COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR THE FISCAL YEAR ENDED JUNE 30, 2014 425 10TH STREET, DOUGLAS, ARIZONA 85607 Telephone (520) 417-7333 Fax (520) 417-7162 THIS PAGE BLANK CITY OF DOUGLAS, ARIZONA COMPREHENSIVE ANNUAL FINANCIAL REPORT YEAR ENDED JUNE 30, 2014 Danny Ortega Jr. Mayor Councilmembers Margaret Morales Ken Nelson Ben LaForge Patricia Lopez Luis Greer Fernando Betancourt Carlos A. De La Torre City Manager Prepared by: Finance Department THIS PAGE BLANK CITY OF DOUGLAS, ARIZONA COMPREHENSIVE ANNUAL FINANCIAL REPORT TABLE OF CONTENTS YEAR ENDED JUNE 30, 2014 INTRODUCTORY SECTION LETTER OF TRANSMITTAL 1 LIST OF PRINCIPAL OFFICIALS 6 ORGANIZATIONAL CHART 7 GFOA CERTIFICATE OF ACHIEVEMENT 8 FINANCIAL SECTION INDEPENDENT AUDITORS’ REPORT 9 REQUIRED SUPPLEMENTARY INFORMATION MANAGEMENT’S DISCUSSION AND ANALYSIS 12 BASIC FINANCIAL STATEMENTS STATEMENT OF NET POSITION 24 STATEMENT OF ACTIVITIES 26 BALANCE SHEET – GOVERNMENTAL FUNDS 28 RECONCILIATION OF THE BALANCE SHEET OF GOVERNMENTAL FUNDS TO THE STATEMENT OF NET POSITION 29 STATEMENT OF REVENUES, EXPENDITURES, AND CHANGE IN FUND BALANCES – GOVERNMENTAL FUNDS 30 RECONCILIATION OF THE STATEMENT OF REVENUES, EXPENDITURES, AND CHANGE IN FUND BALANCES IN THE GOVERNMENTAL FUNDS TO THE STATEMENT OF ACTIVITIES 31 STATEMENT OF NET POSITION – PROPRIETARY FUNDS 32 STATEMENT OF REVENUES, EXPENSES, AND CHANGE IN NET POSITION – PROPRIETARY FUNDS 33 STATEMENT OF CASH FLOWS – PROPRIETARY FUNDS 34 NOTES TO BASIC FINANCIAL STATEMENTS 36 REQUIRED SUPPLEMENTARY INFORMATION PUBLIC SAFETY PERSONNEL RETIREMENT SYSTEM SCHEDULE OF FUNDING PROGRESS 68 BUDGETARY COMPARISON SCHEDULE – GENERAL FUND 69 NOTES TO BUDGETARY COMPARISON SCHEDULE – GENERAL FUND 71 CITY OF DOUGLAS, ARIZONA COMPREHENSIVE ANNUAL FINANCIAL REPORT TABLE OF CONTENTS (CONTINUED) YEAR ENDED JUNE 30, 2014 FINANCIAL SECTION (CONTINUED) COMBINING AND INDIVIDUAL FUND STATEMENTS AND SCHEDULES NONMAJOR GOVERNMENTAL FUNDS COMBINING BALANCE SHEET 73 COMBINING STATEMENT OF REVENUES, EXPENDITURES, AND CHANGE IN FUND BALANCES 75 SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGE IN FUND BALANCE – BUDGET AND ACTUAL – MPC DEBT SERVICE FUND 77 SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGE IN FUND BALANCE – BUDGET AND ACTUAL – HURF FUND 78 SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGE IN FUND BALANCE – BUDGET AND ACTUAL – GRANTS FUND 79 SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGE IN FUND BALANCE – BUDGET AND ACTUAL – POLICE GRANTS FUND 80 SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGE IN FUND BALANCE – BUDGET AND ACTUAL – JCEF FUND 81 SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGE IN FUND BALANCE – BUDGET AND ACTUAL – CAPITAL PROJECTS FUND 82 SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGE IN FUND BALANCE – BUDGET AND ACTUAL – DEBT SERVICE FUND 83 STATISTICAL SECTION (UNAUDITED) FINANCIAL TRENDS NET POSITION BY COMPONENT 84 CHANGES IN NET POSITION 86 GOVERNMENTAL ACTIVITIES TAX REVENUES BY SOURCE 90 FUND BALANCES OF GOVERNMENTAL FUNDS 91 CHANGES IN FUND BALANCES OF GOVERNMENTAL FUNDS 93 REVENUE CAPACITY TAXABLE SALES BY CATEGORY 95 DIRECT AND OVERLAPPING SALES TAX RATES 97 ASSESSED VALUE AND ESTIMATED ACTUAL VALUE OF TAXABLE PROPERTY 98 PROPERTY TAX RATES – DIRECT AND OVERLAPPING GOVERNMENTS 99 PRINCIPAL PROPERTY TAXPAYERS 100 CITY OF DOUGLAS, ARIZONA COMPREHENSIVE ANNUAL FINANCIAL REPORT TABLE OF CONTENTS (CONTINUED) YEAR ENDED JUNE 30, 2014 STATISTICAL SECTION (UNAUDITED) (CONTINUED) PROPERTY TAX LEVIES AND COLLECTIONS 101 DEBT CAPACITY RATIOS OF OUTSTANDING DEBT BY TYPE 103 DIRECT AND OVERLAPPING GOVERNMENTAL ACTIVITIES DEBT 104 LEGAL DEBT MARGIN INFORMATION 105 CALCULATION OF LEGAL DEBT MARGIN 107 PLEDGED-REVENUE COVERAGE 108 DEMOGRAPHIC AND ECONOMIC INFORMATION DEMOGRAPHIC AND ECONOMIC STATISTICS 110 PRINCIPAL EMPLOYERS 111 OPERATING INFORMATION FULL-TIME EQUIVALENT EMPLOYEES BY FUNCTION 112 OPERATING INDICATORS BY FUNCTION 113 CAPITAL ASSETS STATISTICS BY FUNCTION 115 THIS PAGE BLANK INTRODUCTORY SECTION THIS PAGE BLANK THE CITY OF DOUGLAS 425 10TH STREET, DOUGLAS, ARIZONA 85607 Telephone (520) 417-7333 Fax (520) 417-7162 FINANCE DEPARTMENT November 12, 2014 Mayor and City Council Citizens of the City of Douglas, Arizona The Arizona Auditor General Office requires all local government entities to file a complete set of financial statements presented in conformity with generally accepted accounting principles (GAAP) and audited in accordance with generally accepted auditing standards by a licensed certified public accounting firm with their office by October 31st or by February 28th of each year if an automatic extension is requested. Pursuant of that requirement, we hereby issue the comprehensive annual financial report of the City of Douglas, Arizona for the fiscal year ended June 30, 2014. The report consists of management’s representations concerning the finances of the City of Douglas, Arizona. Consequently, management assumes full responsibility for the completeness and reliability of all of the information presented in this report. To provide a reasonable basis for making these representations, management of the City of Douglas, Arizona has established a comprehensive internal control framework that is designed both to protect the government assets from loss, theft, or misuse and to compile sufficient reliable information for the preparation of City of Douglas’s financial statements in conformity with Generally Accepted Accounting Principles (GAAP). Because the cost of internal controls should not outweigh their benefits, the City of Douglas’s comprehensive framework of internal controls has been designed to provide reasonable rather than absolute assurance that the financial statements will be free from material misstatements. As management, we assert that, to the best of our knowledge and belief, this financial report is complete and reliable in all material respects. The financial statements contained herein have been audited by CliftonLarsonAllen LLP a firm of licensed certified public accountants. The goal of the independent audit was to provide reasonable assurance that the financial statements of the City of Douglas, Arizona for the Fiscal-Year-Ended June 30, 2014 are free of material misstatements. The independent audit involved examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements; assessing the accounting principles used and significant estimates made by management; and evaluating the overall financial statements presentation. The independent auditors concluded, based upon the audit, that there was a reasonable basis for rendering an unmodified opinion of City of Douglas’s financial statements for the Fiscal-Year-Ended June 30, 2014, and that they are fairly presented in conformity with GAAP. The independent auditors’ report is presented as the first component of the financial section of this report. GAAP requires that management provide a narrative introduction, overview, and analysis to accompany the basic financial statements in the form of Management’s Discussion and Analysis (MD&A). This letter of transmittal is designed to complement MD&A and should be read in conjunction with it. The City of Douglas’s MD&A can be found immediately following the reports of the independent auditors. (1) Mayor and City Council Citizens of the City of Douglas, Arizona The City of Douglas, Arizona is required to undergo an annual single audit in conformity with the provisions of the Single Audit Act Amendments of 1996 and the U.S. Office of Management and Budget (OMB) Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations. Information related to this single audit, including the schedule of federal awards, findings and recommendations and auditors’ reports on the internal control structure and compliance with applicable laws and regulations are included in the single audit report which is available for review at the City of Douglas, Arizona offices. This report includes all funds of the City of Douglas, Arizona. The City of Douglas, Arizona provides a full range of services that includes police and fire protection; emergency medical services; water, sewer and sanitation services; the construction and maintenance of highways, streets, and infrastructure; recreational activities including an aquatic center, library, visitor center, golf course, public housing, and cultural events. In addition to general government activities, the City of Douglas, Arizona reports two governmental components units: Casa de Esperanza, and Pioneer Village and one business-type component unit Rancho La Perilla Apartments and, therefore, these activities are included as discretely presented component units. Profile of the City The City of Douglas is located in Southeastern Arizona 117 miles southeast of Tucson on the U.S./Mexico border. Although it has a population of 17,378 people, it serves a commercial market of approximately 160,000. Agua Prieta, Sonora, Mexico (just across the international border from Douglas) is a part of our market and has a population of approximately 125,000. Our two cities share an interdependent economy and culture. Government Structure The Douglas City government is comprised of a Mayor and six Council members, elected by City residents for four year terms. The Mayor is elected at-large, which means that registered voters from all City wards cast their ballots for the mayoral candidates. Council members are elected by registered voters from their respective wards. The Mayor and Council members have equal voting power to create, pass, or disapprove local laws, ordinances, and resolutions that govern the City. The Mayor Pro Tem is appointed by the Mayor. The City Manager, who is appointed by the City Council, is responsible for the overall operation and supervision of the government functions within the policy directives of the City Council. As the administrative head of the City government, he is responsible for the appointment and dismissal of all employees, except for the City Magistrate, City Clerk, City Treasurer, and City Attorney who are appointed by the Mayor and Council. Economic Condition and Outlook The City’s economy is primarily based on the commercial exchange with Mexico. The Douglas/Agua Prieta connection continues to strengthen with the coordinated efforts of both local governments for the expansion of the existing and development of a new commercial port of entry. The City’s major employers consist of governmental entities such as Arizona State Prison Complex, Customs and Border Protection, Douglas Unified School District, Cochise College and the City of Douglas. Private and major employers in the City include Advanced Call Center Technologies and Wal-Mart Stores. According to the Cochise College for Economic Research the City’s unemployment rate at the end of March 2014 was at 12.1%, which is significantly above the national and state unemployment rates of 6.39% and 6.9% respectively. (2) Mayor and City Council Citizens of the City of Douglas, Arizona Major Initiatives The construction of a new commercial port of entry in Douglas continues to be a common goal for the Mayor and Council. Although the City was in a position to begin the permitting process and begin procuring feasibility studies, the City was delayed due to the Federal Government imposing new regulations on private public partnerships. The City had to wait for new rules to be issued and must comply with them moving forward if it is to enter into an agreement with the private sector. In the meantime, the City continues to seek and receive support for this project from both Mexican and American officials. With federal awarded CDBG funding, the City made paving improvements on 23rd Street from Thompkins to Kline Avenue. ADA ramps and curbing were also installed with a total investment of $167,041. The transit system continues to be a success for the City as ridership increased by 25% from last year. The City received $219,433 in federal funds and also established partnerships with local organizations and was able to offset some of its match requirement. The City partnered with Freeport McMoran from which it received $65,000, SEAGO $38,124, Cochise College $16,264 and ACT Call Center $2,754. The City Council voted to sell the Douglas Regional Service Center to Cochise County for $900,000. The City had partnered with the County to construct a central government offices building mainly housing County services offices. The City relinquished its areas of operations, but agreed with the County to keep the SENTRI offices operational. In the deal the City also received two County office buildings located at 661 G Avenue and 640 10th Street valued at $400,000 and $170,000 respectively. The City is currently housing its recreation department and also leases space to Wellness Connections and Arizona Workforce at 661 G Avenue. The City Council also voted to extend the .3% sales tax. The sales tax was originally passed in 2008 with a sunset period of five years. The funds were allocated for the construction of a new call center, specifically for IT equipment and infrastructure. With the sunset date being September 1, 2013, the Council voted to extend the .3% sales tax for an additional four years, this time allocating the funds for capital projects. All City departments were tasked to go through their respective inventories and turn in any assets that were no longer useful for their operations. The intention was to get departments to clean their areas of obsolete equipment and put it up for sale through auction. The auction was a great success as it generated $105,039. The City sold vehicles and equipment and also recycled unused metal. The City acquired five police vehicles one with federal funds obtained through the Governor’s Office of Highways Safety and the other four from use of RICO funds and police auction funds. The Fire department acquired two used ambulances from the City of Sierra Vista. The two ambulances were $30,000 each with less than 45,000 miles. The City entered into a couple of leases to acquire IT network infrastructure for $1 million and $292,000 to acquire a street sweeper and a dump truck. (3) Mayor and City Council Citizens of the City of Douglas, Arizona Upcoming Year The City continues to look for a qualified buyer for the City Golf Course. The City almost made the sale to an investor group, but negotiations failed before the third reading could take place. The City continues to look at opportunities and is looking at prospective buyers to sell the Golf Course as a package deal to include the RV park and La Perilla Apartments. The City is hopeful that it can find a buyer and relieve the General Fund subsidy. In January 2015, the City expects to transfer the Casas Esperanza project to the private sector. Although the operation was paying for itself, the future capital investment required to upkeep the properties were not in the City’s fiscal capabilities. The City also is seeking opportunities to sell Pioneer Village, a smaller project for elderly and disabled that could also benefit more from private investment. The implementation of HB2111 has been delayed by the State after requests from self-collecting cities in Arizona. This bill was designed to bring simplification to collections of sales taxes by bringing collections to one central location at the State. This would eliminate the ability of cities to collect their own sales taxes. Due to IT complications in the State’s tax system the collections transfer will take place until January 2016. However, parts of HB 2111 which centralized sales tax auditing at the state level and also reformed contracting sales tax, will be implemented in January 2015. Long-Term Financial Planning The City continues to take a cautious approach as the national, state and local economies continue a painfully slow recovery. The City is aware of upcoming increasing pension costs and the need for reform specifically in the PSPRS plan, where the City’s plan is currently funded at only 43% for police and 35% for fire. Of course, health care costs continue to be a concern and overall rising costs. Our federal and state finances are also concerning since we know that eventually any affects at that level will trickle down to our City as well. With this in mind, the City is prepared to undertake these challenges and impact the essential services to our citizens as little as possible as well as it is determined to preserve our valuable workforce. The General Fund fund balance has increased every year since FY 2010, but not to desired levels. Our goal is to increase the fund balance every year and set aside funds for capital improvement projects as well as pay-as-you-go programs. With such a volatile economic environment it has become both hard but necessary to save in order to continue keeping the City in a financially stable position. Our enterprise funds continue to be stable due to the rate increases passed by Mayor and Council. The City is seeking new ways to make these funds more efficient through the use of new technology in the hopes of keeping rates stable. (4) Mayor and City Council Citizens of the City of Douglas, Arizona Awards The Government Finance Officers Association of the United States and Canada (GFOA) awarded a Certificate of Achievement for Excellence in financial Reporting to the City of Douglas for its comprehensive annual financial report for the fiscal year ended June 30, 2013. In order to be awarded a Certificate of Achievement, a government must publish an easily readable and efficiently organized comprehensive annual financial report. This report must satisfy both generally accepted accounting principles and applicable legal requirements. A Certificate of Achievement is valid for a period of one year only. We believe that our current comprehensive annual financial report continues to meet the Certificate of Achievement Program’s requirements and we are submitting it to the GFOA to determine its eligibility for another certificate. Acknowledgement We would like to express our appreciation to each member of the Finance Department who has assisted in the preparation of this report. We are thankful for having the Finance Committee of the City of Douglas providing their support and having them evaluate this report. And also, thanks to our independent auditors CliftonLarsonAllen LLP for their assistance in this process. Finally to the Douglas Mayor and City Council we extend heartfelt thanks for their support. It is their commitment to financial reporting excellence that allows the citizens of Douglas to be fully informed about their municipal government finances. Respectfully Submitted, (5) THIS PAGE BLANK CITY OF DOUGLAS, ARIZONA LIST OF PRINCIPAL OFFICIALS YEAR ENDED JUNE 30, 2014 ELECTED OFFICIALS Mayor Councilmember Councilmember Councilmember Councilmember Councilmember Councilmember Danny Ortega Jr. Margaret Morales Ken Nelson Ben LaForge Patricia Lopez Luis Greer Fernando Betancourt APPOINTED OFFICIALS City Manager City Clerk City Attorney City Treasurer City Magistrate Carlos A. De La Torre Brenda Aguilar Juan Pablo Flores Luis Pedroza Alma Vildosola DEPARTMENT DIRECTORS Finance Director Public Works Director Interim Police Chief Fire Chief Deputy City Manager Housing Manager Luis Pedroza Lauren Ortega Kraig Fullen Mario Novoa Ana Urquijo Xenia Gonzalez (6) City of Douglas Organizational Chart Fiscal Year 2013-2014 Adm. Secretary Mayor & Council (7)* Account Clerk III (1) Executive Assistant City Treasurer (.5) City Magistrate Deputy City Manager (1) HR Manager (1) Adm Secretary (1) Library Manager (1) Library Sp II (3) Housing Manager (1) Leisure Services Housing Rehab Recreation/Aquati cs Supervisor (1) Assistant Aq Sup (1) Maintenance Tech II (1) Lead Rec Aide (1) Clerk Typist (1) Deputy Director (1) Adm. Secretary (1) Building / Planning & Zoning Specialist (2) Occupancy Specialist (1) Utilities Supervisor (1) Operations Supervisor (1) Transit Coordinator (1) Dispatcher / Adm Sec (1)* Transit Drivers (5) * Tourism Specialist (1) Parks Supervisor Parks Maint. Worker (8) Cemetery Lead Worker Cemetery Worker I (1) Equipment Operator II (1) Equipment Operator I (4) Water Tech IV (1) Equipment Mechanic III (1) Collection Tech IV (1) WW Lead Plant Operator Golf Supervisor (1) Golf Maintenance Worker (1) Golf Laborer (1) WW Plant Operator (2) Accounting Tech (1) Payroll Specialist (1) Accounts Payable Sp. Customer Service Rep (3) Construction Supervisor (1) Streets Crew Leader (2) Equipment Operator III (2) Maintenance Tech III (1) Facilities IT Manager (1) Utilities Maintenance Tech IV (1) Special Pr Tech III (1) Bldg Maint Specialist (1) Special Pr Tech II (1) Adm. Assistant (1) Account Clerk III (1) Engineer (6) Firefighter (12) Police Chief (1) Finance Manager (1) Purchasing Agent (1) Eq Mech. I (1) Water Tech I (4) Finance Director (.5) Lead Engineer Eq. Mech. II (2) Water Tech II (1) Collection Tech I (2) Captain (3) Equipment Operator III (3) Water Tech III (1) Transit Manager (1) * City Attorney Fire Chief (1) Public Works Director (1) Housing Programs Specialist (1) Housing Sp for Property Mg City Clerk (1) City Manager IT Specialist Lieutenant Patrol (1) Sergeant Patrol (5) Police Officer (20) Humane Officer (2) Police Aide (.5) Lieutenant Detective (1) Adm. Secretary (1) Sergeant Detective Detective (5) Detention Officer (1) Senior Dispatcher Dispatcher (6) Clerk Typist (1) Adm Assistant Maintenance Tech III (1) Maintenance Tech II (2) Maintenance Tech I (2) Maintenance Tech I (1) HVAC Tech (1) Airport Attendant (1) (7) Total FTE’s: 174.5 *not counted as FTEs (8) THIS PAGE BLANK FINANCIAL SECTION THIS PAGE BLANK INDEPENDENT AUDITORS’ REPORT The Honorable Mayor and the City Council City of Douglas, Arizona Douglas, Arizona Report on the Financial Statements We have audited the accompanying financial statements of the governmental activities, the businesstype activities, the aggregate discretely presented component units, each major fund, and the aggregate remaining fund information of the City of Douglas, Arizona (City), as of and for the year ended June 30, 2014, and the related notes to the financial statements, which collectively comprise the City’s basic financial statements as listed in the table of contents. Management’s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditors’ Responsibility Our responsibility is to express opinions on these financial statements based on our audit. We did not audit the financial statements of the Douglas Housing Corporation I (Casa de Esperanza), Douglas Housing Corporation II (Pioneer Village) and the Douglas Community Housing Corporation (Rancho La Perilla Apartments). The Douglas Housing Corporation I and II are presented as Governmental Component Units and those assets comprise 61% and 39% of the total Governmental Component Unit assets, 69% and 31% of total operating revenues and a negative 64% and 36% of total net position of the Governmental Component Unit revenues, respectively. Rancho La Perilla comprises 100% of the assets and operating revenues reported in the Proprietary Component Unit. Those financial statements were audited by other auditors whose reports have been furnished to us, and our opinion, insofar as it relates to the amounts included for the Governmental Component Units and Proprietary Component Unit, is based solely on the reports of other auditors. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An independent member of Nexia International (9) The Honorable Mayor and the City Council City of Douglas, Arizona An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the City’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the City’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. Opinions In our opinion, based on our audit and the reports of other auditors, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, the business-type activities, the aggregate discretely presented component units, each major fund, and the aggregate remaining fund information of the City of Douglas, Arizona as of June 30, 2014, and the respective changes in financial position and, where applicable, cash flows thereof for the year then ended in accordance with accounting principles generally accepted in the United States of America. Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the management’s discussion and analysis on pages 12 through 23, the Public Safety Personnel Retirement System Schedule of Funding Progress on page 68, and the General Fund Budget and Actual Statement on pages 69 – 70 be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management’s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Supplementary and Other Information Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the City’s basic financial statements. The combining and individual fund financial statements and schedules and the introductory and statistical sections are presented for purposes of additional analysis and are not a required part of the basic financial statements. (10) The Honorable Mayor and the City Council City of Douglas, Arizona The combining and individual fund financial statements and schedules are the responsibility of management and were derived from and relates directly to the underlying accounting and other records used to prepare the financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the financial statements or to the financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated in all material respects in relation to the basic financial statements taken as a whole. The introductory and statistical sections have not been subjected to the auditing procedures applied in the audit of the basic financial statements, and accordingly, we do not express an opinion or provide any assurance on them. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated November 12, 2014, on our consideration of the City of Douglas, Arizona's internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the result of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the City of Douglas, Arizona’s internal control over financial reporting and compliance. Phoenix, Arizona November 12, 2014 (11) THIS PAGE BLANK REQUIRED SUPPLEMENTARY INFORMATION THIS PAGE BLANK CITY OF DOUGLAS, ARIZONA MANAGEMENT’S DISCUSSION AND ANALYSIS YEAR ENDED JUNE 30, 2014 This section of the City of Douglas, Arizona’s (City) Comprehensive Annual Financial Report presents a narrative overview and analysis of the financial activities of the City for the fiscal year ended June 30, 2014. We encourage readers to consider the information presented here in conjunction with additional information presented in the financial statements. FINANCIAL HIGHLIGHTS  The assets of the City at the close of the most recent fiscal year exceed liabilities by $41.6 million (net position). Of this amount, $10.0 million is unrestricted and may be used to meet the government’s ongoing obligations to its citizens and creditors.  Total net position decreased by $4.7 million during the fiscal year.  As of June 30, 2014, the City’s governmental funds reported a combined ending fund balance of $8.1 million. Of this amount, 59% is unassigned fund balance and available for spending at the government’s discretion.  At the close of the current fiscal year, unassigned fund balance for the General Fund was $4.8 million or 34.9% of the total General Fund expenditures of $13.7 million. OVERVIEW OF THE FINANCIAL STATEMENTS This discussion and analysis is intended to serve as an introduction to the City’s basic financial statements. The City’s basic financial statements are separated into three component sections: 1. 2. 3. Government-wide financial statements. Fund financial statements and schedules. Notes to basic financial statements. In addition to the basic financial statements, this report also includes other supplementary information. Government-Wide Financial Statements The government-wide financial statements are designed to provide readers with a broad overview of the City’s finances in a manner similar to private sector business. The statement of net position presents information on all of the City’s assets and liabilities with the difference between the two reported as net position. Over time, increases or decreases in net position may serve as useful indicators of whether the City’s financial position is improving or deteriorating. The statement of activities presents data showing how the City’s net position changed during the most recent fiscal year. All changes in net position are reported as soon as the underlying event giving rise to the change occurs regardless of the timing of the related cash flows. Therefore, revenues and expenses are reported in this statement for some items that will result in cash flows in future fiscal years, such as revenue from uncollected taxes or expenses from earned but unused vacation and sick leave. (12) CITY OF DOUGLAS, ARIZONA MANAGEMENT’S DISCUSSION AND ANALYSIS YEAR ENDED JUNE 30, 2014 Both of the government-wide financial statements distinguish City functions that are principally supported by taxes and intergovernmental revenues (governmental activities) from those functions that intend to recover all or a significant portion of their costs from user fees and charges (business-type activities). The governmental activities of the City include general government, public safety (police, fire and emergency medical services), highways and streets, culture and recreation, and redevelopment and housing. The business-type activities of the City include water, sewer, and solid waste. The government-wide financial statements include not only the City (known as the primary government), but also three legally separate non-profit corporations - two governmental component units and one proprietary component unit. The governmental units consist of Douglas Housing Corporation I - Casa de Esperanza Apartments and Douglas Housing Corporation II - Pioneer Village providing HUD subsidized housing. The proprietary unit is the Douglas Municipal Housing Corporation market rate apartment complex known as Rancho La Perilla. Although legally separate from the City, these component units are discretely presented because of their governance or financial relationships to the City. Separate financial statements for these entities may be obtained at the City’s Finance Department at 425 Tenth Street, Douglas, Arizona 85607. The government-wide financial statements may be found on pages 24 - 27 of this report. Fund Financial Statements A fund is a grouping of related accounts that is used to maintain control over resources that have been segregated for specific activities or objectives. Like other state and local governments, the City uses fund accounting to ensure and demonstrate compliance with finance related legal requirements. All of the City funds can be divided into two categories: governmental funds and proprietary (business-type) funds.  Governmental Funds – Governmental funds are used to account for essentially the same functions reported as governmental activities in the government-wide financial statements. However, unlike the government-wide financial statements, governmental fund financial statements focus on near-term inflows and outflows of spendable resources as well as on balances of spendable resources available at the end of the fiscal year. Such information may be useful in evaluating a government’s near-term financing requirements. Because the focus of governmental funds is narrower than that of the government-wide financial statements, it is useful to compare the information presented for governmental funds with similar information presented for governmental activities in the government-wide financial statements. By doing so, the reader may better understand the long-term impact of the government’s nearterm financing decisions. Both the governmental fund balance sheet and the governmental fund statement of revenues, expenditures, and changes in fund balances provide a reconciliation to facilitate the comparison between governmental funds and governmental activities. (13) CITY OF DOUGLAS, ARIZONA MANAGEMENT’S DISCUSSION AND ANALYSIS YEAR ENDED JUNE 30, 2014 The City of Douglas, Arizona maintains nine individual governmental funds. Information is presented separately in the governmental fund balance sheet and in the governmental fund statement of revenues, expenditures, and changes in fund balances for the General Fund and the MPC Debt Service Fund, which are considered to be major funds. Data from the other seven funds are combined into a single aggregate presentation. Individual fund data for each of these nonmajor governmental funds is provided in the form of the combining statements elsewhere in this report. The City of Douglas, Arizona adopts an annual appropriated budget for its General Fund by department. A budgetary comparison statement has been provided for the General Fund to demonstrate compliance with this budget. The City adopts a budget by fund for all Special Revenue Funds with the exception of the Public Housing Fund.  Proprietary Funds – Proprietary funds are used to account for services for which the City charges its customers. Enterprise funds are used to report the same functions as presented in the business-type activities in the government-wide financial statements. There are three funds reported under business-type activities and those include the water, sewer, and solid waste funds. The water, sewer and solid waste funds are considered major funds. Notes to Basic Financial Statements The notes to basic financial statements provide additional information that is essential to the full understanding of the data provided in the government-wide and fund financial statements. The notes to basic financial statements may be found on pages 36 - 67 of this report. Required Supplementary Information In addition to the basic financial statements and accompanying notes, this report also presents certain required supplementary information concerning the City’s progress in funding its obligation to provide pension benefits to its employees and the budgetary schedule of the General Fund. Required supplementary information may be found on pages 68 – 72 of this report. Combining Statements The combining statements referred to earlier in connection with nonmajor governmental funds are presented immediately following the required supplementary information. Government-Wide Financial Analysis Comparative data is presented on the following pages for both the governmental activities and the business-type activities along with an analysis of significant variances between the current and prior year. Net Position As noted earlier, net position may serve as useful indicators of a government’s financial position. For the City of Douglas, Arizona, assets exceeded liabilities by $41.6 million. (14) CITY OF DOUGLAS, ARIZONA MANAGEMENT’S DISCUSSION AND ANALYSIS YEAR ENDED JUNE 30, 2014 The largest portion of the City’s net position (72%) reflects its investment in capital assets (e.g. land, buildings, and equipment), less any debt used to acquire those assets. The City uses these capital assets to provide services to its citizens; therefore, these assets are not available for future spending. Although the City’s investment in capital assets is reported net of related debt, resources needed to repay this debt must be provided from other sources since the assets themselves cannot be liquidated for these liabilities. Table A-1 The City’s Net Position Governmental Activities 2013 2014 ASSETS Current and Other Assets Capital Assets: Non-depreciable Depreciable (net) Total Assets DEFERRED OUTFLOWS Deferred Amount on Refunding LIABILITIES Current and Other Liabilities Non-Current Liabilities: Due Within One Year Due in More Than One Year Total Liabilities NET POSITION Net Investment in Capital Assets Restricted Unrestricted Total Net Position $ 9,669,009 Business-Type Activities $ 2014 7,778,936 $ Total 2014 2013 4,722,813 $ 15,267,237 $ 12,501,749 2013 5,598,228 $ 2,660,393 20,687,559 33,016,961 1,487,410 29,126,288 38,392,634 810,112 21,217,763 27,626,103 924,647 21,662,649 27,310,109 3,470,505 41,905,322 60,643,064 2,412,057 50,788,937 65,702,743 12,843 38,536 - - 12,843 38,536 1,464,854 1,318,301 356,998 423,721 1,821,852 1,742,022 2,019,837 9,515,107 12,999,798 1,967,586 9,831,615 13,117,502 696,120 5,005,123 6,058,241 668,595 5,223,019 6,315,335 2,715,957 14,520,230 19,058,039 2,636,181 15,054,634 19,432,837 13,255,510 1,261,605 5,512,891 $ 20,030,006 20,087,841 1,234,695 3,991,132 $ 25,313,668 16,491,574 568,237 4,508,051 $ 21,567,862 16,866,077 443,520 3,685,177 $ 20,994,774 29,747,084 1,829,842 10,020,942 $ 41,597,868 36,953,918 1,678,215 7,676,309 $ 46,308,442 As of June 30, 2014 the City of Douglas, Arizona was able to report positive balances in all categories of net position. As previously discussed, approximately 72% of net position represents the City’s net investment in capital assets. Another 4.4% of the resources are subject to external restrictions on how they may be used. The remaining unrestricted net position may be used to meet the government’s ongoing obligations to citizens and creditors. The City’s net position decreased approximately $4.7 million over the prior fiscal year. Net investment in capital assets decreased $7.2 million due to the net effect of a reduction in current year debt outstanding used to acquire the assets, current year depreciation, current year capital additions and contributions and the sale of capital assets. Current year debt payments (including discount) were approximately $2.1 million (including payments on capital leases). In addition, the government plaza was sold in fiscal year 2014 with a net book value of $6.8 million. (15) CITY OF DOUGLAS, ARIZONA MANAGEMENT’S DISCUSSION AND ANALYSIS YEAR ENDED JUNE 30, 2014 Changes in Net Position As described above, the City’s net position overall decreased by $4.7 million during the current fiscal year. The decrease in the governmental activities and increase in the business-type activities are discussed on the following pages. Table A-2 Changes in Net Position Governmental Activities 2013 2014 REVENUES Program Revenues: Fees, Fines and Charges for Services Operating Grants and Contributions Capital Grants and Contributions General Revenues: Property Taxes Local Taxes State Shared Revenues Grants and Contributions Not Restricted to Specific Programs Investment Income Other Total Revenues EXPENSES General Government Public Safety Highways and Streets Culture and Recreation Redevelopment and Housing Interest on Long-Term Debt Water Sewer Solid Waste Total Expenses CHANGE IN NET POSITION BEFORE TRANSFERS AND SPECIAL ITEMS $ 3,095,494 Business-Type Activities $ 2,810,121 2014 $ Total 2013 5,153,542 $ 2013 2014 5,067,198 $ 8,249,036 $ 7,877,319 3,751,156 423,034 3,340,827 1,000,170 1,320 - 8,196 19,578 3,752,476 423,034 3,349,023 1,019,748 578,759 5,844,370 4,257,712 563,698 5,678,392 3,951,575 - - 578,759 5,844,370 4,257,712 563,698 5,678,392 3,951,575 41,950 30,607 281,915 18,304,997 70,074 39,423 596,739 18,051,019 22,077 5,176,939 23,470 5,118,442 41,950 52,684 281,915 23,481,936 70,074 62,893 596,739 23,169,461 4,499,732 8,050,797 2,394,792 1,965,397 1,064,489 530,417 18,505,624 4,989,484 7,799,983 2,605,395 1,868,116 1,041,957 579,592 18,884,527 1,839,897 1,538,514 956,297 4,334,708 1,666,863 1,310,421 785,788 3,763,072 4,499,732 8,050,797 2,394,792 1,965,397 1,064,489 530,417 1,839,897 1,538,514 956,297 22,840,332 4,989,484 7,799,983 2,605,395 1,868,116 1,041,957 579,592 1,666,863 1,310,421 785,788 22,647,599 1,355,370 641,604 521,862 (833,508) 842,231 Transfers Special Item 269,143 (5,352,178) 162,208 - (269,143) - CHANGE IN NET POSITION (5,283,662) (671,300) 573,088 1,193,162 Net Position - Beginning of Year 25,313,668 25,984,968 20,994,774 19,801,612 46,308,442 45,786,580 $ 20,030,006 $ 25,313,668 $ 21,567,862 $ 20,994,774 $ 41,597,868 $ 46,308,442 NET POSITION - END OF YEAR (200,627) (16) (162,208) - (5,352,178) - (4,710,574) 521,862 CITY OF DOUGLAS, ARIZONA MANAGEMENT’S DISCUSSION AND ANALYSIS YEAR ENDED JUNE 30, 2014 Governmental Activities – Governmental activities decreased the City’s net position by $5.3 million. Key factors of the overall decrease in net position are as follows:  Fees, fines and charges for services increased 10.2% over the prior fiscal year. The increase was largely due to an increase in ambulance transports and revenue received from its billing.  Capital grants and contributions decreased $0.6 million over the prior fiscal year and Operating Grants and Contributions increased $0.4 million due to the receipt and use of more federal funds for overtime of officers and support for to enhance security along the border.  State shared revenues and local tax revenues had a net increase of $0.5 million due to an increase in consumer spending as well as an adjustment made to our census population data which increased our population to 17,509.  Total expenses remained relatively unchanged over the prior fiscal year, with the exception of an increase in public safety expenses in the amount of $0.3 million offset by a decrease in general government expense of $0.5 million. The increase in public safety expenses was largely attributed to an increase in fire personnel costs compared to last year. The City experienced higher turnover in prior year than in the current year. The decrease in general government expense was due to a savings in personnel costs through retirements and attrition.  The City executed an intergovernmental agreement with Cochise County to transfer ownership of the Douglas Regional Service Center. The net book value of assets transferred totaled $6.8 million at the time of the transfer. The City received proceeds totaling $0.9 million and the County conveyed the Douglas Juvenile Probation and Health Department Buildings with an appraised value of $0.2 million and $0.4 million respectively. The City reported a loss on the sale totaling $5.3 million. City of Douglas – Fiscal Year 2013/14 Governmental Activities Revenues Expenses 8,000 7,000 Thousands 6,000 5,000 4,000 3,000 2,000 1,000 Gen. Gov't Public Safety Highway/St. Cult./Rec. Housing/Redev. Program Revenues and Expenses (17) Int. Long term Debt CITY OF DOUGLAS, ARIZONA MANAGEMENT’S DISCUSSION AND ANALYSIS YEAR ENDED JUNE 30, 2014 City of Douglas Revenue by Source Governmental Activities Fiscal Year 2013/14 Charges for Services, 17% State Shared Rev., 23% Other, 2% Operating Grants, 21% Property Taxes, 3% Local Taxes, 32% Capital Grants, 2% The charts on the previous page and above illustrate the City’s governmental expenses and revenues by function and the City’s revenues by source. As shown, Public Safety (police, fire, and emergency medical services) is the largest function in expenses (44%), followed by General Government (24%), Highway/Streets (13%), Culture/Recreation (11%), Redevelopment and Housing (6%) and the remaining attributable to Interest. General revenues such as property taxes, state shared revenues, and sales taxes are not shown by program but are effectively used to support program activities of the City as a whole. For governmental activities as a whole, sales tax revenues is the largest source of funds (32%) followed by state shared revenues (23%) as illustrated in the above chart. Business-Type Activities – Business-type activities increased the City’s net position by $0.6 million. The increase in net position was not significant and was primarily the result of the City holding operating revenues consistent with prior year. Operating expenses increased in the business-type activities due to a general increase in operating costs (including salaries and related benefits) and claims expense. City of Douglas 2013/14 Business-type Activities Revenues Expenses 3,000 Thousands 2,500 2,000 1,500 1,000 500 Water Sewer Program Revenues and Expenses (18) Solid Waste CITY OF DOUGLAS, ARIZONA MANAGEMENT’S DISCUSSION AND ANALYSIS YEAR ENDED JUNE 30, 2014 City of Douglas Revenue by Source Business-type Activities Fiscal Year 2013/14 Solid Waste Charges, 23% Operating Grants, 0% Sewer Charges, 35% Miscellaneous, 3% Investment Income, 0% Water Charges, 39% As shown in the chart on the previous page and above, the largest of the City’s business-type activities are water and sewer utilities. Sewer Fund operating expenses were just over $1.5 million, with Water operating expenses at $1.8 million, followed by Solid Waste at approximately $1.0 million. For this fiscal year, the change in net position in the Sewer Fund was a positive $0.3 million while the change in net position in the Water Fund was a positive $0.1 million and the Solid Waste Fund was a positive $0.2 million. The positive change in net position in the Enterprise Funds was due to revenues exceeding expenses. FINANCIAL ANALYSIS OF THE CITY’S FUNDS As noted earlier, the City uses fund accounting to ensure and demonstrate compliance with financerelated legal requirements. Governmental Funds – The focus of the City’s governmental funds is to provide information on nearterm inflows, outflows, and balances of spendable resources. Such information is useful in assessing the City of Douglas, Arizona’s financing requirements. In particular, unassigned fund balance may serve as a useful measure of a government’s net resources available for spending at the end of the fiscal year. Types of governmental funds reported by the City include the General Fund, Special Revenue Funds, Debt Service Funds, and Capital Projects Fund. As of the end of the current fiscal year, the City’s governmental funds reported a combined ending fund balance of $8.1 million, an increase of $1.7 million from the prior year. This increase is primarily due to sales proceeds received on the transfer of the Douglas Regional Service Center to Cochise County totaling $0.9 million. Remaining increase is attributed to an increase in state shared revenues Revenues for governmental funds overall totaled approximately $18.3 million for the fiscal year ended June 30, 2014 which represents an increase of 3.1% or approximately $0.6 million from the prior fiscal year. This increase is primarily due to an increase in state shared revenues. (19) CITY OF DOUGLAS, ARIZONA MANAGEMENT’S DISCUSSION AND ANALYSIS YEAR ENDED JUNE 30, 2014 The General Fund is the chief operating fund of the City. At the end of the fiscal year, the unassigned fund balance of the General Fund was $4.8 million. As a measure of the General Fund’s liquidity, it may be useful to compare the fund balance to total fund expenditures. Unassigned General Fund balance represents 34.9% of the total General Fund expenditures of $13.7 million. The MPC Debt Service Fund did not significantly change during the fiscal year. The MPC Debt Service Fund accounts for the principal and interest requirements on debt issued by the City’s Municipal Property Corporation, a blended component unit. The debt is repaid through transfers from the HURF Fund and the General Fund. The Nonmajor Governmental Funds increase of $1.2 million was largely due to sales proceeds totaling $0.6 million recognized in the capital project fund related to the transfer of the Douglas Regional Service Center to Cochise County. Remaining increase was due to 0.3% sales tax enacted in September 2008 and extended in August 2013 which has been earmarked by council for future capital projects. Proprietary Funds – The City’s proprietary funds provide the same type of information found in the government-wide financial statements, but in more detail. At the end of the fiscal year, unrestricted net position for the Water Fund was $2.5 million, Sewer $0.7 million, and Solid Waste $1.2 million. The total increase in net position for the enterprise funds was $0.6 