City of Oak Forest, Illinois

Transcription

1 City of Oak Forest, Illinois Comprehensive Annual Financial Report For the Fiscal Year Ended April 30, 2017 Prepared by: Finance Department Colleen Julian Finance Director

2 COMPREHENSIVE ANNUAL FINANCIAL REPORT For the Year Ended April 30, 2017 Prepared by: Finance Department Colleen Julian Finance Director

3 TABLE OF CONTENTS Page(s) INTRODUCTORY SECTION Principal Officials... Organizational Chart... Certificate of Achievement for Excellence in Financial Reporting... Letter of Transmittal... i ii iii iv-viii FINANCIAL SECTION INDEPENDENT AUDITOR S REPORT GENERAL PURPOSE EXTERNAL FINANCIAL STATEMENTS Management s Discussion and Analysis... MD&A 1-13 Basic Financial Statements Government-Wide Financial Statements Statement of Net Position... 3 Statement of Activities Fund Financial Statements Governmental Funds Balance Sheet Reconciliation of Fund Balances of Governmental Funds to the Governmental Activities in the Statement of Net Position... 8 Statement of Revenues, Expenditures, and Changes in Fund Balances Reconciliation of the Governmental Funds Statement of Revenues, Expenditures, and Changes in Fund Balances to the Governmental Activities in the Statement of Activities... 11

4 TABLE OF CONTENTS (Continued) Page(s) FINANCIAL SECTION (Continued) GENERAL PURPOSE EXTERNAL FINANCIAL STATEMENTS (Continued) Basic Financial Statements (Continued) Fund Financial Statements (Continued) Proprietary Funds Statement of Net Position Statement of Revenues, Expenses, and Changes in Net Position Statement of Cash Flows Fiduciary Funds Statement of Fiduciary Net Position Statement of Changes in Fiduciary Net Position Notes to Financial Statements Required Supplementary Information Schedule of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual General Fund Motor Fuel Tax Fund Schedule of Funding Progress Other Postemployment Benefit Plan Schedule of Employer Contributions Illinois Municipal Retirement Fund Police Pension Fund Firefighters Pension Fund Other Postemployment Benefit Plan Schedule of Changes in the Employer s Net Pension Liability and Related Ratios Illinois Municipal Retirement Fund Police Pension Fund Firefighters Pension Fund... 81

5 TABLE OF CONTENTS (Continued) Page(s) FINANCIAL SECTION (Continued) GENERAL PURPOSE EXTERNAL FINANCIAL STATEMENTS (Continued) Required Supplementary Information (Continued) Schedule of Investment Returns Police Pension Fund Firefighters Pension Fund Notes to Required Supplementary Information COMBINING AND INDIVIDUAL FUND FINANCIAL STATEMENTS AND SCHEDULES MAJOR GOVERNMENTAL FUNDS Schedule of Revenues - Budget and Actual - General Fund Schedule of Expenditures - Budget and Actual - General Fund Schedule of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual TIF III Capital Projects Fund TIF Project Fund NONMAJOR GOVERNMENTAL FUNDS Combining Balance Sheet Combining Statement of Revenues, Expenditures, and Changes in Fund Balances Special Revenue Funds Schedule of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual Forfeited Funds Fund Emergency 911 Fund Debt Service Funds Schedule of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual 2004A Bond Fund TIF II Debt Service Fund Capital Projects Funds Schedule of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual Public Improvements Fund TIF Fund TIF Bond Series Fund

6 TABLE OF CONTENTS (Continued) Page(s) FINANCIAL SECTION (Continued) COMBINING AND INDIVIDUAL FUND FINANCIAL STATEMENTS AND SCHEDULES (Continued) NONMAJOR GOVERNMENTAL FUNDS (Continued) Capital Projects Funds (Continued) Schedule of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual (Continued) TIF IV Capital Projects Fund TIF VI Capital Projects Fund Permanent Fund Schedule of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual Working Cash Fund MAJOR ENTERPRISE FUNDS Schedule of Revenues, Expenses, and Changes in Net Position - Budget and Actual - Waterworks and Sewerage Fund Schedule of Revenues, Expenses, and Changes in Net Position - Budget and Actual - Commuter Parking Lot Fund FIDUCIARY FUNDS Combining Statement of Fiduciary Net Position - Pension Trust Funds Combining Statement of Changes in Fiduciary Net Position - Pension Trust Funds Schedule of Changes in Fiduciary Net Position - Budget and Actual Police Pension Fund Firefighters Pension Fund SUPPLEMENTAL DATA Schedule of Expenditures for Tort Immunity Purposes Long-Term Debt Requirements General Obligation Bonds, Series 2008A General Obligation Bonds, Series 2009A General Obligation Refunding Bonds, Series General Obligation Refunding Bonds, Series

