2nd Safest City in the U.S. (FBI Uniform Crime Report Data, 2015) Comprehensive Annual Financial Report Aaa Rating from Moody’s on Gilbert’s General Obligation Bonds Fiscal Year Ended June 30, 2017 GILBERT, ARIZONA #1 Most Financially Savvy City Nationionally for Wallet Wellness (WalletHub, 2015) 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, 2017 Jenn Daniels, Mayor Victor Petersen, Vice Mayor Scott Anderson, Council Member Eddie Cook, Council Member Brigette Peterson, Council Member Jordan Ray, Council Member Jared Taylor, Council Member Patrick Banger, Manager Prepared by the Finance & Management Services Department Håkon Johanson, Finance & Management Services Director TOWN OF GILBERT, ARIZONA Comprehensive Annual Financial Report For the Year Ended June 30, 2017 TABLE OF CONTENTS Page INTRODUCTORY SECTION Letter of Transmittal Advisory Organization Chart Organization Reporting Chart 1 8 9 FINANCIAL SECTION Independent Auditor's Report 11 Management's Discussion and Analysis (required supplementary information) 13 Basic Financial Statements: Government-wide Financial Statements: Statement of Net Position Statement of Activities 25 26 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 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-PSPRS 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 28 31 32 35 36 37 38 40 42 44 45 47 88 89 90 91 92 93 94 96 98 102 103 104 105 TOWN OF GILBERT, ARIZONA Comprehensive Annual Financial Report For the Year Ended June 30, 2017 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 General Obligation Bonds Capital Projects Fund Municipal Property Corporation Capital Projects Fund System Development Fees Capital Projects Fund University Building Capital Projects Fund 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 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, 2017 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 2017 Property Tax Levies and Collections - Last Ten Fiscal Years Principal Property Taxpayers - Fiscal Year 2017 106 107 108 109 110 111 112 113 114 115 116 117 120 121 122 123 124 126 131 132 134 135 136 137 139 140 141 142 143 144 145 146 147 148 149 150 151 152 153 TABLE OF CONTENTS TABLE OF CONTENTS Introductory Section ________________________________ Letter of Transmittal Advisory Organization Chart Organization Reporting Chart TABLE OF CONTENTS December 11, 2017 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, 2017. 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, 2017. 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 2017, the Manager administered Gilbert's operations through a staff of 1,306 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. The most recent estimate of population as of July 1, 2017 is 247,600, which was derived from the Gilbert’s Office of Management and Budget. The following graph depicts the ten-year population trend for Gilbert. FACTORS AFFECTING FINANCIAL CONDITION Growth and Construction There were 1,754 new residential permits and 264 commercial permits issued in fiscal year 2017, which represents a slight decrease from the prior fiscal year of 1,764 and 264, respectively. The total value of all new construction in fiscal year 2017, including commercial, was $532.2 million, down slightly from $553.8 million in fiscal year 2016. 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 2017, a total of $37.0 million was collected in SDF’s compared to $45.7 million in fiscal year 2016. Economic Development With over 237,000 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 Poor’s Ratings Group Most Prosperous City in the U.S. (Economic Innovation Group, 2017) 12th Best Place to Live in America (24/7 Wall Street, 2017) nd 2 Safest City in the United States (Law Street Media, 2016) Best Phoenix Suburb (Thrillist, 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) 2 TABLE OF CONTENTS Gilbert is a community committed to education, 41.5% of residents age 25 and older hold a bachelor’s degree or higher, compared with about 33% nationally. Notable employers like Banner Health, Dignity Health, Banner MD Anderson Cancer Center, Go Daddy, the worldwide headquarters of Isagenix, Mapfre Insurance, Silent-Aire, Unicon, Orbital ATK Space Systems Group, Lockheed Martin, and Heliae, benefit from this commitment to education and have helped keep Gilbert’s unemployment near 3.7%, as compared to approximately 5.0% for the state. 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 in 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 60 Accredited Economic Development Organizations (AEDO) 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 2017 the Gilbert OED facilitated 38 projects representing more than $21 million in capital investment and more than 3,400 new and retained jobs. Fiscal year 2017 also represented the final year of a five year Strategic Plan for the OED. The cumulative efforts from the past five years have resulted in $1.1 billion in new capital investment in the community and more than 10,000 new or retained jobs. Investment in the Heritage District also continued with a focus on critical infrastructure to support future growth. The Gilbert Town Council approved the design of a new 600 stall parking structure and a contract with the consultant for the 2018 Redevelopment Plan update and Master Plan. Both projects will have a significant impact on the community and the OED staff has engaged stakeholders across a variety of areas to ensure that critical development issues are addressed while preserving the Heritage District’s unique character. The Gilbert OED also continued to enhance Gilbert’s position as a tourism destination, launching the five year strategic plan for Tourism and leveraging Proposition 302 funding to extend the reach of the Discover Gilbert brand into target markets, resulting in over 7 million impressions. 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. 3 TABLE OF CONTENTS Transaction Privilege (Sales) Tax Trend Sales tax revenues represented 47.0% of General Fund revenues for fiscal year 2017, totaling approximately $83.0 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 2017, Gilbert’s property tax rate is $1.06 per $100 of limited property 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. 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%. This illustrates how crucial the additions of commercial properties are to the tax base. The limited property valuation increased by 7.3% in fiscal year 2017 from $1.845 billion to $1.979 billion. The following graph depicts the changes in the limited property valuation in Gilbert for the past ten years: 4 TABLE OF CONTENTS State Shared Revenues State shared revenues totaled $62.6 million for the General Fund and $15.8 million for the Streets Special Revenue Fund in fiscal year 2017, 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 the most recent population estimates of the United States Census Bureau. 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: Maximum efficiency – best possible service at the lowest possible cost 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 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 5 TABLE OF CONTENTS 6 TABLE OF CONTENTS 7 TABLE OF CONTENTS Advisory Organizational Chart 8 TABLE OF CONTENTS Organizational Report 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 Public Works Development Services 9 TABLE OF CONTENTS 10 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, 2017, 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, 2017, 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. 11 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. 77, Tax Abatement Disclosures, for the year ended June 30, 2017, 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 11, 2017, 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 11, 2017 12 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, 2017. 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 $1.7 billion. Included in this amount, defined as net position, is $403.6 million of unrestricted net position, of which $122.2 million is invested in joint ventures with the Cities of Mesa and Chandler and the Town of Queen Creek, and $281.3 million which may be used to fund ongoing operations in future years. Net position includes a $754.0 million net investment in capital assets such as streets, park land, and municipal buildings and a $399.5 million net investment in water, wastewater and environmental services infrastructure and equipment. The combined fund balance for all governmental funds is $289.4 million, of which $130.7 million is unrestricted. The General Fund unrestricted fund balance is $115.7 million, of which $32.8 million has been assigned for capital replacement and road maintenance. The General Fund unassigned balance of $82.9 million is approximately 48.8% of the total fund expenditures. Gilbert’s total bonded debt outstanding at the end of the fiscal year was $413.9 million, as compared to $386.5 million at the end of fiscal year 2016. Gilbert’s total outstanding net pension liability at the end of the fiscal year was $151 million, as compared to $118.3 million at the end of fiscal year 2016. 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 (Authority) as a component unit of Gilbert. The Authority provides financing for eligible private sector entities to 13 TABLE OF CONTENTS acquire 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 25-27 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 28-37. 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, 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 119-124. The proprietary fund statements can be found on pages 38-43. 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 44-45. 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 47-86. 