COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR THE FISCAL YEAR ENDED JUNE 30, 2016 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, 2016 Robert Uribe Mayor Councilmembers Danny Morales Ken Nelson Donald Huish Patricia Lopez Ivan Huish Fernando Betancourt Vacant City Manager Prepared by: Finance Department THIS PAGE BLANK CITY OF DOUGLAS, ARIZONA COMPREHENSIVE ANNUAL FINANCIAL REPORT TABLE OF CONTENTS YEAR ENDED JUNE 30, 2016 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 23 STATEMENT OF ACTIVITIES 25 BALANCE SHEET – GOVERNMENTAL FUNDS 27 RECONCILIATION OF THE BALANCE SHEET OF GOVERNMENTAL FUNDS TO THE STATEMENT OF NET POSITION 28 STATEMENT OF REVENUES, EXPENDITURES, AND CHANGE IN FUND BALANCES – GOVERNMENTAL FUNDS 29 RECONCILIATION OF THE STATEMENT OF REVENUES, EXPENDITURES, AND CHANGE IN FUND BALANCES IN THE GOVERNMENTAL FUNDS TO THE STATEMENT OF ACTIVITIES 30 STATEMENT OF NET POSITION – PROPRIETARY FUNDS 31 STATEMENT OF REVENUES, EXPENSES, AND CHANGE IN NET POSITION – PROPRIETARY FUNDS 32 STATEMENT OF CASH FLOWS – PROPRIETARY FUNDS 33 NOTES TO BASIC FINANCIAL STATEMENTS 35 CITY OF DOUGLAS, ARIZONA COMPREHENSIVE ANNUAL FINANCIAL REPORT TABLE OF CONTENTS (CONTINUED) YEAR ENDED JUNE 30, 2016 REQUIRED SUPPLEMENTARY INFORMATION SCHEDULE OF THE CITY’S PROPORTIONATE SHARE OF NET PENSION LIABILITY – COST SHARING PENSION PLANS 73 SCHEDULE OF CHANGES IN THE CITY’S NET PENSION LIABILITY AND RELATED RATIOS – AGENT PENSION PLANS 74 SCHEDULE OF CITY PENSION CONTRIBUTIONS 76 NOTES TO PENSION SCHEDULES 77 SCHEDULE OF AGENT OPEB PLANS’ FUNDING PROGRESS 78 NOTES TO SCHEDULE OF AGENT OPEB PLANS’ FUNDING PROGRESS 79 BUDGETARY COMPARISON SCHEDULE – GENERAL FUND 80 NOTES TO BUDGETARY COMPARISON SCHEDULE – GENERAL FUND 82 COMBINING AND INDIVIDUAL FUND STATEMENTS AND SCHEDULES NONMAJOR GOVERNMENTAL FUNDS COMBINING BALANCE SHEET 83 COMBINING STATEMENT OF REVENUES, EXPENDITURES, AND CHANGE IN FUND BALANCES 85 SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGE IN FUND BALANCE – BUDGET AND ACTUAL – HURF FUND 87 SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGE IN FUND BALANCE – BUDGET AND ACTUAL – GRANTS FUND 88 SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGE IN FUND BALANCE – BUDGET AND ACTUAL – POLICE GRANTS FUND 89 SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGE IN FUND BALANCE – BUDGET AND ACTUAL – JCEF RESTRICTED COURT FUND 90 SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGE IN FUND BALANCE – BUDGET AND ACTUAL – CAPITAL PROJECTS FUND 91 SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGE IN FUND BALANCE – BUDGET AND ACTUAL – DEBT SERVICE FUND 92 CITY OF DOUGLAS, ARIZONA COMPREHENSIVE ANNUAL FINANCIAL REPORT TABLE OF CONTENTS (CONTINUED) YEAR ENDED JUNE 30, 2016 STATISTICAL SECTION (UNAUDITED) FINANCIAL TRENDS NET POSITION BY COMPONENT 93 CHANGES IN NET POSITION 95 GOVERNMENTAL ACTIVITIES TAX REVENUES BY SOURCE 99 FUND BALANCES OF GOVERNMENTAL FUNDS 100 CHANGES IN FUND BALANCES OF GOVERNMENTAL FUNDS 102 REVENUE CAPACITY TAXABLE SALES BY CATEGORY 104 DIRECT AND OVERLAPPING SALES TAX RATES 106 ASSESSED VALUE AND ESTIMATED ACTUAL VALUE OF TAXABLE PROPERTY 107 PROPERTY TAX RATES – DIRECT AND OVERLAPPING GOVERNMENTS 108 PRINCIPAL PROPERTY TAXPAYERS 109 PROPERTY TAX LEVIES AND COLLECTIONS 110 DEBT CAPACITY RATIOS OF OUTSTANDING DEBT BY TYPE 112 DIRECT AND OVERLAPPING GOVERNMENTAL ACTIVITIES DEBT 113 LEGAL DEBT MARGIN INFORMATION 114 CALCULATION OF LEGAL DEBT MARGIN 116 PLEDGED-REVENUE COVERAGE 117 DEMOGRAPHIC AND ECONOMIC INFORMATION DEMOGRAPHIC AND ECONOMIC STATISTICS 119 PRINCIPAL EMPLOYERS 120 OPERATING INFORMATION FULL-TIME EQUIVALENT EMPLOYEES BY FUNCTION 121 OPERATING INDICATORS BY FUNCTION 122 CAPITAL ASSETS STATISTICS BY FUNCTION 124 THIS PAGE BLANK INTRODUCTORY SECTION THIS PAGE BLANK THE CITY OF DOUGLAS 425 10TH STREET, DOUGLAS, ARIZONA 85607 Telephone (520) 417-7333 Fax (520) 417-7162 FINANCE DEPARTMENT December 30, 2016 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 the 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, 2016. 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 the City of Douglas’ 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’ 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, 2016 are free of material misstatements. The independent audit involved examining, on a test basis, evidence supporting the amount 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’ financial statements for the Fiscal-Year-Ended June 30, 2016, 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’ 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 Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements of Federal Awards (Uniform Guidance). 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 for each major federal program required by the Uniform Guidance 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 and cultural events. In addition to general government activities, the City of Douglas, Arizona reports one governmental discretely presented component unit: Pioneer Village and one business-type discretely presented component unit Rancho La Perilla Apartments. Additionally, the City will report the golf course Municipal Property Corporation as a blended component unit of the City, since this year the City established a separate municipal property corporation for the management of its golf course. Profile of the City The City of Douglas is located in Southeastern Arizona 117 miles southeast of Tucson on the U.S./Mexico border. Although it has a population of 16,952 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/she 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 our 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 June 2016 was at 7.7%, which is above the national and state unemployment rates of 4.9% and 5.8% respectively. (2) Mayor and City Council Citizens of the City of Douglas, Arizona Major Initiatives The City Mayor and Council continue to pursue the development of a new commercial port of entry. The existing port of entry lacks the processing capacity for the existing demand. The existing infrastructure is also inefficient to process commercial trucks. By building a new commercial port at a separate location outside of City traffic, commercial trucks can more securely cross hazardous materials, while at the same time increasing the personal traffic processing in the existing port once commercial operations are moved. For the second year the City’s application to the Federal government was rejected. The new Mayor and City council share the same goal in building a new commercial port of entry and see it as a top priority. The Mayor and City Council has once again partnered with the Douglas Economic Development Corporation to hire a bi-national consultant that will help in lobbying for support through the different governmental agencies on both sides of the border. The consultant will also assist with efforts in providing short term solutions in mitigating both south and north bound traffic that could facilitate our current border crossing inefficiencies. At the direction of Mayor and Council to find a better use of City property, the City sold several buildings and land this year for reinvestment from the private sector. The historical YMCA building was sold to Keith & Guadalupe Dinwiddie, who plan to renovate the building and provide a recreation center for the youth and seniors of Douglas. Mr. and Mrs. Dinwiddie are long time Douglas area residents and are doing this project as a way to give back to the community. Additionally, the City sold the old Douglas Apartments that had burned down and had been donated to the City. The apartments were purchased by the Garcia family and will improve the property for the use of once again apartment rentals. The City also sold the old Juvenile Probation building to Gerald and Monica Curfman, which will be used for office space for construction contracting business and possibly other office space may also be leased. Finally, unimproved land was exchanged with DDEK Corporation, dba B&D Lumber for the expansion of their hardware store operation and an empty lot was sold to Jose Luis Coronel of Bee Healthy for business expansion as well. The City acquired a $1.3 million loan from WIFA for the construction of a solar plant at the wastewater treatment plant. The loan contained a forgivable principal amount of $400,000, therefore leaving the City a total obligation of $900,000. The plant began operations in March 2016 and savings are averaging at around $4,200 per month. In addition, the City is participating in the APS incentive program for resale of excess production at $0.05660 per kWh with a total cap of $585,760. The City also continues to work on the expansion of its wastewater treatment plant. Currently operating at capacity of 2.0 million gallons per day (MGD), the proposed project would increase its treatment capacity to 3.1 MGD. Along with expansion, the City will connect the Bay Acres colonia into the sewer system and eliminate septic use, some of which is failing. The City completed 97% of the design work for the expansion and Bay Acres colonia this fiscal year. The City used remaining proceeds raised from the special 0.3% sales tax as well as grant and RICO money to complete capital projects during the year. The City purchased $80,862 in new equipment that included a digital sign outside of City Hall, fitness equipment for recreation, police surveillance system, radar guns and other equipment. The City received a generous donation from Copper Queen Medical of exercise equipment as a community wellness initiative that was placed at our Airport Park. The donation was valued at $39,588. The City also exchanged its golf cart lease and acquired 30 new golf carts and returned 19 carts. The Police Department used RICO and auction money to purchase 3 new police vehicles and the City purchased one new administration vehicle, one recreation and one parks truck. The City acquired the old Club 3000 building at auction from the County for $43,600. Other building improvements included the construction of a new restroom for $24,185 and new automatic doors at City Hall 1st floor for $13,917. Finally, the City partially installed new perimeter fencing at the Douglas Municipal Airport for $54,339 through a 90% reimbursable grant from the State. (3) Mayor and City Council Citizens of the City of Douglas, Arizona New road construction was finished at Chino Road through a grant managed by ADOT, in which the City provided a 5.7% match. Total reconstruction cost for the road was $3,337,370. The City added $49,862 in street improvements, mostly at 3rd Street from Chiricahua to Pan American. Sidewalk and curbing improvements were done to the tune of $39,110 and $26,915, respectively. The Transit department expanded operations by entering into a contract with the City of Bisbee to manage its transit operations. The City manages operations, while City of Bisbee continues to manage the grant and collects fare money at the end of the route. The City is able to use the excess revenue from the Bisbee contract to meet operations costs for its own route. Upcoming Year The construction of the free standing emergency room by Copper Queen Medical continues and is expected to be operational by January 2017. The community is anxiously waiting this essential service to be provided in Douglas once again after Cochise Regional Hospital closed in the fall of 2015. The new CVS pharmacy opened its doors in August of this year and the new Circle K is expected to open by February 2017. The rehabilitation of the historic YMCA has begun with a new roof scheduled to be finalized by December 2017. The City will consolidate its municipal court with the County beginning in January 2017. The County will charge the City for this service and undertake all fines and court proceedings. The City must still retain a City Magistrate which will be operating out of the consolidated court. Another consolidation project to commence in 2017 is the sales/use tax collections reverting back to the State. The state will be responsible for collecting, administering, licensing and auditing for the City of Douglas. The City, as well as other Arizona cities, is already charged for this service an amount based on population. The Pioneer Village, a low income housing development for the elderly, will be sold to the private sector by December. The corporation, which is an entity of the City, will be selling the property and relinquishing its operations to the private sector, while the City sees some relief in operating and financing capital improvements obligations. The City has $650,000 to spend this year for new small capital projects that include the purchase of an ambulance, new roofs for the fire department and the 7th street building, new paint for the library, ramadas replacement for the parks, a new City website among others. We also budgeted almost $1 million in street work to be determined by the Mayor and Council. Finally, a new automated garbage pickup system funded through the sanitation department will allow for curbside pickup through an automated arm truck. Long-Term Financial Planning With the establishment of written financial policies, the City has set financial goals and measures. We established reserve levels and are currently meeting all required levels at this time. The General Fund fund balance reserve requirement is 30% of revenues and we are currently exceeding that at 44%. We are also meeting 45 days of expense operations reserve, the 10% of average revenues for the past five years, capital (pay-as-you-go) reserve and debt reserve of one year of general government debt service obligations. Although the U.S. economy is slowly growing, our local economy has seen some regression. Local sales taxes decreased this year by 4%. The strength of the dollar has made the peso weaker, and as a result purchasing power for our visitors coming to shop from Mexico is reduced. (4) Mayor and City Council Citizens of the City of Douglas, Arizona We are also concerned about the state of our public safety retirement plan. Although new laws have passed this year that would place new hires in a more sustainable retirement plan, our current beneficiaries are seriously underfunded. Our current police unfunded liability is at 32% for police and 26% for fire as of June 30, 2015. The City’s self-funded health insurance claims were 20% under budget this year, however overall continuing rising medical costs as well as future possible changes to the healthcare industry is something that the City continues to take into account every year when offering health coverage options for its employees. Although our fund balance is currently healthy, our revenues are struggling. The City has carefully managed expenses and property sales have brought in one time revenue. However, in order to continue on a path of financial sustainability we must continue to control our costs as well as enhance consistent revenues by fostering growth and job creation. With this in mind, the City is prepared to undertake all challenges and impact the essential services to our citizens as little as possible as well it is determined to preserve our valuable workforce. Our enterprise funds continue to be stable due to the rate increases passed by Mayor and Council. The City is seeking new ways to make these funds more efficient through the use of new technology in the hopes of keeping rates stable and funding capital needs without the need for new debt. 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, 2015. 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, 2016 ELECTED OFFICIALS Mayor Councilmember Councilmember Councilmember Councilmember Councilmember Councilmember Robert Uribe Danny Morales Ken Nelson Donald Huish Patricia Lopez Ivan Huish Fernando Betancourt APPOINTED OFFICIALS City Manager City Clerk City Attorney City Treasurer City Magistrate Vacant Brenda Aguilar Juan Pablo Flores Luis Pedroza Alma Vildosola DEPARTMENT DIRECTORS Finance Director Public Works Director Police Chief Fire Chief Deputy City Manager Housing Manager Luis Pedroza Lynn Kartchner Kraig Fullen Mario Novoa Ana Urquijo Xenia Gonzalez (6) City of Douglas Organizational Chart Fiscal Year 2015-2016 Adm. Secretary (1) Mayor & Council (7)* Account Clerk III (1) Executive Assistant (1) City Magistrate City Treasurer (.5) Deputy City Manager (1) HR Manager (1) Leisure Services Manager (1) Library Manager (1) Library Sp II (3) Transit Manager (1) * Transit Coordinator (1)* Dispatcher / Adm Sec (1)* Transit Drivers (5)* Tourism Specialist (1) Recreation/Aquatics Supervisor (1) Assistant Aq Sup (1) Maintenance Tech II (1) Lead Rec Aide (1) Parks Supervisor (1) Parks Maint. Worker (8) Cemetery Lead Worker (1) Cemetery Worker I (1) Adm. Secretary (1) Housing Programs Specialist (1) Building / Planning & Zoning Specialist (2) Occupancy Specialist (1) Utilities Supervisor (1) Housing Sp for Property Mg (1) Golf Maintenance Worker (1) Golf Laborer (1) Operations Supervisor (1) Equipment Operator III (3) Equipment Operator II (1) Clerk Typist (1) Finance Manager (1) Captain (3) Account Clerk III (1) Purchasing Agent (1) Engineer (6) Accounting Tech (1) Equipment Mechanic III (1) Water Tech III (1) Firefighter (12) Payroll Specialist (1) Accounts Payable Sp. (1) Eq. Mech. II (2) Water Tech II (1) Eq Mech. I (1) Water Tech I (4) Customer Service Rep (3) Construction Supervisor (1) Collection Tech IV (1) Collection Tech I (2) WW Plant Operator (2) Finance Director (.5) Lead Engineer (3) Equipment Operator I (4) Water Tech IV (1) City Attorney Fire Chief (1) Deputy Director (1) WW Lead Plant Operator (1) Golf Supervisor (1) City Clerk (1) Public Works Director (1) Housing Manager (1) Housing Rehab Specialist (1) Adm Secretary (1) City Manager Police Chief (1) Adm. Assistant (1) Lieutenant Patrol (1) Sergeant Patrol (5) Lieutenant Detective (1) Adm. Secretary (1) Police Officer (20) Sergeant Detective (1) Humane Officer (2) Detective (5) Police Aide (.5) Detention Officer (1) Senior Dispatcher (1) IT Manager (1) Streets Crew Leader (2) Equipment Operator III (2) Maintenance Tech III (1) Facilities Utilities Maintenance Tech IV (1) Special Pr Tech III (1) Bldg Maint Specialist (1) Special Pr Tech II (1) IT Specialist (1) Dispatcher (6) Clerk Typist (1) Adm Assistant (1) Maintenance Tech III (1) Maintenance Tech II (2) Maintenance Tech I (2) Maintenance Tech I (1) HVAC Tech (1) Airport Attendant (1) (7) Total FTE’s: 174.5 *not counted as FTEs (8) THIS PAGE BLANK FINANCIAL SECTION THIS PAGE BLANK CliftonLarsonAllen LLP CLAconnect.com INDEPENDENT AUDITORS’ REPORT The Honorable Mayor and the City Council City of Douglas, Arizona Douglas, Arizona Report on the Financial Statements We have audited the accompanying financial statements of the governmental activities, the businesstype activities, the aggregate discretely presented component units, each major fund, and the aggregate remaining fund information of the City of Douglas, Arizona (City), as of and for the year ended June 30, 2016, and the related notes to the financial statements, which collectively comprise the City’s basic financial statements as listed in the table of contents. Management’s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditors’ Responsibility Our responsibility is to express opinions on these financial statements based on our audit. We did not audit the financial statements of the Douglas Housing Corporation II (Pioneer Village) and the Douglas Community Housing Corporation (Rancho La Perilla Apartments). The Douglas Housing Corporation comprises 100% of the assets and operating revenues reported in the Governmental Component Unit. Rancho La Perilla comprises 100% of the assets and operating revenues reported in the Proprietary Component Unit. Those financial statements were audited by other auditors whose reports have been furnished to us, and our opinion, insofar as it relates to the amounts included for the Governmental Component Unit and Proprietary Component Unit, is based solely on the reports of other auditors. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the City’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the City’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. (9) The Honorable Mayor and the City Council City of Douglas, Arizona We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. Opinions In our opinion, based on our audit and the reports of other auditors, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, the business-type activities, the aggregate discretely presented component units, each major fund, and the aggregate remaining fund information of the City of Douglas, Arizona as of June 30, 2016, 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, pension schedules, agent OPEB funding progress, and the General Fund Budget and Actual Statement as listed on the table of contents be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management’s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Supplementary and Other Information Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the City’s basic financial statements. The combining and individual fund financial statements and schedules and the introductory and statistical sections are presented for purposes of additional analysis and are not a required part of the basic financial statements. The combining and individual fund financial statements and schedules are the responsibility of management and were derived from and relates directly to the underlying accounting and other records used to prepare the financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other 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. (10) The Honorable Mayor and the City Council City of Douglas, Arizona Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated December 30, 2016, on our consideration of the City of Douglas, Arizona's internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the result of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the City of Douglas, Arizona’s internal control over financial reporting and compliance. a CliftonLarsonAllen LLP Phoenix, Arizona December 30, 2016 (11) THIS PAGE BLANK REQUIRED SUPPLEMENTARY INFORMATION THIS PAGE BLANK CITY OF DOUGLAS, ARIZONA MANAGEMENT’S DISCUSSION AND ANALYSIS YEAR ENDED JUNE 30, 2016 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, 2016. We encourage readers to consider the information presented here in conjunction with additional information presented in the financial statements. FINANCIAL HIGHLIGHTS ♦ The assets and deferred outflows of resources of the City at the close of the most recent fiscal year exceed liabilities and deferred inflows of resources by $19.6 million (net position). Unrestricted net position is a deficit $15.9 million due to the recognition of the City’s net pension liability and related pension inflows and outflows. ♦ Total net position increased by $3.6 million during the fiscal year. ♦ As of June 30, 2016, the City’s governmental funds reported a combined ending fund balance of $10.0 million. Of this amount, 65% 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 $6.5 million or 49.7% of the total General Fund expenditures of $13.1 million. OVERVIEW OF THE FINANCIAL STATEMENTS This discussion and analysis is intended to serve as an introduction to the City’s basic financial statements. The City’s basic financial statements are separated into three component sections: 1. Government-wide financial statements. 