15 16 Comprehensive Annual Financial Report Fiscal Year Ended June 30, 2016 GILBERT, ARIZONA TABLE OF CONTENTS INSTRUCTIONS FOR NAVIGATING IN THE “COMPREHENSIVE ANNUAL FINANCIAL REPORT” PDF Files ¾ Bookmarks for major sections are provided in the navigation pane on the left. Click on the bookmark to jump directly to that section. ¾ If a “+” sign is at the left of a bookmark, click on the “+” to bring up subheadings. ¾ All pages are linked to the Table of Contents. To jump to a specific page or subsection from the Table of Contents, put the pointer finger on the title or page number within and click the mouse. ¾ Click the “Table of Contents” text located in the top right hand corner of any page or click the Table of Contents bookmark on the left. TABLE OF CONTENTS TABLE OF CONTENTS Comprehensive Annual Financial Report Year Ended June 30, 2016 Jenn Daniels, Mayor Jared Taylor, Vice Mayor Eddie Cook, Council Member Victor Petersen, Council Member Brigette Peterson, Council Member Jordan Ray, Council Member Scott Anderson, Council Member Patrick Banger, Manager Prepared by the Finance & Management Services Department Cindi Mattheisen, Finance & Management Services Director i TOWN OF GILBERT, ARIZONA Comprehensive Annual Financial Report For the Year Ended June 30, 2016 TABLE OF CONTENTS Page INTRODUCTORY SECTION Letter of Transmittal Advisory Organization Chart Organization Reporting Chart v xii xiii FINANCIAL SECTION Independent Auditor's Report 1 Management's Discussion and Analysis (required supplementary information) 3 Basic Financial Statements: Government-wide Financial Statements: Statement of Net Position Statement of Activities 15 16 Fund Financial Statements: Balance Sheet - Governmental Funds Reconciliation of the Balance Sheet to the Statement of Net Position Statement of Revenues, Expenditures, and Changes in Fund Balances - Governmental Funds Reconciliation of the Statement of Revenues, Expenditures, and Changes in Fund Balances to the Statement of Activities Statement of Revenues, Expenditures, and Changes in Fund Balances Budget and Actual - General Fund Statement of Revenues, Expenditures, and Changes in Fund Balances Budget and Actual - Streets Special Revenue Fund Statement of Net Position - Proprietary Funds Statement of Revenues, Expenses, and Changes in Fund Net Position - Proprietary Funds Statement of Cash Flows - Proprietary Funds Statement of Fiduciary Net Position - Fiduciary Funds Statement of Changes in Fiduciary Net Position - Fiduciary Funds Notes to the Financial Statements 18 21 22 25 26 27 28 30 32 34 35 37 Required Supplementary Information Schedule of the Proportionate Share of the Net Pension Liability - ASRS Schedule of Changes in the Net Pension Liability and Related Ratios- PSPRS - Police Schedule of Changes in the Net Pension Liability and Related Ratios - PSPRS - Fire Schedule of Pension Contributions - ASRS Schedule of Pension Contributions - PSPRS Note to Pension Plan Schedules-Actuarially Determined Contribution Rates - PSPR Schedule of Agent OPEB Plans' Funding Progress - PSPRS Combining and Individual Fund Statements and Schedules: Combining Balance Sheet - Nonmajor Governmental Funds Combining Statement of Revenues, Expenditures, and Changes in Fund Balances - Nonmajor Governmental Funds Schedules of Revenues, Expenditures, and Changes in Fund Balances Budget and Actual: Grants Special Revenue Fund Other Special Revenue Funds CDBG/HOME Special Revenue Fund Street Light Improvement District Special Revenue Fund ii 78 79 80 81 82 83 84 86 88 92 93 94 95 TOWN OF GILBERT, ARIZONA Comprehensive Annual Financial Report For the Year Ended June 30, 2016 TABLE OF CONTENTS Page Parkway Maintenance District Special Revenue Fund General Debt Obligations Debt Service Fund Special Assessments Debt Service Fund Outside Sources Capital Projects Fund Prop 400 Capital Projects Fund GO Bonds Capital Projects Fund Municipal Property Corporation Capital Projects Fund System Development Fees Capital Projects Fund Saint Xavier University Revenue Obligations Schedules of Revenues, Expenses and Changes in Net Position Budget and Actual: Water Enterprise Fund Wastewater Enterprise Fund Environmental Services Enterprise Fund Combining Statement of Net Position - Internal Service Funds Combining Statement of Revenues, Expenses and Changes in Fund Net Position - Internal Service Funds Combining Statement of Cash Flows - Internal Service Funds Schedules of Revenues, Expenses and Changes in Net Position Budget and Actual: Equipment Maintenance Internal Service Fund Copier Services Internal Service Fund Employee Benefit Self-Insurance Internal Service Fund Agency Funds Combining Statement of Changes in Assets and Liabilities STATISTICAL SECTION Financial Trends Net Position by Component - Last Ten Fiscal Years Changes in Net Position - Last Ten Fiscal Years Program Revenues by Function - Last Ten Fiscal Years Fund Balances of Governmental Funds - Last Ten Fiscal Years Changes in Fund Balances of Governmental Funds - Last Ten Fiscal Years Revenue Capacity Sales Tax Collections by Category - Last Ten Fiscal Years Direct and Overlapping Sales Tax Rates - Last Ten Fiscal Years Debt Capacity Ratios of Outstanding Debt by Type - Last Ten Fiscal Years Ratios of General Bonded Debt Outstanding - Last Ten Fiscal Years Direct and Overlapping Governmental Activities Debt - As of June 30, 2016 Legal Debt Margin Information - Last Ten Fiscal Years Pledged-Revenue Coverage - Last Ten Fiscal Years Demographic and Economic Information Demographic and Economic Statistics - Last Ten Fiscal Years Principal Employers - Current Fiscal Year and Nine Years Ago Operating Information Full-time Equivalent Employees by Function - Last Ten Fiscal Years Operating Indicators by Function - Last Ten Fiscal Years Capital Asset Statistics by Function - Last Ten Fiscal Years Other information Property Value, Construction and Bank Deposits - Last Ten Fiscal Years System Development Fees - Fiscal Year 2016 Property Tax Levies and Collections - Last Ten Fiscal Years Principal Property Taxpayers - Fiscal Year 2016 iii 96 97 98 99 100 101 102 103 104 105 106 107 110 111 112 113 114 115 118 123 124 126 127 128 129 130 131 132 133 134 135 136 137 138 139 140 141 142 143 144 TABLE OF CONTENTS iv TABLE OF CONTENTS Introductory Section ________________________________ Letter of Transmittal Advisory Organization Chart Organization Reporting Chart TABLE OF CONTENTS December 1, 2016 Honorable Mayor, Members of the Council, and Gilbert Citizens: I am pleased to submit to you the Comprehensive Annual Financial Report (CAFR) for the Town of Gilbert (Gilbert), for the fiscal year ended June 30, 2016. State law (Arizona Revised Statutes §9-481) requires that local governments publish a complete set of audited financial statements within six months of the close of each fiscal year. Management assumes full responsibility for the completeness and reliability of the information contained in this report, based upon a comprehensive framework of internal control that it has established for this purpose. Because the cost of internal control should not exceed anticipated benefits, the objective is to provide reasonable, rather than absolute, assurance that the financial statements are free of any significant misstatements. Heinfeld, Meech & Company, a firm of licensed certified public accountants, has issued an unmodified opinion on Gilbert’s financial statements for the year ended June 30, 2016. The independent auditors’ report is located in the Financial Section of this report. This letter of transmittal is designed to complement Management’s Discussion and Analysis (MD&A) and should be read in conjunction with it. The MD&A can be found in the Financial Section of this report. GILBERT PROFILE Governmental Structure Gilbert is an Arizona Municipal Corporation, operating as a general law community as prescribed in the Arizona Revised Statutes. Gilbert was incorporated July 6, 1920, and operates under the CouncilManager form of government. The Mayor is a member of the Council and is elected by the voters for a four-year term. Six additional council members are elected at-large to staggered four-year terms. The Mayor is the chief executive officer and chairperson of the Council. The Town Manager (Manager) is appointed by the Council and serves as the chief administrative officer. During fiscal year 2016, the Manager administered Gilbert's operations through a staff of 1,275 budgeted full time equivalent positions. Gilbert provides or administers a full range of services including police and fire protection, development services (planning, code enforcement, and engineering), public works (water, wastewater, environmental services, and streets), and parks and recreation services. Transit and “dial-a-ride” services are provided through an intergovernmental agreement with the Regional Public Transportation Authority. Library services, incarceration and animal control are provided through intergovernmental agreements with Maricopa County. Town of Gilbert | A Community of Excellence 50 E Civic Center Drive, Gilbert, AZ 85296 | Phone 480-503-6871 | Fax: 480 497-4943 | www.GilbertAz.gov TABLE OF CONTENTS Geography and Population Gilbert is located in the southeastern section of the greater Phoenix metropolitan area in Maricopa County, bounded on the north and east by the City of Mesa, on the west by the City of Chandler, on the southeast by the Town of Queen Creek, and on the south by the Gila River Indian Community. Gilbert has a planning area of 72.6 square miles. In October 2015, Gilbert undertook a Special Census to account for the rapid growth in population since the 2010 decennial census. A Special Census is an elective process utilized by communities to update their population count and is not produced in conjunction with the Census Annual Estimates that are detailed in the table below. Although the population counts were developed independently of each other, it is expected that the Special Census results will be used to update the figures produced in the Annual Estimates program for fiscal year 2017. The most recent estimate for Gilbert as of July 1, 2016, was 247,542, which represents an increase of 3.4% from the revised fiscal year 2015 population. The following graph depicts the ten-year population trend for Gilbert. FACTORS AFFECTING FINANCIAL CONDITION Growth and Construction There were 1,765 new residential permits and 278 commercial permits issued in fiscal year 2016 which represents an increase of 97 residential permits and a decrease of 10 commercial permits from the prior fiscal year. The total value of all new construction in fiscal year 2016, including commercial, was $554 million, up from $496 million in fiscal year 2015. System Development Fees (SDF’s) are collected for capital needs related to growth in the community. The Council has adopted SDF’s for police, fire, general government, traffic signals, parks and recreation, water resources, water, and wastewater. The fees are based on build-out system requirements to serve the projected population and land uses. During fiscal year 2016, a total of $45.7 million was collected in SDF’s compared to $40.1 million in fiscal year 2015. vi TABLE OF CONTENTS Economic Development With over 242,000 residents, Gilbert, Arizona is thriving as evidenced by its growth and development, commitment to safety, premier education, playfulness, and innovation. Over the past few years, Gilbert has received numerous awards and recognitions, a few of which are included below. • • • • • • General obligation bonds rating upgraded to AAA by Moody’s Investor Service and Water Resources Municipal Property Corporation revenue bonds upgraded to AAA by Standard and Poors Ratings Group 22nd Best Place to Live in the Nation (CNN/Money Magazine, 2014) 2nd Safest City in the United States (Law Street Media, 2016) Top 5 Safest Cities to Build Your Startup (Tech.Co, 2016) Best City for Raising a Family (Move.org, 2016) 3rd Best City to Find a Job in the United States (WalletHub, 2015) Gilbert is a community committed to education, 40.9% of residents age 25 and older hold a bachelor’s degree or higher, compared with 30% nationally. Notable employers like Banner Health, Dignity Health, Banner MD Anderson Cancer Center, Go Daddy, the worldwide headquarters of Isagenix, Mapfre Insurance, Unicon, Orbital ATK Space Systems Group, Lockheed Martin, and Heliae, benefit from this commitment to education and have helped keep Gilbert’s unemployment near 4.2%, as compared to approximately 5.5% for the state and the nation. Knowledge assets that support the community include Arizona State University Polytechnic Campus, Chandler-Gilbert Community College, A.T. Still University, as well as over 69 other colleges, universities and technical schools within a 30-minute commute. Additionally, more than 30 charter/private schools and four A rated school districts – Gilbert, Higley, Mesa and Chandler – serve more than 100,000 students as well as the citizens of Gilbert. To support the growth and attraction of business and industry, the Gilbert Office of Economic Development (OED) has worked closely with stakeholders, elected officials and the development community to encourage the construction of speculative building space. As a result, several major projects are either under construction or in the planning phases. A few of the key developments are: • • • Rivulon – A Nationwide Realty Investors development that will provide more than three million square feet of Class A office space northeast of Gilbert Road and the Loop 202 freeway. Park Lucero – A multi-phase development by Trammel Crow that will feature six buildings totaling 618,000 square feet. Phase I of the development was completed June 2015. Gilbert Spectrum – A planned 800,000 +/- square foot light industrial development located on the southwest corner of McQueen and Elliot Roads. Additionally, staff has identified Accelerated Development Sites that will allow the community to market large multi-acre parcels and respond quickly to large build-to-suit projects. The Gilbert OED is one of approximately 54 Accredited Economic Development Organizations in the nation. Gilbert achieved this accreditation through the International Economic Development Council in 2013 and was the first Arizona economic development organization, and the second municipality in the nation, to do so. In fiscal year 2016 the Gilbert business development team facilitated 39 projects and these projects developed more than $205 million in capital investment and more than 2,000 new and retained jobs. Fiscal year 2016 also represented the fourth year of a five year Strategic Plan for the OED. The cumulative efforts from the past four years have resulted in more than $888 million in new capital invested in the community and more than 7,000 new or retained jobs. vii TABLE OF CONTENTS The transformation of Gilbert’s Heritage District continued in fiscal year 2016 with the development of six additional restaurants, 170 new multi-family units and the construction of the Heritage Marketplace Phase II which complement existing food favorites like Zinburger, Lo Lo’s Chicken and Waffles, Pomo Pizzeria, Barrio Queen Gilbert, Nico Heirloom Kitchen and Petersen’s Ice Cream. The Gilbert OED also continued to enhance Gilbert’s position as a tourism destination, completing a tourism five year strategic plan and enhancing the “Discover Gilbert” brand with a new Visitor’s Guide along with digital and collateral marketing pieces. Gilbert’s connectivity to major markets is provided through a comprehensive transportation network which includes the Santan Loop 202 and US-60 Superstition Freeways, Sky Harbor International Airport, and Phoenix-Mesa Gateway Airport. This network provides access to Gilbert-based businesses while connecting the community to local, national and international markets. Located just over 10 miles west of Gilbert, Phoenix Sky Harbor Airport is served by 17 airlines. Sky Harbor is one of the busiest airports in the nation for passenger traffic with over 100,000 passengers daily. Phoenix-Mesa Gateway Airport is located on Gilbert’s eastern border and handles over one million passengers yearly with flights to over 35 destinations throughout the United States. The airport also provides air cargo services and is located within a Foreign Trade Zone. Transaction Privilege (Sales) Tax Trend Sales tax revenues represented 51% of General Fund revenues for fiscal year 2016, totaling approximately $77.1 million. Local sales taxes are collected by the Arizona Department of Revenue and remitted to Gilbert weekly. The following graph depicts sales tax receipts by source for the past five years. Property Taxes State law requires municipalities to adopt a property tax levy based on the exact amount of scheduled debt service for the year plus a reasonable amount for delinquencies and certain costs. For fiscal year 2016, Gilbert’s property tax rate is $1.06 per $100 of secondary assessed valuation and is used exclusively for the payment of voter approved general obligation bond debt. Gilbert does not levy a primary property tax for general operating purposes. viii TABLE OF CONTENTS Limited Property Value The limited property value of real property within the Gilbert annexed area is a vital economic forecast variable, as the State Constitution contains regulatory restrictions on the amount of debt a community may have outstanding based on limited property valuation. Taking the market value of a property and applying the statutory assessment rate derives the limited property value. Residential properties are assessed at 10%, vacant land is assessed at 16%, and commercial properties are assessed at 18.5%. This illustrates how crucial the additions of commercial properties are to the tax base. The limited property valuation increased by 6.4% in fiscal year 2016 from $1.734 billion to $1.845 billion. The following graph depicts the changes in the limited property valuation in Gilbert for the past ten years: *In accordance with Proposition 117, The Arizona Property Tax Assessed Valuation Amendement, property taxes are calculated based on the limited property value beginning with tax year 2015 (fiscal year 2016). State Shared Revenues State shared revenues totaled $45.0 million for the General Fund and $22.5 million for the Streets Special Revenue Fund in fiscal year 2016, representing approximately 30% of total General Fund revenues and 98% of total Streets Special Revenue Fund revenues. State shared revenues include allocations of state sales tax, income tax, gas tax, motor vehicle in-lieu tax, and lottery funds. These revenues are shared based upon relative population in the State as determined by census. Budget and Financial Policies Gilbert’s financial policies establish the framework for overall fiscal planning and management. The policies set forth guidelines for both current activities and long range planning. The purposes of the financial policies are: Balanced Budget - Gilbert is required by Arizona Revised Statutes to adopt a balanced budget each fiscal year. A balanced budget is one in which the sum of estimated revenues and appropriated fund balances is equal to appropriations. Fiscal Conservatism – To ensure that Gilbert is at all times in solid financial condition, defined as: Cash solvency – the ability to pay bills Budgetary solvency – the ability to balance the budget Long-term solvency – the ability to pay future costs Service level solvency – the ability to provide needed and desired services ix TABLE OF CONTENTS Flexibility – To ensure Gilbert is in a position to respond to changes in the economy or new service challenges without an undue amount of financial stress. Transparency and Communication – To utilize best practices in communicating financial information to facilitate sound decision-making, to promote openness and transparency, and to inspire public confidence and trust. Adherence to the Highest Accounting and Management Practices – As set by the Governmental Accounting Standards Board and the Government Finance Officers Association standards for financial reporting and budgeting. A five-year financial plan is developed for each operating fund and current year decisions are made with a forecasted future impact. Other financial policies that guide the budget include: maintaining a minimum general fund balance sufficient to cover 90 days of operating expenditures and the annual debt service payments; one-time revenues are not applied toward ongoing expenditures; and establishment of an economic development reserve. Gilbert’s Council adopted a comprehensive listing of policies of responsible financial management in November of 2011. These policies are reviewed annually to ensure their continued relevance and adherence. Long-Term Financial Planning In addition to Gilbert’s General Plan and Capital Improvement Plan, Gilbert is developing infrastructure inventories (including repair and replacement plans) and functional area master plans. Gilbert also has a total of six strategic initiatives as follows: Long and Short-Term Financial Plans, Community Livability, Technology Leader, Economic Development, Proactive Infrastructure, and High Performing Government, which will be discussed in more detail throughout the document. We have implemented Franklin Covey’s The 4 Disciplines of Execution, providing an exceptional tool for advancing these goals while managing the challenges of the daily whirlwind, and have begun implementing Lean process improvement events to optimize processes throughout the organization. Several staff members have completed Lean Six Sigma certification requirements to further enhance Gilbert’s long-term financial resiliency. Gilbert is updating its Long-Term Financial Plan, which includes the creation of an interactive Excel model. The model looks at revenue and spending trends to predict what the financial sustainability of Gilbert would look like if those trends were to continue. The main dashboard contains live “what if” variables that can be easily changed to help decision-makers see the financial impact that individual changes make to the overall budget health into the future. AWARDS The Government Finance Officers Association of the United States and Canada (GFOA) awarded a Certificate of Achievement for Excellence in Financial Reporting to the Town of Gilbert for its CAFR for the fiscal year ended June 30, 2015. This was the 25th consecutive year that Gilbert has received this prestigious award. In order to be awarded a Certificate of Achievement, we must publish an easily readable and efficiently organized CAFR that satisfies both generally accepted accounting principles and applicable legal requirements. A Certificate of Achievement is valid for a period of one year only. We believe that our current CAFR continues to meet the Certificate of Achievement Program’s requirements and we are submitting it to the GFOA to determine its eligibility for another certificate. In addition, Gilbert also received the GFOA’s Distinguished Budget Presentation Award for our annual budget document. In order to qualify for this award, our budget document was judged to be proficient as a policy document, a financial plan, an operations guide, and a communications device. Gilbert has received this award 17 consecutive years. x TABLE OF CONTENTS ACKNOWLEDGMENTS The completion of this report is the result of the efficient and dedicated services of the entire staff of the Accounting Division. I would like to give special recognition to Florence Shultz, Accounting Manager, and Tanya Wright, Assistant Accounting Manager, who were primarily responsible for preparing this document. In addition, I would like to thank staff from all Town departments for their contributions and assistance. Finally, I wish to acknowledge the continued support of the Council and the Manager in providing the leadership necessary for sound financial management. Respectfully submitted, Cindi Mattheisen, CPA Finance & Management Services Director xi TABLE OF CONTENTS Advisory Organization Chart xii TABLE OF CONTENTS Organization Reporting Chart Town Manager Office of Communications Office of Intergovernmental Relations Office of Economic Development Office of Management and Budget Office of Human Resources Office of Water Resources Office of Information Technology Assistant Town Manager Fire and Rescue Management Services Police Parks and Recreation Development Services Public Works xiii TABLE OF CONTENTS Financial Section ________________________________ Independent Auditor’s Report Management’s Discussion and Analysis Basic Financial Statements Government-wide Financial Statements Fund Financial Statements Notes to the Financial Statements Required Supplementary Information Combining and Individual Fund Statements and Schedules TABLE OF CONTENTS INDEPENDENT AUDITOR’S REPORT Honorable Mayor and Members of the Town Council Town of Gilbert, Arizona Report on the Financial Statements We have audited the accompanying financial statements of the governmental activities, business-type activities, each major fund, and the aggregate discretely presented component unit and remaining fund information of Town of Gilbert, Arizona (Town), as of and for the year ended June 30, 2016, and the related notes to the financial statements, which collectively comprise the Town’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. Auditor’s 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 auditor’s 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 entity’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 entity’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. Opinions In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, business-type activities, each major fund, and the aggregate discretely presented component unit and remaining fund information of the Town of Gilbert, Arizona, as of June 30, 2016, and the respective changes in financial position and, where applicable, cash flows thereof and the respective budgetary comparison for the General Fund and Streets Special Revenue Fund for the year then ended in accordance with accounting principles generally accepted in the United States of America. 1 TABLE OF CONTENTS Change in Accounting Principle As described in Note 1, the Town implemented the provisions of the Governmental Accounting Standards Board (GASB) Statement No. 72, Fair Value Measurement and Application, for the year ended June 30, 2016, which represents a change in accounting principle. Our opinion is not modified with respect to this matter. Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the Management’s Discussion and Analysis and net pension liability information, 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. Other Information Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the Town’s basic financial statements. The accompanying supplementary information such as the Introductory Section, Combining and Individual Fund Statements and Schedules, and Statistical Section are presented for purposes of additional analysis and are not a required part of the financial statements. The Combining and Individual Fund Statements and Schedules, as listed in the table of contents, 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 Combining and Individual Fund Statements and Schedules information is fairly stated in all material respects in relation to the basic financial statements as a whole. The Introductory Section and Statistical Section have not been subjected to the auditing procedures applied in the audit of the basic financial statements and, accordingly, we do not express an opinion or provide any assurance on them. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated December 1, 2016, on our consideration of Town of Gilbert, Arizona’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 to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering Town of Gilbert, Arizona’s internal control over financial reporting and compliance. Heinfeld, Meech & Co., P.C. Phoenix, Arizona December 1, 2016 2 TABLE OF CONTENTS MANAGEMENT’S DISCUSSION AND ANALYSIS As management of the Town of Gilbert (Gilbert), we offer this narrative overview and analysis of Gilbert’s financial activities for the fiscal year ended June 30, 2016. We encourage readers to consider the information presented here in conjunction with information provided in the transmittal letter. Financial Highlights • • • • • • • Gilbert’s assets exceeded its liabilities at the end of the fiscal year by $1.6 billion. Included in this amount defined as net position is $354 million of unrestricted net position, of which $124 million is invested in joint ventures with the Cities of Mesa and Chandler and the Town of Queen Creek, and $230 million which may be used to fund ongoing operations in future years. Net position includes a $735 million net investment in capital assets such as streets, park land, and municipal buildings and a $412 million net investment in water, wastewater and environmental services infrastructure and equipment. The combined fund balance for all governmental funds is $224 million, of which $118 million is unrestricted. The General Fund unrestricted fund balance is $99 million, of which $14 million has been assigned for capital replacement. The General Fund unassigned balance of $85 million is approximately 62% of the total fund expenditures. Gilbert’s total bonded debt outstanding at the end of the fiscal year was $387 million, as compared to $398 million at the end of fiscal year 2015. Gilbert’s total outstanding net pension liability at the end of the fiscal year was $118 million, as compared to $108 million at the end of fiscal year 2015. Overview of the Financial Statements This discussion and analysis are intended to serve as an introduction to Gilbert’s basic financial statements which are comprised of three components: 1) government-wide financial statements, 2) fund financial statements, and 3) notes to the financial statements. This report also contains other supplementary information in addition to the basic financial statements. Government-wide financial statements The government-wide financial statements are designed to provide readers with a broad overview of the finances of Gilbert as a whole, in a manner similar to a private-sector business. The statement of net position presents information on all of Gilbert’s assets, liabilities, and deferred inflows/outflows of resources, with the difference between the two reported as net position. Over time, increases or decreases in net position may serve as a useful indicator of whether Gilbert’s financial position is improving or declining. The statement of activities presents the changes in net position from the previous 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 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 (e.g., earned but unused vacation leave). Both of the government-wide financial statements distinguish functions of Gilbert that are principally supported by taxes and intergovernmental revenues (governmental activities) from other functions that are intended to recover a majority or all of their costs through user fees and charges (business-type activities). The governmental activities of Gilbert include general government, public safety, highways and streets, parks and recreation, and transportation. The business-type activities include water, wastewater, and environmental services. The government-wide financial statements also include the Industrial Development Authority as a component unit of Gilbert. The Authority provides financing for eligible private sector entities to acquire 3 TABLE OF CONTENTS and construct facilities deemed to be in the public interest. The financial information for the Authority is presented separately in the statements. The government-wide financial statements can be found on pages 15-17 of this report. Fund financial statements A fund is a grouping of related accounts used to maintain control over resources segregated for specific activities or objectives. Gilbert, like other state and local governments, uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. All of Gilbert’s funds can be divided into three categories: governmental funds, proprietary funds, and fiduciary funds. Governmental Funds Governmental funds account for essentially the same functions reported as governmental activities in the government-wide financial statements. Unlike the government-wide financial statements, however, governmental fund financial statements focus on near-term inflows and outflows of spendable resources, as well as balances of spendable resources available at fiscal year end. This information may be useful in evaluating a government’s near-term financing ability. 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 Gilbert’s near-term financing decisions. To facilitate this comparison, reconciliations are provided with the fund financial statements. The basic governmental fund financial statements can be found on pages 18-27. Proprietary Funds Gilbert maintains two different types of proprietary funds. Enterprise Funds report the same functions presented as business-type activities in the government-wide financial statements, which include water, wastewater, and environmental services. Internal Service Funds accumulate and allocate costs internally among the various functions. Gilbert uses internal service funds to account for maintenance of its fleet of vehicles, copy service operations, and employee health and dental self-insurance. The assets and liabilities of the internal service funds are included in the governmental activities column of the government-wide statement of net position. Costs of internal service funds are allocated to the various user functions on the government-wide statement of activities. Enterprise funds provide the same information as the government-wide financial statements, only with more detail. Internal service funds are combined into a single column on the proprietary funds statements. Additional detail for the internal service funds can be found on pages 109-115. The proprietary fund statements can be found on pages 28-33. Fiduciary Funds Fiduciary funds account for resources held for the benefit of parties outside the government. These funds are not included in the government-wide statements as these funds are not available to support Gilbert’s operations. The fiduciary fund statements can be found on pages 34-35. 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 and should be read with the financial statements. The notes to the financial statements can be found on pages 37-76. 