FLAGSTAFF, ARIZONA City of Flagstaff Comprehensive Annual Financial Report Fiscal Year Ended June 30, 2005 Comprehensive Annual Financial Report For Fiscal Year Ended June 30, 2005 City of Flagstaff, Arizona Prepared By: Management Services Department Finance and Budget Division City of Flagstaff Comprehensive Annual Financial Report For the Fiscal Year Ended June 30, 2005 TABLE OF CONTENTS Page INTRODUCTORY SECTION Letter of Transmittal .........................................................................................................................................iii GFOA Certificate of Achievement ......................................................................................................................xi Organizational Chart........................................................................................................................................xii List of Elected and Appointed Officials ............................................................................................................xiii FINANCIAL SECTION Independent Auditor’s Report ........................................................................................................................... 1 MANAGEMENT’S DISCUSSION AND ANALYSIS........................................................................................................... 3 BASIC FINANCIAL STATEMENTS Government-wide Financial Statements: Statement of Net Assets ..................................................................................................................... 15 Statement of Activities ....................................................................................................................... 16 Fund Financial Statements: Balance Sheet – Governmental Funds.................................................................................................. 18 Reconciliation of the Balance Sheet to the Statement of Net Assets - Governmental Activities............ 20 Statement of Revenues, Expenditures, and Changes in Fund Balances – Governmental Funds ............ 22 Reconciliation of the Statement of Revenues, Expenditures and Changes in Fund Balances of Governmental Funds to the Statement of Activities ....................................... 24 General Fund - Statement of Revenues, Expenditures, and Changes in Fund Balances – Budget and Actual .............................................................................................. 25 Highway User Fund - Statement of Revenues, Expenditures, and Changes in Fund Balances – Budget and Actual .............................................................................................. 26 Transportation Fund - Statement of Revenues, Expenditures, and Changes in Fund Balances – Budget and Actual .............................................................................................. 27 BBB Fund - Statement of Revenues, Expenditures, and Changes in Fund Balances – Budget and Actual .............................................................................................. 28 Statement of Net Assets – Proprietary Funds ...................................................................................... 30 Statement of Revenues, Expenses, and Changes in Fund Net Assets – Proprietary Funds ............................................................................................ 32 Statement of Cash Flows – Proprietary Funds ..................................................................................... 34 Statement of Fiduciary Net Assets – Fiduciary Funds .......................................................................... 38 Statement of Changes in Fiduciary Net Assets – Fiduciary Funds ........................................................ 39 Notes to the Financial Statements............................................................................................................. 41 COMBINING STATEMENTS Non-Major Funds – Other Governmental Funds: Special Revenue Funds ....................................................................................................................... 73 Debt Service Funds............................................................................................................................. 73 Capital Project Fund ........................................................................................................................... 73 Permanent Fund ................................................................................................................................. 73 i Combining and Individual Fund Statements and Schedules: Combining Balance Sheet – Non-major Governmental Funds ............................................................. 74 Combining Statement of Revenues, Expenditures and Changes in Fund Balances – Non-major Governmental Funds ........................................................................ 76 SUPPLEMENTAL INFORMATION Capital Assets Used in the Operations of Governmental Funds: Schedule By Function and Activity ...................................................................................................... 80 Schedule of Changes By Function and Activity .................................................................................... 82 Schedules of Revenues, Expenditures, and Changes in Fund Balances – Budget and Actual: Library Fund ................................................................................................................................ 83 Real Estate Proceeds Fund............................................................................................................ 84 Community Redevelopment Fund ................................................................................................ 85 Metropolitan Planning Organization Fund .................................................................................... 86 General Obligation Bond Fund ..................................................................................................... 87 Special Assessment Bond Fund .................................................................................................... 88 Secondary Property Tax Revenue Fund......................................................................................... 89 Capital Projects Fund ................................................................................................................... 90 STATISTICAL SECTION Government-wide information: Government-wide Expenses by Function .................................................................................................. 92 Government-wide Revenues ..................................................................................................................... 93 Fund information: General Governmental Expenditures by Function...................................................................................... 94 General Governmental Revenues by Source .............................................................................................. 95 Tax Revenues by Source ........................................................................................................................... 96 Property Tax Levies and Collections.......................................................................................................... 97 Primary Assessed Value and Estimated Actual Value of Taxable Property.................................................. 98 Property Tax Rates – Direct and Overlapping Governments....................................................................... 99 Principal Taxpayers ................................................................................................................................ 100 Special Assessment Collections .............................................................................................................. 101 Computation of Legal Debt Margin ......................................................................................................... 102 Percent of Net General Bonded Debt to Secondary Assessed Value and Net General Bonded Debt Per Capita.......................................................................................... 103 Ratio of Annual Debt Service Expenditures for General Bonded Debt to Total General Governmental Expenditures ........................................................................... 104 Computation of Direct and Overlapping Bonded Debt............................................................................. 105 Schedule of Water and Wastewater Revenue Bond Coverage ................................................................... 106 Demographic Statistics ........................................................................................................................... 107 Property Value, Construction, and Bank Deposits ................................................................................... 108 Miscellaneous Statistics .......................................................................................................................... 109 Intergovernmental Revenue by Source .................................................................................................... 111 Insurance Summary ................................................................................................................................ 112 ii City of Flagstaff October 28, 2005 The Honorable Mayor, City Council and Citizens of the City of Flagstaff, Arizona I am pleased to submit the Comprehensive Annual Financial Report (CAFR) for the City of Flagstaff, Arizona (City) for the fiscal year ended June 30, 2005, as required by Article VI, Section 5 of the City Charter. The report was prepared by the City’s Finance Division in accordance with U.S. generally accepted accounting principles (GAAP) and audited in accordance with U.S. generally accepted auditing standards by a firm of licensed certified public accountants. This report consists of management’s representations concerning the finances of the City of Flagstaff. 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 Flagstaff has established a comprehensive internal control framework that is designed both to protect the government’s assets from loss, theft or misuse and to compile sufficient reliable information for the preparation of the City of Flagstaff’s financial statements in conformity with GAAP. Because the cost of internal controls should not outweigh their benefits, the City of Flagstaff’s comprehensive framework of internal controls has been designed to provide reasonable rather than absolute assurance that the financial statements will be free from material misstatement. As management, we assert that, to the best of our knowledge and belief, this financial report is complete and reliable in all material respects. Nordstrom & Associates, PC, a firm of licensed certified public accountants have audited the City of Flagstaff’s financial statements. The goal of the independent audit was to provide reasonable assurance that the financial statements of the City of Flagstaff for the fiscal year ended June 30, 2005, are free of material misstatement. The independent audit involved examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements; assessing the accounting principles used and significant estimates made by management; and evaluating the overall financial statement presentation. The independent auditor concluded based upon the audit, that there was a reasonable basis for rendering an unqualified opinion that the City of Flagstaff’s financial statements for the fiscal year ended June 30, 2005, are fairly presented in conformity with GAAP. The independent auditor’s report is presented as the first component of the financial section of this report. 211 West Aspen Avenue, Flagstaff, Arizona 86001 Main & TDD (928) 774-5281, Arizona Relay 7-1-1, Fax (928) 779-7696 The independent audit of the financial statements of the City of Flagstaff was part of a broader, federally mandated “Single Audit” designed to meet the special needs of federal grantor agencies. The standards governing Single Audit engagements require the independent auditor to report not only on the fair presentation of the financial statements, but also on the audited government’s internal controls and compliance with legal requirements, with special emphasis on internal controls and legal requirements involving the administration of federal awards. These reports are available in the City of Flagstaff’s separately issued Single Audit Report. GAAP require 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 Flagstaff’s MD&A can be found immediately following the report of the independent auditors. CITY OF FLAGSTAFF PROFILE Flagstaff is located in Coconino County, Arizona at the intersection of Interstate 17 and Interstate 40. Flagstaff is the largest city in Northern Arizona and is the regional center and county seat for Coconino County, the second largest county in the 48 contiguous states. The current population as of the 2003 census is approximately 61,030. The City of Flagstaff became a town in 1894, incorporated as a city in 1928 and its boundaries currently encompass an area of just over 64 square miles. Flagstaff is nestled at the base of the San Francisco Peaks and is surrounded by one of the largest ponderosa pine forests on earth. Flagstaff drew its name from a very tall pine tree made into a flagpole in 1876 to celebrate our nations centennial. At nearly 7,000 feet, Flagstaff is one of the highest elevation cities in the United States. Flagstaff operates under a council-manager form of government as provided by its Charter. The Mayor is elected at large on a non-partisan ballot for a two-year term and six City Council members are elected at large on a non-partisan ballot for a four-year term. The City Council appoints the City Manager, who has full responsibility for carrying out Council policies and administering City operations. The City manager, in turn, appoints City employees and department heads under service procedures specified by Charter. City service departments provide a full range of services including General Government, police and fire protection, Environmental Services, Transportation, Library, Parks and Recreation, Airport, Water and Sewer, and Stormwater Services. The annual budget serves as the foundation for Flagstaff’s financial planning and control. The City Council formally adopts the budget and legally allocates, or appropriates, available monies for all funds and entities related to the City. All of these funds and entities are included in the basic financial statements. The City Manager submits to the Council each spring a proposed budget for the fiscal year commencing the following July 1. The budget includes proposed expenditures and the means of financing them. Two public hearings are held prior to the budget’s final adoption in order to obtain taxpayer comments. The budget is legally enacted through the passage of an ordinance. The ordinance sets the limit for expenditures during the fiscal year. The legal level of control for the budget is the department level. Additional expenditures may be authorized for unanticipated and/or inadequately budgeted events threatening the public health or safety as prescribed in the State Constitution, Article 9, Section 20. iv FACTORS AFFECTING THE CITY’S FINANCIAL CONDITIONS Local economy The City’s employment base continues to be heavily government based. Although this provides stability to the economy during declines, it is subject to other factors. This year the Arizona state retirement system again increased employee mandated contributions which effectively reduced local disposable incomes for individuals working for the City, County, Community College, Flagstaff Unified School District and to some extent Northern Arizona University. The City continues to see further development as a second home market to the residents of Phoenix and its surrounding areas. The City anticipates land development to slow as there are less residential lots available for construction and commercial land is at premium. However, despite these factors, at the time of this letter we have seen 3.9 % growth in our retail sales, excluding BBB. The strongest rebound was in the BBB category, which represents approximately, 17% of receipts. Receipts grew by 5.5% as a result of strong tourism in the region due to record breaking snowfall and the growth in population in Phoenix. Auto sales had a modest increase of 2.9% and commercial rentals increased 8.8%. The Council goals have also provided for the expansion of the local Mall, which is a regional shopping center. The Mall expansion includes the construction of an Auto mall. Construction is anticipated to begin this next year with completion planned for 2007. This project is a real boom to the local economy. It is a known fact that there is a significant loss of sales tax revenues to the Phoenix area for many retail items. This is exemplified when a new retailer such as Home Depot opened its first store in town and we experienced real retail growth of 35% in the building materials category. The mall will be adding approximately 425,000 square feet of additional rental space and 33 new auto dealers to the market. Sales tax receipts will be benefited both in the of construction dollars spent at the mall and in additional retail sales. LONG-TERM FINANCIAL PLANNING The City’s responsiveness to emerging economic challenges and its careful long-range planning have been key factors in Flagstaff’s fiscal health. STRATEGIC FINANCIAL PLAN Flagstaff’s financial plan requires many elements working in concert with one another. Some of these financial plan elements are financial resource planning, multi-year budget planning, strategic capital improvement project planning and debt management, all of which are further identified below. Currently, due to the tenuous economic recovery, Flagstaff’s financial forecast includes very modest revenue growth, potential for State reductions of revenue sharing, and continued increases in demand for city services such as police, fire, transportation and social services. Financial Services management role will be to maintain and enhance the continued financial stability for the City of Flagstaff. Financial Resource Planning – Strategic financial planning begins with determining the City’s fiscal capacity based upon long-term financial forecasts of recurring available revenues. Financial forecasts coupled with financial trend analysis help preserve the fiscal well being of Flagstaff. Strategic financial capacity planning is a critical element to reach long-term financial stability goals and to determine special financial needs for critical objectives of the City Council. Multi-Year Budget Planning – Multi-year budget planning encompasses long-range operating expenditure plans (including the operating impacts of capital projects), which are linked to the community expectations v and broad goals of the City Council. The multi-year approach provides a better opportunity for staff to change its financial paradigm from what do we need this year to how do we accomplish our service objectives over-time, given our financial capacity. While the City is required to adopt an annual budget to meet State statutory requirements, Flagstaff builds a financial plan for the next five years to help anticipate future impacts and ensure achievement of City objectives. Strategic Capital Improvement Project Planning – Flagstaff Capital Improvement Projects are planned for five or more years and analyzed using City specific prioritization criteria. The operating cost impacts of projects are also planned and considered in developing future operating budget plans. Projects with significant operating impacts are carefully timed to avoid contingent liabilities, which future operating resources cannot meet. Pay- as-you-go funding sources are also conservatively estimated to avoid over-committing to capital construction using revenues that are not certain. To the extent debt financing is used and/or required capital project plans are sized to conform to existing debt management policies. CASH MANAGEMENT POLICIES AND PRACTICES The City’s investment policy is to invest all temporarily idle cash in investments authorized by City resolution or State statute at the highest available interest rate while emphasizing safety of principal and liquidity. Excess funds are invested in the State Treasurer’s Local Government Investment Pool (LGIP) and in obligations of the U.S. Treasury and its agencies, demand deposits and repurchase agreements. The maturities of the investments range from one day to 6 years. The average yield on investments was 2.83%. RISK MANAGEMENT The City maintains a self-insurance program for liability claims, unemployment compensation, health and workers’ compensation. In addition, the City’s Risk Management Division employs various risk control techniques, such as employee accident prevention training and inspection of City property and facilities, to minimize accident-related losses. Additional information on the City of Flagstaff risk management activity can be found in Notes.V.A in the notes to the financial statements. PENSION AND OTHER POST-EMPLOYMENT BENEFITS All full-time employees of the City are covered by one of three pension plans. The State Retirement System is for the benefit of the employees of the state and certain other governmental jurisdictions. All full-time City employees, except fire and police personnel, are included in the plan that is a multiple-employer, cost- sharing defined benefit pension plan. All police and fire personnel participate in the Public Safety Retirement System that is an agent multiple-employer plan. In addition, the Mayor and Council members contribute to the State’s Elected Officials plan that is also a multiple-employer cost-sharing pension plan. Additional information on the City of Flagstaff pension arrangements can be found in Note V.C. in the notes to the financial statements. vi MAJOR INITIATIVES AND SERVICE EFFORTS AND ACCOMPLISHMENTS During FY 2004-2005, Flagstaff continued work to maintain basic services while also fulfilling the City Council goals. These goals provide for strategies that move the community closer to economic viability and sustainable community objectives. The outcomes of these strategies have been many and in certain cases require sustained efforts over a period of time. The following are the some of the goals of the Council and the City’s’ accomplishments in FY2004-2005. Economic Development/Redevelopment The City continues to coordinate closely on economic development activities with the Greater Flagstaff Economic Council (GFEC). An additional 64-fulltime jobs at or above the county median wages were created in addition to 183,000 square feet being added to existing industry with a capital investment value of $11 million. Tourism continues as a mainstay industry in the community. Efforts included a publicity campaign to better inform tourist of conditions during fire and snow seasons and correct winter driving conditions through the “Clear the Road to Flagstaff” campaign. The industry saw a 5.2% increase in revenues. On the redevelopment front, many projects are in progress. Between inception and implementation, redevelopment is a lengthy process. The Flagstaff Mall expansion received rezoning approval; this is a joint project that includes the establishment and reallocation of numerous auto dealers in the community. An RFP process was established to create a concept for redevelopment of the city’s Southside area. This project becomes feasible in the next several years as a result of the construction of the Rio de Flag flood control project in concert with the Army Corp of Engineers. Fiscal Health The City was successful in adopting and publishing their five-year capital improvement plan. The City presented to the voters over $155.1 million in new capital projects to be bond funded and received overwhelming approval. The projects include the relocation for four fire stations, construction of a new fire training center and fire tower, a new aquatic facility, land for new parks, a renovated or new multi generational recreation facility, water rights acquisition, additional water wells, renovation of the City wildcat wastewater treatment plant, and expansion of the USGS campus. Public Safety The City Council recognizes that the role of public safety encompasses a broad array of interrelated activities. Public order and quality of life issues must be addressed on a broad front through a partnership of shared responsibility and trust between Police, Fire, other city departments, civic organizations and the community. Community safety and well-being must be built from within each neighborhood and cannot be imposed from the outside. The City conducted numerous community activities that strengthen neighborhoods. These included 120 block watch meetings by the police, two citizen police academies, and the DARE and GREAT prevention programs in the public schools. Activities also include our partners. The City funds an after school program at various school district sites and works with United Way, whom supports numerous agencies in the community. Affordable Housing The goals are manifold to address affordable housing in a community with such a severe deficiency. The Council tackled the housing issue this last year from two angles, the formation of the workforce housing vii policy task force and the Housing trust task force. Although the objectives of both coincide, they carry very diverse responsibilities. The Workforce housing policy task force is to determine regulatory changes and financing opportunities to tackle this affordability problem. The Housing trust task force is working on the details of implementation of the trust concept in our community for workforce housing. The issue continues to escalate as the City remains an attractive second home community for the 3.3million people who live and work in Phoenix. Capital Improvements Programmed capital infrastructure expenditures facilitate planned growth, economic development and protects existing community investments. Allocating resources through a coordinated planning and engineering process, with high levels of public involvement, assures our community is shaped in alliance with citizen support. The Capital Division worked on numerous projects through the year and continues to refine the process. Elements that were implemented included a schedule based work program, comprehensive 5year CIP program, team chartering, project review process, and monthly financial reporting. Customer Service A positive customer service culture will enhance the delivery of service both externally and internally. Training was provided on customer service to all employees. Job description and employee evaluations were changed to incorporate customer service as a key element of job duties. Planning for Growth With a finite supply of land, we have to provide for the region’s growth in a manner that balances growth and conservation. Collaboration Strengthens the community by strengthening partnerships with sovereign nations, public, non-profit and private agencies and developing collaborative goals at all levels. The City continues its role with the alliance group that is comprised of Coconino County, Northern Arizona University, Coconino Community College, and the Flagstaff Unified School District. The alliance group sponsored a statement this year to the state legislature supporting the funding of education as a primary goal to the success of the community and the vitality of economic development. Quality of Life Consideration is given to quality of life preservation and enhancement in all City actions and appropriations. This is a diverse objective with many outcomes. The City was successful in securing voter authority to purchase $15 million in water rights to secure the community water needs. Recycling continues to grow increasing the tonnage at the materials recycling facility by 20%. The city also was successful in receiving authorization to issue $7.6 million in bond financing for FUTS trail and open space land acquisition and $14.7 million for a multi generational facility and aquatic center. Major