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3 ANNUAL FINANCIAL REPORT of the For the Year Ended

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5 TABLE OF CONTENTS FINANCIAL SECTION Independent Auditor s Report 1 Management s Discussion and Analysis 7 Basic Financial Statements Government Wide Financial Statements Statement of Net Position 18 Statement of Activities 20 Fund Financial Statements Governmental Funds: Balance Sheet 22 Reconciliation of the Balance Sheet to the Statement of Net Position Governmental funds 25 Statement of Revenues, Expenditures, and Changes in Fund Balance Governmental Funds 26 Reconciliation of the Statement of Revenues, Expenditures, and Changes in Fund Balances of Governmental Funds to the Statement of Activities 29 Proprietary Funds: Statement of Net Position 30 Statement of Revenues, Expenses, and Changes in Fund Net Position 33 Statement of Cash Flows 34 Fiduciary Funds: Statement of Fiduciary Net Position 36 Notes to Financial Statements 37 REQUIRED SUPPLEMENTARY INFORMATION Schedule of Revenues, Expenditures, and Changes in Fund Balances Budget and Actual General Fund 75 Schedule of Revenues, Expenditures, and Changes in Fund Balances Budget and Actual Garbage Fund 76 Schedule of Changes in Net Pension Liability and Related Ratios Texas Municipal Retirement System 77 Schedule of Employer Contributions to Pension Plan Texas Municipal Retirement System 78

6 TABLE OF CONTENTS Schedule of Changes in Net Pension Liability and Related Ratios Texas Emergency Services Retirement System 79 Schedule of Employer Contributions to Pension Plan Texas Emergency Services Retirement System 80 OTHER SUPPLEMENTARY INFORMATION Schedule of Revenues, Expenditures, and Changes in Fund Balances Budget and Actual Debt Service Fund 83 COMBINING AND INDIVIDUAL FUND STATEMENTS Combining Balance Sheet Nonmajor Governmental Funds 86 Combining Statement of Revenues, Expenditures, and Changes in Fund Balance Nonmajor Governmental Funds 88

7 To the Honorable Mayor and Members of the City Council : Report on the Financial Statements INDEPENDENT AUDITOR S REPORT We have audited the accompanying financial statements of the governmental activities, the business type activities, each major fund, and the aggregate remaining fund information of the (the City ), 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 The City s management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor s Responsibility Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the 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 Heathrow Forest Pkwy Suite 530 Houston, TX Tel: Fax:

8 We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, the business type activities, each major fund, and the aggregate remaining fund information of the City as of, 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. Emphasis of Matter Correction of Errors As discussed in Note V.E. to the financial statements, beginning fund balance and net position has been restated to reflect corrections of accounting errors in the 2016 financial statements. Our opinion is not modified with respect to this matter. Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the management s discussion and analysis, pension information and budgetary comparison information 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. 2

9 Other Supplementary 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 accompanying supplementary information, such as the combining statements are presented for purposes of additional analysis and are not a required part of the basic financial statements. The other supplementary information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the combining statements are fairly stated, in all material respects, in relation to the basic financial statements as a whole. BrooksWatson & Co., PLLC Certified Public Accountants Houston, Texas April 5,

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11 MANAGEMENT S DISCUSSION AND ANALYSIS 5

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13 MANAGEMENT S DISCUSSION AND ANALYSIS (MD&A) As management of the (the City ), we offer readers of the City s financial statements this narrative overview and analysis of the financial activities of the City for the fiscal year ended. Financial Highlights The Cityʹs total combined net position was $9,112,757 at. Of this, $292,685 (unrestricted net position) may be used to meet the City s ongoing obligations to its citizens and creditors. At the close of the current fiscal year, the City s governmental funds reported combined fund balances of $1,073,873, an increase of $279,007. As of the end of the year, the unassigned fund balance of the general fund was $586,967 or 20% of total general fund expenditures. The City had an overall decrease in net position of $300,212, which is primarily due to depreciation and an increase in the City s net pension liability. The City closed the year with a net pension liability of $1,866,958. Overview of the Financial Statements The discussion and analysis provided here are intended to serve as an introduction to the City s basic financial statements. The City s basic financial statements consist of three components: 1) governmentwide financial statements, 2) fund financial statements, and 3) the notes to financial statements. This report also includes supplementary information intended to furnish additional detail to support the basic financial statements themselves. Government Wide Statements The government wide statements are designed to provide readers with a broad overview of the City s finances, in a manner similar to a private sector business. The statement of net position presents financial information on all of the City s assets, liabilities, and deferred inflows/outflows of resources, with the difference reported as net position. Over time, increases or decreases in net position may serve as a useful indicator of whether the financial position of the City is improving or deteriorating. The statement of activities presents information showing how the City 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 7

