City of Scottsdale, Arizona Comprehensive Annual Financial Report for the fiscal year ended June 30, 2003 Prepared by: Financial Services Department Craig Clifford, CPA Chief Financial Officer Lisa Murphy, CPA Accounting Director City of Scottsdale, Arizona Comprehensive Annual Financial Report For the Fiscal Year ended June 30, 2003 Table of Contents Page INTRODUCTORY SECTION Letter of Transmittal – Chief Financial Officer, Financial Services ........................................................ 1 Certificate of Achievement - Government Finance Officers Association ............................................ 10 List of Elected and Appointed Officials/Organizational Chart .............................................................. 11 FINANCIAL SECTION Independent Auditors’ Report .......................................................................................................................... 13 Management’s Discussion and Analysis ......................................................................................................... 15 Basic Financial Statements: Government-wide Financial Statements: Statement of Net Assets. ....................................................................................................................... 32 Statement of Activities ........................................................................................................................... 33 Fund Financial Statements Balance Sheet - Governmental Funds ................................................................................................ 34 Reconciliation of the Governmental Funds Balance Sheet to the Statement of Net Assets............................................................................................. 36 Statement of Revenues, Expenditures, and Changes in Fund Balances – Governmental Funds ..................................................................................... 37 Reconciliation of the Statement of Revenues, Expenditures, and Changes in Fund Balances of Governmental Funds to the Statement of Activities ............................... 39 Statement of Revenues, Expenditures, and Changes in Fund Balance – Budget and Actual - General Fund ................................................................... 40 Reconciliation of the Statement of Revenues, Expenditures, and Changes in Fund Balances - Budget and Actual - General Fund .................................................................. 41 Statement of Net Assets - Proprietary Funds .................................................................................. 42 Statement of Revenues, Expenses, and Changes in Fund Net Assets – Proprietary Funds ............................................................................................ 44 Statement of Cash Flows - Proprietary Funds ................................................................................. 45 Statement of Fiduciary Net Assets - Fiduciary Funds ................................................................... 47 Statement of Changes in Fiduciary Net Assets - Fiduciary Funds ............................................. 48 Notes to the Financial Statements ................................................................................................................... 49 I Summary of Significant Accounting Policies ................................................................................... 49 II Reconciliation of Government-wide and Fund Financial Statements ....................................... 53 III Stewardship, Compliance and Accountability ................................................................................... 59 IV Detailed Notes on All Funds ................................................................................................................ 62 A. Cash and Investments ............................................................................................................. 62 B. Receivables ................................................................................................................................. 64 C. Capital Assets ............................................................................................................................ 65 D. Interfund Balances and Interfund Transfers ..................................................................... 67 E. Bonds, Loans, Capital Leases and Other Payables .......................................................... 70 V Other Information ................................................................................................................................... 83 Page A. Risk Management ..................................................................................................................... 83 B. Contingent Liabilities .............................................................................................................. 83 C. Commitments and Subsequent Events ............................................................................... 83 D. Joint Venture ............................................................................................................................. 84 E. Related Organization ................................................................................................................ 85 F. Retirement and Pension Plans ............................................................................................... 85 G. Other Post-Employment Benefits ........................................................................................ 87 Required Supplementary Information: Schedule of Funding Progress – Public Safety Personnel Retirement System .................................... 88 Combining and Individual Fund Statements and Schedules: Combining Balance Sheet - Nonmajor Governmental Funds .................................................................. 91 Combining Statement of Revenues, Expenditures, and Changes in Fund Balances - Nonmajor Governmental Funds ................................................................................ 92 Combining Balance Sheet - Nonmajor Special Revenue Governmental Funds ................................... 94 Combining Statement of Revenues, Expenditures, and Changes in Fund Balances - Nonmajor Special Revenue Governmental Funds .................................................. 95 Schedule of Revenues, Expenditures, and Changes in Fund Balances – Budget and Actual: Highway User Fuel Tax – Special Revenue Fund .................................................................................... 96 Preserve Privilege Tax – Special Revenue Fund ...................................................................................... 97 Transportation Privilege Tax – Special Revenue Fund ........................................................................... 98 Combining Balance Sheet - Nonmajor Debt Service Governmental Funds......................................... 99 Combining Statement of Revenues, Expenditures, and Changes in Fund Balances - Nonmajor Debt Service Governmental Funds ...................................................... 100 Schedule of Revenues, Expenditures, and Changes in Fund Balances – Budget and Actual: General Obligation Bond – Debt Service Fund .................................................................................... 101 Municipal Property Corporation Bond – Debt Service Fund ............................................................ 102 Special Assessments Bond – Debt Service Fund ...................................................................................103 Scottsdale Preserve Authority Bond – Debt Service Fund .................................................................104 Combining Balance Sheet - Nonmajor Capital Projects Governmental Funds ................................. 105 Combining Statement of Revenues, Expenditures, and Changes in Fund Balances - Nonmajor Capital Projects Governmental Funds ...............................................106 Schedule of Revenues and Expenses – Budget and Actual: Water and Sewer Utility – Enterprise Fund .................................................................................... 107 Explanation of Differences - Water and Sewer Utility Enterprise Fund ................................ 108 Airport – Enterprise Fund .................................................................................................................. 109 Solid Waste – Enterprise Fund ...........................................................................................................110 Combining Statement of Net Assets - Internal Service Funds ..........................................................112 Combining Statement of Revenues, Expenses and Changes in Fund Net Assets – Internal Service Funds ..................................................................................... 113 Combining Statement of Cash Flows - Internal Service Funds ........................................................ 114 Combining Statement of Fiduciary Net Assets ..................................................................................... 116 Combining Statement of Changes in Fiduciary Net Assets ................................................................117 Combining Statement of Changes in Assets and Liabilities ............................................................... 118 Other Supplementary Information: Schedule of Changes in Long-Term Debt ................................................................................................... 120 STATISTICAL SECTION Table Government-wide Information: Page I Government-wide Expenses by Function ............................................................................... 123 II Government-wide Revenues ....................................................................................................... 124 Fund Information: III General Governmental Expenditures by Function - General, Special Revenue, and Debt Service Funds - Last Ten Fiscal Years ............................... 125 IV General Governmental Revenues by Source - General Special Revenue, and Debt Service Funds - Last Ten Fiscal Years ................................ 126 V Tax Revenues by Source - General, Special Revenue, and Debt Service Funds - Last Ten Fiscal Years .......................................................................126 VI Excise Tax Collections By Source - General, Special Revenue, and Debt Service Funds – Last Ten Fiscal Years ................................................................................. 127 VII Privilege and Use Tax Collections by Category - General, Special Revenue, and Debt Service Funds - Last Ten Fiscal Years ............................................................... 128 VIII Privilege and Use Tax Collections by Source - General, Special Revenue, and Debt Service Funds - Last Ten Fiscal Years ............................................................... 129 IX Property Tax Levies and Collections - Last Ten Fiscal Years ............................................ 130 Xa Assessed and Estimated Actual Value of Taxable Property - Last Ten Fiscal Years ............................................................................................ 131 Xb Assessed Values by Property Class - Last Ten Fiscal Years ................................................132 Xia Property Tax Rates - Direct and Overlapping Governments - Last Ten Fiscal Years ...................................................................................133 Xib Property Tax Levies - Direct and Overlapping Governments - Last Ten Fiscal Years ...................................................................................134 XII Principal Taxpayers .......................................................................................................................135 XIII Special Assessment Billings and Collections - Last Ten Fiscal Years ............................... 136 XIV Ratio of Net General Obligation Bonded Debt to Assessed Value and Net Bonded Debt Per Capita - Last Ten Fiscal Years ................................................................................................137 XV Computation of Legal Debt Margins ....................................................................................... 138 XVI Summary of General Governmental Bond Expenditures and Debt Ratios - Last Ten Fiscal Years ....................................................................................... 139 XVII Summary of Water and Sewer Utility Bond Expense and Debt Ratios - Last Ten Fiscal Years .................................................................................................. 140 XVIII Total Direct and Overlapping General Obligation Debt .....................................................141 XIX Demographic Statistics - Last Ten Fiscal Years ..................................................................... 142 XX Property Value and Construction - Last Ten Fiscal Years .................................................. 143 XXI Schedule of Insurance ..................................................................................................................144 XXII Salaries and Surety Bonds of Principal Officials................................................................... 145 XXIII Miscellaneous Statistical Data ....................................................................................................146 Table of Contents September 12, 2003 The Honorable Mayor, City Council, And Citizens of the City of Scottsdale, Arizona Transmittal Letter For the Fiscal Year Ended June 30, 2003 City of Scottsdale Scottsdale, Arizona The Comprehensive Annual Financial Report of the City of Scottsdale (the City), Arizona, for the fiscal year ended June 30, 2003, is submitted in accordance with Article 6, Section 14, of the City Charter. This report was prepared by the City’s Accounting and Budget Divisions, in conformity with U.S. generally accepted accounting principles (GAAP) and audited in accordance with U.S. generally accepted auditing standards by a firm of licensed certified public accountants. This report consists of management’s representations concerning the finances of the City of Scottsdale. Consequently, management assumes full responsibility for the completeness and reliability of all of the information presented in this report. To provide a reasonable basis for making these representations, management of the City of Scottsdale has established a comprehensive internal control framework that is designed both to protect the government’s assets from loss, theft, or misuse and to compile sufficient reliable information for the preparation of the City of Scottsdale’s financial statements in conformity with GAAP. Because the cost of internal controls should not outweigh their benefits, the City of Scottsdale’s comprehensive framework of internal controls has been designed to provide reasonable rather than absolute assurance that the financial statements will be free from material 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. The City of Scottsdale’s financial statements have been audited by Cronstrom & Trbovich, PC, a firm of licensed certified public accountants. The goal of the independent audit was to provide reasonable assurance that the financial statements of the City of Scottsdale for the fiscal year ended June 30, 2003, are free of material misstatement. The independent audit involved examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements; assessing the accounting principles used and significant estimates made by management; and evaluating the overall financial statement presentation. The independent auditor concluded, based upon the audit, that there was a reasonable basis for rendering an unqualified opinion that the City of Scottsdale’s financial statements for the fiscal year ended June 30, 2003, are fairly presented in conformity with GAAP. The independent auditor’s report is presented as the first component of the financial section of this report. City of Scottsdale, Arizona 1 Table of Contents The independent audit of the financial statements of the City of Scottsdale was part of a broader, federally mandated “Single Audit” designed to meet the special needs of federal grantor agencies. The standards governing Single Audit engagements require the independent auditor to report not only on the fair presentation of the financial statements, but also on the audited government’s internal controls and compliance with legal requirements, with special emphasis on internal controls and legal requirements involving the administration of federal awards. These reports are available in the City of Scottsdale’s separately issued Single Audit Report. GAAP require that management provides a narrative introduction, overview, and analysis to accompany the basic financial statements in the form of Management’s Discussion and Analysis (MD&A). This letter of transmittal is designed to complement MD&A and should be read in conjunction with it. The City of Scottsdale’s MD&A can be found immediately following the report of the independent auditors. CITY OF SCOTTSDALE PROFILE Scottsdale is centrally located in Maricopa County, Arizona, with its boundaries encompassing an area approximately 184.6 square miles. Lying at an elevation of 1,260 feet above sea level, the City averages 314 days of sunshine and 7.74 inches of rainfall per year, with the average minimum and maximum temperatures ranging from 55.7 degrees to 84.6 degrees, respectively. The City is bordered to the west by Phoenix, the state capital, by Tempe to the south, and by the Salt River/Pima Maricopa Indian Community to the east. Scottsdale, together with its neighboring cities, forms the greater Phoenix metropolitan area, which is the economic, political, and population center of the state. Scottsdale was founded in the 1800’s when retired Army Chaplain Major Winfield Scott homesteaded what is now the center of the City. The City incorporated in 1951 and the City Charter, under which it is presently governed, was adopted in 1961. The City has experienced significant increases in population, with the 1950 census reporting 2,032 residents. The City’s 1990 census was 130,069. The population grew to 168,176 in October 1995 and is estimated to grow to approximately 216,640 by January 2003 and an estimated 221,033 by January 2004. 2 Scottsdale operates under a council-manager form of government as provided by its Charter. The Mayor and six City Council members are elected at large on a non-partisan ballot for a four-year term. The City Council appoints the City Manager, who has full responsibility for carrying out Council policies and administering City operations. The City Manager, in turn, appoints City employees and department General Managers under service procedures specified by Charter. City service departments provide a full range of services including police and fire protection, sanitation/solid waste service, water and sewer services, construction and maintenance of streets, recreational activities, and cultural events. The annual budget serves as the foundation for Scottsdale’s financial planning and control. The City Council formally adopts the budget and legally allocates, or appropriates, available monies for the General Fund, Highway User Fuel Tax Special Revenue Fund, Preserve Privilege Tax Special Revenue Fund, Transportation Privilege Tax Special Revenue Fund, Debt Service Funds (except for the Community Facilities Districts Debt Service Funds), and Enterprise Funds. Therefore, these funds have appropriated budgets, and budget to actual information is presented. On or before the second regular Council meeting in May, the City Manager submits to the City Council a proposed budget for the fiscal year commencing the following July 1. The budget includes proposed expenditures and the means of financing them. Two public hearings are held prior to the budget’s final adoption in order to obtain taxpayer comments. At the first regular Council meeting in June, the budget is legally enacted through passage of an ordinance. The ordinance sets the limit for expenditures during the fiscal year. Additional expenditures may be authorized for unanticipated and/or inadequately budgeted events threatening the public health or safety as prescribed in the State Constitution, Article 9, Section 20. During 2002/03, there were no supplemental budgetary appropriations to the original budget. The expenditure appropriations in the adopted budget are by department. The maximum legal expenditure permitted for the fiscal year is the total budget as adopted. Departmental appropriations may be amended during the year. Upon the recommendation of the City Manager, and with the approval of the City Council: (1) transfers may be made from the appropriations for contingencies to departments; and (2) unexpended appropriations may be transferred from one department to another. Management control of budgets is further maintained at a line item level within the department. City of Scottsdale, Arizona Table of Contents FACTORS AFFECTING THE CITY’S FINANCIAL CONDITION At the time this transmittal letter was written, the national and state leading economic indicators continued to fluctuate, underscoring a tenuous economic recovery. Some factors hinting at the prospects of better economic growth include slowly rising consumer confidence, modest increases in retail sales, a $330 billion dollar federal tax stimulus package, low interest rates, and a weakened dollar creating enhanced opportunities for the export of US goods. However, factors suggesting a tepid economic recovery include a poor labor market, rising unemployment, declining factory orders, and a lack of pent-up consumer demand for big ticket items due to 30-year historic lows in mortgage rates and zeropercent financing incentives on motor vehicles. The City of Scottsdale continues to benefit from favorable conditions, including a stable, diversified economic base and a desirable location for work, destination, and living. Low commercial vacancy rates, declining mortgage interest rates and the attractive developments within Scottsdale continue to bring high-end residential growth and commercial development. Commercial successes, such as Scottsdale Airpark, can be expected to continue because of the City’s commitment to targeted recruitment efforts that focus on industry segments that complement the existing business mix, including corporate headquarter and regional offices, high-tech, research and development, bio-med, and business and professional services. From a long-term perspective, the nation’s economy may be significantly affected by many factors, including geopolitical instability, a growing national debt, demands on Social Security as baby-boomers near retirement, and an upcoming presidential election. On the local front, the City of Scottsdale will face critical decisions regarding redevelopment and in-fill projects as the City reaches build out; a gradual decline in population growth, which will impact distributions of state-shared revenues; a shifting of the City’s economic base, as ample tax revenues derived from new growth will no longer be available; and intense competition from other communities in the region. The following categories represent key factors affecting Scottsdale’s economic and financial success. Local Economy Retail Sales - Scottsdale’s largest revenue source is sales tax generated from a wellbalanced variety of business categories including automotive, construction, food stores, City of Scottsdale, Arizona hotels/motels, department stores, retail stores, restaurants, utilities, and rentals. For the second consecutive year, the City of Scottsdale sales tax posted negative year-over-year growth in FY 2002/03, declining approximately 0.6 percent. This decline is approximately half a percent less than the 1.0 percent decrease in FY 2001/02. During FY 2002/03, shaky consumer confidence, rising unemployment, declining factory orders, and the Iraqi war all contributed to the continued economic doldrums. Of positive note, certain sales tax categories exhibited growth in FY 2002/03, including food stores up 3.2 percent, major department stores up 5.0 percent, and restaurants up 5.2 percent from the previous year. Residential Activity - Residential property value in Scottsdale increased to $19.2 billion in FY 2002/03, up approximately 5.5 percent from $18.2 billion in FY 2001/02. The number of dwelling units for residential construction increased slightly to 2,046 in FY 2002/03, up approximately 1.3 percent from 2,019 in FY 2001/02; respective residential construction value decreased to $400.5 million in FY 2002/ 03, down approximately 11.7 percent from $453.4 million in FY 2001/02. Commercial Activity - Commercial property value in Scottsdale increased to $7.3 billion in FY 2002/03, up approximately 9.0 percent from $6.7 billion in FY 2001/02. The number of commercial construction permits decreased to 2,215 in FY 2002/03, down approximately 10.1 percent from 2,464 in FY 2001/02; respective commercial construction value decreased to $199.2 million in FY 2002/03, down approximately 19.5 percent from $247.4 million in FY 2001/02. Vacancy Rates - Scottsdale’s citywide vacancy rate was 16 percent at the end of FY 2002/03, which was below the Valley-wide average. The weighted average rent was 8.6 percent higher than the Valley-wide average, evidence that Scottsdale remains an attractive city to conduct business. The forecasted vacancy rate for FY 2003/04 indicates improvement, in line with more positive economic outlook. Job Growth - The City of Scottsdale recruited over 20 new target firms resulting in over 2,000 new jobs in FY 2002/03 with an average annual salary of $62,000. The City benefited from population growth as well as higher income levels due to higher wage jobs. Major new 3 Table of Contents employers to announce moves to Scottsdale in FY2002/03 include DHL Worldwide Express, Spectrum Financial Group, National Bank of Arizona-Corporate Headquarters, Del Webb Group, Atronic Americas, and Centex Homes. Employment -Scottsdale is creating jobs faster than it is adding to its labor force and thus remains a net importer of labor. This creates employment opportunities for Scottsdale residents and creates a significant business component to the local tax base. Scottsdale’s current unemployment rate of 3.7 percent is lower than state and metropolitan Phoenix area levels and is lower than its 2002 unemployment rate of 4.0 percent. Tourism- Tourism is one of Scottsdale’s largest industries and is a significant contributor to the City’s economy. Numerous resorts, country clubs, and convention facilities, as well as many hotels and motels, provide nearly 10,000 guest rooms and offer recreational facilities including golf courses, tennis courts, and swimming pools. More than 2,500 retail shops, boutiques, and galleries are located throughout the City and a selection of almost 400 restaurants is available. These services and facilities, complemented by the mild winter climate, have made Scottsdale a popular vacation spot for tourists and winter visitors. Hotel occupancy tax receipts increased slightly by approximately 0.1 percent in FY 2002/03 compared to almost a 11.8 percent decrease in FY 2001/02. The current assessment is that tourism will remain flat during the remaining summer months with a modest recovery beginning during peak season. The local tourism industry continues to exhibit signs of moderate recovery as leisure and business travelers return to Scottsdale; however, hotel room rates remain soft as hoteliers offer discounts to spur demand. Therefore, while the long-term outlook for local tourism remains cautiously optimistic, slower hotel occupancy tax growth is expected relative to historical levels. Long-term Financial Planning The City’s responsiveness to emerging economic challenges and its careful long-range planning have been key factors in Scottsdale’s fiscal health. Despite actual FY 2002/03 revenues that lagged behind adopted budget estimates, the City recognized the trend early enough to cut expenditures without affecting services. The 4 Mayor and City Council have co-created a mission statement as well as six broad goal categories, which represent key interests and priorities of the Mayor, City Council, and reflect their constituency’s suggestions and expectations for the future. Council’s approvals of these Mission and Goal statements enable staff to create strategic plans and a programmatic budget that directly responds to the Council’s and community’s goals and expectations. Plans articulated in the 2003/04 Budget and Five Year Balanced Financial Plan continue to support basic government services (roads, water, sewer, solid waste management, public transit, parks and recreation, police, fire, etc.), while also addressing the City Council’s broad goals and citizen expectations for the community. The following are the mission and broad goals identified by Scottsdale’s Mayor and City Council: Mission - It is the mission of the City of Scottsdale to build citizen trust by fostering/ practicing open, accountable, and responsive government; to provide quality services; to provide long-term prosperity; to preserve Scottsdale’s unique southwestern character; to plan and manage growth in harmony with its desert surroundings; and to promote livability by enhancing and protecting its neighborhoods. Quality of life for residents and visitors shall be the paramount consideration. Broad Goals A. Enhance and protect a diverse, family-oriented community where neighborhoods are safe, protected from adverse impacts, and well maintained. B. Preserve the character and environment of Scottsdale. C. Provide for the safe, efficient and affordable movement of people and goods. D. Position Scottsdale for short and long-term economic prosperity by stabilizing, promoting, strengthening, stimulating, expanding, and diversifying our economic resources. E. Ensure Scottsdale is fiscally responsible and fair in its management of taxpayer money and city assets, and coordinates land use and infrastructure planning within the context of financial demands and available resources. F. Make government accessible, responsive, and accountable so that pragmatic decisions reflect community input and expectations. City of Scottsdale, Arizona Table of Contents Strategic Financial Plan Scottsdale’s financial plan requires many elements working in concert with one another. Some of these financial plan elements are financial resource planning, multi-year budget planning, strategic capital improvement project planning and debt management, all of which are further identified below. Currently, due to the tenuous economic recovery, Scottsdale’s financial forecast includes very modest revenue growth, potential for State reductions of revenue sharing, and continued increases in demand for City services such as police, fire, transportation and social services. Financial Services management role will be to maintain and enhance financial plan elements and ensure the continued financial stability for the City of Scottsdale. are also planned and considered in developing future operating budget plans. Projects with significant operating impacts are carefully timed to avoid contingent liabilities, which future operating resources cannot meet. Pay-as-you-go funding sources are also conservatively estimated to avoid over-committing to capital construction using revenues that are not certain. To the extent debt financing is used and/or required capital project plans are sized to conform to existing debt management policies. The table below estimates the operating costs attributable to the Five Year Capital Improvement Plan: Estimated Operating Impacts Attributable to Capital Projects For the five years ending June 30, 2008 (In Thousands of Dollars) Financial Resource Planning Community Facilities ................................................ $ 11,048.0 Strategic financial planning begins with Preservation ..............................................................................153.4 determining the City’s fiscal capacity Public Safety............................................................... 4,194.2 based upon long-term financial Service Facilities ........................................................ 3,160.3 forecasts of recurring available Transportation Improvements ............................... 10,625.9 revenues. Financial forecasts coupled Water Resources ........................................................ 12,241.5 with financial trend analysis techniques Total Estimated Operating Impacts ...................... $ 41,423.3 and careful reserve analysis help preserve the fiscal well being of Debt Management - Scottsdale has a financial Scottsdale. Strategic financial capacity planning policy that prohibits the issuance of debt for is a critical element to reach long-term financial operating expenses. All debt issuances by the stability goals and to determine special financial City; therefore, are used for financing capital needs for critical objectives of the City Council. infrastructure or long-lived costly assets. Each Multi-Year Budget Planning - Multi-year debt issuance is evaluated against multiple budget planning encompasses long-range financial policies, including debt service as a operating expenditure plans (including the percent of operating expenditures, tax and operating impacts of planned capital projects), revenue bases for the repayment of debt, the which are linked to community expectations and overall debt burden on the community, statutory broad goals of the City Council. The multi-year limitations, and market factors affecting taxapproach provides a better opportunity for staff exempt interest costs. For each debt issuance, a to change its financial paradigm from what do long-term analysis is performed of the financial we need this year to how do we accomplish our (debt) capacity that fits the ability and service objectives over-time, given our financial willingness of the community to pay for the capacity. While the City is required to adopt an capital projects. Every additional $1 million in annual budget to meet State statutory new debt costs just under $100,000 in annual requirements, Scottsdale builds a financial plan debt service operating expenses when amortized for the next five years to help anticipate future over 20 years. Sizing of the City’s Capital impacts and ensure achievement of City Improvement Plan based on debt capacity, in objectives. conjunction with conservatively estimated payas-you-go revenues, will help stabilize per capita Strategic Capital Improvement Project debt and lower annual debt service costs to the Planning - Scottsdale Capital Improvement City over the long-term. Projects are planned for five or more years and analyzed using City specific prioritization criteria. The operating cost impacts of projects City of Scottsdale, Arizona 5 Table of Contents Cash Management Policies and Practices Temporarily idle cash during the year, excluding the Municipal Property Corporation (MPC) and the Community Facilities Districts, was primarily invested in obligations of the United States Treasury and its agencies. Cash needed for normal operations was also invested in the State Treasurer’s Local Government Investment Pool, as well as mutual funds consisting solely of United States Government Treasury and Agency securities. The City utilizes a pooled cash concept in order to invest greater amounts of cash at one time and therefore; receives more favorable interest rates. The average yield on pooled investments for FY 2002/03 was 2.9 percent and the average balance was $454.6 million. The City of Scottsdale’s investment policy requires investment of the City funds at the highest available interest rate while assuring that all monies are fully secured with emphasis on safety of principal, liquidity, and financial return on principal, in that order. 6 preventative practices geared to work unit functions, the Risk Management division reviews every claim in order to develop and implement prevention techniques that minimize the City’s exposures to similar incidents. Post-Employment Benefits The City of Scottsdale participates in the Arizona State Retirement System, the Public Safety Personnel Retirement System, and the Elected Officials’ Retirement Plan. In addition, the City provides an option of post-retirement health care benefits in accordance with Chapter 14 of the City Code. At retirement, employees with medical leave accumulated prior to September 6, 1976 are eligible for payment of medical leave at 100 percent cash value of their current pay rate. Employees hired before July 1, 1982 can elect to receive cash equal to 50 percent of the first 520 hours of unused medical leave plus 25 percent of all hours in excess of 520 hours. The conversion rate is the employee’s average hourly base pay rate for the 5 years immediately preceding retirement. Any retiring employee with 300 or more hours of accumulated medical leave who chooses to remain on the city medical plan may elect to apply the value of the sick leave to the employee’s portion of the health care premiums, up to age 65. The value of the accumulated medical leave is calculated at the employee’s hourly rate of pay at the time of retirement. The number of participants during FY 2002/03 was 75 and is expected to grow as more employees reach retirement age. The projected liability for this benefit was actuarially determined on January 1, 2003 and was used to calculate the liability recorded in the financial statements. (See Note V of the Notes to the Financial Statements for additional information on this benefit). Risk Management The City of Scottsdale is exposed to various risks of loss related to public, property, and airport operator’s liability, as well as employee workers’ compensation exposures. Public liability includes public officials’ errors and omissions, automobile, and general liability areas of coverage. The City is self-insured for the first $2,000,000 of public liability, the first $100,000 of property insurance, and the first $600,000 of workers’ compensation claims. Coverage in excess of these respective amounts is provided through the purchase of commercial insurance. During the fiscal year ending June 30, 2003, there was significant reduction in excess liability insurance coverage limits due to a very restricted and expensive global insurance marketplace, due in large part to the terrorist attacks of September 11, 2001. As a result, overall liability coverage limits were reduced from a total of $75 million to $30 million to stay within budget. As for claim expenditures, settlements for each of the past three fiscal years have not exceeded the City’s excess insurance coverage amounts for any claims. MAJOR INITIATIVES AND SERVICE EFFORTS AND ACCOMPLISHMENTS During FY 2002/03, Scottsdale continued to invest in basic government service programs and amenities that define the special character of the City. These programs and amenities will assist in maintaining Scottsdale as a “livable” community for future generations. Scottsdale has an aggressive safety program that promotes on-the-job safety practices focusing on risk control techniques designed to minimize accident-related losses. In addition to Service efforts to shape and maintain Scottsdale as a sustainable community that were made in the past year included enhancements to the quality citizen services, contributions to environmentally and fiscally sound City of Scottsdale, Arizona Table of Contents infrastructure, and contributions toward building and maintaining a sustainable economic base. The following are some department service efforts and accomplishments for FY 2002/03. Police Implemented a new photo enforcement contract with Digital Camera Systems in 4 speed enforcement vehicles and 6 red light camera systems, thereby continuing the Focus On Safety program to reduce vehicle accidents. Opened the Family Advocacy Center to serve as a multidisciplinary facility for victims of child abuse, sexual assault, domestic violence, and elder abuse. The facility provides a place where victims in crisis receive a full spectrum of services in a victim friendly environment, thereby reducing victim trauma. The Department’s Crime Scene Unit was the first unit in Arizona to achieve national accreditation from the American Society of Crime Laboratory Directors’ Laboratory Accreditation Board. Only about 12 other accredited crime scene units throughout the country have received this prestigious accreditation. Implemented an Internet reporting system that offers victims of certain crimes with an easier and more efficient means of filing a police report. Fire Completed construction and manned two new City fire stations located at 16701 North 100th Street (Station 817) and 27777 North Alma School Road (Station 818). The new permanent facility for the Scottsdale Airport (Station 812) is under construction and will be open this fiscal year. Another fire station (Station 827) will be located on the northwest corner of Pima and Ranch Roads. All first responding fire units were equipped with new portable thermal imaging cameras which are some of the most technologically advanced firefighting tools available. Thermal imaging cameras allow firefighters to “see” heat through walls and smoke-filled rooms making it much quicker and easier to find trapped persons or to locate the source of a hidden fire. City of Scottsdale, Arizona Financial Services The three major credit rating agencies, Fitch Ratings, Moody’s Investors Service, and Standard and Poor’s Ratings Services, have assigned ratings of “AAA”, “Aaa”, and “AAA” respectively on outstanding general obligation bonds. These are the highest possible ratings. Issued $72 million of General Obligation refunding bonds to take advantage of low interest rates and the City’s high credit ratings. This resulted in $3.2 million debt service savings. Transportation Scottsdale’s first Systematically Managed Arterial (SMART) roadway along Indian School Road became operational in August 2002. Five Traffic Impact Mitigation Analyses were completed under the develop-funded/Citycontrolled program to uniformly assess the impact of development on the City’s circulation system. Community Services Completed the renovation of Eldorado Aquatic and Fitness Center. This $5.4 million project added a new pool facility with slide, beach entry, therapy pool and 13 lap lanes. A 1,200 square foot fitness facility was also added to this southern neighborhood amenity. Completed Sonoran Hills Neighborhood Park adjacent to Paradise Valley School District Pinnacle Peak School. Amenities include: tennis courts, one unlit ball field, playground, and picnic facilities. Completed the Scottsdale Ranch Park Desert Garden, the last remaining parcel at Scottsdale Ranch Park. A $250,000 Arizona Heritage Grant and a $190,000 donation from the Scottsdale Ranch Community Association helped to fund this unique and welcomed project. Installed PC Reservation System, an automated system for time management and reservation of public computers, in all four libraries. This system impartially manages and monitors usage and provides excellent statistics on computer usage for 125 public access computers in the library system, as well as freeing staff to work with library customers. 