million largely due to revenues exceeding expenses. Expenses increased in all three funds due to an increase in claims and operating costs. GENERAL FUND BUDGETARY HIGHLIGHTS The City did not revise the budget during the current fiscal year. Actual revenues were less than the budget by $0.5 million and actual expenditures were less than budget by $0.6 million. The actual revenues were less than budget largely due to local sales tax collections not coming in as projected. The City was able to realize a savings in actual expenditures versus the budget due to substantial savings in the General Government, Transit and Police Operations expenditures. Transfers from the General fund to the Capital Projects fund saw a savings as it was not necessary to provide the transfers as was originally projected due to savings from port of entry budgeted costs. The Transit department saw savings once again from its operations budget specifically from the inability to hire the amount of personnel as originally planned, from fuel savings and its contingency account. The Police operations department had savings from personnel turnover in dispatching as well as police detectives. Although short staffed, savings were realized from the personnel, overtime and benefits line items. Fire and emergency medical services exceeded the budget largely due to excess overtime charged to the departments in comparison with the budget and more salary and related benefits, other than overtime in the emergency medical services. Because the General Fund as a whole did not exceed the budget, the City is in compliance with its legal level of budgetary control. (20) CITY OF DOUGLAS, ARIZONA MANAGEMENT’S DISCUSSION AND ANALYSIS YEAR ENDED JUNE 30, 2014 The legal level of budgetary control is at the departmental level in the General Fund; however, the City Council monitors the General Fund as a whole and the City Manager has the authority to make budget transfers between departments in the General Fund as long as the General Fund in total does not exceed the budget. CAPITAL ASSETS AND DEBT ADMINISTRATION Capital Assets The City’s capital assets for its governmental and business-type activities as of June 30, 2014 amount to $45.4 million (net of accumulated depreciation). Capital assets include land and improvements, infrastructure, buildings and improvements, machinery equipment, and vehicles, and construction in progress. Table A-3 Capital Assets (Net) Governmental Activities Land and Land Improvements Streets and Storm Drains Buildings and Improvements Water System Wastewater System Machinery, Equipment and Vehicles Construction In Progress Total Capital Assets $ 2014 3,192,056 6,183,414 9,547,474 2,864,925 1,560,083 $ 23,347,952 $ Business-Type Activities 2013 3,297,168 6,503,545 16,450,558 3,940,327 422,100 $ 30,613,698 2014 $ 4,904,093 7,248,630 8,082,660 982,380 810,112 $ 22,027,875 Total 2013 $ 5,074,059 7,485,046 8,302,447 801,097 924,647 $ 22,587,296 $ 2014 3,192,056 6,183,414 14,451,567 7,248,630 8,082,660 3,847,305 2,370,195 $ 45,375,827 $ 2013 3,297,168 6,503,545 21,524,617 7,485,046 8,302,447 4,741,424 1,346,747 $ 53,200,994 Major capital asset events during the current fiscal year include the following: Governmental Activities  The City entered into and executed an intergovernmental agreement with Cochise County to transfer the Douglas Regional Service Center in exchange for proceeds totaling $0.9 million and the receipt of the Douglas Juvenile Probation Office ($0.2 million) and Health Department Building ($0.4 million). The net book value of assets transferred to the County totaled $6.8 million and resulted in a loss totaling $5.3 million.  Commencement of IT Network upgrades financed through a lease purchase with a value of $1.0 million.  Acquisition of two ambulances and five trucks with a cumulative cost of $0.3 million. Business-type Activities  Acquisition of heavy equipment including a street sweeper and dump truck with a cumulative cost of $0.3 million.  Continued construction on Wastewater System Improvement Project totaling $0.1 million. For government-wide financial statement purposes, capital assets were depreciated from acquisition date to the end of the current fiscal year. Governmental fund financial statements record capital asset purchases as expenditures. Additional information on the City of Douglas, Arizona’s capital assets may be found in the Notes to the Basic Financial Statements in note 3.A.4. on pages 50 - 53 of this report. (21) CITY OF DOUGLAS, ARIZONA MANAGEMENT’S DISCUSSION AND ANALYSIS YEAR ENDED JUNE 30, 2014 Debt Administration At the end of the fiscal year, the City of Douglas, Arizona had total long-term obligations outstanding of $15.6 million. The City entered into a $1.3 million short term leases to finance IT Network upgrades, street sweeper and a dump truck. The current year decrease was the net effect of the issuance of debt, offset by the required principal due on outstanding debt. The State constitution imposes certain debt limits on the issuance of General Obligation Bonds at six percent (6%) and twenty percent (20%) of the secondary assessed valuation of the City. The City has not issued any general obligation bonds. Therefore, the City’s available debt margin at June 30, 2014 is $3.2 million in the 6% capacity and $10.7 million in the 20% capacity. Table A-4 Outstanding Debt Loans Payable Revenue Bonds Capital Lease Total Outstanding Debt Governmental Activities 2014 2013 $ 7,725,000 $ 8,260,000 470,000 925,000 1,911,683 1,345,057 $ 10,106,683 $ 10,530,057 $ $ Business-Type Activities 2014 2013 5,095,574 $ 5,457,668 440,727 263,551 5,536,301 $ 5,721,219 Total 2014 2013 $ 12,820,574 $ 13,717,668 470,000 925,000 2,352,410 1,608,608 $ 15,642,984 $ 16,251,276 Additional information on the City’s debt can be found in Note 3.E. on pages 56 - 59. ECONOMIC FACTORS AND NEXT YEAR’S BUDGET The following factors were considered when preparing the 2014-15 budgets:     A conservative economic forecast and limited revenue growth. A focus on preventing layoffs and furloughs. A focus on capital improvements through the use of .3% sales tax. An emphasis on a “pay-as-you-go” approach to funding water and wastewater capital investments.  Sustained funding to the General Fund and Enterprise contingency/reserve funds to ensure that the City will be able to provide basic services during economic downturns and major emergencies.  Increased contributions for Arizona State Retirement, Public Safety Retirement and increased health insurances rates. The focus continues to be planning for the construction of a new commercial port of entry that would enhance the trade between Agua Prieta and Douglas. The City Council direction has been to focus on essential government services. The council voted not to budget a full year of revenues and expenditures for the golf course for FY 2015 as the intent is to sell it. The council is also moving away from other businesses that the private sector may be able to enhance such as the Casas de Esperanza housing project. By focusing our efforts on the essential government services, the City can provide better service and consequently save in operational costs as well. (22) CITY OF DOUGLAS, ARIZONA MANAGEMENT’S DISCUSSION AND ANALYSIS YEAR ENDED JUNE 30, 2014 REQUESTS FOR INFORMATION This financial report is designed to provide a general overview of the City’s finances for all those interested in the government’s finances. If you have any questions about this report or need additional financial information, contact: City of Douglas Finance Department 425 Tenth Street Douglas, Arizona 85607 (520) 417-7333 (23) BASIC FINANCIAL STATEMENTS CITY OF DOUGLAS, ARIZONA STATEMENT OF NET POSITION JUNE 30, 2014 Primary Government Governmental Activities ASSETS Cash and Investments Cash with Fiscal Agent Receivables, Net: Accounts Receivable Taxes Receivable Intergovernmental Receivables Due from Component Unit Inventories Prepaid Items Other Assets Restricted Assets Capital Assets: Non-Depreciable Depreciable (Net) $ Total Assets DEFERRED OUTFLOWS OF RESOURCES Deferred Amount on Refunding LIABILITIES Accounts Payable Accrued Wages and Benefits Insurance Claims Payable Interest Payable Intergovernmental Payable Customer Deposits Payable Unearned Revenue Due to Primary Government Prepaid Rents Matured Debt Principal Payable Noncurrent Liabilities Due Within One Year Due in More Than One Year Total Liabilities NET POSITION Net Investment in Capital Assets Restricted for: Other Federal and State Grants Court Administration Public Safety Highways, Streets and Local Transportation Redevelopment and Housing Debt Service Repair and Replacement Unrestricted Total Net Position $ See accompanying Notes to Basic Financial Statements. (24) 6,601,582 626,320 Business-Type Activities $ Total 4,534,908 - $ 11,136,490 626,320 292,356 591,945 816,755 646,789 56,700 16,927 19,635 495,083 568,237 787,439 591,945 816,755 646,789 56,700 16,927 587,872 2,660,393 20,687,559 810,112 21,217,763 3,470,505 41,905,322 33,016,961 27,626,103 60,643,064 12,843 - 12,843 359,425 434,747 139,478 15,903 16,345 19,635 24,321 455,000 215,658 55,472 26,173 55,955 3,740 - 575,083 490,219 165,651 71,858 16,345 23,375 24,321 455,000 2,019,837 9,515,107 696,120 5,005,123 2,715,957 14,520,230 12,999,798 6,058,241 19,058,039 13,255,510 16,491,574 29,747,084 206,172 61,234 369,088 84,783 540,328 5,512,891 20,030,006 558,327 9,910 4,508,051 21,567,862 206,172 61,234 369,088 84,783 540,328 558,327 9,910 10,020,942 41,597,868 $ $ Component Units Governmental Component Units Proprietary Type Component Unit $ $ $ 142,767 - 18,453 - 27,308 29,061 213,173 249,603 513 33,182 107,976 383,720 91,150 1,002,203 265,000 3,480,780 1,755,265 4,289,624 - - 7,955 34,233 116,062 11,300 - 41,608 2,881 15,017 15,510 646,789 17,697 - 25,163 2,561,903 51,300 5,073,115 2,756,616 5,863,917 (1,493,713) (1,378,635) 492,362 (1,001,351) (195,658) (1,574,293) $ (25) CITY OF DOUGLAS, ARIZONA STATEMENT OF ACTIVITIES YEAR ENDED JUNE 30, 2014 Program Revenues Functions/Programs Primary Government Governmental Activities: General Government Public Safety Highways and Streets Culture and Recreation Redevelopment and Housing Interest and Fiscal Charges Total Governmental Activities Business-Type Activities: Water Sewer Solid Waste Total Business-Type Activities Total Primary Government Component Units: Governmental Component Units Proprietary Type Component Units Expenses $ 4,499,732 8,050,797 2,394,792 1,965,397 1,064,489 530,417 18,505,624 Fees, Fines and Charges for Services Operating Grants and Contributions $ $ 1,839,897 1,538,514 956,297 $ $ $ 4,334,708 22,840,332 613,145 667,776 1,280,921 1,890,264 1,069,174 136,056 3,095,494 2,070,331 1,880,405 1,202,806 $ $ $ 5,153,542 8,249,036 114,724 554,177 668,901 470,846 1,115,498 1,159,672 25,090 980,050 3,751,156 Capital Grants and Contributions $ 35,000 156,229 166,042 65,763 423,034 1,320 $ $ $ 1,320 3,752,476 350,993 350,993 $ 423,034 $ $ General Revenues Taxes: Sales Taxes Property Taxes Franchise Taxes State Revenue Sharing State Sales Tax Revenue Sharing Auto Lieu Tax Revenue Sharing Grants and Contributions not Restricted Investment Income Other Special Item - Loss on sale of capital assets Transfers Total General Revenues, Special Item, and Transfers Change in Net Position Net Position - Beginning Net Position - Ending See accompanying Notes to Basic Financial Statements. (26) - Net (Expense) Revenue and Changes in Net Position Primary Government Component Units Governmental Activities $ Business-Type Activities (2,103,622) (5,709,896) (1,069,078) (1,738,488) (84,439) (530,417) (11,235,940) $ $ 231,754 341,891 246,509 Proprietary Type Component Unit $ $ (2,103,622) (5,709,896) (1,069,078) (1,738,488) (84,439) (530,417) (11,235,940) 820,154 (10,415,786) 5,533,351 578,759 311,019 1,976,038 1,545,589 736,085 41,950 30,607 281,915 (5,352,178) 269,143 22,077 (269,143) 5,533,351 578,759 311,019 1,976,038 1,545,589 736,085 41,950 52,684 281,915 (5,352,178) - 5,952,278 (5,283,662) 25,313,668 20,030,006 (247,066) 573,088 20,994,774 21,567,862 5,705,212 (4,710,574) 46,308,442 41,597,868 $ Governmental Component Units 231,754 341,891 246,509 820,154 820,154 (11,235,940) $ Total $ (147,428) (147,428) 334 7,705 8,039 (139,389) (861,962) (1,001,351) $ (27) (113,599) (113,599) 3,950 - $ 3,950 (109,649) (1,464,644) (1,574,293) CITY OF DOUGLAS, ARIZONA BALANCE SHEET GOVERNMENTAL FUNDS JUNE 30, 2014 MPC Debt Service Fund General Fund ASSETS Cash and Investments Cash with Fiscal Agent Receivables: Accounts Receivable Taxes Receivable Intergovernmental Receivables Component Unit Long Term Note Inventory Prepaid Items Restricted Assets Total Assets LIABILITIES, DEFERRED INFLOWS, AND FUND BALANCES Liabilities Accounts Payable Accrued Wages and Benefits Insurance Claims Payable Interest Payable Intergovernmental Payable Unearned Revenue Customer Deposits Payable Matured Debt Principal Payable $ $ 4,106,076 155,417 287,851 540,106 534,762 646,789 56,700 16,927 6,344,628 $ 212,938 398,991 128,876 16,345 932 - $ $ $ Nonmajor Governmental Funds 470,903 470,903 15,903 455,000 $ $ $ 2,495,506 4,505 51,839 281,993 19,635 2,853,478 146,487 35,756 10,602 23,389 19,635 - Totals $ $ $ 6,601,582 626,320 292,356 591,945 816,755 646,789 56,700 16,927 19,635 9,669,009 359,425 434,747 139,478 15,903 16,345 24,321 19,635 455,000 758,082 470,903 235,869 1,464,854 75,243 - 45,884 121,127 720,416 4,790,887 - 1,218,198 1,033,237 320,290 - 720,416 1,218,198 1,033,237 320,290 4,790,887 5,511,303 - 2,571,725 8,083,028 Total Liabilities Deferred Inflows of Resources Unavailable Revenue Fund Balances Nonspendable Restricted Committed Assigned Unassigned Total Fund Balances Total Liabilities, Deferred Inflows of Resources and Fund Balances $ 6,344,628 See accompanying Notes to Basic Financial Statements. (28) $ 470,903 $ 2,853,478 $ 9,669,009 CITY OF DOUGLAS, ARIZONA RECONCILIATION OF THE BALANCE SHEET OF GOVERNMENTAL FUNDS TO THE STATEMENT OF NET POSITION JUNE 30, 2014 Total Fund Balances for Governmental Funds $ 8,083,028 Total net position reported for governmental activities in the statement of net position is different because: Capital assets used in governmental funds are not financial resources and, therefore, are not reported in the funds. Those assets consist of: Land Construction in Progress Land Improvements Streets and Storm Drains Buildings and Improvements Machinery, Equipment and Vehicles Total Capital Assets Less: Accumulated Depreciation $ 1,100,310 1,560,083 4,728,676 16,626,188 15,775,191 15,944,707 55,735,155 (32,387,203) 23,347,952 Some of the City's property taxes and sales taxes will be collected after yearend, but are not available soon enough to pay for the current period's expenditures and, therefore, are reported as unavailable revenue in the governmental funds. 77,720 Some loans receivable through the City's housing rehabilitation program are recorded as a receivable and unavailable revenue in the City's Governmental Fund financial statements, but are recognized as revenue in the government-wide financial statements. 43,407 Long-term liabilities that pertain to governmental funds, including bonds payable, are not due and payable in the current period and, therefore, are not reported as fund liabilities. All liabilities - both current and long-term are reported in the statement of net position. Loans Payable Revenue Bonds Deferred Amount on Refunding Bond Discount Capital Lease Payable Compensated Absence Payable (7,725,000) (470,000) 12,843 1,398 (1,911,683) (1,429,659) Total Net Position of Governmental Activities (11,522,101) $ See accompanying Notes to Basic Financial Statements. (29) 20,030,006 CITY OF DOUGLAS, ARIZONA STATEMENT OF REVENUES, EXPENDITURES, AND CHANGE IN FUND BALANCES GOVERNMENTAL FUNDS YEAR ENDED JUNE 30, 2014 MPC Debt Service Fund General Fund REVENUES Taxes: Sales Taxes Property Taxes Franchise Taxes Intergovernmental Revenues Fines and Forfeitures Licenses and Permits Charges for Services Rents and Royalties Investment Income Other $ Total Revenues EXPENDITURES Current: General Government Public Safety Highways and Streets Culture and Recreation Redevelopment and Housing Debt Service: Principal Retirement Interest on Long-Term Debt Capital Outlay Total Expenditures Excess (Deficiency) of Revenues Over Expenditures $ Proceeds from Sale of Capital Assets Proceeds from Capital Leases Total Other Financing Sources (Uses) Net Change in Fund Balances $ 577,115 2,885,375 5,618 18,916 174,773 $ 5,510,222 578,451 311,019 8,455,635 311,448 201,227 1,763,797 819,022 30,607 281,915 - 3,661,797 18,263,343 3,392,748 7,190,474 617,465 1,378,439 - - 14,490 105,238 1,067,833 135,488 1,058,347 3,407,238 7,295,712 1,685,298 1,513,927 1,058,347 29,632 4,376 1,131,988 455,000 31,806 - 980,216 465,740 674,902 1,464,848 501,922 1,806,890 13,745,122 486,806 4,502,254 18,734,182 (486,806) (840,457) (470,839) 237,392 (1,868,542) 297,088 1,041,474 486,806 - 1,630,694 (217,207) 600,000 - 2,354,892 (2,085,749) 897,088 1,041,474 (292,588) 486,806 2,013,487 2,207,705 - 1,173,030 1,736,866 563,836 $ - Totals 14,601,546 856,424 OTHER FINANCING SOURCES (USES) Transfers In Transfers Out FUND BALANCES Beginning of Year End of Year 4,933,107 578,451 311,019 5,570,260 305,830 201,227 1,763,797 819,022 11,691 107,142 Nonmajor Governmental Funds 4,947,467 5,511,303 See accompanying Notes to Basic Financial Statements. (30) $ - $ 1,398,695 2,571,725 $ 6,346,162 8,083,028 CITY OF DOUGLAS, ARIZONA RECONCILIATION OF THE STATEMENT OF REVENUES, EXPENDITURES, AND CHANGE IN FUND BALANCES IN THE GOVERNMENTAL FUNDS TO THE STATEMENT OF ACTIVITIES YEAR ENDED JUNE 30, 2014 Net Change in Fund Balances-Total Governmental Funds $ 1,736,866 Amounts reported for governmental activities in the statement of activities are different because: Governmental funds report capital outlays as expenditures. However, in the statement of activities, assets are capitalized and the cost is allocated over their estimated useful lives and reported as depreciation expense. This is the amount by which depreciation exceeded capital outlays in the current period. Expenditures for Capital Assets Depreciation Expense $ 1,892,287 (2,943,767) (1,051,480) The governmental funds report proceeds received on the sale of assets. Conversely, the statement of activities report the gain or loss on sale of assets. (6,249,266) Contributions of capital assets are not current financial resources and are not reflected in the governmental funds. 35,000 Loan receivable recorded as revenue in the government-wide statement of net position, but not yet available. Intergovernmental Receivables - June 30, 2013 Intergovernmental Receivables - June 30, 2014 60,190 43,407 (16,783) The governmental funds report the issuance of bonds as financing sources, while repayment of bond principal is reported as an expenditure. In the statement of net position, however, issuing debt increases long-term liabilities and does not affect the statement of activities and repayment of principal reduces the liability. Interest costs are recognized as an expenditure in the governmental funds when it is due. In the statement of activities, however, interest expense is recognized as it accrues. The net effect of these differences in the treatment of general obligation bonds and related items is as follows: Amortization of Deferred Amount on Refunding Amortization of Bond Discount Repayment of Long-Term Debt (25,693) (2,802) 1,464,848 394,879 Delinquent property taxes and sales taxes receivable will be collected subsequent to year-end, but are not available soon enough to pay for the current period’s expenditures, and therefore reported as unavailable in the governmental funds. Unavailable Revenue - June 30, 2013 Unavailable Revenue - June 30, 2014 54,283 77,720 23,437 In the statement of activities, compensated absences are measured by the amounts earned during the year. In the governmental funds, however, expenditures for these items are measured by the amount of financial resources used (essentially, the amounts actually paid). Change in Net Position of Governmental Activities (156,315) $ See accompanying Notes to Basic Financial Statements. (31) (5,283,662) CITY OF DOUGLAS, ARIZONA STATEMENT OF NET POSITION PROPRIETARY FUNDS JUNE 30, 2014 Business-Type Activities Water ASSETS Current Assets: Cash and Cash Equivalents Receivables, Net: Accounts Receivable Total Current Assets Noncurrent Assets: Restricted Cash and Cash Equivalents Capital Assets: Non-Depreciable Depreciable (Net) Total Noncurrent Assets Total Assets Solid Waste Totals 737,900 $ 1,211,978 $ 4,534,908 222,626 2,807,656 163,796 901,696 108,661 1,320,639 495,083 5,029,991 109,008 459,229 - 568,237 234,549 7,400,684 7,744,241 575,563 13,444,017 14,478,809 373,062 373,062 810,112 21,217,763 22,596,112 10,551,897 15,380,505 1,693,701 27,626,103 163,239 21,552 8,117 17,281 1,265 50,770 72,793 335,017 20,370 17,260 9,939 38,674 1,275 19,986 75,748 418,154 601,406 32,049 16,660 8,117 1,200 20,298 38,371 116,695 215,658 55,472 26,173 55,955 3,740 91,054 114,119 490,947 1,053,118 19,812 1,155,394 1,175,206 54,076 206,132 3,449,233 3,709,441 120,476 120,476 73,888 326,608 4,604,627 5,005,123 1,510,223 4,310,847 237,171 6,058,241 6,407,046 9,870,313 214,215 16,491,574 99,098 9,910 2,525,620 459,229 740,116 1,242,315 558,327 9,910 4,508,051 $ 9,041,674 $ 11,069,658 $ 1,456,530 $ 21,567,862 $ 2,585,030 LIABILITIES Current Liabilities: Accounts Payable Accrued Wages and Benefits Insurance Claims Payable Interest Payable Customer Deposits Payable Compensated Absences Capital Leases Payable Loans Payable Total Current Liabilities Noncurrent Liabilities: Compensated Absences Payable Capital Leases Payable Loans Payable Total Noncurrent Liabilities Total Liabilities NET POSITION Net Investment in Capital Assets Restricted for: Debt Service Repair and Replacement Unrestricted Total Net Position See accompanying Notes to Basic Financial Statements. (32) Sewer $ CITY OF DOUGLAS, ARIZONA STATEMENT OF REVENUES, EXPENSES, AND CHANGE IN NET POSITION PROPRIETARY FUNDS YEAR ENDED JUNE 30, 2014 Business-Type Activities Water Sewer Solid Waste 1,816,287 $ 1,202,756 1,304,667 46,613 455,506 1,806,786 888,260 51,131 506,020 1,445,411 822,236 44,425 87,610 954,271 3,015,163 142,169 1,049,136 4,206,468 Operating Income 147,907 370,876 248,485 767,268 NONOPERATING REVENUES (EXPENSE) Impact Fees Intergovernmental Revenue Investment Income Interest Expense Miscellaneous Nonoperating Revenues Total Nonoperating Revenues 44,800 1,320 8,212 (33,111) 70,838 92,059 59,935 11,405 (93,103) 4,183 (17,580) Income Before Transfers 239,966 353,296 248,969 842,231 (130,479) (95,585) (43,079) (269,143) 109,487 257,711 205,890 573,088 8,932,187 10,811,947 1,250,640 20,994,774 11,069,658 $ 1,456,530 OPERATING REVENUES Charges for Services $ 1,954,693 OPERATING EXPENSES Cost of Sales and Services Insurance Claims Depreciation Total Operating Expenses Transfers Out Change in Net Position Total Net Position - Beginning of Year TOTAL NET POSITION - END OF YEAR $ 9,041,674 See accompanying Notes to Basic Financial Statements. (33) $ $ Totals $ 2,460 (2,026) 50 484 4,973,736 104,735 1,320 22,077 (128,240) 75,071 74,963 $ 21,567,862 CITY OF DOUGLAS, ARIZONA STATEMENT OF CASH FLOWS PROPRIETARY FUNDS YEAR ENDED JUNE 30, 2014 Business-type Activities - Enterprise Funds CASH FLOWS FROM OPERATING ACTIVITIES Receipts from Customers Payments to Suppliers Payments to Employees Payment for Claims Other Receipts Net Cash Flows Provided by Operating Activities CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES Transfers Out Intergovernmental Revenue Net Cash Flows Used by Noncapital Financing Activities CASH FLOWS FROM CAPITAL AND FINANCING ACTIVITIES Impact Fees Purchases of Capital Assets Issuance of Long-Term Debt Principal Paid on Capital Debt Interest Paid on Capital Debt Net Cash Flows