7 TABLE OF CONTENTS (Continued) Page(s) SUPPLEMENTAL DATA (Continued) FINANCIAL SECTION (Continued) Long-Term Debt Requirements (Continued) General Obligation Bonds, Series 2015A General Obligation Refunding Bonds, Series 2015B General Obligation Refunding Bonds, Series 2016A General Obligation Refunding Bonds, Series 2016B 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 Revenues by Source of Governmental Funds Equalized Assessed Value and Estimated Actual Value of Taxable Property Property Tax Rates - Direct and Overlapping Governments Principal Property Taxpayers Property Tax Levies and Collections Sales Tax Collected by Category Direct and Overlapping Sales Tax Rates Debt Capacity Ratios of Outstanding Debt by Type Ratios of General Bonded Debt Outstanding Direct and Overlapping Bonded Debt Legal Debt Margin Information Demographic and Economic Information Demographic Statistics Principal Employers Operating Information Full-Time Equivalent Employees Operating Indicators Capital Assets Statistics

8 INTRODUCTORY SECTION

9 CITY OF OAK FOREST COOK COUNTY, ILLINOIS ELECTED OFFICIALS Henry L. Kuspa Mayor (First Elected Mayor, 2009; Term Expires 2021) David M. Neuman City Clerk (First Appointed City Clerk, 2016; Term Expires 2021) JoAnn Kelly Treasurer (First Elected Treasurer, 2013; Term Expires 2021) CITY COUNCIL Alderman First Elected or Appointed to Office Term Expires Alderman First Elected or Appointed to Office Term Expires Laura Clemons James R. Emmett Richard D. Simon James Hortsman Diane Wolf Denise Danihel Paul Selman Troy Ishler Administrator Colleen Julian Finance Director - i -

10 CITY OF OAK FOREST Organizational Chart Residents of Oak Forest City Clerk/Collector Mayor City Council City Treasurer Clerk s Office Executive Secretary Advisory Boards & Commissions City Attorney City Engineer City Prosecutor City Administrator Public Relations Coordinator Human Resources Finance Director Community Development Director Fire Chief Police Chief Public Works Director Press Releases FYI Customer Service Insurance Risk Management Finance Information Technology Planning Economic Development Building Code Enforcement Fire Emergency Management Agency Police Department Animal Control Crime Free Housing Streets & Grounds Water & Sewer Senior Bus - ii -

11 Government Finance Officers Association Certificate of Achievement for Excellence in Financial Reporting Presented to City of Oak Forest Illinois For its Comprehensive Annual Financial Report for the Fiscal Year Ended April 30, 2016 for, 204iit Executive Director/ CEO - iii -

12 October 27, 2017 To the Honorable Henry Kuspa, Members of the City Council, and Citizens of the City of Oak Forest, Illinois: Illinois state statute requires that all general-purpose local governments publish, within six months of the close of each fiscal year, a complete set of financial statements presented in conformity with United States Generally Accepted Accounting Principles (GAAP) and audited in accordance with generally accepted auditing standards by a firm of independent, licensed certified public accountants. Pursuant to that requirement, we hereby issue the City of Oak Forest Comprehensive Annual Financial Report (CAFR) for the fiscal year ended April 30, The CAFR consists of management s representations concerning the City s finances. Consequently, management assumes full responsibility for the completeness and reliability of all information presented in this report. To provide a reasonable basis for making these representations, management 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 s financial statements in conformity with GAAP. Because the cost of internal controls should not outweigh the benefits, the City 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 CAFR is complete and reliable in all material aspects. Sikich LLP, a firm of independent, licensed certified public accountants, has audited the City s financial statements for the fiscal year ended April 30, 2017 thereby providing reasonable assurance that the statements are free of material misstatement. The City s 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. Based upon the audit, the independent auditor concluded that there was a reasonable basis for rendering an unmodified opinion that the City s financial statements for the fiscal year ended April 30, 2017 are fairly presented in conformity with GAAP. The Independent Auditor s Report is presented as the first component of the Financial Section of this report. - iv -

13 GAAP requires that management provide a narrative introduction, overview and analysis to accompany the basic financial statements in the form of 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 s MD&A can be found immediately following the Independent Auditor s Report. City Profile The City of Oak Forest was initially incorporated as a Village in 1947 and then incorporated as a City in It is a home-rule municipality under the Illinois Constitution. The City is located in southwestern Cook County approximately 25 miles southwest of downtown Chicago. As of the 2010 Census, its population was 27,962. The entire City s equalized assessed valuation is located in Cook County. The City operates under the Council-Mayor form of government. Its legislative authority is vested in a seven-member council, each elected from their respective wards. The Mayor, the City Clerk and the Treasurer are elected at-large. Each council member, the Mayor, the City Clerk, and the Treasurer serve concurrent, four-year terms. The affairs of the City are carried out through the City Administrator. As of April 30, 2017, the City employed approximately 219 persons of which approximately 122 were full time. The City Council constitutes the City s primary policymaking body. The Council determines policy, approves the annual budget, levies taxes, authorizes the payment of bills, approves bids and contracts, and adopts ordinances. The City provides a full range of municipal services, including public safety; fire protection; ambulance services; highway and street maintenance and reconstruction; building code enforcement; public improvements; economic development; planning and zoning; transportation; water and sewer services; and general administrative services. Major Initiatives One of the City s main initiatives is redeveloping the Cicero Avenue commercial corridor, including the Gateway Development at the northwest corner of 159 th Street and Cicero Avenue. This area is located in the City s TIF III District. The City s goal is to make this area a pedestrian friendly, downtown district centered around the 159th Street Metra train station. The completed development in this area includes retail space, a bank and a new train station. In FY17, developers completed three construction projects in TIF districts. These projects, including a national coffee chain and sports complex, will add to the City s sales tax base and real estate tax rolls. This will have a positive impact on the City s sales tax income and real estate taxes. The City also has six other TIF Districts located in its boundaries. The goal is to redevelop the areas and increase the equalized assessed valuation to assist all taxing bodies in the long run. - v -

