Flagstaff, Arizona 2007 Protecting the Future of Flagstaff through Public Safety Cit y of Flagstaf f Comprehensive Annual Financial Repor t Fiscal Year Ended June 30, 2007 Comprehensive Annual Financial Report For Fiscal Year Ended June 30, 2007 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, 2007 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 ..................................................................................................................... 17 Statement of Activities ....................................................................................................................... 18 Fund Financial Statements: Balance Sheet – Governmental Funds.................................................................................................. 20 Reconciliation of the Balance Sheet to the Statement of Net Assets - Governmental Activities............ 22 Statement of Revenues, Expenditures, and Changes in Fund Balances – Governmental Funds ............ 24 Reconciliation of the Statement of Revenues, Expenditures and Changes in Fund Balances of Governmental Funds to the Statement of Activities ....................................... 26 General Fund - Statement of Revenues, Expenditures, and Changes in Fund Balances – Budget and Actual .............................................................................................. 28 Highway User Fund - Statement of Revenues, Expenditures, and Changes in Fund Balances – Budget and Actual .............................................................................................. 29 Transportation Fund - Statement of Revenues, Expenditures, and Changes in Fund Balances – Budget and Actual .............................................................................................. 30 BBB Fund - Statement of Revenues, Expenditures, and Changes in Fund Balances – Budget and Actual .............................................................................................. 31 Statement of Net Assets – Proprietary Funds ...................................................................................... 32 Statement of Revenues, Expenses, and Changes in Fund Net Assets – Proprietary Funds ............................................................................................ 34 Statement of Cash Flows – Proprietary Funds ..................................................................................... 36 Statement of Fiduciary Net Assets – Fiduciary Funds .......................................................................... 40 Statement of Changes in Fiduciary Net Assets – Fiduciary Funds ........................................................ 41 Notes to the Financial Statements............................................................................................................. 43 COMBINING STATEMENTS Non-Major Funds – Other Governmental Funds: Special Revenue Funds ....................................................................................................................... 83 Debt Service Funds............................................................................................................................. 83 Permanent Fund ................................................................................................................................. 83 i Combining and Individual Fund Statements and Schedules: Combining Balance Sheet – Non-major Governmental Funds ............................................................. 84 Combining Statement of Revenues, Expenditures and Changes in Fund Balances – Non-major Governmental Funds ........................................................................ 86 SUPPLEMENTAL INFORMATION Capital Assets Used in the Operations of Governmental Funds: Schedule By Function and Activity ...................................................................................................... 90 Schedule of Changes By Function and Activity .................................................................................... 92 Budgetary Comparison Schedules – Other Major Governmental Funds Capital Projects Fund ......................................................................................................................... 93 Budgetary Comparison Schedules – Non-Major Governmental Funds Library Fund ....................................................................................................................................... 94 Real Estate Proceeds Fund .................................................................................................................. 95 Community Redevelopment Fund....................................................................................................... 96 Metropolitan Planning Organization Fund .......................................................................................... 97 General Obligation Bond Fund............................................................................................................ 98 Secondary Property Tax Revenue Fund ............................................................................................... 99 Special Assessment Bond Fund......................................................................................................... 100 STATISTICAL SECTION Net Assets by Component ...................................................................................................................... 102 Changes in Net Assets ............................................................................................................................ 104 Fund Balances, Governmental Funds....................................................................................................... 106 Changes in Fund Balances, Governmental Funds .................................................................................... 107 Tax Revenue by Source, Governmental Funds ......................................................................................... 108 Intergovernmental Revenue by Source, Governmental Funds .................................................................. 109 Full Cash Value of Taxable Property........................................................................................................ 110 Direct and Overlapping Property Tax Rates............................................................................................. 111 Principal Property Tax Payers.................................................................................................................. 112 Property Tax Levies and Collections........................................................................................................ 113 Direct and Overlapping Sales Tax Rates .................................................................................................. 114 Ratios of Outstanding Debt by Type ....................................................................................................... 115 Ratios of General Bonded Debt Outstanding ........................................................................................... 116 Direct and Overlapping Governmental Activities Debt............................................................................. 117 Legal Debt Margin Information ............................................................................................................... 118 Pledged Revenue Coverage ..................................................................................................................... 120 Demographic and Economic Statistics..................................................................................................... 122 Principal Employers ................................................................................................................................ 123 Full-time Equivalent City Government by Function/Program................................................................... 124 Operating Indicators by Function/Program ............................................................................................. 126 Capital Asset Statistics by Function/Program.......................................................................................... 128 Insurance Summary ................................................................................................................................ 129 ii City of Flagstaff December 11, 2007 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, 2007, 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, 2007, 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, 2007, 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 2006 estimate by the Arizona Department of Economic Security is approximately 62,030. 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, and 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, we have seen 4.4 % growth in our retail sales, excluding BBB. BBB maintained its rebound which represents approximately, 16% of receipts. BBB receipts grew by 7% as a result of strong tourism in the region due growth in population in Phoenix. Auto sales had a slight increase of 3.0% and commercial rentals increased 11.5%. Construction activity remained strong throughout FY 2007, growing by 10.2% 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. Phase One of the Mall Development is complete. Construction of Phase Two has not yet begun and the Auto Mall is anticipated to be completed over the next two years. 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. When completed, the Mall will add approximately 485,000 square feet of additional retail space and several new auto dealers with additional manufacturers to the market. Sales tax receipts benefit from both 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 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 4.4%. 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 Note.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 2006-2007, 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 FY2006-2007. Economic Development/Redevelopment The City looks to maintain and strengthen Flagstaff as the regional center for retail, employment, and hospitality while enhancing the quality of life for our residents. The economic investment accomplishments include: • Entrepreneurial Development: The City through a $3.2 million grant that originated with NAU is constructing a Business Incubator to develop start-up technology businesses to provide higher paying jobs in the future. The facility is located on the USGS Science Campus and is anticipated to be complete mid-year 2008. • Community Reinvestment Marketing: The City continued an aggressive marketing campaign in national trade magazines to raise awareness about the advantages of our community to potential developers, lenders, investors, and tenants. • East Flagstaff Gateway Area: Complete a Redevelopment Area Plan for East Flagstaff so that it serves as an anchor and gateway to the City. The Mall expansion and Auto Park development are two key components to this strategy. The Mall Phase I expansion was completed in the fall of 2007 and Phase II and the Auto Mall are projected to be complete in 2008. • Aspen Place at Sawmill: This development project broke ground in 2007 and will create a mixed-use neighborhood center. It will serve as an anchor to the Butler Avenue corridor and provide an eventual link to the Southside and NAU. This project was partially funded a special assessment bond ($19.1 million) and is anticipated to be complete in 2008. • Downtown: viability. The City continues to address issues regarding the Downtown area continued economic Issues include on-street parking, store turnover, event impacts, and imaging. The City is evaluating the implementation of parking fees to enhance stewardship and maintenance concerns. Fiscal Health The City shall maintain good fiscal health through sound financial management and fiscal integrity. Fiscal accomplishments include: • Continued work with Environmental Services staff to incorporate sustainable goods and processes in the procurement process. The City purchased hybrid vehicles for police, public works, and community development. • Exploration of electronic opportunities for on-line access to employees and citizens to reduce redundancy and paperwork. The City has purchased software to provide online access to utility billing (implemented), vendor registration and employee access to payroll information (implementation scheduled for 2008). • Leverage grants for city projects and programs. $19.3 million in grant revenue was budgeted for FY2007 of which $12.5 million was received. vii 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 and the Police department conducted numerous community activities that strengthen neighborhoods. These included 130 block watch meetings, youth celebrations and formal gang and drug education in the schools, and two citizen police academies. Activities also include our community partners. The City funds an after school program activities at various school district sites and works with United Way, whom supports numerous agencies in the community to promote the basic skills children need and other services. Affordable Housing The goals are manifold to address affordable housing in a community with such a severe deficiency. Affordable housing includes the needs of the community from rentals, to first time home buyers, homeless and general affordability issues across the entire workforce. There is no one tool that will solve this issue but must be dealt with for the entire city. Efforts for FY2007 included: • The provision of funding and administrative oversight for public improvements to 16 Land Trust Program homes; homebuyer education and assistance; housing stabilization assistance; homebuyer assistance savings accounts; and various other programs. • • Participation in community efforts to open two temporary homeless shelters Met with developers to incorporate workforce housing units into upcoming developments within the City where appropriate. 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. The Customer Service Committee conducted an internal customer service survey to determine how and in what ways internal customer service could be improved. In addition, an Ethics Policy has developed to underscore the importance of maintaining the highest standards of personal integrity, truthfulness, honesty, and fairness in carrying out public 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. Efforts for FY2007 include the continued development of the many planned Flagstaff Urban Trail System (FUTS), with the premier project as the Cedar Avenue urban trail bridge and the retention of open space through acquisition and/or private partnerships, Several large planned developments continued in the planning stages some of which included rezoning processing, conditional use permits, and/or annexation consideration. viii Collaboration Collaboration strengthens the community by strengthening partnerships with sovereign nations, public, nonprofit 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 continued its support of education with a unified statement to the state legislature supporting the funding of education as a primary goal to the success of the state, 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. This year brought about a year of implementation for the many projects that will add value and character to our community. City efforts included the expansion of the commercial recycling accounts, the expansion of sustainability objectives, continuing of brownfield efforts, the renovation of the Adult Center, completion of the Thorpe Park Improvement project, and increased special events particularly the Winter Wonderland promotion. 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 a 7,000 foot elevation a cool mountain environment. Unfortunately with this amenity comes the risk of catastrophic wildfire. The City continues to be proactive in the implementation of a major forest health initiative. In fact, the City is recognized nationally for its successful program. 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, 2006. This was the 13th 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. 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 award for Distinguished Budget Presentation for our 2007-2008 annual ix budget with special performance measures recognition. 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. Respectfully Submitted, Mary Jo Jenkins Management Services Director 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, 2007 Elected Officials Mayor Joseph C. Donaldson Vice Mayor Scott Overton Councilmember Karen K. Cooper Councilmember Joseph P. Haughey Councilmember Kara M. Kelty Councilmember Rick Swanson Councilmember Al White Appointed Officials City Manager John Holmes 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 Timothy D. Hansen, CPA 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, 2007, which collectively comprise the City’ s basic financial statements as listed in the table of contents. 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, business-type activities, each major fund, and aggregate remaining fund information of City of Flagstaff, Arizona, as of June 30, 2007, and the respective changes in financial position and, where applicable, cash flows thereof, and the budgetary comparison for the general, highway user revenue, 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 I, the City retroactively reported all major infrastructure assets as part of the phased implementation requirements of GASB Statement No. 34, Basic Financial Statements – and Management’s Discussion and Analysis – for State and Local Governments. The management’s discussion and analysis on pages 3 through 15 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 December 21, 2007 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. Nordstrom & Associates, P.C. Flagstaff, Arizona December 21, 2007 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, 2007. 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 $540.9 million (net assets). Of this amount $55.8 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 $47.6 million during the fiscal year. This increase is related to capital improvement activity both internally funded and funded through contributions from private development. Private development contributions totaled $22.9 million in for the year ended June 30, 2007 and projects include the Mall development ($11.5 million), Anasazi subdivision ($3 million), and a number of other residential improvements. The remaining $8.4 million are contributions for 22 separate projects. Other major capital asset additions include the airport runway extension, Thorpe Park improvements, continuing work on fire stations, the Aquaplex, Aspen Place at Sawmill, and Wildcat Hill Wastewater Treatment plant improvements, Sunnyside neighborhood improvements, and the Rio de Flag drainage improvement. x As of June 30, 2007, the City’s governmental funds reported combined ending fund balances of $94.9 million, an increase of $13.1 million in comparison with the prior fiscal year. Approximately 48.8% of this total amount ($46.3 million) is unreserved fund balance available for spending at the government’s discretion. x As of June 30, 2007, total unreserved fund balance for the general fund was $29.9 million, or 66.6% of total general fund expenditures ($44.9 million). x As of June 30, 2007, the City’s proprietary funds reported combined total net assets of $286.4 million, and total unrestricted net assets of $19.6 million. $15.2 million of the unrestricted net assets are in the Water and Wastewater Fund. x The beginning fund balance for governmental activities in the Statement of Activities and the Statement of Revenue, Expenditure, and Changes in Fund Balance has been restated due to an error in accounting estimates as related to the recognition of state shared revenue and also due to the capture of historical infrastructure assets ($0.6 million and $91.1 million, respectively). Detail information can be found on page 57 within the footnotes. 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. 3 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 or expenses pertaining to 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 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, Financial 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 17 - 19 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, BBB fund, and the Capital Projects Bond Construction fund which are all considered to be major funds. Data from the remaining governmental funds are combined into 4 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 20 - 31 of this report. 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 Water and Wastewater, the Airport, Environmental Services which includes solid waste collection, and Stormwater. All 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 32-39 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 40-41 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 43-81 of this report. Combining statements The combining statements referred to earlier in connection with non-major governmental funds are presented on pages 84-87. 5 Other information In addition to the basic financial statements and accompanying notes, this report also presents certain other supplementary information concerning the City’s capital asset activity. Other supplementary information can be found on page 90-92 of this report. 