Used by Capital and Related Financing Activities Water Sewer Solid Waste Totals $ 1,968,222 (1,055,883) (346,390) (43,799) 72,103 $ 1,823,017 (562,992) (325,711) (42,830) 5,458 $ 1,204,584 (522,915) (288,978) (40,105) 1,250 $ 4,995,823 (2,141,790) (961,079) (126,734) 78,811 594,253 896,942 353,836 (130,479) 1,320 (95,585) - (43,079) - (269,143) 1,320 (129,159) (95,585) (43,079) (267,823) 44,800 (103,490) 103,091 (70,801) (32,657) 59,935 (174,778) 109,145 (485,200) (103,032) (205,617) 198,595 (39,748) (2,026) 104,735 (483,885) 410,831 (595,749) (137,715) (59,057) (593,930) (48,796) (701,783) 8,212 11,405 2,460 22,077 414,249 218,832 264,421 897,502 2,279,789 978,297 947,557 4,205,643 $ 2,694,038 $ 1,197,129 $ 1,211,978 $ 5,103,145 $ $ 1,211,978 $ 1,211,978 $ 4,534,908 568,237 $ 5,103,145 CASH FLOWS FROM INVESTING ACTIVITIES Investment Income NET CHANGE IN CASH AND CASH EQUIVALENTS Cash and Cash Equivalents - Beginning of Year CASH AND CASH EQUIVALENTS END OF YEAR RECONCILIATION OF CASH AND CASH EQUIVALENTS TO THE STATEMENT OF NET POSITION Cash and Cash Equivalents $ 2,585,030 Restricted Cash and Cash Equivalents 109,008 Total Cash and Cash Equivalents $ 2,694,038 737,900 459,229 $ 1,197,129 1,845,031 (Continued) See accompanying Notes to Basic Financial Statements. (34) CITY OF DOUGLAS, ARIZONA STATEMENT OF CASH FLOWS (CONTINUED) PROPRIETARY FUNDS YEAR ENDED JUNE 30, 2014 Business-type Activities - Enterprise Fund Water RECONCILIATION OF OPERATING INCOME (LOSS) TO NET CASH PROVIDED BY OPERATING ACTIVITIES Operating Income Adjustments to Reconcile Operating Income to Net Cash Provided by Operating Activities: Depreciation Miscellaneous Nonoperating Revenues Change in Assets/Liabilities: Receivables, Net Accounts Payable Accrued Wages and Benefits Insurance Claims Payable Customer Deposits Payable Compensated Absences Net Cash Provided by Operating Activities $ $ . See accompanying Notes to Basic Financial Statements. (35) 147,907 Sewer $ 370,876 Solid Waste $ 248,485 455,506 70,838 506,020 4,183 87,610 50 13,529 (90,760) 2,832 2,814 1,265 (9,678) 594,253 6,730 (6,471) 2,116 8,301 1,275 3,912 896,942 1,828 5,407 4,623 4,320 1,200 313 353,836 $ $ Totals $ 767,268 1,049,136 75,071 22,087 (91,824) 9,571 15,435 3,740 (5,453) $ 1,845,031 THIS PAGE BLANK NOTES TO BASIC FINANCIAL STATEMENTS THIS PAGE BLANK CITY OF DOUGLAS, ARIZONA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2014 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accompanying financial statements of the City of Douglas, Arizona (City) have been prepared in conformity with accounting principles generally accepted in the United States of America applicable to governmental units adopted by the Governmental Accounting Standards Board (GASB). A summary of the City’s more significant accounting policies follows. A. Reporting Entity The City is a municipal government that is governed by a separately elected governing body. It is legally separate from and fiscally independent of other state and local governments. The accompanying financial statements present the City and its component units, entities for which the City is considered to be financially accountable. Blended component units, although legally separate entities, are, in substance, part of the City’s operations. The governmental component units are combined into one column in the government-wide financial statements and condensed financial information is presented in Note 3.G. in the notes to the financial statements. Douglas Housing Corporation I and Douglas Housing Corporation II, are not included in the combining statements because they are audited by other auditors and have separately issued financial statements. The business-type component unit consists of only Rancho La Perilla and is presented in one column of the government-wide financial statements. See the descriptions below of each of the blended and discretely presented component units. Blended component unit: Douglas Municipal Property Corporation – The Douglas Municipal Property Corporation’s (DMPC) board of directors consists of six members which are appointed by the Douglas City Council. The DMPC, which is a nonprofit corporation incorporated under the laws of the State of Arizona, was formed for the sole purpose of assisting the City in obtaining financing for various projects of the City. The City has a “moral obligation” for the repayment of the Douglas Municipal Property Corporation’s bonds. All related receivables and payables between the City and the DMPC have been eliminated. Separate financial statements for the Douglas Municipal Property Corporation are not prepared. (36) CITY OF DOUGLAS, ARIZONA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2014 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) A. Reporting Entity (Continued) Douglas Housing Authority – The Douglas Housing Authority (Authority) is a public benefit corporation created by the City to provide subsidized public housing in accordance with federal legislation. The City Council acts as the governing body of the Authority and as such employs executives, authorizes contracts of subsidy with the U.S. Department of Housing and Urban Development pursuant to the latter agency’s regulations and statutory authorizations, and causes the corporation to construct, own and operate public housing facilities within the boundaries of the City. The financial liability of the housing agency is essentially supported by the operating and debt service subsidies received under contract from the federal government, although services or cash subsidies may be, and from time to time, are received from the City as well. Separate financial statements for the Douglas Housing Authority are not prepared. Discretely presented component units: Douglas Housing Corporation I (Casa De Esperanza Apartments) – The Douglas Housing Corporation I is a non-profit corporation created by the City to eliminate the financial burden on the City to provide financing for the construction of a low-income apartment complex. The City Council appoints members of the Governing Board for staggered terms; they, in turn, elect a chairman. The Governing Board employs executives, authorizes contracts of subsidy with the U.S. Department of Housing and Urban Development pursuant to the latter agency’s regulations and statutory authorizations, and causes the corporation to construct and operate a low-income apartment complex of fifty units for families under Section 221(d)(3) of the National Housing Act. Such projects are regulated by the United States Department of Housing and Urban Development (HUD) as to rent charges and operating methods. The financial liability of the corporation is supported by the operating subsidies received under contract from HUD. The audited financial statements of the Douglas Housing Corporation I may be obtained at the offices of the corporation. Douglas Housing Corporation II (Pioneer Village) – The Douglas Housing Corporation II is a non-profit corporation created by the City to eliminate the financial burden on the City to provide financing for the construction of a low-income apartment complex. The City Council appoints members of the Governing Board for staggered terms; they, in turn, elect a chairman. The Governing Board employs executives, authorizes contracts of subsidy with the U.S. Department of Housing and Urban Development pursuant to the latter agency’s regulations and statutory authorizations, and causes the corporation to construct and operate a low-income apartment complex of twenty-eight units for the elderly under Section 221(d)(3) of the National Housing Act. Such projects are regulated by the United States Department of Housing and Urban Development (HUD) as to rent charges and operating methods. The financial liability of the corporation is supported by the operating subsidies received under contract from HUD. The audited financial statements of the Douglas Housing Corporation II may be obtained at the offices of the corporation. (37) CITY OF DOUGLAS, ARIZONA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2014 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) A. Reporting Entity (Continued) Douglas Community Housing Corporation (Rancho La Perilla Apartments) – The Douglas Community Housing Corporation is a non-profit 501(c)(3) corporation created by the City to eliminate the financial burden on the City to provide financing for the construction and operation of apartments. The City Council appoints members of the Governing Board; they, in turn, elect a chairman. The Governing Board employs executives, authorizes contracts, and causes the corporation to construct and operate an apartment complex of 80 units. The Community Housing Corporation has appointed a management corporation to promote the apartments and manage the daily activities of the apartments. The financial liability of the Corporation is solely dependent upon the rental revenue received from the tenants. Financial statements of the Douglas Community Housing Corporation may be obtained at the offices of the corporation. Separately issued financial statements for Casa de Esperanza, Pioneer Village and Rancho La Perilla have been prepared in conformity with the Statement of Financial Accounting Standards No. 117, “Financial Statements of Not-for-Profit Organizations” and are available from the Essex Corporation. B. Government-Wide and Fund Financial Statements The government-wide financial statements (i.e., the statement of net position and the statement of activities) report information on all of the activities of the primary government and its component units. The effect of interfund activity has been removed from these statements except for interfund services provided and used, which are not eliminated in the consolidation. Governmental activities, which are normally supported by taxes and intergovernmental revenues, are reported separately from business-type activities, which rely to a significant extent on fees and charges for support. Likewise, the primary government is reported separately from certain legally separate component units for which the primary government is financially accountable. The statement of activities demonstrates the degree to which the direct expenses of a given function or segment are offset by program revenues. Direct expenses are those that are clearly identifiable with a specific function or segment. Program revenues include 1) charges to customers or applicants who purchase, use, or directly benefit from goods, services, or privileges provided by a given function or segment and 2) grants and contributions that are restricted to meeting the operational or capital requirements of a particular function or segment. Taxes and other items not properly included among program revenues are reported instead as general revenues. Separate financial statements are provided for governmental funds and proprietary funds. Major individual governmental and enterprise funds are reported as separate columns in the fund financial statements. (38) CITY OF DOUGLAS, ARIZONA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2014 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) C. Measurement Focus, Basis of Accounting, and Financial Statement Presentation The government-wide financial statements are reported using the economic resources measurement focus and the accrual basis of accounting. Revenues are recorded when earned and expenses are recorded when a liability is incurred, regardless of the timing of related cash flows. Property taxes are recognized as revenues in the year for which they are levied. Grants and similar items are recognized as revenue as soon as all eligibility requirements imposed by the provider have been met. Governmental fund financial statements are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Revenues are recognized as soon as they are both measurable and available. Revenues are considered to be available when they are collectible within the current period or soon enough thereafter to pay liabilities of the current period. For this purpose, the City considers revenues to be available if they are collected within 60 days of the end of the current fiscal period. Expenditures generally are recorded when a liability is incurred, as under accrual accounting, except expenditures related to compensated absences and claims and judgments, which are recorded only when payment is due. However, since debt service resources are provided during the current year for payment of long-term principal and interest due early in the following year, the expenditures and related liabilities have been recognized in the Debt Service Funds. Property taxes, intergovernmental grants and aid, and interest associated with the current fiscal period are all considered to be susceptible to accrual and so have been recognized as revenues of the current fiscal period. All other revenue items are considered to be measurable and available only when cash is received by the government. The City reports the following major governmental funds: Major Governmental Funds General Fund The General Fund is the City’s primary operating fund. It accounts for all financial resources of the City, except those required to be accounted for in another fund. MPC Debt Service Fund The MPC Debt Service Fund accounts for the accumulation of resources for, and the payments of, the MPC debt service principal, interest and related debt. (39) CITY OF DOUGLAS, ARIZONA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2014 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) C. Measurement Focus, Basis of Accounting, and Financial Statement Presentation (Continued) The City reports the following major proprietary funds: Major Proprietary Funds Water Fund The Water Fund accounts for the costs to operate, construct and finance the City’s water system. Sewer Fund The Sewer Fund accounts for the costs to operate, construct and finance the wastewater treatment system. Solid Waste Fund The Solid Waste Fund accounts for the costs to operate, construct and finance the City’s solid waste operations. Proprietary funds distinguish operating revenues and expenses from nonoperating items. Operating revenues and expenses generally result from providing services and producing and delivering goods in connection with a proprietary fund’s principal ongoing operations. The principal operating revenues of the proprietary funds are charges for services. Operating expenses for the proprietary funds include the cost of sales and services and depreciation on capital assets. All revenues and expenses not meeting this definition are reported as nonoperating revenues and expenses. When both restricted and unrestricted resources are available for use, for governmental activities it is the City’s policy to use restricted resources first, then unrestricted resources as they are needed. For business-type activities, the use of restricted resources is governed by the applicable bond covenants. (40) CITY OF DOUGLAS, ARIZONA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2014 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) D. Assets, Deferred Outflows of Resources, Liabilities, Deferred Inflows of Resources and Net Position or Equity 1. Deposits and Investments The primary government and component unit cash and cash equivalents are considered to be cash on hand, demand deposits, cash and investments held by the State Treasurer, and highly liquid investments with maturities of three months or less from the date of acquisition. Cash and investments are pooled except for funds required to be held by fiscal agents or restricted under provisions of bond indentures. Interest earned from investments purchased with such pooled monies is allocated to each of the funds based on the average daily cash balances. The City Council-approved investment policy authorizes the City to invest in obligations of the U.S. government which do not exceed three years in maturity and are guaranteed by the U.S. Treasury; Certificates of Deposit or other deposits in FDIC insured banks; obligations of FNMA and FHMA which mature the next business day; repurchase agreements of less than $5,000 which mature on the next business day; and the Local Government Investment Pools managed by the State Treasurer. Additionally, the trustee of the City’s employee retirement plan holds certain City funds in a money market mutual fund. The State Board of Deposit provides oversight for the State Treasurer’s pools, and the Local Government Investment Pool Advisory Committee provides consultation and advice to the Treasurer. The fair value of a participant’s position in the pool approximates the value of that participant’s pool shares. No comparable oversight is provided for the County Treasurer’s investment pool and that pool’s structure does not provide for shares. The governmental and business-type component units invest cash and investments in local financial institutions and the state’s Local Government Investment Pools managed by the State Treasurer. 2. Receivables All trade and property taxes receivables are shown net of an allowance for uncollectible accounts. All revenues of governmental activities were considered collectible and therefore there was no provision, the business-type activities reported an allowance of $54,853. (41) CITY OF DOUGLAS, ARIZONA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2014 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) D. Assets, Deferred Outflows of Resources, Liabilities, Deferred Inflows of Resources and Net Position or Equity (Continued) 2. Receivables (Continued) Cochise County levies real and personal property taxes on or before the third Monday in August that become due and payable in two equal installments. The first installment is due on the first day of October and becomes delinquent after the first business day of November. The second installment is due on the first day of March of the next year and becomes delinquent after the first business day of May. However, a lien against real and personal property assessed attaches on the first day of January preceding assessment and levy thereof. 3. Intergovernmental Receivables Intergovernmental receivables include state shared revenues and federal and state grants. 4. Short-Term Interfund Receivables/Payables During the course of operations, individual funds within the City’s pooled cash accounts may borrow money from the other funds within the pool on a short-term basis. These receivables and payables are classified as “due from other funds” or “due to other funds” on the balance sheet of the fund financial statements and are eliminated in the preparation of the government-wide financial statements. 5. Inventories and Prepaid Items Inventories consist of expendable supplies held for consumption. Inventories are valued at cost using the first-in/first-out (FIFO) method. Inventories are recorded as expenditures at the time of purchase in the governmental funds and are expensed in the governmental activities, business-type activities and proprietary funds when the resources are used. Certain payments to vendors reflect costs applicable to future accounting periods and are recorded as prepaid items in both government-wide and fund financial statements. 6. Restricted Assets As required by applicable loan documents, certain resources are set aside for debt service requirements on loans and the repair and replacement of utility infrastructure. The City’s component units also record restrictions on certain assets for replacement reserves, residual receipts and funds with the escrow agent for requirements set forth by the holder of the mortgage notes payable. (42) CITY OF DOUGLAS, ARIZONA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2014 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) D. Assets, Deferred Outflows of Resources, Liabilities, Deferred Inflows of Resources and Net Position or Equity (Continued) 7. Capital Assets Capital assets, which include property, plant, and equipment, are reported in the governmental activities column in the government-wide financial statements. Capital assets are defined by the City as assets with an initial, individual cost of more than $5,000 and an estimated useful life in excess of one year. Upon implementation of GASB Statement No. 34, all phase I and II governments were required to report infrastructure assets acquired by the government since 1980. The City reports all infrastructure acquired since 1980, as well as pre-1980 infrastructure assets acquired or constructed by the City and report those assets at cost, if available, or the estimated fair value of the asset at the time of acquisition or construction. Property, plant and equipment purchased or acquired is carried at historical cost or estimated historical cost. Contributed assets are recorded at fair market value as of the date received. Additions, improvements and other capital outlays that significantly extend the useful life of an asset are capitalized. Other costs incurred for repairs and maintenance are expensed as incurred. Depreciation on all assets is provided on a straight-line basis over the following estimated useful lives: Buildings and improvements Improvements other than buildings Wastewater system Water system Infrastructure Furniture, machinery and equipment Vehicles 30 Years 6 to 50 Years 6 to 50 Years 6 to 50 Years 6 to 50 Years 3 to 6 Years 5 to 7 Years 8. Deferred Outflows of Resources The deferred outflows of resources reported in the government-wide financial statements, represent the reacquisition costs related to the refunding of bonded debt. The reacquisition costs are amortized and expensed over the lesser of the maturity of the refunded bonds or the refunding bonds. (43) CITY OF DOUGLAS, ARIZONA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2014 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) D. Assets, Deferred Outflows of Resources, Liabilities, Deferred Inflows of Resources and Net Position or Equity (Continued) 9. Compensated Absences The liability for compensated absences reported in the government-wide and proprietary statements consists of unpaid, accumulated leave balances. The liability has been calculated using the vesting method, in which leave amounts for both employees who currently are eligible to receive termination payments and other employees who are expected to become eligible in the future to receive such payments upon termination are included. 10. Long-Term Obligations In the government-wide financial statements, and proprietary fund types in the fund financial statements, long-term debt and other long-term obligations are reported as liabilities in the applicable governmental activities, business-type activities or proprietary fund type statements of net position. Bond premiums and discounts are amortized over the life of the bonds using the straight-line method. Bonds payable are reported net of the applicable bond premium or discount. Bond issuance costs are recognized in the period incurred. In the fund financial statements, governmental fund types recognize bond premiums and discounts, as well as bond issuance costs, during the current period. The face amount of debt issued is reported as other financing sources. Premiums received on debt issuances are reported as other financing sources while discounts on debt issuances are reported as other financing uses. Issuance costs, whether or not withheld from the actual debt proceeds received, are reported as debt service expenditures. 