MONTGOMERY COUNTY, TEXAS ANNUAL FINANCIAL REPORT DECEMBER 31, 2017 McCALL GIBSON SWEDLUND BARFOOT PLLC Certified Public Accountants
MONTGOMERY COUNTY, TEXAS ANNUAL FINANCIAL REPORT DECEMBER 31, 2017
TABLE OF CONTENTS INDEPENDENT AUDITOR S REPORT 1-2 MANAGEMENT S DISCUSSION AND ANALYSIS 3-7 BASIC FINANCIAL STATEMENTS PAGE STATEMENT OF NET POSITION AND GOVERNMENTAL FUNDS BALANCE SHEET 8-9 RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET POSITION 10 STATEMENT OF ACTIVITIES AND GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES 11-12 RECONCILIATION OF THE GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES TO THE STATEMENT OF ACTIVITIES 13 NOTES TO THE FINANCIAL STATEMENTS 14-24 REQUIRED SUPPLEMENTARY INFORMATION SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE-BUDGET AND ACTUAL-GENERAL FUND 26 SUPPLEMENTARY INFORMATION - REQUIRED BY THE WATER DISTRICT FINANCIAL MANAGEMENT GUIDE NOTES REQUIRED BY THE WATER DISTRICT FINANCIAL MANAGEMENT GUIDE (Included in the notes to the financial statements) SERVICES AND RATES 28-30 GENERAL FUND EXPENDITURES 31 INVESTMENTS 32 TAXES LEVIED AND RECEIVABLE 33-34 LONG-TERM DEBT SERVICE REQUIREMENTS 35 CHANGES IN LONG-TERM BOND DEBT 36-37 COMPARATIVE SCHEDULE OF REVENUES AND EXPENDITURES GENERAL FUND AND DEBT SERVICE FUND - FIVE YEARS 38-41 BOARD MEMBERS, KEY PERSONNEL AND CONSULTANTS 42-43
McCALL GIBSON SWEDLUND BARFOOT PLLC Cert~fied Public Accountants 13100 Worthain Center Drive Suite 235 9600 Great Hills Trail Houston, Texas 77065-5610 Suite 150W (713) 462-0341 Austin, Texas 78759 Fax (713) 462-2708 (512) 610-2209 E-Mail: inesb@ingsbpllc.com zvwzvingsbyllc. coin INDEPENDENT AUDITOR S REPORT Board of Directors East Plantation Utility District Montgomery County, Texas We have audited the accompanying financial statements of the governmental activities and each major fund of East Plantation Utility District (the District ), as of and for the year ended December 31, 2017, and the related notes to the financial statements, which collectively comprise the District s basic financial statements as listed in the table of contents. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor s Responsibility Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free 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 District 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. Member of American Institute of cert~fled Public Accountants Texas Society of Certified Public Accountants
Board of Directors East Plantation Utility District Opinions In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities and each major fund of the District as of December 31, 2017, and the respective changes in financial position for the year then ended in accordance with accounting principles generally accepted in the United States of America. Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the Management s Discussion and Analysis and the Schedule of Revenues, Expenditures, and Changes in Fund Balance Budget and Actual General Fund 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 District s basic financial statements. The supplementary information required by the Texas Commission on Environmental Quality as published in the Water District Financial Management Guide is presented for purposes of additional analysis and is not a required part of the basic financial statements. Such 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. The supplementary information, excluding that portion marked Unaudited on which we express no opinion or provide any assurance, has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated, in all material respects, in relation to the basic financial statements as a whole. -Mc~~~4~f 0/ ~ v PLLc McCall Gibson Swedlund Barfoot PLLC Certified Public Accountants Houston, Texas April 18, 2018
MANAGEMENT S DISCUSSION AND ANALYSIS FOR THE YEAR ENDED DECEMBER 31, 2017 Management s discussion and analysis of East Plantation Utility District s (the District ) financial performance provides an overview of the District s financial activities for the fiscal year ended December 31, 2017. Please read it in conjunction with the District s financial statements. USING THIS ANNUAL REPORT This annual report consists of a series of financial statements. The basic financial statements include: (1) combined fund financial statements and government-wide financial statements and (2) notes to the financial statements. The combined fund financial statements and governmentwide financial statements combine both: (1) the Statement of Net Position and Governmental Funds Balance Sheet and (2) the Statement of Activities and Governmental Funds Statement of Revenues, Expenditures and Changes in Fund Balances. This report also includes required and other supplementary information in addition to the basic financial statements. GOVERNMENT-WIDE FINANCIAL STATEMENTS The District s annual report includes two financial statements combining the government-wide financial statements and the fund financial statements. The government-wide financial statements provide both long-term and short-term information about the District s overall status. Financial reporting at this level uses a perspective similar to that found in the private sector with its basis in full accrual accounting and elimination or reclassification of internal activities. The Statement of Net Position