2. Fund financial statements and schedules. 3. Notes to basic financial statements. In addition to the basic financial statements, this report also includes other supplementary information. Government-Wide Financial Statements The government-wide financial statements are designed to provide readers with a broad overview of the City’s finances in a manner similar to private sector business. The statement of net position presents information on all of the City’s assets, deferred outflows of resources, liabilities and deferred inflows of resources with the difference reported as net position. Over time, increases or decreases in net position may serve as useful indicators of whether the City’s financial position is improving or deteriorating. The statement of activities presents data showing how the City’s net position changed during the most recent fiscal year. All changes in net position are reported as soon as the underlying event giving rise to the change occurs regardless of the timing of the related cash flows. Therefore, revenues and expenses are reported in this statement for some items that will result in cash flows in future fiscal years, such as revenue from uncollected taxes or expenses from earned but unused vacation and sick leave. (12) CITY OF DOUGLAS, ARIZONA MANAGEMENT’S DISCUSSION AND ANALYSIS YEAR ENDED JUNE 30, 2016 Both of the government-wide financial statements distinguish City functions that are principally supported by taxes and intergovernmental revenues (governmental activities) from those functions that intend to recover all or a significant portion of their costs from user fees and charges (business-type activities). The governmental activities of the City include general government, public safety (police, fire and emergency medical services), highways and streets, culture and recreation, and redevelopment and housing. The business-type activities of the City include water, sewer, and solid waste. The government-wide financial statements include not only the City (known as the primary government), but also two legally separate non-profit corporations - one governmental component unit and one proprietary component unit. The governmental component unit is the Douglas Housing Corporation II - Pioneer Village providing HUD subsidized housing. The proprietary component unit is the Douglas Municipal Housing Corporation market rate apartment complex known as Rancho La Perilla. Although legally separate from the City, these component units are discretely presented because of their governance or financial relationships to the City. Separate financial statements for Douglas Housing Corporation II – Pioneer Village and Rancho La Parilla may be obtained at the City’s Finance Department at 425 Tenth Street, Douglas, Arizona 85607. The government-wide financial statements may be found on pages 23 - 26 of this report. Fund Financial Statements A fund is a grouping of related accounts that is used to maintain control over resources that have been segregated for specific activities or objectives. Like other state and local governments, the City uses fund accounting to ensure and demonstrate compliance with finance related legal requirements. All of the City funds can be divided into two categories: governmental funds and proprietary (business-type) funds. Governmental Funds – Governmental funds are used to account for essentially the same functions reported as governmental activities in the government-wide financial statements. However, unlike the government-wide financial statements, governmental fund financial statements focus on near-term inflows and outflows of spendable resources as well as on balances of spendable resources available at the end of the fiscal year. Such information may be useful in evaluating a government’s near-term financing requirements. Because the focus of governmental funds is narrower than that of the government-wide financial statements, it is useful to compare the information presented for governmental funds with similar information presented for governmental activities in the government-wide financial statements. By doing so, the reader may better understand the long-term impact of the government’s near-term financing decisions. Both the governmental fund balance sheet and the governmental fund statement of revenues, expenditures, and changes in fund balances provide a reconciliation to facilitate the comparison between governmental funds and governmental activities. The City of Douglas, Arizona maintains ten 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, which is considered to be the only major fund. Data from the other nine funds are combined into a single aggregate presentation. Individual fund data for each of these nonmajor governmental funds is provided in the form of the combining statements elsewhere in this report. (13) CITY OF DOUGLAS, ARIZONA MANAGEMENT’S DISCUSSION AND ANALYSIS YEAR ENDED JUNE 30, 2016 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 LTAF, Golf Course MPC and Public Housing Funds. Proprietary Funds – Proprietary funds are used to account for services for which the City charges its customers. Enterprise funds are used to report the same functions as presented in the business-type activities in the government-wide financial statements. There are three funds reported under businesstype activities and those include the water, sewer, and solid waste funds. The water, sewer and solid waste funds are considered major funds. Notes to Basic Financial Statements The notes to basic financial statements provide additional information that is essential to the full understanding of the data provided in the government-wide and fund financial statements. The notes to basic financial statements may be found on pages 35 - 72 of this report. Required Supplementary Information In addition to the basic financial statements and accompanying notes, this report also presents certain required supplementary information concerning the City’s pension and other post employment benefit plans and the budgetary schedule of the General Fund. Required supplementary information may be found on pages 73 – 82 of this report. Combining Statements The combining statements referred to earlier in connection with nonmajor governmental funds are presented immediately following the required supplementary information. Government-Wide Financial Analysis Comparative data is presented on the following pages for both the governmental activities and the business-type activities along with an analysis of significant variances between the current and prior year. Net Position As noted earlier, net position may serve as useful indicators of a government’s financial position. For the City of Douglas, Arizona, assets and deferred outflows of resources exceeded liabilities and deferred inflows of resources by $19.6 million. (14) CITY OF DOUGLAS, ARIZONA MANAGEMENT’S DISCUSSION AND ANALYSIS YEAR ENDED JUNE 30, 2016 Table A-1 The City’s Net Position Governmental Activities ASSETS Current and Other Assets Capital Assets: Non-Depreciable Depreciable (Net) Total Assets DEFERRED OUTFLOWS LIABILITIES Current and Other Liabilities Non-Current Liabilities: Due Within One Year Due in More Than One Year Total Liabilities DEFERRED INFLOWS NET POSITION Net Investment in Capital Assets Restricted Unrestricted Total Net Position Total Business-Type Activities 2016 2015 6,314,373 $ 18,496,755 $ 16,686,770 1,009,596 20,765,031 29,146,495 742,090 20,460,601 27,517,064 2,596,402 43,196,836 64,289,993 2,698,324 41,795,620 61,180,714 5,532,425 154,649 202,534 5,762,195 5,734,959 1,013,546 1,549,003 408,496 363,334 1,422,042 1,912,337 1,571,865 38,117,699 40,703,110 1,618,247 38,249,307 41,416,557 538,045 6,747,114 7,693,655 719,638 6,148,025 7,230,997 2,109,910 44,864,813 48,396,765 2,337,885 44,397,332 48,647,554 1,769,863 1,933,378 269,822 347,218 2,039,685 2,280,596 16,301,425 893,708 4,142,534 $ 21,337,667 16,271,458 712,773 3,157,152 $ 20,141,383 2016 2015 $ 11,124,887 $ 10,372,397 1,586,806 22,431,805 35,143,498 1,956,234 21,335,019 33,663,650 5,607,546 16,236,005 2,087,831 (20,045,765) $ (1,721,929) 2015 2016 14,659,500 1,632,597 (20,445,957) $ (4,153,860) $ 7,371,868 $ 32,537,430 2,981,539 (15,903,231) $ 19,615,738 30,930,958 2,345,370 (17,288,805) $ 15,987,523 The largest portion of the City’s net position (166%) reflects its investment in capital assets (e.g. land, buildings, and equipment), less any debt used to acquire those assets. The City uses these capital assets to provide services to its citizens; therefore, these assets are not available for future spending. Although the City’s investment in capital assets is reported net of related debt, resources needed to repay this debt must be provided from other sources since the assets themselves cannot be liquidated for these liabilities. As of June 30, 2016 the City of Douglas, Arizona reported $32.5 million as the net investment in capital assets. Another $3.0 million of the resources are subject to external restrictions on how they may be used. Unrestricted net position is a deficit $15.9 million due to the recognition of the City’s net pension liability. The City’s net position increased approximately $3.6 million over the prior fiscal year. Net investment in capital assets increased $1.6 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 were approximately $1.6 million (including payments on capital leases). (15) CITY OF DOUGLAS, ARIZONA MANAGEMENT’S DISCUSSION AND ANALYSIS YEAR ENDED JUNE 30, 2016 Changes in Net Position As described above, the City’s net position overall increased by $3.6 million during the current fiscal year. The increase in the governmental activities and business-type activities are discussed on the following pages. Table A-2 Changes in Net Position Governmental Activities $ 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 $ $ 5,150,992 $ 2016 5,043,892 $ 2015 8,606,509 $ 8,084,334 400,000 - - 4,061,814 2,996,541 3,466,981 582,348 585,960 5,674,723 4,565,056 577,360 5,895,775 4,496,473 - - 585,960 5,674,723 4,565,056 577,360 5,895,775 4,496,473 37,610 39,738 (11,611) 188,576 21,193,924 40,417 26,489 20,480 265,826 18,412,591 31,585 5,582,577 18,232 5,062,124 37,610 71,323 (11,611) 188,576 26,776,501 40,417 44,721 20,480 265,826 23,474,715 3,336,212 9,678,626 2,597,146 2,057,077 922,816 414,014 19,005,891 3,858,018 9,792,922 1,946,662 1,680,063 954,039 478,120 18,709,824 1,654,307 1,353,423 1,134,665 4,142,395 1,884,943 1,472,735 930,769 4,288,447 3,336,212 9,678,626 2,597,146 2,057,077 922,816 414,014 1,654,307 1,353,423 1,134,665 23,148,286 3,858,018 9,792,922 1,946,662 1,680,063 954,039 478,120 1,884,943 1,472,735 930,769 22,998,271 1,440,182 773,677 3,628,215 476,444 - - 3,628,215 476,444 (297,233) 245,316 2,431,931 Net Position - Beginning of Year $ 2015 3,466,981 582,348 243,898 CHANGE IN NET POSITION 3,040,442 Total 3,661,814 2,996,541 2,188,033 Transfers NET POSITION - END OF YEAR 3,455,517 2016 2015 2016 REVENUES Program Revenues: Fees, Fines and Charges for Services Operating Grants and Contributions Capital Grants and Contributions General Revenues: Property Taxes Local Taxes State Shared Revenues Grants and Contributions Not Restricted to Specific Programs Investment Income Gain on Sale of Asset Other Total Revenues Business-Type Activities (4,153,860) (1,721,929) (51,917) $ (4,101,943) (4,153,860) (245,316) (243,898) 528,361 1,196,284 $ 20,141,383 21,337,667 $ 19,613,022 20,141,383 $ 15,987,523 19,615,738 $ 15,511,079 15,987,523 Governmental Activities – Governmental activities increased the City’s net position by $2.4 million. Key factors of the overall increase in net position are as follows: ♦ Increase in fees, fines, and charges for services compared to last year. The increase was largely due to a $0.4 million increase in ambulance revenues. The City experience a 19 percent increase in calls over 2015. ♦ Increase in the City’s capital grants and contributions from prior year. The increase was largely due to a $2.8 million asset donation related to the Chino Road extension. ♦ General government expenses decreased due to the transfer of the golf course operations to the Golf Course MPC, reported as a blended component unit. ♦ Highways and Streets expenses increased due to several maintenance projects. (16) CITY OF DOUGLAS, ARIZONA MANAGEMENT’S DISCUSSION AND ANALYSIS YEAR ENDED JUNE 30, 2016 City of Douglas – Fiscal Year 2015/16 Governmental Activities Revenues Expens es 10,000 9,000 Thousands 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 Gen. Gov't Public Safety Highway/St. Cult./Rec. Housing/Redev. Int. Long term Debt Program Revenues and Expenses City of Douglas Revenue by Source Governmental Activities Fiscal Year 2015/16 Charges for Services, 16% State Shared Rev., 21% Other, 3% Operating Grants, 17% Property Taxes, 3% Local Taxes, 26% Capital Grants, 14% The charts above illustrate the City’s governmental expenses and revenues by function and the City’s revenues by source. As shown, Public Safety (police, fire, and emergency medical services) is the largest function in expenses (50%), followed by General Government (17%), Highway/Streets (14%), Culture/Recreation (12%), Redevelopment and Housing (5%) and the remaining attributable to Interest. General revenues such as property taxes, state shared revenues, and sales taxes are not shown by program but are effectively used to support program activities of the City as a whole. For governmental activities as a whole, sales tax revenues is the largest source of funds (26%) followed by state shared revenues (21%) as illustrated in the chart above. (17) CITY OF DOUGLAS, ARIZONA MANAGEMENT’S DISCUSSION AND ANALYSIS YEAR ENDED JUNE 30, 2016 Business-Type Activities – Business-type activities increased the City’s net position by $1.2 million. The increase in net position was primarily the result of salary savings on vacant positions in the water, sewer and sanitation funds, as well as the rate increases for utilities. City of Douglas 2015/16 Business-type Activities Revenues Expens es 3,000 Thousands 2,500 2,000 1,500 1,000 500 Water Solid Waste Sewer Program Revenues and Expenses City of Douglas Revenue by Source Business-type Activities Fiscal Year 2015/16 Solid Waste Charges, 23% Miscellaneous, 3% Sew er Charges, 35% Investment Income, 1% Water Charges, 38% As shown in the chart above, the largest of the City’s business-type activities are water and sewer utilities. Sewer Fund operating expenses were $1.4 million, with Water operating expenses at $1.7 million, followed by Solid Waste at approximately $1.1 million. For this fiscal year, the change in net position in the Water Fund was a positive $231,722 while the change in net position in the Sewer Fund was a positive $925,814 and the Solid Waste Fund was a positive $38,673. The positive change in net position in the Enterprise Funds was due to revenues exceeding expenses. Revenues are budgeted to exceed expenses as the utility rate includes a capital replacement component. (18) CITY OF DOUGLAS, ARIZONA MANAGEMENT’S DISCUSSION AND ANALYSIS YEAR ENDED JUNE 30, 2016 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 $10.0 million, an increase of $1.3 million from the prior year. This increase is primarily due to salary savings from budgeted positions not filled and increased revenues received for ambulance services provided. Revenues for governmental funds overall totaled approximately $18.4 million for the fiscal year ended June 30, 2016 which represents an increase of 2.4% or approximately $0.4 million from the prior fiscal year. This increase is primarily due to a decrease in sales tax, offset by an increase in licenses and permits. The decrease in sales tax is due to a decline in economic factors, including the strength of the dollar making the peso weaker. As a result, purchasing power for visitors coming from Mexico is reduced. The increase in charges for services was due to a 19 percent increase in ambulance calls over fiscal year 2015. 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 $6.5 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 49.7% of the total General Fund expenditures of $13.1 million. The fund balance of the City’s General Fund increased by $0.9 million. The increase was largely due to salary and operational savings and increased ambulance services provided. The Nonmajor Governmental Funds increase of $0.4 million was largely due to the City highway user revenues exceeding current year expenditures, offset by the use of police grant carryforward funds and capital projects funds for vehicle, equipment and other capital related items. 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 $2.6 million, Sewer $0.5 million, and Solid Waste $1.0 million. The total increase in net position for the enterprise funds was $1.2 million largely due to revenues exceeding expenses as the utility rate includes a capital replacement component. Expenses increased in all three funds due to an increase in claims and operating costs. (19) CITY OF DOUGLAS, ARIZONA MANAGEMENT’S DISCUSSION AND ANALYSIS YEAR ENDED JUNE 30, 2016 GENERAL FUND BUDGETARY HIGHLIGHTS The City did not revise the budget during the current fiscal year. Actual revenues were less than the budget by $0.1 million and actual expenditures were less than budget by $1.0 million. The actual revenues were less than budget largely due to local sales tax collections and state sales tax not coming in as projected offset by more than expected charges for service revenues related to increased ambulance revenue. The ambulance revenue increased due to a 19 percent increase in calls over fiscal year 2015. The City was able to realize a savings in actual expenditures versus the budget due to substantial savings in the General Government and Police Operations expenditures. The General Government savings was largely due to unspent contingencies. Transfers from the General fund to the Capital Projects fund saw a slight savings as it was not necessary to provide the transfers as was originally projected due to savings from port of entry budgeted costs. 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. Additionally, projected retirement contributions were more than realized. Golf course operations exceeded budget largely due to the City not budgeting for golf course operations as a result of transferring operations to the MPC; however, the City continues to incur expenditures for previously contracted services and utilities such as electric, leases and other overhead costs that were negotiated with the City prior to transferring operations to the MPC. 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, 2016 amount to $45.8 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 $ 2016 2,857,921 9,303,781 8,229,020 3,106,393 521,496 $ 24,018,611 $ Business-Type Activities 2015 3,033,688 6,592,065 9,092,702 3,716,874 855,924 $ 23,291,253 (20) 2015 2016 $ 4,823,654 6,704,901 8,571,463 665,013 1,009,596 $ 21,774,627 Total $ 4,734,127 7,092,640 7,815,218 818,616 742,090 $ 21,202,691 $ 2016 2,857,921 9,303,781 13,052,674 6,704,901 8,571,463 3,771,406 1,531,092 $ 45,793,238 $ 2015 3,033,688 6,592,065 13,826,829 7,092,640 7,815,218 4,535,490 1,598,014 $ 44,493,944 CITY OF DOUGLAS, ARIZONA MANAGEMENT’S DISCUSSION AND ANALYSIS YEAR ENDED JUNE 30, 2016 Major capital asset events during the current fiscal year include the following: Governmental Activities ♦ Completion of the Phase I Chino Road extension for 3.3 million. ♦ Purchase of 3 police vehicles for $0.1 million. ♦ Purchase of parks, recreation and administration vehicles for $72,000. ♦ Various building improvement totaling $81,000. Business-type Activities ♦ Completion of the wastewater treatment plant solar station for $1.3 million. ♦ Wastewater treatment plant phase II construction for $0.3 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 48 - 50 of this report. Debt Administration At the end of the fiscal year, the City of Douglas, Arizona had total long-term obligations outstanding of $13.3 million. The current year decrease was the net result of required principal due on outstanding debt, offset by additional loans drawn for a solar panel project. 