TOWN OF FOUNTAIN HILLS, ARIZONA COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR THE FISCAL YEAR ENDED JUNE 30, 2006 Mr. Wallace J. Nichols Mayor Councilmembers Mr. Edwin Kehe Vice Mayor Mr. Mike Archambault Mr. Hem-y Leger Ms. Gi1my Dickey Mr. Keith McMahan Mr. Jay Schlum Timothy G. Pickering, CEcD, ICMA-CM Town Manager Julie A. Ghetti, CPA Finance Director Prepared by: Finance Department TOWN OF FOUNTAIN HILLS, ARIZONA COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR THE FISCAL YEAR ENDED JUNE 30, 2006 TABLE OF CONTENTS INTRODUCTORY SECTION Letter of Transmittal List of Principal Officials Organizational Chati GFOA Certificate of Achievement I 9 10 II FINANCIAL SECTION Independent Auditor's Repm1 Management's Discussion and Analysis I5 I7 Basic Financial Statements Statement ofNet Assets Statement of Activities Balance Sheet - Govemmental Funds Reconciliation of the Balance Sheet to the Statement ofNet AssetsGovernmental Funds Statement of Revenues, Expenditures and Chm1ges in Fund Balances Governmental Funds Reconciliation of the Statement of Revenues, Expenditures, and Changes in Fund Balat1ces to the Statement of Activities - Governmental Funds General Fund Statement of Revenues, Expenditures, and Changes in Fund Balances - Budget and Actual Notes to the Basic Financial Statements 30 3I 32 33 34 35 36 37 TOWN OF FOUNTAIN HILLS, ARIZONA COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR THE FISCAL YEAR ENDED JUNE 30, 2006 TABLE OF CONTENTS Combining and Individual Fund Statements and Schedules Combining Balance Sheet - Nonmajor Govermnental Funds Combining Statement of Revenues, Expenditures, and Changes in Fund Balances- Nomnajor Goverm11ental Funds General Obligation Debt Service Fund - Schedule of Revenues, Expenditures, and Changes in Fund Balances - Budget and Actual Municipal Property Corporation Fund- Schedule ofRevenues, Expenditures, and Changes in Fund Balances - Budget and Actual Development Fees Fund- Schedule of Revenues, Expenditures, and Changes in Fund Balances - Budget and Actual Capital Projects Fund- Schedule of Revenues, Expenditures, and Changes in Fund Balances - Budget and Actual HURF Fund - Schedule of Revenues, Expenditures, and Changes in Fund Balances - Budget and Actual Excise Tax Fund - Schedule of Revenues, Expenditures, and Changes in Fund Balances - Budget and Actual Grants Fund - Schedule of Revenues, Expenditures, and Changes in Fund Balances - Budget and Actual Local Comt Enhancement Fund - Schedule of Revenues, Expenditures, and Changes in Fund Balances - Budget and Actual HURF Debt Service Fund - Schedule of Revenues, Expenditures, and Changes in Fund Balances - Budget and Actual Eagle Mountain Debt Service Fund - Schedule of Revenues, Expenditures, and Changes in Fund Balances - Budget and Actual Cottonwoods Special AssessmentFund - Schedule of Revenues, Expenditures, and Changes in Fund Balances - Budget and Actual 56 58 60 61 62 63 64 65 66 67 68 69 70 TOWN OF FOUNTAIN HILLS , ARIZONA COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR THE FISCAL YEAR ENDED JUNE 30, 2006 TABLE OF CONTENTS STATISTICAL SECTION Financial Trends: Net Assets by Component Changes in Net Assets Fund Balances of Govenunental Funds Changes in Fund Balances of Govemmental Funds Revenue Capacity General Govenm1ent Tax Revenues by Source Sales Tax Collections by Category Direct and Overlapping Sales Tax Rates Assessed Value and Estimated Actual Value of Taxable Prope11y Property Tax Rates - Direct and Overlapping Govermnents Principal Property Taxpayers Property Tax Levies and Collections Debt Capacity Ratio of Outstanding Debt by Type Ratio of General Bonded Debt Outstanding Direct and Overlapping Governmental Activities Debt Legal Debt Margin Information Calculation of Legal Debt Margin Demographic and Economic Information Demographic and Economic Statistics Principal Employers Operating Information Full-time Equivalent Employees by Function Operating Indicators by Function Capital Assets Statistics by Function 73 74 75 76 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 INTRODUCTORY SECTION THIS PAGE BLANK Town of FOUNTAIN HILLS September 29, 2006 To the Honorable Mayor, Members of the Governing Council, and Citizens ofthe Town of Fountain Hills, Arizona: State law requires that all general-purpose local governments publish within 120 days of the close of each fiscal year a complete set of fmancial statements presented in conformity with Generally Accepted Accounting Principles (GAAP) and audited in accordance with Generally Accepted Auditing Standards (GAAS) by a finn of licensed ce1iified public accountants. The Comprehensive Annual Financial Report (CAFR) of the Town of Fountain Hills, Arizona (Town) for the fiscal year ended June 30, 2006, is hereby submitted. This document represents a joint effort by Town staff as well as our auditors, Cronstrom, Osuch & Company, P.C. Tllis report consists of management' s representations concerning the finances of the Town of Fountain Hills. Responsibility for the accuracy of the data and the completeness and fairness of the presentation, including all disclosures, rests with management. To provide a reasonable basis for making these representations, management of the Town of Fountain Hills has established an internal control framework that is designed to both protect the government' s assets from loss, theft, or nlisuse and to compile sufficient reliable information for the preparation of the Town of Fountain Hills' fmancial statements in conformity with GAAP. Because the cost of internal controls should not outweigh their benefits, the Town of Fountain Hills' framework of internal controls has been designed to provide reasonable rather than absolute assurance that the financial statements will be free from material misstatement. As management, we assert that, to the best of our knowledge and belief, this financial report is complete and reliable in all material respects. All disclosures necessary for the reader to understand the Town's activities have been included. The Town of Fountain Hills' financial statements have been audited by Cronstrom, Osuch & Company, P.C., a firm of licensed ce1tified public accountants. The goal of the independent audit was to provide reasonable assurance that the financial statements of the Town of Fountain Hills for the fiscal year ended June 30, 2006, are free of material misstatement. The independent audit involved examining, on a test basis, evidence supporting the amounts and disclosures in the fmancial statements; assessing the accounting principles used and sigruficant estimates made by management; and evaluating the overall financial statement presentation. The independent auditor concluded, based upon the audit, that there was a reasonable basis for rendering an unqualified opinion that the Town of Fountain Hills' fmancial statements for the fiscal year ended June 30, 2006, are fairly presented in conformity with GAAP. The independent auditor's report is presented as the first component of the fmancial section of tills report. 166705 E. Avenue ofthe Fountains, Fountain Hills, Arizona 85268 1 GAAP requires that management provide a narrative introduction, overview, and analysis to accompany the basic financial statements in the form of Management's Discussion and Analysis (MD&A). This letter of transmittal is designed to complement the MD&A and should be read in conjunction with it. The Town of Fountain Hills' MD&A can be found immediately following the report of the independent auditors. Town of Fountain Hills Profile The Town of Fountain Hills is a planned, familyoriented community established in 1970 by McCulloch Properties (now MCO Properties, Inc.). Prior to 1970 the area was a cattle ranch and was part of one of the largest land and cattle holdings in Arizona. It was purchased by Robert McCulloch in the late 1960s and designed by Charles Wood, Jr. (designer of Disneyland in southern California). The centerpiece of Fountain Hills is one of the world's tallest manmade fountains, a focal point that attracts thousands of visitors each year. Located on 13,006 acres of land, and bordering northeast Scottsdale, Fountain Hills is surrounded by the 3,500-foot McDowell Mountains on the west, the Fort McDowell Indian Reservation on the east, the Salt River Indian Reservation on the south and by the McDowell Mountain Regional Park on the north. Elevation is 1,520 feet at the fountain, 3,000 feet on Golden Eagle Boulevard, and is 500 feet above Phoenix. Over the past sixteen years Fountain Hills has grown from 10,190 residents to a town of 24,492 in 2005. The latest estimates for Fountain Hills indicate that the population will continue to grow to near 36,045 by 2025. Although the rate of growth is slowing as the Town approaches build-out, the community continues to attract residents building large custom homes to take advantage of the scenic vistas surrounding its mountain community. On June 5, 2006 the Town of Fountain Hills became two square miles and about ten percent larger by annexing 1,300 acres of State Trust Land. The process to annex the State Trust Land occurred over a two and one-half year period and development of the land will occur over the next decade. A public auction has been tentatively planned for Spring 2007 and the property will be sold to the highest bidder for development. Annexing this property into the Town ensures that its future development will be of the highest quality under such Town' s standards as the cut-and-fill ordinance and strict zoning regulations. Fountain Hills will have an opportunity to demonstrate that it is truly the best place to live in the Valley. The Town offers a range of living styles, from small community subdivisions to a number of large custom homes. Fountain Hills also offers recreational, cultural and retirement programs that address the needs and lifestyles of active families and adults. The community consists of primarily residential property; of the total 13,006 acres of land only 3% of the total is zoned commercial, 31% is reserved as open space and the remainder is residential. 2 The Town' s Mission Statement for the Organization The Town of Fountain Hills' purpose is to serve the best interests of the community by: providing for its safety and well-being; respecting its special, small-town character and quality of life; providing superior public services; sustaining the public trust through open and responsive government; and maintaining the stewardship and preservation of its financial and natural resources. To serve and respect, and provide trust and stewardship. The Town of Fountain Hills is an Arizona Municipal Corporation, acting as a general law Town as prescribed in the Arizona Revised statutes. The Town was incorporated on December 5, 1989 with the governmental and administrative affairs of the Town operating under the Council-Manager form of government. The Town Council is responsible, among other things, for the adoption of local ordinances, budget adoption, the development of citizen advisory committees and hiring the Town Manager. The Town Manager is responsible for implementation of the policies ofthe Town Council and administering the Town's operations through three department directors and approximately 87 FTE employees. The Magistrate, Town Attorney and Town Prosecutor are under the direction of the Town Council. The Town provides or administers a full range of services including public safety (law enforcement, fire, animal control, building inspection); community development (code enforcement, planning, zoning and engineering); the construction and maintenance of streets and infrastructure, municipal court, recreational activities, community center and cultural events. The Town does not maintain utility or other operations that require the establishment of enterprise funds. Fountain H ills Town Hall The financial reporting entity (the Town) includes all the funds of the primary government (i.e., the Town ofFountain Hills as legally defined) as well as all of its component units. The component units consist of legally separate entities for which the primary government is financially accountable. Blended component units, although legally separate entities, are, in substance, part of the primary goverrunent's operations and are included as part of the primary government. Accordingly, the Cottonwoods Maintenance District, Eagle Mountain Community Facilities District and Fountain Hills Municipal Property Corporation are included in the financial reports of the Town. 3 The annual budget serves as the foundation for the Town of Fountain Hills' fmancial planning and control. The Town Council formally adopts the budget and legally allocates, or appropriates, available monies for the General Fund, Highway User Revenue Fund, Special Revenue Funds, Debt Service Funds, and Capital Projects Fund. Therefore, these funds have appropriated budgets, and budget to actual information is presented. On or before the second meeting in May the Town Manager submits to the Town Council a proposed budget for the fiscal year commencing the following July 1. The budget includes proposed expenditures and the means of financing them. The Town Council is then required to hold public hearings on the proposed budget and to adopt a final budget by no later than June 30, the close of the Town of Fountain Hills' fiscal year. The budget is legally enacted through passage of an ordinance and is prepared by fund and department. The ordinance sets the limit for expenditures during the fiscal year. The Town Manager may authorize transfers from and within personnel and from operating capital to services or supplies within a department. Additional expenditures may be authorized for expenditures directly necessitated by a natural or man-made disaster as prescribed in the State Constitution, Article 9, Section 20. Factors Affecting Financial Condition The information presented in the financial statements is perhaps best understood when it is considered from the broader perspective of the specific environment within which the Town of Fountain H ills operates. Local economy. The Town of Fountain Hills, similar to other Arizona municipalities, is overly dependent upon state revenues and local sales tax as a major source of revenue. During fiscal year 2005-06 the Town benefited from a regional economy fueled by the real estate and construction industry. State and local sales tax revenues provided 51% of the Town's General Fund budget. Locally, 31% of the Town' s sales tax is from construction activity and 39% is generated from retail activity. The construction activity is primarily residential; in FY05-06 the Town issued permits for 130 single-family homes, 325 multi-family units and 10 commercial proj ects. Sales Tax Activity by Sector- FY02 thru FY06 III FYO I -02 QFY02-03 . FYOJ-04 • FY04-05 Ill FYOS-06 Construction Tran.s portntionrutil Wholesale/Retail Res taurant/Bars 4 The chart to the left is a summary of local sales tax collections from FY02 The through FY06 by category. increase in the wholesale/retail activity reflects the opening of a new shopping center that was constructed in October 2002; the center is now 99% occupied. The increase in construction sales tax is due to the large number of multifamily, primarily condo, units during the past year. The opportunity to further expand the retail tax base in Fountain Hills is limited by the lack of available commercial land - 75% of the developable lots are already developed. However, in FY0506 the Town invested $7.6M in improvements to the downtown area including a streetscape enhancement project along Avenue of the Fountains and a new Town Hall municipal building. The building was constructed on Avenue of the Fountains as Phase II of the Civic Center project as a permanent home to Town Government and the streetscape enhancement was designed to revitalize the downtown area. The Town completed the Avenue of the Fountains Enhancement Project Phase 1A and 1B in October 2006, which cost about $1.6 million, and included streetlights, shade structures, sidewalk enhancements and landscape improvements along the north side of the avenue from La Montana Drive to Saguaro Boulevard and on the south side in front of the Town Hall. The enhancements were designed to enhance the main street for residents and visitors alike and to encourage everyone to shop, dine, discover downtown Fountain Hills. The goal is to create the perfect place for citizens to shop and dine while enjoying the enchanting surroundings. Once the project is complete businesses should expect more foot traffic on the Avenue creating a place where people want to be and businesses want to locate. New lighting, pedestrian walkways, water features and cultural amenities are planned that will provide interest for adults and children. A new Holiday Inn Hotel with 104 rooms opened in FY 2006 in the downtown area. The final phase of the Plaza Fountainside project, also in the downtown area, is scheduled to open by the end of FY2006. At the west gateway to Town, the Fountain Hills Conference and Resort Spa is planned. The project, which is currently under design will have a combination of condominium units, and resort hotel rooms that will expand tourism within the community and could bring additional bed tax revenue to Fountain Hills. Long-term financial planning. In December 2005, through a citizen driven process, the Town initiated the "2006-201 0 Strategic Plan" (visit www.fh.az.gov) where the community identified amenities and priorities that will guide Fountain Hills Town Council Members and staff as they establish budgets and priorities over the years. A strategic priority that was identified was to resolve the Town's projected long-term revenue shortfall by December 31, 2007. The citizens recognize the need to address future revenue shortfalls that will occur when construction related revenues are constrained by availability of land or the economy. In June 2006 the Mayor and Town Council reviewed a Twenty Year Financial Overview and Capital Projects plan that included projected operating and revenues through the year 2025. The purpose of the overview was to respond to the strategic priority of resolving the future revenue shortfall and provide a blueprint for future operating and capital costs. The analysis indicated that operating expenditures will begin to outpace revenues by the fiscal year ending June 30, 2017 with the decline in construction revenues and increased operating costs. Through the Strategic Planning Advisory Committee the Town will be conducting several informed choices workshops that will provide an opportunity to inform residents about the Town's financial options and allow for citizen input. The committee will present their findings to the Town Council in December, 2006. 