City of Austin, Minnesota. Comprehensive Annual Financial Report

Transcription

1 Comprehensive Annual Financial Report For the Year Ended December 31, 2015

2 Special thanks to Nate Howard/Post-Bulletin and Austin 150, Inc. for the use of pictures and logos.

3 Comprehensive Annual Financial Report For the Year Ended December 31, 2015 Prepared by: Finance Department

4 INTRODUCTORY SECTION City of Austin, Minnesota Comprehensive Annual Financial Report For The Year Ended December 31, 2015 Table of Contents Page Letter of Transmittal GFOA Certificate of Achievement Organization Chart List of Elected and Other City Officials i v vi vii FINANCIAL SECTION Independent Auditors Report 1 Management s Discussion and Analysis 5 Basic Financial Statements: Government-Wide Financial Statements: Statement of Net Position 19 Statement of Activities 20 Fund Financial Statements: Balance Sheet Governmental Funds 22 Reconciliation of Net Position in the Government-Wide Financial Statements and Fund Balances in the Fund Basis Financial Statements 24 Statement of Revenues, Expenditures, and Changes in Fund Balances Governmental Funds 26 Reconciliation of the Statement of Revenues, Expenditures, and Changes in Fund Balances of Governmental Funds to the Statement of Activities 28 Statement of Revenues, Expenditures, and Changes in Fund Balances Budget and Actual General Fund 29 Statement of Net Position Proprietary Funds 30 Statement of Revenues, Expenses, and Changes in Net Position Proprietary Funds 34 Statement of Cash Flows Proprietary Funds 36 Notes to the Financial Statements 42 Required Supplementary Information: Schedule of Funding Progress for Postemployment Benefit Plan Schedule of Citys proportionate Share of the Net Pension Liability Schedule of City Contributions Combining and Individual Fund Statements and Schedules: Nonmajor Governmental Funds: Combining Balance Sheet Nonmajor Governmental Funds 106 Combining Statement of Revenues, Expenditures, and Changes in Fund Balances Nonmajor Governmental Funds 108 Combining Balance Sheet Nonmajor Special Revenue Funds 112 Combining Statement of Revenues, Expenditures, and Changes in Fund Balances Nonmajor Special Revenue Funds 114 Combining Balance Sheet Nonmajor Debt Service Funds 118 Combining Statement of Revenues, Expenditures, and Changes in Fund Balances Nonmajor Debt Service Funds 119 Combining Balance Sheet Nonmajor Capital Projects Funds 122

5 Comprehensive Annual Financial Report For The Year Ended December 31, 2015 Table of Contents FINANCIAL SECTION (CONTINUED) Page Combining and Individual Fund Statements and Schedules (continued): Combining Statement of Revenues, Expenditures, and Changes in Fund Balances Nonmajor Capital Projects Funds 124 Combining Balance Sheet Nonmajor Permanent Funds 128 Combining Statement of Revenues, Expenditures, and Changes in Fund Balances Nonmajor Permanent Funds 129 Budgetary Comparisons Governmental Funds: Schedule of Revenues Budget and Actual General Fund 132 Schedule of Expenditures Budget and Actual General Fund 134 Schedule of Revenues, Expenditures, and Changes in Fund Balances Budget and Actual Library Fund 136 Schedule of Revenues, Expenditures, and Changes in Fund Balances Budget and Actual Recreation Programs Fund 138 Schedule of Revenues, Expenditures, and Changes in Fund Balances Budget and Actual Police PERA Fund 140 Schedule of Revenues, Expenditures, and Changes in Fund Balances Budget and Actual Fire PERA Fund 141 Schedule of Revenues, Expenditures, and Changes in Fund Balances Budget and Actual Small Business Revolving Loan Fund 142 Nonmajor Enterprise Funds: Combining Statement of Net Position Nonmajor Enterprise Funds 144 Combining Statement of Revenues, Expenses, and Changes in Net Position Nonmajor Enterprise Funds 145 Combining Statement of Cash Flows Nonmajor Enterprise Funds 146 Internal Service Funds: Combining Statement of Net Position Internal Service Funds 148 Combining Statement of Revenues, Expenses, and Changes in Net Position Internal Service Funds 149 Combining Statement of Cash Flows Internal Service Funds 150 Combining Schedule of Net Position Internal Service Funds - Central Garage Fund 151 Combining Schedule of Revenues, Expenses, and Changes in Net Position Internal Service Funds Central Garage Fund 152 Combining Schedule of Net Position Internal Service Funds - Risk Management Fund 153 Combining Schedule of Revenues, Expenses, and Changes in Net Position Internal Service Funds Risk Management Fund 154 Supplementary Information: Debt Service Requirements to Maturity 156