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 $540.9 million as of June 30, 2007. Of the City’s net assets, 86.7% reflects its investment of $468.9 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, 2007 and 2006 (in thousands of dollars) Governmental Activities 2007 Business-type Activities 2006 2007 Total 2006 2007 (as restated) Current and other assets Capital assets $ Total assets 125,511 243,623 $ 104,293 228,325 $ 67,196 295,356 $ 37,064 257,103 $ 192,707 538,979 2006 (as restated) $ 141,357 485,428 369,134 332,618 362,552 294,167 731,686 626,785 Long-term liabilities 88,765 74,655 58,397 29,703 147,162 104,358 Other liabilities 25,464 17,360 18,081 11,733 41,436 43,545 190,707 133,451 204,595 184,594 264,382 230,035 468,977 414,629 13,796 45,561 2,425 2,393 16,221 47,954 Total liabilities 114,229 Invested in capital assets, net of related debt Restricted Unrestricted Total net assets $ 36,514 254,905 92,015 $ 10,448 240,603 76,478 19,267 $ 286,074 $ 20,303 252,731 $ 55,781 540,979 29,093 $ 30,751 493,334 Both total assets and total liabilities increased due to the debt issued for the various capital projects. The four new issues include $19.1 million in special assessments, $23.1 million for Wildcat Wastewater Treat Plan improvements, $7.9 million to accommodate the purchase of water rights, and $2.0 million for energy improvements. A portion of the City’s net assets, $16.2 million (3.0%) represents resources that are subject to external restriction on how they may be used. The remaining balance of unrestricted net assets, $55.8 million (10.3%) 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 increased by 20.3% ($21.2 million). This is due to unspent bond proceeds. Bonds totaling $19.1 million were issued to fund improvements through a special assessment at the Aspen Place at Sawmill. 6 Capital assets of the governmental activities, funded through debt proceeds, grants, and contributions, increased by 6.7% ($15.3 million) due to the 4th Street project ($2.4 million), Thorpe Park improvements ($3.9 million), fire stations ($3.1 million), and East Flagstaff Gateway improvements ($5.1 million). This is in addition to a $91.9 million dollar prior period adjustment for the inclusion of historical infrastructure. Infrastructure additions include bridge structures, streets, sidewalks, traffic signals, right of way, and drainage improvements in our City. These are assets acquired prior to 2003 (the implementation date for GASB 34) dating back to the late 1800’s. Governmental activities long-term liabilities increased by 18.9% ($14.1 million) due to the additional debt related to capital plan as previously discussed. Other liabilities increased by 46.7% ($8.1 million) due to accounts payable increases as related to outstanding construction contracts at fiscal year end. Overall business-type net assets increased by 13.2% ($33.3 million) also due primarily to capital asset additions. Capital assets, net of related debt increased by $34.3 million. Of this, 48.9% ($16.7 million) is from private development donations, primarily related to the Flagstaff Mall development ($9.9 million). Additional capital projects for business-type activities include the airport runway extension and the Wildcat Wastewater Treatment plant expansion, $8.5 million and $4.3 million respectively. Analysis of Change in Net Assets The City’s overall net assets increased by $47.6 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, 2007 and 2006 (in thousands of dollars) Governmental Activities 2007 Business-type Activities 2006 2007 (as restated) Total 2006 2007 as restated 2006 (as restated) Revenues Program Revenues: Charges for services $ Operating grants and contributions 7,636 $ 2,062 Capital grants and contributions 19,356 General Revenues: 7,898 $ 3,792 29,342 $ 20 21,567 28,664 $ - 27,369 36,978 $ 2,082 23,450 36,562 3,792 46,725 45,017 Property taxes 12,170 9,051 - - 12,170 9,051 Sales taxes 32,335 30,015 - - 32,335 30,015 State shared taxes Investment earnings Other 16,276 13,805 - - 4,109 2,385 1,547 1,182 95,590 89,152 58,420 1,646 Total revenues 639 142 16,276 13,805 327 5,656 1,788 3,567 53,623 154,010 142,775 966 Expenses General government 9,035 Public safety 7,459 23,995 Public works 1,883 Economic and physical development Culture and recreation 10,090 Interest on long-term debt Water and wastewater - 8,329 - 12,043 3,090 2,167 - - 22,525 1,883 1,455 9,508 - 7,843 10,090 - - 19,945 7,459 23,995 - - - 9,035 - - 7,843 14,564 - - 1,455 9,508 Highways and streets - 22,525 8,329 14,564 - 12,043 3,090 18,452 19,945 2,167 18,452 Environmental - - 10,074 9,096 10,074 9,096 Airport - - 3,162 3,520 792 3,162 1,019 3,520 34,200 31,860 106,365 93,681 Stormwater Total expenses Increase in net assets before transfers (2,267) 14,302 $ 240,603 254,905 1,019 27,331 (9,123) Change in net assets Net assets at beginning of year, as restated - 61,821 23,425 Transfers Net assets at end of year 72,165 25,064 $ 215,539 240,603 7 24,220 21,763 9,123 2,267 33,343 $ 252,731 286,074 47,645 228,701 252,731 49,094 - 24,030 $ 792 - 47,645 $ 493,334 540,979 49,094 $ 444,240 493,334 Governmental activities Governmental activities increased the City’s net assets by $14.3 million, accounting for 30% of the total growth in the net assets of the City. The key factors for this increase are as follows: x Combined operating grants, capital grants and contributions have decreased by 15.5% ($3.9 million) due to decreased private development infrastructure contributions. x Property tax increases are due to the creation of a new special assessment district, Aspen at Sawmill, generating $2.5 million is special assessment tax revenue x Sales tax revenues increased by 7.7% ($2.3 million) at both local and state levels. State sales tax levels had decreased significantly in the post-9/11 environment and have finally surpassed revenue levels achieved five years ago Bed, Board, and Booze (BBB) taxes continue to exceed prior levels after two years of declining revenues. Historically, City sales tax has maintained a constant level of growth and this trend continues. x The City’s portion of state shared taxes has grown by 17.9% ($2.5 million) due to increased collections of state income tax. Additionally, the City’s proportionate census share has grown slightly relative to the overall state population. x Investment earnings are also normalizing with rates increasing to an average of over 4.4% and the City maintaining higher fund balances throughout the year. x Expenses have increased primarily due to staffing increases and other compensation increases. authorized an additional 30 positions for the fiscal year. The City In additional, a 9% pay plan adjustment was implemented in addition to merit increases. Police and fire overtime also continue to escalate. Health insurance and retirement contribution rates also increased. Business-type activities Business type activity had net asset growth of $33.3 million, accounting for 70% of the total growth in the net assets to the City. The key factors for this increase include: x Capital grants and contributions increased by 16.7% ($3.9 million) due to grants received for the runway extension work at the airport. x Expenses have increased primarily due to staffing increases and overall personnel cost increases. authorized an additional 12 positions for the fiscal year. The City In additional, a 9% pay plan adjustment was implemented in addition to merit increases. Health insurance and retirement contribution rates increased. The following 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 as measured by expense (33.3%), followed by Highways & streets (20.2%), Culture and recreation (14.0%), and Economic and physical development (13.2%). 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 (33.8%), followed by capital grants and contributions (20.3%), and state shared taxes (17%). This ranking of the revenue resources has remained the same since FY 2005. For the most part increases in expenses from the previous year compared to the fiscal year ended June 30, 2007 exceeded inflation and normal growth expectations as the City addressed a number of community and organizational needs through enhanced staffing and program growth. Thirty full time equivalent positions were added to support the organizational infrastructure, to maintain or improve existing service levels, and to serve both the public and private sector permitting and inspection needs, and to support growing public safety needs. 8 Expenses and Program Revenues – Governmental Activities Expenses $30,000,000 Program Revenues $25,000,000 $20,000,000 $15,000,000 $10,000,000 $5,000,000 $0 General government Public saf ety Public works Econ & phys development Culture & recreation Highways & st reet s Int erest on long-term debt Revenues by Source – Governmental Activities Miscellaneous 1.71% Charges for services 7.99% Operating grants Investment and contributions earnings 2.16% 4.30% State shared tax Capital grants and 17.03% contributions Sales tax 33.83% Property taxes 20.25% 12.73% As shown in the following two charts, Water and Wastewater has expenses of $19.9 million for the fiscal year, followed by Environmental Services with $10.1 million, the Airport with $3.2 million and Stormwater with $1 million. For the fiscal year, program revenue exceeded expense for Water and wastewater, Airport and Stormwater. Environmental program revenue over expense was virtually flat. Water & wastewater and Environmental Services received the majority of their program revenues through charges for services (56.7% and 99.3%, respectively). The Airport and Stormwater funds receive the majority of support through Capital Grants and Contributions (88.5% and 83.9%, respectively). The Water and Wastewater fund receives 43.3% of support through grants and contributions. Charges for services provided the largest share of revenues (50.2%) for all of the business-type activities, followed by capital grants and contributions (46.8%). The proportionate share of revenue from charges for service (50.2%) and capital grants and contributions (46.8%) is similar to the prior year of 55 % and 45% respectively. 9 Stormwater expenses increased by 28.7% ($0.2 million) in comparison with FY 2006. The Stormwater program is still relatively new to the City as it completed its fourth year and is now beginning to address drainage improvements needs within the City. The Airport realized a 335.2% ($7.5 million) revenue increase that is directly attributable to capital grants received for the runway extension. Stormwater activities realized a 429.1% ($5.3 million) revenue increase that is directly attributable to donations received for drainage improvements primarily associated with the Mall improvement project. In addition, $7.4 million in drainage improvement infrastructure assets were transferred to the Stormwater fund. These assets had been captured as part of the historical infrastructure and had been previously considered to be part of governmental activities. Expenses and Program Revenues – Business Type Activities Expenses Program Revenues 35,000,000 30,000,000 25,000,000 20,000,000 15,000,000 10,000,000 5,000,000 Water and Environmental Airport Stormwater wastewater Revenues by Source – Business-type activities Other Capital grants and 0.3% contributions 46.8% Investment earnings 2.7% Operating grants and contributions 0.0% 10 Charges for services 50.2% 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, Capital Project funds, and Debt Service funds. At the end of the current fiscal year, the City’s governmental funds reported combined ending fund balances of $94.9 million, an increase of $13.1 million in comparison with the prior year, as restated. Approximately $46.3 million of the 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 debt service ($2.1 million), (2) for capital projects ($46.2 million), (3) for inventory reserve ($257,170), and perpetual care ($88,962). Revenues for governmental functions overall totaled $89 million in the fiscal year ended June 30, 2007 which represents an increase of 15.9% or $12.2 million from the fiscal year ended June 30, 2006 (as restated). Tax revenues which include the general sales tax, the transportation tax, BBB tax, general property tax, secondary property tax and franchise taxes increased by 7.3% ($2.9 million). Sales tax growth was due to the continued economic rebound at both the state and city levels coupled with all-time high tourist levels. Intergovernmental revenues increased by 13.2% ($2.2 million), primarily due to increased state shared income tax ($1.3 million). Investment income increased by 75.2% ($1.7 million) due to increased investment returns, now averaging 4.4%, and restricted cash and investments have grown significantly, increasing the overall pool of monies invested. Contributions have increased 2195.1% ($2.9 million). The majority of this increase ($2.7 million) is from contributions related to land sales associated with the development of the Auto Mall. Miscellaneous revenues have increased 573.0% ($1.2 million). This is primarily related to the recognition of $0.9 million in unrealized investment gains. Expenditures for governmental functions, totaling $93.6 million, increased by 5.1% ($4.5 million) from the fiscal year ended June 30, 2006. The expenditure increase was driven by the increase in personnel and compensation costs previously discussed. In the fiscal year ended June 30, 2007 expenditures for governmental functions exceeded revenues by approximately $4.5 million. The higher level of expenditures is due to planned usage of fund balance for ongoing capital project expenditures of the City. 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 $29.9 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 66.6% and 69.4%, respectively, of General Fund expenditures. The fund balance in the City’s General Fund increased by $2.4 million during the fiscal year as revenue growth outpaced expenditure growth at 11.7% and 5.6%, respectively. Overall, the General Fund’s performance resulted in 11 revenues in excess of expenditures in the fiscal year ended June 30, 2007 of $5.2 million. This is an increase of approximately $2.9 million over the comparable figure from the prior year of $2.3 million (as restated). The Highway User Revenue Fund, Transportation Fund, and BBB Fund decreased by $2.9 million, $0.6 million and $1.2 million, respectively, which represents a planned usage of fund balance for capital projects. Projects Bond Construction Fund increased by $17.1 million due to the issuance of debt. The Capital 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 Water and Wastewater, Environmental Services, and Stormwater. The internal service fund, which is used to account for risk management and health insurance activities, had unrestricted net assets of $5 million. The total growth in net assets for the proprietary funds was $33.3 million. All four business type activities had positive growth in their net assets for the fiscal year ended June 30, 2007. The increases are primarily driven by the private development donations ($16.7 million), transfer of governmental activities infrastructure ($9.1 million), and increased grant activity for the airport runway extension ($7.5 million). Fiduciary funds The City maintains fiduciary funds for the assets of the Firemen’s Pension Trust Fund. As of June 30, 2007, the net assets had increased by $1,727. Budget Highlights The City’s final budget differs from the original budget for certain divisions within the General 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: $160,000 10,000 235,000 6,000 2,000 45,000 $458,000 City Manager’s office – retirement payout Sales tax – personnel costs Development services – personnel costs Public works administration – contractual obligations General obligation debt – agent fees Facility improvement – capital costs The General fund exceeded the final budgeted total revenues by 3.6% ($1.8) million primarily due to state shared revenue growth, increased investment earnings, and the recognition of unrealized investment gains. Expenditures are under budget in every category due to not spending appropriation on several large budgeted projects, both capital and non-capital. These projects include but not limited to operating capital ($1.2 million), sales tax software ($0.5 million), redevelopment ($1.2 million), incentive funds ($0.9 million) and the conference center ($1.5 million). Both transfers in and transfers out are less than budgeted as many transfers are based on the actual year end expenditure, most significant of which is the budgeted transfer from the General Fund to the Stormwater Fund of $7 million for the Rio de Flag flood control project of which only $1.1 million actually transferred at year end. 12 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, 2007 amount to $538.9 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 11% ($53.5 million). The following table reflects the capital assets at the end of the fiscal year: Capital Assets, Net of Depreciation June 30, 2007 and 2006 (in thousands of dollars) Governmental Activities 2007 Business-Type Activities 2006 2007 as restated Land $ 40,662 Buildings $ Total 2006 2007 as restated 31,937 $ 10,301 $ 10,301 2006 as restated $ 50,963 $ 42,238 25,765 25,412 49,164 50,930 74,929 76,342 Improvements 12,942 9,691 197,911 173,221 210,853 182,912 Machinery and equipment 11,689 8,778 6,119 9,498 17,808 18,276 131,309 105,799 - - 131,309 105,799 Infrastructure Construction in progress Total $ 21,256 243,623 $ 46,716 228,333 $ 31,861 295,356 $ 13,153 257,103 $ 53,117 538,979 $ 59,869 485,436 Major capital asset events during the current fiscal year included a 20.7% ($8.7 million) increase in land which is the land associated with the 4th Street Overpass projects.. Improvements increased by 15.3% ($27.9 million) which include Thorpe Park, Flagstaff Mall, and various residential subdivision improvements. Infrastructure increased by 34.1% ($25.5 million) due to the 4th Street Overpass, Sunnyside improvements, and the Flagstaff Mall. Construction in progress decreased by 11.3% ($6.7 million) primary due to the completion of the 4th Street project in governmental activities and increased in business-type activities Wildcat Wastewater Treatment Plant, Rio de Flag, and the Airport runway extension 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 63-64 of the Notes to the Financial Statements for further information regarding capital assets. Long Term Debt At the end of the current fiscal year, the City had total long-term debt outstanding of $141.9 million. Of this amount, $44.5 million is general obligation bonds backed by the full faith and credit of the City, $19.3 million is improvement district bonds, $13.2 million is revenue bonds, $24.3 million is for the Municipal Facility Corporation, and $40.5 million are outstanding leases or loans for the airport, water/wastewater, and city-wide energy conservation improvements. 13 Outstanding Debt June 30, 2007 and 2006 (in thousands of dollars) General obligation bonds $ Governmental Activities Business-type Activities 2007 2007 31,230 2006 $ 32,875 Special assessment bonds 19,339 7,725 9,665 Other debt 24,315 25,610 3,097 3,455 Revenue bonds Lease/Loans Total debt payable $ 85,706 $ $ 71,945 2006 13,310 340 $ 2007 16,294 - $ 44,540 2006 $ 49,169 - 19,339 13,221 15,435 - - 24,315 25,610 37,439 5,323 40,536 5,496 $ Total 56,245 5,770 $ 27,387 $ 141,951 340 $ 8,778 99,332 During fiscal year 2007, the City’s total bonded debt increased by approximately $42.6 million. The City issued $19.1 million in new special assessment debt to benefit the Aspen Place at Sawmill project. In addition lease/loan borrowing increased to accommodate the purchase of water rights ($7.9 million), a loan for the Wildcat Wastewater Treatment Plant ($23.1 million), and the APSES energy improvements ($2.0 million). 