CITY OF GALVA, ILLINOIS ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED APRIL 30, 2015

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1 ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED APRIL 30, 2015

2 TABLE OF CONTENTS APRIL 30, 2015 Page Independent Auditors' Report... 1, 2 Basic Financial Statements: Government Wide Statements: Statement of Net Position Modified Cash Basis... 3 Statement of Activities Modified Cash Basis... 4 Fund Financial Statements: Balance Sheet Modified Cash Basis Governmental Funds... 5 Reconciliation of the Balance Sheet to Statement of Net Position Modified Cash Basis Governmental Funds... 6 Statement of Revenues Received, Expenditures Disbursed, and Changes in Fund Balances Modified Cash Basis Governmental Funds... 7 Reconciliation of the Statement of Revenues Received, Expenditures Disbursed, and Changes in Fund Balance to the Statement of Activities Modified Cash Basis Governmental Funds... 8 Statement of Net Position Modified Cash Basis - Proprietary Funds... 9 Statement of Revenue, Expenses and Changes in Net Position - Modified Cash Basis Proprietary Funds Statement of Cash Flows Modified Cash Basis - Proprietary Funds Notes to the Financial Statements Supplementary Information Budgetary Comparison Schedule Cash Basis - General Fund Budgetary Comparison Schedule Cash Basis Motor Fuel Tax Fund Budgetary Comparison Schedule Cash Basis - Tax Increment Financing Fund Budgetary Comparison Schedule Cash Basis Water and Sewer Fund Schedule of Funding Progress - Illinois Municipal Retirement Fund... 36

3 INDEPENDENT AUDITOR S REPORT To the City Council City of Galva, Illinois 311 N.W. 4 th Ave Galva, IL Report on the Financial Statements We have audited the accompanying modified cash-basis financial statements of the governmental activities, the business-type activities, each major fund, and aggregate remaining fund information of the City of Galva, Illinois, as of and for the year ended, 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 the modified cash basis of accounting described in Note 1 C; this includes determining that the modified cash basis of accounting is an acceptable basis for the preparation of the financial statements in the circumstances. Management is also responsible for the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor s Responsibility Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of 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 opinion. 1

4 Opinions In our opinion, the financial statements referred to above present fairly, in all material respects, the respective modified cash-basis financial position of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of City of Galva, Illinois, as of, the respective changes in modified cash-basis financial position; and, where applicable, cash flows thereof for the year then ended in accordance with the modified cash basis of accounting described in Note1 C. Basis of Accounting We draw attention to Note 1 C of the financial statements, which describes the basis of accounting. The financial statements are prepared on the modified cash basis of accounting, which is a basis of accounting other than accounting principles generally accepted in the United States of America. Our opinions are not modified with respect to that matter. Disclaimer of Opinion on Other Information Our audit was conducted for the purpose of forming an opinion on the financial statements that collectively comprise the City of Galva s basic financial statements. The budgetary comparison information on pages 26 35, which are the responsibility of management, are presented for purposes of additional analysis and are not a required part of the basic financial statements. Such information has not been subjected to the auditing procedures applied in the audit of the basic financial statements, and accordingly, we do not express an opinion or provide any assurance on it. The budgetary comparison information is the responsibility of management and was derived from and relate directly to the underlying accounting and other records used to prepare the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the budgetary comparison information is fairly stated, in all material respects, in relation to the basic financial statements as a whole. Management has omitted the management s discussion and analysis that accounting principles generally accepted in the United States of America require to be presented to supplement the basic financial statements. Such missing 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 statement in an appropriate operational, economic, or historical context. Our opinion on the basic financial statements is not affected by this missing information. Blucker, Kneer & Associates, Ltd. Galesburg, Illinois October 8, 2015 Certified Public Accountant 2

5 STATEMENT OF NET POSITION - MODIFIED CASH BASIS ASSETS Governmental Business-type Activities Activities Total Current assets: Cash and cash equivalents $ 1,851,089 $ (185,307) $ 1,665,782 Employee payroll deductions Internal balances (1,398,250) 1,003,036 (395,214) Capital assets: Land 819, ,929 Construction in progress 59,907 1,202,605 1,262,512 Systems and Equipment (net of depreciation) 1,792,894 2,198,917 3,991,811 Total Assets $ 3,125,569 $ 4,219,251 $ 7,344,820 LIABILITIES Current liabilities: Payroll deductions withheld $ - $ 8,023 $ 8,023 Customer deposits - 5,687 5,687 Loans payable, due within one year 134, ,966 Noncurrent liabilities: Loans payable, due in more than one year 307,020 1,230,509 1,537,529 Total liabilities $ 441,986 $ 1,244,219 $ 1,686,205 NET POSITION Net investment in capital assets $ 2,230,744 $ 2,171,013 $ 4,401,757 Restricted 476, ,974 Unrestricted (deficit) (24,135) 804, ,884 Total net position $ 2,683,583 $ 2,975,032 $ 5,658,615 The accompanying notes are part of the financial statements. 3