Initiatives - As with most organizations, major initiatives include the continuation of programs and initiation of new programs. Organizational Support - This is an area that has received significant work program and staff efforts. viii Succession Planning - Similar to other organizations, the City anticipates losing 25% of their senior staff in the next ten years. Human Resources have put a program in place to anticipate and plan for these retirements and to train the current workforce in the competencies necessary to promote within the organization. Reorganizations – Due to some recent retirements the City has had the opportunity to review organization structure and work programs in one major department – Community Development and the Information Services Division. The Community Development Department analyzed job alignment, job duties and working relationships within the department. This discussion included department staff, management and the public. The end result was a major change in process, responsibilities, and structure. The new department includes Community Improvements, Development Services and Community Investment. The department is poised to implement a major work program and process review to better meet the needs of the community and organization. The new IS Director has implanted improved customer service and new work product delivery methods. Jobs were redefined and functions realigned to accomplish this. Climate Survey - Human Resources engaged an independent contractor to conduct the first Climate Survey of all employees. The results of the survey will serve as a baseline for the organization. The staff Customer Service Team is working on Citywide and departmental actions in response to the survey to improve employee satisfaction through improved communications, rewards and recognition. Forest Health Flagstaff resides in the middle of the largest stand of Ponderosa pine in the world. This provides a key element to the City situated at the base of the San Francisco Peaks at 7,000 elevation a cool mountain environment. Unfortunately with this amenity comes the risk of catastrophic wildfire. The City was proactive in the implementation of a major forest health initiative. successful program. In fact, the City is recognized nationally for its The program includes active thinning on City property within the City, community outreach to educate and assist the private sector in good health management, assistance with other governmental agencies in forest management and collaboration with the Forest Service and environmental groups in a forest management plan for the areas in and around City property. The outcome of the program has been an aggressive thinning of the forest and excellent public education resulting in private sector management of their trees. The Greater Flagstaff Forest Partnership, with collaboration of public, private and environmental groups, has successfully initiate major thinning projects in the Federal land that meets all parties’ objectives. AWARDS AND ACKNOWLEGEMENTS 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 Flagstaff for its comprehensive annual financial report for the fiscal year ended June 30, 2004. This was the 11th consecutive year that the City has achieved this prestigious award. In order to be awarded a Certificate of Achievement, a governmental unit 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. ix 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 GFOA to determine its eligibility. The City also received the GFOA’s award for Distinguished Budget Presentation for our 2004-2005 annual budget. In order to qualify for the Distinguished Budget Presentation award, the City’s budget document was judged to be proficient in all categories, a Policy Document, a Financial Plan, an Operation Guide, and as a Communication Device. A special word of appreciation is due to Barbara Goodrich, Finance Budget Manager and to the entire finance staff who prepared this CAFR. As an organization we would be remiss to not also personally recognize Maryellen Pugh, CPA for her tireless efforts in directing the statement drafting and coordination. Acknowledgment should also be made for the interest and support received from members of the Mayor and Council, the office of the City Manager, and the willing cooperation of the other operating and staff departments of the City. The cooperative assistance of our independent auditor, Nordstrom and Associates, also contributed significantly to this report. x xi City of Flagstaff Citizens of Flagstaff City Council Special Committees City Magistrates Board and Commissions City Manager City Attorney City Court Legal Deputy City Manager Operations Deputy City Mgr External Affairs Convention and Visitors Bureau Visitors Center Fire Department Police Department Community Development Department General Admin Department Public Works Department Utilities Department Management Services Department xii City of Flagstaff, Arizona List of Elected and Appointed Officials June 30, 2005 Elected Officials Mayor Joseph C. Donaldson Vice Mayor Al White Councilmember Art Babbott Councilmember Karen K. Cooper Councilmember Joseph P. Haughey Councilmember Kara M. Kelty Councilmember Libby Silva Appointed Officials City Manager David W. Wilcox City Attorney Patricia Boomsma City Treasurer Mary Jo Jenkins City Clerk Margie Brown xiii xiv Bruce J. Nordstrom, CPA MEMBERS Godfrey C. Loper, Jr., CPA American Institute of Certified Public Accountants Marjorie T. McClanahan, CPA T i m o t hy D . H a n s e n , C P A CERTIFIED PUBLIC ACCOUNTANTS Arizona Society of Certified Public Accountants INDEPENDENT AUDITOR'S REPORT Honorable Mayor and Members of the City Council City of Flagstaff, Arizona We have audited the accompanying financial statements of the governmental activities, business-type activities, each major fund, and aggregate remaining fund information of City of Flagstaff, Arizona (the City), as of and for the year ended June 30, 2005, as listed in the table of contents, which collectively comprise the City’s basic financial statements. These financial statements are the responsibility of the City's management. Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America 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 of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinions. In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, businesstype activities, each major fund, and aggregate remaining fund information of City of Flagstaff, Arizona, as of June 30, 2005, and the respective changes in financial position and cash flows, where applicable, thereof, and the budgetary comparison for the general, highway user, transportation and BBB funds for the year then ended in conformity with accounting principles generally accepted in the United States of America. 150 West Dale Avenue Suite 2 • Flagstaff • AZ 86001 MAIL TO Po Box 220 • Flagstaff • AZ 86002 TELEPHONE 928.774.5086 FAX 928.774.7908 EMAIL FindaCPA@NordstromPC.com As described in Note 1, the City implemented the provisions of Governmental Accounting Standards Board (GASB) Statement 40, Deposit and Investment Risk Disclosures, for the year ended June 30, 2005, which represents a change in accounting principles. The management’s discussion and analysis on pages 3 through 14 is not a required part of the basic financial statements but is supplementary information required by the Governmental Accounting Standards Board. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation of the required supplementary information. However, we did not audit the information and express no opinion on it. Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the City’s basic financial statements. In addition, the introductory section, combining and individual fund statements and schedules, capital assets schedules, and statistical section listed in the table of contents are presented for purposes of additional analysis and are not a required part of the basic financial statements. The combining and individual fund statements and schedules, and capital assets schedules have been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, are fairly stated in all material respects in relation to the basic financial statements taken as a whole. The introductory and statistical sections have not been subjected to the auditing procedures applied in our audit of the basic financial statements and, accordingly, we express no opinion on them. In accordance with Government Auditing Standards, we have also issued our report dated October 7, 2005 on our consideration of the City's internal control over financial reporting and 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 results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be considered in assessing the results of our audit. Flagstaff, Arizona OCTOBER 7, 2005 2 MANAGEMENT DISCUSSION AND ANALYSIS As management of the City of Flagstaff (the City), we offer readers of the City’s financials statements this narrative overview and analysis of the financial activities of the City for the fiscal year ended June 30, 2005. We encourage readers to consider the information presented here in conjunction with additional information that we have furnished in our letter of transmittal, which can be found on pages iii -x of this report. FINANCIAL HIGHLIGHTS x The assets of the City exceeded its liabilities at the close of the most recent fiscal year by $352.5 million (net assets). Of this amount $81.3 million (unrestricted net assets) may be used to meet the government’s ongoing obligations to citizens and creditors. x The government’s total net assets increased by $27.9 million during the fiscal year. This increase is related to capital improvement activity funded primarily through capital grants or other new funding, including the 4th Street Overpass project ($8.9 million), airport improvements ($4.5 million), waterline improvements ($2.2 million), Wildcat Plant upgrades ($1.2 million), and contributions from private development ($8.7 million). x As of June 30, 2005, the City’s governmental funds reported combined ending fund balances of $63.9 million, an increase of $1.7 million in comparison with the prior fiscal year. Approximately 97.3% of this total amount ($62.2 million) is unreserved fund balance available for spending at the government’s discretion. x As of June 30, 2005, total unreserved fund balance for the general fund was $29.1 million, or 82.3% of total general fund expenditures ($35.4 million) x As of June 30, 2005, the City’s proprietary funds reported combined total net assets of $228.7 million, and total unrestricted net assets of $24.9 million. Wastewater Fund. $20.1 million of the unrestricted net assets are in the Water and OVERVIEW OF THE FINANCIAL STATEMENTS This discussion and analysis is intended to serve as an introduction to the City’s basic financial statements. The City’s basic financial statements comprise three components: (1) Government-wide financial statements, (2) Fund financial statements, and (3) Notes to the financial statements. This report also contains other supplementary information in addition to the basic financial statements themselves. Government-wide Financial Statements The government-wide financial statements are designed to provide readers with a broad overview of the City’s finances, in a manner similar to a private-sector business. The statement of net assets presents information on all of the City’s assets and liabilities, with the difference between the two reported as net assets. Over time, increases or decreases in net assets may serve as a useful indicator of whether the financial position of the City is improving or deteriorating. The statement of activities presents information showing how the City’s net assets changed during the most recent fiscal year. All changes in net assets are reported as soon as the underlying event giving rise to the change occurs, regardless of the timing of related cash flows. Thus, revenues and expenses are reported in this statement for some items that will only result in cash flows in future fiscal periods such as revenues pertaining to uncollected taxes and earned but unused vacation leave. Both of the government-wide financial statements distinguish functions of the City that are principally supported by taxes and intergovernmental revenues (government activities) from other functions that are intended to recover all or a significant portion of their costs through user fees and charges (business-type activities). The governmental 3 activities of the City include Police, Fire, Community Development, Parks and Recreation, City Council, City Manager, City Attorney, Municipal Courts, Human Resources, Risk Management, Information Services, Library, and Economic Development. The business-type activities of the City include Water and Wastewater, Airport, Environmental Services, and Stormwater operations. The government-wide financial statements include not only the City itself (known as the primary government), but also for the Municipal Property Corporation (MPC). The MPC, although also legally separate, functions for all practical purposes as a department of the City, and therefore has been included as an integral part of the primary government as a blended component unit. The government-wide financial statements can be found on pages 15-17 of this report. Fund financial statements The fund financial statements are designed to report information about groupings of related accounts that are used to maintain control over resources that have been segregated for specific activities or objectives. The City, like other state and local governments uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. All of the funds of the City can be divided into three categories: governmental funds, proprietary funds, and fiduciary 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 funds 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, readers may better understand the long-term impact of the government’s near-term financing decisions. Both the governmental fund balance sheet and the governmental fund statement of revenues, expenditures, and changes in fund balances provide a reconciliation to facilitate this comparison between governmental funds and governmental activities. The City maintains several individual government funds organized according to their type (special revenue and debt service). 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, Highway User Revenue fund, Transportation fund, and the BBB fund which are all considered to be major funds. Data from the remaining governmental funds are combined into a single aggregated presentation. Individual fund data for each of these non-major governmental funds is provided in the form of combining statements elsewhere in this report. The City adopts an annual appropriated budget for its General fund, Special Revenue funds, Debt Service funds, and Enterprise funds. A budgetary comparison statement has been provided for the General and other major governmental funds to demonstrate compliance with the respective budgets. The basic governmental fund financial statements can be found on pages 18-28 of this report. 4 Proprietary funds: Proprietary funds are generally used to account for services for which the City charges customers – either outside customers, or departments of the City. Proprietary funds provide the same type of information shown in the government-wide financial statements, only in more detail. The City maintains the following two types of proprietary funds: x Enterprise funds are used to report the same function presented as business-type activities in the government-wide financial statements. The City used enterprise funds to account for its Water and Wastewater, the Airport, Environmental Services which includes solid waste collection, and Stormwater. Water and Wastewater, the Airport, and Environmental Services are considered to be major funds of the City. x Internal Service funds are used to report activities that provide supplies and services for certain City programs and activities. The City uses an internal service fund to account for its workers compensation, health insurance, other risk related activity including claims adjustment, and general liability and property insurance. Because these services predominantly benefit governmental rather that business- type functions, they have been included within governmental activities in the government-wide financial statements. The internal service fund is combined into a single, aggregated presentation in the proprietary fund statements. Individual fund data for the internal service fund is provided in the form of combining statements elsewhere in this report. The basic proprietary fund financial statements can be found on pages 30-37 of this report. Fiduciary funds are used to account for resources held for the benefit of parties outside the government. Fiduciary funds are not reflected in the government-wide financial statements because the resources of those funds are not available to support the City’s own programs. The accounting used for fiduciary funds is much like that used for proprietary funds. The basic fiduciary fund financial statements can be found on pages 38-39 of this report. Notes to the Financial Statements The notes to the financial statement provide additional information that is essential to a full understanding of the data provided in the government-wide and fund financial statements. The notes to the financial statements can be found on pages 41-72 of this report. Combining statements The combining statements referred to earlier in connection with non-major governmental funds are presented on pages 74-77. Other information In addition to the basic financial statements and accompanying notes, this report also presents certain required supplementary information concerning the City’s capital asset activity. Required supplementary information can be found on page 80-82 of this report. 5 GOVERNMENT WIDE STATEMENTS FINANCIAL ANALYSIS Analysis of Net Assets As noted earlier, net assets may serve as a useful indicator of a government’s financial position. For the City, assets exceeded liabilities by $352.5 million as of June 30, 2005. Of the City’s net assets, 70.1% reflects its investment of $247.3 million in capital assets (e.g. land, buildings, and equipment), less any outstanding debt used to acquire those assets. The City uses these capital assets to provide services to citizens; consequently, these assets are not available for future spending. Although the City’s investment in its capital assets is reported net of related debt, it should be noted that the resources needed to repay this debt must be provided from other sources, since the capital assets themselves cannot be liquidated for these liabilities. Net Assets June 30, 2005 and 2004 (in thousands of dollars) Governmental Activities 2005 Current and other assets Capital assets $ Total assets 82,721 104,441 $ 187,162 Long-term liabilities Total liabilities 2005 82,122 $ 93,420 175,542 49,701 Other liabilities Business-type Activities 2004 42,313 230,766 $ 273,079 50,601 Total 2004 43,032 215,398 2005 $ 258,430 33,239 125,034 335,207 $ 460,241 33,541 2004 125,154 308,818 433,972 82,940 84,142 13,638 14,436 11,140 10,772 24,778 25,208 63,339 65,037 44,379 44,313 107,718 109,350 Invested in capital assets, net of related debt 46,760 Restricted Unrestricted Total net assets $ 20,670 35,343 41,667 200,551 184,864 247,311 226,531 56,393 33,495 24,949 24,092 81,342 57,587 123,823 $ 3,201 110,505 $ 228,701 5,161 $ 214,117 23,871 $ 352,524 40,504 $ 324,622 A portion of the City’s net assets, $23.9 million (6.8%) represents resources that are subject to external restriction on how they may be used. The remaining balance of unrestricted net assets, $81.3 million (23.1%) may be used to meet the government’s ongoing obligations to citizens and creditors. At the end of the current fiscal year, the City is able to report positive balances in all three categories of net assets for the government as a whole, as well as for the business-type activities. Current assets for governmental activities remained relatively equal, with less than a 1% increase ($0.6 million). Capital assets of the governmental activities, funded through debt proceeds and contributions, increased by 11.7% ($11.0 million) due to the 4th Street project and other contributed infrastructure from the private sector ($8.9 million and $5.1 million, respectively). Both long-term liabilities and other liabilities decreased slightly (1.8% and 5.5% respectively) due to debt retirement and an overall reduction in year-end payables. Overall business-type net assets increased by 6.8% ($14.6 million) also due primarily to capital asset additions including the transfer of the Rio de Flag project to the Stormwater fund and a number of contributions from private development for infrastructure ($3.7 million). 6 Analysis of Change in Net Assets The City’s overall net assets increased by $27.9 million during the current fiscal year. These increases are explained in the government and business-type activities discussion to follow. Changes in Net Assets For the Years Ended June 30, 2005 and 2004 (in thousands of dollars) Governmental Activities 2005 Business-type Activities 2004 2005 Total 2004 2005 2004 Revenues Program Revenues: Charges for services $ Operating grants and contributions Capital grants and contributions General Revenues: Property taxes 6,327 $ 5,424 $ 27,465 $ 26,372 $ 33,792 $ 31,796 4,148 2,679 574 287 4,722 2,966 15,180 11,757 8,165 10,483 23,345 22,240 8,462 7,932 - - 8,462 7,932 Sales taxes 27,054 25,683 - - 27,054 25,683 State shared taxes 12,838 12,123 - - 12,838 12,123 1,704 811 936 719 2,640 1,530 678 1,773 514 17 1,192 1,790 76,391 68,182 37,654 37,878 114,045 106,060 Unrestricted investment earnings Other Total revenues Expenses General government 5,442 5,892 - - 5,442 5,892 21,018 18,793 - - 21,018 18,793 Public works 1,320 1,178 - - 1,320 1,178 Economic and physical development 6,807 6,473 - - 6,807 6,473 Culture and recreation 9,427 8,694 - - 9,427 8,694 10,011 8,887 - - 10,011 8,887 2,043 1,923 - - 2,043 1,923 Water and wastewater - - 17,297 17,250 17,297 17,250 Airport - - 3,750 3,370 3,750 3,370 Stormwater - - 480 461 480 461 Total expenses 56,068 51,840 30,076 28,401 86,144 80,241 Increase in net assets before transfers 20,323 16,342 27,901 25,819 Transfers (7,005) Public safety Highways and streets Interest on long-term debt Environmental - Change in net assets - (369) 13,318 Net assets at beginning of year Net assets at end of year $ 110,505 123,823 8,549 15,973 $ 94,532 110,505 $ 7,320 7,578 9,477 7,005 369 14,583 9,846 214,117 228,700 $ 204,271 214,117 8,549 $ 7,320 - - 27,901 25,819 324,622 352,523 $ 298,803 324,622 Governmental activities. Governmental activities increased the City’s net assets by $13.3 million, accounting for 47.7% of the total growth in the net assets of the City. The key factors for this increase are as follows: x Grants and contributions have increased due to increased expenditures for Homeland Security, Community Development Block Grants (CDBG), and the Metropolitan Planning Organization. recorded in excess of $5 million in donated assets. x In addition, capital assets Property tax increases are due to both to increases in housing inventory on the property tax roles along with community-wide housing price increases. x Sales tax revenues continued to increase at both local and state levels. State sales tax levels had decreased significantly in the post-9/11 environment and finally have caught back up with revenue levels demonstrated four years ago Bed, Board, and Booze (BBB) taxes have also reached and exceeded prior levels after two years 7 of declining revenues. continues. x x Historically, City sales tax has maintained a constant level of growth and this trend Unrestricted investment earnings are also normalizing with rates increasing to an average of over 2.8%. In addition several large capital projects had to carryover budgeted balances due to the timing of the progress in those projects including the East Flagstaff Gateway ($7.6 million), 4th Street rail crossing ($1.2 million), and redevelopment land acquisition ($2.1 million). Business-type activities Business type activity had net asset growth of $14.6 million, accounting for 52.3% of the total growth in the net assets to the City. The key factors for this increase include: x The transfer of approximately $6 million of Work in Progress (WIP) from the governmental funds into the Stormwater fund. Stormwater now has full oversite responsibility to complete the Rio do Flag project. x x The addition of approximately $3.7 million in capital contributions The carryover of several large capital projects including water wells ($2.0 million), the Wildcat Plant upgrades ($9.3 million), and the Rio de Flag project ($7.4 million). Expenses and Program Revenues – Governmental Activities Expenses $25,000,000 Program Revenues $20,000,000 $15,000,000 $10,000,000 $5,000,000 $0 General government Public saf et y Public works Econ & phys development 8 Cult ure & recreat ion Highways & st reet s Interest on long-t erm debt Revenues by Source – Governmental Activities Investment Charges for Miscellaneous services 0.9% earnings 8.3% 2.2% Operating grants and contributions 5.4% State shared tax 16.8% Capital grants and Sales tax 35.4% contributions Property taxes 19.9% 11.1% The previous two charts illustrate the City's governmental expenses and revenues by function and its revenues by source. As shown, Public safety is the largest function in expense (37.5%), followed by Highways & streets (17.9%), Culture and recreation (16.8%), and Economic and physical development (12.1%). General revenues such as sales taxes, state shared taxes, and property taxes are not shown by program, but are effectively used to support program activities citywide. For governmental activities overall, without regard to program, sales taxes are the largest single source of funds (35.4%), followed by capital grants and contributions (19.9%), and state shared taxes (16.8%). For the most part, increases in expenses paralleled inflation and growth in the demand for services. However, higher expense increases occurred in three areas; Highways and streets (12.7%), public works (12.1%), and public safety (11.8%). Highway and street growth continues to be attributable to the 4th Street Project. Public works increases are related to increased spending for facility maintenance, and public safety increases are driven by increases in retirement contributions and replacement vehicle purchases. Expenses and Program Revenues – Business Type Activities Expenses Program Revenues 25,000,000 20,000,000 15,000,000 10,000,000 5,000,000 Water and Environmental wastewater 9 Airport Stormwater Revenues by Source – Business-type activities Capital grants and Operating grants contributions and contributions 21.7% Investment earnings 2.5% 1.5% Other 1.4% Charges for services 72.9% As shown in the previous chart, Water and Wastewater has expenses of $17.3 million for the fiscal year, followed by Environmental Services with $8.5 million, the Airport with $3.7 million and Stormwater with $0.5 million. For the fiscal year, revenues exceeded expense in all business type activities. The Water and Wastewater, Environmental Services and Stormwater funds received the majority of their program revenues through charges for services (76.2%, 97.9% and 77.1%, respectively. The Airport receives 26.6% of support through charges for service and the other 73.4% through grants and contributions. Charges for services provided the largest share of revenues (72.9%) for all of the business-type activities, followed by capital grants and contributions (21.7%). Environmental Services expenses increased by 16.8% ($1.2 million) in comparison with FY 2004. This increase is due to increased staffing needed to meet growing service area needs, the inception of a brown fields program, and the accumulation of expense related to the landfill post-closure costs. The Airport fund realized a 136.1% revenue increase which is directly attributable to an increase in the grant revenue received for the fiscal year. Financial Analysis of the City’s Funds As noted earlier, the City uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. Governmental