7 Table of Contents Information Systems Completed an external evaluation of the City’s current technology position and strategic plan. Implementation of the Police Incident Reporting Program (PIRP) – This program utilizes a mobile police reporting system that facilitates electronic compilation of police reports, thereby replacing manual/paper processes. Benefits include improved data quality and simplified report editing. PIRP will be deployed in over 150 police vehicles. Implementation of a mobile asset management system for Water Resources - This application automates processes surrounding water-related customer service requests, preventative maintenance, work scheduling, and map retrieval/display. Deployment will encompass over 50 Water Resources service vehicles. Security Enhancements - This effort included migration of the City’s computing environment to a new state-of-the-art suite of virus software. This new environment provides the City with three new levels of security against computer viruses. In addition, a number of new security enhancements were implemented, including strengthened passwords, increased desktop security, intrusion monitoring and alert systems, and ongoing organizational outreach with City staff regarding the importance of security. Planning and Development Services The 6-month Downtown Fee Reduction program resulted in 31 properties receiving fee discounts. This program was implemented to assist downtown property owners in financing renovation projects. Additionally, Staff proactively assisted 98 properties with researching and scheduling proposed revitalization and renovation projects. This focused approach is designed to provide downtown property owners with one-on-one support for any and all questions related to downtown reinvestment. The Current Planning Division converted the Planning Commission agenda packets to an electronic format and posted them to the City’s web site for greater community access. The Development Review Board and Board of Adjustment packets will also be making the transition to the electronic packet format, resulting in continued enhanced community awareness. 8 To further enhance customer service, the Department provided After-Hours Inspections and an Expedited Review process. Revenues from the After-Hours Inspections totaled $13,468 and revenues from the Expedited Review process totaled $321,693. These revenues offset the Department’s entire overtime expenses for the fiscal year, with the remaining funds going directly to the City’s General Fund to support other General Fund activities. Preservation Acquired an additional 322 acres for inclusion in the McDowell Sonoran Preserve. Applied to purchase 399 acres of State Trust land within the planned McDowell Sonoran Preserve. This property was reclassified by the State Land Commissioner as suitable for conservation under the Arizona Preserve Initiative. Acquisition is pending for FY 2003/ 04. Water Resources The City of Scottsdale increased the use of surface water used to meet potable water demands from slightly over half of demand (53%) to over two-thirds (67%) of water supplied in 2002 and reduced reliance on groundwater. Design of the $60 million Chaparral Water Treatment Plant has been completed. Upon completion of the public bidding process, construction is expected to begin in November 2003, with completion scheduled for January 2006. This plant will utilize advanced technology to provide high quality drinking water to the southern neighborhoods of the City. Water Resources completed the federally mandated Vulnerability Assessment of the water system in March 2003. This assessment identified potential areas for improving the security of the system. In order to complete the Assessment, the Department obtained a $115,000 grant from the USEPA which was used to retain a professional consultant who assisted in completing the assessment. Municipal Services Completed numerous capital improvement projects including: Pima Road Water Transmission Main – Pinnacle Peak Road to Cave Creek Road – a multiple construction City of Scottsdale, Arizona Table of Contents contract project involving the construction of large diameter potable water mains, pump station and reservoir expansions spanning a total length of nine miles and requiring a total budget of approximately $24 million. Completion of this project enables the City to distribute treated surface water to all northern areas and eliminates the need for constant pumping of dwindling groundwater resources. Issued a contract to provide required data and collection services to complete the City’s development of a state-of-the-art pavement management system. All commuter-class streets will be surveyed and analyzed for current condition and maintenance needs with information available through sophisticated technology, which will enable development of cost-effective, annual maintenance plans and budgets. Fleet management completed deployment of a new fuel management system. The new system can calculate total cost per mile and miles per gallon for individual vehicles, provide exception reporting, initiate fuel reordering, and reconcile fuel usage with inventory levels. The final product is improved accountability and better environmental health reporting. The Green Waste Pilot Program diverted 5,665 tons of green waste material from the landfill to a mulching program. This represents 38.3 percent of the brush and bulk items collected. A formal agreement for this program is anticipated in FY 2003/04. continues to meet the Certificate of Achievement Program’s requirements and we are submitting this year’s CAFR to the GFOA to determine its eligibility for another Certificate of Achievement. The City of Scottsdale received the Distinguished Budget Presentation Award for the fiscal year beginning July 1, 2002 from the GFOA for our conformity in budget presentation. We believe that our current budget continues to conform to the program requirements and expect to receive this award for the fiscal year beginning July 1, 2003. In addition the City’s AAA ratings from all three rating agencies on uninsured general obligation bonds as provided above were affirmed by the rating agencies in September 2003 in conjunction with the issuance of general obligation refunding bonds. (See the Management Discussion and Analysis for additional information on the bond ratings by bond type.) The preparation of this report could not have been accomplished without the dedicated service of the entire staff of the Accounting and Budget divisions, the assistance of administrative personnel in the various departments, and through the competent service of our independent auditors. I also wish to express my sincere appreciation to the City Council, the City Manager, and the Assistant City Managers for their interest and support in planning and conducting the financial affairs of the City of Scottsdale in a responsible and progressive manner. Respectfully submitted, Craig Clifford, CPA, CGFM AWARDS AND ACKNOWLEDGEMENTS The Government Finance Officers Association (GFOA) of the United States and Canada awarded a Certificate of Achievement for Excellence in Financial Reporting to the City of Scottsdale for its Comprehensive Annual Financial Report (CAFR) for the fiscal year ended June 30, 2002. This was the 30th consecutive year that the City has achieved this prestigious award. In order to be awarded a Certificate of Achievement, a government must publish an easily readable and efficiently organized CAFR, which must satisfy both Generally Accepted Accounting Principles and applicable legal requirements. This Certificate of Achievement is rewarded on a yearly basis. We believe that our current comprehensive annual financial report City of Scottsdale, Arizona Chief Financial Officer 9 Table of Contents 10 City of Scottsdale, Arizona Table of Contents City of Scottsdale, Arizona List of Elected and Appointed Officials City Council Mary Manross, Mayor Ned O’Hearn, Vice Mayor Wayne Ecton Robert W. Littlefield Cynthia Lukas David Ortega Tom Silverman Charter Offices Comprehensive Annual Financial Report David Pennartz, City Attorney Cheryl Dreska, City Auditor Sonia Robertson, City Clerk B. Monte Morgan, City Judge Jan Dolan, City Treasurer For the Fiscal Year Ended June 30, 2003 Administrative Stafff City of Scottsdale Scottsdale, Arizona City of Scottsdale, Arizona Jan Dolan, City Manager Barbara A. Burns, Assistant City Manager Ed Gawf, Deputy City Manager Roger Klingler, Assistant City Manager 11 Table of Contents 12 City of Scottsdale, Arizona Table of Contents Management’s Discussion and Analysis For the Fiscal Year Ended June 30, 2003 13 City of Scottsdale, Arizona For the Fiscal Year Ended June 30, 2003 Management’s Discussion and Analysis Table of Contents 14 City of Scottsdale, Arizona Table of Contents This section of the City of Scottsdale’s (the City) Comprehensive Annual Financial Report presents a narrative overview and comparative analysis of the financial activities of the City for the fiscal years ended June 30, 2003 and 2002. We encourage readers to consider the information presented here in conjunction with additional information that we have furnished in our letter of transmittal. Management’s Discussion and Analysis ANAGEMENT’S DISCUSSION AND ANALYSIS For the Fiscal Year Ended June 30, 2003 M FINANCIAL HIGHLIGHTS The assets of the City exceeded its liabilities at the close of the fiscal years 2003 and 2002 by $2.6 billion and $2.5 billion (net assets), respectively. Of these amounts, $346.2 million and $328.4 million (unrestricted net assets), respectively, may be used to meet the government’s ongoing obligations to citizens and creditors. The City’s total net assets increased by $96.0 million and $127.3 million during fiscal years 2003 and 2002, respectively. As of June 30, 2003 and 2002, the City’s governmental funds reported combined ending fund balances of $270.9 million and $283.6 million, respectively. The decrease is primarily due to the capital spending of bond proceeds received in fiscal year 2002. Approximately 94.2 percent of the fund balance at June 30, 2003, $255.2 million, is unreserved fund balance available for spending at the government’s discretion, compared to $268.7 million at June 30, 2002. However, in fiscal year 2003 management has designated $58.4 million of the unreserved fund balance for various uses. At the close of the current fiscal year, unreserved fund balance for the General Fund was $71.2 million or 42.0 percent of total General Fund expenditures of $169.7 million. At the close of fiscal year 2002, unreserved fund balance for the General Fund was $74.4 million or 45.1 percent of total General Fund expenditures of $164.0 million. During fiscal year 2003, the City’s total bonded debt decreased by approximately $25.5 million, in contrast to the increase of approximately $52.5 million in fiscal year 2002. Although the City completed several refunding transactions, the key contributor to the decrease was normal debt service payments. City of Scottsdale, Arizona 15 For the Fiscal Year Ended June 30, 2003 Management’s Discussion and Analysis Table of Contents OVERVIEW OF THE FINANCIAL STATEMENTS This discussion and analysis are intended to serve as an introduction to the City’s basic financial statements. The City’s basic financial statements comprise three components: (1) Government-wide financial statements, (2) Fund financial statements, and (3) Notes to the financial statements. This report also contains other supplementary information in addition to the basic financial statements themselves. Relationship Between Comprehensive Annual Financial Report (CAFR) and Basic Financial Statements and Required Supplementary Information (RSI) General Information on the government structure, Introductory services and environment Section + Management's Discussion and Analysis CAFR Government-wide Financial Statements Basic Financial Statements and RSI Governmental Fund Financial Statements Proprietary Fund Financial Statements Fiduciary Fund Financial Statements Financial Section Notes to the Financial Statements Additional Required Supplementary Information Information on individual funds and discretely presented component units and other supplementtary information not required by GAAP + Trend data and nonfinancial data Statistical Section Government-wide Financial Statements The government-wide financial statements are designed to provide readers with a broad overview of the City’s finances, in a manner similar to a private-sector business. The statement of net assets presents information on all of the City’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 a useful indicator of whether or not the financial position of the City is improving or deteriorating. The statement of activities presents information showing how the City’s net assets changed during the most recent fiscal year. All 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 this statement for some items that will only result in cash flows in future fiscal periods, such as revenues pertaining to uncollected taxes and expenses pertaining to earned but unused vacation and sick leave. 16 City of Scottsdale, Arizona Table of Contents Separate financial statements of the MPC, SPA and Scottsdale Mountain, McDowell Mountain Ranch, DC Ranch, and Via Linda Road Community Facilities Districts may be obtained at the City’s Financial Services Department, Accounting Division, 7447 East Indian School Road, Suite 210, Scottsdale, Arizona 85251. The government-wide financial statements can be found on pages 32 and 33 of this report. Governmental Funds Governmental funds are used to account for essentially the same functions reported as governmental activities in the government-wide financial statements. However, unlike the government-wide financial statements, governmental fund financial statements focus on near-term inflows and outflows of spendable resources as well as on balances of spendable resources available at the end of the fiscal year. Such information may be useful in determining what financial resources are available in the near future to finance the City’s programs. Management’s Discussion and Analysis The government-wide financial statements are for the City itself. However, included within the governmental activities of the government-wide financial statements are the operations of the City of Scottsdale Municipal Property Corporation (MPC), the Scottsdale Preserve Authority (SPA), and Scottsdale Mountain, McDowell Mountain Ranch, DC Ranch, and Via Linda Road Community Facilities Districts. Although legally separate from the City, these component units are blended with the primary government because of their governance or financial relationships to the City. Fund Financial Statements A fund is a grouping of related accounts that is used to maintain control over resources that have been segregated for specific activities or objectives. The City, like other state and local governments, uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. All of the funds of the City can be divided into the following three categories: Governmental Funds, Proprietary Funds, and Fiduciary Funds. For the Fiscal Year Ended June 30, 2003 Both of the government-wide financial statements distinguish functions of the City that are principally supported by taxes and intergovernmental revenues (governmental activities) from other functions that are intended to recover all or a significant portion of their costs through user fees and charges (businesstype activities). The governmental activities of the City include general government, police, financial services, transportation, community services, information systems, planning and development, fire, municipal services, and citizen and neighborhood resources. The business-type activities of the City include water, sewer, solid waste, and airport operations. Because the focus of governmental funds is narrower than that of the government-wide financial statements, it is useful to compare the information presented for governmental funds with similar information presented for governmental activities in the government-wide financial statements. By doing so, readers may better understand the long-term impact of the government’s near-term financing decisions. Both the governmental fund balance sheet and the governmental fund statement of revenues, expenditures, and changes in fund balances provide a reconciliation to facilitate this comparison between governmental funds and governmental activities. The City maintains several individual governmental funds organized according to their type (special revenue, debt service, and capital projects). Information is presented separately in the governmental fund balance sheet and in the governmental fund statement of revenues, expenditures, and changes in fund balances for the General Fund, General Obligation Bond Debt Service Fund, and General Capital Improvement Plan Construction Capital Projects Fund, which are considered to be major funds. Data from the remaining governmental funds are combined into a single, aggregated presentation. City of Scottsdale, Arizona 17 For the Fiscal Year Ended June 30, 2003 Management’s Discussion and Analysis Table of Contents Individual fund data for each of the non-major governmental funds is provided in the form of combining statements elsewhere in this report. The City adopts an annual appropriated budget for its General Fund. A budgetary comparison statement has been provided for the General Fund to demonstrate compliance with this budget. Proprietary Funds Proprietary Funds are generally used to account for services for which the City charges customers–either outside customers, or internal units or departments of the City. Proprietary Funds provide the same type of information as shown in the government-wide financial statements, only in more detail. The City maintains the following two types of Proprietary Funds: Enterprise Funds are used to report the same functions presented as business-type activities in the government-wide financial statements. The City uses Enterprise Funds to account for the operations of the Water, Sewer and Solid Waste operations of the City as well as the Airport. All Enterprise Funds are considered to be major funds of the City. Internal Service Funds are used to report activities that provide supplies and services for certain City programs and activities. The City uses Internal Service Funds to account for its fleet of vehicles and self-insurance. Because these services predominantly benefit governmental rather than businesstype functions, they have been included within governmental activities in the government-wide financial statements. The Internal Service Funds are combined into a single, aggregated presentation in the propriety fund financial statements. Individual fund data for the Internal Service Funds is provided in the form of combining statements elsewhere in this report. Fiduciary Funds Fiduciary Funds are used to account for resources held for the benefit of parties outside the City. The City has two private-purpose trust funds and two agency funds, which are reported under the Fiduciary Funds. Fiduciary Funds are not reflected in the government-wide financial 18 statement because the resources of those funds are not available to support the City’s own programs. The accounting used for Fiduciary Funds is much like that used for Proprietary Funds. Notes to the Financial Statements The notes to the financial statements provide additional information that is essential to a full understanding of the data provided in the government-wide and fund financial statements. Required Supplementary Information In addition to the basic financial statements and accompanying notes, this report presents certain required supplementary information concerning the City’s progress in funding its obligation to provide pension benefits to its employees. Combining Statements The combining statements referred to earlier in connection with non-major governmental funds, Internal Service Funds, and Fiduciary Funds are presented immediately following the required supplementary information on pensions. GOVERNMENT-WIDE FINANCIAL ANALYSIS Analysis of Net Assets As noted earlier, net assets may serve as a useful indicator of a government’s financial position. For the City, assets exceeded liabilities by $2.6 billion and $2.5 billion at the close of the fiscal years 2003 and 2002, respectively. The largest portion of the City’s net assets reflects its investment of $2.15 billion (81.7 percent) and $2.06 billion (81.1 percent) in capital assets (e.g. land, buildings, and equipment), less any related outstanding debt used to acquire those assets, for the fiscal years 2003 and 2002, respectively. The City uses these capital assets to provide services to citizens; consequently, these assets are not available for future spending. Although the City’s investment in its capital assets is reported net of related debt, it should be noted that the resources needed to repay this debt must be provided from other sources, since the capital assets themselves cannot be liquidated for these liabilities. City of Scottsdale, Arizona Table of Contents Governmental Business-type Activities 2003 Assets Current and other assets Capital Assets Total Assets Liabilities Long-term liabilities outstanding Other liabilities Total Liabilities Net Assets Invested in capital assets, net of related debt Restricted Unrestricted Total Net Assets Total Liabilities and Net Assets $ 384,223 2,023,879 2,408,102 Activities 2002 $ 387,530 1,977,725 2,365,255 2003 $ 227,423 754,640 982,063 Total 2002 $ 210,073 741,373 951,446 2003 $ 611,646 2,778,519 3,390,165 2002 $ 597,603 2,719,098 3,316,701 562,122 75,161 637,283 552,788 96,781 649,569 96,855 23,210 120,065 96,300 34,017 130,317 658,977 98,371 757,348 649,088 130,798 779,886 1,492,879 117,801 160,139 1,770,819 $ 2,408,102 1,429,495 133,460 152,731 1,715,686 $ 2,365,255 659,130 16,721 186,147 861,998 982,063 629,106 16,399 175,624 821,129 951,446 2,152,009 134,522 346,286 2,632,817 $ 3,390,165 2,058,601 149,859 328,355 2,536,815 $ 3,316,701 $ $ An additional portion of the City’s net assets, $134.5 million (5.1 percent) for fiscal year 2003 and $149.8 million (5.9 percent) for fiscal year 2002 represent resources that are subject to external restrictions on how they may be used. The remaining balance of unrestricted net assets for fiscal years 2003 and 2002, $346.3 million (13.2 percent) and $328.4 million (12.9 percent), respectively, may be used to meet the government’s ongoing obligations to citizens and creditors. Management’s Discussion and Analysis June 30, 2003 and 2002 (in thousands of dollars) For the Fiscal Year Ended June 30, 2003 Net Assets At the end of both the current and previous fiscal years, the City was able to report positive balances in all three categories of net assets, both for the government as a whole, as well as for the business-type activities. City of Scottsdale, Arizona 19 For the Fiscal Year Ended June 30, 2003 Management’s Discussion and Analysis Table of Contents Analysis of Changes in Net Assets The City’s total net assets increased by $96.0 million and $127.2 million during the fiscal years 2003 and 2002, respectively. These increases are explained in the government and business-type activities discussion herein, and are primarily a result of contributions from developers of infrastructure assets. Changes in Net Assets For the Years Ended June 30, 2003 and 2002 (in thousands of dollars) Governmental Activities 2003 2002 Revenues Program Revenues: Charges for Services Operating Grants and Contributions Capital Grants and Contributions General Revenues: Property Taxes Business Taxes Intergovernmental Taxes Interest and Investment Income Other Total Revenues Expenses General Government Police Financial Services Transportation Community Services Information Systems Fire Municipal Services Citizen and Neighborhood Resources Human Resources Economic Vitality Planning and Development Streetlight and Services Districts Interest on Long-term Debt Water Utility Sewer Utility Airport Solid Waste Total Expenses Increase in Net Assets Before Special Items and Transfers Gain/(Loss) on Sale of Capital Asset Transfers Increase in Net Assets Net Assets at Beginning of Year Net Assets at End of Year 20 $ $ 35,501 21,219 70,369 $ 36,954 9,626 77,412 Business-type Activities 2003 2002 $ 42,218 124,935 46,971 4,108 4,718 350,039 39,485 127,620 57,492 11,485 5,213 365,287 23,926 $ 54,469 7,883 71,837 52,222 11,901 18,127 12,290 2,433 3,601 6,421 11,908 1,099 27,786 305,903 26,982 $ 52,719 7,464 72,159 53,325 10,821 16,494 11,482 2,484 18,269 1,044 28,063 301,306 44,136 63,981 42 234 10,955 6,223 55,133 70,438 1,715,686 1,645,248 $ 1,770,819 $ 1,715,686 $ 110,616 28,487 $ 1,493 1,672 142,268 50,406 22,862 2,476 13,783 89,527 109,566 38,733 Total 2003 $ 5,820 154,119 $ 52,741 (917) (10,955) 40,869 821,129 861,998 $ 51,125 24,007 2,648 14,071 91,851 146,117 21,219 98,856 2002 $ 42,218 124,935 46,971 5,601 6,390 492,307 $ 23,926 54,469 7,883 71,837 52,222 11,901 18,127 12,290 2,433 3,601 6,421 11,908 1,099 27,786 50,406 22,862 2,476 13,783 395,430 146,520 9,626 116,145 39,485 127,620 57,492 17,305 5,213 519,406 $ 26,982 52,719 7,464 72,159 53,325 10,821 16,494 11,482 2,484 18,269 1,044 28,063 51,125 24,007 2,648 14,071 393,157 62,268 96,877 126,249 874 (875) 1,108 (6,289) (66) 56,853 96,002 127,291 764,276 2,536,815 2,409,524 821,129 $ 2,632,817 $ 2,536,815 City of Scottsdale, Arizona Table of Contents $80,000 City of Scottsdale Program Revenues and Expenses Governmental Activities Fiscal Year 2002/03 (in thousands of dollars) 70,000 60,000 50,000 40,000 Management’s Discussion and Analysis For the second consecutive year, City sales tax posted negative year-over-year growth in the 2003 fiscal year. However, property taxes were up 6.9 percent and 4.6 percent, respectively, over the previous year. In preparation for the revenue decrease, the City placed spending limitations and restrictions on all departments to help ensure that total net assets did not decline. For the Fiscal Year Ended June 30, 2003 Governmental activities. Governmental activities increased the City’s net assets by $55.1 million in fiscal year 2003 and $70.4 million in fiscal year 2002, thereby accounting for 57.4 percent and 55.3 percent, respectively, of the total growth in the net assets of the City. Key factors of this increase are as follows: 30,000 20,000 Revenues Expenses City of Scottsdale, Arizona Interest on long-term debt Streetlight and Services Districts Economic Vitality Human Resources Citizen & Neighborhood Resources Planning and Development Fire Municipal Services Information Systems Community Services Financial Services Transportation Police 0 General Government 10,000 21 For the Fiscal Year Ended June 30, 2003 Management’s Discussion and Analysis Table of Contents As shown in the “Program Revenues and Expenses for Governmental Activities” chart and the “Revenues by Source for Governmental Activities” chart, transportation is the largest function in expense (23.5 percent), followed by police (17.8 percent), and community services (17.1 percent). General revenues such as property, business, and privilege taxes are not shown by program, but are effectively used to support program activities citywide. For governmental activities overall, without regard to program, business taxes are the largest single source of funds (35.7 percent), followed by capital grants and contributions (20.1 percent), and intergovernmental taxes (13.4 percent). Business-type activities. Business-type activities increased the City’s net assets in fiscal years 2003 and 2002 by $40.9 million and $56.8 million, respectively, accounting for 42.6 percent and 44.7 percent, respectively, of the total growth in the City’s net assets. Key factors of this increase are as follows: The Water and Sewer Utility Fund had capital contributions from developers and grantors resulting in $26.8 million and $35.8 million in revenue for fiscal years 2003 and 2002, respectively. The majority of this amount is from infrastructure donated from developers and development fees received as development continues throughout the City. $80,000 City of Scottsdale Program Revenues and Expenses Business Type Activities Fiscal Year 2002/03 (in thousands of dollars) 70,000 60,000 50,000 40,000 30,000 Revenues 20,000 Expenses 10,000 0 22 Water Utility Sewer Utility Airport Solid Waste City of Scottsdale, Arizona Table of Contents As shown in “Program Revenues and Expenses for Business Type Activities” and the “Revenues by Source for Business Type Activities” charts, the largest of Scottsdale’s business-type activities, Water and Sewer utilities, each had expenses in excess of $50.4 million and $22.9 million, respectively, in fiscal year 2003, followed by Solid Waste with operating expenses of $13.7 million. For the fiscal year, revenues exceeded expenses in all four areas of business activity. Fees provided the largest share of revenues (77.8 percent) followed by capital grants and contributions (20.0 percent), which are largely developer contributions and development fees, for all of the business-type activities. FINANCIAL ANALYSIS OF THE CITY’S FUNDS As noted earlier, the City uses fund accounting to ensure and demonstrate compliance with financerelated legal requirements. Governmental Funds The focus of the City’s governmental funds is to provide information on near-term inflows, outflows, and balances of resources that are available for spending. Such information is useful in assessing the City’s financing requirements. In particular, unreserved fund balance may serve as a useful measure of a government’s net resources available for spending at the end of the fiscal year. Types of Governmental funds reported by the City include the General Fund, Special City of Scottsdale, Arizona As of the end of the current fiscal year, the City’s governmental funds reported combined ending fund balances of $270.9 million, a decrease of $12.7 million in comparison to fiscal year 2002. The combined ending fund balances for fiscal year 2002 were $283.6 million. The decrease in the current year’s fund balance is primarily due to the capital spending of bond proceeds received in fiscal year 2002. Approximately $255.2 million of the total for fiscal year 2003 and $268.7 million of the total for fiscal year 2002 constitutes unreserved fund balance, which is available for spending at the City’s discretion. The remainder of fund balance is reserved to indicate that it is not available for new spending because it has already been committed, (1) to pay debt service ($13.7 million and $12.8 million for fiscal years 2003 and 2002, respectively); (2) for the repayment of a long-term loan from another fund ($1.2 million and $1.1 million for fiscal years 2003 and 2002, respectively) or; (3) to pay for the ongoing cost of the streetlight and services districts ($801,000 and $882,000 for fiscal years 2003 and 2002, respectively). Management’s Discussion and Analysis The Solid Waste fund had increase in net assets in 2003 and 2002 of $1.4 million and $1.3 million, respectively. Operating expenses for the same periods stayed relatively constant at $13.7 million and $13.9 million, respectively. However, revenues increased from $15.8 million to $16.3 million from the fiscal year 2002 to 2003, a 3.2 percent increase. Although rates for solid waste services were unchanged from fiscal year 2002 and 2003, the number of homes and business continues to grow as the population increases. Revenue Funds, Debt Service Funds, and Capital Project Funds. For the Fiscal Year Ended June 30, 2003 The Airport Fund had capital contributions from grantors resulting in $1.6 million and $3.0 million in revenue for fiscal years 2003 and 2002, respectively. The majority of this amount is airport improvements financed by state and federal grants. Revenues for governmental functions overall totaled approximately $285.1 million and $289.9 million in the fiscal years ended June 30, 2003 and 2002, respectively, which represents a decrease of 1.7 percent ($4.8 million) and 2.4 percent ($7.2 million), respectively, from the previous years. In fiscal year 2003 expenditures for governmental functions, totaled $327.0 million, an increase by 3.4 percent ($10.7 million) over the fiscal year 2002 total of $316.4 million. In the fiscal years ended June 30, 2003 and 2002 expenditures for governmental functions exceeded revenues by approximately $41.9 million (14.7 percent) and $26 million (9.1 percent), respectively. Increases in the deficit from 2002 to 2003 were caused by decreased interest earnings, federal grants and miscellaneous revenue as well as an increase in police, fire and debt service principal expenditures. A portion of this year’s deficit was offset by transfers in from other funds. The General Fund is the chief operating fund of the City. At the end of the current fiscal year, the unreserved fund balance of the General Fund was $71.2 million, while total fund balance was $73.2 million. The unreserved and total balances for the General Fund at the end of fiscal year 2002 were $74.4 million and $76.4 million, 23 For the Fiscal Year Ended June 30, 2003 Management’s Discussion and Analysis Table of Contents respectively. As a measure of the General Fund’s liquidity, it may be useful to compare both unreserved fund balance and total fund balance to total fund expenditures. Unreserved fund balance represents 42.0 percent of the total General Fund expenditures of $169.7 million in fiscal year 2003 and 45.4 percent of the total General Fund expenditures of $163.9 million in fiscal year 2002. The total fund balance represents 43.1 percent and 46.6 percent of those same amounts for fiscal years 2003 and 2002, respectively. In fiscal year 2003 management has designated $58.4 million of the General Fund unreserved fund balance for various uses. For the second consecutive year the fund balance in the City’s General Fund decreased. The decrease in fiscal year 2003 by $3.1 million is mainly due to the funding of the pay-as-you-go Capital Improvement Plan and decreased revenues due to the current economy and was offset by spending restrictions placed on all departments during the year. Overall, the General Fund’s performance resulted in revenues over expenditures in the fiscal year ended June 30, 2003, of $27.3 million, an increase of 85.7 percent over the comparable figure from the prior year of $14.7 million. The General Obligation Bond Debt Service fund is used to account for the accumulation of resources for, and the payment of, general obligation long-term debt principal, interest and related costs. At the end of the current fiscal year, the fund balance of the General Obligation Bond Debt Service Fund was $9.0 million relatively unchanged from the previous year. The fund balance at the end of fiscal year 2002 was $8.4 million. During the fiscal year, the City issued $72,000,000 of General Obligation Refunding Bonds, Series 2002, (advance refunding) dated September 26, 2002, with an average interest rate of 4.5%, to refund $71,510,000 of Series 1992, 1993, 1994, 1995, 1997, 1998, 1999, 1999A and 2001 General Obligation and Preservation Bonds with an average interest rate of 4.92%. The City will reduce its total debt service payments over the next 22 years by approximately $3,218,584 and obtain an economic gain (difference between the present values of the debt service payments on the old and new debt) of $611,585. The General CIP Construction Capital Project fund accounts for the resources used to acquire, 24 construct and improve major capital facilities, other than those financed by proprietary funds. At the end of the current fiscal year, the fund balance of the General CIP Construction Capital Project Fund was $81.2 million. The fund balance at the end of fiscal year 2002 was $72.5 million. The increase in fund balance is primarily due to amounts transferred from the General Fund to fund the pay-as-you-go Capital Improvement Plan. The increase in funding was offset by increased spending for capital projects. Capital Improvement expenditures in 2003 and 2002 were $32.3 million and $23.1 million, respectively, an increase of 39.6 percent. Proprietary Funds The City’s Proprietary Funds provide the same type of information found in the governmentwide financial statements, but in more detail. At the end of the fiscal years 2003 and 2002, the unrestricted net assets for the Water and Sewer Utility were $181.5 million and $171.8 million, respectively; Scottsdale Airport were $100,000 and $459,000, respectively; and the Solid Waste Utility Fund $4.5 million and $3.3 million, respectively. The Internal Service Funds, which are used to account for certain governmental activities also had unrestricted net assets of $16.6 million and $19.8 million, respectively. The total growth in net assets for the Enterprise Funds was $40.9 million and $56.8 million for fiscal years 2003 and 2002, respectively. Factors concerning the finances of these funds have been addressed previously in the discussion of the City’s business-type activities. In particular, the Scottsdale Water and Sewer net assets increased by $38.4 million due to capital contributions of $26.8 million and increased water and sewer fees of $3.3 million. Fiduciary Funds The City maintains Fiduciary Funds for the assets of the Family Self-Sufficiency Agency Fund, the Retainage Escrow Agency Fund, the Handicap Scholarship Private Purpose Trust Fund, and the Scottsdale Memorial Hospital Redevelopment Private Purpose Trust Fund. The Hospital Trust Fund manages the investment of monies held in trust for the redevelopment of the Scottsdale Memorial Hospital. As of the end of fiscal year 2003, the net assets of the Scottsdale Memorial City of Scottsdale, Arizona Table of Contents $41,000................... General Government $109,000 ................... Financial Services $821,000 ................... Police $236,000 ................... Community Services ($1,000) ................... Fire ($3,000) ................... Citizen & Neighborhood Resources ($86,000) ................... Economic Vitality Net budget increases for revenues of $6.7 million were due to the addition of the following revenue, not previously budgeted for in the General Fund. This revenue was previously reported in the Highway User Revenue Fund: $6,700,000 ........... Auto Lieu Tax During the year, actual revenues and other resources fell short of budgetary estimates by $3.6 million compared to a shortage of $17.8 million in fiscal year 2002. The City was able to adjust revenue estimates for the 2003 budget year due to observed trends from the economic recession which began