6 Comprehensive Annual Financial Report For The Year Ended December 31, 2015 Table of Contents STATISTICAL SECTION Page Net Position by Component 165 Changes in Net Position 166 Fund Balance of Governmental Funds 168 Changes in Fund Balances of Governmental Funds 169 Assessed Value and Estimated Actual Value of Taxable Property 170 Property Tax Rates Direct and Overlapping Governments 171 Principal Property Taxpayers 172 Property Tax Levies and Collections 173 Ratios of Outstanding Debt by Type 174 Ratios of General Bonded Debt Outstanding 175 Direct and Overlapping Governmental Activities Debt 176 Legal Debt Margin Information 177 Pledged-Revenue Coverage 178 Demographic and Economic Statistics 179 Principal Employers 180 Full-time Equivalent City Government Employees by Function 181 Operating Indicators by Function 182 Capital Asset Statistics by Function 183

7 Introductory Section

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9 City of Austin 500 Fourth Avenue NE Austin, Minnesota Phone: Fax: April 12, 2016 Honorable Mayor and Members of the City Council City of Austin Austin, Minnesota Minnesota statutes require all cities publish within six months of the close of the year a complete set of audited financial statements. This report is published to fulfill that requirement for the year ended December 31, Management assumes full responsibility for the completeness and reliability of the information contained in this report, based upon a comprehensive framework of internal controls that it has established for this purpose. Because the cost of internal control should not exceed anticipated benefits, the objective is to provide reasonable, rather than absolute, assurance that the financial statements are free of any material misstatements. CliftonLarsonAllen, LLP has issued an unmodified ("clean") opinion on the City of Austin's financial statements for the year ended December 31, The independent auditor's report is located at the front of the financial section of this report. Management's discussion and analysis (MD&A) immediately follows the independent auditor's report and provides a narrative introduction, overview, and analysis of the basic financial statements. MD&A complements this letter of transmittal and should be read in conjunction with it. PROFILE OF THE GOVERNMENT The City of Austin, incorporated on February 28, 1876, is located in the southeastern part of the state and is the County seat of Mower County. Federal interstates 90 and 35 serve the City. The City of Austin is located within 100 miles of the Twin Cities and 45 miles of Rochester, and is among the larger cities in "outstate" Minnesota. The City of Austin currently occupies a land area of 11 square miles and serves a population of 24,800. The City of Austin is empowered to levy a property tax on both real and personal properties located within its boundaries. It is also empowered by state statute to extend its corporate limits by annexation, which occurs periodically when deemed appropriate by the governing council. The City of Austin has operated under a Home Rule Charter since its adoption on March 10, 1903 pursuant to the general laws of Minnesota. Policy-making and legislative authority are vested in a governing council consisting of the mayor and seven council members. The governing council is responsible, among other things, for passing ordinances, adopting the budget, appointing committees, and hiring both the City's administrator and attorney. The City's administrator is responsible for carrying out the policies and ordinances of the governing council, for overseeing the day-to-day operations of the City, and for appointing the heads of the various departments. The council is elected on a non-partisan basis to serve four-year staggered terms. The six council members are elected by three different wards. The mayor and council member-at-large are elected at large.