Funds The focus of the City’s governmental funds is to provide information on near-term inflows, outflows, and balances of resources that are available for spending. requirements. Such information is useful in assessing the City’s financing In particular, unreserved fund balance may serve as a useful measure of a government’s net resources available for spending at the end of the fiscal year. Types of Governmental funds reported by the City include the General fund, Special Revenue funds, and Debt Service funds. At the end of the current fiscal year, the City’s governmental funds reported combined ending fund balances of $63.9 million, an increase of $1.7 million in comparison with the prior year. Approximately $62.2 million of the 10 total ending fund balance constitutes unreserved fund balance, which is available for spending at the City’s discretion. The remainder of fund balance is reserved to indicate that is it not available for new spending because it has already been committed (1) to pay perpetual care ($44,872). debt service ($2.5 million), (2) for inventory reserve ($200,401), and Revenues for governmental functions overall totaled $71.1 million in the fiscal year ended June 30, 2005 which represents an increase of 11.3% or $7.2 million from the fiscal year ended June 30, 2004. While the total dollars are relatively equal, variances existed within categories. Sales taxes (including the general sales tax, the transportation tax, and the BBB tax) increased by 5.3% ($1.8 million) due to a combination of economic growth and a rebound in tourist trade. Intergovernmental revenues grew by $44.3% ($5.4 million) due to the receipt of $2 million from the Arizona Department of Transportation for the street turnbacks received and the increase in state and federal grant funding ($3.0 million). Expenditures for governmental functions, totaling $74.1 million, increased by 1.9% ($1.4 million) from the fiscal year ended June 30, 2004. In the fiscal year ended June 30, 2005 expenditures for governmental functions exceeded revenues by approximately $3.0 million. Overall debt service (principal and interest) decreased by 1.7% ($1.3 million) as the payments of regularly scheduled principal and interest exceeded the new issues for FY 2005. The General Fund is the chief operating fund of the City. At the end of the current fiscal year, the unreserved fund balance of the General Fund was $29.1 million. As a measure of liquidity, it may be useful to compare both total unreserved, undesignated fund balance and total fund balance to total fund expenditures. The unreserved, undesignated fund balance and total fund balance represent 82.3% and 82.9%, respectively, of general fund expenditures. The fund balance in the City’s General Fund increased by $6.2 million during the fiscal year mainly due to under expenditure in operations, the carryover of funds for redevelopment efforts ($2.1 million) and the receipt of $3.8 million in capital lease proceeds. Overall, the General Fund’s performance resulted in revenues in excess of expenditures in the fiscal year ended June 30, 2005 of $4.1 million. This is an increase of approximately $3.1 million over the comparable figure from the prior year of $1.0 million. The Highway User Revenue Fund increased by $4.1 million during the fiscal year due to the receipt of $2.0 million from ADOT to complete the turnback transaction and to bring associated roads to standard and the ongoing inflow of funds to complete budgeted capital projects. The Transportation Fund and the BBB Fund decreased by $10.4 million and $0.3 million, respectively, which represents a planned usage of fund balance for capital projects. Proprietary funds The City’s proprietary funds provide the same type of information found in the government-wide financial statements, but in more detail. At the end of the fiscal year, the unrestricted net assets had positive balances for all four proprietary funds. The internal service fund, which is used to account for risk management and health insurance activities, had unrestricted net assets of $4.5 million. The total growth in net assets for the proprietary funds was $14.6 million. Factors concerning the finances of these funds have been addressed previously in the discussion of the City’s business-type activities. Fiduciary funds The City maintains fiduciary funds for the assets of the Firemen’s Pension Trust Fund. As of June 30, 2005, the net assets had decreased by $1,608. 11 Budget Highlights The City’s final budget differs from the original budget for certain divisions within the General fund and the BBB fund even though the overall original budget remained the same. Council approved transfers from the contingency funds for the following divisions: General fund contingency transfer: $ 70,000 City Clerks Office - election costs 40,000 Information Technology – disaster recovery efforts 20,000 Management Services – retirement payout 25,000 Finance & Budget – retirement payout 35,000 Community Development – retirement payout 250,000 Police grants – acceptance of unbudgeted awards 60,000 Shop – decrease in shop charge outs $500,000 BBB fund contingency transfer: $ 20,000 Visitor Center – staffing costs Capital Assets and Debt Administration Capital Assets The City’s capital assets (net of accumulated depreciation) for its governmental and business-type activities as of June 30, 2005 amount to $335.2 million. Capital assets include land, buildings, infrastructure, improvements, machinery and equipment, and construction in progress. The total increase in the City’s capital assets for the current year was 8.5% ($26.4 million). The following table reflects the capital assets at the end of the fiscal year: Capital Assets, Net of Depreciation June 30, 2005 and 2004 (in thousands of dollars) Governmental Activities 2005 Land $ Buildings 9,037 25,801 Improvements Total 31,420 104,441 9,889 25,501 $ 26,685 93,420 $ 15,037 230,766 $ 7,929 - $ 2,357 47,641 2005 150,954 8,563 15,581 $ 2,357 46,448 Total 2004 158,361 8,462 23,243 $ 2005 7,302 8,219 Infrastructure Construction in progress $ 6,721 Machinery and equipment Business-Type Activities 2004 6,517 215,398 72,249 $ $ 12,246 73,142 165,082 158,256 23,243 15,581 16,782 - $ 11,394 2004 46,457 335,207 16,391 $ 33,202 308,818 Major capital asset events during the current fiscal year included a 49.2% increase in infrastructure (primarily donated capital) and an 39.9% increase in construction in progress (predominantly the 4th Street project). For government-wide financial statement presentation, all depreciable capital assets are depreciated from acquisition date to the end of the current fiscal year. Fund financial statements record capital asset purchases as expenditures. Please refer to Note IV C on pages 57-59 of the Notes to the Financial Statements for further information regarding capital assets. 12 Long Term Debt At the end of the current fiscal year, the City had total long-term debt outstanding of $77.6 million. Of this amount, $23.2 million is general obligation bonds backed by the full faith and credit of the City, $17.6 million is revenue bonds, $0.4 million is improvement district bonds, $26.9 million is for the Municipal Facility Corporation, and $9.5 million are outstanding leases or loans for the airport, water/wastewater, and city-wide energy conservation improvements. Outstanding Debt June 30, 2005 and 2004 (in thousands of dollars) General obligation bonds $ Special assessment bonds Governmental Activities Business-type Activities 2005 2005 2004 4,285 $ 415 5,795 Revenue bonds 11,555 13,380 Other debt 26,895 28,170 Lease/Loans Total debt payable $ 3,800 46,950 $ $ 2004 18,880 685 $ - - 48,030 5,763 $ 30,678 2005 21,253 $ - 6,035 - Total $ 2004 23,165 $ 415 27,048 685 6,290 17,590 19,670 - 26,895 28,170 3,380 30,923 $ 9,563 77,628 $ 3,380 78,953 During fiscal year 2005, the City’s total bonded debt decreased by approximately $1.3 million. The City entered into a $3.8 million capital lease obligation to fund energy improvements throughout the City. The debt retirement exceeded the debt obligation in all other bond categories. The State constitution imposes certain debt limitations on the City of six percent (6%) and twenty percent (20%) of the outstanding assessed valuation of the City. The City’s available debt margin at June 30, 2005 is $32.2 million in the 6% category and $89.7 million in the 20% capacity. Additional information on the debt limitations and capacities may be found in Table XI in the statistical section of this report. During the year, the City maintained the following bond ratings: City of Flagstaff Bonded Debt Ratings As of June 30, 2005 Moody's Investors Service General Obligation AAa3 Standard & Poor's A+ Water and Sewer Revenue A-1 A Street and Highway Revenue A-1 A+ Additional information on the City’s long-term debt can be found in Section IV F of the Notes to the Financial Statements. 13 Economic Factors and Next Year’s Budget and Rates The Fiscal Year 2005/2006 budget preparation was influenced by the following factors: x Limited revenue growth within improving economic conditions x Maintenance of level expenditures while minimizing the impact to health and/or safety services x Maintenance of employee increases to minimize take home impacts after increased deductions due to other employment benefit changes x Restoration of positions previously eliminated due to budget cuts/declining economy x Staffing additions to address current workload and council priorities x Assessment and funding of long range capital needs and their associated operational impacts x Sustained investment in our community to better insure against economic downturns in the future Requests for Information The financial report is designed to provide a general overview of the City’s finances for all of those with an interest in the government’s finances. If you have questions about this report or need additional financial information, contact: City of Flagstaff Management Services Department Finance and Budget Division 211 W. Aspen Flagstaff, AZ 86001 Main and TDD (928) 774-5281 Arizona Relay 7-1-1 14 CITY OF FLAGSTAFF, ARIZONA Statement of Net Assets June 30, 2005 Primary Government Governmental Activities ASSETS Cash and cash equivalents Cash with fiscal agents Investments Accounts receivables, net $ 56,046,852 5,644,807 4,365 7,555,164 313,016 1,559,676 182,365 33,950 440,504 220,095 Interest receivable Intergovernmental receivable Bond proceeds receivable Special assessments receivable Internal balance Inventory Deferred bond issuance costs, net Restricted assets: Temporarily restricted: Cash and cash equivalents Capital assets: Non-depreciable Depreciable, net Total assets LIABILITIES Accounts payable Accrued payroll Interest payable Deferred revenue Deposits payable Matured bonds and lease payable 26,429,041 3,239,621 688,651 2,961,256 198,737 494,315 (440,504) 274,515 $ 82,475,893 8,884,428 693,016 10,516,420 511,753 2,053,991 182,365 33,950 494,610 497,066 970,238 10,246,503 7,970,841 18,217,344 40,457,457 63,983,610 187,161,536 17,394,195 213,371,503 273,079,237 57,851,652 277,355,113 460,240,773 2,690,388 1,069,396 1,035,042 607,213 1,415,003 4,610,000 999,586 216,222 88,302 596,499 - 3,689,974 1,285,618 1,035,042 695,515 2,011,502 4,610,000 1,082,533 1,128,299 143,191 9,095,376 1,225,724 10,223,675 1,056,055 193,167 1,249,222 75,000 3,985,448 3,234,976 75,000 7,220,424 1,694,596 - 287,080 2,081,006 1,981,676 2,081,006 340,000 - 340,000 42,549,552 63,338,525 27,443,246 44,378,651 69,992,798 107,717,176 46,759,889 200,551,217 247,311,106 18,142,376 2,481,583 2,459,659 740,862 20,602,035 3,222,445 1,426 44,872 56,392,865 123,823,011 24,948,848 $ 228,700,586 1,426 44,872 81,341,713 $ 352,523,597 Compensated absences Special assessment bonds Bonds, notes and leases payable Due in more than one year: Compensated absences Landfill closure and postclosure care costs Special assessment bonds Bonds, notes and leases payable Total liabilities $ $ Total 473,172 Unamortized bond premium Liabilities payable from restricted assets Noncurrent liabilities: Due within one year: NET ASSETS Invested in capital assets, net of related debt Restricted for: Capital projects Debt service Perpetual care: Expendable Nonexpendable Unrestricted Total net assets Business-type Activities The notes to the financial statements are an integral part of this statement 15 CITY OF FLAGSTAFF, ARIZONA Statement of Activities Year Ended June 30, 2005 Program Revenues Expenses Capital Grants and Contributions Operating Grants and Contributions Charges for Services Primary government Governmental activities: General government $ 5,441,945 $ 3,611,862 $ 125,606 $ 1,073,386 Public safety 21,018,114 498,506 685,237 Public Works 1,320,459 1,213,714 - - Economic and physical development 6,807,311 321,915 1,011,446 - 9,426,600 680,755 2,238,786 592,256 10,011,231 - 86,454 13,373,287 Culture and recreation Highways and streets Interest on long-term debt Total governmental activities 141,472 2,042,555 - - - 56,068,215 6,326,752 4,147,529 15,180,401 5,031,858 Business-type activities: Water and wastewater 17,297,017 16,223,648 43,053 Environmental 8,548,715 9,370,561 123,339 80,474 Airport 3,749,669 1,176,866 406,590 2,846,472 Stormwater Total business-type activities Total primary government $ 479,700 694,161 1,394 205,971 30,075,101 27,465,236 574,376 8,164,775 86,143,316 $ 33,791,988 $ 4,721,905 $ 23,345,176 General revenues: Property taxes, levied for general purposes Property tax, levied for debt service Sales taxes State shared sales taxes Investment earnings Miscellaneous Gain on sale of capital assets Contributions to permanent fund Transfers in (out) Total general revenues, contributions and transfers Change in net assets Net assets - beginning Net assets - ending The notes to the financial statements are an integral part of this statement 16 Net (Expenses) Revenues and Changes in Net Assets Primary Government Governmental Activities $ Business-type Activities (631,091) (19,692,899) - $ (631,091) (19,692,899) (106,745) - (106,745) (5,473,950) - (5,473,950) (5,914,803) - (5,914,803) 3,448,510 - 3,448,510 (2,042,555) - (2,042,555) (30,413,533) - (30,413,533) - 4,001,542 4,001,542 - 1,025,659 1,025,659 - 680,259 680,259 - 421,826 421,826 - 6,129,286 6,129,286 (30,413,533) 6,129,286 (24,284,247) 3,613,367 - 3,613,367 27,054,164 - 27,054,164 1,703,861 935,973 2,639,834 382,387 513,738 4,848,935 12,837,838 277,972 17,765 (7,004,365) 43,731,924 13,318,391 $ $ Total 110,504,620 123,823,011 - - 7,004,365 4,848,935 12,837,838 277,972 896,125 17,765 - 8,454,076 52,186,000 214,117,224 $ 228,700,586 324,621,844 $ 352,523,597 14,583,362 27,901,753 17 CITY OF FLAGSTAFF, ARIZONA Balance Sheet Governmental Funds June 30, 2005 Highway User Revenue Fund General Fund Transportation Fund ASSETS Cash and cash equivalents $ 23,331,847 Cash with fiscal agents $ 379,418 Investments 7,116,152 $ 2,110,955 6,212,498 1,518,590 - - - 3,636,522 2,259,235 833,996 Interest receivable 132,438 43,662 41,993 Intergovernmental receivables 740,920 86,455 - Accounts receivable, net Interfund receivable 1,500,000 - - 182,365 - - Bond proceeds receivable Special assessments receivable Inventory Restricted cash and cash equivalents Total assets - - - 200,402 - - 3,906,921 - 6,321,817 $ 34,010,833 $ 11,616,459 $ 14,928,894 $ 560,152 $ 443,404 $ 1,047,650 LIABILITIES AND FUND BALANCE Liabilities: Accounts payable Accrued payroll and compensated absences 1,517,881 82,655 - Current bonds payable 275,000 1,825,000 1,000,000 Interest payable 104,418 285,955 518,550 - - - 743,061 8,575 - 1,415,003 - - Interfund payable Deferred revenue Guaranty and other deposits Liabilities payable from restricted assets Total liabilities 70,122 - - 4,685,637 2,645,589 2,566,200 Fund balances: Reserved for: Debt service - - - Capital projects - - - 200,401 - - - - - 29,124,795 - - Special revenue funds - 8,970,870 12,362,694 Permanent fund - - - 29,325,196 8,970,870 12,362,694 Inventory Perpetual care Unreserved, undesignated, reported in: General fund Total fund balances Total liabilities and fund balances $ 34,010,833 The notes to the financial statements are an integral part of this statement 18 $ 11,616,459 $ 14,928,894 Other Governmental Funds BBB Fund $ 6,064,463 $ - 8,696,471 Total Governmental Funds $ 1,635,844 51,421,431 5,644,807 4,365 - 4,365 549,738 159,975 7,439,466 30,331 37,940 286,364 - 732,301 1,559,676 - - 1,500,000 - - 182,365 - 33,950 33,950 19,693 - 220,095 - 17,765 10,246,503 $ 6,668,590 $ 11,314,246 $ 78,539,022 $ 190,066 $ 178,479 $ 2,419,751 27,380 79,997 1,707,913 - 1,510,000 4,610,000 - 126,119 1,035,042 - 1,500,000 1,500,000 13,100 33,950 798,686 - - 1,415,003 - 1,058,177 1,128,299 230,546 4,486,722 14,614,694 - 2,481,583 2,481,583 - $ (970,005) (970,005) - - 200,401 - 44,872 44,872 - - 29,124,795 6,438,044 5,269,648 33,041,256 - 1,426 1,426 6,438,044 6,827,524 63,924,328 6,668,590 $ 11,314,246 $ 78,539,022 19 CITY OF FLAGSTAFF RECONCILIATION OF THE BALANCE SHEET TO THE STATEMENT OF NET ASSETS GOVERNMENTAL ACTIVITIES JUNE 30, 2005 Fund balances - total governmental funds balance sheet $ 63,924,328 Amounts reported for governmental activities in the statements of net assets are different because (also see note 2): Capital assets used in governmental activities are not financial resources and therefore are not reported in the governmental funds. Governmental capital assets 136,723,427 Less: accumulated depreciation (32,282,360) 104,441,067 Other assets used in governmental activities are not financial resources and therefore are not reported in the governmental funds. Deferred bond issue costs 473,172 Fines and forfeitures 47,775 520,947 Long-term liabilities, including bonds payable are not due and payable in the current period and therefore are not reported in the governmental funds. Governmental bonds payable 46,950,000 Bond premium 1,082,533 Compensated absences 2,112,134 (50,144,667) Certain revenues are not available to pay for current period expenditures and, therefore, are deferred in the governmental funds. Special assessments 33,950 Property tax 157,523 191,473 The internal service fund is used by management to charge the cost of self insurance programs to individual funds. The assets and liabilities of the internal service funds that are reported with governmental activities. 4,889,863 Net assets of governmental activities - statement of net assets $ The notes to the financial statements are an integral part of this statement 20 123,823,011 21 CITY OF FLAGSTAFF, ARIZONA Statement of Revenues, Expenditures, and Changes in Fund Balances Governmental Funds Year Ended June 30, 2005 Highway User Revenue Fund General Fund Transportation Fund REVENUES: Taxes $ Intergovernmental 18,710,442 $ - $ 7,631,557 12,844,978 2,000,000 - Grants and entitlements 1,102,669 8,064,371 - Charges for services 1,518,445 - - Special assessments - - - Licenses and permits 2,063,718 - - Fines and forfeitures 1,250,494 - - Rents 1,213,714 - - 597,206 165,963 375,880 2,400 2,064 - Investment earnings Contributions Miscellaneous Total revenues 161,799 63,929 - 39,465,865 10,296,327 8,007,437 EXPENDITURES: Current: General governmental Public safety 6,158,308 - - 19,140,415 - - Public works 1,005,745 - - Economic and physical development 3,469,621 - - Culture and recreation 3,965,063 - - - 7,018,407 1,864,006 Principal retirement 275,000 1,825,000 1,000,000 Interest and other charges 254,059 573,830 1,039,600 Highways and streets Debt service: Capital outlay Total expenditures 1,117,640 3,952,878 8,874,348 35,385,851 13,370,115 12,777,954 Excess (deficiency) of revenues over expenditures 4,080,014 (3,073,788) (4,770,517) OTHER FINANCING SOURCES (USES): Loan Proceeds Sale of capital assets Transfers in Transfers out - - 28,861 13,962 - 3,229,424 7,291,262 (4,925,135) Total other financing sources (uses) Fund balances, beginning of year $ 250,000 (136,059) (5,845,432) 2,133,150 7,169,165 (5,595,432) 6,213,164 4,095,377 (10,365,949) 23,112,032 4,875,493 22,728,643 Net change in fund balances Fund balances, end of year 3,800,000 29,325,196 The notes to the financial statements are an integral part of this statement 22 $ 8,970,870 $ 12,362,694 Other Governmental Funds BBB Fund $ 4,331,014 $ $ 35,529,373 - 2,700,708 17,545,686 5,040 392,030 9,564,110 40,410 275,212 1,834,067 - 218,500 218,500 - - 2,063,718 - - 1,250,494 6,293 - 1,220,007 154,480 295,764 1,589,293 - 17,765 22,229 14,928 37,316 277,972 4,552,165 8,793,655 71,115,449 - - 6,158,308 - - 19,140,415 - - 1,005,745 1,568,306 1,386,130 6,424,057 1,114,779 3,261,263 8,341,105 68,684 - 8,951,097 - 1,780,000 4,880,000 - 281,245 2,148,734 1,618,205 1,490,770 17,053,841 4,369,974 8,199,408 74,103,302 182,191 594,247 (2,987,853) - - 3,800,000 - 2,071,575 2,114,398 1,210,000 3,332,245 15,312,931 (1,671,905) (4,003,521) (16,582,052) (461,905) 1,400,299 4,645,277 (279,714) 1,994,546 1,657,424 4,832,978 62,266,904 6,717,758 $ 4,856,360 Total Governmental Funds 6,438,044 $ 6,827,524 $ 63,924,328 23 CITY OF FLAGSTAFF RECONCILIATION OF THE STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES OF GOVERNMENTAL FUNDS TO THE STATEMENT OF ACTIVITIES FOR THE YEAR ENDED JUNE 30, 2005 Net change in fund balances - total governmental funds $ 1,657,424 Amounts reported for governmental activities in the statements of activities are different because: Government funds report capital outlays as expenditures. However, in the statement of activities, the cost of those assets is allocated over their estimated useful lives as depreciation expense. Expenditures for capital assets 17,053,841 Less current year depreciation (3,617,398) 13,436,443 Some items reported in the governmental funds are sources and uses of current financial resources and therefore are not reported as revenues or expenses in the statement of activities. These items include: Lease proceeds (3,800,000) Donated capital 5,051,508 Transfer of capital assets to business-type activity Compensated absences (5,735,244) (164,120) Principal payments on debt 4,880,000 Bond premium (53,635) 178,509 Bond issuance costs are recognized as debt service expenditures in the governmental funds, however these costs are capitalized on the statement and activities and amortized in the statement of activities. 106,179 The sale of capital assets in the governmental funds reflect proceeds. However, in the statement of activities the sale of capital assets reflect the net gain (loss). (1,732,011) Certain revenues in the governmental funds that provide current financial resources are not included in the statement of activities because they were recognized in a prior period. However, other revenues that are deferred in the governmental funds because they do not provide current financial resources due to unavailability are recognized in the statement of activities. Special assessments (218,500) Property tax (12,907) Fines and forfeitures (41,534) (272,941) Internal service funds are used by management to charge the costs of certain activities, such as the City's self-insurance program to individual funds. The following activities of the internal service fund is reported with governmental activities. Operating loss (169,780) Investment income 114,568 Change in net assets of governmental activities - statement of activities The notes to the financial statements are an integral part of this statement 24 (55,212) $ 13,318,391 CITY OF FLAGSTAFF, ARIZONA General Fund Statement of Revenues, Expenditures, and Changes in Fund Balances - Budget and Actual Year Ended June 30, 2005 Budget Original Variance with Final Budget Positive (Negative) Actual Amounts Budgetary Basis Final REVENUES: Taxes $ Intergovernmental Grants and entitlements 18,292,134 $ 18,292,134 $ 18,710,442 $ 418,308 11,450,883 11,450,883 12,844,978 1,394,095 712,471 712,471 1,102,669 390,198 (268,895) Charges for services 1,787,340 1,787,340 1,518,445 Licenses and permits 1,986,208 1,986,208 2,063,718 Fines and forfeitures 1,181,585 1,181,585 1,250,494 68,909 Rents 808,439 808,439 1,213,714 405,275 Investment earnings 125,634 77,510 499,315 499,315 624,949 Contributions - - 2,400 Miscellaneous 356,411 356,411 161,799 37,074,786 37,074,786 39,493,608 2,418,822 Total revenues 2,400 (194,612) EXPENDITURES: General governmental Public safety 7,482,938 7,637,938 6,272,877 1,365,061 19,490,150 19,604,534 19,143,713 460,821 Public works 1,038,046 1,098,046 1,005,745 92,301 Economic and physical development 3,934,325 3,969,325 3,469,621 499,704 Culture and recreation 4,312,916 4,312,916 3,841,912 471,004 Debt service: Principal retirement 275,000 275,000 275,000 Interest and other charges 189,839 189,839 254,059 3,414,366 3,549,982 1,100,761 650,000 150,000 5,821 144,179 40,787,580 40,787,580 35,369,509 5,418,071 4,124,099 7,836,893 Capital outlay Contingency Total expenditures Excess (deficiency) of revenues over expenditures (3,712,794) (3,712,794) (64,220) 2,449,221 OTHER FINANCING SOURCES (USES): Sale of capital assets Transfers in Transfers out Total other financing sources (uses) Net change in fund balances Budgetary fund balances, beginning of year Budgetary fund balances, end of year $ 24,710 24,710 28,861 3,634,442 3,634,442 3,229,424 4,151 (405,018) (14,469,158) (14,469,158) (4,925,135) 9,544,023 (10,810,006) (10,810,006) (1,666,850) 9,143,156 (14,522,800) (14,522,800) 2,457,249 16,980,049 20,074,118 20,074,118 20,074,118 - 5,551,318 $ Adjustment from budetary basis to GAAP basis net change in fund balances The City budgets certain revenues on the cash basis, rather than on the 5,551,318 $ 22,531,367 $ 2,457,249 modified accrual basis. 