6 STATEMENT OF ACTIVITIES - MODIFIED CASH BASIS For the year ended Program Revenues Net (Expense) Revenue and Changes in Net Assets Total Total Charges for Governmental Business Type Program Activities: Expenses Services Activities Activities Total Governmental Activities General Government $ 297,246 $ 316,388 $ 19,142 $ - $ 19,142 Environmental 181,247 - (181,247) - (181,247) Public Safety 395,019 - (395,019) - (395,019) Transportation 611,047 - (611,047) - (611,047) Other 2,712,122 - (2,712,122) - (2,712,122) Debt Service 20,252 - (20,252) - (20,252) Total Governmental Activities $ 4,216,933 $ 316,388 $ (3,900,545) $ - $ (3,900,545) Business-type Activities: Water and Sewer $ 977,294 $ 1,017,821 $ - $ 40,527 $ 40,527 General revenues: Property taxes $ 3,083,150 $ 28,032 $ 3,111,182 Intergovernmental revenue 627, ,103 Interest income Sale of capital assets 43,509-43,509 Miscellaneous 196, ,414 Total general revenues and transfers $ 3,950,657 $ 28,131 $ 3,978,788 Transfers 109,000 (109,000) - Change in net position 159,112 (40,342) 118,770 Net position, beginning of year 2,524,471 3,015,374 5,539,845 Net position, end of year $ 2,683,583 $ 2,975,032 $ 5,658,615 The accompanying notes are part of the financial statements. 4

7 BALANCE SHEET- MODIFIED CASH BASIS GOVERNMENTAL FUNDS Tax Motor Increment Debt Working ASSETS General Fuel Financing Service Cash Totals Cash $ 1,378,012 $ 33,659 $ (748,148) $ 941,400 $ 246,166 $ 1,851,089 Employee payroll deductions Due from other funds 43, , , , ,367 Total Assets $ 1,421,143 $ 33,947 $ (535,817) $ 1,110,323 $ 355,860 $ 2,385,456 LIABILITIES AND FUND EQUITY Liabilities: Payroll deductions withheld $ - $ - $ - $ - $ - $ - Due to other funds 882,940-26, , ,220 1,932,617 Total liabilities $ 882,940 $ - $ 26,521 $ 749,936 $ 273,220 $ 1,932,617 Fund Balances: Restricted: Streets $ - $ 33,947 $ - $ - $ - $ 33,947 Debt service , ,387 Working cash loans ,640 82,640 Unassigned: Funds (deficit) 538,203 - (562,338) - - (24,135) Total fund balances $ 538,203 $ 33,947 $ (562,338) $ 360,387 $ 82,640 $ 452,839 TOTAL LIABILITIES AND FUND BALANCES $ 1,421,143 $ 33,947 $ (535,817) $ 1,110,323 $ 355,860 $ 2,385,456 The accompanying notes are part of the financial statements. 5

8 RECONCILIATION OF THE BALANCE SHEET TO STATEMENT OF NET POSITION - MODIFIED CASH BASIS GOVERNMENTAL FUNDS Amounts reported for governmental activities in the statement of net positioin are different because: Total fund balance- governmental funds $ 452,839 Capital assets used in governmental activities are not current financial resources and therefore not reported in the governmental funds balance sheet Land 819,929 Construction in progress 59,907 Equipment (net of depreciation) 1,792,894 Notes and installment purchase contracts are not reported in the governmental funds balance sheet Loans payable (441,986) Total net position - governmental activities $ 2,683,583 The accompanying notes are part of the financial statements. 6

9 STATEMENT OF REVENUES RECEIVED, EXPENDITURES DISBURSED, AND CHANGES IN FUND BALANCES - MODIFIED CASH BASIS GOVERNMENTAL FUNDS For the Year Ended Tax Motor Increment Debt Working General Fuel Tax Financing Service Cash Fund Fund Fund Fund Fund Totals Revenues: Property taxes $ 550,503 $ - $ 2,532,647 $ - $ - $ 3,083,150 Replacement tax 44, ,644 Sales tax 177, ,314 Income tax 251, ,406 Local use tax 49, ,856 Video gaming tax 6, ,875 Hotel tax 5, ,197 Motor fuel tax - 91, ,811 Charges for services 316, ,388 Interest revenue Other 353,239-1, ,004 Total revenues $ 1,755,791 $ 91,900 $ 2,534,412 $ 23 $ - $ 4,382,126 Expenditures: Current: General government $ 201,368 $ - $ - $ 80 $ - $ 201,448 Public Safety 348, ,901 Streets 442, , ,304 Garbage collection 181, ,247 Ambulance services 22, ,850 Other 77,722-2,606, ,684,385 Debt service Principal 100,919-52, ,295 Interest 16,827-3, ,252 Capital outlay 147,754-20, ,754 Total expenditures $ 1,540,150 $ 135,742 $ 2,682,464 $ 80 $ - $ 4,358,436 Excess of revenues over (under) expenditures $ 215,641 $ (43,842) $ (148,052) $ (57) $ - $ 23,690 Other Financing Sources (uses): Sale of capital assets $ 43,509 $ - $ - $ - $ - $ 43,509 Transfers 109, ,000 Total other sources $ 152,509 $ - $ - $ - $ - $ 152,509 Excess of revenues and other sources over (under) expenditures and other uses $ 368,150 $ (43,842) $ (148,052) $ (57) $ - $ 176,199 Fund balances, beginning of year (deficit) 170,053 77,789 (414,286) 360,444 82, ,640 Fund balances, end of year (deficit) $ 538,203 $ 33,947 $ (562,338) $ 360,387 $ 82,640 $ 452,839 The accompanying notes are part of the financial statements. 7