14 MANAGEMENT S DISCUSSION AND ANALYSIS, Continued reported for some items that will only result in cash flows in future fiscal periods (e.g., uncollected taxes and earned but unused vacation leave). Both of the government wide financial statements distinguish functions of the City that are principally supported by taxes and intergovernmental revenues (governmental activities) from other functions that are intended to recover all or a significant portion of their costs through user fees and charges (businesstype activities). The governmental activities of the City include general government, public safety, community development, and public works. The business type activities of the City include a water and sewer operations. Fund Financial Statements. A fund is a grouping of related accounts that is used to maintain control over resources that have been segregated for specific activities or objectives. The City, like other state and local governments, uses fund accounting to ensure and demonstrate compliance with financerelated legal requirements. All of the funds of the City can be divided into three categories: governmental funds, proprietary funds, and fiduciary funds. Governmental Funds. Governmental funds are used to account for essentially the same functions reported as governmental activities in the government wide financial statements. However, unlike the government wide financial statements, governmental fund financial statements focus on near term inflows and outflows of spendable resources, as well as on balances of spendable resources available at the end of the year. Such information may be 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 presented for governmental funds with similar information presented for governmental activities in the government wide financial statements. By doing so, readers may better understand the long term impact of the government s near term financing decisions. Both the governmental fund balance sheet and the governmental fund statement of revenues, expenditures, and changes in fund balances provide a reconciliation to facilitate this comparison between governmental funds and governmental activities. The maintains ten 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 and garbage funds, which are considered to be major funds. The debt service fund is considered nonmajor, but the City has chosen to present the fund as a major fund. Fund data for the remaining nonmajor governmental funds is provided in the form of combining statements in the combining and individual fund statements and schedules section of this report. The adopts an annual appropriated budget for its general, garbage, debt service and utility funds. A budgetary comparison schedule has been provided to demonstrate compliance with general, garbage and debt service fund budgets. 8

15 MANAGEMENT S DISCUSSION AND ANALYSIS, Continued Proprietary Funds. The City maintains two different types of proprietary funds. Enterprise funds are used to report the same functions presented as business type activities in the government wide financial statements. The City uses enterprise funds to account for its water distribution, wastewater collection/treatment and water construction operations. The proprietary fund financial statements provide separate information for the water distribution, and wastewater collection/treatment fund. The basic proprietary fund financial statements can be found in the basic financial statements of this report. Internal service funds are an accounting device used to accumulate and allocate costs internally among the City s various functions. The City uses internal service funds to account for the maintenance and purchase of equipment. Notes to Financial Statements. The notes to the financial statements provide additional information that is necessary to a full understanding of the data provided in the government wide and fund financial statements. The notes are the last section of the basic financial statements. Other Information. In addition to the basic financial statements and accompanying notes, this report also presents certain required supplementary information (RSI) concerning the City s progress in funding its obligation to provide pension and other post employment benefits to its employees. Government Wide Financial Analysis As noted previously, net position over time, may serve as a useful indicator of the City s financial position. For the, assets exceed liabilities by $9,112,757 as of. The largest portion of the City s net position, $8,348,701, reflects its investments in capital assets (e.g., land, city hall, police station, streets, and drainage systems, as well as the public works facilities), less any debt used to acquire those assets that are 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 assets themselves cannot be used to liquidate these liabilities. 9

16 Statement of Net Position: MANAGEMENT S DISCUSSION AND ANALYSIS, Continued The following table reflects the condensed Statement of Net Position: Governmental Business Type Governmental Business Type Activities Activities Total Activities Activities Total Current and other assets $ 1,747,002 $ 1,695,906 $ 3,442,908 $ 1,533,516 $ 1,735,199 $ 3,268,715 Capital assets, net 5,631,458 8,960,985 14,592,443 6,051,699 9,706,155 15,757,854 Total Assets 7,378,460 10,656,891 18,035,351 7,585,215 11,441,354 19,026,569 Deferred Ouflows of Resources 437, , , , , ,997 Other liabilities 691, ,722 1,372, , ,886 1,511,132 Long term liabilities 4,186,012 3,989,150 8,175,162 4,328,260 4,520,106 8,848,366 Total Liabilities 4,877,029 4,670,872 9,547,901 5,073,506 5,285,992 10,359,498 Deferred Inflows of Resources 1, ,099 Ne t Position: Ne t investment in capital assets 3,336,325 5,012,376 8,348,701 3,595,821 5,166,857 8,762,678 Restricted 471, , , ,001 Unrestricted (868,896) 1,161, ,685 (982,928) 1,210, ,290 Total Net Position $ 2,938,800 $ 6,173,957 $ 9,112,757 $ 3,035,894 $ 6,377,075 $ 9,412,969 10

