenue was $19,510,140 at June 30, 2015 Overview of the Financial Statements This discussion and analysis is intended to serve as an introduction to the City s basic financial statements. The City s basic financial statements comprise three components: 1) government-wide financial statements, 2) basic fund financial statements, and 3) notes to the financial statements. This report also contains other supplementary information in addition to the basic financial statements themselves. Government-wide financial statements. The government-wide financial statements are designed to provide readers with a broad overview of the City s finances, in a manner similar to a private-sector business. The Statement of Net Position presents information on all of the City s assets and liabilities, with the differences between the two reported as net position. Over time, increases or decreases in net assets may serve as a useful indicator of whether the financial position of the City is improving or deteriorating. The Statement of Activities presents information showing how the government s net position changed during the most recent fiscal year. All changes in net position are reported as soon as the underlying event giving rise to the change occurs, regardless of the timing of related cash flows. Thus, revenues and expenses are reported in this statement for some items that will only result in cash flows in future fiscal periods (e.g., uncollected taxes and earned but unused vacation leave). Each of the government-wide financial statements identify the activities of the City that are principally supported by taxes and intergovernmental revenues (governmental activities) and the activities that are intended to recover all or a significant portion of their costs 5

96 through user fees and charges (business-type activities). The governmental activities of the City include general government, judicial, public works, culture and recreation, community development and health functions. The business-type activities of the City include water and sewer functions. The government-wide financial statements can be found on pages 20 and 21 of this report. Basic 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 City, like other state and local governments, uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. All of the funds of the City can be divided into three categories: governmental funds, proprietary funds, and fiduciary funds. Governmental funds. Governmental funds are used to account for essentially the same functions reported as governmental activities in the government-wide financial statements. However, unlike the government-wide financial statements, governmental fund financial statements focus on near-term inflows and outflows of spendable resources, as well as on balances of spendable resources available at the end of the fiscal year. Such information may be useful in evaluating a government s near-term financing requirements. Because the focus of governmental funds is narrower than that of the government-wide financial statements, it is useful to compare the information presented for governmental funds with similar information presented for governmental activities in the governmentwide financial statements. By doing so, readers may better understand the long-term impact of the government s near-term financing decisions. Both the governmental fund balance sheet and the governmental fund statement of revenues, expenditures, and changes in fund balance provide a reconciliation to facilitate this comparison between governmental funds and governmental activities. The City maintains eight individual governmental funds. Information is presented separately in the governmental fund balance sheet and in the governmental fund statement of revenues, expenditures, and changes in fund balances for the General Fund and the Grants Fund, which are considered major funds. Data for the remaining, non-major governmental funds are combined into a single, aggregated presentation. Individual fund data for each of these nonmajor governmental funds is provided in the form of combining statements elsewhere in this report. The City adopts an annual appropriated budget for its General Fund. A budgetary comparison statement has been provided for the General Fund to demonstrate compliance with this budget. The basic governmental fund financial statements can be found on pages 22 through 25 of this report. 6

97 Proprietary funds. The City maintains two proprietary funds as enterprise funds to account for its potable water and sewer (wastewater) operations. Enterprise Funds are used to report the same functions presented as business-type activities in the government-wide financial statements. Proprietary funds provide the same type of information as the government-wide financial statements, only in more detail. The Proprietary Fund financial statements provide separate information for the water and sewer operations. The Water Fund and Sewer Fund are considered to be major funds of the City. The basic Enterprise Fund financial statements can be found on pages 26 through 28 of this report. Fiduciary funds. Fiduciary funds are used to account for resources held for the benefit of parties outside the government. Fiduciary funds are not reflected in the government-wide financial statements because the resources of those funds are not available to support the City s own programs. The accounting used for fiduciary funds is much like that used for proprietary funds. The basic Fiduciary Fund financial statements can be found on page 29 of this report. Notes to the financial statements. The notes provide additional information that is essential to a full understanding of the data provided in the government-wide and fund financial statements. The notes to the financial statements can be found on pages 30 through 57 of this report. Other Information. In addition to the basic financial statements and accompanying notes, this report also presents certain supplementary information. The combining statements referred to earlier in connection with nonmajor governmental funds are presented immediately following the required supplementary information. Combining and individual fund statements and schedules can be found on pages 71 through 77 of this report. Government-wide Financial Analysis One of the most important questions asked about the City s finances is Is the City as a whole better off or worse off as a result of this year s activities? The statement of activities reports information about the City s activities in a way that will help answer this question. The statement of net position presents information on all of the City s assets and liabilities, with the difference between the two 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 City is improving or deteriorating. These two statements report the net position of the City and the changes in them. However, considerations should also be given to other non-financial factors such as changes in economic conditions, population growth and new or changed governmental legislation. 7

98 The following table represents a summary of the City s statement of net position. City of Fernley s Net Position Governmental activities Business-type activities Combined Total 6/30/2015 6/30/2014 6/30/2015 6/30/2014 6/30/2015 6/30/2014 Current assets $ 5,993,208 $ 5,385,159 $ 17,463,445 $ 15,909,979 $ 23,456,653 $ 21,295,138 Capital assets 41,255,679 42,513, ,847, ,918, ,103, ,431,482 Total assets 47,248,887 47,898, ,310, ,828, ,559, ,726,620 Deferred outflows of resources 473,943-1,527,720-2,001,663 - Noncurrent liabilities 6,641,527 4,273,939 73,182,972 73,994,184 79,824,499 78,268,123 Other liabilities 1,127, ,753 4,350,007 2,244,603 5,477,909 3,114,356 Total liabilities 7,769,429 5,143,692 77,532,979 76,238,787 85,302,408 81,382,479 Deferred inflows of resources 825, ,477-1,359,993 - Net position: Net investment in capital assets 37,695,679 38,673,348 83,801,681 85,184, ,497, ,858,132 Restricted 495, , , ,478 1,084,093 1,039,834 Unrestricted 937,118 3,630,111 13,380,569 12,816,064 14,317,687 16,446,175 Total net position $ 39,127,885 $ 42,754,815 $ 97,771,255 $ 98,589,326 $ 136,899,140 $ 141,344,141 The following table summarizes the change in net position for the current fiscal year: Governmental activities Business-type activities Combined Total 6/30/2015 6/30/2014 6/30/2015 6/30/2014 6/30/2015 6/30/2014 Revenues: Program revenues: Charges for services $ 2,163,481 $ 2,058,184 $ 8,242,115 $ 10,479,831 $ 10,405,596 $ 12,538,015 Operating grants and contributions 933,829 1,008, ,829 1,008,428 Capital grants and contributions 404, ,222 1,555, ,543 1,960,162 1,117,765 General revenues: Property taxes 2,199,262 2,145, ,199,262 2,145,992 State consolidated taxes 143, , , ,402 Other taxes 462, ,330 3,378,183-3,841, ,330 Other 6, ,164 20,361 35,376 26, ,540 Total revenues 6,313,754 6,401,722 13,196,386 11,016,750 19,510,140 17,418,472 Expenses: General government 2,283,841 1,991, ,283,841 1,991,411 Judicial 276, , , ,892 Public works 2,001,841 2,202, ,001,841 2,202,499 Health 194, , , ,690 Culture and recreation 788,165 1,384, ,165 1,384,571 Community development 937, , , ,079 Interest and fiscal charges 88,060 92, ,060 92,415 Water - - 9,319,610 9,323,274 9,319,610 9,323,274 Sewer - - 2,472,798 2,492,747 2,472,798 2,492,747 Total expenses 6,569,757 6,951,557 11,792,408 11,816,021 18,362,165 18,767,578 Increase (decrease) in net position (256,003) (549,835) 1,403,978 (799,271) 1,147,975 (1,349,106) Net position, beginning 42,754,815 43,304,650 98,589,326 99,547, ,344, ,852,504 Prior period adjustment 61, ,092 - Restatement adjustments* (3,432,019) - (2,222,049) (159,257) (5,654,068) (159,257) Net position, ending $ 39,127,885 $ 42,754,815 $ 97,771,255 $ 98,589,326 $ 136,899,140 $ 141,344,141 *Restatement due to the implementation of GASB 68. Please see note disclosures #1 and #13, pages 37 and 57. 8

99 While the statement of net position shows the financial position of the City, the statement of activities provides answers as to the nature and source of these changes. From a government-wide perspective and as reported in the statement of activities, the City s total net position at June 30 as compared to prior year decreased $4,445,001. This is a result of the restatements reported for both governmental activities and business-type activities as required by GASB Statement No. 68, Accounting and Financial Reporting for Pensions. This Statement established standards for measuring and recognizing net pension assets and liabilities, deferred outflows and inflows of resources and the expenses/expenditures related to pension benefits provided through defined benefit pension plans such as PERS. Statement No. 68 requires disclosure of information related to pension benefits and implementation resulted in a restatement of beginning net position in the City s government-wide and proprietary fund financial statements. Governmental activities decreased the City s net position by $3,626,930. Business-type activities decreased the City s net position by $818,071. Out of the seven governmental funds, only the capital fund reported a deficiency. The water and sewer funds each reported operating losses. Total City revenues increased by $2,075,954. The increase in revenues is mainly due to an increase in capital grants for business-type activities. At the close of the current fiscal year, the City s total assets exceeded its total liabilities by $136,257,470. The City has total positive working capital of $19,868,952. The majority of the City s net position (89% or $121,497,360) reflects its investment in capital assets (e.g., land, buildings, machinery, and equipment); net of any related outstanding debt used to acquire those assets. The City uses these capital assets to provide services to citizens; consequently, these assets are not available for future spending. Although the City s investment in its capital assets is reported net of related debt, it should be noted that the resources needed to repay this debt must be provided from other sources, since the capital assets themselves cannot be used to liquidate these liabilities. A portion of the City s net position (1% or $1,084,093) represents resources that are subject to external restrictions on how they may be used. The remaining balance of unrestricted net position (10% or $14,317,687) may be used to meet the government s ongoing obligations to citizens and creditors. At the close of the current fiscal year, the City is able to report positive balances in all three categories of net position, to include net investment in capital assets, restricted and unrestricted. The same situation held true for the prior fiscal year. 9

100 Fund Financial Analysis Governmental Funds The focus of the City s governmental funds is to provide information on the near-term inflows, outflows, and balances of available financial resources. Such information is useful in assessing the City s financing requirements. In particular, fund balance may serve as a useful measure of a government s net resources available for spending at the end of the fiscal year. From a fund perspective, at of the close of the current fiscal year, the City s governmental funds reported combined ending fund balances of $5,219,179, an increase of $746,589 in comparison with the prior year. The increase is primarily the result of an increase total assets and a decrease in total liabilities. The General Fund is the main operating fund of the City. At the close of the current fiscal year, fund balance for the General Fund was $3,808,619. This ending fund balance represents 77% of General Fund expenditures. General Fund non-spendable fund balance, which represents inventories and prepaids, is $10,812; General Fund restricted fund balance, which includes amounts constrained for a specific purpose by external parties, is $370,168; General Fund committed fund balance, which represents funds constrained by Council for debt service and public works projects, is $2,407,946 for the current year. The General Fund assigned fund balance, which is based on the intended use of the funds, is $47,349; the remaining General Fund fund balance of $397,344 is unassigned. Unassigned fund balance represents 8.3% of total General Fund expenditures less capital outlay. At the close of the current fiscal year, excess of revenues over expenditures for the General Fund was $580,340. In addition, the General Fund had positive working capital of $3,833,371. Other governmental funds include the Grants Fund, which is used to track revenues and expenditures for various grants that the City has applied for and received. Since the Grants Fund is only used to account for federal and state grants, the fund should not accumulate a large fund balance. Therefore, the Grants Fund ended the fiscal year with a fund balance of $0. Governmental funds also include those such as the Municipal Court Administration Fees Fund, the Municipal Court Facilities Fees Fund, the Capital Improvement Fund, the Capital Projects Fund and the Transient Lodging Tax Fund (TLT). The Capital Projects Fund is used to account for funds to be used for the acquisition or construction of capital assets, other than those of Enterprise Funds. Fund balance for the Capital Projects fund at year end is $560,535. The TLT Fund is used to account for taxes collected for transient accommodations. A portion of the tax collected is reserved for future facilities and a portion is provided as grant awards. Fund balance for the TLT Fund at year end is $725,106, with $562,851 committed for future facilities. 10

101 FY 15 Governmental Funds Revenues (thousands) $65, 1% $269, 4% $216, 4% $1,557, 24% $1,798, 28% $2,487, 39% Taxes Licenses, permits & fees Intergovernmental Fines & forfeitures Investment earnings Other revenues The total of governmental fund revenues as of June 30 is $6,333,220. The two main sources of governmental revenues are taxes and licenses/permits/fees. Taxes make up 39% of revenues and include property taxes and transient lodging taxes. Licenses, permits and fees make up 28% of revenues and include business licenses, franchise fees, liquor licenses, gaming licenses, animal licenses, passport fees, permitting fees, planning fees and inspection fees. Intergovernmental revenues make up 24% of revenues and include consolidated tax, motor vehicle fuel tax and County parks and roads contributions. Fines and forfeitures make up 4% of revenues and include municipal court penalties/fines and warrant fees. Investment earnings make up 1% of revenues and includes interest income. Other revenues, which make up 4% of revenues, includes cemetery fees, donations, reimbursements and other fees. 11

102 FY 15 Governmental Funds Expenditures (thousands) 368, 7% 83, 1% 952, 17% 743, 13% 196, 3% $278, 5% $1,974, 35% $1,054, 19% General government Public works Judicial Health Culture & recreation Community support Debt service Capital outlay The total of governmental fund expenditures as of June 30 is $5,647,723. Within the governmental funds, there six different functions for which there are outlays of expenditures reported and within the functions there are departments. The general government function, which has 35% of outlays, includes the following departments: Mayor/City Council, City Manager, City Attorney, City Clerk, City Treasurer, Facilities and Information Technology. The public works function, which has 19% of outlays includes the streets/stormdrains department. The judicial function, which has 5% of outlays, includes the municipal court. The health function, which has 3% of outlays, includes the cemetery, animal control and vector control departments. The culture and recreation function, which has 13% of outlays, includes the parks department. The community support function, which has 17% of outlays, includes the building and planning departments. Debt service is reported separately and is 7% of outlays and includes principal and interest payments for the City s administration building. Finally, capital outlay, which is also reported separately, is 1% of governmental expenditures and includes outlay for large projects only. 12

103 Proprietary Funds Whereas government funds measure and report available financial resources, proprietary funds measure and report economic resources. Proprietary funds are business-like funds and include the City s water and sewer Enterprise Funds. At the close of the current fiscal year, the City s Enterprise Funds reported a combined ending net position of $97,771,255, a decrease of $818,071 in comparison with the prior year. This is due in part to operating expenses exceeding revenues and the GASB 68 restatement adjustment, mentioned earlier. The Water Fund operating loss at the end of the fiscal year is $1,386,113. The Sewer Fund operating loss at the end of the fiscal year is $153,143. Total net position in the Water Fund at the end of the year is $69,797,211. Of that amount $5,388,595 is unrestricted. Total net position in the Sewer Fund at the end of the year is $27,974,044. Of that amount, $7,991,974 is unrestricted. Unrestricted net position is the portion of the excess of total assets over total liabilities that may be utilized at the discretion of Council. Combined Enterprise Fund revenues increased $2,149,636 over the prior year and Combined Enterprise Fund expenses decreased by $23,613 as compared to the prior year. The increase in revenues is primarily due to an increase connection fees and non-cash capital contributions including dedicated surface water rights. In addition, the Enterprise fund has combined positive working capital of $12,524,433. The Water Fund has positive working capital of $4,083,377. The Sewer Fund has positive working capital of $8,441,056. FY 15 Enterprise Fund Revenues (thousands) $1,545, 12% $571, 4% $2,012, 15% $4,038, 31% $5,030, 38% Water Operating revenues Water non operating revenues Sewer operating revenues Sewer non operating revenues Water capital contributions 13

104 The major sources of operating revenues for both water and sewer are user fees for services. These fees represent 53% of enterprise revenues. Non-operating revenues include bond debt fee revenue for water, connection fees, interest income, grant income and noncash capital contributions. FY 15 Enterprise Fund Expenses (thousands) $307, 3% $2,165, 18% Water operating expenses $2,903, 25% $6,417, 54% Water non operating expenses Sewer operating expenses Sewer non operating expenses Operating expenses for both water and sewer include salaries, employee benefits, services, supplies and depreciation. They make up 72% of expenses. Non-operating expenses include interest expense on debt. Budgetary Highlights The City Council adopts an annual operating budget and a five-year capital budget following public budget workshops and a public hearing. The operating budget includes proposed appropriations and the means of financing them. The City s budget remains in effect the entire year, but may be augmented by City Council prior to year end. Budget vs. actual (variance) financial reports are provided to management on a monthly basis and such are presented to City Council on a quarterly basis. Total General Fund revenues indicate a negative budget vs. actual variance of $995,511. The shortfall is a result of the City not spending and then ultimately being reimbursed for $1,091,846 in Regional Transportation Commission RTC funds that were planned to be spent. RTC revenues and expenditures net to zero. General Fund expenditures indicate a positive budget vs. actual variance of $1,981,662. This is a result of not spending $1,091,846 in RTC funds in addition to the City having savings in every department but 14

105 one. General Fund excess of revenues over expenditures for the year indicated a positive variance of $986,151. The net change in fund balance for the year is $591,391. Total water revenues (excluding capital contributions) indicate a positive variance of $128,001. This is a result of more connection fees and more in lieu of fees being collected than anticipated. Total water expenses indicate a positive variance of $465,228. This is attributable to a decrease in interest expense and overall departmental savings. The Water Fund s change in net position indicates a positive variance of $2,137,982. The actual change in net position is $1,293,844. Total sewer revenues indicate a positive variance of $531,668, which is due to more connection fees being received than anticipated. Sewer expenses indicate a positive variance of $357,096, which is a result of overall departmental savings. The Sewer Fund s change in net position indicates a positive variance of $888,764. The actual change in net position is $110,134. Budgetary schedules can be found on pages 63 through 80 of this report. Capital Asset and Debt Administration Capital assets. The City s net investment in capital assets for its governmental and business-type activities as of June 30, 2015, amounts to $121,497,360 (net of accumulated depreciation). This investment in capital assets includes land, construction in progress, buildings, improvements, machinery and equipment, infrastructure and other capital assets. The City s investment in capital assets (net of accumulated depreciation) for the current fiscal year decreased 2%. The City s total capital assets increased by $2,333,151. The majority of this increase is due to the dedication of surface water rights valued at approximately $1.5 million. In addition $513,393 was spent on improvements, machinery and equipment. Net capital decreased $3,328,257 due to depreciation. 15

106 City of Fernley Capital Assets (net of depreciation) Governmental activities Business-type activities Totals FY15 FY14 FY15 FY14 FY15 FY14 *Land $3,967,460 $3,967,460 $1,195,948 $1,195,948 $5,163,408 $5,163,408 *Water rights ,575,226 39,078,751 40,575,226 39,078,751 *Construction in progress 223, , ,076 86, , ,788 Buildings 8,667,420 8,638,565 17,530 17,530 8,684,950 8,656,095 Improvements other than 9,615,737 12,898, ,037, ,796, ,653, ,694,496 buildings Machinery & Equipment 1,491,198 1,431,662 1,891,177 1,853,901 3,382,375 3,285,563 Other capital assets 33,446,610 30,004,879 1,671,630 1,671,630 35,118,240 31,676,509 TOTAL 57,412,278 57,161, ,782, ,700, ,194, ,861,610 Accumulated depreciation (16,156,599) (14,648,131) (39,934,937) (35,781,997) (56,091,536) (50,430,128) Capital assets, net $41,255,679 $42,513,348 $156,847,546 $158,918,134 $198,103,225 $201,431,482 *Capital assets, which are not being depreciated Additional information on the City s capital assets can be found in note 6 of this report. Long-term debt. At the end of the current fiscal year, the City had total bonded debt outstanding of $73,005,000 and lease-purchase debt of $3,560,000. All of the City s debt is backed by the full faith and credit of the government. In addition, the City s long-term liabilities also include estimated compensated absences of $185,865, installment purchase debt of $3,560,000, net pension liability of $4,922,973 and other post employment benefits (OPEB) of $589,009. General obligation/revenue bonds Installment purchase debt Unamortized bond premium Compensated absences Net pension liability Governmental activities Business-type activities Totals FY15 FY14 FY15 FY14 FY15 FY $73,005,000 $73,690,000 $73,005,000 $73,690,000 3,560,000 3,840, ,560,000 3,840, ,865 43,350 40,865 43,350 99, ,193 86,777 79, , ,864 2,988, ,934, ,922, Other 372, , , , , ,909 postemployment benefit obligations TOTAL $7,020,152 $4,273,939 $75,283,560 $73,994,184 $82,303,712 $78,268,123 16

