2017 F L A G S TA F F | A R I Z O N A Empowering Flagstaff Families with Affordable Housing Options City of Flagstaff Comprehensive Annual Financial Report Fiscal Year Ended June 30, 2017 Comprehensive Annual Financial Report For Fiscal Year Ended June 30, 2017 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, 2017 Table of Contents Page Introductory Section Letter of Transmittal .................................................................................................................................................. iii GFOA Certificate of Achievement ............................................................................................................................... x Organizational Chart .................................................................................................................................................. xi List of Elected and Appointed Officials .................................................................................................................... xii Financial Section Independent Auditors’ Report .................................................................................................................................... 1 Management’s Discussion And Analysis ........................................................................................................................... 5 Basic Financial Statements Government-wide Financial Statements: Statement of Net Position............................................................................................................................ 21 Statement of Activities ................................................................................................................................ 22 Fund Financial Statements: Balance Sheet – Governmental Funds .........................................................................................................24 Reconciliation of the Balance Sheet to the Statement of Net Position - Governmental Activities ............27 Statement of Revenues, Expenditures, and Changes in Fund Balances – Governmental Funds ..............28 Reconciliation of the Statement of Revenues, Expenditures and Changes in Fund Balances of Governmental Funds to the Statement of Activities ..........................................30 General Fund - Statement of Revenues, Expenditures, and Changes in Fund Balances – Budget and Actual .....................................................................................................32 Highway User Revenue Fund - Statement of Revenues, Expenditures, and Changes in Fund Balances – Budget and Actual .....................................................................................................33 Transportation Fund - Statement of Revenues, Expenditures, and Changes in Fund Balances – Budget and Actual .....................................................................................................34 Statement of Net Position – Proprietary Funds...........................................................................................36 Statement of Revenues, Expenses, and Changes in Fund Net Position – Proprietary Funds.................................................................................................38 Statement of Cash Flows – Proprietary Funds ............................................................................................40 Notes to the Financial Statements .....................................................................................................................44 Required Supplementary Information Schedule of Proportionate Share of the Net Pension Liability................................................................................102 Schedule of Changes in Net Pension Liability and Related Ratios..........................................................................103 Schedule of the City’s Pension Contributions.......................................................................................................105 Schedule of Agent Other Post-Employment Benefit Plans Funding Progress .........................................................106 Schedule of Other Post-Employment Benefits Plan’s Funding Progress ................................................................107 Notes to the Required Supplementary Information...............................................................................................108 Combining Statements Non-Major Funds – Other Governmental Funds ..................................................................................................... .109 Combining Statements and Schedules: Combining Balance Sheet – Non-Major Governmental Funds ...........................................................................110 Combining Statement of Revenues, Expenditures and Changes in Fund Balances – Non-Major Governmental Funds......................................................................................112 Supplemental Information Capital Assets Used in the Operations of Governmental Funds: Schedule By Function and Activity .....................................................................................................................116 Schedule of Changes By Function and Activity .................................................................................................118 Budgetary Comparison Schedules – Non-Major Governmental Funds Library Fund .......................................................................................................................................................119 BBB Fund .............................................................................................................................................................120 Housing and Community Service.......................................................................................................................121 Metropolitan Planning Organization Fund ........................................................................................................122 i Parking District Fund .........................................................................................................................................123 GO Bond Fund ....................................................................................................................................................124 Secondary Property Tax Revenue Fund ............................................................................................................125 Special Assessment Bond Fund..................................................................................................................126 Capital Projects Bond Construction............................................................................................................127 Financial Data Submission Schedules Net Position Accounts ........................................................................................................................................128 Revenue, Expenses, and Changes in Fund Net Position Accounts ...................................................................130 Revenue, Expenses, and Changes in Fund Net Position Accounts-Public Housing-Consolidated ...................134 Statistical Section Net Position by Component ......................................................................................................................................138 Changes in Net Position ............................................................................................................................................140 Fund Balances, Governmental Funds ........................................................................................................................142 Changes in Fund Balances, Governmental Funds ....................................................................................................143 Tax Revenue by Source, Governmental Funds .........................................................................................................144 Intergovernmental Revenue by Source, Governmental Funds .................................................................................145 Full Cash Value of Taxable Property.........................................................................................................................146 City Tax Revenue for Major Categories ....................................................................................................................147 Direct and Overlapping Property Tax Rates .............................................................................................................148 Principal Property Tax Payers ...................................................................................................................................149 Property Tax Levies and Collections.........................................................................................................................150 Direct and Overlapping Sales Tax Rates...................................................................................................................151 Ratios of Outstanding Debt by Type ........................................................................................................................152 Ratios of General Bonded Debt Outstanding ...........................................................................................................153 Direct and Overlapping Governmental Activities Debt ............................................................................................154 Legal Debt Margin Information .................................................................................................................................156 Pledged Revenue Coverage .......................................................................................................................................158 Demographic and Economic Statistics .....................................................................................................................164 Principal Employers ...................................................................................................................................................165 Full-time Equivalent City Government by Function/Program...................................................................................166 Operating Indicators by Function/Program..............................................................................................................167 Capital Asset Statistics by Function/Program ..........................................................................................................169 Insurance Summary ...................................................................................................................................................170 ii City of Flagstaff December 21, 2017 To the Honorable Mayor, City Council and Citizens of the City of Flagstaff, Arizona: I am pleased to submit the Comprehensive Annual Financial Report for the City of Flagstaff, Arizona for the fiscal year ended June 30, 2017, as required by Article VI, Section 5 of the City Charter. This report is published to fulfill that requirement for the fiscal year ended June 30, 2017. Management is responsible for establishing and maintaining an internal control structure designed to ensure that the assets of the City are protected from loss, theft, or misuse and that adequate accounting data are compiled to allow for the preparation of the basic financial statements in conformity with generally accepted accounting principles (GAAP). Because the cost of internal controls should not outweigh their benefits, the City of Flagstaff’s comprehensive framework of internal controls have 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. CliftonLarsonAllen LLP, a firm of licensed certified public accountants, have issued an unmodified (“clean”) opinion on the City of Flagstaff’s financial statements for the year ended June 30, 2017. The independent auditors’ report is located at the front of the financial section of this report. Management’s discussion and analysis (MD&A) immediately follows the independent auditors’ report and provides a narrative introduction, overview, and analysis of the basic financial statements. MD&A complements this letter of transmittal and should be read in conjunction with it. CITY OF FLAGSTAFF PROFILE The City of 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 2010 United States Census shows a population of 65,870. The Arizona Department of Economic Security estimates the population for 2017 at 71,656. The City of Flagstaff became a town in 1894, incorporated as a city in 1928 and its boundaries currently encompass an area of approximately 66 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. The City of 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 four-year terms. 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. iii The City of Flagstaff provides a full range of services including General Government, Police and Fire Protection, Environmental Services, Transportation, Library, Parks and Recreation, Airport, Water, Wastewater, 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 of Flagstaff. All of these funds and entities are included in the basic financial statements. The City Manager submits to the City 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. A public hearing is held prior to the budget’s final adoption and tax levy in order to obtain taxpayer comments. The budget is legally enacted through the passage of a resolution and the tax levy is adopted by an ordinance. The resolution 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 Article 9, Section 20 of the State Constitution. LOCAL ECONOMY Employment Flagstaff is a governmental, educational, transportation, cultural and commercial center. Government is one of the largest employment sectors. Major private employers in the Flagstaff area include Flagstaff Medical Center, W. L. Gore and Associates, Joy Cone and Nestle Purina. Major public employers in the Flagstaff area include Northern Arizona University, Flagstaff Unified School District, Coconino County, City of Flagstaff, Coconino Community College and the U.S. Forest Service. Northern Arizona University, the largest employer in the City, has a major economic impact annually. It is the home of over 30,300 students in their 155 degree programs. In addition, NAU’s year-round use of its campus facilities draws in tourists from throughout the world. Campus activities include a multitude of music, educational and athletic camps, as well as a broad variety of conferences from across the nation. Tourism is also a large employer as the city sees over 4,600,000 visitors a year. Tourism is a year-round industry attracting skiers in the winter, vacationers in the summer and sightseers viewing the aspens turning gold in the fall. Non-city residents provide an estimated 50% of the sales tax revenues. Sales Taxes Sales taxes are the largest revenue resource for the City of Flagstaff. The City of Flagstaff collects four different sales taxes. General Sales Tax - The first is a 1% tax on all general sales, except for food. This is a general purpose tax that benefits the General Fund. The City of Flagstaff is the only city left in the State of Arizona that has a sunset clause on the general sales tax. This tax must go before the voters every ten years and is currently authorized until November 2024. Overall local sales tax increases have been realized for seven years in a row. Per Schedule 5 in the Statistical Section, the 1% general city sales tax receipts have increased 10.9% from the prior fiscal year. A large part of this increase is related to the timing of collections from the state and the calculation of the 60-day accrual. The City continues to follow its’ practice to not allocate 100% of construction and auto sales related sales tax revenues to ongoing budgetary needs due to the potential of fluctuation in recessionary periods. Bed, Board and Beverage Tax – Bed, Board, and Beverage (BBB) tax collects an additional 2% for motel rooms/campgrounds, restaurants, and bars. This revenue is 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 the City of Flagstaff’s local economy. Per schedule iv 5, this tax category increased by 14.6% over prior year. In addition to a strong tourism market, the timing of collections from the state and the 60-day accrual had an impact. Transportation Tax – The Transportation Tax is a 1.051% 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. These transportation tax components, excluding transit, expire in 2020. Revenue trends are the same as the general sales tax. The transit component of the tax was approved by voters to extend for an additional 10 year and will expire in 2030. The City of Flagstaff will seek renewal of the remaining transportation taxes during the November 2018 election. Road Repair and Street Safety Tax - The Road Repairs and Street Safety improvement tax is a 0.33% sales tax on the same types of the general sales tax. The proceeds from this tax are specifically dedicated to providing overdue maintenance including reconstructions on deteriorating city streets. This tax has a twenty-year life and the work program is anticipated to touch every City of Flagstaff owned street within the corporate boundary. Revenue trends are the same as the general sales tax. State Shared Revenues State shared revenues include a distribution of a portion of sales tax and income tax collected by the state. These distributions are made based on a city or town’s relative share of population in comparison with all other cities and towns. For FY 2017, that state imposed legislative changes to the population component of the calculation and will use annual population estimates provided by the US Census Bureau. State shared sales tax revenues have increased for the seventh year in a row. For FY 2017 there was a 3.3% growth in these revenues. State income tax revenues increased by 8.5%, however we are below the pre recessionary revenues by 6.0%. In FY 2017, the State offered a tax amnesty program which help increase the revenues this year. The State continues to implement reductions in corporate income tax liabilities, which expect to have a neutral impact on these revenues through increased economic development. Highway user revenue (gas tax) funds (HURF) increased by 9.5% in FY 2017. This considerable increase matches our annual revenue peak in FY 2006. These revenues are distributed based on a complex Arizona Department of Transportation formula, based in part on the amount of fuel purchased in our region. The revenue decreases were initially due to the increased gas pricing resulting in lower sales. Recently we have seen lower gas prices, which increases the revenues collected. Additional decreases were due to the State shifting revenues ‘off the top’ to fund other public safety and motor vehicle department needs. As evidenced by the increase in BBB taxes and other statistical data, the City of Flagstaff remains a popular drive destination from Las Vegas, Los Angeles, and Phoenix. Overall, these three state shared revenues grew by 7.3% in FY2017 and the State of Arizona projects continued growth. Property Taxes Excluding new construction, total assessed valuations have increased 1.4% for tax year 2016, fiscal year 2017. Next tax year, the City of Flagstaff will see a 5.5% increase in total assessed valuations. Even though the cities are statutorily allowed to set a primary property tax rate that would allow for 2% annual growth in levy (revenue) plus the additional levy generated from new construction, the City Council has established a policy of flat levy for existing properties. When the City of Flagstaff does not take advantage of the statutorily allowed 2% annual increase, it does not lose the ability to take the increase in the future. The City of Flagstaff has a capacity to increase the tax levy by 12% in tax year 2017. For the FY 2018 budget, City Council approved a 7% tax levy increase. The rate for the primary property tax is adjusted annually to generate a levy equal to the prior year, plus new construction. v Additional Information While revenue fluctuations continue in some areas, the City of Flagstaff continues to see increase in General Fund budgeted revenue in FY 2018 (excluding grants and miscellaneous revenue) by 8.0%, which reflects increases in local and state revenues. The City of Flagstaff increased its overall staffing count by 31.2 full time equivalencies for the upcoming fiscal year. This is the fourth year the City has increased its position count since 2009, however authorized full-time equivalent staff level is 41.2 positions below 2009. With strong student enrollment at Northern Arizona University, there were two new student housing developments opened in the fall of 2017 and there are currently two additional student housing projects currently under construction. Development within the City continues to be very strong in every sector; single family, multi-family, commercial and mixed use. With our strong tourism sector, we saw two new hotels open this summer and one more is under construction for about 300 new rooms. There are also 4 hotels in the planning stage for development. The housing market continues to strengthen as we have seen average housing prices increase 7% to $378,000 in July 2017. The economic analysts for our local and state region continue to expect slow and steady growth over the next few years and add caution of a possible recession in the next three years. The City of Flagstaff will plan accordingly to ensure its financial position remains strong should a recession occur. The City of Flagstaff continues to work on bringing a second airline to the community. Due to its strong and healthy local economy, the City of Flagstaff has maintained a credit rating of Aa2 from Moody’s Investor Service since 2010 and a credit rating of AA from Standard and Poor’s since 2010. 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. 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. 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 overcommitting 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. vi Financial Policy Planning – The City of Flagstaff financial policies dictate minimum fund balance levels, as a percentage of operating revenues, 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. The City has made a commitment to maintain General Fund balance at 20%, exceeding policy, to position the City better in times of economic decline. Council adopted a Water, Wastewater and Reclaimed Water policy that sets a goal of minimum fund at 25% and we recently adopted new rates to achieve this goal. COUNCIL UPDATES GOALS AND OBJECTIVES During FY 2017, the City Council updated their goals and objectives. These goals and objectives are used to help management and staff build work programs and develop budgets. Staff has developed matrices to help define and report on progress and are available on the City of Flagstaff website. ECONOMIC DEVELOPMENT: Grow and strengthen a more equitable and resilient economy. • Improve the small business experience when going through the City process. • Support and enhance services to all businesses in the community. • Complete the sale of the auto mall properties. • Increase Eco and historic tourism in Flagstaff. • Form an arts district and cultural arts facility. • Market Parks and Recreation as accessible for all regardless of income. • Promote internet connectivity throughout the community. AFFORDABLE HOUSING: Support development and increase the inventory of public and private affordable housing for renters and home owners throughout the community. • Increase the number of affordable rental units. • Promote energy efficient rental units. • Improve the distribution of affordable rental units throughout the community and neighborhoods. • Seek private developer partnerships to increase affordable housing inventory in both rental and ownership units. • Pursue financing strategies for affordable housing to create additional rental and ownership housing opportunities. • Modify the building and zoning codes to encourage more affordable housing options. • Adopt a primary property tax rate increased to the maximum allowed with additional funds dedicated to setting up robust city-managed rental housing units. • Establish an Employer Assisted Housing Program. SOCIAL • • • • • JUSTICE: Advance social justice in our community. Increase communication and engagement with indigenous communities regarding City decisions. Strengthen and repair relationships with the indigenous and immigrant communities. Revisit the anti-camping ordinance. Sponsor and support state or federal legislation that restores and protects funding for social and other services to our population with special needs. Advocate for healthcare as a human right. TRANSPORTATION AND OTHER PUBLIC INFRASTRUCTURE: Deliver quality community assets and continue to advocate and implement a highly performing multi-modal transportation system. • Send a transportation tax renewal question to voters in November 2018 and earn majority voter support. • Improve peak travel times between Snowbowl Road and the Interstate 17/40 corridors. • Advocate for additional state and federal funding for state and federal roads. • Facilitate infrastructure needed to develop private land. • Develop a Downtown and Southside multimodal transportation plan. • Promote Fourth street connection with John Wesley Powell Boulevard. • Secure Fourth Street Bridge funded through Arizona Department of Transportation five-year Capital Improvement Program. • Support the Regional Transportation Plan. • Complete the Public Works Yard in the next two years. vii • • • • Complete the Intergovernmental Agreement with the County for a new courthouse and begin the design process. Evaluate water, wastewater and reclaimed water infrastructure capacity issues. Replace aging infrastructure. Support the airport with needed infrastructure upgrades in order to enhance our tenant and patron experience as well as additional airline attraction. BUILDING AND ZONING/REGIONAL PLAN: Revise the zoning code to remove ambiguities, and ensure it is consistent with community values and the regional plan. • Align building codes, zoning codes and regional plan. • Adjust the codes to better reflect community values and the intent of the regional plan. • Improve clarity and readability of existing building and zoning codes. • Continue efforts to understand the impacts of student housing while supporting the housing type. • Develop code changes to encourage more affordable housing. • Complete and update neighborhood plans specific to Housing Urban Development consolidated plan and target neighborhoods within that plan. • Continue the conversation about impact fees. CLIMATE CHANGE: Take meaningful climate change action. • Develop and implement a climate action plan. • Become a 100% renewable energy city as an organization and a community. • Achieve financial divestment from fossil fuels. • Sponsor and support state or federal legislative action that combats climate change. • Update energy code. WATER • • • • • CONSERVATION: Become a national leader in water conservation in all sectors. Develop a sustainable water budget. Enhance water conservation efforts. Encourage commercial and multi-housing sectors to participate in water conservation efforts. Secure long-term water resources. Prioritize reclaimed water uses. ENVIRONMENTAL AND NATURAL RESOURCES: Actively manage and protect all environmental and natural resources. • Aggressively support efforts for forest health. • Preserve natural resources. • Further develop sustainability and waste removal policies and programs. • Align City policies and SLEDS committee recommendations. • Continue to support the Four Forest Restoration Initiative (4FRI). ADMINISTRATIVE GOALS PERSONNEL: Attract and retain quality staff. • Invest in employee training. • Ensure adequate Public Safety staffing levels. • Provide pay raises for all employees. • Provide paid maternity and paternity leave. • Expand the housing assistance program for all City staff. • Enhance tuition reimbursement opportunities throughout the organization. • Provide parking incentives for employees. • Evaluate ways to pay down unfunded pension liabilities. COMMUNITY OUTREACH: Enhance public transparency and accessibility. • Create greater public access to Council meetings. • Define the City’s public communication program. • Take a more proactive role in communicating issues and progress on Council Goals and Objectives. • Develop a social media management plan. • Build and enhance neighborhood services from the City. viii TOWN & GOWN: Enhance relationships between the city and institutions of higher education. • Establish a comprehensive internship program through Coconino Community College and Northern Arizona University. CODE COMPLIANCE: Achieve comprehensive and equitable code compliance. • Review current City Code to align with community expectations. • Establish proactive enforcement of the City Code. AWARDS AND ACKNOWLEGEMENTS The Government Finance Officers Association of the United States and Canada (GFOA) awarded a Certificate of Achievement for Excellence in Financial Reporting to the City of Flagstaff for its comprehensive annual financial report (CAFR) for the fiscal year ended June 30, 2016. This was the 23rd consecutive year that the City has achieved this prestigious award. In order to receive a Certificate of Achievement, the City had to publish an easily readable and efficiently organized CAFR that satisfied both generally accepted accounting principles and applicable program requirements. A Certificate of Achievement for Excellence in Financial Reporting is valid for a period of one year only. However, we believe that our current CAFR continues to meet the Certificate of Achievement for Excellence in Financial Reporting Program’s requirements, and we are submitting it to the GFOA to determine its eligibility for another certificate. The City also received the GFOA’s Distinguished Budget Presentation Award for our fiscal year 2017 annual budget (also 23 years in a row). To qualify for the Distinguished Budget Presentation Award, the City’s budget document had to be judged proficient as a policy document, a financial plan, an operations guide, and a communications device. In addition, in 2017, the City received the Achievement in Excellence in Procurement award for the sixth year in a row by the National Purchasing Institute. This award program is designed to recognize organizational excellence in public procurement measuring innovation, professionalism, productivity, eprocurement, and leadership attributes. The preparation of this report would not have been possible without the skill, effort, and dedication of the entire staff of the Management Services Division. A special note of appreciation is given to Brandi Suda, Finance Director, Robert Norton, Finance Manager and the dedicated staff in Finance for their efforts to prepare this year’s CAFR. The hard work of staff brings together a document that consistently receives recognition of its quality. We wish to thank all government departments for their assistance in providing the data necessary to prepare this report. Credit also is due to the mayor and the Council for their support for maintaining the highest standards of professionalism in the management of the City of Flagstaff finances. Respectfully submitted, Rick Tadder Management Services Director ix x City of Flagstaff Citizens of Flagstaff City Council (Elected) Boards and Commissions (Appointed) Special Committees (Appointed) Flagstaff Municipal Court Magistrates (Appointed) City Manager (Appointed) City Court Deputy City Manager City Attorney (Appointed) Deputy City Manager Legal City Clerk Community Development Administration Economic Vitality Fire Information Technology Human Resources Management Services Risk Management Real Estate Police Utilities Public Works xi City of Flagstaff, Arizona List of Elected and Appointed Officials June 30, 2017 Mayor Elected Officials Coral Evans Vice Mayor Jamie Whelan Councilmember Celia Barotz Councilmember Charlie Odegaard Councilmember Jim McCarthy Councilmember Scott Overton Councilmember City Manager Eva Putzova Appointed Officials Josh Copley City Attorney Sterling Solomon City Treasurer Rick Tadder City Clerk Elizabeth Burke xii CliftonLarsonAllen LLP CLAconnect.com INDEPENDENT AUDITORS' REPORT The Honorable Mayor and Members of City Council City of Flagstaff, Arizona Flagstaff, Arizona Report on the Financial Statements We have audited the accompanying financial statements of the governmental activities, the businesstype activities, each major fund, and the aggregate remaining fund information of the City of Flagstaff, Arizona (City), as of and for the year ended June 30, 2017, and the related notes to the financial statements, which collectively comprise the City’s basic financial statements as listed in the table of contents. Management’s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditors’ Responsibility Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the City’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the City’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. 1 The Honorable Mayor and Members of City Council City of Flagstaff, Arizona Page 2 Opinions In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City of Flagstaff, Arizona as of June 30, 2017, and the respective changes in financial position and, where applicable, cash flows thereof and the budgetary comparison schedules of the General Fund, Highway User Revenue Fund, and Transportation Fund for the year then ended in accordance with accounting principles generally accepted in the United States of America. Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the management’s discussion and analysis and the required supplementary information for the City’s pension plans and other postemployment benefits (as listed in the table of contents) be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management’s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Supplementary and Other Information Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the City’s basic financial statements. The combining and individual nonmajor fund financial statements, supplementary information and the introductory and statistical sections are presented for purposes of additional analysis and are not a required part of the basic financial statements. The combining and individual nonmajor fund financial statements and the supplemental information (capital assets used in the operations of the government, budgetary comparison schedules for nonmajor governmental funds and the financial data submission schedules) are the responsibility of management and were derived from and relate directly to the underlying accounting and other records used to prepare the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated, in all material respects, in relation to the basic financial statements 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 it. 2 The Honorable Mayor and Members of City Council City of Flagstaff, Arizona Page 3 Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated December 21, 2017, on our consideration of the City’s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is solely to describe the scope of our testing of internal control over financial reporting and compliance and the result of that testing, and not to provide an opinion on the effectiveness of the City’s internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the City’s internal control over financial reporting and compliance. a CliftonLarsonAllen LLP Phoenix, Arizona December 21, 2017 3 4 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, 2017. 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 –ix of this report. FINANCIAL HIGHLIGHTS   The City’s total net position at the close of the most recent fiscal year is $585.8 million. The government’s total net position increased by $15.7 million during the fiscal year. This is a result of an increase in net position in the governmental activities of $3.9 million and an increase in net position in the business type activities of $11.8 million.  As of June 30, 2017, the City’s governmental funds reported combined ending fund balances of $121.9 million, an increase of $29.6 million in comparison to the prior fiscal year. Approximately 22.7% of this total amount ($27.7 million) is unassigned fund balance available for spending at the government’s discretion.  As of June 30, 2017, total unassigned fund balance for the general fund was $30.4 million, or 55.1% of  As of June 30, 2017, the City’s proprietary funds reported combined total net position of $347.6 million, total general fund expenditures ($55.1 million). and total unrestricted of $27.2 million. The largest unrestricted component of net position is in the Water and Wastewater Fund ($22.1 million) and in the Environmental Services Fund ($6.3 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. This report also contains other Supplemental Information in addition to the basic financial statements themselves. Government-wide Financial Statements The Government-wide Financial Statements are designed to provide readers with a broad overview of the City’s finances, in a manner similar to a private-sector business. The Statement of Net Position presents information on all of the City’s assets, plus deferred outflows of resources, less liabilities, less deferred inflows of resources, which equal net position. Over time, increases or decreases in net position 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 position changed during the most recent fiscal year. All changes in net position are reported as soon as the underlying event giving rise to the change occurs, regardless of the timing of the related cash flows. 