14 Factors Affecting Financial Condition The Mayor, City Council and staff are intent on maintaining the City s strong financial condition, while continuing to provide the highest level of public services to its residents. The City s financial position, as reflected in the financial statements presented in this report, is, perhaps, best understood when it is considered from the broader perspective of the environment within which the City operates. Local Economy The City s revenues increased slightly this year. The City reports state sales tax, utility tax and income tax in the amount of $5.6 million in FY17. The City reported approximately $5.9 million from these sources in FY16, or a 5% decrease from prior year. Since the City reported $6.2 million in FY08 from these taxes, the city s revenues are still $600,000 less than amounts received before the financial crisis. Effective July 1, 2012, the City implemented a 1% home-rule sales tax to provide sufficient revenues to offset other deficient revenues and to maintain service levels and fund capital improvement projects. The City collected approximately $1.2 million in FY17. Water and sewer revenues increased slightly. Gallons sold increased 4 million gallons or.67%. The City is still billing 131 million gallons less in FY17 than in FY09, a 17% reduction resulting from foreclosures, vacancies and bankruptcies. Fortunately, the City has diversified revenue streams, which helped protect it from the sharp economic downturns. The City s major revenue sources include property taxes, sales taxes, state income taxes, and utility taxes. Oak Forest Health Center remains the City s largest employer even though it downsized its operations and reduced its number of employees from 1,500 to 525. The City s 2016 equalized assessed valuation (EAV) is $ 407,974,661, which represents a 4% increase in real estate values as compared to the 2015 equalized assessed valuation. This is the first year that valuations have increased since Total EAV has declined 32% in value since The significant decrease was the result of the decline in market value of residential and commercial property due to the housing market crisis. Surrounding municipalities reported similar declines in EAV. The City s economic base remains stable to produce the revenue resources necessary to fund governmental services at current levels. The City consistently reviews its revenue portfolio to identify any additional revenue resources. Annual Budget Process Prior to May 1, the City adopts a balanced budget in which expenditures are not allowed to exceed reasonably estimated revenues and other available funds at the same time maintaining recommended fund balances. Budget preparation is directed by specific goals and objectives as developed by the Mayor, City Council and departments. As part of the annual budget review process, the City will project fund revenues and expenditures for two years beyond the budget year and compare the projected balances to the fund balance policy. This allows the City to identify potential problems early enough to correct them. A public hearing is conducted prior to approval of the budget. - vi -

15 The City also maintains budgetary control through the use of a purchase order/encumbrance accounting system. Purchase orders are approved prior to being encumbered. Compliance with purchasing policies is consistently monitored. Long-term Financial Planning The City continues to address capital improvement projects by maintaining a rolling five-year capital improvement plan. The plan identifies the City s needs for technology, machinery and equipment, vehicles, building improvements, and infrastructure. The City anticipates spending $4.1 million in capital improvement projects in FY18. The majority of the City s needs are infrastructure related including street resurfacing and water meter replacement. Bond proceeds, shortterm borrowing and home-rule sales tax represent the main funding sources for these projects. Financial Policies The City s comprehensive financial policies provide direction to assure that the City practices sound fiscal management. The financial policies outline procedures for budgeting, revenue, expenditures, reserves, capital improvements, debt, cash, and financial reporting. The City s reserve policies require fund balance to equal 25-35% of expenditures to protect against the need to reduce service levels or raise taxes and fees due to temporary revenue shortfalls or unpredicted, one-time expenditures. The City s current fund balance for the General Fund as of April 30, 2017 is approximately $5.4 million, or 27% of annual expenditures. The increase in fund balance in the amount of $221,000 was attributable to capital projects carried forward to FY 18 in the amount of $481,000. The city s target fund balance is 25% of expenditures, or $5.1 million. Since the City s fund balance exceeds the policy requirement, the City Council does not need to budget to increase the fund balance. The City s budget policies require the City to adopt and maintain a balanced budget in which expenditures will not be allowed to exceed reasonably estimated revenues. The City s revenue policies require that the Water and Sewer Fund be self-supporting. To accomplish this, the City charges a base rate, per meter, in the amount of $15 for single family residence and commercial property and $5 per unit for multi-unit residential buildings in addition to the water consumed in that quarter. In FY17, the base charge generated $553,000 in revenues. The City Council did not increase water and sewer rates this year. It raised rates in May 2017 to offset increases from the City of Chicago and the Village of Oak Lawn. Awards and Acknowledgements The Government Finance Officers Association of the United States and Canada (GFOA) awarded a Certificate of Achievement for Excellence in Financial Reporting to the City of Oak Forest for its Comprehensive Annual Financial Report (CAFR) for the fiscal year ended April 30, vii -

