COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR THE FISCAL YEAR ENDED JUNE 30, 2015 425 10TH STREET, DOUGLAS, ARIZONA 85607 Telephone (520) 417-7333 Fax (520) 417-7162 THIS PAGE BLANK CITY OF DOUGLAS, ARIZONA COMPREHENSIVE ANNUAL FINANCIAL REPORT YEAR ENDED JUNE 30, 2015 Danny Ortega Jr. Mayor Councilmembers Margaret Morales Ken Nelson Ben LaForge Patricia Lopez Luis Greer Fernando Betancourt Carlos A. De La Torre City Manager Prepared by: Finance Department THIS PAGE BLANK CITY OF DOUGLAS, ARIZONA COMPREHENSIVE ANNUAL FINANCIAL REPORT TABLE OF CONTENTS YEAR ENDED JUNE 30, 2015 INTRODUCTORY SECTION LETTER OF TRANSMITTAL 1 LIST OF PRINCIPAL OFFICIALS 6 ORGANIZATIONAL CHART 7 GFOA CERTIFICATE OF ACHIEVEMENT 8 FINANCIAL SECTION INDEPENDENT AUDITORS’ REPORT 9 REQUIRED SUPPLEMENTARY INFORMATION MANAGEMENT’S DISCUSSION AND ANALYSIS 12 BASIC FINANCIAL STATEMENT STATEMENT OF NET POSITION 23 STATEMENT OF ACTIVITIES 25 BALANCE SHEET – GOVERNMENTAL FUNDS 27 RECONCILIATION OF THE BALANCE SHEET OF GOVERNMENTAL FUNDS TO THE STATEMENT OF NET POSITION 28 STATEMENT OF REVENUES, EXPENDITURES, AND CHANGE IN FUND BALANCES – GOVERNMENTAL FUNDS 29 RECONCILIATION OF THE STATEMENT OF REVENUES, EXPENDITURES, AND CHANGE IN FUND BALANCES IN THE GOVERNMENTAL FUNDS TO THE STATEMENT OF ACTIVITIES 30 STATEMENT OF NET POSITION – PROPRIETARY FUNDS 31 STATEMENT OF REVENUES, EXPENSES, AND CHANGE IN NET POSITION – PROPRIETARY FUNDS 32 STATEMENT OF CASH FLOWS – PROPRIETARY FUNDS 33 NOTES TO BASIC FINANCIAL STATEMENTS 35 CITY OF DOUGLAS, ARIZONA COMPREHENSIVE ANNUAL FINANCIAL REPORT TABLE OF CONTENTS (CONTINUED) YEAR ENDED JUNE 30, 2015 FINANCIAL SECTION (CONTINUED) REQUIRED SUPPLEMENTARY INFORMATION SCHEDULE OF THE CITY’S PROPORTIONATE SHARE OF NET PENSION LIABILITY – COST SHARING PENSION PLANS 74 SCHEDULE OF CHANGES IN THE CITY’S NET PENSION LIABILITY AND RELATED RATIOS – AGENT PENSION PLANS 75 SCHEDULE OF CITY PENSION CONTRIBUTIONS 77 NOTES TO PENSION SCHEDULES 78 SCHEDULE OF AGENT OPEB PLANS’ FUNDING PROGRESS 79 NOTES TO SCHEDULE OF AGENT OPEB PLANS’ FUNDING PROGRESS 80 BUDGETARY COMPARISON SCHEDULE – GENERAL FUND 81 NOTES TO BUDGETARY COMPARISON SCHEDULE – GENERAL FUND 83 COMBINING AND INDIVIDUAL FUND STATEMENTS AND SCHEDULES NONMAJOR GOVERNMENTAL FUNDS COMBINING BALANCE SHEET 84 COMBINING STATEMENT OF REVENUES, EXPENDITURES, AND CHANGE IN FUND BALANCES 86 SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGE IN FUND BALANCE – BUDGET AND ACTUAL – MPC DEBT SERVICE FUND 88 SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGE IN FUND BALANCE – BUDGET AND ACTUAL – HURF FUND 89 SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGE IN FUND BALANCE – BUDGET AND ACTUAL – GRANTS FUND 90 SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGE IN FUND BALANCE – BUDGET AND ACTUAL – POLICE GRANTS FUND 91 SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGE IN FUND BALANCE – BUDGET AND ACTUAL – JCEF RESTRICTED COURT FUND 92 SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGE IN FUND BALANCE – BUDGET AND ACTUAL – CAPITAL PROJECTS FUND 93 SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGE IN FUND BALANCE – BUDGET AND ACTUAL – DEBT SERVICE FUND 94 CITY OF DOUGLAS, ARIZONA COMPREHENSIVE ANNUAL FINANCIAL REPORT TABLE OF CONTENTS (CONTINUED) YEAR ENDED JUNE 30, 2015 STATISTICAL SECTION (UNAUDITED) FINANCIAL TRENDS NET POSITION BY COMPONENT 95 CHANGES IN NET POSITION 97 GOVERNMENTAL ACTIVITIES TAX REVENUES BY SOURCE 101 FUND BALANCES OF GOVERNMENTAL FUNDS 102 CHANGES IN FUND BALANCES OF GOVERNMENTAL FUNDS 104 REVENUE CAPACITY TAXABLE SALES BY CATEGORY 106 DIRECT AND OVERLAPPING SALES TAX RATES 108 ASSESSED VALUE AND ESTIMATED ACTUAL VALUE OF TAXABLE PROPERTY 109 PROPERTY TAX RATES – DIRECT AND OVERLAPPING GOVERNMENTS 110 PRINCIPAL PROPERTY TAXPAYERS 111 PROPERTY TAX LEVIES AND COLLECTIONS 112 DEBT CAPACITY RATIOS OF OUTSTANDING DEBT BY TYPE 114 DIRECT AND OVERLAPPING GOVERNMENTAL ACTIVITIES DEBT 115 LEGAL DEBT MARGIN INFORMATION 116 CALCULATION OF LEGAL DEBT MARGIN 118 PLEDGED-REVENUE COVERAGE 119 DEMOGRAPHIC AND ECONOMIC INFORMATION DEMOGRAPHIC AND ECONOMIC STATISTICS 121 PRINCIPAL EMPLOYERS 122 OPERATING INFORMATION FULL-TIME EQUIVALENT EMPLOYEES BY FUNCTION 123 OPERATING INDICATORS BY FUNCTION 124 CAPITAL ASSETS STATISTICS BY FUNCTION 126 THIS PAGE BLANK INTRODUCTORY SECTION THIS PAGE BLANK THE CITY OF DOUGLAS 425 10TH STREET, DOUGLAS, ARIZONA 85607 Telephone (520) 417-7333 Fax (520) 417-7162 FINANCE DEPARTMENT December 21, 2015 Mayor and City Council Citizens of the City of Douglas, Arizona The Arizona Auditor General Office requires all local government entities to file a complete set of financial statements presented in conformity with generally accepted accounting principles (GAAP) and audited in accordance with generally accepted auditing standards by a licensed certified public accounting firm with their office by October 31st or by February 28th of each year if an automatic extension is requested. Pursuant of that requirement, we hereby issue the comprehensive annual financial report of the City of Douglas, Arizona for the fiscal year ended June 30, 2015. The report consists of management’s representations concerning the finances of the City of Douglas, Arizona. Consequently, management assumes full responsibility for the completeness and reliability of all of the information presented in this report. To provide a reasonable basis for making these representations, management of the City of Douglas, Arizona has established a comprehensive internal control framework that is designed both to protect the government assets from loss, theft, or misuse and to compile sufficient reliable information for the preparation of City of Douglas’s financial statements in conformity with Generally Accepted Accounting Principles (GAAP). Because the cost of internal controls should not outweigh their benefits, the City of Douglas’s comprehensive framework of internal controls has been designed to provide reasonable rather than absolute assurance that the financial statements will be free from material misstatements. As management, we assert that, to the best of our knowledge and belief, this financial report is complete and reliable in all material respects. The financial statements contained herein have been audited by CliftonLarsonAllen LLP a firm of licensed certified public accountants. The goal of the independent audit was to provide reasonable assurance that the financial statements of the City of Douglas, Arizona for the Fiscal-Year-Ended June 30, 2015 are free of material misstatements. The independent audit involved examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements; assessing the accounting principles used and significant estimates made by management; and evaluating the overall financial statements presentation. The independent auditors concluded, based upon the audit, that there was a reasonable basis for rendering an unmodified opinion of City of Douglas’s financial statements for the Fiscal-Year-Ended June 30, 2015, and that they are fairly presented in conformity with GAAP. The independent auditors’ report is presented as the first component of the financial section of this report. GAAP requires that management provide a narrative introduction, overview, and analysis to accompany the basic financial statements in the form of Management’s Discussion and Analysis (MD&A). This letter of transmittal is designed to complement MD&A and should be read in conjunction with it. The City of Douglas’s MD&A can be found immediately following the reports of the independent auditors. (1) Mayor and City Council Citizens of the City of Douglas, Arizona The City of Douglas, Arizona is required to undergo an annual single audit in conformity with the provisions of the Single Audit Act Amendments of 1996 and the U.S. Office of Management and Budget (OMB) Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations. Information related to this single audit, including the schedule of federal awards, findings and recommendations and auditors’ reports on the internal control structure and compliance with applicable laws and regulations are included in the single audit report which is available for review at the City of Douglas, Arizona offices. This report includes all funds of the City of Douglas, Arizona. The City of Douglas, Arizona provides a full range of services that includes police and fire protection; emergency medical services; water, sewer and sanitation services; the construction and maintenance of highways, streets, and infrastructure; recreational activities including an aquatic center, library, visitor center, golf course, public housing, and cultural events. In addition to general government activities, the City of Douglas, Arizona reports a governmental components unit Pioneer Village and one business-type component unit Rancho La Perilla Apartments and, therefore, these activities are included as discretely presented component units. Profile of the City The City of Douglas is located in Southeastern Arizona 117 miles southeast of Tucson on the U.S./Mexico border. Although it has a population of 16,989 people, it serves a commercial market of approximately 160,000. Agua Prieta, Sonora, Mexico (just across the international border from Douglas) is a part of our market and has a population of approximately 125,000. Our two cities share an interdependent economy and culture. Government Structure The Douglas City government is comprised of a Mayor and six Council members, elected by City residents for four year terms. The Mayor is elected at-large, which means that registered voters from all City wards cast their ballots for the mayoral candidates. Council members are elected by registered voters from their respective wards. The Mayor and Council members have equal voting power to create, pass, or disapprove local laws, ordinances, and resolutions that govern the City. The Mayor Pro Tem is appointed by the Mayor. The City Manager, who is appointed by the City Council, is responsible for the overall operation and supervision of the government functions within the policy directives of the City Council. As the administrative head of the City government, he is responsible for the appointment and dismissal of all employees, except for the City Magistrate, City Clerk, City Treasurer, and City Attorney who are appointed by the Mayor and Council. Economic Condition and Outlook The City’s economy is primarily based on the commercial exchange with Mexico. The Douglas/Agua Prieta connection continues to strengthen with the coordinated efforts of both local governments for the expansion of the existing and development of a new commercial port of entry. The City’s major employers consist of governmental entities such as Arizona State Prison Complex, Customs and Border Protection, Douglas Unified School District, Cochise College and the City of Douglas. Private and major employers in the City include Advanced Call Center Technologies and Wal-Mart Stores. According to the Cochise College for Economic Research the City’s unemployment rate at the end of March 2015 was at 7.8%, which is significantly above the national and state unemployment rates of 6.5% and 6.2% respectively. (2) Mayor and City Council Citizens of the City of Douglas, Arizona Major Initiatives The construction of a new commercial port of entry in Douglas continues to be a common goal for the Mayor and Council. This year the City experienced a setback when its application was denied by the Federal Government. Although, the federal government agreed that there is a need in Douglas for a new port, our project was denied due to the federal government restrictions on entering into long term leases. The City’s proposal included a City bond to be backed by a lease agreement of the facility; however the Federal government was looking for an outright donation. The City will continue to pursue other opportunities with the private sector but also reapply with the Federal government next funding cycle as well. The City continues to receive support from our congressional delegation as well as the Mexican government. Additionally, the City received support from the City of Douglas Industrial Development Authority through the purchase of 45 acres of land at the proposed port of entry site from the City that would allow them to develop these sites for future businesses. The City completed significant capital projects this year. The 0.3% sales tax levied for capital projects, $300,000 from the sale of the government center, left over proceeds from the prior year and grant funds allowed the City to complete $3.1 million in capital projects this year. The City added over $1.4 million in equipment purchases that included $1.1 million in IT infrastructure and software. We also invested $537,293 in our fleet, which added 18 vehicles, including two new transit buses, seven new police vehicles and nine work trucks for public works and parks. $116,708 was invested in City buildings and parks, which included new paint at City Hall, new carpet at our library, roof repair at our police station and lighting improvements at Veteran’s and Castro parks. There was $1,012,304 invested in streets, sidewalks, curbing and pathway improvements that included $283,720 in an overlay of our airport taxiway, and $669,718 of chip seal work on over 31,000 feet of roadway. Towards the end of April 2015, the City of Douglas Housing Corporation I sold the Casas de Esperanza housing complex to the private sector. The sale transferred the mortgage to the company Cochise Pacific Associates II and allowed the City to exit this business. The complex was in dire need of improvements, something that the City did not have funding allocated; however the Pacific Associates obtained funding through federal tax incentives which gave them the necessary capital to improve the property. The City also received a generous donation from an ex-firefighter from Syracuse New York that volunteered as a photographer from time to time for our Fire Department. The firefighter donated $136,718 to the Fire department for the exclusive purpose of paying medical and funeral expenses for those fire department personnel who are injured or die in the line of duty while fighting fires and who face financial hardship. The Council approved personnel rule changes this year providing employees a flexible work schedule, allowing limited employees to accrue annual leave and provide for a birthday holiday. In addition, several revisions were made to update the current organizational structure, clarify compensation changes on promotions, updating pension system rules according to the latest state statutes, disciplinary action and grievance procedure changes and other rule clarifications. Due to its positive financial performance, the City also provided a one-time bonus to employees this year. The bonus was calculated based on 20% of a $648,995 projected surplus. 40 hour employees received $700, 30 hour employees received $525 and 20 hour employees received $350. The bonus provided by Mayor and Council was attested to the fine work and sacrifice City employees made during the year that helped in achieving a surplus. (3) Mayor and City Council Citizens of the City of Douglas, Arizona Grant awards for public safety totaled $707,116 used for overtime reimbursement and equipment. The Library acquired five different grants to assist in the implementation of an RFID inventory system, implementation of new and maintenance of existing technology for a total of $80,406. The transit division received $370,905 in federal funds as well as $56,352 from local assistance including ACT Call Center, Cochise College and SEAGO. Upcoming Year Through the formation of the Public Facility Municipal Property Corporation, the City will relinquish management of the Golf Course in order to allow for more flexible policies on fees and provide greater expertise on golf course management. The MPC began operating July 1, 2015 and officially transitioned from the City in September. Under this plan the City hopes to see a reduction in the subsidy and an increase in play. The overall goal is to bring it to break-even point and put it on the market for sale. The transit department was awarded a bid from the City of Bisbee to manage their transit system beginning on October 1, 2015. The City will use existing manager and coordinator but hire additional staff and drivers for the Bisbee route. The venture should benefit both cities as Bisbee will see a reduction in their costs while our City will see an increase in its revenue that would go towards our Douglas transit match requirement. There are several construction projects scheduled for this year in our City. A new development has begun the permitting process to build a small business plaza on 7th street on the east side of Pan American. It is projected that a new CVS pharmacy and a Circle K will occupy the property. The construction of a new emergency room should also be underway this year. Copper Queen Medical committed to providing this service to the Douglas community next to its existing medical clinic. With the Douglas Regional Hospital closing, the City is currently resorting to using the emergency room in Bisbee. Our Fire department is currently travelling 23 miles to Bisbee for each emergency transport. This has increased the need for more personnel on the fire side and increased our operating costs. Lastly, the City will finalize the construction of a photovoltaic solar station at its waste water treatment plant. The solar station will supplement solar power to our waste water plant for a projected $35,000 in annual electrical savings. Long-Term Financial Planning With the establishment of written financial policies, the City has set financial goals and measures. We established reserve levels and are currently meeting all required levels at this time. The General fund balance reserve requirement is 30% of revenues and we are currently exceeding that at 44%. We are also meeting 45 days of expenses operations reserve, the 10% of average revenues for the past five years, capital (pay-as-you-go) reserve and debt reserve of one year of general government debt service obligations. Although the U.S. economy is slowly recovering, our local economy is not growing at the same pace. Local sales taxes only increased by about 1% this year. The strength of the dollar has made the peso weaker, thus less purchasing power for our visitors coming to shop from Mexico. (4) Mayor and City Council Citizens of the City of Douglas, Arizona We are also concerned about the state of our public safety retirement fund. Our contribution continues to grow and our unfunded liability is at 33% for police and 26% for fire as of June 30, 2014. The City’s self-funded health insurance had a good year this year which saw a 28% decrease in claims compared to the prior year, however overall continuing rising medical costs are something that the City continues to take into account in making the right health coverage decision for its employees. Although our finances are currently healthy, our revenues are struggling. It is by mitigating our expenses, that we have increased our fund balance by 55% over the last five years. In order to continue on a path of financial sustainability we must continue to control our costs as well as enhancing revenues by fostering growth and job creation. With this in mind, the City is prepared to undertake all challenges and impact the essential services to our citizens as little as possible as well as it is determined to preserve our valuable workforce. Our enterprise funds continue to be stable due to the rate increases passed by Mayor and Council. The City is seeking new ways to make these funds more efficient through the use of new technology in the hopes of keeping rates stable. Awards 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 Douglas for its comprehensive annual financial report for the fiscal year ended June 30, 2014. In order to be awarded a Certificate of Achievement, a government must publish an easily readable and efficiently organized comprehensive annual financial report. This report must satisfy both generally accepted accounting principles and applicable legal requirements. A Certificate of Achievement is valid for a period of one year only. We believe that our current comprehensive annual financial report continues to meet the Certificate of Achievement Program’s requirements and we are submitting it to the GFOA to determine its eligibility for another certificate. Acknowledgement We would like to express our appreciation to each member of the Finance Department who has assisted in the preparation of this report. We are thankful for having the Finance Committee of the City of Douglas providing their support and having them evaluate this report. And also, thanks to our independent auditors CliftonLarsonAllen LLP for their assistance in this process. Finally to the Douglas Mayor and City Council we extend heartfelt thanks for their support. It is their commitment to financial reporting excellence that allows the citizens of Douglas to be fully informed about their municipal government finances. Respectfully Submitted, (5) THIS PAGE BLANK CITY OF DOUGLAS, ARIZONA LIST OF PRINCIPAL OFFICIALS YEAR ENDED JUNE 30, 2015 ELECTED OFFICIALS Mayor Councilmember Councilmember Councilmember Councilmember Councilmember Councilmember Danny Ortega Jr. Margaret Morales Ken Nelson Ben LaForge Patricia Lopez Luis Greer Fernando Betancourt APPOINTED OFFICIALS City Manager City Clerk City Attorney City Treasurer City Magistrate Carlos A. De La Torre Brenda Aguilar Juan Pablo Flores Luis Pedroza Alma Vildosola DEPARTMENT DIRECTORS Finance Director Public Works Director Police Chief Fire Chief Deputy City Manager Housing Manager Luis Pedroza Lauren Ortega Kraig Fullen Mario Novoa Ana Urquijo Xenia Gonzalez (6) City of Douglas Organizational Chart Fiscal Year 2014-2015 Adm. Secretary (1) Mayor & Council (7)* Account Clerk III (1) Executive Assistant (1) City Magistrate (1)* Deputy City Manager (1) HR Manager (1) Adm Secretary (1) Library Manager (1) Library Sp II (3) Transit Manager (1) * Transit Coordinator (1)* Dispatcher / Adm Sec (1)* Transit Drivers (5)* Tourism Specialist (1) Leisure Services Manager (1) City Treasurer (.5) Assistant Aq Sup (1) Maintenance Tech II (1) Lead Rec Aide (1) Parks Supervisor (1) Parks Maint. Worker (8) Cemetery Lead Worker (1) Cemetery Worker I (1) Adm. Secretary (1) Housing Programs Specialist (1) Building / Planning & Zoning Specialist (2) Occupancy Specialist (1) Utilities Supervisor (1) Housing Sp for Property Mg (1) Golf Maintenance Worker (1) Golf Laborer (1) Operations Supervisor (1) Equipment Operator III (3) Equipment Operator II (1) Captain (3) Account Clerk III (1) Engineer (6) Accounting Tech (1) Firefighter (12) Payroll Specialist (1) Accounts Payable Sp. (1) Eq Mech. I (1) Water Tech I (4) Customer Service Rep (3) Construction Supervisor (1) Collection Tech IV (1) WW Plant Operator (2) Finance Manager (1) Eq. Mech. II (2) Water Tech II (1) Collection Tech I (2) Clerk Typist (1) Purchasing Agent (1) Equipment Mechanic III (1) Water Tech III (1) Finance Director (.5) Lead Engineer (3) Equipment Operator I (4) Water Tech IV (1) City Attorney (1) Fire Chief (1) Deputy Director (1) WW Lead Plant Operator (1) Golf Supervisor (1) City Clerk (1) Public Works Director (1) Housing Manager (1) Housing Rehab Specialist (1) Recreation/Aquatics Supervisor (1) City Manager (1) Police Chief (1) Adm. Assistant (1) Lieutenant Patrol (1) Sergeant Patrol (5) Lieutenant Detective (1) Adm. Secretary (1) Police Officer (20) Sergeant Detective (1) Humane Officer (2) Detective (5) Police Aide (.5) Detention Officer (1) Senior Dispatcher (1) IT Manager (1) Streets Crew Leader (2) Equipment Operator III (2) Maintenance Tech III (1) Facilities Utilities Maintenance Tech IV (1) Special Pr Tech III (1) Bldg Maint Specialist (1) Special Pr Tech II (1) IT Specialist (1) Dispatcher (6) Clerk Typist (1) Adm Assistant (1) Maintenance Tech III (1) Maintenance Tech II (2) Maintenance Tech I (2) Maintenance Tech I (1) HVAC Tech (1) Airport Attendant (1) (7) Total FTE’s: 174.5 *not counted as FTEs (8) THIS PAGE BLANK FINANCIAL SECTION THIS PAGE BLANK CliftonLarsonAllen LLP CLAconnect.com INDEPENDENT AUDITORS’ REPORT The Honorable Mayor and the City Council City of Douglas, Arizona Douglas, Arizona Report on the Financial Statements We have audited the accompanying financial statements of the governmental activities, the businesstype activities, the aggregate discretely presented component units, each major fund, and the aggregate remaining fund information of the City of Douglas, Arizona (City), as of and for the year ended June 30, 2015, and the related notes to the financial statements, which collectively comprise the City’s basic financial statements as listed in the table of contents. Management’s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with 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 did not audit the financial statements of the Douglas Housing Corporation II (Pioneer Village) and the Douglas Community Housing Corporation (Rancho La Perilla Apartments). The Douglas Housing Corporation comprises 100% of the assets and operating revenues reported in the Governmental Component Unit. Rancho La Perilla comprises 100% of the assets and operating revenues reported in the Proprietary Component Unit. Those financial statements were audited by other auditors whose reports have been furnished to us, and our opinion, insofar as it relates to the amounts included for the Governmental Component Unit and Proprietary Component Unit, is based solely on the reports of other auditors. 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 City’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the City’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. An independent member of Nexia International (9) The Honorable Mayor and the City Council City of Douglas, Arizona We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. Opinions In our opinion, based on our audit and the reports of other auditors, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, the business-type activities, the aggregate discretely presented component units, each major fund, and the aggregate remaining fund information of the City of Douglas, Arizona as of June 30, 2015, and the respective changes in financial position and, where applicable, cash flows thereof for the year then ended in accordance with accounting principles generally accepted in the United States of America. Emphasis of a Matter During fiscal year ended June 30, 2015, the City of Douglas, Arizona adopted Governmental Accounting Standards Board Statement (GASBS) No. 68, Accounting and Financial Reporting for Pensions and GASBS Statement No. 71, Pension Transition for Contributions Made Subsequent to the Measurement Date – an amendment of GASBS No. 68. As a result of the implementation of GASBS No. 68 and No. 71, the City reported a restatement for the change in accounting principle (see Note 3.G.) Our auditors’ opinion was not modified with respect to the restatement. Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the management’s discussion and analysis, pension schedules, agent OPEB funding progress, and the General Fund Budget and Actual Statement as listed on 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. Supplementary and Other Information Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the City’s basic financial statements. The combining and individual fund financial statements and schedules and the introductory and statistical sections are presented for purposes of additional analysis and are not a required part of the basic financial statements. The combining and individual fund financial statements and schedules are the responsibility of management and were derived from and relates directly to the underlying accounting and other records used to prepare the 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 (10) The Honorable Mayor and the City Council City of Douglas, Arizona records used to prepare the financial statements or to the 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 taken as a whole. The introductory and statistical sections have not been subjected to the auditing procedures applied in the audit of the basic financial statements, and accordingly, we do not express an opinion or provide any assurance on them. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated December 21, 2015, on our consideration of the City of Douglas, Arizona'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 the City of Douglas, Arizona’s internal control over financial reporting and compliance. a CliftonLarsonAllen LLP Phoenix, Arizona December 21, 2015 (11) THIS PAGE BLANK REQUIRED SUPPLEMENTARY INFORMATION THIS PAGE BLANK CITY OF DOUGLAS, ARIZONA MANAGEMENT’S DISCUSSION AND ANALYSIS YEAR ENDED JUNE 30, 2015 This section of the City of Douglas, Arizona’s (City) Comprehensive Annual Financial Report presents a narrative overview and analysis of the financial activities of the City for the fiscal year ended June 30, 2015. We encourage readers to consider the information presented here in conjunction with additional information presented in the financial statements. FINANCIAL HIGHLIGHTS  The assets and deferred outflows of resources of the City at the close of the most recent fiscal year exceed liabilities and deferred inflows of resources by $16.0 million (net position). Unrestricted net position is a deficit $17.3 million due to the recognition of the City’s net pension liability and related pension inflows and outflows.  Total net position increased by $0.5 million during the fiscal year.  As of June 30, 2015, the City’s governmental funds reported a combined ending fund balance of $8.7 million. Of this amount, 64% is unassigned fund balance and available for spending at the government’s discretion.  At the close of the current fiscal year, unassigned fund balance for the General Fund was $5.6 million or 45.6% of the total General Fund expenditures of $12.3 million. OVERVIEW OF THE FINANCIAL STATEMENTS This discussion and analysis is intended to serve as an introduction to the City’s basic financial statements. The City’s basic financial statements are separated into three component sections: 1. Government-wide financial statements. 2. Fund financial statements and schedules. 3. Notes to basic financial statements. In addition to the basic financial statements, this report also includes other supplementary information. Government-Wide Financial Statements The government-wide financial statements are designed to provide readers with a broad overview of the City’s finances in a manner similar to private sector business. The statement of net position presents information on all of the City’s assets, deferred outflows of resources, liabilities and deferred inflows of resources with the difference reported as net position. Over time, increases or decreases in net position may serve as useful indicators of whether the City’s financial position is improving or deteriorating. The statement of activities presents data showing how the City’s net position changed during the most recent fiscal year. All changes in net position are reported as soon as the underlying event giving rise to the change occurs regardless of the timing of the related cash flows. Therefore, revenues and expenses are reported in this statement for some items that will result in cash flows in future fiscal years, such as revenue from uncollected taxes or expenses from earned but unused vacation and sick leave. (12) CITY OF DOUGLAS, ARIZONA MANAGEMENT’S DISCUSSION AND ANALYSIS YEAR ENDED JUNE 30, 2015 Both of the government-wide financial statements distinguish City functions that are principally supported by taxes and intergovernmental revenues (governmental activities) from those functions that intend to recover all or a significant portion of their costs from user fees and charges (business-type activities). The governmental activities of the City include general government, public safety (police, fire and emergency medical services), highways and streets, culture and recreation, and redevelopment and housing. The business-type activities of the City include water, sewer, and solid waste. The government-wide financial statements include not only the City (known as the primary government), but also two legally separate non-profit corporations - one governmental component unit and one proprietary component unit. The governmental component unit is the Douglas Housing Corporation II - Pioneer Village providing HUD subsidized housing. The proprietary component unit is the Douglas Municipal Housing Corporation market rate apartment complex known as Rancho La Perilla. Although legally separate from the City, these component units are discretely presented because of their governance or financial relationships to the City. Separate financial statements for Douglas Housing Corporation II – Pioneer Village and Rancho La Parilla may be obtained at the City’s Finance Department at 425 Tenth Street, Douglas, Arizona 85607. The government-wide financial statements may be found on pages 23 - 26 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. Like other state and local governments, the City uses fund accounting to ensure and demonstrate compliance with finance related legal requirements. All of the City funds can be divided into two categories: governmental funds and proprietary (business-type) 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 fiscal 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, the reader 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 the comparison between governmental funds and governmental activities. The City of Douglas, Arizona maintains nine 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 and the MPC Debt Service Fund, which are considered to be major funds. Data from the other seven funds are combined into a single aggregate presentation. Individual fund data for each of these nonmajor governmental funds is provided in the form of the combining statements elsewhere in this report. (13) CITY OF DOUGLAS, ARIZONA MANAGEMENT’S DISCUSSION AND ANALYSIS YEAR ENDED JUNE 30, 2015 The City of Douglas, Arizona adopts an annual appropriated budget for its General Fund by department. A budgetary comparison statement has been provided for the General Fund to demonstrate compliance with this budget. The City adopts a budget by fund for all Special Revenue Funds with the exception of the Public Housing Fund. Proprietary Funds – Proprietary funds are used to account for services for which the City charges its customers. Enterprise funds are used to report the same functions as presented in the business-type activities in the government-wide financial statements. There are three funds reported under businesstype activities and those include the water, sewer, and solid waste funds. The water, sewer and solid waste funds are considered major funds. Notes to Basic Financial Statements The notes to basic financial statements provide additional information that is essential to the full understanding of the data provided in the government-wide and fund financial statements. The notes to basic financial statements may be found on pages 35 - 73 of this report. Required Supplementary Information In addition to the basic financial statements and accompanying notes, this report also presents certain required supplementary information concerning the City’s pension and other post employment benefit plans and the budgetary schedule of the General Fund. Required supplementary information may be found on pages 74 – 83 of this report. Combining Statements The combining statements referred to earlier in connection with nonmajor governmental funds are presented immediately following the required supplementary information. Government-Wide Financial Analysis Comparative data is presented on the following pages for both the governmental activities and the business-type activities along with an analysis of significant variances between the current and prior year. Net Position As noted earlier, net position may serve as useful indicators of a government’s financial position. For the City of Douglas, Arizona, assets and deferred outflows of resources exceeded liabilities and deferred inflows of resources by $16.0 million. (14) CITY OF DOUGLAS, ARIZONA MANAGEMENT’S DISCUSSION AND ANALYSIS YEAR ENDED JUNE 30, 2015 Table A-1 The City’s Net Position Governmental Activities 2014 (Restated) 2015 ASSETS Current and Other Assets Capital Assets: Non-depreciable Depreciable (net) Total Assets DEFERRED OUTFLOWS LIABILITIES Current and Other Liabilities Non-Current Liabilities: Due Within One Year Due in More Than One Year Total Liabilities DEFERRED INFLOWS NET POSITION Net Investment in Capital Assets Restricted Unrestricted Total Net Position $ 10,372,397 $ Business-Type Activities 2014 (Restated) 2015 9,669,009 $ 6,314,373 $ Total 2015 2014 (Restated) 5,598,228 $ 16,686,770 $ 15,267,237 1,956,234 21,335,019 33,663,650 2,660,393 20,687,559 33,016,961 742,090 20,460,601 27,517,064 810,112 21,217,763 27,626,103 2,698,324 41,795,620 61,180,714 3,470,505 41,905,322 60,643,064 5,532,425 1,716,633 202,534 117,613 5,734,959 1,834,246 1,549,003 1,464,854 363,334 356,998 1,912,337 1,821,852 1,618,247 38,249,307 41,416,557 2,019,837 35,350,846 38,835,537 719,638 6,148,025 7,230,997 696,120 7,077,576 8,130,694 2,337,885 44,397,332 48,647,554 2,715,957 42,428,422 46,966,231 1,933,378 - 347,218 - 2,280,596 - 16,271,458 712,773 3,157,152 $ 20,141,383 16,491,574 568,237 2,553,211 $ 19,613,022 14,659,500 1,632,597 (20,445,957) $ (4,153,860) 13,255,510 1,261,605 (18,619,058) $ (4,101,943) 30,930,958 2,345,370 (17,288,805) $ 15,987,523 29,747,084 1,829,842 (16,065,847) $ 15,511,079 The largest portion of the City’s net position (193%) reflects its investment in capital assets (e.g. land, buildings, and equipment), less any debt used to acquire those assets. The City uses these capital assets to provide services to its citizens; therefore, these assets are not available for future spending. Although the City’s investment in capital assets is reported net of related debt, resources needed to repay this debt must be provided from other sources since the assets themselves cannot be liquidated for these liabilities. As of June 30, 2015 the City of Douglas, Arizona reported $30.9 million as the net investment in capital assets. Another $2.3 million of the resources are subject to external restrictions on how they may be used. Unrestricted net position is a deficit $17.3 million due to the recognition of the City’s net pension liability. The City’s net position increased approximately $0.5 million over the prior fiscal year. Net investment in capital assets increased $1.2 million due to the net effect of a reduction in current year debt outstanding used to acquire the assets, current year depreciation, current year capital additions and contributions and the sale of capital assets. Current year debt payments (including discount) were approximately $2.1 million (including payments on capital leases). (15) CITY OF DOUGLAS, ARIZONA MANAGEMENT’S DISCUSSION AND ANALYSIS YEAR ENDED JUNE 30, 2015 Changes in Net Position As described above, the City’s net position overall increased by $0.5 million during the current fiscal year. The decrease in the governmental activities and increase in the business-type activities are discussed on the following pages. Table A-2 Changes in Net Position Governmental Activities 2014 (Restated) 2015 REVENUES Program Revenues: Fees, Fines and Charges for Services Operating Grants and Contributions Capital Grants and Contributions General Revenues: Property Taxes Local Taxes State Shared Revenues Grants and Contributions Not Restricted to Specific Programs Investment Income Gain on Sale of Asset Other Total Revenues $ EXPENSES General Government Public Safety Highways and Streets Culture and Recreation Redevelopment and Housing Interest on Long-Term Debt Water Sewer Solid Waste Total Expenses 3,040,442 $ 3,095,494 Business-Type Activities 2014 (Restated) 2015 $ 5,043,892 $ Total 5,153,542 $ 8,249,036 - 1,320 - 3,466,981 582,348 3,752,476 423,034 577,360 5,895,775 4,496,473 578,759 5,844,370 4,257,712 - - 577,360 5,895,775 4,496,473 578,759 5,844,370 4,257,712 40,417 26,489 20,480 265,826 41,950 30,607 281,915 18,232 - 22,077 - 40,417 44,721 20,480 265,826 41,950 52,684 281,915 18,412,591 18,304,997 5,062,124 5,176,939 23,474,715 23,481,936 3,858,018 9,792,922 1,946,662 1,680,063 954,039 478,120 18,709,824 4,499,732 8,050,797 2,394,792 1,965,397 1,064,489 530,417 18,505,624 1,884,943 1,472,735 930,769 4,288,447 1,839,897 1,538,514 956,297 4,334,708 3,858,018 9,792,922 1,946,662 1,680,063 954,039 478,120 1,884,943 1,472,735 930,769 22,998,271 4,499,732 8,050,797 2,394,792 1,965,397 1,064,489 530,417 1,839,897 1,538,514 956,297 22,840,332 773,677 842,231 476,444 641,604 Transfers Special Item 245,316 - 269,143 (5,352,178) (245,316) - (269,143) - CHANGE IN NET POSITION (51,917) (5,283,662) 528,361 573,088 (4,101,943) (4,101,943) 25,313,668 (24,131,949) 1,181,719 19,613,022 $ 8,084,334 3,751,156 423,034 (297,233) NET POSITION - END OF YEAR $ 3,466,981 582,348 CHANGE IN NET POSITION BEFORE TRANSFERS AND SPECIAL ITEMS Net Position - Beginning of Year Change in Accounting Principle (See Note 3.G.) Net Position - Beginning of Year, as Restated 2014 (Restated) 2015 (4,153,860) (200,627) $ (4,101,943) 20,994,774 (1,954,840) 19,039,934 19,613,022 $ 20,141,383 $ 19,613,022 - (5,352,178) 476,444 (4,710,574) 15,511,079 15,511,079 $ 15,987,523 46,308,442 46,308,442 $ 15,511,079 Governmental Activities – Governmental activities decreased the City’s net position by $0.1 million. Key factors of the overall decrease in net position are as follows:  Decrease in police and general government grants received compared to last year.  Increase in City’s contribution to the public safety retirement plan. (16) CITY OF DOUGLAS, ARIZONA MANAGEMENT’S DISCUSSION AND ANALYSIS YEAR ENDED JUNE 30, 2015 City of Douglas – Fiscal Year 2014/15 Governmental Activities Revenues Expens es 10,000 9,000 Thousands 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 Gen. Gov't Public Safety Highway/St. Cult./Rec. Housing/Redev. Program Revenues and Expenses Int. Long term Debt City of Douglas Revenue by Source Governmental Activities Fiscal Year 2014/15 Charges for Services, 17% State Shared Rev., 24% Operating Grants, 19% Other, 2% Property Taxes, 3% Capital Grants, 3% Local Taxes, 32% The charts above illustrate the City’s governmental expenses and revenues by function and the City’s revenues by source. As shown, Public Safety (police, fire, and emergency medical services) is the largest function in expenses (52%), followed by General Government (21%), Highway/Streets (10%), Culture/Recreation (9%), Redevelopment and Housing (5%) and the remaining attributable to Interest. General revenues such as property taxes, state shared revenues, and sales taxes are not shown by program but are effectively used to support program activities of the City as a whole. For governmental activities as a whole, sales tax revenues is the largest source of funds (32%) followed by state shared revenues (24%) as illustrated in the chart on the previous page. (17) CITY OF DOUGLAS, ARIZONA MANAGEMENT’S DISCUSSION AND ANALYSIS YEAR ENDED JUNE 30, 2015 Business-Type Activities – Business-type activities increased the City’s net position by $0.5 million. The increase in net position was not significant and was primarily the result of salary savings on vacant positions in the water, sewer and sanitation funds not filled during the year. City of Douglas 2014/15 Business-type Activities Revenues Expens es 3,000 Thousands 2,500 2,000 1,500 1,000 500 Water Sewer Solid Waste Program Revenues and Expenses City of Douglas Revenue by Source Business-type Activities Fiscal Year 2014/15 Solid Waste Charges, 24% Miscellaneous, 2% Sew er Charges, 36% Investment Income, 0% Water Charges, 38% As shown in the chart above, the largest of the City’s business-type activities are water and sewer utilities. Sewer Fund operating expenses were $1.4 million, with Water operating expenses at $1.9 million, followed by Solid Waste at approximately $0.9 million. For this fiscal year, the change in net position in the Water Fund was a negative $15,198 while the change in net position in the Sewer Fund was a positive $0.3 million and the Solid Waste Fund was a positive $0.2 million. The positive change in net position in the Enterprise Funds was due to revenues exceeding expenses. Revenues are budgeted to exceed expenses as the utility rate includes a capital replacement component. (18) CITY OF DOUGLAS, ARIZONA MANAGEMENT’S DISCUSSION AND ANALYSIS YEAR ENDED JUNE 30, 2015 FINANCIAL ANALYSIS OF THE CITY’S FUNDS As noted earlier, the City uses fund accounting to ensure and demonstrate compliance with financerelated legal requirements. Governmental Funds – The focus of the City’s governmental funds is to provide information on nearterm inflows, outflows, and balances of spendable resources. Such information is useful in assessing the City of Douglas, Arizona’s financing requirements. In particular, unassigned fund balance may serve as a useful measure of a government’s net resources available for spending at the end of the fiscal year. Types of governmental funds reported by the City include the General Fund, Special Revenue Funds, Debt Service Funds, and Capital Projects Fund. As of the end of the current fiscal year, the City’s governmental funds reported a combined ending fund balance of $8.7 million, an increase of $0.6 million from the prior year. This increase is primarily due to salary savings from budgeted positions not filled. The City also reduced its fleet from 143 to 117 vehicles in an effort to save on maintenance, insurance and implement operational efficiencies on the use of the vehicles. Revenues for governmental funds overall totaled approximately $18.0 million for the fiscal year ended June 30, 2015 which represents a decrease of 1.5% or approximately $0.3 million from the prior fiscal year. This decrease is primarily due to a decrease in police and general government grants received compared to last year. The General Fund is the chief operating fund of the City. At the end of the fiscal year, the unassigned fund balance of the General Fund was $5.6 million. As a measure of the General Fund’s liquidity, it may be useful to compare the fund balance to total fund expenditures. Unassigned General Fund balance represents 45.6% of the total General Fund expenditures of $12.3 million. The fund balance of the City’s General Fund increased by $1.0 million. The increase was largely due to salary and operational savings mainly in reducing the City’s fleet. The MPC Debt Service Fund did not significantly change during the fiscal year. The MPC Debt Service Fund accounts for the principal and interest requirements on debt issued by the City’s Municipal Property Corporation, a blended component unit. The debt is repaid through transfers from the HURF Fund and the General Fund. The Nonmajor Governmental Funds decrease of $0.4 million was largely due to the City receiving less police and general government grants compared to last year. Proprietary Funds – The City’s proprietary funds provide the same type of information found in the government-wide financial statements, but in more detail. At the end of the fiscal year, unrestricted net position for the Water Fund was $2.1 million, Sewer $0.1 million, and Solid Waste $0.9 million. The total increase in net position for the enterprise funds was $0.5 million largely due to revenues exceeding expenses as the utility rate includes a capital replacement component. Expenses increased in all three funds due to an increase in claims and operating costs. (19) CITY OF DOUGLAS, ARIZONA MANAGEMENT’S DISCUSSION AND ANALYSIS YEAR ENDED JUNE 30, 2015 GENERAL FUND BUDGETARY HIGHLIGHTS The City did not revise the budget during the current fiscal year. Actual revenues were less than the budget by $0.4 million and actual expenditures were less than budget by $1.8 million. The actual revenues were less than budget largely due to local sales tax collections not coming in as projected offset by more than expected charges for service revenues. The City was able to realize a savings in actual expenditures versus the budget due to substantial savings in the General Government, Transit and Police Operations expenditures. Transfers from the General fund to the Capital Projects fund saw a savings as it was not necessary to provide the transfers as was originally projected due to savings from port of entry budgeted costs. The Transit department saw savings once again from its operations budget specifically from the inability to hire the amount of personnel as originally planned, from fuel savings and its contingency account. The Police operations department had savings from personnel turnover in dispatching as well as police detectives. Although short staffed, savings were realized from the personnel, overtime and benefits line items. Golf course operations exceeded budget largely due to the City anticipating a transfer of ownership of the course from the City to a private owner through a sale that did not occur during the fiscal year. Because the General Fund as a whole did not exceed the budget, the City is in compliance with its legal level of budgetary control. The legal level of budgetary control is at the departmental level in the General Fund; however, the City Council monitors the General Fund as a whole and the City Manager has the authority to make budget transfers between departments in the General Fund as long as the General Fund in total does not exceed the budget. CAPITAL ASSETS AND DEBT ADMINISTRATION Capital Assets The City’s capital assets for its governmental and business-type activities as of June 30, 2015 amount to $44.5 million (net of accumulated depreciation). Capital assets include land and improvements, infrastructure, buildings and improvements, machinery equipment, and vehicles, and construction in progress. Table A-3 Capital Assets (Net) Governmental Activities Land and Land Improvements Streets and Storm Drains Buildings and Improvements Water System Wastewater System Machinery, Equipment and Vehicles Construction In Progress Total Capital Assets $ 2015 3,033,688 6,592,065 9,092,702 3,716,874 855,924 $ 23,291,253 $ Business-Type Activities 2014 3,192,056 6,183,414 9,547,474 2,864,925 1,560,083 $ 23,347,952 (20) 2015 $ 4,734,127 7,092,640 7,815,218 818,616 742,090 $ 21,202,691 Total 2014 $ 4,904,093 7,248,630 8,082,660 982,380 810,112 $ 22,027,875 $ 2015 3,033,688 6,592,065 13,826,829 7,092,640 7,815,218 4,535,490 1,598,014 $ 44,493,944 $ 2014 3,192,056 6,183,414 14,451,567 7,248,630 8,082,660 3,847,305 2,370,195 $ 45,375,827 CITY OF DOUGLAS, ARIZONA MANAGEMENT’S DISCUSSION AND ANALYSIS YEAR ENDED JUNE 30, 2015 Major capital asset events during the current fiscal year include the following: Governmental Activities  Approximately $1.3 million in machinery and equipment.  18 vehicles replacing outdated vehicles that were deleted in the previous fiscal year in the amount of $0.5 million.  More than $0.1 million in building and land improvements  Approximately $1 million invested in streets and infrastructure improvements. Business-type Activities  Approximately $0.3 million in additions that include well rehabs, small equipment purchases and finalizing outstanding water infrastructure projects. For government-wide financial statement purposes, capital assets were depreciated from acquisition date to the end of the current fiscal year. Governmental fund financial statements record capital asset purchases as expenditures. Additional information on the City of Douglas, Arizona’s capital assets may be found in the Notes to the Basic Financial Statements in note 3.A.4. on pages 48 - 50 of this report. Debt Administration At the end of the fiscal year, the City of Douglas, Arizona had total long-term obligations outstanding of $13.6 million. The current year decrease was the result of required principal due on outstanding debt and the scheduled payoff of the revenue bonds. The State constitution imposes certain debt limits on the issuance of General Obligation Bonds at six percent (6%) and twenty percent (20%) of the secondary assessed valuation of the City. The City has not issued any general obligation bonds. Therefore, the City’s available debt margin at June 30, 2015 is $3.0 million in the 6% capacity and $10.1 million in the 20% capacity. Table A-4 Outstanding Debt Loans Payable Revenue Bonds Capital Lease Total Outstanding Debt $ $ Governmental Activities 2015 2014 7,125,000 $ 7,725,000 470,000 1,506,753 1,911,683 8,631,753 $ 10,106,683 $ $ Business-Type Activities 2015 2014 4,604,627 $ 5,095,574 326,606 440,727 4,931,233 $ 5,536,301 Total 2015 2014 $ 11,729,627 $ 12,820,574 470,000 1,833,359 2,352,410 $ 13,562,986 $ 15,642,984 Additional information on the City’s debt can be found in Note 3.E. on pages 53 - 55. (21) CITY OF DOUGLAS, ARIZONA MANAGEMENT’S DISCUSSION AND ANALYSIS YEAR ENDED JUNE 30, 2015 ECONOMIC FACTORS AND NEXT YEAR’S BUDGET The following factors were considered when preparing the 2015-16 budgets:  A conservative economic forecast and limited revenue growth. A more than $0.1 million reduction in our expected sales tax collections.  