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, 2007 is $44.4 million in the 6% category and $106.2 million in the 20% capacity. Additional information on the debt limitations and capacities may be found in Schedule 15 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, 2007 Moody's Investors Service Standard & Poor's General Obligation Aa3 AA- Aspen Place Improvement District A1 A+ Municipal Facilities Corporation A1 A+ Additional information on the City’s long-term debt can be found in Section IV F on pages 67-75 of the Notes to the Financial Statements. Economic Factors and Next Year’s Budget and Rates The Fiscal Year 2007/2008 budget preparation was influenced by the following factors: x Commercial development including enhancements to the Flagstaff Mall, the inception of an automall, the development of the conference center at Northern Arizona University, and the addition of a Super Walmart will permanently increase sales tax revenues. x Other revenue resources are anticipated to exhibit limited growth x Economic growth as related to recruitment, retention, and the expansion of air service will be critical to future of our community x x Providing affordable housing, especially for the workforce, is essential Implementation of a Sustainability Program is underway to evaluate strategies for energy efficiency for commercial and transportation modalities and to assess waste reduction and recycling efforts 14 x The cost of providing retirement and health benefits continue to escalate beyond available budgeted resources. The City continues to look for ways to manage the entire employee compensation package. x This goal is balanced with the need to minimize take home impacts to the employee who also experiences increased deductions due to benefit changes. x x The addition of positions that meet the current and future needs as defined by Council The City responded to the economic downturn during the first half of this decade by reducing and/or eliminating amounts spent on facility maintenance. The City is restoring those funds and working toward long term plans to assure long facility life x x Maintenance of level expenditures while minimizing the impact to health and/or safety services Assessment and funding of long range capital needs and their associated operational impacts 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. contact: If you have questions about this report or need additional financial information, 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 15 16 CITY OF FLAGSTAFF, ARIZONA Statement of Net Assets June 30, 2007 Primary Government Governmental Activities Business-type Activities Total ASSETS Cash and cash equivalents $ 9,165,508 Cash with fiscal agents $ 18,454,497 $ 27,620,005 6,416,809 3,615,606 Investments Receivables, net 47,987,036 39,000 48,026,036 12,772,249 25,315,542 38,087,791 Internal balance 385,990 (385,990) Inventory 308,497 182,980 Deferred bond issuance costs, net Restricted cash and investments 10,032,415 491,477 598,563 372,800 971,363 47,876,369 11,430,631 59,307,000 - 8,170,891 8,170,891 61,918,254 181,705,114 42,161,542 253,194,534 104,079,796 434,899,648 369,134,389 362,552,033 731,686,422 Restricted receivables Capital assets: Non-depreciable Depreciable, net Total assets LIABILITIES Accounts payable 12,303,551 4,897,476 17,201,027 Accrued payroll 1,518,716 320,938 1,839,654 Interest payable 1,538,039 805,049 2,343,088 649,999 272,515 922,514 Deposits payable 1,958,326 488,265 2,446,591 Matured bonds and lease payable 4,880,000 4,026,356 8,906,356 Unearned revenue Unamortized bond premium 1,108,863 88,360 1,197,223 Liabilities payable from restricted assets 1,506,421 7,182,242 8,688,663 Compensated absences Special assessment bonds 1,304,794 295,769 1,600,563 82,000 - 82,000 Bonds, notes and leases payable 4,964,398 4,831,281 9,795,679 Noncurrent liabilities: Due within one year: Due in more than one year: Compensated absences 1,649,034 269,677 1,918,711 - 1,586,765 1,586,765 104,730 - 104,730 Landfill closure and postclosure care costs Arbitrage rebate Special assessment bonds 19,257,000 - 19,257,000 Bonds, notes and leases payable 61,402,932 51,413,534 112,816,466 114,228,803 76,478,227 190,707,030 204,594,974 264,381,730 468,976,704 11,621,661 2,424,615 14,046,276 2,078,745 - 2,078,745 Total liabilities NET ASSETS Invested in capital assets, net of related debt Restricted for: Capital projects Debt service Perpetual care: Expendable Nonexpendable Unrestricted Total net assets $ 6,567 - 6,567 88,962 36,514,677 19,267,461 88,962 55,782,138 254,905,586 $ 286,073,806 $ 540,979,392 The notes to the financial statements are an integral part of this statement 17 CITY OF FLAGSTAFF, ARIZONA Statement of Activities Year Ended June 30, 2007 Program Revenues Charges for Services Expenses Operating Grants and Contributions Capital Grants and Contributions $ $ Primary government Governmental activities: General government $ 9,035,268 $ 4,171,853 108,223 9,019,930 Public safety 23,994,991 704,800 781,976 Public Works 1,882,489 1,455,461 - - Economic and physical development 9,508,406 562,135 799,433 565,299 Culture and recreation 10,089,469 742,088 372,697 677,006 Highways and streets 14,557,140 - - 8,278,216 Interest on long-term debt 815,820 3,090,140 - - - 72,157,903 7,636,337 2,062,329 19,356,271 Water and wastewater 19,945,366 17,337,916 - 13,238,444 Environmental 10,073,853 9,839,486 19,500 54,653 3,162,391 1,122,274 - 8,632,269 Total governmental activities Business-type activities: Airport Stormwater Total business-type activities Total primary government 1,019,248 1,042,701 - 5,443,692 34,200,858 29,342,377 19,500 27,369,058 $ 106,358,761 $ 36,978,714 $ 2,081,829 General revenues: Property taxes, levied for general purposes Property tax, levied for debt service Property tax, levied for special district Sales taxes State shared sales taxes - unrestricted 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, as restated (see note II. C.) Net assets - ending The notes to the financial statements are an integral part of this statement 18 $ 46,725,329 Net (Expenses) Revenues and Changes in Net Assets Primary Government Governmental Activities $ Business-type Activities 4,264,738 $ 4,264,738 - (21,692,395) (427,028) - (427,028) (7,581,539) - (7,581,539) (8,297,678) - (8,297,678) (6,278,924) - (6,278,924) (3,090,140) - (3,090,140) (43,102,966) - (43,102,966) 10,630,994 - 10,630,994 (160,214) - (160,214) 6,592,152 6,592,152 - 5,467,145 5,467,145 - 22,530,077 22,530,077 (43,102,966) $ 22,530,077 $ (20,572,889) 4,463,732 - 4,463,732 5,202,701 - 5,202,701 2,502,814 - 2,502,814 32,334,785 - 32,334,785 16,276,354 - 16,276,354 4,108,861 1,546,893 5,655,754 1,377,552 110,835 1,488,387 242,167 31,354 273,521 19,460 - 19,460 (9,123,196) 57,405,230 $ $ (21,692,395) - $ - Total 9,123,196 - 10,812,278 68,217,508 14,302,264 33,342,355 47,644,619 240,603,322 252,731,451 493,334,773 254,905,586 $ 286,073,806 $ 540,979,392 19 CITY OF FLAGSTAFF, ARIZONA Balance Sheet Governmental Funds June 30, 2007 Highway User Revenue Fund General Fund Transportation Fund ASSETS Cash and investments $ Cash with fiscal agents Accounts receivable, net Interest receivable 30,087,140 $ 8,858,470 $ 521,240 377,099 2,174,793 1,482,300 3,658,823 3,461,555 1,276,053 259,332 78,959 67,319 Intergovernmental receivables 1,512,669 - 689,160 Interfund receivable 1,102,000 - - 116,916 - - Bond proceeds receivable Special assessments receivable Inventory Restricted cash and cash equivalents Restricted investments Total assets - - - 256,762 - - 1,003,474 - 609 - - - $ 38,374,215 $ 14,573,777 $ 4,036,681 $ 2,584,856 $ 5,428,840 $ 1,038,901 LIABILITIES AND FUND BALANCE Liabilities: Accounts payable Accrued payroll and compensated absences Current bonds payable Interest payable 1,372,886 60,574 - 295,000 1,940,000 1,000,000 82,099 234,793 482,300 Interfund payable - - - Deferred revenue 143,837 - - Unearned revenue Guaranty and other deposits Liabilities payable from restricted assets Total liabilities 649,999 - - 1,958,326 - - 66,741 - - 7,153,744 7,664,207 2,521,201 - - 609 1,003,474 - - 256,762 - - - - - Fund balances: Reserved for: Debt service Capital projects Inventory Perpetual care Unreserved, undesignated, reported in: General fund Special revenue funds Permanent fund Total fund balances Total liabilities and fund balances $ 29,960,235 - - - 6,909,570 1,514,871 - - - 31,220,471 6,909,570 1,515,480 38,374,215 $ The notes to the financial statements are an integral part of this statement 20 14,573,777 $ 4,036,681 Capital Projects Bond Construction BBB Fund $ 4,714,536 $ 737,160 Other Governmental Funds $ 6,927,508 $ 51,846,054 - - 2,382,617 6,416,809 577,330 - 97,397 9,071,158 35,991 32,709 66,959 541,269 21,084 - 549,910 2,772,823 - - - 1,102,000 - - - 116,916 - - 1,007 1,007 51,735 - - 308,497 - 21,043,910 88,962 22,136,955 - 25,739,414 - 25,739,414 $ 120,052,902 $ 5,400,676 $ 47,553,193 $ 10,114,360 $ 1,029,548 $ 1,571,049 $ 170,410 $ Total Governmental Funds $ 11,823,604 27,632 - 78,249 1,539,341 - - 1,645,000 4,880,000 - - 738,847 1,538,039 - 800,000 302,000 1,102,000 - - 1,007 144,844 - - - 649,999 - - - 1,958,326 - - 1,439,680 1,506,421 1,057,180 2,371,049 4,375,193 25,142,574 - - 2,078,745 2,079,354 - 45,182,144 - 46,185,618 - - - 256,762 - - 88,962 88,962 - - - 29,960,235 4,343,496 - 3,564,893 16,332,830 - - 6,567 6,567 4,343,496 45,182,144 5,739,167 94,910,328 10,114,360 $ 120,052,902 5,400,676 $ 47,553,193 $ 21 CITY OF FLAGSTAFF RECONCILIATION OF THE BALANCE SHEET TO THE STATEMENT OF NET ASSETS GOVERNMENTAL ACTIVITIES JUNE 30, 2007 Fund balances - total governmental funds balance sheet $ 94,910,328 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 Less: accumulated depreciation Transfer of capital assets to business-type activities 372,142,380 (121,127,435) (7,391,577) 243,623,368 Other assets used in governmental activities are not financial resources and therefore are not reported in the governmental funds. Deferred bond issue costs Fines and forfeitures 598,563 142,197 740,760 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 Bond premium Arbitrage rebate Compensated absences 85,706,330 1,108,863 104,730 2,933,199 (89,853,122) Certain revenues are not available to pay for current period expenditures and, therefore, are deferred in the governmental funds. Special assessments Property tax 1,007 143,837 144,844 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. Net assets of governmental activities - statement of net assets The notes to the financial statements are an integral part of this statement 22 5,339,408 $ 254,905,586 23 CITY OF FLAGSTAFF, ARIZONA Statement of Revenues, Expenditures, and Changes in Fund Balances Governmental Funds Year Ended June 30, 2007 Highway User Revenue Fund General Fund Transportation Fund REVENUES: Taxes $ Intergovernmental 22,362,043 $ - $ 9,433,716 16,276,354 - - Grants and entitlements 1,739,949 8,278,216 - Charges for services 2,068,970 - - Special assessments - - - Licenses and permits 2,438,599 - - Fines and forfeitures 1,290,667 - - Rents 1,455,461 - - Investment earnings 1,263,235 352,712 316,110 Contributions 2,500 - - Miscellaneous 1,269,942 49,836 - 50,167,720 8,680,764 9,749,826 Total revenues EXPENDITURES: Current: General governmental Public safety 8,194,214 - - 22,994,522 - - Public works 1,615,049 - - Economic and physical development 5,091,181 - - Culture and recreation 4,189,166 - - - 5,330,199 2,528,805 Principal retirement 652,222 1,940,000 1,000,000 Interest and other charges 283,660 473,053 970,147 1,948,083 8,531,258 2,386,447 44,968,097 16,274,510 6,885,399 Highways and streets Debt service: Capital outlay Total expenditures Excess (deficiency) of revenues over expenditures 5,199,623 (7,593,746) 2,864,427 OTHER FINANCING SOURCES (USES): Issuance of debt - Bond premium Transfers out - - - 173,919 - 3,873,247 4,634,466 (6,719,751) Total other financing sources (uses) Net change in fund balances Fund balances, beginning of year, as restated (see note II.C.) Fund balances, end of year (2,786,197) 4,722,984 2,413,426 (2,870,762) 31,220,471 The notes to the financial statements are an integral part of this statement 24 - (85,401) 28,807,045 $ - 60,307 Sale of capital assets Transfers in - (3,466,413) (3,466,413) (601,986) 9,780,332 $ 6,909,570 2,117,466 $ 1,515,480 Capital Projects Bond Construction BBB Fund $ 4,992,480 $ $ 5,187,895 Total Governmental Funds $ 41,976,134 - - 2,502,814 18,779,168 668,160 236,728 1,262,353 12,185,406 125,319 - 411,591 2,605,880 - - 2,927 2,927 - - - 2,438,599 - - - 1,290,667 25,225 - - 1,480,686 182,431 1,461,512 344,473 3,920,473 - 2,721,674 257,808 2,981,982 27,024 - 30,750 1,377,552 6,020,639 4,419,914 10,000,611 89,039,474 - - - 8,194,214 - - - 22,994,522 - - - 1,615,049 2,756,130 - 1,497,365 9,344,676 459,557 - 3,999,905 8,648,628 - - - 7,859,004 - - 1,721,000 5,313,222 - 299 1,483,720 3,210,879 5,194,445 7,758,329 584,641 26,403,203 8,410,132 7,758,628 9,286,631 93,583,397 (2,389,493) (3,338,714) - 19,075,000 713,980 (4,543,923) - 19,075,000 - 46,707 - 46,707 46 - 18,057 252,329 2,987,000 1,338,000 4,924,134 17,756,847 - (7,393,109) (19,488,466) 1,163,254 20,459,707 (2,450,918) 17,642,417 (1,226,239) 17,120,993 (1,736,938) 13,098,494 5,569,735 28,061,151 7,476,105 81,811,834 (1,823,792) $ - Other Governmental Funds 4,343,496 $ 45,182,144 $ 5,739,167 25 $ 94,910,328 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, 2007 Net change in fund balances - total governmental funds $ 13,098,494 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 26,403,203 Less current year depreciation (9,974,778) 16,428,425 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: Capital-related debt issued (19,075,000) Premium on debt issued (46,707) Donated capital 6,270,672 Principal payments on debt 5,313,222 Compensated absences (331,583) Arbitrage rebate (104,730) Bond premium 120,739 (7,853,387) 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. Issuance costs (69,998) (69,998) 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). Sale of capital assets Transfer of capital assets to business-type activities (10,162) (7,391,577) (7,401,739) (continued) The notes to the financial statements are an integral part of this statement 26 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, 2007 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 (2,927) Property tax 25,084 Fines and forfeitures (179,495) (157,338) 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 69,419 Investment income 188,388 Change in net assets of governmental activities - statement of activities The notes to the financial statements are an integral part of this statement 27 257,807 $ 14,302,264 (concluded) CITY OF FLAGSTAFF, ARIZONA General Fund Statement of Revenues, Expenditures, and Changes in Fund Balances - Budget and Actual Year Ended June 30, 2007 Budget Original Variance with Final Budget Positive (Negative) Actual Amounts Budgetary Basis Final REVENUES: Taxes $ Intergovernmental 21,948,476 $ 15,922,828 21,948,476 $ 15,922,828 22,362,043 $ 16,276,354 413,567 353,526 Grants and entitlements 2,593,701 2,593,701 1,739,949 Charges for services 2,041,860 2,041,860 2,068,970 Licenses and permits 2,587,783 2,587,783 2,438,599 (149,184) Fines and forfeitures 1,165,533 1,165,533 1,290,667 125,134 Rents 1,358,275 1,358,275 1,455,461 97,186 511,798 511,798 1,263,235 751,437 Investment earnings (853,752) 27,110 Contributions - - 2,500 2,500 Miscellaneous 268,059 268,059 1,269,942 1,001,883 48,398,313 48,398,313 50,167,720 1,769,407 General administration 6,141,963 6,301,963 5,337,674 964,289 Management Services 4,098,404 4,108,404 3,739,717 368,687 Community development 4,912,169 5,147,169 5,031,107 116,062 Fire 10,281,902 10,281,902 9,047,537 1,234,365 Police 15,127,011 15,127,011 14,530,737 596,274 8,434,929 8,440,929 7,107,345 1,333,584 Total revenues EXPENDITURES: Current: Public works Utilities Non-departmental Contingency Total expenditures Excess (deficiency) of revenues over expenditures 14,932 14,932 14,932 - 4,475,833 4,522,833 159,048 4,363,785 500,000 42,000 - 42,000 53,987,143 53,987,143 44,968,097 9,019,046 5,199,623 10,788,453 (5,588,830) (5,588,830) 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 $ 5,797 5,797 60,307 5,293,765 5,293,765 3,873,247 54,510 (1,420,518) (12,964,340) (12,964,340) (6,719,751) 6,244,589 (7,664,778) (7,664,778) (2,786,197) 4,878,581 (13,253,608) (13,253,608) 24,344,560 24,344,560 11,090,952 $ 11,090,952 Adjustment from budetary basis to GAAP basis net change in fund balances 2,413,426 15,667,034 24,344,560 - $ 26,757,986 $ 2,413,426 The City budgets certain revenues on the cash basis, rather than on the modified accrual basis. (833,431) 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 1,579,995 $ 15,667,034 CITY OF FLAGSTAFF, ARIZONA Highway User Revenue Fund Statement of Revenues, Expenditures, and Changes in Fund Balances - Budget and Actual Year Ended June 30, 2007 Budget Original Final Actual Amounts Budgetary Basis 8,096,836 $ Variance with Final Budget Positive (Negative) REVENUES: Grants and entitlements $ Investment earnings 8,096,836 $ 194,000 Miscellaneous 194,000 8,278,216 $ 352,712 181,380 158,712 3,820,000 3,820,000 49,836 (3,770,164) 12,110,836 12,110,836 8,680,764 (3,430,072) General administration 230,386 230,386 230,386 - Management Services 205,898 205,898 205,898 - 1,884,825 1,884,825 1,032,099 852,726 22,906,615 22,906,615 14,552,148 8,354,467 3,503 3,503 3,503 - 250,476 250,476 250,476 - Total revenues EXPENDITURES: Current: Community development Public works Utilities Non-departmental Contingency Total expenditures Excess (deficiency) of revenues over expenditures 100,000 98,000 - 98,000 25,581,703 25,579,703 16,274,510 9,305,193 (13,470,867) (13,468,867) (7,593,746) 5,875,121 OTHER FINANCING SOURCES (USES): Sale of capital assets Transfers in Transfers out - 173,919 9,200,020 4,634,466 (85,401) Total other financing sources (uses) Net change in fund balances Budgetary fund balances, beginning of year Budgetary fund balances, end of year 9,200,020 $ (85,401) 173,919 (4,565,554) (85,401) - 9,114,619 9,114,619 4,722,984 (4,391,635) (4,356,248) (4,354,248) (2,870,762) 1,483,486 7,751,055 7,751,055 7,751,055 3,394,807 $ Adjustment from budetary basis to GAAP basis net change in fund balances 3,396,807 $ $ 4,880,293 (2,870,762) The City budgets certain revenues on the cash basis, rather than on the modified accrual basis. (36,871) Adjusted net change in fund balance - GAAP basis $ The notes to the financial statements are an integral part of this statement 29 (2,907,633) $ 1,483,486 CITY OF FLAGSTAFF, ARIZONA Transportation Fund Statement of Revenues, Expenditures, and Changes in Fund Balances - Budget and Actual Year Ended June 30, 2007 Budget Original Final Actual Amounts Budgetary Basis 8,746,589 $ Variance with Final Budget Positive (Negative) REVENUES: Taxes $ Investment earnings Total revenues 8,746,589 $ 9,433,716 $ 687,127 211,000 211,000 316,110 105,110 8,957,589 8,957,589 9,749,826 792,237 EXPENDITURES: Current: Community development 1,971,940 1,971,940 4,357,068 Non-departmental 2,762,433 2,762,433 2,528,331 4,734,373 4,734,373 6,885,399 (2,151,026) 4,223,216 4,223,216 2,864,427 (1,358,789) Total expenditures Excess (deficiency) of revenues over expenditures (2,385,128) 234,102 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 $ (8,034,297) (8,034,297) (3,466,413) 4,567,884 (8,034,297) (8,034,297) (3,466,413) 4,567,884 (3,811,081) (3,811,081) (601,986) 3,209,095 8,459,852 8,459,852 4,648,771 $ Adjustment from budetary basis to GAAP basis net change in fund balances 4,648,771 8,459,852 $ $ 7,857,866 (601,986) The City budgets certain revenues on the cash basis, rather than on the modified accrual basis. (101,646) Adjusted net change in fund balance - GAAP basis $ The notes to the financial statements are an integral part of this statement 30 (703,632) $ 3,209,095 CITY OF FLAGSTAFF, ARIZONA BBB Fund Statement of Revenues, Expenditures, and Changes in Fund Balances - Budget and Actual Year Ended June 30, 2007 Budget Original Variance with Final Budget Positive (Negative) Actual Amounts Budgetary Basis Final REVENUES: Taxes $ Grants and entitlements Charges for services Rents Investment earnings Miscellaneous 4,657,883 $ 4,657,883 $ 4,992,480 $ 334,597 4,867,744 4,867,744 668,160 (4,199,584) 42,000 42,000 125,319 - - 25,225 25,225 120,114 120,114 182,431 62,317 83,319 25,000 25,000 27,024 2,024 9,712,741 9,712,741 6,020,639 (3,692,102) General administration 2,394,315 2,394,315 1,962,243 432,072 Community development 9,592,128 9,602,128 1,491,119 8,111,009 Public works 4,809,145 4,809,145 4,410,614 398,531 621,400 621,400 546,156 75,244 95,000 85,000 - 85,000 17,511,988 17,511,988 8,410,132 9,101,856 (2,389,493) 5,409,754 Total revenues EXPENDITURES: Current: Non-departmental Contingency Total expenditures Excess (deficiency) of revenues over expenditures (7,799,247) (7,799,247) 1,200,000 1,200,000 - - - 46 46 3,509,936 3,509,936 2,987,000 (522,936) (1,870,277) (1,870,277) (1,823,792) 2,839,659 2,839,659 1,163,254 (1,676,405) (4,959,588) (4,959,588) (1,226,239) 3,733,349 5,440,471 5,440,471 5,440,471 OTHER FINANCING SOURCES (USES): Bonds issued 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 $ 480,883 $ 480,883 Adjustment from budetary basis to GAAP basis net change in fund balances $ 4,214,232 $ (1,226,239) The City budgets certain revenues on the cash basis, rather than on the modified accrual basis. (19,018) Adjusted net change in fund balance - GAAP basis $ The notes to the financial statements are an integral part of this statement 31 (1,245,257) (1,200,000) 46,485 $ 3,733,349 CITY OF FLAGSTAFF, ARIZONA Statement of Net Assets Proprietary Funds June 30, 2007 Business-type Activities - Enterprise Funds Water and Wastewater Fund Environmental Services Fund ASSETS Current assets: Cash and investments $ Cash with fiscal agents Receivables, net Interfund receivable Inventory 11,704,418 $ 6,074,718 3,345,433 - 17,658,516 987,504 6,800,000 - 182,980 - 39,691,347 7,062,222 Restricted cash and cash equivalents 3,488,581 7,117,987 Restricted receivables 8,100,000 64,254 Total current assets Noncurrent assets: Deferred bond issuance costs, net 372,800 - Capital assets, non-depreciable 20,818,467 2,395,943 Capital assets, depreciable, net 203,227,038 5,671,944 236,006,886 15,250,128 275,698,233 22,312,350 Total non-current assets Total assets LIABILITIES Current liabilities: Accounts payable 3,827,875 140,619 Accrued payroll and compensated absences 398,216 172,310 Unearned revenue 127,371 - 83,502 - Unamortized bond premium Interfund payable - - Lease and notes payable 1,229,752 - Liabilities payable from restricted assets 3,331,480 7,182,242 422,945 29,547 9,421,141 7,524,718 Deposits payable Total current liabilities Noncurrent liabilities: Compensated absences Landfill closure and postclosure care costs Capital lease payable Bonds and notes payable Total noncurrent liabilities Total liabilities NET ASSETS Invested in capital assets, net of related debt Restricted: Capital projects Unrestricted Total net assets $ The notes to the financial statements are an integral part of this statement 32 172,671 82,217 - 1,586,765 1,749,875 - 50,845,400 - 52,767,946 1,668,982 62,189,087 9,193,700 196,725,557 8,067,887 1,593,915 - 15,189,674 5,050,763 213,509,146 $ 13,118,650 Business-type Activities - Enterprise Funds Airport Fund $ Stormwater Fund 156,548 $ Total 557,813 $ 18,493,497 Internal Service Fund $ 5,306,490 270,173 - 3,615,606 - 6,568,064 101,458 25,315,542 126,879 - - 6,800,000 