107 The City s total debt increased by $4,035,589 during the current fiscal year due to the addition of net pension liability being reported on the balance sheet as required by GASB 68. Additional information of the City s long-term debt can be found in Note 7 on pages 45 and 46 of this report. Economic Factors and Next Year s Budget and Rates The City submitted the FY 2015/16 budget to the Department of Taxation and received approval. The budget is an all encompassing financial plan, policy document, operations guide and communications device, which incorporates an organization s mission, vision and strategic plan. Budgets are management tools to help plan for the future. As we move into the next budget year, we address several key priorities established by City Council: Road improvement and maintenance Community development/permitting Consolidated tax Parks improvement and maintenance Storm drains Water management/water rights Water meters Fire hydrants Water and sewer infrastructure maintenance Water and sewer rate study Sewer equipment maintenance Sewer preventative maintenance These key priorities assist staff in making determinations as to the types of expenses and expenditures to include in their respective budget requests and as to total appropriations, which are ultimately approved by City Council. General fund revenues are budgeted to increase by $1.8 million over prior year s actual. The increase is attributable to RTC revenue, which includes funds allocated to the City for roads projects. General fund expenditures are budgeted to increase over prior year s actual by $3.2M. $2.3 million of the increase is attributable to roads projects, $1.8 million of which will be an offset to RTC revenues. Also attributable is the addition of a legal secretary, a deputy City Attorney, a full-time engineer, the addition of a full-time staff member in the City Clerk s office and additional staff in the Municipal Court. Contingency funds have been budgeted for $237,482 for 15/16. However, such funds have not been required to be used in the recent past. The increase is also attributable to approximately $400,000 in capital spending planned for facilities and parks. 17

108 Water fund revenues, before capital contributions, are budgeted to increase over prior year s actual by $211,000 due to increased water sales projections. Water fund expenses are budgeted to increase by $370,000 due to an increase in salaries and benefits, an increase in cost allocations for shared costs and an increase in operating expenses. Sewer fund revenues are budgeted to decrease by approximately $262,000, which is mainly due to fewer anticipated connection fees being collected. Sewer fund expenses are budgeted to increase by $385,000 due to an increase in salaries and benefits, an increase in cost allocations for shared costs and an increase in operating expenses. Net operating losses anticipated for 2016 in both the water and sewer funds are $1,350,000 and $541,000, respectively. The economic outlook for the City of Fernley is positive. Assessed values of real property continue to increase, the City continues to experience higher volumes of building permit requests and residential vacancies are reported to be minimal. With the opportunities and potential for growth that lie ahead, the City of Fernley will need to be prepared and it is up to management to analyze and plan for such growth. Since growth affects cost, going forward, it will be very important for the City to cover its cost of operations and reserve funds for the future. The current financial position of the City indicates that the City will be able to meet its financial obligations as they become due and it will be able to provide service obligations to its constituencies. Therefore, there is adequate cash to meet current obligations and those expected in the near future. However, to ensure the financial position of the City remains positive, it will be in the best interest of the City for management to continually plan ahead, operate within budget, collect revenue due and continue to analyze water and sewer rates and other fee structures in order to ultimately make recommendations to City Council. The City of Fernley is at a very crucial point in its existence and in order to properly plan for the City s future, it will be very important that responsible decisions are made at all levels of management. Requests for Information This financial report is designed to provide a general overview of the City s finances for all those with an interest in the City s finances. Questions concerning any of the information provided in this report or requests for additional information should be addressed to the City Treasurer/Finance Director, 595 Silver Lace Blvd, Fernley NV

109 BASIC FINANCIAL STATEMENTS 19

110 CITY OF FERNLEY, NEVADA Statement of Net Position June 30, 2015 Assets Governmental Business-type Activities Activities Total Cash and investments $ 5,466,835 $ 15,565,900 $ 21,032,735 Receivables (net of allowance) 515, ,447 1,414,008 Inventory 10,812 94, ,214 Prepaids - 315, ,691 Restricted assets: Temporarily restricted: Cash and investments - 589, ,005 Capital assets (net of accumulated depreciation): Land and water rights 3,967,460 41,771,174 45,738,634 Construction in progress 223, , ,929 Buildings 5,367,560-5,367,560 Improvements and other 5,574, ,604, ,179,025 Machinery, equipment and vehicles 273,334 78, ,658 Infrastructure 25,849,419-25,849,419 Total assets 47,248, ,310, ,559,878 Deferred outflows of resources Deferred charge on refunding - 1,220,868 1,220,868 Deferred outflows related to pensions 473, , ,795 Total deferred outflows of resources 473,943 1,527,720 2,001,663 Liabilities Accounts payable and other current liabilities 695, ,429 1,050,806 Unearned revenue 53,900-53,900 Refundable deposits - 589, ,005 Accrued interest - 1,304,985 1,304,985 Noncurrent liabilities: Due within one year 378,625 2,100,588 2,479,213 Due in more than one year 6,641,527 73,182,972 79,824,499 Total liabilities 7,769,429 77,532,979 85,302,408 Deferred inflows of resources Deferred inflows related to pensions 825, ,477 1,359,993 Total deferred inflows of resources 825, ,477 1,359,993 Net position Net investment in capital assets 37,695,679 83,801, ,497,360 Restricted for: Capital projects 87,169-87,169 Future development 327, ,747 Debt service - 589, ,005 Judicial 80,172-80,172 Unrestricted 937,118 13,380,569 14,317,687 Total net position $ 39,127,885 $ 97,771,255 $ 136,899,140 The accompanying notes are an integral part of the financial statements. 20

111 21 CITY OF FERNLEY, NEVADA Statement of Activities For the Year Ended June 30, 2015 Program Revenues Net (Expense) Revenue and Changes in Net Position Operating Capital Charges for Grants & Grants & Governmental Business-type Functions/Programs Expenses Services Contributions Contributions Activities Activities Total Governmental activities: General government $ 2,283,841 $ 1,837,966 $ 12,554 $ - $ (433,321) $ - $ (433,321) Public works 2,001,841 41, , ,435 (1,447,889) - (1,447,889) Judicial 276, , (7,277) - (7,277) Health 194,156-4,621 - (189,535) - (189,535) Culture and recreation 788,165 15, ,850 - (455,905) - (455,905) Community support and development 937, ,650 - (446,025) - (446,025) Interest on long-term debt 88, (88,060) - (88,060) Total governmental activities 6,569,757 2,163, , ,435 (3,068,012) - (3,068,012) Business-type activities: Water 9,319,610 5,681,977-1,544,753 - (2,092,880) (2,092,880) Sewer 2,472,798 2,560,138-10,974-98,314 98,314 Total business-type activities 11,792,408 8,242,115-1,555,727 - (1,994,566) (1,994,566) Total primary government $ 18,362,165 $ 10,405,596 $ 933,829 $ 1,960,162 General Revenues: Taxes: Property taxes 2,199,262-2,199,262 Fuel taxes 344, ,360 Other taxes/bond debt fee revenue 14,000 3,378,183 3,392,183 Unrestricted state consolidation tax 143, ,389 Unrestricted gaming licenses 104, ,513 Unrestricted investment earnings 6,485 20,361 26,846 Total general revenues 2,812,009 3,398,544 6,210,553 Change in net position (256,003) 1,403,978 1,147,975 Net position - beginning 42,754,815 98,589, ,344,141 Prior period adjustment 61,092-61,092 Restatement adjustments (3,432,019) (2,222,049) (5,654,068) Net position - ending $ 39,127,885 $ 97,771,255 $ 136,899,140 The accompanying notes are an integral part of the financial statements.

112 CITY OF FERNLEY, NEVADA Balance Sheet Governmental Funds June 30, 2015 Special Revenue Other Total Grants Governmental Governmental General Fund Fund Funds Funds Assets Cash and investments $ 4,035,888 $ - $ 1,430,947 $ 5,466,835 Receivables: Property taxes 32, ,845 Interest receivable 2,853-1,052 3,905 Other 280,877-33, ,875 Due from other governments 36, , ,936 Due from other funds 10, ,791 Inventories and prepaids 10, ,812 Total assets $ 4,410,987 $ 127,015 $ 1,465,997 $ 6,003,999 Liabilities Accounts payable $ 323,114 $ 116,224 $ 55,437 $ 494,775 Accrued liabilities 68, ,334 Due to other funds - 10,791-10,791 Due to developers 132, ,268 Unearned revenue 53, ,900 Total liabilities 577, ,015 55, ,068 Deferred inflows of resources Unavailable revenue - property taxes 24, ,752 Fund balances Nonspendable: Inventories and prepaids 10, ,812 Restricted for: Judicial ,172 80,172 Capital projects 42,421-44,748 87,169 Future development 327, ,747 Committed: Capital projects , ,535 Convention center , ,851 Debt service 575, ,000 Public works 2,407, ,407,946 Assigned to: Next year's budget appropriation 47, ,349 Culture and recreation , ,254 Unassigned 397, ,344 Total fund balances 3,808,619-1,410,560 5,219,179 Total liabilities, deferred inflows of resources, and fund balances $ 4,410,987 $ 127,015 $ 1,465,997 $ 6,003,999 The accompanying notes are an integral part of the financial statements. 22

113 CITY OF FERNLEY, NEVADA Reconciliation of the Balance Sheet of Governmental Funds to the Statement of Net Position June 30, 2015 Amounts reported for governmental activities in the statement of net position are different because: Total fund balances - total governmental funds $ 5,219,179 Capital assets used in governmental activities are not financial resources and, therefore, are not reported in the funds. Governmental capital assets $ 57,412,278 Accumulated depreciation (16,156,599) 41,255,679 Some liabilities, including bonds payable, capital leases, and interest payable are not due and payable in the current period and therefore are not reported in the funds. Bonds payable $ (3,560,000) Compensated absences (99,088) Other postemployment benefits liability (372,820) Net pension liability (2,988,244) (7,020,152) Unavailable revenue associated with property taxes is recognized as revenue in the government-wide statements. 24,752 Deferred outflows and inflows of resources related to pensions are applicable to future reporting periods and, therefore, are not reported in the funds. Deferred outflows related to pensions $ 473,943 Deferred inflows related to pensions (825,516) (351,573) Net position of governmental activities $ 39,127,885 The accompanying notes are an integral part of the financial statements. 23

114 CITY OF FERNLEY, NEVADA Statement of Revenues, Expenditures, and Changes in Fund Balances Governmental Funds For the Year Ended June 30, 2015 Special Revenue Other Total Grant Governmental Governmental General Fund Funds Funds Revenues Taxes $ 2,231,326 $ - $ 256,075 $ 2,487,401 Licenses, permits and fees 1,798, ,798,242 Intergovernmental revenue 1,059, ,271 1,495 1,556,833 Fines and forfeitures 217,404-51, ,742 Investment earnings 4,702-1,784 6,486 Other revenues 215, ,516 Total revenues 5,526, , ,692 6,333,220 Expenditures Current: General government 1,974, ,974,369 Public works 1,053, ,053,634 Judicial 244,702-33, ,105 Health 191,041 4, ,662 Culture and recreation 642, , ,040 Community support and development 471, , ,037 Debt service: Principal 280, ,000 Interest 88, ,060 Capital outlay ,816 82,816 Total expenditures 4,945, , ,586 5,647,723 Excess (deficiency) of revenues over (under) expenditures 580,340 11,051 94, ,497 Other financing sources (uses) Transfers in 11, ,051 Transfers out - (11,051) - (11,051) Total other financing sources (uses) 11,051 (11,051) - - Net change in fund balances 591,391-94, ,497 Fund balances, beginning of year 3,156,136-1,316,454 4,472,590 Prior period adjustment 61, ,092 Fund balances, end of year $ 3,808,619 $ - $ 1,410,560 $ 5,219,179 The accompanying notes are an integral part of the financial statements. 24

115 CITY OF FERNLEY, NEVADA Reconciliation of the Statement of Revenues, Expenditures, and Changes in Fund Balances of Governmental Funds to the Statement of Activities For the Year Ended June 30, 2015 Amounts reported for governmental activities in the statement of activities are different because: Net change in fund balances - total governmental funds $ 685,497 Governmental funds report capital outlays as expenditures. However, in the statement of activities, the costs of those assets is allocated over their estimated useful lives and reported as depreciation expense. This is the amount by which depreciation expense exceeded capital outlay in the current period. Capital outlay $ 266,513 Depreciation expense (1,508,468) (1,241,955) The statement of activities reports losses from capital asset deletions. Conversely, governmental funds do not report any gain or loss on the retirement of capital assets. Repayment of bond principal is an expenditure in the governmental funds, but the repayment reduces long-term liabilities in the statement of net position. (15,714) 280,000 Because some property taxes will not be collected in time to pay for obligations in the current period, they are not considered available revenues in the governmental funds and are instead reported as deferred revenues. These revenues are accounted for as revenue in the statement of activities. (18,064) Pension contributions are reported as expenditures in the governmental funds when made. However, they are reported as deferred outflows of resources in the statement of net position because the net pension liability is measured a year before the government's report date. Pension expense, which is the change in the net pension liability adjusted for changes in deferred outflows and inflows of resources related to pensions, is reported in the statement of activities. Pension contributions $ 473,943 Pension expense (381,741) 92,202 Compensated absences and other postemployment benefit obligation expenses reported in the statement of activities do not require the use of current financial resources and therefore are not reported as expenditures in governmental funds. This adjustment reflects the change in compensated absences and other postemployment benefit obligations. (37,969) Change in net position of governmental activities $ (256,003) The accompanying notes are an integral part of the financial statements. 25

116 CITY OF FERNLEY, NEVADA Statement of Net Position Proprietary Funds June 30, 2015 Total Water Fund Sewer Fund Enterprise Funds Assets Current assets: Cash and investments $ 6,609,801 $ 8,956,099 $ 15,565,900 Receivables, net of allowance 696, , ,544 Interest receivable 4,915 6,988 11,903 Inventory 89,752 4,650 94,402 Prepaid expense 284,278 31, ,691 Total current assets 7,685,377 9,189,063 16,874,440 Noncurrent assets: Restricted cash and investments 294, , ,005 Capital assets: Land and water rights 41,585, ,710 41,771,174 Construction-in-progress 96, , ,076 Buildings 8,765 8,765 17,530 Improvements and other 114,873,413 37,836, ,709,526 Machinery, equipment and vehicles 872,070 1,019,107 1,891,177 Less accumulated depreciation (27,362,482) (12,572,455) (39,934,937) Total noncurrent assets 130,368,573 27,067, ,436,551 Total assets 138,053,950 36,257, ,310,991 Deferred outflows of resources Deferred charge on refunding 1,097, ,966 1,220,868 Deferred outflows related to pensions 206, , ,852 Total deferred outflows of resources 1,304, ,298 1,527,720 Liabilities Current liabilities: Accounts payable 209, , ,165 Accrued liabilities 25,060 17,204 42,264 Refundable deposits 294, , ,005 Accrued interest 1,179, ,176 1,304,985 Compensated absences 61,975 11,128 73,103 Bonds payable - current 1,830, ,818 2,027,485 Total current liabilities 3,602, ,007 4,350,007 Noncurrent liabilities: Compensated absences 11,593 2,081 13,674 Other postemployment benefits obligation 156,433 59, ,189 Bonds payable 64,129,290 6,889,090 71,018,380 Net pension liability 1,302, ,602 1,934,729 Total noncurrent liabilities 65,599,443 7,583,529 73,182,972 Total liabilities 69,201,443 8,331,536 77,532,979 Deferred inflows of resources Deferred inflows related to pensions 359, , ,477 Total deferred inflows of resources 359, , ,477 Net position Net investment in capital assets 64,114,090 19,687,591 83,801,681 Restricted for debt service 294, , ,005 Unrestricted 5,388,595 7,991,974 13,380,569 Total net position $ 69,797,211 $ 27,974,044 $ 97,771,255 The accompanying notes are an integral part of the financial statements. 26

117 CITY OF FERNLEY, NEVADA Statement of Revenues, Expenses, and Changes in Net Position Proprietary Funds For the Year Ended June 30, 2015 Operating revenues Total Water Fund Sewer Fund Enterprise Funds Service fees $ 4,822,461 $ 2,012,025 $ 6,834,486 Other revenues 207, ,190 Total operating revenues 5,030,390 2,012,286 7,042,676 Operating expenses Salaries 936, ,744 1,374,826 Employee benefits 390, , ,526 Service, supplies and other 1,921, ,096 2,483,641 Depreciation expense 3,167, ,995 4,152,939 Total operating expenses 6,416,503 2,165,429 8,581,932 Operating income (loss) (1,386,113) (153,143) (1,539,256) Nonoperating revenues (expenses) Bond debt fee revenue 3,378,183-3,378,183 Connection fee revenue 446, , ,148 Interest income 8,541 11,820 20,361 Other income 205, ,291 Interest expense (2,903,107) (307,369) (3,210,476) Total nonoperating revenues (expenses) 1,135, ,303 1,387,507 Income (loss) before contributions (250,909) 99,160 (151,749) Grant income - 10,974 10,974 Capital contributions 1,544,753-1,544,753 Change in net position 1,293, ,134 1,403,978 Total net position, beginning of year 69,998,868 28,590,458 98,589,326 Restatement adjustments (1,495,501) (726,548) (2,222,049) Total net position, end of year $ 69,797,211 $ 27,974,044 $ 97,771,255 The accompanying notes are an integral part of the financial statements. 27

118 CITY OF FERNLEY, NEVADA Statement of Cash Flows Proprietary Funds For the Year Ended June 30, 2015 Total Water Fund Sewer Fund Enterprise Funds Cash flows from operating activities: Cash received from customers, service fees $ 4,864,019 $ 2,010,649 $ 6,874,668 Cash received from customers, capacity fees and other 207, ,190 Cash paid to suppliers (1,729,027) (472,315) (2,201,342) Cash paid to employees (1,331,337) (618,880) (1,950,217) Net cash flows from operating activities 2,011, ,715 2,931,299 Cash flows from capital and related financing activities: Sales taxes 205, ,291 Bond debt fee revenue 3,426,785-3,426,785 Grant revenue - 10,974 10,974 Principal paid on capital debt (1,721,671) (184,197) (1,905,868) Interest paid on capital debt (3,010,950) (319,721) (3,330,671) Acquisition and construction of capital assets (18,402) (519,196) (537,598) Connection fees 446, , ,148 Net cash flows from capital and related financing activities (672,651) (464,288) (1,136,939) Cash flows from investing activities: Interest on investments 5,673 8,201 13,874 Net change in cash and investments 1,344, ,628 1,808,234 Cash and investments, including restricted, beginning of year 5,559,721 8,786,950 14,346,671 Cash and investments, including restricted, end of year $ 6,904,327 $ 9,250,578 $ 16,154,905 Reconciliation of operating income to net cash flows from operating activities: Operating income (loss) $ (1,386,113) $ (153,143) $ (1,539,256) Adjustments to reconcile operating income (loss) to net cash flows from operating activities Depreciation expense 3,167, ,995 4,152,939 Pension expense 166,344 80, ,157 Pension contributions (206,520) (100,332) (306,852) Changes in operating assets and liabilities: (Increase) decrease in receivables 36,014 3,641 39,655 (Increase) decrease in inventories (17,428) 8,372 (9,056) (Increase) decrease in prepaid expenses 147,934 34, ,054 Increase (decrease) in accounts payable 62,012 47, ,301 Increase (decrease) in accrued liabilities 4,108 8,590 12,698 Increase (decrease) in customer deposits 5,544 (5,017) 527 Increase (decrease) in other postemployment benefits 25,748 9,278 35,026 Increase (decrease) in compensated absences payable 5,997 1,109 7,106 Net cash flows from operating activities $ 2,011,584 $ 919,715 $ 2,931,299 Noncash investing, capital, and financing activities: Contributions of capital assets from developers $ 1,544,753 $ - $ 1,544,753 Water Refunding Bonds, Series 2014 issued, refunding a portion of the 2007/2008 bonds $ 11,569,229 $ 1,295,771 $ 12,865,000 Deferred charge on refunding $ (1,097,902) $ (122,966) $ (1,220,868) The accompanying notes are an integral part of the financial statements. 28