Reclassifying the 0.3% special sales tax currently designated for capital for the use of general City operations costs.  Program a 2% cost of living adjustment to all City employees.  Finalizing capital projects from the remaining proceeds of the 0.3% special sales tax.  Transition to the Douglas Public Facility Municipal Property Corporation for the management of the golf course.  Continue keeping positions vacant and reorganize to reflect recent operational changes.  Increased contributions for Public Safety Retirement for police and fire. Direction from Mayor and Council continues to be to put to use underutilized City assets. The City will try to sell several properties that are currently undeveloped or dilapidated in the hopes that the private sector can improve the properties and put them in use. Additionally, the City has left the Casas de Esperanza low income housing project and continues to search for potential buyers for the Pioneer Village low income housing project as well. With the management of the golf course going to the newly formed MPC, the City is also looking to exit a currently subsidized business. Finally, the Mayor and Council continue forming partnerships for the construction of a new commercial port of entry. The City is partnering with several organizations including the Industrial Development Authority and SonoraArizona International, LLC (SAI). The SAI partnership allows the setting up of strategies and initiatives in the development of a new port and incorporating rail transportation into the project. REQUESTS FOR INFORMATION This financial report is designed to provide a general overview of the City’s finances for all those interested in the government’s finances. If you have any questions about this report or need additional financial information, contact: City of Douglas Finance Department 425 Tenth Street Douglas, Arizona 85607 520-417-7333 (22) THIS PAGE BLANK BASIC FINANCIAL STATEMENTS CITY OF DOUGLAS, ARIZONA STATEMENT OF NET POSITION JUNE 30, 2015 Governmental Activities ASSETS Cash and Investments Cash with Fiscal Agent Receivables, Net: Accounts Receivable Taxes Receivable Intergovernmental Receivables Due from Component Unit Internal Balances Inventories Prepaid Items Other Assets Restricted Assets Capital Assets: Non-Depreciable Depreciable (Net) Total Assets $ DEFERRED OUTFLOWS OF RESOURCES Pension Related LIABILITIES Accounts Payable Accrued Wages and Benefits Insurance Claims Payable Interest Payable Intergovernmental Payable Customer Deposits Payable Unearned Revenue Due to Primary Government Prepaid Rents Matured Debt Principal Payable Noncurrent Liabilities Due Within One Year Due in More Than One Year Net Pension Liability Total Liabilities DEFERRED INFLOWS OF RESOURCES Pension Related NET POSITION Net Investment in Capital Assets Restricted for: Firefighters Injured in Line of Duty Transit - Making the Connection Program Other Federal and State Grants Court Administration Public Safety Highways, Streets and Local Transportation Redevelopment and Housing Debt Service Repair and Replacement Unrestricted Total Net Position $ See accompanying Notes to Basic Financial Statements. (23) 7,460,909 470,903 Primary Government Business-Type Activities $ 5,112,020 - Total $ 12,572,929 470,903 230,910 615,649 853,006 659,725 63,115 801 17,379 489,580 712,773 720,490 615,649 853,006 659,725 63,115 801 730,152 1,956,234 21,335,019 33,663,650 742,090 20,460,601 27,517,064 2,698,324 41,795,620 61,180,714 5,532,425 202,534 5,734,959 399,893 462,742 99,832 8,225 17,379 90,932 470,000 196,153 55,243 18,556 50,749 42,633 - 596,046 517,985 118,388 58,974 60,012 90,932 470,000 1,618,247 8,401,280 29,848,027 41,416,557 719,638 4,343,760 1,804,265 7,230,997 2,337,885 12,745,040 31,652,292 48,647,554 1,933,378 347,218 2,280,596 14,659,500 16,271,458 30,930,958 136,889 20,000 212,320 49,680 253,770 427,569 532,369 (20,445,957) (4,153,860) 692,953 19,820 3,157,152 20,141,383 136,889 20,000 212,320 49,680 253,770 427,569 532,369 692,953 19,820 (17,288,805) 15,987,523 $ $ Component Units Governmental Proprietary Type Component Unit Component Unit $ $ 56,999 - $ 15,578 - 8,793 5,793 125,828 105,315 248 32,426 105,115 344,947 16,454 303,698 622,880 265,000 3,349,631 4,112,945 - - 4,707 16,378 69,558 4,482 - 16,164 1,732 15,003 15,388 15,633 659,725 - 5,231 948,011 1,048,367 53,417 5,019,698 5,796,760 - - (633,090) (1,458,484) 207,603 (425,487) (225,331) (1,683,815) $ (24) CITY OF DOUGLAS, ARIZONA STATEMENT OF ACTIVITIES YEAR ENDED JUNE 30, 2015 Program Revenues Functions/Programs Primary Government Governmental Activities: General Government Public Safety Highways and Streets Culture and Recreation Redevelopment and Housing Interest and Fiscal Charges Total Governmental Activities Business-Type Activities: Water Sewer Solid Waste Total Business-Type Activities Total Primary Government Component Units: Governmental Component Units Proprietary Type Component Units Expenses $ 3,858,018 9,792,922 1,946,662 1,680,063 954,039 478,120 18,709,824 Fee, Fines and Charges for Services Operating Grants Contributions $ $ 1,884,943 1,472,735 930,769 $ $ $ 4,288,447 22,998,271 210,479 685,816 896,295 1,699,542 1,246,153 94,747 3,040,442 1,979,308 1,852,495 1,212,089 $ $ $ 5,043,892 8,084,334 56,724 554,392 611,116 338,841 968,094 1,235,743 40,282 884,021 3,466,981 Capital Grants and Contributions $ $ $ $ 3,466,981 88,133 88,133 $ $ $ General Revenues Taxes: Sales Taxes Property Taxes Franchise Taxes State Revenue Sharing State Sales Tax Revenue Sharing Auto Lieu Tax Revenue Sharing Grants and Contributions not Restricted Investment Income Gain on Sale of Asset Other Transfers Total General Revenues and Transfers Change in Net Position Net Position - Beginning, as Restated Net Position - Ending See accompanying Notes to Basic Financial Statements. (25) 420,923 119,896 7,652 33,877 582,348 582,348 - Net (Expense) Revenue and Changes in Net Position Primary Government Component Units Governmental Activities $ Business-Type Activities (1,398,712) (7,458,779) (703,267) (1,511,157) (70,018) (478,120) (11,620,053) Total $ $ 94,365 379,760 281,320 (1,398,712) (7,458,779) (703,267) (1,511,157) (70,018) (478,120) (11,620,053) 755,445 (10,864,608) $ 5,578,165 577,360 317,610 2,119,573 1,600,126 776,774 40,417 26,489 20,480 265,826 245,316 $ 11,568,136 (51,917) (4,101,943) (4,153,860) $ Component Unit 94,365 379,760 281,320 755,445 755,445 (11,620,053) Governmental Component Unit 18,232 (245,316) 5,578,165 577,360 317,610 2,119,573 1,600,126 776,774 40,417 44,721 20,480 265,826 - (227,084) 528,361 19,613,022 20,141,383 11,341,052 476,444 15,511,079 15,987,523 $ (65,622) (65,622) $ 31 3,157 3,188 (62,434) (363,053) (425,487) $ (26) (131,424) (131,424) 438 21,464 - $ 21,902 (109,522) (1,574,293) (1,683,815) CITY OF DOUGLAS, ARIZONA BALANCE SHEET GOVERNMENTAL FUNDS JUNE 30, 2015 MPC Debt Service Fund General Fund ASSETS Cash and Investments Cash with Fiscal Agent Receivables: Accounts Receivable Taxes Receivable Intergovernmental Receivables Component Unit Long Term Note Inventory Prepaid Items Restricted Assets Total Assets LIABILITIES, DEFERRED INFLOWS, AND FUND BALANCES Liabilities Accounts Payable Accrued Wages and Benefits Insurance Claims Payable Interest Payable Unearned Revenue Customer Deposits Payable Matured Debt Principal Payable Total Liabilities $ $ $ 5,312,587 230,910 561,353 542,826 659,725 63,115 801 7,371,317 183,876 435,606 95,137 90,932 805,551 Deferred Inflows of Resources Unavailable Revenue Fund Balances Nonspendable Restricted Committed Assigned Unassigned Total Fund Balances Total Liabilities, Deferred Inflows of Resources and Fund Balances $ $ $ $ Nonmajor Governmental Funds 7,322 470,903 478,225 8,225 470,000 478,225 $ $ $ 2,141,000 54,296 310,180 17,379 2,522,855 216,017 27,136 4,695 17,379 265,227 Totals $ $ $ 7,460,909 470,903 230,910 615,649 853,006 659,725 63,115 801 17,379 10,372,397 399,893 462,742 99,832 8,225 90,932 17,379 470,000 1,549,003 71,809 - 38,520 110,329 723,641 156,889 5,613,427 6,493,957 - 1,439,415 779,693 2,219,108 723,641 1,596,304 779,693 5,613,427 8,713,065 7,371,317 See accompanying Notes to Basic Financial Statements. (27) $ 478,225 $ 2,522,855 $ 10,372,397 CITY OF DOUGLAS, ARIZONA RECONCILIATION OF THE BALANCE SHEET OF GOVERNMENTAL FUNDS TO THE STATEMENT OF NET POSITION JUNE 30, 2015 Total Fund Balances for Governmental Funds $ 8,713,065 Total net position reported for governmental activities in the statement of net position is different because: Capital assets used in governmental funds are not financial resources and, therefore, are not reported in the funds. Those assets consist of: Land Construction in Progress Land Improvements Streets and Storm Drains Buildings and Improvements Machinery, Equipment and Vehicles Total Capital Assets Less: Accumulated Depreciation $ 1,100,310 855,924 4,761,310 17,661,353 15,858,712 17,788,911 58,026,520 (34,735,267) 23,291,253 Some of the City's property taxes and sales taxes will be collected after year-end, but are not available soon enough to pay for the current period's expenditures and, therefore, are reported as unavailable revenue in the governmental funds. 74,036 Some loans receivable through the City's housing rehabilitation program are recorded as a receivable and unavailable revenue in the City's Governmental Fund financial statements, but are recognized as revenue in the governmental-wide financial statements. 36,293 Deferred outflows and inflows of resources related to pensions are applicable to future periods and, therefore are not reported in the funds. Deferred outflows of resources related to pensions Deferred inflows of resources related to pensions 5,532,425 (1,933,378) Long-term liabilities that pertain to governmental funds, including bonds payable and net pension liabilities, are not due and payable in the current period and, therefore, are not reported as fund liabilities. All liabilities - both current and and long-term - are reported in the statement of net position. Loans Payable Net Pension Liability Capital Lease Payable Compensated Absence Payable Total Net Position of Governmental Activities (7,125,000) (29,848,027) (1,506,753) (1,387,774) $ See accompanying Notes to Basic Financial Statements. (28) (39,867,554) (4,153,860) CITY OF DOUGLAS, ARIZONA STATEMENT OF REVENUES, EXPENDITURES, AND CHANGE IN FUND BALANCES GOVERNMENTAL FUNDS YEAR ENDED JUNE 30, 2015 MPC Debt Service Fund General Fund REVENUES Taxes: Sales Taxes Property Taxes Franchise Taxes Intergovernmental Revenues Fines and Forfeitures Licenses and Permits Charges for Services Rents and Royalties Contributions and Donations Investment Income Other Total Revenues $ EXPENDITURES Current: General Government Public Safety Highways and Streets Culture and Recreation Redevelopment and Housing Debt Service: Principal Retirement Interest on Long-Term Debt Capital Outlay Total Expenditures Excess (Deficiency) of Revenues Over Expenditures OTHER FINANCING SOURCES (USES) Transfers In Transfers Out Proceeds from Sale of Capital Assets Proceeds from Sale of Capital Assets Proceeds from Capital Leases Total Other Financing Sources (Uses) Net Change in Fund Balances FUND BALANCES Beginning of Year End of Year $ 4,993,234 578,705 317,610 5,621,250 156,046 165,004 1,895,749 818,819 136,718 10,225 173,712 14,867,072 $ Nonmajor Governmental Funds - $ 587,270 2,414,442 4,824 16,264 92,114 3,114,914 Totals $ 5,580,504 578,705 317,610 8,035,692 160,870 165,004 1,895,749 818,819 136,718 26,489 265,826 17,981,986 3,173,332 6,994,669 570,913 1,327,427 - - 29,986 35,341 705,475 10,150 947,866 3,203,318 7,030,010 1,276,388 1,337,577 947,866 30,837 3,185 216,143 12,316,506 470,000 16,451 486,451 974,093 404,243 1,707,634 4,814,788 1,474,930 423,879 1,923,777 17,617,745 2,550,566 (486,451) (1,699,874) 211,004 (1,799,396) 20,480 (1,567,912) 486,451 486,451 1,859,608 (512,351) 1,347,257 982,654 - (352,617) 5,511,303 - 6,493,957 See accompanying Notes to Basic Financial Statements. (29) $ - 364,241 2,557,063 (2,311,747) 20,480 265,796 630,037 2,571,725 $ 2,219,108 8,083,028 $ 8,713,065 CITY OF DOUGLAS, ARIZONA RECONCILIATION OF THE STATEMENT OF REVENUES, EXPENDITURES, AND CHANGE IN FUND BALANCES IN THE GOVERNMENTAL FUNDS TO THE STATEMENT OF ACTIVITIES YEAR ENDED JUNE 30, 2015 Net Change in Fund Balances-Total Governmental Funds $ 630,037 Amounts reported for governmental activities in the statement of activities are different because: Governmental funds report capital outlays as expenditures. However, in the statement of activities, assets are capitalized and the cost is allocated over their estimated useful lives and reported as depreciation expense. This is the amount by which depreciation exceeded capital outlays in the current period. Expenditures for Capital Assets Depreciation Expense $ 1,924,942 (2,402,564) (477,622) Contributions of capital assets are not current financial resources and are not reflected in the governmental funds. 420,923 Loan receivable recorded as revenue in the government-wide statement of net position, but not yet available. Intergovernmental Receivables - June 30, 2014 Intergovernmental Receivables - June 30, 2015 43,407 36,293 (7,114) Governmental funds report City pension contributions as expenditures when made. However, in the statement of activities pension expense is the cost of benefits earned, adjusted for member contributions, the recognition of changes in deferred outflows and inflows of resources related to pensions, and the investment experience. Pension Contributions Pension Expense 1,658,196 (3,775,227) The governmental funds report the issuance of bonds as financing sources, while repayment of bond principal is reported as an expenditure. In the statement of net position, however, issuing debt increases long-term liabilities and does not affect the statement of activities and repayment of principal reduces the liability. Interest costs are recognized as an expenditure in the governmental funds when it is due. In the statement of activities, however, interest expense is recognized as it accrues. The net effect of these differences in the treatment of general obligation bonds and related items is as follows: Amortization of Deferred Amount on Refunding Amortization of Bond Discount Repayment of Long-Term Debt (12,843) (1,398) 1,474,930 1,460,689 Delinquent property taxes and sales taxes receivable will be collected subsequent to year-end, but are not available soon enough to pay for the current period's expenditures and, therefore, reported as unavailable in the governmental funds. Unavailable Revenue - June 30, 2014 Unavailable Revenue - June 30, 2015 77,720 74,036 In the statement of activities, compensated absences are measured by the amounts earned during the year. In the governmental funds, however, expenditures for these items are measured by the amount of financial resources used (essentially the amounts actually paid). Change in Net Position of Governmental Activities See accompanying Notes to Basic Financial Statements. (30) (3,684) $ 41,885 (51,917) CITY OF DOUGLAS, ARIZONA STATEMENT OF NET POSITION PROPRIETARY FUNDS JUNE 30, 2015 Business-Type Activities Water ASSETS Current Assets: Cash and Cash Equivalents Receivables, Net: Accounts Receivable Total Current Assets Noncurrent Assets: Restricted Cash and Cash Equivalents Capital Assets: Non-Depreciable Depreciable (Net) Total Noncurrent Assets Total Assets Solid Waste Totals 870,822 $ 1,438,248 $ 5,112,020 212,536 3,015,486 165,592 1,036,414 111,452 1,549,700 489,580 5,601,600 138,737 574,036 - 712,773 978 7,181,393 7,321,108 741,112 12,944,753 14,259,901 334,455 334,455 742,090 20,460,601 21,915,464 10,336,594 15,296,315 1,884,155 27,517,064 82,135 63,666 56,733 202,534 35,985 21,637 6,302 16,257 15,524 49,947 74,842 220,494 147,668 17,076 6,328 34,492 13,847 35,795 77,338 426,517 759,061 12,500 16,530 5,926 13,262 15,948 39,251 103,417 196,153 55,243 18,556 50,749 42,633 101,690 116,589 501,359 1,082,972 11,461 1,080,552 731,699 1,823,712 19,014 128,793 3,022,716 567,164 3,737,687 81,224 505,402 586,626 30,475 210,017 4,103,268 1,804,265 6,148,025 2,044,206 4,496,748 690,043 7,230,997 140,810 109,147 97,261 347,218 6,026,977 10,030,501 213,980 16,271,458 118,917 19,820 2,067,999 574,036 149,549 939,604 692,953 19,820 3,157,152 $ 8,233,713 $ 10,754,086 $ 1,153,584 $ 20,141,383 $ 2,802,950 DEFERRED OUTFLOWS OF RESOURCES Pension Related LIABILITIES Current Liabilities: Accounts Payable Accrued Wages and Benefits Insurance Claims Payable Interest Payable Customer Deposits Payable Compensated Absences Capital Leases Payable Loans Payable Total Current Liabilities Noncurrent Liabilities: Compensated Absences Payable Capital Leases Payable Loans Payable Net Pension Liability Total Noncurrent Liabilities Total Liabilities DEFERRED INFLOWS OF RESOURCES Pension Related NET POSITION Net Investment in Capital Assets Restricted for: Debt Service Repair and Replacement Unrestricted Total Net Position See accompanying Notes to Basic Financial Statements. (31) Sewer $ CITY OF DOUGLAS, ARIZONA STATEMENT OF REVENUES, EXPENSES, AND CHANGE IN NET POSITION PROPRIETARY FUNDS YEAR ENDED JUNE 30, 2015 Business-Type Activities Water Sewer Solid Waste 1,833,101 $ 1,211,989 1,328,056 36,278 488,095 1,852,429 846,943 32,321 518,974 1,398,238 831,963 34,051 61,351 927,365 3,006,962 102,650 1,068,420 4,178,032 32,142 434,863 284,624 751,629 NONOPERATING REVENUES (EXPENSE) Impact Fees Investment Income Interest Expense Miscellaneous Nonoperating Revenues Total Nonoperating Revenues 10,500 8,027 (32,514) 84,237 70,250 14,087 7,098 (74,497) 5,307 (48,005) Income Before Transfers 102,392 386,858 284,427 773,677 (117,590) (87,933) (39,793) (245,316) (15,198) 298,925 244,634 528,361 10,455,161 908,950 19,613,022 10,754,086 $ 1,153,584 OPERATING REVENUES Charges for Services OPERATING EXPENSES Cost of Sales and Services Insurance Claims Depreciation Total Operating Expenses Operating Income Transfers Out Change in Net Position Total Net Position - Beginning of Year, as Restated TOTAL NET POSITION - END OF YEAR $ 1,884,571 $ 8,248,911 $ 8,233,713 See accompanying Notes to Basic Financial Statements. (32) $ Totals $ 3,107 (3,404) 100 (197) 4,929,661 24,587 18,232 (110,415) 89,644 22,048 $ 20,141,383 CITY OF DOUGLAS, ARIZONA STATEMENT OF CASH FLOWS PROPRIETARY FUNDS YEAR ENDED JUNE 30, 2015 Business-type Activities - Enterprise Funds CASH FLOWS FROM OPERATING ACTIVITIES Receipts from Customers Payments to Suppliers Payments to Employees Payment for Claims Other Receipts Net Cash Flows Provided by Operating Activities CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES Transfers Out CASH FLOWS FROM CAPITAL AND FINANCING ACTIVITIES Impact Fees Purchases of Capital Assets Principal Paid on Capital Debt Interest Paid on Capital Debt Net Cash Flows Used by Capital and Related Financing Activities Water Sewer Solid Waste Totals $ 1,894,661 (1,110,191) (356,597) (38,093) 98,496 $ 1,831,305 (472,925) (353,096) (35,932) 17,879 $ 1,209,198 (518,818) (338,824) (36,242) 12,162 $ 4,935,164 (2,101,934) (1,048,517) (110,267) 128,537 488,276 987,231 327,476 (117,590) (87,933) (39,793) (245,316) 10,500 (35,233) (72,793) (33,538) 14,087 (94,342) (493,903) (84,509) (22,744) (38,372) (3,404) 24,587 (152,319) (605,068) (121,451) (131,064) (658,667) (64,520) (854,251) CASH FLOWS FROM INVESTING ACTIVITIES Investment Income NET CHANGE IN CASH AND CASH EQUIVALENTS Cash and Cash Equivalents - Beginning of Year CASH AND CASH EQUIVALENTS END OF YEAR 1,802,983 8,027 7,098 3,107 18,232 247,649 247,729 226,270 721,648 2,694,038 1,197,129 1,211,978 5,103,145 $ 2,941,687 $ 1,444,858 $ 1,438,248 $ 5,824,793 $ $ 1,438,248 $ 1,438,248 $ 5,112,020 712,773 $ 5,824,793 RECONCILIATION OF CASH AND CASH EQUIVALENTS TO THE STATEMENT OF NET POSITION Cash and Cash Equivalents $ 2,802,950 Restricted Cash and Cash Equivalents 138,737 Total Cash and Cash Equivalents $ 2,941,687 870,822 574,036 $ 1,444,858 (Continued) See accompanying Notes to Basic Financial Statements. (33) CITY OF DOUGLAS, ARIZONA STATEMENT OF CASH FLOWS (CONTINUED) PROPRIETARY FUNDS YEAR ENDED JUNE 30, 2015 Business-type Activities - Enterprise Funds Water RECONCILIATION OF OPERATING INCOME (LOSS) TO NET CASH PROVIDED BY OPERATING ACTIVITIES Operating Income Adjustments to Reconcile Operating Income to Net Cash Provided by Operating Activities: Depreciation Adjustment for Pension Expense Miscellaneous Nonoperating Revenues Change in Assets/Liabilities: Receivables, Net Accounts Payable Accrued Wages and Benefits Insurance Claims Payable Customer Deposits Payable Compensated Absences Net Cash Provided by Operating Activities $ 32,142 Sewer $ 434,863 Solid Waste $ 284,624 Totals $ 751,629 488,095 (2,389) 84,237 518,974 (1,852) 5,307 61,351 (1,650) 100 1,068,420 (5,891) 89,644 10,090 (127,254) 85 (1,815) 14,259 (9,174) $ 488,276 (1,796) 42,211 (184) (3,611) 12,572 (19,253) 987,231 (2,791) (19,549) (130) (2,191) 12,062 (4,350) 327,476 5,503 (104,592) (229) (7,617) 38,893 (32,777) $ 1,802,983 . (34) $ $ THIS PAGE BLANK NOTES TO BASIC FINANCIAL STATEMENTS THIS PAGE BLANK CITY OF DOUGLAS, ARIZONA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2015 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accompanying financial statements of the City of Douglas, Arizona (City) have been prepared in conformity with accounting principles generally accepted in the United States of America applicable to governmental units adopted by the Governmental Accounting Standards Board (GASB). A summary of the City’s more significant accounting policies follows. During the year ended June 30, 2015, the City adopted Governmental Accounting Standards Board Statement (GASBS) No. 68, Accounting and Financial Reporting for Pensions, and GASBS No. 71, Pension Transition for Contributions Made Subsequent to the Measurement Date-an amendment of GASB Statement No. 68, both of which provide financial reporting guidance for reporting pension liabilities and expenses. A. Reporting Entity The City is a municipal government that is governed by a separately elected governing body. It is legally separate from and fiscally independent of other state and local governments. The accompanying financial statements present the City and its component units, entities for which the City is considered to be financially accountable. Blended component units, although legally separate entities, are, in substance, part of the City’s operations. The governmental discretely presented component unit consists of only Douglas Housing Corporation II and is presented in one column in the government-wide financial statements. The business-type discretely presented component unit consists of only Rancho La Perilla and is presented in one column of the government-wide financial statements. See the descriptions below of each of the blended and discretely presented component units. Blended component unit: Douglas Municipal Property Corporation – The Douglas Municipal Property Corporation’s (DMPC) board of directors consists of six members which are appointed by the Douglas City Council. The DMPC, which is a nonprofit corporation incorporated under the laws of the State of Arizona, was formed for the sole purpose of assisting the City in obtaining financing for various projects of the City. The City has a “moral obligation” for the repayment of the Douglas Municipal Property Corporation’s bonds. All related receivables and payables between the City and the DMPC have been eliminated. Separate financial statements for the Douglas Municipal Property Corporation are not prepared. (35) CITY OF DOUGLAS, ARIZONA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2015 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) A. Reporting Entity (Continued) Douglas Housing Authority – The Douglas Housing Authority (Authority) is a public benefit corporation created by the City to provide subsidized public housing in accordance with federal legislation. The City Council acts as the governing body of the Authority and as such employs executives, authorizes contracts of subsidy with the U.S. Department of Housing and Urban Development pursuant to the latter agency’s regulations and statutory authorizations, and causes the corporation to construct, own and operate public housing facilities within the boundaries of the City. The financial liability of the housing agency is essentially supported by the operating and debt service subsidies received under contract from the federal government, although services or cash subsidies may be, and from time to time, are received from the City as well. Separate financial statements for the Douglas Housing Authority are not prepared. Discretely presented component units: Douglas Housing Corporation II (Pioneer Village) – The Douglas Housing Corporation II is a non-profit corporation created by the City to eliminate the financial burden on the City to provide financing for the construction of a low-income apartment complex. The City Council appoints members of the Governing Board for staggered terms; they, in turn, elect a chairman. The Governing Board employs executives, authorizes contracts of subsidy with the U.S. Department of Housing and Urban Development pursuant to the latter agency’s regulations and statutory authorizations, and causes the corporation to construct and operate a low-income apartment complex of twenty-eight units for the elderly under Section 221(d)(3) of the National Housing Act. Such projects are regulated by the United States Department of Housing and Urban Development (HUD) as to rent charges and operating methods. The financial liability of the corporation is supported by the operating subsidies received under contract from HUD. The audited financial statements of the Douglas Housing Corporation II may be obtained at the offices of the corporation. Douglas Community Housing Corporation (Rancho La Perilla Apartments) – The Douglas Community Housing Corporation is a non-profit 501(c)(3) corporation created by the City to eliminate the financial burden on the City to provide financing for the construction and operation of apartments. The City Council appoints members of the Governing Board; they, in turn, elect a chairman. The Governing Board employs executives, authorizes contracts, and causes the corporation to construct and operate an apartment complex of 80 units. The Community Housing Corporation has appointed a management corporation to promote the apartments and manage the daily activities of the apartments. The financial liability of the Corporation is solely dependent upon the rental revenue received from the tenants. Financial statements of the Douglas Community Housing Corporation may be obtained at the offices of the corporation. Separately issued financial statements for Pioneer Village and Rancho