10 RECONCILIATION OF THE STATEMENT OF REVENUES RECEIVED, EXPENDITURES DISBURSED, AND CHANGES IN FUND BALANCE TO THE STATEMENT OF ACTIVITIES - MODIFIED CASH BASIS GOVERNMENTAL FUNDS Amounts reported for governmental activities in the statement of activities are different because: Net change in fund balances-total governmental funds $ 176,199 In the government-wide statement of activities and changes in net position, the cost of assets is allocated over their estimated useful lives as depreciation expense. This is the amount of capital assets recorded in the current period. 167,754 Disposal of capital assets - Current year loan(s) received for capital asset purchases (158,590) Government funds report capital outlays as expenditures. However, in the statement of activities the cost of assets is allocated over their estimated useful lives and reported as depreciation expense. (179,546) Government funds report loan payments as a debt service expense on the Statement of Revenues Received, Expenditures Disbursed and Changes in Fund Balances while on the Statement of Activity it is not reported as an expense. 153,295 Change in net position - governmental activities $ 159,112 The accompanying notes are part of the financial statements. 8

11 STATEMENT OF NET POSITION - MODIFIED CASH BASIS PROPRIETARY FUNDS Business-Type Activities- Enterprise Funds Water and Sewer Funds ASSETS Current Assets Cash and cash equivalents $ (185,307) Internal balances 1,003,036 Total current assets $ 817,729 Noncurrent Assets Construction in progress $ 1,202,605 Systems and Equipment (net of depreciation) 2,198,917 Total Assets $ 4,219,251 LIABILITIES Payables $ 8,023 Customer deposits 5,687 Loan payable, due in less than one year - Loan payable, due in more than one year 1,230,509 Total Liabilities $ 1,244,219 NET POSITION Net investment in capital assets $ 2,171,013 Unrestricted 804,019 Total net position $ 2,975,032 The accompanying notes are part of the financial statements. 9

12 STATEMENT OF REVENUE, EXPENSES AND CHANGES IN NET POSITION - MODIFIED CASH BASIS PROPRIETARY FUNDS Year ended Business-Type Activities- Enterprise Funds Water and Sewer Funds Operating revenues: Service billings $ 1,017,821 Operating expenses: Current: Salaries $ 266,866 Insurance benefits 30,597 Retirement - IMRF 24,360 Payroll taxes 19,711 Professional services 66,603 Maintenance services 120,354 Insurance 37,925 Utilities 75,662 Phone 1,229 Professional development - Water testing 12,724 Operating supplies 85,189 Maintenance supplies 11,282 Total operating expenses $ 752,502 Revenues from operations before depreciation $ 265,319 Depreciation expense 223,606 Operating income (loss) $ 41,713 Nonoperating revenues (expenses): Property taxes $ 28,032 Interest revenue 99 Interest expense (1,186) Total nonoperating revenues (expenses) $ 26,945 Other financial resources (uses) Transfers out $ (109,000) Change in net position (loss) $ (40,342) Net position, beginning of year 3,015,374 Prior period adjustment - Net position, end of year $ 2,975,032 The accompanying notes are part of the financial statements. 10

13 STATEMENT OF CASH FLOWS - MODIFIED CASH BASIS PROPRIETARY FUNDS Year ended Business-Type Activities- Enterprise Fund Water and Sewer Fund Cash Flows from Operating Activities: Receipts from customers $ 1,017,821 Payments to suppliers (404,945) Cash payments to employees (341,534) Net cash provided (used) by operating activities $ 271,342 Cash Flows from Noncapital Financing Activities: Other nonoperating revenue $ 28,032 (Increase) decrease in due from other funds (284,559) Net cash provided (used) from noncapital financing activities $ (256,527) Cash Flows from Investing Activities: Interest on investments Acquisition and construction of capital assets (219,330) Net cash provided (used) for investing activities $ (219,330) Cash Flows from Financing Activities: Principal payments on loan $ (21,498) Interest payments on loan (1,186) Net cash provided (used) for financing activities $ (22,684) Net increase (decrease) in cash, restricted cash, and cash equivalents $ (227,199) Cash, beginning of year 41,892 Cash, end of year $ (185,307) Reconciliation of Operating Income (Loss) to Net Cash Provided (Used) by Operating Activities: Cash flows from operating activities: Operating income/(loss) $ 41,713 Adjustments to reconcile operating income to net cash provided by operating activities: Depreciation 223,606 Increase in payables 5,498 Increase in customer deposits 525 Net cash provided by operating activities $ 271,342 The accompanying notes are part of the financial statements. 11