10 The City of Austin provides a full range of services including police and fire protection; the construction and maintenance of streets and infrastructure; recreational facilities; library and cultural events; sewer utilities, and airport services. Electric, water, and gas services are provided through the legally separate Austin Utilities, which functions, in essence, as a department of the City of Austin and therefore has been included as an integral part of the City of Austin s financial statements. The Council is required to adopt an initial budget for the year no later than December 31 preceding the beginning of the year on January 1. This annual budget serves as the foundation for the City of Austin s financial planning and control. The budget is prepared by fund, function (e.g., public safety), and department (e.g., police). Department heads may make transfers of appropriations within a department. Transfers of appropriations between funds, however, require the special approval of the city council. LOCAL ECONOMY The City of Austin functions as a major regional center for greater Minnesota. The City of Austin is headquarters for a major corporation, and functions as a regional shopping center for the immediate area. Major industries located within the government s boundaries or in close proximity includes hospitals, food manufacturers, retail stores, and a community college. The school district and the City of Austin also have a significant economic presence, employing in total more than 775 teachers, professionals, and support staff. Austin s strong economy is built around the corporate headquarters of a Fortune 500 company, Hormel Foods Corporation. Hormel Foods Corporation currently employs over 2,700 people in the local area. Additionally, Quality Pork Processors employs another 1,500 people within the meat packing facility owned by Hormel Foods Corporation. Because of its location in a region with a varied economic base, unemployment has been relatively stable. During the past ten years, the unemployment rate rose from an initial low of 4.2 percent (2006) to a decade high of 6.6 percent (2010). The City of Austin continues to experience unemployment rates consistently lower than national averages. The City of Austin s unemployment rate as of December 31, 2015 was 2.9 percent compared to 4.8 percent nationally. The decreases in unemployment rates during the current year reflect the current demand for workers in our region. Increases may occur in the near future, however, based on economic forecasts, a continued decline in unemployment rates are anticipated in calendar year Median household incomes within the City of Austin are significantly lower than for the state as a whole. According to the current economic data, the City s median family income was $39,890, the county s was $40,537, while the state s was $48,998. The City s population remains at 24,800 as of December 31, 2015, in part because of continued employment opportunities. Despite the softening of the housing market nationwide, housing prices in the vicinity of the City of Austin continue to remain strong. At the end of the fourth quarter of 2015, the median value of a single family home in the vicinity of the City of Austin was $85,000. Due to its strong and healthy local economy, the City of Austin has maintained a credit rating of Aa2 from Moody s Investor Service since 2009, and AA- from Standard and Poor s since The Hormel Institute, a cooperative venture between the University of Minnesota, Mayo Medical Center, and the Hormel Foundation completed a $25+ million facility for cancer research in The facility has added numerous research and support staff in their quest to find a cure for cancer and is in the final stages of construction on a $28+ million additional expansion that will add over 125 jobs to the local economy. The Hormel Foundation is in the midst of construction of a 42-unit housing complex with an estimated construction cost of nearly $7 million to add to the housing options within the city. A new $30 million intermediate school was completed to house students in grades five and six and has added additional jobs to the local community. The Hormel Foods Corporation is in the final stages of construction on a $4+ million Spam Museum in downtown Austin that has freed up space in their corporate offices for more executives and to enhance the amount of foot traffic in the downtown commercial area. ii

11 Residential construction continues to show improvement, with single home family dwellings expecting to continue to increase over the 6 units built in A 5% increase is expected in this area as the Austin economy continues to show strength. The local option sales tax collections continue to remain strong, despite the economy. The final results for 2015 include a 9% decrease from the 2014 collection period. The decrease was a result of capital claim refunds from the prior three years. This decrease to just over $1.4 million of local option sales tax was realized in 2015 that can be used for flood mitigation projects. During 2015 nearly $1.6 million was used on construction of flood retaining walls and home relocations to further mitigate the effects of flooding in our community. LONG-TERM FINANCIAL PLANNING AND MAJOR INITIATIVES Assigned and unassigned fund balance in the general fund is at 53.7 percent of total general fund expenditures and is slightly above the informal policy guidelines (between 40 and 48 percent of total general fund expenditures) set by the Council for budgetary and planning purposes. State aid revenues did not realize any reductions in 2015 and current budget projections for the State of Minnesota show surpluses. These surpluses will take pressure off of the legislature to reduce the state aid that Austin receives. The City of Austin also adopted an updated 5-Year Capital Improvement Plan covering the period of 2016 through Over $89.6 million will be spent over the next five years on capital improvements within the City. Included in the planned improvements are nearly $23.4 million for Wastewater Treatment Plant upgrades, $17.5 million for flood mitigation projects, and nearly $20 million for street projects. The City is utilizing grants, interest earnings, and funds on hand to accomplish the improvements over the next five-year period. The City of Austin continues to monitor the economic issues faced by the State of Minnesota and the federal government as these affect both the revenues and expenditures that are anticipated for the following years. The elected officials, along with staff, are creating long-term financial plans and departmental reviews in order to provide long-term planning for the municipality. Renovations continue to exist in the downtown area of the City of Austin. Public and private partnerships have been created to fund exterior renovations of downtown buildings to enhance the downtown experience. Mower County completed the renovation of the former law enforcement center and brought the employees back downtown for Health and Human Services. These additional 80 employees (plus the addition of the Spam Museum) will add to the vibrancy of the downtown area. A community wide effort to enhance the lifestyle of citizens has continued during This effort, known as Vision 2020, embarked on getting citizen involvement to focus on areas that could be improved within the community to enhance the way life for our citizens. Ten projects have been selected through a community-wide voting process that will be the focus of the Vision 2020 efforts for the next five years. Flood awareness has always been a major concern of the citizens and business of Austin. During 2015, the City completed a massive flood control project in the central business district to protect such facilities as the Austin Medical Center, Hormel Corporate Foods, and Bellisio Foods, Inc. from further effects of flood related operational problems. This $10 million project was financed with state and federal grants, along with local option sales tax receipts in order to construct permanent barriers to control the extent of the flooding in this area. Now that this project is completed, other flood projects will commence from the planning stages to the construction phase. iii