includes all the District s assets, liabilities and, if applicable, deferred inflows and 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 District as a whole is improving or deteriorating. Evaluation of the overall health of the District would extend to other non-financial factors. The Statement of Activities reports how the District s net position changed during the current fiscal year. All current year revenues and expenses are included regardless of when cash is received or paid. FUND FINANCIAL STATEMENTS The combined statements also include 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 District has two governmental fund types. The General Fund accounts for resources not accounted for in another fund, customer service revenues, operating costs and general expenditures. The Debt Service Fund accounts for ad valorem taxes and financial resources restricted, committed or assigned for servicing bond debt and the cost of assessing and collecting taxes. -3-
MANAGEMENT S DISCUSSION AND ANALYSIS FOR THE YEAR ENDED DECEMEER 31, 2017 FUND FINANCIAL STATEMENTS (Continued) Governmental funds are reported in each of the financial statements. The focus in the fund statements provides a distinctive view of the District s governmental funds. These statements report short-term fiscal accountability focusing on the use of spendable resources and balances of spendable resources available at the end of the year. They are useful in evaluating annual financing requirements of the District and the commitment of spendable resources for the near term. Since the government-wide focus includes the long-term view, comparisons between these two perspectives may provide insight into the long-term impact of short-term financing decisions. The adjustments columns, the Reconciliation of the Governmental Funds Balance Sheet to the Statement of Net Position, and the Reconciliation of the Governmental Funds Statement of Revenues, Expenditures and Changes in Fund Balances to the Statement of Activities explain the differences between the two presentations and assist in understanding the differences between these two perspectives. NOTES TO THE FINANCIAL STATEMENTS The accompanying notes to the financial statements provide information essential to a understanding of the government-wide and fund financial statements. full OTHER INFORMATION In addition to the financial statements and accompanying notes, this report also presents certain required supplementary information ( RSI ). A budgetary comparison schedule is included as RSI for the General Fund. GOVERNMENT-WIDE FINANCIAL ANALYSIS Net position may serve over time as a useful indicator of the District s financial position. In the case of the District, assets exceeded liabilities and deferred inflows of resources by $538,627 as of December 31, 2017. A portion of the District s net position reflects its net investment in capital assets (water, wastewater and drainage facilities less any debt used to acquire those assets that is still outstanding). The following is a comparative analysis of government-wide changes in net position: -4-
MANAGEMENT S DISCUSSION AND ANALYSIS FOR THE YEAR ENDED DECEMBER 31, 2017 GOVERNMENT-WIDE FINANCIAL ANALYSIS (Continued) Summary of Changes in the Statement of Net Position Change Positive 2017 2016 (Negative) Current and Other Assets $ 1,323,820 $ 1,133,890 $ 189,930 Capital Assets (Net of Accumulated Depreciation) 1,921,082 2,080,764 (159,682) Total Assets $ 3,244,902 $ 3,214,654 $ 30,248 Bonds Payable $ 1,887,238 $ 1,965,016 $ 77,778 Other Liabilities 120,161 126,161 6,000 Total Liabilities $ 2,007,399 $ 2,091,177 $ 83,778 Deferred Inflows of Resources $ 698,876 $ 597,494 $ (101,382) Net Position: Net Investment in Capital Assets $ 33,844 $ 115,748 $ (81,904) Restricted 195,874 131,631 64,243 Unrestricted 308,909 278,604 30,305 Total Net Position $ 538,627 $ 525,983 $ 12,644 The following table provides a summary of the District s operations for the years ended December 31, 2017, and December 31, 2016. The District s net position increased by $12,644. Summary of Changes in the Statement of Activities Change Positive 2017 2016 (Negative) Revenues: Property Taxes $ 597,389 $ 675,535 $ (78,146) Charges for Services 368,029 377,353 (9,324) Other Revenues 18,053 13,307 4,746 Total Revenues $ 983,471 $ 1,066,195 $ (82,724) Expenses for Services 970,827 973,523 2,696 Change in Net Position $ 12,644 $ 92,672 $ (80,028) Net Position, Beginning of Year 525,983 433,311 92,672 Net Position, End of Year $ 538,627 $ 525,983 $ 12,644-5-
MANAGEMENT S DISCUSSION AND ANALYSIS FOR THE YEAR ENDED DECEMBER 31, 2017 FINANCIAL ANALYSIS OF THE DISTRICT S GOVERNMENTAL FUNDS The District s combined fund balances as of December 31, 2017, were $484,368, an increase of $129,115 from the prior year. The General Fund fund balance increased by $38,354 primarily due to tax and service revenues exceeding operating and capital costs. The Debt Service Fund fund balance increased by $90,761, primarily due to the structure of the District s outstanding debt service requirements. GENERAL FUND BUDGETARY HIGHLIGHTS The Board of Directors did not amend the budget during the current fiscal year. Actual revenues were $8,270 less than budgeted revenues. Actual expenditures were $35,924 less than budgeted expenditures. See the budget to actual comparison for more details. CAPITAL ASSETS Capital assets as of December 31, 2017, total $1,921,082 (net of accumulated depreciation) and include land, buildings and equipment as well as the water, wastewater and drainage systems. Capital Assets At Year-End, Net of Accumulated Depreciation Change Positive 2017 2016 (Negative) Capital Assets Not Being Depreciated: Land and Land Improvements $ 90,364 $ 90,364 $ Capital Assets, Net of Accumulated Depreciation: Buildings and Equipment 2,678 3,577 (899) Water System 1,296,750 1,410,656 (113,906) Wastewater System 434,299 474,714 (40,415) Drainage System 96,991 101,453 (4,462) Total Net Capital Assets $ 1,921,082 $ 2,080,764 $ (159,682) -6-