119 CITY OF FERNLEY, NEVADA Statement of Net Position Fiduciary Fund June 30, 2015 Assets Municipal Trust Fund Current assets: Cash and investments $ 30,473 Total assets $ 30,473 Liabilities Current liabilities: Bail bond deposits held for others $ 30,473 Total liabilities $ 30,473 The accompanying notes are an integral part of the financial statements. 29

120 CITY OF FERNLEY, NEVADA Notes to the Financial Statements June 30, 2015 NOTE 1. Summary of Significant Accounting Policies Description of government-wide financial statements The government-wide financial statements (i.e., the statement of net position and the statement of activities) report information on all of the nonfiduciary activities of the primary government and its component units. All fiduciary activities are reported only in the fund financial statements. Governmental activities, which normally are supported by taxes, intergovernmental revenues, and other nonexchange transactions, are reported separately from business-type activities, which rely to a significant extent on fees and charges to external customers for support. Likewise, when applicable, the primary government is reported separately from certain legally separate component units for which the primary government is financially accountable. Reporting entity The City of Fernley, Nevada (City) was incorporated on July 1, The City operates under a Council- Manager form of government and provides the following services as authorized by law: water and sewer utilities, streets, culture and recreation, planning and zoning, animal control, and general and administrative services. Prior to July 1, 2001, the entity was organized as an unincorporated town in accordance with Nevada Revised Statutes 269. The accompanying financial statements present all activities of the City. The City has no separate component units, entities for which the City is considered to be financially accountable that would be combined to form the reporting entity. Basis of presentation government-wide financial statements While separate government-wide and fund financial statements are presented, they are interrelated. The governmental activities column incorporates data from governmental funds, while business-type activities incorporate data from the City s enterprise funds. Separate financial statements are provided for governmental funds, proprietary funds, and fiduciary funds, even though the latter are excluded from the government-wide financial statements. As a general rule, the effect of interfund activity has been eliminated from the government-wide financial statements. Basis of presentation fund financial statements The fund financial statements provide information about the City s funds, including its fiduciary funds and blended component units. Separate statements for each fund category governmental, proprietary, and fiduciary are presented. The emphasis of fund financial statements is on major governmental and enterprise funds, each displayed in a separate column. All remaining governmental and enterprise funds are aggregated and reported as nonmajor funds. Major individual governmental and enterprise funds are reported as separate columns in the fund financial statements. 30

121 CITY OF FERNLEY, NEVADA Notes to the Financial Statements June 30, 2015 NOTE 1. Summary of Significant Accounting Policies, Continued The City reports the following major governmental funds: The General Fund is the City s primary operating fund. It accounts for all financial resources of the general government, except those accounted for in another fund. The Grants Fund is used to account for federal and state grants that are restricted or committed for a specific use. The City reports the following major enterprise funds: The Water Utility Fund is used to account for the provision of water services to the residents of the City and some residents of Lyon County. All activities necessary to provide services are accounted for in this fund, including, but not limited to, administration, operations, maintenance, financing and related debt. The Sewer Utility Fund is used to account for sewer collection and treatment services for the residents of the City and some residents of Lyon County. All activities necessary to provide services are accounted for in this fund, including, but not limited to, administration, operations, maintenance, financing and related debt. Additionally, the City reports the following fund type: The Agency Fund is custodial in nature and does not present results of operations or have a measurement focus. The Agency fund is accounted for using the accrual basis of accounting. This fund is used to account for assets that the City holds for others in an agent capacity. Included are bonds posted with the municipal court. This fund is excluded from the government-wide financial statements. During the course of operations the City has activity between funds for various purposes. Any residual balances outstanding at year end are reported as due from/to other funds and advances to/from other funds. While these balances are reported in fund financial statements, certain eliminations are made in the preparation of the government-wide financial statements. Balances between the funds included in governmental activities (i.e., the governmental funds) are eliminated so that only the net amount is included as internal balances in the governmental activities column. Similarly, balances between the funds included in business-type activities (i.e., the enterprise funds) are eliminated so that only the net amount is included as internal balances in the business-type activities column. Further, certain activity occurs during the year involving transfers of resources between funds. In fund financial statements these amounts are reported at gross amounts as transfers in/out. While reported in fund financial statements, certain eliminations are made in the preparation of the government-wide financial statements. Transfers between the funds included in governmental activities are eliminated so that only the net amount is included as transfers in the governmental activities column. Similarly, balances between the funds included in business-type activities are eliminated so that only the net amount is included as internal balances in the business-type activities column. 31

122 CITY OF FERNLEY, NEVADA Notes to the Financial Statements June 30, 2015 NOTE 1. Summary of Significant Accounting Policies, Continued Measurement focus and basis of accounting The accounting and financial reporting treatment is determined by the applicable measurement focus and basis of accounting. Measurement focus indicates the type of resources being measured such as current financial resources or economic resources. The basis of accounting indicates the timing of transactions or events for recognition in the financial statements. The government-wide financial statements are reported using the economic resources measurement focus and the accrual basis of accounting. Revenues are recorded when earned and expenses are recorded when a liability is incurred, regardless of the timing of 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. The governmental fund financial statements are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Revenues are recognized as soon as they are both measurable and available. Revenues are considered to be available when they are collectible within the current period or soon enough thereafter to pay liabilities of the current period. For this purpose, the City considers revenues to be available if they are collected within 60 days of the end of the current fiscal period. Expenditures generally are recorded when a liability is incurred, as under accrual accounting. However, debt service expenditures, as well as expenditures related to compensated absences, and claims and judgments, are recorded only when payment is due. General capital asset acquisitions are reported as expenditures in governmental funds. Issuance of long-term debt and acquisitions under capital leases are reported as other financing sources. Property taxes, consolidated taxes, licenses, and interest associated with the current fiscal period are all considered to be susceptible to accrual and so have been recognized as revenues of the current fiscal period. Entitlements are recorded as revenues when all eligibility requirements are met, including any time requirements, and the amount is received during the period or within the availability period for this revenue source (within 60 days of year-end). Expenditure-driven grants are recognized as revenue when the qualifying expenditures have been incurred and all other eligibility requirements have been met, and the amount is received during the period or within the availability period for this revenue source (within 60 days of year-end). All other revenue items are considered to be measurable and available only when cash is received by the City. The proprietary fund is reported using the economic resources measurement focus and the accrual basis of accounting. The trust and agency fund has no measurement focus but utilizes the accrual basis of accounting for reporting its assets and liabilities. Assets, liabilities, deferred outflows/inflows of resources, and net position/fund balance Cash and Investments Cash resources of the individual funds are combined to form a pool of cash and investments, which is managed by the City Treasurer. The City invests in the State of Nevada Local Government Investment Pool, which is reported at fair value. 32

123 CITY OF FERNLEY, NEVADA Notes to the Financial Statements June 30, 2015 NOTE 1. Summary of Significant Accounting Policies, Continued Interest income earned is distributed to the appropriate funds based on each fund s equity in the investment. The City also invests in the Nevada Enhanced Savings Term Program (NVEST) and monies are managed by a money manager. The money manager is required to report to the City on a quarterly basis. The City's policy allows for the investment of funds in time certificates of deposit with federally insured depositories, investment in the state treasurer's pool, obligations of the U. S. Government and other investments as allowed by Nevada State Statutes (NRS 355 and NRS ). All investments are carried at fair value with unrealized gains and losses recorded as adjustments to interest earnings. Fair market values are based on quoted market prices. Cash equivalents The City s cash and cash equivalents are considered to be cash on hand, demand deposits, and short-term investments with original maturities of three months or less from the date of acquisition. Based on the nature of the investment policies, all amounts are available on demand and are, therefore, classified as cash equivalents on the Statement of Cash Flows. Receivables Due to the nature of the accounts receivable in the governmental type activities, management does not consider an allowance for uncollectible accounts receivable necessary or material. Receivables in proprietary fund types have arisen in the ordinary course of business, and are shown net of an allowance for uncollectible accounts, as applicable. Inventories and prepaid items Proprietary fund inventories are valued at cost using the first-in/first-out (FIFO) method and consist of supplies and materials. Inventories of governmental funds in the fund financial statements are considered consumable supplies and as such are recorded as expenditures at the time of purchase. Certain payments to vendors reflect costs applicable to future accounting periods and are recorded as prepaid items in both the government-wide and fund financial statements. The cost of prepaid items is recorded as expenditures/expenses when consumed rather than when purchased. Restricted Assets City policy requires that certain resources be set aside for various purposes in the City s water and sewer utility funds. 33

124 CITY OF FERNLEY, NEVADA Notes to the Financial Statements June 30, 2015 NOTE 1. Summary of Significant Accounting Policies, Continued Capital assets Capital assets, which include property, plant, equipment, and infrastructure assets (e.g., roads, bridges, sidewalks, and similar items), are reported in the applicable governmental or business-type activities columns in the government-wide financial statements. Capital assets are defined by the City as assets with an individual cost of more than $5,000 for noninfrastructure assets and $100,000 for infrastructure assets and an estimated useful life in excess of two years. Such assets are recorded at historical cost or estimated historical cost if purchased or constructed. Donated capital assets are recorded at estimated fair market value at the date of donation. The costs of normal maintenance and repairs that do not add to the value of the asset or materially extend assets lives are not capitalized. Interest incurred during the construction phase of capital assets of business-type activities is included as part of the capitalized value of the assets constructed. Water rights are intangible assets. A water right can be conveyed or transferred. Water rights, however, are appurtenant to the land and are conveyed by deed with the land unless the seller specifically reserves the water right in the deed. Water rights are not depreciable or amortizable. Property, plant and equipment are depreciated using the straight-line method over the following estimated useful lives: Buildings Treatment facilities and improvements Machinery, equipment and vehicles Other capital assets Infrastructure - Streets and sidewalks 25 to 40 years 10 to 20 years 5 to 10 years 25 to 40 years 20 to 40 years Deferred outflows/inflows of resources In addition to assets, the statement of net position will sometimes report a separate section for deferred outflows of resources. This separate financial statement element, deferred outflows of resources, represents a consumption of net position that applies to a future period(s) and so will not be recognized as an outflow of resources (expense/expenditure) until then. The City has two items that qualify for reporting in this category. One item is a pension related item reported on the government-wide financial statements. See footnote 10 for more information. The second item is the deferred charge on refunding reported in the government-wide statement of net position. A deferred charge on refunding results from the difference in the carrying value of refunded debt and its reacquisition price. This amount is deferred and amortized over the shorter of the life of the refunded or refunding debt. In addition to liabilities, the statement of net position will sometimes report a separate section for deferred inflows of resources. This separate financial statement element, deferred inflows of resources, represents an acquisition of net position that applies to a future period(s) and so will not be recognized as an inflow of resources (revenue) until that time. The City has two types of these items that qualify for reporting in this category. One type arises only under a modified accrual basis of accounting. Accordingly, the item, unavailable revenue, is reported only in the governmental fund s balance sheet. 34

125 CITY OF FERNLEY, NEVADA Notes to the Financial Statements June 30, 2015 NOTE 1. Summary of Significant Accounting Policies, Continued The governmental funds report unavailable revenues from one source: property taxes. These amounts are deferred and recognized as an inflow of resources in the period that the amounts become available. The other item is a pension related item reported on the government-wide financial statements. See footnote 10 for more information Pensions For purposes of measuring the net pension liability, deferred outflows of resources and deferred inflows of resources related to pensions, and pension expense, information about the pension plan s fiduciary net position of the Public Employees Retirement System of Nevada (PERS) and additions to/deductions from the plan s fiduciary net position have been determined on the same basis as they are reported by PERS. For this purpose, benefit payments (including refunds of employee contributions) are recognized when due and payable in accordance with the benefit terms. Investments are reported at fair value. Net position flow assumption Sometimes the City will fund outlays for a particular purpose from both restricted (e.g., restricted bond or grant proceeds) and unrestricted resources. In order to calculate the amounts to report as restricted net position and unrestricted net position in the government-wide and proprietary fund financial statements, a flow assumption must be made about the order in which the resources are considered to be applied. It is the City s policy to consider restricted net position to have been depleted before unrestricted net position is applied. Fund balance flow assumptions Sometimes the City will fund outlays for a particular purpose from both restricted and unrestricted resources (the total of committed, assigned, and unassigned fund balance). In order to calculate the amounts to report as restricted, committed, assigned, and unassigned fund balance in the governmental fund financial statements a flow assumption must be made about the order in which the resources are considered to be applied. It is the City s policy to consider restricted fund balance to have been depleted before using any of the components of unrestricted fund balance. Further, when the components of unrestricted fund balance can be used for the same purpose, committed fund balance is depleted first, followed by assigned fund balance. Unassigned fund balance is applied last. Fund balance policies Fund balance of governmental funds is reported in various categories based on the nature of any limitations requiring the use of resources for specific purposes. The City itself can establish limitations on the use of resources through either a commitment (committed fund balance) or an assignment (assigned fund balance). 35

126 CITY OF FERNLEY, NEVADA Notes to the Financial Statements June 30, 2015 NOTE 1. Summary of Significant Accounting Policies, Continued The committed fund balance classification includes amounts that can be used only for the specific purposes determined by a formal action of the City s highest level of decision-making authority. The governing council is the highest level of decision-making authority for the City that can, by adoption of a resolution prior to the end of the fiscal year, commit fund balance. Once adopted, the limitation imposed by the resolution remains in place until a similar action is taken (the adoption of another resolution) to remove or revise the limitation. Amounts in the assigned fund balance classification are intended to be used by the City for specific purposes but do not meet the criteria to be classified as committed. The city manager is authorized to assign amounts to specific purposes in accordance with the City s budget policy. The council may also assign fund balance as it does when appropriating fund balance to cover a gap between estimated revenue and appropriations in the subsequent year s appropriated budget. Unlike commitments, assignments generally only exist temporarily. In other words, an additional action does not normally have to be taken for the removal of an assignment. Conversely, as discussed above, an additional action is essential to either remove or revise a commitment. Revenues and expenditures/expenses Program revenues Amounts reported as program revenues include 1) charges to customers or applicants who purchase, use, or directly benefit from goods, services, or privileges provided by a given function or segment and 2) grants and contributions (including special assessments) that are restricted to meeting the operational or capital requirements of a particular function or segment. All taxes, including those dedicated for specific purposes, and other internally dedicated resources are reported as general revenues rather than as program revenues. Compensated absences It is the City s policy to permit employees to accumulate earned but unused vacation and sick pay benefits. For governmental funds, amounts of vested or accumulated vacation and sick leave that are not expected to be liquidated with expendable available financial resources are reported as liabilities in the government-wide statement of net position and as expenses in the government-wide statement of activities. No expenditures are reported for these amounts in the fund financial statements. A liability for compensated absences is reported in the governmental funds, primarily the General Fund, only if they have matured as a result of employee resignations, terminations and retirements. Vested or accumulated vacation and sick leave in the proprietary fund are recorded as an expense and a liability of that fund as the benefits accrue to the employees and are thus recorded in both the government-wide financial statements and the individual fund financial statements. 36

127 CITY OF FERNLEY, NEVADA Notes to the Financial Statements June 30, 2015 NOTE 1. Summary of Significant Accounting Policies, Continued Proprietary funds operating and nonoperating revenues and expenses Proprietary funds distinguish operating revenues and expenses from nonoperating items. Operating revenues and expenses generally result from providing services and producing and delivering goods in connection with a proprietary fund s principal ongoing operations. The principal operating revenues of the water and sewer fund are charges to customers for sales and services. Operating expenses for enterprise funds include the cost of sales and services, administrative expenses and depreciation on capital assets. All revenues and expenses not meeting this definition are reported as nonoperating revenues and expenses. Use of 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 amounts 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/expenses during the reporting period. Actual results could differ from those estimates. New pronouncements For the year ended June 30, 2015, the City implemented the provisions of GASB Statement No. 68, Accounting and Financial Reporting for Pensions, as amended by GASB Statement No. 71, Pension Transition for Contributions Made Subsequent to the Measurement Date. GASB Statement Nos. 68 and 71 establish standards for measuring and recognizing net pension assets and liabilities, deferred outflows of resources, deferred inflows of resources, and expenses/expenditures related to pension benefits provided through defined benefit pension plans. In addition, Statement No. 68 requires disclosure of information related to pension benefits. Implementation of these new Statements resulted in a restatement of beginning net position in the City s government-wide and proprietary fund financial statements (see Note 13). This section intentionally left blank 37

128 CITY OF FERNLEY, NEVADA Notes to the Financial Statements June 30, 2015 NOTE 2. Reconciliation of Government-wide and Fund Financial Statements The governmental fund balance sheet includes a reconciliation between total governmental fund balances and net position of governmental activities as reported in the government-wide statement of net position. This difference primarily results from the long-term economic focus of the statement of net position versus the current financial resources focus of the governmental fund balance sheets. The details of these differences are reported in the reconciliation on page 23. The governmental fund statement of revenues, expenditures, and changes in fund balance includes a reconciliation between net changes in fund balances-total governmental funds and changes in net position of governmental activities as reported in the government-wide statement of activities. These differences are the result of converting from the current financial resources measurement focus and modified accrual basis for governmental fund statements to the economic resources measurement focus and full accrual basis used for government-wide statements. The details of these differences are reported in the reconciliation on page 25. NOTE 3. Stewardship, Compliance and Accountability Budgets and budgetary accounting The City of Fernley adheres to the Local Government Budget and Finance Act (Act) incorporated within the statutes of the State of Nevada, in which annual budgets are legally adopted for all funds except Agency funds. The Act and City policy include the following procedures to establish the budgetary data, which is reflected in these financial statements: 1. On or before April 15, the City Manager submits to the Fernley City Council a tentative budget for the fiscal year commencing the following July 1, to be filed with the Nevada Department of Taxation. 2. Public hearings on the tentative budget are held no sooner than the third Monday in May and no later than the last day in May, to obtain taxpayer comments. 3. Prior to June 1, at a public hearing, the Council indicates changes, if any, to be made to the tentative budget and adopts a final budget by the favorable vote of a majority of the members of the Council. The final budget must then be forwarded to the Nevada Department of Taxation for final approval. 4. The City may not amend the budget without approval by the City Council. The Finance Director is authorized to transfer appropriations between accounts within any function, with notification to the City Council. Any revisions that alter the total appropriations of a function or fund must be approved in advance by the City Council. Formal budgetary integration in the financial records of all funds is employed to enhance management control during the year. 5. Budgets for all fund types are adopted on a basis consistent with accounting principles generally accepted in the United States of America (GAAP). Appropriations lapse at year end. 6. In accordance with State statute, actual expenditures may not exceed budgeted appropriations of the various governmental functions of the General, Special Revenue, and Capital Project Funds. Per NRS , expenditures over budgeted appropriations are allowed for bond repayments, medium term obligation repayments, and other long-term contracts expressly authorized by law. 38