La Perilla have been prepared in conformity with the Statement of Financial Accounting Standards No. 117, “Financial Statements of Not-for-Profit Organizations” and are available from the Essex Corporation. (36) CITY OF DOUGLAS, ARIZONA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2015 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) B. Government-Wide and Fund Financial Statements The government-wide financial statements (i.e., the statement of net position and the statement of activities) report information on all of the activities of the primary government and its component units. The effect of interfund activity has been removed from these statements except for interfund services provided and used, which are not eliminated in the consolidation. Governmental activities, which are normally supported by taxes and intergovernmental revenues, are reported separately from business-type activities, which rely to a significant extent on fees and charges for support. Likewise, the primary government is reported separately from certain legally separate component units for which the primary government is financially accountable. The statement of activities demonstrates the degree to which the direct expenses of a given function or segment are offset by program revenues. Direct expenses are those that are clearly identifiable with a specific function or segment. Program revenues include 1) charges to customers or applicants who purchase, use, or directly benefit from goods, services, or privileges provided by a given function or segment and 2) grants and contributions that are restricted to meeting the operational or capital requirements of a particular function or segment. Taxes and other items not properly included among program revenues are reported instead as general revenues. Separate financial statements are provided for governmental funds and proprietary funds. Major individual governmental and enterprise funds are reported as separate columns in the fund financial statements. C. Measurement Focus, Basis of Accounting, and Financial Statement Presentation The government-wide financial statements are reported using the economic resources measurement focus and the accrual basis of accounting. Revenues are recorded when earned and expenses are recorded when a liability is incurred, regardless of the timing of related cash flows. Property taxes are recognized as revenues in the year for which they are levied. Grants and similar items are recognized as revenue as soon as all eligibility requirements imposed by the provider have been met. Governmental fund financial statements are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Revenues are recognized as soon as they are both measurable and available. Revenues are considered to be available when they are collectible within the current period or soon enough thereafter to pay liabilities of the current period. For this purpose, the City considers revenues to be available if they are collected within 60 days of the end of the current fiscal period. Expenditures generally are recorded when a liability is incurred, as under accrual accounting, except expenditures related to compensated absences and claims and judgments, which are recorded only when payment is due. However, since debt service resources are provided during the current year for payment of long-term principal and interest due early in the following year, the expenditures and related liabilities have been recognized in the Debt Service Funds. (37) CITY OF DOUGLAS, ARIZONA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2015 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) C. Measurement Focus, Basis of Accounting, and Financial Statement Presentation (Continued) Property taxes, intergovernmental grants and aid, and interest associated with the current fiscal period are all considered to be susceptible to accrual and so have been recognized as revenues of the current fiscal period. All other revenue items are considered to be measurable and available only when cash is received by the government. The City reports the following major governmental funds: Major Governmental Funds The General Fund is the City’s primary operating fund. It accounts for all financial resources of the City, except those required to be accounted for in another fund. The MPC Debt Service Fund accounts for the accumulation of resources for, and the payment of, the MPC debt service principal, interest and related debt. The City reports the following major proprietary funds: The Water Fund accounts for the costs to operate, construct and finance the City’s water system. The Sewer Fund accounts for the costs to operate, construct and finance the wastewater treatment system. The Solid Waste Fund accounts for the costs to operate, construct and finance the City’s solid waste operations. Proprietary funds distinguish operating revenues and expenses from nonoperating items. Operating revenues and expenses generally result from providing services and producing and delivering goods in connection with a proprietary fund’s principal ongoing operations. The principal operating revenues of the proprietary funds are charges for services. Operating expenses for the proprietary funds include the cost of sales and services and depreciation on capital assets. All revenues and expenses not meeting this definition are reported as nonoperating revenues and expenses. When both restricted and unrestricted resources are available for use, for governmental activities it is the City’s policy to use restricted resources first, then unrestricted resources as they are needed. For business-type activities, the use of restricted resources is governed by the applicable bond covenants. (38) CITY OF DOUGLAS, ARIZONA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2015 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) D. Assets, Deferred Outflows of Resources, Liabilities, Deferred Inflows of Resources and Net Position or Equity 1. Deposits and Investments The primary government and component unit cash and cash equivalents are considered to be cash on hand, demand deposits, cash and investments held by the State Treasurer, and highly liquid investments with maturities of three months or less from the date of acquisition. Cash and investments are pooled except for funds required to be held by fiscal agents or restricted under provisions of bond indentures. Interest earned from investments purchased with such pooled monies is allocated to each of the funds based on the average daily cash balances. The City Council-approved investment policy authorizes the City to invest in obligations of the U.S. government which do not exceed three years in maturity and are guaranteed by the U.S. Treasury; Certificates of Deposit or other deposits in FDIC insured banks; obligations of FNMA and FHMA which mature the next business day; repurchase agreements of less than $5,000 which mature on the next business day; and the Local Government Investment Pools managed by the State Treasurer. Additionally, the trustee of the City’s employee retirement plan holds certain City funds in a money market mutual fund. The State Board of Deposit provides oversight for the State Treasurer’s pools, and the Local Government Investment Pool Advisory Committee provides consultation and advice to the Treasurer. The fair value of a participant’s position in the pool approximates the value of that participant’s pool shares. No comparable oversight is provided for the County Treasurer’s investment pool and that pool’s structure does not provide for shares. The governmental and business-type component units invest cash and investments in local financial institutions and the state’s Local Government Investment Pools managed by the State Treasurer. 2. Accounts and Property Tax Receivables All trade and property taxes receivables are shown net of an allowance for uncollectible accounts. All revenues of governmental activities were considered collectible and therefore there was no provision. The business-type activities reported an allowance of $54,403. (39) CITY OF DOUGLAS, ARIZONA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2015 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) D. Assets, Deferred Outflows of Resources, Liabilities, Deferred Inflows of Resources and Net Position or Equity (Continued) 2. Accounts and Property Tax Receivables (Continued) Cochise County levies real and personal property taxes on or before the third Monday in August that become due and payable in two equal installments. The first installment is due on the first day of October and becomes delinquent after the first business day of November. The second installment is due on the first day of March of the next year and becomes delinquent after the first business day of May. However, a lien against real and personal property assessed attaches on the first day of January preceding assessment and levy thereof. 3. Intergovernmental Receivables Intergovernmental receivables include amounts due from other government agencies and include Highway User Revenue fuel tax ($115,004), State sales tax ($139,376), auto lieu ($35,174), federal transit grant ($54,423), homeland security grant ($338,713), rehabilitation revolving loans ($36,293) and other federal and state grants ($134,023) in the governmental funds and governmental activities column of the government-wide financial statements. 4. Inventories and Prepaid Items Inventories consist of expendable supplies held for consumption. Inventories are valued at cost using the first-in/first-out (FIFO) method. Inventories are recorded as expenditure in the governmental funds and as an expense in the governmental activities, business-type activities and proprietary funds when the resources are used. Certain payments to vendors reflect costs applicable to future accounting periods and are recorded as prepaid items in both government-wide and fund financial statements. Prepaids are expensed when the benefit is received. 5. Restricted Assets As required by applicable loan documents, certain resources are set aside for debt service requirements on loans and the repair and replacement of utility infrastructure. The City’s component units also record restrictions on certain assets for replacement reserves, residual receipts and funds with the escrow agent for requirements set forth by the holder of the mortgage notes payable. (40) CITY OF DOUGLAS, ARIZONA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2015 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) D. Assets, Deferred Outflows of Resources, Liabilities, Deferred Inflows of Resources and Net Position or Equity (Continued) 6. Capital Assets Capital assets, which include property, plant, and equipment, are reported in the governmental activities column in the government-wide financial statements. Capital assets are defined by the City as assets with an initial, individual cost of more than $5,000 and an estimated useful life in excess of one year. Upon implementation of GASB Statement No. 34, all phase I and II governments were required to report infrastructure assets acquired by the government since 1980. The City reports all infrastructure acquired since 1980, as well as pre-1980 infrastructure assets acquired or constructed by the City and report those assets at cost, if available, or the estimated fair value of the asset at the time of acquisition or construction. Property, plant and equipment purchased or acquired is carried at historical cost or estimated historical cost. Contributed assets are recorded at fair market value as of the date received. Additions, improvements and other capital outlays that significantly extend the useful life of an asset are capitalized. Other costs incurred for repairs and maintenance are expensed as incurred. Depreciation on all assets is provided on a straight-line basis over the following estimated useful lives: Buildings and improvements Improvements other than buildings Wastewater system Water system Infrastructure Furniture, machinery and equipment Vehicles 30 Years 6 to 50 Years 6 to 50 Years 6 to 50 Years 6 to 50 Years 3 to 6 Years 5 to 7 Years 7. Deferred Outflows of Resources The City recognizes the consumption of net position that is applicable to a future reporting period as deferred outflows of resources. Reported amounts are related to the requirements of accounting and financial reporting for pensions under GASB 68. 8. Compensated Absences The liability for compensated absences reported in the government-wide and proprietary statements consists of unpaid, accumulated leave balances. The liability has been calculated using the vesting method, in which leave amounts for both employees who currently are eligible to receive termination payments and other employees who are expected to become eligible in the future to receive such payments upon termination are included. (41) CITY OF DOUGLAS, ARIZONA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2015 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) D. Assets, Deferred Outflows of Resources, Liabilities, Deferred Inflows of Resources and Net Position or Equity (Continued) 9. Pensions For purposes of measuring the net pension liability, deferred outflows of resources and deferred inflows of resources related to pensions, and pension expense, information about the fiduciary net position of the Arizona State Retirement System (ASRS) and Public Safety Personnel Retirement System (PSPRS) and additions to/deductions from ASRS/PSPRS's fiduciary net position have been determined on the same basis as they are reported by ASRS/PSPRS. For this purpose, benefit payments (including refunds of employee contributions) are recognized when due and payable in accordance with the benefit terms. Investments are reported at fair value. 10. Long-Term Obligations In the government-wide financial statements, and proprietary fund types in the fund financial statements, long-term debt and other long-term obligations are reported as liabilities in the applicable governmental activities, business-type activities or proprietary fund type statements of net position. Bond premiums and discounts are amortized over the life of the bonds using the straight-line method. Bonds payable are reported net of the applicable bond premium or discount. Bond issuance costs are recognized in the period incurred. In the fund financial statements, governmental fund types recognize bond premiums and discounts, as well as bond issuance costs, during the current period. The face amount of debt issued is reported as other financing sources. Premiums received on debt issuances are reported as other financing sources while discounts on debt issuances are reported as other financing uses. Issuance costs, whether or not withheld from the actual debt proceeds received, are reported as debt service expenditures. 11. Deferred Inflows of Resources The deferred inflows of resources reported in the governmental fund financial statements represent resources that are not available to the City as of June 30, 2015 or within 60 days of fiscal year end. The deferred inflows of resources represent a reconciling item between the governmental fund financial statements and the government-wide financial statements. The deferred inflows of resources in the government-wide financial statements represent the acquisition of net position that is applicable to a future reporting period. Reported amounts are related to the requirements of accounting and financial reporting for pensions under GASB 68. (42) CITY OF DOUGLAS, ARIZONA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2015 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) D. Assets, Deferred Outflows of Resources, Liabilities, Deferred Inflows of Resources and Net Position or Equity (Continued) 12. Net Position In the government-wide financial statements, net position is reported in three categories: net investment in capital assets; restricted net position; and unrestricted net position. Net investment in capital assets is separately reported because capital assets make up a significant portion of total net position. Restricted net position accounts for the portion restricted by parties outside the City. Unrestricted net position is the remaining net position not included in the previous two categories. None of the restricted net position was restricted by enabling legislation. 13. Fund Balance Classifications Fund balances of the governmental funds are reported separately within classifications based on a hierarchy of the constraints placed on the use of those resources. The classifications are based on the relative strength of the constraints that control how the specific amounts can be spent. The classifications are nonspendable and spendable fund balances. Spendable fund balances include restricted, committed, assigned and unassigned fund balance classifications. The nonspendable fund balance classification includes amounts that cannot be spent because they are either not in spendable form such as inventories, or are legally or contractually required to be maintained intact. Restricted fund balances are those that have externally imposed restrictions on their usage by creditors (such as through debt covenants), grantors, contributors, or laws and regulations. The committed fund balances are self-imposed limitations approved by the City’s Council, through formal resolution. The City Council is the highest level of decision-making authority within the City and the formal commitment must occur prior to fiscal year end. Only the City Council can remove or change the constraints placed on committed fund balances through formal council action. Assigned fund balances are resources constrained by the City’s intent to be used for specific purposes, but are neither restricted nor committed. The City Council, through formal resolution, has authorized the City Manager to make assignments of resources for a specific purpose. The unassigned fund balance is the residual classification for the General Fund and includes all spendable amounts not reported in other classifications. Also, deficits in fund balances of the other governmental funds are reported as unassigned. When an expenditure is incurred, for purposes for which both restricted and unrestricted fund balance is available, the City’s policy is to use restricted fund balance first, then unrestricted fund balance. When an expenditure is incurred for purposes for which committed, assigned and unassigned are available, the City uses, committed, assigned and finally unassigned amounts. (43) CITY OF DOUGLAS, ARIZONA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2015 NOTE 2 STEWARDSHIP, COMPLIANCE, AND ACCOUNTABILITY A. Budgetary Information The City Council follows these procedures in establishing the budgetary data reflected in the financial statements: 1. In accordance with Arizona Revised Statutes, the City Manager submits a proposed budget for the fiscal year commencing the following July 1, to the City Council. The operating budget includes proposed expenditures and the means of financing them for the upcoming year. 2. Public hearings are conducted to obtain taxpayer comment. 3. Prior to the third Monday in August, the expenditure limitation for the City is legally enacted through passage of an ordinance. To ensure compliance with the expenditure limitation, a uniform expenditure report must be filed with the State each year. This report, issued under a separate cover, reconciles total City expenditures from the audited basic financial statements to total expenditures for reporting in accordance with the State’s uniform expenditure reporting system (A.R.S. §41-1279.07). 4. Expenditures may not legally exceed the expenditure limitation of all fund types as a whole. For management and legal purposes, the City Council adopts a budget by department for the General Fund and in total by other funds. The City Manager, subject to City Council approval, may at any time transfer any unencumbered appropriation balance or portion thereof between a department or activity. 5. Formal budgetary integration is employed as a management control device during the year for the General, Special Revenue, Debt Service and Capital Projects Funds on essentially the same modified accrual basis of accounting used to record actual revenues and expenditures. No budget was appropriated for the Public Housing Fund during the fiscal year. The City is subject to the State of Arizona’s Spending Limitation Law for Towns and Cities. This law does not permit the City to spend more than budgeted revenues plus the carryover unrestricted cash balance from the prior fiscal year. The limitation is applied to the total of the combined funds. The City complied with this law during the year. No supplementary budgetary appropriations were necessary during the year. B. Deficit Net Position At June 30, 2015, the City reported a deficit net position in the governmental activities of $4,153,860. The deficit was due to recording the net pension liability for the City’s proportionate share of the Arizona State Retirement System and the Public Safety Retirement Plan. The City does not anticipate recovering the deficit in the near-term; however, the unfunded pension liability will be reduced through future contributions to the plans. (44) CITY OF DOUGLAS, ARIZONA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2015 NOTE 3 DETAILED NOTES ON ALL FUNDS A. Assets 1. Deposits and Investments Deposits and investments at June 30, 2015 consist of the following: Deposits: Cash on Hand Cash in Bank Cash on Deposit with County Attorney Investments: State Treasurer's Investment Pool Cash on Deposit with Trustee Total Cash and Investments Less Restricted Assets Less Cash with Fiscal Agent $ 2,940 7,948,602 351,637 4,999,902 470,903 13,773,984 (730,152) (470,903) Cash and Investments - Statement of Net Position $ 12,572,929 Deposits The carrying value of the City’s deposits at June 30, 2015 was $7,948,602 and the bank balance was $7,846,590. Of the bank balance, $3,936,223 was covered by federal depository insurance and $3,910,367 was covered by collateral held by the City’s custodial bank in the City’s name. The deposits held by the trustee were insured by federal depository insurance or were collateralized by securities held by the pledging financial institution in the trustee’s name. Investments The State Board of Deposit provides oversight for the State Treasurer’s pools, and the Local Government Investment Pool Advisory Committee provides consultation and advice to the Treasurer. The fair value of a participant’s position in the pool approximates the value of that participant’s pool shares. The shares are not identified with specific investments and are not subject to custodial credit risk. The City’s cash on deposit with the trustee are invested in U.S. Government securities. The securities were not rated and were not subject to credit risk. Interest Rate Risk – In accordance with the City’s investment policy, the City manages its exposure to declines in fair value by limiting the City’s investment portfolio in maturities of more than one year to less than 20% of total investments. (45) CITY OF DOUGLAS, ARIZONA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2015 NOTE 3 DETAILED NOTES ON ALL FUNDS (CONTINUED) A. Assets (Continued) 1. Deposits and Investments (Continued) The City’s investments at June 30, 2015 consist of the following: Investment Type Amount State Treasurer's Investment Pool 5 State Treasurer's Investment Pool 500 $ 4,303,927 695,975 $ 4,999,902 Maturity in Years Less than 1 1-2 $ 4,303,927 $ 4,303,927 $ $ 695,975 695,975 Concentration of Credit Risk – The City invests in funds authorized by Arizona state law and currently only invests in the State Treasurer Investment Pool. Custodial Credit Risk – For an investment, this is the risk that, in the event of the failure of the counterparty, the City will not be able to recover the value of its investments or collateral securities that are in the possession of an outside party. The City’s investment policy limits investments to 1) the State of Arizona Local Government Investment Pool; 2) U.S. government obligations, U.S. government agency obligations, and U.S. government instrumentality obligations; 3) obligations of the Government National Mortgage Association, Federal National Mortgage Association, Federal Home Loan Mortgage Corporation, or any federal farm credit bank, federal land bank or federal home loan bank notes or bonds. In addition to limitations imposed by Arizona statute, City funds shall not be invested in reverse repurchase agreement, callable agency securities, or derivative type investments. Credit Risk –The City’s deposits and investments consist of insured or collateralized deposits and investments in U.S. Government Securities, U.S. Treasury Notes and the State Treasurer’s Investment Pool. The City’s investment in the State Treasurer’s investment pool did not receive a credit quality rating from a national rating agency. Cash and investments of the component unit’s at June 30, 2015 consist of: Deposits: Cash on Hand Cash in Bank Investments: Funds Held by Mortgage Restricted Assets Total Cash and Cash Equivalents $ $ 100 92,347 430,392 (450,262) 72,577 The carrying value of the component unit’s deposits at June 30, 2015 was $92,347 which was entirely covered by federal depository insurance. (46) CITY OF DOUGLAS, ARIZONA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2015 NOTE 3 DETAILED NOTES ON ALL FUNDS (CONTINUED) A. Assets (Continued) 2. Restricted Assets Restricted assets in the Governmental Activities, Water Fund and the Sewer Fund at June 30, 2015 consisted of the following: Business-Type Activities Governmental Activities Loan Debt Service Reserve Requirement Customer Deposits Grantor Reserve Requirement Total $ $ 9,666 7,713 17,379 Water Fund $ 138,737 $ 138,737 Sewer Fund $ 574,036 $ 574,036 Total 712,773 9,666 7,713 730,152 $ $ Restricted assets of the discretely presented component units at June 30, 2015 consisted of the following: Funds Held by Mortgage Tenant Deposits Total Restricted Assets of the Component Units $ $ 430,392 19,870 450,262 3. Receivables Governmental funds report unavailable revenue in connection with receivables for revenues that are not considered to be available to liquidate liabilities of the current period. Governmental funds also record unearned revenues in connection with resources that have been received, but not yet earned. At the end of the current fiscal year, the various components of unavailable revenue and unearned revenue reported in the governmental funds were as follows: Unavailable Delinquent Property Taxes Receivable: (General Fund) Unavailable Grant Revenue: (Nonmajor