17 Statement of Activities: MANAGEMENT S DISCUSSION AND ANALYSIS, Continued The following table provides a summary of the City s changes in net position: For the Year Ended For the Year Ended September 30, 2016 Total Total Governmental Business Type Primary Governmental Business Type Primary Activities Activities Government Activities Activities Government Revenues Program revenues: Charges for services $ 1,659,828 $ 2,613,662 $ 4,273,490 $ 1,654,212 $ 2,582,198 $ 4,236,410 Grants and contributions 230,466 50, , , , ,037 General revenues: Property tax 1,169,069 1,169,069 1,154,114 1,154,114 Sales tax 673, , , ,443 Franchise and local taxes 412, , , ,526 Intergovermental revenue 50,000 50,000 Other taxes 68,779 68,779 66,059 66,059 Investment income 6, ,320 2,328 2,328 Other revenues 47,109 47,109 17, ,658 Total Revenues 4,317,535 2,665,013 6,982,548 4,324,216 2,684,359 7,008,575 Expenses General government 494, , , ,841 Municipal court 73,589 73,589 84,448 84,448 Public safety 1,721,725 1,721,725 1,739,186 1,739,186 Public works 1,448,271 1,448,271 1,644,423 1,644,423 Cultural and recreation 582, , , ,828 Interest and fiscal charges 81, , ,167 84, , ,743 Water & sewer 1,988,874 1,988,874 1,971,501 1,971,501 Golf course 743, , , ,654 Total Expenses 4,402,115 2,880,645 7,282,760 4,674,464 2,972,160 7,646,624 Change in Net Position Before Transfers (84,580) (215,632) (300,212) (350,248) (287,801) (638,049) Transfers in (out) (12,514) 12,514 (118,767) 118,767 Total (12,514) 12,514 (118,767) 118,767 Change in Net Position (97,094) (203,118) (300,212) (469,015) (169,034) (638,049) Beginning Ne t Position 3,035,894 6,377,075 9,412,969 3,504,909 6,546,109 10,051,018 Ending Net Position $ 2,938,800 $ 6,173,957 $ 9,112,757 $ 3,035,894 $ 6,377,075 $ 9,412,969 11

18 MANAGEMENT S DISCUSSION AND ANALYSIS, Continued Graphic presentations of selected data from the summary tables are displayed below to assist in the analysis of the City s activities. For the year ended, revenues from governmental activities totaled $4,317,535, a decrease of $6,681. Charges for services, property tax, sales tax and franchise taxes were the City s largest revenue sources. Franchise and local taxes decreased $56,040 or 14% as a result of a reduction in electric franchise taxes caused by the closure of a local plant. Sales tax increased $108,886 or 16%, primarily as a result of a local sales tax audit performed by the state comptroller s office identifying sales taxes that belonged to the City. Grants and contributions decreased by $166,071 or 59% as a greater amount of nonrecurring grants were received in the prior year. 12

19 MANAGEMENT S DISCUSSION AND ANALYSIS, Continued This graph shows the governmental function expenses of the City: For the year ended, expenses for governmental activities totaled $4,402,115. This represents a decrease of $272,349 or 3% from the prior year. Public safety and public works are the City s largest functional expenses of $1,721,725 and $1,448,271, respectively. General government expenses decreased by $91,364 or 18% compared to the previous year predominantly due to employee turnover and reduced salaries, as well as legal service expenses. Public works expenses decreased by $196,152 or 14% due primarily to decreased personnel expenses. All other expenditures remained relatively consistent with the previous year. 13

20 MANAGEMENT S DISCUSSION AND ANALYSIS, Continued Business type activities are shown comparing operating costs to revenues generated by related services. For the year ended, charges for services by business type activities totaled $2,613,662. This is an increase of $31,464 or 1% from the previous year as a result of increased water and sewer consumption. Water and sewer expenses increased by $17,373, which is consistent with the prior year. The golf course fund expenses decreased by $95,213 or 11% compared to last year primarily due to decreased chemical supplies expenses. FINANCIAL ANALYSIS OF THE CITY S FUNDS As noted earlier, fund accounting is used to demonstrate and ensure compliance with finance related legal requirements. Governmental Funds The focus of the City s governmental funds is to provide information of nearterm inflows, outflows and balances of spendable resources. Such information is useful in assessing the City s financing requirements. In particular, unreserved fund balance may serve as a useful measure of the City s net resources available for spending at the end of the year. As of the end of the year the general fund reflected a total fund balance of $602,502. The general fund increase in fund balance of $230,637 is primarily due to revenues exceeding expenditures and transfers received from other funds such as the water and sewer fund and non major funds. There was an increase in governmental fund balance of $279,007 over the prior year. The increase is directly related to transfers from other funds and actual expenditures being less than budgeted expenditures. 14

21 MANAGEMENT S DISCUSSION AND ANALYSIS, Continued Proprietary Funds The City s proprietary funds provide the same type of information found in the government wide financial statements, but in more detail. GENERAL FUND BUDGETARY HIGHLIGHTS There was a total positive budget variance of $228,580 in the general fund. All revenue sources received more revenue than anticipated with the exception of property tax and franchise and local taxes. Expenditures for public safety, cultural and recreation, and capital outlay exceeded that which was budgeted. There were no supplemental budget appropriations made during the year. CAPITAL ASSETS As of the end of the year, the City s governmental activities funds had invested $5,631,458 in a variety of capital assets and infrastructure, net of accumulated depreciation. Depreciation is included with the governmental capital assets as required by GASB Statement No. 34. The City s business type activities funds had invested $8,960,985 in a variety of capital assets and infrastructure, net of accumulated depreciation. Major capital asset events during the current year include the following: The purchase of two police department vehicles for $50,000. New RMS server and license for $39,167. Down payment for new sewer generator of $55,930. Investment in utility system equipment totaling $54,598. More detailed information about the City s capital assets is presented in note V. C to the financial statements. LONG TERM DEBT At the end of the current year, the City had total bonds outstanding of $5,960,000 and capital leases amounting to $274,403. During the year, the City had a net reduction in the long term debt of $737,326. More detailed information about the City s long term liabilities is presented in note V. D to the financial statements. ECONOMIC FACTORS AND NEXT YEAR S BUDGET The Mayor and City Council strive to present a fiscally responsible budget while continuing to provide quality service to their community, in addition to increasing tourism and the use of the City s exceptional public facilities. 15