129 CITY OF FERNLEY, NEVADA Notes to the Financial Statements June 30, 2015 NOTE 3. Stewardship, Compliance and Accountability, Continued The sum of operating and nonoperating expenses in Proprietary Funds also may not exceed combined total appropriations. The budget reflected in the financial statements has not been amended from the original budget amounts. There were no amendments for augmentations for prior obligations or supplemental appropriations needed for grants, contingencies, and other uses. Expenditures over Appropriations The individual Schedule of Revenues, Expenditures/Expenses and Changes in Fund Balances/Net Position Budget and Actual reports as listed in the table of contents present all of the funds which incurred an excess of expenditures/expenses over appropriations for the year ended June 30, 2015, if any. Encumbrances Encumbrance accounting, under which purchase orders, contracts, and other commitments for the expenditure of monies are recorded in order to reserve that portion of the applicable appropriation, is not employed by the City. Property tax calendar Real property taxes result in a lien on the property and attach on July 1 (the levy date) of the year for which the taxes are levied. Taxes may be paid in four installments payable on the third Monday in August, and the first Mondays in October, January and March to the County Clerk/Treasurer of Lyon County in which the City of Fernley is located. Penalties are assessed if a taxpayer fails to pay an installment within ten days of the installment due date. After a two year waiting period, if taxes remain unpaid, a tax deed is issued conveying the property to Lyon County with a lien for back taxes and accumulated charges. Redemption may be made by the owner and such persons as described by statute by paying all back taxes and accumulated penalties, interest and costs before sale. As such, real property taxes receivable reflect only those taxes receivable from the delinquent roll years, and current taxes collected within 60 days of year end and delinquent taxes from all roll years prior to have been written off. No provision for uncollectible accounts has been established, as management does not anticipate any material collection losses with respect to the remaining balances. Taxes on personal property are collected currently. Personal property declarations are mailed out annually and the tax is computed using percentages of taxable values established by the Department of Taxation at the tax rates described above Article X, Section 2, of the Constitution of the State of Nevada limits the total taxes levied by all overlapping governmental units within the boundaries of any county (i.e., the county, the county school district, the State, and any other city, town, or special district) to an amount not to exceed $5 per $100 of assessed valuation of the property being taxed. The 1979 Nevada Legislature enacted provisions whereby, commencing July 1, 1979, the combined overlapping tax rate was limited to $3.64 per $100 of assessed valuation (as thereafter annually adjusted). 39

130 CITY OF FERNLEY, NEVADA Notes to the Financial Statements June 30, 2015 NOTE 3. Stewardship, Compliance and Accountability, Continued The 1981 Legislature enacted tax shift legislation designed to further reduce the level of property taxes collected throughout the State. The additional revenue is being distributed to local governmental units in order to reduce the revenues they would otherwise be required to generate from property taxes for operating purposes. Delinquent taxes receivable not collected within sixty days after year-end are normally recorded as unavailable revenue as they are not available to pay liabilities of the current period. However, delinquent taxes receivable as of year-end were not deemed material and have not been recorded. NOTE 4. Cash and Investments A reconciliation of cash deposits and investments to the government-wide statement of net position is as follows: Deposits Custodial credit risk Cash and investments $ 21,032,735 Restricted cash and investments 589,005 Trust and agency fund monies $ 30,473 21,652,213 For deposits this is the risk that in the event of a bank failure, the City s deposit may not be returned. The City does not have a formal policy for custodial credit risk. At June 30, 2015 cash on hand was $1,350 and the carrying amount of the City s deposits was $2,930,178. None of the City s bank balance of $2,905,699 was exposed to custodial credit risk because it was uninsured and uncollateralized. Investments The Nevada State Treasurer s Office operates the Local Government Investment Pool (LGIP). The LGIP is available for investment of funds administered by any Nevada Public Treasurer. The LGIP is not registered with the SEC as an investment company. Deposits in the LGIP are not insured or otherwise guaranteed by the State of Nevada, and participants share proportionally in any realized gain or losses on investments. The provisions of State Law (NRS ) govern the investment of public funds. 40

131 CITY OF FERNLEY, NEVADA Notes to the Financial Statements June 30, 2015 NOTE 4. Cash and Investments, Continued As of June 30, 2015 the City had the following investments, maturities and credit ratings: Credit Fair Rating (1) Weighted Average Investment Type Value S&P Moody's Maturity (2) Corporate Bonds $ 2,994,189 N/A N/A 757 Mortgage-Backed 2,766,913 N/A N/A 3,040 U.S. Agencies 657,843 AA+ Aaa 119 U.S. Treasuries 7,546,642 AA+ Aaa 305 Nevada Local Government Investment Pool 4,755,097 N/A N/A 36 Total Fair Value $ 18,720,684 (1) Ratings are provided where applicable to indicate associated credit risk. N/A indicates not applicable. (2) Interest rate risk is estimated using the weighted average days to maturity. Interest rate risk Interest rate risk is the risk that changes in interest rates will adversely affect the fair value of an investment. The City s policy for managing its exposure to fair value loss arising from increasing interest rates is to comply with the provisions of State law (NRS ). Credit risk Credit risk is the risk that an issuer or other counterparty to an investment will not fulfill its obligations. The City s policy for reducing its exposure to credit risk is to comply with State law (NRS ). 41

132 CITY OF FERNLEY, NEVADA Notes to the Financial Statements June 30, 2015 NOTE 5. Receivables Receivables, net of allowance A summary of receivables reported in the proprietary funds is as follows: Water Fund Sewer Fund Service revenue receivable $ 504,452 $ 190,342 Allowance for doubtful accounts (6,701) (429) 497, ,913 Intergovernmental receivable 48,093 - Bond debt fees receivable 150,787 - $ 696,631 $ 189,913 Due from other governments Due from other governments reported in the general fund relate to consolidated tax revenue receivable. Due from other governments reported in the grants fund relate to various grant revenue receivable. Other receivables The other receivables reported in the general fund are franchise taxes receivable that were measurable and available per GASB. The other receivables reported in the Non-major governmental funds relate to miscellaneous court revenue receivable and transient lodging tax revenues receivable from various entities. This section intentionally left blank 42

133 CITY OF FERNLEY, NEVADA Notes to the Financial Statements June 30, 2015 NOTE 6. Capital Assets Governmental capital asset activity for the year ended June 30, 2015 was as follows: Governmental Activities: Balance Balance 6/30/2014 Additions Deletions Transfers 6/30/2015 Capital assets, not being depreciated: Land $ 3,967,460 $ - $ - $ - $ 3,967,460 Construction in progress 220, ,192 (130,876) 223,853 Total capital assets, not being depreciated: 4,187, ,192 (130,876) 4,191,313 Capital assets, being depreciated: Buildings 8,638,565 28,855-8,667,420 Improvements 12,898, ,806 (3,457,445) 9,615,737 Machinery and equipment 1,431,662 59,536 1,491,198 Infrastructure 30,004,879 (15,714) 3,457,445 33,446,610 Total capital assets, being depreciated: 52,973, ,197 (15,714) - 53,220,965 Less accumulated depreciation for: Buildings (2,953,963) (345,897) - - (3,299,860) Improvements (3,764,909) (276,775) - - (4,041,684) Machinery and equipment (1,144,017) (73,847) - (1,217,864) Infrastructure (6,785,242) (811,949) - - (7,597,191) Total accumulated depreciation (14,648,131) (1,508,468) - - (16,156,599) Total capital assets, being depreciated, net 38,325,351 (1,245,271) (15,714) - 37,064,366 Governmental activities capital assets, net $ 42,513,348 $ (1,111,079) $ (146,590) $ - $ 41,255,679 Depreciation expense was charged to the functions/programs of the City as follows: Governmental Activities: General government $ 376,060 Public works 1,076,776 Judicial 816 Culture and recreation 54,281 Health 535 Total depreciation expense - governmental activities $ 1,508,468 43

134 CITY OF FERNLEY, NEVADA Notes to the Financial Statements June 30, 2015 NOTE 6. Capital Assets, Continued Business-type capital asset activity for the year ended June 30, 2015 was as follows: Business Type Activities: Balance Balance 6/30/2014 Additions Deletions 6/30/2015 Capital assets not being depreciated: Land $ 1,195,948 $ - $ - $ 1,195,948 Water rights 39,078,751 1,496,475-40,575,226 Construction in progress 86, ,999 (203,174) 393,076 Total capital assets, not being depreciated 40,360,950 2,006,474 (203,174) 42,164,250 Capital assets being depreciated: Buildings 17, ,530 Improvements 150,796, , ,037,896 Machinery and equipment 1,853,902 37,275 1,891,177 Other capital assets 1,671, ,671,630 Total capital assets, being depreciated 154,339, , ,618,233 Less accumulated depreciation for: Buildings (17,530) - - (17,530) Improvements (33,000,080) (3,974,479) (36,974,559) Machinery and equipment (1,715,851) (97,002) (1,812,853) Other capital assets (1,048,537) (81,458) - (1,129,995) Total accumulated depreciation (35,781,998) (4,152,939) - (39,934,937) Total capital assets, being depreciated, net 118,557,184 (3,873,888) - 114,683,296 Business-type activities capital assets, net $ 158,918,134 $ (1,867,414) $ (203,174) $ 156,847,546 Depreciation expense was charged to the functions/programs of the City as follows: Business-Type Activities: Water $ 3,167,944 Sewer 984,995 Total depreciation expense - business-type activities $ 4,152,939 44

135 CITY OF FERNLEY, NEVADA Notes to the Financial Statements June 30, 2015 NOTE 7. Long-Term Liabilities The following is a summary of changes in long-term liabilities for the year ended June 30, 2015: Governmental Activities: Issue Interest Maturity Authorized Balance Balance Current Date Rate Date and Issued 6/30/2014 Additions Retirements 6/30/2015 Portion Refunding Installment Purchase Agreement 6/29/ % 12/1/2025 $ 4,010,000 $ 3,840,000 $ - $ (280,000) $ 3,560,000 $ 286,000 Compensated absences 116,193 93,163 (110,268) 99,088 92,625 Net pension liability** 3,770,388 - (782,144) 2,988,244 - Net other postemployment benefit obligations payable 317,746 55, ,820 - Total governmental activities 8,044, ,237 (1,172,412) 7,020, ,625 Business-type Activities: Sewer Fund: 2007 Bond Issue 3/28/2007 4% - 5% 2/1/2037 5,500,000 4,892,250 - (1,042,800) 3,849, , Bond Issue 4/1/ %-5% 2/1/2038 2,500,000 2,240,414 - (305,598) 1,934,816 58, Bond Issue 10/23/ % 2/1/2026 1,295,771-1,295,771 (8,561) 1,287,210 12,590 9,295,771 7,132,664 1,295,771 (1,356,959) 7,071, ,106 Water Fund: 2007 Bond Issue 3/28/2007 4% - 5% 2/1/ ,500,000 39,582,750 - (8,437,200) 31,145,550 1,010, Bond Issue 4/1/ %-5% 2/1/ ,100,000 26,974,586 - (3,679,402) 23,295, , Bond Issue 10/23/ % 2/1/ ,569,229-11,569,229 (76,439) 11,492, ,410 86,169,229 66,557,336 11,569,229 (12,193,041) 65,933,524 1,828,894 Unamortized bond (discount)/premium 43,350 - (2,485) 40,865 2,485 Compensated absences 79,671 7,106 86,777 73,103 Net pension liability ** 2,441,124 - (506,395) 1,934,729 - Net other postemployment benefit obligations payable 181,163 35, ,189 - Total Business Type Activities 76,435,308 12,900,026 (14,051,774) 75,283,560 2,100,588 Total Long Term Debt $ 84,479,635 $ 13,048,263 $ (15,224,186) $ 82,303,712 $ 2,479,213 Payments on the notes payable that pertain to the City s governmental activities are made by the general fund. The compensated absence liability is paid from the fund responsible for the employee s compensation with significant liabilities payable from the general fund. The net pension liability and the net other postemployement benefit obligations are liquidated by the general fund. *See Note 15 regarding the 2014 refunding bond issuance ** See Note 13 regarding the beginning balances of the net pension liability. 45

136 CITY OF FERNLEY, NEVADA Notes to the Financial Statements June 30, 2015 NOTE 7. Long-Term Liabilities, Continued The purposes of individual bond issues are as follows: Governmental Refunding Purchase Agreement: Refinance debt on City Hall facilities Bond Issue: Finance the Construction of the Water Treatment Plant, the Fernley interceptor upgrade and the East Lift Station Bond Issue: Finance the construction of the Water Treatment Plant and the Highway 50 Lift Station 2014 Refunding Bond Issue: Refund a portion of the 2007 and 2008 Bond Issues. Estimated debt service requirements for bonds payable are as follows: Governmental Activities Business-Type Activities Period Ending General Obligation Sewer Water June 30, Principal Interest Principal Interest Principal Interest 2016 $ 286,000 $ 81,325 $ 196,106 $ 300,422 $ 1,828,894 $ 2,831, ,000 74, , ,934 1,905,423 2,742, ,000 67, , ,035 1,986,523 2,650, ,000 60, , ,320 2,076,569 2,561, ,000 52, , ,143 2,171,231 2,468, ,694, ,918 1,302,313 1,161,684 12,177,687 10,983, ,000 4,320 1,603, ,865 14,751,101 8,853, ,007, ,868 18,572,543 5,052, ,086,447 85,568 10,463, ,144 Total $ 3,560,000 $ 486,188 $ 7,071,476 $ 4,113,838 $ 65,933,524 $ 39,007,244 The combined total debt service for both governmental and business-type debt is as follows: Period Ending Combined Total June 30, Principal Interest 2016 $ 2,311,000 $ 3,213, ,403,000 3,108, ,501,000 2,999, ,608,000 2,893, ,720,000 2,782, ,174,000 12,290, ,718,000 9,792, ,580,000 5,580, ,550, ,713 Total $ 76,565,000 $ 43,607,270 46

137 CITY OF FERNLEY, NEVADA Notes to the Financial Statements June 30, 2015 NOTE 8. Postemployment Retirement Health Insurance Benefit Plan Descriptions: The City administers a single-employer defined benefit healthcare plan, City of Fernley Employee Health Benefits Plan (COFEHBP). Additionally, the City contributes to an agent multiple-employer defined benefit postemployment healthcare plan, Public Employees Benefits Plan (PEBP). Each plan provides medical, vision, dental, and life insurance benefits to eligible retired City employees and beneficiaries. Benefit provisions for the COFEHBP are established pursuant to NRS and amended through negotiations between the City and the respective associations. NRS assigns the authority to establish benefit provisions to the Board of Commissioners. The plan provides healthcare insurance for eligible retirees and their beneficiaries through the City s group health insurance plan, which covers both active and retired members. Under NRS , eligible retirees are able to participate in the plan with blended rates, thereby benefitting from an implicit subsidy. Retirees are required to pay 100% of their premiums under the plan. As of June 30, 2015, three City retirees were utilizing this benefit. The COFEHBP does not issue a publicly available financial report. Benefit provisions for the PEBP are administered by the State of Nevada. NRS assigns the authority to establish and amend benefit provisions to the PEBP nine-member board of trustees. City employees who met the eligibility requirements effective September 1, 2008 for retirement within the Nevada Public Employee Retirement System had the option upon retirement to enroll in coverage under the PEBP. NRS sunsetted the option to join PEBP for City employees who retired from the City after November 29, Local governments are required to pay the same portion of the cost of coverage for their retirees joining PEBP that the State of Nevada pays for state retirees participating in the plan. As of June 30, 2015, five City retirees were utilizing this benefit. Funding Policy: For COFEHBP, contribution requirements of the plan members and the City are established and may be amended through negotiations between the City and the associations. Retirees pay 100% of the pay-as-you-go premiums based on a blended rate that blends active participants and retirees. The City s contribution requirements for retirees relate to the implicit subsidy that results from using the blended rates and is determined in actuarial studies contracted for by the City. The implicit subsidy as determined by the actuary is $10,244 for fiscal year The City did not prefund any future benefits. For the PEBP, NRS establishes the subsidies to be contributed toward the premium costs of the eligible retired City employees. The contribution requirements of plan members and the City may be amended by the PEBP board. Premium rates determined by PEBP are the same for all participating members. Plan members receiving benefits have their monthly contribution deducted from their pension checks based on the health plan chosen by the retiree, as reduced by the amount of the subsidy; therefore, their contributions are not available. For the plan year ended June 30, 2015, City retirees qualified for a subsidy of $114 at five years of service and $627 at twenty years of service, with incremental increases for years of service in between. As a participating employer, the City is billed for the subsidy on a monthly basis and is legally required to provide for it. For fiscal year 2015, the City contributed $11,732 to the plan, equal to required contributions. The City did not prefund future benefits. 47

138 CITY OF FERNLEY, NEVADA Notes to the Financial Statements June 30, 2015 NOTE 8. Postemployment Retirement Health Insurance Benefit, Continued Annual OPEB Cost and Net OPEB Obligation: The City s annual other postemployment benefit (OPEB) cost (expense) for the plans is calculated based on the annual required contribution of the employer (ARC), an amount actuarially determined in accordance with parameters of GASB Statement 45. The ARC represents a level of funding that, if paid on an ongoing basis, is projected to cover normal cost each year and to amortize any unfunded actuarial liabilities (or funding excess) over a period not to exceed thirty years. The City s annual OPEB cost, the percentage of annual OPEB cost contributed to the plans, and the net OPEB obligations, by plan, for fiscal years , , and were as follows: Annual OPEB Cost Percentage of Fiscal (Entry Age Normal Employer Annual OPEB Net OPEB Year End Cost Method) Contributions Contributed Obligation COFEHBP June 30, 2015 $ 102,395 $ 10,244 10% $ 570,430 COFEHBP June 30, ,747 8,015 8% 478,279 COFEHBP June 30, ,396 6,134 7% 390,547 PEBP June 30, ,682 11, % 18,580 PEBP June 30, ,782 12, % 20,630 PEBP June 30, ,848 11, % 23,509 Combined Totals June 30, ,077 21, ,010 Combined Totals June 30, ,529 20, ,909 Combined Totals June 30, ,244 17, ,056 The net OPEB obligation (NOPEBO) as of June 30, 3015, was calculated as follows: COFEHBP PEBP Total Annual Required Contribution (ARC) $ 105,552 $ 10,178 $ 115,730 Interest on net OPEB obligation 19, ,956 Adjustment to annual required contribution (22,288) (1,321) (23,609) Annual OPEB Cost 102,395 9, ,077 Less: Contributions made 10,244 11,732 21,976 Increase (decrease) in net OPEB obligation 92,151 (2,050) 90,101 Net OPEB obligation beginning of the year 478,279 20, ,909 Net OPEB obligation end of year $ 570,430 $ 18,580 $ 589,010 48

139 CITY OF FERNLEY, NEVADA Notes to the Financial Statements June 30, 2015 NOTE 8. Postemployment Retirement Health Insurance Benefit, Continued Funded Status and Funding Progress: The funded status of the plans as the most recent actuarial valuation follows: COFEHBP PEBP Total Accrued actuarial liability (a) $ 652,254 $ 162,201 $ 814,455 Actuarial value of plan assets (b) Unfunded Actuarial Accrued Liability (a) (b) $ 652,254 $ 162,201 $ 814,455 Funded Ratio (b) / (a) 0% 0% 0% Covered payroll (c) $ 2,760,034 N/A Unfunded Actuarial Accrued Liability as a Percentage of Covered Payroll ([(a) (b)] / (c)) 24% N/A Actuarial valuations involve estimates of the value of reported amounts and assumptions about the probability of occurrence of events far into the future. Examples include assumptions about future employment, mortality, and the healthcare cost trend. Amounts determined regarding the funded status of the plan and the annual required contributions of the employer are subject to continual revision as actual results are compared to past expectations and new estimates are made about the future. The schedule of funding progress, presented as required supplementary information following the notes to the financial statements, presents information about whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued liabilities for benefits. Multiyear information will be provided as it becomes available. Actuarial Methods and Assumptions: Projections of benefits for financial reporting purposes are based on the substantive plan (the plan as understood by the employer and plan members) and include the types of benefits provided at the time of each valuation and the historical pattern of sharing of benefit costs between the City and plan members to that point. Actuarial calculations reflect long-term perspective and employ methods and assumptions that are designed to reduce short-term volatility in actuarial accrued liabilities and actuarial value of assets. 49