4 TABLE OF CONTENTS Government-wide Financial Analysis Net position serves as a useful indicator of a government’s financial position. The following table reflects the condensed Statement of Net Position as of June 30, 2015 and 2016. Town of Gilbert Condensed Statement of Net Position Current and other assets Capital assets Total assets Governmental Activities 2016 2015 $ 270,810,919 $ 255,101,566 995,103,587 971,375,442 1,265,914,506 1,226,477,008 Deferred outflows of resources Long-term liabilities Other liabilities Total liabilities Deferred inflows of resources Net position: Net investment in capital assets Restricted Unrestricted Total net position Business-type Activities 2016 2015 $ 425,684,880 $ 374,524,748 487,967,309 461,523,528 913,652,189 836,048,276 Total 2016 2015 $ 696,495,799 $ 629,626,314 1,483,070,896 1,432,898,970 2,179,566,695 2,062,525,284 29,252,820 29,588,990 6,487,784 3,603,374 35,740,604 33,192,364 364,702,014 55,981,883 420,683,897 382,714,341 58,983,087 441,697,428 153,094,889 15,223,091 168,317,980 114,316,250 13,742,010 128,058,260 517,796,903 71,204,974 589,001,877 497,030,591 72,725,097 569,755,688 5,927,785 12,646,822 1,738,904 3,306,408 7,666,689 15,953,230 735,368,654 688,900,313 83,226,813 82,545,485 49,960,177 30,275,950 $ 868,555,644 $ 801,721,748 411,831,059 363,332,604 34,054,446 54,084,512 304,197,584 290,869,866 $ 750,083,089 $ 708,286,982 1,147,199,713 1,052,232,917 117,281,259 136,629,997 354,157,761 321,145,816 $ 1,618,638,733 $ 1,510,008,730 Net position consists of three components. The largest portion of Gilbert’s net position (71%) is its investment in capital assets (land, buildings, equipment, infrastructure, etc.), less depreciation and any related debt used to acquire those assets that is still outstanding. Gilbert uses these capital assets to provide services to citizens; consequently, these assets are not available for appropriation. Although Gilbert’s investment in its capital assets is reported net of related debt, it should be noted that the resources needed to repay this debt are provided from other sources, since the capital assets themselves cannot be used to liquidate these liabilities. An additional portion of Gilbert’s net position (7%) represents resources that are subject to external restrictions on how they may be used. The remaining portion of net position (22%) includes $124 million which is invested in joint ventures with the Cities of Mesa and Chandler and the Town of Queen Creek and $230 million which may be used to meet the government’s ongoing obligations to citizens, customers, and creditors. Governmental Activities Governmental activities in fiscal year 2016 increased Gilbert’s net position by $66.8 million. Taxes and program revenues (charges for services and grants and contributions that are clearly identifiable to operating functions) were Gilbert’s most significant revenue sources comprising 97% of total revenues for governmental activities. Taxes (local and state-shared) were $145.7 million, an increase of $6.3 million from the prior year. Program revenues were $123.6 million, an increase of $44.2 million from the prior year which was mostly due to the increase in capital grants and contributions. It should be noted that $37.9 million of the total program revenues represent capital contributions from developers of street related infrastructure and, therefore, were not cash revenues available to cover operating expenses. The other component of the change in net position is expenses. The largest expense functions were public safety which represented 39%, and highways and streets which represented 23% of total governmental activities expenses. Total expenses increased $8.7 million (4%) over the prior fiscal year. 5 TABLE OF CONTENTS The following table details the changes in net position for governmental and business-type activities. Changes in Net Position Governmental Activities 2016 Business-type Activities 2015 2016 2015 Total 2016 2015 Revenues Program revenues: 19,350,321 $ 17,976,626 $ 82,714,024 $ 80,133,119 $ 102,064,345 Operating grants and contributions Charges for services $ 38,666,434 24,170,883 1,051,389 - 39,717,823 $ 98,109,745 24,170,883 Capital grants and contributions 65,534,550 37,213,656 43,655,449 29,016,502 109,189,999 66,230,158 Sales taxes 77,070,494 71,772,575 - - 77,070,494 71,772,575 Property taxes 19,423,566 19,422,848 - - 19,423,566 19,422,848 Unrestricted state shared revenue 45,028,237 44,263,325 - - 45,028,237 44,263,325 4,176,100 3,937,907 - - 4,176,100 3,937,907 2,595,244 General revenues: Other taxes Grants and contributions not restricted to specific programs 3,203,874 2,595,244 - - 3,203,874 Unrestricted investment earnings 2,651,202 1,224,192 2,665,835 1,457,286 5,317,037 2,681,478 Other 1,297,183 952,804 416,566 1,481,805 1,713,749 2,434,609 276,401,961 223,530,060 130,503,263 112,088,712 406,905,224 335,618,772 Total revenues Expenses 20,048,930 19,090,117 - - 20,048,930 19,090,117 Finance and management services Management and policy 2,110,049 1,814,026 - - 2,110,049 1,814,026 Court 4,163,888 4,053,033 - - 4,163,888 4,053,033 Development services 7,611,199 7,082,385 - - 7,611,199 7,082,385 Police 50,115,340 47,541,179 - - 50,115,340 47,541,179 Fire 31,971,923 28,070,881 - - 31,971,923 28,070,881 Highw ays and streets 48,726,017 46,931,705 - - 48,726,017 46,931,705 Parks and recreation 25,646,923 28,428,423 - - 25,646,923 28,428,423 Transportation 1,050,787 777,965 - - 1,050,787 777,965 Non departmental 5,310,531 4,423,234 - - 5,310,531 4,423,234 Interest and fiscal charges 12,910,872 12,780,375 - - 12,910,872 12,780,375 Water on long-term debt - - 44,359,515 41,817,466 44,359,515 41,817,466 Wastew ater - - 26,529,856 25,619,743 26,529,856 25,619,743 Environmental services - - 17,719,391 16,719,837 17,719,391 16,719,837 209,666,459 200,993,323 88,608,762 84,157,046 298,275,221 285,150,369 66,735,502 22,536,737 41,894,501 27,931,666 108,630,003 50,468,403 98,394 184,313 - - 66,833,896 22,721,050 41,796,107 27,747,353 108,630,003 50,468,403 801,721,748 779,000,698 708,286,982 680,539,629 1,510,008,730 1,459,540,327 $ 868,555,644 $801,721,748 $750,083,089 $ 708,286,982 $1,618,638,733 $1,510,008,730 Total expenses Increase in net position before transfers Transfers Change in net position Net position, beginning of year Net position, end of year 6 (98,394) (184,313) TABLE OF CONTENTS Business-type Activities Development related growth increased Gilbert’s net position for business-type activities in fiscal year 2016 by $41.8 million including $22.8 million in system development fee collections and $20.8 million in water and wastewater infrastructure contributed by developers. The revenues for business-type activities increased by $18.4 million (16%) from the prior year and expenses increased $4.5 million (5%) from the prior year. Financial Analysis of Gilbert’s Funds As noted earlier, Gilbert maintains fund accounting to demonstrate compliance with budgetary and legal requirements. The following is a brief discussion of financial highlights from the fund financial statements. Governmental Funds The focus of the governmental funds is to provide information on near-term inflows, outflows, and balances of resources available for spending. Such information is useful in assessing Gilbert’s financing requirements. In particular, unrestricted fund balance may serve as a useful measure of a government’s net resources available for spending at the end of the fiscal year. Gilbert operated and separately reported the following major governmental funds: • • • • • • • General Fund Streets Special Revenue Fund General Debt Service Fund Special Assessments Debt Service Fund GO Bonds Capital Projects Fund Saint Xavier University Revenue Obligations Capital Projects Fund System Development Fees Capital Projects Fund All nonmajor funds are combined for reporting purposes captioned “Other Governmental Funds”. As of the end of fiscal year 2016, the governmental funds reported ending unrestricted fund balances totaling $117.6 million, an increase of $35 million in comparison with the prior fiscal year. Town of Gilbert Governmental Funds - Fund Balances As of June 30, 2016 Restricted Unrestricted Total $ 99,179,588 $ 99,179,588 12,817,040 5,012,972 17,830,012 6,952,183 8,034,400 14,986,583 74,320 74,320 7,067,104 5,636,715 12,703,819 5,504,200 5,504,200 35,652,589 (19,857,772) 15,794,817 18,937,806 19,613,774 38,551,580 $ 87,005,242 $ 117,619,677 $ 204,624,919 General Streets Special Revenue General Debt Service Special Assessments Debt Service GO Bonds Capital Projects Saint Xavier University Revenue Obligations System Development Fees Capital Projects Other Governmental Funds Total Fund Balances $ 7 TABLE OF CONTENTS General Fund The General Fund is the primary operating fund. At the end of fiscal year 2016, the fund balance of the General Fund was $117.8 million, an increase of $9.3 million from the prior year mainly due to the increase in local sales tax and settlement revenue (see Note 14). The unrestricted portion of the fund balance was $97.9 million, of which $13.7 million has been assigned for capital replacement. As a measure of the General Fund’s liquidity, it may be useful to compare its available fund balance to total fund expenditures. The General Fund’s unassigned fund balance represents 62% of total General Fund expenditures for the current year. Key elements of General Fund sources and uses are as follows: • Overall, revenues exceeded expenditures in the General Fund by $15.3 million; however, other financing sources and uses (net) were ($4.8) million resulting in an increase in fund balance of $10.5 million. The transfers out included $5.8 million for debt obligations. • Local sales tax and intergovernmental revenues are the largest revenue sources for the General Fund accounting for 82% of the total revenues. • Local sales tax, which accounts for half of total General Fund revenues, increased $5.3 million (7%) from the prior fiscal year due to the increase in economic development. • Miscellaneous revenue increased $2.3 million (317%) from the prior fiscal year due to settlement revenue received in the current fiscal year (see Note 14). • Parks and recreation expenditures decreased from the prior fiscal year due to reduced park repairs of approximately $3.2 million. • Fire expenditures increased approximately $2.7 million over the prior fiscal year due to the expansion of two divisions. • Expenditures increased across the board by approximately $8.3 million over the prior fiscal year mainly due to an increase in personnel costs. 8 TABLE OF CONTENTS Streets Special Revenue Fund The Streets Fund revenues include state shared revenues which are highway user revenues, vehicle license taxes and lottery funds. The highway user revenues and lottery funds are required by state statute to be used for transportation purposes. The vehicle license tax has been designated by Council to fund the preventive maintenance activities of the Streets Fund. Total revenues increased $1.8 million (8%) from the prior year. This was mainly due to increased highway user and vehicle license revenue of $1.4 million. Total expenditures increased by $485 thousand (3%) mostly due to increased capital outlay expenditures. In total, revenues exceeded expenditures by $3.7 million; however, there were $4 million net transfers out, resulting in a $374 thousand (2%) decrease in fund balance. Other Major Governmental Funds General Debt Service. The fund balance increased by $54 thousand during the year. This was primarily due to the current year property tax revenues of $19.4 million and transfers in from other funds of $20.2 million exceeding the debt service requirements of $39.9 million. The remaining fund balance of $14.9 million will be used to fund future debt service payments on voter approved general obligation bonds. Special Assessments Debt Service. The fund balance of $74 thousand is all restricted to pay future debt service requirements on special assessment bonds. GO Bonds Capital Projects. The GO bonds fund consists of general obligation bond proceeds and the expenditure of those proceeds to purchase or construct capital assets. The fund balance decreased by $6.5 million during the year. This was due to the current year capital outlay expenditures to purchase or construct capital assets. Saint Xavier University Revenue Obligations Capital Projects. This fund consists of revenue obligation proceeds and the expenditure of those proceeds to construct a building currently leased by Saint Xavier University. The remaining fund balance of $5.5 million will be used for future building improvements and debt service requirements. System Development Fees Capital Projects. The system development fees fund accounts for fees collected from building permits paid and the expenditure of those funds for infrastructure related to growth in Gilbert. The fund balance increased by $10.2 million during the year. This was primarily due to the current year system development fees revenues of $22.9 million offset by the $1.9 million in capital outlay expenditures and the $11.2 million transferred to the general debt service fund for principal and interest payments on bonds. The remaining fund balance of $15.8 million will be used to fund future infrastructure needs related to growth in Gilbert. Nonmajor Governmental Funds All nonmajor governmental funds are combined into one column on the governmental fund statements. The combined fund balance of these funds increased $13.8 million (56%) to a balance at year-end of $38.6 million. The majority of the increase is attributable to settlement revenue received in the current year (see Note 14). Nonmajor funds represent 17% of the total governmental fund balance. Proprietary Funds Gilbert’s proprietary funds statements are prepared on the same basis (accrual) as the government-wide financial statements. Gilbert operates and separately reports the following proprietary funds: • • • Water Fund Wastewater Fund Environmental Services Fund 9 TABLE OF CONTENTS Water Fund The Water Fund is responsible for producing and distributing potable water that exceeds all county, state and federal drinking water standards. The water system is also sized and pressurized to provide adequate fire suppression to the entire planning area and operates two surface water treatment facilities capable of producing 57 million gallons per day (mgd) and 19 ground water wells capable of producing 43.5 mgd. Net position increased by $24.7 million to $398.2 million due primarily to capital contributions of $27.5 million, including $14.2 million in system development fees and $13.2 million in distribution lines contributed by developers. Operating income was $1.4 million. Wastewater Fund The Wastewater Fund provides wastewater collection and treatment services to residents and businesses in Gilbert. The services also include the storage and distribution of effluent (treated wastewater). Net position increased $16.6 million to $326.5 million due primarily to capital contributions of $16.1 million, including $8.5 million in system development fees and $7.5 million in collection lines contributed by developers. Operating loss was $1.2 million. Environmental Services Fund Gilbert operates the Environmental Services Fund to provide residential and commercial refuse collection and residential recycling services. Residential services are provided exclusively by Gilbert, while the commercial service competes with the private sector for customers. Net position increased by $1.4 million to $25.9 million primarily from operating income. The following graph compares the fiscal year revenues to expenses for the Water, Wastewater and Environmental Services Funds. General Fund Budgetary Highlights There was no difference between the original adopted budget and the final amended budget. The final amended budget projected that expenditures would exceed revenues by $28.9 million resulting in a $33.7 million reduction to fund balance per the budget. This was mainly due to budgeting $23.9 million in capital outlay expenditures and $12.9 million in contingency. 10 TABLE OF CONTENTS During the year actual revenues exceeded the budgeted amount by $11.3 million (8%) mainly due to higher than expected local sales taxes and settlement revenue. Actual expenditures were less than budgeted by $32.9 million (19%) mainly due to $13.1 million lower than expected capital outlay expenditures and not needing any budgeted contingency. This resulted in an excess of revenues over expenditures of $44.2 million more than budgeted. This also resulted in the actual net change in fund balance being $44.2 million more than budgeted. Capital Asset and Debt Administration Capital Assets. As of June 30, 2016, Gilbert had $1.5 billion in capital assets. Major capital assets completed during the fiscal year included the following: Governmental Activities • • Streets and traffic signal projects totaling $7 million and buildings totaling $32 million. Developer contributions of street related infrastructure valued at $37.9 million. Business-type Activities • • Completed wastewater system improvements totaling $2.4 million and environmental services compressed natural gas fueling station totaling $2.8 million. Developer contributions of water and wastewater infrastructure valued at $20.8 million. The following table presents capital assets balances, net of accumulated depreciation, for the fiscal years ended June 30, 2016 and 2015. Town of Gilbert Capital Assets (net of depreciation) Governmental Activities Business-type Activities Total 2016 2015 2016 2015 2016 2015 $ 181,780,994 $ 181,644,373 $ 67,380,934 $ 64,675,175 $ 249,161,928 $ 246,319,548 43,351,693 57,193,525 17,242,397 6,504,633 60,594,090 63,698,158 163,543,478 139,984,488 - - 163,543,478 139,984,488 Improvements 28,843,316 32,311,791 - - 28,843,316 32,311,791 Plant, Machinery & Equip 13,418,934 12,527,705 72,730,803 72,459,504 86,149,737 84,987,209 Land Construction-in-progress Buildings Water Rights - - 7,158,994 7,257,286 7,158,994 7,257,286 564,165,172 547,713,560 323,454,181 310,626,930 887,619,353 858,340,490 Total Capital Assets $ 995,103,587 $ 971,375,442 $ 487,967,309 $ 461,523,528 $ 1,483,070,896 $ 1,432,898,970 Infrastructure Total governmental capital assets increased $23.7 million and business-type capital assets increased $26.4 million. The increase for the governmental capital assets can be attributable to increased streets construction projects and building improvements. The majority of the increase for the business-type capital assets can be attributable to the purchase of land and system improvements. See Note 6 on page 51 for further information regarding capital assets. Long-term Debt. At June 30, 2016, Gilbert had total bonded debt obligations of $270.6 million related to governmental activities and $115.9 million in business-type activities; $105.2 million of the outstanding debt is general obligation (GO) bonds backed by the full faith and credit of the Town of Gilbert; $6.5 million is special assessment bonds secured by a lien against the land of the benefited property owners in Improvement Districts #19 and #20; and all other outstanding debt is secured by pledges of specific revenue sources. 11 TABLE OF CONTENTS The Arizona Constitution and State Statutes limit a municipality’s bonded debt capacity to certain percentages of its secondary assessed valuation and by the type of project to be constructed with GO bonds. For projects involving water, wastewater, artificial lighting, parks, open space, recreational facility improvements, streets, public safety, and fire and emergency facilities, Gilbert can issue GO bonds up to 20% of its secondary assessed valuation. For any other general-purpose improvements, Gilbert may issue bonds up to 6% of its secondary assessed valuation. Gilbert’s available debt margin at June 30, 2016 was $118.8 million in the 6% capacity and $290.6 million in the 20% capacity. See Note 9 on pages 54-59 for additional information on debt. The following schedule shows Gilbert’s outstanding debt as of June 30, 2016 and 2015. Town of Gilbert Outstanding Debt Governmental Activities 2016 2015 $ 105,250,000 Special Assessment 6,480,000 Street and Highw ay User 9,320,000 Revenue Obligations 36,980,000 Municipal Property Corporation 112,575,000 Totals $ 270,605,000 General Obligation Business-type Activities $ 122,715,000 8,275,000 12,165,000 36,980,000 120,090,000 $ 300,225,000 2016 $ 115,940,000 $115,940,000 Total 2015 2016 2015 98,225,000 $ 98,225,000 $ 105,250,000 6,480,000 9,320,000 36,980,000 228,515,000 $ 386,545,000 $ 122,715,000 8,275,000 12,165,000 36,980,000 218,315,000 $ 398,450,000 $ Gilbert’s bonds are rated by leading rating agencies that assess the risk of default based on Gilbert’s financial condition. The following schedule shows Gilbert’s bond ratings as of June 30, 2016. Town of Gilbert Long-term Debt Ratings As of June 30, 2016 General Obligation Street and Highway User Revenue Public Facilities Municipal Property Corporation Water Resources Municipal Property Corporation Subordinate Lien Pledged Revenue Obligations Improvement Districts Moody's Investor Service Standard and Poors Ratings Group Fitch Ratings Aaa Not Rated Aa1 Not Rated Aa2 Aa1 AA+ AA AA+ AAA AA+ A+ AA+ Not Rated AA+ AA+ AA+ Not Rated Economic Factors and Next Year’s Budget Over the past five years, nearly 40,000 new residents have come to call Gilbert home, and nearly 9,000 new single family home permits were issued, making Gilbert one of the fastest growing cities in the United States. Gilbert has been successfully managing the residential growth by meeting the infrastructure and community amenity needs. New fire stations, police services, park amenities, roads, and water resources have been added to accommodate these new residents. Yet, amid this growth, Gilbert continues to earn accolades like Law Street Media’s 2nd Safest City in the United States and Wallethub’s 12th Best City in the U.S. for Raising a Family. 12 TABLE OF CONTENTS High residential growth has resulted in a rise of development within the commercial real estate market. The commercial vacancy rate is down to 8.6%, which is nearly half of what it was five years ago. Currently, there is 3.8 million square feet of planned and proposed commercial space within the community. With commercial development comes employment; over the past five years, employment in Gilbert has increased over 10% and the unemployment rate has dropped 2.5%. With 40.9% of its adult population having a Bachelor’s degree or higher, Gilbert is expanding its presence as a stronghold for modern science, a leader in biomedical, adult stem-cell, and algae research, an appealing destination for advanced business services and higher education institutions. In fact, Tech Co. ranked Gilbert one of the Top 5 Safest Cities to Build A Startup Company. Regarding the budget, Gilbert undertakes a zero-based process for one third of the organization every year (creating a complete cycle every three years), and always applies priority, program, and performance-based approaches. Directors are tasked with balancing the budget through consensus, rather than presenting requests and waiting to hear back. Only after the directors achieve consensus is the Town Manager presented with the recommended budget. This method allows Gilbert to promote transparency and the importance of short and long-term planning, while maintaining a strong return on investment for the zero-based process. The budget for fiscal year 2017 reflects an effort to deliver both effective and efficient services to our community. The budget is balanced assuming no increases in taxes or utility rates, and applies the nonrecurring level of construction-related revenues toward non-recurring costs. Recommended increases in ongoing expenses are within the growth in ongoing levels of revenue recognized as a result of growth both in population and in additional retail opportunities within Gilbert. Another significant factor in the growth of revenues for fiscal year 2017 was the updated population numbers used in calculating stateshared revenues. The new population number better represents Gilbert’s growth in comparison to other communities across the state and represents over $5 million additional state-shared dollars to Gilbert in fiscal year 2017 alone. Implementing components of a performance-based process allows for an increased focus on results. Departments identify lines of service and performance measures that will be impacted through budgetary requests. Structuring requests by anticipated outcomes allows the leadership team to identify programs that readily align with Council’s strategic initiatives. Budget Highlights for Fiscal Year 2017 With carry forwards and contingency adjustments, the proposed budget of $850,494,630 is an increase of $235,485,410 million from FY 2016. The change from FY 2016 primarily reflects the budget necessary for carry forward and new/potential capital projects. It reflects CIP and operational carryforwards of $102 million from FY 2016, a $100 million placeholder for the 2007 WRMPC Bond refunding, and capital expenditures for the SanTan and Greenfield treatment plant expansions. The budget also includes a capital projects contingency budget of $100 million to allow Council the flexibility and legal authority to respond to community needs. Balanced Financial Plan: The FY 2017 adopted budget is balanced based upon identified revenues and expenditures. Constitutional Expenditure Limit: The FY 2017 adopted budget reflects expenses that will be under the constitutional expenditure limitation. Staff regularly monitors conformity with the constitutional expenditure requirements and will recommend, if necessary, continuing adjustments and modifications necessary to comply with expenditure limitation requirements. State Shared Revenues: The FY 2017 adopted budget reflects an increase of over $8 million in stateshared revenues, $5 million of which is based upon Census population adjustments in the statutory distribution formula. 13 TABLE OF CONTENTS Secondary Property Tax Levy: House Bill 2538 in the 2016 Legislative Session now allows municipalities to include debt service from anticipated bonds into the secondary property tax levied. Gilbert anticipates issuing $71 million of GO Streets Bonds in FY 2017. Debt service with the existing and proposed GO bonds is estimated to be $22.7 million in FY 2017. Council adopted a levy of $21 million (approximate rate of $1.06 per $100 of assessed value) and approved the use of up to $1.7 million in debt service reserve to make up the difference. This allows the rate to remain at $1.06, the same as FY 2015 and FY 2016. Prior to that, the historic rate was kept at $1.15 for twelve years. Utility Rates: The FY 2017 Budget reflects revenues projected from Gilbert’s current water, wastewater, environmental services, and reclaimed water rates. No rate increases are recommended for this fiscal year, however, given the expanding services, the need for rate increases in water and wastewater funds will be evaluated over the next year to ensure fiscal health in FY 2018 and beyond. Capital Project Financing – System Development Fees: The FY 2017 adopted budget reflects revenues projected from the continued collection of System Development Fees as allowed under current State Law. Financial Contact This financial report is designed to provide a general overview of Gilbert’s finances and to demonstrate accountability for the use of public funds. This report is also available on Gilbert’s website at www.gilbertaz.gov. Questions about any of the information provided in this report, or requests for additional financial information should be addressed to: Town of Gilbert Accounting Manager 50 E Civic Center Drive Gilbert, AZ 85296 (480) 503-6752 14 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA Statement of Net Position June 30, 2016 Primary Government ASSETS Pooled cash and investments Receivables, net: Taxes Special assessments Accrued interest Accounts Due from other governments Internal balances Prepaid items Inventories Restricted assets: Cash and investments Accrued interest Investment in joint venture Capital assets: Non-depreciable Depreciable, net Total assets DEFERRED OUTFLOWS OF RESOURCES Deferred charge on refundings Pension-related items Total deferred outflows of resources LIABILITIES Accounts payable Accrued liabilities Claims payable Deposits held for others Utility deposits Bond interest payable Unearned revenue Noncurrent liabilities: Due within one year Due in more than one year Total liabilities DEFERRED INFLOWS OF RESOURCES Pension-related items Total deferred inflows of resources NET POSITION Net investment in capital assets Restricted for: Debt service Capital projects Highways and streets Grant programs Court/police programs Special districts Other purposes Unrestricted Total net position Governmental Activities Business-type Activities $ 223,910,174 $ 203,801,171 4,795,666 6,494,787 445,054 14,510,973 3,074,123 (1,175,752) 8,177 531,117 Component Unit Industrial Development Authority Total $ 427,711,345 $ 17,331 372,545 5,383,138 1,192,714 1,175,752 2,500 47,759 4,795,666 6,494,787 817,599 19,894,111 4,266,837 10,677 578,876 - 17,962,236 630 253,734 89,400,815 84,193 124,224,293 107,363,051 84,823 124,478,027 - 225,132,687 769,970,900 1,265,914,506 84,623,331 403,343,978 913,652,189 309,756,018 1,173,314,878 2,179,566,695 17,331 3,158,725 26,094,095 29,252,820 3,274,610 3,213,174 6,487,784 6,433,335 29,307,269 35,740,604 - 8,332,676 11,323,754 1,706,260 755,625 3,624,065 67,171 6,003,093 538,187 3,029,931 - 14,335,769 11,861,941 1,706,260 755,625 3,029,931 3,624,065 67,171 - 30,172,332 364,702,014 420,683,897 5,651,880 153,094,889 168,317,980 35,824,212 517,796,903 589,001,877 - 5,927,785 5,927,785 1,738,904 1,738,904 7,666,689 7,666,689 - 735,368,654 411,831,059 1,147,199,713 - 13,521,175 54,137,890 12,162,119 1,084,116 1,993,378 165,666 162,469 49,960,177 $ 868,555,644 34,054,446 304,197,584 $ 750,083,089 13,521,175 88,192,336 12,162,119 1,084,116 1,993,378 165,666 162,469 354,157,761 $ 1,618,638,733 17,331 17,331 The notes to the financial statements are an integral part of this statement. $ TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA Statement of Activities For the Year Ended June 30, 2016 Program Revenues Expenses Functions/Programs Primary government Governmental activities: General government Management and policy Finance and management services Court Development services Public safety Police Fire Highways and streets Parks and recreation Transportation Non departmental Interest and fiscal charges on long-term debt Total governmental activities Business-type activities: Water Wastewater Environmental Services Total business-type activities Total primary government Component unit Industrial development authority $ Operating Grants and Contributions Charges for Services 20,048,930 2,110,049 4,163,888 7,611,199 $ 20,152 24,125 829,014 6,825,746 $ 644,741 30,000 - Capital Grants and Contributions $ 25,288 - 50,115,340 31,971,923 48,726,017 25,646,923 1,050,787 5,310,531 5,343,098 197,361 1,744,865 4,365,960 - 403,921 1,612,029 22,283,717 13,634,915 7,227 49,884 4,898,202 2,360,387 45,761,943 11,860,555 628,175 - 12,910,872 209,666,459 19,350,321 38,666,434 65,534,550 44,359,515 26,529,856 17,719,391 88,608,762 $ 298,275,221 39,457,349 25,115,912 18,140,763 82,714,024 $ 102,064,345 $ 1,051,389 1,051,389 39,717,823 $ 27,593,650 16,061,799 43,655,449 109,189,999 $ $ $ - $ - 45 - General revenues: Sales taxes Property taxes, levied for debt service In-Lieu property taxes Franchise taxes Unrestricted state shared revenue Grants and contributions not restricted to specific programs Unrestricted investment earnings Gain on sale of capital assets Miscellaneous Transfers Total general revenues and transfers Change in net position Net position, July 1, 2015 Net position, June 30, 2016 16 TABLE OF CONTENTS Net (Expense) Revenue and Changes in Net Position Primary Government Governmental Activities $ (19,358,749) (2,085,924) (3,304,874) (785,453) Business-type Activities $ - Component Unit Industrial Development Authority Total $ (19,358,749) (2,085,924) (3,304,874) (785,453) $ - (39,470,119) (27,802,146) 21,064,508 4,214,507 (415,385) (5,260,647) - (39,470,119) (27,802,146) 21,064,508 4,214,507 (415,385) (5,260,647) - (12,910,872) (86,115,154) - (12,910,872) (86,115,154) - (86,115,154) 23,742,873 14,647,855 421,372 38,812,100 38,812,100 23,742,873 14,647,855 421,372 38,812,100 (47,303,054) (45) 77,070,494 - 77,070,494 - 19,423,566 - 19,423,566 - 1,186,667 - 1,186,667 - 2,989,433 - 2,989,433 - 45,028,237 - 45,028,237 - 3,203,874 - 3,203,874 - 2,651,202 2,665,835 5,317,037 7 135,645 157,507 293,152 - 1,161,538 259,059 1,420,597 - - - 98,394 (98,394) 152,949,050 2,984,007 155,933,057 7 66,833,896 41,796,107 108,630,003 (38) 801,721,748 708,286,982 1,510,008,730 $ 868,555,644 $ 750,083,089 $ 1,618,638,733 17,369 $ 17,331 The notes to the financial statements are an integral part of this statement. 17 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA Balance Sheet Governmental Funds June 30, 2016 Streets Special Revenue General ASSETS Pooled cash and investments Receivables, net: Taxes Special assessments Accrued interest Accounts Due from other governments Due from other funds Prepaid items Inventories Advances to other funds Restricted assets: Cash and investments Accrued interest Total assets LIABILITIES, DEFERRED INFLOWS OF RESOURCES AND FUND BALANCES Liabilities: Accounts payable Accrued liabilities Deposits held for others Due to other funds Bonds payable Interest payable Advances from other funds Unearned revenue Total liabilities $ $ $ Deferred Inflows of Resources: Unavailable revenue - special assessments Unavailable revenue - court fines Unavailable revenue - sales tax Total deferred inflows of resources Fund Balances: Nonspendable Restricted Assigned Unassigned Total fund balances Total liabilities, deferred inflows of resources, and fund balances $ 99,675,485 $ 17,903,388 Special Assessments Debt Service General Debt Service $ 14,719,342 $ 73,147 4,559,273 192,476 13,953,679 32,904 1,614,177 8,177 19,857,772 39,887 129,280 1,832,026 - 217,073 49,569 - 6,494,787 1,058 - 251,355 140,145,298 19,904,581 10,821,114 597 25,807,695 6,568,992 4,733,133 11,092,630 114,034 53,607 15,993,404 $ $ 1,955,497 116,720 2,352 2,074,569 $ $ 8,000,000 2,821,112 10,821,112 $ $ - 4,742,034 364,323 5,106,357 - - 6,494,672 6,494,672 19,865,949 13,681,430 85,498,158 119,045,537 12,817,040 5,012,972 17,830,012 6,952,183 8,034,400 14,986,583 74,320 74,320 140,145,298 18 $ 19,904,581 $ 25,807,695 $ 6,568,992 TABLE OF CONTENTS GO Bonds Capital Projects Saint Xavier University Revenue Obligations System Development Fees Capital Projects $ $ $ $ $ $ 13,400,780 - 35,695,208 Other Governmental Funds $ 38,238,511 Total Governmental Funds $ 219,705,861 28,291 - - 69,144 16,269 - 19,320 62,203 53,030 1,209,193 4,138 - 4,795,666 6,494,787 442,628 14,152,258 3,074,123 1,614,177 8,177 4,138 19,857,772 13,429,071 6,558,346 26 6,558,372 35,780,621 331,421 7 39,917,823 17,962,236 630 288,112,453 725,252 725,252 $ $ 251,219 802,953 1,054,172 - - 7,067,104 5,636,715 12,703,819 5,504,200 5,504,200 13,429,071 $ 6,558,372 $ $ 128,032 19,857,772 19,985,804 $ $ - 35,780,621 $ 39,917,823 8,035,420 11,262,188 755,625 414,177 8,000,000 3,624,065 19,857,772 67,171 52,016,418 6,494,672 4,742,034 364,323 11,601,029 4,138 18,937,806 19,653,192 (39,418) 38,555,718 The notes to the financial statement are an integral part of this statement. 19 $ - 35,652,589 (19,857,772) 15,794,817 $ 493,506 52,838 639,239 162,958 13,564 1,362,105 $ 19,870,087 87,005,242 52,018,709 65,600,968 224,495,006 $ 288,112,453 TABLE OF CONTENTS 20 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA Reconciliation of the Balance Sheet to the Statement of Net Position June 30, 2016 Fund balances - total governmental funds $ 224,495,006 Amounts reported for governmental activities in the statement of net position are different because: Capital assets used in governmental activities are not financial resources and, therefore, are not reported in the governmental funds. Governmental capital assets Accumulated depreciation 1,674,540,843 (679,443,635) 995,097,208 The investment in joint venture is not a financial resource and, therefore, is not reported in the funds. 253,734 Some receivables are not available to pay for current period expenditures and, therefore, are reported as unavailable revenue in the governmental funds. 11,601,029 Internal service funds are used by management to charge the costs of certain activities, such as equipment maintenance, copy services, and 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 funds balance sheet. (1,451,825) 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 funds. Unamortized deferred outflow on bond refunding Pension-related items 3,158,725 20,023,828 23,182,553 (95,751,094) (262,605,000) (9,729,280) (14,006,760) (2,529,927) (384,622,061) Certain liabilities applicable to the Town's governmental activities are not due and payable in the current period, and accordingly are not reported as fund liabilities in the governmental funds statement. Net pension Bonds payable Bonds premium Compensated absences Post-employment benefits Net position of governmental activities - statement of net position The notes to the financial statements are an integral part of this statement. 