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 5 intended to recover all or a significant portion of their costs through user fees and charges (business-type activities). The sections are demonstrated in the table below. Government Activities Business-type Activities Beautification Human Resources Airport Cemetery Information Services Environmental Services City Attorney Library Housing Authority City Council Municipal Courts Stormwater Operations City Manager Parks Wastewater Community Development Police Water Economic Development Recreation Facilities Maintenance Risk Management Financial Services Streets and Transportation Fire Tourism Fleet Management 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 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 21-23 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 Fund Financial Statements focus on near-term inflows and outflows of spendable resources, as well as on balances of spendable resources available at the end of the fiscal year. Such information may be useful in evaluating a government’s near-term financing requirements. Because the focus of Governmental Funds is narrower than that of the Government-wide Financial Statements, it is useful to compare the information presented for Governmental Funds with similar information presented for governmental activities in the Government-wide Financial Statements. By doing so, 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 governmental funds organized according to their type (Special Revenue, Capital Projects, and Debt Service). 6 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, General Obligation Bond Fund and Capital Projects Bond Construction Fund, which are all considered 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 on pages 110-113. 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 24-34 of this report. Proprietary Funds: Proprietary Funds are generally used to account for services for which the City charges customers – either outside customers, or departments of the City. Proprietary Funds provide the same type of information shown in the Government-wide Financial Statements, only in more detail. The City maintains the following two types of proprietary funds:  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, Airport, Environmental Services, Stormwater, and the Housing Authority. All are considered to be major funds of the City with the exception of the Housing Authority Fund.  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 than 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. The Basic Proprietary Fund Financial Statements can be found on pages 36-43 of this report. Notes to the Financial Statements The Notes to the Financial Statements provide additional information that is essential to a full understanding of the data provided in the Government-wide and Fund Financial Statements. Financial Statements can be found on pages 44-99 of this report. The notes to the Combining statements The Combining Statements referred to earlier in connection with non-major governmental funds are presented on pages 109-113. Other information In addition to the Basic Financial Statements and accompanying Notes to the Financial Statement, this report also presents certain other Supplemental Information concerning the City’s capital asset activity, budgetary 7 comparison of other major and non-major governmental funds, and financial data submission schedules. Other Supplemental Information can be found on pages 116-136 of this report. GOVERNMENT WIDE STATEMENTS FINANCIAL ANALYSIS Analysis of Net Position As noted earlier, Net Position may serve as a useful indicator of a government’s financial position. For the City, assets plus deferred outflows of resources exceeded liabilities plus deferred inflows of resources by $585.8 million as of June 30, 2017. Of the City’s Net Position, 96.0% reflects its investment of $562.9 million in capital assets (e.g. land, buildings, and equipment), less any outstanding debt used to acquire those assets. The City uses these capital assets to provide services to citizens; consequently, these assets are not available for future spending. Although the City’s investment in its capital assets is reported net of related debt, it should be noted that the resources needed to repay this debt must be provided from other sources, since the capital assets themselves cannot be liquidated for these liabilities. Net Position June 30, 2017 and 2016 (in thousands of dollars) Governmental Activities Current and other assets Capital assets $ Total assets 142,006 309,559 $ 451,565 Total deferred outflows of resources Business-type Activities 2016 2017 2017 109,908 $ 308,986 418,894 59,854 352,746 Total 2016 $ 412,600 51,565 349,375 2017 $ 400,940 201,860 662,305 2016 $ 864,165 161,473 658,361 819,834 31,203 23,319 3,371 1,785 34,574 25,104 Long-term liabilities 213,454 180,555 58,176 59,233 271,630 239,788 Total liabilities 238,674 201,848 67,317 66,410 305,991 268,258 5,206 5,408 1,784 1,229 6,990 6,637 245,638 246,897 317,301 311,645 562,939 558,542 26,427 20,538 Other liabilities 25,220 Total deferred inflows of resources Net investment in capital assets Restricted Unrestricted Total net position 21,293 86,072 $ (92,822) 238,888 9,141 60,982 $ 7,177 3,142 (72,922) 234,957 $ 346,870 34,361 2,903 $ 335,086 28,470 89,214 $ (66,395) 585,758 63,885 $ (52,384) 570,043 Total assets increased mainly due to the net change of restricted and unrestricted cash and investments as well as increases to accounts receivable due to timing of sales tax receipts and intergovernmental receivable for airport grant. Total liabilities increased primarily due to increase in bonds, notes and lease payables and net pension obligation as well as increase in accounts payable and construction retainage payable due to large volume of construction at year end. A portion of the City’s net position, $89.2 million (15.2%), represents resources that are subject to external restriction on how they may be used. The unrestricted component of net position 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 two of the three categories of net position for governmental activities, and in all three categories for business-type activities. 8 Governmental activities are reporting a negative unrestricted net position due to the recording of the City’s net pension obligation. Current assets for governmental activities have increased by 29.2% ($32.1 million). The largest increase was in restricted cash and investments ($15.6 million) along with $6.1 million increase in unrestricted cash and investments. Deferred outflows of resources for the governmental activities have increased $7.9 million and is related to the pension related deferred outflows. Capital assets of the governmental activities, funded through operations, debt proceeds, grants, and contributions, increased by .2% ($572,000) due to capital outlays and capital contribution in excess of depreciation and deletions. Major capital outlays include the Road Repair and Street Safety projects ($4.1 million) and construction of the Core Service Facility of $3.4 million. Governmental activities long-term liabilities increased by 18.2% ($32.9 million) due to a $28.5 million (including $3.5 million in premiums) issuance of long term debt in FY2017. In addition, there was a net increase of $16.7 million in net pension liability, net OPEB liability and compensated absences. Other liabilities increased by 18.4% ($3.9 million) primarily due to the increase in the accounts payable and retainage payable ($2.8 million) and claims and judgements ($1.8 million) offset by decrease in current portion of debt ($1.1 million). Deferred inflows of resources for governmental activities decreased $202,000 related to pension related deferred inflows. Total assets for business-type activities have increased by 2.9% ($11.7 million). The largest increase was for cash and cash equivalents ($6.8 million). In addition, intergovernmental receivables increased $5.8 million. The largest decrease was for internal balance ($5.1 million). Total liabilities for business type activities increased by 1.4% ($0.9 million). Major changes include the decreases in bonds, notes and leases payable ($3.0 million) and increase in net pension liability ($1.3 million) and accounts and retainable payable of $1.7 million Overall, the business-type net position has increased by 3.5% ($11.8 million) due to increases in unrestricted net position ($5.8 million) related overall increase in operating and non-operating revenues and $5.7 million increase in net investment in capital assets. The changes are primarily in the Water and Wastewater Fund, Airport Fund and Stormwater Fund. 9 Analysis of Change in Net Position The City’s overall net position has increased by $15.7 million during the current fiscal year. These increases are explained in the governmental and business-type activities discussion to follow. Changes in Net Position For the Years Ended June 30, 2017 and 2016 (in thousands of dollars) Governmental Activities 2017 Business-type Activities 2016 2017 2016 Total 2017 2016 Revenues Program Revenues: Charges for services Operating grants and contributions $ Capital grants and contributions Property taxes 9,291 7,727 State shared taxes 17,080 1,130 1,420 (447) Other Total revenues Expenses General government Public works 34,711 9,833 10,259 1,896 Economic and physical development Culture and recreation 13,564 Highways and streets Interest on long-term debt 13,059 - - 2,744 Water Wastewater Airport - - Total expenses Transfers Change in net position $ 14,674 15,454 14,674 2,744 51,861 48,932 157,157 3,931 16,636 11,784 218,321 234,957 4,308 $ 335,086 346,870 141,093 18,704 - 2,068 335,086 6,126 1,246 15,715 (121) 333,018 4,308 1,180 2,189 $ 10,491 12,087 5,081 1,246 1,074 2,296 11,150 6,658 121 12,975 13,059 6,126 92,161 $ 13,564 15,849 10,491 1,180 1,650 - 6,658 10,710 238,888 10,259 1,896 - 16,515 234,957 9,833 12,338 5,005 (1,074) - 12,087 5,081 17,211 34,711 12,338 - 105,296 Increase in net position before transfers 19,320 42,090 - 11,150 159,797 - - - - Stormwater - 1,796 172,872 - 15,454 - - Housing Authority - 2,004 1,507 - - 2,296 - Environmental - 17,080 (41) - - 11,341 48,343 18,140 51,121 - 15,715 $ 570,043 585,758 18,704 $ Governmental activities Governmental activities increased the City’s net position by $3.9 million. The key factors for this increase are as follows:   Revenues exceeded expenses by $5.0 million as compared to last years’ of $16.5 million. Capital grants and contributions had the largest decrease by dollars at $3.0 million (25.7%). Economic and physical development decreased by $0.7 million related to grant funded Accelerator project. Highway and street decreased $2.1 million related to prior year developer capital contribution and transportation contributions.  City sales tax revenues increased by 10.8% ($5.2 million). Comparing actual revenues to budgeted revenues the city exceeded the estimates by $6.1 million. The increase in the city general sales tax, the transportation taxes, and the Bed, Board, and Beverage sales taxes are $1.9 million, $2.2 million, and $1.1 million respectively. The city has seen positive sales tax growth in the last six years.  Charges for services increased 4.6% ($0.4 million) related primarily to an increase in building and construction permits and fees due to the increase in construction in the community.  Operating grants and contribution remained relatively unchanged over the prior year. 10 50,584 12,503 16,146 11,674 376 - $ 53,583 - - 53,395 12,678 21,936 336 62,571 12,975 15,849 $ - 377 1,650 4,776 - - 17,211 42,090 41,293 4,340 406 108,676 19,320 Public safety $ - 1,668 110,301 4,954 - 48,343 18,140 43,672 13,162 11,341 53,583 Investment earnings $ 11,806 11,674 Sales taxes Net position at end of year $ 8,774 General Revenues: Net position at beginning of year, as restated 9,723 7,724 551,339 570,043  State shared taxes had a 6.2% increase as the economy in the region and at the state level continues to grow at slow to moderate levels.  Expenses have increased by $13.1 million (14.2 %) due largely to the increase public safety pension costs. The major increases were in general government ($2.1 million), public safety ($7.4 million), and highways and streets ($2.8 million). The only decrease was in economic and physical development for $0.4 million. Business-type activities Business type activity had a net position increase of $11.8 million. The key factors for this increase include:  Charges for service have increased by 5.8% ($2.4 million). Funds with increases were Water ($1.4 million), Wastewater ($0.6 million), Environmental Services ($290,000), Stormwater ($100,000), and Housing Authority ($150,000).  Capital grants and contributions have increased by 203% ($8.8 million) due to a large grant funded  Investment earnings are up slightly ($70,000). construction project at the Airport as well as an increase in utility capacity fees.  Expenses have increased over the prior year by 6.0 % ($2.9 million). There were increases in the Water Fund ($0.8 million), Airport Fund ($0.8 million), Wastewater ($0.7 million), Housing Authority Fund ($500,000), and Environmental Services Fund ($250,000). ($65,000). There was a decrease in the Stormwater The following two charts illustrate the City's governmental expenses by function and its revenues by source. Expenses and Program Revenues – Governmental Activities $45,000,000 Expenses $40,000,000 Program Revenues $35,000,000 $30,000,000 $25,000,000 $20,000,000 $15,000,000 $10,000,000 $5,000,000 $0 General government Public safety Public works 11 Econ & phys development Culture & recreation Highways & streets Interest on long-term debt Revenues by Source – Governmental Activities State shared tax 16.4% Investment earnings -0.4% Miscellaneous 1.0% Charges for services 8.8% Operating grants and contributions 7.0% Sales tax 48.6% Capital grants and contributions 8.0% Property taxes 10.6% As shown, Public Safety is the largest function as measured by expense ($42.1 million, 40.0%) followed by General Government ($19.3 million, 18.3%), and Highways & Streets ($15.9 million, 15 %). 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 ($53.6 million, 48.6%), followed by state shared tax ($18.1 million, 16.4%) and property taxes ($11.7 million, 10.9%). The top three revenues make up 75.6% of total revenues compared to last year’s top three of 71.4%. Last year, capital grants and entitlements was ranked third. With the decrease in capital grants in FY 2017, property taxes are now 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 $25,000,000 Expenses Program Revenues $20,000,000 $15,000,000 $10,000,000 $5,000,000 $0 Water Wastewater Environmental 12 Airport Housing Authority Stormwater Revenues by Source – Business-type activities As shown, Water has expenses of $15.5 million for the fiscal year, followed by Environmental Services with $12.3 million, Wastewater with $11.1 million, Housing Authority with $6.7 million, the Airport with $5.1 million and Stormwater with $1.2 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’s program expenses exceeded revenues mainly due to depreciation of capital assets and increased pension costs. Water, Wastewater, Environmental Services, and Stormwater Funds received the majority of their program revenues through charges for services (82.0%, 75.8%, 99.7%, and 96.2% respectively). The Housing Authority Fund receives the majority of its program revenue through operating grants and contributions (71.0%). The Airport Fund received much of its program revenue through capital grants and contributions (76.9%) due a very large federal grant. Charges for services provided the largest share of revenues (69.8%) for all of the business-type activities, followed by capital grants and contributions (21.0%). The expenses for the business type activities increased (6.0%, $2.9 million) as there were increases in Water (5.3%, $780,000), Airport (18.0%, $773,000), Wastewater (6.3%, $659,000) Housing Authority (8.7%, $532,000), and Environmental Services (2.1%, $251,000), and offset by decreases in Stormwater (5.2%, $66,000). The water and wastewater user fees rate were increased on January 1, 2017. Water, Wastewater, Environmental Services, Stormwater and Housing Authority Funds increased charges for service revenue at 9.5%, 5.9%, 2.2%, 6.9% and 10.3%, respectively. Airport’s charges for service revenues decreased by 6.2% over the prior year. Financial Analysis of the City’s Funds As noted earlier, the City uses Fund accounting to ensure and demonstrate compliance with finance-related legal requirements. 13 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. Such information is useful in assessing the City’s financing requirements. In particular, unassigned fund balance may serve as a useful measure of a government’s net resources available for spending at the end of the fiscal year. Types of Governmental Funds reported by the City include the General Fund, Special Revenue Funds, Capital Project Funds, and Debt Service Funds. At the end of the fiscal year, the City’s Governmental Funds reported combined ending fund balances of $121.9 million, an increase of $29.6 million in comparison with the prior year. Approximately $27.7 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) nonspendable ($652,000) for inventory and perpetual care, (2) restricted ($83.5 million) for special revenue funds, debt service, development fee projects, court improvements and operations, grant purposes, perpetual care, and capital projects, and (3) assigned ($10.1 million) for court services, capital reserves, Parking District and real estate. Revenues for governmental functions overall totaled $110.0 million in the fiscal year ended June 30, 2017 which represents a decrease of 1.0% or $1.1 million from the prior fiscal year. Several revenue categories show increases over prior year including taxes, intergovernmental, charges for services and rents. These increases include taxes (9.3%, $5.5 million), intergovernmental (5.4%, $1.1 million), charges for services (18.5%, $538,000) and rents (6.4%, $109,000). The increase in taxes and intergovernmental is due to steady growth in our local and state economy. The major decrease in revenue categories include special assessments (95.7%, $4.5 million), investment earnings (129.1%, $2.1 million) and contributions (55.7%, $1.1 million). The special assessments experienced a significant decrease because the prior year include an usually large additional special assessment payment. Investment earnings decreased due to a large unrealized loss on investment related to federal rate increase in June 2017 and contributions decreased due to a large one-time transportation contribution in the prior fiscal year. Expenditures for governmental functions ($109.0 million) increased by 4.4% ($4.6 million) from the prior fiscal year. Most of the increase in expenditures is related to highway and street expenditures (42.7%, $2.5 million), general government (14.4%, $2.1 million) and debt service expenditures (7.7% $1.2 million). Operation expenditures also increased (7.6%, $5.5 million) which is related to increases in general government, public safety, public works, culture and recreation, and highway and streets, and partially offset by decreases in economic and physical development. In the fiscal year ended June 30, 2017 revenues for governmental functions exceeded expenditures by approximately $1.1 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 $30.4 million. As a measure of liquidity, it may be useful to compare total unassigned fund balance and total fund balance to total fund expenditures. The unassigned fund balance represents 55.1% of General Fund expenditures. The total fund balance in the City’s General Fund increased by $1.5 million during the fiscal year as revenue increased 2.0% and expenditures increased 1.8%. Overall, the General Fund’s performance resulted in revenues in excess of expenditures in the fiscal year ended June 30, 2017 of $4.2 million. This is an increase of approximately $200,000 over the comparable figure from the prior year which resulted in revenue in excess of expenditures of $4.0 million. 14 The Highway User Revenue Fund balance decreased by $400,000. Revenues decreased $330,000 primarily due to transportation contributions and property sales in the prior year. Expenditures increased by $1.4 million or 15.0% overall with a large increase in operations of $2.6 million and decreases in capital expenditures of $1.2 million. Debt service payments remained level this year. Net transfers decreased by $1.8 million over the prior year. Both the decrease in capital expenditures and transfers is related to the timing of construction projects. increase in street chip sealing project. Operating expenditure increases are due to a large Transportation Fund balances increased by $17.4 million or 94.1%. Revenues increased $2.2 million due to continued growth in the local economy. Expenditures decreased $2.7 million again due to the timing of the capital expenditures. Other financing sources and uses increased $11.5 million due largely to the issuances of $8.9 million in revenue bonds. General Obligation Bond Debt Service Fund became a major fund in fiscal year 2017. There are no revenues in this fund. Expenditures and transfers in increased 95.3% or $6.4 million due a large defeasance of general obligation bonds. Capital Projects Bond Construction Fund balance increased by $15.3 million. This fund has minimal revenues. The major source of funds is bond proceeds (principal and premium) of $18.3 million for the core service facility, forest restoration and open space and trail land acquisition. Expenditures increased $3.8 million or 223.5% as the construction of core service facility began in fiscal year 2017. 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 component of net position had positive balances for Water and Wastewater, Environmental Services, and Stormwater. The Internal Service Fund, which is used to account for risk management and health insurance activities, had an unrestricted net position of $3.3 million. Revenues and transfers exceeded expenses and transfers out in the proprietary funds by $11.9 million for the fiscal year ended June 30, 2017. All funds, except the Housing Authority Fund, had positive growth in their net position for the fiscal year ended June 30, 2017. The Housing Authority Fund decrease of $180,000 was due to depreciation exceeding grant and other funding for capital replacements. The major part of the increase was related to capital grants and contributions ($15.4 million). Budget Highlights The City’s final budget matches the original budget which was approved by Council in June, 2016. The City looks at the budget to actual at the division level and no division exceeded its appropriation. There were two revenue transfers that were not budgeted and two transfers that exceeded budget. One transfer was made from the Water and wastewater fund to the General Fund ($15,000) to reimburse their share of capital project software and the other was $400,000 from Transportation fund to Water fund for the Leroux construction project. The transfer from Secondary Property tax fund to G.O. bond debt service fund exceeded budget by $4.5 million due to an unplanned general obligation debt defeasance of $6.0 million. The other transfer that exceeded budget was between General Fund and Airport and exceed budgeted transfer by $666,000. This overage is partially due to a change in the allowable indirect on federal grants and timing of the airport runway construction project. All of these transfers were noted and included in the budget documentation during the FY2018 budget process and adoption. 15 The General Fund was less than 1.3% ($0.8 million) over the final budgeted total revenues primarily due to intergovernmental revenues, which exceeded budget by $0.8 million and licenses and permits by $0.9 million and was offset by grants and entitlements and fines and forfeitures being under budget by $0.5 million and $1.9 million, respectively. License and permit exceeded budget due to conservative budget estimates and several large commercial construction projects in fiscal year 2017. Some of the reasons for grants and entitlements being under budget are due to the City not receiving several larger grants for Fire and Police or not receiving at the level budgeted including the Assistance to Firefighters, Wildland Urban Interface, DUI Enforcement and Gang Task Force grants. Expenditures are under budget in all divisions except for Economic Vitality due to controlled spending and carryover of some capital projects. Economic Vitality expenditures over budget are due to a brownfield grant not being budgeted. The divisions that are under budget by larger amounts are related to capital purchases or projects budgeted but not completed. Both transfers-in and transfers-out are less than budgeted as many transfers are based on the actual year end expenditure, most significant of which is the budgeted transfer from the General Fund to the Stormwater Fund of $1.9 million for the Rio de Flag Flood Control Project, of which only $111,925 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, 2017 amount to $662.3 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 0.6% ($3.9 million). The following table reflects the capital assets at the end of the fiscal year C apital A s s ets , Net o f Depr ec iatio n Ju n e 30, 2017 an d 2016 ( in th o u s an ds o f do llar s ) Go v er n m en tal A c tiv ities 2017 Land and other non-depreciable assets $ Buildings Improvements Machinery and equipment Infrastructure Construction in progress Total 65,690 59,486 5,980 10,022 $ 2017 64,882 60,731 6,743 9,865 156,366 158,631 $ 309,560 $ 308,986 12,016 Business-Type Activities 2016 8,134 $ 14,639 46,323 248,770 19,291 - 23,722 $ 352,745 Total 2016 $ 2017 14,120 48,168 246,272 19,265 - 21,550 $ 349,375 $ 80,329 105,809 254,750 29,313 2016 $ 79,002 108,899 253,015 29,130 156,366 158,631 $ 662,305 $ 658,361 35,738 29,684 Construction-in-progress had a net increase of 20.4% ($6.1 million). Major completed construction-in- progress includes the completion of the West & Arrowhead Drive ($4.7 million), Leroux street & watermains ($2.5 million) and Brannen Homes Watermains ($1.9 million). Major construction in progress at June 30 includes the Rio de Flag Drainage Project ($14.5 million), Core Services Facility ($3.5 million) Red Gap Pipeline ($1.9 million), Runway Improvements ($2.2 million) and Zuni Drive Improvements ($1.2 million). The decrease to buildings ($3.1 million) is related to depreciation less the completion of minor building improvement projects being completed. The increase in improvements ($1.7 million) is related to depreciation less the completion of Leroux project ($2.5 million) and Brannen Homes watermains ($1.9 million) and developer contributed capital. Machinery and equipment increased by $200,000 mainly due to numerous vehicle and heavy equipment purchases offset by depreciation. 16 Major additions include 23 vehicles and heavy equipment replacements ($3.5 million). Infrastructure decrease ($2.3 million) is related to depreciation less West & Arrowhead Drive ($4.7 million) 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. purchases as expenditures. Fund Financial Statements record capital asset Please refer to Note IV C on pages 65-66 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 $108.7 million. Of this amount, $49.8 million is general obligation bonds backed by the full faith and credit of the City, $2.1 million is improvement district bonds, $19.7 million is revenue bonds, $1.7 million is for certificates of participation, and $35.4 million are outstanding leases or loans for the airport, water and wastewater, and city-wide energy conservation improvements. O u ts tan din g Debt Ju n e 30, 2017 an d 2016 ( in th o u s an ds o f do llar s ) Go v er n m en tal A c tiv ities 2017 General obligation debt Special assessment bonds $ Revenue bonds Other debt Lease/Loans Total debt payable 48,521 2,120 $ 43,817 2,215 19,690 12,750 2,029 1,049 1,655 $ 74,015 Bu s in es s -ty pe A c tiv ities 2016 2017 $ $ 62,001 1,308 - $ - 2,170 - $ To tal 2016 33,330 34,638 2017 1,375 - $ 2,120 $ 45,192 2,215 - 19,690 12,750 36,289 35,359 37,338 - $ 49,829 2016 37,664 1,655 $ 108,653 2,170 $ 99,665 During fiscal year 2017, the City’s total bonded debt increased by $9.0 million. The City issued $8.9 in revenue bonds for Road Repair/Street Safety projects and $16.1 million in general obligation debt for core services facility, forest restoration and open space and trail land acquisition projects. The city also defeased an additional $6.0 million in general obligation debt during the year. All remaining debt decreases are due to annual schedule debt service payments. 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, 2017 is $42.1 million in the 6% category and $90.7 million in the 20% capacity. The allowable debt increased from prior year due to higher assessed valuations and decreasing debt balances. Additional information on the Debt Limitations and Capacities may be found in Schedule 16 in the Statistical Section of this report. 17 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, 2017 Mo o dy ' s In v es to r s Ser v ic e General Obligation Aa2 Revenue Bonds n/a Stan dar d & Po o r ' s AA AA- Additional information on the City’s long-term debt can be found in Section IV F on pages 69-78 of the Notes to the Financial Statements. Economic Factors and Next Year’s Budget and Rates The Fiscal Year 2017/2018 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.  Unrestricted fund balance in the General Fund continues to be above the fiscal policy of 15% of operating revenues. It is currently projected to be 25%. General sales tax revenues exceeded budget by $2.4 million in FY 2017 and are expected grow 3% in FY 2018 due to small to moderate growth in the local economy.  Building permits exceeded budget by $0.8 million. However, we remain conservative in our projections for FY 2018 as we rely on these types of revenues as a one-time impact rather than an ongoing source of funding.  The focus of the FY 2018 budget was for Council Priorities related to economic development, affordable housing, social justice, transportation and other public infrastructure building and zoning/regional plan, climate change, water conservation, environmental and natural resources, personnel, community outreach, town and gown and code compliance. o The FY 2018 budget includes a three year plan to transition to market based pay for all employees, new positions related to capacity needs, infrastructure and economic development funding and services to support the most vulnerable. o Some of the larger items are $21.2 million for road repair & street safety road improvements, $24.7 million for the construction of Core Services Facility, $12.5 million for Courthouse construction and $4.1 million programmed for the Airport runway overlay construction.   The total authorized positions increased by 31.2 positions. Public Safety pension (PSPRS) funding continues to be major funding issue. Public Safety pension required contributions to be increased over $1.9 million (26%) in FY 2018 due to required pension contribution rate increases.   The City continues to monitor the State legislature to be aware of potential budget impacts on cities. Property assessments continue to increase at a slow, steady rate. Primary assessed values increased by an average of 5.5%. The City adjusted the tax rate on primary property tax to maintain revenue levels. The secondary property tax rates remain flat.   The City continues to pursue federal and state grant dollars to enhance the local economy. The City continues implementation of the electronic information sharing technology to facilitate transparency in service provision. 18  The City will continue to work on the development of the new Core Maintenance Facility which was approved by voters.  The City will continue to work on the Flagstaff Watershed Protection Program which was approved by voters.   An updated Utilities Rate Study was completed in FY 2017 and new rates were adopted in FY 2018. User fee studies relating to the services provided by Community Development, Recreation and Fire was completed and adopted in FY 2017 and new fees were effective in FY2018. 