12 The City of Austin continues to work on economic development issues in order to further grow the community. The City of Austin is aggressively working with local leaders to construct a project that is expanding the Hormel Institute and add another 125 jobs to rural Minnesota. As noted earlier, the Hormel Institute facility is a leading edge cancer research center that currently employs over 100 scientists and support staff with a goal to eventually end this disease. RELEVANT FINANCIAL POLICIES The City of Austin has adopted a comprehensive set of financial policies, both formally and informally through recommended practices. The City of Austin's policy of maintaining assigned and unassigned fund balance between 40 and 48 percent of total general fund expenditures was exceeded during With the health insurance fund facing some losses over the past few years council will likely evaluate a transfer to help cover those losses, plus invest some fund balance in capital project needs and debt service retirement in order to use up some of the fund balance levels. 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 Austin, Minnesota, for its comprehensive annual financial report (CAFR) for the year ended December 31, This was the thirtieth consecutive year that the City has received this prestigious award. In order to be awarded a Certificate of Achievement, the City published an easily readable and efficiently organized CAFR that satisfied both generally accepted accounting principles and applicable program requirements. A Certificate of Achievement for Excellence in Financial Reporting is valid for a period of one year only. However, we believe that our current CAFR continues to meet the Certificate of Achievement for Excellence in Financial Reporting Program's requirements, and we are submitting it to the GFOA to determine its eligibility for another certificate. The preparation of this report would not have been possible without the skill, effort, and dedication of the entire staff of the finance department. We wish to thank all City departments for their assistance in providing the data necessary to prepare this report. Credit also is due to the mayor and the city council for their unfailing support for maintaining the highest standards of professionalism in the management of the City of Austin's finances. Respectfully Submitted, Tom Dankert Director of Administrative Services iv

13 Government Finance Officers Association Certificate of Achievement for Excellence in Financial Reporting Presented to City of Austin Minnesota For its Comprehensive Annual Financial Report for the Fiscal Year Ended December 31, 2014 Executive Director/CEO

14 Organization Chart CITIZENS MAYOR COUNCIL MEMBER ADMINISTRATOR UTILITY BOARD PARK & RECREATION BOARD LIBRARY BOARD POLICE ATTORNEY ENGINEER RECORDER FIRE TREASURER The City of Austin is governed by a Home Rule Charter, which was framed and adopted March 10, 1903, pursuant to the General Laws of Minnesota. A Home Rule Charter is a charter drawn by the City itself tailored to its own needs and desires under authority given by the constitution of the state. Many state legislatures make the laws under which the cities are governed, but Minnesota is one of the states whose constitution has provisions by which cities can adopt Home Rule Charters. The elective officers of the City are the Mayor, Council Member-at-Large and six Council Members. The Council Members are elected, two from each of three wards, on staggered terms during general elections in November of even numbered years. The terms of office are: Mayor Council Member-at-Large Council Member Four Years Four Years Four Years The officers appointed by the Council for a term of two years are: City Administrator City Recorder/Treasurer City Engineer City Attorney vi

15 List of Elected and Other City Officials 2015 Thomas Stiehm Janet Anderson Jeff Austin Michael Jordal Steve King David Hagen Judy Enright Jeremy Carolan Elected Officials Mayor Council Member-at-Large Council Member First Ward Council Member First Ward Council Member Second Ward Council Member Second Ward Council Member Third Ward Council Member Third Ward Craig Clark Tom Dankert David Hoversten Steven Lang Jim McCoy Brian Krueger Ann Hokanson Kim Underwood Mark Nibaur Other City Officials City Administrator Director of Administrative Services City Attorney Public Works Director Fire Chief Police Chief Library Director Parks and Recreation Director Austin Utilities General Manager vii

