Comprehensive Annual Financial Report For Fiscal Year Ended June 30, 2010 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, 2010 TABLE OF CONTENTS Page INTRODUCTORY SECTION Letter of Transmittal ......................................................................................................................................... iii GFOA Certificate of Achievement .....................................................................................................................xii Organizational Chart ....................................................................................................................................... xiii List of Elected and Appointed Officials ............................................................................................................ xiv FINANCIAL SECTION Independent Auditor’s Report ........................................................................................................................... 1 MANAGEMENT’S DISCUSSION AND ANALYSIS ........................................................................................................... 3 BASIC FINANCIAL STATEMENTS Government-wide Financial Statements: Statement of Net Assets ..................................................................................................................... 15 Statement of Activities ....................................................................................................................... 16 Fund Financial Statements: Balance Sheet – Governmental Funds.................................................................................................. 18 Reconciliation of the Balance Sheet to the Statement of Net Assets - Governmental Activities ............ 20 Statement of Revenues, Expenditures, and Changes in Fund Balances – Governmental Funds ............ 22 Reconciliation of the Statement of Revenues, Expenditures and Changes in Fund Balances of Governmental Funds to the Statement of Activities ....................................... 24 General Fund - Statement of Revenues, Expenditures, and Changes in Fund Balances – Budget and Actual .............................................................................................. 26 Highway User Fund - Statement of Revenues, Expenditures, and Changes in Fund Balances – Budget and Actual .............................................................................................. 27 Transportation Fund - Statement of Revenues, Expenditures, and Changes in Fund Balances – Budget and Actual .............................................................................................. 28 BBB Fund - Statement of Revenues, Expenditures, and Changes in Fund Balances – Budget and Actual .............................................................................................. 29 Statement of Net Assets – Proprietary Funds ...................................................................................... 30 Statement of Revenues, Expenses, and Changes in Fund Net Assets – Proprietary Funds ............................................................................................ 32 Statement of Cash Flows – Proprietary Funds ..................................................................................... 34 Notes to the Financial Statements ............................................................................................................. 38 COMBINING STATEMENTS Non-Major Funds – Other Governmental Funds: Special Revenue Funds ....................................................................................................................... 83 Debt Service Funds ............................................................................................................................. 83 Capital Projects 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 Special Assessment Bond Fund........................................................................................................... 93 Budgetary Comparison Schedules – Non-Major Governmental Funds Library Fund ....................................................................................................................................... 94 Community Redevelopment Fund ....................................................................................................... 95 Metropolitan Planning Organization Fund .......................................................................................... 96 General Obligation Bond Fund ............................................................................................................ 97 Secondary Property Tax Revenue Fund ............................................................................................... 98 Capital Projects Fund ......................................................................................................................... 99 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 City Tax Revenue by Classification.......................................................................................................... 111 Direct and Overlapping Property Tax Rates ............................................................................................. 112 Principal Property Tax Payers .................................................................................................................. 113 Property Tax Levies and Collections........................................................................................................ 114 Direct and Overlapping Sales Tax Rates .................................................................................................. 115 Ratios of Outstanding Debt by Type ....................................................................................................... 116 Ratios of General Bonded Debt Outstanding ........................................................................................... 117 Direct and Overlapping Governmental Activities Debt ............................................................................. 118 Legal Debt Margin Information ............................................................................................................... 120 Pledged Revenue Coverage ..................................................................................................................... 122 Demographic and Economic Statistics..................................................................................................... 127 Principal Employers ................................................................................................................................ 128 Full-time Equivalent City Government by Function/Program ................................................................... 129 Operating Indicators by Function/Program ............................................................................................. 130 Capital Asset Statistics by Function/Program .......................................................................................... 132 Insurance Summary ................................................................................................................................ 133 ii City of Flagstaff December 22, 2010 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, 2010, 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. Eide Bailly, LLP 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, 2010, 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, 2010, 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 requires that management provide a narrative introduction, overview, and analysis to accompany the basic financial statements in the form of Management’s Discussion and Analysis (MD&A). This letter of transmittal is designed to complement the MD&A and should be read in conjunction with it. Flagstaff’s MD&A can be found immediately following the report of the independent auditors. The City of 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 2010 estimate by the Arizona Department of Economic Security is approximately 65,522. The City of Flagstaff became a town in 1894, incorporated as a city in 1928 and its boundaries currently encompass an area of approximately 65 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 division 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 of Flagstaff has had negative economic indicators since approximately December 2007. All local and state shared sales tax, construction revenues, state shared income tax, and highway user (gas tax) revenues have decreased. Housing sales have decreased and the median home price has decreased moderately. Our community partners in both the public, private, and governmental sectors have experienced closure, staffing layoffs or furloughs, and declining revenues. A number of new projects anticipated to build the retail sector have been delayed or canceled due to the lack of available capital. The economic analysts for our local and state region give mixed messages on when the recovery may start. The City collects three different retail sales taxes: The first is a 1% tax on all general sales, except for food. This is a general purpose tax that benefits the General Fund. The City of Flagstaff is the only city left in the State of Arizona that has a sunset clause on the general sales tax. This tax must go before the voters every ten years to be validated. The City brought forth the renewal of this tax in the May 2010 general election and the tax has now been extended until November 2024. Local sales tax declines have been realized in almost every month since December 2007 in comparison to the same month in the prior year. Occasional categorical increases have not been sustained. Overall, the 1% general city sales tax receipts have decreased 3% from the prior fiscal year and cumulatively 15.8% in comparison to FY2008. While most local sales tax sectors have experienced reductions, the two industries with the greatest impact are construction and auto sales. Construction has an 18.8% decrease over the prior fiscal year and a cumulative two year decrease of 43.5%. Auto sales have an 8.9% decrease over the prior fiscal year and a cumulative two year decrease of 27.5%. Construction now only represents 11.4% of all sales tax collected, down from 16.8% two years ago. The second is a 0.721% sales tax on the same types of general sales; however the tax is restricted in use to certain transportation projects. The four components of this tax include Safety Improvements, Street Improvements, 4th Street Overpass, and Transit. The transportation tax components expire in 2020. As the use of this funding shift from construction to maintenance, the City will pursue a permanent component to this tax. As similar sales are taxed with this source, revenue declines follow the same trends as the general sales tax. The third tax is a Bed, Board, and Beverage (BBB) tax that collects an additional 2% for motel rooms/campgrounds, restaurants, and bars restricted in use to certain economic, arts, beautification, recreation or tourism activities. The BBB tax was also renewed in the May 2010 election and currently expires in 2028. Tourism is a major industry to our local economy and overall sales have been consistently decreasing on a monthly basis since approximately September 2008 when the gas prices were peaking. In FY 2010, BBB tax revenues declined 1.7% with a two year cumulative decrease of 2.9%. The State of Arizona has fared significantly worse in this arena, however the Flagstaff City Council elected to use approximately $250,000 in one time funds to bolster Flagstaff as a tourism destination resulting in the relatively minor revenue decreases previously reflected. State shared revenue consists of both a distribution of sales tax and income tax. These distributions are made based on a city or towns’ relative share of population in comparison with all other cities and towns. Except v during census years, Flagstaff’s population is determined by the Arizona Department of Economic Security based on a number of factors including new homes and student enrollment. Flagstaff’s greatest challenge is that while population is growing, it is growing at a slower rate than some of the other communities in the state. This has translated into a decreased proportionate share in the past. Currently the City is holding a steady population percentage in relationship to the rest of the state at approximately 1.25%. The State has experienced similar or greater revenue declines than the City. Construction, tourism, and auto sales are the three hardest hit industries. For State shared sales tax, the City received 7.8% less in FY 2010 than it did in FY2009 which is the third consecutive year of revenue decrease. In addition to sales tax declines, the distribution of personal income tax is not meeting stated projections. State shared income tax decreased 13.7% in FY2010 with additional declines anticipated in FY2011. Highway user revenue (gas tax) funds (HURF) ended FY2010 relatively flat compared to FY2009, however this is a 13.6% decrease from FY2008. HURF revenues have experienced four consecutive years of decreases. These revenues are distributed based on a fairly complex Arizona Department of Transportation formula, based on part on the amount of fuel purchased in our region. As fuel prices have decreased from their peak of $4 plus per gallon, we anticipate Flagstaff tourism to increase as we are a popular drive destination for Las Vegas, Los Angeles, and Phoenix, however that trend is not yet evident in our monthly receipts. Primary property tax revenues continue to see slight increases even though property tax valuation has decreased. This occurs as there is an approximate 18 – 24 month lag in home valuation and property tax assessment payment. The City is realizing reductions in full cash value and net assessed value that could impact future revenues. As the State of Arizona legislatively caps the primary property tax increases on an annual basis, homeowners realized a 4.8% mil rate decrease from $0.6803 to $0.6479 for FY2010. A combination of all the revenue declines noted caused the General Fund to budget at approximately 20% less than it had the prior year fiscal year. The City of Flagstaff reduced its’ overall staffing count by approximately 80 positions and delayed hiring throughout the year. FY2011 brings further budgeted reductions. 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. conditions change. The City continues to plan in a five to ten year horizon as economic 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 economic downturn, Flagstaff’s financial forecast generally includes decreases in sales tax, income tax, building related revenues, and investment income. Many user fees have been static or have decreased. 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 vi 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 within limited or decreasing resources. 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 1.65 %. 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. vii Additional information on the City of Flagstaff pension arrangements can be found in Note V.C. in the notes to the financial statements. MAJOR INITIATIVES AND SERVICE EFFORTS AND ACCOMPLISHMENTS During FY 2009-2010, 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 FY2009-2010. Public Safety The City shall increase the visibility and availability of public safety services through best practices and maximizing resources to prevent crime and fires. Public safety accomplishments include:   Opened a police storefront in Sunnyside The City Attorney’s office and the Police Department collaborated to establish a repeat offender program  Implemented a Homeless Court Program and protocols in coordination with local shelters  Implemented a new web-based service of crime mapping and police reports to improve customer service  Introduced new youth outreach initiatives like “Night Court” basketball to reduce juvenile crime in neighborhood  Projects such as “Party-poopers”, “Operation 40”, and “R.O.P.E.” have reduced party related disturbances and criminal activity attributed to street drunks Affordable Housing The City shall facilitate an environment where housing opportunities, both in acquiring and sustaining, match the income diversity of our community. Affordable housing accomplishments include:  Established 61 new affordable housing units  Entered into a design contract for design services on Izabel Homes  Completed a full revision to the Incentive for Affordable Housing Policy  Provided home repair assistance to moderate-income households through the Owner Occupied Housing Rehabilitation Program Family, Youth, and Community The City shall improve opportunities for all members of our community to actively participate, invest, and feel a part of a high quality of life community. Family, youth, and community accomplishments include:   Library bookmobile programming has been enhanced for both seniors and schools Promoted early literacy by creating preschool subject-specific book boxes and purchasing interactive learning materials  Introduced 23 new programs and classes at the Aquaplex  Installed new outdoor public art including the community mural on Summit Street and the PAWS viii (Mountain Lion) project  Provided numerous Historic Route 66 and Haunted tours to over 1300 participants  Enhanced the Historic Tours program by adding a Route 66 tour during the International Route 66 Days Festival Community Sustainability The City shall encourage the community and operate the government in a manner that sustains economic vitality, environmental protection, and social inclusion so that current and future residents and visitors may enjoy the same or better quality of life. Community sustainability accomplishments include:  The Regional Transportation Plan update was completed  Fleet Services and Sustainability coordinated efforts to develop “Green Fleet Policies”  Successfully petitioned the Arizona Department of Environmental Equality to implement the Wood Waste Pilot study at the Cinderlakes Landfill  The Sustainability division developed a residential energy efficiency program that reduced approximately 3.6 million kilowatt hours and 6.78 billion pounds of carbon dioxide equivalents from being released in the atmosphere  Revised the University to Business Connection program with Northern Arizona University to align the  Established a new client for the University to Business program  Conducted a “Listening Tour” with key economic development stakeholders to gain a greater program with the University’s academic year and take advantage of the Capstone project process understanding of the needs, abilities, and resources to revitalize the City’s economic development program  Completed the rework of the CityofInnovation.com website, highlighting the community’s advances in the sciences, renewable energy, and medical device manufacturing  Worked with the Sustainable Economic Development Initiative to measure economic sustainability and assisted in the development of a business plan for the proposed Workforce Training Center  Gained Federal Aviation Administration approval and worked with Mesa Air as they introduced regional jet service to Flagstaff Facilities and Basic Services The City shall identify and provide the desired or current service levels and accompanying facilities of basic municipal services. Facilities and basic services accomplishments include:  Completed a successful street overlay stimulus project for approximately $3.5 million dollars  Provided live streaming of council meetings, special meetings, and all employee meetings  Established a bond advisory task force to recommend projects to council for a November 2010 special election  Added private wireless hotspots for City staff and free public wireless internet access to locations that now include Pulliam Airport, City Hall, the Aquaplex, multiple fire stations, the Adult Center, and the Eastside Utilities facility  Through the use of Chemical De-icer, accident ratios have dropped 30% in three years during winter months Fiscal Health The City shall maintain good fiscal health through sound financial management and fiscal integrity. ix Fiscal accomplishments include:  Revised the City’s 457 deferred compensation plan document to reflect current IRS regulations and compliment the State retirement plans  Evaluated and implemented the SmartWorks program to provide for succession and the transfer of knowledge as key personnel retire  Received the Arizona Governmental Safety Association Municipality Safety Award for the greatest improvements in safety results  Successfully renegotiated an Arizona Public Service franchise agreement which was accepted by voters in the May 2010 general election  Automated on-line bill payment so that funds are remitted to the City electronically rather than through a check  Conducted a Business Outreach Program to educate the vendor community on “How to Do Business with the City of Flagstaff”  Implemented an on-line fillable vendor application form on the City website  Initiated vendor payments through electronic funds transfers representing 6% of all City payments made 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, 2009. This was the 16th 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 2009-2010 annual budget (16 years in a row) with special performance measures recognition (3 years in a row). 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 Maryellen Pugh, Finance Manager and to the entire finance staff who prepared this CAFR. 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 auditors, Eide Bailly LLP, also contributed significantly to this report. x xi xii City of Flagstaff Citizens of Flagstaff City Council Special Committees City Manager City Magistrates City Court Board and Commissions Deputy City Manager Community Enhancement City Attorney Deputy City Manager Utilities, Service and Safety Community Development Division Utilities General Administration Division Management Services Division Public Works Division IT Division Economic Vitality Division Human Resources Division Community Enrichment Division Police Department Fire Department xiii Legal City of Flagstaff, Arizona List of Elected and Appointed Officials June 30, 2010 Elected Officials Mayor Sara Presler Vice Mayor Celia Barotz Councilmember Art Babbott Councilmember Karla Brewster Councilmember Coral Evans Councilmember Scott Overton Councilmember Al White Appointed Officials City Manager Kevin Burke City Attorney Patricia Boomsma City Treasurer Barbara Goodrich City Clerk Margie Brown xiv INDEPENDENT AUDITOR’S REPORT The Honorable Mayor and Members of the City Council City of Flagstaff, Arizona Flagstaff, Arizona We have audited the accompanying financial statements of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information and the budgetary comparison of the general fund and major special revenue funds of the City of Flagstaff, Arizona (the City) as of and for the year ended June 30, 2010, 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, the business-type activities, each major fund, and the aggregate remaining fund information and the respective budgetary comparison for the general fund and the special revenues funds of the City at June 30, 2010, and the respective changes in financial position and cash flows, where applicable, for the year then ended, in conformity with accounting principles generally accepted in the United States of America. As discussed in Note II.D to the financial statements, the City applied an adjustment to beginning fund balances and net assets to correct revenue recognition of intergovernmental revenues. The City implemented GASB 54, Fund Balance Reporting and Governmental Fund Type Definitions in 2010 as discussed in Note II.D to the financial statements. The Management’s Discussion and Analysis and budgetary comparison information, as noted in the table of contents, are not a required part of the basic financial statements but are supplementary information required by accounting principles generally accepted in the United States of America. We have applied certain limited procedures, which consisted principally of inquires of management regarding the methods of measurement and presentation of the supplementary information. However, we did not audit the information and express no opinion on it. w ww .ei de bai ll y .com 877 W. Main St., Ste. 800 | Boise, ID 83702-5858 | T 208.344.7150 | F 208.344.7435 | EOE 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, 2010. 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 –xi of this report. FINANCIAL HIGHLIGHTS  The assets of the City exceeded its liabilities at the close of the most recent fiscal year by $597.4 million (net assets). Of this amount $60.4 million (unrestricted net assets) may be used to meet the government’s ongoing obligations to citizens and creditors.  The government’s total net assets increased by $34.1 million during the fiscal year. This is a result of an increase in net assets in the governmental activities of $23.0 million and an increase in net assets in the business type activities of $11.1 million.  As of June 30, 2010, the City’s governmental funds reported combined ending fund balances of $46.1 million, an increase of $6.8 million in comparison with the prior fiscal year. This increase is due to issuance of capital debt. Approximately 29.1% of this total amount ($13.4 million) is unassigned fund balance available for spending at the government’s discretion.  As of June 30, 2010, total unassigned fund balance for the general fund was $13.4 million, or 28.0% of total general fund expenditures ($48.0 million).  As of June 30, 2010, the City’s proprietary funds reported combined total net assets of $315.9 million, and total unrestricted net assets of $10.9 million. $7.1 million of the unrestricted net assets are in the Water and Wastewater Fund. 