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 Section 211 W. Aspen Ave Flagstaff, AZ 86001 Main (928) 213-2000 Arizona Relay 7-1-1 19 20 City of Flagstaff, Arizona Statement of Net Position June 30, 2017 Primary Government Business-type Activities Governmental Activities ASSETS Cash, investments and equivalents Accounts receivable, net $ Interest receivable Intergovernmental 88,896,540 $ Special assessments receivable Internal balance 20,833,958 2,121,288 6,155,532 8,276,820 316,400 - 316,400 85,898 8,763 - 391,981 27,323,181 13,634,163 40,957,344 231,852,903 314,385,010 30,548,285 3,370,806 33,919,091 31,202,880 3,370,806 34,573,686 8,170,549 2,529,299 10,699,848 534,731 806,881 1,341,612 391,981 - 39,789 77,705,639 Capital assets, non-depreciable Capital assets, depreciable, net 451,565,463 Total assets DEFERRED OUTFLOWS OF RESOURCES Deferred outflows related to pensions 654,595 Deferred charge on debt refundings Total deferred outflows of resources LIABILITIES Accounts payable - 8,763 Inventory Restricted cash and investments 2,021,951 (5,760,139) - Prepaid items 303,696 - 5,760,139 Deposits 128,709,944 5,876,315 2,021,951 Note receivable $ 14,957,643 217,798 receivable 39,813,404 Total 39,789 38,361,233 116,066,872 412,599,968 864,165,431 546,237,913 - 654,595 Accrued payroll 2,164,838 Interest payable 1,306,035 552,977 Deposits payable 1,414,580 838,062 1,778,803 337,148 101,868 - 101,868 Bonds, notes and leases payable, net 7,206,426 2,853,785 10,060,211 Compensated absences 2,473,817 431,562 2,905,379 - 8,475,779 8,475,779 Net OPEB obligation 5,610,335 1,267,239 6,877,574 Net pension liability 132,593,865 16,216,890 148,810,755 2,046,157 - Construction retainage payable 417,754 719,038 Advanced revenue Noncurrent liabilities: Due within one year: Compensated absences Claims and judgements Due in more than one year: Claims and judgements Special assessment debt, government commitment Bonds, notes and leases payable, net 1,524,331 2,252,642 2,115,951 - 107,836 Landfill closure and postclosure care costs 1,859,012 805,293 1,824,169 Special assessment debt, government commitment 2,582,592 1,824,169 - 107,836 2,046,157 70,621,491 31,784,356 102,405,847 238,674,538 67,317,025 305,991,563 5,205,862 1,783,393 6,989,255 245,638,486 317,301,221 562,939,707 Capital projects 52,930,319 3,142,245 56,072,564 Specific programming 21,010,733 - 21,010,733 Total liabilities DEFERRED INFLOWS OF RESOURCES Deferred inflows related to pensions NET POSITION Net investment in capital assets Restricted for: Debt service 11,844,811 Perpetual care: Expendable 25,703 Nonexpendable 238,887,943 The notes to the financial statements are an integral part of this statement 21 25,703 - (92,822,132) $ 11,844,811 - 260,023 Unrestricted Total net position - 260,023 26,426,890 $ 346,870,356 (66,395,242) $ 585,758,299 City of Flagstaff, Arizona Statement of Activities Year Ended June 30, 2017 Program Revenues Indirect Expense Allocation Expenses Charges for Services Operating Grants and Contributions Capital Grants and Contributions $ $ Primary government Governmental activities: General government $ 19,320,158 Public safety 42,090,228 Public works 1,895,576 9,833,154 Economic and physical development $ (1,247,334) $ 3,143,969 - 496,277 103,782 832,352 2,095,630 431,810 (148,664) 740 - 106,130 (419,580) 3,785,805 1,443,094 Culture and recreation 13,563,829 444,724 1,785,874 3,348,330 - Highways and streets 15,849,094 1,370,854 173,960 340,604 8,132,424 2,743,633 - - - - 105,295,672 - 9,722,700 7,723,935 8,774,146 Interest on long-term debt Total governmental activities Business-type activities: Water 15,454,108 15,973,118 - 3,514,170 Wastewater 11,150,309 9,943,603 - 3,171,950 Environmental 12,337,663 13,047,045 36,527 - Airport 5,080,905 1,503,945 338,747 6,151,499 Housing authority 6,657,398 1,605,422 4,574,068 266,362 Stormwater 1,180,230 1,598,913 4,277 58,249 Total business-type activities Total primary government 51,860,613 $ 157,156,285 $ 43,672,046 53,394,746 $ 4,953,619 12,677,554 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 position Net position - beginning Net position - ending The notes to the financial statements are an integral part of this statement 22 $ 13,162,230 21,936,376 Net (Expenses) Revenues and Changes in Net Position Primary Government Governmental Activities $ $ Business-type Activities (14,328,796) - $ (14,328,796) (38,730,436) - (38,730,436) (1,746,172) - (1,746,172) (4,078,545) - (4,078,545) (8,874,349) - (8,874,349) (8,572,960) - (8,572,960) (2,743,633) - (2,743,633) (79,074,891) - (79,074,891) - 4,033,180 4,033,180 - 1,965,244 1,965,244 - 745,909 745,909 - 2,913,286 2,913,286 - (211,546) (211,546) - 481,209 481,209 - (79,074,891) $ 9,927,282 9,927,282 $ 9,927,282 (69,147,609) 5,758,319 - 5,916,234 - 5,916,234 53,582,850 - 53,582,850 - 18,139,582 18,139,582 (447,324) 1,123,129 6,950 $ $ Total 5,758,319 406,101 (41,223) 377,316 1,500,445 - 6,950 (1,073,585) 1,073,585 - 83,006,155 1,857,002 84,863,157 3,931,264 11,784,284 15,715,548 234,956,679 335,086,072 570,042,751 238,887,943 $ 346,870,356 $ 585,758,299 23 City of Flagstaff, Arizona Balance Sheet Governmental Funds June 30, 2017 Highway User Revenue Fund General Fund Transportation Tax Fund ASSETS Cash and investments $ Accounts receivable, net Interest receivable 32,447,914 $ 7,519,592 7,834,581 884,738 $ 29,809,139 4,097,999 85,863 11,632 67,519 253,687 - 1,199,682 6,500,000 - - Special assessments receivable - - - Notes receivable - - - Intergovernmental receivable Interfund receivable Inventory 342,576 - - - - 2,731,880 Restricted cash and investments Total assets $ 47,464,621 $ 8,415,962 $ 37,906,219 LIABILITIES, DEFERRED INFLOWS AND FUND BALANCE Liabilities: Accounts payable $ Accrued payroll and compensated absences 2,721,641 $ 878,652 $ 1,657,148 1,913,840 61,025 - Retainable payable 46,472 115,415 184,419 Interfund payable 20,697 - Advanced revenue - 362,951 - 73,133 1,414,580 - - 6,480,181 1,055,092 1,914,700 Unavailable revenue - court fines 321,590 - - Unavailable revenue - property taxes 198,069 - - - - - Guaranty and other deposits Total liabilities Deferred inflows of resources: Unavailable revenue - special assessments Unavailable revenue - notes receivable - - - 519,659 - - 342,576 - - Restricted 1,750,086 7,360,870 35,991,519 Assigned 8,011,051 - - Total deferred inflows of resources Fund balances: Nonspendable Unassigned (deficit) Total fund balances Total liabilities, deferred inflows and fund balances $ 30,361,068 - - 40,464,781 7,360,870 35,991,519 47,464,621 The notes to the financial statements are an integral part of this statement 24 $ 8,415,962 $ 37,906,219 General Obligation Bond Fund Capital Projects Bond Construction $ $ - $ $ $ - 15,519,606 Total Governmental Funds $ 2,087,116 85,319,066 14,904,434 - 1,864 44,034 210,912 - 40,748 627,171 2,121,288 - - - 6,500,000 - - 2,021,951 2,021,951 - - 316,400 316,400 - - 49,405 391,981 - 17,210,489 7,380,812 27,323,181 28,046,495 $ 139,109,213 - $ - $ 17,275,916 1,595,024 $ $ 1,138,550 7,991,015 21,218 147,868 40,557 534,731 - 1,250,000 250,000 1,520,697 - - - 1,414,580 - 3,014,110 1,880,646 14,344,729 - - - 321,590 - - - 198,069 - - 2,021,526 2,021,526 316,400 316,400 - - 2,337,926 2,857,585 - - 309,428 652,004 - 16,931,361 21,439,804 83,473,640 - - 2,078,968 10,090,019 - - (2,669,555) - 14,261,806 - 168,755 $ - - $ 22,815 Other Governmental Funds $ 17,275,916 282,784 (277) $ 2,164,838 718,868 27,691,236 23,827,923 121,906,899 28,046,495 $ 139,109,213 25 26 City of Flagstaff Reconciliation of the Balance Sheet To the Statement of Net Position Governmental Activities June 30, 2017 Fund balances - total governmental funds balance sheet $ 121,906,899 Amounts reported for governmental activities in the statements of net position 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 539,743,698 (230,185,156) 309,558,542 30,548,285 654,595 (5,205,862) 25,997,018 Deferred outflows and inflows of resources related to pensions and deferred charges on debt refundings are applicable to future reporting periods and, therefore, are not reported in the governmental funds. Deferred outflows related to pensions Deferred outflows related to debt refunding Deferred inflows related to pensions For purposes of measuring the net pension liability, the long-term liabilities are not due and payable in the current period and, therefore, are not reported as a liability in the governmental funds. ASRS pension benefits PSPRS pension benefits EORP pension benefits (35,903,419) (94,708,497) (1,981,949) (132,593,865) (74,014,522) (1,306,035) 68,443 (6,029,863) (5,610,335) (1,808,834) (4,252,620) (92,953,766) 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 bond and lease payable Governmental interest payable Bond discount Bond premium Other postemployment benefits Claims and judgements Compensated absences Certain revenues are not available to pay for current period expenditures and, therefore, are unavailable in the governmental funds. Promissory note Fines and forfeitures Property tax Unavailable revenue for long-term special assessments is shown on the governmental fund balance sheet, but is reflected on the statement of net position Special assessments 316,400 321,590 198,069 836,059 2,021,526 2,021,526 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 fund that are reported with governmental activities. Net position of governmental activities - statement of net position The notes to the financial statements are an integral part of this statement 27 4,115,530 $ 238,887,943 City of Flagstaff, Arizona Statement of Revenues, Expenditures, and Changes in Fund Balances Governmental Funds Year Ended June 30, 2017 Highway User Revenue Fund General Fund Transportation Tax Fund REVENUES: Taxes $ Intergovernmental Grants and entitlements 29,377,513 $ - $ 21,328,076 19,294,534 - - 1,209,967 7,982,504 Special assessments - - - Charges for services 3,454,567 - - Licenses and permits 2,839,407 173,960 - Fines and forfeitures 1,430,686 - - Rents 1,602,727 - - 46,269 249,507 340,604 - Investment earnings (1,081,720) Contributions 421,444 Miscellaneous Total revenues 719,684 - - 59,268,809 8,543,337 21,577,583 4,972,939 EXPENDITURES: Current: General government 9,899,937 - Public safety 30,849,989 - - Public works 1,472,485 - - Economic and physical development 4,807,862 - - Culture and recreation 6,329,040 - 6,622 35,663 7,870,968 358,911 138,775 478,659 1,855,000 Highways and streets Debt service: Principal retirement Interest and other charges Capital outlay Total expenditures Excess (deficiency) of revenues over expenditures 38,381 67,079 506,500 1,491,866 2,645,434 4,232,113 55,063,998 11,062,140 11,932,085 4,204,811 (2,518,803) 9,645,498 OTHER FINANCING SOURCES (USES): Issuance of capital debt 133,531 - 8,930,000 - - 1,214,732 2,753,444 2,129,581 Bond premium Transfers in Transfers out (5,546,718) Total other financing sources (uses) (2,659,743) Net change in fund balances Fund balances, end of year 40,464,781 The notes to the financial statements are an integral part of this statement 28 7,800,789 (402,222) 38,919,713 $ (2,343,943) 2,116,581 1,545,068 Fund balances, beginning of year - (13,000) 17,446,287 7,763,092 $ 7,360,870 18,545,232 $ 35,991,519 $ - $ $ 14,557,844 $ 65,263,433 - - 3,210,071 22,504,605 10,850,138 - 315,071 1,342,596 - - 202,243 202,243 - - - 3,454,567 - - - 3,013,367 - - - 1,430,686 - - 202,730 1,805,457 - 119,958 189,296 (476,690) - - 107,436 869,484 - 300 403,145 1,123,129 - 435,329 20,215,361 110,040,419 - 1,779,714 - 16,652,590 - - - 30,849,989 - - - 1,472,485 - 30,619 4,151,192 8,989,673 - - 5,518,849 11,854,511 - - 178,067 8,443,609 11,401,644 - 280,826 14,154,904 1,689,220 - 233,441 2,534,621 - 3,742,849 1,890,633 14,002,895 13,090,864 5,553,182 12,253,008 108,955,277 (13,090,864) (5,117,853) 7,962,353 1,085,142 16,025,700 1,000,000 26,168,531 79,300 13,011,564 - $ - Total Governmental Funds Other Governmental Funds Capital Projects Bond Construction General Obligation Bond Fund 2,286,081 - 3,500,813 2,113,225 2,300,509 22,308,323 (15,566,014) (23,469,870) 13,090,864 20,424,811 (12,265,505) 28,507,797 - 15,306,958 (4,303,152) 29,592,939 - (1,045,152) 28,131,075 92,313,960 23,827,923 $ 121,906,899 - (195) $ 14,261,806 $ 29 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, 2017 Net change in fund balances - total governmental funds $ 29,592,939 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 14,002,895 (13,587,540) 415,355 Some items reported in the governmental funds are not sources and uses of current financial resources and therefore are not reported as revenues or expenses in the statement of activities. These items include: Net pension expense related to ASRS Net pension expense related to PSPRS Net pension expense related to EORP Pension contribution for EORP Claims and judgements Capital-related debt issued Premium on debt issued Donated capital Compensated absences Other postemployment benefits Principal payments on debt Interest accural on debt Refunding loss amortization Bond premium amortization 76,860 (7,298,330) (404,738) 91,204 (1,808,834) (26,168,531) (3,500,813) 225,400 (278,868) (668,233) 14,154,904 (209,012) (161,308) 324,560 (25,625,739) (10,200) (10,200) Providing long-term loans are reported as an expenditures in the governmental funds but are reported as notes receivable on the statement of net position. However, other expenditures that are unrecognized in the governmental funds because they do not provide current financial resources due to unavailability are recognized in the statement of activities. Available portion of promissory note Certain transactions related to capital assets in the governmental funds reflect proceeds. However, in the statement of activities these transactions reflect net gain (loss). 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 30 (155,996) (2,210,943) 2,298,905 (68,034) (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, 2017 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 unearned in the governmental funds because they do not provide current financial resources due to unavailability are recognized in the statement of activities. Court (Fines and forfeitures) Special assessments Property tax 18,623 (98,461) (6,030) (85,868) (316,555) 29,366 (287,189) 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. Net allocated (loss) assigned to governmental activities Investment income Change in net position of governmental activities - statement of activities $ The notes to the financial statements are an integral part of this statement (concluded) 31 3,931,264 City of Flagstaff, Arizona General Fund Statement of Revenues, Expenditures, and Changes in Fund Balances - Budget and Actual Year Ended June 30, 2017 Budget Original Actual Amounts Budgetary Basis Final Variance with Final Budget REVENUES: Taxes $ Intergovernmental 26,889,786 $ 26,889,786 $ 27,381,052 18,484,079 18,484,079 19,294,533 $ 491,266 810,454 Grants and entitlements 1,689,169 1,689,169 1,209,967 (479,202) Charges for services 2,985,550 2,985,550 3,454,568 469,018 Licenses and permits 1,921,680 1,921,680 2,839,407 Fines and forfeitures 3,298,980 3,298,980 1,430,686 (1,868,294) Rents 1,699,209 1,699,209 1,602,727 (96,482) 262,000 262,000 337,691 75,691 10,000 10,000 421,444 411,444 Investment earnings Contributions Miscellaneous Total revenues 917,727 261,300 261,300 284,211 22,911 57,501,753 57,501,753 58,256,286 754,533 10,973,306 10,973,306 10,029,414 943,892 3,822,504 3,822,504 3,534,678 287,826 EXPENDITURES: Current: General administration Management services Fire 12,607,477 12,607,477 12,436,424 171,053 Police 20,277,258 20,277,258 19,029,721 1,247,537 4,637,447 4,637,447 4,170,022 467,425 11,289,893 11,289,893 8,712,542 2,577,351 Community development Public works Economic vitality Non-departmental Contingency Total expenditures Excess (deficiency) of revenues over (under) expenditures 175,166 175,166 (869,318) (869,318) 304,568 (129,402) (3,193,806) 2,324,488 600,000 600,000 - 600,000 63,513,733 63,513,733 55,023,563 8,490,170 3,232,723 9,244,703 133,531 (6,011,980) (6,011,980) OTHER FINANCING SOURCES (USES): Issuance of capital debt Sale of capital assets Transfers in Transfers out Total other financing sources (uses) Net change in fund balances Fund balances , beginning of year Fund balances, end of year - - 133,531 20,000 20,000 - (20,000) 3,213,434 3,213,434 2,753,444 (459,990) (7,095,020) (7,095,020) (5,546,718) 1,548,302 (3,861,586) (3,861,586) (2,659,743) 1,201,843 (9,873,566) (9,873,566) 23,975,214 $ 23,975,214 14,101,648 $ Adjustment of budgetary basis to GAAP basis net change in fund balances 14,101,648 572,980 10,446,546 38,919,713 - $ 39,492,693 $ 572,980 The City budgets certain revenues on the cash basis, rather than on the modified accrual basis. 1,012,523 The City budgets for certain other expenditures on the cash basis, rather than on the modified accrual basis (40,435) Adjusted net change in fund balance - GAAP basis $ The notes to the financial statements are an integral part of this statement 32 1,545,068 $ 10,446,546 City of Flagstaff, Arizona Highway User Revenue Fund Statement of Revenues, Expenditures, and Changes in Fund Balances - Budget and Actual Year Ended June 30, 2017 Budget Original Final Actual Amounts Budgetary Basis 7,149,600 $ Variance with Final Budget REVENUES: Grants and entitlements $ Investment earnings 7,149,600 $ 6,000 Miscellaneous Total revenues 6,000 7,982,504 $ 46,269 832,904 40,269 - - 173,960 173,960 7,155,600 7,155,600 8,202,733 1,047,133 EXPENDITURES: Current: Community development Public works Non-departmental Contingency Total expenditures Excess (deficiency) of revenues over (under) expenditures 8,039,191 8,039,191 1,389,096 6,650,095 11,819,145 11,819,145 8,716,221 3,102,924 956,823 956,823 956,823 - 100,000 100,000 - 100,000 20,915,159 20,915,159 11,062,140 9,853,019 (13,759,559) (13,759,559) (2,859,407) 10,900,152 OTHER FINANCING SOURCES (USES): Transfers in 8,917,839 Transfers out (13,000) Total other financing sources (uses) Net change in fund balances budgetary basis Fund balances, beginning of year Fund balances, end of year 8,917,839 $ (13,000) 8,904,839 8,904,839 (4,854,720) (4,854,720) 6,105,914 6,105,914 1,251,194 2,129,581 $ 1,251,194 (13,000) 4,111,894 7,763,092 $ $ modified accrual basis. 7,020,266 (742,826) 340,604 $ 33 (6,788,258) (742,826) The City budgets certain revenues on the cash basis, rather than on the Adjusted net change in fund balance - GAAP basis - 2,116,581 The notes to the financial statements are an integral part of this statement Adjustment of budgetary basis to GAAP basis net change in fund balances (6,788,258) (402,222) $ 4,111,894 City of Flagstaff, Arizona Transportation Fund Statement of Revenues, Expenditures, and Changes in Fund Balances - Budget and Actual Year Ended June 30, 2017 Budget Original Actual Amounts Budgetary Basis Final Variance with Final Budget REVENUES: Taxes $ 18,912,924 $ 18,912,924 $ 19,376,033 $ 463,109 Grants and entitlements 392,970 392,970 - Investment earnings 162,000 162,000 249,507 87,507 19,467,894 19,467,894 19,625,540 157,646 14,360,122 14,360,122 2,895,849 11,464,273 3,700,000 3,700,000 1,457,797 2,242,203 Total revenues (392,970) EXPENDITURES: Current: Community development Public works Non-departmental Total expenditures Excess (deficiency) of revenues over (under) expenditures 9,602,491 9,602,491 7,578,439 2,024,052 27,662,613 27,662,613 11,932,085 15,730,528 7,693,455 15,888,174 - 8,930,000 8,930,000 - 1,214,732 1,214,732 (8,194,719) (8,194,719) OTHER FINANCING SOURCES (USES): Capital bonds issued Bond premium - Sale of capital assets - Transfers out Total other financing sources (uses) Net change in fund balances Fund balances, beginning of year Fund balances, end of year $ - - (8,612,205) (8,612,205) (2,343,943) (8,612,205) (8,612,205) 7,800,789 16,412,994 (16,806,924) (16,806,924) 15,494,244 32,301,168 25,574,611 25,574,611 18,545,232 - 8,767,687 $ Adjustment of budgetary basis to GAAP basis net change in fund balances 8,767,687 $ 34,039,476 $ 15,494,244 The City budgets certain revenues on the cash basis, rather than on the modified accrual basis. 1,952,043 The City budgets for certain other expenditures on the cash basis, rather than on the modified accrual basis - Adjusted net change in fund balance - GAAP basis $ The notes to the financial statements are an integral part of this statement 34 17,446,287 6,268,262 $ 32,301,168 35 City of Flagstaff, Arizona Statement of Net Position Proprietary Funds June 30, 2017 Business-type Activities - Enterprise Funds ASSETS Current assets: Cash and investments Receivable, net Interfund receivables Intergovernmental receivable Prepaid items Total current assets Noncurrent assets: Restricted cash and investments Refundable deposits Capital assets, non-depreciable Capital assets, depreciable, net Total non-current assets Total assets Water and Wastewater Fund $ 28,715,071 4,191,448 32,906,519 Environmental Services Fund $ 1,593,915 8,763 17,230,406 237,874,763 256,707,847 289,614,366 Deferred outflows of resources Deferred outflows related to pension Total assets and deferred outflows of resources 8,298,187 1,488,662 5,587 9,792,436 Airport Fund $ 12,040,248 2,023,209 7,539,623 21,603,080 31,395,516 49,944 32,913 6,037,652 6,120,509 2,356,460 39,181,891 41,538,351 47,658,860 1,328,140 992,507 504,066 290,942,506 32,388,023 48,162,926 LIABILITIES Current liabilities: Accounts payable Construction retainage payable Accrued payroll Accrued compensated absences Interest payable Advanced revenue Claims and judgements Interfund payable Deposits payable Bonds and lease payable, net - current Total current liabilities Noncurrent liabilities: Compensated absences Net OPEB obligation Net pension liability Claims and judgements Landfill closure and postclosure care costs Capital lease payable Bonds and notes payable, net Total noncurrent liabilities Total liabilities 1,776,563 115,195 185,203 157,148 552,977 733,634 720,796 2,698,334 6,939,850 159,878 130,861 87,975 24,295 41,292 444,301 318,002 654,545 30,301 23,514 5,000,000 2,459 155,451 6,184,272 181,087 564,196 6,445,953 1,460,046 29,075,546 37,726,828 44,666,678 88,043 428,734 4,953,637 8,475,779 13,946,193 14,390,494 16,557 72,304 2,086,792 1,248,764 3,424,417 9,608,689 Deferred inflows related to pension Total deferred inflows and liabilities 800,961 45,467,639 613,236 15,003,730 31,289 9,639,978 221,756,048 9,562,832 39,479,591 1,593,915 22,124,904 245,474,867 1,548,330 6,273,131 17,384,293 NET POSITION Net investment in capital assets Restricted: Capital projects Unrestricted (deficit) Total net position $ The notes to the financial statements are an integral part of this statement 36 $ $ (956,643) 38,522,948 Governmental Activities Business-type Activities - Enterprise Funds Stormwater Fund Housing Authority $ $ 1,697,375 221,082 4,277 1,922,734 15,305,123 26,448,365 41,753,488 43,676,222 $ 1,052,827 28,108 20,697 108,016 39,789 1,249,437 Total $ 1,446,035 3,340,368 4,786,403 6,035,840 39,813,404 5,962,213 20,697 6,155,532 39,789 51,991,635 Internal Service Fund $ 13,634,163 8,763 38,361,233 314,385,010 366,389,169 418,380,804 3,577,474 60,095 6,775 3,644,344 3,644,344 109,165 436,928 3,370,806 43,785,387 6,472,768 421,751,610 3,644,344 59,290 37,141 17,807 11,095 30,564 155,897 215,566 53,582 57,416 16,800 6,775 73,515 423,654 2,529,299 806,881 417,754 337,148 552,977 805,293 5,006,775 838,062 2,853,785 14,147,974 179,534 170 15,335 195,039 10,325 56,141 558,990 625,456 781,353 135,550 145,864 2,171,518 2,452,932 2,876,586 431,562 1,267,239 16,216,890 8,475,779 2,708,810 29,075,546 58,175,826 72,323,800 107,836 107,836 302,875 68,833 850,186 269,074 3,145,660 1,783,393 74,107,193 302,875 41,716,347 4,786,403 317,301,221 - 1,218,854 42,935,201 (1,459,295) 3,327,108 3,142,245 27,200,951 347,644,417 3,341,469 3,341,469 $ $ Some amounts reported for business-type activities in the statement of net position are different because certain internal service fund assets and liabilities are included with business-type activities Net position of business-type activities $ (774,061) 346,870,356 37 - $ City of Flagstaff, Arizona Statement of Revenues, Expenses, and Changes in Fund Net Position Proprietary Funds Year Ended June 30, 2017 Business-type Activities - Enterprise Funds Water and Wastewater Fund OPERATING REVENUES: Charges for services Miscellaneous Total operating revenues $ 25,916,721 100,039 26,016,760 OPERATING EXPENSES: Personnel services Contractual services, materials and supplies Insurance claims and expenses Depreciation and amortization Total operating expenses Operating income (loss) Environmental Services Fund $ 13,047,045 8,290 13,055,335 Airport Fund $ 1,503,945 1,503,945 5,390,460 11,411,655 8,632,388 25,434,503 4,375,161 6,951,654 972,183 12,298,998 1,051,318 1,448,153 2,480,354 4,979,825 582,257 756,337 (3,475,880) 234,193 155,377 36,527 191,904 3,685 338,747 263,063 (85,183) 520,312 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) (2,298,906) (1,086,626) (3,151,339) Income (loss) before capital contributions and transfers (2,569,082) 948,241 (2,955,568) 7,731,083 405,550 (14,999) 5,552,552 195 (224,494) 723,942 6,151,499 1,051,161 4,247,092 Capital contributions related to grants Capital contributions from external sources Transfers in Transfers out Change in net position Total net position, beginning of year Total net position, end of year 239,922,315 $ 245,474,867 The notes to the financial statements are an integral part of this statement 38 16,660,351 $ 17,384,293 34,275,856 $ 38,522,948 Governmental Activities Business-type Activities - Enterprise Funds Stormwater Fund Housing Authority $ $ 1,598,913 1,598,913 413,810 219,845 542,864 1,176,519 12,846 4,277 17,123 439,517 1,224,230 111,925 (196,688) 1,578,984 41,356,217 42,935,201 $ 1,634,724 4,554,646 468,028 6,657,398 422,394 $ 1,605,422 5,924 1,611,346 $ Internal Service Fund Total 43,672,046 114,253 43,786,299 $ 12,865,473 24,585,953 13,095,817 50,547,243 (5,046,052) (6,760,944) 4,574,068 4,574,068 406,101 4,953,619 (2,298,906) 263,063 (1,171,809) 2,152,068 6,331,073 6,331,073 6,789,189 6,789,189 (458,116) 29,366 29,366 (471,984) (4,608,876) (428,750) 266,362 28,897 (176,725) 6,417,861 8,955,313 1,597,728 (436,181) 11,925,845 (428,750) 3,503,833 335,718,572 3,327,108 $ 347,644,417 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 position of business-type activities $ (141,561) 11,784,284 39 3,770,219 $ 3,341,469 City of Flagstaff, Arizona Statement of Cash Flows Proprietary Funds Year Ended June 30, 2017 Business-type Activities - Enterprise Funds 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 Water and Wastewater Fund $ 25,921,615 282,124 (8,199,803) (43,055) (2,332,543) (5,261,712) 10,366,626 Cash flows from noncapital financing activities: Transfer from other funds Transfer to other funds Interfund loans provided 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 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 $ $ Classified as: Cash, cash equivalents, and investments Restricted cash and cash equivalents $ 1,565,094 263,063 (818,306) (33,080) (353,170) (822,921) (199,320) 1,051,161 5,000,000 390,551 (224,299) 6,051,161 48,358 5,082,535 (4,923,707) (2,852,433) (1,135,704) 31,256 (2,002,923) - 505,501 (6,450,985) (174,028) (85,183) (3,780,951) (1,971,667) (6,204,695) 28,715,071 1,593,915 30,308,986 The notes to the financial statements are an integral part of this statement 40 $ 195 (224,494) - 7,266,174 23,042,812 30,308,986 $ 12,697,026 146,139 (5,340,905) (4,429) (1,299,691) (4,236,874) 1,961,266 Airport Fund 405,550 (14,999) - 289,948 289,948 Cash and cash equivalents at end of year Totals Environmental Services Fund 157,843 157,843 $ $ $ (76,857) 20,415,292 20,338,435 8,298,187 12,040,248 20,338,435 5,519 5,519 $ $ $ (347,335) 397,279 49,944 49,944 49,944 Governmental Activities Business-type Activities - Enterprise Funds Housing Authority Stormwater Fund $ 1,545,888 36,117 (150,037) (114,248) (391,114) 926,606 $ 111,925 (196,688) (84,763) $ $ $ Total 1,604,505 5,924 (4,314,293) (204,287) (1,582,960) (4,491,111) $ 43,334,128 464,380 268,987 (18,823,344) (284,851) (4,099,652) (12,295,581) 8,564,067 (6,775) - 26,727 6,159,377 (6,775) (447,560) 4,561,531 5,256,597 5,348,897 (14,201,488) (3,026,461) (1,220,887) - (7,843,342) - 11,994 11,994 - 465,304 465,304 406,277 1,291,098 1,697,375 97,147 955,680 1,052,827 7,345,406 46,102,161 53,447,567 $ $ 6,328,295 (6,939,452) (611,157) 1,597,728 (436,181) (8,945) 5,006,775 4,551,482 266,362 (256,313) - 1,697,375 1,697,375 $ 28,897 (8,945) 6,775 120,000 (567,560) - $ Internal Service Fund 1,052,827 1,052,827 $ $ $ 39,813,404 13,634,163 53,447,567 (continued) 41 30,725 30,725 $ $ $ (587,207) 4,164,681 3,577,474 3,577,474 3,577,474 City of Flagstaff, Arizona Statement of Cash Flows Proprietary Funds Year Ended June 30, 2017 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) $ 582,257 $ 756,337 $ (3,475,880) Adjustments to reconcile operating income (loss) to net cash provided (used) by operating activities: Depreciation and amortization Landfill closure and postclosure costs 8,632,388 972,183 - 320,104 - - - 263,063 Other receipts (Increase) decrease in assets: Accounts receivable (152,880) Allowance for doubtful accounts Prepaid items Increase (decrease) in liabilities: Accounts payable OPEB Pension expense (contribution) Deposits payable Advanced revenue Total adjustments Net cash provided (used) by operating activities (209,057) - 14,000 - - - (13,475) 229,597 48,365 56,701 69,233 48,700 8,563 11,150 32,886 204,934 136,825 12,355 203,034 (15,468) 9,784,369 $ 63,211 - 836,254 Accrued payroll, compensated absences 2,480,354 14,900 (30) (2,032) 1,204,929 10,366,626 $ 1,603,586 $ 3,276,560 1,961,266 $ - $ (199,320) Noncash investing, capital and financing activities: Capital assets acquired through contributions from developers Loss on disposal of capital assets $ Capital assets transferred from other funds Total noncash investing, capital and financing activities $ - (2,298,905) - - 1,044,962 - - 349,643 The notes to the financial statements are an integral part of this statement 42 $ - $ - Governmental Business-type Activities - Enterprise Funds Housing Authority Stormwater Fund $ 422,394 $ Internal Service Fund Total (5,046,052) $ (6,760,944) $ (458,116) 542,864 468,028 13,095,817 - - - 320,104 - - - 263,063 - (16,908) 2,569 (313,065) (1,952) - (11,110) - 16,339 16,339 (44,440) 19,727 1,027,663 11,511 17,318 148,795 5,255 21,454 153,205 5,930 12,992 267,892 - 148 149,298 - 7,476 193,010 (826) 504,212 554,941 15,325,011 (153,041) $ 926,606 $ $ 58,249 $ $ Activities (4,491,111) - 2,890 $ $ 1,661,835 $ (2,298,905) 1,165,981 - 2,210,943 - $ - $ - $ - 8,564,067 - 1,224,230 (150,263) 1,573,873 (concluded) 43 (611,157) - $ - City of Flagstaff, Arizona Notes to the Financial Statement June 30, 2017 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-Manager form of government and the authority to provide municipal services, as limited by the State Constitution. The accounting policies of the City of Flagstaff conform to accounting principles generally accepted in the United States of America (GAAP) as applicable to Governmental Units. The Governmental Accounting Standards Board (GASB) is the accepted standard-setting body for establishing governmental accounting and financial reporting principles. For the year ended June 30, 2017, the City adopted the provisions of GASB Statement No. 77 Tax Abatement Disclosures and GASB Statement No. 86 Certain Debt Extinguishment Issues. GASB Statement No. 77 establishes financial reporting standards for tax abatement agreements entered into by state and local governments. The disclosures required by this Statement encompass tax abatements resulting from both (a) agreements that are entered into by the reporting government and (b) agreements that are entered into by other governments and that reduce the reporting government’s tax revenues. The provisions of this Statement should be applied to all state and local governments subject to such tax abatement agreement. GASB Statement No. 86 establishes standards of accounting and financial reporting for in-substance defeasance transactions in which cash and other monetary assets acquired with only existing resources—that is, resources other than the proceeds of refunding debt—are placed in an irrevocable trust for the purpose of extinguishing debt. This Statement also amends accounting and financial reporting requirements for prepaid insurance associated with debt that is extinguished, whether through a legal extinguishment or through an insubstance defeasance, regardless of how the cash and other monetary assets were acquired. Finally, this Statement establishes an additional disclosure requirement related to debt that is defeased in substance, regardless of how the cash and other monetary assets were acquired. The requirements of this Statement apply to financial statements of all state and local governments. 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 Position and Activities to emphasize they are legally separate from the government. The City of Flagstaff has no discretely presented component units. 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. 44 B. Government-Wide and Fund Financial Statements The government-wide financial statements (statement of net position 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 statements. 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. eliminated in the process of consolidation. Interfund services provided and used are The government-wide statement of net position reports all financial and capital resources of the government. It is displayed in a format of assets plus deferred outflows of resources, less liabilities, less deferred inflows of resources, equals net position, with the assets and liabilities shown in order of their relative liquidity. Net position is required to be displayed in three components: 1) net investment in capital assets, 2) restricted, and 3) unrestricted. Net investment in capital assets consists of capital assets, net of accumulated depreciation, reduced by outstanding balances of any bonds, mortgages, notes or other borrowings that are attributable to the acquisition, construction, or improvement of those assets. Deferred outflows of resources and deferred inflows of resources that are attributable to the acquisition, construction, or improvement of those assets or related debt are also included in the net position. The portion of unspent related debt proceeds or deferred inflows of resources at the end of the reporting period is not included in the calculation of net investment in capital assets; instead that portion of the debt or deferred inflows of resources is included in the same net position component as the unspent amount. Restricted net position occurs when a constraint is placed on its 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 position not otherwise classified as restricted, is 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 position is available. 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 and deferred outflows, liabilities and deferred inflows, revenues, or 45 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, which the City has not elected. 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. Nonoperating 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, deferred outlflows of resources, liabilities, deferred inflows of resources, fund balance, revenues and expenditures/expenses. 46 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. In FY 2015, voters approved an additional transportation tax for road repair and street safety which is valid through 2035. In FY 2016, voters approved an extension of the transit tax to 2030. Capital Projects Funds are 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.  Capital Projects Bond Construction Fund, accounts for major capital acquisition and construction projects which are funded mainly with general obligation or other governmental debt. Debt Service Funds are used to account for the accumulation of resources for, and the payment of, general long-term obligation principal and interest.  General Obligation Bond Fund, which is used to account for the accumulation of resources for, and the payments of, general long-term obligation principal and interest. Permanent Funds are used to account for resources that are legally restricted to the extent that only earnings, and not principal, may be used for purposes that support the reporting government’s programs. Resources are generated from ongoing plot sales with a portion allocated to perpetuity. 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 47 or necessary for sound fiscal management. The measurement focus is based upon determination of net income, changes in net position, net position, and cash flows. Enterprise Funds are used to account for operations that provide services to the general public for a fee. Under GASB Statement No. 34, enterprise funds are also required for any activity whose principal revenue sources meet any of the following criteria: 1) any activity that has issued debt backed solely by the fees and charges of the activity, 2) if the cost of providing services for an activity, including capital costs such as depreciation or debt service, must legally be recovered through fees and charges, or 3) it is the policy of the City to establish activity fees or charges to recover the cost of providing services, including capital costs. The City has 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, management of the City landfill, recycling collection services and the management of sustainability programs.  Airport Fund accounts for the construction, operations and maintenance of the City airport.  Stormwater Fund accounts for the construction, operations and maintenance activities of the City stormwater system.  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. 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. 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 plus deferred outflows of resources, equals current liabilities plus deferred inflows of resources, plus fund balance. Operating statements present increases (i.e., revenues and other financing sources) and decreases (i.e., expenditures and other financing uses) in net change in fund balances. Enterprise funds are accounted for on a flow of economic resources measurement focus whereby all assets plus deferred outflows of resources, less liabilities and deferred inflows of resources associated with the operation of these funds, equals net position, as presented on the statement of net position. Operating statements present increases (i.e., revenues) and decreases (i.e., expenses) in net total position. The modified accrual basis of accounting is used by governmental funds. Revenues are recognized when susceptible to accrual (i.e., when they become both measurable and available). “Measurable” means the amount of the transaction can be determined and “available” means collectible within the current period or soon enough thereafter to be used to pay liabilities of the current period. The City considers all revenues, 48 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. 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 section’s expenditure appropriation. Any budget revisions requiring a transfer between divisions must be approved by the City Council. City manager, human resources, and information technology are example sections of the general administration division. • All unencumbered expenditure appropriations expire at the end of the fiscal year. • Encumbered amounts are re-budgeted in the following year as deemed appropriate and necessary after review by the Budget Committee. Budgetary carry forwards are approved by the City Council as part of the budget adoption process. • All funds of the City have legally adopted budgets with the exception of the internal service fund and perpetual care fund. Formal integration of these budgets into the City’s financial systems is employed as a management control device during the year for all funds. 49 The City prepares its annual budget on a modified cash basis, which differs from GAAP. GASB Statement No. 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, Deferred Outflows of Resources, Liabilities, Deferred Inflows of Resources and Net Position 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), 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 based on quoted market prices. 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 or less. 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. Levies are due and payable in two installments on September 1 and March 1. First half installments become delinquent on November 1; second half installments become delinquent on May 1. Interest at the rate of 12% per annum accrues following delinquent dates. Coconino County bills and collects all property taxes, at no charge to the taxing entities. A lien against property assessed attaches on the first day of January preceding assessment and levy thereon. Under Arizona tax laws there are two property tax levies: primary and secondary. Primary property taxes are not restricted as to use and are used to finance the general operations of the City. Secondary property taxes are restricted for general obligation bonded debt service. The secondary property tax levy is recorded as revenue in a debt service fund and transferred to the Water and Wastewater Fund and the General Obligation Bond Fund. Secondary property taxes are restricted for general obligation bonded debt service. The secondary property tax levy is recorded as revenue in a debt service fund and transferred to the Water and Wastewater 50 Activity between funds that is representative of lending/borrowing arrangements outstanding at the end of the fiscal year is classified as interfund receivables and payables. Any residual balances outstanding between the governmental activities and business-type activities are reported in the government-wide financial statements as internal balance. Deferred Outflows of Resources When a consumption of net position/fund balance applies to a future period it should not be recognized as an outflow of resources, expense or expenditure until that time. Advance refunding resulting in defeasance of debt, the difference between the reacquisition price and the net carrying amount of the old debt is reported as a deferred outflow of resources or a deferred inflow of resources and recognized as a component of interest expense in a systematic and rational manner over the remaining life of the old debt or the life of the new debt, whichever is shorter. Inventory and Prepaids 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. Prepayments of the governmental funds, which are prepared using the modified accrual basis of accounting, are recorded under the purchases method, and are therefore recorded as expenditures when purchased. Within the government-wide statements, which are prepared using the accrual basis of accounting, prepayments are recorded as assets and amortized over the life of the related agreement. Prepaid items contain payments made to vendors applicable to future accounting periods in both the government-wide and proprietary fund financial statements. The cost of a prepaid item is recorded as an expense when consumed rather than purchased. 