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17 Financial Section

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19 CliftonLarsonAllen CliftonLarsonAllen LL P CLAconnect.com INDEPENDENT AUDITORS' REPORT Honorable Mayor and Members of the City Council City of Austin, Minnesota Report on the Financial Statements We have audited the accompanying financial statements of the governmental activities, the businesstype activities, each discretely presented component unit, each major fund, and the aggregate remaining fund information of the City of Austin, Minnesota, as of and for the year ended December 31, 2015, and the related notes to the financial statements, which collectively comprise the entity'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. Auditors' Responsibility Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors' judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. NI independent rrember of Nexia International (1)

20 Honorable Mayor and Members of the City Council City of Austin, Minnesota Opinions In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, the business-type activities, each discretely presented component unit, each major fund, and the aggregate remaining fund information of the City of Austin, Minnesota as of December 31, 2015, and the respective changes in financial position and, where applicable, cash flows thereof and the respective budgetary comparison for the General Fund for the year then ended in accordance with accounting principles generally accepted in the United States of America. Emphasis of a Matter Regarding Change in Accounting Principle As discussed in Note 1 to the financial statements, the City adopted new accounting guidance from the Governmental Accounting Standards Board Statement No. 68, Accounting and Financial Reporting for Pensions, and the related Governmental Accounting Standards Board Statement No. 71, Pension Transition for Contributions Made Subsequent to the Measurement Date an Amendment of GASB Statement 68, as of and for the year ended December 31, 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, the Schedule of Funding Progress for Postemployment Benefit Plan, the Schedule of the City's Proportionate Share of the Net Pension Liability and the Schedule of City Contributions as 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 of Austin, Minnesota's basic financial statements. The introductory section, combining and individual fund statements and schedules, supplementary information, and statistical section are presented for purposes of additional analysis and are not a required part of the basic financial statements. (2)

21 Honorable Mayor and Members of the City Council City of Austin, Minnesota The combining and individual fund statements and schedules and supplementary information are the responsibility of management and were derived from and relate directly to the underlying accounting and other records used to prepare the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the combining and individual fund statements and schedules and supplementary information are fairly stated, in all material respects, in relation to the basic financial statements as a whole. The introductory section and statistical section have not been subjected to the auditing procedures applied in the audit of the basic financial statements, and accordingly, we do not express an opinion or provide any assurance on it. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated April 12, 2016, on our consideration of the City of Austin, Minnesota's internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the result of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering City of Austin, Minnesota's internal control over financial reporting and compliance. CliftonLarsonAllen LLP Austin, Minnesota April 12, 2016 (3)

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23 Management s Discussion and Analysis December 31, 2015 As management of the City of Austin, Minnesota, we offer readers of the City of Austin s financial statements this narrative overview and analysis of the financial activities of the City of Austin for the year ended December 31, We encourage readers to consider the information presented here in conjunction with additional information that we have furnished in our letter of transmittal, which can be found on pages i-iv of this report. FINANCIAL HIGHLIGHTS: The assets and deferred outflows of resources of the City of Austin exceeded its liabilities and deferred inflows of resources at the close of the most recent year by $242,419,462 (net position). Of this amount $38,542,935 (unrestricted net position) may be used to meet the City s ongoing obligations to citizens and creditors in accordance with the City s fund designations and fiscal policies. The City s total net position increased by $8,968,007 during the current period. As of the close of the current year, the City of Austin s governmental funds reported combined ending fund balance of $19,212,220, an increase of $158,094 in comparison with the prior year. Approximately 66% of this total amount, or $12,743,286, is available for spending at the City s discretion (assigned and unassigned fund balance). At the end of the current year, the assigned and unassigned fund balance for the general fund was $7,579,428, or 53.7% of total general fund expenditures. The City of Austin s total net bonded debt increased by $15,875,000 (134.7 percent) during the current period. New debt was issued during 2015 for a new central facility for the Austin Utilities. A restatement of prior period net position due to the implementation of GASB 68 and 71 resulted in a decrease of the beginning net position by $12,424,987. Changes in required accounting for pension benefits provided by the Minnesota State PERA system mandated this implementation. OVERVIEW OF THE FINANCIAL STATEMENTS: The discussion and analysis provided here are intended to serve as an introduction to the City of Austin s basic financial statements. The City of Austin s basic financial statements consist of three components: 1. Government-wide financial statements 2. Fund financial statements 3. Notes to the financial statements This report also includes supplementary information intended to furnish additional detail to support the basic financial statements themselves. Government-wide financial statements. The government-wide financial statements are designed to provide readers with a broad overview of the City of Austin s finances, in a manner similar to privatesector business. The statement of net position presents financial information on all of the City of Austin s assets and deferred outflows of resources and liabilities and deferred inflows 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 of Austin is improving or deteriorating. (5)