14 Note 1 - Significant Accounting Policies NOTES TO FINANCIAL STATEMENTS The City of Galva, Illinois operates under a board of trustee form of government and provides services to residents of the City including general government, streets, water, and sewer utilities. As discussed further in Note 1 C, these financial statements are presented on a modified cash basis of accounting. This modified basis of accounting differs from accounting principles generally accepted in the United States of America (GAAP). Generally accepted accounting principles include all relevant Governmental Accounting Standards Board (GASB) pronouncements. The most significant accounting and reporting policies of the City are described in the following notes to the statements. A. Financial Reporting Entity Generally accepted accounting principles require that the financial reporting entity includes (1) the primary government, (2) organizations for which the primary government is financially accountable and (3) other organizations for which the nature and significance of their relationship with the primary government are such that exclusion would cause the financial reporting entity's financial statements to be misleading or incomplete. The criteria provided in Governmental Accounting Standards Board Statement No. 14 have been considered, and there are no agencies or entities which should be included as component units in the financial reporting entity. B. Basis of Presentation The City s basic financial statements consist of government-wide financial statements, including a statement of net position and a statement of activities, and fund financial statements which provide a more detailed level of financial information. Government Wide Financial Statements The Statement of Net Position and Statement of Activities display information about the reporting government as a whole. They include all funds of the reporting entity except fiduciary funds. The statements distinguish between governmental and business-type activities. For the most part, the effect of interfund activity has been removed from these statements. Governmental activities generally are financed through taxes, intergovernmental revenues, and other non-exchange revenues. Business -type activities are financed in whole or in part by fees charged to external parties for goods or services. The Statement of Net Position presents the City s nonfiduciary assets and liabilities, with the difference reported as net position. Net position is reported in the following three categories. Net investment in capital assets consists of costs of capital assets, net of accumulated depreciation and reduced by outstanding balances for bonds, notes or other debt attributable to the acquisition, construction, or improvement of those assets. Restricted net position results when constraints placed on its use are either externally imposed or imposed by law through constitutional provisions enabling legislation. Unrestricted net position consists of net position not meeting the definition of the two preceding categories. Unrestricted net position often has constraints on resources imposed by management, which can be removed or modified. 12

15 NOTES TO FINANCIAL STATEMENTS (Continued) Note 1 - Significant Accounting Policies (Continued) B. Basis of Presentation (Continued) The statement of activities demonstrates the degree to which the direct expenses of a given function or activity is offset by program revenues. Direct expenses are those that are clearly identifiable with specific function or activity. Program revenues include: (a) charges to customers or applicants who purchase, use, or directly benefit from goods, services or privileges provided by a given function or identifiable activity; and (b) grants and contributions that are restricted to meeting the operational or capital requirements of a particular function or identifiable activity. Taxes and other items not properly included among program revenues are reported instead as general revenues. Fund Financial Statements Fund financial statements of the City are organized into funds, each of which is considered to be a separate accounting entity. Each fund is accounted for by providing a separate set of self-balancing accounts that constitutes its assets, liabilities, fund equity, revenues, and expenditures/expenses. Funds are organized into two major categories: governmental and proprietary. The City currently has no fiduciary funds. An emphasis is placed on major funds within the governmental and proprietary categories. GASB No. 34 sets forth minimum criteria (percentage of the assets, liabilities, revenues or expenditures/expenses) for the determination of major funds. The nonmajor funds are combined in a column in the fund financial statements. The funds of the financial reporting entity are described below: Governmental Funds Governmental funds are those through which most governmental functions of the City are financed. Governmental fund reporting focuses on the sources, uses, and balances of current financial resources. Expendable assets are assigned to the various governmental funds according to the purpose for which they may or must be used. Current liabilities are assigned to the fund from which they will be paid. The difference between governmental fund assets and liabilities is reported as fund balance. The following are the City s major governmental funds: General Fund - The General Fund is the primary operating fund of the City and always classified as a major fund. It is used to account for and report all financial resources not accounted for and reported in another fund. Tax Increment Financing Fund The Tax Increment Financing Fund accounts for tax proceeds and costs of developing real estate in the District. Motor Fuel Tax Fund - Accounts for the proceeds of motor fuel tax revenue and road construction and maintenance expenditures that are legally restricted for this specified purpose. Debt Service Fund - The Debt Service fund is used to account for and report financial resources that are restricted, committed, or assigned to expenditures for principal and interest and is reported as a major fund. 13

16 NOTES TO FINANCIAL STATEMENTS (Continued) Note 1 - Significant Accounting Policies (Continued) B. Basis of Presentation (Continued) Proprietary Funds Enterprise Funds are used to account for operations (a) that are financed and operated in a manner similar to private business enterprises- where the intent of the governing body is that the costs (expenses, including depreciation) of providing goods or services to the general public on a continuing basis be financed or recovered primarily through user charges; or (b) 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. The following are the City s major proprietary funds: Water Fund The Water fund accounts for activities for providing water services to the City. Sewer Fund The Sewer fund accounts for activities for providing sewer services to the City. 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 revenue of the enterprise funds are charges to customers for sales and services. Operating expenses for enterprise funds include the cost of sales and service, administrative expenses, and depreciation on capital assets. All revenues and expenses not meeting this definition are reported as nonoperating revenue and expenses. C. Measurement Focus and Basis of Accounting Measurement focus is a term used to describe how transactions are recorded within the various financial statements. Basis of accounting refers to when transactions are recorded regardless of the measurement focus applied. Measurement Focus In the government-wide Statement of Net Position and the Statement of Activities, both governmental and business-like activities are presented using the economic resources measurement focus, within the limitations of the modified cash basis of accounting, as defined below. In the fund financial statements, the current financial resources measurement focus or the economic resources measurement focus as applied to the modified cash basis of accounting is used as appropriate: a. All governmental funds utilize a current financial resources measurement focus. Only current financial assets and liabilities are generally included on their balance sheets. Their operating statements present sources and uses of available spendable financial resources during a given period. These funds use fund balance as their measure of available spendable financial resources at the end of the period. 14