3,772,257 The City budgets for certain other expenditures on the cash basis, rather than on the modified accrual basis Adjusted net change in fund balance - GAAP basis $ The notes to the financial statements are an integral part of this statement 25 (16,342) 6,213,164 $ 16,980,049 CITY OF FLAGSTAFF, ARIZONA Highway User Fund Statement of Revenues, Expenditures, and Changes in Fund Balances - Budget and Actual Year Ended June 30, 2005 Budget Original Final Actual Amounts Budgetary Basis 7,830,842 $ Variance with Final Budget Positive (Negative) REVENUES: Grants and entitlements $ Intergovernmental 7,830,842 $ 8,064,371 $ 233,529 2,000,000 2,000,000 2,000,000 - 33,000 33,000 165,963 132,963 Contributions 1,720,000 1,720,000 2,064 Miscellaneous 41,261 41,261 63,929 11,625,103 11,625,103 10,296,327 4,535,346 4,535,346 4,328,577 206,769 1,825,000 1,825,000 1,825,000 - Investment earnings Total revenues (1,717,936) 22,668 (1,328,776) EXPENDITURES: Current: Highways and streets Debt service: Principal retirement Interest and other charges Capital outlay Contingency Total expenditures Excess (deficiency) of revenues over expenditures 573,096 573,096 573,830 (734) 20,717,044 20,717,044 6,644,014 14,073,030 100,000 100,000 3,478 96,522 27,750,486 27,750,486 13,374,899 14,375,587 (16,125,383) (16,125,383) (3,078,572) 13,046,811 OTHER FINANCING SOURCES (USES): Bonds issued 402,500 Sale of capital assets Transfers in Transfers out - - 13,962 12,701,785 7,291,262 (145,000) 12,959,285 Net change in fund balances Budgetary fund balances, beginning of year $ - 12,701,785 (145,000) Total other financing sources (uses) Budgetary fund balances, end of year 402,500 (402,500) 13,962 (5,410,523) (136,059) 12,959,285 8,941 7,169,165 (5,790,120) (3,166,098) (3,166,098) 4,090,593 7,256,691 4,813,394 4,813,394 4,813,394 - 1,647,296 $ Adjustment from budetary basis to GAAP basis net change in fund balances 1,647,296 $ 8,903,987 $ 4,090,593 The City budgets for certain other expenditures on the cash basis, rather than on the modified accrual basis Adjusted net change in fund balance - GAAP basis $ The notes to the financial statements are an integral part of this statement 26 4,784 4,095,377 $ 7,256,691 CITY OF FLAGSTAFF, ARIZONA Transportation Fund Statement of Revenues, Expenditures, and Changes in Fund Balances - Budget and Actual Year Ended June 30, 2005 Budget Original Final Actual Amounts Budgetary Basis 7,227,146 $ Variance with Final Budget Positive (Negative) REVENUES: Taxes $ Investment earnings Total revenues 7,227,146 $ 7,631,557 $ 404,411 575,000 575,000 375,880 (199,120) 7,802,146 7,802,146 8,007,437 205,291 2,267,779 2,267,779 1,864,005 403,774 1,000,000 1,000,000 1,000,000 - EXPENDITURES: Current: Highways and streets Debt service: Principal retirement Interest and other charges Capital outlay Total expenditures Excess (deficiency) of revenues over expenditures 1,041,600 1,041,600 1,039,600 2,000 15,387,200 15,387,200 8,874,349 6,512,851 19,696,579 19,696,579 12,777,954 6,918,625 (11,894,433) (11,894,433) (4,770,517) 7,123,916 OTHER FINANCING SOURCES (USES): Sale of capital assets 2,200,000 Transfers in 250,000 Transfers out Total other financing sources (uses) Net change in fund balances Budgetary fund balances, beginning of year Budgetary fund balances, end of year 2,200,000 $ - 250,000 (2,200,000) 250,000 - (9,756,689) (9,756,689) (5,845,432) 3,911,257 (7,306,689) (7,306,689) (5,595,432) 1,711,257 (19,201,122) (19,201,122) (10,365,949) 8,835,173 23,006,476 23,006,476 23,006,476 3,805,354 $ The notes to the financial statements are an integral part of this statement 27 3,805,354 $ 12,640,527 $ 8,835,173 CITY OF FLAGSTAFF, ARIZONA BBB Fund Statement of Revenues, Expenditures, and Changes in Fund Balances - Budget and Actual Year Ended June 30, 2005 Budget Original Final Actual Amounts Budgetary Basis 3,993,176 $ Variance with Final Budget Positive (Negative) REVENUES: Taxes $ Grants and entitlements Charges for services Rents Investment earnings Miscellaneous Total revenues 3,993,176 $ 4,331,014 2,055,700 2,055,700 5,040 20,000 20,000 40,410 14,898 14,898 6,293 133,252 133,252 154,480 $ 337,838 (2,050,660) 20,410 (8,605) 21,228 28,000 28,000 14,928 (13,072) 6,245,026 6,245,026 4,552,165 (1,692,861) 1,850,128 1,870,128 1,550,915 EXPENDITURES: Current: Economic and physical development Culture and recreation Capital outlay Contingency Total expenditures Excess (deficiency) of revenues over expenditures 319,213 548,860 548,860 366,529 182,331 8,587,715 8,587,715 2,450,517 6,137,198 95,000 75,000 - 75,000 11,081,703 11,081,703 4,367,961 6,713,742 184,204 5,020,881 (4,836,677) (4,836,677) OTHER FINANCING SOURCES (USES): Transfers in Transfers out Total other financing sources (uses) Net change in fund balances Budgetary fund balances, beginning of year Budgetary fund balances, end of year $ 1,472,924 1,472,924 1,210,000 (262,924) (2,081,778) (2,081,778) (1,671,905) 409,873 (608,854) (608,854) (461,905) 146,949 (5,445,531) (5,445,531) (277,701) 5,167,830 6,075,743 6,075,743 630,212 $ Adjustment from budetary basis to GAAP basis net change in fund balances 630,212 6,075,743 $ $ 5,798,042 (277,701) The City budgets for certain other expenditures on the cash basis, rather than on the modified accrual basis Adjusted net change in fund balance - GAAP basis $ The notes to the financial statements are an integral part of this statement 28 (2,013) (279,714) $ 5,167,830 29 CITY OF FLAGSTAFF, ARIZONA Statement of Net Assets Proprietary Funds June 30, 2005 Business-type Activities - Enterprise Funds Water and Wastewater Fund Environmental Services Fund ASSETS Current assets: Cash and cash equivalents $ 20,216,086 $ 5,195,947 Cash with fiscal agents 2,966,893 - Restricted cash and cash equivalents 1,604,695 5,504,181 Investments Accounts receivable, net Interest receivable Interfund receivables Intergovernmental receivables 60,000 628,651 2,058,145 788,990 135,640 50,789 - - 37,258 123,339 Inventory 274,515 - Deferred bond issuance costs, net 497,066 - 27,850,298 12,291,897 Total current assets Noncurrent assets: Capital assets, non-depreciable 3,829,755 1,978,361 Capital assets, depreciable, net 180,751,590 5,027,377 Total non-current assets Total assets 184,581,345 7,005,738 212,431,643 19,297,635 LIABILITIES Current liabilities: Accounts payable 585,581 121,018 Accrued payroll and compensated absences 229,531 140,556 Deferred revenue 87,489 813 133,476 - Interfund payable - - Lease and notes payable - - 3,295,279 5,527,369 Unamortized bond premium Liabilities payable from restricted assets Deposits payable Total current liabilities 549,838 17,340 4,881,194 5,807,096 Noncurrent liabilities: Compensated absences Landfill closure and postclosure care costs Bonds and notes payable Total noncurrent liabilities Total liabilities NET ASSETS Invested in capital assets, net of related debt 211,581 62,316 - 2,081,006 26,257,712 - 26,469,293 2,143,322 31,350,487 7,950,418 158,687,223 7,005,738 1,593,915 - Restricted: Capital projects Debt service Unrestricted Total net assets $ 740,862 - 20,059,156 4,341,479 181,081,156 $ Some amounts reported for business-type activities in the statement of net assets are different because certain internal service fund assets and liabilities are included with business-type activities. The notes to the financial statements are an integral part of this statement 30 11,347,217 Business-type Activities - Enterprise Funds Airport Fund $ $ Governmental Activities Stormwater Fund 376,867 $ Total 640,141 $ Internal Service Fund 26,429,041 $ 4,625,421 272,728 - 3,239,621 - 861,965 - 7,970,841 - - - 688,651 - 62,720 51,401 2,961,256 67,923 6,448 5,860 198,737 26,652 - - - 94,897 333,718 - 494,315 - - - 274,515 - - - 497,066 - 1,914,446 697,402 42,754,043 4,814,893 5,509,852 6,076,227 17,394,195 - 26,916,560 675,976 213,371,503 - 32,426,412 6,752,203 230,765,698 - 34,340,858 7,449,605 273,519,741 4,814,893 232,370 60,617 999,586 270,637 28,119 11,183 409,389 - - - 88,302 - 9,715 - 143,191 - 94,897 - 94,897 - 109,866 - 109,866 - 272,728 - 9,095,376 - 29,321 - 596,499 - 777,016 71,800 11,537,106 270,637 10,284 2,899 287,080 - - - 2,081,006 - 4,310,644 - 30,568,356 - 4,320,928 2,899 32,936,442 - 5,097,944 74,699 44,473,548 270,637 28,106,053 6,752,203 200,551,217 - 865,744 - 2,459,659 - - - 740,862 - 271,117 622,703 25,294,455 4,544,256 29,242,914 $ Net assets of business-type activities 7,374,906 $ 229,046,193 $ (345,607) 228,700,586 31 $ 4,544,256 CITY OF FLAGSTAFF, ARIZONA Statement of Revenues, Expenses, and Changes in Fund Net Assets Proprietary Funds Year Ended June 30, 2005 Business-type Activities - Enterprise Funds Water and Wastewater Fund Environmental Services Fund OPERATING REVENUES: Charges for services $ Miscellaneous Total operating revenues 16,170,822 $ 8,823,991 52,826 546,570 16,223,648 9,370,561 OPERATING EXPENSES: Personal services 4,166,018 2,836,619 Contractual services, materials and supplies 6,527,883 5,003,188 - - Insurance claims and expenses Depreciation and amortization Total operating expenses Operating income (loss) 5,383,134 682,029 16,077,035 8,521,836 146,613 848,725 628,308 249,385 43,053 123,339 385 1,819 NON-OPERATING REVENUES (EXPENSES): Interest and investment income Grants and entitlements Gain on sale of capital asset Interest expense Total non-operating revenues (expenses) Income (loss) before capital contributions and transfers (1,169,269) - (497,523) 374,543 (350,910) 1,223,268 Capital contributions 5,031,858 80,474 Transfers in 2,398,830 15,000 Transfers out (2,398,830) Change in net assets Total net assets, beginning of year Total net assets, end of year $ The notes to the financial statements are an integral part of this statement 32 (4,678) 4,680,948 1,314,064 176,400,208 10,033,153 181,081,156 $ 11,347,217 Business-type Activities - Enterprise Funds Airport Fund $ Stormwater Fund 1,023,522 $ Total 693,783 $ Internal Service Fund 26,712,118 $ 6,080,036 153,344 378 753,118 9,151 1,176,866 694,161 27,465,236 6,089,187 557,680 355,990 7,916,307 - 1,173,999 115,549 12,820,619 - - - - 6,349,387 1,851,428 6,652 7,923,243 - 3,583,107 478,191 28,660,169 6,349,387 (2,406,241) 215,970 (1,194,933) (260,200) 21,205 37,075 935,973 114,568 3,253,062 1,394 3,420,848 - 511,534 - 513,738 - (155,243) - (1,324,512) - 3,630,558 38,469 3,546,047 114,568 1,224,317 254,439 2,351,114 (145,632) - 5,941,215 11,053,547 - 634,831 685,968 3,734,629 - - $ Governmental Activities (62,000) 1,859,148 6,819,622 27,383,766 555,284 29,242,914 $ (2,465,508) - 14,673,782 (145,632) 4,689,888 7,374,906 $ Some amounts reported for business-type activities on the statement of activities are different because the net revenue (expense) of certain internal service funds is reported with business-type activities. (90,420) Change in net assets of business-type activites $ 33 14,583,362 4,544,256 City of Flagstaff, Arizona Statement of Cash Flows Proprietary Funds Year Ended June 30, 2005 Business-type Activities - Enterprise Funds Water and Environmental Wastewater Fund Services Fund Cash flows from operating activities: Receipts from customers $ Receipts from quasi-external transactions with other funds Other receipts Payments to suppliers 16,106,049 $ 62,274 52,826 415,921 (6,564,710) Payments for quasi-external transactions with other funds (4,493,631) (35,005) Payments to employees Net cash provided (used) by operating activities 8,774,047 269,372 - (4,127,681) (2,783,861) 5,700,851 1,974,750 2,398,830 15,000 Cash flows from noncapital financing activities: Transfer from other funds Transfer to other funds (2,398,830) Interfund loans paid Interfund loans received Net cash provided (used) by noncapital financing activities (4,678) - - 400,000 - 400,000 10,322 Cash flows from capital and related financing activities: Receipts from grantors - - 1,357,383 80,474 Capital Contributions Acquisition and construction of capital assets (6,934,811) Principal payments on capital debt (2,589,406) - Interest paid on capital debt (1,213,718) - Decrease in deferred bond issuance costs (1,204,842) 62,134 - Proceeds from capital debt - - Proceeds from insurance reimbursement - 56,995 385 1,819 Proceeds from sales of capital assets Net cash provided (used) by capital and related financing activities (9,318,033) (1,065,554) Cash flows from investing activities: Interest received on investments Net cash provided (used) by investing activities Net increase (decrease) in cash and cash equivalents 618,708 235,185 618,708 235,185 (2,598,474) Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year 1,154,703 $ 27,446,148 24,847,674 $ 10,174,076 11,328,779 $ 20,216,086 $ 5,195,947 Classified as: Cash, cash equivalents, and investments Cash and investments 60,000 Restricted cash with fiscal agents Restricted cash and cash equivalents Totals $ The notes to the financial statements are an integral part of this statement (continued) 34 628,651 2,966,893 - 1,604,695 24,847,674 5,504,181 11,328,779 $ Governmental Activities Business-type Activities - Enterprise Funds Airport Fund $ Stormwater Fund 1,074,657 $ - Total 645,180 $ 26,599,933 18,031 153,344 $ 349,677 378 (1,243,288) Internal Service Fund 622,469 (134,368) 6,079,457 9,151 (12,435,997) (6,640,997) (16,375) (115) (51,495) - (553,383) (352,142) (7,817,067) - (585,045) 176,964 7,267,520 634,831 (62,000) (552,389) 2,986,661 - 685,968 (1,717,540) - - (400,000) - - - 400,000 - 234,831 623,968 1,269,121 - 3,490,313 10,584 3,500,897 - - - 1,437,857 (400,000) (5,170,558) (421,794) - (13,732,005) - (291,113) - (2,880,519) - (158,480) - (1,372,198) - - - 62,134 - 2,782,598 - 2,782,598 - - - 56,995 - 511,534 - 513,738 - 1,164,294 (411,210) (9,630,503) - 17,100 31,526 902,519 112,509 17,100 31,526 902,519 112,509 831,180 421,248 $ 680,380 1,511,560 $ 218,893 640,141 $ 376,867 $ 640,141 $ (191,343) (439,880) $ 38,519,497 38,328,154 $ 5,065,301 4,625,421 $ 26,429,041 $ 4,625,421 - - 688,651 - 272,728 - 3,239,621 - 861,965 1,511,560 640,141 7,970,841 38,328,154 $ $ (continued) 35 $ 4,625,421 City of Flagstaff, Arizona Statement of Cash Flows Proprietary Funds Year Ended June 30, 2005 Business-type Activities - Enterprise Funds Water and Wastewater Fund Environmental Services Fund Reconciliation of operating income (loss) to net cash provided (used) by operating activities Operating income (loss) $ 146,613 $ 848,725 Adjustments to reconcile operating income (loss) to net cash provided (used) by operating activities: Depreciation and amortization Landfill closure and postclosure costs 5,383,134 682,029 - 527,821 192,906 11,517 (Increase) decrease in assets: Accounts receivable Intergovernmental receivable Inventories - - 103,196 - Increase (decrease) in liabilities: Accounts payable (175,028) Accrued payroll and compensated absences 38,337 Deposits payable 21,963 Deferred revenue (10,270) Total Adjustments (18,264) 52,758 (129,836) 5,554,238 Net cash provided (used) by operating activities 1,126,025 $ 5,700,851 $ $ 3,674,475 $ 1,974,750 Noncash investing, capital and financing activities: Capital assets acquired through contributions from developers Capital assets acquired through contributions from general fund Total noncash investing, capital and financing activities $ The notes to the financial statements are an integral part of this statement 36 - 3,674,475 $ - - Governmental Activities Airport Fund $ Stormwater Fund (2,406,241) $ (1,194,933) $ (260,200) 6,652 7,923,243 - - 527,821 - (30,572) 218,327 (579) - - - - - - 103,196 - (18,934) (297,890) (291,610) 4,297 3,848 99,240 - 6,659 - 28,622 - - - 1,821,196 $ $ - (85,664) $ 215,970 Internal Service Fund 1,851,428 44,476 $ Total (585,045) - (140,106) (39,006) $ $ $ - 8,462,453 (292,189) 176,964 $ 7,267,520 $ 205,971 $ 3,880,446 $ - $ - 5,738,494 5,944,465 5,738,494 $ 9,618,940 37 (552,389) CITY OF FLAGSTAFF, ARIZONA Statement of Fiduciary Net Assets Fiduciary Funds June 30, 2005 Firemen's Pension Fund ASSETS Cash and cash equivalents $ Interest receivable 216,442 1,164 Total assets 217,606 LIABILITIES Other liabilities - Total liabilities - NET ASSETS Held in trust for pension benefits and other purposes $ The notes to the financial statements are an integral part of this statement 38 217,606 CITY OF FLAGSTAFF, ARIZONA Statement of Changes in Fiduciary Net Assets Fiduciary Funds Year Ended June 30, 2005 Firemen's Pension Fund ADDITIONS: Investment earnings $ Total additions 5,592 5,592 DEDUCTIONS: Retirement payments 7,200 Total deductions 7,200 Change in net assets (1,608) Net assets - beginning of year 219,214 Net assets - end of year $ The notes to the financial statements are an integral part of this statement 39 217,606 40 CITY OF FLAGSTAFF, ARIZONA Notes to the Financial Statement June 30, 2005 I. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A. FINANCIAL REPORTING ENTITY The City of Flagstaff (the City) was incorporated as a town in 1894 and as a city in 1928. The current City Charter was approved June 29, 1998. The Charter provides for the Council-Mayor form of government and the authority to provide municipal services, as limited by the State Constitution. The accounting policies of the City of Flagstaff conform to United States of America generally accepted accounting principles (GAAP) as applicable to Governmental Units. The Governmental Accounting Standards Board (GASB) is the accepted standard-setting body for establishing governmental accounting and financial reporting principles. During the year ended June 30, 2005, the city implemented the provisions of GASB Statement No. 40, Deposit and Investment Risk Disclosures. GASB Statement No. 40 establishes and modifies the risk disclosures about the City of Flagstaff’s deposits and investments. The implementation of GASB Statement No. 40 requires only additional disclosures, and had no effect on reported amounts for deposits, investments, net assets, or changes in net assets. The City of Flagstaff is a municipal corporation governed by an elected Mayor and six-member council. The accompanying financial statements include the City and all of its component, entities for which the government is considered to be financially accountable. Blended component units, although legally separate entities are, in substance, part of the government’s operations and so data from these units are combined with data of the primary government. Discretely presented component units are reported in a separate column in the Government Wide Statement of Net Assets and Activities to emphasize they are legally separate from the government. The City of Flagstaff has no discretely presented component units. Blended Component Unit: The Municipal Facilities Corporation (MFC) is a non-profit corporation created by the City for the purpose of constructing, acquiring and equipping municipal facilities. For Financial reporting purposes, transactions of the MFC are included as if it were part of the City’s operations. In fiscal year 2004 the MFC issued $25 million in bonds for construction of the Fourth Street Overpass. The voters approved this debt financing in the May 2000 General Election. These bonds will be repaid with the transportation sales tax that was also approved in the May 2000 Election. Related Organizations: The City of Flagstaff officials are also responsible for appointing board members of other organizations. However, as the City’s control is limited to making the appointments and there is not a significant operational nor a significant financial relationship between these organizations and the City, they are not included as part of these financial statements. 41 B. GOVERNMENT-WIDE AND FUND FINANCIAL STATEMENTS The government-wide financial statements (statement of net assets and statement of activities) report on the City and its component units as a whole, excluding fiduciary activities. Governmental activities, which normally are supported by taxes and intergovernmental revenues, are reported separately from business-type activities, which rely to a significant extent on fees and charges for support. All activities, both governmental and business type, are reported in the government-wide financial statements using the economic resources measurement focus and the accrual basis of accounting, which includes long-term assets and receivables as well as long-term debt and obligations. The government-wide financial statements focus more on the sustainability of the City as an entity and the change in aggregate financial position resulting from the activities of the fiscal period. Generally, the effect of interfund activity has been removed from the government-wide financial statement. Net interfund activity and balances between governmental activities and business-type activities are shown in the government-wide financial statements. Interdepartmental services performed by one department for another are credited to the performing department and charged to the receiving department to reflect the accurate costs of programs. These indirect costs have been included as part of the program expenses reported for the various functional activities. The rates used are intended to reflect full costs in accordance with generally accepted cost accounting principles. The government-wide statement of net assets reports all financial and capital resources of the government (excluding fiduciary funds). It is displayed in a format of assets less liabilities equals net assets, with the assets and liabilities shown in order of their relative liquidity. Net assets are required to be displayed in three components: 1) invested in capital assets, net of related debt, 2) restricted, and 3) unrestricted. Invested in capital assets, net of related debt is capital assets net of accumulated depreciation and reduced by outstanding balances of any bonds, mortgages, notes or other borrowings that are attributable to the acquisition, construction, or improvement of those assets. Restricted net assets are those with constraints placed on their use by either: 1) externally imposed by creditors (such as through debt covenants), grantors, contributors, or law or regulations of other governments, or 2) imposed by law through constitutional provisions or enabling legislation. All net assets not otherwise classified as restricted, are shown as unrestricted. Generally, the City would first apply restricted resources when an expense is incurred for purposes for which both restricted and unrestricted net assets are available. Reservations or designations of net assets imposed by the reporting government, whether by administrative policy or legislative actions of the reporting government, are not shown on the government-wide financial statements. The government-wide statement of activities demonstrates the degree to which the direct expenses of the various functions and segments of the City are offset by program revenues. Direct expenses are those that are clearly identifiable with a specific function or segment. Interest on general long-term debt and depreciation expense on assets shared by multiple functions are not allocated to the various functions. Program revenues include: 1) charges to customers or users who purchase, use or directly benefit from goods, services or privileges provided by a particular 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, investment income and other revenues not identifiable with particular functions or segments are included as general revenues. The general revenues support the net costs of the functions and segments not covered by program revenues. Also part of the basic financial statements are fund financial statements for governmental funds, proprietary funds and fiduciary funds, even though the latter are excluded from the government-wide financial statements. The focus of the fund financial statements is on major funds, as defined by GASB Statement No. 34. Although the new model sets forth minimum criteria for determination of major funds (a percentage of assets, liabilities, revenues, or 42 expenditures/expenses of fund category and of the governmental and enterprise funds combined), it also gives governments the option of displaying other funds as major funds. The City has opted to add the Bed, Board, and Booze (BBB) Fund as major fund because of community focus. Other non-major funds are combined in a single column on the fund financial statements and are detailed in combining statements included as supplementary information after the basic financial statements. GASB Statement 34 requires reporting of infrastructure such as roads, bridges, canal systems, ditches, water systems, sewer systems, and recreational assets on a prospective basis effective July 1, 2002 and retrospectively for all major infrastructure assets acquired or constructed since 1980. This reporting is required to be in place by fiscal year 2007. Accordingly, infrastructure assets acquired or constructed beginning in 1980 through June 30, 2002 are not included in the government-wide financial statements. C. MEASUREMENT FOCUS, BASIS OF ACCOUNTING, AND FINANCIAL STATEMENT PRESENTATION The government-wide financial statements are reported using the economic resources measurement focus and the accrual basis of accounting, as are the proprietary fund and fiduciary fund financial statements. 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 recorded 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. The governmental fund financial statements are prepared on a current financial resources measurement focus and modified accrual basis of accounting. This is the traditional basis of accounting for governmental funds. This presentation is deemed most appropriate to 1) demonstrate legal and covenant compliance, 2) demonstrate the sources and uses of liquid resources, and 3) demonstrate how the City’s actual revenues, and expenditures conform to the annual budget. Since the governmental fund financial statements are presented on a different basis than the governmental activities column of the governmental-wide financial statements, a reconciliation is provided immediately following each fund statement. These reconciliations explain the adjustments necessary to transform the fund financial statements into the governmental activities column of the government-wide financial statements. The proprietary (enterprise) fund and fiduciary fund financial statements are prepared on the same basis (economic resources measurement focus and accrual basis of accounting) as the government-wide financial statements. Therefore, most lines for the total enterprise funds on the proprietary fund financial statements will directly reconcile to the business-type activities column on the government-wide financial statements. Because the enterprise funds are combined into a single business-type activities column on the government-wide financial statements, certain interfund activities between these funds may be eliminated in the consolidation for the government-wide financial statements, but are included in the fund columns in the proprietary fund financial statements. The City uses funds to report its financial position and the results of its operations. Fund accounting segregates funds according to their intended purpose and is designed to demonstrate legal compliance and to aid financial management by segregating transactions related to certain governmental functions or activities. A fund is a separate accounting entity with a self-balancing set of accounts, which includes assets, liabilities, fund equity, revenues and expenditures/expenses. 43 The City uses the following fund categories: GOVERNMENTAL FUND TYPES Governmental funds are those through which most of the governmental functions of the City are financed. The measurement focus is based upon determination of changes in financial position rather than upon net income determination. General Fund is the primary operating fund of the City. It is used to account for all financial resources except those required to be accounted for in another fund. The General fund will always be considered a major fund in the basic financial statements. Special Revenue Funds are used to account for the proceeds of specific revenue sources (other than special assessments or major capital projects) that are legally restricted to expenditures for specified purposes. There are three special revenue funds that are presented as major funds in the basic financial statements. They are the: x Highway User Revenue Fund, which receives and expends the City’s allocation of the Highway User Revenue money. Monies allocated to this fund must be used for Street construction, reconstruction and maintenance. x Transportation Tax Fund that accounts for the receipt and expenditures of the Transportation Tax money. These monies are restricted to financing improvements in the Areas of the 4th Street overpass project, Safe to School/Pedestrian and Bike projects, Traffic Flow and Safety improvements, and Transit Service operations and enhancements. x Bed, Board and Booze Tax Fund that accounts for the Bed, Board and Booze tax revenues and expenditures. These monies are restricted for use in the areas of Beautification, Economic Development, Tourism, Arts & Science, and Recreation. Debt Service Funds are used to account for the accumulation of resources for, and the payment of, general long- term obligation principal and interest. Permanent Funds are used to account for resources that are legally restricted to the extent that only earnings, and not principal, may be used for purposes that support the reporting government’s programs. x The Perpetual Care Fund accounts for the perpetual care of the City’s cemetery. PROPRIETARY FUND TYPES Proprietary Funds are used to account for the City’s ongoing organizations and activities, which are similar to those found in the private sector and where cost recovery and the determination of net income is useful or necessary for sound fiscal management. The measurement focus is based upon determination of net income, changes in net assets, financial position, and cash flows. Enterprise Funds are used to account for operations that provide services to the general public for a fee. Under GASB Statement No. 34, enterprise funds are also required for any activity whose principal revenue sources meet any of the following criteria: 1) any activity that has issued debt backed solely by the fees and charges of the activity, 2) if the cost of providing services for an activity, including capital costs such as depreciation or debt service, must legally be recovered through fees and charges, or 3) it is the policy of the City to establish activity fees or charges to recover the cost of providing services, including capital costs. The City has four enterprise funds all of which are presented as major funds in the basic financial statements. These include the City’s water and wastewater system, environmental services, airport, and stormwater. 