5 The Fountain Hills Town Council maintains a fund balance policy that ensures adequate reserves that will provide financial stability in the event of an unanticipated economic downturn. The policy states: 1. A contingency fund of no less than 30 days operating expenditures for the upcoming fiscal year to be designated for unanticipated expenditure or loss of revenue (contingency). 2. A designated unreserved fund balance of a minimum of ten percent ( 10%) of the average actual revenues for the preceding five fiscal years designated for "pay-as-you-go" capital. 3. A reserved fund balance of twenty percent (20%) of the average actual revenues for the preceding five fiscal years which is unavailable for appropriation. These amounts will not be programmed for expenditure and are only available for use within the confines of expenditure limitations imposed by the State. A historical perspective of past General Fund balances is shown in the following chati. The decline in the General Fund balance from FYOO through FY03 resulted from an economic downturn, spending for capital projects and the creation of a municipal fire department. This trend was reversed in FY04 and the Mayor and Town Council and management are committed to maintaining the $6.5M of reserves in the future. A Capital Improvement Special Revenue Fund has been created and funded with proceeds from excess revenues collected over budgeted and unexpended appropriations that are not needed to meet fund balance requirements or re-appropriation. In order to maintain the General Fund balance at $6.5M approximately $3M was transferred to the Capital Projects Fund in FY2005-06. - - - - - - --- - - --- Fund Balance & Reserves General Fund (in millions) $8 .0 ~--------------------------------------------~ $7.0 ~ - - ----------- - ------------------------- - -- - -- - - -- - -- $6.0 $5.0 $4.0 $3.0 -1----- . - - - - - , - - - - - . - - -- . - - ----,-----.-----,-----,-----,-------l 97-98 98-99 99-00 00-01 01-02 02-03 03-04 04-05 05-06 06-07 Fiscal Years The Council also adopted financial policies that include guidelines for the issuance of debt for capital expenditures, Community Facility Districts, financing altematives, expenditure controls and financial planning. The debt policy was prepared with a preference for "pay-as-you-go" financing for capital spending. An investment policy was adopted and was awarded the Investment Policy Certification from the Association of Public Treasurers ofUnited States and Canada. 6 Cash management policies and practices. State statutes permit municipalities in Arizona to invest in obligations of the U.S. Treasury, commercial paper, corporate bonds, repurchase agreements, and the State Treasurer's Local Govemment Investment Pool (LGIP). The Town of Fountain Hills debt policy restricts investments to securities that are 100% backed by the full faith and credit of the U.S. govemment. The Town of Fountain Hills invests all idle cash in the State LGIP-GOV, which consists of government-backed securities. The year-to-date yield on investments as of June 30, 2006 was 4.5418%. Investment income includes appreciation in the fair value of investments. Increases in fair value during the current year, however, do not necessarily represent trends that will continue; nor is it always possible to realize such amounts, especially in the case of temporary changes in the fair value of investments that the govetmnent intends to hold to maturity. Daily cash deposits are made with the local bank and are maintained for payroll and payables; these accounts are fully collateralized to $1 million. Risk Management The Town of Fountain Hills is a member of the Arizona Municipal Risk Retention Pool. Risk coverage includes general liability, workers compensation, errors and omissions, property and automobile insurance. The policy insures up to $2,000,000 per incident occurrence plus any excess liability of up to $13,000,000 per occurrence per year. Coverage is provided on a claims-made basis. Pension and other postemployment benefits. The Town of Fountain Hills provides two deferred compensation plans through the Intemational City/County Management Association (ICMA) in accordance with Internal Revenue Code Sections 401A and 457. The 401A is funded by mandatory employee wage deductions and matching Town contributions. The 457 is voluntary and funded 100% through employee pruiicipation. For further information on these plans please refer to Note 4 (C) in the fmancial statements. Awards and Acknowledgements. The Government Finance Officers Association (GFOA) awarded a Certificate of Achievement for Excellence in Financial Repmiing to the Town of Fountain Hills for its comprehensive annual financial report (CAFR) for the fiscal yeru· ended June 30, 2005. This was the ninth consecutive year that the government has received this prestigious award. In order to be awru·ded a Certificate of Achievement, the government published an easily readable and efficiently organized CAFR. This report satisfied both GAAP and applicable legal requirements. A Certificate of Achievement is valid for a period of one yeru· only. We believe that our current CAFR continues to meet the Certificate of Achievement Program's requirements and we are submitting it to the GFOA to determine its eligibility for another cetiificate. In addition, the govemment also received the GFOA's Distinguished Budget Presentation Award for its annual budget for the fiscal year ending June 30, 2005. In order to qualify for the Distinguished Budget Presentation Awru·d, the government's budget document was judged to be proficient in several categories, including as a policy document, a financial plan, an operations guide, and a communications device. This is the third consecutive year that the Town has received the award. 7 The preparation of this report would not have been possible without the efficient and dedicated services of the entire team of the Finance and Administration Department. I would also like to extend my appreciation to the Mayor and Council for their leadership and support. Each member of the department has my sincere appreciation for the contributions made in the preparation of this report. Respectfully submitted, /) ~·· / 1/ . i·~··· .,//···/·z;~t~;t;· / Town Manager I (>1A~? t> 1 Timothy G. Pickering, ,. ,/; •.// ~ .."/ ICJ\1k·C~t CEcD /...· i' v ~ ····· 8 TOWN OF FOUNTAIN HILLS, ARIZONA LIST OF PRINCIPAL OFFICIALS ELECTED OFFICIALS Mayor Mr. Wally Nichols Vice-Mayor Mr. Edwin Kehe Councilmember Mr. Mike Archambault Councilmember Ms. Ginny Dickey Councilmember Mr. Henry Leger Councilmember Mr. Keith McMahan Councilmember Mr. Jay Schlum APPOINTED OFFICIALS AND DEPARTMENT DIRECTORS Town Manager Timothy G. Pickering Magistrate Ted Armbruster Finance Director Julie A. Ghetti, CPA Public Works Director Tom Ward Parks & Recreation Director Mark Mayer Fire Chief Scott LaGreca, Rural Metro Corporation District Commander Captain Jolm Kleinheinz, Maricopa County Sheriffs Office Town Prosecutor Iacovino & Kayler Town Attorney Andrew McGuire, Gust Rosenfeld, P.L.C. 9 TOWN OF FOUNTAIN HILLS, ARIZONA ORGANIZATIONAL CHART JUNE 20, 2006 10 Certificate of Achievement for Excellence in Financial Reporting Presented to Town of Fountain Hills, Arizona For its Comprehensive Ammal Financial Report for the Fiscal Year Ended June 30, 2005 A Certificate of Achievement for Excellence in Financial Reporting is presented by the Govenm1ent Finance Officers Association of the United States and Canada to govenm1ent units and public employee retirement systems whose comprehensive annua l fina ncial rep011s (CAFRs) achieve the highest standards in govemment accounting and fmancial reporting. President Executive Director 11 THI S PAGE BLANK 12 FINANCIAL SECTION 13 THIS PAGE BLANK 14 ronstrom Osuch & Com]pany 8706 E. MANZANITA DRIVE, SUITE 100 SCOTTSDALE, ARIZONA 85258 Cerltified Public Accounlta!rlts (480) 348-1102 • F AX (480) 348-1104 C INDEPENDENT AUDITOR'S REPORT The Honorable Mayor and the Town Council of the Town ofFountain Hills, Arizona We have audited the accompanying fmancial statements of the governmental activities, each major fund, and the aggregate remaining fund infmmation of the Town of Fountain Hills, Arizona (Town), as of and for the year ended June 30, 2006, which collectively comprise the Town's basic financial statements as listed in the table of contents. These financial statements are the responsibility of the Town's management. Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material mi sstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinions. In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the govenunental activities, each major fund, and the aggregate remaining fund information of the Town of Fountain Hills, Arizona, as of June 30, 2006, and the respective changes in financial position, thereof and the respective budgetary comparison for the General Fund for the year then ended in conformity with accounting principles generally accepted in the United States of America. The management's discussion and analysis on pages 17 - 27 is not a required part of the basic financia l statements but is supplementary information required by the Govenm1ental Accounting Standards Board. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation of the required supplementary infmmation. However, we did not audit the infonnation and express no opinion on it. 15 A PROFESSIONAL CORPORATION • WWVV.ClWNSTROM0SUCH .COM Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the Town's basic financial statements. The introductory section, combining and individual fund financial statements and schedules and statistical section are presented for purposes of additional analysis and are not a required pmt of the basic financial statements. The combining and individual fund financial statements and schedules have been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, are 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 express no opinion on them. ~t;vrrv,, d)AIA.c~c "r!vm10, jJ c Cronstrom, Osuch & Company, P.C. September 29, 2006 16 Management's Discussion and Analysis We (the Town of Fountain Hills) (Town) are pleased to provide an overview of our financial activities for the fiscal year ended June 30, 2006. The intended purpose of Management's Discussion and Analysis (MD&A) is to provide an introduction to the basic financial statements and notes, that provides an objective and easy to read analysis of our financial activities based on currently known facts, decisions, and conditions, by providing an easily readable sunm1ary o operating results and reasons for changes, which will help to determine if our financial position improved or deteriorated over the past year. This report addresses current operational activities, the sources, uses, and changes in resources, adherence to budget, service levels, limitations, significant economic factors, and the status of infrastructure and its impacts on our debt and operation. When referTing to prior years data in this analysis we will be drawing upor infonnation from last years' audited financial report. Financial Highlights * The assets of the Town of Fountain Hills exceeded its liabilities at the close of the most recent fiscal year by $42.3 million (net assets). Of tllis amount $9M (umestricted net assets) may be used to meet the govermnent's ongoing obligations to citizens and creditors. * As of the close of the current fi scal year, the Town of Fountain Hills' govenm1ental funds reported combined ending fund balances of $19.1 M, an increase of $4.7M in comparison with the prior year. * At the end of the current fi scal year, umeserved fund balance for the general fund was $6.5M or 52 percent of total general fund expenditures. The fund balance policy adopted by the Council requires a minimum of $5 .I M in designated, undesignated and reserve funds. Surplus revenues from the prior fi scal year ($2.6M) and the current fiscal year ($2.9M) were transfen ed to the Capital Projects Fund for future appropriation. * General fund revenues (on a budgetary basis) exceeded budgeted revenues by $ 1. 8M for fiscal year 2006. Additionally, budgetary basis expenditures were only 87% (I3% savings) ofthe final budget in the General Fund. * General Fund revenues exceeded expenditures by $5.I, revenues had a positive variance of$ I.8M from the original budget. * The Town includes two types of separate legal entities in its report - the Fountain Hills Municipal Property Corporation and Community Facility Districts. Although legally separate, these "component units" are important because the Town is financially accountable for them. A description of these three types of component units is available in Note I on page 37. Separate Financial Statements are not available for these entities. I7 Overview of the basic financial statements This discussion and analysis is intended to serve as an introduction to the Town of Fountain Hills, Arizona's basic financial statements. The Town of Fountain Hills, Arizona's basic financial statements are comprised of three components (as illustrated below): 1) governmentwide financial statements, 2) fund financial statements, and 3) notes to the basic financial statements. This repmi also contains required supplementary information in the form of this management discussion and analysis letter. Required Components of the Annual Financial Report • I Management ' s Discussion and Ana l ys is . .... ········· .........-········· Gov e rnm e ntwide Financial Statements ...... ...... ····· Ba s ic Finan c ial S tatem en ts Requir e d S uppl ementary In formation Fun d Financial Statements Notes To the Financial Statements .... D e tail Summa r y Government-wide financial statements The goverrnnent-wide financial statements are designed to provide readers with a broad overview of the Town's finances, in a matmer similar to private-sector business. The statement of net assets presents information on all of the Town's assets and liabilities, with the difference between the two reported as net assets. Over time, increases or decreases in net assets may serve as useful indicators of whether the financial position of the Town is improving or deteriorating. The statement of activities presents information showing how the government's net assets changed during the most recent fiscal year. Changes in net assets are reported as soon as the underlying event giving rise to the change occurs, regardless of the timing of related cash flows . Thus, revenues and expenses are reported in tllis statement for some items that will only result in cash flows in future fiscal periods (e.g., uncollected taxes and earned but unused vacation leave). 