City of Scottsdale, Arizona Comprehensive Annual Financial Report for the fiscal year ended June 30, 2005 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, 2005 Table of Contents Page INTRODUCTORY SECTION Letter of Transmittal – Chief Financial Officer, Financial Services ........................................................ 1 Certificate of Achievement - Government Finance Officers Association .............................................. 5 Organizational Chart/List of Principal Officials .......................................................................................... 6 FINANCIAL SECTION Independent Auditors’ Report ............................................................................................................................ 9 Management’s Discussion and Analysis ......................................................................................................... 11 Basic Financial Statements: Government-wide Financial Statements: Statement of Net Assets. ....................................................................................................................... 30 Statement of Activities ........................................................................................................................... 31 Fund Financial Statements Balance Sheet - Governmental Funds ................................................................................................ 32 Reconciliation of the Governmental Funds Balance Sheet to the Statement of Net Assets ........................................................................................................................................ 34 Statement of Revenues, Expenditures, and Changes in Fund Balances – Governmental Funds .......................................................................................................................... 35 Reconciliation of the Statement of Revenues, Expenditures, and Changes in Fund Balances of Governmental Funds to the Statement of Activities ............................... 37 Statement of Revenues, Expenditures, and Changes in Fund Balances – Budget and Actual - General Fund ................................................................................................. 38 Statement of Net Assets - Proprietary Funds .................................................................................. 40 Statement of Revenues, Expenses, and Changes in Fund Net Assets – Proprietary Funds ................................................................................................................................ 42 Statement of Cash Flows - Proprietary Funds ................................................................................. 43 Statement of Fiduciary Net Assets - Fiduciary Funds ................................................................... 45 Statement of Changes in Fiduciary Net Assets - Fiduciary Funds ............................................. 46 Notes to the Financial Statements ................................................................................................................... 47 I Summary of Significant Accounting Policies ................................................................................... 47 II Reconciliation of Government-wide and Fund Financial Statements ....................................... 51 III Stewardship, Compliance and Accountability ................................................................................... 57 IV Detailed Notes on All Funds ................................................................................................................ 60 A. Cash and Investments ............................................................................................................ 60 B. Receivables ................................................................................................................................ 62 C. Capital Assets ........................................................................................................................... 63 D. Interfund Balances and Interfund Transfers .................................................................... 66 E. Operating Leases ..................................................................................................................... 67 F. Bonds, Loans, Capital Leases and Other Payables .......................................................... 68 Page V Other Information ................................................................................................................................... 81 A. Risk Management ..................................................................................................................... 81 B. Contingent Liabilities .............................................................................................................. 81 C. Commitments and Subsequent Events ............................................................................... 81 D. Joint Venture ............................................................................................................................. 82 E. Related Organization ................................................................................................................ 82 F. Retirement and Pension Plans ............................................................................................... 83 G. Other Post-Employment Benefits ........................................................................................ 84 Required Supplementary Information: Schedule of Funding Progress – Public Safety Personnel Retirement System ................................ 85 Combining and Individual Fund Statements and Schedules: Combining Balance Sheet - Nonmajor Governmental Funds .............................................................. 89 Combining Statement of Revenues, Expenditures, and Changes in Fund Balances - Nonmajor Governmental Funds .......................................................................... 90 Combining Balance Sheet - Nonmajor Special Revenue Governmental Funds ............................... 92 Combining Statement of Revenues, Expenditures, and Changes in Fund Balances - Nonmajor Special Revenue Governmental Funds ........................................... 93 Schedule of Revenues, Expenditures, and Changes in Fund Balances – Budget and Actual: Highway User Fuel Tax – Special Revenue Fund ............................................................................ 94 Preserve Privilege Tax – Special Revenue Fund .............................................................................. 95 Transportation Privilege Tax – Special Revenue Fund .................................................................. 96 Combining Balance Sheet - Nonmajor Debt Service Governmental Funds .................................... 97 Combining Statement of Revenues, Expenditures, and Changes in Fund Balances - Nonmajor Debt Service Governmental Funds ................................................. 98 Schedule of Revenues, Expenditures, and Changes in Fund Balances – Budget and Actual: General Obligation Bond – Debt Service Fund .............................................................................. 99 Municipal Property Corporation Bond – Debt Service Fund ....................................................100 Special Assessments Bond – Debt Service Fund ..........................................................................101 Scottsdale Preserve Authority Bond – Debt Service Fund .........................................................102 Combining Balance Sheet - Nonmajor Capital Projects Governmental Funds .............................103 Combining Statement of Revenues, Expenditures, and Changes in Fund Balances - Nonmajor Capital Projects Governmental Funds ..........................................104 Schedule of Revenues and Expenses – Budget and Actual: Water and Sewer Utility – Enterprise Fund ....................................................................................105 Airport – Enterprise Fund ..................................................................................................................107 Solid Waste – Enterprise Fund ...........................................................................................................108 Combining Statement of Net Assets - Internal Service Funds ..........................................................110 Combining Statement of Revenues, Expenses and Changes in Fund Net Assets – Internal Service Funds .....................................................................................111 Combining Statement of Cash Flows - Internal Service Funds ........................................................112 Combining Statement of Fiduciary Net Assets .....................................................................................114 Combining Statement of Changes in Fiduciary Net Assets ................................................................115 Combining Statement of Changes in Assets and Liabilities – Fiduciary Funds ............................116 Other Supplementary Information: Schedule of Changes in Long-Term Debt ...................................................................................................118 STATISTICAL SECTION Page Financial Trends Net Assets by Component – Last Four Fiscal Years (accrual basis of accounting) .....................122 Changes in Net Assets – Last Four Fiscal Years (accrual basis of accounting) ............................123 Governmental Activities Tax Revenue by Source – Last Four Fiscal Years (accrual basis of accounting) ................................................................................................................126 Fund Balances of Governmental Funds – Last Four Fiscal Years (modified accrual basis of accounting) ..............................................................................................127 Changes in Fund Balances of Governmental Funds – Last Four Fiscal Years (modified accrual basis of accounting) ..............................................................................................128 Governmental Activities Tax Revenue by Source – Last Four Fiscal Years (modified accrual basis of accounting) ..............................................................................................131 Revenue Capacity Property Tax Rates – Direct and Overlapping Governments – Last Four Fiscal Years .............132 Principal Property Tax Payers – June 30, 2005 .....................................................................................133 Assessed Value and Estimated Actual Value of Taxable Property – Last Four Fiscal Years .............................................................................................................................134 Property Tax Levies and Collections – Last Four Fiscal Years .........................................................135 Debt Capacity Ratios of Outstanding Debt by Type – Last Four Fiscal Years ........................................................136 Ratios of General Bonded Debt Outstanding – Last Four Fiscal Years ........................................137 Direct and Overlapping Governmental Activities Debt as of June 30, 2005 ................................138 Legal Debt Margin Information – Last Four Fiscal Years .................................................................139 Pledged-Revenue Coverage – Last Four Fiscal Years ..........................................................................141 Economic and Demographic Information Demographic and Economic Statistics – Last Four Fiscal Years .....................................................142 Principal Employers – Current Year and Nine Years Ago .................................................................143 Operating Information Full-time Equivalent City Government Employees by Function – Last Four Fiscal Years .......144 Operating Indicators by Function – Last Four Fiscal Years ..............................................................145 Capital Asset Statistics by Function – Last Four Fiscal Years ...........................................................148 Table of Contents September 9, 2005 To the Honorable Mayor, Members of the City Council, and Citizens of the City of Scottsdale, Arizona: Transmittal Letter For the Fiscal Year Ended June 30, 2005 City of Scottsdale Scottsdale, Arizona The Comprehensive Annual Financial Report of the City of Scottsdale, Arizona, (the City) for the fiscal year ended June 30, 2005, is submitted in accordance with Article 6, Section 14, of the City Charter. Management assumes full responsibility for the completeness and reliability of all information presented in this report, based upon a comprehensive framework of internal control that it established for this purpose. Because the cost of internal controls should not outweigh their anticipated benefits, the objective is to provide reasonable rather than absolute assurance that the financial statements are free of any material misstatements. Cronstrom, Trbovich & Osuch, PC, have issued an unqualified (“clean”) opinion on the City of Scottsdale, Arizona’s financial statements for the year ended June 30, 2005. The independent auditor’s report is located at the front of the financial section of this report. Management’s discussion and analysis (MD&A) immediately follows the independent auditor’s report and provides a narrative introduction, overview and analysis of the basic financial statements. MD&A complements this letter of transmittal and should be read in conjunction with it. City of Scottsdale Profile Scottsdale is centrally located in Maricopa County, Arizona, with its boundaries encompassing an area approximately 185.2 square miles. Lying at an elevation of 1,260 feet above sea level, the City averages 322 days of sunshine and 7.74 inches of rainfall per year, with the average minimum and maximum temperatures ranging from 56.2 degrees to 86.3 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 metropolitan Phoenix 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 1990 census reporting 130,069, and the 2000 census reporting 202,705. The City’s population was estimated at 221,130 for July 2005. City of Scottsdale, Arizona 1 Table of Contents 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 nonpartisan 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 City’s various 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. 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 FY 2004/05, 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. Local Economy The City of Scottsdale has benefited from the recent national and state economic resurgences, especially pertaining to growth in retail sales, tourism, and construction activities. The City also continues to benefit from other favorable conditions associated with Scottsdale, including a stable, diversified economic base 2 and a desirable location for work, destination, and living. Low commercial vacancy rates, current low mortgage interest rates, and the attractive developments within Scottsdale continue to bring high-end residential growth and commercial development. Commercial successes 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; high-end resorts and hotels, and business and professional services. The following categories represent key factors affecting Scottsdale’s economic and financial success: Retail Sales Scottsdale’s largest revenue source is sales tax generated from a well-balanced variety of business categories including automotive, construction, food stores, hotels/motels, department stores, retail stores, restaurants, utilities and rentals. The City saw the return of double-digit growth in sales tax revenues in FY 2004/05 with a 10.5 percent increase over the prior year’s 6.7 percent gain – positive indication that the local economic recovery is well underway. Factors contributing to a brighter economic outlook for retailers included rising consumer confidence, continued low interest rates, a red-hot housing market, increased factory orders and productivity, and the return of worker pay raises and bonuses. 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 unemployment rate was lower than state and metropolitan levels and was approximately 2.9 percent in June 2005. Job Growth The City of Scottsdale recruited six new, targeted firms and secured three expansions resulting in over 1,440 new jobs in FY 2004/05 with an average annual salary of $48,000. The City benefited from population growth as well as higher income levels due to the addition of higher wage jobs. Major new employers to announce moves to Scottsdale in FY 2004/05 included Pulte Homes, V Commerce, Abbot Labs, and Piper Jaffrey. The City also benefited from the expansions of DHL, Vanguard, and Dollar Days International. City of Scottsdale, Arizona Table of Contents Vacancy Rates Scottsdale’s citywide office vacancy rate was 16.6 percent at the end of FY 2004/05, which was below the Valley-wide average. Scottsdale’s weighted average rent was 12.9 percent higher than the Valley-wide average, evidence that Scottsdale remains an attractive city to conduct business. The forecasted vacancy rate for FY 2005/06 indicates improvement, in line with a more positive economic outlook. Tourism Tourism is one of Scottsdale’s largest industries and is a significant contributor to the City’s economy. Numerous resort and convention facilities, along with many hotels and motels, provide nearly 10,000 guest rooms, along with many public and private golf courses and tennis courts, and several country clubs. The number of rooms is expected to remain stable through 2006. More than 17,000 retail shops, boutiques, and galleries are located throughout the City and a selection of almost 600 restaurants is available. These services and facilities, complemented by the mild winter, have made Scottsdale a popular vacation spot for tourists and winter visitors. Hotel/motel transient occupancy tax receipts increased approximately 9.8 percent in FY 2004/05 over the previous year – the second straight year of solid revenue growth after anemic post 9/11 levels. The current assessment for FY 2005/06 is that tourism will continue to experience positive gains, reflected by continued increases in occupancy and room rates. However, hotel room rates remain relatively low compared to historic levels as hoteliers offer discounts to spur demand. Therefore, while the long-term outlook for local tourism remains optimistic, slower hotel occupancy tax growth is expected relative to historic 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. Fiscal conservatism, a streamlined budget, and operating efficiencies have resulted in a solid financial position for the City at the close of FY 2004/05. The Mayor and City Council have co-created a mission statement as well as seven 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. Approval by Council of these Mission and Goal statements allows 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 FY 2004/05 Adopted Budget and Five-Year Balanced Financial Plan continued to City of Scottsdale, Arizona 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. 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, Scottsdale’s financial forecast includes modest revenue growth, potential for State reductions of revenue sharing due to population shifts, and continued increases in demand for City ser vices 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. • Financial Resource Planning Strategic financial planning begins with determining the City’s fiscal capacity based upon long-term financial forecasts of recurring available revenues. Financial forecasts coupled with financial trend analysis techniques and careful reserve analysis help preserve the fiscal wellbeing of Scottsdale. Strategic financial capacity planning is a critical element to reach long-term financial stability goals and to determine special financial needs for critical objectives of the City Council. • Multi-Year Budget Planning Multi-year budget planning encompasses long-range operating expenditure plans (including the operating impacts of planned capital projects), which are linked to community expectations and broad goals of the City Council. The multi-year approach provides a better opportunity for staff to change its financial paradigm from what do we need this year to how do we accomplish our service objectives over time, given our financial capacity. While the City is required to adopt an annual budget to meet State statutory requirements, Scottsdale builds a financial plan for the next five years to help anticipate future impacts and ensure achievement of City objectives. • Strategic Capital Improvement Project Planning Scottsdale Capital Improvement Projects are planned for five or more years and analyzed using City specific prioritization criteria. The operating cost impacts of projects are also planned and 3 Table of Contents 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. Payas-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. • Debt Management Scottsdale has a financial policy, which prohibits the issuance of debt for operating expenses. With that as a governing framework, all debt issuances are for the purposes of financing capital infrastructure (or long-lived costly assets). Each debt issuance is evaluated against multiple additional policies addressing: debt service as a percent of operating expenditures, tax and revenue bases for the repayment of debt, the overall debt burden on the community, statutory limitations and market factors affecting tax-exempt interest costs. In all cases a long-term analysis is made considering the financial (debt) capacity that fits the wherewithal (and willingness) of our community to pay for the capital projects. The annual debt service operating cost for each additional $1 million dollars in new debt ranges from $75,000 to $80,000, based on a current interest rate of 4.5 percent when amortized over 20 years. Sizing of the City’s Capital Improvement Project Plan based on debt capacity in conjunction with conservatively estimated pay-as-you-go revenues will help stabilize per capita debt and lower annual debt service costs to the City over the longterm. Major Initiatives The City of Scottsdale’s FY 2005/06 budget reflects continuing strength in the City’s economy, reinforced by positive trends at the state and national levels. Modest improvements projected in the City’s revenues, combined with savings carried over from FY 2004/05, will allow Scottsdale to balance its budget, meet its most pressing needs and fund the City’s highest priorities for FY 2005/ 06. These needs include a new municipal fire department, additional police officers, added operating costs related to the opening of new City facilities, a continued focus on code enforcement and property maintenance in the mature portions of the City, and continued emphasis on economic vitality and revitalization. 4 Awards and Acknowledgements The Government Finance Officers Association of the United States and Canada (GFOA) awarded a Certificate of Achievement for Excellence in Financial Reporting to the City of Scottsdale for its Comprehensive Annual Financial Report (CAFR) for the fiscal year ended June 30, 2004. This was the 32nd consecutive year that the government 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. This report must satisfy both generally accepted accounting principles and applicable legal requirements. A Certificate of Achievement is valid for a period of one year only. We believe that our current CAFR continues to meet the Certificate of Achievement Program’s requirements and we are submitting it to the GFOA to determine its eligibility for another certificate. The City of Scottsdale received the Distinguished Budget Presentation Award for the fiscal year beginning July 1, 2004 from the GFOA for our conformity in budget presentation, with special recognition in the areas of performance measures and capital budgeting. 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, 2005. In addition, credit ratings of “AAA”, “Aaa”, and “AAA” from the three major credit rating agencies, Fitch Ratings, Moody’s Investors Service, and Standard and Poor’s Ratings Services, respectively, were re-affirmed on the City’s outstanding general obligation bonds. These are the highest possible ratings. 