44 Private Sector Standards Private-sector standards of accounting and financial reporting issued prior to December 1, 1989, generally are followed in both the government-wide and enterprise fund financial statements to the extent that those standards do not conflict with or contradict guidance of the Governmental Accounting Standards Board. Governments also have the option of following subsequent private-sector guidance for their business-type activities and enterprise funds, subject to this same limitation. The City has elected not to follow subsequent private-sector guidance. FIDUCIARY FUND TYPES Fiduciary Funds are used to account for assets held by the City in a trustee capacity or as an agent for individuals, private organizations, other governmental units, and other funds. The reporting focus is upon net assets and changes in net assets and employs accounting principles similar to proprietary funds. Fiduciary funds are not included in the government-wide financial statements since they are not assets of the City available to support City programs. Firemen’s Pension Fund is a pension trust fund that is used to account for the activity of the City’s single-employer retirement system. This fund is accounted for on the same basis as a proprietary fund, using the same measurement focus and basis of accounting. Non-Current Governmental Assets/Liabilities GASB Statement No. 34 eliminates the presentation of account groups (formerly the general fixed asset account group and the general long-term debt account group). The governmental long-term assets and liabilities continue to be maintained in the account groups for tracking purposes, but are presented with the governmental activities in the government-wide statement of net assets. Basis of Accounting The accounting and financial reporting treatment applied to a fund is determined by its measurement focus. Governmental funds are accounted for using a current financial resources measurement focus whereby only current assets and current liabilities are generally included on the balance sheet. Operating statements present increases (i.e., revenues and other financing sources) and decreases (i.e., expenditures and other financing uses) in net current assets. Enterprise funds and pension trust funds are accounted for on a flow of economic resources measurement focus whereby all assets and liabilities associated with the operation of these funds are included on the balance sheet. Operating statements present increases (i.e., revenues) and decreases (i.e., expenses) in net total assets. The modified accrual basis of accounting is used by governmental funds. Revenues are recognized when susceptible to accrual (i.e., when they become both measurable and available). “Measurable” means the amount of the transaction can be determined and “available” means collectible within the current period or soon enough thereafter to be used to pay liabilities of the current period. The City considers revenues to be available if they are collected within 60 days after year-end. Expenditures are recorded when the related fund liability is incurred. Principal and interest on general long-term debt are recorded as fund liabilities when due or when amounts have been accumulated in the debt service fund for payments to be made early in the following year. Revenues susceptible to accrual include property tax, privilege license tax, highway user tax, state shared sales tax, vehicle license tax, and interest earned on investments. Licenses and permits, charges for services, fines and forfeitures, parks and recreation charges and miscellaneous revenues are recorded when received in cash since they are generally not measurable until actually received. 45 The accrual basis of accounting is followed for all enterprise funds and the pension trust fund, whereby revenues are recognized in the accounting period in which they are earned and become measurable, and expenses are recognized when incurred. Enterprise funds distinguish operating revenues and expenses from non-operating items. Operating revenues and expenses generally result from providing services and producing and delivering goods in connection with the fund’s principal ongoing operations. Operating expenses for enterprise funds include the cost of sales and services, administrative expenses, and depreciation on capital assets. All revenues and expenses not meeting this definition are reported as non-operating items. D. ASSETS, LIABILITIES, AND NET ASSETS Pooled Cash and Investments The City’s cash and cash equivalents are considered to be cash on hand, demand deposits and short-term investments with original maturities of three months or less from the date of acquisition. State statutes authorized the government to invest in the State’s Local Government Investment Pool, in obligations of the U.S. Treasury, commercial paper and repurchase agreements. Investment Income from pooled cash and investments is allocated monthly based on the percentage of a fund’s average daily equity in pooled cash and investments to the total average daily-pooled equity in pooled cash and investments. Investments are stated at fair value. For purposes of the statement of cash flows, the City considers cash and cash equivalents, including restricted cash and cash equivalents, to be currency on hand, demand deposits with banks, amounts included in pooled cash and investment accounts and liquid investments with a maturity of three months or less when purchased. Cash and cash equivalents are included in both unrestricted as well as restricted assets. Receivables and Payables Accounts receivable and taxes receivable, are shown net of an allowance for uncollectible accounts. The City’s property tax is levied each year on or before the third Monday in August based on the previous January 1, full cash value as determined by the Coconino County Assessor. September 1 and March 1. Levies are due and payable in two installments on First half installments become delinquent on November 1; second half installments become delinquent on May 1. Interest at the rate of 12% per annum accrues following delinquent dates. Coconino County bills and collects all property taxes, at no charge to the taxing entities. A lien against property assessed attaches on the first day of January preceding assessment and levy thereon. Under Arizona tax laws, there are two property tax levies, primary and secondary. Primary property taxes are not restricted as to use and are used to finance the general operations of the City. Secondary property taxes are restricted for general obligation bonded debt service. The secondary property tax levy is recorded as revenue in a debt service fund and transferred to the Water and Wastewater Enterprise Fund, the BBB Fund, the Airport Enterprise Fund and the General Obligation Bond Fund. General Obligation bonds are serviced by each of these funds. For fiscal year 2004-2005, primary and secondary property tax collections amounted to $3,618,849 and $4,856,360 respectively. Inventory Inventory is valued at cost, which approximates market, using the weighted average cost method. Inventory consists of expendable supplies held for consumption and is charged to expenditure accounts as consumed. 46 Restricted Assets Certain debt proceeds of the City’s bonds, as well as certain resources set aside for their repayment, are classified as restricted on the balance sheet, or statement of net assets, because they are maintained in trust accounts and their use is limited by applicable debt covenants. Grant Revenue The City, a recipient of grant revenues, recognizes revenues (net of estimated uncollectible amounts, if any), when all applicable eligibility requirements, including time requirements, are met. Resources transmitted to the City before the eligibility requirements are met are reported as deferred revenues. Some grants and contributions consist of capital assets or resources that are restricted for capital purposes – to purchase, construct, or renovate capital assets associated with a specific program. These are reported separately from grants and contributions that may be used either for operating expenses or for capital expenditures of the program at the discretion of the City. Capital Assets Prior to GASB Statement No. 34, capital assets for governmental funds were recorded in the General Fixed Assets Account Group and were not depreciated. The new reporting model requires that all capital assets, whether owned by governmental activities or business-type activities, be recorded and depreciated (unless the modified approach is used) in the government-wide financial statements. The City has chosen not to apply the modified approach to any networks or subsystems of infrastructure assets. governmental fund financial statements. No long-term assets or depreciation are shown in the Capital assets, including public domain infrastructure (i.e., roads, bridges, curbs and gutters, streets and sidewalks, drainage systems, and other assets that are immovable and of value only to the City) are reported in the applicable governmental or business-type activities columns in the government-wide financial statements. The government defines capital assets as assets with an initial, individual cost of more than $5,000 ($25,000 for capital improvement projects and infrastructure assets) and an estimated useful life greater than three years. Such assets are recorded at historical cost if purchased or constructed. Donated capital assets are recorded at estimated fair value at the date of donation. The cost of normal maintenance and repairs that do not add to the value of the asset or materially extend its life, are not capitalized. Major improvements are capitalized and depreciated over the remaining useful lives of the related fixed assets. Major capital outlays for capital assets and improvements are capitalized as projects are constructed. Interest incurred during the construction phase of capital assets of business-type activities is included as part of the capitalized value of the assets constructed, if material. Property, plant and equipment is depreciated using the straight-line method over the following estimated useful lives (land and construction-in-progress are not depreciated): Assets Useful life (years) Buildings 20-50 Improvements 10-20 Infrastructure 10-50 Machinery and Equipment 5-20 47 Committed Construction At June 30, 2005 there were major uncompleted construction contracts as follows: Airport Fund HURF Transportation Fund Stormwater Fund Water and Wastewater Fund $ 570,284 2,277,498 10,403,314 489,877 813,345 $ 14,554,318 On December 1, 2004, the City entered into a development agreement with Railhead Associates, LLC to redevelop and expand the Flagstaff Mall and general improvements in traffic flow, utilities and detention in the East Flagstaff Gateway Redevelopment area with the collateral benefit of creating additional development, including, but not limited to, an auto park for automobile sales and mixed use developments. As part of the agreement, the City is contributing $10M to this redevelopment project. On December 15, 2004 the city’s first payment of $500,000 was made to the developer. Subsequent payments will be made on a percentage of completion basis. The agreement will terminate on the date that the developer has completed 100% of the improvements as outlined in the development agreement and the City has made the final payment of $1M. Compensated Absences Vacation and sick leave is granted to all regular and part-time permanent employees. The annual amount of vacation time accrued varies depending on classification and years of service. Accumulated vacation leave vests and the City is obligated to make payment if the employee terminates. For the governmental fund financial statements, the current payroll and current portion of the compensated absences are recorded as a current liability of the applicable funds. Long-term liabilities of governmental funds are not shown on the fund financial statements. For the government-wide financial statements, as well as the proprietary fund financial statements, all of the accrued liabilities for compensated absences are recorded as a liability. Sick leave accrues at rates based on the classification of each employee and years of service. Vested (at least 20 years of service) sick leave is payable upon retirement, disability or death of up to 50 percent (not more than 520 hours) of accumulated sick leave. These amounts are also accumulated in the government and business-type fund statements as well as the government-wide statements. Long-Term Obligations In the government-wide financial statements, and enterprise fund types in the fund financial statements, long-term debt and other long-term obligations are reported as liabilities in the applicable statement of net assets. Bond premiums and discounts are deferred and amortized over the life of the bonds using the effective interest method. Bonds payable are reported net of the applicable bond premium or discount. In the fund financial statements, governmental fund types recognize bond premiums and discounts, as well as bond issuance costs in the period in which the bonds are issued. The face amount of debt issued is reported as other financing sources. Premiums received on debt issuance 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. Interfund Transactions Interfund transactions, consisting of services performed for other funds or costs billed to other funds are treated as expenditures in the fund receiving the services and as a reimbursement reducing expenditures in the fund performing the services. Exceptions include water sales, sewer charges, and environmental service charges that are recorded as revenue in the enterprise funds and expenses or expenditures in the department receiving the service. 48 In addition, operating transfers are made between funds to shift resources from a fund legally authorized to receive revenue to a fund authorized to expend the revenue. Fund Equity In the fund financial statements, reserved fund equity is defined as that portion of fund equity that has legally been segregated for specific purposes. Designated fund equity is defined as that portion of fund equity for which the City has made tentative plans for future use of financial resources. Unreserved/Undesignated fund equity is defined as that portion of fund equity, which is available for use in a future period. Statement of Cash Flows The City considers all high liquid investments (including restricted assets) with an original maturity of three months or less to be cash equivalents. In a statement of cash flows, cash receipts and payments are classified according to whether they stem from operating, noncapital financing, capital and related financing, or investing activities. Use of Estimates The preparation of the financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Arbitrage Arbitrage is generated when the a local government temporarily reinvests bond proceeds (generally during construction periods) and interest earnings are generated in excess of the interest due and payable on the bond. While there are certain exceptions in which the local government may keep the excess earnings, most instances require that the local government remit these excess earnings to the federal government. Rebatable amounts are recorded at such time they are actually due and payable to the federal government. The City of Flagstaff did not have any rebatable arbitrage for the year ended June 30, 2005. II. Reconciliation of government-wide and fund financial statements A. Explanation of certain differences between the governmental fund balance sheet and the government-wide statement of net assets The governmental fund financial statements are presented on a current financial resources measurement focus and modified accrual accounting basis while the government-wide financial statements are prepared on a long-term economic resources measurement focus and accrual accounting basis. Reconciliation’s briefly explaining the adjustments necessary to transform the fund financial statements into the governmental activities column of the government-wide financial statements immediately follow each fund financial statement. 49 Reconciliation of Governmental Funds Balance Sheet and the government-wide Statement of Net Assets: Assets Cash and cash equivalents Cash with fiscal agents Investments Accounts receivable, net Interest receivable Intergovernmental receivables Bond proceeds receivable Special assessments receivable Interfund receivable Prepaid items Inventory Restricted cash and cash equivalents Capital assets Total Assets Liabilities and Net Assets Accounts payable Accrued payroll and compensated absences Interest payable Interfund payable Deferred revenue Guaranty and other deposits Unamortized bond premium Liabilities payable from restricted assets Compensated absences - current Current bonds/contracts payable Fund balance/Net Assets Total liabilities and net assets Total Governmental Funds $ 51,421,431 5,644,807 4,365 7,439,466 286,364 1,559,676 182,365 33,950 1,500,000 220,095 10,246,503 $ 78,539,022 $ 2,419,751 1,707,913 1,035,042 1,500,000 798,686 1,415,003 1,128,299 4,610,000 63,924,328 $ 78,539,022 Capital Assets (1) $ $ $ $ Internal Service Fund (3) Long-Term Liabilities (2) 104,441,067 104,441,067 $ 104,441,067 104,441,067 $ 47,775 473,172 520,947 $ $ 4,625,421 67,923 26,652 440,504 5,160,500 $ 417,538 (191,473) 1,082,533 1,694,596 46,950,000 (49,432,247) 520,947 $ 270,637 4,889,863 5,160,500 $ $ $ $ Reclass and Eliminations Statement of Net Assets Totals $ (1,500,000) (1,500,000) $ 56,046,852 5,644,807 4,365 7,555,164 313,016 1,559,676 182,365 33,950 440,504 473,172 220,095 10,246,503 104,441,067 187,161,536 $ (1,056,055) (1,500,000) 1,056,055 $ (1,500,000) $ 2,690,388 1,069,396 1,035,042 607,213 1,415,003 1,082,533 1,128,299 2,750,651 51,560,000 123,823,011 187,161,536 $ (1) Capital assets (land, buildings, equipment, etc.) that are to be used in governmental activities are purchased or constructed, the costs of those assets are reported as expenditures in governmental funds, and thus a reduction in fund balance. However, the statement of net assets includes those capital assets among the assets of the City as a whole. Costs of capital assets Accumulated depreciation $ $ 136,723,427 (32,282,360) 104,441,067 (2) Bond issuance costs are expensed when incurred in governmental funds, but are deferred and amortized over the life of the bonds in the statement of net assets. Unamortized bond issue costs $ 473,172 Certain receivables are not recognized in the govermental funds, but are earned in the statement of net assets. Deferred court receivables $ 47,775 Long-term liabilities applicable to the City's governmental activities are not due and payable in the current period, and accordingly are not reported as fund liabilities in the governmental fund statement. All liabilities, both current and longterm are reported in the statement of net assets. Bonds payable Compensated absences Unamortized bond premium Subtotal Less: current compensated absences current portion of bonds 50 $ $ 51,560,000 2,529,672 1,082,533 55,172,205 417,538 4,610,000 50,144,667 Deferred revenue for the long-term special assessment receivables and property tax shown on the governmental fund statements is not deferred on the statements of net assets. Deferred special assessment Deferred property tax $ 33,950 157,523 191,473 $ (3) Internal service funds are used by management to charge the costs self insurance to the individual funds. The assets and liabilities of the internal service funds are included in the governmental activities in the statement of net assets, but are not included on the governmental fund balance sheet. $ 4,889,863 B. Explanation of certain differences between the governmental fund statement of revenues, expenditures, and changes in fund balances and the government-wide statement of activities Reconciliation of Governmental Funds Statements of Revenues, Expenditures and Changes in Fund Balance and the government-wide Statement of Activities: Revenues and Other Sources Taxes Intergovernmental Grants and entitlements Charges for services Special assessments Licenses and permits Fines and forfeitures Rent Investment earnings Contributions Miscellaneous Total revenue Total Governmental Funds $ Expenditures/Expenses General governmental Public safety Public works Economic and physical development Culture and recreation Highways and streets Principal retirement Interest and other charges Capital outlay Total expenditures/expenses OTHER FINANCING SOURCES (USES): Refunding bonds issued Loan proceeds Payment to bond refunding escrow agent Bond (discount) premium Sale of capital assets Transfers in Transfers out Total other financing sources (uses) Net change for the year 35,529,373 17,545,686 9,564,110 1,834,067 218,500 2,063,718 1,250,494 1,220,007 1,589,293 22,229 277,972 71,115,449 Capital Related Items (1) $ 6,158,308 19,140,415 1,005,745 6,424,057 8,341,105 8,951,097 4,880,000 2,148,734 17,053,841 74,103,302 $ 3,800,000 2,114,398 15,312,931 (16,582,052) 4,645,277 1,657,424 $ 5,051,508 5,051,508 Long-Term Revenues/ Expenses (2) $ 661,076 706,524 198,765 133,208 966,224 951,601 (17,053,841) (13,436,443) (1,732,011) (5,735,244) (7,467,255) 11,020,696 $ 51 (12,907) $ (218,500) (41,534) (272,941) (1,394,430) 1,105,084 111,786 228,632 89,634 77,049 (4,880,000) (106,179) (4,768,424) (3,800,000) (3,800,000) 695,483 $ Internal Service Fund (3) 114,568 114,568 Adjustments and Eliminations $ 16,991 66,091 4,163 21,414 29,637 31,484 169,780 (55,212) $ - Statement of Activities Totals $ 35,516,466 17,545,686 9,564,110 1,834,067 2,063,718 1,208,960 1,220,007 1,703,861 5,073,737 277,972 76,008,584 - 5,441,945 21,018,114 1,320,459 6,807,311 9,426,600 10,011,231 2,042,555 56,068,215 - 382,387 15,312,931 (22,317,296) (6,621,978) 13,318,391 $ (1) When capital assets that are to be used in the governmental activities are purchased or constructed, the resources expended for those assets are reported as expenditures in governmental funds. However, in the statement of activities, the cost of those assets is allocated over their useful lives and reported as depreciation expense. As a result, fund balance decreases by the amount of the financial resources expended, whereas net assets decrease by the amount of depreciation expense charged for the year. Capital outlay Depreciation expense Gain (loss) on sale of capital assets Transfer of capital assets to enterprise fund Donated capital assets $ $ 17,053,841 (3,617,398) (1,732,011) (5,735,244) 5,051,508 11,020,696 (2) Special assessment principal payments received are reported as revenue on the governmental fund statements, but are reductions to the outstanding special assessment debt for government-wide reporting. Property tax revenue not received within 30 days of year end are deferred for governmental fund reporting, but are not deferred for governmentwide reporting. Special assessment received Property tax Court revenue $ $ (218,500) (12,907) (41,534) (272,941) The costs of issuing bonds are reported as an expenditure in governmental funds in the year of bond issuance. For the City as a whole, however, the bond issuance costs are deferred and amortized (expensed) over the life of the bonds. Amortization of bond issuance costs $ (53,635) Some expenses reported in the statement of activities do not require the use of current financial resources and therefore are not reported as expenditures in governmental funds. Accrual of long-term compensated absences $ (164,120) Prepayment of bond principal is reported as an expenditure in governmental funds and thus has the effect of reducing fund balance because current financial resources have been used. For the City as a whole, however, the principal payments reduce the long-term liabilities in the statement of net assets and do not result in an expense in the stement of activities Principal bond payments Lease proceeds Amortization of bond premium $ $ 4,880,000 (3,800,000) 106,179 1,186,179 (3) Internal service funds are used by management to charge the costs of self insurance to the individual funds. The adjustments for internal service funds "close" those funds by charging the additional amounts to participating governmental activities to completely cover the internal service funds' costs for the year. Revenue Expenditures $ $ 52 114,568 (169,780) (55,212) III. STEWARDSHIP, COMPLIANCE AND ACCOUNTABILITY A. BUDGETARY INFORMATION Budget Basis of Accounting The City's accounting records for General Government operations (General, Special Revenue, and Debt Service Funds) are maintained on a basis consistent with Generally Accepted Accounting Principles (GAAP) with measurable revenues recorded when they become available to finance expenditures in the current fiscal year. "Available" is defined as: collectible within the current period or soon enough thereafter to be used to pay liabilities of the current period. Expenditures, other than principal and interest on debt, are recognized in the accounting period in which the liability arises. State statute allows for encumbrances to be recognized for a 60-day period following the end of the prior fiscal year as uses of prior year appropriations. To ensure that appropriations do not lapse, departments are directed to re-budget for all items delivered after June 30. For the Enterprise Funds, the annual budget is prepared on a basis that differs from GAAP because state law requires capital purchases and debt service payments to be budgeted as expenses, and bond proceeds and grants that are to be utilized are to be budgeted as revenues. The accounting and budgeting systems for the City are in accordance with Generally Accepted Accounting Principles (GAAP) format, with minimal variances between the two systems. Budget basis for enterprise funds differ primarily due to state laws. The major differences are as follows: • Encumbrances (contractual commitments) are considered the equivalent of expenditures. Encumbrances at year-end for goods or services, which are not received prior to the end of the fiscal year, are cancelled. • • Fund balances reserved to inventory and bonded debt are not included in the budget. Certain expenditures, such as depreciation and landfill closure and post closure accrual, are not included in the budget. • All funds except the Internal Service Fund are budgeted. • Enterprise funds budget capital expenditures and debt service payments as expenses. • Enterprise funds budget bond proceeds and grants as revenues. The City will utilize a number of different fund types to segregate the financial activity within the City either due to regulatory reasons or as designated internally. The fund classifications are Governmental funds, Proprietary funds and Fiduciary funds. Review and Approval Issues presented during the review and approval period include discussion topics of the Council fall and spring retreats. The fall and spring retreats were held in November and February respectively, to give City staff the opportunity to present major discussion points to Council and the public. The goal is for Council to make policy decisions and direct staff in preparing the budget. This provides adequate time for the Council to gather input on major budget issues prior to preparation of the budget. The City Council holds Study Sessions in May. The Council reviews and discusses the issue papers included in the Budget Review Book as well as all personnel recommendations, capital equipment recommendations, and the capital improvement plan. The Council arrives at a consensus for all decisions needed. The Study Sessions provide the opportunity for City management, departments and the public to offer information and recommendations to the City Council. The proposed budget is presented to Council for tentative adoption on or before the third Monday in July. Two public hearings are held on the content of the budget. Final adoption occurred on July 6, 2004. State law requires the operating budget to be all-inclusive. Therefore, the budget includes provisions for contingent revenues, e.g., Passengers Facility Charges, and expenditures that cannot be accurately determined when the budget is adopted, 53 e.g., grants. The Resolution adopting the annual budget requires Council authorization for any expenditure from contingencies, as well as transfer of budget authority between departments. The City operates under the State Expenditure Limitation with a one-time adjustment to the base. The adjustment