MANAGEMENT S DISCUSSION AND ANALYSIS FOR THE YEAR ENDED DECEMBER 31, 2017 LONG-TERM DEBT ACTIVITY At year-end, the District had total bond debt payable of $1,920,000. The changes in the debt position of the District during the fiscal year ended December 31, 2017, are summarized as follows: Bond Debt Payable, January 1, 2017 $ 2,000,000 Less: Bond Principal Paid 80,000 Bond Debt Payable, December 31, 2017 $ 1,920,000 The District has an underlying rating of AA. The Series 2005 bonds carry an insured rating of A3 by virtue of bond insurance issued by Assured Guaranty Corporation. The above ratings reflects changes, if any, during the fiscal year ended December 31, 2017. CONTACTING THE DISTRICT S MANAGEMENT This financial report is designed to provide a general overview of the District s finances. Questions concerning any of the information provided in this report or requests for additional information should be addressed to East Plantation Utility District, P.O. Box 2037, Conroe, TX 77305. -7-
STATEMENT OF NET POSITION AND GOVERNMENTAL FUNDS BALANCE SHEET DECEMBER 31, 2017 Debt General Fund Service Fund ASSETS Cash $ 372,332 $ 586,574 Investments 15,048 61,282 Receivables: Property Taxes 129,697 109,403 Penalty and Interest on Delinquent Taxes Service Accounts 29,408 Due from Other Funds 239,004 Prepaid Costs 1,984 Land Capital Assets (Net of Accumulated Depreciation) TOTAL ASSETS $ 787,473 $ 757,259 LIABILITIES Accounts Payable $ 27,199 $ Accrued Interest Payable Due to Other Funds 239,004 Security Deposits 63,100 Long-Term Liabilities: Bonds Payable, Due Within One Year Bonds Payable, Due After One Year TOTAL LIABILITIES $ 90,299 $ 239,004 DEFERRED INFLOWS OF RESOURCES Property Taxes $ 403,009 $ 328,052 FUND BALANCES Nonspendable: Prepaid Costs $ 1,984 $ Restricted for Debt Service 190,203 Unassigned 292,181 TOTAL FUND BALANCES $ 294,165 $ 190,203 TOTAL LIABILITIES, DEFERRED INFLOWS OF RESOURCES AND FUND BALANCES $ 787,473 $ 757,259 NET POSITION Net Investment in Capital Assets Restricted for Debt Service Unrestricted TOTAL NET POSITION The accompanying notes to the financial statements are an integral part of this report. -8-
Statement of Total Adjustments Net Position $ 958,906 $ $ 958,906 76,330 76,330 239,100 239,100 18,092 18,092 29,408 29,408 239,004 (239,004) 1,984 1,984 90,364 90,364 1,830,718 1,830,718 $ 1,544,732 $ 1,700,170 $ 3,244,902 $ 27,199 $ $ 27,199 29,862 29,862 239,004 (239,004) 63,100 63,100 85,000 85,000 1,802,238 1,802,238 $ 329,303 $ 1,678,096 $ 2,007,399 $ 731,061 $ (32,185) $ 698,876 $ 1,984 $ (1,984) $ 190,203 (190,203) 292,181 (292,181) $ 484,368 $ (484,368) $ - 0 - $ 1,544,732 $ 33,844 195,874 $ 33,844 195,874 308,909 308,909 $ 538,627 $ 538,627 The accompanying notes to the financial statements are an integral part of this report. -9-
RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET POSITION DECEMBER 31, 2017 Total Fund Balances - Governmental Funds $ 484,368 Amounts reported for governmental activities in the Statement of Net Position are different because: Capital assets used in governmental activities are not current financial resources and, therefore, are not reported as assets in the governmental funds. 1,921,082 Deferred inflows of resources related to property tax revenues and penalty and interest receivable on delinquent taxes for the 2016 and prior tax levies became part of recognized revenue in the governmental activities of the District. 50,277 Certain liabilities are not due and payable in the current period and, therefore, are not reported as liabilities in the governmental funds. These liabilities at year-end consist of: Accrued Interest Payable $ (29,862) Bonds Payable (1,887,238) (1,917,100) Total Net Position - Governmental Activities $ 538,627 The accompanying notes to the financial statements are an integral part of this report. - 10-
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STATEMENT OF ACTIVITIES AND GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES FOR THE YEAR ENDED DECEMBER 31, 2017 Debt General Fund Service Fund REVENUES Property Taxes $ 366,498 $ 252,193 Water Service 147,587 Wastewater Service 206,088 Penalty and Interest 10,202 16,662 Tap Connection and Inspection Fees 1,928 Miscellaneous Revenues 15,227 2,826 TOTAL REVENUES $ 747,530 $ 271,681 EXPENDITURES/EXPENSES Service Operations: Professional Fees $ 57,913 $ 2,103 Contracted Services 47,647 5,712 Purchased Wastewater Service 121,412 Utilities 45,208 Repairs and Maintenance 130,418 Salaries and Benefits 212,946 Depreciation Other 93,632 Debt Service: Bond Principal 80,000 Bond Interest 93,105 TOTAL EXPENDITURES/EXPENSES $ 709,176 $ 180,920 NET CHANGE IN FUND BALANCES $ 38,354 $ 90,761 CHANGE IN NET POSITION FUND BALANCES/NET POSITION - JANUARY 1, 2017 255,811 99,442 FUND BALANCES/NET POSITION - DECEMBER 31, 2017 $ 294,165 $ 190,203 The accompanying notes to the financial statements are an integral part of this report. -11-