24 Management s Discussion and Analysis December 31, 2015 The statement of activities presents information showing how the City of Austin s net position changed during the most recent 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 for some items that will only result in cash flows in future periods (e.g., uncollected taxes and earned, but unused compensated absences). Both of the government-wide financial statements distinguish functions of the City of Austin 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 (business-type activities). The governmental activities of the City of Austin include general government, public safety, streets and highways, culture and recreation, public service, economic development, and community development. The business-type activities of the City of Austin include a sewer utility, waste transfer station, storm water utility, and a municipal electric, water, and gas utility. The electric, water, and gas utility, comprising the Austin Utilities, are under the direction of the Board of Commissioners. The government-wide financial statements include not only the City of Austin itself (known as the primary government), but also a legally separate port authority and housing and redevelopment authority for which the City of Austin is financially accountable. Financial information for these component units is reported separately from the financial information presented for the primary government itself. The municipal electric, water, and gas utility, although also legally separate, functions for all practical purposes as a department of the City of Austin, and therefore has been included as an integral part of the primary government. The government-wide financial statements can be found on pages of this report. 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 of Austin, like other state and local governments, uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. All of the funds of the City of Austin can be divided into two categories: governmental funds and proprietary 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 a government s near-term financing requirements. Because the focus of governmental funds is narrower than that of the government-wide financial statements, it is useful to compare the information presented for governmental funds with similar information presented for governmental activities in the 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. (6)

25 Management s Discussion and Analysis December 31, 2015 The City of Austin maintains twenty-two 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, local option sales tax fund, and the capital improvements revolving fund, all of which are considered to be major funds. Data from the other nineteen governmental funds are combined into a single, aggregate presentation. Individual fund data for each of these 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 City of Austin adopts an annual appropriated budget for its general fund. A budgetary comparison statement has been provided for the general fund to demonstrate compliance with this budget. The basic governmental fund financial statements can be found on pages of this report. Proprietary funds. The City of Austin maintains two different proprietary funds. Enterprise funds are used to report the same functions presented as business-type activities in the government-wide financial statements. The City of Austin uses enterprise funds to account for its sewer utility, waste transfer station, storm water utility, and electric, water and gas utilities. Internal service funds are an accounting device used to accumulate and allocate costs internally among the City of Austin s various functions. The City of Austin uses internal service funds to account for its fleet of vehicles, its risk management program, and for its management information systems. Because all of these services predominantly benefit governmental rather than business-type functions, they have been included within governmental activities in the government wide financial statements. Proprietary funds provide the same type of information as the government-wide financial statements, only in more detail. The proprietary fund financial statements provide separate information for the sewer user fund and the utilities fund, both of which are considered to be major funds of the City of Austin. Data from the other nonmajor enterprise funds are combined into a single, aggregate presentation. Individual fund data for each of these nonmajor enterprise funds is provided in the form of combining statements elsewhere in this report. Conversely, all three internal service funds are combined into a single aggregated presentation in the proprietary fund financial statements. Individual fund data for the internal service funds is also provided in the form of combining statements in the combining and individual fund statements and schedules section of this report. The basic proprietary fund financial statements can be found on pages of this report. Notes to the financial statements. The notes provide additional information that is necessary to acquire 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 required supplementary information concerning the City of Austin s progress in funding its obligation to provide OPEB benefits to its employees plus progress in funding its Net Pension Liability. Required supplementary information can be found on pages of this report. The combining statements and schedules referred to earlier in connection with nonmajor governmental funds, enterprise funds, and internal service funds are presented immediately following the required supplementary information on OPEB and the Net Pension Liability. Combining and individual fund statements and schedules can be found on pages of this report. (7)