18 The govenunent-wide financial statements distinguish functions of the Town that are principally supported by taxes and intergovenunental revenues (govenunental activities) from other functions that are intended to recover all or a significant portion of their costs through user fees and charges (business-type activities). The governmental activities of the Town include general government, conununity development, public safety, highways and streets, and culture and recreation. The Town does not have any business-type activities. The government-wide financial statements can be found on pages 30 - 31 of this report. Fund financial statements Also presented are the traditional fund financial statements for governmental funds. A fund is a grouping of related accounts that is used to maintain control over resources that have been The Town, like other state and local segregated for specific activities or objectives. governments, uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. All ofthe funds ofthe Town are included in the governmental funds. Governmental funds Govenm1ental funds are used to account for essentially the same functions reported as governmental activities in the govenm1ent-wide financial statements. However, unlike the govenunent-wide financial statements, govenm1ental fund financial statements focus on nearterm inflows and outflows of spendable resources, as well as balances of spendable resources available at the end of the fi scal year. Such information may be useful in evaluating a government's near-te1m financing requirements. Since the govenm1ental fund financial statements focus on near-term spendable resources, while the govenm1ental activities on the govenunent-wide financial statements have a longer tenn focus, a reconciliation of the differences between the two is provided following the fund financial statements' balance sheet and statement of revenues, expenditures and changes in fund balances, respectively. Notes to the basic financial statements The notes to the basic financial statements (pages 3 7 - 52) provide additional infmmation that is essential to a full understanding of the data provided in the govenm1ent-wide and fund financial statements and should be read with the financial statements. Required supplementary information other than MD&A Governments have an option of including the budgetary comparison statements for the General Fund and major special revenue funds as either part of the fund financial statements within the basic financial statements, or as required supplementary information after the footnotes . The Town has chosen to present these budgetary statements as part of the basic financial statements. Additionally, governments are required to disclose certain inforn1ation about employee pension funds. The Town has disclosed this information in Note 4.C. in the notes to the financial statements. 19 Government-wide Financial Analysis As previously mentioned, net assets may serve over time as useful indicators of a government's financial position. The following table reflects the condensed Statement of Net Assets of the Town for June 30, 2006 compared to the prior year. The combined net assets of the Town increased by 26.4% from $33 .5 million to $42.3 million in fiscal year 2006, a difference of $8.8 million in govenm1ental activities. The Town does not currently have any proprietary or enterprise funds that would otherwise be classified as businesstype activities. All Town funds are considered govenunental activities. T own of F ounta in Hills, Arizona Conde nsed Stateme nt of Net A ssets A s of June 30, 200 6 and 2005 Governmental Activities Assets C UtTent and other assets Capital assets Non-depreciab le Depreciable (net) Total assets $ Percent Change 2006 2005 24,58 1,682 $ 18,958,084 23,57 1,668 24,947.862 73, 101.2 12 30,267,560 16,256,985 65,482,629 (22. 1) 53.5 11.6 29.7% Liabilities Other liabilities Non-cuJTent liabilities Due within one year Due in more than one year Total liabil ities 4,828,94 1 4, 11 3,074 17.4 1,968,496 23.997.510 30.794 947 1,996,478 25,9 12.107 32.02 1,659 (1.4) (7.4) (3 .8) Net assets Invested in capital assets, net of related debt Restricted Unrestricted Total net assets 20,806,507 12,446, 147 9.053.61 1 42.306.265 $ 17,495,539 5, 144,127 I 0,82 1.304 33.460.970 18.9 141.9 (16.3) 26.4% $ Net Assets consists of tlu·ee components. The largest p011ion of the Town of Fountain Hills net assets (49%) refl ects its investment in capital assets (e.g., land , buildings, machinery and equipment), less any related debt used to acquire those assets that is still outstanding. The Town of Fountain Hills uses these capital assets to provide services to citizens; consequently, these assets are not available for future spending. Although the Town of Fountain Hills' investment in its capital assets is rep011ed net of related debt, it should be noted that the resources needed to repay this debt must be provided from other somces, since the capital assets themselves ca1mot be used to liquidate these liabilities. This categ01y of Net Assets increased $3.3M in FY05 primarily from the investment in the Fountain Hills downtown area, including a new Town Hall. The second portion of the Town of Fountain Hill s' net assets (29%) represents resources that are subject to external and internal restrictions on how they may be used. These assets are restricted for capital projects. 20 The remaining balance of umestricted net assets ($9.1M) may be used to meet the govenunent's ongoing obligations to citizens and creditors. This category decreased by $1.8M in FY06 with the transfer of surplus revenues to capital project funds. At the end of the current fiscal year, the Town of Fountain Hills is able to report positive balances in all three categories of net assets for the government as a whole. Analysis of changes in net assets The table on the next page compares the revenue and expenses for the current and previous fiscal year. The program revenues (charges for services and grants that are clearly identifiable to an operating function) of governmental activities decreased $264,785 (4.1%) overall from the previous year; grants and contributions, however, increased due to additional grant funding. Fees, fines and charges for service revenues decreased with a reduction of building related fees that are collected at the time of permit issuance. Local sales tax from construction is collected during the construction project, therefore, lag as an indicator of building permit activity. Program expenses increased overall 9.9%, particularly in Commwlity Development and Public Safety. The increase in Community Development reflects the internal transfer from Building Safety of two code enforcement officers and hiring of an additional code enforcement officer to increase compliance with Town ordinances. The increase in public safety reflects the ammal increase in the contracts for fire and emergency services with Rural Metro Corporation and Maricopa County Sheriffs Office for law enforcement. Highways and streets increases are the result of the installation of new traffic signal. 21 Town of Fountain Hills, Arizona Changes in Net Assets For the Fiscal Year Ended June 30,2006 and 2005 Governmental Activities 2006 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 Investment earnings Other Total revenues $ Expenses General government Public safety Highways and streets Culture and recreation Conununity deve lopment Interest on Jong-tem1 debt Total expenses Increase in net assets Net assets, beginning of year (as restated) Net assets, end of year $ 4, 133,263 2,022,675 2005 $ 4,490,704 1,692,7 12 237,307 1,648,947 11 ,322,283 5,389,55 1 673 ,35 1 200.92 1 25.390.99 1 2,020,800 9,095,829 4,756,481 395, 124 120.666 22.809.623 3,875,014 5,403 ,620 1,581 ,068 2,576,406 1,812,469 1 297 119 16.545.696 8,845,295 33.460,970 42.306.265 3,766,5 00 5,024,686 1,281 ,061 2,362,66 1 1,460, 181 1.162.796 15,057.885 7,75 1,738 25,709.232 33.460.970 $ Percent Change (8.0)% 19.5 N/A (18.4) 24.5 13.3 70.4 66.5 11.3 2.9 7.5 23.4 9.0 24. 1 11.6 9.9 14. 1 30.2 26.4% Governmental activities. An analysis of govenm1ental fund revenues and expenditures has been presented in this discussion and analysis and comparative analysis of government-wide revenues and expenditures. Govenm1ental activities account for 100% of the total revenues and expenditures of the Town. The following graph illustrates that the largest financing source for the Town of Fountain Hills is the local sales tax (45%); state shared revenues combined account for 21% of the govenm1ent-wide revenue sources. RFH:'\ 1.'£ S.Ot'RO:S fi ; ral Y~.w !00~ GO\'F:R '\~IJ::\T -"IDE l!-:1.11~!.4:. 22 Financial analysis of the Town's funds The focus of the Town ' s governmental funds is to provide infonnation on near-te1111 inflows, outflows, and balances of resources that are available for spending. Such information is useful in assessing the Town's financing requirements. In pat1icular, umeserved fund balance may serve as a useful measure of a gove1nment' s net resources available for spending at the end of the fiscal year. Types of Govermnental funds reported by the Town include the General Fund, Special Revenue Funds, Excise Tax Funds, Debt Service Funds and Capital Project Funds. As a measure of the General Fund's liquidity, it may be useful to compare both General Fund balance and total fund balance to total fund expenditures. The size of the Town's fund balances can affect its ability to meet special needs and withstand financial emergencies. Available fund balance can be used to fund capital purchases without having to bon·ow. General Fund balance represents 32 percent of total fund expenditures, while total fund balance represents 93 percent of that same amount. Funds in excess of the policy target are typically progranm1ed in the subsequent year to support the Town's Capital Improvement Program and to fund one-time expenditures. The fund balance of the govermnental funds is $19.1 million, an increase of $4.7 million, or 33%, from the previous year. Of this, $14,393 is classified as "Reserved" because it is not appropriable for expenditure or is legally segregated for a specific future use. Approximately 34% of this total amount ($6.5 million) constitutes General Fund balance. The increase in total fund balance and restricted fund balance is largely due to increased construction related revenues (sales tax and permit fees). An additional $6.7 million of the governmental fund balance has been designated or committed for specific purposes by council policy; these designations include current capital projects and equipment replacement reserves. At fiscal year-end 2005-2006 fund balances were as follows: Balance Fund General Fund General Obligation Debt Service Fund Municipal Property Corporation Debt Service Fund Development Fees Fund Capital Projects Fund Nomnajor Govemmental Funds 23 $ Increase (Decrease) From 2004-05 6,530,248 202,347 $ (2,552, 195) (163 ,432) 736,570 2,749,028 6,747,238 2, 110,964 458,260 319,803 6,747,238 (65 ,122) During FY2005-06 the Town Council adopted a policy that authorized the transfer of any unreserved, undesignated or designated fund balance to the Capital Projects Fund; subsequently, the General Fund balance declined by $2.6M of surplus revenues from the prior fiscal year and the Capital Proj ects Fund increased accordingly in addition to the surplus from the current fiscal year (please refer to page 17). An additional $ 1.6M was transfen·ed from the Excise Tax Fund to complete a downtown capital project. Development fees consist of govemmental impact fees for streets and highways, parks and recreation, law enforcement, general govemment and open space. This is a restricted fund and may only be appropriated for capital items for which they were imposed. The fund balance as of June 30, 2006 in this fund is $2.7 million; expenditures were made in FY2005 for traffic signals, open space/trailhead design and a recreation splash park at Fountain Park. All Nonmajor Govenm1ental Funds of the Town are combined into one column on the govemmental fund statements. The decrease in fund balance for this group of funds is attributed to the use of accumulated reserves that were applied to a restructuring debt transaction ($ 1.5M) within the excise tax fund. The four-tenths Excise Tax (Sales Tax) Fund is dedicated by the Town Council for downtown development and debt payments for the Municipal Propetiy Corporation (transfers to debt service). Revenues in this fund increased over the prior year with the increase in construction related activity. Operating expenditures are for the coordinator for economic development in the Town's downtown core. Nonmajor governmental funds of the Town also include the Highway User Revenue Fund that is required by state statute to track the state allocation of gasoline taxes and other state revenues shared with local governments. HURF funds are required to be used for transpmiation purposes. Revenue in this fund increased $73,744 (4%) in fiscal year 2006 with an increase in state shared revenues. Special Revenue (comi and grants) as well as non-general obligation debt service are also included within this group. Budgetary highlights The Town's annual budget is the legally adopted expenditure control document of the Town. Budgetary comparison statements are required for the General Fund and all major special revenue funds and may be found on page 36. This statement compares the original adopted budget, the budget if amended throughout the fiscal year, and the actual expenditures prepared on a budgetary basis. The Town did not amend its budget during the fisca l year. 24 General Fund revenues of $17.7 million, on a budgetary basis, exceeded budgeted revenues by $1.8 million while budgetary basis expenditures of $12.6 million were only 87% of budgeted expenditures (savings of $1.9 million). The excess of revenues over budgeted revenues is primarily due to better than expected construction related activity, for both building pem1its and local sales tax revenues, primarily from condominium construction. The expenditure savings were derived from withholding a sales tax refund claim included in the budget that is being litigated and included in the FY06-07 budget. Other savings were due to the early payoff of a development agreement with the Target shopping Center. Additionally, an appropriation was included for a claim by the old Town Hall landlord for rent and property taxes that is also canied over to the cunent fiscal year. Capital asset and debt administration The Town's capital assets for its govenm1ental activities as of June 30, 2006 amount to $48.5 million (net of accumulated depreciation), a net increase from 2005 of 4.3%. For govenm1entwide financial statement presentation, all depreciable capital assets were depreciated from acquisition date to the end of the current fiscal year. Fund financial statements record capital asset purchases as expenditures. See Note 3 in the Notes to the Basic Financial Statements for further information regarding capital assets. Capital assets include land, buildings and improvements, machinery and equipment, roads and improvements, vehicles, office and computer equipment. During fiscal year 2005-2006 the annual depreciation expense was $1,127,927. The following table provides a comparison of current and prior year capital assets. Town ofFountain Hil ls, Arizona Capital Assets (Net) June 30, 2006 and 2005 Governmental Activities 2006 Land $ 23,57 1,668 Construction in progress 16,448,465 Buildings and improvements Improvements other than buildings 6,71 1,069 Infrastructure 870,250 Furniture, machinery and equ ipment 690,231 227.847 Vehicles $ 48.519.530 25 2005 $ 23,571 ,668 6,695,892 9, 128,812 5,814,099 483,162 460,889 370.023 $ 46.524.545 Percent Change % 80.2 15.4 80. 