94,897 - - 182,980 - 6,994,785 659,271 54,407,625 5,528,266 824,063 - 11,430,631 - 6,637 - 8,170,891 - - - 372,800 - 10,203,568 8,743,564 42,161,542 - 29,742,811 14,552,741 253,194,534 - 40,777,079 23,296,305 315,330,398 - 47,771,864 23,955,576 369,738,023 5,528,266 832,613 96,369 4,897,476 479,947 27,355 18,826 616,707 4 145,144 - 272,515 - 4,858 - 88,360 - 6,894,897 - 6,894,897 - 122,697 - 1,352,449 - 270,173 - 10,783,895 - 35,773 - 488,265 - 8,333,510 115,195 25,394,564 479,951 8,074 6,715 269,677 - - - 1,586,765 - 2,477,230 - 4,227,105 - 1,049,613 - 51,895,013 - 3,534,917 6,715 57,978,560 - 11,868,427 121,910 83,373,124 479,951 36,291,981 23,296,305 264,381,730 - 830,700 - 2,424,615 - 537,361 19,558,554 5,048,315 (1,219,244) $ Governmental Activities 35,903,437 $ 23,833,666 $ 286,364,899 $ 286,073,806 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 (291,093) Net assets of business-type activities 33 $ 5,048,315 CITY OF FLAGSTAFF, ARIZONA Statement of Revenues, Expenses, and Changes in Fund Net Assets Proprietary Funds Year Ended June 30, 2007 Business-type Activities - Enterprise Funds Water and Wastewater Fund Environmental Services Fund OPERATING REVENUES: Charges for services $ Miscellaneous 17,330,485 $ 9,816,073 7,431 23,413 17,337,916 9,839,486 Personal services 5,047,212 3,480,015 Contractual services, materials and supplies 7,845,583 5,858,791 - - 5,839,536 745,169 18,732,331 10,083,975 Total operating revenues OPERATING EXPENSES: Insurance claims and expenses Depreciation and amortization Total operating expenses Operating income (loss) (1,394,415) (244,489) NON-OPERATING REVENUES (EXPENSES): Interest and investment income 897,255 601,814 Grants and entitlements 59,123 74,153 Gain on sale of capital asset 30,801 553 Passenger facility charges - Interest expense - (1,231,845) - (244,666) 676,520 Income (loss) before capital contributions and transfers (1,639,081) 432,031 Capital contributions 13,191,469 Total non-operating revenues (expenses) Transfers in - 2,413,053 32,500 Transfers out (2,570,847) (19,488) Change in net assets 11,394,594 445,043 202,114,552 12,673,607 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 34 213,509,146 $ 13,118,650 Business-type Activities - Enterprise Funds Airport Fund $ Stormwater Fund 1,114,721 $ Total 1,042,701 $ Internal Service Fund 29,303,980 $ 6,931,160 7,553 - 38,397 124,500 1,122,274 1,042,701 29,342,377 7,055,660 606,760 507,317 9,641,304 - 543,575 256,114 14,504,063 - - - - 6,953,318 1,799,861 256,840 8,641,406 - 2,950,196 1,020,271 32,786,773 6,953,318 (1,827,922) 22,430 (3,444,396) 102,342 36,026 11,798 1,546,893 188,388 8,632,269 - 8,765,545 - - - 31,354 - 110,835 - (215,163) - 110,835 - (1,447,008) - 8,563,967 11,798 9,007,619 188,388 6,736,045 34,228 5,563,223 290,730 - 12,823,121 26,014,590 - 898,429 1,146,539 4,490,521 - (2,758,902) - (33,567) $ Governmental Activities (135,000) 7,600,907 13,868,888 28,302,530 9,964,778 35,903,437 $ 33,309,432 290,730 4,757,585 23,833,666 $ 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 32,923 Change in net assets of business-type activities $ 35 33,342,355 5,048,315 City of Flagstaff, Arizona Statement of Cash Flows Proprietary Funds Year Ended June 30, 2007 Business-type Activities - Enterprise Funds Water and Wastewater Fund Environmental Services Fund Cash flows from operating activities: Receipts from customers $ Interfund services provided 16,661,244 $ 252,023 Other receipts 49,422 7,431 Payments to suppliers 9,719,588 23,413 (4,292,986) (5,170,154) Interfund services used (24,746) (2,145) Payments to employees (4,911,353) (3,425,995) 7,691,613 1,194,129 Net cash provided (used) by operating activities Cash flows from noncapital financing activities: Transfer from other funds 2,413,053 32,500 Transfer to other funds (2,570,847) (19,488) Interfund loans paid (6,298,000) - Interfund loans received Net cash provided (used) by noncapital financing activities - - (6,455,794) 13,012 38,150 12,657 Cash flows from capital and related financing activities: Receipts from grantors Capital Contributions Acquisition and construction of capital assets 1,951,179 (9,871,185) (702,785) Principal payments on capital debt (2,587,179) - Interest paid on capital debt (1,194,699) - 9,900,000 - 30,801 8,928 Proceeds from capital debt Proceeds from sales of capital assets Net cash provided (used) by capital and related financing activities - (1,732,933) (681,200) Cash flows from investing activities: Interest received on investments 848,304 Sale of investments Net cash provided (used) by investing activities Net increase (decrease) in cash and cash equivalents Cash and cash equivalents at beginning of year, as restated Cash and cash equivalents at end of year 573,229 11,000 - 859,304 573,229 362,190 1,099,170 18,137,242 12,093,535 $ 18,499,432 $ 13,192,705 $ 11,704,418 $ 6,074,718 Classified as: Cash and investments Restricted cash with fiscal agents Restricted cash and cash equivalents Less: non-cash equivalents 3,345,433 - 3,488,581 7,117,987 (39,000) Totals $ The notes to the financial statements are an integral part of this statement 36 18,499,432 $ 13,192,705 Governmental Business-type Activities - Enterprise Funds Airport Fund $ Stormwater Fund 1,068,879 $ Activities Total 964,693 $ Internal Service Fund 28,414,404 $ 6,966,879 - 31,424 332,869 - 118,388 - 149,232 124,500 (641,465) (194,036) (10,298,641) (19,760) (127) (46,778) - (608,147) (503,126) (9,448,621) 4 298,828 9,102,465 (82,105) 898,429 1,146,539 (33,567) (7,028,660) 62,723 4,490,521 - (135,000) (2,758,902) - - - (6,298,000) - 6,298,000 - 6,298,000 - 7,162,862 1,011,539 1,731,619 - 2,955,512 - 3,006,319 - - 12,177 1,963,356 - (9,315,489) (2,194,725) (22,084,184) - (425,104) - (3,012,283) - (223,187) - (1,417,886) - - - 9,900,000 - - - 39,729 - (7,008,268) (2,182,548) (11,604,949) - 36,155 13,759 1,471,447 - - 11,000 - 36,155 13,759 1,482,447 132,671 108,644 (858,422) 1,142,140 1,416,235 132,671 711,582 195,394 32,789,152 5,111,096 $ 1,250,784 $ 557,813 $ 33,500,734 $ 5,306,490 $ 156,548 $ 557,813 $ 18,493,497 $ 5,306,490 $ 270,173 - 3,615,606 824,063 - 11,430,631 - - 1,250,784 $ 557,813 - (39,000) $ 33,500,734 (continued) 37 $ 5,306,490 City of Flagstaff, Arizona Statement of Cash Flows Proprietary Funds Year Ended June 30, 2007 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) $ (1,394,415) $ (244,489) Adjustments to reconcile operating income (loss) to net cash provided (used) by operating activities: Depreciation and amortization 5,839,536 745,169 Landfill closure and postclosure costs - 598,344 Other receipts - - (Increase) decrease in assets: Accounts receivable (407,477) (59,270) Allowance for doubtful accounts - Intergovernmental receivable - - 15,105 - Inventories (61,496) Increase (decrease) in liabilities: Accounts payable Accrued payroll and compensated absences Deposits payable 3,512,746 88,148 135,859 54,020 (15,437) Intergovernmental payables 12,207 - Deferred revenue Total Adjustments Net cash provided (used) by operating activities 61,496 5,696 - 9,086,028 1,438,618 $ 7,691,613 $ $ 11,240,290 $ 1,194,129 Noncash investing, capital and financing activities: Capital assets acquired through contributions from developers Debt financed 23,100,000 Total noncash investing, capital and financing activities $ The notes to the financial statements are an integral part of this statement 38 34,340,290 - $ - Governmental Activities Airport Fund $ Stormwater Fund (1,827,922) $ (3,444,396) $ 102,342 256,840 8,641,406 - 598,344 - 110,835 - 110,835 - (46,584) - (541,088) 35,719 (61,496) - - - - - - - - - 15,105 - (117,650) 61,951 3,545,195 (1,387) 4,191 192,683 (75,342) 4 558 - (2,672) - - 61,496 - - (12,947) - 1,745,817 (82,105) - 276,398 - 298,828 $ $ 12,810,944 $ $ 12,810,944 - 12,546,861 $ $ $ - (18,643) $ 22,430 Internal Service Fund 1,799,861 (27,757) $ Total (39,619) 9,102,465 $ 24,051,234 $ 23,100,000 $ 47,151,234 (concluded) 39 62,723 - $ - CITY OF FLAGSTAFF, ARIZONA Statement of Fiduciary Net Assets Fiduciary Funds June 30, 2007 Firemen's Pension Fund ASSETS Cash and cash equivalents $ Interest receivable 217,207 1,757 Total assets 218,964 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 40 218,964 CITY OF FLAGSTAFF, ARIZONA Statement of Changes in Fiduciary Net Assets Fiduciary Funds Year Ended June 30, 2007 Firemen's Pension Fund ADDITIONS: Investment earnings $ Total additions 8,927 8,927 DEDUCTIONS: Retirement payments 7,200 Total deductions 7,200 Change in net assets 1,727 Net assets - beginning of year 217,237 Net assets - end of year $ The notes to the financial statements are an integral part of this statement 41 218,964 42 CITY OF FLAGSTAFF, ARIZONA Notes to the Financial Statement June 30, 2007 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 accounting principles generally accepted in the United States of America (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. 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 2001 the MFC issued $4.7 million in bonds for construction on additional facilities owned by the City and currently leased to the United States Geological Survey (USGS). These bonds will be repaid through USGS lease proceeds. MFC issued $25 million in bonds for construction of the Fourth Street Overpass. In fiscal year 2004 the 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. 43 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 a significant extent on fees and charges for support. 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. 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. 44 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 reporting model sets forth minimum criteria for determination of major funds (a percentage of assets, liabilities, revenues, or 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 by fiscal year 2007. For the year ending June 30, 2007, the City has retroactively reported all network infrastructure acquired by its governmental fund types. 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 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 net costs/income of the internal service fund is also partially allocated to the business-type activities column on the government-wide financial statements. A reconciliation of the total enterprise funds on the fund financial statements to the businesstype activities column on the government-wide financial statements is provided on the face of the fund statements. 45 On the proprietary fund financial statements, operating revenues are those that flow directly from the operations of that activity, i.e. charges to customers or users who purchase or use the goods or services of that activity. Operating expenses are those that are incurred to provide those goods or services. Non-operating revenues and expenses are items like investment income and interest expense that are not a result of the direct operations of the activity. 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. 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. None of the debt service funds are reported as major in the current year. Capital Projects Fund is used to account for major capital acquisition and construction separate from ongoing operating activities. The city reports it one capital project fund as major. x The Capital Project Bond Construction 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 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. 46 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. x Water and Wastewater Utility accounts for the City water pumping, treatment and distribution systems and the City wastewater collection, and treatment systems x Environmental Services Fund that accounts for the operations of City refuse and recycling collection services as well as the management of the City landfill. x x Airport Fund that accounts for the construction, operations and maintenance of the City airport. Stormwater Utility accounts for the activities of the City stormwater system Internal Service Fund accounts for the operations that provide services to other departments of the government on a cost-reimbursement basis, thus the internal service fund is presented with the proprietary fund financial statements. The internal service fund represents the self-insurance services provided to other departments and accounts for the risk management function of the City as well as maintaining the costs of the City’s liability insurance and any claims paid under the City’s self-insurance program. These costs are allocated to all operational activities of the City. 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 on 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. 47 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. 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. 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. 48 Budgets and Budgetary Accounting The City uses the following procedures in establishing the budgetary data reflected in the accompanying financial statements. • The maximum legal expenditure permitted for the year is the total budget as adopted. The expenditure appropriations in the adopted budget are maintained in the City’s financial system by department within individual funds. Department appropriations may be amended during the year, within administrative guidelines and adopted Council policies. • The initial budget for the fiscal year may be amended during the year in a legally permissible manner. • The City Manager is generally authorized to transfer budgeted amounts within any specific department’s expenditure appropriation. Any budget revisions requiring a transfer between departments must be approved by the City Council. Additionally, budget revisions involving personnel or capital asset expenditures/expenses must be approved by the City Council. • All unencumbered expenditure appropriations expire at the end of the fiscal year. • Encumbered amounts are re-budgeted in the following year as deemed appropriate and necessary after review by the Budget Committee. Budgetary carry forwards are approved by the City Council as part of the budget adoption process. • All funds of the City have legally adopted budgets with the exception of the Internal Service Fund and Perpetual Care Fund. Formal integration of these budgets into the City’s financial systems is employed as a management control device during the year for all funds. The City prepares its annual budget on a modified cash basis, which differs from GAAP, GASB Statement 34 requires that budgetary comparison statements for the General Fund and major special revenue funds be presented in the annual financial statements. These statements must display original budget, amended budget and actual results on a budgetary basis at the legal level of budgetary control. The City’s legal level of budgetary control is at the department level; however the City’s financial statements are presented at the functional level of detail. Budgetary comparisons provided in the basic financial section are presented for the General Fund and major special revenue funds at the department level; these are presented as statements. The supplemental section provides budgetary comparisons for non-major special revenue funds, capital projects funds and debt service funds at the same functional level of detail used in financial statements presentation; these are presented as schedules. 49 D. Assets, Liabilities, and Net Assets 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 authorize the government to invest in the State’s Local Government Investment Pool (LGIP), 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. The LGIP is a part of the State of Arizona 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. Investments in the State of Arizona LGIP are stated at fair value, which also approximates the value of the investment upon withdrawal. 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 2006-2007, primary and secondary property tax collections amounted to $4,453,454 and $5,187,895 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. 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. 50 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. No long-term assets or depreciation are shown in the governmental fund financial statements. 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 or estimated historical cost if actual amounts are unknown. 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 Machinery and Equipment 5-20 Infrastructure 10-50 51 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. Sick leave accrues at rates based on the full time equivalency status of each employee. 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. 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. 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 as well as issuance costs are deferred and amortized over the life of the bonds. 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. 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 balance is defined as that portion of fund balance that has legally been segregated for specific purposes. Designated fund balance 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 balance is defined as that portion of fund balance, which is available for use in a future period. 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. 52 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. Reconciliation of Governmental Funds Balance Sheet and the government-wide Statement of Net Assets: Total Governmental Funds Capital Assets (1) Long-Term Liabilities (2) Internal Reclass Statement of Service Fund (3) and Eliminations (4) Net Assets Totals Assets Cash and cash equivalents $ Cash with fiscal agents 51,846,054 $ 6,416,809 Investments Accounts receivable, net Interest receivable Intergovernmental receivables Bond proceeds receivable Special assessments receivable Interfund receivable - $ - - $ - 5,306,490 $ - - - 9,165,508 6,416,809 - - 9,071,158 - 541,269 - 2,772,823 - 116,916 - - - - 1,007 - - - - 1,007 1,102,000 - - - 1,487,990 Deferred issuance costs - Prepaid items - (47,987,036) $ 142,197 47,987,036 89,488 - - 37,391 - - - 9,302,843 578,660 (1,102,000) 385,990 1,670,823 116,916 - - 308,497 - Restricted cash and cash equivalents 22,136,955 - - - - 22,136,955 Restricted investments 25,739,414 - - - - 25,739,414 - 243,623,368 Inventory Capital assets Total Assets - 598,563 47,987,036 - 243,623,368 $ 120,052,902 $ $ 11,823,604 $ 243,623,368 $ - - 598,563 - - 308,497 - 740,760 $ 5,819,359 $ 479,947 $ (1,102,000) $ 369,134,389 Liabilities and Net Assets Accounts payable - $ - $ Accrued payroll & compensated absences 1,539,341 - - Interest payable 1,538,039 - - Interfund payable 1,102,000 - - - 649,999 - - - Unearned revenue Deferred revenue Guaranty and other deposits Arbitrage rebate 144,844 - 1,958,326 - - Current bonds/contracts payable Unamortized bond premium - - 4,880,000 Liabilities payable from restricted assets (144,844) 104,730 - - - 1,506,421 - 1,108,863 - 4 - - $ 12,303,551 (20,629) 1,518,716 - 1,538,039 (1,102,000) - 649,999 - - - - - 1,958,326 - - 104,730 - - 4,880,000 - - 1,108,863 - - 1,506,421 Compensated absences - - 2,933,199 - 20,629 Unmatured long-term debt - - 85,706,330 - - 85,706,330 - 254,905,586 Fund balance/Net Assets, as restated Total liabilities and net assets $ 94,910,328 120,052,902 $ 243,623,368 243,623,368 53 $ (88,967,518) 740,760 $ 5,339,408 5,819,359 $ (1,102,000) $ 2,953,828 369,134,389 (1) Capital assets (land, buildings, equipment, etc.) used in governmental activities are purchased or constructed with 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 $ $ 361,692,468 (118,069,100) 243,623,368 (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 $ 598,563 Certain receivables are not recognized in the govermental funds, but are earned in the statement of net assets. Deferred court receivables $ 142,197 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 Arbitrage rebate Unamortized bond premium Subtotal Less: current portion compensated absences current portion of bonds and leases $ $ 90,586,330 2,953,828 104,730 1,108,863 94,753,751 20,629 4,880,000 89,853,122 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 $ $ 1,007 143,837 144,844 (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. ISF net assets (4) $ 5,339,408 Certain interfund transactions between governmental activities and between business-type activties are eliminated in the consolidation of those activities for the statement of net assets. Interfund receivables Interfund payables 1,102,000 (1,102,000) $ 54 - 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: Total Capital Long-Term Internal Adjustments Statement of Governmental Funds Related Items (1) Revenues/ Expenses (2) Service Fund (3) and Eliminations (4) Activities Totals Revenues and Other Sources Taxes $ 41,976,134 $ - $ 25,084 $ - $ - $ 42,001,218 Intergovernmental 18,779,168 - - - - 18,779,168 Grants and entitlements 12,185,406 - - - - 12,185,406 Charges for services 2,605,880 - - - - 2,605,880 Special assessments 2,927 - (2,927) - - Licenses and permits 2,438,599 - - - - 2,438,599 Fines and forfeitures 1,290,667 - - - 1,111,172 Rent 1,480,686 - - - - 1,480,686 Investment earnings 3,920,473 - - - 4,108,861 Contributions 2,981,982 9,252,654 Miscellaneous 1,377,552 Total revenue 6,270,672 - 89,039,474 6,270,672 (179,495) 188,388 - - - - - - - 1,377,552 - 95,341,196 (157,338) 188,388 Expenditures/Expenses General governmental Public safety 8,194,214 675,611 174,521 (9,078) - 9,035,268 22,994,522 855,550 169,031 (24,112) - 23,994,991 1,882,489 Public works 1,615,049 249,698 19,635 (1,893) - Economic and physical development 9,344,676 131,858 41,431 (9,559) - 9,508,406 Culture and recreation 8,648,628 1,422,765 28,218 (10,142) - 10,089,469 Highways and streets 7,859,004 6,639,296 73,475 (14,635) - 14,557,140 Principal retirement 5,313,222 - (5,313,222) - - Interest and other charges 3,210,879 - (120,739) - - Capital outlay Total expenditures/expenses 26,403,203 (26,403,203) 93,583,397 (16,428,425) (4,927,650) 3,090,140 - - (69,419) - - - - - - - - 72,157,903 OTHER FINANCING SOURCES (USES): Refunding bonds issued Bond proceeds Payment to bond refunding escrow agent Bond (discount) premium Sale of capital assets - - - - - - 46,707 - (46,707) - - (10,162) - - - 17,756,847 - - - (19,488,466) - - - 252,329 Transfers in Transfers out Total other financing sources (uses) Net change for the year 19,075,000 $ 17,642,417 13,098,494 $ (10,162) 22,688,935 $ 55 (19,075,000) (19,121,707) (14,351,395) $ 257,807 - 242,167 17,756,847 (7,391,577) (26,880,043) (7,391,577) $ (7,391,577) $ (8,881,029) 14,302,264 Capital outlay Depreciation expense Gain (loss) on sale of capital assets Donated capital assets $ $ 26,403,203 (9,974,778) (10,162) 6,270,672 22,688,935 (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 $ $ (2,927) 25,084 (179,495) (157,338) 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 Arbitrage rebate $ $ $ (69,998) (104,730) (174,728) 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 $ (331,583) 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 Bond issuance Bond premium Amortization of bond premium $ $ 5,313,222 (19,075,000) (46,707) 120,739 (13,687,746) (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 $ $ 188,388 69,419 257,807 (4) Certain interfund transactions between governmental activities and between business-type activties are eliminated in the consolidation of those activities for the statement of net assets. Transfer of capital assets to enterprise fund 56 $ (7,391,577) C. Fund Balance – Net Assets Restatement Change due to Accounting Error An accounting error was discovered and corrected in the general fund receivables for state shared revenue that resulted in a prior period adjustment. The City had been accruing all state wires received in July for revenue earned in June. Through the review of the prior history of the account, it was determined that state shared revenue is wired and received in the same month that it is due so there should be no accrual. The cumulative effect of this was a reduction in the beginning fund balance to the General Fund of $578,995. Change due to the Inclusion of Infrastructure To satisfy the requirements of GASB-34, the City has retroactively recognized infrastructure for Governmental Activities. The cumulative effect of this was an increase in the beginning fund balance to Governmental Activities of $91,079,578. General Fund Fiscal year 2006 ending fund balance Change due to accounting error Fiscal year 2007 beginning fund balance, as restated Governmental Activities Fiscal year 2006 ending net assets Change due to accounting error Change due to inclusion of infrastructure Fiscal year 2007 beginning net assets, as restated $ $ $ $ 29,386,040 (578,995) 28,807,045 150,102,739 (578,995) 91,079,578 240,603,322 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. 