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 position, 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 recognizes grant 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 advance revenues. Some grants and contributions consist of capital assets or resources that are restricted 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. Deferred Inflows of Resources Revenues and other governmental fund financial resources are recognized in the accounting period in which they become both measurable and available. When an asset is recorded in the governmental fund financial statements but the revenue is not available, the government reports a deferred inflow of resources until such time as the revenue becomes available. Revenue related to property tax and special assessment liens are recorded in governmental funds but the revenue is not available in the current period so it is reported as a deferred inflow of resources. Pensions For purposes of measuring the net pension liability, deferred outflows of resources and deferred inflows of resources related to pensions, pension expense, information about the pension plans’ fiduciary net position and additions to/deductions from the plans’ fiduciary net position have been determined on the same basis 51 as they are reported by the plans. For this purpose, benefit payments (including refunds of employee contributions) are recognized when due and payable in accordance with the benefit terms. Investments are reported at fair value. 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): Assets Useful life (years) Buildings 10-50 Improvements 10-20 Machinery and Equipment 5-25 Infrastructure 25-75 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 52 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 position. 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 position. Bond premiums and discounts are amortized over the life of the bonds using a method which approximates the effective interest method. 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. 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 the budget committee with final review completed during the annual budget process; the City has no formal policy in place. 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. 53 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 Position 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. Reconciliations briefly explaining the adjustments necessary to transform the fund financial statements into the governmental activities column of the government-wide financial statements immediately follow each fund financial statement. Reconciliation of Governmental funds Balance Sheet and the government-wide Statement of Net Position: Total Governmental Funds Long-Term Internal Reclass Statement of Capital Assets - Service and Net Position Assets (1) Liabilities (2) Fund (3) Eliminations (4) Totals Assets Cash and cash equivalents $ 85,319,066 $ - $ - $ 3,577,474 $ - $ Cash with fiscal agents 88,896,540 - Accounts receivable, net 14,904,434 Interest receivable Intergovernmental receivables Note Recevable - - 53,209 - 14,957,643 210,912 - - 6,886 - 217,798 2,121,288 - - - - 2,121,288 316,400 - - - - 316,400 Special assessments receivable 2,021,951 - - - - 2,021,951 Interfund receivable 6,500,000 - - 391,981 - - - - 391,981 27,323,181 - - - - 27,323,181 Inventory Restricted cash and cash equivalents Capital assets - 780,836 (1,520,697) 309,558,542 - 139,109,213 309,558,542 - Deferred pension - - 30,548,285 - - Deferred loss on bond refunding - - 654,595 - - 654,595 - - 31,202,880 - - 31,202,880 Total assets - 5,760,139 - 4,418,405 309,558,542 (1,520,697) 451,565,463 Deferred Outflows of Resources Total deferred outflows of rescources Total Assets and Deferred Outflows of Resources $ 139,109,213 $ 309,558,542 $ 31,202,880 $ 4,418,405 $ 30,548,285 (1,520,697) $ 482,768,343 Liabilities Accounts and retainage payable $ Accrued payroll & compensated absences 8,525,746 $ 2,164,838 Interest payable Interfund payable Advanced revenue Guaranty and other deposits - $ - - $ - 179,534 $ - 8,705,280 2,164,838 - 1,306,035 - - - - 718,868 - - 170 - 719,038 - - - 1,414,580 - - 6,029,863 - - - - 4,252,620 - 1,932,005 - Unamortized bond premium - - Unamortized bond discount - - Compensated absences - - - $ 1,520,697 1,414,580 1,306,035 - 6,029,863 (68,443) 4,252,620 (1,520,697) (68,443) Claims and judgements - - 1,808,834 Other postemployment benefits - - 5,610,335 - - 5,610,335 Net pension liability - - 132,593,865 - - 132,593,865 Unmatured long-term debt - 123,171 - - 74,014,522 14,344,729 - 225,547,631 Unavailable revenue - court fines 321,590 - (321,590) - - - Unavailable revenue - note receivable 316,400 - (316,400) - - - Unavailable revenue - property taxes 198,069 - (198,069) - - - 2,021,526 - (2,021,526) - - - - 5,205,862 - - 5,205,862 - 2,348,277 - - 5,205,862 Total liabilities - - 302,875 74,014,522 (1,520,697) 238,674,538 Deferred inflows of resources Unavailable revenue - special assessments Deferred inflow related to pension Total deferred inflows of resources 2,857,585 Fund Balance - Net Position Fund balance/Net Position Total liabilities, deferred inflows and fund balance-net position $ 121,906,899 309,558,542 139,109,213 $ 309,558,542 $ 54 (196,693,028) 31,202,880 4,115,530 $ 4,418,405 $ (1,520,697) $ 238,887,943 482,768,343 (1) Capital assets (land, buildings, equipment, etc.) used in governmental activities are purchased or constructed with the costs of those assets reported as expenditures in governmental funds, and thus a reduction in fund balance. However, the statement of net position includes those capital assets among the assets of the City as a whole and amortizes the cost over the life of the asset as depreciation expense. Costs of capital assets Accumulated depreciation $ 539,743,698 (230,185,156) 309,558,542 (2) Certain receivables are reported as unavailable in the governmental funds, but are earned in the statement of net position. Promissory note forgivable Court receivables $ 316,400 321,590 637,990 Certain deferred outflows and inflows of resources are applicable to future periods and, therefore, not recognized in the governmental funds, but are reported in the statement of net position. Deferred outflows related to pensions $ Deferred loss on bond refunding Deferred inflows related to pensions 30,548,285 654,595 (5,205,862) 25,997,018 Long-term liabilities applicable to the City's governmental activities are not due and payable in the current period, and accordingly are not reported as fund liabilities in the governmental fund statement. All liabilities, both current and longterm are reported in the statement of net position. Governmental bond and lease payable Governmental interest payable Compensated absences Other postemployment benefits Net pension liability Claims and judgements Unamortized bond premium Unamortized bond discount $ 74,014,522 1,306,035 4,252,620 5,610,335 132,593,865 1,808,834 6,029,863 (68,443) 225,547,631 Revenue for the long-term special assessment receivables and property tax shown on the governmental fund statements is not reflected on the statements of net position. Special assessment Property tax $ 2,021,526 198,069 2,219,595 (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 position, but are not included on the governmental fund balance sheet. ISF net position $ 4,115,530 (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 position. Interfund receivables Interfund payables $ 1,520,697 (1,520,697) - 55 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 Governmental Funds Revenues and Other Sources Taxes Intergovernmental $ Grants and entitlements 65,263,433 22,504,605 3,454,567 Fines and forfeitures 1,430,686 Licenses and permits Miscellaneous Expenditures/Expenses General governmental Public works 110,040,419 225,400 5,336 - 662,551 - - - - 29,366 - - 29,366 1,968,010 142,099 8,951,808 (229,572) - (14,154,904) - 209,012 (14,002,895) - (259,359) (3,716,801) - 26,168,531 - (23,469,870) - 28,507,797 29,592,939 42,611 (3,500,813) (26,168,531) - $ 484,759 56 - $ (29,669,344) (25,947,207) $ (10,157,078) - - 316,555 - - 12,347,527 2,867,634 103,782 - 1,449,309 - 3,013,367 - 1,805,457 - (447,324) - 1,186,088 - 110,300,521 - 1,123,129 19,320,158 - 42,090,228 1,895,576 419,580 9,833,154 (444,724) 13,563,829 (1,370,854) 15,849,094 - - - 2,743,633 - 105,295,672 - - - - - - 87,962 (287,189) $ 87,962 87,962 - 83,396,985 3,454,567 148,664 - $ - 5,497 54,103 Activities Totals - 1,247,334 43,933 Statement of (7,982,504) 56,071 29,503 22,308,323 $ - 54,994 3,500,813 Transfers out - 339,404 14,002,895 Transfers in $ 18,139,582 - 8,989,673 226,319 108,955,277 Issuance of capital debt - 127,448 2,534,621 Bond premium and Eliminations (4) 9,517,347 14,154,904 OTHER FINANCING SOURCES (USES): 701,612 Adjustments Service Fund (3) 1,595,444 Principal retirement Total expenditures/expenses - Internal 30,849,989 8,443,609 Capital outlay - 91,204 11,854,511 Interest and other charges - 225,400 Culture and recreation Highways and streets - 18,623 869,484 1,472,485 Economic and physical development - - 16,652,590 Public safety - (98,461) - 1,123,129 Total revenue (6,030) $ - - (476,690) Contributions $ - 1,805,457 Investment earnings - 3,013,367 Rent - Revenues/ Expenses (2) - 202,243 Charges for services Total other financing sources (uses) Net change for the year $ 10,850,138 Special assessments Long-Term Related Items (1) - 22,396,285 (23,469,870) $ (1,073,585) 3,931,264 (1) When capital assets that are to be used in the governmental activities are purchased or constructed, the resources expended for those assets are reported as expenditures in governmental funds. However, in the statement of activities, the cost of those assets is allocated over their useful lives and reported as depreciation expense. As a result, fund balance decreases by the amount of the financial resources expended, whereas net position decreases by the amount of depreciation expense charged for the year. Capital outlay Depreciation expense Disposal of capital assets Donated capital assets $ 14,002,895 (13,587,540) (155,996) 225,400 484,759 (2) Special assessment principal payments received are reported as revenue on the governmental fund statements, but are reductions to the outstanding special assessment debt for government-wide reporting. Property tax revenue not received within 30 days of year end are unearned for governmental fund reporting, but are not for government-wide reporting. Special assessment received Property tax Fines & forfeitures $ (98,461) (6,030) 18,623 (85,868) When bonds are issued the proceeds and related premiums are reported as an other financing sources (uses) in the governmental funds. However, the bond premium and any loss on bond refunding are amortized (expensed) over the life of the bonds. Bond premium new issuance $ (3,500,813) Bond premium amortization 324,560 Amortization of refunding loss on debt (161,308) (3,337,561) 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. Delivery of forgivable promissory note Issuance of capital debt Accrual of long-term compensated absences Accrual of bond interest Pension contributions Pension benefits earned net of employee contributions Claims and judgements Accrual of other postemployment benefits $ (10,200) (26,168,531) (278,868) (209,012) 10,116,333 (17,651,337) (1,808,834) (668,233) (36,678,682) Repayment of long-term debt is reported as an expenditure in governmental funds and thus has the effect of reducing fund balance because current financial resources have been used. For the City as a whole, however, the principal payments reduce the long-term liabilities in the statement of net position and do not result in an expense in the statement of activities Principal payments on long-term debt $ 14,154,904 (3) Internal service funds are used by management to charge the costs of self insurance to the individual funds. The adjustments for internal service funds "close" those funds by charging the additional amounts to participating governmental activities to completely cover the internal service funds' costs for the year. Revenue $ 29,366 Expenditures (316,555) (287,189) (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 position. Transfer of capital assets to business-type activities Transfer of capital assets from business-type activities 57 $ (2,210,943) 2,298,905 87,962 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 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 position. Restricted net position on the government-wide financial statements reflects 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 and budget committee as part of the annual budgeting process. Authority to assign amounts used for specific purposes is confirmed as part of the annual budgeting process, the City has no formal policy that establishes this practice. Unassigned fund balance represents the remaining amount that is not restricted, committed, nonspendable nor assigned in the general fund. Consideration is made that restricted 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 an 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 15% is suggested in the general fund and a 10% fund balance is suggested for special revenue and enterprise funds. Deficit Fund Balance A deficit unassigned fund balance of $277 exists in the Flagstaff Metropolitan Planning Organization (FMPO) Other Governmental Funds due to the timing and receipt ofother contributions on a cost reimbursement basis. A deficit unassigned fund balance of $2,669,555 exists in the Capital Projects fund. The deficit is a result of beginning construction of bonded projects prior to the receipt of proceeds. A loan from other funds, will be reported in the next period. 58 Governmental fund balances as of June 30, 2017 are as follows: General Fund Highway User Revenue Fund Transportation Fund Capital Projects Bond Construction Other Governmental Funds $ $ $ $ Total Governmental Funds Fund balances: Nonspendable: Perpetual care $ Debt service - Inventory 342,576 - - - - 260,023 $ 260,023 - - - - - - 49,405 391,981 Restricted for: Library branch services - - - - 1,057,514 1,057,514 Library programs externally directed - - - - 750,794 750,794 - - - Court improvements and operations 105,725 - Regional planning - Street improvements - Transit - - Public art - - - - 776,432 776,432 Parks operations - - - - 2,575,996 2,575,996 Economic Development - - - - 1,759,202 1,759,202 Tourism - - - - 1,024,011 1,024,011 Perpetual care - - - - 25,703 1,583,303 - - - - 61,058 - Capital reserve 6,879,681 - - - - 6,879,681 Real estate 1,131,370 - - - - 1,131,370 - - - Other capital projects 3,099,263 7,360,870 - - 6,724,022 105,725 Debt service Development fee projects - - 9,823,285 - - 23,970,730 - - 31,331,600 5,600,189 - - 5,600,189 3,321,337 16,931,361 6,746,130 - 25,703 1,583,303 27,059,886 Assigned to: Parking district - Library services Unassigned: Total fund balances 30,361,068 $ 40,464,781 $ 7,360,870 (2,669,555) $ 35,991,519 $ 14,261,806 313,673 313,673 1,765,295 1,765,295 (277) $ 23,827,923 27,691,236 $ 121,906,899 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 essentially maintained on a basis consistent with Generally Accepted Accounting Principles (GAAP) except for 60 days sales tax accrual, unrealized gain or loss on investments and allowance for doubtful accounts. Measurable revenues are recorded when they become available to finance expenditures in the current fiscal year. "Available" is defined as: collectible within the current period or soon enough thereafter to be used to pay liabilities of the current period. Expenditures, other than principal and interest on debt, are recognized in the accounting period in which the liability arises. State statute allows for encumbrances to be recognized for a 60-day period following the end of the prior fiscal year as uses of prior year appropriations. To ensure that appropriations do not lapse, departments are directed to re-budget for all items delivered after June 30. For the enterprise funds, the annual budget is prepared on a basis that differs from GAAP because state law requires capital purchases and debt service payments to be budgeted as expenses, and bond proceeds and grants that are to be utilized are to be budgeted as revenues. The accounting and budgeting systems for the City are in accordance with Generally Accepted Accounting Principles (GAAP) format, with minimal variances between the two systems. Budget basis for enterprise funds differ primarily due to state laws. The major differences are as follows: 59 • 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 for inventory and bonded debt are not included in the budget. • Certain expenditures, such as depreciation, compensated absences and landfill closure and post closure • Enterprise funds budget capital expenditures and debt service payments as expenses. accruals, are not included in the budget. • 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 various retreats. These retreats were held in January and February 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 Tuesday 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., passenger 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 and 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 and grants) in computing the Expenditure Limitation and this total cannot be exceeded. Budget authority can be transferred between line items within a section. At year-end, division budgets are reviewed and budget authority is transferred from contingencies by Resolution, if between divisions, as necessary. Council can also amend total appropriations for a division during the year by Resolution as long as there is a corresponding increase/decrease in another division so that the expenditure limitation is not exceeded. B. Excess of Expenditures over Appropriations Expenditure appropriations are adopted in the budget at the division level. For presentation purposes, we have elected to show any deficits at the division level within funds. In the General Fund, Economic Vitality exceeded appropriations by $129,402. This deficit was funded by available fund balances in the General Fund. The deficit was mainly the result of an unbudgeted grant. 60 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 Position as “Cash and cash equivalents,” “Investments,” and “Restricted cash and investments.” Deposits At June 30, 2017, the carrying amount of the City’s deposits was $40,821,616 and the bank balance was $44,577,408. The $3,755,792 difference represents deposits in transit, outstanding checks, and other reconciling items at June 30, 2017. There is an additional $8,044,361 reported as restricted cash as it is held with paying or fiscal agent on June 30, 2017 for debt service payments due on July 1, 2017 and capital lease proceeds. 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. All investments are either registered in the City’s name or are held by a third party in the City’s name. All deposits were collateralized at June 30, 2017. 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, 2017, the City’s investments included the following: Investment Type Federal agency notes Municipal obligations U.S. treasuries State investment pool Corporate notes Total fair value of investments $ $ Portfolio weighted average maturity Fair Value 38,651,732 600,006 46,759,203 27,723,459 7,052,781 120,787,181 Weighted Average Maturity (in years) 1.838 0.000 3.394 0.100 2.297 2.059 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, 2017 is as follows: 61 Investment Type Federal agency notes Municipal obligations U.S. treasuries State investment pool Fair Value $ 38,651,732 600,006 46,759,203 27,723,459 Corporate notes Total Moody's Rating AAA AAA AAA N/A 7,052,781 $ A1/ A2/ A3 120,787,181 S&P Rating AA+ AAA AA+ AAA f / S1+ AA-/ A+/ A-/ A/BBB+ % of Investments 31.99 0.50 38.71 22.95 5.84 100% 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, 2017, the City’s cash and investments included the following: Carrying amount of investments Carrying amount of cash deposits Cash on deposit with paying agent Cash on hand Total pooled cash and investments Pooled cash, equivalents and investments - unrestricted Restricted cash and investments Total pooled cash and investments $ $ $ $ 120,787,181 40,821,616 8,044,361 14,130 169,667,288 128,709,944 40,957,344 169,667,288 Cash and cash equivalents at June 30, 2017 consisted of the following: Investments included in cash and cash equivalents Carrying amount of unrestricted city deposits Cash on hand Total cash, investments, and cash equivalents per statement of net position $ $ 93,555,320 35,140,494 14,130 128,709,944 Investment income comprises the following for the year ended June 30, 2017: Net interest and dividends Net increase (decrease) in the fair value of investments Total net investment income per statement of activities $ $ 1,378,188 (1,419,411) (41,223) Fair Value Measurement The net decrease in the fair value of investments during fiscal year 2016-2017 was $1,419,411. 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, 2017 was ($1,556,393). 62 In determining fair value, the City uses various valuation approaches within the fair value measurement framework. Fair value measurements are determined based on the assumptions that market participants would use in pricing an asset or liability. Fair value measurements framework establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Fair value measurements define levels within the hierarchy based on the reliability of inputs as follows: Level 1 – Valuations based on unadjusted quoted prices for identical assets or liabilities in active markets; Level 2 – Valuations based on quoted prices for similar assets or liabilities or identical assets or liabilities in less active markets, such as dealer or broker markets; and Level 3 – Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable, such as pricing models, discounted cash flow models and similar techniques not based on market, exchange, dealer or broker-traded transactions. The City’s investments at June 30, 2017, categorized within the fair value hierarchy detailed above were as follows: Investments by fair value level Investment Type Federal agency notes Municipal obligations U.S. treasuries Corporate notes Total Investments by fair value level Fair Value Measurements Using Total Fair Value $ $ 38,651,732 600,006 46,759,203 7,052,781 93,063,722 External investment pools measured at fair value State Treasurer's Investment Pool Total Investments measured at fair value $ 27,723,459 $ 27,723,459 Total Investments $ 120,787,181 (Level 1) $ $ 46,759,203 46,759,203 (Level 2) $ $ 38,651,732 600,006 7,052,781 46,304,519 (Level 3) $ - $ Investments in the State Treasurer’s investment pools are valued at the pool’s share price multiplied by the number of shares the City held. The fair value of a participant’s position in the pools approximates the value of that participant’s pool shares. The State Board of Investment provides oversight for the State Treasurer’s investment pools. In previous years, the City recognized a decrease in fair value of $1,473,712 consisting of the City’s share of a loss on an investment within the Local Government Investment Pool. The State and numerous other bondholders filed suit against the principals, underwriters, trustees, accountants, and others in May 2003. The case is presently pending litigation. There have been several distributions since June 2006. The distributions include payments from the trustee and settlement proceeds received from pending litigation. The City did not receive a distribution this year and the total recovery to date is $1,126,225. 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 $7,820 and the total recovery to date is $117,612. 63 B. Receivables Receivables as of June 30, 2017, including allowances for uncollectible accounts, are as follows: Fund Accounts Governmental Activities General fund Highway user revenue fund Transportation fund Capital projects bond fund Other governmental funds Less: allowance for uncollectibles Total government funds Internal services funds Total governmental activities Business-Type Activities Water and Wastewater Environmental services Airport Stormwater Flagstaff housing authority Less: allowance for uncollectibles Total business-type activities Total activities $ 8,716,591 884,738 4,172,999 2,112,617 (982,511) Intergovernmental Interest $ 85,863 11,632 67,519 1,864 44,034 - $ 253,687 1,199,682 40,748 627,171 - Special Assessments $ - Notes Receivable $ Total Receivables 2,021,951 - 316,400 - $ 9,056,141 896,370 5,440,200 42,612 5,122,173 (982,511) 14,904,434 53,209 210,912 6,886 2,121,288 - 2,021,951 - 316,400 - 19,574,985 60,095 14,957,643 217,798 2,121,288 2,021,951 316,400 19,635,080 4,237,310 1,500,766 47,528 221,603 28,108 (159,000) 61,138 20,896 348 3,516 - 5,587 6,037,652 4,277 108,016 - - - 5,876,315 85,898 6,155,532 - - $ 20,833,958 $ 303,696 $ 64 8,276,820 $ 2,021,951 $ 316,400 4,298,448 1,527,249 6,085,528 229,396 136,124 (159,000) 12,117,745 $ 31,752,825 C. Capital Assets A summary of capital asset activity, for the government-wide financial statements, as of June 30, 2017 is as follows: Balance Governmental activities: Non-depreciable assets: Land Construction -in-progress Total non-depreciable assets July 1, 2016 $ Depreciable assets: Buildings Improvements Machinery and equipment Infrastructure Total depreciable assets Accumulated depreciation: Buildings Improvements Machinery and equipment Infrastructure Total accumulated depreciation Governmental activities capital assets, net 64,882,123 8,133,544 73,015,667 Increase $ 83,951,140 22,461,454 33,449,573 312,972,558 452,834,725 308,985,821 $ 590,556 199,320 1,907,646 4,522,431 7,219,953 (23,220,558) (15,718,405) (23,584,220) (154,341,388) (216,864,571) $ 807,696 9,530,415 10,338,111 3,970,524 (3,437,196) (3,437,196) $ (315,524) (315,524) (1,835,531) (962,666) (1,702,399) (9,086,944) (13,587,540) $ Transfers In (out) Decrease (3,485,765) $ 65,689,819 12,015,820 77,705,639 84,541,696 22,660,774 35,041,695 319,793,894 462,038,059 - (25,056,089) (16,681,071) (25,019,664) (163,428,332) (230,185,156) 87,962 309,558,542 Less: associated debt Less: unamortized premium Plus: unamortized discount Less: construction retainage Plus: unamortized loss on current refunding Plus: non-capital related debt, series 2013 Plus: unspent capital related debt, series 2016 Plus: non-capital related debt, series 2016 Net investment in capital assets 65 $ 2,298,905 2,298,905 266,955 266,955 $ (2,210,943) (2,210,943) Balance June 30, 2017 $ (74,014,522) (6,029,863) 68,443 (534,731) 654,595 1,720,800 12,511,322 1,703,900 245,638,486 Business-type activities: Non-depreciable assets: Land Construction -in-progress Total non-depreciable assets Balance July 1, 2016 $ Depreciable assets: Buildings Improvements Machinery and equipment Total depreciable assets Accumulated depreciation: Buildings Improvements Machinery and equipment Total accumulated depreciation Business-type activities capital assets, net $ 14,119,715 21,549,595 35,669,310 Increases $ 519,120 12,229,060 12,748,180 $ (7,757,352) (7,757,352) 100,803,144 394,337,056 45,571,055 540,711,255 461,770 8,493,274 2,609,136 11,564,180 - (52,634,869) (148,064,944) (26,305,738) (227,005,551) (2,306,623) (8,206,239) (2,582,955) (13,095,817) - 349,375,014 $ 11,216,543 Transfers In (out) Decreases $ (7,757,352) $ (2,298,905) (2,298,905) Balance June 30, 2017 $ 2,210,943 2,210,943 $ 14,638,835 23,722,398 38,361,233 101,264,914 405,041,273 48,180,191 554,486,378 - (54,941,492) (156,271,183) (28,888,693) (240,101,368) (87,962) 352,746,243 Less: associated debt Less: construction retainage Net investment in capital assets (34,638,141) (806,881) $ 317,301,221 Depreciation expense was charged to the governmental functions in the government-wide financial statements as follows: Governmental Activities: General government Public safety Public works Economic and physical development Culture and recreation Highway and streets Total depreciation expense - governmental activities $ $ 506,555 1,595,444 226,319 339,404 1,968,010 8,951,808 13,587,540 D. Interfund Receivables, Payables, and Transfers Interfund receivables and payables Net interfund receivables and payables between governmental activities and business-type activities of $5,760,139 are included in the government-wide financial statements at June 30, 2017. The interfund balances at June 30, 2017 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, 2017 are expected to be repaid within one year. The following interfund receivables and payables are included in the fund financial statements at June 30, 2017: 66 Interfund Receivables Fund Governmental Activities: General fund Capital Projects bond Construction fund Other governmental funds Internal service funds Total governmental activities $ Business-Type Activities: Airport Fund Housing authority fund Total business-type activities Total governmental and business-type activities $ Less: fund eliminations Adjustment for internal service fund elimination Total government-wide statement of net position 6,500,000 6,775 6,506,775 20,697 20,697 6,527,472 Interfund Payables $ 20,697 250,000 1,250,000 - 1,520,697 $ 5,000,000 6,775 5,006,775 6,527,472 (1,541,394) 774,061 $ 5,760,139 Transfers The net transfers of $1,073,585 from governmental activities to business-type activities on the government-wide statement of activities are primarily capital assets and other operational. The transfer of $2,113,225 from the general fund to the Capital Projects Bond fund was for construction of the Courthouse project, there were no other significant transfers during fiscal year 2017 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, 2017: Fund Governmental Activities: General fund Highway user revenue fund Transportation fund General Obligation Bond Fund Capital Projects Bond Construction Other governmental funds Total governmental funds Internal service fund Total governmental activities Business-Type Activities: Water and Wastewater fund Environmental services fund Airport fund Stormwater fund Other business-type fund Total business-type activities Total governmental and business-type activities Transfers out $ $ Less: fund eliminations Less: net capital assets transfer 5,546,718 13,000 2,343,943 195 15,566,014 23,469,870 23,469,870 14,999 224,494 196,688 436,181 23,906,051 (22,744,504) (87,962) Total government-wide statement of activities 67 $ 1,073,585 Transfers In $ $ 2,753,444 2,129,581 13,011,564 2,113,225 2,300,509 22,308,323 22,308,323 405,550 195 1,051,161 111,925 28,897 1,597,728 23,906,051 The Water and Wastewater (business-type activities) fund transferred $2,298,905 of capital assets to the governmental activities and the governmental activities transferred $2,210,943 from business activities to government activities for a consolidated net total of $87,962 in Capital Assets to the Government wide financials. The BBB fund transferred $2,517,950 to the General fund for its share of the operating cost of the services performed by General fund divisions and sections. The Transportation fund transferred $1,921,443 to the Highway user revenue fund for the transportation fund’s portion of capital projects and debt service expenditures. The General fund transferred $1,641,611 to the Library fund for City share of expenditures for the libraries within the City limits. The General Obligation Bond Fund received a $13,011,564 transfer from the Secondary Property Tax Revenue fund for payment of debt service. E. Leases Operating Leases Expenditures The City leases library spaces under both non-cancellable and cancellable operating leases. cancellable lease is for the East Flagstaff Library. The non- The initial intergovernmental agreement was dated September 10, 2002, and was amended on September 8, 2008, to reflect an ending date of June 30, 2017. The agreement has automatic renewal for an additional two years, terminating on June 30, 2019, if neither party send a written notice of intent to terminate to the other party at least 60 days prior to the expiration of the initial term. Either party may terminate the lease at any time for any reason or no reason, without penalty, upon 180 days written notice. Fiscal year 2017 lease expense for the library was $92,563. The schedule below for future minimum lease expenses reflects the change in the rental rate as of June 30, 2018. Operating Lease Expenditures Year Ending June 30 2018 2019 Total East Flagstaff Library $ $ 94,322 94,322 281,207 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, 2017 were $181,788 (Cancelable and Non-cancelable), including the East Flagstaff Library. Operating Lease Revenues The City leases several City-owned buildings under cancellable and non-cancellable agreements. Certain leases contain provisions for future rate increases based on changes in the consumer Price Index. Total revenue for fiscal year 2017 was $1,722,525. The City currently has three leases with non-cancellable terms as well as future cancellable terms that are for the USGS buildings 3, 4/5, and 6, which are guaranteed thru the dates indicated below. The table on the following page 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. The terms for the USGS Lease for Buildings 4/5 had the first two years firm, and the remaining lease, from January 1, 2017 to December 31, 2019, on a month-to-month basis with a required Thirty (30) day notice for cancellation. The USGS Lease renewal for Building 6 was taken to Council for Lease effective date of August 01, 2017. The terms were approved for the Twenty (20) year lease, of which Ten (10) years are firm and Ten (10) years are month-to-month, with a Sixty (60) day notice of lease cancellation required for the month-to-month portion of the lease. The debt for Building 6 was paid off in full, resulting in a decrease in lease payments from the USGS to the City of Flagstaff. The Lease for Building 3 is on a month-to-month basis through December 31, 2019. 68 Operating Lease Revenue Year Ending June 30 2017 - Actual 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 Non-Cancellable USGS Building 3 $ 176,400 $ 176,400 Non-Cancellable USGS Building 6 $ 336,039 293,692 293,692 293,692 293,692 293,692 293,692 293,692 293,692 293,692 24,474 $ 3,003,741 In addition, the Airport Fund has several leases under cancellable agreements. The leases are for terminal space, hangars, shades, tie downs, ground leases, rental car agencies and a cafe. Lease revenue in the airport fund for fiscal year 2017 was $1,347,378. F. Long-Term Debt General Obligation Debt The City of Flagstaff issues general obligation debt to provide funds for the acquisition and construction of major capital facilities. General obligation debt has been issued for both governmental and business-type activities. General obligation debt are direct obligations and pledge the full faith and credit of the government. The water and wastewater general obligation debt is a water infrastructure and finance authority note backed by the ultimate taxing power and general revenues of the City; however, the debt is 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 funds. On August 9th, 2016, the City issued $16,105,000 in GO bonds, series 2016, related to capital projects approved by voters for Core Services Facility, Open Space and Forest Initiative Projects as authorized by the voters at special bond elections held in the City on May 18, 2004 and November 6, 2012. On December 7th, 2016 the City used existing cash resources to defease $5,960,000 of the July 1, 2017, July 1, 2022 and July 1, 2023 maturities of the General Obligation Bonds (Projects of 2004), Series A (2006). General obligation debt outstanding at June 30, 2017: Purpose Governmental activities Governmental activities - advance refunding Business-type activities Total general obligation debt outstanding 69 $ $ Amount 40,250,666 8,270,000 1,307,687 49,828,353 General obligation debt at June 30, 2017 consist of the following individual issues: General Obligation Debt Governmental activities: $8,270,000 Capital projects, series 2014B partial refunding of series 2006 due in annual installments of $1,940,000 to $2,205,000 through July 1, 2021; interest rate at 3.00% to 5.00%. Construction related to recreation facilities, fire facilities and equipment, and open space acquisition. $ 8,270,000 $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. 6,315,000 $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. 2,130,666 $11,460,000 Capital projects, series 2013 due in annual installments of $560,000 to $950,000 through July 1, 2028; interest rate at 1.625% to 4.0%. Construction related to forest initiative, streets and utility improvements, and open space/Flagstaff Urban Trail System. 9,560,000 $6,600,000 Capital projects, series 2014A due in annual installments of $200,000 to $460,000 through July 1, 2034; interest rate at 1.5% to 5.0%. Construction related to parks and recreation facilities improvements and land purchase for open space/Flagstaff Urban Trail System. 6,140,000 $16,105,000 Capital projects, series 2016 due in annual installments of $565,000 to $1,090,000 through July 1, 2036; interest rate at 3.00% to 4.0%. Construction related to open space acquisition, core services maintenance facilities, and forest health and water supply protection project. 