1 49.8 (38.4) 4.3% Long-term debt The Town 's outstanding non-cunent liabilities, including bonds and compensated absences, were $26 million at June 30, 2006, all in governmental activities. The Town's outstanding debt decreased $1.9 million in fiscal year 2006. The Town issued $17M in refunding General Obligation and Municipal Property bonds in June and July, 2005 in order to take advantage of the more attractive interest rates. At the end of the cmTent fiscal year, the Town of Fountain Hills had total long-term obligations outstanding of $26 million. Of the outstanding debt, $8.4 million All other is General Obligation bonds backed by the full faith and credit of the Town. outstanding debt is secured by pledges of specific revenue sources of the Town. The State imposes certain debt limitations on the Town of six percent (6%) and twenty percent (20%) of the outstanding secondruy net assessed valuation of the Town. The Town's available debt margin at June 30,2006 is $19.8 million in the 6% capacity and $68.0 million in the 20% capacity. Additional infonnation on the debt limitations and capacities may be found in the statistical section ofthis report (page 89). The following schedule shows the outstanding debt of the Town (both current and long-term) as of June 30, 2005 and 2006. Further detail on the Town's outstanding debt may be found in Note 3.C. on pages 48- 50. Town of Fountain Hills, Arizona Outstanding Debt June 30, 2006 and 2005 Governmental Activities 2006 $ 8,434,328 General Obligation Debt 455,000 Highway User Revenue Bonds 9,681 Special Assessment Debt Community Facilities District Debt 4,415,000 Municipal Property Corporation Debt 12,434,014 217 983 Compensated Absences $ 25,966.006 2005 $ Percent Change 9,607,162 540,000 12,909 (12.2)% (15. 7) (25.0) 4,455,000 (0.9) 13,108,935 184.579 $ 27.908.585 (5.1) 18.1 (7.0)% The Town cuiTently maintains a rating on its general obligation debt of Aa3 from Moody's Investor Services. 26 Economic factors and next year's budgets and rates The regional economy remains strong, fueled by the real estate market, strong population growth and increased personal income. Within Fountain Hills, the Town remains dependent on state shared revenues (29%) and local sales taxes for resources (44%) that are sensitive to economic downturns and legislative appropriations. Fountain Hill s' economic activity is fueled primarily by the construction industry as development of custom homes continues before build-out is reached. The budget for fiscal year 2005-2006 includes resources targeted towards econom ic development in the downtown area (Avenue of the Fountains). A pmiion ofthe local sales tax is segregated and intended to focus on developing the downtown area to promote economic development. Financial contact This financial report is designed to provide a general overview of the Town' s finances for all of those with an interest in govenunent' s finances and to demonstrate accountability for the use of public funds. Questions about any of the information provided in this report, or requests for additional financial information should be addressed to: Town of Fountain Hills Finance Depruiment 16705 E. Avenue ofthe Fountains Fountain Hills, AZ 85268 Or visit our website at: http:/ /www.fh.az.gov 27 THIS PAGE BLANK 28 Basic Financial Statements 29 TOWN OF FOUNTAIN HILLS, ARIZONA STATEMENT OF NET ASSETS JUNE 30, 2006 Governmental Activities Assets Cash and equivalents Cash with paying agent Receivables, net Accounts receivable Taxes receivab le Intergovernmental receivable Special assessments receivable Inventories Prepaid items Deferred charges Capital assets Non-depreciable Depreciable (net) $ 19,452,083 2,578,729 48 1,320 28,754 1,59 1,418 4, 108 12,444 1,949 430,877 23,57 1,668 24.947.862 Total assets 73.101.2 12 Liabilities Accounts payable Contracts payable Interest payable Deposits payable Due to deve lopers and CFD Matured debt principal payab le Noncurrent liabilities Due within one year Due in more than one year 1,968,496 23.997.5 10 Total liabilities 30.794.947 1,930,243 6 1, 142 586,562 22,000 263,994 1,965,000 Net assets Invested in capital assets, net of related debt Restricted for Publ ic safety Highways and streets Debt service Capita l outlay Other Unrestricted 20,806,507 163,082 1, 102,905 1,098,447 9,396,266 685,447 9.053.6 11 $ Tota l net assets 42.306.265 The notes to the financia l statements are a n integral patt of this statement. 30 TOWN OF FOUNTAIN HILLS, ARIZONA STATEMENT OF ACTIVITIES FOR THE FISCAL YEAR ENDED JUNE 30, 2006 Net (Expenses) Revenue and Changes in Net Assets Program Revenues Fees, Fines and Charges for Services Expenses Functions/Programs Governmental activities General government Public safety Highways and streets Culture and recreation Community development Interest on long-term debt Totals $ $ 3,875,014 5,403,620 1,581 ,068 2,576,406 1,812,469 1.297.119 $ 16.545.696 $ 4,029,437 Operating Grants and Contributions $ $ - Capital Grants and Contributions 336,584 1,686,091 16,881 65,798 $ - - - 21.147 4.133.263 - - Totals - $ 2.022.675 $ (I 0.389. 758) General revenues Taxes Sales taxes Property taxes Franchise taxes State revenue sharing- unrestricted State sales tax revenue sharing - unrestricted Auto lieu tax revenue sharing - unrestricted investment earnings Other Total general revenues 11 ,007.924 1,648,947 314,359 2,244,159 2, 170,940 974,452 673,351 200.921 19.235.053 Change in net assets 8,845,295 33.460.970 Net assets, beginning of year Net assets, end of year The notes to the fmancial statements are an integral part of this statement. 3I 154,423 (5,067,036) 12l,904 (2,51 0,608) ( 1,812,469) ( 1.275.972) $ 42.306.265 TOWN OF FOUNTAIN HILLS, ARIZONA BALANCE SHEET GOVERNMENTAL FUNDS JUNE 30, 2006 General Assets Cash and equivalents Cash with paying agent Accounts receivable Taxes receivable Intergovernmental receivable Special assessments receivable Inventories Prepaid items Total assets General Obl igation Debt Service $ 5,938,981 $ 3 13,083 11 ,929 I, 188,570 Municipal Property Development Fees CO!J20ration 205,962 $ 1,293 ,429 Capital Projects 7 14,652 $ 3, 187,877 $ 7,096,786 960,566 8,541 25,601 12,444 1.949 $ 7.466.956 $ 1.533.533 $ 1.675.2 18 $ 3. 187.877 $ 7,096.786 Liabilities a nd F und Bala nces Liabilities Accounts payable Contracts payable Interest payable Deferred revenue Deposits payable Due to developers and C FD Matured debt principal payable Total liabi lities Fund balances Reserved for inventories Reserved for prepaid items Unreserved Unreserved, reported in nonmajor Special revenue funds Debt service funds Total fund balances Total liabilities and fund balances $ 72 1,778 $ 192,930 22,000 648 $ 5,249 $ 2 18,429 37, 109 268,399 1.075.000 1.331.186 665.000 938.648 278,849 $ 288,406 61 , 142 12,444 1,949 6,515,855 202,347 736,570 $ 2,307,825 324,734 168,237 8,284 377,247 4, 108 $ $ 3.190.435 $ $ $ 635,3 13 438 849 2,749,028 349.548 103,994 225.000 1.079.47 1 6, 747,238 6.747.238 $ 7.466.956 $ 1.533.533 $ 1.675.2 18 $ 3. 187.877 $ 7.096.786 $ 3.190.435 202.347 736.570 2.749.028 The notes to the financial statements are an integral part of this statement. 32 19,452,083 2,578,729 48 1,320 28,754 1,59 1,4 18 4, 108 12,444 1.949 24.150.805 1,930,243 6 1, 142 586,562 245,469 22,000 263,994 1.965.000 5.074.4 10 12,444 1,949 16,95 1,038 1,95 1,434 159.530 2. 110.964 6.530.248 Totals 99,734 15,430 160,000 936.708 Nonmajor Governmental Funds 1,95 1,434 159.530 19.076.395 $ 24.150.805 TOWN OF FOUNTAIN HILLS, ARIZONA RECONCILIATION OF THE BALANCE SHEET TO THE STATEMENT OF NET ASSETS GOVERNMENTAL FUNDS JUNE 30, 2006 $ Fund balances - total governmental funds 19,076,395 Amounts reported for governmental activities in the statement of net assets are different because: Property taxes and special assessments not collected within 60 days subsequent to fisca l year-end are deferred in the govem mental fi.mds. 55,700 Capital assets used in governmental activities are not financia l resources and therefore are not reported in the governmental funds. Governmental capital assets Less accumulated depreciation Capital assets used in govern mental activities 55,656,739 (7.137.209) 48.5 19.530 Other long-term assets are not availab le to pay for current-period expenditures and are no t susceptible to accrual. 189,769 Long-term liabilities, including bonds payable, are not due and payable in the current period and therefore are not repo1ied in the governmental funds. General obligation bonds Revenue bonds Special assessment debt with government commitment Community facili ti es d istrict bonds payable Deferred amount on the refunding Defe1Ted amount on the bond premium Deferred issuance costs Compensated absences ( I0,055,000) ( 12,3 I 0,000) (9,681) (4,4 15,000) 1, 165,672 ( 124,0 14) 430,877 (217.983) $ Net assets of governmental activities The notes to the financial statements are an integral patt of this statement. 33 42.306.265 TOWN OF FOUNTAIN HILLS, ARIZONA STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS FOR THE FISCAL YEAR ENDED JUNE 30, 2006 General Revenues Taxes Sales taxes Property ta'l:es Franchise taxes Intergovernmental Fines and forfeitures Licenses and penn its Charges for services Rents and royalties Special assessments Investment earnings Other Total Revenues $ General Obligation Debt Service 8,786, 172 $ Municipal Property Coq~oration $ Development Fees $ Non major Govemmental Funds Capital Projects $ 528,225 $ 1,325,58 1 314,359 5,389,55 1 2 14,008 1,9 18, 107 251 ,538 255,527 303,834 228.450 17.661.546 Expenditures Current General government Public safety Highways and streets Culture and recreation Community development Debt Service Principal retirement Interest on long-term debt Issuance costs Advance refunding escrow Total Expenditures 1,424,706 29,37 1 1.036 1.355.988 5.097.865 12,802 11 3,870 105, 176 34.658 1.538.576 633.40 1 21 , 147 86,442 4.079 4.207.726 12,415 5,562 413,595 542,35 1 649,649 289,903 959,92 1 1,708,39 1 64,690 1,968,228 1, 192,414 232,762 300.000 20.903.562 665,000 546,576 1.519.420 1.2 11.576 973.923 1.609.570 228,228 201,418 232,762 300.000 3.025.392 (1.176.918) 564.653 (976. 169) 1. 182.334 4.528.333 77 1,0 16 (2,234,69 1) 4,555,000 10, 146,663 (I 0, 146,663) 4,555 ,000 (4.338.78 1) 216.219 ( 163.432) (7,650,060) 1,652,240 (17,062) (244,850) (7.650.060) 1.635.178 (244.850) 7.723.407 (4.338.78 1) ( 1.24 7.456) Net change in fund balances (2,552, 195) ( 163,432) 458,260 3 19,803 6,747,238 (65, 122) 9.082.443 365.779 278.3 10 2.429.225 6.530.248 $ 202.347 $ 736.570 $ 2.749.028 $ Fund balances, end of year $ 4,459, 183 5,208,770 2, 12 1,986 3,607, 750 I ,812,469 1,075,000 444,420 Other financing sources (uses) Transfers in Transfers out Issuance of refunding debt Payment to refunded debt escrow agent Total other financing sources (uses) Fund balances, beginning of year 11,007,924 1,67 1,593 3 14,359 7,4 12,226 235,050 1,918, 107 1,689,046 255,527 2 1, 147 673 ,35 1 233.565 25.43 1.895 34,658 2,040,788 1,8 12,469 Excess (deficiency) of revenues over expenditures $ 2,022,675 2 1,042 3,507,216 5,203,208 12.563.68 1 1,693,527 346,012 Totals 7,723,407 2.176.086 6.747.238 The notes to the financial statements are an integral patt of thi s statement. 34 4,744,552 $ 2.1 10.964 14.33 1.843 $ 19.076.395 TOWN OF FOUNTAIN HILLS, ARIZONA RECONCILIATION OF THE STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES TO THE STATEMENT OF ACTIVITIES GOVERNMENTAL FUNDS FOR THE FISCAL YEAR ENDED JUNE 30, 2006 Net change in fund balances - total governmental fu nds $ 4,744,552 Amounts reported for governmental activities in the statement of act ivities are different because: Governmental fund s report cap ital outlays as expenditures. However, in the statement of activities the cost of those assets is allocated over their estimated useful li ves and reported as depreciation expense. 3, 122,9 12 ( 1.1 27.927) 1.994.985 Expend itures for capital assets Less current year depreciation Excess capital expenditures over deprec iation Some revenues reported in the statement of activities do not provide current fin anc ial resources and therefore are not reported as revenues in governmental fund s. C ourt fin es Property taxes ( 18,258) (22,646) The issuance of long-term debt (e.g. bonds, leases) provides current financial resources to governmental funds, while the repayment of the principa l of long-term debt consumes the current financ ial resources of governmental fund s. Neither transaction, however, has any effect on net assets. The issuance of longterm debt increases lo ng-tern1 liabilities on th e statement of net assets and the repayment of principal o n long-tenn debt reduces long-term debt o n the statement of net assets. Also, governmental fun ds report the effect of issuance costs, premiums, discounts, and simil ar items when the debt is first issued, whereas these items are deferred and amortized over the term of the long-term debt in the statement of acti vities. Principal payments on long-term debt Issuance costs Proceeds of refunding debt issuance Payment to refun ded debt escrow agent Amortizatio n of issuance costs Amortization of deferred amount on the premium and th e refunding 1,968,228 232,762 (4,555,000) 4,638,78 1 (28,679) (76,026) Some expenses reported in the statement of activities do not require the use of current financial resources and therefore are not reported as expenditures in the governmenta l fu nds. (33.404) Net increase in compensated absences $.====:f 8~.8::; 45;;,;;.2f:::!9~5 Change in net assets of governmental acti vities The notes to the financial statements are an integral part of this statement. 35 TOWN OF FOUNTAIN HILLS, ARIZONA GENERAL FUND STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES - BUDGET AND ACTUAL FOR THE FISCAL YEAR ENDED JUNE 30, 2006 Original and Final Budget Revenues Taxes Intergovemmental Fines and forfeitures Licenses and permits Charges for services Rents and royalties Investment earnings Other Total Revenues $ Expenditures Current General govemment Mayor and Town Council Magistrate Court General and Administrative Information Technology Operational Support Total general govemment Public safety Building Safety Law Enforcement Fire Department Total public safety Culture and recreation Parks and Recreation Desert Vista Park Golden Eagle Park Fountain Park Four Peaks/Pal isades Court Community Center Senior Services Total cu lture and recreation Community development Planning and Zoning Public Works Total community development Total Expenditures Excess (deficiency) of revenues over expenditures Other financing sources (uses) Transfers out Total other financ ing sources (uses) 8,092,000 4,975,159 236,240 1,775, 165 318,450 227,002 130,000 102. 148 15.856. 164 Actual $ Fund balances, end of year 652,845 1,903,894 2.698.593 5.255.332 583,804 1,907,0 I5 2. 712.389 5.203.208 69,04 1 (3 , 12 1) (13.796) 52. 124 597,714 87,250 396,620 362,700 225,390 484,824 174.400 2.328.898 557,235 38,069 40 1,743 275,442 193,6 19 44 1,75 1 132.929 2.040.788 40,479 49, 18 1 (5 , 123) 87,258 3 1,77 1 43,073 4 1.4 71 288. 11 0 742,240 1.361.804 2. 104.044 14.507.992 745,675 1.066.794 1.8 12.469 12.563.68 1 (3 ,435) 295.0 10 291.575 1.944.3 11 1.348. 172 5.097.865 3.749.693 ( 1.348. 172) ( 1.348. 172) {7.650.060) (7.650.060) (6.30 1.888) (6.30 1.888) (2,552, 195) (2,552, 195) 9.082.443 2.689.920 6.392.523 $ 6.530.248 The notes to the financial statements are an integral part of this statement. 36 1,008,53 1 414,392 (22,232) 142,942 (66,9 12) 28,525 173,834 126.302 1.805.382 79,268 340,291 1,265,041 330,206 1.492.4 10 3.507.2 16 6.392.523 $ $ I 10,663 362,275 1,284,308 36 1,455 2.70 1.017 4.819.718 Net change in fund balances Fund balances, beginning of year 9, I 00,53 1 5,389,551 2 14,008 1,918, 107 25 1,538 255,527 303,834 228.450 17.661.546 Variance with Final Budget 3 1,395 2 1,984 19,267 3 1,249 1.208.607 1.3 12.502 $ 137.725 TOWN OF FOUNTAIN HILLS, ARIZONA NOTES TO THE BASIC FINANCIAL STATEMENTS FISCAL YEAR ENDED JUNE 30, 2006 NOTE 1 -SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accompanying basic financial statements of the Town of Fountain Hills, Arizona (Town) have been prepared in conformity with U.S. generally accepted accounting principles applicable to govenm1ental units adopted by the Govenm1ental Accounting Standards Board (GASB). A smmnary of the Town's more significant accounting policies follows. A. Reporting entity The Town is a municipal govenunent that is governed by a separately elected governing body. It is legally separate from and fiscally independent of other state and local goverru11ents. The accompanying financial statements present the Town and its component units, entities for which the Town is considered to be financially accountable. Blended component units, although legally separate entities, are, in substance, part of the Town's operations. Included within the reporting entity: The Eagle Mountain Community Facilities District and the Cottonwoods Improvement District. As special purpose districts and separate political subdivisions under the Arizona Constitution, the Districts can levy taxes and issue bonds independently of the Town. Property owners in the designated areas are assessed for District taxes and thus for the costs of operating the Districts. The Town Council serves as the Board of Directors; however, the Town has no liability for the Districts' debt. For financial reporting purposes, transactions of the Districts are combined together and included as if they were pari of the Town's operations. A separately issued annual financial repmi was issued for the Eagle Mountain Community Facilities District and is available at Town Hall. Town of Fountain Hills, Arizona Municipal Property Corporation. The Town of Fountain Hills, Arizona Municipal Prope1iy Corporation's (MPC) board of directors consists of three members which m·e appointed by the Fountain Hills Town Council. The MPC, which is a nonprofit corporation incorporated under the laws of the State of Arizona, was formed for the sole purpose of assisting the Town in obtaining financing for various projects of the Town. The Town has a "moral obligation" for the repayment of the MPC's bonds. For financial reporting purposes, transactions of the MPC are combined together and included as if they were pmi ofthe Town's operations. 