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 Chief Financial Officer City of Scottsdale, Arizona Table of Contents City of Scottsdale, Arizona 5 Table of Contents City of Scottsdale, Arizona List of Elected and Appointed Officials City Council Mary Manross, Mayor Robert W. Littlefield, Vice Mayor Betty Drake Wayne Ecton W.J. “Jim” Lane Ron McCullagh Kevin J. Osterman Charter Offices Comprehensive Annual Financial Report Deborah Robberson, Acting City Attorney Cheryl Barcala, City Auditor Carolyn Jagger, City Clerk B. Monte Morgan, City Judge Janet M. Dolan, City Treasurer For the Fiscal Year Ended June 30, 2005 Administrative Stafff City of Scottsdale Scottsdale, Arizona 6 Janet M. Dolan, City Manager Ed Gawf, Assistant City Manager Roger Klingler, Assistant City Manager Neal Shearer, Assistant City Manager City of Scottsdale, Arizona Table of Contents Citizens of Scottsdale City of Scottsdale, Arizona Mayor and City Council City Manager Citizens’ Advisory Boards Citizens’ Advisory Commissions Charter Offices Acting City Attorney - Deborah Robberson 480-312-2405 City Auditor - Cheryl Barcala 480-312-7867 City Clerk - Carolyn Jagger 480-312-2411 City Judge - B. Monte Morgan 480-312-2442 City Treasurer - Janet M. Dolan 480-312-2422 Janet M. Dolan 480-312-2422 Administrative Support Assistant City Manager Assistant City Manager Assistant City Manager Ed Gawf 480-312-4510 Roger Klingler 480-312-5830 Neal Shearer 480-312-2341 Executive Assistant Kroy Ekblaw 480-312-7064 Transportation The Downtown Planning & Citizen & Preservation Group Development Neighborhood Services Resources Mary O’Connor John C. Little Frank Gray Judy Register Bob Cafarella 480-312-2334 480-312-2539 480-312-2890 480-312-2454 480-312-2577 Administration Aviation * Transportation Planning * Transit * Traffic Engineering -Intelligent Transportation Systems Administration McDowell Customer Downtown * Sonoran Services & Marketing & Customer Preserve Promotion Administration Service & * * * Communication Planning & Downtown Historic * Design Services Project Preservation Neighborhood * Planning & * Services Coordination Current Planning Environmental Services * Planning * Downtown Services Plan Review & Parking Program Permit Services/ One Stop Shop * * Cultural Inspection & Council Land Survey Contract Services Administration Police Fire Alan Rodbell 480-312-5310 William L. McDonald 480-312-1880 Office of the Chief * Uniformed Services * Special Programs * Investigative Services * Administrative Services * Personnel Development * Emergency Services Fire Administration * Fire Emergency Services * Fire Support Services * Emergency Management Economic Vitality Water Resources Municipal Services WestWorld Community Services Financial Services Information Systems Human Constituent & Communications Resources Intergovernmental and Public Relations Affairs Debra Baird Craig Clifford Brad Hartig Teri Traaen VACANT Pat Dodds 480-312-2480 480-312-2364 480-312-7615 480-312-7679 480-312-2423 480-312-2336 Dave Rodrique 480-312-7601 David Mansfield Al Dreska Brad Gessner 480-312-5681 480-312-5555 480-312-6825 Economic Development * Tourism * Revitalization * Business Services Administration Operations & Administration Administration IS Support Water * * * Resources * Facilities Capital Parks & Administration Accounting Application Dev. Management Project * Recreation Integration, * * Management Water * Mgt. & Support Budget Events * Operations Human * * Management Solid Services * Technology Risk Waste * Water Management Infrastructure Management Library Implem. Quality * * Systems & Support * Purchasing Field * * Water * Services Parks & Ground GIS Treatment Customer * Management Data Services Service Fleet * * Management Facilities Project Office * Management * Stormwater Departmental Management Support Administration * Human Resources * Learning & Organization Development * Diversity & Dialogue Federal Relations * State Relations * Regional Relations Public Relations * Media Relations * CityCable 11 July 2005 7 Table of Contents 8 City of Scottsdale, Arizona Table of Contents 9 For the Fiscal Year Ended June 30, 2005 Management’s Discussion and Analysis Table of Contents 10 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, 2005 and 2004. We encourage readers to consider the information presented here in conjunction with additional information that we have furnished in our letter of transmittal and the basic financial statements. FINANCIAL HIGHLIGHTS Management’s Discussion and Analysis ANAGEMENT’S DISCUSSION AND ANALYSIS For the Fiscal Year Ended June 30, 2005 M Key Financial highlights for fiscal year 2005 are as follows: • The assets of the City exceeded its liabilities at the close of the fiscal years 2005 and 2004 by $2.9 billion and $2.8 billion (net assets), respectively. Of these amounts, $430.8 million and $399.4 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 $119.3 million and $179.3 million during fiscal years 2005 and 2004, respectively. • As of June 30, 2005 and 2004, the City’s governmental funds reported combined ending fund balances of $264.8 million and $317.5 million, respectively. The decrease is primarily due to significant land purchases during fiscal year 2005. Approximately 95.7 percent of the fund balance at June 30, 2005, $253.3 million, is unreserved fund balance available for spending at the government’s discretion, compared to $306.3 million at June 30, 2004. However, in fiscal year 2005 management has designated $29.9 million of the unreserved fund balance for various uses and $148.6 million is for capital projects. • At the close of the current fiscal year, unreserved fund balance for the General Fund was $72.8 million or 38.6 percent of total General Fund expenditures of $188.4 million. At the close of fiscal year 2004, unreserved fund balance for the General Fund was $59.7 million or 34.3 percent of total General Fund expenditures of $174.2 million. • During fiscal years 2005 and 2004, the City’s total bonded debt increased by approximately $27.0 million and $111.6 million, respectively. Although the City reduced several bond payable balances, the key contributors to the increase were the issuance of new Municipal Property Corporation bonds in the amount of $60.7 million and Certificates of Participation in the amount of $7.7 million during fiscal year 2005. City of Scottsdale, Arizona 11 For the Fiscal Year Ended June 30, 2005 Management’s Discussion and Analysis Table of Contents OVERVIEW OF THE FINANCIAL STATEMENTS This discussion and analysis is intended to serve as an introduction to the City’s basic financial statements. The City’s basic financial statements 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 and the statement of activities provide information about the whole City, presenting both an aggregate view of the City’s finances and a longer-term view of those assets. Major fund financial statements provide the next level of detail. For governmental funds, these statements reflect how services were financed in the short term as well as what dollars remain for future spending. The fund financial statement also displays the City’s most significant funds with all other major funds presented in total in one column. 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. 12 City of Scottsdale, Arizona Table of Contents 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 the 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. Separate financial statements of the MPC, SPA and the 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 30 and 31 of this report. City of Scottsdale, Arizona 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 g over nment-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 Both of the g over nment-wide financial statements distinguish functions of the City that are principally suppor ted by taxes and interg overnmental revenues (g overnmental 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, citizen and neighborhood resources, human resources and economic vitality. The business-type activities of the City include water, sewer, solid waste, and airport operations. Fund Financial Statements A fund is a grouping of related accounts that is used to maintain control over resources that have been seg reg ated 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, 2005 T he 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. 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 infor mation 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. T he 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, General Capital Improvement Plan (CIP) Construction Capital Projects Fund and the Preserve Privilege Tax Capital Project Fund which are considered to be major funds. Data from the remaining governmental funds are 13 For the Fiscal Year Ended June 30, 2005 Management’s Discussion and Analysis Table of Contents combined into a single, aggregated presentation. Individual fund data for each of the non-major governmental funds is provided in the form of combining statements in a separate section of this report. The basic governmental fund financial statements begin on page 32 of this report. Proprietary Funds Proprietary Funds are generally used to account for ser vices for which the City charg es customers–either outside customers, or internal units or departments of the City. Proprietary Funds provide the same type of information as shown in the g over nment-wide financial statements, only in more detail. T he 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, Solid Waste and Airport operations of the City. 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 business-type 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 in a separate section of this report. The basic Proprietary Fund financial statements begin on page 40 of 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 Fiduciar y Funds. Fiduciar y Funds are not reflected in the government-wide financial statement because the resources of those funds are not available to support the City’s own 14 programs. The accounting used for Fiduciary Funds is much like that used for Proprietary Funds. The basic Fiduciary Fund financial statements begin on page 45 of this report. 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. The notes can be found beginning on page 47 of this report. 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. This information can be found on page 85 of this report. 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 While this document contains information about the funds used by the City to provide services to our citizens, the Statement of Net Assets and the Statement of Activities serve to provide an answer to the question of how the City, as a whole, did financially throughout the year. These statements include all assets and liabilities using the accrual basis of accounting similar to the accounting used by the private sector. The basis for this accounting takes into account all of the current year’s revenues and expenses regardless of when the cash is received or paid. These two statements report the City’s net assets and the changes in those assets. The change in assets is important because it tells the reader whether the financial position of the City as a City of Scottsdale, Arizona Table of Contents Net Assets For the Years Ended June 30, 2005 and 2004 (in thousands of dollars) Governmental Business-Type Activities 2005 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 $ Activities 2004 2005 Total 2004 2005 2004 415,801 $ 436,905 $ 282,528 $ 324,954 $ 698,329 $ 761,859 2,237,825 2,090,682 912,642 820,530 3,150,467 2,911,212 2,653,626 2,527,587 1,195,170 1,145,484 3,848,796 3,673,071 608,392 96,890 705,282 568,936 83,381 652,317 1,657,747 1,548,486 72,795 199,767 217,802 127,017 $ 1,948,344 $ 1,875,270 $ 163,570 38,738 202,308 168,710 30,150 198,860 771,962 135,628 907,590 737,646 113,531 851,177 756,433 23,472 212,957 992,862 $ 653,351 2,414,180 2,201,837 20,842 96,267 220,609 272,431 430,759 399,448 946,624 $ 2,941,206 $ 2,821,894 Management’s Discussion and 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 $2.9 billion and $2.8 billion at the close of the fiscal years 2005 and 2004, respectively. For the Fiscal Year Ended June 30, 2005 whole has improved or diminished. However, in evaluating the overall position of the City, nonfinancial information such as changes in the City’s tax base and the condition of the City’s capital assets will also need to be evaluated. The largest portion of the City’s net assets reflects its investment in capital assets (e.g. land, buildings, and equipment) of $2.4 billion (82.1 percent) and $2.2 billion (78.0 percent), less any related outstanding debt used to acquire those assets, for the fiscal years 2005 and 2004, respectively. Although the City’s investment in its capital assets is reported net of related debt, the resources needed to repay this debt must be provided from other sources because the City uses these assets to provide services to citizens and; therefore, cannot liquidate them. An additional portion of the City’s net assets, $96.3 million (3.3 percent) for fiscal year 2005 and $220.6 million (7.8 percent) for fiscal year 2004 represent resources that are subject to external restrictions on how they may be used. The remaining balance of unrestricted net assets for fiscal years 2005 and 2004, $430.8 million (14.6 percent) and $399.4 million (14.2 percent), respectively, may be used to meet the government’s ongoing obligations to citizens and creditors. 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 15 For the Fiscal Year Ended June 30, 2005 Management’s Discussion and Analysis Table of Contents Analysis of Changes in Net Assets The City’s total net assets increased by $119.3 million and $179.3 million during the fiscal years 2005 and 2004, 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, 2005 and 2004 (in thousands of dollars) Governmental Activities 2005 2004 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 Special Item - Defeasance of Debt Transfers Increase in Net Assets Net Assets at Beginning of Year Net Assets at End of Year $ 46,720 $ 26,865 73,092 Business-Type Activities 2005 2004 Total 2005 2004 41,575 $ 24,508 105,794 120,261 $ 38,313 115,624 $ 71,709 166,981 $ 26,865 111,405 157,199 24,508 177,503 48,416 168,909 48,346 6,765 4,941 424,054 46,371 136,668 45,163 2,655 6,981 409,715 4,288 821 163,683 973 699 189,005 48,416 168,909 48,346 11,053 5,762 587,737 46,371 136,668 45,163 3,628 7,680 598,720 30,943 63,076 8,315 85,835 57,519 7,941 28,620 16,520 3,496 3,333 8,026 12,522 1,094 32,466 359,706 23,839 60,027 7,655 78,373 55,087 11,135 19,570 13,024 2,812 3,462 6,130 11,697 1,024 28,028 321,863 59,723 28,324 3,346 15,508 106,901 51,095 24,678 2,622 15,153 93,548 30,943 63,076 8,315 85,835 57,519 7,941 28,620 16,520 3,496 3,333 8,026 12,522 1,094 32,466 59,723 28,324 3,346 15,508 466,607 23,839 60,027 7,655 78,373 55,087 11,135 19,570 13,024 2,812 3,462 6,130 11,697 1,024 28,028 51,095 24,678 2,622 15,153 415,411 64,348 87,852 (841) (240) (3,964) 9,567 11,037 73,074 94,685 1,875,270 1,780,585 $ 1,948,344 $ 1,875,270 $ 56,782 (977) (9,567) 46,238 946,624 992,862 $ 95,457 121,130 183,309 206 (1,818) (34) (3,964) (11,037) 84,626 119,312 179,311 861,998 2,821,894 2,642,583 946,624 $ 2,941,206 $ 2,821,894 Governmental activities. Governmental activities increased the City’s net assets by $73.1 million in fiscal year 2005 and $94.7 million in fiscal year 2004, thereby accounting for 61.3 percent and 52.8 percent, respectively, of the total growth in the net assets of the City. The key factor of this increase is as follows: • For the second year in a row, City sales tax posted a year-over-year growth in the 2005 fiscal year resulting in an increase of 23.6 percent. Two new sales taxes were approved in May 2004 resulting in an additional 0.2 percent in Preserve Privilege Tax and 0.15 percent in Public Safety Tax. Although the property tax rates decreased in both fiscal years 2005 and 2004 property tax revenues rose 4.4 percent and 9.8 percent, respectively, over the previous years due to increases in assessed valuation. 16 City of Scottsdale, Arizona Table of Contents 60,000 50,000 Revenues Expenses 40,000 30,000 20,000 10,000 Interes t on Long-term Debt S treetlight and S ervices Dis tricts P lanning and Development E conomic Vitality Human R es ources C itizen & Neighborhood R es ources Municipal S ervices F ire Information S ys tems C ommunity S ervices T rans portation F inancial S ervices P olice G eneral G overnment - Management’s Discussion and Analysis City of Scottsdale Program Revenues and Expenses Governmental Activities Fiscal Year 2004/2005 (in thousands of dollars) 70,000 For the Fiscal Year Ended June 30, 2005 80,000 City of Scottsdale Revenues by Source Governmental Activities Fiscal Year 2004/2005 Interes t and inves tment inc ome 1.59% Other taxes 11.40% Other 1.16% Charges for s ervic es 11.02% Operating grants and c ontributions 6.34% Capital grants and c ontributions 17.24% B us ines s taxes 39.83% City of Scottsdale, Arizona Property taxes 11.42% 17 For the Fiscal Year Ended June 30, 2005 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 (23.9 percent), followed by police (17.5 percent), and community services (16.0 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, including Sales and Use Taxes and Franchise Taxes, are the largest single source of funds (39.8 percent), followed by capital grants and contributions (17.2 percent), and property taxes (11.4 percent). The Transportation department ensures that Scottsdale neighborhoods, businesses and visitors are provided an accessible, environmentally sensitive, safe and efficient transportation system. Projects and operations for street, transit and non-motorized travel are developed in cooperation with the public and promote economic sustainability for the community, preserves and enhances neighborhood quality of life and ensures seamless connections to the regional network. The Scottsdale Police Department, in partnership with the citizens of Scottsdale, recognizes the changing needs of our community and law enforcement’s role in addressing those needs. Furthermore, they pledge excellence, initiative and integrity to enhance the quality of life throughout our City knowing those they serve deserve no less. The City’s Community Services Department improves and preserves Scottsdale’s quality of life through development of safe and highly maintained facilities and imaginative services that provide opportunities for family interaction, cultural enrichment, and development of lifetime skills which build self-esteem, promote healthy lifestyles and are a catalyst for community involvement. They provide assistance and guidance to those in need and link our citizens with information and resources throughout the world. Business-Type activities. Business-type activities increased the City’s net assets in fiscal years 2005 and 2004 by $46.2 million and $84.6 million, respectively, accounting for 38.7 percent and 47.2 percent, respectively, of the total growth in the City’s net assets. The key factor of this increase is as follows: • The Water and Sewer Utility Fund had capital contributions from developers and grantors resulting in $35.9 million and $70.9 million in revenue for fiscal years 2005 and 2004, respectively. The majority of this amount is from infrastructure donated from developers and development fees received as development continues throughout the City. City of Scottsdale Expenses and Program Revenues Business-type Activities Fiscal Year 2004/2005 (in millions of dollars) 120,000 100,000 80,000 Program Revenues Expenses 60,000 40,000 20,000 Water Utility Sewer Utility 18 Airport Solid Waste City of Scottsdale, Arizona Table of Contents Interes t and inves tment income 2.62% Other Income 0.50% Charges for s ervices 73.47% 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 of $59.7 million and $28.3 million, respectively, in fiscal year 2005, followed by Solid Waste with operating expenses of $15.5 million. For the fiscal year, revenues exceeded expenses in all four areas of business activity. Revenues exceed expenditures due to multiyear financial planning and pay-as-you-go contributions to capital projects. Charges for services provided the largest share of revenues (73.5 percent) followed by capital grants and contributions (23.4 percent), which are largely developer contributions and development fees, for all of the business-type activities. Management’s Discussion and Analysis Capital grants and contributions 23.41% For the Fiscal Year Ended June 30, 2005 City of Scottsdale Revenues by Source Business Type Activities Fiscal Year 2004/05 The City’s Water Resources Department plans, manages and operates a safe, reliable water supply and wastewater reclamation system and provides efficient, high quality customer service to Scottsdale citizens. The Solid Waste Department provides effective and responsive leadership that ensures the delivery of safe, efficient and environmentally sound solid waste services to approximately 73,000 residential customers and 1,400 commercial and roll-off customers. 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 Funds are created and segregated for the purpose of carrying on specific activities or attaining certain objectives in accordance with special regulations, restrictions, or limitations. An activity not required to be reported in a separate fund is included in the general fund. Governmental funds are used to account for tax-supported activities. 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. These funds are accounted for by using the modified accrual basis of accounting. Types of governmental funds reported by the City include the General Fund, Special Revenue Funds, Debt Service Funds, and Capital Project Funds. City of Scottsdale, Arizona 19 For the Fiscal Year Ended June 30, 2005 Management’s Discussion and Analysis Table of Contents As of the end of the current fiscal year, the City’s governmental funds reported combined ending fund balances of $264.8 million, a decrease of $52.7 million in comparison to the combined ending fund balances for fiscal year 2004 of $317.5 million. The decrease in the current year’s fund balance is primarily due to land purchases during fiscal year 2005. Approximately $253.3 million of the total for fiscal year 2005 and $306.3 million of the total for fiscal year 2004 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 ($10.6 million and $9.1 million for fiscal years 2005 and 2004, respectively); (2) for the repayment of a long-term loan from another fund (all amounts were repaid in 2005, but $1.3 million was reserved for this purpose in fiscal year 2004) or; (3) to pay for the ongoing cost of the streetlight and services districts ($872,000 and $891,000 for fiscal years 2005 and 2004, respectively). Revenues for governmental functions overall totaled approximately $363.0 million in fiscal year 2005, an increase of 18.2 percent ($55.9 million) over the previous year total of $307.1 million. In fiscal year 2005 expenditures for governmental functions, totaled $494.2 million, an increase of 46.3 percent ($156.5 million) over the fiscal year 2004 total of $337.7 million. In the fiscal years ended June 30, 2005 and 2004 expenditures for governmental functions exceeded revenues by approximately $131.2 million (36.1 percent) and $30.6 million (10.0 percent), respectively. The excess in both years was due to the City financing some capital projects with debt proceeds received in prior years and reflected in beginning fund balance. Increases in the excess from 2004 to 2005 were mainly due to land purchases by the City in fiscal year 2005. 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 $72.8 million, while total fund balance was $73.6 million. The unreserved and total balances for the General Fund at the end of fiscal year 2004 were $59.7 million and $61.9 million, 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 38.6 percent of the total General Fund expenditures of $188.4 million in fiscal year 2005 and 34.3 percent of the total General Fund expenditures of $174.2 million in fiscal year 2004. The total fund balance represents 39.1 percent and 35.5 percent of total fund expenditures for fiscal years 2005 and 2004, respectively. In fiscal year 2005 management has designated $29.9 million of the General Fund unreserved fund balance for various uses. See note section III.D in the Notes to the Financial Statements for further information regarding reservations and designations. For the first time in three years the fund balance in the City’s General Fund increased. The increase in fiscal year 2005 by $11.8 million is mainly due to a brighter economic outlook and rising consumer confidence that resulted in increased sales tax revenues for the City. Overall, the General Fund’s performance resulted in revenues over expenditures in the fiscal year ended June 30, 2005, of $49.1 million, an increase of 44.1 percent over the comparable figure from the prior year of $34.1 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 $5.6 million, an increase of $2.1 million from the $3.5 million at the end of fiscal year 2004. The General CIP Construction Capital Project fund accounts for the resources used to acquire, 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 $113.6 million, compared to a fund balance of $88.9 million at the end of fiscal year 2004. 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 and debt proceeds. Capital improvement expenditures in 2005 and 2004 were $115.6 million and $25.0 million, respectively, an increase of $90.6 million, which is explained in greater detail in the Capital Assets section of this report. 20 City of Scottsdale, Arizona Table of Contents At the end of the fiscal years 2005 and 2004, the unrestricted net assets for the Water and Sewer Utility were $204.3 million and $265.4 million, respectively; Scottsdale Airport were $2.1 million and $1.2 million, respectively; and the Solid Waste Utility Fund were $6.6 million and $5.8 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 $15.6 million, respectively. The total growth in net assets for the Enterprise Funds was $46.2 million and $84.6 million for fiscal years 2005 and 2004, 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 $43.8 million due to capital contributions of $35.9 million as well as increased revenues. 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 2005, the net assets of the Scottsdale Memorial Hospital Trust Fund totaled $19,000, representing a decrease of $345,000 in total net assets since June 30, 2004. The change is primarily related to increased expenses and completion of projects directly related to the redevelopment area. Changes to the other Fiduciary Funds were immaterial for the fiscal year. City of Scottsdale, Arizona Management’s Discussion and Analysis Proprietary Funds The City’s Proprietary Funds provide the same type of information found in the government-wide financial statements, but in more detail. For the Fiscal Year Ended June 30, 2005 The Preserve Privilege Tax Fund accounts for the resources used to acquire and improve land within the McDowell Sonoran Preserve. Resources are provided by the proceeds from the sale of bonds and the .15 percent Preserve Privilege Tax approved in May of 2004. In fiscal year 2005 the City acquired an additional 677 acres of land, totaling $60.8 million, for inclusion in the McDowell Sonoran Preserve. 