14 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, 2016 and 2017. Town of Gilbert Condensed Statement of Net Position Current and other assets Capital assets Total assets Governmental Activities 2017 2016 $ 343,959,030 $ 270,810,919 995,388,402 995,103,587 1,339,347,432 1,265,914,506 Deferred outflows of resources Long-term liabilities Other liabilities Total liabilities Deferred inflows of resources Business-type Activities 2017 2016 $ 433,663,204 $ 425,684,880 518,095,419 487,967,309 951,758,623 913,652,189 Total 2017 2016 $ 777,622,234 $ 696,495,799 1,513,483,821 1,483,070,896 2,291,106,055 2,179,566,695 57,308,335 29,252,820 7,499,472 6,487,784 64,807,807 35,740,604 430,723,892 69,076,436 499,800,328 364,702,014 55,981,883 420,683,897 152,681,675 19,003,206 171,684,881 153,094,889 15,223,091 168,317,980 583,405,567 88,079,642 671,485,209 517,796,903 71,204,974 589,001,877 9,119,023 5,927,785 2,607,355 1,738,904 11,726,378 7,666,689 Net position: Net investment in capital assets 753,972,864 735,368,654 Restricted 72,781,019 83,226,813 Unrestricted 60,982,533 49,960,177 Total net position $ 887,736,416 $ 868,555,644 399,536,898 411,831,059 42,813,414 34,054,446 342,615,547 304,197,584 $ 784,965,859 $ 750,083,089 1,153,509,762 1,147,199,713 115,594,433 117,281,259 403,598,080 354,157,761 $ 1,672,702,275 $ 1,618,638,733 Net position consists of three components. The largest portion of Gilbert’s net position (69.5%) 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 (6.9%) represents resources that are subject to external restrictions on how they may be used. The remaining portion of net position (23.6%) includes $122.2 million which is invested in joint ventures with the Cities of Mesa and Chandler and the Town of Queen Creek and $281.3 million which may be used to meet the government’s ongoing obligations to citizens, customers, and creditors. Governmental Activities Governmental activities in fiscal year 2017 increased Gilbert’s net position by $19.2 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 98.1% of total revenues for governmental activities. Taxes (local and state-shared) were $160.4 million, an increase of $14.7 million from the prior year. Program revenues were $97.1 million, a decrease of $26.5 million from the prior year, which was mostly due to a decrease in capital grants and contributions. It should be noted that $19.0 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 43.4%, and highways and streets, which represented 21.3% of total governmental activities expenses. Total expenses increased $33.7 million (16.1%) over the prior fiscal year. 15 TABLE OF CONTENTS The following table details the changes in net position for governmental and business-type activities. Changes in Net Position Governmental Activities 2017 Business-type Activities Total 2016 2017 2016 2017 2016 $ 102,064,345 Revenues Program revenues: 22,013,700 $ 19,350,321 $ 84,997,939 $ 82,714,024 $ 107,011,639 Operating grants and contributions Charges for services $ 33,203,523 38,666,434 952,598 1,051,389 34,156,121 39,717,823 Capital grants and contributions 41,877,118 65,534,550 34,133,557 43,655,449 76,010,675 109,189,999 Sales taxes 82,797,456 77,070,494 - - 82,797,456 77,070,494 Property taxes 20,761,108 19,423,566 - - 20,761,108 19,423,566 Unrestricted state shared revenue 52,860,596 45,028,237 - - 52,860,596 45,028,237 3,973,141 4,176,100 - - 3,973,141 4,176,100 restricted to specific programs 2,400,140 3,203,874 - - 2,400,140 3,203,874 Unrestricted investment earnings 858,725 2,651,202 1,009,127 2,665,835 1,867,852 5,317,037 1,377,777 1,297,183 213,102 416,566 1,590,879 1,713,749 262,123,284 276,401,961 121,306,323 130,503,263 383,429,607 406,905,224 General revenues: Other taxes Grants and contributions not Other Total revenues Expenses Management and policy 19,454,066 20,048,930 - - 19,454,066 20,048,930 Finance and management services 2,109,345 2,110,049 - - 2,109,345 2,110,049 Court 4,299,922 4,163,888 - - 4,299,922 4,163,888 Development services 9,400,105 7,611,199 - - 9,400,105 7,611,199 Police 63,151,020 50,115,340 - - 63,151,020 50,115,340 Fire 42,513,168 31,971,923 - - 42,513,168 31,971,923 Highw ays and streets 51,930,598 48,726,017 - - 51,930,598 48,726,017 Parks and recreation 25,202,281 25,646,923 - - 25,202,281 25,646,923 1,132,340 1,050,787 - - 1,132,340 1,050,787 13,689,668 5,310,531 - - 13,689,668 5,310,531 10,505,999 12,910,872 - - 10,505,999 12,910,872 - - 42,329,438 44,359,515 42,329,438 44,359,515 Wastew ater - - 26,791,069 26,529,856 26,791,069 26,529,856 Environmental services - - 16,857,046 17,719,391 16,857,046 17,719,391 243,388,512 209,666,459 85,977,553 88,608,762 329,366,065 298,275,221 18,734,772 66,735,502 35,328,770 41,894,501 54,063,542 108,630,003 446,000 98,394 - - 19,180,772 66,833,896 34,882,770 41,796,107 54,063,542 108,630,003 868,555,644 801,721,748 750,083,089 708,286,982 1,618,638,733 1,510,008,730 $ 887,736,416 $868,555,644 $784,965,859 $ 750,083,089 $1,672,702,275 $1,618,638,733 Transportation Non departmental Interest and fiscal charges on long-term debt Water Total expenses Increase in net position before transfers Transfers Change in net position Net position, beginning of year Net position, end of year 16 (446,000) (98,394) TABLE OF CONTENTS Business-type Activities Development related growth increased Gilbert’s net position for business-type activities in fiscal year 2017 by $34.9 million, including $18.9 million in system development fee collections and $12.2 million in water and wastewater infrastructure contributed by developers. The revenues for business-type activities decreased by $9.2 million (7.0%) from the prior year and expenses decreased $2.6 million (3.0%) 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 General Obligation Bonds 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 2017, the governmental funds reported ending unrestricted fund balances totaling $130.7 million, an increase of $13.1 million in comparison with the prior fiscal year. The large increase was mainly due to the change in reporting of vehicle license tax revenue and the expenditure of those funds, as well as a reclassification of the Streets Capital Replacement Fund balance. See Note 2. General Fund The General Fund is the primary operating fund. At the end of fiscal year 2017, the fund balance of the General Fund was $134.6 million, an increase of $16.8 million from the prior year mainly due to the prior period adjustment to reclassify vehicle license tax revenues, the expenditures of those funds, and the Streets Capital Replacement Fund to the General Fund (see Note 2). The unrestricted portion of the fund balance was $115.7 million, of which $17.5 million has been assigned for capital replacement and $11.6 million for highways and streets. 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 48.8% 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 $7.0 million; however, other financing sources and uses (net) were ($9.2) million resulting in a decrease in fund balance of $2.2 million. The transfers out of $10.4 million were for debt obligations.  Local sales tax and intergovernmental revenues are the largest revenue sources for the General Fund accounting for 84.1% of the total revenues.  Local sales tax, which accounts for half of total General Fund revenues, increased $5.9 million (7.6%) from the prior fiscal year due to increased construction and retail sales from new and existing businesses.  Intergovernmental revenue increased $17.9 million (37.5%) due to the change in reporting of vehicle license tax revenues of $9.7 million (see Note 2) and increases in state-shared sales and 17 TABLE OF CONTENTS    income taxes of $7.8 million due to increased population figures used in the distribution of stateshared revenue. Police and Fire expenditures increased $13.9 million (19.6%) mainly due to the addition of 17 full time equivalents and salary increases. Non departmental expenditures increased $8.4 million (159.3%) due to economic development incentive expenditures. Expenditures increased across the board by approximately $32.7 million over the prior fiscal year mainly due to an increase in capital outlay of $8.5 million and public safety personnel costs. 18 TABLE OF CONTENTS Streets Special Revenue Fund The Streets Fund contains state-shared revenues that are required by state statute to be used for transportation purposes, such as highway user revenues and lottery funds. In prior years, vehicle license taxes were also included in this fund; however, these revenues were moved to the General Fund during the fiscal year (see Note 2). Total revenues in the Streets Fund decreased $6.9 million (29.9%) from the prior year due to the vehicle license taxes being moved. Total expenditures also decreased by $6.5 million (33.6%) as a result. In total, revenues exceeded expenditures by $3.3 million; however, the net transfers out of $809.0 thousand resulted in a $2.5 million increase in fund balance. Other Major Governmental Funds General Debt Service. The fund balance decreased by $2.2 million during the year. This was primarily due to the use of fund balance to buy down the secondary property tax rate. The remaining restricted fund balance of $2.2 million will be used to fund future debt service payments on voter approved general obligation bonds and the assigned fund balance of $10.6 million will be used to repay other debt obligations. Special Assessments Debt Service. The fund balance of $73 thousand is all restricted to pay future debt service requirements on special assessment bonds. General Obligation Bonds Capital Projects. The General Obligation Bonds Fund consists of general obligation bond proceeds and the expenditure of those proceeds to purchase or construct capital assets. The fund balance increased by $60.4 million during the year. This was due to the issuance of General Obligation bonds to purchase or construct capital assets. See Note 11. 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 $5.3 million during the year. This was primarily due to the current year system development fees revenues of $18.1 million offset by $1.6 million in capital outlay expenditures and $11.2 million transferred to the general debt service fund for principal and interest payments on bonds. The remaining fund balance of $21.1 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 $1.0 million (2.4%) to a balance at year-end of $45.1 million. Nonmajor funds represent 15.6% 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 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 $18.4 million to $416.6 million due primarily to capital contributions of $19.9 million, including $11.9 million in system development fees and $8.0 million in distribution lines contributed by developers. Operating income was $2.5 million. 19 TABLE OF CONTENTS 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 $11.6 million to $338.0 million due primarily to capital contributions of $11.2 million, including $7.0 million in system development fees and $4.2 million in collection lines contributed by developers. Operating loss was $840.0 thousand. 