37 TOWN OF FOUNTAIN HILLS , ARIZONA NOTES TO THE BASIC FINANCIAL STATEMENTS FISCAL YEAR ENDED JUNE 30, 2006 B. Government-wide and fund financial statements The government-wide financial statements (i.e., the statement of net assets and the statement of activities) rep01i inforn1ation on all of the nonfiduciary activities of the primary govermnent and its component units. The effect of interfund activity has been removed from these statements. Governmental activities are normally supported by taxes and intergovernmental revenues. 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. Major individual govemmental funds are rep01ied as separate colurm1s in the fund basic financial statements. C. Measurement focus, basis of accounting, and fmancial statement presentation The goverrunent-wide financial statements are rep01ied 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 incuned, 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 Town 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 incuned, 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-tern1 principal and interest due early in the following year, the expenditures and related liabilities have been recognized in the Debt Service Fund. 38 TOWN OF FOUNTAIN HILLS, ARIZONA NOTES TO THE BASIC FINANCIAL STATEMENTS FISCAL YEAR ENDED JUNE 30, 2006 Propetty taxes, intergovenm1ental 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 cunent fiscal period . All other revenue items are considered to be measurable and available only when cash is received by the government. The Town repmts the following major governmental fund s: The General Fund is the Town's primary operating fund . It accounts for all financial resources of the Town, except those required to be accounted for in another fund. The General Obligation Debt Service Fund accounts for the Town's propetty tax revenues received to pay the debt service of the Town's general obligation bonds. The Municipal Property Corporation Debt (MPC) Service Fund accounts for the revenues received to pay the debt service on MPC revenue bonds. The Development Fees Fund accounts for development fees collected from developers restricted for proj ects approved by the Town Council. The Capital Projects Fund accounts for the Capital improvements to various projects ofthe Town. As a general rule the effect of interfund activity has been eliminated from the govenunent-wide financial statements. However, services provided and used are not eliminated in the process of consolidation. Amounts reported as program revenues include 1) fees, fi nes and charges for services, 2) operating grants and contributions, and 3) capital grants and contributions. Internally dedicated resources are reported as general revenues rather than as program revenues. Likewise, general revenues include all taxes. When both restricted and unrestricted resources are available for use, for goverrunental activities, it is the Town's policy to use restricted resources first, then unrestricted resources as they are needed. 39 TOWN OF FOUNTAIN HILLS, ARIZONA NOTES TO THE BASIC FINANCIAL STATEMENTS FISCAL YEAR ENDED JUNE 30, 2006 D. Assets, liabilities, and net assets or equity 1. Deposits and investments The Town's 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 oftlu·ee 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 eamed from investments purchased with such pooled monies is allocated to each of the funds based on the average daily cash balances. State statutes authorize the Town to invest in obligations of the U.S. Treasury and U.S. agencies, certificates of deposit in eligible depositories, repurchase agreements, obligations of the State of Arizona or any of its counties or incorporated cities, towns or duly organized school districts, improvement districts in tllis state and the State Treasurer's Local Government Investment Pool. Investments are stated at fair value. 2. Receivables All trade and property taxes receivables are shown net of an allowance for uncollectibles. Maricopa County levies real 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. Short-term interfund receivables/payables During the course of operations, individual funds witllin the Town's pooled cash accounts may bonow money from the other funds within the pool on a short-term basis. These receivables and payables are classified as "due from other funds" or "due to other funds" on the balance sheet of the fund financial statements and are eliminated in the preparation of the govemment-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 of govenunental funds are recorded as expenditures when consumed rather than when purchased. 40 TOWN OF FOUNTAIN HILLS, ARIZONA NOTES TO THE BASIC FINANCIAL STATEMENTS FISCAL YEAR ENDED JUNE 30, 2006 Cetiain payments to vendors reflect costs applicable to future accounting periods and are recorded as prepaid items in both goverrunent-wide and fund financial statements. 5. Capital assets Capital assets, which include property, plant, and equipment, are reported in the governmental activities column in the govenm1ent-wide financial statements. Capital assets are defined by the Town as assets with an initial, individual cost of more than $10,000 and an estimated useful life in excess of one year. Propetiy, plant and equipment purchased or acquired is canied 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. General infrastructure assets acquired prior to July 1, 2002 are not repmied in the basic financial statements. Those assets will be transitioned in over the next two fiscal years in accordance with GASB Statement No. 34. Depreciation on all assets is provided on a straight-line basis over the following estimated useful lives: Buildings and improvements Improvements other than buildings Infrastructure Furniture, machinery and equipment Vehicles 6. 50 years 20 years 50 years 5 years 5 years Compensated absences The liability for compensated absences reported in the government-wide 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 tennination payments and other employees who are expected to become eligible in the future to receive such payments upon termination are included. 41 TOWN OF FOUNTAIN HILLS, ARIZONA NOTES TO THE BASIC FINANCIAL STATEMENTS FISCAL YEAR ENDED JUNE 30, 2006 7. Long-term obligations In the govenunent-wide financial statements, long-tenn debt and other long-tem1 obligations are reported as liabilities in the applicable governmental activities. Bond premiums and discounts, as well as issuance costs, are defened and 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 reported as deferred charges and ammtized over the term of the related debt. The Town did not have ·any premiums, discounts or issuance costs related to any outstanding bonds. In the fund financial statements, govenm1ental fund types recognize bond premiums and discounts, as well as bond issuance costs, during the cunent period. The face amount of debt issued is repmted 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 repmted as debt service expenditures. 8. Net assets In the goverrunent-wide financial statements, net assets are repmted in tlu·ee categories: net assets invested in capital assets, net of related debt; restricted net assets; and umestricted net assets. Net assets invested in capital assets, net of related debt is separately repmted because the Town reports all Town assets which make up a significant pmiion of total net assets. Restricted net assets account for the portion of net assets restricted by parties outside the Town. Umestricted net assets are the remaining net assets not included in the previous two categories. 9. Fund equity In the fund financial statements, govenm1ental funds report reservations of fund balance for amounts that are not available for appropriation or are legally restricted by outside parties for use for a specific purpose. Designations of fund balance represent tentative management plans that are subject to change. 42 TOWN OF FOUNTAIN HILLS, ARIZONA NOTES TO THE BASIC FINANCIAL STATEMENTS FISCAL YEAR ENDED JUNE 30, 2006 NOTE 2- STEWARDSHIP, COMPLIANCE, AND ACCOUNTABILITY A. Budgetary information The Town Council follows these procedures in establishing the budgetary data reflected in the financial statements: 1. In accordance with Arizona Revised Statutes, the Town Manager submits a proposed budget for the fiscal year conm1encing the following July 1 to the Town 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. State law requires that, prior to April 1, the Economic Estimates commission provides the Town with a final expenditure limit for the coming fiscal year. To ensure compliance with the expenditure limitation, a uniform expenditure report must be filed with the State each year. This repmi, issued under a separate cover, reconciles total Town expenditures from the basic financial statements to total expenditures for repmiing in accordance with the State's uniform expenditure repotiing system (A.R.S. §41-1279.07). 4. By Arizona Constitution, expenditures may not legally exceed the expenditure limitation described below of all fund types as a whole. For management purposes, the Town adopts a budget by depmiment for the General Fund and in total by fund for other funds . The Town Manager, subject to Town Council approval, may at any time transfer any unencumbered appropriation balance or pmiion thereof between departments. The adopted budget cannot be amended in a11y way without Town Council approval. 5. Legal budgets are adopted 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, with the exception of the Criminal Enhm1cement Justice Fund and Capital Projects Fund for which a budget was not prepm·ed. The Town is subject to the State of Arizona's Spending Limitation Law for Towns and Cities. This law does not permit the Town to spend more than budgeted revenues plus the can-yover umestricted cash balance from the prior fiscal year. The limitation is applied to the total of the combined funds. The Town complied with this law during the year. 43 TOWN OF FOUNTAIN HILLS, ARJZONA NOTES TO THE BASIC FINANCIAL STATEMENTS FISCAL YEAR ENDED JUNE 30, 2006 No supplementary budgetary appropriations were necessary during the year. B. Excess of expenditures over appropriations Expenditures exceeded appropriations in the following funds: Amount of Overexpenditure General Fund: Law Enforcement Fire Depatiment Golden Eagle Park Plmming and Zoning General Obligations Debt Service Fund Capital Projects Fund Local Comi Enhancement Fund Eagle Mountain Debt Service Fund $ 3, 121 13,796 5, 123 3,435 136,420 312,070 4,950 193, 105 During the fiscal year 2005-06, the Town refinanced General Obligation bonds for long-term savings; the transaction resulted in costs of issuance over and above the budget for ammal debt service interest. Capital improvements for the Downtown area were anticipated to be expended within the Excise Tax Fund; however, the project was transfened to the Capital Projects Fund, accounting for the overexpenditure. Cash was available to cover all of the overexpenditures listed above. 44 TOWN OF FOUNTAIN HILLS, ARIZONA NOTES TO THE BASIC FINANCIAL STATEMENTS FISCAL YEAR ENDED JUNE 30, 2006 NOTE 3- DETAILED NOTES ON ALL FUNDS A. Assets 1. Deposits and investments Deposits and investments at June 30, 2006 consist of the following: Deposits Cash on hand Cash in bank Cash on deposit with paying agent Investments Money Market Mutual Fund U.S. Govenunent Securities State Treasurer's Investment Pool Cash on deposit with Trustee $ 4,594 147,469 2,578,729 396,468 8,751 18,790,807 103 994 Total cash and investments 22,030,812 Cash on deposit with paying agent Total cash and equivalents (2.578.729) 19,452.083 $ Deposits - The Town's deposits at June 30, 2006, were entirely covered by federal depository insurance or by collateral held by the Town's custodial bank in the Town's name. The Town's deposits are not subject to custodial credit risk. Investments - The State Board of Deposit provides oversight for the State Treasurer's pools, and the Local Govenunent Investment Pool Advisory Conunittee provides consultation and advice to the Treasurer. The fair value of a participant's position in the pool approximates the value of that patticipant's pool shares. The shares are not identified with specific investments and are not subject to custodial credit risk. In addition, the money market mutual fund is not subject to custodial credit risk. All other investments of the Town are uninsured and umegistered with the securities held by the counterpruty's trust department or agent in the Town's nan1e. Interest rate risk. In accordance with its investment policy, the govemment manages its exposure to declines in fair value by limiting the average maturity of its investments to less than one year. 45 TOWN OF FOUNTAIN HILLS, ARIZONA NOTES TO THE BASIC FINANCIAL STATEMENTS FISCAL YEAR ENDED JUNE 30, 2006 Custodial credit risk. The U.S. Govenunent Securities and the State Treasurer's Investment Pool are not subject to the custodial credit risk; the investment in the State Treasurer's Investment Pool and the U.S. Government securities are not given a quality credit rating by a national credit rating agency. The money market mutual funds are invested in Fmmie Mae Securities and have a AAA Standard and Poor's rating. The amount deposited with the Trustee represents the July 1 principal and interest payments due on outstanding bonds. The investment does not pose m1y custodial credit risk as the funds are invested for less than one day to make the required principal and interest payments. Concentrations of credit risk. The Town's investment policy does not allow the Town to invest in securities that are not insured, umegistered or backed by U.S. government securities. 