17 NOTES TO FINANCIAL STATEMENTS (Continued) Note 1 - Significant Accounting Policies (Continued) C. Measurement Focus and Basis of Accounting (Continued) b. The proprietary fund utilizes an economic resources measurement focus. The accounting objectives of this measurement focus are the determination of operating income, changes in net position and cash flows. All assets and liabilities (whether current or noncurrent, financial or nonfinancial) associated with their activities are reported. Proprietary fund equity is classified as net position. Basis of Accounting In the government-wide Statement of Net Position and Statement of Activities and the fund financial statements, governmental and business like activities are presented using a modified cash basis of accounting. This basis recognizes assets, liabilities, net assets/fund equity, revenues, and expenditure/expenses when they result from cash transactions with a provision for depreciation in the government wide statements and proprietary fund statements. This basis is a comprehensive basis of accounting other than accounting principles generally accepted in the United States of America. As a result of the use of this modified cash basis of accounting, certain assets and their related revenues (such as accounts receivable and revenue for billed or provided services not yet collected) and certain liabilities and their related expenses (such as accounts payable and expenses for goods or services received but not yet paid, and accrued expenses and liabilities) are not recorded in these financial statements. If the City utilized the basis of accounting recognized as generally accepted, the fund financial statements for governmental funds would use the modified accrual basis of accounting, while the fund financial statements for proprietary fund types would use the accrual basis of accounting. All government -wide financials would be presented on the accrual basis of accounting. D. Budget and Appropriations The City adopts an annual budget and appropriation ordinance in accordance with Chapter 50, 330/3 of the Illinois Revised Statutes. The budget covers the fiscal year ending April 30. These appropriations are adopted on a cash basis method of accounting. Prior to the adoption of the annual budget and appropriation ordinance, the City Board, at least 30 days prior to such adoption, shall make this proposed appropriation ordinance conveniently available to public inspection and shall hold at least one public hearing thereon. Notice of this hearing shall be given publication in one or more newspapers published locally at least 30 days prior to the time of the public hearing. Subsequent to the public hearing and before final action is taken on the annual budget and appropriation ordinance, the Board may revise, alter, increase, or decrease the items contained therein. The budgetary comparison schedule cash basis presents legally adopted budgets with actual data on a budgetary basis. 15

18 NOTES TO FINANCIAL STATEMENTS (Continued) Note 1 - Significant Accounting Policies (Continued) E. Statement of Cash Flows For the purpose of the Statement of Cash Flows, the Water and Sewer Fund considers all highly liquid investments (including restricted assets) to be cash equivalents. The checking, savings, and certificates of deposit are therefore deemed to be cash equivalents. F. Capital Assets Capital assets are reported in the government-wide statement of net position. In the fund financial statements, capital assets used in governmental fund operations are accounted for as capital outlay expenditures of the governmental fund upon acquisition. Capital assets used in proprietary fund operations are accounted for the same way as in the government-wide statements. All capital assets are valued at cost or estimated historical cost if actual historical cost is not available. Repairs and maintenance are expensed, but major improvements are capitalized. Assets are capitalized and updated for additions and reductions during the year based on the capitalization policy, which sets the minimum capitalization amounts as follows: Infrastructure assets (roads, bridges, culverts, curbs, sidewalks, lighting systems, gutters, and drainage systems) $50,000 Buildings and improvements $10,000 Individual equipment $5,000 All capital assets are depreciated, except for land and construction in process. Depreciation is computed using the straight-line method over the following useful lives: Buildings Building Improvements Roads Sidewalks Equipment Vehicles Computer Equipment Water and Sewer system Machinery, Furniture, and Equipment Water and Sewer Systems 40 years 20 years 10 years 10 years 7 years 5 years 5 years 40 years 5 10 years years G. Encumbrances The City of Galva, Illinois, does not use encumbrance accounting. H. Vacation, Sick Leave, and Other Compensated Absences City employees are entitled to certain compensated absences based on their length of employment. Compensated absences do not vest or accumulate. They are recorded as expenditures when they are paid. 16

19 NOTES TO FINANCIAL STATEMENTS (Continued) Note 1 - Significant Accounting Policies (Continued) I. Postemployment Healthcare Benefits The City does not provide postemployment healthcare benefits except those mandated by the Consolidated Omnibus Budget Reconciliation Act (COBRA). The requirements established by COBRA are fully funded by employees who elect coverage under the Act, and no direct costs are incurred by the City. J. Restricted Assets Enterprise Funds, because of certain bond covenants, are required to establish and maintain prescribed amounts of resources (consisting of cash and temporary investments) that can be used only to service outstanding debt. K. Use of Estimates The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues collected and expenses paid during the reporting period. Actual results could differ from those estimates. L. Due To and Due From Other Funds The City's interfund receivables and payables that arise from interfund transactions are recorded by all funds affected in the period in which transactions are executed. These balances are eliminated on the government-wide statements, with exception to amounts between the governmental funds and the proprietary funds. M. Fund Equity GASB Statement No. 54, Fund Balance Reporting and Governmental Fund Type Definition establishes criteria for classifying governmental fund balances into specifically defined classifications. Classifications are hierarchical and are based primarily on the extent to which the City is bound to honor constraints on the specific purposes for which amounts in the funds may be spent. Application of the statement requires the City to classify and report amounts in the appropriate fund balance classifications: a. Nonspendable resources that cannot be spent either because they are in non-spendable form or because they are legally or contractually required to be maintained intact. b. Restricted resources that can be spent only for specific purposes because of constitutional provisions, charter requirements or enabling legislation or because of constraints that are externally imposed by creditors, grantors, contributors, or the laws or regulations of other governments. 17