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 $4.5 million to $30.4 million, primarily from storm water infrastructure contributed by developers of $3.0 million. Operating income was $1.3 million. The following graph compares the fiscal year revenues to expenses for the Water, Wastewater and Environmental Services Funds. General Fund Budgetary Highlights There was a difference of $17.5 million between the original adopted budget and the final amended budget. The final amended budget projected that expenditures would exceed revenues by $36.5 million resulting in a $43.9 million reduction to fund balance per the budget. This was mainly due to budgeting an additional $7.2 million in capital outlay expenditures and an additional $9.5 million for public safety. During the year, actual revenues exceeded the budgeted amount by $7.7 million (4.6%) mainly due to higher than expected miscellaneous revenue due to a settlement received of $4 million. Actual expenditures were less than budgeted by $35.8 million (17.4%) mainly due to $15.9 million lower than expected capital outlay expenditures and not needing any budgeted contingency. This resulted in an excess of revenues over expenditures of $7.0 million more than budgeted. This also resulted in the actual net change in fund balance being $41.7 million more than budgeted. Capital Asset and Debt Administration Capital Assets. As of June 30, 2017, Gilbert had $1.5 billion in capital assets. Major capital assets completed during the fiscal year included the following: 20 TABLE OF CONTENTS Governmental Activities   Streets and traffic signal projects totaling $2.5 million and traffic signals totaling $1.1 million. Developer contributions of street related infrastructure valued at $19.0 million. Business-type Activities   Water system improvements totaling $6.3. Developer contributions of water, wastewater, and storm water infrastructure valued at $15.3 million. The following table presents capital assets balances, net of accumulated depreciation, for the fiscal years ended June 30, 2017 and 2016. Town of Gilbert Capital Assets (net of depreciation) Governmental Activities Land Construction-in-progress Business-type Activities Total 2017 2016 2017 2016 2017 2016 $ 182,578,216 $ 181,780,994 $ 67,790,250 $ 67,380,934 $ 250,368,466 $ 249,161,928 64,360,703 43,351,693 46,058,818 17,242,397 110,419,521 60,594,090 153,418,101 163,543,478 - - 153,418,101 163,543,478 Improvements 27,803,858 28,843,316 - - 27,803,858 28,843,316 Plant, Machinery & Equip 13,362,956 13,418,934 68,515,662 72,730,803 81,878,618 86,149,737 Buildings Water Rights - - 7,060,702 7,158,994 7,060,702 7,158,994 553,864,568 564,165,172 328,669,987 323,454,181 882,534,555 887,619,353 Total Capital Assets $ 995,388,402 $ 995,103,587 $ 518,095,419 $ 487,967,309 $ 1,513,483,821 $ 1,483,070,896 Infrastructure Total governmental capital assets increased $284.4 thousand and business-type capital assets increased $30.1 million. The change in governmental capital assets can be attributed to an increase in construction-in-progress of $21.0 million and infrastructure of $26.1 million, offset by depreciation expense of $53.0 million. The majority of the increase for the business-type capital assets can be attributable to construction-in-progress of $28.8 million, infrastructure of $16.9 million and land of $5.3 million, offset by depreciation expense of $24.6 million. See Note 7 on pages 61-62 for further information regarding capital assets. Long-term Debt. At June 30, 2017, Gilbert had total bonded debt obligations of $298.0 million related to governmental activities and $115.9 million in business-type activities; $143.9 million of the outstanding debt is general obligation (GO) bonds backed by the full faith and credit of the Town of Gilbert; $6.1 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. The Arizona Constitution and State Statutes limit a municipality’s bonded debt capacity to certain percentages of its limited property 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 limited property valuation. For any other general-purpose improvements, Gilbert may issue bonds up to 6% of its limited property valuation. Gilbert’s available debt margin at June 30, 2017 was $118.8 million in the 6% capacity and $242.3 million in the 20% capacity. See Note 10 on pages 64-69 for additional information on debt. The following schedule shows Gilbert’s outstanding debt as of June 30, 2017 and 2016. 21 TABLE OF CONTENTS Town of Gilbert Outstanding Debt Governmental Activities 2017 $ 143,945,000 Special Assessment 6,105,000 Street and Highw ay User 6,345,000 Revenue Obligations 36,980,000 Municipal Property Corporation 104,575,000 Totals $ 297,950,000 General Obligation Business-type Activities 2016 $ 105,250,000 6,480,000 9,320,000 36,980,000 112,575,000 $ 270,605,000 2017 $ 115,940,000 $115,940,000 Total 2016 2017 2016 115,940,000 $ 115,940,000 $ 143,945,000 6,105,000 6,345,000 36,980,000 220,515,000 $ 413,890,000 $ 105,250,000 6,480,000 9,320,000 36,980,000 228,515,000 $ 386,545,000 $ 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, 2017. Town of Gilbert Long-term Debt Ratings As of June 30, 2017 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+ AAA Not Rated AAA AA+ AAA Not Rated Economic Factors and Next Year’s Budget Gilbert continues to effectively manage rapid growth and economic expansion while successfully preserving hometown traditions. With an estimated population of over 247,000 residents, Gilbert has become the fifth largest city in Arizona and the 85th largest city across the nation. Yet, amid this growth, Gilbert has the lowest unemployment rate in the region and is recognized as the 2nd Safest City in the U.S. according to the 2015 FBI Uniform Crime Report as well as Wallethub’s 1st Highest Median Income in Arizona and Move.org’s 1st Best City for Raising a Families. In fiscal year 2017, Gilbert’s economic development team facilitated 38 projects representing over $210 million in capital investments, over 3,400 jobs, and 1.3 million new or expanded square feet ensuring Gilbert remains a premier destination for both residents and businesses alike. Gilbert is also very proud to report that both Fitch and Moody’s gave Gilbert’s General Obligation bonds a AAA rating, which is the highest rating available. These decisions were based on Gilbert’s exceptionally strong credit characteristics, including a demonstrated commitment to building and maintaining strong reserves, robust long-term planning, strengthening regional economy, and manageable debt burdens. The AAA rating places Gilbert in the top 1% of municipalities nationally. Gilbert also welcomed nine new businesses to the Heritage District, which continues to grow with nearly 300,000 square-feet of residential and retail under construction and over $67 million of private capital investment since fiscal year 2013. Gilbert’s northwest employment corridor and central business district also continue to thrive with GoDaddy retaining 1,400 jobs and expanding their footprint to 180,000 square feet. This makes Gilbert the largest base of GoDaddy employment. Mercedes Benz, Merrill Lynch, and other corporate and retail users opened this year at Rivulon and Silent Aire is constructing a new 146,000 square-foot manufacturing facility at Park Lucero that represents over 400 new and retained jobs. Orbital ATK Space Systems Group also completed their 60,000 square-foot expansion at Gilbert Spectrum, representing the retention of existing jobs and the expansion of approximately 140 new science and technology-oriented jobs for Gilbert. 22 TABLE OF CONTENTS A progressive community demands progressive governance, and Gilbert’s Council and executive leadership stepped up. Gilbert now undertakes a zero-based process for one third of the organization every year, 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 once the directors achieve consensus is the Town Manager presented with the recommended budget. This collaborative approach allows Gilbert to promote transparency, the importance of short- and long-term planning, and maintain a strong return on investment for the zero-based process while staying focused on the citizens and businesses that we all serve in different capacities. The budget for fiscal year 2018 reflects an effort to deliver both effective and efficient services to our community. Even given Gilbert’s growth, the budget is balanced assuming planned revenue increases in the enterprise funds, and applying the non-recurring level of construction-related revenues toward nonrecurring 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. Budget Highlights for Fiscal Year 2018 With carry forwards and contingency adjustments, the adopted budget of $964,803,850 is an increase of $114,309,220 million from fiscal year 2017. The change from fiscal year 2017 primarily reflects the budget necessary for carry forward and new/potential capital projects. It reflects a net increase in the Capital Improvement Plan of $212 million ($486 million in fiscal year 2018 vs $274 million which was included in fiscal year 2017), the removal of $100 million for bond refundings, $16 million of new personnel and operating requests, and various budget decreases for one time expenditures in the fiscal year 2017 budget. 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 adopted fiscal year 2018 budget is balanced based upon identified revenues and expenditures. Constitutional Expenditure Limit: The adopted fiscal year 2018 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 adopted fiscal year 2018 budget reflects state-shared revenues based upon Census population adjustments and statutory distribution formulas, taking into account currently projected state sales and income tax collections (provided by the Arizona League of Cities and Towns), which reflect the state’s budgeted highway user revenue distributions. Secondary Property Tax Levy: Council voted to adopt a tax levy of $21.65 million, which reduces the tax rate to $1.03 per $100 of assessed value, down from last year’s rate of $1.06. Utility Rate Modifications: The fiscal year 2018 budget reflects revenues projected from rate changes in Gilbert’s water, wastewater, environmental services, and reclaimed water rates. No rate changes have been adopted, but staff will be gathering data and exploring options with Council in order to ensure fiscal sustainability of the enterprise funds. Cost of service has been increasing over the past decade, but no increases in rates have been made since 2009. Gilbert does not make a profit on these funds, but rather charges only what is needed to provide the services. Current rates are projected to provide too little revenue to support ongoing service. Fund Balance: The Revenue Summary lists the use of carry over funds in an amount just over $390 million. This reflects use of revenues which were received in prior fiscal years in excess of minimum fund balance. Capital Project Financing – System Development Fees: The fiscal year 2018 budget reflects revenues projected from the continued collection of system development fees as allowed under current State Law. 23 TABLE OF CONTENTS 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) 503-6930 24 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA Statement of Net Position June 30, 2017 Component Unit Primary Government Governmental Activities 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 $ 294,212,701 $ 5,327,961 6,124,330 786,444 15,297,992 3,327,967 13,652 6,765 669,930 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 Other 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 Business-type Activities $ 194,806,673 640,411 5,502,913 8,727,618 (13,652) 51,877 Industrial Development Authority Total $ 489,019,374 $ 17,336 5,327,961 6,124,330 1,426,855 20,800,905 12,055,585 6,765 721,807 - 17,963,160 2,586 225,542 101,773,083 125,839 122,048,442 119,736,243 128,425 122,273,984 - 246,938,919 748,449,483 1,339,347,432 113,849,068 404,246,351 951,758,623 360,787,987 1,152,695,834 2,291,106,055 17,336 5,607,757 51,700,578 57,308,335 3,114,862 4,384,610 7,499,472 8,722,619 56,085,188 64,807,807 - 12,368,368 15,863,530 1,650,317 696,617 3,438,541 558,660 7,380,761 610,370 2,826,141 2,485,381 - 19,749,129 16,473,900 1,650,317 696,617 2,826,141 5,923,922 558,660 45 - 34,500,403 430,723,892 499,800,328 5,700,553 152,681,675 171,684,881 40,200,956 583,405,567 671,485,209 45 9,119,023 9,119,023 2,607,355 2,607,355 11,726,378 11,726,378 - 753,972,864 399,536,898 1,153,509,762 - 8,380,411 59,411,088 1,960,625 804,772 1,838,584 314,744 70,795 60,982,533 887,736,416 42,813,414 342,615,547 784,965,859 8,380,411 102,224,502 1,960,625 804,772 1,838,584 314,744 70,795 403,598,080 $ 1,672,702,275 17,291 17,291 $ The notes to the financial statements are an integral part of this statement. 