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, 2016 is $3.0 million in the 6% capacity and $10.0 million in the 20% capacity. Table A-4 Outstanding Debt Loans Payable Capital Lease Total Outstanding Debt $ $ Governmental Activities 2016 2015 6,620,000 $ 7,125,000 1,162,606 1,506,753 7,782,606 $ 8,631,753 $ $ Business-Type Activities 2016 2015 5,263,184 $ 4,604,627 210,018 326,606 5,473,202 $ 4,931,233 Total 2016 2015 $ 11,883,184 $ 11,729,627 1,372,624 1,833,359 $ 13,255,808 $ 13,562,986 Additional information on the City’s debt can be found in Note 3.E. on pages 53 - 55. (21) CITY OF DOUGLAS, ARIZONA MANAGEMENT’S DISCUSSION AND ANALYSIS YEAR ENDED JUNE 30, 2016 ECONOMIC FACTORS AND NEXT YEAR’S BUDGET The following factors were considered when preparing the 2016-17 budgets: ♦ A conservative economic forecast and limited revenue growth. An almost $0.1 million reduction in our expected sales tax collections and an almost $0.2 million in reduction in GF state shared revenue. ♦ Program a 2% cost of living adjustment to all City employees. ♦ Budget almost $1 million in streets work. ♦ Implement a sanitation automated service system picking up trash curbside instead of the alleys. ♦ Consolidate our Municipal Court and partner with the County Justice Court to service all City court services. ♦ Increased contributions for Public Safety Retirement for police and fire. Direction from Mayor and Council continues to be on the expansion of our port of entry. The City recently hired a consultant to assist with binational relations with different government and private agencies and try and to gain support for our project. Our streets will be addressed this year with approximately $1 million investment. Mayor and Council recognize that much more is needed to address the current conditions of our streets. Upcoming projects this year also include the construction of a new ER, a huge necessity to our residents. We also are preparing for the transition of sales tax collections and administration going from the City to the State. The City expects this move to happen in February 2017 and are expecting delays in its cash flow. With a new Mayor and three new Council the City has a new perspective and are looking to market the City and utilize its assets to attract visitors as well as new residents. REQUESTS FOR INFORMATION This financial report is designed to provide a general overview of the City’s finances for all those interested in the government’s finances. If you have any questions about this report or need additional financial information, contact: City of Douglas Finance Department 425 Tenth Street Douglas, Arizona 85607 520-417-7333 (22) THIS PAGE BLANK BASIC FINANCIAL STATEMENTS CITY OF DOUGLAS, ARIZONA STATEMENT OF NET POSITION JUNE 30, 2016 Governmental Activities ASSETS Cash and Investments 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 Pension Related LIABILITIES Accounts Payable Accrued Wages and Benefits Insurance Claims Payable Interest Payable Customer Deposits Payable Unearned Revenue Due to Primary Government Noncurrent Liabilities Due Within One Year Due in More Than One Year Net Pension Liability Total Liabilities DEFERRED INFLOWS OF RESOURCES Pension Related NET POSITION Net Investment in Capital Assets Restricted for: Firefighters Injured in Line of Duty Transit - Making the Connection Program Other Federal and State Grants Court Administration Public Safety Highways, Streets and Local Transportation Redevelopment and Housing Debt Service Repair and Replacement Unrestricted Total Net Position $ See accompanying Notes to Basic Financial Statements. (23) 8,587,567 Primary Government Business-Type Activities $ 6,004,995 Total $ 14,592,562 413,988 595,224 751,772 685,719 48,023 801 41,793 492,985 873,888 906,973 595,224 751,772 685,719 48,023 801 915,681 1,586,806 22,431,805 35,143,498 1,009,596 20,765,031 29,146,495 2,596,402 43,196,836 64,289,993 5,607,546 154,649 5,762,195 263,549 503,780 132,478 22,807 90,932 - 178,227 94,174 23,968 50,808 61,319 - 441,776 597,954 156,446 50,808 84,126 90,932 - 1,571,865 7,490,296 30,627,403 40,703,110 538,045 5,042,330 1,704,784 7,693,655 2,109,910 12,532,626 32,332,187 48,396,765 1,769,863 269,822 2,039,685 16,236,005 16,301,425 32,537,430 137,580 20,000 217,445 42,694 176,827 960,721 532,564 (20,045,765) (1,721,929) 834,249 59,459 4,142,534 21,337,667 137,580 20,000 217,445 42,694 176,827 960,721 532,564 834,249 59,459 (15,903,231) 19,615,738 $ $ Component Units Governmental Proprietary Type Component Unit Component Unit $ $ 59,776 $ 4,226 9,944 4,510 112,912 113,538 28 31,615 116,462 360,746 16,454 264,117 581,251 265,000 3,218,650 3,996,727 - - 9,556 10,190 79,083 4,795 - 36,436 1,453 14,867 14,823 20,090 6,055 685,719 5,231 948,017 1,056,872 55,621 4,964,077 5,799,141 - - (672,677) (1,536,048) 197,056 (475,621) (266,366) (1,802,414) $ (24) CITY OF DOUGLAS, ARIZONA STATEMENT OF ACTIVITIES YEAR ENDED JUNE 30, 2016 Program Revenues Functions/Programs Primary Government Governmental Activities: General Government Public Safety Highways and Streets Culture and Recreation Redevelopment and Housing Interest and Fiscal Charges Total Governmental Activities Business-Type Activities: Water Sewer Solid Waste Total Business-Type Activities Total Primary Government Component Units: Governmental Component Units Proprietary Type Component Units Expenses $ 3,336,212 9,678,626 2,597,146 2,057,077 922,816 414,014 19,005,891 Fee, Fines and Charges for Services Operating Grants Contributions $ $ 1,654,307 1,353,423 1,134,665 $ $ $ 4,142,395 23,148,286 202,221 653,283 855,504 1,482,688 1,647,339 20,537 304,953 3,455,517 1,989,253 1,954,149 1,207,590 $ $ $ 5,150,992 8,606,509 57,805 507,609 565,414 110,375 759,245 1,912,216 879,978 3,661,814 Capital Grants and Contributions $ 400,000 $ $ $ 400,000 4,061,814 92,670 92,670 $ $ $ 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 Loss on Sale of Asset Other Transfers Total General Revenues and Transfers Change in Net Position Net Position - Beginning Net Position - Ending See accompanying Notes to Basic Financial Statements. (25) 39,588 17,919 2,901,427 37,607 2,996,541 2,996,541 - Net (Expense) Revenue and Changes in Net Position Component Units Primary Government Governmental Activities $ Business-Type Activities (1,703,561) (7,254,123) 2,237,034 (1,714,517) (42,838) (414,014) (8,892,019) Total $ $ (8,892,019) Governmental Component Unit (1,703,561) (7,254,123) 2,237,034 (1,714,517) (42,838) (414,014) (8,892,019) 334,946 1,000,726 72,925 334,946 1,000,726 72,925 1,408,597 1,408,597 1,408,597 (7,483,422) (51,746) (51,746) $ $ 5,361,849 585,960 312,874 2,108,081 1,644,426 812,549 37,610 39,738 (11,611) 188,576 243,898 31,585 (243,898) 11,323,950 2,431,931 (4,153,860) (1,721,929) (212,313) 1,196,284 20,141,383 21,337,667 $ 5,361,849 585,960 312,874 2,108,081 1,644,426 812,549 37,610 71,323 (11,611) 188,576 - $ Component Unit 11,111,637 3,628,215 15,987,523 19,615,738 $ 285 1,327 1,612 (50,134) (425,487) (475,621) $ (26) (145,674) (145,674) 333 26,742 - $ 27,075 (118,599) (1,683,815) (1,802,414) CITY OF DOUGLAS, ARIZONA BALANCE SHEET GOVERNMENTAL FUNDS JUNE 30, 2016 General Fund ASSETS Cash and Investments Receivables: Accounts Receivable Taxes Receivable Intergovernmental Receivables Component Unit Long-Term Note Due from Other Funds Inventory Prepaid Items Restricted Assets Total Assets LIABILITIES, DEFERRED INFLOWS, AND FUND BALANCES Liabilities Accounts Payable Accrued Wages and Benefits Insurance Claims Payable Due to Other Funds Unearned Revenue Customer Deposits Payable Total Liabilities $ 6,178,261 $ 411,991 593,139 340,380 685,719 113,755 48,023 801 8,372,069 $ 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 $ See accompanying Notes to Basic Financial Statements. (27) 228,219 447,465 120,311 90,932 886,927 Nonmajor Governmental Funds $ 2,409,306 $ 1,997 2,085 411,392 41,793 2,866,573 $ 35,330 56,315 12,167 113,755 22,807 240,374 Totals $ 8,587,567 $ 413,988 595,224 751,772 685,719 113,755 48,023 801 41,793 11,238,642 $ 263,549 503,780 132,478 113,755 90,932 22,807 1,127,301 80,270 31,373 111,643 734,543 157,580 6,512,749 7,404,872 1,900,963 693,863 2,594,826 734,543 2,058,543 693,863 6,512,749 9,999,698 8,372,069 $ 2,866,573 $ 11,238,642 CITY OF DOUGLAS, ARIZONA RECONCILIATION OF THE BALANCE SHEET OF GOVERNMENTAL FUNDS TO THE STATEMENT OF NET POSITION JUNE 30, 2016 Total Fund Balances for Governmental Funds $ 9,999,698 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 $ 1,065,310 521,496 4,815,648 21,121,318 15,533,606 18,170,963 61,228,341 (37,209,730) 24,018,611 Some of the City's property taxes and sales taxes will be collected after year-end, but are not available soon enough to pay for the current period's expenditures and, therefore, are reported as unavailable revenue in the governmental funds. 82,355 Some loans receivable through the City's housing rehabilitation program are recorded as a receivable and unavailable revenue in the City's Governmental Fund financial statements, but are recognized as revenue in the governmental-wide financial statements. 29,288 Deferred outflows and inflows of resources related to pensions are applicable to future periods and, therefore are not reported in the funds. Deferred outflows of resources related to pensions Deferred inflows of resources related to pensions 5,607,546 (1,769,863) Long-term liabilities that pertain to governmental funds, including bonds payable and net pension liabilities, are not due and payable in the current period and, therefore, are not reported as fund liabilities. All liabilities - both current and and long-term - are reported in the statement of net position. Loans Payable Net Pension Liability Capital Lease Payable Compensated Absence Payable Total Net Position of Governmental Activities (6,620,000) (30,627,403) (1,162,606) (1,279,555) $ See accompanying Notes to Basic Financial Statements. (28) (39,689,564) (1,721,929) CITY OF DOUGLAS, ARIZONA STATEMENT OF REVENUES, EXPENDITURES, AND CHANGE IN FUND BALANCES GOVERNMENTAL FUNDS YEAR ENDED JUNE 30, 2016 Nonmajor Governmental Funds 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 OTHER FINANCING SOURCES (USES) Transfers In Transfers Out Proceeds from Sale of Capital Assets Issuance of Capital Leases Total Other Financing Sources (Uses) 5,267,910 576,320 312,874 5,385,235 196,766 152,482 2,046,959 818,382 29,460 71,001 14,857,389 $ FUND BALANCES Beginning of Year End of Year $ See accompanying Notes to Basic Financial Statements. (29) $ 5,363,170 576,320 312,874 8,446,141 202,116 152,482 2,282,537 818,382 39,738 188,576 18,382,336 2,832,919 8,309,055 497,715 1,358,283 - 30,193 86,867 1,411,805 335,928 916,674 2,863,112 8,395,922 1,909,520 1,694,211 916,674 21,541 3,532 73,339 13,096,384 885,961 410,482 448,309 4,526,219 907,502 414,014 521,648 17,622,603 1,761,005 (1,001,272) 208,992 (1,342,084) 215,725 67,277 (850,090) 1,424,141 (47,151) 1,376,990 1,633,133 (1,389,235) 215,725 67,277 526,900 375,718 1,286,633 910,915 Net Change in Fund Balances 95,260 3,060,906 5,350 235,578 10,278 117,575 3,524,947 Totals 6,493,957 7,404,872 $ 2,219,108 2,594,826 759,733 $ 8,713,065 9,999,698 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, 2016 Net Change in Fund Balances-Total Governmental Funds $ 1,286,633 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 $ 821,744 (2,501,644) (1,679,900) Contributions of capital assets are not current financial resources and are not reflected in the governmental funds. 2,821,885 The statement of activities reports losses arising from the disposal of existing capital assets. Conversely, governmental funds only report a gain for proceeds received on the sale of capital assets, but do not report a loss on the disposal of capital assets. (414,627) Loan receivable recorded as revenue in the government-wide statement of net position, but not yet available. Intergovernmental Receivables - June 30, 2015 Intergovernmental Receivables - June 30, 2016 36,293 29,288 (7,005) Governmental funds report City pension contributions as expenditures when made. However, in the statement of activities pension expense is the cost of benefits earned, adjusted for member contributions, the recognition of changes in deferred outflows and inflows of resources related to pensions, and the investment experience. Pension Contributions Pension Expense 2,442,537 (2,983,277) 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: Proceeds from capital leases Repayment of Long-Term Debt (67,277) 916,424 849,147 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, 2015 Unavailable Revenue - June 30, 2016 74,036 82,355 In the statement of activities, compensated absences are measured by the amounts earned during the year. In the governmental funds, however, expenditures for these items are measured by the amount of financial resources used (essentially the amounts actually paid). Change in Net Position of Governmental Activities See accompanying Notes to Basic Financial Statements. (30) 8,319 $ 108,219 2,431,931 CITY OF DOUGLAS, ARIZONA STATEMENT OF NET POSITION PROPRIETARY FUNDS JUNE 30, 2016 Business-Type Activities Sewer 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 3,273,638 Total Net Position $ 1,641,946 $ 6,004,995 103,733 1,745,679 492,985 6,497,980 158,556 715,332 - 873,888 978 6,767,427 6,926,961 1,008,618 13,728,669 15,452,619 268,935 268,935 1,009,596 20,765,031 22,648,515 10,407,770 16,724,111 2,014,614 29,146,495 56,820 44,257 53,572 154,649 61,177 36,853 8,152 15,204 22,504 41,714 76,948 262,552 80,271 29,306 7,291 35,604 19,806 33,285 78,962 248,616 533,141 36,779 28,015 8,525 19,009 18,353 40,167 150,848 178,227 94,174 23,968 50,808 61,319 93,352 119,129 325,564 946,541 7,429 1,003,604 626,359 1,637,392 6,392 49,832 3,934,016 487,870 4,478,110 41,057 590,555 631,612 13,821 90,889 4,937,620 1,704,784 6,747,114 1,899,944 5,011,251 782,460 7,693,655 99,136 77,217 93,469 269,822 5,687,853 10,425,861 187,711 16,301,425 118,917 59,459 2,599,281 715,332 538,707 1,004,546 834,249 59,459 4,142,534 8,465,510 $ 11,679,900 1,192,257 $ 21,337,667 DEFERRED INFLOWS OF RESOURCES Pension Related NET POSITION Invested in Capital Assets, Net of Net Investment in Capital Assets Restricted for: Debt Service Repair and Replacement Unrestricted $ 182,081 1,271,492 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 Total Liabilities 1,089,411 Totals 207,171 3,480,809 DEFERRED OUTFLOWS OF RESOURCES Pension Related Noncurrent Liabilities: Compensated Absences Payable Capital Leases Payable Loans Payable Net Pension Liability Total Noncurrent Liabilities $ Solid Waste See accompanying Notes to Basic Financial Statements. (31) $ CITY OF DOUGLAS, ARIZONA STATEMENT OF REVENUES, EXPENSES, AND CHANGE IN NET POSITION PROPRIETARY FUNDS YEAR ENDED JUNE 30, 2016 Business-Type Activities Water Sewer Solid Waste 1,839,402 $ 1,207,459 1,116,953 38,875 468,072 1,623,900 741,140 30,770 529,104 1,301,014 1,024,164 42,457 65,520 1,132,141 2,882,257 112,102 1,062,696 4,057,055 Operating Income 306,420 538,388 75,318 920,126 NONOPERATING REVENUES (EXPENSE) Impact Fees Intergovernmental Revenue Investment Income Interest Expense Miscellaneous Nonoperating Revenues Total Nonoperating Revenues 25,356 13,776 (30,407) 33,577 42,302 36,896 400,000 12,492 (52,409) 77,851 474,830 5,317 (2,524) 131 2,924 62,252 400,000 31,585 (85,340) 111,559 520,056 Income Before Transfers 348,722 OPERATING REVENUES Charges for Services 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 $ 1,930,320 $ 1,013,218 Totals $ 78,242 4,977,181 1,440,182 (116,925) (87,404) (39,569) 231,797 925,814 38,673 1,196,284 8,233,713 10,754,086 1,153,584 20,141,383 11,679,900 $ 1,192,257 $ 8,465,510 See accompanying Notes to Basic Financial Statements. (32) $ (243,898) $ 21,337,667 CITY OF DOUGLAS, ARIZONA STATEMENT OF CASH FLOWS PROPRIETARY FUNDS YEAR ENDED JUNE 30, 2016 Business-type Activities - Enterprise Funds CASH FLOWS FROM OPERATING ACTIVITIES Receipts from Customers Payments to Suppliers Payments to Employees Payment for Claims Customer Deposits Other Receipts Net Cash Flows Provided by Operating Activities CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES Transfers Out Intergovernmental Revenue Net Cash Flows Provided (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 $ 1,935,685 (902,644) (307,865) (37,025) 6,980 33,577 $ 1,822,913 (577,534) (302,146) (29,807) 5,959 77,851 $ 1,215,178 (561,591) (339,882) (39,858) 5,747 131 $ 4,973,776 (2,041,769) (949,893) (106,690) 18,686 111,559 728,708 997,236 279,725 (116,925) - (87,404) 400,000 (39,569) - (243,898) 400,000 (116,925) 312,596 (39,569) 156,102 2,005,669 25,356 (54,106) (74,842) (31,460) 36,896 (1,586,756) 1,195,191 (539,129) (68,641) (39,251) (2,524) 62,252 (1,640,862) 1,195,191 (653,222) (102,625) (135,052) (962,439) (41,775) (1,139,266) 13,776 12,492 5,317 31,585 490,507 359,885 203,698 1,054,090 2,941,687 1,444,858 1,438,248 5,824,793 $ 3,432,194 $ 1,804,743 $ 1,641,946 $ 6,878,883 RECONCILIATION OF CASH AND CASH EQUIVALENTS TO THE STATEMENT OF NET POSITION Cash and Cash Equivalents $ 3,273,638 Restricted Cash and Cash Equivalents 158,556 Total Cash and Cash Equivalents $ 3,432,194 $ 1,089,411 715,332 $ 1,804,743 $ 1,641,946 $ 1,641,946 $ 6,004,995 873,888 $ 6,878,883 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 (Continued) See accompanying Notes to Basic Financial Statements. (33) CITY OF DOUGLAS, ARIZONA STATEMENT OF CASH FLOWS (CONTINUED) PROPRIETARY FUNDS YEAR ENDED JUNE 30, 2016 Business-type Activities - Enterprise Funds Sewer Water RECONCILIATION OF OPERATING INCOME (LOSS) TO NET CASH PROVIDED BY OPERATING ACTIVITIES Operating Income Adjustments to Reconcile Operating Income to Net Cash Provided by Operating Activities: Depreciation Adjustment for Pension Expense Miscellaneous Nonoperating Revenues Change in Assets/Liabilities: Receivables, Net Accounts Payable Accrued Wages and Benefits Insurance Claims Payable Customer Deposits Payable Compensated Absences Net Cash Provided by Operating Activities $ $ 306,420 $ 538,388 Solid Waste $ 75,318 Totals $ 920,126 468,072 (121,699) 33,577 529,104 (91,815) 77,851 65,520 84,522 131 1,062,696 (128,992) 111,559 5,365 25,192 15,216 1,850 6,980 (12,265) 728,708 (16,489) (43,823) 12,230 963 5,959 (15,132) 997,236 7,719 24,279 11,485 2,599 5,747 2,405 279,725 (3,405) 5,648 38,931 5,412 18,686 (24,992) $ 2,005,669 . (34) $ $ THIS PAGE BLANK NOTES TO BASIC FINANCIAL STATEMENTS THIS PAGE BLANK CITY OF DOUGLAS, ARIZONA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2016 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accompanying financial statements of the City of Douglas, Arizona (City) have been prepared in conformity with accounting principles generally accepted in the United States of America applicable to governmental units adopted by the Governmental Accounting Standards Board (GASB). A summary of the City’s more significant accounting policies follows. During the year ended June 30, 2016, the financial statements include the impact, if any, of Governmental Accounting Standards Board Statement (GASBS) Number 72 – Fair Value Measurement and Application, GASBS Number 73 – Accounting and Financial Reporting for Pensions and Related Assets that are not within the Scope of GASBS Number 68 and Amendments to Certain Provisions of GASBS Numbers 67 and 68, GASBS Number 76 – the Hierarchy of Generally Accepted Accounting Principles for State and Local Governments, and GASBS Number 79 – Certain External Investment Pools and Pool Participants. A. Reporting Entity The City is a municipal government that is governed by a separately elected governing body. It is legally separate from and fiscally independent of other state and local governments. The accompanying financial statements present the City and its component units, entities for which the City is considered to be financially accountable. Blended component units, although legally separate entities, are, in substance, part of the City’s operations. The governmental discretely presented component unit consists of only Douglas Housing Corporation II and is presented in one column in the government-wide financial statements. The business-type discretely presented component unit consists of only Rancho La Perilla and is presented in one column of the government-wide financial statements. See the descriptions below of each of the blended and discretely presented component units. Blended component unit: Douglas Public Facility Municipal Property Corporation – The Douglas Public Facility 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 the management of the Douglas Golf Course. The DMPC operates the day-to-day operations of the golf course and receives subsidies from the City to operate. All capital assets and related debt are held by the City. The DMPC provides a service directly to the City by providing management of dayto-day operations. All related receivables and payables between the City and the DMPC have been eliminated. Separate financial statements for the Douglas Public Facility Property Municipal Property Corporation are not prepared. (35) CITY OF DOUGLAS, ARIZONA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2016 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) A. Reporting Entity (Continued) Douglas Housing Authority – The Douglas Housing Authority (Authority) is a public benefit corporation created by the City to provide subsidized public housing in accordance with federal legislation. The City Council acts as the governing body of the Authority and as such employs executives, authorizes contracts of subsidy with the U.S. Department of Housing and Urban Development pursuant to the latter agency’s regulations and statutory authorizations, and causes the corporation to construct, own and operate public housing facilities within the boundaries of the City. The financial liability of the housing agency is essentially supported by the operating and debt service subsidies received under contract from the federal government, although services or cash subsidies may be, and from time to time, are received from the City as well. Separate financial statements for the Douglas Housing Authority are not prepared. Discretely presented component units: Douglas Housing Corporation II (Pioneer Village) – The Douglas Housing Corporation II is a non-profit corporation created by the City to eliminate the financial burden on the City to provide financing for the construction of a low-income apartment complex. The City Council appoints members of the Governing Board for staggered terms; they, in turn, elect a chairman. The Governing Board employs executives, authorizes contracts of subsidy with the U.S. Department of Housing and Urban Development pursuant to the latter agency’s regulations and statutory authorizations, and causes the corporation to construct and operate a low-income apartment complex of twenty-eight units for the elderly under Section 221(d)(3) of the National Housing Act. Such projects are regulated by the United States Department of Housing and Urban Development (HUD) as to rent charges and operating methods. The financial liability of the corporation is supported by the operating subsidies received under contract from HUD. The audited financial statements of the Douglas Housing Corporation II may be obtained at the offices of the corporation. Douglas Community Housing Corporation (Rancho La Perilla Apartments) – The Douglas Community Housing Corporation is a non-profit 501(c)(3) corporation created by the City to eliminate the financial burden on the City to provide financing for the construction and operation of apartments. The City Council appoints members of the Governing Board; they, in turn, elect a chairman. The Governing Board employs executives, authorizes contracts, and causes the corporation to construct and operate an apartment complex of 80 units. The Community Housing Corporation has appointed a management corporation to promote the apartments and manage the daily activities of the apartments. The financial liability of the Corporation is solely dependent upon the rental revenue received from the tenants. Financial statements of the Douglas Community Housing Corporation may be obtained at the offices of the corporation. Separately issued financial statements for Pioneer Village and Rancho La Perilla have been prepared in conformity with the Statement of Financial Accounting Standards No. 117, “Financial Statements of Not-for-Profit Organizations” and are available from the Essex Corporation. (36) CITY OF DOUGLAS, ARIZONA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2016 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) B. Government-Wide and Fund Financial Statements The government-wide financial statements (i.e., the statement of net position and the statement of activities) report information on all of the activities of the primary government and its component units. The effect of interfund activity has been removed from these statements except for interfund services provided and