22 MANAGEMENT S DISCUSSION AND ANALYSIS, Continued CONTACTING THE CITY S FINANCIAL MANAGEMENT This financial report is designed to provide a general overview of the s finances for all those with an interest in the City s finances. Questions concerning this report or requests for additional financial information should be directed to the City Administrator, 400 Kenley St., Diboll, Texas

23 FINANCIAL STATEMENTS 17

24 STATEMENT OF NET POSITION (Pages 1 of 2) Primary Government Governmental Business Type Activities Activities Total Assets Current assets: Cash and cash equivalents $ 1,002,351 $ 1,348,823 $ 2,351,174 Restricted cash 108, ,009 Receivables, net 563, , ,314 Land held for sale 120, ,960 Due from agency fund 17,484 17,484 Internal balances 27,250 (27,250) Prepaids 15,535 5,432 20,967 Total Current Assets 1,747,002 1,695,906 3,442,908 Capital assets: Non depreciable 32, , ,817 Net depreciable capital assets 5,599,458 8,690,168 14,289,626 5,631,458 8,960,985 14,592,443 Total Assets 7,378,460 10,656,891 18,035,351 Deferred Outflows of Resources Pension contributions 137,070 60, ,326 Pension investment earnings 266, , ,707 Pension losses on investments 31,496 10,534 42,030 Changes in pension proportion 2,244 2,244 Total Deferred Outflows of Resources 437, , ,307 See Notes to Financial Statements. 18

25 STATEMENT OF NET POSITION (Pages 1 of 2) Primary Government Governmental Business Type Activities Activities Total Liabilities Current liabilities: Accounts payable and accrued liabilities 466,491 59, ,336 Accrued interest payable 9,039 14,035 23,074 Customer deposits 6,095 91,109 97,204 Compensated absences 24,179 24,179 Current maturities of long term debt 185, , , , ,722 1,372,739 Noncurrent liabilities: Debt due in more than one year 2,865,141 3,431,878 6,297,019 Compensated absences 2,687 8,498 11,185 Net pension liability 1,318, ,774 1,866,958 Total Liabilities 4,877,029 4,670,872 9,547,901 Net Position Net investment in capital assets 3,336,325 5,012,376 8,348,701 Restricted for: Debt service 167, ,380 Special revenue 303, ,991 Unrestricted (868,896) 1,161, ,685 Total Net Position $ 2,938,800 $ 6,173,957 $ 9,112,757 See Notes to Financial Statements. 19

26 STATEMENT OF ACTIVITIES For the Year Ended Program Revenues Operating Charges for Grants and Functions/Programs Expenses Services Contributions Primary Government Governmental Activities General government $ 494,477 $ 954,365 $ 41,475 Municipal court 73, ,383 Public safety 1,721,725 Public works 1,448,271 Cultural and recreation 582,216 31, ,991 Interest and fiscal charges 81,837 Total Governmental Activities 4,402,115 1,659, ,466 Business Type Activities Water & Sewer 2,137,204 2,244,228 Golf Course 743, ,434 50,500 Total Business Type Activities 2,880,645 2,613,662 50,500 Total Primary Government $ 7,282,760 $ 4,273,490 $ 280,966 General Revenues: Taxes Property tax Sales tax Franchise and local taxes Intergovernmental revenue Other taxes Investment income Other revenues Transfers: Total General Revenues and Transfers Change in Net Position See Notes to Financial Statements. Beginning Net Position Ending Net Position 20

27 Net (Expense) Revenue and Changes in Net Position Primary Government Governmental Activities Business Type Activities Total $ 501,363 $ $ 501, , ,794 (1,721,725) (1,721,725) (1,448,271) (1,448,271) (362,145) (362,145) (81,837) (81,837) (2,511,821) (2,511,821) 107, ,024 (323,507) (323,507) (216,483) (216,483) (2,511,821) (216,483) (2,728,304) 1,169,069 1,169, , , , ,486 50,000 50,000 68,779 68,779 6, ,320 47,109 47,109 (12,514) 12,514 2,414,727 13,365 2,428,092 (97,094) (203,118) (300,212) 3,035,894 6,377,075 9,412,969 $ 2,938,800 $ 6,173,957 $ 9,112,757 21