25 $ TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA Statement of Activities For the Year Ended June 30, 2017 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 19,454,066 2,109,345 4,299,922 9,400,105 $ 23,130 19,699 801,353 6,899,824 $ 862,591 30,000 - Capital Grants and Contributions $ 105,472 - 63,151,020 42,513,168 51,930,598 25,202,281 1,132,340 13,689,668 7,484,181 231,352 1,950,962 4,603,199 - 346,354 1,749,991 25,573,175 4,587,256 4,272 49,884 3,720,844 1,895,180 26,534,529 8,999,460 621,633 - 10,505,999 243,388,512 22,013,700 33,203,523 41,877,118 $ 42,329,438 26,791,069 16,857,046 85,977,553 329,366,065 $ 40,695,922 26,031,784 18,270,233 84,997,939 107,011,639 $ 952,598 952,598 34,156,121 $ 19,897,166 11,199,802 3,036,589 34,133,557 76,010,675 $ 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, 2016 Net position, June 30, 2017 26 TABLE OF CONTENTS Net (Expense) Revenue and Changes in Net Position Primary Government Governmental Activities Business-type Activities $ $ (18,462,873) (2,089,646) (3,468,569) (2,500,281) - Component Unit Industrial Development Authority Total $ (18,462,873) (2,089,646) (3,468,569) (2,500,281) $ - (51,599,641) (38,636,645) 2,128,068 (7,012,366) (506,435) (13,639,784) - (51,599,641) (38,636,645) 2,128,068 (7,012,366) (506,435) (13,639,784) - (10,505,999) (146,294,171) - (10,505,999) (146,294,171) - $ (146,294,171) 19,216,248 10,440,517 4,449,776 34,106,541 34,106,541 19,216,248 10,440,517 4,449,776 34,106,541 (112,187,630) - $ $ $ $ 82,797,456 - 82,797,456 - 20,761,108 - 20,761,108 - 1,159,314 - 1,159,314 - 2,813,827 - 2,813,827 - 52,860,596 - 52,860,596 - 2,400,140 - 2,400,140 - 858,725 1,009,127 1,867,852 5 153,707 92,431 246,138 - 1,224,070 120,671 1,344,741 - 446,000 (446,000) 165,474,943 $ (45) 776,229 - - 166,251,172 5 19,180,772 34,882,770 54,063,542 868,555,644 750,083,089 1,618,638,733 784,965,859 $ 1,672,702,275 887,736,416 $ (40) 17,331 $ 17,291 The notes to the financial statements are an integral part of this statement. 27 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA Balance Sheet Governmental Funds June 30, 2017 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 $ General Streets Special Revenue 118,443,372 $ 2,243,711 Special Assessments Debt Service General Debt Service $ 12,600,269 $ 69,467 5,169,814 365,099 15,115,919 396,576 351,386 6,765 18,988,300 2,081 1,395,428 - 136,361 83,745 - 6,124,330 342 - 129,235 158,966,466 3,641,220 11,640,588 24,460,963 6,194,139 7,289,299 9,075,671 141,748 54,987 16,561,705 $ $ 1,019,707 117,602 1,137,309 $ $ 9,005,000 2,635,588 11,640,588 $ $ - 7,577,381 181,450 7,758,831 - - 6,120,986 6,120,986 18,995,065 32,765,976 82,884,889 134,645,930 2,503,911 2,503,911 2,186,272 10,634,103 12,820,375 73,153 73,153 158,966,466 $ 28 3,641,220 $ 24,460,963 $ 6,194,139 TABLE OF CONTENTS General Obligation Bonds Capital Projects $ $ $ System Development Fees Capital Projects 75,352,059 $ 40,288,027 $ 41,270,130 Total Governmental Funds $ 290,267,035 90,243 - 123,885 74,036 - 21,786 111,103 75,600 1,535,963 1,976 - 5,327,961 6,124,330 776,498 15,265,555 3,327,967 351,386 6,765 1,976 18,988,300 27,279 75,469,581 40,485,948 6,166,058 2,586 49,185,202 17,963,160 2,586 358,403,519 2,352,166 2,352,166 $ $ - 75,469,581 354,334 18,988,300 19,342,634 $ $ - 70,260,475 2,856,940 73,117,415 $ Other Governmental Funds 40,485,948 $ - 40,241,657 (19,098,343) 21,143,314 $ 1,156,636 58,619 554,869 351,386 655,000 802,953 503,673 4,083,136 $ 6,120,986 7,577,381 181,450 13,879,817 1,976 24,459,050 20,895,999 (254,959) 45,102,066 $ 49,185,202 12,172,142 9,251,892 696,617 351,386 9,660,000 3,438,541 18,988,300 558,660 55,117,538 18,997,041 139,724,518 67,153,018 63,531,587 289,406,164 $ 358,403,519 The notes to the financial statements are an integral part of this statement. 29 TABLE OF CONTENTS 30 TOWN OF GILBERT, ARIZONA Reconciliation of the Balance Sheet to the Statement of Net Position June 30, 2017 TABLE OF CONTENTS Fund balances - total governmental funds $ 289,406,164 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 1,726,421,618 (731,123,733) 995,297,885 The investment in joint venture is not a financial resource and, therefore, is not reported in the funds. 225,542 Some receivables are not available to pay for current period expenditures and, therefore, are reported as unavailable revenue in the governmental funds. 13,879,817 Internal service funds are used by management to charge the costs of certain activities, such as equipment maintenance, 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. 647,865 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 5,607,757 42,408,075 48,015,832 (127,315,948) (288,290,000) (21,320,338) (16,032,021) (6,548,270) (230,112) (459,736,689) 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 balance sheet. Net pension Bonds payable Bonds premium Compensated absences Judgement payable 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. 31 $ 887,736,416 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA Statement of Revenues, Expenditures, and Changes in Fund Balances Governmental Funds For the Year Ended June 30, 2017 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 Bond issuance costs Fiscal and other charges Capital outlay Total expenditures Excess (deficiency) of revenues over (under) expenditures Other financing sources (uses) Transfers in Transfers out Refunding bonds issued Premium on refunding bonds General obligation bonds issued Premium on general obligation bonds Payment to refunded bond escrow agent Total other financing sources and uses Net change in fund balances Fund balances at beginning of year, as restated (see Note 2) Fund balances at end of year $ 82,980,329 2,813,827 4,784,960 65,749,763 10,101,018 1,063,600 31,666 3,810,983 264,238 5,149,953 176,750,337 Streets Special Revenue $ 15,847,087 1,598 3,728 31,573 227,824 16,111,810 General Debt Service $ 20,761,108 52,824 20,813,932 Special Assessments Debt Service $ 695,540 87 695,627 21,149,596 2,269,643 3,223,630 7,048,588 - - - 52,829,287 31,854,880 127,785 17,903,961 350,000 13,639,784 12,746,928 - - - 19,349,167 169,746,321 51,951 12,798,879 33,905,000 9,656,359 387,788 1,310 43,950,457 375,000 321,072 722 696,794 7,004,016 3,312,931 (23,136,525) 1,185,555 (10,419,190) (9,233,635) (809,020) (809,020) (2,229,619) 136,875,549 $ 134,645,930 32 $ (1,167) 20,568,617 57,155,000 7,428,334 (64,181,634) 20,970,317 - 2,503,911 (2,166,208) (1,167) 2,503,911 14,986,583 12,820,375 74,320 73,153 $ $ TABLE OF CONTENTS General Obligation Bonds Capital Projects $ $ System Development Fees Capital Projects 102,862 102,862 $ Other Governmental Funds 18,101,156 145,361 18,246,517 $ 2,945,503 5,766,847 1,058,866 1,188,608 88,631 521,045 238,917 305,000 12,113,417 Total Governmental Funds $ 82,980,329 23,706,611 2,813,827 4,784,960 87,363,697 695,540 11,161,482 2,252,208 18,101,156 120,297 4,335,756 835,862 5,682,777 244,834,502 - - 851,459 433,782 - 22,001,055 2,269,643 3,657,412 7,048,588 - - 1,567,809 193,028 1,805,715 1,756,117 785,028 49,884 54,397,096 32,047,908 14,680,428 19,660,078 1,135,028 13,689,668 391,207 10,523,425 10,914,632 1,662,706 1,662,706 655,000 1,605,906 6,675 2,523,551 12,233,954 34,935,000 11,583,337 778,995 8,707 34,110,800 252,003,743 (10,811,770) 16,583,811 (120,537) (7,169,241) 64,515,000 6,710,366 71,225,366 (11,235,314) (11,235,314) 1,579,937 (417,252) 1,162,685 23,334,109 (22,880,776) 57,155,000 7,428,334 64,515,000 6,710,366 (64,181,634) 72,080,399 60,413,596 5,348,497 1,042,148 64,911,158 12,703,819 73,117,415 15,794,817 21,143,314 44,059,918 45,102,066 224,495,006 289,406,164 $ $ $ The notes to the financial statements are an integral part of this statement. 33 TABLE OF CONTENTS 34 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, 2017 Net change in fund balances - total governmental funds $ 64,911,158 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 34,110,800 Depreciation expense (52,974,791) (18,863,991) Issuance of debt, applicable premium and payment to refunded bond escrow agent are reported as a financing source (use) in the governmental funds and thus contribute to the change in fund balance. In the government-wide statements, however, issuing debt increases long-term liabilities in the statement of net position and does not affect the statement of activities. Bond premium is deferred and amortized in the statement of activities. General obligation and general obligation refunding bonds (121,670,000) Premium on general obligation and general obligation refunding bonds Payment to refunded bond escrow agent (14,138,700) 64,181,634 (71,627,066) 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 and 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 34,935,000 Amortization expense 1,865,040 36,800,040 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 service funds' costs for the year. 2,099,690 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. 19,036,477 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 (2,025,261) Post-employment benefits 2,299,815 Claims payable (6,548,270) (6,273,716) 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 21,642,879 Pension expense (30,823,487) (9,180,608) 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 (373,686) Court fines 2,835,347 Sales tax (182,873) Change in net position of governmental activities - statement of activities The notes to the financial statements are an integral part of this statement. 35 2,278,788 $ 19,180,772 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, 2017 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 $ 81,275,000 2,945,000 3,948,000 55,927,000 10,444,850 20,000 3,576,000 460,000 724,000 159,319,850 Actual Amounts Final $ 81,275,000 2,945,000 3,948,000 65,627,000 10,444,850 20,000 3,576,000 460,000 724,000 169,019,850 $ 82,980,329 2,813,827 4,784,960 65,749,763 10,101,018 1,063,600 31,666 3,810,983 264,238 5,149,953 176,750,337 Final Budget Positive (Negative) $ 1,705,329 (131,173) 836,960 122,763 (343,832) 1,063,600 11,666 234,983 (195,762) 4,425,953 7,730,487 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 Capital outlay Contingency Total expenditures 22,476,985 2,298,695 3,237,830 7,061,890 23,309,328 2,311,810 3,249,920 7,819,890 21,149,596 2,269,643 3,223,630 7,048,588 2,159,732 42,167 26,290 771,302 47,748,810 29,469,510 18,844,770 350,000 11,546,570 25,005,970 20,035,030 188,076,060 54,360,899 32,388,700 139,500 18,999,850 350,000 13,864,970 35,203,581 13,535,380 205,533,828 52,829,287 31,854,880 127,785 17,903,961 350,000 13,639,784 19,349,167 169,746,321 1,531,612 533,820 11,715 1,095,889 225,186 15,854,414 13,535,380 35,787,507 Excess (deficiency) of revenues over expenditures (28,756,210) (36,513,978) 7,004,016 43,517,994 3,503,620 (7,048,950) (3,545,330) 3,089,940 (10,460,780) (7,370,840) 1,185,555 (10,419,190) (9,233,635) (1,904,385) 41,590 (1,862,795) $ (32,301,540) $ (43,884,818) Other financing sources (uses) Transfers in Transfers out Total other financing sources and uses Net change in fund balances Fund balance at beginning of year, as restated (see Note 2) (2,229,619) 136,875,549 $ 134,645,930 Fund balance at end of year The notes to the financial statements are an integral part of this statement. 