in fiscal year 2002. Management’s Discussion and Analysis General Fund Budgetary Highlights The City’s final budget differs from the original budget due to adjustments that were made during the fiscal year. In fiscal year 2003, the slight increase in expenditure budgets was offset by an increase in revenue budgets, thereby maintaining an excess of revenues over expenditures for the year. Net budget increases for expenditures by department totaled $1.1 million compared to a net budget decrease of expenditures in fiscal year 2002 of $3.4 million. The net increase is defined as follows: For the Fiscal Year Ended June 30, 2003 Hospital Trust Fund totaled $695,000, representing a decrease of $33,000 in total net assets since June 30, 2002. The change is primarily related to increased expenses directly related to the redevelopment area. Changes to the other Fiduciary Funds were immaterial for the fiscal year. Capital Assets and Debt Administration Capital Assets The City’s capital assets for its governmental and business-type activities as of June 30, 2003 and 2002, amount to $2.8 billion and $2.7 billion, respectively (net of accumulated depreciation). Capital assets include land, buildings and improvements, water and sewer systems, water rights vehicles, machinery and equipment, furniture and fixtures, and construction in progress. The total increase in the City’s capital assets (net of accumulated depreciation) for the fiscal years 2003 and 2002 was 2.2 percent as shown in the table below. Capital Assets, Net of Depreciation June 30, 2003 (in thousands of dollars) Land Buildings and Land Improvements Streets and Storm Drains Machinery and Equipment Water Rights Water System Sewer System Motor Vehicles and Maintenance by Fleet Furniture, Fixtures and Office Equipment Construction in Progress Total City of Scottsdale, Arizona Governmental Activities 2003 2002 $ 349,826 $ 324,138 Business-type Activities 2003 2002 $ 13,916 $ 13,916 Total 2003 2002 $ 363,742 $ 338,054 157,514 154,059 9,295 9,746 166,809 163,805 1,404,787 1,346,180 - - 1,404,787 1,346,180 21,280 22,956 67,516 23,193 23,461 106,694 3,656 64,688 343,606 250,282 234 68,963 3,002 64,489 332,675 212,755 286 104,504 24,936 64,688 343,606 250,282 22,956 234 136,479 26,195 64,489 332,675 212,755 23,461 286 211,198 $ 2,023,879 $ 1,977,725 741,373 $ 2,778,519 $ 2,719,098 $ 754,640 $ 25 For the Fiscal Year Ended June 30, 2003 Management’s Discussion and Analysis Table of Contents Major capital asset events during the current fiscal year included the following: Completion of construction in progress on the Pima Road Water Transmission Main – Pinnacle Peak Road to Cave Creek Road – A multiple construction contract project accounting for $23.5 million in budgeted funds. The acquisition of an additional 322 acres, totaling $17.2 million, for inclusion in the McDowell Sonoran Preserve. Renovation of the Eldorado Aquatic and Fitness Center. A project that added a new pool facility with a slide, beach entry, therapy pool and lap lanes for a total $5.4 million. For government-wide 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 Section IV in the Notes to the Financial Statements for further information regarding capital assets. Debt Administration At the end of the fiscal years 2003 and 2002, the City had total long-term obligations outstanding of $659.0 million and $687.5 million, respectively. Of these amounts, $319.3 million and $338.0 million, respectively, are general obligation bonds backed by the full faith and credit of the City. The remainder includes revenue bonds, certificates of participation, and other obligations of $339.7 million and $349.5 million, respectively. Outstanding Debt (in thousands of dollars) Governmental Business-Type Activities 2003 General Obligation Bonds $ 319,657 $ 2003 Total 2002 2003 14,323 $ 18,315 $ 319,326 $ 2002 337,972 Revenue Bonds 10,990 13,385 71,230 73,945 82,220 87,330 Municipal Property Corporation Bonds 41,955 49,870 10,010 11,555 51,965 61,425 Scottsdale Preserve Authority Bonds 88,270 90,585 - - 88,270 90,585 Special Assessments Bonds Community Facilities Districts General 11,140 13,061 - - 11,140 13,061 34,935 Obligation Bonds 46,355 34,935 - - 46,355 Add Deferred Issuance Premiums 6,864 1,572 188 225 7,052 1,797 Less Deferred Amounts on Refunding (8,327) (3,585) (241) (288) (8,568) (3,873) 502,250 519,480 95,510 103,752 597,760 623,232 19,627 28,750 11,495 562,122 $ 21,416 28,750 12,455 582,101 $ 1,345 96,855 $ 1,628 105,380 $ 19,627 28,750 12,840 658,977 $ 21,416 28,750 14,083 687,481 Total Bonds Payable Contracts Payable Capital Lease Compensated Absences Total Long-term Liabilities 26 305,003 $ Activities 2002 $ City of Scottsdale, Arizona Table of Contents The State constitution imposes certain debt limitations on the City of six percent (6%) and twenty percent (20%) of the outstanding assessed valuation of the City. The City’s available debt margin at June 30, 2003 and 2002 is $139.9 million and $114.9 million, respectively, in the 6% capacity and $467.9 million and $410.4 million, respectively, in the 20% capacity. Additional information on the debt limitations and capacities may be found in Section IV of the Notes to the financial statements and also in Table XV in the statistical section of this report. Management’s Discussion and Analysis During fiscal year 2003, the City’s total bonded debt decreased by approximately $25.5 million, in contrast to the increase of approximately $52.5 million in fiscal year 2002. Although the City completed several refunding transactions, the key contributor to the decrease was normal debt service payments. In addition to the refunding bonds, the City also issued $12.2 million in General Obligation Bonds for the DC Ranch Community Facilities District, to be used for capital projects. On November 19, 2002, the City Council approved a development agreement with John Lund relating to a new automotive complex at the southeast corner of Scottsdale Rd. and Loop 101 Freeway. The terms of this agreement require the City to reimburse Lund for up to $5.5 million in public benefits relating to the project including the acquisition of public lands, reimbursement of the City’s water and sewer development fees, and reimbursement of the City’s stormwater retention payment in lieu. The actual amount will be dependent upon actual costs. However, the reimbursement amount may not exceed $5.5M even if actual costs are higher. The City has also agreed to pay interest costs on Lund’s cost of borrowing on the unpaid balance beginning at 8.5% in the first year and dropping by .5% per year. The reimbursement of the costs listed above is performance-based and will be accomplished by paying Lund quarterly payments equal to 67% of the City’s General Fund sales tax receipts received from the new dealership in that quarter, for a maximum of 10 years. The first payment is not due until the calendar quarter after the calendar quarter in which the first certificate of occupancy is issued. Because the total liability is not estimable, earned or due, no debt is recorded on the statement of Net Assets at June 30, 2003 related to this contract. For the Fiscal Year Ended June 30, 2003 During the fiscal year, the City issued $72,000,000 of General Obligation Refunding Bonds, Series 2002, (advance refunding) dated September 26, 2002, with an average interest rate of 4.5%, to refund $71,510,000 of Series 1992, 1993, 1994, 1995, 1997, 1998, 1999, 1999A and 2001 General Obligation and Preservation Bonds with an average interest rate of 4.92%. The City will reduce its total debt service payments over the next 22 years by approximately $3,218,584 and obtain an economic gain (difference between the present values of the debt service payments on the old and new debt) of $611,585. In addition, the City issued $30,570,000 of Municipal Property Corporation Refunding Bonds, Series 2002, (forward refunding) dated August 7, 2002, with an average interest rate of 5.5%, to refund $30,885,000 of Series 1992 Excise Tax Revenue Refunding Bonds with an average interest rate of 6.26%. The City refunded the bonds to reduce its total debt service payments over the next 13 years by approximately $2,059,698 and to obtain an economic gain (difference between the present values of the debt service payments on the old and new debt) of $2,073,165. Subsequent to June 30, 2003 the following events related to debt occurred: On July 2, 2003 the City Council approved a redevelopment agreement for the former Los Arcos Redevelopment District. Under the terms of the agreement, the City will provide an economic incentive calculated upon sales tax proceeds generated by the project with the Ellman Companies (the developer), up to a net present value maximum of $36,750,000 plus interest at a rate of 7.18%. This allocation is based on performance-based equal to 69% of the General Fund portion of sales tax generated at the site. On September 10, 2003, the City sold City of Scottsdale General Obligation Refunding Bonds, Series 2003 in an aggregate principal amount not to exceed $16,265,000. The sale of these bonds will reduce future debt service payments by $1.1 million over the next ten years. Additional information in the City’s long-term debt can be found in Section IV of the Notes to the Financial Statements. City of Scottsdale, Arizona 27 For the Fiscal Year Ended June 30, 2003 Management’s Discussion and Analysis Table of Contents 28 City of Scottsdale Bonded Debt Ratings As of June 30, 2003 General Obligation (GO) Municipal Property Corp (MPC) Water and Sewer Revenue (W&S) Highway User Revenue Fund (HURF) Scottsdale Preserve Authority (SPA) Moody’s Investors Service Standard and Poor’s Rating Group Fitch Investors Service, Inc. Aaa Aa1 Aa1 Aa3 Aa3 AAA AA+ AA AA AA- AAA AA+ AA Not Rated AA- The City’s ratings on uninsured General Obligation Bonds as provided above were affirmed by the Rating Agencies in September 2003 in conjunction with the issuance of General Obligation Refunding Bonds. Rating Agencies also reviewed and confirmed several of the revenue based bond ratings at various times throughout the year. City of Scottsdale, Arizona Table of Contents All of the above factors were considered in preparing the City’s budget for fiscal year 2004. The budget for the 2003/04 year includes: Zero-based program budget approach. An $8.8 million dollar decrease in expenditures and transfers-out of the General Fund. Expenditures and transfersout will decline from an estimated FY 2002/03 year-end level of $204.3 million to $195.5 million in FY 2003/04. An annualized reduction of $2.6 million in personnel costs through the elimination of 41 vacant positions. Of the total, 32 positions will come from the General Fund, where revenues are influenced significantly by the economy. Externally driven personnel cost increases due primarily to increases in city retirement contributions and health care insurance premiums. Increases in retirement contributions are estimated at $3.4 million, and increases in health care costs are estimated at $2.6 million. A more realistic and precise plan for continued investment in the city’s basic infrastructure and public facilities, combined with a more comprehensive analysis of associated maintenance and operating costs. Improved cash management and other changes in the proposed Capital Improvement Plan will ensure that the City can take advantage of favorable financing and construction markets to build key projects and phase in operating costs for new facilities at a reasonable pace. Sustained funding of the General Fund tenpercent reserve to ensure the City can provide basic services in the event of major emergencies. Use of reserves is under close scrutiny by the credit rating industry as governments deal with the tough economy. Management’s Discussion and Analysis Fiscal year 2003/04 revenue projections estimate declines or limited growth in many of the City’s significant revenue sources, such as privilege tax, transient occupancy tax state-shared revenues, and development permits and fees. Despite these challenges, the City’s 2003/04 budget continues to fund essential services, maintains investment in critical capital projects and carries forward Scottsdale’s emergency reserve fund. To bring the budget into balance, the City has reduced the size of its workforce through attrition, trimmed employee programs and fringe benefits, reduced the General Fund subsidy to transportation projects, and adopted a more realistic and betterdefined Capital Improvement Plan. employee programs and a significant reduction in training and travel expenditures. For the Fiscal Year Ended June 30, 2003 Economic Factors and Next Year’s Budget and Rates The City is entering an unprecedented third year of declining revenues amid continued economic uncertainty. Despite actual revenues that lagged behind adopted budget estimates, the City recognized the trend early enough to cut expenditures without affecting services. An estimated three-cent drop in the combined property tax rate, from $1.15 to $1.12 per $100 in assessed valuation. An average increase of only about $1.50 in the average homeowner’s combined bill for water, sewer, refuse and recycling services. REQUESTS FOR INFORMATION This financial report is designed to provide a general overview of the City’s finances for all of those with an interest in the government’s finances. If you have questions about this report or need additional financial information, contact: City of Scottsdale Financial Services Department Accounting Division 7447 E. Indian School Road, Suite 210 Scottsdale, AZ 85251 (480) 312-2437 Or visit our website at: http://www.scottsdaleaz.gov/finance/ Additional measures to control personnel costs, including the elimination of acrossthe-board pay increases, elimination or reduction of several fringe benefits and City of Scottsdale, Arizona 29 For the Fiscal Year Ended June 30, 2003 Management’s Discussion and Analysis Table of Contents 30 City of Scottsdale, Arizona Table of Contents Basic Financial Statements City of Scottsdale, Arizona 31 Table of Contents Statement of Net Assets June 30, 2003 (in thousands of dollars) Governmental Activities Business-type Activities $ $ Total ASSETS Current Assets: Cash and Investments Cash with Fiscal Agent Receivable (net of uncollectible amounts of $9,302): Property Taxes and Penalties Other Local Taxes Intergovernmental Charges for Services Interest and Other Internal Balances Supplies Inventory Total Current Assets 302,058 40,889 $ 422,727 52,391 571 12,998 1,133 (259) 146,614 5,117 14,110 2,436 12,998 19,040 551 529,370 - 14,286 2,435 5,335 22,056 14,286 2,435 5,335 22,056 417,342 1,606,537 2,023,879 147,567 607,073 754,640 564,909 2,213,610 2,778,519 1,467 58,573 180 58,573 1,647 1,467 58,753 60,220 Total Noncurrent Assets 2,025,346 835,449 2,860,795 Total Assets 2,408,102 982,063 3,390,165 10,030 6,752 1,993 8,839 696 25,620 15,269 2,059 3,700 203 75,161 5,441 706 226 9,080 2,422 17,875 15,471 7,458 2,219 8,839 696 34,700 17,691 2,059 3,700 203 93,036 - 1,250 4,085 5,335 1,250 4,085 5,335 11,495 33,254 517,373 562,122 1,345 5,097 90,413 96,855 12,840 38,351 607,786 658,977 637,283 120,065 757,348 1,492,879 659,130 2,152,009 29,822 54,747 31,957 474 801 160,139 1,770,819 14,286 2,435 186,147 861,998 29,822 54,747 31,957 474 801 14,286 2,435 346,286 2,632,817 Restricted Cash, Cash Equivalents, and Investments Assets: Water and Sewer System Replacement Acquisition and Construction Reserve Development Fees Customer Advances/Deposits and Deferred Revenue Total Restricted Cash, Cash Equivalents, and Investments Assets Capital Assets: Land, Water Rights, and Construction in Progress Facilities, Infrastructure, and Equipment (net of depreciation) Total Capital Assets (net of accumulated depreciation) Other Assets: Equity in Joint Venture Deferred Charges Total Other Assets 5,117 14,110 1,865 17,907 259 551 382,756 120,669 11,502 - LIABILITIES Current Liabilities: Accounts Payable Accrued Payroll and Benefits Accrued Compensated Absences Claims Payable Due to Other Governments Matured Bonds, Loans, Capital Leases, Other Payables Matured Bonds, Loans, Capital Leases, Other Interest Payable Unearned Revenue Guaranty and Other Deposits Other Liabilities Total Current Liabilities Liabilities Payable from Restricted Assets: Customer Advances and Deposits Deferred Revenue Total Liabilities Payable from Restricted Assets Noncurrent Liabilities: Accrued Compensated Absences Bonds, Loans, Capital Leases, and Other Payables-Due within One Year Bonds, Loans, Capital Leases, and Other Payables-Due in More Than One Year Total Noncurrent Liabilities Total Liabilities NET ASSETS Invested in Capital Assets, Net of Related Debt Restricted: Debt Service Transportation and Preserve Privilege Tax Activities Capital Projects Grants Streetlight and Service District Water and Sewer System Replacement Acquisition and Construction Unrestricted Total Net Assets The notes to the financial statements are an integral part of this statement. 32 City of Scottsdale, Arizona Table of Contents Statement of Activities For the Year Ended June 30, 2003 (in thousands of dollars) Function/Programs Governmental Activities: General Government Police Financial Services Transportation Community Services Information Systems Fire Municipal Services Citizen and Neighborhood Resources Human Resources Economic Vitality Planning and Development Streetlight and Services Districts Interest on Long-term Debt Total Governmental Activities Business-Type Activities: Water Utility Sewer Utility Airport Solid Waste Total Business-Type Activities Total Government Expenses Program Revenues Operating Capital Charges for Grants and Grants and Services Contributions Contributions Governmental Activities $ $ $ 23,926 54,469 7,883 71,837 52,222 11,901 18,127 12,290 2,433 3,601 6,421 11,908 1,099 27,786 305,903 11,402 4,227 3,405 15,449 1,018 35,501 $ 215 1,223 13,293 6,487 1 21,219 $ 264 357 68,883 613 252 70,369 50,406 22,862 2,476 13,783 89,527 66,626 25,316 2,424 16,250 110,616 - 15,414 11,412 1,661 28,487 395,430 146,117 21,219 98,856 General Revenues: Taxes: Property Taxes Sales and Use Taxes Franchise Taxes Intergovernmental: State Share Sales State Revenue Sharing Other Interest and Investment Income Other Revenue Gain (Loss) on Sale of Capital Assets Transfers Total General Revenues, Special Items, and Transfers Change in Net Assets Net Assets - Beginning Net Assets - Ending Business-type Activities (12,045) $ (48,662) (7,883) 10,339 (41,717) (11,901) (18,127) (12,290) (2,432) (3,601) (6,421) 3,793 (81) (27,786) (178,814) - - Total $ (12,045) (48,662) (7,883) 10,339 (41,717) (11,901) (18,127) (12,290) (2,432) (3,601) (6,421) 3,793 (81) (27,786) (178,814) 31,634 13,866 1,609 2,467 49,576 31,634 13,866 1,609 2,467 49,576 (178,814) 49,576 (129,238) 42,218 117,151 7,784 - 42,218 117,151 7,784 15,853 21,574 9,544 4,108 4,718 42 10,955 233,947 55,133 1,715,686 1,770,819 1,493 1,672 (917) (10,955) (8,707) 40,869 821,129 861,998 15,853 21,574 9,544 5,601 6,390 (875) 225,240 96,002 2,536,815 2,632,817 The notes to the financial statements are an integral part of this statement. City of Scottsdale, Arizona 33 Table of Contents 34 Balance Sheet Governmental Funds June 30, 2003 (in thousands of dollars) General Fund City of Scottsdale, Arizona ASSETS Cash and Investments Cash with Fiscal Agent Receivables (net of allowance for uncollectibles): Interest Privilege Tax Hotel/Motel Tax Property Tax State Shared Sales Tax Franchise Fee Court Receivable Highway User Tax Auto Lieu Tax Intergovernmental Grants Special Assessments Note Miscellaneous Due from Other Funds Supplies Inventory Advances to Other Funds Total Assets (continued) $ $ General Obligation Bond Debt Service General CIP Construction Capital Project Total Nonmajor Governmental Funds 74,065 $ - 8,641 $ 23,521 82,110 $ - 111,356 17,368 328 6,368 305 620 1,359 1,769 3,388 663 7 4,000 2,372 263 169 1,191 96,867 $ 913 33,075 $ 228 335 20 107 82,800 $ 441 2,498 171 1,148 1,119 404 10,085 185 4,401 149,176 Total Governmental Funds $ $ 276,172 40,889 997 8,866 305 1,704 1,359 1,769 3,388 1,148 663 1,454 411 10,085 4,000 2,577 4,664 169 1,298 361,918 Table of Contents City of Scottsdale, Arizona Balance Sheet Governmental Funds June 30, 2003 (in thousands of dollars) General Obligation Bond Debt Service General Fund LIABILITIES AND FUND BALANCES Liabilities: Accounts Payable Accrued Payroll Due to Other Funds Matured Bond Interest Payable Matured Bonds Payable Deferred Revenue Property Tax Special Assessments Court Tax Audit Intergovernmental Other Advances From Other Funds Due to Other Governments Guaranty and Other Deposits Other Total Liabilities Fund Balances: Reserved for: Advances Streetlight and Services Districts Debt Service Unreserved, reported in: General Fund - Designated General Fund - Undesignated Capital Projects Funds Special Revenue Funds Total Fund Balances Total Liabilities and Fund Balances $ $ 2,822 8,154 - $ Total Nonmajor Governmental Funds General CIP Construction Capital Project 9,981 13,540 1,529 6 - 371 3,388 1,353 4,244 3,161 146 23,639 548 24,069 28 1,563 97 10,085 1,235 580 1,191 668 539 57 41,775 1,016 10,085 3,388 1,353 1,235 4,824 1,191 696 3,700 203 91,046 1,191 801 - 9,006 - 4,664 1,191 801 13,670 78,184 24,553 107,401 149,176 58,416 12,820 159,421 24,553 270,872 361,918 58,416 12,820 73,228 96,867 $ 35 The notes to the financial statements are an integral part of this statement. - $ 9,006 33,075 $ $ 81,237 81,237 82,800 $ 5,024 419 4,512 5,288 12,080 Total Governmental Funds $ $ 9,375 8,579 4,512 15,269 25,620 Table of Contents Reconciliation of the Governmental Funds Balance Sheet to the Statement of Net Assets June 30, 2003 (in thousands of dollars) Fund Balances -Total Governmental Funds $ 270,872 Amounts reported for governmental activities in the statement of net assets are different because (see Section II A): Capital Assets used in governmental activities are not financial resources and; therefore, are not reported in the funds. Bond issue costs are not financial resources and, therefore, are not reported in the funds. 1,999,256 1,467 Long-term liabilities, including bonds payable, are not due and payable in the current period and therefore are not reported in the funds. (561,844) Because the focus of governmental funds is on short-term financing, some assets will not be available to pay for current period expenditures. Those assets are offset by deferred revenue in the funds. 19,842 Internal Service Funds are used by management to charge the costs of certain activities, such as, insurance and vehicles to individual funds. The assets and liabilities of the Internal Service Funds are included in governmental activities in the statement of net assets. 41,226 Net Assets of Governmental Activities $ 1,770,819 The notes to the financial statements are an integral part of this statement. 36 City of Scottsdale, Arizona Table of Contents Statement of Revenues, Expenditures, and Changes in Fund Balances City of Scottsdale, Arizona Governmental Funds For the Year Ended June 30, 2003 (in thousands of dollars) General Obligation Bond Debt Service General Fund REVENUES Taxes - Local: Property Transaction Privilege Transient Occupancy Light and Power Franchise Cable TV Franchise Salt River Project In-Lieu Fire Insurance Premium Taxes - Intergovernmental: State-Shared Sales State Revenue Sharing Auto Lieu Tax Highway User Tax Local Transportation Assistance Fund Business and Liquor Licenses Charges for Current Services: Building and Related Permits Recreation Fees Westworld Equestrian Facility Fees Fines, Fees and Forfeitures: Court Fines Parking Photo Radar Court Enhancement Library Special Assessments Property Rental Interest Earnings Intergovernmental: Federal Grants State Grants Miscellaneous Developer Contributions Streetlight and Services Districts Contributions and Donations Reimbursements from Outside Sources Indirect Costs Other Total Revenues 37 (continued) $ 15,552 79,704 6,688 5,147 2,440 197 414 $ Total Nonmajor Governmental Funds General CIP Construction Capital Project 22,381 - $ - $ 3,650 30,980 - Total Governmental Funds $ 41,583 110,684 6,688 5,147 2,440 197 414 15,853 21,574 7,984 1,816 - - 13,137 1,146 - 15,853 21,574 7,984 13,137 1,146 1,816 15,424 2,205 1,541 - - 25 795 - 15,449 3,000 1,541 4,151 213 765 405 2,530 1,655 1 568 1 512 1,970 306 1,606 4,152 213 765 512 405 1,970 2,836 3,830 7 418 251 1,018 5 300 8,045 735 197,037 22,382 250 358 399 5 479 90 2,149 7,993 182 401 112 429 253 25 63,523 8,000 432 1,177 762 1,018 439 1,032 8,045 850 285,091 Table of Contents 38 Statement of Revenues, Expenditures, and Changes in Fund Balances Governmental Funds For the Year Ended June 30, 2003 (in thousands of dollars) General Obligation Bond Debt Service General Fund EXPENDITURES Current: General Government Police Financial Services Transportation Community Services Information Systems Fire Municipal Services Citizen and Neighborhood Resources Human Resources Economic Vitality Planning and Development Streetlight and Services Districts Debt Service: Principal Interest and Fiscal Charges Bond Issuance Costs Capital Improvements Total Expenditures Total Nonmajor Governmental Funds General CIP Construction Capital Project Total Governmental Funds City of Scottsdale, Arizona 15,147 51,570 7,752 41,785 7,386 17,745 493 2,445 3,372 6,268 11,732 1,099 - - 863 801 10,869 7,165 11,060 1 3 14 - 16,010 52,371 7,752 10,869 48,950 7,386 17,745 11,553 2,446 3,375 6,268 11,746 1,099 1,150 1,784 169,728 13,540 17,335 394 31,269 32,262 32,262 15,615 10,640 652 36,076 93,759 30,305 29,759 1,046 68,338 327,018 Excess (Deficiency) of Revenues Over Expenditures 27,309 (8,887) (30,113) (30,236) (41,927) OTHER FINANCING SOURCES (USES) Transfers in Transfers out Refunding Bonds Issued Long-term Capital-Related Debt Issued Premium on Bonds Issued Payment to Bond Refunding Escrow Agent Sale of Capital Assets Total Other Financing Sources and (Uses) 7,753 (38,402) 199 (30,450) 9,040 72,000 4,881 (76,477) 9,444 38,868 (31) 38,837 51,780 (53,149) 30,570 12,165 1,403 (31,600) 225 11,394 107,441 (91,582) 102,570 12,165 6,284 (108,077) 424 29,225 557 8,724 (18,842) (12,702) 8,449 72,513 126,243 283,574 Net Change in Fund Balances (3,141) Fund Balances - Beginning Fund Balances - Ending 76,369 $ 73,228 $ The notes to the financial statements are an integral part of this statement. 9,006 $ 81,237 $ 107,401 $ 270,872 Table of Contents Reconciliation of Statement of Revenues, Expenditures, and Changes in Fund Balances of Governmental Funds to the Statement of Activities June 30, 2003 (in thousands of dollars) Net Change in Fund Balances - Total Governmental Funds $ (12,702) Amounts reported for governmental activities in the statement of activities are different because (see Section II B): Governmental funds report capital outlays as expenditures. However, in the statement of activities the cost of those assets is allocated over their estimated useful lives and reported as depreciation expense. This is the amount by which capital outlay exceeded depreciation in the current period. (12,702) Donations of capital assets are not reflected on the governmental fund statements but are shown in the statement of activities. 59,888 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 governmental funds. 885 Revenues in the statement of activities that do not provide current financial resources are not reported as revenues in the funds. 4,121 Bond issue costs are expended in the governmental funds when paid, and are capitalized and amortized in the statement of net assets. This is the amount by which current year bond issuance costs exceed amortization expense in the current period. 904 The issuance of long-term debt provides current financial resources to governmental funds, while the repayment of the principal of long-term debt consumes the current financial resources of governmental funds. Neither transaction; however, has any effect on net assets. This is the amount by which bond proceeds exceeded principal retirement in the current period. 17,363 Additional accrued interest calculated on bonds and notes payable. 2,115 The net revenues of certain activities of internal service funds is reported with governmental activities. Changes in Net Assets of Governmental Activities (4,739) $ 55,133 The notes to the financial statements are an integral part of this statement. City of Scottsdale, Arizona 39 Table of Contents General Fund Statement of Revenues, Expenditures, and Changes in Fund Balances - Budget and Actual For the Year Ended June 30, 2003 (in thousands of dollars) Budgeted Amounts Original REVENUES Taxes - Local: Property Transaction Privilege Transient Occupancy Light and Power Franchise Cable TV Franchise Salt River Project In-Lieu Fire Insurance Premium Taxes - Intergovernmental: State-Shared Sales State Revenue Sharing Auto Lieu Tax Business and Liquor Licenses Charges for Current Services: Building and Related Permits Recreation Fees Westworld Equestrian Facility Fees Fines, Fees and Forfeitures: Court Fines Parking Photo Radar Library Property Rental Interest Earnings Intergovernmental: Federal Grants Miscellaneous Developer Contributions Streetlight and Services Districts Contributions and Donations Reimbursements from Outside Sources Indirect Costs Other Total Revenues $ Actual Amounts Budgetary Basis Final 15,410 84,047 7,600 5,641 2,114 203 210 $ 15,410 84,047 7,600 5,641 2,114 203 210 $ Budget to GAAP Differences 15,552 79,704 6,688 5,147 2,440 197 414 $ Actual Amounts GAAP Basis - $ 15,552 79,704 6,688 5,147 2,440 197 414 Variance Between Final Budget and Actual Amounts Budgetary Basis $ 142 (4,343) (912) (494) 326 (6) 204 15,794 21,049 1,705 15,794 21,049 6,700 1,705 15,853 21,574 7,984 1,816 - 15,853 21,574 7,984 1,816 15,500 2,130 1,300 15,500 2,130 1,300 15,424 2,205 1,541 - 15,424 2,205 1,541 (76) 75 241 3,465 137 1,150 446 3,107 3,000 3,465 137 1,150 446 3,107 3,000 4,151 213 765 405 2,530 3,465 (1,810) 4,151 213 765 405 2,530 1,655 686 76 (385) (41) (577) 465 500 190 8,045 1,766 194,509 500 190 8,045 1,766 201,209 450 300 8,045 735 197,598 7 418 251 568 5 (561) 7 418 251 1,018 5 300 8,045 735 197,037 (50) 110 (1,031) (3,611) 16,285 51,304 7,521 43,277 7,578 17,917 588 2,785 3,459 6,531 13,188 500 16,326 52,125 7,630 43,513 7,578 17,916 588 2,782 3,459 6,445 13,188 500 14,972 51,172 7,630 41,635 7,369 17,745 385 2,436 3,358 6,263 11,546 531 175 398 122 150 17 108 9 14 5 186 568 15,147 51,570 7,752 41,785 7,386 17,745 493 2,445 3,372 6,268 11,732 1,099 1,354 953 1,878 209 171 203 346 101 182 1,642 (31) 1,283 2,592 174,808 1,283 2,592 175,925 1,150 1,784 167,976 1,752 1,150 1,784 169,728 133 808 7,949 Excess (Deficiency) of Revenues Over Expenditures 19,701 25,284 29,622 (2,313) 27,309 4,338 OTHER FINANCING SOURCES (USES) Transfers In Transfers Out Sale of Capital Assets Total Other Financing Sources and (Uses) 7,627 (27,328) (19,701) 7,627 (32,911) (25,284) 7,753 (38,402) 199 (30,450) 7,753 (38,402) 199 (30,450) 126 (5,491) 199 (5,166) (3,141) (828) EXPENDITURES Current: General Government Police Financial Services Community Services Information Systems Fire Municipal Services Citizen and Neighborhood Resources Human Resources Economic Vitality Planning and Development Streetlight and Services District Debt Service Principal Interest and Fiscal Charges Total Expenditures Net Change in Fund Balances Fund Balances - Beginning Fund Balances - Ending $ - - - - - $ - - (828) (2,313) 76,369 $ 75,541 $ (2,313) 59 525 1,284 111 76,369 $ 73,228 76,369 $ 75,541 The notes to the financial statements are an integral part of this statement. 40 City of Scottsdale, Arizona Table of Contents General Fund Reconciliation of Statement of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual For the Year Ended June 30, 2003 (in thousands of dollars) Explanation of Differences: Items recorded as revenues for GAAP purposes that are not recorded for budget purposes: Enhanced Municipal Services District Unrealized Loss on Investments Miscellaneous Items $ Total Revenue Reconciling Items: (561) The City budgets for certain expenditures on the cash basis, rather than on the modified accrual basis: Enhanced Municipal Services District Claims and Compensated Absences Bad Debt Expense Total Expenditure Reconciling Items: Net Increase/(Decrease) in Fund Balance - Budget to GAAP 568 (1,810) 681 568 1,157 27 1,752 $ (2,313) The notes to the financial statements are an integral part of this statement. City of Scottsdale, Arizona 41 Table of Contents Statement of Net Assets Proprietary Funds June 30, 2003 (in thousands of dollars) Water and Sewer Utility Airport Total All Funds Solid Waste Governmental Activities Internal Service Funds ASSETS Current Assets: Cash and Investments Cash with Fiscal Agent Receivable (net of allowance for uncollectibles): Property Tax Accounts Grants Interest Miscellaneous Due from other funds Supplies Inventory $ 117,640 11,218 $ 10,677 507 429 Total Current Assets Noncurrent Assets: Restricted Cash, Cash Equivalents, and Investments: Water and Sewer System Replacement Development Fees Customer Advances/Deposits and Deferred Revenue Subtotal Capital Assets: Land Water Rights Water System Sewer System Buildings and Improvements Motor Vehicles Machinery and Equipment Furniture and Fixtures Construction in Progress Less Accumulated Depreciation - $ 3,029 284 $ 120,669 11,502 $ 25,886 - - 571 137 - 2,321 12 48 - 12,998 571 519 614 - 25 98 150 382 140,471 708 5,694 146,873 26,541 14,286 2,435 - - 14,286 2,435 - 5,280 55 - 5,335 - 22,001 55 - 22,056 - 3,242 64,688 464,513 303,614 3,873 698 66,326 (176,362) 9,564 11,309 73 2,637 (4,088) 1,110 2,997 2,017 (1,571) 13,916 64,688 464,513 303,614 14,306 5,963 698 68,963 (182,021) 1,846 45,233 828 22 683 (23,989) 730,592 19,495 4,553 754,640 24,623 Other Assets: Equity in Joint Venture Deferred Charges 58,573 180 - - 58,573 180 - Total Other Assets 58,753 - - 58,753 - 811,346 19,550 4,553 835,449 24,623 Total Capital Assets (net of accumulated depreciation) Total Noncurrent Assets Total Assets $ 951,817 $ 20,258 $ 10,247 $ 982,322 $ 51,164 (continued on next page) 42 City of Scottsdale, Arizona Table of Contents Statement of Net Assets Proprietary Funds June 30, 2003 (in thousands of dollars) Water and Sewer Utility Airport Total All Funds Solid Waste Governmental Activities Internal Service Funds LIABILITIES Current Liabilities: Accounts Payable Accrued Payroll and Benefits Accrued Compensated Absences Due to Other Funds Claims Payable Matured Bonds Payable Matured Bond Interest Payable $ Total Current Liabilities Current Liabilities Payable from Restricted Assets: Customer Advances and Deposits Deferred Revenue Total Current Liabilities Payable from Restricted Assets: Noncurrent Liabilities: Accrued Compensated Absences Advances from Other Funds Bonds Payable - Due within One Year Bonds Payable - Due in More Than One Year Total Noncurrent Liabilities Total Liabilities 4,887 501 156 8,850 2,368 $ 246 29 10 152 - $ 308 176 60 230 54 $ 5,441 706 226 152 9,080 2,422 $ 655 118 48 8,839 - 16,762 437 828 18,027 9,660 1,195 4,085 55 - - 1,250 4,085 - 5,280 55 - 5,335 - 928 4,852 88,673 64 107 - 353 245 1,740 1,345 107 5,097 90,413 278 - 94,453 171 2,338 96,962 278 116,495 663 3,166 120,324 9,938 637,067 19,495 2,568 659,130 24,623 14,286 2,435 181,534 835,322 100 19,595 4,513 7,081 14,286 2,435 186,147 861,998 16,603 41,226 NET ASSETS Invested in Capital Assets, Net of Related Debt Restricted for Water and Sewer System Replacement Restricted for Acquisition and Construction Unrestricted Total Net Assets $ $ $ $ $ The notes to the financial statements are an integral part of this statement. City of Scottsdale, Arizona 43 Table of Contents Statement of Revenues, Expenses, and Changes in Fund Net Assets Proprietary Funds For the Year Ended June 30, 2003 (in thousands of dollars) Water and Sewer Utility Operating Revenues Charges for Sales and Services: Water Service Fees Sewer Service Fees Reclaimed Water Distribution Groundwater Treatment Plant Solid Waste Fees Airport Fees Other Services Other $ 63,411 25,316 2,329 886 1,672 Airport $ 2,424 - Solid Waste $ 16,250 - Total $ 63,411 25,316 2,329 886 16,250 2,424 1,672 Governmental Activities Internal Service Funds $ 18,509 490 Total Operating Revenues 93,614 2,424 16,250 112,288 18,999 Operating Expenses Costs for Sales and Services: Water Operations Sewer Operations Solid Waste Operations Airport Operations Other Services Indirect Costs Depreciation and Amortization 29,727 11,355 5,909 20,746 1,310 489 677 11,822 1,647 202 29,727 11,355 11,822 1,310 8,045 21,625 14,717 5,720 Total Operating Expenses 67,737 2,476 13,671 83,884 20,437 Operating Income (Loss) 25,877 (52) 2,579 28,404 (1,438) 1,450 (5,531) (628) 1 (289) 42 (112) - 1,493 (5,643) (917) 649 278 137 (4,709) (288) (70) (5,067) 1,064 21,168 (340) 2,509 23,337 26,826 15 (9,570) 1,661 (334) (1,066) 28,487 15 (10,970) 539 280 (5,184) 38,439 987 1,443 40,869 (4,739) 796,883 18,608 5,638 821,129 45,965 Non-Operating Revenues (Expenses) Property Tax Investment Income Interest Expense Gain (Loss) on Sale of Fixed Assets Net Non-Operating Revenues (Expenses) Income (Loss) Before Contributions and Transfers Capital Contributions Transfers In Transfers Out Change in Net Assets Total Net Assets - Beginning Total Net Assets - Ending $ 835,322 $ 19,595 $ 7,081 $ 861,998 (374) $ 41,226 The notes to the financial statements are an integral part of this statement. 44 City of Scottsdale, Arizona Table of Contents Statement of Cash Flows Proprietary Funds For the Year Ended June 30, 2003 (in thousands of dollars) Water and Sewer Utility Cash Flows from Operating Activities: Cash Received from Customers Cash Paid to Suppliers Cash Paid to Employees Other Operating $ Net Cash Provided by Operating Activities Cash Flows from Non-Capital Financing Activities: Property Tax Transfers In Transfers Out Net Cash Provided by (Used for) Non-Capital Financing Activities Cash Flows from Capital and Related Financing Activities: Capital Contributions from Other: Water and Sewer Development Fees Capital Grants Acquisition and Construction of Property and Equipment Principal Payments on Capital Debt Interest Paid on Capital Debt Sale of Fixed Assets Net Cash Provided by (Used for) Capital and Related Financing Activities Cash Flows from Investing Activities: Proceeds from the Sale of investments Income Received on Investments Net Cash Provided by Investing Activities Net Increase (Decrease) in Cash and Cash Equivalents Cash and Cash Equivalents at Beginning of Year Cash and Cash Equivalents at End of Year $ 91,652 (39,764) (9,965) 1,671 Airport $ Total All Funds Solid Waste 2,417 (1,019) (693) 135 $ 16,181 (9,514) (4,094) (22) $ 110,250 (50,297) (14,752) 1,784 Governmental Activities Internal Service Funds $ 18,509 (11,886) (2,794) 476 43,594 840 2,551 46,985 4,305 15 (9,570) (334) (1,066) 15 (10,970) 644 280 (5,184) (9,555) (334) (1,066) (10,955) (4,260) 17,648 (35,028) (7,467) (5,781) 60 1,850 (2,312) - (220) (117) - 17,648 1,850 (37,340) (7,687) (5,898) 60 (3,777) 216 (30,568) (462) (337) (31,367) (3,561) 2,353 11 14 38 14 2,402 378 2,353 11 52 2,416 378 5,824 55 1,200 7,079 145,035 - 1,956 146,991 150,859 $ 55 $ 3,156 $ 154,070 (3,138) 29,024 $ 25,886 The notes to the financial statements are an integral part of this statement. (continued on next page) City of Scottsdale, Arizona 45 Table of Contents Statement of Cash Flows Proprietary Funds For the Year Ended June 30, 2003 (in thousands of dollars) (Continued) Water and Sewer Utility Cash and Cash Equivalents at End of Year Includes: Cash and Investments Deduction for Long-term Investments Cash with Fiscal Agent Restricted Cash and Investments Total Cash and Cash Equivalents Reconciliation of Operating Income to Net Cash Provided (Used) by Operating Activities: Operating Income (Loss) Adjustments to Reconcile Operating Income (Loss) to Net Cash Provided by (Used for) Operating Activities: Depreciation and Amortization Changes In Assets and Liabilities Sources (Uses) of Cash: Accounts Receivable Miscellaneous Receivables Supplies Inventory Accounts Payable Accrued Payroll Claims Payable Deferred Revenue Due to Other Funds Advances From Other Funds Other Liabilities Supplemental Disclosure of Non-Cash Financing Activities: Additions to Property, Plant, and Equipment Contributions from Developers Contributions from Other Government Units Amortization of Deferred Charges Accumulated Accretion Increase (Decrease) in Fair Value of Investments Loss on Sale of Fixed Assets Total Non-Cash Financing Activities Solid Waste Governmental Activities Internal Service Funds $ 117,640 11,218 22,001 $ 55 $ 3,029 (157) 284 - $ 120,669 (157) 11,502 22,056 $ 25,886 - $ 150,859 $ 55 $ 3,156 $ 154,070 $ 25,886 $ 25,877 $ (52) $ 2,579 $ 28,404 $ (1,438) Total Adjustments Net Cash Provided by Operating Activities Airport Total All Funds $ 20,746 677 202 21,625 (730) (2) (2,732) (6) 408 33 (124) 88 (1) (13) 152 107 6 (69) (22) (139) - (799) (148) (2,644) (146) 395 152 107 39 17,717 892 (28) 18,581 43,594 $ 840 $ 2,551 $ 46,985 5,720 (14) 86 (401) (67) 419 5,743 $ 4,305 $ 8,825 82 828 (422) (688) $ (1) (289) $ (10) - $ 8,825 82 828 (433) (977) $ 539 (27) (79) $ 8,625 $ (290) $ (10) $ 8,325 $ 433 The notes to the financial statements are an integral part of this statement. 