28 BALANCE SHEET GOVERNMENTAL FUNDS Nonmajor General Garbage Debt Service Governmental Fund Fund Fund Funds Assets Cash and cash equivalents $ 567,470 $ $ 167,380 $ 253,241 Receivables, net 421, ,069 16,760 Prepaid expenses 15,535 Land held for sale 120,960 Due from trust fund 17,484 Due from other funds 34,144 6, Total Assets $ 1,177,186 $ 131,322 $ 184,140 $ 254,173 Liabilities Accounts payable $ 277,487 $ 67,075 $ $ 1,282 Accrued liabilities 120,647 Due to other funds ,147 Customer deposits 6,095 Total Liabilities 405,161 80,222 1,282 Deferred Inflows of Resources Unavailable revenue court fines 85,000 Unavailable revenue property taxes 84,523 16,760 Total Deferred Inflows 169,523 16,760 Fund Balances Nonspendable Prepaid expenses 15,535 Restricted for: Debt service 167,380 Special revenue 51, ,891 Unassigned 586,967 Total Fund Balances 602,502 51, , ,891 Total Liabilities, Deferred Inflows of Resources, and Fund Balances $ 1,177,186 $ 131,322 $ 184,140 $ 254,173 See Notes to Financial Statements. 22

29 Total Governmental Funds $ 988, ,422 15, ,960 17,484 41,329 $ 1,746,821 $ 345, ,647 14,079 6, ,665 85, , ,283 15, , , ,967 1,073,873 $ 1,746,821 23

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31 RECONCILIATION OF THE BALANCE SHEET TO THE STATEMENT OF NET POSITION GOVERNMENTAL FUNDS Fund Balances Total Governmental Funds $ 1,073,873 Adjustments for the Statement of Net Position: Capital assets used in governmental activities are not current financial resources and, therefore, not reported in the governmental funds. Capital assets non depreciable 32,000 Capital assets net depreciable 5,599,458 Other long term assets are not available to pay for current period expenditures and, therefore, are deferred in the governmental funds. Court fines receivable 85,000 Property tax receivable 101,283 Deferred outflows (inflows) of resources, represent a consumption of net position that applies to a future period(s) and is not recognized as an outflow (inflow) of resources (expenditure) until then. Pension contributions 137,070 Pension investment earnings 266,559 Pension (gains) losses 31,496 Changes in pension proportion 2,244 Internal service funds are used by management to charge the cost of equipment services and replacement to individual funds. The assets and liabilities of the internal service funds are included in governmental activities in the statement of net position. Net position governmental activities 14,260 Some liabilities, including bonds payable and deferred charges, are not reported as liabilities in the governmental funds. Accrued interest (9,039) Premiums on bonds payable (27,132) Compensated absences (26,866) Net pension liability (1,318,184) Non current liabilities due in one year (185,213) Non current liabilities due in more than one year (2,838,009) Net Position of Governmental Activities $ 2,938,800 See Notes to Financial Statements. 25

32 STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE GOVERNMENTAL FUNDS For the Year Ended Revenues General Fund Garbage Fund Debt Service Governmental Funds Property tax $ 1,002,675 $ $ 152,378 $ Sales tax 673,329 Franchise and local taxes 408,543 3,943 Intergovernmental revenue 50,000 Other taxes 68,779 License and permits 7,157 Charges for services 719, ,698 75,728 Contributions and grants 41, ,991 Investment income 6, Other revenues 47,109 Total Revenues 3,025, , , ,731 Expenditures Current: General government 398,406 Municipal court 70,760 Public safety 1,493,820 27,002 Public works 375, , ,081 Cultural and recreation 357,466 67,493 Debt service: Principal 89,083 75,000 Interest and fiscal charges 9,980 73,400 Paid to state 31,200 Capital outlay 50,000 Total Expenditures 2,876, , , ,576 Fund Nonmajor Excess of Revenues Over (Under) Expenditures 149,187 96,288 4,151 41,155 Other Financing Sources (Uses) Capital lease proceeds 50,000 Gain (Loss) on asset held for sale (49,260) Transfers in 191,742 7,264 Transfers (out) (111,032) (45,188) (55,300) Total Other Financing Sources (Uses) 81,450 (45,188) (48,036) Net Change in Fund Balances 230,637 51,100 4,151 (6,881) Beginning fund balances 371, , ,772 Ending Fund Balances $ 602,502 $ 51,100 $ 167,380 $ 252,891 See Notes to Financial Statements. 26

33 Total Governmental Funds $ 1,155, , ,486 50,000 68,779 7,157 1,637, ,466 6,469 47,109 4,288, ,406 70,760 1,520,822 1,253, , ,083 83,380 31,200 50,000 3,997, ,781 50,000 (49,260) 199,006 (211,520) (11,774) 279, ,866 $ 1,073,873 27