2. Receivables Court fines are recorded net of uncollectible atnounts in the govenunent-wide statements and are recorded as a receivable and a deferred revenue in the fund financial statements because the comi fines did not meet the revenue recognition criteria under the modified accrual basis of accounting. The total receivable at June 30, 2006 was $237,21 1, which was reduced by $47,442 for uncollectible amounts resulting in a net receivable balance at June 30,2006 of$189,769. Govenunental fund s repmi deferred revenue in cmmection with receivables for revenues that are not considered to be available to liquidate liabilities of the cunent period. Govenm1ental funds also defer revenue recognition in cmmection with resources that have been received, but not yet earned. At the end of the cmTent fiscal year, the various components of deferred revenue reported in the governmental funds were as follows: Unavailable Delinquent prope1iy taxes receivable (General Fund) DefeiTed court revenue (General Fund) Delinquent property taxes receivable (General Obligation Debt Service Fund) Delinquent property taxes receivable (Nonmajor Govenm1ental Funds) Special assessments receivable (Nonmajor Governmental Funds) $ 189,769 37, 109 10,948 4 482 $ 46 3, 161 245.469 TOWN OF FOUNTAIN HILLS, ARIZONA NOTES TO THE BASIC FINANCIAL STATEMENTS FISCAL YEAR ENDED JUNE 30, 2006 3. Capital assets Capital asset activity for the year ended June 30, 2006 was as follows: Beginning Balances Increases Decreases E nding Balances Governmental Activities: Capital assets not being depreciated: $ 23 ,571 ,668 Land Construction in progress 6,695 .892 Total capital assets, not being depreciated Capital assets being depreciated: Buildings and improvements Improvements other than buildings Infrastructure Furniture, machinery and equipment Vehicles Total capital assets being depreciated $ 23 ,571 ,668 $ $ 959.92 1 (7,655 .813) 30,267,560 959,921 (7,655,813) 10,098,933 7,655,8 13 17,754,746 8,390,993 521,8 19 1,3 19,867 397,525 9,7 10,860 919,344 1,5 18,647 l, 735,875 35 1,978 93 ,621 1,870,625 1.829.496 22,266,267 9.818,804 32.085,071 23,571,668 Less accumulated depreciation for: Buildings and improvements Improvements other than buildings Infrastructure Furniture, machinery and equipment Vehicles (970, 121) (336, 160) (1,306,281) (2,576,894) (38,657) (422,897) (10,437) (2,999' 791) (49,094) (1,057,758) (1.365,852) (122,636) (235.797) ( 1, 180,394) (1.601.649) Total accumulated depreciation (6.009.282) (1,127.927) (7.137.209) Total capital assets, being dept·eciated, net 16.256,985 8,690,877 24,947,862 Govemmental activities capital assets, net $ 4635243545 $ 936503798 $ (736553813) $ 4835193530 47 TOWN OF FOUNTAIN HILLS, ARIZONA NOTES TO THE BASIC FINANCIAL STATEMENTS FISCAL YEAR ENDED JUNE 30, 2006 Depreciation expense was charged to functions/programs as fo llows: Governmental activities: General govenm1ent Public safety Highways and streets Culture and recreation $ Total depreciation expense-govenunental activities 191 ,894 251 ,873 88,504 595.656 $ 1J 27.927 B. Interfund transfers Interfund transfers for the year ended June 30, 2006 consisted of the following: Transfer In Transfers Out MPC Debt Service Fund $ General Fund MPC Debt Service Fund Development Fees Fund Nonmajor Governmental Funds 1.265.240 $ 1.652.240 387,000 Capital Projects Fund $ 6,659,192 Nonmajor Governmental Funds $ 244,850 819.365 $ 7,723,407 $ 603,868 17,062 Total $ 150,086 7,650,060 17,062 244,850 2.234,69 1 771.0 16 $ I 0, 146 1663 The General Fund transfer of$6,659,192, the Development Fees transfer of$244,850 and the Nomnajor Govenm1ental Funds transfer of $8 19,365 to the Capital Projects Fund were recorded to subsidize the completion of Town Hall facility and to subsidize future proj ects. The transfers of $603,868 from the General Fund and $ 17,062 from the MPC Debt Service Fund to the Nonmajor Govenunental Funds was recorded to reimburse certain expenditures and subsidize street improvements. The transfers of $1,265,240 and $ 150,086 from the Nom11ajor Governmental Funds as well as the $387,000 from the General Fund to the MPC Debt Service Fund and the Nom11ajor Govenunental Funds were recorded to make the debt service payments during the year on outstanding bonded indebtedness. C. Long-term obligations The Town has long-term bonds and special assessments payable issued to provide funds for the acquisition and construction of major capital facilities. The Town has also issued debt to refund earlier obligations with higher interest rates. The debt is repaid by various debt service funds. Compensated absences are paid by the applicable fund where each employee is regularly paid, primarily the General Fund. 48 TOWN OF FOUNTAIN HILLS, ARIZONA NOTES TO THE BASIC FINANCIAL STATEMENTS FISCAL YEAR ENDED JUNE 30, 2006 Special Assessment districts are created only by petition of the Town Council by property owners within the District areas. The Cottonwoods Improvement District was created so the Town could fund improvements. Each of the 54 homeowners within the District has been assessed taxes by the Town for repayment of the bond. In case of default, the Town has the responsibility to cover delinquencies of special assessment bonds with other sources until foreclosure proceeds are received. Conununity facilities districts (CFDs) are created only by petition to the Town Council by property owners within the District areas. As board of directors for the District, the Town Council has adopted a fmmal policy that CFD debt will be pem1itted only when the ratio of full cash value of the District prope1ty (prior to improvements being installed), when compared to proposed District debt, is a minimum of 3 to 1 prior to issuance of debt and 5 to 1 or higher after construction of improvements. These ratios are verified by an appraisal paid for by the District and administered by the Town. In addition, cumulative debt of all CFDs cannot exceed 5 percent of the Town's secondary assessed valuation. Changes in long-term obli gations for the year ended June 30, 2006 are as follows: Increases Jul;i I , 2005 Governmental Activities: Bonds and special assessments General obligation bonds Municipal Property Corporation debt Special assessment debt with government commitment Community Fac ilities District bonds payable Deferred amount on: Refunding Premium Total bonds and special assessment debt Other liabi lities Compensated absences $ 11 ,2 15,000 Decreases $ (1,160,000) $ I 0,055,000 $ Due within One Year June 30 1 2006 $ 1,090,000 12,975,000 (665,000) 12,3 10,000 715,000 12,909 {3,228) 9,681 3,228 4,455.000 4.555.000 (4.595,000) 4.4 15.000 160.000 28,657,909 4,555,000 (6,423,228) 26,789,68 1 1,968,228 85,947 (9,921) ( I, I 65,672) 124.0 14 (183,78 1) ( 1,067,838) 133,935 (85,947) 9.92 1 27,724,006 4,37 1,2 19 (6,347,202) 25,748,023 1,892,202 184 579 253.047 (219.643) 2 I 7,983 76.294 $ 27.908.585 $ 4.624.?66 49 $ (6.566.845) $ 25.966.006 $ 1.968.496 TOWN OF FOUNTAIN HILLS, ARIZONA NOTES TO THE BASIC FINANCIAL STATEMENTS FISCAL YEAR ENDED JUNE 30, 2006 Debt service requirements on long-te1m debt at June 30, 2006 are as follows: Goverrunental Activities Princi12al Interest $ 1,968,228 $ 2,153,227 2,243,226 2,460,000 2,115,000 10,410,000 5.440.000 1,087,408 1,005,049 918,286 825,846 728,703 2,309,750 551.190 $ 26.789,681 7.426.232 Year Ending June 30 2007 2008 2009 2010 2011 20 12- 16 2017-21 $ During the year ended June 30, 2006, the Town issued $4,555,000 in general obligation bonds with an average interest rate of 3.95 percent to advance refund $4,455,000 of outstanding general obligation bonds with an average interest rate 6.43 percent. The net proceeds of $4,322,238 (after payment of $232,762 in underwriting fees, insurance, and other issuance costs) were used to purchase U.S. govenm1ent securities. Those securities were deposited in an in·evocable trust with an escrow agent to provide for all future debt service payments of the refunded general obligation bonds. As a result, the refunded general obligation bonds are considered to be defeased, and the liability for those bonds has been removed from the statement of net assets. The Town advance refunded the general obligation bonds to reduce its total debt service payments over the next 15 years by $996,895 and obtained an economic gain (i.e., difference between the present values of the debt service payments on the old and new debt) of $790,798. NOTE 4- OTHER INFORMATION A. Risk management The Town of Fountain Hills, 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 Town's insurance protection is provided by the Arizona Municipal Risk Retention Pool, of which the Town is a participating member. The limit for basic coverage is for $2,000,000 per occurrence on a claims made basis. Excess coverage is for an additional $ 13,000,000 per occurrence on a follow fonn , claims made basis. No significant reduction in insurance coverage occmTed during the year and no settlements exceeded insurance coverage during any of the past three fiscal years. 50 TOWN OF FOUNTAIN HILLS, ARIZONA NOTES TO THE BASIC FINANCIAL STATEMENTS FISCAL YEAR ENDED JUNE 30, 2006 The Arizona Municipal Risk Retention Pool is structured such that member premiums are based on an actuarial review that will provide adequate reserves to allow the Pool to meet its expected financial obligations. The Pool has the authority to assess its members additional premiums should reserves and annual premiums be insufficient to meet the Pool's obligations. The Town is also insured by Arizona Municipal Workers Compensation Fund for potential worker related accidents. B. Contingent liabilities Accumulated sick leave - Sick leave benefits provide for ordinary sick pay and are cumulative but do not vest with employees and; therefore, are not accrued. Unvested accumulated sick leave of Town employees at June 30, 2006, totaled $3 17,338 . Lawsuits - The Town is a defendant in various lawsuits. In the opinion of the Town's attorney, the outcome of these lawsuits is not presently determinable. C. Retirement plans Defined Contribution Pension Plan All full-time employees of the Town participate in a defined contribution pension plan administered by the ICMA Retirement Corporation as a 401(a) plan. The payroll for the Town employees covered by this plan the year ended June 30, 2006 was $3,240,448. The Town's total payroll was $3,613,982. A defined contribution pension plan provides benefits in return for services rendered, provides an individual account for each participant, and specifies how contributions to the individual's account are to be determined instead of specifying the amount of benefit the individual is to receive. Under a defined contribution pension plan, the benefits a participant will receive depend solely on the amount contributed to the participant's account, the returns earned on investment of those contributions, and forfeitures of other patticipant's benefits that may be allocated to such patticipant's account. All non-peace officer full-time Town employees must pm·ticipate in the pension plan from the date they m·e hired. Contributions made by an employee vest inunediately and contributions made by the Town vest after three yem·s of service. 51 TOWN OF FOUNTAIN HILLS, ARIZONA NOTES TO THE BASIC FINANCIAL STATEMENTS FISCAL YEAR ENDED JUNE 30, 2006 An employee that leaves the employment of the Town is entitled to his or her contributions and the vested pm1ion of the Town's contributions, plus interest eamed. Each employee must contribute 11% of his or her gross earnings. The Town must contribute 11% of covered earnings. During fiscal year 2005-06, the Town's required and actual contributions amounted to $356,076. The employees' contributions totaled $356,449. No pension provision changes occmTed during the year that affected the required contributions to be made by the Town or its employees. The ICMA Retirement Corporation held no securities of the Town or other related pru1ies during the fiscal year 2005-06 or as ofthe close of the fiscal yeru·. 52 Combining and Individual Fund Statements and Schedules 53 THIS PAGE BLANK 54 NONMAJOR GOVERNMENTAL FUNDS SPECIAL REVENUE FUNDS Highway User Revenue Fund (HURF) - accounts for the Town's share of motor fuel tax revenues and lottery proceeds. Excise Tax Fund- accounts for the pmiion of Town sales tax reserved by the Town Council for special projects including Town beautification and economic development. Grants Fund - accounts for the activities of various grants and contributions received by the Town. Local Court Enhancement Fund - accounts for the activities of grants from the Arizona Supreme Court. DEBT SERVICE FUNDS HURF Debt Service - accounts for operating transfers received from the HURF special revenue fund to pay the debt service of the Street and Highway User Revenue Bonds. Eagle Mountain Debt Service Fund - accounts for the propetiy tax revenues received to pay the debt service of the Eagle Mountain Community Facilities District component unit. Cottonwoods Special Assessment - accounts for all special assessments received to pay the debt service of the Cottonwoods Special Assessment District. 55 TOWN OF FOUNTAIN HLLLS, ARIZONA COMBINING BALANCE SHEET NONMAJOR GOVERNMENTAL FUNDS JUNE 30, 2006 Debt Service SQecial Revenue HURF Assets Cash and equivalents Cash with paying agent Receivables, net Accounts receivable Taxes receivable b1tergovernmental receivable Special assessments receivable Total assets Liabilities and Fund Ba lances Liabilities Accounts payable Interest payable Deferred revenue Matured debt principal payable Due to developers and CFD Total liabi lities Fund balances Unreserved Total fund balances Total liabilities and fund balances $ 1,363,690 Excise Tax $ 50 1,57 1 Grants $ 2,473 Local Court Enhancement $ I 78,880 Total $ 2,046,614 HURFDebt Service Eagle Cottonwoods Mountain Special Debt Service Assessment $ $ 97,24 1 7,206 5,35 1 371,896 138,672 $ 1.5969 14 $ 640.243 $ 170.710 $ 178.880 $ $ 509 $ 124,997 $ 15,798 494,009 $ 2.586.747 $ $ $ 635,313 97.24 1 $ 85,000 494.009 509 124.997 15.798 635.3 13 1. 102.905 1.1 02.905 639.734 639.734 45.7 13 45.7 13 163.082 163 .082 1.95 1.434 1.951.434 I 78.880 $ 2.586.747 $ 640.243 $ 170.7 10 56 $ 97.24 1 $ 497. 144 4,11 7 97.241 $ 1,078 $ 4. 108 9.303 $ $ 12,24 1 $ 1.596.9 14 $ 168,237 168,237 233,224 257,094 227,493 87,493 10,948 140,000 103.994 342.435 4.482 154.709 I 54.709 4.82 1 4.82 1 497. 144 4,482 $ 9.303 Debt Service Total $ $ 26 1,211 $ 324,734 2,307,825 324,734 8,284 5,35 1 4.108 603.688 $ 168,237 8,284 377,247 4.108 3.190.435 99,734 15,430 225,000 103 994 444. 158 635,3 13 99,734 15,430 225,000 103.994 1.079.47 1 159.530 159.530 2.110.964 2. 11 0.964 603.688 $ 3.190.435 $ $ Total Non major Governmental Funds $ 57 TOWN OF FOUNTAIN HILLS, ARIZONA COMBIN iNG STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES - NONMAJOR GOVERNMENTAL FUNDS FOR THE FISCAL YEA R ENDED JUNE 30, 2006 SEecial Revenue HURF Revenues Taxes Sales taxes Property taxes Intergovernmental Fines and forfeitures Charges for services Special assessments Investment eamings Other Total revenues Expenditures Current General govemment Highways and streets Culture and recreation Debt Service Principal retirement Interest on long-term debt Issuance costs Advance refunding escrow Total expenditures Excess (deficiency) of revenues over expenditures Other finan cing sources (uses) Transfers in Transfers out Issuance of refunding debt Payment to refunded debt escrow agent Total other fi nanci ng sources (uses) $ I ,693,527 $ $ Local Court Enhancement $ Total $ 1,693,527 HURF Debt Serv ice $ Eagle Cottonwoods Mountain Special Debt Service Assessment $ $ 346,0 12 1,686,09 1 336,584 2 1,042 12,802 2,022,675 21,042 12,802 21 , 147 24,009 4.079 1.726.981 3,245 34,807 1.728.334 336.584 24.287 107,025 147,928 269,587 64,690 34,950 1,438,804 62,061 4 079 3.816. 186 24,380 I 370.392 21.148 3,228 593 3.821 17.327 289,903 1,708,391 64,690 85,000 24,882 482,205 34 950 2.062.984 I09.882 140,000 175 ,943 232,762 300.000 848.705 1.62 1.309 (145.62 1} (10.663) 1.753.202 (I 09.882) (478.3 13) 17,062 (2,065,240) 77,612 614,543 (2,214,822) 106,473 50,000 (19,365) 1.438.804 107.025 288. 177 519,869 (130,2 17) ( 19,869) 4,555,000 389.652 (2.048. 178) Net change in fu nd balances 677,829 (426,869) Fund balances, beginning of year 425.076 Fund balances, end of year Grants Excise Tax Debt Service $ 1.1 02.905 1.066.603 $ 639.734 $ 77.6 12 (1 9.365) (68,009) (30,028) 113 722 193 .1 10 1.798.5 11 163.082 $ 1.95 1 434 45 713 58 $ ( 1.600.279) (4.338.781) 266.2 19 ( 19.869) (3,409) (2 12,094) (2,542) 3 409 366.803 7.363 106.473 152,923 $ $ 154.709 $ 4.821 Debt Service Total $ Total Nonmajor Govemmental Funds $ 346,0 12 2 1, 147 24,3 81 391.540 1,693,527 346,0 12 2,022,675 2 1,042 12,802 2 1, 147 86,442 4.079 4.207.726 289,903 1,708,39 1 64,690 228,228 20 1,4 18 232,762 300.000 962.408 228,228 20 1,4 18 232,762 300.000 3.025.392 (570.868) 1. 182.334 156,473 ( 19,869) 4,555,000 77 1,0 16 (2,234,69 1) 4,555,000 (4.338.781) 352.823 ! 1.24 7.456) (2 18,045) (65, 122) 3 77.575 $ (4.338. 78 1) 2, 176.086 159.530 $ 2. 110.964 59 TOWN OF FOUNTAIN HILLS, ARIZONA GENERAL OBLIGATION DEBT SERVICE FUND SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES - BUDGET AND ACTUAL FOR THE FISCAL YEAR ENDED JUNE 30, 2006 Original and Final Budget Revenues Taxes Property taxes Investment earnings Other Total Revenues $ 1, 150,000 1,400 Actual $ I,325,58 1 Variance with Final Bud!!et $ 1.151.400 29,37 1 1.036 1.355.988 175,58 1 27,97 1 1.036 204.588 Expenditures Debt Service Principal retirement Interest on long-term debt Total Expenditures 1,075,000 308.000 1.383.000 I,075,000 444.420 1.519 420 { 136.420) { 136.420) Excess (deficiency) of revenues over expend itures (23 1,600) ( 163,432) Fund balances, beginning of year Fund balances, end of year 592.020 360.420 $ 60 68, 168 365 779 $ 202.347 {226.24 1) $ { 158.073) TOWN OF FOUNTAJN HILLS, ARIZONA MUNICIPAL PROPERTY CORPORATION FUND SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGES IN FU ND BALANCES- BUDGET AND ACTUAL FOR THE FISCAL YEAR ENDED JUNE 30, 2006 Original and Final Budget Revenues Investment ean1ings Total Revenues $ Expenditures Debt Service Principal retirement Interest on long-tenn debt Total Expenditures Actual $ 34.658 34.658 Variance with Final Budget $ 34.658 34.658 665,000 598.500 1.263.500 665,000 546.576 1.211.576 51.924 51 924 ( 1.263.500) (I, 176.918) 86.582 1,263,500 1,652,240 ( 17.062) 1.635 178 388,740 ( 17.062) 371.678 Net change in fund balances 458,260 458,260 Fund balances, beginning of year 278.3 10 278.310 Excess (deficiency) of revenues over expenditures Other fi nancing sources (uses) Transfers in Transfers out Total other financing sources (uses) 1.263.500 $ Fund balances, end of year 61 $ 736.570 $ 736.570 TOWN OF FOUNTAIN HILLS, AR IZONA DEVELOPMENT FEES FUND SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES - BUDGET AND ACTUAL FOR THE FISCAL YEAR ENDED JUNE 30, 2006 Original and Final Budoet Revenues C harges for services Investment earnings Total Revenues $ Expenditures Current General government Public safety Highways and streets Culture an d recreation Total Expenditures Excess (deficiency) of revenues over expenditures Other fi nancing sources (uses) Transfers out Total other financing sources (uses) Net change in fu nd balances Fund balances, beginning of year 1,345,376 11.500 1.356.876 Actual $ Fund balances, end of year 62 $ 79,330 I 02.370 18 1 700 295,000 733.500 1.028.500 12,4 15 5,562 4 13,595 542.35 1 973.923 (12,4 15) (5,562) ( 118,595) 191. 