36 $ 41,655,199 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, 2017 Variance with Final Budget Positive (Negative) Budgeted Amounts Original Revenues Intergovernmental Charges for services Fines and forfeitures Investment earnings Miscellaneous Total revenues $ Expenditures Current: Highways and streets Capital outlay Contingency Total expenditures Other financing uses Transfers out Total other financing uses Net change in fund balances 15,000,000 1,000 100,000 15,101,000 $ 13,934,480 1,410,000 15,344,480 Excess (deficiency) of revenues over (under) expenditures $ Actual Amounts Final 15,000,000 1,000 100,000 15,101,000 13,618,130 56,000 2,266,190 15,940,320 (243,480) (839,320) (1,038,620) (1,038,620) (1,038,620) (1,038,620) (1,282,100) $ $ 15,847,087 1,598 3,728 31,573 227,824 16,111,810 (1,877,940) 871,202 4,049 2,266,190 3,141,441 3,312,931 4,152,251 2,503,911 $ The notes to the financial statements are an integral part of this statement. 37 847,087 598 3,728 (68,427) 227,824 1,010,810 12,746,928 51,951 12,798,879 (809,020) (809,020) Fund balance at beginning of year, as restated (see Note 2) Fund balance at end of year $ 2,503,911 229,600 229,600 $ 4,381,851 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA Statement of Net Position Proprietary Funds June 30, 2017 Water ASSETS Current assets: Pooled cash and investments Receivables (net): Accrued interest Accounts Due from other governments 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 Total assets DEFERRED OUTFLOWS OF RESOURCES Deferred charge on refunding Pension-related items Total deferred outflows of resources LIABILITIES Current liabilities: Accounts payable Accrued liabilities Current portion of accrued compensated absences Claims payable Bond interest payable Bonds payable Utility deposits 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 $ Business-type Activities - Enterprise Funds Environmental Wastewater Services 96,048,465 $ 74,449,576 $ Total 24,308,632 $ 194,806,673 337,564 3,249,724 8,727,618 51,877 108,415,248 228,982 1,378,364 76,056,922 73,865 874,825 25,257,322 640,411 5,502,913 8,727,618 51,877 209,729,492 72,350,153 59,091 66,535,770 29,422,930 66,748 55,512,672 - 101,773,083 125,839 122,048,442 89,155,949 231,466,689 459,567,652 567,982,900 24,660,641 160,234,282 269,897,273 345,954,195 32,478 12,545,380 12,577,858 37,835,180 113,849,068 404,246,351 742,042,783 951,772,275 3,114,862 2,222,774 5,337,636 722,997 722,997 1,438,839 1,438,839 3,114,862 4,384,610 7,499,472 3,359,040 306,910 438,207 2,485,381 4,830,000 2,803,982 14,223,520 3,662,700 103,188 160,887 3,926,775 359,021 200,272 271,459 22,159 852,911 7,380,761 610,370 870,553 2,485,381 4,830,000 2,826,141 19,003,206 129,764,390 728,043 15,594 10,711,812 141,219,839 155,443,359 356,103 15,705 3,939,958 4,311,766 8,238,541 430,136 7,214 6,712,729 7,150,079 8,002,990 129,764,390 1,514,282 38,513 21,364,499 152,681,684 171,684,890 1,321,796 1,321,796 429,938 429,938 855,621 855,621 2,607,355 2,607,355 202,064,117 17,841,112 196,650,152 $ 416,555,381 184,894,923 24,972,302 128,141,488 $ 338,008,713 12,577,858 17,837,550 30,415,408 399,536,898 42,813,414 342,629,190 $ 784,979,502 $ Adjustment to reflect the consolidation of internal service fund activities related to enterprise funds Net position of business-type activities 38 (13,652) $ 784,965,850 TABLE OF CONTENTS Governmental Activities Internal Service Funds $ 3,945,666 9,946 32,437 667,954 4,656,003 90,517 90,517 4,746,520 427,988 427,988 196,226 63,368 94,554 1,650,317 2,004,465 134,103 2,147,219 2,281,322 4,285,787 254,508 254,508 $ 90,517 543,696 634,213 The notes to the financial statements are an integral part of this statement. 39 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, 2017 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 Operating income (loss) Nonoperating revenues (expenses) Intergovernmental Interest expense Investment earnings Gain (loss) on sale of capital assets Total nonoperating revenues (expenses) Income (loss) before capital contributions and transfers $ Business-type Activities - Enterprise Funds Environmental Wastewater Services 40,695,922 60,897 40,756,819 1,728,769 8,400,434 13,426,871 12,616,269 2,054,360 38,226,703 $ 26,031,784 26,031,784 763,069 3,702,201 10,859,722 10,561,019 985,790 26,871,801 2,530,116 (840,017) 952,598 (4,334,848) 552,040 14,888 (2,815,322) 387,274 25,056 412,330 (285,206) $ 18,270,233 59,774 18,330,007 $ 84,997,939 120,671 85,118,610 824,466 6,826,847 6,886,265 1,449,610 1,009,200 16,996,388 3,316,304 18,929,482 31,172,858 24,626,898 4,049,350 82,094,892 1,333,619 3,023,718 69,813 52,487 122,300 (427,687) Total 952,598 (4,334,848) 1,009,127 92,431 (2,280,692) 1,455,919 743,026 Capital contributions Transfers in Transfers out 19,897,166 (1,226,499) 11,199,802 780,498 - 3,036,589 - 34,133,557 780,498 (1,226,499) Change in net position 18,385,461 11,552,613 4,492,508 34,430,582 398,169,920 326,456,100 25,922,900 $ 416,555,381 $ 338,008,713 Total net position, beginning of year Total net position, end of year $ 30,415,408 452,178 Adjustment to reflect the consolidation of internal service fund activities related to enterprise funds Change in net position of business-type activities 40 $ 34,882,760 TABLE OF CONTENTS Governmental Activities Internal Service Funds $ 24,942,365 265,780 25,208,145 1,300,912 1,917,343 4,714,178 14,729,987 9,388 22,671,808 2,536,337 22,863 22,863 2,559,200 (7,332) 2,551,868 (1,917,655) $ 634,213 The notes to the financial statements are an integral part of this statement. 41 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA Statement of Cash Flows Proprietary Funds For the Year Ended June 30, 2017 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 operating activities $ 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 operations: Operating income (loss) Adjustments to reconcile operating income (loss) to net cash provided by operating activities: Depreciation Provision for uncollectible accounts Changes in assets and liabilities: (Increase) decrease in accounts receivable Increase in inventories Decrease in prepaid expense Increase in deferred outflows of resources Increase (decrease) in accounts payable Decrease in claims payable Decrease in deposits Increase (decrease) in accrued expenses Increase in net pension liability Increase in deferred inflows of resources Total adjustments Net cash provided by operating activities Supplemental disclosures of noncash financing activities: Additions to property and equipment: Contributions from developers Total additions to property and equipment 26,080,294 (10,426,529) (3,671,845) (985,790) 10,996,130 $ 780,498 780,498 (25,596,854) 11,864,120 (2,506,189) 14,888 952,598 (15,271,437) 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 $ (1,226,499) (1,226,499) Cash flows from capital and related financing activities: Acquisition and construction of capital assets Proceeds from development fees Cash paid for interest and fiscal charges Proceeds from sale of capital assets Intergovernmental revenue Net cash 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 32,970,350 60,897 (202,290) (14,595,061) (8,270,479) (2,054,360) 7,909,057 Business-type Activities - Enterprise Funds Environmental Wastewater Services $ - (10,556,416) 6,992,364 25,056 (3,538,996) 391,298 391,298 18,292,615 59,774 (1,500) (8,091,523) (6,766,021) (1,009,200) 2,484,145 Total 77,343,259 120,671 (203,790) (33,113,113) (18,708,345) (4,049,350) 21,389,332 780,498 (1,226,499) (446,001) (1,148,813) 52,487 (1,096,326) (37,302,083) 18,856,484 (2,506,189) 92,431 952,598 (19,906,759) 264,411 264,411 43,906 43,906 699,615 699,615 (8,197,581) 176,596,199 $ 168,398,618 8,502,043 95,370,463 $ 103,872,506 $ 1,431,725 22,876,907 24,308,632 1,736,187 294,843,569 $ 296,579,756 $ 96,048,465 72,350,153 $ 168,398,618 $ 74,449,576 29,422,930 $ 103,872,506 $ $ 24,308,632 24,308,632 $ 194,806,673 101,773,083 $ 296,579,756 $ $ $ 1,333,619 2,530,116 $ 3,023,718 12,616,269 53,508 10,561,019 39,987 1,449,610 31,839 24,626,898 125,334 (7,779,079) (4,118) (617,893) 564,696 (202,290) (145,532) 440,113 453,267 5,378,941 8,523 (182,141) 1,196,262 (59,252) 134,511 137,238 11,836,147 (9,457) 2,500 (371,402) (383,292) (1,500) (117,501) 271,783 277,946 1,150,526 (7,780,013) (4,118) 2,500 (1,171,436) 1,377,666 (203,790) (322,285) 846,407 868,451 18,365,614 $ 7,909,057 $ $ 42 (840,017) $ 10,996,130 $ 8,033,046 $ 4,207,438 $ 8,033,046 $ 4,207,438 $ 2,484,145 $ 21,389,332 3,036,589 $ 15,277,073 3,036,589 $ 15,277,073 TABLE OF CONTENTS Governmental Activities Internal Service Funds $ 593,548 24,940,874 (21,043,025) (1,822,948) 2,668,449 (1,200,000) (7,332) (1,207,332) (93,526) (93,526) 15,344 15,344 $ $ 1,382,935 2,562,731 3,945,666 $ 3,945,666 3,945,666 $ 2,536,337 9,388 326,277 (140,975) (117,449) (101,030) (55,943) 41,351 84,042 86,451 132,112 $ 2,668,449 $ - $ - The notes to the financial statements are an integral part of this statement. 43 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA Statement of Fiduciary Net Position Fiduciary Funds June 30, 2017 Firemen's Pension Trust Agency Funds $ 87,980 - $ 10,539 14,826 87,980 $ 25,365 - $ 25,365 - $ 25,365 ASSETS Restricted cash and investments Prepaid items Total assets LIABILITIES Dependent care benefits payable Total liabilities NET POSITION Restricted for pensions $ The notes to the financial statements are an integral part of this statement. 44 87,980 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA Statement of Changes in Fiduciary Net Position Fiduciary Fund For the Year Ended June 30, 2017 Firemen's Pension Trust Additions Interest on investments $ Total additions 432 432 Deductions Benefits Administration 2,400 100 Total deductions 2,500 Change in net position (2,068) Net position - beginning of the year 90,048 Net position - end of the year $ The notes to the financial statements are an integral part of this statement. 45 87,980 TABLE OF CONTENTS 46 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA NOTES TO THE FINANCIAL STATEMENTS June 30, 2017 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, 2017, Gilbert implemented the provisions of GASB Statement No. 77, Tax Abatement Disclosures. This Statement establishes guidance requiring state and local governments to disclose key information about tax abatement agreements. See Note 21. 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 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. 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, 2017, 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 47 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA NOTES TO THE FINANCIAL STATEMENTS June 30, 2017 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 2017 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. 