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. information in addition to the basic financial statements themselves. This report also contains other supplementary Government-wide Financial Statements The government-wide financial statements are designed to provide readers with a broad overview of the City’s finances, in a manner similar to a private-sector business. The statement of net assets presents information on all of the City’s assets and liabilities, with the difference between the two reported as net assets. Over time, increases or decreases in net assets may serve as a useful indicator of whether the financial position of the City is improving or deteriorating. The statement of activities presents information showing how the City’s net assets changed during the most recent fiscal year. All changes in net assets are reported as soon as the underlying event giving rise to the change occurs, regardless of the timing of related cash flows. Thus, revenues and expenses are reported in this statement for some items that will only result in cash flows in future fiscal periods such as revenues pertaining to uncollected taxes 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 3 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 the Municipal Facilities Corporation (MFC). The MFC, although also legally separate, functions for all practical purposes as a department of the City, and therefore has been included as an integral part of the primary government as a blended component unit. The government-wide financial statements can be found on pages 15 - 17 of this report. Fund financial statements The fund financial statements are designed to report information about groupings of related accounts that are used to maintain control over resources that have been segregated for specific activities or objectives. The City, like other state and local governments uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. All of the funds of the City can be divided into two categories: governmental funds and proprietary 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 funds which are all considered to be major funds. combined into a single aggregated presentation. Data from the remaining governmental funds are 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, Capital Projects funds, Debt Service funds, and Enterprise funds. A budgetary comparison statement has been provided for the General and special revenue major governmental funds to demonstrate compliance with the respective budgets. The basic governmental fund financial statements can be found on pages 18 - 29 of this report. 4 Proprietary funds: Proprietary funds are generally used to account for services for which the City charges customers – either outside customers, or departments of the City. Proprietary funds provide the same type of information shown in the government-wide financial statements, only in more detail. The City maintains the following two types of proprietary funds:  Enterprise funds are used to report the same function presented as business-type activities in the government-wide financial statements. The City uses 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.  Internal Service funds are used to report activities that provide supplies and services for certain City programs and activities. The City uses an internal service fund to account for its workers compensation, health insurance, other risk related activity including claims adjustment, and general liability and property insurance. Because these services predominantly benefit governmental rather that business- type functions, they have been included within governmental activities in the government-wide financial statements. The internal service fund is combined into a single, aggregated presentation in the proprietary fund statements. Individual fund data for the internal service fund is provided in the form of combining statements elsewhere in this report. The basic proprietary fund financial statements can be found on pages 30-37 of this report. 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 38-82 of this report. Combining statements The combining statements referred to earlier in connection with non-major governmental funds are presented on pages 84-87. 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 pages 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 $597.4 million as of June 30, 2010. Of the City’s net assets, 86.5% reflects its investment of $516.5 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. 5 Net A s s ets June 30, 2010 and 2009 ( in thous ands of dollar s ) Gov er nm ental Ac tivities 2010 Current and other assets Capital assets Total assets $ 85,845 Bus ines s -type A ctiv ities 2009 $ 61,830 2010 $ Total 2009 26,658 $ 27,179 2010 $ 112,503 2009 $ 89,009 295,289 295,544 357,105 350,271 652,394 645,815 381,134 357,374 383,763 377,450 764,897 734,824 144,580 Long-term liabilities 83,866 80,538 61,298 64,042 145,164 Other liabilities 15,828 18,421 6,576 8,558 22,404 26,979 99,694 98,959 67,874 72,600 167,568 171,559 507,381 Total liabilities Invested in capital assets, 213,763 215,673 302,784 291,708 516,547 Restricted net of related debt 18,213 7,975 2,209 1,594 20,422 9,569 Unrestricted 49,464 34,767 10,896 11,548 60,360 46,315 258,415 $ 315,889 Total net assets $ 281,440 $ $ 304,850 $ 597,329 $ 563,265 Total assets increased due to change in investments and special assessment receivables. Total liabilities decreased due to the application of debt principal payments. A portion of the City’s net assets, $20.4 million (3.4%) represents resources that are subject to external restriction on how they may be used. The remaining balance of unrestricted net assets, $60.4 million (10.1%) may be used to meet the government’s ongoing obligations to citizens and creditors. At the end of the current fiscal year, the City is able to report positive balances in all three categories of net assets for the government as a whole, as well as for the business-type activities. Current assets for governmental activities have increased by 38.8% ($24.0 million). The largest increases are in special assessments receivable ($18.5 million), investments ($6.8 million) and intergovernmental receivable ($1.0 million) while the largest decrease was in restricted cash and investments ($3.9 million). Capital assets of the governmental activities, funded through operations, debt proceeds, grants, and contributions, decreased by 0.1% ($0.3 million) due capital outlays offset by the transfer of infrastructure assets for Aspen Place at Sawmill to proprietary funds. Major capital outlays include Aspen Place at Sawmill ($16.5 million), streetscape improvements ($0.9 million), street construction and improvements ($6.1 million), and ice rink reconstruction ($1.4 million). Governmental activities long-term liabilities increased by 4.1% ($3.3 million) primarily due to new bonded debt issues. Other liabilities decreased by 14.1% ($2.6 million) primarily due to increases in accounts payable ($2.1 million) and unamortized bond premium ($0.9 million). Overall business-type net assets have increased by 3.6% ($11.0 million) primarily to capital asset additions and the reduction of liabilities. Investment in capital assets, net of related debt, has increased by $11.1 million. Of this, 79.5% ($8.8 million) is from private development donations. The primary capital additions for business-type activities are the Rio de Flag hydrology improvements at $2.1 million and well development at $3.1 million. 6 Analysis of Change in Net Assets The City’s overall net assets have increased by $34.1 million during the current fiscal year. These increases are explained in the government and business-type activities discussion to follow. Changes in Net As s ets For the Year s Ended June 30, 2010 and 2009 ( in thous ands of dollar s ) Gov er nm ental Ac tiv ities 2010 Bus ines s -type Ac tiv ities 2009 2010 Total 2009 2010 2009 Rev enues Program Revenues: Charges for services Operating grants and contributions $ 7,752 $ 7,832 $ 31,587 $ 31,309 $ 39,339 $ 39,141 6,655 5,991 120 11 6,775 6,002 36,950 9,881 6,791 8,744 43,741 18,625 Property taxes 12,798 12,262 - - 12,798 12,262 Sales taxes 30,430 31,420 - - 30,430 31,420 State shared taxes 14,880 16,629 - - 14,880 16,629 449 1,466 111 206 560 1,672 3,080 394 273 288 3,353 682 112,994 85,875 38,882 40,558 151,876 126,433 Capital grants and contributions General Revenues: Investment earnings Other Total revenues Expens es 8,238 10,913 - - 8,238 10,913 Public safety General government 26,593 29,287 - - 26,593 29,287 Public works 1,503 2,109 - - 1,503 2,109 Economic and physical development 8,827 10,347 - - 8,827 Culture and recreation 12,508 13,121 - - 12,508 10,347 Highways and streets 17,856 19,298 - - 17,856 19,298 3,918 3,653 - - 3,918 3,653 - - 21,738 22,802 21,738 22,802 Environmental - - 11,096 11,783 11,096 11,783 Airport - - 4,275 4,198 4,275 4,198 Stormwater - - 1,259 1,203 1,259 1,203 79,443 88,728 38,368 39,986 117,811 128,714 33,551 (2,853) 514 572 34,065 (10,525) (9,651) 10,525 9,651 (12,504) 11,039 10,223 Interest on long-term debt Water and wastewater Total expenses Increase in net assets before transfers Transfers Change in net assets Net assets at beginning of year, as restated Net assets at end of year 23,026 258,414 $ 281,440 $ 270,918 304,850 258,414 $ 315,889 $ 13,121 (2,281) - - 34,065 (2,281) 294,627 563,264 304,850 $ 597,329 565,545 $ 563,264 Governmental activities Governmental activities increased the City’s net assets by $23.0 million. The key factors for this increase are as follows:  Combined operating grants, capital grants and contributions have increased by 274.0% ($27.1 million) as a result of increase in federal and local stimulus capital projects in the current year.  Property tax increases are due to increases in assessed valuation.  City sales tax revenues decreased by 3.2% ($1.0 million). Comparing actual revenues to budgeted revenues the decrease is also $1.0 million less. The decrease in the city general sales tax, the Bed, Board, and Beverage sales taxes, and the transportation taxes are $685,572, $172,497, and $187,725 respectively.  The state shared revenues decreased at a higher rate than the City. Revenues are 10.5% ($1.7 million) below prior year actual.  Other revenues have increased primarily due to insurance reimbursements for the ice rink collapsed roof.  Expenses have decreased primarily due to staffing decreases and cuts to contractual and commodities to better align with decreasing revenues. The City eliminated 78.3 positions for the fiscal year. 7 Business-type activities Business type activity had net asset increase of $12.5 million. The key factors for this increase include:  Charges for service increased slightly by .9% ($0.3 million). Water and wastewater, airport, and stormwater increased $210,946, $171,924, and $110,560. While environmental services decreased $216,136 as a result of less landfill revenues due to the construction industry.  Capital grants and contributions decreased by 22.3% ($2.0 million) due to the grant project completed in the prior year for the runway extension work at the airport.  Investment earnings are down 46.1% ($0.1 million) due to decreased cash and investment balances spent toward capital improvements and lower interest rates.  Expenses have decreased over prior year (4.0%, $1.6 million). Decreases are related to controlling expenditures during the economic changes the city is going through. The City eliminated 9.5 positions for the fiscal year. The following two charts illustrate the City's governmental expenses by function and its revenues by source. Expenses and Program Revenues – Governmental Activities $40,000,000 Expenses $35,000,000 Program Revenues $30,000,000 $25,000,000 $20,000,000 $15,000,000 $10,000,000 $5,000,000 $0 General government Public safety Public works Econ & phys development Culture & recreation Highways & streets Interest on long-term debt Revenues by Source – Governmental Activities State shared tax 13.2% Investment earnings 0.4% Miscellaneous 2.7% Charges for services 6.9% Operating grants and contributions 5.9% Sales tax 26.9% Capital grants and contributions 32.7% Property taxes 11.3% 8 As shown, public safety is the largest function as measured by expense (33.5%) followed by highways & streets (22.5%), culture and recreation (15.7%), and economic and physical development (11.1%). General revenues such as sales taxes, state shared taxes, and property taxes are not shown by program, but are effectively used to support program activities citywide. For governmental activities overall, without regard to program, capital grants and contributions are the largest single source of funds (32.7%), followed by sales tax (26.9%) and state shared taxes (13.2%). Last year, capital grants and contributions were ranked fourth and property taxes ranked third. The following two charts illustrate the City's business type expenses by function and its revenues by source. Expenses and Program Revenues – Business Type Activities $30,000,000 Expenses $25,000,000 Program Revenues $20,000,000 $15,000,000 $10,000,000 $5,000,000 $0 Water and wastewater Environmental Airport Stormwater Revenues by Source – Business-type activities Investment Operating grants and contributions earnings Capital grants 0.3% and contributions 17.5% 0.3% Other 0.7% Charges for services 81.2% As shown Water and Wastewater has expenses of $21.7 million for the fiscal year, followed by Environmental Services with $11.1 million, the Airport with $4.3 million and Stormwater with $1.3 million. For the fiscal year, 9 program revenue exceeded expense for the Water and Wastewater Fund, Environmental Services Fund, and Stormwater Fund. Water & Wastewater, Environmental Services, Airport, and Stormwater received the majority of their program revenues through charges for services (73.5%, 99.2%, 81.3%, and 87.7% respectively). The Water and Wastewater fund receives 26.4% of support through grants and contributions. Charges for services provided the largest share of revenues (82.0%) for all of the business-type activities, followed by capital grants and contributions (17.6%). The proportionate share of revenue from charges for service and capital grants and contributions varied from the prior year split of 77.2% and 21.6% respectively. contributions. The shift is primarily due to the decreases in private The operating expenses for the business type activities decreased (4.0%, $1.6 million) which a result of Water and Wastewater and Environmental Services cutting back on operations due to declining revenues. . Environmental services and stormwater increased user fees. Water and wastewater, airport and stormwater realized increased charge for service revenue at 1.2%, 14.5% and 8.9% respectively. Environmental service charges for services decreased 1.9% due to lower construction waste dumped at landfill. 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 $46.1 million, an increase of $6.8 million in comparison with the prior year. Approximately $13.4 million of the total ending fund balance constitutes unassigned fund balance, which is available for spending at the City’s discretion. The remainder of fund balance is (1) non spendable ($583,406) for inventory and perpetual care, (2) restricted ($20.5 million) for special revenue funds, debt service, court improvements and operations, grant purposes, and capital projects, (3) committed ($2.3 million) for library services, development fee projects, and perpetual care, (4) assigned ($9.2 million) for library and court services, capital and budgetary reserves, and real estate. Revenues for governmental functions overall totaled $84.2 million in the fiscal year ended June 30, 2010 which represents a decrease of 1.2% or $1.0 million from the prior fiscal year. Three revenue categories show increases over prior year. These include special assessments (>100.0%, $1.5 million), grants and entitlements (16.3%, $1.6 million), license and permits (4.7%, 64,294), fines and forfeitures (7.8%, $118,599), and rents (11.7%, $166,442). Taxes that include city and state revenues have decreased by 0.8% ($355,120). All other revenue categories experienced decreases including intergovernmental (9.0%, $1.9 million), charges for services (8.0%, $267,415) investment earnings (69.7%, $1.0 million), contributions (59.0%, $784,131), and miscellaneous (40.1%, $153,015). Investment decreases are attributed to a lower rate of return on investments. 10 Expenditures for governmental functions ($85.5 million) decreased by 23.5% ($26.3 million) from the prior fiscal year. The expenditure decrease is driven by decreases in ongoing revenues. They City’s budget direction for the fiscal year was an initial 19% cut to operational budgets. In addition, capital programs and set asides have been reduced. Major project improvements have been discussed in prior sections. In the fiscal year ended June 30, 2010 expenditures for governmental functions exceeded revenues by approximately $1.2 million. The revenues have not kept pace with operating expenditures in addition 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 unassigned fund balance of the General Fund was $13.4 million. As a measure of liquidity, it may be useful to compare total unassigned fund balance and total fund balance to total fund expenditures. The unassigned fund balance represents 28.0% of General Fund expenditures. The fund balance in the City’s General Fund decreased by $566,635 during the fiscal year as expenditure had positive growth of 8.9% and revenues had negative growth of 4.1%. Overall, the General Fund’s performance resulted in expenditures in excess of revenues in the fiscal year ended June 30, 2010 of $1.7 million. This is a decrease of approximately $2.7 million over the comparable figure from the prior year which resulted in expenditures in excess of revenues of $4.4 million. The Highway User Revenue Fund and Transportation Fund balances increased by $3.1 and $1.3 million respectively due to a lower level of capital projects to offset the decreased revenues. The BBB Fund balance increased slightly $5,211 because decreased revenues were matched with decreasing expenditures. The Special Assessment Bond Fund balance increased $15,399 primarily due to interest earnings. 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, Airport, and Stormwater. The internal service fund, which is used to account for risk management and health insurance activities, had unrestricted net assets of $3.2 million. The total growth in net assets for the proprietary funds was $11.1 million. The Water and Wastewater fund and Stormwater fund had positive growth in their net assets for the fiscal year ended June 30, 2010 while the Environmental Services decreased slightly and Airport fund deceased $2.3 million due to depreciation. The major part of the increase is related to capital contributions in the Water and Wastewater fund ($8.8 million) Stormwater fund ($4.3 million). Budget Highlights The City’s final budget differs from the original budget for certain divisions within the General fund as Council approved certain appropriation transfers within the General fund. Budget increases included $1.2 million for Community Enrichment-Recreation for the reconstruction of the Jay Lively Ice Rink due to a collapsed roof during a snow storm and $25,000 for General Administration-Flagstaff Municipal Court for increased cost of the contracted public defender. The General fund was under final budgeted total revenues by 6.6% ($3.3) million primarily due to decreases in city and state shared sales tax collections, decreased offsite permitting and inspection revenues, loss in revenue at the ice rink due to a collapsed roof, and investment earnings. Expenditures are under budget in every category due to advanced planning for revenue shortfalls, normal salary savings due to turnover, and not spending appropriation on 11 several large budgeted projects, both capital and non-capital. 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 $7.3 million for the Rio de Flag flood control project of which only $2.1 million actually transferred at year end. 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, 2010 amount to $652.4 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 1.0% ($6.8 million). The following table reflects the capital assets at the end of the fiscal year: C ap ital A s s ets , Net o f Dep r ec iatio n Ju n e 3 0 , 2 0 1 0 an d 2 0 0 9 ( in th o u s an d s o f d o llar s ) G o v er n m en tal A c tiv ities 2010 Land $ Buildings 43,652 54,866 Bu s in es s -T y p e A c tiv ities 2009 $ 2010 43,352 $ 10,301 To tal 2009 $ 10,301 2010 $ 53,953 2009 $ 53,653 52,734 60,696 47,796 115,562 100,530 242,332 Improvements 10,073 11,142 242,322 231,190 252,395 Machinery and equipment 11,123 12,342 27,993 10,740 39,116 23,082 160,066 139,791 - - 160,066 139,791 Infrastructure Construction in progress Total 15,509 36,183 15,793 50,244 31,302 86,427 $ 295,289 $ 295,544 $ 357,105 $ 350,271 $ 652,394 $ 645,815 Construction in progress had a net decrease of 63.8% ($55.0 million). Major completed construction in progress includes the Wildcat wastewater plant ($37.5 million), Aspen Place at Sawmill redevelopment ($23.3 million), fire stations ($4.0 million), and streetscapes ($1.2 million). Major additions to construction in progress include Jay Lively Ice Rink reconstruction ($1.4 million), transportation and streets projects ($2.9 million), waterline improvements ($1.0 million), and fire stations ($0.8 million). The increase to buildings, improvements, and machinery and equipment 11.2% ($41.1 million) is mainly related to the completed Wildcat wastewater plant improvements. 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 58-59 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 $128.2 million. Of this amount, $31.6 million is general obligation bonds backed by the full faith and credit of the City, $18.6 million is improvement district bonds, $11.3 million is revenue bonds, $19.9 million is for the Municipal Facility Corporation, $4.9 is for certificates of participation, and $41.9 million are outstanding leases or loans for the airport, water and wastewater, and city-wide energy conservation improvements. 12 O u ts tan d in g Deb t Ju n e 3 0, 2 0 1 0 an d 2 0 0 9 ( in th o u s an d s o f d o llar s ) G o v er n m en tal A c tiv ities 2010 General obligation bonds $ Special assessment bonds 2009 25,865 $ 18,615 Revenue bonds Other debt Lease/Loans $ 27,645 6,665 4,865 24,850 21,625 77,999 2010 $ 2,430 $ 75,734 $ 2010 7,460 $ 31,555 2009 $ - 4,614 4,918 11,279 9,783 - - 24,850 21,625 50,240 18,615 35,105 - 39,936 $ T o tal 2009 5,690 19,169 2,004 Total debt payable Bu s in es s -ty p e A c tiv ities 40,967 $ 19,169 41,940 53,345 $ 128,239 43,397 $ 129,079 During fiscal year 2010, the City’s total bonded debt decreased by $0.6 million. The City issued $1.3 million in loans for water and wastewater projects to provide drilling and equipping additional water wells and development of future water rights and $3.7 million in revenue bonds for construction of a business incubator, and $5.0 million in certificates of participation for the street overlay program and purchase of fire equipment for the fiscal year ended June 30, 2010. 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, 2010 is $51.8 million in the 6% category and $137.7 million in the 20% capacity. Additional information on the debt limitations and capacities may be found in Schedule 16 in the statistical section of this report. During the year, the City maintained the following bond ratings: C ity o f F lag s taff Bo n d ed Debt R atin g s A s o f Ju n e 3 0 , 2 0 1 0 Mo o d y ' s In v es to r s S tan d ar d & S er v ic e Po o r ' s General Obligation Aa2 AA Municipal Facilities Corporation Aa3 AA Additional information on the City’s long-term debt can be found in Section IV F on pages 63-73 of the Notes to the Financial Statements. Economic Factors and Next Year’s Budget and Rates The Fiscal Year 2010/2011 budget preparation was influenced by the following factors:  Reductions in every major operating fund due to continued revenue declines in city sales taxes, state shared tax revenues, highway user (gas tax) revenues, and building revenues   Continued focus on maintaining public safety and recreation operation levels with lower budgetary impacts The City reduced budgeted staffing 3.1% (25.65 positions) and correspondingly reduced service levels in every City division  The City funded 17.88 positions on a one year basis and will reconsider these in the Fiscal Year 2011/2012 budget process  Created one time savings by using Smartworks program for personnel near retirement  The City created the Budget Task Force Committee to provide public input and concerns to the City Council 13  Continue to monitor State legislature to be aware of potential budget impacts on cities  Multiple Division reorganizations to accommodate budget decreases  Considerations of the impact of the continued local market downturn and the safeguards needed to deal with continued declines  The continued pursuit of federal stimulus and other grant dollars to enhance the local economy  Realignment of core services within reduced budget parameters that maintain Council goals  The continued implementation of electronic information sharing to facilitate transparency in service provision  The development of a more strategic fiscal policies  The impact of a formation of a downtown parking district  Presented four bond project to the voters of which two were approved; Public Safety Communications and Street and Utility Improvements  Completion of projects approved through the 2004 bond election including completion of the fourth fire station and continued open space and/or Flagstaff Urban Trail System purchases  Assessment of future water resource needs  Utility rate increases to help support ongoing operational services and restore operation capital and the capital improvement plan to assist with aging infrastructure   Reconstruction of Jay Lively Ice Rink due to the roof collapse during the January 2010 winter storm Redirection of auto stimulus money to a construction stimulus program 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 Finance and Budget Division 211 W. Aspen Flagstaff, AZ 86001 Main and TDD (928) 774-5281 Arizona Relay 7-1-1 14 CITY OF FLAGSTAFF, ARIZONA Statement of Net Assets June 30, 2010 Primary Government Governmental Activities Business-type Activities Total ASSETS Cash and cash equivalents $ Cash with fiscal agents Investments Accounts receivables, net 17,551,165 Bond proceeds receivable Special assessments receivable 7,726,873 $ 25,278,038 1,901,725 7,312,352 23,481,376 - 23,481,376 6,934,261 3,480,104 10,414,365 83,162 19,698 102,860 4,637,936 254,387 4,892,323 127,674 - 127,674 18,507,777 - 18,507,777 Interest receivable Intergovernmental receivable $ 5,410,627 Internal balance 632,917 Deposits 670,797 Prepaid items (632,917) 2,248,390 2,919,187 - 70,820 70,820 445,785 169,969 615,754 Deferred bond issuance costs, net 614,158 186,400 800,558 Property held for resale 500,000 - 500,000 6,247,968 11,233,364 17,481,332 Inventory Restricted cash and investments Capital assets: Non-depreciable 59,161,486 26,093,838 85,255,324 Depreciable, net 236,127,106 331,011,025 567,138,131 381,134,195 383,763,676 764,897,871 Total assets LIABILITIES Accounts payable 4,825,194 507,010 5,332,204 Accrued payroll 2,303,189 416,130 2,719,319 Interest payable 1,773,073 883,598 2,656,671 409,840 219,199 629,039 Deposits payable 1,431,862 424,007 1,855,869 Matured bonds and lease payable 5,085,000 4,126,705 9,211,705 1,695,521 308,134 2,003,655 485,000 - 485,000 