21 For the Fiscal Year Ended June 30, 2005 Management’s Discussion and Analysis Table of Contents General Fund Budgetary Highlights 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. The City’s final budget differs from the original budget due to adjustments that were made during the fiscal year. In fiscal year 2005, there was a slight increase in expenditure budgets; however, the City maintained an excess of revenues over expenditures and did not exceed the total appropriations for the year. The majority of these changes were contingency transactions approved by the City Council and budgetary transfers to the Fleet Management Fund for vehicle adjustments. Net budget increases for expenditures by department totaled $190,000 and $434,000 for fiscal years 2005 and 2004, respectively. The net increase is defined as follows: $ 183,000 (800,000) (50,000) (31,000) 257,000 (53,000) (61,000) 745,000 General Government Police Community Services Information Systems Fire Citizen & Neighborhood Resources Human Resources Economic Vitality During the year, actual revenues and other resources exceeded budgetary estimates by $26.7 million compared to $18.9 million in fiscal year 2004. Capital Assets and Debt Administration Capital Assets The City’s capital assets for its governmental and business-type activities as of June 30, 2005 and 2004, amount to $3.2 billion and $2.9 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 2005 and 2004 was 8.2 percent as shown in the table below. Capital Assets, Net of Depreciation For the Years Ended June 30, 2005 and 2004 (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 22 Governmental Activities 2005 2004 $ 514,588 $ 413,520 Business-Type Activities 2005 2004 $ 24,065 $ 24,162 Total 2005 2004 $ 538,653 $ 437,682 136,185 135,751 10,146 10,757 146,331 146,508 1,417,799 1,433,989 - - 1,417,799 1,433,989 20,173 22,629 126,451 17,807 23,450 66,165 3,972 64,688 401,207 257,445 117 151,002 3,388 64,688 406,412 258,737 178 52,208 24,145 64,688 401,207 257,445 22,629 117 277,453 21,195 64,688 406,412 258,737 23,450 178 118,373 $ 2,237,825 $ 2,090,682 $ 912,642 $ 820,530 $ 3,150,467 $ 2,911,212 City of Scottsdale, Arizona Table of Contents Construction in progress on the Chaparral Water Treatment Plant – A multiple construction contract project accounting for total budgeted funds of approximately $83 million with total expenditures for the current fiscal year of $34 million. • The City’s water and sewer 5-year capital improvement plan includes significant cost impacts from “unfunded” federal water quality mandates for treatment of arsenic and disinfection byproduct requirements, in addition to plant and infrastructure expansion to accommodate growth. The most significant CIP cash expenditures, in addition to the Chaparral Water Treatment Plant noted above, forecasted in the 5-year plan include: Arsenic Mitigation Treatment ($21 million), the CAP Water Connection from Shea to McDonald ($9 million), the 91st Avenue Wastewater Treatment Plant expansion and improvements ($15 million), and the Water Reclamation Plant Phase 3 Expansion ($10 million). • The acquisition of an additional 677 acres of land, totaling $60.8 million, for inclusion in the McDowell Sonoran Preserve. • Construction continued on Scottsdale Road from Indian Bend to Gold Dust Road totaling $7.1 million in expenditures this year. • Costs associated with the City’s acquisition of a new fire department included expenditures related to enhanced fire service communications and transition costs in the amount of $3.2 million and $5.3 million, respectively. • The acquisition of a building for the new police/fire headquarters for $7.7 million. • The City purchased a 42 acre parcel of property, known as Los Arcos, at a cost of $41.8 million for the development of the ASU Scottsdale Center for New Technology and Innovation. Management’s Discussion and Analysis • For the Fiscal Year Ended June 30, 2005 Major capital asset events during the current fiscal year included the following: 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. City of Scottsdale, Arizona 23 For the Fiscal Year Ended June 30, 2005 Management’s Discussion and Analysis Table of Contents Debt Administration At the end of the fiscal years 2005 and 2004, the City had total long-term obligations outstanding of $766.6 million and $737.6 million, respectively. Of these amounts, $378.6 million and $400.2 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 $388.0 million and $337.4 million, respectively. Outstanding Debt For the Years Ended June 30, 2005 and 2004 (in thousands of dollars) General Obligation Bonds Revenue Bonds Municipal Property Corporation Bonds Scottsdale Preserve Authority Bonds Special Assessments Bonds Certificates of Participation Community Facilities Districts General Obligation Bonds Add Deferred Issuance Premiums Less Deferred Amounts on Refunding Total Bonds Payable Contracts Payable Capital Lease Compensated Absences Total Long-Term Liabilities $ $ Governmental Activities 2005 2004 372,070 $ 389,598 $ 5,815 8,475 61,253 4,850 83,385 85,980 6,340 8,755 7,650 - Business-Type Activities 2005 2004 6,515 $ 10,651 $ 65,735 68,365 79,430 83,365 - Total 2005 2004 378,585 $ 400,249 71,550 76,840 140,683 88,215 83,385 85,980 6,340 8,755 7,650 - 43,480 11,868 (11,693) 580,168 14,324 13,900 608,392 $ 6,059 (1,530) 156,209 1,971 158,180 $ 43,480 17,927 (13,223) 736,377 14,324 15,871 766,572 $ 44,950 8,741 (9,153) 542,196 13,702 13,038 568,936 $ 6,617 (1,819) 167,179 1,531 168,710 $ 44,950 15,358 (10,972) 709,375 13,702 14,569 737,646 During fiscal years 2005 and 2004, the City’s total bonded debt increased by approximately $27.0 million and $111.6 million, respectively. Although the City reduced several bond payable balances, the key contributors to the increase were the issuance of new Municipal Property Corporation bonds in the amount of $60.7 million and Certificates of Participation in the amount of $7.7 million during fiscal year 2005. 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, 2005 and 2004 is $195.8 million and $163.5 million, respectively, in the 6% capacity and $554.9 million and $475.3 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 XIVa in the statistical section of this report. The City’s ratings on uninsured General Obligation Bonds as provided above were affirmed by the Rating Agencies in February 2005 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 with the latest ratings shown in the schedule below. Additional information in the City’s long-term debt can be found in Section IV of the Notes to the Financial Statements. 24 City of Scottsdale, Arizona Table of Contents 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- Economic Factors and Next Year’s Budget and Rates The City of Scottsdale’s fiscal year 2006 budget reflects continuing strength in the City’s economy, reinforced by positive trends at the state and national levels. Modest improvements projected in the City’s revenues, combined with savings carried over from fiscal year 2005, will allow Scottsdale to balance its budget, meet its most pressing needs and fund the City’s highest priorities for fiscal year 2006. These needs include a new municipal fire department, additional police officers, added operating costs related to the opening of new City facilities, a continued focus on code enforcement and property maintenance in the mature portions of the City, and continued emphasis on economic vitality and revitalization. Management’s Discussion and Analysis 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 For the Fiscal Year Ended June 30, 2005 City of Scottsdale Bonded Debt Ratings As of June 30, 2005 With improved economic conditions, the City has an opportunity to address programs not funded in recent budgets. At the same time, the long-range financial outlook requires conservative focus only on the highest Council and citizen priorities. All areas of the City have pent-up demands and it is not possible to address them all. The revenue forecasts used in the budget are cautiously optimistic. There is no assumption that the City has returned to the extraordinary economic conditions of the 1990s. The City is past its historic period of peak expansion and the long-term budget plans must recognize that fact. In addition to the factors mentioned above, all of the following factors were considered in preparing the City’s budget for fiscal year 2006: The City continued to use a zero based, “program budget” approach, which focuses on the quality of each service citizens receive from the City, whether the service is provided by one department or several. The staff also continued to develop 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 maintenance and operating costs. Under the adopted budget, General Fund expenditures, debt payments and transfers-out to other funds increase from $228.5 million in the current fiscal year to $255.9 million. The largest single factor in the increase is the addition of approximately 119 full-time equivalent positions, most of which are for front line employees who will provide direct services to citizens or provide basic support services for the staff serving the public. Included in the new full time equivalent positions are the following types of staff: • Staffing for new or expanded City facilities, mainly funded by voter-approved bonds, which are scheduled to open in the coming year. These include a new sports complex, senior center and aquatics center. • Public safety positions, a significant number of them funded through the voterapproved public safety tax. These include increases in the number of patrol officers and other personnel to improve police services. City of Scottsdale, Arizona 25 For the Fiscal Year Ended June 30, 2005 Management’s Discussion and Analysis Table of Contents • Staff needed to continue the City’s emphasis on revitalization. These positions include downtown maintenance workers and code enforcement inspectors. • Sufficient staff to meet customer service needs in such areas as after-school programs for youth, processing of utility payments and compliance with Americans with Disabilities Act requirements. • Staff to meet “internal” service demands. These are positions in the legal, financial and information systems areas that support the day-to-day needs of other operating departments. A separate, key component of the annual financial plan is the City’s five-year Capital Improvement Plan (CIP) for infrastructure and public facilities including roads, water and sewer improvements, parks, buildings and information technology. The adopted CIP appropriation for fiscal year 2006 is $899.7 million, which includes $415.8 million (or 46.2 percent of the total) re-budgeted from the prior year. Under Arizona law, the City must re-budget for a capital project until it is completed. Some examples of major projects included in the CIP budget are: • Community Facilities – Improvements to the Civic Center Library, renovation of the Scottsdale Center for the Performing Arts, expansion of the spring training facilities, additional ball fields for Vista Del Camino and the construction of a multi-purpose building at WestWorld. • Preservation – Construction of trails supporting the gateway to the preserve and expansion of preserve lands. • Drainage and Flood Control – Drainage improvement to several areas within Scottsdale including the TPC, Indian School Road, Pima Road, North Scottsdale Road and the Upper Camelback Wash. • Public Safety – The addition of a fire station for the South Quadrant and expansion of Fire Station #604, as well as construction to the District 1 Police Facilities. • Service Facilities – The addition of new parking garages on North Marshall Way and the South Canal Bank, as well as maintenance to community service facilities. • Transportation – Improvements to several main Scottsdale thorough ways including Indian Bend Road, Indian School Road, Scottsdale Road, Thompson Peak Parkway and Hayden Road. Additionally, enhancements to bicycle lanes and pedestrian paths will be made on Thomas and McDowell Roads. There will also be improvements made to bus stops around the City and a transit passenger facility will be added to the ASU Scottsdale Center. • Water Services – Expansion and regulatory compliance to the CAP Plant, as well as the addition of arsenic mitigation facilities for the City’s water system. The adopted budget includes funding for the City’s new municipal Fire Department which began operations in July 2005. The total Fire Department budget is $26.6 million and includes 257 positions approved by City Council on September 7, 2004. The positions were added in fiscal year 2005 to accommodate required firefighter training prior to their July 2005 start date. In fiscal year 2005 the City Council also approved Fire Department enhancements beyond the current service levels, such as staffing levels (adding a 4th firefighter on a truck) and work hours (56 hour work week). The enhancements are reflected in the adopted budget. The adopted budget continues the practice of setting aside a reserve equal to 10 percent of the General Fund and Highway User Fund program budgets to ensure the City can provide basic services in the event of major emergencies. 26 City of Scottsdale, Arizona Table of Contents (480) 312-2437 Or visit our website at: http://www.scottsdaleaz.gov/finance/ City of Scottsdale, Arizona Management’s Discussion and Analysis City of Scottsdale Financial Services Department Accounting Division 7447 E. Indian School Road, Suite 210 Scottsdale, AZ 85251 For the Fiscal Year Ended June 30, 2005 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: 27 Table of Contents 28 City of Scottsdale, Arizona Table of Contents Basic Financial Statements City of Scottsdale, Arizona 29 Table of Contents Statement of Net Assets June 30, 2005 (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 $11,278) Property Taxes and Penalties Other Local Taxes Intergovernmental Charges for Services Interest and Other Supplies Inventory Restricted Cash, Cash Equivalents, and Investments: Customer Advances and Deposits 280,955 67,760 110,847 37,485 $ 391,802 105,245 7,423 19,567 23,440 13,919 422 798 13,996 1,580 - 7,423 19,567 24,238 13,996 15,499 422 - 1,366 1,366 413,486 166,072 579,558 2,315 87,186 408 87,186 2,723 - 5,390 17,592 5,880 5,390 17,592 5,880 641,039 1,596,786 2,237,825 239,755 672,887 912,642 880,794 2,269,673 3,150,467 Total Noncurrent Assets 2,240,140 1,029,098 3,269,238 Total Assets 2,653,626 1,195,170 3,848,796 21,984 8,788 2,126 15,565 57 29,880 12,931 1,483 3,212 864 96,890 21,138 923 276 1,366 11,140 3,895 38,738 43,122 9,711 2,402 15,565 57 1,366 41,020 16,826 1,483 3,212 864 135,628 5,795 8,105 27,630 566,862 608,392 679 1,292 5,390 15,670 140,539 163,570 6,474 9,397 5,390 43,300 707,401 771,962 705,282 202,308 907,590 1,657,747 756,433 2,414,180 10,613 45,158 15,552 561 911 217,802 1,948,344 17,592 5,880 212,957 992,862 10,613 45,158 15,552 561 911 17,592 5,880 430,759 $ 2,941,206 Total Current Assets Noncurrent Assets Equity in Joint Venture Deferred Charges Restricted Cash, Cash Equivalents, and Investments: Deferred Revenue Water and Sewer System Replacement Acquisition and Construction Reserve Development Fees Capital Assets Land, Water Rights, and Construction in Progress Facilities, Infrastructure, and Equipment (net of depreciation) Total Capital Assets (net of accumulated depreciation) LIABILITIES Current Liabilities Accounts Payable Accrued Payroll and Benefits Accrued Compensated Absences Claims Payable Due to Other Governments Customer Advances and Deposits Matured Bonds, Loans, Other Payables Matured Bonds, Loans, Other Interest Payable Unearned Revenue Guaranty and Other Deposits Other Liabilities Total Current Liabilities Noncurrent Liabilities Accrued Compensated Absences-Due within One Year Accrued Compensated Absences-Due in More Than One Year Deferred Revenue Bonds, Loans, and Other Payables-Due within One Year Bonds, Loans, 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. 30 City of Scottsdale, Arizona Table of Contents Statement of Activities For the Year Ended June 30, 2005 (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 Program Revenues Operating Capital Charges for Grants and Grants and Expenses Services Contributions Contributions $ 30,943 63,076 8,315 85,835 57,519 7,941 28,620 16,520 3,496 3,333 8,026 12,522 1,094 32,466 359,706 $ 59,723 28,324 3,346 15,508 106,901 $ 466,607 12,106 11,514 3,914 18,188 998 46,720 $ 72,612 27,503 3,162 16,984 120,261 $ 166,981 1,890 1,660 14,738 8,557 8 12 26,865 $ $ 26,865 20,411 172 51,426 1,083 73,092 Governmental Business-type Activities Activities $ 20,252 15,656 2,405 38,313 $ General Revenues Taxes Property Taxes Sales and Use Taxes Franchise Taxes Intergovernmental State Shared Sales State Revenue Sharing Other Interest and Investment Income Other Revenue Loss on Sale of Capital Assets Transfers Total General Revenues and Transfers Change in Net Assets Net Assets - Beginning Net Assets - Ending 3,464 $ (49,730) (8,315) (19,671) (43,965) (7,941) (28,612) (16,520) (3,496) (3,321) (8,026) 5,666 (96) (32,466) (213,029) - 111,405 (213,029) 48,416 160,253 8,656 $ 18,779 18,634 10,933 6,765 4,941 (841) 9,567 286,103 73,074 1,875,270 1,948,344 $ - Total $ 3,464 (49,730) (8,315) (19,671) (43,965) (7,941) (28,612) (16,520) (3,496) (3,321) (8,026) 5,666 (96) (32,466) (213,029) 33,141 14,835 2,221 1,476 51,673 33,141 14,835 2,221 1,476 51,673 51,673 (161,356) 4,288 821 (977) (9,567) (5,435) 46,238 946,624 992,862 $ 48,416 160,253 8,656 18,779 18,634 10,933 11,053 5,762 (1,818) 280,668 119,312 2,821,894 2,941,206 The notes to the financial statements are an integral part of this statement. City of Scottsdale, Arizona 31 Table of Contents 32 Balance Sheet Governmental Funds June 30, 2005 (in thousands of dollars) General Obligation Bond Debt Service General Fund 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 Miscellaneous Due from Other Funds Supplies Inventory Total Assets City of Scottsdale, Arizona (continued) $ $ 71,717 398 360 8,678 399 431 1,656 2,118 6,199 994 4,988 189 153 98,280 $ $ 5,109 27,153 631 32,893 General CIP Construction Capital Projects $ $ 106,218 20,089 362 8 126,677 Total Nonmajor Governmental Funds Preserve Privilege Tax Capital Projects $ $ - - $ $ 65,492 20,120 385 4,227 162 1,495 3,391 384 6,265 614 18,062 120,597 Total Governmental Funds $ $ 248,536 67,760 1,107 12,905 399 1,224 1,656 2,118 6,199 1,495 994 3,391 384 6,265 5,610 18,251 153 378,447 Table of Contents City of Scottsdale, Arizona Balance Sheet Governmental Funds June 30, 2005 (in thousands of dollars) General Obligation Bond Debt Service General Fund LIABILITIES AND FUND BALANCES Liabilities Accounts Payable Accrued Payroll and Benefits Due to Other Funds Matured Bond Interest Payable Matured Bonds Payable Deferred Revenue Property Tax Special Assessments Court Tax Audit Intergovernmental Other Due to Other Governments Guaranty and Other Deposits Other Total Liabilities Fund Balances Reserved for 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 $ $ 3,164 10,107 - $ 8,294 18,825 General CIP Construction Capital Projects $ Total Nonmajor Governmental Funds Preserve Privilege Tax Capital Projects 12,953 63 - $ 306 18,062 - $ 4,732 505 189 4,637 11,055 Total Governmental Funds $ 21,155 10,675 18,251 12,931 29,880 128 6,199 2,333 80 278 28 1,489 830 24,636 172 27,291 29 11 13,056 18,368 86 6,265 1,125 1,712 34 30,340 386 6,265 6,199 2,333 1,205 278 57 3,212 864 113,691 872 - 5,602 - - 5,011 872 10,613 29,859 42,913 73,644 98,280 5,602 32,893 113,621 113,621 126,677 53,373 31,873 90,257 120,597 29,859 42,913 148,626 31,873 264,756 378,447 $ The notes to the financial statements are an integral part of this statement. $ $ (18,368) (18,368) - $ $ 33 Table of Contents Reconciliation of the Governmental Funds Balance Sheet to the Statement of Net Assets June 30, 2005 (in thousands of dollars) Fund Balances -Total Governmental Funds $ 264,756 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 issuance costs are not financial resources and, therefore, are not reported in the funds. Long-term receivables are not due and receivable in the current period and, therefore, are not reported in the funds. 2,213,182 2,315 19,665 Long-term liabilities, including bonds payable, are not due and payable in the current period and, therefore, are not reported in the funds. (607,996) 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. 15,183 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. 41,239 Net Assets of Governmental Activities $ 1,948,344 The notes to the financial statements are an integral part of this statement. 34 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, 2005 (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 Other Taxes 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 (Loss) Intergovernmental Federal Grants State Grants Miscellaneous Developer Contributions Streetlight and Services Districts Contributions and Donations Reimbursements from Outside Sources Indirect Costs Other Total Revenues 35 (continued) $ 17,451 102,793 7,939 5,596 2,859 201 1,136 $ General CIP Construction Capital Projects 26,602 - $ Total Nonmajor Governmental Funds Preserve Privilege Tax Capital Projects - $ - $ 4,196 49,416 - Total Governmental Funds $ 48,249 152,209 7,939 5,596 2,859 201 1,136 18,779 18,634 8,678 1,633 - - - 14,738 1,119 - 18,779 18,634 8,678 14,738 1,119 1,633 18,164 2,450 1,838 - - - 24 824 - 18,188 3,274 1,838 5,321 187 2,557 640 13 3,243 1,987 - 1,924 (318) 37 907 2,016 374 2,460 5,358 187 2,557 907 640 2,029 3,617 6,053 645 77 998 26 244 8,635 4,818 237,542 26,602 190 1,351 244 28 4,215 7,952 (318) 8,600 758 1,578 3,280 647 189 46 91,209 8,600 948 2,223 4,708 998 917 461 8,635 9,079 362,987 Table of Contents 36 Statement of Revenues, Expenditures, and Changes in Fund Balances Governmental Funds For the Year Ended June 30, 2005 (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 General CIP Construction Capital Projects Total Nonmajor Governmental Funds Preserve Privilege Tax Capital Projects Total Governmental Funds City of Scottsdale, Arizona 20,753 59,137 7,631 41,176 7,674 21,320 513 2,820 3,253 6,506 12,099 1,094 - - - 1,040 737 8,760 8,765 11,300 11 8 12 - 21,793 59,874 7,631 8,760 49,941 7,674 21,320 11,813 2,831 3,261 6,506 12,111 1,094 215 4,132 91 188,414 18,825 18,216 376 37,417 502 115,103 115,605 60,785 60,785 14,133 9,600 37,606 91,972 33,173 31,948 878 213,585 494,193 Excess (Deficiency) of Revenues Over Expenditures 49,128 (10,815) (107,653) (61,103) 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 Total Other Financing Sources and (Uses) 8,254 (53,248) 7,650 (37,344) 12,825 74,630 3,078 (77,584) 12,949 70,321 (60) 60,705 1,458 132,424 4,786 4,786 11,784 2,134 24,771 61,860 3,468 88,850 Net Change in Fund Balances Fund Balances - Beginning Fund Balances - Ending $ 73,644 $ The notes to the financial statements are an integral part of this statement. 5,602 $ 113,621 $ (763) (131,206) 45,597 (79,976) (34,379) 141,783 (133,284) 74,630 68,355 4,536 (77,584) 78,436 (56,317) (35,142) (52,770) 37,949 125,399 317,526 (18,368) $ 90,257 $ 264,756 Table of Contents Reconciliation of the Statement of Revenues, Expenditures, and Changes in Fund Balances of Governmental Funds to the Statement of Activities For the Year Ended June 30, 2005 (in thousands of dollars) Net Change in Fund Balances - Total Governmental Funds $ (52,770) 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. 100,334 Donations of capital assets are not reflected on the governmental fund statements but are shown in the statement of activities. 47,538 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. (788) Revenues in the statement of activities that do not provide current financial resources are not reported as revenues in the funds. 16,371 Bond issuance 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. 690 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. (36,764) Additional accrued interest calculated on bonds and notes payable. (330) Long-term contracts initiated during the current year are not reported in governmental funds and thus do not contribute to the change in fund balance. In the government-wide statements, however, entering into a contract payable increases long-term liabilities in the statement of net assets. (1,500) The net revenues of certain activities of internal service funds is reported with governmental activities. Changes in Net Assets of Governmental Activities 293 $ 73,074 The notes to the financial statements are an integral part of this statement. City of Scottsdale, Arizona 37 Table of Contents General Fund Statement of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual For the Year Ended June 30, 2005 (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 Other Taxes 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 Special Assessments Property Rental Interest Earnings Intergovernmental Miscellaneous Developer Contributions Streetlight and Services Districts Contributions and Donations Reimbursements from Outside Sources Indirect Costs Other Total Revenues $ Actual Amounts Budgetary Basis Final 17,630 92,597 6,732 5,216 2,600 203 1,113 $ 17,630 92,597 6,732 5,216 2,600 203 1,113 $ Budget to GAAP Differences 17,451 102,793 7,939 5,596 2,859 201 1,136 $ Actual Amounts GAAP Basis - $ 17,451 102,793 7,939 5,596 2,859 201 1,136 Variance Between Final Budget and Actual Amounts Budgetary Basis $ (179) 10,196 1,207 380 259 (2) 23 16,539 18,017 7,844 1,827 16,539 18,017 7,844 1,827 18,779 18,634 8,678 1,633 - 18,779 18,634 8,678 1,633 2,240 617 834 (194) 14,250 2,238 1,587 14,250 2,238 1,587 18,164 2,450 1,838 - 18,164 2,450 1,838 3,914 212 251 3,917 209 1,118 405 3,020 1,650 3,917 209 1,118 585 3,020 1,650 5,321 187 2,557 640 3,243 2,275 13 (288) 5,321 187 2,557 640 13 3,243 1,987 1,404 (22) 1,439 55 223 625 1,321 1,170 180 8,635 1,020 211,038 1,321 1,170 8,635 1,020 211,038 645 998 244 8,635 4,818 237,714 77 26 (172) 645 77 998 26 244 8,635 4,818 237,542 (676) (172) 244 3,798 26,676 20,714 61,057 7,679 41,875 8,064 21,054 538 3,019 3,432 6,280 12,757 1,220 20,897 60,257 7,679 41,825 8,033 21,311 538 2,966 3,371 7,025 12,757 1,220 20,499 58,807 7,460 40,952 7,659 21,311 508 2,820 3,243 6,503 12,003 1,094 254 330 171 224 15 9 5 10 3 96 - 20,753 59,137 7,631 41,176 7,674 21,320 513 2,820 3,253 6,506 12,099 1,094 398 1,450 219 873 374 30 146 128 522 754 126 2,017 2,526 192,232 2,017 2,526 192,422 215 4,132 187,206 91 1,208 215 4,132 91 188,414 1,802 (1,606) 5,216 Excess (Deficiency) of Revenues Over Expenditures 18,806 18,616 50,508 (1,380) 49,128 31,892 OTHER FINANCING SOURCES (USES) Transfers In Transfers Out Long-Term Capital-Related Debt Issued Total Other Financing Sources and (Uses) 7,514 (26,320) (18,806) 7,514 (26,130) (18,616) 8,254 (53,248) 7,650 (37,344) 8,254 (53,248) 7,650 (37,344) 740 (27,118) 7,650 (18,728) 11,784 13,164 61,860 61,860 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 Capital Improvements Total Expenditures Net Change in Fund Balance Fund Balance - Beginning Fund Balance - Ending $ - - 13,164 - - 61,860 - $ - $ 75,024 (1,380) $ (1,380) $ 73,644 $ 75,024 The notes to the financial statements are an integral part of this statement. 