Comprehensive Annual Financial Report For Fiscal Year Ended June 30, 2012 City of Flagstaff, Arizona Prepared By: Management Services Division Finance and Budget Section City of Flagstaff Comprehensive Annual Financial Report For the Fiscal Year Ended June 30, 2012 TABLE OF CONTENTS Page INTRODUCTORY SECTION Letter of Transmittal ......................................................................................................................................... iii GFOA Certificate of Achievement ......................................................................................................................xi Organizational Chart ........................................................................................................................................xii List of Elected and Appointed Officials ............................................................................................................ xiii FINANCIAL SECTION Independent Auditor’s Report ........................................................................................................................... 1 MANAGEMENT’S DISCUSSION AND ANALYSIS ........................................................................................................... 3 BASIC FINANCIAL STATEMENTS Government-wide Financial Statements: Statement of Net Assets ..................................................................................................................... 17 Statement of Activities ....................................................................................................................... 18 Fund Financial Statements: Balance Sheet – Governmental Funds.................................................................................................. 20 Reconciliation of the Balance Sheet to the Statement of Net Assets - Governmental Activities ............ 22 Statement of Revenues, Expenditures, and Changes in Fund Balances – Governmental Funds ............ 24 Reconciliation of the Statement of Revenues, Expenditures and Changes in Fund Balances of Governmental Funds to the Statement of Activities ....................................... 26 General Fund - Statement of Revenues, Expenditures, and Changes in Fund Balances – Budget and Actual .............................................................................................. 28 Highway User Fund - Statement of Revenues, Expenditures, and Changes in Fund Balances – Budget and Actual .............................................................................................. 29 Transportation Fund - Statement of Revenues, Expenditures, and Changes in Fund Balances – Budget and Actual .............................................................................................. 30 Statement of Net Assets – Proprietary Funds ...................................................................................... 32 Statement of Revenues, Expenses, and Changes in Fund Net Assets – Proprietary Funds ............................................................................................ 34 Statement of Cash Flows – Proprietary Funds ..................................................................................... 36 Notes to the Financial Statements ............................................................................................................. 40 COMBINING STATEMENTS Non-Major Funds – Other Governmental Funds ........................................................................................ 89 Combining and Individual Fund Statements and Schedules: Combining Balance Sheet – Non-major Governmental Funds ............................................................. 90 Combining Statement of Revenues, Expenditures and Changes in Fund Balances – Non-major Governmental Funds ........................................................................ 92 SUPPLEMENTAL INFORMATION Capital Assets Used in the Operations of Governmental Funds: i Schedule By Function and Activity ...................................................................................................... 96 Schedule of Changes By Function and Activity .................................................................................... 98 Budgetary Comparison Schedules – Other Major Governmental Funds Special Assessment Bond Fund........................................................................................................... 99 Budgetary Comparison Schedules – Non-Major Governmental Funds Library Fund ..................................................................................................................................... 100 BBB Fund .......................................................................................................................................... 101 Community Redevelopment Fund ..................................................................................................... 102 Metropolitan Planning Organization Fund ........................................................................................ 103 General Obligation Bond Fund .......................................................................................................... 104 Secondary Property Tax Revenue Fund ............................................................................................. 105 Capital Projects Fund ....................................................................................................................... 106 Financial Data Submission Schedules Net Asset Accounts .......................................................................................................................... 107 Revenue, Expenses, and Changes in Fund Net Asset Accounts ......................................................... 109 Revenue, Expenses, and Changes in Fund Net Asset Accounts-Public Housing-Consolidated .......... 112 STATISTICAL SECTION Net Assets by Component ...................................................................................................................... 116 Changes in Net Assets ............................................................................................................................ 118 Fund Balances, Governmental Funds ....................................................................................................... 120 Changes in Fund Balances, Governmental Funds .................................................................................... 121 Tax Revenue by Source, Governmental Funds ......................................................................................... 122 Intergovernmental Revenue by Source, Governmental Funds .................................................................. 123 Full Cash Value of Taxable Property........................................................................................................ 124 City Tax Revenue for Major Categories ................................................................................................... 125 Direct and Overlapping Property Tax Rates ............................................................................................. 126 Principal Property Tax Payers .................................................................................................................. 127 Property Tax Levies and Collections........................................................................................................ 128 Direct and Overlapping Sales Tax Rates .................................................................................................. 129 Ratios of Outstanding Debt by Type ....................................................................................................... 130 Ratios of General Bonded Debt Outstanding ........................................................................................... 131 Direct and Overlapping Governmental Activities Debt ............................................................................. 132 Legal Debt Margin Information ............................................................................................................... 134 Pledged Revenue Coverage ..................................................................................................................... 136 Demographic and Economic Statistics..................................................................................................... 141 Principal Employers ................................................................................................................................ 142 Full-time Equivalent City Government by Function/Program ................................................................... 143 Operating Indicators by Function/Program ............................................................................................. 144 Capital Asset Statistics by Function/Program .......................................................................................... 146 Insurance Summary ................................................................................................................................ 147 ii City of Flagstaff December 19, 2012 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, 2012, 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, 2012, 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, 2012, 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. Arizona Relay Service 7-1-1 211 West Aspen Avenue, Flagstaff, Arizona 86001 Main & TDD (928) 774-5281  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 per the 2010 United States Census is 65,870. 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, Housing Authority, 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 had primarily negative economic indicators from December 2007 through most of Fiscal Year 2009-2010. Signs of recovery have been shown in both fiscal years 2011 and 2012. At the local level for Fiscal Year 2010-2011, construction, auto sales, and tourism based industry reflected small increases while retail and utilities continued a downward trend resulting in overall revenue increases. In Fiscal Year 2011-2012, construction decreased by 10.5% but most other categories increased resulting in an overall increase in City sales tax collections. This provides continued evidence of the volatility in the construction industry and reinforces the City practice to not allot 100% of construction related revenues to ongoing budgetary needs. State shared sales tax revenues have increased for the second year in a row at 9.2% while the state income tax and highway user (gas tax) revenues have continued to decrease at 6.7% and 11.5% respectively. Housing sales have not yet recovered 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. The education sector has been hit particularly hard. 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 these small signs of recovery will be sustained. 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. November 2024. This tax must go before the voters every ten years and is currently authorized until As indicated earlier, local sales tax declines had been realized almost every month since December 2007 in comparison to the same month in the prior year through approximately June 2010. While there are still some dips, the indicators are trending more regularly on a positive basis. Overall, the 1% general city sales tax receipts have increased 6.4% from the prior fiscal year but are still cumulatively 8.2% less in comparison to FY2008. Construction and auto sales continue to be the two most volatile sales tax categories. In the last year, construction sales tax revenue decreased by 12% and auto sales increased by 18.4%. Both the construction and auto sales tax revenues are significantly below their peak years (40.9% and 25.5% respectively). Construction now only represents only 10% of all sales tax collected, down from 16.8% four 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 trends are the same as the general sales tax. The third tax is a Bed, Board, and Beverage (BBB) tax that collect 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 also has a sunset clause and it is currently authorized until 2028. Tourism is a major industry to our local economy. Overall sales decreased in FY2009 when gas prices were peaking but have since rebounded and both FY11 and FY12 set record collection amounts at $5.24 million v and $5.56 million, respectively. 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 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. Historically, Flagstaff’s greatest challenge was that while population was growing, it was growing at a slower rate than some of the other communities in the state. In the past, this has translated into a decreased proportionate revenue share; however the 2010 census resulted in the City’s proportionate population share increasing from 1.25% to 1.31%. Overall state shared revenues remained flat for FY2012 however due to reduced state collections. The State has experienced similar or greater revenue declines than the City. Construction, tourism, and auto sales were the three hardest hit industries, however there is recovery occurring at the state level also. For State shared sales tax, the City has received two consecutive years of increases at 4.9% for FY2011and 9.2% for FY2012. The distribution of personal income tax continued its’ decline for the third year in a row, decreasing by 6.7% in FY2012, with a cumulative decrease of 35.4% since FY 2008. Highway user revenue (gas tax) funds (HURF) ended FY2012 below FY2011 (11.5% decrease), which is a 24.9% total decrease from FY2008. HURF revenues that are available for distribution have experienced six consecutive years of decreases. These revenues are distributed based on a fairly complex Arizona Department of Transportation formula, based in part on the amount of fuel purchased in our region. The revenue decrease initially was due to the increased gas pricing resulted in lower sales. In the last four years, however, the decreases are due to the State shifting revenues ‘off the top’ to fund other public safety and motor vehicle needs. As evidenced by the increase in BBB taxes and other statistical data, we are still a popular drive destination from Las Vegas, Los Angeles, and Phoenix, however those revenues are not being distributed back to our City at this time. Even though property valuations decreased by 4.5% for this tax year, primary property tax revenues increased as the levy is statutorily allowed to increase by 2% per year on existing property plus the value added through new construction. Primary property tax revenues including collections for prior years and payments in lieu of tax increased by 4.1% compared to the prior year. The millage rate for the primary property tax is adjusted annually to generate the levy equal to the 2% allowed increase. The millage rate for secondary property taxes was not changed, so due to the decrease in assessed valuation, the revenue decreased by 6.7% in comparison to the prior fiscal year.. While revenues fluctuations continue in some areas, the City increased budgeted revenue in FY2013 (excluding grants) by 5.3% as a reflection at both the local and State level. The City of Flagstaff reduced its’ overall staffing count by another 6 positions bringing total staff reductions to 127 full time equivalencies (FTE’s) since FY2009. 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. The City continues to plan in a five to ten year horizon as economic conditions change. vi 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 financial policy impacts all of which are further identified below. Financial Resource Planning – Strategic financial planning begins with determining the City’s fiscal capacity based upon long-term financial forecasts of recurring available revenues. Financial forecasts coupled with financial trend analysis help preserve the fiscal well being of Flagstaff. Strategic financial capacity planning is a critical element to reach long-term financial stability goals and to determine special financial needs for critical objectives of the City Council. The City is also developing policy regarding reserving funding generated from one-time resources to address aging infrastructure related to streets, facilities, water, wastewater, parks, and fleet. 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. Financial Policy Planning – The City of Flagstaff financial policies dictate minimum fund balance levels for the General, Special Revenue, and Enterprise Funds. The General Fund is required to maintain a fund balance of 15% of ongoing revenues and special revenue and enterprise funds are to maintain a 10% fund balance, as calculated against ongoing revenues. As the recession began, the City Council provided a temporary waiver to the General Fund balance requirement reducing it from 15% to 12% for FY2010. This provided approximately $1.5 million dollars in one-time funding that was spread over three fiscal years: FY’s 2010, 2011, and 2012. While this eased some of the financial shortfall the City was experiencing, it did contribute toward a structural deficit as some ongoing services were funded with this one-time money. As part of the FY2012 budget process, this structural deficit was eliminated and the General Fund balance was restored to 15%. The City Council has also directed to provide a greater cushion against future recessions, so efforts are being made to incrementally increase the General Fund balance by 1% per year to 20%. MAJOR INITIATIVES AND SERVICE EFFORTS AND ACCOMPLISHMENTS During FY 2011-2012, 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 economically viability and vii 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 accomplishments in FY2011-2012 that address the six goals established by council in the summer of 2010. Public Safety The City shall maintain short response times and encourage expanded health services. Accomplishments include:  Obtained a COPS funding grant for four (4) officers dedicated to the Sunnyside neighborhood  Full implementation of an 800 megahertz digital public safety radio system to provide for greatly improved interoperability in joint emergency response situations Good Neighborhoods The City shall provide good livability through good neighborhoods, affordable housing, and varied recreational opportunities. Accomplishments include:  Developed and executed a highly successful downtown event, Dew Downtown  Secured a contract with the Boys and Girls Club to provide youth services at the Cogdill Recreational Center  Completed the purchase of Bow and Arrow Park  Fifteen housing rehabilitation projects were completed  Hosted the Special Olympics skating event at the Jay Lively Center Quality of Life The City shall provide a diversity of arts, culture, and educational opportunities Accomplishments include:  The Police Department conducted 57 community support meetings to provide information on identity theft, medical marijuana, and property crimes.  Partnered with Northern Arizona University on the Flagstaff Reads project  The Southside Community Mural was installed at the Murdoch Community Center  The Public Art Map was completed and posted to the city website  Implemented the Beautification in Action Grant program funding community garden and interpretive signage on City FUTS trails Community Sustainability The City shall encourage a sustainable community through economic vitality, environmental protection, and social inclusion. Accomplishments include:  Power purchase agreement awarded for two projects at the Wildcat Wastewater Treatment Plant  Adopted the Land Development Code, as rewritten  Adopted a Domestic Partner Registry  Reduced energy usage by 5% at City Hall  Implemented a residential subscription service for curbside glass pick up  Initiated expansion of the Innovation Mesa campus for Tier II companies viii ix x City of Flagstaff Citizens of Flagstaff City Council Special Committees City Magistrates City Court Board and Commissions City Attorney City Manager Deputy City Manager Utilities, Service and Safety Deputy City Manager Community Enhancement 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 xi Legal City of Flagstaff, Arizona List of Elected and Appointed Officials June 30, 2012 Elected Officials Mayor Gerald (Jerry) W. Nabours Vice Mayor Coral Evans Councilmember Celia Barotz Councilmember Karla Brewster Councilmember Jeff Oravits Councilmember Scott Overton Councilmember Mark Woodson Appointed Officials City Manager Kevin Burke City Attorney Rosemary Rosales City Treasurer Barbara Goodrich City Clerk Elizabeth Burke xii 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, the aggregate remaining fund information and the budgetary comparison of the general fund and the major special revenue funds of the City of Flagstaff, Arizona (the City) as of and for the year ended June 30, 2012, 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 statement audits contained in Governmental Auditing Standards, issued by the Comptroller 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, the aggregate remaining fund information and the respective budgetary comparison of the general fund and the major special revenue funds of the City, as of June 30, 2012, and the respective changes in financial position and, where applicable, cash flows thereof for the year then ended in conformity with accounting principles generally accepted in the United States of America. Accounting principles generally accepted in the United States of America require that the management’s discussion and analysis as noted on pages 3 through 15 be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management’s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. www.eidebailly.com 1850 N. Central Ave., Ste. 400 | Phoenix, AZ 85004-4624 | T 602.264.5844 | F 602.277.4845 | EOE Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the City’s financial statements as a whole. The introductory section, combining and individual nonmajor fund financial statements and schedules, and statistical section, as noted in the table of contents, are presented for purposes of additional analysis and are not a required part of the financial statements. The combining and individual nonmajor fund financial statements and schedules are the responsibility of management and were derived from and relate directly to the underlying accounting and other records used to prepare the financial statements. The information has been subjected to the auditing procedures applied in the audit of the financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the financial statements or to the financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated in all material respects in relation to the financial statements as a whole. The introductory and statistical sections have not been subjected to the auditing procedures applied in the audit of the basic financial statements and, accordingly, we do not express an opinion or provide any assurance on them. Phoenix, Arizona December 19, 2012 2 MANAGEMENT DISCUSSION AND ANALYSIS As management of the City of Flagstaff (the City), we offer readers of the City’s financial statements this narrative overview and analysis of the financial activities of the City for the fiscal year ended June 30, 2012. We encourage readers to consider the information presented here in conjunction with additional information that we have furnished in our letter of transmittal, which can be found on pages iii –x of this report. FINANCIAL HIGHLIGHTS  The assets of the City exceeded its liabilities at the close of the most recent fiscal year by $622.3 million (net assets). Of this amount $61.3 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 $14.3 million during the fiscal year. This is a result of an increase in net assets in the governmental activities of $6.4 million and an increase in net assets in the business type activities of $7.9 million.  As of June 30, 2012, the City’s governmental funds reported combined ending fund balances of $59.6 million, a increase of $15.9 million in comparison with the prior fiscal year. Approximately 28.8% of this total amount ($17.2 million) is unassigned fund balance available for spending at the government’s discretion.  As of June 30, 2012, total unassigned fund balance for the general fund was $17.2 million, or 38.8% of total general fund expenditures ($44.3 million).  As of June 30, 2012, the City’s proprietary funds reported combined total net assets of $331.2 million, and total unrestricted net assets of $24.0 million. Unrestricted net assets in the Water and Wastewater Fund are $13.7 million and in the Environmental Services Fund are $8.6 million. OVERVIEW OF THE FINANCIAL STATEMENTS This discussion and analysis is intended to serve as an introduction to the City’s basic financial statements. The City’s basic financial statements 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 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, Recreation, City Council, City Manager, City 3 Attorney, Municipal Courts, Human Resources, Risk Management, Information Services, Financial Services, Library, Streets and Transportation, Facilities Maintenance, Fleet Management, Cemetery, Beautification, Tourism, and Economic Development. The business-type activities of the City include Water and Wastewater, Airport, Environmental Services, Housing Authority, 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 17 - 19 of this report. Fund financial statements The fund financial statements are designed to report information about groupings of related accounts that are used to maintain control over resources that have been segregated for specific activities or objectives. The City, like other state and local governments uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. All of the funds of the City can be divided into 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, capital projects, and debt service). Information is presented separately in the governmental fund balance sheet and in the governmental fund statement of revenues, expenditures, and changes in fund balances for the General fund, Highway User Revenue fund, Transportation fund, and Special Assessment Bond fund which are all considered to be major funds. Data from the remaining governmental funds are combined into a single aggregated presentation. Individual fund data for each of these non-major governmental funds is provided in the form of combining statements elsewhere in this report. The City adopts an annual appropriated budget for its General fund, Special Revenue funds, 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 20-30 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, Stormwater and the Housing Authority. 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 32-39 of this report. Notes to the Financial Statements The notes to the financial statement provide additional information that is essential to a full understanding of the data provided in the government-wide and fund financial statements. The notes to the financial statements can be found on pages 40-88 of this report. Combining statements The combining statements referred to earlier in connection with non-major governmental funds are presented on pages 89-93. 