6,337,511 4,572,821 10,910,332 282,151 - 282,151 Unearned revenue Due within one year: Compensated absences Special assessment debt, government commitment Bonds, notes and leases payable, net Arbitrage rebate Due in more than one year: Compensated absences 2,055,544 328,950 2,384,494 - 10,204,108 10,204,108 Landfill closure and postclosure care costs Net OPEB obligation 949,067 191,674 1,140,741 Special assessment debt, government commitment 18,130,000 - 18,130,000 Bonds, notes and leases payable, net 53,930,957 45,692,006 99,622,963 99,693,909 67,874,342 167,568,251 213,762,870 302,784,152 516,547,022 Capital projects 8,609,937 2,209,327 10,819,264 Debt service 3,900,602 - 3,900,602 Specific programming 3,517,968 - 3,517,968 Grant and contributions purposes 2,034,546 - 2,034,546 Total liabilities NET ASSETS Invested in capital assets, net of related debt Restricted for: Perpetual care: Expendable Nonexpendable Unrestricted Total net assets $ 13,155 - 13,155 137,621 - 137,621 49,463,587 10,895,855 60,359,442 281,440,286 $ 315,889,334 $ 597,329,620 The notes to the financial statements are an integral part of this statement 15 CITY OF FLAGSTAFF, ARIZONA Statement of Activities Year Ended June 30, 2010 Program Revenues Expenses Capital Grants and Contributions Operating Grants and Contributions Charges for Services Primary government Governmental activities: General government $ 8,238,178 $ 3,285,242 $ 967,440 $ 12,925 Public safety 26,592,968 1,283,697 1,522,190 165,492 Public works 1,502,626 1,471,550 - - Economic and physical development 8,827,578 291,211 282,052 1,267,895 Culture and recreation 12,507,679 1,420,094 3,881,475 430,043 Highways and streets 17,856,121 - 1,821 35,073,326 3,918,110 - - - 79,443,260 7,751,794 6,654,978 36,949,681 Water and wastewater 21,738,013 17,539,873 32,139 6,288,540 Environmental 11,096,414 11,329,336 86,623 - Airport 4,274,546 1,359,029 1,292 311,111 Stormwater 1,258,840 1,358,438 - 191,058 38,367,813 31,586,676 120,054 6,790,709 Interest on long-term debt Total governmental activities Business-type activities: Total business-type activities Total primary government $ 117,811,073 $ 39,338,470 $ 6,775,032 General revenues: Property tax, levied for general purposes Property tax, levied for debt service 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 Net assets - ending The notes to the financial statements are an integral part of this statement 16 $ 43,740,390 Net (Expenses) Revenues and Changes in Net Assets Primary Government Governmental Activities $ Business-type Activities (3,972,571) $ (3,972,571) - (23,621,589) (31,076) - (31,076) (6,986,420) - (6,986,420) (6,776,067) - (6,776,067) 17,219,026 - 17,219,026 (3,918,110) - (3,918,110) (28,086,807) - (28,086,807) - 2,122,539 2,122,539 - 319,545 319,545 (2,603,114) - 290,656 - 129,626 (28,086,807) $ 129,626 (2,603,114) 290,656 129,626 $ (27,957,181) 5,157,727 - 7,640,768 - 7,640,768 30,429,840 - 30,429,840 14,880,073 - 14,880,073 449,394 111,251 560,645 228,969 194,547 423,516 2,831,308 79,467 2,910,775 - 19,136 19,136 $ $ (23,621,589) - $ - Total 5,157,727 (10,524,926) 10,524,926 - 51,112,289 10,910,191 62,022,480 23,025,482 11,039,817 34,065,299 258,414,804 304,849,517 563,264,321 281,440,286 $ 315,889,334 $ 597,329,620 17 CITY OF FLAGSTAFF, ARIZONA Balance Sheet Governmental Funds June 30, 2010 Highway User Revenue Fund General Fund Transportation Fund ASSETS Cash and investments $ 16,828,477 Cash with fiscal agents $ 23,676 $ 6,166,756 - 1,660,068 1,830,100 4,077,364 715,817 1,021,145 38,372 794 8,996 Intergovernmental receivables 1,339,654 857,506 1,453,407 Interfund receivable 6,250,000 - - 127,674 - - - - - Deposits - 670,797 - Inventory 376,728 - - Property held for resale - 500,000 - Restricted cash and investments - 813,376 - Accounts receivable, net Interest receivable Bond proceeds receivable Special assessments receivable Total assets $ 29,038,269 $ 5,242,034 $ 10,480,404 1,327,944 $ 474,794 $ 1,135,040 LIABILITIES AND FUND BALANCE Liabilities: Accounts payable $ Accrued payroll and compensated absences Current bonds payable Interest payable 2,040,958 75,793 - 335,000 1,520,000 1,400,000 62,807 140,068 430,100 Interfund payable - 275,000 5,825,000 Deferred revenue 364,035 - - Unearned revenue 219,328 - - - - - 1,431,862 - - 5,781,934 2,485,655 8,790,140 Arbitrage liability Guaranty and other deposits Total liabilities Fund balances: Nonspendable 376,728 - - Restricted 785,720 2,756,379 1,690,264 Committed Assigned Unassigned Total fund balances Total liabilities and fund balances $ 86,568 - - 8,595,100 - - 13,412,219 - - 23,256,335 2,756,379 1,690,264 29,038,269 The notes to the financial statements are an integral part of this statement 18 $ 5,242,034 $ 10,480,404 BBB Fund $ 5,337,929 $ - Total Governmental Funds Other Governmental Funds Special Assessment Bond Fund 673,791 $ 8,423,562 $ 1,920,459 5,410,627 568,674 - 128,005 6,511,005 10,264 1,421 17,774 77,621 574,148 - 413,221 4,637,936 - - - 6,250,000 - - - 127,674 - 18,507,777 - 18,507,777 - - - 670,797 69,057 - - 445,785 - - - 500,000 55,000 - 5,379,592 6,247,968 $ 6,615,072 $ 19,182,989 $ 16,282,613 $ $ 421,005 $ - $ 1,013,068 $ $ 37,454,191 - 86,841,381 4,371,851 54,546 - 131,892 2,303,189 50,000 - 1,780,000 5,085,000 56,297 465,375 618,426 1,773,073 - - 150,000 6,250,000 - 18,507,033 - 18,871,068 56,479 - 134,033 409,840 - - 282,151 282,151 - - - 1,431,862 638,327 18,972,408 4,109,570 40,778,034 69,057 - 137,621 583,406 5,907,688 210,581 9,155,167 20,505,799 - - 2,228,605 2,315,173 - - 651,650 9,246,750 - - - 13,412,219 5,976,745 210,581 12,173,043 46,063,347 6,615,072 $ 19,182,989 $ 16,282,613 19 $ 86,841,381 CITY OF FLAGSTAFF RECONCILIATION OF THE BALANCE SHEET TO THE STATEMENT OF NET ASSETS GOVERNMENTAL ACTIVITIES JUNE 30, 2010 Fund balances - total governmental funds balance sheet $ 46,063,347 Amounts reported for governmental activities in the statements of net assets are different because (also see note II. A.): 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 452,366,761 (149,854,100) (7,224,069) 295,288,592 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 614,158 389,766 1,003,924 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 Other postemployment benefits Compensated absences (77,998,771) (884,697) (949,067) (3,751,065) (83,583,600) Certain revenues are not available to pay for current period expenditures and, therefore, are deferred in the governmental funds. Property tax Deferred revenue for long-term special assessments is shown on the governmental fund balance sheet, but is not deferred on the statement of net assets Special assessments 364,035 364,035 18,507,033 18,507,033 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 20 3,796,955 $ 281,440,286 21 CITY OF FLAGSTAFF, ARIZONA Statement of Revenues, Expenditures, and Changes in Fund Balances Governmental Funds Year Ended June 30, 2010 Highway User Revenue Fund General Fund Transportation Fund REVENUES: Taxes $ Intergovernmental 20,878,105 $ - $ 9,627,640 15,687,382 - - Grants and entitlements 1,943,806 7,480,441 - Charges for services 2,882,876 - - Special assessments - - - Licenses and permits 1,441,289 - - Fines and forfeitures 1,636,157 - - Rents 1,471,550 - - 216,196 9,488 28,746 Investment earnings Contributions 12,926 - - Miscellaneous 68,137 118,917 - 46,238,424 7,608,846 9,656,386 Total revenues EXPENDITURES: Current: General governmental Public safety 7,926,726 - - 25,154,265 - - Public works 1,360,447 - - Economic and physical development 4,857,365 - - Culture and recreation 5,579,816 - - - 5,447,915 3,725,180 761,522 1,520,000 1,400,000 862,700 Highways and streets Debt service: Principal retirement Interest and other charges Capital outlay Total expenditures Excess (deficiency) of revenues over expenditures 230,131 379,070 2,086,591 6,175,664 - 47,956,863 13,522,649 5,987,880 (1,718,439) (5,913,803) 3,668,506 OTHER FINANCING SOURCES (USES): Issuance of capital debt - Bond premium 4,610,000 - - 19,066 - Sale of capital assets 41,446 13,831 - Insurance recoveries 1,920,000 - - Transfers in 5,122,981 4,424,417 120,000 Transfers out (5,922,622) Total other financing sources (uses) Net change in fund balances (556,634) Fund balances, beginning of year, as restated Fund balances, end of year (85,401) 1,161,805 23,812,969 $ 23,256,335 The notes to the financial statements are an integral part of this statement 22 (2,523,153) 8,981,913 (2,403,153) 3,068,110 1,265,353 (311,731) $ 2,756,379 424,911 $ 1,690,264 Special Assessment Bond Fund BBB Fund $ $ 5,074,206 $ Other Governmental Funds - $ 7,620,317 Total Governmental Funds $ 43,200,268 - - 3,762,831 19,450,213 692,362 - 1,056,253 11,172,862 95,622 - 78,925 3,057,423 - 1,510,217 - 1,510,217 585 - - 1,441,874 - - - 1,636,157 116,664 - - 1,588,214 53,580 5,070 100,514 413,594 - - 531,467 544,393 - - 41,915 228,969 6,033,019 1,515,287 13,192,222 84,244,184 - - - 7,926,726 - - 5,512 25,159,777 - - - 1,360,447 2,272,143 - 1,472,300 8,601,808 579,929 - 4,456,009 10,615,754 139,853 - 210 9,313,158 50,000 554,000 1,780,000 6,065,522 57,097 945,888 1,522,077 3,996,963 1,587,460 - 2,596,565 12,446,280 4,686,482 1,499,888 11,832,673 85,486,435 1,346,537 15,399 1,359,549 (1,242,251) - - 3,720,000 8,330,000 - - 39,304 58,370 1,275 - 1,027,659 1,084,211 - - - 1,920,000 731,354 - 4,825,491 15,224,243 (2,073,955) - (7,919,969) (18,525,100) (1,341,326) - 1,692,485 8,091,724 5,211 15,399 3,052,034 6,849,473 5,971,534 195,182 9,121,009 39,213,874 5,976,745 $ 210,581 $ 23 12,173,043 $ 46,063,347 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, 2010 Net change in fund balances - total governmental funds $ 6,849,473 Amounts reported for governmental activities in the statements of activities are different because (also see note II. B.): 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 Less current year depreciation 12,446,280 (12,624,057) (177,777) 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 Premium on debt issued Donated capital Compensated absences Other postemployment benefits Principal payments on debt Arbitrage rebate Bond premium (8,330,000) (58,370) 7,319,150 (272,421) (73,489) 6,065,522 449,927 78,853 5,179,172 176,438 (47,761) 128,677 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 cost on new bonds Amortization of issuance costs 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 The notes to the financial statements are an integral part of this statement 24 (172,903) (7,224,069) (7,396,972) (continued) 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, 2010 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 Property tax Fines and forfeitures 18,507,033 28,067 28,126 18,563,226 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 Investment income (156,117) 35,800 (120,317) Change in net assets of governmental activities - statement of activities $ The notes to the financial statements are an integral part of this statement (concluded) 25 23,025,482 CITY OF FLAGSTAFF, ARIZONA General Fund Statement of Revenues, Expenditures, and Changes in Fund Balances - Budget and Actual Year Ended June 30, 2010 Budget Original Final Variance with Final Budget Positive (Negative) Actual Amounts Budgetary Basis REVENUES: Taxes $ Intergovernmental 21,499,121 $ 16,451,194 21,499,121 $ 20,813,549 16,451,194 15,687,382 $ (685,572) (763,812) Grants and entitlements 2,228,337 2,228,337 1,943,806 (284,531) Charges for services 3,868,841 3,868,841 2,882,876 (985,965) Licenses and permits 1,476,201 1,476,201 1,441,289 (34,912) Fines and forfeitures 1,491,657 1,491,657 1,636,157 144,500 Rents 1,655,368 1,655,368 1,471,550 (183,818) 650,000 650,000 216,196 (433,804) Contributions 15,000 15,000 12,926 (2,074) Miscellaneous 185,077 185,077 66,714 (118,363) 49,520,796 49,520,796 46,172,445 (3,348,351) General administration 7,278,584 7,303,584 7,217,566 86,018 Management Services 3,242,905 3,242,905 2,992,888 250,017 Investment earnings Total revenues EXPENDITURES: Current: Community development 4,462,098 4,462,098 4,252,296 209,802 Fire 10,251,298 10,251,298 9,661,947 589,351 Police 16,815,469 16,815,469 16,041,155 774,314 6,523,505 6,523,505 5,240,987 1,282,518 70,748 Public works Economic vitality Community enrichment Non-departmental Contingency Total expenditures Excess (deficiency) of revenues over (under) expenditures 477,559 477,559 406,811 3,214,735 4,414,735 4,414,034 203,209 203,209 1,875,000 650,000 44,248 605,752 54,344,362 54,344,362 47,956,863 6,387,499 (4,823,566) 701 (2,315,069) (4,823,566) 2,518,278 (1,784,418) 3,039,148 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 $ 40,437 40,437 41,446 1,009 4,555,180 4,555,180 5,122,981 567,801 (11,808,929) (11,808,929) (5,922,622) 5,886,307 (7,213,312) (7,213,312) (758,195) 6,455,117 (12,036,878) (12,036,878) (2,542,613) 9,494,265 18,726,225 18,726,225 6,689,347 $ Adjustment of budetary basis to GAAP basis net change in fund balances 6,689,347 18,726,225 $ 16,183,612 $ (2,542,613) The City budgets certain revenues on the cash basis, rather than on the modified accrual basis. 1,985,979 Adjusted net change in fund balance - GAAP basis $ The notes to the financial statements are an integral part of this statement 26 (556,634) $ 9,494,265 CITY OF FLAGSTAFF, ARIZONA Highway User Revenue Fund Statement of Revenues, Expenditures, and Changes in Fund Balances - Budget and Actual Year Ended June 30, 2010 Budget Original Final Actual Amounts Budgetary Basis 7,728,155 $ Variance with Final Budget Positive (Negative) REVENUES: Grants and entitlements $ Investment earnings 7,728,155 $ 36,000 Miscellaneous Total revenues 36,000 7,480,441 $ 9,488 (247,714) (26,512) 1,376,327 1,376,327 118,917 (1,257,410) 9,140,482 9,140,482 7,608,846 (1,531,636) 168,593 168,593 168,593 - EXPENDITURES: Current: General administration Management services 247,240 247,240 247,240 - Community development 752,512 752,512 752,512 - 19,165,672 19,165,672 12,190,406 6,975,266 24,774 24,774 24,774 - 139,124 139,124 139,124 - 100,000 100,000 - 100,000 20,597,915 20,597,915 13,522,649 7,075,266 (11,457,433) (11,457,433) Public works Economic vitality Non-departmental Contingency Total expenditures Excess (deficiency) of revenues over (under) expenditures (5,913,803) 5,543,630 OTHER FINANCING SOURCES (USES): Bonds issued 4,500,000 4,500,000 4,610,000 Transfers in 6,142,953 6,142,953 4,424,417 Transfers out (585,401) Total other financing sources (uses) Net change in fund balances budgetary basis Budgetary fund balances, beginning of year Budgetary fund balances, end of year (585,401) 10,057,552 $ 110,000 (1,718,536) (85,401) 10,057,552 500,000 8,949,016 (1,108,536) (1,399,881) (1,399,881) 3,035,213 4,435,094 1,808,943 1,808,943 1,808,943 - 409,062 Adjustment of budetary basis to GAAP basis net change in fund balances $ 409,062 $ 4,844,156 $ 3,035,213 The City budgets certain revenues on the cash basis, rather than on the modified accrual basis. 32,897 Adjusted net change in fund balance - GAAP basis $ The notes to the financial statements are an integral part of this statement 27 3,068,110 $ 4,435,094 CITY OF FLAGSTAFF, ARIZONA Transportation Fund Statement of Revenues, Expenditures, and Changes in Fund Balances - Budget and Actual Year Ended June 30, 2010 Budget Original Final Actual Amounts Budgetary Basis 9,721,245 $ Variance with Final Budget Positive (Negative) REVENUES: Taxes $ Investment earnings Total revenues 9,721,245 $ 9,533,520 $ (187,725) 99,000 99,000 28,746 (70,254) 9,820,245 9,820,245 9,562,266 (257,979) 72,840 72,840 72,840 - 197,948 197,948 197,948 - 27,959 27,959 27,959 - 6,222,361 6,222,361 5,689,133 533,228 6,521,108 6,521,108 5,987,880 533,228 3,299,137 3,299,137 3,574,386 275,249 EXPENDITURES: Current: General administration Management services Economic vitality Non-departmental Total expenditures Excess (deficiency) of revenues over (under) expenditures OTHER FINANCING SOURCES (USES): Transfers in 120,000 Transfers out Total other financing sources (uses) Net change in fund balances Budgetary fund balances, beginning of year Budgetary fund balances, end of year $ 120,000 120,000 - (4,053,930) (4,053,930) (2,523,153) 1,530,777 (3,933,930) (3,933,930) (2,403,153) 1,530,777 (634,793) (634,793) 1,171,233 1,806,026 (1,508,608) (1,508,608) (2,143,401) $ Adjustment of budetary basis to GAAP basis net change in fund balances (2,143,401) (1,508,608) $ $ (337,375) 1,171,233 The City budgets certain revenues on the cash basis, rather than on the modified accrual basis. 94,120 Adjusted net change in fund balance - GAAP basis $ The notes to the financial statements are an integral part of this statement 28 1,265,353 $ 1,806,026 CITY OF FLAGSTAFF, ARIZONA BBB Fund Statement of Revenues, Expenditures, and Changes in Fund Balances - Budget and Actual Year Ended June 30, 2010 Budget Original Final Actual Amounts Budgetary Basis 5,223,146 $ Variance with Final Budget Positive (Negative) REVENUES: Taxes $ Grants and entitlements 5,223,146 $ 5,050,649 $ (172,497) 1,845,000 1,845,000 692,362 65,047 65,047 95,622 30,575 - - 585 585 Rents 91,800 91,800 116,664 Investment earnings 98,850 98,850 53,580 Charges for services Licenses and permits Miscellaneous Total revenues (1,152,638) 24,864 (45,270) 14,442 14,442 - (14,442) 7,338,285 7,338,285 6,009,462 (1,328,823) 736,797 736,797 412,150 EXPENDITURES: Current: General administration 324,647 Community development 1,948,256 1,948,256 702,492 1,245,764 Economic vitality 5,588,181 5,588,181 3,571,840 2,016,341 Contingency Total expenditures Excess (deficiency) of revenues over (under) expenditures 95,000 95,000 - 95,000 8,368,234 8,368,234 4,686,482 3,681,752 (1,029,949) (1,029,949) 1,322,980 2,352,929 1,534,000 1,534,000 (1,957,291) (1,957,291) (2,073,955) (116,664) (423,291) (423,291) (1,342,601) (919,310) (1,453,240) (1,453,240) (19,621) 3,533,168 3,533,168 OTHER FINANCING SOURCES (USES): Transfers in Transfers out Total other financing sources (uses) Net change in fund balances Budgetary fund balances, beginning of year Budgetary fund balances, end of year $ 2,079,928 $ Adjustment from budetary basis to GAAP basis net change in fund balances 2,079,928 731,354 $ $ modified accrual basis. 3,513,547 (19,621) 24,832 $ The notes to the financial statements are an integral part of this statement 29 1,433,619 3,533,168 The City budgets certain revenues on the cash basis, rather than on the Adjusted net change in fund balance - GAAP basis (802,646) 5,211 $ 1,433,619 CITY OF FLAGSTAFF, ARIZONA Statement of Net Assets Proprietary Funds June 30, 2010 Business-type Activities - Enterprise Funds Water and Wastewater Fund Environmental Services Fund ASSETS Current assets: Cash and investments $ 2,668,711 $ 4,177,357 Cash with fiscal agents 1,901,725 - Receivable, net 2,410,362 1,020,489 Interfund receivable 2,100,000 - 70,820 - Prepaid items Inventory Total current assets 169,969 - 9,321,587 5,197,846 1,710,263 9,523,101 Noncurrent assets: Restricted cash and investments Refundable deposit Deferred bond issuance costs, net 13,640 - 186,399 - Capital assets, non-depreciable 11,432,711 1,849,428 Capital assets, depreciable, net 255,673,295 7,595,405 269,016,308 18,967,934 278,337,895 24,165,780 Total non-current assets Total assets LIABILITIES Current liabilities: Accounts payable 421,786 115,450 Accrued payroll and compensated absences 408,092 240,609 Interest payable 883,598 - Unearned revenue 129,985 - 25,145 - Unamortized bond premium Interfund payable - - Deposits payable 353,583 37,090 8,475,517 - 10,697,706 393,149 Compensated absences 190,578 120,459 Net OPEB obligation 101,101 69,261 - 10,204,108 1,207,679 - Bonds and notes payable Total current liabilities Noncurrent liabilities: 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 42,032,215 - 43,531,573 10,393,828 54,229,279 10,786,977 215,365,450 9,444,833 Restricted: Capital projects Unrestricted Total net assets $ The notes to the financial statements are an integral part of this statement 30 1,593,915 615,412 7,149,251 3,318,558 224,108,616 $ 13,378,803 Business-type Activities - Enterprise Funds Airport Fund $ $ Governmental Activities Stormwater Fund 14,337 $ Total 866,468 $ Internal Service Fund 7,726,873 $ 3,578,350 - - 1,901,725 - 187,879 135,459 3,754,189 39,031 - - 2,100,000 - - 70,820 - - 169,969 - 202,216 1,001,927 15,723,576 3,617,381 - - 11,233,364 - 2,234,750 - 2,248,390 - - - - 186,399 - 113,365 12,698,334 26,093,838 - 44,431,645 23,310,680 331,011,025 - 46,779,760 36,009,014 370,773,016 - 46,981,976 37,010,941 386,496,592 3,617,381 15,272 25,322 577,830 453,343 43,563 32,000 724,264 - - - 883,598 - 89,214 - 219,199 - - - 25,145 - 2,100,000 - 2,100,000 - 33,334 - 424,007 - 144,806 - 8,620,323 - 2,426,189 57,322 13,574,366 453,343 10,295 7,618 328,950 - 11,477 9,835 191,674 - - - 10,204,108 - 2,176,781 - 3,384,460 - 258,568 - 42,290,783 - 2,457,121 17,453 56,399,975 - 4,883,310 74,775 69,974,341 453,343 41,964,855 36,009,014 302,784,152 - - - 2,209,327 - 133,811 927,152 11,528,772 3,164,038 42,098,666 $ 36,936,166 $ 316,522,251 $ 315,889,334 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 (632,917) Net assets of business-type activities 31 $ 3,164,038 CITY OF FLAGSTAFF, ARIZONA Statement of Revenues, Expenses, and Changes in Fund Net Assets Proprietary Funds Year Ended June 30, 2010 Business-type Activities - Enterprise Funds Water and Wastewater Fund Environmental Services Fund OPERATING REVENUES: Charges for services $ Miscellaneous 17,536,053 $ 11,317,698 3,820 11,638 17,539,873 11,329,336 Personal services 4,281,686 3,858,572 Contractual services, materials and supplies 7,483,200 6,247,550 Total operating revenues OPERATING EXPENSES: Insurance claims and expenses Depreciation and amortization Total operating expenses Operating income (loss) - - 8,053,768 967,361 19,818,654 11,073,483 (2,278,781) 255,853 NON-OPERATING REVENUES (EXPENSES): Interest and investment income 45,325 Grants and entitlements 57,427 622,574 Gain (loss) on sale of capital asset 86,623 (6,847) Passenger facility charges 86,314 - Interest expense Total non-operating revenues (expenses) Income (loss) before capital contributions and transfers Capital contributions - (1,874,415) - (1,213,363) 230,364 (3,492,144) 486,217 8,800,106 Transfers in - 3,801,355 Transfers out 7,813 (1,958,565) Change in net assets (514,884) 7,150,752 Total net assets, beginning of year (20,854) 216,957,864 Total net assets, end of year $ The notes to the financial statements are an integral part of this statement 32 224,108,616 13,399,657 $ 13,378,803 Business-type Activities - Enterprise Funds Airport Fund $ Stormwater Fund 1,359,029 $ Total 1,358,339 $ Internal Service Fund 31,571,119 $ 6,857,948 - 99 15,557 20,169 1,359,029 1,358,438 31,586,676 6,878,117 621,536 483,841 9,245,635 - 843,190 332,226 14,906,166 - - - - 7,113,551 2,651,309 440,183 12,112,621 - 4,116,035 1,256,250 36,264,422 7,113,551 (2,757,006) 102,188 (4,677,746) (235,434) 4,943 3,556 111,251 35,800 312,403 1,488 1,023,088 - - - 79,467 - 194,547 - (149,659) - (2,024,074) - 5,044 (615,721) 35,800 107,232 (5,293,467) 362,234 (2,394,772) - 4,311,638 201,244 2,095,926 (156,811) 44,449,005 42,098,666 194,547 $ - (199,634) 13,111,744 (175,221) (2,350,339) $ Governmental Activities 6,106,338 - (2,805,481) - 6,339,575 11,119,134 30,596,591 305,403,117 36,936,166 $ 316,522,251 $ 11,039,817 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 (79,317) Change in net assets of business-type activities 33 - (199,634) 3,363,672 $ 3,164,038 City of Flagstaff, Arizona Statement of Cash Flows Proprietary Funds Year Ended June 30, 2010 Business-type Activities - Enterprise Funds Water and Wastewater Fund Environmental Services Fund Cash flows from operating activities: Receipts from customers $ Interfund services provided 17,130,045 $ 326,631 Other receipts 70,286 3,820 Payments to suppliers 11,396,767 11,638 (7,941,074) (5,829,886) Interfund services used (48,632) (3,309) Payments to employees (4,309,585) (3,849,686) 5,161,205 1,795,810 Net cash provided (used) by operating activities Cash flows from noncapital financing activities: Transfer from other funds 3,801,355 7,813 Transfer to other funds (1,958,565) (514,884) Interfund loans paid (2,100,000) - Interfund loans received Net cash provided (used) by noncapital financing activities - - (257,210) (507,071) Cash flows from capital and related financing activities: Receipts from grantors 565,952 38,177 Capital Contributions Acquisition and construction of capital assets 1,080,323 (4,373,872) (377,983) Principal payments on capital debt (5,014,704) - Interest paid on capital debt (1,866,588) - Proceeds from capital debt Proceeds from insurance recovery Payment on deposit of capital asset - 2 748 505 2,748,505 - - 15,000 5,303 71,314 - Proceeds from sales of capital assets Net cash (used) by capital and related financing activities - (6,855,081) (253,492) Cash flows from investing activities: Interest received on investments Net cash provided by investing activities Net increase (decrease) in cash and cash equivalents 60,950 85,012 60,950 85,012 (1,890,136) Cash and cash equivalents at beginning of year 1,120,259 8,170,835 Cash and cash equivalents at end of year 12,580,199 $ 6,280,699 $ 13,700,458 $ 2,668,711 $ 4,177,357 Classified as: Cash, cash equivalents, and investments Restricted cash with fiscal agents Restricted cash and cash equivalents Totals $ The notes to the financial statements are an integral part of this statement 34 1,901,725 - 1,710,263 9,523,101 6,280,699 $ 13,700,458 Governmental Business-type Activities - Enterprise Funds Airport Fund $ Activities Stormwater Fund 1,380,232 $ Total 1,299,577 $ Internal Service Fund 31,206,621 $ 6,861,937 - 44,738 441,655 - 194,547 99 210,104 20,169 (827,529) (642,456) (15,240,945) (22,290) - (74,231) - (616,907) (480,532) (9,256,710) - 108,053 221,426 7,286,494 (175,221) 3,835,191 201,244 (156,811) (94,897) 2,095,926 (534,334) (7,499,321) (617,215) - - (2,194,897) 2,100,000 - 2,100,000 94,897 - 2,049,536 1,920,705 3,205,960 94,897 304,632 - 908,761 - - - 1,080,323 - (39,109) (2,136,110) (6,927,074) - (488,026) - (5,502,730) - (158,434) - (2,025,022) - - - 2 748 505 2,748,505 - - - 15,000 (2,234,750) - - - (2,234,750) 76,617 - (2,615,687) (2,136,110) (11,860,370) - 5,927 3,501 155,390 46,904 5,927 3,501 155,390 46,904 (452,171) 9,522 466,508 (1,212,526) 856,946 (475,414) 22,074,488 4,053,764 $ 14,337 $ 866,468 $ 20,861,962 $ 3,578,350 $ 14,337 $ 866,468 $ 7,726,873 $ 3,578,350 $ - - 1,901,725 - - - 11,233,364 - 14,337 $ 866,468 $ 20,861,962 (continued) 35 $ 3,578,350 Statement of Cash Flows Proprietary Funds Year Ended June 30, 2010 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) $ (2,278,781) $ 255,853 Adjustments to reconcile operating income (loss) to net cash provided (used) by operating activities: Depreciation and amortization 8,053,768 967,361 Landfill closure and postclosure costs - 326,310 Other receipts - - (Increase) decrease in assets: Accounts receivable (65,060) Allowance for doubtful accounts 137,145 - Prepaid items Inventories 9,000 (84,460) - 64,802 - Increase (decrease) in liabilities: Accounts payable Accrued payroll and compensated absences OPEB (486,848) 88,045 (34,650) 3,526 6,751 Deposits payable 5,360 (13,718) Deferred revenue Total Adjustments Net cash provided (used) by operating activities 3,210 (599) - 7,439,986 1,539,957 $ 5,161,205 $ $ 4,617,782 $ 1,795,810 Noncash investing, capital and financing activities: Capital assets acquired through contributions from developers Capital assets acquired through contributions from general fund Total noncash investing, capital and financing activities 3,102,001 $ The notes to the financial statements are an integral part of this statement 36 7,719,783 - $ - Governmental Activities Airport Fund $ Stormwater Fund (2,757,006) $ 102,188 $ Internal Service Fund (4,677,746) $ (235,434) 2,651,309 440,183 12,112,621 - - 326,310 - 194,547 - 194,547 - 96,449 3,989 38,389 (14,025) - - - - - (84,460) - - - 64,802 - (6,629) 9,000 (310,229) (715,661) (385,770) 3,692 2,518 937 791 1,457 - (9,051) - - (19,242) - (18,643) 2,865,059 119,238 $ 108,053 $ $ - $ $ Total - - 13,839 - 11,964,240 (381,781) 221,426 $ 7,286,494 $ 189,570 $ 4,807,352 $ - $ - 4,122,068 $ (24,914) (617,215) 7,224,069 4,311,638 $ (concluded) 37 12,031,421 CITY OF FLAGSTAFF, ARIZONA Notes to the Financial Statement June 30, 2010 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. For the year ended June 30, 2010, the City implemented the provisions of GASB Statement No. 54, Fund Balance Reporting and Governmental Fund Type Definitions. GASB Statement No. 54 establishes standards for the enhancement of fund balance information by providing clearer fund balance classifications and clarifying the existing governmental fund type definitions. This statement provides fund balance classification for nonspendable, restricted, committed, assigned, and unassigned based on the relative strength of the constraints that control how specific amounts can be spent. Beginning fund balances for the City’s governmental funds have been restated to reflect the above classifications. 