57 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. • • 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 during the fall and spring retreats. The fall and spring retreats were held in October and March 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. 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, 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. 58 B. Excess of Expenditures Over Appropriations For the year ended June 30, 2007 the Transportation Fund witnessed excess expenditures, however total City budget appropriation was not exceeded. Expenditures exceeded appropriations due to a budgeting estimate error in the Community Development line by $2,385,128, which represents capital outlay increases in anticipated expenditures. These over-expenditures were funded by reduced spending in other expenditures lines. IV. DETAILED NOTES ON ALL FUNDS 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, 2007, the carrying amount of the City’s deposits was $14,540,843 and the bank balance was $19,814,968. The $5,274,125 difference represents deposits in transit, outstanding checks, and other reconciling items at June 30, 2007. Custodial Credit Risk 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 and the City’s investment policy 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, 2007, all City deposits 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. All investments are either registered in the City’s name or are held by a third party in the City’s name. 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. At June 30, 2007, the City’s investments included the following Investment Type U.S. agency securities - implicit Certificate of deposit Municipal securities Mutual fund-money market State Investment Pool Total fair value of investments $ $ Portfolio weighted average maturity Fair Value 70,565,062 3,161,389 39,000 2,618,464 54,060,698 130,444,613 Weighted Average Maturity (in years) 1.288 1.255 3.000 0.003 0.005 0.730 59 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 credit quality ratings of investments as described by nationally recognized Standard and Poor’s rating service as of June 30, 2006 is as follows: Investment Type U.S. agency securities - implicit Certificates of deposit State investment pool (LGIP) Municipal securities Money market funds Total Fair Value $ 70,565,062 3,161,389 54,060,698 39,000 2,618,464 Minimum Legal Rating N/A Collateralized N/A A N/A $ 130,444,613 $ $ AAA 70,565,062 70,565,062 Rating as of Year End A+ $ $ 39,000 $ 39,000 $ Unrated 3,161,389 54,060,698 2,618,464 59,840,551 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. State of Arizona Investment Pool represents 41 percent of the City’s total investments. In addition, Federal Home Loan Bank and Federal National Mortgage Association represent 26 percent and 23 percent, respectively, of the City’s total investment. 60 At June 30, 2007, the City’s cash and investments included the following: 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 investments Total pooled cash and investments $ $ $ 130,444,613 14,540,843 144,985,456 27,620,005 48,026,036 10,032,415 59,307,000 144,985,456 Cash and cash equivalents at June 30, 2007 consisted of the following: Investments included in cash and cash equivalents Carrying amount of unrestricted 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 $ $ 26,098,678 1,725,509 13,025 27,837,212 (217,207) 27,620,005 Investment income comprises the following for the year ended June 30, 2007: 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 $ $ 4,843,867 820,661 5,664,528 (8,774) 5,655,754 The net increase in the fair value of investments during fiscal year 2006-2007 was $820,661. 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, 2007 was $(399,138). In previous years, 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 others in May 2003. The case is presently pending litigation. There have been several distributions since June 2006. The distributions include payments from the trustee and settlement proceeds received from pending litigation. The City has received $188,467 during the fiscal year plus interest of $4,702 as a partial recovery, with total to date recovery of $762,033. 61 B. Receivables Receivables as of June 30, 2007, including allowances for uncollectible accounts, are as follows: Interest Intergovernmental $ 259,332 78,959 67,319 35,991 32,709 66,959 - $ 1,512,669 689,160 21,084 549,910 - 9,213,355 89,488 541,269 37,391 2,772,823 - 116,916 - 1,007 - 12,645,370 126,879 9,302,843 578,660 2,772,823 116,916 1,007 12,772,249 2,463,809 891,387 100,620 100,615 (61,000) 190,014 113,875 6,712 1,843 - 44,693 61,496 6,472,369 - 23,100,000 - - 25,798,516 1,066,758 6,579,701 102,458 (61,000) 3,495,431 312,444 6,578,558 23,100,000 - 33,486,433 $ 12,798,274 $ 891,104 $ 9,351,381 $ 23,216,916 Fund Accounts Governmental Activities General Highway User Revenue Transportation BBB Capital Projects Bond Construction 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 $ 5,095,562 3,461,555 1,276,053 577,330 97,397 (1,294,542) Bond Proceeds $ 116,916 - Special Assessments $ $ $55,000 of the General fund accounts receivables are not expected to be collected in one year. 62 1,007 - 1,007 Total Receivables $ $ 6,984,479 3,540,514 2,032,532 634,405 32,709 715,273 (1,294,542) 46,258,682 C. Capital Assets In fiscal year 2007, the City completed its evaluation of the City’s entire infrastructure as required by GASB 34. The July 1, 2006 balance has been restated to include the retroactive reporting of the City’s infrastructure. A summary of capital asset activity, for the government-wide financial statements, for the fiscal year ended June 30, 2007 is as follows: As Restated Balance Governmental activities: Non-depreciable assets: Land Construction -in-progress Total non-depreciable assets July 1, 2006 $ Depreciable assets: Buildings Improvements Machinery and equipment Infrastructure Total depreciable assets Accumulated depreciation: Buildings Improvements Machinery and equipment Infrastructure Total accumulated depreciation Governmental activities capital assets, net $ 31,936,701 46,716,348 78,653,049 Deletions and Retirements Additions $ 291,200 14,370,025 14,661,225 $ (17,100) (17,100) Transfers In (out) $ 8,451,842 (39,830,762) (31,378,920) Balances June 30, 2007 $ 40,662,643 21,255,611 61,918,254 37,025,621 17,389,612 23,751,231 185,010,523 263,176,987 1,153,084 4,354,755 2,991,356 9,513,455 18,012,650 (582,148) (562,610) (1,106,047) (2,250,805) 41,125 1,553,325 19,240,932 20,835,382 37,637,682 21,181,757 27,189,865 213,764,910 299,774,214 (11,612,778) (7,698,849) (14,972,610) (79,219,789) (113,504,026) (845,059) (1,244,528) (1,591,130) (6,294,061) (9,974,778) 576,996 703,914 976,833 2,257,743 8,000 85,625 3,058,336 3,151,961 (11,872,841) (8,239,463) (15,501,282) (82,455,514) (118,069,100) (10,162) $ (7,391,577) 228,326,010 $ 22,699,097 63 $ $ 243,623,368 Balance Business-type activities: Non-depreciable assets: Land Construction -in-progress Total non-depreciable assets July 1, 2006 $ Depreciable assets: Buildings Improvements Machinery and equipment Total depreciable assets Accumulated depreciation: Buildings Improvements Machinery and equipment Total accumulated depreciation Business-type activities capital assets, net $ 10,300,797 13,153,346 23,454,143 Deletions and Retirements Additions $ 19,430,700 19,430,700 $ - Transfers In (out) $ (723,301) (723,301) Balances June 30, 2007 $ 10,300,797 31,860,745 42,161,542 79,219,573 253,113,357 20,760,561 353,093,491 19,138,435 941,895 20,080,330 (331,200) (331,200) 8,000 14,511,043 (3,268,159) 11,250,884 79,227,573 286,762,835 18,103,097 384,093,505 (28,289,659) (79,892,658) (11,262,070) (119,444,387) (1,766,477) (5,899,665) (974,759) (8,640,901) 322,323 322,323 (8,000) (3,058,336) (69,670) (3,136,006) (30,064,136) (88,850,659) (11,984,176) (130,898,971) 257,103,247 $ 30,870,129 $ (8,877) $ 7,391,577 $ 295,356,076 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 64 $ $ 675,611 855,550 249,698 131,858 1,422,765 6,639,296 9,974,778 D. Interfund Receivables, Payables, and Transfers Interfund receivables and payables Net interfund receivables and payables between governmental activities and business-type activities of $385,990 are included in the government-wide financial statements at June 30, 2007. The interfund balances at June 30, 2007 are short-term loans to cover temporary cash deficits in various funds. This occasionally occurs prior to bond sales or grant reimbursements. With the exception of the $94,897 between the Airport and Internal Service Fund, all interfund balances outstanding at June 30, 2007 are expected to be repaid within one year. The following interfund receivables and payables are included in the fund financial statements at June 30, 2007: Fund Governmental Funds: General Capital projects bond construction Other governmental funds Internal service Total governmental funds Business-Type Funds: Water and wastewater Airport Total enterprise funds Total governmental and enterprise funds Interfund Receivables $ $ Less: fund eliminations Adjustment for internal service fund elimination Total government-wide statement of net assets 1,102,000 94,897 1,196,897 6,800,000 6,800,000 7,996,897 (7,902,000) 291,093 $ 385,990 65 Interfund Payables $ $ 800,000 302,000 1,102,000 6,894,897 6,894,897 7,996,897 Transfers The net transfers of $9,123,196 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. There were no significant transfers during fiscal year 2007 that were either non-routine in nature or inconsistent with the activities of the fund making the transfer. The following transfers are reflected in the fund financial statements for the year ended June 30, 2007: Fund Governmental Funds: General Highway User Revenue Transportation BBB Capital Projects Bond Construction 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 $ $ Less: fund eliminations Add: capital assets transfer Total government-wide statement of activities Transfers In 6,719,751 85,401 3,466,413 1,823,792 7,393,109 19,488,466 $ 2,570,847 19,488 33,567 135,000 2,758,902 22,247,368 $ 3,873,247 4,634,466 2,987,000 1,338,000 4,924,134 17,756,847 2,413,053 32,500 898,429 1,146,539 4,490,521 22,247,368 (20,515,749) 7,391,577 $ 9,123,196 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 2007 lease expense for the library was $77,839. The schedule below for future minimum lease expenses reflects the change in the rental rate as of July 1, 2007. Year Ending June 30 2008 2009 2010 2011 2012 2013 Total East Flagstaff Library $ $ 84,368 84,368 84,368 84,368 84,368 56,245 478,085 66 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, 2007 were $161,072. Operating Lease Revenues The City leases several City-owned buildings under cancelable and non-cancelable agreements. The carrying value of the leased assets is $4,928,645 (cost of $5,730,896 less accumulated depreciation of $802,251) with current depreciation of $154,880. Certain leases contain provisions for future rate increases based on changes in the Consumer Price Index. Total revenue for fiscal year 2007 was $1,397,786. The City currently has one lease with non-cancelable terms that is for USGS building #6, which is guaranteed through August 2018. 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. Year Ending June 30 2008 2009 2010 2011 2012 2013 - 2018 Total USGS Building #6 $ $ 777,783 778,070 778,070 778,070 778,070 3,955,189 7,845,252 In addition, the Airport Fund has several leases under cancelable agreements. The leases are for terminal space, hangars, shades, tiedowns, and ground leases. $1,002,511. Lease revenue in the Airport fund for fiscal year 2007 was The carrying value of the leased assets is $5,999,087 (cost of $9,062,372 less accumulated depreciation of $3,063,285) with current year depreciation of $187,435. 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 $72,344,240. 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. 67 General obligation bonds outstanding at June 30, 2007: Purpose Governmental activities Governmental activities - refunding Business-type activities Business-type activities - refunding Total general obligation bonds outstanding $ $ Amount 30,975,000 255,000 1,680,000 11,630,000 44,540,000 General obligation bonds payable at June 30, 2007 consist of the following individual issues: Governmental Activities: $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%. $ 255,000 $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 $31,500,000 Capital Projects, Series 2006 due in annual installments of $1,180,000 to $2,445,000 through July 1, 2023; interest rate at 3.25% to 5.25%. 27,875,000 Total Governmental Activities 31,230,000 68 Business-type activities: Water and Wastewater: $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%. 4,550,000 $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%. 6,400,000 Total Water and Wastewater 12,630,000 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%. 680,000 Total Business-type Activities 13,310,000 Total General Obligation Bonds $ 44,540,000 Annual debt service requirements to maturity for general obligation bonds are as follows: Year Ending June 30 2008 2009 2010 2011 2012 2013-2017 2018-2022 2023 Total Govermental Activities Principal Interest $ $ 1,880,000 1,705,000 1,780,000 1,850,000 1,930,000 9,545,000 10,805,000 1,735,000 31,230,000 $ $ Business-type Activities Principal Interest 1,391,258 1,310,326 1,236,851 1,161,833 1,083,870 3,949,909 1,664,887 56,387 11,855,321 $ $ 2,795,000 3,055,000 1,770,000 1,860,000 1,960,000 1,870,000 13,310,000 $ $ 545,100 409,988 263,450 205,926 145,476 81,776 1,651,716 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. 69 On June 20, 2007, the City issued $19,075,000 in special assessment bonds for improvements at Aspen Place in the Sawmill Improvement District. These bonds will mature January 1, 2032 with a coupon rate of 5%. Special assessment bonds outstanding at June 30, 2007: Purpose Governmental activities $ Amount 19,339,000 Special assessment bonds payable at June 30, 2007 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%. 264,000 $19,075,000 Improvement District Bonds, due in annual installments of $460,000 to $1,345,000, through January 1, 2032; interest at 5.0%. 19,075,000 Total Special Assessment Bonds $ 19,339,000 Annual debt service requirements to maturity for special assessment bonds are as follows: Year Ending Govermental Activities June 30 2008 2009 2010 2011 2012 2013-2017 2018-2022 2023-2027 2028-2032 Total Principal $ $ 82,000 88,000 554,000 485,000 505,000 2,950,000 3,755,000 4,795,000 6,125,000 19,339,000 Interest $ $ 993,769 960,462 944,553 918,625 893,875 4,051,750 3,217,375 2,153,875 795,125 14,929,409 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. 70 Revenue bonds outstanding at June 30, 2007: Purpose Governmental activities Governmental activities - refunding Business-type activities Total general obligation bonds outstanding $ $ Amount 5,580,000 2,145,000 5,495,967 13,220,967 Revenue bonds at June 30, 2007 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 through July 1, 2009; interest at 2% to 3.5% 2,145,000 Total Governmental Activities 7,725,000 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%. 5,495,967 Total Revenue Bonds $ 13,220,967 Annual debt service requirements to maturity for revenue bonds are as follows: Year Ending June 30 2008 2009 2010 2011 2012 2013-2017 2018-2021 Total Govermental Activities Principal Interest $ 1,400,000 1,460,000 1,520,000 1,620,000 $ 1,725,000 $ 7,725,000 Business-type Activities Principal Interest 411,385 344,010 280,135 190,455 $ 94,875 $ 1,320,860 71 $ 283,832 293,900 304,327 315,123 326,302 1,813,576 2,158,907 5,495,967 $ $ 194,969 184,901 174,474 163,678 152,499 580,429 235,100 1,686,050 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, 2007: Purpose Governmental activities $ Amount 24,315,000 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%. 3,325,000 $25,000,000 Fourth Street Municipal Facility Corporation Revenue Bonds, Series 2003 due in annual installments of $1,000,000 to 20,990,000 $2,145,000 through July 1, 2010; interest at 2% to 5,25%. Total Other Debt $ Annual debt service requirements to maturity for other debt are as follows: Year Ending June 30 2008 2009 2010 2011 2012 2013-2017 2018-2020 Total Govermental Activities Principal Interest $ $ 1,315,000 1,375,000 1,735,000 1,795,000 1,865,000 10,105,000 6,125,000 24,315,000 $ $ 1,094,499 1,031,384 985,814 925,071 854,959 3,035,269 653,887 8,580,883 72 24,315,000 Loans Payable The City of Flagstaff has various loan agreements with the Water and Wastewater Infrastructure Finance Authority of Arizona Revolving Fund Loan Program for the acquisition and construction of water and wastewater facilities and obtaining water rights. The Department of Transportation provides financing for the construction of 14 T hangars at the City Airport. Loans outstanding as of June 30, 2007: Purpose Business-type activities $ Amount 32,957,194 Loan payables at June 30, 2007 consist of the following individual financing options: Business-type Activities Water and wastewater: $6,000,000 Wastewater infrastructure finance authority due in annual installments of $214,312 to $404,665 through July 1, $ 2012; interest at 3.402%. 1,894,496 $7,900,000 Water infrastructure finance authority due in annual installments of $295,000 to $525,000 through July 1, 2026; 7,560,000 interest at 3.28%. $23,100,000 Wastewater infrastructure finance authority due in 23,100,000 annual installment of $815,834 to $1,571,901 through July 1, 2027; interest at 3.512% Total water and wastewater loan payable $ 32,554,496 $ 402,698 Airport: $600,000 Arizona Department of Transportation due in quarterly installments of $5,337 to $13,548 through January 1,2016; interest at 5.6%. Total Business-type Activities loan payable $ Annual debt service requirements to maturity for loan payables are as follows: Year Ending June 30 2008 2009 2010 2011 2012 2013-2017 2018-2022 2023-2027 Total Business-type Activities Principal Interest $ $ 1,497,900 1,550,486 1,599,597 1,660,287 1,717,615 7,252,490 8,339,845 9,338,974 32,957,194 $ $ 1,150,062 1,093,293 1,039,178 983,320 925,332 3,831,068 2,499,838 957,853 12,479,944 73 32,957,194 Obligations under Capital Leases The City has entered into capital lease agreements for energy saving equipment and the construction of a cogenerator at Wildcat Wastewater Treatment Plant, with total assets of $2,871,201 and $627,188, respectively. 