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 95-114 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 $622.3 million as of June 30, 2012. Of the City’s net assets, 84.1% reflects its investment of $523.5 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 Assets June 30, 2012 and 2011 (in thousands of dollars) Governmental Activities 2012 Current and other assets Capital assets Total assets Long-term liabilities Other liabilities Total liabilities $ 92,358 Business-type Activities 2011 $ 83,602 2012 $ 40,295 Total 2011 $ 36,547 2012 $ 132,653 2011 $ 120,149 295,652 294,085 355,191 356,534 650,843 650,619 388,010 377,687 395,486 393,081 783,496 770,768 73,456 68,872 50,068 55,739 123,524 124,611 23,452 24,099 14,226 14,035 37,678 38,134 96,908 92,971 64,294 69,774 161,202 162,745 219,112 217,880 304,418 303,114 523,530 520,994 34,680 23,972 2,805 3,003 37,485 26,975 Invested in capital assets, net of related debt Restricted Unrestricted Total net assets 37,310 $ 291,102 $ 42,864 23,969 284,716 $ 331,192 17,190 $ 323,307 61,279 $ 622,294 60,054 $ 608,023 Total assets increased due to change in cash and receivable balances in the business-type activities. Total liabilities decreased due to the application of debt principal payments. A portion of the City’s net assets, $37.5 million (6.0%) represents resources that are subject to external restriction on how they may be used. The remaining balance of unrestricted net assets, $61.3 million (9.8%) 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 10.5% ($8.8 million). The largest increases were in investments ($37.0 million) and accounts receivables, net ($0.7 million) while the largest decreases are in cash and cash equivalents ($17.4 million), special assessment receivable ($7.1 million) and cash with fiscal agent ($4.0 million). Capital assets of the governmental activities, funded through operations, debt proceeds, grants, and contributions, increased by 0.5% ($1.6 million) due to capital outlays in excess of current year depreciation and deletions. Major capital outlays include public safety communication system ($3.5 million), and street construction and transportation improvements ($6.6 million). Governmental activities long-term liabilities increased by 6.7% ($4.6 million) primarily due issuance of new debt offset with payments on existing debt issues. Other liabilities decreased by 2.7% ($0.6 million) primarily due to decreases in accrued payroll ($1.4 million) and accounts payable ($0.4 million) offset by an increase in deposits payable ($1.4 million). Total assets for business-type activities have increased by 0.6% ($2.4 million). The largest increases were in cash and cash equivalents ($3.0 million) and intergovernmental receivables ($4.3 million) while the largest decreases were in deposits ($2.2 million) and cash with fiscal agents ($2.0 million). Total liabilities for business type activities decreased by 7.9% ($5.5 million). Major changes include decreases in landfill closure and post closure care costs ($3.5 million) and bonds, notes and leases payable ($3.2 million) and the largest increase was in accounts payable ($1.3 million). 6 Overall business-type net assets have increased by 2.4% ($7.9 million) primarily due contributed capital ($2.9 million) and expenditure reductions related to the landfill closure and post closure care costs ($3.8 million). Analysis of Change in Net Assets The City’s overall net assets have increased by $14.3 million during the current fiscal year. These increases are explained in the government and business-type activities discussion to follow. C h an g es in Net A s s ets Fo r th e Y ear s En d ed Ju n e 30, 20 1 2 an d 20 1 1 ( in th o u s an ds o f do llar s ) Go v er n m en tal A c tiv ities 2012 Bu s in es s -ty p e A c tiv ities 2011 2012 To tal 2011 2012 2011 R ev en u es Program Revenues: Charges for services Operating grants and contributions $ 8,036 $ 6,934 $ 36,207 $ 35,075 $ 44,243 $ 42,009 7,415 7,965 4,624 5,090 12,039 13,055 12,201 9,227 7,960 4,221 20,161 13,448 Property taxes 11,974 12,646 - - 11,974 12,646 Sales taxes 33,401 31,356 - - 33,401 31,356 State shared taxes 13,190 13,148 - - 13,190 13,148 Capital grants and contributions General Revenues: Investment earnings 322 246 118 108 440 354 Other 526 2,511 174 198 700 2,709 87,065 84,033 49,083 44,692 136,148 128,725 Total revenues E x pen s es General government 8,167 7,851 - - 8,167 7,851 27,176 25,987 - - 27,176 25,987 Public works 1,379 1,754 - - 1,379 1,754 Economic and physical development 8,894 8,475 - - 8,894 8,475 Culture and recreation 12,949 12,855 - - 12,949 12,855 Highways and streets 18,036 19,275 - - 18,036 19,275 2,944 3,371 - - 2,944 3,371 Water and wastewater - - 22,709 21,491 22,709 21,491 Environmental - - 7,828 11,610 7,828 11,610 Airport - - 4,268 4,585 4,268 4,585 Housing Authority - - 6,165 5,812 6,165 5,812 Stormwater - - 1,362 1,122 1,362 1,122 79,545 79,568 42,332 44,620 121,877 124,188 14,271 4,537 Public safety Interest on long-term debt Total expenses Increase in net assets before transfers Transfers Change in net assets Net assets at beginning of year Net assets at end of year 7,520 4,465 6,751 72 (1,134) (1,190) 1,134 1,190 - - 6,386 3,275 7,885 1,262 14,271 4,537 284,716 $ 291,102 $ 281,441 323,307 284,716 $ 331,192 $ 322,045 608,023 323,307 $ 622,294 603,486 $ 608,023 Governmental activities Governmental activities increased the City’s net assets by $6.4 million. The key factors for this increase are as follows:  Charges for services have increased by 15.9% ($1.1 million) mainly due to building and offsite permits ($0.9 million and fire contacts and fees ($236,689)  Capital grants and contributions have increased by 32.2% ($3.0 million) as a result of recording donated property and an increase in donated capital from completed private development. 7  Property tax had a slight decrease due to decreases in assessed valuation which effects our secondary property tax revenues.  City sales tax revenues increased by 6.5% ($2.0 million). Comparing actual revenues to budgeted revenues the city exceeded the estimates by $1.7 million. The increase in the city general sales tax, the Bed, Board, and Beverage sales taxes, and the transportation taxes are $1.0 million, $366,563, and $662,264 respectively.  Miscellaneous revenues decreased 79.1% due to a cash contribution in the prior year for street improvements.  Expenses have decreased slightly ($23,486) as the economy had stabilized. There were slight increases in general government ($0.3 million), public safety ($1.2 million), economic and physical development ($0.4 million), and culture and recreation ($0.1 million). Slight decreases were in public works ($0.4 million), highways and streets ($1.2 million), and interest on long term debt ($0.4 million). Some of the expenditures are considered one-time funding as the organization attempts to manage its expenditures in line with revenue. Business-type activities Business type activity had net asset increase of $7.9 million. The key factors for this increase include:  Charges for service increased by 3.2% ($1.1 million). Water and wastewater increased $1.2 million, environmental services increased $48,091, and airport increased $104,483. Housing Authority decreased $137,854 and stormwater decreased $10,292.  Capital grants and contributions increased by 88.6% ($3.7 million) due to additional grant funded projects for the airport taxiway rehabilitation and inner basin water line reconstruction.  Investment earnings are up slightly ($10,704) and other revenues are down slightly ($24,634).  Expenses have decreased over prior year by 5.1% ($2.3 million). There were decreases in the environmental services fund ($3.8 million) and airport fund ($316,634). There were increases in the water and wastewater fund ($1.2 million), housing authority fund ($353,690) and stormwater fund ($240,103). The largest change was related to recalculating the landfill closure costs. The following two charts illustrate the City's governmental expenses by function and its revenues by source. Expenses and Program Revenues – Governmental Activities Expenses $30,000,000 Program Revenues $25,000,000 $20,000,000 $15,000,000 $10,000,000 $5,000,000 $0 General government Public safety Public works 8 Econ & phys development Culture & recreation Highways & streets Interest on long-term debt Revenues by Source – Governmental Activities State shared tax 15.1% Investment earnings 0.4% Miscellaneous 0.6% Charges for services 9.2% Operating grants and contributions 8.5% Sales tax 38.4% Capital grants and contributions 14.0% Property taxes 13.8% As shown, public safety is the largest function as measured by expense (34.2%) followed by highways & streets (22.7%), culture and recreation (16.3%), and economic and physical development (11.2%). General revenues such as sales taxes, state shared taxes, and property taxes are not shown by program, but are effectively used to support program activities citywide. For governmental activities overall, without regard to program, sales tax is the largest single source of funds (38.4%), followed by state shared tax (15.1%) and capital grants and contributions (14.0%). Last year sales tax was ranked first, state shared tax was ranked second, and property taxed was 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 9 Airport Housing Authority Stormwater Revenues by Source – Business-type activities Investment earnings Operating grants 0.2% and contributions Capital grants and contributions 9.4% 16.2% Other Charges for 0.4% services 73.8% As shown Water and Wastewater has expenses of $22.7 million for the fiscal year, followed by Environmental Services with $7.8 million, Housing Authority with $6.2 million, the Airport with $4.3 million and Stormwater with $1.4 million. For the fiscal year, program revenue exceeded expense for the Water and Wastewater Fund, Environmental Services Fund, Airport fund, and Stormwater Fund. The Housing Authority fund program expenditures exceeded revenues mainly due to depreciation of capital assets. Water & Wastewater, Environmental Services, and Stormwater received the majority of their program revenues through charges for services (81.5%, 96.5%, and 97.1% respectively). The Housing Authority receives the majority of its program revenue through operating grants and contributions (74.1%) while the Airport receives the majority of its program revenue through capital grants and contributions (67.9%). Charges for services provided the largest share of revenues (74.2%) for all of the business-type activities, followed by capital grants and contributions (16.3%). Last year charges for services was ranked first and operating grants and contributions was ranked second. The operating expenses for the business type activities decreased (5.1%, $2.3 million) there were decreases in Environmental Service (32.6%, $3.8 million) and Airport (6.9%, $316,634) offset by increases in Water and Wastewater (5.7%, $1.2 million), Housing Authority (6.1%, $353,690) and Stormwater (21.4%, $240,103). Environmental Services’ decrease is a result of recalculating the landfill closure and post closure care funding. Environmental services and water and wastewater increased user fees rates in fiscal year 2012. Water and wastewater, environmental services, and airport increased charge for service revenue at 6.2%, 0.2%, and 7.5% respectively. Housing Authority and Stormwater saw decreases in charges for services at 9.6% and 0.7% respectively. 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. 10 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 $59.6 million, an increase of $15.9 million in comparison with the prior year. Approximately $17.2 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 ($579,487) for inventory and perpetual care, (2) restricted ($34.5 million) for special revenue funds, debt service, court improvements and operations, grant purposes, perpetual care, and capital projects, (3) committed ($282,888) for development fee projects, (4) assigned ($7.1 million) for court services, capital reserves, and real estate. Revenues for governmental functions overall totaled $90.1 million in the fiscal year ended June 30, 2012 which represents an increase of 10.4% or $8.5 million from the prior fiscal year. Six revenue categories show increases over prior year. These include taxes (4.1%, $1.8 million), special assessments (1081.3%, $7.6 million), charges for services (10.0%, $293,900), licenses and permits (127.6%, $942,834), investment earnings (32.0%, $71,878), and contributions (134.5%, $233,836). The large increase in special assessments is related to a new developer purchasing the property and paying off debt in advance ($6.4 million). All other revenue categories experienced decreases including intergovernmental (1.5%, $257,325), grants and entitlements (8.1%, $861,914), fines and forfeitures (4.3%, $72,262), rents (0.8%, $12,746), and miscellaneous (71.3%, $1.2 million). The large decrease in miscellaneous is related to prior year transactions for contributions and sale of property. Expenditures for governmental functions ($91.6 million) increased by 8.4% ($7.1 million) from the prior fiscal year. Operation expenditures show a small increase (0.3%, $170,458). Most of the increase in expenditures is related to debt service (8.4%, $6.8 million) which is attributed to the early pay off of debt mentioned in the previous paragraph. Major capital projects have been discussed in prior sections. In the fiscal year ended June 30, 2012 expenditures for governmental functions exceeded revenues by approximately $1.5 million. 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 $17.2 million. As a measure of liquidity, it may be useful to compare total unassigned fund balance and total fund balance to total fund expenditures. represents 38.8% of General Fund expenditures. The unassigned fund balance The total fund balance in the City’s General Fund increased by $2.4 million during the fiscal year as revenue growth of 5.7% and expenditures declined 2.6%. Overall, the General Fund’s performance resulted in revenues in excess of expenditures in the fiscal year ended June 30, 2012 of $2.9 million. This is a increase of approximately $3.7 million over the comparable figure from the prior year which resulted in expenditures in excess of revenues of $0.8 million. The Highway User Revenue fund balance increased by $401,033. Revenues declined $1.9 million due prior year one-time private contribution and lower gas tax revenues related to the state sweeping funds for the motor vehicle division and lower gas sales in Coconino County. Net transfers in increased by $1.9 million as a larger amount of projects funded with transportation sales tax, general fund transfer increase for street maintenance, and a transfer out in the prior year was one-time. Expenditures were slightly lower due to capital outlays. Transportation Fund balances increased by $1.9 million due to moderate growth in revenues, reduction in expenditures, and net 11 proceeds from refinancing of debt. The Special Assessment Bond Fund balance increased $0.9 million is related to the timing of prior year delay in assessment payments from the City owned parcel which was sold in June and closed in July. The new developer also paid off debt early resulting in a increase in revenues and offset by an increase in expenditures to pay the debt. This year the BBB fund is not being considered a major fund and is combined with the Other Governmental Funds for reporting. These funds had a fund balance increase of $10.4 million with the main reason is that the City issued capital debt in excess of current year expenditures. 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, Housing Authority, and Stormwater. The internal service fund, which is used to account for risk management and health insurance activities, had unrestricted net assets of $4.3 million. The total growth in net assets for the proprietary funds was $7.9 million. All funds except the Housing Authority had positive growth in their net assets for the fiscal year ended June 30, 2012. The Housing Authority fund deceased $426,308 mainly due to depreciation. The major part of the increase is related to capital contributions ($3.8 million) and the reduction of expenditures related to the revised figures for landfill closure costs ($3.8 million). Budget Highlights The City’s final budget matches the original budget which was approved by Council in June 2011. There may have been a few sections that were over budget, however we look at the budget to actual at the division level and no division exceeded their appropriation. There was one revenue transfer that was not budgeted for. A transfer was made from the capital projects fund to general fund ($38,683) to reimburse the costs related to the USGS campus. The general fund exceeded final budgeted total revenues by 1.0% ($472,986) primarily due to taxes which exceeded budget by $1.0 million. Expenditures are under budget in every category due to controlled spending and carryover or cancellation of some capital projects. Both transfers in and transfers out are less than budgeted (except for the transfer mentioned in the previous paragraph) 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 $3.2 million for the Rio de Flag flood control project of which only $181,448 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, 2012 amount to $650.8 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 less than 0.1% ($233,743). The following table reflects the capital assets at the end of the fiscal year: 12 C ap ital A s s ets , Net o f Dep r ec iatio n Ju ne 30, 2012 an d 2011 ( in th o u s ands o f do llar s ) Go v er n m en tal A c tiv ities 2012 Land $ Buildings 49,687 Infrastructure 47,950 $ 12,350 To tal 2011 $ 11,855 2012 $ 62,037 2011 $ 59,805 56,301 57,565 60,369 117,111 116,670 249,910 8,124 9,042 237,837 240,868 245,961 12,230 9,770 24,957 26,536 37,187 36,306 160,539 161,982 - - 160,539 161,982 Construction in progress Total $ 2012 59,546 Improvements Machinery and equipment Bu s in es s -Ty pe A c tiv ities 2011 5,526 9,031 22,482 16,905 28,008 25,936 $ 295,652 $ 294,076 $ 355,191 $ 356,533 $ 650,843 $ 650,609 During FY 2012 the City did a physical inventory for every section of the City. As a result of the physical inventory and normal disposition of assets, the City removed over $15.8 million in assets from the books. Construction in progress had a net increase of 8.0% ($2.1 million). Major completed construction in progress includes the completion of Fire Station #2 ($4.6 million), public safety communication system ($4.0 million), transportation and streets projects ($4.6 million), and well drilling ($1.6 million). Major construction in progress at June 30 includes open space acquisition ($1.2 million), Red Gap pipeline and water rights ($3.0 million), Inner Basin waterline reconstruction/relocation ($2.1 million), Taxiway A reconstruction ($2.7 million) and Rio de Flag drainage project ($13.9 million). The increase to land ($2.2 million) is related to donated assets for right of way, easements, drainage, and open space. The increase to buildings ($0.4 million) is for the completion of the fire station net of the removal of the assets from the physical inventory process. The decrease in improvements ($3.9 million) is related to removal of assets during the physical inventory process for assets that have been replaced by newer projects and removal of school field improvements which are not assets of the City. This is netted with completed improvements mentioned above. Machinery and equipment increased slightly ($0.9 million). Major additions include snow removal equipment at the airport ($540,955) and the public safety communication system mentioned above. Infrastructure decrease is related to excess depreciation over the completion of street and streetscape improvements and contributed capital. 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 61-62 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 $119.7 million. Of this amount, $41.6 million is general obligation bonds backed by the full faith and credit of the City, $11.3 million is improvement district bonds, $19.6 million is revenue bonds, $3.2 million is for the Municipal Facility Corporation, $4.1 is for certificates of participation, and $39.9 million are outstanding leases or loans for the airport, water and wastewater, and city-wide energy conservation improvements. 13 O u ts tan din g Debt Ju n e 30, 2012 an d 2011 ( in th o u s an ds o f do llar s ) Go v er n m en tal A c tiv ities 2012 General obligation bonds $ 2011 38,449 $ 2012 24,015 Special assessment bonds 11,365 Revenue bonds 15,615 4,930 7,285 22,620 Other debt Lease/Loans Total debt payable 73,834 $ 1,542 $ 71,237 $ 2012 3,830 $ 41,574 2011 $ 27,845 - - 11,365 3,972 4,299 19,587 9,229 - - 7,285 22,620 38,764 $ To tal 2011 3,125 18,130 1,120 $ Bu s in es s -ty p e A c tiv ities 45,861 40,875 $ 49,004 18,130 39,884 $ 119,695 42,417 $ 120,241 During fiscal year 2012, the City’s total bonded debt decreased by $546,873. The City issued $12.8 million in general obligation debt for street and utility improvements ($10.0 million), fire stations ($2.4 million), and public safety communication system ($0.4 million). The City also issued general obligation backed debt for an intergovernmental agreement with Northern Arizona University for purchase of the public safety communication system ($4.0 million) and for a loan agreement with Arizona Water Infrastructure Finance Authority for water well drilling ($1.6 million). The City obtained $453,244 in loans for water and wastewater projects for development of future water rights for the fiscal year ended June 30, 2012. The City also refinanced debt on some previous issues ($3.0 million) to take advantage of better interest rate. The special assessment debt decreased as the new developer extinguished $6.5 million of debt early. The City issued $12.5 million in revenue refunding debt that is related to the construction on our fourth street overpass which was part of the Municipal Facility Corporation. 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, 2012 is $45.9 million in the 6% category and $111.2 million in the 20% capacity. The allowable debt decreased from prior year due to lower assessed valuations and additional debt issued. 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 ded Debt Ratin g s A s o f Ju n e 30, 2012 Mo o dy ' s In v es to r s Stan dar 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 65-76 of the Notes to the Financial Statements. Economic Factors and Next Year’s Budget and Rates The Fiscal Year 2012/2013 budget preparation was influenced by the following factors:  The City’s general fund budget was approved with no structural deficit in ongoing expenditures exceeding ongoing revenues 14  Unrestricted fund balance in the general fund continues to be above the fiscal policy of 15% of operating revenues  Sales tax revenues exceeded budget by $1.9 million in FY 2012 and we expect to maintain this level in budgeting for FY 2013  The city reallocated $1.3 million in appropriations to assist with streets, parks, and facility maintenance, vehicle replacements, restoring previous pay cut, maintaining two police officers, increasing outside legal, and restoring some training and uniform allowances  Created catastrophic funds for fleet vehicles and facility maintenance to support the aging fleet and deferred maintenance of buildings  The total authorized positions decreased by 9.92 positions which was primarily one-time funded positions  Put two triggers in place for considering an adjustment to the pay plan by up to 0.6% and to address positions more than 25% below market to be funded based on sales tax collections  Continue to monitor State legislature to be aware of potential budget impacts on cities  Property assessments continue to decline this year by 2.5% on limited property value and 3.3% on full cash value  Budgeted for two projects that we will ask voters to approve. The first if related to forest thinning and watershed protection and the second is for a new maintenance facility. Voters approved both measures in November 2012.  