Statement of Total Adjustments Activities $ 618,691 $ (21,302) $ 597,389 147,587 147,587 206,088 206,088 26,864 (14,438) 12,426 1,928 1,928 18,053 18,053 $ 1,019,211 $ (35,740) $ 983,471 $ 60,016 $ $ 60,016 53,359 53,359 121,412 121,412 45,208 45,208 130,418 130,418 212,946 212,946 159,682 159,682 93,632 93,632 80,000 (80,000) 93,105 1,049 94,154 $ 890,096 $ 80,731 $ 970,827 $ 129,115 $ (129,115) $ 12,644 12,644 355,253 170,730 525,983 $ 484,368 $ 54,259 $ 538,627 The accompanying notes to the financial statements are an integral part of this report. - 12 -
RECONCILIATION OF THE GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES TO THE STATEMENT OF ACTIVITIES FOR THE YEAR ENDED DECEMBER 31, 2017 Net Change in Fund Balances - Governmental Funds $ 129,115 Amounts reported for governmental activities in the Statement of Activities are different because: Governmental funds report tax revenues when collected. However, in the Statement of Activities, revenues are recorded in the accounting period for which the taxes are levied. (21,302) Governmental funds report penalty and interest revenue on delinquent property taxes when collected. However, in the Statement of Activities, revenues are recorded when penalty and interest are assessed. (14,438) Governmental funds do not account for depreciation. However, in the Statement of Net Position, capital assets are depreciated and depreciation expense is recorded in the Statement of Activities. (159,682) Governmental funds report bond principal payments on long-term debt as expenditures. However, in the Statement of Net Position, bond principal payments decrease long-term liabilities and the Statement of Activities is not affected. 80,000 Governmental funds report interest payments on long-term debt as expenditures in the year paid. However, in the Statement of Net Position, interest is accrued on the debt through fiscal year-end. (1,049) Change in Net Position - Governmental Activities $ 12,644 The accompanying notes to the financial statements are an integral part of this report. - 13 -
NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2017 NOTE 1. CREATION OF DISTRICT East Plantation Utility District, located in Montgomery County, Texas was created by House Bill Number 1087 on June 10, 1969, pursuant to the authority of Chapter 51, Texas Water Code, and Article XVI, Section 59 of the Texas Constitution. Pursuant to the provisions of Chapters 49 and 51 of the Texas Water Code, the District is empowered to purchase, operate and maintain all facilities, plants and improvements necessary to provide water, sanitary sewer service, storm sewer drainage, irrigation, solid waste collection and disposal, including recycling, parks and recreational facilities for the residents of the District. The District is also empowered to contract for or employ its own peace officers with powers to make arrests and to establish, operate and maintain a fire department to perform all fire-fighting activities within the District. The first bonds were sold on December 31, 1970. NOTE 2. SIGNIFICANT ACCOUNTING POLICIES The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America as promulgated by the Governmental Accounting Standards Board ( GASB ). In addition, the accounting records of the District are maintained generally in accordance with the Water District Financial Management Guide published by the Commission. The District is a political subdivision of the State of Texas governed by an elected board. GASB has established the criteria for determining whether an entity is a primary government or a component unit of a primary government. The primary criteria are that it has a separately elected governing body, it is legally separate, and it is fiscally independent of other state and local governments. Under these criteria, the District is considered a primary government and is not a component unit of any other government. Additionally, no other entities meet the criteria for inclusion in the District s financial statement as component units. The District has entered into a joint venture with River Plantation Municipal Utility District ( River Plantation ) for wastewater disposal. Oversight responsibility of the wastewater disposal plant is by River Plantation. Additional disclosure concerning the joint venture is provided in Note 8. Financial Statement Presentation These financial statements have been prepared in accordance with GASB Codification of Governmental Accounting and Financial Reporting Standards Part II, Financial Reporting ( GASB Codification ). - 14 -
NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2017 NOTE 2. SIGNIFICANT ACCOUNTING POLICIES (Continued) Financial Statement Presentation (Continued) GASB Codification sets forth standards for external financial reporting for all state and local government entities, which include a requirement for a Statement of Net Position and a Statement of Activities. It requires the classification of net position into three components: Net Investment in Capital Assets; Restricted; and Unrestricted. These classifications are defined as follows: Net Investment in Capital Assets This component of net position consists of capital assets, including restricted capital assets, net of accumulated depreciation and reduced by the outstanding balances of any bonds, mortgages, notes, or other borrowings that are attributable to the acquisition, construction, or improvements of those assets. Restricted Net Position This component of net position consists of external constraints placed on the use of assets imposed by creditors (such as through debt covenants), grantors, contributors, or laws or regulation of other governments or constraints imposed by law through constitutional provisions or enabling legislation. Unrestricted Net Position This component of net position consists of assets that do not meet the definition of Restricted or Net Investment in Capital Assets. When both restricted and unrestricted resources are available for use, generally it is the District s policy to use restricted resources first. Government-Wide Financial Statements The Statement of Net Position and the Statement of Activities display information about the District as a whole. The District s Statement of Net Position and Statement of Activities are combined with the governmental fund financial statements. The District is viewed as a specialpurpose government and has the option of combining these financial statements. The Statement of Net Position is reported by adjusting the governmental fund types to report on the full accrual basis, economic resource basis, which recognizes all long-term assets and receivables as well as long-term debt and obligations. Any amounts recorded due to and due from other funds are eliminated in the Statement of Net Position. The Statement of Activities is reported by adjusting the governmental fund types to report only items related to current year revenues and expenditures. Items such as capital outlay are allocated over their estimated useful lives as depreciation expense. Internal activities between governmental funds, if any, are eliminated by adjustment to obtain net total revenue and expense of the government-wide Statement of Activities. - 15 -
NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2017 NOTE 2. SIGNIFICANT ACCOUNTING POLICIES (Continued) Fund Financial Statements As discussed above, the District s fund financial statements are combined with the governmentwide financial statements. The fund financial statements include a Balance Sheet and a Statement of Revenues, Expenditures and Changes in Fund Balances. Governmental Funds The District has two major governmental funds. General Fund -. To account for resources not required to be accounted for in another fund, customer service revenues, operating costs and general expenditures. Debt Service Fund - To account for ad valorem taxes and financial resources restricted, committed or assigned for servicing bond debt and the cost of assessing and collecting taxes. Basis of Accounting The District uses the modified accrual basis of accounting for governmental fund types. The modified accrual basis of accounting recognizes revenues when both measurable and available. Measurable means the amount can be determined. Available means collectable within the current period or soon enough thereafter to pay current liabilities. The District considers revenue reported in governmental funds to be available if they are collectable within 60 days after yearend. Also, under the modified accrual basis of accounting, expenditures are recorded when the related fund liability is incurred, except for principal and interest on long-term debt, which are recognized as expenditures when payment is due. Property taxes considered available by the District and included in revenue include the 2016 tax levy collections during the period October 1, 2016, to December 31, 2017, and taxes collected from January 1, 2017, to December 31, 2017, for the 2015 and prior tax levies. The 2017 tax levy has been fully deferred to meet the cost of operations for the 2018 year. Deferred inflows of resources related to property tax revenues are those taxes which the District does not reasonably expect to be collected in the subsequent period to finance current expenditures. - 16-
NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2017 NOTE 2. SIGNIFICANT ACCOUNTING POLICIES (Continued) Basis of Accounting (Continued) Amounts transferred from one fund to another fund are reported as other financing sources or uses. Loans by one fund to another fund and amounts paid by one fund for another fund are reported as interfund receivables and payables in the Governmental Funds Balance Sheet if there is intent to repay the amount and if the debtor fund has the ability to repay the advance on a timely basis. As of December 31, 2017, the Debt Service Fund owed the General Fund $239,004 for maintenance tax collections and tax collection costs. Capital Assets Capital assets, which include property, plant, equipment, and infrastructure assets, are reported in the government-wide Statement of Net Position. All capital assets are valued at historical cost or estimated historical cost if actual historical cost is not available. Donated assets are valued at their fair market value on the date donated. Repairs and maintenance are recorded as expenditures in the governmental fund incurred and as an expense in the government-wide Statement of Activities. Capital