140 CITY OF FERNLEY, NEVADA Notes to the Financial Statements June 30, 2015 NOTE 8. Postemployment Retirement Health Insurance Benefit, Continued Significant methods and assumptions used in the June 30, 2013 actuarial valuation were as follows: COFEHBP PEBP Actuarial valuation date January 1, 2013 January 1, 2013 Actuarial cost method Entry Age Normal Cost Entry Age Normal Cost Amortization method Level Percentage of Pay Level Dollar Amortization period (open) 27 years (closed) 27 years (closed) Asset valuation method Market Value Market Value Actuarial Assumptions: Projected general inflation rate 3% 3% Investment rate of return 4% 4% Projected overall salary increase 4% 4% Medical Healthcare inflation rate* 9% - 5% 9% - 5% * Actual medical premiums used in 2013, 9% decreasing each year by.5% until 5% is reached in NOTE 9. Interfund Transactions and Balances As of June 30, 2015, the City had the following internal balances: Due From Grants Due To Fund Total General Fund $ 10,791 $ 10,791 Total $ 10,791 $ 10,791 Interfund balances resulted from the time lag between the dates that (1) interfund goods and services are provided or reimbursable expenditures occur, (2) transactions are recorded in the accounting system, and (3) payments between funds are made. All interfund balances are expected to be repaid within one year. 50

141 CITY OF FERNLEY, NEVADA Notes to the Financial Statements June 30, 2015 NOTE 9. Interfund Transactions and Balances, Continued For the year ended June 30, 2015, the City made the following interfund transfers: Transfers in General Transfers out Fund Total Grants Fund $ 11,051 $ 11,051 Total $ 11,051 $ 11,051 Transfers are used to (1) move revenues from the fund that statute or budget requires to collect them to the fund that statute or budget requires to expend them, (2) move receipts restricted to debt service from the funds collecting the receipts to the debt service fund as debt service payments become due, and (3) use unrestricted revenues collected in the general fund to finance various programs accounted for in other funds in accordance with budgetary authorizations. NOTE 10. Defined Benefit Pension Plan Public Employees Retirement System of Nevada (PERS) Plan description PERS administers a cost-sharing, multiple-employer, defined benefit public employees retirement system which includes both Regular and Police/Fire members. The System was established by the Nevada Legislature in 1947, effective July 1, The System is administered to provide a reasonable base income to qualified employees who have been employed by a public employer and whose earnings capacities have been removed or substantially impaired by age or disability. Benefits provided Benefits, as required by the Nevada Revised Statutes (NRS or statute), are determined by the number of years of accredited service at time of retirement and the member s highest average compensation in any 36 consecutive months with special provisions for members entering the System on or after January 1, Benefit payments to which participants or their beneficiaries may be entitled under the plan include pension benefits, disability benefits, and survivor benefits. Monthly benefit allowances for members are computed as 2.5% of average compensation for each accredited year of service prior to July 1, For service earned on and after July 1, 2001, this multiplier is 2.67% of average compensation. For members entering the System on or after January 1, 2010, there is a 2.5% multiplier. The System offers several alternatives to the unmodified service retirement allowance which, in general, allow the retired employee to accept a reduced service retirement 51

142 CITY OF FERNLEY, NEVADA Notes to the Financial Statements June 30, 2015 NOTE 10. Defined Benefit Pension Plan, Continued allowance payable monthly during his or her lifetime and various optional monthly payments to a named beneficiary after his or her death. Post-retirement increases are provided by authority of NRS Vesting Regular members are eligible for retirement at age 65 with five years of service, at age 60 with 10 years of service, or at any age with thirty years of service. Regular members entering the System on or after January 1, 2010, are eligible for retirement at age 65 with five years of service, or age 62 with 10 years of service, or any age with thirty years of service. Police/Fire members are eligible for retirement at age 65 with five years of service, at age 55 with ten years of service, at age 50 with twenty years of service, or at any age with twenty-five years of service. Police/Fire members entering the System on or after January 1, 2010, are eligible for retirement at 65 with five years of service, or age 60 with ten years of service, or age 50 with twenty years of service, or at any age with thirty years of service. Only service performed in a position as a police officer or firefighter may be counted towards to eligibility for retirement as Police/Fire accredited service. The normal ceiling limitation on monthly benefits allowances is 75% of average compensation. However, a member who has an effective date of membership before July 1, 1985, is entitled to a benefit of up to 90% of average compensation. Both Regular and Police/Fire members become fully vested as to benefits upon completion of five years of service. Contributions The authority for establishing and amending the obligation to make contributions and member contribution rates is set by stature. New hires, in agencies which did not elect the Employer-Pay Contribution (EPC) plan prior to July 1, 1983, have the option of selecting one of two contribution plans. Contributions are shared equally by employer and employee. Employees can take a reduced salary and have contributions made by the employer (EPC) or can make contributions by a payroll deduction matched by the employer. The System s basic funding policy provides for periodic contributions at a level pattern of cost as a percentage of salary throughout an employee s working lifetime in order to accumulate sufficient assets to pay benefits when due. The System receives an actuarial valuation on an annual basis indicating the contribution rates required to fund the System on an actuarial reserve basis. Contributions actually made are in accordance with the required rates established by the Nevada Legislature. These statutory rates are increased/decreased pursuant to NRS and The actuary funding method used is the Entry Age Normal Cost Method. It is intended to meet the funding objective and result in a relatively level long-term contributions requirement as a percentage of salary. 52

143 CITY OF FERNLEY, NEVADA Notes to the Financial Statements June 30, 2015 NOTE 10. Defined Benefit Pension Plan, Continued For the fiscal year ended June 30, 2014 and June 30, 2015 the Statutory Employer/employee matching rate was 13.25% for Regular employees. The Employer-pay contribution (EPC) rate was 25.75% for Regular employees. The City's contributions for the current and two preceding fiscal years, all of which were equal to the required contributions, were as follows: Investment policy Year Ended Regular June 30, Fund 2013 $ 628, , ,795 The System s policies which determine the investment portfolio target asset allocation are established by the Board. The asset allocation is reviewed annually and is designed to meet the future risk and return needs of the System. The following was the Board adopted policy target asset allocation as of June 30, 2014: Asset Class Target Allocation Long-term Geometric Expected Real Rate of Return* Domestic equity 42% 5.50% International equity 18% 5.75% Domestic fixed income 30% 0.25% Private markets 10% 6.80% *As of June 30, 2014, PERS long-term inflation assumption was 3.50%. Pension liability Net pension liability At June 30, 2015, the City reported a liability of $4,922,973 for its proportionate share of the PERS' net pension liability. The net pension liability was measured as of June 30, 2014, and the total pension liability used to calculate the net pension liability was determined by an actuarial valuation as of that date. The employer allocation percentage of the net pension liability was based on the total contributions due on wages paid during the measurement period. Each employer s proportion of the net pension liability is based on their combined employer and member contributions relative to the total combined employer and member contributions for all employers for the period ended June 30, The City's proportion measured as of June 30, 2014, was percent, which was an increase of percent from its proportion measured as of June 30,

144 CITY OF FERNLEY, NEVADA Notes to the Financial Statements June 30, 2015 NOTE 10. Defined Benefit Pension Plan, Continued Pension liability discount rate sensitivity The following presents the net pension liability of the PERS as of June 30, 2014, calculated using the discount rate of 8.00%, as well as what the PERS net pension liability would be if it were calculated using a discount rate that is 1-percentage-point lower (7.00%) or 1-percentage-point higher (9.00%) than the current discount rate: 1% Decrease Discount Rate 1% Increase (7.00%) (8.00%) (9.00%) Proportionate share of Net pension (asset) / liability $ 7,655,761 $ 4,922,973 $ 2,651,330 Pension plan fiduciary net position Detailed information about the pension plan s fiduciary net position is available in the PERS Comprehensive Annual Financial Report, available on the PERS website. Actuarial assumptions The City s net pension liability was measured as of June 30, 2014, and the total pension liability used to calculate the net pension liability was determined by an actuarial valuation as of that date. The total pension liability was determined using the following actuarial assumptions, applied to all periods included in the measurement: Inflation rate 3.50% Payroll growth 5.00%, including inflation Investment rate of return 8.00% Productivity pay increase 0.75% Projected salary increases Regular: 4.60% to 9.75%, depending on service Police/Fire: 5.25% to 14.50%, depending on service Rates include inflation and productivity increases Consumer Price Index 3.50% Other assumptions Same as those used in the June 30, 2014 funding actuarial valuation Actuarial assumptions used in the June 30, 2014 valuation were based on the results of the experience review completed in The discount rate used to measure the total pension liability was 8.00% as of June 30, 2014 and June 30, The projection of cash flows used to determine the discount rate assumed that employee and employer contributions will be made at the rate specified in statute. Based on that assumption, the pension plan s fiduciary net position at June 30, 2014, was projected to be available to make all projected future benefit payments of current active and inactive employees. Therefore, the long-term expected rate of 54

145 CITY OF FERNLEY, NEVADA Notes to the Financial Statements June 30, 2015 NOTE 10. Defined Benefit Pension Plan, Continued return on pension plan investments was applied to all periods of projected benefit payments to determine the total pension liability as of June 30, 2014 and June 30, Pension expense and deferred outflows/inflows of resources related to pensions For the year ended June 30, 2015, the City recognized pension expense for PERS of $628,898. At June 30, 2015, the City reported deferred outflows of resources and deferred inflows of resources related to pensions from the following sources: Deferred Outflows of Resources Deferred Inflows of Resources Differences between expected and actual experience $ - $ 235,591 Net difference between projected and actual earnings on pension plan investments - 1,034,026 Changes in proportion and differences between contributions and proportional share of contributions - 90,376 Subtotal - 1,359,993 Contributions subsequent to the measurement date 780,795 - Total $ 780,795 $ 1,359,993 Governmental activities $ 473,943 $ 825,516 Business-type activities 306, ,477 $ 780,795 $ 1,359,993 The $780,795 reported as deferred outflows of resources related to PERS pensions resulting from City contributions subsequent to the measurement date will be recognized as a reduction of the net pension liability in the subsequent fiscal year. Other amounts reported as deferred outflows of resources and deferred inflows of resources related to PERS pensions will be recognized in pension expense as follows: Year Ending June 30 Deferred Outflows (Inflows) of Resources 2016 $ (321,176) 2017 (321,176) 2018 (321,176) 2019 (321,176) 2020 (44,268) Thereafter $ (31,021) (1,359,993) 55

146 CITY OF FERNLEY, NEVADA Notes to the Financial Statements June 30, 2015 NOTE 11. Risk Management The City, like any governmental entity, is exposed to various risks of loss related to torts; theft of, damage to, and destruction of assets; errors and omissions; injuries of employees; and natural disasters. The City has joined together with similar public agencies (cities, counties and special districts) throughout the State of Nevada to create a pool under the Nevada Interlocal Cooperation Act. The Nevada Public Agency Insurance Pool (Pool) is a public entity risk pool currently operating as a common risk management and insurance program for its members. The City pays an annual premium and specific deductibles, as necessary, to the Pool for its general insurance coverage. The Pool is considered a self-sustaining risk pool that will provide coverage for its members for up to $10,000,000 per event and a $13,000,000 general aggregate per member. The City has also joined together with similar public agencies, under the Nevada Interlocal Cooperation Act, to create an intergovernmental self-insured association for workers compensation insurance, the Public Agency Compensation Trust (PACT). The City pays premiums based on payroll costs to the PACT. The PACT is considered a self-sustaining pool that will provide coverage based on established statutory limits. The City continues to carry commercial insurance for other risks of loss, including specific risks of loss not covered by the Pool, including bonding and employee health and accident insurance. Settled claims resulting from these risks have not exceeded commercial coverage for the past three years. NOTE 12. Commitments and Contingencies The City is involved with several significant construction contracts that will continue from fiscal year 2015 through subsequent fiscal years. Details of the projects are available in the City s fiscal year 2015 budget. The City is involved in various matters of litigation. Although the outcome of the litigation is not presently determinable, it is the opinion of City officials that none of the cases will have a materially adverse effect on the City's financial condition. 56

147 CITY OF FERNLEY, NEVADA Notes to the Financial Statements June 30, 2015 NOTE 13. Restatements and Reclassifications As mentioned in Note 1 to the financial statements, the City implemented GASB Statement No. 68, Accounting and Financial Reporting for Pensions, as amended by GASB Statement No. 71, Pension Transition for Contributions Made Subsequent to the Measurement Date. GASB Statement Nos. 68 and 71 establish standards for measuring and recognizing net pension assets and liabilities, deferred outflows of resources, deferred inflows of resources, and expenses/expenditures related to pension benefits provided through defined benefit pension plans. This resulted in a restatement of beginning net position as follows: Governmental Activities Restatement adjustment - implementation of GASB 68: Net pension liability 3,770,388 Deferred outflows - contributions Business-type Activities Total $ $ 2,441,124 $ 6,211,512 made during fiscal year 2014 (338,369) (219,075) (557,444) Total restatement adjustment $ 3,432,019 $ 2,222,049 $ 5,654,068 NOTE 14. Prior Period Adjustment Subsequent to the issuance of the June 30, 2014 financial statements, the City discovered that customer deposits were overstated by $61,092. This overstatement was related to the Project Plan Review retainer account. Accordingly, the customer deposits beginning balance was reduced with an offset to beginning fund balance. Previous years statements of revenues, expenditures, and changes in fund balance for the general fund understated revenues in the amount of $61,092. The overall effect of the change in fund balance was an increase of $61,

148 CITY OF FERNLEY, NEVADA Notes to the Financial Statements June 30, 2015 NOTE 15. Refunding Bond Issuance On October 23, 2014, the City issued $12,865,000 of General Obligation (Limited Tax) Water and Sewer Refunding Bonds (Additionally Secured by Pledged Revenues) Series 2014 to refinance a portion of the City s General Obligation (Limited Tax) Water and Sewer Bonds (Additionally Secured by Pledged Revenues) Series 2007 and Series $8,400,000 of the Series 2007 Bond and $3,245,000 of the Series 2008 Bond will be refunded. As a result, the refunded portion of the bonds will be considered to be defeased. The transaction resulted in an economic gain (the present value of future cash flows) of $832,403 and a reduction of $955,102 in future debt service payments. The interest rate on the bond is 2.48 percent. Semi-annual principal and interest payments are payable through February 1, 2026 NOTE 16. Subsequent Events On August 6, 2015, the City issued $5,838,000 of General Obligation (Limited Tax) Sewer Refunding Bonds (Additionally Secured by Pledged Revenues) Series 2015A to refinance a portion of the City s General Obligation (Limited Tax) Water and Sewer Bonds (Additionally Secured by Pledged Revenues) Series 2007 and Series $3,600,000 of the Series 2007 Bond and $1,760,000 of the Series 2008 Bond will be refunded. As a result, the refunded portion of the bonds will be considered to be defeased. The transaction resulted in an economic gain (the present value of future cash flows) of $1,007,520 and a reduction of $1,346,997 in future debt service payments. The interest rate on the bonds is 2.35 percent. Semi-annual principal and interest payments are payable through January 1, On November 4, 2015, the City issued $37,665,000 of General Obligation (Limited Tax) Water Refunding Bonds (Additionally Secured by Pledged Revenues) Series 2015B to refinance a portion of the City s General Obligation (Limited Tax) Water and Sewer Bonds (Additionally Secured by Pledged Revenues) Series 2007 and Series $16,525,000 of the Series 2007 Bond and $20,310,000 of the Series 2008 Bond will be refunded. As a result, the refunded portion of the bonds will be considered to be defeased. The transaction resulted in an economic gain (the present value of future cash flows) of $3,237,625 and a reduction of $4,662,688 in future debt service payments. The interest rate on the bonds is 3.22 percent. Semi-annual principal and interest payments are payable through February 1,

149 REQUIRED SUPPLEMENTARY INFORMATION 59

150 CITY OF FERNLEY, NEVADA Schedule of the Proportionate Share of the Net Pension Liability June 30, 2015 PUBLIC EMPLOYEES RETIREMENT SYSTEM OF NEVADA Reporting Fiscal Year (Measurement Date) 2015 (2014) Proportion of the net pension liability (asset) % Proportionate share of the net pension liability (asset) $ 4,922,973 Covered employee payroll $ 2,763,421 Proportionate share of the net pension liability (asset) as a percentage of its covered-employee payroll % Plan fiduciary net position as a percentage of the total pension liability 76.3% Note: The District implemented GASB 68 in fiscal year Prior year information is not available. 60

151 CITY OF FERNLEY, NEVADA Schedule of Contributions For the Year Ended June 30, 2015 PUBLIC EMPLOYEES RETIREMENT SYSTEM OF NEVADA Reporting Fiscal Year (Measurement Date) 2015 (2014) Contractually required contribution $ 711,581 Contributions in relation to the contractually required contribution $ (711,581) Contribution deficiency (excess) $ - Covered employee payroll $ 2,763,421 Contributions as a percentage of covered-employee payroll 25.75% Note: The entity implemented GASB 68 in fiscal year Prior year information is not available. 61

152 CITY OF FERNLEY, NEVADA Schedule of Funding Progress Other Post Employment Benefit Plans For the Year Ended June 30, 2015 Actuarial Accrued Liability Actuarial (AAL) - UAAL as a Value of Entry Age Percentage Actuarial Plan Normal Unfunded Funded Covered of Covered Valuation Assets Cost AAL (UAAL) Ratio Payroll Payroll Date (a) (b) (b - a) (a/b) (c) ([b - a]/c) COFEHBP January 1, 2013 $ - $ 652,254 $ 652,254 0% $ 2,760,034 24% PEBP* January 1, , ,201 0% N/A N/A COFEHBP June 30, , ,357 0% 2,494,167 12% PEBP* June 30, , ,276 0% N/A N/A Multi-year data will be provided as it becomes available. * The option to join the State plan was sunsetted for City employees effective November 29, Significant changes in the AAL between June 30, 2010 and January 1, 2013 actuarial valuations include: PEBP change in required subsidy for PEBP retirees effective July 1, 20011, decrease of 2 members receiving a subsidy and update in the mortality assumptions. COFEHBP updates to employee and premium data, updates to assumed rates of retirement, termination and mortality, and updates to trend assumptions for future increase in medical premiums. 62

153 CITY OF FERNLEY, NEVADA Major Governmental Funds Schedules of Revenues, Expenditures, and Changes in Fund Balances Budget and Actual June 30, 2015 The General Fund is the City s primary operating fund. It accounts for all financial resources of the general government, except for those required to be accounted for in another fund. Budget and actual comparisons are presented for all funds of the City as required by Nevada Revised Statutes. Such budget comparisons are required to be presented using the budget as adopted, and approved by the State of Nevada Department of Taxation. However, guidance provided in governmental accounting standards specify that three internally reported funds of the City, not meeting the definition of a special revenue fund, do not qualify to be separately presented for external reporting purposes. The following funds that are reported separately for internal reporting purposes by the City are combined with the General Fund for external financial reporting: Residential Construction Tax Fund Parks and Facilities Fund Computer Technology Fund The Grants Fund is used to account for federal and state grants that are restricted or committed for a specific use. 63