46 City of Scottsdale, Arizona Table of Contents Statement of Fiduciary Net Assets Fiduciary Funds June 30, 2003 (in thousands of dollars) Private Purpose Trust Funds ASSETS Cash and Cash Equivalents Interest Receivable Total Assets LIABILITIES Accounts Payable Designated Escrow Payable $ 704 3 $ 534 - $ 707 $ 534 $ 3 - $ 70 464 Total Liabilities NET ASSETS Held in Trust for Other Purposes Agency Funds 3 $ 704 534 $ - The notes to the financial statements are an integral part of this statement. City of Scottsdale, Arizona 47 Table of Contents Statement of Changes in Fiduciary Net Assets Fiduciary Funds For the Year Ended June 30, 2003 (in thousands of dollars) Private Purpose Trust Funds ADDITIONS Contributions: Private Donations Investment Earnings: Interest $ 310 26 Total Additions 336 DEDUCTIONS Scholarships Redevelopment Expenses 6 359 Total Deductions 365 Change in Net Assets Net Assets - Beginning Net Assets - Ending (29) $ 733 704 The notes to the financial statements are an integral part of this statement. 48 City of Scottsdale, Arizona Table of Contents The accounting policies of the City conform to U.S. generally accepted accounting principles (GAAP) as applicable to governmental units. The following is a summary of the more significant policies. The financial reporting entity presented in these financial statements consists of the City of Scottsdale (the primary government) and its component units. The component units discussed below are included in the City’s reporting entity because of the significance of their operational or financial relationships with the City. Individual Component Units - Blended The City of Scottsdale Municipal Property Corporation (MPC), a nonprofit corporation, was created by the City in 1967 solely for the purpose of constructing, acquiring and equipping buildings, structures, or improvements on land owned by the City. The MPC is governed by a Board of Directors appointed by the City Council. For financial reporting purposes, transactions of the MPC are included as a Governmental Fund type as if it were part of the City’s operations. Notes to Financial Statements A. Financial Reporting Entity The City of Scottsdale (the City) was incorporated in 1951. The current City Charter was adopted in 1961, which established the Council/Manager form of government. The City provides basic government services to its citizens including roads, water, sewer, solid waste management, public transit, parks and recreation facilities, police and fire. For the Fiscal Year Ended June 30, 2003 I. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The Scottsdale Preserve Authority (SPA), a nonprofit corporation, was created by the City in 1997 for the purpose of financing land acquisitions for the McDowell Sonoran Preserve. The City Council must approve the election of the SPA’s Board of Directors. For financial reporting purposes, transactions of the SPA are included as a Governmental Fund type as if it were part of the City’s operations. Scottsdale Mountain, McDowell Mountain Ranch, DC Ranch, and Via Linda Road Community Facilities Districts were formed by petition to the City Council in 1992, 1994, 1997, and 1998 respectively. The Districts’ purposes are to acquire and improve public infrastructure in specified land areas. As special purpose districts and separate political subdivisions under the Arizona Constitution, the Districts can levy taxes and issue bonds independently of the City. Property owners in the designated areas are assessed for District taxes and thus for the costs of operating the Districts. The City Council serves as the Board of Directors. The City has no liability for the Districts’ debt. For financial reporting purposes, transactions of the Districts are combined together and included as a Governmental Fund type as if they were part of the City’s operations. Separate financial statements of the MPC, SPA and Scottsdale Mountain, McDowell Mountain Ranch, DC Ranch, and Via Linda Road Community Facilities Districts may be obtained at the City’s Financial Services Department, Accounting and Budget Division, 7447 East Indian School Road, Suite 210, Scottsdale, Arizona 85251. B. Government-wide and Fund Financial Statements The government-wide financial statements (i.e., the statement of net assets and the statement of changes in net assets) report information on all of the nonfiduciary activities of the primary government and its component units. For the most part, the effect of interfund activity has been removed from these statements. Governmental activities, which normally are supported by taxes and intergovernmental revenues, are reported separately from business-type activities, which rely to a significant extent on fees and charges for support. Likewise, the primary government is reported separately from certain legally separate component units for which the primary government is financially accountable. The statement of activities demonstrates the degree to which the direct expenses for 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. City of Scottsdale, Arizona 49 For the Fiscal Year Ended June 30, 2003 Notes to Financial Statements Table of Contents Separate financial statements are provided for Governmental Funds, Proprietary Funds, and Fiduciary Funds, even though the latter are excluded from the government-wide financial statements. Major individual Governmental Funds and major individual Enterprise Funds are reported as separate columns in the fund financial statements. C. Measurement Focus, Basis of Accounting and Financial Statement Presentation The government-wide financial statements are reported using the economic resources measurement focus and the accrual basis of accounting, as are the Proprietary Fund and trust fund financial statements. Agency funds do not have a measurement focus. Revenues are recorded when earned and expenses are recorded when a liability is incurred, regardless of the timing of related cash flows. Property taxes are recognized as revenues in the year for which they are levied. Grants and similar items are recognized as revenue as soon as all eligibility requirements 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. The City considers revenues to be available if they are collected within 30 days of the end of the current fiscal period. Expenditures generally are recorded when a liability is incurred, as under accrual accounting. However, debt service expenditures, as well as expenditures related to vacation, sick leave, claims, and judgments, are recorded only when payment is due. Property taxes, other local taxes, licenses, and interest associated with the current fiscal period are all considered to be susceptible to accrual and so have been recognized as revenues of the current fiscal period. All other revenue items are considered to be measurable and available only when the City receives cash. 50 The government reports the following major Governmental Funds: The General Fund is the government’s primary operating fund. It accounts for all financial resources of the general government, except those required to be accounted for in another fund. The General Obligation Bond Debt Service Fund is used to account for the accumulation of resources for, and the payment of, general long-term obligation debt principal, interest, and related costs. The General Capital Improvement Plan Construction Capital Projects Fund accounts for the resources used to acquire, construct and improve major capital facilities, other than those financed by Proprietary Funds. Capital Projects Funds allow the City to compile project cost data and demonstrate that legal or contractual requirements, regarding the use of the resources, are fully satisfied. The government reports the following major Proprietary Funds: The Water and Sewer Utility, Airport and Solid Waste Funds account for the operating revenues and expenses of the City’s water and sewer utility systems, airport and sanitation services (solid waste, brush removal, container maintenance, etc.). Additionally, the government reports the following fund types: The Internal Service Funds account for fleet management and self-insurance services provided to other departments or units of the City, on a cost-reimbursement basis. The Agency Funds are purely custodial (assets equal liabilities) and do not involve measurement of results of operations or have a measurement focus. The City’s agency funds are used to record the Family SelfSufficiency activity and Retainage Escrow activity. The Private-Purpose Trust Funds are used to account for assets held in a trustee capacity for scholarships and other purposes as designated by the donors or by legal restrictions. Both the principal and earnings of these expendable trust funds can be expended for the trusts’ intended purposes. City of Scottsdale, Arizona Table of Contents Amounts reported as 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. Proprietary Funds distinguish operating revenues and expenses from non-operating items. Operating revenues and expenses generally result from providing services in connection with the fund’s principal ongoing operations. The principal operating revenues of the City’s Enterprise and Internal Service Funds are charges for customer services including water, sewer, airport, and solid waste fees, vehicle purchase amounts and risk management charges. Operating expenses for Enterprise Funds and Internal Service Funds include the cost of services, administrative expenses, and depreciation on capital assets. All revenues and expenses not meeting this definition are reported as non-operating revenues and expenses. City of Scottsdale, Arizona D. Assets, Liabilities, and Net Assets or Equity 1. Deposits and Investments Cash equivalents for purposes of the statements of cash flows are investments (including restricted assets) in the State of Arizona Local Government Investment Pool, mutual funds, demand deposits, repurchase agreements, and U.S. Treasury bills and notes with maturities of three months or less at acquisition date. GASB Statement No. 31 provides that governmental entities may report all investments at fair value or they may elect to report certain money market investments and participating interestearning investment contracts at amortized cost. The City has elected to report all investments at fair value. The City’s policy is to invest in certificates of deposit, repurchase agreements, direct U.S. Treasury debt, securities guaranteed by the United States Government or any of its agencies, and the State of Arizona Local Government Investment Pool (LGIP). The fair value of each share in the LGIP is $1. Notes to Financial Statements In general, the effect of interfund activity has been eliminated from the government-wide financial statements. Exceptions to this rule are paymentsin-lieu of taxes, indirect costs and franchise fees, and other charges between the City’s Water and Sewer Utility Fund, Airport Fund, and Solid Waste Fund, because elimination of these charges would distort the direct costs and program revenues reported in the Statement of Activities. When both restricted and unrestricted resources are available for use, it is the City’s policy to use restricted resources first, then unrestricted resources as they are needed. For the Fiscal Year Ended June 30, 2003 Private-sector standards of accounting and financial reporting issued prior to December 1, 1989, generally are followed in both the governmentwide and Proprietary Fund financial statements to the extent that those standards do not conflict with or contradict guidance of the Governmental Accounting Standards Board (GASB). Governments also have the option of following subsequent private-sector guidance for their business-type activities and Enterprise Funds, subject to this same limitation. The City has elected not to follow subsequent private-sector guidance. 2. Receivables and Payables Activity between funds that are representative of lending/borrowing arrangements outstanding at the end of the fiscal year are referred to as either “due to/from other funds” (i.e., the current portion of interfund loans) or “advances to/from other funds” (i.e., the non-current portion of interfund loans). All other outstanding balances between funds are reported as “due to/from other funds.” Any residual balances outstanding between the governmental activities and businesstype activities are reported in the government-wide financial statements as “internal balances.” Advances between funds, as reported in the fund financial statements, are offset by a fund balance reserve account in applicable Governmental Funds to indicate that they are not available for appropriation and are not expendable available financial resources. 51 For the Fiscal Year Ended June 30, 2003 Notes to Financial Statements Table of Contents All accounts, property tax and court receivables are shown net of an allowance for uncollectibles. All receivables in excess of one year comprise the allowance for uncollectibles at June 30, 2003. The City’s property tax is levied each year on or before the third Monday in August based on the previous January 1 full cash value as determined by the Maricopa County Assessor. Levies are due and payable in two installments, on October 1 and March 1, and become delinquent on November 1 and May 1, respectively. A lien attaches to the property on the first day of January preceding the assessment and levy of taxes. Delinquent amounts bear interest at the rate of 16 percent. Maricopa County, at no charge to the taxing entities, bills and collects all property taxes. Public auctions of properties which have delinquent real estate taxes are held in February following the May 1 date upon which the second half taxes become delinquent. Property taxes levied for current operation and maintenance expenses on residential property are limited to 1.0 percent of the primary full cash value of such property. In addition, taxes levied for current operation and maintenance expenses on all types of property are limited to a maximum increase of 2.0 percent over the prior year’s levy, adjusted for new construction and annexations. Property taxes levied to pay principal and interest on bonded indebtedness are not limited. 3. Inventories Inventories of the Governmental Funds are recorded under the consumption method as expenditures when consumed rather than when purchased. Inventories are valued at year-end based on cost, with cost determined using an average cost method. 4. Restricted Assets Certain proceeds of the City’s Enterprise Fund revenue bonds, as well as certain resources set aside for their repayment, are classified as restricted assets on the balance sheets because they are maintained in separate bank accounts and their use is limited by applicable bond covenants. The revenue bond renewal and replacement account is used to report resources set aside to meet unexpected contingencies or to fund asset renewals and replacements. 52 5. Capital Assets Capital assets, which include property, plant, equipment, and infrastructure assets (i.e., roads, sidewalks and similar items), are reported in the applicable governmental or business-type activities columns in the government-wide financial statements. Capital assets are defined by the government, as assets with an initial, individual cost of more than $5,000 and an estimated useful life in excess of one year. Assets contributed (donated) to those funds are recorded by reference to historical costs of the donor if recently purchased or constructed, or if such records are not available, at estimated fair market value on the date of receipt. The costs of normal maintenance and repairs that do not add to the value of the asset or materially extend assets lives are not capitalized. Major outlays for capital assets and improvements are capitalized as projects are constructed. Interest incurred during the construction phase of capital assets of business-type activities is included as part of the capitalized value of the assets constructed. No interest was capitalized for the fiscal year 2002/ 03. Depreciation and amortization of all assets are recorded and calculated using the straight-line method over the following estimated useful lives: Water System ................................. 10 to 75 Years Sewer System ................................. 25 to 50 Years Buildings and Improvements ................ 25 Years Land Improvements ............................... 25 Years Machinery and Equipment ..................... 20 Years Motor Vehicles................................. 3 to 10 Years Furniture, Fixtures and Office Equipment .................. 5 to 10 Years The excess purchase price over fair market value of assets acquired in the Water and Sewer Utility Enterprise Fund is amortized on the straight-line method over 20 to 25 years. When capital assets are disposed of, the cost and accumulated depreciation or amortization is removed from the accounts, and any resultant gain or loss is recognized in the government-wide and Proprietary Fund financial statements. City of Scottsdale, Arizona Table of Contents 7. Long-term obligations In the government-wide financial statements and the Proprietary Fund types in the fund financial statements, long-term debt and other long-term obligations are reported as liabilities in the applicable governmental activities, business-type activities, or Proprietary Fund statement of net assets. Bond premiums and discounts, as well as issuance costs, are deferred 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 and deferred amounts on refundings. Bond issuance costs are reported as deferred charges and amortized over the term of the related debt. City of Scottsdale, Arizona 8. Fund equity In the fund financial statements, Governmental Funds report reservation 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. Notes to Financial Statements All vacation pay is accrued when incurred in the government-wide, Proprietary and Fiduciary Fund financial statements. A liability for the current amount of compensated absences is recorded as a current liability at June 30 in the Governmental and Proprietary Funds. The current compensated absences amount in the Governmental Funds is combined with accrued payroll and other payroll related amounts in the accrued payroll and benefits line item. The City calculates this current amount based on vacation taken and an actuarial valuation dated January 1, 2003, for medical leave conversion. There is no long-term liability for compensated absences in the Governmental Funds. In the fund financial statements, Governmental Fund types recognize bond premiums and discounts, as well as bond issuance costs, during the current period. The face amount of debt issued is reported as other financing sources. Premiums received on debt issuances are reported as other financing sources while discounts on debt issuances are reported as other financing uses. Issuance costs, whether or not withheld from the actual debt proceeds received are reported as debt service expenditures. For the Fiscal Year Ended June 30, 2003 6. Compensated Absences Compensated absences consist of vacation leave and a calculated amount of sick leave earned by employees based on services already rendered. Employees may accumulate up to a maximum number of hours of vacation depending on years of service, but any vacation hours in excess of the maximum amount unused at year end are forfeited. The City’s policy is to pay employees for unused accumulated vacation hours at termination or retirement. Sick leave time can be accumulated without limit. The City’s policy, however, is that only those employees hired full-time before July 1, 1982 are paid for unused sick leave at death or retirement. Employees who retire on or after July 1, 1996, and who have accumulated 300 or more hours of sick leave, may elect to apply the value of the sick leave toward their City medical plan premiums. II. RECONCILIATION OF GOVERNMENT-WIDE AND FUND FINANCIAL STATEMENTS A. Explanation of certain differences between the Governmental Fund balance sheet and the government-wide statement of net assets. The fund balances of the City’s Governmental Funds, $270,872, differs from net assets of governmental activities, $1,770,819, reported in the statement of net assets. The difference primarily results from the long-term economic focus in the statement of net assets versus the current financial resources focus in the Governmental Fund balance sheets. 53 For the Fiscal Year Ended June 30, 2003 Notes to Financial Statements Table of Contents Reconciliation of Governmental Funds Balance Sheet and the Government-wide Statement of Net Assets (in thousands of dollars) Total Governmental Funds ASSETS Cash and Investments Cash with Fiscal Agent Receivables (net of allowance for uncollectibles) Interest Privilege Tax Hotel/Motel Tax Property Tax State Shared Sales Tax Franchise Fee Court Receivable Highway User Tax Auto Lieu Tax Intergovernmental Grants Special Assessments Note Miscellaneous Due from Other Funds/Internal Balances Supplies Inventory Advances to Other Funds/Internal Balances Capital Assets (net of accumulated depreciation) Deferred charges and other assets Total Assets LIABILITIES Accounts Payable Accrued Payroll and Benefits Accrued Compensated Absences - Due Within One Year Accrued Compensated Absences - Due in More Than One Year Claims Payable Due to Other Funds Matured Interest Payable Matured Bonds Payable Deferred Revenue Property Tax Special Assessments Court Tax Audit Intergovernmental Other Advances From Other Funds Due to Other Governments Guaranty and Other Deposits Other Bonds, Loans, Capital Leases, and Other Payables Total Liabilities Fund Balances/Net Assets Total Fund Balances/Net Assets Total Liabilities and Fund Balances/Net Assets 54 $ $ $ Internal Service Funds (2) Reclassifications and Eliminations Statement of Net Assets Totals 276,172 $ 40,889 - $ 25,886 $ - $ 302,058 40,889 997 8,866 305 1,704 1,359 1,769 3,388 1,148 663 1,454 411 10,085 4,000 2,577 4,664 169 1,298 361,918 $ 1,999,256 1,467 2,000,723 $ 98 25 150 382 24,623 51,164 $ (4,512) (1,191) (5,703) $ 1,095 8,866 305 1,729 1,359 1,769 3,388 1,148 663 1,454 411 10,085 4,000 2,727 152 551 107 2,023,879 1,467 2,408,102 9,375 $ 8,579 4,512 15,269 25,620 - $ 11,217 - 655 $ 118 48 278 8,839 - $ (1,945) 1,945 (4,512) - 10,030 6,752 1,993 11,495 8,839 15,269 25,620 1,016 10,085 3,388 1,353 1,235 4,824 1,191 696 3,700 203 91,046 $ Long-Term Assets/ Liabilities (1) 270,872 361,918 $ (1,016) (10,085) (3,388) (1,353) (4,000) 550,627 542,002 1,458,721 2,000,723 $ 9,938 41,226 51,164 $ (1,191) (5,703) (5,703) $ 1,235 824 696 3,700 203 550,627 637,283 1,770,819 2,408,102 City of Scottsdale, Arizona Table of Contents Cost of capital assets Accumulated depreciation $ $ 2,799,823 (800,567) 1,999,256 Bond issuance costs are expended in governmental funds when paid, and are capitalized and amortized over the life of the corresponding bonds for purpose of the statement of net assets. Bond issuance costs @ 7/1/02 Bond issuance cost for FY 2003 Amortization of bond issuance costs $ $ 563 1,046 (142) 1,467 Long-term liablilities applicable to the City's governmental activities are not due and payable in the current period and accordingly are not reported as fund liabilities in the governmental funds. All liabilities, both current and long-term, are reported in the statement of net assets. Also, during the year the City refunded some of its exitsting debt. The amount borrowed is received in the governmental funds and increases fund balance. The amount that was sent to the paying agent ($108,077) to be placed in escrow for payment of the old debt ($102,570) as it comes due is paid out of governmental funds and reduces fund balance. The difference between those amounts was $5,507 and will be amortized as an adjustment of interest expense in the statement of activities over the remaining life of the refunded debt. Balances at June 30, 2003 were: Contract and capital lease payables Bonds payable Deferred charge on refunding Deferred issuance premium Accrued vacation and sick leave pay $ $ Notes to Financial Statements assets are reported as expenditures in governmental funds. However, the statement of net assets includes those capital assets among the assets of the City as a whole. For the Fiscal Year Ended June 30, 2003 (1) When capital assets (land, buildings, equipment, etc) that are to be used in governmental activities are purchased or constructed, the costs of those (48,377) (503,713) 8,327 (6,864) (11,217) (561,844) Because the focus of governmental funds is on short-term financing, some assets will not be available to pay for current period expenditures. Those assets (for example, receivables) are offset by deferred revenues in the governmental funds and thus are not included in fund balance. Deferred revenue for the long-term special assessment receivables shown on the governmental fund statements is not deferred on the statement of net assets. Certain grant revenues deferred under modified accrual for governmental fund statements, is recognized as revenue under accrual accounting for the government-wide statements. Deferred special assessment revenue Deferred court revenue Deferred other Deferred tax revenue $ $ 10,085 3,388 4,000 2,369 19,842 $ 41,226 (2) Internal Service Funds are used by management to charge the costs of certain activities, such as fleet management and self insurance, to individual funds. The assets and liabilities of certain Internal Service Funds are included in governmental activities in the statement of net assets. City of Scottsdale, Arizona 55 For the Fiscal Year Ended June 30, 2003 Notes to Financial Statements Table of Contents B. Explanation of certain differences between the Governmental Fund statement of revenues, expenditures, and changes in fund balances and the government-wide statement of activities. The net change in fund balances for Governmental Funds, $(12,702), differs from the change in net assets for the governmental activities, $55,133, reported in the statement of activities. The differences arise primarily from the longterm economic focus in the statement of activities versus the current financial resources focus in the Governmental Funds. The effect of the differences is illustrated below. Reconciliation of Governmental Statement of Revenues, Expenditures, and Changes in Fund Balances and the Government-wide Statement of Activities (in thousands of dollars) Total Governmental Funds REVENUES: Taxes - Local: Property Transaction Privilege Transient Occupancy Light and Power Franchise Cable TV Franchise Salt River Project In-Lieu Fire Insurance Premium Taxes - Intergovernmental: State-Shared Sales State Revenue Sharing Auto Lieu Tax Highway User Tax Local Transportation Assistance Fund Business and Liquor Licenses Charges for Current Services: Building and Related Permits Recreation Fees Westworld Equestrian Facility Fees Fines and Forfeitures: Court Fines Parking Photo Radar Court Enhancement Library Special Assessments Property Rental Interest Earnings Intergovernmental: Federal Grants State Grants Miscellaneous Developer Contributions Streetlight and Services Districts Contributions and Donations Reimbursements from Outside Sources Indirect Costs Other Total $ 41,583 $ 110,684 6,688 5,147 2,440 197 414 Long-Term Revenue/ Expenses (3) Capital Related Items (4) (14) $ (221) - Internal Service Funds (5) - $ - Long-Term Debt Transactions (6) 649 $ - Statement of of Activities - $ - 42,218 110,463 6,688 5,147 2,440 197 414 15,853 21,574 7,984 13,137 1,146 1,816 - - - - 15,853 21,574 7,984 13,137 1,146 1,816 15,449 3,000 1,541 - - - - 15,449 3,000 1,541 4,152 213 765 512 405 1,970 2,836 3,830 (1,415) 5,771 - - - - - 278 - 2,737 213 765 512 405 7,741 2,836 4,108 8,000 432 1,177 762 1,018 439 1,032 8,045 850 285,091 - - - - 4,121 - - 927 - 8,000 432 1,177 762 1,018 439 1,032 8,045 850 290,139 (continued) 56 City of Scottsdale, Arizona Table of Contents EXPENDITURES/EXPENSES Current: General Government Police Financial Services Transportation Community Services Information Systems Fire Municipal Services Citizen and Neighborhood Resources Human Resources Economic Vitality Planning and Development Streetlight and Services Districts Debt Service: Principal Interest and Fiscal Charges Bond Issuance Costs Capital Improvements Total Expenditures/Expenses OTHER FINANCING USES/CHANGES IN NET ASSETS Net Transfers (to) From Other Funds Capital Contibutions Sales of Capital Assets Refunding Bonds Issued Long-term Capital-Related Debt Issued Premium on Bonds Issued Payment to Bond Refunding Escrow Agent Total Net Change for the Year City of Scottsdale, Arizona $ $ 16,010 $ 52,371 7,752 10,869 48,950 7,386 17,745 11,553 2,446 3,375 6,268 11,746 1,099 Long-Term Revenue/ Expenses (3) Capital Related Items (4) (99) $ (266) (108) 25 (475) 13 (138) (7) 220 150 (200) - 7,931 $ 1,983 208 60,925 3,604 4,499 276 254 (19) 3 3 327 - Internal Service Funds (5) 84 $ 381 31 18 143 3 106 621 13 3 0 35 - Long-Term Debt Transactions (6) Statement of of Activities - $ - 23,926 54,469 7,883 71,837 52,222 11,901 18,127 12,290 2,433 3,601 6,421 11,908 1,099 30,305 29,759 1,046 68,338 327,018 (885) (68,338) 11,656 1,438 (30,305) (1,973) (1,046) (33,324) 27,786 305,903 15,859 424 102,570 12,165 6,284 (108,077) 29,225 - (527) 59,888 (519) 58,842 (4,377) 12 137 (4,228) (102,570) (12,165) (6,284) 108,077 (12,942) 10,955 59,900 42 70,897 47,186 $ (4,739) $ (12,702) $ 5,006 $ 20,382 $ Notes to Financial Statements Total Governmental Funds For the Fiscal Year Ended June 30, 2003 Reconciliation of Governmental Statement of Revenues, Expenditures, and Changes in Fund Balances and the Government-wide Statement of Activities (in thousands of dollars) 55,133 57 For the Fiscal Year Ended June 30, 2003 Notes to Financial Statements Table of Contents Reconciliation of Governmental Statement of Revenues, Expenditures, and Changes in Fund Balances and the Government-wide Statement of Activities (in thousands of dollars) (3) Reconciling Items Description: Because some property taxes will not be collected for several months after the city's fiscal year ends, they are not considered as "available" revenues in the governmental funds. Similarly, other revenues are not currently available at year-end and are not reported as revenue in the governmental funds. Property taxes Court revenue Tax audit revenue Special Assessment revenue $ $ (14) (1,415) (221) 5,771 4,121 $ (885) $ $ 65,460 (77,643) (203) (12,386) $ (316) $ 59,888 $ (4,739) 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 governmental funds. Accrual for long-term compensated absences (4) When capital assets that are to used in governmental activities are purchased or constructed, the resources expended for those assets are reported as expenditures in governmental funds. However, in the statement of activities, the cost of those assets is allocated over their estimated useful lives and reported as depreciation expense. As a result, fund balance decreases by the amount of financial resources expended, whereas net assets decrease by the amount of depreciation expense charged for the year, and the loss on disposal of capital assets. Capital expenditures Depreciation Expenses Loss on disposal of capital assets Difference The proceeds from the sale of land are reported as revenue in the governmental funds. However, the cost of the land sold is removed from the capital assets account in the statement of net assets and offset against the sales proceeds resulting in a "gain on sale of land" in the statement of activities. Thus, more revenue is reported in the governmental funds than gain in the statement of activities. Cost of land sold Donations of capital assets are not shown on the governmental fund statements, but are included in the assets of the City. On the statement of activities, these donations are shown as capital contributions. Capital Contributions (5) Internal Service funds are used by management to charge the costs of certain acitivities, such as insurance and motor pool, to the individual funds. The adjustments for internal service funds close those funds by charging additional amounts to participating governmental activities to completely cover the internal service funds' costs for the year. Capital assets contributed by the governmental funds ($516) are treated as capital contribution revenue in the Internal Service fund statements and capital outlay expenditures in the governmental funds statements. For government-wide purposes, the capital contribution is reclassified as a transfer in in the Internal Service Fund column and a transfer out in the Capital Related Items column. Change in Net Assets 58 City of Scottsdale, Arizona Table of Contents Bond issuance costs are reported as an expenditure in governmental funds in the year of bond issuance and thus, have the effect of reducing fund balance because current financial resources have been used. For the government-wide statements; however, the bond issuance costs are deferred and amortized (expensed) over the life of the bonds. Bond issuance costs for FY 2003 Amortization of bond issuance costs Difference $ $ 1,046 (142) 904 Repayment of bond principal is reported as an expenditure in governmental funds and, thus, has the effect of reducing fund balance because current financial resources have been used. For the government-wide statements, however, the principal payments reduce the liabilities in the statement of net assets and do not result in an expense in the statement of activities. The City's bonded debt was reduced in two ways; principal payments were made to bond holders and resources were sent to the bond paying agent for the advance refunding of outstanding bonds. Transferred to the paying agent: For bond principal Principal payments made $ $ 108,077 30,305 138,382 Notes to Financial Statements (6) For the Fiscal Year Ended June 30, 2003 Reconciliation of Governmental Statement of Revenues, Expenditures, and Changes in Fund Balances and the Government-wide Statement of Activities (in thousands of dollars) Interest expense in the statement of activities differs from the amount reported in governmental funds because additional accrued interest was calculated for bonds and notes payable, and additional interest expense was recognized on the amortization of bond discount and premiums which are expended within the fund statements. Amortization of deferred charges on refundings Amortization of bond premium and discounts $ $ 1,123 992 2,115 Bond proceeds are reported as financing sources in governmental funds and thus contribute to the change in fund balance. In the governmentwide statements, however, issuing debt increases long-term liabilities in the statement of net assets and does not affect the statement of activities. Proceeds were received from: Refunding General Obligation Bonds Refunding Revenue Bonds Premium on Refunding Bonds $ $ (84,165) (30,570) (6,284) (121,019) III. STEWARDSHIP, COMPLIANCE, and ACCOUNTABILITY A. Budget And Budgetary Accounting The City prepared an annual budget that covered fiscal year 2002/03 on a cash basis and the appropriation for this budget is established and reflected in the financial statements as follows: The City Council formally adopts the budget and legally allocates, or appropriates, available monies for the General Fund, Special Revenue Fund (Highway User Fuel Tax, Preserve Privilege Tax, and Transportation Privilege Tax), Debt Service Funds (except for the Community Facilities Districts Debt Service Funds), and Enterprise Funds. Therefore, these funds have appropriated budgets, and budget to actual information is presented. The Community Development, Home, Grants, Section 8, and Special Programs Special Revenue Funds, Community Facilities Districts Funds, Capital Projects Funds, Internal Service Funds, and Trust and Agency Funds have nonappropriated budgets. Accordingly, no comparison of budget to actual is presented in the financial statements for these funds. Budgets for the Community Development, Grants, and Section 8 Funds are established pursuant to the terms of the related grant awards. Budgets for the Community Facilities Districts are established in accordance with Arizona Revised Statutes, which do not require their inclusion in the City budget or adoption by the City Council. Budgets for Capital Projects Funds are established for individual projects and unexpended funds are reappropriated each year until the project is completed and capitalized. Budgets for Internal Service Funds are established in order to help departments control operational costs. Budgets for Trust and Agency Funds are established in accordance with the trust/agency agreements. City of Scottsdale, Arizona 59 For the Fiscal Year Ended June 30, 2003 Notes to Financial Statements Table of Contents On or before the second regular Council meeting in May, the City Manager submits to the City Council a proposed budget for the fiscal year commencing the following July 1. The budget includes proposed expenditures and the means of financing them. Two public hearings are held prior to the budget’s final adoption in order to obtain taxpayer comments. At the first regular Council meeting in June, the budget is legally enacted through passage of an ordinance. The ordinance sets the limit for expenditures during the fiscal year. 