11. Net Position In the government-wide financial statements, net position is reported in three categories: net investment in capital assets; restricted net position; and unrestricted net position. Net investment in capital assets is separately reported because capital assets make up a significant portion of total net position. Restricted net position account for the portion of net position restricted by parties outside the City. Unrestricted net position is the remaining net position not included in the previous two categories. None of the restricted net position was restricted by enabling legislation. (44) CITY OF DOUGLAS, ARIZONA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2014 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) D. Assets, Deferred Outflows of Resources, Liabilities, Deferred Inflows of Resources and Net Position or Equity (Continued) 12. Fund Balance Classifications Fund balances of the governmental funds are reported separately within classifications based on a hierarchy of the constraints placed on the use of those resources. The classifications are based on the relative strength of the constraints that control how the specific amounts can be spent. The classifications are nonspendable and spendable fund balances. Spendable fund balances include restricted, committed, assigned and unassigned fund balance classifications. The nonspendable fund balance classification includes amounts that cannot be spent because they are either not in spendable form such as inventories, or are legally or contractually required to be maintained intact. Restricted fund balances are those that have externally imposed restrictions on their usage by creditors (such as through debt covenants), grantors, contributors, or laws and regulations. The committed fund balances are self-imposed limitations approved by the City’s Council, through formal resolution. The City Council is the highest level of decision-making authority within the City and the formal commitment must occur prior to fiscal year end. Only the City Council can remove or change the constraints placed on committed fund balances through formal council action. Assigned fund balances are resources constrained by the City’s intent to be used for specific purposes, but are neither restricted nor committed. The City Council, through formal resolution, has authorized the City Manager to make assignments of resources for a specific purpose. The unassigned fund balance is the residual classification for the General Fund and includes all spendable amounts not reported in the other classifications. Also, deficits in fund balances of the other governmental funds are reported as unassigned. When an expenditure is incurred, for purposes for which both restricted and unrestricted fund balance is available, the City’s policy is to use restricted fund balance first, then unrestricted fund balance. When an expenditure is incurred for purposes for which committed, assigned and unassigned are available, the City uses, committed, assigned and finally unassigned amounts. (45) CITY OF DOUGLAS, ARIZONA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2014 NOTE 2 STEWARDSHIP, COMPLIANCE, AND ACCOUNTABILITY A. Budgetary Information The City Council follows these procedures in establishing the budgetary data reflected in the financial statements: 1. In accordance with Arizona Revised Statutes, the City Manager submits a proposed budget for the fiscal year commencing the following July 1, to the City Council. The operating budget includes proposed expenditures and the means of financing them for the upcoming year. 2. Public hearings are conducted to obtain taxpayer comment. 3. Prior to the third Monday in August, the expenditure limitation for the City is legally enacted through passage of an ordinance. To ensure compliance with the expenditure limitation, a uniform expenditure report must be filed with the State each year. This report, issued under a separate cover, reconciles total City expenditures from the audited basic financial statements to total expenditures for reporting in accordance with the State’s uniform expenditure reporting system (A.R.S. §41-1279.07). 4. Expenditures may not legally exceed the expenditure limitation of all fund types as a whole. For management and legal purposes, the City Council adopts a budget by department for the General Fund and in total by other funds. The City Manager, subject to City Council approval, may at any time transfer any unencumbered appropriation balance or portion thereof between a department or activity. 5. Formal budgetary integration is employed as a management control device during the year for the General and Special Revenue Funds on essentially the same modified accrual basis of accounting used to record actual revenues and expenditures. No budget was appropriated for the Public Housing Fund during the fiscal year. The City is subject to the State of Arizona’s Spending Limitation Law for Towns and Cities. This law does not permit the City to spend more than budgeted revenues plus the carryover unrestricted cash balance from the prior fiscal year. The limitation is applied to the total of the combined funds. The City complied with this law during the year. No supplementary budgetary appropriations were necessary during the year. (46) CITY OF DOUGLAS, ARIZONA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2014 NOTE 3 DETAILED NOTES ON ALL FUNDS A. Assets 1. Deposits and Investments Deposits and investments at June 30, 2014 consist of the following: Deposits: Cash on Hand Cash in Bank Cash on Deposit with County Attorney Investments: State Treasurer's Investment Pool Cash on Deposit with Trustee Total Cash and Investments Less Restricted Assets Less Cash with Fiscal Agent Cash and Investments - Statement of Net Position $ 3,056 5,398,772 467,004 5,855,530 626,320 12,350,682 (587,872) (626,320) $ 11,136,490 Deposits The carrying value of the City’s deposits at June 30, 2014 was $5,398,772 and the bank balance was $5,413,194. Of the bank balance, $3,991,296 was covered by federal depository insurance and $1,421,898 was covered by collateral held by the City’s custodial bank in the City’s name. The deposits held by the trustee were insured by federal depository insurance or were collateralized by securities held by the pledging financial institution in the trustee’s name. Investments The State Board of Deposit provides oversight for the State Treasurer’s pools, and the Local Government Investment Pool Advisory Committee provides consultation and advice to the Treasurer. The fair value of a participant’s position in the pool approximates the value of that participant’s pool shares. The shares are not identified with specific investments and are not subject to custodial credit risk. The City’s cash on deposit with the trustee are invested in U.S. Government securities. The securities were not rated and were not subject to credit risk. Interest Rate Risk – In accordance with the City’s investment policy, the City manages its exposure to declines in fair value by limiting the City’s investment portfolio in maturities of more than one year to less than 20% of total investments. (47) CITY OF DOUGLAS, ARIZONA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2014 NOTE 3 DETAILED NOTES ON ALL FUNDS (CONTINUED) A. Assets (Continued) 1. Deposits and Investments (Continued) The City’s investments at June 30, 2014 consist of the following: Investment Type Amount State Treasurer's Investment Pool 5 State Treasurer's Investment Pool 500 $ 5,165,918 689,612 $ 5,855,530 Maturity in Years Less than 1 1-2 $ 5,165,918 $ 5,165,918 $ $ 689,612 689,612 Concentration of Credit Risk – The City invests in funds authorized by Arizona state law and currently only invests in the State Treasurer Investment Pool. Custodial Credit Risk – For an investment, this is the risk that, in the event of the failure of the counterparty, the City will not be able to recover the value of its investments or collateral securities that are in the possession of an outside party. The City’s investment policy limits investments to 1) the State of Arizona Local Government Investment Pool; 2) U.S. government obligations, U.S. government agency obligations, and U.S. government instrumentality obligations; 3) obligations of the Government National Mortgage Association, Federal National Mortgage Association, Federal Home Loan Mortgage Corporation, or any federal farm credit bank, federal land bank or federal home loan bank notes or bonds. In addition to limitations imposed by Arizona statute, City funds shall not be invested in reverse repurchase agreement, callable agency securities, or derivative type investments. Credit Risk –The City’s deposits and investments consist of insured or collateralized deposits and investments in U.S. Government Securities, U.S. Treasury Notes and the State Treasurer’s Investment Pool. The City’s investment in the State Treasurer’s investment pool did not receive a credit quality rating from a national rating agency. Cash and investments of the component unit’s at June 30, 2014 consist of: Deposits: Cash on Hand Cash in Bank Investments: Funds Held by Mortgage Restricted Assets Total Cash and Cash Equivalents $ $ 100 187,930 606,513 (633,323) 161,220 The carrying value of the component unit’s deposits at June 30, 2014 was $187,930 which was entirely covered by federal depository insurance. (48) CITY OF DOUGLAS, ARIZONA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2014 NOTE 3 DETAILED NOTES ON ALL FUNDS (CONTINUED) A. Assets (Continued) 2. Restricted Assets Restricted assets in the Governmental Activities, Water Fund and the Sewer Fund at June 30, 2014 consisted of the following: Business-Type Activities Governmental Activities Loan Debt Service Reserve Requirement Customer Deposits Grantor Reserve Requirement Total $ $ 9,666 9,969 19,635 Water Fund $ 109,008 $ 109,008 Sewer Fund $ 459,229 $ 459,229 $ $ Total 568,237 9,666 9,969 587,872 Restricted assets of the discretely presented component units at June 30, 2014 consisted of the following: Funds Held by Mortgage Tenant Deposits Total Restricted Assets of the Component Units $ $ 606,513 26,810 633,323 3. Receivables Governmental funds report unavailable revenue in connection with receivables for revenues that are not considered to be available to liquidate liabilities of the current period. Governmental funds also record deferred inflows in connection with resources that have been received, but not yet earned. At the end of the current fiscal year, the various components of unavailable revenue and unearned revenue reported in the governmental funds were as follows: Unavailable Delinquent Property Taxes Receivable: (General Fund) Unavailable Grant Revenue: (Nonmajor Governmental Funds) Sales Tax Audit Receivable: (General Fund) (Nonmajor Governmental Funds) Unearned Grant Revenue: (General Fund) (Nonmajor Governmental Funds) $ $ (49) 54,591 Unearned $ - 43,407 - 20,652 2,477 - 121,127 932 23,389 24,321 $ CITY OF DOUGLAS, ARIZONA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2014 NOTE 3 DETAILED NOTES ON ALL FUNDS (CONTINUED) A. Assets (Continued) 4. Capital Assets Capital asset activity for the primary government’s governmental activities for the year ended June 30, 2014 was as follows: Beginning Balance Governmental Activities: Capital Assets, Not Being Depreciated: Land Construction in Progress Total Capital Assets, Not Being Depreciated $ 1,065,310 422,100 $ 35,000 1,758,209 Ending Balance Decreases $ (620,226) $ 1,100,310 1,560,083 1,487,410 1,793,209 (620,226) 2,660,393 4,680,684 16,333,916 22,316,606 11,114,483 4,442,003 47,992 292,272 612,869 120,579 267,642 (7,154,284) - 4,728,676 16,626,188 15,775,191 11,235,062 4,709,645 58,887,692 1,341,354 (7,154,284) 53,074,762 (2,448,826) (9,830,371) (5,866,048) (8,820,635) (2,795,524) (29,761,404) (188,104) (612,403) (679,637) (1,067,661) (395,962) (2,943,767) 29,126,288 (1,602,413) Capital Assets, Being Depreciated: Land Improvements Streets and Storm Drains Buildings and Improvements Machinery and Equipment Vehicles Total Capital Assets, Being Depreciated Accumulated Depreciation for: Land Improvements Streets and Storm Drains Buildings and Improvements Machinery and Equipment Vehicles Total Accumulated Depreciation Total Capital Assets, Being Depreciated, Net Governmental Activities Capital Assets, Net Increases $ 30,613,698 (50) $ 190,796 317,968 317,968 (2,636,930) (10,442,774) (6,227,717) (9,888,296) (3,191,486) (32,387,203) (6,836,316) 20,687,559 $ (7,456,542) $ 23,347,952 CITY OF DOUGLAS, ARIZONA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2014 NOTE 3 DETAILED NOTES ON ALL FUNDS (CONTINUED) A. Assets (Continued) 4. Capital Assets (Continued) Capital assets activity for the primary government’s business-type activities for the year ended June 30, 2014 was as follows: Beginning Balance Business-Type Activities: Capital Assets, Not Being Depreciated: Construction in Progress Capital Assets, Being Depreciated: Buildings and Improvements Water System Wastewater System Machinery, Equipment, and Vehicles Total Capital Assets, Being Depreciated Accumulated Depreciation for: Buildings and Improvements Water System Wastewater System Machinery, Equipment, and Vehicles Total Accumulated Depreciation Total Capital Assets, Being Depreciated, Net Business-Type Activities Capital Assets, Net $ 924,647 Increases $ 43,535 Ending Balance Decreases $ (158,070) $ 810,112 7,648,482 15,517,875 13,720,106 2,522,038 159,728 56,136 388,386 - 7,648,482 15,677,603 13,776,242 2,910,424 39,408,501 604,250 - 40,012,751 (169,966) (396,144) (275,923) (207,103) (1,049,136) - (2,744,389) (8,428,973) (5,693,582) (1,928,044) (18,794,988) (444,886) - 21,217,763 (2,574,423) (8,032,829) (5,417,659) (1,720,941) (17,745,852) 21,662,649 $ 22,587,296 (51) $ (401,351) $ (158,070) $ 22,027,875 CITY OF DOUGLAS, ARIZONA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2014 NOTE 3 DETAILED NOTES ON ALL FUNDS (CONTINUED) A. Assets (Continued) 4. Capital Assets (Continued) The activity for the governmental component units for the year ended June 30, 2014 was as follows: Beginning Balance Capital Assets, Not Being Depreciated: Land $ 91,150 Capital Assets, Being Depreciated: Buildings and Improvements Furniture and Equipment Total Capital Assets, Being Depreciated Accumulated Depreciation for: Accumulated Depreciation Total Capital Assets, Being Depreciated, Net Business-Type Activities Capital Assets, Net $ Increases $ Ending Balance Decreases - $ - $ 91,150 3,627,423 164,605 5,000 5,432 (17,441) 3,632,423 152,596 3,792,028 10,432 (17,441) 3,785,019 (2,669,835) (130,422) 17,441 (2,782,816) 1,122,193 (119,990) - 1,213,343 $ (119,990) $ - 1,002,203 $ 1,093,353 The activity for the business-type component units for the year ended June 30, 2014 was as follows: Beginning Balance Capital Assets, Not Being Depreciated: Land $ Capital Assets, Being Depreciated: Buildings and Improvements Furniture and Equipment Total Capital Assets, Being Depreciated Accumulated Depreciation for: Buildings and Improvements Furniture and Equipment Total Accumulated Depreciation Total Capital Assets, Being Depreciated, Net Business-Type Activities Capital Assets, Net $ (52) 265,000 Increases $ Ending Balance Decreases - $ - $ 265,000 5,207,564 24,021 7,583 (5,326) 5,207,564 26,278 5,231,585 7,583 (5,326) 5,233,842 (1,734,096) (18,966) (1,753,062) (1,603,907) (23,522) (1,627,429) (130,189) (770) (130,959) 5,326 5,326 3,604,156 (123,376) - 3,869,156 $ (123,376) $ - 3,480,780 $ 3,745,780 CITY OF DOUGLAS, ARIZONA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2014 NOTE 3 DETAILED NOTES ON ALL FUNDS (CONTINUED) A. Assets (Continued) 4. Capital Assets (Continued) Depreciation expense was charged to functions/programs as follows: Primary Government Governmental Activities: General Government Public Safety Highways and Streets Culture and Recreation Redevelopment and Housing Total Depreciation Expense, Governmental Activities Business-Type Activities: Water Sewer Solid Waste Total Depreciation Expense, Business-Type Activities $ 1,169,182 625,462 684,501 458,480 6,142 $ 2,943,767 $ 455,506 506,020 87,610 $ 1,049,136 $ 86,052 44,370 $ 130,422 $ 130,959 Component Units Governmental Activities: Casa de Esperanza Pioneer Village Total Depreciation Expense Governmental Activities Business-type Activities: Rancho La Perilla (53) CITY OF DOUGLAS, ARIZONA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2014 NOTE 3 DETAILED NOTES ON ALL FUNDS (CONTINUED) B. Interfund Transfers Interfund transfers for the year ended June 30, 2014 consisted of the following: General Fund Transfers Out General Fund Nonmajor Governmental Funds Water Fund Sewer Fund Solid Waste Fund Transfers In MPC Debt Nonmajor Service Governmental Fund Funds $ - $ 326,160 42,136 78,239 81,150 35,867 $ 237,392 160,646 $ 486,806 Total $ 1,542,382 $ 1,868,542 $ 14,425 52,240 14,435 7,212 1,630,694 217,207 130,479 95,585 43,079 $ 2,354,892 Transfers were used to fund debt service and to fund capital outlay and indirect administrative costs. General Fund transfers were also used to subsidize the operating costs of Nonmajor Governmental Funds. The Business-type funds were used to allocate a percentage of their costs of goods sold to the General Fund for indirect administrative costs and to allocate the cost of the use of certain facilities owned and operated by the General Fund. C. Obligations Under Capital Leases The City has acquired communication equipment, vehicles and equipment, lawn mowers, and golf carts under the provisions of long-term lease agreements classified as capital leases. Accordingly, the principal amount of the assets totaling $3,377,118 and $583,553 capitalized as governmental activities and business-type activities, respectively. The assets acquired through capital leases are as follows: Asset: Furniture, Equipment and Vehicles Less: Accumulated Depreciation Total Governmental Activities Business-type Activities $ $ 3,377,118 (1,176,079) $ 2,201,039 $ 583,553 (55,914) 527,639 Amortization expense on the capital leases is included in depreciation expense. (54) CITY OF DOUGLAS, ARIZONA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2014 NOTE 3 DETAILED NOTES ON ALL FUNDS (CONTINUED) C. Obligations Under Capital Leases (Continued) Year Ended June 30, 2015 2016 2017 2018 2019 2020 Total Governmental Activities Principal Interest $ 404,930 $ 36,160 404,703 28,038 387,959 20,525 383,905 13,395 163,288 7,297 166,898 3,688 $ 1,911,683 $ 109,103 Business-type Activities Principal Interest $ 114,119 $ 8,904 116,589 6,446 119,113 3,923 90,906 1,344 $ 440,727 $ 20,617 D. Lease Revenue During fiscal year 2009, the City established a lease agreement for the City’s new call center. Revenue related to this lease totaled $692,372 during this fiscal year. Future minimum lease payments related to the call center lease are as follows: Year Ended June 30, 2015 2016 2017 2018 2019 2020 - 2024 Amount $ $ 647,076 647,076 647,076 647,076 647,076 2,680,722 5,916,102 The City leases land to various third parties. Annual rental revenues from the lease agreements are recognized in the General Fund. Payments relating to these leases totaled $99,298. The future minimum lease payments required under the leases at June 30, 2104 are as follows: Year Ended June 30, 2015 2016 2017 2018 2019 Thereafter Amount $ $ (55) 113,930 82,920 61,320 61,320 23,823 39,600 382,913 CITY OF DOUGLAS, ARIZONA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2014 NOTE 3 DETAILED NOTES ON ALL FUNDS (CONTINUED) E. Long-Term Obligations The City has long-term bonds and loans payable issued to provide funds for the acquisition and construction of major capital facilities. The debt is being repaid by the Highway User Revenue and Debt Service Funds. Compensated absences are paid by the applicable fund where each employee is regularly paid, primarily the General Fund. The City of Douglas, Arizona reports the following outstanding bonds: Description Revenue Bonds Municipal Property Corporation Excise Tax Refunding Bond, Series 2004; original issue $4,165,000 Maturity Interest Rate (%) 7/1/14-15 2.00-3.50% Outstanding at June 30, 2014 $ 470,000 The City has pledged future excise taxes and other revenue to repay $4.2 million in governmental excise tax refunding bonds issued in 2004. Proceeds of the bonds were used to refund and refinance the outstanding excise tax revenue bonds, series 1995 and highways and streets revenue bonds, Series 1996. The bonds are payable from excise taxes, state shared revenues, franchise taxes and fees for license and permits, and are payable through 2015. Annual principal and interest payments on the bonds are expected to require approximately 4 percent of pledged revenues recorded in the HURF and Debt Service Funds. The total principal and interest remaining to be paid on the bonds is $486,450. Principal and interest paid for the current year and total pledged were $486,806 and $11,462,981, respectively. The City of Douglas, Arizona reports the following outstanding loans: Description Governmental Activities Loans Payable: Greater Arizona Development Authority, Series 2008A; original issue $3,000,000 The Industrial Development Authority of the City of Douglas, Arizona. Original issue $400,000 Call Center Purchase Agreement; collateralized by the building and equipment acquired with the debt; original issue $9,000,000 Total Governmental Loans Payable (56) Maturity Interest Rate (%) 8/1/14-28 4.00-5.25% 7/1/14-17 0% 7/31/14-28 4.29-5.63% Outstanding at June 30, 2014 $ 2,375,000 100,000 $ 5,250,000 7,725,000 CITY OF DOUGLAS, ARIZONA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2014 NOTE 3 DETAILED NOTES ON ALL FUNDS (CONTINUED) E. Long-Term Obligations (Continued) Business-Type Activities Water Infrastructure Finance Authority of Arizona Issued 2009-2010 Water Infrastructure Finance Authority of Arizona Issued 2009-2010 Total Business-Type Loans Payable 7/1/14-29 2.00% $ 3,867,387 7/1/14-27 2.814% 1,228,187 $ 5,095,574 The City has pledged future state shared revenue and City excise taxes, transaction privilege tax and other miscellaneous revenues to repay $3.0 million in GADA loans, Series 2008A. Proceeds of the loan provided financing for the Regional Service Center project, including the purchase and renovation of buildings, land purchase, and upgrades and renovations to the existing City Hall. The loan is payable solely from pledged revenues discussed previously and are payable through 2029. Annual principal and interest payments on the bonds are expected to require less than 2 percent of pledged revenues. The total principal and interest remaining to be paid on the loan is $3,246,894. Principal and interest paid for the current year and total excise taxes and shared revenues were $234,974 and $9,791,063, respectively. In 2009, the City issued two loans totaling $9,000,000 for the acquisition and construction of a call center. The IT loan for 2,400,000 is payable from a 0.3 percent City sales tax, and the building loan for 6,600,000 is payable from lease revenues received on the lease agreement with a third party. The IT Loan was paid in full on 6/30/13. The lease of the call center is a 15 year lease with annual payments of $670,182 plus property expenses. The lease revenues are to be used for payment of the debt, then for maintenance and operations costs. Annual principal and interest payments on the loans are expected to require more than 100 percent of the lease revenues through the fiscal year 2014. For fiscal years 2015 through 2029, the annual principal and interest payments on the loans are expected to exceed revenue by 21%. The call center lease agreement expires fiscal year 2023; however, the City anticipates extending the lease agreement to cover the loan obligation period. The total principal and interest remaining to be paid on the loan is $7,468,432. Principal and interest paid for the current year was $696,086 and the City sales tax and lease revenues were $96,100 and $692,372, respectively. The City has two loans through the Water Infrastructure Financing Authority of Arizona (WIFA). The loans are structured where the City draws on the loans as funds are needed. To-date, the City has drawn down $1.5 million