The continued pursuit of federal and state grant dollars to enhance the local economy  The continued implementation of electronic information sharing to facilitate transparency in service provision  The development of a more strategic fiscal policies  Budgeted for the replacement of a sixty two year old water line along Switzer Canyon which has had several breaks over the last couple years   Completed the Inner Basin water line repairs related to a flood event that washed out the line in several locations Utility rate increases are approved for the next three years to help support ongoing operational services and restore operation capital and the capital improvement plan to assist with aging infrastructure Requests for Information The financial report is designed to provide a general overview of the City’s finances for all of those with an interest in the government’s finances. If you have questions about this report or need additional financial information, contact: City of Flagstaff Finance and Budget Section 211 W. Aspen Ave Flagstaff, AZ 86001 Main (928) 213-2000 Arizona Relay 7-1-1 15 CITY OF FLAGSTAFF, ARIZONA Statement of Net Assets June 30, 2012 Primary Government Governmental Activities Business-type Activities Total ASSETS Cash and cash equivalents $ Cash with fiscal agents Investments Accounts receivables, net Interest receivable Intergovernmental receivable Special assessments receivable 7,014,043 $ $ 25,516,183 - 1,978,707 53,540,416 - 53,540,416 7,511,549 4,977,597 12,489,146 157,558 45,467 203,025 3,846,527 4,543,384 8,389,911 - 11,246,451 11,246,451 Internal balance 18,502,140 1,978,707 412,035 Deposits (412,035) 57,794 Prepaid items 13,640 71,434 - 81,058 81,058 401,440 201,303 602,743 Deferred bond issuance costs, net 652,891 8,297 661,188 Property held for resale 500,000 - 500,000 5,039,072 12,334,257 17,373,329 Inventory Restricted cash and investments Capital assets: Non-depreciable 55,212,772 34,831,551 90,044,323 Depreciable, net 240,439,125 320,359,927 560,799,052 388,010,380 395,486,586 783,496,966 6,619,333 Total assets LIABILITIES Accounts payable 4,024,723 2,594,610 Accrued payroll 807,357 153,654 961,011 Interest payable 1,388,712 818,460 2,207,172 Unearned revenue 317,470 998,376 1,315,846 2,866,657 475,166 3,341,823 Matured bonds and lease payable 6,022,284 4,920,866 10,943,150 Compensated absences 1,628,523 310,755 1,939,278 345,000 - 345,000 6,052,469 3,954,034 10,006,503 Deposits payable Noncurrent liabilities: Due within one year: Special assessment debt, government commitment Bonds, notes and leases payable, net Due in more than one year: Compensated absences 1,999,448 497,599 2,497,047 - 7,163,212 7,163,212 Landfill closure and postclosure care costs Net OPEB obligation 2,326,392 509,371 2,835,763 Special assessment debt, government commitment 11,020,000 - 11,020,000 Bonds, notes and leases payable, net 58,109,736 41,898,185 100,007,921 96,908,771 64,294,288 161,203,059 219,112,469 304,418,393 523,530,862 16,857,455 2,585,150 19,442,605 7,027,077 - 7,027,077 10,601,591 - 10,601,591 - 219,852 219,852 Total liabilities NET ASSETS Invested in capital assets, net of related debt Restricted for: Capital projects Debt service Specific programming Grant and contributions purposes Perpetual care: Expendable Nonexpendable Unrestricted Total net assets 15,271 - 15,271 178,046 - 178,046 37,309,700 $ 291,101,609 The notes to the financial statements are an integral part of this statement 17 $ 23,968,903 61,278,603 331,192,298 $ 622,293,907 CITY OF FLAGSTAFF, ARIZONA Statement of Activities Year Ended June 30, 2012 Program Revenues Indirect Expense Allocation Expenses Charges for Services Operating Grants and Contributions Capital Grants and Contributions $ $ Primary government Governmental activities: General government Public safety $ 9,406,406 $ (1,239,578) 27,175,720 $ 3,364,479 - 1,611,109 1,055,722 1,578,025 65,037 166,242 Public works 1,615,941 (236,383) 1,551,419 - - Economic and physical development 9,639,003 (745,329) 53,747 1,437,698 373,306 Culture and recreation 12,434,695 514,020 1,455,067 3,343,322 289,869 Highways and streets 16,328,771 1,707,270 - - 11,306,515 Interest on long-term debt Total governmental activities 2,944,057 - - - - 79,544,593 - 8,035,821 7,414,767 12,200,969 4,416,074 Business-type activities: Water and wastewater 22,708,636 19,937,196 99,099 Environmental 7,828,286 12,030,990 272,643 158,064 Airport 4,268,099 1,492,559 - 3,156,885 Housing authority 6,165,612 1,299,987 4,252,492 186,825 Stormwater 1,361,658 1,446,602 - 42,509 42,332,291 36,207,334 4,624,234 7,960,357 Total business-type activities Total primary government $ 121,876,884 $ 44,243,155 $ 12,039,001 General revenues: Property tax, levied for general purposes Property tax, levied for debt service Sales taxes State shared sales taxes - unrestricted Investment earnings Miscellaneous Contributions to permanent fund Transfers in (out) Total general revenues, contributions and transfers Change in net assets Net assets - beginning Net assets - ending The notes to the financial statements are an integral part of this statement 18 $ 20,161,326 Net (Expenses) Revenues and Changes in Net Assets Primary Government Governmental Activities $ Business-type Activities (3,681,590) $ (23,820,344) $ $ - 171,861 $ - Total (3,681,590) (23,820,344) - 171,861 (7,028,923) - (7,028,923) (7,860,457) - (7,860,457) (6,729,526) - (6,729,526) (2,944,057) - (2,944,057) (51,893,036) - (51,893,036) - 1,743,733 1,743,733 - 4,633,411 4,633,411 - 381,345 381,345 - (426,308) (426,308) - 127,453 127,453 - 6,459,634 6,459,634 (51,893,036) $ 6,459,634 $ (45,433,402) 5,402,628 - 6,571,713 - 5,402,628 6,571,713 33,401,021 - 33,401,021 13,189,822 - 13,189,822 322,126 118,247 440,373 510,695 173,313 684,008 15,474 - 15,474 (1,134,382) 1,134,382 - 58,279,097 1,425,942 59,705,039 6,386,061 7,885,576 14,271,637 284,715,548 323,306,722 608,022,270 291,101,609 $ 331,192,298 $ 622,293,907 19 CITY OF FLAGSTAFF, ARIZONA Balance Sheet Governmental Funds June 30, 2012 Highway User Revenue Fund General Fund Transportation Fund ASSETS Cash and investments $ 23,208,791 Cash with fiscal agents Accounts receivable, net Interest receivable Intergovernmental receivables Interfund receivable $ 3,672,225 $ 3,074,804 - - 1,694,582 4,519,067 738,832 1,142,416 62,160 3,829 25,656 1,592,277 - 1,451,714 200,000 - - Special assessments receivable - - - Deposits - 57,794 - Inventory 359,922 - - - 500,000 - Property held for resale Restricted cash and investments Total assets 130,481 - - $ 30,072,698 $ 4,972,680 $ 7,389,172 $ 1,371,578 $ 429,766 $ 806,018 LIABILITIES AND FUND BALANCE Liabilities: Accounts payable Accrued payroll and compensated absences 713,757 27,028 - Current bonds payable 365,000 1,725,000 1,500,000 47,223 47,438 194,582 Interest payable Interfund payable - - - Deferred revenue 364,740 - - Unearned revenue 230,503 - - Guaranty and other deposits 1,299,674 - - 4,392,475 2,229,232 2,500,600 Nonspendable 359,923 - - Restricted 758,303 2,743,448 4,888,572 Committed 282,888 - - Total liabilities Fund balances: Assigned Unassigned Total fund balances Total liabilities and fund balances $ 7,075,902 - 17,203,207 - - 25,680,223 2,743,448 4,888,572 30,072,698 The notes to the financial statements are an integral part of this statement 20 $ 4,972,680 $ 7,389,172 $ Total Governmental Funds Other Governmental Funds Special Assessment Bond Fund 413,643 $ 25,652,458 $ 56,021,921 284,125 - 1,978,707 - 773,358 7,173,673 627 53,208 145,480 - 802,536 3,846,527 - - 200,000 11,246,451 - 11,246,451 - - 57,794 - 41,518 401,440 - - 500,000 - 4,908,591 5,039,072 $ 11,944,846 $ 32,231,669 $ 86,611,065 $ - $ 1,147,578 $ 3,754,940 - 66,572 807,357 - 2,432,284 6,022,284 284,125 815,344 1,388,712 - 200,000 200,000 11,246,027 - 11,610,767 - 86,967 317,470 - 1,566,983 2,866,657 11,530,152 6,315,728 26,968,187 - 219,564 579,487 414,694 25,696,377 34,501,394 - - 282,888 - - 7,075,902 - - 17,203,207 414,694 $ 11,944,846 25,915,941 $ 32,231,669 59,642,878 $ 86,611,065 21 CITY OF FLAGSTAFF RECONCILIATION OF THE BALANCE SHEET TO THE STATEMENT OF NET ASSETS GOVERNMENTAL ACTIVITIES JUNE 30, 2012 Fund balances - total governmental funds balance sheet $ 59,642,878 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 from business-type activities Transfer of capital assets to business-type activities 465,578,681 (168,994,417) 31,337 (963,704) 295,651,897 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 652,891 294,735 947,626 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 (73,834,200) (1,693,004) (2,326,393) (3,627,971) (81,481,568) 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 364,740 364,740 11,246,027 11,246,027 The internal service fund is used by management to charge the cost of self insurance programs to individual funds. The assets and liabilities of the internal service funds that are reported with governmental activities. Net assets of governmental activities - statement of net assets The notes to the financial statements are an integral part of this statement 22 4,730,009 $ 291,101,609 23 CITY OF FLAGSTAFF, ARIZONA Statement of Revenues, Expenditures, and Changes in Fund Balances Governmental Funds Year Ended June 30, 2012 Highway User Revenue Fund General Fund Transportation Fund REVENUES: Taxes $ Intergovernmental Grants and entitlements 22,721,059 $ - $ 10,526,830 14,062,644 - - 1,948,711 5,576,167 Special assessments - - - Charges for services 3,220,137 - - Licenses and permits 1,681,874 - - Fines and forfeitures 1,601,044 - - Rents 1,551,419 - - 93,900 6,704 58,675 Contributions 187,320 154,624 - Miscellaneous 142,557 3,413 - 47,210,665 5,740,908 10,585,505 Investment earnings Total revenues EXPENDITURES: Current: General governmental Public safety 7,453,963 - - 24,428,893 - - Public works 1,146,692 - - Economic and physical development 3,956,299 - - Culture and recreation 5,653,437 - - - 5,601,266 3,689,982 Principal retirement 818,798 2,138,599 1,500,000 Interest and other charges 157,523 230,414 774,700 708,466 2,416,967 - 44,324,071 10,387,246 5,964,682 Highways and streets Debt service: Capital outlay Total expenditures Excess (deficiency) of revenues over expenditures 2,886,594 (4,646,338) 4,620,823 - - 12,530,000 (13,949,336) OTHER FINANCING SOURCES (USES): Proceeds of refunding bonds Payment to bond refunding escrow agent - - Issuance of capital debt - - - Bond premium - - 1,616,698 36,690 7,200 - 3,831,006 5,125,572 Sale of capital assets Transfers in Transfers out (4,426,254) Total other financing sources (uses) (558,558) Net change in fund balances Fund balances, beginning of year Fund balances, end of year $ - (85,401) (2,904,291) 5,047,371 (2,706,929) 2,328,036 401,033 1,913,894 23,352,187 2,342,415 2,974,678 25,680,223 The notes to the financial statements are an integral part of this statement 24 $ 2,743,448 $ 4,888,572 Special Assessment Bond Fund $ Other Governmental Funds - $ 3,168,052 $ 45,577,128 17,230,696 - 2,196,691 9,721,569 8,286,453 - 8,286,453 - - 3,220,137 - - 1,681,874 - - 1,601,044 - 53,747 1,605,166 1,303 135,659 296,241 - 48,309 390,253 - 347,001 492,971 8,287,756 18,278,698 90,103,532 - - 7,453,963 - 872,602 25,301,495 - - 1,146,692 - 4,628,527 8,584,826 - 4,923,440 10,576,877 - 301,826 9,593,074 6,765,000 2,432,284 13,654,681 616,213 1,567,403 3,346,253 - 8,826,401 11,951,834 7,381,213 23,552,483 91,609,695 906,543 (5,273,785) - $ 12,329,239 - Total Governmental Funds (1,506,163) 1,394,136 13,924,136 (1,445,000) (15,394,336) - 16,797,287 16,797,287 - 647,688 2,264,386 - - 43,890 - 5,916,357 14,872,935 - (7,659,004) (15,074,950) - 15,651,464 17,433,348 906,543 10,377,679 15,927,185 (491,849) 15,538,262 43,715,693 414,694 $ 25,915,941 $ 59,642,878 25 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, 2012 Net change in fund balances - total governmental funds $ 15,927,185 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 11,951,834 (13,008,038) (1,056,204) 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 Refunding debt issued Payment to bond refunding escrow agent Premium on debt issued Donated capital Compensated absences Other postemployment benefits Principal payments on debt Advance refunding loss Bond premium (16,797,287) (13,924,136) 15,394,336 (2,264,386) 4,268,257 9,635 (491,356) 13,654,681 (65,304) 287,470 71,910 402,196 (79,274) 322,922 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 Certain transactions related to capital assets in the governmental funds reflect proceeds. However, in the statement of activities these transactions reflect net gain (loss). Capital asset impairment revision Loss on disposal of capital assets Transfer of capital assets to business-type activities Transfer of capital assets from business-type activities The notes to the financial statements are an integral part of this statement 26 31,359 (704,043) (963,704) 31,337 (1,605,051) (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, 2012 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 (7,087,628) (201,766) (72,400) (7,361,794) 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 gain Grants and entitlement Investment income 49,776 11,432 25,885 87,093 Change in net assets of governmental activities - statement of activities $ The notes to the financial statements are an integral part of this statement (concluded) 27 6,386,061 CITY OF FLAGSTAFF, ARIZONA General Fund Statement of Revenues, Expenditures, and Changes in Fund Balances - Budget and Actual Year Ended June 30, 2012 Budget Original Final Variance with Final Budget Positive (Negative) Actual Amounts Budgetary Basis REVENUES: Taxes $ Intergovernmental 21,553,000 $ 21,553,000 $ 22,586,480 13,609,706 13,609,706 14,062,644 Grants and entitlements 3,207,153 3,207,153 1,948,711 Charges for services $ 1,033,480 452,938 (1,258,442) 3,055,045 3,055,045 3,220,137 Licenses and permits 990,400 990,400 1,681,874 691,474 Fines and forfeitures 1,479,971 1,479,971 1,601,044 121,073 Rents 2,437,373 2,437,373 1,551,419 (885,954) 125,000 125,000 133,562 8,562 10,250 10,250 187,320 177,070 Investment earnings Contributions Miscellaneous 165,092 70,350 70,350 142,557 72,207 46,538,248 46,538,248 47,115,748 577,500 General administration 8,463,745 8,463,745 7,940,858 522,887 Management services 3,051,139 3,051,139 2,850,274 200,865 Community development 3,752,105 3,752,105 3,497,589 254,516 Fire 9,073,711 9,073,711 8,543,679 530,032 16,660,174 16,660,174 16,163,472 496,702 6,903,139 6,903,139 4,927,383 1,975,756 518,353 Total revenues EXPENDITURES: Current: Police Public works Economic vitality Community enrichment Non-departmental Contingency Total expenditures Excess (deficiency) of revenues over (under) expenditures 744,754 744,754 226,401 3,418,612 3,418,612 3,310,380 (1,945,570) (1,945,570) (3,267,985) 108,232 1,322,415 1,200,000 1,200,000 132,020 1,067,980 51,321,809 51,321,809 44,324,071 6,997,738 2,791,677 7,575,238 (4,783,561) (4,783,561) 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 44,100 44,100 36,690 (7,410) 4,384,629 4,384,629 3,831,006 (553,623) (8,750,620) (8,750,620) (4,426,254) 4,324,366 (4,321,891) (4,321,891) (558,558) 3,763,333 (9,105,452) (9,105,452) 15,534,315 $ 15,534,315 6,428,863 $ Adjustment of budgetary basis to GAAP basis net change in fund balances 6,428,863 2,233,119 11,338,571 15,534,315 - $ 17,767,434 $ 2,233,119 The City budgets certain revenues on the cash basis, rather than on the modified accrual basis. 82,322 The City budgets for certain special revenue funds that do not meet the criteria to be presented separately - Real Estate Proceeds Fund Adjusted net change in fund balance - GAAP basis 12,595 $ The notes to the financial statements are an integral part of this statement 28 2,328,036 $ 11,338,571 CITY OF FLAGSTAFF, ARIZONA Highway User Revenue Fund Statement of Revenues, Expenditures, and Changes in Fund Balances - Budget and Actual Year Ended June 30, 2012 Budget Original Final Actual Amounts Budgetary Basis 6,100,000 $ Variance with Final Budget Positive (Negative) REVENUES: Grants and entitlements $ Investment earnings 6,100,000 $ 7,000 Contributions - Miscellaneous (60,000) Total revenues 5,576,167 $ (523,833) 7,000 6,704 - 154,624 154,624 3,413 63,413 (60,000) 6,047,000 6,047,000 5,740,908 (296) (306,092) EXPENDITURES: Current: General administration 108,282 108,282 108,282 - Management services 138,296 138,296 138,296 - Community development 678,205 678,205 678,205 - 29,053 29,053 29,053 - 13,176,938 13,176,938 9,206,992 3,969,946 226,418 226,418 226,418 - Economic vitality Public works Non-departmental Contingency Total expenditures Excess (deficiency) of revenues over (under) expenditures 525,000 525,000 - 525,000 14,882,192 14,882,192 10,387,246 4,494,946 (8,835,192) (8,835,192) (4,646,338) 4,188,854 8,806,734 8,806,734 5,125,572 (3,681,162) OTHER FINANCING SOURCES (USES): Transfers in Transfers out (85,401) Total other financing sources (uses) Net change in fund balances budgetary basis 1,361,276 Adjustment of budgetary basis to GAAP basis net change in fund balances 1,475,135 $ 1,361,276 507,692 1,475,135 - $ 1,868,968 $ 393,833 modified accrual basis. 7,200 $ The notes to the financial statements are an integral part of this statement 29 (3,681,162) 393,833 The City budgets certain revenues on the cash basis, rather than on the Adjusted net change in fund balance - GAAP basis - 5,040,171 (113,859) 1,475,135 $ (85,401) 8,721,333 (113,859) Budgetary fund balances, beginning of year Budgetary fund balances, end of year (85,401) 8,721,333 401,033 $ 507,692 CITY OF FLAGSTAFF, ARIZONA Transportation Fund Statement of Revenues, Expenditures, and Changes in Fund Balances - Budget and Actual Year Ended June 30, 2012 Budget Original Final Actual Amounts Budgetary Basis 9,985,181 $ Variance with Final Budget Positive (Negative) REVENUES: Taxes $ Investment earnings Total revenues 9,985,181 $ 10,475,500 $ 490,319 66,000 66,000 58,675 10,051,181 10,051,181 10,534,175 482,994 (7,325) 46,278 46,278 46,278 - 266,540 266,540 266,540 - 10,449 10,449 10,449 - 7,272,376 7,272,376 5,641,415 1,630,961 7,595,643 7,595,643 5,964,682 1,630,961 2,455,538 2,455,538 4,569,493 2,113,955 EXPENDITURES: Current: General administration Management services Economic vitality Non-departmental Total expenditures Excess (deficiency) of revenues over (under) expenditures OTHER FINANCING SOURCES (USES): Refunding bonds issued - - 12,530,000 12,530,000 Payment to bond refunding escrow agent - - (13,949,336) (13,949,336) Bond premium Sale of capital assets Transfers out Total other financing sources (uses) Net change in fund balances Budgetary fund balances, beginning of year Budgetary fund balances, end of year $ - - 1,616,698 5,000,000 5,000,000 - 1,616,698 (6,480,656) (6,480,656) (2,904,291) 3,576,365 (1,480,656) (1,480,656) (2,706,929) (1,226,273) (5,000,000) 974,882 974,882 1,862,564 887,682 2,272,936 2,272,936 2,272,936 - 3,247,818 $ Adjustment of budgetary basis to GAAP basis net change in fund balances 3,247,818 $ 4,135,500 $ 1,862,564 The City budgets certain revenues on the cash basis, rather than on the modified accrual basis. 51,330 Adjusted net change in fund balance - GAAP basis $ The notes to the financial statements are an integral part of this statement 30 1,913,894 $ 887,682 31 CITY OF FLAGSTAFF, ARIZONA Statement of Net Assets Proprietary Funds June 30, 2012 Business-type Activities - Enterprise Funds ASSETS Current assets: Cash and investments Receivable, net Interfund receivables Prepaid items Inventory Total current assets Noncurrent assets: Restricted cash and investments Refundable deposit Deferred bond issuance costs, net Capital assets, non-depreciable Capital assets, depreciable, net Total non-current assets Total assets Water and Wastewater Fund $ LIABILITIES Current liabilities: Accounts payable Accrued payroll and compensated absences Bonds and lease payable - mature Interest payable Unearned revenue Interfund payable Deposits payable Bonds and lease payable, net - current Total current liabilities Noncurrent liabilities: Compensated absences Net OPEB obligation Landfill closure and postclosure care costs Capital lease payable Bonds and notes payable, net Total noncurrent liabilities Total liabilities Environmental Services Fund 10,762,832 4,728,412 2,600,000 201,303 18,292,547 $ 5,399,204 1,289,414 6,688,618 Airport Fund $ 8,458 3,167,377 3,175,835 1,593,915 13,640 8,297 14,422,863 246,306,159 262,344,874 280,637,421 10,740,342 1,890,420 7,190,312 19,821,074 26,509,692 3,007,412 39,676,498 42,683,910 45,859,745 2,023,356 210,480 4,920,866 818,460 862,967 330,286 3,792,317 12,958,732 87,622 161,283 73,581 42,188 364,674 274,252 25,765 51,928 2,600,000 33,117 161,717 3,146,779 155,275 233,791 802,963 38,974,618 40,166,647 53,125,379 129,550 178,437 7,163,212 7,471,199 7,835,873 12,050 29,775 1,947,053 173,551 2,162,429 5,309,208 212,238,258 9,080,732 40,401,589 1,593,915 13,679,869 227,512,042 991,235 8,601,852 18,673,819 148,948 40,550,537 NET ASSETS Invested in capital assets, net of related debt Restricted: Grant and contributions purposes Capital projects Unrestricted Total net assets $ The notes to the financial statements are an integral part of this statement 32 $ $ Governmental Activities Business-type Activities - Enterprise Funds Housing Authority $ $ 1,071,646 215,646 81,058 1,368,350 Stormwater Fund $ 1,260,000 165,599 1,425,599 Total $ 18,502,140 9,566,448 2,600,000 81,058 201,303 30,950,949 Internal Service Fund $ 4,532,538 55,219 4,587,757 1,446,035 4,075,062 5,521,097 6,889,447 14,064,821 23,111,896 37,176,717 38,602,316 12,334,257 13,640 8,297 34,831,551 320,359,927 367,547,672 398,498,621 4,587,757 171,128 45,149 9,900 69,575 295,752 38,252 21,732 59,984 2,594,610 464,409 4,920,866 818,460 998,376 2,600,000 475,166 3,954,034 16,825,921 269,783 269,783 188,816 41,916 230,732 526,484 11,908 25,452 37,360 97,344 497,599 509,371 7,163,212 2,750,016 39,148,169 50,068,367 66,894,288 269,783 5,521,097 37,176,717 304,418,393 - 219,852 622,014 6,362,963 1,328,255 38,504,972 219,852 2,585,150 24,380,938 331,604,333 4,317,974 4,317,974 $ $ 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 Net assets of business-type activities $ (412,035) 331,192,298 33 $ CITY OF FLAGSTAFF, ARIZONA Statement of Revenues, Expenses, and Changes in Fund Net Assets Proprietary Funds Year Ended June 30, 2012 Business-type Activities - Enterprise Funds Water and Wastewater Fund OPERATING REVENUES: Charges for services Miscellaneous Total operating revenues $ 19,845,631 91,565 19,937,196 OPERATING EXPENSES: Personal services Contractual services, materials and supplies Insurance claims and expenses Depreciation and amortization Total operating expenses Environmental Services Fund $ 4,358,139 8,297,634 8,127,027 20,782,800 12,020,648 10,345 12,030,993 Airport Fund $ 1,492,559 1,492,559 4,092,924 2,790,904 974,053 7,857,881 628,092 842,898 2,638,411 4,109,401 (845,604) 4,173,112 (2,616,842) NON-OPERATING REVENUES (EXPENSES): Interest and investment income Grants and entitlements Gain (loss) on disposal of capital asset Passenger facility charges Interest expense Total non-operating revenues (expenses) 58,920 99,100 (292,671) (1,656,124) (1,790,775) 51,662 272,643 18,063 342,368 1,814 (31,351) 173,313 (133,657) 10,119 Income (loss) before capital contributions and transfers (2,636,379) 4,515,480 (2,606,723) Capital contributions Transfers in Transfers out Change in net assets 5,228,372 2,221,095 (1,978,317) 2,834,771 161,503 (27,408) 4,649,575 3,172,940 119,000 (33,567) 651,650 Operating income (loss) Total net assets, beginning of year Total net assets, end of year 224,677,271 $ 227,512,042 The notes to the financial statements are an integral part of this statement 34 14,024,244 $ 18,673,819 39,898,887 $ 40,550,537 Governmental Activities Business-type Activities - Enterprise Funds Housing Authority $ 1,055,490 244,497 1,299,987 Stormwater Fund $ 1,057,489 4,724,881 383,242 6,165,612 $ 502,085 196,744 453,356 1,152,185 35,860,801 346,536 36,207,337 $ 10,638,729 16,853,061 12,576,089 40,067,879 6,659,472 6,659,472 6,587,479 6,587,479 (4,865,625) 294,417 (3,860,542) 71,993 4,252,492 4,252,492 5,851 (222,229) (216,378) 118,247 4,624,235 (528,188) 173,313 (1,789,781) 2,597,826 25,885 11,432 37,317 (1,262,716) 109,310 8,924,060 2,521,543 (2,319,528) 7,863,359 109,310 (613,133) 78,039 186,825 (426,308) 174,420 181,448 (280,236) 153,671 6,789,271 $ 1,446,473 129 1,446,602 Internal Service Fund Total 6,362,963 $ 38,351,301 323,740,974 38,504,972 $ 331,604,333 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 Change in net assets of business-type activities $ 22,217 7,885,576 35 4,208,664 $ 4,317,974 City of Flagstaff, Arizona Statement of Cash Flows Proprietary Funds Year Ended June 30, 2012 Business-type Activities - Enterprise Funds Water and Environmental Wastewater Fund Services Fund Airport Fund Cash flows from operating activities: Receipts from customers Interfund services provided Other receipts Payments to suppliers Interfund services used Interfund reimbursement used Payments to employees Net cash provided (used) by operating activities $ Cash flows from noncapital financing activities: Transfer from other funds Transfer to other funds Interfund loans paid Interfund loans received Net cash provided (used) by noncapital financing activities Cash flows from capital and related financing activities: Receipts from grantors Capital Contributions Acquisition and construction of capital assets Principal payments on capital debt Interest paid on capital debt Proceeds from capital debt Proceeds from escrow deposit Proceeds on current refunding of capital debt Principal paid on current refunding of capital debt Net cash provided (used) by capital and related financing activities Cash flows from investing activities: Interest received on investments Net cash provided (used) by investing activities Net increase (decrease) in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year $ Classified as: Cash, cash equivalents, and investments Restricted cash and cash equivalents $ Totals $ The notes to the financial statements are an integral part of this statement 36 18,788,545 407,549 82,135 (4,882,373) (68,161) (2,187,869) (4,470,289) 7,669,537 $ 11,786,859 147,271 (5,098,927) (3,286) (1,386,635) (4,155,352) 1,289,930 $ 1,391,575 173,313 (216,214) (24,596) (357,225) (634,830) 332,023 2,221,096 (1,978,318) (600,000) (357,222) (27,408) (27,408) 119,000 (33,567) 600,000 685,433 426,627 1,894,675 (4,812,755) (4,496,526) (1,718,405) 2,534,783 1,620,864 (1,680,000) 339,544 (1,054,669) - 201,990 (3,237,875) (153,028) (133,658) 2,234,750 - (6,230,737) (715,125) (1,087,821) 39,387 39,387 40,258 40,258 1,120,965 11,235,782 12,356,747 587,655 15,551,891 16,139,546 10,762,832 1,593,915 12,356,747 $ $ $ 5,399,204 10,740,342 16,139,546 7,103 7,103 $ $ $ (63,262) 71,720 8,458 8,458 8,458 Business-type Activities - Enterprise Funds Housing Authority Fund Stormwater Fund $ 889,210 244,497 (4,415,951) (239,286) (1,023,902) (4,545,432) $ - $ $ $ 34,232,601 608,970 500,074 (14,700,747) (335,329) (4,039,830) (10,792,290) 5,473,449 $ 6,646,664 (6,643,957) 2,707 181,448 (280,236) (98,788) 2,521,544 (2,319,529) (600,000) 600,000 202,015 - 4,439,316 (186,823) - 13,699 200 (534,661) - 5,421,176 1,894,875 (9,826,783) (4,649,554) (1,852,063) 2,534,783 2,234,750 1,620,864 (1,680,000) 11,432 - 4,252,493 (520,762) (4,301,952) 11,432 - $ 1,376,412 54,150 129 (87,282) (108,101) (507,917) 727,391 Total Governmental Activities Internal Service Fund (292,939) 1,364,585 1,071,646 1,071,646 1,071,646 $ $ $ 3,760 3,760 90,508 90,508 16,414 16,414 111,601 1,148,399 1,260,000 1,464,020 29,372,377 30,836,397 30,553 4,501,985 4,532,538 1,260,000 1,260,000 $ $ $ 18,502,140 12,334,257 30,836,397 (continued) 37 $ $ $ 4,532,538 4,532,538 Statement of Cash Flows Proprietary Funds Year Ended June 30, 2012 Business-type Activities - Enterprise Funds Water and Wastewater Fund Environmental Services Fund Airport Fund Reconciliation of operating income (loss) to net cash provided (used) by operating activities Operating income (loss) $ (845,604) $ 4,173,112 $ (2,616,842) Adjustments to reconcile operating income (loss) to net cash provided (used) by operating activities: Depreciation and amortization 8,127,027 Landfill closure and postclosure costs Other receipts 974,053 2,638,411 - (3,497,450) - 82,135 - 173,313 (Increase) decrease in assets: Accounts receivable Prepaid items Inventories (362,132) (126,896) - - (82,373) - 29,258 - - (200,494) 244,863 Increase (decrease) in liabilities: Accounts payable 1,129,973 Accrued payroll, compensated absences (159,147) OPEB (102,534) 46,997 (13,323) 40,106 6,585 Deposits payable (23,587) 6,724 32 Deferred revenue (355,383) 23,309 (18,643) Total Adjustments Net cash provided (used) by operating activities 8,515,141 (2,883,182) $ 7,669,537 $ $ 930,765 $ 2,948,865 1,289,930 $ - $ 332,023 Noncash investing, capital and financing activities: Capital assets acquired through contributions from developers Capital assets transferred to governmental activities transfer (9,338) Capital assets transferred from governmental activities transfer Total noncash investing, capital and financing activities (6,382) 812,299 $ 1,733,726 The notes to the financial statements are an integral part of this statement 38 3,439 $ (2,943) (3,617) 16,055 $ 12,438 Governmental Business-type Activities - Enterprise Funds Housing Authority Fund $ Stormwater Fund (4,865,625) $ Total 294,417 $ (3,860,542) $ 453,356 - - - - (156,773) (15,911) (744,085) (12,808) (20,415) - (20,415) - - - 29,258 - 1,361 1,261,100 (56,478) 17,650 12,576,089 71,993 383,242 85,397 - (3,497,450) - 255,448 (11,532) 15,937 5,700 - (268,886) - 115,325 - (750) - (17,581) - (4,095) - (354,812) - 320,193 432,974 $ (4,545,432) $ $ - $ - 9,333,991 $ 5,473,449 $ 2,707 41,120 $ 971,885 $ - (31,337) 131,911 $ (69,286) 727,391 (12,000) $ Activities Internal Service Fund 161,031 - 963,704 $ 1,904,252 (concluded) 39 $ - CITY OF FLAGSTAFF, ARIZONA Notes to the Financial Statement June 30, 2012 I. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A. Financial Reporting Entity The City of Flagstaff (the City) was incorporated as a town in 1894 and as a city in 1928. The current City Charter was approved June 29, 1998. The Charter provides for the Council-Mayor form of government and the authority to provide municipal services, as limited by the State Constitution. The accounting policies of the City of Flagstaff conform to accounting principles generally accepted in the United States of America (GAAP) as applicable to Governmental Units. The Governmental Accounting Standards Board (GASB) is the accepted standard-setting body for establishing governmental accounting and financial reporting principles. The City of Flagstaff is a municipal corporation governed by an elected Mayor and six-member council. The accompanying financial statements include the City and all of its component entities for which the government is considered to be financially accountable. Blended component units, although legally separate entities are, in substance, part of the government’s operations and so data from these units are combined with data of the primary government. Discretely presented component units are reported in a separate column in the Government Wide Statement of Net Assets and Activities to emphasize they are legally separate from the government. The City of Flagstaff has no discretely presented component units. Blended Component Unit: The Municipal Facilities Corporation (MFC) is a non-profit corporation created by the City for the purpose of constructing, acquiring and equipping municipal facilities. For financial reporting purposes, transactions of the MFC are included as if it were part of the City’s operations. In fiscal year 2001 the MFC issued $4.7 million in bonds for construction on additional facilities owned by the City and currently leased to the United States Geological Survey (USGS). These bonds will be repaid through USGS lease proceeds. In fiscal year 2004 the MFC issued $25 million in bonds for construction of the Fourth Street Overpass and was partially advance refunded in 2012 . The voters approved this debt financing in the May 2000 General Election. These bonds will be repaid with the transportation sales tax that was also approved in the May 2000 Election. Related Organizations: The City of Flagstaff officials are also responsible for appointing board members of other organizations. However, as the City’s control is limited to making the appointments and there is not a significant operational nor a significant financial relationship between these organizations and the City, they are not included as part of these financial statements. 