provided for an increase to the base limit to allow for the expenditure of funds resulting from the addition of a 2% Bed, Board, & Booze Tax. Flagstaff is not a Home Rule city. Alternative [Home Rule] Expenditure Control municipalities require voter approval every four years. The Adopted Budget reflects the total funds appropriated. Certain exclusions are allowed by the state [e.g., bond proceeds, debt service, grants] in computing the Expenditure Limitation and this total cannot be exceeded. Budget authority can be transferred between line items within a Division. At year-end, Department budgets are reviewed and budget authority is transferred from contingencies by Resolution as necessary. Additionally, any inter- fund transfer of appropriations requires Council approval. Council can also amend total appropriations for a fund during the year by Resolution as long as there is a corresponding increase/decrease in another fund so that the expenditure limitation is not exceeded. B. DEFICITS IN FUND EQUITY/EXCESS OF EXPENDITURES OVER APPROPRIATIONS The following fund had an accumulated fund deficit at June 30, 2005: Type Capital Projects Fund Capital Project Bond Construction Fund Deficit Amount $970,005 The deficit in the Capital Project Bond Construction fund is primarily due to the timing of bond eligible expenditures occurring prior to the related debt being issued. The City plans to issue related debt over the next fiscal year. For the year ended June 30, 2005, expenditures, including capital outlay and transfers, did not exceed budget at the department level in any funds. However, budgetary comparisons provided in the basic financial section and supplemental section are presented at the functional level of detail, the same level of detail used to present current expenditures in the statement of revenues, expenditures, and changes in fund balances. This comparison is not sufficient to demonstrate the legal level of budgetary control, which is at the department level (i.e., the fire department is presented with public safety at the functional level, and as Fire at the department level). The table below is presented at the department level and demonstrates the budgetary comparison for all governmental funds. General Administration Community Development Management Services Fire Police Public Works Utilities Non-Departmental Contingency Final Budget $ 6,294,291 31,983,548 7,444,556 7,881,104 12,705,839 36,956,097 40,597 11,102,871 625,000 $ 115,033,903 54 $ $ Actual 5,857,199 18,062,208 6,927,453 7,358,821 12,309,871 19,252,878 40,597 4,284,977 9,298 74,103,302 $ $ Variance 437,092 13,921,340 517,103 522,283 395,968 17,703,219 6,817,894 615,702 40,930,601 IV. DETAILED NOTES ON ALL FUNDS AND ACCOUNT GROUPS A. DEPOSITS AND INVESTMENTS The City maintains a cash and investment pool that is available for use by all funds except the Fireman’s Pension Fund, which have investments held separately by a trustee. Each fund type’s portion of this pool is displayed on the government-wide Statement of Net Assets as “Cash and cash equivalents,” “Cash with fiscal agents,” “Investments,” and “Restricted cash and cash equivalents.” Deposits At June 30, 2005, the carrying amount of the City’s deposits was $18,936,173 and the bank balance was $18,072,496. The $863,677 difference represents deposits in transit, outstanding checks, and other reconciling items at June 30, 2005. Custodial Credit Risk - Deposits Custodial credit risk is the risk that in the event of a bank failure, the government’s deposits may not be returned to it. Statutes require collateral for demand deposits, certificates of deposit, and repurchase agreements at 102 percent of all deposits covered by federal depository insurance. As of June 30, 2005, the City deposits held by Wells Fargo and those held by fiscal agents were covered by federal depository insurance or by collateral held by the City’s agent in the City’s name. However, $3.8 million held by Banc of America Leasing Corporation for capital lease improvements was not collateralized. These funds will be drawn down through out fiscal year 2006 as funded improvements are completed. GASB Statement No. 40 requires that the following disclosure be made with respect to custodial credit risks relating to deposits and investments: $28,992 of the City’s investments in certificates of deposit with financial institutions is in excess of federal depository insurance limits and thus is uncollateralized. Concentration of Credit Risk To lessen the risk of loss attributed to the magnitude of a government’s investment in a single issuer the City diversifies its investment portfolio to minimize the risk of loss resulting from over concentration of assets in a specific maturity, specific issuer, or specific class of securities. Certificates of deposits and municipal bonds represent 8 percent of the City’s total investments. Interest Rate Risk As a means of limiting its exposure to fair value losses arising from rising interest rates, the City’s investment policy matches maturities with cash flow dates, unless matched to a specific requirement the city may not invest more than 25 percent of the portfolio for a period greater than three years or any portion of the portfolio for a period greater than 10 years. Credit Risk City resolution and State Statutes authorized the City to invest in obligations of the U.S. Treasury, its agencies and instrumentalities, repurchase agreements, money market accounts, certificates of deposit and the State of Arizona Local Government Investment Pool (LGIP). The LGIP is a part of the State Treasurer’s office. The State Board of Deposit provides oversight for the State Treasurer’s pools, and the LGIP Advisory Committee provides consultation and advice to the Treasurer. The credit quality ratings of investments as described by nationally recognized Standard and Poor’s rating service as of June 30, 2005 is as follows: 55 Investment Type U.S. Treasury notes Federal agency securities Certificates of Deposit: State investment pool (LGIP) Municipal Securities Held by trustee: Investment contracts Money market funds Total Fair Value $ 2,489,060 52,841,728 7,874,023 19,655,950 60,000 Minimum Legal Rating N/A N/A Collateralized N/A A 6,321,817 2,091,930 $ Not Required To Be Rated 2,489,060 N/A N/A Rating as of Year End A+ Unrated 52,841,728 7,874,023 19,655,950 60,000 AAA - 91,334,508 - 2,489,060 - 52,841,728 60,000 6,321,817 2,091,930 35,943,720 Investments At June 30, 2005, the City’s investments included the following: Investment Type U.S. Government Securities Certificate of Deposit Local Government Securities Municipal Securities Mutual fund-money market State of Arizona Investment Pool Total fair value of investments Fair Value $ 55,330,788 7,745,031 128,992 60,000 8,413,747 19,655,950 $ 91,334,508 Weighted Average Maturity (in years) 1.703 1.944 1.000 5.000 0.003 0.005 Portfolio weighted average maturity 1.189 Total City cash deposits and investments at fair value are as follows: Carrying amount of investments Carrying amount of cash deposits Total pooled cash and investments $ Pooled cash and cash equivalents - unrestricted Investments - unrestricted Restricted cash with fiscal agent Restricted cash and cash equivalents Total pooled cash and investments $ $ $ 91,334,508 18,936,173 110,270,681 82,475,893 693,016 8,884,428 18,217,344 110,270,681 Cash and cash equivalents at June 30, 2005 consisted of the following: Investments included in cash and cash equivalents Carrying amount of city deposits Cash on hand Total cash and cash equivalents Less: cash and cash equivalents of Fiduciary funds Total cash and cash equivalents per statement of net assets $ $ 63,743,937 18,936,173 12,225 82,692,335 (216,442) 82,475,893 Investment income comprises the following for the year ended June 30, 2005: Net interest and dividends Net increase (decrease) in the fair value of investments Total net investment income Less: net investment income of Fiduciary funds Total net investment income per statement of activities 56 $ $ 2,673,170 (27,744) 2,645,426 (5,592) 2,639,834 The net decrease in the fair value of investments during fiscal year 2004-2005 was $27,744. This amount takes into account all changes in fair value (including purchases and sales) that occurred during the year. The unrealized gain (loss) on investments held at June 30, 2005 was $(764,853). In the previous year, the City reported a decrease in fair value of $1,473,712 consisting of the City’s share of a loss on an investment within the Local Government Investment Pool. The State and numerous other bondholders filed suit against the principals, underwriters, trustees, accountants and other in May 2003. The case is presently pending in federal court in Ohio. No reliable assessment of the litigation outcome is available; however, the City has received $168,672 plus interest of $903 as a partial recovery. B. RECEIVABLES Receivables as of June 30, 2005, including allowances for uncollectible accounts, are as follows: Fund Accounts Governmental Activities General Highway User Revenue Transportation BBB Other Governmental Funds Less: Allowance for Uncollectibles $ Total Government Funds Internal Services Funds Total Governmental Activities Business-Type Activities Water and Wastewater Environmental Services Airport Stormwater Less: Allowance for Uncollectibles Total Business-Type Activities Total activities $ 4,662,026 2,259,235 833,996 549,738 159,975 (977,729) Intergovernmental Interest $ 132,438 43,662 41,993 30,331 37,940 - $ Bond Proceeds 740,920 86,455 732,301 - $ 182,365 - Special Assessments $ 33,950 - Total Receivables $ 5,717,749 2,389,352 875,989 580,069 964,166 (977,729) 7,487,241 67,923 286,364 26,652 1,559,676 - 182,365 - 33,950 - 9,549,596 94,575 7,555,164 313,016 1,559,676 182,365 33,950 9,644,171 2,098,145 803,990 67,720 51,401 (60,000) 135,640 50,789 6,448 5,860 - 37,258 123,339 333,718 - - - 2,271,043 978,118 407,886 57,261 (60,000) 2,961,256 198,737 494,315 - - 3,654,308 10,516,420 $ 511,753 $ 2,053,991 $ 182,365 $ 33,950 $ 13,298,479 C. CAPITAL ASSETS The City has not completed its evaluation of the City’s entire infrastructure as of June 30, 2005, and therefore, is considered to be in a transition period. This period represents the timing between the adoption of the general provisions of GASB Statement No. 34 and when the City begins to report its retroactive major general infrastructure assets. Infrastructure assets currently reported represent assets placed in service since the inception of GASB Statement No. 34, which became instrumental as of June 30, 2003. No infrastructure prior to this date has been accounted for. The City will complete the infrastructure evaluation prior to June 30, 2007. 57 A summary of capital asset activity, for the government-wide financial statements, for the fiscal year ended June 30, 2005 is as follows: Balance July 1, 2004 Deletions and Transfers Balances Retirements In (out) June 30, 2005 Additions Governmental activities: Non-depreciable assets: Land $ Construction -in-progress Total non-depreciable assets 9,888,849 $ 680,412 26,684,918 12,054,676 36,573,767 12,735,088 35,459,195 1,116,496 $ (1,532,036) $ (1,532,036) - $ 9,037,225 (7,319,362) 31,420,232 (7,319,362) 40,457,457 Depreciable assets: Buildings - - 36,575,691 Improvements 13,511,887 366,501 (284,829) (25,160) 13,568,399 Machinery and equipment 21,123,879 1,309,723 (575,453) - 21,858,149 Infrastructure Total depreciable assets 16,080,162 6,577,541 86,175,123 9,370,261 (9,957,933) (817,211) (860,282) 1,606,028 24,263,731 1,580,868 96,265,970 Accumulated depreciation: Buildings Improvements Machinery and equipment Infrastructure Total accumulated depreciatio Governmental activities capital assets, net $ - (6,210,087) (728,294) 90,506 (12,661,774) (1,547,502) 569,801 (498,725) (524,391) (29,328,519) (3,617,398) 93,420,371 $ 18,487,951 Balances July 01, 2004 $ - (10,775,144) 364 (6,847,511) - (13,639,475) - 2,886 (1,020,230) 660,307 3,250 (32,282,360) (5,735,244) $ 104,441,067 (1,732,011) $ Deletions and Transfers Balances Retirements In (out) June 30, 2005 Additions Business-type activities: Non-depreciable assets: Land Construction -in-progress Total non-depreciable assets $ 2,357,360 $ - $ - $ - $ 2,357,360 6,516,367 6,698,315 - 1,822,153 15,036,835 8,873,727 6,698,315 - 1,822,153 17,394,195 Depreciable assets: Buildings Improvements Machinery and equipment 72,600,303 66,496 220,188,940 9,123,536 (103,766) - 437,404 73,000,437 3,444,442 232,756,918 18,307,519 1,724,107 (351,190) 34,495 19,714,931 311,096,762 10,914,139 (454,956) 3,916,341 325,472,286 (24,959,312) (1,639,653) 46,770 - Improvements (69,050,753) (5,342,398) - (3,250) (74,396,401) Machinery and equipment (10,562,185) (941,192) 351,190 - (11,152,187) Total accumulated depreciatio (104,572,250) (7,923,243) 397,960 (3,250) (112,100,783) 5,735,244 $ 230,765,698 Total depreciable assets Accumulated depreciation: Buildings (26,552,195) Business-type activities capital assets, net $ 215,398,239 $ 9,689,211 58 $ (56,996) $ Depreciation expense was charged to the governmental functions in the government-wide financial statements as follows: Governmental Activities: General government Public safety Public works Economic and physical development Culture and recreation Highway and streets Total depreciation expense - governmental activities $ $ 661,075 706,524 198,765 133,208 966,225 951,601 3,617,398 D. INTERFUND RECEIVABLES, PAYABLES, and TRANSFERS Interfund receivables and payables Net interfund receivables and payables between governmental activities and business-type activities of $440,504 are included in the government-wide financial statements at June 30, 2005. The interfund balances at June 30, 2005 are short-term loans to cover temporary cash deficits in various funds. This occasionally occurs prior to bond sales or grant reimbursements. All interfund balances outstanding at June 30, 2005 are expected to be repaid within one year. The following interfund receivables and payables are included in the fund financial statements at June 30, 2005: Interfund Receivables Interfund Payables Fund Governmental Funds: General Other governmental funds Internal Service Total governmental funds $ 1,500,000 94,897 1,594,897 $ Business-Type Funds: Airport Total enterprise funds Total governmental and enterprise funds $ 1,594,897 94,897 94,897 $ 1,594,897 1,500,000 1,500,000 Transfers The net transfers of $7,004,365 from governmental activities to business-type activities on the government-wide statement of activities are primarily debt service and operational subsidies from the General Fund. The following transfers are reflected in the fund financial statements for the year ended June 30, 2005: 59 Fund Governmental Funds: General Highway User Revenue Transportation BBB Other governmental funds Total governmental funds Business-Type Funds: Water and Wastewater Environmental Services Airport Stormwater Total enterprise funds Total governmental and enterprise funds Transfers out $ $ 10,660,379 136,059 5,845,432 1,671,905 4,003,521 22,317,296 2,398,830 4,678 62,000 2,465,508 24,782,804 Transfers In $ $ 3,229,424 7,291,262 250,000 1,210,000 3,332,245 15,312,931 2,398,830 15,000 634,831 6,421,212 9,469,873 24,782,804 E. LEASES Operating Leases Expenditures The City leases library space under a non-cancelable operating lease. The lease is for the East Flagstaff Library. The terms of the contract is for a period of 10 years with adjustments on July 1st to the lease amount based on the prior year change in the Consumer Price Index for the prior year. Fiscal Year 2005 lease expense for the library was $70,505. The schedule below for future minimum lease expenses reflects the change in the rental rate as of July 1, 2005. East Flagstaff Fiscal Year Library Ending June 30 2006 $ 75,268 2007 75,268 2008 75,268 2009 75,268 2010 75,268 2011-2013 Total 200,715 $ 577,055 The City has entered into several operating lease agreements, with cancellation provisions, for the purpose of leasing office space and land. Lease expenditures for these items for the period ending June 30, 2005 were $144,050. Operating Lease Revenues The City leases several City-owned buildings under cancelable and non-cancelable agreements. The carrying value of the leased assets is $5,138,610 (cost of $5,600,367 less accumulated depreciation of $461,757) with current depreciation of $185,614. Certain leases contain provisions for future rate increases based on changes in the Consumer Price Index. Total revenue for fiscal year 2005 was $1,189,156. The City currently has one lease with non-cancelable terms that is for USGS building #6, which is guaranteed through August 2013. The following table represents the future minimum lease receivable from the lease with non-cancelable terms. The amounts shown include revenue related to the asset and the operational expenses. 60 USGS Fiscal Year Building #6 Ending June 30 2006 $ 767,567 2007 768,346 2008 768,346 2009 768,346 2010 768,346 2011-2013 Total 1,664,749 $ 5,505,700 In addition, the Airport Fund has several leases under cancelable agreements. The leases are for terminal space, hangars, shades, tiedowns, and ground leases. Lease revenue in the Airport fund for fiscal year 2005 was $781,013. The carrying value of the leased assets is $3,511,901 (cost of $6,229,495 less accumulated depreciation of $2,717,594) with current year depreciation of $130,957. F. LONG-TERM DEBT General Obligation Bonds The City of Flagstaff issues general obligation bonds to provide funds for the acquisition and construction of major capital facilities. General obligation bonds have been issued for both governmental and business-type activities. The original amount of general obligations bonds issued in prior years was $40,844,240. During the year, $32,117 of accretion had been added to Water and Wastewater General Obligation bonds. General obligation bonds are direct obligations and pledge the full faith and credit of the government. The Water and Wastewater General Obligation Bonds are backed by the ultimate taxing power and general revenues of the City; however, these bonds are carried as a liability of the Water and Wastewater Fund to reflect the intention of the City to retire those bonds from resources in the Water and Wastewater Fund. General obligation bonds outstanding at June 30, 2005: Purpose Governmental activities Governmental activities – refunding Business type activities Business type activities - refunding Amount $ 3,565,000 720,000 2,180,018 16,700,000 $23,165,018 General obligation bonds payable at June 30, 2005 consist of the following individual issues: 61 Governmental Activities: $4,000,000 Parks and Recreation Bonds, Series 1997 due in annual installments of $405,000 to $465,000 through July 1, 2006; interest rate at 4.6% to 4.8%. $ 465,000 $3,100,000 Parks and Recreation Bonds, Series 2001 due in annual installments of $385,000 to $505,000 through July 1, 2014; interest rate at 4.375% to 4.75%. 3,100,000 $720,000 Parks and Recreation Refunding Bonds, Series 2003 due in annual installments of $255,000 to $465,000 through July 1, 2008; interest rate at 3.0% - 3.25%. 720,000 Total Governmental Activities 4,285,000 Business-type activities: Water and Wastewater: $924,240 Wastewater Improvement Project of 1991 Capital Appreciation Bonds due in three installments: $595,827 due July 1, 1997, plus interest at 5.8%; $124,349 due July 1, 2002, plus interest at 6.3%; $204,064 due July 1, 2007, plus interest at 6.75%. Shown at combined accreted value. $ 500,018 $8,000,000 Water Improvement Project Bonds, Series 1997, principal payment of $1,680,000 due July 1, 2013; interest at 4.5%. Fiscal years 2007-2012 refunded in December 2003. 1,680,000 $13,845,000 Water and Wastewater Refunding Bonds Series 2001, due in annual installments of $1,605,000 to $2,355,000 through July 1, 2009; interest at 3% to 5%. 8,280,000 $8,230,000 Water Refunding Bond, Series 2003, due in annual installments of $190,000 to $1,960,000 through July 1, 2013; interest at 3.0% - 3.25%. 7,195,000 Total Water and Wastewater 17,655,018 Airport: $2,025,000 Airport Refunding Bonds, Series 2001 due in annual installments of $235,000 to $345,000 through July 1, 2009; interest at 3% to 5%. 1,225,000 Total Business-type Activities 18,880,018 Total General Obligation Bonds $ 62 23,165,018 Annual debt service requirements to maturity for general obligation bonds are as follows: Year Ending Governmental Activities June 30 Principal 2006 $ 465,000 Business-type Activities Interest $ 185,559 Principal $ 2,495,000 Interest $ 784,365 2007 465,000 163,238 3,075,018 697,026 2008 640,000 149,289 2,795,000 545,100 2009 405,000 124,158 3,055,000 409,988 2010 425,000 105,933 1,770,000 263,450 1,885,000 224,109 5,690,000 433,179 2011-2014 Total $ 4,285,000 $ 952,286 $ 18,880,018 $ 3,133,108 Special Assessment Bonds Proceeds from special assessment bonds are used for improvements such as paving, sidewalks, and sewers. Payments made by the assessed property owners are pledged as collateral. In the event of default by a property owner, the lien created by the assessment is sold at public auction and the proceeds are used to offset the defaulted assessment. If there is no purchase at the public auction, the City is required to buy the property with funds appropriated from the General Fund. Special assessment bonds outstanding at June 30, 2005: Purpose Amount Governmental Activities $415,000 Special assessment bonds payable at June 30, 2005 consist of the following individual issues: Governmental Activities $720,000 Improvement District Bonds, Series 1999 due in annual installments of $43,000 to $94,000, through January 1, 2010; interest at 4.9%. $ 415,000 Total Special Assessment Bonds $ 415,000 Annual debt service requirements to maturity for special assessment bonds are as follows: Year Ending Governmental Activities June 30 2006 Principal $ 75,000 Interest $ 18,498 2007 76,000 14,798 2008 82,000 10,877 2009 88,000 6,712 2010 94,000 2,303 Total $ 415,000 $ 53,188 63 Revenue Bonds Highway User Revenue Fund bonds (HURF) are issued specifically for the purpose of constructing street and highway projects. These bonds are repaid out of the HURF fund by gas tax revenues collected by the State of Arizona and distributed to cities and towns based on a formula of population and gas sales within each county. Water & Sewer Revenue bonds are issued as authorized by the voters for the construction, acquisition, furnishing, and/or equipping of water and sewer facilities and related systems. The Water & Sewer Revenue bonds are collateralized by revenue in excess of operating and maintenance expenses of the City’s water & sewer utility system, and are repaid via user charges or fees for service. Revenue bonds outstanding at June 30, 2005: Purpose Governmental activities Amount $ 5,580.000 Governmental activities – refunding 5,975,000 Business type activities 6,034,792 $17,589,792 Revenue bonds at June 30, 2005 consist of the following individual issues: Governmental Activities: Street Construction: $5,580,000 Junior Lien Street and Highway User Revenue Bonds, Series 1992 serial bonds due in installments of $350,000 to $1,725,000 through July 1, 2012; interest at 6.12%. $ 5,580,000 $9,375,000 Street and Highway Revenue Refunding Bonds, Series 2003 serial bonds due in installments of $165,000 to $1,940,000 5,975,000 through July 1, 2009; interest at 2% to 3.5% Total Governmental Activities 11,555,000 Business-type Activities: Water & Sewer: $6,775,760 Water and Wastewater Revenue Bonds, Series 2003 due in annual installments of $238,431 to $462,398 through July 1, 2022; interest at 3.548%. 6,034,792 Total Revenue Bonds $ 64 17,589,792 Annual debt service requirements to maturity for revenue bonds are as follows: Year Ending Governmental Activities June 30 2006 Principal $ Business-type Activities Interest 1,890,000 $ Principal 526,285 $ 264,717 Interest $ 214,084 2007 1,940,000 469,585 274,108 204,693 2008 1,400,000 411,385 283,832 194,969 2009 1,460,000 344,010 293,900 184,901 2010 1,520,000 280,135 304,327 174,474 2011-2015 3,345,000 285,330 1,691,440 702,566 2016-2022 Total $ - - 11,555,000 $ 2,316,730 2,922,468 $ 6,034,792 429,141 $ 2,104,828 Other Debt Municipal Facility Corporation Bonds The Municipal Facilities Corporation (MFC) is a non-profit corporation created by the City for the purpose of constructing, acquiring and equipping municipal facilities. In fiscal year 2001 the MFC issued $4.7 million in bonds for the construction of a new United States Geological Survey (USGS) facility on land owned by the City. In fiscal year 2004, the MFC issued $25 million in bonds for the construction of the Fourth Street Overpass on land owned by the City. The City will make lease payments equal to the debt service on both issues and will obtain legal title upon payment in full of the bonds. The City has collateralized the contracts payable to the MFC by a pledge of the City’s State Shared Revenues which comprise sales and income taxes imposed and collected by the State and distributed to counties and municipal governments pursuant to law and State revenue-sharing which the City presently or in the future receives from the State and which are not earmarked by the State for a contrary or inconsistent purpose. Municipal facility corporation bonds outstanding at June 30, 2005: Purpose Amount Governmental Activities $26,895,000 Municipal facility corporation bonds are comprised of the following issue: $4,700,000 USGS Project Bonds Series 12 (2001) due in annual installments of $255,000 to $440,000 through August 1, 2016; interest at 4% to 4.75%. $ 3,905,000 $25,000 Fourth Street Municipal Facility Corporation Revenue Bonds, Series 2003 due in annual installments of $1,000,000 to $2,145,000 through July 1, 2010; interest at 2% to 5,25%. Total Other Debt 22,990,000 $ 65 26,895,000 Year Ending Governmental Activities June 30 2006 2007 Principal $ 1,285,000 1,295,000 Interest $ 1,162,699 1,128,799 2008 1,315,000 1,094,499 2010 1,735,000 985,814 2009 1,375,000 1,031,384 2011-2015 9,730,000 3,870,324 2016-2020 10,160,000 1,598,861 $ 26,895,000 $ 10,872,380 Total Loans Payable In July 1992 the City of Flagstaff entered into a loan agreement with the Wastewater Infrastructure Finance Authority of Arizona for the purpose of constructing reclaimed water lines for the new reclaimed water plant. The $6,000,000 loan is scheduled to be paid in annual installments over twenty years with an interest rate of 3.402%. The unpaid principal of the loan at June 30, 2005 is $2,567,902. In September 1999 the City of Flagstaff entered into a loan agreement with Arizona Department of Transportation Aeronautics Division for the purpose of constructing a 14 unit T hangar. The $600,000 loan is scheduled to be paid in quarterly installments over 17 years with an annual interest rate of 5.6%. The unpaid principal amount of the loan at June 30, 2005 is $463,595. Capital Leases The City has entered into capital lease agreements for energy saving equipment and construction of Hangars at Pulliam Airport. These lease agreements generally require annual payments and the lease terms vary from 10 to 30 years. The lease agreements qualify as capital leases for accounting purposes and, therefore have been recorded at the present value of their future minimum lease payments as of the date of inception. Fiscal Year Ending June 30, 2005 2006 2007 2008 2009 2010 2011-2015 2016-2020 2021-2025 Total minimum lease payments Less: current portion Future minimum lease payments Governmental Activities $ 470,993 470,993 470,993 470,993 470,993 2,119,468 4,474,433 (470,993) $ 4,003,440 66 Business Type Activities $ 231,736 231,736 231,736 231,736 231,736 1,158,680 1,158,680 1,274,548 4,750,588 (231,736) $ 4,518,852 Changes in long-term liabilities Liquidation of compensated absences for governmental funds have been made out of the General, HURF, BBB, Library, and MPO funds. Non-current liability activity for the year ended June 30, 2005, was as follows: Governmental activities: Bonds payable: General obligation bonds Special assessment bonds Revenue bonds Municipal facility corp bonds Total bonds payable Capital leases Compensated absences Governmental activity long-term liabilty Business-type activities: Bonds payable: General obligation bonds Water & sewer revenue bonds Total bonds payable Water & sewer loan payable Airport loan payable Capital leases Compensated absences Landfill closure/postclosure Business-type activity long-term liability Beginning Balance $ $ $ $ Additions 5,795,000 685,000 13,380,000 28,170,000 48,030,000 2,570,527 50,600,527 3,800,000 802,637 $ 4,602,637 21,252,902 6,290,440 27,543,342 2,888,081 491,596 426,773 2,191,065 33,540,857 2,782,598 241,315 527,821 $ 3,551,734 Ending Balance Reductions $ $ $ $ (1,510,000) (270,000) (1,825,000) (1,275,000) (4,880,000) (622,513) (5,502,513) (2,372,884) (255,648) (2,628,532) (320,179) (28,001) (50,683) (187,841) (637,880) (3,853,116) $ $ $ $ Due Within One Year 4,285,000 415,000 11,555,000 26,895,000 43,150,000 $ 465,000 75,000 1,890,000 1,285,000 3,715,000 3,800,000 2,750,651 49,700,651 354,448 1,056,055 $ 5,125,503 18,880,018 6,034,792 24,914,810 $ 2,960,000 264,717 3,224,717 2,567,902 463,595 2,731,915 480,247 2,081,006 33,239,475 331,072 29,602 80,264 193,167 $ 3,858,822 V. OTHER INFORMATION A. Risk management The City is exposed to various risks of loss related to torts and public officials’ errors and omissions. The City purchases commercial insurance to cover these losses. However, $50,000 of each claim resulting in a loss is retained by the City. The City provides for the self-insurance retention in the internal service fund. Outstanding claims as of June 30, 2005 have potential exposure to the City of approximately $230,216 based on the requirements of Governmental Accounting Standards Board Statement No. 10, which requires that a liability for claims be reported if information prior to the issuance of the financial statements indicates that it is probable that a liability has been incurred at the date of the financial statements and the amount of the loss can be reasonably estimated. The City uses an application of historical experience to determine claims payable. However, due to the preliminary status of the claims, no determination can be made as to the likelihood, if any, of an unfavorable outcome. The net assets of the Internal Service Fund are designated for future losses related to the self-insurance retention. Settled claims have not exceeded commercial coverage in the last three fiscal years. 