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. Refer to Note F related to the blended component unit with the City of Flagstaff Housing Authority. 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. 38 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. Governmental activities, which normally are supported by taxes and intergovernmental revenues, are reported separately from business-type activities, which are supported by fees and charges for services. 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. Interfund services provided and used are not eliminated in the process of consolidation. The government-wide statement of net assets reports all financial and capital resources of the government. 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. Restrictions 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. Also part of the basic financial statements are fund financial statements for governmental funds, and proprietary funds. 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 Beverage (BBB) Fund as a major governmental fund on the basis of community focus and the Stormwater Fund as major proprietary fund due to it’s relation with other proprietary funds. 39 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. 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 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. 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 represent items like investment income, interest expense, and other items that do not fit in any other category and 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. 40 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:  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.  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.  Bed, Board and Beverage Tax Fund that accounts for the Bed, Board and Beverage 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. The Special Assessment Bond Fund is presented as major in the current year.  Special Assessment Bond 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. Capital Projects Fund is used to account for major capital acquisition and construction separate from ongoing operating activities. No Capital Projects Funds are presented as major funds.  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. 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. 41 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.  Water and Wastewater Utility accounts for the City water pumping, treatment and distribution systems and the City wastewater collection, and treatment systems.  Environmental Services Fund accounts for the operations of City refuse and management of the City landfill. A recycling collection services as well as the management of sustainability programs.   Airport Fund that accounts for the construction, operations and maintenance of the City airport. Stormwater Utility accounts for the construction, operations and maintenance 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. 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. 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 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 all revenues, except reimbursement grants, to 42 be available if they are collected within 60 days of the end of the current fiscal period. Reimbursement grants are considered available if they are collected within one year of the end of the current fiscal period. Expenditures are generally recorded when the related fund liability is incurred, as under accrual accounting. 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. However, debt service expenditures, as well as, expenditures related to compensated absences, claims and judgments are recorded only to the extent they have matured. 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. Only the portion of special assessment receivables due within the current fiscal period is considered to be susceptible to accrual as revenue of the current period. The accrual basis of accounting is followed for all enterprise funds. 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. 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. 43 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 division 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 division 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. 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 City also has an investment policy. Details of the City’s investment policy can be found in Note IV.A. 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. 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 Fund, the BBB Fund, the Airport Fund and the General Obligation Bond Fund. General Obligation bonds are serviced by each of these funds. For fiscal year 2009-2010, primary and secondary property tax collections amounted to $5,150,111 and $7,620,317 respectively. 44 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. Typically, restricted assets are used prior to using unrestricted assets when both are available for the same purpose. Grant Revenue The City, a recipient of grant revenues, recognizes revenues (net of estimated uncollectible amounts, if any), when all applicable eligibility requirements, including time requirements, are met. Resources transmitted to the City before the eligibility requirements are met are reported as deferred revenues. Some grants and contributions consist of capital assets or resources that are restricted for capital purposes – to purchase, construct, or renovate capital assets associated with a specific program. These are reported separately from grants and contributions that may be used either for operating expenses or for capital expenditures of the program at the discretion of the City. Capital Assets Prior to GASB Statement No. 34, capital assets for governmental funds were recorded in the General Fixed Assets Account Group and were not depreciated. The new reporting model requires that all capital assets, whether owned by governmental activities or business-type activities, be recorded and depreciated (unless the modified approach is used) in the government-wide financial statements. The City has chosen not to apply the modified approach to any networks or subsystems of infrastructure assets. governmental fund financial statements. No long-term assets or depreciation are shown in the Capital assets, including public domain infrastructure (i.e., roads, bridges, curbs and gutters, streets and sidewalks, 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 five 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. 45 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 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. Other Postemployment Benefits Retirees are allowed to participate in the same healthcare plan as active employees and pay the same premium for this benefit which causes an implicit rate subsidy. Even though the City makes no direct payments on behalf of the retirees the City is required to report this implicit cost for active employees who will be able to continue to purchase health insurance once they retire. To recognize the cost of other postemployment benefits (OPEB) for healthcare over the active service life of the employee rather than on a pay-as-you-go basis, the net OPEB obligation represents the amortized future cost of the unfunded actuarial accrued liability. In the government-wide statements, and proprietary fund types in the fund financial statements, the net OPEB obligations are reported as long-term liabilities in the statement of net assets. Long-Term Obligations In the government-wide financial statements, and proprietary fund types in the fund financial statements, long-term debt and other long-term obligations are reported as liabilities in the applicable 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 46 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, restricted fund balance is defined as that portion of fund balance that can be spent only for the specific purposes stipulated by constitution, external resource or through enabling legislation. Committed fund balance includes amounts constrained to specific purposes determined by a formal action of the City itself, using its highest level of decision-making authority (i.e. City Council). To be reported as committed, amounts cannot be used for any other purpose unless the City takes the same highest level action to remove or change the constraint. Assigned fund balance amounts are intended to be used by the government for specific purposes but do not meet the criteria to be restricted or committed. Intent can be expressed by the City Council or by an official or body to which the City Council delegates the authority. Assigned fund balance represents the remaining amount that is not restricted or committed in governmental funds other than the general fund, which is classified as unassigned. Nonspendable fund balance represents amounts that are required to be maintained intact, such as inventories, and nonexpendable portion of permanent funds. 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. 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. 47 Reconciliation of Governmental Funds Balance Sheet and the government-wide Statement of Net Assets: Total Governmental Funds Internal Reclass Statement of Capital Long-Term Service and Net Assets Assets (1) Liabilities (2) Fund (3) Eliminations (4) Totals Assets Cash and cash equivalents $ Cash with fiscal agents 37,454,191 $ Interest receivable Intergovernmental receivables Bond proceeds receivable Special assessments receivable Interfund receivable Restricted cash and cash equivalents 3,578,350 $ (23,481,376) $ - - - 6,511,005 - 33,490 - 77,621 - - 5,541 - 83,162 4,637,936 - - - - 4,637,936 389,766 - 17,551,165 - 5,410,627 23,481,376 23,481,376 6,934,261 127,674 - - - - 127,674 18,507,777 - - - - 18,507,777 6,250,000 - - - 445,785 - 6,247,968 - Refundable deposits 670,797 500,000 Capital assets - 632,917 614,158 (6,250,000) 632,917 - - 614,158 - - - 445,785 - - - 6,247,968 - - - 500,000 670,797 $ $ - Property held for sale Total Assets - Deferred issuance costs - Prepaid items Inventory $ - Investments Accounts receivable, net - 5,410,627 302,512,661 86,841,381 $ 302,512,661 $ - - 1,003,924 $ 4,250,298 $ (7,224,069) 295,288,592 (13,474,069) $ 381,134,195 Liabilities and Net Assets Accounts payable 4,371,851 $ - Accrued payroll & compensated absences $ 2,303,189 - - - - 2,303,189 Interest payable 1,773,073 - - - - 1,773,073 Interfund payable 6,250,000 - - - Unearned revenue 409,840 - - - - Deferred revenue 18,871,068 - - - - 1,431,862 - - - - 1,431,862 282,151 - - - - 282,151 5,085,000 - - - - 5,085,000 Guaranty and other deposits Arbitrage rebate Current bonds/contracts payable Unamortized bond premium - Compensated absences - Other postemployment benefits - Unmatured long-term debt - Fund balance/Net Assets Total liabilities and net assets 46,063,347 $ 86,841,381 $ (18,871,068) 453,343 $ - $ (6,250,000) 4,825,194 409,840 - 884,697 - - 884,697 3,751,065 - - 3,751,065 - 949,067 - - 949,067 - 77,998,771 - - 77,998,771 302,512,661 $ 48 $ - 302,512,661 $ - (63,708,608) 1,003,924 3,796,955 $ 4,250,298 $ (7,224,069) (13,474,069) $ 281,440,286 381,134,195 (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 $ $ 452,366,761 (149,854,100) 302,512,661 (2) Bond issuan ce 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 $ 614,158 Certain receivables are not recognized in the govermental funds, but are earned in the statement of net assets. Deferred court receivables $ 389,766 Long-term liabilities applicable to the City's governmental activities are not due and payable in the curren t period, an d 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. Governmental bonds payable Compensated absences $ 83,083,771 5,446,586 Other postemployment benefits Unamortized bond premium Subtotal 949,067 884,697 90,364,121 Less: curren t portion compensated absences Less: curren t portion of bonds and leases 1,695,521 5,085,000 83,583,600 $ Deferred reven ue for the long-term special assessment receivables and property tax shown on the governmental fun d statements is not deferred on the statements of net assets. Deferred property tax Deferred property tax $ $ 18,507,033 364,035 18,871,068 (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 includ ed in the governmental activities in the statement of net assets, but are not included on the governmental fund balance sheet. ISF net assets (4) $ 3,796,955 Certain interfund transactions between g overnmental activities and between business-type activties are eliminated in the consolidation of those activities for the statement of net assets. Interfund receivables $ Interfund payables $ 49 6,250,000 (6,250,000) - 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 43,200,268 $ - Intergovernmental $ 19,450,213 - $ 28,067 $ - - (4,570,140) 14,880,073 Grants and entitlements 11,172,862 - - - 4,570,140 15,743,002 Charges for services 3,057,423 - - - - Special assessments 1,510,217 - - - 942,250 Licenses and permits 1,441,874 - - - - 1,441,874 (567,967) - $ - $ 43,228,335 3,057,423 Fines and forfeitures 1,636,157 - 28,126 - - 1,664,283 Rent 1,588,214 - - - - 1,588,214 - 35,800 - 449,394 - - 26,938,543 Investment earnings 413,594 Contributions 544,393 Miscellaneous 7,319,150 228,969 Total revenue - 19,075,000 - - 228,969 7,319,150 18,563,226 35,800 - 110,162,360 7,926,726 604,479 (310,049) 17,022 - 8,238,178 25,159,777 1,229,316 148,901 54,974 - 26,592,968 1,502,626 84,244,184 - Expenditures/Expenses General governmental Public safety Public works 1,360,447 89,632 49,439 3,108 - Economic and physical development 8,601,808 238,288 (30,764) 18,246 - 8,827,578 10,615,754 1,839,705 26,369 25,851 - 12,507,679 Highways and streets 9,313,158 8,622,637 (116,590) 36,916 - 17,856,121 Principal retirement 6,065,522 - (6,065,522) - - Interest and other charges 3,996,963 - (78,853) - - - - Culture and recreation Capital outlay Total expenditures/expenses 12,446,280 (12,446,280) 85,486,435 177,777 (6,377,069) 156,117 - 3,918,110 79,443,260 OTHER FINANCING SOURCES (USES): Bond proceeds Bond (discount) premium 8,330,000 - (8,330,000) - - - 58,370 - (58,370) - - - Sale of capital assets 1,084,211 - - 1,920,000 Insurance recovery 1,920,000 - - - (1,920,000) Transfers in 15,224,243 - - - Transfers out (18,525,100) - - - 8,091,724 6,849,473 (172,903) 6,968,470 $ Total other financing sources (uses) Net change for the year $ (172,903) $ 50 (8,388,370) 16,551,925 $ (7,224,069) (7,224,069) (120,317) $ (7,224,069) $ 2,831,308 15,224,243 (25,749,169) (7,693,618) 23,025,482 (1) When capital assets that are to b e used in the governmental activities are purchased or constructed, the resources expended for those assets are reported as expenditures in governmental funds. However, in the statement of activities, the cost of those assets is allocated over their useful lives and reported as depreciation expense. As a result, fun d balance decreases by the amount of the financial resou rces expended, whereas net assets decrease by the amount of depreciation expense charged for the year. Capital outlay Depreciation expense Gain (loss) on sale of capital assets Donated capital assets $ $ 12,446,280 (12,624,057) (172,903) 7,319,150 6,968,470 (2) Special assessment principal payments received are reported as revenue on the governmental fund statements, but are reductions to the outstan ding 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 $ $ 18,507,033 28,067 28,126 18,563,226 The costs of issuing bonds are reported as an expenditure in governmental fun ds in the year of b ond issuance. However, the bond issuance costs are deferred and amortized (expensed) over the life of the bond s. Amortization of b ond issuance costs Issuance cost on new bonds Arbitrage rebate $ $ (47,761) 176,438 449,927 578,604 Some expenses reported in the statemen t 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 compen sated absences Accural of other postemployment benefits $ (272,421) $ (73,489) (345,910) Prepayment of bond principal is reported as an expenditure in governmental funds and thus has the effect of reducin g fund balance because current financial resou rces have been used. For the City as a whole, however, the principal payments reduce the long-term liabilities in the statement of n et assets and do not result in an expense in the stement of activities Princip al bond paymen ts Capital debt issued Bond premiu m Amortization of b ond premium $ $ 6,065,522 (8,330,000) (58,370) 78,853 (2,243,995) (3) Internal service funds are used by management to charge the costs of self insuran ce to the individual funds. The adjustments for internal service funds "close" those fun ds by charging the additional amounts to participatin g governmental activities to completely cover the internal service funds' costs for the year. Revenue Expenditures $ $ 35,800 (156,117) (120,317) (4) Certain interfund transactions between g overnmental 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 $ (7,224,069) 51 C. Fund Balance Classification Only restrictions imposed by external sources are shown as restricted net assets on the government-wide financial statements. Classification of fund balances imposed by the reporting government, whether by administrative policy or legislative action of the reporting government, are shown in aggregate on the government fund financial statements, but not on the proprietary fund financial statements. Committed fund balance includes amounts that can be used only for the specific purposes determined by a formal action of the City Council, the government’s highest level of decision-making authority. A formal action would also be required to modify or rescind an established commitment. Assigned fund balance amounts are intended to be used by the government for specific purposes but do not meet the criteria to be restricted or committed. Assigned fund balance represents the remaining amount that is not restricted or committed in governmental funds other than the general fund, which is classified as unassigned. Assigned fund balance is expressed by the direction of the City Council or budget committee with the authority to assign amounts to be used for specific purposes. Nonspendable fund balance represents amounts that are nonspendable such as inventories, and nonexpendable portion of permanent funds. Governmental fund balances as of June 30, 2010 are as follows: General Fund Highway User Revenue Fund Transportation Fund $ $ $ BBB Fund Special Assessment Bond Fund Other Governmental Funds Total Governmental Funds $ $ $ Fund balances: Nonspendable: Perpetual care - Inventory 376,728 - - - $ 69,057 - - 137,621 137,621 - - 445,785 714,053 Restricted for: Library branch services Court improvements and operations Debt services Grantor and contributor purposes - - - - - 714,053 643,321 - - - - - 643,321 - - - - 210,581 3,690,021 3,900,602 142,399 - - 56,479 - 1,835,668 2,034,546 Street improvements - 2,756,379 - - - - 2,756,379 Transit - - 957,032 - - - 957,032 Economic development - - - 426,722 - - 426,722 Arts and science - - - 392,096 - - 392,096 Culture and recreation - - - 384,744 - - 384,744 Other capital projects - - 733,232 4,647,647 - 2,915,425 8,296,304 2,215,450 Committed to: Library services Development fee projects Perpetual care - - - - - 2,215,450 86,568 - - - - - 86,568 - - - - - 13,155 13,155 651,650 Assigned to: Library services - - - - - 651,650 Court services 35,580 - - - - - 35,580 Capital reserve 7,047,280 - - - - - 7,047,280 Budgetary stabilization 1,000,000 1,000,000 - - - - - Real estate 512,240 - - - - - 512,240 Unassigned: 13,412,219 - - - - - 13,412,219 210,581 $ 12,173,043 $ 46,063,347 Total fund balances $ 23,256,335 $ 2,756,379 $ 1,690,264 $ 5,976,745 $ D. Change in Beginning Fund Balance and Net Assets Change Due to Accounting Error During the year the City determined that intergovernmental revenue had been incorrectly recorded as deferred revenue in prior years and should have been recognized as revenue in the year received. A prior year adjustment 52 related to a change in the way the City recognizes certain restricted revenue streams was recorded to beginning net assets and fund balances. Reclassification At the end of the year it was determined a reclassification of beginning fund balance was necessary as a result of a special revenue fund that no longer met major fund status per the accounting standards. New Standard During the year the City early implemented GASB-54, Fund Balance Reporting and Governmental Fund Type Definitions. With the early implementation of GASB-54 a previously reported special revenue fund no longer met the definition and needed to be reclassified as part of the general fund. The following discloses the restatement of governmental fund balances and net assets as of the beginning of the fiscal year: General Fund Fund balance, beginning of year, as previously stated: Increase due to reclassification of major fund to non major Increase (decrease) due to reclassification of special revenue fund Increase due to recognition of restricted revenue previously earned $ Fund balance, beginning of year, as restated $ Net asset, beginning of year, as previously stated: Increase due to recognition of restricted revenue previously earned 22,590,284 Other Governmental Funds $ 5,855,302 1,336,236 (497,520) 2,426,991 $ 9,121,009 497,520 725,165 23,812,969 Governmental Activities $ 255,262,648 3,152,156 $ 258,414,804 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. 53 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, compensated absences 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 November and February respectively, to give City staff the opportunity to present major discussion points to Council and the public. The goal is for Council to make policy decisions and direct staff in preparing the budget. This provides adequate time for the Council to gather input on major budget issues prior to preparation of the budget. The City Council holds Study Sessions in April. 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 June. 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, & Beverage 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. 54 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. 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 investments.” Deposits At June 30, 2010, the carrying amount of the City’s deposits was $17,094,820 and the bank balance was $18,731,780. The $1,636,960 difference represents deposits in transit, outstanding checks, and other reconciling items at June 30, 2010. 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 not covered by federal depository insurance. As of June 30, 2010, 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, 2010, the City’s investments included the following Investment Type U.S. agency secu rities Mutual fund - money market State Inv estment Pool Total fair value of investments Portfolio weighted average maturity $ Fair Valu e 23,481, 376 $ 4,059, 324 28,917, 578 56,458, 278 Weighted Av erage Maturity (in years) 3.842 0.003 0.005 1.600 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 Moody’s rating service as of June 30, 2010 is as follows: 55 Investment Type U.S. agency securities State investment pool (LGIP) Fair Value $ 23,481,376 28,917,578 Mutual fund - money market Total $ Minimum Legal Rating N/A N/A 4,059,324 56,458,278 $ $ Rating as of Year End AAA Unrated 23,481,376 $ 28,917,578 52,398,954 $ 4,059,324 4,059,324 Concentration of Credit Risk The City’s investment policy establishes that 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 shall not exceed the following. Fully insured or collateralized CD’s no more than 25%, US agency securities 100%, State, county, school district and other district municipal bonds or debt with an A rating or better no more than 25%, repurchase agreements 100%, and local government investment pool 100%. State of Arizona Investment Pool represents 60 percent of the City’s total investments. In addition, Federal Home Loan Bank and Federal National Mortgage Association represent 12 percent and 15 percent, respectively, of the City’s total investment. At June 30, 2010, 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 $ $ $ 56,458,278 17,094,820 73,553,098 25,278,038 23,481,376 7,312,352 17,481,332 73,553,098 Cash and cash equivalents at June 30, 2010 consisted of the following: Investments included in cash and cash equivalents Cash on hand Total cash and cash equivalents per statement of net assets $ $ 25,262,113 15,925 25,278,038 Investment income comprises the following for the year ended June 30, 2010: Net interest and dividends Net increase (decrease) in the fair value of investments Total net investment income per statement of activities $ $ 560,134 511 560,645 The net decrease in the fair value of investments during fiscal year 2009-2010 was $456. 