40 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 eliminated 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 and are part of the fund statements. Interfund services provided and used are 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 Stormwater Fund and Housing Authority as major proprietary funds due to their relation with other proprietary 41 funds. 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 funds. 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. 42 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 two 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. Resources allocated to this fund come mainly from the State and must be used for Street construction, reconstruction and maintenance.  Transportation Tax Fund accounts for the receipt and expenditures of the Transportation Tax money as authorized by voters on May 16, 2000. These resources 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, Transit Service operations and enhancements, and to repay the bonding related to the 4th Street overpass. 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 and repaid by the special assessment district. Capital Projects Fund is used to account for major capital acquisition and construction separate from ongoing operating activities. Resources for capital projects typically result from the issuance of general obligation or other government debt. No Capital Projects Funds are presented as major funds. 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. generated from ongoing plot sales with a portion allocated to perpetuity. Resources are 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. 43 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 five enterprise funds all of which are presented as major funds in the basic financial statements.  Water and Wastewater Fund 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.  Housing Authority Fund accounts for low income rental assistance along with federal housing programs such as low income public housing and voucher programs that enhance this funds ability to provide services.  Stormwater Fund 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 44 to be used to pay liabilities of the current period. The City considers all revenues, except reimbursement grants, to 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 divisions must be approved by the City Council. Additionally, budget revisions expenditures/expenses must be approved by the City Council.   involving personnel or capital asset 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. 45  All funds of the City have legally adopted budgets with the exception of the Internal Service Fund and Perpetual Care Fund. Formal integration of these budgets into the City’s financial systems is employed as a management control device during the year for all funds. The City prepares its annual budget on a modified cash basis, which differs from GAAP, GASB Statement 34 requires that budgetary comparison statements for the General Fund and major special revenue funds be presented in the annual financial statements. These statements must display original budget, amended budget and actual results on a budgetary basis at the legal level of budgetary control. The City’s legal level of budgetary control is at the 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 46 debt service fund and transferred to the Water and Wastewater Fund and the General Obligation Bond Fund. General Obligation bonds are serviced by each of these funds. For fiscal year 2011-2012, primary and secondary property tax collections amounted to $5,472,700 and $6,703,407 respectively. Inventory Inventory is valued at cost, which approximates market, using the weighted average cost method. Inventory consists of expendable supplies held for consumption and is charged to expenditure accounts as consumed. Restricted Assets Certain debt proceeds of the City’s bonds, as well as certain resources set aside for their repayment, are classified as restricted on the balance sheet, or statement of net assets, because they are maintained in trust accounts and their use is limited by applicable debt covenants. Typically, restricted assets, committed assets and assigned assets are used prior to using unassigned 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 Capital assets, whether owned by governmental activities or business-type activities, are recorded and depreciated (unless the modified approach is used) in the government-wide financial statements. The City has chosen not to apply the modified approach to any networks or subsystems of infrastructure assets. No long-term assets or depreciation are shown in the governmental fund financial statements. Capital assets, including public domain infrastructure (i.e., roads, bridges, curbs and gutters, streets and sidewalks, and other assets that are immovable and of value only to the City) are reported in the applicable governmental or business-type activities columns in the government-wide financial statements. The government defines capital assets as assets with an initial, individual cost of more than $5,000 ($25,000 for capital improvement projects and infrastructure assets) and an estimated useful life greater than three years. Such assets are recorded at historical cost or estimated historical cost if actual amounts are unknown. Donated capital assets are recorded at estimated fair value at the date of donation. The cost of normal maintenance and repairs that do not add to the value of the asset or materially extend its life, are not capitalized. Major improvements are capitalized and depreciated over the remaining useful life of the related asset. Major outlays for capital assets and improvements are capitalized as projects are constructed. Interest incurred during the construction phase of capital assets of business-type activities is included as part of the capitalized value of the assets constructed, if material. Property, plant and equipment is depreciated using the straight-line method over the following estimated useful lives (land and construction-in-progress are not depreciated): 47 Assets Useful life (years) Buildings 10-50 Improvements 10-20 Infrastructure 25-75 Machinery and Equipment 5-25 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. Sick leave is vested with 20 years of service. Sick leave is payable upon termination (if vested) or retirement, 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 results in 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 includes 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 using the straight line method, though the GAAP preferred method is the effective rate model. In the fund financial statements, governmental fund types recognize bond premiums and discounts, as well as bond issuance costs in the period in which the bonds are issued. The face amount of debt issued is reported as other financing sources. Premiums received on debt issuance are reported as other financing sources, while discounts on debt issuances are reported as other financing uses. Issuance costs, whether or not withheld from the actual debt proceeds received, are reported as debt service expenditures. Interfund Transactions Interfund transactions, consisting of services performed for other funds or costs billed to other funds are treated as expenditures in the fund receiving the services and as a reimbursement reducing expenditures in the fund performing the services. Exceptions include water sales, sewer charges, and environmental service charges that are recorded as revenue in the enterprise funds and expenses or expenditures in the department receiving the service. In addition, transfers are made between funds to shift resources from a fund legally authorized to receive revenue to a fund authorized to expend the revenue. 48 Fund Balance 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, this action would represent a city ordinance. 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. 49 Reconciliation of Governmental Funds Balance Sheet and the government-wide Statement of Net Assets: Internal Reclass Statement of Governmental Total Capital Long-Term Service and Net Assets Funds Assets (1) Liabilities (2) Fund (3) Eliminations (4) Totals Assets Cash and cash equivalents $ Cash with fiscal agents 56,021,921 $ Accounts receivable, net Intergovernmental receivables Special assessments receivable Inventory - - - 7,173,673 - 43,141 - 145,480 - - 12,078 - 157,558 3,846,527 - - - - 3,846,527 - - - - - - 11,246,451 - - - 11,246,451 200,000 - - - - 412,035 652,891 - 1,978,707 53,540,416 53,540,416 7,511,549 (200,000) 412,035 - 652,891 401,440 - - - - 401,440 5,039,072 - - - - 5,039,072 - - - - 500,000 - - 57,794 Property held for sale 500,000 Capital assets $ 294,735 - 7,014,043 - Refundable deposits Total Assets $ 4,532,538 $ (53,540,416) $ - Deferred issuance costs - Prepaid items Restricted cash and cash equivalents - Bond proceeds receivable Interfund receivable $ - Investments Interest receivable - 1,978,707 57,794 296,584,264 86,611,065 $ 296,584,264 $ (932,367) 295,651,897 947,626 $ 4,999,792 $ (1,132,367) $ 388,010,380 Liabilities and Net Assets Accounts payable $ Accrued payroll & compensated absences Interest payable 3,754,940 $ 269,783 $ - 807,357 - - $ - - $ - - 807,357 1,388,712 - - - - 1,388,712 Interfund payable 200,000 - - - Unearned revenue 317,470 - - - Deferred revenue 11,610,767 - 2,866,657 - Guaranty and other deposits Arbitrage rebate - Current bonds and lease payable 6,022,284 Unamortized bond premium - - - - - - 2,866,657 - - - - - - - 6,022,284 - Compensated absences - - Other postemployment benefits - - Unmatured long-term debt - - 59,642,878 296,584,264 86,611,065 $ 296,584,264 50 317,470 - - $ - - 4,024,723 - Liabilities payable from restricted assets Fund balance/Net Assets Total liabilities and net assets (11,610,767) (200,000) $ 1,693,004 - - 1,693,004 - - - 3,627,971 - - 3,627,971 2,326,393 - - 2,326,393 73,834,200 - - 73,834,200 - (68,923,175) 4,730,009 (932,367) 291,101,609 $ 947,626 $ 4,999,792 $ (1,132,367) $ 388,010,380 (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 Transfer of capital assets from business-type activities Transfer of capital assets to business-type activities $ $ 465,578,681 (168,994,417) 31,337 (963,704) 295,651,897 (2) Bond issuance costs are expensed when incurred in governmental funds, but are deferred and amortized over the life of the bonds in the statement of net assets. Unamortized bond issue costs $ 652,891 Certain receivables are not recognized in the governmental funds, but are earned in the statement of net assets. Deferred court receivables $ 294,735 Long-term liabilities applicable to the City's governmental activities are not due and payable in the current period, and accordingly are not reported as fund liabilities in the governmental fund statement. All liabilities, both current and long-term are reported in the statement of net assets. Governmental bonds payable Compensated absences $ Other postemployment benefits Unamortized bond premium Subtotal Less: current portion compensated absences Less: current portion of bonds and leases 79,856,484 5,256,494 2,326,393 1,693,004 89,132,375 $ 1,628,523 6,022,284 81,481,568 Deferred revenue for the long-term special assessment receivables and property tax shown on the governmental fund statements is not deferred on the statements of net assets. Deferred special assessment Deferred property tax $ $ 11,246,027 364,740 11,610,767 (3) Internal service funds are used by management to charge the costs self insurance to the individual funds. The assets and liabilities of the internal service funds are included in the governmental activities in the statement of net assets, but are not included on the governmental fund balance sheet. ISF net assets (4) $ 4,730,009 Certain interfund transactions between governmental activities and between business-type activities are eliminated in the consolidation of those activities for the statement of net assets. Interfund receivables Interfund payables $ $ 51 200,000 (200,000) - 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 Related Revenues/ Service and Activities Funds Items (1) Expenses (2) Fund (3) Eliminations (4) Totals Revenues and Other Sources Taxes $ 45,577,128 $ - (201,766) $ - 17,230,696 - - - (4,040,874) 13,189,822 Grants and entitlements 9,721,569 - - 11,432 4,040,874 13,773,875 Special assessments 8,286,453 - Charges for services 3,220,137 - Intergovernmental $ (7,087,628) $ - $ 45,375,362 - - 1,198,825 - - - 3,220,137 Licenses and permits 1,681,874 - - - - 1,681,874 Fines and forfeitures 1,601,044 - (72,400) - - 1,528,644 Rent 1,605,166 - - - - 1,605,166 Investment earnings 296,241 - - 25,885 - 322,126 Contributions 390,253 - - - 4,658,510 Miscellaneous 492,971 - - 17,724 510,695 37,317 17,724 87,065,036 Total revenue 4,268,257 - 90,103,532 4,268,257 (7,361,794) Expenditures/Expenses General governmental 7,453,963 565,580 162,343 (5,364) 1,229,884 9,406,406 25,301,495 1,656,795 107,214 (17,732) 127,948 27,175,720 Public works 1,146,692 227,043 9,524 (907) 233,589 1,615,941 Economic and physical development 8,584,826 238,113 75,601 (5,831) 746,294 9,639,003 Culture and recreation 10,576,877 2,029,612 74,799 (8,308) (238,285) 12,434,695 Highways and streets 9,593,074 8,259,536 (90,652) (11,634) (1,421,553) 16,328,771 Public safety Principal retirement Interest and other charges Capital outlay Total expenditures/expenses 13,654,681 - (13,654,681) - - 3,346,253 - (402,196) - - 11,951,834 (11,951,834) 91,609,695 1,024,845 (13,718,048) (49,776) 677,877 2,944,057 79,544,593 OTHER FINANCING SOURCES (USES): Refunding bonds issued 13,924,136 - (13,924,136) - - - Issuance of capital debt 16,797,287 - (16,797,287) - - - Payment to bond refunding escrow agent (15,394,336) - 15,394,336 - - - 2,264,386 - (2,264,386) - - - Bond (discount) premium Sale of capital assets 43,890 Transfers in 14,872,935 Transfers out (15,074,950) Total other financing sources (uses) Net change for the year 17,433,348 $ 15,927,185 (704,043) $ (704,043) 2,539,369 52 - - 660,153 - - 31,337 14,904,272 - - (963,704) (16,038,654) - (272,214) (1,134,382) (17,591,473) $ (11,235,219) $ 87,093 $ (932,367) $ - 6,386,061 (1) When capital assets that are to be used in the governmental activities are purchased or constructed, the resources expended for those assets are reported as expenditures in governmental funds. However, in the statement of activities, the cost of those as Capital outlay $ 11,951,834 Depreciation expense (13,008,038) Disposal of capital assets (704,043) Capital assets revision 31,359 Donated capital assets 4,268,257 $ 2,539,369 (2) Special assessment principal payments received are reported as revenue on the governmental fund statements, but are reductions to the outstanding special assessment debt for government-wide reporting. Property tax revenue not received within 30 days of y Special assessment received Property tax Court revenue $ $ (7,087,628) (201,766) (72,400) (7,361,794) The costs of issuing bonds are reported as an expenditure in governmental funds in the year of bond issuance. However, the bond issuance costs are deferred and amortized (expensed) over the life of the bonds. Amortization of bond issuance costs Issuance cost on new bonds Deferral of advance refunding loss $ $ (79,274) 402,196 (65,304) 257,618 Some expenses reported in the statement of activities do not require the use of current financial resources and therefore are not reported as expenditures in governmental funds. Accrual of long-term compensated absences $ 9,635 Accrual of other postemployment benefits (491,356) $ (481,721) Prepayment of bond principal is reported as an expenditure in governmental funds and thus has the effect of reducing fund balance because current financial resources have been used. For the City as a whole, however, the principal payments reduce the long Principal bond payments Capital debt issued Bond premium Refunding of capital debt Payment to bond refunding escrow agent Amortization of bond premium $ $ 13,654,681 (16,797,287) (2,264,386) (13,924,136) 15,394,336 287,470 (3,649,322) (3) Internal service funds are used by management to charge the costs of self insurance to the individual funds. The adjustments for internal service funds "close" those funds by charging the additional amounts to participating governmental activities to com Revenue Expenditures $ $ 37,317 49,776 87,093 (4) Certain interfund transactions between governmental activities and between business-type activities are eliminated in the consolidation of those activities for the statement of net assets. $ 31,337 Transfer of capital assets from enterprise fund Transfer of capital assets to enterprise fund 53 $ (963,704) (932,367) C. Fund Balance Classification Fund balances for governmental funds are reported in classifications that comprise a hierarchy based primarily on the extent to which the government is bound to honor constraints on the specific purposes for which amounts in those funds can be spent. The classifications of nonspendable, restricted, committed, assigned, and unassigned designate the relative strength of the constraints placed on the how the amounts can be spent. Classification of fund balances imposed by the reporting government, whether by administrative policy or legislative action of the City Council, are shown in aggregate on the government fund financial statements, but not on the proprietary statement of net assets. Restricted net assets on the government-wide financial statements reflect restrictions imposed by external sources. Nonspendable fund balance represents amounts that are nonspendable such as inventories and nonexpendable portion of permanent funds. Restricted fund balances represent constraints placed on the use of resources imposed externally by creditors, grantors, contributors, or laws and regulations of other governments. Resources imposed by constitutional provisions of enabling legislation that allows the ability to levy, charge, or mandate payment of resources are also classified as restricted. Committed fund balance includes amounts that can be used only for the specific purposes determined by adoption of a city ordinance by 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 as related to the adopted city ordinance. 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 is expressed by the direction of the City Council or budget committee who has the authority to assign amounts used for specific purposes. Unassigned fund balance represents the remaining amount that is not restricted, committed, nonspendable nor assigned in the general fund. Consideration is made that committed amounts are reduced first, followed by assigned amounts, and then unassigned amounts when expenditures are incurred for purposes which both restricted and unrestricted fund balance is available. Also, committed, assigned, or unassigned amounts are considered to have been spent when expenditure is incurred for purposes for which amounts in unrestricted fund balance classification could be used. Absent of a minimum fund balance policy, the City, through the budgeting process establishes a minimum fund balance level to maintain as part of that process. A minimum balance of 12% is suggested in the general fund and a 10% fund balance is suggested for special revenue and enterprise funds. 54 Governmental fund balances as of June 30, 2012 are as follows: General Fund Highway User Revenue Fund Transportation Fund $ $ Special Assessment Bond Fund Other Governmental Funds Total Governmental Funds $ $ Fund balances: Nonspendable: Perpetual care Inventory $ - - 359,923 - - $ - - 178,046 41,518 178,046 401,441 Restricted for: Library services - - - - 800,433 800,433 Library branch services - - - - 929,427 929,427 2,218,297 Library programs board directed Court improvements and operations Debt services - - - - 2,218,297 730,877 - - - - 730,877 - - - 414,694 6,612,383 7,027,077 Regional planning - - - - 12,613 12,613 Street improvements - 2,743,448 888,827 - - 3,632,275 Transit - - 3,073,033 - - 3,073,033 Economic development - - - - 818,621 818,621 Arts and science - - - - 406,945 406,945 Culture and recreation - - - - 1,611,345 1,611,345 Perpetual care Other capital projects - - - - 15,271 15,271 27,426 - 926,712 - 12,271,042 13,225,180 282,888 - - - - 282,888 Committed to: Development fee projects Assigned to: Court services Capital reserve 41,334 - - - - 41,334 6,496,094 - - - - 6,496,094 Real estate 538,474 - - - - 538,474 Unassigned: 17,203,207 - - - - 17,203,207 414,694 $ 25,915,941 $ 59,642,878 Total fund balances $ 25,680,223 $ 2,743,448 $ 4,888,572 $ 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 55 For the enterprise funds, the annual budget is prepared on a basis that differs from GAAP because state law requires capital purchases and debt service payments to be budgeted as expenses, and bond proceeds and grants that are to be utilized are to be budgeted as revenues. The accounting and budgeting systems for the City are in accordance with Generally Accepted Accounting Principles (GAAP) format, with minimal variances between the two systems. Budget basis for enterprise funds differ primarily due to state laws. The major differences are as follows:  Encumbrances (contractual commitments) are considered the equivalent of expenditures. Encumbrances at year-end for goods or services, which are not received prior to the end of the fiscal year, are cancelled.   Fund balances reserved to inventory and bonded debt are not included in the budget. Certain expenditures, such as depreciation, 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 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 56 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. 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, 2012, the carrying amount of the City’s deposits was $18,409,106 and the bank balance was $20,920,195. The $2,511,089 difference represents deposits in transit, outstanding checks, and other reconciling items at June 30, 2012. 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, 2012, 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, 2012, the City’s investments included the following Investment Type Federal Agency Securities $ Municipal Obligations U.S. Treasuries State Investment Pool Wells Fargo - money market FDIC Guaranteed Certificate of Deposit Total fair value of Investments $ Portfolio weighted average maturity Fair Value 37,325,743 Weighted Average Maturity (in years) 2.730 24,507,492 31,192 1,920,430 0.005 0.998 1.600 780,278 15,434,396 79,999,529 5.000 3.550 2.048 57 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, SEC registered money market accounts, certificates of deposit within the top three ratings by a nationally recognized rating agency, and the State of Arizona Local Government Investment Pool (LGIP). The credit quality ratings of investments as described by nationally recognized Standard and Poor’s and Moody’s rating service as of June 30, 2012 is as follows: Investment Type Federal Agency Securities Municipal Obligations U.S. Treasury State investment pool (LGIP) Pool 5 State investment pool (LGIP) Pool 7 FDIC Guaranteed Certificates of Depos Wells Fargo - money market Total Fair Value $ 37,325,743 780,278 15,434,396 Moody's Rating AAA AA2 AAA S&P Rating AA+ AA AA+ % of Investments 0.47 0.01 0.19 22,924,671 1,582,822 N/A N/A AAAF/S1+ AA+ 0.29 0.02 31,192 N/A AAAm 0.00 1,920,430 $ 79,999,529 N/A N/A 0.02 100% 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%. At June 30, 2012, the City’s cash and investments included the following: 58 Total City cash deposits and investments at fair value are as follows: Carrying amount of investments Carrying amount of cash deposits Total pooled cash and investments $ Pooled cash and cash equivalents - unrestricted Investments - unrestricted Restricted cash with fiscal agent Restricted cash and investments Total pooled cash and investments $ $ $ 79,999,529 18,409,106 98,408,635 25,516,183 53,540,416 1,978,707 17,373,329 98,408,635 Cash and cash equivalents at June 30, 2012 consisted of the following: Investments included in cash and cash equivalents Cash on hand Total cash and cash equivalents per statement of net assets $ $ 25,500,258 15,925 25,516,183 Investment income comprises the following for the year ended June 30, 2012: Net interest and dividends Net increase (decrease) in the fair value of investments Total net investment income per statement of activities $ $ 633,404 (193,031) 440,373 The net decrease in the fair value of investments during fiscal year 2011-2012 was $193,031. 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, 2012 was $70,387. 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 receive distributions this year in the amount of $4,240 and the total recovery to date is $781,245. In previous years, the City recognized a decrease in fair value of $289,104 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 filed claims on behalf of the LGIP investors. The City received a distribution this year in the amount of $17,433 which is the only distribution the City has received to date. 59 B. Receivables Receivables as of June 30, 2012, including allowances for uncollectible accounts, are as follows: Fund G ove r nme nta l Activitie s General fund Highway user revenue fund Transportation fund Special assessment fund Other governmental funds Less: allowance for uncollectibles Accounts Interest Intergovernmental $ 5,695,761 738,832 $ 62,160 3,829 $ 1,592,277 - 53,208 - 802,536 - 1,142,416 - 773,358 (881,959) 25,656 627 Special Assessments $ - 1,451,714 - 11,246,451 - Total Receivables $ 7,350,198 742,661 2,619,786 11,247,078 1,629,102 (881,959) Total government funds 7,468,408 145,480 3,846,527 11,246,451 22,706,866 Total governmental activities 7,511,549 157,558 3,846,527 11,246,451 22,762,085 3,392,780 26,294 1,379,338 - 4,798,412 Internal services funds B usine ss- T yp e Activitie s Water and wastewater Environmental services Airport Stormwater Flagstaff housing authority Less: allowance for uncollectibles Total business-type activities Total activities 43,141 1,247,514 108,835 12,078 - - 15,482 914 101,418 3,062,628 - - - - - 4,977,597 45,467 4,543,384 - 9,566,448 $ 12,489,146 $ 203,025 $ 8,389,911 $ 11,246,451 $ 32,328,533 166,822 229,296 (167,650) 2,777 - 55,219 1,364,414 3,172,377 169,599 229,296 (167,650) The receivables not expected to be collected within one year include $881,959, of the general fund, $70,000 of the water and wastewater, $75,000 of the environmental services fund, $5,000 of the airport fund, $4,000 of the Stormwater fund, and $13,650 of the flagstaff housing authority. 