16,105,000 Total governmental activities 48,520,666 Business-type activities: $1,633,933 Water infrastructure finance authority, due in annual installments of $61,745 to $107,043 through July 1, 2031; interest at 3.104%. Original amount $1,833,828 less deobligated amount of $199,895. Red Gap Wells. 1,307,687 Total business-type activities 1,307,687 Total General Obligation Debt $ 70 49,828,353 Annual debt service requirements to maturity for general obligation debt are as follows: Year Ending June 30 2018 2019 2020 2021 2022 2023-2027 2028-2032 2033-2037 Total $ $ Governmental Activities Principal Interest 3,621,164 $ 1,709,856 5,485,912 1,583,766 5,610,894 1,399,820 5,606,115 1,200,539 4,306,581 1,013,584 9,230,000 3,761,562 8,075,000 2,017,488 6,585,000 623,100 48,520,666 $ 13,309,715 $ $ Business-type Activities Principal Interest 69,775 $ 38,425 71,941 36,192 74,174 33,889 76,477 31,515 78,851 29,068 432,521 105,884 503,948 32,241 1,307,687 $ 307,214 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 percent of the City of Flagstaff’s net secondary assessed valuation, nor may outstanding general obligation bonded debt for all other purposes exceed 6 percent of the City’s net secondary assessed valuation. The City’s computation of legal debt margins available for creation of additional debt at June 30, 2017 was $90,725,235 and $42,166,076 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. Special assessment bonds outstanding at June 30, 2017: Purpose Governmental activities $ Amount 2,120,000 Special assessment bonds payable at June 30, 2017 consist of the following individual issues: Special Assessment Bonds Governmental activities: $8,900,000 Improvement district bonds, due in annual installments of $95,000 to $195,000, through January 1, 2032; interest at 5.0%. Aspen Place at the Sawmill district improvements. $ 2,120,000 Total Special Assessment Bonds $ 2,120,000 71 Annual debt service requirements to maturity for special assessment bonds are as follows: Year Ending June 30 2018 2019 2020 2021 2022 2023-2027 2028-2032 Total Governmental Activities Principal Interest $ $ 100,000 105,000 110,000 115,000 115,000 690,000 885,000 2,120,000 $ $ 106,000 101,000 95,750 90,250 84,500 328,500 137,000 943,000 Revenue Bonds On July 20, 2016 the City issued $8,930,000 in pledged revenue obligations, Series 2016, for Road Repair/Street Safety Projects. The payments will be payable from and secured by a lien on Excise Tax Revenues. “Excise Tax Revenues” are revenues from the restricted transaction privilege tax of 0.33% ($0.0033) approved at an election held in and for the City on November 4, 2014 (the “Election”), which will expire on December 31, 2034 (the “Road Repair/Street Safety Rate”). The Election authorized bonds payable from the Road Repair/Street Safety Rate in an amount not to exceed $20,000,000. Highway User Revenue Fund (HURF) bonds are issued specifically for the purpose of constructing street and highway projects. These bonds are repaid out of HURF 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 are comprised of 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. Revenue bonds outstanding at June 30, 2017: Purpose Governmental activities Governmental activities - partial advance refunding Total revenue bonds outstanding 72 $ $ Amount 9,650,000 10,040,000 19,690,000 Revenue bonds at June 30, 2017 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. $ 8,185,000 $3,370,000 Greater Arizona Development Authority revenue bonds, series 2010A, due in annual installments of $50,000 to $240,000 through August 1, 2030; interest at 2.0% to 4.625%. Business incubator construction. 2,575,000 $8,930,000 Road Repair Street Safety pledged revenue refunding bonds, series 2016 due in annual installments of $450,000 to $735,000 through July 1, 2032; interest at 2.0% to 4.0%. Repair of existing streets and roadways. 8,930,000 Total governmental activities $ 19,690,000 Annual debt service requirements to maturity for revenue bonds are as follows: Year Ending June 30 2018 2019 2020 2021 2022 2023-2027 2028-2032 2033 Total $ $ Governmental Activities Principal Interest 2,535,000 $ 735,813 2,605,000 631,113 2,710,000 525,013 2,810,000 416,826 675,000 351,481 3,720,000 1,348,237 4,310,000 502,161 325,000 6,500 19,690,000 $ 4,517,144 Other Debt 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, 2017: Purpose Governmental activities $ 73 Amount 1,655,000 Certificates of participation at June 30, 2017 consist of the following individual issues: Governmental activities: $4,690,000 Certificates of participation, series 2009 due in annual installments of $515,000 to $575,000, through October 1, 2019; interest at 3.3137%. Roadway overlay improvements and fire equipment. $ 1,655,000 Total Certificates of Participation $ 1,655,000 Annual debt service requirements to maturity for certificates of participation debt are as follows: Year Ending June 30 2018 2019 2020 Total $ $ Governmental Activities Principal Interest 530,000 $ 52,900 550,000 33,313 575,000 11,500 1,655,000 $ 97,713 The following is a summary of debt service requirements, including interest requirements, to maturity for long-term debt at June 30, 2017: Fiscal Year 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 Less interest $ $ General Obligation Debt 5,439,220 7,177,811 7,118,777 6,914,646 5,428,084 2,703,742 2,702,765 2,710,358 2,708,075 2,705,027 2,701,251 2,709,597 1,740,640 1,739,944 1,737,245 1,630,500 1,633,500 1,629,200 1,157,200 1,157,700 (13,616,929) 49,828,353 $ $ Special Assessment Bonds 206,000 206,000 205,750 205,250 199,500 203,750 202,500 201,000 204,250 207,000 204,250 206,250 202,750 204,000 204,750 (943,000) 2,120,000 $ $ 74 Revenue Bonds 3,270,813 3,236,113 3,235,013 3,226,826 1,026,481 1,013,962 1,015,531 1,015,881 1,010,113 1,012,750 1,013,569 1,012,925 1,010,817 1,012,150 762,700 331,500 (4,517,144) 19,690,000 $ $ Certificates of Participation 582,900 583,313 586,500 (97,713) 1,655,000 $ $ Total 9,498,933 11,203,237 11,146,040 10,346,722 6,654,065 3,921,454 3,920,796 3,927,239 3,922,438 3,924,777 3,919,070 3,928,772 2,954,207 2,956,094 2,704,695 1,962,000 1,633,500 1,629,200 1,157,200 1,157,700 (19,174,786) 73,293,353 Authorized and Issued Debt The voters of the City authorize capital projects and the related debt mechanism to finance these capital projects. On May 18, 2004, voters approved $47.4 million for various capital projects and $46.6 million for future water rights and production. As of June 30, 2017, $.4 million remains unissued for capital projects and $.8 million remains unissued for future water rights and production. On November 2, 2010, voters approved $21.2 million for public safety communication system and various street and utilities improvements. As of June 30, 2017 $.4 million remains unissued. On November 6, 2012, voters approved $14.0 million for a Core Service Maintenance Facility and $10.0 million for Forest Health and Watershed Protection. As of June 30, 2017, $6.0 million remains unissued for the Forest Health and Watershed Protection. On November 8, 2016, voters approved $12.0 million for a Courthouse Facility. As of June 30, 2017, $12.0 million remains unissued for the Courthouse facility. Loans Payable The City of Flagstaff has various loan agreements with the Water and Wastewater Infrastructure Finance Authority (WIFA) 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 fourteen T hangars at the City Airport. Loans outstanding as of June 30, 2017: Purpose Business-type activities $ 75 Amount 30,346,243 Loan payables at June 30, 2017 consist of the following individual financing options: Water and wastewater: $7,900,000 Water infrastructure finance authority due in annual installments of $380,000 to $525,000 through July 1, 2026; interest at 3.28%. Water infrastructure acquisition. $ 4,545,000 $23,100,000 Wastewater infrastructure finance authority due in annual installment of $1,114,667, to $1,629,449 through July 1, 2027; interest at 3.512%. Sewer treatment plant improvements. 15,172,742 $8,500,000 Water infrastructure finance authority due in annual installment of $377,927 to $591,940 through July 1, 2028; interest at 3.810%, as adjusted on 12/7/12. Water production improvements and acquisition. 5,831,166 $2,100,000 Water infrastructure finance authority due in annual installment of $92,862 to $138,320 through July 1, 2029; interest at 3.113%. Amount issued to date $1,550,712. Remaining available $594,288. Water feasibility study. 912,792 $232,500 Water infrastructure finance authority due in annual installment of $10,374 to $15,054 through July 1, 2029; interest at 2.905%. Well improvements. 165,749 $594,950 Water infrastructure finance authority due in annual installment of $24,531 to $33,603 through July 1, 2029; interest at 2.45%. Original amount issued $1,000,000, amount deobligated $405,050. Well infrastructure improvements. 379,340 $1,100,000 as amended 10/02/09, $800,000 Water infrastructure finance authority due in annual installment of $51,224 to $70,168 through July 1, 2029; interest at 2.45%. Amount issued to date $1,100,000. Local aquifer study. 792,113 $6,775,760 Water Infrastructure Finance Authority due in annual installments of $375,127 to $462,398 through July 1, 2022, interest at 3.548%. Water and sewer improvements. 2,547,341 Total water and wastewater 30,346,243 Total Loans Payable $ 76 30,346,243 Annual debt service requirements to maturity for loan payables are as follows: Year Ending June 30 2018 2019 2020 2021 2022 2023-2027 2028-2031 Total $ $ Business-type Activities Principal Interest 2,508,609 $ 987,633 2,598,050 897,278 2,690,121 803,708 2,779,915 706,990 2,877,528 606,860 13,752,593 1,581,306 3,139,426 44,203 30,346,243 $ 5,627,978 Obligations under Capital Leases Capital lease agreements related to governmental activities consist of renewable energy solar equipment assets of $824,764 (net of accumulated depreciation), heart monitors of $163,965 (net of accumulated depreciation), copy machine of $131,305 (net of accumulated depreciation), and parking meter assets of $741,256. Capital lease agreements related to business-type activities consist of a co-generator at the Wildcat Wastewater Treatment Plant of $775,816 (net of accumulated depreciation), airport hangars of $1,985,426 (net of accumulated depreciation) and renewable energy solar equipment of $1,457,457 (net of accumulated depreciation). These lease agreements generally require annual payments and the lease terms vary from ten to twenty-one 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, 2017 2018 2019 2020 2021 2022 2023-2027 2028-2029 Total future minimum lease payments Less: interest costs Present value of future minimum lease payments Governmental Activities $ 273,438 276,012 276,629 232,592 230,773 940,701 110,743 2,340,888 (312,032) $ 2,028,856 Business-type Activities $ 395,681 396,809 397,986 399,206 400,475 1,386,882 211,359 3,588,398 (604,187) $ 2,984,211 Pledged Revenues The City has pledged future water and wastewater utility revenues to repay Water Infrastructure Financing Authority loans issued during the period of 1992-2015. 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, 2017, $31,653,930 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, 2017, net revenue available for service of this debt was $9,448,838 The debt principal and interest paid in fiscal year 2017 equal $3,052,608 (32.31% 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 77 pledged revenue refunding bonds series 2012, holding the 2004 bonds senior. At June 30, 2017, $8,185,000 remains outstanding to be repaid by future revenues. For the fiscal year ended June 30, 2017, net revenues available for service of the debt were $33,419,449. The debt principal and interest paid in fiscal year 2017 was $2,225,875 (6.66% 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 $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, 2017, $2,575,000 remains outstanding to be repaid by future revenues. For the fiscal year ended June 30, 2017, net revenues available for the service of this debt were $12,572,785. The debt principal and interest paid in fiscal year 2017 was $249,788 (1.99% 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. The City has pledged certain revenues for the repayment of $8,930,000 in Road Repair/Street Safety pledged revenue obligation bonds issued in 2017. The bonds were issued to construct street improvements and the ongoing preservation of street conditions inside the City limit. The bonds have a senior lien on the 0.33% excise tax revenues. At June 30, 2017, $8,930,000 remains outstanding to be repaid by future revenues. For the fiscal year ended June 30, 2017, net revenues available for service of the debt were $6,665,630. The debt interest paid in fiscal year 2017 was $133,125 (2.00% of available pledged net revenues). For additional information on pledged revenues for the bonds, refer to Schedule 17 in the Statistical Section of this report. Changes in Long-term Liabilities Liquidation of compensated absences, other postemployment benefits and net pension liability for governmental funds has been made out of the General, Library, HURF, BBB, Library and FMPO funds. Non-current liability activity for the year ended June 30, 2017 was as follows: Governmental activities: Bonds payable: General obligation bonds Special assessment bonds Revenue bonds Certificates of participation Total bonds payable Beginning Balance $ Capital leases Bond premium Bond discount Compensated absences Other postemployment benefits Net pension liabilty Claims and judgements Governmental activity long-term liabilty $ Business-type activities: Bonds payable: General obligation debt $ Water loan payable Wastewater loan payable Airport loan payable Capital lease payable Total loan and leases payable Compensated absences Other postemployment benefits Net pension liabilty Landfill closure/postclosure Business-type activity long-term liability Additions 43,817,310 2,215,000 12,750,000 2,170,000 60,952,310 $ 16,105,000 8,930,000 25,035,000 1,048,585 2,853,610 (68,443) 3,973,752 4,942,102 116,811,023 206,877 190,719,816 1,133,531 3,500,813 1,946,027 668,233 43,705,817 1,983,679 $ 77,973,100 $ 1,375,362 - 16,485,547 16,287,404 26,909 3,489,380 36,289,240 $ 722,160 1,114,034 14,917,793 8,155,675 62,574,264 $ 78 $ $ $ $ (67,675) $ - $ (11,401,644) (95,000) (1,990,000) (515,000) (14,001,644) (153,260) (324,560) (1,667,159) (27,922,975) (258,551) (44,328,149) - 361,831 153,205 4,812,258 320,104 5,647,398 Ending Balance Reductions $ 48,520,666 2,120,000 19,690,000 1,655,000 71,985,666 2,028,856 6,029,863 (68,443) 4,252,620 5,610,335 132,593,865 1,932,005 224,364,767 1,307,687 Due Within One Year $ 3,621,164 100,000 2,535,000 530,000 6,786,164 $ 214,446 307,684 1,778,803 1,824,169 10,911,266 $ 69,775 (1,312,046) (1,114,662) (26,909) (505,169) (2,958,786) 15,173,501 15,172,742 2,984,211 33,330,454 1,354,800 1,153,809 275,401 2,784,010 (315,281) (3,513,161) (6,854,903) 768,710 1,267,239 16,216,890 8,475,779 61,366,759 337,148 3,190,933 $ $ 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, $75,000 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, 2017 have potential exposure to the City of approximately $123,171 based on the requirements of Governmental Accounting Standards Board Statement Number 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 position of the Internal Service Fund is 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 2014-15 Beginning of Year Liability $ 219,695 Current Year Claims and Changes in Estimates $ 194,064 End of Year Liability Claim Payments $ 135,939 $ 277,820 2015-16 277,820 205,242 276,185 206,877 2016-17 206,877 174,845 258,551 123,171 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. As a result of the Arizona Supreme Court ruling in the Hall and Parker cases against the Arizona Public Safety Personnel Retirement System (PSPRS), the City has recorded a current liability for claims of excess contributions and interest in the amount of $1,808,834 to the governmental claims and judgments line item on the government-wide statement of net position. The City is responsibility for refunding EORP and PRPRS employees for any employee excess contributions since 2011 however, the City is allowed to take a credit against future PSPRS contributions for those refunds. These refunds were paid out in August and September of 2017. 79 The following table presents the City’s construction commitments and encumbrances as of June 30, 2017: Construction Commitments as of June 30, 2017 Remaining Commitment Spent to date Capital Project Program Classification Buildings Communication Streets Water Wastewater Stormwater Airport runway Other land improvements Total Construction Commitments $ $ 4,369,267 7,810,522 3,786,446 1,056,983 410,444 7,064,898 971,568 25,470,128 $ $ 9,080,517 13,001,315 3,497,186 2,687,437 1,915,204 2,181,149 839,185 33,201,993 Outstanding Encumbrances at June 30, 2017 Governmental Activities: General fund Highway users revenue fund Transportation fund Capital projects bond fund Other government funds Total governmental activities $ 913,915 155,146 58,013 654,350 567,823 2,349,247 Business - Type Activities: Water and wastewater fund Environmental services fund Airport fund Stormwater fund 349,680 769,407 164,622 45,407 Total business-type activities Total governmental and business-type activities $ 1,329,116 3,678,363 C. Retirement and pension plans All full-time employees of the City are covered by one of three pension plans. The Arizona State Retirement system is for the benefit of the employees of the state and certain other governmental jurisdictions. All full-time City employees, except sworn fire and police personnel, are included in the Arizona State Retirement System. Sworn police and fire personnel participate in the Public Safety Retirement System. In addition, the Mayor and City Council members are covered by the State’s Elected Officials Plan. Plan Descriptions - The City contributes to the three plans described below. Benefits are established by state statute and generally provide retirement, death, long-term disability, survivor, and health insurance premium benefits. The plans are component units of the State of Arizona. 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 and 2.1. 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 benefit (OPEB) plan 80 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 nine-member board, known as The Board of Trustees, and the participating local boards govern the PSPRS according to the provisions of A.R.S. Title 38, Chapter 5, Article 4. The 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 benefit (OPEB) plan that covers elected officials and judges of certain state and local governments who were members of the plan on December 31, 2013. This plan was closed to new members as of January 1, 2014. The EORP is governed by Board of Trustees of the PSPRS according to the provisions of A.S.R. Title 38, Chapter 5, and Article 3. Each plan issues a publicly available financial report that includes its financial statements and required supplementary information. A report can be obtained by writing or calling the applicable plan. ASRS PSPRS and EORP P.O. Box 33910 Phoenix, AZ 85016-4416 3300 N. Central Ave. 3010 E. Camelback Rd., Suite 200 Phoenix, AZ 85067-3910 (602) 240-2200/(800) 621-3778 (602) 255-5575 www.azasrs.gov www.psprs.com At June 30, 2017, the City reported the following aggregate amounts related to pensions for all plans to which it contributes: Statement of Net Position and Statement of Activities as of June 30, 2017 Governmental Activities Net pension liabilities Deferred outlfows of resources Deferred inflows of resources Pension expense $ 132,593,865 $ 30,548,285 (5,205,862) 17,847,481 Business-Type Activities 16,216,890 $ 3,370,806 (1,783,393) 1,354,278 Total 148,810,755 33,919,091 (6,989,255) 19,201,759 The City reported accrued employee benefits of $11,809 for governmental activities and $13,627 for business-type activities as related to outstanding pension contribution amounts payable to all pension plans for the year ended June 30, 2017. Arizona State Retirement System (ASRS) Funding Policy - The Arizona State Legislature establishes and may amend active plan members' and the City's contribution rates. Benefits Provided – The ASRS provides retirement, health insurance premium supplement, long-term disability, and survivor benefits. State statute establishes benefits terms. Retirement benefits are calculated on the basis of age, average monthly compensation, and served credit as follows: 81 Initial Membership Date: Years of service and age required to receive benefit Before July 1, 2011 Sum of years, and age equals 80 On or after July 1, 2011 30 years, age 55 10 years, age 62 25 years, age 60 5 years, age 50* 10 years, age 62 any years, age 65 5 years, age 50* any years, age 65 Final average salary is based on Highest 36 months of last 120 months Highest 60 months of last 120 months Benefit percent per year of service 2.1% to 2.3% 2.1% to 2.3% *With actuarially reduced benefits Retirement benefits for members who joined the ASRS prior to September 13, 2013, are subject to automatic cost-of-living adjustments based on excess investment earnings. Members with a membership date on or after September 13, 2013, are not eligible for cost-of-living adjustments. Survivor benefits are payable upon a members’ death. For retired members, the survivor benefit is determined by the retirement benefit option chosen. For all other members, the beneficiary is entitled to the members’ account balance that includes the members’ contribution and employer’s contributions, plus interest earned. Contributions - For the year ended June 30, 2017, active ASRS members were required by statute to contribute at the actuarially determined rate of 11.48% (11.34% retirement and 0.14% long-term disability) of the members' annual covered payroll and the City was required by statute to contribute at the actuarially determined rate of 11.48% (10.78% retirement, 0.56% for health insurance premium, and 0.14% long-term disability) of the active members’ annual covered payroll. In addition, the City was required by statute to contribute at the actuarially determined rate of 9.47% (9.17% for retirement, 0.21% for health and 0.09% for long-term disability) of annual covered payroll of retired members who worked for the City in positions that would typically be filled by an employee who contributes to the ASRS. The City's contributions to ASRS for the years ended June 30, 2017, 2016, and 2015 were $3,552,895, $3,344,492, and $3,229,757 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: 6/30/2017 6/30/2016 6/30/2015 $ $ Retirement 3,357,591 3,168,876 3,002,707 $ $ Health Benefit 152,268 140,778 161,281 Long-term Disability $ 43,036 $ 34,838 65,769 During fiscal year 2017, the City paid for ASRS pension and related OPEB contributions (health benefit) 73% from governmental funds and 27% from enterprise funds. Pension Liability • At June 30, 2017, the City reported a liability of $50,284,072 for its proportionate share of the ASRS net pension liability. The net pension liability was measured as of June 30, 2016. The total pension liability used to calculate the net pension liability was determined using update procedures to roll forward the total pension liability from an actuarial valuation as of June 30, 2015, to the measurement date of June 30, 2016. The total pension liability as of June 30, 2016, reflects a change in actuarial assumption for a decrease in loads for future potential permanent benefit increases. 82 The City’s reported liability at June 30, 2017 increased by $3,485,360 from the City’s prior year liability of $46,798,712 due to changes in the ASRS net pension liability and the City’s proportionate share of that liability. The ASRS publicly available financial report provided details on the change in the net pension liability. The City’s proportion of the net pension liability was based on the actuarially determined amount provided by the system. The City’s proportion measured as June 30, 2016, was .3115%, which was an increase of .0110% from its proportion measured as of June 30, 2015, 0.3005%. Pension Expense and Deferred Outflows – Inflows of Resources For the year ended June 30, 2017, the City recognized pension expense of $3,339,180. At June 30, 2017, the city reported deferred outflows of resources and deferred inflows of resources related to pension from the following sources: Differences between expected and actual $ Deferred Outflows of Resources 305,573 Changes of assumptions $ - Deferred Inflows of Resources (3,459,179) - Net difference between projected and actual earnings on pension plan investments 5,449,120 (2,660,429) Changes in proportion and differences between city contributions and proportionate share of contributions 1,365,391 (137,898) City contributions subsequent to the measurement date 3,357,591 Total $ 10,477,675 $ (6,257,506) The $3,357,591 reported as deferred outflows of resources related to ASRS pensions resulting from city contributions subsequent to the measurement date will be recognized as a reduction of the net pension liability in the year ended June 30, 2018. Other amounts reported as deferred outflows of resources and deferred inflows of resources related to ASRS pensions will be recognized in pension expense as follows: Year ending June 30, 2018 2019 2020 2021 $ $ 83 (1,800,041) (1,199,652) 2,334,355 1,527,916 862,578 Actuarial Assumptions The significant actuarial assumptions used to measure the total pension liability are as follows: Actuarial valuation date Actuarial roll forward date Actuarial cost method Investment rate of return Projected salary increases Inflation factor Permanent benefit increase Mortality rates June 30, 2015 June 30, 2016 Entry age normal 8% 3-6.75% 3% Included 1994 GAM Scale BB Actuarial assumptions used in the June 30, 2015, valuation were based on the results of an actuarial experience study for the 5-year period ended June 30, 2012. The long-term expected rate of return on ASRS pension plan investments was determined to be 8.75 percent using a building-block method in which best-estimate ranges of expected future real rates of return (expected returns, net of pension plan investment expense and inflation) are developed for each major asset class. These ranges are combined to produce the long-term expected rate of return by weighting the expected future real rates of return by the target asset allocation percentage and by adding expected inflation. The target allocation and best estimates of arithmetic real rates of return for each major asset class are summarized in the following table: Asset Class Commodities Multi Real Estate Fixed Income Equity Total Target Allocation 2% 5% 10% 25% 58% 100% Arithmetic Real Rates of Return 3.84% 3.41% 4.25% 3.70% 6.73% Discount Rate The discount rate used to measure the ASRS pension liability was 8 percent, which is less than the longterm expected rate of return of 8.75 percent. The projection of cash flows used to determine the discount rate assumed that contributions from participating employers will be made based on the actuarially determined rates as determined by the ASRS Board’s funding policy, which establishes the contractually required rate under Arizona statute. Based on those assumptions, the pension plan’s fiduciary net position was projected to be available to make all projected future benefit payments of current plan members. Therefore, the long-term expected rate of return on pension plan investments was applied to all periods of projected benefit payment to determine the total pension liability. Sensitivity of the City’s Proportionate Share of the ASRS Net Pension Liability to Changes in the Discount Rate The following table presents the City’s proportionate shares of the net pension liability calculated using the discount rate of 8 percent, as well as what the City’s proportionate share of the net pension liability would be if it were calculated using a discount rate that is 1 percentage point lower or 1 percentage point higher than the current rate: 84 Current Discount Rate (8%) 1% Decrease (7%) City's proportionate share of the net pension liability $ 64,116,010 $ 1% Increase (9%) 50,284,072 $ 39,193,881 Pension Plan Fiduciary Net Position Detailed information about the pension plan’s fiduciary net position is available in the separately issued ASRS financial report. Public Safety Personnel Retirement System (PSPRS) Benefits provided – The PSPRS provide retirement, health insurance premium supplement, disability, and survivor benefits. State statute established benefits terms. Retirement disability and survivor benefits are calculated on the basis of age, average monthly compensation, and service credit as follows: EORP Initial Membership Date: Years of service and age required to receive benefit Before December 31, 2011 On or after January 1, 2012 20 years, any age 10 years, age 62 10 years, age 62 Final average salary is based on Benefit percent Normal retirement Disability retirement 5 years, age 65 5 years, age 65 5 years, any age* any years and age if disabled any years and age if disabled Highest 36 months of last 10 years Highest 60 months of last 10 years 4% per year of service, not to exceed 80% 80% with 10 or more years of service 40% with 5 to 10 years of service 3.0% per year of service, not to exceed 75% 75% with 10 or more years of service 38% with 5 to 10 years of service 20% with less than 5 years of service 19% with less than 5 years of service 75% of retired member's pension benefit 50% of retired member's pension benefit 75% of disability retirement benefit 50% of disability retirement benefit Survivor benefit Retired members Active members and Other Inactive Members * With reduced benefits of 0.25% for each month early retirement precedes the member's normal retirement age, with a maximum reduction of 30% Retirement and survivor benefits are subject to automatic cost-of-living adjustments based on excess investment earnings. In addition, the Legislature may enact permanent one-time benefit increases after a Joint Legislative Budget Committee analysis of the increase’s impact on the plan. PSPRS also provides temporary disability benefits of 50 percent of the members’ compensation for up to 12 months. 85 Employees covered by Benefit Terms At June 30, 2017, the following employees were covered by the agent pension plans’ benefit terms: Police Inactive employees or beneficiaries currently receiving benefits Inactive employees entitled to but not yet receiving benefits Active employees Total PSPRS Fire 68 87 30 105 203 18 78 183 Contributions and Annual OPEB Cost State statutes establish the pension contrition requirements for active PSPRS employees. In accordance with state statutes, annual actuarial valuations determine employer contribution requirements for PSPRS pension and health insurance premium benefits. The combined active member and employer contribution rates are expected to finance the costs of benefits employees earn during the year, with an additional amount to finance any unfunded accrued liability. 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). Annual Pension Cost - The City's pension cost for the agent plans for the year ended June 30, 2016, the date of the most recent actuarial valuation, and related information follow. Police Contribution rates FY16-2017: Pension Health insurance (OPEB) Combined city Active plan members, after July 20, 2011 Active plan members, on or before July 19, 2011 As of actuarial valuation date: PSPRS Fire 44.66 0.17 44.83% 11.65% 7.65% 70.05 0.00 70.05% 11.65% 7.65% 6/30/2016 6/30/2016 Required Contributions Pension contributions made $ $ 3,266,194 3,648,822 $ $ Annual OPEB costs - Health Insurance OPEB contributions made $ $ 13,889 13,889 $ $ Active members pension contributions $ 915,285 $ 4,107,600 4,107,600 657,210 *Actuary estimates payroll while the City reports on actual payroll In addition, the City was required by statute to contribute at the actuarially determined rate of 19.65 percent for the PSPRS of annual covered payroll of retired members who worked for the City in positions that would typically be filled by an employee who contributes to the PSPRS. During fiscal year 2017, the City paid for PSPRS pension and OPEB contributions for police with 100% general fund dollars and 94.6% from the general fund plus 5.4% from the airport fund as related to fire contributions. 86 Pension Liability At June 30, 2017, the City reported net pension liability of $45,538,125 and $51,006,609 for police and fire respectively. The net pension liabilities were measured as of June 30, 2016, and the total pension liability used to calculate the net pension liability was determined by an actuarial valuation as of that date. Pension Actuarial Assumptions Actuarial assumptions used in the June 30, 2016, valuation were based on the results of an actuarial experience study for the 5-year period ended June 30, 2012. • In May 2016 voters approved Proposition 124 that authorized certain statutory adjustments to PSPRS’ automatic cost-of-living adjustments. The statutory adjustments changed the basis for cost-of-living adjustments from excess investment earnings to the change in the consumer price index, limited to a maximum annual increase of 2 percent. • Laws 2016, Chapter 2, changed the benefit formula and contribution requirements for members hired on or after July 1, 2017. • The investment rate of return actuarial assumption was decreased from 7.85 percent to 7.50 percent for PSPRS and CORP plans. The net pension liabilities measured as of June 30, 2017, will reflect changes of actuarial assumptions based on the results of an actuarial experience study for the 5-year period ended June 30, 2016. The change in the County’s net pension liabilities as a result of these changes is not known. Police Amortization method Level percent-ofpay closed PSPRS Fire Level percent-of-pay closed Remaining amortization period-UAL 22 years 22 years Remaining amortization period-excess 20 years 20 years Asset valuation method 7-year smoothed market; 20% corridor 7-year smoothed market; 20% corridor Actuarial assumptions: Actuarial cost method Discount rate Projected salary increases Inflation Entry age normal 7.50% 4.0% - 8.0% 4.00% Permanent benefit increase Included Mortality rates Entry age normal 7.50% 4.0% - 8.0% 4.00% Included RP-2000 mortality table (adjusted by 105% for both males and females) The long-term expected rate of return on PSPRS pension plan investments was determined to be 7.50 percent using a building-block method in which best-estimated ranges of expected future real rates of return (expected returns, net of pension plan investment expenses and inflation) are developed for each major asset class. The target allocation and best estimates of arithmetic real rates of return for each major asset class are summarized in the following table: 87 PSPRS Asset Class Short term investments Absolute return Risk parity Fixed income Real assets GTAA Private equity Real estate Credit opportunities Non-U.S. equity U.S. equity Total Target Allocation 2% 5% 4% 7% 8% 10% 11% 10% 13% 14% 16% 100% Long-Term Expected Real Arithmetic Rate of Return 0.75% 4.11% 5.13% 2.92% 4.77% 4.38% 9.50% 4.48% 7.08% 8.25% 6.23% Pension Discount Rates At June 30, 2016, the discount rate used to measure the PSPRS total pension liabilities was 7.50 percent, which was a decrease of 0.15 from the discount rate used as of June 30, 2015. The projection of cash flows used to determine the discount rates assumed that plan member contributions will be made at the current contribution rate and that employer contributions will be made at rates equal to the difference between the actuarially determined contribution rate and the member rate. Based on those assumptions, the pension plans’ fiduciary net position was projected to be available to make all projected future benefit payments of current plan members. Therefore, the long-term expected rate of return on pension plan investments was applied to all periods of projected benefit payments to determine the total pension liability. 88 Changes in the Net Pension Liability PSPRS - Police Balances at June 30, 2016 Changes for the year: Service cost Interest on the total pension liability Changes of benefit terms Differences between expected and actual experience in the measurement of the total pension liability Contributions- employer Contributions- employee Changes of Assumptions Benefit payments, including refunds of employee Total Pension Liability (a) $ 62,484,536 Increase (Decrease) Plan Fiduciary Net Postion (b) $ 22,965,528 1,367,771 - 1,367,771 4,818,389 1,967,589 - 4,818,389 1,967,589 (111,993) - 3,441,521 1,147,170 2,578,910 - Administrative expense - 89 2,578,910 (3,575,345) - 146,825 Other changes 7,045,321 $ 69,529,857 (111,993) (3,441,521) (1,147,170) - (3,575,345) Net investment income Net changes Balances at June 30, 2017 Net Pension Liabilty (a) - (b) $ 39,519,008 $ (146,825) (21,527) 21,527 (112,440) 112,440 1,026,204 23,991,732 $ 6,019,117 45,538,125 PSPRS - Fire Balances at June 30, 2016 Changes for the year: Service cost Interest on the total pension liability Changes of benefit terms Differences between expected and actual experience in the measurement of the pension liability Contributions- employer Contributions- employee Changes of assumptions Benefit payments, including refunds of employee contributions Net investment income Administrative expense Other changes Net changes Balances at June 30, 2017 Total Pension Liability (a) $ 69,729,278 Increase (Decrease) Plan Fiduciary Net Postion (b) $ 25,835,950 1,107,145 5,356,440 2,064,045 - 669,848 2,647,110 (4,095,893) 7,748,695 $ 77,477,973 Net Pension Liabilty (a) - (b) $ 43,893,328 $ 1,107,145 5,356,440 2,064,045 3,952,628 669,429 - 669,848 (3,952,628) (669,429) 2,647,110 (4,095,893) 160,712 (23,526) (27,936) 635,414 26,471,364 (160,712) 23,526 27,936 7,113,281 51,006,609 $ Sensitivity of the City’s Net Pension Liability to Changes in the Discount Rate The following table presents the City’s net pension liabilities calculated using the discount rates noted above as well as what the City’s net pension liability would be if it were calculated using a discount rate that is 1 percentage point lower or 1 percentage point higher than the current rate: 1% Decrease Current Discount Rate 1% Increase PSPRS - Police Rate Net pension liability 6.50% $ 54,652,637 $ 7.50% 45,538,125 $ 8.50% 38,061,697 PSPRS - Fire Rate Net pension liability 6.50% $ 60,259,939 $ 7.50% 51,006,609 $ 8.50% 43,316,207 Pension Plan Fiduciary Net Position Detailed information about the pension plans’ fiduciary net position is available in the separately issued PSPRS financial reports. Pension Expense For the year ended June 30, 2017, the City recognized $7,087,398 and $8,314,337 pension expense related to police and fire, respectively. 