149 54.577 328.376 564.653 236.277 (261.535) (261.535) (244.850) (244.850) 66,84 1 3 19,803 2.032.5 17 16.685 16.685 252,962 2.429.225 1.965.676 $ 1,424,706 113.870 1.538.576 Variance with Final Budget $ 2.749.028 463.549 $ 7 16.51 1 TOWN OF FOUNTAfN HILLS, ARIZONA CAPITAL PROJECTS FUND SCHEDULE OF REVENUES, EXPENDITURES. AND CHANGES IN FUND BALANCES -BUDGET AND ACTUAL FOR THE FISCAL YEAR ENDED JUNE 30, 2006 Original and Final Budoet Revenues Taxes Sales taxes Investment earnings Total Revenues $ Expenditures Current General government Highways and streets Culture and recreation Total Expenditures 528,225 25.000 553.225 Actual $ 956,500 135,000 206.000 1.297.500 Excess (deficiency) of revenues over expenditures 528,225 105. 176 633.40 1 Variance with Final Budget $ 80. 176 80. 176 649,649 (744.275) 959 92 1 1.609.570 306,85 1 135,000 (753.921) {312.070) (976.169) (231.894) O ther financi ng sources (uses) Transfers in Total other financing sources (uses) 3.2 14.827 3.214.827 7.723.407 7.723.407 4.508.580 4.508.580 Net change in Fund balances 2,4 70,552 6,74 7,238 4,276,686 Fund balances, beginn ing of year $ Fund balances, end of year 63 2.4 70.552 $ 6.747.238 $ 4.2 76.686 TOWN OF FOUNTAIN HILLS, ARIZONA HURFFUND SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES - BUDGET AND ACTUAL FO R THE FISCAL YEAR ENDED JUNE 30, 2006 Original and Final Budget Revenues Intergovernmental Charges for services Investment earnings Other Total Revenues $ Expenditures Current Highways and streets Total Expenditures I ,7 12,550 4,500 8,000 1.000 1.726.050 Actual $ 2.226.903 2.226.903 1,686,091 12,802 24,009 4.079 I. 726.981 Variance with Final Budget $ (26,459) 8,302 16,009 3.079 93 1 1.438.804 1.438.804 788 099 788.099 Excess (deficiency) of revenues over expenditures (500.853) 288 177 789.030 Other financing sources (uses) Transfers in Transfers out Total other fin ancing sources (uses) 500,000 (160.500) 339.500 519,869 ( 130.2 17) 389.652 19,869 30.283 50. 152 Net change in fu nd balances ( 161 ,353) 677,829 839, 182 Fund balances, beginning o f year 42 5.076 $ Fund balances, end of year 64 ' 161.353) $ I 102.905 425 076 $ 1.264.258 TOWN OF FOUNTAIN HILLS, ARIZONA EXCISE TAX FUND SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES - BUDGET AND ACTUAL FOR THE FISCAL YEAR ENDED JUNE 30, 2006 Original and Final Budget Revenues Taxes Sales taxes Investment earnings Total Revenues $ Expenditures Current General government Total Expenditures Excess (deficiency) of revenues over expenditures Other fi nancing sources (uses) Transfers in Transfers out Total other financi ng sources (uses) Net change in fund balances Fund balances, beginning of year 1,442, 179 24.000 1.466. 179 Actual $ $ 65 $ 25 1,348 10.807 262.155 139.283 139.283 I07.025 I07.025 32.258 32.258 1.326.896 1.621.309 294.413 ( 1.676.500) ! 1.676.500) 17,062 !2.065.240) !2.048.178) 17,062 (388.740) (371.678) (349,604) (426,869) (77,265) 2.658.448 Fund balances, end of year 1,693,527 34.807 I 728.334 Variance with Final Budget 2.308.844 1.066.603 $ 639.734 ! 1.59 1.845) $ p.669.1 10) TOWN OF FOUNTAIN 1-l!LLS, ARIZONA GRANTS FUND SCHEDULE OF REVENUES, EXPENDITURES, AN D CHANGES IN FUND BALANCES- BUDGET AND ACTUAL FOR THE FISCAL YEAR ENDED JUNE 30, 2006 Original and Final Budget Revenues Intergovernmental Total Reven ues $ Expenditures Current General government Public safety Highways and streets Culture and recreation Total Expenditures 1.730.125 1.730.125 Actual $ 1,437,000 50,000 293, 125 40.000 1.820. 125 Excess (deficiency) of revenues over expenditures 336.584 336.584 Variance with Final Bud!let $ 147,928 ( 1.393.541) ( 1.393.54 I) 1,289,072 50,000 23,538 (24.690) 1.337.920 269,587 64.690 482.205 (90.000) ( 145.62 1) (55.621) 50.000 50.000 77.612 77.612 27.612 27.612 Net change in fund balances (40,000) (68,009) (28,009) Fund balances, beginning of year 143.937 113.722 (30.2 15) Other financ ing sources (uses) Transfers in Total other fi nancing sources (uses) Fund balances, end of year $ 66 103.937 $ 45.7 13 $ p8.224) TOWN OF FOUNTA IN HILLS, ARIZONA LOCAL COURT ENHANCEMENT FUND SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES -BUDGET AN D ACTUAL FOR THE FISCAL YEAR ENDED JUNE 30, 2006 Original and Final Bud!!et Revenues Fines and forfeitures Investment earnings Total Revenues $ 22,300 1.000 23.300 Actual $ 2 1,042 3.245 24.287 Variance with Final Budget $ ( 1,258) 2.245 987 Expenditures Current General government Total Expenditures 30.000 30.000 34.950 34.950 (4.950) (4,950) Excess (de ficiency) of revenues over expend itures (6.700) (10.663) (3.963) (19.365) ( 19.365) ( 19.365) ( 19.365) (30,028) (23,328) Other finan cing sources (uses) Transfers out Total other financing sources (uses) Net change in fund balances (6,700) Fund balances, beginning of year Fund balances, end of year 193.11 0 $ 67 186.41 0 193. 11 0 $ 163.082 $ (23.328) TOWN OF FOUNTAIN HILLS, ARIZONA HURF DEBT SERVICE FUND SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES -B UDGET AND ACTUAL FOR THE FISCAL YEAR ENDED JUNE 30, 2006 Original and Final Budget Expenditures Debt Service Principal retirement Interest on long-tem1 debt Total Expenditures $ Excess (deficiency) of revenues over expenditures Other finan cing sources (uses) Transfers in Total other fin ancing sources (uses) 85,000 25.500 110.500 $ '1 09.882) 11 0.500 11 0.500 106.473 I06 473 Fund balances, beginning of year $ 68 85,000 24.882 109.882 ( 11 0.500) Net change in fund balances Fund balances, end of year Variance with Final Budget Actual $ $ 6 18 61 8 6 18 (4.027) (4,027) (3,409) (3,409) 3.409 3.409 $ TOWN OF FOUNTAIN HILLS, ARIZONA EAGLE MOUNTAIN DEBT SERV ICE FUND SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES • BUDGET AND ACTUAL FOR THE FISCAL YEAR ENDED JUNE 30, 2006 Original and Final Budget Revenues Taxes Property taxes Investment camings Other Total Revenues $ Expenditures Debt Service Principal retirement Interest on long-term debt Issuance costs Advance refunding escrow Total Expenditures 353,600 2,000 50.000 405.600 Actual $ Excess (deficiency) of revenues over expend itures 370.392 355.600 140,000 175,943 232,762 300.000 848.705 39,657 (232,762) (300.000) (493.1 05) 50.000 (478.313) (528.313) 50,000 4,555,000 (4.338.78 1) 266.219 50,000 4,555,000 (4.338. 781) 266.219 (212,094) (262,094) Other financing sources (uses) Transfers in Issuance of refunding debt Payment to refunded debt escrow agent Total other financing sources (uses) Net change in fund balances 50,000 Fund balances, beginning of year Fund balances, end of year 306 100 $ 69 $ (7,588) 22,380 (50.000) (35.208) 140,000 2 I 5,600 356.100 346,012 24,380 Variance with Final Budoet 366.803 $ 154.709 60.703 $ (201.39 1) TOWN OF FOUNTAfN HILLS, ARIZONA COTTONWOODS SPECIAL ASSESSMENT FUND SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGES fN FUND BALANCES -BUDGET AND ACTUAL FOR THE FISCAL YEAR ENDED JUNE 30, 2006 Original and Final Budget Revenues Special assessments Investment earnings Total Revenues $ Expend itures Debt Service Principal reti rement Interest on long-tenn debt Total Expenditures 3,850 $ 17,297 I 2 1. 148 17.298 3,228 622 3.850 3,228 593 3.821 29 29 17,327 17,327 (19.869) (19.869) (19.869) (19.869) 7.363 7.363 Fund balances, beginning of year 70 $ 3.850 Other financ ing sources (uses) Transfers out Total other fi nancing sources (uses) $ 2 1,147 I Excess (deficiency) of revenues over expenditures Fund balances, end of year Variance with Final Budget Actual $ 4.821 $ 4.821 STATISTICAL SECTION This section of the Town of Fountain Hills, Arizona's comprehensive ammal financial rep01i presents detailed infom1ation as a context for understanding what the information in the financial statements, note disclosures, and required supplementary information says about the govenm1ent's overall financial health. Financial Trends These schedules contain trend information to help the reader understand how the government's .financial pe1jormance 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, the property tax. Debt Capacity These schedules present information to help the reader assess the a.ffordability 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 pe1jorms. See the table of contents for page numbers of the schedules that encompass the above sections. 71 THIS PAGE BLANK 72 TOWN OF FOUNTAIN HILLS, ARIZONA NET ASSETS BY COMPONENT LAST TEN FISCAL YEARS (ACCRUAL BASIS OF ACCOUNTING) (UNAUDITED) Fiscal Year Governmental activities Invested in capital assests, net of related debt Restricted Unrestricted Total govemmental activities net assets 2003 2004 2005 2006 $ II ,843,575 6,68 1, 170 2.638. 149 $ 21.1 62.894 $ 11 ,26 1,256 6,47 1,863 7.976. 11 3 $ 25.709.232 $ 17,495,539 5, 144,127 10.82 1.304 $ 33,460.970 $ 20,806,50 7 12,446, 147 9.053,6 11 $ 42.306.265 Source: Town of Fountain Hills, Ariozna's Finance Depmtment. Note 1: 2002-03 was the Town of Fountain Hills, Arizona's first year to prepare government-wide financial statements. Note 2: The Town of Fountain Hills, Arizona does not have any business-type acti vities. 73 TOWN OF FOUNTAIN HILLS , ARIZONA CHANGES IN NET ASSETS LAST TEN FISCAL YEARS (ACCRUAL BASIS OF ACCOUNTING) (UNAUDITED) Fiscal Year 2003 Ex penses Governmental activities: General government Public safety Highways and streets Culture and recreation Community development Interest on long-term debt Total governmental activities $ Program Revenues Governmental activ ities: Fines, fees and charges for services: General government Highways and streets Culture and recreation Interest on long-term debt Operating grants and contributions Capital grants and contributions Total governmental activities program revenues Net (ex t>ense)/revenue Governmental activities General Revenues and Other Cha nges in Net Assets Governmental activities: Taxes : Sales taxes Property taxes Franchise taxes State revenue sharing State sales tax revenue sharing Auto lieu tax revenue sharing Investment earnings Other Total governmental activities Change in Net Assets Governmental activities $ 3,479,333 5,494,708 1,3 10,683 2,363,897 I ,235,985 1.576.842 15.461.448 2004 $ 3,686,452 4,9 18,280 1,4 19,509 2,068,6 13 1, 144,964 1.499.575 14.737.393 2005 $ 3,766,500 5,024,686 I ,28 1,06 1 2,362,66 1 1,460, 18 1 1. 162.796 15.057.885 2006 $ 2,738,898 39, 185 3,388,923 28,597 4,43 1, 154 58,038 4,302 1,697,900 3,6 12 1,590,787 4.480.285 5.0 11.9 19 1,512 1,692,7 12 237.307 6.420.723 6. 155.938 (I 0.981. 163) (9. 725.474) (8.637.162) (I 0.389. 758) 5,051 ,872 1,905,770 152,542 2,360,879 I ,582,535 797,344 1,976,809 79.706 13.907.457 7,733,643 2, 195,856 126,362 1,967,973 1,702,374 819,497 122,082 195.978 14.863.765 8,879,798 2,020,800 2 16,031 2,0 16,08 1 1,874,577 865,823 395, 124 120.666 16.388.900 11 ,007,924 1,648,947 3 14,359 2,244, 159 2, 170,940 974,452 673,351 200.92 1 19.235.053 2.926.294 $ 5. 138.29 1 $ 7. 75 1.738 4,029,437 16,88 1 65,798 2 1, 147 2,022,675 $ Source: Town of Fountain Hills, Arizona's Finance Depmtment. Note I: 2002-03 was the Town of Fountain Hills, Arizona's first year to prepare government-wi de finan cial statements. Note 2: The Town of Fountain Hills, Arizona does not have any business-type activities. 74 3,875,0 14 5,403,620 1,58 1,068 2,576,406 1,8 12,469 1.297. 11 9 16.545.696 8.845.295 TOWN OF FOUNTAIN I-ITLLS, ARIZONA FUNDBALANCESOFGOVERNMENTALFUNDS LAST TEN FISCAL YEARS (MODIFIED ACCRUAL BASIS OF ACCOUNTING) (UNAUDITED) Fiscal Year 1997 General Fund Reserved Unreserved Total General Fund All other governmental funds Unreserved, reported in: Special revenue funds Debt service funds Capital projects funds Total all other governmental funds $ - 1998 $ - 1999 $ - $__6d_! _4.~_6I 4.812.370 $ 4.812.370 221 ,861 241 ,259 $ $ $ 463.120 $ $ 286.794 87.644 $ $ 374.438 $ 6.3 14.461 215.284 221,861 609,351 $ - $ 6.331.622 $ 6.331.622 $ - 4.710.061 $ 4.710.061 5.126.713 $ 5. 126.7 13 $ 2002 $ 2.494.333 $ 2.494.333 2,059 213,225 2001 2000 831.212 Source: Town of Fountain Hills, Arizona's Finance Department. 75 9, 167 532,248 1.571. 117 $ 2.112.532 - 1,051 ,311 414.432 $ 1.465.743 2003 $ - 2004 2005 2006 $ 77.485 6.293.94 1 $ 6.371.426 $ 40,664 9 04 1 779 $ 9.082.443 $ 4,037,863 $ 4.037.863 $ 3,411 ,738 1.705,230 $ 5,969,830 530,372 $ 5.116.968 $ 6.500.202 $ 2, 176,086 644,089 2.429,225 $ 5.249.400 $ 1,951 ,434 159,530 9.496.266 $ 11.607.230 - - 14,393 6.515.855 $ 6.530.248 TOWN OF FOUNTAIN HILLS, ARIZONA CHANGES IN FUND BALANCES OF GOVERNMENTAL FUNDS LAST TEN FISCAL YEARS (MODIFIED ACCRUAL BASIS OF ACCOUNTING) (UNAUDITED) Fiscal Year 1997 Revenues Taxes Intergovernmental Fines and forfeitures Licenses and permits Charges for services Rents and royalties Special assessments Investment earnings Other Total revenues Expenditures General government Public safety Highways and streets Culture and recreation Community development Capital outlay Debt service Principal retirement Interest on long-tern1 debt Issuance costs Advance refunding escrow Total expenditures Excess of revenues over (under) expenditures $ - - - - - 2001 2004 2005 $ 7, 114,486 6,311,458 195,091 1,308,747 810,412 188,745 4,302 1,976,809 275.343 18.185.393 $ 9,997,706 6,080,631 361 ,339 1,600,934 1,038,170 242,704 3,612 122,082 261.561 19.708.739 $ 11,151 ,893 6,686,500 249,564 2,230,046 1,834,205 222,327 1,512 395,124 179 657 22.950.828 3,859,633 5,084,532 1,877,790 3,069,695 1,064,913 14,770,507 3,318,574 5, 174,492 I, 198,080 1,815,416 1,215,387 79,427 3,614,458 4,616,161 1,402,502 1,597, 150 1, 144,964 101,951 9,547,409 4,754,523 1,682,563 3,004.216 1,460,181 4,459, 183 5,208,770 2, 121,986 3,607.750 1.812.469 620,408 1,231,194 1,229,215 1,673,901 1,393,228 1,576,842 1,423,228 1,499,575 1,308,228 1, 164,561 229.990 23.151.671 1,968,228 1, 192,414 232,762 300 000 20.903.562 1999 2000 $ 3,326,207 4,364,859 208,930 1,961 ,687 795,700 13,591 582,757 117.487 11.371.218 $ 3,861,337 4,929,062 259,484 2,472,215 624,744 18,140 14,524 620,639 25.657 12.825.802 $ 4,876,466 4,771 ,792 293,970 2,569,472 454,366 27,208 9,241 743,259 31 653 13.777 427 1,964,427 2,074,441 2,020,450 1,471,559 947,251 1,352,936 2,631,245 2,205,600 1,984.879 2,334,901 955,451 557,374 2,528,953 3,059,020 2,468,498 3,359,509 1,276,951 1,787,469 3,646,500 3,354,037 2,212,432 3,866,245 1, 175,649 5,261 ,585 245,210 554,731 223,024 572,064 339,013 585,00 I - - 2002 $ 6,088,047 $ 7,595,748 5,281 , 156 5,895,676 310,359 265,605 1,351 ,209 2, 177,614 431 ,316 1,067,814 35,781 107,613 7,958 4,520 ( I,063,339) 726,441 11 357 1.783.851 13.280.249 18.798.477 - - - - - 32.630.186 15.771.446 15.399.989 ~ 13,831. 709) 2.413.947 4.308.750 - 10.631.005 11.464.538 15.404.414 21.368.050 - 740.213 1.361.264 (I ,626,987) (8,087.80 I) 76 2006 2003 1998 - - (200.843) $ 12,993,876 7,412,226 235,050 1,918, 107 1,689,046 255,527 21 , 147 673,351 233.565 25.431.895 4.528.333 Fiscal Year 1997 Other financing sources (uses) Transfers in Transfers out Issuance of refunding debt Issuance of long-term debt Payment to refunded debt escrow agent Total other tinancing sources (uses) Net change in fund balance Debt service as a percentage of noncapital expenditures 1998 - $ $ N/A 1999 2000 1,213, 129 ( I,213, 129) I, 170,732 (1 , 170,732) - - - 1,102,629 ( I,0 I 0.489) 740.213 8.6% 200 1 2002 1,833,192 (I ,833, 192) 1,585,674 ( I ,585,674) 5, 100,000 4,641,980 13,750,000 - - - 92. 140 5. 100.000 4.641.980 13.750.000 $ I.453.404 $ 3.473.013 7.3% 1,386,793 (I ,386, 793) 6.8% Source: Town of Fountain Hills, Arizona's Finance Department. 