60 C. Capital Assets A summary of capital asset activity, for the government-wide financial statements, as of June 30, 2012 is as follows: Balance * G overnmenta l a ctivitie s: Non-depreciable assets: Land Construction -in-progress July 1, 2011 $ Total non-depreciable assets Depreciable assets: Buildings Improvements 47,949,793 9,031,305 Additions $ Infrastructure Total depreciable assets 20,206 (6,198,466) 72,334,046 430,983 (830,494) 4,556,103 30,734,974 4,056,715 (3,134,312) 115,246 (16,033,495) (11,568,938) (1,611,903) (1,004,068) Infrastructure (112,044,471) (8,397,100) (20,964,714) (160,611,618) $ $ (6,178,260) Buildings Improvements Total accumulated depreciation Governmental activities capital assets, net - (132,334) (132,334) 7,074,879 11,677,823 Machinery and equipment $ In (out) 4,542,268 274,026,367 397,706,774 Accumulated depreciation: Transfers Retirements 56,981,098 20,611,387 Machinery and equipment 1,717,005 2,825,263 Deletions and 294,076,254 $ (768,051) (409,589) (5,142,446) 700,525 738,042 - 387,249 248,039 5,191,391 4,570,737 54,502 $ (932,367) Less: associated debt Less: unamortized premium Plus: unamortized loss on current refunding Plus: unspent capital related debt, series 2006 Plus: unspent capital related debt, series 2012 Invested in capital assets, net of related debt 61 76,490,638 19,958,582 32,044,626 280,939,696 409,433,542 (120,400,438) (13,008,038) (704,043) 5,525,768 55,212,772 - 54,502 $ 49,687,004 (16,944,873) (11,834,964) 3,091,037 3,212,053 $ - (1,994,967) 41,133 Balance June 30, 2012 (19,814,142) (168,994,417) 295,651,897 (79,856,483) (2,215,437) 522,432 1,181,870 3,828,191 $ 219,112,470 Business-type activities: Non-depreciable assets: Land Construction -in-progress Balance July 1, 2011 $ Total non-depreciable assets $ 506,506 5,614,029 28,760,684 Depreciable assets: Buildings Accumulated depreciation: Buildings Improvements Machinery and equipment - 358,083,703 44,563,886 504,648,529 3,485,751 1,192,382 4,678,133 (41,632,541) (117,215,750) (18,027,544) (2,277,178) (7,538,480) (2,760,431) (176,875,835) $ 356,533,378 Deletions and Retirements $ - 6,120,535 102,000,940 Improvements Machinery and equipment Total depreciable assets Total accumulated depreciation Business-type activities capital assets, net 11,855,390 16,905,294 Additions (12,576,089) $ (1,777,421) Transfers In (out) $ - (49,668) (236,676) (472,783) (8,478,704) (1,966,287) (10,681,667) 1,446,879 62,441 1,036,537 184,175 8,053,137 1,947,509 (54,502) 10,184,821 $ (12,000) (37,668) (496,846) (54,502) $ 932,367 Less: associated debt Less: unamortized premium Plus: unamortized loss on current refunding Invested in capital assets, net of related debt Balance June 30, 2012 $ 12,349,896 22,481,655 34,831,551 101,291,481 354,537,629 43,852,422 499,681,532 (43,725,544) (116,701,093) (18,894,968) (179,321,605) 355,191,478 (50,781,701) (63,053) 71,669 $ 304,418,393 *The City completed a comprehensive review of capital assets including a citywide inventory, resulting in a minor change in the July 1, 2011 balance for governmental activities of $25,667 within construction in progress and $5,692 within in machinery and equipment. Depreciation expense was charged to the governmental functions in the government-wide financial statements as follows: G ove rnme nta l Activitie s: General government $ Public safety Public works 565,579 1,656,795 227,044 Economic and physical development 243,805 Culture and recreation 2,030,279 Highway and streets Total depreciation expense - governmental activities 62 $ 8,284,536 13,008,038 D. Interfund Receivables, Payables, and Transfers Interfund receivables and payables Net interfund receivables and payables between governmental activities and business-type activities of $412,035 are included in the government-wide financial statements at June 30, 2012. The interfund balances at June 30, 2012 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, 2012 are expected to be repaid within one year. The following interfund receivables and payables are included in the fund financial statements at June 30, 2012: Interfund Receivables Fund G ove rnme nta l Activitie s: General fund Other governmental funds Total governmental activities $ Busine ss-T yp e Activitie s: Water and wastewater fund Airport fund Total business-type activities Total governmental and business-type activities 200,000 200,000 2,600,000 2,600,000 $ 2,800,000 Less: fund eliminations Adjustment for internal service fund elimination (2,800,000) 412,035 Total government-wide statement of net assets $ 63 412,035 Interfund Payables $ 200,000 200,000 2,600,000 2,600,000 $ 2,800,000 Transfers The net transfers of $1,134,382 from governmental activities to business-type activities on the government-wide statement of activities are primarily debt service and operational subsidies from the General Fund. There were no significant transfers during fiscal year 2012 that were either non-routine in nature or inconsistent with the activities of the fund making the transfer. The following transfers are reflected in the fund financial statements for the year ended June 30, 2012: Fund G ove r nme nta l Activitie s: Transfers out General fund Highway user revenue fund Transportation fund Other governmental funds Total governmental activities B usine ss- T yp e Activitie s: Water and wastewater fund Environmental services fund $ 4,426,254 85,401 2,904,291 7,659,004 15,074,950 1,978,318 27,408 Airport fund Stormwater fund Total business-type activities Total governmental and business-type activities 33,567 280,236 2,319,529 $ 17,394,479 Less: fund eliminations Add: net capital assets transfer Transfers In $ 3,831,006 5,125,572 5,916,357 14,872,935 2,221,096 - 119,000 181,448 2,521,544 $ 17,394,479 (17,192,464) 932,367 Total government-wide statement of activities $ 1,134,382 E. Leases Operating Leases Expenditures The City leases library spaces under both non-cancellable and cancellable operating leases. The non-cancellable lease is for the East Flagstaff Library. The term of the contract for a period of 10 years, began September 2002 (FY- 2003) and, after the automatic renewal, ends in June 30, 2017, adjustments on July 1st to the lease amount based on the prior year change in the Consumer Price Index for the prior year. In FY 2012 the lease was non-cancellable for the initial term of the lease. Beginning in FY-2013, the lease may be terminated given 180 days notice by either party. Fiscal Year 2012 lease expense for the library was $79,203. The schedule below for future minimum lease expenses reflects the change in the rental rate as of June 30, 2012. The additional cancellable lease is the Chevelon Butte School District #5 and Coconino county Library District for facility use. It is a four (4) year lease beginning September 1, 2011, and is automatically renewed an additional four (4) years, indefinitely, unless 30 days notice is given by either party. Total lease expense was $6,600 for FY 2012. 64 Operating Lease Expenditures Year Ending June 30 2013 2014 2015 2016 2017 Total East Flagstaff Library $ Chevelon Butte School Dist.#5 81,421 81,421 81,421 81,421 81,421 407,105 $ $ $ 6,600 6,600 6,600 6,600 6,600 33,000 In addition, the City has entered into several operating lease agreements, with cancellation provisions, for the purpose of leasing office space and land. Lease expenditures for these items for the period ending June 30, 2012 were $302,301 (inclusive of the Chevelon Butte School Library). Operating Lease Revenues The City leases several City-owned buildings under cancellable and non-cancellable agreements. The carrying value of the leased assets is $4,199,008 (cost of $5,665,896 less accumulated depreciation of $1,466,887.44) 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 2012 was $1,599,922. The City currently has one lease with non-cancellable 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-cancellable terms. The amounts shown include revenue related to the asset and the operational expenses. Year Ending June 30 2013 2014 2015 2016 2017-2018 Total USGS Building #6 $ $ 792,606 792,606 792,606 792,606 858,657 4,029,081 In addition, the Airport Fund has several leases under cancellable agreements. The leases are for terminal space, hangars, shades, tiedowns, ground leases and a cafe. Lease revenue in the Airport fund for fiscal year 2012 was $1,313,184. The carrying value of the all leased assets is $14,479,276 (cost of $19,052,593 less accumulated depreciation of $4,573,317) with current year depreciation of $344,338. 65 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. On September 13, 2011, the City issued $12,845,000 in GO bonds, series 2011, related to capital projects approved by voters. Fire stations projects for $2.4M was approved by voters on the election of May 18, 2004. The 2010 election resulted in $400,000 approval for the install of a new public safety communications system, and $10,045,000 for improvements related to street and utility infrastructure. Current Refunding On September 13, 2011, the City issued $3,015,000 in GO Refunding Bonds, Series 2011 with interest rates ranging between 1.00% and 5.00%. The City issued the bonds as a current refunding of two previous issues, one previously refunded; GO Refunding Series 1997, business-type activity and GO Series 2001B, governmental activity, with interest rates ranging between 3.0% to 3.25% and 4.375% to 4.75%, respectively. As a result, these issues have been redeemed. The current refunding reduced total debt service payments over the next two years by $173,306 and resulted in an economic gain, the difference between the present values of the debt service payments of the old and new debt, of $174,695, inclusive of $1,389 as provided from funds on hand. GO Supported Debt On September 02, 2011, the City signed an intergovernmental agreement with Northern Arizona University resulting in $3,952,287 of GO supported debt. This agreement resulted in a joint public safety communications system, with an agreed upon interest rate of 2.40%. Voters approved the new public safety communication system during the 2010 election. On June 17,2011, the City signed a loan agreement with the Arizona Water infrastructure finance authority for $1,833,828 as part of the water infrastructure improvements related to Red Gap wells, to-date $1,633,933 has been drawn. Voters approved this measure during the May 18, 2004 bond election related to future water rights. This agreement is GO backed. General obligation bonds outstanding at June 30, 2012: Purpose Governmental activities Governmental activities - current refunding Business-type activities Business-type activities - refunding Total general obligation bonds outstanding 66 $ Amount 37,272,331 $ 41,573,736 1,176,808 1,566,405 1,558,192 General obligation bonds payable at June 30, 2012 consist of the following individual issues: Governmental activities: $3,015,000 GO Refunding Series 2011 - Parks and recreation portion of $1,394,136, due in annual installments of $212,704 to $964,104 through July 1, 2014; interest rate at 2.0% to 5.0%. Parks improvements. $ $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%. Consturction related to recreation facilities, fire facilities and equipment, and open space acquistion. 1,176,808 21,100,000 $12,845,000 Capital projects, series 2011 due in annual installments of $335,000 to $2,320,000 through July 1, 2020; interest rate at 1.0% to 4.0%. Construction related to fire facilities, streets and utility improvements, and public safety communication system. 12,510,000 $3,952,287 Public Safety Communications, series 2011 due in annual installments of $289,956 to $446,582 through July 1, 2021; interest rate at 2.40%. Construction related to public safety communication system. 3,662,331 Total governmental activities 38,449,139 Business-type activities: $8,230,000 Water refunding bond, series 2003, due in annual installments of $190,000 to $1,960,000 through July 1, 2013; interest at 3.0% to 3.25%. Water infrastructure improvements. 190,000 $3,015,000 GO Refunding Series 2011 - Water improvement project bonds as portion of $1,620,864, due in annual installments of $247,296 to $1,120,896 through July 1 2014; interest rate at 2.0% to 5.0% 1,368,192 $1,833,828 Water infrastructure finance authority, due in annual installments of $67,528 to $120,704 through July 1, 2031; interest at 3.104%. Amount drawn to-date $1,633,933. Remaining available $199,895. Red Gap Wells. 1,566,405 Total business-type activities 3,124,597 Total General Obligation Bonds $ 67 41,573,736 Annual debt service requirements to maturity for general obligation bonds are as follows: Year Ending June 30 2013 2014 $ Govermental Activities Principal Interest 2,873,508 3,860,972 2015 2016 4,322,348 4,516,644 2017 2028-2031 - $ 1,276,997 319,081 $ - $ 261,552 3,124,597 57,611 45,771 431,584 502,855 7,787,641 121,993 50,437 48,139 78,680 2,066,159 56,385 $ 1,380,520 74,014 76,311 840,499 17,194,503 1,735,000 $ 38,449,139 1,411,068 1,145,615 990,918 3,946,164 2018-2022 2023-2027 Total $ Business-type Activities Principal Interest 190,666 119,396 $ 36,355 670,368 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, 2012 was $153,055,330 and $41,841,159 for the 20 percent and 6 percent debt limits, respectively. Also, see Schedule 16 in the Statistical Section for related information. 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. Early Extinguishment of Debt On July 12, 2011, the City defeased $6,479,356 of its Aspen Place at the Sawmill Improvement District debt resulting in an early extinguishment of debt. Resources used to call the debt early resulted from the sale of property that reverted to the City per the development agreement, from within the Aspen Place at the Sawmill improvement district. Special assessment bonds outstanding at June 30, 2012: Purpose Governmental activities $ 68 Amount 11,365,000 Special assessment bonds payable at June 30, 2012 consist of the following individual issues: Special Assessment Bonds Governmental activities: $11,690,000 Improvement district bonds, due in annual installments of $325,000 to $870,000, through January 1, 2032; interest at 5.0%. Aspen Place at the Sawmill district improvements. $ 11,365,000 Total Special Assessment Bonds $ 11,365,000 Annual debt service requirements to maturity for special assessment bonds are as follows: Year Ending June 30 2013 2014 2015 2016 2017 2018-2022 2023-2027 2028-2032 Total Govermental Activities Principal Interest $ 345,000 $ 559,625 360,000 542,000 380,000 523,500 395,000 504,125 420,000 483,750 2,420,000 2,075,000 3,095,000 1,389,375 3,950,000 513,250 $ 11,365,000 $ 6,590,625 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. 69 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. Advance Refunding On March 21, 2012, the City issued $12,530,000 in pledged revenue refunding bonds with interest rates ranging between 3.0% and 5.0%. The City issued the bonds to advance refund $13,025,000 of the outstanding series 2003 Fourth Street Municipal Facility Corporation revenue bonds, with an interest rate ranging between 4.0% and 5.25%. The City used the net proceeds along with other resources to purchase U.S. Treasury securities. These securities were deposited in an irrevocable trust to provide for all future debt service on the refunded portion of the 2003 series bonds. As a result, that portion of the 2003 series bonds is considered defeased, and the City has removed the liability from its accounts. The outstanding principal of the defeased bonds is $12,530,000 at June 30, 2012. The advance refunding reduced total debt service payments, cash flow, of the MFC debt by $1,442,024 over the next eight years. The resulting economic gain, the difference between the present values of the debt service payments on the old and new debt, of $1,402,477, inclusive of $62 cash from funds on hand. Revenue bonds outstanding at June 30, 2012: Purpose Governmental activities $ Governmental activities - partial advance refunding Business-type activities Total revenue bonds outstanding $ Amount 3,085,000 12,530,000 3,972,483 19,587,483 Revenue bonds at June 30, 2012 consist of the following individual issues: Governmental activities: $12,530,000 Fourth Street Pledged Revenue Refunding bonds, series 2012 due in annual installments of $695,000 to $2,165,000 through July 1, 2020; interest at 3.0% to 5.0%. Street and bridge infrastructure. $ $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%. Business incubator construction. 12,530,000 3,085,000 Total Governmental activities 15,615,000 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%. Water and sewer improvements. Total Revenue Bonds 3,972,483 $ 70 19,587,483 Annual debt service requirements to maturity for revenue bonds are as follows: Year Ending June 30 2013 2014 Govermental Activities Principal Interest $ 120,000 $ 610,213 2015 2016 1,925,000 1,990,000 820,000 606,612 2017 2,060,000 448,363 2017-2021 2022-2026 2027-2030 Total 582,013 522,962 7,050,000 960,000 690,000 $ 15,615,000 Business-type Activities Principal Interest $ 337,877 $ 140,924 128,938 388,434 90,367 362,275 375,127 976,549 292,512 $ 349,863 116,526 103,675 2,158,907 - 64,751 4,103,975 $ - 3,972,483 235,098 $ - 815,528 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 $4.7M certificates of participation for the construction of a new United States Geological Survey (USGS) facility on land owned by the City. In fiscal year 2004 the MFC issued $25M in bonds for construction of the Fourth Street Overpass, as approved by voters in May 2000 general election. This issue was partially refunded on March 21, 2012 with pledged revenue bonds. Municipal Facility Corporate bonds outstanding at June 30, 2012: Purpose Governmental activities $ Amount 3,205,000 Municipal facility corporation bonds are comprised of the following issues: $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%. Facility construction. $ 1,645,000 $25,000,000 Fourth Street Municipal Facility Corporation revenue bonds, series 2003 final annual installment of $1,560,000 through July 1, 2013; interest at 4%, resulting from a partial advance refunding of pledged revenue bonds series 2012, as senior obligation. Street and bridge infrastructure. Total Municipal Facility Corporation Bonds 1,560,000 $ 71 3,205,000 Annual debt service requirements to maturity for municipal facility debt are as follows: Year Ending June 30 2013 2014 $ Govermental Activities Principal Interest 1,945,000 400,000 2015 2016 Total $ 420,000 $ 440,000 3,205,000 140,056 59,850 40,850 $ 20,900 261,656 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 bonds outstanding at June 30, 2012: Purpose Governmental activities $ Amount 4,080,000 Certificates of participation are comprised of the following issues: $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%. Roadway overlay improvements and fire equipment. Total Certificates of participation $ 4,080,000 $ 4,080,000 Annual debt service requirements to maturity for certificates of participation debt are as follows: Year Ending June 30 2013 $ Govermental Activities Principal Interest 455,000 $ 129,645 2014 470,000 115,770 2016 500,000 86,670 2015 2017 2018-2020 Total 485,000 $ 515,000 1,655,000 4,080,000 101,445 $ 70,673 97,712 601,915 72 The following is a summary of debt service requirements, including interest requirements, to maturity for long-term debt at June 30, 2012: General Fiscal Year 2013 2014 Obligation Bonds $ 5,787,089 5,514,661 2018 2019 2020 4,835,425 4,774,625 4,578,475 2015 2016 2017 5,592,414 5,632,012 4,911,114 2021 2022 2023 3,074,750 2,619,637 1,915,835 2024 2025 2026 124,450 124,450 124,450 2027 2028 2029 2030 124,451 124,450 124,450 45,260 2031 2032 Less interest 3,747 (8,458,009) $ 41,573,736 Special Assessment Bonds $ 904,625 902,000 Revenue Bonds $ 1,209,014 1,905,413 902,250 899,750 901,125 2,991,563 2,985,264 2,981,163 903,500 899,125 903,750 896,375 895,500 898,250 899,500 894,375 897,750 894,500 894,625 893,000 889,625 894,250 891,750 (6,590,625) $11,365,000 2,985,814 2,991,764 2,987,164 Municipal Facility Corporation Bonds $ 2,085,056 459,850 460,850 460,900 732,288 730,277 249,250 Cetificates of Participation $ 584,645 585,770 Total $ 10,570,429 9,367,694 582,900 583,313 586,500 9,312,138 9,242,952 9,047,263 586,445 586,670 585,673 251,812 248,950 250,875 4,703,413 4,245,414 3,063,335 1,275,762 1,267,775 1,273,075 251,625 251,913 251,737 251,100 (4,919,503) $19,587,483 10,529,023 10,570,471 9,387,701 1,270,576 1,270,988 1,269,187 1,185,985 897,997 891,750 (261,656) $ 3,205,000 (601,915) $ 4,080,000 (20,831,708) $ 79,811,219 Authorized and Issued Debt The voters of the City authorize capital projects and the related debt mechanism to finance these capital projects. Voters approved $8.2M during the bond election of November 5, 1996 to fund park and recreation facilities, as of June 30, 2012, $1.1M is authorized and unissued. May 18, 2004, voters approved $47.4M for various capital projects and $46.6M for future water rights and production, as of June 30, 2012, $13.5M remains unissued for capital projects and $.3M remains unissued for future water rights and production. November 2, 2010 voters approved $21.2M for public safety communication system and various street and utilities improvements, as of June 30, 2012 $6.82M remain unissued. 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 Airport has an agreement with the Arizona Department of Transportation which provides financing for the construction of 14 T hangars at the City Airport. 73 Loans outstanding as of June 30, 2012: Purpose Business-type activities Amount $ 35,688,761 Loan payables at June 30, 2012 consist of the following individual financing options: Business-type activities: Water and wastewater: $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%. Water infrastructure acquisition. $ $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%. Sewer treatment plant improvements. 5,990,000 19,409,565 $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%. Water production improvements and acquisition. 7,272,174 $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 $1,460,666. Remaining available $639,334. Water feasibility study. 1,221,588 $232,500 Water infrastructure finance authority due in annual installment of $8,737 to $15,054 through July 1, 2029; interest at 2.905%. Well improvements. 205,521 $1,000,000 Water infrastructure finance authority due in annual installment of $39,345 to $62,318 through July 1, 2029; interest at 2.45%. Amount issued to-date $594,951. Remaining available $405,050. Well infrastructure improvements. 474,002 $1,100,000 as amended 10/02/09, $800,000 Water infrastructure finance authority due in annaual installment of $31,475 to $70,168 through July 1, 2029; interest at 2.45%. Amount issued to-date $1,008,891. Remaining available $91,109. Local aquifer study. 898,670 Total water and wastewater loan payable Airport: $600,000 Arizona Department of Transportation due in quarterly installments of $5,337 to $13,548 through January 1, 2016; interest at 5.60%. Hangar construction. Total 74 $ 35,471,520 $ 217,241 $ 35,688,761 Annual debt service requirements to maturity for loan payables are as follows: Year Ending June 30 2013 2014 2015 2016 2017 2018-2022 2023-2027 2028-2031 Total Business-type Activities Principal Interest 1,914,968 1,279,415 1,980,876 1,212,193 2,048,810 1,142,615 2,123,846 1,070,606 2,168,396 996,117 11,882,323 3,811,645 12,897,790 1,604,548 $ 671,752 35,688,761 $ 46,664 11,163,803 Obligations under Capital Leases The City has entered into a capital lease agreement for energy saving equipment with total governmental asset of $1,432,499. The construction of a co-generator at Wildcat Wastewater Treatment Plant and construction of airport hangars represents total business assets of $1,491,955 and $306,376, 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, 2012 2013 2014 2015 2016 2017 2018-2022 2023-2025 Total future minimum lease payments Less: imputed interest costs Present value of future minimum lease payments Governmental Activities $ 470,993 470,993 235,496 1,177,482 (57,421) $ 1,120,061 75 Business Type Activities $ 482,692 482,692 482,692 482,692 357,214 1,158,678 579,343 4,026,003 (951,011) $ 3,074,992 Pledged Revenues The City has pledged future water utility and wastewater utility revenues to repay Water Infrastructure Financing Authority Bonds issued during the period of 1992-2012. 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, 2012, $39,444,003 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, 2012, net revenue available for service of this debt was $7,340,343. The debt principal, interest and fees paid in fiscal year 2012 is $3,990,500 (54.36% 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. On March 21, 2012 a partial advance refunding of $12,530,000 was completed on the 2004 bonds and replaced with pledged revenue refunding bonds series 2012, holding the 2004 bonds senior. At June 30, 2012, $14,090,000 remains outstanding to be repaid by future revenues, of which $1,560,000 is senior. For the fiscal year ended June 30, 2012, net revenues available for service of the debt were $36,547,598. The debt principal and interest paid in fiscal year 2012 was $2,074,838 (5.67% 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, 2012 $1,645,000 remains outstanding to be repaid by future revenues. For the fiscal year ended June 30, 2012, net revenues available for service of this debt were $10,247,131. The debt principal and interest paid in fiscal year 2012 was $459,446 (4.48% 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, 2012, zero 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, 2012, net revenues available for service of this debt were $5,576,167. The debt principal and interest paid in fiscal year 2012 was $1,819,875 (32.63% 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 2011 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, 2012, $3,085,000 remains outstanding to be repaid by future revenues. For the fiscal year ended June 30, 2012, net revenues available for the service of this debt were $7,657,621. The debt principal and interest paid in fiscal year 2012 was $253,638 (3.31% 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. 