16 This was the eighth consecutive year that the City received this prestigious award. In order to be awarded a Certificate of Achievement, the City must publish an easily readable and efficiently organized CAFR. This report satisfied both generally accepted accounting principles and other applicable requirements. A Certificate of Achievement is valid for a period of one year. We believe that our current CAFR meets the Certificate of Achievement Program requirements and we are submitting it to GFOA to determine its eligibility for certification. The preparation of this report would not have been possible without the efficient and dedicated services of the entire Finance Department staff. Each member of the department is sincerely appreciated for his or her contribution to this report. In addition, without the continued leadership and support of the Mayor, City Council, City Administrator, and department heads, preparation of this report would not have been possible. Respectfully submitted, Colleen M. Julian Finance Director - viii -

17 FINANCIAL SECTION

18 INDEPENDENT AUDITOR S REPORT

19 INDEPENDENT AUDITOR S REPORT The Honorable Mayor Members of the City Council City of Oak Forest, Illinois We have audited the accompanying financial statements of the governmental activities, the businesstype activities, each major fund, and the aggregate remaining fund information of the City of Oak Forest, Illinois (the City) as of and for the year ended April 30, 2017, and the related notes to 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. 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 City 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 City 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

20 Opinions In our opinion, the basic 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 Oak Forest, Illinois as of April 30, 2017, and the respective changes in financial position, and, where applicable, cash flows thereof for the year then ended in accordance with accounting principles generally accepted in the United States of America. Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the management s discussion and analysis and other required supplementary information listed in the table of contents be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management s responses to our inquiries, the basic financial statements and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Other Information Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the City s basic financial statements. The introductory section, combining and individual fund financial statements and schedules, supplemental data, and statistical section as listed in the table of contents are presented for purposes of additional analysis and are not a required part of the basic financial statements. The combining and individual fund financial statements and schedules and the supplemental data 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. The 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 information is fairly stated in all material respects in relation to the basic financial statements as a whole. The introductory and statistical sections have not been subjected to the auditing procedures applied in the audit of the basic financial statements and, accordingly, we do not express an opinion or provide any assurance on them. Naperville, Illinois October 27,

21 GENERAL PURPOSE EXTERNAL FINANCIAL STATEMENTS

22 CITY OF OAK FOREST Management s Discussion and Analysis April 30, 2017 As management of the City of Oak Forest, we offer readers of these financial statements this narrative overview and analysis of the City s financial activities for the fiscal year ended April 30, Since this document focuses on the current year s activities, resulting changes, and currently known facts, it should be read in conjunction with the City s financial statements. Financial Highlights The City s assets and deferred outflows of resources exceeded its liabilities and deferred inflows of resources at April 30, 2017 by $10,361,937. Of this amount, $(32,143,560) is unrestricted. At April 30, 2017, the governmental activities reported net position of $(5,623,627), of which $(29,887,000) was unrestricted. The City implemented GASB Statement No. 68, Accounting and Financial Reporting for Pensions and GASB Statement No. 71, Pension Transition for Contributions Made Subsequent to the Measurement Date during the year ended April 30, 2016, which required the city to recognize an additional $31.6 million in pension liability. The City s net position, excluding the impact of the new accounting standards, would be $42 million. Historically, only the net pension obligation/asset was reported in the financial statements, with the unfunded actuarial accrued liability reported in the notes to the financial statements and required supplementary information. GASB 68 required the City to record the net pension liability on the face of its financial statements, but it is not a new liability and has been previously disclosed. The City is acutely aware of this liability. The City s net position increased by $291,830 during the fiscal year ending April 30, 2017 (FY17). The governmental net position increased by $781,062 and the business-type activities net position decreased by $(489,232). The governmental activities revenue was $25.6 million, an increase of $1.2 million or 5.1%. The expenses were $24.8 million, an increase of $1.4 million or 5.9%. The business-type activities revenue was $7.2 million, an increase of $35,000 or.5%. The expenses were $7.7 million, an increase of $227,000 or 3%. The total cost of all City programs increased by $1.6 million or 5.2%. Overview of the Financial Statements This discussion and analysis are intended to serve as an introduction to the City s basic financial statements, which comprise three components: government-wide financial statements, fund financial statements, and notes to the financial statements. This report also contains additional supplemental data. 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 government-wide financial statements can be found on pages 3-5 of this report. MD&A 1