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. During fiscal year 2002/03, there were no supplemental budgetary appropriations to the original budget. The expenditure appropriations in the adopted budget are by department. The maximum legal expenditure permitted for the fiscal year is the total budget as adopted. Departmental appropriations may be amended during the year. Upon the recommendation of the City Manager, and with the approval of the City Council: (1) transfers may be made from the appropriations for contingencies to departments; and (2) unexpended appropriations may be transferred from one department to another. Management control of budgets is further maintained at a line item level within the department. All expenditure appropriations that have not been expended lapse at year end. Beginning July 1, 1998, the City discontinued the use of encumbrance accounting. As such, fund balance amounts are not reserved for purchase orders, contract or other commitments. B. Excess of Expenditures Over Appropriations The Streetlight and Services District Department exceeded its expenditure appropriation by $(31,000). This over expenditure was funded by available fund balance. The Highway User Revenue Fund exceeded its Operating Expenditures appropriation by $(450,000). This over expenditure was funded by the General Fund. The Airport Enterprise Fund exceeded its expense appropriation by $(84,000). This over expense was funded by a transfer from the General Fund. C. Deficit Fund Equity The Section 8 Housing Fund had a deficit fund balance of ($42,000) caused by certain grant reimbursements due which may not be available in the upcoming period. Since these reimbursements are not assured, no revenue was accrued in the current fiscal year. These reimbursements due will be recognized as revenue when actually received. Since January 1998, the Fund has generated a surplus. Program administrators expect this trend to continue and anticipate eliminating the fund deficit within one year. The Preserve Privilege Tax Capital Projects Fund had a deficit fund balance of $(7,110,000), caused by advanced spending of bond proceeds under a reimbursement resolution. Bonds will be sold in March 2004. D. Fund Balance/Net Assets Reservations and Designations Only restrictions imposed by external sources are shown as Restricted Net Assets on the government-wide financial statements. Reservations or designations of fund balances are shown in aggregate on the Governmental Fund financial statements, but not on the Proprietary Fund financial statements. The City does, however, reserve or designate portions of net assets in other funds to demonstrate the government’s intended use of those net assets. Designations are created by administrative policy. The following are the reservations and designations of fund balance/net assets included in the reserved and unreserved fund balance/net assets at June 30, 2003: 60 City of Scottsdale, Arizona Table of Contents $ 9,006 Restricted Net Asset and Unrestricted Net Asset Designations Water and Sewer Restricted for Repair and Replacement $ Restricted for Acquisition and Construction Total Restricted $ 14,286 2,435 16,721 $ 4,664 Notes to Financial Statements Debt Service Reserved for Debt Service Nonmajor For the Fiscal Year Ended June 30, 2003 Fund Balance Reservations and Designations (in thousands of dollars) General Fund Major Designated for Bonds Payable $ 33,720 Designated for Economic Stabilization Reserve 20,476 Designated for Economic Investment 4,220 Total Designated $ 58,416 The amounts presented below detail the City's planned use of the following Unrestricted Net Asset amounts: Water and Sewer Designated for Operating Reserve $ 15,363 Solid Waste Designated for Operating Reserve $ 3,156 Airport Designated for Operating Reserve $ 68 $ $ 4,431 4,109 8,540 $ 4,057 Self-Insurance Designated for General Liability Claims Designated for Benefits Fleet Management Designated for Capital Equipment Replacement City of Scottsdale, Arizona 61 For the Fiscal Year Ended June 30, 2003 Notes to Financial Statements Table of Contents IV. DETAILED NOTES ON ALL FUNDS A. Cash and Investments The City maintains a cash and investment pool for use by all funds except the Municipal Property Corporation and Community Facilities Districts Funds, which have investments held separately by a trustee. The City early implemented the provisions of GASB Statement No. 40, Deposit and Investment Risk Disclosures for the year ended June 30, 2003. This Statement establishes and modifies disclosure requirements related to investment and deposit risks; accordingly, the note disclosure on cash and investments has been revised to conform to the provisions of GASB Statement No. 40. Deposits At June 30, 2003, the carrying amount of the City’s deposits was $16,698,779, and the bank balance was $15,739,883. The $958,896 difference represents outstanding checks and other reconciling items. Custodial Credit Risk – Deposits Custodial credit risk is the risk that in the event of a bank failure, the government’s deposits may not be returned to it. As of June 30, 2003, the City’s deposits were covered by federal depository insurance or by collateral held by the City’s agent or pledging financial institution’s trust department or agent in the name of the City, and thus had no deposits that were exposed to custodial credit risk. Interest Rate Risk As a means of limiting its exposure to fair value losses arising from rising interest rates, the City’s investment policy limits the City’s investment portfolio to maturities of less than three years. Credit Risk City Charter, Ordinance, and Trust Agreements authorize the City to invest in obligations of the U.S. Treasury, U.S. Government agencies, Certificates of Deposit, bankers’ acceptances, commercial paper (A-1, P-1), repurchase agreements, mutual funds consisting of the foregoing, and the State of Arizona Local Government Investment Pool (LGIP). Investments The City’s investments at June 30,2003, are summarized as follows: (in thousands of dollars) Investment Type U.S. Treasuries U.S. Agencies Repurchase Agreements Local Government Investment Pool Guaranteed Investment Contracts Money Market Funds Total Investments Investment Maturities (in Years) Less Fair Value Than 1 1-2 $ 66,163 $ 66,163 $ $ 328,647 24,884 111,215 * 28,049 28,049 3,555 3,555 475 54,824 $ 475 54,824 - 481,713 $ 177,950 $111,215 2-3 192,548 ** - $ 192,548 *$29,475 of these bonds are callable July 21, 2003 to May 3, 2004 **$172,431 of these bonds are callable July 23, 2003 to June 30, 2004 62 City of Scottsdale, Arizona Table of Contents $ 16,699 481,713 Total Cash and Investments $ 498,412 $ 422,727 52,391 22,056 9 Total City cash and investments are reported as follows (in thousands of dollars): Primary Government Cash and Investments Cash Held with Fiscal Agent Restricted Cash Handicap Scholarship Private Purpose Trust Fund Scottsdale Memorial Hospital Redevelopment Private Purpose Trust Fund Family Self-sufficiency Agency Fund Retainage Escrow Agency Fund Total Cash and Investments $ 695 70 464 498,412 Notes to Financial Statements Carrying Amount of City Deposits Investments For the Fiscal Year Ended June 30, 2003 Total City cash and investments at fair value are as follows (in thousands of dollars): Investment income comprises the following for the year ended June 30, 2003 (in thousands of dollars): Net Interest and Dividends Net Decrease in the Fair Value of Investments Total Net Investment Income $ $ 14,821 (9,194) 5,627 The net decrease in the fair value of investments during fiscal year 2002/03 was $9,193,871. This amount takes into account all changes in fair value (including purchases and sales) that occurred during the year. Of the $9,193,871 net decrease, $7,864,309 represents the City’s share of the loss on an investment within the Local Government Investment Pool. In addition, the City had an unrealized gain on investments held at June 30, 2003, of $1,187,935. City of Scottsdale, Arizona 63 For the Fiscal Year Ended June 30, 2003 Notes to Financial Statements Table of Contents B. Receivables Receivables as of year-end for the government’s individual major and nonmajor funds and Internal Service Funds in the aggregate, including the applicable allowances for uncollectible accounts are as follows: Receivable Balance (Net of Allowance for Uncollectible) (in thousands of dollars) Governmental Activities: General Obligation Bond Debt Service General Fund Receivables Property Taxes and Penalties: Property Court Subtotal Property Taxes and Penalties $ Other local taxes: Privilege Hotel/Motel State Shared Sales Tax Franchise Fee Auto Lieu Highway User Subtotal Other Local Taxes 620 $ 12,690 13,310 Gross Receivable Less: Allowance for Uncollectibles Net Total Receivables $ 913 $ 913 Nonmajor and Other Funds - $ - 196 $ 196 Total Governmental Funds 1,729 12,690 14,419 6,368 305 1,359 1,769 663 10,464 - - 2,498 1,148 3,646 8,866 305 1,359 1,769 663 1,148 14,110 7 - 335 1,523 1,865 328 4,000 2,372 6,700 - 228 20 248 539 10,085 335 10,959 1,095 10,085 4,000 2,727 17,907 583 583 $ 16,324 16,324 $ 48,301 (9,302) 38,999 Intergovernmental Interest and Other: Interest Special Assessments Note (Sinclair Oil) Miscellaneous Subtotal Interest and Other General CIP Construction Capital Project 30,481 (9,302) 21,179 $ 913 913 $ Major Enterprise Funds: Water and Sewer Utility Receivables Charges for services Intergovernmental Interest Miscellaneous Gross Receivable Net Total Receivables 64 Airport Solid Waste Total $ 10,677 $ 507 429 11,613 - $ 571 137 708 2,321 $ 12 48 2,381 12,998 571 519 614 14,702 $ 11,613 $ 708 $ 2,381 $ 14,702 City of Scottsdale, Arizona Table of Contents Property Tax Special Assessments Court Tax Audit Intergovernmental Other Note Receivable Community Services Other Community Facilities District Developer Deposit Unavailable $ 1,016 10,085 3,388 1,353 4,000 - Unearned $ 1,235 272 52 19,842 500 2,059 $ $ Notes to Financial Statements (in thousands of dollars) For the Fiscal Year Ended June 30, 2003 Governmental Funds report deferred revenue in connection with receivables for revenues that are not considered to be available to liquidate liabilities of the current period. Governmental Funds also defer revenue recognition in connection with resources that have been received, but not yet earned. At the end of the fiscal year, the various components of deferred revenue and unearned revenue reported in the Governmental Funds were as follows: C. Capital Assets Capital Asset activity (in thousands of dollars) for the year ended June 30, 2003, was as follows: Governmental Activities Capital Assets, Not Being Depreciated: Land Construction In Process Total Capital Assets, Not Being Depreciated: Beginning Balance $ Capital Assets, Being Depreciated: Buildings and Land Improvements Streets and Storm Drains Vehicles Maintenance by Fleet Machinery and Equipment Total Capital Assets, Being Depreciated: Less Accumulated Depreciation for: Buildings and Land Improvements Streets and Storm Drains Vehicles Maintenance by Fleet Machinery and Equipment Total Accumulated Depreciation: Total Capital Assets, Being Depreciated, Net Governmental Activities Capital Assets, Net City of Scottsdale, Arizona $ 324,138 $ 106,694 430,832 Increases 26,004 $ 65,333 91,337 Decreases (316) $ (104,511) (104,827) Ending Balance 349,826 67,516 417,342 264,387 1,934,425 38,429 3,590 49,999 2,290,830 13,454 120,845 5,087 128 3,779 143,293 (1,935) (66) (1,029) (3,030) 277,841 2,055,270 41,581 3,652 52,749 2,431,093 110,328 588,245 17,111 1,447 26,806 743,937 9,999 62,238 5,247 390 5,489 83,363 (1,852) (66) (826) (2,744) 120,327 650,483 20,506 1,771 31,469 824,556 1,546,893 59,930 (286) 1,606,537 (105,113) $ 2,023,879 1,977,725 $ 151,267 $ 65 For the Fiscal Year Ended June 30, 2003 Notes to Financial Statements Table of Contents Business-Type Activities Capital Assets, Not Being Depreciated: Land Water Rights Construction In Process Total Capital Assets, Not Being Depreciated: Beginning Balance Decreases - $ 199 26,943 27,142 Capital Assets, Being Depreciated: Water System Sewer System Buildings and Land Improvements Machinery and Equipment Furniture, Fixtures and Office Equipment Total Capital Assets, Being Depreciated: 440,188 264,759 14,285 5,036 698 724,966 25,468 45,148 630 948 72,194 (1,143) (6,293) (609) (21) (8,066) 464,513 303,614 14,306 5,963 698 789,094 Less Accumulated Depreciation for: Water System Sewer System Buildings and Land Improvements Machinery and Equipment Furniture, Fixtures and Office Equipment Total Accumulated Depreciation: 107,513 52,004 4,539 2,034 412 166,502 13,622 6,803 792 273 52 21,542 (228) (5,475) (320) (6,023) 120,907 53,332 5,011 2,307 464 182,021 Total Capital Assets, Being Depreciated, Net 558,464 50,652 (2,043) 607,073 741,373 $ 77,794 $ $ - $ (62,484) (62,484) Ending Balance 13,916 $ 64,489 104,504 182,909 Business-type Activities Capital Assets, Net $ Increases (64,527) $ 13,916 64,688 68,963 147,567 754,640 Depreciation expense (in thousands of dollars) was charged to functions/programs of the primary government as follows: Governmental Activities 66 General Government Police Financial Services Transportation Community Services Information Services Fire Municipal Services Citizen and Neighborhoods Resources Human Resources Economic Vitality Planning and Development Capital Assets Held by the Government's Internal Service Funds are Charged to the Various Functions Based on their Usage of the Assets $ Total Depreciation Expense - Government Activities $ 6,123 1,488 208 62,619 3,343 3,572 202 19 19 3 3 44 5,720 83,363 City of Scottsdale, Arizona Table of Contents $ 20,663 677 202 Total Depreciation Expense - Business-Type Activities $ 21,542 Construction Commitments The City has active construction projects as of June 30, 2003. At year-end the government’s commitments with contractors for specific projects (in thousands of dollars) are as follows: Construction Commitments Remaining Commitment Spent to Date Streets Traffic Improvement District Fire Police Drain/Flood Control Community Parks/Recreation Municipal Facilities Technology Libraries Airport Transit Water System Sewer System $ 7,294 $ 1,509 1,810 6 27 1,336 2,203 461 1,306 1,064 596 864 1,800 6,131 1,932 460 331 48 1,263 136 618 775 86 141 166 16,856 7,190 305 $ 4,383 37,386 Notes to Financial Statements Water and Sewer System Airport Solid Waste For the Fiscal Year Ended June 30, 2003 Business-Type Activities 2,045 $ 25,756 The improvement district portion of the commitment is financed by improvement district bonds. The traffic commitments are being financed by the .2 percent Transportation Privilege (Sales) Tax, which is reported in the Special Revenue Fund financial statements. All water and sewer system improvement projects are being financed through the use of water or sewer development fees and water or sewer rates. D. Interfund Balances and Interfund Transfers “Due to” and “due from” balances have primarily been recorded when funds overdraw their share of pooled cash. The composition of interfund balances as of June 30, 2003, is as follows (in thousands of dollars): Receivable Fund General Nonmajor Governmental Funds Total City of Scottsdale, Arizona Amount $ 263 $ 4,401 4,664 Payable Fund Nonmajor Governmental Funds Major Enterprise Airport Nonmajor Governmental Funds Total $ Amount 111 $ 152 4,401 4,664 67 For the Fiscal Year Ended June 30, 2003 Notes to Financial Statements Table of Contents The composition of individual funds having advances to and from other funds at June 30, 2003 is as follows. The advance to the Preserve Privilege Capital Projects Fund from the General Fund is a result of a loan that was made in order to purchase a parcel of land outside of the area authorized for preservation sales tax funding in fiscal year 1999/00. The loan is required to be repaid in June 2005. The advance accrues interest at a rate of 6% compounded annually. The advance from the General Capital Improvement Plan Capital Project Fund to the Airport was to provide cash for the completion of the Kilo Ramp and Airport Service Road Reconstruction. The amounts will be repaid from the Airport Enterprise Fund when the Airport operations generate sufficient cash to cover operations. Advances To Other Funds: (in thousands of dollars) General Amount $ 1,191 Major Governmental Funds General CIP Construction Total 107 1,298 $ Advances From Other Funds: (in thousands of dollars) Nonmajor Governmental Funds Amount $ 1,191 Major Enterprise Funds Airport Total $ 107 1,298 Transfers are used to fund capital projects and debt service, reallocate special revenue funds to operating centers or other operations and for indirect administrative cost allocations (including in-lieu property tax and franchise fees) charges to Enterprise Funds. During the year a transfer in the amount of $500,000 was made from the Fleet Management Internal Service Funds to the General Fund. Of the total, transfers totaling $4,658,000 from the Fleet Management Fund to Capital Projects were made in order to fund pay-as-you go capital projects and to reduce the excess cash balance in the Fleet Management Fund. Net transfers (in thousands of dollar): Transfers Out From: Major Governmental Funds General Transfers In To: $ 38,402 Major Governmental Funds Capital Projects General CIP Construction Nonmajor Governmental Funds Capital Projects General CIP Construction Total Major Governmental Funds 68 $ 17,921 20,431 Internal Service Funds 50 31 Nonmajor Governmental funds 31 38,433 Total Major Governmental Funds 38,433 City of Scottsdale, Arizona Table of Contents $ 9,570 Major Governmental Funds General Fund $ Capital Projects General CIP Construction Airport 334 Solid Waste 1,066 Total Major Enterprise Funds 10,970 Nonmajor Governmental Funds 53,149 Total Nonmajor Governmental Funds 53,149 5,184 Internal Service Total Internal Service Funds Total City of Scottsdale, Arizona 5,184 $ 107,736 7,176 2,394 Major Governmental Funds General Fund 74 Capital Projects General CIP Construction 260 Major Governmental Funds Capital Projects General CIP Construction 836 Internal Service Total Major Enterprise Funds 230 10,970 Major Governmental Funds General Fund 3 Debt Service General Obligation Bond 9,040 Capital Projects General CIP Construction 12,788 Nonmajor Governmental funds 31,318 Total Nonmajor Governmental Funds 53,149 Major Governmental Funds General Fund 500 Capital Projects General CIP Construction 4,669 Major Enterprise Funds Enterprise Water and Sewer Total Internal Service Funds 15 5,184 Total Notes to Financial Statements Major Enterprise Funds Water and Sewer Transfers In To: For the Fiscal Year Ended June 30, 2003 Transfers Out From: $ 107,736 69 For the Fiscal Year Ended June 30, 2003 Notes to Financial Statements Table of Contents E. Bonds, Loans, Capital Leases and Other Payables The following are brief descriptions of bonds outstanding at June 30, 2003. The totals shown are the principal amount outstanding, net of the current portion due July 1, 2003. There are a number of limitations and restrictions contained in the various bond indentures. The City is in compliance with all significant limitations and restrictions. General Obligation Bonds General Obligation (GO) bonds are issued, after approval by City of Scottsdale voters at an authorized bond election, to finance the construction of water and sewer systems, artificial lighting, parks and open spaces, recreational facilities, and general purpose improvements. At June 30, 2003, the City had $330,200,000 of unissued various purpose GO bonds, which were authorized in September 2000. In addition, the City had $65,400,000 of unissued Preservation GO bonds, which were authorized in September 1999. GO bonds are backed by the full faith and credit of the City, and are repaid through the City’s levying of property (ad valorem) taxes. However, the Preservation GO bonds are repaid through the two-tenths of one percent City sales tax approved by voters in September 1996 to be used specifically to finance land acquisitions for the McDowell Sonoran Preserve. Additionally, a portion of the City’s GO bonds are recorded in the Water Enterprise Fund as described below, and are repaid through revenues of that fund unless such revenues are insufficient. Highway User Revenue Fund Bonds Highway User Revenue Fund (HURF) bonds are issued specifically for the purpose of constructing street and highway projects. These bonds are repaid out of the Special Revenue Fund by gas tax revenues collected by the State of Arizona and distributed to cities and towns based on a formula of population and gas sales within each county. Municipal Property Corporation Bonds The Municipal Property Corporation (MPC) is a nonprofit corporation created by the City in 1967 to finance the construction or acquisition of certain capital improvement projects. The MPC issues its own bonds, which are repaid through the City’s excise tax collections and other unrestricted revenues. The use of property taxes to repay these bonds is specifically prohibited by law. Most of these bonds are recorded as general long-term debt. The 1995 MPC Transfer Station bonds, however, are recorded in and paid out of revenues of the Solid Waste Enterprise Fund. The 70 2001 MPC Scottswater bonds are recorded in and paid out of the revenues of the Water Enterprise Fund. Scottsdale Preserve Authority Bonds The Scottsdale Preserve Authority (SPA) is a nonprofit corporation created by the City in 1997 to finance land acquisitions for the McDowell Sonoran Preserve. The SPA issues its own bonds which are repaid through the two tenths of one percent City sales tax approved by voters in September 1996 to be used specifically for this purpose. SPA bonds are recorded as general long-term debt and are paid out of the SPA Debt Service Fund. Water & Sewer Revenue Bonds Water & Sewer Revenue Bonds are issued as authorized by the voters for the construction, acquisition, furnishing and equipping of water and sewer facilities and related systems. At June 30, 2003, the City had $3,340,000 authorized but unissued Water & Sewer Revenue bonds. The City has no plans to issue the remaining portion of the unissued Water & Sewer Revenue bonds authorized as all projects related to the authorization have been completed. The Water & Sewer Revenue bonds are collateralized by revenue in excess of operating and maintenance expenses of the City’s water & sewer utility system, and are repaid via user charges or fees for service. Property taxes cannot be used to pay the debt service on these bonds. Water & Sewer Revenue bond covenants require that the City accumulate sufficient reserves to cover the eventual replacement of the water and sewer system. The City has continued to meet this reserve requirement. At June 30, 2003, the funds reserved for this purpose were $14,285,965. Special Assessment Bonds Special Assessment bonds are issued by the City on behalf of improvement districts created by property owners for a specific purpose, such as to finance local street, water or sewer improvements, or to acquire an existing water or sewer operation. Property owners in the designated districts agree to be assessed for the principal and interest costs of repaying the bonds. As trustee for improvement districts, the City is responsible for collecting the assessments levied against the owners of property within the improvement districts and for disbursing these amounts to retire the bonds issued to finance the improvements. The receivables, revenues, and debt service expenses related to these bonds are recorded in the Special Assessments Debt Service Fund. At June 30, 2003, special assessments receivable, together with amounts paid in advance and interest to be received over the life of the assessment period, were adequate for the scheduled maturities of the bonds payable and the related interest. City of Scottsdale, Arizona Table of Contents At June 30, 2003, there were 6 separate series of Special Assessment Bonds outstanding, each series issued as serial bonds to be repaid over 10 years. Community Facilities Districts General Obligation Bonds Community Facilities District General Obligation Bonds are issued by community facilities districts (CFDs), which are special purpose districts created specifically to acquire and improve public infrastructure in specified land areas. CFD Bonds are repaid by ad valorem taxes levied directly by the districts and collected by the county. Property owners in the districts are assessed for District taxes and thus for all costs associated with the Districts. The City has no liability for CFD Bonds. CFDs are created only by petition to the City Council by property owners within the district areas. As board of directors for the CFDs, the City Council has adopted a formal policy that CFD debt will be permitted only when the ratio of the full cash value of the unimproved district property to the proposed district debt, is a minimum of 3 to 1, and 5 to 1 or higher after construction of improvements. These ratios are verified by an appraisal paid for by the CFD and administered by the City. In addition, cumulative debt of all CFDs cannot exceed 5 percent of the City’s secondary assessed valuation. Notes to Financial Statements The City Council’s adopted policy is that special assessment debt is permitted only when the ratio of the full cash value of the property (prior to improvements being installed) when compared to debt is a minimum of 3 to 1 prior to issuance of debt, and 5 to 1 or higher after construction of improvements. In addition, cumulative improvement district debt is not permitted to exceed 5 percent of the City’s secondary assessed valuation. For the Fiscal Year Ended June 30, 2003 These bonds are secured by a lien on the property and improvements of all parcels within each district. In the event of default by the property owner, the City may enforce auction sale to satisfy the debt service requirements of the improvement bonds. The City is contingently liable on Special Assessment bonds to the extent that proceeds from auction sales are insufficient to retire outstanding bonds. CFD Advance Refundings There were no refundings during fiscal year 2002/03. In prior years, the McDowell Mountain Ranch CFD and the Scottsdale Mountain CFD refinanced other bond issues through the issuance of refunding bonds. The proceeds from the refunding bonds have been deposited in irrevocable trusts at commercial banks and invested in U.S. Government securities which, together with interest earned thereon, will provide amounts sufficient for future redemption or payment of principal and interest of the issues refunded. The assets, liabilities, and financial transactions of all of these trust accounts and the liability for refunded (defeased) bonds are not reflected in the financial statements of the City. The table reflects refunded debt outstanding at June 30, 2003, and net of any amounts to be paid or retired by the trustee on July 1, 2003 (in thousands of dollars). Refunded in Prior Year (in thousands of dollars) McDowell Mountain Ranch CFD: General Obligation Series Series 1994 General Obligation Series Series 1994 A General Obligation Series 1997 Scottsdale Mountain CFD: General Obligation Series Series 1993A General Obligation Series Series 1993B General Obligation Series 1995 Total CFD Bonds Refunded in Prior Years City of Scottsdale, Arizona $ 7,735 2,845 6,910 $ 2,500 85 1,725 $ 17,490 4,310 21,800 71 For the Fiscal Year Ended June 30, 2003 Notes to Financial Statements Table of Contents 72 Bonds payable at June 30, 2003 are comprised of the following: Classified in Governmental Activities on the Government-wide financial statements: General Obligation Bonds Bonds Outstanding (in thousands of dollars) 1989 Capital Improvement Project Serial Bonds (Series C issued 1992)/Refunding Bonds due in annual installments of $750,000 to $2,025,000 through July 1, 2012; interest at 5.25 percent to 7.75 percent. On September 3, 1997, $5,505,000 due 2007 through 2010 were refunded, on July 18, 2001, an additional $5,610,000 due 2005, 2006, 2011 and 2012 were refunded, and on September 26, 2002, another $2,065,000 due 2003 and 2004 were refunded. Original issue amount, $25,055,000. $ - 1993 Refunding Bonds due in annual installments of $1,010,000 to $8,150,000 through July 1, 2009; interest at 4.0 percent to 5.5 percent. $28,399,993 of these bonds are recorded in and paid out of the Water Fund. Of the total outstanding at June 30, 2003, $10,231,258 bonds are capital appreciation bonds maturing in 2004 and 2005, of which $6,652,737 are included in the amount paid out of the Water Fund. The original issue amount for the 1993 Refunding Bonds was $45,015,000. 17,248 1989 Capital Improvement Project Serial Bonds (Series D issued 1993) due in annual installments of $500,000 to $1,475,000 through July 1, 2013; interest at 4.0 percent to 6.5 percent. On September 26, 2002, $9,940,000 due 2002 through 2011 were refunded. Original issue amount, $21,000,000. 2,905 1993A Refunding Bonds due in annual installments of $475,000 to $5,560,000 through July 1, 2011; interest at 3.65 percent to 5.1 percent. $1,315,000 of these bonds are recorded in and paid out of the Water Fund. The original issue amount for the 1993A Refunding Bonds was $24,265,000. 15,865 1989 Capital Improvement Project Serial Bonds (Series E issued 1994) due in annual installments of $450,000 to $1,150,000 through July 1, 2014; interest at 5.25 percent to 8.25 percent. On September 3, 1997, $4,325,000 due 2007 through 2011 were refunded, on July 18, 2001, an additional $5,350,000 due 2004 through 2006 and 2012 through 2014 were refunded, and on September 26, 2002, another $625,000 due 2003 were refunded. Original issue amount, $14,250,000. - 1994 Various Projects Serial Bonds due in annual installments of $475,000 to $775,000 through July 1, 2014; interest at 5.75 percent to 8.25 percent. On September 3, 1997, $9,525,000 due 2006 through 2014 were refunded, on July 18, 2001, an additional $1,500,000 due 2004 and 2005 were refunded, and on September 26, 2002, another $700,000 due 2003 were refunded. Original issue amount, $16,000,000. - 1995 Storm Sewer, Parks and Pima Road Improvement Serial Bonds (issued November 1, 1995) due in annual installments of $425,000 to $1,200,000 through July 1, 2015; interest at 4.65 percent to 7.0 percent. On July 18, 2001, $2,725,000 due 2009 through 2011 were refunded, and on September 26, 2002, an additional $8,125,000 due 2002 through 2008 and 2012 through 2015 were refunded. Original issue amount, $15,000,000. - 1989 Capital Improvement Project Serial Bonds (Series H issued January 1, 1997) due in annual installments of $870,000 to $2,115,000 through July 1, 2016; interest at 5.0 percent to 7.5 percent. On September 26, 2002, $18,305,000 due 2006 throuth 2016 were refunded. Original issue amount, $27,500,000. 2,415 City of Scottsdale, Arizona Table of Contents 19,850 1989 Capital Improvement Project Serial Bonds (issued April 6, 1998) due in annual installments of $445,000 to $1,340,000 through July 1, 2018, interest at 4.3 percent to 6.5 percent. On September 26, 2002, $8,180,000 due 2009 through 2015 were refunded. Original issue amount $20,500,000. 8,910 1999A Transportation, Storm Sewer, Flood Protection and Pima Road Improvements Serial Bonds (issued June 29, 1999) due in annual installments of $675,000 to $1,900,000 through July 1, 2019; interest at 4.6 percent to 6.5 percent. On September 26, 2002, $15,525,000 due 2010 through 2019 were refunded. Original issue amount $25,200,000. 6,450 1999 Preservation Bonds (issued November 16, 1999) due in annual installments of $800,000 to $4,225,000 through July 1, 2024; interest at 7.5 percent to 5.0 percent. On July 18, 2001, $32,375,000 due 2012 through 2022 were refunded, and on September 26, 2002, an additional $4,125,000 due 2010 and 2011 were refunded. Original issue amount $59,600,000. 18,400 2001 Preservation Bonds (issued March 29, 2001) due in annual installments of $920,000 to $2,455,000 through July 1, 2024; interest at 4.0 percent to 6.0 percent. On September 26, 2002, $3,920,000 due 2010 through 2012 were refunded. Original issue amount $35,000,000. 29,210 2001 Refunding Bonds (issued July 18, 2001) due in annual installments of $70,000 to $5,030,000 through July 1, 2022; interest at 3.875 percent to 5.375 percent. Original issue amount $51,155,000. 49,570 2002 Various Purpose Bonds (issued May 16, 2002) due in annual installments of $1,740,000 to $5,000,000 through July 1, 2024; interest at 4 percent to 5 percent. Original issue amount $68,000,000. 66,260 2002 Refunding Bonds (issued September 26, 2002) due in annual installments of $1,625,000 to $8,795,000 through July 1, 2019; interest at 2 percent to 5 percent. Original issue amount $72,000,000. 67,920 Total General Obligation Bonds Outstanding Notes to Financial Statements $ For the Fiscal Year Ended June 30, 2003 1997 Refunding Bonds (issued September 3, 1997) due in annual installments of $50,000 to $3,510,000 through July 1, 2014, interest at 4.45 percent to 5.5 percent. Original issue amount $19,900,000. 305,003 The 1999 and 2001 Preservation Bonds of $18,400,000 and $29,210,000, respectively, and portions of the 2001 Refunding Bonds, 2002 Various Purpose Bonds, and 2002 Refunding Bonds of $28,293,000 and $40,000,000 and $8,100,000, respectively, are paid from the .2% Preservation Sales Tax. HURF Revenue Bonds 1993 Highway User Revenue Refunding Serial Bonds due in annual installments of $405,000 to $2,990,000 through July 1, 2007; interest at 4.25 percent to 5.5 percent. Original issue amount, $26,690,000. City of Scottsdale, Arizona 10,990 73 For the Fiscal Year Ended June 30, 2003 Notes to Financial Statements Table of Contents Municipal Property Corporation Bonds 1992 Refunding Series Municipal Property Corporation Certificates of Participation due in semi-annual installments of $55,000 to $1,865,000 through November 1, 2014; interest at 5.0 percent to 6.375 percent. On August 7, 2002, $30,885,000 due 2003 through 2014 were refunded. Original issue amount, $47,095,000. $ - 1993 Municipal Property Corporation Refunding Bonds due in annual installments of $515,000 to $4,170,000 through July 1, 2005; interest at 4.25 percent to 5.375 percent. Original issue amount, $29,475,000. 8,120 1994 Municipal Property Corporation Refunding Bonds due in annual installments of $775,000 to $1,080,000 through July 1, 2004; interest at 4.3 percent to 5.15 percent. Original issue amount, $9,295,000. 1,080 1995 Municipal Property Corporation TPC Land Taxable Excise Tax Revenue Bonds due in annual installments of $70,000 to $285,000 through July 1, 2015; interest at 7.7 percent to 9.0 percent. Original issue amount, $2,950,000. 2,270 1996 Municipal Property Corporation Excise Tax Revenue Bonds for McCormick/Stillman Park, computers, and curbside recycling (issued July 1, 1996) due in annual installments of $310,000 to $1,570,000 through July 1, 2004; interest at 4.4 percent to 5.4 percent. The curbside recycling portion (2,800,000 issued, $0 outstanding) of bonds are recorded in and paid out of the Solid Waste Enterprise Fund. Original issue amount, $7,550,000. 340 1998 Municipal Property Corporation Excise Tax Revenue Bonds (issued December 2, 1998) due in annual installments of $3,500,000 to $180,000 through July 1, 2008; interest at 4.0 percent. Original issue amount, $9,150,000. 835 2002 Municipal Property Corporation Refunding Bonds (issued August 7, 2002) due in annual installments of $1,260,000 to $3,505,000 through July 1, 2014; interest at 5.5 percent. Original issue amount, $30,570,000. 29,310 Total MPC Bonds Outstanding 41,955 Scottsdale Preserve Authority Bonds 1997 Scottsdale Preserve Authority Excise Tax Revenue Bonds due in annual installments of $170,000 to $1,475,000 beginning July 1, 1998, through July 1, 2022; interest at 7.75 percent to 5.625 percent. On July 18, 2001, $16,690,000 due 2006 through 2022 were refunded. Original issue amount $20,500,000. 1,160 1998 Scottsdale Preserve Authority Excise Tax Revenue Bonds due in annual installments of $1,015,000 to $6,585,000 beginning July 1, 1999, through July 1, 2024; interest at 6.0 percent to 4.75 percent. Original issue amount $77,000,000. 69,740 2001 Scottsdale Preserve Authority Excise Tax Revenue Refunding Bonds issued July 18, 2001, due in annual installments of $60,000 to $1,465,000 beginning July 1, 2002, through July 1, 2022; interest at 4.375 percent to 5.25 percent. Original issue amount $17,495,000. 17,370 Total Scottsdale Preserve Authority Bonds 74 88,270 City of Scottsdale, Arizona Table of Contents $ 11,140 Community Facilities Districts General Obligation Bonds 1998 DC Ranch Community Facilities District General Obligation Bonds due in annual installments of $155,000 to $385,000 beginning July 15, 2005 through July 15, 2023; interest at 4.75% to 5.5%. Original issue amount $4,750,000. 4,750 1999 Via Linda Road Community Facilities District General Obligation Bonds due in annual installments of $95,000 to $255,000 beginning July 15, 2004 through July 15, 2023; interest at 5.0% to 5.75%. Original issue amount $3,225,000. 3,225 1999 McDowell Mountain Ranch Community Facilities District General Obligation Refunding Bonds due in annual installments of $320,000 to $1,455,000 beginning July 15, 1999 through July 15, 2022; interest at 4.0% to 6.0%. Original issue amount $20,245,000. 17,970 1999 DC Ranch Community Facilities District General Obligation Bonds (issued November 1, 1999) due in annual installments of $85,000 to $260,000 beginning July 15, 2005 through July 15, 2011. Interest at 5.45% to 6.50%. Original issue amount $3,085,000. 3,085 2002 Scottsdale Mountain Community Facilities District General Obligation Refunding Bonds (issued May 15, 2002) due in annual installments of $160,000 to $455,000 beginning July 15, 2003 through July 15, 2018; interest at 3.0 percent to 4.7 percent. Original issue amount $5,375,000. 5,160 2002 DC Ranch Community Facilities District General Obligation Bonds (issued December 17, 2002) due in annual installments of $245,000 to $1,395,000 beginning July 15, 2004 through July 15, 2027. Interest at 3% to 5%. Original issue amount $12,165,000. 12,165 Total Community Facilities Districts General Obligation Bonds Outstanding Total Bonds Payable Recorded in Governmental Activities City of Scottsdale, Arizona Notes to Financial Statements Special Assessment Bonds issued April 23, 1992, through December 20, 2001, maturing January 1, 2004, through January 1, 2013; due in annual installments of $15,000 to $1,575,000; interest at 4.5 percent to 7.05 percent. Total original issue amount, $43,045,000. For the Fiscal Year Ended June 30, 2003 Special Assessment Bonds 46,355 $ 503,713 75 For the Fiscal Year Ended June 30, 2003 Notes to Financial Statements Table of Contents Classified in Business-Type Activities on the Government-wide financial statements: General Obligation Bonds Bonds Outstanding (in thousands of dollars) 1993 Refunding Bonds due in annual installments of $1,010,000 to $8,150,000 through July 1, 2009; interest at 4.0 percent to 5.5 percent. $28,399,993 of these bonds are recorded in and paid out of the Water Fund. Of the total outstanding at June 30, 2003, $10,231,258 bonds are capital appreciation bonds maturing in 2004 and 2005, of which $6,652,737 are included in the amount paid out of the Water Fund. The original issue amount for the 1993 Refunding Bonds was $45,015,000. $ 1993A Refunding Bonds due in annual installments of $475,000 to $5,560,000 through July 1, 2011; interest at 3.65 percent to 5.1 percent. $1,315,000 of these bonds are recorded in and paid out of the Water Fund. The original issue amount for the 1993A Refunding Bonds was $24,265,000. Total General Obligation Bonds Outstanding 13,008 1,315 14,323 Water and Sewer Revenue Bonds 1989 Water and Sewer Revenue Serial Bonds (Series B issued 1992) due in annual installments of $165,000 to $410,000 through July 1, 2012; interest at 5.0 percent to 7.5 percent. Original issue amount, $5,000,000. 2,910 1989 Water and Sewer Revenue Bonds (Series C issued 1994) due in annual installments of $125,000 to $240,000 through July 1, 2014; interest at 5.75 percent to 8.25 percent. $3,005,000 of these bonds due 2006 through 2014 were refunded on March 1, 1996. Original issue amount, $5,000,000. 465 1996 Water and Sewer Revenue Refunding Serial Bonds (issued March 1, 1996) due in annual installments of $325,000 to $1,000,000 beginning July 1, 1997 through July 1, 2014; interest at 3.5 percent to 5.625 percent. Original issue amount, $9,815,000. 6,700 1989 Water and Sewer Revenue Bonds (Series D issued November 1, 1997) due in annual installments of $425,000 to $1,375,000 through July 1, 2022; interest at 4.75 percent to 7.25 percent. Original issue amount $20,000,000. 17,100 1989 Water and Sewer Revenue Bonds (Series E issued December 2, 1998) due in annual installments of $1,015,000 to $4,615,000 through July 1, 2023; interest at 4.5 percent to 7.0 percent. Original issue amount $50,000,000. 44,055 Total Water and Sewer Revenue Bonds Outstanding 76 71,230 City of Scottsdale, Arizona Table of Contents $ 2001 Municipal Property Corporation Scottswater Excise Tax Revenue Serial Bonds (issued October 10, 2001) due in annual installments of $1,160,000 to $1,835,000 through July 1, 2008; interest at 3.5 percent to 5 percent. These bonds are recorded in and paid out of the Water Enterprise Fund. Original issue amount, $10,500,000. 