used, which are not eliminated in the consolidation. Governmental activities, which are normally supported by taxes and intergovernmental revenues, are reported separately from business-type activities, which rely to a significant extent on fees and charges for support. Likewise, the primary government is reported separately from certain legally separate component units for which the primary government is financially accountable. The statement of activities demonstrates the degree to which the direct expenses of a given function or segment are offset by program revenues. Direct expenses are those that are clearly identifiable with a specific function or segment. Program revenues include 1) charges to customers or applicants who purchase, use, or directly benefit from goods, services, or privileges provided by a given function or segment and 2) grants and contributions that are restricted to meeting the operational or capital requirements of a particular function or segment. Taxes and other items not properly included among program revenues are reported instead as general revenues. Separate financial statements are provided for governmental funds and proprietary funds. Major individual governmental and enterprise funds are reported as separate columns in the fund financial statements. C. Measurement Focus, Basis of Accounting, and Financial Statement Presentation The government-wide financial statements are reported using the economic resources measurement focus and the accrual basis of accounting. Revenues are recorded when earned and expenses are recorded when a liability is incurred, regardless of the timing of related cash flows. Property taxes are recognized as revenues in the year for which they are levied. Grants and similar items are recognized as revenue as soon as all eligibility requirements imposed by the provider have been met. Governmental fund financial statements are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Revenues are recognized as soon as they are both measurable and available. Revenues are considered to be available when they are collectible within the current period or soon enough thereafter to pay liabilities of the current period. For this purpose, the City considers revenues to be available if they are collected within 60 days of the end of the current fiscal period. Expenditures generally are recorded when a liability is incurred, as under accrual accounting, except expenditures related to compensated absences and claims and judgments, which are recorded only when payment is due. However, since debt service resources are provided during the current year for payment of long-term principal and interest due early in the following year, the expenditures and related liabilities have been recognized in the Debt Service Funds. (37) CITY OF DOUGLAS, ARIZONA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2016 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) C. Measurement Focus, Basis of Accounting, and Financial Statement Presentation (Continued) Property taxes, intergovernmental grants and aid, and interest associated with the current fiscal period are all considered to be susceptible to accrual and so have been recognized as revenues of the current fiscal period. All other revenue items are considered to be measurable and available only when cash is received by the government. The City reports the following major governmental funds: Major Governmental Funds The General Fund is the City’s primary operating fund. It accounts for all financial resources of the City, except those required to be accounted for in another fund. The City reports the following major proprietary funds: The Water Fund accounts for the costs to operate, construct and finance the City’s water system. The Sewer Fund accounts for the costs to operate, construct and finance the wastewater treatment system. The Solid Waste Fund accounts for the costs to operate, construct and finance the City’s solid waste operations. Proprietary funds distinguish operating revenues and expenses from nonoperating items. Operating revenues and expenses generally result from providing services and producing and delivering goods in connection with a proprietary fund’s principal ongoing operations. The principal operating revenues of the proprietary funds are charges for services. Operating expenses for the proprietary funds include the cost of sales and services and depreciation on capital assets. All revenues and expenses not meeting this definition are reported as nonoperating revenues and expenses. When both restricted and unrestricted resources are available for use, for governmental activities it is the City’s policy to use restricted resources first, then unrestricted resources as they are needed. For business-type activities, the use of restricted resources is governed by the applicable bond covenants. (38) CITY OF DOUGLAS, ARIZONA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2016 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) D. Assets, Deferred Outflows of Resources, Liabilities, Deferred Inflows of Resources and Net Position or Equity 1. Deposits and Investments The primary government and component unit cash and cash equivalents are considered to be cash on hand, demand deposits, cash and investments held by the State Treasurer, and highly liquid investments with maturities of three months or less from the date of acquisition. Cash and investments are pooled except for funds required to be held by fiscal agents or restricted under provisions of bond indentures. Interest earned from investments purchased with such pooled monies is allocated to each of the funds based on the average daily cash balances. The City Council-approved investment policy authorizes the City to invest in obligations of the U.S. government which do not exceed three years in maturity and are guaranteed by the U.S. Treasury; Certificates of Deposit or other deposits in FDIC insured banks; obligations of FNMA and FHMA which mature the next business day; repurchase agreements of less than $5,000 which mature on the next business day; and the Local Government Investment Pools managed by the State Treasurer. Additionally, the trustee of the City’s employee retirement plan holds certain City funds in a money market mutual fund. The State Board of Deposit provides oversight for the State Treasurer’s pools, and the Local Government Investment Pool Advisory Committee provides consultation and advice to the Treasurer. The fair value of a participant’s position in the pool approximates the value of that participant’s pool shares. No comparable oversight is provided for the County Treasurer’s investment pool and that pool’s structure does not provide for shares. The governmental and business-type component units invest cash and investments in local financial institutions and the state’s Local Government Investment Pools managed by the State Treasurer. 2. Accounts and Property Tax Receivables All trade and property taxes receivables are shown net of an allowance for uncollectible accounts. All revenues of governmental activities were considered collectible and therefore there was no provision. The business-type activities reported an allowance of $53,374. 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. (39) CITY OF DOUGLAS, ARIZONA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2016 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) 3. Intergovernmental Receivables Intergovernmental receivables include amounts due from other government agencies and include Highway User Revenue fuel tax ($113,563), State sales tax ($124,021), auto lieu ($35,893), federal transit grant ($87,840), SEAGO Transit grant ($85,720) homeland security grant ($90,678), rehabilitation revolving loans ($29,288) and other federal and state grants ($184,769) in the governmental funds and governmental activities column of the government-wide financial statements. 4. Due From Component Unit Due from component unit recorded in the governmental activities column of the government-wide financial statements represents a loan due from Rancho LaParilla Housing Corporation, a discretely presented component unit of the City. Rancho La Parilla Housing Corporation reports an offsetting due to primary government. 5. Interfund Receivables and Payables The City reports due to and due from other funds to eliminate deficit cash in individual funds through a short-term borrowing. 6. 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 an expenditure in the governmental funds and as an expense in the governmental activities, business-type activities and proprietary funds when the resources are used. Certain payments to vendors reflect costs applicable to future accounting periods and are recorded as prepaid items in both government-wide and fund financial statements. Prepaids are expensed when the benefit is received. 7. Restricted Assets As required by applicable loan documents, certain resources are set aside for debt service requirements on loans and the repair and replacement of utility infrastructure. The City’s component units also record restrictions on certain assets for replacement reserves, residual receipts and funds with the escrow agent for requirements set forth by the holder of the mortgage notes payable. (40) CITY OF DOUGLAS, ARIZONA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2016 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) 8. 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 9. Deferred Outflows of Resources The City recognizes the consumption of net position that is applicable to a future reporting period as deferred outflows of resources. Reported amounts are related to the requirements of accounting and financial reporting for pensions under GASB 68. 10. Compensated Absences The liability for compensated absences reported in the government-wide and proprietary statements consists of unpaid, accumulated leave balances. The liability has been calculated using the vesting method, in which leave amounts for both employees who currently are eligible to receive termination payments and other employees who are expected to become eligible in the future to receive such payments upon termination are included. (41) CITY OF DOUGLAS, ARIZONA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2016 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) 11. Pensions For purposes of measuring the net pension liability, deferred outflows of resources and deferred inflows of resources related to pensions, and pension expense, information about the fiduciary net position of the Arizona State Retirement System (ASRS) and Public Safety Personnel Retirement System (PSPRS) and additions to/deductions from ASRS/PSPRS's fiduciary net position have been determined on the same basis as they are reported by ASRS/PSPRS. For this purpose, benefit payments (including refunds of employee contributions) are recognized when due and payable in accordance with the benefit terms. Investments are reported at fair value. 12. 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. 13. Deferred Inflows of Resources The deferred inflows of resources reported in the governmental fund financial statements represent resources that are not available to the City as of June 30, 2016 or within 60 days of fiscal year end. The deferred inflows of resources represent a reconciling item between the governmental fund financial statements and the government-wide financial statements. The deferred inflows of resources in the government-wide financial statements represent the acquisition of net position that is applicable to a future reporting period. Reported amounts are related to the requirements of accounting and financial reporting for pensions under GASB 68. (42) CITY OF DOUGLAS, ARIZONA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2016 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) 14. Net Position In the government-wide financial statements, net position is reported in three categories: net investment in capital assets; restricted net position; and unrestricted net position. Net investment in capital assets is separately reported because capital assets make up a significant portion of total net position. Restricted net position accounts for the portion restricted by parties outside the City. Unrestricted net position is the remaining net position not included in the previous two categories. None of the restricted net position was restricted by enabling legislation. 15. Fund Balance Classifications Fund balances of the governmental funds are reported separately within classifications based on a hierarchy of the constraints placed on the use of those resources. The classifications are based on the relative strength of the constraints that control how the specific amounts can be spent. The classifications are nonspendable and spendable fund balances. Spendable fund balances include restricted, committed, assigned and unassigned fund balance classifications. The nonspendable fund balance classification includes amounts that cannot be spent because they are either not in spendable form such as inventories, or are legally or contractually required to be maintained intact. Restricted fund balances are those that have externally imposed restrictions on their usage by creditors (such as through debt covenants), grantors, contributors, or laws and regulations. The committed fund balances are self-imposed limitations approved by the City’s Council, through formal resolution. The City Council is the highest level of decision-making authority within the City and the formal commitment must occur prior to fiscal year end. Only the City Council can remove or change the constraints placed on committed fund balances through formal council action. Assigned fund balances are resources constrained by the City’s intent to be used for specific purposes, but are neither restricted nor committed. The City Council, through formal resolution, has authorized the City Manager to make assignments of resources for a specific purpose. The unassigned fund balance is the residual classification for the General Fund and includes all spendable amounts not reported in other classifications. Also, deficits in fund balances of the other governmental funds are reported as unassigned. When an expenditure is incurred, for purposes for which both restricted and unrestricted fund balance is available, the City’s policy is to use restricted fund balance first, then unrestricted fund balance. When an expenditure is incurred for purposes for which committed, assigned and unassigned are available, the City uses, committed, assigned and finally unassigned amounts. (43) CITY OF DOUGLAS, ARIZONA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2016 NOTE 2 STEWARDSHIP, COMPLIANCE, AND ACCOUNTABILITY A. Budgetary Information The City Council follows these procedures in establishing the budgetary data reflected in the financial statements: 1. In accordance with Arizona Revised Statutes, the City Manager submits a proposed budget for the fiscal year commencing the following July 1, to the City Council. The operating budget includes proposed expenditures and the means of financing them for the upcoming year. 2. Public hearings are conducted to obtain taxpayer comment. 3. Prior to the third Monday in August, the expenditure limitation for the City is legally enacted through passage of an ordinance. To ensure compliance with the expenditure limitation, a uniform expenditure report must be filed with the State each year. This report, issued under a separate cover, reconciles total City expenditures from the audited basic financial statements to total expenditures for reporting in accordance with the State’s uniform expenditure reporting system (A.R.S. §41-1279.07). 4. Expenditures may not legally exceed the expenditure limitation of all fund types as a whole. For management and legal purposes, the City Council adopts a budget by department for the General Fund and in total by other funds. The City Manager, subject to City Council approval, may at any time transfer any unencumbered appropriation balance or portion thereof between a department or activity. 5. Formal budgetary integration is employed as a management control device during the year for the General, Special Revenue, Debt Service and Capital Projects Funds on essentially the same modified accrual basis of accounting used to record actual revenues and expenditures. No budget was appropriated for the LTAF, Golf Course MPC and Public Housing Funds during the fiscal year. The City is subject to the State of Arizona’s Spending Limitation Law for Towns and Cities. This law does not permit the City to spend more than budgeted revenues plus the carryover unrestricted cash balance from the prior fiscal year. The limitation is applied to the total of the combined funds. The City complied with this law during the year. No supplementary budgetary appropriations were necessary during the year. B. Deficit Net Position At June 30, 2016, the City reported a deficit net position in the governmental activities of $1,721,929. The deficit was due to recording the net pension liability for the City’s proportionate share of the Arizona State Retirement System and the Public Safety Retirement Plan. The City does not anticipate recovering the deficit in the near-term; however, the unfunded pension liability will be reduced through future contributions to the plans. (44) CITY OF DOUGLAS, ARIZONA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2016 NOTE 3 DETAILED NOTES ON ALL FUNDS A. Assets 1. Deposits and Investments Deposits and investments at June 30, 2016 consist of the following: Deposits: Cash on Hand Cash in Bank Cash on Deposit with County Attorney Investments: State Treasurer's Investment Pool Total Cash and Investments Less Restricted Assets Cash and Investments - Statement of Net Position $ 3,600 6,641,028 375,715 8,487,900 15,508,243 (915,681) $ 14,592,562 Deposits The carrying value of the City’s deposits at June 30, 2016 was $7,016,743 and the bank balance was $7,224,755. Of the bank balance, $4,686,616 was covered by federal depository insurance, $2,162,424 was covered by collateral held by the City’s custodial bank in the City’s name and cash on deposit with the county attorney was 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. Interest Rate Risk – In accordance with the City’s investment policy, the City manages its exposure to declines in fair value by limiting the City’s investment portfolio in maturities of more than one year to less than 20% of total investments. (45) CITY OF DOUGLAS, ARIZONA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2016 NOTE 3 DETAILED NOTES ON ALL FUNDS (CONTINUED) A. Assets (Continued) 1. Deposits and Investments (Continued) The City’s investments at June 30, 2016 consist of the following: Investment Type Amount State Treasurer's Investment Pool 5 State Treasurer's Investment Pool 500 $ 7,779,335 708,565 $ 8,487,900 Maturity in Years Less than 1 1-2 $ 7,779,335 $ 7,779,335 $ $ 708,565 708,565 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, 2016 consist of: Deposits: Cash on Hand Cash in Bank Investments: Funds Held by Mortgage Restricted Assets Total Cash and Cash Equivalents $ $ 100 88,787 449,399 (474,284) 64,002 The carrying value of the component unit’s deposits at June 30, 2016 was $88,787 which was entirely covered by federal depository insurance. (46) CITY OF DOUGLAS, ARIZONA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2016 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, 2016 consisted of the following: Business-Type Activities Governmental Activities Loan Debt Service Reserve Requirement Customer Deposits Grantor Reserve Requirement Total $ $ 9,666 32,127 41,793 Water Fund $ 158,556 $ 158,556 Sewer Fund $ 715,332 $ 715,332 Total 873,888 9,666 32,127 915,681 $ $ Restricted assets of the discretely presented component units at June 30, 2016 consisted of the following: Funds Held by Mortgage Tenant Deposits Total Restricted Assets of the Component Units $ $ 449,399 24,885 474,284 3. Receivables Governmental funds report unavailable revenue in connection with receivables for revenues that are not considered to be available to liquidate liabilities of the current period. Governmental funds also record unearned revenues in connection with resources that have been received, but not yet earned. At the end of the current fiscal year, the various components of unavailable revenue and unearned revenue reported in the governmental funds were as follows: Unavailable Delinquent Property Taxes Receivable: (General Fund) Unavailable Grant Revenue: (Nonmajor Governmental Funds) Sales Tax Audit Receivable: (General Fund) (Nonmajor Governmental Funds) Unearned Revenue: (General Fund) Unearned Grant Revenue: (General Fund) $ $ (47) 62,886 Unearned $ - 29,288 - 17,384 2,085 - - 90,000 111,643 $ 932 90,932 CITY OF DOUGLAS, ARIZONA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2016 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, 2016 was as follows: Beginning Balance Governmental Activities: Capital Assets, Not Being Depreciated: Land $ Construction in Progress Total Capital Assets, Not Being Depreciated 1,100,310 855,924 $ 3,081,537 Ending Balance Decreases $ (35,000) (3,415,965) $ 1,065,310 521,496 1,956,234 3,081,537 (3,450,965) 1,586,806 4,761,310 17,661,353 15,858,712 12,541,973 5,246,938 54,338 3,459,965 81,702 187,727 194,325 (406,808) - 4,815,648 21,121,318 15,533,606 12,729,700 5,441,263 56,070,286 3,978,057 (406,808) 59,641,535 (2,827,932) (11,069,288) (6,766,010) (10,446,230) (3,625,807) (34,735,267) (195,105) (748,249) (538,576) (555,286) (464,428) (2,501,644) 27,181 27,181 (3,023,037) (11,817,537) (7,304,586) (10,974,335) (4,090,235) (37,209,730) 21,335,019 1,476,413 (379,627) 22,431,805 4,557,950 $ (3,830,592) $ 24,018,611 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 $ 23,291,253 $ Depreciation expense was charged to functions/programs as follows: Governmental Activities: General Government Public Safety Highways and Streets Culture and Recreation Redevelopment and Housing Total Depreciation Expense, Governmental Activities (48) $ 647,781 633,701 804,602 409,418 6,142 $ 2,501,644 CITY OF DOUGLAS, ARIZONA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2016 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, 2016 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 742,090 Increases $ 1,580,526 $ (1,313,020) 1,009,596 260,458 54,107 1,052,561 - - 7,908,940 16,000,514 14,848,511 2,933,170 40,324,009 1,367,126 - 41,691,135 (170,931) (441,846) (296,316) (153,603) (1,062,696) - (3,085,286) (9,295,613) (6,277,048) (2,268,157) (20,926,104) - 20,765,031 304,430 $ 1,884,956 $ (1,313,020) Depreciation expense was charged to functions/programs as follows: (49) $ 7,648,482 15,946,407 13,795,950 2,933,170 Accumulated Depreciation for: Buildings and Improvements (2,914,355) Water System (8,853,767) Wastewater System (5,980,732) Machinery, Equipment, and Vehicles (2,114,554) Total Accumulated Depreciation (19,863,408) Total Capital Assets, Being Depreciated, Net 20,460,601 Business-Type Activities Capital Assets, Net $ 21,202,691 Business-Type Activities: Water Sewer Solid Waste Total Depreciation Expense, Business-Type Activities Ending Balance Decreases $ 468,072 529,104 65,520 $ 1,062,696 $ 21,774,627 CITY OF DOUGLAS, ARIZONA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2016 NOTE 3 DETAILED NOTES ON ALL FUNDS (CONTINUED) A. Assets (Continued) 4. Capital Assets (Continued) Capital asset activity for the governmental and business-type discretely presented component units for the year ended June 30, 2016 were as follows: Governmental Discretely Presented Component Unit Beginning Balance Capital Assets, Not Being Depreciated: Land $ 16,454 Capital Assets, Being Depreciated: Buildings and Improvements Furniture and Equipment Total Capital Assets, Being Depreciated Accumulated Depreciation Total Capital Assets, Being Depreciated, Net Governmental-Type Activities Capital Assets, Net $ Business-Type Discretely Presented Component Unit $ $ - $ - 16,454 - 1,138,270 30,767 1,163,474 5,563 - 1,169,037 (859,776) (45,144) - (904,920) 303,698 (39,581) - 264,117 $ 265,000 (39,581) $ Increases $ - $ - $ 280,571 Ending Balance Decreases - $ 265,000 5,207,564 26,278 - - 5,207,564 26,278 5,233,842 - - 5,233,842 (1,864,285) (19,926) (1,884,211) (130,189) (792) (130,981) - (1,994,474) (20,718) (2,015,192) 3,349,631 (130,981) - 3,218,650 3,614,631 $ (130,981) $ - Depreciation expense was charged to functions/programs as follows: Governmental Activities: Pioneer Village $ 45,144 Business-type Activities: Rancho La Perilla $ 130,981 (50) $ 5,563 Beginning Balance Capital Assets, Being Depreciated: Buildings and Improvements Furniture and Equipment Total Capital Assets, Being Depreciated Ending Balance Decreases 1,138,270 25,204 320,152 Capital Assets, Not Being Depreciated: Land $ Accumulated Depreciation for: Buildings and Improvements Furniture and Equipment Total Accumulated Depreciation Total Capital Assets, Being Depreciated, Net Business-Type Activities Capital Assets, Net Increases $ 3,483,650 CITY OF DOUGLAS, ARIZONA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2016 NOTE 3 DETAILED NOTES ON ALL FUNDS (CONTINUED) B. Interfund Receivables, Payables and Transfers Interfund receivables and payables at June 30, 2016 were recorded to eliminate a deficit cash balance in the LTAF Fund and consisted of the following: Due From Nonmajor Governmental Due To General Fund $ 113,755 Cash was received subsequent to year end to cover the deficit. Interfund transfers for the year ended June 30, 2016 consisted of the following: General Fund Transfers Out General Fund Nonmajor Governmental Funds Water Fund Sewer Fund Solid Waste Fund $ 33,559 68,848 73,812 32,773 208,992 $ Transfers In Nonmajor Governmental Funds $ $ Total 1,342,084 13,592 48,077 13,592 6,796 1,424,141 $ $ 1,342,084 47,151 116,925 87,404 39,569 1,633,133 Transfers were used 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 costs for the use of certain facilities owned and operated by the General Fund. C. Obligations Under Capital Leases The City acquired furniture, equipment and vehicles under the provisions of long-term lease agreements classified as capital leases. Accordingly, the principal amount of the assets totaling $2,465,860 and $583,553 are capitalized as governmental activities and business-type activities, respectively. The assets acquired through capital leases are as follows: Governmental Activities Asset: Furniture, Equipment and Vehicles Less: Accumulated Depreciation Total $ $ (51) 2,465,860 (948,362) 1,517,498 Business-Type Activities $ $ 583,553 (189,647) 393,906 CITY OF DOUGLAS, ARIZONA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2016 NOTE 3 DETAILED NOTES ON ALL FUNDS (CONTINUED) C. Obligations Under Capital Leases (Continued) Amortization expense on the capital leases is included in depreciation expense. Future principal and interest payments due on capital leases are as follows: Year Ending June 30, 2017 2018 2019 2020 Total Governmental Activities Principal Interest $ 403,997 $ 22,656 400,596 14,872 180,659 8,094 177,354 3,828 $ 1,162,606 $ 49,450 Business-type Activities Interest Principal $ 119,129 $ 3,923 90,889 1,344 $ 210,018 $ 5,267 D. Lease Revenue During fiscal year 2009, the City established a lease agreement for the City’s new call center. Revenue related to this lease totaled $669,266 during this fiscal year. Future minimum lease payments related to the call center lease are as follows: Year Ending June 30, 2017 2018 2019 2020 2021 2022-2024 $ $ Amount 647,076 647,076 623,964 600,852 600,852 1,502,130 4,621,950 The City leases land to various third parties. Annual rental revenues from the lease agreements are recognized in the General Fund. Payments on the leases totaled $115,171. The future minimum lease payments required under the leases at June 30, 2016 are as follows: Year Ending June 30, 2017 2018 2019 2020 2021 Thereafter $ $ (52) Amount 77,720 75,720 23,223 1,320 1,320 36,960 216,263 CITY OF DOUGLAS, ARIZONA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2016 NOTE 3 DETAILED NOTES ON ALL FUNDS (CONTINUED) E. Long-Term Obligations The City has 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 loans: Description Governmental Activities Loans Payable: Greater Arizona Development Authority, Series 2008A; original issue $3,000,000 Call Center Purchase Agreement; collateralized by the building and equipment acquired with the debt; original issue $9,000,000 Total Governmental Loans Payable Maturity Interest Rate (%) 8/1/16-28 4.00-5.25% 7/31/16-28 4.29-5.63% Outstanding at June 30, 2016 $ 2,120,000 $ 4,500,000 6,620,000 $ 3,317,907 Business-Type Activities Water Infrastructure Finance Authority of Arizona Issued 2009-2010 7/1/16-29 2.00% Water Infrastructure Finance Authority of Arizona Issued 2015-2016 7/1/16-34 2.00% 864,725 7/1/16-27 2.814% 1,080,552 $ 5,263,184 Water Infrastructure Finance Authority of Arizona Issued 2009-2010 Total Business-Type Loans Payable The City has pledged future state shared revenue and City excise taxes, transaction privilege tax and other miscellaneous revenues to repay $3.0 million in GADA loans, Series 2008A. Proceeds of the loan provided financing for the Regional Service Center project, including the purchase and renovation of buildings, land purchase, and upgrades and renovations to the existing City Hall. The loan is payable solely from pledged revenues discussed previously and are payable through 2029. Annual principal and interest payments on the bonds are expected to require 2 percent of pledged revenues. The total principal and interest remaining to be paid on the loan is $2,783,519. Principal and interest paid for the current year and total excise taxes and shared revenues were $233,922 and $8,650,701, respectively. (53) CITY OF DOUGLAS, ARIZONA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2016 NOTE 3 DETAILED NOTES ON ALL FUNDS (CONTINUED) E. Long-Term Obligations (Continued) In 2009, the City issued two loans totaling $9,000,000 for the acquisition and construction of a call center. The IT loan for $2,400,000 is payable from a 0.3 percent City sales tax, and the building loan for $6,600,000 is payable from lease revenues received on the lease agreement with a third party. The IT Loan was paid in full on June 30, 2013. The lease of the call center is a 15 year lease with annual payments of $670,182 plus property expenses. The lease revenues are to be used for payment of the debt, then for maintenance and operations costs. Annual principal and interest payments on the loans are expected to exceed revenue by 21%. The call center lease agreement expires fiscal year 2023; however, the City anticipates extending the lease agreement to cover the loan obligation period. The total principal and interest remaining to be paid on the loan is $6,147,643. Principal and interest paid for the current year was $654,037 and the City sales tax and lease revenues were $9,129,585 and $669,266, respectively. The City has three loans through the Water Infrastructure Financing Authority of Arizona (WIFA). The City acquired a $900,000 loan from WIFA for the construction of a solar station at its wastewater plant. The loans are structured where the City draws on the loans as funds are needed. To-date, the City has drawn down $1.5 million, $5.5 million and $900,000 from the total authorized loan of $1.5 million, $9.0 million and $900,000, respectively, for the acquisition and construction of water and sewer facilities and improvements. The loans are payable from water and sewer charges for services through the fiscal year 2034. The City draws the loan as funds are utilized and pays interest on the outstanding principal balance. Annual principal and interest payments on the bonds are expected to require approximately 65-75% of net available revenue. The total principal and interest remaining to be paid on the loan is $6,337,390. Principal and interest paid for the current year and total pledged revenues were $632,872 and $1,044,756. The City’s component units have outstanding mortgage notes payables collateralized by an insured mortgage on the projects land and buildings. The notes are being repaid through federal subsidies and tenant rents. The governmental component units’ outstanding debt consisted of interest only mortgage notes payable at 1% per annum. The future principal payments are scheduled based on estimated principal retirement. The component units pay principal as cash is available; the maturity date of the outstanding debt is May 1, 2042. (54) CITY OF DOUGLAS, ARIZONA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2016 NOTE 3 DETAILED NOTES ON ALL FUNDS (CONTINUED) E. Long-Term Obligations (Continued) Changes in long-term obligations for the year ended June 30, 2016 are as follows: Beginning of Year Governmental Activities: Loans Payable Other Liabilities: Capital Leases Compensated Absences Total Governmental Activities Business-Type Activities: Loans Payable Other Liabilities: Capital Lease Compensated Absences Total Business-Type Activities $ 7,125,000 Additions $ 1,506,753 1,387,774 - $ $ 6,620,000 $ 1,162,606 1,279,555 510,000 403,997 657,868 (411,424) (638,706) $ (1,555,130) $ 9,062,161 $ 1,571,865 $ $ 5,263,184 $ 325,564 $ 597,764 $ $ 1,195,191 (536,634) $ 5,063,398 $ 1,283,328 $ Governmental Component Units: Notes Payable $ 953,242 $ 6 $ Business-Type Component Units: Notes Payable $ 5,073,115 $ - $ (766,351) - (53,417) 119,129 93,352 210,018 107,173 (116,588) (113,129) 88,137 326,606 132,165 (505,000) Due within One Year 67,277 530,487 $ 10,019,527 4,604,627 End of Year Retirements $ 5,580,375 $ 538,045 $ 953,248 $ 5,231 $ 5,019,698 $ 55,621 Debt service requirements on long-term debt at June 30, 2016 are as follows: Years 2017 2018 2019 2020 2021 2022-2026 2027-2031 2032-2036 2037-2041 2042-2046 Totals Primary Government Governmental Activities Business-Type Activities Principal Interest Principal Interest $ 510,000 $ 349,375 $ 320,843 $ 123,900 520,000 321,938 323,759 120,983 525,000 294,106 331,532 113,211 530,000 267,127 339,505 105,238 540,000 238,591 347,683 97,061 2,805,000 754,280 1,868,679 355,034 1,190,000 85,745 1,495,868 134,269 235,315 24,510 - Component Units Activities Activities Principal Principal 5,231 $ $ 55,621 57,916 60,306 62,794 693,085 948,017 4,089,976 $ 6,620,000 $ $ 2,311,162 (55) $ 5,263,184 $ 1,074,206 953,248 $ 5,019,698 CITY OF DOUGLAS, ARIZONA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2016 NOTE 3 DETAILED NOTES ON ALL FUNDS (CONTINUED) F. Fund Balance Classifications of Governmental Funds The City has classified its fund balances as follows: General Fund NOTE 4 Total Nonmajor Governmental Funds Governmental Funds $ $ Fund Balances: Nonspendable: Inventory $ Prepaid Items Due from Component Unit Total Nonspendable Restricted: Firefighters Injured in Line of Duty Transit - Making the Connection Program Federal and State Grant Programs Court Administration Law Enforcement Operations Local Transportation Highways and Streets by A.R.S. 28-6533 Housing and Redevelopment Total Restricted Committed: Capital Projects Golf Course Operations Total Committed Unassigned: 137,580 20,000 157,580 349,143 42,694 176,827 92,115 868,606 371,578 1,900,963 137,580 20,000 349,143 42,694 176,827 92,115 868,606 371,578 2,058,543 6,512,749 686,859 7,004 693,863 - 686,859 7,004 693,863 6,512,749 Total Fund Balances 7,404,872 $ 48,023 801 685,719 734,543 $ - 2,594,826 $ 48,023 801 685,719 734,543 9,999,698 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. (56) CITY OF DOUGLAS, ARIZONA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2016 NOTE 4 OTHER INFORMATION (CONTINUED) A. Risk Management (Continued) 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, 2016, the self-insured benefit claims payable, including amounts incurred, but not yet reported totaled $156,446. As of June 30, 2016 and 2015, unpaid claims were as follows: 2016 2015 Beginning unpaid claims Claims incurred and changes in estimates Payments made $ 118,388 738,285 (700,227) $ 165,651 678,890 (726,153) Ending unpaid claims $ 156,446 $ 118,388 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. (57) CITY OF DOUGLAS, ARIZONA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2016 NOTE 4 OTHER INFORMATION (CONTINUED) C. Retirement Plans Cost-Sharing and Agent Multiple Employer Pension Plans The City contributes to the Arizona State Retirement System (ASRS) and the Public Safety Personnel Retirement System (PSPRS) for police officers and firefighters. The plans are component units of the State of Arizona. At June 30, 2016, the City reported the following aggregate amounts related to pensions for all plans to which it contributes: Statement of Net Position and Statement of Activities Net Pension Liabilities Deferred Outflows of Resources Deferred Inflows of Resources Pension Expense Governmental Activities $ 30,627,403 5,607,546 1,769,863 2,983,277 Business-Type Activities $ 1,704,784 154,649 269,822 29,172 Total $ 32,332,187 5,762,195 2,039,685 3,012,449 The City reported accrued payroll and employee benefits of $22,045 for outstanding pension contribution amounts payable to all pension plans for the year ended June 30, 2016. Also, the City reported $2,442,537 of pension expenditures in the governmental funds related to all pension plans to which it contributes. Arizona State Retirement System Plan Descriptions – City employees not covered by the other pension plans described on the following pages participate in the Arizona State Retirement System (ASRS). The ASRS administers a cost-sharing, multiple-employer defined benefit pension plan; a cost-sharing, multiple-employer defined benefit health insurance premium benefit (OPEB); and a cost-sharing, multiple-employer defined benefit long-term disability (OPEB). The Arizona State Retirement System Board governs the ASRS according to the provisions of A.R.S. Title 38, Chapter 5, Articles 2 and 2.1. The ASRS issues a publicly available financial report that includes its financial statements and required supplementary information. The report is available on its Web site at www.azasrs.gov. Benefits Provided – The ASRS provides retirement, health insurance premium supplement, long-term disability, and survivor benefits. State statute establishes benefit terms. Retirement benefits are calculated on the basis of age, average monthly compensation, and service credit as presented on the following page. (58) CITY OF DOUGLAS, ARIZONA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2016 NOTE 4 OTHER INFORMATION (CONTINUED) C. Retirement Plans (Continued) Arizona State Retirement System (Continued) Retirement Initial Membership Date Before July 1, 2011 Sum of Years and Age Equals 80 10 Years Age 62 5 Year Age 50* any Years Age 65 On or After July 1, 2011 30 Years Age 55 25 Years Age 60 10 Years Age 62 5 Years Age 50* any Years Age 65 Final Average Salary is Based on Highest 36 Consecutive Months of Last 120 Months Highest 60 Consecutive Months of Last 120 Months Benefit Percentage Per Year of Service 2.1% to 2.3% 2.1% to 2.3% Years of Service and Age Required to Receive Benefit * With Actuarially Reduced Benefits Retirement benefits for members who joined the ASRS prior to September 13, 2013, are subject to automatic cost-of-living adjustments based on excess investment earnings. Members with a membership date on or after September 13, 2013, are not eligible for cost-of-living adjustments. Survivor benefits are payable upon a member’s death. For retired members, the survivor benefit is determined by the retirement benefit option chosen. For all other members, the beneficiary is entitled to the member’s account balance that includes the member’s contributions and employer’s contributions, plus interest earned. Contributions – In accordance with state statutes, annual actuarial valuations determine active member and employer contribution requirements. The combined active member and employer contribution rates are expected to finance the costs of benefits employees earn during the year, with an additional amount to finance any unfunded accrued liability. For the year ended June 30, 2016, active ASRS members were required by statute to contribute at the actuarially determined rate of 11.47 percent (11.35 percent for retirement and 0.12 percent for long-term disability) of the members’ annual covered payroll, and the City was required by statute to contribute at the actuarially determined rate of 11.47 percent (10.85 percent for retirement, 0.50 percent for the health insurance premium benefit, and 0.12 percent for long-term disability) of the active members’ annual covered payroll. (59) CITY OF DOUGLAS, ARIZONA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2016 NOTE 4 OTHER INFORMATION (CONTINUED) C. Retirement Plans (Continued) Arizona State Retirement System (Continued) In addition, the City was required by statute to contribute at the actuarially determined rate of 9.36 percent (9.30 percent for retirement and 0.06 percent for long-term disability) of annual covered payroll of retired members who worked for the City in positions that would typically be filled by an employee who contributes to the ASRS. The City’s contributions to the pension plan for the year ended June 30, 2016, were $449,208. The City’s contributions for the current and two preceding years for OPEB, all of which were equal to the required contributions, were as follows: Year Ending June 30, 2016 2015 2014 Health Benefit Supplement Fund Long-Term Disability Fund $ $ 20,933 24,327 24,546 4,970 4,948 9,818 During the fiscal year ended June 30, 2016, the City paid for ASRS pension and OPEB contributions as follows: 59 percent from the General Fund, 17 percent from nonmajor governmental funds, 9 percent from the Water Fund, 7 percent from the Sewer Fund and 8 percent from the Solid Waste Fund. Pension Liability – At June 30, 2016, the City reported a liability of $7,082,217 for its proportionate share of the ASRS’ net pension liability. The net pension liability was measured as of June 30, 2015. The total pension liability used to calculate the net pension liability was determined using update procedures to roll forward the total pension liability from an actuarial valuation as of June 30, 2014, to the measurement date of June 30, 2015. The City’s reported liability at June 30, 2016, decreased by $227,356 from the City’s prior year liability of $7,309,573 because of changes in the ASRS’ net pension liability and the City’s proportionate share of that liability. The ASRS’ publicly available financial report provides details on the change in the net pension liability. The City’s proportion of the net pension liability was based on the City’s fiscal year 2015 pension contributions. The City’s proportion measured as of June 30, 2015, was 0.04547 percent, which was a decrease of 0.00393 from its proportion measured as of June 30, 2014. (60) CITY OF DOUGLAS, ARIZONA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2016 NOTE 4 OTHER INFORMATION (CONTINUED) C. Retirement Plans (Continued) Arizona State Retirement System (Continued) Pension Expense and Deferred Outflows/Inflows of Resources – For the year ended June 30, 2016 the City recognized pension expense for ASRS of $164,395. At June 30, 2016, the City reported deferred outflows of resources and deferred inflows of resources related to pensions from the following sources: Differences between expected and actual experience Changes of assumptions or other inputs Net difference between projected and actual earnings on pension plan investments Changes in proportion and differences between City contributions and proportionate share of contributions City's contributions subsequent to the measurement date Total Deferred Outflows of Resources $ 193,257 - $ Deferred Inflows of Resources $ 371,115 - - 226,969 - 522,844 449,208 642,465 $ 1,120,928 The $449,208 reported as deferred outflows of resources related to ASRS pensions resulting from City contributions subsequent to the measurement date will be recognized as a reduction of the net pension liability in the year ended June 30, 2017. Other amounts reported as deferred outflows of resources and deferred inflows of resources related to ASRS pensions will be recognized in pension expense as follows: Year Ending June 30, 2017 2018 2019 2020 (61) $ Amount (410,804) (475,771) (204,940) 163,844 CITY OF DOUGLAS, ARIZONA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2016 NOTE 4 OTHER INFORMATION (CONTINUED) C. Retirement Plans (Continued) Arizona State Retirement System (Continued) Actuarial Assumptions – The significant actuarial assumptions used to measure the total pension liability are as follows: Actuarial Valuation Date Actuarial Roll Forward Date Actuarial Cost Method Investment Rate of Return Projected Salary Increases Inflation Permanent Benefit Increase Mortality Rates June 30, 2014 June 30, 2015 Entry age normal 8% 3 - 6.75% 3% Included 1994 GAM Scale BB Actuarial assumptions used in the June 30, 2014 valuation were based on the results of an actuarial study for the 5-year period ended June 30, 2013. The long-term expected rate of return on ASRS pension plan investments was determined to be 8.79 percent using a building block method in which best-estimate ranges of expected future real rates of return (expected returns, net of pension plan investment expense and inflation) are developed for each major asset class. These ranges are combined to produce the long-term expected rate of return by weighing the expected future real rates of return by the target asset allocation percentage and by adding expected inflation. The target allocation and best estimates of arithmetic real rates of