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35 RECONCILIATION OF THE STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES OF GOVERNMENTAL FUNDS TO THE STATEMENT OF ACTIVITIES For the Year Ended Amounts reported for governmental activities in the statement of activities are different because: Net changes in fund balances total governmental funds $ 279,007 Governmental funds report capital outlays as expenditures. However, in the statement of activities the cost of those assets is allocated over their estimated useful lives and reported as depreciation expense. Capital outlay 150,724 Depreciation expense (551,623) Adjustment for disposal of capital assets (19,342) Revenues in the statement of activities that do not provide current financial resources are not reported as revenues in the funds. Fines and fees 15,318 Property taxes 14,016 The issuance of long term debt (e.g., bonds, leases, certificates of obligation) provides current financial resources to governmental funds, while the repayment of the principal of long term debt consumes the current financial resources of governmental funds. Neither transaction, however, has any effect on net position. Also, governmental funds report the effect of premiums, discounts, and similar items when they are first issued; whereas, these amounts are deferred and amortized in the statement of activities. This amount is the net effect of these differences in the treatment of long term debt and related items. Capital lease proceeds (50,000) Principal payments 195,283 Accrued interest 187 Compensated absences (2,972) Amortization of bond premium 1,356 Net pension expense (129,048) See Notes to Financial Statements. Change in Net Position of Governmental Activities $ (97,094) 29

36 Assets Current Assets Cash and cash equivalents $ 1,348,823 $ $ 1,348,823 $ 14,260 Restricted cash 108, ,009 Accounts and other receivables, net 258,485 2, ,892 Inventory 5,432 5,432 Total Current Assets 1,715,317 7,839 1,723,156 14,260 Noncurrent Assets Capital assets: Non depreciable 60, , ,817 Net depreciable capital assets 7,635,097 1,055,071 8,690, ,653 Total Noncurrent Assets 7,695,799 1,265,186 8,960, ,653 Total Assets 9,411,116 1,273,025 10,684, ,913 Deferred Outflows of Resources STATEMENT OF NET POSITION (Page 1 of 2) PROPRIETARY FUNDS Water and Sewer Fund Business Type Activities Golf Course Fund Enterprise Funds Governmental Activities Internal Pension contributions 43,817 16,439 60,256 Pension investment earnings 85,187 31, ,148 Pension losses on investments 7,660 2,874 10,534 Total Deferred Outflows of Resources 136,664 51, ,938 Total Service Fund See Notes to Financial Statements. 30

37 STATEMENT OF NET POSITION (Page 1 of 2) PROPRIETARY FUNDS Governmental Business Type Activities Activities Total Internal Water and Golf Course Enterprise Service Sewer Fund Fund Funds Fund Liabilities Current Liabilities Accounts payable and accrued liabilities 49,947 9,898 59,845 Customer deposits 91,109 91,109 Accrued interest 14,035 14,035 Current maturities of long term debt 506,467 10, ,733 Due to other funds 6,253 20,997 27,250 Total Current Liabilities 667,811 41, ,972 Noncurrent Liabilities Long term liabilities 3,424,349 16,027 3,440,376 Net pension liability 399, , ,774 Total Liabilities 4,491, ,907 4,698,122 Net Position Net investment in capital assets 3,747,190 1,265,186 5,012, ,653 Unrestricted 1,309,375 (147,794) 1,161,581 14,260 Total Net Position $ 5,056,565 $ 1,117,392 $ 6,173,957 $ 853,913 See Notes to Financial Statements. 31

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39 Operating Revenues Water sales $ 1,156,992 $ $ 1,156,992 $ Sewer revenue 1,014,343 1,014,343 Penalties and reconnect fees 58,632 58,632 Membership fees 144, ,795 Green and driving range fees 117, ,644 Rental fees 55,354 55,354 Other taxes and permits 14,261 14,261 Other revenue 51,641 51,641 Total Operating Revenues 2,244, ,434 2,613,662 Operating Expenses STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN NET POSITION PROPRIETARY FUNDS For the Year Ended Water and Sewer Fund Business Type Activities Golf Course Fund Total Enterprise Funds Governmental Activities Internal Service Fund Personnel 581, , ,459 Materials and supplies 112, , ,208 Utilities 139,914 71, ,582 Contractual 196,382 11, ,533 Maintenance 300,572 44, ,286 Sundry charges 32,617 32,617 Depreciation 625, , ,630 90,070 Total Operating Expenses 1,988, ,441 2,732,315 90,070 Operating Income (Loss) 255,354 (374,007) (118,653) (90,070) Non Operating Revenues (Expenses) Donations and contributions 50,500 50,500 Investment income Interest expense (148,330) (148,330) Total Nonoperating Revenues (Expenses) (147,479) 50,500 (96,979) Income Before Transfers 107,875 (323,507) (215,632) (90,070) Transfers in 103, ,769 Transfers (out) (91,255) (91,255) Change in Net Position 16,620 (219,738) (203,118) (90,070) Beginning net position 5,039,945 1,337,130 6,377, ,983 Ending Net Position $ 5,056,565 $ 1,117,392 $ 6,173,957 $ 853,913 See Notes to Financial Statements. 33