20 NOTES TO FINANCIAL STATEMENTS (Continued) Note 1 - Significant Accounting Policies (Continued) M. Fund Equity (Continued) c. Committed resources that can be used only for specific purposes determined by a formal action of the board of trustees. The board of trustees is the highest level of decision making authority for the city. Commitments may be established, modified, or rescinded only through ordinances or resolution approved by the board of trustees. d. Assigned resources that do not meet the criteria to be classified as restricted or committed but that are intended to be used for specific purposes as determined by the board of trustees. e. Unassigned all other spendable amounts. GASB 54 requires governmental entities to establish a policy for the application of expenditures to the above classifications. As of the end of the fiscal year, the City had no such policy and is currently applying the default method of allocation. When expenditures are incurred for purposes for which both restricted and unrestricted fund balances are available, the City considers restricted funds to have been spent first. When expenditures are incurred for which committed, assigned, or unassigned fund balances are available, the City considers amounts to have been spent first out of committed funds, then assigned funds, and finally unassigned funds, as needed, unless the City Council has provided otherwise in its commitment or assignment actions. N. Net Position Government -wide net position is divided into three components: a. Net investment in capital assets - consist of historical cost of capital assets less accumulated depreciation and less any debt that remains outstanding that was used to finance those assets plus deferred outflows of resources less deferred inflows of resources related to those assets. b. Restricted net position consists of assets that are restricted by the township s creditors (for example, through debt covenants), by the state enabling legislation (through restrictions on shared revenues), by grantors (both federal and state), and by other contributors. c. Unrestricted net position all other net position is reported in this category. O. Long-Term Debt All long-term debt arising from cash basis transactions to be repaid from governmental and business -type resources is reported as liabilities in the government-wide statements. Long-term debt arising from cash basis transactions of governmental funds is not reported as liabilities in the fund financial statements. The debt proceeds are reported as other financing sources and payments of principal and interest reported as expenditures. The accounting for proprietary funds is the same in the fund financial statements as the treatment in the government-wide statements. 18

21 NOTES TO FINANCIAL STATEMENTS (Continued) Note 2 - Property Taxes Property taxes are collected and remitted to the City of Galva, Illinois by Henry County. Taxes are levied annually at the October meeting and become a lien on property on January 1 of the year of levy and are collected in two installments by the County Treasurer on June 1 and September 1 of the following year. Property tax revenue is recorded on the cash basis method. Because of the extraordinarily long period of time between the levy date, the second Tuesday in September of each year, and the receipt of tax distribut ions from the County Collector, the property taxes are not "available" to finance current year expenditures. Assessed Valuation 2014 Levy $ 20,547,149 Taxes Rate per $100 Taxes Levied Valuation Extended General $ 54, $ 54,656 I.M.R.F. 56, ,977 Fire protection 15, ,410 Police protection 15, ,410 Cemetery 5, ,137 Garbage disposal 41, ,094 Sewage disposal 20, ,547 Audit 10, ,007 Liability insurance 72, ,901 Playground and recreation 8, ,239 Street lighting 10, ,274 Public benefit Emergency service and disaster Social security 45, ,512 Unemployment insurance 2, ,034 Purchase agreement 116, ,687 Workman's compensation 45, ,286 Ambulance 41, ,094 Public comfort station 6, ,842 Water works system 3, ,431 Chlorination 4, ,110 Total $ 576, $ 576,388 TIF EAV Taxes Extended Galva TIF $ 6,082,682 $ 358,823 Galva Industrial Park TIF $ 913,001 $ 82,383 Galva Redevelopment Project Area #2 $ 21,121,797 $ 2,142,104 19

22 Note 2 - Property Taxes (Continued) NOTES TO FINANCIAL STATEMENTS (Continued) Assessed Valuations, Tax Levies, Rates, and Extensions Assessed Valuation 2013 Levy $ 20,543,930 Taxes Rate per $100 Taxes Levied Valuation Extended General $ 54, $ 54,647 I.M.R.F. 56, ,948 Fire protection 15, ,408 Police protection 15, ,408 Cemetery 5, ,136 Garbage disposal 41, ,088 Sewage disposal 20, ,544 Audit 10, ,005 Liability insurance 64, ,385 Playground and recreation 6, ,183 Street lighting 10, ,272 Public benefit 10, ,272 Emergency service and disaster Social security 45, ,484 Unemployment insurance 1, ,992 Purchase agreement 104, ,158 Workman's compensation 52, ,305 Ambulance 41, ,088 Public comfort station 6, ,841 Water works system 3, ,431 Chlorination 4, ,109 Total $ 570, $ 570,443 TIF EAV Taxes Extended Galva TIF $ 5,898,117 $ 335,650 Galva Industrial Park TIF $ 907,568 $ 81,458 Galva Redevelopment Project Area #2 $ 21,072,485 $ 2,115,160 Note 3 - Custodial Credit Risk State statutes authorize the City to make deposits in commercial banks and savings and loan institutions, and to make investments in obligations of the U.S. Treasury and U.S. agencies, obligations of states and their political subdivisions, repurchase agreements, commercial paper rated within the three highest classifications by at least two standard rating services, and the Illinois Public Treasurer s Investment Pool. Pension funds may also invest in certain non-u.s. obligations, mortgages, veterans' loans, and life insurance company contracts. 20