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, 2010 was $166,032. 56 In previous years, the City recognized 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 did not receive distributions this year but total recovery to date is $777,005. In previous year, the City recognized a decrease in fair value of $272,785 consisting of the City’s share of a loss on an investment within the Local Government Investment Pool relating to Lehman Brothers Chapter 11 filing. The State has file claims on behalf of the LGIP investors. No distributions have been made to date. B. Receivables Receivables as of June 30, 2010, including allowances for uncollectible accounts, are as follows: Fund Accounts Governmental Activities General fund Highway user revenue fund Transportation fund BBB fund Special assessment fund Other governmental funds Less: allowance for uncollectibles $ 4,637,936 - 127,674 - 18,507,777 - 30,251,779 39,031 6,934,261 83,162 4,637,936 127,674 18,507,777 30,290,810 2,383,181 1,031,332 67,446 135,145 (137,000) 10,559 7,568 745 826 - 56,622 71,589 124,688 1,488 - - - 2,450,362 1,110,489 192,879 137,459 (137,000) 3,480,104 19,698 254,387 - - 3,754,189 $ 10,414,365 $ 102,860 $ 4,892,323 127,674 $ 18,507,777 $ 34,044,999 $ 127,674 - $ 18,507,777 - Total Receivables 77,621 5,541 Total business-type activities $ Special Assessments 6,900,771 33,490 Business-Type Activities Water and wastewater Environmental services Airport Stormwater Less: allowance for uncollectibles Total activities Bond Proceeds $ 1,339,654 857,506 1,453,407 574,148 413,221 - Total governmental activities $ Intergovernmental 38,372 794 8,996 10,264 1,421 17,774 - Total government funds Internal services funds 5,612,493 715,817 1,021,145 568,674 128,005 (1,145,363) Interest $ 7,118,193 1,574,117 2,483,548 1,153,086 18,509,198 559,000 (1,145,363) The receivables not expected to be collected within one year includes $105,000 of the environmental services fund and $100,000 of the general fund. 57 C. Capital Assets A summary of capital asset activity, for the government-wide financial statements, as of June 30, 2010 is as follows: Balance Governmental activities: Non-depreciable assets: Land Construction -in-progress Total non-depreciable assets July 1, 2009 $ 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 $ 43,351,629 36,183,336 79,534,965 Additions $ 3,200 8,790,579 8,793,779 Deletions and Retirements $ (158,694) (158,694) Transfers In (out) $ 456,334 (29,464,898) (29,008,564) Balances June 30, 2010 $ 43,652,469 15,509,017 59,161,486 66,583,622 21,612,053 30,357,814 235,312,838 353,866,327 43,008 51,905 719,637 10,157,100 10,971,650 (76,620) (31,363) (533,284) (641,267) 3,550,352 (2,520) 18,237,116 21,784,948 70,100,362 21,632,595 30,541,647 263,707,054 385,981,658 (13,849,790) (10,470,010) (18,015,604) (95,521,697) (137,857,101) (1,437,608) (1,121,432) (1,945,150) (8,119,865) (12,624,055) 53,278 31,363 542,416 627,057 (453) (453) (15,234,120) (11,560,079) (19,418,791) (103,641,562) (149,854,552) (172,904) $ (7,224,069) 295,288,592 Less: associated debt Less: unamortized premium Plus: unspent capital related debt Invested in capital assets, net of related debt (83,083,771) (884,697) 2,442,746 213,762,870 295,544,191 $ 7,141,374 58 $ $ Balance Business-type activities: Non-depreciable assets: Land Construction -in-progress Total non-depreciable assets July 1, 2009 $ 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 50,244,008 60,544,805 Deletions and Retirements Additions $ 3,428,855 3,428,855 $ - Transfers In (out) $ (37,879,823) (37,879,823) Balances June 30, 2010 $ 10,300,797 15,793,040 26,093,837 81,483,758 333,229,280 23,664,766 438,377,804 2,411,967 5,421,576 472,027 8,305,570 (16,184) (56,518) (535,029) (607,731) 12,679,943 12,953,215 19,455,417 45,088,575 96,559,484 351,547,553 43,057,181 491,164,218 (33,687,503) (102,039,226) (12,924,742) (148,651,471) (2,191,391) (7,235,808) (2,685,421) (12,112,620) 16,184 48,864 530,534 595,582 15,317 15,317 (35,862,710) (109,226,170) (15,064,312) (160,153,192) 7,224,069 357,104,863 Less: associated debt Less: unamortized premium Invested in capital assets, net of related debt (54,295,566) (25,145) 302,784,152 350,271,138 $ (378,195) $ (12,149) $ $ Depreciation expense was charged to the governmental functions in the government-wide financial statements as follows: Governmen tal Activ ities: General government Public safety $ Public works Economic and physical development Culture and recreation 563,149 1, 090,807 (60,453) 125,220 1, 825,835 Highway and streets Total depreciation expense - governmental activities 59 $ 9, 079,497 12, 624,055 D. Interfund Receivables, Payables, and Transfers Interfund receivables and payables Net interfund receivables and payables between governmental activities and business-type activities of $632,988 are included in the government-wide financial statements at June 30, 2010. The interfund balances at June 30, 2010 are short-term loans to cover temporary cash deficits in various funds. This occasionally occurs prior to bond sales or grant reimbursements. All interfund balances outstanding at June 30, 2010 are expected to be repaid within one year. The following interfund receivables and payables are included in the fund financial statements at June 30, 2010: Fund Governmental Activities: General fund Highway user revenue fund Transportation fund Other governmental funds Total governmental activities Business-Type Activities: Water and wastewater fund Airport fund Total business-type activities Total governmental and business-type activities Interfund Receivables $ $ Less: fund eliminations Adjustment for internal service fund elimination Total government-wide statement of net assets 6,250,000 6,250,000 2,100,000 2,100,000 8,350,000 (8,350,000) 632,917 $ 632,917 60 Interfund Payables $ $ 275,000 5,825,000 150,000 6,250,000 2,100,000 2,100,000 8,350,000 Transfers The net transfers of $10,524,926 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 transfers during fiscal year 2010 that were not expected, general fund received transfers of $1,055,190 from the environmental service fund, and other governmental funds; all were consistent with the activities of the related funds. $7,813 transfer between the BBB fund and the environmental services fund and $291,281 between the environmental services fund and capital projects were both capital related items; both are considered routine in nature. The third transfer was transferred from the capital projects fund to economic development fund to use remaining bond process to service the related debt. The following transfers are reflected in the fund financial statements for the year ended June 30, 2010: At year end a resolution was brought forward to City Council to inform the alignment related to transfers, no budget adjustments were completed. Fund Governmental Activities: General fund Highway user revenue fund Transportation fund BBB fund Special assessment fund Other governmental funds Total governmental activities Business-Type Activities: Water and wastewater fund Environmental services fund Airport fund Stormwater fund Total business-type activities Total governmental and business-type activities Transfers out $ $ Less: fund eliminations Add: capital assets transfer 5,922,622 85,401 2,523,153 2,073,955 7,919,969 18,525,100 1,958,565 514,884 156,811 175,221 2,805,481 21,330,581 Transfers In $ $ 5,122,981 4,424,417 120,000 731,354 4,825,491 15,224,243 3,801,355 7,813 201,244 2,095,926 6,106,338 21,330,581 (18,029,724) 7,224,069 Total government-wide statement of activities $ 10,524,926 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 2010 lease expense for the library was $78,342. The schedule below for future minimum lease expenses reflects the change in the rental rate as of July 1, 2010. 61 Operating Lease Expenditures Year Ending Ju ne 30 2011 2012 East Flagstaff Library $ 2013 Total $ 78,342 78,342 52,228 208,912 The City has entered into several operating lease agreements, with cancellation provisions, for the purpose of leasing office space and land. $113,006. Lease expenditures for these items for the period ending June 30, 2010 were Operating Lease Revenues The City leases several City-owned buildings under cancelable and non-cancelable agreements. The carrying value of the leased assets is $4,464,863 (cost of $5,665,896 less accumulated depreciation of $1,201,033) with current depreciation of $132,927. Certain leases contain provisions for future rate increases based on changes in the Consumer Price Index. Total revenue for fiscal year 2010 was $1,471,550. 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. June 30 Building #6 2011 2012 2013 2014 2015-2018 Total $ $ 783,296 783,296 783,296 783,296 2,415,163 5,548,347 In addition, the Airport Fund has several leases under cancelable agreements. The leases are for terminal space, hangars, shades, tiedowns, and ground leases. $1,157,404. Lease revenue in the Airport fund for fiscal year 2010 was The carrying value of the leased assets is $5,616,834 (cost of $7,983,707 less accumulated depreciation of $2,546,924) with current year depreciation of $187,435. 62 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. General obligation bonds are direct obligations and pledge the full faith and credit of the government. The Water and Wastewater General Obligation Bonds are backed by the ultimate taxing power and general revenues of the City; however, these bonds are carried as a liability of the Water and Wastewater Fund to reflect the intention of the City to retire those bonds from resources in the Water and Wastewater Fund. General obligation bonds outstanding at June 30, 2010: Purpose Governmental activities Business-type activities Business-type activities - refunding Total general obligation bonds outstanding $ $ Amount 25,865,000 1,680,000 4,010,000 31,555,000 General obligation bonds payable at June 30, 2010 consist of the following individual issues: Governmental activities: $3,100,000 Parks an d recreation bonds, series 2 001 due in annual installments of $385,000 to $505,000 through July 1, 2014; interest rate at 4.375% to 4.75%. $ 1, 885,000 $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%. 23, 980,000 Total governmental activities 25, 865,000 Business-type activities: $8,000,000 Water improvement project bonds, series 1997, principal payment of $1, 680,000 due July 1, 2013; interest at 4.5%. F iscal years 2007-2012 refunded in December 2003. 1, 680,000 $8,230,000 Water refunding bond, series 2003, due in annual installments of $190 ,000 to $1, 960,000 throug h July 1, 2013; interest at 3.0% to 3.25%. 4, 010,000 Total business-type activities 5, 690,000 Total General Obligation Bonds $ 63 31, 555,000 Annual debt service requirements to maturity for general obligation bonds are as follows: Year Ending June 30 2011 2012 2013 2014 2015 Govermental Activities Principal Interest $ 1,850,000 1,930,000 2,020,000 2,125,000 1,710,000 2016-2020 2021-2023 Total $ 9,900,000 6,330,000 25,865,000 20% bond type Authorized: $ 47,400,000 Unissued: $ 15,900,000 $ $ Business-type Activities Principal Interest 1,161,833 1,083,870 989,670 890,350 781,313 2,560,275 449,574 7,916,885 $ $ 1,860,000 1,960,000 1,870,000 5,690,000 $ $ 205,926 145,476 81,776 433,178 Statutory Debt Limitation Under the provisions of the Arizona Constitution, outstanding general obligation bonded debt for combined water, wastewater, electric, parks and open space, streets, and public safety purposes may not exceed 20% of the City of Flagstaff’s net secondary assessed valuation, nor may outstanding general obligation bonded debt for all other purposes exceed 6% of the City’s net secondary assessed valuation. Prior to December 7, 2006 streets, fire, and police were in the six percent limitation category. The City’s computation of legal debt margins available for creation of additional debt at June 30, 2010 was $137,702,894 and $51,842,368 for the 20 percent and 6 percent debt limits, respectively. Also, see Schedule 16 in the Statistical Section. Special Assessment Bonds Proceeds from special assessment bonds are used for improvements such as paving, sidewalks, and sewers. Payments made by the assessed property owners are pledged as collateral. In the event of default by a property owner, the lien created by the assessment is sold at public auction and the proceeds are used to offset the defaulted assessment. If there is no purchase at the public auction, the City is required to buy the property with funds appropriated from the General Fund. Special assessment bonds outstanding at June 30, 2010: Purpose Governmental activities $ 64 Amount 18,615,000 Special assessment bonds payable at June 30, 2010 consist of the following individual issues: Governmental activities: $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% $ 18,615,000 Total Special Assessment Bonds $ 18,615,000 Annual debt service requirements to maturity for special assessment bonds are as follows: Year Ending June 30 2011 2012 2013 2014 2015 2016-2020 2021-2025 2026-2030 2031-2032 Total Govermental Activities Principal Interest $ $ 485,000 505,000 535,000 560,000 590,000 3,410,000 4,345,000 5,555,000 2,630,000 18,615,000 $ $ 918,625 893,875 867,875 840,500 811,750 3,575,500 2,610,625 1,378,875 133,000 12,030,625 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. 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. Greater Arizona Development Authority revenue bonds are issued specifically for the purpose of constructing public infrastructure projects. These bonds have state shared revenue pledged as a repayment revenue stream. These bonds funded the Business Incubator building. 65 Water & Sewer Revenue bonds are issued as authorized by the voters for the construction, acquisition, furnishing, and/or equipping of water and sewer facilities and related systems. The Water & Sewer Revenue bonds are collateralized by revenue in excess of operating and maintenance expenses of the City’s water & sewer utility system, and are repaid via user charges or fees for service. Revenue bonds outstanding at June 30, 2010: Purpose Governmental activities Business-type activities Total general obligation bonds outstanding $ $ Amount 6,665,000 4,613,908 11,278,908 Revenue bonds at June 30, 2010 consist of the following individual issues: Governmental activities: $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%. $ 3,345,000 $3,370,000 Greater Arizona Development Authority revenue bonds, series 2010A, due in annual installments of $50,000 to $240,000 through August 1, 2030; interest at 2.0% to 4.625%. 3,320,000 Total Governmental activities 6,665,000 Business-type activities: $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%. 4,613,908 Total Revenue Bonds $ Annual debt service requirements to maturity for revenue bonds are as follows: Year Ending Govermental Activities Business-type Activities June 30 Principal Interest Principal Interest 2011 2012 2013 2014 2015 2016-2020 2021-2025 2026-2030 Total $ 1,735,000 1,845,000 120,000 125,000 $ 130,000 725,000 885,000 1,100,000 6,665,000 Authorized $ Unissued $ $ 326,393 228,512 130,038 126,437 315,123 326,302 337,877 349,863 $ 362,275 2,013,514 908,954 4,613,908 61,200,000 $ 15,000,000 57,830,000 $ 2,367,500 $ 122,688 531,437 369,974 157,251 1,992,730 $ 66 $ $ 163,678 152,499 140,924 128,938 116,526 380,491 48,650 1,131,706 11,278,908 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. Issued by the Municipal Facilities Corporation (MFC), 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 certificates of participation for the construction of a new United States Geological Survey (USGS) facility on land owned by the City. Municipal Facility Corporate bonds outstanding at June 30, 2010: Purpose Governmental activities $ Amount 19,890,000 Municipal facility corporation bonds are comprised of the following issues: Governmental activities: $4,700,000 USGS Project Municipal Facility Corporation bonds, series 12 (2001) due in annual installments of $255,000 to $440,000, through August 1, 2016; interest at 4.0 to 4.75%. $ $25,000,000 Fourth Street Municipal Facility Corporation revenue bonds, series 2003 due in annual installments of $1,000,000 to $2,145,000 through July 1, 2020; interest at 2% to 5.25% Total Municipal Facility Corporation Bonds Year Ending June 30 2011 2012 2013 2014 2015 2016-2020 Total Govermental Activities Principal Interest $ $ 1,795,000 1,865,000 1,945,000 2,020,000 2,105,000 10,160,000 19,890,000 $ $ 17,530,000 $ Annual debt service requirements to maturity for municipal facility debt are as follows: 925,071 854,959 778,169 697,963 614,163 1,598,862 5,469,187 67 2,360,000 19,890,000 Certificates of Participation Capital lease certificates of participation series 2009 were issued to complete various street overlay projects and to finance fire operating equipment. Principal and interest on the bonds are payable from capital lease payments and are not considered general obligations of the City. They are appropriated along with all other expenditures of the general government. Certificates of participation outstanding at June 30, 2010: Purpose Governmental activities $ Amount 4,960,000 Certificates of participation are comprised of the following issues: Governmental activities: $4,690,000 Certificates of participation, series 2009 due in annual installments of $435,000 to $575,000, through October 1, 2019; interest at 3.3137%. $ 4,960,000 Total Certificates of participation $ 4,960,000 Annual debt service requirements to maturity for certificates of participation debt are as follows: Year Ending June 30 2011 2012 2013 2014 2015 2016-2020 Total Govermental Activities Principal Interest $ $ 435,000 445,000 455,000 470,000 485,000 2,670,000 4,960,000 $ $ 151,945 142,033 129,645 115,770 101,445 255,055 895,893 68 The following is a summary of debt service requirements, including interest requirements, to maturity for long-term debt at June 30, 2010: Fiscal Year 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 Less interest General Obligation Bonds $ 5,077,759 5,119,346 4,961,446 3,015,350 2,491,313 2,491,538 2,487,038 2,494,350 2,495,250 2,492,100 2,493,000 2,495,187 1,791,386 Special Assessment Bonds $ 1,403,625 1,398,875 1,402,875 1,400,500 1,401,750 1,396,625 1,400,000 1,396,750 1,396,875 1,395,250 1,391,875 1,391,625 1,394,250 1,389,750 1,388,125 1,389,125 1,387,625 1,388,500 1,386,625 1,382,000 1,384,375 1,378,625 (8,350,063) $ 31,555,000 (12,030,625) $ 18,615,000 Revenue Bonds $ 2,540,194 2,552,313 728,839 730,238 731,489 731,289 730,889 730,288 729,489 728,488 732,288 730,277 249,250 251,812 248,950 250,875 251,625 251,913 251,737 251,101 (3,124,436) $ 11,278,908 69 Municipal Facility Corporation Bonds $ 2,720,071 2,719,959 2,723,169 2,717,963 2,719,163 2,721,813 2,258,163 2,261,563 2,259,713 2,257,610 Cetificates of Participation $ 586,945 587,033 584,645 585,770 586,445 586,670 585,673 582,900 583,313 586,500 (5,469,187) $ 19,890,000 (895,893) $ 4,960,000 Total $ 12,328,594 12,377,526 10,400,974 8,449,821 7,930,160 7,927,935 7,461,763 7,465,851 7,464,640 7,459,948 4,617,163 4,617,089 3,434,886 1,641,562 1,637,075 1,640,000 1,639,250 1,640,413 1,638,362 1,633,101 1,384,375 1,378,625 (29,870,204) $ 86,298,908 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 Arizona Department of Transportation provides financing for the construction of 14 T hangars at the City Airport. Loans outstanding as of June 30, 2010: Purpose Business-type activities $ Amount 36,256,607 Loan payables at June 30, 2010 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%. $ $7,900,000 Water infrastructure finance authority due in annual installments of $295,000 to $525,000 through July 1, 2026; interest at 3.28%. Airport: 796,018 6,650,000 $23,100,000 Wastewater infrastructure finance authority due in annual installment of $815,834, to 1,571,901 through July 1, 2027; interest at 3.512%. 21,318,449 $8,500,000 Water infrastructure finance authority due in annual installment of $344,052 to $628,065 through July 1, 2029; interest at 3.113%. Amount issued to-date $6,312,923. Remaining available $2,187,077. 6,011,987 $2,100,000 Water infrastructure finance authority due in annual installment of $77,263 to $138,320 through July 1, 2029; interest at 3.113%. Amount issued to-date $1,035,993. Remaining available $1,064,007. 958,730 $232,500 Water infrastructure finance authority due in annual installment of $8,737 to $15,054 through July 1, 2029; interest at 2.905%. 223,763 Total water and wastewater loan payable $ 35,958,947 $600,000 Arizona Department of Transportation due in quarterly installments of $5,337 to $13,548 through January 1, 2016; interest at 5.60%. $ 297,660 Total $ 36,256,607 70 Annual debt service requirements to maturity for loan payables are as follows: Year Ending June 30 2011 2012 2013 2014 2015 2016-2020 2021-2025 2026-2028 Total Business-type Activities Principal Interest $ 2,094,609 2,167,889 1,825,024 1,888,727 1,954,403 10,670,719 12,583,315 3,071,921 36,256,607 $ 1,106,712 1,045,064 981,251 929,442 875,815 3,523,200 1,949,486 321,459 10,732,429 Obligations under Capital Leases The City has entered into capital lease agreements for energy saving equipment, cardio equipment with total governmental assets of $2,871,201 and 72,901 respectively. The construction of a co-generator at Wildcat Wastewater Treatment Plant and construction of airport hangars represents total business assets of $1,611,311 and $2,345,330, 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, 2010 2011 2012 2013 2014 2015 2016-2020 2021-2025 Total future minimum lease payments Less: imputed interest costs Present value of future minimum lease payments Governmental Activities $ 506,273 490,670 470,993 470,993 235,496 2,174,425 (170,654) $ 2,003,771 Business Type Activities $ 482,692 482,692 482,693 482,691 482,692 1,535,114 1,042,813 4,991,387 (1,312,220) $ 3,679,167 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, 2010 the City has recognized $282,151 in arbitrage liability. 71 Pledged Revenues The City has pledged future water utility and wastewater utility revenues to repay $51,357,176 in Water Infrastructure Financing Authority Bonds issued during the period of 1992-2010. The various bonds were issued for the purchase or construction of various water or wastewater infrastructure including wells, water distribution lines, wastewater collection lines, and treatment plant improvements. At June 30, 2010, $41,969,527 remains outstanding to be repaid by future water and wastewater revenues, if such revenues prove insufficient, the remainder will be repaid as a general obligation of the City. For the fiscal year ended June 30, 2010, net revenue available for service of this debt was $5,827,063. The debt principal and interest paid in fiscal year 2010 was $4,092,333 (70.23% of available pledged net revenues). For additional information on pledged revenues related to revenue bonds, refer to Schedule 17 in the Statistical Section of this report. The City has pledged certain revenues for the repayment of $25,000,000 in Municipal Facility Corporation bonds issued in 2004. The bonds were issued to construct transportation infrastructure. The bonds have a senior lien on the 0.16% transportation sales tax and a secondary lien on the excise taxes and state shared revenues not specifically reserved by law or other regulation to be expended for other purposes. At June 30, 2010, $17,530,000 remains outstanding to be repaid by future revenues. For the fiscal year ended June 30, 2010, net revenues available for service of the debt were $35,708,503. The debt principal and interest paid in fiscal year 2010 was $2,260,200 (6.33% of available pledged net revenues). For additional information on pledged revenues for MFC transportation bonds, refer to Schedule 17 in the Statistical Section of this report. The City has pledged certain revenues for the repayment of $4,700,000 in Municipal Facility Corporation bonds issued in 2001 for the construction of a multipurpose office facility. The bonds are secured by a pledge of the City’s state shared revenues not specifically reserved by law or other regulation to be expended for other purposes. At June 30, 2010 $2,360,000 remains outstanding to be repaid by future revenues. For the fiscal year ended June 30, 2010, net revenues available for service of this debt were $11,929,099. The debt principal and interest paid in fiscal year 2010 was $460,614 (3.86% of available pledged net revenues). For additional information on pledged revenues for MFC other than transportation bonds, refer to Schedule 17 in the Statistical Section of this report. The City has pledged certain revenues for the repayment of $5,580,000 Junior Lien Street and Highway User Revenue bonds issued in 1992 for street construction. The bonds are secured by a pledge of the City’s highway user revenue not specifically reserved by law or other regulation to be expended for other purposes. At June 30, 2010, $3,345,000 remains outstanding on the Junior Lien Street and Highway User Revenue bonds to be repaid by future revenues. For the fiscal year ended June 30, 2010, net revenues available for service of this debt were $6,429,355. The debt principal and interest paid in fiscal year 2010 was $1,897,786 (29.52% of available pledged net revenues). For additional information on pledged revenues for highway user revenue bonds, refer to Schedule 17 in the Statistical Section of this report. The City has pledged certain revenues for the repayment of $3,370,000 Greater Arizona Development Authority (GADA) revenue bonds issued in 2010 for the construction of a business incubator facility at the U.S. Geological Survey Campus. The bonds are secured by a pledge of the City’s state shared revenues not specifically reserved by law or other regulation to be expended for other purposes. At June 30, 2010, $3,320,000 remains outstanding to be repaid by future revenues. For the fiscal year ended June 30, 2010, net revenues available for the service of this debt were $9,031,670. The debt principal and interest paid in fiscal year 2010 was $106,297 (1.18% of available pledged net revenues). For additional information on pledged revenues for GADA revenue bonds, refer to Schedule 17 in the Statistical Section of this report. 