26 Management s Discussion and Analysis December 31, 2015 GOVERNMENT-WIDE FINANCIAL ANALYSIS: As noted earlier, net position over time, may serve as a useful indicator of a government s financial position. In the case of the City of Austin, assets exceeded liabilities by $242,419,462 at the close of the most recent year. By far the largest portion of the City of Austin s net position (82 percent) reflects its investment in capital assets (e.g. land, buildings, machinery, equipment, and infrastructure), less any related debt used to acquire those assets that is still outstanding. The City of Austin uses these capital assets to provide a variety of services to its citizens. Accordingly, these assets are not available for future spending. Although the City of Austin s investment in its capital assets is reported net of related debt, it should be noted that the resources used to repay this debt must be provided from other sources, since the capital assets themselves cannot be used to liquidate these liabilities. An additional portion of the City of Austin s net position (2 percent) represents resources that are subject to external restrictions on how they may be used. The remaining balance of $38,542,935 is unrestricted and may be used to meet the government s ongoing obligations to citizens and creditors. At the end of the current year, the City of Austin is able to report positive balances in all reported categories of net position, both for the government as a whole, as well as for its separate governmental and business-type activities. The same situation held true for the prior year. CITY OF AUSTIN S NET POSITION Governmental Activities Business-Type Activities Total Current and other assets $ 32,520,530 $ 33,785,549 $ 51,843,470 $ 41,751,068 $ 84,364,000 $ 75,536,617 Capital assets 118,029, ,458,907 97,528,279 83,947, ,557, ,406,887 Total assets 150,549, ,244, ,371, ,699, ,921, ,943,504 Deferred Outflows of Resources 1,415, ,518-2,276,495 - Total assets and deferred outflows of resources 151,965, ,244, ,232, ,699, ,197, ,943,504 Long-term liabilities outstanding 10,179,315 3,485,811 37,582,627 14,577,348 47,761,942 18,063,159 Other liabilities 2,579,417 3,277,207 7,650,424 5,726,696 10,229,841 9,003,903 Total liabilities 12,758,732 6,763,018 45,233,051 20,304,044 57,991,783 27,067,062 Deferred Inflows of Resources 902, ,910-1,786,599 - Net position: Net investment in capital assets 117,139, ,148,907 81,663,459 76,766, ,802, ,915,269 Restricted 5,020,295 5,378,069 53,703-5,073,998 5,378,069 Unrestricted 16,144,791 22,954,462 22,398,144 28,628,642 38,542,935 51,583,104 Total net position $ 138,304,156 $ 140,481,438 $ 104,115,306 $ 105,395,004 $ 242,419,462 $ 245,876,442 (8)

27 Management s Discussion and Analysis December 31, 2015 The City of Austin s net position increased by $8,968,007 during the current year, before the restatement of the beginning net position. The increase in net position is primarily due to an increase in the amount invested in capital assets (110% of the increase). Various street projects, water plant upgrades, wastewater treatment plant upgrades, and the continued purchase of flood properties along with other changes increased the investment in capital assets by $9,887,260. Restricted net position decreased by $304,071 mainly due to the construction of some capital projects. That leaves a decrease of $615,182 of unrestricted net position. The decrease in unrestricted net position largely reflects degree to which increases in ongoing expenses have outstripped similar increases in ongoing revenues. During 2015 the City implemented Governmental Accounting Standards Board (GASB) numbers 68 and 71. The implementation of these standards required a restatement of net position by reducing the beginning balance by $12,424,987. This reduction in net position is a result of the City recording their share of unfunded pension obligations through the State of Minnesota s PERA system. Minnesota PERA covers all retirees of the City of Austin. Governmental activities. During the current year, net position for governmental activities increased as a result of operations by $4,117,231 from the prior year. However, the implementation of GASB s 68 and 71 resulted in a restatement of the beginning net position by $6,294,513 for an ending balance of $138,304,156. Consistency among departments to not spend their entire budgets, coupled with revenues that exceed expectations are the major reason for the increase in net position due to operations. Other factors affecting the increase in governmental net position are: Collections from the City s 0.50% local option sales tax continue to show strong results. The City collected $1,440,606 in the local option sales tax for 2015 compared to $1,582,675 in The decrease can be attributable to a refund of sales tax paid on capital from prior periods. Decreases in capital grants of $5,855,341 were primarily related to the completion of a major segment of the flood control program. Other revenue included unrestricted investment earnings decreased $457,537 (11% of the change in net position) as a result of worsening market conditions for the City to invest its cash, both short-term and long-term. General governmental expenditures increased $649,011 (32% of the expense increase) as health care costs continued to climb to record levels. Transfers from business-type activities in the amount of $1,722,377 (42% of the change in net position), primarily from a payment in lieu of tax, also increased the change in net position for governmental funds. (9)