76 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, 2012 was as follows: Gove rnme nta l a ctivitie s: Bonds payable: General obligation bonds Special assessment bonds Revenue bonds Municipal facility corporate bonds Certificates of participation Total bonds payable Capital leases Bond premium Deferred loss on advance refunding Compensated absences Other postemployment benefits Governmental activity long-term liabilty Beginning Balance Additions Reductions Balance Ending Due Within $ 24,015,000 $ 18,191,423 $ (3,757,284) $ 38,449,139 $ 2,873,508 4,930,000 18,095,000 12,530,000 - (1,845,000) (14,890,000) 15,615,000 3,205,000 120,000 1,945,000 (422,397) 1,120,061 436,795 18,130,000 4,525,000 69,695,000 1,542,458 803,909 3,637,606 - 30,721,423 - 2,264,386 (587,736) 1,538,849 (6,765,000) (445,000) (27,702,284) (852,858) 65,304 (1,548,484) 11,365,000 4,080,000 72,714,139 2,215,437 (522,432) 3,627,971 One Year 345,000 455,000 5,738,508 287,470 (65,304) 1,628,523 1,835,037 $ 77,514,010 491,355 $ 34,428,277 $ (30,460,719) 2,326,392 $ 81,481,568 $ 8,025,992 $ 3,830,000 4,298,785 8,128,785 $ 3,254,797 3,254,797 $ (3,960,200) (326,302) (4,286,502) $ 3,124,597 3,972,483 7,097,080 $ 1,380,520 337,877 1,718,397 37,232,635 258,568 3,384,460 40,875,663 453,244 - (2,214,359) (41,327) (309,468) (2,565,154) 35,471,520 217,241 3,074,992 38,763,753 1,871,278 43,690 324,976 2,239,944 Busine ss-typ e a ctivitie s: Bonds payable: General obligation bonds Water & sewer revenue bonds Total bonds payable Water & sewer loan payable Airport loan payable Capital lease payable Total loan and leases payable Bond premium Deferred loss on current refunding Compensated absences Other postemployment benefits Landfill closure/postclosure Business-type activity long-term liability 16,763 509,305 394,046 10,660,662 $ 60,585,224 453,244 94,580 (107,503) 603,665 115,325 313,268 $ 4,727,376 77 (48,290) 35,834 (304,616) (3,810,718) $ (10,979,446) 63,053 (71,669) 808,354 509,371 7,163,212 $ 54,333,154 31,527 (35,834) 310,755 $ 4,264,789 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, 2012 have potential exposure to the City of approximately $261,114 based on the requirements of Governmental Accounting Standards Board Statement No. 10, which requires that a liability for claims be reported if information prior to the issuance of the financial statements indicates that it is probable that a liability has been incurred at the date of the financial statements and the amount of the loss can be reasonably estimated. The City uses an application of historical experience to determine claims payable. However, due to the preliminary status of the claims, no determination can be made as to the likelihood, if any, of an unfavorable outcome. The net assets of the Internal Service Fund are designated for future losses related to the self-insurance retention. Settled claims have not exceeded commercial coverage in the last three fiscal years. Fiscal Year 2009-10 $ Beginning of Current Year Claims and Changes in Claim End of Year Year Liability Estimates Payments Liability 836,955 $ 82,521 $ 478,910 $ 440,566 2010-11 440,566 78,889 214,713 304,742 2010-12 304,742 57,776 101,404 261,114 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. 78 The following table presents the City’s commitments as of June 30, 2012: Governmental Activities: General fund Highway users revenue fund $ 1,173,781 2,548,633 Other government funds Total governmental activities 2,124,382 5,846,796 Business - Type Activities: Water and wastewater fund Environmental services fund Airport fund Stormwater fund 3,692,826 1,101,685 993,383 779,095 Total business-type activities Total governmental and business-type activities $ 6,566,989 12,413,785 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 had deeded over a portion of property to the City of Flagstaff. The City was able to successfully sell the entire land parcel that had been deeded to it in July 2011 and does not currently hold any direct ownership in the land. As part of the purchase, the new land owner defeased $6.4 million of the existing special improvement district bonds. The entire parcel is currently held by three separate corporations. Should any of the three owners default in the future payment of the semi-annual payments, the property would then again revert to City ownership and would be sold for the outstanding assessments. 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. 79 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. 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, 2012, active ASRS members were required by statute to contribute at the actuarially determined rate of 10.74% (10.50% retirement and 0.24% long-term disability) of the members' annual covered payroll and the City was required by statute to contribute at the actuarially determined rate of 10.74% (9.87% retirement, .63% for health insurance premium, and 0.24% long-term disability) of the members’ annual covered payroll. The City's contributions to ASRS for the years ended June 30, 2012, 2011, and 2010 were $2,763,739, $2,642,362, and $2,913,238 respectively, inclusive of Housing Authority. The City contribution for the current and two preceding years, all of which were equal to the required contributions, were as follows: 6/30/2012 6/30/2011 6/30/2010 $ Retirement 2,650,792 2,417,024 2,584,724 Health Insurance $ 169,199 158,273 204,546 80 Long-term Disability $ 64,457 67,065 123,968 In addition, active EORP members were required by statute to contribute 10% of the members' annual covered payroll. The City was required to contribute 32.99% 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 at 1.79% of covered payroll. The City's contributions to EORP for the years ended June 30, 2012, 2011, and 2010 were $55,498, $48,203, and $33,327 respectively, which equal the required contributions for each year, and is inclusive of Housing Authority. The City contributions for the current and two preceding years, all of which were equal to the required contributions, were as follow: 6/30/2012 6/30/2011 6/30/2010 Retirement $ 52,487 46,828 32,248 Health Insurance $ 3,011 1,375 1,079 Agent Plan - For the year ended June 30, 2012, active PSPRS members were required by statute to contribute 8.65% of the members' annual covered payroll, and the City was required to contribute at the actuarially determined rate of 24.54% and 31.28% for Police and Fire respectively. Police personnel contributed $609,733; Fire personnel contributed $380,471 during fiscal year 2011-2012. The City annual pension and OPEB cost of $1,729,809 for police and $1,375,854 for fire is based on actual payroll costs and may vary to the City’s annual required contribution since the actuary basis is based on estimated payroll costs. 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). 81 Annual Pension Cost - The City's pension cost for the agent plan for the year ended June 30, 2012, the date of the most recent actuarial valuation, and related information follow. Contribtuion rates FY11-2012: City Fire 24.54% Plan members Annual pension costs* PSPRS Police 31.28% 8.65% 32.99% 8.65% 1,734,804 $ 10.00% Pension contribtuions made $ 1,679,891 $ 1,285,228 1,420,778 $ $ 52,487 Annual OPEB costs - Health Insurance* OPEB contribtuions made $ $ 51,929 49,918 $ $ 95,474 90,626 $ $ 3,011 3,011 As of actuarial valuation date: $ EORP 6/30/2012 6/30/2012 52,487 6/30/2012 Actuarial cost method Entry age normal Entry age noraml Entry age noraml Amortization method Level percent-ofpay closed Level percent-ofpay closed Level percent-ofpay closed Remaining amortization period-UAL Remaining amortization period-excess 24 years 20 years 24 years 20 years 24 years 20 years Asset valuation method 7-year smoothed market 7-year smoothed market 7-year smoothed market Actuarial assumptions: Investment rate of return Projected salary increases Inflation Cost of living adjustments 8.00% 5.0% - 9.0% 5.00% None *Actuary estimates payroll while the City reports on actual payroll 82 8.00% 5.0% - 9.0% 5.00% None 8.00% None 4.75% 4.50% 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 Plan Cost (APC) PSRS - Police - Pension 6/30/2012* 6/30/2011* $ 6/30/2010 1,734,804 1,698,848 1,489,864 PSRS - Police - Health Insurance 6/30/2012* 6/30/2011* 6/30/2010 PSRS - Fire - Pension 6/30/2012* 6/30/2011* Percentage of Net Pension APC Contributed Obligation 100% 100% $ 100% -0-0-0- $ 51,929 49,918 49,219 100% 100% 100% $ -0-0-0- $ 1,420,778 100% $ -0- 1,275,572 100% 6/30/2010 1,380,272 100% -0-0- PSRS - Fire - Health Insurance 6/30/2012* $ 95,474 90,626 85,486 100% 100% 100% $ -0- EORP - Pension 6/30/2012* $ 52,487 100% $ -0- EORP - Health Insurance 6/30/2012* $ 6/30/2011* 6/30/2010 3,011 1,375 1,079 100% 100% 100% $ -0-0-0- 6/30/2011* 6/30/2010 6/30/2011* 6/30/2010 46,828 32,248 100% 100% -0-0- -0-0- *Actuary estimates payroll while the City reports on actual payroll Schedule of Funding Progress - An analysis of funding progress for each of the agent plans as of the most recent actuarial valuations; June 30, 2011 reporting period determines the rates for fiscal year 2013. disaggregated and reported separately. The EORP, by statue, is a cost-sharing plan. Benefits are 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. 83 (2) Actuarial (1) Accrued Actuarial Liability Value of (AAL) Entry Assets PSRS - Police Pension 6/30/2012 $ 6/30/2011 6/30/2010 24,405,305 $ 50,077,922 23,962,276 41,447,390 25,208,537 PSRS - Police Health Insurance 6/30/2012 $ - 6/30/2010 - 6/30/2011 PSRS - Fire Pension 6/30/2012 $ 6/30/2011 6/30/2010 - 6/30/2011 6/30/2010 D. $ 45,968,224 1,170,030 1,159,297 953,355 (4) Percent Unfunded (1) / (2) (2) - (1) Funded AAL 48.7% $ 54.8% 57.8% 0.0% $ 0.0% 0.0% 31,459,483 $ 56,007,099 56.2% $ 32,605,835 48,099,507 67.8% 32,146,592 PSRS - Fire Health Insurance 6/30/2012 $ Age (3) - - $ 51,857,015 1,553,913 1,563,996 1,394,422 62.0% 0.0% $ 0.0% 0.0% (5) (6) Unfunded AAL Annual as a Percentage Payroll Payroll (4) / (5) Covered of Covered 25,672,617 $ 7,083,003 362.5% 17,485,114 6,907,462 253.1% 20,759,687 6,801,375 305.2% 1,170,030 $ 7,083,003 16.5% 953,355 6,907,462 13.8% 1,159,297 6,801,375 17.0% 24,547,616 $ 4,546,952 539.9% 15,493,672 4,671,743 331.6% 19,710,423 1,553,913 $ 1,563,996 1,394,422 4,606,922 427.8% 4,546,952 4,606,922 4,671,743 34.2% 33.9% 29.8% 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, 2012, there were 82 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 84 liabilities over a period not to exceed thirty years. The City’s implicit subsidy rate to covered payroll is actuarially determined at 23.4%. Plan members receiving benefits contribute $159,002 during fiscal year 2010. Annual OPEB Cost and Net OPEB Obligation. For 2012, the city’s annual OPEB cost (expense) of $999,061 was equal to the ARC, as adjusted by any ARC adjustments, and interest on the net OPEB obligation of $100,534. On June 30, 2012, the net increase in NOO for governmental activities was $491,356 and for business-type activities was $115,325. The city’s annual OPEB cost; inclusive of Housing Authority, the percentage of annual OPEB cost contributed to the plan, and the net OPEB obligation for 2012 and two preceding years were as follows: Fiscal Year Ended Annual OPEB Cost 6/30/2012 $ 6/30/2011 6/30/2010 Fiscal Year Ended 999,061 $ Annual Required Contribution 6/30/2012 $ 1,035,681 $ 6/30/2011 6/30/2010 1,268,106 1,092,184 Net OPEB Obligation 392,380 39.3% $ 2,835,764 159,002 635,523 12.7% 58.8% 2,229,083 1,138,383 Actual Contributions 1,249,702 1,080,824 (1) Percentage of Annual OPEB Cost Contributed (2) Interest on ARC Existing NOO 50,526 Cost (1) + (2) + (3) (137,154) $ (68,930) 31,189 (42,549) (6) Net (5) OPEB Adjustment 100,534 $ Funded Status and Funding Progress. (4) Annual (3) Actual Increase in Contribution Amount 999,061 $ 1,249,702 1,080,824 NOO (4) - (5) 392,380 $ 159,002 635,523 (7) NOO as of End of Year 606,681 $ 2,835,764 445,301 1,138,383 1,090,700 2,229,083 As of July 1, 2011, the actuarial accrued liability for benefits was $9,808,514, all of which was unfunded. The covered payroll of active employees covered by the plan is $41,941,781, and the ratio of the unfunded actuarial accrued liability to the covered payroll is 23.4 percent. Following is a table of the last three years funding progress as available, inclusive of Housing Authority unless noted. Actuarial Valuation Date (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) 7/1/2011 $ 9,808,514 7/1/2010* 12,234,910 7/1/2008* 8,946,294 (*) Information not available for Housing Authority 0.0% 0.0% 0.0% 85 $ 9,808,514 12,234,910 8,946,294 $ 41,941,781 34,486,958 42,292,297 23.4% 35.5% 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 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, 2011, actuarial valuation, the entry age normal, level dollar, actuarial cost method was used. The actuarial assumptions included a 4.5 percent investment rate of return. Healthcare cost trend rate of 9 percent initially, reduced by decrements to an ultimate rate of five percent over eight years. The remaining amortization period at July 1, 2011, 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 $7,163,212 as of June 30, 2012, which is based on 71.95 percent usage of the landfill. The remaining $2,792,572 will be accrued over the remaining life of the landfill, which is currently estimated to be 14 years. The accrual for the closure and postclosure care costs for fiscal year 2012 was $313,268, with an adjustment of $3,810,718 related to the results of a new closure-postclosure study provide by Atwell Inc. This study resulted in a reduced landfill liability as costs associated with operations and maintenance of landfill gases which are no longer included as part of the closure estimates, the final cover vegetation was updated, and the flexible membrane liner type changed due to new technology advances. This resulted in a change in accounting estimate and is reflected within the current year expenses of the fund. 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, 2012 the balance of the investments held for those purposes is $9,763,648. 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, $9,955,784, is based on the amount that would be paid if all equipment, facilities, and services required to care, monitor and maintain the landfill were 86 acquired as of June 30, 2012. 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 U.S. 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. F. Subsequent Events On November 6, 2012, on the general election ballot, voters approved two projects and authorized the City to issue up to $24 million in new debt. The Forest Health and Water Supply Protection project is authorized for $10M. The project will take measures to help prevent flood damage to the City and protect the City’s water supplies from damages which could occur from large scale and/or severe wildfires near two watersheds serving the City. This project will be partnering with agencies to expedite forest treatments near the watersheds. The Core Services Maintenance Facility project is authorized for $14M. This project is to replace the current maintenance facility which the City began using in 1950 and is located in downtown Flagstaff. The new facility will help improve efficiencies, enhance employee safety, and allow for better response time for core services such as fire, police, water and sewer services, street maintenance and snow plowing, and trash and recycling collection. The City intends to issue general obligation debt supported by secondary property taxes for these issues. 87 88 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. Bed, Board and Beverage Tax Fund This fund accounts for the Bed, Board and Beverage tax revenues as approved by voters in the 2010 general election and related expenditures. These resources are restricted for use in the areas of Beautification, Economic Development, Tourism, Arts & Science, and Recreation. 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. 89 CITY OF FLAGSTAFF, ARIZONA Combining Balance Sheet Non-Major Governmental Funds June 30, 2012 Special Revenue Funds Community Redevelopment Fund Metropolitan Planning Organization Fund Library Fund BBB Fund $ 1,353,478 $ 7,490,472 147,602 624,485 591 - 9,987 17,727 2,233 - 11,400 248,976 358,965 183,195 - 41,518 - - ASSETS Cash and investments Accounts receivable, net Interest receivable Intergovernmental receivables Inventory Restricted cash and investments Total assets $ 911,796 $ - 34,591 3,147,724 - $ 4,670,191 $ 8,423,178 $ 1,273,585 $ 217,786 - $ $ $ 48,356 $ 1,046 LIABILITIES AND FUND BALANCE Liabilities: Accounts payable Accrued payroll and compensated absences 591,676 203,404 44,912 16,365 1,168 4,127 Current bonds payable - 120,000 - - Interest payable - 66,819 - - Interfund payable - - - 200,000 Deferred revenue 85,446 1,521 - - Deposits payable - - - - Total liabilities 722,034 408,109 49,524 205,173 Perpetual care - - - - Inventory - 41,518 - - Fund balances: Nonspendable: Restricted for: Library services 800,433 - - - Library branch services 929,427 - - - 2,218,297 - - - Library programs board directed Debt service - - - - Economic development - 818,621 - - Arts and science - 406,945 - - Culture and recreation - 1,611,345 - - Other capital projects - 5,136,640 1,224,061 - Regional planning - - - 12,613 Perpetual care Total fund balances Total liabilities and fund balances - - - - 3,948,157 8,015,069 1,224,061 12,613 $ 4,670,191 $ 8,423,178 90 $ 1,273,585 $ 217,786 Capital Projects Debt Service Funds 3,438,866 $ Permanent Fund Capital Projects Bond Construction Secondary Property Tax Revenue Fund General Obligation Bond Fund $ Funds 6,214,235 $ 6,194,919 Total Other Governmental Funds Perpetual Care $ 14,101 $ 25,652,458 - - - 680 773,358 - 20,091 2,680 490 53,208 - - - - 802,536 - - - - 41,518 - - 1,582,821 178,046 4,908,591 $ 3,438,866 $ 6,234,326 $ 7,780,420 $ 193,317 $ 32,231,669 $ - $ - $ 303,096 $ - $ 1,147,578 $ - - - - 66,572 2,312,284 - - - 2,432,284 748,525 - - - 815,344 - - - - 200,000 - - - - 86,967 - - 1,566,983 - 1,566,983 3,060,809 - 1,870,079 - 6,315,728 - - - 178,046 178,046 - - - - 41,518 - - - - 800,433 - - - - 929,427 - - - - 2,218,297 378,057 6,234,326 - - 6,612,383 - - - - 818,621 - - - - 406,945 - - - - 1,611,345 - - 5,910,341 - 12,271,042 - - - - 12,613 - - - 15,271 15,271 378,057 6,234,326 5,910,341 193,317 25,915,941 3,438,866 $ 6,234,326 $ 7,780,420 91 $ 193,317 $ 32,231,669 CITY OF FLAGSTAFF, ARIZONA Combining Statement of Revenues, Expenditures, and Changes in Fund Balances Non-Major Governmental Funds Year Ended June 30, 2012 Special Revenue Funds Library Fund Metropolitan Planning Organization Fund Community Redevelopment Fund BBB Fund REVENUES: Taxes $ Intergovernmental - $ 5,625,832 $ - $ - 3,163,052 - - 5,000 155,088 609,438 1,032,753 399,412 - Grants and entitlements Rents - 51,887 1,860 Investment earnings 22,579 38,354 5,370 - Contributions 32,090 212 - 533 Miscellaneous Total revenues 44,482 80,125 222,394 - 3,417,291 6,405,848 1,262,377 404,945 - - - - EXPENDITURES: Current: Public safety Economic and physical development - 2,512,713 1,697,293 418,521 4,418,777 504,663 - - - 108,947 - - Principal retirement - 120,000 - - Interest and other charges - 135,855 - - - 745,266 - - 4,418,777 4,127,444 1,697,293 418,521 (1,001,486) 2,278,404 Culture and recreation Highways and streets Debt service: Capital outlay Total expenditures Excess (deficiency) of revenues over expenditures (434,916) (13,576) OTHER FINANCING SOURCES (USES): Refunding bonds issued - - - - Payment to bond refunding escrow agent - - - - Issuance of capital debt - - - - Bond premium - - - - 1,173,351 938,000 - 22,493 (1,615,598) - - (677,598) - 22,493 (434,916) 8,917 Transfers in Transfers out (78,391) Total other financing sources (uses) 1,094,960 Net change in fund balances Fund balances, beginning of year Fund balances, end of year $ 93,474 1,600,806 3,854,683 6,414,263 3,948,157 92 $ 8,015,069 1,658,977 $ 1,224,061 3,696 $ 12,613 Capital Projects Funds Debt Service Funds General Obligation Bond Fund $ - Secondary Property Tax Revenue Fund $ Capital Projects Bond Construction $ - Total Other Governmental Funds Perpetual Care $ - $ 12,329,239 - - - - 3,168,052 - - - - 2,196,691 - - - - 53,747 - 42,387 25,889 1,080 135,659 - - - 15,474 48,309 - - - - 347,001 - 6,745,794 25,889 16,554 18,278,698 - - 872,602 - 872,602 - - - - 4,628,527 - - - - 4,923,440 - - 192,879 - 301,826 2,312,284 - - - 2,432,284 1,431,548 - - - 1,567,403 - - 8,081,135 - 8,826,401 3,743,832 - 9,146,616 - 23,552,483 (3,743,832) $ 6,703,407 Permanent Fund 6,745,794 (9,120,727) 16,554 (5,273,785) 1,394,136 - - - 1,394,136 (1,445,000) - - - (1,445,000) - - 16,797,287 - 80,568 - 567,120 - 647,688 3,743,830 - 38,683 - 5,916,357 - (5,964,925) - (7,659,004) 3,773,534 (5,964,925) 29,702 780,869 348,355 5,453,457 378,057 $ 6,234,326 (90) 17,403,000 - 15,651,464 8,282,273 16,554 10,377,679 176,763 15,538,262 (2,371,932) $ 16,797,287 5,910,341 93 $ 193,317 $ 25,915,941 94 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 96 98 Budgetary Comparison Schedules - Other Major Governmental Funds Special Assessment Bond Fund 99 Budgetary Comparison Schedules - Non-Major Governmental Funds Library Fund 100 101 BBB Fund Community Redevelopment Fund 102 103 Metropolitan Planning Organization Fund 104 General Obligation Bond Fund 105 Secondary Property Tax Revenue Fund 106 Capital Projects Fund Financial Data Submission Schedules Net Asset Accounts 107 Revenue, Expenses, and Changes in Fund Net Asset Accounts 109 Revenue, Expenses, and Changes in Fund Net Asset AccountsPublic Housing-Consolidated 112 95 City of Flagstaff, Arizona Capital Assets Used in the Operation of Governmental Funds Schedule By Function and Activity June 30, 2012 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 4,136,185 4,096,419 3,333,285 38,121,115 $ 49,687,004 $ 49,687,004 96 $ 13,692,410 27,530,153 5,331,662 7,541,573 22,281,151 113,689 Improvements $ 1,892,608 113,946 185,712 78,116 15,408,766 2,279,434 76,490,638 19,958,582 (16,944,873) (11,834,964) 59,545,765 $ 8,123,618 Machinery and Equipment $ 1,555,948 15,544,602 1,193,886 947,210 3,820,052 8,982,928 Construction In Progress $ 32,044,626 12,230,484 860,560 117,540 1,785,014 2,762,654 $ 5,525,768 (19,814,142) $ Infrastructure $ 5,525,768 $ 97 1,117,225 652,947 9,452,147 269,717,377 Total $ 22,137,711 47,285,120 7,828,485 9,337,386 56,080,415 321,977,197 280,939,696 464,646,314 (120,400,438) (168,994,417) 160,539,258 $ 295,651,897 City of Flagstaff, Arizona Capital Assets Used in the Operation of Governmental Funds Schedule of Changes By Function and Activity June 30, 2012 Balance July 1, 2011 Program General government Public safety Public works Economic and physical development Culture and recreation Highway and streets Total $ 22,333,016 44,352,799 7,972,504 9,440,690 56,667,753 313,889,749 $ 454,656,511 Additions $ $ Transfers In (out) Retirements 1,856,370 3,802,618 186,169 5,692 950,875 9,449,726 $ (2,021,607) (839,297) (422,629) (83,212) (1,546,761) (361,273) $ $ $ $ $ $ (30,070) (31,000) 92,440 (25,783) 8,548 (1,001,004) 16,251,450 $ (5,274,780) $ (986,869) 98 Balance June 30, 2012 $ $ 22,137,709 47,285,120 7,828,485 9,337,386 56,080,415 321,977,197 464,646,312 CITY OF FLAGSTAFF, ARIZONA Special Assessment Bond Fund Schedule of Revenues, Expenditures, and Changes in Fund Balances - Budget and Actual Year Ended June 30, 2012 Budget Original Final Actual Amounts Budgetary Basis 1,398,875 $ Variance with Final Budget Positive (Negative) REVENUES: Special assessments $ Investment earnings 1,398,875 $ 8,286,453 $ 6,887,578 2,000 2,000 1,303 1,400,875 1,400,875 8,287,756 6,886,881 Principal retirement 505,000 505,000 6,765,000 (6,260,000) Interest and other charges 897,475 897,475 616,213 1,402,475 1,402,475 7,381,213 Total revenues (697) EXPENDITURES: Debt service: Total expenditures 281,262 (5,978,738) Excess (deficiency) of revenues over (under) expenditures (1,600) (1,600) 906,543 908,143 Net change in fund balances (1,600) (1,600) 906,543 908,143 98,895 - Budgetary fund balances, beginning of year Budgetary fund balances, end of year 98,895 $ 98,895 97,295 $ Adjustment from budgetary basis to GAAP basis net change in fund balances 97,295 $ 1,005,438 $ 906,543 The City budgets certain revenues on the cash basis, rather than on the modified accrual basis. - Adjusted net change in fund balance - GAAP basis $ 99 906,543 $ 908,143 CITY OF FLAGSTAFF, ARIZONA Library Fund Schedule of Revenues, Expenditures, and Changes in Fund Balances - Budget and Actual Year Ended June 30, 2012 Budget Original Final Actual Amounts Budgetary Basis 6,330,598 $ Variance with Final Budget Positive (Negative) REVENUES: Intergovernmental $ 6,330,598 $ 3,163,052 Grants and entitlements 62,400 62,400 155,088 Investment earnings 27,115 27,115 22,579 Miscellaneous Total revenues $ (3,167,546) 92,688 (4,536) 20,474 20,474 44,482 6,440,587 6,440,587 3,385,201 (3,055,386) 24,008 7,689,287 7,689,287 4,418,777 3,270,510 100,000 100,000 - 100,000 7,789,287 7,789,287 4,418,777 3,370,510 (1,348,700) (1,348,700) (1,033,576) 1,173,351 1,173,351 1,173,351 EXPENDITURES: Current: Culture and recreation Contingency Total expenditures Excess (deficiency) of revenues over (under) expenditures 315,124 OTHER FINANCING SOURCES (USES): Transfers in Transfers out (78,391) Total other financing sources (uses) Net change in fund balances Budgetary fund balances, beginning of year Budgetary fund balances, end of year (78,391) 1,094,960 $ (78,391) 1,094,960 (253,740) (253,740) 540,180 540,180 286,440 $ Adjustment of budgetary basis to GAAP basis net change in fund balances 286,440 - 61,384 315,124 540,180 - $ 601,564 $ 61,384 modified accrual basis. 32,090 $ 100 - 1,094,960 The City budgets certain revenues on the cash basis, rather than on the Adjusted net change in fund balance - GAAP basis - 93,474 $ 315,124 CITY OF FLAGSTAFF, ARIZONA BBB Fund Schedule of Revenues, Expenditures, and Changes in Fund Balances - Budget and Actual Year Ended June 30, 2012 Budget Original Final Actual Amounts Budgetary Basis 5,307,340 $ Variance with Final Budget Positive (Negative) REVENUES: Taxes $ Grants and entitlements 5,307,340 $ 5,559,565 2,807,949 2,807,949 609,438 Rents 51,145 51,145 51,887 Investment earnings 46,197 46,197 38,354 Miscellaneous Total revenues $ 252,225 (2,198,511) 742 (7,843) 72,462 72,462 80,125 8,285,093 8,285,093 6,339,369 7,663 3,357,509 3,357,509 2,512,713 518,470 518,470 504,663 13,807 10,000 10,000 108,947 (98,947) 120,000 120,000 120,000 (1,945,724) EXPENDITURES: Current: Economic and physical development Culture and recreation Highways and streets 844,796 Debt service: Principal retirement Interest and other charges Capital outlay Contingency Total expenditures Excess (deficiency) of revenues over (under) expenditures - 136,878 136,878 135,855 1,023 6,098,292 6,098,292 745,266 5,353,026 115,000 115,000 - 115,000 10,356,149 10,356,149 4,127,444 6,228,705 2,211,925 4,282,981 (2,071,056) (2,071,056) OTHER FINANCING SOURCES (USES): Transfers in Transfers out Total other financing sources (uses) Net change in fund balances Budgetary fund balances, beginning of year Budgetary fund balances, end of year $ 1,020,146 1,020,146 (1,981,750) (1,981,750) (1,615,598) 366,152 (961,604) (961,604) (677,598) 284,006 (3,032,660) (3,032,660) 1,534,327 4,566,987 5,353,985 5,353,985 5,353,985 - 2,321,325 $ Adjustment from budgetary basis to GAAP basis net change in fund balances 2,321,325 938,000 $ 6,888,312 $ 1,534,327 The City budgets certain revenues on the cash basis, rather than on the modified accrual basis. 66,479 Adjusted net change in fund balance - GAAP basis $ 101 1,600,806 (82,146) $ 4,566,987 CITY OF FLAGSTAFF, ARIZONA Community Redevelopment Fund Schedule of Revenues, Expenditures, and Changes in Fund Balances - Budget and Actual Year Ended June 30, 2012 Budget Original Final Actual Amounts Budgetary Basis 1,794,776 $ Variance with Final Budget Positive (Negative) REVENUES: Grants and entitlements $ 1,794,776 $ 1,032,753 $ (762,023) Charges for services - - 64,608 64,608 Investment earnings - - 5,370 5,370 Miscellaneous 483,000 483,000 159,646 (323,354) 2,277,776 2,277,776 1,262,377 (1,015,399) Economic and physical development 3,267,297 3,267,297 1,697,293 1,570,004 Total expenditures 3,267,297 3,267,297 1,697,293 1,570,004 Total revenues EXPENDITURES: Current: Excess (deficiency) of revenues over (under) expenditures (989,521) (989,521) (434,916) 554,605 (14,000) (14,000) - 14,000 (14,000) (14,000) - 14,000 (1,003,521) (1,003,521) 1,512,887 1,512,887 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 $ 509,366 $ Adjustment of budgetary basis to GAAP basis net change in fund balances 509,366 (434,916) 1,512,887 $ $ 1,077,971 (434,916) The City budgets certain revenues on the cash basis, rather than on the modified accrual basis. - Adjusted net change in fund balance - GAAP basis $ 102 568,605 (434,916) $ 568,605 CITY OF FLAGSTAFF, ARIZONA Metropolitan Planning Organization Fund Schedule of Revenues, Expenditures, and Changes in Fund Balances - Budget and Actual Year Ended June 30, 2012 Budget Original Variance with Final Budget Positive (Negative) Actual Amounts Budgetary Basis Final REVENUES: Grants and entitlements $ Intergovernmental Total revenues 546,456 $ 546,456 $ 399,412 5,000 5,000 5,000 551,456 551,456 404,412 473,949 473,949 418,521 $ (147,044) (147,044) EXPENDITURES: Current: Economic and physical development Contingency Total expenditures Excess (deficiency) of revenues over (under) expenditures 55,428 100,000 100,000 - 100,000 573,949 573,949 418,521 155,428 (22,493) (22,493) (14,109) 8,384 22,493 22,493 22,493 - 22,493 22,493 22,493 - Net change in fund balances - - 8,384 8,384 Budgetary fund balances, beginning of year - - - - OTHER FINANCING SOURCES (USES): Transfers in Total other financing sources (uses) Budgetary fund balances, end of year $ - $ Adjustment of budgetary basis to GAAP basis net change in fund balances - $ 8,384 $ 8,384 The City budgets certain revenues on the cash basis, rather than on the modified accrual basis. 