90 Pension Deferred Outflows/Inflows of Resources At June 30, 2017, the City reported deferred outflows of resources and deferred inflows of resources related to pensions from the following sources: Pension deferred outflows/Inflows of resources Deferred Outflows of Resources Differences between expected and actual experience PSPRS - Police Deferred Inflows of Resources $ - $ Deferred Outflows of Resources (634,188) $ PSPRS - Fire Deferred Inflows of Resources 1,254,285 $ - Changes of assumptions 5,432,914 - 5,573,810 - Net difference between projected and actual earnings on pension plan investments 1,458,915 - 1,597,332 - City contributions subsequent to the measurement date 3,648,822 - 4,107,600 - Total $ 10,540,651 $ (634,188) $ 12,533,027 $ - The amounts reported as deferred outflows of resources related to pensions resulting from city contributions subsequent to the measurement date will be recognized as a reduction of the net pension liability in the year ended June 30, 2018. Other amounts reported as deferred outflows of resources and deferred inflows or resources related to pensions will be recognized in pension expense as follows: PSPRS Police Year ending June 30, 2018 2019 2020 2021 2022 $ 1,784,162 1,784,160 1,688,397 739,330 261,592 6,257,641 $ PSPRS Fire $ 2,451,428 2,451,428 2,147,605 964,713 410,253 8,425,427 $ Agent Plan OPEB Trend Information The table below presents the annual OPEB cost information for the health insurance premium benefit for the current and 2 preceding years: Plan Annual OPEB Cost Percentage of Annual Cost Contributed Net OPEB Obligation PSRS - Police - Health Insurance 6/30/2017 $ 6/30/2016 $ 6/30/2015 13,889 2,414 67,477 100% 100% 100% $ $ -0-0-0- PSRS - Fire - Health Insurance 6/30/2017 $ 6/30/2016 $ 6/30/2015 96,788 100% 100% 100% $ $ -0-0-0- Agent Plan OPEB Actuarial Assumptions Actuarial valuations involve estimates of the reported amounts’ value and assumptions about the probability 91 of events in the future. Amounts determined regarding the funded status of the plans and the annual required contributions are subject to continual revision as actual results are compared to past expectations and new estimates are made. The required schedule of funding progress for the health insurance premium benefit presented as required supplementary information provides multiyear trend information that shows whether the actuarial value of the plans’ assets are increasing or decreasing over time relative to the actuarial accrued liability for benefits. Projections of benefits are based on (1) the plans as understood by the City and plans’ members and include the types of benefits in force at the valuation date, and (2) the pattern of sharing benefit costs between the City and plans’ members to that point. Actuarial calculations reflect a long-term perspective and employ methods and assumptions that are designed to reduce short-term volatility in actuarial accrued liabilities and the actuarial value of assets. The significant actuarial methods and assumptions used are the same for all PSPRS plans and related benefits (unless noted), and the actuarial methods and assumptions used to establish the fiscal year 2016 contribution requirements are as follows: PSPRS OPEB Contribution Requirements Actuarial valuation date Actuarial cost method Amortization method Remaining amortization period Asset valuation method Actuarial assumptions: Investment rate of return Projected salary increases Wage growth June 30, 2015 Entry age normal Level percent closed for unfunded actuarial liability, open for excess 21 years for unfunded actuarial accrued liability, 20 years for overfunded 7 year smoothed market value; 80%/120 % market 7.85% 4.0% - 8.0% 4% PSPRS OPEB Funded Status Actuarial valuation date Actuarial cost method Amourtization method Remaining amortization period Asset valuation method Actuarial assumptions: Investment rate of return Projected salary increases Wage growth June 30, 2016 Entry age normal Level percent closed for unfunded actuarial liability, open for excess 20 years for unfunded actuarial accrued liability, 20 years for overfunded 7 year smoothed market value; 80%/120 % market 7.50% 4.0% - 8.0% 4% Agent Plan OPEB Funded Status The following table presents the funded status of the health insurance premium benefit plans as of the most recent valuation date, 6/30/2016. Actuarial value of plan assets Actuarial accrued liability (AAL) $ Police 1,500,199 1,341,133 $ Fire 2,688,016 1,599,024 Unfunded actuarial accrued liability (UAAL) $ (159,066) $ (1,088,992) $ 111.9% 7,318,199 $ 168.1% 5,491,792 Funded ratio (actuarial value of plan assets/AAL) Covered payroll Unfunded actuarial accued liability as a percentage of covered payroll 0.0% 0.0% 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. 92 Elected Officials’ Retirement Plan (EORP) Benefits Provided The EORP provides retirement, health insurance premium supplement, disability, and survivor benefits. State statute establishes benefits terms. Retirement, disability, and survivor benefits are calculated on the basis of age, average yearly compensation, and service credit as follows: EORP Initial Membership Date: Years of service and age required to receive benefit Before December 31, 2011 On or after January 1, 2012 20 years, any age 10 years, age 62 10 years, age 62 Final average salary is based on Benefit percent Normal retirement Disability retirement 5 years, age 65 5 years, age 65 5 years, any age* any years and age if disabled any years and age if disabled Highest 36 months of last 10 years Highest 60 months of last 10 years 4% per year of service, not to exceed 80% 80% with 10 or more years of service 40% with 5 to 10 years of service 3.0% per year of service, not to exceed 75% 75% with 10 or more years of service 38% with 5 to 10 years of service 20% with less than 5 years of service 19% with less than 5 years of service 75% of retired member's pension benefit 50% of retired member's pension benefit 75% of disability retirement benefit 50% of disability retirement benefit Survivor benefit Retired members Active members and Other Inactive Members * With reduced benefits of 0.25% for each month early retirement precedes the member's normal retirement age, with a maximum reduction of 30% Retirement and survivor benefits are subject to automatic cost-of-living adjustments based on excess investment earning. In addition, the State Legislature may enact permanent one-time benefit increases after a Joint Legislatvie Budget Committee analysis of the increase’s effects on the plan. Contributions State statutes establish active member and employer contribution requirements. Statute also appropriates $5 million annually through fiscal year 2043 for the EORP from the State of Arizona to supplement the normal cost plus an amount to amortize the unfunded accrued liability. For the year ended June 30, 2017, active EORP members were required by statute to contribute 13.00% of the members’ annual covered payroll. Statute required active EORP members with an initial membership date after July 19, 2011, to contribute 13 percent of the members’ annual covered payroll and the County to contribute 23.5 percent of all active EORP members’ annual covered payroll. Also, statute required the County to contribute 12.16 percent to EORP of the annual covered payroll of elected officials and judges who were ASRS members and 17.50 percent to EORP of the annual covered payroll of elected officials and judges who were EODCRS members, in addition to the County’s required contributions to ASRS, ACR and EODCRS for these elected officials and judges. And the City was required contribute a designated portion of certain court fees and 23.5 percent (23.50% for retirement and 0.0% for health insurance premium benefit) of active EORP members’ annual covered payroll. In addition, the City was required to contribute the actuarially determined rate of 12.16% for members who meet certain criteria. The City’s contribution to the pension plan for the year ended June 30, 2017, and 2 preceding years for OPEB, all of which were equal to the required contributions, were as follows. Annual OPEB Cost Plan EORP - Health Insurance 6/30/2017 6/30/2016 6/30/2015 $ 3,467 93 Percentage of Annual Cost Contributed 100% 100% 100% Net OPEB Obligation $ -0-0-0- Pension Liability At June 30, 2017, the City reported a liability for its proportionate share of the EORP’s net pension liability that reflected a reduction for the City’s proportionate share of the State’s appropriation for EORP. The amount the city recognized as its proportionate liability that was associated with the City was as follows: City's proportionate share of the EORP net pension liability State's proportionate share of the EORP net pension liability associated with the city $ 1,981,949 Total $ 2,391,170 409,221 The net pension liability was measured as of June 30, 2016, and the total pension liability used to calculate the net pension liability was determined by an actuarial valuation as of that date. The City Liability reported at June 30, 2017, increased by $464,181 from the City’s prior year liability of $1,517,768 due to changes in the EORP’s net pension liability and the City’s proportionate share of the liability. The EORP’s publicly available financial report provides details on the change in the net pension liability. Pension Expense and Deferred Outflows/Inflows of Resources For the year ended June 30, 2017, the City recognized pension expense for the EORP of $460,844 and revenue of $109,201 for the City’s proportionate share of the State’s appropriation to EORP and the designated court fees. At June 30, 2017, the City reported deferred outflows of resources and deferred inflows of resources related to pensions form the following sources: Deferred Outflows of Resources EORP Differences between expected and actual experience $ Deferred Inflows of Resources - Changes of assumptions $ (37,271) 222,524 - Net difference between projected and actual earnings on pension plan investments 45,912 - Changes in proportion and differences between city contributions and proportionate share of contributions 58,714 (60,290) City contributions subsequent to the measurement date Total 40,588 367,738 $ $ (97,561) The $40,588 reported as deferred outflows of resources related to EORP pensions resulting from city contributions subsequent to the measurement date will be recognized as a reduction of the net pension liability in the year ended June 30, 2018. Other amounts reported as deferred outflows of resources and deferred inflows of resources related to EORP pensions will be recognized in pension expense as follows: Year ending June 30 2018 2019 2020 2021 2022 Thereafter 94 $ $ 137,206 66,502 16,683 9,198 229,589 Actuarial Assumptions The significant actuarial assumptions used to measure the total pension liability are as follows: EORP Contribution rates FY16-2017: City Plan members 23.50% 13.00% Actuarual valuation date Net pension liability Actuarial cost method June 30, 2016 Entry age normal Actuarial assumptions: Investment rate of return Projected salary increases Inflation Permanent benefit increase Mortality rates 7.50% 4.25% 4.00% included RP-2000 mortality table projected to 2025 with projection scale The long-term expected rate of return on EORP pension plan investments was determined to be 7.50 percent using a building-block method in which best estimate ranges of expected future real rates of return (expected returns, net of pension plan investment expenses and inflation) are developed for each major asset class. The target allocation and best estimated of arithmetic real rates of return for each major asset call are summarized in the following table: EORP Asset Class Short term investments Absolute return Risk parity Fixed income Real assets GTAA Private equity Real estate Credit opportuities Non-U.S. equity U.S. equity Total Target Allocation 2% 5% 4% 7% 8% 10% 11% 10% 13% 14% 16% 100% Long Term Expected Arithmetic Real Rate of Return 0.75% 4.11% 5.13% 2.92% 4.77% 4.38% 9.50% 4.48% 7.08% 8.25% 6.23% Discount Rate The discount rate used to measure the EORP total pension liability was 3.68 percent which was a decrease of 1.8 percent from the prior valuation. The projection of cash flows used to determine the discount rate assumed that plan member contributions will be made at the current contribution rate, employer contributions will be made at the statutorily set rates, and state contributions will be made as currently required by statute. Based on those assumptions, the pension plans’ fiduciary net position was projected to be insufficient to make all project future benefit payments of current plan member. Therefore, to determine the total pension liability for the plan, the long-term expected rate of return on pension plan investments of 7.50 percent was applied to period of projected benefit payments through the year ended June 30, 2027. A municipal bond rate of 2.85 percent obtained from the 20-year Bond Buyer Index, as published by the Federal Reserve as of June 30, 2016, was applied to period of projected benefit payments after June 30, 2027. 95 Sensitivity of the City’s Proportionate Share of the EORP Net Pension Liability to Changes in the Discount Rate The following table presents the city’s proportionate share of the net pension liability calculated using the discount rate of 3.68 percent, as well as what the city’s proportionate share to the net pension liability would be if it were calculated using a discount rate that is 1 percentage point lower or 1 percentage point higher than the current rate. EORP Rate Net pension liability 1% Decrease $ 2.68% 2,307,087 Current Discount Rate $ 3.68% 1,981,949 1% Increase $ 4.68% 1,710,542 Pension Plan Fiduciary Net Position Detailed information about the pension plans’ fiduciary net position is available in the separately issued EORP financial report. D. 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; because retirees are able to participate in the same plan and pay the same rates as active employees, an 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: http://www.napebt.com/about.htm. As of June 30, 2017, there were 81 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 liabilities over a period not to exceed thirty years. For fiscal year 2017, the City’s annual required contribution of $1,076,520 is 2.3% of covered payroll. The City’s implicit subsidy contribution, determined as the excess of retiree medical costs over retiree contributions, was $155,812 during fiscal year 2017. 96 Annual OPEB Cost and Net OPEB Obligation. For 2017, the City’s annual OPEB cost (expense) of $977,250 was equal to the ARC, as adjusted by any ARC adjustments ($371,796), and interest on the net OPEB obligation of $276,526. On June 30, 2017, the net increase in NOO for governmental activities was $668,234 and for business-type activities was $153,204. The City annual OPEB costs for the current year and the related information for the plan as follows for June 30, 2017: Annual required contribution Interest on net OPEB obligation Adjustment to annual required contribution Annual OPEB cost Contributions made Increase in net OPEB obligation Net OPEB obligation - beginning of year Net OPEB obligation - end of year $ 1,076,520 272,526 (371,796) 977,250 (155,812) 821,438 6,056,136 6,877,574 $ 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 2017 and two preceding years were as follows: Fiscal Year Ended 6/30/2017 $ 6/30/2016 6/30/2015 Annual OPEB Cost 977,250 $ 989,264 972,644 Actual Contributions 155,812 256,335 182,941 Percentage of Annual OPEB Cost Contributed 15.9% 25.9% 18.8% Net OPEB Obligation $ 6,877,574 6,056,136 5,323,207 Funded Status and Funding Progress. The funded status of the plan as of July 1, 2015 (Latest actuarial data available) is as follows: Actuarial value of plan assets Actuarial accrued liability (AAL) $ 9,362,006 Unfunded actuarial accrued liability (UAAL) $ 9,362,006 $ 0% 44,365,337 Funded ratio (actuarial value of plan assets/AAL) Covered payroll Unfunded actuarial accued liability as a percentage of covered payroll 21.1% 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 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. 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 97 volatility in actuarial accrued liabilities and the actuarial value of assets, consistent with the long-term perspective of the calculations. In the July 1, 2015, actuarial valuation, the entry age level dollar actuarial cost method, which uses the member’s hire date as the entry age, represents the actuarial cost method used. The actuarial assumptions included a 4.5 percent investment rate of return with no inflation rate factor and no projected salary increases factor, due to level dollar valuation used. Healthcare cost trend rate of 7.0 percent initially, reduced by decrements to an ultimate rate of five percent over eight years. The remaining amortization period at July 1, 2015, was 30 years, open, level dollar payment. 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 $8,475,779 as of June 30, 2017, which is based on 78.8590 percent usage of the landfill. The remaining $2,272,255 will be accrued over the remaining life of the landfill, which is currently estimated to be 9 years. The accrual for the closure and postclosure care costs for fiscal year 2017 is $320,104. 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, 2017 the balance of the investments held for those purposes is $10,512,970. 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, $10,748,034, is based on the amount that would be paid if all equipment, facilities, and services required to care, monitor and maintain the landfill were acquired as of June 30, 2017. 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. 98 F. Tax Abatement The City enters into property tax abatement agreements with local businesses under the state of Arizona Government Property Lease Excise Tax (GPLETs). Under the law enacted in 1996, Arizona’s cities, towns, counties, and county stadium districts (government lessors) are allowed to lease property they own to private parties (lessees) for nongovernmental use and collect an excise tax. Because the property is owned by the City, it is exempt from property taxes. The abatements may be granted to any business located within or promising to relocate to the City to encourage continued provision of stable good paying employment opportunities for the City’s residents. The City believes that its efforts will perpetuate the City’s overall economic health and demonstrate the City’s attractiveness as a place to do business. For the fiscal year ended June 30, 2017, the City abated assessed property taxes totaling $113,773 (net of $8,262 in lease payments) under this program including the following Government Property Lease Excise Tax (GPLET) abatement agreements: A 1.6487 percent property tax abatement to Ralston Purina manufacturing. The 2016 abatement amounted to $36,632. A 1.6487 percent property tax abatement to Joy Cone manufacturing. The 2016 abatement amounted to $77,141. G. Subsequent Events On August 29, 2017, the City issued $17.1 million of Utility System Revenue Refunding Obligations, Series 2017 to refund all remaining outstanding amounts of the Loan and Bond Purchase Agreement, dated as of August 23, 2002, between the City and WIFA and the Loan Agreement, dated September 21, 2006, between the City and WIFA (the amounts thereof being refunded with proceeds of the Obligation, the “Current Refunded Obligations”), (b) advance refund in advance of maturity amounts remaining unpaid for 2021 through and including 2027 of the Loan Agreement, dated June 29, 2007, between the City and WIFA (the amounts thereof being refunded with proceeds of the Obligation, the “Advance Refunded Obligation” and, together with the Current Refunded Obligations, the “Refunded Obligations”) and (c) pay the costs of execution and delivery of the Obligation (the “Costs of Issuance”). 99 100 Required Supplementary Information Page Schedule of the City’s Proportional Share of the Net Pension Liability Cost-Sharing Pension Plans 102 Schedule of the Changes in Net Pension Liability and Related Ratios Agent Pension Plans – PSPRS Police 103 Agent Pension Plans – PSPRS Fire 104 Schedule of The City’s Pension Contributions 105 Schedule of Agent Other Post-Employment Benefits Plan's Funding Progress 106 Schedule of Other Post-Employment Benefits Plan's Funding Progress 107 Notes to the Required Supplementary Information 108 101 City of Flagstaff, Arizona Required Supplementary Information Schedule of the City's Proportionate Share of the Net Pension Liability Cost-Sharing Pension Plans June 30, 2017 Measurement Date* 2016 2015 2014 2013 through 2007 Arizona State Retirement System Proportion of the net pension liability 0.311530% 0.300450% 0.302625% Information Proportionate share of the net pension liability $ 50,284,072 $ 46,798,712 $ 44,778,290 not Covered payroll $ 28,842,056 $ 27,573,067 $ 26,638,622 available Proportionate share of the net pension liability as a percentage of its covered payroll Plan fiduciary net position as a percentage of the total pension liability 174.34% 169.73% 168.09% - 67.06% 68.35% 69.49% - EORP Proportion of the net pension liability 0.1942242% $ 1,981,949 Total $ Covered payroll City's Proportionate share of the net pension liability as a percentage of its covered payroll $ City's Proportionate share of the net pension liability State's Proportionate Share of the net pension liability associated with the City Plan fiduciary net position as a percentage of the total pension liability 0.1942242% 0.2500258% Information $ 1,676,603 not 1,990,934 $ 2,190,665 - 157,579 $ 204,400 - $ 1,517,768 2,391,170 $ 189,999 $ 409,221 473,166 514,062 available 1043.14% 963.18% 820.26% - 23.42% 28.32% 31.91% - * Measurement date is one year prior to reporting date and is the latest information available at the time of report issuance 102 City of Flagstaff, Arizona Required Supplementary Information Schedule of the Changes in Net Pension Liability and Related Ratios Agent Pension Plans - PSPRS Police June 30, 2017 Reporting Fiscal Year (Measurement Date)* 2016 PSPRS Police Total pension liability Service cost Interest on the total pension liability Changes of benefit terms differences between expected and actual experience in the measurement of the pension liability changes of assumptions or other inputs Benefit payments, including refunds of employee contributions Net change in total pension liability Total pension liability - beginning Total pension liability - ending (a) Plan Fiduciary net position Contributions - employer Contributions - employee Net investment income Benefit payments, including refunds of employee contributions Pension plan administrative expenses Other changes $ $ (111,993) 2,578,910 (3,575,345) 7,045,321 62,484,536 69,529,857 Net change in plan fiduciary net position Plan fiduciary net position - beginning Plan fiduciary net position - ending (b) $ 3,441,521 1,147,170 146,825 (3,575,345) (21,527) (112,440) 1,026,204 22,965,528 23,991,732 Net pension liability - ending (a) - (b) $ 45,538,125 Plan fiduciary net position as a percentage of the total pension liability Covered payroll Net pension liability as a percentage of covered payroll $ 1,367,771 4,818,389 1,967,589 $ 34.51% 7,318,199 2015 $ $ $ (346,202) (3,505,319) 2,172,821 60,311,715 62,484,536 $ $ (671,478) 6,987,647 (3,311,491) 9,575,396 50,736,319 60,311,715 $ $ 2,311,119 768,029 2,757,888 (3,311,491) (1,371,053) 1,154,492 21,453,112 22,607,604 $ 39,519,008 $ 37,704,111 $ * Measurement date is one year prior to reporting date and is the latest information available at the time of report issuance 36.75% 7,526,730 525.05% $ 1,312,430 3,904,338 1,353,950 2,578,489 841,533 821,133 (3,505,319) (20,411) (357,501) 357,924 22,607,604 22,965,528 622.26% 103 1,373,545 4,650,797 - 2014 $ 37.48% 7,425,908 507.74% 2013 through 2006 Information not available City of Flagstaff, Arizona Required Supplementary Information Schedule of the Changes in Net Pension Liability and Related Ratios Agent Pension Plans - PSPRS Fire June 30, 2017 Reporting Fiscal Year (Measurement Date)* 2016 PSPRS Fire Total pension liability Service cost Interest on the total pension liability Changes of benefit terms differences between expected and actual experience in the measurement of the pension liability changes of assumptions or other inputs Benefit payments, including refunds of employee contributions Net change in total pension liability Total pension liability - beginning Total pension liability - ending (a) Plan Fiduciary net position Contributions - employer Contributions - employee Net investment income Benefit payments, including refunds of employee contributions Pension plan administrative expenses Other changes $ $ 669,848 2,647,110 (4,095,893) 7,748,695 69,729,278 77,477,973 $ $ 2,418,742 732,850 963,491 (5,594,036) (23,873) 48,864 (1,453,962) 27,289,912 25,835,950 43,893,328 Net change in plan fiduciary net position Plan fiduciary net position - beginning Plan fiduciary net position - ending (b) $ Net pension liability - ending (a) - (b) $ 51,006,609 $ 973,454 5,239,671 52,497 (5,594,036) 671,586 69,057,692 69,729,278 3,952,628 $ 669,429 160,712 (4,095,893) (23,526) (27,936) 635,414 25,835,950 26,471,364 $ Plan fiduciary net position as a percentage of the total pension liability Covered payroll Net pension liability as a percentage of covered payroll $ 1,107,145 5,356,440 2,064,045 2015 $ 34.17% 5,491,792 $ 928.78% 37.05% 4,847,679 905.45% 2014 $ $ $ 1,431,974 7,269,797 (3,994,598) 11,602,288 57,455,404 69,057,692 $ 2,030,211 525,878 3,407,667 (3,994,598) (1,831,071) 138,087 27,151,825 27,289,912 $ 41,767,780 $ * Measurement date is one year prior to reporting date and is the latest information available at the time of report issuance 104 950,445 4,390,766 1,553,904 39.52% 4,788,197 872.31% 2013 through 2006 Information not available City of Flagstaff, Arizona Required Supplementary Information Schedule of the City's Pension Contributions June 30, 2017 Reporting Fiscal Year 2017 2016 2015 2014 2013 through 2007 Arizona State Retirement System Statutorily required contributions $ 3,357,591 $ Contribution deficiency (excess) $ Covered payroll $ Contributions as a percentage of covered payroll 30,673,166 3,168,876 $ 3,168,876 3,357,591 Contributions in relation to the statutorily required contribution $ $ 10.95% 28,842,056 3,002,707 $ 3,002,707 $ $ 10.99% 27,573,067 2,837,013 2,837,013 $ $ 10.89% - Information not available 26,638,622 10.65% Elected Officials Retirement Plan Statutorily required contributions $ 40,588 $ Contribution deficiency (excess) $ Covered payroll $ Contributions as a percentage of covered payroll 194,354 39,815 $ 39,815 40,588 Contributions in relation to the statutorily required contribution $ $ 20.88% 189,999 37,483 $ 37,483 $ $ 20.96% 157,579 $ $ 23.79% 50,732 Information 50,732 not - available 204,400 24.82% PSPRS - Police Statutorily required contributions $ 3,266,194 $ Contribution deficiency (excess) $ Covered payroll $ Contributions as a percentage of covered payroll (382,628) 7,856,526 3,401,213 $ 3,441,521 3,648,822 Contributions in relation to the statutorily required contribution $ $ 46.44% (40,308) 7,318,199 2,578,489 $ 2,578,489 $ $ 47.03% 7,526,730 2,311,119 2,311,119 $ $ 34.26% - Information not available 7,425,908 31.12% PSPRS - Fire Statutorily required contributions $ Contribution deficiency (excess) $ Covered payroll $ Contributions as a percentage of covered payroll 4,107,600 $ 5,641,290 3,952,628 $ 3,952,628 4,107,600 Contributions in relation to the statutorily required contribution $ $ 72.81% 5,491,792 71.97% 105 2,418,742 $ 2,418,742 $ $ 4,847,679 49.89% 2,030,211 1,784,136 $ 246,075 $ 4,788,197 37.26% Information not available City of Flagstaff, Arizona Required Supplementary Information Schedule of Agent Other Post-Employment Benefits Plan's Funding Progress June 30, 2017 (2) Actuarial (1) (6) Accrued (3) (4) (5) Unfunded AAL Actuarial Liability Percent Value of (AAL) Entry Funded Unfunded Annual as a Percentage AAL Covered Assets Age (1) / (2) of Covered (2) - (1) Payroll Payroll (4) / (5) PSRS - Police Health Insurance 6/30/2016 1,341,133 111.9% 7,318,199 0.0% 6/30/2015 $ 1,500,199 1,479,701 $ 1,273,131 116.2% $ (159,066) (206,570) $ 7,526,730 0.0% 6/30/2014 1,383,853 1,103,593 125.4% (280,260) 7,425,910 0.0% PSRS - Fire Health Insurance 6/30/2016 2,688,016 1,599,024 168.1% (1,088,992) 5,491,792 0.0% 6/30/2015 2,620,900 1,599,792 163.8% (1,021,108) 4,847,679 0.0% 6/30/2014 2,489,925 1,554,131 160.2% (935,794) 4,788,198 0.0% Note: 06/30/16 was the most recent actuarial study available 106 City of Flagstaff, Arizona Required Supplementary Information Schedule of Other Post-Employment Benefits Plan's Funding Progress June 30, 2017 (2) (1) Actuarial Actuarial Actuarial Valuation Value of Assets Date $ (6) (3) (4) Accrued Percent Liability Funded (AAL) (1) / (2) $ (5) Unfunded AAL Unfunded Annual as a Percentage AAL Covered of Covered (2) - (1) Payroll Payroll (4) / (5) 7/1/2015 - 9,362,006 0.0% 7/1/2013 - 9,905,500 0.0% 9,808,514 33,304,177 29.5% 7/1/2011 - 9,808,514 0.0% 9,808,514 31,191,746 31.4% 107 9,362,006 $ 44,365,337 21.1% CITY OF FLAGSTAFF, ARIZONA Notes to the Required Supplementary Information June 30, 2017 I. ACTUARIALLY DETERMINED CONTRIBUTION RATES Actuarial determined contribution rates for PSPRS are calculated as of June 30 two years prior to the end of the fiscal year in which contributions are made. The actuarial methods and assumptions used to establish the contribution requirements are as follows: Actuarial valuation date June 30, 2016 Actuarial cost method Entry age normal Amortization method Level percentage of payroll, closed for unfunded, open for excess Remaining amortization period 21 years; if the actuarial value of assets exceeded the actuarial accrued liability, the excess was amortized over an open period of 20 years and applied as a credit to reduce the normal cost which otherwise would be payable Asset valuation method 7-year smoothed market; 80%/120% market Actuarial assumptions: Investment rate of return In the 2013 actuarial valuation, the investment rate of return was decreased from 8.0% to 7.85% Projected salary increases In the 2014 actuarial valuation, projected salary increases were decreased from 4.5%–8.5% to 4.0%–8.0% for PSPRS and from 4.5%–7.75% to 4.0%–7.25% for CORP. In the 2013 actuarial valuation, projected salary increases were decreased from 5.0%–9.0% to 4.5%–8.5% for PSPRS and from 5.0%–8.25% to 4.5%–7.75% for CORP. Wage growth In the 2014 actuarial valuation, wage growth was decreased from 4.5% to 4.0% for PSPRS and CORP. In the 2013 actuarial valuation, wage growth was decreased from 5.0% to 4.5% for PSPRS and CORP. Retirement age Experience-based table of rates that is specific to the type of eligibility condition. Last updated for the 2012 valuation pursuant to an experience study of the period July 1, 2006 - June 30, 2011. Mortality RP-2000 mortality table projected to 2015 using projection scale AA (adjusted by 105% for both males and females) II. FACTORS THAT AFFECT THE IDENTIFICATION OF TRENDS Beginning in fiscal year 2014, PSPRS established separate funds for pension benefits and health insurance premium benefits. Previously, the plan recorded both pension and health insurance premium contributions in the same Pension Fund. During fiscal year 2014, the plan transferred prior-year health insurance premium benefit contributions that exceeded benefit payments from the plan’s Pension Fund to the new Health Insurance Fund. III. INFORMATION PRIOR TO MEASUREMENT DATE Information prior to the measurement date (June 30, 2014) was not available. 108 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. Housing and Community Services Fund 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. Parking District Fund This fund was established to comprehensively manage the public parking in downtown Flagstaff and the surrounding neighborhood. 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. 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. Special Assessment Bond Fund This fund accounts for the accumulation of resources for and the payment of principal, interest and related costs for all improvement district bonds issued by the City and repaid by the special assessment district. 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. 