and $5.1 million from the total authorized loan of $1.5 million and $9.0 million, respectively, for the acquisition and construction of water and sewer facilities and improvements. The loans are payable from water and sewer charges for services through the fiscal year 2025. (57) CITY OF DOUGLAS, ARIZONA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2014 NOTE 3 DETAILED NOTES ON ALL FUNDS (CONTINUED) E. Long-Term Obligations (Continued) The City draws the loan as funds are utilized and pays interest on the outstanding principal balance. Annual principal and interest payments on the bonds are expected to require approximately 65-75% percent of net available revenue. The total principal and interest remaining to be paid on the loan is $5,603,378. Principal and interest paid for the current year and total pledged revenues were $594,860 and $664,780. The City’s component units have outstanding mortgage notes payables collateralized by an insured mortgage on the projects land and buildings. The notes are being repaid through federal subsidies and tenant rents. The governmental component units’ outstanding debt consisted of interest only mortgage notes payable at 1% per annum. The future principal payments are scheduled based on estimated principal retirement. The component units pay principal as cash is available; the maturity date of the outstanding debt is May 1, 2042. Changes in long-term obligations for the year ended June 30, 2014 are as follows: Beginning of Year Governmental Activities: Loans Payable Revenue Bonds Discount Total Bonds and Loans Other Liabilities: Capital Leases Compensated Absences Total Governmental Activities $ 8,260,000 925,000 (4,200) 9,180,800 Additions $ 1,345,057 1,273,344 End of Year Retirements - $ (535,000) (455,000) 2,802 (987,198) $ 7,725,000 470,000 (1,398) 8,193,602 Due within One Year $ 540,000 470,000 1,010,000 1,041,474 758,839 (474,848) (602,524) 1,911,683 1,429,659 $ (2,064,570) $ 11,534,944 $ 2,019,837 $ $ $ 490,947 $ 11,799,201 $ 1,800,313 $ $ 118,662 404,930 604,907 Business-Type Activities: Loans Payable Other Liabilities: Capital Lease Compensated Absences Total Business-Type Activities $ 5,891,614 $ 507,648 $ (698,019) $ 5,701,243 $ 696,120 Governmental Component Units: Notes Payable $ 2,598,377 $ - $ (11,311) $ 2,587,066 $ 25,163 Business-Type Component Units: Notes Payable $ 5,173,684 $ - $ (49,269) $ 5,124,415 $ 51,300 5,457,668 263,551 170,395 (58) 292,169 96,817 (480,756) (114,993) (102,270) 5,095,574 440,727 164,942 114,119 91,054 CITY OF DOUGLAS, ARIZONA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2014 NOTE 3 DETAILED NOTES ON ALL FUNDS (CONTINUED) E. Long-Term Obligations (Continued) Debt service requirements on long-term debt at June 30, 2014 are as follows: Primary Government Governmental Activities Principal Interest Years 2015 2016 2017 2018 2019 2020-2024 2025-2029 2030-2034 2035-2039 2040-2042 Thereafter Totals $ $ 1,010,000 545,000 530,000 520,000 525,000 2,725,000 2,340,000 8,195,000 $ $ Component Units Governmental Business-type Activities Activities Business-Type Activities Principal Interest 402,625 376,539 349,375 321,938 294,106 1,048,060 297,683 3,090,326 $ $ 490,947 501,359 511,995 522,862 533,963 2,534,448 5,095,574 $ $ Principal 98,597 87,961 77,034 65,993 54,652 1,235,007 1,619,244 $ $ Principal 25,163 13,525 14,395 15,321 16,306 2,502,356 2,587,066 $ $ 51,300 53,417 55,621 57,916 60,306 627,700 4,218,155 5,124,415 F. Fund Balance Classifications of Governmental Funds The City has classified its fund balances as follows: General Fund Fund Balances: Nonspendable: Inventory Prepaid Items Due from Component Unit Total Nonspendable Restricted: Federal and State Programs Court Administration Public Safety Programs Highways and Streets Housing and Redevelopment Total Restricted Committed for Capital Projects Assigned for Debt Service Unassigned: Total Fund Balance $ $ MPC Debt Service 56,700 16,927 646,789 720,416 $ - - - - - 4,790,887 - 5,511,303 (59) $ - Total Nonmajor Governmental Funds Governmental Funds $ $ 323,751 61,234 369,088 84,783 379,342 1,218,198 1,033,237 320,290 - $ 2,571,725 56,700 16,927 646,789 720,416 323,751 61,234 369,088 84,783 379,342 1,218,198 1,033,237 320,290 4,790,887 $ 8,083,028 CITY OF DOUGLAS, ARIZONA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2014 NOTE 3 DETAILED NOTES ON ALL FUNDS (CONTINUED) G. Component Units Condensed Financial Information The City includes within its reporting entity two governmental component units and one business-type component unit. Separately issued financial statements for Rancho La Perilla (the business-type component unit) have been prepared in conformity with the Statement of Financial Accounting Standards No. 117, “Financial Statements for Notfor-Profit Organizations” and are available from the City. Summary financial information for the two governmental component units is presented below: Casa De Esperanza Condensed Statement of Net Position Assets: Current Assets: Cash and Equivalents Accounts Receivable Prepaid Items Other Assets Restricted Assets Capital Assets Non-depreciable Depreciable (Net) Total Assets $ Liabilities: Current Liabilities: Accounts Payable Accrued Wages and Benefits Interest Payable Customer Deposits Payable Notes Payable Noncurrent Liabilities: Due in More Than One Year Total Liabilities Net Position: Net Investment in Capital Assets Restricted for Redevelopment and Housing Total Net Position (60) $ 76,828 18,785 18,796 74,030 127,926 Pioneer Village $ 65,939 8,523 10,265 139,143 121,677 Totals $ 142,767 27,308 29,061 213,173 249,603 74,696 685,097 1,076,158 16,454 317,106 679,107 91,150 1,002,203 1,755,265 2,260 24,191 47,137 7,044 19,932 5,695 10,042 68,925 4,256 5,231 7,955 34,233 116,062 11,300 25,163 1,613,892 1,714,456 948,011 1,042,160 2,561,903 2,756,616 (874,031) 235,733 (638,298) $ (619,682) 256,629 (363,053) $ (1,493,713) 492,362 (1,001,351) CITY OF DOUGLAS, ARIZONA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2014 NOTE 3 DETAILED NOTES ON ALL FUNDS (CONTINUED) G. Component Units Condensed Financial Information (Continued) Casa De Esperanza Condensed Statement of Activities Expenses: Current: Redevelopment and Housing Depreciation Debt Service: Interest on Long-Term Debt Total Expenses $ 272,588 86,052 Pioneer Village $ 131,486 44,370 Totals $ 404,074 130,422 54,789 413,429 23,860 199,716 78,649 613,145 Program Revenues: Operating Grants and Contributions Charges for Services Total Program Revenues 263,673 56,369 320,042 87,320 58,355 145,675 350,993 114,724 465,717 Net Program (Expense) (93,387) (54,041) (147,428) 98 6,540 6,638 236 1,165 1,401 (86,749) (52,640) (139,389) (551,549) (310,413) (861,962) General Revenues: Investment Income Other Total General Revenues Change in Net Position Net Position, Beginning of Year Net Position, End of Year $ (638,298) $ (363,053) 334 7,705 8,039 $ (1,001,351) The deficits reported in Casa de Esperanza and Pioneer Village net investment in capital assets on the previous page and above was due to the entities debt exceeding the investment in capital assets. Separately issued financial statements for Casa de Esperanza and Pioneer Village have been prepared in conformity with the Statement of Financial Accounting Standards No. 117, “Financial Statements of Not-for-Profit Organizations” and are available from the Essex Corporation. (61) CITY OF DOUGLAS, ARIZONA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2014 NOTE 4 OTHER INFORMATION A. Risk Management The City of Douglas, Arizona, is exposed to various risks of loss related to torts; theft of, damage to and destruction of assets; errors and omissions; and natural disasters. The City’s insurance protection is provided by a private carrier (State National Insurance Company), of which the City is a participating member. The limit for basic coverage is for $1,000,000 per occurrence on a claims made basis. Excess coverage is for an additional $5,000,000 per occurrence on a follow form, claims made basis. No significant reduction in insurance coverage occurred during the year and no settlements exceeded insurance coverage during any of the past three fiscal years. The City is also insured by State Compensation Fund for workers compensation for potential worker related accidents. The City is self-insured for individual health claims up to $50,000 per covered person. Coverage in excess of this amount is provided through the purchase of commercial insurance. Settlements for the past fiscal year did not exceed the City’s excess insurance coverage amounts for any claims. The City reports its self-insurance activity in all funds. The City allocates the cost of claims by charging a premium to each fund based on a percentage of each funds estimated current-year payroll. Claim expenditures and liabilities are reported when it is probable that a loss has occurred and the amount of that loss can be reasonably estimated. These losses include an estimate of claims that have been incurred but not reported. The liability claims amount recorded in the accompanying financial statements is based on reported pending claims, effects of inflation, recent claim settlement trends and other economic and social trends. At June 30, 2014, the self-insured benefit claims payable, including amounts incurred, but not yet reported totaled $165,651. As of June 30, 2013 and 2014, unpaid claims were as follows: 2014 2013 Beginning unpaid claims Claims incurred and changes in estimates Payments made $ 116,356 942,570 (893,275) $ 698,134 (581,778) Ending unpaid claims $ 165,651 $ 116,356 (62) CITY OF DOUGLAS, ARIZONA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2014 NOTE 4 OTHER INFORMATION (CONTINUED) B. Contingent Liabilities Lawsuits The City is a defendant in various lawsuits. Although the outcome of these lawsuits is not presently determinable, in the opinion of the City’s legal counsel, the City has some exposure to loss; however, the City is vigorously defending these claims and any loss or dollar value of the loss is not determinable. C. Commitments The City has two committed projects that will be funded through the Water Infrastructure Authority of Arizona (WIFA) in the amount of $9.0 million and $1.3 million. The projects are for wastewater and solar field installation at the wastewater treatment facility respectively. As of June 30, 2014, the City had no construction commitments related to either project, but spent and drew down $3.9 million; the WIFA funds, negotiated as a loan, have an available balance in the amount of $5.1 million and $1.3 million. Annual principal and semi-annual interest payment will be due through 2027 on the outstanding loan balance. In prior years, the City entered into a settlement agreement related to on-going litigation related to a civil matter. The settlement agreement releases either party of any continued litigation. Under the settlement agreement, the City is required to pay $350,000; however, the party receiving payment has credited the City $23,100 under the settlement agreement for sewer development fees. The settlement is structured such that the remaining $326,900 on the $350,000 settlement will be paid by the City in installments; the first installment of $75,000 was paid on October 27, 2011, the second installment of $70,000 was paid on October 27, 2012, the third payment installment was paid on October 27, 2013, remaining scheduled installments are due on October 27, 2014 and October 27, 2015. There will be no interest on the settlement amount of the unpaid balance. D. Special Item- Loss on Sale of Capital Assets During fiscal year 2014, the City executed an intergovernmental agreement with Cochise County to transfer ownership of the Douglas Regional Service Center. The net book value of assets transferred totaled $6,836,316 at the time of the transfer. The City received proceeds totaling $897,088 and the County conveyed the Douglas Juvenile Probation and Health Department Buildings with an appraised value of $170,000 and 417,050 respectively. The City reported a loss on the sale totaling $5,352,178. (63) CITY OF DOUGLAS, ARIZONA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2014 NOTE 4 OTHER INFORMATION (CONTINUED) E. Retirement Plans Arizona State Retirement System Plan Descriptions The City of Douglas, Arizona contributes to a cost-sharing, multiple-employer defined benefit pension plan; a cost-sharing, multiple-employer defined benefit health care plan; and a cost-sharing, multiple-employer defined benefit long-term disability plan, all of which are administered by the Arizona State Retirement System. The Arizona State Retirement System (through its Retirement Fund) provides retirement (i.e., pension), death, and survivor benefits; the Health Benefit Supplement Fund provides health insurance premium benefits (i.e., a monthly subsidy); and the Long-Term Disability Fund provides long-term disability benefits. Benefits are established by state statute. The System is governed by the Arizona State Retirement System Board according to the provisions of A.R.S. Title 38, Chapter 5, Article 2. The System issues a comprehensive annual financial report that includes financial statements and required supplementary information. The most recent report may be obtained by writing the System, 3300 North Central Avenue, P.O. Box 33910, Phoenix, AZ 85067-3910 or by calling (602) 240-2000 or (800) 621-3778. Funding Policy The Arizona State Legislature establishes and may amend active plan members’ and the City of Douglas, Arizona’s contribution rates. For the year ended June 30, 2014, active plan members were required by statute to contribute at the actuarially determined rate of 11.54 percent (11.30 percent for retirement, and 0.24 percent for long-term disability) of the members’ annual covered payroll and the City of Douglas, Arizona was required by statute to contribute at the actuarially determined rate of 11.54 percent (10.70 percent for retirement, 0.60 percent for health insurance premium, and 0.24 percent for long-term disability) of the members’ annual covered payroll. The City’s contributions to the ASRS for the years ended June 30, 2014, 2013, and 2012, which were equal to 100 percent of the required contributions for each year, were as follows: Year Ended June 30, 2014 2013 2012 Retirement Fund $ 437,731 440,157 404,836 (64) Health Benefit Supplement Fund $ 24,546 27,912 26,715 Long-Term Disability Fund $ 9,818 10,306 9,864 CITY OF DOUGLAS, ARIZONA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2014 NOTE 4 OTHER INFORMATION (CONTINUED) E. Retirement Plans (Continued) Public Safety Personnel Retirement System (PSPRS) Plan Description The City contributes to the Public Safety Personnel Retirement System (PSPRS), an agent multiple-employer, public employee retirement system that acts as a common investment and administrative agent to provide retirement and death and disability benefits for public safety personnel who are regularly assigned hazardous duty in the employ of the State of Arizona or a political subdivision thereof. All benefit provisions and other requirements are established by State statute. The Public Safety Personnel Retirement System issues a publicly available financial report that includes financial statements and required supplementary information for PSPRS. That report may be obtained by writing to Public Safety Personnel, 1020 E. Missouri Ave., Phoenix, AZ 85014 or by calling (602) 255-5575. Funding Policy Covered employees are required to contribute 7.65 percent of their annual salary to the PSPRS. The City is required to contribute the remaining amounts necessary to fund the PSPRS, as determined by the actuarial basis specified by statute. The current rate is 39.46 and 45.05 percent of annual covered payroll for Police and Fire, respectively. Annual Pension Cost During the year ended June 30, 2014, the City of Douglas, Arizona’s annual pension cost of $815,322 for police and $624,252 for fire was equal to the City of Douglas, Arizona’s required and actual contributions. The required contribution was determined as part of the June 30, 2012 actuarial valuation using an entry age actuarial funding method. Significant actuarial assumptions used in determining the entry age actuarial accrued liability related to the PSPRS plan and related OPEB health insurance subsidy include (a) a rate of return on the investment of present and future assets of 8.5% per year compounded annually, (b) projected salary increases of 6.5% (including inflation at 5.0%) per year compounded annually, and (c) additional projected salary increases of 0.0% to 3.0% per year attributable to seniority/merit. Funded Status and Funding Progress As of June 30, 2013, the most recent actuarial valuation date, the plan for police was 42.6 percent funded and the plan for fire was 35.3 percent funded. The actuarial accrued liability for benefits was $17.0 million and $11.9 million for police and fire, respectively; and the actuarial value of assets was $7.3 million and $4.2 million, respectively; resulting in an unfunded actuarial accrued liability (UAAL) of $9.8 million and $7.7 million, respectively. The covered payroll (annual payroll of active employees covered by the plan) for the police and fire plan was $2.0 million and $1.4 million, and the ratio of the UAAL to the covered payroll was 477.3 percent and 546.3 percent, respectively. (65) CITY OF DOUGLAS, ARIZONA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2014 NOTE 4 OTHER INFORMATION (CONTINUED) E. Retirement Plans (Continued) Public Safety Personnel Retirement System (PSPRS) (Continued) As of June 30, 2013, the OPEB plan for police and fire was 0.0 percent funded. The actuarial accrued liability for benefits was $0.4 million and $0.2 million for police and fire, respectively; and the actuarial value of assets was $0.0 million for police and fire; resulting in an unfunded actuarial accrued liability (UAAL) of $0.4 million and $0.2 million, respectively. The covered payroll (annual payroll of active employees covered by the plan) for the police and fire plan was $2.0 million and $1.4 million, and the ratio of the UAAL to the covered payroll was 18.7 percent and 15.3 percent, respectively. Actuarial valuations of an ongoing plan involve estimates of the value of reported amounts and assumptions about the probability of occurrence of events far into the future. Examples include assumptions about future employment, mortality, and the healthcare cost trend. Amounts determined regarding the funded status of the plan and the annual required contributions of the employer are subject to continual revision as actual results are compared with past expectations and new estimates are made about the future. The schedule of funding progress, presented as required supplementary information following the notes to the financial statements, presents multiyear trend information about whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued liability for benefits. Projections of benefits for financial reporting purposes are based on the substantive plan (the plan as understood by the employer and plan members) and include the types of benefits provided at the time of each valuation and the historical pattern of sharing of benefit costs between the employer and plan members to that point. The actuarial methods and assumptions used include techniques that are designed to reduce shortterm volatility in actuarial accrued liabilities and the actuarial value of assets, consistent with the long-term perspective of the calculations. The City of Douglas, Arizona’s unfunded actuarial accrued liability is being amortized as a level percentage of projected payroll on a closed basis. The remaining amortization period at June 30, 2013, was 23 years. The preceding methods comply with the financial reporting standards established by the Governmental Accounting Standards Board. (66) CITY OF DOUGLAS, ARIZONA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2014 NOTE 4 OTHER INFORMATION (CONTINUED) E. Retirement Plans (Continued) Public Safety Personnel Retirement System (PSPRS) (Continued) Funded Status and Funding Progress Three-Year Trend Information Police Fiscal Year Ended June 30, 2012 2013 2014 Annual Pension Cost (APC) $ Fiscal Year Ended June 30, 2012 2013 2014 569,043 679,993 815,322 Annual OPEB Cost $ 32,868 30,515 28,439 Percent Contributed 100% 100% 100% Percent Contributed 100% 100% 100% Net Pension Obligation $ - OPEB Benefit Obligation $ - Three-Year Trend Information Fire Fiscal Year Ended June 30, 2012 2013 2014 Annual Pension Cost (APC) $ Fiscal Year Ended June 30, 2012 2013 2014 435,560 519,131 624,252 Annual OPEB Cost $ 20,045 19,203 17,815 Percent Contributed 100% 100% 100% Percent Contributed 100% 100% 100% Net Pension Obligation $ - OPEB Benefit Obligation $ - Additional historical trend information for the City’s PSPRS is disclosed on page 68. Historical trend information is presented in order for the reader to assess the progress made in accumulating sufficient assets to pay pension benefits as they become payable. (67) REQUIRED SUPPLEMENTARY INFORMATION THIS PAGE BLANK CITY OF DOUGLAS, ARIZONA REQUIRED SUPPLEMENTARY INFORMATION PUBLIC SAFETY PERSONNEL RETIREMENT SYSTEM SCHEDULE OF FUNDING PROGRESS YEAR ENDED JUNE 30, 2014 Douglas Police Valuation Date June 30, Actuarial Value of Assets Entry Age Actuarial Accrued Liability (AAL) 2011 2012 2013 $ 7,416,284 7,381,173 7,254,659 $ 15,053,324 16,791,531 17,025,775 Percent Funded Over (Under) Funded AAL Annual Covered Payroll Under Funded AAL as a Percentage of Covered Payroll 49.3% 44.0 42.6 $ (7,637,040) (9,410,358) (9,771,116) $ 1,785,679 1,939,472 2,047,135 427.7% 485.2 477.3 Other Post Employment Benefits (Health Insurance Subsidy) Valuation Date June 30, 2011 2012 2013 Entry Age Actuarial Accrued Liability (AAL) Actuarial Value of Assets $ - $ 368,007 357,260 383,172 Percent Funded 0.0% 0.0 0.0 Over (Under) Funded AAL $ (368,007) (357,260) (383,172) Annual Covered Payroll Under Funded AAL as a Percentage of Covered Payroll $ 1,785,679 1,939,472 2,047,135 20.6% 18.4 18.7 Under Funded AAL as a Percentage of Covered Payroll Douglas Fire Valuation Date June 30, Actuarial Value of Assets Entry Age Actuarial Accrued Liability (AAL) 2011 2012 2013 $ 4,928,154 4,510,557 4,203,038 $ 10,975,912 11,856,479 11,901,240 Percent Funded Over (Under) Funded AAL Annual Covered Payroll 44.9% 38.0 35.3 $ (6,047,758) (7,345,922) (7,698,202) $ 1,168,985 1,292,729 1,409,268 517.4% 568.3 546.3 Other Post Employment Benefits (Health Insurance Subsidy) Valuation Date June 30, 2011 2012 2013 Entry Age Actuarial Accrued Liability (AAL) Actuarial Value of Assets $ - $ 234,971 223,089 215,366 Percent Funded 0.0% 0.0 0.0 (68) Over (Under) Funded AAL $ (234,971) (223,089) (215,366) Annual Covered Payroll $ 1,168,985 1,292,729 1,409,268 Under Funded AAL as a Percentage of Covered Payroll 20.1% 17.3 15.3 CITY OF DOUGLAS, ARIZONA REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON SCHEDULE GENERAL FUND YEAR ENDED JUNE 30, 2014 Original and Final Budget REVENUES Taxes: Sales Taxes Property Taxes Franchise Taxes Intergovernmental Revenues Fines and Forfeitures Licenses and Permits Charges for Services Rents and Royalties Investment Income Other Total Revenues $ 5,169,980 604,393 331,000 5,597,599 290,500 183,000 1,787,088 832,078 10,000 184,000 14,989,638 EXPENDITURES Current: General Government: Administration Finance Personnel General Government Management Information Systems Parking Lot Transit City Magistrate Cemetery Community Development Golf Course Economic Development Airport Call Center Total General Government Public Safety: Police Fire Emergency Medical Services Total Public Safety Highways and Streets: Public Works Actual $ 4,933,107 578,451 311,019 5,570,260 305,830 201,227 1,763,797 819,022 11,691 107,142 14,601,546 Variance With Final Budget $ (236,873) (25,942) (19,981) (27,339) 