Governmental Funds) Sales Tax Audit Receivable: (General Fund) (Nonmajor Governmental Funds) Unearned Revenue: (General Fund) Unearned Grant Revenue: (General Fund) $ $ (47) 53,246 Unearned $ - 36,293 - 18,563 2,227 - - 90,000 110,329 $ 932 90,932 CITY OF DOUGLAS, ARIZONA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2015 NOTE 3 DETAILED NOTES ON ALL FUNDS (CONTINUED) A. Assets (Continued) 4. Capital Assets Capital asset activity for the primary government’s governmental activities for the year ended June 30, 2015 was as follows: Beginning Balance Governmental Activities: Capital Assets, Not Being Depreciated: Land $ Construction in Progress Total Capital Assets, Not Being Depreciated 1,100,310 1,560,083 $ 431,028 Ending Balance Decreases $ (1,135,187) $ 1,100,310 855,924 2,660,393 431,028 (1,135,187) 1,956,234 4,728,676 16,626,188 15,775,191 11,235,062 4,709,645 32,634 1,035,165 83,521 1,361,411 537,293 (54,500) - 4,761,310 17,661,353 15,858,712 12,541,973 5,246,938 53,074,762 3,050,024 (54,500) 56,070,286 (2,636,930) (10,442,774) (6,227,717) (9,888,296) (3,191,486) (32,387,203) (191,002) (626,514) (538,293) (612,434) (434,321) (2,402,564) 54,500 54,500 (2,827,932) (11,069,288) (6,766,010) (10,446,230) (3,625,807) (34,735,267) Capital Assets, Being Depreciated: Land Improvements Streets and Storm Drains Buildings and Improvements Machinery and Equipment Vehicles Total Capital Assets, Being Depreciated Accumulated Depreciation for: Land Improvements Streets and Storm Drains Buildings and Improvements Machinery and Equipment Vehicles Total Accumulated Depreciation Total Capital Assets, Being Depreciated, Net Governmental Activities Capital Assets, Net Increases 20,687,559 $ 23,347,952 647,460 $ 1,078,488 $ (1,135,187) Depreciation expense was charged to functions/programs as follows: Governmental Activities: General Government Public Safety Highways and Streets Culture and Recreation Redevelopment and Housing Total Depreciation Expense, Governmental Activities (48) $ 685,647 634,644 684,039 392,061 6,173 $ 2,402,564 21,335,019 $ 23,291,253 CITY OF DOUGLAS, ARIZONA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2015 NOTE 3 DETAILED NOTES ON ALL FUNDS (CONTINUED) A. Assets (Continued) 4. Capital Assets (Continued) Capital assets activity for the primary government’s business-type activities for the year ended June 30, 2015 was as follows: Beginning Balance Business-Type Activities: Capital Assets, Not Being Depreciated: Construction in Progress $ Capital Assets, Being Depreciated: Buildings and Improvements Water System Wastewater System Machinery, Equipment, and Vehicles Total Capital Assets, Being Depreciated Accumulated Depreciation for: Buildings and Improvements Water System Wastewater System Machinery, Equipment, and Vehicles Total Accumulated Depreciation Total Capital Assets, Being Depreciated, Net Business-Type Activities Capital Assets, Net 810,112 Increases $ 185,260 $ (253,282) - 7,648,482 15,946,407 13,795,950 2,933,170 40,012,751 311,258 - 40,324,009 (169,966) (424,794) (287,150) (186,510) (1,068,420) - (2,914,355) (8,853,767) (5,980,732) (2,114,554) (19,863,408) (757,162) - 20,460,601 22,027,875 $ (571,902) $ (253,282) Depreciation expense was charged to functions/programs as follows: (49) 742,090 268,804 19,708 22,746 21,217,763 Business-Type Activities: Water Sewer Solid Waste Total Depreciation Expense, Business-Type Activities $ 7,648,482 15,677,603 13,776,242 2,910,424 (2,744,389) (8,428,973) (5,693,582) (1,928,044) (18,794,988) $ Ending Balance Decreases $ 488,095 518,974 61,351 $ 1,068,420 $ 21,202,691 CITY OF DOUGLAS, ARIZONA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2015 NOTE 3 DETAILED NOTES ON ALL FUNDS (CONTINUED) A. Assets (Continued) 4. Capital Assets (Continued) Capital asset activity for the governmental and business-type discretely presented component units for the year ended June 30, 2015 were as follows: Governmental Discretely Presented Component Unit Capital Assets, Not Being Depreciated: Land Beginning Balance $ 16,454 Capital Assets, Being Depreciated: Buildings and Improvements Furniture and Equipment Total Capital Assets, Being Depreciated Accumulated Depreciation Total Capital Assets, Being Depreciated, Net Governmental-Type Activities Capital Assets, Net $ Business-Type Discretely Presented Component Unit Capital Assets, Not Being Depreciated: Land $ $ - $ - 16,454 (2,010) (3,247) 1,138,270 25,204 1,136,728 32,003 (5,257) 1,163,474 (819,622) (45,411) 5,257 317,106 (13,408) - $ 265,000 (13,408) $ Increases $ - (859,776) 303,698 $ - $ 320,152 Ending Balance Decreases - $ 265,000 5,207,564 26,278 - - 5,207,564 26,278 5,233,842 - - 5,233,842 (1,734,096) (18,966) (1,753,062) (130,189) (960) (131,149) - (1,864,285) (19,926) (1,884,211) 3,480,780 (131,149) - 3,349,631 3,745,780 $ (131,149) $ - Depreciation expense was charged to functions/programs as follows: Governmental Activities: Pioneer Village $ 45,411 Business-type Activities: Rancho La Perilla $ 131,149 (50) $ 29,677 2,326 Beginning Balance $ Ending Balance Decreases 1,110,603 26,125 333,560 Capital Assets, Being Depreciated: Buildings and Improvements Furniture and Equipment Total Capital Assets, Being Depreciated Accumulated Depreciation for: Buildings and Improvements Furniture and Equipment Total Accumulated Depreciation Total Capital Assets, Being Depreciated, Net Business-Type Activities Capital Assets, Net Increases $ 3,614,631 CITY OF DOUGLAS, ARIZONA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2015 NOTE 3 DETAILED NOTES ON ALL FUNDS (CONTINUED) B. Interfund Transfers Interfund transfers for the year ended June 30, 2015 consisted of the following: General Fund Transfers Out General Fund Nonmajor Governmental Funds Water Fund Sewer Fund Solid Waste Fund Transfers In Nonmajor MPC Debt Governmental Service Fund Funds $ - $ 34,153 69,513 74,341 32,997 211,004 $ 325,922 $ 160,529 486,451 $ 1,473,474 $ 317,669 48,077 13,592 6,796 1,859,608 Total $ 1,799,396 $ 512,351 117,590 87,933 39,793 2,557,063 Transfers were used to fund debt service and to fund capital outlay and indirect administrative costs. General Fund transfers were also used to subsidize the operating costs of Nonmajor Governmental Funds. The Business-type funds were used to allocate a percentage of their costs of goods sold to the General Fund for indirect administrative costs and to allocate the cost of the use of certain facilities owned and operated by the General Fund. C. Obligations Under Capital Leases The City has acquired communication equipment, vehicles and equipment, lawn mowers, and golf carts under the provisions of long-term lease agreements classified as capital leases. Accordingly, the principal amount of the assets totaling $2,470,260 and $583,553 are capitalized as governmental activities and business-type activities, respectively. The assets acquired through capital leases are as follows: Governmental Activities Asset: Furniture, Equipment and Vehicles Less: Accumulated Depreciation Total $ $ 2,470,260 (605,548) 1,864,712 Business-Type Activities $ $ 583,553 (122,780) 460,773 Amortization expense on the capital leases is included in depreciation expense. (51) CITY OF DOUGLAS, ARIZONA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2015 NOTE 3 DETAILED NOTES ON ALL FUNDS (CONTINUED) C. Obligations Under Capital Leases (Continued) Future principal and interest payments due on capital leases are as follows: Year Ending June 30, 2016 2017 2018 2019 2020 Total Governmental Activities Principal Interest $ 404,703 $ 28,038 387,959 20,525 383,905 13,395 163,288 7,297 166,898 3,688 $ 1,506,753 $ 72,943 Business-type Activities Principal Interest $ 116,589 $ 6,446 119,113 3,923 90,904 1,344 $ 326,606 $ 11,713 D. Lease Revenue During fiscal year 2009, the City established a lease agreement for the City’s new call center. Revenue related to this lease totaled $669,266 during this fiscal year. Future minimum lease payments related to the call center lease are as follows: Year Ending June 30, 2016 2017 2018 2019 2020 2021 - 2024 $ $ Amount 647,076 647,076 647,076 623,964 600,852 2,102,982 5,269,026 The City leases land to various third parties. Annual rental revenues from the lease agreements are recognized in the General Fund. Payments relating to these leases totaled $148,627. The future minimum lease payments required under the leases at June 30, 2015 are as follows: Year Ending June 30, 2016 2017 2018 2019 2020 Thereafter $ $ (52) Amount 76,289 76,289 76,289 23,792 9,445 56,668 318,772 CITY OF DOUGLAS, ARIZONA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2015 NOTE 3 DETAILED NOTES ON ALL FUNDS (CONTINUED) E. Long-Term Obligations The City has long-term bonds and loans payable issued to provide funds for the acquisition and construction of major capital facilities. The debt is being repaid by the Highway User Revenue and Debt Service Funds. Compensated absences are paid by the applicable fund where each employee is regularly paid, primarily the General Fund. The City has pledged future excise taxes and other revenue to repay $4.2 million in governmental excise tax refunding bonds issued in 2004. Proceeds of the bonds were used to refund and refinance the outstanding excise tax revenue bonds, series 1995 and highways and streets revenue bonds, Series 1996. The bonds are payable from excise taxes, state shared revenues, franchise taxes and fees for license and permits, and were paid off in their entirety in 2015. Principal and interest paid for the current year and total pledged revenues were $486,451 and $11,792,995, respectively. The City of Douglas, Arizona reports the following outstanding loans: Description Governmental Activities Loans Payable: Greater Arizona Development Authority, Series 2008A; original issue $3,000,000 Call Center Purchase Agreement; collateralized by the building and equipment acquired with the debt; original issue $9,000,000 Total Governmental Loans Payable Business-Type Activities Water Infrastructure Finance Authority of Arizona Issued 2009-2010 Water Infrastructure Finance Authority of Arizona Issued 2009-2010 Total Business-Type Loans Payable Maturity Interest Rate (%) 8/1/15-28 4.00-5.25% 7/31/15-28 4.29-5.63% Outstanding at June 30, 2015 $ 2,250,000 $ 4,875,000 7,125,000 3,449,233 7/1/15-29 2.00% $ 7/1/15-27 2.814% 1,155,394 $ 4,604,627 The City has pledged future state shared revenue and City excise taxes, transaction privilege tax and other miscellaneous revenues to repay $3.0 million in GADA loans, Series 2008A. Proceeds of the loan provided financing for the Regional Service Center project, including the purchase and renovation of buildings, land purchase, and upgrades and renovations to the existing City Hall. The loan is payable solely from pledged revenues discussed previously and are payable through 2029. Annual principal and interest payments on the bonds are expected to require 2 percent of pledged revenues. The total principal and interest remaining to be paid on the loan is $3,014,844. Principal and interest paid for the current year and total excise taxes and shared revenues were $235,172 and $10,074,638, respectively. (53) CITY OF DOUGLAS, ARIZONA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2015 NOTE 3 DETAILED NOTES ON ALL FUNDS (CONTINUED) E. Long-Term Obligations (Continued) In 2009, the City issued two loans totaling $9,000,000 for the acquisition and construction of a call center. The IT loan for 2,400,000 is payable from a 0.3 percent City sales tax, and the building loan for 6,600,000 is payable from lease revenues received on the lease agreement with a third party. The IT Loan was paid in full on 6/30/13. The lease of the call center is a 15 year lease with annual payments of $670,182 plus property expenses. The lease revenues are to be used for payment of the debt, then for maintenance and operations costs. Annual principal and interest payments on the loans are expected to exceed revenue by 21%. The call center lease agreement expires fiscal year 2023; however, the City anticipates extending the lease agreement to cover the loan obligation period. The total principal and interest remaining to be paid on the loan is $6,797,857. Principal and interest paid for the current year was $674,680 and the City sales tax and lease revenues were $9,353,016 and $669,266, respectively. The City has three loans through the Water Infrastructure Financing Authority of Arizona (WIFA). The City recently acquired a $900,000 loan from WIFA for the construction of a solar station at its wastewater plant. The loans are structured where the City draws on the loans as funds are needed. To-date, the City has drawn down $1.5 million, $5.1 million and $ - from the total authorized loan of $1.5 million, $9.0 million and $900,000, respectively, for the acquisition and construction of water and sewer facilities and improvements. The loans are payable from water and sewer charges for services through the fiscal year 2034. The City draws the loan as funds are utilized and pays interest on the outstanding principal balance. Annual principal and interest payments on the bonds are expected to require approximately 65-75% percent of net available revenue. The total principal and interest remaining to be paid on the loan is $5,112,371. Principal and interest paid for the current year and total pledged revenues were $589,544 and $596,261. The City’s component units have outstanding mortgage notes payables collateralized by an insured mortgage on the projects land and buildings. The notes are being repaid through federal subsidies and tenant rents. The governmental component units’ outstanding debt consisted of interest only mortgage notes payable at 1% per annum. The future principal payments are scheduled based on estimated principal retirement. The component units pay principal as cash is available; the maturity date of the outstanding debt is May 1, 2042. (54) CITY OF DOUGLAS, ARIZONA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2015 NOTE 3 DETAILED NOTES ON ALL FUNDS (CONTINUED) E. Long-Term Obligations (Continued) Changes in long-term obligations for the year ended June 30, 2015 are as follows: Beginning of Year Governmental Activities: Loans Payable Revenue Bonds Discount Total Bonds and Loans Other Liabilities: Capital Leases Compensated Absences Total Governmental Activities Business-Type Activities: Loans Payable Other Liabilities: Capital Lease Compensated Absences Total Business-Type Activities $ 7,725,000 470,000 (1,398) 8,193,602 Additions $ 1,911,683 1,429,659 - (600,000) (470,000) 1,398 (1,068,602) $ 7,125,000 7,125,000 $ 505,000 505,000 (404,930) (688,959) 1,506,753 1,387,774 $ (2,162,491) $ 10,019,527 $ 1,618,247 $ $ $ 501,359 $ 647,074 $ $ - 440,727 164,942 $ Due within One Year 647,074 $ 11,534,944 5,095,574 End of Year Retirements (490,947) 73,515 4,604,627 (114,121) (106,292) $ 5,701,243 $ 73,515 $ Governmental Component Units: Notes Payable $ 953,242 $ - $ Business-Type Component Units: Notes Payable $ 5,124,415 $ - $ (711,360) - (51,300) 404,703 708,544 326,606 132,165 116,589 101,690 $ 5,063,398 $ 719,638 $ 953,242 $ 5,231 $ 5,073,115 $ 53,417 Debt service requirements on long-term debt at June 30, 2015 are as follows: Years 2016 2017 2018 2019 2020 2021-2025 2026-2030 2031-2035 2036-2040 2041-2045 Totals Primary Government Governmental Activities Business-Type Activities Principal Interest Principal Interest $ 505,000 $ 376,539 $ 501,359 $ 98,597 510,000 349,375 511,995 87,961 520,000 321,938 522,862 77,034 525,000 294,106 533,963 65,993 530,000 267,127 545,304 54,652 2,765,000 902,408 1,989,144 123,507 1,770,000 176,208 - Component Units Activities Activities Principal Principal $ 5,231 $ 53,417 55,621 57,916 60,306 62,794 627,700 948,011 4,155,361 $ 7,125,000 $ $ 2,687,701 (55) $ 4,604,627 $ 507,744 953,242 $ 5,073,115 CITY OF DOUGLAS, ARIZONA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2015 NOTE 3 DETAILED NOTES ON ALL FUNDS (CONTINUED) F. Fund Balance Classifications of Governmental Funds The City has classified its fund balances as follows: General Fund Fund Balances: Nonspendable: Inventory $ Prepaid Items Due from Component Unit Total Nonspendable Restricted: Firefighters Injured in Line of Duty Transit - Making the Connection Program Federal and State Grant Programs Court Administration Law Enforcement Operations Highways and Streets by A.R.S. 28-6533 Housing and Redevelopment Total Restricted Committed for Capital Projects Unassigned: 136,889 20,000 156,889 5,613,427 Total Fund Balances 6,493,957 $ 63,115 801 659,725 723,641 MPC Debt Service $ - Governmental Funds $ $ $ - Total Nonmajor Governmental Funds 337,013 49,680 253,770 427,569 371,383 1,439,415 779,693 - $ 2,219,108 63,115 801 659,725 723,641 136,889 20,000 337,013 49,680 253,770 427,569 371,383 1,596,304 779,693 5,613,427 $ 8,713,065 G. Change in Accounting Principle During the year ended June 30, 2015, the City of Douglas, Arizona adopted GASB Statement No. 68 Accounting and Financial Reporting for Pensions and GASB Statement No. 71 Pension Transition for Contributions Subsequent to the Measurement Date- an amendment of GASB Statement No. 68. These pronouncements require the restatement of the June 30, 2014, net position of the governmental activities, businesstype activities and enterprise funds as follows: Governmental Activities Business Type Activities Water Sewer Solid Waste Net Position as Previously Stated $ 20,030,006 21,567,862 9,041,674 11,069,658 1,456,530 Cumulative Affect of Application of GASB 68 Net Pension Liability $ (25,835,739) (2,072,453) (840,460) (651,468) (580,525) (56) Cumulative Affect of Application of GASB 71 Deferred Outflow of Resources for Town Contributions Made During 2013-14 $ 1,703,790 117,613 47,697 36,971 32,945 $ Net Position As Restated (4,101,943) 19,613,022 8,248,911 10,455,161 908,950 CITY OF DOUGLAS, ARIZONA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2015 NOTE 3 DETAILED NOTES ON ALL FUNDS (CONTINUED) G. Change in Accounting Principle (Continued) During the year ended June 30, 2015, Douglas Housing Corporation I (Casa de Esperanza) was sold to a private entity. Casa de Esperanza was previously disclosed as a discretely presented governmental component unit; however, as a result of the transfer of ownership, Casa de Esperanza no longer met the definition of a component unit. The following summary reconciles the beginning net position of the governmental discretely presented component unit to the prior year audited financial statements: Discretely Presented Governmental Component Unit NOTE 4 Net Position as Previously Stated Elimination of Casa de Esperanza $ $ (1,001,351) 638,298 Net Position As Restated $ (363,053) OTHER INFORMATION A. Risk Management The City of Douglas, Arizona, is exposed to various risks of loss related to torts; theft of, damage to and destruction of assets; errors and omissions; and natural disasters. The City’s insurance protection is provided by a private carrier (State National Insurance Company), of which the City is a participating member. The limit for basic coverage is for $1,000,000 per occurrence on a claims made basis. Excess coverage is for an additional $5,000,000 per occurrence on a follow form, claims made basis. No significant reduction in insurance coverage occurred during the year and no settlements exceeded insurance coverage during any of the past three fiscal years. The City is also insured by State Compensation Fund for workers compensation for potential worker related accidents. The City is self-insured for individual health claims up to $50,000 per covered person. Coverage in excess of this amount is provided through the purchase of commercial insurance. Settlements for the past fiscal year did not exceed the City’s excess insurance coverage amounts for any claims. The City reports its self-insurance activity in all funds. The City allocates the cost of claims by charging a premium to each fund based on a percentage of each funds estimated current-year payroll. Claim expenditures and liabilities are reported when it is probable that a loss has occurred and the amount of that loss can be reasonably estimated. These losses include an estimate of claims that have been incurred but not reported. (57) CITY OF DOUGLAS, ARIZONA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2015 NOTE 4 OTHER INFORMATION (CONTINUED) A. Risk Management (Continued) The liability claims amount recorded in the accompanying financial statements is based on reported pending claims, effects of inflation, recent claim settlement trends and other economic and social trends. At June 30, 2015, the self-insured benefit claims payable, including amounts incurred, but not yet reported totaled $118,388. As of June 30, 2015 and 2014, unpaid claims were as follows: 2015 2014 Beginning unpaid claims Claims incurred and changes in estimates Payments made $ 165,651 678,890 (726,153) $ 116,356 942,570 (893,275) Ending unpaid claims $ 118,388 $ 165,651 B. Contingent Liabilities Lawsuits The City is a defendant in various lawsuits. Although the outcome of these lawsuits is not presently determinable, in the opinion of the City’s legal counsel, the City has some exposure to loss; however, the City is vigorously defending these claims and any loss or dollar value of the loss is not determinable. C. Commitments The City has three committed projects that will be funded through the Water Infrastructure Authority of Arizona (WIFA) in the amount of $9.0 million, $1.5 million and $900,000. The projects are for wastewater, water and solar field installation at the wastewater treatment facility respectively. As of June 30, 2015, the City had no construction commitments related to either project, but spent and drew down $6.6 million; the WIFA funds, negotiated as a loan, have an available balance in the amount of $4.8 million. Annual principal and semi-annual interest payment will be due through 2029 on the outstanding loan balance. The City has contractual commitments related to the solar station and phase II of the WWTP improvements at June 30, 2015. The City had spent $178,097 on these projects and had remaining contractual commitments with contractors of $430,999 as of June 30, 2015. (58) CITY OF DOUGLAS, ARIZONA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2015 NOTE 4 OTHER INFORMATION (CONTINUED) D. Retirement Plans Cost-Sharing and Agent Multiple Employer Pension Plans The City contributes to the Arizona State Retirement System (ASRS) and the Public Safety Personnel Retirement System (PSPRS) for police officers and firefighters. The plans are component units of the State of Arizona. At June 30, 2015, the City reported the following aggregate amounts related to pensions for all plans to which it contributes: Statement of Net Position and Statement of Activities Net Pension Liabilities Deferred Outflows of Resources Deferred Inflows of Resources Pension Expense Governmental Activities $ 29,848,027 5,532,425 1,933,378 3,775,227 Business-Type Activities $ 1,804,265 202,534 347,218 104,944 Total $ 31,652,292 5,734,959 2,280,596 3,880,171 The City reported accrued payroll and employee benefits of $35,868 for outstanding pension contribution amounts payable to all pension plans for the year ended June 30, 2015. Also, the City reported $1,658,196 of pension expenditures in the governmental funds related to all pension plans to which it contributes. Arizona State Retirement System Plan Descriptions – City employees not covered by the other pension plans described on the following pages participate in the Arizona State Retirement System (ASRS). The ASRS administers a cost-sharing, multiple-employer defined benefit pension plan; a cost-sharing, multiple-employer defined benefit health insurance premium benefit (OPEB); and a cost-sharing, multiple-employer defined benefit long-term disability (OPEB). The Arizona State Retirement System Board governs the ASRS according to the provisions of A.R.S. Title 38, Chapter 5, Articles 2 and 2.1. The ASRS issues a publicly available financial report that includes its financial statements and required supplementary information. The report is available on its Web site at www.azasrs.gov. Benefits Provided – The ASRS provides retirement, health insurance premium supplement, long-term disability, and survivor benefits. State statute establishes benefit terms. Retirement benefits are calculated on the basis of age, average monthly compensation, and service credit as presented on the following page. (59) CITY OF DOUGLAS, ARIZONA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2015 NOTE 4 OTHER INFORMATION (CONTINUED) D. Retirement Plans (Continued) Arizona State Retirement System (Continued) Retirement Initial Membership Date Before July 1, 2011 Sum of Years and Age Equals 80 10 Years Age 62 5 Year Age 50* any Years Age 65 On or After July 1, 2011 30 Years Age 55 25 Years Age 60 10 Years Age 62 5 Years Age 50* any Years Age 65 Final Average Salary is Based on Highest 36 Consecutive Months of Last 120 Months Highest 60 Consecutive Months of Last 120 Months Benefit Percentage Per Year of Service 2.1% to 2.3 % 2.1% to 2.3 % Years of Service and Age Required to Receive Benefit * With Actuarially Reduced Benefits Retirement benefits for members who joined the ASRS prior to September 13, 2013, are subject to automatic cost-of-living adjustments based on excess investment earnings. Members with a membership date on or after September 13, 2013, are not eligible for cost-of-living adjustments. Survivor benefits are payable upon a member’s death. For retired members, the survivor benefit is determined by the retirement benefit option chosen. For all other members, the beneficiary is entitled to the member’s account balance that includes the member’s contributions and employer’s contributions, plus interest earned. Contributions – In accordance with state statutes, annual actuarial valuations determine active member and employer contribution requirements. The combined active member and employer contribution rates are expected to finance the costs of benefits employees earn during the year, with an additional amount to finance any unfunded accrued liability. For the year ended June 30, 2015, active ASRS members were required by statute to contribute at the actuarially determined rate of 11.60 percent (11.48 percent for retirement and 0.12 percent for long-term disability) of the members’ annual covered payroll, and the City was required by statute to contribute at the actuarially determined rate of 11.60 percent (10.89 percent for retirement, 0.59 percent for the health insurance premium benefit, and 0.12 percent for long-term disability) of the active members’ annual covered payroll. (60) CITY OF DOUGLAS, ARIZONA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2015 NOTE 4 OTHER INFORMATION (CONTINUED) D. Retirement Plans (Continued) Arizona State Retirement System (Continued) In addition, the City was required by statute to contribute at the actuarially determined rate of 9.57 percent (9.51 percent for retirement and 0.06 percent for long-term disability) of annual covered payroll of retired members who worked for the City in positions that would typically be filled by an employee who contributes to the ASRS. The City’s contributions to the pension plan for the year ended June 30, 2015, were $449,025. The City’s contributions for the current and two preceding years for OPEB, all of which were equal to the required contributions, were as follows: Year Ending June 30, 2015 2014 2013 Health Benefit Supplement Fund Long-Term Disability Fund $ $ 24,327 24,546 27,912 4,948 9,818 10,306 During the fiscal year ended June 30, 2015, the City paid for ASRS pension and OPEB contributions as follows: 66 percent from the General Fund, 10 percent from nonmajor governmental funds, 10 percent from the Water Fund, 8 percent from the Sewer Fund and 6 percent from the Solid Waste Fund. Pension Liability – At June 30, 2015, the City reported a liability of $7,309,573 for its proportionate share of the ASRS’ net pension liability. The net pension liability was measured as of June 30, 2014. The total pension liability used to calculate the net pension liability was determined using update procedures to roll forward the total pension liability from an actuarial valuation as of June 30, 2013, to the measurement date of June 30, 2014. The City’s reported liability at June 30, 2015, decreased by $1,086,502 from the City’s prior year liability of $8,396,075 because of changes in the ASRS’ net pension liability and the City’s proportionate share of that liability. The ASRS’ publicly available financial report provides details on the change in the net pension liability. The City’s proportion of the net pension liability was based on the City’s fiscal year 2014 pension contributions. The City’s proportion measured as of June 30, 2014, was 0.049400 percent, which was a decrease of 0.00111 from its proportion measured as of June 30, 2013. (61) CITY OF DOUGLAS, ARIZONA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2015 NOTE 4 OTHER INFORMATION (CONTINUED) D. Retirement Plans (Continued) Arizona State Retirement System (Continued) Pension Expense and Deferred Outflows/Inflows of Resources – For the year ended June 30, 2015 the City recognized pension expense for ASRS of $425,158. At June 30, 2015, the City reported deferred outflows of resources and deferred inflows of resources related to pensions from the following sources: Differences between expected and actual experience Changes of assumptions or other inputs Net difference between projected and actual earnings on pension plan investments Changes in proportion and differences between Town contributions and proportionate share of contributions City's contributions subsequent to the measurement date Total Deferred Outflows of Resources $ 371,494 - $ Deferred Inflows of Resources $ - - 1,278,219 - 128,454 449,025 820,519 $ 1,406,673 The $449,025 reported as deferred outflows of resources related to ASRS pensions resulting from City contributions subsequent to the measurement date will be recognized as a reduction of the net pension liability in the year ended June 30, 2016. Other amounts reported as deferred outflows of resources and deferred inflows of resources related to ASRS pensions will be recognized in pension expense as follows: Year Ending June 30, 2016 2017 2018 2019 (62) $ Amount (213,885) (213,885) (287,854) (319,555) CITY OF DOUGLAS, ARIZONA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2015 NOTE 4 OTHER INFORMATION (CONTINUED) D. Retirement Plans (Continued) Arizona State Retirement System (Continued) Actuarial Assumptions – The significant actuarial assumptions used to measure the total pension liability are as follows: Actuarial Valuation Date Actuarial Roll Forward Date Actuarial Cost Method Investment Rate of Return Projected Salary Increases Inflation Permanent Benefit Increase Mortality Rates June 30, 2013 June 30, 2014 Entry Age Normal 8% 3 - 6.75% 3% Included 1994 GAM Scale BB Actuarial assumptions used in the June 30, 2013 valuation were based on the results of an actuarial study for the 5-year period ended June 30, 2012. The long-term expected rate of return on ASRS pension plan investments was determined to be 8.79 percent using a building block method in which best-estimate ranges of expected future real rates of return (expected returns, net of pension plan investment expense and inflation) are developed for each major asset class. These ranges are combined to produce the long-term expected rate of return by weighing the expected future real rates of return by the target asset allocation percentage and by adding expected inflation. The target allocation and best estimates of arithmetic real rates of return for each major asset class are summarized in the following table: Target Allocation 63% 25% 8% 4% 100% Asset Class Equity Fixed Income Real Estate Commodities Total (63) Real Return Arithmetic Basis 7.03% 3.20% 4.75% 4.50% CITY OF DOUGLAS, ARIZONA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2015 NOTE 4 OTHER INFORMATION (CONTINUED) D. Retirement Plans (Continued) Arizona State Retirement System (Continued) Discount Rate – The discount rate used to measure the ASRS total pension liability was 8 percent, which is less than the long-term expected rate of return of 8.79 percent. The projection of cash flows used to determine the discount rate assumed that contributions from participating employers will be made based on the actuarially determined rates based on the ASRS Board’s funding policy, which establishes the contractually required rate under Arizona statutes. Based on those assumptions, the pension plan’s fiduciary net position was projected to be available to make all projected future benefit payments of current plan members. Therefore, the long-term expected rate of return on pension plan investments was applied to all periods of projected benefit payments to determine the total pension liability. Sensitivity of the City’s Proportionate Share of the ASRS Net Pension Liability to Changes in the Discount Rate – The following table presents the City’s proportionate share of the net pension liability calculated using the discount rate of 8 percent, as well as what the City’s proportionate share of the net pension liability would be if it were calculated using a discount rate that is 1 percentage point lower (7 percent) or 1 percentage point higher (9 percent) than the current rate. 1% Decrease (7%) City's proportionate share of the net pension liability $ 9,238,926 Current Discount Rate (8%) $ 7,309,573 1% Increase (9%) $ 6,262,803 Pension Plan Fiduciary Net Position – Detailed information about the pension plan’s fiduciary net position is available in the separately issued ASRS financial report. Public Safety Personnel Retirement System (PSPRS) Plan Descriptions— City police employees and City firefighters who are regularly assigned hazardous duty participate in the Public Safety Personnel Retirement System (PSPRS). The PSPRS administers an agent multiple-employer defined benefit pension plan and an agent multiple-employer defined benefit health insurance premium benefit (OPEB) plan (agent plans). A seven-member board known as the Board of Trustees and the participating local boards govern the PSPRS according to the provisions of A.R.S. Title 38, Chapter 5, Article 4. The PSPRS issue publicly available financial reports that include their financial statements and required supplementary information. The reports are available on the PSPRS Web site at www.psprs.com. (64) CITY OF DOUGLAS, ARIZONA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2015 NOTE 4 OTHER INFORMATION (CONTINUED) D. Retirement Plans (Continued) Public Safety Personnel Retirement System (PSPRS) (Continued) Benefits Provided — The PSPRS provide retirement, health insurance premium supplement, disability, and survivor benefits. State statute establishes benefits terms. Retirement, disability, and survivor benefits are calculated on the basis of age, average monthly compensation, and service credit as follows: PSPRS Retirement and Disability Years of Service and Age Required to Receive Benefit Final Average Salary is Based on Benefit Percentage Normal Retirement Accidental Disability Retirement Catastrophic Disability Retirement Ordinary Disability Retirement Survivor Benefit Retired Members Active Members Initial Membership Date Before On or After 20 Years any Age 25 Years and Age 52.5 15 Years Age 62 Highest 36 Consecutive Months of Last 20 Years Highest 60 Consecutive Months of Last 20 Years 50% Less 2.0% for Each Year of Credited Service Less Than 20 Years OR Plus 2.0% to 2.5% for Each Year of Credited Service Over 20 Years, Not to Exceed 80% 2.5% Per Year of Credited Service, Not to Exceed 80% 50% or Normal Retirement, Whichever is Greater 90% for the First 60 Months then Reduced to Either 62.5% or Normal Retirement, Whichever is Greater Normal Retirement Calculated with Actual Years of Credited Service or 20 Years of Credited Service, Whichever is Greater, Multiplied by Years of Credited Service (Not to Exceed 20 Years) Divided by 20 80-100% of Retired Member's Pension Benefit 80-100% of Accidental Disability Retirement Benefit or 100% of Average Monthly Compensation if Death was the Result of Injuries Received on the Job Retirement and survivor benefits are subject to automatic cost-of-living adjustments based on excess investment earning. PSPRS also provides temporary disability benefits of 50 percent of the member’s compensation for up to 12 months. (65) CITY OF DOUGLAS, ARIZONA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2015 NOTE 4 OTHER INFORMATION (CONTINUED) D. Retirement Plans (Continued) Public Safety Personnel Retirement System (PSPRS) (Continued) Employees Covered by Benefit Terms – At June 30, 2015, the following employees were covered by the agent pension plans’ benefit terms: PSPRS Police Inactive Employees or Beneficiaries Currently Receiving Benefits Inactive Employees Entitled to but Not Yet Receiving Benefits Active Employees Total PSPRS Firefighters 28 7 23 7 29 64 22 52 Contributions and Annual OPEB Cost – State statutes establish the pension contribution requirements for active PSPRS employees. In accordance with state statutes, annual actuarial valuations determine employer contribution requirements for PSPRS pension and health insurance premium benefits. The combined active member and employer contribution rates are expected to finance the costs of benefits employees earn during the year, with an additional amount to finance any unfunded accrued liability. Contributions rates for the year ended June 30, 2015, are indicated below. Rates are a percentage of active members’ annual covered payroll. Active Members - Pension PSPRS Police 11.05% PSPRS Firefighters 11.05% City Pension Health Insurance Premium Benefit 39.22% 1.46% 43.91% 1.22% (66) CITY OF DOUGLAS, ARIZONA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2015 NOTE 4 OTHER INFORMATION (CONTINUED) D. Retirement Plans (Continued) Public Safety Personnel Retirement System (PSPRS) (Continued) Contributions and Annual OPEB Cost (Continued) For the agent plans, the City’s contributions to the pension plan and annual OPEB cost and contributions for the health insurance premium benefit for the year ended June 30, 2015, were: Pension Contributions Made Health Insurance Premium Benefit Annual OPEB Cost Contributions Made PSPRS Police PSPRS Firefighters $ 740,315 $ 579,692 32,639 32,639 18,775 18,775 During the fiscal year 2015, the City paid for PSPRS pension and OPEB contributions 100 percent from the General Fund. Pension Liability – At June 30, 2015, the City reported the following net pension liabilities: Net Pension Liability $ 13,593,042 10,749,677 PSPRS Police PSPRS Firefighters The net pension liabilities were measured as of June 30, 2014, and the total pension liability used to calculate the net pension liability was determined by an actuarial valuation as of that date. The total pension liabilities as of June 30, 2014, reflect the following changes of benefit terms and actuarial assumptions.  The wage growth actuarial assumption was decreased from 4.5 percent to 4.0 percent. (67) CITY OF DOUGLAS, ARIZONA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2015 NOTE 4 OTHER INFORMATION (CONTINUED) D. Retirement Plans (Continued) Public Safety Personnel Retirement System (PSPRS) (Continued) Pension Actuarial Assumptions – The significant actuarial assumptions used to measure the total pension liability are as follows: Actuarial Valuation Date Actuarial Cost Method Discount Rate Projected Salary Increases Inflation Permanent Benefit Increase Mortality Rates June 30, 2014 Entry Age Normal 7.85% 4.0%-8.0% 4.0% Included RP-2000 mortality table (adjusted by 105% for both males and females) Actuarial assumptions used in the June 30, 2014, valuation were based on the results of an actuarial experience study for the 5-year period ended June 30, 2011. The long-term expected rate of return on PSPRS pension plan investments was determined to be 7.85 percent using a building-block method in which best-estimate ranges of expected future real rates of return (expected returns, net of pension plan investment expenses and inflation) are developed for each major asset class. The target allocation and best estimates of geometric real rates of return for each major asset class are summarized in the following table: PSPRS Target Allocation 2% 4% 4% 7% 8% 10% 11% 11% 13% 14% 16% 100% Asset Class Short Term Investments Absolute Return Risk Parity Fixed Income Real Assets GTAA Private Equity Real Estate Credit Opportunities Non-U.S. Equity U.S. Equity Total (68) Long-Term Expected Real Rate of Return 3.25% 6.75% 6.04% 4.75% 5.96% 5.73% 9.50% 6.50% 8.00% 8.63% 7.60% CITY OF DOUGLAS, ARIZONA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2015 NOTE 4 OTHER INFORMATION (CONTINUED) D. Retirement Plans (Continued) Public Safety Personnel Retirement System (PSPRS) (Continued) Pension Discount Rates – The following discount rates were used to measure the total pension liabilities: PSPRS Police 7.85% Discount Rates PSPRS Firefighters 7.85% The projection of cash flows used to determine the PSPRS discount rates assumed that plan member contributions will be made at the current contribution rate and that employer contributions will be made at rates equal to the difference between the actuarially determined contribution rate and the member rate. Based on those assumptions, the pension plans’ fiduciary net position was projected to be available to make all projected future benefit payments of current plan members. Therefore, the long-term expected rate of return on pension plan investments was applied to all periods of projected benefit payments to determine the total pension liability. Changes in the Agent Plans Net Pension Liability – The following tables present changes in the City’s net pension liability for the PSPRS – Police, PSPRS – Fire pension plans as follows: PSPRS - Police Balance - June 30, 2014 Changes for the Year: Service Cost Interest on the Total Pension Liability Changes of Benefit Terms Differences Between Expected and Actual Experience in the Measurement of the Pension Liability Changes of Assumptions or Other Inputs Contributions - Employer Contributions - Employee Net Investment Income Benefit Payments, Including Refunds of Employee Contributions Administrative Expenses Other Changes Net Changes Balance - June 30, 2015 (69) Total Pension Liability (Asset) (a) $ 17,025,775 397,560 1,299,915 572,866 (586,401) 2,630,528 (1,330,257) 2,984,211 $ 20,009,986 Plan Fiduciary Net Position (b) $ 6,006,698 - 731,085 201,922 814,052 (1,330,257) (6,556) 410,246 $ 6,416,944 Net Pension Liability (Asset) (a) - (b) $ 11,019,077 397,560 1,299,915 572,866 (586,401) 2,630,528 (731,085) (201,922) (814,052) 6,556 2,573,965 $ 13,593,042 CITY OF DOUGLAS, ARIZONA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2015 NOTE 4 OTHER INFORMATION (CONTINUED) D. Retirement Plans (Continued) Public Safety Personnel Retirement System (PSPRS) (Continued) Changes in the Agent Plans Net Pension Liability (Continued) PSPRS - Firefighters Balance at June 30, 2014 Changes for the Year: Service Cost Interest on the Total Pension Liability Changes of Benefit Terms Differences Between Expected and Actual Experience in the Measurement of the Pension Liability Changes of Assumptions or Other Inputs Contributions - Employer Contributions - Employee Net Investment Income Benefit Payments, Including Refunds of Employee Contributions Administrative Expenses Other Changes Net Changes Balances as of June 30, 2015 Total Pension Liability (Asset) (a) $ 11,901,240 Plan Fiduciary Net Position (b) $ 3,408,200 Net Pension Liability (Asset) (a) - (b) $ 8,493,040 288,434 909,525 444,603 - 288,434 909,525 444,603 36,351 1,830,655 - 613,837 146,888 473,107 36,351 1,830,655 (613,837) (146,888) (473,107) (918,315) 2,591,253 14,492,493 (918,315) (3,810) 22,909 334,616 3,742,816 3,810 (22,909) 2,256,637 10,749,677 $ $ $ Sensitivity of the City’s Net Pension Liability to Changes in the Discount Rate – The following table presents the City’s net pension liabilities (assets) calculated using the discount rates noted above, as well as what the City’s net pension liability would be if it were calculated using a discount rate that is 1 percentage point lower or 1 percentage point higher than the current rate: 1% Decrease PSPRS Police Rate Net Pension Liability (Asset) PSPRS Firefighters Rate Net Pension Liability (Asset) Current Discount Rate 1% Increase $ 6.85% 15,987,037 $ 7.85% 13,593,042 $ 8.85% 11,602,175 $ 6.85% 12,370,885 $ 7.85% 10,749,677 $ 8.85% 9,387,952 Pension Plan Fiduciary Net Position – Detailed information about the pension plans’ fiduciary net position is available in the separately issued PSPRS financial reports. Pension Expense – For the year ended June 30, 2015, the City recognized $2,026,701 and $1,428,312 in pension expenses for PSPRS Police and PSPRS Firefighters, respectively: (70) CITY OF DOUGLAS, ARIZONA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2015 NOTE 4 OTHER INFORMATION (CONTINUED) D. Retirement Plans (Continued) Public Safety Personnel Retirement System (PSPRS) (Continued) Pension Deferred Outflows/Inflows of Resources – At June 30, 2015, the City reported deferred outflows of resources and deferred inflows of resources related to pensions from the following sources: PSPRS - Police Differences between expected and actual experience Changes of assumptions or other inputs Net difference between projected and actual earnings on pension plan investments City contributions subsequent to the measurement date Total PSPRS - Firefighters Differences between expected and actual experience Changes of assumptions or other inputs Net difference between projected and actual earnings on pension plan investments City contributions subsequent to the measurement date Total Deferred Outflows of Resources $ 1,994,474 Deferred Inflows of Resources $ 444,611 - - 271,514 $ 740,315 2,734,789 $ 716,125 Deferred Outflows of Resources $ 31,152 1,568,807 Deferred Inflows of Resources $ - - 157,798 $ 579,692 2,179,651 $ 157,798 The amounts reported as deferred outflows of resources related to pensions resulting from City contributions subsequent to the measurement date will be recognized as a reduction of the net pension liability in the year ended June 30, 2016. Other amounts reported as deferred outflows of resources and deferred inflows of resources related to pensions will be recognized in pension expense as follows: Year Ending June 30, 2016 2017 2018 2019 2020 Thereafter (71) PSPRS Police PSPRS Firefighters $ 426,386 426,386 426,386 (809) - $ 227,598 227,598 227,598 227,598 267,047 264,722 CITY OF DOUGLAS, ARIZONA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2015 NOTE 4 OTHER INFORMATION (CONTINUED) D. Retirement Plans (Continued) Public Safety Personnel Retirement System (PSPRS) (Continued) Agent Plan OPEB Actuarial Assumptions – The health insurance premium benefit contribution requirements for the year ended June 30, 2015, were established by the June 30, 2013 actuarial valuations, and those actuarial valuations were based on the following actuarial methods and assumptions. Actuarial valuations involve estimates of the reported amounts’ value and assumptions about the probability of events in the future. Amounts determined regarding the funded status of the plans and the annual required contributions are subject to continual revision as actual results are compared to past expectations and new estimates are made. The required schedule of funding progress for the health insurance premium benefit presented as required supplementary information provides multiyear trend information that shows whether the actuarial value of the plans’ assets are increasing or decreasing over time relative to the actuarial accrued liability for benefits. Projections of benefits are based on (1) the plans as understood by the City and plans’ members and include the types of benefits in force at the valuation date, and (2) the pattern of sharing benefit costs between the City and plans’ members to that point. Actuarial calculations reflect a long-term perspective and employ methods and assumptions that are designed to reduce short-term volatility in actuarial accrued liabilities and the actuarial value of assets. The significant actuarial methods and assumptions used are the same for all PSPRS plans and related benefits (unless noted), and the actuarial methods and assumptions used to establish the fiscal year 2015 contribution requirements, are as follows: PSPRS - OPEB Contribution Requirements Actuarial Valuation Date Actuarial Cost Method Amortization Method June 30, 2013 Entry Age Normal Level percent closed for underfunded actuarial accrued liability, open for excess 23 years for unfunded actuarial accrued liability, 20 years for excess 7-year smoothed market value; 20% corridor Remaining Amortization Period Asset Valuation Method Actuarial Assumptions: Investment Rate of Return Projected Salary Increases Wage Growth 7.85% 4.5% - 8.5% 4.50% (72) CITY OF DOUGLAS, ARIZONA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2015 NOTE 4 OTHER INFORMATION (CONTINUED) D. Retirement Plans (Continued) Public Safety Personnel Retirement System (PSPRS) (Continued) Agent Plan OPEB Trend Information – The following table presents the annual OPEB cost information for the health insurance premium benefit for the current and two preceding years: Percentage of Annual Cost Contributed Annual OPEB Cost Year Ended June 30 PSPRS Police 2015 2014 2013 PSPRS Firefighters 2015 2014 2013 Net OPEB Obligation $ 32,639 28,439 30,515 100.00% 100.00 100.00 $ - $ 18,775 17,815 19,203 100.00% 100.00 100.00 $ - Agent Plan OPEB Funded Status – The funded status of the health insurance premium benefit plan as of the most recent valuation date, June 30, 2014, is as follows:. PSPRS Police $ 557,306 372,417 Actuarial Value of Assets (a) Actuarial Accrued Liability (b) Unfunded Actuarial Accrued Liability (Funding Excess) (b) - (a) Funded Ratio (a) / (b) Annual Covered Payroll (c ) Unfunded Actuarial Accrued Liability (Funding Excess) as a Percentage of Covered Payroll (b) - (a) / (c ) PSPRS Firefighters $ 403,836 203,884 (184,889) 149.65% 1,865,210 (199,952) 198.07% 1,273,232 -9.91% -15.70% The funded status of the all the PSPRS health insurance premium benefit plans in the June 30, 2014, actuarial valuation was determined using the following actuarial methods and assumptions, applied to all periods included in the measurement: PSPRS - OPEB Funded Status Actuarial Valuation Date Actuarial Cost Method Amortization Method June 30, 2014 Entry Age Normal Level percent closed for underfunded actuarial accrued liability, open for excess 22 years for unfunded actuarial accrued liability, 20 years for excess 7-year smoothed market value; 20% corridor Remaining Amortization Period Asset Valuation Method Actuarial Assumptions: Investment Rate of Return Projected Salary Increases Wage Growth 7.85% 4.0% - 8.0% 4.00% (73) THIS PAGE BLANK REQUIRED SUPPLEMENTARY INFORMATION THIS PAGE BLANK CITY OF DOUGLAS, ARIZONA REQUIRED SUPPLEMENTARY INFORMATION SCHEDULE OF THE CITY’S PROPORTIONATE SHARE OF NET PENSION LIABILITY COST SHARING PENSION PLANS JUNE 30, 2015 Arizona State Retirement System City's Proportion of the Net Pension Liability City's Proportionate Share of the Net Pension Liability City's Covered-Employee Payroll City's Proportionate Share of the Net Pension Liability as a Percentage of its Covered -Employee Payroll Plan Fiduciary Net Position as a Percentage of the Total Pension Liability See accompanying notes to pension schedules. (74) Reporting Year (Measurement Date) 2015 (2014) 0.049400% $ 7,309,573 $ 4,015,976 182.01% 69.49% CITY OF DOUGLAS, ARIZONA REQUIRED SUPPLEMENTARY INFORMATION (CONTINUED) SCHEDULE OF CHANGES IN THE CITY’S NET PENSION LIABILITY AND RELATED RATIOS AGENT PENSION PLANS JUNE 30, 2015 PSPRS Police Reporting Year (Measurement Date) 2015 (2014) Total Pension Liability Service Cost Interest on the Total Pension Liability Changes of Benefit Terms Differences Between Expected and Actual Experience in the Measurement of the Pension Liability Changes of Assumptions or Other Inputs Benefit Payments, Including Refunds of Employee Contributions Net Change in Total Pension Liability Total Pension Liability - Beginning Total Pension Liability - Ending (a) $ (586,401) 2,630,528 (1,330,257) 2,984,211 17,025,775 20,009,986 Plan Fiduciary Net Position Contributions - Employer Contributions - Employee Net Investment Income Benefit Payments, Including Refunds of Employee Contributions Administrative Expenses Other Changes Net Change in Plan Fiduciary Net Position Plan Fiduciary Net Position - Beginning Plan Fiduciary Net Position - Ending (b) City's Net Pension Liability (Asset) - Ending (a) - (b) 397,560 1,299,915 572,866 731,085 201,922 814,052 (1,330,257) (6,556) 410,246 6,006,698 6,416,944 $ 13,593,042 Plan Fiduciary Net Position as a Percentage of the Total Pension Liability Covered-employee Payroll 32.07% $ City's Net Pension Liability (Asset) as a Percentage of CoveredEmployee Payroll See accompanying notes to pension schedules. (75) 1,865,210 728.77% CITY OF DOUGLAS, ARIZONA REQUIRED SUPPLEMENTARY INFORMATION (CONTINUED) SCHEDULE OF CHANGES IN THE CITY’S NET PENSION LIABILITY AND RELATED RATIOS AGENT PENSION PLANS JUNE 30, 2015 PSPRS Fire Reporting Year (Measurement Date) 2015 (2014) Total Pension Liability Service Cost Interest on the Total Pension Liability Changes of