67 Current Year Fiscal Year 2002-03 $ Claims and Beginning of Changes in Claim End of Year Liability Estimates Payments Year Liability 224,630 2003-04 411,200 2004-05 194,677 $ 328,835 $ 8,352 69,326 142,265 $ 411,200 224,875 194,677 33,787 230,216 The City of Flagstaff participates in a risk sharing pool for employee health care, through the Northern Arizona Public Employees Trust, a public entity risk pool. Members do not bear any risk of loss. The overall experience rating of the trust determines premium charges. B. Contingent liabilities The City is aware of existing environmental contamination at various sites and facilities. The City has annually budgeted monies for these purposes and includes remediation activities in its annual work program. The City has a compliance agreement for Americans with Disability Act with the Department of Justice (DOJ) and until all items are completed to the satisfaction of the DOJ, there remains a minimal amount of liability. C. Retirement and pension plans Plan Descriptions - The City contributes to the four plans described below. Benefits are established by state statute and generally provide retirement, death, long-term disability, survivor, and health insurance premium benefits. The Arizona State Retirement System (ASRS) administers a cost-sharing multiple-employer defined benefit pension plan that covers general employees of the City. The ASRS is governed by the Arizona State Retirement System Board according to the provisions of A.R.S. Title 38, Chapter 5, and Article 2. The Public Safety Personnel Retirement System (PSPRS) is an agent multiple-employer defined benefit pension plan that covers public safety personnel who are regularly assigned hazardous duty as employees of the State of Arizona or one of its political subdivisions. The PSPRS, acting as a common investment and administrative agent, is governed by a five-member board, known as The Fund Manager, and the participating local boards according to the provisions of A.R.S. Title 38, Chapter 5, Article 4. The Elected Officials Retirement Plan (EORP) is a cost-sharing multiple-employer defined benefit pension plan that covers elected officials and judges of certain state and local governments. The EORP is governed by The Fund Manager of PSPRS according to the provisions of A.S.R. Title 38, Chapter 5, and Article 3. 68 Each plan issues a publicly available financial report that includes its financial statements and required supplementary information. A report may be obtained by writing or calling the applicable plan. ASRS PSPRS and EORP 3300 N. Central Ave. 3010 E. Camelback Rd., Suite 200 P.O. Box 33910 Phoenix, AZ 85016-4416 Phoenix, AZ 85067-3910 (602) 240-2200/(800) 621-3778 (602) 255-5575 Funding Policy - The Arizona State Legislature establishes and may amend active plan members' and the City's contribution rates. Cost Sharing Plans - For the year ended June 30, 2005, active ASRS members and the City were each required by statute to contribute at the actuarially determined rate of 5.70% (5.20% retirement and 0.50% long-term disability) of the members' annual covered payroll. The City's contributions to ASRS for the years ended June 30, 2005, 2004, and 2003 were $1,239,656, $1,170,656 and $578,235, respectively, which were equal to the required contributions for the year. In addition, active EORP members were required by statute to contribute 7.00% of the members' annual covered payroll. The City was required to contribute 20.54% of the members' annual covered payroll, as determined by actuarial valuation. The City's contributions to EORP for the years ended June 30, 2005, 2004, and 2003 were $8,728, $3,804 and $1,861 respectively, which were equal to the required contributions for the year. In addition, a payment of $4,220 was made in each year as an installment due for its unfunded accrued liability. Agent Plan - For the year ended June 30, 2005, active PSPRS members were required by statute to contribute 7.65% of the members' annual covered payroll, and the City was required to contribute at the actuarially determined rate of 14.39% and 13.81% for Police and Fire respectively. Annual Pension Cost - The City's pension cost for the agent plan for the year ended June 30, 2003, the date of the most recent actuarial valuation, and related information follow. Contribution rates: PSPRS City – Police 14.39% City – Fire 13.81% Plan members 7.65% Annual pension cost $ 921,120 Contributions made $ 921,120 Actuarial valuation date 6/30/05 Actuarial cost method Individual entry age Actuarial assumptions: Investment rate of return 8.75% Projected salary increases 6.25% - 9.25% Includes inflation at 5.25% Amortization method Level percentage open Remaining amortization period from 7-1-00 20 years Asset valuation method Smoothed market value 69 Trend Information - Information for the agent plan as of most recent actuarial valuations follows. Contributions Required and Contributions Made Annual Pension Percentage of Net Pension Cost (APC) APC Contributed Obligation Plan PSPRS 2005 Police $570,046 100% 351,094 100% $443,928 100% 192,873 100% -0- 199,908 100% -0- 78,897 100% -0- Fire $ -0-0- PSPRS 2004 Police Fire $ -0- PSPRS 2003 Police Fire Funding Progress - An analysis of funding progress for each of the agent plans as of the most recent actuarial valuations, June 30, 2004 follows. (2) Actuarial (1) Actuarial Value (4) (5) Liability Percent Unfunded Annual as a Percentage Age (1) / (2) (2) - (1) Payroll Payroll (4)/(5) 85.4% $ (3,982,564) $ 4,839,097 -% 3,879,272 -% $ 2,061,008 -% Accrued of Assets (6) (3) (AAL) Entry Funded AAL Covered Unfunded of Covered PSPRS 2004 Police $ 23,305,327 $ 27,287,891 32,966,185 34,472,797 $ 23,684,969 $ 25,745,977 92.0% 33,430,859 31,576,303 105.9% (1,854,556) 4,086,288 -% Police 23,377,239 22,375,146 104.5% (1,002,093) 4,415,016 -% Fire 33,288,928 27,957,056 119.1% (5,331,872) 3,944,841 -% Fire 95.6% 1,506,612 PSPRS 2003 Police Fire $ 3,774,967 PSPRS 2002 70 AAL VOLUNTEER FIREMEN'S RELIEF AND PENSION FUND The Volunteer Firemen's Relief and Pension Fund ("Fund") is a single-employer defined benefit pension trust fund administered by the City. A fireman having served as a member of the City's Fire Department prior to 1978, and who is not a paid member of a fire department or a member of the Public Safety Retirement System, is eligible to receive benefits. The fund does not issue a stand-alone report or is included in any other report than the City’s. A fireman who has served for 25 years or more, or who has reached sixty years of age, and served twenty years or more, shall be paid a monthly pension not to exceed $250 per month based on the benefits available to members of the fire department as determined by the board of trustees. Such pension may be increased or decreased in amount, or discontinued at the discretion of the Fund's board of trustees. The Fund's funding provisions and all other requirements are established by state statute. At June 30, 2005, the number of firemen covered by the Fund was classified as follows: Retirees and beneficiaries currently receiving benefits Active employees: 3 Non-vested 3 Total covered firemen 6 Funding Status and Progress: Per state statute there is no requirement that an actuarial valuation be performed to determine that the Volunteer Firemen's Relief and Pension Fund is fully funded. If the funds provided in the Fund are insufficient to pay fully the pensions authorized pursuant to the statute, the fund shall be prorated among those entitled thereto. Contributions: State statute requires a 5% contribution of annual compensation each from the City and the employee. Because no compensation was paid by the City to volunteer firemen, no contribution was made during the current fiscal year. No member or City contributions have been made to this fund since fiscal year ended June 30, 1979. Trend Information: Trend information for ten years is presented below: Revenues Expenses Net Assets Available Fiscal (not cash) Year for Employee Employer Investment Other Benefit June 30 Benefits Contributions Contributions Income Income Payments 1996 211,198 - - 11,390 177 9,601 1997 213,721 - - 11,922 201 9,600 1998 216,843 - - 12,332 390 9,600 1999 218,401 - - 11,068 89 9,600 2000 221,678 - - 12,877 - 9,600 2001 226,593 - - 13,620 96 8,800 2002 226,632 - - 7,125 114 7,200 2003 221,730 - - 2,176 122 7,200 2004 219,214 - - 4,367 317 7,200 2005 217,606 - - 5,296 296 7,200 71 D. Landfill closure and postclosure care cost State and federal laws and regulations require the City to place a final cover on its Cinderlake landfill site when it stops accepting waste and to perform certain maintenance and monitoring functions at the site for thirty years after closure. In addition to operating expenses related to current activities of the landfill, an expense provision and related liability are being recognized based on the future closure and postclosure care costs that will be incurred near or after the date the landfill no longer accepts waste. The City reports a portion of these closures and postclosure care costs as an operating expense in each period based on landfill capacity used as of each balance sheet date. The estimated liability for landfill closure and postclosure care costs has a balance of $7,608,375 as of June 30, 2005, which is based on 54 percent usage of the landfill. The remaining $6,461,866 will be accrued over the remaining life of the landfill, which is currently estimated to be 16 years. The accrual for these closure and postclosure care costs for fiscal year 2005 was $527,821. Based on current estimates for landfill closure and postclosure care costs, the City is setting aside legally restricted funds to insure sufficient funds will be available to meet these requirements. The City makes annual contributions to finance closure and postclosure care costs; at June 30, 2005 the balance of the investments held for those purposes is $5,504,181. These investments are reported as restricted cash and investments in the City’s Environmental Service Fund, and are held by the State of Arizona Local Government Investment Pool. The estimated total current cost of the landfill closure and postclosure care, $14,070,241, is based on the amount that would be paid if all equipment, facilities, and services required to care, monitor and maintain the landfill were acquired as of June 30, 2005. However, the actual cost of closure and postclosure care may be higher or lower due to other factors such as; inflation, changes in technology, or changes in landfill laws and regulations. According to state and federal laws and regulations, the City must comply with the local government financial test requirements that assure the City can meet the cost of landfill closure, post-closure and corrective action when needed. The City, which has pledged its full faith and credit to meet state financial responsibility requirements, is in compliance with these requirements. In March of 1999, the City purchased 343.9 acres of land from the Forest Service. This land is adjacent to the existing landfill and will be used to open additional cells as needed. As these cells are utilized, additional liabilities for closure and postclosure care requirements will be accrued. The City applied existing policy to the Environmental Services Fund increasing its’ expenditures as City residential and commercial collection programs are now charged for landfill fees. 72 NON-MAJOR FUNDS OTHER GOVERNMENTAL FUNDS Special Revenue Funds Special Revenue Funds are used to account for revenues derived from specific taxes or other earmarked revenue sources. activities. They are usually required by statute, charter provision or ordinance to finance particular functions or Library Fund The City Library is financed through City sales tax allocations, State and County grants and individual contributions. Funds provided must be used for library activities such as cultural and educational programs and technical services. Real Estate Proceeds Fund This fund was established by the City Council by resolution in fiscal year 1985-86 to account for the proceeds received from the sale of excess real estate. Community Redevelopment This fund was established in fiscal year 1997 to account for the funding received for the Community Development Block Grant program and affordable housing activities. Metropolitan Planning Organization This fund was established in fiscal year 1997 to account for funding derived from the City’s status as a Metropolitan Planning Organization. Debt Service Funds Debt service funds are used to account for the accumulation of resources for, and the payment of, general longterm debt principal, interest and related costs. General Obligation Bond This fund accounts for the accumulation of resources for and the payments of principal, interest and costs of General Obligation Bonds. Special Assessment Bond Fund This fund accounts for the accumulation of resources for and the payment of principal, interest and related costs for all improvement district bonds issued by the City. Secondary Property Tax Revenue Fund This fund is used to account for secondary property tax revenues. Monies received by this fund are legally restricted to payment of general obligation debt. Capital Projects Fund Capital project funds are used to report major capital acquisition and construction separately from the ongoing operating activities. Capital Project Bond Construction This fund accounts for the activity related to the General Bonding Obligations and associated capital construction for capital projects as approved by voters in May 2004. Permanent Fund Permanent funds are used to account for resources that are legally restricted to the extent that only earnings, and not principal, may be used for purposes that support the reporting government’s programs. Perpetual Care This fund accounts for the perpetual care of the City’s cemetery. 73 CITY OF FLAGSTAFF, ARIZONA Combining Balance Sheet Non-Major Governmental Funds June 30, 2005 Special Revenue Funds Library Fund Real Estate Proceeds Fund $ 1,659,213 $ 2,461,165 Community Redevelopment Fund Metropolitan Planning Organization Fund $ $ ASSETS Cash and cash equivalents Cash with fiscal agents Accounts receivable, net Interest receivable 2,070,416 1,731 - - - - 158,314 863 28 - 8,738 8,896 10,222 - - - 167,996 564,305 Intergovernmental receivables Special assessments receivable - - - - Restricted cash and cash equivalents - - - - $ 1,826,265 $ 2,470,924 $ 2,248,662 $ 566,036 $ $ $ 83,705 $ 32,206 Total assets LIABILITIES AND FUND BALANCE Liabilities: Accounts payable Accrued payroll and compensated absences 58,154 - 76,167 - - 3,830 Current bonds payable - - - - Interest payable - - - - Interfund payable - - - 530,000 Deferred revenue Liabilities payable from restricted assets Total liabilities - - - - 1,058,177 - - - 1,192,498 - 83,705 566,036 Fund balances: Reserved for: Debt service - - - - Capital projects - - - - Perpetual care - - - - 633,767 2,470,924 2,164,957 - Unreserved, undesignated, reported in: Special revenue funds Permanent fund Total fund balances Total liabilities and fund balances - - - - 633,767 2,470,924 2,164,957 - $ 1,826,265 $ 2,470,924 74 $ 2,248,662 $ 566,036 Capital Projects Debt Service Funds General Obligation Bond Fund $ Secondary Property Tax Revenue Fund Capital Projects Bond Construction Perpetual Care 477,768 $ 1,959,584 $ $ 1,627,146 8,698 - - - 1,635,844 - - - - 770 159,975 - 3,883 5,995 - 206 37,940 - - - - - 732,301 - 33,950 - - - 33,950 - - - - 17,765 17,765 $ 1,965,579 $ 3,346 $ 46,298 $ 11,314,246 $ $ 3,351 $ - $ 178,479 35,691 Special Assessment Bond Fund $ $ 1,662,837 $ 524,299 $ - $ 1,063 $ Permanent Fund - 3,346 27,557 Total Other Governmental Funds $ 8,696,471 - - - - - 79,997 1,510,000 - - - - 1,510,000 117,146 8,973 - - - 126,119 - - - 970,000 - 1,500,000 - 33,950 - - - 33,950 - - - - - 1,058,177 1,627,146 43,986 - 973,351 - 4,486,722 35,691 480,313 1,965,579 - - - - - - - 44,872 44,872 - - - - - 5,269,648 - - - 35,691 480,313 1,965,579 524,299 $ 1,965,579 1,662,837 $ - - (970,005) - (970,005) $ 3,346 75 2,481,583 $ (970,005) 1,426 1,426 46,298 6,827,524 46,298 $ 11,314,246 CITY OF FLAGSTAFF, ARIZONA Combining Statement of Revenues, Expenditures, and Changes in Fund Balances Non-Major Governmental Funds Year Ended June 30, 2005 Special Revenue Funds Real Estate Proceeds Fund Library Fund Metropolitan Planning Organization Fund Community Redevelopment Fund REVENUES: Taxes $ Intergovernmental Grants and entitlements Charges for services - $ - 2,036,500 - 44,792 - $ - $ - 664,208 - - - 347,238 - 275,212 - Special assessments - - - - Investment earnings 39,571 157,541 44,552 - Contributions - - - - Miscellaneous 36,496 - - - 2,157,359 157,541 983,972 347,238 - 4,244 1,019,648 362,238 3,261,263 - - - Principal retirement - - - - Interest and other charges - - - - Total revenues EXPENDITURES: Current: Economic and physical development Culture and recreation Debt service: Capital outlay Total expenditures Excess (deficiency) of revenues over expenditures 262,284 258,481 - - 3,523,547 262,725 1,019,648 362,238 (1,366,188) (105,184) (35,676) (15,000) OTHER FINANCING SOURCES (USES): Sale of capital assets Transfers in Transfers out Total other financing sources (uses) Net change in fund balances 1,669,521 402,054 - 1,174,937 - 375,400 15,000 - - - - 1,174,937 1,669,521 777,454 15,000 1,564,337 741,778 - 906,587 1,423,179 - (191,251) Fund balances, beginning of year Fund balances, end of year - 825,018 $ 633,767 76 $ 2,470,924 $ 2,164,957 $ - Capital Projects Debt Service Funds General Obligation Bond Fund $ - Special Assessment Bond Fund $ - $ 4,856,360 Capital Project Bond Construction $ - Total Other Governmental Funds Perpetual Care $ - $ 4,856,360 - - - - - 2,700,708 - - - - - 392,030 - - - - - 275,212 - 218,500 - - - 218,500 - 28,034 25,230 - 836 295,764 - - - - 17,765 17,765 - 797 - - 23 37,316 - 247,331 4,881,590 - 18,624 8,793,655 - - - - - 1,386,130 - - - - - 3,261,263 1,510,000 270,000 - - - 1,780,000 252,246 28,999 - - - 281,245 - - - 970,005 - 1,490,770 1,762,246 298,999 - 970,005 - 8,199,408 18,624 594,247 - 2,071,575 (1,762,246) $ Secondary Property Tax Revenue Fund Permanent Fund (51,668) 4,881,590 (970,005) - - 1,766,908 - - - 3,332,245 19,299 - (4,022,820) - - (4,003,521) 1,786,207 - (4,022,820) - - 1,400,299 18,624 1,994,546 27,674 4,832,978 23,961 (51,668) 11,730 531,981 35,691 $ 480,313 - - - 858,770 (970,005) 1,106,809 $ 1,965,579 $ 77 (970,005) $ 46,298 $ 6,827,524 78 Other Supplementary Information Page Capital Assets Used in the Operation of Governmental Funds Schedule By Function and Activity Schedule of Changes By Function and Activity 80 82 Schedule of Revenues, Expenditures, and Changes in Fund Balances - Budget and Actual Library Fund Real Estate Proceeds Fund Community Redevelopment Fund Metropolitan Planning Organization Fund General Obligation Bond Fund Special Assessment Bond Fund Secondary Property Tax Revenue Fund Capital Projects Fund 83 84 85 86 87 88 89 90 79 City of Flagstaff, Arizona Capital Assets Used in the Operation of Governmental Funds Schedule By Function and Activity June 30, 2005 Program General government Public safety Public works Economic and physical development Culture and recreation Highway and streets Subtotal Less: accumulated depreciation Total governmental funds capital assets Land $ Buildings 3,283,582 265,259 1,292,918 3,476,991 718,475 9,037,225 $ $ 9,037,225 80 13,052,202 12,075,075 5,924,036 2,790,900 2,631,168 102,310 36,575,691 Improvements $ (10,775,144) $ 25,800,547 16,141 61,303 192,887 12,983 11,375,452 1,909,633 13,568,399 (6,847,511) $ 6,720,888 Machinery and Equipment $ 3,460,447 7,314,825 1,004,337 879,297 2,583,972 6,615,271 21,858,149 $ (13,639,475) $ 8,218,674 Construction In Progress Infrastructure 1,854,273 22,409,458 24,263,731 $ 2,918 865,951 626,755 29,924,608 31,420,232 (1,020,230) $ 23,243,501 $ 31,420,232 81 Total $ 19,815,290 20,582,413 7,121,260 4,976,098 22,548,611 61,679,755 136,723,427 (32,282,360) 104,441,067 City of Flagstaff, Arizona Capital Assets Used in the Operation of Governmental Funds Schedule of Changes By Function and Activity June 30, 2005 Balance July 1, 2004 Program General government Public safety Public works Economic and physical development Culture and recreation Highway and streets Total $ 25,639,202 19,092,402 7,024,812 4,901,238 20,154,543 45,936,693 122,748,890 Additions $ 1,257,358 1,665,219 108,114 80,200 2,707,931 16,286,526 22,105,348 82 Transfers In (out) Retirements $ (1,555,636) (175,208) (11,666) (5,340) (313,863) (330,604) (2,392,317) $ (5,525,634) (212,860) (5,738,494) Balance June 30, 2005 $ 19,815,290 20,582,413 7,121,260 4,976,098 22,548,611 61,679,755 136,723,427 CITY OF FLAGSTAFF, ARIZONA Library Fund Schedule of Revenues, Expenditures, and Changes in Fund Balances - Budget and Actual Year Ended June 30, 2005 Budget Original Final Variance with Final Budget Positive (Negative) Actual Amounts Budgetary Basis REVENUES: Intergovernmental $ 2,629,762 $ 2,629,762 $ 2,036,500 $ (593,262) Grants and entitlements 82,300 82,300 44,792 (37,508) Investment earnings 21,000 21,000 39,571 18,571 Miscellaneous Total revenues 29,000 29,000 36,496 2,762,062 2,762,062 2,157,359 (604,703) 7,496 3,684,764 3,684,764 3,259,607 425,157 348,394 348,394 261,673 86,721 EXPENDITURES: Current: Culture and recreation Capital outlay Contingency Total expenditures Excess (deficiency) of revenues over expenditures 100,000 100,000 - 100,000 4,133,158 4,133,158 3,521,280 611,878 (1,371,096) (1,371,096) (1,363,921) 1,174,937 1,174,937 1,174,937 7,175 OTHER FINANCING SOURCES (USES): Transfers in Transfers out Total other financing sources (uses) Net change in fund balances Budgetary fund balances, beginning of year Budgetary fund balances, end of year $ (250,000) (250,000) 924,937 924,937 (446,159) (446,159) (188,984) 571,968 571,968 571,968 125,809 $ Adjustment from budetary basis to GAAP basis net change in fund balances 125,809 $ $ - 250,000 1,174,937 250,000 382,984 (188,984) The City budgets for certain other expenditures on the cash basis, rather than on the modified accrual basis Adjusted net change in fund balance - GAAP basis $ 83 - (2,267) (191,251) 257,175 $ 257,175 CITY OF FLAGSTAFF, ARIZONA Real Estate Proceeds Fund Schedule of Revenues, Expenditures, and Changes in Fund Balances - Budget and Actual Year Ended June 30, 2005 Budget Original Variance with Final Budget Positive (Negative) Actual Amounts Budgetary Basis Final REVENUES: Investment earnings $ Total revenues 26,350 $ 26,350 26,350 $ 26,350 157,541 $ 157,541 131,191 131,191 EXPENDITURES: Capital outlay Total expenditures Excess (deficiency) of revenues over expenditures 675,900 675,900 262,725 413,175 675,900 675,900 262,725 413,175 (649,550) (649,550) (105,184) 544,366 OTHER FINANCING SOURCES (USES): Sale of capital assets Total other financing sources (uses) Net change in fund balances Budgetary fund balances, beginning of year Budgetary fund balances, end of year $ - - 1,669,521 1,669,521 - - 1,669,521 1,669,521 1,564,337 2,213,887 905,994 - (649,550) (649,550) 905,994 905,994 256,444 $ 84 256,444 $ 2,470,331 $ 2,213,887 CITY OF FLAGSTAFF, ARIZONA Community Redevelopment Fund Schedule of Revenues, Expenditures, and Changes in Fund Balances - Budget and Actual Year Ended June 30, 2005 Budget Original Variance with Final Budget Positive (Negative) Actual Amounts Budgetary Basis Final REVENUES: Intergovernmental $ Charges for services 2,192,837 $ - Investment earnings 2,192,837 $ - 664,208 $ 275,212 (1,528,629) 275,212 - - 44,552 2,192,837 2,192,837 983,972 Economic and physical development 4,317,814 4,317,814 1,019,648 3,298,166 Total expenditures 4,317,814 4,317,814 1,019,648 3,298,166 (2,124,977) (2,124,977) Total revenues 44,552 (1,208,865) EXPENDITURES: Current: Excess (deficiency) of revenues over expenditures (35,676) 2,089,301 OTHER FINANCING SOURCES (USES): Sale of capital assets 402,054 Transfers in Total other financing sources (uses) Net change in fund balances Budgetary fund balances, beginning of year Budgetary fund balances, end of year $ 402,054 402,054 - 375,400 375,400 375,400 - 777,454 777,454 777,454 - 741,778 2,089,301 1,388,527 - (1,347,523) (1,347,523) 1,388,527 1,388,527 41,004 $ 85 41,004 $ 2,130,305 $ 2,089,301 CITY OF FLAGSTAFF, ARIZONA Metropolitan Planning Organization Fund Schedule of Revenues, Expenditures, and Changes in Fund Balances - Budget and Actual Year Ended June 30, 2005 Budget Original Variance with Final Budget Positive (Negative) Actual Amounts Budgetary Basis Final REVENUES: Grants and entitlements $ Total revenues 711,700 $ 711,700 $ 347,238 $ (364,462) 711,700 711,700 347,238 (364,462) 526,700 526,700 362,403 164,297 EXPENDITURES: Current: Economic and physical development Contingency Total expenditures Excess (deficiency) of revenues over expenditures 200,000 200,000 - 200,000 726,700 726,700 362,403 364,297 (15,000) (15,000) (15,165) (165) 15,000 15,000 15,000 - 15,000 15,000 15,000 - Net change in fund balances - - Budgetary fund balances, beginning of year - - OTHER FINANCING SOURCES (USES): Transfers in Total other financing sources (uses) Budgetary fund balances, end of year $ - $ Adjustment from budetary basis to GAAP basis net change in fund balances - (165) $ $ (165) (165) The City budgets for certain other expenditures on the cash basis, rather than on the modified accrual basis Adjusted net change in fund balance - GAAP basis $ 86 (165) 165 - $ (165) CITY OF FLAGSTAFF, ARIZONA General Obiligation Bond Fund Schedule of Revenues, Expenditures, and Changes in Fund Balances - Budget and Actual Year Ended June 30, 2005 Budget Original Variance with Final Budget Positive (Negative) Actual Amounts Budgetary Basis Final REVENUES: Investment earnings $ Total revenues 300 $ 300 $ - $ (300) 300 300 - (300) 1,510,000 1,510,000 1,510,000 - 257,046 257,046 252,246 4,800 1,767,046 1,767,046 1,762,246 4,800 (1,766,746) (1,766,746) (1,762,246) 4,500 1,767,046 1,767,046 1,766,908 EXPENDITURES: Current: Debt service: Principal retirement Interest and other charges Total expenditures Excess (deficiency) of revenues over