23 NOTES TO FINANCIAL STATEMENTS (Continued) Note 3 - Custodial Credit Risk (Continued) Custodial credit risk is the risk that in the event of a bank failure, the City s deposits may not be available. The City does not have a deposit policy for custodial credit risk. At, none of the City s bank balance of $1,307,932 was exposed to custodial credit risk and uncollateralized. Note 4 - Property and Equipment General Capital Assets The following is a summary of general fund fixed assets at. Balance Balance May 1, 2014 Additions Disposals Nondepreciated- Land $ 799,929 $ 20,000 $ - $ 819,929 Depreciated- Buildings $ 1,994,755 $ 53,113 $ - $ 2,047,868 Equipment 726,789 87,847 (20,155) 794,481 $ 2,721,544 $ 140,960 $ (20,155) $ 2,842,349 Less: accumulated depreciation (1,049,455) Net Property and Equipment $ 1,792,894 General fund depreciation expense for fiscal year ending was $179,545 and reported on the Statement of Activities as: General Government $ 95,798 Public Safety 46,118 Transportation 32,742 Other 4,887 $ 179,545 Water and Sewer System The following is a summary of enterprise fund fixed assets at. Balance Balance May 1, 2013 Additions Disposals April 30, 2014 Land $ - $ 25,627 $ - $ 25,627 Buildings $ 8,175 $ 444,027 $ - $ 452,202 Equipment 450,106 55,421 (20,155) 485,372 Systems 6,792,010 53,872-6,845,882 $ 7,250,291 $ 553,320 $ (20,155) $ 7,783,456 Less: accumulated depreciation (5,610,166) Net Property and Equipment $ 2,173,290 Water and sewer system depreciation expense for fiscal year ending was $223,

24 Note 5 - Long-Term Debt NOTES TO FINANCIAL STATEMENTS (Continued) At the City of Galva had outstanding the following debt: Original Balance Governmental Fund Long-Term Debt Amount 04/30/15 Installment loan agreement dated March 29, 2007, $ 250,000 $ - due in annual installments including 6.22% interest. Installment loan agreement dated July 21, 2008, due in annual installments including 4.39%interest. 290, ,364 Installment loan agreement dated January 6, 2012 due in annual installments including 4.29% interest. 356, ,032 Installment loan agreement dated September 9, 2014 due in annual installments including 3.25% interest. 158, ,590 Total Governmental Fund long-term debt $ 441,986 Proprietary Fund Long-Term Debt Installment loan agreement dated June 1, 2010, due in annual installments including 5.50% interest. 99,464 - Proceeds from EPA loan with no terms currently set 1,230,509 1,230,509 Total Proprietary Fund Long-Term Debt $ 1,230,509 Debt service requirements to maturity are as follows: Year Ended April 30 Principal Interest Total ,966 17, , ,195 11, , ,319 6,241 71, ,477 3,736 72, ,029 1,106 35,135 Total Debt Service $ 441,986 $ 40,387 $ 482,373 Changes in long-term debt: Balance Principal Balance Due within May 1, 2014 Additions Retired one year Loans $ 458,189 $ 158,590 $ 174,793 $ 441,986 $ 134,966 22

25 Note 6 - Legal Debt Margin NOTES TO FINANCIAL STATEMENTS (Continued) The legal debt margin of the City at is: 2014 Assessed valuation $ 20,547,149 Statutory debt limitation (8.625% of assessed valuation) $ 1,772,192 Debt - Legal debt margin $ 1,772,192 Note 7 - Defined Benefit Pension Plan Plan Description. The employer's defined benefit pension plan for regular employees provides retirement and disability benefits, post retirement increases, and death benefits to plan members and beneficiaries. The employer plan is affiliated with the Illinois Municipal Retirement (IMRF), an agent multiple-employer plan. Benefit provisions are established by statute and may only be changed by the General Assembly of the State of Illinois. IMRF issues a publicly available financial report that includes financial statements and required supplementary information. That report may be obtained online at Funding Policy. As set by statute, your employer regular plan members are required to contribute 4.50 percent of their annual covered salary. The statute requires employers to contribute the amount necessary, in addition to member contributions, to finance the retirement coverage of its own employees. The employer contribution rate for calendar year 2014 used by the employer was 9.79 percent of annual covered payroll. The employer also contribut es for disability benefits, death benefits and supplemental retirement benefits, all of which are pooled at the IMRF level. Contribution rates for disability and death benefits are set by the IMRF Board of Trustees, while the supplemental retirement benefits rate is set by statute. Annual Pension Cost. The required contribution for calendar year 2014 was $59,027. Three-Year Trend Information for the Regular Plan: Actuarial Annual Percentage Net Valuation Pension of APC Pension Date Cost (APC) Contribued Obligation 12/31/14 $ 59, % $ - 12/31/13 62, % - 12/31/12 58,395 98% - The required contribution for 2014 was determined as part of the December 31, 2012, actuarial valuation using the entry age normal actuarial cost method. The actuarial assumptions at December 31, 2012, included (a) 7.5% investment rate of return (net of administrative expenses and direct investment expenses), (b) projected salary increases of 4.00% a year, attributable to inflation, (c) additional projected salary increases ranging from 0.4% to 10.0% per year depending on age and service, attributable to seniority/merit, and (d) post-retirement benefit increases of 3% annually. The actuarial value of your employer regular plan assets was determined using techniques that spread the effects of short-term volatility in the market value of investments over a five-year period with a 20% corridor between the actuarial and market value of assets. The employer regular plan s overfunded actuarial accrued liability at 23