154 CITY OF FERNLEY, NEVADA General Fund Schedule of Revenues, Expenditures, and Changes in Fund Balance Budget and Actual For the Year Ended June 30, 2015 REVENUES Original Final Variance with Budget Budget Actual Final Budget Taxes: Property tax $ 2,310,492 $ 2,310,492 $ 2,217,326 $ (93,166) Residential construction tax ,000 14,000 Total taxes 2,310,492 2,310,492 2,231,326 (79,166) Licenses, permits and fees: Business licenses 200, , ,163 (6,837) Franchise fee 1,160,250 1,160,250 1,216,922 56,672 Liquor licenses 28,000 28,000 32,269 4,269 Gaming licenses 100, , ,513 4,513 Building permits 200, , ,297 (3,703) Planning and zoning fees 45,000 45,000 15,517 (29,483) Public works and inspection fees ,846 25,846 Other permits and fees 10,350 10,350 13,715 3,365 Total licenses, fees and permits 1,743,600 1,743,600 1,798,242 54,642 Intergovernmental: Motor vehicle fuel tax 334, , ,360 9,542 RTC shared revenue 1,200,000 1,200, ,154 (1,091,846) State consolidated tax 140, , ,389 3,152 Fernley park agreement 60,000 60,000 60,000 - County roads contribution 402, , , Administration fee Total intergovernmental 2,137,381 2,137,381 1,059,067 (1,078,314) Fines and forfeitures: Community service fee Municipal court fines and fees 111, , , ,122 Total fines and forfeitures 111, , , ,438 Investment earnings: Interest earnings 7,000 7,000 4,702 (2,298) Total investment earnings 7,000 7,000 4,702 (2,298) Other revenues: Cemetery fees 1,200 1,200 1, Donations 4,500 4, (3,725) Park facility rental fee 10,000 10,000 15,410 5,410 Interfund revenues 141, , ,241 6,612 Miscellaneous 54,000 54,000 49,690 (4,310) Total other revenues 211, , ,516 4,187 Total revenues 6,521,768 6,521,768 5,526,257 (995,511) (continued) 64

155 CITY OF FERNLEY, NEVADA General Fund Schedule of Revenues, Expenditures, and Changes in Fund Balance Budget and Actual (Continued) For the Year Ended June 30, 2015 Original Final Variance with EXPENDITURES Budget Budget Actual Final Budget General government: Mayor and city council: Salaries and wages $ 73,151 $ 73,151 $ 53,361 $ 19,790 Employee benefits 13,086 13,086 12, Services, supplies and other 33,890 33,890 28,400 5, , ,127 94,060 26,067 City management: Salaries and wages 297, , ,836 27,328 Employee benefits 143, , ,968 24,472 Services, supplies and other 319, , ,731 96, , , , ,219 City clerk: Salaries and wages 127, , ,891 (1,228) Employee benefits 63,972 63,972 59,211 4,761 Services, supplies and other 27,572 27,572 26, , , ,914 4,293 Finance: Salaries and wages 63,328 63,328 68,697 (5,369) Employee benefits 32,380 32,380 19,932 12,448 Services, supplies and other 277, ,701 74, , , , , ,070 City attorney: Salaries and wages 157, , ,769 (9,555) Employee benefits 77,284 77,284 66,240 11,044 Services, supplies and other 139, , ,510 32, , , ,519 33,879 Facilities (City Hall) and general: Salaries and wages 87,145 87, ,765 (17,620) Employee benefits 55,290 55,290 37,141 18,149 Services, supplies and other 253, , ,385 2, , , ,291 2,781 Information technology: Salaries and wages 51,905 51,905 59,240 (7,335) Employee benefits 30,381 30,381 23,842 6,539 Services, supplies and other 67,556 67,556 73,629 (6,073) 149, , ,711 (6,869) Total general government 2,392,809 2,392,809 1,974, ,440 Public works: Streets and public works: Salaries and wages 276, , ,377 (20,356) Employee benefits 168, , ,482 39,715 Services, supplies and other 472, , ,201 (39,076) Capital outlay 1,467,122 1,467, ,574 1,349,548 Total public works 2,383,465 2,383,465 1,053,634 1,329,831 (continued) 65

156 CITY OF FERNLEY, NEVADA General Fund Schedule of Revenues, Expenditures, and Changes in Fund Balance Budget and Actual (Continued) For the Year Ended June 30, 2015 Expenditures (continued) Original Final Variance with Budget Budget Actual Final Budget Judicial: Municipal court: Salaries and wages $ 140,018 $ 140,018 $ 146,098 $ (6,080) Employee benefits 85,593 85,593 67,833 17,760 Services, supplies and other 57,800 57,800 30,771 27,029 Total judicial 283, , ,702 38,709 Health: Animal control: Salaries and wages 32,778 32,778 33,044 (266) Employee benefits 24,391 24,391 15,385 9,006 Services, supplies and other 21,847 21,847 9,804 12,043 79,016 79,016 58,233 20,783 Vector control: Salaries and wages 25,134 25,134 34,090 (8,956) Employee benefits 14,857 14,857 9,833 5,024 Services, supplies and other 79,420 79,420 74,972 4, , , , Cemetery Services, supplies and other 19,600 19,600 13,913 5,687 19,600 19,600 13,913 5,687 Total health 218, , ,041 26,986 Culture and recreation: Parks: Salaries and wages 222, , ,148 11,373 Employee benefits 119, ,905 75,173 44,732 Services, supplies and other 444, , ,352 88,187 Total culture and recreation 786, , , ,292 Community development: Building: Salaries and wages 122, , ,405 (25,724) Employee benefits 73,318 73,318 47,297 26,021 Services, supplies and other 27,800 27,800 16,899 10,901 Capital outlay 2,997 2,997 3,427 (430) 226, , ,028 10,768 Planning: Salaries and wages 141, , ,249 (24,949) Employee benefits 79,051 79,051 62,525 16,526 Services, supplies and other 37,050 37,050 25,636 11,414 Capital outlay 10,645 10,645 1,000 9, , , ,410 12,636 Total community development 494, , ,438 23,404 (continued) 66

157 CITY OF FERNLEY, NEVADA General Fund Schedule of Revenues, Expenditures, and Changes in Fund Balance Budget and Actual (Continued) For the Year Ended June 30, 2015 Expenditures (continued) Budget Budget Actual Final Budget Debt service: Principal $ 280,000 $ 280,000 $ 280,000 $ - Interest 88,060 88,060 88,060 - Total debt service 368, , ,060 - Total expenditures 6,927,579 6,927,579 4,945,917 1,981,662 Excess of revenues over (under) expenditures (405,811) (405,811) 580, ,151 Other financing sources (uses): Transfer from grants fund ,051 11,051 Total other financing sources (uses) ,051 11,051 Net change in fund balance (405,811) (405,811) 591, ,202 Fund balance, beginning of year 3,156,136 3,156,136 3,156,136 - Prior period adjustment 61,092 61,092 61,092 - Fund balance, end of year $ 2,811,417 $ 2,811,417 $ 3,808,619 $ 997,202 67

158 CITY OF FERNLEY, NEVADA Grants Fund Schedule of Revenues, Expenditures, and Changes in Fund Balance Budget and Actual For the Year Ended June 30, 2015 Revenues Original Final Variance with Budget Budget Actual Final Budget Intergovernmental revenue: Grant revenue $ 530,988 $ 530,988 $ 496,271 $ (34,717) Total revenues 530, , ,271 (34,717) Expenditures Current: Public works Health - - 4,621 (4,621) Culture and recreation Community development 530, , ,599 50,389 Total expenditures 530, , ,220 45,768 Excess (deficiency) of revenues over (under) expenditures ,051 11,051 Other financing sources (uses) Transfers out - - (11,051) (11,051) Total other financing sources (uses) - - (11,051) (11,051) Net change in fund balance Fund balance, beginning of year Fund balance, end of year $ - $ - $ - $ - 68

159 CITY OF FERNLEY, NEVADA SUPPLEMENTARY INFORMATION NONMAJOR GOVERNMENTAL FUNDS COMBINING STATEMENTS AND BUDGET AND ACTUAL REPORTS Special revenue funds are used to account for specific revenues that are restricted or committed to expenditure for particular purposes. The Municipal Court Administrative Fees Fund is used to account for the proceeds from Court Administrative Fees set aside per NRS for court administration and graffiti abatement (judicial department expenditures). The Municipal Court Facilities Fees Fund is used to account for the proceeds from Court Facilities Fees set aside per NRS for the provision of court facilities. The Transient Lodging Tax Fund accounts for Transient Lodging Tax revenues to be used for economic development activities. Capital projects funds are used to account for the acquisition and construction of major capital facilities other than those financed by proprietary funds and trust funds. The Capital Projects Fund is used to account for financial resources used for the acquisition or construction of capital projects for governmental activities. The fund is utilized to set aside funds to provide funding for future projects involving replacement or acquisition of building, improvements and equipment. The Capital Improvement Fund is used to account for road tax revenues used for the acquisition or construction of capital improvements for governmental activities. These funds are also utilized for the repayment of medium-term obligations used for capital improvements. 69

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161 CITY OF FERNLEY, NEVADA Combining Balance Sheet Nonmajor Governmental Funds June 30, 2015 Assets Special Revenue Capital Projects Municipal Municipal Total Court Court Transient Nonmajor Administration Facilities Lodging Capital Capital Governmental Fees Fees Tax Projects Improvement Funds Cash and investments $ 30,658 $ 59,277 $ 736,188 $ 560,110 $ 44,714 $ 1,430,947 Receivables: Interest ,052 Other 1,638-32, ,998 Total assets $ 32,316 $ 59,317 $ 769,081 $ 560,535 $ 44,748 $ 1,465,997 Liabilities and Fund Balances Liabilities: Accounts payable $ 2,216 $ 9,245 $ 43,976 $ - $ - $ 55,437 Total liabilities 2,216 9,245 43, ,437 Fund Balances: Restricted for: Judicial 30,100 50, ,172 Capital projects ,748 44,748 Committed: Capital projects , ,535 Convention Center , ,851 Assigned , ,254 Total fund balances 30,100 50, , ,535 44,748 1,410,560 Total liabilities and fund balances $ 32,316 $ 59,317 $ 769,081 $ 560,535 $ 44,748 $ 1,465,997 71

162 CITY OF FERNLEY, NEVADA Combining Statement of Revenues, Expenditures, and Changes in Fund Balances Nonmajor Governmental Funds For the Year Ended June 30, 2015 Special Revenue Capital Projects Municipal Municipal Total Court Court Transient Nonmajor Administration Facilities Lodging Capital Capital Governmental Fees Fees Tax Projects Improvement Funds Revenues Taxes $ - $ - $ 256,075 $ - $ - $ 256,075 Intergovernmental revenue ,495 1,495 Fines and forfeitures 22,360 28, ,338 Investment earnings ,784 Total revenues 22,392 29, , , ,692 Expenditures Current: Judicial 16,612 16, ,403 Culture and recreation , ,367 Capital outlay - 3,450 72,785 6,581-82,816 Total expenditures 16,612 20, ,152 6, ,586 Excess (deficiency) of revenues over (under) expenditures 5,780 8,803 83,816 (5,846) 1,553 94,106 Fund balances, beginning of year 24,320 41, , ,381 43,195 1,316,454 Fund balances, end of year $ 30,100 $ 50,072 $ 725,105 $ 560,535 $ 44,748 $ 1,410,560 72

163 CITY OF FERNLEY, NEVADA Municipal Court Administration Fees Special Revenue Fund Schedule of Revenues, Expenditures, and Changes in Fund Balance Budget and Actual For the Year Ended June 30, 2015 Revenues Final Variance with Budget Actual Final Budget Fines and forfeitures: Municipal administrative fees $ 11,540 $ 22,360 $ 10,820 Investment earnings (268) Total revenues 11,840 22,392 10,552 Expenditures Judicial: Service, supplies and other 30,000 16,612 13,388 Total expenditures 30,000 16,612 13,388 Excess (deficiency) of revenues over (under) expenditures (18,160) 5,780 23,940 Fund balance, beginning of year 24,320 24,320 - Fund balance, end of year $ 6,160 $ 30,100 $ 23,940 73

164 CITY OF FERNLEY, NEVADA Municipal Court Facilities Fees Special Revenue Fund Schedule of Revenues, Expenditures, and Changes in Fund Balance Budget and Actual For the Year Ended June 30, 2015 Revenues Final Variance with Budget Actual Final Budget Fines and forfeitures: Municipal facilities fees $ 16,494 $ 28,978 $ 12,484 Interest earnings (234) Total revenues 16,794 29,044 12,250 Expenditures Judicial: Service, supplies and other - 16,791 (16,791) Capital outlay 60,000 3,450 56,550 Total expenditures 60,000 20,241 39,759 Excess (deficiency) of revenues over (under) expenditures (43,206) 8,803 52,009 Fund balance, beginning of year 41,269 41,269 - Fund balance, end of year $ (1,937) $ 50,072 $ 52,009 74

165 CITY OF FERNLEY, NEVADA Transient Lodging Tax Special Revenue Fund Schedule of Revenues, Expenditures, and Changes in Fund Balance Budget and Actual For the Year Ended June 30, 2015 Revenues Final Variance with Budget Actual Final Budget Taxes: Transient lodging tax $ 242,080 $ 256,075 $ 13,995 Interest earnings Total revenues 242, ,968 14,656 Expenditures Culture and recreation: Services, supplies and other 121, ,367 21,283 Capital outlay 77,000 72,785 4,215 Total expenditures 198, ,152 25,498 Excess of revenues over (under) expenditures 43,662 83,816 40,154 Fund balance, beginning of year 641, ,289 - Fund balance, end of year $ 684,951 $ 725,105 $ 40,154 75

166 CITY OF FERNLEY, NEVADA Capital Projects Fund Schedule of Revenues, Expenditures, and Changes in Fund Balance Budget and Actual For the Year Ended June 30, 2015 Revenues Final Variance with Budget Actual Final Budget Interest earnings $ 1,200 $ 735 $ (465) Total revenues 1, (465) Expenditures Capital outlay 205,000 6, ,419 Total expenditures 205,000 6, ,419 Excess (deficiency) of revenues over (under) expenditures (203,800) (5,846) 197,954 Fund balance, beginning of year 566, ,381 - Fund balance, end of year $ 362,581 $ 560,535 $ 197,954 76

167 CITY OF FERNLEY, NEVADA Capital Improvements Fund Schedule of Revenues, Expenditures, and Changes in Fund Balance Budget and Actual For the Year Ended June 30, 2015 Revenues Final Variance with Budget Actual Final Budget Intergovernmental revenue $ 2,000 $ 1,495 $ (505) Interest earnings Total revenues 2,040 1,553 (487) Expenditures Capital outlay Total expenditures Excess (deficiency) of revenues over (under) expenditures 2,040 1,553 (487) Fund balance, beginning of year 43,195 43,195 - Fund balance, end of year $ 45,235 $ 44,748 $ (487) 77

168 CITY OF FERNLEY, NEVADA SUPPLEMENTARY INFORMATION ENTERPRISE FUND BUDGET AND ACTUAL REPORTS The Water Utility Fund is used to account for the provision of water services to the residents of the City and some residents of Lyon County. All activities necessary to provide services are accounted for in this fund, including, but not limited to, administration, operations, maintenance, financing and related debt. The Sewer Utility Fund is used to account for sewer collection and treatment services for the residents of the City and some residents of Lyon County. All activities necessary to provide services are accounted for in this fund, including, but not limited to, administration, operations, maintenance, financing and related debt. 78

169 CITY OF FERNLEY, NEVADA Water Fund Schedule of Revenues, Expenses, and Changes in Net Position Budget and Actual For the Year Ended June 30, 2015 Operating revenues Final Variance with Budget Actual Final Budget Service fees $ 5,316,511 $ 4,822,461 $ (494,050) Other revenues 197, ,929 10,929 Total operating revenues 5,513,511 5,030,390 (483,121) Operating expenses Salaries 899, ,082 (36,653) Employee benefits 560, , ,520 Service, supplies and other 2,007,847 1,921,545 86,302 Depreciation and amortization 3,231,000 3,167,944 63,056 Total operating expenses 6,698,728 6,416, ,225 Operating income (loss) (1,185,217) (1,386,113) (200,896) Nonoperating revenues (expenses) Bond debt fee revenue 3,372,189 3,378,183 5,994 Connection fee revenue 45, , ,296 Interest income 5,000 8,541 3,541 Other income 5, , ,291 Interest expense (3,086,110) (2,903,107) 183,003 Total nonoperating revenues (expenses) 341,079 1,135, ,125 Income (loss) before contributions and transfers (844,138) (250,909) 593,229 Capital contributions - 1,544,753 1,544,753 Change in net position (844,138) 1,293,844 2,137,982 Net position, beginning of year 69,998,868 69,998,868 - Restatement adjustment (1,495,501) (1,495,501) - Net position, end of year $ 67,659,229 $ 69,797,211 $ 2,137,982 79

170 CITY OF FERNLEY, NEVADA Sewer Fund Schedule of Revenues, Expenses, and Changes in Net Position Budget and Actual For the Year Ended June 30, 2015 Operating revenues Final Variance with Budget Actual Final Budget Service fees $ 1,984,264 $ 2,012,025 $ 27,761 Other revenues Total operating revenues 1,984,264 2,012,286 28,022 Operating expenses Salaries 434, ,744 (4,587) Employee benefits 269, ,594 89,889 Service, supplies and other 779, , ,799 Depreciation and amortization 1,018, ,995 33,005 Total operating expenses 2,501,535 2,165, ,106 Operating income (loss) (517,271) (153,143) 364,128 Nonoperating revenues (expenses) Connection fee revenue 58, , ,852 Interest income 9,000 11,820 2,820 Interest expense (328,359) (307,369) 20,990 Total nonoperating revenues (expenses) (261,359) 252, ,662 Income (loss) before contributions and transfers (778,630) 99, ,790 Grant revenue - 10,974 10,974 Change in net position (778,630) 110, ,764 Net position, beginning of year 28,590,458 28,590,458 - Restatement adjustment (726,548) (726,548) - Net position, end of year $ 27,085,280 $ 27,974,044 $ 888,764 80

171 CITY OF FERNLEY, NEVADA SUPPLEMENTARY INFORMATION AGENCY FUND STATEMENT OF CHANGES IN ASSETS AND LIABILITIES The Agency Funds are custodial in nature and do not present results of operations or have a measurement focus. Agency funds are accounted for using the accrual basis of accounting. These funds are used to account for assets that the City holds for others in an agent capacity. Included are bonds posted with the municipal court. These funds are excluded from the government-wide financial statements. 81

172 CITY OF FERNLEY, NEVADA Agency Fund Municipal Trust Fund Statement of Changes in Assets and Liabilities For the Year Ended June 30, 2015 Assets Balance Balance 6/30/2014 Additions Deletions 6/30/2015 Current assets: Cash and investments $ 6,565 $ 176,631 $ (152,723) $ 30,473 Total assets $ 6,565 $ 176,631 $ (152,723) $ 30,473 Liabilities Current liabilities: Bail bond deposits held for others $ 6,565 $ 176,631 $ (152,723) $ 30,473 Total liabilities $ 6,565 $ 176,631 $ (152,723) $ 30,473 82

173 CITY OF FERNLEY, NEVADA STATISTICAL SECTION This part of the City of Fernley s comprehensive annual financial report presents detailed information as a context for understanding what the information in the financial statements, notes disclosures, and required supplementary information says about the government s overall financial health. Contents Schedule # Financial Trends These schedules contain trend information to help the reader understand how the government s financial performance and well being have changed over time. Revenue Capacity These schedules contain information to help the reader assess the government s most significant local revenues source, the property tax. Debt Capacity These schedules present information to help the reader assess the affordability of the government s current levels of outstanding debt and the government s ability to issue additional debt in the future. Demographic and Economic Information These schedules offer demographic and economic indicators to help the reader understand the environment within which the government s financial activities take place. Operating Information These schedules contain service and infrastructure data to help the reader understand how the information in the government s financial report relates to the services the government provides and the activities it performs. Sources: Unless otherwise noted, the information in these schedules is derived from comprehensive annual financial reports of the relevant year. 83