109 City of Flagstaff, Arizona Combining Balance Sheet Non-Major Governmental Funds June 30, 2017 Special Revenue Funds Library Fund Metropolitan Planning Organization Fund Housing & Community Services Fund BBB Fund ASSETS Cash and investments $ 1,940,037 Accounts receivable, net $ 9,674,569 $ 1,452,137 $ 1,945,505 Interest receivable 7,517 21,023 3,159 - Intergovernmental receivable 1,843 - 445,167 180,161 Special assessments receivable - - - - Notes receivable - - 316,400 - Inventory - 49,405 - - 1,808,308 196,044 - - $ 3,899,136 $ 11,886,546 $ 2,217,043 $ 183,271 $ $ 260,667 $ 24,145 Restricted cash and investments Total assets 180 3,110 141,431 - LIABILITIES, DEFERRED INFLOWS AND FUND BALANCE Liabilities: Accounts payable Accrued payroll and compensated absences $ 151,529 111,272 Construction retainage payable Interfund payable 228,256 45,521 2,559 9,403 27,207 - - - 150,000 62,732 5,430 214,622 - 325,533 306,414 477,848 183,548 Unavailable revenue - special assessments - - - - Unavailable revenue - notes receivable - - 316,400 - - - 316,400 - Perpetual care - - - - Inventory - 49,405 - - 1,057,514 - - - Advanced revenue Total liabilities Deferred inflows of resources: Total deferred inflows of resources Fund balances: Nonspendable: Restricted for: Library branch services Library programs board directed 750,794 - - - Debt service - 196,044 - - Public art - 776,432 - - Economic Development - 1,759,202 - - Tourism 1,024,011 Park maintenance and operations - 2,575,996 - - Other capital projects - 5,199,042 1,422,795 - Perpetual care - - - - Assigned to: Parking district - - - Library services 1,765,295 - - - - - Unassigned (deficit): Total fund balances Total liabilities and fund balances 3,573,603 11,580,132 $ 3,899,136 $ 11,886,546 110 (277) 1,422,795 $ 2,217,043 (277) $ 183,271 Debt Service Funds Secondary Property Tax Revenue Fund Parking District $ 24,930 $ 2,089,260 Permanent Fund Special Assessment Bond Fund Perpetual Care $ $ 310,481 25,082 Total Other Governmental Funds $ 15,519,606 - - - - 2,087,116 339 10,967 408 621 44,034 - - - - 627,171 - - 2,021,951 - 2,021,951 - - - - 316,400 - - - - 49,405 1,000,000 4,063,437 53,000 260,023 7,380,812 $ 1,025,269 $ 6,163,664 $ 2,385,840 $ 285,726 $ 28,046,495 $ $ - $ - $ - $ 1,138,550 473,953 - - - - 168,755 100,000 - - - 250,000 - - - - 282,784 587,303 - - - 1,880,646 - - 2,021,526 - 2,021,526 - - - - - 2,021,526 - 2,337,926 - - - 260,023 260,023 - - - - 49,405 - - - - 1,057,514 13,350 40,557 316,400 - - - - 750,794 - 6,163,664 364,314 - 6,724,022 - - - - 776,432 - - - - 1,759,202 - 1,024,011 - 2,575,996 - - - 124,293 - - - 6,746,130 - - - 25,703 25,703 313,673 - - - 313,673 - - - - 1,765,295 - - - - 437,966 6,163,664 364,314 285,726 $ 1,025,269 $ 6,163,664 $ 2,385,840 111 $ 285,726 (277) 23,827,923 $ 28,046,495 City of Flagstaff, Arizona Combining Statement of Revenues, Expenditures, and Changes in Fund Balances Non-Major Governmental Funds Year Ended June 30, 2017 Special Revenue Funds Library Fund Metropolitan Planning Organization Fund Housing & Community Services Fund BBB Fund REVENUES: Taxes $ Intergovernmental - $ 8,641,610 $ - $ - 3,210,071 - - - 97,124 - 851,995 393,477 - - - - Grants and entitlements Special assessments Rents - 193,855 8,875 - Investment earnings 32,720 82,749 12,560 - Contributions 38,906 448 61,132 - Miscellaneous Total revenues 51,462 124,245 227,438 - 3,430,283 9,042,907 1,162,000 393,477 EXPENDITURES: Current: Economic and physical development - 2,734,200 983,445 433,547 4,851,606 667,243 - - - 28,329 - - Principal retirement - 135,000 - - Interest and other charges - 115,254 - - Culture and recreation Highways and streets Debt service: Capital outlay Total expenditures Excess (deficiency) of revenues over expenditures 244,044 905,333 - - 5,095,650 4,585,359 983,445 433,547 (1,665,367) 4,457,548 178,555 - - - - 1,641,611 251,000 - 22,500 (40,070) OTHER FINANCING SOURCES (USES): Issuance of capital debt Transfers in Transfers out Total other financing sources (uses) Net change in fund balances (2,554,450) - - 1,641,611 (2,303,450) - 22,500 (23,756) Fund balances, beginning of year Fund balances, end of year - 3,597,359 $ 3,573,603 112 $ 2,154,098 178,555 9,426,034 1,244,240 11,580,132 $ 1,422,795 (17,570) 17,293 $ (277) Debt Service Funds Parking District $ - Secondary Property Tax Revenue Fund $ 5,916,234 Permanent Fund Special Assessment Bond Fund $ Total Other Governmental Funds Perpetual Care - $ - $ 14,557,844 - - - - 3,210,071 - - - - 1,342,596 - - 202,243 - 202,243 - - - - 202,730 1,075 55,483 2,163 2,546 189,296 - - - 6,950 107,436 - - - - 403,145 1,075 5,971,717 204,406 9,496 20,215,361 - - - - 4,151,192 - - - - 5,518,849 149,738 - - - 178,067 50,826 - 95,000 - 280,826 6,687 - 111,500 - 233,441 - 1,890,633 206,500 - 12,253,008 9,496 7,962,353 741,256 - 948,507 - (947,432) 5,971,717 1,000,000 - 385,398 - - 1,000,000 - - 2,300,509 - (13,011,564) - - (15,566,014) 1,385,398 (13,011,564) - - (12,265,505) 437,966 (7,039,847) 9,496 (4,303,152) $ (2,094) 437,966 (2,094) 13,203,511 $ 6,163,664 366,408 $ 364,314 113 276,230 $ 285,726 28,131,075 $ 23,827,923 114 Other Supplementary Information Page Capital Assets Used in the Operation of Governmental Funds Schedule by Function and Activity 116 Schedule of Changes by Function and Activity 118 Budgetary Comparison Schedules - Non-Major Governmental Funds Library Fund 119 BBB Fund 120 Housing and Community Services 121 Metropolitan Planning Organization Fund 122 Parking District Fund 123 GO Bond Fund 124 Secondary Property Tax Revenue Fund 125 Special Assessment Bond Fund 126 Capital Project Bond Construction 127 Financial Data Submission Schedules Net Position Accounts 128 Revenue, Expenses, and Changes in Fund Net Position Accounts 130 Revenue, Expenses, and Changes in Fund Net Position AccountsPublic Housing-Consolidated 134 115 City of Flagstaff, Arizona Capital Assets Used in the Operation of Governmental Funds Schedule By Function and Activity June 30, 2017 . Program General government Public safety Land $ Public works Buildings 3,820,349 3,905,768 112,182 Economic and physical development Highway and streets 2,975,159 113,946 221,973 95,128 24,744,888 22,702,096 16,975,134 65,689,819 84,541,696 22,660,774 (25,056,089) (16,681,071) Less: accumulated depreciation 102,309 $ $ 15,137,462 32,979,379 Subtotal 14,104,827 27,151,960 5,343,042 127,253 Culture and recreation Total governmental funds capital assets $ Improvements 65,689,819 116 $ 59,485,607 2,279,434 $ 5,979,703 Machinery and Construction Equipment $ 1,568,409 17,507,654 In Progress $ 103,569 $ - Total - - 1,518,223 3,510,448 1,117,225 4,284,543 876,568 10,666,859 753,732 212,893 $ 22,572,313 48,679,328 11,823,093 865,220 17,191,688 80,250,088 9,409,134 7,312,342 307,144,590 359,227,188 35,041,695 12,015,820 319,793,894 539,743,698 (163,428,332) (230,185,156) (25,019,664) $ Infrastructure 10,022,031 $ 12,015,820 $ 117 156,365,562 $ 309,558,542 City of Flagstaff, Arizona Capital Assets Used in the Operation of Governmental Funds Schedule of Changes By Function and Activity June 30, 2017 Balance Program General government Public safety July 1, 2016 $ Public works Economic and physical development $ Highway and streets 3,532,729 78,901,266 1,348,822 525,850,392 $ 14,228,295 118 (107,427) (86,845) $ June 30, 2017 - - $ 22,572,313 48,679,328 - - 11,823,093 - - 80,250,088 - (204,320) $ Balance In (out) (24,359) 7,911,485 $ Transfers Retirements 85,483 351,432,061 $ 641,903 707,873 8,290,364 17,130,564 Culture and recreation Total 22,037,837 48,058,300 Additions (422,951) 17,191,688 87,962 $ 87,962 359,227,188 $ 539,743,698 City of Flagstaff, Arizona Library Fund Schedule of Revenues, Expenditures, and Changes in Fund Balances - Budget and Actual Year Ended June 30, 2017 Budget Original Final Actual Amounts Budgetary Basis 4,465,820 $ Variance with Final Budget REVENUES: Intergovernmental $ 4,465,820 $ 3,210,071 Grants and entitlements 25,000 25,000 97,124 Investment earnings 37,812 37,812 32,720 Miscellaneous Total revenues $ (1,255,749) 72,124 (5,092) 41,000 41,000 51,462 4,569,632 4,569,632 3,391,377 (1,178,255) 10,462 6,450,179 6,450,179 4,851,606 1,598,573 680,125 680,125 244,044 436,081 100,000 100,000 - 100,000 7,230,304 7,230,304 5,095,650 2,134,654 (2,660,672) (2,660,672) (1,704,273) 1,641,611 1,641,611 1,641,611 - - - - - 1,641,611 1,641,611 1,641,611 - (1,019,061) (1,019,061) 1,475,171 1,475,171 EXPENDITURES: Current: Culture and recreation Capital outlay Contingency Total expenditures Excess (deficiency) of revenues over (under) expenditures 956,399 OTHER FINANCING SOURCES (USES): Transfers in Transfers out Total other financing sources (uses) Net change in fund balances Fund balances, beginning of year Fund balances, end of year $ 456,110 $ Adjustment of budgetary basis to GAAP basis net change in fund balances 456,110 (62,662) 3,597,359 $ $ 3,534,697 (62,662) The City budgets certain revenues on the cash basis, rather than on the modified accrual basis. 38,906 Adjusted net change in fund balance - GAAP basis $ 119 956,399 (23,756) $ 956,399 City of Flagstaff, Arizona BBB Fund Schedule of Revenues, Expenditures, and Changes in Fund Balances - Budget and Actual Year Ended June 30, 2017 Budget Original Actual Amounts Budgetary Basis Final Variance with Final Budget REVENUES: Taxes $ Grants and entitlements Rents Investment earnings Miscellaneous Total revenues 7,373,000 $ 7,373,000 $ 7,787,913 $ 414,913 - - - - 168,948 168,948 193,855 24,907 50,000 50,000 82,749 32,749 100,094 100,094 124,245 24,151 7,692,042 7,692,042 8,188,762 496,720 3,081,860 3,081,860 2,734,200 347,660 877,048 877,048 667,243 209,805 - - 42,576 EXPENDITURES: Current: Economic and physical development Culture and recreation Highways and streets (42,576) Debt service: - Principal retirement 135,000 135,000 135,000 - Interest and other charges 122,143 122,143 115,254 6,889 5,866,477 5,866,477 891,086 4,975,391 Capital Outlay Contingency Total expenditures Excess (deficiency) of revenues over (under) expenditures 115,000 115,000 - 115,000 10,197,528 10,197,528 4,585,359 5,612,169 3,603,403 6,108,889 251,000 - (2,505,486) (2,505,486) OTHER FINANCING SOURCES (USES): Transfers in 251,000 Transfers out Total other financing sources (uses) Net change in fund balances Fund balances, beginning of year Fund balances, end of year $ 251,000 (2,980,094) (2,980,094) (2,554,450) 425,644 (2,729,094) (2,729,094) (2,303,450) 425,644 (5,234,580) (5,234,580) 1,299,953 6,534,533 8,213,309 8,213,309 9,426,034 - 2,978,729 $ Adjustment from budgetary basis to GAAP basis net change in fund balances 2,978,729 $ 10,725,987 $ 1,299,953 The City budgets certain revenues on the cash basis, rather than on the modified accrual basis. 854,145 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 $ 120 2,154,098 $ 6,534,533 City of Flagstaff, Arizona Housing & Community Service Fund Schedule of Revenues, Expenditures, and Changes in Fund Balances - Budget and Actual Year Ended June 30, 2017 Budget Original Actual Amounts Budgetary Basis Final Variance with Final Budget REVENUES: Grants and entitlements $ 2,088,291 $ 2,088,291 $ 851,995 $ (1,236,296) Intergovernmental - - - - Rent - - 8,875 8,875 - 12,560 12,560 19,022 19,022 227,438 208,416 2,107,313 2,107,313 1,100,868 Economic and physical development 3,209,061 3,209,061 983,445 2,225,616 Total expenditures 3,209,061 3,209,061 983,445 2,225,616 (1,101,748) (1,101,748) 117,423 1,219,171 - - Investment earnings - Miscellaneous Total revenues (1,006,445) EXPENDITURES: Current: Excess (deficiency) of revenues over (under) expenditures OTHER FINANCING SOURCES (USES): Transfers in - Transfers out Total other financing sources (uses) Net change in fund balances Fund balances, beginning of year Fund balances, end of year $ - (50,000) (50,000) - 50,000 (50,000) (50,000) - 50,000 (1,151,748) (1,151,748) 117,423 1,269,171 1,390,028 1,390,028 1,244,240 - 238,280 $ Adjustment of budgetary basis to GAAP basis net change in fund balances 238,280 $ $ 1,361,663 117,423 The City budgets certain revenues on the cash basis, rather than on the modified accrual basis. 61,132 Adjusted net change in fund balance - GAAP basis $ 121 178,555 $ 1,269,171 City of Flagstaff, Arizona Metropolitan Planning Organization Fund Schedule of Revenues, Expenditures, and Changes in Fund Balances - Budget and Actual Year Ended June 30, 2017 Budget Original Actual Amounts Budgetary Basis Final Variance with Final Budget REVENUES: Grants and entitlements $ Intergovernmental Total revenues 1,111,116 $ 1,111,116 $ 393,477 $ (717,639) 5,000 5,000 - (5,000) 1,116,116 1,116,116 393,477 (722,639) 638,616 638,616 433,547 205,069 500,000 500,000 - 500,000 1,138,616 1,138,616 433,547 705,069 (17,570) EXPENDITURES: Current: Economic and physical development Contingency Total expenditures Excess (deficiency) of revenues over (under) expenditures (22,500) (22,500) (40,070) 22,500 22,500 22,500 - 22,500 22,500 22,500 - Net change in fund balances - - (17,570) Fund balances, beginning of year - - 17,293 OTHER FINANCING SOURCES (USES): Transfers in Total other financing sources (uses) Fund balances, end of year $ - $ 122 - $ (277) (17,570) $ (17,570) City of Flagstaff, Arizona Parking District Fund Schedule of Revenues, Expenditures, and Changes in Fund Balances - Budget and Actual Year Ended June 30, 2017 Budget Original Actual Amounts Budgetary Basis Final Variance with Final Budget REVENUES: Charges for service $ Investment Earnings 556,760 $ - Total revenues 556,760 $ - - $ 1,075 (556,760) 1,075 556,760 556,760 1,075 (555,685) 1,364,690 1,364,690 890,994 473,696 90,000 90,000 50,826 39,174 - - 6,687 EXPENDITURES: Current: Highways and streets Debt service: - Principal retirement Interest and other charges Contingency Total expenditures Excess (deficiency) of revenues over (under) expenditures (6,687) 47,108 47,108 - 47,108 1,501,798 1,501,798 948,507 553,291 (945,038) (945,038) (947,432) (2,394) Bonds issued 880,000 880,000 1,000,000 120,000 Transfers in 385,398 385,398 385,398 - 1,265,398 1,265,398 1,385,398 120,000 320,360 320,360 437,966 117,606 - - - - OTHER FINANCING SOURCES (USES): Total other financing sources (uses) Net change in fund balances Fund balances, beginning of year Fund balances, end of year $ 320,360 $ 123 320,360 $ 437,966 $ 117,606 City of Flagstaff, Arizona General Obligation Bond Fund Schedule of Revenues, Expenditures, and Changes in Fund Balances - Budget and Actual Year Ended June 30, 2017 Budget Original Actual Amounts Budgetary Basis Final Variance with Final Budget REVENUES: Miscellaneous Total revenues - - - - - - - - EXPENDITURES: Principal retirement $ 5,859,144 $ 5,859,144 $ 11,401,644 $ 5,542,500 Interest and other charges 2,668,767 2,668,767 1,689,220 Total expenditures 8,527,911 8,527,911 13,090,864 4,562,953 (8,527,911) (8,527,911) (13,090,864) (4,562,953) Excess (deficiency) of revenues over (under) expenditures (979,547) OTHER FINANCING SOURCES (USES): Bond premium - - 79,300 79,300 8,527,911 8,527,911 13,011,564 4,483,653 8,527,911 8,527,911 13,090,864 4,562,953 Net change in fund balances - - - - Budgetary fund balances, beginning of year - - - - Transfers in Total other financing sources (uses) Budgetary fund balances, end of year $ - $ 124 - $ - $ - 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, 2017 Budget Original Final Actual Amounts Budgetary Basis 5,879,357 $ Variance with Final Budget REVENUES: Taxes $ Investment earnings 5,879,357 $ 5,916,234 $ 36,877 75,000 75,000 55,483 5,954,357 5,954,357 5,971,717 (8,527,911) (8,527,911) (13,011,564) (4,483,653) (8,527,911) (8,527,911) (13,011,564) (4,483,653) Net change in fund balances (2,573,554) (2,573,554) (7,039,847) (4,466,293) Fund balances, beginning of year 12,466,195 12,466,195 13,203,511 Total revenues (19,517) 17,360 OTHER FINANCING SOURCES (USES): Transfers out Total other financing sources (uses) Fund balances, end of year $ 9,892,641 $ 125 9,892,641 $ 6,163,664 $ (4,466,293) City of Flagstaff, Arizona Special Assessment Bond Fund Schedule of Revenues, Expenditures, and Changes in Fund Balances - Budget and Actual Year Ended June 30, 2017 Budget Original Actual Amounts Budgetary Basis Final Variance with Final Budget REVENUES: Special assessments $ Investment earnings 205,750 $ 205,750 $ 202,243 $ (3,507) 900 900 2,163 206,650 206,650 204,406 95,000 95,000 95,000 - Interest and other charges 116,350 116,350 111,500 4,850 Total expenditures 211,350 211,350 206,500 4,850 Total revenues 1,263 (2,244) EXPENDITURES: Debt service: Principal retirement Excess (deficiency) of revenues over (under) expenditures (4,700) Fund balances, beginning of year Fund balances, end of year (4,700) 328,866 $ (2,094) 328,866 324,166 $ 126 324,166 2,606 366,408 $ 364,314 $ 2,606 City of Flagstaff, Arizona Capital Projects Bond Construction Schedule of Revenues, Expenditures, and Changes in Fund Balances - Budget and Actual Year Ended June 30, 2017 Budget Original REVENUES: Grants and entitlements Intergovernmental $ Investment earnings 280,000 $ - 6,440 Miscellaneous Total revenues Actual Amounts Budgetary Basis Final 280,000 - $ 315,071 - Variance with Final Budget $ 35,071 - 2,790,000 6,440 2,790,000 119,958 113,518 300 (2,789,700) 3,076,440 3,076,440 435,329 (2,641,111) 2,440,000 2,440,000 1,758,544 - - 250,416 40,754,312 40,754,312 3,443,335 37,310,977 43,209,304 43,209,304 5,553,182 37,656,122 (40,132,864) (40,132,864) (5,117,853) 35,015,011 EXPENDITURES: Current: General governmental - Public safety Public works - 14,992 Culture and recreation Capital outlay Total expenditures Excess (deficiency) of revenues over (under) expenditures OTHER FINANCING SOURCES (USES): Bonds issued 28,200,000 28,200,000 16,025,700 - - 2,286,081 Sale of capital assets - - - 2,520,000 2,520,000 2,113,225 Transfers out Total other financing sources (uses) Net change in fund balances Fund balances, beginning of year Fund balances, end of year $ - - 30,720,000 30,720,000 (9,412,864) (9,412,864) 6,433,783 6,433,783 (2,979,081) $ 127 (2,979,081) (21,170) (250,416) 79,717 14,992 Bond premium Transfers in 681,456 21,170 (64,725) (12,174,300) 2,286,081 (406,775) (195) (195) 20,424,811 (10,295,189) 15,306,958 24,719,822 (1,045,152) $ 14,261,806 $ 24,719,822 CITY OF FLAGSTAFF, ARIZONA Financial Data Submission Summary Net Position Accounts Year Ended June 30, 2017 Public Housing 14.850 & 14.872 Housing Choice Vouchers 14.871 Moderate Rehabilitation 14.856 Business Activities Elimination Total Assets: Current Assets: Cash: Cash - Unrestricted $ 630,540 $ 704,055 Cash - Other Restricted Cash - Tenant Security Deposits Total Cash - 73,515 $ $ 54,988 $ 108,519 233,617 $ 108,519 178,629 - - $ 6,636 $ 6,636 - - 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 91,432 256 8,137 28,897 1,039 (2,490) - 5,954 40,270 - 36,448 - Inter Program Due From - Allowance for Obsolete Inventories - Assets Held for Sale - 837,838 40,566 - 343 - 274,526 12,966 - 2,998 - 124,483 - $ - - - (32,313) - - - - 12,590 8,137 (2,490) (27,304) - - 28,897 - - - - 41,565 - - 73,515 $ 1,052,827 - - - 800,683 178,629 108,016 - 5,954 $ - - (32,313) 97,335 - - - (27,304) 32,313 Inventories Total Current Assets 10,630 $ - 32,313 - 156,821 - 39,789 - - 1,249,437 Noncurrent Assets: Capital Assets: 1,446,035 - - - - 1,446,035 Furniture, Equipment & Machinery - Dwellings 887,236 - - - - 887,236 Furniture, Equipment & Machinery - Administration 507,549 - - - - 507,549 (7,575,848) - - - - (7,575,848) 4,786,403 - - - - 4,786,403 - - - - - - - - 4,786,403 - - 436,928 - 6,472,768 Land Buildings Leasehold Improvements Accumulated Depreciation Construction in Progress Total Capital Assets, Net Notes receivable - Noncurrent Other Assets Total Non-Current Assets Deferred Outflow of Resources Total Assets and Deferred Outflow of Resources 9,521,431 - - 4,786,403 - - - - - - 276,764 71,681 88,483 5,901,005 346,207 212,966 (continued) 128 - - - 12,590 - - - 9,521,431 - - CITY OF FLAGSTAFF, ARIZONA Financial Data Submission Summary Net Position Accounts Year Ended June 30, 2017 Public Housing 14.850 & 14.872 Housing Choice Vouchers 14.871 Business Activities Moderate Rehabilitation 14.856 - - Elimination Total Liabilities and Net Position: Liabilities: Current Liabilities: Bank Overdraft Accounts Payable <= 90 Days Accrued Wage/Payroll Taxes Payable Accrued Compensated Absences - - 138,135 4,499 45,008 11,241 33,093 2,682 9,296 - 11,192 145,316 - 57,417 - 1,168 Accrued Interest Payable - Account Payable - PHA Projects - - Accounts Payable - HUD PHA Programs - - 53,581 - Accounts Payable - Other Government 77,025 - 77,025 Unearned Revenues 16,800 - 16,800 Tenant Security Deposits 73,515 - Current Portion of L-T Debt - Capital - Other Current Liabilities - Current Portion of L-T Debt - Operating - Accrued Liabilities - Other - Inter Program - Due To Total Current Liabilities 383,576 25,036 15,042 - - Noncurrent Liabilities Accrued Pension and OPEB Liabilities Total Non-Current Liabilities Total Liabilities Deferred Inflow of Resources Net Position: Net Investment in Capital Assets Restricted Net Position Unrestricted Net Position Total Equity/Net Position Total Liabilities, Deferred Inflows of Resources and Equity/Net Position - - 423,654 - Long-term Debt, Net of Current - Operating Accrued Compensated Absences - - Long-term Debt, Net of Current - Capital Non-current Liabilities - Other 73,515 104,450 28,832 - 2,268 135,550 1,575,322 286,131 455,929 458,197 - - 2,063,348 339,999 473,239 - - 2,876,586 186,360 31,286 51,428 - - 269,074 - - 4,786,403 - (1,637,924) 1,679,772 314,963 4,786,403 - - (1,135,106) - (203,707) 3,651,297 $ 5,901,005 - 178,629 (311,701) (25,078) $ 346,207 $ 212,966 - 12,590 (311,701) (concluded) 129 - 12,590 $ 12,590 - $ - 2,317,382 2,452,932 - 178,629 3,327,108 $ 6,472,768 CITY OF FLAGSTAFF, ARIZONA Financial Data Submission Summary Revenue, Expense, and Changes in Fund Net Position Accounts Year Ended June 30, 2017 Housing Choice Vouchers 14.871 Public Housing 14.850 & 14.872 Revenues: Net Tenant Rental Revenue Tenant Revenue - Other Total Tenant Revenue HUD PHA Operating Grants Capital Grants $ 1,131,032 22,487 720,175 256,311 - Bookkeeping Fee - Other Fees - Investment Income - Unrestricted - Asset Management Fee - Front Line Service Fee - Other Government Grants - Mortgage Interest Income - Proceeds -Disposition of Assets Held for Sale - Fraud Recovery Other Revenue Gain or Loss on Sale of Capital Assets Investment Income - Restricted Total Revenue - - 1,153,519 Management Fee Cost of Sale of Assets $ - 17,055 4,545 - 3,779,240 - 6,588 57,115 - Moderate Rehabilitation 14.856 Business Activities $ - - $ - - 84,704 - Elimination $ - $ 1,131,032 - 1,153,519 - 4,584,119 - - - - - - - - 375,818 - 2,151,605 3,842,943 375,818 418,588 203,881 118,109 - 84,704 Total - 22,487 256,311 - 23,643 437,478 - - 6,455,070 - - 740,578 - - Expenses: Administrative Administrative Salaries Auditing Fees Management Fee Bookkeeping Fee Advertising and Marketing Employee Benefit - Administrative 4,139 - 6,824 - - 516 - 129 500 224 - - - 129 145,848 68,633 81,422 19,782 588 447 Office Expenses 79,462 Travel 15,226 11,082 2,863 Other 5,507 879 2,085 Legal Expense Allocated Overhead Total Administrative Tenant Services - 689,068 30,924 - 322,940 9,917 - 215,472 - 10,704 10,928 - 11,687 - 774 - 295,903 - 20,817 - 120,303 29,171 - 19,175 1,238,408 Asset Management Fee - - - - - - Relocation Costs - - - - - - Tenant Services - Salaries - Employee Benefit - Tenant Services - Tenant Services - Other Total Tenant Services Utilities - 448 - 448 - - - - - - 448 - 448 Water 137,506 - 2,787 - - 140,293 Gas 128,320 - 1,102 - - 129,422 Electricity Fuel Labor Sewer Employee Benefit - Utilities Other Utilities Expense Total Utilities 20,145 - - - - - 55,388 - - - - - 341,359 - 130 2,759 - 1,833 - 8,481 - - 22,904 - 57,221 - 349,840 CITY OF FLAGSTAFF, ARIZONA Financial Data Submission Summary Revenue, Expense, and Changes in Fund Net Position Accounts Year Ended June 30, 2017 Public Housing 14.850 & 14.872 Housing Choice Vouchers 14.871 Business Activities Moderate Rehabilitation 14.856 Elimination Total (continued) Ordinary Maintenance and Operations Labor 335,735 - 126,858 - - 462,593 Ordinary Maintenance and Operations Contracts 105,406 - 2,657 - - 108,063 Employee Benefit Contributions Ordinary Maintenance 107,903 - - - 107,903 Materials and Other Total Maintenance Protective Services Protective Services - Labor Protective Services - Other Contract Costs Protective Services - Other Employee Benefit - Protective Services Total Protective Services General Expense 40,947 589,991 - - - 23,211 - - - - - 23,211 Property Insurance 54,346 Workmen's Compensation 11,960 Liability Insurance - 18,551 - 53 1,117 3,327 771 - 130,286 6,989 - 6,989 - 4,015 6,775 91,632 2,465 6,962 4,142 Other General Expenses 13,441 9,481 4,391 Payments in Lieu of Taxes 77,025 All Other Insurance Total insurance Premiums Compensated Absences 4,898 Bad debt - Tenant Rents 13,254 Bad debt - Other 14,295 Bad debt - Mortgages Severance Expense Total General Expenses Financial Expenses 1,142 - - 122,913 - 10,623 127 253 - 4,644 - - - - - - - - - - - - 41,718 . 720,277 30,200 - - 30,200 - - 54,399 - - 19,302 - - 19,668 9,367 - 102,736 - - 27,313 - - 77,025 - - - 6,293 13,254 - - 14,295 - 138,180 - - Interest Expense - Mortgage Payable - - - - - - Interest on Notes Payable (Short & Long Term) - - - - - - - - - - - - Amortization of Bond Issue Costs Total Financial Expenses Total Operating Expenses Excess of Operating Revenue over Operating Expenses - - - - - - 1,858,622 340,525 370,014 10,928 - 2,580,089 292,983 3,502,418 5,804 73,776 - 3,874,981 (continued) Other Expenses Extraordinary Maintenance - Housing Assistance Payments - Casualty Losses - Non-capitalized HAP Portability-In Depreciation Expense Fraud Losses Capital Outlays - Governmental Funds Debt Principal Payment - Governmental Funds Dwelling Units Rent Expense Total Other Expense Total Expenses - 468,028 - 3,483,439 44,247 - 11,072 - - - 73,818 - - - - 3,557,257 - 468,028 - 44,247 11,072 - - - - - - - - - - - - - - 479,100 3,527,686 2,337,722 3,868,211 131 370,014 - 73,818 84,746 - - - 4,080,604 - 6,660,693 CITY OF FLAGSTAFF, ARIZONA Financial Data Submission Summary Revenue, Expense, and Changes in Fund Net Position Accounts Year Ended June 30, 2017 Public Housing 14.850 & 14.872 Other Financing Sources (Uses) Housing Choice Vouchers 14.871 Business Activities Moderate Rehabilitation 14.856 - - - - (73,793) - - - 28,897 73,793 Operating Transfer In (73,793) Operating transfer Out - - Elimination - Total 73,793 Operating Transfers from/to Primary Government - Operating Transfers from/to Component Unit - - - - - - - - - - - - - - - - - - Proceeds from Notes, Loans and Bonds Proceeds from Property Sales - Special Items (Net Gain/Loss) - Extraordinary Items, Net Gain/Loss 28,897 - - Inter Project Excess Cash Transfer In Inter Project Excess Cash Transfer Out - - - - - - - - - - - - - - - - - - - Transfers between Program and Project In - - - - - - Transfers between Project and Program Out - - - - - - - - - - - - Transfer of Funds - Prior Period Adjustments - Transfer of Equity - - Total Other financing Sources (Uses) Excess (Deficiency) of Total Revenue Over (Under) Total Expenses Required Annual Debt Principal Payments - - (42) (28,707) - - - 5,804 (317,505) - - - 3,629 3,837,414 - - 28,897 (186,117) Beginning Net Position - 28,897 - 12,632 (176,726) - 3,503,834 - - - - - - Prior Period Adjustments, Equity Transfers and Correction of Errors - - - - - - Changes in Compensated Absence Balance - - - - - - Changes in Contingent Liability Balance - - - - - - Changes in Unrecognized Pension Transition Liability - - - - - - Changes in Special Term/Severance Benefits Liability - - - - - - Changes in Allowance for Doubtful Accounts - Dwelling Rents - - - - - - Changes in Allowance for Doubtful Accounts - Other - - - - - - Ending Net Position Administrative Fee Equity $ 3,651,297 $ (313,876) $ $ $ (203,707) $ Housing Assistance Payments Equity 3,180 Unit Months Available Number of Unit Months Leased - 3,127 Excess Cash $ 266,148 Building Purchases $ 45,238 Land Purchases $ 178,629 (22,903) - $ $ 5,148 144 4,893 144 $ - $ 3,327,108 $ - $ (203,707) $ 178,629 $ 266,148 $ 45,238 $ Furniture & Equipment - Dwelling Purchases Furniture & Equipment - Administrative Purchases 12,590 $ 8,472 8,164 - - $ 10,419 $ 10,419 Infrastructure Purchases $ 211,073 $ 211,073 Replacement Housing Factor Funds $ Leasehold Improvements Purchases $ CFFP Debt Service Payments $ - $ - $ - $ (concluded) 132 - 133 CITY OF FLAGSTAFF, ARIZONA Financial Data Submission Summary Revenue, Expense, and Changes in Fund Net Position Accounts Public Housing - Consolidated Year Ended June 30, 2017 Operating Fund Program Revenues: Capital Fund Grants $ 1,131,032 Net Tenant Rental Revenue 22,487 Tenant Revenue - Other 1,153,519 Total Tenant Revenue 607,758 HUD PHA Operating Grants Capital Grants Other Project Total $ 1,131,032 112,417 256,311 $ 22,487 1,153,519 720,175 256,311 Management Fee - Bookkeeping Fee - Other Fees - Investment Income - Unrestricted - Asset Management Fee - Front Line Service Fee - Other Government Grants - Mortgage Interest Income - 17,055 Fraud Recovery 17,055 4,545 Other Revenue 4,545 - Gain or Loss on Sale of Capital Assets Investment Income - Restricted 1,782,877 Total Revenue - - 368,728 2,151,605 9,052 418,588 2,424 145,848 Expenses: Administrative $409,536 Administrative Salaries $4,139 Auditing Fees 4,139 Management Fee Bookkeeping Fee $516 Advertising and Marketing $143,424 Employee Benefit - Administrative 516 Office Expenses $57,079 22,383 Travel $10,610 4,616 15,226 38,475 689,068 $19,782 Legal Expense Allocated Overhead $5,507 Other 650,593 Total Administrative Tenant Services 79,462 19,782 5,507 - Tenant Services - Salaries - Relocation Costs Employee Benefit - Tenant Services 448 Tenant Services - Other 448 Total Tenant Services Utilities - - 448 448 Water $137,506 137,506 Gas $128,320 128,320 $20,145 Electricity 20,145 $55,388 Sewer 55,388 - Employee Benefit - Utilities Other Utilities Expense 341,359 Total Utilities - - 341,359 (continued) Ordinary Maintenance and Operations 335,735 Labor 134 335,735 CITY OF FLAGSTAFF, ARIZONA Financial Data Submission Summary Revenue, Expense, and Changes in Fund Net Position Accounts Public Housing - Consolidated Year Ended June 30, 2017 Operating Fund Program 40,947 Materials and Other 105,406 Contracts 107,903 Employee Benefit Contributions 589,991 Total Maintenance Protective Services Protective Services - Labor Protective Services - Other General Expense 40,947 105,406 - 589,991 - - 23,211 Total Protective Services Other Project Total - - - Employee Benefit - Protective Services - - 23,211 Protective Services - Other Contract Costs Capital Fund Grants - 107,903 - 23,211 - 23,211 Property Insurance $54,346 Workmen's Compensation $11,811 149 11,960 91,483 149 91,632 $18,551 Liability Insurance $6,775 All Other Insurance Total insurance Premiums 54,346 18,551 6,775 Other General Expenses 13,441 13,441 Payments in Lieu of Taxes 77,025 77,025 4,898 Compensated Absences Bad debt - Tenant Rents 13,254 Bad debt - Other 14,295 4,898 13,254 - Bad debt - Mortgages - Severance Expense 122,913 Total Other General Expenses Financial Expenses Interest Expense - Mortgage Payable Amortization of Bond Issue Costs Excess of Operating Revenue over Operating Expenses - 122,913 - - - - - 1,819,998 Total Operating Expenses - - - Total Financial Expenses - 14,295 (37,121) - - 38,624 1,858,622 330,104 292,983 (continued) Other Expenses Extraordinary Maintenance - Casualty Losses - Non-capitalized - - HAP Portability-In - - - Housing Assistance Payments 468,028 Depreciation Expense 11,072 Fraud Losses 479,100 Total Other Expense 2,299,098 Total Expenses Other Financing Sources (Uses) 73,793 Operating Transfer In Operating transfer Out - Operating Transfers from/to Component Unit - Operating Transfers from/to Primary Government 135 - - - - - 468,028 - 479,100 - 38,624 - (73,793) - 11,072 2,337,722 73,793 (73,793) - CITY OF FLAGSTAFF, ARIZONA Financial Data Submission Summary Revenue, Expense, and Changes in Fund Net Position Accounts Public Housing - Consolidated Year Ended June 30, 2017 Operating Fund Program Proceeds from Notes, Loans and Bonds - Extraordinary Items, Net Gain/Loss - Proceeds from Property Sales - Special Items (Net Gain/Loss) - Inter Project Excess Cash Transfer Out - Transfers between Project and Program - Out - - Inter Project Excess Cash Transfer In - Transfers between Program and Project - In Capital Fund Grants - Transfer of Funds Transfer of Equity - Prior Period Adjustments 73,793 Total Other financing Sources (Uses) Excess (Deficiency) of Total Revenue Over (Under) Total Expenses (442,428) 3,837,414 Beginning Net Position - Required Annual Debt Principal Payments Prior Period Adjustments, Equity Transfers and Correction of Errors 256,311 - Changes in Compensated Absence Balance Changes in Unrecognized Pension Transition Liability Changes in Special Term/Severance Benefits Liability Changes in Allowance for Doubtful Accounts - Dwelling Rents Changes in Allowance for Doubtful Accounts - Other Housing Assistance Payments Equity Unit Months Available Excess Cash (256,311) - - - - (186,117) 3,837,414 - - - - - - - - - - - - - 256,311 - - - 3,651,297 - - 3,180 - 3,180 266,148 - 266,148 Land Purchases - Furniture & Equipment - Dwelling Purchases - Leasehold Improvements Purchases - CFFP Debt Service Payments - Building Purchases - Furniture & Equipment - Administrative Purchases - Infrastructure Purchases - Replacement Housing Factor Funds - - 45,238 - 211,073 (concluded) 136 - - 3,127 Number of Unit Months Leased - - - - - Administrative Fee Equity 256,311 - - 3,394,986 Ending Net Position (73,793) - - - Changes in Contingent Liability Balance - Other Project Total 3,127 - 45,238 - 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 138 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 146 These schedules contain information to help the reader assess the city's most significant local revenue source, sales tax. Debt Capacity 152 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 164 These schedules offer demographic and economic indicators to help the reader understand the environment within which the city's financial activities take place. Operating Information 166 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 provides and the activities it performs. Sources: Unless otherwise noted, the information in these schedules is derived from the comprehensive annual financial reports for the relevant year. 137 Schedule 1 City of Flagstaff Net Position by Component Last Ten Fiscal Years (accrual basis of accounting) Governmental activities Net investment in capital assets Restricted Unrestricted Total governmental activities net position Business-type activities Net investment in capital assets Restricted Unrestricted Total business-type activities and net position Primary government Net investment in capital assets Restricted Unrestricted Total primary government net position Fiscal Year 2008 2009 2010 $ 214,268,448 $ 215,672,933 $ 213,762,870 39,248,151 34,766,602 49,463,587 14,875,852 7,975,269 18,213,829 $ 217,879,986 23,971,870 42,863,692 2012 $ 219,112,469 34,679,441 37,309,699 2013 $ 222,690,985 43,856,244 32,288,032 2014 $ 227,347,151 43,761,156 37,176,483 2015 2016 $ 230,658,509 $ 246,897,365 53,192,347 (65,530,075) 60,981,953 (72,922,639) 2017 $245,638,486 86,071,589 (92,822,132) $ 268,392,451 (3) $ 258,414,804 (4) $ 281,440,286 $ 284,715,548 $ 291,101,609 $ 298,835,261 $ 308,284,790 $ 218,320,781 $ 234,956,679 $ 238,887,943 $ 276,783,163 $ 291,707,810 $ 302,784,152 $ 303,113,402 $ 304,418,393 $ 304,560,897 $ 310,552,949 $ 311,963,433 $ 311,644,865 $ 317,301,221 16,250,436 11,547,792 10,895,855 31,128,319 18,390,515 20,537,654 26,426,890 1,593,915 1,593,915 2,209,327 3,003,129 17,190,191 2,805,002 23,968,903 2,694,262 29,195,853 2,492,562 2,664,263 2,903,553 3,142,245 $ 294,627,514 $ 304,849,517 $ 315,889,334 $ 323,306,722 $ 331,192,298 $ 336,451,012 $ 344,173,830 $ 333,018,211 $ 335,086,072 $ 346,870,356 $ 491,051,611 $ 507,380,743 $ 516,547,022 $ 520,993,388 $ 523,530,862 $ 527,251,882 $ 537,900,100 $ 542,621,942 $ 558,542,230 $ 562,939,707 55,498,587 46,314,394 60,359,442 16,469,767 $ 563,019,965 9,569,184 $ 563,264,321 20,423,156 $ 597,329,620 138 (3) FY 2008 change in calculations within categories due to calculation error. No net change to total net position. (4) FY 2009 restated for change due to accounting error 2011 $ 26,974,999 60,053,883 608,022,270 $ 37,484,442 61,278,603 622,293,907 $ 46,550,506 61,483,885 635,286,273 $ 46,253,718 68,304,802 652,458,620 55,856,610 (47,139,560) $ 551,338,992 63,885,506 (52,384,985) $ 570,042,751 89,213,834 (66,395,242) $ 585,758,299 139 Schedule 2 City of Flagstaff Changes in Net Position Last Ten Fiscal Years (accrual basis of accounting) Fiscal Year 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Expenses Governmental activities: General government Public safety $ Public works 11,271,031 27,030,331 $ 1,894,089 10,913,187 29,287,433 2,109,221 Economic and physical development 10,556,175 10,346,982 Highways and streets 15,515,643 19,297,615 Culture and recreation 11,607,116 Interest on long-term debt 2,916,380 Total governmental activities expense $ 8,238,178 26,592,968 $ 1,502,626 7,850,954 25,987,193 $ 1,754,033 8,827,578 9,406,406 27,175,720 $ 1,615,941 8,474,776 10,442,808 27,269,325 $ 1,718,767 9,639,003 10,732,510 28,730,111 1,573,541 9,210,500 12,919,475 12,511,424 3,651,521 3,918,110 3,370,918 2,944,057 2,902,196 2,946,685 2,944,000 15,431,985 17,698,346 79,568,079 79,544,593 80,318,169 83,619,164 Water 23,420,282 22,802,316 21,731,286 21,491,239 22,708,636 22,568,661 24,366,128 Environmental 11,423,164 11,782,540 11,091,078 11,610,370 7,828,286 11,671,366 11,637,566 5,811,922 6,165,612 5,986,508 6,090,790 3,608,322 - Housing Authority Stormwater 4,273,609 - 4,584,733 - 4,268,099 1,121,555 5,226,977 1,361,658 1,196,589 2,743,633 105,295,672 14,674,337 15,454,108 10,879,594 10,490,816 11,150,309 4,540,208 4,307,615 5,080,905 12,087,144 6,084,019 1,576,865 15,849,094 92,160,461 12,071,509 4,118,280 9,833,154 13,563,829 2,295,418 14,307,902 42,090,228 1,895,576 12,974,830 97,519,389 19,320,158 12,337,663 6,125,950 1,184,464 6,657,398 1,160,604 1,203,436 1,258,072 39,612,372 39,985,739 38,354,045 44,619,819 42,332,291 46,650,101 47,789,629 49,067,696 48,931,394 51,860,613 $ 120,403,137 $ 128,712,615 $ 117,797,305 $ 124,187,898 $ 121,876,884 $ 126,968,270 $ 131,408,793 $ 146,587,085 $ 141,091,855 $ 157,156,285 $ $ $ $ $ $ $ $ $ $ Total business-type activities expense Total primary government expense 4,197,447 $ 1,650,323 13,059,212 13,342,588 16,328,771 34,711,251 18,174,944 12,434,695 19,275,381 17,210,187 10,259,240 12,854,824 17,856,121 $ 9,343,417 12,507,679 79,443,260 Airport 35,255,450 13,120,917 88,726,876 Wastewater 17,625,846 1,664,308 9,018,496 80,790,765 Business-type activities: $ 1,245,532 1,180,230 Program Revenues 140 Governmental activities: Charges for services: General government Public safety Public works Economic and physical development Culture and recreation Highways and streets Operating grants and contributions Capital grants and contributions Total governmental activities program revenues 3,746,890 1,227,979 1,483,275 315,462 3,099,884 1,451,405 1,350,832 369,987 3,285,242 1,283,697 1,471,550 291,211 2,646,424 1,144,636 1,537,188 162,715 3,364,479 1,611,109 1,551,419 53,747 3,448,665 1,491,842 1,611,306 52,386 4,568,438 628,038 1,215 903,233 762,410 1,559,617 1,420,094 1,442,901 1,455,067 1,507,855 1,656,628 3,320,597 5,990,756 6,654,978 7,965,474 7,414,767 6,866,279 7,071,557 27,181,541 23,703,243 51,356,453 24,126,116 - 16,324,928 - 9,880,762 - 36,949,681 - 9,226,778 - 12,200,969 27,651,557 - 11,318,522 26,296,855 - 14,603,667 29,432,776 3,091,342 879,755 520 2,329,258 1,605,120 - 6,670,678 13,008,629 27,585,302 3,241,987 647,910 605 3,767,060 1,633,338 - 7,726,612 11,806,049 28,823,561 3,143,969 832,352 740 3,785,805 1,785,874 173,960 7,723,935 8,774,146 26,220,781 Schedule 2 (continued) City of Flagstaff Changes in Net Position Last Ten Fiscal Years (accrual basis of accounting) Business-type activities: Charges for services: Water 17,947,605 17,328,927 17,539,873 18,781,751 19,937,196 22,629,862 23,432,153 14,043,177 14,589,041 15,973,118 Environmental 10,813,177 11,545,472 11,329,336 12,010,554 12,030,990 12,000,124 12,490,237 12,646,619 12,760,747 13,047,045 1,437,841 1,299,987 974,184 1,027,945 1,455,715 1,605,422 Wastewater - Airport 1,207,831 Housing Authority Operating grants and contributions Total primary government program revenues Net (Expense)/Revenue $ 1,358,438 12,242,567 8,744,216 6,790,709 10,966 70,597,774 $ 40,064,564 $ 38,497,439 5,090,475 $ 44,386,299 - 1,486,247 1,455,405 1,465,522 7,960,357 6,622,143 7,835,529 48,791,925 4,884,129 50,072,033 8,907,760 1,504,703 994,123 1,446,602 4,624,234 4,220,708 89,853,892 - 1,492,559 1,456,894 120,054 63,767,807 - 1,388,076 - 1,247,878 43,416,233 - 1,359,029 - 1,137,402 67,651 Capital grants and contributions - 1,187,105 - Stormwater Total business-type activities program revenues - 1,528,202 $ 76,443,482 $ 76,368,888 $ 51,753,564 49,111,893 1,598,913 4,775,797 4,749,158 $ 1,503,945 1,495,296 4,742,685 81,186,340 9,943,603 1,603,852 1,466,347 4,051,236 68,512,415 9,387,949 4,953,619 4,339,777 76,697,195 $ 50,408,174 13,162,230 79,231,735 $ 61,787,895 88,008,676 Governmental activities $ (53,609,224) $ (65,023,633) $ (28,086,807) $ (55,441,963) $ (51,893,036) $ (54,021,314) $ (54,186,388) $ (69,934,087) $ (63,336,900) $ (79,074,891) Total primary government net expense $ (49,805,363) $ (64,944,808) $ (27,943,413) $ (55,675,483) $ (45,433,402) $ (50,599,382) $ (50,222,453) $ (69,889,890) $ (61,860,120) $ (69,147,609) $ 13,664,791 $ 12,262,185 $ 12,798,495 $ 12,645,717 $ 11,974,341 $ 11,821,650 $ 11,044,817 $ 11,211,038 $ 11,339,774 $ 11,674,553 Business-type activities 