23 The statement of net position presents information on all of the City s assets and deferred outflows and liabilities and deferred inflows, 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. 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. Government-wide financial statements report functions of the City that are principally supported by taxes and intergovernmental revenues (governmental activities). The City s governmental activities include general government, public safety, highways and streets, and interest on longterm debt. 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 local governments, uses fund accounting to ensure and demonstrate compliance with finance and related legal requirements. All of the City s funds can be divided into three categories: governmental funds, proprietary funds and fiduciary funds. Governmental funds are used to account for essentially the same functions reported as governmental activities in the government-wide financial statements. However, governmental fund financial statements focus on near-term inflows and outflows of spendable resources. They also focus on balances of spendable resources available at the end of the fiscal year. This information is useful in evaluating the City 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 for governmental funds and governmental activities in the government-wide financial statements. Both the governmental fund balance sheet and the governmental fund statement of revenues, expenditures, and changes in fund balances provide a reconciliation to facilitate this comparison. The City maintains 16 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, the Motor Fuel Tax Fund, TIF III Capital Projects Fund and 2008 TIF Project Fund, all of which are considered to be major funds. Data from the other governmental funds are combined into a single, aggregated presentation. Individual fund data for each of these non-major governmental funds is provided in the form of combining statements in this report. MD&A 2

24 Proprietary Funds Proprietary funds provide the same type of information as the government-wide financial statements, only in more detail. The City business-type activities include Waterworks and Sewerage, and Commuter Parking Lot. These functions are intended to recover all or a significant portion of their costs through user fees and charges. The basic proprietary fund financial statements can be found on pages 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 programs. The accounting used for fiduciary funds is similar to that used for proprietary funds. The fiduciary funds utilized by the City are the Firefighters and Police Pension Trust Funds. The basic fiduciary fund financial statements can be found on pages 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 of this report. Other Information In addition to the basic financial statements and accompanying notes, this report also presents certain required supplementary information concerning funding progress for the City s Illinois Municipal Retirement Fund (IMRF) and Police and Firefighters employee pension obligations. Required supplementary information can be found on pages of this report. The combining statements referred to earlier in connection with non-major governmental funds are presented immediately following the required supplementary information. Combining and individual fund statements and schedules can be found on pages of this report. Government-wide Financial Analysis As stated earlier, net position may serve over time as a useful indicator of a government s financial position. The largest part of the City s net position reflects its investment in capital assets (land, buildings, infrastructure, equipment, and vehicles) less any related debt used to acquire those assets that is still outstanding. 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. MD&A 3

25 Following is a statement of net position: Governmental Business-type Activities Activities Total Current and other assets $ 12,963,955 $ 12,852,310 $ 4,104,399 $ 5,900,443 $ 17,068,354 $ 18,752,753 Capital assets 37,589,029 36,090,876 28,007,70 27,891,069 65,596,736 63,981,945 Total Assets 50,552,984 48,943,186 32,112,106 33,791,512 82,665,090 82,734,698 Pension items 3,519,753 3,787, , ,429 3,893,242 4,234,010 Unamortized loss on refunding 809, , , ,378 1,255, ,037 Total deferred outflows of resources 4,329,726 4,322, , ,807 5,148,785 5,031,047 Total Assets and Deferred Outflows $ 54,882,710 $ 53,265,426 $ 32,931,165 $ 34,500,319 $ 87,813,875 $ 87,765,745 Long-term liabilities 51,863,220 51,692,532 15,899,150 16,795,851 67,762,370 68,488,383 Other liabilities 1,237,114 1,100, ,583 1,229,672 2,125,697 2,330,243 Total liabilities 53,100,334 52,793,103 16,787,733 18,025,523 69,888,06 70,818,626 Pension items 2,243,506 1,732, ,868-2,401,374 1,732,327 Unavailable property taxes 5,162,497 5,144, ,162,497 5,144,685 Total deferred inflows of resources 7,406,003 6,877, ,868-7,563,871 6,877,012 Net Position: Net investment in capital assets 22,757,754 21,449,842 18,242,124 17,796,487 40,999,878 39,246,329 Restricted 1,505,619 1,711, ,505,619 1,711,465 Unrestricted (29,887,000) (29,565,996) (2,256,560) (1,321,691) (32,143,560) (30,887,687) Total net position (5,623,627) (6,404,689) 15,985,564 16,474,796 10,361,937 10,070,107 Total Liabilities, Deferred Inflows and Net Position $ 54,882,710 $ 53,265,426 $ 32,931,165 $ 34,500,319 $ 87,813,875 $ 87,765,745 MD&A 4