21 $ 868,555,644 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA Statement of Revenues, Expenditures, and Changes in Fund Balances Governmental Funds For the Year Ended June 30, 2016 Streets Special Revenue General Revenues Taxes: Sales Property Franchise Licenses and permits Intergovernmental Special assessments Charges for services Other entities' participation System development fees Gifts and donations Fines and forfeitures Investment earnings Miscellaneous Total revenues Expenditures Current: General government: Management and policy Finance and management services Court Development services Public safety: Police Fire Highways and streets Parks and recreation Transportation Non departmental Debt service: Principal Interest Fiscal and other charges Capital outlay Total expenditures Excess (deficiency) of revenues over (under) expenditures $ 77,108,076 3,389,433 4,787,455 47,821,822 9,716,697 1,078,800 24,685 4,014,008 1,263,051 3,082,557 152,286,584 $ 22,523,652 1,529 5,338 12,729 219,932 230,488 22,993,668 General Debt Service $ 19,423,566 267,848 19,691,414 Special Assessments Debt Service $ 2,232,678 4,197 2,236,875 20,392,080 2,133,533 3,236,812 6,239,384 - - - 42,654,109 28,155,447 17,730,923 350,000 5,260,647 11,050,237 - - - 10,864,315 137,017,250 8,219,053 19,269,290 28,310,000 11,541,775 1,310 39,853,085 1,795,000 394,755 6,534 2,196,289 15,269,334 3,724,378 (20,161,671) Other financing sources (uses) Transfers in Transfers out Total other financing sources and uses 1,122,877 (5,920,012) (4,797,135) 50,000 (4,148,419) (4,098,419) 20,215,466 20,215,466 - Net change in fund balances 10,472,199 (374,041) 53,795 40,586 Fund balances at beginning of year Fund balances at end of year 108,573,338 $ 119,045,537 22 18,204,053 $ 17,830,012 40,586 14,932,788 $ 14,986,583 33,734 $ 74,320 TABLE OF CONTENTS GO Bonds Capital Projects $ 152,132 100 152,232 Saint Xavier University Revenue Obligations System Development Fees Capital Projects $ $ 22,943,883 389,185 23,333,068 $ 2,576,347 6,661,244 1,428,661 581,760 162,693 591,303 342,729 11,426,750 23,771,487 Total Governmental Funds $ 77,108,076 21,999,913 3,389,433 4,787,455 77,006,718 2,232,678 11,146,887 1,665,898 22,943,883 187,378 4,618,040 2,639,074 14,797,184 244,522,617 - - - 604,665 371,199 - 20,996,745 2,133,533 3,608,011 6,239,384 - - - 1,748,210 139,951 1,780,370 860,013 695,752 49,884 44,402,319 28,295,398 12,830,607 18,590,936 1,045,752 5,310,531 6,668,257 6,668,257 1,836,814 24,000 5,327,458 7,188,272 1,938,467 1,938,467 5,166 3,555,780 9,810,990 30,105,000 13,773,344 37,010 36,573,330 223,941,900 (6,516,025) (7,130,983) 21,394,601 13,960,497 20,580,717 - - (6,516,025) 12,703,819 (11,176,008) (11,176,008) (7,130,983) 19,219,844 $ 57,289 57,289 Other Governmental Funds 10,218,593 12,635,183 $ 5,504,200 17,819 (141,019) (123,200) 13,837,297 5,576,224 $ 15,794,817 The notes to the financial statements are an integral part of this statement. 23 21,406,162 (21,385,458) 20,704 20,601,421 24,718,421 $ 38,555,718 203,893,585 $ 224,495,006 TABLE OF CONTENTS 24 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA Reconciliation of the Statement of Revenues, Expenditures and Changes in Fund Balances to the Statement of Activities For the Year Ended June 30, 2016 Net change in fund balances - total governmental funds $ 20,601,421 Amounts reported for governmental activities in the statement of activities are different because: Governmental 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. Capital outlay Depreciation expense 36,573,330 (50,543,540) (13,970,210) 30,105,000 899,482 31,004,482 Repayment of bond principal is reported as expenditures in governmental funds and thus has the effect of reducing fund balance because current financial resources have been used. For the government-wide statements, 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. Also, governmental funds report the effect of deferred outflows of resources, premiums, discounts and similar items when debt is first issued, whereas these amounts are deferred and amortized in the statement of activities. Principal payments Amortization expense Internal service funds are used by management to charge the costs of certain activities, such as equipment maintenance, 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 services funds' costs for the year. (3,332,359) Capital assets contributed by developers are not shown on the governmental fund statements, but are included in the assets of the Town. On the statement of activities, these donations are shown as capital contributions. Capital contributions 37,860,914 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. Compensated absences Post-employment benefits (870,619) (1,115,884) (1,986,503) 11,257,254 (12,458,863) (1,201,609) (1,792,624) 87,966 (37,582) (400,000) (2,142,240) Pension contributions are reported as expenditures in the governmental funds when made. However, they are reported as deferred outflows of resources in the statement of net position because the reported net pension liability is measured a year before the report date. Pension expense, which is the change in the net pension liability adjusted for changes in deferred outflows and inflows of resources related to pensions, is reported in the statement of activities. Pension contributions Pension expense Certain revenues are not reported in the governmental funds because they do not provide current financial resources due to unavailability but are recognized as revenue in the statement of activities. However, other 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. Special assessments Court fines Sales tax Other Change in net position of governmental activities - statement of activities The notes to the financial statements are an integral part of this statement. 25 $ 66,833,896 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA General Fund Statement of Revenues, Expenditures, and Changes in Fund Balances - Budget and Actual - Budgetary Basis For the Year Ended June 30, 2016 Variance with Budgeted Amounts Original Revenues Taxes: Sales Franchise Licenses and permits Intergovernmental Charges for services Other entities' participation Gifts and donations Fines and forfeitures Investment earnings Miscellaneous Total revenues $ 73,160,000 2,365,000 4,398,000 47,404,000 9,196,380 20,000 3,405,000 515,000 522,000 140,985,380 Actual Amounts Final $ 73,160,000 2,365,000 4,398,000 47,404,000 9,196,380 20,000 3,405,000 515,000 522,000 140,985,380 $ 77,108,076 3,389,433 4,787,455 47,821,822 9,716,697 1,078,800 24,685 4,014,008 1,263,051 3,082,557 152,286,584 Final Budget Positive (Negative) $ 3,948,076 1,024,433 389,455 417,822 520,317 1,078,800 4,685 609,008 748,051 2,560,557 11,301,204 Expenditures Current: General government: Management and policy Finance and management services Court Development services Public safety: Police Fire Parks and recreation Transportation Non departmental Capital outlay Contingency Total expenditures 22,822,060 2,115,660 3,117,380 6,338,000 23,177,799 2,190,560 3,244,590 6,972,045 20,392,080 2,133,533 3,236,812 6,239,384 2,785,719 57,027 7,778 732,661 44,021,410 28,745,960 19,053,590 350,000 4,856,170 23,171,930 15,311,890 169,904,050 43,894,149 28,426,550 19,165,423 350,000 5,596,170 23,988,535 12,898,229 169,904,050 42,654,109 28,155,447 17,730,923 350,000 5,260,647 10,864,315 137,017,250 1,240,040 271,103 1,434,500 335,523 13,124,220 12,898,229 32,886,800 Excess (deficiency) of revenues over (under) expenditures (28,918,670) (28,918,670) 15,269,334 44,188,004 1,073,520 (5,843,750) (4,770,230) 1,073,520 (5,843,750) (4,770,230) 1,122,877 (5,920,012) (4,797,135) (33,688,900) 10,472,199 Other financing sources (uses) Transfers in Transfers out Total other financing sources and uses Net change in fund balances $ (33,688,900) Fund balance at beginning of year $ 108,573,338 Fund balance at end of year $ 119,045,537 The notes to the financial statements are an integral part of this statement. 26 49,357 (76,262) (26,905) $ 44,161,099 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA Streets Special Revenue Fund Statement of Revenues, Expenditures, and Changes in Fund Balances - Budget and Actual - Budgetary Basis For the Year Ended June 30, 2016 Variance with Budgeted Amounts Original Revenues Intergovernmental Charges for services Other entities' participation Fines and forfeitures Investment earnings Miscellaneous Total revenues $ 21,734,000 4,000 120,000 21,858,000 Actual Amounts Final $ 21,734,000 4,000 120,000 21,858,000 $ 22,523,652 1,529 5,338 12,729 219,932 230,488 22,993,668 Final Budget Positive (Negative) $ 789,652 (2,471) 5,338 12,729 99,932 230,488 1,135,668 Expenditures Current: Highways and streets Capital outlay Contingency Total expenditures 11,340,690 12,811,280 2,033,870 26,185,840 11,438,177 12,601,272 2,146,391 26,185,840 11,050,237 8,219,053 19,269,290 387,940 4,382,219 2,146,391 6,916,550 Excess (deficiency) of revenues over (under) expenditures (4,327,840) (4,327,840) 3,724,378 8,052,218 Other financing sources (uses) Transfers in Transfers out Total other financing sources and uses 50,000 (4,147,650) (4,097,650) 50,000 (4,147,650) (4,097,650) 50,000 (4,148,419) (4,098,419) (8,425,490) (374,041) Net change in fund balances $ (8,425,490) $ Fund balance at beginning of year Fund balance at end of year The notes to the financial statements are an integral part of this statement. 27 18,204,053 $ 17,830,012 (769) (769) $ 8,051,449 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA Statement of Net Position Proprietary Funds June 30, 2016 Water ASSETS Current assets: Pooled cash and investments Receivables (net): Accrued interest Accounts Due from other governments Prepaid items Inventories $ Total current assets Noncurrent assets: Restricted assets: Cash and investments Accrued interest Investment in joint venture Capital assets: Non-depreciable Depreciable, net Total noncurrent assets 106,908,496 Business-type Activities - Enterprise Funds Environmental Wastewater Services $ 75,657,351 $ 22,876,907 Total $ 205,442,754 181,783 3,059,057 1,192,714 47,759 142,804 1,426,874 - 47,958 897,207 2,500 - 372,545 5,383,138 1,192,714 2,500 47,759 111,389,809 77,227,029 23,824,572 212,441,410 69,687,703 54,130 65,622,092 19,713,112 30,063 58,602,201 - 89,400,815 84,193 124,224,293 69,050,575 231,472,110 15,549,287 162,053,271 23,469 9,818,597 84,623,331 403,343,978 435,886,610 255,947,934 9,842,066 701,676,610 547,276,419 333,174,963 33,666,638 914,118,020 DEFERRED OUTFLOWS OF RESOURCES Deferred charge on refunding Pension-related items Total deferred outflows of resources 3,274,610 1,604,881 4,879,491 540,856 540,856 1,067,437 1,067,437 3,274,610 3,213,174 6,487,784 LIABILITIES Current liabilities: Accounts payable Accrued liabilities Current portion of accrued compensated absences Claims payable Due to other funds Bonds payable Utility deposits 2,794,343 279,045 406,406 4,830,000 3,006,272 2,466,437 91,536 163,511 - 742,313 167,606 251,963 23,659 6,003,093 538,187 821,880 4,830,000 3,029,931 11,316,066 2,721,484 1,185,541 15,223,091 130,580,861 631,857 316,978 10,271,699 325,816 114,272 3,805,447 376,388 230,625 6,440,946 130,580,861 1,334,061 661,875 20,518,092 Total assets Total current liabilities Noncurrent liabilities: Utility revenue bonds payable Accrued compensated absences Post-employment benefits Net pension liability Total noncurrent liabilities Total liabilities DEFERRED INFLOWS OF RESOURCES Pension-related items Total deferred inflows of resources NET POSITION Net investment in capital assets Restricted for capital projects Unrestricted Total net position $ 141,801,395 4,245,535 7,047,959 153,094,889 153,117,461 6,967,019 8,233,500 168,317,980 868,529 868,529 292,700 292,700 577,675 577,675 1,738,904 1,738,904 224,386,435 16,180,019 157,603,466 398,169,920 177,602,558 17,874,427 130,979,115 326,456,100 9,842,066 16,080,834 25,922,900 $ 411,831,059 34,054,446 304,663,415 750,548,920 $ 750,083,089 $ $ Adjustment to reflect the consolidation of internal service fund activities related to enterprise funds Net position of business-type activities 28 (465,831) TABLE OF CONTENTS Governmental Activities Internal Service Funds $ 2,562,731 2,427 358,714 526,979 3,450,851 6,379 6,379 3,457,230 310,539 310,539 297,256 61,566 83,846 1,706,260 1,200,000 3,348,928 105,262 2,063,177 2,168,439 5,517,367 168,057 168,057 $ 6,379 (1,924,034) (1,917,655) The notes to the financial statements are an integral part of this statement. 29 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA Statement of Revenues, Expenses, and Changes in Fund Net Position Proprietary Funds For the Year Ended June 30, 2016 Water Operating revenues Charges for services Other Total operating revenues Operating expenses General and administrative Personal services Operation and maintenance Claims Incurred Depreciation Allocation of indirect expenses Total operating expenses $ Business-type Activities - Enterprise Funds Environmental Wastewater Services 39,457,349 84,038 39,541,387 $ 25,115,912 2,030 25,117,942 1,388,144 8,240,416 14,493,958 12,148,611 1,898,049 38,169,178 775,867 3,818,980 10,514,348 10,266,894 989,609 26,365,698 1,372,209 Nonoperating revenues (expenses) Intergovernmental Interest expense Investment earnings Gain (loss) on sale of capital assets Total nonoperating revenues (expenses) 1,144,446 (5,793,878) 1,402,631 (20,065) (3,266,866) Income (loss) before capital contributions and transfers (1,894,657) Capital contributions Transfers in Transfers out 27,500,592 (890,454) Change in net position Operating income (loss) Total net position, beginning of year Total net position, end of year $ 18,140,763 172,991 18,313,754 $ Total 82,714,024 259,059 82,973,083 842,231 7,000,716 7,255,021 1,251,460 978,718 17,328,146 3,006,242 19,060,112 32,263,327 23,666,965 3,866,376 81,863,022 (1,247,756) 985,608 1,110,061 993,895 8,003 1,001,898 269,309 142,468 411,777 1,144,446 (5,793,878) 2,665,835 130,406 (1,853,191) 1,397,385 (743,130) 16,061,799 792,060 - - 43,562,391 792,060 (890,454) 24,715,481 16,608,001 1,397,385 373,454,439 309,848,099 24,525,515 $ 398,169,920 $ 326,456,100 (245,858) $ 42,720,867 25,922,900 (924,760) Adjustment to reflect the consolidation of internal service fund activities related to enterprise funds Change in net position of business-type activities 30 $ 41,796,107 TABLE OF CONTENTS Governmental Activities Internal Service Funds $ 22,004,626 1,048,887 23,053,513 1,272,344 1,809,993 4,710,729 19,416,633 3,610 27,213,309 (4,159,796) 12,128 (187,140) (175,012) (4,334,808) 77,690 (4,257,118) 2,339,463 $ (1,917,655) The notes to the financial statements are an integral part of this statement. 31 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA Statement of Cash Flows Proprietary Funds For the Year Ended June 30, 2016 Water Cash flows from operating activities: Cash receipts from customers Other operating cash receipts Cash receipts from other funds for services Cash receipts from deposits Cash payments to suppliers for goods and services Cash payments to employees for services Cash payments to other funds for services Net cash provided by (used in) operating activities $ 37,512,416 84,038 (148,541) (14,401,831) (11,188,709) (1,898,049) 9,959,324 Cash flows from noncapital financing activities: Changes in due to other funds Transfers from other funds Transfers to other funds Net cash provided by (used in) noncapital financing activities Reconciliation of operating income (loss) to net cash provided by (used in) operations: Operating income (loss) Adjustments to reconcile operating income (loss) to net cash provided by (used in) operating activities: Depreciation Provision for uncollectible accounts Changes in assets and liabilities: Increase in accounts receivable Increase in prepaid items Decrease in inventories (Increase) decrease in deferred outflows of resources Increase (decrease) in accounts payable Increase in claims payable Decrease in deposits Increase in accrued expenses Increase in net pension liability Decrease in deferred inflows of resources Total adjustments Net cash provided by (used in) operating activities Supplemental disclosures of noncash financing activities: Additions to property and equipment: Contributions from developers Total additions to property and equipment $ $ 24,806,012 2,030 (10,040,493) (3,734,338) (989,609) 10,043,602 $ 792,060 792,060 135,410,861 (13,471,516) 14,226,464 (6,964,938) (22,898,980) (75,326,019) (20,065) 1,144,446 32,100,253 Cash flows from investing activities: Interest received on investments Net cash provided by investing activities Cash and cash equivalents at end of year includes: Equity in pooled cash and investments Restricted cash and investments Total cash and cash equivalents $ (890,454) (890,454) Cash flows from capital and related financing activities: Proceeds from revenue and revenue refunding bonds Acquisition and construction of capital assets Proceeds from development fees Cash paid for interest and fiscal charges Principal payments on bonds Payment to escrow agent Disposal of capital assets Intergovernmental revenue Net cash provided by (used in) capital and related financing activities Net increase (decrease) in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year Business-type Activities - Enterprise Funds Environmental Wastewater Services 938,589 938,589 42,522,208 134,073,991 176,596,199 17,056,340 78,314,123 95,370,463 $ $ $ 106,908,496 69,687,703 176,596,199 $ 1,372,210 $ - (3,257,855) 8,531,941 8,003 5,282,089 1,353,085 1,353,085 18,084,308 172,991 (8,369,480) (6,650,727) (978,718) 2,258,374 Total 792,060 (890,454) (98,394) (5,492,088) 142,468 (5,349,620) 135,410,861 (22,221,459) 22,758,405 (6,964,938) (22,898,980) (75,326,019) 130,406 1,144,446 32,032,722 263,627 263,627 $ 80,402,736 259,059 (148,541) (32,811,804) (21,573,774) (3,866,376) 22,261,300 2,555,301 2,555,301 (2,827,619) 25,704,526 22,876,907 56,750,929 238,092,640 $ 294,843,569 $ 205,442,754 89,400,815 $ 294,843,569 $ $ 75,657,351 19,713,112 95,370,463 $ 22,876,907 22,876,907 $ (1,247,756) $ 985,608 $ 1,110,062 12,148,611 11,767 10,266,894 6,544 1,251,460 6,538 23,666,965 24,849 (1,956,700) 1,513 (3,075,608) 1,478,757 (148,541) 110,552 803,866 (787,103) 8,587,114 (316,444) 133,784 1,249,722 11,777 265,422 (326,341) 11,291,358 (59,444) (2,500) 56,964 (269,728) (3,550) 206,183 540,903 (454,060) 1,272,766 (2,332,588) (2,500) 1,513 (2,884,860) 2,458,751 (152,091) 328,512 1,610,191 (1,567,504) 21,151,238 $ 9,959,324 $ 10,043,602 $ 2,258,374 $ 22,261,300 $ $ 13,274,128 13,274,128 $ $ 7,529,858 7,529,858 $ $ - $ $ 20,803,986 20,803,986 32 TABLE OF CONTENTS Governmental Activities Internal Service Funds $ 809,119 22,002,647 (25,052,268) (1,763,085) (4,003,587) 1,157,638 77,690 1,235,328 12,530 12,530 $ $ (2,755,729) 5,318,460 2,562,731 $ 2,562,731 2,562,731 $ (4,159,796) 3,610 (241,747) 26,243 53,238 13,106 308,089 5,071 154,339 (165,740) 156,209 $ $ $ (4,003,587) - The notes to the financial statements are an integral part of this statement. 33 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA Statement of Fiduciary Net Position Fiduciary Funds June 30, 2016 Firemen's Pension Trust Agency Funds $ 90,048 - $ 11,217 15,451 90,048 $ 26,668 - $ 26,668 - $ 26,668 ASSETS Restricted cash and investments Prepaid items Total assets LIABILITIES Dependent care benefits payable Total liabilities NET POSITION Held in trust for pension benefits $ The notes to the financial statements are an integral part of this statement. 34 90,048 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA Statement of Changes in Fiduciary Net Position Fiduciary Fund For the Year Ended June 30, 2016 Firemen's Pension Trust Additions Interest on investments $ Total additions 202 202 Deductions Benefits Administration 2,400 100 Total deductions 2,500 Change in net position (2,298) Net position - beginning of the year 92,346 Net position - end of the year The notes to the financial statements are an integral part of this statement. 35 $ 90,048 TABLE OF CONTENTS 36 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA NOTES TO THE FINANCIAL STATEMENTS June 30, 2016 The Town of Gilbert, Arizona (Gilbert) was incorporated on July 6, 1920, under the provisions of Article 13, Section 1 of the Constitution of the State of Arizona. Gilbert operates as a general law community, under the provisions of Title 9, Chapter 2, Article 3 (Common Council provision). Gilbert operates under the Council-Manager form of government, as empowered in Chapter 2, Article 2-51 of the Code of the Town of Gilbert, Arizona. There are seven members of the Council, elected to staggered four-year terms. The voters select the Mayor and the Council membership annually elects the Vice Mayor. Note 1 - Summary of Significant Accounting Policies Gilbert’s accounting policies 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. During the fiscal year ended June 30, 2016, Gilbert implemented the provisions of GASB Statement No. 72, Fair Value Measurement and Application, GASB Statement No. 76, The Hierarchy of Generally Accepted Accounting Principles for State and Local Governments and GASB Statement No. 82, Pension Issues. GASB Statement No. 72 establishes standards for measuring fair value and applying fair value to certain investments and disclosures related to all fair value measurements (see Note 3). GASB Statement No. 76 establishes the hierarchy of sources of accounting principles used to prepare financial statements of state and local governmental entities in conformity with generally accepted accounting principles. GASB Statement No. 82 addresses certain implementation issues from GASB Statement No. 68, Accounting and Financial Reporting for Pensions, including the presentation of payroll-related measures in required supplementary information. A. Reporting Entity Gilbert’s operations include public safety (police, fire, and animal control), parks and recreation (parks, recreation, library, culture and arts, and social services), development services (planning, code enforcement, and engineering), and general administration in support of operations. Gilbert also operates three enterprise funds to provide water, wastewater, and environmental services, and three internal service funds that provide equipment and fleet maintenance, copy services, and employee self-insurance for medical and dental claims. The accompanying financial statements present the activities of Gilbert (the primary government) and its component units. Component units are legally separate entities for which Gilbert is considered to be financially accountable. Blended component units, although legally separate entities, are in substance part of Gilbert’s operations. Therefore, data from these units is combined with data of the primary government. Discretely presented component units, on the other hand, are reported in a separate column in the combined financial statements to emphasize they are legally separate from the Town of Gilbert. Each blended and discretely presented component unit discussed below has a June 30 year-end. 37 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA NOTES TO THE FINANCIAL STATEMENTS June 30, 2016 Blended Component Units - The Water Resources Municipal Property Corporation (Water MPC) is a legally separate, non-profit corporation which exists solely for the purpose of financing the construction or acquisition of water and wastewater capital improvement projects. The Public Facilities Municipal Property Corporation (Public Facilities MPC) is a legally separate, non-profit corporation which exists solely for the purpose of financing construction of municipal facilities. Each is considered a blended component unit because the Council appoints the five-member board of directors of the MPC, the Council must approve any amendments to the articles of incorporation of the MPC, the Council must approve any debt issues of the MPC, and the MPC provides services solely to the Town of Gilbert. At June 30, 2016, the Water MPC bonded debt is reported within the water fund and the Public Facilities MPC bonded debt is reported within the debt service fund (current portion only) and within the governmental activities in the government-wide statement of net position. Discretely Presented Component Unit - The Industrial Development Authority (IDA) issues industrial revenue bonds to provide financial assistance to private sector entities for the acquisition and construction of eligible industrial and commercial facilities deemed to be in the public interest. The IDA is considered a component unit because the Council appoints the board of directors of the IDA, the Council must approve any amendments to the articles of incorporation of the IDA, and the Council must approve any debt issues of the IDA. The IDA is discretely presented in these combined financial statements because the IDA does not provide services solely to Gilbert. Separate financial statements for the IDA have not been prepared. B. Jointly Governed Organizations Phoenix-Mesa Gateway Airport Authority (PMGAA) is a non-profit corporation established and funded by the Towns of Gilbert and Queen Creek, the Cities of Mesa and Phoenix, and the Gila River Indian Community. The purpose of the entity is the redevelopment of Williams Air Force Base, which was closed in September 1993 and became Phoenix-Mesa Gateway Airport. The airport has three runways, a newly remodeled passenger terminal and is positioned to be a reliever airport to Phoenix’s Sky Harbor International Airport. The Board of Directors consists of the mayors of the respective communities and the governor of the tribal community. Gilbert contributed $350,000 in fiscal year 2016 to the PMGAA operating and capital budget. Regional Public Transportation Authority (RPTA) is a voluntary association of local governments, including Maricopa County, Mesa, Tempe, Scottsdale, Glendale, Phoenix, and Gilbert. Its purpose is to create a regional public transportation plan for Maricopa County. The Board of Directors consists of the mayors of those municipalities and a member of the County Board of Supervisors. C. Government-wide and Fund Financial Statements The government-wide financial statements (Statement of Net Position and Statement of Activities) report on Gilbert and its component units as a whole, excluding fiduciary activities. Governmental activities, which normally are supported by taxes and intergovernmental revenues, are reported separately from business-type activities, which rely to a significant extent on fees and charges for support. The government-wide Statement of Net Position reports all financial and capital resources of the government (excluding fiduciary funds). It is displayed in a format of assets less liabilities 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 is capital assets net of accumulated depreciation and reduced by outstanding balances of any bonds, mortgages, notes or other borrowings that are attributable to the acquisition, construction, or improvement of those assets. Restricted net position has constraints placed on its use by either: 1) externally imposed by creditors (such as through debt covenants), grantors, contributors, or laws 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. 38 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA NOTES TO THE FINANCIAL STATEMENTS June 30, 2016 The government-wide Statement of Activities demonstrates the degree to which the direct expenses of the various functions or departments are offset by program revenues. Direct expenses are those that are clearly identifiable with a specific function or department. Interest and fiscal charges on long-term debt are not allocated to the various functions. Program revenues include charges for services, fines and forfeitures, licenses and permit fees, special assessment fees, certain system development fees, intergovernmental grants and other entities participation. Taxes, investment earnings and other revenues not identifiable with a particular function or department are included as general revenues. The general revenues support the net costs of the functions and departments not covered by program revenues. For the most part, the effect of internal activity has been removed from the government-wide financial statements. Net internal activity and balances between governmental activities and business-type activities are shown in the government-wide financial statements. Certain charges between the enterprise funds’ utility systems and the various functional activities are not eliminated as this would distort the direct costs and program revenues reported for the various functions concerned. Separate financial statements are provided for the governmental funds, proprietary funds and fiduciary funds. The focus of the fund financial statements is on major funds. Major individual governmental funds and proprietary funds are reported as separate columns in the fund financial statements. Other nonmajor governmental funds, as well as the internal service funds, are summarized into a single column on the fund financial statements and are detailed in the combining statements included as supplementary information. As stated above, the fiduciary funds are presented in the fund financial statements and not included in the government-wide statements. By definition these assets are being held for the benefit of a third party and cannot be used to address Gilbert’s activities or obligations. The internal service funds, which provide services to the other funds of the government, are presented in a single combined column in the proprietary fund financial statements. Because the principal users of the internal service funds are the governmental activities, the assets and liabilities of the internal service funds are consolidated into the governmental activities column of the government-wide Statement of Net Position. The costs of the internal service fund services are spread to the appropriate function or department on the government-wide Statement of Activities and the revenues and expenses within the internal service funds are eliminated from the government-wide financial statements to avoid any doubling up effect from these revenues and expenses. D. Measurement Focus and Basis of Accounting The government-wide financial statements are reported using the economic resources measurement focus and the accrual basis of accounting, as are the proprietary fund and fiduciary fund financial statements. Agency fund financial statements have no measurement focus. 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 recognized as revenue 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 grantor or provider have been met. 39 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA NOTES TO THE FINANCIAL STATEMENTS June 30, 2016 The governmental fund financial statements are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Revenues are recognized as soon as they are both measurable and available. Revenues are considered to be available when they are collectible within the current period or soon enough thereafter to pay liabilities of the current period. For this purpose, revenues are considered available if they are collected within 60 days of the end of the current fiscal period. Principal revenue sources considered to be susceptible to accrual are property taxes, sales taxes, franchise taxes, licenses and permits, intergovernmental revenue and investment earnings associated with the current fiscal period. Charges for services, fines and forfeitures, and miscellaneous revenues are recorded as revenue when received as cash because they are generally not measurable until actually received. Expenditures generally are recorded when a liability is incurred, as under accrual accounting. Since the governmental fund financial statements are presented on a different measurement focus and basis of accounting than the government-wide statements’ governmental activities column, a reconciliation is presented on the page following each fund statement. These reconciliations briefly explain the adjustments necessary to transform the fund financial statements into the governmental activities column of the government-wide presentation. The proprietary funds and the pension trust fund are reported using the economic resources measurement focus and the accrual basis of accounting (same basis as the government-wide financial statements). Proprietary funds distinguish operating revenues and expenses from nonoperating items. Operating revenues and expenses generally result from providing services and producing and delivering goods in connection with a proprietary fund’s principal ongoing operations. The principal operating revenue of Gilbert’s internal service funds are charges to user departments for services provided. The principal operating revenue of Gilbert’s enterprise funds are user fees and charges to customers for water, wastewater, and environmental services. Operating expenses for these funds include the cost of sales and services, administrative and payroll expenses, and depreciation. All revenues and expenses not meeting this definition are reported as nonoperating revenues and expenses. E. Fund Accounting Gilbert uses funds to report its financial position and the results of its operations. Fund accounting segregates funds according to their intended purpose and is designed to demonstrate legal compliance and to aid financial management by segregating transactions related to certain governmental functions or activities. A fund is a separate accounting entity with a self-balancing set of accounts, which includes assets, liabilities, fund equity, revenues and expenditures/expenses. Gilbert uses the following fund categories, further divided by fund type: Governmental Funds Governmental funds are those through which most of the governmental functions are financed. The measurement focus is based upon determination of changes in financial position rather than upon net income determination. Gilbert reports the following major governmental funds: General Fund - The general fund is the primary operating fund and 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. 40 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA NOTES TO THE FINANCIAL STATEMENTS June 30, 2016 Streets Special Revenue Fund – The streets fund accounts for Gilbert’s portion of the Arizona Highway User Revenue Tax, Local Transportation Assistance Funds, and Vehicle License Taxes. The revenue is used exclusively for the maintenance and improvement of highways and streets. General Debt Service Fund – The general debt service fund accounts for the principal and interest requirements of general obligation, highway user revenue and municipal property corporation revenue bonds not recorded in proprietary funds. Financing is provided from the levy of secondary property taxes and revenue-supported transfers. Special Assessments Debt Service Fund – The special assessments fund accounts for the principal and interest requirements of special assessment bonds not recorded in proprietary funds. Financing is provided by special assessment levies against benefited property owners. GO Bonds Capital Projects Fund – The GO bonds fund accounts for the receipt of proceeds from general obligation bonds and the expenditure of those proceeds to purchase or construct capital assets. System Development Fees Capital Projects Fund – The system development fees fund accounts for the receipt of fees collected from building permits paid and the expenditure of those funds for infrastructure related to growth in Gilbert. Saint Xavier University (SXU) Revenue Obligations Capital Projects Fund – The SXU revenue obligations fund accounts for the receipt of revenue obligations proceeds and the expenditure of those proceeds to design and construct a building that is currently leased by Saint Xavier University. Proprietary Funds Proprietary funds are used to account for Gilbert's ongoing activities which are similar to those found in the private sector and where cost recovery and the determination of net income is useful or necessary for sound fiscal management. The measurement focus is based upon determination of net income, changes in net position, financial position and cash flows. Gilbert reports the following major proprietary funds: Water Fund – The water fund accounts for the revenues and expenses from the operation and maintenance of the domestic water system. Wastewater Fund – The wastewater fund accounts for the revenues and expenses from the operation of the sanitary wastewater collection and treatment and reclaimed water distribution system. Environmental Services Fund – The environmental services fund accounts for the revenues and expenses of operating the solid waste collection system. Additionally, Gilbert reports the following fund types: Internal Service Funds – The internal service funds account for operations that provide services to other departments on a cost-reimbursement basis. These services include maintenance of Gilbert’s motorized equipment and self-insurance for employee benefit programs. Pension Trust Fund - The pension trust fund accounts for assets held by the government in a trustee capacity. The fund includes the assets and pension payments to retired volunteer firefighters and survivors. 