38 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, 2005 (in thousands of dollars) Explanation of Differences: Items recorded as revenues for GAAP purposes that are not recorded for budget purposes: Unrealized Loss on Investments Miscellaneous Items $ Total Revenue Reconciling Items: (172) The City budgets for certain expenditures on the cash basis, rather than on the modified accrual basis: Claims and Compensated Absences Capital Improvement Total Expenditure Reconciling Items: Net Decrease in Fund Balance - Budget to GAAP (288) 116 1,117 91 1,208 $ (1,380) The notes to the financial statements are an integral part of this statement. City of Scottsdale, Arizona 39 Table of Contents Statement of Net Assets Proprietary Funds June 30, 2005 (in thousands of dollars) Water and Sewer Utility Airport Solid Waste Total Governmental Activities Internal Service Funds ASSETS Current Assets Cash and Investments Cash with Fiscal Agent Receivable (net of allowance for uncollectibles) Charges for Services Intergovernmental Interest Miscellaneous Supplies Inventory Restricted Cash, Cash Equivalents, and Investments: Customer Advances and Deposits Total Current Assets Noncurrent Assets Equity in Joint Venture Deferred Charges Restricted Cash, Cash Equivalents, and Investments: Deferred Revenue Water and Sewer System Replacement Acquisition and Construction Reserve 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 Total Capital Assets (net of accumulated depreciation) Total Noncurrent Assets Total Assets $ 103,530 37,317 $ 1,750 - $ 5,567 168 $ 110,847 37,485 $ 32,419 - 11,610 44 644 630 - 754 4 230 - 2,386 25 47 - 13,996 798 673 907 - 133 804 269 1,305 61 - 1,366 - 155,080 2,799 8,193 166,072 33,625 87,186 408 - - 87,186 408 - 5,390 17,592 5,880 - - 5,390 17,592 5,880 - 13,390 64,688 551,796 327,792 3,930 621 149,347 (223,447) 9,564 12,577 838 1,655 (4,257) 1,111 2,997 1,905 (1,865) 24,065 64,688 551,796 327,792 15,574 6,673 621 151,002 (229,569) 1,846 53,608 408 22 1,041 (32,282) 888,117 20,377 4,148 912,642 24,643 1,004,573 20,377 4,148 1,029,098 24,643 12,341 $ 1,195,170 $ 1,159,653 $ 23,176 $ $ 58,268 The notes to the financial statements are an integral part of this statement. (continued on next page) 40 City of Scottsdale, Arizona Table of Contents Statement of Net Assets Proprietary Funds June 30, 2005 (in thousands of dollars) Water and Sewer Utility Airport Solid Waste Total Governmental Activities Internal Service Funds LIABILITIES Current Liabilities Accounts Payable Accrued Payroll and Benefits Accrued Compensated Absences Claims Payable Customer Advances and Deposits Matured Bonds Payable Matured Bond Interest Payable $ Total Current Liabilities 20,192 645 190 1,305 10,885 3,853 $ 555 44 13 61 - $ 391 234 73 255 42 $ 21,138 923 276 1,366 11,140 3,895 $ 829 179 60 15,565 - 37,070 673 995 38,738 16,633 1,324 5,390 14,185 140,539 72 - 575 1,485 - 1,971 5,390 15,670 140,539 396 - 161,438 72 2,060 163,570 396 198,508 745 3,055 202,308 17,029 733,393 20,377 2,663 756,433 24,643 17,592 5,880 204,280 961,145 2,054 22,431 6,623 9,286 17,592 5,880 212,957 992,862 16,596 41,239 Noncurrent Liabilities Accrued Compensated Absences Deferred Revenue Bonds Payable - Due within One Year Bonds Payable - Due in More Than One Year Total Noncurrent Liabilities Total Liabilities 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 41 Table of Contents Statement of Revenues, Expenses, and Changes in Fund Net Assets Proprietary Funds For the Year Ended June 30, 2005 (in thousands of dollars) Water and Sewer Utility Operating Revenues Charges for Sales and Services Water Service Fees Sewer Service Fees Proprietary - Non-Potable Water Fees Groundwater Treatment Plant Solid Waste Fees Airport Fees Other Services Other Total Operating Revenues $ 67,393 26,959 4,878 885 820 Airport $ 3,162 - Solid Waste $ 16,984 1 Total $ 67,393 26,959 4,878 885 16,984 3,162 821 Governmental Activities Internal Service Funds $ 29,909 839 100,935 3,162 16,985 121,082 30,748 Operating Expenses Costs for Sales and Services Water Operations Sewer Operations Solid Waste Operations Airport Operations Other Services Indirect Costs Depreciation 35,184 14,931 6,298 25,223 2,160 467 719 13,330 1,870 201 35,184 14,931 13,330 2,160 8,635 26,143 29,378 5,322 Total Operating Expenses 81,636 3,346 15,401 100,383 34,700 Operating Income (Loss) 19,299 (184) 1,584 20,699 (3,952) Non-Operating Revenues (Expenses) Property Tax Investment Income Interest Expense Gain (Loss) on Sale of Capital Assets 4,143 (6,411) (501) 21 (472) 124 (107) (4) 4,288 (6,518) (977) 404 712 41 (2,769) (451) 13 (3,207) 1,157 16,530 (635) 1,597 17,492 (2,795) 35,908 (8,639) 2,405 114 (292) (750) 38,313 114 (9,681) 2,020 3,418 (2,350) Change in Net Assets 43,799 1,592 847 46,238 293 Total Net Assets - Beginning 917,346 20,839 8,439 946,624 40,946 9,286 $ 992,862 Net Non-Operating Revenues (Expenses) Income (Loss) Before Contributions and Transfers Capital Contributions Transfers In Transfers Out Total Net Assets - Ending $ 961,145 $ 22,431 $ $ 41,239 The notes to the financial statements are an integral part of this statement. 42 City of Scottsdale, Arizona Table of Contents Statement of Cash Flows Proprietary Funds For the Year Ended June 30, 2005 (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 99,124 (35,471) (11,830) 523 Airport $ 3,165 (1,322) (808) (60) (8,639) 20,155 964 (116,124) (8,805) (6,365) 123 $ 29,705 (29,612) 711 815 422 3,418 (2,350) (178) (750) (9,567) 1,490 2,050 (1,965) - (245) (113) - 20,155 3,014 (118,089) (9,050) (6,478) 123 (2,611) 79 85 (358) (110,325) (2,532) 4,158 19 16 118 16 4,295 696 4,158 19 134 4,311 696 Net Increase in Cash and Cash Equivalents (62,187) 901 1,060 (60,226) 1,273 Cash and Cash Equivalents at Beginning of Year 233,201 910 4,549 238,660 31,146 (110,052) Cash Flows from Investing Activities Proceeds from the Sale of Investments Income Received on Investments Net Cash Provided by (Used for) Investing Activities $ 171,014 $ 1,811 2,034 119,225 (47,226) (17,106) 462 114 (9,681) Cash and Cash Equivalents at End of Year 114 (292) $ (750) Net Cash Provided by (Used for) Capital and Related Financing Activities (8,639) 16,936 (10,433) (4,468) (1) 1,619 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 Capital Assets 975 $ Total 55,355 Cash Flows from Non-Capital Financing Activities Property Tax Transfers In Transfers Out Net Cash Provided by (Used for) Non-Capital Financing Activities 52,346 Solid Waste Governmental Activities Internal Service Funds $ 5,609 $ 178,434 $ 32,419 The notes to the financial statements are an integral part of this statement. (continued on next page) City of Scottsdale, Arizona 43 Table of Contents Statement of Cash Flows Proprietary Funds (Continued) For the Year Ended June 30, 2005 (in thousands of dollars) 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 and Benefits Claims Payable Deferred Revenue 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 Accretion on Capital Appreciation Bonds Loss on Sale of Capital Assets Total Non-Cash Financing Activities Solid Waste Total $ 103,530 37,317 30,167 $ 1,750 61 $ 5,567 (126) 168 - $ 110,847 (126) 37,485 30,228 $ 32,419 - $ 171,014 $ 1,811 $ 5,609 $ 178,434 $ 32,419 $ 19,299 $ $ 1,584 $ 20,699 $ (3,952) Total Adjustments Net Cash Provided by Operating Activities Airport Governmental Activities Internal Service Funds (184) 25,223 719 201 26,143 (1,348) (297) (60) (48) (2) 8,784 328 313 44 488 9 3 95 204 - (1,396) (359) 9,367 541 313 47 33,047 1,159 450 34,656 $ 52,346 $ 975 $ $ 14,906 (204) 439 (624) $ (472) $ $ 14,517 $ (472) $ 2,034 5,322 (228) 72 (597) 115 887 5,571 $ 55,355 $ 1,619 (4) $ 14,906 (204) 439 (1,100) $ 2,020 - (4) $ 14,041 $ 2,020 The notes to the financial statements are an integral part of this statement. 44 City of Scottsdale, Arizona Table of Contents Statement of Fiduciary Net Assets Fiduciary Funds June 30, 2005 (in thousands of dollars) Private Purpose Trust Funds ASSETS Cash and Cash Equivalents $ Total Assets LIABILITIES Accounts Payable Designated Escrow Payable Total Liabilities NET ASSETS Held in Trust for Other Purposes $ Agency Funds 23 $ 4,822 23 4,822 - 101 4,721 - 4,822 23 $ - The notes to the financial statements are an integral part of this statement. City of Scottsdale, Arizona 45 Table of Contents Statement of Changes in Fiduciary Net Assets Fiduciary Funds For the Year Ended June 30, 2005 (in thousands of dollars) Private Purpose Trust Funds ADDITIONS Contributions: Private Donations Investment Earnings: Interest $ 129 3 Total Additions 132 DEDUCTIONS Scholarships Redevelopment Expenses 6 473 Total Deductions 479 Change in Net Assets (347) Net Assets - Beginning Net Assets - Ending 370 $ 23 The notes to the financial statements are an integral part of this statement. 46 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, Arizona (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 and proprietary fund type as if it were part of the City’s operations. Notes to Financial Statements A. Financial Reporting Entity The City of Scottsdale, Arizona (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, 2005 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 activities) 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. 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. 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. City of Scottsdale, Arizona 47 For the Fiscal Year Ended June 30, 2005 Notes to Financial Statements Table of Contents 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. 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, long-term obligation debt principal, interest, and related costs. The General CIP Construction Capital Projects Fund accounts for the resources used to acquire, construct and improve major capital facilities, 48 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 Preservation Privilege Tax Capital Projects Fund accounts for the resources used to acquire, and improve land within the McDowell Sonoran Preserve. Resources are provided by the proceeds from the sale of bonds and the .15% 2004approved Preserve Privilege Tax. 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.), respectively. 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. The City’s agency funds are used to record the Family Self-Sufficiency 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. Private-sector standards of accounting and financial reporting issued prior to December 1, 1989, generally are followed in both the government-wide and proprietary fund financial statements to the extent that those standards do not conflict with or contradict guidance of the Governmental Accounting Standards Board. Governments also have the option of following subsequent private-sector guidance for their 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 ser vices, administrative expenses, and depreciation on capital assets. All revenues and expenses not meeting this definition are reported as non-operating revenues and expenses. 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. 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 City of Scottsdale, Arizona 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 interest-earning 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 LGIP is overseen by the State of Arizona. The fair value of each share in the LGIP is $1. 2. Receivables and Payables Activity between funds that are representative of lending/borrowing arrangements outstanding at the end of the fiscal year are classified as “due to/from other funds” (i.e., the current portion of interfund loans). Any residual balances outstanding between the governmental activities and business-type activities are reported in the government-wide financial statements as “internal balances.” 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 payments-inlieu 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. notes with maturities of three months or less at acquisition date. For the Fiscal Year Ended June 30, 2005 business-type activities and enterprise funds, subject to this same limitation. The City has elected not to follow subsequent private-sector guidance. 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, 2005. 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 49 For the Fiscal Year Ended June 30, 2005 Notes to Financial Statements Table of Contents 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. Inventories are recorded 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. 5. Capital Assets Capital assets, which include property, plant, equipment, and infrastructure assets (e.g., roads, sidewalks and similar items), are reported in the applicable governmental or business-type activities columns in the government-wide financial statements. The government defines capital assets, 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. Depreciation and amortization of all assets are recorded and calculated using the straight-line method over the following estimated useful lives: 50 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. 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 fulltime 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. All vacation pay is accrued when incurred in the government-wide and proprietary 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, 2005, for medical leave conversion. There is no long-term liability for compensated absences in the governmental funds. City of Scottsdale, Arizona Table of Contents II. R E C O N C I L I AT I O N OF G O V E R N M E N T- W I D E A N D F U N D FINANCIAL STATEMENTS A. Explanation of certain difference between the governmental fund balance sheet and the government-wide statement of nets assets. The City’s Governmental funds fund balances, $264,756, differs from net assets of governmental activities, $1,948,344, 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. Notes to Financial Statements 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. Unrestricted Net Assets – The category represents net assets of the City, not restricted for any project or other purpose. For the Fiscal Year Ended June 30, 2005 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. 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. 9. Net Assets The government-wide and proprietary fund financial statements utilize a net assets presentation. Net assets are categorized as invested in capital assets (net of related debt), restricted, and unrestricted. Invested in Capital Assets, Net of Related Debt – This category groups all capital assets, including infrastructure, into one component of net assets. Accumulated depreciation and the outstanding balances of debt that are attributable to the acquisition, construction, or improvement of these assets reduce the balance in this category. Restricted Net Assets – This category represents net assets that have external restrictions imposed by creditors, grantors, contributors or laws or regulations of other governments and restrictions imposed by law through constitutional provisions or enabling legislation. City of Scottsdale, Arizona 51 For the Fiscal Year Ended June 30, 2005 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 Miscellaneous Due from Other Funds/Internal Balances Supplies Inventory Capital Assets (net of accumulated depreciation) Deferred charges and other assets Total Assets LIABILITIES Accounts Payable Accrued Payroll and Benefits Accrued Compensated Absences - Current Accrued Compensated Absences - Due Within One Year Accrued Compensated Absences - Due in More Than One Year Claims Payable Due to Other Funds Matured Bond Interest Payable Matured Bonds Payable Deferred Revenue Property Tax Special Assessments Court Tax Audit Intergovernmental Other 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 52 $ $ $ Internal Service Funds (2) Reclassifications and Eliminations Statement of Net Assets Totals 248,536 $ 67,760 - $ - 32,419 $ - - $ - 280,955 67,760 1,107 12,905 399 1,224 1,656 2,118 6,199 1,495 994 3,391 384 6,265 5,610 18,251 153 378,447 $ 19,665 2,213,182 2,315 2,235,162 $ 133 804 269 24,643 58,268 $ (18,251) (18,251) $ 1,240 12,905 399 1,224 1,656 2,118 6,199 1,495 994 23,056 384 6,265 6,414 422 2,237,825 2,315 2,653,626 21,155 $ 10,675 18,251 12,931 29,880 - $ 5,642 7,862 - 829 $ 179 60 153 243 15,565 - - $ (2,066) 2,066 (18,251) - 21,984 8,788 2,126 5,795 8,105 15,565 12,931 29,880 17,029 (18,251) 41,239 58,268 $ (18,251) $ 386 6,265 6,199 2,333 1,205 278 57 3,212 864 113,691 $ Long-Term Assets/ Liabilities (1) 264,756 378,447 $ (386) (6,265) (6,199) (2,333) 594,492 592,813 1,642,349 2,235,162 $ 1,205 278 57 3,212 864 594,492 705,282 1,948,344 2,653,626 City of Scottsdale, Arizona Table of Contents Cost of capital assets Accumulated depreciation $ $ 3,168,193 (955,011) 2,213,182 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 @ 7/1/04 Bond issuance cost for FY 2005 Amortization of bond issuance costs $ $ 1,625 878 (188) 2,315 $ 19,665 $ (14,324) (579,993) 11,693 (11,868) (13,504) (607,996) Long-term receivables applicable to the City's governmental activities are not due and receivable in the current period and accordingly are not reported as fund receivables in the governmental funds. All receivables, both current and long-term, are reported in the statement of net assets. 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, 2005 (1) When capital assets (land, buildings, equipment, etc) that are to be used in governmental activities are purchased or constructed, the costs of those 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 ($77,584) to be placed in escrow for payment of the old debt ($73,570) as it comes due is paid out of governmental funds and reduces fund balance. The difference between those amounts was $4,014 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, 2005 were: Contract payables Bonds payable Deferred amount on refunding Deferred issuance premium Accrued vacation and sick leave pay $ 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 tax and other 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 tax revenue $ $ 6,265 6,199 2,719 15,183 $ 41,239 (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 53 For the Fiscal Year Ended June 30, 2005 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, $(52,770), differs from the change in net assets for the governmental activities, $73,074, reported in the statement of activities. The differences arise primarily from the long-term 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 Other Taxes 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 $ 48,249 $ 152,209 7,939 5,596 2,859 201 1,136 Long-Term Revenue/ Expenses (3) Capital Related Items (4) (237) $ 105 - Internal Service Funds (5) - $ - Long-Term Debt Transactions (6) 404 $ - Statement of of Activities - $ - 48,416 152,314 7,939 5,596 2,859 201 1,136 18,779 18,634 8,678 14,738 1,119 1,633 - - - - 18,779 18,634 8,678 14,738 1,119 1,633 18,188 3,274 1,838 - - - - 18,188 3,274 1,838 5,358 187 2,557 907 640 2,029 3,617 6,053 2,230 221 54 (1,667) - - 712 - 7,588 408 2,611 907 640 362 3,617 6,765 8,600 948 2,223 4,708 998 917 461 8,635 9,079 362,987 19,665 (4,000) 16,371 (4,216) (4,216) - - 8,600 948 21,888 4,708 998 917 461 8,635 863 376,258 - 1,116 (continued) 54 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 $ 21,793 $ 59,874 7,631 8,760 49,941 7,674 21,320 11,813 2,831 3,261 6,506 12,111 1,094 33,173 31,948 878 213,585 494,193 8,499 74,630 68,355 4,536 (77,584) 78,436 $ (52,770) $ Long-Term Revenue/ Expenses (3) Capital Related Items (4) 132 $ (266) 124 (27) 412 89 34 168 15 21 13 73 - 8,472 $ 1,926 457 76,819 6,753 134 7,159 3,792 624 34 3 218 - Internal Service Funds (5) 546 $ 1,542 103 283 413 44 107 747 26 17 4 120 - Long-Term Debt Transactions (6) - $ 1,500 - Statement of of Activities 30,943 63,076 8,315 85,835 57,519 7,941 28,620 16,520 3,496 3,333 8,026 12,522 1,094 788 (213,585) (107,194) 3,952 (33,173) 518 (878) (32,033) 32,466 359,706 - (1,762) 47,538 (882) 44,894 2,830 258 41 3,129 (74,630) (68,355) (4,536) 77,584 (69,937) 9,567 47,796 (841) 56,522 (37,904) $ 73,074 15,583 $ 147,872 $ 293 $ Notes to Financial Statements Total Governmental Funds For the Fiscal Year Ended June 30, 2005 Reconciliation of Governmental Statement of Revenues, Expenditures, and Changes in Fund Balances and the Government-wide Statement of Activities (in thousands of dollars) 55 For the Fiscal Year Ended June 30, 2005 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 Intergovernmental revenue Note Receivable revenue $ $ (237) 2,505 105 (1,667) 19,665 (4,000) 16,371 $ (788) $ $ 185,103 (83,887) (882) 100,334 $ 47,538 $ 293 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 be 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 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 activities, 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 ($1,762) 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 56 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 2005 Amortization of bond issuance costs Difference $ $ 878 (188) 690 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 $ $ 77,584 33,173 110,757 Notes to Financial Statements (6) For the Fiscal Year Ended June 30, 2005 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 and accreted 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 Interest accretion and amortization Amortization of bond premium and discounts $ $ (1,474) (265) 1,409 (330) 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: Certificates of Participation Refunding General Obligation Bonds Revenue Bonds Premium on Bonds $ $ (7,650) (74,630) (60,705) (4,536) (147,521) $ (1,500) (1,500) Long-term contracts initiated during the current year are not reported in governmental funds and thus do not contribute to the change in fund balance. In the government-wide statements, however, entering into a contract payable increases long-term liabilities in the statement of net assets and incurs an expense. III. STEWARDSHIP, COMPLIANCE, AND ACCOUNTABILITY A. Budget And Budgetary Accounting The City prepared an annual budget that covered fiscal year 2004/05. The 2004/05 budget appropriation 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 Funds (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 Block Grant, 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 non-appropriated budgets. Accordingly, no comparison of budget to actual is presented in the financial statements for these funds. Budgets for the Community Development Block Grant, 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 City of Scottsdale, Arizona 57 For the Fiscal Year Ended June 30, 2005 Notes to Financial Statements Table of Contents 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. 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. 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 2004/05, 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, contracts or other commitments. B. Excess of Expenditures over Appropriations The Special Assessments Debt Service Fund exceeded its Debt Service Expenditures appropriation by $23,000. This over expenditure was funded by available fund balance. The Scottsdale Preserve Authority Debt Service Fund exceeded its Debt Service Expenditures appropriation by $171,000. This over expenditure was funded by available fund balance. The Water and Sewer Utility Enterprise Fund exceeded its expense appropriation for Water operations by $1,008,000 and Sewer operations by $3,495,000. This over expenditure was funded by available net assets. The Airport Enterprise Fund exceeded its expense appropriation by $721,000. This over expenditure was funded by available net assets. The Solid Waste Enterprise Fund exceeded its expense appropriation by $233,000. This over expenditure was funded by available net assets. C. Deficit Fund Equity The Section 8 Housing Fund had a deficit fund balance of $76,000 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. The Preserve Privilege Tax Capital Projects Fund had a deficit fund balance of $18,368,000 caused by the purchase of land prior to the issuance of debt. The deficit fund balance will be funded through the sale of debt as stipulated in the City Council approved debt reimbursement agreement. 58 City of Scottsdale, Arizona Table of Contents Debt Service Reserved for Debt Service $ 5,602 Restricted Net Asset and Unrestricted Net Asset Designations Water and Sewer Restricted for Repair and Replacement $ Restricted for Acquisition and Construction Total Restricted $ 17,592 5,880 23,472 Nonmajor $ Notes to Financial Statements Fund Balance Reservations and Designations (in thousands of dollars) General Fund Major Designated for Economic Stabilization Reserve $ 24,859 Designated for Economic Investment 5,000 Total Designated $ 29,859 For the Fiscal Year Ended June 30, 2005 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 unreserved fund balance/net assets at June 30, 2005: 5,011 The amounts presented below detail the City's planned use of the following Unrestricted Net Asset amounts: Water and Sewer Designated for Operating Reserve $ 9,840 Solid Waste Designated for Operating Reserve $ 3,765 Airport Designated for Operating Reserve $ 511 $ $ 3,660 1,892 5,552 $ 9,359 Self-Insurance Designated for General Liability Claims Designated for Benefits Fleet Management Designated for Capital Equipment Replacement City of Scottsdale, Arizona 59 For the Fiscal Year Ended June 30, 2005 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. Deposits At June 30, 2005, the carrying amount of the City’s deposits was $130,386,057, and the bank balance was $128,827,354. The $1,558,703 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, 2005, 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). The City’s investment in the bonds of U.S. agencies was rated AAA by Standard & Poor’s and Fitch Ratings, and Aaa by Moody’s Investors Service. Investments The City’s investments at June 30,2005, are summarized below. (in thousands of dollars) Investment Maturities (in Years) Investment Type U.S. Treasuries U.S. Agencies Local Government Investment Pool Guaranteed Investment Contracts Total Investments Less Fair Value Than 1 1-2 2-3 $ 108,857 $ 19,962 $ 79,079 $ 9,816 288,694 123,377 * 160,330 ** 4,987 *** 3,708 3,708 475 - - 401,734 $ 147,522 $239,409 $ 14,803 475 $ *$108,547 of these bonds are callable July 12, 2005 to December 2, 2005 **$110,889 of these bonds are callable July 4, 2005 to November 17, 2005 ***These bonds are callable July 19, 2005 Total City cash and investments at fair value are as follows (in thousands of dollars): 60 Carrying Amount of City Deposits Investments $ 130,386 401,734 Total Cash and Investments $ 532,120 City of Scottsdale, Arizona Table of Contents $ $ 391,802 105,245 30,228 4 19 101 4,721 532,120 Investment income comprises the following for the year ended June 30, 2005 (in thousands of dollars): Net Interest and Dividends Net Decrease in the Fair Value of Investments Total Net Investment Income $ $ 12,440 (1,387) 11,053 Notes to Financial Statements Primary Government Cash and Investments Cash 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 For the Fiscal Year Ended June 30, 2005 Total City cash and investments are reported as follows (in thousands of dollars): The net decrease in the fair value of investments during fiscal year 2004-2005 was $1,386,909. This amount takes into account all changes in fair value (including purchases and sales) that occurred during the year. The unrealized gain on investments held at June 30, 2005, was $4,713,601. In the previous year, the City reported a decrease in fair value of $7,864,309 consisting of the City’s share of a loss on an investment within the Local Government Investment Pool. The State and numerous other bondholders filed suit against the principals, underwriters, trustees, accountants and others in May 2003. The case is presently pending in federal court in Ohio. No reliable assessment of the litigation outcome is available; however, the City has received $900,101 plus interest of $2,643 as a partial recovery. City of Scottsdale, Arizona 61 For the Fiscal Year Ended June 30, 2005 Notes to Financial Statements Table of Contents B. Receivables Receivables as of year end for the government’s individual major funds and nonmajor funds and internal service funds in the aggregate, including the applicable allowances for uncollectible accounts are as follows: (in thousands of dollars) Governmental and Governmental Activities Internal Service Funds: General Obligation Bond Debt Service General