asset additions, improvements and preservation costs that extend the life of an asset are capitalized and depreciated over the estimated useful life of the asset. Interest costs, including developer interest, engineering fees and certain other costs are capitalized as part of the asset. Assets are capitalized, including infrastructure assets, if they have an original cost greater than $20,000 and a useful life over two years. Depreciation is calculated on each class of depreciable property using the straight-line method of depreciation. Estimated useful lives are as follows: Budgeting Years Buildings and Equipment 3-40 Water System 10-45 Wastewater System 10-45 Drainage System 10-45 In compliance with governmental accounting principles, the Board of Directors annually adopts an unappropriated budget for the General Fund. The budget was not amended during the current fiscal year. - 17 -
NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2017 NOTE 2. SIGNIFICANT ACCOUNTING POLICIES (Continued) Pensions The District has three full-time employees. Payments are made into the social security system for them. The Internal Revenue Service has determined that fees of office received by Directors are wages subject to federal income tax withholding for payroll purposes only. A separate pension plan has not been established for the employees or directors. Measurement Focus Measurement focus is a term used to describe which transactions are recognized within the various financial statements. In the government-wide Statement of Net Position and Statement of Activities, the governmental activities are presented using the economic resources measurement focus. The accounting objectives of this measurement focus are the determination of operating income, changes in net assets, financial position, and cash flows. All assets and liabilities associated with the activities are reported. Fund equity is classified as net assets. Governmental fund types are accounted for on a spending or financial flow measurement focus. Accordingly, only current assets and current liabilities are included on the Balance Sheet, and the reported fund balances provide an indication of available spendable or appropriable resources. Operating statements of governmental fund types report increases and decreases in available spendable resources. Fund balances are classified using the following hierarchy: Nonspendable: amounts that cannot be spent either because they are in nonspendable form or because they are legally or contractually required to be maintained intact. Restricted: amounts that can be spent only for specific purposes because of constitutional provisions, or enabling legislation, or because of constraints that are imposed externally. Committed: amounts that can be spent only for purposes determined by a formal action of the Board of Directors. The Board is the highest level of decision-making authority for the District. This action must be made no later than the end of the fiscal year. Commitments may be established, modified, or rescinded only through ordinances or resolutions approved by the Board. The District does not have any committed fund balances. Assigned: amounts that do not meet the criteria to be classified as restricted or committed, but that are intended to be used for specific purposes. The District has not adopted a formal policy regarding the assignment of fund balances and does not have any assigned fund balances. Unassigned: all other spendable amounts in the General Fund. - 18-
NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2017 NOTE 2. SIGNIFICANT ACCOUNTING POLICIES (Continued) Measurement Focus (Continued) When expenditures are incurred for which restricted, committed, assigned or unassigned fund balances are available, the District considers amounts to have been spent first out of restricted funds, then committed funds, then assigned funds, and finally unassigned funds. Accounting Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenditures during the reporting period. Actual results could differ from those estimates. NOTE 3. LONG-TERM DEBT The following is a summary of transactions regarding bonds payable for the year ended December 31, 2017: January 1, December 31, 2017 Additions Retirements 2017 Bonds Payable $ 2,000,000 $ $ 80,000 $ 1,920,000 Unamortized Discount (34,984) (2,222) (32,762) Bonds Payable, Net $ 1,965,016 $ -0- $ 77,778 $ 1,887,238 Amount Due Within One Year $ 85,000 Amount Due After One Year 1,802,238 Bonds Payable, Net $ 1,887,238 As of December 31, 2017, the debt service requirements on the bonds outstanding were as follows: Fiscal Year Principal Interest Total 2018 $ 85,000 $ 89,585 $ 174,585 2019 85,000 85,845 170,845 2020 95,000 82,105 177,105 2021 100,000 77,878 177,878 2022 105,000 73,427 178,427 2023-2027 620,000 288,970 908,970 2028-2032 830,000 123,610 953,610 $ 1,920,000 $ 821,420 $ 2,741,420-19 -
NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2017 NOTE 3. LONG-TERM DEBT (Continued) The District s bonds payable at December 31, 2017, consists of the following: Series 2005 Amount Outstanding - December 31, 2017 $1,920,000 Interest Rates 4.40% - 4.80% Maturity Dates Serially September 1, Beginning/Ending 2018/2032 Interest Payment Dates March 1/September 1 Callable Dates September 1, 20 12* * Or any date thereafter, callable at par plus unpaid accrued interest in whole or in part at the option of the District. Series 2005 term bonds due September 1, 2019, September 1, 2021, September 1, 2023, September 1, 2025, September 1, 2027, September 1, 2029, and September 1, 2032, are subject to mandatory redemption by lot or other customary method at a price of par plus accrued interest on September 1 in the years and amounts as reflected in the debt service schedules. As of December 31, 2017, the District has remaining refunding bond authorization of $355,000. The bonds are payable from the proceeds of an ad valorem tax levied upon all property subject to taxation within the District, without limitation as to rate or amount and are further payable from and secured by a lien on and pledge of the net revenues to be received from the operation of the District s waterworks and wastewater system. During the year ended December 31, 2017, the District levied an ad valorem debt service tax rate of $0.24 per $100 of assessed valuation, which resulted in a tax levy of $310,612 on the adjusted taxable valuation of $129,420,223 for the 2017 tax year. The bond resolution requires the District to levy and collect an ad valorem debt service tax sufficient to pay interest and principal on bonds when due and the cost of assessing and collecting taxes. See Note 7 for the maintenance tax levy. The District s tax calendar is as follows: Levy Date Lien Date - January 1. - October 1, as soon thereafter as practicable. Due Date - Not later than January 31. Delinquent Date - February 1, at which time the taxpayer is liable for penalty and interest. - 20 -
NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2017 NOTE 4. SIGNIFICANT BOND RESOLUTION AND LEGAL REQUIREMENTS The Series 2005 bond resolution states that the District is required by the Securities and Exchange Commission to provide continuing disclosure of certain general financial information and operating data with respect to the District to certain information repositories. This information is to be provided within six months after the end of each fiscal year and shall continue to be provided through the life of the bonds. NOTE 5. DEPOSITS AND INVESTMENTS Deposits Custodial credit risk is the risk that, in the event of the failure of a depository financial institution, a government will not be able to recover deposits or will not be able to recover collateral securities that are in the possession of an outside party. The District s deposit policy for custodial credit risk requires compliance with the provisions of Texas statutes. Texas statutes require that any cash balance in any fund shall, to the extent not insured by the Federal Deposit Insurance Corporation or its successor, be continuously secured by a valid pledge to the District of securities eligible under the laws of Texas to secure the funds of the District, having an aggregate market value, including accrued interest, at all times equal to the uninsured cash balance in the fund to which such securities are pledged. At fiscal year end, the carrying amount of the District s deposits was $958,906 and the bank balance was $842,902. The District was not exposed to custodial credit risk at year-end. The carrying values of the deposits are included in the Governmental Funds Balance Sheet and the Statement of Net Position at December 31, 2017, as listed below: Investments Cash GENERAL FUND $ 372,332 DEBT SERVICE FUND 586,574 TOTAL DEPOSITS $ 958,906 Under Texas law, the District is required to invest its funds under written investment policies that primarily emphasize safety of principal and liquidity and that address investment diversification, yield, maturity, and the quality and capability of investment management, and all District funds must be invested in accordance with the following investment objectives: understanding the suitability of the investment to the District s financial requirements, first; preservation and safety of principal, second; liquidity, third; marketability of the investments if the need arises to liquidate the investment before maturity, fourth; diversification of the investment portfolio, fifth; and yield, sixth. The District s investments must be made with judgment and care, under prevailing circumstances, that a person of prudence, discretion, and intelligence would exercise -21 -
NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2017 NOTES. DEPOSITS AND INVESTMENTS (Continued) Investments (Continued) in the management of the person s own affairs, not for speculation, but for investment, considering the probable safety of capital and the probable income to be derived. No person may invest District funds without express written authority from the Board of Directors. Texas statutes include specifications for and limitations applicable to the District and its authority to purchase investments as defined in the Public Funds Investment Act. The District has adopted a written investment policy to establish the guidelines by which it may invest. This policy is reviewed annually. The District s investment policy may be more restrictive than the Public Funds Investment Act. The District invests in TexPool, an external investment pool that is not SEC-registered. The Texas Comptroller of Public Accounts has oversight of the pool. Federated Investors, Inc. manages the daily operations of the pool under a contract with