41 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA NOTES TO THE FINANCIAL STATEMENTS June 30, 2016 Agency Funds – The agency funds are used to account for assets held by the government as an agent for individuals, private organizations, other governments and/or other funds. Gilbert currently maintains an agency fund to account for monies collected from employees to pay medical and dependent care claims, monies collected from sworn fire employees for providing a monthly stipend for retirees to apply to the cost of their medical and/or dental insurance, medical and dental co-pays, and prescriptions and other benefits, and monies collected from developers for sewer buy-ins and paid out to the developer that constructed the sewer. F. Budgetary Data In January of each year, the Office of Management & Budget (OMB) prepares a revenue estimate based upon local and state-shared revenue forecasts, historic trends, economic indicators, anticipated growth, and year-todate revenue performance to develop guidelines for departments to follow in preparing budget requests. The Council is briefed on this information and asked to approve boundaries and priorities for consideration in the preparation of departmental requests. Simultaneously, departments develop operating budget requests and submit them to the OMB. Departments work with the Capital Improvement Program (CIP) Division to finalize project estimates for the CIP, and submit them to the OMB for funding. Estimates for trust and agency, debt service, maintenance improvement districts, and internal service funds are prepared by the OMB and submitted for review. In March, the Council is presented with a working budget request for preliminary review and discussion, and approves a schedule of hearings and dates for approval of the budget. A public hearing is held in May, in anticipation of the adoption of the final budget. Prior to June 30 of each year, the Council adopts a preliminary budget as the maximum legal expenditure limit for the upcoming year. Council establishes dates for the final public hearing, the final adoption of the budget, and the setting of tax levies. The Council adopts the final tax levy and reports the levy amounts to Maricopa County for collection not later than the third Monday in August. The Council sets policy and adopts the annual budget at the fund level as a total amount of expenditures. Financial control is set by Council at the fund level, with budgetary control for operating performance administered at the departmental level. Budget adjustments for special revenue funds, excluding Highway User Revenue Funds, will be administered by the OMB and will not exceed the available revenues. Grants and restricted appropriations are administered by departments. Directors may authorize transfers within nonpersonnel budget lines at the same fund, department, and project level. Council action is required to approve adjustments between funds, projects, or contingency transactions over $50,000. All annual appropriations lapse at year-end and are considered for inclusion in the subsequent year’s budget on a case-by-case basis. Gilbert prepares its budget on a basis generally consistent with GAAP, with certain exceptions as explained in Note 2. In addition, the financial statements present the budget and actual information for the departments at a summary level by function. 42 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA NOTES TO THE FINANCIAL STATEMENTS June 30, 2016 G. Pooled Cash and Investments Gilbert maintains pooled cash and investment accounts for funds that are not legally required to be maintained separately. Each fund's equity in pooled cash and investments represents that fund's position in the consolidated accounts and determines that fund's allocation of interest earned in the pool. The Arizona Revised Statutes require a pooled collateral program for public deposits and regulate the investment of surplus cash. Gilbert limits its investments to the Local Government Investment Pool (managed by the Arizona State Treasurer), U.S. government securities, certificates of deposit, bonds, repurchase agreements, corporate notes, commercial paper, and money market accounts. Investments are stated at fair value based on quoted market prices and cash equivalents are stated at amortized cost. H. Inventories and Prepaid Items Inventories are recorded in the equipment maintenance internal service fund and the water enterprise fund. Inventories are recorded as assets when purchased and expensed when consumed. These inventories are stated at cost using the weighted average method. Certain payments to vendors reflect costs applicable to future accounting periods and are recorded as prepaid items in both government-wide and fund financial statements. I. Restricted Assets Certain bond proceeds, 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. J. Capital Assets Capital assets, including public domain infrastructure (e.g., roads, bridges, sidewalks and similar assets), are defined as assets with an initial, individual cost of more than $10,000 and an estimated useful life greater than one year. All infrastructure, including infrastructure acquired prior to June 30, 1980, is reported. Capital assets are recorded at cost or estimated historical cost if purchased or constructed. Donated capital assets (including streets, water and wastewater lines installed by developers) are recorded at acquisition value. Gain or loss is recognized when assets are retired from service or otherwise disposed. The cost of normal maintenance and repairs that do not add to the value of the asset or materially extend its life are not capitalized. Major improvements are capitalized and depreciated over the remaining useful lives of the related capital assets. 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. 43 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA NOTES TO THE FINANCIAL STATEMENTS June 30, 2016 Capital assets are depreciated using the straight-line method based on the following estimated useful lives (land and construction-in-progress are not depreciated): Buildings Improvements Machinery and equipment Infrastructure Water rights 25 to 50 years 25 to 50 years 3 to 10 years 15 to 50 years 100 years K. Compensated Absences Annual leave is based on a graduated scale of years of employment and is credited to each employee as it accrues. Annual leave hours vary according to years of employment and job class, and is either taken as time off from work or paid to employees upon separation or retirement. Sick leave accumulated in excess of 520 hours (728 hours for fire personnel) is convertible annually to a partial cash benefit. Sick leave is convertible to a cash benefit upon retirement or death of the employee (at 100%) or upon resignation (at 50%) when the employee has ten or more years of service (calculated at a 5 year average hourly rate). For the governmental funds, a liability for compensated absences is reported only if they have matured, for example, as a result of employee resignations and retirements. For the government-wide financial statements, as well as the proprietary fund financial statements, all of the outstanding compensated absences are recorded as a liability. L. Long-Term Obligations In the government-wide financial statements, and proprietary fund types in the fund financial statements, longterm debt and other long-term obligations are reported as liabilities in the applicable governmental activities, business-type activities, or proprietary fund type statement of net position. Bond premiums and discounts are deferred and amortized over the life of the bonds using the effective interest method. Bonds payable are reported net of the applicable bond premium or discount. In the fund financial statements, governmental fund types recognize bond premiums and discounts, as well as bond issuance costs, during the current period. The face amount of debt issued is reported as an other financing source. Premiums received on debt issuances 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. The debt service funds are specifically established to account for and service the long-term obligations for the governmental funds and special assessment debt. Each enterprise fund individually accounts for and services the applicable bonds that benefit these funds. Long-term obligations are recognized as a liability of a governmental fund when due, or when resources have been accumulated for payment early in the following year. For other long-term obligations, only that portion expected to be financed from expendable available financial resources is reported as a fund liability of a governmental fund. 44 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA NOTES TO THE FINANCIAL STATEMENTS June 30, 2016 M. Transactions Between Funds Transactions that would be recorded as revenues and expenditures/expenses if they involved entities external to the governmental unit are recorded as revenues and expenditures/expenses in the respective funds. Transactions constituting a reimbursement of a fund for expenditures/expenses originally recorded in that fund, but properly applicable to another fund, are recorded as expenditures/expenses in the reimbursing fund, and as reductions of the expenditures/expenses in the fund which is reimbursed, excluding indirect administrative costs which are recorded as revenues and expenditures/expenses in the related funds. Indirect administrative expenses represent overhead costs which have been allocated to the enterprise funds based upon a formula approved with the budget. All other interfund transactions are reported as transfers. Activity between funds that are representative of lending/borrowing arrangements outstanding at the end of the fiscal year are referred to as either “due to/from other funds” (i.e., the current portion of interfund loans) or “advances to/from other funds” (i.e., the non-current portion of interfund loans). Any residual balances outstanding between the governmental activities and business-type activities are reported in the governmentwide financial statements as “internal balances”. Advances between funds, as reported in the fund financial statements, are offset by a fund balance reserve account in the applicable governmental funds to indicate that they are not available for appropriation and are not expendable available financial resources. See Note 5 for further discussion of the interfund receivables/payables at June 30. N. Property Tax Gilbert's property tax levy is adopted by the Council each year on or before the third Monday of August, based on the previous year's limited property value as of the lien date (January 1). Maricopa County, at no charge, levies and collects all property taxes. Levies are due and payable in two installments on September 1 and March 1 and become delinquent on November 1 and May 1, respectively. Public auctions of properties that have delinquent real estate taxes are held in February following the May 1 delinquency of the second installment. The purchaser is given a certificate of purchase, issued by the County Treasurer. Five years from the date of sale, the holder of a certificate of purchase, which has not been redeemed, may demand of the County Treasurer, a County Treasurer's Deed. Gilbert does not levy property taxes for general operations (primary tax). Secondary property taxes are levied solely for the purpose of retiring the principal, interest, and servicing fees on voter approved general obligation bonded indebtedness. Gilbert may levy the amount deemed necessary to meet its bonded debt service requirements. State law requires municipalities to adopt a property tax levy based on the exact amount of scheduled debt service for the year plus a reasonable amount for delinquencies and certain costs. For fiscal year 2016, Gilbert’s property tax rate is $1.06 per $100 of secondary assessed valuation. 45 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA NOTES TO THE FINANCIAL STATEMENTS June 30, 2016 O. Deferred outflows/inflows of resources On the government-wide and proprietary funds Statement of Net Position, deferred outflows of resources are reported and represent a consumption of net position that applies to a future period and so will not be recognized as an outflow of resources (expense/expenditure) until then. Gilbert has two items that qualify for reporting in this category. A deferred charge on refunding results from the difference in the carrying value of refunded debt and its reacquisition price. This amount is deferred and amortized over the shorter of the life of the refunded or refunding debt. A deferred charge on pension-related items results from the difference between expected and actual experience and also changes in proportion and differences between Gilbert contributions and proportionate share of contributions. These amounts are deferred and amortized over a closed period equal to the average of the expected remaining service lives of active and inactive members. On the governmental funds Balance Sheet, deferred inflows of resources are reported and represent an acquisition of net position that applies to a future period and so will not be recognized as an inflow of resources (revenue) until that time. Gilbert only has one item, which arises only under a modified accrual basis of accounting, which qualifies for reporting in this category. The governmental funds report unavailable revenues from several sources: special assessments, court fines, sales tax and other. These amounts are deferred and recognized as an inflow of resources in the period that the amount becomes available. On the government-wide and proprietary funds Statement of Net Position, deferred inflows of resources are reported on pension-related items for the net difference between projected and actual investment earnings on pension plan investments. These amounts are amortized into pension expense over a closed five-year period. P. Pensions For purposes of measuring the net pension liability, deferred outflows of resources and deferred inflows of resources related to pensions, and 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 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. Q. Fund Balance Classifications Fund balance classifications comprise a hierarchy based primarily on the extent to which Gilbert is bound to observe constraints imposed upon the use of the resources reported in the governmental funds. Nonspendable and Restricted fund balances represent the restricted classifications and Committed, Assigned and Unassigned represent the unrestricted classifications. Nonspendable fund balance includes amounts that cannot be spent because they are either (a) not in spendable form such as inventory or (b) legally or contractually required to be maintained intact. Restricted fund balance includes amounts that can only be used for specific purposes pursuant to constraints imposed externally by creditors, grantors, contributors, or laws or regulations of other governments; or imposed by law through constitutional provisions or enabling legislation. Committed fund balance includes amounts that can only be used for specific purposes pursuant to constraints imposed internally by formal action of the Council. Formal action by Council through resolution is required to establish, modify or rescind committed fund balance. Assigned fund balance includes amounts that are limited to specific purposes by management. Per the Policies of Responsible Financial Management, Council has authorized the Finance & Management Services Director to assign fund balance amounts to a specific purpose. Unassigned fund balance represents the residual net resources in excess of the other classifications. The general fund is the only fund that can report a positive unassigned fund balance and any other governmental fund can report a negative unassigned fund balance. 46 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA NOTES TO THE FINANCIAL STATEMENTS June 30, 2016 When an expenditure is incurred for purposes for which both restricted and unrestricted fund balance is available, as a general rule, restricted resources are considered spent before unrestricted. Within unrestricted, committed amounts would be reduced first, followed by assigned amounts (if available) and then unassigned amounts. As of June 30, 2016, the fund balance details by classification are listed below: Streets Fund balances: General Special Fund Revenue Major Major Debt Service Funds Capital Projects Funds SXU System Other Rev Oblig Dev Fees Gov’t Special General Assmnts GO Bonds Total Nonspendable: Advances $19,857,772 Inventory $ - $ - $ - $ - $ - $ - $ - $ 19,857,772 - - - - - - - 4,138 4,138 8,177 - - - - - - - 8,177 Capital projects - - - - 7,067,104 5,504,200 35,652,589 15,437,644 63,661,537 Court/public safety programs - - - - - - - 2,023,370 2,023,370 Debt service - - 6,952,183 74,320 - - - - 7,026,503 Federal/state/local grants - - - - - - - 1,113,376 1,113,376 Highways and streets - 12,817,040 - - - - - - 12,817,040 Contract agreements - - - - - - - 144,462 144,462 Parks & recreation programs - - - - - - - 18,007 18,007 Special districts - - - - - - - 200,947 200,947 11,814,890 5,012,972 - - - - - - 16,827,862 1,430,248 - - - 5,636,715 - - 19,653,192 26,720,155 - - 8,034,400 - - - - - 8,034,400 116,343 - - - - - - - 116,343 65,271 - - - - - - - 65,271 169,866 - - - - - - - 169,866 Parks & recreation programs 29,538 - - - - - - - 29,538 Police programs 55,274 - - - - - - - 55,274 85,498,158 - - - - - (19,857,772) (39,418) 65,600,968 $119,045,537 $17,830,012 $14,986,583 $ 74,320 $12,703,819 $ 5,504,200 $ 15,794,817 $38,555,718 $224,495,006 Prepaid items Restricted for: Assigned to: Capital replacement Capital projects Debt service Development services Fire programs Management and policy Unassigned: Total fund balances R. Statement of Cash Flows A statement of cash flows classifies cash receipts and payments according to whether they stem from operating, noncapital financing, capital and related financing, or investing activities. For purposes of the statement of cash flows, all highly liquid investments (including restricted assets) with an original maturity of three months or less when purchased are considered cash equivalents. 47 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA NOTES TO THE FINANCIAL STATEMENTS June 30, 2016 S. Use of Estimates The preparation of financial statements in conformity with GAAP requires management to make a number of estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the statement of net position/balance sheet and the reported amounts of revenues and expenditures/expenses during the reporting period. Actual results could differ from those estimates. Note 2 - Budgetary Basis of Accounting Budgetary comparison statements for the general fund and major special revenue funds are presented in the basic financial statements. These statements display original budget, amended budget and actual results. Budgetary comparison schedules are also included as supplementary schedules for the other governmental funds. The budgets for the proprietary funds are adopted on a basis other than GAAP. For these funds, the budgetary schedules include a reconciliation of the adjustments required to convert budgetary revenues and expenses to GAAP revenues and expenses. The primary differences between the GAAP and budget basis statements for the proprietary funds are: 1. Obligations for compensated absences, post-employment benefits, net pension liability and rebatable arbitrage are accrued on the GAAP basis but are not recognized on the budget basis. 2. Capital outlays are not recognized as GAAP expenses but are recognized as expenses on the budget basis. 3. Debt service principal payments are not recorded as expenses on the GAAP basis but are recognized as expenses on the budget basis. 4. Depreciation is expensed on the GAAP basis but is not recognized on the budget basis. 5. Capital assets contributed by developers are recognized as revenue on the GAAP basis but are not recognized on the budget basis. Note 3 - Deposits and Investments The Arizona Revised Statutes require a pooled collateral program for public deposits and a Statewide Collateral Pool Administrator (Administrator) in the State Treasurer’s Office. The purpose of the pooled collateral program is to ensure that governmental entities’ public deposits placed in participating depositories are secured with collateral of 102% of the public deposits, less any applicable deposit insurance. An eligible depository may not retain or accept any public deposit unless it has deposited the required collateral with a qualified escrow agent or the Administrator. The Administrator manages the pooled collateral program, including reporting on each depository’s compliance with the program. The investment of public monies is also regulated by the Arizona Revised Statutes Title 35. Gilbert limits its investments to the Local Government Investment Pools 7 and 700 (that only invest in U.S. government securities and managed by the Arizona State Treasurer), U.S. government securities, certificates of deposit, bonds, commercial paper, corporate notes and money market accounts. The State Board of Investment provides oversight for the State Treasurer’s pools. The fair value of a participant’s position in the pool approximates the value of that participant’s pool shares, and the participant’s shares are not identified with specific investments. Participants in the pool are not required to categorize the value of shares in accordance with the fair value hierarchy. 48 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA NOTES TO THE FINANCIAL STATEMENTS June 30, 2016 Gilbert categorizes its fair value measurements within the fair value hierarchy established by generally accepted accounting principles. The hierarchy is based on the valuation inputs used to measure the fair value of the asset. Investments categorized as Level 1 are valued using prices quoted in active markets for those investments. Investments categorized as Level 2 are valued using other significant observable inputs. Gilbert’s investments at June 30, 2016, categorized within the fair value hierarchy established by generally accepted accounting principles, were as follows: Investment Type U.S. Government Treasuries U.S. Government Agencies Municipal Bonds Corporate Notes Commercial Paper Money Market – U.S. Treasuries Total Investments by Fair Value Level Amount $137,754,570 151,301,513 1,625,000 41,605,073 4,994,665 68,380,851 405,661,672 External Investment Pools Measured at Fair Value State Treasurer’s Investment Pool Total Investments Measured at Fair Value 70,650,354 $476,312,026 Fair Value Measurement Using Level 1 Level 2 $137,754,570 151,301,513 1,625,000 41,605,073 4,994,665 68,380,851 $137,754,570 $267,907,102 Interest rate risk – Interest rate risk is the risk that changes in market interest rates will adversely affect the fair value of an investment. Generally, the longer the maturity of an investment, the greater the sensitivity of its fair value to changes in market interest rates. As a means of limiting its exposure to fair value losses arising from rising interest rates, Gilbert’s investment policy limits its investment portfolio to maturities of five years or less. At June 30, 2016, Gilbert’s investment maturities were as follows: Investment Type U.S. Government Treasuries U.S. Government Agencies Municipal Bonds Corporate Notes Commercial Paper State Treasurer’s Investment Pool Money Market – U.S. Treasuries Total Fair Value $137,754,570 151,301,513 1,625,000 41,605,073 4,994,665 70,650,354 68,380,851 $476,312,026 Investment Maturities (in Years) Less than 1 1-3 $ 3,937,674 $133,816,896 13,334,888 137,966,625 1,625,000 12,133,854 29,471,219 4,994,665 31,139,260 39,511,094 68,380,851 $135,546,192 $340,765,834 Credit risk – Generally, credit risk is the risk that an issuer of an investment will not fulfill its obligation to the holder of the investment. Gilbert addresses credit risk through its investment policy by restricting the allowable investment instruments. As of June 30, 2016, the investments in the U.S. Government Agencies were rated AA+, the investments in Municipal Bonds were rated AAA, and the investments in Corporate Notes ranged from A- ratings to AA+ ratings. Gilbert’s investment in the State Treasurer’s Investment Pool did not receive a credit quality rating from a national rating agency. 49 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA NOTES TO THE FINANCIAL STATEMENTS June 30, 2016 Custodial credit risk - deposits – Custodial credit risk is the risk that in the event of a bank failure, the Town’s deposits may not be returned to it. As of June 30, 2016, Gilbert’s bank balance was $61,426,262 of which $10,983,293 was with JP Morgan and $50,442,969 was with Alliance Bank of Arizona. $10,733,293 of JP Morgan’s bank balance was exposed to custodial credit risk because it was uninsured but collateralized with securities held by the pledging financial institution’s trustee. These securities are not in Gilbert’s name, but cannot be released without Gilbert’s authorization. At the end of each day, a portion of Gilbert’s bank balance is transferred to a sweep investment account. All of the Alliance Bank of Arizona bank balance was FDIC-insured because deposits are placed into multiple banks in increments of less than $250,000. Custodial credit risk - investments – The custodial credit risk for investments is the risk that, in the event of the failures of the counterparty (e.g. broker-dealer) to a transaction, Gilbert will not be able to recover the value of its investment or collateral securities that are in the possession of another party. Gilbert’s investment policy limits its exposure to custodial credit risk by requiring that all security transactions entered into by Gilbert be conducted on a delivery-versus-payment basis. Securities are to be held by a third party custodian. Gilbert’s investment in the State Treasurer’s Investment Pool represents a proportionate interest in the Pool’s portfolio; however, Gilbert’s portion is not identified with specific investments and is not subject to custodial credit risk. Concentration of credit risk - Gilbert’s investment policy limits corporate notes to 20% of total funds and 3% per issuer. As of June 30, 2016, of Gilbert’s investments, 32% were in U.S. Government Agencies, 29% were in U.S. Government Treasuries and 15% were in the State Treasurer’s Investment Pool. Reconciliation of pooled cash and investments as reported on the statement of net position: Primary government: Carrying amount of cash/deposits Carrying amount of investments Total cash and investments $ 58,863,635 476,312,026 $535,175,661 Pooled cash and investments Restricted cash and investments Total cash and investments (per Statement of Net Position) Agency funds Total cash and investments $427,711,345 107,363,051 535,074,396 101,265 $535,175,661 Note 4 - Taxes Receivable and Due from Other Governments The general fund taxes receivable amount at June 30, 2016, includes $1,850,318 in state shared sales tax and $2,708,955 in local sales tax due from the State of Arizona. Amounts due from other governments recorded in the streets special revenue fund include $1,361,865 in highway user revenues and $469,881 in vehicle license tax both due from the State of Arizona. Other governmental funds include federal grant receivables of $183,210 from the U.S. Department of Housing and Urban Development, $67,085 from the U.S. Department of Transportation, and $42,343 from the U.S. Department of Homeland Security. Additionally, other governmental funds include state grant funds of $74,340 from the State of Arizona Department of Forestry and Fire Management, and Racketeer Influenced Corrupt Organizations (RICO) funds of $754,281 from Maricopa County Attorney’s Office. The water fund includes $99,644 and $1,093,070 in amounts due from the City of Chandler for the joint operation of the SanTan Vista Water Treatment Plant and expansion expenses, respectively. The balance of these receivables represents various grants from the state and federal governments. 50 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA NOTES TO THE FINANCIAL STATEMENTS June 30, 2016 Note 5 – Interfund Receivables and Payables The composition of interfund balances as of June 30, 2016, is as follows: Due to/from other funds are short-term loans that cover cash deficits and are recorded in the following funds (cash deficits are temporary, until reimbursements are received): Due To $ 251,219 162,958 1,200,000 $1,614,177 General fund SXU revenue obligations Other governmental funds Employee benefit self-insurance Total Due From $1,614,177 $1,614,177 Advances from/to other funds are long-term loans that cover cash deficits for capital expenditures and are recorded in the following funds: General fund System development fees capital projects fund Total Advances from $ 19,857,772 $19,857,772 Advances to $19,857,772 $19,857,772 Note 6 – Capital Assets A summary of changes in capital assets for governmental activities, for the fiscal year ended June 30, 2016, is as follows: July 1, 2015 Non-depreciable assets: Land Construction-in-progress $ Additions Deletions June 30, 2016 181,644,373 $ 57,193,525 136,621 $ 28,280,280 - $ (42,122,112) 181,780,994 43,351,693 Total non-depreciable assets 238,837,898 28,416,901 (42,122,112) 225,132,687 Depreciable assets: Buildings Improvements other than buildings Machinery and equipment Infrastructure 225,309,006 72,040,374 57,649,699 1,009,119,132 32,645,657 124,431 4,107,781 51,073,695 (413,063) (487,243) (1,524,890) - 257,541,600 71,677,562 60,232,590 1,060,192,827 Total depreciable assets Less accumulated depreciation: Buildings Improvements other than buildings Machinery and equipment Infrastructure 1,364,118,211 87,951,564 (2,425,196) 1,449,644,579 (85,324,518) (39,728,583) (45,121,994) (461,405,572) (8,960,169) (3,592,906) (3,216,552) (34,622,083) 286,565 487,243 1,524,890 - (93,998,122) (42,834,246) (46,813,656) (496,027,655) Total accumulated depreciation (631,580,667) (50,391,710) 2,298,698 (679,673,679) 732,537,544 37,559,854 (126,498) 769,970,900 971,375,442 $ 65,976,755 $ (42,248,610) $ 995,103,587 Total depreciable assets, net Governmental activities capital assets, net $ 51 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA NOTES TO THE FINANCIAL STATEMENTS June 30, 2016 Depreciation expense was charged to governmental functions in the government-wide financial statement as follows: Management and policy Finance and management services Legal and court Development services Police Fire Highways and streets Parks and recreation Total depreciation expense not including internal service funds Capital assets held by the government’s internal service funds are charged to the various functions based on their usage of the assets $ 664,868 295,654 496,122 889,079 2,696,399 3,024,718 35,576,466 6,744,794 50,388,100 3,610 Total depreciation expense - governmental activities $50,391,710 A summary of changes in capital assets for business-type activities, for the fiscal year ended June 30, 2016, is as follows: July 1, 2015 Non-depreciable assets: Land Construction-in-progress $ Total non-depreciable assets Depreciable assets: Plant and equipment Water rights Infrastructure Additions Deletions June 30, 2016 64,675,175 $ 6,504,633 2,821,452 $ 19,438,789 (115,693) $ (8,701,025) 67,380,934 17,242,397 71,179,808 22,260,241 (8,816,718) 84,623,331 134,182,356 9,146,281 449,449,932 5,816,213 23,765,714 (1,271,621) - 138,726,948 9,146,281 473,215,646 Total depreciable assets Less accumulated depreciation: Plant and equipment Water rights Infrastructure 592,778,569 29,581,927 (1,271,621) 621,088,875 (61,722,852) (1,888,995) (138,823,002) (5,544,914) (98,292) (10,938,463) 1,271,621 - (65,996,145) (1,987,287) (149,761,465) Total accumulated depreciation Total depreciable assets, net (202,434,849) 390,343,720 (16,581,669) 13,000,258 1,271,621 - (217,744,897) 403,343,978 Business-type activities capital assets, net $ 461,523,528 $ 52 35,260,499 $ (8,816,718) $ 487,967,309 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA NOTES TO THE FINANCIAL STATEMENTS June 30, 2016 Note 7 – Construction-in-Progress and Commitments Governmental activities construction-in-progress and related construction commitments at June 30, 2016, were as follows: Constructionin-Progress Commitments Redevelopment Municipal facilities Parks Storm water Traffic control Streets capital projects Total $ $ 238,033 9,405,014 5,534,285 43,422 3,139,354 24,991,585 43,351,693 $ 42,946 491,211 308,422 387,438 5,952,227 7,182,244 $ Business-type activities construction-in-progress and related construction commitments at June 30, 2016, were as follows: Water system Wastewater system Municipal facilities Storm water Total $ $ 12,579,890 4,639,037 23,470 17,242,397 $ $ 5,227,060 3,667,060 138,757 9,032,877 In addition, there were non-construction related commitments at June 30, 2016, as follows: Governmental funds: General Streets special revenue Other governmental Total $ $ Proprietary funds: Water system Wastewater system Environmental services Internal service Total $ $ 53 495,430 7,229 184,092 686,751 959,432 139,159 582,594 1,498,799 3,179,984 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA NOTES TO THE FINANCIAL STATEMENTS June 30, 2016 Note 8 - Risk Management Traditional Commercial Insurance Programs Gilbert operates with traditional commercial insurance programs against major losses in property, plant, equipment, and liability. Administrative responsibility for the safety program, education, and loss prevention resides with the Office of Human Resources. Insurance is procured on a competitive quotation basis, using the services of an independent broker as a consultant. Gilbert processes all claims and evaluates their validity to determine if insurance reporting is warranted, or if the claim can be resolved administratively. Claims settled administratively, which are generally less than the deductibles of the appropriate policy, are paid from the funds where the claims occurred. During fiscal year 2016, there was no reduction in insurance coverage from prior years. Additionally, settlements have not exceeded insurance coverage during any of the last three fiscal years. Self-Insurance Gilbert has established an employee benefit self-insurance trust to account for and finance its uninsured risks of loss for medical claims. Gilbert purchases commercial stop loss insurance to limit the claims liability to the employee benefit self-insurance fund. The stop loss insurance provides reimbursement to the Plan for medical claims incurred by an individual member in excess of $250,000 after an additional $125,000 aggregate Plan risk retention. Premiums are paid into the employee benefit self-insurance trust by all other funds and are available to pay claims and administrative costs of the program and fund claim reserves. As with any risk retention program, Gilbert is contingently liable with respect to claims beyond those actuarially projected. The claims liability of $1,706,260 reported in the employee benefit self-insurance trust at June 30, 2016, is based on the requirements of Governmental Accounting Standards Board Statement No. 10, which requires that a liability be reported when it is probable that a loss has occurred and the amount of the loss can be reasonably estimated. Liabilities include an amount for claims that have been incurred but not reported (IBNR). The employee benefit self-insurance trust includes medical and dental benefits. For fiscal year 2016, increases of $306,540 and $1,549 were recorded for IBNR claims under the medical and dental plans, respectively. Claim liabilities are calculated considering the effects of inflation, recent claim settlement trends including frequency and amount of payouts and other economic and social factors. Fiscal year 2016 reflected an increase in claims costs of $3,811,213 from fiscal year 2015. This was due to an increase of $3,736,717 in medical claims and $74,496 in dental claims. Changes in the fund’s claim liability amount in fiscal years 2015 and 2016 were: Year Ended, June 30 2015 2016 Claim Liability at Beginning of Fiscal Year Fiscal Year Claims and Changes in Estimates Fiscal Year Claim Payments Claim Liability at End of Fiscal Year $ 1,266,492 $ 1,398,171 15,605,420 19,416,633 (15,473,741) (19,108,544) $1,398,171 $1,706,260 Note 9 - Long-Term Debt General Obligation Bonds Gilbert issues general obligation bonds to provide funds for the acquisition and construction of major capital facilities. General obligation bonds have been issued for both governmental and business-type activities. Currently, there are no outstanding general obligation bonds for business-type activities. General obligation bonds are direct obligations and pledge the full faith and credit of Gilbert. 