26 The City s combined net positions increased $292,000 to $10.4 million during FY17. Following is a statement of changes in net position: Governmental Business-type Activities Activities Total Revenues: Program Revenues: Charges for Services $ 3,774,398 $ 3,726,502 $ 7,229,458 $ 7,135,458 $ 11,010,831 $ 10,861,960 Operating Grants and Contributions 1,173, ,709 6,975-1,173, ,709 Capital Grants and Contributions 141,335 34, ,335 34,566 General Revenues: Property Tax 11,019,032 10,273, ,019,032 10,273,572 Income Tax 2,643,103 2,979, ,643,103 2,979,979 State Sales and Use Tax 3,806,607 3,914, ,806,607 3,914,637 Other Taxes 2,278,180 2,112, ,278,180 2,112,470 Investment Income 9,142 10,260 4,147 6,662 13,289 16,922 Other 747, ,957 34,423 25, , ,487 Total Revenues and Transfers 25,593,012 24,356,652 7,275,003 7,167,650 32,868,015 31,524,302 Expenses: Public Safety 16,634,213 15,742, ,634,213 15,742,483 Highways & Streets 3,462,891 3,400, ,462,891 3,400,314 General Government 4,008,685 3,634, ,008,685 3,634,869 Water - - 7,454,679 7,182,367 7,454,679 7,182,367 Commuter Parking Lot , , , ,791 Interest on LT Debt 706, , , ,019 Total Expenses 24,811,950 23,427,685 7,764,235 7,465,158 32,576,185 30,892,843 Excess (deficiency) before transfers 781, ,967 (489,232) (297,508) 291, ,459 Change in Net Position 781, ,967 (489,232) (297,508) 291, ,459 Net Position, May 1 (6,404,689) 22,078,319 16,474,796 17,387,570 10,070,107 39,465,889 Change in accounting principle - (29,411,975) - (615,266) - (30,027,241) Net Position, May 1 Restated (6,404,689) (7,333,656) 16,474,796 16,772,304 10,070,107 9,438,648 Net Position, April 30 $ (5,623,627) $ (6,404,689) $ 15,985,564 $ 16,474,796 $ 10,361,937 $ 10,070,107 Net position from governmental activities increased $781,062 and net position from business-type activities decreased $(489,232). MD&A 5

27 Property taxes, which represent 34% of the revenue for the City s activities, increased 7.3% or $745,000 from FY16. Total property taxes received for FY17 were $11 million. The City received $3.8 million in sales and use tax for FY17. This represents a decrease of $108,000 or 2.8% from last year. State income tax revenues decreased $337,000 in FY17 to $2.6 million, a decrease of 11.3%. Revenues for the City are generated from a number of sources and, for the most part, are dependent on different financial factors. This relative mix of revenue sources, as illustrated in the chart below, provides long-term stability. CITY OF OAK FORST REVENUE BY SOURCES FOR THE YEAR ENDED APRIL 30, 2017 GRANTS & CONTRIBUTIONS 4% INTEREST REVENUE 0% OTHER 2% PROPERTY TAXES 34% OTHER TAXES 27% CHARGES FOR SERVICES 33% MD&A 6

28 The chart below illustrates the breakdown of program costs for governmental activities. CITY OF OAK FOREST EXPENDITURE BY PROGRAM - GOVT ACTIVITIES FOR THE YEAR ENDED APRIL 30, 2017 HIGHWAY & STREETS 14% INTEREST ON DEBT 3% GENERAL GOVT 16% PUBLIC SAFETY 67% Financial Analysis of the City s Funds As noted earlier, the City uses fund accounting to ensure and demonstrate compliance with financerelated legal requirements. The focus of the City s governmental funds is to provide information on near-term inflows, outflows and balances of spendable resources. Such information is useful in assessing financing requirements. Unrestricted fund balance may serve as a useful measure of a government s net resources available for spending at the end of the fiscal year. The City s governmental funds reported combined ending fund balances of $2,259,476, ($(1,766,047) is unrestricted). The general fund is the primary operating fund of the City. During the year, fund balance increased in the general fund by $221,360. The ending fund balance is $5,427,067 at April 30, This is approximately 26.5% of the General Fund s annual operating expenditures. The increase to fund balance in FY17 is directly attributable to capital projects carried forward to FY18 in the amount of $481,000. Other major governmental funds include Motor Fuel Tax Fund, TIF III Capital Projects Fund and 2008 TIF Project Fund. These funds are reported separately in the governmental fund balance sheet and in the governmental fund statement of revenues, expenditures, and changes in fund balances on pages 6-7 and MD&A 7