40 Cash Flows from Operating Activities Receipts from customers $ 2,300,179 $ 367,163 $ 2,667,342 $ 13,252 Payments to employees (516,172) (280,154) (796,326) Payments to suppliers and contractors 417,269 (231,012) 186,257 Net Cash Provided by (Used for) Operating Activities 2,201,276 (144,003) 2,057,273 13,252 Cash Flows from Noncapital Financing Activities Transfer in 103, ,769 Transfer (out) (91,255) (91,255) Operating grants 50,500 50,500 Net Cash (Provided by) Noncapital Financing Activities Cash Flows from Capital and Related (91,255) 154,269 63,014 Purchases of capital assets (110,528) (110,528) Principal paid on capital debt (574,260) (10,266) (584,526) Interest paid on capital debt (156,174) (156,174) Net Cash (Used for) Capital and Related Financing Activities Cash Flows from Investing Activities STATEMENT OF CASH FLOWS PROPRIETARY FUNDS (Page 1 of 2) For the Year Ended Water and Sewer Fund Business Type Activities Golf Course Enterprise Funds Service Fund (840,962) (10,266) (851,228) Interest on investments Fund Total Governmental Activities Internal Net Cash Provided by Investing Activities Net Increase (Decrease) in Cash and Cash Equivalents ,269,910 1,269,910 13,252 Beginning cash and cash equivalents 78,913 78,913 1,008 Ending Cash and Cash Equivalents $ 1,348,823 $ $ 1,348,823 $ 14,260 See Notes to Financial Statements. 34

41 STATEMENT OF CASH FLOWS PROPRIETARY FUNDS (Page 2 of 2) For the Year Ended Reconciliation of Operating Income (Loss) to Net Cash Provided by (Used for) Operating Activities Water and Sewer Fund Business Type Activities Golf Course Fund Internal Service Operating Income (Loss) $ 255,354 $ (374,007) $ (118,653) $ (90,070) Adjustments to reconcile operating income (loss) to net cash provided by (used): Depreciation 625, , ,630 90,070 Loss on disposal of capital assets Changes in Operating Assets and Liabilities: (Increase) Decrease in: Restricted cash 1,328,229 1,328,229 Accounts receivable 54,722 (2,271) 52,451 Pension contributions (4,023) 5,898 1,875 Investment experience 17,438 25,645 43,083 Actual experience vs. assumption (8,076) (3,107) (11,183) Increase (Decrease) in: Accounts payable and accrued liabilities (36,129) (8,368) (44,497) Customer deposits 1,229 1,229 Compensated absences 1,786 1,786 Due from other funds (93,217) 20,900 (72,317) 13,252 Net pension liability 60,110 (40,538) 19,572 Net Cash Provided by (Used for) Operating Activities $ 2,201,276 $ (144,003) $ 2,057,273 $ 13,252 Total Enterprise Funds Governmental Activities Fund See Notes to Financial Statements. 35

42 STATEMENT OF FIDUCIARY NET POSITION FIDUCIARY FUND Endowment Trust Fund Assets Cash and cash equivalents $ 19,080 Investments 570,000 Total Assets 589,080 Liabilities Due to general fund 17,484 Total Liabilities 17,484 Net Position Net position held in trust for the operations of the civic center, park and cemeteries 571,596 Total Net Position $ 571,596 See Notes to Financial Statements. 36

43 NOTES TO FINANCIAL STATEMENTS I. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A. Reporting Entity The (the City ) was incorporated in The City is an independent political subdivision of the State of Texas governed by an elected council and a mayor and is considered a primary government. The City provides a full range of municipal services including public safety, streets, parks and recreation, community development, planning and zoning, and general administrative services. In addition, the City provides water and sewer service as an enterprise function of the City. As required by generally accepted accounting principles, these basic financial statements shave been prepared based on considerations regarding the potential for inclusion of other entities, organizations, or functions as part of the City s financial reporting entity. No other entities have been included in the City s reporting entity. Additionally, as the City is considered a primary government for financial reporting purposes, its activities are not considered a part of any other governmental or other type of reporting entity. Considerations regarding the potential for inclusion of other entities, organizations or functions in the Cityʹs financial reporting entity are based on criteria prescribed by generally accepted accounting principles. These same criteria are evaluated in considering whether the City is a part of any other governmental or other type of reporting entity. The overriding elements associated with prescribed criteria considered in determining that the Cityʹs financial reporting entity status is that of a primary government are that it has a separately elected governing body; it is legally separate; and is fiscally independent of other state and local governments. Additionally prescribed criteria under generally accepted accounting principles include considerations pertaining to organizations for which the primary government is financially accountable, and considerations pertaining to organizations for which the nature and significance of their relationship with the primary government are such that exclusion would cause the reporting entityʹs financial statements to be misleading or incomplete. B. Basis of Presentation Government Wide and Fund Financial Statements While separate government wide and fund financial statements are presented, they are interrelated. The governmental activities column incorporates data from governmental funds while business type activities incorporate data from the government s enterprise funds. Separate financial statements are provided for governmental funds and the proprietary funds. As a general rule, the effect of interfund activity has been eliminated from the governmentwide financial statements. Exceptions to this general rule are payments in lieu of taxes where the amounts are reasonably equivalent in value to the interfund services provided and other 37