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, 2007 2008 2009 2010 2011 2012 2013-2017 2018-2022 2023-2026 Total future minimum lease payments Less: imputed interest costs Present value of future minimum lease payments Governmental Activities $ 470,993 470,993 470,993 470,993 470,993 1,177,482 3,532,447 (435,117) $ 3,097,330 Business Type Activities $ 482,692 482,692 482,692 482,692 482,692 2,287,983 1,158,680 579,340 6,439,463 (1,957,809) $ 4,481,654 Arbitrage Under U.S. Treasury Department regulations, all government tax-exempt debt issued after August 31, 1986 is subject to arbitrage rebate requirements. In general the requirements stipulate that the earnings from investments of tax-exempt bond proceeds that exceed related interest expenditures on the bonds must be remitted to the Federal government on every fifth anniversary of each bond issue. The City has evaluated each of its financing options subject to the arbitrage rebate requirements. At June 30, 2007, the City has recognized $104,730 in arbitrage liability. 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. 74 Non-current liability activity for the year ended June 30, 2007, was as follows: Governmental activities: Bonds payable: General obligation bonds Special assessment bonds Revenue bonds Municipal facility corporate bonds Total bonds payable Beginning Balance $ Arbitrage rebate 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 lease payable Total loan and leases payable Compensated absences Landfill closure/postclosure Business-type activity long-term liability $ Additions 32,875,000 340,000 9,665,000 25,610,000 68,490,000 $ 19,075,000 19,075,000 3,454,551 2,710,173 74,654,724 104,730 1,394,652 $ 20,574,382 16,294,726 5,770,075 22,064,801 - Ending Balance Reductions $ $ $ (1,645,000) (76,000) (1,940,000) (1,295,000) (4,956,000) (357,221) (1,150,997) (6,464,218) (2,984,726) (274,108) (3,258,834) $ $ $ 31,230,000 19,339,000 7,725,000 24,315,000 82,609,000 104,730 3,097,330 2,953,828 88,764,888 13,310,000 5,495,967 18,805,967 Due Within One Year $ $ $ 1,880,000 82,000 1,400,000 1,315,000 4,677,000 369,398 1,304,794 6,351,192 2,795,000 283,832 3,078,832 2,236,830 433,993 2,651,651 5,322,474 31,000,000 2,000,000 33,000,000 (682,334) (31,295) (169,997) (883,626) 32,554,496 402,698 4,481,654 37,438,848 1,464,815 33,085 254,549 1,752,449 451,778 1,863,856 29,702,909 355,436 598,344 $ 33,953,780 (241,768) (875,435) (5,259,663) 565,446 1,586,765 58,397,026 295,769 5,127,050 $ $ $ 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, 2007 have potential exposure to the City of approximately $414,392 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. 75 Beginning of Year Liability Fiscal Year 2004-05 $ Current Year Claims and Changes in Estimates 194,677 $ Claim Payments 69,326 $ End of Year Liability 33,787 $ 230,216 2005-06 230,216 322,146 59,141 493,221 2006-07 493,221 2,771 81,600 414,392 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. Commitments and contingent liabilities Outstanding Contracts At June 30, 2007 there were major outstanding contracts as follows: Airport fund Highway users revenue fund Transportation fund General fund Beautification fund Community redevelopment fund Metropolitan planning organization fund Stormwater fund BBB recreation fund Environmental services fund Capital projects fund Water and wastewater fund $ 11,464,258 10,394,162 465,094 199,417 514,058 438,872 93,191 1,542,066 48,541 482,488 20,215,192 34,079,770 $ 79,937,110 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 $10 million to this redevelopment project. Payments are being made on a percentage of completion basis. On June 30, 2007, the outstanding balance on this contract was $7.5 million. 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 $1 million. 76 The City entered into a Development Incentive Agreement (DA) with Butler & Lone Tree LLC on June 1, 2007. The project known as “Aspen Place at the Sawmill” will be a mixed-use development consisting of 155,000 square feet of retail uses and approximately 265 single-family residential and town home dwelling units. The terms and conditions of the DA is to require the owner of the property to construct and install certain improvements such as streets, drainage retention facilities, public walkways and a raised median on Butler Avenue. In order to finance these improvements, an Improvement District (ID) has been formed. The City issued special assessment bonds in the amount of $19,075,000. These bonds will be repaid from assessments imposed on the real property included within the ID. The City believes the development will generate substantial transaction privilege tax revenues and the City has agreed to rebate the Landowner a portion of the transaction privilege taxes generated from the property. On October 10, 2005, the City entered into an Intergovernmental Agreement with Northern Arizona University for the development of a conference center that will be located on the campus of the University. The agreement states that the City will contribute $2 million toward the construction of this conference center. As of June 30, 2007, the City has made a payment of $500,000 with subsequent payments being made at the 50%, and 75% completion stages of the project. The last payment will be made after a final inspection of the project is completed. 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. 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. 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 77 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, 2007, active ASRS members and the City were each required by statute to contribute at the actuarially determined rate of 9.1% (8.6% 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, 2007, 2006, and 2005 were $2,285,178, $1,765,599, and $1,239,656 respectively, which were equal to the required contributions for the year. In addition, active EORP members were required by statute to contribute 7% of the members' annual covered payroll. The City was required to contribute 18.55% of the members' annual covered payroll, as determined by actuarial valuation. The City's contributions to EORP for the years ended June 30, 2007, 2006, and 2005 were $15,527, $11,877, and $8,728 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, 2007, 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 14.40% and 17.59% for Police and Fire respectively. Annual Pension Cost - The City's pension cost for the agent plan for the year ended June 30, 2005, the date of the most recent actuarial valuation, and related information follow. Contribution rates: PSPRS City – Police 14.40% City – Fire 17.59% Plan members 7.65% Annual pension cost $ 1,275,958 Contributions made $ 1,275,958 Actuarial valuation date 6/30/05 Actuarial cost method Project unit credit Actuarial assumptions: Investment rate of return 8.5% Projected salary increases 5.5% - 8.5% Includes inflation at 5.0% Amortization method Level percentage open Remaining amortization period from 7-1-00 20 years Asset valuation method Smoothed market value 78 Trend Information - Information for the agent plan as of most recent actuarial valuations follows. Contributions Required and Contributions Made Annual Pension Cost (APC) Plan Percentage of APC Contributed Net Pension Obligation PSRS 2007 Police Fire $ 881,895 803,147 100% $ 100% -0-0- PSRS 2006 Police Fire $ 818,686 447,025 100% $ 100% -0-0- PSRS 2005 Police Fire $ 598,122 400,798 100% $ 100% -0-0- Funding Progress - An analysis of funding progress for each of the agent plans as of the most recent actuarial valuations; June 30, 2005 is what determines the rates for our F/Y 2007. (1) Actuarial Value of Assets PSRS 2006 Police Fire $ (2) Actuarial Accrued Liability (AAL) Entry Age (3) Percent Funded (1) / (2) (4) Unfunded AAL (2) - (1) (5) Annual Covered Payroll (6) Unfunded AAL as a Percentage of Covered Payroll (4) / (5) 22,906,070 $ 32,531,279 32,811,911 40,966,106 69.8% $ 79.4% 9,905,841 $ 8,434,827 5,706,130 4,287,395 173.6% 196.7% PSRS 2005 Police Fire 23,170,401 33,339,528 30,726,889 38,630,337 75.4% 86.3% 7,556,488 5,290,809 5,143,360 3,880,002 146.9% 136.4% PSRS 2004 Police Fire 23,305,327 32,966,185 27,287,891 34,472,797 85.4% 95.6% 3,982,564 1,506,612 4,839,097 3,879,272 82.3% 38.8% 79 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, 2007, the number of firemen covered by the Fund was classified as follows: Retirees and beneficiaries currently receiving benefits 3 Active employees: 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: Net Assets Available (not cash) for Benefits Fiscal Year June 30 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 $ 216,843 218,401 221,678 226,593 226,632 221,730 219,214 217,606 217,237 218,964 Employee Contributions $ - Revenues Employer Contributions $ - 80 Expenses Investment Income $ 12,332 11,068 12,877 13,620 7,125 2,176 4,367 5,296 6,650 8,774 Other Income $ 390 89 96 114 122 317 296 181 153 Benefit Payments $ 9,600 9,600 9,600 8,800 7,200 7,200 7,200 7,200 7,200 7,200 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 $8,769,007 as of June 30, 2007, which is based on 58.5 percent usage of the landfill. The remaining $6,212,904 will be accrued over the remaining life of the landfill, which is currently estimated to be 14 years. The accrual for the closure and postclosure care costs for fiscal year 2007 was $598,344. Based on current estimates for landfill closure and postclosure care costs, the City is setting aside legally restricted funds to ensure sufficient funds will be available to meet these requirements. The City makes annual contributions to finance closure and postclosure care costs; at June 30, 2007 the balance of the investments held for those purposes is $7,182,242, which includes $64,254 of accrued interest. The 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, $14,981,911, 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, 2007. 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. 81 82 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 Fund This fund accounts for the accumulation of resources for, and the payments of, general long-term obligation principal and interest. 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. 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. 83 CITY OF FLAGSTAFF, ARIZONA Combining Balance Sheet Non-Major Governmental Funds June 30, 2007 Special Revenue Funds Real Estate Proceeds Fund Library Fund Community Redevelopment Fund Metropolitan Planning Organization Fund ASSETS Cash and cash equivalents $ 2,130,849 Cash with fiscal agents $ 569,552 $ 2,162,622 $ 830 - - - - Accounts receivable, net 96,111 863 128 - Interest receivable 13,270 12,058 17,976 - Intergovernmental receivables - - 180,448 369,462 Special assessments receivable - - - - Restricted cash and cash equivalents Total assets - - - - $ 2,240,230 $ 582,473 $ 2,361,174 $ 370,292 $ $ - $ 49,352 $ 60,268 LIABILITIES AND FUND BALANCE Liabilities: Accounts payable Accrued payroll and compensated absences 59,727 70,805 - - 7,444 Current bonds payable - - - - Interest payable - - - - Interfund payable - - - 302,000 Deferred revenue - - - - 1,439,680 - - - 1,570,212 - 49,352 369,712 Debt service - - - - Perpetual care - - - - 670,018 582,473 2,311,822 580 - - - - Liabilities payable from restricted assets Total liabilities Fund balances: Reserved for: Unreserved, undesignated, reported in: Special revenue funds Permanent fund Total fund balances Total liabilities and fund balances 670,018 $ 2,240,230 582,473 $ 84 582,473 2,311,822 $ 2,361,174 580 $ 370,292 Permanent Fund Debt Service Funds General Obligation Bond Fund $ Secondary Property Tax Revenue Fund 348,356 $ 1,347,310 2,377,104 - Special Assessment Bond Fund $ 362,428 Total Other Governmental Funds Perpetual Care $ 5,561 5,513 $ - 6,927,508 2,382,617 - - - 295 97,397 - 19,925 3,019 711 66,959 - - - - 549,910 - - 1,007 - 1,007 - - $ 2,725,460 $ 1,367,235 $ 371,967 $ 95,529 $ 10,114,360 $ $ $ 1,063 $ - $ 170,410 - - - - 1,645,000 - 732,104 - - - - - 88,962 - 88,962 - 78,249 - - 1,645,000 6,743 - 738,847 - - 302,000 - 1,007 - 1,007 - - - 1,439,680 2,377,104 - 8,813 - 4,375,193 348,356 1,367,235 363,154 - - - - 88,962 $ 2,078,745 88,962 - - - - - 3,564,893 - - - 6,567 6,567 348,356 1,367,235 $ 2,725,460 $ 1,367,235 363,154 $ 371,967 95,529 $ 95,529 85 5,739,167 $ 10,114,360 CITY OF FLAGSTAFF, ARIZONA Combining Statement of Revenues, Expenditures, and Changes in Fund Balances Non-Major Governmental Funds Year Ended June 30, 2007 Special Revenue Funds Real Estate Proceeds Fund Library Fund Metropolitan Planning Organization Fund Community Redevelopment Fund REVENUES: Taxes $ Intergovernmental - $ - $ - $ - 2,502,814 - - - 134,349 - 763,580 364,424 Charges for services - - 411,591 - Special assessments - - - - Investment earnings 67,607 89,046 90,882 - Grants and entitlements Contributions 238,348 - - - Miscellaneous 30,731 - - - 2,973,849 89,046 1,266,053 364,424 Total revenues EXPENDITURES: Current: Economic and physical development - 3,368 1,092,693 401,304 3,999,905 - - - Principal retirement - - - - Interest and other charges - - - - 256,069 - 328,572 - 4,255,974 3,368 1,421,265 401,304 Culture and recreation Debt service: Capital outlay Total expenditures Excess (deficiency) of revenues over expenditures (1,282,125) 85,678 (155,212) (36,880) OTHER FINANCING SOURCES (USES): Sale of capital assets Transfers in Transfers out 17,405 - - - 341,953 25,000 (78,391) Total other financing sources (uses) Net change in fund balances Fund balances, beginning of year Fund balances, end of year 652 1,445,706 (2,225,000) - - 1,367,967 (2,207,595) 341,953 25,000 85,842 (2,121,917) 186,741 (11,880) 584,176 $ 670,018 2,704,390 $ 86 582,473 2,125,081 $ 2,311,822 12,460 $ 580 Permanent Fund Debt Service Funds General Obligation Bond Fund $ - Secondary Property Tax Revenue Fund $ 5,187,895 Special Assessment Bond Fund $ Total Other Governmental Funds Perpetual Care - $ - $ 5,187,895 - - - - 2,502,814 - - - - 1,262,353 - - - - 411,591 - - 2,927 - 2,927 - 76,972 16,670 3,296 344,473 - - - 19,460 257,808 - - 19 - 30,750 - 5,264,867 19,616 22,756 10,000,611 - - - - 1,497,365 - - - - 3,999,905 - 1,645,000 - 76,000 - 1,721,000 1,468,274 - 15,446 - 1,483,720 - - - - 584,641 3,113,274 - 91,446 - 9,286,631 22,756 713,980 (3,113,274) 5,264,867 - - - - 18,057 3,111,475 - - - 4,924,134 - (5,089,718) - - (7,393,109) 3,111,475 (5,089,718) - - (2,450,918) (71,830) 22,756 (1,736,938) 434,984 72,773 7,476,105 (1,799) 175,149 350,155 $ (71,830) 348,356 1,192,086 $ 1,367,235 $ 363,154 $ 95,529 87 $ 5,739,167 88 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 90 92 Budgetary Comparison Schedules - Other Major Governmental Funds Capital Projects Fund 93 Budgetary Comparison Schedules - Non-Major Governmental Funds Library Fund Real Estate Proceeds Fund Community Redevelopment Fund Metropolitan Planning Organization Fund General Obligation Bond Fund Secondary Property Tax Revenue Fund Special Assessment Bond Fund 89 94 95 96 97 98 99 100 City of Flagstaff, Arizona Capital Assets Used in the Operation of Governmental Funds Schedule By Function and Activity June 30, 2007 Program General government Public safety Public works Economic and physical development Culture and recreation Highway and streets Land $ Subtotal Less: accumulated depreciation Total governmental funds capital assets Buildings 3,283,582 265,259 1,432,726 3,454,156 32,226,920 $ 40,662,643 40,662,643 90 $ 37,637,682 $ 13,502,132 12,028,001 5,426,635 2,790,900 3,787,704 102,310 Improvements 21,181,757 (11,872,841) $ 25,764,841 1,495,798 61,303 265,158 24,309 17,083,208 2,251,981 (8,239,463) $ 12,942,294 Machinery and Equipment $ 3,698,603 10,654,548 1,112,667 1,029,054 3,591,699 7,103,294 $ 27,189,865 11,688,583 3,687,586 210,077,324 $ 213,764,910 (15,501,282) $ Construction In Progress Infrastructure 1,748,002 4,695,841 331,680 3,733,477 10,746,611 131,309,396 $ 21,255,611 (82,455,514) $ Total 361,692,468 $ 21,255,611 91 23,728,117 27,704,952 6,804,460 5,608,669 35,337,830 262,508,440 (118,069,100) $ 243,623,368 City of Flagstaff, Arizona Capital Assets Used in the Operation of Governmental Funds Schedule of Changes By Function and Activity June 30, 2007 As Restated Balance July 1, 2006 Program General government Public safety Public works Economic and physical development Culture and recreation Highway and streets Total Additions $ 21,880,922 23,913,431 7,159,617 5,293,899 27,897,957 255,684,210 $ 1,855,364 4,249,997 163,759 502,372 8,078,735 17,823,648 $ (8,169) (458,476) (510,916) (159,498) (638,862) (491,983) $ 341,830,036 $ 32,673,875 $ (2,267,904) 92 Transfers In (out) Balance June 30, 2007 - (8,000) (28,104) (10,507,435) $ 23,728,117 27,704,952 6,804,460 5,608,669 35,337,830 262,508,440 $ (10,543,539) $ 361,692,468 Retirements $ CITY OF FLAGSTAFF, ARIZONA Capital Projects Fund Statement of Revenues, Expenditures, and Changes in Fund Balances - Budget and Actual Year Ended June 30, 2007 Budget Original Variance with Final Budget Positive (Negative) Actual Amounts Budgetary Basis Final REVENUES: Grants and entitlements $ Investment earnings Contributions Total revenues - $ - $ 236,728 $ 236,728 700,396 700,396 1,461,512 761,116 - - 2,721,674 2,721,674 700,396 700,396 4,419,914 3,719,518 EXPENDITURES: Current: Debt service: Principal retirement - - - Interest and other charges - - 299 24,968,369 24,968,369 7,758,329 17,210,040 24,968,369 24,968,369 7,758,628 17,209,741 (24,267,973) (24,267,973) (3,338,714) 20,929,259 Capital outlay Total expenditures Excess (deficiency) of revenues over expenditures (299) OTHER FINANCING SOURCES (USES): Bonds issued Bond Premium Transfers in Total other financing sources (uses) Net change in fund balances Budgetary fund balances, beginning of year Budgetary fund balances, end of year $ 4,365,599 4,365,599 19,075,000 14,709,401 - - 46,707 46,707 1,100,000 1,100,000 1,338,000 238,000 5,465,599 5,465,599 20,459,707 14,994,108 (18,802,374) (18,802,374) 17,120,993 35,923,367 28,015,857 28,015,857 28,015,857 - 9,213,483 $ Adjustment from budetary basis to GAAP basis net change in fund balances 9,213,483 $ $ 45,136,850 17,120,993 The City budgets certain revenues on the cash basis, rather than on the modified accrual basis. (46,707) Adjusted net change in fund balance - GAAP basis $ 93 17,074,286 $ 35,923,367 CITY OF FLAGSTAFF, ARIZONA Library Fund Schedule of Revenues, Expenditures, and Changes in Fund Balances - Budget and Actual Year Ended June 30, 2007 Budget Original Variance with Final Budget Positive (Negative) Actual Amounts Budgetary Basis Final REVENUES: Intergovernmental $ Grants and entitlements 3,101,501 $ 3,101,501 $ 2,502,814 $ (598,687) - - 134,349 134,349 21,000 21,000 67,607 46,607 Contributions 240,000 240,000 238,348 Miscellaneous 29,000 29,000 30,731 3,391,501 3,391,501 2,973,849 (417,652) 548,612 Investment earnings Total revenues (1,652) 1,731 EXPENDITURES: Current: 4,548,517 4,548,517 3,999,905 Capital outlay Culture and recreation 345,500 345,500 256,069 89,431 Contingency 100,000 100,000 - 100,000 4,994,017 4,994,017 4,255,974 738,043 (1,602,516) (1,602,516) (1,282,125) 320,391 Total expenditures Excess (deficiency) of revenues over expenditures OTHER FINANCING SOURCES (USES): Sale of capital assets Transfers in Transfers out - 652 652 1,445,706 1,445,706 - (328,391) Total other financing sources (uses) (328,391) 1,117,315 Net change in fund balances Budgetary fund balances, beginning of year Budgetary fund balances, end of year 1,445,706 $ (78,391) 1,117,315 (485,201) (485,201) 659,214 659,214 174,013 $ 94 174,013 $ 250,000 1,367,967 250,652 85,842 571,043 659,214 - 745,056 $ 571,043 CITY OF FLAGSTAFF, ARIZONA Real Estate Proceeds Fund Schedule of Revenues, Expenditures, and Changes in Fund Balances - Budget and Actual Year Ended June 30, 2007 Budget Original Final Variance with Final Budget Positive (Negative) Actual Amounts Budgetary Basis REVENUES: Investment earnings $ Total revenues 47,350 $ 47,350 $ 89,046 $ 41,696 47,350 47,350 89,046 41,696 150,000 150,000 3,368 146,632 150,000 150,000 3,368 146,632 (102,650) (102,650) 85,678 188,328 EXPENDITURES: Current: Capital outlay Total expenditures Excess (deficiency) of revenues over expenditures OTHER FINANCING SOURCES (USES): Sale of capital assets Transfers out Total other financing sources (uses) Net change in fund balances Budgetary fund balances, beginning of year Budgetary fund balances, end of year $ 1,200,000 1,200,000 (2,881,000) (2,881,000) (2,225,000) 656,000 (1,681,000) (1,681,000) (2,207,595) (526,595) (1,783,650) (1,783,650) (2,121,917) (338,267) 2,467,612 2,467,612 2,467,612 683,962 $ 95 683,962 17,405 $ 345,695 (1,182,595) $ (338,267) CITY OF FLAGSTAFF, ARIZONA Community Redevelopment Fund Schedule of Revenues, Expenditures, and Changes in Fund Balances - Budget and Actual Year Ended June 30, 2007 Budget Original Variance with Final Budget Positive (Negative) Actual Amounts Budgetary Basis Final REVENUES: Grants and entitlements $ Charges for services 1,852,729 $ - Investment earnings Total revenues 1,852,729 $ - 763,580 $ 411,591 - - 90,882 1,852,729 1,852,729 1,266,053 4,362,961 4,362,961 1,092,693 - - 328,572 4,362,961 4,362,961 1,421,265 (2,510,232) (2,510,232) (1,089,149) 411,591 90,882 (586,676) EXPENDITURES: Current: Economic and physical development Capital outlay Total expenditures Excess (deficiency) of revenues over expenditures 3,270,268 (328,572) 2,941,696 (155,212) 2,355,020 OTHER FINANCING SOURCES (USES): Transfers in Total other financing sources (uses) Net change in fund balances Budgetary fund balances, beginning of year Budgetary fund balances, end of year $ 341,953 341,953 341,953 - 341,953 341,953 341,953 - 186,741 2,355,020 2,232,017 - (2,168,279) (2,168,279) 