Fund Receivables Property Taxes and Penalties: Property Court Subtotal Property Taxes and Penalties $ 431 $ 17,477 17,908 General CIP Construction Capital Projects 631 $ 631 Nonmajor and Other Funds - $ - 162 $ 162 Total Governmental Funds 1,224 17,477 18,701 Other local taxes: Privilege Hotel/Motel State Shared Sales Tax Franchise Fee Auto Lieu Highway User Subtotal Other Local Taxes 8,678 399 1,656 2,118 994 13,845 - - 4,227 1,495 5,722 12,905 399 1,656 2,118 994 1,495 19,567 Intergovernmental/Grants - - - 3,775 3,775 Interest and Other: Interest Special Assessments Miscellaneous Subtotal Interest and Other 360 4,988 5,348 - 362 8 370 518 6,265 1,418 8,201 1,240 6,265 6,414 13,919 Gross Receivable Less: Allowance for Uncollectibles Net Total Receivables $ 37,101 (11,278) 25,823 $ 631 631 $ 370 370 $ 17,860 17,860 $ 55,962 (11,278) 44,684 Enterprise Funds: Water and Sewer Utility Receivables Charges for services Intergovernmental Interest Miscellaneous Gross Receivable Net Total Receivables 62 Airport Solid Waste Total Enterprise Fund $ 11,610 $ 44 644 630 12,928 - $ 754 4 230 988 2,386 $ 25 47 2,458 13,996 798 673 907 16,374 $ 12,928 $ 988 $ 2,458 $ 16,374 City of Scottsdale, Arizona Table of Contents Property Tax Special Assessments Court Tax Audit Intergovernmental Other Community Services Unavailable $ 386 6,265 6,199 2,333 - Unearned $ 1,205 15,183 278 1,483 $ $ Notes to Financial Statements (in thousands of dollars) For the Fiscal Year Ended June 30, 2005 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 for the year ended June 30, 2005, was as follows (in thousands of dollars): Beginning Governmental Activities Ending Balance Increases Decreases Balance Capital Assets, Not Being Depreciated: Land $ Construction In Progress Total Capital Assets, Not Being Depreciated: 413,520 $ 106,880 $ (5,812) $ 514,588 66,165 186,699 (126,413) 126,451 479,685 293,579 (132,225) 641,039 Capital Assets, Being Depreciated: Buildings and Land Improvements Streets and Storm Drains Vehicles Maintenance by Fleet Machinery and Equipment Total Capital Assets, Being Depreciated: 260,709 10,420 (557) 270,572 2,150,431 53,046 - 2,203,477 46,233 4,437 (713) 49,957 3,660 - (9) 3,651 51,506 7,476 (2,560) 56,422 2,512,539 75,379 (3,839) 2,584,079 Less Accumulated Depreciation for: Buildings and Land Improvements 124,958 9,891 (462) 134,387 Streets and Storm Drains 716,442 69,236 - 785,678 24,322 4,864 (675) 28,511 2,121 356 (9) 2,468 33,699 4,862 (2,312) 36,249 901,542 89,209 (3,458) 987,293 1,610,997 (13,830) (381) 1,596,786 2,090,682 $ 279,749 $ (132,606) $ 2,237,825 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 $ 63 For the Fiscal Year Ended June 30, 2005 Notes to Financial Statements Table of Contents Beginning Balance Business-Type Activities Increases Ending Balance Decreases Capital Assets, Not Being Depreciated: Land $ Water Rights Construction In Progress 24,162 $ - $ (97) $ 24,065 64,688 - - 64,688 52,208 104,351 (5,557) 151,002 141,058 104,351 (5,654) 239,755 Water System 541,457 11,601 (1,262) 551,796 Sewer System 320,388 7,404 - 327,792 16,506 689 (1,621) 15,574 5,943 865 (135) 6,673 Total Capital Assets, Not Being Depreciated: Capital Assets, Being Depreciated: Buildings and Land Improvements Machinery and Equipment Furniture, Fixtures and Office Equipment 666 Total Capital Assets, Being Depreciated: (45) 621 884,960 20,559 (3,063) 902,456 Water System 135,045 16,291 (747) 150,589 Sewer System 61,651 8,696 - 70,347 Buildings and Land Improvements 5,749 828 (1,149) 5,428 Machinery and Equipment 2,555 279 (133) 2,701 Less Accumulated Depreciation for: 488 49 (33) 504 Total Accumulated Depreciation: Furniture, Fixtures and Office Equipment 205,488 26,143 (2,062) 229,569 Total Capital Assets, Being Depreciated, Net 679,472 (5,584) (1,001) 672,887 820,530 $ 98,767 $ (6,655) $ 912,642 Business-Type Activities Capital Assets, Net $ During fiscal year 2004/05, the Water and Sewer Utility Enterprise Fund capitalized net interest costs of $2,254,986. Total interest expense in this fund before capitalization was $8,665,891. Depreciation expense was charged to functions/programs of the primary government as follows (in thousands of dollars): Governmental Activities 64 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 $ 5,420 1,454 191 66,622 3,673 3,165 299 2,961 7 34 3 58 5,322 89,209 City of Scottsdale, Arizona Table of Contents $ 25,223 719 201 Total Depreciation Expense - Business-Type Activities $ 26,143 Construction Commitments The City has active construction projects as of June 30, 2005. At year-end the government’s commitments with contractors for specific projects are as follows (in thousands of dollars): Construction Commitments Streets Traffic Improvement District Fire Police Drain/Flood Control Community Parks/Recreation Municipal Facilities Technology Libraries Airport Transit Water System Sewer System Spent to Date $ 72,053 Remaining Commitment $ 2,859 11,867 - 20,313 775 4,691 3,087 9,722 1,192 52,091 7,116 25,850 22,014 7,916 1,052 14,874 4,252 1,571 522 2,408 477 7,482 2,320 207,844 61,646 107,477 $ 7,962 23,137 569,296 Notes to Financial Statements Water and Sewer System Airport Solid Waste For the Fiscal Year Ended June 30, 2005 Business-Type Activities 9,616 $ 124,890 The improvement district portion of the commitment is financed by improvement district bonds. The traffic commitments are being financed by the .2% transportation 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. City of Scottsdale, Arizona 65 For the Fiscal Year Ended June 30, 2005 Notes to Financial Statements Table of Contents D. Interfund Balances and Interfund Transfers Due to and Due From Other Funds “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, 2005, is as follows: Receivable Fund (in thousands of dollars) General Amount $ 189 Nonmajor Governmental Fund Total $ 18,062 18,251 Payable Fund (in thousands of dollars) Nonmajor Governmental Funds $ Amount 189 Preserve Privilege Tax Capital Project Fund Total $ 18,062 18,251 The Preserve Privilege Tax Capital Projects Fund had a deficit cash balance of $18,062,000 caused by the purchase of land prior to the issuance of debt. The deficit cash balance will be funded through the sale of debt as stipulated in the City Council approved debt reimbursement agreement. Interfund Transfers 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 $39.9 million was transferred from the General Fund to the General CIP Construction Capital Project Fund to fund pay-as-you-go capital projects. Net transfers (in thousands of dollar): Transfers Out From: Major Governmental Funds General Transfers In To: $ 53,248 Major Governmental Funds Capital Projects General CIP Construction Preserve Privilege Tax Major Enterprise Funds Airport Capital Projects General CIP Construction Total Major Governmental Funds $ 39,888 2,204 114 Nonmajor Governmental Funds 7,981 Internal Service Funds 3,061 60 Nonmajor Governmental funds 60 53,308 Total Major Governmental Funds 53,308 (continued) 66 City of Scottsdale, Arizona Table of Contents $ Airport 8,639 292 Major Governmental Funds General Fund $ Capital Projects General CIP Construction 840 Internal Service 133 Major Governmental Funds General Fund 127 Capital Projects General CIP Construction 162 Internal Service Solid Waste 750 Total Major Enterprise Funds Nonmajor Governmental Funds 3 Major Governmental Funds General Fund 395 Capital Projects General CIP Construction 169 Internal Service 186 9,681 Total Major Enterprise Funds 9,681 79,976 Major Governmental Funds General Fund 59 Debt Service General Obligation Bond 12,825 Capital Projects General CIP Construction Preserve Privilege Tax 26,934 2,582 Nonmajor Governmental funds 37,556 Internal Service Total Nonmajor Governmental Funds 79,976 Internal Service 2,350 20 Total Nonmajor Governmental Funds 79,976 Major Governmental Funds General Fund 7 Capital Projects General CIP Construction 2,328 Internal Service Total Internal Service Funds Total 2,350 $ 7,666 145,315 15 Total Internal Service Funds Total Notes to Financial Statements Major Enterprise Funds Water and Sewer Transfers In To: For the Fiscal Year Ended June 30, 2005 Transfers Out From: 2,350 $ 145,315 E. Operating Leases The City has entered into rental agreements of retail and parking facilities. Rental payments on these facilities during the 2004-2005 fiscal year were $3,933,269. Payments are contingent upon sales tax revenues received on the properties; thus, future payments cannot be determined. City of Scottsdale, Arizona 67 For the Fiscal Year Ended June 30, 2005 Notes to Financial Statements Table of Contents F. Bonds, Loans, and Other Payables The following are brief descriptions of bonds outstanding at June 30, 2005. The totals shown are the principal amount outstanding, net of the current portion due July 1, 2005. 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, 2005, the City had $282,200,000 of unissued various purpose GO bonds, which were authorized in September 2000. The City had no unissued Preservation GO bonds from the September 1999 authorization. In May 2004 voters authorized $500,000,000 of additional Preservation GO bonds, as well as an additional .15% sales tax increase to be used to finance Preserve land acquisitions. 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. HURF Revenue Bonds Highway User Revenue Fee (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 governmental activities long-term debt. The 1995 MPC Transfer 68 Station bonds, however, are recorded in and paid out of revenues of the Solid Waste Enterprise Fund. The 2001 MPC Scottswater bonds are recorded in and paid out of the revenues of the Water Enterprise Fund. The 2004 MPC bonds are recorded in and paid out of the revenues of the Water and Sewer Enterprise Funds. 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. In May 2004 voters approved an additional .15% sales tax increase. SPA bonds are recorded as governmental activities long-term debt and are paid out of the SPA Debt Service Fund. Water and Sewer Revenue Bonds Water and 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. The water and sewer revenue bonds are collateralized by revenue in excess of operating and maintenance expenses of the City’s water and 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 and 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, 2005, the funds reserved for this purpose were $17,591,766. 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, 2005, 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, 2005, there were 2 separate series of special assessment improvement bonds outstanding, each series issued as serial bonds to be repaid over 10 years. Certificates of Participation Certificates of Participation are issued to finance acquisition and improvements of real property that is leased to the City. The City’s obligation to make lease payments are subject to, and dependent upon, annual appropriations made by the City Council. In the event any such appropriation is not made, the lease will terminate and the lessor will have legal right to take possession of the property. The City’s obligation to make lease payments does not constitute a debt or liability of the City within the meaning of any constitutional or statutory limitation. Neither the full faith and credit nor the general taxing power of the City is pledged to make payments of principal or interest due with respect to the Certificates of Participation. Such payments will be made solely from amounts derived under the terms of the lease, including lease payments, and amounts from time to time on deposit under the terms of the declaration of trust. Notes to Financial Statements The City Council’s adopted policy is that special assessment improvement 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, 2005 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. 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 community facilities district 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. CFD Advance Refundings There were no refundings during fiscal year 2004/05. 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, 2005, and net of any amounts to be paid or retired by the trustee on July 1, 2005 (in thousands of dollars). Refunded in Prior Year (in thousands of dollars) City of Scottsdale, Arizona McDowell Mountain Ranch CFD: General Obligation Series 1997 $ 6,910 Scottsdale Mountain CFD: General Obligation Series Series 1993B Total CFD Bonds Refunded in Prior Years $ 45 6,955 69 For the Fiscal Year Ended June 30, 2005 Notes to Financial Statements Table of Contents 70 Bonds payable at June 30, 2005, are comprised of the following: Classified in Governmental 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. On June 15, 2004, $2,505,000 due 2007 through 2009 were defeased. The original issue amount for the 1993 Refunding Bonds was $45,015,000. $ 10,540 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. On September 26, 2003, $13,355,000 due 2004 and 2007 through 2011 were refunded. The original issue amount for the 1993A Refunding Bonds was $24,265,000. 140 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. - 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. 19,685 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. 7,235 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. 4,500 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, on September 26, 2002, an additional $4,125,000 due 2010 and 2011 were refunded, and on March 29, 2005 an additional $8,225,000 due 2023 and 2024 were refunded. Original issue amount $59,600,000. 7,150 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, and on March 29,2005 an additional $22,680,000 due 2013 through 2024 were refunded. Original issue amount $35,000,000. 4,520 City of Scottsdale, Arizona Table of Contents 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. On June 15, 2004 due 2010 through 2011 were defeased, and on March 29, 2005 an additional $42,665,000 due 2012 through 2019 and 2021 through 2024 were refunded. Original issue amount $68,000,000. 16,610 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. On April 15, 2004, $1,510,000 due 2010 were defeased. Original issue amount $72,000,000. 61,660 2003 Refunding Bonds (issued September 24, 2003) due in annual installments of $45,000 to $5,515,000 through July 1, 2013; interest at 2 percent to 4.5 percent. Original issue amount $16,265,000. 14,975 2004 Various Purpose Bonds (issued May 13, 2004) due in annual installments of $1,600,000 to $30,300,000 through July 1, 2025; interest at 3 percent to 5 percent. Original issue amount $113,400,000. 111,800 2005 Refunding Bonds (issued March 29, 2005) due in annual installments of $2,715,000 to $11,075,000 through July 1, 2024; interest at 3.85 percent to 5 percent. Original issue amount $74,630,000. 74,630 Total General Obligation Bonds Outstanding $ 372,070 $ 5,815 Notes to Financial Statements 38,625 For the Fiscal Year Ended June 30, 2005 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. On April 15, 2004, $5,490,000 due 2010 and 2014 through 2018 were defeased. Original issue amount $51,155,000. 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, 2002 Refunding Bonds, 2004 Various Purpose Bonds and 2005 Refunding Bonds of $33,235,000, $40,000,000, $8,100,000, $65,400,000 and $66,090,000, 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 71 For the Fiscal Year Ended June 30, 2005 Notes to Financial Statements Table of Contents Municipal Property Corporation Bonds 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. $ - 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. 520 2004A Municipal Property Corporation Excise Tax Revenue Bonds (issued September 15, 2004) due in annual installments of $920,000 to $2,715,000 through July 1, 2034; interest at 3.25 percent to 5.25 percent. Original issue amount, $40,760,000. 40,760 2005 Municipal Property Corporation Excise Tax Revenue Bonds (issued June 15, 2005) due in annual installments of $35,026 to $4,925,019 through July 1, 2021; interest at 3.22 percent to 5 percent. Original issue amount, $19,945,322. 19,973 Total MPC Bonds Outstanding $ 61,253 $ - 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. 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. On March 30, 2004, $22,770,000 due 2009 through 2016 were refunded. Original issue amount $77,000,000. 43,225 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. 17,235 2004 Scottsdale Preserve Authority Excise Tax Revenue Refunding Bonds issued March 30, 2004, due in annual installments of $75,000 to $3,315,000 through July 1, 2016; interest at 2 percent to 5 percent. Original issue amount $22,925,000. 22,925 Total Scottsdale Preserve Authority Bonds 72 $ 83,385 City of Scottsdale, Arizona Table of Contents $ 6,340 2005 Certificates of Participation issued January 26, 2005, due in annual installments of $223,832 to $450,965 beginning January 1, 2006, through July 1, 2015. Original issue amount $7,650,000. $ 7,650 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. $ 4,595 Certificates of Participation 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. 3,030 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. 16,805 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. 3,000 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. 4,600 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. 11,450 Total Community Facilities Districts General Obligation Bonds Outstanding Total Bonds Payable Recorded in Governmental Activities City of Scottsdale, Arizona $ 43,480 $ 579,993 Notes to Financial Statements Special Assessment Bonds issued March 31, 1994, 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 5.7 percent. Total original issue amount, $38,215,000. For the Fiscal Year Ended June 30, 2005 Special Assessment Bonds 73 For the Fiscal Year Ended June 30, 2005 Notes to Financial Statements Table of Contents Classified in Governmental 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. 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 5,200 1,315 $ 6,515 $ 5,600 Water and Sewer Revenue Bonds 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. 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. On March 30, 2004, $6,775,000 due 2009 through 2016 were refunded. Original issue amount $20,000,000. 9,200 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. On March 30, 2004, $9,210,000 due 2009 through 2013 were refunded. Original issue amount $50,000,000. 32,135 2004 Water and Sewer Revenue Refunding Bonds (Series 2004 issued March 30, 2004) due in annual installments of $80,000 to $3,175,000 through July 1, 2016 ; interest at 2 percent to 5 percent. $2,907,520 of these bonds are recorded in and paid out of the Water Enterprise Fund, and $15,972,480 are recorded in and paid out of the Sewer Enterprise Fund. Original issue amount $18,880,000. 18,800 Total Water and Sewer Revenue Bonds Outstanding 74 $ 65,735 City of Scottsdale, Arizona Table of Contents $ 1,485 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. 5,135 2004 Municipal Property Corporation Excise Tax Revenue Bonds (Series 2004 issued May 13, 2004) due in annual installments of $2,190,000 to $5,435,000 through July 1, 2024; interest at 3.25 percent to 5.25 percent. $55,000,000 of these bonds are recorded in and paid out of the Water Enterprise Fund, and $20,000,000 are recorded in and paid out of the Sewer Enterprise Fund. Original issue amount $75,000,000. 72,810 Total Municipal Property Corporation Bonds Outstanding Total Bonds Payable Recorded in Business-type Activities Total Long-term Portion of Bonds Payable $ 79,430 $ 151,680 $ 731,673 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, 2005 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, Arizona’s legal general obligation bonded debt borrowing capacity at June 30, 2005 (in thousands of dollars): General Obligation Bonds Issued to Provide Water, Sewer, Light, 20% Constitutional Limit $ 868,691 General Obligation Bonds Issued for All Other Purposes 6% Constitutional Limit $ 260,607 Less General Obligation 20% Bonds Outstanding (313,786) Less General Obligation 6% Bonds Outstanding 554,905 Available 6% Limitation Borrowing Capacity Available 20% Limitation Borrowing Capacity City of Scottsdale, Arizona $ (64,799) $ 195,808 75 For the Fiscal Year Ended June 30, 2005 Notes to Financial Statements Table of Contents 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 used an independent consultant to evaluate the City’s outstanding tax-exempt debt for arbitrage liability and determined that there is no arbitrage liability due as of June 30, 2005. Advance Refundings and Defeasances During the year ended June 20, 2005, the City issued $74,630,000 of General Obligation Refunding Bonds, Series 2005, (advance refunding) dated March 29, 2005, with an average interest rate of 3.88%, to refund $73,570,000 of Series 1999, Series 2001 and 2002 General Obligation Bonds with an average interest rate of 4.839%. The City will reduce its total debt service payments over the next 19 years by approximately $4,464,016, and obtain an economic gain (difference between the present values of the debt service payments on the old and new debt) of $3,204,338. 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, 2005, and net of any amounts to be paid or retired by the trustee on July 1, 2005 (in thousands of dollars). Refunded in Year Ended June 30, 2005 (in thousands of dollars) 1999 Preservation GO Bonds 2001 Preservation GO Bonds 2002 GO Bonds $ 8,225 22,680 42,665 $ 73,570 $ 8,180 15,525 40,600 4,125 26,600 42,665 22,770 6,775 9,210 176,450 Refunded in Prior Years (in thousands of dollars) 1998 General Obligation Bonds 1999A General Obligation Bonds 1999 General Obligation Bonds 1999 Preservation General Obligation Bonds 2001 Preservation General Obligation Bonds 2002 General Obligation Bonds 1998 Scottsdale Preserve Authority Excise Tax Revenue Bonds 1997 Water and Sewer Revenue Bonds 1998 Water and Sewer Revenue Bonds $ 76 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. $ 3,176 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. 193 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. 3 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. 1,650 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. 1,540 Contract payables for the undergrounding of 69kv power lines; due in annual installments beginning January 1999 through January 2010; interest at 10.0 percent. 67 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. 6,195 Contract payable for marketing of car dealerships located in southern Scottsdale; due in annual installments beginning January 2006; non-interest bearing. 1,500 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, 2005 Contracts Payable The City has entered into various purchase contracts related to economic development, acquisition of water system facilities, acquisition of recreational facilities and patents. The contract for the acquisition of water system facilities is payable only from the operating revenue of the water and sewer utility system. The following is a summary of debt service to maturity for all long-term contracts payable at June 30, 2005. 14,324 77 For the Fiscal Year Ended June 30, 2005 Notes to Financial Statements Table of Contents 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, 2005 (in thousands of dollars). Beginning Balance Governmental Activities: Bonds payable: General Obligation Bonds HURF Revenue Bonds Municipal Property Corporation Bonds Scottsdale Preserve Authority Bonds Special Assessments Bonds Certificates of Participation Community Facilities Districts General Obligation Bonds Add Deferred Issuance Premiums Less Deferred Amounts on Refunding Total Bonds Payable Contracts Payable Compensated Absences Governmental Activity Long-term Liabilities $ $ 389,598 8,475 4,850 85,980 8,755 44,950 8,741 (9,153) 542,196 13,702 13,038 568,936 Additional Obligations, Interest Accretion and Net Increases Current Maturities, Retirements, and Net Decreases $ $ $ 74,867 60,733 7,650 4,536 (4,014) 143,772 1,500 8,296 153,568 $ (92,395) (2,660) (4,330) (2,595) (2,415) (1,470) (1,409) 1,474 (105,800) (878) (7,434) (114,112) Ending Balance $ $ 372,070 5,815 61,253 83,385 6,340 7,650 43,480 11,868 (11,693) 580,168 14,324 13,900 608,392 Amounts Due Within One Year $ $ 17,705 2,825 170 2,815 835 560 1,535 26,445 1,185 5,795 33,425 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, 2005, $396,455 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. The compensated absences presented in this note are net of the current liability of $2,066,131 in the governmental funds, $60,000 in the Internal Service funds and $275,872 in the Enterprise funds. Beginning Balance 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 78 $ $ 10,651 68,365 83,365 6,617 (1,819) 167,179 1,531 168,710 Additional Obligations, Interest Accretion and Net Increases Current Maturities, Retirements, and Net Decreases $ $ $ 439 439 1,011 1,450 $ (4,575) (2,630) (3,935) (558) 289 (11,409) (571) (11,980) Ending Balance $ $ 6,515 65,735 79,430 6,059 (1,530) 156,209 1,971 158,180 Amounts Due Within One Year $ $ 6,515 3,330 5,825 15,670 679 16,349 City of Scottsdale, Arizona Table of Contents Fiscal Year 2006 2007 2008 2009 2010 2011-2015 2016-2020 2021-2025 Total 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 Total Principal 21,665 22,380 21,424 23,832 25,328 139,635 112,249 105,918 $ 10,479 11,575 10,165 8,220 6,865 9,970 7,525 - $ 307,271 $ 165,160 $ 472,431 $ 64,799 $ $ Interest 7,226 8,315 7,790 10,595 12,575 88,575 80,285 91,910 $ 14,439 14,065 13,634 13,237 12,753 51,060 31,964 14,008 $ Highway User Revenue Bonds Fiscal Year Principal Interest Interest $ 2,951 2,444 1,931 1,492 1,095 3,474 351 - Total Total General Obligation Bonds Principal Total Principal 13,430 14,019 12,096 9,712 7,960 13,444 7,876 - $ 17,390 $ 16,509 15,565 14,729 13,848 54,534 32,315 14,008 35,095 36,399 33,520 33,544 33,288 153,079 120,125 105,918 13,738 $ 78,537 $ 372,070 $ 178,898 $ 550,968 Interest $ Scottsdale Preserve Authority Excise Tax Revenue Bonds Total Principal 2006 $ 2,825 $ 316 $ 3,141 $ 170 $ 2,215 $ 2,385 $ 2,815 $ 2007 2,990 165 3,155 170 2,197 2,367 2,965 2008 384 2,211 2,595 3,110 2009 35 2,188 2,223 3,260 2010 1,223 2,240 3,463 3,365 19,015 2011-2015 7,214 12,248 19,462 24,400 2016-2020 22,371 16,847 39,218 24,455 2021-2025 9,333 6,828 16,161 2026-2030 10,220 4,025 14,245 2031-2035 10,105 1,294 11,399 Capital Appreciation ** 28 (28) Total $ 5,815 $ 481 $ 6,296 $ 61,253 $ 52,265 $ 113,518 $ 83,385 $ ** For GAAP financial statement reporting, accretion of capital appreciation bonds is added to the principal balance outstanding. Special Assessment Bonds Fiscal Year Principal Interest Principal Interest Total Interest Total 3,990 $ 3,836 3,672 3,500 3,367 14,373 9,166 2,828 - 6,805 6,801 6,782 6,760 6,732 33,388 33,566 27,283 - 44,732 $ 128,117 Community Facilities Districts General Obligation Bonds Certificates of Participation Total Total $ Municipal Property Corporation Bonds 17,705 19,890 17,955 18,815 19,440 98,545 87,810 91,910 Interest Notes to Financial Statements Governmental Activities (in thousands of dollars) For the Fiscal Year Ended June 30, 2005 Debt Service Requirements to Maturity The following is a summary of debt service requirements to maturity for long-term liabilities at June 30, 2005. Deferred issuance costs and deferred amounts on refunding are not included. Principal Interest Total 2006 2007 2008 2009 2010 2011-2015 2016-2020 2021-2025 2026-2030 $ 835 $ 835 835 835 750 2,250 - 267 $ 229 191 154 118 152 - 1,102 1,064 1,026 989 868 2,402 - $ 560 $ 689 712 735 760 4,194 - 357 $ 228 205 182 157 389 - 917 917 917 917 917 4,583 - $ 1,535 $ 1,615 1,685 1,760 1,870 10,730 12,295 9,265 2,725 2,121 $ 2,045 1,978 1,907 1,830 7,785 4,974 1,905 206 3,656 3,660 3,663 3,667 3,700 18,515 17,269 11,170 2,931 Total $ 6,340 $ 1,111 $ 7,451 $ 7,650 $ 1,518 $ 9,168 $ 43,480 $ 24,751 $ 68,231 (continued) City of Scottsdale, Arizona 79 For the Fiscal Year Ended June 30, 2005 Notes to Financial Statements Table of Contents Governmental Activities (concluded) (in thousands of dollars) Contracts Payable Fiscal Year 2006 2007 2008 2009 2010 2011-2015 2016-2020 2021-2025 2026-2030 2031-2035 Capital Appreciation Total Principal $ Interest 1,185 $ 1,218 1,257 1,339 1,290 3,638 1,177 1,354 1,373 493 14,324 $ Total Total 464 $ 430 393 355 314 931 529 352 127 3 1,649 1,648 1,650 1,694 1,604 4,569 1,706 1,706 1,500 496 $3,898 $ 18,222 Principal $ Interest 27,630 $ 30,372 25,938 26,779 28,698 145,586 148,053 136,317 14,318 10,598 Total 27,120 $ 54,750 25,639 56,011 24,215 50,153 23,015 49,794 21,874 50,572 90,412 235,998 63,831 211,884 25,921 162,238 4,358 18,676 1,297 11,895 28 (28) $ 594,317 $ 307,654 $ 901,971 Business-type Activities (in thousands of dollars) General Obligation Bonds Issued To Provide Water, Sewer, Light Parks, and Open Spaces 20% Limitation Fiscal Year Principal Interest 2006 $ 6,515 Total $ 6,515 $ $ Total General Obligation Bonds Total 340 Principal Interest $ 6,855 $ 6,515 340 $ 6,855 $ 6,515 $ $ Total 340 $ 6,855 340 $ 6,855 Business-type Activities (in thousands of dollars) Water and Sewer Revenue Bonds Fiscal Year 2006 2007 2008 2009 2010 2011-2015 2016-2020 2021-2025 Total 80 Principal $ $ 3,330 $ 3,475 3,635 3,785 3,260 16,835 18,215 13,200 65,735 $ Interest 3,182 $ 2,997 2,801 2,598 2,420 9,613 5,660 1,227 30,498 $ Municipal Property Corporation Bonds Total 6,512 6,472 6,436 6,383 5,680 26,448 23,875 14,427 96,233 Principal $ $ 5,825 $ 4,535 4,735 2,980 3,080 17,120 20,840 20,315 79,430 $ Interest 3,893 $ 3,699 3,472 3,254 3,105 13,105 8,479 2,673 41,680 $ Total Total 9,718 8,234 8,207 6,234 6,185 30,225 29,319 22,988 121,110 Principal $ $ Interest 15,670 $ 8,010 8,370 6,765 6,340 33,955 39,055 33,515 151,680 $ 7,415 $ 6,696 6,273 5,852 5,525 22,718 14,139 3,900 72,518 $ Total 23,085 14,706 14,643 12,617 11,865 56,673 53,194 37,415 224,198 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, 2005, the general liability claims payable totaled $10,440,416 and the self-insured benefits claims payable totaled $5,125,000. The City began to administer all self-insured health and dental plans in January of 2004. 