26 NOTES TO FINANCIAL STATEMENTS (Continued) Note 7 - Defined Benefit Pension Plan (Continued) December 31, 2012 is being amortized as a level percentage of projected payroll on an open 29 year basis. Funded Status and Funding Progress. As of December 31, 2014, the most recent actuarial valuation date, the regular plan was percent funded. The actuarial accrued liability for benefits was $1,715,133 and the actuarial value of assets was $1,505,338, resulting in an underfunded actuarial accrued liability (UAAL) of $209,795. The covered payroll for calendar year 2014 (annual payroll of active employees covered by the plan) was $602,932 and the ratio of the UAAL to the covered payroll was 35%. The schedule of funding progress, presented as Other Information following the notes to the financial statements, presents multiyear trend information about whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued liability for benefits. Note 8 - Interfund Payables and Receivables Interfund payables and receivables as of are as follows: Due To Due From Amount Purpose Working Cash Fund General Fund $ 66,563 To reimburse expenses Water Fund General Fund 165,412 To reimburse expenses Water Fund Working Cash Fund 62,616 To reimburse expenses Water Fund Debt Service Fund 749,936 To reimburse expenses Water Fund TIF Fund 25,073 To reimburse expenses Debt Service Fund TIF Fund 1,449 To reimburse expenses Debt Service Fund Working Cash Fund 167,474 To reimburse expenses TIF Fund General Fund 212,331 To reimburse expenses Motor Fuel Tax Fund General Fund 288 To reimburse expenses Note 9 - Construction Commitments The City of Galva is committed to continue with construction on the new subdivisions. As of April 30, 2015, the Courtyard Estates subdivision project was completed in FY2015 at a cost of $53,113 to the General and TIF Funds and $423,215 from the Water and Sewer Funds. As of, the Northpoint Estates subdivision construction in progress consists of $59,907 from the General Fund and $81,096 from the Water and Sewer Funds. The City began constructing a pump house in the 2014 fiscal year. This project was completed in the 2015 fiscal year at a cost of $20,811 from the water fund for this project. Note 10 - Deficit Fund Balances At, the Tax Increment Financing Fund had a deficit fund balance of ($562,338). Note 11 - Risk Management Significant losses are covered by commercial insurance for all major programs: property, liability, and worker's compensation. During the year ended, there have been no significant reductions 24

27 Note 11 Risk Management (Continued) NOTES TO FINANCIAL STATEMENTS (Continued) in insurance coverage. Settlement amounts, if any, have not exceeded insurance coverage in the past three years. Note 12 - Excess of Expenditures Over Appropriations The Motor Fuel Tax fund had appropriations of $0 and actual expenses of $135,742 which resulted in expenditure over appropriations of $135,742. Note 13 - Subsequent Events Subsequent events were evaluated through October 8, 2015, which is the date the financial statements were available to be issued. 25

28 SUPPLEMENTARY INFORMATION

29 SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON SCHEDULE - CASH BASIS GENERAL FUND Year ended Page 1 of 7 Variance With Original Final Actual Final Budget Budget Budget Amounts (Over)/Under Revenues: Property taxes $ - $ - $ 550,503 $ (550,503) Replacement tax ,644 (44,644) Sales tax ,314 (177,314) Income tax ,406 (251,406) Local use tax ,856 (49,856) Video gaming tax - - 6,875 (6,875) Hotel tax - - 5,197 (5,197) Interest (369) Charges for service ,388 (316,388) Sale of capital assets ,509 (43,509) Other revenue ,239 (353,239) Transfer ,000 (109,000) Total revenues $ - $ - $ 1,908,300 $ (1,908,300) Expenditures: Administration Personnel: Salaries $ 42,445 $ 42,445 $ 39,150 $ 3,295 Social Security & Medicare tax 3,247 3,247 2, Unemployment insurance - - 2,585 (2,585) Workers' compensation Health, life, and dental insurance 15,459 15,459 24,648 (9,189) IMRF retirement contributions 3,486 3,486 3, Contractual Services: Accounting services 11,576 11,576 8,710 2,866 Legal services 7,693 7,693 4,670 3,023 Janitorial services 5,954 5,954 5, Other professional services 7,902 7,902 6,170 1,732 Postage 3,368 3,368 2,273 1,095 Telephone 6,222 6,222 5, Publishing and printing 2,429 2,429 3,610 (1,181) Dues 6,089 6,089 11,442 (5,353) Travel expenses Insurance 7,723 7,723 7, Utilities 18,288 18,288 13,902 4,386 Maintenance services 4,096 4,096 4, Commodities: Office supplies 24,068 24,068 16,046 8,022 Operating supplies 1,937 1,937 1, Automotive fuel/oil 2,004 2,004 1,