15,330 18,227 (23,291) (13,056) 1,691 (76,858) (388,092) 510,141 530,292 502,391 487,808 503,102 506,452 71,495 129,874 2,369 379,000 137,302 68,142 3,828,368 536,363 543,684 440,906 209,381 490,555 979 373,977 73,597 155,357 29,152 321,042 7,103 158,135 52,517 3,392,748 (26,222) (13,392) 61,485 278,427 12,547 (979) 132,475 (2,102) (25,483) (26,783) 57,958 (7,103) (20,833) 15,625 435,620 4,489,423 1,191,510 1,286,490 6,967,423 4,436,035 1,364,775 1,389,664 7,190,474 53,388 (173,265) (103,174) (223,051) 825,898 617,465 208,433 (Continued) See accompanying Notes to Budgetary Comparison Schedule. (69) CITY OF DOUGLAS, ARIZONA REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON SCHEDULE (CONTINUED) GENERAL FUND YEAR ENDED JUNE 30, 2014 (Concluded) EXPENDITURES (CONTINUED) Culture and Recreation: Parks Recreation Library Aquatics Visitor Center Total Culture and Recreation Original and Final Budget $ 574,056 99,995 309,834 308,724 73,354 1,365,963 Debt Service: Principal Retirement Interest on Long-Term Debt Total Debt Service Capital Outlay Total Expenditures $ 533,599 125,450 327,437 318,487 73,466 1,378,439 Variance With Final Budget $ 40,457 (25,455) (17,603) (9,763) (112) (12,476) 32,644 67 32,711 29,632 4,376 34,008 415,000 13,435,363 245,931 12,859,065 169,069 576,298 1,554,275 1,742,481 188,206 369,582 (2,159,464) 310,000 (1,479,882) 237,392 (1,868,542) 297,088 155,417 (1,178,645) (132,190) 290,922 (12,912) 155,417 301,237 Excess (Deficiency) of Revenues Over Expenditures OTHER FINANCING SOURCES (USES) Transfers In Transfers Out Proceeds from Sale of Capital Assets Proceeds from Capital Leases Total Other Financing Sources (Uses) Net Change in Fund Balance FUND BALANCE Beginning of Year End of Year Actual 74,393 $ See accompanying Notes to Budgetary Comparison Schedule. (70) 4,544,106 4,618,499 3,012 (4,309) (1,297) 563,836 $ 4,947,467 5,511,303 489,443 $ 403,361 892,804 CITY OF DOUGLAS, ARIZONA NOTES TO REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON SCHEDULE YEAR ENDED JUNE 30, 2014 NOTE 1 BASIS OF ACCOUNTING The General Fund budgetary comparison schedule is prepared on a budgetary basis of accounting. See Note 2 for a reconciliation of the General Fund Budgetary Comparison Schedule to the Statement of Revenues, Expenditures and Changes in Fund Balances. Expenditures may not legally exceed the expenditure limitation of all fund types as a whole. For management and legal purposes, the City Council adopts an annual budget by department for the General Fund. The City Manager, subject to City Council approval, may at any time transfer any unencumbered appropriation balance or portion thereof between departments. NOTE 2 BUDGETARY COMPARISON SCHEDULE RECONCILIATION Proceeds from capital leases and leased capital outlay expenditures are not recognized on the budgetary basis. Therefore the following reconciliation is necessary to reconcile the General Fund Budgetary Comparison Schedule to the Statement of Revenues, Expenditures and Changes in Fund Balances. Statement of Revenues Expenditures and Changes in Fund Balances Revenues $ Expenditures Adjustments $ 13,745,122 Excess (Deficiency) of Revenues Over Expenditures Other Financing Sources and (Uses) Net Change in Fund Balance Fund Balance, Beginning of Year Fund Balance, End of Year 14,601,546 $ (71) Budgetary Comparison Schedule General Fund - $ 14,601,546 (886,057) 12,859,065 856,424 886,057 1,742,481 (292,588) (886,057) (1,178,645) 563,836 - 563,836 4,947,467 - 4,947,467 5,511,303 $ - $ 5,511,303 CITY OF DOUGLAS, ARIZONA NOTES TO REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON SCHEDULE YEAR ENDED JUNE 30, 2014 NOTE 3 EXCESS OF EXPENDITURES OVER APPROPRIATIONS Expenditures exceeded appropriations in the following funds: Amount of Overexpenditure General Fund: Administration Finance Parking Lot City Magistrate Cemetery Community Development Economic Development Airport Fire Emergency Medical Services Recreation Library Aquatics Visitor Center Debt Service $ Cash was available to meet all of the overexpenditures listed above. (72) 26,222 13,392 979 2,102 25,483 26,783 7,103 20,833 173,265 103,174 25,455 17,603 9,763 112 1,297 THIS PAGE BLANK COMBINING AND INDIVIDUAL FUND STATEMENTS AND SCHEDULES THIS PAGE BLANK NONMAJOR GOVERNMENTAL FUNDS SPECIAL REVENUE FUNDS Highway Users Fund (HURF) – accounts for the City’s share of state taxes on gasoline, diesel fuels, and other transportation related fees to be used solely for street and highway purposes. Eligible expenditures include the cost of right-of-way acquisitions, construction, reconstruction, maintenance, repair, roadside development of city roads, streets and bridges and the payment of the interest and principal on highway and street bonds. Grants Fund – accounts for the activity of the City’s grants. Police Grants – accounts for the activity of grants received by the City’s police department. JCEF Restricted Court Fund – accounts for the activity of the JCEF court receipts. Public Housing Fund – accounts for the Douglas Housing Authority component unit of the City. The Douglas Housing Authority receives federal assistance and provides low rent housing for the area. CAPITAL PROJECTS FUND Capital Projects Fund – accounts for the acquisition and construction of major capital facilities other than those financed by proprietary funds and trust funds. DEBT SERVICE FUND Debt Service Fund – accounts for the accumulation of resources for, and the payments of, debt service principal, interest and related debt. . CITY OF DOUGLAS, ARIZONA NONMAJOR GOVERNMENTAL FUNDS COMBINING BALANCE SHEET JUNE 30, 2014 Special Revenue HURF ASSETS Cash and Investments Receivables Accounts Receivable Taxes Receivable Intergovernmental Receivable Restricted Assets Total Assets LIABILITIES, DEFERRED INFLOWS, AND FUND BALANCES Liabilities Accounts Payable Accrued Wages and Benefits Insurance Claims Payable Unearned Revenue Customer Deposits Payable Total Liabilities $ 33,210 $ 108,809 142,019 $ 31,277 15,357 10,602 57,236 Deferred Inflows of Resources Unavailable Revenue Fund Balances Restricted Committed Assigned Total Fund Balances Total Liabilities, Deferred Inflows of Resources and Fund Balances Grants $ $ 284,823 $ 173,184 458,007 $ 90,849 90,849 JCEF Restricted Court Police Grants $ 370,916 $ 370,916 $ 1,828 1,828 $ 61,487 $ 61,487 $ 253 253 - 43,407 - - 84,783 84,783 323,751 323,751 369,088 369,088 61,234 61,234 142,019 (73) $ 458,007 $ 370,916 $ 61,487 Special Revenue Public Housing Total Special Revenue $ 440,717 $ 1,191,153 $ 4,505 19,635 464,857 $ $ 22,092 20,399 23,389 19,635 85,515 Capital Projects $ 984,063 4,505 281,993 19,635 $ 1,497,286 $ 51,839 1,035,902 $ $ 146,299 35,756 10,602 23,389 19,635 235,681 188 188 Debt Service Total Nonmajor Governmental Funds $ 320,290 $ 2,495,506 $ 320,290 $ 4,505 51,839 281,993 19,635 2,853,478 $ - $ 146,487 35,756 10,602 23,389 19,635 235,869 - 43,407 2,477 - 45,884 379,342 379,342 1,218,198 1,218,198 1,033,237 1,033,237 320,290 320,290 1,218,198 1,033,237 320,290 2,571,725 464,857 $ 1,497,286 $ 1,035,902 $ 320,290 (74) $ 2,853,478 CITY OF DOUGLAS, ARIZONA NONMAJOR GOVERNMENTAL FUNDS COMBINING STATEMENT OF REVENUES, EXPENDITURES, AND CHANGE IN FUND BALANCES YEAR ENDED JUNE 30, 2014 Special Revenue HURF REVENUES Taxes Sales Taxes Intergovernmental Revenues Fines and Forfeitures Investment Income Other Total Revenues $ EXPENDITURES Current General Government Public Safety Highways and Streets Culture and Recreation Redevelopment and Housing Debt Service Principal Retirement Interest on Long-Term Debt Capital Outlay Total Expenditures Excess (Deficiency) of Revenues Over Expenditures OTHER FINANCING SOURCES (USES) Transfers In Transfers Out Proceeds from Sale of Capital Assets Total Other Financing Sources (Uses) Net Change in Fund Balances FUND BALANCES Beginning of Year End of Year $ 1,159,672 59,732 1,219,404 Grants $ 478,028 1,165 479,193 JCEF Restricted Court Police Grants $ 267,625 4,725 272,350 $ 5,618 5,618 1,067,833 - 657 3,232 135,488 - 102,006 - 13,833 - 1,067,833 472,717 612,094 89,938 191,944 13,833 151,571 (132,901) 80,406 (8,215) (217,207) (217,207) 153,371 153,371 - (65,636) 20,470 80,406 150,419 84,783 (75) $ 303,281 323,751 $ 288,682 369,088 (8,215) $ 69,449 61,234 Special Revenue Public Housing $ Total Special Revenue 980,050 178 94,787 1,075,015 1,058,347 2,885,375 5,618 6,068 154,519 3,051,580 $ Total Nonmajor Governmental Funds Debt Service 481,015 12,458 20,254 513,727 $ 96,100 390 96,490 $ 577,115 2,885,375 5,618 18,916 174,773 3,661,797 - - 14,490 105,238 1,067,833 135,488 1,058,347 1,058,347 14,490 105,238 1,067,833 135,488 1,058,347 562,655 2,944,051 112,247 112,247 980,216 465,740 1,445,956 980,216 465,740 674,902 4,502,254 16,668 107,529 401,480 (1,349,466) (840,457) 153,371 (217,207) (63,836) 31,757 600,000 631,757 1,445,566 1,445,566 1,630,694 (217,207) 600,000 2,013,487 1,033,237 96,100 - $ $ Capital Projects 16,668 43,693 362,674 379,342 1,174,505 $ 1,218,198 $ 1,033,237 $ (76) 224,190 320,290 1,173,030 $ 1,398,695 2,571,725 CITY OF DOUGLAS, ARIZONA SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGE IN FUND BALANCE BUDGET AND ACTUAL MPC DEBT SERVICE FUND YEAR ENDED JUNE 30, 2014 Original and Final Budget EXPENDITURES Debt Service Principal Retirement Interest and Fiscal Charges Total Expenditures $ Excess (Deficiency) of Revenues Over Expenditures OTHER FINANCING SOURCES (USES) Transfers In Net Change in Fund Balance FUND BALANCE Beginning of Year End of Year $ (77) Variance With Final Budget Actual 455,000 31,806 486,806 $ 455,000 31,806 486,806 $ - (486,806) (486,806) - 486,806 486,806 - - - - - $ - $ - CITY OF DOUGLAS, ARIZONA SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGE IN FUND BALANCE BUDGET AND ACTUAL HURF FUND YEAR ENDED JUNE 30, 2014 Original and Final Budget REVENUES Intergovernmental Revenues Other Total Revenues $ Actual 1,161,303 35,000 1,196,303 $ 1,159,672 59,732 1,219,404 Variance With Final Budget $ (1,631) 24,732 23,101 EXPENDITURES Current: Highways and Streets 982,115 1,067,833 (85,718) Excess (Deficiency) of Revenues Over Expenditures 214,188 151,571 (62,617) (214,188) (217,207) (3,019) (65,636) (65,636) OTHER FINANCING SOURCES (USES) Transfers Out Net Change in Fund Balance FUND BALANCE Beginning of Year End of Year - $ (78) - $ 150,419 84,783 $ 150,419 84,783 CITY OF DOUGLAS, ARIZONA SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGE IN FUND BALANCE BUDGET AND ACTUAL GRANTS FUND YEAR ENDED JUNE 30, 2014 Original and Final Budget REVENUES Intergovernmental Revenues Investment Income Total Revenues $ EXPENDITURES Current: General Government Public Safety Highways and Streets Culture and Recreation Capital Outlay Total Expenditures $ 45,719 528,220 1,000 2,917,520 3,492,459 Excess (Deficiency) of Revenues Over Expenditures OTHER FINANCING SOURCES (USES) Transfers In Net Change in Fund Balance FUND BALANCE Beginning of Year End of Year 3,303,934 3,303,934 Actual $ (79) 478,028 1,165 479,193 Variance With Final Budget $ 657 3,232 135,488 472,717 612,094 (2,825,906) 1,165 (2,824,741) (657) 42,487 528,220 (134,488) 2,444,803 2,880,365 (188,525) (132,901) 55,624 94,715 153,371 58,656 (93,810) 20,470 114,280 (93,810) $ 303,281 323,751 $ 303,281 417,561 CITY OF DOUGLAS, ARIZONA SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGE IN FUND BALANCE BUDGET AND ACTUAL POLICE GRANTS FUND YEAR ENDED JUNE 30, 2014 Original and Final Budget REVENUES Intergovernmental Revenues Investment Income Total Revenues $ EXPENDITURES Current Public Safety Capital Outlay Total Expenditures Excess (Deficiency) of Revenues Over Expenditures FUND BALANCE Beginning of Year End of Year $ (80) 210,000 210,000 Actual $ 267,625 4,725 272,350 Variance With Final Budget $ 57,625 4,725 62,350 52,000 158,000 210,000 102,006 89,938 191,944 (50,006) 68,062 18,056 - 80,406 80,406 - $ 288,682 369,088 $ 288,682 369,088 CITY OF DOUGLAS, ARIZONA SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGE IN FUND BALANCE BUDGET AND ACTUAL JCEF RESTRICTED COURT FUND YEAR ENDED JUNE 30, 2014 Original and Final Budget REVENUES Fines and Forfeits $ 10,500 Actual $ 5,618 EXPENDITURES Current: General Government 18,572 13,833 Excess (Deficiency) of Revenues Over Expenditures (8,072) (8,215) FUND BALANCE Beginning of Year End of Year $ (81) (8,072) $ 69,449 61,234 Variance With Final Budget $ (4,882) 4,739 (143) $ 69,449 69,306 CITY OF DOUGLAS, ARIZONA SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGE IN FUND BALANCE BUDGET AND ACTUAL CAPITAL PROJECTS FUND YEAR ENDED JUNE 30, 2014 Original and Final Budget REVENUES Taxes Investment Income Other Total Revenues $ EXPENDITURES Capital Outlay Excess (Deficiency) of Revenues Over Expenditures OTHER FINANCING SOURCES (USES) Transfers In Proceeds from Sale of Capital Assets Total Other Financing Sources (Uses) Net Change in Fund Balance 448,038 448,038 Actual $ 481,015 12,458 20,254 513,727 Variance With Final Budget $ 32,977 12,458 20,254 65,689 670,000 112,247 557,753 (221,962) 401,480 623,442 221,962 221,962 31,757 600,000 631,757 (190,205) 600,000 409,795 - 1,033,237 1,033,237 FUND BALANCE Beginning of Year End of Year $ (82) - $ 1,033,237 $ 1,033,237 CITY OF DOUGLAS, ARIZONA SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGE IN FUND BALANCE BUDGET AND ACTUAL DEBT SERVICE FUND YEAR ENDED JUNE 30, 2014 Original and Final Budget REVENUES Taxes Investment Earnings Total Revenues $ 101,962 101,962 EXPENDITURES Debt Service: Principal Retirement Interest on Long-Term Debt Total Expenditures Excess (Deficiency) of Revenues Over Expenditures Actual $ 96,100 390 96,490 Variance With Final Budget $ (5,862) 390 (5,472) 980,216 481,676 1,461,892 980,216 465,740 1,445,956 15,936 15,936 (1,359,930) (1,349,466) 10,464 1,461,892 1,445,566 (16,326) - 96,100 OTHER FINANCING SOURCES (USES) Transfers In Net Change in Fund Balance 96,100 FUND BALANCE Beginning of Year End of Year $ (83) - $ 224,190 320,290 $ 224,190 320,290 STATISTICAL SECTION (UNAUDITED) This section of the City of Douglas, Arizona’s comprehensive annual financial report presents detailed information as a context for understanding what the information in the financial statements, note disclosures, and required supplementary information says about the government’s overall financial health. Financial Trends These schedules contain trend information to help the reader understand how the government’s financial performance and well-being have changed over time. Revenue Capacity These schedules contain information to help the reader assess the government’s most significant local revenue source, sales tax. Debt Capacity These schedules present information to help the reader assess the affordability of the government’s current levels of outstanding debt and the government’s ability to issue additional debt in the future. Demographic and Economic Information These schedules offer demographic and economic indicators to help the reader understand the environment within which the government’s financial activities take place. Operating Information These schedules contain service and infrastructure data to help the reader understand how the information in the government’s financial report relates to the services the government provides and the activities it performs. See the table of contents for page numbers of the schedules that encompass the above sections. CITY OF DOUGLAS, ARIZONA NET POSITION BY COMPONENT LAST TEN FISCAL YEARS (ACCRUAL BASIS OF ACCOUNTING) (UNAUDITED) Fiscal Year 2005 Governmental Activities: Net Investment in Capital Assets Restricted Unrestricted Total Governmental Activities Net Position Business-Type Activities: Net Investment in Capital Assets Restricted Unrestricted Total Business-Type Activities Net Position Primary Government: Net Investment in Capital Assets Restricted Unrestricted Total Primary Government Net Position 2007 2008 6,617,585 3,008,022 3,586,626 $ 14,111,791 2,756,736 3,951,726 $ 13,509,453 2,939,323 3,491,020 $ 12,473,142 $ 13,212,233 $ 20,820,253 $ 19,939,796 $ 11,354,586 1,885,932 $ 11,052,102 2,010,602 $ 11,744,198 1,586,749 $ 12,314,881 1,815,909 $ 13,240,518 $ 13,062,704 $ 13,330,947 $ 14,130,790 $ 17,217,279 3,233,910 5,262,471 $ 17,669,687 3,008,022 5,597,228 $ 25,855,989 2,756,736 5,538,475 $ 25,824,334 2,939,323 5,306,929 $ 25,713,660 $ 26,274,937 $ 34,151,200 $ 34,070,586 $ 5,862,693 3,233,910 3,376,539 Source: The City’s Finance Department. (84) 2006 $ Fiscal Year 2009 2010 2011 2012 2013 2014 $ 12,376,658 3,634,763 5,438,330 $ 13,775,501 477,084 7,049,956 $ 15,847,448 719,796 3,938,127 $ 20,735,227 871,510 3,923,990 $ 20,087,841 1,234,695 3,991,132 $ 13,255,510 1,261,605 5,512,891 $ 21,449,751 $ 21,302,541 $ 20,505,371 $ 25,530,727 $ 25,313,668 $ 20,030,006 $ 15,535,124 1,006,658 $ 15,872,761 1,205,402 $ 16,048,928 2,100,001 $ 15,921,451 3,880,161 $ 16,866,077 443,520 3,685,177 $ 16,491,574 568,237 4,508,051 $ 16,541,782 $ 17,078,163 $ 18,148,929 $ 19,801,612 $ 20,994,774 $ 21,567,862 $ 27,911,782 3,634,763 6,444,988 $ 29,648,262 477,084 8,255,358 $ 31,896,376 719,796 6,038,128 $ 36,656,678 871,510 7,804,151 $ 36,953,918 1,678,215 7,676,309 $ 29,747,084 1,829,842 10,020,942 $ 37,991,533 $ 38,380,704 $ 38,654,300 $ 45,332,339 $ 46,308,442 $ 41,597,868 (85) CITY OF DOUGLAS, ARIZONA CHANGES IN NET POSITION LAST TEN FISCAL YEARS (ACCRUAL BASIS OF ACCOUNTING) (UNAUDITED) Fiscal Year 2005 EXPENSES Governmental Activities: General Government Public Safety Highways and Streets Culture and Recreation Redevelopment and Housing Interest on Long-Term Debt Total Governmental Activities $ Business-Type Activities: Water Sewer Solid Waste Total Business-Type Activities Total Primary Government Expenses PROGRAM REVENUES Governmental Activities: Fines, Fees and Charges for Services: General Government Public Safety Highways and Streets Culture and Recreation Operating Grants and Contributions Capital Grants and Contributions Total Governmental Activities Program Revenues $ 3,406,989 5,720,526 2,938,401 1,771,149 281,392 165,418 14,283,875 2007 $ 3,725,063 6,043,744 2,271,480 1,983,227 25,159 159,577 14,208,250 2008 $ 4,340,737 6,348,866 1,760,251 2,189,769 132,857 180,077 14,952,557 1,758,738 902,247 814,419 3,475,404 1,774,516 861,899 842,263 3,478,678 1,838,462 938,588 872,341 3,649,391 1,455,706 952,579 891,003 3,299,288 $ 15,595,009 $ 17,762,553 $ 17,857,641 $ 18,251,845 $ $ $ $ Business-Type Activities: Charges for Services: Water Sewer Solid Waste Operating Grants and Contributions Capital Grants and Contributions Total Business-Type Activities Program Revenues Total Primary Government Program Revenues 2,989,561 4,985,627 2,144,672 1,792,405 20,744 186,596 12,119,605 2006 $ 1,334,218 556,022 2,750 157,660 1,826,751 809,180 1,359,062 586,562 3,256 104,169 2,326,620 555,531 1,031,216 591,610 62 102,689 2,428,909 651,377 939,208 642,820 2,834 97,949 2,293,564 589,152 4,686,581 4,935,200 4,805,863 4,565,527 1,586,261 903,830 673,965 - 1,597,155 911,694 643,107 86,803 1,618,744 916,597 667,241 580,433 1,749,040 924,045 668,023 110,274 3,164,056 3,238,759 3,783,015 3,451,382 7,850,637 Source: The City's Finance Department. (86) $ 8,173,959 $ 8,588,878 $ 8,016,909 Fiscal Year 2009 $ 3,999,501 6,604,306 2,702,979 2,074,291 497,600 727,564 16,606,241 2010 $ 4,639,733 6,715,219 2,970,829 1,986,674 53,973 760,128 17,126,556 2011 $ 5,121,084 6,700,135 2,773,973 1,936,579 51,599 704,510 17,287,880 2012 $ 4,840,153 7,186,954 2,555,331 1,827,388 664,519 17,074,345 2013 $ 4,989,484 7,799,983 2,605,395 1,868,116 1,041,957 579,592 18,884,527 2014 $ 4,499,732 8,050,797 2,394,792 1,965,397 1,064,489 530,417 18,505,624 1,344,052 1,385,910 707,042 3,437,004 1,261,985 1,337,193 716,047 3,315,225 1,367,914 1,320,648 755,546 3,444,108 1,698,669 1,313,976 765,647 3,778,292 1,666,863 1,310,421 785,788 3,763,072 1,839,897 1,538,514 956,297 4,334,708 $ 20,043,245 $ 20,441,781 $ 20,731,988 $ 20,852,637 $ 22,647,599 $ 22,840,332 $ $ $ $ $ $ 1,387,975 760,669 98,174 1,818,551 1,765,876 1,766,509 669,040 90,033 2,128,442 902,228 1,728,090 972,724 173,836 2,303,776 951,180 2,035,725 924,788 73,255 2,193,829 5,622,718 1,825,479 895,111 89,531 3,340,827 1,000,170 1,890,264 1,069,174 136,056 3,751,156 423,034 5,831,245 5,556,252 6,129,606 10,850,315 7,151,118 7,269,684 1,782,320 909,842 816,038 2,373,486 1,870,916 1,042,152 1,056,305 - 1,965,519 1,703,223 1,203,563 - 2,000,402 1,796,248 1,237,449 592,435 274,140 2,025,752 1,835,771 1,205,675 8,196 19,578 2,070,331 1,880,405 1,202,806 1,320 - 5,881,686 3,969,373 4,872,305 5,900,674 5,094,972 5,154,862 9,525,625 $ 11,001,911 $ 16,750,989 $ 12,246,090 $ 12,424,546 $ 11,712,931 $ (87) CITY OF DOUGLAS, ARIZONA CHANGES IN NET POSITION (CONTINUED) LAST TEN FISCAL YEARS (ACCRUAL BASIS OF ACCOUNTING) (UNAUDITED) Fiscal Year (Concluded) NET (EXPENSE)/REVENUE Governmental Activities Business-Type Activities Total Primary Government Net Expense GENERAL REVENUES AND OTHER CHANGES IN NET POSITION Governmental Activities: Taxes: Sales Taxes Property Taxes Franchise Taxes Unrestricted Grants and Contributions State Revenue Sharing State Sales Tax Revenue Sharing Auto Lieu Tax Revenue Sharing Payments in Lieu of Taxes Gain (Loss) on Sale of Capital Assets Investment Income Other Special Item Transfers Total Governmental Activities 2005 2006 2007 2008 $ (7,433,024) (311,348) $ (9,348,675) (239,919) $ (9,402,387) 133,624 $ (10,387,030) 152,094 $ (7,744,372) $ (9,588,594) $ (9,268,763) $ (10,234,936) $ $ $ $ Business-Type Activities: Sales Tax Investment Income (Loss) Transfers Total Business-Type Activities Total Primary Government CHANGE IN NET POSITION Governmental Activities Business-Type Activities Total Primary Government 4,390,874 410,706 253,182 3,089,912 713,727 170,524 25 5,656 9,034,606 4,740,475 448,571 261,809 1,765,690 1,729,948 791,931 229,305 1,802 118,235 10,087,766 5,006,857 465,726 322,308 2,002,854 1,634,497 789,900 311,744 1,119 63,387 10,598,392 5,095,143 462,232 349,444 49,612 2,448,141 1,580,288 845,030 280,685 1,697 (323,514) 10,788,758 98,995 50,159 (5,656) 143,498 91,380 88,960 (118,235) 62,105 91,380 106,626 (63,387) 134,619 224,968 99,267 323,514 647,749 $ 9,178,104 $ 10,149,871 $ 10,733,011 $ 11,436,507 $ 1,601,582 (167,850) 1,433,732 $ $ $ $ (88) $ 739,091 (177,814) 561,277 $ 1,196,005 268,243 1,464,248 $ 401,728 799,843 1,201,571 Fiscal Year 2009 2010 2011 2012 2013 2014 $ (10,774,996) 2,444,682 $ (11,570,304) 654,148 $ (11,158,274) 1,428,197 $ (6,224,030) 2,122,382 $ (11,733,409) 1,331,900 $ (11,235,940) 820,154 $ (8,330,314) $ (10,916,156) $ (9,730,077) $ (4,101,648) $ (10,401,509) $ (10,415,786) $ $ $ $ $ $ 6,151,531 532,028 341,702 18,467 2,608,244 1,368,088 793,358 16,212 322,889 132,432 12,284,951 5,808,108 531,489 351,635 30,274 2,245,322 1,261,862 732,787 107,495 238,124 115,998 11,423,094 5,953,998 545,995 337,029 39,082 1,687,895 1,316,667 762,824 67,493 258,705 358,411 11,328,099 5,825,402 533,742 334,074 42,590 1,466,716 1,357,922 803,452 6,769 44,626 356,342 477,751 11,249,386 5,364,312 563,698 314,080 70,074 1,775,125 1,419,048 757,402 39,423 596,739 162,208 11,062,109 5,533,351 578,759 311,019 41,950 1,976,038 1,545,589 736,085 30,607 281,915 (5,352,178) 269,143 5,952,278 77,114 21,628 (132,432) (33,690) (1,769) (115,998) (117,767) 980 (358,411) (357,431) 8,052 (477,751) (469,699) 23,470 (162,208) (138,738) $ 12,251,261 $ 11,305,327 $ 10,970,668 $ 10,779,687 $ 10,923,371 $ $ $ $ $ $ $ (5,283,662) 573,088 $ (4,710,574) $ 1,509,955 2,410,992 3,920,947 $ (147,210) 536,381 389,171 $ 169,825 1,070,766 1,240,591 $ 5,025,356 1,652,683 6,678,039 (89) $ (671,300) 1,193,162 521,862 22,077 (269,143) (247,066) 5,705,212 THIS PAGE BLANK CITY OF DOUGLAS, ARIZONA GOVERNMENTAL ACTIVITIES TAX REVENUES BY SOURCE LAST TEN FISCAL YEARS (ACCRUAL BASIS OF ACCOUNTING) (UNAUDITED) Fiscal Year 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Sales Taxes $ 4,390,874 4,740,475 5,006,857 5,095,143 6,228,645 5,808,108 5,953,998 5,825,402 