29 The Motor Fuel Tax Fund reports an increase to fund balance in the amount of $642,269 and ending fund balance in the amount of $(43,520). The City spent approximately $767,000 on its routine annual street resurfacing program in FY17. In previous years, the City s management chose to accelerate the road program to achieve economies of scale and address deteriorating streets. This resulted in a negative fund balance. The General Fund will pay the MFT fund $695,500 over the next two years to increase fund balance. The TIF III Project Fund reports an increase to fund balance in the amount of $1,315,700 and ending fund balance in the amount of $(1,579,768). TIF III Project Fund property tax revenues decreased from $371,107 in FY16 to $349,789 in FY17, a difference of $21,318 or 5.7%. TIF III reported property tax revenue of $893,638 in FY10. TIF III property tax revenues in FY 17 are still more than $500,000 less than the increment received before the financial crisis. In addition to the housing market crisis, another reason that the revenue has declined so dramatically is because Cook County decreased the property values used to calculate property tax revenue. However, the base values used to calculate tax increment financing revenue was not decreased. As a result, many properties fell below the base and therefore did not generate incremental property tax revenue. The City evaluated solutions, including extending the duration of the TIF III District or refunding the debt service. In FY 17, The TIF III extension was approved and the bonds were refunded. TIF III also plans to borrow from contiguous TIF districts and the General Fund until revenues increase from future development. The long-term projections in TIF III are positive. The 2008 TIF Project Fund reports a decrease to fund balance in the amount of $ (1,104,478) and ending fund balance in the amount of $0. This fund was used to account for the restricted proceeds of the 2008B and 2009B General Obligation Bond Series. The fund was closed in FY17 because the bond proceeds were spent on the mixed-use development on 159th and Cicero Avenue. Proprietary Funds The City operates two proprietary funds including Waterworks and Sewerage and Commuter Parking Lot. These functions are intended to recover all or a significant portion of their costs through user fees and charges. Unrestricted net position for business-type activities was $(2,256,560) at April 30, 2017, a decrease of $935,000. The Commuter Parking Lot reports unrestricted net position of $ (215,773) contributing to the deficit net position for business-type activities. Commuter parking lot revenues were $207,000 for FY 17, which is $27,000 less than budgeted revenues. Revenues are less than anticipated because there are fewer commuters due to unemployment and competition from neighboring lots. City Council will address the negative net position by increasing daily rates. The Water and Sewer fund reports unrestricted net position of $ (2,040,787). Water and sewer revenues increased slightly because gallons sold increased.67%. Negative net position is also reflective of the decrease of 131 million gallons of water and sewer billed in FY17 compared to FY 09 pre-recession sales data. This is a 17% reduction, resulting from foreclosures, vacancies and bankruptcies. MD&A 8

30 Additionally, the City of Oak Forest billed 634 million gallons, or 90%, of the 707 million gallons purchased, mainly due to losses from leakage and inaccurate meters. Therefore, the City pays $310,000 for 73 million gallons of water that it doesn t sell. The City replaced all water meters to properly bill unrecorded usage and implemented a leak detection program. As a result, losses have decreased approximately 57 million gallons, or a $248,000 savings, in the second year of the program. The City has been proactive in addressing the negative position. The decreased usage meant that the City s charges for water and sewer were insufficient for the fund to be self-supporting. Effective December 1, 2010, the City Council approved a base rate, per meter, in the amount of $15 for single-family residence and commercial property and $5 per unit for multi-unit residential buildings in addition to the water consumed in that quarter. The base rate was expected to generate annual revenues exceeding $500,000, which should create enough revenue to adequately support expenditures. In FY17, the base charge generated $553,000 in revenues. Ordinarily, the City Council approves an annual water and sewer rate increase. However, the City Council did not increase water and sewer rates this fiscal year. It raised rates in May 2017 to offset increases from the City of Chicago and the Village of Oak Lawn. Budgetary Highlights Budgetary Comparison Schedule Original Amended General Fund: Budget Budget Actual Revenues: Taxes $ 14,151,984 $ 14,151,984 $ 14,226,206 Intergovernmental 3,586,231 3,586,231 3,852,764 Other 3,326,956 3,326,956 3,470,163 Total 21,065,171 21,065,171 21,549,133 Expenditures: Expenditures 20,527,181 20,527,181 20,475,373 Total 20,527,181 20,527,181 20,475,373 Other Financing Sources (Uses) Sale of Capital Assets 3,000 3,000 2,100 Transfers In 559, ,200 - Transfers Out (854,500) (854,500) (854,500) Total Other Financing Sources (Uses) (292,300) (292,300) (852,400) Change in Fund Balance $ 245,690 $ 245,690 $ 221,360 MD&A 9

31 The General Fund reports a surplus of $221,000 at April 30, The budget projected a surplus of $246,000, so there is a negative budget variance of $25,000. Contributing factors to the final results are as follows. General Fund revenue was $483,000 higher than expected, mainly due to grants. See revenue budget variances below. Property Tax 225,000 Hotel Tax 176,000 Grants 462,000 State Income Tax (209,000) Utility and Telecom Taxes (218,000) Capital projects totaling $481,000 were carried forward to the next fiscal year. Capital Asset Administration Governmental Activities Change in Capital Assets Net Balance Additions/ Balance May 1, 2016 Deletions April 30, 2017 Non-Depreciable Assets: Land $ 3,693,799 $ 1,847,981 $ 5,541,780 Construction in Progress 859,697 (633,375) 226,322 Other Capital Assets: Infrastructure 32,666,981 1,228,979 33,895,960 Buildings 10,199,770 57,549 10,257,319 Equipment 2,487,314 57,077 2,544,391 Vehicles 5,073, ,746 5,174,668 Accum. Depreciation on Capital Assets (18,890,607) (1,160,804) (20,051,411) Totals Governmental $ 36,090,876 $ 1,498,153 $ 37,589,029 MD&A 10