72 Changes in long-term liabilities Liquidation of compensated absences for governmental funds has been made out of the General, HURF, BBB, Library, and MPO funds. Non-current liability activity for the year ended June 30, 2010 was as follows: Governmental activities: Bonds payable: General obligation bonds Special assessment bonds Revenue bonds Municipal facility corporate bonds Certificates of participation Total bonds payable Capital leases Bond premium Compensated absences Other postemployment benefits Arbitrage rebate Governmental activity long-term liabilty Business-type activities: Bonds payable: General obligation bonds Water & sewer revenue bonds Total bonds payable Beginning Balance $ $ $ Water & sewer loan payable Airport loan payable Capital lease payable Total loan and leases payable Bond premium Compensated absences Other postemployment benefits Landfill closure/postclosure Business-type activity long-term liability $ Additions 27,645,000 19,169,000 4,865,000 21,625,000 73,304,000 $ 3,370,000 4,960,000 8,330,000 2,430,293 905,180 3,478,644 875,578 449,927 81,443,622 58,370 1,967,942 73,489 $ 10,429,801 7,460,000 4,918,234 12,378,234 - Ending Balance Reductions $ $ $ (1,780,000) (554,000) (1,570,000) (1,735,000) (5,639,000) (426,522) (78,853) (1,695,521) (167,776) (8,007,672) (1,770,000) (304,326) (2,074,326) $ $ $ 25,865,000 18,615,000 6,665,000 19,890,000 4,960,000 75,995,000 2,003,771 884,697 3,751,065 949,067 282,151 83,865,751 5,690,000 4,613,908 10,303,908 Due Within One Year $ $ $ 1,850,000 485,000 1,735,000 1,795,000 435,000 6,300,000 441,723 80,788 1,695,521 282,151 8,800,183 1,860,000 315,123 2,175,123 36,672,012 334,636 3,959,823 40,966,471 1,268,493 1,268,493 (1,981,558) (36,976) (280,656) (2,299,190) 35,958,947 297,660 3,679,167 39,935,774 2,055,517 39,092 294,707 2,389,316 33,527 641,208 177,835 9,365,490 63,562,765 316,068 13,839 838,618 2,437,018 (8,382) (320,192) (4,702,090) 25,145 637,084 191,674 10,204,108 61,297,693 8,382 308,134 4,880,955 $ $ $ $ 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, 2010 have potential exposure to the City of approximately $440,566 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 73 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. Beginning of Year Liability Fiscal Year 2007-08 $ Current Year Claims and Changes in Estimates Claim Payments End of Year Liability 414,392 $ 224,304 $ 259,686 $ 379,010 2008-09 379,010 744,543 286,598 836,955 2009-10 836,955 82,521 478,910 440,566 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 The city is involved in litigation arising in the ordinary course of it operations. The City believes that its ultimate liability, if any, in connection with these matters will not have a material adverse effect on the City’s financial position, changes in financial position, or liquidity. See schedule 23 in the statistical section for further information related to the City’s insurance coverage. Amounts received or receivable from grant agencies are subject to audit and adjustment by grantor agencies, principally the federal government. Any disallowed claims, including amounts already collected, may constitute a liability of the applicable funds. The amount, if any, of expenditures that may be disallowed by the grantor cannot be determined at this time, although the City expects such amounts, if any, to be immaterial. The following table presents the City’s commitments as of June 30, 2010: Governmental Activities: General fund Highway users revenue fund BBB fund Capital projects fund Total governmental activities $ 1,034,782 408,659 105,209 7,783,804 9,332,454 Business - Type Activities: Water and wastewater fund Airport fund Stormwater fund Total business-type activities Total governmental and business-type activities 243,092 15,138 25,322 283,552 9,616,006 $ 74 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 in fiscal year 2007. 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. During fiscal year 2010, the owners were unable to make the December 2010 special assessment payment and has since deeded over a portion of property to the City of Flagstaff. The City is currently holding property that represents $9.4Mof the $19M of the special assessment bonds. The City plans to place the property out for bid in fiscal year 2011 to alleviate most if not all of the debt. 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 All full-time employees of the City are covered by one of three pension plans. The Arizona State Retirement system is for the benefit of the employees of the state and certain other governmental jurisdictions. All full-time City employees, except sworn fire and police personnel, are included in the Arizona State Retirement System. Sworn police and fire personnel participate in the Public Safety Retirement System. In addition, the Mayor and City Council members are covered by the State’s Elected Officials Plan. Plan Descriptions - The City contributes to the three 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 and an agent multiple-employer defined benefit health insurance premium 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 and a cost-sharing, multiple-employer defined benefit health insurance premium 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. The health insurance premium plan benefit of the EORP is not established as a formal trust; the EORP is reported in accordance with GASB Statement No. 45 as an agent multiple-employer defined benefit plan. Accordingly, the disclosures that follow reflect the EORP as if it were an agent multiple-employer defined benefit plan. 75 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 www.psprs.com 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, 2010, active ASRS members were required by statute to contribute at the actuarially determined rate of 9.40% (9.00% retirement and 0.40% long-term disability) of the members' annual covered payroll and the City was required by statute to contribute at the actuarially determined rate of 9.40% (8.34% retirement, .66% for health insurance premium, and 0.40% long-term disability) of the members’ annual covered payroll. The City's contributions to ASRS for the years ended June 30, 2010, 2009, and 2008 were $2,810,122, $2,808,113, and $2,668,338 respectively. The City contribution for the current and two proceeding years, all of which were equal to the required contributions, were as follows: 6/30/2010 Retirement $ 2,493,23 6 Health Insurance $ 197,306 Long-term Disability $ 119,580 6/30/2009 6/30/2008 2,374,26 7 2,237,51 3 285,269 291,849 148,577 138,976 In addition, active EORP members were required by statute to contribute 7% of the members' annual covered payroll. The City was required to contribute 26.25% of the members' annual covered payroll, the aggregate of which is determined by actuarial valuation. The health insurance premium portion of the contribution rate for normal cost was actuarially set a .85% of covered payroll. The City's contributions to EORP for the years ended June 30, 2010, 2009, and 2008 were $33,327, $35,490, and $17,221 respectively, which equal the required contributions for each year. Agent Plan - For the year ended June 30, 2010, 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 22.15% and 27.48% for Police and Fire respectively. Police personnel contributed $530,204; Fire personnel contributed $341,579 during fiscal year 2009-2010. The City annual pension cost of $1,535,167 for police and $1,227,004 for fire was equal to the City’s annual required contribution and actual contributions. Benefit and contribution provisions are established by state law and may be amended only by the State of Arizona Legislature (A.R.S. Section 38-843). 76 Annual Pension Cost - The City's pension cost for the agent plan for the year ended June 30, 2010, the date of the most recent actuarial valuation, and related information follow. PSPRS Police Contribtuion rates FY09-2010: City 22.15% Plan members 7.65% Fire EORP 27.48% 7.65% 26.25% 7.00% Annual pension costs Pension contribtuions made $ $ 1,489,864 1,489,864 $ $ 1,275,572 1,275,572 $ $ 32,248 32,248 Annual OPEB costs - Health Insurance OPEB contribtuions made $ $ 49,219 49,219 $ $ 85,486 85,486 $ $ 1,079 1,079 As of actuarial valuation date: 6/30/2010 6/30/2010 6/30/2010 Actuarial cost method Project unit credit Project unit credit Project unit credit Amortization method Level percent-ofpay closed Level percent-ofpay closed Level percent-ofpay closed Remaining amortization period-UAL Remaining amortization period-excess 26 years 20 years 26 years 20 years 26 years 20 years 7-year smoothed market 7-year smoothed market 7-year smoothed market Asset valuation method Actuarial assumptions: Investment rate of return Projected salary increases* * includes inflation at Cost of living adjustments 8.50% 5.50% - 8.50% 5.50% None 77 8.50% 5.50% - 8.50% 5.50% None None 8.50% 5.00% 5.00% Three Year Trend Information for PSPRS - Information for the agent plan as of most recent actuarial valuations follows. Contributions Required and Contributions Made Annual Pension Cost (APC) Plan PSRS - Police - Pension 6/30/2010 $ 6/30/2009 6/30/2008 Net Pension Obligation Percentage of APC Contributed 1,489,864 1,604,408 1,055,645 100% 100% 100% $ -0-0-0- 49,219 50,016 57,046 100% 100% 100% $ -0-0-0- 1,275,572 1,497,199 1,018,372 100% 100% 100% $ -0-0-0- PSRS - Fire - Health Insurance 6/30/2010 $ 6/30/2009 6/30/2008 85,486 78,731 78,386 100% 100% 100% $ -0-0-0- EORP - Pension 6/30/2010 6/30/2009 6/30/2008 32,248 34,337 16,326 100% 100% 100% $ -0-0-0- 1,079 1,153 895 100% 100% 100% $ -0-0-0- PSRS - Police - Health Insurance 6/30/2010 $ 6/30/2009 6/30/2008 PSRS - Fire - Pension 6/30/2010 6/30/2009 6/30/2008 $ $ EORP - Health Insurance 6/30/2010 $ 6/30/2009 6/30/2008 Schedule of Funding Progress - An analysis of funding progress for each of the agent plans as of the most recent actuarial valuations; June 30, 2008 reporting period determines the rates for fiscal year 2010. For this valuation, which was prior to the implementation of GASB Statement Nos. 43 and 45, the pension and health insurance benefit amounts were aggregated. In future years when GASB Statement Nos. 43 and 45 measurements are made and reported, these benefits will be disaggregated and reported separately. The EORP, by statue, is a cost-sharing plan. However, because of its statutory construction, in accordance with GASB Statement No. 43, paragraphs 5 and 41, the valuation for the EORP on its statutory basis as a cost-sharing plan and, therefore, actuarial information for the City, as a participating government, is not available. 78 (2) Actuarial Accrued Liability (AAL) Entry Age (1) Actuarial Value of Assets PSRS - Police Pension 6/30/2010 $ 6/30/2009 6/30/2008 23,962,276 $ 22,931,628 21,772,844 (5) Annual Covered Payroll (6) Unfunded AAL as a Percentage of Covered Payroll (4) / (5) 57.8% $ 57.9% 57.9% 17,485,114 $ 16,655,473 15,810,202 6,907,462 7,423,926 7,437,160 253.1% 224.3% 212.6% $ 953,355 925,492 1,043,332 0.0% $ 0.0% 0.0% 953,355 $ 925,492 1,043,332 6,907,462 7,423,926 7,437,160 13.8% 12.5% 14.0% 32,605,835 $ 33,539,698 31,635,600 48,099,507 46,998,109 45,387,695 67.8% $ 71.4% 69.7% 15,493,672 $ 13,458,411 13,752,095 4,671,743 5,460,875 5,176,064 331.6% 246.5% 265.7% 1,394,422 1,359,414 1,633,210 0.0% $ 0.0% 0.0% 1,394,422 $ 1,359,414 1,633,210 4,671,743 5,460,875 5,176,064 29.8% 24.9% 31.6% PSRS - Fire Health Insurance 6/30/2010 $ 6/30/2009 6/30/2008 D. (4) Unfunded AAL (2) - (1) 41,447,390 39,587,101 37,583,046 PSRS - Police Health Insurance 6/30/2010 $ 6/30/2009 6/30/2008 PSRS - Fire Pension 6/30/2010 $ 6/30/2009 6/30/2008 (3) Percent Funded (1) / (2) - $ Other Post Employment Benefits (OPEB) Plan Postemployment Healthcare Plan Plan description. The City of Flagstaff provides post-retirement healthcare insurance benefits for its retirees as an agent multiple-employer plan which is administered through, Northern Arizona Public Employee Benefit Trust (NAPEBT). NAPEBT provides benefits to eligible retirees through the same plan as active city employees and their beneficiaries up to the age of 65; the implicit rate subsidy exists through the duration of the coverage. Substantially, all of the City’s employees may become eligible for those benefits when they qualify for retirement. To be eligible a retiree must qualify to receive retirement benefits from the Arizona State Retirement System and elect coverage at date of retirement. NAPEBT issues a publicly available financial report that includes financial statements and required supplementary information. That report may be obtained on their website: www.napebt.com/community_docs. As of June 30, 2010, there were 75 retirees who elected coverage. Funding Policy. The contribution requirements of plan members and the city are established and may be amended by the NAPEBT board. Eligible retirees up to the age of 65 have the option to participate in the healthcare plan that is currently offered to active employees and must pay 100% of the premium less any reimbursement from the Arizona State Retirement System, currently, a monthly stipend of $150 for single coverage and $260 for family coverage. The city has elected to not fund the annual required contribution of the employer (ARC), an amount actuarially determined in accordance with the parameters of GASB Statement No. 45. The ARC represents a level of funding that, if paid on an ongoing basis, is projected to cover normal cost each year and amortize any unfunded actuarial 79 liabilities over a period not to exceed thirty years. The City’s implicit subsidy rate to covered payroll is actuarially determined at 21.2%. Plan members receiving benefits contribute $564,489 during fiscal year 2010. Annual OPEB Cost and Net OPEB Obligation. For 2010, the city’s annual OPEB cost (expense) of $1,083,938 was equal to the ARC plus interest on the net OPEB obligation of $30,525. The city’s annual OPEB cost, the percentage of annual OPEB cost contributed to the plan, and the net OPEB obligation for 2010 and two preceding years were as follows: Fiscal Year Ended Annual OPEB Cost Actual Contributions Percentage of Annual OPEB Cost Contributed 6/30/2010 $ 1,083,938 $ 621,538 57.3% 6/30/2009 6/30/2008 1,053,413 (1) 375,072 (1) 35.6% (1) Net OPEB Obliligation $ 1,140,741 678,341 (1) (1) Information not available Fiscal Year Ended 6/30/2010 $ 6/30/2009 6/30/2008 (1) Annual Required Contribution 1,053,413 $ 1,053,413 (1) (2) Interest on Existing NOO (4) Annual OPEB Cost (1) + (2) + (3) (3) ARC Adjustment 30,525 $ (1) (1) - $ (5) Actual Contribution Amount 1,083,938 $ 1,053,413 (1) (6) Net Increase in NOO (4) - (5) 621,538 $ 375,072 (1) 462,400 $ 678,341 (1) (7) NOO as of End of Year 1,140,741 678,341 (1) (1) Information not available Funded Status and Funding Progress. As of July 1, 2008, the actuarial accrued liability for benefits was $8,946,294, all of which was unfunded. The covered payroll of active employees covered by the plan is $42,292,297, and the ratio of the unfunded actuarial accrued liability to the covered payroll is 21.2 percent. Following is a table of the last three years funding progress as available. Actuarial Valuation Date 7/1/2008 $ (1) Actuarial Value of (2) Actuarial Accrued Liability (3) Percent Funded (4) Unfunded AAL (5) Annual Covered (6) Unfunded AAL as a Percentage of Covered Assets (AAL) (1) / (2) (2) - (1) Payroll Payroll (4 ) / (5) $ 8,946,294 0.0% - $ 8,946,294 $ 42,292,297 21. 2% Actuarial valuations of an ongoing plan involve estimates of the value of reported amounts and assumptions about the probability of occurrence of events far into the future. Examples include assumptions about future employment, mortality, and the healthcare cost trend. Amounts determined regarding the funded status of the plan and the annual required contributions of the employer are subject to continual revision as actual results are compared with past expectations and new estimates are made about the future. The schedule of funding progress, presented as required supplementary information following the notes to the financial statements, presents 80 multiyear trend information that shows whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued liabilities for benefits. Actuarial Methods and Assumptions. Projections of benefits for financial reporting purposes are based on the substantive plan and include the types of benefits provided at the time of each valuation and the historical pattern of sharing of benefit costs between the employer and plan members to that point. The actuarial methods and assumptions used include techniques that are designed to reduce short-term volatility in actuarial accrued liabilities and the actuarial value of assets, consistent with the long-term perspective of the calculations. In the July 1, 2008, actuarial valuation, the entry age normal actuarial cost method was used. assumptions included a 4.5 percent investment rate of return. The actuarial Healthcare cost trend rate of 9 percent initially, reduced by decrements to an ultimate rate of five percent. The remaining amortization period at July 1, 2008, was 30 years, open, level dollar amount. The City has elected to perform biennial actuary valuations. E. 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 $10,204,108 as of June 30, 2010, which is based on 64.58 percent usage of the landfill. The remaining $5,597,074 will be accrued over the remaining life of the landfill, which is currently estimated to be 18 years. The accrual for the closure and postclosure care costs for fiscal year 2010 was $326,310. 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, 2010 the balance of the investments held for those purposes is $8,907,689. 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, $15,801,182, 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, 2010. 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 F. Subsequent Event In October 2009 the City was approved for a loan by the Water Infrastructure Finance Authority of Arizona (WIFA) to improve the City’s water infrastructure. These loans will provide for future water rights, $800,000 and infrastructure related to the Fort Tuthill Well, $1,000,000. Draws for these loans become available during the year but were not requested until FY2011. Presidio in the Pines, a privately funded housing development, has not been completed and several of the development’s principal investors, have declared bankruptcy. The City of Flagstaff is holding four bonds to complete some or all of the public infrastructure portion of the project and has called those bonds. The City’s legal counsel is negotiating with the surety to facilitate payment of the remaining penal sums of the bonds in order to complete the project. Recently, a complaint was filed in the Coconino County Superior Court on behalf of the Presidio in the Pines Homeowners Association and various developers against the City asserting that the entire bonds be called and that the City use these funds to complete the public and private improvements remaining. The suit alleges that the City was negligent by not obtaining a high enough bond from the original developers in order to complete both the public and private portions of the infrastructure. A value has not been determined to date. On June 8, 2010, City Council adopted resolution #2010-40, an amendment to City Code Chapter 1-13 regarding the Flagstaff Housing Authority. This changed the status of the Flagstaff Housing Authority to become a section of the City within the Community Development division. Since resolutions require a 30 day public review before becoming effective, the Flagstaff Housing Authority will not officially be a section of the City until fiscal year 2011. The Flagstaff Housing Authority had a separate independent audit for fiscal year 2010. 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. 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. Secondary Property Tax Revenue Fund This fund is used to account for secondary property tax revenues. Monies received by this fund are legally restricted to payment of general obligation debt. Capital Projects Fund A capital project fund is established to account for the acquisition and construction of major capital facilities and enhances reporting to ensure that requirements regarding the use of the revenue were fully satisfied. Capital Projects Bond Fund This fund accounts for the receipt of proceeds from bonds and the expenditure of those funds to purchase or construct capital assets for the City. 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, 2010 Special Revenue Funds Library Fund Community Redevelopment Fund Metropolitan Planning Organization Fund ASSETS Cash and investments $ 1,796,803 Cash with fiscal agents Accounts receivable, net Interest receivable Intergovernmental receivables Restricted cash and investments Total assets $ 1,527,049 $ 9,524 - - - 127,550 250 - 4,940 2,437 - 309 247,460 165,452 2,537,558 - - $ 4,467,160 $ 1,777,196 $ 174,976 $ $ 75,638 $ 5,592 LIABILITIES AND FUND BALANCE Liabilities: Accounts payable Accrued payroll and compensated absences 505,356 117,643 3,445 10,804 Current bonds payable - - - Interest payable - - - Interfund payable - - 150,000 Deferred revenue 131,504 - 2,529 Arbitrage liability - - - Total liabilities 754,503 79,083 168,925 - - - 714,053 - - Fund balances: Nonspendable: Perpetual care Restricted for: Library services Debt service Other capital projects Grantor and contributor purposes - - - - - - 131,504 1,698,113 6,051 2,215,450 - - - - - Committed to: Affiliate libraries Perpetual care Assigned to: Library services Total fund balances Total liabilities and fund balances 651,650 - - 3,712,657 1,698,113 6,051 $ 4,467,160 84 $ 1,777,196 $ 174,976 Capital Projects Debt Service Funds General Obligation Bond Fund $ Funds Secondary Property Tax Revenue Fund Permanent Fund Capital Projects Bond Construction $ 1,199,438 Total Other Governmental Funds Perpetual Care 826,322 $ 3,051,713 $ 1,920,459 - - - 1,920,459 - - - 205 128,005 - 7,802 2,358 237 17,774 - - - - 413,221 $ - $ 3,059,515 $ 3,906,209 $ 150,776 $ 16,282,613 $ $ $ 426,482 $ - $ 1,013,068 - 137,621 8,423,562 $ 2,746,781 - 2,704,413 12,713 5,379,592 - - - - 131,892 1,780,000 - - - 1,780,000 618,426 - - - 618,426 - - - - 150,000 - - - - 134,033 - - 282,151 - 282,151 2,398,426 - 708,633 - 4,109,570 - - - 137,621 137,621 - - - - 714,053 348,355 3,059,515 282,151 - 3,690,021 - - 2,915,425 - 2,915,425 - - - - 1,835,668 - - - - 2,215,450 - - - 13,155 13,155 - - - - 651,650 348,355 3,059,515 3,197,576 150,776 12,173,043 $ 2,746,781 $ 3,059,515 $ 3,906,209 85 $ 150,776 $ 16,282,613 CITY OF FLAGSTAFF, ARIZONA Combining Statement of Revenues, Expenditures, and Changes in Fund Balances Non-Major Governmental Funds Year Ended June 30, 2010 Special Revenue Funds Metropolitan Planning Organization Fund Community Redevelopment Fund Library Fund REVENUES: Taxes $ Intergovernmental Grants and entitlements - $ - $ - 3,762,831 - - 96,345 681,869 278,039 Charges for services - 78,925 - Investment earnings 26,844 13,223 - Contributions 21,950 - 221 Miscellaneous Total revenues 29,461 900 - 3,937,431 774,917 278,260 - - - EXPENDITURES: Current: Public safety Economic and physical development - 1,148,931 313,578 4,456,009 - - - - - Principal retirement - - - Interest and other charges - - - Culture and recreation Highways and streets Debt service: Capital outlay Total expenditures Excess (deficiency) of revenues over expenditures - - - 4,456,009 1,148,931 313,578 (518,578) (374,014) (35,318) OTHER FINANCING SOURCES (USES): Issuance of capital debt - - - Bond premium - - - Sale of capital assets Transfers in Transfers out 1,509 34,985 - 1,260,910 229,074 24,300 (78,391) Total other financing sources (uses) (14,000) 1,184,028 Net change in fund balances 665,450 Fund balances, beginning of year, as restated 3,047,207 Fund balances, end of year $ 86 3,712,657 - 250,059 24,300 (123,955) (11,018) 1,822,068 $ 1,698,113 17,069 $ 6,051 Capital Projects Debt Service Funds General Obligation Bond Fund $ - Secondary Property Tax Revenue Fund $ 7,620,317 Permanent Fund Capital Projects Bond Construction $ - Total Other Governmental Funds Perpetual Care $ - $ 7,620,317 - - - - 3,762,831 - - - - 1,056,253 - - - - 78,925 - 35,985 23,220 1,242 100,514 - - 490,160 19,136 531,467 - - 11,554 - 41,915 - 7,656,302 524,934 20,378 13,192,222 - - 5,512 - 5,512 - - 9,791 - 1,472,300 - - - - 4,456,009 - - 210 - 210 1,780,000 - - - 1,780,000 1,239,926 - 282,151 - 1,522,077 - - 2,596,565 - 2,596,565 3,019,926 - 2,894,229 - 11,832,673 20,378 1,359,549 (3,019,926) $ Funds 7,656,302 (2,369,295) - - 3,720,000 - 3,720,000 - - 39,304 - 39,304 - - 991,165 - 1,027,659 3,019,926 - 291,281 - 4,825,491 - (6,821,281) (1,006,297) - (7,919,969) 3,019,926 (6,821,281) 4,035,453 - 1,692,485 - 835,021 1,666,158 20,378 3,052,034 348,355 2,224,494 1,531,418 130,398 9,121,009 348,355 $ 3,059,515 $ 3,197,576 87 $ 150,776 $ 12,173,043 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 Special Assessment Bond Fund 93 Budgetary Comparison Schedules - Non-Major Governmental Funds Library Fund Community Redevelopment Fund Metropolitan Planning Organization Fund General Obligation Bond Fund Secondary Property Tax Revenue Fund Capital Projects Fund 94 95 96 97 98 99 89 City of Flagstaff, Arizona Capital Assets Used in the Operation of Governmental Funds Schedule By Function and Activity June 30, 2010 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 3,627,272 1,623,693 1,780,775 3,464,097 33,156,632 $ 43,652,469 $ 43,652,469 90 $ 13,759,364 23,258,835 5,426,635 7,541,573 20,011,645 102,310 Improvements $ 1,894,249 81,845 198,275 78,116 17,128,129 2,251,981 70,100,362 21,632,595 (15,234,122) (11,560,078) 54,866,240 $ 10,072,517 Machinery and Equipment $ 3,793,204 11,624,311 1,414,539 1,089,816 4,423,717 8,196,060 Construction In Progress $ 30,541,647 11,122,857 103,570 3,068,165 (299,362) 2,419,227 10,217,417 $ 652,947 6,903,434 256,150,673 15,509,017 (19,418,790) $ Infrastructure $ 15,509,017 $ $ 23,177,659 39,656,849 7,039,449 10,843,865 54,350,249 310,075,073 263,707,054 445,143,144 (103,641,562) (149,854,552) 160,065,492 91 Total $ 295,288,592 City of Flagstaff, Arizona Capital Assets Used in the Operation of Governmental Funds Schedule of Changes By Function and Activity June 30, 2010 Balance Program General government July 1, 2009 $ Public safety Public works Economic and physical development Culture and recreation Highway and streets Total $ 46,695,723 Additions $ Retirements - $ (42,650) $ Transfers Balance In (out) June 30, 2010 (23,475,415) $ 1,315,270 23,177,659 36,774,846 1,890,215 (323,482) 39,656,849 7,152,929 285,317 (150,086) (248,711) 7,039,449 10,984,538 126,803 (100,136) (167,340) 10,843,865 50,594,467 3,635,968 (13,865) 133,680 54,350,249 281,198,789 13,827,128 (169,743) 15,218,900 310,075,073 433,401,292 $ 19,765,429 92 $ (799,961) $ (7,223,616) $ 445,143,144 CITY OF FLAGSTAFF, ARIZONA Special Assessment Bond Fund Schedule of Revenues, Expenditures, and Changes in Fund Balances - Budget and Actual Year Ended June 30, 2010 Budget Original Final Actual Amounts Budgetary Basis 1,402,250 $ Variance with Final Budget Positive (Negative) REVENUES: Special assessments $ Investment earnings 1,402,250 $ 1,513,936 $ 111,686 2,400 2,400 1,351 1,404,650 1,404,650 1,515,287 110,637 Principal retirement 554,000 554,000 554,000 - Interest and other charges 946,801 946,801 945,888 913 1,500,801 1,500,801 1,499,888 913 Total revenues (1,049) EXPENDITURES: Debt service: Total expenditures Excess (deficiency) of revenues over (under) expenditures (96,151) (96,151) 15,399 111,550 Net change in fund balances (96,151) (96,151) 15,399 111,550 96,951 96,951 96,951 - Budgetary fund balances, beginning of year Budgetary fund balances, end of year $ 800 $ 93 800 $ 112,350 $ 111,550 CITY OF FLAGSTAFF, ARIZONA Library Fund Schedule of Revenues, Expenditures, and Changes in Fund Balances - Budget and Actual Year Ended June 30, 2010 Budget Original Final Actual Amounts Budgetary Basis 6,449,810 $ Variance with Final Budget Positive (Negative) REVENUES: Intergovernmental $ 6,449,810 $ 3,762,831 $ (2,686,979) Grants and entitlements 25,000 25,000 96,345 71,345 Investment earnings 50,000 50,000 26,844 (23,156) Miscellaneous Total revenues 20,809 20,809 29,461 6,545,619 6,545,619 3,915,481 (2,630,138) 8,652 7,740,516 7,740,516 4,456,009 3,284,507 100,000 100,000 - 100,000 7,840,516 7,840,516 4,456,009 3,384,507 (1,294,897) (1,294,897) 1,260,910 1,260,910 EXPENDITURES: Current: Culture and recreation Contingency Total expenditures Excess (deficiency) of revenues over (under) expenditures (540,528) 754,369 OTHER FINANCING SOURCES (USES): Transfers in Transfers out Total other financing sources (uses) Net change in fund balances Budgetary fund balances, beginning of year Budgetary fund balances, end of year $ (328,391) (328,391) 932,519 932,519 (362,378) 626,643 264,265 $ Adjustment of budetary basis to GAAP basis net change in fund balances 1,260,910 250,000 (362,378) 641,991 1,004,369 626,643 626,643 - 264,265 $ 1,268,634 $ 641,991 modified accrual basis. 