Benefit Terms Differences Between Expected and Actual Experience in the Measurement of the Pension Liability Changes of Assumptions or Other Inputs Benefit Payments, Including Refunds of Employee Contributions Net Change in Total Pension Liability Total Pension Liability - Beginning Total Pension Liability - Ending (a) $ 36,351 1,830,655 (918,315) 2,591,253 11,901,240 14,492,493 Plan Fiduciary Net Position Contributions - Employer Contributions - Employee Net Investment Income Benefit Payments, Including Refunds of Employee Contributions Administrative Expenses Other Changes Net Change in Plan Fiduciary Net Position Plan Fiduciary Net Position - Beginning Plan Fiduciary Net Position - Ending (b) City's Net Pension Liability (Asset) - Ending (a) - (b) 288,434 909,525 444,603 613,837 146,888 473,107 (918,315) (3,810) 22,909 334,616 3,408,200 3,742,816 $ 10,749,677 Plan Fiduciary Net Position as a Percentage of the Total Pension Liability Covered-employee Payroll 25.83% $ City's Net Pension Liability (Asset) as a Percentage of CoveredEmployee Payroll See accompanying notes to pension schedules. (76) 1,273,232 844.28% CITY OF DOUGLAS, ARIZONA REQUIRED SUPPLEMENTARY INFORMATION (CONTINUED) SCHEDULE OF CITY PENSION CONTRIBUTIONS JUNE 30, 2015 Arizona State Retirement System Reporting Fiscal Year Statutorily Required Contribution City's Contribution in Relation to the Statutorily Required Contribution City's Contribution Deficiency (Excess) City's Covered-Employee Payroll City's Contributions as a Percentage of CoveredEmployee Payroll $ 2015 449,025 $ 2014 476,481 $ $ 449,025 4,108,769 $ $ 476,481 4,015,976 10.93% PSPRS Police 11.86% Reporting Fiscal Year Actuarially Determined Contribution City's Contribution in Relation to the Actuarially Determined Contribution City's Contribution Deficiency (Excess) City's Covered-Employee Payroll City's Contributions as a Percentage of CoveredEmployee Payroll $ 2015 740,315 $ 2014 731,085 $ $ 740,315 1,887,596 $ $ 731,085 1,865,210 39.22% PSPRS Fire 39.20% Reporting Fiscal Year Actuarially Determined Contribution City's Contribution in Relation to the Actuarially Determined Contribution City's Contribution Deficiency (Excess) City's Covered-Employee Payroll City's Contributions as a Percentage of CoveredEmployee Payroll $ 2015 579,692 $ 2014 613,837 $ $ 579,692 1,320,182 $ $ 613,837 1,273,232 43.91% See accompanying notes to pension schedules. (77) 48.21% CITY OF DOUGLAS, ARIZONA REQUIRED SUPPLEMENTARY INFORMATION (CONTINUED) NOTES TO PENSION SCHEDULES JUNE 30, 2015 NOTE 1 ACTUARIALLY DETERMINED CONTRIBUTION RATES Actuarial determined contribution rates for PSPRS are calculated as of June 30 two years prior to the end of the fiscal year in which contributions are made. The actuarial methods and assumptions used to establish the contribution requirements are as follows: Actuarial Cost Method Entry age normal Amortization Level Level percent closed for unfunded actuarial accrued liability, open for excess Remaining Amortization Period as of the 2013 Actuarial Valuation 23 years for unfunded actuarial accrued liability, 20 years for excess Asset Valuation Method 7-year smoothed market value; 20% corridor Actuarial Assumptions: Investment Rate of Return NOTE 2 In the 2013 actuarial valuation, the investment rate of return was decreased from 8.0% to 7.85% Projected Salary Increases In the 2013 actuarial valuation, projected salary increases decreased from 5.0%-9.0% to 4.5%-8.5% for PSPRS Wage Growth In the 2013 actuarial valuation, wage growth was decreased from 5.0% to 4.5% for PSPRS Retirement Age Experience-based table of rates that is specific to the type of eligibility condition. Last updated for the 2012 valuation pursuant to an experience study of the period July 1, 2006-June 30, 2011 Mortality RP-2000 mortality table (adjusted by 105% for both males and females INFORMATION PRIOR TO THE MEASUREMENT DATE Information prior to the measurement date (June 30, 2014) was not available (78) CITY OF DOUGLAS, ARIZONA REQUIRED SUPPLEMENTARY INFORMATION PUBLIC SAFETY PERSONNEL RETIREMENT SYSTEM SCHEDULE OF AGENT OPEB PLANS’ FUNDING PROGRESS YEAR ENDED JUNE 30, 2015 Health Insurance Premium Benefits Actuarial Valuation Date June 30, PSPRS Police 2014 2013 2012 PSPRS Fire 2014 2013 2012 Actuarial Value of Assets Unfunded Actuarial Actuarial Accrued Accrued Liability (UAAL) Liability (AAL) (Funding Excess) Annual Covered Payroll Funded Ratio UAAL (Funding Excess) as a Percentage of Covered Payroll $ 557,306 - $ 372,417 383,172 357,260 $ (184,889) 383,172 357,260 149.7% 0.0 0.0 $ 1,865,210 2,047,135 1,939,472 -9.9% 18.7 18.4 $ 403,836 - $ 203,884 215,366 223,089 $ (199,952) 215,366 223,089 198.1% 0.0 0.0 $ 1,273,232 1,409,268 1,292,729 -15.7% 15.3 17.3 See accompanying notes to schedule of agent OPEB plans’ funding progress. . (79) CITY OF DOUGLAS, ARIZONA REQUIRED SUPPLEMENTARY INFORMATION PUBLIC SAFETY PERSONNEL RETIREMENT SYSTEM NOTES TO SCHEDULE OF AGENT OPEB PLANS’ FUNDING PROGRESS YEAR ENDED JUNE 30, 2015 NOTE 1 FACTORS THAT AFFECT THE IDENTIFICATION OF TRENDS Beginning in Fiscal year 2014, PSPRS established separate funds for pension benefits and health insurance premium benefits. Previously, the plans recorded both pension and health insurance premium contributions in the same Pension Fund. During fiscal year 2014, the plans transferred prior-year health insurance premium benefit contributions that exceeded benefit payments from each plan’s pension fund to the new health insurance fund. (80) CITY OF DOUGLAS, ARIZONA REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON SCHEDULE GENERAL FUND YEAR ENDED JUNE 30, 2015 Original and Final Budget REVENUES Taxes: Sales Taxes Property Taxes Franchise Taxes Intergovernmental Revenues Fines and Forfeitures Licenses and Permits Charges for Services Rents and Royalties Contributions and Donations Investment Income Other Total Revenues $ 5,164,980 610,209 323,000 6,464,865 252,500 179,250 1,439,363 813,310 6,000 54,000 15,307,477 EXPENDITURES Current: General Government: Administration Finance Personnel General Government Management Information Systems Parking Lot Transit City Magistrate Cemetery Golf Course Economic Development Airport Call Center Total General Government Public Safety: Police Fire Emergency Medical Services Total Public Safety Highways and Streets: Public Works Actual $ 4,993,234 578,705 317,610 5,621,250 156,046 165,004 1,895,749 818,819 136,718 10,225 173,712 14,867,072 Variance With Final Budget $ (171,746) (31,504) (5,390) (843,615) (96,454) (14,246) 456,386 5,509 136,718 4,225 119,712 (440,405) 506,445 588,639 511,762 623,601 397,367 995 591,524 76,723 158,126 100,000 2,000 136,338 64,226 3,757,746 504,944 586,615 444,038 183,642 379,418 995 384,335 73,112 153,197 289,883 2,000 130,297 40,856 3,173,332 1,501 2,024 67,724 439,959 17,949 207,189 3,611 4,929 (189,883) 6,041 23,370 584,414 4,899,657 1,368,394 1,388,703 7,656,754 4,249,091 1,360,932 1,384,646 6,994,669 650,566 7,462 4,057 662,085 746,796 570,913 175,883 (Continued) See accompanying Notes to Budgetary Comparison Schedule. (81) CITY OF DOUGLAS, ARIZONA REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON SCHEDULE (CONTINUED) GENERAL FUND YEAR ENDED JUNE 30, 2015 (Concluded) EXPENDITURES (CONTINUED) Culture and Recreation: Parks Recreation Library Aquatics Visitor Center Total Culture and Recreation Original and Final Budget $ 569,158 162,985 406,023 315,044 70,331 1,523,541 Debt Service: Principal Retirement Interest on Long-Term Debt Total Debt Service Capital Outlay Total Expenditures $ 485,303 82,117 383,766 311,035 65,206 1,327,427 Variance With Final Budget $ 83,855 80,868 22,257 4,009 5,125 196,114 - 30,837 3,185 34,022 472,746 14,157,583 216,143 12,316,506 256,603 1,841,077 1,149,894 2,550,566 1,400,672 260,481 (1,935,165) 510,000 75,000 (1,089,684) 211,004 (1,799,396) 20,480 (1,567,912) Excess (Deficiency) of Revenues Over Expenditures OTHER FINANCING SOURCES (USES) Transfers In Transfers Out Proceeds from Sale of Capital Assets Proceeds from Capital Leases Total Other Financing Sources (Uses) Net Change in Fund Balance FUND BALANCE Beginning of Year End of Year Actual 60,210 $ See accompanying Notes to Budgetary Comparison Schedule. (82) 4,544,106 4,604,316 (30,837) (3,185) (34,022) (49,477) 135,769 (489,520) (75,000) (478,228) 982,654 $ 5,511,303 6,493,957 922,444 $ 967,197 1,889,641 CITY OF DOUGLAS, ARIZONA NOTES TO REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON SCHEDULE – GENERAL FUND YEAR ENDED JUNE 30, 2015 NOTE 1 BASIS OF ACCOUNTING The General Fund budgetary comparison schedule is prepared on essentially the same modified accrual bases of accounting as the statement of revenues, expenditures and changes in fund balances reported in the basic financial statements. Expenditures may not legally exceed the expenditure limitation of all fund types as a whole. For management and legal purposes, the City Council adopts an annual budget by department for the General Fund. The City Manager, subject to City Council approval, may at any time transfer any unencumbered appropriation balance or portion thereof between departments. NOTE 2 . EXCESS OF EXPENDITURES OVER APPROPRIATIONS Expenditures exceeded appropriations in the following funds: Amount of Overexpenditure General Fund: Golf Course Debt Service $ 189,883 34,022 Police Grant Fund: Capital Outlay 84,446 Debt Service Fund: Interest 30,528 Cash was available to meet all of the overexpenditures listed above. (83) COMBINING AND INDIVIDUAL FUND STATEMENTS AND SCHEDULES THIS PAGE BLANK NONMAJOR GOVERNMENTAL FUNDS SPECIAL REVENUE FUNDS Highway Users Fund (HURF) – accounts for the City’s share of state taxes on gasoline, diesel fuels, and other transportation related fees to be used solely for street and highway purposes. Eligible expenditures include the cost of right-of-way acquisitions, construction, reconstruction, maintenance, repair, roadside development of city roads, streets and bridges and the payment of the interest and principal on highway and street bonds. Grants Fund – accounts for the activity of the City’s grants. Police Grants – accounts for the activity of grants received by the City’s police department. JCEF Restricted Court Fund – accounts for the activity of the JCEF court receipts. Public Housing Fund – accounts for the Douglas Housing Authority component unit of the City. The Douglas Housing Authority receives federal assistance and provides low rent housing for the area. CAPITAL PROJECTS FUND Capital Projects Fund – accounts for the acquisition and construction of major capital facilities other than those financed by proprietary funds and trust funds. DEBT SERVICE FUND Debt Service Fund – accounts for the accumulation of resources for, and the payments of, debt service principal, interest and related debt. . CITY OF DOUGLAS, ARIZONA NONMAJOR GOVERNMENTAL FUNDS COMBINING BALANCE SHEET JUNE 30, 2015 Special Revenue HURF ASSETS Cash and Investments Receivables Taxes Receivable Intergovernmental Receivable Restricted Assets Total Assets LIABILITIES, DEFERRED INFLOWS, AND FUND BALANCES Liabilities Accounts Payable Accrued Wages and Benefits Insurance Claims Payable Customer Deposits Payable Total Liabilities $ 349,682 $ 115,004 464,686 $ 18,226 14,196 4,695 37,117 Deferred Inflows of Resources Unavailable Revenue Fund Balances Restricted Committed Total Fund Balances Total Liabilities, Deferred Inflows of Resources and Fund Balances Grants $ $ 274,625 $ 195,176 469,801 $ 96,495 96,495 JCEF Restricted Court Police Grants $ 253,770 $ 253,770 $ - $ 50,138 $ 50,138 $ 458 458 - 36,293 - - 427,569 427,569 337,013 337,013 253,770 253,770 49,680 49,680 464,686 (84) $ 469,801 $ 253,770 $ 50,138 Special Revenue Public Housing Total Special Revenue $ 397,013 $ 1,325,228 $ 17,379 414,392 $ $ 12,690 12,940 17,379 43,009 Capital Projects $ 815,772 310,180 17,379 $ 1,652,787 $ 54,296 870,068 $ $ 127,869 27,136 4,695 17,379 177,079 88,148 88,148 Debt Service Total Nonmajor Governmental Funds $ - $ 2,141,000 $ - $ 54,296 310,180 17,379 2,522,855 $ - $ 216,017 27,136 4,695 17,379 265,227 - 36,293 2,227 - 38,520 371,383 371,383 1,439,415 1,439,415 779,693 779,693 - 1,439,415 779,693 2,219,108 414,392 $ 1,652,787 $ 870,068 $ - (85) $ 2,522,855 CITY OF DOUGLAS, ARIZONA NONMAJOR GOVERNMENTAL FUNDS COMBINING STATEMENT OF REVENUES, EXPENDITURES, AND CHANGE IN FUND BALANCES YEAR ENDED JUNE 30, 2015 Special Revenue HURF REVENUES Taxes Sales Taxes Intergovernmental Revenues Fines and Forfeitures Investment Income Other Total Revenues $ EXPENDITURES Current General Government Public Safety Highways and Streets Culture and Recreation Redevelopment and Housing Debt Service Principal Retirement Interest on Long-Term Debt Capital Outlay Total Expenditures Excess (Deficiency) of Revenues Over Expenditures OTHER FINANCING SOURCES (USES) Transfers In Transfers Out Total Other Financing Sources (Uses) Net Change in Fund Balances FUND BALANCES Beginning of Year End of Year $ 1,235,743 35,337 1,271,080 Grants $ 195,810 38 195,848 JCEF Restricted Court Police Grants $ 99,878 2,928 102,806 $ 4,824 4,824 705,475 - 13,608 1,663 10,150 - 33,678 - 16,378 - 14,545 720,020 173,575 198,996 184,446 218,124 16,378 (115,318) (11,554) 551,060 (3,148) (208,274) (208,274) 16,410 16,410 342,786 13,262 84,783 427,569 (86) $ 323,751 337,013 - - (115,318) $ 369,088 253,770 (11,554) $ 61,234 49,680 Special Revenue Public Housing $ Total Special Revenue 883,011 119 56,777 939,907 947,866 947,866 (7,959) (7,959) $ 379,342 371,383 $ 2,414,442 4,824 3,085 92,114 2,514,465 Capital Projects $ 29,986 35,341 705,475 10,150 947,866 372,566 2,101,384 Total Nonmajor Governmental Funds Debt Service 587,270 13,179 600,449 $ - $ 587,270 2,414,442 4,824 16,264 92,114 3,114,914 - - 29,986 35,341 705,475 10,150 947,866 1,335,068 1,335,068 974,093 404,243 1,378,336 974,093 404,243 1,707,634 4,814,788 413,081 (734,619) (1,378,336) (1,699,874) 16,410 (208,274) (191,864) 481,075 481,075 1,362,123 (304,077) 1,058,046 1,859,608 (512,351) 1,347,257 221,217 (253,544) (320,290) (352,617) 1,218,198 $ 1,439,415 $ 1,033,237 779,693 $ (87) 320,290 - $ 2,571,725 2,219,108 CITY OF DOUGLAS, ARIZONA SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGE IN FUND BALANCE BUDGET AND ACTUAL MPC DEBT SERVICE FUND YEAR ENDED JUNE 30, 2015 Original and Final Budget EXPENDITURES Debt Service Principal Retirement Interest and Fiscal Charges Total Expenditures $ Excess (Deficiency) of Revenues Over Expenditures OTHER FINANCING SOURCES (USES) Transfers In Net Change in Fund Balance FUND BALANCE Beginning of Year End of Year $ (88) Variance With Final Budget Actual 470,000 16,451 486,451 $ 470,000 16,451 486,451 $ - (486,451) (486,451) - 486,451 486,451 - - - - - $ - $ - CITY OF DOUGLAS, ARIZONA SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGE IN FUND BALANCE BUDGET AND ACTUAL HURF FUND YEAR ENDED JUNE 30, 2015 Original and Final Budget REVENUES Intergovernmental Revenues Other Total Revenues $ EXPENDITURES Current: Highways and Streets Capital Outlay Total Expenditures Excess (Deficiency) of Revenues Over Expenditures OTHER FINANCING SOURCES (USES) Transfers Out Net Change in Fund Balance FUND BALANCE Beginning of Year End of Year Actual 1,234,351 35,000 1,269,351 $ (89) $ 1,392 337 1,729 1,045,245 15,000 705,475 14,545 339,770 455 1,060,245 720,020 340,225 209,106 551,060 341,954 (209,106) (208,274) - $ 1,235,743 35,337 1,271,080 Variance With Final Budget - 832 342,786 $ 84,783 427,569 342,786 $ 84,783 427,569 CITY OF DOUGLAS, ARIZONA SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGE IN FUND BALANCE BUDGET AND ACTUAL GRANTS FUND YEAR ENDED JUNE 30, 2015 Original and Final Budget REVENUES Intergovernmental Revenues Investment Income Total Revenues $ EXPENDITURES Current: General Government Public Safety Highways and Streets Culture and Recreation Capital Outlay Total Expenditures $ 25,313 5,500 304,000 31,000 3,927,695 4,293,508 Excess (Deficiency) of Revenues Over Expenditures OTHER FINANCING SOURCES (USES) Transfers In Net Change in Fund Balance FUND BALANCE Beginning of Year End of Year 4,135,037 4,135,037 Actual $ (90) 195,810 38 195,848 Variance With Final Budget $ 13,608 1,663 10,150 173,575 198,996 (3,939,227) 38 (3,939,189) 11,705 3,837 304,000 20,850 3,754,120 4,094,512 (158,471) (3,148) 155,323 94,715 16,410 (78,305) (63,756) 13,262 77,018 (63,756) $ 323,751 337,013 $ 323,751 400,769 CITY OF DOUGLAS, ARIZONA SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGE IN FUND BALANCE BUDGET AND ACTUAL POLICE GRANTS FUND YEAR ENDED JUNE 30, 2015 Original and Final Budget REVENUES Intergovernmental Revenues Investment Income Total Revenues $ EXPENDITURES Current Public Safety Capital Outlay Total Expenditures $ 52,000 100,000 152,000 Excess (Deficiency) of Revenues Over Expenditures FUND BALANCE Beginning of Year End of Year 158,000 158,000 Actual 6,000 $ (91) - $ 99,878 2,928 102,806 Variance With Final Budget $ (58,122) 2,928 (55,194) 33,678 184,446 218,124 18,322 (84,446) (66,124) (115,318) (121,318) 369,088 253,770 $ 369,088 253,770 CITY OF DOUGLAS, ARIZONA SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGE IN FUND BALANCE BUDGET AND ACTUAL JCEF RESTRICTED COURT FUND YEAR ENDED JUNE 30, 2015 Original and Final Budget REVENUES Fines and Forfeits $ 8,150 Actual $ 4,824 Variance With Final Budget $ (3,326) EXPENDITURES Current: General Government 100,840 16,378 84,462 Excess (Deficiency) of Revenues Over Expenditures (92,690) (11,554) 81,136 FUND BALANCE Beginning of Year End of Year $ (92) (55,690) $ 61,234 49,680 $ 61,234 105,370 CITY OF DOUGLAS, ARIZONA SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGE IN FUND BALANCE BUDGET AND ACTUAL CAPITAL PROJECTS FUND YEAR ENDED JUNE 30, 2015 Original and Final Budget REVENUES Taxes Investment Income Total Revenues $ 550,000 550,000 EXPENDITURES Capital Outlay Actual $ 1,697,000 Excess (Deficiency) of Revenues Over Expenditures 63,000 Net Change in Fund Balance $ 1,335,068 (1,147,000) OTHER FINANCING SOURCES (USES) Transfers In 587,270 13,179 600,449 Variance With Final Budget (1,084,000) 37,270 13,179 50,449 361,932 (734,619) 412,381 481,075 418,075 (253,544) 830,456 FUND BALANCE Beginning of Year End of Year $ (1,084,000) (93) $ 1,033,237 779,693 $ 830,456 CITY OF DOUGLAS, ARIZONA SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGE IN FUND BALANCE BUDGET AND ACTUAL DEBT SERVICE FUND YEAR ENDED JUNE 30, 2015 Original and Final Budget EXPENDITURES Debt Service: Principal Retirement Interest on Long-Term Debt Total Expenditures $ Excess (Deficiency) of Revenues Over Expenditures 940,520 413,715 1,354,235 Actual $ 934,093 444,243 1,378,336 Variance With Final Budget $ 6,427 (30,528) (24,101) (1,354,235) (1,378,336) (24,101) 1,354,235 1,354,235 1,362,123 (304,077) 1,058,046 7,888 (304,077) (296,189) - (320,290) (320,290) - 320,290 - 320,290 - OTHER FINANCING SOURCES (USES) Transfers In Transfers Out Total Other Financing Sources (Uses) Net Change in Fund Balance FUND BALANCE Beginning of Year End of Year $ (94) $ $ STATISTICAL SECTION (UNAUDITED) This section of the City of Douglas, Arizona’s comprehensive annual financial report presents detailed information as a context for understanding what the information in the financial statements, note disclosures, and required supplementary information says about the government’s overall financial health. Financial Trends These schedules contain trend information to help the reader understand how the government’s financial performance and well-being have changed over time. Revenue Capacity These schedules contain information to help the reader assess the government’s most significant local revenue source, sales tax. Debt Capacity These schedules present information to help the reader assess the affordability of the government’s current levels of outstanding debt and the government’s ability to issue additional debt in the future. Demographic and Economic Information These schedules offer demographic and economic indicators to help the reader understand the environment within which the government’s financial activities take place. Operating Information These schedules contain service and infrastructure data to help the reader understand how the information in the government’s financial report relates to the services the government provides and the activities it performs. See the table of contents for page numbers of the schedules that encompass the above sections. CITY OF DOUGLAS, ARIZONA NET POSITION BY COMPONENT LAST TEN FISCAL YEARS (ACCRUAL BASIS OF ACCOUNTING) (UNAUDITED) Fiscal Year 2007 2008 2009 6,617,585 3,008,022 3,586,626 $ 14,111,791 2,756,736 3,951,726 $ 13,509,453 2,939,323 3,491,020 $ 12,376,658 3,634,763 5,438,330 $ 13,212,233 $ 20,820,253 $ 19,939,796 $ 21,449,751 $ 11,052,102 2,010,602 $ 11,744,198 1,586,749 $ 12,314,881 1,815,909 $ 15,535,124 1,006,658 $ 13,062,704 $ 13,330,947 $ 14,130,790 $ 16,541,782 $ 17,669,687 3,008,022 5,597,228 $ 25,855,989 2,756,736 5,538,475 $ 25,824,334 2,939,323 5,306,929 $ 27,911,782 3,634,763 6,444,988 $ 26,274,937 $ 34,151,200 $ 34,070,586 $ 37,991,533 2006 Governmental Activities: Net Investment in Capital Assets Restricted Unrestricted Total Governmental Activities Net Position Business-Type Activities: Net Investment in Capital Assets Restricted Unrestricted Total Business-Type Activities Net Position Primary Government: Net Investment in Capital Assets Restricted Unrestricted Total Primary Government Net Position $ Source: The City’s Finance Department. (95) Fiscal Year 2010 2011 2012 2013 2014 2015 $ 13,775,501 477,084 7,049,956 $ 15,847,448 719,796 3,938,127 $ 20,735,227 871,510 3,923,990 $ 20,087,841 1,234,695 3,991,132 $ 13,255,510 1,261,605 5,512,891 $ 14,659,500 1,632,597 (20,445,957) $ 21,302,541 $ 20,505,371 $ 25,530,727 $ 25,313,668 $ 20,030,006 $ (4,153,860) $ 15,872,761 1,205,402 $ 16,048,928 2,100,001 $ 15,921,451 3,880,161 $ 16,866,077 443,520 3,685,177 $ 16,491,574 568,237 4,508,051 $ 16,271,458 712,773 3,157,152 $ 17,078,163 $ 18,148,929 $ 19,801,612 $ 20,994,774 $ 21,567,862 $ 20,141,383 $ 29,648,262 477,084 8,255,358 $ 31,896,376 719,796 6,038,128 $ 36,656,678 871,510 7,804,151 $ 36,953,918 1,678,215 7,676,309 $ 29,747,084 1,829,842 10,020,942 $ 30,930,958 2,345,370 (17,288,805) $ 38,380,704 $ 38,654,300 $ 45,332,339 $ 46,308,442 $ 41,597,868 $ 15,987,523 (96) CITY OF DOUGLAS, ARIZONA CHANGES IN NET POSITION LAST TEN FISCAL YEARS (ACCRUAL BASIS OF ACCOUNTING) (UNAUDITED) Fiscal Year 2006 EXPENSES Governmental Activities: General Government Public Safety Highways and Streets Culture and Recreation Redevelopment and Housing Interest on Long-Term Debt Total Governmental Activities $ Business-Type Activities: Water Sewer Solid Waste Total Business-Type Activities Total Primary Government Expenses PROGRAM REVENUES Governmental Activities: Fines, Fees and Charges for Services: General Government Public Safety Highways and Streets Culture and Recreation Operating Grants and Contributions Capital Grants and Contributions Total Governmental Activities Program Revenues $ 3,725,063 6,043,744 2,271,480 1,983,227 25,159 159,577 14,208,250 2008 $ 4,340,737 6,348,866 1,760,251 2,189,769 132,857 180,077 14,952,557 2009 $ 3,999,501 6,604,306 2,702,979 2,074,291 497,600 727,564 16,606,241 1,774,516 861,899 842,263 3,478,678 1,838,462 938,588 872,341 3,649,391 1,455,706 952,579 891,003 3,299,288 1,344,052 1,385,910 707,042 3,437,004 $ 17,762,553 $ 17,857,641 $ 18,251,845 $ 20,043,245 $ $ $ $ Business-Type Activities: Charges for Services: Water Sewer Solid Waste Operating Grants and Contributions Capital Grants and Contributions Total Business-Type Activities Program Revenues Total Primary Government Program Revenues 3,406,989 5,720,526 2,938,401 1,771,149 281,392 165,418 14,283,875 2007 $ 1,359,062 586,562 3,256 104,169 2,326,620 555,531 1,031,216 591,610 62 102,689 2,428,909 651,377 939,208 642,820 2,834 97,949 2,293,564 589,152 1,387,975 760,669 98,174 1,818,551 1,765,876 4,935,200 4,805,863 4,565,527 5,831,245 1,597,155 911,694 643,107 86,803 1,618,744 916,597 667,241 580,433 1,749,040 924,045 668,023 110,274 1,782,320 909,842 816,038 2,373,486 3,238,759 3,783,015 3,451,382 5,881,686 8,016,909 $ 11,712,931 8,173,959 Source: The City's Finance Department. (97) $ 8,588,878 $ Fiscal Year 2010 $ 4,639,733 6,715,219 2,970,829 1,986,674 53,973 760,128 17,126,556 2011 $ 5,121,084 6,700,135 2,773,973 1,936,579 51,599 704,510 17,287,880 2012 $ 4,840,153 7,186,954 2,555,331 1,827,388 664,519 17,074,345 2013 $ 4,989,484 7,799,983 2,605,395 1,868,116 1,041,957 579,592 18,884,527 2014 $ 4,499,732 8,050,797 2,394,792 1,965,397 1,064,489 530,417 18,505,624 2015 $ 3,858,018 9,792,922 1,946,662 1,680,063 954,039 478,120 18,709,824 1,261,985 1,337,193 716,047 3,315,225 1,367,914 1,320,648 755,546 3,444,108 1,698,669 1,313,976 765,647 3,778,292 1,666,863 1,310,421 785,788 3,763,072 1,839,897 1,538,514 956,297 4,334,708 1,884,943 1,472,735 930,769 4,288,447 $ 20,441,781 $ 20,731,988 $ 20,852,637 $ 22,647,599 $ 22,840,332 $ 22,998,271 $ $ $ $ $ $ $ 1,766,509 669,040 90,033 2,128,442 902,228 1,728,090 972,724 173,836 2,303,776 951,180 2,035,725 924,788 73,255 2,193,829 5,622,718 1,825,479 895,111 89,531 3,340,827 1,000,170 1,890,264 1,069,174 136,056 3,751,156 423,034 1,699,542 1,246,153 94,747 3,466,981 582,348 5,556,252 6,129,606 10,850,315 7,151,118 7,269,684 7,089,771 1,870,916 1,042,152 1,056,305 - 1,965,519 1,703,223 1,203,563 - 2,000,402 1,796,248 1,237,449 592,435 274,140 2,025,752 1,835,771 1,205,675 8,196 19,578 2,070,331 1,880,405 1,202,806 1,320 - 1,979,308 1,852,495 1,212,089 - 3,969,373 4,872,305 5,900,674 5,094,972 5,154,862 5,043,892 9,525,625 $ 11,001,911 $ 16,750,989 $ 12,246,090 $ 12,424,546 $ 12,133,663 (98) CITY OF DOUGLAS, ARIZONA CHANGES IN NET POSITION (CONTINUED) LAST TEN FISCAL YEARS (ACCRUAL BASIS OF ACCOUNTING) (UNAUDITED) Fiscal Year (Concluded) NET (EXPENSE)/REVENUE Governmental Activities Business-Type Activities Total Primary Government Net Expense GENERAL REVENUES AND OTHER CHANGES IN NET POSITION Governmental Activities: Taxes: Sales Taxes Property Taxes Franchise Taxes Unrestricted Grants and Contributions State Revenue Sharing State Sales Tax Revenue Sharing Auto Lieu Tax Revenue Sharing Gain on Sale of Capital Assets Investment Income Other Special Item Transfers Total Governmental Activities 2006 2007 2008 2009 $ (9,348,675) (239,919) $ (9,402,387) 133,624 $ (10,387,030) 152,094 $ (10,774,996) 2,444,682 $ (9,588,594) $ (9,268,763) $ (10,234,936) $ (8,330,314) $ $ $ $ Business-Type Activities: Sales Tax Investment Income (Loss) Transfers Total Business-Type Activities Total Primary Government CHANGE IN NET POSITION Governmental Activities Business-Type Activities Total Primary Government 4,740,475 448,571 261,809 1,765,690 1,729,948 791,931 229,305 1,802 118,235 10,087,766 5,006,857 