2,232,017 2,232,017 63,738 $ 96 63,738 $ 2,418,758 $ 2,355,020 CITY OF FLAGSTAFF, ARIZONA Metropolitan Planning Organization Fund Schedule of Revenues, Expenditures, and Changes in Fund Balances - Budget and Actual Year Ended June 30, 2007 Budget Original Variance with Final Budget Positive (Negative) Actual Amounts Budgetary Basis Final REVENUES: Grants and entitlements $ Total revenues 991,417 $ 991,417 $ 364,424 $ (626,993) 991,417 991,417 364,424 (626,993) 776,417 776,417 401,304 375,113 EXPENDITURES: Current: Economic and physical development Contingency Total expenditures Excess (deficiency) of revenues over expenditures 240,000 240,000 - 240,000 1,016,417 1,016,417 401,304 615,113 (25,000) (25,000) (36,880) (11,880) 25,000 25,000 25,000 - 25,000 25,000 25,000 - 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 $ - $ 97 - (11,880) (11,880) $ (11,880) $ (11,880) CITY OF FLAGSTAFF, ARIZONA General Obligation Bond Fund Schedule of Revenues, Expenditures, and Changes in Fund Balances - Budget and Actual Year Ended June 30, 2007 Budget Original Variance with Final Budget Positive (Negative) Actual Amounts Budgetary Basis Final REVENUES: Investment earnings $ Total revenues 300 $ 300 $ - $ (300) 300 300 - (300) Principal retirement 1,645,000 1,645,000 1,645,000 - Interest and other charges 1,466,708 1,466,708 1,468,274 (1,566) - - - 3,111,708 3,111,708 3,113,274 (1,566) (3,111,408) (3,111,408) (3,113,274) (1,866) EXPENDITURES: Debt service: Capital outlay Total expenditures Excess (deficiency) of revenues over expenditures - OTHER FINANCING SOURCES (USES): Transfers in Total other financing sources (uses) Net change in fund balances Budgetary fund balances, beginning of year Budgetary fund balances, end of year $ 3,111,708 3,111,708 3,111,475 (233) 3,111,708 3,111,708 3,111,475 (233) 300 300 17,286 17,286 17,586 $ 98 17,586 (1,799) (2,099) 17,286 $ 15,487 $ (2,099) 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, 2007 Budget Original Final Variance with Final Budget Positive (Negative) Actual Amounts Budgetary Basis REVENUES: Taxes $ Investment earnings Total revenues 5,222,056 $ 5,222,056 $ 5,187,895 $ (34,161) 39,300 39,300 76,972 37,672 5,261,356 5,261,356 5,264,867 3,511 (5,366,920) (5,366,920) (5,089,718) 277,202 (5,366,920) (5,366,920) (5,089,718) 277,202 (105,564) (105,564) 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 1,168,398 $ 1,168,398 1,062,834 $ 99 1,062,834 $ 175,149 280,713 1,168,398 - 1,343,547 $ 280,713 CITY OF FLAGSTAFF, ARIZONA Special Assessment Bond Fund Schedule of Revenues, Expenditures, and Changes in Fund Balances - Budget and Actual Year Ended June 30, 2007 Budget Original Variance with Final Budget Positive (Negative) Actual Amounts Budgetary Basis Final REVENUES: Special assessments $ Investment earnings Miscellaneous Total revenues 16,055 $ 16,055 $ 2,927 $ (13,128) 13,126 13,126 16,670 3,544 - - 19 19 29,181 29,181 19,616 (9,565) EXPENDITURES: Debt service: Principal retirement 76,000 76,000 76,000 - Interest and other charges 15,447 15,447 15,446 1 Total expenditures 91,447 91,447 91,446 1 Excess (deficiency) of revenues over expenditures (62,266) (62,266) (71,830) (9,564) Net change in fund balances (62,266) (62,266) (71,830) (9,564) Budgetary fund balances, beginning of year Budgetary fund balances, end of year 417,519 $ 355,253 417,519 $ 100 355,253 417,519 $ 345,689 $ (9,564) Statistical Section This part of the City of Flagstaff’s comprehensive annual financial report presents detailed information as a context for understanding what the information in the financial statements, note disclosures, and required supplementary information says about the city’s overall financial health. Contents Page Financial Trends These schedules contain trend information to help the reader understand 102 how the city’s financial performance and well-being have changed over time. Revenue Capacity These schedules contain information to help the reader assess the city’s 110 most significant local revenue source, the property tax. Debt Capacity These schedules present information to help the reader assess the 115 affordability of the city’s current levels of outstanding debt and the city’s ability to issue additional debt in the future. Demographic and Economic Information These schedules offer demographic and economic indicators to help the 122 reader understand the environment within which the city’s financial activities take place. Operating Information 126 These schedules contain service and infrastructure data to help the reader understand how the information in the city’s financial report relates to the services the City’s provides and the activities it performs. Sources: Unless otherwise noted, the information in these schedules is derived from the comprehensive annual financial reports for the relevant year. The city implemented GASB Statement 34 in 2003; schedules presenting government-wide information include information beginning in that year. 101 102 $ $ $ $ $ $ 55,036,232 293,607,992 19,791,985 218,779,775 20,858,057 199,241,125 5,013,627 173,369,441 34,178,175 94,366,867 14,778,358 45,410,334 2003 $ $ $ $ $ $ 57,587,021 324,621,844 40,504,599 226,530,224 24,092,049 214,117,224 5,161,363 184,863,812 33,494,972 110,504,620 35,343,236 41,666,412 2004 $ $ $ $ $ $ 81,341,713 352,523,597 23,870,778 247,311,106 24,948,848 228,700,586 3,200,521 200,551,217 56,392,865 123,823,011 20,670,257 46,759,889 2005 Fiscal Year $ $ $ $ $ $ 30,751,613 493,334,773 47,953,248 414,629,912 20,303,463 252,731,451 2,392,858 230,035,130 10,448,150 240,603,322 45,560,390 184,594,782 2006 Prior statements have not been restated to comply with the new requirements, so the City is not able to report a full ten years of historical information. The City implemented GASB34 for the year ended June 30, 2003 (4) The increase from the prior period was caused by a substantial increase in capital asset contributions. (3) The decrease from the prior period was caused by a substantial spending of unspent bond proceeds. (2) As restated for retroactive reporting due to an accounting error discovered in FY2007 (1) As restated for retroactive reporting of infrastructure Unrestricted Total primary government net assets Restricted Invested in capital assets, net of related debt Primary government Unrestricted Total business-type activities and net assets Restricted Invested in capital assets, net of related debt Business-type activities Unrestricted Total governmental activities net assets Restricted Invested in capital assets, net of related debt Governmental activities (accrual basis of accounting) Last Five Fiscal Years Net Assets by Component City of Flagstaff Schedule 1 (2) $ $ $ $ $ (1) $ 13,795,935 2,424,615 55,782,138 540,979,392 16,220,550 468,976,704 19,267,461 286,073,806 264,381,730 36,514,677 254,905,586 204,594,974 2007 (4) (3) 103 104 6,184,553 1,380,182 Culture and recreation Highways and streets Interest on long-term debt 19,860,371 11,757,330 9,646,122 20,481,689 - Capital grants and contributions 119,854 Highways and streets 722,236 16,164 976,793 451,802 3,257,393 80,241,288 28,401,426 460,936 3,370,447 7,319,602 17,250,441 51,839,862 1,923,325 8,886,947 8,693,714 6,473,290 1,178,137 Total governmental activities program revenues 733,159 Culture and recreation 5,891,617 18,792,832 2,678,653 222,008 Economic and physical development $ $ $ 2004 3,428,440 830,885 Public works Operating grants and contributions 743,738 4,757,483 Public safety General government Charges for services: Governmental activities: $ 74,695,348 Total primary government expense Program Revenues 27,110,257 Total business-type activities expense - 3,411,603 Airport Stormwater 7,556,614 16,142,040 Environmental Water and wastewater Business-type activities: 47,585,091 8,467,575 Economic and physical development Total governmental activities expense 1,169,302 7,272,115 Public works $ 4,840,896 18,270,468 $ 2003 Public safety General government Governmental activities: Expenses (accrual basis of accounting) Last Five Fiscal Years Changes in Net Assets City of Flagstaff Schedule 2 $ $ $ 25,654,682 15,180,401 4,147,529 - 680,755 321,915 1,213,714 498,506 3,611,862 86,143,316 30,075,101 479,700 3,749,669 8,548,715 17,297,017 56,068,215 2,042,555 10,011,231 9,426,600 6,807,311 1,320,459 21,018,114 5,441,945 2005 Fiscal Year $ $ $ 33,255,955 21,566,549 3,791,526 - 683,906 332,356 1,180,097 815,167 4,886,354 93,681,732 31,860,328 791,791 3,519,749 9,096,420 18,452,368 61,821,404 2,167,626 12,043,242 8,328,945 7,842,985 1,454,731 22,525,292 7,458,583 2006 $ $ $ 29,054,937 19,356,271 2,062,329 - 742,088 562,135 1,455,461 704,800 4,171,853 106,358,761 34,200,858 1,019,248 3,162,391 10,073,853 19,945,366 72,157,903 3,090,140 14,557,140 10,089,469 9,508,406 1,882,489 23,994,991 9,035,268 2007 105 $ $ $ $ 26,127,375 8,482,695 17,644,680 $ $ 25,818,897 9,846,479 15,972,418 49,057,592 1,105,683 369,358 17,302 - 719,023 47,951,909 (369,358) 14,717 $ $ $ $ $ $ $ 27,901,753 14,583,362 13,318,391 52,186,000 8,454,076 7,004,365 513,738 - 935,973 - 43,731,924 (7,004,365) 17,765 382,387 277,972 1,703,861 - 12,837,838 27,054,164 8,462,302 (24,284,247) 6,129,286 (30,413,533) 36,204,387 61,859,069 8,164,775 574,376 694,161 1,176,866 9,370,561 16,223,648 Prior statements have not been restated to comply with the new requirements, so the City is not able to report a full ten years of historical information. The City implemented GASB34 for the year ended June 30, 2003 Total primary government Business-type activities Governmental activities Change in Net Assets 45,354,794 606,712 Total business-type activities Total primary government 476,304 23,675 - 106,733 44,748,082 (476,304) 7,435 634,411 905,717 944,381 492 810,739 12,122,563 25,682,974 7,931,626 (23,238,695) 8,740,796 (31,979,491) 37,142,222 57,002,593 218,520 - $ $ $ $ 10,482,991 286,919 546,807 944,983 8,201,566 16,678,956 383,111 Transers in (out) Gain on sale of capital assets Miscellaneous Investment earnings Grants and contributions not restricted to specific programs Business-type activties: Total governmental activities Transers in (out) Contributions to permanent fund Gain on sale of capital assets Miscellaneous Investment earnings Grants and contributions not restricted to specific programs 12,073,108 State shared sales taxes 8,010,293 (19,227,419) 7,875,983 (27,103,402) 34,986,240 55,467,929 23,805,566 $ $ $ $ 9,460,796 382,239 - 926,406 7,682,458 16,534,341 Sales taxes Property taxes Taxes Governmental activities: General Revenues and Other Changes in Net Assets Total primary government net expense Business-type activities Governmental activities Net (Expense)/Revenue Total primary government program revenues Total business-type activities program revenues Capital grants and contributions Operating grants and contributions Stormwater Airport Environmental Water and wastewater Charges for services: Business-type activities: (accrual basis of accounting) Last Four Fiscal Years Changes in Net Assets City of Flagstaff Schedule 2 (continued) $ $ $ $ $ $ $ 49,673,379 24,030,865 25,642,514 57,984,779 3,776,816 2,267,551 326,540 - 1,181,836 889 54,207,963 (2,267,551) 24,630 33,417 204,678 2,385,099 377,502 14,384,055 30,014,975 9,051,158 (8,311,400) 20,254,049 (28,565,449) 52,114,377 85,370,332 23,449,969 369 630,962 1,261,594 9,723,652 17,047,831 $ $ $ $ $ $ $ 47,644,619 33,342,355 14,302,264 68,217,508 10,812,278 9,123,196 31,354 110,835 1,546,893 - 57,405,230 (9,123,196) 19,460 242,167 1,377,552 4,108,861 - 16,276,354 32,334,785 12,169,247 22,530,077 (20,572,889) (43,102,966) 56,730,935 85,785,872 27,369,058 19,500 1,042,701 1,122,274 9,839,486 17,337,916 106 $ $ $ $ 21,363,758 - 15,733,412 5,630,346 8,252,539 8,120,997 131,542 1998 $ $ $ $ (1) As restated for accounting error discovered during fiscal year 2007 Total all other governmental funds Permanent fund Special revenue funds Unreserved, reported in: Reserved All Other Governmental Funds Total general fund Unreserved Reserved General Fund (modified accrual basis of accounting) Last Ten Fiscal Years Fund Balances, Governmental Funds City of Flagstaff Schedule 3 20,071,305 - 16,107,637 3,963,668 13,587,935 13,454,402 133,533 1999 $ $ $ $ 19,044,353 - 17,263,742 1,780,611 17,553,766 17,366,998 186,768 2000 $ $ $ $ 29,577,901 - 24,317,465 5,260,436 19,420,953 19,208,574 212,379 2001 $ $ $ $ 27,583,489 - 26,476,529 1,106,960 18,493,931 18,318,999 174,932 2002 $ $ $ $ Fiscal Year 22,672,624 217 21,713,198 959,209 21,959,733 21,782,895 176,838 2003 $ $ $ $ 39,154,872 567 37,476,678 1,677,627 23,112,032 22,891,253 220,779 2004 $ $ $ $ 34,599,132 1,426 33,041,256 1,556,450 29,325,196 29,124,795 200,401 2005 $ $ $ $ 53,004,789 3,271 22,893,640 30,107,878 28,807,045 28,574,855 232,190 2006 $ $ (1) $ $ 6,567 63,689,857 16,332,830 47,350,460 31,220,471 29,960,235 1,260,236 2007 107 2,327,133 9,225,421 8,312,245 Culture and recreation Highways and streets 2,380,000 - Bond premium Sale of capital assets non capital expenditures Debt service as a percentage of Net change in fund balances Total other financing sources (uses) 9.57% 354,194 (139,291) 13,089,273 - - (13,228,564) 55,352 - Lease Proceeds Improvement District - Proceeds Transfers in 898,000 - Transfers out - - Loan Proceeds Payment to bond refunding escrow agent 9.50% 4,043,033 516,493 (10,313,380) 9,876,521 - - - - 3,526,540 45,156,409 2,006,000 1,718,604 Refunding bonds issued 493,485 43,610,081 8,584,084 5,536,908 Bonds issued OTHER FINANCING SOURCES (USES): Excess of revenues over (under) expenditures Total expenditures 691,627 2,265,000 1,843,607 Principal retirement Interest and other charges Capital outlay $ 752,777 6,632,815 794,953 4,246,127 48,682,949 2,310,761 - - - 838,306 1,335,184 157,640 837,373 - 22,621,143 20,582,542 13,299,094 4,944,639 Debt service: $ 1999 12,167,725 3,364,864 44,103,566 Economic and physical development Public works Public safety General governmental EXPENDITURES: Total revenues Miscellaneous - Investment earnings 783,854 Fines and forfeitures Contributions 1,246,090 Licenses and permits - 170,026 Rents 920,566 - 19,079,704 19,576,193 Charges for services $ $ 1998 Special assessments Grants and entitlements Intergovernmental Taxes REVENUES: (modified accrual basis of accounting) Last Ten Fiscal Years Changes in Fund Balances, Governmental Funds City of Flagstaff Schedule 4 $ $ 8.56% 2,938,879 (365,145) (11,947,847) 11,582,702 - - - - - - - - 3,304,024 54,107,289 8,756,365 1,616,866 2,265,000 7,042,108 9,582,477 6,826,950 727,764 13,533,876 3,755,883 57,411,313 4,347,916 720,000 - - 837,695 1,324,340 175,863 1,030,249 - 26,778,117 22,197,133 2000 $ $ 8.35% 12,713,968 3,785,219 (11,931,179) 11,241,055 - - - - - - - 4,475,343 8,928,749 52,523,698 2,165,989 1,498,920 2,708,000 7,735,150 9,325,540 8,009,996 1,066,174 15,480,047 4,533,882 61,452,447 3,300,386 - - - 993,585 1,318,450 269,794 1,025,625 - 26,203,650 28,340,957 2001 $ $ 7.00% (3,234,667) 2,486,460 (13,607,644) 12,994,104 - - - - - - - 3,100,000 (5,721,127) 68,918,699 5,788,006 1,443,074 2,979,000 15,648,877 10,030,055 10,187,883 950,242 16,057,019 5,834,543 63,197,572 3,169,599 - - - 991,131 2,014,357 350,894 1,676,615 - 24,008,885 $ $ Fiscal Year 30,986,091 2002 10.54% (1,347,639) 605,215 (13,184,784) 12,708,480 946,236 190,240 - - (9,429,957) - - 9,375,000 (1,952,854) 66,304,475 18,304,161 1,380,182 3,679,000 5,676,050 7,599,703 7,060,275 948,944 17,202,980 4,453,180 64,351,621 781,496 334,235 274,472 845,443 1,303,069 2,378,728 360,158 1,729,275 13,074,562 11,746,308 31,523,875 2003 $ $ 13.19% 17,469,212 26,326,147 (13,365,892) 12,996,534 634,411 1,059,221 - - (718,127) - 25,000,000 720,000 (8,856,935) 72,726,564 19,348,708 2,428,026 4,614,000 8,003,110 7,724,481 6,289,966 966,546 18,015,837 5,335,890 63,869,629 905,717 21,917 115,433 985,907 1,144,562 2,111,033 291,684 1,459,837 10,940,934 12,156,451 33,736,154 2004 $ $ 12.32% 1,657,424 4,645,277 (16,582,052) 15,312,931 2,114,398 - - - - 3,800,000 - - (2,987,853) 74,103,302 17,053,841 2,148,734 4,880,000 8,951,097 8,341,105 6,424,057 1,005,745 19,140,415 6,158,308 71,115,449 277,972 22,229 1,589,293 1,220,007 1,250,494 2,063,718 218,500 1,834,067 9,564,110 17,545,686 35,529,373 2005 $ $ 14.15% 17,829,287 29,490,427 (19,584,684) 17,317,133 37,892 220,086 - - - - 31,500,000 - (11,661,140) 89,047,123 25,054,173 2,552,016 6,505,449 10,700,196 7,178,029 7,640,313 1,168,424 21,626,547 6,621,976 77,385,983 204,678 129,930 2,238,285 1,195,464 1,394,174 2,834,506 30,016 2,199,819 10,880,792 17,173,416 39,104,903 2006 $ $ 12.69% 13,098,494 17,642,417 (19,488,466) 17,756,847 252,329 46,707 - - - - 19,075,000 - (4,543,923) 93,583,397 26,403,203 3,210,879 5,313,222 7,859,004 8,648,628 9,344,676 1,615,049 22,994,522 8,194,214 89,039,474 1,377,552 2,981,982 3,920,473 1,480,686 1,290,667 2,438,599 2,927 2,605,880 12,185,406 18,779,168 41,976,134 2007 108 3,427 3,425 3,619 4,209 4,453 2003 2004 2005 2006 2007 1998 - 2007 85.08% 3,070 2002 Change 2,853 2,759 2000 2001 2,578 2,406 1998 1999 Property Tax Year $ General Fiscal $ (modified accrual basis of accounting) (dollars in thousands) Last Ten Fiscal Years 54.59% 5,188 4,881 4,856 4,628 4,415 4,198 3,896 3,777 3,538 3,356 Property Tax Secondary Tax Revenue by Source, Governmental Funds City of Flagstaff Schedule 5 $ 21.56% 1,838 2,083 1,943 2,262 1,783 1,791 1,690 1,506 1,561 1,512 Other Taxes Franchise and $ 79.24% 16,071 14,707 13,148 12,055 11,469 11,783 10,811 10,510 9,369 8,966 Sales Tax City $ 49.64% 4,992 4,623 4,331 4,063 3,827 3,817 3,748 3,645 3,537 3,336 Tax and Booze Bed, Board $ - - - 100.00% 9,434 8,602 7,632 7,303 6,603 6,327 5,343 Tax Transportation $ 114.43% 41,976 39,105 35,529 33,736 31,524 30,986 28,341 22,197 20,583 19,576 Total 109 4,449,982 4,900,117 5,652,335 5,815,473 2005 2006 2007 4,076,034 2002 2004 4,919,575 2001 4,136,724 4,785,424 2000 2003 4,353,556 4,061,346 1998 1999 Sales Tax Year $ State Fiscal $ 6,946,680 5,655,641 4,918,476 4,777,145 5,557,918 5,526,159 6,432,879 6,062,290 5,489,912 4,725,837 Income Tax State (modified accrual basis of accounting) Last Ten Fiscal Years $ 2,792,404 2,655,653 2,461,425 2,427,367 2,378,466 1,803,900 1,913,662 1,902,188 1,847,142 1,533,501 In-Lieu Tax County Auto Intergovernmental Revenue by Source, Governmental Funds City of Flagstaff Schedule 6 $ 7,855,427 7,942,771 7,171,383 6,975,351 7,408,116 7,771,416 7,969,703 7,427,210 7,207,158 5,371,446 User Tax Highway $ Local 293,502 304,341 313,843 313,868 315,026 300,246 360,806 367,461 367,911 394,318 Assistance Transportation $ State - 55,665 - - - 47,598 142,793 312,249 - - HB 2565 $ 2,822,315 2,386,011 1,772,181 1,160,966 1,743,613 2,348,793 1,731,823 1,474,751 1,763,054 1,448,951 Grants Federal $ State Grants 1,214,162 940,441 2,868,033 454,212 823,701 437,543 317,059 370,391 272,297 553,963 & Other State $ County 721,797 420,426 628,198 468,069 - - - - - - LEAF IGA $ County Library 2,502,814 2,040,924 2,036,500 1,921,433 1,607,306 1,423,105 1,835,109 1,068,817 1,101,729 955,342 District Funding $ - - 39,640 148,992 850,000 274,091 580,241 3,007,336 218,384 35,000 Other $ 30,964,574 28,054,208 27,109,796 23,097,385 24,820,870 24,008,885 26,203,650 26,778,117 22,621,143 19,079,704 Total 110 35,621,681 29,405,068 27,328,709 27,532,435 28,051,846 2003 2004 2005 2006 2007 $ 261,009,908 237,795,313 221,179,062 211,870,593 194,944,521 197,065,506 192,395,566 190,494,910 173,940,245 162,168,726 Property Commercial $ 125,377,258 100,985,606 82,683,618 65,128,715 62,099,966 60,199,456 51,001,338 49,352,556 48,929,326 44,354,467 Property and Government Agricultural, Vacant, $ 398,783,838 315,182,546 276,187,028 242,190,760 215,320,769 201,111,291 189,936,966 180,667,749 170,882,075 161,906,739 Property Residential $ Less: 62,684,483 57,296,001 50,697,830 46,939,696 43,729,051 42,767,442 35,535,505 34,550,373 30,236,121 27,643,689 Property Tax-exempt (1) The Legal Classes changed in 2001 from prior years values are equal to actual value. Tax rates are per $100 of assessed value. Note: A portion of city property is reassessed every year. Property is assessed at actual value, therefore, the assessed Source: State of Arizona Department of Revenue, State and County Abstract of the Assessment Roll 33,068,867 31,232,035 2001 2002 21,765,191 2000 (1) 22,050,677 21,839,314 1998 1999 Valued Property Year $ Centrally Fiscal (modified accrual basis of accounting) Last Ten Fiscal Years Full Cash Value of Taxable Property City of Flagstaff Schedule 7 $ 750,538,367 624,199,899 556,680,587 501,655,440 464,257,886 448,677,678 429,030,400 407,730,033 385,566,202 362,625,557 Value Assessed Total Taxable $ 1.5929 1.6627 1.7127 1.7127 1.7127 1.7127 1.7127 1.7127 1.7127 1.7127 Tax Rate Total Direct 111 $ 1.7127 1.7127 1.7127 1.7127 1.7127 1.6627 1.5929 2001 2002 2003 2004 2005 2006 2007 5.9009 6.0786 5.7236 6.3679 6.7590 6.6741 6.6885 6.5585 6.5477 6.6634 Note: Tax rates are per $100 assessed valuation. 