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, the first $300,000 of health benefits claims 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, 2005, the global property-casualty insurance marketplace eased slightly from the September 11th terrorist attack downturn allowing the City to purchase an additional $10 million of liability insurance raising the total to $50 million. As for claim expenditures, settlements for each of the past five fiscal years have not exceeded the City’s excess insurance coverage amounts for any claims. For the Fiscal Year Ended June 30, 2005 V. OTHER INFORMATION Years Ended June 30 (in thousands of dollars) 2005 2004 Claims Payable, July 1 Current Year Claims Incurred Current Year Claim Payments $ 14,678 $ 18,016 (17,129) 8,839 14,980 (9,141) Claims Payable, June 30 $ 15,565 14,678 $ In addition, the actuarial assumption includes a recommendation that the City retain a cash balance equal to the estimated full and present value of general risk claims and a corridor and premium stabilization reserve for the selfinsured health benefits. At June 30, 2005, the recommended present value, assuming a 3.0% interest rate is, $9,511,976 for all lines of pending claims and the claims incurred, corridor reserve and premium stabilization reserve total $2,012,000 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 Road 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 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 City of Scottsdale, Arizona 81 For the Fiscal Year Ended June 30, 2005 Notes to Financial Statements Table of Contents 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 November 2003, Rural/Metro Corporation, the City’s provider of Fire protection and related services, informed the City that it would not extend its contractual relationship further than June 2005. The City formed a municipal fire department that began operations on July 1, 2005. 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 $2,864,014 for the year ended June 30, 2005. Annual amounts due in fiscal year 2005/06 will approximate $3,036,934. The City has a Service Agreement with the Scottsdale Convention and Visitors’ Bureau (SCVB) that provides that SCVB will manage the tourism promotion within the Scottsdale community for a ten-year period. In return, the City will pay service fees to SCVB based on the Service Agreement with the City. Payments to SCVB amounted to $5,309,145 for the year ended June 30, 2005. The annual amount due in fiscal year 2005/06 will be $5,659,274. 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, 2005, is $8,943,339. The City has entered into several agreements whereby it will reimburse developers a portion of the sales tax collected on their site for a time period up to a maximum dollar amount. The funding source for the reimbursements will come from sales tax collected on the site over the life of the agreement. The City does not become liable under the agreements until the developer has collected and remitted the tax to the City. The City’s maximum contingent liability at June 30, 2005, is $8,773,647. 82 D. Joint Venture The City participates with the cities of Phoenix, Glendale, Mesa, and Tempe in the multi-city Sub-Regional 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. The 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, 2004, (the latest audited information available from SROG), the City’s net investment in SROG was $62,998,000. SROG’s net cash operating expenses for the year ended June 30, 2004, were $27,507,218, of which the City’s share was $3,750,024, or 13.6 percent. For the year ended June 30, 2005, the City paid $16,242,132 for SROG capital contributions, and $5,957,712 for SROG operating expenses, including adjustments to the operating and replacement reserves. The Comprehensive Annual Financial Report for the Fiscal Year Ended June 30, 2004 for the multi-city Sub-Regional 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. 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. City of Scottsdale, Arizona Table of Contents 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, 2005, 2004, and 2003, were 5.70% (5.20% retirement and .50% long-term disability) 5.70% and 2.49%, respectively, for both employers and employees. The City’s contributions to the System for the years ending June 30, 2005, 2004, and 2003 were $4,944,354, $4,680,164, and $2,034,363, respectively, equal to the required contributions for each year. City of Scottsdale, Arizona Notes to Financial Statements 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 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. Public Safety Personnel Retirement System Plan Description All of the City’s public safety personnel (police officers and firefighters) 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. For the Fiscal Year Ended June 30, 2005 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. Funding Policy The System for both police and fire 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 for police is 8.96% of annual covered payroll, consisting of 10.65% for normal cost and (1.69%) for amortization of unfunded actuarial accrued liability. Contribution rates for police were 7.77% and 5.37% in 2004 and 2003, respectively. The City’s current contribution rate for fire is 11.03% of annual covered payroll, which covers all normal costs. The City had no contribution rates for fire in 2004 or 2003 because they contracted this service out to a third party vendor. Annual Pension Cost For 2005, the City’s annual pension costs of $2,101,804 for police and $38,595 for fire were equal to the City’s required and actual contributions. The required contribution was determined as part of the June 30, 2004 actuarial valuation using the individual entry-age actuarial cost method. The actuarial assumptions for both police and fire include (a) a rate of return on the investment of present and future assets of 8.75% per year compounded annually, (b) projected salary increases of 6.25% per year compounded annually, attributable to inflation and other across-the-board factors, and (c) additional projected salary increases ranging from 6.25% to 9.25% per year, attributable to seniority/merit. Included in (b) is an inflation component of 5.25%. The actuarial value of PSPRS assets was determined using techniques that 83 For the Fiscal Year Ended June 30, 2005 Notes to Financial Statements Table of Contents smooth the market value of assets over a 4-year period. PSPRS’ unfunded accrued liability is being amortized as a level percent of projected payroll on an open basis. The remaining amortization period at July 1, 2005 was 20 years. Three-Year Trend Information for PSPRS (Police) (in thousands of dollars) Fiscal Year Ending 2003 2004 2005 Annual Pension Cost (APC) 1,159 1,794 2,102 Percentage of APC Contributed 100% 100% 100% Net Pension Obligation - Because the department was formed during fiscal year 2005, actuarial information on the fire department is not available. Elected Officials’ Retirement Plan 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 7.00% 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, 2005, 2004, and 2003, were 13.49%, 13.49%, and 6.97%, respectively. The City’s contributions to EORP for the years ending June 30, 2005, 2004, and 2003 were $19,425, $19,658, and $10,036, respectively, equal to the required contributions for each year. G. Other Post-Employment Benefits In addition to the pension benefits described in H (above) 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. Twenty-two participants were added during fiscal year 2004/05 increasing the total number of participants to 111 at fiscal year-end. The projected liability, as of June 30, 2005, for medical conversion was $7,557,000. Of this liability, $6,884,000 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, 2005, actuarial valuation, as 84 City of Scottsdale, Arizona Table of Contents Public Safety Personnel Retirement System (Police) Schedule of Funding Progress (in thousands of dollars) Actuarial Valuation June 30 1999 2000 2001 2002 2003 2004 (1) Actuarial Value of Assets 72,177 84,435 93,684 94,784 98,287 99,394 City of Scottsdale, Arizona (2) Entry Age Actuarial Accrued Liability (AAL) 57,828 65,021 73,216 80,997 91,841 103,136 (3) Percent Funded (1)/(2) 124.8% 129.9% 128.0% 117.0% 107.0% 96.4% (4) Unfunded AAL (2) - (1) (14,349) (19,414) (20,468) (13,787) (6,446) 3,742 (5) Annual Covered Payroll 16,187 18,547 20,406 20,930 21,996 22,647 (6) Unfunded AAL as a Percentage of Covered Payroll (4)/(5) 16.5% Notes to Financial Statements Required Supplementary Information For the Fiscal Year Ended June 30, 2005 adjusted, based on the actuarial projection that for every additional 100 participants, future normal costs increase by an additional 3% per annum. Significant actuarial assumptions of the January 1, 2005 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 3.0 percent annually, c) salaries increase at a rate of 4.5% to 6.9% based on years of service per annum, d) projected unit credit cost method based on participant data as of January 1, 2005. 85 Table of Contents 86 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 Fund This fund receives and expends the City’s allocation of the Arizona Highway User Revenue 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 Grant Fund 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 This 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 0.35 percent Preservation Privilege (Sales) Tax revenue approved by the voters in 1995 (.2%) and 2004 (.15%). Revenues are transferred to Capital Projects Funds for land purchase and improvements in the McDowell Sonoran Preserve or are used for related debt service payments. Transportation Privilege Tax Fund This fund receives a 0.2 percent Transportation Privilege (Sales) Tax approved by the voters for transportation purposes. Revenues are transferred to Capital Projects Funds 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. 87 Table of Contents Community Facilities Districts Funds: Scottsdale Mountain Community Facilities District Fund Community Facilities Districts Funds: McDowell Mountain Community Facilities District Fund McDowell Mountain Community Facilities District Fund DC Ranch Community Facilities District Fund DC Ranch Community Facilities District Fund Via Linda Road Community Facilities District Fund Accounts for the proceeds issued by community facilities districts to acquire and improve public infrastructure in specified areas. 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 0.2 percent Preservation Privilege (Sales) Tax. 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 Bond Fund Accounts for the proceeds of Municipal Property Corporation bonds issued for acquisition or construction of capital improvements. Transportation Privilege Tax Fund Accounts for the authorized 0.2 percent Transportation Privilege (Sales) Tax dedicated to transportation capital improvements. Voters approved the tax on November 7, 1989. 88 City of Scottsdale, Arizona Table of Contents Combining Balance Sheet Nonmajor Governmental Funds June 30, 2005 (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 and Benefits Due to Other Funds Matured Bond Interest Payable Matured Bonds Payable Deferred Revenue Property Tax Special Assessments Intergovernmental Guaranty and Other Deposits Other Total Liabilities $ $ $ 11,114 2,890 57 4,227 1,495 1,091 384 76 18,062 39,396 1,602 474 189 230 2,660 Debt Service Funds $ $ $ 721 16,776 162 6,265 280 24,204 26 4,407 8,395 Total Nonmajor Governmental Funds Capital Projects Funds $ $ $ 53,657 454 328 2,300 258 56,997 3,104 31 - $ $ $ 65,492 20,120 385 4,227 162 1,495 3,391 384 6,265 614 18,062 120,597 4,732 505 189 4,637 11,055 1,125 1,223 20 7,523 86 6,265 14 19,193 489 3,624 86 6,265 1,125 1,712 34 30,340 Fund Balances Reserved for Debt Service Unreserved, Undesignated 31,873 5,011 - 53,373 5,011 85,246 Total Fund Balances 31,873 5,011 53,373 90,257 Total Liabilities and Fund Balances City of Scottsdale, Arizona $ 39,396 $ 24,204 $ 56,997 $ 120,597 89 Table of Contents Combining Statement of Revenues, Expenditures, and Changes in Fund Balances Nonmajor Governmental Funds For the Year Ended June 30, 2005 (in thousands of dollars) Special Revenue Funds REVENUES Taxes - Local Property 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 Special Assessments Property Rental Interest Earnings Intergovernmental Federal Grants State Grants Miscellaneous Developer Contributions Contributions and Donations Reimbursements From Outside Sources Other Total Revenues $ 49,416 Debt Service Funds $ Total Nonmajor Governmental Funds Capital Projects Funds 4,196 - $ - $ 4,196 49,416 14,738 1,119 - - 14,738 1,119 24 824 - - 24 824 37 907 94 566 2,016 280 91 1,803 37 907 2,016 374 2,460 7,583 758 1,268 647 166 46 78,193 310 2 6,895 1,017 3,280 21 6,121 8,600 758 1,578 3,280 647 189 46 91,209 (continued) 90 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, 2005 (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 Capital Improvements Total Expenditures Debt Service Funds Total Nonmajor Governmental Funds Capital Projects Funds 941 737 8,760 8,765 11,300 11 8 12 99 - - 1,040 737 8,760 8,765 11,300 11 8 12 3,290 785 2,072 36,681 10,843 8,815 19,757 35,534 35,534 14,133 9,600 37,606 91,972 Excess (Deficiency) of Revenues Over Expenditures 41,512 (12,862) (29,413) (763) OTHER FINANCING SOURCES (USES) Transfers In Transfers Out Total Other Financing Sources and (Uses) 10,067 (41,828) (31,761) 12,284 (65) 12,219 23,246 (38,083) (14,837) 45,597 (79,976) (34,379) (643) (44,250) (35,142) 97,623 125,399 Net Change in Fund Balances 9,751 Fund Balances - Beginning Fund Balances - Ending City of Scottsdale, Arizona 22,122 $ 31,873 5,654 $ 5,011 $ 53,373 $ 90,257 91 Table of Contents 92 Combining Balance Sheet Nonmajor Special Revenue Governmental Funds June 30, 2005 (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 and Benefits Due to Other Funds Matured Bond Interest Payable Matured Bonds Payable Deferred Revenue Intergovernmental Guaranty and Other Deposits Other Total Liabilities $ $ $ Fund Balances Unreserved, Undesignated Total Fund Balances (Deficit) City of Scottsdale, Arizona Total Liabilities and Fund Balances $ Community Development Block Grant 318 2,890 1,495 4 4,707 1,383 388 230 2,660 $ $ $ HOME 197 197 109 18 70 - $ $ $ Grants - - $ $ $ Preserve Privilege Tax Section 8 158 119 19 296 16 13 - $ $ $ 68 68 25 119 - 34 4,695 197 - 34 63 144 12 12 - - 233 233 (76) (76) 4,707 $ 197 $ - $ 296 $ 68 $ $ $ $ Transportation Privilege Tax 3,817 44 2,688 18,062 24,611 - $ $ $ 8 1 1,539 1,548 - Special Programs $ $ $ Total 6,813 12 1,091 53 7,969 94 30 - $ $ $ 11,114 2,890 57 4,227 1,495 1,091 384 76 18,062 39,396 1,602 474 189 230 2,660 - - 1,091 1,189 20 2,424 1,125 1,223 20 7,523 24,611 24,611 1,548 1,548 5,545 5,545 31,873 31,873 24,611 $ 1,548 $ 7,969 $ 39,396 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, 2005 (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 31,301 $ 18,115 Special Programs $ Total - $ 49,416 14,738 1,119 - - - - - - - 14,738 1,119 - - - - - - - 24 824 24 824 - - - 1 4 489 2 37 907 94 70 37 907 94 566 141 521 165 5 16,689 1,269 1,269 261 261 398 237 634 127 1,397 5,514 1 6 5,525 31,790 18,117 634 520 35 3,145 7,583 758 1,268 647 166 46 78,193 8,760 11,300 - 1,269 - 261 - 676 361 68 5 - 5,595 - 1 - - 264 376 1,572 11 3 12 941 737 8,760 8,765 11,300 11 8 12 2,660 460 1,753 24,933 1,269 261 171 1,281 5,595 630 325 956 - 148 2,386 3,290 785 2,072 36,681 30,834 18,117 759 41,512 (22,421) (22,421) (18,072) (18,072) 2,023 (927) 1,096 10,067 (41,828) (31,761) Excess (Deficiency) of Revenues Over Expenditures (8,244) - - 116 OTHER FINANCING SOURCES (USES) Transfers In Transfers Out Total Other Financing Sources and (Uses) 8,023 (102) 7,921 - - 21 (306) (285) (323) - - (169) (70) 8,413 45 1,855 9,751 335 - - 402 (6) 16,198 1,503 3,690 22,122 Net Change in Fund Balances Fund Balances - Beginning Fund Balances - Ending $ 12 $ - $ - $ 233 (70) - $ (76) $ 24,611 $ 1,548 $ 5,545 $ 31,873 93 Table of Contents 94 Highway User Fuel Tax - Special Revenue Fund Schedule of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual For the Year Ended June 30, 2005 (in thousands of dollars) Variance Between Final Budget and Actual Amounts Budgetary Basis Budgeted Amounts Original REVENUES Taxes - Intergovernmental Highway User Tax Local Transportation Assistance Fund Intergovernmental Federal Grants State Grants Reimbursement From Outside Sources Other Total Revenues $ EXPENDITURES Current Transportation Municipal Services Debt Service Principal Interest and Fiscal Charges Capital Improvements Total Expenditures Excess (Deficiency) of Revenues Over Expenditures OTHER FINANCING SOURCES (USES) Transfers In Transfers Out Total Other Financing Sources and Uses Net Change in Fund Balance City of Scottsdale, Arizona Fund Balance - Beginning Fund Balance - Ending $ Actual Amounts Budgetary Basis Final 13,917 1,146 $ 13,917 1,146 $ Budget to GAAP Differences 14,738 1,119 $ - Net Increase in Fund Balance - Budget to GAAP $ 14,738 1,119 $ 821 (27) 15,063 15,063 15,857 141 521 165 5 832 141 521 165 5 16,689 10,564 9,725 10,988 9,653 8,760 11,300 - 8,760 11,300 2,228 (1,647) 2,660 460 1,743 25,152 2,660 460 1,743 25,504 2,660 460 1,753 24,933 - 2,660 460 1,753 24,933 (10) 571 (10,089) (10,441) (9,076) 832 (8,244) 1,365 10,164 (75) 10,089 10,515 (74) 10,441 8,023 (102) 7,921 - 8,023 (102) 7,921 (2,492) (28) (2,520) (1,155) 832 (323) (1,155) - - - - - $ - 335 $ (820) $ 832 $ 662 165 5 832 $ 832 Explanation of Differences: The City does not budget for certain revenues: Grants Reimbursement From Outside Sources Other Actual Amounts GAAP Basis 794 335 $ 12 335 $ (820) Table of Contents City of Scottsdale, Arizona Preserve Privilege Tax - Special Revenue Fund Schedule of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual For the Year Ended June 30, 2005 (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 Balance Fund Balance - Beginning Fund Balance - Ending $ Actual Amounts Budgetary Basis Final 28,466 520 28,986 $ 28,466 520 28,986 $ 31,301 489 31,790 - $ 31,301 489 31,790 $ 2,835 (31) 2,804 - - 1 1 - 630 325 955 630 325 955 630 325 955 1 630 325 956 - 28,031 28,031 30,835 (1) 30,834 2,804 (28,031) (28,031) (28,031) (28,031) (22,421) (22,421) - (22,421) (22,421) 5,610 5,610 - - 8,414 (1) 8,413 8,414 - - 16,198 - 16,198 16,198 - $ - $ 24,612 $ 1 $ (1) The City budgets for certain expenditures on the cash basis, rather than on the modified accrual basis: Net (Decrease) in Fund Balance - Budget to GAAP $ Actual Amounts GAAP Basis - Explanation of Differences: Audit Expense Budget to GAAP Differences Variance Between Final Budget and Actual Amounts Budgetary Basis $ (1) $ 24,611 $ 24,612 95 Table of Contents 96 Transportation Privilege Tax - Special Revenue Fund Schedule of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual For the Year Ended June 30, 2005 (in thousands of dollars) Budgeted Amounts Original REVENUES Taxes - Local Transaction Privilege Interest Earnings Total Revenues $ EXPENDITURES Total Expenditures Excess (Deficiency) of Revenues over Expenditures OTHER FINANCING SOURCES (USES) Transfers Out Total Other Financing Sources and Uses Net Change in Fund Balance Fund Balance - Beginning Fund Balance - Ending $ Actual Amounts Budgetary Basis Final 16,181 16,181 $ 16,181 16,181 $ 18,115 18,115 Budget to GAAP Differences Actual Amounts GAAP Basis $ $ 2 2 18,115 2 18,117 Variance Between Final Budget and Actual Amounts Budgetary Basis $ 1,934 1,934 - - - - - - 16,181 16,181 18,115 2 18,117 1,934 (16,181) (16,181) (16,181) (16,181) (18,072) (18,072) - (18,072) (18,072) (1,891) (1,891) - - 43 2 45 43 - - 1,503 - 1,503 1,503 - $ - $ 1,546 City of Scottsdale, Arizona $ 2 Items recorded as revenues for GAAP purposes: Unrealized Loss on Investments $ 2 Net Increase in Fund Balance - Budget to GAAP $ 2 Explanation of Differences: $ 1,548 $ 1,546 Table of Contents City of Scottsdale, Arizona Combining Balance Sheet Nonmajor Debt Service Governmental Funds June 30, 2005 (in thousands of dollars) Municipal Property Corporation ASSETS Cash and Investments Cash with Fiscal Agent Receivables (net of allowance for uncollectibles) 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 Total Liabilities $ $ $ Fund Balances Reserved for Debt Service Total Fund Balances Total Liabilities and Fund Balances $ Special Assessments Scottsdale Mountain CFD McDowell Mountain CFD DC Ranch CFD Via Linda Road CFD Scottsdale Preserve Authority Total 343 $ 5,421 378 $ 143 - $ 987 - $ 2,206 - $ 2,529 - $ 817 4,673 280 6,044 $ 6,265 6,786 $ 21 1,008 $ 43 2,249 $ 84 2,613 $ 14 831 $ 4,673 - $ 1,091 4,330 10 $ 143 - 4 $ 103 285 4 $ 416 600 4 $ 489 485 4 $ 87 100 2,078 2,595 $ $ $ 721 16,776 162 6,265 280 24,204 26 4,407 8,395 5,421 6,265 14 6,432 10 402 17 1,037 51 1,029 8 199 4,673 86 6,265 14 19,193 623 623 354 354 606 606 1,212 1,212 1,584 1,584 632 632 - 5,011 5,011 2,249 $ 2,613 $ 831 $ 6,044 $ 6,786 $ 1,008 $ 4,673 $ 24,204 97 Table of Contents 98 Combining Statement of Revenues, Expenditures, and Changes in Fund Balances Nonmajor Debt Service Governmental Funds For the Year Ended June 30, 2005 (in thousands of dollars) Municipal Property Corporation REVENUES Taxes - Local Property Special Assessments Property Rental Interest Earnings Intergovernmental Miscellaneous Reimbursements from Outside Sources Total Revenues $ EXPENDITURES Current General Government Debt Service Principal Interest and Fiscal Charges Total Expenditures 280 - 614 11 $ 1,654 21 $ 1,628 31 $ 300 28 $ Total - $ 4,196 2,016 280 91 2 1,677 1,659 328 - 310 2 6,895 - 5 10 35 33 16 - 99 4,330 1,806 6,136 2,448 362 2,815 285 210 505 600 833 1,468 485 993 1,511 100 174 290 2,595 4,437 7,032 10,843 8,815 19,757 120 209 148 38 (7,032) (12,862) 7,014 12,284 (65) 12,219 5,270 (51) 5,219 (797) - (329) City of Scottsdale, Arizona 623 - (797) 952 $ $ Scottsdale Preserve Authority 625 OTHER FINANCING SOURCES (USES) Transfers In Transfers Out Total Other Financing Sources and (Uses) Fund Balances - Beginning 2,016 - Via Linda Road CFD DC Ranch CFD 2 2,018 (5,548) Fund Balances - Ending $ McDowell Mountain CFD 308 588 Excess (Deficiency) of Revenues Over Expenditures Net change in Fund Balances Scottsdale Mountain CFD Special Assessments 1,151 $ 354 $ (7) (7) (7) (7) - 7,014 120 202 141 38 (18) 486 1,010 1,443 594 18 606 $ 1,212 $ 1,584 $ 632 $ - (643) 5,654 $ 5,011 Table of Contents City of Scottsdale, Arizona General Obligation Bond Debt Service Schedule of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual For the Year Ended June 30, 2005 (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 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 Balance Fund Balance - Beginning Fund Balance - Ending $ Final 26,859 26,859 $ 26,859 26,859 26,602 26,602 - 26,602 26,602 (257) (257) 18,202 21,770 39,972 18,202 21,770 39,972 18,825 18,216 376 37,417 - 18,825 18,216 376 37,417 (623) 3,554 (376) 2,555 (13,113) (13,113) (10,815) - (10,815) 2,298 13,113 13,113 13,113 13,113 12,825 74,630 3,078 (77,584) 12,949 - 12,825 74,630 3,078 (77,584) 12,949 (288) 74,630 3,078 (77,584) (164) - - 2,134 - 2,134 2,134 - - 3,468 - 3,468 3,468 - $ - $ 5,602 $ - $ 5,602 $ 5,602 99 Table of Contents 100 Municipal Property Corporation Bond Debt Service Schedule of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual For the Year Ended June 30, 2005 (in thousands of dollars) Actual Amounts GAAP Basis Variance Between Final Budget and Actual Amounts Budgetary Basis $ $ Budgeted Amounts Original REVENUES Property Rental Intergovernmental Total Revenues $ EXPENDITURES Debt Service Principal Interest and Fiscal Charges Total Expenditures Excess (Deficiency) of Revenues Over Expenditures OTHER FINANCING SOURCES (USES) Transfers In Transfers Out Total Other Financing Sources and Uses Net Change in Fund Balance City of Scottsdale, Arizona Fund Balance - Beginning Fund Balance - Ending $ Actual Amounts Budgetary Basis Final 350 350 $ 350 350 $ Budget to GAAP Differences 280 308 588 $ - 280 308 588 (70) 308 238 4,455 3,116 7,571 4,455 2,896 7,351 4,330 1,806 6,136 - 4,330 1,806 6,136 125 1,090 1,215 (7,221) (7,001) (5,548) - (5,548) 1,453 7,221 7,221 7,001 7,001 5,270 (51) 5,219 - 5,270 (51) 5,219 (1,731) (51) (1,782) - - (329) - (329) (329) - - 952 - 952 952 - $ - $ 623 $ - $ 623 $ 623 Table of Contents City of Scottsdale, Arizona Special Assessments Bond Debt Service Schedule of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual For the Year Ended June 30, 2005 (in thousands of dollars) Actual Amounts GAAP Basis Variance Between Final Budget and Actual Amounts Budgetary Basis $ $ Budgeted Amounts Original REVENUES Special Assessments Reimbursements from Outside Sources Total Revenues $ EXPENDITURES Current: General Government Debt Service Principal Interest and Fiscal Charges Total Expenditures Excess (Deficiency) of Revenues Over Expenditures Fund Balance - Beginning Fund Balance - Ending $ Actual Amounts Budgetary Basis Final 2,792 2,792 $ 2,792 2,792 $ Budget to GAAP Differences 2,016 2,016 $ 2 2 2,016 2 2,018 (776) (776) - - 5 - 5 (5) 2,438 354 2,792 2,438 354 2,792 2,448 362 2,815 - 2,448 362 2,815 (10) (8) (23) - - - - - $ - (799) 2 1,151 $ 352 (797) $ 2 The City does not budget for certain revenues: Reimbursement From Outside Sources $ 2 2 Net Increase in Fund Balance - Budget to GAAP $ 2 (799) 1,151 $ 354 1,151 $ 352 101 Table of Contents 102 Scottsdale Preserve Authority Bond Debt Service Schedule of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual For the Year Ended June 30, 2005 (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 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 Balance Fund Balance - Beginning Fund Balance - Ending $ Final - $ - - - - - 2,595 4,266 6,861 2,595 4,266 6,861 2,595 4,437 7,032 - 2,595 4,437 7,032 (171) (171) (6,861) (6,861) (7,032) - (7,032) (171) 6,861 6,861 6,861 6,861 7,014 7,014 - 7,014 7,014 153 153 - - (18) - (18) (18) - - 18 - 18 18 - $ - $ - $ - $ - $ - City of Scottsdale, Arizona Table of Contents City of Scottsdale, Arizona Combining Balance Sheet Nonmajor Capital Projects Governmental Funds June 30, 2005 (in thousands of dollars) General Obilgation Bond ASSETS Cash and Investments Cash with Fiscal Agent Receivables Interest Intergovernmental Miscellaneous Total Assets LIABILITIES AND FUND BALANCES Liabilities Accounts Payable Accrued Payroll and Benefits Guaranty and Other Deposits Total Liabilities $ $ $ Fund Balances Unreserved, Undesignated Total Fund Balances Total Liabilities and Fund Balances Municipal Property Corporation 15,249 176 15,425 - $ $ $ 15,425 15,425 $ 15,425 125 2 127 - $ $ $ 127 127 $ McDowell Mountain CFD Transportation Privilege Tax 127 38,283 150 2,300 258 40,991 3,104 31 489 3,624 $ $ $ 37,367 37,367 $ 40,991 DC Ranch CFD 102 102 - $ $ $ 102 102 $ 102 Total 352 352 - $ $ $ 352 352 $ 352 53,657 454 328 2,300 258 56,997 3,104 31 489 3,624 53,373 53,373 $ 56,997 103 Table of Contents 104 Combining Statement of Revenues, Expenditures, and Changes in Fund Balances Nonmajor Capital Projects Governmental Funds For the Year Ended June 30, 2005 (in thousands of dollars) General Obilgation Bond REVENUES Interest Earnings Intergovernmental Federal Grants Developer Contributions Reimbursements from Outside Sources Total Revenues $ EXPENDITURES Capital Improvements Total Expenditures Excess (Deficiency) of Revenues Over Expenditures OTHER FINANCING SOURCES (USES) Transfers In Transfers Out Total Other Financing Sources and (Uses) Net Change in Fund Balances Fund Balances - Beginning City of Scottsdale, Arizona Fund Balances - Ending $ Municipal Property Corporation 979 $ McDowell Mountain CFD Transportation Privilege Tax 11 $ 791 $ DC Ranch CFD 1 $ Total 21 $ 1,803 979 11 1,017 1,669 21 3,498 1 1,611 1,632 1,017 3,280 21 6,121 - - 27,491 27,491 1 1 8,042 8,042 35,534 35,534 979 11 (23,993) - (6,410) (29,413) (34,893) (34,893) (548) (548) 23,232 (2,642) 20,590 7 7 (33,914) (537) (3,403) 7 (6,403) (44,250) 49,339 664 40,770 95 6,755 97,623 15,425 $ 127 $ 37,367 $ 102 7 7 $ 352 23,246 (38,083) (14,837) $ 53,373 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, 2005 (in thousands of dollars) Budgeted Amounts Original Revenues Charges for Sales and Services Water Service Fees Sewer Service Fees Proprietary - Non-Potable Water Fees Groundwater Treatment Plant Investment Income Capital Contributions 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 Capital Assets Transfers Out Total Expenses Change in Net Assets (continued on next page) $ 67,057 26,081 4,326 881 1,099 1,367 Final $ 67,057 26,081 4,326 881 1,099 1,367 Actual Amounts Budgetary Basis $ 67,393 26,959 4,878 885 4,568 820 Budget to GAAP Differences $ (425) 35,908 - Actual Amounts GAAP Basis $ 67,393 26,959 4,878 885 4,143 35,908 820 Variance Between Final Budget and Actual Amounts Budgetary Basis $ 336 878 552 4 3,469 (547) 100,811 100,811 105,503 35,483 140,986 4,692 34,021 11,419 18,910 6,298 8,868 33,871 11,437 18,910 6,298 8,868 34,879 14,932 17,296 6,298 8,639 305 (1) (10,885) 25,223 501 - 35,184 14,931 6,411 25,223 6,298 501 8,639 (1,008) (3,495) 1,614 229 79,516 79,384 82,044 15,143 97,187 (2,660) 21,295 $ 21,427 $ 23,459 $ 20,340 $ 43,799 $ 2,032 105 Table of Contents 106 Water and Sewer Utility Enterprise Fund Schedule of Revenues and Expenses - Budget and Actual For the Year Ended June 30, 2005 (in thousands of dollars) Explanation of Differences: Items recorded as revenues for GAAP purposes that are not recorded as revenues for budget purposes: Loss on Investments Capital Contributions Total Revenue Reconciling Items: $ (425) 35,908 35,483 The City budgets for certain expenditures on the cash basis, rather than on the modified accrual basis: 304 (10,885) 25,223 501 15,143 Compensated Absences Debt Service Principal Payments Depreciation and Amortization Expense Loss on Sale of Capital Assets Total Expenditure Reconciling Items: Net Increase in Net Assets - Budget to GAAP $ 20,340 City of Scottsdale, Arizona Table of Contents City of Scottsdale, Arizona Airport Enterprise Fund Schedule of Revenues and Expenses - Budget and Actual For the Year Ended June 30, 2005 (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 Capital Assets Transfers Out Total Expenses Change in Net Assets $ 2,853 20 106 Final $ 2,853 20 106 3,162 27 114 (6) 2,405 - 309 7 8 2,979 2,979 3,303 2,399 5,702 324 1,449 467 279 1,449 467 279 2,157 467 292 3 719 472 - 2,160 719 467 472 292 (708) (13) 2,195 2,195 2,916 1,194 4,110 (721) 784 $ 784 $ 387 $ 1,205 Explanation of Differences: Items recorded as revenues for GAAP purposes that are not recorded as revenues for budget purposes: Loss on Investments Capital Contributions Total Revenue Reconciling Items: $ (6) 2,405 2,399 The City budgets for certain expenditures on the cash basis, rather than on the modified accrual basis: 107 3 719 472 1,194 Compensated Absences Depreciation Expense Loss on Sale of Capital Assets Total Expenditure Reconciling Items: Net increase in Net Assets - Budget to GAAP 3,162 21 2,405 114 $ 1,205 $ 1,592 $ (397) Table of Contents Solid Waste Enterprise Fund 108 Schedule of Revenues and Expenses - Budget and Actual For the Year Ended June 30, 2005 (in thousands of dollars) Budgeted Amounts Original Revenues Charges for Sales and Services: Solid Waste Fees Investment Income Other $ Total Revenues Expenses Cost of Sales and Services Solid Waste Operations Debt Service and Reserves Depreciation Indirect Costs Loss on Sale of Capital Assets Transfers Out Total Expenses Change in Net Assets $ 16,722 40 - Actual Amounts Budgetary Basis Final $ 16,722 40 - $ 16,984 143 1 Budget to GAAP Differences $ (19) - $ 16,984 124 1 $ 262 103 1 16,762 16,762 17,128 (19) 17,109 366 12,979 343 1,870 668 12,985 343 1,870 668 13,117 362 1,870 750 213 (255) 201 4 - 13,330 107 201 1,870 4 750 (132) (19) (82) 15,860 15,866 16,099 163 16,262 (233) 902 $ 896 $ 1,029 $ (182) $ (19) (19) Explanation of Differences: City of Scottsdale, Arizona Items recorded as revenues for GAAP purposes that are not recorded as revenues for budget purposes: Loss on Investments Total Revenue Reconciling Items: The City budgets for certain expenditures on the cash basis, rather than on the modified accrual basis: 213 (255) 201 4 163 Compensated Absences Debt Service Principal Payments Depreciation Expense Loss on Sale of Capital Assets Total Expenditure Reconciling Items: Net (Decrease) in Net Assets - Budget to GAAP Actual Amounts GAAP Basis Variance Between Final Budget and Actual Amounts Budgetary Basis $ (182) $ 847 $ 133 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 and employee contributions for health and dental coverage. This fund provides coverage of unemployment, self-insured benefits, workmen’s compensation, property, and liability claims. City of Scottsdale, Arizona 109 Table of Contents Combining Statement of Net Assets Internal Service Funds June 30, 2005 (in thousands of dollars) Fleet Management SelfInsurance Total ASSETS Current Assets Cash and Investments Receivables (net of allowance for uncollectibles) 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 11,836 $ 20,583 $ 32,419 50 32 269 83 772 - 133 804 269 12,187 21,438 33,625 1,846 53,608 408 1,041 (32,260) 22 (22) 1,846 53,608 408 22 1,041 (32,282) Total Capital Assets (net of accumulated depreciation) 24,643 - 24,643 Total Noncurrent Assets 24,643 - 24,643 36,830 21,438 58,268 668 134 45 - 161 45 15 15,565 829 179 60 15,565 847 15,786 16,633 296 296 100 100 396 396 1,143 15,886 17,029 24,643 11,044 5,552 24,643 16,596 Total Assets 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 NET ASSETS Invested in Capital Assets, Net of Related Debt Unrestricted Total Net Assets 110 $ 35,687 $ 5,552 $ 41,239 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, 2005 (in thousands of dollars) Fleet Management Operating Revenues Charges for Sales and Services Billings To User Programs Self Insurance Contributions-Employee Other $ Total Operating Revenues Operating Expenses Costs of Sales and Services Fleet Management Operations Self-Insurance Administration Self-Insurance Claims Self-Insurance Benefits Insurance and Bond Premiums Depreciation Total Operating Expenses Operating Income (Loss) Non-Operating Revenues Property Tax Investment Income Gain on Sale of Capital Assets Total Non-Operating Revenues Income (Loss) Before Contributions and Transfers Capital Contributions Transfers In Transfers Out Change in Net Assets Total Net Assets - Beginning Total Net Assets - Ending City of Scottsdale, Arizona $ 11,429 165 SelfInsurance $ 15,980 2,500 674 Total $ 27,409 2,500 839 11,594 19,154 30,748 7,386 5,322 2,556 4,359 13,657 1,420 - 7,386 2,556 4,359 13,657 1,420 5,322 12,708 21,992 34,700 (1,114) (2,838) (3,952) 269 41 404 443 - 404 712 41 310 847 1,157 (804) (1,991) (2,795) 2,020 1,273 (2,339) 2,145 (11) 2,020 3,418 (2,350) 150 143 293 35,537 5,409 40,946 35,687 $ 5,552 $ 41,239 111 Table of Contents Combining Statement of Cash Flows Internal Service Funds For the Year Ended June 30, 2005 (in thousands of dollars) Fleet Management SelfInsurance Total 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 11,429 (7,880) 66 141 $ 18,276 (21,732) 645 674 $ 29,705 (29,612) 711 815 3,756 (2,137) 1,619 1,273 (2,339) 422 2,145 (11) 422 3,418 (2,350) (1,066) 2,556 1,490 (2,611) 79 - (2,611) 79 (2,532) - (2,532) 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 Capital Assets Net Cash (Used) for Capital and Related Financing Activities Cash Flows from Investing Activities Income Received on Investments Net Increase (Decrease) in Cash and Cash Equivalents Cash and Cash Equivalents at Beginning of Year 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 Miscellaneous Receivables Supplies Inventory Accounts Payable Accrued Payroll and Benefits Claims Payable Supplemental Disclosure of Noncash Financing Activities Additions to Property, Plant, and Equipment Contributions from Other Government Units Total Non-Cash Financing Activities 112 435 696 419 854 1,273 11,417 19,729 31,146 $ 11,836 $ 20,583 $ 32,419 $ (1,114) $ (2,838) $ (3,952) 5,322 - (24) 72 (566) 66 - Total Adjustments Net Cash Provided by Operating Activities 261 5,322 (204) (31) 49 887 4,870 (228) 72 (597) 115 887 701 $ 3,756 $ $ $ 2,020 2,020 $ $ (2,137) - 5,571 $ 1,619 $ $ 2,020 2,020 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 individual 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 113 Table of Contents 114 Combining Statement of Fiduciary Net Assets Fiduciary Funds June 30, 2005 (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 $ Total Assets 4 $ 19 Agency Funds Family Self-Sufficiency Agency Fund Total $ 23 $ Retainage Escrow Agency Fund 101 $ Total 4,721 $ 4,822 4 19 23 101 4,721 4,822 - - - 101 - 4,721 101 4,721 - - - 101 4,721 4,822 LIABILITIES Accounts Payable Designated Escrow Payable Total Liabilities NET ASSETS Held in Trust for Other Purposes $ 4 $ 19 $ 23 $ - $ - $ - City of Scottsdale, Arizona Table of Contents Combining Statement of Changes in Fiduciary Net Assets Fiduciary Funds For the Year Ended June 30, 2005 (in thousands of dollars) ADDITIONS Contributions: Private Donations Investment Earnings: Interest Handicap Scholarship Private Purpose Trust Fund Scottsdale Memorial Hospital Redevelopment Private Purpose Trust Fund $ $ Total Additions DEDUCTIONS Scholarships Redevelopment Expenses Total Deductions Change in Net Assets Net Assets - Beginning Net Assets - Ending City of Scottsdale, Arizona $ 4 125 Total $ 129 - 3 3 4 128 132 6 - 473 6 473 6 473 479 (2) (345) (347) 6 364 370 4 $ 19 $ 23 115 Table of Contents 116 Combining Statement of Changes in Assets and Liabilities Fiduciary Funds For the Year Ended June 30, 2005 (in thousands of dollars) Family Self-Sufficiency Balance July 1, 2004 Additions Deductions Retainage Escrow Balance June 30, 2005 Balance July 1, 2004 Additions Deductions Balance June 30, 2005 ASSETS Cash and Cash Equivalents Total Assets $ 84 $ 42 $ 25 $ 101 $ 1,513 $ 4,721 $ 1,513 $ 4,721 $ 84 $ 42 $ 25 $ 101 $ 1,513 $ 4,721 $ 1,513 $ 4,721 $ 84 - $ 42 - $ 25 - $ 101 - $ 1,513 $ 4,721 $ 1,513 $ 4,721 $ 84 $ 42 $ 25 $ 101 $ 1,513 $ 4,721 $ 1,513 $ 4,721 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 117 Table of Contents Schedule of Changes in Long-Term Debt* 118 For the Year Ended June 30, 2005 (in thousands of dollars) July 1, 2004 Issued Retired Refunding Bonds Issued Bonds Defeased Accretions, Amortizations & Contract Adjustments June 30, 2005 Governmental Activities Business Final Type-Activities Payment Date GENERAL OBLIGATION BONDS Governmental Fund Type: 1993 Refunding 1993A GO Refunding 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 2003 GO Refunding Various Purpose 2004 GO Various Purpose 2004 GO Preservation 2005 GO Refunding Various Purpose 2005 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 2003 GO Series Deferred Amount on Refunding 2003 GO Refunding Series Deferred Issuance Premium 2004 GO Series Deferred Issuance Premium 2005 GO Series Deferred Amount on Refunding 2005 GO Refunding Series Deferred Issuance Premium Subtotal $ Business Type - General Obligation Bonds 1993 Refunding 1993 A GO Refunding Subtotal Total General Obligation Bonds 12,768 $ 2,510 1,235 19,770 8,090 5,500 16,925 28,225 17,062 24,293 21,295 40,000 55,405 8,100 15,020 48,000 65,400 1,180 (1,925) 3,374 (3,433) (312) 426 1,026 389,934 9,336 1,315 10,651 - $ - 2,465 2,370 1,235 85 855 1,000 1,550 1,025 2,730 2,020 1,845 45 1,600 18,825 $ 4,575 4,575 - $ 8,540 66,090 (4,014) 3,078 73,694 - 8,225 22,680 8,420 34,245 73,570 $ 237 $ (4,422) 4,422 (115) 187 (754) 766 59 (80) (51) 70 (53) 266 439 439 - 10,540 $ 140 19,685 7,235 4,500 7,150 4,520 9,910 28,715 10,855 5,755 53,560 8,100 14,975 48,000 63,800 8,540 66,090 1,065 (1,738) 2,620 (2,667) (253) 346 975 (3,944) 3,025 371,499 5,200 1,315 6,515 10,540 $ 140 19,685 7,235 4,500 7,150 4,520 9,910 28,715 10,855 5,755 53,560 8,100 14,975 48,000 63,800 8,540 66,090 1,065 (1,738) 2,620 (2,667) (253) 346 975 (3,944) 3,025 371,499 - - 07/01/09 07/01/11 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 07/01/13 07/01/25 07/01/25 07/01/24 07/01/24 5,200 1,315 6,515 07/01/06 07/01/06 $ 400,585 $ - $ 23,400 $ 73,694 $ 73,570 $ 705 $ 378,014 $ 371,499 $ 6,515 $ 8,475 8,475 $ - $ 2,660 2,660 $ - $ - $ - $ 5,815 5,815 $ 5,815 5,815 $ - REVENUE BONDS City of Scottsdale, Arizona Governmental Fund Type Highway User Revenue Fund Bonds 1993 HURF Refunding Subtotal Business Type - Revenue Bonds 1996 Utility Revenue Series Refunding 1989 Utility Series D (1998) 1989 Utility Series E (1998) 2004 Utility Revenue Series Refunding 1996 Revenue Series Deferred Amount on Refunding 2004 Revenue Series Deferred Amount on Refunding 2004 Refunding Series Deferred Issuance Premium Subtotal Total Revenue Bonds 6,175 9,775 33,535 18,880 (197) (1,622) 1,788 68,334 $ 76,809 $ - 575 575 1,400 80 2,630 $ 5,290 $ - *This exhibit includes both Governmental Activities and Business-Type Activities debt (paid out of Enterprise Funds). $ - 41 248 (274) 15 $ 15 5,600 9,200 32,135 18,800 (156) (1,374) 1,514 65,719 $ 71,534 $ 5,815 5,600 9,200 32,135 18,800 (156) (1,374) 1,514 65,719 $ 65,719 07/01/07 07/01/14 07/01/22 07/01/23 07/01/16 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, 2005 (in thousands of dollars) July 1, 2004 MUNICIPAL PROPERTY CORPORATION BONDS Governmental Fund Type: 1993 Refunding 1998 MPC 2004A MPC 2005 MPC 2004 Series Deferred Issuance Premium 2005 Series Deferred Issuance Premium Subtotal $ Business Type - Municipal Property Corporation Bonds 1995 Transfer Station 2001 Scottswater 2004 Water/Sewer 2001 Scottswater Deferred Issuance Premium 2004 Water/Sewer 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 2004 Excise Tax Refunding 2001 Excise Tax Revenue Deferred Issuance Premium 2001 Excise Tax Revenue Deferred Amount on Refunding 2004 Excise Tax Revenue Deferred Issuance Premium 2004 Excise Tax Revenue Deferred Amount on Refunding Total Scottsdale Preserve Authority Bonds SPECIAL ASSESSMENT BONDS Governmental Fund Type: Bell Road Series 101 Desert Ranch Infrastructure Series 103 Pima Acres Paving & Drainage Series 105 Bell Road II Series 106 Total Special Assessment Bonds CERTIFICATES OF PARTICIPATION Governmental Fund Type: 2005 Certificates of Participation Total Certificates of Participation 4,170 680 4,850 Issued $ 1,740 6,625 75,000 151 4,678 88,194 Retired 40,760 19,945 1,075 383 62,163 $ - 4,170 160 4,330 Refunding Bonds Issued Bonds Defeased Accretions, Amortizations & Contract Adjustments $ $ $ 255 1,490 2,190 3,935 - - - - June 30, 2005 - $ 28 (27) 1 (37) (247) (284) 93,044 $ 62,163 $ 8,265 $ - $ - $ (283) $ $ 595 $ 45,155 17,305 22,925 110 (666) 2,530 (2,385) 85,569 $ - $ 595 1,930 70 2,595 $ - $ - $ - $ - $ (6) 37 (316) 298 13 $ $ $ 5 1,575 425 6,750 8,755 $ $ - $ $ - $ $ 7,650 7,650 $ $ $ 5 1,575 85 750 2,415 $ $ - $ $ $ - $ $ - *This exhibit includes both Governmental Activities and Business-Type Activities debt (paid out of Enterprise Funds). $ $ $ $ - $ $ - $ 1,485 5,135 72,810 114 4,431 83,975 $ $ 520 40,760 19,973 1,048 383 62,684 Governmental Business Activities Type-Activities $ $ - $ $ - 146,659 520 40,760 19,973 1,048 383 62,684 $ $ - $ 43,225 17,235 22,925 104 (629) 2,214 (2,087) 82,987 $ $ $ 340 6,000 6,340 $ $ 7,650 7,650 62,684 Final Payment Date - 07/01/05 07/01/08 07/01/14 07/01/34 07/01/21 1,485 5,135 72,810 114 4,431 83,975 07/01/10 07/01/08 07/01/24 $ 83,975 - $ 43,225 17,235 22,925 104 (629) 2,214 (2,087) 82,987 $ - 07/01/05 07/01/24 07/01/22 07/01/16 01/01/04 01/01/05 01/01/09 01/01/13 01/01/15 $ $ 340 6,000 6,340 $ - $ $ 7,650 7,650 $ $ - 119 Table of Contents 120 Schedule of Changes in Long-Term Debt* For the Year Ended June 30, 2005 (in thousands of dollars) July 1, 2004 Issued Retired Refunding Bonds Issued Bonds Defeased Accretions, Amortizations & Contract Adjustments June 30, 2005 Governmental Activities Business Final Type-Activities Payment Date 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 17,405 $ 4,750 3,130 3,085 4,885 11,695 32 (432) 63 44,613 - $ 600 155 100 85 285 245 1,470 $ - $ - $ - $ (4) 57 (3) 50 16,805 $ 4,595 3,030 3,000 4,600 11,450 28 (375) 60 43,193 16,805 $ 4,595 3,030 3,000 4,600 11,450 28 (375) 60 43,193 - $ 709,375 $ 69,813 $ 43,435 $ 73,694 $ 73,570 $ 500 $ 736,377 $ 580,168 $ 156,209 $ $ $ - $ - $ $ 3,176 193 3 6,195 1,540 1,650 67 1,500 14,324 $ $ 3,176 193 3 6,195 1,540 1,650 67 1,500 14,324 $ $ - $ $ - $ $ 66 37 2 630 55 55 33 878 $ $ 1,500 1,500 $ - $ 71,313 $ 44,313 $ 73,694 $ 73,570 $ 500 $ 750,701 $ 594,492 $ 156,209 07/15/22 07/15/23 07/15/23 07/15/24 07/15/18 07/15/27 CONTRACTS PAYABLE City of Scottsdale, Arizona Governmental Fund Type: US Corps of Engineers Dial Corporation US Patent Office McDowell Sonoran Preserve Bureau of Reclamation\Westworld Bureau of Reclamation\TPC Underground Improvement District Series 104 Motor Mile Marketing Total Contracts $ 3,242 230 5 6,825 1,595 1,705 100 13,702 TOTAL BONDS AND CONTRACTS $ 723,077 Compensated Absences Total Long-Term Debt *This exhibit includes both Governmental Activities and Business-Type Activities debt (paid out of Enterprise Funds). 13,900 $ 608,392 1,971 $ 158,180 2032 2008 2009 2013 2032 2035 01/01/13 Table of Contents Statistical Section Contents Financial Trends Page 122 These schedules contain trend information to help the reader understand how the City's financial performance and well-being have changed over time. Revenue Capacity 132 These schedules contain information to help the reader assess the City's most significant local revenue sources, property tax and sale and use taxes. Debt Capacity 136 These schedules present information to help the reader assess the affordability of the City's current levels of outstanding debt and the City's ability to issue additional debt in the future. Economic and Demographic Information 142 These schedules offer economic and demographic indicators to help the reader understand the environment within which the City's financial activities take place. Operating Information 144 These schedules contain service and infrastructure data to help the reader understand how the information in the City's financial report relates to the services the City provides and the activities it performs. Sources: Unless otherwise noted, the information in these schedules is derived from the comprehensive annual financial reports for the relevant year. City of Scottsdale, Arizona 121 Table of Contents 122 City of Scottsdale Net Assets by Component Last Four Fiscal Years (accrual basis of accounting) ( in thousands) Table I Fiscal Year 2002 Governmental Activities Invested in Capital Assets, Net of Related Debt Restricted Unrestricted Total Governmental Activities Net Assets Business-type Activities Invested in Capital Assets, Net of Related Debt Restricted Unrestricted Total Business-type Activities Net Assets City of Scottsdale, Arizona Primary Government Invested in Capital Assets, Net of Related Debt Restricted Unrestricted Total Primary Government Net Assets $ $ $ $ $ $ 2003 1,429,495 133,460 152,731 1,715,686 $ 629,106 16,399 175,624 821,129 $ 2,058,601 149,859 328,355 2,536,815 $ $ $ $ 2004 1,497,575 117,801 165,209 1,780,585 $ 659,130 16,721 186,147 861,998 $ 2,156,705 134,522 351,356 2,642,583 (1) The increase from the prior period was caused by a substantial increase in capital asset contributions. $ $ $ $ 1,548,486 199,767 127,017 1,875,270 2005 $ 1,657,747 72,795 217,802 1,948,344 653,351 $ 20,842 272,431 (1) 946,624 $ 756,433 23,472 212,957 992,862 2,201,837 220,609 399,448 2,821,894 $ $ $ 2,414,180 96,267 430,759 2,941,206 Table of Contents City of Scottsdale, Arizona City of Scottsdale Changes in Net Assets Last Four Fiscal Years (accrual basis of accounting) (in thousands) Table IIa Fiscal Year 2002 Expenses Governmental Activities: General Government Police Financial Services Transportation Community Services Information Services Fire Municipal Services Citizen and Neighborhood Resources Human Resources Economic Vitality Planning and Development Streetlight and Service Districts Interest on Long-term Debt Total Governmental Activities Expenses $ Business-type Activities: Water Utility Sewer Utility Airport Solid Waste Total Business-type Activities Expenses Total Primary Government Expenses 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 2003 $ 51,125 24,007 2,648 14,071 91,851 $ 393,157 22,776 54,469 7,883 71,837 52,222 11,901 18,127 12,290 2,433 3,601 6,421 11,908 1,099 27,786 304,753 2004 $ 50,406 22,862 2,476 13,783 89,527 $ 394,280 23,839 60,027 7,655 78,373 55,087 11,135 19,570 13,024 2,812 3,462 6,130 11,697 1,024 28,028 321,863 2005 $ 51,095 24,678 2,622 15,153 93,548 $ 415,411 (1) Increase from prior year was caused by the purchase of equipment, furnishing and clothing needed to start the city's Fire Department on July 1, 2005. 30,943 63,076 8,315 85,835 57,519 7,941 28,620 (1) 16,520 3,496 3,333 8,026 12,522 1,094 32,466 359,706 59,723 28,324 3,346 15,508 106,901 $ 466,607 123 Table of Contents 124 City of Scottsdale Changes in Net Assets Last Four Fiscal Years (accrual basis of accounting) (in thousands) Table IIb Fiscal Year 2002 Program Revenue Governmental Activities: Charges for Services: General Government Police Community Services Planning and Development Streetlight and Service Districts Operating Grants and Contributions Capital Grants and Contributions Total Governmental Activities Program Revenues $ City of Scottsdale, Arizona Business-type Activities: Charges for Services: Water Utility Sewer Utility Airport Solid Waste Capital Grants and Contributions Total Business-type Activities Revenues 11,243 5,706 3,229 15,764 1,012 22,200 77,412 136,566 2003 $ 68,064 24,017 1,689 15,796 38,733 148,299 Total Primary Government Revenues $ 284,865 Net (Expense)/Revenue Governmental Activities Business-type Activities Total Primary Government Net Expense $ (164,740) 56,448 $ (108,292) 11,402 4,227 3,405 15,449 1,018 21,219 70,369 127,089 2004 $ 66,626 25,316 2,424 16,250 28,487 139,103 $ 12,742 6,760 3,759 17,314 1,000 24,508 105,794 171,877 2005 $ 70,613 25,587 2,936 16,488 71,709 187,333 12,106 11,514 3,914 18,188 998 26,865 73,092 146,677 72,612 27,503 3,162 16,984 38,313 158,574 266,192 $ 359,210 $ $ (177,664) 49,576 $ (128,088) $ (149,986) 93,785 (56,201) $ (213,029) 51,673 $ (161,356) $ 305,251 Table of Contents City of Scottsdale, Arizona City of Scottsdale Changes in Net Assets Last Four Fiscal Years (accrual basis of accounting) (in thousands) Table IIc Fiscal Year 2002 Governmental Revenues and Other Changes in Net Assets Governmental Activities: Taxes Intergovernmental Interest and Investment Income Miscellaneous and Special Items Transfers Total Governmental Activities $ Business-type Activities: Interest and Investment Income Miscellaneous Transfers Total Business-type Activities: Total Primary Government Change in Net Assets Governmental Activities Business-type Activities Total Primary Government 167,105 44,918 11,485 5,382 6,288 235,178 2003 $ 5,820 874 (6,289) 405 167,153 46,971 4,108 4,760 10,955 233,947 2004 $ 1,493 755 (10,955) (8,707) 183,039 45,163 2,655 2,777 11,037 244,671 2005 $ 973 905 (11,037) (9,159) 217,325 (1) 48,346 6,765 4,100 9,567 286,103 4,288 (156) (9,567) (5,435) $ 235,583 $ 225,240 $ 235,512 $ 280,668 $ 70,438 56,853 127,291 $ 56,283 40,869 97,152 $ 94,685 84,626 179,311 $ 73,074 46,238 119,312 $ $ $ $ (1) In May 2004, the City of Scottdale citizens approved an additional .15% Preservation Privilege Tax and a .10% Public Safety Tax. These taxes were effective July 1, 2004. 