expenditures OTHER FINANCING SOURCES (USES): Transfers in Transfers out Total other financing sources (uses) Net change in fund balances Budgetary fund balances, beginning of year Budgetary fund balances, end of year $ (138) - - 19,299 19,299 1,767,046 1,767,046 1,786,207 19,161 300 300 23,961 23,661 11,823 11,823 11,823 - 12,123 $ 87 12,123 $ 35,784 $ 23,661 CITY OF FLAGSTAFF, ARIZONA Special Assessment Bond Fund Schedule of Revenues, Expenditures, and Changes in Fund Balances - Budget and Actual Year Ended June 30, 2005 Budget Original Variance with Final Budget Positive (Negative) Actual Amounts Budgetary Basis Final REVENUES: Special assessments $ Investment earnings 212,885 $ 22,543 Miscellaneous Total revenues 212,885 $ 22,543 218,500 $ 28,034 5,615 5,491 - - 797 797 235,428 235,428 247,331 11,903 270,400 270,400 270,000 400 28,998 28,998 28,999 299,398 299,398 298,999 EXPENDITURES: Current: Debt service: Principal retirement Interest and other charges Total expenditures Excess (deficiency) of revenues over expenditures (63,970) Budgetary fund balances, beginning of year Budgetary fund balances, end of year (63,970) 434,396 $ 370,426 88 370,426 399 (51,668) 434,396 $ (1) 12,302 434,396 $ 382,728 $ 12,302 CITY OF FLAGSTAFF, ARIZONA Secondary Property Tax Revenue Fund Schedule of Revenues, Expenditures, and Changes in Fund Balances - Budget and Actual Year Ended June 30, 2005 Budget Original Final Actual Amounts Budgetary Basis 4,686,697 $ Variance with Final Budget Positive (Negative) REVENUES: Taxes $ Investment earnings Total revenues 4,686,697 $ 4,856,360 $ 169,663 20,500 20,500 25,230 4,730 4,707,197 4,707,197 4,881,590 174,393 OTHER FINANCING SOURCES (USES): Transfers out Total other financing sources (uses) Net change in fund balances Budgetary fund balances, beginning of year Budgetary fund balances, end of year $ (4,022,820) (4,022,820) (4,022,820) - (4,022,820) (4,022,820) (4,022,820) - 684,377 684,377 858,770 174,393 1,023,685 1,023,685 1,023,685 - 1,708,062 $ 89 1,708,062 $ 1,882,455 $ 174,393 CITY OF FLAGSTAFF, ARIZONA Capital Projects Fund Statement of Revenues, Expenditures, and Changes in Fund Balances - Budget and Actual Year Ended June 30, 2005 Budget Original Variance with Final Budget Positive (Negative) Actual Amounts Budgetary Basis Final EXPENDITURES: Current: Capital outlay $ Total expenditures 3,797,539 $ 3,797,539 $ 970,005 $ 2,827,534 3,797,539 3,797,539 970,005 2,827,534 (3,797,539) (3,797,539) (970,005) 2,827,534 3,797,539 3,797,539 - (3,797,539) 3,797,539 3,797,539 - (3,797,539) Net change in fund balances - - Budgetary fund balances, beginning of year - - Excess (deficiency) of revenues over expenditures OTHER FINANCING SOURCES (USES): Bonds issued Total other financing sources (uses) Budgetary fund balances, end of year $ - $ 90 - (970,005) (970,005) $ (970,005) $ (970,005) Statistical Section Table Government-wide information: Government-wide Expenses by Function Government-wide Revenues Fund information: General Governmental Expenditures by Function General Governmental Revenues by Source Tax Revenues by Source Property Tax Levies and Collections Primary Assessed Value and Estimated Actual Value of Taxable Property Property Tax Rates – Direct and Overlapping Governments Principal Taxpayers Special Assessment Collections Computation of Legal Debt Margin Percent of Net General Bonded Debt to Secondary Assessed Value and Net General Bonded Debt Per Capita Ratio of Annual Debt Service Expenditures for General Bonded Debt to Total General Governmental Expenditures Computation of Direct and Overlapping Bonded Debt Schedule of Water and Wastewater Revenue Bond Coverage Demographic Statistics Property Value, Construction, and Bank Deposits Miscellaneous Statistics Intergovernmental Revenue by Source Insurance Summary 91 Page I II 92 93 III IV V VI VII VIII IX X XI 94 95 96 97 98 99 100 101 102 XII 103 XIII XIV XV XVI XVII XVIII XIX XX 104 105 106 107 108 109 111 112 Table I City of Flagstaff, Arizona Government-Wide Expenses by Function Last Ten Fiscal Years Public Safety Public Works Economic and Physical Development Culture and Recreation Highways and Streets Interest on Long Tem Debt Water and Wastewater Environmental Services Airport 4,840,896 $ 18,270,468 $ 1,169,302 $ 7,272,115 $ 8,467,575 $ 6,184,553 $ 1,380,182 $ 16,142,040 $ 7,556,614 $ 3,411,603 2004 5,891,617 18,792,832 1,178,137 6,473,290 8,693,714 8,886,947 1,923,325 17,250,441 7,319,602 3,370,447 460,936 80,241,288 2005 5,441,945 21,018,114 1,320,459 6,807,311 9,426,600 10,011,231 2,042,555 17,297,017 8,548,715 3,749,669 479,700 86,143,316 Fiscal Year 2003 General Government $ The City implemented GASB 34 for the fiscal year ended June 30, 2003. Prior statements have not been restated to comply with the new requirements. These amounts are presented on the accrual basis of accounting. Storwmater $ - Total $ 74,695,348 92 Table II City of Flagstaff, Arizona Government-Wide Revenues Last Ten Fiscal Years Program Revenues Fiscal Year 2003 Charges for Service $ 32,550,332 Operating Grants and Contributions $ 3,810,679 General Revenues Capital Grants and Contributions $ 19,106,918 Property Tax $ 8,010,293 State Shared Tax Sales Tax $ 23,805,566 $ 12,073,108 Investment Earnings $ 489,844 Miscellaneous $ Total 975,983 $ 100,822,723 2004 31,796,700 2,965,572 22,240,321 7,931,626 25,682,974 12,122,563 810,739 2,509,690 106,060,185 2005 33,791,988 4,721,905 23,345,176 8,462,302 27,054,164 12,837,838 2,639,834 1,191,862 114,045,069 The City implemented GASB 34 for the fiscal year ended June 30, 2003. Prior statements have not been restated to comply with the new requirements. These amounts are presented on the accrual basis of accounting. 93 Table III City of Flagstaff, Arizona General Government Expenditures by Function Last Ten Fiscal Years Fiscal Year 2003 General Government $ 4,453,180 Public Safety $ 17,202,980 Economic and Physical Development Public Works Development $ 948,944 $ 7,060,275 Culture and Recreation $ 7,599,703 Highway and Streets $ 5,676,050 Debt Service $ 5,059,182 Capital $ 18,304,161 Total $ 66,304,475 2004 5,335,890 18,015,837 966,546 6,289,966 7,724,481 8,003,110 7,042,026 19,348,708 72,726,564 2005 6,158,308 19,140,415 1,005,745 6,424,057 8,341,105 8,951,097 7,028,734 17,053,841 74,103,302 Includes all governmenal fund types. The City implemented GASB 34 for the fiscal year ended June 30, 2003. Prior statements have not been restated to comply with the new requirements. These amounts are presented on the modified accrual basis of accounting. 94 Table IV City of Flagstaff, Arizona General Government Revenues by Source Last Ten Fiscal Years Fiscal Year 1996 Licenses and Permits Taxes $ 18,112,121 $ 1,322,309 Intergovernmental Revenues $ 16,095,776 Charges for Services $ 872,608 Fines and Forfeits $ 808,543 Other Revenues $ 1,581,552 Total $ 38,792,909 95 1997 18,776,929 1,279,410 17,704,496 871,284 782,451 2,333,295 41,747,865 1998 19,576,193 1,246,090 19,079,704 920,566 783,854 2,497,159 44,103,566 1999 20,582,542 1,335,184 22,621,143 837,373 838,306 2,468,401 48,682,949 2000 22,197,133 1,324,340 26,778,117 1,030,249 837,695 5,243,779 57,411,313 2001 28,340,957 1,318,450 26,203,650 1,025,625 993,585 3,570,180 61,452,447 2002 30,986,091 2,014,357 24,008,885 1,676,615 991,131 3,520,493 63,197,572 2003 31,523,875 2,378,728 24,820,870 1,729,275 1,303,069 2,595,804 64,351,621 2004 33,736,154 2,111,033 23,097,385 1,459,837 1,144,562 2,320,658 63,869,629 2005 35,529,373 2,063,718 27,109,796 1,834,067 1,250,494 3,328,001 71,115,449 Includes all governmental fund types. Table V City of Flagstaff Tax Revenues by Source Last Ten Fiscal Years Fiscal Year 1996 General Property Tax $ 2,137,125 Secondary Property Tax $ 3,344,441 Franchise and Other Taxes $ 1,260,317 Bed, Board and Booze Tax City Sales Tax $ 8,240,709 $ 3,129,529 Transportation Tax $ - Total $ 18,112,121 96 1997 2,243,818 3,402,803 1,358,283 8,491,913 3,280,112 - 18,776,929 1998 2,405,865 3,355,628 1,512,456 8,966,287 3,335,957 - 19,576,193 1999 2,577,557 3,537,987 1,560,789 9,369,406 3,536,803 - 20,582,542 2000 2,759,130 3,777,091 1,505,710 10,510,380 3,644,822 - 22,197,133 2001 2,853,091 3,896,103 1,690,043 10,810,658 3,747,822 5,343,240 28,340,957 2002 3,070,491 4,197,777 1,790,846 11,782,781 3,817,028 6,327,168 30,986,091 2003 3,427,509 4,415,081 1,783,098 11,468,608 3,826,975 6,602,604 31,523,875 2004 3,424,657 4,628,523 2,262,292 12,054,718 4,063,049 7,302,915 33,736,154 2005 3,618,849 4,856,360 1,943,498 13,148,095 4,331,014 7,631,557 35,529,373 Table VI City of Flagstaff, Arizona Property Tax Levies and Collections Last Ten Fiscal Years Fiscal Year 1996 Total Tax Levy $ 5,424,449 Current Tax Collections $ Percent of Levy Collected 5,400,777 99.6% Delinquent Tax Collections $ 80,789 Total Tax Collections $ Total Collections as a Percent of Current Levy 5,481,566 101.1% Outstanding Delinquent Collections $ Outstanding Delinquent Taxes as a Percent of Current Levy 265,339 4.9% 97 1997 5,638,222 5,566,676 98.7% 79,945 5,646,621 100.1% 248,572 4.4% 1998 5,754,253 5,651,170 98.2% 110,323 5,761,493 100.1% 217,244 3.8% 1999 6,138,071 6,036,950 98.4% 78,594 6,115,544 99.6% 216,717 3.5% 2000 6,526,010 6,443,879 98.7% 92,342 6,536,221 100.2% 211,305 3.2% 2001 6,936,955 6,658,250 96.0% 90,944 6,749,194 97.3% 218,230 3.1% 2002 7,271,109 7,194,162 98.9% 74,106 7,268,268 100.0% 257,060 3.5% 2003 7,613,349 7,625,852 100.2% 92,457 7,718,309 101.0% 292,203 3.8% 2004 7,897,298 7,791,735 98.7% 261,445 8,053,180 102.0% 170,430 2.2% 2005 8,494,694 8,330,157 98.1% 145,051 8,475,208 100.0% 157,523 1.9% Table VII City of Flagstaff, Arizona Primary Assessed Value and Estimated Actual Value of Taxable Property Last Ten Fiscal Years Fiscal Year Personal Property Assessed Estimated Value Actual Value Real Property Assessed Estimated Value Actual Value 1996 $ 285,152,896 $ 2,097,918,383 1997 317,127,846 2,352,739,798 1998 329,932,001 1999 $ 20,719,183 $ Assessed Value Total Estimated Actual Value Ratio of Total Assessed Value to Total Estimated Actual Value 98 82,906,354 $ 305,872,079 $ 2,180,824,737 1- 7.1 12,461,600 103,490,735 329,589,446 2,456,230,533 1- 7.5 2,458,882,909 22,781,372 97,754,981 352,713,373 2,556,637,890 1- 7.2 353,421,490 2,642,062,329 22,180,026 98,903,475 375,601,516 2,740,965,804 1- 7.3 2000 379,547,012 2,802,287,566 30,717,569 137,001,286 410,264,581 2,939,288,852 1- 7.2 2001 400,324,857 2,834,495,586 52,116,286 234,449,089 452,441,143 3,068,944,675 1- 6.8 2002 427,130,788 3,023,897,189 53,042,977 238,857,013 480,173,765 3,262,754,202 1- 6.8 2003 444,529,682 3,188,608,091 54,874,705 249,515,175 499,404,387 3,438,123,266 1- 6.9 2004 483,209,070 3,496,252,851 50,207,599 225,502,713 533,416,669 3,721,755,564 1- 7.0 2005 533,298,275 3,903,517,662 49,674,987 223,662,761 582,973,262 4,127,180,423 1- 7.1 Table VIII City of Flagstaff, Arizona Property Tax Rates Direct and Overlapping Governments Last Ten Fiscal Years Fiscal Year City School District Community College County State Total 99 1996 1.7983 6.7903 0.3728 1.1472 0.4700 1997 1.8283 6.5237 0.3784 1.1386 - 9.8690 1998 1.7127 6.6634 0.3869 1.1168 - 9.8798 1999 1.7127 6.5477 0.3952 1.1094 - 9.7650 2000 1.7127 6.5585 0.5947 1.1444 - 10.0103 2001 1.7127 6.6885 0.5724 1.1336 - 10.1072 2002 1.7127 6.6741 0.5717 1.0951 - 10.0536 2003 1.7127 6.7590 0.5809 1.1941 - 10.2467 2004 1.7127 6.3679 0.5775 1.2369 - 9.8950 2005 1.7127 5.7236 0.5660 1.2212 - 9.2235 Note: Tax rates are per $100 assessed valuation. 10.5786 Table IX City of Flagstaff, Arizona Principal Taxpayers Tax Year 2005 Taxpayer Net Assessed Valuation Type of Business Arizona Public Service Company Utility W L Gore & Associates Inc. Manufacturer Qwest Corporation $ As a Percentage of the City Total Secondary Assessed Valuation 100 11,202,424 2.01% 10,109,600 1.82% Utility 9,580,227 1.72% Nestle Purina Petcare Company Manufacturer 4,171,498 0.75% Walgreen Arizona Drug Co. Distribution/Retail 3,867,713 0.69% Little America Refining Co. Hotel/Tourism 3,830,418 0.69% Cone Company George & Thomas DBA Manufacturing 3,317,484 0.60% Flagstaff Mall Associated Ltd. Partnership Shopping Center 3,250,000 0.58% UniSource Energy Corporation Utility 2,538,753 0.46% Woodlands Plaza Hotel LTD Partnership Hotel/Tourism 2,403,225 0.43% 54,271,342 9.75% Total Principal Taxpayers Other Taxpayers Total Secondary Assessed Valuation Source: Arizona Department of Revenue, Central Information Services $ 502,409,245 90.25% 556,680,587 100.00% Table X City of Flagstaff, Arizona Special Assessment Collections Last Ten Fiscal Years Current Assessments Due Fiscal Year 1996 $ 53,958 Current Assessments Collected (1) $ Ratio of Collections to Amounts Due 53,958 100.00% Total Outstanding Current and Delinquent Assessments (2) $ 3,408 101 1997 127,535 132,847 104.17% 1,058 1998 136,791 170,026 124.30% - 1999 137,661 157,640 114.51% - 2000 145,142 175,863 121.17% 529 2001 186,494 269,794 144.67% 5,379 2002 207,154 350,894 169.39% 5,923 2003 206,129 360,158 174.72% - 2004 203,214 291,684 143.54% 414 2005 212,885 218,500 102.64% 215 (1) Includes prepayments. (2) Includes principal and interest. Table XI City of Flagstaff, Arizona Computation of Legal Debt Margin June 30, 2005 Secondary Assessed Value (1) $ 556,680,587 Special Improvement Legal Debt Margin Debt Limit 20 Percent of Assessed Value - Special Improvements Amount of Debt Applicable to Debt Limit Total Bonded Debt Less: Current Portion Other Deductions Allowed by Law: Water Revenue Bonds Special Assessment Bonds Total Amount of Debt Applicable to Debt Limit Legal Debt Margin Available for Water, Sewer, Light, Parks and Open Space Projects $ 111,336,117 $ 30,919,504 2,570,000 6,290,440 415,000 21,644,064 $ 89,692,053 $ 33,400,835 $ 1,225,000 32,175,835 General Legal Debt Margin 102 Debt Limit 6 Percent of Assessed Value - General Amount of Debt Applicable to Debt Limit Total Bonded Debt Less: Current Portion Other Deductions Allowed by Law: Other Debt Highway User Revenue Bonds Total Amount of Debt Applicable to Debt Limit Legal Debt Margin - Available for All Other Projects (1) Abstract published by the Arizona State Department of Revenue. $ 44,120,000 1,345,000 28,170,000 13,380,000 Table XII City of Flagstaff, Arizona Percent of Net General Bonded Debt to Secondary Assessed Value and Net General Bonded Debt Per Capita Last Ten Fiscal Years Fiscal Year Population (1) Secondary Assessed Value (2) Gross Bonded Debt Less Current Portion Net Bonded Debt Percent of Net Bonded Debt to Assessed Value Net Bonded Debt Per Capita 103 1996 53,966 294,100,721 39,830,151 3,595,000 36,235,151 12% 671.44 1997 55,885 310,066,911 53,809,898 4,371,000 49,438,898 16% 884.65 1998 58,145 340,743,258 49,470,273 4,170,000 45,300,273 13% 779.09 1999 59,945 362,625,557 45,333,746 4,465,000 40,868,746 11% 681.77 2000 52,894 ** 385,566,202 40,904,461 4,405,000 36,499,461 9% 690.05 2001 57,700 408,592,733 36,537,570 2,805,000 33,732,570 8% 584.62 2002 59,160 429,030,400 36,873,231 2,888,505 33,984,726 8% 574.45 2003 61,030 464,257,886 34,012,849 3,570,000 30,442,849 7% 498.82 2004 61,270 501,655,440 30,967,902 3,920,000 27,047,902 5% 441.45 2005 61,145 556,680,587 26,784,064 3,915,000 22,869,064 4% 374.01 (1) Arizona Department of Economic Security projected population increases except 1995 and 2000, which are official census figures. (2) From County Assessors Office. * 1995 Special Census. ** Census estimates exceeded actual 2000 census results. FY2000 adjusted to reflect population per U.S. Census official results Table XIII City of Flagstaff, Arizona Ratio of Annual Debt Service Expenditures for General Bonded Debt to Total General Governmental Expenditures Last Ten Fiscal Years Fiscal Year 1996 Interest and Other Charges Principal $ 3,595,000 $ 2,612,598 Total Debt Service $ 6,207,598 Total General Expenditures $ Ratio of Debt Service to General Expenditures (Percent) 35,742,952 17.37% 104 1997 4,371,000 2,660,912 7,031,912 38,110,976 18.45% 1998 4,170,000 2,826,759 6,996,759 43,610,081 16.04% 1999 4,465,000 2,516,329 6,981,329 45,156,409 15.46% 2000 4,405,000 2,242,254 6,647,254 54,107,289 12.29% 2001 2,805,000 1,953,098 4,758,098 52,523,698 9.06% 2002 2,979,000 1,443,074 4,422,074 68,918,699 6.42% 2003 3,679,000 1,373,322 5,052,322 66,304,475 7.62% 2004 4,614,000 2,428,026 7,042,026 72,726,564 9.68% 2005 4,880,000 2,148,734 7,028,734 74,103,302 9.49% Table XIV City of Flagstaff, Arizona Computation of Direct and Overlapping Debt June 30, 2005 The general obligation debt of all local governmental units which provide services within the City's boundaries, and which must be borne by properties in the City (commonly called overlapping debt), is summarized below: Net Debt Outstanding Governmental Units City of Flagstaff School District #1 $ 23,165,018 31,770,000 Percentage Applicable to the City 100.0% 65.0% Direct and Overlapping Debt $ 23,165,018 20,650,500 $ 43,815,518 105 Table XV City of Flagstaff, Arizona Schedule of Water and Wastewater Revenue Bond Coverage Last Ten Fiscal Years Fiscal Year 1996 Gross Revenues $ 16,475,146 Net Revenue Available for Debt Service Expenses $ 7,136,236 $ 9,338,910 Debt Service Requirements Principal $ - Interest $ Total - $ Coverage - $ - 106 1997 16,515,478 7,973,540 8,541,938 - - - - 1998 16,767,650 7,916,657 8,850,993 - - - - 1999 16,773,884 7,700,535 9,073,349 - - - - 2000 17,606,349 8,311,186 9,295,163 - - - - 2001 18,337,310 9,757,448 8,579,862 - - - - 2002 17,637,708 9,587,743 8,049,965 - - - - 2003 16,769,463 9,865,571 6,903,892 238,431 17,741 256,172 26.95 2004 17,227,848 10,645,073 6,582,775 246,890 231,034 477,924 13.77 2005 16,851,956 10,693,901 6,158,055 255,648 223,153 478,801 12.86 Table XVI City of Flagstaff, Arizona Demographic Statistics Last Ten Fiscal Years 107 Fiscal Year Population (1) School Enrollment (2) Unemployment Rate (3) 1996 53,966 11,826 6.1% 1997 55,885 12,679 6.5% 1998 58,145 13,249 6.6% 1999 59,945 12,880 6.6% 2000 52,894 12,682 5.2% 2001 57,700 13,969 4.8% 2002 59,160 13,566 5.1% 2003 61,030 12,905 5.8% 2004 61,270 13,176 5.2% 2005 62,371 13,389 5.1% (1) Arizona Department of Economic Security estimated projected population except for the years, 2000, which are official census figures, and 1995, which represent the special census figures. (2) Arizona Department of Education and National Center for Education Statistics. (3) Arizona Department of Economic Security. (2005 is a draft estimate provided by AZ DES) Note: Annual per capita income, median age, and education level data are not available. Table XVII City of Flagstaff, Arizona Property Value, Construction, and Bank Deposits Last Ten Fiscal Years Residential Construction (1) Fiscal Year Number of Permits 1996 564 1997 Value $ Commercial and Industrial Construction (1) Number of Permits Value $ 24,418,924 Property Value (3) Quarterly Bank Deposits Coconino County ($000) (2) Residential Nontaxable 818,081,181 $ 1,205,903,371 $ 146,284,877 2,219,561,893 832,894,205 1,238,946,076 147,721,612 108 169 513 58,580,988 198 39,495,278 347,956 1998 528 45,783,140 182 33,570,116 482,770 2,458,001,305 849,315,340 1,446,181,407 162,504,558 1999 524 78,015,349 183 35,999,041 458,285 2,644,019,764 867,782,208 1,609,395,170 166,842,386 2000 586 46,399,420 122 43,592,693 460,217 2,813,033,675 930,939,338 1,698,835,707 183,258,630 2001 550 50,615,526 127 35,722,301 490,905 2,991,862,619 992,147,419 1,795,884,090 203,831,110 2002 758 69,026,395 152 43,642,285 615,806 3,134,105,000 1,037,581,165 1,886,615,936 209,907,899 2003 740 67,267,554 170 38,865,819 881,222 3,329,380,591 1,072,502,563 1,997,820,625 259,057,403 2004 709 87,188,212 139 20,152,607 788,255 3,485,996,311 1,096,247,804 2,123,907,477 265,841,030 2005 542 73,977,264 114 28,740,783 827,075 3,814,830,953 1,153,090,756 2,376,018,882 285,721,315 (2) Arizona Bankers Association. This represents deposits in the 2nd quarter of the fiscal year for banks which reported. (3) Abstract published by the Arizona State Department of Revenue. * Number is exclusive of one large non-participating financial institute in Coconino County. 462,848 $ 2,170,269,429 Commercial 68,880,721 (1) City Building Department. $ Estimated Cash Value * $ Table XVIII City of Flagstaff, Arizona Miscellaneous Statistics Date of Incorporation May 26, 1894 Date Charter Adopted October 3, 1958 Date of Latest Charter Amendment June 29, 1998 Employees as of June 30, 2005 Merit System Exempt Temporary Elected Officials Total Payroll-Fiscal Year 2005: Form of Government Council, City Manager Area - Square Miles 2005 64.66 109 Miles of Streets, Alleys and Sidewalks Streets Alleys Sidewalks 219.08 10.15 157.22 Miles of Sewer Storm Sanitary 42.81 250.55 Number of Street Lights 3,037 Number of Fire Hydrants 2,598 Number of Manholes 6,496 Elections Last Municipal Election-May 2004 Number of Registered Voters Number of Votes Cast Percentage of Registered Voters Last Special Election-May 2005 Number of Registered Voters Number of Votes Cast Percentage of Registered Voters Pulliam Airport Fixed Base Operators Locally Based Aircraft Tiedowns Enclosed Hangars Open Hangars 545 134 214 7 $ 33,653,013 29,068 11,650 40.08% 28,704 17,182 59.86% 1 130 18 61 48 Parks and Recreation Number of Developed Parks Number of Un-developed Parks Park Acreage Flagstaff Urban Trail System-Miles 27 4 702.34 33.83 Number of Other Facilities: Recreation Centers Tennis Courts Racquetball Courts Ramadas Softball/Baseball Fields Ice Rink/Activity Center Playgrounds Skate Tracks Soccer Fields Disc Golf Course Basketball Courts Volleyball Courts Horseshoe Courts Off Leash Areas-Bark Parks Swimming Pools (School Owned) 3 17 4 11 17 1 20 2 4 2 19 6 12 2 2 Table XVIII (continued) City of Flagstaff, Arizona Miscellaneous Statistics Education Number of Schools: Public Elementary Public Middle School Public High School Alternative Schools Magnet Schools Charter Schools Private Schools Community College (Coconino) University (Northern Arizona) 110 Number of Students (Fall 2004): Flagstaff Unified School District Charter Private (Fall 2001) Northern Arizona University Flagstaff Campus All Locations Coconino Community College Flagstaff Campuses (2) All Locations Fire Protection Number of Stations Number of Employees (FTE) 9 3 3 2 5 10 6 1 1 11,547 1,527 315 12,980 19,147 3,540 4,380 6 97.75 Police Protection Number of Employees (FTE) Number of Calls for Service per Annual Report-12/31/04 Ave. Patrol Officers for 24 hour period Vehicular Patrol Units 55,464 20 26 Coconino County Jail Prisoner Capacity 562 160 Sales Tax Retail Sales Last 10 Fiscal Years: 2005 $ 1,749,149,518 2004 1,593,931,781 2003 1,458,775,346 2002 1,404,232,492 2001 1,324,735,136 2000 1,238,195,104 1999 1,117,197,604 1998 1,065,133,746 1997 1,016,570,260 1996 965,100,588 Total Sales Tax Revenue for Fiscal Year 2005 $ 12,671,202 Utility Enterprise Total Active Accounts on June 30, 2005 Water Average Gallons/Household/Month Plants Capacity (Million Gallons per Day): Water Treatment Plant Reservoir Filtration Plant Wildcat Hill Plant Rio de Flag Reclaim Plant Wells Reservoirs Reclaimed Reservoirs Miles of Water Lines Miles of Reclaimed Lines Miles of Sewer Lines 17,872 5,488 7 2 6 4 24 8 1 370.03 15.21 250.55 Population Census Population Count-Last Five Censuses: 2005*** 2004** 2003** 2002** 2001** 2000 1995* 1990 1985* 1980 *Special Census **DES Estimate ***Preliminary DES Estimate 2000 Census Information: Age Distribution of Population for Urbanized Areas Only 1-4 Years 5-17 Years 18-24 Years 25-44 Years 45-64 Years 65+ Years Number of Housing Units Average Persons per Housing Unit Average Family Size Median Household Income Per Capita Income (2000) 62,371 61,270 61,030 59,160 57,700 52,894 52,701 45,854 38,247 34,743 3,546 9,288 11,487 16,111 8,309 4,153 52,894 $ $ 21,396 2.59 3.13 37,146 18,637 2000 Census information available at the following websites: http://www.census.gov/census2000/states/az.html http://www.de.state.az.us/links/economic/webpage/index.html Table XIX City of Flagstaff, Arizona Intergovernmental Revenue by Source Governmental Funds Last Ten Fiscal Years Fiscal Year 1996 State Sales Tax $ 3,734,332 State Income Tax $ 3,553,021 County Auto In-Lieu Tax $ 1,355,828 Highway User Tax $ 5,700,737 Local Transportation Assistance $ 364,931 State HB 2565 $ - Federal Grants $ 360,439 State Grants & Other State $ 115,134 County LEAF IGA $ - County Library District Funding $ 911,354 Other $ Total - $ 16,095,776 111 1997 3,845,330 4,170,641 1,504,060 5,852,957 366,453 - 694,916 380,042 - 890,097 - 17,704,496 1998 4,061,346 4,725,837 1,533,501 5,371,446 394,318 - 1,448,951 553,963 - 955,342 35,000 19,079,704 1999 4,353,556 5,489,912 1,847,142 7,207,158 367,911 - 1,763,054 272,297 - 1,101,729 218,384 22,621,143 2000 4,785,424 6,062,290 1,902,188 7,427,210 367,461 312,249 1,474,751 370,391 - 1,068,817 3,007,336 26,778,117 2001 4,919,575 6,432,879 1,913,662 7,969,703 360,806 142,793 1,731,823 317,059 - 1,835,109 580,241 26,203,650 2002 4,076,034 5,526,159 1,803,900 7,771,416 300,246 47,598 2,348,793 437,543 - 1,423,105 274,091 24,008,885 2003 4,136,724 5,557,918 2,378,466 7,408,116 315,026 - 1,743,613 823,701 - 1,607,306 850,000 24,820,870 2004 4,449,982 4,777,145 2,427,367 6,975,351 313,868 - 1,160,966 454,212 468,069 1,921,433 148,992 23,097,385 2005 4,900,117 4,918,476 2,461,425 7,171,383 313,843 - 1,772,181 2,868,033 628,198 2,036,500 39,640 27,109,796 Table XX City of Flagstaff, Arizona Insurance Summary In Effect June 1, 2005 to May 31 , 2006 Coverage Limit of Liability Liability Insurance: General Liability* (Includes 2 Skateboard Parks) Law Enforcement Liability* $ 1,000,000 $ 2,000,000 $ 1,000,000 $ 1,000,000 Auto Liability* $ 1,000,000 Public Entrity Management Errors and Omissions* $ 1,000,000 (Claims Made Retro Date 6-1-95) $ 1,000,000 Employment Practices Liability* $ 5,000,000 (Claims Made Retro Date 6-1-95) $ 5,000,000 Healthcare Professional (for EMTs)* $ 2,000,000 (Claims Made Retro Date 6-1-95) $ 2,000,000 Employee Benefits Liability* $ 1,000,000 $ 3,000,000 * Liability Claims are Subject to a $50,000 Self Insurance Retention Employer's Liability 112 Worker's Compensation $ $ $ / / / / / / / / / / / per occurrence aggregate each wrongful act aggregate each accident each claim aggregate each wrongful act aggregate each person aggregate each employee aggregate 1,000,000 / each accident 1,000,000 / disease employee 1,000,000 / disease policy limit Statutory Excess Liability #1 Following Form Over General Liability, Auto, Law Enforcement, Public Entity Management, Employee Benefits Liability $ 20,000,000 / each occurrence Wrongful Act (Excludes Employment Practices and Healthcare Professional) / aggregate Excess Liability #2 Following Form Over Excess Liability # 1 Excluding Discrimination, Employment-related $ 5,000,000 / each occurrence Practices, and Failure to supply. Wrongful Act / aggregate Coverage Limit of Liability Property Insurance: Blanket Building and Contents, including light and signals Flood Zones B and C Earthquakes Business Income/Estra Expense Flood Zone A Properties Municipal Court $ 101,070,441 / $25,000 deductible $ 10,000,000 / $25,000 deductible $ 15,000,000 / $25,000 deductible $ 7,000,000 / 24 hours City Hall, Library Contractors Equipment (actual cash value) Lab Equipment Employee Hand Tools Computer Equipment and Peripherals Computer Data and Media Laptops and Portables Replacement Cost Coverage Fine Arts Exhibition Floater City Hall, Visitor Center, Airport Terminal Boiler and Machinery $ $ $ $ $ $ $ $ $ $ $ $ 220,000 / building 116,900 / contents 500,000 / each building 500,000 / contents each ($5,000 deductible) 6,364,699 / $5,000 deductible 11,300 / $1,000 deductible 35,000 / $1,000 deductible 5,818,610 / $1,000 deductible 500,000 / $1,000 deductible 248,500 / $1,000 deductible 25,000 / each location $1,000 deductible 25,000,000 / $5,000 deductible Crime: Blanket Public Employees and Treasurer $ 1,000,000 / $5,000 deductible Dishonesty Bond Including Faithful Performance of Duty Computer Fraud $ 250,000 / $5,000 deductible Theft, Disappearance, & Destruction (Inside and Outside) $ 5,000 / $500 deductible Aviation: Products/Completed Operations Liability, Contractual, Construction & Demolition Hangar Keepers Liability $ $ $ $ 30,000,000 30,000,000 30,000,000 30,000,000 / / / / each occurrence aggregate each aircraft each occurrence City of Flagstaff 211 West Aspen Avenue Flagstaff, Arizona 86001 www.flagstaff.az.gov