44 NOTES TO FINANCIAL STATEMENTS, Continued charges between the government s water and transit functions and various other functions of the government. Elimination of these charges would distort the direct costs and program revenues reported for the various functions concerned. The fund financial statements provide information about the government s funds, including its fiduciary funds and blended component units. Separate statements for each fund category; governmental and proprietary are presented. The emphasis of fund financial statements is on major governmental and enterprise funds, each displayed in a separate column. All remaining governmental and enterprise funds are aggregated and reported as nonmajor funds. Major individual governmental and enterprise funds are reported as separate columns in the fund financial statements. The government reports the following major governmental funds: General Fund The general fund is used to account for all financial transactions not properly includable in other funds. The principal sources of revenues include local property taxes, sales and franchise taxes, licenses and permits, fines and forfeitures, and charges for services. Expenditures include general government, public safety, public works, etc. Garbage Fund The garbage fund is used to account for funds received and expended for garbage services for the City and its residents. Debt Service Fund The debt service fund is considered a nonmajor fund; however, management has elected to present it as a major fund. The debt service fund is used to account for the payment of interest and principal on all general obligation bonds and other long term debt of governmental funds. The primary source of revenue for debt service is local property taxes. The City reports the following major enterprise funds: Water and Sewer Fund This fund is used to account for the provision of water and sewer services to the residents of the City. Activities of the fund include administration, operations and maintenance of the water production and distribution system, water collection and treatment systems. The fund also accounts for the accumulation of resources for and the payment of longterm debt. All costs are financed through charges to utility customers. 38

45 NOTES TO FINANCIAL STATEMENTS, Continued Golf Course Fund The golf course fund is used to account for revenues received and expenses for maintenance, repairs, upkeep and associated personnel costs of the City s golf course. Additionally the government reports the following fund types: Special Revenue Funds The City accounts for resources restricted to, or designated for, specific purposes in a special revenue fund. These funds consist of the special revenue fund, hotel/motel tax, municipal court security fund and technology fund, drug seizure fund, CDBG grant fund, the PEG fund, and the recreation sports fund. Internal Service Fund Revenues and expenses related to services provided to organizations inside the City on a cost reimbursement basis are accounted for in an internal service fund. The Cityʹs internal service funds include the equipment replacement fund. Fiduciary Fund The fiduciary fund accounts for donations made and held in trust by the City until the funds are expended per donor s intent. During the course of operations the government has activity between funds for various purposes. Any residual balances outstanding at year end are reported as due from/to other funds and advances to/from other funds. While these balances are reported in fund financial statements, certain eliminations are made in the preparation of the governmentwide financial statements. Balances between the funds included in governmental activities (i.e., the governmental and internal service funds) are eliminated so that only the net amount is included as internal balances in the governmental activities column. Similarly, balances between the funds included in business type activities (i.e., the enterprise funds) are eliminated so that only the net amount is included as internal balances in the business type activities column. Further, certain activity occurs during the year involving transfers of resources between funds. In fund financial statements these amounts are reported at gross amounts as transfers in/out. While reported in fund financial statements, certain eliminations are made in the preparation of the government wide financial statements. Transfers between the funds included in governmental activities are eliminated so that only the net amount is included as transfers in the governmental activities column. Similarly, balances between 39

46 NOTES TO FINANCIAL STATEMENTS, Continued the funds included in business type activities are eliminated so that only the net amount is included as transfers in the business type activities column. C. Measurement Focus and Basis of Accounting The accounting and financial reporting treatment is determined by the applicable measurement focus and basis of accounting. Measurement focus indicates the type of resources being measured such as current financial resources or economic resources. The basis of accounting indicates the timing of transactions or events for recognition in the financial statements. The government wide financial statements are reported using the economic resources measurement focus and the accrual basis of accounting. Revenues are recorded when earned and expenses are recorded when a liability is incurred, regardless of the timing of related cash flows. Property taxes are recognized as revenues in the year for which they are levied. Grants and similar items are recognized as revenue as soon as all eligibility requirements imposed by the provider have been met. The governmental fund financial statements are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Revenues are recognized as soon as they are both measurable and available. Revenues are considered to be available when they are collectible within the current period or soon enough thereafter to pay liabilities of the current period. For this purpose, the government considers revenues to be available if they are collected within 60 days of the end of the current fiscal period. Expenditures generally are recorded when a liability is incurred, as under accrual accounting. However, debt service expenditures, as well as expenditures related to compensated absences, and claims and judgments, are recorded only when payment is due. General capital asset acquisitions are reported as expenditures in governmental funds. Issuance of long term debt and acquisitions under capital leases are reported as other financing sources. Property taxes, sales taxes, franchise taxes, licenses, and interest associated with the current fiscal period are all considered to be susceptible to accrual and so have been recognized as revenues of the current fiscal period. Entitlements are recorded as revenues when all eligibility requirements are met, including any time requirements, and the amount is received during the period or within the availability period for this revenue source (within 60 days of yearend). Expenditure driven grants are recognized as revenue when the qualifying expenditures have been incurred and all other eligibility requirements have been met, and the amount is received during the period or within the availability period for this revenue source (within 60 days of yearend). All other revenue items are considered to be measurable and available only when cash is received by the government. The proprietary, pension and other postemployment benefit trust, and private purpose trust funds are reported using the economic resources measurement focus and the accrual basis of 40