5,364,312 5,533,351 Property Taxes Franchise Taxes $ $ 416,850 448,571 465,726 462,232 532,028 531,489 545,995 533,742 563,698 578,759 Source: The City’s Finance Department. (90) 253,182 261,809 322,308 349,444 341,702 351,635 337,029 334,074 314,080 311,019 Total $ 5,060,906 5,450,855 5,794,891 5,906,819 7,102,375 6,691,232 6,837,022 6,693,218 6,242,090 6,423,129 CITY OF DOUGLAS, ARIZONA FUND BALANCES OF GOVERNMENTAL FUNDS LAST TEN FISCAL YEARS (MODIFIED ACCRUAL BASIS OF ACCOUNTING) (UNAUDITED) Fiscal Year 2005 General Fund: Reserved Unreserved Non-spendable Unassigned Total General Fund All Other Governmental Funds: Reserved Unreserved, Reported in: Special Revenue Funds Capital Projects Funds Debt Service Funds Restricted Committed Assigned Unassigned Total All Other Governmental Funds $ 2006 2007 2008 2009 1,285 3,328,604 $ 3,329,889 $ 3,788,373 $ 3,788,373 $ 5,878 4,076,080 $ 4,081,958 $ 78,239 3,735,584 $ 3,813,823 $ $ $ $ $ $ 10,000 10,000 10,000 2,897,657 15,184 - 2,597,332 300 - 2,643,920 3,143 - $ 2,922,841 $ 2,607,632 $ 2,657,063 10,000 4,854,098 (68,512) - $ 4,795,586 68,239 3,962,160 $ 4,030,399 10,000 5,335,420 (7,499) - $ 5,337,921 Source: The City’s Finance Department. Note 1: The City implemented the provisions of GASB Statement No. 54 in the fiscal year 2011, which required fund balances to be reported in different categories. (91) Fiscal Year 2010 $ 2011 2012 58,493 4,683,978 $ 4,742,471 652,189 4,108,952 $ 4,761,141 686,488 4,260,979 $ 4,947,467 720,416 4,790,887 $ 5,511,303 $ $ $ $ $ 4,065,860 $ 4,081,313 2,220,530 (29,857) $ 2,190,673 $ 2014 4,174,438 $ 4,174,438 15,453 $ 2013 - $ - $ - 871,510 228,340 - 1,174,505 224,190 - 1,218,198 1,033,237 320,290 - $ 1,099,850 $ 1,398,695 $ 2,571,725 (92) CITY OF DOUGLAS, ARIZONA CHANGES IN FUND BALANCES OF GOVERNMENTAL FUNDS LAST TEN FISCAL YEARS (MODIFIED ACCRUAL BASIS OF ACCOUNTING) (UNAUDITED) Fiscal Year 2005 REVENUES Taxes Intergovernmental Fines and Forfeitures Licenses and Permits Charges for Services Rents and Royalties Special Assessments Investment Income Other Total Revenues $ EXPENDITURES General Government Public Safety Highways and Streets Culture and Recreation Redevelopment and Housing Capital Outlay Debt Service Principal Retirement Interest on Long-Term Debt Total Expenditures Excess of Revenues Over (Under) Expenditures OTHER FINANCING SOURCES (USES) Transfers In Transfers Out Issuance of Long-Term Debt Proceeds from Sale of Capital Assets Total Other Financing Sources (Uses) Debt Service as a Percentage of Noncapital Expenditures 5,060,906 6,439,570 206,150 223,484 972,483 18,000 170,524 681,111 13,772,228 $ $ 2007 5,464,419 7,169,720 185,754 262,858 1,040,529 45,000 229,305 661,749 15,059,334 $ 2008 5,782,276 7,507,537 199,420 270,278 1,012,858 45,000 311,744 324,140 15,453,253 $ 5,914,743 7,805,787 141,232 169,697 1,059,989 36,000 280,685 307,449 15,715,582 3,579,484 4,989,254 2,700,498 1,671,445 20,744 - 3,477,225 5,764,769 3,166,478 1,767,630 281,392 38,999 3,801,423 5,992,153 2,551,227 2,266,214 25,159 - 5,169,854 6,078,350 2,413,444 1,863,014 132,857 896,225 390,742 145,630 13,497,797 413,349 124,452 15,034,294 418,837 118,611 15,173,624 429,669 133,267 17,116,680 274,431 25,040 279,629 1,161,277 (1,155,621) - Proceeds from Capital Leases Net Change in Fund Balance 2006 1,374,466 (1,256,231) - (1,401,098) 1,380,037 (1,316,650) - 1,553,137 (1,876,651) 3,000,000 114,509 - - 595,000 - - - - 120,165 118,235 63,387 3,271,486 394,596 3.97% Source: The City’s Finance Department. (93) $ 143,275 3.59% $ 343,016 3.54% $ 1,870,388 4.05% Fiscal Year 2009 $ $ 2010 7,012,223 8,372,584 195,644 126,224 1,386,022 538,928 16,212 322,889 17,970,726 $ 2011 6,689,354 7,184,648 189,333 192,309 1,410,391 733,549 107,495 238,124 16,745,203 $ 2012 6,831,876 7,083,337 201,361 172,602 1,745,359 755,328 67,493 258,705 17,116,061 $ 6,707,653 6,783,653 319,294 196,385 1,759,653 758,436 44,626 356,342 16,926,042 2013 $ 2014 6,234,848 8,031,863 273,475 162,571 1,605,657 768,418 39,423 596,739 17,712,994 $ 6,399,692 8,455,635 311,448 201,227 1,763,797 819,022 30,607 281,915 18,263,343 13,462,021 6,579,669 2,626,696 1,750,997 497,600 817,482 3,961,316 6,554,551 2,660,654 1,513,127 53,973 728,862 3,910,726 6,275,426 1,975,991 1,409,501 51,599 2,007,704 3,555,255 6,709,042 2,093,297 1,361,590 2,620,504 3,469,997 7,139,134 1,779,871 1,407,089 1,035,816 2,007,665 3,407,238 7,295,712 1,685,298 1,513,927 1,058,347 1,806,890 656,965 686,598 27,078,028 2,228,723 719,162 18,420,368 1,611,006 663,544 17,905,497 1,636,402 623,553 18,599,643 1,627,585 551,097 19,018,254 1,464,848 501,922 18,734,182 (9,107,302) (1,675,165) (789,436) (1,673,601) (1,305,260) (470,839) 1,020,458 (888,026) 9,000,000 1,303,871 (1,002,494) 400,000 2,837,907 (2,479,496) - 2,923,356 (2,445,605) - 2,480,730 (2,318,522) - 2,354,892 (2,085,749) - 595,000 - 75,413 71,676 1,205,911 1,041,474 - - - 52,021 - 897,088 9,727,432 701,377 433,824 601,448 1,368,119 2,207,705 620,130 9.80% $ (973,788) 18.09% $ (355,612) 14.02% $ (1,072,153) 14.27% (94) $ 62,859 12.65% $ 1,736,866 11.68% CITY OF DOUGLAS, ARIZONA TAXABLE SALES BY CATEGORY LAST TEN FISCAL YEARS (UNAUDITED) Fiscal Year 2005 Sales Category: Mining Communications and Utilities Transportation & Warehousing Construction Manufacturing Wholesale Trade Retail Trade Finance and Insurance Real Estate, Rental and Leases Restaurants and Bars Accommodations Public Administration Services Arts & Entertainment Other Total City Sales Tax Rate 2006 $ 499,539 10,008,146 47,034 9,952,326 3,246,085 4,063,304 141,390,374 94,754 7,666,144 12,864,527 2,286,598 130,215 1,785,624 23,100 2,393,080 $ 196,450,850 466,247 15,039,614 40,313 8,593,952 3,375,254 3,994,393 145,310,162 84,995 6,656,980 12,923,634 2,600,819 108,890 2,714,689 8,285 2,532,122 $ 204,450,349 510,450 23,876,918 15,283 7,578,438 4,144,993 4,093,177 146,386,134 194,035 5,664,318 12,932,385 2,277,339 100,106 3,342,416 3,121,725 $ 214,237,717 2.50% 2.50% 2.50% 2.50% (95) $ 2008 788,852 9,522,557 118,643 5,509,385 3,669,492 3,853,589 133,948,362 105,986 5,231,069 11,927,045 1,971,777 241,021 1,851,152 15,673 2,417,236 $ 181,171,839 Source: Arizona Department of Revenue. $ 2007 $ Fiscal Year 2009 $ 2,318,215 22,195,363 48,456 15,965,933 3,945,094 3,884,491 144,710,942 93,629 6,249,386 12,500,240 2,363,017 294,021 3,242,519 56,562 2,921,447 $ 220,789,315 2.50% 2010 $ 2,318,215 22,195,363 48,456 15,965,933 3,945,094 3,884,491 144,710,942 93,629 6,249,386 12,500,240 2,363,017 294,021 3,242,519 56,562 2,921,447 $ 220,789,315 2.80% 2011 $ 301,452 23,550,249 66,060 19,963,998 986,650 1,226,017 147,664,164 33,753 8,690,896 14,153,836 3,652,951 1,018,073 410,600 2,599,103 $ 224,317,802 2012 $ 6,606 21,998,591 36,614 18,615,619 136,449,566 8,369,967 15,215,328 4,552,670 1,224,696 758,552 276,830 $ 207,505,039 2.80% 2.80% (96) 2013 $ 4,715 20,996,222 34,024 4,980,458 137,243,931 7,812,435 14,682,935 3,855,249 1,152,749 642,019 196,727 $ 191,601,464 2.80% 2014 $ 2,626 20,874,694 7,558 7,161,065 138,881,604 8,037,675 14,404,604 3,792,273 1,385,854 477,238 173,041 $ 195,198,232 2.80% CITY OF DOUGLAS, ARIZONA DIRECT AND OVERLAPPING SALES TAX RATES LAST TEN FISCAL YEARS (UNAUDITED) Fiscal Year 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 City Direct Rate Cochise County 2.50 % 2.50 2.50 2.50 2.80 2.80 2.80 2.80 2.80 2.80 Source: Arizona Department of Revenue. (97) 6.10 % 6.10 6.10 6.10 6.10 6.10 7.10 7.10 6.10 6.10 CITY OF DOUGLAS, ARIZONA ASSESSED VALUE AND ESTIMATED ACTUAL VALUE OF TAXABLE PROPERTY LAST TEN FISCAL YEARS (IN THOUSANDS OF DOLLARS) (UNAUDITED) Assessed Value Fiscal Year Real Property 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 $ 39,514 41,500 54,948 55,520 58,804 58,950 62,801 61,660 60,730 59,500 Personal Property Less: Tax Exempt Real Property Total Taxable Assessed Value $ $ $ 40,158 41,419 51,893 52,821 57,027 56,350 57,777 56,188 54,892 53,400 5,087 4,385 2,925 1,506 4,848 4,728 4,254 3,936 3,905 3,585 4,443 4,466 5,980 4,205 6,625 7,328 9,278 9,408 9,743 9,685 Source: The Cochise County Treasurer. (98) Total Direct Tax Rate Estimated Actual Taxable Value Assessed Value as a Percentage of Actual Value 11.15 10.70 8.70 8.87 10.55 13.07 8.23 8.36 7.21 11.64 $ 444,275 448,500 459,832 462,040 470,911 478,320 509,351 505,672 499,781 494,935 9.039% 9.235 11.285 11.432 12.110 11.781 11.343 11.112 10.983 10.789 CITY OF DOUGLAS, ARIZONA PROPERTY TAX RATES DIRECT AND OVERLAPPING GOVERNMENTS LAST TEN FISCAL YEARS (UNAUDITED) Primary Rates Fiscal Year City of Douglas Cochise County Cochise County Community College 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 1.09 1.05 0.99 1.02 1.00 0.98 0.98 1.05 1.08 1.15 2.94 2.92 2.87 2.68 2.64 2.63 2.63 2.63 2.63 2.63 1.79 1.79 1.74 1.66 1.61 1.60 1.67 1.73 1.85 2.03 Secondary Rates Douglas Unified School District 5.33 4.94 3.10 3.51 5.30 7.86 2.95 2.95 1.65 5.83 Source: The Cochise County Treasurer. (99) Total Direct Rate 11.15 10.70 8.70 8.87 10.55 13.07 8.23 8.36 7.21 11.64 School District 0.83 1.58 1.72 1.78 0.96 1.07 0.87 0.53 0.86 0.87 County 0.51 0.51 0.40 0.40 0.40 0.34 0.45 0.55 0.55 0.55 Rate Total 12.49 12.79 10.82 11.05 11.91 14.48 9.55 9.44 8.62 13.06 CITY OF DOUGLAS, ARIZONA PRINCIPAL PROPERTY TAXPAYERS JUNE 30, 2014 AND 2005 (UNAUDITED) 2014 Taxpayer Wal-Mart Arizona Public Service Phelps Dodge Corporation DHD LLC B-Y 90 Fifth Street LLC Southwest Gas Corporation SFP Pool Five Shopping Centers BH Properties LLC Qwest Corporation Douglas Custom LLC J C Penny Co Inc Safeway Inc. FAE Holdings 356216R LLC Newhall Douglas LTD PRT Accotel Property Investors LLC Taxable Assessed Value $ 2,106,671 1,852,035 722,866 602,983 504,917 457,250 451,231 429,400 388,658 379,253 $ 7,895,264 Rank 1 2 3 4 5 6 7 8 9 10 - Source: The Cochise County Assessor's Office. (100) 2005 Percentage of Total Taxable Assessed Value 4.18 % 3.67 1.43 1.20 1.00 0.91 0.90 0.85 0.77 0.75 15.66 % Taxable Assessed Value $ 1,925,604 1,604,236 751,156 1,013,067 932,851 471,347 739,432 682,500 294,042 292,017 $ 8,706,252 Rank 1 2 6 3 4 8 5 7 9 10 Percentage of Total Taxable Assessed Value 4.87 % 4.06 1.90 2.56 2.36 1.19 1.87 1.73 0.74 0.74 22.02 % CITY OF DOUGLAS, ARIZONA PROPERTY TAX LEVIES AND COLLECTIONS LAST TEN FISCAL YEARS (UNAUDITED) Total Tax Levy Fiscal Year 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 $ 399,279 442,229 468,748 485,584 542,878 546,719 555,804 538,029 552,411 562,460 Current Tax Collections $ 242,065 411,452 423,146 440,446 489,507 477,007 504,613 490,427 501,212 498,462 Percent of Current Taxes Collected 60.63 % 93.04 90.27 90.70 90.17 87.25 90.79 91.15 90.73 88.62 Source: The Cochise County Treasurer. (101) Delinquent Tax Collections $ 156,777 29,834 44,386 43,886 51,265 67,098 47,964 43,333 45,317 - Total Tax Collections $ 398,842 441,286 467,532 484,332 540,772 544,105 552,577 533,760 546,529 498,462 Ratio of Total Tax Collections to Total Tax Levy 99.89 % 99.79 99.74 99.74 99.61 99.52 99.42 99.21 98.94 88.62 Outstanding Delinquent Taxes $ 437 943 1,216 1,252 2,106 2,614 3,227 4,269 5,882 63,998 Ratio of Delinquent Taxes to Tax Levy 0.11 % 0.21 0.26 0.26 0.39 0.48 0.58 0.79 1.06 11.38 (102) CITY OF DOUGLAS, ARIZONA RATIOS OF OUTSTANDING DEBT BY TYPE LAST TEN FISCAL YEARS (UNAUDITED) Governmental Activities Fiscal Year Revenue Bonds 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 $ 4,095,000 3,735,000 3,370,000 2,995,000 2,605,000 2,205,000 1,790,000 1,365,000 920,800 468,602 Loans Payable $ 3,000,000 12,000,000 10,890,000 10,025,000 9,155,000 8,260,000 7,725,000 Business-Type Activities Capital Leases $ 771,477 623,828 483,879 947,738 1,275,773 957,050 701,457 431,731 1,345,057 1,911,683 Loans Payable $ 3,239,489 5,857,703 5,928,449 5,457,668 5,095,574 Source: The City’s Finance Department. (103) Capital Leases $ 258,035 314,761 198,842 109,353 61,716 31,626 263,551 440,727 Total Primary Government $ 5,124,512 4,673,589 4,052,721 7,052,091 15,942,489 17,323,165 18,374,160 16,880,180 16,247,076 15,641,586 Percentage of Personal Income 2.31 % 1.99 1.57 2.73 5.65 5.62 6.24 6.44 7.15 6.68 Per Capita $ 298 268 220 371 862 864 913 854 935 893 CITY OF DOUGLAS, ARIZONA DIRECT AND OVERLAPPING GOVERNMENTAL ACTIVITIES DEBT JUNE 30, 2014 (UNAUDITED) Governmental Unit Debt Repaid with Property Taxes Cochise County Cochise County Community College District Douglas Unified School District No. 27 Subtotal, Overlapping Debt City of Douglas, Arizona direct debt Total Direct and Overlapping Debt Outstanding Debt $ Estimated Percentage Applicable (1) 3,097,433 21,090,000 6,785,000 4.86% 4.86% 100.00% 10,105,285 100.00% Estimated Share of Overlapping Debt $ $ 150,380 1,023,920 6,785,000 7,959,300 10,105,285 18,064,585 Source: Cochise County Treasurer's Office. (1) Proportion applicable to the City of Douglas, Arizona, is computed on the ratio of secondary assessed valuation for 2013-14. (104) CITY OF DOUGLAS, ARIZONA LEGAL DEBT MARGIN INFORMATION LAST TEN FISCAL YEARS (UNAUDITED) Fiscal Year 20% Debt Limit 2005 2006 2007 2008 2009 $ 7,442,536 $ 8,283,788 $ 9,938,245 $ 10,378,721 $ 10,890,226 - - - - - $ 7,442,536 $ 8,283,788 $ 9,938,245 $ 10,378,721 $ 10,890,226 - - - - Total Applicable to Limit Legal Debt Margin Total Net Debt Applicable to the Limit as a Percentage of the Debt Limit - Fiscal Year 6% Debt Limit Total Applicable to Limit Legal Debt Margin Total Net Debt Applicable to the Limit as a Percentage of the Debt Limit 2005 2006 2007 2008 2009 $ 2,232,761 $ 2,485,137 $ 2,981,474 $ 3,113,616 $ 3,267,068 - - - - - $ 2,232,761 $ 2,485,137 $ 2,981,474 $ 3,113,616 $ 3,267,068 - - - - Source: The City's Finance Department and the Cochise County Assessor's Office. (105) - Fiscal Year 2010 2011 2012 2013 2014 $ 11,240,800 $ 11,387,094 $ 11,237,561 $ 10,978,476 $ 10,679,957 - - - - - $ 11,240,800 $ 11,387,094 $ 11,237,561 $ 10,978,476 $ 10,679,957 - - - - - Fiscal Year 2010 2011 2012 2013 2014 $ 3,372,240 $ 3,416,128 $ 3,371,268 $ 3,293,543 $ 3,203,987 - - - - - $ 3,372,240 $ 3,416,128 $ 3,371,268 $ 3,293,543 $ 3,203,987 - - - - - (106) THIS PAGE BLANK CITY OF DOUGLAS, ARIZONA CALCULATION OF LEGAL DEBT MARGIN JUNE 30, 2014 (UNAUDITED) $ 53,399,786 Net Secondary Assessed Value Water, Sewer, Light, Parks, Open Space and Recreational Facility Bonds 10,679,957 Debt Limit - 20% of Net Secondary Assessed Value Debt Applicable to Limit General Obligation Bonds Outstanding Less: Amount Set Aside for Repayment of Debt Net Debt Applicable to Limit $ 10,679,957 20% Legal Debt Margin All Other General Obligation Bonds 3,203,987 Debt Limit - 6% of Net Secondary Assessed Value Debt Applicable to Limit General Obligation Bonds Outstanding Less: Amount Set Aside for Repayment of Debt Net Debt Applicable to Limit 3,203,987 All Other General Obligation Bonds debt Margin $ 13,883,944 Total Legal Debt Margin Source: Cochise County Assessor's Office. Note: The City did not have any debt subject to the debt limits. (107) CITY OF DOUGLAS, ARIZONA PLEDGED-REVENUE COVERAGE LAST TEN FISCAL YEARS (UNAUDITED) Revenue Bonds Fiscal Year Pledged Revenue 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 $ 10,231,006 11,102,447 11,573,296 11,942,651 12,666,703 11,803,431 11,458,594 11,017,679 10,896,218 11,462,981 Less: Operating Expenses $ Net Available Revenue - $ 3,518,881 3,796,816 4,012,867 4,067,101 12,666,703 11,803,431 11,458,594 11,017,679 10,896,218 11,462,981 Debt Service Principal Debt Service Interest $ $ 250,000 360,000 365,000 375,000 390,000 400,000 415,000 425,000 440,000 455,000 122,136 111,472 104,838 97,238 97,237 80,476 71,077 59,457 46,106 31,806 Coverage 945.59 % 805.31 854.10 861.24 1045.72 1208.82 1224.90 1202.46 1103.53 1136.66 Source: The City of Douglas' internal records. Note: The City's bonds are secured by City sales tax revenues. Sales tax revenues are applied first to the bonds (108) GADA Loan Pledged Revenue Fiscal Year 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Less: Operating Expenses $ 9,968,602 10,921,221 10,048,079 9,721,384 9,453,492 9,315,887 9,791,063 $ - Net Available Revenue Debt Service Principal Debt Service Interest $ $ $ 9,968,602 10,921,221 10,048,079 9,721,384 9,453,492 9,315,887 9,791,063 170,000 110,000 110,000 115,000 120,000 24,369 147,935 142,812 128,638 123,775 121,264 114,974 Coverage N/A N/A N/A 40906.90% 7382.45% 3212.18% 4073.69% 4043.84% 3943.00% 4166.87% Call Center Loan Fiscal Year 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Less: Operating Expenses City Sales Tax and Lease Revenue $ 10,286,049 9,254,791 8,996,669 8,735,260 8,593,517 9,069,283 $ - Net Available Revenue Debt Service Principal Debt Service Interest $ $ $ 10,286,049 704,620 8,996,669 8,735,260 1,215,652 9,069,283 1,260,000 675,000 700,000 740,000 375,000 Coverage 239,925 451,849 431,325 391,310 356,805 321,086 N/A N/A N/A N/A 4287.19% 41.16% 813.20% 800.44% 110.84% 1302.90% Coverage WIFA Loan Fiscal Year 2010 2011 2012 2013 2014 Less: Operating Expenses Water/Sewer Revenues $ 2,749,697 3,540,996 3,722,556 3,779,059 3,916,977 $ 2,586,553 2,688,562 2,980,047 2,974,329 3,252,197 Net Available Revenue Debt Service Principal Debt Service Interest $ $ $ (109) 163,144 852,434 742,509 804,730 664,780 65,145 460,014 470,781 480,756 12,625 103,461 126,183 124,189 114,104 1292.23% 505.58% 126.67% 135.26% 111.75% CITY OF DOUGLAS, ARIZONA DEMOGRAPHIC AND ECONOMIC STATISTICS LAST TEN FISCAL YEARS (UNAUDITED) Fiscal Year 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Source: Population 17,195 17,468 18,411 18,996 18,500 20,061 20,122 19,772 17,378 17,509 Personal Income $ 222,142,205 235,241,556 258,453,618 277,987,464 282,199,000 308,277,387 294,364,738 262,236,036 227,252,106 234,200,384 Per Capita Personal Income $ Arizona Department of Economic Security Cochise College Center for Economic Research (110) 12,919 13,467 14,038 14,634 15,254 15,367 14,629 13,263 13,077 13,376 Median Age 30.50 30.50 30.50 30.50 31.00 31.10 32.20 32.20 32.20 32.20 Unemployment Rate 7.6 % 7.2 6.8 6.8 9.1 9.2 13.1 12.0 12.6 12.1 CITY OF DOUGLAS, ARIZONA PRINCIPAL EMPLOYERS CURRENT YEAR AND TEN YEARS AGO (UNAUDITED) 2014 Employer Arizona Department of Corrections Douglas Unified School District Advance Call Center Technologies Wal-Mart Stores, Inc. City of Douglas Cochise College Cochise Private Industry Council Cochise Regional Hospital Chiricahua Community Health Center Basha's Inc. Copper Queen Community Hospital Velcro USA Inc Arizona Public Service Employees Rank 615 505 260 249 188 175 103 74 72 56 2,297 1 2 3 4 5 6 7 8 9 10 - 2005 Percentage of Total City Employment Employees 9.77 % 7.58 3.75 3.96 3.08 3.00 1.59 1.38 0.92 0.84 35.87 % 674 513 408 235 327 104 110 46 84 70 2,571 Rank 2 3 4 6 5 8 7 1 9 10 Source: Cochise College Center for Economic Research Arizona Department of Economic Security Note: This list includes only those employers who responded to the annual major employer survey. (111) Percentage of Total City Employment 11.59 % 8.83 7.02 4.04 5.63 1.79 1.89 0.79 1.45 1.20 44.23 % THIS PAGE BLANK CITY OF DOUGLAS, ARIZONA FULL-TIME EQUIVALENT EMPLOYEES BY FUNCTION LAST TEN FISCAL YEARS (UNAUDITED) Full-Time Equivalent Employees Function General Government Management Services: Administration Human resources Court MIS Finance Economic Development Visitor Parking Center Total Mgmt Services 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 5 3 2 2 3 15 5 3 1 2 4 1 16 7 4 3 2 6 1 5 28 7 4 3 3 7 1 5 30 5 4 3 3 6 1 4 26 5 3 2 3 6 19 5 3 2 4 6 4 24 5 3 2 4 6 4 24 5 3 2 3 6 1 20 5 3 2 4 9 1 24 4 4 4 4 5 4 8 9 7 7 Police Officers Civilians Total Police 32 13 45 35 13 48 29 15 44 31 16 47 37 14 51 34 14 48 32 14 46 32 14 46 32 15 47 31 12 43 Fire Firefighters and Officers Civilians Total Fire 22 2 24 21 2 23 26 2 28 24 2 26 25 1 26 23 1 24 25 1 26 23 2 25 24 2 26 23 2 25 Public Works Engineering (PW Adm) Planning & Zoning Construction Refuse Collections Mechanics Streets Street Maintenance Airport Water Field Water CIP Water Billing Wastewater Total Public Works 2 2 4 7 5 10 5 7 3 4 5 54 2 2 4 8 4 10 5 7 1 4 7 54 4 2 4 10 4 12 5 10 6 4 7 68 4 3 4 7 4 11 4 9 8 4 8 66 6 2 4 5 4 8 4 8 7 4 7 59 4 2 4 4 4 6 4 4 4 4 7 47 4 2 6 6 3 7 4 7 4 3 6 52 4 2 6 5 2 6 4 7 4 3 5 48 2 1 6 7 3 8 8 2 6 43 2 2 5 8 3 7 1 8 2 6 44 Parks and Recreation Comm Dev Admin Aquatics Cemetery Parks Recreation Golf Course Library Transit Total P&R 2 3 4 10 2 1 5 27 2 3 4 9 1 1 5 25 3 16 4 9 7 4 8 51 3 14 4 10 9 6 8 54 2 12 2 10 5 8 7 46 1 2 2 10 1 5 21 1 11 1 11 6 11 8 49 1 11 2 10 7 10 7 48 1 13 3 9 6 8 7 6 53 12 3 9 6 6 7 7 50 169 170 223 227 213 163 205 200 196 193 Housing Total (112) CITY OF DOUGLAS, ARIZONA OPERATING INDICATORS BY FUNCTION LAST TEN FISCAL YEARS (UNAUDITED) Fiscal Year Function General Government Building Permits Issued Building Inspection Conducted Police Physical Arrests Parking Violations Traffic Violations Fire Emergency Responses Fires Extinguished Inspections Refuse Collection Refuse Collections (Tons/Day) Recyclables Collected (Tons/Day) Other Public Works Street Resurfacing (Miles) Potholes Repaired Parks and Recreation Athletic Field Permits Issued Community Center Admissions Aquatic Center Admissions Library Volumes in Collection Total Volumes Borrowed Water New Connections Water Main Breaks Average Daily Consumption (Thousands of Gallons) Peak Daily Consumption (Thousands of Gallons) Wastewater Average Daily Sewage Treatment (Thousands of Gallons) 2005 2006 2007 2008 2009 48 1,440 258 1,085 262 1,100 338 858 354 400 1,804 2,208 3,283 1,725 1,640 4,134 1,615 1,919 4,590 1,475 1,562 3,814 1,917 648 4,569 2,670 289 105 2,540 17 122 2,336 187 62 2,200 201 80 2,030 216 80 17.0 1.0 17.0 1.0 23.9 0.5 30.0 0.5 30.0 0.5 273 175 1.0 143 1.4 152 1.5 195 26 13,743 11,925 40 9,724 21,852 120 16,535 26,990 117 14,660 28,369 120 9,071 36,761 47,302 91,623 49,141 94,147 52,824 83,018 56,961 94,955 60,856 85,595 6 7 60 8 28 18 68 5 2,602,839 3,167,934 2,579,831 3,660,000 2,638,660 4,385,713 5,380,000 3,613,013 1.8 2.1 1.6 - - 2.8 2.6 Source: The City of Douglas' internal records. (113) Fiscal Year 2011 2010 2012 2013 2014 305 344 198 305 221 778 264 695 202 704 1,795 646 4,300 1,564 745 4,211 554 545 3,888 1,332 252 4,158 1,348 183 3,220 2,312 198 101 2,829 61 150 2,437 55 200 2,459 231 161 2,560 457 367 16.3 - 23.5 - 26.5 - 27.5 - 22.9 - 2.1 680 1.0 1,360 0.5 2,100 2.1 1,600 0.8 1,763 119 10,036 31,408 122 11,021 14,808 125 8,812 21,301 93 10,199 16,685 83 16,051 17,792 59,649 86,098 57,684 74,141 56,715 63,180 47,157 61,256 59,033 64,843 10 2 16 9 10 8 11 12 11 7 3,662,519 3,500,000 3,177,000 3,216,045 3,321,000 148,101,000 5,023,000 4,725,000 4,716,136 4,384,000 1.5 1.7 1.7 2.0 2.1 (114) CITY OF DOUGLAS, ARIZONA CAPITAL ASSETS STATISTICS BY FUNCTION LAST TEN FISCAL YEARS (UNAUDITED) Fiscal Year Function Police Stations Patrol Units Fire Stations Refuse Collection Collection Trucks Other Public Works Streets (Miles) Streetlights Traffic Signals Parks and Recreation Acreage Playgrounds Baseball and Softball Diamonds Soccer/Football Fields Aquatic Centers Community Centers Water Water Mains (Miles) Fire hydrants Storage Capacity (Thousands of Gallons) Wastewater Sanitary Sewers (Miles) Storm Sewers (Miles) Maximum Treatment Capacity (Thousands of Gallons) 2005 2006 2007 2008 2009 1 1 1 25 1 1 21 1 1 20 1 1 27 1 - 4 5 5 5 95 2,083 - 110 1,192 13 110 1,192 13 110 1,194 14 110 1,194 14 62 2 1 92 5 6 13 2 1 92 5 6 13 2 1 92 5 6 13 2 1 92 5 6 13 2 1 80 338 81 445 81 445 83 526 83 526 500,900 500,900 500,900 500,900 500,900 75 2 75 2 75 2 78 2 78 2 2,000,000 2,000,000 2,000,000 2,000,000 2,000,000 Source: The City of Douglas' internal records. (115) Fiscal Year 2010 2011 2012 2013 2014 1 22 1 1 21 1 1 23 1 1 22 1 1 21 1 5 5 5 3 3 112 1,194 14 110 1,194 14 110 1,194 14 110 1,194 14 110 1,189 14 92 5 6 13 2 1 92 5 6 13 2 1 92 5 6 13 2 1 92 5 6 13 2 1 92 5 6 13 2 1 84 535 100 540 100 545 100 458 100 560 500,900 500,900 500,900 500,900 500,900 80 2 85 2 85 2 86 2 86 2 2,000,000 2,000,000 2,000,000 2,000,000 2,000,000 (116) THIS PAGE BLANK