23,459 $ 94 250,000 1,182,519 The City budgets certain revenues on the cash basis, rather than on the Adjusted net change in fund balance - GAAP basis - (78,391) 665,450 $ 1,004,369 CITY OF FLAGSTAFF, ARIZONA Community Redevelopment Fund Schedule of Revenues, Expenditures, and Changes in Fund Balances - Budget and Actual Year Ended June 30, 2010 Budget Original Final Actual Amounts Budgetary Basis 1,855,040 $ Variance with Final Budget Positive (Negative) REVENUES: Grants and entitlements $ 1,855,040 $ 681,869 $ (1,173,171) Charges for services - - 78,925 78,925 Investment earnings - - 13,223 13,223 Miscellaneous - - 900 1,855,040 1,855,040 774,917 Economic and physical development 3,611,460 3,611,460 1,148,931 2,462,529 Total expenditures 3,611,460 3,611,460 1,148,931 2,462,529 (1,756,420) (1,756,420) Total revenues 900 (1,080,123) EXPENDITURES: Current: Excess (deficiency) of revenues over (under) expenditures (374,014) 1,382,406 OTHER FINANCING SOURCES (USES): Transfers in 229,074 Transfers out (14,000) Total other financing sources (uses) Budgetary fund balances, beginning of year $ 229,074 (14,000) 215,074 Net change in fund balances Budgetary fund balances, end of year 229,074 (14,000) 215,074 (1,541,346) (1,541,346) 1,663,992 1,663,992 122,646 $ Adjustment of budetary basis to GAAP basis net change in fund balances 122,646 - (158,940) 1,382,406 1,663,992 $ $ modified accrual basis. 1,505,052 (158,940) 34,985 $ 95 - 215,074 The City budgets certain revenues on the cash basis, rather than on the Adjusted net change in fund balance - GAAP basis - (123,955) $ 1,382,406 CITY OF FLAGSTAFF, ARIZONA Metropolitan Planning Organization Fund Schedule of Revenues, Expenditures, and Changes in Fund Balances - Budget and Actual Year Ended June 30, 2010 Budget Original Variance with Final Budget Positive (Negative) Actual Amounts Budgetary Basis Final REVENUES: Grants and entitlements $ Miscellaneous Total revenues 401,526 $ 401,526 $ 278,039 - - 221 401,526 401,526 278,260 325,826 325,826 313,578 $ (123,487) 221 (123,266) EXPENDITURES: Current: Economic and physical development Contingency Total expenditures Excess (deficiency) of revenues over (under) expenditures 12,248 100,000 100,000 - 100,000 425,826 425,826 313,578 112,248 (24,300) (24,300) (35,318) (11,018) 24,300 24,300 24,300 - 24,300 24,300 24,300 - 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 $ - $ 96 - (11,018) (11,018) $ (11,018) $ (11,018) CITY OF FLAGSTAFF, ARIZONA General Obiligation Bond Fund Schedule of Revenues, Expenditures, and Changes in Fund Balances - Budget and Actual Year Ended June 30, 2010 Budget Original Final Actual Amounts Budgetary Basis 1,780,000 $ Variance with Final Budget Positive (Negative) EXPENDITURES: Debt service: Principal retirement $ 1,780,000 $ 1,780,000 $ - Interest and other charges 1,690,772 1,690,772 1,239,926 (450,846) Total expenditures 3,470,772 3,470,772 3,019,926 (450,846) (3,470,772) (3,470,772) (3,019,926) 450,846 3,470,772 3,470,772 3,019,926 (450,846) 3,470,772 3,470,772 3,019,926 (450,846) - - - - 348,355 348,355 348,355 - Excess (deficiency) of revenues over (under) 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 $ 348,355 $ 97 348,355 $ 348,355 $ - 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, 2010 Budget Original Final Actual Amounts Budgetary Basis 7,631,176 $ Variance with Final Budget Positive (Negative) REVENUES: Taxes $ Investment earnings Total revenues 7,631,176 $ 7,620,317 $ (10,859) 79,700 79,700 35,985 (43,715) 7,710,876 7,710,876 7,656,302 (54,574) (7,272,127) (7,272,127) (6,821,281) 450,846 (7,272,127) (7,272,127) (6,821,281) 450,846 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 $ 438,749 438,749 835,021 396,272 2,355,611 2,355,611 2,355,611 - 2,794,360 $ 98 2,794,360 $ 3,190,632 $ 396,272 CITY OF FLAGSTAFF, ARIZONA Capital Projects Fund Schedule of Revenues, Expenditures, and Changes in Fund Balances - Budget and Actual Year Ended June 30, 2010 Budget Original Final Actual Amounts Budgetary Basis 3,000,000 $ Variance with Final Budget Positive (Negative) REVENUES: Miscellaneous $ Investment earnings Contributions Total revenues 3,000,000 $ 11,554 82,248 82,248 23,220 477,635 477,635 490,160 3,559,883 3,559,883 524,934 $ (2,988,446) (59,028) 12,525 (3,034,949) EXPENDITURES: Current: Capital outlay Total expenditures Excess (deficiency) of revenues over (under) expenditures 11,712,602 11,712,602 2,894,229 8,818,373 11,712,602 11,712,602 2,894,229 8,818,373 (2,369,295) 5,783,424 (8,152,719) (8,152,719) OTHER FINANCING SOURCES (USES): Bonds issued Sale of capital assets Transfers in Transfers out 16,400,000 16,400,000 3,720,000 (12,680,000) 1,425,000 1,425,000 991,165 (433,835) 27,300 27,300 291,281 (200,000) Total other financing sources (uses) (200,000) 263,981 (1,006,297) (806,297) 17,652,300 17,652,300 3,996,149 (13,656,151) Net change in fund balances 9,499,581 9,499,581 1,626,854 (7,872,727) Budgetary fund balances, beginning of year 2,032,935 2,032,935 2,032,935 - Budgetary fund balances, end of year $ 11,532,516 $ Adjustment from budetary basis to GAAP basis net change in fund balances The City budgets certain revenues on the cash basis, rather than on the 11,532,516 $ 3,659,789 $ 1,626,854 modified accrual basis. Adjusted net change in fund balance - GAAP basis 39,304 $ 99 1,666,158 $ (7,872,727) 100 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 Treads 102 These schedules contain trend information to help the reader understand how the city's financial performance and well-being have changed over time. Revenue Capacity 110 These schedules contain information to help the reader assess the city's most significant local revenue source, sales tax. Debt Capacity 116 These schedules present information to help the reader assess the affordability of the city's current levels of outstanding debt and the city's ability to issue additional debt in the future. Demographic and Economic Information These schedules offer demographic and economic indicators to help the reader understand the environment within which the city's financial activities take place. 127 Operating Information 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. 129 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 Schedule 1 City of Flagstaff Net Assets by Component Last Eight Fiscal Years (accrual basis of accounting) Fiscal Year 2003 2004 2005 2006 2007 2008 2009 2010 Governmental activities Invested in capital assets, net of related debt $ 45,410,334 $ 41,666,412 $ 46,759,889 $ 184,594,782 $ 204,594,974 Restricted 14,778,358 35,343,236 20,670,257 45,560,390 13,795,935 Unrestricted 34,178,175 33,494,972 56,392,865 10,448,150 36,514,677 Total governmental activities net assets $ 94,366,867 $ 110,504,620 $ 123,823,011 $ 240,603,322 $ 254,905,586 $ 173,369,441 $ 184,863,812 $ 200,551,217 $ 230,035,130 $ 264,381,730 (1) (2) $ 214,268,448 $ 215,672,933 14,875,852 7,975,269 39,248,151 34,766,602 $ 268,392,451 $ 276,783,163 (3) $ 258,414,804 $ 291,707,810 $ 213,762,870 18,213,829 (4) 49,463,587 $ 281,440,286 $ 302,784,152 Business-type activities Invested in capital assets, net of related debt Restricted Unrestricted Total business-type activities and net assets 5,013,627 5,161,363 3,200,521 2,392,858 2,424,615 1,593,915 1,593,915 2,209,327 20,858,057 24,092,049 24,948,848 20,303,463 19,267,461 16,250,436 11,547,792 10,895,855 $ 199,241,125 $ 214,117,224 $ 228,700,586 $ 252,731,451 $ 286,073,806 $ 294,627,514 $ 304,849,517 $ 315,889,334 $ 218,779,775 $ 226,530,224 $ 247,311,106 $ 414,629,912 $ 468,976,704 $ 491,051,611 $ 507,380,743 $ 516,547,022 Primary government 102 Invested in capital assets, net of related debt Restricted 19,791,985 40,504,599 23,870,778 47,953,248 16,220,550 16,469,767 9,569,184 Unrestricted 55,036,232 57,587,021 81,341,713 30,751,613 55,782,138 55,498,587 46,314,394 Total primary government net assets $ 293,607,992 $ 324,621,844 $ 352,523,597 $ 493,334,773 $ 540,979,392 (1) FY 2007 restated for retroactive reporting of infrastructure (2) FY 2007 restated for retroactive reporting due to an accounting error (3) FY 2008 change in calculations within categories due to calculation error. No net change to total net assets. (4) FY 2009 restated for change due to accounting error The City implemented GASB-34 for the year ended June 30, 2003 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. $ 563,019,965 $ 563,264,321 20,423,156 60,359,442 $ 597,329,620 103 Schedule 2 City of Flagstaff Changes in Net Assets Last Eight Fiscal Years (accrual basis of accounting) Fiscal Year 2003 2004 2005 2006 2007 2008 2009 2010 Expenses Governmental activities: General government $ Public safety 4,840,896 $ 18,270,468 5,891,617 $ 18,792,832 5,441,945 $ 21,018,114 7,458,583 $ 22,525,292 9,035,268 $ 23,994,991 11,271,031 $ 27,030,331 10,913,187 $ 29,287,433 8,238,178 26,592,968 Public works 1,169,302 1,178,137 1,320,459 1,454,731 1,882,489 1,894,089 2,109,221 1,502,626 Economic and physical development 7,272,115 6,473,290 6,807,311 7,842,985 9,508,406 10,556,175 10,346,982 8,827,578 Culture and recreation 8,467,575 8,693,714 9,426,600 8,328,945 10,089,469 11,607,116 13,120,917 12,507,679 Highways and streets 6,184,553 8,886,947 10,011,231 12,043,242 14,557,140 15,515,643 19,297,615 17,856,121 Interest on long-term debt Total governmental activities expense 1,380,182 1,923,325 2,042,555 2,167,626 3,090,140 2,916,380 3,651,521 3,918,110 47,585,091 51,839,862 56,068,215 61,821,404 72,157,903 80,790,765 88,726,876 79,443,260 Business-type activities: 16,142,040 17,250,441 17,297,017 18,452,368 19,945,366 23,420,282 22,802,316 21,731,286 Environmental Water and wastewater 7,556,614 7,319,602 8,548,715 9,096,420 10,073,853 11,423,164 11,782,540 11,091,078 Airport 3,411,603 3,370,447 3,749,669 3,519,749 3,162,391 3,608,322 4,197,447 4,273,609 460,936 479,700 791,791 1,019,248 1,160,604 1,203,436 1,258,072 Stormwater - Total business-type activities expense 104 Total primary government expense 31,860,328 34,200,858 $ 74,695,348 27,110,257 $ 28,401,426 80,241,288 $ 30,075,101 86,143,316 $ 93,681,732 $ 106,358,761 $ $ 4,757,483 $ 3,257,393 $ 3,611,862 $ 4,886,354 $ $ 39,612,372 39,985,739 38,354,045 120,403,137 $ 128,712,615 $ 117,797,305 $ $ Program Revenues Governmental activities: Charges for services: General government Public safety 4,171,853 3,746,890 3,099,884 3,285,242 743,738 451,802 498,506 815,167 704,800 1,227,979 1,451,405 1,283,697 1,471,550 Public works 830,885 976,793 1,213,714 1,180,097 1,455,461 1,483,275 1,350,832 Economic and physical development 222,008 16,164 321,915 332,356 562,135 315,462 369,987 291,211 Culture and recreation 733,159 722,236 680,755 683,906 742,088 762,410 1,559,617 1,420,094 Highways and streets Operating grants and contributions Capital grants and contributions Total governmental activities program revenues 119,854 - - - - 3,320,597 5,990,756 - 3,428,440 2,678,653 4,147,529 3,791,526 2,062,329 6,654,978 9,646,122 11,757,330 15,180,401 21,566,549 19,356,271 16,324,928 9,880,762 36,949,681 20,481,689 19,860,371 25,654,682 33,255,955 29,054,937 27,181,541 23,703,243 51,356,453 Schedule 2 (continued) City of Flagstaff Changes in Net Assets Last Eight Fiscal Years (accrual basis of accounting) Business-type activities: Charges for services: Water and wastewater Environmental Airport 16,223,648 17,047,831 17,337,916 17,947,605 17,328,927 17,539,873 8,201,566 9,370,561 9,723,652 9,839,486 10,813,177 11,545,472 11,329,336 944,983 1,176,866 1,261,594 1,122,274 1,207,831 1,187,105 1,359,029 546,807 694,161 630,962 1,042,701 1,137,402 1,247,878 1,358,438 - Operating grants and contributions Capital grants and contributions Total business-type activities program revenues 16,678,956 7,682,458 926,406 Stormwater Total primary government program revenues 16,534,341 382,239 286,919 574,376 369 19,500 67,651 10,966 120,054 9,460,796 10,482,991 8,164,775 23,449,969 27,369,058 12,242,567 8,744,216 6,790,709 34,986,240 37,142,222 $ 55,467,929 $ 57,002,593 $ (27,103,402) $ (31,979,491) $ 36,204,387 61,859,069 $ 52,114,377 85,370,332 $ 56,730,935 85,785,872 $ (43,102,966) $ 43,416,233 70,597,774 $ (53,609,224) $ 40,064,564 38,497,439 63,767,807 $ 89,853,892 (65,023,633) $ (28,086,807) (27,943,413) Net (Expense)/Revenue Governmental activities Business-type activities Total primary government net expense $ 7,875,983 (19,227,419) $ 8,740,796 (23,238,695) $ (30,413,533) 6,129,286 $ (28,565,449) $ (24,284,247) $ $ $ 20,254,049 $ 22,530,077 (8,311,400) $ (20,572,889) $ 9,051,158 $ 12,169,247 $ 3,803,861 78,825 (49,805,363) $ (64,944,808) $ 13,664,791 $ 12,262,185 $ 143,394 General Revenues and Other Changes in Net Assets Governmental activities: Taxes Property taxes $ 8,010,293 $ 7,931,626 8,462,302 12,798,495 105 Sales taxes 23,805,566 25,682,974 27,054,164 30,014,975 32,334,785 33,129,731 31,420,047 30,429,840 State shared sales taxes - unrestricted 12,073,108 12,122,563 12,837,838 14,384,055 16,276,354 16,992,017 16,628,652 14,880,073 Grants and contributions not restricted to specific programs - Investment earnings Miscellaneous Gain on sale of capital assets Contributions to permanent fund 810,739 383,111 218,520 492 944,381 7,435 Transers in (out) - 2,385,099 4,108,861 905,717 277,972 204,678 634,411 382,387 33,417 17,765 (369,358) 44,748,082 377,502 1,703,861 14,717 (476,304) Total governmental activities - 24,630 (7,004,365) 47,951,909 1,465,731 1,377,552 819,325 381,984 242,167 2,160,339 228,969 2,831,308 13,325 (3,590,153) 57,405,230 449,394 - 16,200 (9,123,196) 54,207,963 - 3,903,839 19,460 (2,267,551) 43,731,924 - 19,136 (9,651,500) 67,096,089 (10,524,926) 52,520,424 51,112,289 Business-type activties: Grants and contributions not restricted to specific programs - Investment earnings - 106,733 Miscellaneous - 719,023 889 935,973 - 1,181,836 - - 206,154 111,251 194,547 - - 110,835 127,423 166,158 17,302 513,738 326,540 31,354 78,248 119,366 79,467 Transers in (out) 476,304 369,358 7,004,365 2,267,551 9,123,196 3,590,153 9,651,500 10,524,926 Total business-type activities 606,712 1,105,683 8,454,076 3,776,816 10,812,278 4,760,061 10,143,178 10,910,191 Total primary government $ 45,354,794 $ 49,057,592 $ $ 17,644,680 $ 15,972,418 $ - 964,237 23,675 Gain on sale of capital assets - - 1,546,893 52,186,000 $ 13,318,391 $ 57,984,779 $ 25,642,514 $ 68,217,508 $ 71,856,150 $ 62,663,602 $ 14,302,264 $ 13,486,865 $ (12,503,209) $ 62,022,480 Change in Net Assets Governmental activities Business-type activities Total primary government $ 8,482,695 26,127,375 $ 9,846,479 25,818,897 $ 14,583,362 27,901,753 $ 24,030,865 49,673,379 The City implemented GASB-34 for the year ended June 30, 2003 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. $ 33,342,355 47,644,619 $ 8,563,922 22,050,787 $ 10,222,003 (2,281,206) $ 23,025,482 11,053,585 34,079,067 Schedule 3 City of Flagstaff Fund Balances, Governmental Funds Last Ten Fiscal Years (modified accrual basis of accounting) Fiscal Year 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010* General Fund Reserved $ Unreserved 212,379 $ 19,208,574 174,932 $ 18,318,999 176,838 $ 21,782,895 220,779 $ 22,891,253 200,401 $ 29,124,795 232,190 $ 28,574,855 1,260,236 $ 29,960,235 308,979 $ 27,492,853 - $ - - Nonspendable - - - - - - - - 280,376 376,728 Restricted - - - - - - - - 106,144 785,720 Committed - - - - - - - - - 86,568 Assigned - - - - - - - - - 547,820 Unassigned Total general fund - - - - - - - - $ 19,420,953 $ 18,493,931 $ 21,959,733 $ 23,112,032 $ 29,325,196 $ 28,807,045 (1) $ 31,220,471 $ 27,801,832 $ $ 5,260,436 $ 1,106,960 $ 959,209 $ 1,677,627 $ 1,556,450 $ 30,107,878 47,350,460 $ 20,611,579 $ 22,203,764 22,590,284 $ 21,459,499 23,256,335 All Other Governmental Funds Reserved $ - $ - Unreserved, reported in: Special revenue funds 24,317,465 26,476,529 21,713,198 33,041,256 22,893,640 16,332,830 16,498,123 106 - - - - Permanent fund - - 217 567 Nonspendable - - - Restricted - - - Committed - - - - - - - - Assigned - - - - - - - - Total all other governmental funds $ 29,577,901 $ 27,583,489 $ 22,672,624 (1) FY2007 : as restated for accounting error related to the accural of state shared revenues. * 37,476,678 Capital project funds FY2010: Implementation of GASB-54 Fund Balance Classification $ - - - 1,426 3,271 6,567 9,916 - - - - - 216,878 206,678 - - - - - 4,299,450 19,720,079 39,154,872 $ 34,599,132 $ 53,004,789 $ 63,689,857 (763,744) - - $ 36,355,874 - - - - $ 8,955,106 13,471,434 2,228,605 $ 651,650 22,807,012 Schedule 4 City of Flagstaff Changes in Fund Balances, Governmental Funds Last Ten Fiscal Years (modified accrual basis of accounting) Fiscal Year 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 REVENUES: Taxes $ Intergovernmental 28,340,957 $ 26,203,650 Grants and entitlements 30,986,091 $ 24,008,885 - - 31,523,875 $ 33,736,154 $ 35,529,373 $ 39,104,903 $ 41,976,134 $ 43,964,317 $ 43,555,388 $ 43,200,268 11,746,308 12,156,451 17,545,686 17,173,416 18,779,168 20,425,088 21,364,739 19,450,213 13,074,562 10,940,934 9,564,110 10,880,792 12,185,406 13,556,680 9,609,508 11,172,862 Charges for services 1,025,625 1,676,615 1,729,275 1,459,837 1,834,067 2,199,819 2,605,880 2,704,333 3,324,838 3,057,423 Special assessments 269,794 350,894 360,158 291,684 218,500 30,016 2,927 2,449 2,382 1,510,217 Licenses and permits 1,318,450 2,014,357 2,378,728 2,111,033 2,063,718 2,834,506 2,438,599 1,815,062 1,377,580 1,441,874 Fines and forfeitures 993,585 991,131 1,303,069 1,144,562 1,250,494 1,394,174 1,290,667 1,336,146 1,517,558 1,639,347 Rents - - 845,443 985,907 1,220,007 1,195,464 1,480,686 1,496,858 1,421,772 1,588,214 Investment earnings - - 274,472 115,433 1,589,293 2,238,285 3,920,473 3,731,116 1,366,931 413,594 Contributions - - 334,235 21,917 22,229 129,930 2,981,982 1,308,938 1,328,524 544,393 Miscellaneous Total revenues 3,300,386 3,169,599 781,496 905,717 277,972 204,678 1,377,552 819,325 381,984 228,969 61,452,447 63,197,572 64,351,621 63,869,629 71,115,449 77,385,983 89,039,474 91,160,312 85,251,204 84,247,374 EXPENDITURES: General governmental Public safety 4,533,882 5,834,543 4,453,180 5,335,890 6,158,308 6,621,976 8,194,214 10,229,814 9,848,252 7,926,726 15,480,047 16,057,019 17,202,980 18,015,837 19,140,415 21,626,547 22,994,522 25,696,174 27,374,083 25,159,777 107 Public works 1,066,174 950,242 948,944 966,546 1,005,745 1,168,424 1,615,049 1,617,311 1,645,703 1,360,447 Economic and physical development 8,009,996 10,187,883 7,060,275 6,289,966 6,424,057 7,640,313 9,344,676 10,335,964 9,991,927 8,601,808 Culture and recreation 9,325,540 10,030,055 7,599,703 7,724,481 8,341,105 7,178,029 8,648,628 10,267,649 12,158,087 10,615,754 Highways and streets 7,735,150 15,648,877 5,676,050 8,003,110 8,951,097 10,700,196 7,859,004 8,505,722 11,187,402 9,313,158 Debt service: Principal retirement 2,708,000 2,979,000 3,679,000 4,614,000 4,880,000 6,505,449 5,313,222 5,046,398 5,034,991 6,065,522 Interest and other charges 1,498,920 1,443,074 1,380,182 2,428,026 2,148,734 2,552,016 3,210,879 3,020,927 3,750,657 3,996,963 Capital outlay Total expenditures Excess of revenues over (under) expenditures 2,165,989 5,788,006 18,304,161 19,348,708 17,053,841 25,054,173 26,403,203 46,465,549 30,796,072 12,446,280 52,523,698 68,918,699 66,304,475 72,726,564 74,103,302 89,047,123 93,583,397 121,185,508 111,787,174 85,486,435 8,928,749 (5,721,127) (1,952,854) (8,856,935) (2,987,853) (11,661,140) (4,543,923) (30,025,196) (26,535,970) (1,239,061) 4,475,343 3,100,000 9,375,000 OTHER FINANCING SOURCES (USES): Refunding bonds issued Bonds issuance - - Loan issued - - Payment to bond refunding escrow agent - - Lease issued - - Improvement District Debt - - Bond premium - - - 720,000 - 25,000,000 - - (9,429,957) 3,800,000 190,240 19,075,000 - - - - - - - - - - - - - - - - - - - - - 46,707 - - (718,127) - 31,500,000 1,059,221 - - 220,086 8,330,000 109,352 58,370 Insurance recoveries 1,920,000 Sale of capital assets - Transfers in Transfers out Total other financing sources (uses) Net change in fund balances 946,236 634,411 2,114,398 37,892 252,329 2,176,808 63,894 1,084,211 11,241,055 12,994,104 - 12,708,480 12,996,534 15,312,931 17,317,133 17,756,847 17,181,576 21,626,308 15,224,243 (11,931,179) (13,607,644) (13,184,784) (13,365,892) (16,582,052) (19,584,684) (19,488,466) (20,085,809) (23,359,573) (18,525,100) 29,490,427 17,642,417 (727,425) (1,560,019) 3,785,219 $ 12,713,968 2,486,460 $ (3,234,667) 605,215 $ (1,347,639) 26,326,147 $ 17,469,212 4,645,277 $ 1,657,424 $ 17,829,287 $ 13,098,494 $ (30,752,621) $ (28,095,989) 8,091,724 $ 6,852,663 Debt service as a percentage of non capital expenditures 8.35% 7.00% 10.54% 13.19% 12.32% 14.15% 12.69% 10.80% 10.85% 13.78% Schedule 5 City of Flagstaff Tax Revenue by Source, Governmental Funds Last Ten Fiscal Years (modified accrual basis of accounting) (dollars in thousands) Bed, Board Fiscal General Secondary Franchise and City and Booze Transportation Year Property Tax Property Tax Other Taxes Sales Tax Tax Tax 2001 $ Total 108 2,853 $ 3,896 $ 1,690 $ 10,811 $ 3,748 $ 5,343 $ 28,341 2002 3,070 4,198 1,791 11,783 3,817 6,327 30,986 2003 3,427 4,415 1,783 11,469 3,827 6,603 31,524 2004 3,425 4,628 2,262 12,055 4,063 7,303 33,736 2005 3,619 4,856 1,943 13,148 4,331 7,632 35,529 2006 4,209 4,881 2,083 14,707 4,623 8,602 39,105 2007 4,453 5,188 1,838 16,071 4,992 9,434 41,976 2008 4,616 6,219 2,189 16,150 5,187 9,605 43,966 2009 4,882 7,254 2,246 14,384 5,052 10,035 43,853 2010 5,150 7,620 2,133 13,595 5,074 9,628 43,200 80.51% 95.59% 26.21% 25.75% 35.38% 80.20% 52.43% Change 2001-2010 Schedule 6 City of Flagstaff Intergovernmental Revenue by Source, Governmental Funds Last Ten Fiscal Years (modified accrual basis of accounting) Local Fiscal State State County Auto Highway Transportation State Federal State Grants County County Library Year Sales Tax Income Tax In-Lieu Tax User Tax Assistance HB 2565 Grants & Other State LEAF IGA District Funding * Other 1,835,109 $ 580,241 2001 $ 4,919,575 $ 6,432,879 $ 1,913,662 $ 7,969,703 $ 360,806 $ 142,793 $ 1,731,823 $ 317,059 $ - $ Total $ 26,203,650 109 2002 4,076,034 5,526,159 1,803,900 7,771,416 300,246 47,598 2,348,793 437,543 - 1,423,105 274,091 24,008,885 2003 4,136,724 5,557,918 2,378,466 7,408,116 315,026 - 1,743,613 823,701 - 2,564,691 850,000 25,778,255 2004 4,449,982 4,777,145 2,427,367 6,975,351 313,868 - 1,160,966 454,212 468,069 1,987,433 148,992 23,163,385 2005 4,900,117 4,918,476 2,461,425 7,171,383 313,843 - 1,772,181 2,868,033 628,198 2,068,947 39,640 27,142,243 2006 5,652,335 5,655,641 2,655,653 7,942,771 304,341 55,665 2,386,011 940,441 420,426 2,241,811 - 28,255,095 2007 5,815,473 6,946,680 2,792,404 7,855,427 293,502 - 2,822,315 1,214,162 721,797 2,559,375 - 31,021,135 2008 5,623,144 8,610,567 2,758,307 7,422,359 225,965 58,782 4,868,431 981,142 668,153 3,559,362 - 34,776,212 2009 4,868,072 9,149,290 2,611,289 6,412,329 251,536 - 1,711,609 1,234,065 897,337 4,125,223 32,795 31,293,545 2010 4,490,087 7,899,626 2,490,360 6,429,355 156,218 - 3,885,697 701,592 757,241 3,762,831 50,068 30,623,075 * - As restated due to change in accounting error identified in FY2010 Schedule 7 City of Flagstaff Full Cash Value of Taxable Property Last Ten Fiscal Years (modified accrual basis of accounting) Vacant, Centrally Less: Total Taxable Total Fiscal Valued Commercial and Government Residential Tax-exempt Assessed Direct Year Property Property Property Property Property Value Tax Rate 31,232,035 $ 192,395,566 $ 51,001,338 $ 189,936,966 $ 35,535,505 $ 429,030,400 1.7127 2002 33,068,867 197,065,506 60,199,456 201,111,291 42,767,442 448,677,678 1.7127 2003 35,621,681 194,944,521 62,099,966 215,320,769 43,729,051 464,257,886 1.7127 2004 29,405,068 211,870,593 65,128,715 242,190,760 46,939,696 501,655,440 1.7127 2005 27,328,709 221,179,062 82,683,618 276,187,028 50,697,830 556,680,587 1.7127 2006 27,532,435 237,795,313 100,985,606 315,182,546 57,296,001 624,199,899 1.6627 2007 28,051,846 261,009,908 125,377,258 398,783,838 62,684,483 750,538,367 1.5929 2008 28,940,765 281,348,845 140,117,313 500,150,890 71,775,990 878,781,823 1.5519 2009 27,478,520 286,101,952 151,630,088 529,950,871 78,819,714 916,341,717 1.5519 2010 25,750,042 274,992,074 146,079,309 502,351,037 85,132,993 864,039,469 1.4913 2001 $ Agricultural, 110 Source: State of Arizona Department of Revenue, State and County Abstract of the Assessment Roll Note: A portion of city property is reassessed every year. Property is assessed at actual value, therefore, the assessed values are equal to actual value. Tax rates are per $100 of assessed value. Schedule 8 City of Flagstaff City Tax Revenue for Major Categories Last Ten Fiscal Years (dollars in thousands) Fiscal Year 2001 Construction $ 2002 99,857 $ 2003 134,084 $ 2004 151,652 $ 2005 158,506 $ 2006 163,846 $ 233,747 2007 $ 260,024 2008 $ 263,386 2009 $ 181,245 2010 $ 150,239 Building Materials 54,410 61,118 63,618 70,063 72,152 82,481 79,703 75,493 66,641 60,143 Auto Sales 99,222 119,210 118,640 124,147 127,760 129,671 133,497 118,282 78,819 85,806 Restaurants