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. 48 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA NOTES TO THE FINANCIAL STATEMENTS June 30, 2017 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. 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). 49 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA NOTES TO THE FINANCIAL STATEMENTS June 30, 2017 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. Streets Special Revenue Fund – The highway user fund accounts for Gilbert’s portion of the Arizona Highway User Revenue Tax. 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. General Obligation 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. 50 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA NOTES TO THE FINANCIAL STATEMENTS June 30, 2017 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. 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. 51 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA NOTES TO THE FINANCIAL STATEMENTS June 30, 2017 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 3. In addition, the financial statements present the budget and actual information for the departments at a summary level by function. 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. 52 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA NOTES TO THE FINANCIAL STATEMENTS June 30, 2017 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. 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. 53 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA NOTES TO THE FINANCIAL STATEMENTS June 30, 2017 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. 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 6 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. 54 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA NOTES TO THE FINANCIAL STATEMENTS June 30, 2017 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 2017, Gilbert’s property tax rate is $1.06 per $100 of secondary assessed valuation. 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. 55 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA NOTES TO THE FINANCIAL STATEMENTS June 30, 2017 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. 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, 2017, the fund balance details by classification are listed below: Major Streets Fund balances: General Special Fund Revenue Major Debt Service Funds Capital Projects Funds Special Assmnts General GO Bonds System Other Dev Fees Gov’t Total Nonspendable: Advances - $ 18,988,300 - - - - - - 1,976 1,976 6,765 - - - - - - 6,765 Capital projects - - - - 70,260,475 40,241,657 21,308,059 131,810,191 Court/public safety programs - - - - - - 1,890,903 1,890,903 Debt service - - 2,186,272 73,153 - - - 2,259,425 Federal/state/local grants - - - - - - 835,571 835,571 Highways and streets - 2,503,911 - - - - - 2,503,911 Contract agreements - - - - - - 60,163 60,163 Parks & recreation programs - - - - - - 10,632 10,632 Special districts - - - - - - 353,722 353,722 17,501,836 - - - - - - 17,501,836 3,498,218 - - - 2,856,940 - 20,744,901 27,100,059 - - 10,634,103 - - - - 10,634,103 48,920 - - - - - - 48,920 11,574,433 - - - - - - 11,574,433 250,167 Inventory Prepaid items $18,988,300 $ - $ - $ - $ - $ - $ Restricted for: Assigned to: Capital replacement Capital projects Debt service Development services Highways and streets Management and policy 99,069 - - - - - 151,098 Parks & recreation programs 43,500 - - - - - - 43,500 82,884,889 - - - - (19,098,343) (254,959) 63,531,587 $134,645,930 $2,503,911 $12,820,375 $ 73,153 $73,117,415 $ 21,143,314 $45,102,066 $289,406,164 Unassigned: Total fund balances 56 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA NOTES TO THE FINANCIAL STATEMENTS June 30, 2017 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. 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 – Fund Reclassifications During the fiscal year, there was a change in reporting of vehicle license tax (VLT) revenue and the expenditure of those funds. The revenues and expenditures were previously recorded in the Streets Special Revenue Fund. A prior period adjustment was recorded to reclassify the VLT portion of fund balance in the Streets Special Revenue Fund to the General Fund. In addition, due to a change in reporting, the capital replacement portion of the Streets Special Revenue Fund was reclassified to the General Fund. Fund balances at June 30, 2016, as previously reported Adjustment for reclass of VLT Adjustment for reclass of capital replacement Fund balance at June 30, 2016, restated General $ 119,045,537 12,817,040 5,012,972 $ 136,875,549 Streets $ 17,830,012 (12,817,040) (5,012,972) $ - Note 3 - 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. 57 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA NOTES TO THE FINANCIAL STATEMENTS June 30, 2017 5. Capital assets contributed by developers are recognized as revenue on the GAAP basis but are not recognized on the budget basis. Note 4 - 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. 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, 2017, 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 Certificates of Deposit Corporate Notes Commercial Paper Money Market – U.S. Treasuries Total Investments by Fair Value Level Amount $ 43,926,741 262,963,838 61,449,715 86,578,682 27,360,198 49,303,647 531,582,821 External Investment Pools Measured at Fair Value State Treasurer’s Investment Pool Total Investments Measured at Fair Value 66,431,767 $ 598,014,588 Fair Value Measurement Using Level 1 Level 2 $ 43,926,741 $ 262,963,838 61,449,715 86,578,682 27,360,198 49,303,647 $ 43,926,741 $ 487,656,080 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. 58 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA NOTES TO THE FINANCIAL STATEMENTS June 30, 2017 At June 30, 2017, Gilbert’s investment maturities were as follows: Investment Type U.S. Government Treasuries U.S. Government Agencies Certificates of Deposit Corporate Notes Commercial Paper State Treasurer’s Investment Pool Money Market – U.S. Treasuries Total Fair Value $ 43,926,741 262,963,838 61,449,715 86,578,682 27,360,198 66,431,767 49,303,647 $ 598,014,588 Investment Maturities (in Years) Less than 1 1-3 $ 4,632,567 $ 39,294,174 49,493,384 213,470,454 17,660,189 43,789,526 15,912,392 70,666,290 27,360,198 26,827,744 39,604,023 49,303,647 $ 191,190,121 $ 406,824,467 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, 2017, the investments in the U.S. Government Agencies were rated AA+ 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. 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, 2017, Gilbert’s bank balance was $24,351,793 of which $6,688,042 was with JP Morgan and $17,663,751 was with Alliance Bank of Arizona. $6,438,042 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 FDICinsured 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, 2017, of Gilbert’s investments, 44% were in U.S. Government Agencies, 14% were in Corporate Notes, 10% were in Certificates of Deposit, 7% were in U.S. Government Treasuries and 11% were in the State Treasurer’s Investment Pool. 59 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA NOTES TO THE FINANCIAL STATEMENTS June 30, 2017 Reconciliation of pooled cash and investments as reported on the statement of net position: Primary government: Carrying amount of cash Carrying amount of deposits/investments Total cash and investments $ 10,839,548 598,014,588 $ 608,854,136 Pooled cash and investments Restricted cash and investments Total cash and investments (per Statement of Net Position) Agency funds Total cash and investments $ 489,019,374 119,736,243 608,755,617 98,519 $ 608,854,136 Note 5 - Taxes Receivable and Due from Other Governments The general fund taxes receivable amount at June 30, 2017, includes $1,862,985 in state shared sales tax and $3,306,829 in local sales tax. The general fund due from other governments includes $350,884 in vehicle license tax due from the State of Arizona. Amounts in the streets special revenue fund include $1,367,464 in highway user revenues due from the State of Arizona. Other governmental funds include federal grant receivables of $327,964 from the U.S. Department of Housing and Urban Development, $56,260 from the U.S. Department of Transportation, and $16,160 from the U.S. Department of Homeland Security. Additionally, other governmental funds include Racketeer Influenced Corrupt Organizations (RICO) funds of $1,123,535 from Maricopa County Attorney’s Office. The water fund includes $99,336 and $8,628,283 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. Note 6 – Interfund Receivables and Payables The composition of interfund balances as of June 30, 2017, 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 351,386 $ 351,386 General Fund Other Governmental Funds Total $ Due From $ $ 351,386 351,386 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 60 Advances to $ 18,988,300 $ 18,988,300 Advances from $ 18,988,300 $ 18,988,300 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA NOTES TO THE FINANCIAL STATEMENTS June 30, 2017 Note 7 – Capital Assets A summary of changes in capital assets for governmental activities, for the fiscal year ended June 30, 2017, is as follows: July 1, 2016 Non-depreciable assets: Land Construction-in-progress Total non-depreciable assets Depreciable assets: Buildings Improvements other than buildings Machinery and equipment Infrastructure Total depreciable assets Less accumulated depreciation: Buildings Improvements other than buildings Machinery and equipment Infrastructure Total accumulated depreciation Total depreciable assets, net Governmental activities capital assets, net $ 181,780,994 43,351,693 225,132,687 Additions $ 797,222 26,744,932 27,542,154 Deletions $ June 30, 2017 (5,735,922) (5,735,922) $ 182,578,216 64,360,703 246,938,919 257,541,600 71,677,562 149,957 1,866,970 - 257,691,557 73,544,532 60,232,590 1,060,192,827 1,449,644,579 3,324,729 26,092,913 31,434,569 (1,312,590) (1,312,590) 62,244,729 1,086,285,740 1,479,766,558 (93,998,122) (42,834,246) (10,275,334) (2,906,428) - (104,273,456) (45,740,674) (46,813,656) (496,027,655) (679,673,679) (3,288,718) (36,393,517) (52,863,997) 1,220,601 1,220,601 (48,881,773) (532,421,172) (731,317,075) 769,970,900 (21,429,428) (91,989) 748,449,483 (5,827,911) $ 995,388,402 $ 995,103,587 $ 6,112,726 $ 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 Town’s internal service funds are charged to the various functions based on their usage of the assets Total depreciation expense – governmental activities 61 $ 747,494 295,654 493,255 2,180,397 2,742,408 2,930,902 37,361,233 6,103,266 $ 52,854,609 9,388 $ 52,863,997 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA NOTES TO THE FINANCIAL STATEMENTS June 30, 2017 A summary of changes in capital assets for business-type activities, for the fiscal year ended June 30, 2017, is as follows: July 1, 2016 Non-depreciable assets: Land Construction-in-progress Total non-depreciable assets Deletions June 30, 2017 $ 67,380,934 17,242,397 84,623,331 $ 5,318,762 35,942,743 41,261,505 $ (4,909,446) (7,126,322) (12,035,768) $ 67,790,250 46,058,818 113,849,068 138,726,948 