1,985 8,025 Total Municipal Property Corporation Bonds Outstanding 10,010 Total Bonds Payable Recorded in Business-type Activities 95,563 Total Long-term Portion of Bonds Payable $ 599,276 Notes to Financial Statements 1995 Municipal Property Corporation Transfer Station Excise Tax Revenue Serial Bonds (issued November 1, 1995) due in annual installments of $160,000 to $330,000 through July 1, 2010; interest at 4.75 percent to 7.25 percent. These bonds are recorded in and paid out of the Solid Waste Enterprise Fund. Original issue amount, $3,500,000. For the Fiscal Year Ended June 30, 2003 Municipal Property Corporation Bonds Statutory Debt Limitation Under the provisions of the Arizona Constitution, outstanding general obligation bonded debt issued for water, sewer, light, parks, and open space purposes may not exceed 20 percent of a city’s net secondary assessed valuation. Outstanding general obligation bonded debt for all other purposes may not exceed 6 percent of a city’s net secondary assessed valuation. Accretion on capital appreciation bonds, which is included for GAAP purposes as outstanding debt, is excluded for this calculation. General obligation bonds of community facilities districts also are not subject to or included in this calculation. The following summarizes the City of Scottsdale’s legal general obligation bonded debt borrowing capacity at June 30, 2003 (in thousands of dollars): General Obligation Bonds Issued to Provide Water, Sewer, Light, 20% Constitutional Limit $ 705,321 General Obligation Bonds Issued for All Other Purposes 6% Constitutional Limit $ 211,596 Less General Obligation 20% Bonds Outstanding (237,400) Less General Obligation 6% Bonds Outstanding 467,921 Available 6% Limitation Borrowing Capacity Available 20% Limitation Borrowing Capacity $ (71,695) $ 139,901 Arbitrage Under U.S. Treasury Department regulations, all governmental tax-exempt debt issued after August 31, 1986, is subject to arbitrage rebate requirements. The requirements stipulate, in general, that the earnings from the investment of tax-exempt bond proceeds, which exceed related interest expenditures on the bonds, must be remitted to the Federal government on every fifth anniversary of each bond issue. The City has an independent consultant evaluating the City’s outstanding tax-exempt debt for arbitrage liability. As of June 30, 2003, the City has recognized an arbitrage liability of $151,853. This arbitrage liability is reported in due to other governments in the governmental activities statement of net assets. City of Scottsdale, Arizona 77 For the Fiscal Year Ended June 30, 2003 Notes to Financial Statements Table of Contents Advance and Forward Refundings During the year ended June 20, 2003, the City issued two series of refunding bonds. The City issued $72,000,000 of General Obligation Refunding Bonds, Series 2002, (advance refunding) dated September 26, 2002, with an average interest rate of 4.5%, to refund $71,510,000 of Series 1992, 1993, 1994, 1995, 1997, 1998, 1999, 1999A and 2001 General Obligation and Preservation Bonds with an average interest rate of 4.92%. The City will reduce its total debt service payments over the next 22 years by approximately $3,218,584 and obtain an economic gain (difference between the present values of the debt service payments on the old and new debt) of $611,585. The City issued $30,570,000 of Municipal Property Corporation Refunding Bonds, Series 2002, (forward refunding) dated August 7, 2002, with an average interest rate of 5.5%, to refund $30,885,000 of Series 1992 Excise Tax Revenue Refunding Bonds with an average interest rate of 6.26%. The City refunded the bonds to reduce its total debt service payments over the next 13 years by approximately $2,059,698 and to obtain an economic gain (difference between the present values of the debt service payments on the old and new debt) of $2,073,165. The proceeds from the issuance of the bonds were used to purchase U.S. Government securities that were placed in an irrevocable trust with an escrow agent to provide debt service payments on the bonds being refunded. As a result, the refunded bonds are considered to be defeased and the liability has been removed from the governmental activities column of the City’s financial statements. In prior years, the City refinanced other bond issues through the issuance of refunding bonds. The proceeds from the refunding bonds have been deposited in irrevocable trusts at commercial banks and invested in U.S. Government securities which, together with interest earned thereon, will provide amounts sufficient for future redemption or payment of principal and interest of the issues refunded. The assets, liabilities, and financial transactions of all of these trust accounts and the liability for refunded (defeased) bonds are not reflected in the financial statements of the City. The tables below reflect refunded debt outstanding at June 30, 2003, net of any amounts to be paid or retired by the trustee on July 1, 2003. Refunded in Year Ended June 30, 2003 (in thousands of dollars) 1989 General Obligation Series C (1992) Bonds 1989 General Obligation Series D (1993) Bonds 1989 General Obligation Series E (1994) Bonds 1994 General Obligation Bonds 1995 General Obligation Bonds 1997 General Obligation Bonds 1998 General Obligation Bonds 1999A General Obligation Bonds 1999 Preservation General Obligation Bonds 2001 Preservation General Obligation Bonds 1992 Refunding Municipal Property Corporation Certificates of Participation Refunded in Prior Years (in thousands of dollars) 1989 General Obligation Series B (1991) Bonds 1989 General Obligation Series C (1992) Bonds 1989 General Obligation Series E (1994) Bonds 1994 General Obligation Bonds 1995 General Obligation Bonds 1999 General Obligation Bonds 1997 Scottsdale Preserve Authority Excise Tax Revenue Bonds $ $ 78 $ 2,065 9,940 625 700 8,125 18,305 8,180 15,525 4,125 3,920 30,885 $ 102,395 11,895 11,115 9,675 11,025 2,725 32,375 16,690 95,500 City of Scottsdale, Arizona Table of Contents Contracts Payable (in thousands of dollars) Contract payable to the U.S. Army Corps of Engineers for the construction of flood control and recreation facilities; due in annual installments through 2032; interest at 5.1 percent. $ 3,304 Contract payable for the construction of public infrastructure relating to completion of The Dial Corporation new corporate headquarters; due in annual installments beginning September 1998 through September 2007; non-interest bearing. 268 Contract payable for the maintenance of a federal patent; due in three year installments beginning January 1, 2001 through January 1, 2009; non-interest bearing. 5 Contract payable for the oversight and management of the Tournament Players Club Recreational Land Use Agreement; due in annual installments beginning March 1999 through June 2035; non-interest bearing. 1,760 Contract payable for the oversight and management of the Westworld Cost-share and Land Use Agreement; due in annual installments beginning December 2000 through December 2032; non-interest bearing. 1,650 Contract payable for the construction of public infrastructure relating to completion of the Anchor National Life / Portales mixed use development; due in annual installments beginning 2003. 2,117 Contract payable for the construction of public infrastructure relating to completion of the Promenade shopping center; due in annual installments beginning March 2000 through March 2007; non interest bearing. 2,953 Contract payables for the undergrounding of 69kv power lines; due in annual installments beginning January 1999 through; interest at 10.0 percent. 140 Contract payable for the purchase of a portion of 2,685 acres of land for the McDowell Sonoran Preserve; due in fifteen annual installments beginning July 1, 1999 through July 1, 2013; interest from 3.75 percent to 6.0 percent. 7,430 Total Contracts Payable Recorded in Governmental Activities City of Scottsdale, Arizona $ Notes to Financial Statements Classified in Governmental activities on the government-wide financial statements: For the Fiscal Year Ended June 30, 2003 Contracts Payable The City of Scottsdale has entered into various purchase contracts related to economic development, acquisition of water system facilities, acquisition of recreational facilities and patents. The following is a summary of debt service to maturity for all long-term contracts payable at June 30, 2003. The final payment for the water facilities contract was made during the current year; as a result, there were no long-term contracts payable classified in business-type activities. 19,627 79 For the Fiscal Year Ended June 30, 2003 Notes to Financial Statements Table of Contents Capital Lease In connection with the Waterfront Area Redevelopment Plan, the City has entered into a garage lease agreement in order to provide public parking. The lease has an initial term of 50 years. The lease is payable over 30 years in the amount of $28,750,000, plus interest at 9.14% per annum compounded annually, subject to an interest rate buy down option. The exclusive funding source for the lease payments is new retail sales tax revenues generated by the Nordstrom department store and the multilevel retail bridge linking Nordstrom to Fashion Square, as well as increased retail sales tax revenues (over 1995) from Fashion Square. The lease agreement qualifies as a capital lease for accounting purposes and, therefore, has been recorded as buildings and other improvements, at the present value of the future minimum lease payments as of the inception date. According to the lease agreement annual payments should be allocated to interest due first with the remaining amount allocated to the principal. Current estimates indicate that it is unlikely that any principal will be paid until near the end of the lease. Changes in Long-Term Liabilities The following is a summary of changes in long-term liabilities reported in the government-wide financial statements for the year ended June 30, 2003 (in thousands of dollars). Governmental Activities: Bonds payable: General Obligation Bonds HURF Revenue Bonds Municipal Property Corporation Bonds Scottsdale Preserve Authority Bonds Special Assessments Bonds Community Facilities Districts General Obligation Bonds Add Deferred Issuance Premiums Less Deferred Amounts on Refunding Total Bonds Payable Contracts Payable Capital Lease Compensated Absences Governmental Activity Long-term Liabilities Beginning Balance Additional Obligations, Interest Accretion and Net Increases $ $ $ 319,657 13,385 49,870 90,585 13,061 34,935 1,572 (3,585) 519,480 21,416 28,750 12,455 582,101 $ 72,741 30,570 12,165 6,284 (5,865) 115,895 115,895 Current Maturities, Retirements, and Net Decreases $ (87,395) (2,395) (38,485) (2,315) (1,921) (745) (992) 1,123 (133,125) (1,789) (960) $ (135,874) Amounts Due Within One Year Ending Balance $ $ 305,003 10,990 41,955 88,270 11,140 46,355 6,864 (8,327) 502,250 19,627 28,750 11,495 562,122 $ $ 14,483 2,515 7,815 2,445 2,386 1,405 31,049 2,205 1,993 35,247 Internal Service Funds serve primarily the governmental funds, the long-term liabilities of which are included as part of the governmental activities. For the year ended June 30, 2003, $326,000 of accrued compensated absences is included in the above amount. For the governmental activities, the General Fund, Special Revenue Funds and Capital Projects Funds generally liquidate accrued compensated absences. Business-type Activities: Bonds Payable General Obligation Bonds Water and Sewer Revenue Bonds Municipal Property Corporation Bonds Add Deferred Issuance Premiums Less Deferred Amounts on Refunding Total Bonds Payable Compensated Absences Business-type Activity Long-term Liabilities 80 $ $ 18,315 73,945 11,555 225 (288) 103,752 1,628 105,380 $ $ 828 828 828 $ $ (4,820) (2,715) (1,545) (37) 47 (9,070) (283) (9,353) $ $ 14,323 71,230 10,010 188 (241) 95,510 1,345 96,855 $ $ 592 2,860 1,645 5,097 226 5,323 City of Scottsdale, Arizona Table of Contents General Obligation Bonds Issued To Provide Water, Sewer, Light Parks, and Open Spaces 20% Limitation General Obligation Bonds Issued For All Other Purposes 6% Limitation Principal Principal Fiscal Year 2004 2005 2006 2007 2008 2009-2013 2014-2018 2019-2023 2024-2028 Capital Appreciation ** $ Total $ Interest Total 3,093 6,526 5,476 6,065 7,775 73,305 64,260 51,550 11,680 $ 13,489 13,358 10,865 10,560 10,205 42,469 24,369 10,674 584 $ 16,582 19,884 16,341 16,625 17,980 115,774 88,629 62,224 12,264 3,578 (3,578) - 233,308 $ 132,995 $ 366,303 Interest $ 11,390 $ 8,491 10,479 12,080 11,165 18,090 - $ 71,695 $ 3,323 2,824 2,409 1,902 1,363 1,308 - Total General Obligation Bonds Total Principal $ 14,713 11,315 12,888 13,982 12,528 19,398 - $ 13,129 $ 84,824 Interest Total 14,483 15,017 15,955 18,145 18,940 91,395 64,260 51,550 11,680 $ 16,812 16,182 13,274 12,462 11,568 43,777 24,369 10,674 584 $ 31,295 31,199 29,229 30,607 30,508 135,172 88,629 62,224 12,264 3,578 (3,578) - Notes to Financial Statements Governmental Activities (in thousands of dollars) For the Fiscal Year Ended June 30, 2003 Debt Service Requirements to Maturity The following is a summary of debt service requirements to maturity for long-term liabilities at June 30, 2003. Deferred issuance costs and deferred amounts on refunding are not included. $ 305,003 $ 146,124 $ 451,127 ** For GAAP financial statement reporting, accretion of capital appreciation bonds is added to the principal balance outstanding. Governmental Activities (continued) (in thousands of dollars) Highway User Revenue Bonds Fiscal Year Principal Interest Municipal Property Corporation Bonds Total Principal Interest Scottsdale Preserve Authority Excise Tax Revenue Bonds Total Principal Interest Total 2004 2005 2006 2007 2008 2009-2013 2014-2018 2019-2023 2024-2028 $ 2,515 $ 2,660 2,825 2,990 - 591 $ 459 316 164 - 3,106 3,119 3,141 3,154 - $ 7,815 $ 6,740 2,725 2,870 3,020 16,820 1,965 - 2,330 $ 1,916 1,548 1,396 1,237 3,559 143 - 10,145 8,656 4,273 4,266 4,257 20,379 2,108 - $ 2,445 $ 2,595 2,740 2,890 3,035 17,475 22,125 28,380 6,585 4,414 $ 4,258 4,092 3,940 3,778 16,226 11,382 5,494 296 6,859 6,853 6,832 6,830 6,813 33,701 33,507 33,874 6,881 Total $ 10,990 $ 1,530 $ 12,520 $ 41,955 $ 12,129 $ 54,084 $ 88,270 $ 53,880 $ 142,150 Governmental Activities (continued) (in thousands of dollars) Community Facilities Districts Special Assessment Bonds General Obligation Bonds Fiscal Year 2004 2005 2006 2007 2008 2009-2013 2014-2018 2019-2023 2024-2028 Total Principal Interest Total Principal Interest Total $ 2,385 $ 2,415 835 835 835 3,835 - 477 $ 349 267 192 423 - 2,862 2,764 1,102 1,027 1,258 3,835 - $ 1,405 $ 1,470 1,535 1,615 1,685 9,780 12,035 11,640 5,190 2,255 $ 2,193 2,121 2,045 1,978 8,705 6,170 3,065 668 3,660 3,663 3,656 3,660 3,663 18,485 18,205 14,705 5,858 $ 11,140 $ 1,708 $ 12,848 $ 46,355 $ 29,200 $ 75,555 City of Scottsdale, Arizona 81 For the Fiscal Year Ended June 30, 2003 Notes to Financial Statements Table of Contents Governmental Activities (continued) (in thousands of dollars) Capital Lease Contracts Payable Fiscal Year 2004 2005 2006 2007 2008 2009-2013 2014-2018 2019-2023 2024-2028 2029-2033 2034-2035 Capital Appreciation Total Principal $ $ Interest Total 2,205 2,235 2,262 1,834 951 5,313 1,117 1,278 1,484 838 110 533 $ 502 469 435 398 1,361 589 428 222 24 - 2,738 2,737 2,731 2,269 1,349 6,674 1,706 1,706 1,706 862 110 19,627 $4,961 $ 24,588 Principal $ Interest - $ 28,750 - 2,120 $ 2,184 2,249 2,317 2,386 13,049 15,127 17,536 24,101 - 28,750 81,069 Total Total 2,120 2,184 2,249 2,317 2,386 13,049 15,127 17,536 52,851 109,819 Principal $ Interest 33,253 $ 33,132 28,877 31,179 28,466 144,618 101,502 92,848 53,689 838 110 Total 29,532 $ 62,785 28,043 61,175 24,336 53,213 22,951 54,130 21,768 50,234 86,677 231,295 57,780 159,282 37,197 130,045 25,871 79,560 24 862 110 3,578 (3,578) $ 552,090 $ 330,601 $ 882,691 Business-type Activities (in thousands of dollars) General Obligation Bonds Issued To Provide Water, Sewer, Light Parks, and Open Spaces 20% Limitation Fiscal Year 2004 2005 2006 2007 2008 2009-2013 2014-2018 2019-2023 2023-2026 Capital Appreciation ** Total Principal $ $ Interest Total 592 $ 563 6,515 - 4,293 $ 4,352 340 - 4,885 4,915 6,855 - 6,653 14,323 $ (828) 8,157 $ 5,825 22,480 Total General Obligation Bonds Principal Interest $ $ 4,293 $ 4,352 340 - 592 563 6,515 - 6,653 $ 14,323 $ Total 4,885 4,915 6,855 - (828) 8,157 $ 5,825 22,480 Business-type Activities (continued) (in thousands of dollars) Water and Sewer Revenue Bonds Fiscal Year 2004 2005 2006 2007 2008 2009-2013 2014-2018 2019-2023 2023-2026 Capital Appreciation ** Total Principal $ $ Interest Municipal Property Corporation Bonds Total 2,860 $ 3,055 3,245 3,400 3,565 17,105 16,995 21,005 - 3,650 $ 3,467 3,270 3,076 2,873 11,475 7,263 2,991 - 6,510 6,522 6,515 6,476 6,438 28,580 24,258 23,996 - 71,230 $ 38,065 $ 109,295 Principal $ Interest Total Total 1,645 $ 1,745 1,860 1,990 2,130 640 - 412 $ 350 286 217 118 46 - 2,057 2,095 2,146 2,207 2,248 686 - $ 10,010 $ 1,429 $ 11,439 Principal $ $ Interest Total 5,097 $ 5,363 11,620 5,390 5,695 17,745 16,995 21,005 - 8,355 $ 8,169 3,896 3,293 2,991 11,521 7,263 2,991 - 13,452 13,532 15,516 8,683 8,686 29,266 24,258 23,996 - 6,653 95,563 $ (828) 5,825 47,651 $ 143,214 ** For GAAP financial statement reporting, accretion of capital appreciation bonds is added to the principal balance outstanding. 82 City of Scottsdale, Arizona Table of Contents The City reports its self-insurance activity in its Self-Insurance Internal Service Fund. Claims liabilities are reported when it is probable that a loss has occurred and the amount of the loss can be reasonably estimated. The claims liabilities amount recorded in the accompanying financial statements is based on reported pending claims and an actuarial analysis and projection of the accrued liability amounts necessary to fund the claims. At June 30, 2003, the general liability claims payable totaled $7,610,421 and the self-insured benefits claims totaled $1,229,000. Notes to Financial Statements A. Risk Management The City is exposed to various risks of loss related to public, property, and aviation premises liability, self-insured benefits and workers compensation. Public liability includes public officials’ errors and omissions, automobile and general liability. The City is self-insured for the first $2,000,000 of public liability, the first $100,000 of property coverage and the first $600,000 of workers compensation. Coverage in excess of these respective amounts is provided through the purchase of commercial insurance. During the fiscal year ending June 30, 2003, there was significant reduction in excess liability insurance coverage limits due to a very restricted and expensive global insurance marketplace, due in large part to the terrorist attacks of September 11, 2001. As a result, overall liability coverage limits were reduced from a total of $75 million to $30 million to stay within budget. As for claim expenditures, settlements for each of the past three fiscal years have not exceeded the City’s excess insurance coverage amounts for any claims. For the Fiscal Year Ended June 30, 2003 V. OTHER INFORMATION Years Ended June 30 (in thousands of dollars) 2003 2002 Claims Payable, July 1 Current Year Claims Incurred Current Year Claim Payments $ 8,420 $ 6,065 (5,646) 7,721 7,883 (7,184) Claims Payable June 30 $ 8,839 8,420 $ In addition, management has established a policy to retain a cash balance at the 90% confidence level for general risk claims and a corridor and premium stabilization reserve for the self-insured health benefits. At June 30, 2003, the 90% confidence level recommendation is $11,035,110 for all lines of pending claims and the claims incurred, corridor reserve and premium stabilization reserve total $1,981,000 for self-insured benefits. B. Contingent Liabilities The City is a party to several lawsuits incidental to its normal operations. Management, with concurrence of the City Attorney, and outside legal counsel, is of the opinion that settlement of these lawsuits will not have a material effect on the financial position of the City. Therefore, no specific provision has been reflected in the accompanying basic financial statements for these matters. C. Commitments and Subsequent Events On November 19, 2002, the City Council approved a development agreement with John Lund relating to a new automotive complex at the southeast corner of Scottsdale Rd. and Loop 101 Freeway. The terms of this agreement require the City to reimburse Lund for up to $5.5 million in public benefits relating to the project including the acquisition of public lands, reimbursement of the City’s water and sewer development fees, and reimbursement of the City’s stormwater retention payment in lieu. The actual amount will be dependent upon actual costs. However, the reimbursement amount may not exceed $5.5 million even if actual costs are higher. The City has also agreed to pay interest costs on Lund’s cost of borrowing on the unpaid balance beginning at 8.5% in the first year and dropping by .5% per year. The reimbursement of the costs listed above, will be accomplished by paying Lund City of Scottsdale, Arizona 83 For the Fiscal Year Ended June 30, 2003 Notes to Financial Statements Table of Contents quarterly payments equal to 67% of the City’s General Fund sales tax receipts received from the new dealership in that quarter, for a maximum of 10 years. The first payment is not due until the calendar quarter after the calendar quarter in which the first certificate of occupancy is issued. In June 2002, the City Council approved a three-year agreement with Rural/Metro Corporation (Rural/ Metro) whereby Rural/Metro will provide fire protection and related services to the City to June 30, 2005 with the option of two one-year extensions. Payments to Rural/Metro amounted to $16,717,726 for the year ended June 30, 2003. The new contract requires 26 payments during the fiscal year 2003/04 for a total amount of $18,235,442. The City has a Service Agreement with the Scottsdale Cultural Council (Council) that provides that the Council will manage the arts and cultural affairs within the Scottsdale community for a ten-year period, automatically renewable for two five-year periods. In return, the City will pay service fees to the Council based on the Service Agreement between the City and the Council. Payments to Scottsdale Cultural Council amounted to $2,780,596 for the year ended June 30, 2003. Annual amounts due in fiscal year 2003/04 will approximate $2,780,596. The City has a Service Agreement with the Scottsdale Convention and Visitors’ Bureau (Bureau) that provides that the Council will manage the tourism promotion within the Scottsdale community for a tenyear period. In return, the City will pay service fees to the Council based on the Service Agreement between the City and the Council. Payments to Scottsdale Cultural Council amounted to $5,023,610 for the year ended June 30, 2003. The annual amount due in fiscal year 2004 will be $4,506,000. The City has entered into several agreements whereby it will reimburse developers for construction costs of certain public infrastructure improvements. The funding source for the reimbursements will come from Water and Sewer development fees paid over the life of the development. Only amounts paid subsequent to January 13, 1997 are eligible for reimbursement. The City does not become liable under the agreements until the City has accepted the cost, a development fee has been paid and a water meter has been set. The City has limited its liability to the lesser of the cost accepted by the City or the development fees paid. The City’s maximum contingent liability at June 30, 2003, is $6,512,170. 84 On July 2, 2003, the City Council approved a redevelopment agreement for the former Los Arcos Redevelopment District. Under the terms of the agreement, the City will share sales tax proceeds generated by the project with the Ellman Companies (the developer), up to a net present value maximum of $36,750,000 plus interest at a rate of 7.18%. This allocation is based on performance-based sharing 69% of the General Fund portion of sales tax generated at the site. After completion of improvements, but prior to any payments by the City, the Developer will deed to the City title to a parking structure and approximately 20 acres of land, plus all improvements on those lands. The City will not be obligated to make any payments until the entire project is completed. Litigation has been filed to challenge this Agreement on a variety of legal issues. The actions seek to declare the Agreement invalid, but do not request money damages against the City or other defendants. The City Attorney’s Office has reviewed this Agreement and is optimistic that it is legally defensible. On September 10, 2003, the City sold City of Scottsdale General Obligation Refunding Bonds, Series 2003 in an aggregate principal amount not to exceed $16,625,000. D. Joint Venture The City participates with the cities of Phoenix, Glendale, Mesa, and Tempe in the multi-city SubRegional Operating Group (SROG). SROG was formed pursuant to the Joint Exercise of Powers Agreement (JEPA) in order to govern the construction, operation, and maintenance of jointly used sewage treatment and transportation facilities. The facilities include the 91st Avenue Wastewater Treatment Plant, the Salt River Outfall Sewer, the Southern Avenue Interceptor, and related transportation facilities. The City of Phoenix acts as lead agency and is responsible for the planning, budgeting, construction, operation, and maintenance of the facilities. In addition, the City of Phoenix provides all management, personnel, and financing arrangements and accepts federal grants on behalf of the participants. JEPA requires each city to pay for its share of the actual cash costs of operating and maintaining the facilities based on relative sewage flows and strengths. The City records its share of SROG’s cash operating expenses, and its equity in the joint venture in the City’s Water and Sewer Utility Fund. For the year ended June 30, 2002, (the latest audited information available from SROG), the City’s net investment in SROG was $39,922,000. SROG’s net cash operating expenses for the year ended June 30, 2002, were $24,004,656, of City of Scottsdale, Arizona Table of Contents The Comprehensive Annual Financial Report for the Fiscal Year Ended June 30, 2002 for the multi-city SubRegional Operating Group (the latest SROG CAFR available) may be obtained from the Arizona Municipal Water Users Association, 4041 N. Central Avenue, Suite 900, Phoenix, AZ 85012. Funding Policy The Arizona Revised Statutes (ARS) provide statutory authority for determining the employees’ and employers’ contribution amounts as a percentage of covered payroll. Employers are required to contribute at the same rate as employees. Although the statutes prescribe the basis of making the actuarial calculation, the Arizona legislature is able to legislate a contribution rate other than the actuarially determined rate. The actuarially determined contribution rate for the years ended June 30, 2003, 2002, and 2001 were 2.49% (2.00% retirement and .49% long-term disability) 2.49% and 2.66%, respectively, for both employers and employees. The City’s contributions to the System for the years ending June 30, 2003, 2002, and 2001 were $2,034,363, $2,057,262, and $1,925,741, respectively, equal to the required contributions for each year. E. Related Organization The Industrial Development Authority (Authority) is a nonprofit corporation established by the City in 1984 to promote industry and develop trade by inducing manufacturing, industrial and commercial enterprises to locate and remain in Scottsdale. The Board of Directors of the Authority is appointed by the City Council; however, the City’s accountability for the authority does not extend beyond making the appointments. F. Retirement and Pension Plans All full-time employees of the City, the Mayor, and City Council are covered by one of three pension plans. All full-time City employees, except public safety personnel, participate in the Arizona State Retirement System, a multiple-employer cost sharing pension plan. All public safety personnel participate in the Public Safety Personnel Retirement System, which is an agent multiple-employer pension plan. The Mayor and Council participate in the Elected Officials’ Retirement Plan, a multiple-employer cost sharing pension plan. All three pension plans are administered by the State of Arizona. Arizona State Retirement System Plan Description All full-time City employees (except public safety personnel) participate in the Arizona State Retirement System (System), a multiple-employer cost sharing defined benefit pension plan. The System was established by the State of Arizona to provide pension benefits for employees of the state and employees of participating political subdivisions and school districts. The System is administered in accordance with Title 38, Chapter 5, of the Arizona Revised Statutes. The system provides for retirement, disability, health insurance premium benefits, and death and survivor benefits. The Arizona State Retirement System issues a City of Scottsdale, Arizona Notes to Financial Statements publicly available financial report that includes financial statements and required supplementary information for the System. That report may be obtained by writing to Arizona State Retirement System, P.O. Box 33910, Phoenix, AZ 85067-3910, or by calling 1-800-621-3778. For the Fiscal Year Ended June 30, 2003 which the City’s share was $2,348,946, or 9.8 percent. For the year ended June 30, 2003, the City paid $13,133,376 for SROG capital contributions, and $2,190,090 for SROG operating expenses, including adjustments to the operating and replacement reserves. Public Safety Personnel Retirement System Plan Description All of the City’s public safety personnel (police officers) participate in the Public Safety Personnel Retirement System (PSPRS), an agent multiple-employer defined benefit pension plan. PSPRS was established by Title 38, Chapter 5, Article 4 of the Arizona Revised Statutes to provide pension benefits for public safety employees of certain state and local governments. The PSPRS is jointly administered by the fund manager and 171 local boards. PSPRS provides retirement benefits, as well as death and disability benefits. The Public Safety Personnel Retirement System of the State of Arizona issues a publicly available financial report that includes financial statements and required supplementary information. That report may be obtained by writing to Public Safety Personnel Retirement System, 1020 East Missouri Avenue, Phoenix, AZ 85014 or by calling (602) 255-5575. Funding Policy The System is funded through a member contribution of 7.65% of gross payroll, an employer contribution set by an actuarial valuation expressed as a percent of gross payroll, and a distribution of the net earnings of the Fund. The City’s current contribution rate is 5.37% of annual covered payroll, consisting of 11.64% for normal cost and (6.27%) for amortization of unfunded actuarial accrued liability. Contribution rates for 2002 and 2001 were 5.37% and 4.48%, respectively. 85 For the Fiscal Year Ended June 30, 2003 Notes to Financial Statements Table of Contents Annual Pension Cost For 2002, the City’s annual pension cost of $924,558 for PSPRS was equal to the City’s required and actual contributions. The required contribution was determined as part of the June 30, 2002 actuarial valuation using the individual entry-age actuarial cost method. The actuarial assumptions include (a) a rate of return on the investment of present and future assets of 9.0% per year compounded annually, (b) projected salary increases of 6.5% per year compounded annually, attributable to inflation and other across-the-board factors, and (c) additional projected salary increases ranging from 6.5% to 9.5% per year, attributable to seniority/merit. Included in (b) is an inflation component of 5.5%. The actuarial value of PSPRS assets was determined using techniques that smooth the market value of assets over a 4-year period. PSPRS’s unfunded accrued liability is being amortized as a level percent of projected payroll on an open basis. The remaining amortization period at July 1, 2002 was 20 years. Elected Officials’ Retirement Plan Three-Year Trend Information for PSPRS (in thousands of dollars) Fiscal Year Ending 2000 2001 2002 Annual Pension Cost (APC) $ 1,198 1,133 925 Percentage of APC Contributed 100% 100% 100% Net Pension Obligation - Plan Description The City’s Mayor and Council participate in the Elected Officials’ Retirement Plan (EORP), a multiple-employer cost sharing defined benefit pension plan. The EORP was established and is administered by the State of Arizona to provide pension benefits for state and county elected officials, judges, and certain City-elected officials. The fund manager of the PSPRS is also the administrator for the EORP. EORP provides retirement benefits, as well as death and disability benefits. The Elected Officials’ Retirement Plan issues a publicly available financial report that includes financial statements and required supplementary information for EORP. That report may be obtained by writing to Elected Officials’ Retirement Plan, 1020 East Missouri Avenue, Phoenix, Arizona 85014 or by calling (602) 255-5575. Funding Policy Covered employees are required by state statute to contribute an amount equal to 7% of gross salary. Incorporated city or town employers are required to contribute an amount sufficient to meet both the normal cost of a level-cost method attributable to the EORP, plus the amount required to amortize the unfunded accrued liability for the employer. Such amount is to be determined each year by actuarial valuation and paid as a level percent of compensation. The contribution requirements for plan members are established and may be amended by the Fund Manager, a five-member board. The City’s rates for fiscal years ended June 30, 2003, 2002, and 2001 were 6.97%, 6.97% and 10.22%, respectively. The City’s contributions to EORP for the years ending June 30, 2003, 2002 and 2001 were $10,036, $9,749, and $13,445, respectively, equal to the required contributions for each year. 86 City of Scottsdale, Arizona Table of Contents City of Scottsdale, Arizona Notes to Financial Statements The number of participants during fiscal year 2002/03 was 85. The projected liability, as of June 30, 2003, for medical conversion was $6,308,534. Of this liability, $5,784,311 is considered payable in greater than one year and is not reflected as a current expenditure in the Governmental Fund statements. The projected liability is based on a January 1, 2003, actuarial valuation. Significant actuarial assumptions of the January 1, 2003 actuarial valuation include a) mortality rates based on the 1983 Group Annuity Mortality Table set back 1 year for males and no set back for females, b) interest compounded 5.0 percent annually, c) salaries increase at a rate of 4.5 to 9.5 percent based on years of service per annum, d) unit credit cost method based on participant data as of January 1, 2003. For the Fiscal Year Ended June 30, 2003 G. Other Post-Employment Benefits In addition to the pension benefits described previously in H the City provides an option of post-retirement health care benefits, in accordance with Chapter 14 of the City Code. At retirement, employees with medical leave accumulated prior to September 6, 1976 are eligible for payment of medical leave at one hundred percent cash value at current rate of pay. Employees hired before July 1, 1982 can elect to receive cash equal to fifty percent of the first five hundred twenty hours of unused medical leave plus twenty-five percent of all hours in excess of five hundred twenty. The conversion rate is the employee’s average hourly base pay rate for the five years immediately preceding retirement. Any retiring employee with 300 or more hours of accumulated medical leave, who chooses to remain on the city medical plan, may elect to apply the value of the sick leave to the employee’s portion of the health care premiums, up until age 65. The value of the accumulated medical leave is calculated at the employee’s hourly rate of pay at the time of retirement. 87 For the Fiscal Year Ended June 30, 2003 Notes to Financial Statements Table of Contents 88 Required Supplementary Information Public Safety Personnel Retirement System Schedule of Funding Progress (in thousands of dollars) Actuarial Valuation June 30 1997 1998 1999 2000 2001 2002 (1) Actuarial Value of Assets 54,611 61,095 72,177 84,435 93,684 94,784 (2) Entry Age Actuarial Accrued Liability (AAL) 46,315 51,615 57,828 65,021 73,216 80,997 (3) Percent Funded (1)/(2) 117.9% 118.4% 124.8% 129.9% 128.0% 117.0% (4) Unfunded AAL (2) - (1) (8,296) (9,480) (14,349) (19,414) (20,468) (13,787) (5) Annual Covered Payroll 13,443 15,284 16,187 18,547 20,406 20,930 (6) Unfunded AAL as a Percentage of Covered Payroll (4)/(5) - City of Scottsdale, Arizona Table of Contents Nonmajor Governmental Funds SPECIAL REVENUE FUNDS Special Revenue Funds are established to finance particular activities and are created out of receipts of specific taxes or other earmarked revenue. Such, funds are authorized by statutory or charter provisions to pay for certain activities with some form of continuing revenue. Highway User Fuel Tax This fund receives and expends the City’s allocation of the Arizona’s Highway User Revenue Tax (“gas tax) and other transportation related revenue. The amount available to each city is allocated on a population basis, which is determined by the latest federal census. These monies must be used for street construction, reconstruction, maintenance or transit. Community Development Block Grants (CDBG) This fund receives and expends the City’s Community Development Block Grant revenues. The amount of the grant is awarded annually by the U.S. Department of Housing and Urban Development (HUD) upon application for funding by the City. Community Development Block Grant revenues may be used only for those projects approved in the grant budget and are subject to agency expenditure guidelines. Home Fund The fund receives and expends monies from the Maricopa County Home Consortium. Expenditures are made to provide affordable housing, expand the capacity of nonprofit housing providers, strengthen the ability of local governments to provide housing and leverage private-sector participation in housing. Grants Fund This fund receives and expends the City’s grant revenues. The amount of grants received is generally based upon application to granting agencies by the City and upon availability of funding by the grantors. Grant revenues may be used only for the stated purpose in the approved grant agreement and are subject to grantor expenditure guidelines. City of Scottsdale, Arizona Section 8 Fund This fund receives and expends the City’s Section 8 Housing revenues. Assistance contracts are awarded by the U.S. Department of Housing and Urban Development (HUD) upon application by the City, and covers a five year period. Budgets are approved annually by HUD. Section 8 revenues may be used only for assistance approved by HUD and are subject to agency expenditure guidelines. Preserve Privilege Tax Fund This fund receives a .2 percent Preservation Privilege (Sales) Tax revenue approved by the voters to purchase property in the McDowell Sonoran Preserve. Revenues are transferred to Capital Projects Funds for land purchase or are used for debt service payments for land contracts. Transportation Privilege Tax Fund This fund receives a .2 percent Transportation Privilege (Sales) Tax approved by the voters for transportation purposes. Revenues are transferred to Capital Projects to fund transportation related improvements. Special Programs Fund This fund receives monies from a variety of sources. The monies are required to be expended for specific purposes related to the source of the revenue. DEBT SERVICE FUNDS These funds record the accumulation of resources for, and the payment of, long-term debt principal and interest not serviced by the proprietary funds. Municipal Property Corporation Fund This fund accounts for the principal and interest requirements of the City’s Municipal Property Corporation (MPC) bonds. Financing is provided primarily by transaction privilege tax. Special Assessments Fund This fund accounts for the principal and interest requirements of special assessment bonds. Financing is provided by special assessment levies against the benefited property holders. 89 Table of Contents Community Facilities Districts Funds: Scottsdale Mountain Community Facilities District Fund McDowell Mountain Community Facilities District Fund DC Ranch Community Facilities District Fund Preserve Privilege Tax Fund Accounts for the May 23, 1995, voter-approved .2 percent Preservation Privilege (Sales) Tax and the expenditure of proceeds from the sale of 1999 voter-approved general obligation bonds dedicated to acquisition of land within the McDowell Sonoran Preserve. Via Linda Road Community Facilities District Fund These funds account for the principal and interest of general obligation bonds issued by community facilities districts. Although these bonds are not obligations of the City, generally accepted accounting principles indicate that the bonds should be disclosed herein. Scottsdale Preserve Authority Fund This fund accounts for the principal and interest requirements of excise tax revenue bonds issued by the Scottsdale Preserve Authority. Financing is provided by a .2 percent Transportation Privilege (Sales) Tax Transportation Privilege Tax Fund Accounts for the authorized .2 percent Transportation Privilege (Sales) Tax dedicated to transportation capital improvements. Voters approved the tax on November 7, 1989. Community Facilities Districts Funds: McDowell Mountain Community Facilities District Fund DC Ranch Community Facilities District Fund Accounts for the proceeds issued by community facilities districts to acquire and improve public infrastructure in specified areas. CAPITAL PROJECTS FUNDS Capital Projects Funds account for the resources used to acquire, construct and improve major capital assets, other than those financed by proprietary funds. Capital Projects Funds allow the City to compile project cost data and demonstrate that legal or contractual requirements regarding the use of the resources are fully satisfied. General Obligation Bond Fund Accounts for the proceeds of the sale of 1989, 1992 and 2000 voter-approved general obligation bonds that are used for authorized capital improvements. Municipal Property Corporation Fund Accounts for the proceeds of Municipal Property Corporation bonds issued for acquisition or construction of capital improvements. 