54 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA NOTES TO THE FINANCIAL STATEMENTS June 30, 2016 General obligation bonds outstanding at June 30, 2016, were as follows: Governmental 2008 General Obligation Bonds, 3.0% to 5.0%, original amount $187,990,000, annual retirements due July 1, 2009, through July 1, 2023 105,250,000 Annual debt service requirements to maturity for general obligation bonds are as follows: Year Ending June 30 Governmental Activities Principal Interest 2017 2018 2019 2020 2021 2022-2023 Total $ 13,200,000 14,000,000 14,250,000 14,800,000 15,500,000 33,500,000 $105,250,000 $ 4,476,250 3,816,250 3,116,250 2,403,750 1,663,750 1,515,000 $16,991,250 Under the provisions of the Arizona Constitution, outstanding water, wastewater, electric, parks and open space, streets, and Gilbert's net limited property valuation, nor may outstanding purposes exceed 6% of Gilbert's net limited property valuation. capacity at June 30, 2016: general obligation bonded debt for combined public safety purposes may not exceed 20% of general obligation bonded debt for all other The following is a summary of legal borrowing Water, Wastewater, Electric, Streets, Fire, Police, and Parks and Open Space Purposes Bonds All Other General Obligation Bonds Limited Property Valuation $1,845,325,449 Limited Property Valuation $1,845,325,449 20% constitutional limit Less general obligation bonds outstanding Available 20% limitation borrowing capacity $ 369,065,090 6% constitutional limit Less general obligation bonds outstanding Available 6% limitation borrowing capacity $ 110,719,527 (105,250,000) $ 263,815,090 $ 110,719,527 As of June 30, 2016, Gilbert had authorized, but unissued bonds, approved by the voters as follows: General obligation bonds 6% bond type 20% bond type $ 290,000 82,769,000 Total $83,059,000 Bond authorization elections on October 18, 1988, November 6, 2001, and November 6, 2007, authorized the 6% bond type and the 20% bond type to be issued as general obligation or revenue debt. 55 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA NOTES TO THE FINANCIAL STATEMENTS June 30, 2016 Special Assessment Bonds with Governmental Commitment As trustee for the improvement districts, Gilbert is responsible for collection of assessments levied against the owners of property within the improvement districts and for disbursement of these amounts for retirement of the respective bonds issued to finance the improvements. At June 30, 2016, the special assessments receivable, together with amounts paid in advance and interest to be received over the life of the assessment period, were adequate for the scheduled maturities of the bonds payable and the related interest. Special assessment bonds are collateralized by properties within the districts. In the event of default by the owner, Gilbert may enforce an auction sale to satisfy the debt service requirements of the improvement bonds. Gilbert is contingently liable on special assessment bonds to the extent that proceeds from auction sales are insufficient to retire outstanding bonds. Special assessment bonds outstanding at June 30, 2016, were as follows: Governmental 2002 Improvement District #19 Bonds, 5.2%, original amount $6,510,000, annual retirements due January 1, 2005 through January 1, 2027 2009 Improvement District #20 Bonds, 5.1%, original amount $8,675,000, annual retirements due January 1, 2012 through January 1, 2029 Total $ 160,000 6,320,000 $ 6,480,000 Annual debt service requirements to maturity for special assessment bonds are as follows: Year Ending June 30 2017 2018 2019 2020 2021 2022-2026 2027-2029 Total Governmental Activities Principal Interest $ 375,000 395,000 395,000 420,000 445,000 2,595,000 1,855,000 $ 6,480,000 $ 321,073 301,428 281,273 260,478 238,405 817,962 143,191 $2,363,810 Street and Highway User Revenue Bonds Street and highway user revenue bonds are issued specifically for the purpose of street and highway construction projects. These bonds are payable solely from the revenues derived from highway user taxes, including motor vehicle fuel taxes and all other taxes; fees and charges relating to registration, operation or use of vehicles on public highways or streets; or to fuels or any other energy source used for the vehicles collected by the State and returned to Gilbert. Street and highway user revenue bonds outstanding at June 30, 2016, were as follows: Governmental 2012 Street and Highway User Revenue Refunding Bonds, 3.00% to 5.00% original amount $16,945,000, annual retirements due July 1, 2014, through July 1, 2019 56 $ 9,320,000 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA NOTES TO THE FINANCIAL STATEMENTS June 30, 2016 Annual debt service requirements to maturity for street and highway user revenue bonds are as follows: Year Ending June 30 2017 2018 2019 Total Governmental Activities Principal Interest $ 2,975,000 3,095,000 3,250,000 $ 9,320,000 $ 436,250 317,250 162,500 $ 916,000 Municipal Property Corporation (MPC) Revenue Bonds The Public Facilities MPC exists solely for the purpose of financing the service center facility, a police property facility and a sports complex (the 2006 issue), the cost of acquisition of certain interests in real property to locate public safety and parks and recreation facilities and the costs of design, construction and outfitting of parks and recreation facilities and a parking facility (the 2009 issue); and the refunding of certain maturities of outstanding bonds (the 2011 and 2014 issues). The Water MPC exists solely for the purpose of financing the construction of water and wastewater capital improvement projects. (See also Note 18 regarding Pledged Revenues.) Municipal property corporation revenue bonds outstanding at June 30, 2016, were as follows: Governmental Business-type 2006 Public Facilities Municipal Property Corporation Revenue Bonds, 3.5% to 5.0%, original amount $73,420,000, retirements due July 1, 2007, through July 1, 2016 $ 5,205,000 2009 Public Facilities Municipal Property Corporation Revenue Bonds, 4.0% to 5.5%, original amount $80,585,000, retirements due July 1, 2009 through July 1, 2028 64,395,000 - 2011 Public Facilities Municipal Property Corporation Revenue Refunding Bonds, 3.0% to 4.75%, original amount $20,980,000, retirements due July 1, 2013 through July 1, 2021 14,895,000 - 2014 Public Facilities Municipal Property Corporation Revenue Refunding Bonds, 2.0% to 5.00%, original amount $28,080,000, retirements due July 1, 2016 through July 1, 2021 28,080,000 - - 115,940,000 $112,575,000 $115,940,000 2016 Water Resources Municipal Property Corporation, Senior Lien Utility System Revenue and Revenue Refunding Bonds, 2.25% to 5.0%, original amount $115,940,000, retirements due July 1, 2017, through July 1, 2036 Total 57 $ - TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA NOTES TO THE FINANCIAL STATEMENTS June 30, 2016 Annual debt service requirements to maturity for municipal property corporation revenue bonds are as follows: Year Ending June 30 2017 2018 2019 2020 2021 2022-2026 2027-2031 2032-2036 Total Governmental Activities Principal Interest $ 8,000,000 9,005,000 10,540,000 11,040,000 11,555,000 33,670,000 28,765,000 ________$112,575,000 $ 5,456,700 5,057,700 4,592,588 4,082,088 3,771,025 11,619,874 2,627,488 ______$37,207,463 Business-type Activities Principal Interest $ 4,830,000 5,055,000 5,285,000 5,545,000 5,835,000 33,845,000 39,565,000 15,980,000 $115,940,000 $ 4,984,570 4,777,563 4,524,813 4,260,563 3,983,313 15,239,061 7,431,975 1,967,600 $47,169,458 Subordinate Lien Pledged Revenue Obligations The Subordinate Lien Pledged Revenue Obligations were issued specifically for the purpose of providing funds to design, acquire and construct a four-story building currently leased by Saint Xavier University (“University”). The building is leased by the University under a lease-purchase contract. These obligations are payable solely from the revenues generated by excise taxes and state shared revenue. Subordinate lien pledged revenue obligations outstanding at June 30, 2016, were as follows: Governmental Subordinate Lien Pledged Revenue Obligations, Series 2015, 3.00% to 5.00% original amount $36,980,000, annual retirements due July 1, 2017, through July 1, 2045 $36,980,000 Annual debt service requirements to maturity for subordinate lien pledged revenue obligations are as follows: Year Ending June 30 2017 2018 2019 2020 2021 2022-2026 2027-2031 2032-2036 2037-2041 2042-2045 Total Governmental Activities Principal Interest $ 655,000 670,000 700,000 735,000 770,000 4,475,000 5,690,000 6,845,000 8,250,000 8,190,000 $36,980,000 58 $ 1,605,906 1,586,256 1,559,456 1,524,456 1,487,706 6,820,281 5,604,694 4,440,437 3,093,958 1,048,750 $ 28,771,900 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA NOTES TO THE FINANCIAL STATEMENTS June 30, 2016 Changes in Long-term Liabilities Long-term liability activity for the year ended June 30, 2016, was as follows: Governmental activities: Bonds payable: General obligation bonds Special assessment bonds with government commitment Revenue bonds Revenue obligations Unamortized bond premium Total bonds payable Net pension liability Compensated absences Post-employment benefits Total long-term liabilities Business-type activities: Bonds payable: Revenue bonds Unamortized bond discount Unamortized bond premium Total bonds payable Net pension liability Compensated absences Post-employment benefits Total long-term liabilities Balance July 1, 2015 Additions $122,715,000 $ Reductions Balance June 30, 2016 Due Within One Year - $(17,465,000) $105,250,000 $13,200,000 8,275,000 132,255,000 36,980,000 11,550,003 311,775,003 89,266,721 13,308,094 1,414,043 42,824,028 9,829,597 1,262,050 (1,795,000) (10,360,000) (1,820,723) (31,440,723) (34,276,478) (8,941,823) (146,166) 6,480,000 121,895,000 36,980,000 9,729,280 280,334,280 97,814,271 14,195,868 2,529,927 375,000 10,975,000 655,000 25,205,000 4,967,332 - $415,763,861 $ 53,915,675 $(74,805,190) $394,874,346 $30,172,332 $ 98,225,000 (34,076) 98,190,924 18,907,901 1,885,312 358,138 $115,940,000 19,470,861 135,410,861 6,952,469 1,820,878 343,523 $(98,225,000) 34,076 (98,190,924) (5,342,278) (1,550,249) (39,786) $ 115,940,000 19,470,861 135,410,861 20,518,092 2,155,941 661,875 $ 4,830,000 4,830,000 821,880 - $119,342,275 $144,527,731 $(105,123,237) $158,746,769 $ 5,651,880 Internal service funds predominantly serve the governmental funds. Accordingly, long-term liabilities for them are included as part of the above totals for governmental activities. At year-end, $189,108 of internal service funds compensated absences and $2,063,177 net pension liability are included in the above amounts. Long-term compensated absences of governmental activities are expected to be liquidated by the operating funds (primarily the general fund and the streets special revenue fund) as they come due. Conduit Debt Obligations The Industrial Development Authority, a discretely presented component unit of the Town of Gilbert, has issued Industrial Revenue Bonds and Master Lease and Sublease Agreements to provide financial assistance to private sector entities for the acquisition and construction of industrial and commercial facilities deemed to be in the public interest. Neither Gilbert, Maricopa County nor the State of Arizona shall in any event be liable for payment of principal, premium or interest on these bonds and leases, and accordingly they have not been reported in the accompanying combined financial statements. At June 30, 2016, Industrial Development Authority Revenue Bonds and Master Lease and Sublease Agreements outstanding were $29,078,504 and $21,173,111 respectively. 59 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA NOTES TO THE FINANCIAL STATEMENTS June 30, 2016 Note 10 – Refunding Bonds On June 30, 2016, Gilbert Water MPC issued $67,440,000 of revenue refunding bonds with a net premium of $11,638,456 to advance refund $75,326,000 of outstanding Series 2007 Water MPC utility revenue bonds. In addition, Gilbert Water MPC issued $48,500,000 of utility revenue bonds to provide funds for water and wastewater system improvements. See Note 9 for additional detail on the utility revenue bonds issued. The Series 2016 Water MPC revenue refunding bonds were issued with an average interest rate of 4.1 percent. Gilbert realized net proceeds of $78,917,275 after payment of $161,182 for underwriting fees. These proceeds were provided to an escrow trustee to pay issuance costs of approximately $316,645 with the remaining $78,600,630 used to provide cash and purchase United States government securities. The cash and government securities were deposited in an irrevocable trust to provide for all future debt service payments of the Series 2007 refunded bonds. As a result, the refunded bonds are considered to be defeased and the liability for those bonds has been removed. The purpose of the refunding was to take advantage of lower interest rates, thereby reducing future debt service payments. The refunding will reduce debt service payments by $18,391,070 over the next 15 years, producing an economic gain (difference between present value of old and new debt service payments) of $14,938,887. Note 11 – Pension and Other Postemployment Benefits Gilbert contributes to the pension plans described below. Gilbert also contributes to the Elected Officials Retirement Plan; however, the plan is not described below because of its relative insignificance to the financial statements. The plans are component units of the State of Arizona. Gilbert reported $10,946,794 of pension expenditures in the governmental funds related to all pension plans to which it contributes for fiscal year 2016. A. Arizona State Retirement System Plan Description – Gilbert employees not covered by the other pension plans described below participate in the Arizona State Retirement System (ASRS). The ASRS administers a cost-sharing multiple-employer defined benefit pension plan, a cost-sharing multiple-employer defined benefit health insurance premium supplement (OPEB) plan, and a cost-sharing multiple-employer defined benefit long-term disability (OPEB) plan. The ASRS is governed by the Arizona State Retirement System Board according to the provisions of A.R.S. Title 38, Chapter 5, Articles 2 and 2.1. The ASRS issues a publicly available financial report that includes financial statements and required supplementary information. This report is available on their website at www.azasrs.gov. 60 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA NOTES TO THE FINANCIAL STATEMENTS June 30, 2016 Benefits Provided – The ASRS provides retirement, health insurance premium supplement, long-term disability, and survivor benefits. State statute establishes benefit terms. Retirement benefits are calculated on the basis of age, average monthly compensation, and service credit as follows: Retirement Initial Membership Date: Before July 1, 2011 On or After July 1, 2011 Years of service and age required to receive benefit Sum of years and age equals 80 10 years, age 62 5 years, age 50* Any years, age 65 30 years, age 55 25 years, age 60 10 years, age 62 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 member’s death. For retired members, the retirement benefit option chosen determines the survivor benefit. For all other members, the beneficiary is entitled to the member’s account balance that includes the member’s contributions and employer’s contributions, plus interest earned. Contributions – In accordance with state statutes, annual actuarial valuations determine active member and employer contribution requirements. 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. For the year ended June 30, 2016, statute required active ASRS members to contribute at the actuarially determined rate of 11.47% (11.35% for retirement and 0.12% for long term disability) of the members’ annual covered payroll, and statute required Gilbert to contribute at the actuarially determined rate of 11.47% (10.85% for retirement, 0.50% for health insurance premium benefit, and 0.12% for long-term disability) of the members’ annual covered payroll. Gilbert’s contributions for the current and two preceding years for the Arizona State Retirement System OPEB, all of which were equal to the required contributions, were as follows: Year Ending 2016 2015 2014 Health Benefit Supplement Fund $231,747 264,076 253,593 Long-Term Disability Fund $ 54,424 53,539 100,955 During fiscal year 2016, Gilbert paid for ASRS pension and OPEB contributions as follows: 62% from the general fund, 36% from major funds, and 2% from other funds. Pension Liability – At June 30, 2016, Gilbert reported a liability of $75,695,863 for its proportionate share of the ASRS’ net pension liability. The net pension liability was measured as of June 30, 2015. The total pension liability used to calculate the net pension liability was determined using updated procedures to roll forward the total pension liability from an actuarial valuation as of June 30, 2014, to the measurement date of June 30, 2015. 61 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA NOTES TO THE FINANCIAL STATEMENTS June 30, 2016 Gilbert’s reported liability at June 30, 2016, increased by $6,283,595 from the prior year liability of $69,412,268 because of changes in the ASRS’ net pension liability and Gilbert’s proportionate share of that liability. The ASRS’ publicly available financial report provides details on the change in the net pension liability. Gilbert’s proportion of the net pension liability was based on a projection of Gilbert’s long-term share of contributions to the pension plan relative to the projected contributions of all participating employers, actuarially determined. Gilbert’s proportion measured as of June 30, 2015, was 0.48596%, which was an increase of 0.01685% from its proportion measured as of June 30, 2014. The allocation of pension liability to the funds is based on employer contributions for the fiscal year. Pension Expense and Deferred Outflows/Inflows of Resources – For the year ended June 30, 2016, Gilbert recognized pension expense for ASRS of $7,200,023. At June 30, 2016, Gilbert reported deferred outflows of resources and deferred inflows of resources related to pensions from the following sources: Differences between expected and actual experience Net difference between projected and actual earnings on pension plan investments Changes in proportion and differences between Gilbert contributions and proportionate share of contributions Gilbert contributions subsequent to the measurement date Total Deferred Outflows of Resources $ 2,065,576 Deferred Inflows of Resources $ 3,966,540 - 2,425,885 4,500,606 5,278,569 $11,844,751 $ 6,392,425 The $5,278,569 reported as deferred outflows of resources related to ASRS pensions resulting from Gilbert’s contributions subsequent to the measurement date will be recognized as a reduction of the net pension liability in the year ended June 30, 2017. 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 2017 2018 2019 2020 2021 Thereafter $1,250,916 (1,250,073) (1,578,270) 1,751,184 - 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 Permanent benefit increase Mortality rates June 30, 2014 June 30, 2015 Entry age normal 8% 3.0% - 6.75% 3.0% Included 1994 GAM Scale BB Actuarial assumptions used in the June 30, 2014, valuation were based on the results of an actuarial experience study for the 5-year period ended June 30, 2012. 62 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA NOTES TO THE FINANCIAL STATEMENTS June 30, 2016 The long-term expected rate of return on ASRS pension plan investments was determined to be 8.79% 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: Long-Term Expected Target Arithmetic Real Asset Class Allocation Rate of Return Equity 58% 6.79% Fixed income 25% 3.70% Real estate 10% 4.25% Multi-asset 5% 3.41% Commodities 2% 3.93% Total 100% Discount Rate – The discount rate used to measure the ASRS total pension liability was 8%, which is less than the long-term expected rate of return of 8.79%. 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 based on 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 payments to determine the total pension liability. Sensitivity of Gilbert’s Proportionate Share of the ASRS Net Pension Liability to Changes in the Discount Rate – The following presents Gilbert’s proportionate share of the net pension liability calculated using the discount rate of 8%, as well as what Gilbert’s proportionate share of the net pension liability would be if it were calculated using a discount rate that is 1 percentage point lower (7%) or 1 percentage point higher (9%) than the current rate: Current 1% Decrease Discount Rate 1% Increase (9%)___ (7%) _ (8%) Gilbert’s proportionate share of the net pension liability $99,187,448 $75,695,863 $59,596,428 Pension Plan Fiduciary Net Position – Detailed information about the pension plan’s fiduciary net position is available in the separately issued ASRS financial report. The report is available on the ASRS website at www.azasrs.gov. B. Public Safety Personnel Retirement System Plan Description – Gilbert public safety employees who are regularly assigned hazardous duty participate in the Public Safety Personnel Retirement System (PSPRS). The PSPRS administers an agent multiple-employer defined benefit pension plan and an agent multiple-employer defined benefit health insurance premium benefit (OPEB) plan. A seven-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 PSPRS issues a publicly available financial report that includes financial statements and required supplementary information. This report is available on their website at www.psprs.com. 63 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA NOTES TO THE FINANCIAL STATEMENTS June 30, 2016 Benefits Provided – The PSPRS provides retirement, health insurance premium supplement, disability, and survivor benefits. State statute establishes benefits terms. Retirement and disability benefits are calculated on the basis of age, average monthly compensation, and service credit as follows: Retirement Initial Membership Date: Before January 1, 2012 On or After January 1, 2012 Retirement and Disability: Years of service and age required to receive benefit 20 years, any age 15 years, age 62 25 years, age 52.5 Final average salary is based on Highest 36 months of last 20 years Highest 60 months of last 20 years Normal retirement 50% less 2.0% for each year of credited service less than 20 years or plus 2.0% to 2.5% for each year of credited service over 20 years, not to exceed 80% 2.5% per year of credited service, not to exceed 80% Accidental disability retirement 50% or normal retirement, whichever is greater Survivor benefit: Retired members Active members 80% of retired member’s pension benefit 80% to 100% of accidental disability retirement benefit or 100% of average monthly compensation if death was the result of injuries received on the job Retirement and survivor benefits are subject to automatic cost-of-living adjustments based on excess investment earnings. In addition, from and after December 31, 2015, the Legislature may enact permanent one-time benefit increases after a Joint Legislative Budget Committee analysis of the increase’s effects on the plan. PSPRS also provides temporary disability benefits of 50 percent of the member’s compensation for up to 12 months. Employees Covered by Benefit Terms – At June 30, 2016, the following employees were covered by the agent pension plan’s benefit terms: Police Fire Inactive employees or beneficiaries currently receiving benefits 45 5 Inactive employees entitled to but not yet receiving benefits 48 14 172 Active employees 205 Total 298 191 Contributions and Annual OPEB Cost – State statutes establish the pension contribution 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. Contributions rates for the year ended June 30, 2016, are indicated below. Rates are a percentage of active members’ annual covered payroll. Fire Police Active members – pension 11.65% 11.65% Gilbert: Pension 22.13% 14.76% Health insurance 0.36% 0.37% 64 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA NOTES TO THE FINANCIAL STATEMENTS June 30, 2016 For the agent plans, the contributions to the pension plan and annual OPEB cost and contributions for the health insurance premium benefit for the year ended June 30, 2016, were as follows (actual contributions made exceeded the annual pension/OPEB cost due to a prepayment) (100% from the general fund): Fire Police Pension: Contributions made Health insurance premium benefit: Contributions made $4,384,960 $3,033,657 $ $ 64,377 54,820 Pension Liability – At June 30, 2016, Gilbert reported $41,229,275 in net pension liability. The net pension liabilities were measured as of June 30, 2015, and the total pension liability used to calculate the net pension liability was determined by an actuarial valuation as of that date. 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 future cost-of-living adjustments from excess investment earnings to the change in the consumer price index, limited to a maximum annual increase of 2%. The change in Gilbert’s net pension liability as a result of the statutory adjustments is not known. Actuarial Assumptions – The significant actuarial as follows: Actuarial valuation date Actuarial cost method Investment rate of return Projected salary increases Inflation Permanent benefit increase Mortality rates assumptions used to measure the total pension liability are June 30, 2015 Entry age normal 7.85% 4.0% – 8.0% 4.0% Included RP-2000 mortality table, adjusted by 105% for both males and females 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, 2011. 65 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA NOTES TO THE FINANCIAL STATEMENTS June 30, 2016 The long-term expected rate of return on PSPRS pension plan investments was determined to be 7.85% 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 estimates of geometric real rates of return for each major asset class are summarized in the following table: Long-Term Expected Target Geometric Real Asset Class Allocation Rate of Return U.S. equity 16% 6.23% Non-U.S. equity 14% 8.25% Credit opportunities 13% 7.08% Private equity 11% 9.50% Real estate 10% 4.48% Global tactical asset allocation 10% 4.38% Real assets 8% 4.77% Fixed income 7% 2.92% Risk parity 4% 5.13% Absolute return 5% 4.11% Short term investments 2% 0.75% Total 100% Pension Discount Rates – The discount rate used to measure the total pension liability was 7.85%. The projection of cash flows used to determine the discount rate 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 actuarially determined contribution rates 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. Changes in the Agent Plans Net Pension Liability Police: Increase/Decrease Total Pension Liability Balances at June 30, 2015 Changes for the year: Service cost Interest on the total pension liability Difference between expected and actual experience in the measurement of the total pension liability Contributions – employer Contributions – employee Net investment income Benefit payments, including refunds of employee contributions Administrative expenses Other changes Net changes Balances at June 30, 2016 $83,549,777 Plan Fiduciary Net Position $53,976,807 3,570,214 6,604,564 $29,572,970 3,570,214 6,604,564 713,111 3,280,061 2,107,439 2,037,534 (2,400,631) Net Pension Liability (2,400,631) (50,099) 75,447 713,111 (3,280,061) (2,107,439) (2,037,534) 50,099 (75,447) 8,487,258 5,049,751 3,437,507 $92,037,035 $59,026,558 $33,010,477 66 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA NOTES TO THE FINANCIAL STATEMENTS June 30, 2016 Fire: Increase/Decrease Total Pension Liability Balances at June 30, 2015 Changes for the year: Service cost Interest on the total pension liability Difference between expected and actual experience in the measurement of the total pension liability Contributions – employer Contributions – employee Net investment income Benefit payments, including refunds of employee contributions Administrative expenses Other changes Net changes Balances at June 30, 2016 $51,464,815 Plan Fiduciary Net Position $43,802,010 2,785,128 4,138,400 $7,662,805 2,785,128 4,138,400 (1,235,512) 1,845,382 1,903,578 1,653,304 (277,805) Net Pension Liability (277,805) (40,728) (229,513) (1,235,512) (1,845,382) (1,903,578) (1,653,304) 40,728 229,513 5,410,211 4,854,218 559,993 $56,875,026 $48,656,228 $8,218,798 Sensitivity of the Net Pension Liability to Changes in the Discount Rate – The following presents Gilbert’s net pension liability calculated using the discount rates noted above, as well as what the net pension liability would be if it were calculated using a discount rate that is 1 percentage point lower (6.85%) or 1 percentage point higher (8.85%) than the current rate: Police Net pension liability Fire Net pension liability 1% Decrease (6.85%) _ Current Discount Rate (7.85%) 1% Increase (8.85%)__ $46,124,588 $33,010,477 $22,249,493 $16,998,016 $ 8,218,798 $ 1,007,428 Pension Plan Fiduciary Net Position – Detailed information about the pension plan’s fiduciary net position is available in the separately issued PSPRS financial report. The report is available on the PSPRS website at www.psprs.com. Pension Expense – For the year ended June 30, 2016, Gilbert recognized $5,029,498 as pension expense for Police and $2,045,469 as pension expense for Fire. 67 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA NOTES TO THE FINANCIAL STATEMENTS June 30, 2016 Pension Deferred Outflows/Inflows of Resources – At June 30, 2016, Gilbert reported deferred outflows of resources and deferred inflows of resources related to pensions from the following sources: Police: Differences between expected and actual experience Changes of assumptions or other inputs Net difference between projected and actual earnings on pension plan investments Gilbert contributions subsequent to the measurement date Total Deferred Outflows of Resources $ 2,359,075 3,873,482 Deferred Inflows of Resources - 276,660 4,449,337 $10,958,554 - Fire: Differences between expected and actual experience Changes of assumptions or other inputs Net difference between projected and actual earnings on pension plan investments Gilbert contributions subsequent to the measurement date Total Deferred Outflows of Resources $1,818,076 1,078,441 Deferred Inflows of Resources $1,114,230 - 266,604 3,088,477 $6,251,598 $1,114,230 The $4,449,337 for Police and the $3,088,477 for Fire reported as deferred outflows of resources related to PSPRS pension resulting from contributions subsequent to the measurement date will be recognized as a reduction of the net pension liability in the year ended June 30, 2017. Other amounts reported as deferred outflows of resources and deferred inflows of resources related to pensions will be recognized in pension expense as follows: Year Ending June 30 2017 2018 2019 2020 2021 Thereafter Police $1,208,372 1,208,372 1,208,371 1,734,252 1,088,350 61,499 Fire $ 182,594 182,594 182,595 603,270 221,112 676,727 Agent Plan OPEB Actuarial Assumptions – The health insurance premium benefit contribution requirements for the year ended June 30, 2016, were established by the June 30, 2014, actuarial valuations, and those actuarial valuations were based on the following actuarial methods and assumptions. Actuarial valuations involve estimates of the reported amounts’ value and assumptions about the probability of events in the future. Amounts determined regarding the funded status of the plan 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 plan’s assets are increasing or decreasing over time relative to the actuarial accrued liability for benefits. 68 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA NOTES TO THE FINANCIAL STATEMENTS June 30, 2016 Projections of benefits are based on (1) the plan as understood by Gilbert and plan’s members and include the types of benefits in force at the valuation date, and (2) the pattern of sharing benefit costs between Gilbert and plan’s 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 actuarial methods and assumptions used to establish the fiscal year 2016 contribution requirements, are as follows: 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, 2014 Entry age normal Level percent closed for unfunded actuarial accrued liability, open for excess 22 years for unfunded actuarial accrued liability, 20 years for excess 7-year smoothed market value; 20% corridor 7.85% 4%-8% 4% Agent Plan OPEB Trend Information – The table below presents the annual OPEB cost information for the health insurance premium benefit for the current and two preceding years: Police: Fiscal Year Ended June 30, 2016 June 30, 2015 June 30, 2014 Annual OPEB Cost $64,377 48,585 59,333 Percentage of Annual Cost Contributed 100.0% 100.0% 100.0% Net OPEB Obligation $-0-0-0- Fiscal Year Ended June 30, 2016 June 30, 2015 June 30, 2014 Annual OPEB Cost $54,820 35,372 38,139 Percentage of Annual Cost Contributed 100.0% 100.0% 100.0% Net OPEB Obligation $-0-0-0- Fire: 69 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA NOTES TO THE FINANCIAL STATEMENTS June 30, 2016 Agent Plan OPEB Funded Status – The following table presents the funded status of the health insurance premium benefit plan as of the most recent valuation date, June 30, 2016. Actuarial value of assets (a) Actuarial accrued liability (b) Unfunded actuarial accrued liability (funding excess) (b) - (a) Funded ratio (a) / (b) Annual covered payroll (c) Unfunded actuarial accrued liability (funding excess) as a percentage of covered payroll (b) – (a) / (c) Police $ 2,150,297 2,346,071 Fire $ 1,349,131 1,688,437 195,774 91.66% $17,784,704 339,306 79.90% $14,459,743 1.10% 2.35% The actuarial methods and assumptions for the most recent valuation date are as follows: 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 Individual entry age normal Level percent closed for unfunded actuarial accrued liability, open for excess 21 years for unfunded actuarial accrued liability, 20 years for excess 7-year smoothed market value (80%/120% market) 7.85% 4%-8% 4% Volunteer Firemen’s Relief and Pension Fund The Volunteer Firemen’s Relief and Pension Fund covers retired volunteer firemen and survivors and was established solely upon the provision for such pension and relief funds in the Arizona Revised Statutes. The Statutes grant discretionary powers to Boards of Trustees of such plans related to payment/nonpayment of benefits to qualified retired or disabled volunteer firemen out of the assets of the Fund. These discretionary powers do not extend, however, to the volunteer firemen’s right to their own contributions to the Fund. Gilbert has no actuarial liability for pension benefits as individual retirement benefits are not defined in the plan. Reserves for pensions, therefore, have not been established as the amounts are not vested and payment of benefits (if any) are at the discretion of the Board of Trustees of the plan. Gilbert no longer operates a Volunteer Fire Department. Accordingly, there were no contributions required or made to this plan nor refunds paid for fiscal year 2016. Administrative costs are financed through investment earnings. There is only one remaining pensioner receiving retirement benefits from the Fund. 70 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA NOTES TO THE FINANCIAL STATEMENTS June 30, 2016 Note 12 - Post-Employment Healthcare Benefits Other post-employment healthcare benefits, like the cost of pension benefits, constitute an exchange of compensation for employee services rendered. Similar to pension benefits, the cost of OPEB generally should be associated with the periods in which the exchange occurs rather than in future periods in which the benefits are provided. GASB Statement No. 45 required Gilbert to measure and recognize the OPEB cost while employee services are rendered and provide information about the potential demands on Gilbert’s future cash flows. Plan Description Gilbert provides post-employment medical care, prescription drug, and dental care for retired employees through a single-employer defined benefit medical and dental plan. The plan provides medical and dental benefits for eligible retirees, their spouses and dependents through Gilbert’s group health and dental insurance plans, which cover active and retired members. To be eligible for benefits, the retired employee must retire under one of the state retirement plans for public employees, must have a minimum of ten years of service with Gilbert, and be covered under Gilbert’s medical plan during their active status. Plan benefits and coverage levels are reviewed annually by Town staff and the Board of Trustees for recommendation to and approval from Town Council. The Board of Trustees makes corresponding premium recommendations to the Town Council based on revenues needed to cover the projected cost to operate the plan which are subject to approval by the Town Council. As of June 30, 2016, there are 34 retirees that are currently receiving medical and/or dental benefits. The plan is not accounted for as a trust fund because an irrevocable trust has not been established to account for the plan. The plan does not issue a separate financial report. Funding Policy Gilbert requires retirees to pay 104.5% of the full blended contribution rate. Gilbert makes no contributions for retirees other than allowing them to participate through Gilbert’s pooled benefits. By providing retirees access to Gilbert’s healthcare plans, Gilbert is in effect providing a subsidy to retirees. This implied subsidy exists because on average, retiree healthcare costs are higher than active employee healthcare costs. Gilbert pays for and reports retiree benefits on a pay-as-you-go basis, which is the practice of paying for these benefits as they become due each year. As of June 30, 2016, retirees contributed $359,890 and Gilbert contributed $185,952 (implied subsidy). Annual OPEB Cost and Net OPEB Obligation Gilbert’s annual OPEB cost is calculated based on 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 to amortize any unfunded actuarial liabilities over a period not to exceed thirty years. Gilbert’s annual OPEB costs for the current year and related information for the plan are as follows at June 30, 2016: Annual Required Contribution (ARC) ARC Adjustment Interest on the Net OPEB Obligation Annual OPEB Cost Contributions Made Increase in Net OPEB Obligation Net OPEB Obligation – Beginning of year Net OPEB Obligation – End of year $1,636,644 (93,097) 62,026 $1,605,573 (185,952) $1,419,621 1,772,182 $3,191,803 71 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA NOTES TO THE FINANCIAL STATEMENTS June 30, 2016 Gilbert’s annual OPEB cost, the percentage of annual OPEB cost contributed to the plan, and the net OPEB obligation for the fiscal year ended June 30, 2016 is as follows: Fiscal Year Ended 2016 2015 2014 Annual OPEB Cost $1,605,573 1,367,779 523,273 Percentage of OPEB Cost Contributed 11.58% 34.97% 13.55% Employer Contributions $185,952 478,335 70,896 Net OPEB Obligation $3,191,803 1,772,181 882,737 Schedule of Funded Status and Funding ProgressFollowing is the schedule of funded status and funding progress of the plan as of the most recent actuarial valuation date: (1) Actuarial Actuarial Valuation Value of Date Plan July 1 Assets 2015 $ -02014 $ -0- (2) Actuarial Accrued Liability (AAL) $12,952,570 10,619,282 (3) (4) (5) Unfunded AAL (1)-(2) $(12,952,570) (10,619,282) Funded Ratio (1)/(2) 0.0% 0.0% Annual Covered Payroll $70,730,330 68,126,846 (6) Unfunded AAL As Percentage of Covered Payroll (3)/(5) _ (18.31)% (15.59)% 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 healthcare cost trends. Actuarially determined amounts are subject to continual revision as actual results are compared to past expectations and new estimates are made about the future. Calculations are based on the types of benefits provided under the terms of the substantive plan at the time of each valuation and on the pattern of sharing of costs between the employer and plan members to that point. The projection of benefits for financial reporting purposes does not explicitly incorporate the potential effects of legal or contractual funding limitations on the pattern of cost sharing between the employer and plan members in the future. Actuarial calculations reflect a long-term perspective. The actuarial methods and significant assumptions used to determine the ARC for the current fiscal year are as follows: 1. The actuarial cost method used is the projected unit credit actuarial cost method. 