and Bars 188,001 191,258 191,883 202,966 215,624 232,359 248,819 255,578 250,555 251,271 Retail 492,316 497,753 502,235 529,705 556,165 586,841 637,225 619,805 582,029 546,765 Other 116,040 115,666 118,333 125,687 134,824 144,635 154,183 163,463 155,193 152,042 - - - 53 199 4,892 68,840 71,299 69,175 Utilities TOTAL $ 1,049,846 $ 1,119,089 $ 1,146,361 $ 1,211,127 $ 1,270,570 $ 1,414,626 $ 1,582,291 $ 1,567,306 $ 1,383,657 $ 66,392 1,312,658 111 Schedule 9 City of Flagstaff Direct and Overlapping Property Tax Rates, Last Ten Fiscal Years (rate per $100 of assessed value) Fiscal Year City School Community District College County Total 112 2001 1.7127 6.6885 0.5724 1.1336 10.1072 2002 1.7127 6.6741 0.5717 1.0951 10.0536 2003 1.7127 6.7590 0.5809 1.1941 10.2467 2004 1.7127 6.3679 0.5775 1.2369 9.8950 2005 1.7127 5.7236 0.5660 1.2212 9.2235 2006 1.6627 6.0786 0.5525 1.2010 9.4948 2007 1.5929 5.9009 0.5269 0.7521 8.7728 2008 1.5519 4.7713 0.4865 0.7588 7.5685 2009 1.5519 4.8334 0.4643 0.7603 7.6099 2010 1.4913 3.8860 0.4267 0.7244 6.5284 Note: Tax rates are per $100 assessed valuation. Schedule 10 City of Flagstaff Principal Property Tax Payers Current Year and Nine Years Ago 2010 Total Assessed Taxpayer * Arizona Public Service Company Value $ Rank 2001 As a Percentage As a Percentage of the City Total of the City Total Secondary Total Assessed Assessed Valuation Value 14,976,488 1 1.73% 14,094,332 2 1.63% Qwest Corporation 5,485,687 3 0.63% Nestle Purina Petcare Company 4,973,928 4 0.58% Lone Tree Investments, LLC. 5,202,867 5 0.60% Flagstaff Mall Associated Ltd. Partnership 4,234,886 6 Walgreen Arizona Drug Co. 3,418,818 Flagstaff Medical Center, Inc. Assessed Valuation 12,690,610 2 3.16% 13,753,552 1 3.54% 8,667,376 4 1.66% 0.49% 3,010,813 8 0.75% 7 0.40% 2,940,753 9 0.73% 3,508,774 8 0.41% Little America Refining Co. 2,956,466 9 0.34% 5,394,436 6 1.20% Ortholand LLC 2,749,094 10 0.32% Northern Arizona Gas Division 9,194,655 3 2.14% US West Communications 7,081,339 5 1.72% Consolidated Investments, Inc. 3,234,918 7 0.79% Woodlands Plaza Hotel LTD Partnership 2,069,798 10 0.69% W L Gore & Associates Inc. 113 Total Principal Taxpayers $ 61,601,340 Source: Arizona Dept. of Revenue, Central Information Services Unit 7.13% $ Secondary Rank $ 68,038,250 16.38% Schedule 11 City of Flagstaff Property Tax Levies and Collections Last Ten Fiscal Years Fiscal Collected within the Year Taxes Levied Ended for the June 30, Fiscal Year 2001 $ Fiscal Year of the Levy Amount Collections Percentage in Subsequent of Levy Years 114 6,936,955 $ 6,658,250 96.0% 2002 7,271,109 7,194,162 2003 7,613,349 2004 $ Total Collections to Date Percentage Amount of Levy 90,944 $ 6,749,194 97.3% 98.9% 74,106 7,268,268 100.0% 7,625,852 100.2% 92,457 7,718,309 101.0% 7,897,298 7,791,735 98.7% 261,445 8,053,180 102.0% 2005 8,494,694 8,330,157 98.1% 145,051 8,475,208 100.0% 2006 9,075,322 8,958,733 98.7% 131,194 9,089,927 100.0% 2007 9,615,015 9,495,935 98.8% 145,415 9,641,350 100.0% 2008 10,935,835 10,728,465 98.1% 106,120 10,834,585 99.0% 2009 12,253,760 11,934,997 97.4% 200,344 12,135,341 99.0% 2010 12,750,836 12,477,413 97.9% 293,015 12,770,429 100.0% Schedule 12 City of Flagstaff Direct and Overlapping Sales Tax Rates, Last Ten Fiscal Years City Fiscal General Bed, Board Year Sales Tax & Beverage Transportation State of Coconino Arizona County Total 115 2001 1.0000% 2.0000% 0.5100% 5.6000% 0.8000% 9.9100% 2002 1.0000% 2.0000% 0.5745% 5.6000% 0.8000% 9.9745% 2003 1.0000% 2.0000% 0.5745% 5.6000% 0.9250% 10.0995% 2004 1.0000% 2.0000% 0.6010% 5.6000% 0.9250% 10.1260% 2005 1.0000% 2.0000% 0.6010% 5.6000% 0.9250% 10.1260% 2006 1.0000% 2.0000% 0.6010% 5.6000% 0.9250% 10.1260% 2007 1.0000% 2.0000% 0.6010% 5.6000% 1.1250% 10.3260% 2008 1.0000% 2.0000% 0.6010% 5.6000% 1.1250% 10.3260% 2009 1.0000% 2.0000% 0.7210% 5.6000% 1.1250% 10.4460% 2010 1.0000% 2.0000% 0.7210% 6.6000% 1.1250% 11.4460% Source: City of Flagstaff www.flagstaff.az.gov (Sales Tax/Business Licenses Division) Schedule 13 City of Flagstaff Ratios of Outstanding Debt by Type, Last Eight Fiscal Years (dollars in thousands, except per capita) Governmental Activities Business-Type Activities Municipal General Special Facility COP General Total Percentage Fiscal Obligation Assessment Revenue Corporation Capital Obligation Revenue Loan Capital Primary of Personal Per Year Bonds Bonds Bonds Bonds Leases Bonds Bonds Payable Leases Government Income Capita 2003 $ 7,485 $ 944 $ 14,790 $ 4,445 $ - $ 22,958 Term $ 6,537 $ 3,716 $ - $ 60,875 1.9% 993.55 116 2004 5,795 685 13,380 28,170 - 21,253 6,290 3,380 - 78,953 2.3% 1,290.40 2005 4,285 415 11,555 26,895 3,800 18,880 6,035 3,031 2,732 77,628 2.2% 1,251.46 2006 32,875 340 9,665 25,610 3,455 16,294 5,770 2,671 2,652 99,332 2.9% 1,601.35 2007 31,230 19,339 7,725 24,315 3,097 13,310 5,496 32,957 4,482 141,951 3.8% 2,211.07 2008 29,350 19,257 6,325 23,000 2,728 10,515 5,212 32,275 4,227 132,889 3.5% 2,069.92 2009 27,645 19,169 4,865 21,625 2,430 7,460 4,918 37,006 3,960 129,078 3.4% 2,010.56 2010 25,865 18,615 6,665 19,890 6,964 5,690 4,614 36,257 3,679 128,239 3.4% 1,957.19 Note: Details regarding the city's outstanding debt can be found in the notes to the financial statements. See Schedule 18 for personal income and population data. The City implemented GASB-34 for the fiscal year ended June 30, 2003. Prior statements have not been restated to comply with the new requirements, so the City is not able to report a full ten years of historical information. These amounts are presented on the accrual basis of accounting. Schedule 14 City of Flagstaff Ratios of General Bonded Debt Outstanding Last Eight Fiscal Years (dollars in thousands, except per capita) General Bonded Debt Outstanding Governmental Business-Type Percentage Activities Activities of Actual General General Taxable Fiscal Obligation Obligation Year Bonds Bonds 2003 $ 7,485 $ 22,958 Value of Total $ Property 30,443 6.6% Per (a) Capita $ (b) 498.82 117 2004 5,795 21,253 27,048 5.4% 441.46 2005 4,285 18,880 23,165 4.2% 378.61 2006 32,875 16,294 49,169 7.9% 792.66 2007 31,230 13,310 44,540 5.9% 718.04 2008 29,350 10,515 39,865 4.5% 620.95 2009 27,645 7,460 35,105 3.8% 542.64 2010 25,865 5,690 31,555 3.7% 481.59 Note: Details regarding the city's outstanding debt can be found in the notes to the financial statements. a: See Schedule 7 for property value data b: Population data can be found in Schedule 18 The City implemented GASB-34 for the fiscal year ended June 30, 2003. Prior statements have not been restated to comply with the new requirements, so the City is not able to report a full ten years of historical information. These amounts are presented on the accrual basis of accounting. Schedule 15 City of Flagstaff Direct and Overlapping Governmental Activities Debt (dollars in thousands, except per capita) Estimated Governmental Unit Estimated Share of Debt Percentage Overlapping Outstanding Applicable* Debt Debt repaid with property taxes Flagstaff Unified School District $ 44,400 61.55% $ 27,328 Other debt Coconino County Revenue Bonds 6,145 41.46% Coconino County Special Assessments 2,017 0.00% 2,548 - 118 Subtotal, overlapping debt 29,876 City direct debt 77,999 Total direct and overlapping debt $ 107,875 Sources: Assessed value data used to estimate applicable percentages provided by the Coconino Finance Department. Debt oustanding data provided by each governmental unit. 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. * 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. 119 Schedule 16 City of Flagstaff Legal Debt Margin Information Last Ten Fiscal Years (dollars in thousands) Fiscal Year 20% Debt Limit 2001 Debt limit equal to 20% of assessed valuation $ Total net debt applicable to 20% limit Legal debt margin (Available borrowing capacity) $ Total net debt applicable to the 20% limit 81,719 2002 $ 85,806 2003 $ 92,852 2004 $ 100,331 2005 $ 2006 111,336 $ 124,840 2007 $ 27,043 28,425 26,283 24,493 21,644 35,227 54,676 $ 57,381 $ 66,569 $ 75,838 $ 89,692 $ 89,613 $ 49.46% 49.54% 39.48% 32.30% 24.13% 39.31% 150,108 2008 $ 43,860 175,756 2009 $ 39,514 183,268 2010 $ 35,105 172,808 35,105 106,248 $ 136,242 $ 148,163 $ 41.28% 29.00% 23.69% 137,703 25.49% as a percentage of debt limit Fiscal Year 6% Debt Limit 2001 120 Debt limit equal to 6% of assessed valuation $ Total net debt applicable to 6% limit Legal debt margin (Available borrowing capacity) Total net debt applicable to the 6% limit as a percentage of debt limit 24,516 2002 $ 6,690 $ 25,742 2003 $ 5,560 27,855 2004 $ 4,160 17,826 $ 20,182 $ 23,695 $ 37.53% 27.55% 17.56% 30,099 2005 $ 2,555 33,401 2006 $ 1,225 27,544 $ 32,176 $ 9.28% 3.81% 37,452 2007 $ 14,202 23,250 $ 61.08% 45,032 2008 $ 52,727 2009 $ 54,981 2010 $ 680 351 - 44,352 $ 52,376 $ 54,981 $ 1.53% 0.67% 0.00% 51,842 - 51,842 0.00% Schedule 16 (continued) City of Flagstaff Legal Debt Margin Information Legal Debt Margin Calculation for Fiscal Year 2010 Net Secondary Assessed Value as of June 30, 2010 $ 864,039,469 $ 172,807,894 20% Limitation Debt Limit of 20% of Assessed Value Debt applicable to limit: 35,105,000 General Obligation Bonds Legal 20% debt margin (Available borrowing capacity) $ 137,702,894 $ 51,842,368 6% Limitation Debt Limit of 6% of Assessed Value Debt applicable to limit: 121 General Obligation Bonds Legal 6% debt margin (Available borrowing capacity) $ 51,842,368 Schedule 17 City of Flagstaff Pledged Revenue Coverage Last Ten Fiscal Years Water and Sewer Revenue Bonds Net Revenue Available Fiscal Gross Year Revenues (1) 2001 $ 18,337,310 Debt Service Requirements for Debt Expenses (2) $ 9,757,448 Service $ Principal (3) - $ - Interest (4) $ - Total $ - Coverage - - - - 122 2002 17,637,708 9,587,743 8,049,965 2003 16,769,463 9,865,571 6,903,892 238,431 146,694 385,125 17.93 2004 17,227,848 10,645,073 6,582,775 246,890 231,034 477,924 13.77 2005 16,851,956 10,693,901 6,158,055 255,648 223,153 478,801 12.86 2006 17,755,038 11,791,895 5,963,143 264,717 214,084 478,801 12.45 2007 18,235,171 12,892,795 5,342,376 274,108 204,693 478,801 11.16 2008 18,380,351 16,229,816 2,150,535 283,832 194,969 478,801 4.49 2009 17,459,105 14,633,986 2,825,119 2,302,688 1,368,330 3,671,018 0.77 2010 17,585,198 11,758,135 5,827,063 2,537,313 1,555,020 4,092,333 1.42 (1) Includes total operating revenues and investment income of the water and wastewaste fund. (2) Includes total operating expenses of the water and wastewater fund less depreciation. (3) Includes principal for water and sewer revenue bonds, water infrastructure finance authority (WIFA), and capital lease. (4) Bond interest payments only. Does not include amortization of loss on refunding, capitalized interest, agent fees or amortization of bond issuance costs that are included in interest expense on the statement of revenues, expenses, and changes in net assets. Schedule 17 (continued) City of Flagstaff Pledged Revenue Coverage Last Ten Fiscal Years Highway User Revenue Bonds Highway Fiscal User Tax Year Revenue 2001 $ 7,969,703 Debt Service Requirements Principal (1) $ 1,420,000 Interest (2) $ 960,133 Total $ Coverage 2,380,133 3.35 123 2002 7,771,416 1,490,000 900,492 2,390,492 3.25 2003 7,408,116 1,730,000 668,260 2,398,260 3.09 2004 6,975,351 1,410,000 607,160 2,017,160 3.46 2005 7,171,383 1,825,000 571,910 2,396,910 2.99 2006 7,540,081 1,890,000 526,285 2,416,285 3.12 2007 7,855,427 1,940,000 469,585 2,409,585 3.26 2008 7,422,359 1,400,000 411,385 1,811,385 4.10 2009 6,412,329 1,460,000 344,010 1,804,010 3.55 2010 6,429,355 1,520,000 377,786 1,897,786 3.39 (1) Includes 1992 Jr. Lien and Series 2003 Refunding. (2) Bond interest payments only. Does not include agent fees that are included in interest expense on the statement of revenues, expenses, and changes in fund balances. Schedule 17 (continued) City of Flagstaff Pledged Revenue Coverage Last Nine Fiscal Years Municipal Facility Corporation Bonds MFC Debt other than Transportation Debt Service Requirements Fiscal Year (1) 2002 Revenue (2) $ 9,377,511 Principal (3) $ - Interest (4) $ 224,682 Total $ Coverage 224,682 41.74 124 2003 9,232,244 255,000 207,398 462,398 19.97 2004 8,764,929 265,000 197,198 462,198 18.96 2005 9,356,995 275,000 186,598 461,598 20.27 2006 10,847,378 285,000 175,598 460,598 23.55 2007 12,302,955 295,000 164,198 459,198 26.79 2008 13,771,313 310,000 152,398 462,398 29.78 2009 13,557,828 320,000 139,534 459,534 29.50 2010 11,929,099 335,000 125,614 460,614 25.90 (1) Trend information not available prior to fiscal year 2002. (2) State sales tax, state income tax less debt service requirements for MFC debt other than transportation. (3) MFC 1992 Refunding series 12 2001 - USGS projects. (4) Bond interest payments only. Does not include agent fees that are included in interest expense on the statement of revenues, expenses, and changes in fund balances. Schedule 17 (continued) City of Flagstaff Pledged Revenue Coverage Last Seven Fiscal Years Municipal Facility Corporation Bonds Transportation MFC Debt Debt Service Requirements Fiscal Year (1) 2004 Revenue (2) $ 29,860,760 Principal (3) $ 1,010,000 Interest $ 839,966 Total $ Coverage 1,849,966 16.14 125 2005 31,085,459 1,000,000 1,037,100 2,037,100 15.26 2006 35,725,917 1,000,000 987,100 1,987,100 17.98 2007 39,681,382 1,000,000 964,600 1,964,600 20.20 2008 41,483,415 1,005,000 942,100 1,947,100 21.31 2009 38,586,144 1,055,000 891,850 1,946,850 19.82 2010 35,708,503 1,400,000 860,200 2,260,200 15.80 (1) Trend information not available prior to fiscal year 2004. (2) Pledged revenues on the Municipal Facility Corporation Bonds include the city base rate sales tax, transportation sales tax, francise sales tax, licenses and permits, charges for services, fine and forfeits, other revenue, state sales tax, and state revenue sharing. Less the debt service requirements for transportation MFC bonds. (3) MFC revenue bond series 2003 Fourth Street. Schedule 17 (continued) City of Flagstaff Pledged Revenue Coverage Greater Arizona Development Authority Revenue Bonds Debt Service Requirements Fiscal Year (1) 2010 Revenue (2) Principal (3) 9,031,670 50,000 Interest 56,297 126 (1) New Issue no trend information available. (2) Pledges revenues on the Greater Arizona Development Authority Bonds include the state revenue sharing. Less the debt service . (3) GADA revenue bond series 2009C Total 106,297 Coverage 84.97 Schedule 18 City of Flagstaff Demographic and Economic Statistics Last Ten Fiscal Years Year Population Personal Per Education Education Income Capita Level - Percent Level - Percent (thousands Personal Median High School Bachelor's Degree School Unemployment of dollars) Income Age Grad or Higher or Higher Enrollment Rate 2001 57,700 $ 2,787,863 $ 23,716 26.8 89.8% 39.4% 13,969 4.80% 2002 59,160 2,908,992 24,259 26.8 89.8% 39.4% 13,566 5.10% 2003 61,030 2,999,350 24,795 26.8 89.8% 39.4% 12,905 5.80% 2004 61,270 3,226,683 26,328 26.8 89.8% 39.4% 13,176 5.20% 127 2005 61,185 3,472,652 28,045 26.8 89.8% 39.4% 13,389 5.10% 2006 62,030 3,472,652 28,045 26.8 89.8% 39.4% 13,171 5.00% 2007 62,030 3,472,652 28,045 26.8 89.8% 39.4% 13,453 3.40% 2008 64,200 3,767,194 29,879 26.8 89.8% 39.4% 13,040 4.60% 2009 64,693 3,767,194 29,879 26.8 89.8% 39.4% 12,910 7.50% 2010 65,522 3,767,194 29,879 26.8 89.8% 39.4% 12,600 7.70% Sources: Population - Arizona Department of Commerce, except for 2000 which is the official census number Personal Income - 1998 - 2005 Arizona Department of Economic Security, Workforce Development Statistics Personal Income - 2006 - 2007 Arizona Department of Economic Security, Workforce Development Statistics, estimate from 2008 Per Capita Income - 1998 - 2005 Arizona Department of Economic Security, Workforce Development Statistics Per Capita Income - 2006 - 2009 Arizona Department of Economic Security, Workforce Development Statistics, estimate from 2008 Median age - 2000 US Census Education level - 2000 US Census School enrollment - Arizona Department of Education and National Center for Education Statistics Unemployment - Arizona Department of Economic Security, August 2009 Schedule 19 City of Flagstaff Principal Employers Current Year and Ten Years Ago 2010 Employer 128 Northern Arizona University Flagstaff Medical Center W.L. Gore & Associates* Flagstaff United School District Coconino County City of Flagstaff Walmart Coconino Community College* Walgreens & Distribution Center Grand Canyon Railway Employees 2,371 1,995 1,950 1,310 1,074 710 626 600 450 395 Total 11,481 2000 U.S. Census Labor Force 30,822 Source: (1) Greater Flagstaff Economic Council (GFEC) * 2010 Employees is estimated Long-term historical information not available. Rank 1 2 3 4 5 6 7 8 9 10 2000 (1) Percentage of Total City Employment Employees 7.69% 6.47% 6.33% 4.25% 3.48% 2.30% 2.03% 1.95% 1.46% 1.28% 2,497 2,104 1,800 1,436 1,294 876 338 400 468 450 37.25% 11,663 30,822 Rank 1 2 3 4 5 6 10 7 8 9 Percentage of Total City Employment 8.10% 6.83% 5.84% 4.66% 4.20% 2.84% 0.00% 1.30% 1.52% 1.46% 36.74% Schedule 20 City of Flagstaff Full-time Equivalent City Government by Function/Program Last Ten Fiscal Years Full-time Equivalent Employees as of June 30 Function/Program 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 General Government Management services 72.00 77.00 74.00 73.00 74.25 75.75 82.89 87.39 89.14 86.75 Capital management - 19.00 18.50 15.50 14.50 13.50 13.50 13.50 13.50 11.00 21.25 24.25 25.25 26.50 26.50 26.50 26.50 27.63 29.63 25.88 147.50 148.25 148.25 150.00 151.00 160.00 164.00 174.00 181.00 168.00 84.50 97.25 96.75 96.75 96.75 97.75 100.75 101.75 101.75 99.00 26.75 26.75 27.00 27.00 25.00 26.00 27.00 31.00 31.00 29.00 City Court Public Safety Police Fire 129 Public Works Economic and physical development Building 57.00 48.00 49.00 43.75 43.00 49.25 52.25 58.50 57.50 47.20 Planning 17.00 17.25 17.25 17.25 17.25 15.25 21.75 20.88 24.88 24.38 Tourism 6.00 6.00 6.00 11.75 13.75 13.75 15.75 16.75 16.75 15.75 Culture and recreation Library 37.50 38.75 39.50 39.50 40.00 40.00 43.13 47.14 53.77 50.77 Parks, recreation, and beautificatioin 74.00 79.25 74.50 67.75 63.95 67.53 68.82 98.23 99.69 87.86 Highways and Streets 35.25 35.25 36.25 36.25 36.25 36.25 37.25 40.56 41.06 36.31 Water and wastewater 71.75 74.75 74.50 73.00 74.50 76.50 79.00 80.25 81.75 64.50 Environmental services 40.00 45.00 45.00 45.75 52.25 54.00 62.60 61.60 68.10 65.58 9.50 9.50 9.50 9.50 9.50 9.50 10.00 10.50 10.50 9.50 5.75 5.00 6.50 6.50 6.50 6.50 6.00 739.00 743.45 768.03 811.69 876.18 906.52 827.48 Airport Stormwater Total * - - - 700.00 746.25 741.25 City-wide reorganization affected distribution of employees. Customer Service moved from Water/Wastewater to Management Services. * Schedule 21 City of Flagstaff Operating Indicators by Function/Program Last Nine Fiscal Years Fiscal Year Function/Program 2002 2003 2004 2005 2006 2007 2008 2009 2010 Court Criminal Filings 11,005 11,068 10,236 9,227 9,705 9,553 11,659 9,330 9,326 Traffic filings 10,431 10,613 10,388 11,253 10,575 8,951 10,665 10,639 13,471 575 622 682 673 616 530 744 445 468 3,386 3,658 5,616 6,722 7,684 8,227 7,616 7,550 6,668 352 216 265 228 351 314 267 263 247 2,094 1,205 2,023 1,905 1,323 1,472 1,573 2,151 1,906 Inspections assigned NA NA 2,212 2,006 1,966 1,984 1,981 1,794 572 Plan Reviews NA NA 1,340 1,348 1,280 1,314 1,284 1,250 401 Plan Assessment (Acres) NA 1,516 2,020 1,065 585 - 400 - - Site Marking (Acres) NA 759 408 311 662 764 178 224 294 Domestic Violence/Other filings Fire Emergency responses Fires response Other calls Fuel Management 130 Site Thinning (Acres) NA 882 521 792 694 1,173 902 761 376 Prescription Burn (Acres) NA 917 709 834 557 1,210 1,070 1,190 551 Police Felony reports NA NA NA 4,979 5,337 4,973 3,978 3,661 3,073 Misdemeanor reports NA NA NA 12,378 13,381 13,123 13,413 12,939 12,293 1,953 Domestive violence incidents NA NA NA 1,464 1,598 1,625 1,573 1,470 Non-crime reports NA NA NA 8,818 9,136 8,913 11,043 10,996 9,480 Accident reports NA NA NA 3,616 3,313 3,374 3,322 2,917 2,776 Calls dispatched to Police/Sheriff NA NA NA 73,559 77,239 75,791 73,364 70,908 61,175 Calls dispatched to Fire NA NA NA 11,266 11,741 12,364 11,907 12,527 11,011 Calls dispatched to Medical NA NA NA 9,435 9,175 9,960 - - - Schedule 21 (continued) City of Flagstaff Operating Indicators by Function/Program Last Nine Fiscal Years Fiscal Year Function/Program 2002 2003 2004 2005 2006 2007 2008 2009 2010 Streets Potholes repaired NA NA NA 2,988 1,962 2,443 4,032 4,373 3,256 713,193 698,227 673,786 653,743 705,638 642,643 651,814 627,202 651,373 36,057 34,984 38,387 42,483 39,646 44,598 44,088 65,418 68,296 110,684 128,153 109,608 140,233 154,321 153,121 157,792 142,409 121,529 7,886 9,126 9,213 9,816 9,866 10,356 10,472 9,842 10,610 Airport Fuel Flowage (Gallons Sold) Enplanements Refuse collection Refuse collected (Landfill tonnage) Recyclables collected (total tons) Community Development Residential Permit Valuation (1) $ 59,963,201 $ 78,719,935 $ 67,214,811 $ 87,180,707 $ 97,895,269 $ 38,895,496 $ 25,278,055 $ 31,498,803 (1) Commercial Permit Valuation (1) $ 29,051,528 $ 12,843,323 $ 18,123,934 $ 12,324,654 $ 26,130,677 $ 37,962,373 $ 27,199,698 $ 18,594,665 (1) Library 131 Visits NA NA 564,065 582,726 625,103 643,174 680,253 738,603 743,169 Circulation NA NA 781,893 776,180 758,468 789,621 782,908 887,887 979,962 Tourism Revenue Per Available Room (RevPar) $ 48.33 $ 45.36 $ 47.95 $ 52.90 $ Sources: Various city departments (1) This informaition is gathered and reported on a calendar year basis versus a fiscal year basis for all other measurements These accumulation of these statistics began in FY2002 so 10 years historical information is not available. 61.47 $ 66.86 $ 60.52 $ 43.21 $ 43.05 Schedule 22 City of Flagstaff Capital Asset Statistics by Function/Program Last Ten Fiscal Years Function/Program 2001 2002 2003 Fiscal Year 2004 2005 2006 2007 2008 2009 2010 Public Safety Police patrol units (Includes Motorcycle units) Number of fire hydrants 32 32 32 26 26 26 31 34 34 35 2,382 2,435 2,478 2,478 2,598 2,743 3,148 3,150 3,143 6 6 6 6 6 6 6 6 7 7 26 27 27 28 27 27 27 26 26 26 3 3 3 4 4 4 4 4 4 4 578 586 586 704 702 702 705 712 712 712 21 22 22 28 32 34 34 48 51 51 6 6 6 5 5 5 5 6 6 6 Unavail Numer of fire stations Culture and recreation Number of developed parks Number of undeveloped parks Park acreage Flagstaff Urban Trail System - Miles Recreational Buildings Highways and Streets 132 Miles of streets, alleys, and sidewalks (1) Number of street lights 330 350 350 365 365 386 403 690 695 813 2,777 2,853 2,898 2,921 2,921 3,037 3,107 3,201 3,220 3,350 Water and wastewater Miles of sewer (2) Number of manholes Total active water accounts Average gallon water usage per household per month 243 250 271 275 275 293 309 265 270 270 5,857 5,979 6,097 6,097 6,496 6,906 7,107 7,261 7,261 15,600 15,802 16,356 16,948 18,039 17,872 18,758 18,849 18,371 19,042 6,848 6,897 6,727 6,070 6,096 5,488 5,600 5,456 5,010 5,123 Unavail Airport Fixed base operators 1 1 1 1 1 1 1 1 1 1 Locally based aircraft 130 130 130 130 130 130 134 134 134 120 Tiedowns 49 49 49 49 29 18 11 11 11 14 Enclosed hangars 47 42 42 42 42 61 61 61 61 61 Open hangars 38 38 38 38 38 48 48 48 48 48 1 In Fiscal Year 2008, transition made from street miles to lane miles. This will more accurately reflect the level of service required to maintain the surfaces. 2 Database Correction Schedule 23 City of Flagstaff Insurance Summary In Effect June 1, 2010 to June 1, 2011 Coverage Limit of Liability Liability Insurance: General Liability* (Includes 2 skateboard parks, bike $ Coverage 1,000,000 / per occurrence Property Insurance: Blanket Buildings and Personal Property $ 189,975,104 / $25,000 deductible Flood Zones B and C $ 10,000,000 / $50,000 deductible Business Income/Extra Expense $ $ 2,000,000 / aggregate Law Enforcement Liability* $ 1,000,000 / each wrongful act Auto Liability* $ 1,000,000 / each accident Auto Physical Damage $ 1,000,000 / total limit Flood Zone A Properties $ 5,000,000 / total limit $ 3,000,000 / total limit freestyle park, EMT's) Public Entity Management Errors and Omissions* (Claims Made Retro Date 6-1-95) Employment Practices Liability* (Claims Made Retro Date 6-1-95) Employee Benefits Liability* (Claims Made) $ $ $ $ 1,000,000 / aggregate 1,000,000 / each wrongful act 5,000,000 / each wrongful act 1,000,000 / each wrongful act * Liability Claims are Subject to a $50,000 Self Insurance Retention Public Entity Cyber Liability 133 (Claims Made Retro Date 6-1-09) ($5,000 deductible each wrongful act) Employer's Liability Worker's Compensation $ 1,000,000 / each wrongful act $ 1,000,000 / total limit $ 1,000,000 / each accident $ 1,000,000 / disease policy limit $ 1,000,000 / disease employee Statutory Limit of Liability Boiler and Machinery included Earthquakes Municipal Court City Hall, Library Inland Marine: $ $ 15,000,000 / $25,000 deductible 7,100,000 / 72 hours 24,986,406 / $1000/comprehensive / $5000/collision deductible $ 242,000 / building $ 500,000 / each building $ $ 122,700 / contents 500,000 / contents each ($5,000 deductible) Contractors Equipment (actual cash value) $ Lab Equipment $ Computer Equipment and Peripherals $ 1,438,500 / $1,000 deductible Fine Arts & exhibition floater - Max $25,000 per ite $ 78,700 / $1,000 deductible Bookmobile book collection Employee Hand Tools Data and Media $ $ $ 6,076,150 / $5,000 deductible 238,582 / $1000 deductible 11,300 / $1,000 deductible 35,000 / $5,000 deductible 500,000 / $1,000 deductible Umbrella/Excess #1 - GL, Auto, Law Enforcement, Employer's Liability Public Entity Management, Employee Benefits $ 20,000,000 / each event/each wrongful Act / general total limit (Excludes Airport, Housing Authority, Employment related practices, Failure to Supply Services, Mold, Terrorism, Asbestos, Lead, Condemnation, Sexual Abuse) Excess Liability #2 Following Form Over Excess Liability # 1 (Excluding asbestos, discrimination, terrorism, nuclear) Aviation: General Liability Products/Completed Operations Personal Injury, Advertising & Malpractice Hangar Keepers Liability $ $ $ 5,000,000 / each occurrence/ 5,000,000 / general aggregate Max $25,000 per item City Hall, Visitor Center, Airport Terminal Crime: Blanket Public Employees and Treasurer $ 1,000,000 / $5,000 deductible Computer & Funds Transfer Fraud $ 1,000,000 / $5,000 deductible Dishonesty Bond Including Faithful Performance of Duty Theft, Disappearance, & Destruction (Inside and Outside) $ 1,000,000 / $5,000 deductible 40,000,000 / each occurrence Depositors Forgery or Alteration $ 1,000,000 / $5,000 deductible $ 40,000,000 Credit, Debit or Charge Card forgery $ 1,000,000 / $5,000 deductible $ 40,000,000 / each occurrence $ 1,000,000 / Medical Assistance $ $ 40,000,000 / aggregate aggregate 40,000,000 / each aircraft Money Orders & Counterfeit, International Travel - Executive Assistance $ $ 1,000,000 / $5,000 deductible 250,000 Accidental death 134