90 City of Scottsdale, Arizona Table of Contents Combining Balance Sheet Nonmajor Governmental Funds June 30, 2003 (in thousands of dollars) Special Revenue Funds ASSETS Cash and Investments Cash with Fiscal Agent Receivables Interest Privilege Tax Property Tax Highway User Tax Intergovernmental Grants Special Assessments Miscellaneous Due from Other Funds Total Assets LIABILITIES AND FUND BALANCES Liabilities Accounts Payable Accrued Payroll Due to Other Funds Matured Bond Interest Payable Matured Bonds Payable Deferred Revenue: Property Tax Special Assessments Intergovernmental Other Advances From Other Funds Due to Other Governments Guaranty and Other Deposits Other Total Liabilities $ $ $ Fund Balances Reserved for: Debt Service Unreserved, undesignated Total Fund Balances (Deficit) Total Liabilities and Fund Balances City of Scottsdale, Arizona $ 17,738 2,752 105 2,498 1,148 1,119 404 48 4,401 30,213 1,079 412 111 357 2,395 Debt Service Funds $ $ $ 5,110 14,616 171 10,085 137 30,119 41 4,931 9,685 Total Nonmajor Governmental Funds Capital Projects Funds $ $ $ 88,508 336 88,844 3,904 7 4,401 - $ $ $ 111,356 17,368 441 2,498 171 1,148 1,119 404 10,085 185 4,401 149,176 5,024 419 4,512 5,288 12,080 1,235 50 21 5,660 97 10,085 580 36 25,455 1,191 668 489 10,660 97 10,085 1,235 580 1,191 668 539 57 41,775 24,553 4,664 - 78,184 4,664 102,737 24,553 4,664 78,184 107,401 30,213 $ 30,119 $ 88,844 $ 149,176 91 Table of Contents Combining Statement of Revenues, Expenditures, and Changes in Fund Balances Nonmajor Governmental Funds For the Year Ended June 30, 2003 (in thousands of dollars) Special Revenue Funds REVENUES Taxes - Local: Property Transaction Privilege Highway User Tax Local Transportation Assistance Fund Charges for Current Services: Building and Related Permits Recreation Fees Fines, Fees and Forfeitures: Court Fines Court Enhancement Special Assessments Property Rental Interest Earnings Intergovernmental: Federal Grants State Grants Miscellaneous Developer Contributions Contributions and Donations Reimbursements From Outside Sources Other Total Revenues $ Debt Service Funds 30,980 13,137 1,146 $ Total Nonmajor Governmental Funds Capital Projects Funds 3,650 - $ - $ 3,650 30,980 13,137 1,146 25 795 - - 25 795 1 512 74 727 1,970 232 55 824 1 512 1,970 306 1,606 7,993 182 360 429 149 25 56,535 41 7 5,955 105 104 1,033 7,993 182 401 112 429 253 25 63,523 (continued) 92 City of Scottsdale, Arizona Table of Contents Combining Statement of Revenues, Expenditures, and Changes in Fund Balances Nonmajor Governmental Funds For the Year Ended June 30, 2003 (in thousands of dollars) Special Revenue Funds EXPENDITURES Current: General Government Police Transportation Community Services Municipal Services Citizen and Neighborhood Resources Human Resources Planning and Development Debt Service: Principal Interest and Fiscal Charges Bond Issuance Costs Capital Improvements Total Expenditures Debt Service Funds Total Nonmajor Governmental Funds Capital Projects Funds 246 801 10,869 7,165 11,060 1 3 14 617 - - 863 801 10,869 7,165 11,060 1 3 14 2,965 1,100 1,294 35,518 12,650 9,526 652 23,445 14 34,782 34,796 15,615 10,640 652 36,076 93,759 Excess (Deficiency) of Revenues Over Expenditures 21,017 (17,490) (33,763) (30,236) OTHER FINANCING SOURCES (USES) Transfers In Transfers Out Refunding Bonds Issued Long-term Capital-related Debt Issued Premium on Bonds Issued Payment to Bond Refunding Escrow Agent Sale of Capital Assets Total Other Financing Sources and (Uses) 10,805 (33,269) 225 (22,239) 17,350 30,570 1,403 (31,600) 17,723 23,625 (19,880) 12,165 15,910 51,780 (53,149) 30,570 12,165 1,403 (31,600) 225 11,394 (17,853) (18,842) 96,037 126,243 Net Change in Fund Balances (1,222) Fund Balances - Beginning Fund Balances - Ending City of Scottsdale, Arizona 233 25,775 $ 24,553 4,431 $ 4,664 $ 78,184 $ 107,401 93 Table of Contents 94 Combining Balance Sheet Nonmajor Special Revenue Governmental Funds June 30, 2003 (in thousands of dollars) Highway User Fuel Tax ASSETS Cash and Investments Cash with Fiscal Agent Receivables: Interest Privilege Tax Highway User Tax Intergovernmental Grants Miscellaneous Due from Other Funds Total Assets LIABILITIES AND FUND BALANCES Liabilities Accounts Payable Accrued Payroll Due to Other Funds Matured Bond Interest Payable Matured Bonds Payable Deferred Revenue: Intergovernmental Guaranty and Other Deposits Other Total Liabilities $ $ $ City of Scottsdale, Arizona Fund Balances Unreserved, Undesignated Total Fund Balances (Deficit) Total Liabilities and Fund Balances $ Community Development Block Grant 34 2,752 1,148 107 13 4,054 925 327 357 2,395 $ $ $ HOME 118 118 74 16 26 - $ $ $ Grants 6 6 1 5 - $ $ $ Preserve Privilege Tax Section 8 564 70 10 644 14 34 - $ $ $ 103 103 2 21 80 - 50 4,054 116 6 82 130 42 145 - 2 2 - 514 514 (42) (42) 4,054 $ 118 $ 6 $ 644 $ 103 $ $ $ $ Transportation Privilege Tax 13,377 79 1,261 4,401 19,118 - $ $ $ Total All Funds Special Programs 18 1,237 1,255 - $ 3,763 - $ 8 1,119 $ $ 25 4,915 64 13 - $ $ 17,738 2,752 105 2,498 1,148 1,119 404 48 4,401 30,213 1,079 412 111 357 2,395 - - 1,111 21 1,209 1,235 50 21 5,660 19,118 19,118 1,255 1,255 3,706 3,706 24,553 24,553 19,118 $ 1,255 $ 4,915 $ 30,213 Table of Contents Combining Statement of Revenues, Expenditures, and Changes in Fund Balances City of Scottsdale, Arizona Nonmajor Special Revenue Governmental Funds For the Year Ended June 30, 2003 (in thousands of dollars) Highway User Fuel Tax REVENUES Taxes - Local: Transaction Privilege Taxes - Intergovernmental: Highway User Tax Local Transportation Assistance Fund Charges for Current Services: Building and Related Permits Recreation Fees Fines, Fees and Forfeitures: Court Fines Court Enhancement Fee Property Rental Interest Earnings Intergovernmental: Federal Grants State Grants Miscellaneous Contributions and Donations Reimbursements From Outside Sources Other Total Revenues $ EXPENDITURES Current: General Government Police Transportation Community Services Municipal Services Citizen and Neighborhood Resources Human Resources Planning and Development Debt Service: Principal Interest and Fiscal Charges Capital Improvements Total Expenditures Community Development Block Grant - $ HOME - $ Grants - $ Preserve Privilege Tax Section 8 - $ - $ Transportation Privilege Tax 15,645 $ Total All Funds Special Programs 15,335 $ - $ 30,980 13,137 1,146 - - - - - - - 13,137 1,146 5 - - - - - - - 20 795 25 795 - - - 2 2 217 82 1 512 74 424 1 512 74 727 107 22 140 1 14,558 1,170 1,170 6 28 34 1,968 136 2 1 2,109 4,742 9 2 4,755 15,862 15,417 46 310 427 21 2,630 7,993 182 360 429 149 25 56,535 10,869 11,060 - 1,170 - 28 - 165 546 120 3 - 4,687 - 1 - - 80 255 1,160 1 14 246 801 10,869 7,165 11,060 1 3 14 2,395 715 25,039 1,170 28 1,274 2,108 4,687 570 385 956 - 20 1,530 2,965 1,100 1,294 35,518 68 14,906 15,417 1,100 21,017 Excess (Deficiency) of Revenues Over Expenditures (10,481) - 6 1 OTHER FINANCING SOURCES (USES) Transfers In Transfers Out Sale of Capital Assets Total Other Financing Sources and (Uses) 10,554 (73) 10,481 6 6 (6) (6) 5 (12) (7) - (15,921) (15,921) (16,721) (16,721) - 6 - (6) 68 (1,015) (1,304) 1,029 (1,222) - (4) - (110) 20,133 2,559 2,677 25,775 2 - Net Change in Fund Balances Fund Balances - Beginning 95 Fund Balances - Ending $ - $ 520 $ 514 $ (42) $ 19,118 $ 1,255 240 (536) 225 (71) $ 3,706 10,805 (33,269) 225 (22,239) $ 24,553 Table of Contents Highway User Fuel Tax - Special Revenue Fund 96 Schedule of Revenues, Expenditures, and Changes in Fund Balances - Budget and Actual For the Year Ended June 30, 2003 (in thousands of dollars) Variance Between Final Budget and Actual Amounts Budgetary Basis Budgeted Amounts Original REVENUES Taxes - Intergovernmental: Auto Lieu Tax Highway User Tax Local Transportation Assistance Fund Building and Related Permits Intergovernmental: Federal Grants Miscellaneous Reimbursement From Outside Sources Other Total Revenues $ Actual Amounts Budgetary Basis Final 6,700 13,118 1,146 - $ 13,118 1,146 - $ Budget to GAAP Differences 13,137 1,146 - $ 5 Actual Amounts GAAP Basis $ 13,137 1,146 5 $ 19 - 20,964 14,264 14,283 107 22 140 1 275 107 22 140 1 14,558 19 10,556 10,898 10,556 10,898 10,858 11,046 11 14 10,869 11,060 (302) (148) 2,395 715 24,564 2,395 715 24,564 2,395 715 25,014 25 2,395 715 25,039 (450) Excess (Deficiency) of Revenues Over Expenditures (3,600) (10,300) (10,731) 250 (10,481) (431) OTHER FINANCING SOURCES (USES) Transfers In Transfers Out Total Other Financing Sources and Uses 3,673 (73) 3,600 10,373 (73) 10,300 10,554 (73) 10,481 - 10,554 (73) 10,481 181 181 (250) 250 - - - EXPENDITURES Current: Transportation Municipal Services Debt Service: Principal Interest and Fiscal Charges Total Expenditures Net Change in Fund Balances Fund Balances - Beginning City of Scottsdale, Arizona Fund Balances - Ending $ - - - - - $ - $ (250) $ 250 $ 5 129 140 1 275 The City budgets for certain expenditures on the cash basis, rather than on the modified accrual basis: Compensated Absences $ 25 Net Increase in Fund Balance - Budget to GAAP $ 250 Explanation of Differences: The City does not budget for certain revenues: Building and Related Permits Grants Reimbursement From Outside Sources Other $ - (250) $ (250) Table of Contents Preserve Privilege Tax - Special Revenue Fund City of Scottsdale, Arizona Schedule of Revenues, Expenditures, and Changes in Fund Balances - Budget and Actual For the Year Ended June 30, 2003 (in thousands of dollars) Budgeted Amounts Original REVENUES Taxes - Local: Transaction Privilege Interest Earnings Total Revenues $ EXPENDITURES Current: General Government Debt Service: Principal Interest and Fiscal Charges Total Expenditures Excess (Deficiency) of Revenues Over Expenditures OTHER FINANCING SOURCES (USES) Transfers Out Total Other Financing Sources and Uses Net Change in Fund Balances Fund Balances - Beginning Fund Balances - Ending $ Actual Amounts Budgetary Basis Final 16,641 500 17,141 $ 16,641 500 17,141 $ 15,645 669 16,314 $ (452) (452) Actual Amounts GAAP Basis $ 15,645 217 15,862 $ (996) 169 (827) - - - 1 1 - 570 385 955 570 385 955 570 385 955 1 570 385 956 - 16,186 16,186 15,359 (16,186) (16,186) (16,186) (16,186) (15,921) (15,921) - - - - - $ - (453) 20,133 $ 19,571 Items recorded as revenues for GAAP purposes: Unrealized Loss on Investments (453) (562) Explanation of Differences: $ (452) The City budgets for certain expenditures on the cash basis, rather than on the modified accrual basis: Audit Expense Net (Decrease) in Fund Balance - Budget to GAAP Budget to GAAP Differences Variance Between Final Budget and Actual Amounts Budgetary Basis 1 $ (453) $ (453) 14,906 (827) (15,921) (15,921) 265 265 (1,015) (562) 20,133 $ 19,118 20,133 $ 19,571 97 Table of Contents 98 Transportation Privilege Tax - Special Revenue Fund Schedule of Revenues, Expenditures, and Changes in Fund Balances - Budget and Actual For the Year Ended June 30, 2003 (in thousands of dollars) Variance Between Final Budget and Actual Amounts Budgetary Basis Budgeted Amounts Original REVENUES Taxes - Local: Transaction Privilege Interest Earnings Total Revenues $ EXPENDITURES Current: Transportation Total Expenditures Actual Amounts Budgetary Basis Final 16,388 500 16,888 $ 16,388 500 16,888 $ 15,335 167 15,502 - - - Excess (deficiency) of revenues over expenditures 16,888 16,888 15,502 OTHER FINANCING SOURCES (USES) Transfers Out Total Other Financing Sources and Uses (16,888) (16,888) (16,888) (16,888) (16,721) (16,721) Net Change in Fund Balances Fund Balances - Beginning City of Scottsdale, Arizona Fund Balances - Ending $ - - (1,219) - - 2,559 - $ - $ 1,340 Budget to GAAP Differences Actual Amounts GAAP Basis $ $ (85) (85) - - Items recorded as revenues for GAAP purposes: Unrealized Loss on Investments $ (85) Net (Decrease) in Fund Balance - Budget to GAAP $ (85) Explanation of Differences: (1,386) (16,721) (16,721) (85) $ (1,053) (333) (1,386) - 15,417 - (85) $ - (85) $ 15,335 82 15,417 167 167 (1,304) (1,219) 2,559 2,559 1,255 $ 1,340 Table of Contents City of Scottsdale, Arizona Combining Balance Sheet Nonmajor Debt Service Governmental Funds June 30, 2003 (in thousands of dollars) Municipal Property Corporation ASSETS Cash and Investments Cash with Fiscal Agent Receivables (net of allowance for uncollectables): Property Tax Special Assessments Miscellaneous Total Assets LIABILITIES AND FUND BALANCES Liabilities Accounts Payable Matured Bond Interest Payable Matured Bonds Payable Deferred Revenue: Property Tax Special Assessments Other Other Total Liabilities $ $ $ Fund Balances Reserved for: Debt Service Total Fund Balances (Deficit) Total Liabilities and Fund Balances $ Special Assessments Scottsdale Mountain CFD McDowell Mountain CFD 65 $ 7,963 1,530 $ 99 869 $ 326 134 8,162 $ 10,085 11,714 $ 33 1,228 $ - $ 1,338 6,625 30 $ 99 - 11 $ 111 215 DC Ranch CFD 794 $ 980 Via Linda Road CFD Scottsdale Preserve Authority Total All Funds 1,197 $ 563 655 $ 89 4,596 3 1,832 $ 76 1,836 $ 7 751 $ 4,596 - $ 450 530 - $ 563 - - $ 89 - 2,281 2,315 55 $ $ $ 5,110 14,616 171 10,085 137 30,119 41 4,931 9,685 80 8,043 10,085 36 10,250 17 500 854 30 1,010 45 608 5 94 4,596 97 10,085 580 36 25,455 119 119 1,464 1,464 374 374 822 822 1,228 1,228 657 657 - 4,664 4,664 1,836 $ 751 $ 8,162 $ 11,714 $ 1,228 $ 1,832 $ 4,596 $ 30,119 99 Table of Contents 100 Combining Statement of Revenues, Expenditures, and Changes in Fund Balances Nonmajor Debt Service Governmental Funds For the Year Ended June 30, 2003 (in thousands of dollars) Municipal Property Corporation REVENUES Taxes - Local: Property Special Assessments Property Rental Interest Earnings Intergovernmental: Miscellaneous Developer Contributions Total Revenues $ EXPENDITURES Current: General Government Debt Service: Principal Interest and Fiscal Charges Bond Issuance Costs Total Expenditures 232 1 602 4 $ 1,644 11 $ 1,281 10 $ 123 29 $ Total All Funds - $ 3,650 1,970 232 55 City of Scottsdale, Arizona 41 1,696 1,291 7 159 - 41 7 5,955 - 1 15 555 46 - - 617 7,600 2,570 267 10,437 1,990 279 2,270 215 271 35 536 530 899 1,984 762 350 1,158 179 179 2,315 4,566 6,881 12,650 9,526 652 23,445 (20) (6,881) (17,490) 6,881 6,881 17,350 1,403 30,570 (31,600) 17,723 10,019 1,334 30,570 (31,600) 10,323 (300) 1,464 374 450 69 519 (288) 304 $ 133 - 70 1,764 $ (288) - (300) 119 70 - 119 $ $ Scottsdale Preserve Authority 606 OTHER FINANCING SOURCES (USES) Transfers In Premium on Bonds Issued Refunding Bonds Issued Payment to Bond Refunding Escrow Agent Total Other Financing Sources and (Uses) Fund Balances - Beginning 1,970 - Via Linda Road CFD DC Ranch CFD 1,970 (10,204) Fund Balances - Ending $ McDowell Mountain CFD 233 Excess (Deficiency) of Revenues Over Expenditures Net change in Fund Balances Scottsdale Mountain CFD Special Assessments 1,110 $ 822 $ - 652 (20) - 233 576 677 - 4,431 1,228 $ 657 $ - $ 4,664 Table of Contents City of Scottsdale, Arizona General Obligation Bond Debt Service Schedule of Revenues, Expenditures, and Changes in Fund Balances - Budget and Actual Governmental Funds For the Year Ended June 30, 2003 (in thousands of dollars) Actual Amounts Budgetary Basis Budget to GAAP Differences Actual Amounts GAAP Basis Variance Between Final Budget and Actual Amounts Budgetary Basis $ $ $ $ Budgeted Amounts Original REVENUES Taxes - Local: Property Interest Earnings Total Revenues $ EXPENDITURES Debt Service: Principal Interest and Fiscal Charges Bond Issuance Costs Total Expenditures Excess (Deficiency) of Revenues Over Expenditures OTHER FINANCING SOURCES (USES) Transfers In Refunding Bonds Issued Premium on Refunding Debt Payment to Bond Refunding Escrow Agent Total Other Financing Sources and Uses Net Change in Fund Balances Fund Balances - Beginning Fund Balances - Ending $ Final 22,766 22,766 $ 22,766 22,766 22,381 1 22,382 - 22,381 1 22,382 (385) 1 (384) 12,720 19,691 32,411 12,720 19,691 32,411 13,540 17,335 394 31,269 - 13,540 17,335 394 31,269 (820) 2,356 (394) 1,142 (9,645) (9,645) (8,887) - (8,887) 758 9,645 9,645 9,645 9,645 9,040 72,000 4,881 (76,477) 9,444 - 9,040 72,000 4,881 (76,477) 9,444 - - 557 - 557 557 - - 8,449 - 8,449 8,449 - $ - $ 9,006 $ - $ 9,006 (605) 72,000 4,881 (76,477) (201) $ 9,006 101 Table of Contents 102 Municipal Property Corporation Bond Debt Service Schedule of Revenues, Expenditures, and Changes in Fund Balances - Budget and Actual For the Year Ended June 30, 2003 (in thousands of dollars) Actual Amounts GAAP Basis Variance Between Final Budget and Actual Amounts Budgetary Basis $ $ Budgeted Amounts Original REVENUES Property Rental Interest Earnings Total Revenues $ EXPENDITURES Debt Service: Principal Interest and Fiscal Charges Bond Issuance Costs Total Expenditures Excess (Deficiency) of Revenues Over Expenditures City of Scottsdale, Arizona OTHER FINANCING SOURCES (USES) Transfers In Refunding Bonds Issued Premium on Refunding Debt Payment to Bond Refunding Escrow Agent Total Other Financing Sources and Uses Net Change in Fund Balances Fund Balances - Beginning Fund Balances - Ending $ Actual Amounts Budgetary Basis Final 280 250 530 $ 280 250 530 $ Budget to GAAP Differences 232 1 233 $ - 232 1 233 (48) (249) (297) 6,340 4,753 11,093 6,340 4,753 11,093 7,600 2,570 267 10,437 - 7,600 2,570 267 10,437 (10,563) (10,563) (10,204) - (10,204) 10,563 10,563 10,563 10,563 10,019 30,570 1,334 (31,600) 10,323 - 10,019 30,570 1,334 (31,600) 10,323 - - 119 - 119 119 - - - - - - - $ - $ 119 $ - $ 119 (1,260) 2,183 (267) 656 359 (544) 30,570 1,334 (31,600) (240) $ 119 Table of Contents City of Scottsdale, Arizona Special Assessments Bond Debt Service Schedule of Revenues, Expenditures, and Changes in Fund Balances - Budget and Actual For the Year Ended June 30, 2003 (in thousands of dollars) Actual Amounts GAAP Basis Variance Between Final Budget and Actual Amounts Budgetary Basis $ $ Budgeted Amounts Original REVENUES Special Assessments Total Revenues $ EXPENDITURES Current: General Government Debt Service: Principal Interest and Fiscal Charges Total Expenditures Excess (Deficiency) of Revenues Over Expenditures Fund Balances - Beginning Fund Balances - Ending $ Actual Amounts Budgetary Basis Final 2,562 2,562 $ 2,562 2,562 $ Budget to GAAP Differences 1,970 1,970 $ - 1,970 1,970 (592) (592) - - 1 - 1 (1) 1,944 618 2,562 1,944 618 2,562 1,990 279 2,270 - 1,990 279 2,270 (46) 339 292 - - - - - $ - (300) - 1,764 $ 1,464 (300) $ - (300) 1,764 $ 1,464 1,764 $ 1,464 103 Table of Contents 104 Scottsdale Preserve Authority Bond Debt Service Schedule of Revenues, Expenditures, and Changes in Fund Balances - Budget and Actual For the Year Ended June 30, 2003 (in thousands of dollars) Budgeted Amounts Original REVENUES Total Revenues EXPENDITURES Debt Service: Principal Interest and Fiscal Charges Total Expenditures Excess (Deficiency) of Revenues Over Expenditures OTHER FINANCING SOURCES (USES) Transfers In Total other financing sources and uses Net Change in Fund Balances Fund Balances - Beginning City of Scottsdale, Arizona Fund Balances - Ending $ Final Actual Amounts Budgetary Basis Budget to GAAP Differences Actual Amounts GAAP Basis Variance Between Final Budget and Actual Amounts Budgetary Basis - - - - - - 2,315 4,566 6,881 2,315 4,566 6,881 2,315 4,566 6,881 - 2,315 4,566 6,881 - (6,881) (6,881) (6,881) - (6,881) - 6,881 6,881 6,881 6,881 6,881 6,881 - 6,881 6,881 - - - - - - - - - - - - - - $ - $ - $ - $ - $ - Table of Contents City of Scottsdale, Arizona Combining Balance Sheet Nonmajor Capital Projects Governmental Funds June 30, 2003 (in thousands of dollars) General Obilgation Bond ASSETS Cash and Investments Receivables: Interest Total Assets LIABILITIES AND FUND BALANCES Liabilities Accounts Payable Accrued Payroll Due to Other Funds Advances From Other Funds Due to Other Governments Guaranty and Other Deposits Total Liabilities Preserve Privilege Tax 31,204 $ 753 $ - $ 44,717 $ 168 31,372 $ 3 756 $ 10 10 $ 155 44,872 $ 152 152 $ 31,220 31,220 $ 31,372 - $ 756 756 $ 756 1,528 4,401 1,191 7,120 $ (7,110) (7,110) $ McDowell Mountain CFD Transportation Privilege Tax $ Fund Balances Unreserved, Undesignated Total Fund Balances (Deficit) Total Liabilities and Fund Balances Municipal Property Corporation 10 2,376 7 516 489 3,388 98 $ $ 41,484 41,484 $ 44,872 98 - $ $ 98 98 $ Total All Funds DC Ranch CFD 98 $ 11,736 $ 88,508 11,736 $ 336 88,844 - 3,904 7 4,401 1,191 668 489 10,660 11,736 11,736 78,184 78,184 11,736 $ 88,844 105 Table of Contents 106 Combining Statement of Revenues, Expenditures, and Changes in Fund Balances Nonmajor Capital Projects Governmental Funds For the Year Ended June 30, 2003 (in thousands of dollars) General Obilgation Bond REVENUES Interest Earnings Developer Contributions Reimbursements from Outside Sources Total Revenues $ EXPENDITURES Debt Service Interest and Fiscal Charges Capital Improvements Total Expenditures Excess (Deficiency) of Revenues Over Expenditures OTHER FINANCING SOURCES (USES) Transfers In Transfers Out Long-term Capital-related Debt Issued Total Other Financing Sources and (Uses) Net Change in Fund Balances City of Scottsdale, Arizona Fund Balances - Beginning Fund Balances - Ending Municipal Property Corporation 479 1 480 $ 8 8 $ McDowell Mountain CFD Transportation Privilege Tax (69) $ 2 (67) 363 105 101 569 $ Total All Funds DC Ranch CFD 2 2 $ 41 41 $ 824 105 104 1,033 13 13 - 17,155 17,155 17,493 17,493 1 90 91 44 44 14 34,782 34,796 467 8 (17,222) (16,924) (89) (3) (33,763) (450) 12,165 11,715 23,625 (19,880) 12,165 15,910 11,712 (17,853) 1 (19,395) (19,394) - (18,927) 8 50,147 $ Preserve Privilege Tax 31,220 - 748 $ 756 $ 23,624 (35) 23,589 - (17,222) 6,665 (89) 10,112 34,819 187 (7,110) $ 41,484 $ 98 24 $ 11,736 96,037 $ 78,184 Table of Contents City of Scottsdale, Arizona Water and Sewer Utility Enterprise Fund Schedule of Revenues and Expenses - Budget and Actual For the Year Ended June 30, 2003 (in thousands of dollars) Budgeted Amounts Original Revenues Charges for Sales and Services: Water Service Fees Sewer Service Fees Reclaimed Water Distribution Groundwater Treatment Plant Investment Income Capital Contributions Transfers In Other $ Total Revenues Expenses Cost of Sales and Services: Water Operations Sewer Operations Debt Service and Reserves Depreciation and Amortization Indirect Costs Loss on Sale of Fixed Assets Transfers Out Total Expenses Change in Net Assets (continued) $ 64,624 26,841 2,000 2,400 2,336 1,058 Final Budget to GAAP Differences 63,411 25,316 2,329 886 4,293 15 1,672 99,259 99,259 97,922 23,983 121,905 (1,337) 32,921 8,488 15,925 5,909 7,497 32,815 8,594 15,925 5,909 7,497 29,810 11,320 14,381 5,909 7,593 (83) 35 (8,850) 20,746 628 1,977 29,727 11,355 5,531 20,746 5,909 628 9,570 3,005 (2,726) 1,544 (96) 70,740 70,740 69,013 14,453 83,466 1,727 $ 28,519 $ 28,909 $ $ (2,843) 26,826 - Actual Amounts GAAP Basis 64,624 26,841 2,000 2,400 2,336 1,058 28,519 $ Actual Amounts Budgetary Basis 9,530 $ $ 63,411 25,316 2,329 886 1,450 26,826 15 1,672 Variance Between Final Budget and Actual Amounts Budgetary Basis 38,439 $ $ (1,213) (1,525) 329 (1,514) 1,957 15 614 390 107 Table of Contents 108 Water and Sewer Utility Enterprise Fund Schedule of Revenues and Expenses - Budget and Actual For the Year Ended June 30, 2003 (in thousands of dollars) Explanation of Differences: Items recorded as revenues for GAAP purposes that are not recorded as revenues for budget purposes: Unrealized Loss on Investments Capital Contributions Total Revenue Reconciling Items: $ (2,843) 26,826 23,983 The City budgets for certain expenditures on the cash basis, rather than on the modified accrual basis. (48) (8,850) 20,746 628 1,977 14,453 Compensated Absences Debt Service Principal Payments Depreciation and Amortization Expense Loss on Sale of Fixed Assets Transfers Out for Capital Budgeted in Prior Year Total Expenditure Reconciling Items: Net Increase in Net Assets - Budget to GAAP $ 9,530 City of Scottsdale, Arizona Table of Contents Airport Enterprise Fund City of Scottsdale, Arizona Schedule of Revenues and Expenses - Budget and Actual For the Year Ended June 30, 2003 (in thousands of dollars) Actual Amounts Budgetary Basis Budget to GAAP Differences Actual Amounts GAAP Basis Variance Between Final Budget and Actual Amounts Budgetary Basis $ $ $ $ Budgeted Amounts Original Revenues Charges for Sales and Services: Airport Fees Investment Income Capital Contributions Transfers In $ Total Revenues Expenses Cost of Sales and Services: Airport Operations Depreciation Indirect Costs Loss on Sale of Fixed Assets Transfers Out Total Expenses Change in Net Assets $ 2,386 25 Final $ 2,386 25 2,424 2 - (1) 1,661 - 38 2 (25) 2,411 2,411 2,426 1,660 4,086 15 1,264 490 306 1,249 490 306 1,306 489 334 4 677 289 - 1,310 677 489 289 334 (57) 1 (28) 2,060 2,045 2,129 970 3,099 (84) 351 $ 366 $ 297 $ 690 Explanation of Differences: Items recorded as revenues for GAAP purposes that are not recorded as revenues for budget purposes: Unrealized Loss on Investments Capital Contributions Total Revenue Reconciling Items: $ (1) 1,661 1,660 The City budgets for certain expenditures on the cash basis, rather than on the modified accrual basis. 4 677 289 970 Compensated Absences Depreciation Expense Loss on Sale of Fixed Assets Total Expenditure Reconciling Items: 109 Net increase in Net Assets - Budget to GAAP 2,424 1 1,661 - $ 690 $ 987 $ (69) Table of Contents 110 Solid Waste Enterprise Fund Schedule of Revenues and Expenses - Budget and Actual For the Year Ended June 30, 2003 (in thousands of dollars) Actual Amounts GAAP Basis Variance Between Final Budget and Actual Amounts Budgetary Basis Budgeted Amounts Original Revenues Charges for Sales and Services: Solid Waste Fees Investment Income Total Revenues Expenses Cost of Sales and Services: Solid Waste Operations Debt Service and Reserves Depreciation Indirect Costs Transfers Out Total Expenses Change in Net Assets $ Final Actual Amounts Budgetary Basis Budget to GAAP Differences 16,115 44 16,115 44 16,250 72 (30) 16,250 42 135 28 16,159 16,159 16,322 (30) 16,292 163 12,512 342 1,647 35 12,283 342 1,647 35 11,995 342 1,647 35 (173) (230) 202 1,031 11,822 112 202 1,647 1,066 288 - 14,536 14,307 14,019 830 14,849 288 1,623 $ 1,852 $ 2,303 $ (860) $ (30) (30) $ (173) (230) 202 Explanation of Differences: Items recorded as revenues for GAAP purposes that are not recorded as revenues for budget purposes: Unrealized Loss on Investments Total Revenue Reconciling Items: City of Scottsdale, Arizona The City budgets for certain expenditures on the cash basis, rather than on the modified accrual basis. Compensated Absences Debt Service Principal Payments Depreciation Expense Transfers Out for: Capital Budgeted in Prior Year Unbudgeted Transfer to Fleet Total Expenditure Reconciling Items: Net(Decrease) in Net Assets - Budget to GAAP 801 230 830 $ (860) $ 1,443 $ 451 Table of Contents INTERNAL SERVICE FUNDS Internal Services Funds are established to finance and account for services and/or commodities furnished by one department or unit to other departments or units within the City. Fleet Management Fund The Fleet Management Fund is responsible for the maintenance and operations of various automobiles and other equipment of the City. Revenue to this fund is derived from charges to user programs. Self-Insurance Fund The Self-Insurance Fund is responsible for the administration of the City’s self-insurance program. Revenue to this fund is derived from charges to user programs. This fund provides coverage of unemployment, selfinsured benefits, workmen’s compensation, property, and liability claims. City of Scottsdale, Arizona 111 Table of Contents Combining Statement of Net Assets Internal Service Funds June 30, 2003 (in thousands of dollars) Fleet Management Total All Funds SelfInsurance ASSETS Current Assets: Cash and Investments Receivables (net of allowance for uncollectibles) Property tax Interest Miscellaneous Supplies Inventory $ Total Current Assets Noncurrent Assets: Capital Assets: Buildings and Improvements Motor Vehicles Machinery and Equipment Furniture and Fixtures Construction in Progress Less Accumulated Depreciation 8,505 $ 17,381 $ 25,886 41 8 382 25 57 142 - 25 98 150 382 8,936 17,605 26,541 1,846 45,233 828 683 (23,967) 22 (22) 1,846 45,233 828 22 683 (23,989) Total Capital Assets (net of accumulated depreciation) 24,623 - 24,623 Total Noncurrent Assets 24,623 - 24,623 Total Assets $ 33,559 $ 17,605 $ 51,164 $ 526 97 36 - $ 129 21 12 8,839 $ 655 118 48 8,839 LIABILITIES Current Liabilities: Accounts Payable Accrued Payroll and Benefits Accrued Compensated Absences Claims Payable Total Current Liabilities Noncurrent Liabilities: Accrued Compensated Absences Total Noncurrent Liabilities Total Liabilities 659 9,001 9,660 214 214 64 64 278 278 873 9,065 9,938 24,623 8,063 8,540 24,623 16,603 NET ASSETS Invested in Capital Assets, Net of Related Debt Unrestricted Total Net Assets 112 $ 32,686 $ 8,540 $ 41,226 City of Scottsdale, Arizona Table of Contents Combining Statement of Revenues, Expenses, and Changes in Fund Net Assets Internal Service Funds For the Year Ended June 30, 2003 (in thousands of dollars) Fleet Management Operating Revenues Charges for Sales and Services: Billings To User Programs Self Insurance Contributions Other $ Total Operating Revenues 10,465 92 Total All Funds SelfInsurance $ 4,253 3,791 398 $ 14,718 3,791 490 10,557 8,442 18,999 6,355 5,720 721 6,065 1,576 - 6,355 721 6,065 1,576 5,720 Total Operating Expenses 12,075 8,362 20,437 Operating Income (Loss) (1,518) 80 Operating Expenses Costs of Sales and Services: Fleet Management Operations Self-Insurance Administration Self-Insurance Claims Insurance and Bond Premiums Depreciation Non-Operating Revenues Property Tax Investment Income Gain on Sale of Fixed Assets Total Non-Operating Revenues Income (Loss) Before Contributions and Transfers (1,438) 113 137 649 165 - 649 278 137 250 814 1,064 (1,268) 894 539 280 (5,173) (11) 539 280 (5,184) Change in Net Assets (5,622) 883 (4,739) Total Net Assets - Beginning 38,308 Capital Contributions Transfers In Transfers Out Total Net Assets - Ending City of Scottsdale, Arizona $ 32,686 (374) 7,657 $ 8,540 45,965 $ 41,226 113 Table of Contents Combining Statement of Cash Flows Internal Service Funds For the Year Ended June 30, 2003 (in thousands of dollars) Cash Flows from Operating Activities: Cash Received from Customers Cash Paid to Suppliers Cash Paid to Employees Other Operating Fleet Management SelfInsurance $ $ Net Cash Provided by Operating Activities Cash Flows from Non-Capital Financing Activities: Property Tax Transfers In Transfers Out Net Cash Provided by (Used) for Non-Capital Financing Activities Cash Flows from Capital and Related Financing Activities: Acquisition and Construction of Property and Equipment Sale of Fixed Assets Net Cash (Used) for Capital and Related Financing Activities Cash Flows from Investing Activities: Income Received on Investments 8,044 (7,463) (489) 385 $ 18,509 (11,886) (2,794) 476 3,828 477 4,305 280 (5,173) 644 (11) 644 280 (5,184) (4,893) 633 (4,260) (3,777) 216 - (3,777) 216 (3,561) - (3,561) 156 222 378 Net Increase (Decrease) in Cash and Cash Equivalents (4,470) 1,332 (3,138) Cash and Cash Equivalents at Beginning of Year 12,975 16,049 29,024 Cash and Cash Equivalents at End of Year Reconciliation of Operating Income to Net Cash Provided (Used) by Operating Activities: Operating Income (Loss) Adjustments to Reconcile Operating Income to Net Cash Provided by (Used for) Operating Activities: Depreciation Changes in Assets and Liabilities Sources (Uses) of Cash: Accounts Receivable Supplies Inventory Accounts Payable Accrued Payroll and Benefits Claims Payable $ 8,505 $ 17,381 $ 25,886 $ (1,518) $ 80 $ (1,438) 5,720 Net Cash Provided by Operating Activities Supplemental Disclosure of Noncash Financing Activities: Additions to Property, Plant, and Equipment Contributions from Other Government Units Increase(Decrease) in Fair Value of Investments Loss on Sale of Fixed Assets Total Non-Cash Financing Activities - (1) 86 (404) (55) - Total Adjustments 114 10,465 (4,423) (2,305) 91 Total All Funds (13) 3 (12) 419 5,346 $ $ $ 3,828 539 (27) (79) 433 5,720 (14) 86 (401) (67) 419 397 5,743 $ 477 $ $ - $ $ $ 4,305 539 (27) (79) 433 City of Scottsdale, Arizona Table of Contents FIDUCIARY FUNDS Private Purpose Trust Funds and Agency Funds administer resources received and held by the City as the trustee or as the agent for others. Use of these funds facilitates the discharge responsibilities placed upon the governmental unit by virtue of law or other similar authority. Handicap Scholarship Private Purpose Trust Fund This fund accounts for monies received and expended for college scholarships for individuals with handicaps. Scottsdale Memorial Hospital Redevelopment Private Purpose Trust Fund This fund accounts for monies received and expended for the redevelopment of Scottsdale Memorial Hospital. Family Self-Sufficiency Agency Fund This fund accounts for monies in escrow for Section 8 Housing Program participants. Retainage Escrow Agency Fund This fund accounts for monies held in escrow for construction contract retainage payable. City of Scottsdale, Arizona 115 Table of Contents 116 Combining Statement of Fiduciary Net Assets Fiduciary Funds June 30, 2003 (in thousands of dollars) Private Purpose Trust Funds Scottsdale Memorial Handicap Scholarship Hospital Redevelopment Private Purpose Private Purpose Trust Fund Trust Fund ASSETS Cash and Cash Equivalents Interest Receivable $ Total Assets LIABILITIES Accounts Payable Designated Escrow Payable Total Liabilities NET ASSETS Held in Trust for Other Purposes $ 9 - $ 695 3 Agency Funds Family Self-Sufficiency Agency Fund Total $ 704 3 $ Retainage Escrow Agency Fund 70 - $ Total 464 - $ 534 - 9 698 707 70 464 534 - 3 - 3 - 70 - 464 70 464 - 3 3 70 464 534 9 $ 695 $ 704 $ - $ - $ - City of Scottsdale, Arizona Table of Contents Combining Statement of Changes in Fiduciary Net Assets Fiduciary Funds For the Year Ended June 30, 2003 (in thousands of dollars) Handicap Scholarship Private Purpose Trust Fund ADDITIONS Contributions: Private Donations Investment Earnings: Interest $ Total Additions DEDUCTIONS Scholarships Redevelopment Expenses Total Deductions Change in Net Assets Net Assets - Beginning Net Assets - Ending City of Scottsdale, Arizona $ Scottsdale Memorial Hospital Redevelopment Private Purpose Trust Fund 10 $ Total 300 310 - 26 26 10 326 336 6 - 359 6 359 6 359 365 4 (33) (29) 5 9 $ 728 695 733 704 117 Table of Contents 118 Combining Statement of Changes in Assets and Liabilities Fiduciary Funds For the Year Ended June 30, 2003 (in thousands of dollars) Family Self-Sufficiency Balance July 1, 2002 Additions Retainage Escrow Deductions Balance June 30, 2003 Balance July 1, 2002 Additions Deductions Balance June 30, 2003 ASSETS Cash and Investments Total Assets $ 111 $ 39 $ 80 $ 70 $ 233 $ 644 $ 413 $ 464 $ 111 $ 39 $ 80 $ 70 $ 233 $ 644 $ 413 $ 464 $ 111 - $ 39 - $ 80 - $ 70 - $ 233 $ 644 $ 413 $ 464 $ 111 $ 39 $ 80 $ 70 $ 233 $ 644 $ 413 $ 464 LIABILITIES Accounts Payable Designated Escrow Payable Total Liabilities City of Scottsdale, Arizona Table of Contents OTHER SUPPLEMENTARY INFORMATION Debt Requirements The supplemental debt service schedule provides a comprehensive overview of the City’s total debt. The Schedule of Changes in Long-Term Debt for the current fiscal year presents the City’s debt by debt type without regard to fund classification. Debt issued by community facilities districts is included for full disclosure although such debt is not legally an obligation of the City. City of Scottsdale, Arizona 119 Table of Contents 120 Schedule of Changes in Long-term Debt* For the Year Ended June 30, 2003 (in thousands of dollars) July 1, 2002 GENERAL OBLIGATION BONDS Governmental Fund Type: 1989 Series C (1992) 1993 Refunding 1989 Series D (1993) 1993A GO Refunding 1989 Series E (1994) 1994 Various Purpose 1995 GO / Pima Road 1997 Series H - Roads/ Strm Sew/ Pima 1997 GO Refunding 1989 Series I (1998) 1999A GO / Pima Road 1999 GO Preservation 2001 GO Preservation 2001 GO Refunding Various Purpose 2001 GO Refunding Preservation 2002 GO Various Purpose 2002 GO Preservation 2002 GO Refunding Various Purpose 2002 GO Refunding Preservation 2001 GO Refunding Series Deferred Issuance Premium 2001 GO Series Deferred Amount on Refunding 2002 GO Refunding Series Deferred Issuance Premium 2002 GO Series Deferred Amount on Refunding Subtotal $ Business Type - General Obligation Bonds 1993 Refunding 1993 A GO Refunding Subtotal Total General Obligation Bonds REVENUE BONDS Governmental Fund Type Highway User Revenue Fund Bonds 1993 HURF Refunding Subtotal 2,065 $ 17,093 12,845 18,214 625 700 8,775 21,850 19,900 17,875 22,875 23,900 34,080 22,567 28,293 28,000 40,000 1,410 (2,299) 318,768 17,000 1,315 18,315 Retired - $ 2,645 650 1,130 50 785 900 1,375 950 1,290 1,740 4,080 15,885 - 4,820 4,820 290 Accretions & Contract Adjustments Bonds Defeased - $ 63,900 8,100 4,881 (4,967) 71,914 - 2,065 9,940 625 700 8,125 18,305 8,180 15,525 4,125 3,920 71,510 $ - Governmental Fund Type June 30, 2003 - $ 445 296 (115) 187 (753) 767 827 828 828 - $ 17,248 2,905 15,865 2,415 19,850 8,910 6,450 18,400 29,210 21,277 28,293 26,260 40,000 59,820 8,100 1,295 (2,112) 4,128 (4,200) 304,114 13,008 1,315 14,323 Business Fund Type - $ 17,248 2,905 15,865 2,415 19,850 8,910 6,450 18,400 29,210 21,277 28,293 26,260 40,000 59,820 8,100 1,295 (2,112) 4,128 (4,200) 304,114 - 07/01/04 07/01/09 07/01/13 07/01/11 07/01/03 07/01/03 07/01/15 07/01/16 07/01/14 07/01/18 07/01/19 07/01/24 07/01/24 07/01/24 07/01/24 07/01/24 07/01/24 07/01/19 07/01/19 13,008 1,315 14,323 07/01/06 07/01/06 337,083 $ - $ 20,705 $ 71,914 $ 71,510 $ 1,655 $ 318,437 $ 304,114 $ 14,323 $ 13,385 13,385 $ - $ 2,395 2,395 $ - $ - $ - $ 10,990 10,990 $ 10,990 10,990 $ - City of Scottsdale, Arizona 3,145 680 7,210 17,625 45,285 (288) 73,657 $ 87,042 $ - 235 215 510 525 1,230 2,715 $ 5,110 *This exhibit includes both Governmental Fund Type and Business-type debt (paid out of Enterprise Funds). $ - $ - 47 47 $ 47 2,910 465 6,700 17,100 44,055 (241) 70,989 $ 81,979 $ 10,990 2,910 465 6,700 17,100 44,055 (241) 70,989 $ Final Payment Date - $ Business Type - Revenue Bonds 1989 Utility Series B (1992) 1989 Utility Series C (1994) 1996 Utility Revenue Series Refunding 1989 Utility Series D (1998) 1989 Utility Series E (1998) 1996 Revenue Series Deferred Amount on Refunding Subtotal Total Revenue Bonds Issued Refunding Bonds Issued 70,989 07/01/07 07/01/12 07/01/05 07/01/14 07/01/22 07/01/23 Table of Contents City of Scottsdale, Arizona Schedule of Changes in Long-term Debt* (continued here and on following page) For the Year Ended June 30, 2003 (in thousands of dollars) July 1, 2002 MUNICIPAL PROPERTY CORPORATION BONDS Governmental Fund Type: 1992 Asset Transfer Refunding 1993 Refunding 1994 Refunding 1995 MPC Taxable Excise - TPC Land 1996 McCormick/Stillman Park 1998 Telephone, HR\Tech Bldg, Westworld 2002 Refunding 2002 Refunding Series Deferred Issuance Premium 2002 Series Deferred Amount on Refunding Subtotal $ Business Type - Municipal Property Corporation Bonds 1995 Transfer Station 2001 Scottswater 2001 Scottswater Deferred Issuance Premium Subtotal Total Municipal Property Corporation Bonds SCOTTSDALE PRESERVE AUTHORITY BONDS Governmental Fund Type: 1997 Excise Tax Revenue 1998 Excise Tax Revenue 2001 Excise Tax Revenue 2001 Excise Tax Revenue Deferred Issuance Premium 2001 Excise Tax Revenue Deferred Amount on Refunding Total Scottsdale Preserve Authority Bonds SPECIAL ASSESSMENT BONDS Governmental Fund Type: Pinnacle Vista Series 97 North Area Water Series 98 Adobe Miller Series 99 Craftsman Court Series 100 Bell Road Series 101 Desert Ranch Water Series 102 Desert Ranch Infrastructure Series 103 Pima Acres Paving & Drainage Series 105 Bell Road II Series 106 Total Special Assessment Bonds Issued 31,860 11,875 2,105 2,380 665 985 49,870 - 975 3,755 1,025 110 325 150 1,260 7,600 2,215 9,340 225 11,780 - 230 1,315 1,545 $ 61,650 $ 1,700 $ 71,450 17,435 122 (740) 89,967 $ $ Retired $ - Refunding Bonds Issued 30,570 1,334 (898) 31,006 - $ 9,145 $ - $ - $ 540 1,710 65 2,315 $ $ Accretions & Contract Adjustments Bonds Defeased 31,006 30,885 30,885 (111) 75 (36) 8,120 1,080 2,270 340 835 29,310 1,223 (823) 42,355 - (37) (37) 1,985 8,025 188 10,198 52,553 $ 30,885 $ (73) $ - $ - $ - $ - $ (6) 37 31 $ $ Governmental Fund Type June 30, 2003 Business Fund Type 8,120 1,080 2,270 340 835 29,310 1,223 (823) 42,355 $ 1,160 $ 69,740 17,370 116 (703) 87,683 $ 42,355 - 11/01/14 07/01/05 07/01/04 07/01/15 07/01/04 07/01/08 07/01/14 1,985 8,025 188 10,198 07/01/10 07/01/08 $ 10,198 1,160 $ 69,740 17,370 116 (703) 87,683 $ - 07/01/05 07/01/24 07/01/22 01/01/03 01/01/03 01/01/03 01/01/04 01/01/05 01/01/04 01/01/05 01/01/09 01/01/13 $ 90 175 105 30 11 70 4,485 595 7,500 $ - $ 90 175 105 15 4 32 1,415 85 - $ - $ - $ - $ 15 7 38 3,070 510 7,500 $ 15 7 38 3,070 510 7,500 $ - $ 13,061 $ - $ 1,921 $ - $ - $ - $ 11,140 $ 11,140 $ - *This exhibit includes both Governmental Fund Type and Business-type debt (paid out of Enterprise Funds). Final Payment Date 121 Table of Contents 122 Schedule of Changes in Long-term Debt* (continued) For the Fiscal Ended June 30, 2003 (in thousands of dollars) July 1, 2002 COMMUNITY FACILITIES DISTRICT BONDS Governmental Fund Type: McDowell Mtn Ranch Refunding Series 1999 DC Ranch Series 1998 Via Linda Road Series 1999 DC Ranch Series 1999 Scottsdale Mountain Refunding Series 2002 DC Ranch Series 2002 Scottsdale Mountain 2002 Deferred Issuance Premium Scottsdale Mountain 2002 Deferred Amount on Refunding DC Ranch 2002 Deferred Issuance Premium Total Community Facilities District Bonds Total Bonds $ Issued 18,500 $ 4,750 3,225 3,085 5,375 40 (546) 34,429 Refunding Bonds Issued Retired Accretions & Contract Adjustments Bonds Defeased 12,165 69 12,234 $ 530 215 745 $ - $ 623,232 $ 12,234 $ 39,941 $ 102,920 $ $ - $ $ $ - $ 59 35 570 55 55 69 946 1,789 $ - CONTRACTS PAYABLE Governmental Fund Type: US Corps of Engineers Dial Corporation US Patent Office McDowell Sonoran Preserve Bureau of Reclaimation\Westworld Bureau of Reclaimation\TPC Underground Improvement District Series 104 Anchor National Life / Portales Promenade Total Contracts $ 3,363 303 5 8,000 1,705 1,815 209 2,117 3,899 21,416 CAPITAL LEASES Governmental Fund Type: Nordstrom Garage Lease $ 28,750 $ - $ - $ - Total Bonds and Contracts $ 673,398 $ 12,234 $ 41,730 $ 102,920 $ Governmental Fund Type June 30, 2003 - $ (4) 57 (3) 50 17,970 $ 4,750 3,225 3,085 5,160 12,165 36 (489) 66 45,968 City of Scottsdale, Arizona *This exhibit includes both Governmental Fund Type and Business -type debt (paid out of Enterprise Funds). 