return for each major asset class are summarized in the following table: Target Allocation 58% 25% 2% 10% 5% 100% Asset Class Equity Fixed Income Commodities Real estate Multi-asset class Total (62) Real Return Arithmetic Basis 6.79% 3.70% 3.93% 4.25% 3.41% CITY OF DOUGLAS, ARIZONA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2016 NOTE 4 OTHER INFORMATION (CONTINUED) C. Retirement Plans (Continued) Arizona State Retirement System (Continued) Discount Rate – The discount rate used to measure the ASRS total pension liability was 8 percent, which is less than the long-term expected rate of return of 8.79 percent. The projection of cash flows used to determine the discount rate assumed that contributions from participating employers will be made based on the actuarially determined rates based on the ASRS Board’s funding policy, which establishes the contractually required rate under Arizona statutes. Based on those assumptions, the pension plan’s fiduciary net position was projected to be available to make all projected future benefit payments of current plan members. Therefore, the long-term expected rate of return on pension plan investments was applied to all periods of projected benefit payments to determine the total pension liability. Sensitivity of the City’s Proportionate Share of the ASRS Net Pension Liability to Changes in the Discount Rate – The following table presents the City’s proportionate share of the net pension liability calculated using the discount rate of 8 percent, as well as what the City’s proportionate share of the net pension liability would be if it were calculated using a discount rate that is 1 percentage point lower (7 percent) or 1 percentage point higher (9 percent) than the current rate. 1% Decrease (7%) City's proportionate share of the net pension liability $ 9,280,125 Current Discount Rate (8%) $ 7,082,217 1% Increase (9%) $ 5,575,930 Pension Plan Fiduciary Net Position – Detailed information about the pension plan’s fiduciary net position is available in the separately issued ASRS financial report. Public Safety Personnel Retirement System (PSPRS) Plan Descriptions— City police employees and City firefighters who are regularly assigned hazardous duty participate in the Public Safety Personnel Retirement System (PSPRS). The PSPRS administers an agent multiple-employer defined benefit pension plan and an agent multiple-employer defined benefit health insurance premium benefit (OPEB) plan (agent plans). A seven-member board known as the Board of Trustees and the participating local boards govern the PSPRS according to the provisions of A.R.S. Title 38, Chapter 5, Article 4. The PSPRS issue publicly available financial reports that include their financial statements and required supplementary information. The reports are available on the PSPRS Web site at www.psprs.com. (63) CITY OF DOUGLAS, ARIZONA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2016 NOTE 4 OTHER INFORMATION (CONTINUED) C. Retirement Plans (Continued) Public Safety Personnel Retirement System (PSPRS) (Continued) Benefits Provided — The PSPRS provide retirement, health insurance premium supplement, disability, and survivor benefits. State statute establishes benefits terms. Retirement, disability, and survivor benefits are calculated on the basis of age, average monthly compensation, and service credit as follows: PSPRS Retirement and Disability Years of Service and Age Required to Receive Benefit Final Average Salary is Based on Benefit Percentage Normal Retirement Accidental Disability Retirement Catastrophic Disability Retirement Ordinary Disability Retirement Survivor Benefit Retired Members Active Members Initial Membership Date Before On or After 20 Years any Age 25 Years and Age 52.5 15 Years Age 62 Highest 36 Consecutive Months of Last 20 Years Highest 60 Consecutive Months of Last 20 Years 50% Less 2.0% for Each Year of Credited Service Less Than 20 Years OR Plus 2.0% to 2.5% for Each Year of Credited Service Over 20 Years, Not to Exceed 80% 2.5% Per Year of Credited Service, Not to Exceed 80% 50% or Normal Retirement, Whichever is Greater 90% for the First 60 Months then Reduced to Either 62.5% or Normal Retirement, Whichever is Greater Normal Retirement Calculated with Actual Years of Credited Service or 20 Years of Credited Service, Whichever is Greater, Multiplied by Years of Credited Service (Not to Exceed 20 Years) Divided by 20 80-100% of Retired Member's Pension Benefit 80-100% of Accidental Disability Retirement Benefit or 100% of Average Monthly Compensation if Death was the Result of Injuries Received on the Job Retirement and survivor benefits are subject to automatic cost-of-living adjustments based on excess investment earning. PSPRS also provides temporary disability benefits of 50 percent of the member’s compensation for up to 12 months. (64) CITY OF DOUGLAS, ARIZONA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2016 NOTE 4 OTHER INFORMATION (CONTINUED) C. Retirement Plans (Continued) Public Safety Personnel Retirement System (PSPRS) (Continued) Employees Covered by Benefit Terms – At June 30, 2016, the following employees were covered by the agent pension plans’ benefit terms: Pension Contributions Made PSPRS Police PSPRS Firefighters $ 1,084,052 $ 1,017,407 - - Health Insurance Premium Benefit Annual OPEB Cost Contributions Made Contributions and Annual OPEB Cost – State statutes establish the pension contribution requirements for active PSPRS employees. In accordance with state statutes, annual actuarial valuations determine employer contribution requirements for PSPRS pension and health insurance premium benefits. The combined active member and employer contribution rates are expected to finance the costs of benefits employees earn during the year, with an additional amount to finance any unfunded accrued liability. Contributions rates for the year ended June 30, 2016, are indicated below. Rates are a percentage of active members’ annual covered payroll. Active Members - Pension PSPRS Police 7.65% PSPRS Firefighters 7.65% City Pension Health Insurance Premium Benefit 57.91% 0.00% 66.00% 0.00% (65) CITY OF DOUGLAS, ARIZONA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2016 NOTE 4 OTHER INFORMATION (CONTINUED) C. Retirement Plans (Continued) Public Safety Personnel Retirement System (PSPRS) (Continued) Contributions and Annual OPEB Cost (Continued) For the agent plans, the City’s contributions to the pension plan and annual OPEB cost and contributions for the health insurance premium benefit for the year ended June 30, 2016, were: Pension Contributions Made Health Insurance Premium Benefit Annual OPEB Cost Contributions Made PSPRS Police PSPRS Firefighters $ 1,084,052 $ 1,017,407 - - During the fiscal year 2016, the City paid for PSPRS pension and OPEB contributions 100 percent from the General Fund. Pension Liability – At June 30, 2016, the City reported the following net pension liabilities: Net Pension Liability $ 14,066,098 11,183,872 PSPRS Police PSPRS Firefighters The net pension liabilities were measured as of June 30, 2015, and the total pension liability used to calculate the net pension liability was determined by an actuarial valuation as of that date. The total pension liabilities as of June 30, 2015, reflect the following changes of benefit terms and actuarial assumptions. • In May 2016 voters approved Proposition 124 that authorized certain statutory adjustments to PSPRS’ automatic cost-of-living adjustments. The statutory adjustments change the basis of future cost-of-living adjustments from excess investment earnings to the change in the consumer price index, limited to a maximum annual increase of 2 percent. The change in the Town’s net pension liability as a result of the statutory adjustments is not known. (66) CITY OF DOUGLAS, ARIZONA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2016 NOTE 4 OTHER INFORMATION (CONTINUED) C. Retirement Plans (Continued) Public Safety Personnel Retirement System (PSPRS) (Continued) Pension Actuarial Assumptions – The significant actuarial assumptions used to measure the total pension liability are as follows: Actuarial Valuation Date Actuarial Cost Method Discount Rate Projected Salary Increases Inflation Permanent Benefit Increase Mortality Rates June 30, 2015 Entry Age Normal 7.85% 4.0% - 8.0% 4.0% Included RP-2000 mortality table (adjusted by 105% for both males and females) Actuarial assumptions used in the June 30, 2015, valuation were based on the results of an actuarial experience study for the 5-year period ended June 30, 2012. The long-term expected rate of return on PSPRS pension plan investments was determined to be 7.85 percent using a building-block method in which best-estimate ranges of expected future real rates of return (expected returns, net of pension plan investment expenses and inflation) are developed for each major asset class. The target allocation and best estimates of geometric real rates of return for each major asset class are summarized in the following table: PSPRS Target Allocation 2% 5% 4% 7% 8% 10% 11% 10% 13% 14% 16% 100% Asset Class Short Term Investments Absolute Return Risk Parity Fixed Income Real Assets GTAA Private Equity Real Estate Credit Opportunities Non-U.S. Equity U.S. Equity Total (67) Long-Term Expected Real Rate of Return 0.75% 4.11% 5.13% 2.92% 4.77% 4.38% 9.50% 4.48% 7.08% 8.25% 6.23% CITY OF DOUGLAS, ARIZONA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2016 NOTE 4 OTHER INFORMATION (CONTINUED) C. Retirement Plans (Continued) Public Safety Personnel Retirement System (PSPRS) (Continued) Pension Discount Rates – The following discount rates were used to measure the total pension liabilities: PSPRS Police 7.85% Discount Rates PSPRS Firefighters 7.85% The projection of cash flows used to determine the PSPRS discount rates assumed that plan member contributions will be made at the current contribution rate and that employer contributions will be made at rates equal to the difference between the actuarially determined contribution rate and the member rate. Based on those assumptions, the pension plans’ fiduciary net position was projected to be available to make all projected future benefit payments of current plan members. Therefore, the long-term expected rate of return on pension plan investments was applied to all periods of projected benefit payments to determine the total pension liability. Changes in the Agent Plans Net Pension Liability – The following tables present changes in the City’s net pension liability for the PSPRS – Police, PSPRS – Fire pension plans as follows: PSPRS - Police Balance - June 30, 2015 Changes for the Year: Service Cost Interest on the Total Pension Liability Changes of Benefit Terms Differences Between Expected and Actual Experience in the Measurement of the Pension Liability Changes of Assumptions or Other Inputs Contributions - Employer Contributions - Employee Net Investment Income Benefit Payments, Including Refunds of Employee Contributions Administrative Expenses Other Changes Net Changes Balance - June 30, 2016 (68) Total Pension Liability (Asset) (a) $ 20,009,986 350,912 1,536,369 - (298,004) (1,227,722) 361,555 $ 20,371,541 Plan Fiduciary Net Position (b) $ 6,416,944 - 730,718 211,626 233,285 (1,227,722) (6,060) (53,348) (111,501) $ 6,305,443 Net Pension Liability (Asset) (a) - (b) $ 13,593,042 350,912 1,536,369 - (298,004) (730,718) (211,626) (233,285) 6,060 53,348 473,056 $ 14,066,098 CITY OF DOUGLAS, ARIZONA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2016 NOTE 4 OTHER INFORMATION (CONTINUED) C. Retirement Plans (Continued) Public Safety Personnel Retirement System (PSPRS) (Continued) Changes in the Agent Plans Net Pension Liability (Continued) PSPRS - Firefighters Balance at June 30, 2015 Changes for the Year: Service Cost Interest on the Total Pension Liability Changes of Benefit Terms Differences Between Expected and Actual Experience in the Measurement of the Pension Liability Changes of Assumptions or Other Inputs Contributions - Employer Contributions - Employee Net Investment Income Benefit Payments, Including Refunds of Employee Contributions Administrative Expenses Other Changes Net Changes Balances as of June 30, 2016 Total Pension Liability (Asset) (a) $ 14,492,493 Plan Fiduciary Net Position (b) $ 3,742,816 Net Pension Liability (Asset) (a) - (b) $ 10,749,677 258,460 1,111,551 - - 258,460 1,111,551 - (86,876) - $ (923,685) 359,450 14,851,943 570,035 151,481 133,862 $ (923,685) (3,626) (2,812) (74,745) 3,668,071 (86,876) (570,035) (151,481) (133,862) $ 3,626 2,812 434,195 11,183,872 Sensitivity of the City’s Net Pension Liability to Changes in the Discount Rate – The following table presents the City’s net pension liabilities (assets) calculated using the discount rates noted above, as well as what the City’s net pension liability would be if it were calculated using a discount rate that is 1 percentage point lower or 1 percentage point higher than the current rate: 1% Decrease PSPRS Police Rate Net Pension Liability (Asset) PSPRS Firefighters Rate Net Pension Liability (Asset) Current Discount Rate 1% Increase $ 6.85% 16,469,241 $ 7.85% 14,066,098 $ 8.85% 12,064,311 $ 6.85% 12,816,995 $ 7.85% 11,183,872 $ 8.85% 9,811,512 Pension Plan Fiduciary Net Position – Detailed information about the pension plans’ fiduciary net position is available in the separately issued PSPRS financial reports. Pension Expense – For the year ended June 30, 2016, the City recognized $1,662,604 and $1,185,650 in pension expenses for PSPRS Police and PSPRS Firefighters, respectively: (69) CITY OF DOUGLAS, ARIZONA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2016 NOTE 4 OTHER INFORMATION (CONTINUED) C. Retirement Plans (Continued) Public Safety Personnel Retirement System (PSPRS) (Continued) Pension Deferred Outflows/Inflows of Resources – At June 30, 2016, the City reported deferred outflows of resources and deferred inflows of resources related to pensions from the following sources: PSPRS - Police Differences between expected and actual experience Changes of assumptions or other inputs Net difference between projected and actual earnings on pension plan investments City contributions subsequent to the measurement date Total PSPRS - Firefighters Differences between expected and actual experience Changes of assumptions or other inputs Net difference between projected and actual earnings on pension plan investments City contributions subsequent to the measurement date Total Deferred Outflows of Resources $ 1,358,420 Deferred Inflows of Resources $ 528,524 - 205,530 199,702 $ 1,084,052 2,648,002 728,226 $ Deferred Outflows of Resources 25,953 $ 1,306,959 Deferred Inflows of Resources 74,469 $ - 121,409 116,062 $ 1,017,407 2,471,728 190,531 $ The amounts reported as deferred outflows of resources related to pensions resulting from City contributions subsequent to the measurement date will be recognized as a reduction of the net pension liability in the year ended June 30, 2017. Other amounts reported as deferred outflows of resources and deferred inflows of resources related to pensions will be recognized in pension expense as follows: PSPRS Police Year Ending June 30, 2017 2018 2019 2020 2021 Thereafter (70) $ 406,778 406,778 (20,416) 42,584 - PSPRS Firefighters $ 246,305 246,305 246,304 284,993 252,317 (12,434) CITY OF DOUGLAS, ARIZONA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2016 NOTE 4 OTHER INFORMATION (CONTINUED) C. Retirement Plans (Continued) Public Safety Personnel Retirement System (PSPRS) (Continued) Agent Plan OPEB Actuarial Assumptions – The health insurance premium benefit contribution requirements for the year ended June 30, 2016, were established by the June 30, 2014 actuarial valuations, and those actuarial valuations were based on the following actuarial methods and assumptions. Actuarial valuations involve estimates of the reported amounts’ value and assumptions about the probability of events in the future. Amounts determined regarding the funded status of the plans and the annual required contributions are subject to continual revision as actual results are compared to past expectations and new estimates are made. The required schedule of funding progress for the health insurance premium benefit presented as required supplementary information provides multiyear trend information that shows whether the actuarial value of the plans’ assets are increasing or decreasing over time relative to the actuarial accrued liability for benefits. Projections of benefits are based on (1) the plans as understood by the City and plans’ members and include the types of benefits in force at the valuation date, and (2) the pattern of sharing benefit costs between the City and plans’ members to that point. Actuarial calculations reflect a long-term perspective and employ methods and assumptions that are designed to reduce short-term volatility in actuarial accrued liabilities and the actuarial value of assets. The significant actuarial methods and assumptions used are the same for all PSPRS plans and related benefits (unless noted), and the actuarial methods and assumptions used to establish the fiscal year 2016 contribution requirements, are as follows: PSPRS - OPEB Contribution Requirements Actuarial Valuation Date Actuarial Cost Method Amortization Method Remaining Amortization Period June 30, 2014 Entry Age Normal Level percent of pay closed 22 years for unfunded actuarial accrued liability, 20 years for excess 7-year smoothed market value; 80%/120% market Asset Valuation Method Actuarial Assumptions: Investment Rate of Return Projected Salary Increases Wage Growth 7.85% 4.0% - 8.0% 4.00% (71) CITY OF DOUGLAS, ARIZONA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2016 NOTE 4 OTHER INFORMATION (CONTINUED) C. Retirement Plans (Continued) Public Safety Personnel Retirement System (PSPRS) (Continued) Agent Plan OPEB Trend Information – The following table presents the annual OPEB cost information for the health insurance premium benefit for the current and two preceding years: Percentage of Annual Cost Contributed Annual OPEB Cost Year Ended June 30 PSPRS Police 2016 2015 2014 PSPRS Firefighters 2016 2015 2014 Net OPEB Obligation $ 32,639 28,439 100.00% 100.00% 100.00% $ - $ 18,775 17,815 100.00% 100.00% 100.00% $ - Agent Plan OPEB Funded Status – The funded status of the health insurance premium benefit plan as of the most recent valuation date, June 30, 2015, is as follows: PSPRS Police $ 589,842 403,124 Actuarial Value of Assets (a) Actuarial Accrued Liability (b) Unfunded Actuarial Accrued Liability (Funding Excess) (b) - (a) Funded Ratio (a) / (b) Annual Covered Payroll (c ) Unfunded Actuarial Accrued Liability (Funding Excess) as a Percentage of Covered Payroll (b) - (a) / (c ) PSPRS Firefighters $ 425,586 246,161 (186,718) 146.32% 1,799,959 (179,425) 172.89% 1,263,573 -10.37% -14.20% The funded status of the all the PSPRS health insurance premium benefit plans in the June 30, 2015, actuarial valuation was determined using the following actuarial methods and assumptions, applied to all periods included in the measurement: PSPRS - OPEB Funded Status Actuarial Valuation Date Actuarial Cost Method Amortization Method June 30, 2014 Entry Age Normal Level percent closed for underfunded actuarial accrued liability, open for excess 22 years for unfunded actuarial accrued liability, 20 years for excess 7-year smoothed market value; 80%/120% market Remaining Amortization Period Asset Valuation Method Actuarial Assumptions: Investment Rate of Return Projected Salary Increases Wage Growth 7.85% 4.0% - 8.0% 4.00% (72) REQUIRED SUPPLEMENTARY INFORMATION THIS PAGE BLANK CITY OF DOUGLAS, ARIZONA REQUIRED SUPPLEMENTARY INFORMATION SCHEDULE OF THE CITY’S PROPORTIONATE SHARE OF NET PENSION LIABILITY COST SHARING PENSION PLANS JUNE 30, 2016 Arizona State Retirement System City's Proportion of the Net Pension Liability City's Proportionate Share of the Net Pension Liability City's Covered-Employee Payroll City's Proportionate Share of the Net Pension Liability as a Percentage of its Covered -Employee Payroll Plan Fiduciary Net Position as a Percentage of the Total Pension Liability See accompanying notes to pension schedules. (73) Reporting Year Reporting Year (Measurement (Measurement Date) Date) 2016 2015 (2014) (2015) 0.045470% 0.049400% $ 7,309,573 $ 7,082,217 $ 4,015,976 $ 4,108,769 172.37% 182.01% 46.29% 69.49% CITY OF DOUGLAS, ARIZONA REQUIRED SUPPLEMENTARY INFORMATION (CONTINUED) SCHEDULE OF CHANGES IN THE CITY’S NET PENSION LIABILITY AND RELATED RATIOS AGENT PENSION PLANS JUNE 30, 2016 PSPRS Police Reporting Year Reporting Year (Measurement (Measurement Date) Date) 2016 2015 (2015) (2014) Total Pension Liability Service Cost Interest on the Total Pension Liability Changes of Benefit Terms Differences Between Expected and Actual Experience in the Measurement of the Pension Liability Changes of Assumptions or Other Inputs Benefit Payments, Including Refunds of Employee Contributions Net Change in Total Pension Liability Total Pension Liability - Beginning Total Pension Liability - Ending (a) Plan Fiduciary Net Position Contributions - Employer Contributions - Employee Net Investment Income Benefit Payments, Including Refunds of Employee Contributions Administrative Expenses Other Changes Net Change in Plan Fiduciary Net Position Plan Fiduciary Net Position - Beginning Plan Fiduciary Net Position - Ending (b) City's Net Pension Liability (Asset) - Ending (a) - (b) Plan Fiduciary Net Position as a Percentage of the Total Pension Liability Covered-employee Payroll $ 350,912 1,536,369 - See accompanying notes to pension schedules. (74) 397,560 1,299,915 572,866 (298,004) (1,227,722) 361,555 20,009,986 20,371,541 (586,401) 2,630,528 (1,330,257) 2,984,211 17,025,775 20,009,986 730,718 211,626 233,285 (1,227,722) (6,060) (53,348) (111,501) 6,416,944 6,305,443 731,085 201,922 814,052 (1,330,257) (6,556) 410,246 6,006,698 6,416,944 $ 14,066,098 30.95% $ 1,887,596 City's Net Pension Liability (Asset) as a Percentage of CoveredEmployee Payroll $ 745.19% $ 13,593,042 32.07% $ 1,865,210 728.77% CITY OF DOUGLAS, ARIZONA REQUIRED SUPPLEMENTARY INFORMATION (CONTINUED) SCHEDULE OF CHANGES IN THE CITY’S NET PENSION LIABILITY AND RELATED RATIOS AGENT PENSION PLANS JUNE 30, 2016 PSPRS Fire Reporting Year Reporting Year (Measurement (Measurement Date) Date) 2016 2015 (2015) (2014) Total Pension Liability Service Cost Interest on the Total Pension Liability Changes of Benefit Terms Differences Between Expected and Actual Experience in the Measurement of the Pension Liability Changes of Assumptions or Other Inputs Benefit Payments, Including Refunds of Employee Contributions Net Change in Total Pension Liability Total Pension Liability - Beginning Total Pension Liability - Ending (a) Plan Fiduciary Net Position Contributions - Employer Contributions - Employee Net Investment Income Benefit