2. As of the valuation date, there are no assets, hence no need for an actuarial value of assets. 3. The amortization method is level dollar. The amortization period is 30 years. The period is open. For the most recent actuarial valuation, the projected unit credit actuarial cost method was used along with a discount rate of 3.5%. In addition, the actuarial assumptions included: an annual medical healthcare cost trend rate for the legacy plan of 8.0% initially, reduced by decrements to an ultimate rate of 5.0% after 7 years; an annual medical healthcare cost trend for the preferred plan of -7.10% initially, 7.50% after 2 years, then reduced by decrements to an ultimate rate of 5.0% after 7 years; an annual dental healthcare cast trend rate of 4.25% initially, reduced to 3.0% after 7 years; and an inflation rate of 3%. 72 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA NOTES TO THE FINANCIAL STATEMENTS June 30, 2016 Note 13 - Capital Contributions During the year ended June 30, 2016, the Enterprise funds external capital contributions consisted of the following: Water Contributions from developers Development fees Total Wastewater $13,274,128 14,226,464 $27,500,592 $ 7,529,858 8,531,941 $16,061,799 Total $20,803,986 22,758,405 $43,562,391 Note 14 – Settlement Revenue During the year ended June 30, 2016, Gilbert received $13,500,000 in revenue resulting from the settlement of a lawsuit regarding some park related construction in 2007. The settlement revenue is classified under miscellaneous revenue in the general fund and outside sources fund of $2,140,250 and $11,359,750, respectively. Note 15 – Interfund Transfers As of June 30, 2016, interfund transfers were as follows: Governmental funds: General fund Streets special revenue General debt service System development fees Other governmental funds Total governmental funds Enterprise funds: Water Wastewater Total enterprise funds Internal service funds: Copier services Total internal service funds Total transfers Transfers-In Transfers-Out $ 1,122,877 50,000 20,215,466 17,819 21,406,162 $ 5,920,012 4,148,419 11,176,008 141,019 21,385,458 792,060 792,060 890,454 890,454 77,690 77,690 - $22,275,912 $22,275,912 The interfund transfers generally fall within one of the following categories: 1) subsidy transfers; 2) transfers to cover debt service payments; 3) transfers for the town match for grants; or 4) transfers to fund capital replacement. There were no significant transfers during fiscal year 2016 that were either non-routine in nature or inconsistent with the activities of the fund making the transfer. 73 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA NOTES TO THE FINANCIAL STATEMENTS June 30, 2016 Note 16 - Individual Fund Disclosures Individual funds with deficiencies in fund balance/net position at June 30, 2016, were as follows: Special revenue funds Streetlight improvement district $ Internal service funds Equipment maintenance $1,266,953 16,750 The deficiency in the streetlight improvement district fund of the special revenue funds will be eliminated through property tax levies against benefited property owners. The deficiency in the equipment maintenance fund of the internal service funds is due to the net pension liability. Note 17 – Contingent Liabilities Gilbert is contingently liable with respect to several lawsuits and other claims incidental to its normal operations. Management, with concurrence of the Town's Attorney, is of the opinion that the ultimate resolution of these matters will not have a material adverse effect on Gilbert’s financial condition, results of operations or liquidity. Note 18 – Pledged Revenues Gilbert has pledged future water system development fees revenue and future water and wastewater revenues, net of specified operating expenses, to repay $115,940,000 in utility system revenue bonds and revenue refunding bonds issued in 2016. Proceeds from the utility system revenue bonds provided financing for water and wastewater system improvements and the proceeds from the revenue refunding bonds were used to advance refund $75,326,000 of outstanding 2007 utility system revenue bonds. The bonds are payable from water system development fees revenue and water and wastewater net revenues and are payable through 2036. Annual principal and interest payments on the bonds are expected to require less than 27 percent of revenue. The total principal and interest remaining to be paid on the bonds is $163,109,458. Principal and interest paid for the current year was $10,323,019 (of which $1,365,000 in principal was an advance defeasance). Additional principal and interest in the amount of $18,394,912 was paid on the 2007 utility system revenue bonds during the refunding (see Note 10 for additional information on the refunding bonds). Total water system development fees revenue was $11,873,824 and water and wastewater net revenues were $22,539,958. Gilbert has pledged future street and highway revenues to repay $16,945,000 in highway user revenue refunding bonds issued in 2012. Proceeds from the 2012 refunding bonds were used to advance refund $17,950,000 of outstanding 2003 highway user revenue bonds (proceeds from the 2003 bonds provided financing for the purpose of street and highway construction projects). The refunding bonds are payable solely from street and highway revenues (see note 9 for the detail of the sources of these revenues) and are payable through 2019. Annual principal and interest payments on the bonds are expected to require less than 25 percent of revenues. The total principal and interest remaining to be paid on the bonds is $10,236,000. Principal and interest paid for the current year was $3,395,050, and the total street and highway revenues were $13,588,215. 74 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA NOTES TO THE FINANCIAL STATEMENTS June 30, 2016 Gilbert has pledged future excise taxes and state-shared revenues to repay $154,005,000 in public facilities municipal property corporation (MPC) revenue bonds issued since 2006, $20,980,000 in public facilities MPC revenue refunding bonds issued in 2011 and $28,080,000 in public facilities MPC revenue refunding bonds issued in 2014. Proceeds from the bonds provided financing of the multipurpose public safety complex, the service center facility, a police property facility, a sports complex, various other parks and recreation facilities, and a parking facility. Proceeds from the 2011 refunding bonds were used to advance refund $21,670,000 of outstanding 2001 public facilities MPC revenue bonds. Proceeds from the 2014 refunding bonds were used to advance refund $30,205,000 of outstanding 2006 public facilities MPC revenue bonds. The bonds are payable through 2028. In addition, Gilbert has pledged future excise taxes and state-shared revenues to repay $36,980,000 in revenue obligations issued in 2015. Proceeds from the obligations provided financing of the design and construction of a four-story building for use as a satellite campus. Annual principal and interest payments on the bonds and obligations are expected to require less than 12 percent of excise taxes and stateshared revenues. The total principal and interest remaining to be paid on the bonds and obligations is $204,713,250. Principal and interest paid for the current year was $15,457,791, and the total excise taxes and state-shared revenues were $133,104,631. Note 19 - Investment in Joint Venture Construction of a joint water reclamation plant with the City of Mesa and the Town of Queen Creek was completed during fiscal year 2007. Mesa is the lead agent and is responsible for the operation and maintenance of the plant. Mesa, Gilbert and Queen Creek participate in ownership of the plant and are charged for operating expenses based on gallons of flow. Gilbert’s investment in joint venture is reflected as a separate line item in the proprietary funds financial statements. Separate financial statements for the joint venture are not prepared. Total investment (net of depreciation) as of June 30, 2016, was: Mesa’s Share Gilbert’s Share Queen Creek’s Share Total $ 57,111,873 58,602,201 24,095,433 $139,809,507 Construction for the Phase I of a joint water treatment plant with the City of Chandler was completed in fiscal year 2009 and construction for Phase II began in fiscal year 2015. Phase I of the plant treats 12 million gallons per day each for Gilbert and Chandler. When complete, the Phase II will also treat 12 million gallons per day each for Gilbert and Chandler. Gilbert’s investment in joint venture is reflected as a separate line item in the proprietary funds financial statements. Separate financial statements for the joint venture are not prepared. Total investment (net of depreciation) as of June 30, 2016, was: Gilbert’s Share Chandler’s Share Total $ 65,622,092 59,317,819 $124,939,911 75 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA NOTES TO THE FINANCIAL STATEMENTS June 30, 2016 In August 2008, Gilbert entered into an Intergovernmental Agreement with the Cities of Mesa and Apache Junction, Superstition Fire & Medical (F&M), and the Town of Queen Creek (the Parties) to plan, design, construct, operate, maintain and finance the TOPAZ Regional Wireless Cooperative Network (Trunked Open Arizona Network – 700/800 MHz Network procured and built by the City of Mesa). On May 1, 2012 and October 26, 2015, Rio Verde Fire District and Fort McDowell Yavapai Nation, respectively, joined TOPAZ. The City of Mesa acts as the lead agency and is responsible for the planning, budgeting, construction, operation and maintenance of the network, in addition to providing all management personnel and financing arrangements. The Parties participate in ownership of the network and are charged for operating and capital expenses based on six month rolling average of airtime. Gilbert’s investment in joint venture is reflected within the governmental activities in the government-wide statement of net position. Separate financial statements are not prepared. Total investment (net of depreciation) as of June 30, 2016, was: Mesa’s Share Gilbert’s Share Apache Junction’s Share Superstition F&M’s Share Queen Creek’s Share Rio Verde FD’s Share Total $4,993,312 253,734 410,989 100,983 68,761 9,767 $5,837,546 76 TABLE OF CONTENTS REQUIRED SUPPLEMENTARY INFORMATION 77 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA REQUIRED SUPPLEMENTARY INFORMATION June 30, 2016 Schedule of the Proportionate Share of the Net Pension Liability: Arizona State Retirement System Fiscal Year 2016 Proportion of the net pension liability Proportionate share of the net pension liability Covered payroll (1) 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 2014 through 2006 2015 0.49% $75,695,863 $43,765,044 0.47% $69,412,268 $42,295,765 172% 164% 68.35% 69.49% Information not available (1) The covered payroll amount will be as of the measurement date of the net pension liability. For fiscal year 2016, the measurement date of the net pension liability is June 30, 2015. See also Note 11. 78 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA REQUIRED SUPPLEMENTARY INFORMATION June 30, 2016 Schedule of Changes in the Net Pension Liability and Related Ratios: Public Safety Personnel Retirement System – Police Fiscal Year 2016 Total pension liability: Service cost Interest on the total pension liability Changes in benefit terms Differences between expected and actual experience in the measurement of the total 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 Administrative expense Other changes Net change in plan fiduciary net position Plan fiduciary net position – beginning Plan fiduciary net position – ending (b) Net pension liability – ending (a) – (b) Plan fiduciary net position as a percentage of the total pension liability Covered payroll (1) Gilbert’s net pension liability as a percentage of covered payroll 2015 $ 3,570,214 6,604,564 - $ 3,293,404 5,414,469 605,849 713,111 - 2,479,128 5,473,070 (2,400,631) 8,487,258 83,549,777 $92,037,035 (2,087,138) 15,178,782 68,370,995 $83,549,777 $ 3,280,061 2,107,439 2,037,534 $ 3,103,356 2,088,159 6,306,779 (2,400,631) (50,099) 75,447 5,049,751 53,976,807 $59,026,558 (2,087,138) (50,793) 49,298 9,409,661 44,567,146 $53,976,807 $33,010,477 $29,572,970 64.13% 64.60% $19,071,843 $18,990,156 173.08% 155.73% 2014 through 2006 Information not available (1) The covered payroll amount will be as of the measurement date of the net pension liability. For fiscal year 2016, the measurement date of the net pension liability is June 30, 2015. See also Note 11. 79 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA REQUIRED SUPPLEMENTARY INFORMATION June 30, 2016 Schedule of Changes in the Net Pension Liability and Related Ratios: Public Safety Personnel Retirement System – Fire Fiscal Year 2016 Total pension liability: Service cost Interest on the total pension liability Changes in benefit terms Differences between expected and actual experience in the measurement of the total 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 Administrative expense Other changes Net change in plan fiduciary net position Plan fiduciary net position – beginning Plan fiduciary net position – ending (b) Net pension liability – ending (a) – (b) Plan fiduciary net position as a percentage of the total pension liability Covered payroll (1) Gilbert’s net pension liability as a percentage of covered payroll 2015 $ 2,785,128 4,138,400 - $ 2,545,607 3,408,433 (131,651) (1,235,512) - 2,247,902 1,333,403 (277,805) 5,410,211 51,464,815 $56,875,026 (171,217) 9,232,477 42,232,338 $51,464,815 $ 1,845,382 1,903,578 1,653,304 $ 1,954,145 1,667,772 5,045,090 (277,805) (40,728) (229,513) 4,854,218 43,802,010 $48,656,228 (171,217) (40,631) 8,455,159 35,346,851 $43,802,010 $ 8,218,798 $ 7,662,805 85.55% 85.11% $15,274,115 $15,508,151 53.81% 49.41% 2014 through 2006 Information not available (1) The covered payroll amount will be as of the measurement date of the net pension liability. For fiscal year 2016, the measurement date of the net pension liability is June 30, 2015. See also Note 11. 80 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA REQUIRED SUPPLEMENTARY INFORMATION June 30, 2016 Schedule of Pension Contributions: Arizona State Retirement System Actuarially determined contribution Contributions in relation to the actuarially determined contributions Contribution deficiency (excess) Covered payroll Contributions as a percentage of covered payroll Actuarially determined contribution Contributions in relation to the actuarially determined contributions Contribution deficiency (excess) Covered payroll Contributions as a percentage of covered payroll 2016 $ 5,278,569 2015 $ 5,137,457 Fiscal Year 2014 $ 4,763,978 2013 $ 4,162,425 2012 $ 3,880,631 5,278,569 $ $45,764,166 5,137,457 $ $43,765,044 4,763,978 $ $42,295,765 4,162,425 $ $38,356,312 3,880,631 $ $36,582,049 11.53% 11.74% 11.26% 10.85% 10.61% 2011 $ 3,448,898 2010 $ 3,329,705 Fiscal Year 2009 $ 3,407,288 2008 $ 3,546,148 2007 $ 2,933,481 3,448,898 $ $37,474,457 3,329,705 $ $37,007,042 3,407,288 $ $38,106,015 3,546,148 $ $38,803,852 2,993,481 $ $33,803,833 9.20% 9.0% 8.94% 9.14% 8.68% 81 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA REQUIRED SUPPLEMENTARY INFORMATION June 30, 2016 Schedule of Pension Contributions: Public Safety Retirement System - Police Actuarially determined contribution Contributions in relation to the actuarially determined contributions Contribution deficiency (excess) Covered payroll Contributions as a percentage of covered payroll Actuarially determined contribution Contributions in relation to the actuarially determined contributions Contribution deficiency (excess) Covered payroll Contributions as a percentage of covered payroll 2016 $ 4,021,770 2015 $ 3,414,607 Fiscal Year 2014 $ 3,231,755 2013 $ 2,930,117 2012 $ 2,384,390 4,449,337 $ (427,567) $19,247,567 3,414,607 $ $19,071,843 3,231,755 $ $18,990,156 2,930,117 $ $17,477,557 2,384,390 $ $16,492,849 20.89% 17.90% 17.02% 16.77% 14.46% 2011 $ 2,239,987 2010 $ 2,330,954 Fiscal Year 2009 $ 2,540,087 2008 $ 1,626,604 2007 $ 1,245,928 2,239,987 $ $16,550,117 2,330,954 $ $16,686,272 2,540,087 $ $17,138,480 1,626,604 $ $16,159,092 1,245,928 $ $14,272,140 13.54% 13.97% 14.82% 10.07% 8.73% 2016 $ 2,241,688 2015 $ 1,982,159 Fiscal Year 2014 $ 2,037,266 2013 $ 1,793,907 2012 $ 1,479,746 3,088,477 $ (846,789) $15,444,728 1,982,159 $ $15,274,115 2,037,266 $ $15,508,151 1,793,907 $ $13,954,822 1,479,746 $ $13,335,971 14.51% 12.98% 13.14% 12.86% 11.10% 2011 $ 1,422,964 2010 $ 1,446,837 Fiscal Year 2009 $ 1,528,199 2008 $ 1,099,558 1,422,964 $ $13,220,688 1,446,837 $ $12,186,063 1,528,199 $ $12,476,282 1,099,558 $ $12,766,878 664,443 $ $10,737,465 10.76% 11.87% 12.25% 8.61% 6.19% Public Safety Retirement System - Fire Actuarially determined contribution Contributions in relation to the actuarially determined contributions Contribution deficiency (excess) Covered payroll Contributions as a percentage of covered payroll Actuarially determined contribution Contributions in relation to the actuarially determined contributions Contribution deficiency (excess) Covered payroll Contributions as a percentage of covered payroll 82 $ 2007 664,443 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA REQUIRED SUPPLEMENTARY INFORMATION June 30, 2016 Note to Pension Plan Schedules – Actuarially Determined Contribution Rates Actuarial determined contribution rates for the Public Safety Personnel Retirement System 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 cost method Amortization method Remaining amortization period as of the 2014 actuarial valuation Asset valuation method Actuarial assumptions: Investment rate of return Projected salary increases Wage growth Retirement age Mortality Individual entry age normal Level percent closed for unfunded actuarial accrued liability, open for excess 22 years for unfunded actuarial accrued liability, 20 years for excess 7-year smoothed market value, 80%/120% market corridor In the 2013 actuarial valuation, the investment rate of return was decreased from 8.0% to 7.85% In the 2014 actuarial valuation, projected salary increases were decreased from 4.5%-8.5% to 4.0%-8.0%. In the 2013 actuarial valuation, projected salary increases were decreased from 5.0%-9.0% to 4.5%-8.5%. In the 2014 actuarial valuation, wage growth was decreased from 4.5% to 4.0%. In the 2013 actuarial valuation, wage growth was decreased from 5.0% to 4.5%. Experience-based table of rates that is specific to the type of eligibility condition. Last updated for the 2012 valuation pursuant to the experience study of the period July 1, 2006 – June 30, 2011. RP-2000 mortality table (adjusted by 105% for both males and females) 83 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA REQUIRED SUPPLEMENTARY INFORMATION June 30, 2016 Schedule of Agent OPEB Plans’ Funding Progress: Arizona Public Safety Personnel Retirement System – Police Schedule of Funding Progress – Health Insurance Premium Benefit Actuarial Valuation Date June 30 2016 2015 2014 Actuarial Value of Plan Assets (1) $2,150,297 1,995,251 1,764,456 Actuarial Accrued Liability (AAL) (2) $2,346,071 2,191,760 1,993,264 Unfunded AAL (1)-(2) $(195,774) (196,509) (228,808) Fund Ratio (1)/(2) 91.66% 91.03% 88.52% Annual Covered Payroll $17,784,704 17,676,371 18,650,590 Unfunded AAL As Percentage of Covered Payroll (3)/(5) (1.10)% (1.11)% (1.23)% Annual Covered Payroll $14,459,743 14,561,683 14,685,147 Unfunded AAL As Percentage of Covered Payroll (3)/(5) (2.35)% (1.76)% (2.02)% Arizona Public Safety Personnel Retirement System – Fire Schedule of Funding Progress – Health Insurance Premium Benefit Actuarial Valuation Date June 30 2016 2015 2014 Actuarial Value of Plan Assets (1) $1,349,131 1,209,449 1,039,413 Actuarial Accrued Liability (AAL) (2) $1,688,437 1,465,883 1,335,632 Unfunded AAL (1)-(2) $(339,306) (256,434) (296,219) Fund Ratio (1)/(2) 79.90% 82.51% 77.82% Note: Beginning in fiscal year 2014, the Arizona Public Safety Personnel Retirement System established separate funds for pension benefits and health insurance premium benefits. Previously, the plans recorded both pension and health insurance premium contributions in the same Pension Fund. During fiscal year 2014, the plans transferred prior-year health insurance premium benefit contributions that exceeded benefit payments from each plan’s Pension Fund to the new Health Insurance Fund. 84 TABLE OF CONTENTS NONMAJOR FUNDS OTHER GOVERNMENTAL FUNDS Special Revenue Funds Special Revenue Funds are used to account for revenues and expenditures from specific taxes or other earmarked sources. Such funds are usually required by statute or ordinance to finance particular functions or activities. Grants - accounts for miscellaneous grants received from Federal, State and local governments that require segregation of revenues and expenditures. Other Special Revenue - accounts for revenues received from various agencies and sources, including seized funds from law enforcement agencies that are required to be used for specific purposes. Community Development Block Grants (CDBG) – accounts for a series of ongoing entitlements received directly from the U.S. Department of Housing and Urban Development (HUD) and used for affordable housing and redevelopment activities. HOME Program accounts for HUD monies received from Maricopa County for affordable housing activities including housing rehabilitation. Street Light Improvement District - accounts for taxes received from and expenditures of the street light maintenance improvement districts. Parkway Maintenance District - accounts for taxes received from and expenditures of the parkway maintenance improvement districts. Capital Projects Funds Capital Projects Funds are established to account for the acquisition and construction of major capital facilities other than those financed by proprietary funds. Outside Sources - accounts for the purchase or construction of capital assets with funds from outside sources, i.e., developers or other governments. Prop 400 - accounts for the receipt of state funds in accordance with the MAG Regional Transportation Plan approved by voters as Proposition 400 in 2004. The expenditure of those funds are for various street improvement projects. Municipal Property Corporation – accounts for the construction or purchase of capital assets to be funded through the use of Public Facilities Municipal Property Corporation revenue bonds. 85 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA Combining Balance Sheet Nonmajor Governmental Funds June 30, 2016 Special Revenue ASSETS Pooled cash and investments Receivables, net: Taxes Accrued interest Accounts Due from other governments Inventories Restricted assets: Cash and investments Accrued interest Total assets LIABILITIES AND FUND BALANCES Liabilities: Accounts payable Accrued liabilities Deposits held for others Due to other funds Unearned revenue Total liabilities Fund Balances: Nonspendable Restricted Assigned Unassigned Total fund balances Total liabilities and fund balances Grants Other Special Revenue $ 1,148,056 $ 1,377,093 2,425 191,380 - 3,429 53,030 834,603 - 183,210 - 12,802 - 6,518 308 4,138 $ 1,341,861 $ 2,268,155 $ 195,567 12,802 234,934 $ $ $ 237,615 3,227 240,842 1,101,019 1,101,019 $ 1,341,861 51,456 37,407 13,564 102,427 2,185,839 (20,111) 2,165,728 $ 2,268,155 86 CDBG/HOME Street Light Improvement District Parkway Maintenance District $ $ $ $ 12,357 44,716 7,645 133,406 185,767 12,357 (2,557) 9,800 195,567 $ $ $ - 29,552 29,552 (16,750) (16,750) 12,802 $ $ $ 223,970 25,290 4,559 29,849 4,138 200,947 205,085 234,934 TABLE OF CONTENTS Capital Projects Outside Sources $ $ $ $ 20,274,595 Prop 400 $ 15,202,440 Municipal Property Corporation $ - Total Nonmajor Governmental Funds $ 38,238,511 31,844 - 24,197 - - 19,320 62,203 53,030 1,209,193 4,138 20,306,439 15,226,637 331,421 7 331,428 331,421 7 39,917,823 14,008 639,239 653,247 19,653,192 19,653,192 20,306,439 $ $ $ 119,680 119,680 15,106,957 15,106,957 15,226,637 $ $ $ 741 741 330,687 330,687 331,428 $ $ 493,506 52,838 639,239 162,958 13,564 1,362,105 4,138 18,937,806 19,653,192 (39,418) 38,555,718 39,917,823 $ 87 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA Combining Statement of Revenues, Expenditures, and Changes in Fund Balances Nonmajor Governmental Funds For the Year Ended June 30, 2016 Special Revenue Other Special Revenue Grants Revenues Taxes: Property Intergovernmental Charges for services Other entities' participation Gifts and donations Fines and forfeitures Investment earnings Miscellaneous Total revenues Expenditures Current: General government: Management and policy Court Public safety: Police Fire Highways and streets Parks and recreation Transportation Non departmental Debt service: Fiscal and other charges Capital outlay Total expenditures Excess (deficiency) of revenues over (under) expenditures Other financing sources (uses) Transfers in Transfers out Total other financing sources and uses Net change in fund balances Fund balances at beginning of year Fund balances at end of year $ 1,160,155 14,291 1,174,446 $ 20,000 1,428,661 162,693 591,303 23,932 67,000 2,293,589 CDBG/HOME Street Light Improvement District Parkway Maintenance District $ $ $ 603,758 12 603,770 1,730,607 1,730,607 845,740 2,004 847,744 - 23,306 371,199 581,359 - - - 353,195 114,610 695,752 - 1,395,015 25,341 49,884 - 1,780,370 - 854,888 - 347,537 1,511,094 1,864,745 25,288 606,647 1,780,370 854,888 (336,648) (336,648) 428,844 (2,877) (141,019) (141,019) 13,394 13,394 287,825 10,517 1,437,667 1,877,903 $ 1,101,019 $ 2,165,728 88 (49,763) - 9,800 - (49,763) (717) $ (7,144) (7,144) 33,013 $ (16,750) 212,229 $ 205,085 TABLE OF CONTENTS Capital Projects Outside Sources $ Prop 400 174,257 581,760 176,050 11,359,750 12,291,817 $ 4,703,074 126,207 4,829,281 $ Total Nonmajor Governmental Funds 233 233 $ 2,576,347 6,661,244 1,428,661 581,760 162,693 591,303 342,729 11,426,750 23,771,487 - - - 604,665 371,199 5,125 - - - 1,748,210 139,951 1,780,370 860,013 695,752 49,884 129,278 134,403 2,944,931 2,944,931 5,166 108,746 113,912 5,166 3,555,780 9,810,990 12,157,414 1,884,350 (113,679) 13,960,497 - - 12,157,414 1,884,350 7,495,778 $ Municipal Property Corporation 19,653,192 4,425 4,425 (109,254) 13,222,607 $ 15,106,957 17,819 (141,019) (123,200) 13,837,297 439,941 $ 330,687 24,718,421 $ 38,555,718 89 TABLE OF CONTENTS 90 TABLE OF CONTENTS BUDGETARY COMPARISON SCHEDULES 91 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA Grants Special Revenue Fund Schedule of Revenues, Expenditures, and Changes in Fund Balances - Budget and Actual - Budgetary Basis For the Year Ended June 30, 2016 Variance with Final Budget Positive (Negative) Budgeted Amounts Original Revenues Intergovernmental Investment earnings Total revenues $ Expenditures Current: General government: Management and policy Public safety: Police Fire Transportation Capital outlay Contingency Total expenditures Excess (deficiency) of revenues over (under) expenditures Net change in fund balances 8,578,510 8,578,510 Final $ 8,578,510 8,578,510 $ 1,160,155 14,291 1,174,446 $ (7,418,355) 14,291 (7,404,064) 32,570 32,570 - 32,570 172,470 202,000 715,020 2,556,470 5,000,000 8,678,530 457,345 319,195 715,020 3,155,825 1,090,946 5,770,901 353,195 114,610 695,752 347,537 1,511,094 104,150 204,585 19,268 2,808,288 1,090,946 4,259,807 (100,020) $ Actual Amounts (100,020) $ 2,807,609 (336,648) 2,807,609 (336,648) Fund balance at beginning of year 1,437,667 Fund balance at end of year $ 92 1,101,019 (3,144,257) $ (3,144,257) TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA Other Special Revenue Funds Schedule of Revenues, Expenditures, and Changes in Fund Balances - Budget and Actual - Budgetary Basis For the Year Ended June 30, 2016 Variance with Budgeted Amounts Original Revenues Intergovernmental Charges for services Gifts and donations Fines and forfeitures Investment earnings Miscellaneous Total revenues $ Expenditures Current: General government: Management and policy Court Public safety: Police Fire Parks and recreation Non departmental Capital outlay Contingency Total expenditures 1,488,090 1,137,390 561,000 3,186,480 Actual Amounts Final $ 1,488,090 1,137,390 561,000 3,186,480 $ 20,000 1,428,661 162,693 591,303 23,932 67,000 2,293,589 Final Budget Positive (Negative) $ 20,000 (59,429) (974,697) 30,303 23,932 67,000 (892,891) 268,700 588,400 187,100 588,400 23,306 371,199 163,794 217,201 1,843,800 48,000 43,000 49,890 1,000,000 3,841,790 1,913,800 51,500 43,000 49,890 81,600 104,115 3,019,405 1,395,015 25,341 49,884 1,864,745 518,785 26,159 43,000 6 81,600 104,115 1,154,660 Excess (deficiency) of revenues over (under) expenditures (655,310) 167,075 428,844 261,769 Other financing uses Transfers out Total other financing uses (185,920) (185,920) (185,920) (185,920) (141,019) (141,019) 44,901 44,901 (18,845) 287,825 Net change in fund balances $ (841,230) $ Fund balance at beginning of year 1,877,903 Fund balance at end of year $ 93 2,165,728 $ 306,670 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA CDBG/HOME Special Revenue Fund Schedule of Revenues, Expenditures, and Changes in Fund Balances - Budget and Actual - Budgetary Basis For the Year Ended June 30, 2016 Variance with Budgeted Amounts Original Revenues Intergovernmental Investment earnings Total revenues $ Expenditures Current: General government: Management and policy Capital outlay Total expenditures Actual Amounts Final 1,895,160 1,895,160 $ 1,895,160 1,895,160 $ 603,758 12 603,770 Final Budget Positive (Negative) $ 1,895,160 1,895,160 1,007,620 887,540 1,895,160 Deficiency of revenues under expenditures - - (2,877) (2,877) Other financing sources Transfers in Total other financing sources - - 13,394 13,394 13,394 13,394 - 10,517 Net change in fund balances $ - $ 581,359 25,288 606,647 (1,291,402) 12 (1,291,390) Fund deficit at beginning of year (717) Fund balance at end of year $ 94 9,800 426,261 862,252 1,288,513 $ 10,517 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA Street Light Improvement District Special Revenue Fund Schedule of Revenues, Expenditures, and Changes in Fund Balances - Budget and Actual - Budgetary Basis For the Year Ended June 30, 2016 Variance with Budgeted Amounts Original Revenues Taxes Total revenues $ Expenditures Current: Highways and streets Total expenditures Final $ 1,825,450 1,825,450 Deficiency of revenues under expenditures Net change in fund balances 1,731,680 1,731,680 (93,770) 1,731,680 1,731,680 $ 1,825,450 1,825,450 (93,770) $ Actual Amounts $ 1,730,607 1,730,607 (93,770) (49,763) (93,770) (49,763) 33,013 $ 95 $ 1,780,370 1,780,370 Fund balance at beginning of year Fund deficit at end of year Final Budget Positive (Negative) (16,750) (1,073) (1,073) 45,080 45,080 44,007 $ 44,007 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA Parkway Maintenance District Special Revenue Fund Schedule of Revenues, Expenditures, and Changes in Fund Balances - Budget and Actual - Budgetary Basis For the Year Ended June 30, 2016 Variance with Budgeted Amounts Original Revenues Taxes Investment earnings Total revenues $ Expenditures Current: Parks and recreation Total expenditures Final $ 1,033,960 1,033,960 Deficiency of revenues under expenditures Net change in fund balances 839,640 839,640 (194,320) 839,640 839,640 $ 1,033,960 1,033,960 (194,320) $ Actual Amounts $ 845,740 2,004 847,744 (194,320) (7,144) (194,320) (7,144) 212,229 $ 96 $ 854,888 854,888 Fund balance at beginning of year Fund balance at end of year Final Budget Positive (Negative) 205,085 6,100 2,004 8,104 179,072 179,072 187,176 $ 187,176 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA General Debt Obligations Debt Service Fund Schedule of Revenues, Expenditures, and Changes in Fund Balances - Budget and Actual - Budgetary Basis For the Year Ended June 30, 2016 Variance with Budgeted Amounts Original Revenues Property taxes Investment earnings Total revenues $ Expenditures Debt service: Principal Interest Fiscal and other charges Total expenditures Deficiency of revenues under expenditures Other financing sources Transfers in Total other financing sources Net change in fund balances $ 21,200,000 100,000 21,300,000 Actual Amounts Final $ 21,200,000 100,000 21,300,000 $ 19,423,566 267,848 19,691,414 28,310,000 11,541,780 3,250 39,855,030 28,310,000 11,541,780 3,250 39,855,030 