17,970 $ 4,750 3,225 3,085 5,160 12,165 36 (489) 66 45,968 - Final Payment Date - $ $ 102,395 $ 1,710 $ 597,760 $ 502,250 $ 95,510 $ $ $ $ $ - 2032 2008 2009 2013 2032 2035 01/01/13 2005 2007 $ 3,304 268 5 7,430 1,650 1,760 140 2,117 2,953 19,627 $ $ 3,304 268 5 7,430 1,650 1,760 140 2,117 2,953 19,627 2028 $ - $ - $ - $ - $ 28,750 $ 28,750 $ - $ 102,395 $ 1,710 $ 646,137 $ 550,627 $ 95,510 Compensated Absences Total Long-Term Debt Business Fund Type 11,495 $ 562,122 1,345 $ 96,855 07/15/22 07/15/23 07/15/23 07/15/24 07/15/18 07/15/27 Table of Contents City of Scottsdale, Arizona Government-wide Expenses by Function Table I Last Two Fiscal Years (in thousands of dollars) Fiscal Year 2002 2003 General Government $ 26,982 23,926 Fiscal Year 2002 2003 Human Resources $ 3,601 $ Police 52,719 54,469 Economic Vitality $ 6,421 Financial Community Services Transportation Services $ 7,464 $ 72,159 $ 53,325 7,883 71,837 52,222 Information Systems $ 10,821 11,901 Interest on Long-Term Debt $ 28,063 27,786 Water Utility $ 51,125 50,406 Planning and Community Development $ 18,269 11,908 Streetlight Districts $ 1,044 1,099 $ Fire 16,494 18,127 Sewer Utility $ 24,007 22,862 Citizen & Neighborhood Municipal Resources Services $ 11,482 $ 2,484 12,290 2,433 Airport $ 2,648 2,476 Solid Waste Utility $ 14,071 $ 13,783 Source: City of Scottsdale Financial Services Department Note: The City implemented GASB 34 for the fiscal year ended June 30, 2002. Prior statements have not been restated to comply with the new requirements. Amounts represent the results of operations for the primary government only. These amounts are presented on the accrual basis of accounting and include depreciation expense. Total 393,157 395,430 123 Table of Contents 124 Government-wide Revenues Table II Last Two Fiscal Years (in thousands of dollars) Fiscal Year 2002 2003 Program Revenues Operating Charges for Grants and Services Contributions $ 146,520 $ 146,117 Capital Grants and Contributions 9,626 $ 21,219 116,145 98,856 Taxes $ 167,105 $ 167,153 General Revenues Unrestricted Investment Intergovernmental Earnings 57,492 $ 46,971 17,305 5,601 Miscellaneous $ Total 6,321 $ 520,514 5,515 491,432 Source: City of Scottsdale Financial Services Department Note: The City implemented GASB 34 for the fiscal year ended June 30, 2002. Prior statements have not been restated to comply with the new requirements. Amounts represent the results of operations for the primary government only. These amounts are presented on the accrual basis of accounting. City of Scottsdale, Arizona Table of Contents City of Scottsdale, Arizona General Governmental Expenditures by Function Table III General, Special Revenue, and Debt Service Funds Last Ten Fiscal Years (in thousands of dollars) Fiscal Year 1994 Citizen & Debt Capital General Financial Community Information Municipal Neighborhood Human Economic Planning and Streetlight Resources Resources Vitality Development Districts Service Outlay Total Government Police Services Transportation Services Systems Fire Services $ 12,437 $ 21,619 $ 4,301 $ 3,128 $ 16,468 $ - $ 7,545 $ 13,993 $ - $ - $ - $ 12,933 $ 470 $ 29,611 $ - $ 122,505 1995 13,977 24,226 4,496 3,878 18,256 - 8,435 14,283 - - - 14,002 458 31,221 - 133,232 1996 16,797 27,253 4,967 4,870 19,937 - 10,132 16,405 - - - 16,553 486 36,440 - 153,840 1997 17,449 30,745 5,389 7,551 30,961 - 10,906 8,853 - - - 18,117 523 38,923 - 169,417 1998 13,209 35,093 5,983 5,763 36,316 6,118 11,817 7,602 - - - 17,090 449 44,725 - 184,165 1999 15,074 37,752 6,359 6,999 40,758 7,357 12,844 9,077 - - - 18,419 966 53,229 - 208,834 2000 16,104 41,392 6,448 7,335 41,790 6,681 14,338 9,695 - - - 19,903 942 59,106 - 223,734 2001 17,504 45,860 6,685 16,192 45,620 7,017 15,307 11,328 - - - 21,598 977 57,836 - 245,924 2002 2003 19,175 16,010 49,362 52,371 7,135 7,752 10,016 10,869 49,276 48,950 7,380 7,386 16,281 17,745 11,214 11,553 2,235 2,446 3,375 6,268 18,040 11,746 1,044 1,099 56,214 61,096 3,770 1,294 251,142 259,960 Source: City of Scottsdale Financial Services Department Note: A departmental reorganization occurred in fiscal 1997/98. Prior years have not been recast. The Citizen & Neighborhood Resources Department was established in fiscal year 2001/02. Human Resources and Economic Vitality departments were established in fiscal year 2002/03. 125 Table of Contents 126 General Governmental Revenues by Source Table IV General, Special Revenue, and Debt Service Funds Last Ten Fiscal Years (in thousands of dollars) Fiscal Year 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 (1) Taxes $ 63,996 71,635 81,389 89,086 102,138 141,067 156,017 162,567 164,459 166,739 Property InterRental and Streetlight Governmental Special Charges For Fines and Interest and Services Revenue Assessments Licenses Services Forfeitures Earnings Districts Miscellaneous Total $ 33,609 $ 5,643 $ 876 $ 10,499 $ 1,711 $ 4,818 $ 515 $ 10,194 $ 131,861 36,649 5,514 950 12,410 1,990 6,365 543 10,896 146,952 40,434 7,896 1,055 12,587 2,748 6,813 474 11,590 164,986 48,583 6,696 1,107 14,424 3,344 6,000 505 12,748 182,493 49,635 4,927 1,107 17,229 4,274 7,664 558 15,091 202,623 54,920 4,357 1,237 17,227 5,192 6,581 964 17,135 248,680 58,626 3,740 1,717 19,711 5,105 7,721 968 14,345 267,950 71,054 3,026 1,676 19,877 4,894 7,888 973 15,026 286,981 70,044 2,339 1,815 20,038 5,234 8,464 1,012 10,176 283,581 68,695 1,970 1,816 19,990 6,047 5,274 1,018 10,360 281,909 Source: City of Scottsdale Financial Services Department Tax Revenues by Source Table V General, Special Revenue, and Debt Service Funds Last Ten Fiscal Years (in thousands of dollars) Privilege & (1) Use Fiscal Year 1994 $ Transient Occupancy Tax General Property Franchise In-Lieu Property Total Taxes City of Scottsdale, Arizona 37,741 $ 4,465 $ 17,666 $ 3,885 $ 239 $ 63,996 1995 43,755 5,048 18,383 4,160 289 71,635 1996 49,476 5,702 21,396 4,533 282 81,389 1997 54,530 6,493 22,836 4,945 282 89,086 1998 61,771 7,096 27,663 5,332 276 102,138 1999 98,335 6,637 30,150 5,696 249 141,067 2000 110,069 7,235 32,591 5,891 231 156,017 2001 113,009 7,587 34,396 7,399 176 162,567 2002 111,698 6,691 38,413 7,461 196 164,459 2003 110,684 6,688 41,583 7,587 197 166,739 Source: City of Scottsdale Financial Services Department Note: (1) Beginning in 1999, Privilege Tax for Transportation and McDowell Mountain were recorded in Special Revenue Funds. Prior to 1999, they were recorded in Capital Projects Funds. Prior years have not been recast. See also Table VI. Table of Contents City of Scottsdale, Arizona Excise Tax Collections by Source Table VI General, Special Revenue, and Debt Service Funds Last Ten Fiscal Years (in thousands of dollars) Fiscal Year 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 Privilege Privilege & Transient & Use Privilege & Use - Occupancy Use State Shared State Revenue Light & Power Transportation McDowell Mtn General Tax Sales Sharing Franchise $ 37,741 $ 7,205 $ $ 4,465 $ 9,210 $ 8,479 $ 2,822 43,755 8,482 5,048 10,020 9,375 3,004 49,476 9,522 9,085 5,702 10,676 9,936 3,187 54,530 10,545 10,663 6,493 11,870 12,734 3,484 61,771 11,963 12,168 7,096 12,537 14,387 3,769 70,735 13,673 13,927 6,637 13,439 16,795 3,972 78,649 15,880 15,540 7,235 14,772 18,637 4,314 81,108 15,831 16,070 7,587 15,514 19,560 4,979 80,297 15,587 15,814 6,691 15,621 21,142 5,238 79,704 15,335 15,645 6,688 15,853 21,574 5,147 Fiscal Year 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 Cable TV Franchise $ 916 1,003 1,175 1,275 1,406 1,552 1,376 2,147 2,223 2,440 Development Business Permits & Recreation Fines & Licenses & Fire Insurance Fees Fees Forfeitures Fees Franchise $ 148 $ 876 $ 8,733 $ 1,767 $ 1,711 $ 152 950 10,590 1,820 1,990 171 1,055 10,918 1,669 2,748 186 1,107 12,019 2,405 3,344 157 1,107 15,595 2,734 4,274 172 1,237 14,311 2,916 5,192 201 1,717 16,641 3,070 5,105 273 1,676 16,850 3,027 4,894 316 1,815 15,764 2,806 5,234 414 1,816 15,853 3,000 6,047 Source: City of Scottsdale Financial Services Department Note: Beginning in 1999 Privilege Tax for Transportation and McDowell Mountain are recorded in Special Revenue Funds. Prior to 1999 they were recorded in Capital Projects Funds. Total 84,073 96,189 115,320 130,655 148,964 164,558 183,137 189,516 188,548 189,516 127 Table of Contents 128 Privilege and Use Tax Collections by Category Table VII General, Special Revenue, and Debt Service Funds Last Ten Fiscal Years (in thousands of dollars) Fiscal Year 1994 Automotive $ Construction 6,274 $ 7,498 $ Food Hotel Major Department Stores Misc. Retail Other Tax Rentals Restaurants Utilities License Fees, Penalties, Interest & Refunds Total 3,261 $ 2,983 $ 4,674 $ 7,483 $ 2,484 $ 4,246 $ 3,170 $ 2,083 $ 790 $ 44,946 1995 7,010 10,322 3,682 3,373 4,755 8,707 2,785 4,816 3,591 2,335 861 52,237 1996 9,403 14,010 4,803 4,459 5,688 11,437 4,174 5,922 4,632 3,026 529 68,083 1997 10,494 16,078 5,571 5,035 5,765 12,160 5,189 6,677 4,930 3,390 449 75,738 1998 12,426 19,183 5,968 5,371 6,580 13,519 5,594 7,788 5,322 3,674 477 85,902 1999 14,533 23,876 7,292 5,332 6,173 15,592 6,118 9,178 5,852 3,966 423 98,335 2000 18,025 24,377 7,899 5,710 7,815 16,562 6,472 10,290 6,471 4,805 1,643 110,069 2001 20,297 22,733 7,194 6,296 8,456 16,925 6,850 11,537 7,313 5,245 163 113,009 2002 20,862 21,948 7,202 5,430 8,737 15,538 6,104 12,248 7,282 5,501 846 111,698 2003 20,411 18,658 7,472 5,331 9,172 15,990 6,517 12,697 7,672 5,381 1,383 110,684 Source: City of Scottsdale Financial Services Department City of Scottsdale, Arizona Table of Contents City of Scottsdale, Arizona Privilege and Use Tax Collections by Source (1) Table VIII General, Special Revenue and Debt Service Funds Last Ten Fiscal Years (in thousands of dollars) Fiscal Year 1994 General $ 37,741 Transportation $ (2) 7,205 $ McDowell Preserve (3) Total - $ 44,946 1995 43,755 8,482 - 52,237 1996 49,476 9,522 9,085 68,083 1997 54,530 10,545 10,663 75,738 1998 61,771 11,963 12,168 85,902 1999 70,735 13,673 13,927 98,335 2000 78,649 15,880 15,540 110,069 2001 81,108 15,831 16,070 113,009 2002 80,297 15,587 15,814 111,698 2003 79,704 15,335 15,645 110,684 Source: City of Scottsdale Financial Services Department (1) Privilege Tax rates are 1 percent General, .2 percent for Transportation, and .2 percent for McDowell Reserve. Total City Privilege Tax rate is 1.4 percent. (2) Transportation Privilege Tax Legislation became effective in 1990 and is restricted to use for transportation capital projects only. (3) McDowell Preserve Privilege Tax Legislation became effective in 1996 and is restricted to use for acquisition of land for the McDowell Preserve. 129 Table of Contents 130 Property Tax Levies and Collections Table IX Last Ten Fiscal Years (in thousands of dollars) Total Tax Levy Current Tax Collections % of Levy Collected Total Collections % Outstanding Delinquent Future Year of Current Delinquent Tax Tax Total Tax Levy Taxes Collections Collections Collections Outstanding Delinquent % of Current Levy Tax Year Fiscal Year 1993 1994 17,133 16,404 95.7% 1,226 36 17,666 103.1% 697 4.1% 1994 1995 20,273 18,993 93.7% 637 9 19,639 96.9% 728 3.6% 1995 1996 21,475 20,960 97.6% 623 19 21,602 100.6% 706 3.3% 1996 1997 24,408 23,862 97.8% 533 21 24,416 100.0% 553 2.3% 1997 1998 28,202 27,433 97.3% 503 20 27,956 99.1% 657 2.3% 1998 1999 30,304 28,993 95.7% 625 1 29,619 97.7% 783 2.6% 1999 2000 32,747 30,896 94.3% 890 - 31,786 97.1% 879 2.7% 2000 2001 32,581 31,230 95.9% 978 - 32,208 98.9% 960 2.9% 2001 2002 36,166 34,895 96.5% 964 - 35,859 99.2% 952 2.6% 2002 2003 39,159 37,583 96.0% 999 - 38,582 98.5% 935 2.4% City of Scottsdale, Arizona Source: Maricopa County Treasurer's Office 2003 Secured Tax Levy Report and City of Scottsdale Financial Services Department Amounts represent property taxes recorded in the General, Debt Service and Self-Insurance Fund (beginning in 1995). Table of Contents City of Scottsdale, Arizona Assessed and Estimated Actual Value of Taxable Property Table Xa Last Ten Fiscal Years (in thousands of dollars) COMPARATIVE ASSESSED VALUATION CLASSIFICATION Fiscal Year Real Estate Secured Personal Improvements $ 1,136,492 619,463 $ 30,271 30,271 Unsecured Personal Utilities Rails Wires $ $ 94,651 94,662 67,694 67,725 Gross Valuation $ 1,329,108 1,353,401 Exemptions Net Taxable Valuation $ $ 478 479 1,328,630 $ 1,352,922 Estimated Actual Valuation 1994 P $ S 541,280 9,415,061 9,560,216 1995 P S 537,114 1,175,121 666,182 32,826 32,826 93,393 93,393 70,031 70,058 1,371,372 1,399,573 456 447 1,370,916 1,399,126 9,913,549 10,081,538 1996 P S 550,624 1,296,789 822,631 32,768 32,768 50,496 50,496 73,949 73,976 1,454,002 1,530,496 410 407 1,453,592 1,530,089 10,916,431 11,361,417 1997 P S 625,326 1,484,460 909,635 39,384 39,384 45,358 45,358 101,115 101,143 1,670,317 1,720,846 122,496 129,045 1,547,821 1,591,801 11,615,286 11,869,943 1998 P S 655,657 1,652,051 1,120,622 39,510 39,510 49,608 49,608 102,884 102,946 1,844,053 1,968,343 122,998 129,293 1,721,055 1,839,050 13,064,052 13,876,821 1999 P S 786,999 1,867,600 1,257,665 41,123 41,123 50,270 50,270 99,765 99,825 2,058,758 2,235,882 120,569 133,530 1,938,189 2,102,352 14,824,243 14,875,966 2000 P S 888,057 2,197,631 1,565,076 42,123 42,123 54,263 54,623 105,941 106,030 2,399,958 2,655,909 148,417 171,524 2,251,541 2,484,385 17,194,773 18,597,657 2001 P S - 2,505,879 2,831,301 41,290 41,290 75,333 75,333 110,584 110,715 2,733,086 3,058,639 126,116 143,258 2,606,970 2,915,381 19,705,159 21,770,704 2002 P S - 2,868,585 3,258,789 41,290 41,290 83,798 83,798 119,572 119,584 3,113,245 3,503,461 166,942 225,510 2,946,303 3,277,951 22,500,935 24,790,147 2003 P S - 3,182,885 3,581,204 30,258 30,258 88,982 88,982 130,305 130,305 3,432,430 3,830,749 200,976 304,144 3,231,454 3,526,605 24,690,513 26,456,051 Source: AZ Department of Revenue/Property Tax Division, Abstract of the Assessment Roll 2001 Real estate and improvements are combined in the primary valuation. Under Arizona law, there are two property valuation bases: PRIMARY (P) and SECONDARY (S). The primary (limited assessed valuation is used when levying for maintenance and operation of cities, school districts, community college districts, counties, and the state. The secondary (full cash) assessed valuation is used when levying for debt retirement, voter-approved budget overrides, and maintenance and operation of special service districts. Beginning in 2001, Real Estate and Improvements are combined in the secondary valuation of the improvements total. 131 Table of Contents Assessed Values by Property Class Table Xb 132 Last Ten Fiscal Years (in thousands of dollars) Fiscal Year Class 1 Mines, Utilities, Telecom., Comm. & Industrial Class 5 Class 6 Class 4 Class 2 Railroad, Historic, NonResidential Class 3 Agricultural Private Car Co., commercial Leased & & Vacant Residential Special Use & Airlines Owner Occupied Common Areas Land Class 7 Commercial Historic Class 8 Residential Historic Class 9 Total Net Full Cash Improvements on Possessory Assessed Value Interest 1994 P S 510,029 521,916 186,349 193,931 552,152 554,901 80,086 82,161 - 6 6 - - 7 7 1,328,629 1,352,922 1995 P S 510,175 525,595 186,548 192,308 597,708 602,267 76,428 78,901 - 7 7 - 49 49 - 1,370,915 1,399,127 1996 P S 506,734 549,166 170,989 186,704 688,356 694,908 87,279 98,650 - 174 600 - - 59 59 1,453,591 1,530,087 1997 P S 548,255 574,576 169,960 178,832 725,151 727,402 104,198 110,978 - 181 235 - - 77 77 1,547,822 1,592,100 1998 P S 588,375 639,829 161,690 176,979 859,920 900,682 110,800 121,287 - 195 195 - - 77 77 1,721,057 1,839,049 1999 P S 650,741 720,457 174,147 234,448 992,490 1,019,159 120,495 127,840 - 240 372 - - 76 76 1,938,189 2,102,352 2000 P S 763,432 875,189 198,745 269,034 1,132,548 1,172,250 156,291 166,530 - 525 1,382 - - - 2,251,541 2,484,385 2001 P S 926,639 1,028,288 215,998 326,440 1,293,727 1,375,453 169,591 183,600 - 540 1,090 23 24 452 486 - 2,606,970 2,915,381 2002 P S 1,014,713 1,111,891 233,757 352,574 1,515,221 1,618,041 182,336 195,031 - 277 414 - - 2,946,304 3,277,951 2003 P S 1,117,558 1,237,805 244,980 368,844 1,677,085 1,720,500 190,953 197,972 - 878 1,484 - - 3,231,454 3,526,605 The above classes were revised by Maricopa County for 2001 pursuant to HB 2634. Prior years were restated for comparison. City of Scottsdale, Arizona A statewide reappraisal program assesses property values by usage classification on varying percentages of actual cash value. These percentages are as follows: Property Class: 1. Mines, Utilities, Telecommunications, Comm. & Industrial 2. Agricultural & Vacant Land 3. Residential - Owner Occupied 4. Residential - Leased & Common Areas 5. Railroads, Private Car Cos., Airlines 6. Historic, Non-commercial Special Use 7. Commercial Historic 8. Residential Historic 9. Improvements on Gov Property 25% 16% 10% 10% 21% 5% 25% 10% 1% Sources: Arizona Department of Revenue/Property Tax Division Abstract of the Assessment Roll 2001 Maricopa County Department of Finance Table of Contents Property Tax Rates - Direct and Overlapping Governments Table Xia City of Scottsdale, Arizona Tax Rates Per $100 Assessed Valuation Last Ten Fiscal Years School Districts Fiscal Year City of Scottsdale Scottsdale Unified Community College Maricopa County State of Arizona Flood District Central Arizona Project Fire District Library EVIT - Education Equalization Total 1994 P S Total 0.4940 0.7812 1.2752 4.3194 1.5225 5.8419 0.8532 0.8532 1.5848 0.1878 1.7726 0.4700 0.4700 0.3632 0.3632 0.1400 0.1400 0.0104 0.0104 0.0417 0.0417 - 1995 P S Total 0.5987 0.8623 1.4610 4.5296 1.4114 5.9410 0.8934 0.8934 1.2394 0.0032 1.2426 0.4700 0.4700 0.3632 0.3632 0.1400 0.1400 0.0107 0.0107 0.0417 0.0417 0.0554 0.0554 0.5300 0.5300 8.2611 2.8879 11.1490 1996 P S Total 0.5477 0.8832 1.4309 4.6058 1.4597 6.0655 0.9455 0.1675 1.1130 1.1580 0.1464 1.3044 0.4700 0.4700 0.3332 0.3332 0.1400 0.1400 0.0108 0.0108 0.0099 0.0099 0.0693 0.0693 0.5300 0.5300 8.2570 3.2200 11.4770 1997 P S Total 0.6480 0.9032 1.5512 4.3390 1.5526 5.8916 0.9772 0.0704 1.0476 1.1054 0.1575 1.2629 - 0.3425 0.3425 0.1400 0.1400 0.0109 0.0109 0.0421 0.0421 0.1616 0.1616 0.5300 0.5300 7.5996 3.3808 10.9804 1998 P S Total 0.5763 0.9941 1.5704 4.1859 1.5365 5.7224 0.9747 0.1599 1.1346 1.1265 0.1364 1.2629 - 0.3425 0.3425 0.1400 0.1400 0.0105 0.0105 0.0421 0.0421 0.1216 0.1216 0.5300 0.5300 7.3934 3.4836 10.8770 1999 P S Total 0.5477 0.9365 1.4842 4.2161 1.5842 5.8003 0.9866 0.1259 1.1125 1.1472 0.1312 1.2784 - 0.3270 0.3270 0.1400 0.1400 0.0103 0.0103 0.0421 0.0421 0.1320 0.1320 0.5300 0.5300 7.4276 3.4292 10.8568 2000 P S Total 0.5450 0.8318 1.3768 4.3726 1.3965 5.7691 0.9741 0.1544 1.1285 1.1884 0.1085 1.2969 - 0.2858 0.2858 0.1400 0.1400 0.0100 0.0100 0.0421 0.0421 0.1217 0.1217 0.5217 0.5217 7.6018 3.0908 10.6926 2001 P S Total 0.5289 0.6577 1.1866 4.0442 1.4113 5.4555 0.9691 0.1503 1.1194 1.1641 0.1152 1.2793 - 0.2534 0.2534 0.1300 0.1300 0.0096 0.0096 0.0421 0.0421 0.1186 0.1186 0.5123 0.5123 7.2186 2.8882 10.1068 2002 P S Total 0.4858 0.6667 1.1525 4.0781 1.3597 5.4378 0.9583 0.1524 1.1107 1.1832 0.0876 1.2708 - 0.2319 0.2319 0.1300 0.1300 0.0091 0.0091 0.0421 0.0421 0.1120 0.1120 0.4974 0.4974 7.2028 2.7915 9.9943 2003 P S Total 0.5073 0.6456 1.1529 3.9430 1.3597 5.3027 0.9634 0.1493 1.1127 1.2108 0.0800 1.2908 - 0.2119 0.2119 0.1300 0.1300 0.0076 0.0076 0.0421 0.0421 0.1117 0.1117 0.4889 0.4889 7.1134 2.7379 9.8513 Scottsdale residents residing outside Scottsdale Unified School District: 133 School District Balsz Elementary Cave Creek Fountain Hills Paradise Valley Tempe 2001/2002 Tax Rate Total $12.84 9.36 10.67 11.66 12.14 Source: Maricopa County Department of Finance Publications On-Line "2002 County Tax Rates" 7.7214 3.0468 10.7682 Table of Contents 134 Property Tax Levies - Direct and Overlapping Governments Table Xib Last Ten Fiscal Years (in thousands of dollars) School Districts Fiscal Year City of Scottsdale Scottsdale Unified Community College Maricopa County State of Arizona Flood District Central Arizona Project Fire District Library East Valley Institute of Technology Education Equalization Total City of Scottsdale, Arizona 1994 P $ S TOTAL 6,564 $ 10,569 17,133 63,549 $ 22,690 86,239 113,440 $ 113,440 140,248 $ 25,360 165,608 62,492 $ 62,492 $ 35,142 35,142 $ 18,906 18,906 $ 1,404 1,404 $ 5,631 5,631 $ 3,596 3,596 70,470 $ 70,470 456,763 123,298 580,061 1995 P S TOTAL 8,208 12,064 20,272 67,793 21,559 89,352 118,842 118,842 164,865 428 165,293 62,521 62,521 35,319 35,319 18,930 18,930 1,447 1,447 5,638 5,638 2,864 2,864 70,502 70,502 492,731 98,249 590,980 1996 P S TOTAL 7,961 13,514 21,475 71,686 23,677 95,363 127,583 23,643 151,226 156,257 20,671 176,928 63,421 63,421 36,078 36,078 19,767 19,767 1,518 1,518 1,398 1,398 2,391 1,452 3,843 71,517 71,517 500,816 141,718 642,534 1997 P S TOTAL 10,031 14,378 24,409 71,235 26,054 97,289 136,570 10,100 146,670 154,487 22,590 177,077 - 38,118 38,118 20,080 20,080 1,567 1,567 6,038 6,038 3,232 6,120 9,352 74,071 74,071 449,626 145,045 594,671 1998 P S TOTAL 9,919 18,283 28,202 75,973 29,651 105,624 146,259 25,144 171,403 169,046 21,447 190,493 - 42,339 42,339 22,013 22,013 1,646 1,646 6,620 6,620 3,673 4,275 7,948 79,533 79,533 484,403 171,418 655,821 1999 P S TOTAL 10,615 19,689 30,304 82,281 32,607 114,888 158,026 21,174 179,200 183,750 22,059 205,809 - 44,670 44,670 23,537 23,537 1,737 1,737 7,078 7,078 4,247 5,130 9,377 84,892 84,892 523,811 177,681 701,492 2000 P S TOTAL 12,204 20,543 32,747 96,625 33,734 130,359 170,116 28,833 198,949 207,541 20,264 227,805 - 44,311 44,311 26,148 26,148 1,874 1,874 7,863 7,863 3,970 5,922 9,892 91,109 91,109 581,565 189,492 771,057 2001 P S TOTAL 13,653 18,928 32,581 99,482 38,232 137,714 187,643 31,377 219,020 225,397 24,051 249,448 - 44,309 44,309 27,141 27,141 1,997 1,997 8,790 8,790 4,786 6,155 10,941 99,193 99,193 630,154 200,980 831,134 2002 P S TOTAL 14,313 21,853 36,166 110,638 40,515 151,153 204,648 34,930 239,578 252,676 20,072 272,748 - 45,323 45,323 29,787 29,787 2,086 2,086 9,646 9,646 5,198 6,259 11,457 106,221 106,221 693,694 210,471 904,165 2003 P S TOTAL 16,393 22,766 39,159 114,544 42,133 156,677 221,157 36,526 257,683 277,949 19,566 297,515 - 44,868 44,868 31,805 31,805 1,859 1,859 10,297 10,297 6,120 6,176 12,296 112,231 112,231 748,394 215,996 964,390 Source: Maricopa County Department of Finance Publications On-Line "Tax Levy 2002" The primary (P) tax levy is for maintenance and operation of cities, school districts, community college districts, counties, and the state. The secondary (S) tax levy is for debt retirement, voter-approved budget overrides, and maintenance and operation of special state districts. Table of Contents City of Scottsdale, Arizona Principal Taxpayers Table XII June 30, 2003 Taxpayer Arizona Public Service Company Scottsdale Fashion Square Qwest Communications, Inc. First American Tax Valuation Gainey Drive Associates General Dynamics Wyndham International Southwest Gas Corporation CMD Properties Inc. Scottsdale Fiesta Plaza Type of Business Gas and Electric Utility Shopping Center Telecommunications Resort Resort Industrial Park Resort Gas Utility Office Buildings Shopping Center Assessed Valuation (in thousands of dollars) $ 49,923 49,808 30,364 24,186 21,438 19,519 12,675 12,668 12,215 10,186 $ 242,982 % of Secondary Assessed Valuation 1.42% 1.41% 0.86% 0.69% 0.61% 0.55% 0.36% 0.36% 0.35% 0.29% 6.90% Source: The City of Scottsdale's Property Tax Auditor, as obtained from the Arizona Department of Revenue, CVP Department and the 2002 Maricopa County Treasurer's Roll. The Salt River Project Agricultural Improvement and Power District's (SRP) assessed valuation is not reflected in the total assessed valuation of the City. SRP is subject to a "voluntary contribution" in lieu of ad valorem taxation. The 2002/03 secondary assessed valuation of the Salt River Project within the City is $21,682,030 . The estimated secondary in lieu contribution is $202,864. 135 Table of Contents 136 Special Assessment Billings and Collections Last Ten Fiscal Years (in thousands of dollars) Fiscal Year 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 Special Assessments Billed $ 3,523 3,381 5,438 4,390 3,373 2,849 2,675 2,268 1,690 1,402 Current Assessments Collected $ 4,083 4,222 5,696 5,026 3,755 3,464 3,056 2,531 1,989 1,730 Source: City of Scottsdale Financial Services Department Table XIII City of Scottsdale, Arizona Table of Contents City of Scottsdale, Arizona Table XIV Ratio of Net General Obligation Bonded Debt to Assessed Value and Net Bonded Debt Per Capita Last Ten Fiscal Years Fiscal Year 1994 Assessed Value $ Population June 30 General Obligation Bonded Debt 1,352,922,237 154,960 $ 110,965,000 $ 1995 1,399,126,179 168,176 121,915,000 1996 1,530,088,317 172,820 1997 1,591,801,942 1998 Less Fund Balance Reserved for Debt Service 3,478,905 $ Net Bonded Debt Net Bonded Debt Per Capita Ratio of Net Bonded Debt to Assessed Value 107,486,095 7.9% $ 693.64 342,402 121,572,598 8.7% 722.89 131,340,000 829,933 130,510,067 8.5% 755.18 180,240 152,235,000 588,100 151,646,900 9.5% 841.36 1,839,050,044 189,060 165,140,000 2,270,562 162,869,438 8.9% 861.47 1999 2,102,351,943 197,250 182,200,000 4,305,508 177,894,492 8.5% 901.87 2000 2,484,385,416 202,705 237,609,000 1,993,643 235,615,357 9.5% 1,162.36 2001 2,877,733,056 210,770 262,484,000 5,158,963 257,325,037 8.9% 1,220.88 2002 3,277,950,767 215,320 319,657,000 8,448,962 311,208,038 9.5% 1,445.33 2003 3,526,604,612 218,940 305,003,000 9,006,329 295,996,671 8.4% 1,351.95 Source: City of Scottsdale Financial Services Department Includes all General Obligation Bonds outstanding at June 30 except for the 1986 Water System Improvement General Obligation Bonds and all general obligation refunding bonds paid out of the Water Enterprise Fund. Excludes accretion on capital appreciation bonds and original issue premium. Also excludes all general obligation bonds of community facilities districts, since such bonds are not obligations of the City. Includes the fund balance of the General Obligation Bond Debt Service Fund only. 137 Table of Contents Computation of Legal Debt Margins Table XV June 30, 2003 (in thousands of dollars) Net Secondary Assessed Valuation as of June 30, 2003 $ Debt Limit Equal to 20% of Assessed Valuation 3,526,605 705,321 General Obligation Bonded Debt Subject to 20% Debt Limit (net of amounts available in Debt Service Funds for payment on July 1, 2003): 1993 Refunding 1989 Series D (1993) 1993A Refunding 1997 GO Refunding 1989 GO Series I (1998) 1999 Preservation GO 2001 Preservation GO 2001 Refunding 2002 GO Series 2002 Refunding $ 7,596 2,905 14,654 17,405 4,445 18,400 29,210 47,155 55,000 40,630 Net Outstanding Bonded Debt Subject to 20% Limit 237,400 Legal 20% Debt Margin (Available Borrowing Capacity) $ 467,921 Debt Limit Equal to 6% of Assessed Valuation $ 211,596 General Obligation Bonded Debt Subject to 6% Debt Limit (net of amounts available in Debt Service Funds for payment on July 1, 2003): 1993 GO Refunding 1993A Refunding 1997 Series H Roads 1997 GO Refunding 1989 Series I (1998) 1999A Streets 1999A Pima Road 2001 Refunding 2002 GO Series 2002 Refunding $ 12,429 2,526 2,415 2,445 4,465 4,948 1,502 2,415 11,260 27,290 Net Outstanding Bonded Debt Subject to 6% Limit Legal 6% Debt Margin (Available Borrowing Capacity) 71,695 $ 139,901 (1) Under Arizona law, cities can issue general obligation bonds for purposes of water, sewer, light, parks, and open space purposes, but outstanding bonds issued for such purposes may not exceed 20 percent of the City's net secondary assessed valuation. Outstanding general obligation bonded debt for all other purposes may not exceed 6 percent of the city's net secondary assessed valuation. (2) The computation of legal debt margins excludes premium on capital appreciation bonds. (3) General obligation bonds of community facilities districts are not subject to or included in this computation since they are not bonds of the City of Scottsdale. Source: City of Scottsdale Financial Services. 138 City of Scottsdale, Arizona Table of Contents City of Scottsdale, Arizona Table XVI Summary of General Governmental Bond Expenditures and Debt Ratios Last Ten Fiscal Years (in thousands of dollars) Fiscal Year 1994 Principal $ 4,585 Interest $ Total General Governmental Operating Expenditures Total Debt Service 4,897 $ 9,482 $ Ratio of Total Debt Service To Total Operating Expenditures 122,505 7.74% 1995 5,050 6,860 11,910 134,366 8.86% 1996 5,575 7,493 13,068 153,841 8.49% 1997 6,605 8,064 14,669 169,417 8.66% 1998 8,140 8,394 16,534 184,165 8.98% 1999 8,140 9,099 17,239 211,051 8.17% 2000 10,400 12,555 22,955 223,734 10.26% 2001 11,150 13,038 24,188 245,924 9.84% 2002 12,850 15,407 28,257 251,142 11.25% 2003 15,885 17,664 33,549 259,960 12.91% Source: City of Scottsdale Financial Services Department Amounts exclude 1986 Water System Improvement General Obligation Bonds and all general obligation refunding bonds paid out of the Water Enterprise Fund. Also excluded are all general obligation bonds of community facilities districts, since such bonds are not obligations of the City. Includes total expenditures of the General, Special Revenue, and Debt Service Funds. 139 Table of Contents 140 Summary of Water and Sewer Utility Bond Expense and Debt Ratios Table XVII Last Ten Fiscal Years (in thousands of dollars) Operating & Net Development Fiscal Operating Maintenance Operating Fee Year Revenue Expenses Revenue Revenue 1994 $ 49,233 $ 33,423 $ 15,810 $ 12,377 $ (1) 56,900 31,738 25,162 14,934 1995 1996 68,523 39,422 29,101 15,821 1997 74,708 41,621 33,087 18,896 1998 76,468 42,056 34,412 27,463 1999 85,411 49,264 36,147 32,723 2000 83,305 46,953 36,352 24,581 2001 87,417 53,421 33,996 26,361 2002 97,802 49,840 47,962 15,087 2003 95,064 46,991 48,073 17,648 City of Scottsdale, Arizona Fiscal Year 1994 1995 (1) 1996 1997 1998 1999 2000 2001 2002 2003 Ratio of Total Net Revenue to Total Bond Expense 4.86 5.61 6.52 7.84 9.54 6.00 5.16 5.10 5.31 5.52 Ratio of Net Operating Revenue to Total Bond Expense 2.73 3.52 4.23 4.99 5.30 3.15 3.08 2.87 4.04 4.04 Ratio of Net Operating Revenue to Revenue Bond Expense 5.92 7.82 10.04 10.24 7.87 4.55 4.89 5.20 7.34 7.38 Total Net Revenue 28,187 40,096 44,922 51,983 61,875 68,870 60,933 60,357 63,049 65,721 Ratio of Total Net Revenue to Revenue Bond Expense 10.55 12.47 15.50 16.09 14.14 8.66 8.19 9.23 9.65 10.10 $ Revenue General Bond Obligation Bond Expense Expense 2,672 $ 3,124 $ 3,216 3,927 2,898 3,987 3,231 3,402 4,375 2,112 7,951 3,527 7,436 4,367 6,538 5,290 6,535 5,345 6,510 5,402 Revenue Bond Indenture Required Ratio 1.20 1.20 1.20 1.20 1.20 1.20 1.20 1.20 1.20 1.20 Source: City of Scottsdale Financial Services Department Revenue - includes all operating revenues and interest earnings recorded in the Water and Sewer Utility Enterprise Fund. Expenses - includes total operating expenses and interest expense of the Water and Sewer Utility Enterprise Fund, excluding depreciation and amortization. (1) 1995 interest expense has been restated to reflect an accounting adjustment. Total Bond Expense 5,796 7,143 6,885 6,633 6,487 11,478 11,803 11,828 11,880 11,912 Table of Contents City of Scottsdale, Arizona Total Direct and Overlapping General Obligation Debt Table XVIII (in thousands of dollars) The City's proportionate share of general obligation debt of all local governmental units which provide services within the City's boundaries and which must be borne by properties in the City is summarized below: Net Bonds Outstanding Name of Governmental Unit Maricopa County $ Applicable within the City of Scottsdale 39,515 14.4196% 305,750 14.4196% 44,088 Tempe Elementary School District No. 3 66,645 0.0002% - Balsz Elementary School District No. 31 18,805 4.0186% 756 Scottsdale Unified School District No. 48 265,710 69.6978% 185,194 Paradise Valley Unified School District No. 69 334,110 31.9658% 106,801 Cave Creek Unified School District No. 93 54,570 62.3736% 34,037 Fountain Hills Unified School District No. 98 30,690 2.2883% 702 Phoenix Union High School District No. 210 170,935 0.2748% 470 12,055 19.6798% 2,373 Scottsdale Mountain Community Facilities District 5,160 100.0000% 5,160 McDowell Mountain Community Facilities District 17,970 100.0000% 17,970 DC Ranch Community Facilities District 20,000 100.0000% 20,000 3,225 100.0000% 3,225 100.0000% 426,474 305,003 Maricopa County Community College District East Valley Institute of Technology District No. 401 Via Linda Road Community Facilities District $ % Applicable within the City of Scottsdale $ Total Overlapping Debt City of Scottsdale Total Direct and Overlapping Debt Source: Maricopa County Assessor's Office 305,003 $ 5,698 731,477 141 Table of Contents 142 Demographic Statistics Table XIX Last Ten Fiscal Years Fiscal Year 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 Population 154,960 168,176 172,820 180,240 189,060 197,250 202,705 210,770 215,320 218,940 (1) Per Capita Income (1) $ 28,800 30,300 31,900 33,600 35,400 37,200 39,158 41,200 43,400 43,400 School Enrollment Median Age 39.1 39.1 39.1 39.7 39.7 39.7 41.0 41.0 41.0 42.1 (1) (2) 22,096 24,089 24,467 25,103 26,011 26,796 25,985 26,101 26,051 26,051 Unemployment Rate 3.4% 2.5 2.6 2.1 1.9 2.1 1.9 2.8 3.8 3.7 City of Scottsdale, Arizona Sources: (1) City of Scottsdale Planning staff (2) Arizona Department of Education (Enrollment statistics are not available until six months after the close of the fiscal year. The numbers presented on each line represent the prior year's statistics.) (3) Arizona Department of Economic Security - Arizona Unemployment Statistics Program Special Unemployment Final Report (3) Table of Contents City of Scottsdale, Arizona Property Value and Construction Table XX Last Ten Fiscal Years (in thousands of dollars) Property Value (1) Fiscal Year 1994 Commercial $ Residential Commercial Construction (2) Nontaxable Number of Permits Residential Construction (2) Number of Dwelling Units Value Value 3,265,815 $ 6,294,430 $ 671,710 2,516 $ 153,331 4,595 $ 593,418 1995 3,269,864 6,810,085 743,351 2,751 162,541 4,954 652,363 1996 3,345,470 8,024,934 735,698 2,923 152,488 4,449 607,708 1997 3,400,495 8,448,076 723,545 3,275 305,836 4,451 621,891 1998 3,658,231 10,217,960 806,235 3,512 595,530 5,102 792,477 1999 4,352,786 9,951,148 2,351,799 3,665 437,945 4,486 775,957 2000 5,209,857 13,386,035 923,343 3,296 294,157 4,134 743,286 2001 6,175,315 15,670,793 844,520 2,957 291,003 3,325 615,942 2002 6,651,152 18,219,402 1,307,018 2,464 247,372 2,019 453,430 2003 7,256,497 19,211,932 1,866,782 2,215 199,223 2,046 400,500 Source: (1) Arizona Department of Revenue 2002 Abstract of the Assessment Roll (2) City of Scottsdale Planning and Development Services Department Building Inspection Services ` 143 Table of Contents 144 Schedule of Insurance Table XXI June 30, 2003 Carrier Allianz Insurance Company Policy Description Property Insurance Repair or Replace $100,000 Deductible Amount of Coverage Various Limits By Peril City of Scottsdale, Arizona AIG Group and various layers of coverage Excess Liability Coverage $2,000,000 Deductible Per Occurrence $40,000,000 Per Occurrence and Aggregate ACE/Lloyds of London Airport Premises and Hangarkeepers Liability $100,000,000 Per Occurrence and Aggregate Midwest Employees Casualty Company Excess Workers' Compensation Coverage $600,000 Deductible each Occurrence Great American Insurance Company Fidelity/Crime Insurance $25,000 Deductible Source: City of Scottsdale Financial Services Department Risk Management Division Statutory $5,000,000 Annual Maximum Amount Table of Contents City of Scottsdale, Arizona Salaries and Surety Bonds of Principal Officials Table XXII For Fiscal Year Ended June 30, 2003 Official Title Mayor Salary $ Councilmen (6) 36,000 Bond $ 1,000,000* 18,000 included in above 153,941 included in above 79,664 included in above City Attorney 125,362 included in above City Judge 121,805 included in above 97,552 included in above City Manager/City Treasurer City Clerk City Auditor *annual maximum amount Employee Dishonesty and Computer/Wire Fraud Coverage Employee Dishonesty Coverage - All City Employees $5,000,000 annual maximum amount Computer/Wire Fraud Coverage Accounting Staff With Wire Transfer Authority $5,000,000 annual maximum amount Source: City of Scottsdale Financial Services Department 145 Table of Contents City of Scottsdale, Arizona Miscellaneous Statistical Data June 30, 2003 Date of Incorporation Date Charter Adopted Form of Government - Population 1950 Census 1960 Census 1965 Special Census 1970 Census 1975 Special Census 1980 Census 1985 Census 1990 Census 1995 Census 2000 Census 2002 Est. 6/30/02 2003 Est. 6/30/03 Table XXIII June 25, 1951 November 16, 1961 Council/Manager 2,032 10,026 54,504 67,823 78,065 88,412 108,447 130,069 168,176 202,705 215,320 218,940 Area (Square Miles) 1951 .62 1961 8.80 1970 62.20 1975 85.80 1979 88.60 1982 113.60 1986 183.60 1987 184.00 1988 184.60 1990 184.60 2000 184.60 2001 184.60 2002 184.60 2003 184.60 Miles of Sewers Storm ........................................................................................................................................................ 68.7 Sanitary................................................................................................................................................... 1,262 Fire Protection Number of Stations ..................................................................................................................................... 12 The City of Scottsdale has no fire employees but contracts with Rural/Metro Corporation to provide fire service to all residents. Police Protection Number of Employees .............................................................................................................................. 605 Number of Traffic Charges (Excluding parking and Criminal) ............................................................ 40,672 Number of Photo Radar Citations (Began Photo Radar in Jan. 1997) ............................................... 21,809 Number of Vehicles................................................................................................................................... 295 The City jail is a holding facility. All long-term prisoners are incarcerated in the County jail. Recreation Parks - Developed parks acreage ............................................................................................................ 869 Number of Swimming Pools ......................................................................................................................... 3 Number of Other Recreation Facilities ....................................................................................................... 60 These include schools and school playgrounds in cooperation with Scottsdale Unified School District and Paradise Valley School District. Water Enterprise Number of Water Customers............................................................................................................... 81,285 Annual Consumption (Gallons).............................................................................................. 25,200,000,000 System Capacity (Gallons Per Day) ........................................................................................... 149,618,000 Miles of Distribution Lines ...................................................................................................................... 1,815 Number of Streetlights ............................................................................................................................. 10,300 Employees as of June 30, 2003 Full-Time................................................................................................................................................. 1,839 Part-Time................................................................................................................................................... 374 Grant and Trust funded – (# is included in full/part-time totals) ................................................................. 20 Total .................................................................................................................................................... 2,213 Elections Number of registered voters as of last general election, May 2002.................................................. 110,664 % of registered voters voting in last general election ......................................................................... 16.63% Population Median Age of Residents ......................................................................................................................... 42.1 Median Household Income (2000 Special Census) .......................................................................... $63,800 Median Home Value - Single Family ............................................................................................... $220,800 Source: City of Scottsdale Financial Services Department 146 City of Scottsdale, Arizona