1.7127 2000 1.7127 1.7127 $ 1999 1998 District Year City School Fiscal (rate per $100 of assessed value) Last Ten Fiscal Years Direct and Overlapping Property Tax Rates, City of Flagstaff Schedule 8 $ 0.5269 0.5525 0.5660 0.5775 0.5809 0.5717 0.5724 0.5947 0.3952 0.3869 College Community $ 0.7521 1.2010 1.2212 1.2369 1.1941 1.0951 1.1336 1.1444 1.1094 1.1168 County $ 8.7728 9.4948 9.2235 9.8950 10.2467 10.0536 10.1072 10.0103 9.7650 9.8798 Total 112 4,222,503 4,139,636 3,430,932 2,805,099 Little America Refining Co. Cone Company George & Thomas DBA Flagstaff Medical Center Inc UniSource Energy Corporation $ Total Assessed 1,247,292 55,385,985 Butlington Northern Santa Fe Total Principal Taxpayers Source: Coconino County Assessor's Office 1,720,207 10,770,644 5,069,864 2,813,650 3,846,970 3,317,068 8,555,901 12,460,568 Value Woodlands Plaza Hotel LTD Partnership 8.47% 0.37% 0.46% 0.55% 0.56% 0.59% 0.62% 0.73% 1.20% 1.68% 1.71% Assessed Valuation Secondary 10 9 4 2 5 8 6 7 3 1 Rank 16.26% 0.37% 0.50% 1.64% 3.16% 1.49% 0.83% 1.13% 0.97% 2.51% 3.66% Assessed Valuation Secondary As a Percentage of the City Total As a Percentage 1998 of the City Total 5,583,821 10 9 8 7 6 5 4 3 2 1 Rank 2007 Northern Arizona Gas Division 63,670,332 4,460,032 Flagstaff Mall Associated Ltd. Partnership $ 4,642,491 Nestle Purina Petcare Company US West Communications 5,500,428 Walgreen Arizona Drug Co. 12,604,025 12,842,007 9,023,179 $ Value Total Assessed Qwest Corporation W L Gore & Associates Inc. Arizona Public Service Company Taxpayer Current Year and Nine Years Ago Principal Property Tax Payers City of Flagstaff Schedule 9 113 $ 6,138,071 6,526,010 6,936,955 7,271,109 7,613,349 7,897,298 8,494,694 9,075,322 9,615,015 2000 2001 2002 2003 2004 2005 2006 2007 5,754,253 1999 1998 for the Fiscal Year Ended June 30, $ 9,495,935 8,958,733 8,330,157 7,791,735 7,625,852 7,194,162 6,658,250 6,443,879 6,036,950 5,651,170 Amount 98.8% 98.7% 98.1% 98.7% 100.2% 98.9% 96.0% 98.7% 98.4% 98.2% of Levy Percentage Fiscal Year of the Levy Year Taxes Levied Collected within the Fiscal Last Ten Fiscal Years Property Tax Levies and Collections City of Flagstaff Schedule 10 $ 145,415 131,194 145,051 261,445 92,457 74,106 90,944 92,342 78,594 110,323 Years in Subsequent Collections $ 9,641,350 9,089,927 8,475,208 8,053,180 7,718,309 7,268,268 6,749,194 6,536,221 6,115,544 5,761,493 Amount 100.0% 100.0% 100.0% 102.0% 101.0% 100.0% 97.3% 100.2% 99.6% 100.1% of Levy Percentage Total Collections to Date 114 1.0000% 1.0000% 1.0000% 1.0000% 1.0000% 1.0000% 1.0000% 1.0000% 1.0000% 1.0000% 1999 2000 2001 2002 2003 2004 2005 2006 2007 Sales Tax Year 1998 General Fiscal Last Ten Fiscal Years 2.0000% 2.0000% 2.0000% 2.0000% 2.0000% 2.0000% 2.0000% 2.0000% 2.0000% 2.0000% & Beverage City Bed, Board Direct and Overlapping Sales Tax Rates, City of Flagstaff Schedule 11 0.6010% 0.6010% 0.6010% 0.6010% 0.5745% 0.5745% 0.5745% 0.0000% 0.0000% 0.0000% Transportation 5.6000% 5.6000% 5.6000% 5.6000% 5.6000% 5.6000% 5.6000% 5.0000% 5.0000% 5.0000% Arizona State of 1.1250% 0.9250% 0.9250% 0.9250% 0.9250% 0.8000% 0.8000% 0.8000% 0.8000% 0.5000% County Coconino 10.3260% 10.1260% 10.1260% 10.1260% 10.0995% 9.9745% 9.9745% 8.8000% 8.8000% 8.5000% Total 115 5,795 4,285 32,875 31,230 2004 2005 2006 2007 $ Special 19,339 340 415 685 944 1,188 Bonds Assessment $ 7,725 9,665 11,555 13,380 14,790 16,520 Bonds Revenue Governmental Activities $ 24,315 25,610 26,895 28,170 4,445 4,700 Bonds Corporation Facility Municipal $ 3,097 3,455 3,800 - - - Leases Capital $ General 13,310 16,294 18,880 21,253 22,958 25,050 Bonds Obligation $ 5,496 5,770 6,035 6,290 6,537 - Bonds Revenue $ These amounts are presented on the accrual basis of accounting. 32,957 2,671 3,031 3,380 3,716 4,048 Payable Loan Term Business-Type Activities Prior statements have not been restated to comply with the new requirements, so the City is not able to report a full ten years of historical information. The City implemented GASB 34 for the fiscal year ended June 30, 2003. See Schedule 17 for personal income and population data. New bond issues include $19.1 million special assessment debt; $30.8 million in loans; and $2.0 million in capital lease Note: Details regarding the city's outstanding debt can be found in the notes to the financial statements. 7,485 8,935 2003 $ Bonds Year 2002 Obligation Fiscal General (dollars in thousands, except per capita) Last Six Fiscal Years Ratios of Outstanding Debt by Type, City of Flagstaff Schedule 12 $ 4,482 2,652 2,732 - - - Leases Capital $ Total 141,951 99,332 77,628 78,953 60,875 60,441 Government Primary Percentage Income 4.1% 2.9% 2.2% 2.4% 2.0% 2.1% $ of Personal Per 2,288.42 1,601.35 1,268.74 1,288.61 997.46 1,021.65 Capita 116 4,285 32,875 31,230 2005 2006 2007 13,310 16,294 18,880 21,253 22,958 25,050 Bonds Obligation 44,540 49,169 23,165 27,048 30,443 33,985 Total 5.9% 7.9% 4.2% 5.4% 6.6% 7.6% Property Value of Taxable of Actual Percentage a Per 718.04 792.66 378.61 441.46 498.82 574.46 Capita b These amounts are presented on the accrual basis of accounting. Prior statements have not been restated to comply with the new requirements, so the City is not able to report a full ten years of historical information. The City implemented GASB 34 for the fiscal year ended June 30, 2003. b: Population data can be found in Schedule 17 a: See Schedule 7 for property value data Note: Details regarding the city's outstanding debt can be found in the notes to the financial statements. 5,795 7,485 2003 2004 8,935 Bonds 2002 Obligation General General Year Activities Activities Fiscal Business-Type Governmental General Bonded Debt Outstanding (dollars in thousands, except per capita) Last Six Fiscal Years Ratios of General Bonded Debt Outstanding City of Flagstaff Schedule 13 117 $ 113,207 * For debt repaid with property taxes, the percentage of overlapping debt applicable is estimated using taxable assessed property values. Applicable percentages were estimated by determining the portion of another governmental unit's taxable assessed value that is within the City's boundaries and dividing it by each unit's total taxable assessed value. This approach was also used for Coconino County's revenue bonds and certificates of participation. Note: Overlapping governments are those that coincide, at least in part, with the geographic boundaries of the City. This schedule estimates the portion of the outstanding debt of those overlapping governments that is borne by the residents and businesses of Flagstaff. This process recognizes that, when considering the City's ability to issue and repay long-term debt, the entire debt burden borne by the residents and businesses should be taken into account. However, this does not imply that every taxpayer is a resident, and therefore responsible for repaying the debt, of each overlapping government. Sources: Assessed value data used to estimate applicable percentages provided by the Coconino Finance Department. Debt oustanding data provided by each governmental unit. Total direct and overlapping debt 85,706 City direct debt - 5,351 7,817 14,333 Debt Overlapping Share of Estimated 27,501 0.00% 43.00% 43.00% 64.00% $ Applicable* Percentage Estimated Subtotal, overlapping debt 2,169 12,445 Coconino County Special Assessments 18,180 22,395 Coconino County Certificates of Participation $ Debt Outstanding Coconino County Revenue Bonds Other debt Flagstaff Unified School District Debt repaid with property taxes Governmental Unit (dollars in thousands, except per capita) Last Ten Fiscal Years Direct and Overlapping Governmental Activities Debt City of Flagstaff Schedule 14 118 as a percentage of debt limit Total net debt applicable to the 6% limit Legal debt margin (Available borrowing capacity) Total net debt applicable to 6% limit Debt limit equal to 6% of assessed valuation 6% Debt Limit as a percentage of debt limit Total net debt applicable to the 20% limit $ $ $ 69.41% 12,866 $ 8,930 21,796 1998 100.23% 36,285 $ $ $ Legal debt margin (Available borrowing capacity) 72,655 36,370 $ 1998 Total net debt applicable to 20% limit Debt limit equal to 20% of assessed valuation 20% Debt Limit (dollars in thousands) Last Ten Fiscal Years Legal Debt Margin Information City of Flagstaff Schedule 15 $ $ 62.28% 13,408 $ 8,350 21,758 1999 81.29% 40,006 $ 32,519 72,525 1999 $ $ 50.08% 15,414 $ 7,720 23,134 2000 59.54% 48,334 $ 28,779 77,113 2000 $ $ 37.53% 17,826 $ 6,690 24,516 2001 49.46% 54,676 $ 27,043 81,719 2001 $ 27.55% 20,182 $ 5,560 25,742 Fiscal Year 2002 49.54% 57,381 $ 28,425 $ Fiscal Year 85,806 2002 $ $ 17.56% 23,695 $ 4,160 27,855 2003 39.48% 66,569 $ 26,283 92,852 2003 $ $ 9.28% 27,544 $ 2,555 30,099 2004 32.30% 75,838 $ 24,493 100,331 2004 $ $ 3.81% 32,176 $ 1,225 33,401 2005 24.13% 89,692 $ 21,644 111,336 2005 $ $ 61.08% 23,250 $ 14,202 37,452 2006 39.31% 89,613 $ 35,227 124,840 2006 1.53% 44,352 680 45,032 2007 41.28% 106,248 43,860 150,108 2007 119 $ Debt Limit of 20% of Assessed Value Legal 6% debt margin (Available borrowing capacity) General Obligation Bonds Debt applicable to limit: $ $ Debt Limit of 6% of Assessed Value 6% Limitation $ Legal 20% debt margin (Available borrowing capacity) General Obligation Bonds Debt applicable to limit: 20% Limitation $ Net Secondary Assessed Value as of June 30, 2007 Legal Debt Margin Calculation for Fiscal Year 2007 Legal Debt Margin Information City of Flagstaff Schedule 15 (continued) 44,352,302 680,000 45,032,302 106,247,673 43,860,000 150,107,673 750,538,367 120 17,606,349 18,337,310 17,637,708 16,769,463 17,227,848 16,851,956 17,755,038 18,235,171 2000 2001 2002 2003 2004 2005 2006 2007 16,773,884 16,767,650 1998 1999 Revenues Year $ Gross Fiscal (dollars in thousands) Last Ten Fiscal Years Pledged Revenue Coverage City of Flagstaff Schedule 16 $ 12,892,795 11,791,895 10,693,901 10,645,073 9,865,571 9,587,743 9,757,448 8,311,186 7,700,535 7,916,657 Expenses $ 5,342,376 5,963,143 6,158,055 6,582,775 6,903,892 8,049,965 8,579,862 9,295,163 9,073,349 8,850,993 Service for Debt Available Revenue Net $ 274,108 264,717 255,648 246,890 238,431 - - - - - Principal $ - - - - - 204,693 214,084 223,153 231,034 17,741 Interest $ Debt Service Requirements Water and Sewer Revenue Bonds - - - - - 478,801 478,801 478,801 477,924 256,172 Total 11.16 12.45 12.86 13.77 26.95 - - - - - Coverage 121 7,207,158 7,427,210 7,969,703 7,771,416 7,408,116 6,975,351 7,171,383 7,540,081 7,855,427 2000 2001 2002 2003 2004 2005 2006 2007 5,371,446 1999 $ Revenue Year 1998 User Tax Fiscal Highway (dollars in thousands) Last Ten Fiscal Years Pledged Revenue Coverage City of Flagstaff Schedule 16 (continued) $ 1,940,000 1,890,000 1,825,000 1,410,000 1,730,000 1,490,000 1,420,000 1,375,000 1,290,000 1,230,000 Principal $ 469,585 526,285 571,910 607,160 668,260 900,492 960,133 1,016,507 1,082,148 1,147,592 Interest $ Debt Service Requirements 2,409,585 2,416,285 2,396,910 2,017,160 2,398,260 2,390,492 2,380,133 2,391,507 2,372,148 2,377,592 Total Highway User Revenue Bonds 3.26 3.12 2.99 3.46 3.09 3.25 3.35 3.11 3.04 2.26 Coverage 122 62,030 2007 (thousands 3,472,652 3,472,652 3,472,652 3,226,683 2,999,350 2,908,992 2,787,863 2,661,712 2,448,155 2,319,364 $ 28,045 28,045 28,045 26,328 24,795 24,259 23,716 22,815 21,232 20,191 Income Personal Income of dollars) Per Capita Personal 26.8 26.8 26.8 26.8 26.8 26.8 26.8 26.8 NA NA Age Median Education NA NA 89.8% 89.8% 89.8% 89.8% 89.8% 89.8% 89.8% 89.8% Grad or Higher High School Level - Percent Education 39.4% 39.4% 39.4% 39.4% 39.4% 39.4% 39.4% 39.4% School Unemployment - Arizona Department of Economic Security School enrollment - Arizona Department of Education and National Center for Education Statistics Education level - 2000 US Census Median age - 2000 US Census Per Capita Income - 2006 - 2007 Arizona Department of Economic Security, Workforce Development Statistics, estimate form 2006 Per Capita Income - 1998 - 2005 Arizona Department of Economic Security, Workforce Development Statistics 13,453 13,171 13,389 13,176 12,905 13,566 13,969 12,682 12,880 13,249 Enrollment Personal Income - 2006 - 2007 Arizona Department of Economic Security, Workforce Development Statistics, estimate form 2006 Personal Income - 1998 - 2005 Arizona Department of Economic Security, Workforce Development Statistics NA NA or Higher Bachelor's Degree Level - Percent Population - Arizona Department of Economic Security, except for 2000 which is the official census number Sources: 61,185 62,030 2005 61,270 2004 2006 59,160 61,030 2002 2003 52,894 57,700 2000 59,945 1999 2001 58,145 $ Population 1998 Year Last Ten Fiscal Years Demographic and Economic Statistics City of Flagstaff Schedule 17 * Rate 3.40% 5.00% 5.10% 5.20% 5.80% 5.10% 4.80% 5.20% 6.60% 6.60% Unemployment 123 12545 30,822 -- 3,778 1,985 1,560 1,300 1,205 901 580 402 400 434 Employees 1 2 3 4 5 6 7 8 9 10 Rank 2007 40.70% 12.26% 6.44% 5.06% 4.22% 3.91% 2.92% 1.88% 1.30% 1.30% 1.41% Percentage of Total City Employment 30,822 11894 3,393 1,999 1,700 1,300 1,075 948 400 400 400 279 Employees Long-term historical information not available. Source: (1) Greater Flagstaff Economic Council (GFEC) (2) GFEC is no longer operational and could not be used as a resource. The City independently researched this information It is believe employees were counted outside of the City for both the Grand Canyon Railway and SCA Tissue. 2000 U.S. Census Labor Force Total Northern Arizona University Flagstaff Medical Center Flagstaff United School District W.L. Gore & Associates Coconino County City of Flagstaff Coconino Community College Grand Canyon Railway Walmart Walgreens Distribution Center SCA Tissue Employer Current Year Principal Employers City of Flagstaff Schedule 18 1 2 3 4 5 6 9 8 -7 10 Rank 2006 (1) (2) 38.59% 11.01% 6.49% 5.52% 4.22% 3.49% 3.08% 1.30% 1.30% 0.00% 1.30% 0.91% Percentage of Total City Employment 124 Total General Government Management services Capital management City Court Public Safety Police Fire Public Works Economic and physical development Building Planning Tourism Culture and recreation Library Parks, recreation, and beautificatioin Highways and Streets Water and wastewater Environmental services Airport Stormwater Function/Program Last Ten Fiscal Years 55.00 17.00 6.00 35.75 68.00 35.25 72.00 27.00 9.50 - 53.50 16.25 6.00 35.25 65.25 36.00 71.00 27.00 9.50 657.75 132.75 84.00 30.25 130.50 81.25 30.25 642.25 65.00 20.25 1999 62.25 18.25 1998 Full-time Equivalent City Government by Function/Program City of Flagstaff Schedule 19 685.25 37.00 73.25 35.25 72.00 39.75 9.50 - 57.40 17.10 6.00 138.25 84.50 25.75 69.25 20.25 2000 700.00 37.50 74.00 35.25 71.75 40.00 9.50 - 57.00 17.00 6.00 147.50 84.50 26.75 72.00 21.25 746.25 38.75 79.25 35.25 74.75 45.00 9.50 - 48.00 17.25 6.00 148.25 97.25 26.75 77.00 19.00 24.25 741.25 39.50 74.50 36.25 74.50 45.00 9.50 - 49.00 17.25 6.00 148.25 96.75 27.00 74.00 18.50 25.25 739.00 39.50 67.75 36.25 73.00 45.75 9.50 5.75 43.75 17.25 11.75 150.00 96.75 27.00 73.00 15.50 26.50 Full-time Equivalent Employees as of June 30 2001 2002 2003 2004 743.45 40.00 63.95 36.25 74.50 52.25 9.50 5.00 43.00 17.25 13.75 151.00 96.75 25.00 74.25 14.50 26.50 2005 768.03 40.00 67.53 36.25 76.50 54.00 9.50 6.50 49.25 15.25 13.75 160.00 97.75 26.00 75.75 13.50 26.50 2006 809.69 43.13 69.82 37.25 79.00 62.60 10.00 6.50 53.25 18.75 15.75 164.00 100.75 27.00 81.89 13.50 26.50 2007 125 126 Calls dispatched to Police/Sheriff Calls dispatched to Fire Calls dispatched to Medical NA NA NA NA NA NA NA NA Police Felony reports Misdemeanor reports Domestive violence incidents Non-crime reports Accident reports 3,386 352 2,094 NA NA NA NA NA NA Emergency responses Fires response Other calls Inspections assigned Plan Reviews 11,005 10,431 575 2002 Fuel Management Plan Assessment (Acres) Site Marking (Acres) Site Thinning (Acres) Prescription Burn (Acres) Fire Court Criminal Filings Traffic filings Domestic Violence/Other filings Function/Program Last Six Fiscal Years Operating Indicators by Function/Program City of Flagstaff Schedule 20 NA NA NA NA NA NA NA NA 1,516 759 882 917 3,658 216 1,205 NA NA 11,068 10,613 622 2003 NA NA NA NA NA NA NA NA 2,020 408 521 709 5,616 265 2,023 2,212 1,340 10,236 10,388 682 73,559 11,266 9,435 4,979 12,378 1,464 8,818 3,616 1,065 311 792 834 6,722 228 1,905 2,006 1,348 9,227 11,253 673 Fiscal Year 2004 2005 77,239 11,741 9,175 5,337 13,381 1,598 9,136 3,313 585 662 694 557 7,684 351 1,323 1,966 1,280 9,705 10,575 616 2006 75,791 12,364 9,960 4,973 13,123 1,625 8,913 3,374 764 1,173 1,210 8,227 314 1,472 1,984 1,314 9,553 8,951 530 2007 127 (1) (1) NA 48.33 NA NA 59,963,201 29,051,528 110684 7886 713,193 36,057 2002 NA 45.36 NA NA 78,719,935 12,843,323 128153 9126 698,227 34,984 2003 47.95 564,065 781,893 67,214,811 18,123,934 109608 9213 673,786 38,387 NA 52.90 582,726 776,180 87,180,707 12,324,654 140233 9816 653,743 42,483 2,988 Fiscal Year 2004 2005 61.47 625,103 758,468 97,895,269 26,130,677 154321 9866 705,638 39,646 1,962 2006 These accumulation of these statistics began in FY2002 so 10 years historical information is not available. (1) This informaition is gathered and reported on a calendar year basis versus a fiscal year basis for all other measurements Sources: Various city departments Tourism RevPar Library Visits Circulation Community Development Residential Permit Valuation Commercial Permit Valuation Refuse collection Refuse collected (Landfill tonnage) Recyclables collected (total tons) Airport Fuel Flowage (Gallons Sold) Enplanements Streets Potholes repaired Function/Program Last Six Fiscal Years Operating Indicators by Function/Program City of Flagstaff Schedule 20 (continued) 66.86 643,174 789,621 153121 10356 643,643 44,598 2,443 2007 128 Airport Fixed base operators Locally based aircraft Tiedowns Enclosed hangars Open hangars Water and wastewater Miles of sewer Number of manholes Total active water accounts Average gallon water usage per household per month 1 110 49 33 38 227 Unavail 14,690 6,911 321 2,708 31 Unavail 602 19 60 Culture and recreation Number of developed parks Number of undeveloped parks Park acreage Flagstaff Urban Trail System - Miles Total number of recreation facilities Highways and Streets Miles of streets, alleys, and sidewalks Number of street lights 28 Unavail 5 1998 Public Safety Police patrol units Number of fire hydrants Numer of fire stations Function/Program Last Ten Fiscal Years Capital Asset Statistics by Function/Program City of Flagstaff Schedule 21 1 110 49 33 38 231 Unavail 14,961 6,576 324 2,740 31 Unavail 602 19 60 28 Unavail 6 1999 1 130 49 47 38 237 Unavail 15,230 6,546 324 2,768 31 Unavail 602 19 83 31 Unavail 6 2000 1 130 49 47 38 243 Unavail 15,600 6,848 330 2,777 26 3 578 21 88 32 Unavail 6 2001 1 130 49 42 38 250 5,857 15,802 6,897 350 2,853 27 3 586 22 90 32 2,382 6 1 130 49 42 38 271 5,979 16,356 6,727 350 2,898 27 3 586 22 92 32 2,435 6 Fiscal Year 2002 2003 1 130 49 42 38 275 6,097 16,948 6,070 365 2,921 28 4 704 28 124 26 2,478 6 2004 1 130 29 42 38 275 6,097 18,039 6,096 365 2,921 27 4 702 32 122 26 2,478 6 2005 1 130 18 61 48 293 6,496 17,872 5,488 386 3,037 27 4 702 34 122 26 2,598 6 2006 1 134 11 61 48 309 6,906 18,758 5,600 403 3,107 27 4 705 34 123 31 2,743 6 2007 129 $ $ (Claims Made) $ 3,000,000 1,000,000 $ $ $ Statutory 1,000,000 / disease policy limit 1,000,000 / disease employee 1,000,000 / each accident / general total limit 20,000,000 / each event/each wrongful Act $ Hangar Keepers Liability Contractual, Construction & Demolition Products/Completed Operations Liability, Aviation: terrorism, nuclear) (Excluding asbestos, discrimination, $ $ $ $ $ $ 30,000,000 / aggregate 30,000,000 / each occurrence 30,000,000 / each aircraft 30,000,000 / each occurrence 5,000,000 / general aggregate 5,000,000 / each occurrence/ Excess Liability #2 Following Form Over Excess Liability # 1 Supply Services, Mold, Terrorism, Asbestos, Lead, Condemnation, Sexual Abuse) (Excludes Airport, Housing Authority, Employment related practices, Failure to Public Entity Management, Employee Benefits Umbrella/Excess #1 - GL, Auto, Law Enforcement, Employer's Liability Worker's Compensation Employer's Liability aggregate each wrongful act 5,000,000 / aggregate 5,000,000 / each wrongful act 1,000,000 / aggregate 1,000,000 / each wrongful act 1,000,000 / each accident 1,000,000 / aggregate 1,000,000 / each wrongful act 2,000,000 / aggregate 1,000,000 / per occurrence * Liability Claims are Subject to a $50,000 Self Insurance Retention Employee Benefits Liability* $ (Claims Made Retro Date 6-1-95) $ Employment Practices Liability* (Claims Made Retro Date 6-1-95) $ $ $ $ $ $ Limit of Liability Public Entity Management Errors and Omissions* Auto Liability* Law Enforcement Liability* freestyle park, EMT's) (Includes 2 skateboard parks, bike General Liability* Liability Insurance: Coverage In Effect June 1, 2007 to June 1, 2008 Insurance Summary City of Flagstaff Schedule 22 Lab Equipment $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ International Travel - Executive Assistance (Inside and Outside) Theft, Disappearance, & Destruction Computer Fraud $ $ $ $ 116,900 / contents 250,000 Accidental death 5,000 / $500 deductible 1,000,000 / Medical Assistance 250,000 / $5,000 deductible 1,000,000 / $5,000 deductible $1,000 deductible 25,000,000 / $5,000 deductible 25,000 / each location 24,000 / $1,000 deductible 248,500 / $1,000 deductible 500,000 / $1,000 deductible 1,190,000 / $1,000 deductible 35,000 / $1,000 deductible 11,300 / $1,000 deductible 4,806,282 / $5,000 deductible ($5,000 deductible) 500,000 / contents each 500,000 / each building 220,000 / building / $5000/collision deductible 18,850,061 / $1000/comprehensive 7,000,000 / 24 hours 15,000,000 / $25,000 deductible 10,000,000 / $50,000 deductible 114,205,703 / $25,000 deductible Limit of Liability Dishonesty Bond Including Faithful Performance of Duty Blanket Public Employees and Treasurer Crime: Boiler and Machinery City Hall, Visitor Center, Airport Terminal Fine Arts Exhibition Floater Scheduled Fine Arts Replacement Cost Coverage Laptops and Portables - Computer Data and Media Computer Equipment and Peripherals Employee Hand Tools Contractors Equipment (actual cash value) City Hall, Library Municipal Court Flood Zone A Properties Auto Physical Damage Business Income/Extra Expense Flood Zones B and C Earthquakes Blanket Buildings and Personal Property Property Insurance: Coverage 130 Cit y of Flagstaf f 211 West Aspen Avenue Flagstaf f, Arizona 86001 w w w.flagstaf f. az .gov