28 Management s Discussion and Analysis December 31, 2015 The following chart summarizes the changes in net position for the current year: CITY OF AUSTIN S CHANGES IN NET POSITION Condensed statements of revenues, expenses, and changes in net position highlights are as follows for the years ended December 31, 2015 and 2014: Revenues: Program revenues: Charges for services $ 2,001,236 $ 1,877,201 $ 60,749,894 $ 68,290,464 $ 62,751,130 $ 70,167,665 Operating grants and contributions 1,041,820 1,187, ,041,820 1,187,211 Capital grants and contributions 4,096,969 9,952,310 2,055,241 90,544 6,152,210 10,042,854 General revenues: Property taxes 5,237,753 5,006, ,237,753 5,006,324 Other taxes 1,918,020 2,056, ,918,020 2,056,861 Grants and contributions not Governmental Activities Business-Type Activities Total restricted to specific programs 7,991,475 7,911, ,991,475 7,911,483 Other 525, , ,048 1,616,047 1,004,741 2,599,277 Total revenues $ 22,812,966 $ 28,974,620 $ 63,284,183 $ 69,997,055 $ 86,097,149 $ 98,971,675 Expenses: General government $ 2,080,195 $ 1,431,184 $ - $ - $ 2,080,195 $ 1,431,184 Public safety 6,609,642 6,388, ,609,642 6,388,332 Streets and highways 5,013,859 4,831, ,013,859 4,831,833 Culture and recreation 4,507,566 4,443, ,507,566 4,443,814 Public service 383,336 89, ,336 89,696 Economic development 653, , , ,287 Community development 1,134, , ,134, ,301 Interest on long-term debt 35,220 52, ,220 52,949 Sewer - - 5,183,222 5,064,346 5,183,222 5,064,346 Waste transfer station ,751 29,689 30,751 29,689 Storm water utility , , , ,999 Electric ,273,865 31,704,826 32,273,865 31,704,826 Water - - 3,892,185 3,747,554 3,892,185 3,747,554 Gas ,017,991 22,717,982 15,017,991 22,717,982 Total expenses $ 20,418,112 $ 18,407,396 $ 56,711,030 $ 63,528,396 $ 77,129,142 $ 81,935,792 Increase in net position $ 2,394,854 $ 10,567,224 $ 6,573,153 $ 6,468,659 $ 8,968,007 $ 17,035,883 before transfers Transfers 1,722,377 1,718,606 (1,722,377) (1,718,606) - - Increase in net position $ 4,117,231 $ 12,285,830 $ 4,850,776 $ 4,750,053 $ 8,968,007 $ 17,035,883 Net position - beginning 140,481, ,195, ,395, ,644, ,876, ,840,559 Restatement (6,294,513) - (6,130,474) - (12,424,987) - Net position - beginning, as restated $ 134,186,925 $ 128,195,608 $ 99,264,530 $ 100,644,951 $ 233,451,455 $ 228,840,559 Net position - ending $ 138,304,156 $ 140,481,438 $ 104,115,306 $ 105,395,004 $ 242,419,462 $ 245,876,442 (10)

29 Management s Discussion and Analysis December 31, 2015 Below are specific graphs that provide comparisons of the government activities direct program revenues with their expenditures. Any shortfalls in direct revenues are primarily supported by property tax levy or general state aid. Expenses and Program Revenues Governmental Activities $7,000,000 $6,000,000 $5,000,000 $4,000,000 $3,000,000 Expenses Revenues $2,000,000 $1,000,000 $- Revenues by Source Governmental Activities Grants and contributions not restricted to certain programs 36% Charges for services 9% Operating grants and contributions 5% Capital grants and contributions 18% Other taxes 9% Property taxes 23% (11)

30 Management s Discussion and Analysis December 31, 2015 Below are specific graphs that provide comparisons of the business-type activities direct program revenues with their expenditures. Excess revenues are retained within each fund until such time that capital replacement is needed. Expenses and Program Revenues Business-type Activities $40,000,000 $35,000,000 $30,000,000 $25,000,000 $20,000,000 $15,000,000 Expenses Revenues $10,000,000 $5,000,000 $- Sewer user Waste transfer station Storm water utility Electric Water Gas Revenues by Source Business-type Activities Capital grants and contributions 3% Other 1% Charges for services 96% (12)