77 - $ 0 .445.821) $ 11.5% - 2003 2005 2006 5,981 ,544 (5,981 ,544) 1,630,907 (I ,630,907) 4,805,635 (4,805,635) 12,555,000 3,783,896 10, 146,663 (I 0, 146,663) 4,555,000 - - : 14.677,838) (4.3 38. 781) - - - (81.709) $ 2.413.947 16.3% 2004 18.9% $ 4308.750 19.1% 216.219 1.661.058 $ 1.460.215 11.7% $ 4,744.552 16.2% TOWN OF FOUNTAIN HILLS, ARIZONA GENERALGOVERNMENTTAXREVENUESBYSOURCE LAST TEN FISCAL YEARS (MODIFIED ACCRUAL BASIS OF ACCOUNTING) (UNAUDITED) Fiscal Year 1997 Sales taxes $ 2,664,923 Property taxes $ 350,024 Franchise taxes $ 86,840 Total $ 3, 101 ,787 1998 2,920,084 302,375 103,748 3,326,207 1999 3,394, 152 348,778 118,407 3,86 1,337 2000 4,087,5 14 657,026 131,926 4,876,466 200 1 4,923, 174 I ,038,891 125,982 6,088,047 2002 4,355,70 1 3,109,353 130,694 7,595,748 2003 5,05 1,872 1,910,072 152,542 7, 114,486 2004 7,733,643 2, 137,70 1 126,362 9,997,706 2005 8,879,798 2,056,064 2 16,03 I 11, 151,893 2006 11 ,007,924 I ,671 ,593 3 14,359 12,993,876 Source: The Town of Fountain Hi lls, Arizona's Finance Department. 78 TOWN OF FOUNTAIN HILLS, ARlZONA SALES TAX COLLECTIONS BY CATEGORY LAST TEN FISCAL YEARS (UNAUDITED) Fiscal Year 1997 Sales Category Construction Transportation and utilities Wholesale/Retail Restaurants and bars Real estate Services Miscellaneous Total City sales tax rate $ $ 1,004, 125 210,836 695,575 106,149 161 ,715 276,611 43 823 2.498.834 1.20% 1998 $ $ 1,227,312 271,577 785,563 108,770 105,851 304,482 60.794 2.864.349 1.20% 1999 $ $ 1,526,063 303,507 793,367 128,330 133,666 322,428 102 153 3.309.5 14 1.20% 2000 $ $ 2001 1,852,068 350,634 I ,087,8 19 148,668 99, 155 357,253 136 814 4.032.411 $ $ 1.20% Source: Arizona Department of Revenue. 79 1,9 15,206 453,2 17 1,405,560 187,000 245,064 398,1 57 195 313 4.799.51 7 1.60% 2002 $ $ 1,325,749 523,237 1,477,424 219,921 192,339 370,806 157 818 4.267.294 1.60% 2003 $ $ 1,203,706 590,446 1.930,175 276,664 205,849 455,324 188 654 4.850.818 1.60% 2004 $ $ 1,482,98 1 916,498 3,212,062 419,107 341 ,951 423,433 706.816 7.502.848 2.60 % 2005 $ $ I ,83 7,3 17 1, 124,677 3,536,045 524,368 604,356 185,868 933 ~66 8.745 997 2.60% 2006 $ $ 3,362,079 1,240,120 3,796,192 547,276 626,364 263,239 I 030 966 10.866.236 2.60% TOWN OF FOUNTAIN HILLS, ARJZONA DIRECT AND OVERLAPPING SALES TAX RATES LAST TEN FISCAL YEARS (UNAUDITED) Fiscal Year 1997 1998 1999 2000 200 1 2002 2003 2004 2005 2006 C ity Direct Rate (a) Maricopa County 1.20% 1.20 1.20 1.20 1.60 1.60 1.60 2.60 2.60 2.60 0.75% 0.50 0.70 0.70 0.70 0.70 0.70 0.70 0.70 0.70 State of Arizona 5.00% 5.00 5.00 5.00 5.60 5.60 5.60 5.60 5.60 5.60 Source: A rizona Department of Revenue, Transaction Privilege (Sales) Tax Rate Tables. 80 TOWN OF FOUNTAJN HILLS, ARJZONA ASSESSED VALUE AND ESTIMATED ACTUAL VALUE OF TAXABLE PROPERTY LAST TEN FISCAL YEARS (AMOUNTS IN THOUSANDS) (UNAUDITED) Fiscal Year 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 Residential Pro12erty $ 69,781 83, 164 105,890 129,425 151,060 173,968 189,664 241 ,412 249,982 273,093 Commercial and Industrial Pro12erty $ 16,983 19,661 22,843 27,500 29,968 37,443 37,866 49,318 58, 132 59,876 Agricultural and Vacant Pro12erty $ 22,700 20,273 26,996 28,616 40,895 41,859 57,192 53,317 69,477 70,005 Less: Tax Total Taxable Seconda1y Total Direct Exempt Real Assessed Value Tax Rate* Pro12erty $ (5,519) $ 103,945 $ 0.30 (6,765) 116,333 0.23 0.17 (8,786) 146,943 (10,780) 174,761 0.26 (9,507) 212,416 0.33 (14,555) 238,715 0.56 270,603 0.51 (14, 119) 0.48 (20,663) 323,384 0.42 (28, 192) 349,399 (27,791) 375,183 0.35 Source: The Maricopa County Treasurer. 81 Estimated Full Cash Value $ 906,495 l ,034,893 1,317,947 I ,583,073 1,889,016 2,154,929 2,418,236 2,942,849 3,162,855 3,411,461 Seconday Assessed Value as a Percentage of Full Cash Value 11.467% 11.241 11.149 11.039 11.245 I 1.078 11.190 10.989 I l.047 10.998 TOWN OF FOUNTAIN HILLS, ARIZONA PROPERTY TAX RATES DIRECT AND OVERLAPPING GOVERNMENTS LAST TEN FISCAL YEARS (UNAUDITED) Fiscal Year Direct Rates General Primaty Obligation Total Direct Rate Debt Service Rate 1997 1998 1999 2000 200 1 2002 2003 2004 2005 2006 0.3 0 0.23 0. 17 0.26 0.33 0.56 0.5 1 0.48 0.42 0.35 OverlaEEing Rates Local School Special Districts (a) County Districts 0.30 0.23 0.17 0.26 0.33 0.56 0.5 1 0.48 0.42 0.35 7.3 1 7.37 7.35 5.98 6.4 1 6.45 6.23 5.80 5.67 5.27 6.20 5.88 5.92 5.72 6.83 6.03 4.29 4. 15 3.72 2.49 3.38 2.49 2.45 3.43 3.35 3.29 3.28 3.22 3.09 3.18 Total Overlapping Rate 16.89 15.74 15.72 15.1 3 16.59 15.77 13.80 13.1 7 12.48 10.94 Source: Arizona Depa1tment of Revenue and Maricopa County Depa1tment of Finance. (a) Includes tax rates for Fountain Hills Unified School District No. 98 and East Valley Institute of Techno logy No.40 1. 82 TOWN OF FOUNTAIN HILLS, ARIZONA PRINCIPAL PROPERTY TAXPAYERS JUNE 30, 2006 (UNAUDITED) 2006 Percentage of Taxable Total Net Assessed Secondary Value Assessed Value Taxpayer Qwest Corporation $ Taxable Assessed Value Taxpayer 3,261,128 0.87% Chaparral City Water Company Chapmnl City Water Company 3,180,452 0.85 inland Westem Fountain Hills Four Peaks 2,946,653 WSL Fountain View Investors V LLC 1997 Percentage of Total Net Secondary Assessed Value 2,112,467 2.03% U S West Communications 2,103,803 2.02 0.79 MCO Properties lnc. 1,769,358 1.70 2,251,544 0.60 Eagle Mountain investors LLC 715,908 0.69 Target Corporation 2,030,676 0.54 Safeway Inc. # I29 I 631,287 0.61 MCO Properties LP 1,873,070 0.50 Basha's 589,465 0.57 Cox Communications Inc. 1,754,079 0.47 Fourway Properties Limited Partnership 486,961 0.47 EnLLC I ,695,043 0.45 City of Scottsdale 478,720 0.46 Four Peaks Limited Partnership 1,593,577 0.42 Fountian Hills Old Vine LP 371,149 0.36 Adero Canyon LLC 1.585.520 0.42 Golf lntemational Inc. 316.115 0.30 $ 22.171.742 $ $ 5.91% 83 9.575,233 9.21% TOWN OF FOUNTAIN HILLS, ARIZONA PROPERTY TAX LEVIES AND COLLECTIONS LAST TEN FISCAL YEARS (UNAUDITED) Collected within the Fiscal Year of the Levy Fiscal Year 1997 Taxes Levied for the Fiscal Year $ 313,963 Amount $ Percent of Levy 303 ,580 96.69% Total Collections to Date Collections in Subsequent Years $ 8,854 Total Tax Collections $ Ratio of Total Tax Collections to Total Tax Levy 312,434 99.51 % $ Outstanding Delinquent Taxes Ratio of Delinquent Taxes to Tax Levy 1,529 0.49% 1998 269,569 261 ,704 97.08 6,556 268,260 99.51 1,309 0.49 1999 248,422 242,254 97.52 5,384 247,638 99.68 784 0.32 2000 448,242 432,965 96.59 9,581 442,546 98.73 5,696 1.27 2001 701,275 675,710 96.35 21,422 697,132 99.41 4,143 0.59 2002 1,335,787 1,282,844 96.04 43,927 1,326,771 99.33 9,016 0.67 2003 1,384,478 1,329,929 96.06 43,900 1,373,829 99.23 10,649 0.77 2004 1,545,051 1,492,143 96.58 44,041 1,536,184 99.43 8,867 0.57 2005 1,449,287 1,408,289 97.17 31,632 1,439,921 99.35 9,366 0.65 2006 1,319,373 1,275,049 96.64 1,275,049 96.64 44,324 3.36 - Source: The Maricopa County Treasurer's Office. Note I : Amounts collected are on a cash basis rather than modified accrual basis as in the financial statements. Note 2: Unsecured personal property taxes are not included in this schedule. Note 3: The amount levied and collected is net of resolutions. 84 TOWN OF FOUNTAIN HILLS , ARIZONA RATIO OF OUTSTANDING DEBT BY TYPE LAST TEN FISCAL YEARS (UNAUDITED) Governmental Activities General Obligation Bonds Fiscal Year 1997 $ 2,930,000 Sales Tax Bonds (a) $ HURF Bonds (b) $ 1,000,000 Total Primary Government Percentage of Personal Income 3,930,000 5.53% $ Per Capita $ 241 1998 2,780,000 1,075,000 3,855,000 4.92 223 1999 7,730,000 1,045,000 8,775,000 10.46 472 2000 7,505,000 4,680,000 975,000 13,160,000 14.15 650 2001 13,280,000 12,280,000 905,000 26,465,000 27.24 1,238 2002 12,600,000 11 ,855,000 810,000 25,265,000 26.00 I , 151 2003 11 ,865,000 II ,430,000 720,000 24,015,000 22.51 1,080 2004 11 , 110,000 13,595,000 630,000 25,335,000 21.92 1,124 2005 10,675,000 12,975,000 540,000 24, 190,000 N/A 1,042 2006 9,600,000 12,3 10,000 455,000 22,365,000 N/A 913 Source: The Town of Fountain Hills, Arizona's Finance Department. (a) Represents outstanding principal amount of bonds of the Town of Fountain Hills Municipal Property Corporation (MPC) for which the Town is obligated through a lease-leaseback anangement with the MPC to make the bond payments which are secured in part by Sales Taxes of the Town. (b) Represents outstanding principal amount of bonds secured by street and highway user revenues collected by the State and shared with the Town. 85 TOWN OF FOUNTAIN HILLS, ARIZONA RATIO OF GENERAL BONDED DEBT OUTSTANDING LAST TEN FISCAL YEARS (UNAUDITED) Fiscal Year General Obligation Bonds Net General Obligation Bonded Debt Taxable Assessed Value of Property OR Taxable Sales 1997 1998 1999 2000 200 1 2002 2003 2004 2005 2006 $ 2,930,000 2,780,000 7,730,000 7,505,000 13,280,000 12,600,000 11 ,865,000 11 , 110,000 10,675,000 9,600,000 $ 2,930,000 2,780,000 7,730,000 7,505,000 13,280,000 12,600,000 II ,865,000 11,1 10,000 10,675,000 9,600,000 $ 103,944,000 116,333,000 146,944,000 174,76 1,000 212,4 15,000 238,715,000 270,603,000 323,385,000 349,398,000 375,183,000 Percentage of Actual Assessed Value of Property 2.82% 2.39 5.26 4.29 6.25 5.28 4.38 3.44 3.06 2.56 Population 16,275 17,280 18,595 20,235 21,383 21,954 22,243 22,541 23,217 24,492 Net General Obligation Bonded Debt Per Capita $ Source: The Town of Fountain Hills, Arizona's Finance Depattment. Note: Detai l regarding the Town's outstanding debt can be found in the notes to the financial statements. 86 180 16 1 416 37 1 62 1 574 533 493 460 392 TOWN OF FOUNTAIN HILLS , ARIZONA DIRECT AND OVERLAPPING GOVERNMENTAL ACTIVITIES DEBT JUNE 30, 2006 (UNAUDITED) Outstanding Debt Govemmental Unit Estimated Share of Overlapping Debt Estimated Percentage App licable (I) Debt repaid with property taxes Maricopa County Maricopa County Community College District 0.001 % $ 399,805,000 0.001 % 4,5 18 97.620% Fountain Hills Sanitary District 0.003% East Va lley Institute of Technology Fountain Hills Unified School District $ 25,090,000 97.030% 24,344,827 4,555,000 100.000 % 4,555,000 139,075,000 0.001 % 1,572 23,360,000 0.00 1 % 264 Eagle Mountain Community Facilities District Other debt Maricopa County (a) Maricopa County Community College District (b) Subtotal, overlapping debt 28,906, 18 1 Town of Fountain Hills, Arizona direct debt 26.789,68 1 Total direct and overlapping debt $ 55.695.862 Source: Official statements for public offerings of the indicated entities. (a) Includes lease revenue bonds, ce1tificates of pmticipation and revenue bonds of the Maricopa County Stad ium District. (b) Includes revenue bonds. 87 TOWN OF FOUNTAIN HILLS, ARIZONA LEGAL DEBT MARGIN INFORMATION LAST TEN FISCAL YEARS (UNAUDITED) Fiscal Year 1998 1999 2000 2001 2002 27,025,453 $ 30,246,686 $ 38,205,3 70 $ 45,437,792 $ 55,228,024 $ 62,065,780 3.055.000 2.930.000 2.780.000 6.330.000 6. 155.000 6.005.000 23.970.453 $ 27.316.686 $ 35.425.370 $ 39. 107.792 $ 49.073.024 122L_ Debt limit (20% and 6% bonding limit) $ Total applicable to limit Legal debt margin Total net debt applicable to the limit as a percentage of the debt limit $ 11.30% 9.69% 7.28% 13.93% 88 11.14% $ 56.060.780 9.68% 2003 $ 70,356,745 2004 $ 12.585.000 $ 57.771.745 17.89% 84,080,160 2005 $ 11.740.000 $ 72.340.160 13.96% $ - 2006 90,843,567 $ 97,547,62 7 10.225.000 9.600.000 80.618.567 $ 87.947.627 11.26% 9.84% TOWN OF FOUNTAIN HILLS, ARIZONA CALCULATION OF LEGAL DEBT MARGIN JUNE 30, 2006 (UN AUDITED) $ 375,1 83. 18 1 Net secondary assessed valuation Water, Sewer, Light, Parks, Open Space and Recreationa l Facility Bonds Debt limit - 20% ofsecondmy net assessed valuation Debt applicable to limit Genera l obligation bonds outstanding Less amount set aside fo r repayment of debt N et debt app licable to limit $ 75,036,636 $ 7,265,000 (325,000) 6.940,000 20% legal debt margin 68.096.636 All other general obligation bonds 22,5 10,99 1 Debt limit- 6% of secondaty net assessed valuation Debt applicable to limit General obligation bonds outstanding Less amount set aside for repayment of debt Net debt applicable to limit $ 3,4 10,000 (750,000) 2.660.000 19.850.99 1 All other general obligation bonds debt marg in $ Total legal debt margin Source: Maricopa County Assessor's Office. 89 87.947.627 TOWN OF FOUNTAIN IDLLS, ARIZONA DEMOGRAPHIC AND ECONOMIC STATISTICS LAST TEN FISCAL YEARS (UNAUDITED) Fiscal Year 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 Population (I )(2) 16,275 17,280 18,595 2 0,235 21 ,3 83 2 1,954 22,243 22,541 23,217 24,492 Per Capita Personal Income (3) Personal Income (3) $ 71 ,078,707 78,310,846 83,860,233 92,975,77 1 97,138,599 I 00,805,099 106,385,325 115,604, 165 N/A N/A $ 23,983 25,471 26,385 28,3 63 28,717 28,900 26,609 31,133 N/A N/A Median Age (2) N/A N/A N/A 46.4 N/A N/A N/A N/A N/A N/A School Enrollment (4) Unemployment Rate (5) 2, 139 2,192 2,224 2,344 2,411 2,446 2,456 2,452 2,372 2,335 1.6% 1.5 1.6 1.6 2.0 2.7 2.6 2.1 2.0 1.8 Sources: (1) Arizona Department of Economic Security, Research Administration, Population Statistics Unit for 1997 - 1999 and 2001 - 2005. (2) U.S. Census Bureau for 2000. (3) Dollars in thousands. U.S. Department of Commerce, Bureau of Economic Statistics. Information for Metropolitan Statistical Area. (4) Represents average daily membership for Fountain Hills Unified School, which includes a portion of students residing outside the Town. (5) Arizona Department of Economic Security, Research Administration, CES/LAUS UNIT. 90 TOWN OF FOUNTAIN HILLS, ARIZONA PRINCIPAL EMPLOYERS JUNE 30, 2006 (UNAUDITED) 2006 Employer Type Employees Percentage of Total Town Employment* Fountain Hills Unified School District No. 98 Education 285 Monks Construction Construction Retail 190 1.51 130 125 1.03 Target MCO Properties, Inc. Property Management Safeway Food Stores 110 Town of Fountain Hills Grocery Store Government Fry's Basha's 1997 - 2.26% Employees 235 Percentage of Total Town Employment* 3.39% 0.99 85 1.22 0.87 0.67 95 1.37 87 85 1.22 Grocery Store 80 0.63 Grocery Store 70 0.56 70 1.0 I Sun Ridge Canyon Golf Course Golf Course 70 0.56 70 1.0 I Eagle Mountain Golf Course Golf Course 70 0.56 40 0.58 Golf International Golf Course ~ 0.52 50 0.72 1.282 10. 16% 730 10.52% Source: The 1998 and 2006 Arizona Industrial Directory; Greater Phoenix Chamber of Commerce; Community Profiles Arizona Depmtment of Commerce; and an individual employer survey. * Employment infonnation for 2006 as of May 2006. Arizona Unemployment Statistics Program, Special Unemployment Report, Arizona Department of Economic Security, Research Administration, CES/LAUS UNIT. 91 TOWN OF FOUNTAIN HILLS, ARIZONA FULL-TIME EQUIVALENT EMPLOYEES BY FUNCTION LAST FIVE FISCAL YEARS (UNAUDITED) Full-Time Equivalent Employees Function General govenunent Municipal CoUI1 Administration Planning & Zoning Public safety Building Safety Law Enforcement Public Works Engineering Streets Parks and recreation Community Center Total 2002 2003 2004 2005 2006 6.0 18.0 5.5 6.0 14.5 8.0 5.0 10.0 9.0 5.0 11.0 8.0 5.5 12.5 9.5 9.0 26.0 8.0 20.0 7.0 1.0 9.0 9.0 13.0 15.0 17.5 5.0 115.0 13.0 14.0 16.0 6.5 106.0 10.5 13.0 13.0 6.5 75.0 11.5 11.0 15.0 6.5 77.0 11.5 11.0 16.5 7.0 82.5 Source: The Town of Fountain Hi lls, Arizona's Finance Depa1tment. 92 TOWN OF FOUNTAIN HILLS, ARIZONA OPERATING INDICATORS BY FUNCTION LAST TEN FISCAL YEARS (UNAUDITED) Fiscal Years Function General Government Building permits issued Building inspections conducted Police (contracted) Physical arrests Traffic violations Fire (contracted) Inspections Parks amd recreation Park acreage Community/Senior Centers 1997 1998 2000 1999 2001 953 936 929 584 351 N/A N/A N/A N/A N/A N/A N/A 886 4,988 895 5,64 I 890 7,907 981 4,767 2002 2003 2004 2005 260 8,491 168 6,389 228 6,985 430 8,446 503 3,186 60I 3,I86 60I 3,I86 644 2,432 N/A N/A N/A N/A N/A N/A N/A N/A N/A 121 I I2I I I2I I 121 1 I2I I I2I I I21 I I2I I I2I I Source: The Town of Fountain Hills, Arizona's Finance Department. 93 2006 468 9,377 N/A N/A I,8I5 I2I I TOWN OF FOUNTAIN HILLS, ARIZONA CAPITAL ASSETS STATISTICS BY FUNCTION LAST TEN FISCAL YEARS (UNAUDITED) Fiscal Year Function Public safety Fire Stations Other public works Streets (miles) Streetlights Traffic signals Parks and recreation Acreage Playgrounds Baseball/ softball diamonds Soccer/football fields Community centers 1997 1998 1999 2000 2001 2002 2003 2004 N/A N/A N/A N/A N/A 178.5 N/A 5 178.5 N/A 6 178.5 N/A 6 178.5 N/A 6 178.5 N/A 10 178.5 N/A 10 178.5 N/A 10 121 2 6 4 I 121 2 6 4 I 121 2 6 4 I 121 2 6 4 I 121 2 6 4 I 121 3 6 4 I 121 3 6 4 I Source: The Town of Fountain Hills, Arizona's Finance Department. 94 3 3 2005 3 178.5 N/A II 121 3 6 4 1 2006 3 178.5 N/A II 121 .., ..) 6 4 I 3 178.5 34 12 121 3 6 3 I