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175 CITY OF FERNLEY, NEVADA NET POSITION BY COMPONENT LAST TEN FISCAL YEARS Schedule 1 FISCAL YEAR ENDED JUNE 30, GOVERNMENTAL ACTIVITIES Net investment in capital assets* $ 24,608,748 $ 30,721,447 $ 35,677,010 $ 39,652,258 $ 38,680,602 $ 38,683,760 $ 40,765,626 $ 39,585,451 $ 38,673,348 $ 37,695,679 Restricted , , ,602 1,886, , , , ,088 Unrestricted 5,535,323 4,549,063 2,395,580 2,276,380 2,554,609 1,218,963 2,569,131 3,139,551 3,630, ,118 Total Governmental Activities Net Position $ 30,144,071 $ 35,270,510 $ 38,434,879 $ 42,320,238 $ 41,598,813 $ 41,789,256 $ 43,903,169 $ 43,304,650 $ 42,754,815 $ 39,127,885 BUSINESS-TYPE ACTIVITIES Net investment in capital assets* $ 57,581,522 $ 35,352,177 $ 77,070,390 $ 95,281,505 $ 92,141,040 $ 91,669,313 $ 89,367,958 $ 87,153,121 $ 85,184,784 $ 83,801,681 Restricted 579, , ,005 Unrestricted 17,939,851 60,502,722 25,025,399 14,523,972 14,812,790 12,058,703 11,241,626 12,394,733 12,816,064 13,380,569 Total Business-type Activities Net Position $ 76,100,933 $ 95,854,899 $ 102,095,789 $ 109,805,477 $ 106,953,830 $ 103,728,016 $ 100,609,584 $ 99,547,854 $ 98,589,326 $ 97,771,255 PRIMARY GOVERNMENT Net investment in capital assets* $ 82,190,270 $ 66,073,624 $ 112,747,400 $ 134,933,763 $ 130,821,642 $ 130,353,073 $ 130,133,584 $ 126,738,572 $ 123,858,132 $ 121,497,360 Restricted 579, , , ,602 1,886, , ,648 1,039,834 1,084,093 Unrestricted 23,475,174 65,051,785 27,420,979 16,800,352 17,367,399 13,277,666 13,810,757 15,534,284 16,446,175 14,317,687 Total Primary Government Net Position $ 106,245,004 $ 131,125,409 $ 140,530,668 $ 152,125,715 $ 148,552,643 $ 145,517,272 $ 144,512,753 $ 142,852,504 $ 141,344,141 $ 136,899,140 *Updated for the implementation of GASB 63 Financial Reporting of Deferred Outflows of Resources, Deferred Inflows of Resources, and Net Position. 85

176 CITY OF FERNLEY, NEVADA CHANGE IN NET POSITION LAST TEN FISCAL YEARS Schedule 2 FISCAL YEAR ENDED JUNE 30, EXPENSES Governmental Activities: General government $ 796,403 $ 1,173,360 $ 1,572,115 $ 1,626,115 $ 1,762,449 $ 1,499,967 $ 2,080,220 $ 2,422,886 $ 1,991,411 $ 2,283,841 Judicial 170, , , , , , , , , ,019 Culture and recreation 646, , , , , , ,911 1,126,357 1,384, ,165 Community development 875, ,010 1,977, ,701 1,247,018 2,817,551 2,673,503 1,591, , ,675 Public works 729,919 1,326, ,565 1,778,649 1,824,412 1,871,798 1,185,973 1,100,290 2,202,499 2,001,841 Health 263, , , , , , , , , ,156 Debt Service: Interest and fiscal charges 224, , , , , , ,402 87,015 92,415 88,060 Total Governmental Activities Expenses 3,706,535 4,897,560 5,769,805 5,604,472 6,183,401 7,511,079 7,298,995 6,720,588 6,951,557 6,569,757 Business-type Activities: Water 2,422,583 3,058,553 3,152,845 4,127,466 9,420,709 9,271,351 9,334,311 9,284,992 9,323,274 9,319,610 Sewer 1,530,898 1,812,583 2,012,862 2,581,981 2,641,510 2,524,958 2,389,391 2,396,803 2,492,747 2,472,798 Other 700 9, , Total Business-type Activities Expenses 3,954,181 4,880,476 5,378,359 6,709,447 12,062,219 11,796,309 11,723,702 11,681,795 11,816,021 11,792,408 Total Primary Government Expenses $ 7,660,716 $ 9,778,036 $ 11,148,164 $ 12,313,919 $ 18,245,620 $ 19,307,388 $ 19,022,697 $ 18,402,383 $ 18,767,578 $ 18,362,165 86

177 CITY OF FERNLEY, NEVADA CHANGE IN NET POSITION LAST TEN FISCAL YEARS CONTINUED Schedule 2 FISCAL YEAR ENDED JUNE 30, PROGRAM REVENUES Governmental Activities: Charges for Services: General government $ 1,008,662 $ 1,137,510 $ 1,030,613 $ 1,243,230 $ 1,267,670 $ 1,209,522 $ 1,274,989 $ 1,355,031 $ 1,870,597 $ 1,837,966 Judicial 196,249 89, , , , , ,630 95, , ,742 Culture and recreation 8,150 48,355 1, , ,722 15,410 Community development 1,123, , , , , , , Public works 40,071 29,754 23,021 65, ,619-2,968-17,019 41,363 Health 2,341 4,318 4,650 3,819 3,296 3, ,388 4, Operating Grants and Contributions 348,627 60,000 60,000 60,383 61, ,460 4,925, , , ,829 Capital Grants and Contributions 7,531,080 6,052,749 4,869,410 5,613,270 1,538,400 3,933,102-1,385,242 1,008, ,435 Total Governmental Activities Program Revenues 10,258,688 8,101,542 6,661,150 7,406,651 3,417,115 5,627,229 6,945,816 3,069,468 3,682,834 3,501,745 Business-type Activities: Charges for Services Water 2,201,916 2,306,193 3,273,625 3,833,095 4,774,366 4,580,081 6,325,657 8,277,063 5,174,551 5,681,977 Sewer 1,686,101 1,754,820 1,829,736 1,830,814 1,883,702 1,865,202 1,904,071 1,929,793 1,981,631 2,560,138 Other - - 1, Operating Grants and Contributions , , ,742 4,893 97, Capital Grants and Contributions 18,729,430 19,015,856 4,579,348 7,146, ,392 1,897,368 8,134 33, ,543 1,555,727 Total Business-type Activities Revenues 22,617,447 23,076,869 10,108,435 13,372,424 8,008,202 8,347,544 8,335,828 10,239,900 7,657,725 9,797,842 Total Primary Government Revenues $ 32,876,135 $ 31,178,411 $ 16,769,585 $ 20,779,075 $ 11,425,317 $ 13,974,773 $ 15,281,644 $ 13,309,368 $ 11,340,559 $ 13,299,587 NET (EXPENSE)/REVENUE Governmental Activities $ 6,552,153 $ 3,203,982 $ 891,345 $ 1,802,179 $ (2,766,286) $ (1,883,850) $ (353,179) $ (3,651,120) $ (3,268,723) $ (3,068,012) Business-type Activities 18,663,266 18,196,393 4,730,076 6,662,977 (4,054,017) (3,448,765) (3,387,874) (1,441,895) (4,158,296) (1,994,566) Total Primary Government Net (Expense)/Revenue $ 25,215,419 $ 21,400,375 $ 5,621,421 $ 8,465,156 $ (6,820,303) $ (5,332,615) $ (3,741,053) $ (5,093,015) $ (7,427,019) $ (5,062,578) 87

178 CITY OF FERNLEY, NEVADA CHANGE IN NET POSITION LAST TEN FISCAL YEARS CONTINUED Schedule 2 FISCAL YEAR ENDED JUNE 30, GENERAL REVENUES AND OTHER CHANGES IN NET POSITION Governmental Activities: Taxes: Property $ 591,082 $ 925,297 $ 1,074,726 $ 1,381,621 $ 1,410,347 $ 1,473,876 $ 1,850,971 $ 1,924,602 $ 2,145,992 $ 2,199,262 Consolidated 189, , , , , , , , , ,389 Fuel 227, , , , , , , , , ,360 Unrestricted gaming licenses 97,121 98,753 96,021 92,211 96,598 99,439 99, , , ,513 Unrestricted interest income 329, , ,866 41,085 26,847 13,921 5,066 12,334 10,032 6,485 Miscellaneous revenue 389,619 89, ,649 56,179 46,238 74, , ,636 14,000 14,000 Total Governmental Activities 1,824,012 1,922,460 2,273,020 2,083,180 2,044,861 2,074,293 2,467,082 2,678,778 2,718,888 2,812,009 Business-type Activities: Unrestricted interest income 702,781 1,511,286 1,126, , ,988 68,217 19,326 39,272 32,634 20,361 Miscellaneous revenue 59,441 46, , , , , , ,893 3,326,391 3,378,183 Total Business-type Activities Revenues 762,222 1,557,573 1,510,813 1,046, , , , ,165 3,359,025 3,398,544 Total Primary Government Revenues $ 2,586,234 $ 3,480,033 $ 3,783,833 $ 3,129,890 $ 2,551,081 $ 2,297,244 $ 2,736,524 $ 3,058,943 $ 6,077,913 $ 6,210,553 CHANGE IN NET POSITION Governmental Activities $ 8,376,165 $ 5,126,442 $ 3,164,365 $ 3,885,359 $ (721,425) $ 190,443 $ 2,113,903 $ (972,342) $ (549,835) $ (256,003) Business-type Activities 19,425,488 19,753,966 6,240,889 7,709,687 (3,547,797) (3,225,814) (3,118,432) (1,061,730) (799,271) 1,403,978 Total Primary Government Change in Net Position $ 27,801,653 $ 24,880,408 $ 9,405,254 $ 11,595,046 $ (4,269,222) $ (3,035,371) $ (1,004,529) $ (2,034,072) $ (1,349,106) $ 1,147,975 88

179 CITY OF FERNLEY, NEVADA FUND BALANCES OF GOVERNMENTAL FUNDS LAST TEN FISCAL YEARS Schedule 3 FISCAL YEAR ENDED JUNE 30, * General fund: Reserved $ 6,239 $ 6,709 $ 366,424 $ 394,251 $ 332,238 $ - $ - $ - $ - $ - Unreserved 938, , , , , Nonspendable , ,250 10,812 Restricted , , , , ,168 Committed ,541,178 2,982,946 Assigned ,582 1,449,207 1,449, ,310 47,349 Unassigned ,223, , , ,344 Total general fund $ 944,996 $ 588,946 $ 645,867 $ 688,868 $ 814,316 $ 1,594,029 $ 1,791,330 $ 2,408,434 $ 3,156,136 $ 3,808,619 All other governmental funds Reserved - Transient Lodging Tax Fund $ - $ - $ - $ - $ 31,364 $ - $ - $ - $ - $ - Unreserved: Special revenue fund 1,398,315 1,568, , ,928 1,118, Capital projects fund 8,032,479 2,397,510 1,160,893 1,145,372 1,085, Nonspendable , Restricted ,544, , , , ,920 Committed ,200,065 1,210,436 1,073,980 1,123,386 Assigned , , , , ,254 Total all other governmental funds $ 9,430,794 $ 3,966,098 $ 2,132,437 $ 1,933,300 $ 2,235,706 $ 1,649,121 $ 1,574,535 $ 1,634,469 $ 1,316,454 $ 1,410,560 * Due to implementation of GASB 54, fund balance classifications changed in fiscal year

180 CITY OF FERNLEY, NEVADA CHANGES IN FUND BALANCE OF GOVERNMENTAL FUNDS LAST TEN FISCAL YEARS Schedule 4 FISCAL YEAR ENDED JUNE 30, REVENUES Taxes $ 1,787,949 $ 988,056 $ 1,077,545 $ 1,316,879 $ 1,599,284 $ 1,658,382 $ 2,108,576 $ 2,164,248 $ 2,411,183 $ 2,487,401 Licenses and permits 2,271,703 1,949,947 1,663,745 1,663,184 1,643,381 1,455,105 1,483,489 1,578,429 1,867,564 1,798,242 Intergovernmental 1,231,732 2,333,333 2,117,309 1,631,060 1,868,532 2,625,671 5,555,712 1,668,561 1,776,740 1,556,833 Fines and forfeits 228, , , , , , ,630 95, , ,742 Miscellaneous 794, , , ,018 88,765 95, , , , ,002 Developer fees , Total revenues 6,314,160 6,087,522 5,676,947 4,910,961 5,422,528 6,143,307 9,429,653 5,634,723 6,385,070 6,333,220 EXPENDITURES General government 717,355 1,025,295 1,238,982 1,290,272 1,402,434 1,661,818 1,629,090 2,276,007 1,933,656 1,974,369 Judicial 169, , , , , , , , , ,105 Culture and recreation 508, , , , , , , , , ,953 Community development 810, ,503 1,226, ,056 1,332,123 2,796,292 5,309,789 1,482,004 1,035, ,037 Public works 376, , , , , ,826 1,156,200 1,053,634 Health 256, , , , , , , , , ,749 Debt service: Principal - 158, , , , ,000 4,134,000 84,000 86, ,000 Interest 94, , , , , , ,402 87,015 92,415 88,060 Bond issuance cost , Capital outlay 3,684,115 8,097,529 3,143,509 1,129, , , , , ,091 82,816 Total expenditures 6,618,493 11,969,718 7,453,701 5,067,097 5,002,658 5,950,179 13,316,938 5,372,131 5,955,385 5,647,723 Excess (deficiency) of revenues over expenditures (304,333) (5,882,196) (1,776,754) (156,136) 419, ,128 (3,887,285) 262, , ,497 OTHER FINANCING SOURCES (USES) Transfer out (1,050,000) (711,712) (20,000) (26,000) - 60,000 (205) - (105,507) (11,051) Transfer in 1,050, ,712 20,000 26,000 - (60,000) ,507 11,051 General obligation bonds issued 5,000, ,010, Proceeds from insurance ,625 - Proceeds from disposal of capital assets - 61, , Total other financing sources (uses) 5,000,000 61, ,984-4,010,000 40, Net change in fund balance $ 4,695,667 $ (5,820,746) $ (1,776,754) $ (156,136) $ 427,854 $ 193,128 $ 122,715 $ 303,217 $ 429,685 $ 685,497 Debt service as a percentage of noncapital expenditures 3.3% 10.9% 9.6% 10.7% 9.1% 7.0% 55.1% 3.5% 3.3% 7.1% 90

181 SCHEDULE 5 CITY OF FERNLEY, NEVADA ASSESSED AND ESTIAMTED ACTUAL VALUE OF TAXABLE PROPERY LAST TEN FISCAL YEARS Fiscal Year Real Property Assessed Value Personal Property Total Estimated Actual Value Ratio of Total Assessed to Total Estimated Actual Value $ 303,180,006 $ 866,228, $ 377,743,200 $ 1,079,266, ,154,623 1,460,441, ,959,918 1,942,742, ,529,070 2,158,654, ,953,139 1,808,437, ,105,998 1,280,302, * ,455,995 1,258,445, ,137,703 39,114, ,251,962 1,269,291, ,179,007 35,480, ,659,270 1,653,312, Source: State of NV Department of Taxation's "Local Government Finance Redbook" * First year breakdown of assessed value between real and personal property was made available. Personal Property amounts provided by Lyon County Assessor's Office. 91

182 SCHEDULE 6 CITY OF FERNLEY, NEVADA PROPERTY TAX RATES - DIRECT AND OVERLAPPING GOVERNMENTS (PER $100 OF ASSESSD VALUE) LAST TEN FISCAL YEARS Fiscal Year City of Fernley State of Nevada School District Lyon County Special Districts Total Source: State of NV Department of Taxation's "Local Government Finance Redbook" City of Fernley Property Tax Levy Amount of 2015 levy: $2,310,492 Collections as of June 30, 2015: $2,217,326 Collections as a percentage of the levy: % 92

183 CITY OF FERNLEY, NEVADA PRINCIPAL PROPERTY OWNERS JUNE 30, 2015 SCHEDULE 7 Taxpayer Product/Service Estimated Appraised Value (1) Taxable Taxable Assessed Value Approximate Percentage of Taxable Assessed Valuation NV Energy Utility $ 173,009,403 $ 60,553, % Gradient Resources (Patua Project LLC) Utility 124,044,286 43,415, % Southwest Gas Corp Utility 46,023,603 16,108, % Quebecor World Nevada Manufacturer 31,470,897 11,014, % Trex Company Inc. Manufacturer 27,444,620 9,605, % 1600 East Newlands Dr., LLC Developer 25,013,177 8,754, % Sherwin-Williams Acceptance Corp Manufacturer 23,991,806 8,397, % Peri & Peri/Desert Pearl Farms Agriculture 23,229,571 8,130, % Nevada Cemeent Co. Manufacturer 22,107,274 7,737, % Sonterra Development Co. Inc. Developer 21,998,057 7,699, % Source: Lyon County Assessor's Office Note: (1) Taxable assessed value is 35% of estimated appraised value. Totals $ 518,332,694 $ 181,416, % 93

184 CITY OF FERNLEY, NEVADA WATER USER FEES LAST TEN FISCAL YEARS Schedule 8 FISCAL YEAR ENDED JUNE 30, WATER UTILITY Number of Customers 6,634 6,816 7,170 7,371 7,061 7,103 6,530 6,466 6,510 6,769 Annual Average Day Demand per customer Gallons of water used (in thousands) * 1,816,058 1,865,880 1,954,754 1,488,674 1,317,721 1,183, ,533 1,186,009 1,209,731 1,148,351 Direct rate per 1,000 gallons $ 0.95 $ 0.95 $ 1.11 $ 1.50 $ 2.02 $ 2.02 $ 2.08 $ 2.08 $ 2.15 $ 2.15 Source: City of Fernley * Includes residential and commercial customers. 94

185 SCHEDULE 9 CITY OF FERNLEY, NEVADA PRINCIPLE WATER USERS June 30, * Employer User Fees Rank User Fees Rank City of Fernley $ 182,157 1 $ - - Lyon County School District 153, Trex Manufacturing Company 109, World Color Fernley 61, Hollywood Investments 58, Veteran's Cemetery 57, Amazon.com 49, Pilot Travel Centers, LLC 46, Sherwin Williams 40, Blue Beacon 36, * Statistical information for 2006 is unavailable. Source: City of Fernley 95

186 SCHEDULE 10 Governmental Activities CITY OF FERNLEY, NEVADA RATIOS OF OUTSTANDING DEBT BY TYPE LAST TEN FISCAL YEARS Business-Type Activities Fiscal Year Intallment Purchase Agreement Water Bonds Sewer Bonds Total Primary Government Percentage of Personal Income (1) Per Capita (1) 2006 $ 5,000,000 $ 670,000 $ 890,282 $ 6,560, % ,842,000 45,015,000 6,267,780 56,124, % 2, ,677,000 74,954,997 8,640,332 88,272, % 4, ,504,000 74,055,200 8,417,529 86,976, % 4, ,323,000 72,538,029 8,150,738 85,011, % 4, ,134,000 71,107,943 7,843,297 83,085, % 4, ,010,000 69,648,107 7,461,893 81,120, % 4, ,926,000 68,134,205 7,300,795 79,361, % 4, ,840,000 66,557,336 7,132,664 77,530, % 4, ,560,000 65,933,524 7,071,476 76,565, % 4,013 Note: Details regarding the City's outstanding debt can be found in the notes to the financial statements. (1) See Schedule 15 of Demographic Statistics on page 101 for personal income and population data. 96