533 The City budgets for certain other expenditures on the cash basis, rather than on the modified accrual basis - Adjusted net change in fund balance - GAAP basis $ 103 8,917 $ 8,384 CITY OF FLAGSTAFF, ARIZONA General Obligation Bond Fund Schedule of Revenues, Expenditures, and Changes in Fund Balances - Budget and Actual Year Ended June 30, 2012 Budget Original Final Actual Amounts Budgetary Basis 3,030,000 $ Variance with Final Budget Positive (Negative) EXPENDITURES: Debt service: Principal retirement $ 3,030,000 $ 2,312,284 $ 717,716 Interest and other charges 1,915,431 1,915,431 1,431,548 483,883 Total expenditures 4,945,431 4,945,431 3,743,832 1,201,599 (4,945,431) (4,945,431) (3,743,832) 1,201,599 Excess (deficiency) of revenues over (under) expenditures OTHER FINANCING SOURCES (USES): Refunding bonds issued - - 1,394,136 (1,394,136) Payment to bond refunding escrow agent - - (1,445,000) 1,445,000 Bond premium - - Transfers in Total other financing sources (uses) Net change in fund balances Budgetary fund balances, beginning of year Budgetary fund balances, end of year $ 80,568 (80,568) 4,945,431 4,945,431 3,743,830 (1,201,601) 4,945,431 4,945,431 3,773,534 (1,231,305) - - 29,702 (29,706) 348,355 348,355 348,355 348,355 $ 104 348,355 $ 378,057 $ (29,706) 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, 2012 Budget Original Final Actual Amounts Budgetary Basis 6,620,618 $ Variance with Final Budget Positive (Negative) REVENUES: Taxes $ Investment earnings Total revenues 6,620,618 $ 6,703,407 $ 82,789 31,600 31,600 42,387 10,787 6,652,218 6,652,218 6,745,794 93,576 (7,166,526) (7,166,526) (5,964,925) 1,201,601 (7,166,526) (7,166,526) (5,964,925) 1,201,601 (514,308) (514,308) 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 5,234,043 $ 5,234,043 4,719,735 $ Adjustment from budgetary basis to GAAP basis net change in fund balances 4,719,735 780,869 1,295,177 5,234,043 - $ 6,014,912 $ 780,869 The City budgets certain revenues on the cash basis, rather than on the modified accrual basis. - Adjusted net change in fund balance - GAAP basis $ 105 780,869 $ 1,295,177 CITY OF FLAGSTAFF, ARIZONA Capital Projects Fund Schedule of Revenues, Expenditures, and Changes in Fund Balances - Budget and Actual Year Ended June 30, 2012 Budget Original Variance with Final Budget Positive (Negative) Actual Amounts Budgetary Basis Final REVENUES: Miscellaneous $ Investment earnings Total revenues 3,500,000 $ 3,500,000 $ - $ (3,500,000) 7,940 7,940 25,889 3,507,940 3,507,940 25,889 (3,482,051) 17,949 - - 872,602 (872,602) 31,964,784 31,964,784 8,081,135 23,883,649 31,964,784 31,964,784 9,146,616 22,818,168 (28,456,844) (28,456,844) (9,120,727) 19,336,117 39,770,000 39,770,000 16,797,287 - - 567,120 2,233,835 2,233,835 - - - 38,683 (17,146) (17,146) EXPENDITURES: Current: Public safety Highways and streets Capital outlay Total expenditures Excess (deficiency) of revenues over (under) expenditures 192,879 (192,879) OTHER FINANCING SOURCES (USES): Bonds issued Bond premium Sale of capital assets Transfers in Transfers out Total other financing sources (uses) (22,972,713) 567,120 (2,233,835) 38,683 (90) 17,056 41,986,689 41,986,689 17,403,000 (24,583,689) Net change in fund balances 13,529,845 13,529,845 8,282,273 (5,247,572) Budgetary fund balances, beginning of year 13,033,556 13,033,556 13,033,556 - Budgetary fund balances, end of year $ 26,563,401 $ Adjustment from budgetary basis to GAAP basis net change in fund balances The City budgets certain revenues on the cash basis, rather than on the 26,563,401 $ $ modified accrual basis. Adjusted net change in fund balance - GAAP basis 8,282,273 - $ 106 21,315,829 8,282,273 $ (5,247,572) CITY OF FLAGSTAFF, ARIZONA Financial Data Submission Summary Net Asset Accounts Year Ended June 30, 2012 Public Housing 14.850 & 14.872 Housing Choice Vouchers 14.871 $ 553,767 $ 114,388 Business Activities Resident Opportunity and Supportive Services 14.870 Moderate Rehabilitation 14.856 Elimination Total Assets: Current Assets: Cash: Cash - Unrestricted Cash - Other Restricted Cash - Tenant Security Deposits Total Cash Accounts Receivables: Accounts Receivable - PHA Projects Accounts Receivable - HUD Other Projects Accounts Receivable - Other Government Accounts Receivable - Miscellaneous Accounts Receivable - Tenants Allowance for Doubtful Accounts -Tenants Allowance for Doubtful Accounts - Other Fraud Recovery Allowance for Doubtful Accounts - Fraud Accrued Interest Receivable Total Receivables, Net Current investments Investments - Unrestricted Investments - Restricted Prepaid Expenses and Other Assets Inventories Allowance for Obsolete Inventories Inter Program Due From Assets Held for Sale Total Current Assets $ 88,284 $ 20,635 $ 777,074 224,999 224,999 69,575 623,342 146,058 69,575 339,387 - 20,635 - - - - - - - - 4,853 - - - - - - - - 2,223 1,921 18,655 88,284 50,358 - 648 18,655 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 166,936 188 2,109 36,708 4,853 648 - - - - - - - - - - - - - - - - 57,200 2,862 20,997 55,150 - - 150,911 - - (13,650) 1,071,648 (13,650) 188 211,254 81,059 - - - - - - - - - - - - - - 2,041 - 2,057 - - (4,098) - - - - - - - - 849,519 344,358 148,046 4,853 21,283 (4,098) 1,363,961 Noncurrent Assets: Capital Assets: 1,446,035 - - - - - 1,446,035 8,257,993 - - - - - 8,257,993 Furniture, Equipment & Machinery - Dwellings 887,236 - - - - - 887,236 Furniture, Equipment & Machinery - Administration 559,642 - - - - 603,131 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 5,521,097 (4,098) 6,885,058 Land Buildings Leasehold Improvements Accumulated Depreciation Construction in Progress Total Capital Assets, Net Notes receivable - Noncurrent Other Assets Total Non-Current Assets Total Assets (5,629,809) 5,521,097 5,521,097 6,370,616 43,489 (43,489) 344,358 148,046 (continued) 107 4,853 21,283 (5,673,298) 5,521,097 - CITY OF FLAGSTAFF, ARIZONA Financial Data Submission Summary Net Asset Accounts Year Ended June 30, 2012 Public Housing 14.850 & 14.872 Housing Choice Vouchers 14.871 Business Activities Resident Opportunity and Supportive Services 14.870 Moderate Rehabilitation 14.856 Elimination Total Liabilities and Net Assets: Liabilities: Current Liabilities: Bank Overdraft Accounts Payable <= 90 Days Accrued Wage/Payroll Taxes Payable Accrued Compensated Absences Accrued Interest Payable Accounts Payable - HUD PHA Programs Account Payable - PHA Projects Accounts Payable - Other Government Tenant Security Deposits Deferred Revenues Current Portion of L-T Debt - Capital Current Portion of L-T Debt - Operating Other Current Liabilities Accrued Liabilities - Other Inter Program - Due To Total Current Liabilities Noncurrent Liabilities Long-term Debt, Net of Current - Capital Long-term Debt, Net of Current - Operating Non-current Liabilities - Other Accrued Compensated Absences Accrued Pension and OPEB Liabilities Total Non-Current Liabilities Total Liabilities Net Assets: Invested In Capital Assets, Net of Related Debt Restricted Net Assets Unrestricted Net Assets Total Equity/Net Assets Total Liabilities and Equity/Net Assets - - - 56,147 1,689 33,565 15,004 3,271 6,895 16,324 4,196 459 - - - - 467 755 - - 91,868 - - 25,925 - - - 20,979 - - - - - - - - - - - 8,200 - 8,200 - - - - - 66,384 - - - - - - 66,384 69,575 - - - - - 69,575 9,901 - - - - - 9,901 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 4,098 - (4,098) 4,853 8,667 (4,098) 233,335 9,156 40,919 - 292,832 - - - - - - - - - - - - - - - - - - - - 37,767 4,128 - - - 146,921 188,816 34,960 4,485 2,472 - - - 41,917 181,881 42,252 6,600 - - - 230,733 415,216 51,408 47,519 4,853 8,667 (4,098) 523,565 - - - - 5,521,097 - - - - 219,852 5,521,097 - 219,852 434,303 73,098 100,527 - 12,616 - 620,544 5,955,400 292,950 100,527 - 12,616 - 6,361,493 $6,370,616 $ 344,358 $ 148,046 $ (concluded) 108 4,853 $ 21,283 $ (4,098) $6,885,058 CITY OF FLAGSTAFF, ARIZONA Financial Data Submission Summary Revenue, Expense, and Changes in Fund Net Asset Accounts Year Ended June 30, 2012 Public Housing 14.850 & 14.872 Revenues: Net Tenant Rental Revenue Tenant Revenue - Other Total Tenant Revenue HUD PHA Operating Grants Capital Grants Management Fee Asset Management Fee Bookkeeping Fee Front Line Service Fee Other Fees Other Government Grants Investment Income - Unrestricted Mortgage Interest Income Fraud Recovery Other Revenue Gain or Loss on Sale of Capital Assets Investment Income - Restricted Total Revenue $ 1,042,372 Housing Choice Vouchers 14.871 $ Business Activities - $ - Resident Opportunity and Supportive Services 14.870 $ - Moderate Rehabilitation 14.856 $ - Elimination $ - Total $ 1,042,372 15,333 - - - - - 15,333 1,057,705 - - - - - 1,057,705 882,303 - 4,252,492 - - - - - 186,825 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 3,553 238,730 186,825 15,354 3,257,482 3,553 182,314 - 41,062 44,369 68,338 - - - - - - - - - - - - - - - 2,142,187 3,443,349 41,062 471,788 180,774 17,998 7,704 2,684 44,369 68,338 - - - 5,739,305 Expenses: Administrative Administrative Salaries Auditing Fees Management Fee Bookkeeping Fee Advertising and Marketing Employee Benefit - Administrative Office Expenses Legal Expense Travel Other Total Administrative Tenant Services Tenant Services - Salaries Relocation Costs Employee Benefit - Tenant Services Tenant Services - Other Total Tenant Services Utilities Water Electricity Gas Sewer Employee Benefit - Utilities Other Utilities Expense Total Utilities - - 670,560 941 - 671 - 12,000 9,360 - 9,360 - - - - - - - - - - 742 - - 991 - - - - 211,632 3,965 - - 115,079 - - 13,304 - - 38,336 - 23,065 - 1,095,069 27,922 149,218 54,553 7,861 82,146 23,542 5,426 8,788 4,406 110 31,344 3,476 1,317 2,199 12,168 7,003 3,750 143 763,898 276,438 37,403 - - - - - - - - - 26,159 - - 26,159 - - - 7,298 27,922 8,744 36,666 1 10,032 1,733 - - - - - - - - 26,159 - - 62,825 116,438 8,744 116,438 - - - - - 19,160 - - - - - 19,160 176,495 - - - - - 176,495 73,710 73,710 - - - - - - - - - - - - - - - - - - - - - - 385,803 (continued) 109 385,803 CITY OF FLAGSTAFF, ARIZONA Financial Data Submission Summary Revenue, Expense, and Changes in Fund Net Asset Accounts Year Ended June 30, 2012 Public Housing 14.850 & 14.872 Ordinary Maintenance and Operations Labor Materials and Other Employee Benefit Contributions Garbage & Trash Removal Contacts Heating & Cooling Contracts Landscape & Grounds Contracts Unit Turnaround Contracts Electrical Contracts Plumbing Contracts Extermination Contracts Janitorial Contracts Routine Maintenance Contracts Contracts-Other Total Maintenance Protective Services Protective Services - Other Total Protective Services General Expense Property Insurance Liability Insurance Workmen's Compensation All Other Insurance Other General Expenses Compensated Absences Payments in Lieu of Taxes Bad debt - Tenant Rents Bad debt - Other Total General Expenses Financial Expenses Interest Expense - Mortgage Payable Amortization of Bond Issue Costs Total Financial Expenses Total Operating Expenses Excess of Operating Revenue over Operating Expenses Housing Choice Vouchers 14.871 Business Activities Resident Opportunity and Supportive Services 14.870 Moderate Rehabilitation 14.856 Elimination Total 350,557 - - - - - 31,743 - - - - - 31,743 110,629 - - - - - 110,629 117,252 117,252 350,557 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 610,181 43,761 610,181 - - - - - 43,761 16,356 3,417 - - - - 19,773 12,064 9,692 1,942 192 238 - - 12,189 1,637 387 167 - - 26,569 13,775 17,274 2,163 - - - 33,212 66,384 2,608 164,765 - - - - - - - - - - 66,384 - 2,608 24,270 - - - - 6,825 - - - 6,825 9,567 405 - - 199,007 - - - - - - - - - - - - - - - - - - - - - 1,950,806 300,708 46,970 191,381 3,142,641 (5,908) 44,369 (continued) 110 10,032 - 2,352,885 58,306 - 3,386,420 CITY OF FLAGSTAFF, ARIZONA Financial Data Submission Summary Revenue, Expense, and Changes in Fund Net Asset Accounts Year Ended June 30, 2012 Other Expenses Extraordinary Maintenance Casualty Losses - Non-capitalized Housing Assistance Payments HAP Portability-In Total Other Expense Total Expenses Other Financing Sources (Uses) Transfer of Funds Transfer of Equity Prior Period Adjustments Total Other financing Sources (Uses) Excess (Deficiency) of Total Revenue Over (Under) Total Expenses Administrative Fee Equity Housing Assistance Payments Equity Unit Months Available Number of Unit Months Leased Housing Choice Vouchers 14.871 Business Activities - - - - - - - - 3,207,325 - 165,317 - 383,242 3,372,642 2,334,048 3,673,350 Moderate Rehabilitation 14.856 Elimination - - - - - - 58,314 Total - - 3,265,639 - - - - 165,317 - - - - 383,242 - - 58,314 - 3,814,198 68,346 - 6,167,083 46,970 44,369 - - - - - - - - - - - - - - - - - - - - - - - - - - - - (5,908) - (8) - 106,435 - 12,624 - 6,789,271 $ - $ 6,361,493 (191,861) (230,001) 6,147,261 Beginning Equity Ending Net Assets Public Housing 14.850 & 14.872 383,242 Depreciation Expense Resident Opportunity and Supportive Services 14.870 522,951 $ 5,955,400 $ 292,950 $ $ - $ - $ 73,098 $ $ 219,852 $ 100,527 12,616 (427,778) $ - $ - $ - $ - $ - $ 96,939 - $ - $ - $ - $ 423,848 3,180 4,296 - - 144 - 7,620 3,146 4,287 - - 130 - 7,563 (concluded) 111 CITY OF FLAGSTAFF, ARIZONA Financial Data Submission Summary Revenue, Expense, and Changes in Fund Net Asset Accounts Public Housing - Consolidated Year Ended June 30, 2012 Operating Fund Program Revenues: Net Tenant Rental Revenue Tenant Revenue - Other Total Tenant Revenue HUD PHA Operating Grants Capital Grants Management Fee Asset Management Fee Bookkeeping Fee Front Line Service Fee Other Fees Other Government Grants Investment Income - Unrestricted Mortgage Interest Income Fraud Recovery Other Revenue Gain or Loss on Sale of Capital Assets Investment Income - Restricted Total Revenue $ 1,042,372 Capital Fund Grants $ - Other Project Total $ 1,042,372 15,333 - 15,333 1,057,705 - 1,057,705 637,882 - 244,421 882,303 186,825 186,825 - - - - - - - - - - - - - - - - - - - - - - - - - - 15,354 - - - - - 15,354 - 1,710,941 431,246 2,142,187 429,444 42,344 471,788 Expenses: Administrative Administrative Salaries Auditing Fees Management Fee Bookkeeping Fee Advertising and Marketing Employee Benefit - Administrative Office Expenses Legal Expense Travel Allocated Overhead Other Total Administrative Tenant Services Tenant Services - Salaries Relocation Costs Employee Benefit - Tenant Services Tenant Services - Other Total Tenant Services Utilities Water Electricity Gas Sewer Employee Benefit - Utilities Other Utilities Expense Total Utilities 7,704 - 7,190 - - - - - 742 - 742 137,342 11,876 149,218 57,865 24,281 82,146 8,788 - 23,279 8,065 - - 12,168 - 677,332 86,566 8,788 31,344 12,168 763,898 - - - - - - - - - 26,159 - 26,159 26,159 - 26,159 116,438 - 116,438 19,160 - 19,160 176,495 - 176,495 - 73,710 73,710 - - - - 385,803 (continued) 112 385,803 CITY OF FLAGSTAFF, ARIZONA Financial Data Submission Summary Revenue, Expense, and Changes in Fund Net Asset Accounts Public Housing - Consolidated Year Ended June 30, 2012 Operating Fund Program Ordinary Maintenance and Operations Labor Materials and Other Employee Benefit Contributions Garbage & Trash Removal Contacts Heating & Cooling Contracts Landscape & Grounds Contracts Unit Turnaround Contracts Electrical Contracts Plumbing Contracts Extermination Contracts Janitorial Contracts Routine Maintenance Contracts Contracts-Other Total Maintenance Protective Services Protective Services - Other Total Protective Services General Expense Property Insurance Liability Insurance Workmen's Compensation All Other Insurance Other General Expenses Compensated Absences Payments in Lieu of Taxes Bad debt - Tenant Rents Bad debt - Other Total General Expenses Financial Expenses Interest Expense - Mortgage Payable Amortization of Bond Issue Costs Total Financial Expenses Total Operating Expenses Excess of Operating Revenue over Operating Expenses Capital Fund Grants Other Project Total 350,557 - 31,743 - 350,557 31,743 110,629 - 110,629 62,903 - 62,903 1,382 - 1,382 6,465 - 6,465 - - - 654 - 654 6,848 - 6,848 1,125 - 1,125 - - - - - 37,875 - 37,875 610,181 - 610,181 - - - - - - 43,761 - 43,761 16,356 - 16,356 9,253 439 9,692 12,153 36 12,189 - 13,775 13,775 - - 66,384 2,608 - 66,384 - 2,608 - 164,290 - - 475 164,765 - - - - - - - - - 1,863,765 (152,824) 87,041 1,950,806 344,205 191,381 (continued) 113 CITY OF FLAGSTAFF, ARIZONA Financial Data Submission Summary Revenue, Expense, and Changes in Fund Net Asset Accounts Public Housing - Consolidated Year Ended June 30, 2012 Operating Fund Program Other Expenses Extraordinary Maintenance Casualty Losses - Non-capitalized Housing Assistance Payments HAP Portability-In Depreciation Expense Total Other Expense Total Expenses Transfer of Funds Transfer of Equity Prior Period Adjustments Total Other financing Sources (Uses) Excess (Deficiency) of Total Revenue Over (Under) Total Expenses Capital Fund Grants Other Project Total - - - - - - - - - - - - 383,242 - 383,242 383,242 - 383,242 2,247,007 87,041 157,380 (157,380) 186,825 (186,825) 2,334,048 - - - - - - - (191,861) - (191,861) Beginning Equity 6,147,261 - 6,147,261 Ending Net Assets 5,955,400 - 5,955,400 (concluded) 114 Statistical Section This part of the City of Flagstaff's comprehensive annual financial report presents detailed information as a context for understanding what the information in the financial statements, note disclosures, and required supplementary information says about the city's overall financial health. Contents Page Financial Trends 116 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 125 These schedules contain information to help the reader assess the city's most significant local revenue source, sales tax. Debt Capacity 130 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. 141 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. 143 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. 115 Schedule 1 City of Flagstaff Net Assets by Component Last Ten Fiscal Years (accrual basis of accounting) Fiscal Year 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Governmental activities 46,759,889 $ 184,594,782 $ 204,594,974 (1) $ 214,268,448 $ 215,672,933 Restricted Invested in capital assets, net of related debt 14,778,358 35,343,236 20,670,257 45,560,390 13,795,935 14,875,852 7,975,269 18,213,829 23,971,870 Unrestricted 34,178,175 33,494,972 56,392,865 10,448,150 36,514,677 39,248,151 34,766,602 49,463,587 42,863,692 Total governmental activities net assets $ $ 45,410,334 $ 41,666,412 $ 94,366,867 $ 110,504,620 $ 123,823,011 $ 240,603,322 $ 254,905,586 173,369,441 $ (2) $ 268,392,451 (3) $ 258,414,804 $ (4) 213,762,870 $ 217,879,986 $ 219,112,469 34,679,441 37,309,699 $ 281,440,286 $ 284,715,548 $ 291,101,609 $ 302,784,152 $ 303,113,402 $ 304,418,393 Business-type activities Invested in capital assets, net of related debt $ 184,863,812 $ 200,551,217 $ 230,035,130 $ 264,381,730 $ 276,783,163 $ 291,707,810 5,013,627 5,161,363 3,200,521 2,392,858 2,424,615 1,593,915 1,593,915 2,209,327 3,003,129 2,805,002 20,858,057 24,092,049 24,948,848 20,303,463 19,267,461 16,250,436 11,547,792 10,895,855 17,190,191 23,968,903 Restricted Unrestricted Total business-type activities and net assets $ 199,241,125 $ 214,117,224 $ 228,700,586 $ 252,731,451 $ 286,073,806 $ 294,627,514 $ 304,849,517 $ 315,889,334 $ 323,306,722 $ 331,192,298 $ 218,779,775 $ $ 516,547,022 $ 520,993,388 $ 523,530,862 Primary government Invested in capital assets, net of related debt 116 226,530,224 $ 247,311,106 $ 414,629,912 $ 468,976,704 $ 491,051,611 $ 507,380,743 Restricted 19,791,985 40,504,599 23,870,778 47,953,248 16,220,550 16,469,767 9,569,184 20,423,156 26,974,999 Unrestricted 55,036,232 57,587,021 81,341,713 30,751,613 55,782,138 55,498,587 46,314,394 60,359,442 60,053,883 324,621,844 $ 352,523,597 $ 493,334,773 $ 540,979,392 $ 563,019,965 $ 563,264,321 Total primary government net assets $ 293,607,992 $ (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 $ 597,329,620 $ 608,022,270 37,484,442 61,278,603 $ 622,293,907 117 Schedule 2 City of Flagstaff Changes in Net Assets Last Ten Fiscal Years (accrual basis of accounting) Fiscal Year 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 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 7,850,954 $ 25,987,193 9,406,406 27,175,720 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 1,754,033 1,615,941 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 8,474,776 9,639,003 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 12,854,824 12,434,695 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 19,275,381 16,328,771 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 3,370,918 2,944,057 47,585,091 51,839,862 56,068,215 61,821,404 72,157,903 80,790,765 88,726,876 79,443,260 79,568,079 79,544,593 22,708,636 Business-type activities: Water and wastewater 16,142,040 17,250,441 17,297,017 18,452,368 19,945,366 23,420,282 22,802,316 21,731,286 21,491,239 Environmental 7,556,614 7,319,602 8,548,715 9,096,420 10,073,853 11,423,164 11,782,540 11,091,078 11,610,370 7,828,286 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 4,584,733 4,268,099 Houising Authority - Stormwater - Total business-type activities expense Total primary government expense - - 460,936 27,110,257 - 479,700 - 791,791 - 1,019,248 - 1,160,604 - 1,203,436 1,258,072 5,811,922 6,165,612 1,121,555 1,361,658 118 28,401,426 30,075,101 31,860,328 34,200,858 39,612,372 39,985,739 38,354,045 44,619,819 42,332,291 $ 74,695,348 $ 80,241,288 $ 86,143,316 $ 93,681,732 $ 106,358,761 $ 120,403,137 $ 128,712,615 $ 117,797,305 $ 124,187,898 $ 121,876,884 $ 4,757,483 $ 3,257,393 $ $ $ $ $ $ $ $ Program Revenues Governmental activities: Charges for services: General government 3,611,862 4,886,354 4,171,853 3,746,890 3,099,884 3,285,242 2,646,424 3,364,479 Public safety 743,738 451,802 498,506 815,167 704,800 1,227,979 1,451,405 1,283,697 1,144,636 1,611,109 Public works 830,885 976,793 1,213,714 1,180,097 1,455,461 1,483,275 1,350,832 1,471,550 1,537,188 1,551,419 Economic and physical development 222,008 16,164 321,915 332,356 562,135 315,462 369,987 291,211 162,715 53,747 Culture and recreation 733,159 722,236 680,755 683,906 742,088 762,410 1,559,617 1,420,094 1,442,901 1,455,067 Highways and streets Operating grants and contributions Capital grants and contributions Total governmental activities program revenues 119,854 3,428,440 2,678,653 4,147,529 3,791,526 2,062,329 3,320,597 5,990,756 6,654,978 7,965,474 7,414,767 9,646,122 11,757,330 15,180,401 21,566,549 19,356,271 16,324,928 9,880,762 36,949,681 9,226,778 12,200,969 20,481,689 19,860,371 25,654,682 33,255,955 29,054,937 27,181,541 23,703,243 51,356,453 24,126,116 27,651,557 Schedule 2 (continued) City of Flagstaff Changes in Net Assets Last Ten Fiscal Years (accrual basis of accounting) Business-type activities: Charges for services: Water and wastewater Environmental Airport Housing Authority Stormwater 16,223,648 17,047,831 17,337,916 17,947,605 17,328,927 17,539,873 18,781,751 19,937,196 8,201,566 9,370,561 9,723,652 9,839,486 10,813,177 11,545,472 11,329,336 12,010,554 12,030,990 926,406 944,983 1,176,866 1,261,594 1,122,274 1,207,831 1,187,105 1,359,029 - 382,239 Capital grants and contributions Total primary government program revenues 16,678,956 7,682,458 - Operating grants and contributions Total business-type activities program revenues 16,534,341 $ - - - - - - 1,388,076 1,492,559 1,437,841 1,299,987 546,807 694,161 630,962 1,042,701 1,137,402 1,247,878 1,358,438 1,456,894 1,446,602 286,919 574,376 369 19,500 67,651 10,966 120,054 5,090,475 4,624,234 9,460,796 10,482,991 8,164,775 23,449,969 27,369,058 12,242,567 8,744,216 6,790,709 4,220,708 7,960,357 34,986,240 37,142,222 36,204,387 52,114,377 56,730,935 43,416,233 40,064,564 38,497,439 44,386,299 48,791,925 55,467,929 $ 57,002,593 $ 61,859,069 $ 85,370,332 $ 85,785,872 $ (30,413,533) $ (28,565,449) $ (43,102,966) $ 70,597,774 $ (53,609,224) $ 63,767,807 $ 89,853,892 $ 68,512,415 $ 76,443,482 Net (Expense)/Revenue Governmental activities Business-type activities Total primary government net expense $ (27,103,402) 7,875,983 $ (31,979,491) 8,740,796 6,129,286 $ (19,227,419) $ (23,238,695) $ (24,284,247) $ $ $ $ $ 20,254,049 (8,311,400) 22,530,077 $ (20,572,889) $ $ $ 3,803,861 (49,805,363) $ (65,023,633) 78,825 $ (28,086,807) 143,394 $ (55,441,963) (233,520) $ (51,893,036) 6,459,634 $ (64,944,808) $ (27,943,413) $ (55,675,483) $ (45,433,402) $ $ $ $ General Revenues and Other Changes in Net Assets Governmental activities: Taxes Property taxes 8,010,293 7,931,626 8,462,302 9,051,158 12,169,247 13,664,791 12,262,185 12,798,495 12,645,717 11,974,341 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 31,355,882 33,401,021 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 13,148,252 13,189,822 Grants and contributions not restricted to specific programs - 119 Investment earnings Miscellaneous Gain on sale of capital assets Contributions to permanent fund Transers in (out) 810,739 377,502 - 383,111 218,520 1,703,861 2,385,099 4,108,861 - 1,465,731 381,984 492 905,717 277,972 204,678 1,377,552 819,325 634,411 382,387 33,417 242,167 2,160,339 7,435 14,717 17,765 24,630 19,460 16,200 (369,358) 44,748,082 47,951,909 (7,004,365) 43,731,924 (2,267,551) (9,123,196) 54,207,963 - 3,903,839 944,381 (476,304) Total governmental activities - 13,325 (3,590,153) 57,405,230 - (9,651,500) 67,096,089 246,093 322,126 510,695 228,969 1,741,338 2,831,308 744,957 19,136 24,950 (10,524,926) 52,520,424 - 449,394 15,474 (1,189,964) 51,112,289 (1,134,382) 58,717,225 58,279,097 Business-type activties: Grants and contributions not restricted to specific programs - Investment earnings - 106,733 Miscellaneous 719,023 935,973 - 964,237 - - - - 206,154 111,251 107,543 118,247 173,313 - - 110,835 127,423 166,158 194,547 150,129 17,302 513,738 326,540 31,354 78,248 119,366 79,467 47,818 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 1,189,964 1,134,382 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 1,495,454 1,425,942 Total primary government - - 1,546,893 23,675 Gain on sale of capital assets - 889 1,181,836 $ 45,354,794 $ 49,057,592 $ 52,186,000 $ 57,984,779 $ $ 17,644,680 $ 15,972,418 $ 13,318,391 $ 25,642,514 $ 9,846,479 14,583,362 24,030,865 25,818,897 $ 27,901,753 $ 49,673,379 68,217,508 $ 71,856,150 $ 62,663,602 14,302,264 $ 13,486,865 $ (12,503,209) $ 62,022,480 $ 23,025,482 $ - 60,212,679 $ 3,275,262 $ 59,705,039 Change in Net Assets Governmental activities Business-type activities Total primary government 8,482,695 $ 26,127,375 $ 33,342,355 $ 47,644,619 8,563,922 $ 22,050,787 $ 10,222,003 $ (2,281,206) 11,053,585 $ 34,079,067 1,261,934 $ 4,537,196 6,386,061 7,885,576 $ 14,271,637 Schedule 3 City of Flagstaff Fund Balances, Governmental Funds Last Ten Fiscal Years (modified accrual basis of accounting) Fiscal Year 2003 2004 2005 2006 2007 2008 2009 2010* 2011 2012 General Fund