32 Business-Type Activities Change in Capital Assets Net Balance Additions/ Balance May 1, 2016 Deletions April 30, 2017 Non-Depreciable Assets: Land $ 1,308,296 $ - $ 1,308,296 Construction in Progress 5,809,693 (5,100,332) 709,361 Other Capital Assets: Infrastructure 22,436,983-22,436,983 Parking Lot 2,443,850-2,443,850 Buildings 3,559,819-3,559,819 Equipment 9,568,486 6,121,366 15,689,852 Vehicles 1,167,390-1,167,390 Accum. Depreciation on Capital Assets (18,403,448) (904,396) (19,307,844) Total Business-Type 27,891,069 $ 116,638 $ 28,007,707 GRAND TOTAL $ 63,981,945 $ 1,614,791 $ 65,596,736 The City s investment in capital assets includes land, buildings, infrastructure, equipment, and vehicles. The investment in capital assets as of April 30, 2017 was $65.6 million (net of accumulated depreciation). This year, approximately 1.4 linear miles of streets were resurfaced, including Long Avenue from 147th Street to 149 th Street and Jessica Drive from Central Avenue to Lockwood Avenue. The total cost of the road program was approximately $767,000. In FY17, the City also completed a citywide water meter replacement program. The total anticipated cost is $6.4 million. Additional information on the City s capital assets can be found on pages of this report. Debt Administration The City had total outstanding bonded debt of $28,830,000 at April 30, This entire amount is backed by the full faith and credit of the City. During the year, $1,370,000 of bonds were retired. The City issued $6,245,000 General Obligation Refunding Bonds Series 2016A to advance refund a portion of the General Obligation Bonds, Series 2008B in the amount of $6,030,000. The City also issued $3,195,000 General Obligation Refunding Bonds, Series 2016B to advance refund a portion of the General Obligation Bonds, Series 2008A in the amount of $3,105,000. The City had a balance on its line of credits in the amount of $ 3,923,809 at April 30, These amounts were used for purchasing property for redevelopment and for short-term liquidity needs. MD&A 11

33 The City s financial condition was reviewed by S&P in FY17 in connection with the issuance of General Obligation Refunding Bonds, Series 2016A and General Obligation Refunding Bonds, Series 2016B. S&P maintained the City s credit at AA-. S&P noted the following in its report: Adequate economy, with projected per capita effective buying income at 101.6% and market value per capita of $42,796, that is gaining advantage from access to a broad and diverse metropolitan statistical area (MSA); Adequate management, with "standard" financial policies and practices under our Financial Management Assessment (FMA) methodology; Adequate budgetary performance, with an operating surplus in the general fund but an operating deficit at the total governmental fund level in fiscal 2016; Very strong budgetary flexibility, with an available fund balance in fiscal 2016 of 21% of operating expenditures; Very strong liquidity, with total government available cash of 12.1% of total governmental fund expenditures and 127.4% of governmental debt service, and access to external liquidity we consider strong; Adequate debt and contingent liability position, with debt service carrying charges of 9.5% of expenditures and net direct debt that is 111.9% of total governmental fund revenue, and a large pension and other postemployment benefit (OPEB) obligation and the lack of a plan to sufficiently address the obligation, but rapid amortization with 70.8% of debt scheduled to be retired in 10 years; and Strong institutional framework score. Moody s affirmed the City s bond rating of Aa3 in FY17. The report cited the City's moderately sized tax base; above average resident income indices; satisfactory financial profile despite somewhat limited operating fund liquidity and elevated debt and pension liabilities as rationale for the rating. Additional information on the City s long-term debt can be found on pages of this report. Economic Factors The pension funds reported an increase of $3,884,273 in FY17. The investment returns for the police and fire pension funds were 7.5% and 9.7%, respectively. The actuarial assumption for investment returns is 7%. So, the police and fire pension fund investment returns were more than assumed. Performances higher than the actuarial assumption could ultimately benefit the City because higher investment returns decrease the contributions owed by the City. Conversely, lower investment returns will increase contributions owed by the City. The City s sales tax, utility tax and income tax increased to $5.6 million, or a decrease of 5.3%, in FY17. The City reported $6.2 million in FY 08 from these taxes, so these revenues are still $600,000 lower than pre-recession amounts. Effective July 1, 2012, the City implemented a 1% home rule sales tax to provide sufficient revenues to offset other deficient revenues. The City collected approximately $1.2 million in FY17, which is mainly used to fund the capital purchases. MD&A 12