Payments, Including Refunds of Employee Contributions Administrative Expenses Other Changes Net Change in Plan Fiduciary Net Position Plan Fiduciary Net Position - Beginning Plan Fiduciary Net Position - Ending (b) City's Net Pension Liability (Asset) - Ending (a) - (b) Plan Fiduciary Net Position as a Percentage of the Total Pension Liability Covered-employee Payroll $ 258,460 1,111,551 - See accompanying notes to pension schedules. (75) 288,434 909,525 444,603 (86,876) (923,685) 359,450 14,492,493 14,851,943 36,351 1,830,655 (918,315) 2,591,253 11,901,240 14,492,493 570,035 151,481 133,862 (923,685) (3,626) (2,812) (74,745) 3,742,816 3,668,071 613,837 146,888 473,107 (918,315) (3,810) 22,909 334,616 3,408,200 3,742,816 $ 11,183,872 24.70% $ 1,320,182 City's Net Pension Liability (Asset) as a Percentage of CoveredEmployee Payroll $ 847.15% $ 10,749,677 25.83% $ 1,273,229 844.28% CITY OF DOUGLAS, ARIZONA REQUIRED SUPPLEMENTARY INFORMATION (CONTINUED) SCHEDULE OF CITY PENSION CONTRIBUTIONS JUNE 30, 2016 Reporting Fiscal Year Arizona State Retirement System Statutorily Required Contribution City's Contribution in Relation to the Statutorily Required Contribution City's Contribution Deficiency (Excess) City's Covered-Employee Payroll City's Contributions as a Percentage of CoveredEmployee Payroll $ 2016 449,208 449,208 $ $ 4,074,323 $ 449,025 $ $ 4,108,769 11.03% PSPRS Police 2015 449,025 $ 2014 476,481 476,481 $ $ 4,015,976 10.93% 11.86% Reporting Fiscal Year Actuarially Determined Contribution City's Contribution in Relation to the Actuarially Determined Contribution City's Contribution Deficiency (Excess) City's Covered-Employee Payroll City's Contributions as a Percentage of CoveredEmployee Payroll 2016 $ 1,084,052 $ 1,084,052 $ $ 1,799,959 740,315 $ $ 1,887,596 60.23% PSPRS Fire 2015 740,315 $ 2014 731,085 731,085 $ $ 1,865,210 39.22% 39.20% Reporting Fiscal Year Actuarially Determined Contribution City's Contribution in Relation to the Actuarially Determined Contribution City's Contribution Deficiency (Excess) City's Covered-Employee Payroll City's Contributions as a Percentage of CoveredEmployee Payroll 2016 $ 1,017,407 $ 1,017,407 $ $ 1,508,416 579,692 $ $ 1,320,182 67.45% See accompanying notes to pension schedules. (76) 2015 579,692 43.91% $ 2014 613,837 613,837 $ $ 1,273,229 48.21% CITY OF DOUGLAS, ARIZONA REQUIRED SUPPLEMENTARY INFORMATION (CONTINUED) NOTES TO PENSION SCHEDULES JUNE 30, 2015 NOTE 1 ACTUARIALLY DETERMINED CONTRIBUTION RATES Actuarial determined contribution rates for PSPRS are calculated as of June 30 two years prior to the end of the fiscal year in which contributions are made. The actuarial methods and assumptions used to establish the contribution requirements are as follows: Actuarial Cost Method Entry age normal Amortization Level Level percent closed for unfunded actuarial accrued liability, open for excess Remaining Amortization Period as of the 2013 Actuarial Valuation 23 years for unfunded actuarial accrued liability, 20 years for excess Asset Valuation Method 7-year smoothed market value; 20% corridor Actuarial Assumptions: Investment Rate of Return NOTE 2 In the 2014 actuarial valuation, the investment rate of return remained at 7.85% Projected Salary Increases In the 2013 actuarial valuation, projected salary increases decreased from 4.5%-8.5% to 4.0%-8.0% for PSPRS Wage Growth In the 2014 actuarial valuation, wage growth was decreased from 4.5% to 4.0% for PSPRS Retirement Age Experience-based table of rates that is specific to the type of eligibility condition. Last updated for the 2012 valuation pursuant to an experience study of the period July 1, 2006-June 30, 2011 Mortality RP-2000 mortality table (adjusted by 105% for both males and females INFORMATION PRIOR TO THE MEASUREMENT DATE Information prior to the measurement date (June 30, 2014) was not available. (77) CITY OF DOUGLAS, ARIZONA REQUIRED SUPPLEMENTARY INFORMATION PUBLIC SAFETY PERSONNEL RETIREMENT SYSTEM SCHEDULE OF AGENT OPEB PLANS’ FUNDING PROGRESS YEAR ENDED JUNE 30, 2016 Health Insurance Premium Benefits Actuarial Valuation Date June 30, PSPRS Police 2015 2014 2013 PSPRS Fire 2015 2014 2013 Actuarial Value of Assets Unfunded Actuarial Actuarial Accrued Accrued Liability (UAAL) Liability (AAL) (Funding Excess) Annual Covered Payroll Funded Ratio UAAL (Funding Excess) as a Percentage of Covered Payroll $ 589,842 557,306 - $ 403,124 372,417 383,172 $ (186,718) (184,889) 383,172 146.3% 149.7% 0.0 $ 1,799,959 1,865,210 2,047,135 (10.4)% (9.9)% 18.7 % $ 425,586 403,836 - $ 246,161 203,884 215,366 $ (179,425) (199,952) 215,366 172.9% 198.1% 0.0 $ 1,263,573 1,273,232 1,409,268 (14.2)% (15.7)% 15.3 % See accompanying notes to schedule of agent OPEB plans’ funding progress. . (78) CITY OF DOUGLAS, ARIZONA REQUIRED SUPPLEMENTARY INFORMATION PUBLIC SAFETY PERSONNEL RETIREMENT SYSTEM NOTES TO SCHEDULE OF AGENT OPEB PLANS’ FUNDING PROGRESS YEAR ENDED JUNE 30, 2016 NOTE 1 FACTORS THAT AFFECT THE IDENTIFICATION OF TRENDS Beginning in fiscal year 2014, PSPRS established separate funds for pension benefits and health insurance premium benefits. Previously, the plans recorded both pension and health insurance premium contributions in the same Pension Fund. During fiscal year 2014, the plans transferred prior-year health insurance premium benefit contributions that exceeded benefit payments from each plan’s pension fund to the new health insurance fund. (79) CITY OF DOUGLAS, ARIZONA REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON SCHEDULE GENERAL FUND YEAR ENDED JUNE 30, 2016 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 $ 5,485,813 616,193 323,000 5,788,820 238,500 179,250 1,454,521 813,682 6,400 54,000 14,960,179 EXPENDITURES Current: General Government: Administration Finance Personnel General Government Management Information Systems Parking Lot 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 $ 5,267,910 576,320 312,874 5,385,235 196,766 152,482 2,046,959 818,382 29,460 71,001 14,857,389 Variance With Final Budget $ (217,903) (39,873) (10,126) (403,585) (41,734) (26,768) 592,438 4,700 23,060 17,001 (102,790) 481,768 554,345 529,988 906,180 419,134 77,568 154,913 159,762 65,056 3,348,714 549,472 500,812 440,893 337,648 411,963 954 75,095 130,895 38,802 109,641 2,000 190,329 44,415 2,832,919 (67,704) 53,533 89,095 568,532 7,171 (954) 2,473 24,018 (38,802) (109,641) (2,000) (30,567) 20,641 515,795 5,697,469 1,311,188 1,482,026 8,490,683 4,681,654 1,724,686 1,902,715 8,309,055 1,015,815 (413,498) (420,689) 181,628 740,679 497,715 242,964 (Continued) See accompanying Notes to Budgetary Comparison Schedule. (80) CITY OF DOUGLAS, ARIZONA REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON SCHEDULE (CONTINUED) GENERAL FUND YEAR ENDED JUNE 30, 2016 (Concluded) EXPENDITURES (CONTINUED) Culture and Recreation: Parks Recreation Library Aquatics Visitor Center Total Culture and Recreation Original and Final Budget $ 553,816 93,135 415,633 306,375 70,872 1,439,831 Debt Service: Principal Retirement Interest on Long-Term Debt Total Debt Service Capital Outlay Total Expenditures $ 493,461 97,940 392,317 306,523 68,042 1,358,283 Variance With Final Budget $ 60,355 (4,805) 23,316 (148) 2,830 81,548 - 21,541 3,532 25,073 80,000 14,099,907 73,339 13,096,384 6,661 1,003,523 860,272 1,761,005 900,733 208,992 (1,342,084) 215,725 67,277 (850,090) (46,734) 73,369 (294,275) 67,277 (200,363) Excess (Deficiency) of Revenues Over Expenditures OTHER FINANCING SOURCES (USES) Transfers In Transfers Out Proceeds from Sale of Capital Assets Issuance of Capital Leases Total Other Financing Sources (Uses) 255,726 (1,415,453) 510,000 (649,727) Net Change in Fund Balance FUND BALANCE Beginning of Year End of Year Actual 210,545 $ See accompanying Notes to Budgetary Comparison Schedule. (81) 4,544,106 4,754,651 (21,541) (3,532) (25,073) 910,915 $ 6,493,957 7,404,872 700,370 $ 1,949,851 2,650,221 CITY OF DOUGLAS, ARIZONA NOTES TO REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON SCHEDULE – GENERAL FUND YEAR ENDED JUNE 30, 2016 NOTE 1 BASIS OF ACCOUNTING The General Fund budgetary comparison schedule is prepared on essentially the same modified accrual bases of accounting as the statement of revenues, expenditures and changes in fund balances reported in the basic financial statements. Expenditures may not legally exceed the expenditure limitation of all fund types as a whole. For management and legal purposes, the City Council adopts an annual budget by department for the General Fund. The City Manager, subject to City Council approval, may at any time transfer any unencumbered appropriation balance or portion thereof between departments. NOTE 2 . EXCESS OF EXPENDITURES OVER APPROPRIATIONS Expenditures exceeded appropriations in the following funds: Amount of Overexpenditure General Fund: Administration Parking Lot Community Development Golf Course Economic Development Airport Fire Emergency Medical Services Recreation Aquatics Debt Service Nonmajor Governmental Funds: Police Grant Fund: $ 67,704 954 38,802 109,641 2,000 30,567 413,498 420,689 4,805 148 25,073 10,696 Cash was available to meet all of the overexpenditures listed above. (82) 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 federal and state grants received by the City restricted for specific projects and awards. Police Grants – accounts for the activity of restricted grants received by the City’s police department. LTAF Fund – accounts for the Local Transportation Assistance of the City. The LTAF receives assistance from the State of Arizona to support the development and operation of transportation programs. JCEF Restricted Court Fund – accounts for the activity of the JCEF court receipts. Golf Course Municipal Property Corporation (MPC) – accounts for operations of the golf course restricted for use of golf course operations. The MPC operates the golf course; however, the City owns all golf course assets and liabilities. 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, 2016 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 Due to Other Funds Customer Deposits Payable Total Liabilities $ 800,118 $ 113,563 913,681 $ 14,134 24,986 5,955 45,075 Deferred Inflows of Resources Unavailable Revenue Fund Balances Restricted Committed Assigned Total Fund Balances Total Liabilities, Deferred Inflows of Resources and Fund Balances Grants $ $ 303,604 $ 80,365 383,969 $ 5,538 5,538 Police Grants $ 176,827 $ 176,827 $ - LTAF $ - $ 217,464 217,464 $ 4,410 972 6,212 113,755 125,349 - 29,288 - - 868,606 868,606 349,143 349,143 176,827 176,827 92,115 92,115 913,681 (83) $ 383,969 $ 176,827 $ 217,464 Special Revenue JCEF Restricted Court Golf Course MPC $ 43,118 $ 43,118 $ $ 424 424 $ 6,364 $ 1,865 8,229 $ 1,009 216 1,225 Public Housing Total Special Revenue $ 386,447 $ 1,716,478 $ 132 41,793 428,372 $ 3,846 30,141 22,807 56,794 Capital Projects $ 692,828 1,997 411,392 41,793 $ 2,171,660 $ 2,085 694,913 $ $ 29,361 56,315 12,167 113,755 22,807 234,405 5,969 5,969 Total Nonmajor Governmental Funds Debt Service $ - $ - $ $ 2,409,306 $ 1,997 2,085 411,392 41,793 2,866,573 - 35,330 56,315 12,167 113,755 22,807 240,374 - - - 29,288 2,085 - 31,373 42,694 42,694 7,004 7,004 371,578 371,578 1,900,963 7,004 1,907,967 686,859 686,859 - 1,900,963 693,863 2,594,826 428,372 $ 2,171,660 43,118 $ 8,229 $ (84) $ 694,913 $ - $ 2,866,573 CITY OF DOUGLAS, ARIZONA NONMAJOR GOVERNMENTAL FUNDS COMBINING STATEMENT OF REVENUES, EXPENDITURES, AND CHANGE IN FUND BALANCES YEAR ENDED JUNE 30, 2016 Special Revenue HURF REVENUES Taxes Sales Taxes Intergovernmental Revenues Fines and Forfeitures Charges for Services 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 1,272,509 74,583 1,347,092 Grants $ 164,106 21 164,127 Police Grants $ 105,908 3,295 109,203 LTAF $ 639,707 20,537 660,244 842,908 - 17,857 3,816 768 1,967 - 83,051 - 568,129 - 15,996 858,904 130,034 154,442 103,095 186,146 568,129 Excess (Deficiency) of Revenues Over Expenditures 488,188 9,685 (76,943) 92,115 OTHER FINANCING SOURCES (USES) Transfers In Transfers Out Total Other Financing Sources (Uses) (47,151) (47,151) 2,445 2,445 Net Change in Fund Balances 441,037 12,130 FUND BALANCES Beginning of Year End of Year $ 427,569 868,606 (85) $ 337,013 349,143 - 92,115 (76,943) $ 253,770 176,827 $ 92,115 Special Revenue JCEF Restricted Court $ 5,350 5,350 $ 215,041 215,041 $ Total Special Revenue 878,676 1,201 36,992 916,869 $ 3,060,906 5,350 235,578 4,517 111,575 3,417,926 Debt Service Capital Projects $ 94,589 5,761 6,000 106,350 $ 671 671 $ 95,260 3,060,906 5,350 235,578 10,278 117,575 3,524,947 12,336 - 333,961 - 916,674 30,193 86,867 1,411,805 335,928 916,674 - - 30,193 86,867 1,411,805 335,928 916,674 12,336 333,961 916,674 249,125 3,030,592 199,184 199,184 885,961 410,482 1,296,443 885,961 410,482 448,309 4,526,219 (6,986) (118,920) 195 387,334 (92,834) (1,295,772) (1,001,272) 1,295,772 1,295,772 1,424,141 (47,151) 1,376,990 (6,986) $ Public Housing Golf Course MPC Total Nonmajor Governmental Funds 49,680 42,694 $ 125,924 125,924 - 7,004 195 468,552 371,383 371,578 1,439,415 $ 1,907,967 7,004 $ - 128,369 (47,151) 81,218 (86) (92,834) $ 779,693 686,859 375,718 - $ - $ 2,219,108 2,594,826 CITY OF DOUGLAS, ARIZONA SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGE IN FUND BALANCE BUDGET AND ACTUAL HURF FUND YEAR ENDED JUNE 30, 2016 Original and Final Budget REVENUES Intergovernmental Revenues Other Total Revenues $ EXPENDITURES Current: Highways and Streets Capital Outlay Total Expenditures Excess (Deficiency) of Revenues Over Expenditures OTHER FINANCING SOURCES (USES) Transfers Out Net Change in Fund Balance FUND BALANCE Beginning of Year End of Year Actual 1,272,411 35,000 1,307,411 $ (87) $ 98 39,583 39,681 1,240,011 18,000 842,908 15,996 397,103 2,004 1,258,011 858,904 399,107 49,400 488,188 438,788 (49,400) (47,151) - 2,249 441,037 441,037 - $ 1,272,509 74,583 1,347,092 Variance With Final Budget $ 427,569 868,606 $ 427,569 868,606 CITY OF DOUGLAS, ARIZONA SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGE IN FUND BALANCE BUDGET AND ACTUAL GRANTS FUND YEAR ENDED JUNE 30, 2016 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 507,489 507,489 Actual $ 164,106 21 164,127 Variance With Final Budget $ (343,383) 21 (343,362) 6,500 52,500 448,489 507,489 17,857 3,816 768 1,967 130,034 154,442 - 9,685 9,685 OTHER FINANCING SOURCES (USES) Transfers In 94,715 2,445 (92,270) Net Change in Fund Balance 94,715 12,130 (82,585) FUND BALANCE Beginning of Year End of Year 94,715 337,013 349,143 337,013 254,428 Excess (Deficiency) of Revenues Over Expenditures $ (88) $ (17,857) 2,684 (768) 50,533 318,455 353,047 $ CITY OF DOUGLAS, ARIZONA SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGE IN FUND BALANCE BUDGET AND ACTUAL POLICE GRANTS FUND YEAR ENDED JUNE 30, 2016 Original and Final Budget REVENUES Intergovernmental Revenues Investment Income Total Revenues $ EXPENDITURES Current Public Safety Capital Outlay Total Expenditures $ 58,000 117,450 175,450 Excess (Deficiency) of Revenues Over Expenditures FUND BALANCE Beginning of Year End of Year 175,450 175,450 Actual - $ (89) - $ 105,908 3,295 109,203 Variance With Final Budget $ (69,542) 3,295 (66,247) 83,051 103,095 186,146 (25,051) 14,355 (10,696) (76,943) (76,943) 253,770 176,827 $ 253,770 176,827 CITY OF DOUGLAS, ARIZONA SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGE IN FUND BALANCE BUDGET AND ACTUAL JCEF RESTRICTED COURT FUND YEAR ENDED JUNE 30, 2016 Original and Final Budget REVENUES Fines and Forfeitures $ EXPENDITURES Current: General Government Excess (Deficiency) of Revenues Over Expenditures FUND BALANCE Beginning of Year End of Year $ (90) 8,150 Actual $ 5,350 Variance With Final Budget $ (2,800) 19,292 12,336 6,956 (11,142) (6,986) 4,156 (11,142) $ 49,680 42,694 $ 49,680 53,836 CITY OF DOUGLAS, ARIZONA SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGE IN FUND BALANCE BUDGET AND ACTUAL CAPITAL PROJECTS FUND YEAR ENDED JUNE 30, 2016 Original and Final Budget REVENUES Taxes Investment Income Other Total Revenues $ EXPENDITURES Capital Outlay Excess (Deficiency) of Revenues Over Expenditures 89,167 89,167 Actual $ 94,589 5,761 6,000 106,350 Variance With Final Budget $ 5,422 5,761 6,000 17,183 472,121 199,184 272,937 (382,954) (92,834) 290,120 FUND BALANCE Beginning of Year End of Year $ (91) (382,954) $ 779,693 686,859 $ 290,120 CITY OF DOUGLAS, ARIZONA SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGE IN FUND BALANCE BUDGET AND ACTUAL DEBT SERVICE FUND YEAR ENDED JUNE 30, 2016 Original and Final Budget REVENUES Taxes $ - EXPENDITURES Debt Service: Principal Retirement Interest on Long-Term Debt Total Expenditures Excess (Deficiency) of Revenues Over Expenditures Variance With Final Budget Actual $ 671 $ 671 932,388 383,236 1,315,624 885,961 410,482 1,296,443 46,427 (27,246) 19,181 (1,315,624) (1,295,772) 19,852 1,315,624 1,295,772 (19,852) - - OTHER FINANCING SOURCES (USES) Transfers In Net Change in Fund Balance - FUND BALANCE Beginning of Year End of Year $ (92) - $ - $ - THIS PAGE BLANK 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 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 2009 2010 $ 14,111,791 2,756,736 3,951,726 $ 13,509,453 2,939,323 3,491,020 $ 12,376,658 3,634,763 5,438,330 $ 13,775,501 477,084 7,049,956 $ 20,820,253 $ 19,939,796 $ 21,449,751 $ 21,302,541 $ 11,744,198 1,586,749 $ 12,314,881 1,815,909 $ 15,535,124 1,006,658 $ 15,872,761 1,205,402 $ 13,330,947 $ 14,130,790 $ 16,541,782 $ 17,078,163 $ 25,855,989 2,756,736 5,538,475 $ 25,824,334 2,939,323 5,306,929 $ 27,911,782 3,634,763 6,444,988 $ 29,648,262 477,084 8,255,358 $ 34,151,200 $ 34,070,586 $ 37,991,533 $ 38,380,704 Source: The City’s Finance Department. (93) Fiscal Year 2011 2012 2013 2014 2015 2016 $ 15,847,448 719,796 3,938,127 $ 20,735,227 871,510 3,923,990 $ 20,087,841 1,234,695 3,991,132 $ 13,255,510 1,261,605 5,512,891 $ 14,659,500 1,632,597 (20,445,957) $ 16,236,005 2,087,831 (20,045,765) $ 20,505,371 $ 25,530,727 $ 25,313,668 $ 20,030,006 $ (4,153,860) $ (1,721,929) $ 16,048,928 2,100,001 $ 15,921,451 3,880,161 $ 16,866,077 443,520 3,685,177 $ 16,491,574 568,237 4,508,051 $ 16,271,458 712,773 3,157,152 $ 16,301,425 893,708 4,142,534 $ 18,148,929 $ 19,801,612 $ 20,994,774 $ 21,567,862 $ 20,141,383 $ 21,337,667 $ 31,896,376 719,796 6,038,128 $ 36,656,678 871,510 7,804,151 $ 36,953,918 1,678,215 7,676,309 $ 29,747,084 1,829,842 10,020,942 $ 30,930,958 2,345,370 (17,288,805) $ 32,537,430 2,981,539 (15,903,231) $ 38,654,300 $ 45,332,339 $ 46,308,442 $ 41,597,868 $ 15,987,523 $ 19,615,738 (94) CITY OF DOUGLAS, ARIZONA CHANGES IN NET POSITION LAST TEN FISCAL YEARS (ACCRUAL BASIS OF ACCOUNTING) (UNAUDITED) Fiscal Year 2007 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 $ 4,340,737 6,348,866 1,760,251 2,189,769 132,857 180,077 14,952,557 2009 $ 3,999,501 6,604,306 2,702,979 2,074,291 497,600 727,564 16,606,241 2010 $ 4,639,733 6,715,219 2,970,829 1,986,674 53,973 760,128 17,126,556 1,838,462 938,588 872,341 3,649,391 1,455,706 952,579 891,003 3,299,288 1,344,052 1,385,910 707,042 3,437,004 1,261,985 1,337,193 716,047 3,315,225 $ 17,857,641 $ 18,251,845 $ 20,043,245 $ 20,441,781 $ $ $ $ Business-Type Activities: Charges for Services: Water Sewer Solid Waste Operating Grants and Contributions Capital Grants and Contributions Total Business-Type Activities Program Revenues Total Primary Government Program Revenues 3,725,063 6,043,744 2,271,480 1,983,227 25,159 159,577 14,208,250 2008 $ 1,031,216 591,610 62 102,689 2,428,909 651,377 939,208 642,820 2,834 97,949 2,293,564 589,152 1,387,975 760,669 98,174 1,818,551 1,765,876 1,766,509 669,040 90,033 2,128,442 902,228 4,805,863 4,565,527 5,831,245 5,556,252 1,618,744 916,597 667,241 580,433 1,749,040 924,045 668,023 110,274 1,782,320 909,842 816,038 2,373,486 1,870,916 1,042,152 1,056,305 - 3,783,015 3,451,382 5,881,686 3,969,373 8,016,909 $ 11,712,931 8,588,878 Source: The City's Finance Department. (95) $ $ 9,525,625 Fiscal Year 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 2015 2014 $ 4,499,732 8,050,797 2,394,792 1,965,397 1,064,489 530,417 18,505,624 $ 3,858,018 9,792,922 1,946,662 1,680,063 954,039 478,120 18,709,824 2016 $ 3,336,212 9,678,626 2,597,146 2,057,077 922,816 414,014 19,005,891 1,367,914 1,320,648 755,546 3,444,108 1,698,669 1,313,976 765,647 3,778,292 1,666,863 1,310,421 785,788 3,763,072 1,839,897 1,538,514 956,297 4,334,708 1,884,943 1,472,735 930,769 4,288,447 1,654,307 1,353,423 1,134,665 4,142,395 $ 20,731,988 $ 20,852,637 $ 22,647,599 $ 22,840,332 $ 22,998,271 $ 23,148,286 $ $ $ $ $ $ 1,728,090 972,724 173,836 2,303,776 951,180 2,035,725 924,788 73,255 2,193,829 5,622,718 1,825,479 895,111 89,531 3,340,827 1,000,170 1,890,264 1,069,174 136,056 3,751,156 423,034 1,699,542 1,246,153 94,747 3,466,981 582,348 1,482,688 1,647,339 20,537 304,953 3,661,814 2,996,541 6,129,606 10,850,315 7,151,118 7,269,684 7,089,771 10,113,872 1,965,519 1,703,223 1,203,563 - 2,000,402 1,796,248 1,237,449 592,435 274,140 2,025,752 1,835,771 1,205,675 8,196 19,578 2,070,331 1,880,405 1,202,806 1,320 - 1,979,308 1,852,495 1,212,089 - 1,989,253 1,954,149 1,207,590 400,000 - 4,872,305 5,900,674 5,094,972 5,154,862 5,043,892 5,550,992 $ 11,001,911 $ 16,750,989 $ 12,246,090 $ 12,424,546 $ 12,133,663 $ 15,664,864 (96) CITY OF DOUGLAS, ARIZONA CHANGES IN NET POSITION (CONTINUED) LAST TEN FISCAL YEARS (ACCRUAL BASIS OF ACCOUNTING) (UNAUDITED) Fiscal Year (Concluded) NET (EXPENSE)/REVENUE Governmental Activities Business-Type Activities Total Primary Government Net Expense GENERAL REVENUES AND OTHER CHANGES IN NET POSITION Governmental Activities: Taxes: Sales Taxes Property Taxes Franchise Taxes Unrestricted Grants and Contributions State Revenue Sharing State Sales Tax Revenue Sharing Auto Lieu Tax Revenue Sharing Gain on Sale of Capital Assets Investment Income Other Special Item Transfers Total Governmental Activities 2007 2008 2009 2010 $ (9,402,387) 133,624 $ (10,387,030) 152,094 $ (10,774,996) 2,444,682 $ (11,570,304) 654,148 $ (9,268,763) $ (10,234,936) $ (8,330,314) $ (10,916,156) $ $ $ $ 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 5,006,857 465,726 322,308 2,002,854 1,634,497 789,900 311,744 1,119 63,387 10,598,392 5,095,143 462,232 349,444 49,612 2,448,141 1,580,288 845,030 280,685 1,697 (323,514) 10,788,758 6,151,531 532,028 341,702 18,467 2,608,244 1,368,088 793,358 16,212 322,889 132,432 12,284,951 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 91,380 106,626 (63,387) 134,619 224,968 99,267 323,514 647,749 77,114 21,628 (132,432) (33,690) (1,769) (115,998) (117,767) $ 10,733,011 $ 11,436,507 $ 12,251,261 $ 11,305,327 $ $ $ $ $ 1,196,005 268,243 1,464,248 (97) $ 401,728 799,843 1,201,571 $ 1,509,955 2,410,992 3,920,947 $ (147,210) 536,381 389,171 Fiscal Year 2011 2012 2013 2014 2015 2016 $ (11,158,274) 1,428,197 $ (6,224,030) 2,122,382 $ (11,733,409) 1,331,900 $ (11,235,940) 820,154 $ (11,620,053) 755,445 $ (8,892,019) 1,408,597 $ (9,730,077) $ (4,101,648) $ (10,401,509) $ (10,415,786) $ (10,864,608) $ (7,483,422) $ $ $ $ $ $ 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 5,952,278 980 (358,411) (357,431) 8,052 (477,751) (469,699) 23,470 (162,208) (138,738) $ 10,970,668 $ 10,779,687 $ 10,923,371 $ $ $ $ $ (5,283,662) 573,088 $ (4,710,574) $ 169,825 1,070,766 1,240,591 $ 5,025,356 1,652,683 6,678,039 $ (671,300) 1,193,162 521,862 5,578,165 577,360 317,610 40,417 2,119,573 1,600,126 776,774 20,480 26,489 265,826 245,316 11,568,136 5,361,849 585,960 312,874 37,610 2,108,081 1,644,426 812,549 (11,611) 39,738 188,576 243,898 11,323,950 22,077 (269,143) (247,066) 18,232 (245,316) (227,084) 31,585 (243,898) (212,313) 5,705,212 $ 11,341,052 $ 11,111,637 $ $ (98) $ (51,917) 528,361 476,444 $ 2,431,931 1,196,284 3,628,215 THIS PAGE BLANK CITY OF DOUGLAS, ARIZONA GOVERNMENTAL ACTIVITIES TAX REVENUES BY SOURCE LAST TEN FISCAL YEARS (ACCRUAL BASIS OF ACCOUNTING) (UNAUDITED) Fiscal Year 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Sales Taxes $ 5,006,857 5,095,143 6,228,645 5,808,108 5,953,998 5,825,402 5,364,312 5,533,351 5,578,165 5,361,849 Property Taxes Franchise Taxes $ $ 465,726 462,232 532,028 531,489 545,995 533,742 563,698 578,759 577,360 585,960 Source: The City’s Finance Department. (99) 322,308 349,444 341,702 351,635 337,029 334,074 314,080 311,019 317,610 312,874 Total $ 5,794,891 5,906,819 7,102,375 6,691,232 6,837,022 6,693,218 6,242,090 6,423,129 6,473,135 6,260,683 CITY OF DOUGLAS, ARIZONA FUND BALANCES OF GOVERNMENTAL FUNDS LAST TEN FISCAL YEARS (MODIFIED ACCRUAL BASIS OF ACCOUNTING) (UNAUDITED) Fiscal Year 2007 General Fund: Reserved Unreserved Non-spendable Restricted Unassigned Total General Fund All Other Governmental Funds: Reserved Unreserved, Reported in: Special Revenue Funds Capital Projects Funds Debt Service Funds Restricted Committed Assigned Unassigned Total All Other Governmental Funds $ 5,878 4,076,080 2008 $ 78,239 3,735,584 2009 $ 68,239 3,962,160 2011 2010 $ 4,174,438 $ $ 4,081,958 $ 3,813,823 $ 4,030,399 $ 4,174,438 $ $ $ $ 10,000 2,643,920 3,143 - 10,000 4,854,098 (68,512) - 10,000 5,335,420 (7,499) - 58,493 4,683,978 $ 4,742,471 15,453 4,065,860 $ 2,220,530 (29,857) $ 2,657,063 $ 4,795,586 $ 5,337,921 $ 4,081,313 $ 2,190,673 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. (100) Fiscal Year 2012 2013 2014 2015 2016 652,189 4,108,952 $ 4,761,141 $ 686,488 4,260,979 $ 4,947,467 $ 720,416 4,790,887 $ 5,511,303 $ 723,641 156,889 5,613,427 $ 6,493,957 734,543 157,580 6,512,749 $ 7,404,872 $ 871,510 228,340 - $ 1,174,505 224,190 - $ 1,218,198 1,033,237 320,290 - $ 1,439,415 779,693 - $ 1,900,963 693,863 - $ 1,099,850 $ 1,398,695 $ 2,571,725 $ 2,219,108 $ 2,594,826 $ (101) $ CITY OF DOUGLAS, ARIZONA CHANGES IN FUND BALANCES OF GOVERNMENTAL FUNDS LAST TEN FISCAL YEARS (MODIFIED ACCRUAL BASIS OF ACCOUNTING) (UNAUDITED) Fiscal Year 2007 REVENUES Taxes Intergovernmental Fines and Forfeitures Licenses and Permits Charges for Services Rents and Royalties Contributions and Donations Investment Income Other Total Revenues $ EXPENDITURES General Government Public Safety Highways and Streets Culture and Recreation Redevelopment and Housing Capital Outlay Debt Service Principal Retirement Interest on Long-Term Debt Total Expenditures Excess of Revenues Over (Under) Expenditures Debt Service as a Percentage of Noncapital Expenditures 5,782,276 7,507,537 199,420 270,278 1,012,858 45,000 311,744 324,140 15,453,253 $ $ 7,012,223 8,372,584 195,644 126,224 1,386,022 538,928 16,212 322,889 17,970,726 2010 $ 6,689,354 7,184,648 189,333 192,309 1,410,391 733,549 107,495 238,124 16,745,203 5,169,854 6,078,350 2,413,444 1,863,014 132,857 896,225 13,462,021 6,579,669 2,626,696 1,750,997 497,600 817,482 3,961,316 6,554,551 2,660,654 1,513,127 53,973 728,862 418,837 118,611 15,173,624 429,669 133,267 17,116,680 656,965 686,598 27,078,028 2,228,723 719,162 18,420,368 (1,401,098) (9,107,302) (1,675,165) 1,553,137 (1,876,651) 3,000,000 595,000 - 1,020,458 (888,026) 9,000,000 595,000 - 1,303,871 (1,002,494) 400,000 - 3,271,486 9,727,432 1,380,037 (1,316,650) 63,387 $ 5,914,743 7,805,787 141,232 169,697 1,059,989 36,000 280,685 307,449 15,715,582 2009 3,801,423 5,992,153 2,551,227 2,266,214 25,159 - 279,629 OTHER FINANCING SOURCES (USES) Transfers In Transfers Out Issuance of Long-Term Debt Proceeds from Capital Leases Proceeds from Sale of Capital Assets Total Other Financing Sources (Uses) Net Change in Fund Balance 2008 343,016 3.54% Source: The City’s Finance Department. (102) $ 1,870,388 4.05% $ 620,130 9.80% 701,377 $ (973,788) 18.09% Fiscal Year 2011 $ 6,831,876 7,083,337 201,361 172,602 1,745,359 755,328 67,493 258,705 17,116,061 2012 $ $ 6,234,848 8,031,863 273,475 162,571 1,605,657 768,418 39,423 596,739 17,712,994 2014 $ 6,399,692 8,455,635 311,448 201,227 1,763,797 819,022 30,607 281,915 18,263,343 2015 $ 6,476,819 8,035,692 160,870 165,004 1,895,749 818,819 136,718 26,489 265,826 17,981,986 2016 $ 6,252,364 8,446,141 202,116 152,482 2,282,537 818,382 39,738 188,576 18,382,336 3,910,726 6,275,426 1,975,991 1,409,501 51,599 2,007,704 3,555,255 6,709,042 2,093,297 1,361,590 2,620,504 3,469,997 7,139,134 1,779,871 1,407,089 1,035,816 2,007,665 3,407,238 7,295,712 1,685,298 1,513,927 1,058,347 1,806,890 3,203,318 7,030,010 1,276,388 1,337,577 947,866 1,923,777 2,863,112 8,395,922 1,909,520 1,694,211 916,674 521,648 1,611,006 663,544 17,905,497 1,636,402 623,553 18,599,643 1,627,585 551,097 19,018,254 1,464,848 501,922 18,734,182 1,474,930 423,879 17,617,745 907,502 414,014 17,622,603 (789,436) (1,673,601) (1,305,260) (470,839) 364,241 759,733 2,837,907 (2,479,496) 75,413 - 2,923,356 (2,445,605) 71,676 52,021 2,480,730 (2,318,522) 1,205,911 - 2,354,892 (2,085,749) 1,041,474 897,088 1,368,119 2,207,705 433,824 $ 6,707,653 6,783,653 319,294 196,385 1,759,653 758,436 44,626 356,342 16,926,042 2013 (355,612) 14.02% 601,448 $ (1,072,153) 14.27% $ 62,859 12.65% $ 1,736,866 11.68% (103) 2,557,063 (2,311,747) 20,480 1,633,133 (1,389,235) 67,277 215,725 265,796 $ 630,037 12.10% 526,900 $ 1,286,633 7.87% CITY OF DOUGLAS, ARIZONA TAXABLE SALES BY CATEGORY LAST TEN FISCAL YEARS (UNAUDITED) Fiscal Year 2007 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 2008 $ 466,247 15,039,614 40,313 8,593,952 3,375,254 3,994,393 145,310,162 84,995 6,656,980 12,923,634 2,600,819 108,890 2,714,689 8,285 2,532,122 $ 204,450,349 2.50% $ 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% Source: Arizona Department of Revenue. (104) 2010 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% $ 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% Fiscal Year 2011 301,452 23,550,249 66,060 19,963,998 986,650 1,226,017 147,664,164 33,753 8,690,896 14,153,836 3,652,951 1,018,073 410,600 2,599,103 $ 224,317,802 $ 2.80% 2012 $ 6,606 21,998,591 36,614 18,615,619 136,449,566 8,369,967 15,215,328 4,552,670 1,224,696 758,552 276,830 $ 207,505,039 2.80% 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 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% 2.80% (105) 2015 $ 2,891 20,725,169 32,657 10,778,758 141,407,356 8,143,356 14,634,276 2,848,778 1,102,206 377,338 262,025 $ 200,314,810 2.80% 2016 $ 20,056,514 23,200 7,836,315 134,525,779 8,776,313 14,629,652 2,685,332 709,281 342,208 177,197 $ 189,761,791 2.80% CITY OF DOUGLAS, ARIZONA DIRECT AND OVERLAPPING SALES TAX RATES LAST TEN FISCAL YEARS (UNAUDITED) Fiscal Year 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 City Direct Rate Cochise County 2.50 2.50 2.80 2.80 2.80 2.80 2.80 2.80 2.80 2.80 Source: Arizona Department of Revenue. (106) 6.10 6.10 6.10 6.10 7.10 7.10 6.10 6.10 6.10 6.10 CITY OF DOUGLAS, ARIZONA ASSESSED VALUE AND ESTIMATED ACTUAL VALUE OF TAXABLE PROPERTY LAST TEN FISCAL YEARS (IN THOUSANDS OF DOLLARS) (UNAUDITED) Assessed Value Fiscal Year Real Property 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 $ 54,948 55,520 58,804 58,950 62,801 61,660 60,730 59,500 56,289 55,812 Personal Property Less: Tax Exempt Real Property Total Taxable Assessed Value $ $ $ 51,893 52,821 57,027 56,350 57,777 56,188 54,892 53,400 50,476 49,885 2,925 1,506 4,848 4,728 4,254 3,936 3,905 3,585 3,718 3,782 5,980 4,205 6,625 7,328 9,278 9,408 9,743 9,685 9,531 9,709 Source: The Cochise County Treasurer. (107) Total Direct Tax Rate Estimated Actual Taxable Value Assessed Value as a Percentage of Actual Value 8.70 % 8.87 10.55 13.07 8.23 8.36 7.21 11.64 13.79 13.90 $ 459,832 462,040 470,911 478,320 509,351 505,672 499,781 494,935 468,243 468,189 11.285 % 11.432 12.110 11.781 11.343 11.112 10.983 10.789 10.780 10.655 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 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 0.99 1.02 1.00 0.98 0.98 1.05 1.08 1.15 1.18 1.19 2.87 2.68 2.64 2.63 2.63 2.63 2.63 2.63 2.63 2.63 1.74 1.66 1.61 1.60 1.67 1.73 1.85 2.03 2.18 2.29 Secondary Rates Douglas Unified School District 3.10 3.51 5.30 7.86 2.95 2.95 1.65 5.83 7.80 7.79 Source: The Cochise County Treasurer. (108) Total Direct Rate 8.70 8.87 10.55 13.07 8.23 8.36 7.21 11.64 13.79 13.90 School District 1.72 1.78 0.96 1.07 0.87 0.53 0.86 0.87 0.89 1.13 County 0.40 0.40 0.40 0.34 0.45 0.55 0.55 0.55 0.55 0.55 Rate Total 10.82 11.05 11.91 14.48 9.55 9.44 8.62 13.06 15.23 15.59 CITY OF DOUGLAS, ARIZONA PRINCIPAL PROPERTY TAXPAYERS JUNE 30, 2016 AND 2007 (UNAUDITED) 2016 Taxpayer Wal-Mart Stores Inc. Arizona Public Service Cochise Pacific Assoc AZ LP DHD LLC Southwest Gas Corporation SFP Pool Five Shopping Centers BH Properties LLC Qwest Corporation UIRC-GSA V Douglas AZ LLC J C Penney Co Inc Safeway Inc. FAE Holdings 356216R LLC MT Development LLC Reay's Ranch Investor's LLC Cox Com Inc Food City #112 Taxable Assessed Value Rank $ 2,422,960 1,830,785 700,286 571,247 480,410 427,482 406,800 362,047 359,293 306,721 1 2 3 4 5 6 7 8 9 10 $ 7,868,031 Source: The Cochise County Assessor's Office. (109) 2007 Percentage of Total Taxable Assessed Value 4.86 % 3.67 1.40 1.15 0.96 0.86 0.82 0.73 0.72 0.61 - 15.77 % Taxable Assessed Value Rank $ 6,428,919 1,732,369 1 2 797,925 6 903,151 4 1,597,830 625,670 925,945 1,438,980 888,070 687,280 $ 16,026,139 5 7 3 8 9 10 Percentage of Total Taxable Assessed Value 11.70 % 3.15 1.45 1.64 2.91 1.14 1.69 2.62 1.62 1.25 29.17 % CITY OF DOUGLAS, ARIZONA PROPERTY TAX LEVIES AND COLLECTIONS LAST TEN FISCAL YEARS (UNAUDITED) Total Tax Levy Fiscal Year 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 $ 468,748 485,584 542,878 546,719 555,804 538,029 552,411 562,460 565,710 586,193 Current Tax Collections $ 423,146 440,446 489,507 477,007 504,613 490,427 501,212 498,462 515,897 523,764 Percent of Current Taxes Collected 90.27 % 90.70 90.17 87.25 90.79 91.15 90.73 88.62 91.19 89.35 Source: The Cochise County Treasurer. (110) Delinquent Tax Collections $ 45,602 42,194 51,173 67,359 48,402 44,058 47,006 59,021 44,910 - Total Tax Collections $ 468,748 482,640 540,680 544,366 553,015 534,485 548,218 557,483 560,807 523,764 Ratio of Total Tax Collections to Total Tax Levy 100.00 % 99.39 99.60 99.57 99.50 99.34 99.24 99.12 99.13 89.35 Outstanding Delinquent Taxes $ 2,944 2,198 2,353 2,789 3,544 4,193 4,977 4,903 62,429 Ratio of Delinquent Taxes to Tax Levy -% 0.61 0.40 0.43 0.50 0.66 0.76 0.88 0.87 10.65 (111) CITY OF DOUGLAS, ARIZONA RATIOS OF OUTSTANDING DEBT BY TYPE LAST TEN FISCAL YEARS (UNAUDITED) Governmental Activities Fiscal Year Revenue Bonds 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 $ 3,370,000 2,995,000 2,605,000 2,205,000 1,790,000 1,365,000 920,800 468,602 - Loans Payable $ 3,000,000 12,000,000 10,890,000 10,025,000 9,155,000 8,260,000 7,725,000 7,125,000 6,620,000 Business-Type Activities Capital Leases $ 483,879 947,738 1,275,773 957,050 701,457 431,731 1,345,057 1,911,683 1,506,753 1,162,606 Loans Payable $ 3,239,489 5,857,703 5,928,449 5,457,668 5,095,574 4,604,627 5,263,184 Source: The City’s Finance Department. (112) Capital Leases $ 198,842 109,353 61,716 31,626 263,551 440,727 326,606 210,018 Total Primary Government $ 4,052,721 7,052,091 15,942,489 17,323,165 18,374,160 16,880,180 16,247,076 15,641,586 13,562,986 13,255,808 Percentage of Personal Income 1.57 % 2.73 5.65 5.62 6.24 6.44 7.15 6.68 5.79 5.66 Per Capita $ 220 371 862 864 913 854 935 893 798 757 CITY OF DOUGLAS, ARIZONA DIRECT AND OVERLAPPING GOVERNMENTAL ACTIVITIES DEBT JUNE 30, 2016 (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) 1,582,494 19,020,000 5,800,000 5.21% 5.21% 100.00% 7,782,606 100.00% Estimated Share of Overlapping Debt $ $ 82,511 991,703 5,800,000 6,874,214 7,782,606 14,656,820 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 2014-15. (113) CITY OF DOUGLAS, ARIZONA LEGAL DEBT MARGIN INFORMATION LAST TEN FISCAL YEARS (UNAUDITED) Fiscal Year 20% Debt Limit 2007 2008 2009 2010 2011 $ 9,938,245 $ 10,378,721 $ 10,890,226 $ 11,240,800 $ 11,387,094 - - - - - $ 9,938,245 $ 10,378,721 $ 10,890,226 $ 11,240,800 $ 11,387,094 - - - - 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 2007 2008 2009 2010 2011 $ 2,981,474 $ 3,113,616 $ 3,267,068 $ 3,372,240 $ 3,416,128 - - - - - $ 2,981,474 $ 3,113,616 $ 3,267,068 $ 3,372,240 $ 3,416,128 - - - - - Source: The City's Finance Department and the Cochise County Assessor's Office. (114) Fiscal Year 2012 2013 2014 2015 2016 $ 11,237,561 $ 10,978,476 $ 10,679,957 $ 10,095,268 $ 9,977,035 - - - - - $ 11,237,561 $ 10,978,476 $ 10,679,957 $ 10,095,268 $ 9,977,035 - - - - - Fiscal Year 2012 2013 2014 2015 2016 $ 3,371,268 $ 3,293,543 $ 3,203,987 $ 3,028,580 $ 2,993,111 - - - - - $ 3,371,268 $ 3,293,543 $ 3,203,987 $ 3,028,580 $ 2,993,111 - - - - - (115) THIS PAGE BLANK CITY OF DOUGLAS, ARIZONA CALCULATION OF LEGAL DEBT MARGIN JUNE 30, 2016 (UNAUDITED) $ 49,885,176 Net Secondary Assessed Value Water, Sewer, Light, Parks, Open Space and Recreational Facility Bonds 9,977,035 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 $ 9,977,035 20% Legal Debt Margin All Other General Obligation Bonds 2,993,111 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 2,993,111 All Other General Obligation Bonds Debt Margin $ 12,970,146 Total Legal Debt Margin Source: Cochise County Assessor's Office. Note: The City did not have any debt subject to the debt limits. (116) CITY OF DOUGLAS, ARIZONA PLEDGED-REVENUE COVERAGE LAST TEN FISCAL YEARS (UNAUDITED) Revenue Bonds Fiscal Year Pledged Revenue 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 $ 11,573,296 11,942,651 12,666,703 11,803,431 11,458,594 11,017,679 10,896,218 11,462,981 11,792,995 - Less: Operating Expenses $ Net Available Revenue - $ 4,012,867 4,067,101 12,666,703 11,803,431 11,458,594 11,017,679 10,896,218 11,462,981 11,792,995 - Debt Service Principal Debt Service Interest $ $ 365,000 375,000 390,000 400,000 415,000 425,000 440,000 455,000 470,000 - 104,838 97,238 97,237 80,476 71,077 59,457 46,106 31,806 16,451 - Coverage 2463.25 2528.94 2599.70 2456.61 2357.36 2274.23 2241.53 2354.73 2424.29 Source: The City of Douglas' internal records. Note 1: The City's bonds are secured by City sales tax revenues. Sales tax revenues are applied first to the bonds and therefore no operating expenses are presented. Note 2: Revenue bonds were paid off in fiscal year 2015. (117) - GADA Loan Pledged Revenue Fiscal Year 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Less: Operating Expenses $ 9,968,602 10,921,221 10,048,079 9,721,384 9,453,492 9,315,887 9,791,063 10,074,638 8,650,701 $ - Net Available Revenue Debt Service Principal Debt Service Interest $ $ $ 9,968,602 10,921,221 10,048,079 9,721,384 9,453,492 9,315,887 9,791,063 10,074,638 8,650,701 170,000 110,000 110,000 115,000 120,000 125,000 130,000 24,369 147,935 142,812 128,638 123,775 121,264 114,974 110,172 103,922 Coverage N/A 40906.90% 7382.45% 3212.18% 4073.69% 4043.84% 3943.00% 4166.87% 4283.94% 3698.11% Call Center Loan Fiscal Year 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 City Sales Tax and Lease Revenue $ 10,286,049 9,254,791 8,996,669 8,735,260 8,593,517 9,069,283 9,353,016 9,129,585 Less: Operating Expenses $ - Net Available Revenue Debt Service Principal Debt Service Interest $ $ $ 10,286,049 704,620 8,996,669 8,735,260 1,215,652 9,069,283 9,353,016 9,129,585 1,260,000 675,000 700,000 740,000 375,000 375,000 375,000 239,925 451,849 431,325 391,310 356,805 321,086 299,680 279,037 Coverage N/A N/A 4287.19% 41.16% 813.20% 800.44% 110.84% 1302.90% 1386.29% 1395.88% WIFA Loan Fiscal Year 2010 2011 2012 2013 2014 2015 2016 Less: Operating Expenses Water/Sewer Revenues $ 2,749,697 3,540,996 3,722,556 3,779,059 3,916,977 3,846,928 3,969,670 $ 2,586,553 2,688,562 2,980,047 2,974,329 3,252,197 3,250,667 2,924,914 Net Available Revenue Debt Service Principal Debt Service Interest $ $ $ 163,144 852,434 742,509 804,730 664,780 596,261 1,044,756 (118) 65,145 460,014 470,781 480,756 490,947 536,634 12,625 103,461 126,183 124,189 114,104 98,597 96,238 Coverage 1292.23% 505.58% 126.67% 135.26% 111.75% 101.14% 165.08% CITY OF DOUGLAS, ARIZONA DEMOGRAPHIC AND ECONOMIC STATISTICS LAST TEN FISCAL YEARS (UNAUDITED) Fiscal Year 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Population 18,411 18,996 18,500 20,061 20,122 19,772 17,378 17,509 16,989 16,592 Personal Income $ 258,453,618 277,987,464 282,199,000 308,277,387 294,364,738 262,236,036 227,252,106 234,200,384 233,785,629 223,046,256 Per Capita Personal Income $ (119) 14,038 14,634 15,254 15,367 14,629 13,263 13,077 13,376 13,761 13,443 Median Age 30.50 30.50 31.00 31.10 32.20 32.20 32.20 32.20 32.20 32.20 Unemployment Rate 6.30 % 8.6 11.2 10.6 10.8 10.1 10.2 9.6 7.8 7.7 CITY OF DOUGLAS, ARIZONA PRINCIPAL EMPLOYERS CURRENT YEAR AND TEN YEARS AGO (UNAUDITED) 2016 Employer Arizona Department of Corrections Douglas Unified School District Advanced Call Center Technologies City of Douglas Cochise College Chiricahua Community Health Center Cochise Private Industry Council Cochise County Copper Queen Community Hospital Wal-Mart Stores, Inc Southeast Arizona Medical Center Basha's Gadsden Hotel Infinia at Douglas Employees 615 492 248 179 165 116 90 48 37 1,990 Rank 1 2 3 4 5 6 7 8 9 - Source: Cochise College Center for Economic Research Note: Only Top 9 employers were available in 2016 (120) 2007 Percentage of Total City Employment 12.48 % 9.98 5.03 3.63 3.35 2.35 1.83 0.97 0.75 40.37 % Employees Rank 679 561 1 2 221 221 4 4 66 8 345 116 69 65 61 2,404 3 6 7 9 10 Percentage of Total City Employment 11.19 % 9.24 3.64 3.64 1.09 5.68 1.91 1.14 1.07 1.00 39.60 % THIS PAGE BLANK CITY OF DOUGLAS, ARIZONA FULL-TIME EQUIVALENT EMPLOYEES BY FUNCTION LAST TEN FISCAL YEARS (UNAUDITED) Fiscal Year Function General Government Management Services: Administration Human resources Court MIS Finance Economic Development Visitor Parking Center Total Mgmt Services 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 7.0 4.0 2.5 2.0 5.5 1.0 4.5 26.5 7.0 3.5 2.5 3.0 6.5 1.0 4.5 28.0 5.0 3.5 2.5 3.0 6.0 1.0 3.5 24.5 5.0 3.0 2.0 4.0 6.0 3.0 23.0 5.0 3.0 2.0 4.5 9.0 3.5 27.0 5.0 3.0 1.5 3.5 8.5 3.5 25.0 5.0 3.0 1.5 3.0 8.5 1.0 22.0 4.5 3.0 1.5 4.0 9.0 1.0 23.0 4.5 3.0 1.5 4.0 9.0 1.0 23.0 4.0 3.0 1.5 4.0 7.0 0.5 20.0 4.0 4.0 5.0 5.0 7.5 8.5 6.5 6.5 3.5 3.5 Police Officers Civilians Total Police 29.0 15.0 44.0 31.0 16.0 47.0 37.0 14.0 51.0 34.0 14.0 48.0 32.0 14.0 46.0 32.0 14.0 46.0 32.0 15.0 47.0 31.0 11.5 42.5 31.0 13.0 44.0 29.0 13.0 42.0 Fire Firefighters and Officers Civilians Total Fire 26.0 2.0 28.0 24.0 2.0 26.0 25.0 1.0 26.0 25.0 1.0 26.0 25.0 1.5 26.5 23.0 1.5 24.5 24.0 2.0 26.0 23.0 2.0 25.0 25.0 2.0 27.0 27.0 2.0 29.0 Public Works Engineering (PW Adm) Planning & Zoning Construction Refuse Collections Mechanics Streets Street Maintenance Airport Water Field Water CIP Water Billing Wastewater Total Public Works 4.0 2.0 4.0 10.0 4.0 12.0 5.0 10.0 6.0 4.0 7.0 68.0 4.0 3.0 4.0 7.0 4.0 11.0 4.0 9.0 8.0 4.0 8.0 66.0 6.0 2.0 4.0 5.0 4.0 8.0 4.0 8.0 7.0 4.0 7.0 59.0 4.0 2.0 6.0 6.0 4.0 7.0 4.0 6.0 6.0 4.0 7.0 56.0 3.5 2.0 7.0 6.0 3.0 7.0 4.0 7.0 4.0 6.0 49.5 4.0 2.0 6.0 5.0 2.0 6.0 4.0 7.0 4.0 5.0 45.0 2.0 1.0 6.0 7.0 2.5 8.0 1.0 7.5 2.0 5.5 42.5 2.0 2.0 5.0 8.0 3.0 7.0 1.0 7.5 2.0 5.5 43.0 1.0 2.0 5.0 9.0 3.0 5.0 1.0 7.5 2.0 5.5 41.0 5.5 38.0 Parks and Recreation Comm Dev Admin Aquatics Cemetery Parks Recreation Golf Course Library Transit Total P&R 3.0 16.0 4.0 9.0 7.0 3.5 8.0 50.5 3.0 13.5 4.0 10.0 8.5 5.5 7.5 52.0 2.0 11.5 2.0 10.0 4.5 8.0 7.0 45.0 1.0 11.0 2.0 10.0 5.0 8.0 8.0 45.0 1.0 11.5 1.0 10.5 5.5 10.5 8.0 48.0 1.0 10.5 2.0 9.5 6.5 9.5 7.0 46.0 1.0 12.5 3.0 8.5 5.5 7.5 6.5 5.5 50.0 12.0 3.0 9.0 5.5 5.5 6.5 6.5 48.0 10.5 2.0 9.0 6.5 2.5 8.0 6.0 44.5 10.5 2.0 8.5 6.0 7.5 12.0 46.5 221.0 223.0 210.5 203.0 204.5 195.0 194.0 188.0 183.0 179.0 Housing Total (121) 1.5 5.0 8.0 3.0 5.0 0.5 7.5 2.0 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 Transit Riders Miles 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) 2007 2008 2009 2010 2011 262 1,100 338 858 354 400 305 344 198 305 1,615 1,919 4,590 1,475 1,562 3,814 1,917 648 4,569 1,795 646 4,300 1,564 745 4,211 2,336 187 62 2,200 201 80 2,030 216 80 2,312 198 101 2,829 61 150 23.9 0.5 30.0 0.5 30.0 0.5 16.3 - 23.5 - 1.0 143 1.4 152 1.5 195 2.1 680 1.0 1,360 120 16,535 26,990 117 14,660 28,369 120 9,071 36,761 119 10,036 31,408 122 11,021 14,808 52,824 83,018 56,961 94,955 60,856 85,595 59,649 86,098 57,684 74,141 - - - - - 60 8 28 18 68 5 10 2 16 9 2,579,831 3,660,000 2,638,660 3,662,519 3,500,000 4,385,713 5,380,000 3,613,013 148,101,000 5,023,000 1.8 2.1 1.6 1.5 1.7 Source: The City of Douglas' internal records. (122) Fiscal Year 2013 2012 2014 2015 2016 221 778 264 695 202 704 188 229 205 277 554 545 3,888 1,332 252 4,158 1,348 183 3,220 1,164 158 2,981 1,317 140 2,490 2,437 55 200 2,459 231 161 2,560 457 367 2,900 52 261 3,479 196 108 26.5 - 27.5 - 22.9 - 33.4 - 24.6 - 0.5 2,100 2.1 1,600 0.8 1,763 6.0 2,385 6.2 4,500 125 8,812 21,301 93 10,199 16,685 83 16,051 17,792 105 7,954 14,674 56 3,384 11,631 56,715 63,180 47,157 61,256 59,033 64,843 53,887 53,181 63,930 59,737 56,400 106,795 68,777 105,615 55,770 105,158 - - 10 8 11 12 11 7 5 8 5 6 3,177,000 3,216,045 3,321,000 2,971,544 2,725,146 4,725,000 4,716,136 4,384,000 3,984,848 3,366,799 1.7 2.0 2.1 1.9 1.9 (123) 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) 2007 2008 2009 2010 2011 1 21 1 1 20 1 1 27 1 1 22 1 1 21 1 5 5 5 5 5 110 2,693 13 110 2,693 14 110 2,693 14 112 2,693 14 110 2,693 14 92 5 6 13 2 1 92 5 6 13 2 1 92 5 6 13 2 1 92 5 6 13 2 1 92 5 6 13 2 1 81 445 83 526 83 526 84 535 100 540 500,900 500,900 500,900 500,900 500,900 75 9 78 9 78 9 80 9 85 9 2,000,000 2,000,000 2,000,000 2,000,000 2,000,000 Source: The City of Douglas' internal records. (124) Fiscal Year 2012 2013 2014 2015 2016 1 23 1 1 22 1 1 21 1 1 23 1 1 23 1 5 4 4 4 4 110 2,693 14 110 2,693 14 110 2,693 14 110 2,693 14 110 2,693 12 92 5 6 13 2 1 92 5 6 13 2 1 92 5 6 13 2 1 92 5 6 13 2 1 92 5 6 13 2 1 100 545 100 458 100 560 100 567 100 570 500,900 500,900 500,900 590,000 590,000 85 9 86 9 86 9 86 9 86 9 2,000,000 2,000,000 2,000,000 2,000,000 2,000,000 (125) THIS PAGE BLANK