28,310,000 11,541,775 1,310 39,853,085 (18,555,030) (18,555,030) (20,161,671) 20,214,790 20,214,790 20,214,790 20,214,790 20,215,466 20,215,466 1,659,760 53,795 1,659,760 $ Fund balance at beginning of year 14,932,788 Fund balance at end of year $ 97 14,986,583 Final Budget Positive (Negative) $ (1,776,434) 167,848 (1,608,586) 5 1,940 1,945 (1,606,641) 676 676 $ (1,605,965) TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA Special Assessments Debt Service Fund Schedule of Revenues, Expenditures, and Changes in Fund Balances - Budget and Actual - Budgetary Basis For the Year Ended June 30, 2016 Variance with Budgeted Amounts Original Revenues Special assessments Investment earnings Total revenues $ Expenditures Debt service: Principal Interest Fiscal and other charges Total expenditures Excess of revenues over expenditures Net change in fund balances $ 7,000,060 7,000,060 Actual Amounts Final $ 7,000,060 7,000,060 $ 2,232,678 4,197 2,236,875 6,060,000 446,670 8,800 6,515,470 6,056,150 446,670 12,650 6,515,470 1,795,000 394,755 6,534 2,196,289 484,590 484,590 40,586 484,590 40,586 484,590 $ Fund balance at beginning of year 33,734 Fund balance at end of year $ 98 74,320 Final Budget Positive (Negative) $ (4,767,382) 4,197 (4,763,185) 4,261,150 51,915 6,116 4,319,181 (444,004) $ (444,004) TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA Outside Sources Capital Projects Fund Schedule of Revenues, Expenditures, and Changes in Fund Balances - Budget and Actual - Budgetary Basis For the Year Ended June 30, 2016 Variance with Budgeted Amounts Original Revenues Intergovernmental Other entities' participation Investment earnings Miscellaneous Total revenues $ 12,590,000 12,590,000 Actual Amounts Final $ 12,590,000 12,590,000 $ 174,257 581,760 176,050 11,359,750 12,291,817 Final Budget Positive (Negative) $ 174,257 (12,008,240) 176,050 11,359,750 (298,183) Expenditures Current: Parks and recreation Capital outlay Contingency Total expenditures 2,619,280 10,109,280 12,728,560 Excess (deficiency) of revenues over (under) expenditures Net change in fund balances 2,500,000 10,320,784 102,776 12,923,560 (138,560) $ (138,560) $ 5,125 129,278 134,403 2,494,875 10,191,506 102,776 12,789,157 (333,560) 12,157,414 12,490,974 (333,560) 12,157,414 Fund balance at beginning of year 7,495,778 Fund balance at end of year $ 99 19,653,192 $ 12,490,974 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA Prop 400 Capital Projects Fund Schedule of Revenues, Expenditures, and Changes in Fund Balances - Budget and Actual - Budgetary Basis For the Year Ended June 30, 2016 Variance with Budgeted Amounts Original Revenues Intergovernmental Investment earnings Total revenues $ Expenditures Capital outlay Contingency Total expenditures Excess (deficiency) of revenues over (under) expenditures Net change in fund balances $ 2,407,000 2,407,000 Actual Amounts Final $ 2,407,000 2,407,000 $ 4,703,074 126,207 4,829,281 Final Budget Positive (Negative) $ 2,296,074 126,207 2,422,281 14,905,850 14,905,850 10,759,301 4,146,549 14,905,850 2,944,931 2,944,931 7,814,370 4,146,549 11,960,919 (12,498,850) (12,498,850) 1,884,350 14,383,200 (12,498,850) 1,884,350 (12,498,850) $ Fund balance at beginning of year 13,222,607 Fund balance at end of year $ 100 15,106,957 $ 14,383,200 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA GO Bonds Capital Projects Fund Schedule of Revenues, Expenditures, and Changes in Fund Balances - Budget and Actual - Budgetary Basis For the Year Ended June 30, 2016 Variance with Final Budget Positive (Negative) Budgeted Amounts Original Revenues Investment earnings Miscellaneous Total revenues $ Expenditures Capital outlay Contingency Total expenditures Deficiency of revenues under expenditures Other financing sources General obligation bonds issued Total other financing sources Net change in fund balances $ Actual Amounts Final - $ - $ 152,132 100 152,232 $ 152,132 100 152,232 17,285,570 17,285,570 17,888,715 128,749 18,017,464 6,668,257 6,668,257 11,220,458 128,749 11,349,207 (17,285,570) (18,017,464) (6,516,025) 11,501,439 48,040,000 48,040,000 48,040,000 48,040,000 30,754,430 $ - 30,022,536 (6,516,025) Fund balance at beginning of year 19,219,844 Fund balance at end of year $ 101 12,703,819 (48,040,000) (48,040,000) $ (36,538,561) TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA Municipal Property Corporation Capital Projects Fund Schedule of Revenues, Expenditures, and Changes in Fund Balances - Budget and Actual - Budgetary Basis For the Year Ended June 30, 2016 Variance with Budgeted Amounts Original Revenues Investment earnings Total revenues $ Expenditures Debt service: Fiscal and other charges Capital outlay Contingency Total expenditures Deficiency of revenues under expenditures Other financing sources Transfers in Total other financing sources Net change in fund balances Final - $ - $ 233 233 Final Budget Positive (Negative) $ 233 233 8,750 179,320 188,070 8,750 153,442 25,878 188,070 5,166 108,746 113,912 3,584 44,696 25,878 74,158 (188,070) (188,070) (113,679) 74,391 8,840 8,840 $ Actual Amounts (179,230) 8,840 8,840 $ 4,425 4,425 (179,230) (109,254) Fund balance at beginning of year 439,941 Fund balance at end of year $ 102 330,687 (4,415) (4,415) $ 69,976 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA System Development Fees Capital Projects Fund Schedule of Revenues, Expenditures, and Changes in Fund Balances - Budget and Actual - Budgetary Basis For the Year Ended June 30, 2016 Variance with Budgeted Amounts Original Revenues System development fees Investment earnings Total revenues $ Expenditures Capital outlay Contingency Total expenditures Excess of revenues over expenditures Other financing uses Transfers out Total other financing uses Net change in fund balances $ 17,700,000 80,000 17,780,000 Actual Amounts Final $ 17,700,000 80,000 17,780,000 $ 22,943,883 389,185 23,333,068 Final Budget Positive (Negative) $ 5,243,883 309,185 5,553,068 5,067,060 5,067,060 3,585,568 1,595,606 5,181,174 1,938,467 1,938,467 1,647,101 1,595,606 3,242,707 12,712,940 12,598,826 21,394,601 8,795,775 (11,084,830) (11,084,830) (11,084,830) (11,084,830) (11,176,008) (11,176,008) 1,513,996 10,218,593 1,628,110 $ Fund balance at beginning of year 5,576,224 Fund balance at end of year $ 103 15,794,817 (91,178) (91,178) $ 8,704,597 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA Saint Xavier University Revenue Obligations Schedule of Revenues, Expenditures, and Changes in Fund Balances - Budget and Actual - Budgetary Basis For the Year Ended June 30, 2016 Variance with Budgeted Amounts Original Revenues Miscellaneous Total revenues $ Expenditures Debt Service: Interest Fiscal and other charges Capital outlay Contingency Total expenditures Deficiency of revenues under expenditures Net change in fund balances $ Actual Amounts Final - $ - $ 57,289 57,289 Final Budget Positive (Negative) $ 57,289 57,289 2,018,230 2,000 20,784,090 22,804,320 2,018,230 2,000 13,462,329 7,321,761 22,804,320 1,836,814 24,000 5,327,458 7,188,272 181,416 (22,000) 8,134,871 7,321,761 15,616,048 (22,804,320) (22,804,320) (7,130,983) 15,673,337 (22,804,320) (7,130,983) (22,804,320) $ Fund balance at beginning of year 12,635,183 Fund balance at end of year $ 104 5,504,200 $ 15,673,337 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA Water Enterprise Fund Schedule of Revenues, Expenses and Changes in Net Position - Budget and Actual - Budgetary Basis For the Year Ended June 30, 2016 Variance with Budgeted Amounts Original Operating revenues Charges for services Other Total operating revenues $ Operating expenses General and administrative Personal services Operation and maintenance Capital outlay Allocation of indirect expenses Debt service: Principal Contingency Total operating expenses Operating loss Nonoperating revenues (expenses) Intergovernmental Interest expense Investment earnings Loss on sale of capital assets Total nonoperating revenues (expenses) Loss before captal contributions and transfers Capital contributions Transfers out Change in net position $ 39,076,000 40,000 39,116,000 Final $ 39,076,000 40,000 39,116,000 Final Budget Positive (Negative) Actual Amounts $ 39,457,349 84,038 39,541,387 $ 381,349 44,038 425,387 1,931,790 8,286,720 17,215,710 48,202,980 1,898,050 2,813,352 8,286,720 16,509,671 47,295,117 1,898,050 1,388,144 7,995,667 14,493,958 13,621,712 1,898,049 1,425,208 291,053 2,015,713 33,673,405 1 8,275,000 1,823,910 87,634,160 23,632,490 3,548,736 103,984,136 22,898,980 62,296,510 733,510 3,548,736 41,687,626 (48,518,160) (64,868,136) (22,755,123) 42,113,013 1,000,000 (4,228,250) 625,000 (2,603,250) 1,000,000 (6,164,830) 625,000 (4,539,830) 1,144,446 (5,793,878) 1,402,631 (20,065) (3,266,866) (51,121,410) (69,407,966) (26,021,989) 43,385,977 11,600,000 (905,000) 11,600,000 (905,000) 14,226,464 (890,454) 2,626,464 14,546 (58,712,966) (12,685,979) (40,426,410) $ Explanation of difference between budgetary change in net position at June 30, 2016, and GAAP change in net position: Obligations for compensated absenses and post-employment benefits are accrued on the GAAP basis but are not recognized on the budget basis: Add compensated absences at June 30, 2015 Less compensated absences at June 30, 2016 Add post-employment benefits at June 30, 2015 Less post-employment benefits at June 30, 2016 Capital outlays are not recognized as GAAP expenses but are recognized as expenses on the budget basis. Debt service principal payments are not recognized as expenses on the GAAP basis but are recognized as expenses on the budget basis. Capital assets contributed by developers are recognized as revenue for GAAP purposes by are not recognized as revenue on the budget basis. Depreciation is recognized as an expense for GAAP purposes but is not recognized for budgetary purposes. Change in net position as reported on the statement of revenues, expenses and changes in fund net position 105 938,490 (1,038,263) 172,002 (316,978) 13,621,712 22,898,980 13,274,128 (12,148,611) $ 24,715,481 144,446 370,952 777,631 (20,065) 1,272,964 $ 46,026,987 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA Wastewater Enterprise Fund Schedule of Revenues, Expenses and Changes in Net Position - Budget and Actual - Budgetary Basis For the Year Ended June 30, 2016 Variance with Budgeted Amounts Original Operating revenues Charges for services Other Total operating revenues $ Operating expenses General and administrative Personal services Operation and maintenance Capital outlay Allocation of indirect expenses Contingency Total operating expenses Operating income (loss) Nonoperating revenues Investment earnings Gain on sale of capital assets Total nonoperating revenues $ Actual Amounts 25,182,000 25,182,000 $ Capital contributions Transfers in $ 25,115,912 2,030 25,117,942 $ (66,088) 2,030 (64,058) 494,410 3,765,510 10,641,890 21,360,290 989,610 2,377,690 39,629,400 500,520 3,765,510 11,068,280 24,753,792 989,610 573,233 41,650,945 775,867 3,756,324 10,514,348 3,257,855 989,609 19,294,003 (275,347) 9,186 553,932 21,495,937 1 573,233 22,356,942 (14,447,400) (16,468,945) 5,823,939 22,292,884 993,895 8,003 1,001,898 673,895 8,003 681,898 22,974,782 320,000 320,000 Income (loss) before capital contributions and transfers Change in net position 25,182,000 25,182,000 Final Final Budget Positive (Negative) 320,000 320,000 (14,127,400) (16,148,945) 6,825,837 5,950,000 820,000 5,950,000 820,000 8,531,941 792,060 (9,378,945) 16,149,838 (7,357,400) $ Explanation of difference between budgetary change in net position at June 30, 2016, and GAAP change in net position: Obligations for compensated absences and post-employment benefits are accrued on the GAAP basis but are not recognized on the budget basis: Add compensated absences at June 30, 2015 Less compensated absences at June 30, 2016 Add post-employment benefits at June 30, 2015 Less post-employment benefits at June 30, 2016 Capital outlays are not recognized as GAAP expenses but are recognized as expenses on the budget basis. Capital assets contributed by developers are recognized as revenue for GAAP purposes but are not recognized as revenue on the budget basis. Depreciation is recognized as an expense for GAAP purposes but is not recognized for budgetary purposes. Change in net position as reported on the statement of revenues, expenses and changes in fund net position 106 475,983 (489,327) 64,960 (114,272) 3,257,855 7,529,858 (10,266,894) $ 16,608,001 2,581,941 (27,940) $ 25,528,783 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA Environmental Services Enterprise Fund Schedule of Revenues, Expenses and Changes in Net Position - Budget and Actual - Budgetary Basis For the Year Ended June 30, 2016 Variance with Final Budget Positive (Negative) Budgeted Amounts Original Operating revenues Charges for services Other Total operating revenues $ 18,269,000 85,000 18,354,000 Actual Amounts Final $ 18,269,000 85,000 18,354,000 $ 18,140,763 172,991 18,313,754 $ (128,237) 87,991 (40,246) Operating expenses General and administrative Personal services Operation and maintenance Capital outlay Allocation of indirect expenses Contingency Total operating expenses 483,500 7,109,520 7,880,110 9,178,420 978,720 2,014,530 27,644,800 618,277 7,014,520 8,268,360 9,190,750 978,720 1,574,173 27,644,800 842,231 6,733,756 7,255,021 5,492,088 978,718 21,301,814 (223,954) 280,764 1,013,339 3,698,662 2 1,574,173 6,342,986 Operating loss (9,290,800) (9,290,800) (2,988,060) 6,302,740 Nonoperating revenues Investment earnings Gain on sale of capital assets Total nonoperating revenues 156,000 156,000 Loss before transfers (9,134,800) Transfers in Change in net position 156,000 156,000 (9,134,800) 55,000 $ (9,079,800) 269,309 142,468 411,777 (2,576,283) 55,000 $ (2,576,283) Explanation of difference between budgetary change in net position at June 30, 2016, and GAAP change in net position: 107 6,558,517 - (9,079,800) Obligations for compensated absences are accrued on the GAAP basis but are not recognized on the budget basis: Add compensated absences at June 30, 2015 Less compensated absences at June 30, 2016 Add post-employment benefits at June 30, 2015 Less post-employment benefits at June 30, 2016 Capital outlays are not recognized as GAAP expenses but are recognized as expenses on a budget basis. Depreciation is recognized as an expense for GAAP purposes but is not recognized for budgetary purposes. Change in net position as reported on the statement of revenues, expenses and changes in fund net position 113,309 142,468 255,777 470,840 (628,351) 121,176 (230,625) 5,492,088 (1,251,460) $ 1,397,385 (55,000) $ 6,503,517 TABLE OF CONTENTS 108 TABLE OF CONTENTS INTERNAL SERVICE FUNDS Internal Service Funds are used to account for the financing of goods or services provided by one department to other departments of the government, on a cost reimbursement basis. Equipment Maintenance - to account for the revenues and expenses from the maintenance of Gilbert's motorized equipment. Copy Services - to account for the revenues and expenses from the operation of centrally located copiers within Gilbert (this fund was closed in fiscal year 2016). Employee Benefit Self-Insurance - to account for and finance Gilbert’s uninsured risks of loss for medical and dental claims. 109 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA Internal Service Funds Combining Statement of Net Position June 30, 2016 Equipment Maintenance ASSETS Current assets: Pooled cash and investments Receivables (net): Accrued interest Accounts Inventories Total current assets $ 659,068 Employee Benefit SelfInsurance Copier Services $ - $ Total 1,903,663 $ 2,562,731 469 8,537 526,979 1,195,053 - 1,958 350,177 2,255,798 2,427 358,714 526,979 3,450,851 236,423 (230,044) 6,379 1,201,432 - 2,255,798 236,423 (230,044) 6,379 3,457,230 DEFERRED OUTFLOWS OF RESOURCES Pension-related items Total deferred outflows of resources 310,539 310,539 - - 310,539 310,539 LIABILITIES Current liabilities: Accounts payable Accrued liabilities Current portion of compensated absences Claims payable Due to other funds Total current liabilities 297,016 61,566 83,846 442,428 - 240 1,706,260 1,200,000 2,906,500 297,256 61,566 83,846 1,706,260 1,200,000 3,348,928 Noncurrent liabilities: Long-term portion of compensated absences Net pension liability Total noncurrent liabilities 105,262 2,063,177 2,168,439 - - 105,262 2,063,177 2,168,439 Total liabilities 2,610,867 - 2,906,500 5,517,367 168,057 168,057 - - 168,057 168,057 Noncurrent assets: Capital assets: Property, plant and equipment Less accumulated depreciation Total capital assets (net) Total assets DEFERRED INFLOWS OF RESOURCES Pension-related items Total deferred inflows of resources NET POSITION Net investment in capital assets Unrestricted Total net position $ 6,379 (1,273,332) (1,266,953) 110 $ - $ (650,702) (650,702) $ 6,379 (1,924,034) (1,917,655) TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA Internal Service Funds Combining Statement of Revenues, Expenses and Changes in Fund Net Position For the Year Ended June 30, 2016 Equipment Maintenance Operating revenues Charges for services Other Total operating revenues $ Operating expenses General and administrative Personal services Operation and maintenance Claims Incurred Depreciation Total operating expenses 6,394,482 3,419 6,397,901 $ (192,533) Nonoperating revenues (expenses) Investment earnings Loss on sale of capital assets Total nonoperating revenues (expenses) 1,742 1,742 Loss before transfers (1,076,162) $ (1,266,953) 111 $ Total 15,610,144 1,045,468 16,655,612 $ 22,004,626 1,048,887 23,053,513 - 1,206,242 19,416,633 20,622,875 1,272,344 1,809,993 4,710,729 19,416,633 3,610 27,213,309 - (3,967,263) (4,159,796) 10,386 10,386 12,128 (187,140) (175,012) (3,956,877) 77,690 (190,791) Total net position, beginning of year $ (187,140) - Change in net position - (187,140) (187,140) (190,791) Transfers in Total net position, end of year Copier Services 66,102 1,809,993 4,710,729 3,610 6,590,434 Operating loss Employee Benefit SelfInsurance (4,334,808) - 77,690 (109,450) (3,956,877) (4,257,118) 109,450 3,306,175 2,339,463 - $ (650,702) $ (1,917,655) TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA Internal Service Funds Combining Statement of Cash Flows Year Ended June 30, 2016 Equipment Maintenance Cash flows from operating activities: Other operating cash receipts Cash receipts from other funds for services Cash payments to suppliers for goods and services Cash payments to employees for services $ 3,419 6,392,503 (4,700,078) (1,763,085) Net cash used in operating activities Net cash provided by noncapital financing activities Cash flows from investing activities: Interest received on investments Net cash provided by investing activities Net decrease in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year Reconciliation of operating loss to net cash used in operations: Operating loss Adjustments to reconcile operating loss to net cash used in operating activities: Depreciation Changes in assets and liabilities: Increase in accounts receivable Decrease in inventories Decrease in deferred outflows of resources Increase (decrease) in accounts payable Increase in claims payable Increase in accrued expenses Increase in net pension liability Decrease in deferred inflows of resources (35,328) - $ 805,700 15,610,144 (20,316,862) - Total $ 809,119 22,002,647 (25,052,268) (1,763,085) (35,328) (3,901,018) (4,003,587) - (42,362) 77,690 1,200,000 - 1,157,638 77,690 - 35,328 1,200,000 1,235,328 2,290 - 10,240 12,530 2,290 - 10,240 12,530 (64,951) 724,019 - (2,690,778) 4,594,441 (2,755,729) 5,318,460 $ 659,068 $ - $ 1,903,663 $ 2,562,731 $ (192,533) $ - $ (3,967,263) $ (4,159,796) 3,610 - (35,328) - (2,076) 308,089 - 125,292 (35,328) 66,245 156,209 (67,241) 112 - $ (35,328) (239,768) - 3,610 (241,747) 26,243 53,238 13,106 308,089 5,071 154,339 (165,740) $ - - (1,979) 26,243 53,238 50,510 5,071 154,339 (165,740) Total adjustments Net cash used in operating activities $ (67,241) Cash flows from noncapital financing activities: Changes in due to other funds Transfers from other funds Employee Benefit SelfInsurance Copier Services - $ (3,901,018) $ (4,003,587) TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA Equipment Maintenance Internal Service Fund Schedule of Revenues, Expenses and Changes in Net Position - Budget and Actual - Budgetary Basis For the Year Ended June 30, 2016 Variance with Budgeted Amounts Original Operating revenues Charges for services Other Total operating revenues $ Operating expenses General and administrative Personal services Operation and maintenance Capital outlay Contingency Total operating expenses 8,156,000 3,000 8,159,000 $ 8,156,000 3,000 8,159,000 (374,880) 113 (170,026) 171,953 (189,108) (3,610) $ (190,791) (1,761,518) 419 (1,761,099) 42,878 73,762 1,281,541 66,030 500,000 1,964,211 203,112 1,742 1,742 (374,880) Explanation of difference between budgetary change in net position at June 30, 2016, and GAAP change in net position: Obligations for compensated absences are accrued on the GAAP basis but are not recognized on the budget basis: Add compensated absences at June 30, 2015 Less compensated absences at June 30, 2016 Depreciation is recognized as an expense for GAAP purposes but is not recognized for budgetary purposes. Change in net position as reported on the statement of revenues, expenses and changes in fund net position $ (171,768) $ 6,394,482 3,419 6,397,901 Final Budget Positive (Negative) 66,102 1,792,838 4,710,729 6,569,669 (374,880) $ $ 108,980 1,866,600 5,992,270 66,030 500,000 8,533,880 (374,880) Nonoperating revenues Investment earnings Total nonoperating revenues Change in net position Final 108,980 1,866,600 5,992,270 66,030 500,000 8,533,880 Operating loss Actual Amounts 1,742 1,742 $ 204,854 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA Copier Services Internal Service Fund Schedule of Revenues, Expenses and Changes in Net Position - Budget and Actual - Budgetary Basis For the Year Ended June 30, 2016 Variance with Final Budget Positive (Negative) Budgeted Amounts Original Operating revenues Charges for services Total operating revenues $ Operating expenses General and administrative Operation and maintenance Total operating expenses Operating income Nonoperating revenues (expenses) Investment earnings Loss on sale of capital assets Total nonoperating revenues (expenses) Income (loss) before transfers $ Final 400,000 400,000 $ 400,000 400,000 $ - $ (400,000) (400,000) 1,040 309,700 310,740 1,040 309,700 310,740 - 1,040 309,700 310,740 89,260 89,260 - (89,260) 1,000 1,000 1,000 1,000 (187,140) (187,140) (1,000) (187,140) (188,140) 90,260 90,260 (187,140) (277,400) - - 77,690 77,690 Transfers in Change in net position Actual Amounts 90,260 114 $ 90,260 $ (109,450) $ (199,710) TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA Employee Benefit Self-Insurance Internal Service Fund Schedule of Revenues, Expenses and Changes in Net Position - Budget and Actual - Budgetary Basis For the Year Ended June 30, 2016 Variance with Budgeted Amounts Original Operating revenues Charges for services Other Total operating revenues $ 14,955,000 45,000 15,000,000 Actual Amounts Final $ 14,955,000 45,000 15,000,000 $ 15,610,144 1,045,468 16,655,612 Operating expenses General and administrative Operation and maintenance Claims Incurred Total operating expenses 1,361,180 25,000 15,908,500 17,294,680 1,361,180 25,000 19,408,500 20,794,680 1,206,242 19,416,633 20,622,875 Operating loss (2,294,680) (5,794,680) (3,967,263) Nonoperating revenues Investment earnings Total nonoperating revenues Change in net position 12,000 12,000 $ (2,282,680) 115 12,000 12,000 $ (5,782,680) Final Budget Positive (Negative) $ 154,938 25,000 (8,133) 171,805 1,827,417 10,386 10,386 $ (3,956,877) 655,144 1,000,468 1,655,612 (1,614) (1,614) $ 1,825,803 TABLE OF CONTENTS 116 TABLE OF CONTENTS AGENCY FUNDS Agency Funds are used to account for assets held by the government as an agent for individuals, private organizations, other governments and/or other funds. Flexible Spending - accounts for monies received from employees for medical and dependent care expenses under Internal Revenue Code Section 125. Fire Retirement Health - accounts for monies received from sworn fire employees for providing a monthly stipend for retirees to apply to the cost of their medical and/or dental insurance, medical and dental co-pays, and prescriptions and other benefits. Payback Agreement – accounts for monies received from developers to payback other developers for sanitary wastewater system development. 117 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA Combining Statement of Changes in Assets and Liabilities Agency Funds Year Ended June 30, 2016 Flexible Spending Assets Restricted cash and investments Prepaid items Beginning Balance Additions Ending Balance Deductions $ 22,355 $ 380,049 283,196 $ 368,832 290,100 $ 11,217 15,451 $ 22,355 $ 663,245 $ 658,932 $ 26,668 Liabilities Accounts payable Dependent care benefits payable $ 3,513 18,842 $ 93,462 $ 3,513 85,636 $ 26,668 Total liabilities $ 22,355 $ 93,462 $ 89,149 $ 26,668 $ - $ 56,500 $ 56,500 $ - $ - $ 56,500 $ 56,500 $ - $ - $ 56,500 $ 56,500 $ - $ - $ 56,500 $ 56,500 $ - $ - $ 27,971 $ 27,971 $ - $ - $ 27,971 $ 27,971 $ - $ - $ 27,971 $ 27,971 $ - $ - $ 27,971 $ 27,971 $ - Total assets Fire Retirement Health Fund Assets Restricted cash and investments Total assets Liabilities Other deposits Total liabilities Payback Agreement Assets Restricted cash and investments Total assets Liabilities Due to developers Total liabilities 118 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA Combining Statement of Changes in Assets and Liabilities Agency Funds Year Ended June 30, 2016 Total-All Agency Funds Assets Restricted cash and investments Prepaid items Total assets Liabilities Accounts payable Other deposits Dependent care benefits payable Total liabilities Beginning Balance Additions Ending Balance Deductions $ 22,355 $ 464,520 283,196 $ 453,303 290,100 $ 11,217 15,451 $ 22,355 $ 747,716 $ 743,403 $ 26,668 $ 3,513 18,842 $ 56,500 93,462 $ 3,513 56,500 85,636 $ 26,668 $ 22,355 $ 149,962 $ 145,649 $ 26,668 119 TABLE OF CONTENTS 120 TABLE OF CONTENTS STATISTICAL SECTION This part of Gilbert's Comprehensive Annual Financial Report presents detailed information as a context for understanding what the information in the financial statements and note disclosures says about the Town's overall financial health. Contents Page Financial Trends 123 These schedules contain trend information to help the reader understand how Gilbert's financial performance and well-being have changed over time. Revenue Capacity 129 These schedules contain information to help the reader assess Gilbert's most significant local revenue source, sales tax. Debt Capacity 131 These schedules present information to help the reader assess the affordability of Gilbert's current levels of outstanding debt and Gilbert's ability to issue additional debt in the future. Demographic and Economic Information 136 These schedules offer demographic and economic indicators to help the reader understand the environment within which Gilbert's financial activities take place. Operating Information 138 These schedules contain service and infrastructure data to help the reader understand how the information in Gilbert's financial report relates to the services Gilbert provides and the activities it performs. Other Information 141 Sources: Unless otherwise noted, the information in these schedules is derived from the Comprehensive Annual Financial Report for the relevant year. 121 TABLE OF CONTENTS 122 TABLE OF CONTENTS Schedule 1 Town of Gilbert, Arizona Net Position by Component Last Ten Fiscal Years (accrual basis of accounting) (1,000's) 2007 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 net position 123 Primary government Net investment in capital assets Restricted Unrestricted Total primary government net position $ $ 596,974 42,681 67,610 707,265 2008 $ $ 386,130 103,425 9,480 499,035 $ 983,104 146,106 77,090 $ 1,206,300 $ $ $ $ 688,393 34,926 48,022 771,341 2009 $ $ 273,513 106,871 136,635 517,019 $ 961,906 141,797 184,657 $ 1,288,360 $ $ 704,908 24,036 63,994 792,938 2010 $ $ 261,028 91,738 182,090 534,856 $ 965,936 115,774 246,084 $ 1,327,794 $ $ $ 707,100 43,766 66,030 816,896 276,059 86,943 195,803 558,805 983,159 130,709 261,833 $ 1,375,701 2011 $ $ $ $ 705,986 38,404 77,284 821,674 294,516 76,504 209,680 580,700 $ 1,000,502 114,908 286,964 $ 1,402,374 2012 $ $ $ $ 695,983 52,219 83,273 831,475 316,268 71,376 236,097 623,741 $ 1,012,251 123,595 319,370 $ 1,455,216 2013 $ $ $ $ 687,910 60,525 107,172 855,607 325,357 70,879 263,978 660,214 $ 1,013,267 131,404 371,150 $ 1,515,821 2014 $ $ $ $ 680,717 80,924 92,357 853,998 351,797 65,577 281,391 698,765 $ 1,032,514 146,501 373,748 $ 1,552,763 2015 $ $ $ $ 688,900 82,546 30,276 801,722 363,333 54,084 290,870 708,287 $ 1,052,233 136,630 321,146 $ 1,510,009 2016 $ $ $ $ 735,369 83,227 49,960 868,556 411,831 34,054 304,198 750,083 $ 1,147,200 117,281 354,158 $ 1,618,639 TABLE OF CONTENTS Schedule 2 Town of Gilbert, Arizona Changes in Net Position Last Ten Fiscal Years (accrual basis of accounting) (1,000's) 2007 124 Expenses Governmental activities: General government: Management and policy Support services Finance and management services Court Development services Public works Public safety: Police Fire Highways and streets Parks and recreation Transportation Non departmental Interest and fiscal charges on long-term debt Total governmental activities expenses Business-type activities: Water Wastewater Environmental services Irrigation Total business-type activities expenses Total primary government expenses Program Revenues Governmental activities: Charges for services: Development services Police Fire Highways and streets Parks and recreation Other activities Operating grants and contributions Capital grants and contributions Total governmental activities program revenues $ 3,070 9,828 5,316 13,394 914 2008 $ 3,167 10,351 5,848 14,501 978 2009 $ 3,068 10,137 5,838 12,243 1,451 2010 $ 2,831 9,297 5,937 10,085 2,782 2011 $ 3,110 8,503 1,287 5,126 8,201 - 2012 $ 2,983 8,632 1,216 5,410 8,551 - 2013 $ 10,461 4,150 5,474 6,850 - 2014 $ 13,378 4,347 5,975 9,062 - 2015 $ 19,090 1,814 4,053 7,082 - 2016 $ 20,049 2,110 4,164 7,611 - 34,022 18,872 31,052 15,926 1,439 9,532 143,365 39,641 22,564 36,385 16,176 1,563 8,893 160,067 42,109 24,255 38,541 19,350 1,682 17,096 175,770 41,328 22,871 36,906 19,826 1,170 18,418 171,451 38,869 24,473 40,440 19,764 1,010 2,194 17,675 170,652 40,467 24,906 43,438 19,932 1,269 2,910 15,785 175,499 42,759 25,867 44,048 20,858 461 3,114 15,142 179,184 45,931 28,853 45,781 22,493 842 4,104 15,216 195,982 47,541 28,071 46,932 28,429 778 4,423 12,780 200,993 50,115 31,972 48,726 25,647 1,051 5,311 12,911 209,666 24,030 19,873 12,978 30 56,911 34,277 23,507 14,783 67 72,634 35,451 22,398 13,843 158 71,850 36,163 23,002 13,852 54 73,071 36,863 23,039 14,255 74,157 37,695 22,662 14,918 75,275 38,339 22,170 15,588 76,097 39,927 23,615 16,113 79,655 41,817 25,620 16,720 84,157 44,360 26,530 17,719 88,609 $ 200,276 $ 232,701 $ 247,620 $ 244,522 $ 244,809 $ 250,773 $ 255,281 $ 275,637 $ 285,150 $ 298,275 $ $ $ $ $ $ $ $ $ $ 10,227 6,015 100 1,396 2,955 503 22,466 70,076 113,738 7,385 6,358 72 1,265 3,130 707 22,631 45,821 87,369 3,773 6,594 100 1,454 3,193 703 21,183 31,494 68,494 4,027 6,374 79 1,659 3,735 789 19,206 39,632 75,501 3,178 2,891 136 1,739 3,740 853 21,168 28,002 61,707 5,347 5,584 129 1,497 3,595 861 21,045 26,060 64,117 7,240 5,512 185 1,516 3,706 1,017 21,270 36,089 76,535 6,783 5,477 254 1,440 3,765 1,066 22,326 19,186 60,297 6,608 4,526 224 1,643 4,146 829 24,171 37,214 79,361 6,826 5,343 197 1,745 4,366 873 38,666 65,535 123,551 TABLE OF CONTENTS Business-type activities: Charges for services: Water Wastewater Environmental services Irrigation Operating grants and contributions Capital grants and contributions Total business-type activities program revenues Total primary government program revenues 28,244 16,173 13,886 18 64,674 122,995 $ 236,733 32,321 18,440 15,642 18 34,556 100,977 $ 188,346 $ Net (Expense)/Revenue Governmental activities a Business-type activities Total primary government net revenue (expense) $ (29,627) 66,084 $ 36,457 $ (72,698) 28,343 $ (44,355) $ (107,276) 17,126 $ (90,150) $ $ $ $ 125 General Revenues and Other Changes in Net Position Governmental activities: Taxes: Sales taxes $ 57,697 Property taxes, levied for debt service 16,500 In-Lieu property taxes 376 Franchise taxes 2,361 Unrestricted state shared sales taxes b 16,595 b Unrestricted state shared income taxes 19,761 Unrestricted state shared revenue b Unrestricted grants and contributions 3,157 Unrestricted investment earnings 8,508 Gain on sale of capital assets 24 Miscellaneous 620 Transfers 610 Total governmental activities 126,209 Business-type activities: 5,288 Investment earnings (Loss)/Gain on sale of capital assets (377) Miscellaneous 406 Transfers (610) Total business-type activities 4,707 Total primary government $ 130,916 Change in Net Position Governmental activities Business-type activities Total primary government a $ 96,582 70,791 $ 167,373 56,980 26,345 831 2,595 16,317 24,986 2,195 4,463 260 544 1,257 136,773 7,509 56 400 (1,257) 6,708 $ 143,481 $ $ $ $ 64,075 35,051 99,126 $ 33,416 19,722 16,592 18 19,228 88,976 157,470 49,060 30,836 948 2,544 14,126 26,435 939 2,003 152 669 1,161 128,873 1,066 52 754 (1,161) 711 129,584 21,597 17,837 39,434 $ $ $ $ $ 34,601 21,024 16,567 25 22,026 94,243 169,744 $ (95,950) 21,172 (74,778) $ (108,945) 19,005 $ (89,940) $ (111,381) 39,303 $ (72,078) $ (102,649) 34,354 $ (68,295) $ (135,685) 35,624 $ (100,061) $ (121,632) 24,993 $ (96,639) $ 47,119 30,117 1,328 2,448 13,029 22,923 1,235 1,301 74 680 (346) 119,908 $ $ $ $ $ $ 739 148 1,544 346 2,777 122,685 23,958 23,949 47,907 $ $ $ 35,966 21,678 17,194 18,324 93,162 154,869 49,249 25,796 1,351 2,401 13,787 17,281 864 2,137 355 537 113,758 1,012 164 2,216 (537) 2,855 116,613 4,813 21,860 26,673 $ $ $ $ 36,692 22,740 17,924 37,222 114,578 178,696 54,513 21,502 1,331 2,463 16,288 17,594 1,349 1,910 178 4,744 (690) 121,182 1,244 39 1,765 690 3,738 124,920 9,801 43,041 52,842 $ $ $ $ 36,455 23,083 16,760 34,153 110,451 186,986 61,813 19,184 1,377 3,083 17,062 21,293 1,193 722 932 121 126,780 1,061 1,179 (121) 2,119 128,899 24,131 36,473 60,604 $ $ $ $ 37,867 23,852 17,308 36,252 115,279 175,576 66,757 18,315 1,287 2,616 18,119 23,205 904 1,508 29 1,226 110 134,076 1,742 30 1,266 (110) 2,928 137,004 (1,609) 38,552 36,943 $ $ $ $ 37,501 24,625 18,007 29,017 109,150 188,511 71,773 19,423 1,201 2,737 19,041 25,222 2,595 1,224 106 847 184 144,353 1,457 172 1,310 (184) 2,755 147,108 22,721 27,748 50,469 $ $ $ $ $ 39,457 25,116 18,141 1,051 43,655 127,421 250,972 (86,115) 38,812 (47,303) 77,070 19,424 1,187 2,989 45,028 3,204 2,651 136 1,162 98 152,949 2,666 158 259 (98) 2,984 155,933 66,834 41,796 108,630 The increase in Net Expense for Governmental activities in fiscal year 2008 is due to a 18% increase in public safety expenses (hiring more police and fire personnel - see Schedule 16 for details) and a 35% decrease in capital grants and contributions (developer contributions). The increase in Net Expense for Governmental activities in fiscal year 2009 is due to a 92% increase in interest and fiscal charges on long-term debt (interest and principal payments on general obligation bonds issued at the end of 2008) and a 31% decrease in capital grants and contributions (developer contributions). The increase in Net Expense for Governmental activities for fiscal years 2011 and 2014 is due to a decrease in capital grants and contributions (developer contributions) of 29% and 47%, respectively. The decrease in Net Expense for Governmental activities for fiscal year 2015 is due to an increase in capital grants and contributions (developer contributions) of $12M. b For fiscal year 2016, Unrestricted state shared sales taxes and income taxes were combined and the name was changed to Unrestricted state shared revenue. TABLE OF CONTENTS Schedule 3 Town of Gilbert, Arizona Program Revenues by Function Last Ten Fiscal Years (accrual basis of accounting) (1,000's) 2007 126 Function/Program Governmental activities: General government: Management and policy $ Support services b Finance and management services Court Development services Public works b Public Safety: Police Fire Highways and streets a Parks and recreation Transportation Non departmental Subtotal governmental