3,803,861 78,825 143,394 (233,520) 6,459,634 3,421,932 3,963,935 44,197 1,476,780 9,927,282 General Revenues and Other Changes in Net Position Governmental activities: Taxes Property taxes Sales taxes State shared sales taxes - unrestricted 16,992,017 Investment earnings 141 Contributions to permanent fund - 16,200 Transers in (out) (3,590,153) Total governmental activities Business-type activties: Investment earnings Miscellaneous (9,651,500) 67,096,089 52,520,424 964,237 78,248 127,423 Gain (loss) on sale of capital assets Transers in (out) 510,695 1,285,289 1,813,164 15,474 23,935 18,700 18,173 (1,134,382) 206,154 111,251 107,543 118,247 194,306 213,335 119,366 79,467 47,818 243,700 73,916 194,547 10,524,926 10,143,178 $ Governmental activities $ 13,486,865 $ (12,503,209) $ Total primary government $ 22,050,787 $ (2,281,206) $ $ 23,025,482 $ 34,079,067 $ 581,015 - 1,134,382 1,495,454 62,022,480 11,053,585 173,313 1,189,964 10,910,191 62,663,602 10,222,003 150,129 817,761 1,425,942 65,201 (1,407,710) 1,836,782 3,763,030 68,063,886 $ 3,275,262 $ 6,386,061 $ 7,733,652 $ 10,114,468 $ 4,537,196 $ 14,271,637 $ 12,992,366 $ 17,841,433 $ 1,261,934 7,885,576 5,258,714 336,685 406,101 7,726,965 375,716 377,316 - - (121,320) 3,324,433 $ (1,073,585) 303,863 1,407,710 63,591,748 - 83,006,155 2,908,700 $ 6,950 121,320 493,358 59,705,039 15,470 79,972,798 1,119,502 $ 1,123,129 70,933,088 567,079 60,212,679 (447,324) 1,404,390 - 16,821 53,582,850 18,139,582 1,668,431 645,571 (2,908,700) 64,300,856 48,343,259 17,080,154 1,179,131 241,231 (817,761) 42,539,371 16,683,665 749,038 61,754,966 $ 8,563,922 (396,124) - (1,189,964) 15,666,968 58,279,097 71,856,150 Business-type activities 24,950 37,675,638 58,717,225 $ Change in Net Position 19,136 14,630,891 322,126 744,957 35,188,913 51,112,289 9,651,500 4,760,061 Total business-type activities 1,741,338 (10,524,926) 166,158 3,590,153 228,969 33,401,021 13,189,822 246,093 2,831,308 13,325 31,355,882 13,148,252 449,394 381,984 2,160,339 30,429,840 14,880,073 1,465,731 819,325 Gain on sale of capital assets 31,420,047 16,628,652 3,903,839 Miscellaneous Total primary government 33,129,731 1,073,585 591,081 1,857,002 74,257,521 $ 80,563,879 $ 999,001 $ 16,635,898 $ 4,367,631 $ 18,703,759 $ 3,368,630 2,067,861 84,863,157 3,931,264 11,784,284 15,715,548 Schedule 3 City of Flagstaff Fund Balances, Governmental Funds Last Ten Fiscal Years (modified accrual basis of accounting) 2008 General Fund Reserved Unreserved $ Nonspendable All Other Governmental Funds Reserved Unreserved, reported in: Special revenue funds 142 Permanent fund 27,801,832 $ 20,611,579 $ Committed $ - 19,720,079 - 8,955,106 651,650 - $ - 13,471,434 (1) FY2007 : As restated for accounting error related to the accural of state shared revenues * FY2010 : Implementation of GASB-54 Fund Balance Classification - 22,807,012 - $ $ $ $ - - $ - 33,962,655 $ 323,792 - - $ 335,134 - - 342,576 2,255,454 1,750,086 7,335,230 8,063,998 8,192,178 8,903,561 8,011,051 19,410,597 28,324,180 - - $ $ - - $ $ - (282,178) 309,428 81,723,554 - - - (2,934,084) 53,394,247 - 47,948,587 $ 30,361,068 40,464,781 - - - 51,014,684 $ 8,379,744 - $ - $ - 51,003,624 - 27,425,564 38,919,713 - - - - - $ 293,238 48,320,324 48,591,801 - $ - - $ 23,153,900 33,621,090 - - 271,477 - 42,714,228 21,559,814 31,762,789 - - - $ - - 2017 1,951,220 42,466,792 - $ 440,644 - - - - 2016 1,698,333 247,436 33,743,091 2015 800,953 - - - $ - 219,564 23,012,954 (2,863,781) - - - 386,518 - - 20,363,506 17,203,207 25,680,223 2014 390,882 282,888 214,333 $ $ 7,075,902 - 2,228,605 $ 15,160,509 23,352,187 - - 758,303 - - 4,299,450 - $ 206,678 - 36,355,874 $ 2013 359,923 85,119 - - $ 6,882,947 - 216,878 - $ - 13,412,219 23,256,335 - - 796,345 86,568 $ 2012 427,267 8,595,100 - - Assigned 22,203,764 22,590,284 $ 785,720 - 9,916 Restricted - - 2011 376,728 - (763,744) Nonspendable $ - 16,498,123 Capital project funds Unassigned - - - 106,144 - $ 2010* 280,376 - Assigned Total all other governmental funds $ - Committed Unassigned 308,979 27,492,853 - Restricted Total general fund 2009 2,078,968 $ (2,669,832) 81,442,118 Schedule 4 City of Flagstaff Changes in Fund Balances, Governmental Funds Last Ten Fiscal Years (modified accrual basis of accounting) 2008 REVENUES: Taxes Intergovernmental $ Grants and entitlements 2009 43,964,317 20,425,088 $ 13,556,680 Charges for services Special assessments 43,555,388 21,364,739 $ 9,609,508 2,704,333 3,324,838 1,815,062 1,377,580 2,449 Licenses and permits 2010 2011 43,200,268 19,450,213 $ 11,172,862 43,799,128 17,488,021 $ 10,583,483 3,057,423 2,382 2012 17,230,696 739,040 1,517,558 1,636,157 1,673,306 1,601,044 Investment earnings 3,731,116 1,366,931 413,594 224,363 296,241 1,421,772 1,496,858 Contributions Miscellaneous 1,308,938 1,328,524 91,160,312 85,251,204 819,325 Total revenues EXPENDITURES: General governmental 1,588,214 544,393 381,984 10,229,814 1,617,912 228,969 84,244,184 9,848,252 7,926,726 7,113,922 19,584,399 87,076,859 8,480,086 143 Principal retirement 5,046,398 Interest and other charges Capital outlay 16,652,590 1,031,983 1,216,083 1,207,776 Proceeds of refunding bonds Payment to bond refunding escrow agent - - - Bond premium - Insurance recoveries Sale of capital assets 2,176,808 Transfers in 17,181,576 Transfers out Total other financing sources (uses) (727,425) $ (30,752,621) 10.80% $ (28,095,989) 10.85% 6,849,473 13.78% 8,287,457 8,313,298 12,980,269 14,154,904 11,785,480 11,951,834 16,656,392 24,062,755 16,944,654 16,090,690 14,002,895 13,924,136 (2,347,654) 14.05% - (15,394,336) 8,270,000 2,264,386 542,689 1,317,667 43,890 49,750 727,996 - - 14,872,935 12,870,788 (15,074,950) 17,433,348 15,927,185 21.34% $ 11,395,530 12.52% 3,021,505 14.57% 1,085,142 - 204,956 - - - - 3,013,051 5,325 15,891,921 17,376,813 (16,384,283) 7,976,367 $ 6,807,333 - (11,659,441) 13,479,037 275,603 - 12,102,855 (12,458,747) 108,955,277 - - (15,231,349) 4,005,581 $ 2,534,621 104,324,288 - - 8,443,609 99,402,636 - (9,382,710) - 2,520,596 - 6,600,000 - - $ (4,954,862) 12,474,557 5,916,632 2,798,182 102,398,300 (2,083,507) 16,797,287 8,035,221 3,126,469 89,160,366 (1,506,163) 498,218 $ 2,902,196 91,609,695 (14,268,052) 8,091,724 $ 6,175,303 3,346,253 13,661,630 (18,525,100) (1,560,019) 13,654,681 45,655 15,224,243 (23,359,573) 6,761,179 1,058,985 1,084,211 21,626,308 (20,085,809) 11,854,511 - 1,920,000 63,894 11,441,848 - 58,370 - 11,029,832 - - - - 11,446,096 - - 109,352 1,472,485 8,989,673 10,621,311 - 8,330,000 9,530,781 9,039,032 (2,845,872) - - 8,506,794 30,849,989 11,292,517 9,593,074 84,484,834 (1,242,251) - - Lease issued non capital expenditures (26,535,970) - Issuance of capital debt 85,486,435 30,074,183 10,576,877 3,451,706 12,446,280 111,787,174 (30,025,196) OTHER FINANCING SOURCES (USES): Debt service as a percentage of 30,796,072 121,185,508 Excess of revenues over (under) expenditures 3,996,963 27,583,880 10,782,848 10,612,033 6,065,522 3,750,657 46,465,549 Total expenditures Net change in fund balances 5,034,991 3,020,927 869,484 1,123,129 14,561,513 8,212,772 Debt service: (476,690) 14,974,692 8,296,367 9,313,158 1,404,390 1,805,457 9,041,946 8,584,826 10,615,754 1,962,364 1,430,686 110,040,419 8,202,024 11,187,402 368,057 202,243 3,013,367 111,131,621 8,601,808 12,158,087 1,696,070 3,454,567 99,678,239 9,991,927 8,505,722 1,660,635 22,504,605 97,443,438 10,335,964 10,267,649 3,153,135 645,571 Economic and physical development Highways and streets 1,866,792 1,813,164 26,567,511 Culture and recreation 2,916,164 1,636,650 25,099,149 1,219,324 10,850,138 4,747,237 1,145,686 25,301,495 1,146,692 11,023,491 722,878 24,476,615 1,299,027 65,263,433 21,355,708 1,524,856 25,159,777 1,360,447 59,711,556 $ 1,389,663 27,374,083 1,645,703 $ 2017 1,428,401 25,696,174 1,617,311 20,549,000 1,857,884 541,340 1,261,507 53,725,196 2,986,151 1,651,032 252,377 2016 13,483,604 1,952,731 Public safety Public works $ 2,734,095 (429,656) 7,453,963 48,806,758 2,894,898 1,667,562 90,103,532 2015 15,313,742 1,540,989 492,971 81,638,962 $ 1,656,135 390,253 1,719,608 18,713,646 722,733 1,605,166 166,417 47,084,446 3,237,728 1,681,874 1,336,146 2014 11,369,392 8,286,453 Fines and forfeitures Rents $ 3,220,137 701,447 1,441,874 45,577,128 9,721,569 2,926,237 1,510,217 2013 4,281,184 13.48% 870,853 $ 7,678,186 $ 17.57% - 26,168,531 - - 3,500,813 - - 22,308,323 (23,469,870) 28,507,797 29,592,939 17.58% Schedule 5 City of Flagstaff Tax Revenue by Source, Governmental Funds Last Ten Fiscal Years (modified accrual basis of accounting) (dollars in thousands) Fiscal Year General Property Tax Secondary Property Tax Franchise and Other Taxes City Sales Tax Bed, Board and Booze Tax Transportation Tax Total 144 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 2013 5,472 6,423 2,303 15,760 5,911 11,215 47,084 2014 5,571 5,560 2,487 17,042 6,310 11,837 48,807 2015 5,597 5,586 2,467 17,845 7,022 15,208 53,725 2016 5,650 5,719 2,567 19,090 7,539 19,147 59,712 2017 5,764 5,916 2,439 21,174 8,642 21,328 65,263 24.87% -4.87% 11.42% 66.61% 122.05% Change 2008-2017 31.11% 48.44% Schedule 6 City of Flagstaff Intergovernmental Revenue by Source, Governmental Funds Last Ten Fiscal Years (modified accrual basis of accounting) Fiscal Year State Sales Tax State Income Tax County Auto In-Lieu Tax Highway User Tax Local Transportation Assistance State Federal HB 2565 Grants State Grants & Other State County LEAF IGA County Library District Funding Other Total 145 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 5,576,167 - - 3,544,253 601,149 759,606 3,163,052 118,216 26,952,265 2013 5,391,580 6,728,479 2,510,832 6,007,741 - - 2,105,827 3,255,824 791,906 3,214,133 76,716 30,083,038 2014 5,733,507 7,342,048 2,591,413 6,168,102 - - 2,281,211 6,864,429 793,898 3,063,343 60,190 34,898,141 2015 6,019,776 7,973,971 2,689,916 6,884,173 - - 4,993,449 1,605,982 800,478 2,969,669 95,190 34,032,604 2016 6,238,827 7,930,739 2,910,589 7,292,355 - - 2,867,675 863,461 902,472 3,088,137 284,944 32,379,199 2017 6,445,302 8,603,145 3,091,134 7,982,504 - - 2,129,657 737,977 943,955 3,210,071 210,998 33,354,743 Schedule 7 City of Flagstaff Full Cash Value of Taxable Property Last Ten Fiscal Years (modified accrual basis of accounting) Fiscal Year Centrally Valued Property Vacant, Commercial Property Agricultural, and Government Property Residential Property Less: Total Taxable Property Value Tax-exempt Assessed Total Direct Tax Rate 146 2008 28,051,846 261,009,908 125,377,258 398,783,838 62,684,483 750,538,367 1.5519 2009 28,940,765 281,348,845 140,117,313 500,150,890 71,775,990 878,781,823 1.5519 2010 27,478,520 286,101,952 151,630,088 529,950,871 78,819,714 916,341,717 1.4913 2011 25,750,042 274,992,074 146,079,309 502,351,037 85,132,993 864,039,469 1.4845 2012 26,651,155 265,230,915 133,909,755 447,421,001 81,844,375 791,368,451 1.5283 2013 28,837,059 255,823,684 124,373,673 436,787,954 80,555,433 765,266,937 1.5497 2014 28,918,422 215,081,441 123,988,197 389,760,175 87,055,619 670,692,616 1.6795 2015 30,046,573 217,466,880 123,834,908 429,223,625 88,064,490 712,507,496 1.6784 2016 29,641,213 225,831,427 124,316,511 467,023,686 88,231,085 758,581,752 1.6600 2017 30,661,448 248,007,081 129,081,114 522,745,630 90,820,473 839,674,800 1.6487 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) 2008 Construction Building Materials $ 263,386 75,493 2009 $ 181,245 66,641 2010 $ 150,239 60,143 2011 $ 166,894 61,781 2012 $ 150,868 62,665 2013* $ 2014 164,971 - $ 2015 169,933 - $ 2016 191,297 - $ 2017 176,741 - $ 184,381 Restaurants and Bars 255,578 250,555 251,271 261,384 277,954 206,617 218,790 243,560 251,654 260,364 Retail and Auto Sales 738,087 660,848 632,571 644,142 678,671 779,109 801,799 852,696 946,522 955,737 Hotel/Motel - Other Utilities TOTAL - 163,463 $ 71,299 1,567,306 - 155,193 $ 69,175 1,383,657 - 152,042 $ 66,392 1,312,658 - 151,461 $ 63,784 1,349,446 154,497 $ 116,273 1,440,928 *NOTES: FY13 reflects a change in tax categories reported to proactively reflect possible New State Sales Tax Codes 147 a) Building Materials is no longer tracked individually, now is tracked as part of Retail b) Prior to FY13, Hotel/Motel was included with Restaurant and Bars 88,924 95,263 196,534 $ 92,968 1,529,123 108,913 200,109 $ 103,895 1,589,789 120,995 213,248 $ 109,578 1,719,292 246,500 $ 108,474 1,850,886 131,310 269,232 104,115 $ 1,905,139 Schedule 9 City of Flagstaff Direct and Overlapping Property Tax Rates, Last Ten Fiscal Years (rate per $100 of assessed value) Total City Primary Fiscal Year 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 1.5519 1.5519 1.4913 1.4845 1.5283 1.5497 1.6795 1.6784 1.6600 1.6487 0.8366 0.8366 0.8366 0.8366 0.8366 Secondary School District Maintenance 4.7713 4.8334 3.8860 4.6772 4.9458 Adjacent Ways 15% M&O Override Maintenance 0.4643 0.4267 0.4308 0.4734 Bond County General Fund 0.7588 0.7603 0.7244 0.7245 0.7656 148 Library District Fire District Assistance Total Note: Tax rates are per $100 assessed valuation. 7.6099 6.5284 7.3170 7.7131 0.8121 5.4555 5.5681 0.0459 0.0096 0.0259 0.0216 0.0284 3.9803 0.7061 0.0000 0.4979 3.7886 0.7138 0.0357 0.6227 4.0824 0.7265 4.2405 0.737 0.1735 0.1219 0.4515 0.4403 0.4927 0.5879 0.6056 0.6105 0.6214 0.1052 0.1243 0.1268 0.1241 0.1305 0.3875 0.4636 0.4788 0.4864 0.4909 0.7847 0.9022 0.9202 0.9291 0.9344 0.2367 0.2556 0.2556 0.2556 0.2556 0.4480 0.1000 7.5685 0.8234 5.1867 0.4112 0.4865 0.8418 5.1939 3.6182 0.1833 Class B Bond 0.8429 4.8712 0.6126 Capital Override Community College 0.7131 7.6983 0.5466 0.1000 8.3635 0.5646 0.1000 8.3909 0.5735 0.1000 8.6551 0.5788 0.1000 8.7726 Schedule 10 City of Flagstaff Principal Property Tax Payers Current Year and Ten Years Ago 2017 2007 As a Percentage Total Assessed Taxpayer * Arizona Public Service Company Value $ As a Percentage of the City Total Rank Secondary Total Assessed Assessed Valuation 19,003,634 1 2.26% 17,807,019 2 2.12% Village at Aspen Place LLC 3,779,594 3 0.45% Little America Hotels & Resorts Inc 3,673,455 4 0.44% Wal-Mart Stores 3,523,203 5 0.42% Nestle Purina PetCare Company 3,189,296 6 Qwest Corporation 3,058,025 Cypress Flagstaff Mall LP Value Rank Secondary Assessed Valuation 13,254,392 1 1.77% 12,589,351 2 1.68% 3,844,773 8 0.51% 0.38% 4,642,491 5 0.62% 7 0.36% 9,023,179 3 1.20% 2,916,742 8 0.35% Unisource Energy Corporation 2,875,509 9 0.34% 2,940,469 9 0.39% VP Flagstaff Mall LLC 2,735,941 10 0.33% RRIM Ridge Holdings LLC 2,564,780 11 0.31% Elevation Flagstaff AZ LLC 2,434,844 12 0.29% BNSF Railway Company 2,277,831 13 0.27% Campus Crest at Flagstaff LLC 1,956,098 14 0.23% Flagstaff Medical Center Inc 1,940,693 15 0.23% 3,360,975 10 0.45% Hopi Tribe Economic Development Corp. 1,825,763 16 0.22% W L Gore & Associates 149 Total Principal Taxpayers Source: Coconino County Assessor Office $ 75,562,427 9.00% $ of the City Total $ 49,655,630 6.62% Schedule 11 City of Flagstaff Property Tax Levies and Collections Last Ten Fiscal Years Fiscal Year Taxes Levied June 30, Fiscal Year Ended for the Collected within the Fiscal Year of the Levy Amount Percentage of Levy Collections in Subsequent Years Total Collections to Date Amount Percentage of Levy 150 2008 10,935,835 10,728,465 98.1% 223,024 10,951,489 100.1% 2009 12,253,760 11,934,997 97.4% 309,259 12,244,256 99.9% 2010 12,750,836 12,477,413 97.9% 289,241 12,766,654 100.1% 2011 12,497,535 12,113,128 96.9% 474,221 12,587,349 100.7% 2012 12,015,988 11,635,211 96.8% 301,611 11,936,822 99.3% 2013 11,828,399 11,553,471 97.7% 315,972 11,869,443 100.3% 2014 11,050,626 10,778,695 97.5% 148,592 10,927,287 98.9% 2015 11,172,785 11,002,896 98.5% 160,381 11,163,277 99.9% 2016 11,355,520 11,156,213 98.2% 152,167 11,156,213 98.2% 2017 11,586,535 11,500,020 99.3% 11,500,020 99.3% - Schedule 12 City of Flagstaff Direct and Overlapping Sales Tax Rates Last Ten Fiscal Years Fiscal Year General Sales Tax City Bed, Board & Beverage Transportation State of Arizona Coconino County Total 151 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% 2013 1.0000% 2.0000% 0.7210% 6.6000% 1.1250% 11.4460% 2014 1.0000% 2.0000% 0.7210% 5.6000% 1.1250% 10.4460% 2015 1.0000% 2.0000% 1.0510% 5.6000% 1.3000% 10.9510% 2016 1.0000% 2.0000% 1.0510% 5.6000% 1.3000% 10.9510% 2017 1.0000% 2.0000% 1.0510% 5.6000% 1.3000% 10.9510% Source: City of Flagstaff - Sales Tax / Business Licenses http://www.flagstaff.az.gov/index.aspx?nid=53 Schedule 13 City of Flagstaff Ratios of Outstanding Debt by Type Last Ten Fiscal Years (dollars in thousands, except per capita) Governmental Activities Fiscal Year General Special Obligation Assessment Bonds Bonds Revenue Bonds Municipal Facility Corporation Bonds Business-Type Activities COP Capital Leases General Obligation Debt Revenue Bonds Term Loan Payable Capital Leases Total Primary Government Percentage of Personal Income Per Capita 152 2008 29,350 19,257 6,325 23,000 2,728 10,515 5,212 32,275 4,227 132,889 3.8% 2,142.33 2009 27,645 19,169 4,865 21,625 2,430 7,460 4,918 37,006 3,960 129,078 3.4% 2,010.56 2010 25,865 18,615 6,665 19,890 6,964 5,690 4,614 36,257 3,679 128,239 3.4% 1,982.27 2011 24,015 18,130 4,930 18,095 1,542 3,830 4,299 37,491 3,384 115,716 3.1% 1,766.06 2012 38,449 11,365 15,615 3,205 5,200 3,125 3,972 35,689 3,075 119,695 2.7% 1,817.14 2013 48,134 11,055 16,328 1,260 5,335 1,748 3,634 33,873 4,686 126,053 2.8% 1,913.66 2014 55,571 8,639 16,603 1,260 4,400 1,752 3,635 33,873 4,431 130,164 2.8% 1,976.07 2015 50,857 6,737 15,781 860 3,625 1,441 3,285 31,909 3,972 118,467 2.4% 1,755.01 2016 45,820 2,245 13,495 - 3,226 1,375 32,800 3,489 102,450 1.9% 1,476.42 2017 52,695 2,148 21,468 - 3,689 1,308 30,346 2,984 114,638 1.9% 1,599.84 * * - As restated due to refunding loss 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 Restricted Percentage General General General Taxable Activities Fiscal Year Obligation Bonds Activities Obligation Bonds for Obligation Bonds of Actual Total Value of Property (a) Per Capita 153 2008 29,350 10,515 (2,433) 37,432 5.0% 603.45 2009 27,645 7,460 (2,573) 32,532 3.7% 506.73 2010 25,865 5,690 (3,408) 28,147 3.1% 435.09 2011 24,015 3,830 (6,234) 21,611 2.5% 329.83 2012 38,449 3,125 (6,234) 35,340 4.5% 536.51 2013 47,035 1,752 (8,821) 39,966 5.2% 606.74 2014 53,340 1,752 (13,822) 41,270 6.2% 626.54 2015 48,920 1,441 (14,091) 36,270 5.1% 537.32 2016 43,817 1,375 (13,204) 31,988 4.2% 460.98 2017 48,520 1,308 (6,164) 43,664 5.2% 609.36 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) Debt Governmental Unit Debt repaid with property taxes Flagstaff Unified School District Outstanding $ Estimated Estimated Share of Percentage Overlapping Applicable* 35,575 65.68% 30 0.00% Debt 23,365 Other debt Coconino County Special Assessments - 154 Subtotal, overlapping debt 23,365 City direct debt 80,000 Total direct and overlapping debt $ 103,365 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. 155 Schedule 16 City of Flagstaff Legal Debt Margin Information Last Ten Fiscal Years (dollars in thousands) 20% Debt Limit Fiscal Year 2008 Debt limit equal to 20% of assessed valuation $ Total net debt applicable to 20% limit Legal debt margin (Available borrowing capacity) 175,756 2009 $ 39,514 $ Total net debt applicable to the 20% limit as a percentage of debt limit 183,268 2010 $ 35,105 172,808 2011 $ 35,105 158,274 2012 $ 27,845 153,055 $ 41,841 136,242 $ 148,163 $ 137,703 $ 130,429 $ 111,214 $ 29.00% 23.69% 25.49% 21.35% 37.62% 2013 2014 2015 2016 2017 132,213 $ 134,139 $ 142,501 $ 136,946 $ 140,554 48,788 55,388 50,361 45,193 49,828 83,425 $ 78,751 $ 92,140 $ 91,753 $ 90,725 58.48% 70.33% 54.66% 49.25% 54.92% 6% Debt Limit 2008 Debt limit equal to 6% of assessed valuation $ 156 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 52,727 2009 $ 351 $ 54,981 2010 $ - 51,842 2011 $ - 47,482 2012 $ - 45,917 2013 $ - 39,664 $ - 2014 40,242 $ - 2015 42,750 $ - 2016 41,084 $ - 52,376 $ 54,981 $ 51,842 $ 47,482 $ 45,917 $ 39,664 $ 40,242 $ 42,750 $ 41,084 $ 0.67% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 2017 42,166 - 42,166 0.00% Schedule 16 (continued) City of Flagstaff Legal Debt Margin Information Legal Debt Margin Calculation for Fiscal Year 2017 Net Secondary Assessed Value as of June 30, 2017 $ 702,767,941 $ 140,553,588 . 20% Limitation Debt Limit of 20% of Assessed Value Debt applicable to limit: 49,828,353 General Obligation Bonds Legal 20% debt margin (Available borrowing capacity) 6% Limitation Debt Limit of 6% of Assessed Value $ 90,725,235 $ 42,166,076 Debt applicable to limit: - General Obligation Bonds Legal 6% debt margin (Available borrowing capacity) $ 42,166,076 157 Schedule 17 City of Flagstaff Pledged Revenue Coverage Last Ten Fiscal Years Water and Sewer Revenue Bonds Net Revenue Fiscal Year Gross Revenues (1) Debt Service Requirements Available Expenses (2) for Debt Service Principal (3) Interest (4) Total Coverage 158 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 2013 22,846,487 12,810,177 10,036,310 2,252,132 807,256 3,059,388 3.28 2014 23,642,792 14,739,788 8,903,004 2,252,132 785,567 3,037,699 2.93 2015 23,453,378 15,345,504 8,107,874 2,328,839 741,086 3,069,925 2.64 2016 24,234,384 15,140,298 9,094,086 2,342,259 672,497 3,014,756 3.02 2017 26,250,953 16,802,115 9,448,838 2,426,708 1,056,403 3,052,608 3.10 (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 position. Schedule 17 (continued) City of Flagstaff Pledged Revenue Coverage Last Ten Fiscal Years Fiscal Year Highway User Revenue Bonds Highway User Tax Revenue Debt Service Requirements Principal (1) Interest (2) Total Coverage 159 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 5,576,167 1,725,000 94,875 1,819,875 3.06 2013 6,007,741 - - - - 2014 6,168,102 - - - - 2015 6,884,173 - - - - 2016 7,292,355 - - - - 2017 7,982,504 - - - - (1) Includes 1992 Jr. Lien and Series 2003 Refunding. (2) Bond interest payments only. Does not include agent fees that are included in interest expense on the statement of revenues, expenses, and changes in fund balances. Schedule 17 (continued) City of Flagstaff Pledged Revenue Coverage Last Nine Fiscal Years Municipal Facility Corporation Bonds MFC Debt other than Transportation Fiscal Year Debt Service Requirements Revenue (1) Principal (2) Interest (3) Total Coverage 160 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 2013 11,657,403 385,000 77,656 462,656 25.20 2014 12,621,802 385,000 68,753 453,753 27.82 2015 13,543,397 400,000 50,350 450,350 30.07 2016 13,286,939 860,000 22,627 882,627 15.05 2017 - - ` - - - (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 Ten Fiscal Years Municipal Facility Corporation Bonds As Parital Refunded with Pledged Revenue Bonds Transportation MFC Debt Fiscal Year Debt Service Requirements Revenue (1) Principal (2) Interest Total Coverage 161 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 25,880,472 1,500,000 574,838 2,074,838 12.47 2013 27,255,501 1,560,000 542,575 2,102,575 12.96 2014 29,928,813 1,560,000 511,375 2,071,375 14.45 2015 31,266,313 695,000 469,750 1,164,750 26.84 2016 33,176,241 1,795,000 432,400 2,227,400 14.89 2017 33,419,449 1,855,000 370,875 2,225,875 15.01 (1) 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. Refunding Series 2012 excludes state revenue sharing income and sales tax (2) MFC revenue bond series 2004 Fourth Street, partial advance refunding pledged revenue series 2012 Schedule 17 (continued) City of Flagstaff Pledged Revenue Coverage Last Seven Fiscal Years Greater Arizona Development Authority Revenue Bonds Fiscal Year (1) Debt Service Requirements Revenue (2) Principal (3) Interest Total Coverage 162 2011 7,169,310 115,000 135,938 250,938 28.57 2012 7,657,621 120,000 133,638 253,638 30.19 2013 9,340,790 120,000 130,037 250,037 37.36 2014 10,302,188 120,000 128,237 248,237 41.50 2015 12,129,085 125,000 124,562 249,562 48.60 2016 10,809,451 130,000 120,088 250,088 43.22 2017 12,572,785 135,000 114,788 249,788 50.33 (1) New Issue no trend information available, prior to fiscal year 2010 (2) Pledged 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 17 (continued) City of Flagstaff Pledged Revenue Coverage Last Fiscal Year Road Street Repair and Safety Revenue Bonds Fiscal Year (1) 2017 Debt Service Requirements Revenue (2) 6,665,630 Principal (3) - Interest Total 133,125 133,125 (1) New Issue no trend information available, prior to fiscal year 2017 (2) Pledged revenues on the Road Repair/Street Safety obligations include Excise tax revenues. Excise Tax Revenues are revenues from the restricted transaction privilege tax of 0.33% ($0.0033) approved at an election held in and for the City on November 4, 2014 (the “Election”), which will expire on December 31, 2034 (the “Road Repair/Street Safety Rate”). Coverage 50.07 163 Schedule 18 City of Flagstaff Demographic and Economic Statistics Last Ten Fiscal Years Personal Per Income (thousands of dollars) Capita (1) Personal Income Education Median Age Level - Percent High School Grad or Higher Education Level - Percent Bachelor's Degree 164 2007 62,030 3,472,652 38,119 26.8 89.8% 39.4% 13,453 3.40% 2008 64,200 3,767,194 39,934 26.8 89.8% 39.4% 13,040 4.60% 2009 64,693 3,767,194 37,100 26.8 89.8% 39.4% 12,910 7.50% 2010 65,522 3,767,194 37,629 26.8 89.8% 39.4% 12,600 7.70% 2011 65,870 4,481,137 42,317 26.6 90.6% 41.8% 11,839 8.90% 2012 65,870 4,481,137 48,371 26.6 * 90.6% * 41.8% * 10,623 9.20% 2013 65,870 4,620,811 47,363 26.6 * 90.6% * 41.8% * 10,623 8.10% 2014 67,502 4,906,294 51,809 26.6 * 90.6% * 41.8% * 10,623 6.90% 2015 69,391 5,399,899 52,509 26.6 * 90.6% * 41.8% * 11,766 6.48% 2016 70,643 5,669,894 * 53,244 * 26.6 * 90.6% * 41.8% * 12,505 6.18% 2017 71,656 5,953,389 * 53,990 * 26.6 * 90.6% * 41.8% * 11,910 4.70% (1) Reflects Coconino County Personal Income Sources: Population - Arizona Department of Administration--Employment and Population Statistics Personal Income - Economic Research Federal Reserve Bank of St. Louis for Coconino County Per Capita Income - Economic Research Federal Reserve Bank of St. Louis Median Age - 2010 US Census Education Level - 2010 US Census School Enrollment - National Center for Education Statistics Unemployment - Arizona Department of Administration - Office of Employment and Population Statistics Enrollment Unemployment Population (*) Estimated or Higher School Year Rate Schedule 19 City of Flagstaff Principle Employers Current Year and Nine Years Prior 2017 (2) Employer 165 Flagstaff Medical Center Northern Arizona University W.L. Gore & Associates Flagstaff Unified School District Coconino County City of Flagstaff (3) Walmart Grand Canyon Railway Nestle Purina PetCare Coconino Community College Little America Hotel Pepsi-Cola Bottling North Country Healthcare Guidance Center US Forest Service Hozhoni Foundation Peaks Senior Living Center Joy Cone Essity (Formerly SCA Tissue) Raddisson Woodlands Hotel Dell Systems Walgreens Distribution Center Total Employees 3,500 2,571 1,800 1,785 1,200 994 630 500 315 300 290 281 252 219 200 170 140 134 123 120 Merged 2017 Closed 2015 Rank (2) (6) (2) (2) (6) (2) (6) (7) (2) (2) (2) (2) (2) (6) (6) (6) (6) (6) (2) (6) (5) 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Source: (2) Economic Collaborative of Northern Arizona (3) Includes part-time employees excluded from Sched. 20 (5) Dell Systems merged with Flagstaff Medical Center 22.55% 16.56% 11.59% 11.50% 7.73% 6.40% 4.06% 3.22% 2.03% 1.93% 1.87% 1.81% 1.62% 1.41% 1.29% 1.10% 0.90% 0.86% 0.79% 0.77% Employees 100.00% Estimated Rank Percentage of Total City Employment 2,104 2,497 1,800 1,436 1,294 876 338 450 2 1 3 4 5 6 10 8 6.83% 8.10% 5.84% 4.66% 4.20% 2.84% 1.10% 1.46% 400 9 1.30% n/a 468 15,524 2010 & 2000 U.S. Census Labor Force 2008 (1) Percentage of Total City Employment 7 11,663 30,822 Estimated 1.52% 37.84% Schedule 20 City of Flagstaff Full-time Equivalent City Government Employees by Function/Program Last Ten Fiscal Years Function/Program General Government 2008 2009 2010 (1) 2011 (2) 2012 2013 2014 2015 2016 2017 Management services 87.39 89.14 86.75 86.50 84.55 85.00 86.00 87.25 91.00 97.25 Capital management 13.50 13.50 11.00 11.00 8.00 7.00 7.00 8.00 8.00 8.00 City Court 27.63 29.63 25.88 25.18 25.18 24.18 24.35 25.35 26.35 29.35 174.00 181.00 168.00 168.00 172.00 171.00 169.00 169.00 167.00 167.00 31.00 31.00 29.00 26.50 26.50 26.00 25.00 25.00 25.50 25.50 Public Safety Police Fire 166 Public Works Economic and physical development 101.75 101.75 99.00 92.00 Building 58.50 57.50 47.20 41.00 Tourism 16.75 16.75 47.14 Highways and Streets Environmental services Planning 20.88 24.88 24.38 85.00 39.20 85.00 39.20 85.00 41.50 87.00 43.98 88.00 44.98 89.00 45.50 15.75 22.88 13.25 22.88 21.88 20.88 13.88 14.88 19.88 53.77 50.77 50.77 51.40 51.40 51.40 52.30 53.43 54.49 40.56 41.06 36.31 36.31 36.31 34.97 35.52 35.52 33.02 32.02 61.60 68.10 65.58 63.58 59.60 58.50 55.43 55.00 56.25 57.00 12.49 12.49 12.93 13.93 13.93 14.15 Culture and recreation Library Parks, recreation, and beautificatioin Water and wastewater Airport Stormwater Flagstaff Housing Authority Total 98.23 80.25 10.50 6.50 - 876.18 99.69 81.75 10.50 87.86 64.50 9.50 6.50 6.00 906.52 827.48 - - 86.86 62.50 9.50 6.00 88.81 61.50 9.50 6.00 84.88 61.50 9.50 6.00 86.03 62.00 9.50 5.50 85.50 64.00 9.50 4.50 90.13 66.00 9.50 4.50 91.69 67.00 9.50 5.50 23.50 23.50 24.00 22.00 22.00 21.60 21.28 825.33 812.42 802.50 799.04 801.71 814.07 834.10 (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. Schedule 21 City of Flagstaff Operating Indicators by Function/Program Last Ten Fiscal Years Function/Program Court Criminal Filings Traffic filings Non-Criminal / Other Purchasing Credit card rebates received Fire 2008 2009 11,659 2010 9,330 2011 9,326 2012 8,531 Fiscal Year 8,857 2013 2014 8,695 2015 8,375 2016 7,273 2017 6,924 7,208 10,665 10,639 13,471 12,010 9,217 8,340 7,726 8,428 8,190 6,437 - 23,348 21,677 31,878 33,923 34,395 48,128 72,037 94,873 104,522 744 445 468 370 547 477 468 554 1,357 4,668 Emergency incidents 7,616 7,550 6,668 7,274 7,438 8,023 8,730 9,432 12,775 12,700 Other calls 1,573 2,151 1,906 2,378 2,226 2,298 2,532 2,654 742 3,017 Plan Reviews 1,284 1,250 401 528 535 559 512 659 639 743 Fires incidents Inspections assigned Fuel Management Plan Assessment (Acres) Site Marking (Acres) 167 Site Thinning (Acres) Prescription Burn (Acres) Police Felony reports 267 1,981 400 263 1,794 - 247 572 - 178 224 294 1,070 1,190 551 902 3,978 761 3,661 376 3,073 175 1,174 N/A* 586 809 342 2,973 213 1,468 N/A* 128 197 697 2,940 185 1,411 N/A* 284 276 540 2,910 177 1,340 N/A* 511 541 778 2,564 184 168 190 2,341 2,217 2,300 1,500 1,723 820 700 1,381 70 333 2,511 650 2,769 948 2,945 13,413 12,939 12,293 11,786 11,253 11,040 10,383 Non-crime reports 11,043 10,996 2,917 9,480 2,776 9,827 2,735 9,886 2,574 9,841 2,568 7,174 2,180 2,590 2,985 2,926 Calls dispatched to Police/Sheriff 73,364 70,908 61,175 57,899 57,188 60,003 56,373 58,590 62,228 65,566 - - - - - - - - - - Accident reports Calls dispatched to Fire Calls dispatched to Medical 1,573 3,322 11,907 1,470 12,527 1,953 11,011 1,923 11,130 1,961 13,320 2,023 11,497 1,688 11,464 1,550 6,036 11,777 9,553 921 Misdemeanor reports Domestive violence incidents 8,980 555 1,775 1,541 6,660 13,565 9,531 1,513 6,604 14,497 Schedule 21 (continued) City of Flagstaff Operating Indicators by Function/Program Last Ten Fiscal Years Function/Program 2008 Streets Potholes repaired Airport Fuel Flowage (Gallons Sold) Enplanements Refuse collected (Landfill tonnage) Recyclables collected (total tons) Residential Permit Valuation (1) (1) 168 Tourism Revenue Per Available Room (RevPar) 2017 1,174 1,437 2,367 651,814 627,202 651,373 850,327 526,406 490,401 544,028 566,387 603,382 588,506 157,792 142,409 121,529 138,703 137,815 145,793 144,411 143,528 143,639 145,960 65,418 68,296 9,842 $ 31,498,803 10,610 $ 9,314,074 680,253 738,603 743,169 782,908 60.52 887,887 $ 43.21 63,407 8,869 $ $ 43.05 8,472,938 17,703,762 $ $ 45.26 65,299,515 20,338,552 $ $ 50.94 43,609,942 14,479,348 $ $ 54.61 75,489,761 19,978,010 59.99 $ 61,522,426 (1) 673,246 69.19 9,452 (1) (1) (1) 660,974 1,002,125 $ 65,887 12,191 $ 32,396,234 1,117,652 $ 69,485 8,340 687,735 1,164,789 $ 62,578 8,343 715,033 1,182,956 $ 61,691 8,388 739,706 1,029,062 $ 60,190 8,101 763,928 979,962 $ 62,872 (1) This informaition is gathered and reported on a calendar year basis versus a fiscal year basis for all other measurements Records no longer tracked 2016 3,605 Sources: Various city departments * 2015 2,054 $ 13,395,325 $ 2014 1,877 $ 18,594,665 Circulation 2013 1,498 $ 25,278,055 Visits 2012 3,256 $ 27,199,698 Library 2011 4,373 10,472 Community Development 2010 4,032 44,088 Refuse collection Commercial Permit Valuation 2009 662,838 1,055,176 $ 74.14 1,001,074 $ 76.06 Schedule 22 City of Flagstaff Capital Asset Statistics by Function/Program Last Ten Fiscal Years Function/Program Public Safety Police patrol units (Includes Motorcycle units) Number of fire hydrants Numer of fire stations Culture and recreation Number of developed parks Number of undeveloped parks Park acreage Flagstaff Urban Trail System - Miles Recreational Buildings Highways and Streets 169 Miles of streets, alleys, and sidewalks (1) Number of street lights Water and wastewater Miles of sewer (2) Number of manholes Total active water accounts Average gallon water usage per household per month Airport Fixed base operators Locally based aircraft Tiedowns Enclosed hangars Open hangars (1) In Fiscal Year 2008, transition made from street miles to lane miles. This more accurately reflects the level of service required to maintain the surfaces. (2) Database Correction 2008 2009 34 2010 34 2011 35 2012 37 2013 37 2014 37 2015 37 2016 37 2017 39 39 3,148 3,150 3,143 3,176 3,179 3,242 3,242 3,254 3,254 3,257 26 26 26 24 23 23 23 23 23 23 712 712 712 735 680 710 710 736 741 741 6 6 6 4 4 4 4 4 4 4 6 4 48 690 3,201 265 7,107 18,849 5,456 1 7 4 51 695 3,220 270 7,261 18,371 5,010 1 7 4 51 813 3,350 270 7,261 19,042 5,123 1 7 5 53 814 3,466 271 7,308 22,092 5,107 1 7 4 53 814 3,466 271 7,308 19,020 5,339 1 6 4 55 814 3,466 274 7,403 20,107 6,326 1 6 4 55 844 3,466 274 7,403 19,961 5,022 1 6 4 55 844 3,466 276 7,493 19,934 4,562 1 6 5 56 844 3,466 276 7,493 20,717 3,901 1 7 5 56 844 3,502 297 7,514 20,327 4,867 1 134 134 120 122 125 209 134 134 132 132 61 61 61 61 61 61 61 61 61 61 11 48 11 48 14 48 11 48 11 48 11 48 11 48 11 48 12 36 12 44 Schedule 23 as of 7/1/2016 City of Flagstaff Insurance Summary Effective July 1, 2016 to June 30, 2017 Limit of Liability Coverage Liability Insurance: General Liability* (Includes 2 skateboard parks, bike $ Coverage 1,000,000 / per occurrence Property Insurance: Blanket Buildings and Personal Property $ 222,844,448 / $25,000 deductible Flood Zones B and C $ 10,000,000 / $50,000 deductible Business Income/Extra Expense $ 1,000,000 / 24 hours $ 242,000 / building $ 2,000,000 / aggregate Boiler and Machinery Law Enforcement Liability* $ 1,000,000 / each wrongful act Earthquakes Auto Liability $ 1,000,000 / each accident freestyle park, EMT's) Auto Physical Damage Public Entity Management Liability* $ 1,000,000 / aggregate Varies per veh. $ / $1000/comprehensive / $5000/collision deductible 1,000,000 / each wrongful act (Claims Made Retro Date 6-1-95) $ 1,000,000 / aggregate (Claims Made Retro Date 6-1-95) $ 5,000,000 / aggregate Employment Practices Liability* Employee Benefits Liability* (Claims Made) Limited Abuse or Molestation Liability $ $ $ $ $ 170 (Claims Made Retro Date 6-1-09) ($5,000 deductible each wrongful act) Employer's Liability Worker's Compensation $ Bookmobile book collection Employee Hand Tools 1,000,000 / each offense Computer Equipment and Peripherals 1,000,000 / aggregate 1,000,000 / each wrongful act 1,000,000 / aggregate $ 1,000,000 / each accident $ 1,000,000 / disease policy limit 1,000,000 / disease employee Statutory Umbrella/Excess #1 - GL, Auto, Law Enforcement, Employer's Liability Public Entity Management, Employee Benefits Products/Completed Operations Personal Injury, Advertising & Malpractice Hangar Keepers Liability Fine Arts & exhibition floater City Hall, Visitor Center, Airport Terminal Crime: Varies per Prop. Deduct. $ $25,000 deductible / $50,000 deductible 122,700 / contents Based on fixed dollar amt and % of loss / $250,000 per item / $5,000 deductible $ $5,000,000 aggregate included included $ $ / $5,000 deductible 250,000 / $25,000 deductible included / $25,000 deductible / $25,000 deductible / $25,000 deductible 250,000 / $25,000 deductible 500,000 / $25,000 deductible Blanket Public Employees and Treasurer $ 1,000,000 / $5,000 deductible Computer & Funds Transfer Fraud $ 1,000,000 / $5,000 deductible 1,000,000 / $5,000 deductible Dishonesty Bond Including Faithful Performance of Duty Theft, Disappearance, & Destruction (Inside and Outside) $ 20,000,000 / each occurrence Forgery or Alteration $ 1,000,000 / $5,000 deductible $ 20,000,000 / general aggregate Money Orders & Counterfeit, $ 1,000,000 / $5,000 deductible Credit, Debit or Charge Card forgery $ 1,000,000 / $5,000 deductible International Travel - Executive Assistance $ 1,500,000 / Medical Assistance Kidnap and Ransom Worldwide $ 10,000 retained limit (ded) General Liability Data and Media included $ (Excludes Airport, Housing Authority, Employment related practices, Failure to Supply Services, Mold, Terrorism, Asbestos, Lead, Condemnation, Sexual Abuse) Aviation: Deductible 1,000,000 / each employee $ $ Municipal Court Contractors Equipment (actual cash value) * Liability Claims are Subject to a $75,000 Self Insurance Retention Public Entity Cyber Liability Flood Zone A Properties 5,000,000 / each wrongful act 3,000,000 / aggregate Limit of Liability $ 40,000,000 / each occurrence $ 40,000,000 / aggregate $ 40,000,000 / each occurrence $ $ 40,000,000 / aggregate 40,000,000 / each aircraft (some countries excluded) $ 250,000 250,000 Accidental death Each Loss City of Flagstaff 211 W. Aspen Ave. Flagstaff, Arizona 86001 flagstaff.az.gov