125 Table of Contents 126 City of Scottsdale Governmental Activities Tax Revenues By Source Last Four Fiscal Years (accrual basis of accounting) (in thousands) Table III Fiscal Year 2002 2003 2004 2005 Fiscal Year City of Scottsdale, Arizona 2002 2003 2004 2005 (1) Privilege & Use General Property $ 39,485 42,218 46,371 48,416 $ 81,871 79,483 87,422 94,407 Privilege & Use McDowell Mtn (1) $ Franchise Taxes Cable TV Light & Power Franchise Franchise $ 2,223 2,440 2,740 2,859 $ 5,238 5,147 5,488 5,596 Sales and Use Taxes Privilege & Use Transportation 15,814 15,645 16,981 31,301 $ 15,621 15,853 17,054 18,779 $ Intergovernmental State Revenue Sharing State Shared Sales $ 15,587 15,335 16,628 18,115 Privilege & Use Public Safety (1) $ 21,142 21,574 18,278 18,634 $ 8,491 (1) Other 316 414 481 1,136 In May 2004, the City of Scottdale citizens approved an additional .15% Preservation Privilege Tax and a .10% Public Safety Tax. These taxes were effective July 1, 2004. Transient Occupancy $ 6,691 6,688 7,227 7,939 Table of Contents City of Scottsdale, Arizona City of Scottsdale Fund Balances of Governmental Funds Last Four Fiscal Years (modified accrual basis of accounting) (in thousands) Table IV Fiscal Year 2002 2003 2004 2005 General Fund Reserved Unreserved $ 2,006 74,363 $ 1,992 71,236 $ 2,153 59,707 (1) $ 872 72,772 Total General Fund $ 76,369 $ 73,228 $ 61,860 $ 73,644 $ 12,880 $ 13,670 $ 9,122 $ 10,613 All Other Governmental Funds Reserved Unreserved, Reported in: Special Revenue Funds Capital Project Funds Total All Other Governmental Funds 25,775 168,550 $ 207,205 24,553 159,421 $ 197,644 22,122 224,422 (2) $ 255,666 31,873 148,626 $ (1) The decrease from prior period was caused by a defeasance of debt. (2) The increase from prior period was caused by unspent bond proceeds that were received in the last quarter of the fiscal year. 191,112 127 Table of Contents 128 City of Scottsdale Changes in Fund Balances of Governmental Funds Last Four Fiscal Years (modified accrual basis of accounting) (in thousands) Table Va Fiscal Year 2002 City of Scottsdale, Arizona Revenues Taxes - Local Taxes - Intergovernmental Business and Liquor Licenses Charges for Current Services Fines, Fees and Forfeitures Special Assessments Property Rental Interest Earnings Intergovernmental Developer Contributions Streetlight and Services Districts Contributions and Donations Reimbursements from Outside Sources Indirect Costs Other Total Revenues $ 164,775 57,176 1,815 20,038 5,234 2,339 2,835 10,300 12,892 799 1,012 367 118 7,960 2,260 289,920 2003 $ 167,153 59,694 1,816 19,990 6,047 1,970 2,836 3,830 9,609 762 1,018 439 1,032 8,045 850 285,091 2004 $ 182,362 58,716 1,813 22,401 6,921 2,558 3,212 2,385 11,810 762 1,000 647 1,659 8,729 2,110 307,085 2005 $ 218,189 61,948 1,633 23,300 9,649 2,029 3,617 6,053 11,771 4,708 998 917 461 8,635 9,079 362,987 Table of Contents City of Scottsdale, Arizona City of Scottsdale Changes in Fund Balances of Governmental Funds Last Four Fiscal Years (modified accrual basis of accounting) (in thousands) Table Vb Fiscal Year 2002 Expenditures 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 Advance Refunding Escrow Capital Improvements 2003 2004 2005 19,528 49,362 7,135 10,016 49,276 7,380 16,281 11,214 2,235 18,040 1,044 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 16,121 55,510 7,222 9,399 50,494 7,328 19,265 8,774 2,754 3,290 6,199 11,218 1,024 26,216 29,062 597 339 68,638 30,305 29,759 1,046 68,338 31,905 25,452 586 81,149 Total Expenditures 316,363 327,018 337,690 494,193 Excess of Revenues over (under) Expenditures (26,443) (41,927) (30,605) (131,206) (1) The increase from prior period was caused by land purchases related to capital improvement projects. 21,793 59,874 7,631 8,760 49,941 7,674 21,320 11,813 2,831 3,261 6,506 12,111 1,094 33,173 31,948 878 213,585 (1) 129 Table of Contents 130 City of Scottsdale Changes in Fund Balances of Governmental Funds Last Four Fiscal Years (modified accrual basis of accounting) (in thousands) Table Vc Fiscal Year 2002 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) Net Change in Fund Balances City of Scottsdale, Arizona Debt Service as a Percentage of Noncapital Expenditures $ 2003 2004 2005 71,095 (60,408) 74,025 75,500 2,390 (75,025) - 107,441 (91,582) 102,570 12,165 6,284 (108,077) 424 137,043 (126,269) 39,190 113,400 4,429 (90,534) - 141,783 (133,284) 74,630 68,355 4,536 (77,584) - 87,577 29,225 77,259 78,436 61,134 22.7% $ (12,702) $ 23.6% (1) The change from the prior period was caused by the increase in spending for capital improvement projects. 46,654 22.6% $ (52,770) (1) 23.5% Table of Contents City of Scottsdale, Arizona City of Scottsdale Governmental Activities Tax Revenues By Source Last Four Fiscal Years (modified accrual basis of accounting) (in thousands) Table VI Fiscal Year 2002 2003 2004 2005 Fiscal Year 2002 2003 2004 2005 (1) Property 38,413 41,583 46,088 48,249 Privilege & Use General 80,297 79,704 86,547 94,302 Franchise Taxes Cable TV Light & Power Franchise Franchise 2,223 2,440 2,740 2,859 5,238 5,147 5,488 5,596 Sales and Use Taxes Privilege & Privilege & Use Use McDowell Mtn (1) Transportation 15,814 15,645 16,981 31,301 State Shared Sales 15,621 15,853 17,054 18,779 Privilege & Use Public Safety (1) 15,587 15,335 16,628 18,115 Intergovernmental State Revenue Sharing 21,142 21,574 18,278 18,634 8,491 Other 316 414 481 1,136 In May 2004, the City of Scottdale citizens approved an additional .15% Preservation Privilege Tax and a .10% Public Safety Tax. These taxes were effective July 1, 2004. Transient Occupancy 6,691 6,688 7,227 7,939 131 Table of Contents 132 City of Scottsdale Property Tax Rates Direct and Overlapping Governments Last Four Fiscal Years Table VII City Direct Rate Overlapping Rates County-Wide Jurisdictions Fiscal Year 2002 2003 2004 2005 Debt Operating Service Rate Rate $ Total City Rate 0.49 $ 0.67 $ 1.15 0.51 0.65 1.15 0.48 0.64 1.12 0.45 0.62 1.07 County Operating Rate County Community County Debt Service College Flood Rate Rate Rate $ $ 1.18 1.21 1.21 1.21 0.09 $ 0.08 0.07 - County Education Equalization Rate 1.11 $ 0.23 $ 1.11 0.21 1.08 0.21 1.04 0.21 Source: Maricopa County Department of Finance Publications On-Line "Tax Levy 2004" 0.50 0.49 0.47 0.46 Scottsdale Unified School District Fire District Assistance Rate $ Central AZ Project Rate 0.01 $ 0.01 0.01 0.01 County Free Library Rate 0.13 $ 0.13 0.12 0.12 Total County Rate 0.04 $ 3.29 0.04 3.28 0.05 3.22 0.05 3.09 Operating Rate $ 4.08 $ 3.94 3.89 3.77 Debt Service Rate EVIT Rate 1.36 $ 0.11 $ 1.36 0.11 1.30 0.10 1.26 0.10 Total School Rate 5.55 5.41 5.29 5.13 Total Direct & Overlapping Rates $ 9.99 9.85 9.63 9.30 City of Scottsdale, Arizona Table of Contents City of Scottsdale, Arizona City of Scottsdale Principal Property Tax Payers June 30, 2005 (in thousands) Table VIII 2005 Taxpayer Arizona Public Service Company Scottsdale Fashion Square Qwest Communications, Inc. DC Ranch, LLC First American Tax Valuation Gainey Drive Associates Scottsdale Acquisition LLC Southwest Gas Corporation Marvin F Poer & Co. Pederson/BVT Promenade Associates Motorola GEG Scottsdale Princess Partnership Mayo Foundation Herberger Enterprises Business Realty of Arizona Scottsdale Sportsplex 1996 Taxable Assessed Value Rank Percentage of Total Taxable Assessed Value $ 47,752 41,698 36,168 38,571 25,008 18,792 15,497 13,639 10,371 10,336 - 1 2 3 4 5 6 7 8 9 10 - 1.10% 0.96% 0.83% 0.89% 0.58% 0.43% 0.36% 0.31% 0.24% 0.24% - Taxable Assessed Value $ 35,193 16,740 24,176 13,887 5,952 20,121 15,970 13,867 10,631 8,152 5,991 Rank Percentage of Total Taxable Assessed Value 1 4 2 6 11 3 5 7 8 9 10 2.30% 1.09% 1.58% 0.00% 0.91% 0.39% 1.32% 1.04% 0.91% 0.69% 0.53% 0.39% Source: 2005 information - The City of Scottsdale's Property Tax Auditor, as obtained from the Arizona Department of Revenue, Centrally Valued Property Department and the 2004 Maricopa County Treasurer's Roll. Source: 1996 information - The City of Scottsdale's Property Tax Auditor, as obtained from the Arizona Department of Revenue, Division of Utilities and Mines and the tax rolls of the Maricopa County Assessor's Office. 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 2004/05 secondary assessed valuation of the Salt River Project within the City is $23,638,512. The estimated secondary in lieu contribution is $201,060. 133 Table of Contents 134 City of Scottsdale Assessed Value and Estimated Actual Value of Taxable Property Last Four Fiscal Years (in thousands) Table IX Fiscal Year Ended June 30th 2002 2003 2004 2005 Residential Property $ Real Property Commercial Vacant Property Land 1,815,234 $ 1,921,093 2,373,446 2,460,307 923,764 $ 1,045,250 1,043,384 1,205,827 Historic & Special Use 520,604 $ 615,184 656,600 809,560 1,090 1,483 1,575 2,213 Personal Property: Assessed Value $ Less: Total Taxable Tax Exempt Assessed Real Property Value 242,768 $ 247,739 256,958 257,783 (225,510) $ (304,144) (356,528) (392,236) 3,277,950 3,526,605 3,975,435 4,343,454 Total Direct Tax Rate $ 0.67 $ 0.65 0.64 0.62 Estimated Actual Taxable Value 25,085,079 26,545,415 28,138,139 33,248,352 Assessed Value as a Percentage of Actual Value 13.1% 13.3% 14.1% 13.1% Source: AZ Department of Revenue/Property Tax Division, Abstract of the Assessment Roll 2004 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, voterapproved budget overrides, and maintenance and operation of special service districts. City of Scottsdale, Arizona Table of Contents City of Scottsdale, Arizona City of Scottsdale Property Tax Levies and Collections Last Four Fiscal Years (in thousands) Table X Fiscal Year Ended June 30 2002 2003 2004 2005 Source: Collected within the Fiscal Year of the Levy Percentage Amount of Levy Total Tax Levy for Fiscal Year $ 36,166 39,159 42,756 44,731 $ 34,895 37,583 40,739 44,160 96.5% 96.0% 95.3% 98.7% Total Collections to Date Percentage Amount of Levy Collections in Subsequent Years $ 964 999 1,638 304 $ 35,859 38,582 42,377 44,464 99.2% 98.5% 99.1% 99.4% Maricopa County Treasurer's Office 2005 Secured Tax Levy Report and the City of Scottsdale Financial Services Department. Amounts represent property taxes recorded in the General, Debt Service and the Self-Insurance Fund. 135 Table of Contents 136 City of Scottsdale Ratios of Outstanding Debt by Type Last Four Fiscal Years (in thousands) Table XI Fiscal Year Ended June 30 2002 2003 2004 2005 General Obligation Bonds $ 319,657 305,003 389,598 372,070 Revenue Bonds $ 13,385 10,990 8,475 5,815 Governmental Activities Scottsdale Preserve Special Authority Assessment Bonds Bonds Municipal Property Corporation Bonds $ 49,870 41,955 4,850 61,253 $ 90,585 88,270 85,980 83,385 $ 13,061 11,140 8,755 6,340 Certificates of Participation Community Facilities District Bonds $ $ Note: Details regarding the city's outstanding debt can be found in the notes to the financial statements. See Table XVI - Schedule of Demographic and Economic Statistics for personal income and population data. 7,650 34,935 46,355 44,950 43,480 Contracts Payable Business-Type Activities Municipal General Property Obligation Revenue Corporation Bonds Bonds Bonds Total Primary Government $ $ $ 21,416 19,627 13,702 14,324 18,315 14,323 10,651 6,515 $ 73,945 71,230 68,365 65,735 $ 11,555 10,010 83,365 79,430 646,724 618,903 718,691 745,997 Percentage of Personal Income 7.70% 7.04% 7.85% 7.84% Per Capita $ 3,080 2,891 3,303 3,374 City of Scottsdale, Arizona Table of Contents City of Scottsdale, Arizona City of Scottsdale Ratios of General Bonded Debt Outstanding Last Four Fiscal Years Table XII Fiscal Year Ended June 30 2002 2003 2004 2005 General Obligation Bonds $ 319,657,000 305,003,000 389,598,000 372,070,000 Less: Amounts Available in Debt Service Fund $ 8,448,962 9,006,329 3,468,780 5,601,739 Total $ Percentage of Estimated Actual Taxable Value of Property 311,208,038 295,996,671 386,129,220 366,468,261 9.5% 8.4% 9.7% 8.4% Note: Details regarding the city's outstanding debt can be found in the notes to the financial statements. See the Schedule of Assessed Value and Estimated Actual Value of Taxable Property on Table IX for property value data. Population data can be found in the Schedule of Demographic and Economic Statistics on table XVI. Per Capita $ 1,445.33 1,351.95 1,774.86 1,657.25 137 Table of Contents 138 City of Scottsdale Direct and Overlapping Governmental Activities Debt As of June 30, 2005 (in thousands) Table XIII Governmental Unit Debt repaid with property taxes Maricopa County Maricopa County Community College District Tempe Elementary School District No. 3 Balsz Elementary School District No. 31 Scottsdale Unified School District No. 48 Paradise Valley Unified School District No. 69 Cave Creek Unified School District No. 93 Fountain Hills Unified School District No. 98 Phoenix Union High School District No. 210 Tempe Union High School District No 213 East Valley Institute of Technology District No. 401 Scottsdale Mountain Community Facilities District McDowell Mountain Community Facilities District DC Ranch Community Facilities District Via Linda Road Community Facilities District Debt Outstanding $ 424,710 63,350 17,215 343,605 328,290 54,570 27,990 201,860 171,130 6,235 4,600 16,805 19,045 3,030 Estimated Share of Overlapping Debt Estimated Percentage Applicable 14.4460% 14.4459% 0.0002% 4.7315% 69.0582% 31.2815% 62.1738% 2.3213% 0.3097% 0.0001% 19.4579% 100.0000% 100.0000% 100.0000% 100.0000% $ Subtotal, overlapping debt City direct debt Total direct and overlapping debt 61,353 815 237,287 102,694 33,928 650 625 1,213 4,600 16,805 19,045 3,030 482,045 372,070 100.0000% 372,070 $ 854,115 City of Scottsdale, Arizona Source: Maricopa County Assessor's Office Note: Overlapping governments are those that coincide, at least in part, with the geographic boundaries of the city. This schedule estimates the portion of the outstanding debt of those overlapping governments that is borne by the residents and businesses of the City of Scottsdale. This process recognizes that, when considering the government's ability to issue and repay long-term debt, the entire debt burden borne by the residents and businesses should be taken into account. However, this does not imply that every taxpayer is a resident, and therefore responsible for repaying the debt, of each overlapping government. The percentage of overlapping debt applicable is estimated using taxable assessed property values. Applicable percentages were estimated by determining the portion of the county's taxable assessed value that is within the government's boundaries and dividing it by the county's total taxable assessed value. Table of Contents City of Scottsdale, Arizona City of Scottsdale Legal Debt Margin Information Last Four Fiscal Years (in thousands) Table XIVa Fiscal Year 2002 20% Limitation Debt Limit Equal to 20% of Assessed Valuation $ Total Net Debt Applicable to 20% Limit Legal 20% Debt Margin (Available Borrowing Capacity) $ Total Net Debt Applicable to the 6% Limit as a Percentage of 6% Debt Limit 410,381 $ 196,677 $ 114,920 41.57% $ 467,921 $ 211,596 $ 139,901 33.88% $ 475,339 $ 238,531 $ 163,547 31.44% 554,905 36.12% $ 74,984 $ 868,691 313,786 40.22% 71,695 $ 795,104 2005 319,765 33.66% 81,757 $ 705,321 2004 237,400 37.40% Total Net Debt Applicable to 6% Limit Legal 6% Debt Margin (Available Borrowing Capacity) $ 245,209 Total Net Debt Applicable to the 20% Limit as a Percentage of 20% Debt Limit 6% Limitation Debt Limit Equal to 6% of Assessed Valuation 655,590 2003 260,607 64,799 $ 195,808 24.86% 139 Table of Contents 140 City of Scottsdale Legal Debt Margin Information Last Four Fiscal Years (in thousands) Table XIVb Legal Debt Margin Calculation for Fiscal Year 2005 Net Secondary Assessed Valuation as of June 30, 2005 $ 4,343,454 20% Limitation Debt Limit Equal to 20% of Assessed Valuation 868,691 Debt applicable to limit: General Obligation Bonds 313,786 Legal 20% Debt Margin (Available Borrowing Capacity) $ 554,905 6% Limitation Debt Limit Equal to 6% of Assessed Valuation $ 260,607 Debt applicable to limit: General Obligation Bonds Legal 6% Debt Margin (Available Borrowing Capacity) 64,799 $ 195,808 City of Scottsdale, Arizona Source: City of Scottsdale Financial Services 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. 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, Arizona. Table of Contents City of Scottsdale, Arizona City of Scottsdale Pledged-Revenue Coverage Last Four Fiscal Years (in thousands) Table XV Water and Sewer Revenue Bonds Fiscal Year Ended June 30 2002 2003 2004 2005 Operating Revenue(1) Less: Operating Expenses Net Operating Revenue $ $ $ 97,802 95,064 97,813 105,078 49,840 46,991 49,662 56,413 47,962 48,073 48,151 48,665 Development Fee Revenue $ 15,087 17,648 21,574 20,155 Net Revenue $ 2002 2003 2004 2005 Special Assessment Collections $ 2,339 1,970 2,558 2,016 Debt Service Principal Interest $ 2,208 1,990 2,425 2,448 $ 393 279 492 360 Debt Service Principal Interest 63,049 65,721 69,725 68,820 Special Assessment Bonds Fiscal Year Ended June 30 Highway User Revenue Bonds $ 2,595 2,715 2,860 2,630 $ 3,937 3,792 3,159 3,570 Coverage 9.65 10.10 11.58 11.10 Highway User Tax Revenue $ 12,574 13,137 14,034 14,738 Scottsdale Preserve Authority Bonds 0.2% Sales Tax Coverage 0.90 0.87 0.88 0.72 $ 6,839 6,881 6,267 7,014 Debt Service Principal Interest $ (1) Includes investment income. (2) Includes debt service payments paid out of revenue from the Water and Sewer Fund. Note: Details regarding the city's outstanding debt can be found in the notes to the financial statements. 2,185 2,315 2,445 2,595 $ 4,704 4,566 3,825 4,437 Debt Service Principal Interest $ 2,275 2,395 2,515 2,660 $ Coverage 828 715 592 460 4.05 4.22 4.52 4.72 Municipal Property Corporation Bonds Excise Tax Coverage 0.99 1.00 1.00 1.00 $ 188,548 189,516 199,889 239,284 Debt Service (2) Principal Interest $ 8,325 9,145 7,170 8,265 $ 3,775 3,045 1,108 6,413 Coverage 15.58 15.55 24.15 16.30 141 Table of Contents 142 City of Scottsdale Demographic and Economic Statistics Last Four Fiscal Years Table XVI Fiscal Year Population (1) 2002 2003 2004 2005 209,960 214,090 217,555 221,130 Personal Income (2) (in thousands) $ 8,396,720 8,787,110 9,158,195 9,515,538 Per Capita Personal Income (3) $ 39,992 41,044 42,096 43,148 Data Sources: City of Scottsdale, Arizona 1 Arizona Department of Economic Security 2 Sites USA (estimate) 3 Sites USA 4 US Census Bureau (estimate) 5 Sites USA 6 Arizona Department of Education 7 Arizona Department of Economic Security; Arizona Workforce Median Age (4) Education Level in Years of Schooling (5) School Enrollment (6) Unemployment Rate (7) 41.1 40.5 40.2 39.9 13 to 16 13 to 16 13 to 16 13 to 16 27,436 27,479 27,328 26,559 4.1% 3.6% 3.9% 2.9% Table of Contents City of Scottsdale, Arizona City of Scottsdale Principal Employers Current Year and Nine Years Ago Table XVII 2005 Employer Scottsdale Healthcare General Dynamics Mayo Clinic - Scottsdale Scottsdale Unified S.D. City of Scottsdale CareMark DMS Direct Marketing Scottsdale Insurance Co Fairmont Princess Resort The Vanguard Group Motorola PCS Health Systems Hyatt Regency Resort Dial Corporation Total Employees 4,400 4,000 3,995 3,500 2,191 1,636 1,500 1,300 1,200 1,120 24,842 Source: City of Scottsdale, Economic Vitality Department * 2005 labor force = 122,749; 1996 labor force = 91,420 Rank 1 2 3 4 5 6 7 8 9 10 - 1996 Percentage of Total City Employment* 3.58% 3.26% 3.25% 2.85% 1.78% 1.33% 1.22% 1.06% 0.98% 0.91% 20.22% Employees 4,000 1,400 2,480 1,544 1,050 1,200 4,100 1,600 771 600 18,745 Rank 2 6 3 5 8 7 1 4 9 10 Percentage of Total City Employment* 4.38% 1.53% 2.71% 1.69% 1.15% 1.31% 4.48% 1.75% 0.84% 0.66% 20.50% 143 Table of Contents 144 City of Scottsdale Full-time Equivalent City Government Employees by Function Last Four Fiscal Years Table XVIII Full-time Equivalent Employees as of June 30 Function 2002 City of Scottsdale, Arizona General Government Police Financial Services Transportation Community Services Information Systems Fire Municipal Services Citizen and Neighborhood Resources Human Resources Economic Vitality Planning and Development Water Resources Aviation Solid Waste Source: The City of Scottsdale's Budget Department. 196.5 574.1 144.5 35.0 516.1 73.8 2.7 132.8 35.0 36.5 10.0 157.0 139.0 11.9 77.3 2003 195.5 591.1 144.5 34.0 516.1 73.8 2.7 132.8 35.0 35.5 10.0 151.0 136.0 12.4 80.3 2004 196.5 590.1 139.5 24.0 506.1 74.8 3.7 135.8 32.0 34.5 8.0 140.0 136.0 12.4 79.3 2005 202.0 631.1 143.0 25.0 513.6 78.8 3.7 139.8 37.0 36.5 10.0 140.0 139.0 12.4 79.3 Table of Contents City of Scottsdale, Arizona City of Scottsdale Operating Indicators by Function Last Four Fiscal Years Table XIX Fiscal Year Function 2002 2003 2004 2005 No Survey No Survey 90% 93% 518 466 456 560 20% 26% 30% 30% 60 , 114,514 162 96,995 / 94,045 85 , 129,888 132 , 134,793 No Survey No Survey 86% 89% 277 215 247 200 49 55 55 53 514 660 450 2,600 44.86 70.49 46.44 71.44 46.90 68.60 45.30 62.30 6:00 6:29 5:87 7:00 50% 60% 96% 100% 35,636 35,344 34,547 35,500 8,531 10,212 12,254 14,705 # of water meters read annually 943,212 971,508 986,080 1,000,870 # customer contacts (utilities, taxes & licensing) 212,787 218,185 221,900 229,500 General Government Legislative and Constituent/Gov. Relations % of survey respondents rating the "Overall Quality of Life in Scottsdale" as good to excellent City Clerk's Office # of legal postings City Attorney's Office % of cases resolved at first court appearance (arraignment) City Auditor's Office # of recommendations City Court Charges filed / charges adjudicated (resolved) City Manager's Office % of survey respondents rating "Your Neighborhood as a Place to Live" as good to excellent Communications & Public Affairs News releases, media updates, traffic alerts, construction updates released to news media WestWorld # of special events Preservation Acres of land acquired for inclusion in the McDowell Sonoran Preserve Police Scottsdale Uniform Crime Report, Part 1 (crimes per thousand) Scottsdale Valley Average Achieve the standard of six minutes or less for response to emergency calls for service (includes medical and accident related calls) Provide initial contact to 100% of citizen traffic concerns within seven days Financial Services # of Accounts Payable checks issued # of purchase orders 145 (continued) Table of Contents 146 City of Scottsdale Operating Indicators by Function Last Four Fiscal Years Table XIX Fiscal Year Function Transportation Total citywide transit ridership Actions to improve safety and efficiency of traffic flow (signal timing changes and traffic control and speed limit studies) 2002 2003 2004 2005 1,780,578 1,917,011 1,917,000 1,955,351 76 124 150 170 181,657 197,483 195,276 208,106 6,817,413 7,485,295 7,565,511 7,640,000 13,168,516 13,253,516 13,949,440 14,563,062 1,551,620 1,755,162 1,807,298 1,825,564 n/a 32,244 129,000 375,000 2.5 4.0 5.0 7.0 21,877 21,162 21,756 22,450 0.10 0.09 0.09 0.10 4:02 4:01 4:20 4:00 79,052 80,454 81,947 83,511 Drinking Water Supplied (million gallons per day) 70.4 67.6 70.0 67.7 Reclaimed Water Supplied (million gallons per day) Sewer Service Sewer Service Connections 11.8 14.2 11.8 11.6 69,121 70,732 72,034 73,232 24.0 24.5 24.2 25.5 101 118 116 183 # of homes serviced by Residential Refuse Collection 70,546 72,166 73,602 75,102 # of citizens serviced annually by Household Hazardous Waste collection program 1,708 1,900 2,201 2,200 Scottsdale Airport - Takeoffs and Landings Community Services # attending Parks & Recreation facilities, Human Services facilities and Libraries annually # of square feet of medians and rights of way maintained Facility inventory maintained (square feet) Information Systems # of SPAM emails blocked (monthly) from being delivered to the City (An average of 30 seconds per email is expended by staff) Annual Disk Storage size (DAS, NAS, and SAN) (Terabytes) Fire # of responses to calls for emergency services Responses per capita Average response time to urban calls for service (minutes) Water Service Water Service Connections City of Scottsdale, Arizona Sewage Treated (million gallons per day) Municipal Services # of active Capital Projects (continued) Table of Contents City of Scottsdale, Arizona City of Scottsdale Operating Indicators by Function Last Four Fiscal Years Table XIX Fiscal Year Function Citizen & Neighborhood Resources % increase of Neighborhood Watch groups annually 2002 2003 2004 2005 n/a 15% 37% 40% # of new Code Enforcement cases processed per year Human Resources # of new hires (FT & PT) 7,357 10,000 12,000 14,000 263 161 177 485 HR operating cost as a % of City payroll Economic Vitality Targeted job creation - number of companies / number of jobs 3.1% 2.6% 2.4% 2.3% 10 / 1,305 17 / 1,716 23 / 2,032 14 / 1,600 - 2% 0% + 9% + 10% - 13% 0% + 8% + 10% n/a n/a 45 25 n/a n/a 90% 100% 99% 99% 99% 100% Sales Tax growth (% annual change) Bed Tax growth (% annual change) Planning & Development Services Customer wait-time (in minutes) at One Stop Shop Provide applicant with pre-application meeting within 30 days of submitting request. % of inspections performed within 24 hours of the request Source: The City of Scottsdale's Budget Department and applicable City departments. 147 Table of Contents 148 City of Scottsdale Capital Asset Statistics by Function Last Four Fiscal Years Table XX Fiscal Year Function Public Safety Police: Stations Police Vehicles Fire Stations Highways and Streets Streets (miles) Streetlights Traffic Signals Culture and Recreation Parks Parks Acreage Swimming Pools Tennis Courts Community Centers City of Scottsdale, Arizona Water Water Mains (miles) Fire Hydrants Sewer Sanitary Sewers (miles) Storm Sewers (miles) Source: City of Scottsdale departments. 2002 2003 2004 2005 3 261 10 3 295 12 3 286 12 3 290 13 955 9,510 250 965 10,300 253 969 10,500 258 971 10,650 262 40 869 3 49 6 40 869 3 49 6 40 849 3 49 6 40 849 3 49 6 1,738 8,659 1,815 8,928 1,854 9,193 1,897 9,541 1,155.0 68.7 1,262.0 68.7 1,280.0 137.7 1,287.4 142.8