9,146,281 473,215,646 621,088,875 1,556,898 16,887,077 18,443,975 (827,446) (827,446) 139,456,400 9,146,281 490,102,723 638,705,404 (65,996,145) (1,987,287) (149,761,465) (5,772,039) (98,292) (11,671,271) 827,446 - (70,940,738) (2,085,579) (161,432,736) (217,744,897) 403,343,978 (17,541,602) 902,373 827,446 - (234,459,053) 404,246,351 $ 487,967,309 $ 42,163,878 $ (12,035,768) $ 518,095,419 Depreciable assets: Plant and equipment Water rights Infrastructure Total depreciable assets Less accumulated depreciation: Plant and equipment Water rights Infrastructure Total accumulated depreciation Total depreciable assets, net Business-type activities capital assets, net Additions Note 8 – Construction-in-Progress and Commitments Governmental activities construction-in-progress and related construction commitments at June 30, 2017, were as follows: Constructionin-Progress Commitments Redevelopment Municipal facilities Parks Traffic control Streets capital projects Total $ 703,752 14,081,220 6,806,456 3,951,850 38,817,425 $ 64,360,703 62 $ $ 1,822,116 1,326,052 1,875,153 327,953 5,258,640 10,609,914 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA NOTES TO THE FINANCIAL STATEMENTS June 30, 2017 Business-type activities construction-in-progress and related construction commitments at June 30, 2017, were as follows: Constructionin-Progress Commitments Water system Wastewater system Environmental services Total $ 31,620,875 14,405,465 32,478 $ 46,058,818 $ 39,071,276 10,679,517 131,249 $ 49,882,042 In addition, there were non-construction related commitments at June 30, 2017, as follows: Governmental funds: General Fund Highway User Special Revenue Other governmental Total $ $ Proprietary funds: Water Wastewater Environmental Services Internal Service Total $ $ 191,489 211,577 32,675 435,741 35,455 142,726 315,846 46,849 540,876 Note 9 - 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 2017, 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. 63 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA NOTES TO THE FINANCIAL STATEMENTS June 30, 2017 The claims liability of $1,650,317 reported in the employee benefit self-insurance trust at June 30, 2017, 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 2017, a decrease of $59,691 and an increase of $3,748 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 2017 reflected a decrease in claims costs of $4,686,646 from fiscal year 2016. This was due to a decrease of $4,686,806 in medical claims and an increase of $160 in dental claims. Changes in the fund’s claim liability amount in fiscal years 2016 and 2017 were: Claim Liability at Beginning of Fiscal Year $ 1,398,171 1,706,260 Year Ended, June 30 2016 2017 Fiscal Year Claims and Changes in Estimates $ 19,416,633 14,729,987 Fiscal Year Claim Payments $ (19,108,544) (14,785,930) Claim Liability at End of Fiscal Year $ 1,706,260 1,650,317 Note 10 – 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. General obligation bonds outstanding at June 30, 2017, 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 2017 General Obligation and General Obligation Refunding Bonds, Series 2017, 3.0% to 5.0%, original amount $121,670,000, annual retirements due July 1, 2017, through July 1, 2036 Total $ 31,000,000 112,945,000 $ 143,945,000 64 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA NOTES TO THE FINANCIAL STATEMENTS June 30, 2017 Annual debt service requirements to maturity for general obligation bonds are as follows: Year Ending June 30 2018 2019 2020 2021 2022 2023-2027 2028-2032 2032-2036 Total Governmental Activities Principal Interest $ 15,855,000 $ 6,424,550 16,645,000 5,631,800 17,480,000 4,799,550 18,355,000 3,925,550 16,180,000 3,007,800 27,705,000 8,183,750 16,220,000 4,637,450 15,505,000 1,180,050 $ 143,945,000 $ 37,790,500 Under the provisions of the Arizona Constitution, outstanding general obligation bonded debt for combined water, wastewater, electric, parks and open space, streets, and public safety purposes may not exceed 20% of Gilbert's net limited property valuation, nor may outstanding general obligation bonded debt for all other purposes exceed 6% of Gilbert's net limited property valuation. The following is a summary of legal borrowing capacity at June 30, 2017: Water, Wastewater, Electric, Streets, Fire, Police, and Parks and Open Space Special Purpose Bonds Limited Property Valuation $1,979,359,269 All Other General Obligation Bonds Limited Property Valuation 20% constitutional limit Less general obligation bonds outstanding Less premium adjustment Available 20% limitation borrowing capacity 6% constitutional limit Less general obligation bonds outstanding Less premium adjustment Available 6% limitation borrowing capacity $ 395,871,854 (143,945,000) (9,675,637) $ 242,251,217 $1,979,359,269 $ 118,761,556 $ 118,761,556 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, 2017, 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. 65 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA NOTES TO THE FINANCIAL STATEMENTS June 30, 2017 Special assessment bonds outstanding at June 30, 2017, 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 150,000 5,955,000 $ 6,105,000 Annual debt service requirements to maturity for special assessment bonds are as follows: Year Ending June 30 2018 2019 2020 2021 2022 2023-2027 2028-2029 Total Governmental Activities Principal Interest $ 395,000 $ 301,428 395,000 281,273 420,000 260,478 445,000 238,405 470,000 215,057 2,735,000 681,965 1,245,000 64,132 $ 6,105,000 $ 2,042,738 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, 2017, were as follows: Governmental 2012 Street and Highway User Revenue Refunding Bonds, 3.0% to 5.0% original amount $16,945,000, annual retirements due July 1, 2014 through July 1, 2019 $ 6,345,000 Annual debt service requirements to maturity for street and highway user revenue bonds are as follows: Year Ending June 30 2018 2019 Total Governmental Activities Principal Interest $ 3,095,000 $ 317,250 3,250,000 162,500 $ 6,345,000 $ 479,750 66 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA NOTES TO THE FINANCIAL STATEMENTS June 30, 2017 Municipal Property Corporation (MPC) Revenue Bonds The Public Facilities MPC exists solely for the purpose of financing the cost of acquisition of certain interests in real property to locate public safety and parks and recreation facilities, 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, 2017, were as follows: Governmental 2009 Public Facilities Municipal Property Corporation Revenue Bonds, 4.0% to 5.5%, original amount $80,585,000, annual retirements due July 1, 2009 through July 1, 2028 Business-Type $ 63,870,000 $ - 2011 Public Facilities Municipal Property Corporation Revenue Refunding Bonds, 3.0% to 4.75%, original amount $20,980,000, annual retirements due July 1, 2013 through July 1, 2021 12,675,000 - 2014 Public Facilities Municipal Property Corporation Revenue Refunding Bonds, 2.0% to 5.0%, original amount $28,080,000, annual retirements due July 1, 2016 through July 1, 2021 28,030,000 - - 115,940,000 $ 104,575,000 $ 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, annual retirements due July 1, 2017 through July 1, 2036 Total Annual debt service requirements to maturity for municipal property corporation revenue bonds are as follows: Year Ending June 30 2018 2019 2020 2021 2022 2023-2027 2028-2032 2033-2037 Total Governmental Activities Principal Interest $ 9,005,000 $ 5,057,700 10,540,000 4,592,588 11,040,000 4,082,088 11,555,000 3,540,962 11,720,000 2,969,138 28,525,000 10,282,062 22,190,000 1,226,225 $ 104,575,000 $ 31,750,763 Business-type Activities Principal Interest $ 4,830,000 $ 4,874,163 5,055,000 4,651,188 5,285,000 4,392,688 5,545,000 4,121,938 5,835,000 3,837,438 33,845,000 14,430,210 39,565,000 6,714,644 15,980,000 1,648,000 $ 115,940,000 $ 44,670,269 University Revenue Obligations The University Revenue Obligations were issued specifically for the purpose of providing funds to design, acquire and construct a four-story building to be utilized for educational purposes. These obligations are payable solely from the revenues generated by excise taxes and state shared revenue. 67 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA NOTES TO THE FINANCIAL STATEMENTS June 30, 2017 Subordinate lien pledged revenue obligations outstanding at June 30, 2017, were as follows: Governmental Subordinate Lien Pledged Revenue Obligations, Series 2015, 3.0% to 5.0% 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 2018 2019 2020 2021 2022 2023-2027 2028-2032 2033-2037 2038-2042 2043-2046 Total Governmental Activities Principal Interest $ 655,000 $ 1,596,081 670,000 1,572,856 700,000 1,541,956 735,000 1,506,081 770,000 1,468,456 4,475,000 6,708,406 5,690,000 5,482,935 6,845,000 4,316,195 8,250,000 2,931,981 8,190,000 844,000 $ 36,980,000 $ 27,968,947 Changes in Long-term Liabilities Long-term liability activity for the year ended June 30, 2017, 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 premium Total bonds payable Net pension liability Compensated absences Post-employment benefits Total long-term liabilities Balance July 1, 2016 Additions Reductions $105,250,000 $121,670,000 $(82,975,000) $143,945,000 $ 15,855,000 6,480,000 121,895,000 36,980,000 9,729,280 280,334,280 97,814,271 14,195,868 2,529,927 14,138,700 135,808,700 66,416,887 10,987,464 - (375,000) (10,975,000) (2,547,642) (96,872,642) (34,767,991) (8,922,654) (2,299,815) 6,105,000 110,920,000 36,980,000 21,320,338 319,270,338 129,463,167 16,260,678 230,112 395,000 12,100,000 655,000 29,005,000 5,495,403 - $394,874,346 $213,213,051 $(142,863,102) $465,224,295 $ 34,500,403 $115,940,000 19,470,861 135,410,861 20,518,092 2,155,941 661,875 $ 6,666,936 1,929,225 - (816,471) (816,471) (5,820,538) (1,700,331) (623,362) $115,940,000 18,654,390 134,594,390 21,364,490 2,384,835 38,513 $ 4,830,000 4,830,000 870,553 - $158,746,769 $ 8,596,161 $ (8,960,702) $158,382,228 $ 5,700,553 - 68 $ Balance June 30, 2017 Due Within One Year TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA NOTES TO THE FINANCIAL STATEMENTS June 30, 2017 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, $228,657 of internal service funds compensated absences and $2,147,219 net pension liability are included in the above amounts. The net pension liability, long-term compensated absences and postemployment benefits 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, 2017, Industrial Development Authority Revenue Bonds and Master Lease and Sublease Agreements outstanding were $28,905,023 and $11,905,711 respectively. Note 11 – Refunding Bonds On May 10, 2017, Gilbert issued $57,155,000 of refunding bonds with a net premium of $7,428,334 to advance refund $61,050,000 of outstanding Series 2008 General Obligation Bonds. In addition, Gilbert issued $64,515,000 of general obligation bonds with a net premium of $6,710,366 to provide funds for certain street improvements. See Note 10 for additional detail on the general obligation bonds issued. The Series 2017 General Obligation Refunding Bonds were issued with an average interest rate of 5.0%. Gilbert realized net proceeds of $64,472,453 after payment of $110,881 for underwriting fees. These proceeds were provided to an escrow trustee to pay issuance costs of approximately $290,819 with the remaining $64,181,634 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 2008 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 $3,814,327 over the next 5 years, producing an economic gain (difference between present value of old and new debt service payments) of $3,392,883. Note 12 – 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 $23,077,058 of pension expenditures in the governmental funds related to all pension plans to which it contributes for fiscal year 2017. 