187 SCHEDULE 11 CITY OF FERNLEY, NEVADA RATIOS OF GENERAL BONDED DEBT OUTSTANDING LAST TEN FISCAL YEARS Fiscal Year Intallment Purchase Agreement Business Type Activities Total Percentage of Actual Property Value (1) Per Capita (2) ,000,000 1,560,282 6,560, % ,842,000 51,282,780 56,124, % 2, ,677,000 83,595,329 88,272, % 4, ,504,000 82,472,729 86,976, % 4, ,323,000 80,688,767 85,011, % 4, ,134,000 78,951,240 83,085, % 4, ,010,000 77,110,000 81,120, % 4, ,926,000 75,435,000 79,361, % 4, ,840,000 73,690,000 77,530, % 4, ,560,000 73,005,000 76,565, % 4,013 Note: (1) See the Schedule of Assessed Value and Estimated Actual Value of Taxable Property for property value data. (2) Population information may be found on Schedule 15 - Demographic Statistics. 97

188 SCHEDULE 12 CITY OF FERNLEY, NEVADA COMPUTATION OF GENERAL OBLIGATION DIRECT AND OVERLAPPING DEBT JUNE 30, 2015 Intallment Purchase Agreement Presently Self- Supporting General Obligation Debt Net Debt Outstanding % Applicable Applicable Net Debt Direct: City of Fernley $ 3,560,000 $ - $ 3,560, % $ 3,560,000 Overlapping: State of Nevada 3,365,518,000-3,365,518, % 14,808,279 Lyon County 10,319, ,064 11,311,141 36% 4,072, Lyon County School District 65,620,000-65,620,000 36% $ 23,623,200 Total Overlapping Debt 42,503,490 Total Direct and Overlapping Debt $ 46,063,490 The City is only responsible for its proportional share of the overlapping debt. The proportional share is calculated as a percentage of population multiplied by the net outstanding debt of each agency. The proportional share plus the City's direct debt together make up the City's overall net debt. The municipality's overall net debt is an important factor in its ability to obtain future debt financing. Note: (1) See the Schedule of Assessed Value and Estimated Actual Value of Taxable Property for property value data. (2) Population information may be found on Schedule 15 - Demographic Statistics. 98

189 SCHEDULE 13 CITY OF FERNLEY, NEVADA COMPUTATION OF GENERAL OBLIGATION DIRECT AND OVERLAPPING DEBT JUNE 30, 2015 Estimated Assessed Value $ 578,659,270 Debt Limit - 30 Percent of Total Assessed Value 173,597,781 Total Amount of Debt Applicable to Debt limit 73,005,000 Legal Debt Margin $ 100,592,781 General Obligation Debt Limit NRS (c)(2) A discussion of its capacity to incur authorized and proposed future general obligation debt without exceeding the applicable debt limit; The City is limited by State statutes as to the amount of general obligation debt is can have outstanding. The limit is equal to 30 percent of the City's total assessed valuation. As of June 30, 2015, the City has no general obligation debt outstanding and none proposed. It has $73,005,000 of general obligation revenue supported debt outstanding. Based on the fiscal year 2015 assessed value, the City's available general obligation debt limit is approximately $100,592,781. Other factors also limit the amount of debt the City can issue. These factors include, but are not limited to, voter approval, overlapping tax rates, available revenues, market conditions and types of projects to be funded. 99

190 SCHEDULE 14 CITY OF FERNLEY, NEVADA WATER AND SEWER FUNDS REVENUE BOND COVERAGE LAST TEN FISCAL YEARS Debt Service Requirements Fiscal Year Operating Revenue Operating Expenses (1) Net Revenue Available for Debt Service Principal Interest Total Coverage 2006 $ 3,888,017 $ 2,647,912 $ 1,240,105 $ 277,502 $ 60,323 $ 337, % ,061,013 2,873,207 1,187, , , , % ,528,032 3,420,207 2,107,825 1,122,600 3,531,002 4,653,602 45% ,975,722 4,168,048 1,807,674 1,122,600 3,773,565 4,896,165 37% ,099,810 4,836,862 2,262,948 1,822,957 3,738,999 5,561,956 41% ,450,173 3,823,597 2,626,576 1,698,531 3,674,376 5,372,907 49% ,878,442 3,801,460 3,076,982 1,764,329 3,611,327 5,375,656 57% ,855,545 3,841,334 3,014,211 1,751,912 3,545,754 5,297,666 57% ,121,106 4,157,098 2,964,008 1,745,000 3,480,694 5,225,694 57% ,042,676 4,428,993 2,613,683 2,100,000 3,502,529 5,602,529 47% Note: (1) Total operating expenses exclusive of depreciation 100

191 SCHEDULE 15 CITY OF FERNLEY, NEVADA DEMOGRAPHIC STATISTICS LAST TEN FISCAL YEARS Fiscal Year Population (1) Total Personal Income (2) Per Capita Personal Income (3) Unemployment Rate (4) ,357 $ 399,110,800 $ 24, % , ,940,000 24, % , ,555,540 26, % , ,677,423 26, % , ,967,668 27, % , ,746,400 27, % , ,970,160 27, % , ,160,885 27, % , ,597,216 30, % , ,253,461 30, % Sources: (1) Nevada Demographers' Office (2) Bureau of Economic Analysis (3) Nevada Employment Security Department (4) Lyon County Data 101

192 SCHEDULE 16 CITY OF FERNLEY, NEVADA MAJOR EMPLOYERS JUNE 30, Employer Employees Rank Percentage of Total County Employment (1) Employees Rank Percentage of Total County Employment (1) Amazon.com NVDC, Inc % % Lyon County School District % % Lyon County % % MSC Industrial % % Wal-Mart % Production Pattern & Foundry % South Lyon Medical Center % % Nevada Automotive Testing Center % Metallic Art Company % Lowes HIW INC % Source: Lyon County (1) Total employment statistics are for the Lyon County area, as information is not available at the City level. 102

193 CITY OF FERNLEY, NEVADA FULL-TIME EQUIVALENT CITY GOVERNMENT EMPOYEES BY FUNCTION/PROGRAM LAST TEN FISCAL YEARS SCHEDULE FUNCTION/PROGRAM General government Judicial Public works Culture and recreation Community development Health Water Sewer Total Source: City of Fernley 103

194 CITY OF FERNLEY, NEVADA OPERATING INDICATORS BY FUNCTION/PROGRAM LAST TEN FISCAL YEARS SCHEDULE * FUNCTION/PROGRAM Judicial: Municipal Court Cases Filed: Drug Driving under influence Domestic violence Traffic 2,530 1,829 1,668 1,260 2,206 2, ,129 3,463 Other Public Safety: Calls for Service: Criminal 3,382 3,866 3,633 2,791 2,679 2,407 3,766 3,891 4, Non-criminal 1,028 1,180 1,129 1,889 2,144 2,523 3,332 3,184 3,745 4,165 Domestic violence Follow-up 1,630 1,439 1,624 1,599 1,920 2,497 2,176 2,107 3,384 1,167 Traffic-stops 1,026 1,450 1,639 2,067 1,999 1,626 1,564 1,224 1,490 1,862 Civil papers 2,232 2,136 2,601 2,359 2,568 2,418 1,895 1,701 1, Animal Death/Coroner Public service 1, ,191 1,111 1,195 1,337 1,469 2,014 2,807 1,022 Assist other agencies ,112 1, , Alarms Accident Private property accident Mental health Other Administrative 2,304 2,761 3,113 3,204 4,715 7,911 6,888 9,924 23,029 - Total Calls for Service 15,040 16,187 17,855 17,732 19,676 22,916 24,346 27,516 43,880 12,017 Total Charges Felon Gross misdemeanor Misdemeanor Driving under influence Domestic violence Total Arrests Citations: Traffic Non-traffic Total Citations Water Utility: Customer count 6,634 6,816 6,896 6,876 6,693 6,736 7,925 7,782 7,660 7,678 New connections Sewer Utility: Customer count 6,600 6,782 6,862 6,312 6,140 6,174 8,188 6,263 6,330 6,348 New connections Building: Number of permits issued Number of inspection 13,302 5,838 3,107 1, ,059 Planning: Number of applications processed Source: City of Fernley * In 2015 the Lyon Councy Sheriff's Office changed the way they tracked statistical information. Some categories reported in the past are no longer tracked. 104

195 CITY OF FERNLEY, NEVADA CAPITAL ASSET STATISTICS BY FUNCTION/PROGRAM LAST TEN FISCAL YEARS SCHEDULE FUNCTION/PROGRAM Streets: Public Road Mileage Parks and Recreation: Parks and Open Space Acreage Developed Parks Tennis Courts Rodeo Arena Playing Fields Pavilions Skate Park Water Utility: Water lines (miles) Fire Hydrants 1,000 1,033 1,083 1,102 1,102 1,102 1,102 1,127 1,127 1,127 Sewer Utility: Sanitary Sewer Lines (miles) Sanitary Sewer Manhole Count 1,510 1,600 2,126 2,227 2,227 2,227 2,227 2,249 2,227 2,227 Source: City of Fernley 105

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199 MEMBERS: CHAD B. ATKINSON, CPA MORRIS J PEACOCK, CPA KRIS J. BRAUNBERGER, CPA PHILLIP S. PEINE, CPA ROBERT S. COX, CPA MICHAEL K. SPILKER, CPA TODD B. FELTNER, CPA KEVIN L. STEPHENS, CPA K. MARK FROST, CPA MARK E. TICHENOR, CPA STEVEN D PALMER, CPA Independent Auditors Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards The Honorable Mayor and City Council City of Fernley, Nevada We have audited, in accordance with the auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States, the financial statements of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City of Fernley, Nevada, as of and for the year ended June 30, 2015, and the related notes to the financial statements, which collectively comprise the City s basic financial statements and have issued our report thereon dated November 16, Internal Control Over Financial Reporting In planning and performing our audit of the financial statements, we considered the City s internal control over financial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the City s internal control. Accordingly, we do not express an opinion on the effectiveness of the City s internal control. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control such that there is a reasonable possibility that a material misstatement of the entity s financial statements will not be prevented, or detected and corrected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies and therefore, material weaknesses or significant deficiencies may exist that were not identified. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. 109 CEDAR CITY FLAGSTAFF HURRICANE MESQUITE PHOENIX RICHFIELD ST. GEORGE

200 Compliance and Other Matters As part of obtaining reasonable assurance about whether the City s financial statements are free from material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. Purpose of this Report The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the entity s internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the entity s internal control and compliance. Accordingly, this communication is not suitable for any other purpose. HintonBurdick, PLLC St. George, Utah November 16,

201 MEMBERS: CHAD B. ATKINSON, CPA MORRIS J PEACOCK, CPA KRIS J. BRAUNBERGER, CPA PHILLIP S. PEINE, CPA ROBERT S. COX, CPA MICHAEL K. SPILKER, CPA TODD B. FELTNER, CPA KEVIN L. STEPHENS, CPA K. MARK FROST, CPA MARK E. TICHENOR, CPA STEVEN D PALMER, CPA The Honorable Mayor and City Council City of Fernley, Nevada Independent Auditor s Report on Compliance for Each Major Program and on Internal Control over Compliance Required by OMB Circular A-133 Report on Compliance for Each Major Federal Program We have audited the City of Fernley, Nevada s (the City) compliance with the types of compliance requirements described in the OMB Circular A-133 Compliance Supplement that could have a direct and material effect on each of the City s major federal programs for the year ended June 30, The City s major federal programs are identified in the summary of auditor s results section of the accompanying schedule of findings and questioned costs. Management s Responsibility Management is responsible for compliance with the requirements of laws, regulations, contracts, and grants applicable to its federal programs. Auditor s Responsibility Our responsibility is to express an opinion on compliance for each of the City s major federal programs based on our audit of the types of compliance requirements referred to above. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and OMB Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations. Those standards and OMB Circular A-133 require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major federal program occurred. An audit includes examining, on a test basis, evidence about the City s compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion on compliance for each major federal program. However, our audit does not provide a legal determination of the City s compliance. Opinion on Each Major Federal Program In our opinion, the City, complied, in all material respects, with the types of compliance requirements referred to above that could have a direct and material effect on each of its major federal programs for the year ended June 30, Report on Internal Control Over Compliance Management of the City is responsible for establishing and maintaining effective internal control over compliance with the types of compliance requirements referred to above. In planning and performing our audit of compliance, we considered the City s internal control over compliance with the types of requirements that could have a direct and material effect on each major federal program to determine the auditing procedures that are appropriate in the circumstances for the purpose of expressing an opinion on compliance for each major federal program and to test and report on internal control over compliance in 111 CEDAR CITY FLAGSTAFF HURRICANE MESQUITE PHOENIX RICHFIELD ST. GEORGE

202 accordance with OMB Circular A-133, but not for the purpose of expressing an opinion on the effectiveness of internal control over compliance. Accordingly, we do not express an opinion on the effectiveness of the City s internal control over compliance. A deficiency in internal control over compliance exists when the design or operation of a control over compliance does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, noncompliance with a type of compliance requirement of a federal program on a timely basis. A material weakness in internal control over compliance is a deficiency, or combination of deficiencies, in internal control over compliance, such that there is a reasonable possibility that material noncompliance with a type of compliance requirement of a federal program will not be prevented, or detected and corrected, on a timely basis. A significant deficiency in internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance with a type of compliance requirement of a federal program that is less severe than a material weakness in internal control over compliance, yet important enough to merit attention by those charged with governance. Our consideration of internal control over compliance was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over compliance that might be material weaknesses or significant deficiencies. We did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. The purpose of this report on internal control over compliance is solely to describe the scope of our testing of internal control over compliance and the results of that testing based on the requirements of OMB Circular A-133. Accordingly, this report is not suitable for any other purpose. HintonBurdick, PLLC St. George, Utah November 16,

203 CITY OF FERNLEY, NEVADA Schedule of Findings and Questioned Costs For the Year Ended June 30, 2015 Section I - Summary of Auditor s Results Financial Statements Type of auditor s report issued: Internal control over financial reporting: Unmodified Material weaknesses identified? yes X no Significant deficiencies identified? yes X no Noncompliance material to financial statements noted? yes X no Federal Awards Internal Control over major programs: Material weaknesses identified? yes X no Significant deficiencies identified? yes X no Type of auditor s report issued on compliance for major programs: Unmodified Any audit findings disclosed that are required to be reported in accordance with section 510(a) of Circular A-133? yes X no Identification of major programs. CFDA Number(s) Name of Federal Program or Cluster Providing Water to At-Risk Natural Desert Terminal Lakes Dollar threshold used to distinguish between type A and type B programs: $ 300,000 Auditee qualified as low-risk auditee? yes X no 113

204 CITY OF FERNLEY, NEVADA Schedule of Findings and Questioned Costs, Continued For the Year Ended June 30, 2015 Section II - Financial Statement Findings Material Weaknesses: None noted. Significant Deficiencies: None noted. Section III - Federal Award Findings and Questioned Costs No significant matters were noted. Section IV - Summary Schedule of Prior Audit Findings No significant matters were noted. 114

205 CITY OF FERNLEY, NEVADA Schedule of Expenditures of Federal Awards For the Year Ended June 30, 2015 FEDERAL-GRANTOR/PASS-THROUGH GRANTOR/PROGRAM TITLE Federal CFDA # PROJECT/PASS- THROUGH CFDA NUMBER Federal Expenditures Department of the Interior: Direct Programs: Bureau of Reclamation Providing Water to At-Risk Natural desert Terminal Lakes (Joint) R09AP20010 $ 287,475 Providing Water to At-Risk Natural desert Terminal Lakes (Legal) R12AP , ,712 Passed through National Fish and Wildlife Foundation Providing Water to At-Risk Natural desert Terminal Lakes (Aquifer Storage and Recovery Program) ,093 Total Department of the Interior 365,805 Department of Transportation Passed through the State of Nevada: Nevada Department of Transportation Highway Planning and Construction (Safe Routes to School) P ,615 Department of Housing and Urban Development: Passed through the State of Nevada: Governor's Office of Economic Development CDBG - State Administered CDBG Cluster: Community Development Block Grants/State's Programs and Non-Entitlement Grants in Hawaii (Rural Continuum of Care) /PCB/20 4,621 Community Development Block Grants/State's Programs and Non-Entitlement Grants in Hawaii (SBDC Business Counseling) /ED/19 6,606 Community Development Block Grants/State's Programs and Non-Entitlement Grants in Hawaii (SBDC Business Counseling) /ED/20 17,372 Community Development Block Grants/State's Programs and Non-Entitlement Grants in Hawaii (WNDD Revolving Loan) /ED/21 83,350 Community Development Block Grants/State's Programs and Non-Entitlement Grants in Hawaii (WNDD Revolving Loan) /ED/21 43,000 Total Department of Housing and Urban Development 154,949 Total Expenditures of Federal Awards $ 544,

206 CITY OF FERNLEY, NEVADA Notes to the Schedule of Expenditures of Federal Awards For the Year Ended June 30, 2015 Reporting Entity: The accompanying schedule of expenditures of federal awards presents the activity or expenditure of all federal awards programs of the City of Fernley, Nevada for the year ended June 30, The City s reporting entity is defined in Note 1 of the basic financial statements. All expenditure of federal awards received directly from federal agencies as well as federal awards passed through other government agencies are included in the schedule. Basis of Accounting: This accompanying schedule of expenditures of federal awards has been prepared on the modified accrual basis of accounting. The information in this schedule is presented in accordance with the requirements of OMB Circular A- 133, Audits of States, Local Governments, and Non-Profit Organizations. Relationship to Basic Financial Statements: Expenditures of federal awards have been reported in the Grants fund and other areas as follows: Governmental-Type Activities: Grants Fund: Public Works $ 23,615 Health 4,621 Community Support and Development 468, ,277 Business-Type Activities: Water Enterprise Fund: 48,093 Total $ 544,369 Subrecipients: Expenditures related to the following grants from the Department of Housing and Urban Development were passed through to Social Entrepreneurs, Inc., a Nevada non-profit corporation: Community Development Block Grant/State s Programs and Non-Entitlement Grants in Hawaii (Rural Continuum of Care) Expenditures related to the following grants from the Department of Housing and Urban Development were passed through to Western Nevada Development District, a Nevada non-profit corporation: Community Development Block Grant/State s Programs and Non-Entitlement Grants in Hawaii (WNDD Revolving Loan) 116

207 MEMBERS: CHAD B. ATKINSON, CPA MORRIS J PEACOCK, CPA KRIS J. BRAUNBERGER, CPA PHILLIP S. PEINE, CPA ROBERT S. COX, CPA MICHAEL K. SPILKER, CPA TODD B. FELTNER, CPA KEVIN L. STEPHENS, CPA K. MARK FROST, CPA MARK E. TICHENOR, CPA STEVEN D PALMER, CPA Independent Auditors Report on State Legal Compliance The Honorable Mayor and City Council City of Fernley, Nevada We have audited the financial statements of the City of Fernley, Nevada for the year ended June 30, 2015 and have issued our report thereon dated November 16, Our audit also included test work on the City s compliance with selected requirements identified in the State of Nevada Revised Statutes (NRS) including, but not limited to, NRS section and section Management of the City is responsible for the City's compliance with all requirements identified above. Our responsibility is to express an opinion on compliance with those requirements based on our audit and make specific statements regarding funds established and the status of prior year findings and recommendations; accordingly, we make the following statements: For the year ended June 30, 2015, the City of Fernley has taken steps to act upon recommendations made in prior years. The City has established a number of funds in accordance with NRS as follows: Enterprise Funds: Water Utility Fund Sewer Utility Fund Funds whose balance is required to be used only for a specific purpose or carried forward to the succeeding fiscal year in any designated amount: Special Revenue Funds: Grants Fund Municipal Court Administration Fund Municipal Court Facilities Fund Transient Lodging Tax Fund Capital Projects Funds: Capital Projects Fund Capital Improvements Fund The City appears to be using the above listed funds expressly for the purposes for which they were created and in accordance with NRS The funds are being administered in accordance with Generally Accepted Accounting Principles and the reserves, as applicable, appear reasonable and necessary to carry out the purposes of the funds. Sources of revenues available and fund balances and net position are reflected in the individual fund financial statements. 117 CEDAR CITY FLAGSTAFF HURRICANE MESQUITE PHOENIX RICHFIELD ST. GEORGE

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