activities Business-type activities: Water Wastewater Environmental services Irrigation Subtotal business-type activities Total primary government 70 1,133 412 11,662 5,837 2008 $ 47 1,184 675 8,101 1,948 2009 $ 11 128 586 4,571 901 2010 $ 10 215 597 4,576 1,005 2011 $ 15 649 9 597 4,273 - 2012 $ 16 242 11 670 6,891 - 2013 $ 36 251 792 7,240 - 2014 $ 59 262 823 6,807 - 2015 $ 962 27 824 6,608 - 2016 $ 690 24 859 6,826 - 9,629 5,286 65,949 13,249 511 - 8,491 4,223 52,536 9,861 303 - 7,838 4,386 39,126 10,539 408 - 8,495 3,447 45,193 11,649 314 - 3,989 3,163 39,324 9,422 215 51 7,689 6,892 25,634 15,314 624 135 7,669 4,079 41,280 14,475 662 51 7,207 3,697 28,218 12,461 712 51 8,975 3,766 44,497 13,012 639 51 10,645 4,170 69,791 29,861 635 50 113,738 87,369 68,494 75,501 61,707 64,118 76,535 60,297 79,361 123,551 64,313 44,778 13,886 18 52,172 33,145 15,642 18 43,997 28,369 16,592 18 47,232 30,419 16,567 25 46,133 29,835 17,194 - 56,904 39,735 17,938 - 55,662 38,029 16,760 - 57,750 40,220 17,308 - 55,590 35,552 18,008 - 68,102 41,178 18,141 - 122,995 100,977 88,976 94,243 93,162 114,577 110,451 115,278 109,150 127,421 $ 236,733 $ 188,346 $ 157,470 $ 169,744 $ 154,869 $ 178,695 $ 186,986 $ 175,575 $ 188,511 $ 250,972 a The decrease in governmental activities revenue in fiscal years 2008, 2009, 2011, and 2014 is mainly due to decreased developer contributions. The increase in fiscal year 2015 is mainly due to increased developer contributions. b The support services function was eliminated in fiscal year 2013. The public works function was eliminated in fiscal year 2012. TABLE OF CONTENTS Schedule 4 Town of Gilbert, Arizona Fund Balances of Governmental Funds Last Ten Fiscal Years (modified accrual basis of accounting) (1,000's) General fund Reserved Unreserved Nonspendable Restricted Committed Assigned Unassigned Total general fund 127 All other governmental funds Reserved Unreserved, reported in: Special revenue funds Debt service funds Capital projects funds a Total Unreserved Nonspendable Restricted Committed Assigned Unassigned Total all other governmental funds a b 2007 2008 2009 2010 2011b 2012 2013 $ 16,082 $ 33,431 49,513 $ 16,015 $ 38,375 54,390 $ 17,630 $ 36,245 53,875 $ 21,383 $ 33,168 54,551 $ - $ 22,317 10,729 33,521 66,568 $ - $ 23,213 10,797 44,250 78,260 $ 23,527 10,092 59,555 93,174 $ 69,736 $ 42,863 $ 67,626 $ 45,147 $ $ - $ - $ 2014 - 28,546 29,348 25,886 27,635 (17,762) (36,581) 99,570 86,482 10,784 (7,233) 125,456 114,117 4 2 1 108,051 100,572 89,654 28,261 26,159 36,258 (20,781) (23,199) (23,609) $ 80,520 $ 35,630 $ 193,082 $ 159,264 $ 115,535 $ 103,534 $ 102,304 $ $ $ 2015 2016 - $ - $ 25,380 24,470 19,866 12,081 17,046 13,681 61,764 67,057 85,498 99,225 $ 108,573 $ 119,046 - $ - $ - 83 2 4 92,337 96,837 87,005 18,764 22,462 38,337 (25,466) (23,981) (19,897) $ 85,718 $ 95,320 $ 105,449 The increase in fund balance in fiscal year 2009 was due to Public Facilities Municipal Property Corporation bonds that were issued during the year. GASB Statement No. 54 was implemented in fiscal year 2011. This statement established new fund balance classifications for governmental funds. TABLE OF CONTENTS Schedule 5 Town of Gilbert, Arizona Changes in Fund Balances of Governmental Funds Last Ten Fiscal Years (modified accrual basis of accounting) (1,000's) 2007 Revenues Taxes: Sales Property Franchise Licenses and permits Intergovernmental Special assessments Charges for services Other entities' participation System development fees Gifts and donations Fines and forfeitures Investment earnings Miscellaneous Total revenues 128 Expenditures Current: General government: Management and policy Support services Finance and management services Court Development services Public works Public safety: Police Fire Highways and streets Parks and recreation Transportation Non departmental Debt service: Principal Interest Bond issuance costs Fiscal and other charges Capital outlay Total expenditures $ 57,698 18,529 2,361 6,818 65,759 355 9,391 6,082 23,015 502 4,094 8,386 670 203,660 2008 $ 56,980 28,303 2,595 4,734 73,255 2,121 9,594 1,620 15,566 177 4,564 4,345 800 204,654 2009 $ 48,736 33,131 2,544 2,459 67,053 422 8,596 1,055 8,395 114 4,223 1,978 819 179,525 2010 $ 46,873 33,073 2,448 2,614 72,535 437 8,795 1,234 11,608 124 4,445 1,286 754 186,226 2011 $ 49,315 28,732 2,401 2,365 55,362 559 7,288 2,313 8,736 176 4,351 2,106 355 164,059 2012 $ 2013 54,503 24,045 2,463 3,995 61,468 879 8,164 1,300 17,957 186 4,442 1,889 4,947 186,238 $ 61,890 21,548 2,374 5,434 72,904 1,299 9,573 2,252 17,836 119 4,710 706 933 201,578 2014 $ 66,772 20,681 2,700 4,748 68,046 2,090 10,027 1,977 13,435 155 4,469 1,494 1,255 197,849 2015 $ 71,794 21,953 2,737 4,791 76,284 1,184 10,440 382 18,836 192 4,476 1,210 953 215,232 2016 $ 77,108 22,000 3,389 4,787 77,007 2,233 11,147 1,666 22,944 187 4,618 2,639 14,797 244,523 3,822 9,771 4,682 12,693 1,255 3,919 10,814 5,222 14,024 1,329 3,642 10,386 5,203 11,321 1,798 3,458 10,257 5,261 9,204 1,225 3,845 9,239 1,416 4,403 7,160 - 3,676 9,160 1,722 4,617 7,514 - 12,584 4,235 4,753 5,999 - 15,336 4,413 5,089 6,078 - 20,485 1,943 3,493 6,069 - 20,997 2,134 3,608 6,239 - 31,534 17,224 9,424 12,725 1,439 - 36,126 20,521 10,631 12,568 1,563 - 37,851 21,171 10,378 13,151 1,682 - 37,669 20,115 10,097 12,684 1,170 - 35,007 20,200 9,736 12,591 1,010 2,194 36,384 21,552 10,815 12,688 1,269 2,910 38,817 22,543 10,637 13,895 461 3,114 41,947 24,993 11,969 15,614 841 4,104 43,084 25,631 12,478 21,836 774 4,423 44,402 28,295 12,831 18,591 1,046 5,311 20,305 9,578 45 106,748 241,244 36,350 8,961 98 29 87,528 249,683 29,805 16,501 670 12 134,013 297,584 31,855 18,553 9 58,785 220,342 29,215 18,451 20 41,935 196,422 23,055 15,992 402 9 34,500 186,265 24,705 15,411 13 30,849 188,016 25,630 14,252 13 38,804 209,083 23,750 13,108 209 307 58,849 236,439 30,105 13,773 37 36,573 223,942 Excess (deficiency) of revenues over (under) expenditures (37,584) (45,029) (118,059) (34,116) (32,363) (27) 13,562 (11,234) (21,207) 20,581 Other financing sources (uses) Transfers in Transfers out Sale of capital assets Revenue obligations issued Premium on revenue obligations Bonds issued Premium on bonds Payment to refunded bond escrow agent Total other financing sources and uses 77,502 (76,892) 610 45,661 (44,404) 3,760 5,017 90,680 (89,519) 273,490 344 274,995 26,608 (25,634) 974 25,272 (24,586) 686 25,195 (25,885) 37,925 4,111 (41,627) (281) 25,774 (25,653) 121 45,891 (45,781) 590 700 23,401 (23,216) 36,980 2,706 28,080 4,417 (32,211) 40,157 21,406 (21,385) 21 Net change in fund balances $ Debt service as a percentage of noncapital expenditures (36,974) 22.2% $ (40,012) 27.9% $ 156,936 28.3% $ (33,142) 31.2% $ (31,677) 30.9% $ (308) 25.7% $ 13,683 25.5% $ (10,534) 23.4% $ 18,950 20.8% $ 20,601 23.4% TABLE OF CONTENTS Schedule 6 Town of Gilbert, Arizona Sales Tax Collections by Category Last Ten Fiscal Years 2007 Construction Manufacturing Communications & Utilities Wholesale Retail Restaurant & Bar Real Estate, Rental & Leasing Accommodation a Services 129 Other a Transportation & Warehousing Finance & Insurance Public Administration Arts & Entertainment Total 2008 $ 19,373,957 684,148 4,548,528 483,943 21,385,004 2,972,678 5,276,563 $ 15,416,006 789,804 5,269,633 577,086 23,550,094 3,228,910 5,538,416 973,552 1,491,268 17,264 73,410 11,416 405,765 1,729,464 319,810 13,347 93,008 8,272 446,057 $ 57,697,496 $ 56,979,907 Gilbert's local sales tax rate 1.5% 1.5% 2009 $ 7,804,840 650,179 5,303,338 527,933 23,305,081 3,509,671 5,751,120 2010 2012 2013 2014 $ 4,389,279 706,514 5,562,364 854,466 25,540,515 3,820,368 5,874,288 252,974 1,069,661 652,043 21,161 89,990 481,592 $ 5,718,727 727,755 5,774,403 965,523 28,390,526 4,072,187 6,078,364 299,270 1,211,864 520,302 25,830 112,496 4,586 600,794 $ 7,867,067 763,152 5,931,935 1,100,749 30,784,509 4,402,299 7,944,973 377,228 1,369,608 487,279 25,667 154,772 2,271 594,043 $ 1,039,678 243,510 12,575 100,490 4,748 483,123 5,193,872 635,188 5,724,639 610,065 23,775,975 3,566,427 5,249,645 1,002,691 481,122 16,464 100,293 9,503 506,855 $ 48,736,286 $ 46,872,739 $ 49,315,215 $ 54,502,627 $ 61,805,552 $ 66,771,661 1.5% $ 2011 1.5% 1.5% 1.5% 1.5% 8,837,079 939,861 6,120,225 1,207,006 33,078,748 4,867,638 7,952,365 487,680 1,676,438 505,146 22,721 398,169 4,311 674,274 1.5% 2015 $ 7,663,801 882,509 6,342,578 1,320,977 37,463,617 5,526,275 8,286,878 533,870 2,018,647 629,740 30,529 438,257 3,020 652,973 $ 71,793,671 1.5% Source: Arizona Department of Revenue a Prior to fiscal year 2011, Accommodations was included in the "Other" category due to confidentiality requirements. Beginning in fiscal year 2011, it was broken out into its own category. Note: State and local laws prohibit the disclosure of individual taxpayer information. 2016 $ 7,326,040 1,042,710 6,327,257 1,486,450 40,406,219 6,177,869 9,290,919 569,390 2,223,706 784,957 37,823 557,582 18,977 858,177 $ 77,108,076 1.5% TABLE OF CONTENTS Schedule 7 Town of Gilbert, Arizona Direct and Overlapping Sales Tax Rates Last Ten Fiscal Years 2008 2009 2010 2011 2012 2013 a 2014 2015 2016 Town Direct Rates: Hotel/Transient Lodging 4.50% All Others 1.50% 4.50% 1.50% 4.50% 1.50% 4.50% 1.50% 4.50% 1.50% 4.50% 1.50% 4.50% 1.50% 4.50% 1.50% 4.50% 1.50% 4.50% 1.50% County Rates: Hotel/Transient Lodging 1.77% All Others 0.70% 1.77% 0.70% 1.77% 0.70% 1.77% 0.70% 1.77% 0.70% 1.77% 0.70% 1.77% 0.70% 1.77% 0.70% 1.77% 0.70% 1.77% 0.70% State Rates: Hotel/Transient Lodging 5.50% All Others 5.60% 5.50% 5.60% 5.50% 5.60% 6.50% 6.60% 6.50% 6.60% 6.50% 6.60% 6.50% 6.60% 5.50% 5.60% 5.50% 5.60% 5.50% 5.60% 2007 130 Source: Gilbert Finance & Management Services Department Note: Gilbert sales tax rate may be changed with the approval of Council. a The Temporary State sales tax increase passed by voters in 2010 expired on May 31, 2013. The State sales tax for hotel/transient lodging decreased to 5.50% and for all others to 5.60% on June 1, 2013. TABLE OF CONTENTS Schedule 8 Town of Gilbert, Arizona Ratios of Outstanding Debt by Type Last Ten Fiscal Years General Obligation Bonds Fiscal Year 2007 2008 2009 2010 2011 2012 131 2013 2014 2015 2016 $ Governmental Activities Municipal Street and Property Special Highway User Corporation Assessment Revenue Revenue Bonds Bonds Bonds 79,470,332 $ 57,390,066 226,030,524 204,147,283 178,722,625 159,547,197 4,394,150 $ 2,999,660 11,633,524 11,548,249 11,457,958 11,056,456 32,782,853 $ 105,845,000 $ 31,753,147 100,635,000 29,796,281 175,810,000 27,712,795 169,750,000 25,502,688 161,045,000 20,836,060 152,243,537 147,640,933 135,775,830 123,420,395 105,296,311 10,469,338 9,445,797 8,306,402 6,504,185 18,130,241 16,864,197 13,754,807 10,538,003 142,828,198 133,835,907 126,607,711 118,310,093 Business-type Activities General Obligation Bonds Revenue Obligations - $ 39,685,688 39,685,688 Notes: See Schedule 13 for personal income and population data. Details regarding Gilbert's outstanding debt can be found in the notes to the financial statements. Includes unamortized bond discounts/premiums. 11,745,680 $ 10,353,095 8,900,510 7,127,925 5,540,340 3,877,755 2,115,170 247,585 - Special Assessment Bonds - Water and Wastewater Revenue Bonds Municipal Property Corporation Revenue Bonds $ 21,644,644 $ 194,555,369 $ 20,414,733 182,839,461 19,155,224 167,031,835 17,861,117 160,388,430 16,527,813 143,200,304 15,164,911 118,853,753 13,757,813 - 111,081,450 104,083,879 98,190,924 135,410,861 Total Primary Government 450,438,029 406,385,162 638,357,898 598,535,799 541,996,729 481,579,670 446,023,143 400,253,194 409,965,927 415,745,141 Percentage of Personal Income 7.87 % $ 6.65 10.25 9.40 8.56 7.72 6.31 6.09 5.59 5.18 Per Capita 2,295 1,967 2,946 2,871 2,585 2,249 2,008 1,735 1,712 1,679 TABLE OF CONTENTS Schedule 9 Town of Gilbert, Arizona Ratios of General Bonded Debt Outstanding Last Ten Fiscal Years Fiscal Year 2007 2008 2009 132 2010 2011 2012 2013 2014 2015 2016 a b Less Amount Available in Debt Service Fund General Bonded Debt Outstanding b $ 91,216,012 67,743,161 234,931,034 211,275,208 184,262,965 163,424,952 149,756,103 136,023,415 123,420,395 105,296,311 $ 11,087,607 7,279,915 6,655,504 6,720,588 6,366,097 9,335,818 9,599,968 8,942,949 10,165,593 6,952,183 Net General Bonded Debt Outstanding $ 80,128,405 60,463,246 228,275,530 204,554,620 177,896,868 154,089,134 140,156,135 127,080,466 113,254,802 98,344,128 $ Secondary Assessed Property Value a Limited Property Value a 1,466,841,566 2,370,134,999 2,768,391,194 N/A N/A N/A 2,672,949,852 2,297,228,317 1,861,193,961 1,675,360,422 1,594,806,737 1,829,471,839 N/A N/A N/A N/A N/A N/A N/A 1,845,325,449 $ Percentage of Applicable Property Value 5.46 % 2.55 8.25 7.65 7.74 8.28 8.37 7.97 6.19 5.33 Per Capita $ 408.21 292.65 1053.61 981.30 848.34 719.63 630.91 550.87 473.05 397.28 Maricopa County Assessor's Office Includes unamortized bond discounts/premiums. Notes: In accordance with Proposition 117, The Arizona Property Tax Assessed Valuation Amendment , property taxes are calculated based on the limited property value beginning with tax year 2015. See Schedule 13 for population data. General Obligations bonds principal and interest payments are paid for with secondary property taxes. TABLE OF CONTENTS Schedule 10 Town of Gilbert, Arizona Direct and Overlapping Governmental Activities Debt As of June 30, 2016 Debt Outstanding Governmental Unit Debt repaid with property taxes Maricopa County b Maricopa County Community College District c Maricopa County Special Health District Gilbert Unified School District No. 41 Higley Elementary School District No. 60 Chandler Unified School District No. 80 Mesa Unified School District No. 4 East Valley Institute of Technology District No. 401 d $ None 534,225,000 73,000,000 116,725,000 120,095,000 216,610,000 250,590,000 None Estimated Share of Direct and Overlapping Debt Estimated Percentage Applicable a 5.48% 5.48% 5.47% 70.15% 88.63% 11.96% 0.32% 12.32% $ 133 Subtotal, overlapping debt Town of Gilbert direct debt None 29,275,530 3,993,100 81,882,588 106,440,199 25,906,556 801,888 None 248,299,861 e 280,334,280 100.00% Total direct and overlapping debt 280,334,280 $ 528,634,141 Source: The various jurisdictions a b c d e Proportion applicable to Town of Gilbert, Arizona is computed on the ratio of limited property valuation for fiscal year 2015/16. Excludes various other non-property tax supported debt such as Public Finance Corporation lease revenue bonds, Stadium District revenue bonds, Stadium District loans, Housing Authority loans and capital leases. Excludes non-property tax supported debt such as revenue bonds. Based on the East Valley Institute of Technology's secondary assessed valuation and does not include amount of secondary assessed valuation in Pinal County. Includes: General Obligation bonds, Special Assessments bonds, Revenue obligations, Revenue bonds and unamortized bond premiums. Note: Overlapping governments are those that coincide, at least in part, with the geographic boundaries of Gilbert. This schedule estimates the portion of the outstanding debt of those overlapping governments that is borne by the residents and businesses of Gilbert. This process recognizes that, when considering Gilbert'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. TABLE OF CONTENTS Schedule 11 Town of Gilbert, Arizona Legal Debt Margin Information Last Ten Fiscal Years 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 20% Limitation Debt limit equal to 20% of limited property valuation $ Total net debt applicable to 20% limit 274,565,464 $ 350,232,053 $ 78,050,000 51,705,000 196,515,464 $ 298,527,053 $ 423,394,572 $ 471,773,198 $ 437,048,132 $ 369,996,694 $ 333,373,568 $ 317,092,733 $ 346,856,631 $ 369,065,090 217,730,000 195,320,000 175,915,000 163,335,000 149,675,000 135,310,000 122,715,000 105,250,000 205,664,572 $ 276,453,198 $ 261,133,132 $ 206,661,694 $ 183,698,568 $ 181,782,733 $ 224,141,631 $ 263,815,090 Legal 20% debt margin (available borrowing capacity) $ Total net debt applicable to the 20% limit as a percentage of 20% debt limit 28.43% 14.76% 51.42% 41.40% 40.25% 44.14% 44.90% 42.67% 35.38% 28.52% 6% Limitation Debt limit equal to 6% of limited property valuation $ Total net debt applicable to 6% limit 82,369,639 $ 3,550,000 105,069,616 $ 855,000 127,018,372 $ - 141,531,960 $ - 131,114,440 $ - 110,999,008 $ 100,012,071 $ - 95,127,820 $ - - 104,056,989 $ - 110,719,527 - Legal 6% debt margin (available borrowing 134 capacity) $ 78,819,639 $ 104,214,616 $ 127,018,372 $ 141,531,960 $ 131,114,440 $ 110,999,008 $ 100,012,071 $ 95,127,820 $ 104,056,989 $ 110,719,527 Total net debt applicable to the 6% limit as a percentage of 6% debt limit 4.31% 0.81% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% Legal Debt Margin Calculation for Fiscal Year 2016 Limited property valuation as of June 30, 2016 $ 1,845,325,449 20% Limitation Debt limit equal to 20% of limited property valuation 369,065,090 Debt applicable to limit: General obligation bonds 105,250,000 Legal 20% debt margin (available borrowing capacity) $ 6% Limitation Debt limit equal to 6% of limited property valuation 110,719,527 Debt applicable to limit: General obligation bonds Legal 6% debt margin (available borrowing capacity) Note: The Constitution of the State of Arizona establishes two levels of bonded indebtedness limits based upon the type of improvement constructed with the debt. The twenty percent bond type is restricted to water, wastewater, electric, parks and open space improvements, streets, public safety, and fire and emergency facilities. The six percent bond type is all other general purpose improvements. In November 2006, voters amended the constitution to move streets, public safety and fire and emergency facilities from the six percent bond type to the twenty percent bond type. 263,815,090 $ 110,719,527 TABLE OF CONTENTS Schedule 12 Town of Gilbert, Arizona Pledged-Revenue Coverage Last Ten Fiscal Years Public Facilities Municipal Property Corp. Revenue Bonds Special Assessment Bonds Highway User Revenue Bonds Special Fiscal Assessment Year Collections 2007 $ 355,124 $ & Subordiante Lien Pledged Revenue Obligations Highway User Tax Debt Service Principal 125,000 $ Interest Excise Taxes Coverage 231,010 1.00 $ & State-Shared Debt Service Revenue Principal Interest Coverage 12,355,280 $ 1,845,000 $ 1,437,450 3.76 Revenue $ Debt Service Principal Interest Coverage 102,525,938 $ 5,210,000 $ 4,753,688 10.29 10.75 135 2008 2,121,038 1,390,000 191,620 1.34 12,333,576 1,925,000 1,347,313 3.77 107,273,375 5,410,000 4,567,400 2009 421,894 75,000 153,530 1.85 10,651,366 2,050,000 1,251,063 3.23 97,901,565 6,060,000 5,404,460 8.54 2010 437,493 85,000 149,370 1.87 10,090,894 2,175,000 1,148,563 3.04 91,609,318 8,705,000 8,014,525 5.48 2011 559,284 90,000 587,245 0.83 10,356,131 2,275,000 1,039,813 3.12 89,202,148 9,030,000 7,705,188 5.33 2012 878,981 400,000 574,655 0.90 10,437,844 2,400,000 570,375 3.51 97,342,250 9,335,000 7,149,316 5.91 2013 1,298,984 585,000 553,258 1.14 11,414,425 2,525,000 807,400 3.43 109,637,647 9,695,000 6,873,353 6.62 2014 2,089,887 1,020,000 507,965 1.37 11,747,325 2,030,000 693,450 4.31 117,627,904 10,080,000 6,458,288 7.11 2015 1,184,368 1,135,000 470,225 0.74 12,900,529 2,750,000 632,550 3.81 125,743,087 7,515,000 6,030,998 9.28 2016 2,232,678 1,795,000 394,755 1.02 13,588,215 2,845,000 550,050 4.00 133,104,631 8,000,000 7,457,791 8.61 Water and Wastewater Revenue Bondsc Less: Net Fiscal Operating Operating Available Year Revenues a Expenses a Revenue 2007 $ Water Resources Municipal Property Corp. Revenue Bonds Net Water Available System System Coverage Revenue b Dev't Fee Dev't Fee Debt Service Principal Interest - Wastewater $ 17,033,202 $ Debt Service Principal 2,130,000 $ Interest Coverage 2,629,122 6.60 9,130,452 4.32 44,698,632 $ 28,173,011 $ 16,525,621 $ 1,230,000 $ 897,913 7.77 $ 14,397,708 $ 2008 51,061,203 32,100,716 18,960,487 1,250,000 866,563 8.96 16,843,924 11,697,125 10,923,733 2009 53,633,557 32,618,247 21,015,310 1,280,000 835,313 9.93 18,899,997 6,329,797 6,190,815 3,200,000 7,808,650 2.85 2010 57,096,936 32,034,177 25,062,759 1,315,000 803,313 11.83 22,944,446 8,491,638 8,715,622 3,300,000 7,910,188 3.58 3.57 - 2011 59,780,559 33,231,244 26,549,315 1,355,000 763,863 12.53 24,430,452 6,485,383 6,878,502 3,400,000 7,198,049 2012 61,087,190 34,505,518 26,581,672 1,385,000 723,213 12.61 24,473,459 13,590,998 15,154,154 3,550,000 6,096,337 5.52 2013 60,627,063 36,124,117 24,502,946 1,430,000 681,663 11.60 22,391,283 12,466,409 - 3,700,000 5,542,403 3.77 1,500,000 610,163 3.73 2014 62,873,206 37,514,942 25,358,264 12.02 23,248,101 10,567,046 - 3,875,000 5,198,059 2015 63,338,422 40,316,645 23,021,777 - - N/A 23,021,777 10,461,708 - 4,075,000 4,894,864 3.73 2016 64,659,329 42,119,371 22,539,958 - - N/A 22,539,958 11,873,824 - 4,275,000 4,683,019 3.84 a Combined operating revenues and expenses for the Water and Wastewater Funds, as applicable. b Combined operating revenues and expenses for the Water and Wastewater Funds less debt service payments for the Water and Wastewater Revenue Bonds. c These bonds were paid off in fiscal year 2014. Note: Details regarding Gilbert's outstanding debt can be found in the notes to the financial statements. TABLE OF CONTENTS Schedule 13 Town of Gilbert, Arizona Demographic and Economic Statistics Last Ten Fiscal Years Personal Income b Fiscal Year 136 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Population a 196,293 206,604 216,661 208,453 209,699 214,123 222,148 230,690 239,415 247,542 (in thousands) (estimate) 5,721,000 6,113,000 6,230,000 6,370,000 6,329,000 6,240,000 7,064,000 6,568,000 7,335,000 8,025,000 Per Capita Income c (estimate) Median Age c 29,920 30,518 30,416 30,559 29,731 28,413 31,035 28,184 30,639 32,418 31.3 31.3 30.4 30.7 32.7 31.5 33.1 37.5 32.7 33.2 School Enrollment d Unemployment Rate e 37,979 38,662 39,142 39,089 38,660 38,696 38,573 38,573 37,240 34,079 2.0% 2.4% 4.6% 5.1% 5.1% 5.4% 5.7% 5.2% 4.3% 4.2% Sources: a Maricopa Association of Governments (the 2015 population figure was revised) b Estimated based on population and per capita income c American Community Survey d Arizona Department of Education e laborstats.az.gov (formerly azstats.gov) The 2007 through 2010 per capita income figures are estimates. The 2007 through 2010 median age, school enrollment, and unemployment rates were obtained from Gilbert's Development Services Department. The 2011-2014 school enrollment was obtained from the Gilbert Public Schools website. TABLE OF CONTENTS Schedule 14 Town of Gilbert, Arizona Principal Employers Current Fiscal Year and Nine Years Ago Employer Fiscal Year 2016 Percentage of Total Town Employees Rank Employment 137 Gilbert Unified School District Banner Health Town of Gilbert Wal-Mart Stores, Inc. Go Daddy Software, Inc. Higley Unified School District Fry's Food and Drug B H Drywall Dignity Health Hunter Contracting Target Mercy Gilbert Medical Center Dillard's Costco Wholesale Total Source: Maricopa Association of Governments 3,572 2,758 1,356 1,348 1,216 1,037 1,009 997 971 650 --------14,914 1 2 3 4 5 6 7 8 9 10 3.95% 3.05% 1.50% 1.49% 1.34% 1.15% 1.12% 1.10% 1.07% 0.72% --------16.50% Fiscal Year 2007 Percentage of Total Town Employees Rank Employment 5,038 1,485 1,270 1,394 710 --661 ------1,010 870 617 616 13,671 1 2 4 3 7 8 5 6 9 10 5.76% 1.70% 1.45% 1.59% 0.81% --0.76% ------1.15% 0.99% 0.71% 0.70% 15.62% TABLE OF CONTENTS Schedule 15 Town of Gilbert, Arizona Full-time Equivalent Employees by Function Last Ten Fiscal Years 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Function Governmental Funds General government: Management and policy Support services 30.8 32.0 32.2 29.2 21.2 22.2 88.5 95.8 120.0 128.6 91.00 92.75 91.3 88.3 62.0 62.0 N/A N/A N/A N/A Finance and management services N/A N/A N/A N/A 18.25 19.3 29.0 19.0 19.0 21.0 Court 51.3 53.3 52.3 52.9 52.9 51.9 49.9 51.9 32.9 32.9 Development services 115.6 99.1 70.5 70.5 72.5 72.5 69.6 68.8 73.3 66.7 17.3 18.0 17.5 17.5 - - - - - - Police 330.0 352.5 347.0 346.0 346.0 346.0 346.0 349.0 354.0 358.0 Fire 203.0 Public works Public safety: 138 173.8 193.0 199.5 197.0 197.0 197.0 197.0 201.0 201.0 Highways and streets 54.5 55.3 55.3 49.3 49.3 49.3 51.0 58.0 58.0 51.7 Parks and recreation 114.4 120.0 117.1 106.8 101.7 102.0 106.8 121.8 118.7 125.3 125.0 Enterprise Funds Water 69.0 72.0 79.0 83.0 118.1 120.0 118.2 118.0 116.5 Wastewater 33.0 35.0 40.7 40.7 40.7 41.7 41.7 44.7 45.4 42.5 Environmental services 71.3 77.1 79.0 79.0 79.0 78.5 79.0 83.5 84.0 94.3 0.5 0.7 0.7 0.7 - - - - - - 24.0 26.0 26.0 26.0 26.0 26.0 26.0 26.0 26.0 26.0 1,176.5 1,226.8 1,208.1 1,186.9 1,184.8 1,188.4 1,202.7 1,237.5 1,248.8 1,275.0 Irrigation Internal Service Funds Equipment maintenance Total Source: Gilbert Office of Management & Budget Note: During fiscal year 2007, the organization structure was changed to reflect a new support services function to include areas previously reported under management and policy and public works. During fiscal year 2011, financial services was moved from support services to its own function. During fiscal year 2013, the support services function was eliminated and financial services was renamed finance and management services. Areas previously reported under the support services function were moved to management and policy and finance and management services. Economic development and budget were moved from development services and finance and management services, respectively, to management and policy. Community services was renamed parks and recreation and CDBG/HOME was moved from development services to parks and recreation. Solid waste was renamed environmental services. During fiscal year 2015, CDBG/HOME was moved from parks and recreation to management and policy. Facilities was moved to parks and recreation. Legal was moved from legal and court to management and policy. Legal and court was renamed court. TABLE OF CONTENTS Schedule 16 Town of Gilbert, Arizona Operating Indicators by Function Last Ten Fiscal Years 2007 Function General government: Management and policy % of population satisfied with value received from tax dollar Number of recruitments Employee turnover Legal and court Case filings % of cases charged after review Development services Building permits issued Value of permits issued (in millions) 2008 2009 2010 2011 2012 90% 246 9.5% 87% 107 9.2% 89% 87 8.1% 86% 90 4.9% 90% 86 6.6% N/A 79 6.8% 38,315 66% 37,821 61% 36,890 61% 32,299 64% 25,888 64% 26,271 72% 5,322 $ 825.5 3,663 $ 539.6 2,054 $ 266.3 $ 2,506 324.3 2,219 $ 238.7 3,474 $ 474.9 2013 c $ 2014 2015 77% 110 8.0% 75% 155 7.5% N/A 148 8.3% 31,794 72% 28,896 72% 29,499 71% 2016 c 74% 175 9.7% 32,091 70% 3,418 534.4 3,254 $ 472.5 3,364 $ 496.0 3,584 $ 553.8 139 Public Safety: Police Number of arrests Crimes per 1,000 population Fire Number of emergency calls Response time average enroute to on-scene 13,324 26.6 10,528 25.4 12,487 23.3 11,411 20.4 8,330 19.3 9,003 18.3 8,734 16.5 8,474 16.6 8,900 15.5 8,702 15.3 12,260 5 min 2 sec 13,259 5 min 8 sec 12,972 4 min 11 sec 13,566 3 min 43 sec 13,946 3 min 37 sec 14,133 3 min 49 sec 15,509 3 min 47 sec 16,185 3 min 51 sec 17,777 3 min 57 sec 18,923 3 min 55 sec Highways and streets Average pavement condition index 90 91 91 91 91 91 80 75 75 72 Parks and recreation Facility reservation requests Facility reservations Participants in recreation programs e Transportation Average daily ridership Water Daily average water production (mg) Average # of meters read per month Number of utility locates Wastewater Daily average wastewater influent (mg) Annual effluent produced/reused (mg) Environmental services Solid waste tonnage Recycle tonnage Irrigation Cost per house irrigated $ 17,434 N/A 45,516 18,691 N/A 54,815 19,222 N/A 48,892 15,681 N/A 50,038 16,637 N/A 47,493 16,880 N/A 48,725 16,277 N/A 52,714 16,440 N/A 52,616 N/A 15,920 62,815 N/A 17,018 69,423 388 421 1,039 835 845 560 635 685 687 669 44 64,320 26,616 42 68,447 16,451 44 70,630 12,000 42 71,814 12,373 42 71,910 10,576 43 73,469 15,190 43 71,952 23,277 43 72,712 20,235 43 73,199 20,100 43 82,871 21,197 11.71 3,417 12.32 4,174 12.37 4,160 12.91 4,420 12.67 4,840 12.20 4,457 12.79 4,667 12.82 4,646 13.21 4,822 14.03 4,815 112,880 18,388 113,777 19,055 110,144 18,810 110,403 19,191 111,943 19,242 109,472 18,653 115,536 18,695 113,965 19,851 112,778 19,418 114,144 19,894 309 $ 384 $ 1,532 a $ 542 N/A b N/A b N/A b N/A b N/A b N/A Source: The various departments a Increase compared to prior years due to a one-time expense in 2009 for mapping and as-built condition reports on the Heritage Flood District Irrigation System in anticipation of the Town transferring this operation to another entity. b Service is no longer available. c Survey completed every other year. d Indicator no longer being tracked. Beginning in 2015, tracking actual facility reservations. e Only includes adult sports, youth ball programs, adaptive recreation, and town-sponsored special events. d b TABLE OF CONTENTS Schedule 17 Town of Gilbert, Arizona Capital Asset Statistics by Function Last Ten Fiscal Years 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Function Public safety: Police Number of police cars Fire Fire stations Highways and streets Street centerline miles (estimate) a Traffic control signals 150 151 162 156 166 164 164 180 185 217 9 9 9 9 9 10 10 10 10 10 140 1,013 137 1,017 159 872 169 903 168 923 173 979 175 989 177 905 180 1,032 185 1,055 185 Parks and recreation Total acres of park land, trails, open space, municipal areas and support facilities, operated and maintained 676 676 676 690 690 652 653 605 605 605 Water Miles of water main 900 1,067 1,137 1,175 1,189 1,216 1,219 1,261 1,304 1,660 Wastewater Miles of wastewater main 770 809 843 860 868 970 976 1,006 1,019 1,038 52 52 54 57 61 61 61 66 67 57b Environmental services Garbage trucks Source: The various departments Note: No capital asset statistics are available for the general government or transportation functions. a The street centerline miles were previously estimated using different methods, such as end of warranty and beginning of Town ownership. Beginning in FY15, the estimate is based on acceptance letter date. b Prior to fiscal year 2016, wheel loaders were included in the statistic. TABLE OF CONTENTS Schedule 18 Town of Gilbert, Arizona Property Value, Construction and Bank Deposits Last Ten Fiscal Years Fiscal Year 141 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Residential Construction a Number of Permits Value 2,896 1,536 1,038 1,427 1,130 2,331 2,015 1,613 1,668 1,764 $ 474,991,497 268,197,375 161,128,906 213,032,031 182,201,825 408,322,951 385,182,885 315,632,904 350,707,421 402,071,499 Commercial Construction a Number of Permits Value 430 349 151 147 180 182 224 284 268 278 $ 252,353,478 180,776,005 60,768,344 67,488,230 25,831,880 31,550,416 102,447,825 99,959,286 81,934,987 71,594,349 Other Construction a Number of Permits Value 1,997 1,778 865 932 909 961 1,179 1,357 1,428 1,542 $ 98,134,107 90,605,562 44,414,870 43,754,466 30,710,863 35,017,191 46,773,456 56,890,360 63,344,257 80,164,565 Secondary Assessed Property Value b $ 1,466,841,566 2,370,134,999 2,768,391,194 2,672,949,852 2,297,228,317 1,861,193,961 1,675,360,422 1,594,806,737 1,829,471,839 N/A Limited Property Value b N/A N/A N/A N/A N/A N/A N/A N/A N/A $ 1,845,325,449 Maricopa County Bank Deposits $ 55,663,285,000 55,054,948,000 55,358,822,000 61,925,568,000 60,408,631,000 61,673,751,000 65,485,982,000 70,253,713,000 76,889,448,000 84,014,143,000 Sources: Development Services Department b Maricopa County Assessor's Office c Arizona Banker's Association d Federal Deposit Insurance Corporation a Note: In accordance with Proposition 117, The Arizona Property Tax Assessed Valuation Amendment, property taxes are calculated based on the limited property value beginning with tax year 2015. c d d d d d d d d d TABLE OF CONTENTS Schedule 19 Town of Gilbert, Arizona System Development Fees Fiscal Year 2016 Beginning Balance Traffic signal system development fee $ System Development Fees Collected Other Revenue Ending Balance Expenditures 6,875,107 1,904,369 75,755 (1,865,382) (1,796,329) 4,841,253 13,061 (2,668,590) (14,705,008) 2,360,387 - (861,156) (13,205,778) a General government system development fee (7,466,548) 3,203,874 - (2,389,321) (6,651,994) a Parks and recreation system development fee 22,669,002 10,633,999 300,369 (5,330,026) 28,273,344 Water system development fee 18,784,724 11,873,824 211,978 (23,038,326) 7,832,200 Water resources system development fee 8,667,791 2,352,641 89,851 (2,762,464) 8,347,819 Wastewater system development fee 9,223,189 8,531,941 177,942 (58,644) 17,874,428 $ 42,251,928 45,702,288 868,956 (38,973,909) $ 4,927 Police system development fee Fire system development fee 142 Totals $ 6,989,850 389,395 $ 49,849,262 Equivalent Residential Unit Water system development fee Wastewater system development fee - Greenfield 4,015 Wastewater system development fee - Neely 3,176 Source: Gilbert Finance & Management Services Department a The negative ending balances for the fire and general government system development fees are funded by the general fund. The general fund had a cash balance of $99,675,485 at June 30, 2016. TABLE OF CONTENTS Schedule 20 Town of Gilbert, Arizona Property Tax Levies and Collections Last Ten Fiscal Years 143 Fiscal Year Tax Levy 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 $ 16,913,578 $ 27,315,101 31,332,659 30,389,882 26,198,053 21,380,254 19,253,745 18,327,289 19,487,085 19,495,256 County Resolutions (199,706) $ (402,220) (134,438) (153,319) (107,618) (96,162) (99,396) (57,876) (72,483) (32,290) Source: Maricopa County Treasurer's Office Initial Year Collections Net Current Tax Levy Collections 16,713,872 $ 16,226,531 26,912,881 25,797,060 31,198,221 29,744,757 30,236,563 28,984,405 26,090,435 25,253,466 21,284,092 20,772,494 19,154,349 18,962,640 18,269,413 18,056,441 19,414,602 19,230,809 19,462,966 19,286,314 Percent Of Levy 97.08% $ 95.85% 95.34% 95.86% 96.79% 97.60% 99.00% 98.83% 99.05% 99.09% County Resolutions Cumulative Collections Net Delinquent Total Tax Levy Collections Collections 390,866 $ (295,049) $ 16,618,522 $ 1,012,828 (505,972) 26,809,129 1,261,761 (304,665) 31,027,993 996,538 (390,037) 29,999,845 658,962 (276,531) 26,571,390 383,935 (217,438) 21,540,364 142,838 (142,619) 19,248,316 179,872 (87,979) 18,416,185 146,135 (107,689) 19,523,079 (32,290) 19,462,966 16,617,397 26,809,888 31,006,518 29,980,943 25,912,428 21,156,429 19,105,478 18,236,313 19,376,944 19,286,314 Percent of Levy 99.99% 100.00% 99.93% 99.94% 97.52% 98.22% 99.26% 99.02% 99.25% 99.09% TABLE OF CONTENTS Schedule 21 Town of Gilbert, Arizona Principal Property Taxpayers Fiscal Year 2016 144 Principal Taxpayer Type of Business Westcor Santan Village LLC American Furniture Warehouse Co. Southwest Gas Corporation (T&D) Target Corporation Power & Ray LLC Vestar CTC Phase 1 LLC Verizon Wireless BRE DDR BR SAN TAN II AZ LLC Redstone at Santan Village Apartments LLC Lowe's HIW Inc. LIT Industrial Limited Partnership Earnhardt Arizona Properties LLC Pillar at San Tan LLC San Privada Apartments LLC Branch Brook Gardens Smith Food & Drug Centers Inc. CTC Gilbert LLC Qwest Corporation Sy Gilbert Commons I LLC B H GTS LLC Arizona Public Service Company Shopping Center Retail Utility Retail Real Estate Development / Holdings Real Estate Development / Holdings Utility Real Estate Development / Holdings Real Estate Development / Holdings Retail Real Estate Development / Holdings Real Estate Development / Holdings Real Estate Development / Holdings Real Estate Development / Holdings Real Estate Development / Holdings Retail Real Estate Development / Holdings Utility Real Estate Development / Holdings Real Estate Development / Holdings Utility Limited Property Valuation $ 20,338,889 7,843,286 6,428,561 6,341,076 5,639,835 5,530,329 5,245,258 5,188,320 4,806,360 4,489,524 4,246,497 4,148,487 4,095,000 3,987,300 3,725,370 3,635,162 3,458,268 3,190,523 3,163,536 3,152,935 3,147,797 $ 111,802,313 As % of Town's Total Limited Property Valuation 1.10% 0.43% 0.35% 0.34% 0.31% 0.30% 0.28% 0.28% 0.26% 0.24% 0.23% 0.22% 0.22% 0.22% 0.20% 0.20% 0.19% 0.17% 0.17% 0.17% 0.17% 6.06% . Source: Maricopa County. Top taxpayers based on Limited Property Value of Real and Secured Personal Property for tax year 2016. Note: Information included for current fiscal year only as this is what is required for continuing disclosure requirements for Gilbert's bond issues. 50 E Civic Center Drive, Gilbert, AZ 85296 (480) 503-6752 | gilbertaz.gov