Reserved $ Unreserved 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 - - - - - - 280,376 376,728 427,267 Restricted - - - - - - 106,144 785,720 796,345 758,303 Committed - - - - - - 86,568 85,119 282,888 Assigned - - - - - - Unassigned - - - - - - Total general fund - $ 21,959,733 $ 23,112,032 $ 29,325,196 $ 28,807,045 (1) $ 31,220,471 $ 27,801,832 $ $ 959,209 $ 1,677,627 $ 1,556,450 $ 30,107,878 47,350,460 $ 20,611,579 $ 22,203,764 22,590,284 $ 359,923 8,595,100 6,882,947 7,075,902 13,412,219 15,160,509 17,203,207 23,256,335 $ 23,352,187 $ 25,680,223 All Other Governmental Funds Reserved $ - $ - $ - $ - Unreserved, reported in: Special revenue funds 21,713,198 37,476,678 120 Capital project funds - - Permanent fund 217 567 Nonspendable - - 33,041,256 16,332,830 16,498,123 (763,744) - - - 216,878 206,678 214,333 219,564 4,299,450 19,720,079 23,012,954 33,743,091 - - - - - - - Assigned - - - - - - Unassigned - - - - - - FY2010: Implementation of GASB-54 Fund Balance Classification - - 34,599,132 (1) FY2007 : as restated for accounting error related to the accural of state shared revenues. - 9,916 - $ - - 6,567 - 39,154,872 - - 3,271 - $ - - 1,426 - 22,672,624 - - Restricted $ - - Committed Total all other governmental funds * 22,893,640 - $ 53,004,789 $ 63,689,857 $ 36,355,874 - 2,228,605 8,955,106 $ - 13,471,434 - 651,650 $ - 22,807,012 - $ (2,863,781) 20,363,506 $ 33,962,655 Schedule 4 City of Flagstaff Changes in Fund Balances, Governmental Funds Last Ten Fiscal Years (modified accrual basis of accounting) Fiscal Year 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 REVENUES: Taxes $ 31,523,875 $ 33,736,154 Intergovernmental 11,746,308 12,156,451 Grants and entitlements 13,074,562 1,729,275 Charges for services Special assessments $ 35,529,373 $ 39,104,903 $ 41,976,134 $ 43,964,317 17,545,686 17,173,416 18,779,168 20,425,088 10,940,934 9,564,110 10,880,792 12,185,406 1,459,837 1,834,067 2,199,819 2,605,880 $ 43,555,388 $ 43,200,268 $ 43,799,128 $ 45,577,128 21,364,739 19,450,213 17,488,021 17,230,696 13,556,680 9,609,508 11,172,862 10,583,483 9,721,569 2,704,333 3,324,838 3,057,423 2,926,237 8,286,453 360,158 291,684 218,500 30,016 2,927 2,449 2,382 1,510,217 701,447 3,220,137 Licenses and permits 2,378,728 2,111,033 2,063,718 2,834,506 2,438,599 1,815,062 1,377,580 1,441,874 739,040 1,681,874 Fines and forfeitures 1,303,069 1,144,562 1,250,494 1,394,174 1,290,667 1,336,146 1,517,558 1,636,157 1,673,306 1,601,044 Rents 845,443 985,907 1,220,007 1,195,464 1,480,686 1,496,858 1,421,772 1,588,214 1,617,912 1,605,166 Investment earnings 274,472 115,433 1,589,293 2,238,285 3,920,473 3,731,116 1,366,931 413,594 224,363 296,241 Contributions 334,235 21,917 22,229 129,930 2,981,982 1,308,938 1,328,524 544,393 166,417 390,253 Miscellaneous 781,496 905,717 277,972 204,678 1,377,552 819,325 381,984 228,969 1,719,608 492,971 64,351,621 63,869,629 71,115,449 77,385,983 89,039,474 91,160,312 85,251,204 84,244,184 81,638,962 90,103,532 Total revenues EXPENDITURES: General governmental Public safety 121 Public works Economic and physical development 4,453,180 5,335,890 6,158,308 6,621,976 8,194,214 10,229,814 9,848,252 7,926,726 7,113,922 7,453,963 17,202,980 18,015,837 19,140,415 21,626,547 22,994,522 25,696,174 27,374,083 25,159,777 24,476,615 25,301,495 948,944 966,546 1,005,745 1,168,424 1,615,049 1,617,311 1,645,703 1,360,447 1,299,027 1,146,692 7,060,275 6,289,966 6,424,057 7,640,313 9,344,676 10,335,964 9,991,927 8,601,808 8,202,024 8,584,826 Culture and recreation 7,599,703 7,724,481 8,341,105 7,178,029 8,648,628 10,267,649 12,158,087 10,615,754 10,782,848 10,576,877 Highways and streets 5,676,050 8,003,110 8,951,097 10,700,196 7,859,004 8,505,722 11,187,402 9,313,158 10,612,033 9,593,074 13,654,681 Debt service: Principal retirement 3,679,000 4,614,000 4,880,000 6,505,449 5,313,222 5,046,398 5,034,991 6,065,522 6,761,179 Interest and other charges 1,380,182 2,428,026 2,148,734 2,552,016 3,210,879 3,020,927 3,750,657 3,996,963 3,451,706 3,346,253 18,304,161 19,348,708 17,053,841 25,054,173 26,403,203 46,465,549 30,796,072 12,446,280 11,785,480 11,951,834 66,304,475 72,726,564 74,103,302 89,047,123 93,583,397 121,185,508 111,787,174 85,486,435 84,484,834 91,609,695 (1,952,854) (8,856,935) (2,987,853) (11,661,140) (4,543,923) (30,025,196) (26,535,970) (1,242,251) (2,845,872) (1,506,163) Capital outlay Total expenditures Excess of revenues over (under) expenditures OTHER FINANCING SOURCES (USES): Proceeds of refunding bonds 9,375,000 Issuance of capital debt - Loan issued - Payment to bond refunding escrow agent 720,000 - 25,000,000 - - (9,429,957) - 3,800,000 (718,127) - 31,500,000 19,075,000 - - - - - - - - - - - - - Lease issued - - - - - - Improvement District Debt - - - - - - - 46,707 - - Bond premium 190,240 1,059,221 - 220,086 8,330,000 946,236 Transfers in Transfers out Total other financing sources (uses) Net change in fund balances 634,411 37,892 252,329 16,797,287 - 109,352 58,370 2,176,808 63,894 - 1,920,000 1,058,985 1,084,211 45,655 2,264,386 43,890 12,708,480 12,996,534 15,312,931 17,317,133 17,756,847 17,181,576 21,626,308 15,224,243 13,661,630 14,872,935 (13,184,784) (13,365,892) (16,582,052) (19,584,684) (19,488,466) (20,085,809) (23,359,573) (18,525,100) (14,268,052) (15,074,950) 29,490,427 17,642,417 (727,425) (1,560,019) 605,215 $ 2,114,398 13,924,136 - (15,394,336) Insurance recoveries Sale of capital assets - (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 $ 6,849,473 498,218 $ (2,347,654) 17,433,348 $ 15,927,185 Debt service as a percentage of non capital expenditures 10.54% 13.19% 12.32% 14.15% 12.69% 10.80% 10.85% 13.78% 14.05% 21.34% 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 2003 $ 3,427 $ 4,415 $ 1,783 $ 11,469 $ 3,827 $ Total 6,603 $ 31,524 122 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 2011 5,259 7,184 2,339 13,893 5,259 9,865 43,799 2012 5,473 6,703 2,348 14,900 5,626 10,527 45,577 59.70% 51.82% 31.69% 29.92% 47.01% 59.43% 44.58% Change 2002-2012 Schedule 6 City of Flagstaff Intergovernmental Revenue by Source, Governmental Funds Last Ten Fiscal Years (modified accrual basis of accounting) Local 123 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 2003 $ 4,136,724 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 2011 4,711,821 5,955,305 2,481,126 6,300,885 - - 3,181,076 1,101,522 744,070 3,531,607 64,092 28,071,504 2012 5,147,101 5,559,476 2,483,245 5,569,896 - - 3,544,253 607,420 759,606 3,163,052 118,216 26,952,265 $ 5,557,918 $ 2,378,466 * - As restated due to change in accounting error identified in FY2010 $ 7,408,116 $ 315,026 $ - $ 1,743,613 $ 823,701 $ - $ 2,564,691 * Other $ Total 850,000 $ 25,778,255 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 2003 $ 35,621,681 Agricultural, $ 194,944,521 $ 62,099,966 $ 215,320,769 $ 43,729,051 $ 464,257,886 1.7127 124 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 2011 26,651,155 265,230,915 133,909,755 447,421,001 81,844,375 791,368,451 1.4845 2012 28,837,059 255,823,684 124,373,673 436,787,954 80,555,433 765,266,937 1.5283 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 Taxable Revenue for Major Categories Last Ten Fiscal Years (dollars in thousands) Fiscal Year 2003 Construction $ Building Materials 2004 151,652 $ 2005 158,506 $ 2006 163,846 $ 233,747 2007 $ 260,024 2008 $ 263,386 2009 $ 181,245 2010 $ 150,239 2011 $ 166,894 2012 $ 150,868 63,618 70,063 72,152 82,481 79,703 75,493 66,641 60,143 61,781 62,665 Auto Sales 118,640 124,147 127,760 129,671 133,497 118,282 78,819 85,806 99,786 121,296 Restaurants and Bars 191,883 202,966 215,624 232,359 248,819 255,578 250,555 251,271 261,384 277,954 Retail 502,235 529,705 556,165 586,841 637,225 619,805 582,029 546,765 544,356 557,375 Other 118,333 125,687 134,824 144,635 154,183 163,463 155,193 152,042 151,461 154,497 - 53 199 4,892 68,840 71,299 69,175 66,392 63,784 116,273 Utilities TOTAL $ 1,146,361 $ 1,211,127 $ 1,270,570 $ 1,414,626 $ 1,582,291 $ 1,567,306 $ 1,383,657 $ 1,312,658 $ 1,349,446 $ 1,440,928 125 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 126 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 2011 1.4845 4.6772 0.4308 0.7245 7.3170 2012 1.5283 4.9458 0.4734 0.7656 7.7131 Note: Tax rates are per $100 assessed valuation. Schedule 10 City of Flagstaff Principal Property Tax Payers Current Year and Ten Years Ago 2012 Total Assessed Taxpayer * Arizona Public Service Company Value $ Rank 2003 As a Percentage As a Percentage of the City Total of the City Total Secondary Total Assessed Assessed Valuation Value 127 76,606,658 1 10.01% Transwestern Pipeline Co 35,790,722 2 4.68% Unisource Energy Corporation 17,762,840 3 2.32% BNSF Railway Company 17,721,454 4 2.32% El Paso Natural Gas Co 17,696,075 5 2.31% Qwest Corporation 9,180,865 6 W L Gore & Associates 3,997,317 Verizon Wireless $ Secondary Rank Assessed Valuation 10,904,209 2 2.35% 1.20% 9,888,282 3 2.13% 7 0.52% 9,024,038 4 1.94% 2,538,722 8 0.33% AT&T Property Tax 1,245,363 9 0.16% AT&T Mobility LLC 972,939 10 0.13% Northern Arizona Gas Division (Citizens Utilities) - 0.00% 11,928,523 1 2.57% Little America Refining Co - 0.00% 4,266,517 6 0.92% Ralston Purina - 0.00% 5,081,044 5 1.09% Flagstaff Mall Associated Ltd. Partnership - 0.00% 3,250,000 7 0.70% Consolidated Investment Co. Inc. - 0.00% 3,197,108 8 0.69% Walgreens Arizona Drug Co - 0.00% 2,656,145 9 0.57% SACO Management Inc. - 0.00% 2,268,475 10 0.49% Total Principal Taxpayers Source: Coconino County Assessor Office $ 183,512,955 23.98% $ 62,464,341 13.45% 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 2003 $ 7,609,112 Fiscal Year of the Levy Amount $ Collections Percentage in Subsequent of Levy Years 7,621,044 100.0% $ 92,457 Total Collections to Date Percentage Amount $ of Levy 7,718,309 99.9%* 128 2004 7,897,298 7,791,735 98.7% 261,445 8,053,180 99.7%* 2005 8,494,694 8,330,157 98.1% 145,051 8,475,208 99.7%* 2006 9,075,322 8,958,733 98.7% 131,194 9,089,927 99.5%* 2007 9,615,015 9,495,935 98.8% 145,415 9,641,350 99.8%* 2008 10,935,835 10,728,465 98.1% 106,120 10,834,585 99.5% 2009 12,253,760 11,934,997 97.4% 200,344 12,135,341 99.3% 2010 12,750,836 12,477,413 97.9% 293,015 12,770,429 100.0% 2011 12,497,535 12,113,128 96.9% 330,118 12,443,246 96.9% 2012 12,015,988 11,635,211 96.8% 540,896 12,176,107 96.8% * Percentage of Levy is estimated 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 129 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% 2011 1.0000% 2.0000% 0.7210% 6.6000% 1.1250% 11.4460% 2012 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 Ten 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% 993.55 130 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% 1,995.24 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 2011 24,015 18,130 4,930 18,095 1,542 3,830 4,299 37,491 3,384 115,716 3.1% 1,756.73 2012 38,449 11,365 15,615 3,205 5,200 3,125 3,972 35,689 3,075 119,695 3.2% 1,817.14 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. These amounts are presented on the accrual basis of accounting. Schedule 14 City of Flagstaff Ratios of General Bonded Debt Outstanding Last Ten 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 $ 498.82 131 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% 491.51 2011 24,015 3,830 27,845 3.5% 433.72 2012 38,449 3,125 41,574 5.4% 634.50 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 These amounts are presented on the accrual basis of accounting. (b) 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 $ 36,750 63.76% $ 23,430 Other debt Coconino County Revenue Bonds 1,970 43.49% Coconino County Special Assessments 1,263 0.00% 857 - 132 Subtotal, overlapping debt 24,287 City direct debt 73,834 Total direct and overlapping debt $ 98,121 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. 133 Schedule 16 City of Flagstaff Legal Debt Margin Information Last Ten Fiscal Years (dollars in thousands) 20% Debt Limit Fiscal Year 2003 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 92,852 2004 $ 100,331 2005 $ 111,336 2006 $ 124,840 2007 $ 26,283 24,493 21,644 35,227 66,569 $ 75,838 $ 89,692 $ 89,613 $ 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 2011 $ 35,105 158,274 2012 $ 27,845 153,055 41,841 106,248 $ 136,242 $ 148,163 $ 137,703 $ 130,429 $ 41.28% 29.00% 23.69% 25.49% 21.35% 111,214 37.62% as a percentage of debt limit 6% Debt Limit Fiscal Year 2003 Debt limit equal to 6% of assessed valuation $ 134 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 27,855 2004 $ 4,160 $ 23,695 $ 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 $ - 51,842 2011 $ - 47,482 2012 $ 680 351 - 44,352 $ 52,376 $ 54,981 $ 51,842 $ 47,482 $ 1.53% 0.67% 0.00% 0.00% 0.00% 45,917 - 45,917 0.00% Schedule 16 (continued) City of Flagstaff Legal Debt Margin Information Legal Debt Margin Calculation for Fiscal Year 2012 Net Secondary Assessed Value as of June 30, 2012 $ 765,276,651 $ 153,055,330 20% Limitation Debt Limit of 20% of Assessed Value Debt applicable to limit: General Obligation Bonds Legal 20% debt margin (Available borrowing capacity) 41,841,159 $ 111,214,171 $ 45,916,599 6% Limitation Debt Limit of 6% of Assessed Value Debt applicable to limit: General Obligation Bonds 135 Legal 6% debt margin (Available borrowing capacity) $ 45,916,599 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) 2003 $ 16,769,463 Debt Service Requirements for Debt Expenses (2) $ 9,865,571 Service $ 6,903,892 Principal (3) $ 238,431 Interest (4) $ 146,694 Total $ Coverage 385,125 17.93 136 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 2,130,093 1,287,569 3,417,662 0.83 2010 17,585,198 11,758,135 5,827,063 2,356,705 1,483,072 3,839,777 1.52 2011 18,824,260 11,663,208 7,161,052 2,443,196 1,475,327 3,918,523 1.83 2012 19,996,116 12,655,773 7,340,343 2,540,658 1,449,842 3,990,500 1.84 (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). (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 2003 $ 7,408,116 Debt Service Requirements Principal (1) $ 1,730,000 Interest (2) $ 668,260 Total $ Coverage 2,398,260 3.09 137 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 1,520,000 280,135 1,800,135 3.57 2011 6,300,885 1,620,000 190,455 1,810,455 3.48 2012 5,569,896 1,725,000 94,875 1,819,875 3.06 (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 Ten Fiscal Years Municipal Facility Corporation Bonds MFC Debt other than Transportation Debt Service Requirements Fiscal Year 2003 Revenue (1) $ 9,232,244 Principal (2) $ 255,000 Interest (3) $ 207,398 Total $ Coverage 462,398 19.97 138 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 2011 10,206,755 350,000 110,371 460,371 22.17 2012 10,247,131 365,000 94,446 459,446 22.30 (1) State sales tax, state income tax less debt service requirements for MFC debt other than transportation. (2) MFC 1992 Refunding series 12 2001 - USGS projects. (3) 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 As Parital Refunded with Pledged Revenue 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 16.14 139 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 2011 33,777,368 1,445,000 814,700 2,259,700 14.95 2012 36,547,598 1,500,000 574,838 2,074,838 17.61 (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 2004 Fourth Street, partial advance refunding pledged revenue series 2012 Schedule 17 (continued) City of Flagstaff Pledged Revenue Coverage Last Three Fiscal Years Greater Arizona Development Authority Revenue Bonds Debt Service Requirements Fiscal Year (1) 2010 Revenue (2) $ 9,031,670 Principal (3) $ 50,000 Interest $ 56,297 Total $ Coverage 106,297 84.97 2011 7,169,310 115,000 135,938 250,938 28.57 2012 7,657,621 120,000 133,638 253,638 30.19 140 (1) New Issue no trend information available, prior to fiscal year 2010 (2) Pledges revenues on the Greater Arizona Development Authority Bonds include the state revenue sharing. Less the debt service . (3) GADA infrastructure revenue bond series 2010A Schedule 18 City of Flagstaff Demographic and Economic Statistics Last Ten Fiscal Years Year Population 2003 61,030 2004 61,270 $ 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 2,999,350 3,226,683 $ 24,795 26.8 89.8% 39.4% 12,905 5.80% 26,328 26.8 89.8% 39.4% 13,176 5.20% 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% 141 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% 2011 65,870 4,481,137 34,510 26.6 90.0% 39.2% 11,839 8.90% 2012 65,870 4,481,137 34,999 26.6 90.6% 39.9% 10,623 9.20% 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 Personal Income-2011 Arizona Department of Administration-Office of Employment and Population Statistics, estimate from 2009 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 Per Capita Income-2011 Arizona Department of Administration-Office of Employment and Population Statistics, estimate 2009 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 Nine Years Ago 2012 (2) Employer 142 Northern Arizona University Flagstaff Medical Center W.L. Gore & Associates Flagstaff United School District Coconino County City of Flagstaff Coconino Community College Walmart Walgreens & Distribution Center Grand Canyon Railway SCA Tissue Nestle Purina Employees 2,571 2,200 1,950 1,375 1,200 657 630 407 255 240 Total 11,485 2010 U.S. Census Labor Force 55,170 Source: (1) Arizona Department of Economic Security This is the most historical information available (2) Flagstaff Chamber of Commerce as of July 12, 2011 Rank 1 2 3 4 5 6 7 8 9 10 2006 (1) Percentage of Total City Employment Employees 4.66% 3.99% 3.53% 2.49% 2.18% 1.19% 0.00% 1.14% 0.74% 0.00% 0.46% 0.44% 3,393 1,999 1,300 1,700 1,075 948 400 400 400 279 - 20.82% 11,894 55,170 Rank 1 2 3 4 5 6 7 8 9 10 Percentage of Total City Employment 6.15% 3.62% 2.36% 3.08% 1.95% 1.72% 0.73% 0.00% 0.73% 0.73% 0.51% 0.00% 21.56% Schedule 20 City of Flagstaff Full-time Equivalent City Government by Function/Program Last Ten Fiscal Years Function/Program 2003 2004 2005 Full-time Equivalent Employees as of June 30 2006 2007 2008 2009 2010* 2011 2012 General Government Management services 74.00 73.00 74.25 75.75 82.89 87.39 89.14 86.75 86.50 84.55 Capital management 18.50 15.50 14.50 13.50 13.50 13.50 13.50 11.00 11.00 8.00 City Court 25.25 26.50 26.50 26.50 26.50 27.63 29.63 25.88 25.18 25.18 Public Safety Police 143 148.25 150.00 151.00 160.00 164.00 174.00 181.00 168.00 168.00 172.00 Fire 96.75 96.75 96.75 97.75 100.75 101.75 101.75 99.00 92.00 85.00 Public Works 27.00 27.00 25.00 26.00 27.00 31.00 31.00 29.00 26.50 26.50 Building 49.00 43.75 43.00 49.25 52.25 58.50 57.50 47.20 41.00 39.20 Planning 17.25 17.25 17.25 15.25 21.75 20.88 24.88 24.38 22.88 22.88 Tourism 6.00 11.75 13.75 13.75 15.75 16.75 16.75 15.75 13.25 12.49 Library 39.50 39.50 40.00 40.00 43.13 47.14 53.77 50.77 50.77 51.40 Parks, recreation, and beautificatioin 74.50 67.75 63.95 67.53 68.82 98.23 99.69 87.86 86.86 88.81 Highways and Streets 36.25 36.25 36.25 36.25 37.25 40.56 41.06 36.31 36.31 36.31 Water and wastewater 74.50 73.00 74.50 76.50 79.00 80.25 81.75 64.50 62.50 61.50 Environmental services 45.00 45.75 52.25 54.00 62.60 61.60 68.10 65.58 63.58 59.60 9.50 9.50 9.50 9.50 10.00 10.50 10.50 9.50 9.50 9.50 5.75 5.00 6.50 6.50 6.50 6.50 6.00 6.00 739.00 743.45 768.03 811.69 876.18 906.52 827.48 Economic and physical development Culture and recreation Airport Stormwater Flagstaff Housing Authority Total - - 741.25 - - - - - - (1) City-wide reorganization affected distribution of employees. Customer Service moved from Water/Wastewater to Management Services. (2) In fiscal year 2011, the city began reporting the Housing Authority in the financial statements. - 6.00 22.50 23.50 824.33 812.42 Schedule 21 City of Flagstaff Operating Indicators by Function/Program Last Ten Fiscal Years Fiscal Year Function/Program 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Court Criminal Filings 11,068 10,236 9,227 9,705 9,553 11,659 9,330 9,326 8,531 8,857 Traffic filings 10,613 10,388 11,253 10,575 8,951 10,665 10,639 13,471 12,010 9,217 622 682 673 616 530 744 445 468 370 547 3,658 5,616 6,722 7,684 8,227 7,616 7,550 6,668 7,274 7,438 216 265 228 351 314 267 263 247 175 213 1,205 2,023 1,905 1,323 1,472 1,573 2,151 1,906 2,378 2,226 Domestic Violence/Other filings Fire Emergency responses Fires response Other calls Inspections assigned NA 2,212 2,006 1,966 1,984 1,981 1,794 572 1,174 1,468 Plan Reviews NA 1,340 1,348 1,280 1,314 1,284 1,250 401 528 535 Fuel Management Plan Assessment (Acres) 1,516 2,020 1,065 585 - 400 - - Site Marking (Acres) 759 408 311 662 764 178 224 294 N/A* 586 N/A* 128 Site Thinning (Acres) 882 521 792 694 1,173 902 761 376 809 197 Prescription Burn (Acres) 917 709 834 557 1,210 1,070 1,190 551 342 697 144 Police Felony reports NA NA 4,979 5,337 4,973 3,978 3,661 3,073 2,973 2,940 Misdemeanor reports NA NA 12,378 13,381 13,123 13,413 12,939 12,293 11,786 11,253 Domestive violence incidents NA NA 1,464 1,598 1,625 1,573 1,470 1,953 1,923 1,961 Non-crime reports NA NA 8,818 9,136 8,913 11,043 10,996 9,480 9,827 9,886 Accident reports NA NA 3,616 3,313 3,374 3,322 2,917 2,776 2,735 2,574 Calls dispatched to Police/Sheriff NA NA 73,559 77,239 75,791 73,364 70,908 61,175 57,899 57,188 Calls dispatched to Fire NA NA 11,266 11,741 12,364 11,907 12,527 11,011 11,130 13,320 Calls dispatched to Medical NA NA 9,435 9,175 9,960 - - - - - Schedule 21 (continued) City of Flagstaff Operating Indicators by Function/Program Last Ten Fiscal Years 2003 Function/Program 2004 2005 2006 2007 2008 2009 2010 2011 2012 Streets Potholes repaired NA NA 2,988 1,962 2,443 4,032 4,373 3,256 1,498 1,877 698,227 673,786 653,743 705,638 642,643 651,814 627,202 651,373 850,327 526,406 34,984 38,387 42,483 39,646 44,598 44,088 65,418 68,296 63,407 62,872 128,153 109,608 140,233 154,321 153,121 157,792 142,409 121,529 138,703 137,815 9,126 9,213 9,816 9,866 10,356 10,472 9,842 10,610 8,869 8,101 Airport Fuel Flowage (Gallons Sold) Enplanements Refuse collection Refuse collected (Landfill tonnage) Recyclables collected (total tons) Community Development Residential Permit Valuation (1) $ 78,719,935 $ 67,214,811 $ 87,180,707 $ 97,895,269 $ 38,895,496 $ 25,278,055 $ 31,498,803 $ 9,314,074 $ 8,472,938 (1) Commercial Permit Valuation (1) $ 12,843,323 $ 18,123,934 $ 12,324,654 $ 26,130,677 $ 37,962,373 $ 27,199,698 $ 18,594,665 $ 13,395,325 $ 17,703,762 (1) Library 145 Visits NA 564,065 582,726 625,103 643,174 680,253 738,603 743,169 763,928 739,706 Circulation NA 781,893 776,180 758,468 789,621 782,908 887,887 979,962 1,029,062 1,182,956 Tourism Revenue Per Available Room (RevPar) $ 45.36 $ 47.95 $ 52.90 $ 61.47 $ 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 (2) 2012 data is as of 12/19/2012 and subject to update * Records no longer tracked 66.86 $ 60.52 $ 43.21 $ 43.05 $ 45.26 $ 48.81 Schedule 22 City of Flagstaff Capital Asset Statistics by Function/Program Last Ten Fiscal Years Function/Program 2003 2004 2005 Fiscal Year 2006 2007 2008 2009 2010 2011 2012 Public Safety Police patrol units (Includes Motorcycle units) Number of fire hydrants Numer of fire stations 32 26 26 26 31 34 34 35 37 37 2,435 2,478 2,478 2,598 2,743 3,148 3,150 3,143 3,176 3,179 6 6 6 6 6 6 7 7 7 7 27 28 27 27 27 26 26 26 24 23 3 4 4 4 4 4 4 4 5 4 586 704 702 702 705 712 712 712 735 680 22 28 32 34 34 48 51 51 53 53 6 5 5 5 5 6 6 6 4 4 Culture and recreation Number of developed parks Number of undeveloped parks Park acreage Flagstaff Urban Trail System - Miles Recreational Buildings Highways and Streets 146 Miles of streets, alleys, and sidewalks (1) Number of street lights 350 365 365 386 403 690 695 813 814 814 2,898 2,921 2,921 3,037 3,107 3,201 3,220 3,350 3,466 3,466 Water and wastewater Miles of sewer (2) Number of manholes Total active water accounts Average gallon water usage per household per month 271 275 275 293 309 265 270 270 271 271 5,979 6,097 6,097 6,496 6,906 7,107 7,261 7,261 7,308 7,308 16,356 16,948 18,039 17,872 18,758 18,849 18,371 19,042 22,092 19,020 6,727 6,070 6,096 5,488 5,600 5,456 5,010 5,123 5,107 5,339 Airport Fixed base operators 1 1 1 1 1 1 1 1 1 1 Locally based aircraft 130 130 130 130 134 134 134 120 122 125 Tiedowns 49 49 29 18 11 11 11 14 11 11 Enclosed hangars 42 42 42 61 61 61 61 61 61 61 Open hangars 38 38 38 48 48 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 July 1, 2012 to June 30, 2013 Coverage Limit of Liability Coverage Liability Insurance: General Liability* (Includes 2 skateboard parks, bike Property Insurance: $ 1,000,000 / per occurrence Blanket Buildings and Personal Property $ 2,000,000 / aggregate Boiler and Machinery included Flood Zones B and C $ 10,000,000 / $50,000 deductible $ 1,000,000 / each wrongful act Earthquakes $ 15,000,000 / $25,000 deductible freestyle park, EMT's) Law Enforcement Liability* Auto Liability* 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* 1,000,000 / aggregate Business Income/Extra Expense $ $ 1,000,000 / each accident Auto Physical Damage $ $ 1,000,000 / each wrongful act $ 1,000,000 / aggregate $ 5,000,000 / each wrongful act $ 5,000,000 / aggregate $ 1,000,000 / each employee (Claims Made) $ 3,000,000 / aggregate $ 1,000,000 / each offense $ 1,000,000 / aggregate * Liability Claims are Subject to a $50,000 Self Insurance Retention 147 (Claims Made Retro Date 6-1-09) / $5000/collision deductible Flood Zone A Properties Municipal Court City Hall, Library 500,000 / each building $ 500,000 / contents each ($5,000 deductible) Inland Marine: $ $ 1,000,000 / aggregate Lab Equipment $ 11,300 / $1,000 deductible Employee Hand Tools $ 35,000 / $5,000 deductible 6,076,150 / $5,000 deductible 238,582 / $1000 deductible $ 1,000,000 / each accident Computer Equipment and Peripherals $ 1,438,500 / $1,000 deductible $ 1,000,000 / disease employee Data and Media $ 500,000 / $1,000 deductible $ 1,000,000 / disease policy limit Fine Arts & exhibition floater - Max $25,000 per ite $ 78,700 / $1,000 deductible Statutory Max $25,000 per item $ 20,000,000 / each occurrence $ 20,000,000 / general aggregate City Hall, Visitor Center, Airport Terminal Crime: Supply Services, Mold, Terrorism, Asbestos, Lead, Condemnation, Sexual Abuse) Blanket Public Employees and Treasurer $ 1,000,000 / $5,000 deductible Dishonesty Bond Including Faithful Performance of Duty Computer & Funds Transfer Fraud Excess Liability #2 Following Form Over Excess Liability # 1 $ 1,000,000 / $5,000 deductible Theft, Disappearance, & Destruction $ 5,000,000 / each occurrence/ (Inside and Outside) $ 1,000,000 / $5,000 deductible $ 5,000,000 / general aggregate Depositors Forgery or Alteration $ 1,000,000 / $5,000 deductible Aviation: Money Orders & Counterfeit, $ 1,000,000 / $5,000 deductible Credit, Debit or Charge Card forgery $ 1,000,000 / $5,000 deductible $ 1,000,000 / Medical Assistance $ 40,000,000 / each occurrence Products/Completed Operations $ 40,000,000 / aggregate Personal Injury, Advertising & Malpractice $ 40,000,000 $ 40,000,000 / each aircraft Kidnap and Extortion Worldwide $ 40,000,000 / each occurrence (some countries excluded) Hangar Keepers Liability 122,700 / contents $ $ (Excludes Airport, Housing Authority, Employment related practices, Failure to General Liability 242,000 / building Bookmobile book collection 10,000 retained limit (ded) terrorism, nuclear) $ $ Contractors Equipment (actual cash value) Umbrella/Excess #1 - GL, Auto, Law Enforcement, Employer's Liability (Excluding asbestos, discrimination, 7,100,000 / 72 hours 27,182,570 / $1000/comprehensive 1,000,000 / each wrongful act Worker's Compensation Public Entity Management, Employee Benefits 194,645,547 / $25,000 deductible $ ($5,000 deductible each wrongful act) Employer's Liability $ $ Limited Abuse or Molestation Liability Public Entity Cyber Liability Limit of Liability International Travel - Executive Assistance aggregate $ 250,000 Accidental death $ 100,000 Each Loss 148