465,726 322,308 2,002,854 1,634,497 789,900 311,744 1,119 63,387 10,598,392 5,095,143 462,232 349,444 49,612 2,448,141 1,580,288 845,030 280,685 1,697 (323,514) 10,788,758 6,151,531 532,028 341,702 18,467 2,608,244 1,368,088 793,358 16,212 322,889 132,432 12,284,951 91,380 88,960 (118,235) 62,105 91,380 106,626 (63,387) 134,619 224,968 99,267 323,514 647,749 77,114 21,628 (132,432) (33,690) $ 10,149,871 $ 10,733,011 $ 11,436,507 $ 12,251,261 $ $ $ $ $ 739,091 (177,814) 561,277 Source: The City's Finance Department. (99) $ 1,196,005 268,243 1,464,248 $ 401,728 799,843 1,201,571 $ 1,509,955 2,410,992 3,920,947 Fiscal Year 2010 2011 2012 2013 2014 2015 $ (11,570,304) 654,148 $ (11,158,274) 1,428,197 $ (6,224,030) 2,122,382 $ (11,733,409) 1,331,900 $ (11,235,940) 820,154 $ (11,620,053) 755,445 $ (10,916,156) $ (9,730,077) $ (4,101,648) $ (10,401,509) $ (10,415,786) $ (10,864,608) $ $ $ $ $ $ 5,808,108 531,489 351,635 30,274 2,245,322 1,261,862 732,787 107,495 238,124 115,998 11,423,094 5,953,998 545,995 337,029 39,082 1,687,895 1,316,667 762,824 67,493 258,705 358,411 11,328,099 5,825,402 533,742 334,074 42,590 1,466,716 1,357,922 803,452 6,769 44,626 356,342 477,751 11,249,386 5,364,312 563,698 314,080 70,074 1,775,125 1,419,048 757,402 39,423 596,739 162,208 11,062,109 5,533,351 578,759 311,019 41,950 1,976,038 1,545,589 736,085 30,607 281,915 (5,352,178) 269,143 5,952,278 (1,769) (115,998) (117,767) 980 (358,411) (357,431) 8,052 (477,751) (469,699) 23,470 (162,208) (138,738) $ 11,305,327 $ 10,970,668 $ 10,779,687 $ 10,923,371 $ $ $ $ $ $ (5,283,662) 573,088 $ (4,710,574) $ (147,210) 536,381 389,171 $ 169,825 1,070,766 1,240,591 $ 5,025,356 1,652,683 6,678,039 $ (671,300) 1,193,162 521,862 (100) 5,578,165 577,360 317,610 40,417 2,119,573 1,600,126 776,774 20,480 26,489 265,826 245,316 11,568,136 22,077 (269,143) (247,066) 18,232 (245,316) (227,084) 5,705,212 $ 11,341,052 $ $ (51,917) 528,361 476,444 THIS PAGE BLANK CITY OF DOUGLAS, ARIZONA GOVERNMENTAL ACTIVITIES TAX REVENUES BY SOURCE LAST TEN FISCAL YEARS (ACCRUAL BASIS OF ACCOUNTING) (UNAUDITED) Fiscal Year 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Sales Taxes $ 4,740,475 5,006,857 5,095,143 6,228,645 5,808,108 5,953,998 5,825,402 5,364,312 5,533,351 5,578,165 Property Taxes Franchise Taxes $ $ 448,571 465,726 462,232 532,028 531,489 545,995 533,742 563,698 578,759 577,360 Source: The City’s Finance Department. (101) 261,809 322,308 349,444 341,702 351,635 337,029 334,074 314,080 311,019 317,610 Total $ 5,450,855 5,794,891 5,906,819 7,102,375 6,691,232 6,837,022 6,693,218 6,242,090 6,423,129 6,473,135 CITY OF DOUGLAS, ARIZONA FUND BALANCES OF GOVERNMENTAL FUNDS LAST TEN FISCAL YEARS (MODIFIED ACCRUAL BASIS OF ACCOUNTING) (UNAUDITED) Fiscal Year 2006 General Fund: Reserved Unreserved Non-spendable Restricted Unassigned Total General Fund All Other Governmental Funds: Reserved Unreserved, Reported in: Special Revenue Funds Capital Projects Funds Debt Service Funds Restricted Committed Assigned Unassigned Total All Other Governmental Funds $ 3,788,373 2007 $ 5,878 4,076,080 2008 $ 78,239 3,735,584 2009 $ 68,239 3,962,160 2010 $ 4,174,438 $ 3,788,373 $ 4,081,958 $ 3,813,823 $ 4,030,399 $ 4,174,438 $ $ $ $ $ 10,000 10,000 2,597,332 300 2,643,920 3,143 - $ 2,607,632 $ 2,657,063 10,000 4,854,098 (68,512) - $ 4,795,586 10,000 5,335,420 (7,499) - $ 5,337,921 15,453 4,065,860 - $ 4,081,313 Source: The City’s Finance Department. Note 1: The City implemented the provisions of GASB Statement No. 54 in the fiscal year 2011, which required fund balances to be reported in different categories. (102) Fiscal Year 2011 2012 2013 2014 2015 $ 58,493 4,683,978 $ 4,742,471 $ 652,189 4,108,952 $ 4,761,141 $ 686,488 4,260,979 $ 4,947,467 $ 720,416 4,790,887 $ 5,511,303 $ $ 2,220,530 (29,857) $ 871,510 228,340 - $ 1,174,505 224,190 - $ 1,218,198 1,033,237 320,290 - $ 1,439,415 779,693 - $ 2,190,673 $ 1,099,850 $ 1,398,695 $ 2,571,725 $ 2,219,108 (103) 723,641 156,889 5,613,427 $ 6,493,957 CITY OF DOUGLAS, ARIZONA CHANGES IN FUND BALANCES OF GOVERNMENTAL FUNDS LAST TEN FISCAL YEARS (MODIFIED ACCRUAL BASIS OF ACCOUNTING) (UNAUDITED) Fiscal Year 2006 REVENUES Taxes Intergovernmental Fines and Forfeitures Licenses and Permits Charges for Services Rents and Royalties Contributions and Donations Investment Income Other Total Revenues $ EXPENDITURES General Government Public Safety Highways and Streets Culture and Recreation Redevelopment and Housing Capital Outlay Debt Service Principal Retirement Interest on Long-Term Debt Total Expenditures Excess of Revenues Over (Under) Expenditures OTHER FINANCING SOURCES (USES) Transfers In Transfers Out Issuance of Long-Term Debt Proceeds from Capital Leases Proceeds from Sale of Capital Assets Total Other Financing Sources (Uses) Net Change in Fund Balance Debt Service as a Percentage of Noncapital Expenditures 2007 5,464,419 7,169,720 185,754 262,858 1,040,529 45,000 229,305 661,749 15,059,334 $ $ 5,914,743 7,805,787 141,232 169,697 1,059,989 36,000 280,685 307,449 15,715,582 2009 $ 7,012,223 8,372,584 195,644 126,224 1,386,022 538,928 16,212 322,889 17,970,726 3,477,225 5,764,769 3,166,478 1,767,630 281,392 38,999 3,801,423 5,992,153 2,551,227 2,266,214 25,159 - 5,169,854 6,078,350 2,413,444 1,863,014 132,857 896,225 13,462,021 6,579,669 2,626,696 1,750,997 497,600 817,482 413,349 124,452 15,034,294 418,837 118,611 15,173,624 429,669 133,267 17,116,680 656,965 686,598 27,078,028 25,040 279,629 (1,401,098) (9,107,302) 1,553,137 (1,876,651) 3,000,000 595,000 - 1,020,458 (888,026) 9,000,000 595,000 - 3,271,486 9,727,432 1,374,466 (1,256,231) - 1,380,037 (1,316,650) - 118,235 $ 5,782,276 7,507,537 199,420 270,278 1,012,858 45,000 311,744 324,140 15,453,253 2008 143,275 3.59% Source: The City’s Finance Department. (104) 63,387 $ 343,016 3.54% $ 1,870,388 4.05% $ 620,130 9.80% Fiscal Year 2010 $ 6,689,354 7,184,648 189,333 192,309 1,410,391 733,549 107,495 238,124 16,745,203 2011 $ $ 6,707,653 6,783,653 319,294 196,385 1,759,653 758,436 44,626 356,342 16,926,042 2013 $ 6,234,848 8,031,863 273,475 162,571 1,605,657 768,418 39,423 596,739 17,712,994 2014 $ 6,399,692 8,455,635 311,448 201,227 1,763,797 819,022 30,607 281,915 18,263,343 2015 $ 6,476,819 8,035,692 160,870 165,004 1,895,749 818,819 136,718 26,489 265,826 17,981,986 3,961,316 6,554,551 2,660,654 1,513,127 53,973 728,862 3,910,726 6,275,426 1,975,991 1,409,501 51,599 2,007,704 3,555,255 6,709,042 2,093,297 1,361,590 2,620,504 3,469,997 7,139,134 1,779,871 1,407,089 1,035,816 2,007,665 3,407,238 7,295,712 1,685,298 1,513,927 1,058,347 1,806,890 3,203,318 7,030,010 1,276,388 1,337,577 947,866 1,923,777 2,228,723 719,162 18,420,368 1,611,006 663,544 17,905,497 1,636,402 623,553 18,599,643 1,627,585 551,097 19,018,254 1,464,848 501,922 18,734,182 1,474,930 423,879 17,617,745 (1,675,165) (789,436) (1,673,601) (1,305,260) (470,839) 1,303,871 (1,002,494) 400,000 - 2,837,907 (2,479,496) 75,413 - 2,923,356 (2,445,605) 71,676 52,021 2,480,730 (2,318,522) 1,205,911 - 2,354,892 (2,085,749) 1,041,474 897,088 1,368,119 2,207,705 701,377 $ 6,831,876 7,083,337 201,361 172,602 1,745,359 755,328 67,493 258,705 17,116,061 2012 (973,788) 18.09% 433,824 $ (355,612) 14.02% 601,448 $ (1,072,153) 14.27% $ 62,859 12.65% (105) $ 1,736,866 11.68% 364,241 2,557,063 (2,311,747) 20,480 265,796 $ 630,037 12.10% CITY OF DOUGLAS, ARIZONA TAXABLE SALES BY CATEGORY LAST TEN FISCAL YEARS (UNAUDITED) Fiscal Year 2006 Sales Category: Mining Communications and Utilities Transportation & Warehousing Construction Manufacturing Wholesale Trade Retail Trade Finance and Insurance Real Estate, Rental and Leases Restaurants and Bars Accommodations Public Administration Services Arts & Entertainment Other Total City Sales Tax Rate 2007 $ 499,539 10,008,146 47,034 9,952,326 3,246,085 4,063,304 141,390,374 94,754 7,666,144 12,864,527 2,286,598 130,215 1,785,624 23,100 2,393,080 $ 196,450,850 2.50% $ 466,247 15,039,614 40,313 8,593,952 3,375,254 3,994,393 145,310,162 84,995 6,656,980 12,923,634 2,600,819 108,890 2,714,689 8,285 2,532,122 $ 204,450,349 2.50% Source: Arizona Department of Revenue. (106) 2008 $ 510,450 23,876,918 15,283 7,578,438 4,144,993 4,093,177 146,386,134 194,035 5,664,318 12,932,385 2,277,339 100,106 3,342,416 3,121,725 $ 214,237,717 2.50% 2009 $ 2,318,215 22,195,363 48,456 15,965,933 3,945,094 3,884,491 144,710,942 93,629 6,249,386 12,500,240 2,363,017 294,021 3,242,519 56,562 2,921,447 $ 220,789,315 2.50% Fiscal Year 2010 $ 2,318,215 22,195,363 48,456 15,965,933 3,945,094 3,884,491 144,710,942 93,629 6,249,386 12,500,240 2,363,017 294,021 3,242,519 56,562 2,921,447 $ 220,789,315 2.80% 2011 $ 301,452 23,550,249 66,060 19,963,998 986,650 1,226,017 147,664,164 33,753 8,690,896 14,153,836 3,652,951 1,018,073 410,600 2,599,103 $ 224,317,802 2.80% 2012 $ 6,606 21,998,591 36,614 18,615,619 136,449,566 8,369,967 15,215,328 4,552,670 1,224,696 758,552 276,830 $ 207,505,039 2013 $ 4,715 20,996,222 34,024 4,980,458 137,243,931 7,812,435 14,682,935 3,855,249 1,152,749 642,019 196,727 $ 191,601,464 2.80% 2.80% (107) 2014 $ 2,626 20,874,694 7,558 7,161,065 138,881,604 8,037,675 14,404,604 3,792,273 1,385,854 477,238 173,041 $ 195,198,232 2.80% 2015 $ 2,891 20,725,169 32,657 10,778,758 141,407,356 8,143,356 14,634,276 2,848,778 1,102,206 377,338 262,025 $ 200,314,810 2.80% CITY OF DOUGLAS, ARIZONA DIRECT AND OVERLAPPING SALES TAX RATES LAST TEN FISCAL YEARS (UNAUDITED) Fiscal Year 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 City Direct Rate Cochise County 2.50 % 2.50 2.50 2.80 2.80 2.80 2.80 2.80 2.80 2.80 Source: Arizona Department of Revenue. (108) 6.10 % 6.10 6.10 6.10 6.10 7.10 7.10 6.10 6.10 6.10 CITY OF DOUGLAS, ARIZONA ASSESSED VALUE AND ESTIMATED ACTUAL VALUE OF TAXABLE PROPERTY LAST TEN FISCAL YEARS (IN THOUSANDS OF DOLLARS) (UNAUDITED) Assessed Value Fiscal Year Real Property 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 $ 41,500 54,948 55,520 58,804 58,950 62,801 61,660 60,730 59,500 56,289 Personal Property Less: Tax Exempt Real Property Total Taxable Assessed Value $ $ $ 41,419 51,893 52,821 57,027 56,350 57,777 56,188 54,892 53,400 50,476 4,385 2,925 1,506 4,848 4,728 4,254 3,936 3,905 3,585 3,718 4,466 5,980 4,205 6,625 7,328 9,278 9,408 9,743 9,685 9,531 Source: The Cochise County Treasurer. (109) Total Direct Tax Rate Estimated Actual Taxable Value Assessed Value as a Percentage of Actual Value 10.70 8.70 8.87 10.55 13.07 8.23 8.36 7.21 11.64 13.79 $ 448,500 459,832 462,040 470,911 478,320 509,351 505,672 499,781 494,935 468,243 9.235 11.285 11.432 12.110 11.781 11.343 11.112 10.983 10.789 10.780 CITY OF DOUGLAS, ARIZONA PROPERTY TAX RATES DIRECT AND OVERLAPPING GOVERNMENTS LAST TEN FISCAL YEARS (UNAUDITED) Primary Rates Fiscal Year City of Douglas Cochise County Cochise County Community College 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 1.05 0.99 1.02 1.00 0.98 0.98 1.05 1.08 1.15 1.18 2.92 2.87 2.68 2.64 2.63 2.63 2.63 2.63 2.63 2.63 1.79 1.74 1.66 1.61 1.60 1.67 1.73 1.85 2.03 2.18 Secondary Rates Douglas Unified School District 4.94 3.10 3.51 5.30 7.86 2.95 2.95 1.65 5.83 7.80 Source: The Cochise County Treasurer. (110) Total Direct Rate 10.70 8.70 8.87 10.55 13.07 8.23 8.36 7.21 11.64 13.79 School District 1.58 1.72 1.78 0.96 1.07 0.87 0.53 0.86 0.87 0.89 County 0.51 0.40 0.40 0.40 0.34 0.45 0.55 0.55 0.55 0.55 Rate Total 12.79 10.82 11.05 11.91 14.48 9.55 9.44 8.62 13.06 15.23 CITY OF DOUGLAS, ARIZONA PRINCIPAL PROPERTY TAXPAYERS JUNE 30, 2015 AND 2006 (UNAUDITED) 2015 Taxpayer Wal-Mart Arizona Public Service Phelps Dodge Corporation DHD LLC Southwest Gas Corporation SFP Pool Five Shopping Centers BH Properties LLC Qwest Corporation UIRC-GSA V Douglas AZ LLC B-Y 90 Fifth Street LLC Safeway Inc FAE Holdings 356216F LLC MT Development LLC J C Penny Co Inc Taxable Assessed Value $ 2,065,785 1,834,006 722,946 587,115 457,857 439,357 418,100 380,343 369,273 346,715 $ 7,621,497 Rank 1 2 3 4 5 6 7 8 9 10 - Source: The Cochise County Assessor's Office. (111) 2006 Percentage of Total Taxable Assessed Value 4.09 % 3.63 1.43 1.16 0.91 0.87 0.83 0.75 0.73 0.69 15.10 % Taxable Assessed Value $ 2,935,318 1,692,246 582,015 749,882 1,013,067 769,505 638,704 582,000 514,720 $ 9,477,457 Rank 1 2 7 5 3 4 6 8 9 Percentage of Total Taxable Assessed Value 7.43 % 4.28 1.56 1.90 2.56 1.95 1.62 1.47 1.30 22.02 % CITY OF DOUGLAS, ARIZONA PROPERTY TAX LEVIES AND COLLECTIONS LAST TEN FISCAL YEARS (UNAUDITED) Total Tax Levy Fiscal Year 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 $ 442,229 468,748 485,584 542,878 546,719 555,804 538,029 552,411 562,460 565,710 Current Tax Collections $ 411,452 423,146 440,446 489,507 477,007 504,613 490,427 501,212 498,462 515,897 Percent of Current Taxes Collected 93.04 % 90.27 90.70 90.17 87.25 90.79 91.15 90.73 88.62 91.19 Source: The Cochise County Treasurer. (112) Delinquent Tax Collections $ 30,777 45,602 42,194 51,173 67,359 48,402 44,058 47,006 59,021 - Total Tax Collections $ 442,229 468,748 482,640 540,680 544,366 553,015 534,485 548,218 557,483 515,897 Ratio of Total Tax Collections to Total Tax Levy 100.00 % 100.00 99.39 99.60 99.57 99.50 99.34 99.24 99.12 91.19 Outstanding Delinquent Taxes $ 2,944 2,198 2,353 2,789 3,544 4,193 4,977 49,813 Ratio of Delinquent Taxes to Tax Levy -% 0.61 0.40 0.43 0.50 0.66 0.76 0.88 8.81 (113) CITY OF DOUGLAS, ARIZONA RATIOS OF OUTSTANDING DEBT BY TYPE LAST TEN FISCAL YEARS (UNAUDITED) Governmental Activities Fiscal Year Revenue Bonds 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 $ 3,735,000 3,370,000 2,995,000 2,605,000 2,205,000 1,790,000 1,365,000 920,800 468,602 - Loans Payable $ 3,000,000 12,000,000 10,890,000 10,025,000 9,155,000 8,260,000 7,725,000 7,125,000 Business-Type Activities Capital Leases $ 623,828 483,879 947,738 1,275,773 957,050 701,457 431,731 1,345,057 1,911,683 1,506,753 Loans Payable $ 3,239,489 5,857,703 5,928,449 5,457,668 5,095,574 4,604,627 Source: The City’s Finance Department. (114) Capital Leases $ 314,761 198,842 109,353 61,716 31,626 263,551 440,727 326,606 Total Primary Government $ 4,673,589 4,052,721 7,052,091 15,942,489 17,323,165 18,374,160 16,880,180 16,247,076 15,641,586 13,562,986 Percentage of Personal Income 1.99 % 1.57 2.73 5.65 5.62 6.24 6.44 7.15 6.68 5.79 Per Capita $ 268 220 371 862 864 913 854 935 893 775 CITY OF DOUGLAS, ARIZONA DIRECT AND OVERLAPPING GOVERNMENTAL ACTIVITIES DEBT JUNE 30, 2015 (UNAUDITED) Governmental Unit Debt Repaid with Property Taxes Cochise County Cochise County Community College District Douglas Unified School District No. 27 Subtotal, Overlapping Debt City of Douglas, Arizona direct debt Total Direct and Overlapping Debt Outstanding Debt $ Estimated Percentage Applicable (1) 111,573 20,115,000 7,299,964 5.01% 5.01% 100.00% 8,631,753 100.00% Estimated Share of Overlapping Debt $ $ Source: Cochise County Treasurer's Office. (115) 5,589 1,007,560 7,299,964 8,313,113 8,631,753 16,944,866 CITY OF DOUGLAS, ARIZONA LEGAL DEBT MARGIN INFORMATION LAST TEN FISCAL YEARS (UNAUDITED) Fiscal Year 20% Debt Limit 2006 2007 2008 2009 2010 $ 8,283,788 $ 9,938,245 $ 10,378,721 $ 10,890,226 $ 11,240,800 - - - - - $ 8,283,788 $ 9,938,245 $ 10,378,721 $ 10,890,226 $ 11,240,800 - - - Total Applicable to Limit Legal Debt Margin Total Net Debt Applicable to the Limit as a Percentage of the Debt Limit - - Fiscal Year 6% Debt Limit Total Applicable to Limit Legal Debt Margin Total Net Debt Applicable to the Limit as a Percentage of the Debt Limit 2006 2007 2008 2009 2010 $ 2,485,137 $ 2,981,474 $ 3,113,616 $ 3,267,068 $ 3,372,240 - - - - - $ 2,485,137 $ 2,981,474 $ 3,113,616 $ 3,267,068 $ 3,372,240 - - - Source: The City's Finance Department and the Cochise County Assessor's Office. (116) - - Fiscal Year 2011 2012 2013 2014 2015 $ 11,387,094 $ 11,237,561 $ 10,978,476 $ 10,679,957 $ 10,095,268 - - - - - $ 11,387,094 $ 11,237,561 $ 10,978,476 $ 10,679,957 $ 10,095,268 - - - - - Fiscal Year 2011 2012 2013 2014 2015 $ 3,416,128 $ 3,371,268 $ 3,293,543 $ 3,203,987 $ 3,028,580 - - - - - $ 3,416,128 $ 3,371,268 $ 3,293,543 $ 3,203,987 $ 3,028,580 - - - - - (117) THIS PAGE BLANK CITY OF DOUGLAS, ARIZONA CALCULATION OF LEGAL DEBT MARGIN JUNE 30, 2015 (UNAUDITED) $ 50,476,341 Net Secondary Assessed Value Water, Sewer, Light, Parks, Open Space and Recreational Facility Bonds 10,095,268 Debt Limit - 20% of Net Secondary Assessed Value Debt Applicable to Limit General Obligation Bonds Outstanding Less: Amount Set Aside for Repayment of Debt Net Debt Applicable to Limit $ 10,095,268 20% Legal Debt Margin All Other General Obligation Bonds 3,028,580 Debt Limit - 6% of Net Secondary Assessed Value Debt Applicable to Limit General Obligation Bonds Outstanding Less: Amount Set Aside for Repayment of Debt Net Debt Applicable to Limit 3,028,580 All Other General Obligation Bonds Debt Margin $ 13,123,849 Total Legal Debt Margin Source: Cochise County Assessor's Office. Note: The City did not have any debt subject to the debt limits. (118) CITY OF DOUGLAS, ARIZONA PLEDGED-REVENUE COVERAGE LAST TEN FISCAL YEARS (UNAUDITED) Revenue Bonds Fiscal Year Pledged Revenue 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 $ 11,102,447 11,573,296 11,942,651 12,666,703 11,803,431 11,458,594 11,017,679 10,896,218 11,462,981 11,792,995 Less: Operating Expenses $ Net Available Revenue - $ 3,796,816 4,012,867 4,067,101 12,666,703 11,803,431 11,458,594 11,017,679 10,896,218 11,462,981 11,792,995 Debt Service Principal Debt Service Interest $ $ 360,000 365,000 375,000 390,000 400,000 415,000 425,000 440,000 455,000 470,000 111,472 104,838 97,238 97,237 80,476 71,077 59,457 46,106 31,806 16,451 Coverage 2354.85 % 2463.25 2528.94 2599.70 2456.61 2357.36 2274.23 2241.53 2354.73 2424.29 Source: The City of Douglas' internal records. Note: The City's bonds are secured by City sales tax revenues. Sales tax revenues are applied first to the bonds and therefore no operating expenses are presented. (119) GADA Loan Pledged Revenue Fiscal Year 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Less: Operating Expenses $ 9,968,602 10,921,221 10,048,079 9,721,384 9,453,492 9,315,887 9,791,063 10,074,638 $ - Net Available Revenue Debt Service Principal Debt Service Interest $ $ $ 9,968,602 10,921,221 10,048,079 9,721,384 9,453,492 9,315,887 9,791,063 10,074,638 170,000 110,000 110,000 115,000 120,000 125,000 24,369 147,935 142,812 128,638 123,775 121,264 114,974 110,172 Coverage N/A N/A 40906.90% 7382.45% 3212.18% 4073.69% 4043.84% 3943.00% 4166.87% 4283.94% Call Center Loan Fiscal Year 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 City Sales Tax and Lease Revenue $ 10,286,049 9,254,791 8,996,669 8,735,260 8,593,517 9,069,283 9,353,016 Less: Operating Expenses $ - Net Available Revenue Debt Service Principal Debt Service Interest $ $ $ 10,286,049 704,620 8,996,669 8,735,260 1,215,652 9,069,283 9,353,016 1,260,000 675,000 700,000 740,000 375,000 375,000 Coverage 239,925 451,849 431,325 391,310 356,805 321,086 299,680 N/A N/A N/A 4287.19% 41.16% 813.20% 800.44% 110.84% 1302.90% 1386.29% Coverage WIFA Loan Fiscal Year 2010 2011 2012 2013 2014 2015 Less: Operating Expenses Water/Sewer Revenues $ 2,749,697 3,540,996 3,722,556 3,779,059 3,916,977 3,846,928 $ 2,586,553 2,688,562 2,980,047 2,974,329 3,252,197 3,250,667 Net Available Revenue Debt Service Principal Debt Service Interest $ $ $ 163,144 852,434 742,509 804,730 664,780 596,261 (120) 65,145 460,014 470,781 480,756 490,947 12,625 103,461 126,183 124,189 114,104 98,597 1292.23% 505.58% 126.67% 135.26% 111.75% 101.14% CITY OF DOUGLAS, ARIZONA DEMOGRAPHIC AND ECONOMIC STATISTICS LAST TEN FISCAL YEARS (UNAUDITED) Fiscal Year 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Source: Population 17,468 18,411 18,996 18,500 20,061 20,122 19,772 17,378 17,509 16,989 Personal Income Per Capita Personal Income $ $ 235,241,556 258,453,618 277,987,464 282,199,000 308,277,387 294,364,738 262,236,036 227,252,106 234,200,384 233,785,629 Arizona Department of Economic Security (121) 13,467 14,038 14,634 15,254 15,367 14,629 13,263 13,077 13,376 13,761 Median Age 30.50 30.50 30.50 31.00 31.10 32.20 32.20 32.20 32.20 32.20 Unemployment Rate 6.8 % 6.3 8.6 11.2 10.6 10.8 10.1 10.2 9.6 7.8 CITY OF DOUGLAS, ARIZONA PRINCIPAL EMPLOYERS CURRENT YEAR AND TEN YEARS AGO (UNAUDITED) 2015 Employer Arizona Department of Corrections Douglas Unified School District Advance Call Center Technologies City of Douglas Cochise College Chiricahua Community Health Center Cochise Private Industry Council Cochise County Copper Queen Community Hospital Homeland Security: Board Patrol Wal-Mart Stores Inc. Homeland Security: Field Operations Southeast Arizona Medical Center Basha's Employees 615 492 248 183 165 116 90 48 37 1,994 Rank 1 2 3 4 5 6 7 8 9 - Source: Cochise College Center for Economic Research Arizona Department of Economic Security (122) 2006 Percentage of Total City Employment Employees 12.37 % 9.89 4.99 3.68 3.32 2.33 1.81 0.97 0.74 40.10 % 651 541 222 223 59 471 339 112 98 71 2,787 Rank 1 2 6 5 10 3 4 7 8 9 Percentage of Total City Employment 10.83 % 9.00 3.69 3.71 0.98 7.83 5.64 1.86 1.63 1.18 46.35 % THIS PAGE BLANK CITY OF DOUGLAS, ARIZONA FULL-TIME EQUIVALENT EMPLOYEES BY FUNCTION LAST TEN FISCAL YEARS (UNAUDITED) Full-Time Equivalent Employees Function General Government Management Services: Administration Human resources Court MIS Finance Economic Development Visitor Parking Center Total Mgmt Services 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 5.0 3.0 1.0 2.0 4.0 1.0 16.0 7.0 4.0 2.5 2.0 5.5 1.0 4.5 26.5 7.0 3.5 2.5 3.0 6.5 1.0 4.5 28.0 5.0 3.5 2.5 3.0 6.0 1.0 3.5 24.5 5.0 3.0 2.0 4.0 6.0 3.0 23.0 5.0 3.0 2.0 4.5 9.0 3.5 27.0 5.0 3.0 1.5 3.5 8.5 3.5 25.0 5.0 3.0 1.5 3.0 8.5 1.0 22.0 4.5 3.0 1.5 4.0 9.0 1.0 23.0 4.5 3.0 1.5 4.0 9.0 1.0 23.0 4.0 4.0 4.0 5.0 5.0 7.5 8.5 6.5 6.5 3.5 Police Officers Civilians Total Police 35.0 13.0 48.0 29.0 15.0 44.0 31.0 16.0 47.0 37.0 14.0 51.0 34.0 14.0 48.0 32.0 14.0 46.0 32.0 14.0 46.0 32.0 15.0 47.0 31.0 11.5 42.5 31.0 13.0 44.0 Fire Firefighters and Officers Civilians Total Fire 21.0 2.0 23.0 26.0 2.0 28.0 24.0 2.0 26.0 25.0 1.0 26.0 25.0 1.0 26.0 25.0 1.5 26.5 23.0 1.5 24.5 24.0 2.0 26.0 23.0 2.0 25.0 25.0 2.0 27.0 Public Works Engineering (PW Adm) Planning & Zoning Construction Refuse Collections Mechanics Streets Street Maintenance Airport Water Field Water CIP Water Billing Wastewater Total Public Works 2.0 2.0 4.0 8.0 4.0 10.0 5.0 7.0 1.0 4.0 7.0 54.0 4.0 2.0 4.0 10.0 4.0 12.0 5.0 10.0 6.0 4.0 7.0 68.0 4.0 3.0 4.0 7.0 4.0 11.0 4.0 9.0 8.0 4.0 8.0 66.0 6.0 2.0 4.0 5.0 4.0 8.0 4.0 8.0 7.0 4.0 7.0 59.0 4.0 2.0 6.0 6.0 4.0 7.0 4.0 6.0 6.0 4.0 7.0 56.0 3.5 2.0 7.0 6.0 3.0 7.0 4.0 7.0 4.0 6.0 49.5 4.0 2.0 6.0 5.0 2.0 6.0 4.0 7.0 4.0 5.0 45.0 2.0 1.0 6.0 7.0 2.5 8.0 1.0 7.5 2.0 5.5 42.5 2.0 2.0 5.0 8.0 3.0 7.0 1.0 7.5 2.0 5.5 43.0 1.0 2.0 5.0 9.0 3.0 5.0 1.0 7.5 2.0 5.5 41.0 Parks and Recreation Comm Dev Admin Aquatics Cemetery Parks Recreation Golf Course Library Transit Total P&R 2.0 3.0 4.0 9.0 1.0 1.0 5.0 25.0 3.0 16.0 4.0 9.0 7.0 3.5 8.0 50.5 3.0 13.5 4.0 10.0 8.5 5.5 7.5 52.0 2.0 11.5 2.0 10.0 4.5 8.0 7.0 45.0 1.0 11.0 2.0 10.0 5.0 8.0 8.0 45.0 1.0 11.5 1.0 10.5 5.5 10.5 8.0 48.0 1.0 10.5 2.0 9.5 6.5 9.5 7.0 46.0 1.0 12.5 3.0 8.5 5.5 7.5 6.5 5.5 50.0 12.0 3.0 9.0 5.5 5.5 6.5 6.5 48.0 10.5 2.0 9.0 6.5 2.5 8.0 6.0 44.5 170.0 221.0 223.0 210.5 203.0 204.5 195.0 194.0 188.0 183.0 Housing Total Source: The City of Douglas' internal records. (123) CITY OF DOUGLAS, ARIZONA OPERATING INDICATORS BY FUNCTION LAST TEN FISCAL YEARS (UNAUDITED) Fiscal Year Function General Government Building Permits Issued Building Inspection Conducted Police Physical Arrests Parking Violations Traffic Violations Fire Emergency Responses Fires Extinguished Inspections Refuse Collection Refuse Collections (Tons/Day) Recyclables Collected (Tons/Day) Other Public Works Street Resurfacing (Miles) Potholes Repaired Parks and Recreation Athletic Field Permits Issued Community Center Admissions Aquatic Center Admissions Library Volumes in Collection Total Volumes Borrowed Water New Connections Water Main Breaks Average Daily Consumption (Thousands of Gallons) Peak Daily Consumption (Thousands of Gallons) Wastewater Average Daily Sewage Treatment (Thousands of Gallons) 2006 2007 2008 2009 2010 258 1,085 262 1,100 338 858 354 400 305 344 1,725 1,640 4,134 1,615 1,919 4,590 1,475 1,562 3,814 1,917 648 4,569 1,795 646 4,300 2,540 17 122 2,336 187 62 2,200 201 80 2,030 216 80 2,312 198 101 17.0 1.0 23.9 0.5 30.0 0.5 30.0 0.5 16.3 - 175 1.0 143 1.4 152 1.5 195 2.1 680 40 9,724 21,852 120 16,535 26,990 117 14,660 28,369 120 9,071 36,761 119 10,036 31,408 49,141 94,147 52,824 83,018 56,961 94,955 60,856 85,595 59,649 86,098 7 60 8 28 18 68 5 10 2 3,167,934 2,579,831 3,660,000 2,638,660 3,662,519 - 4,385,713 5,380,000 3,613,013 148,101,000 2.6 1.8 2.1 1.6 1.5 Source: The City of Douglas' internal records. (124) Fiscal Year 2011 2012 2013 2014 2015 198 305 221 778 264 695 202 704 188 229 1,564 745 4,211 554 545 3,888 1,332 252 4,158 1,348 183 3,220 1,164 158 2,981 2,829 61 150 2,437 55 200 2,459 231 161 2,560 457 367 2,900 52 261 23.5 - 26.5 - 27.5 - 22.9 - 33.4 - 1.0 1,360 0.5 2,100 2.1 1,600 0.8 1,763 6.0 2,385 122 11,021 14,808 125 8,812 21,301 93 10,199 16,685 83 16,051 17,792 105 7,954 14,674 57,684 74,141 56,715 63,180 47,157 61,256 59,033 64,843 53,887 53,181 16 9 10 8 11 12 11 7 5 8 3,500,000 3,177,000 3,216,045 3,321,000 2,971,544 5,023,000 4,725,000 4,716,136 4,384,000 3,984,848 1.7 1.7 2.0 2.1 1.9 (125) CITY OF DOUGLAS, ARIZONA CAPITAL ASSETS STATISTICS BY FUNCTION LAST TEN FISCAL YEARS (UNAUDITED) Fiscal Year Function Police Stations Patrol Units Fire Stations Refuse Collection Collection Trucks Other Public Works Streets (Miles) Streetlights Traffic Signals Parks and Recreation Acreage Playgrounds Baseball and Softball Diamonds Soccer/Football Fields Aquatic Centers Community Centers Water Water Mains (Miles) Fire hydrants Storage Capacity (Thousands of Gallons) Wastewater Sanitary Sewers (Miles) Storm Sewers (Miles) Maximum Treatment Capacity (Thousands of Gallons) 2006 2007 2008 2009 2010 1 25 1 1 21 1 1 20 1 1 27 1 1 22 1 4 5 5 5 5 110 2,693 13 110 2,693 13 110 2,693 14 110 2,693 14 112 2,693 14 92 5 6 13 2 1 92 5 6 13 2 1 92 5 6 13 2 1 92 5 6 13 2 1 92 5 6 13 2 1 81 445 81 445 83 526 83 526 84 535 500,900 500,900 500,900 500,900 500,900 75 9 75 9 78 9 78 9 80 9 2,000,000 2,000,000 2,000,000 2,000,000 2,000,000 Source: The City of Douglas' internal records. (126) Fiscal Year 2011 2012 2013 2014 2015 1 21 1 1 23 1 1 22 1 1 21 1 1 23 1 5 5 4 4 4 110 2,693 14 110 2,693 14 110 2,693 14 110 2,693 14 110 2,693 14 92 5 6 13 2 1 92 5 6 13 2 1 92 5 6 13 2 1 92 5 6 13 2 1 92 5 6 13 2 1 100 540 100 545 100 458 100 560 100 567 500,900 500,900 500,900 500,900 590,000 85 9 85 9 86 9 86 9 86 9 2,000,000 2,000,000 2,000,000 2,000,000 2,000,000 (127) THIS PAGE BLANK