the Comptroller. TexPool measures all of its portfolio assets at amortized cost. As a result, the District also measures its investments in TexPool at amortized cost for financial reporting purposes. There are no limitations or restrictions on withdrawals from TexPool. As of December 31, 2017, the District had the following investments and maturities: Maturities of Fund and Less Than Investment Type Fair Value 1 Year GENERAL FUND TexPool $ 15,048 $ 15,048 DEBT SERVICE FUND TexPool 61,282 61,282 TOTAL INVESTMENTS $ 76,330 $ 76,330 Credit risk is the risk that the issuer or other counterparty to an investment will not fulfill its obligations. At December 31, 2017, the District s investment in TexPool was rated AAAm by Standard and Poor s. Interest rate risk is the risk that changes in interest rates will adversely affect the fair value of an investment. The District considers the investment in TexPool to have a maturity of less than one year due to the fact the share position can usually be redeemed each day at the discretion of the District, unless there has been a significant change in value. Restrictions All cash and investments of the Debt Service Fund are restricted for the payment of debt service and the cost of assessing and collecting taxes. - 22 -
NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2017 NOTE 6. CAPITAL ASSETS The following is a summary of changes in capital assets for the year ended December 31, 2017: January 1, December 31, 2017 Increases Decreases 2017 Capital Assets Not Being Depreciated Land and Land Improvements $ 90,364 $ -0- $ -0- $ 90,364 Capital Assets Subject to Depreciation Buildings and Equipment $ 104,024 $ $ $ 104,024 Water System 3,721,341 3,721,341 Wastewater System 1,808,367 1,808,367 Drainage System 200,782 200,782 Total Capital Assets Subject to Depreciation $ 5,834,514 $ -0- $ -0- $ 5,834,514 Less Accumulated Depreciation BuildingsandEquipment $ 100,447 $ 899 $ $ 101,346 Water System 2,310,685 113,906 2,424,591 Wastewater System 1,333,653 40,415 1,374,068 Drainage System 99,329 4,462 103,791 Total Accumulated Depreciation $ 3,844,114 $ 159,682 $ 0 $ 4,003,796 Total Depreciable Capital Assets, Net of Accumulated Depreciation $ 1,990,400 $ (159,682) $ -0- $ 1,830,718 Total Capital Assets, Net of Accumulated Depreciation $ 2,080,764 $ (159,682) $ -0- $ 1,921,082 NOTE 7. MAINTENANCE TAX At an election held on August 13, 1977, the voters of the District approved the levy and collection of a maintenance tax not to exceed $0.30 per $100 of assessed valuation of taxable property within the District. During the year ended December 31, 2017, the District levied an ad valorem maintenance tax rate of $0.30 per $100 of assessed valuation, which resulted in a tax levy of $388,264 on the adjusted taxable valuation of $129,420,223 for the 2017 tax year. Tax revenues from the 2017 tax levy have been deferred to meet the District s planned expenditures of the 2018 fiscal year. NOTE 8. JOINT VENTURE FOR SEWAGE TREATMENT PLANT The District entered into an agreement with River Plantation Municipal Utility District (River Plantation), whereby River Plantation will operate and maintain a 600,000 gallons per day (gpd) joint sewage treatment plant to serve both districts. The agreement provides that the District has a 41% ownership in all existing sewage treatment facilities. The District pays its pro rata share of operating costs of the plant based on the number of sewer connections it has in relation to the total number of connections in both the District and River Plantation. The agreement also includes the allocation of costs for certain drainage maintenance costs. The District is - 23 -
NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2017 NOTE 8. JOINT VENTURE FOR SEWAGE TREATMENT PLANT (Continued) responsible for 37.5% of these costs, while River Plantation is responsible for the remaining 62.5%. River Plantation has oversight responsibility for this joint venture. During the current fiscal year, the District paid $121,412 for its pro rata share of the wastewater treatment plant operations and maintenance costs and drainage maintenance costs. NOTE 9. GROUNDWATER REDUCTION PLAN AGREEMENT On November 2, 2010, the District entered into a Groundwater Reduction Plan Agreement (the Agreement ) with River Plantation and the River Plantation Country Club for the purpose of jointly complying with the requirements and mandates of the Lone Star Groundwater Conservation District (the Conservation District ). The Conservation District, which was created to conserve and protect the groundwater aquifers beneath Montgomery County, has established a District Regulatory Plan to reduce groundwater production from certain aquifers located within Montgomery County. The Agreement provides for the preparation and implementation of a joint Groundwater Reduction Plan (GRP) which is managed by River Plantation. The provisions of this Agreement will be in effect for a term equal to the life of the GRP. NOTE 10. RISK MANAGEMENT The District is exposed to various risks of loss related to torts; theft or damage to and destruction of assets; errors and omissions; and natural disasters for which the District carries commercial insurance. There have been no significant reductions in coverage from the prior year and settlements have not exceeded coverage in the past three years. - 24 -