69 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA NOTES TO THE FINANCIAL STATEMENTS June 30, 2017 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. 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 Sum of years and age equals 80 30 years, age 55 receive benefit 10 years, age 62 25 years, age 60 5 years, age 50* 10 years, age 62 Any years, age 65 5 years, age 50* Any years, age 65 Final average salary is based on Highest 36 months of last 120 months Highest 60 months of last 120 months Benefit percent per year of service 2.1% to 2.3% 2.1% to 2.3% *With actuarially reduced benefits Retirement benefits for members who joined the ASRS prior to September 13, 2013, are subject to automatic cost-of-living adjustments based on excess investment earnings. Members with a membership date on or after September 13, 2013, are not eligible for cost-of-living adjustments. Survivor benefits are payable upon a 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, 2017, statute required active ASRS members to contribute at the actuarially determined rate of 11.48% (11.34% for retirement and 0.14% for long term disability) of the members’ annual covered payroll, and statute required Gilbert to contribute at the actuarially determined rate of 11.48% (10.78% for retirement, 0.56% for health insurance premium benefit, and 0.14% for long-term disability) of the members’ annual covered payroll. 70 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA NOTES TO THE FINANCIAL STATEMENTS June 30, 2017 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 2017 2016 2015 Health Benefit Supplement Fund $ 286,262 231,747 264,076 Long-Term Disability Fund $ 66,447 54,424 53,539 During fiscal year 2017, Gilbert paid for ASRS pension and OPEB contributions as follows: 62% from the general fund, 35% from major funds, and 3% from other funds. Pension Liability – At June 30, 2017, Gilbert reported a liability of $78,813,297 for its proportionate share of the ASRS’ net pension liability. The net pension liability was measured as of June 30, 2016. The total pension liability used to calculate the net pension liability was determined using updated procedures to roll forward the total pension liability from an actuarial valuation as of June 30, 2015, to the measurement date of June 30, 2016. The total pension liability as of June 30, 2016 reflects a change in actuarial assumption for a decrease in loads for future potential permanent benefit increases. Gilbert’s proportion of the net pension liability was based on Gilbert’s actual contributions to the plan relative to the total of all participating employers’ contributions for the year ended June 30, 2016. Gilbert’s proportion measured as of June 30, 2016, was 0.48828%, which was an increase of 0.00232% from its proportion measured as of June 30, 2015. Gilbert’s reported liability at June 30, 2017, increased by $3,117,434 from the prior year liability of $75,695,863 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. 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, 2017, Gilbert recognized pension expense for ASRS of $6,918,392. At June 30, 2017, Gilbert reported deferred outflows of resources and deferred inflows of resources related to pensions from the following sources: Differences between expected and actual experience Changes of assumptions or other inputs 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 71 Deferred Outflows of Resources $ 478,943 - Deferred Inflows of Resources $ 5,421,779 4,169,853 8,540,738 - 1,905,311 5,187,460 $ 16,112,452 $ 9,591,632 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA NOTES TO THE FINANCIAL STATEMENTS June 30, 2017 The $5,187,460 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, 2018. Other amounts reported as deferred outflows of resources and deferred inflows of resources related to ASRS pensions will be recognized in pension expense as follows: Year Ending June 30 Amount 2018 2019 2020 2021 2022 Thereafter $ (2,120,828) (2,444,419) 3,503,810 2,394,798 - 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, 2015 June 30, 2016 Entry age normal 8.0% 3.0% – 6.75% 3.0% Included 1994 GAM Scale BB Actuarial assumptions used in the June 30, 2015, valuation were based on the results of an actuarial experience study for the 5-year period ended June 30, 2012. The long-term expected rate of return on ASRS pension plan investments was determined to be 8.75% 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% 6.73% Fixed income 25% 3.70% Real estate 10% 4.25% Multi-asset 5% 3.41% Commodities 2% 3.84% Total 100% 72 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA NOTES TO THE FINANCIAL STATEMENTS June 30, 2017 Discount Rate – The discount rate used to measure the ASRS total pension liability was 8.0%, which is less than the long-term expected rate of return of 8.75%. 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 8.0%, 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 (7.0%) or 1 percentage point higher (9.0%) than the current rate: Current Discount 1% Decrease Rate 1% Increase (7.0%) (8.0%) (9.0%) Gilbert’s proportionate share of $ 100,492,939 $ 78,813,297 $ 61,430,964 the net pension liability 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 multipleemployer defined benefit pension plan and an agent multiple-employer defined benefit health insurance premium benefit (OPEB) plan. A nine-member board known as the Board of Trustees and the participating local boards govern the PSPRS according to the provisions of A.R.S. Title 38, Chapter 5, Article 4. The 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. 73 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA NOTES TO THE FINANCIAL STATEMENTS June 30, 2017 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 20 years, any age receive benefit 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 2.5% per year of credited service, not to service less than 20 years or plus 2.0% exceed 80% to 2.5% for each year of credited service over 20 years, not to exceed 80% Accidental disability retirement Catastrophic disability retirement 50% or normal retirement, whichever is greater 90% of the first 60 months then reduced to either 62.5% or normal retirement, whichever is greater Ordinary disability retirement Normal retirement calculated with actual years of credited service or 20 years of credited service, whichever is greater, multiplied by years of credited service (not to exceed 20 years) divided by 20 Survivor benefit: Retired members 80% to 100% of retired member’s pension benefit Active members 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 Employees Covered by Benefit Terms – At June 30, 2017, the following employees were covered by the agent pension plan’s benefit terms: Inactive employees or beneficiaries currently receiving benefits Inactive employees entitled to but not yet receiving benefits Active employees Total Police 54 45 207 306 Fire 6 16 169 191 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, 2017, are indicated below. Rates are a percentage of active members’ annual covered payroll. 74 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA NOTES TO THE FINANCIAL STATEMENTS June 30, 2017 Beginning on April 17, 2017, at the direction of PSPRS, Gilbert changed the employee contribution rate from 11.65% to 7.65% for employees hired on or before July 19, 2011, due to a mandate from the Arizona Supreme Court for the Parker lawsuit ruling. The Arizona Supreme Court determined that the 2011 legislative reforms that increased contribution rates for employees hired prior that date were unconstitutional. Contributions rates for the year ended June 30, 2017, are indicated below. Police Fire PSPRS members with an initial membership date on or before July 19, 2011 July 1, 2016 through April 16, 2017 April 17, 2017 through June 30, 2017 11.65% 7.65% 11.65% 7.65% PSPRS members with an initial membership date after July 19, 2011 11.65% 11.65% Gilbert: Pension Health insurance 33.29% 0.40% 23.06% 0.43% 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, 2017, were as follows (actual contributions made exceeded the annual pension/OPEB cost due to a prepayment) (100% from the general fund): Pension contributions made Health insurance premium benefit contributions made Police $ 12,630,610 70,227 Fire $ 5,226,516 80,967 Pension Liability – At June 30, 2017, Gilbert reported $70,607,144 in net pension liability. The net pension liabilities were measured as of June 30, 2016, and the total pension liability used to calculate the net pension liability was determined by an actuarial valuation as of that date. The total pension liabilities as of June 30, 2016, reflect the following changes in benefit terms and actuarial assumptions.  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-ofliving adjustments from excess investment earnings to the change in the consumer price index, limited to a maximum annual increase of 2%.  Laws 2016, Chapter 2, changes the benefit formula and contribution requirements for members hired on or after July 1, 2017.  The investment rate of return actuarial assumption was decreased from 7.85% to 7.50%. The net pension liability measured as of June 30, 2017, will reflect changes in actuarial assumptions based on the results of an actuarial experience study for the 5-year period ended June 30, 2016. The change in Gilbert’s net pension liability as a result of these changes is not known. 75 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA NOTES TO THE FINANCIAL STATEMENTS June 30, 2017 Actuarial Assumptions – The significant actuarial assumptions used to measure the total pension liability are as follows: Actuarial valuation date Actuarial cost method Investment rate of return Projected salary increases Inflation Permanent benefit increase Mortality rates June 30, 2016 Entry age normal 7.5% 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, 2016, valuation were based on the results of an actuarial experience study for the 5-year period ended June 30, 2011. The long-term expected rate of return on PSPRS pension plan investments was determined to be 7.50% 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 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 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% Absolute return 5% 4.11% Risk parity 4% 5.13% Short term investments 2% 0.75% Total 100% Pension Discount Rates – At June 30, 2016, the discount rate used to measure total pension liability was 7.50%, which was a decrease of 0.35% from the discount rate used as of June 30, 2015. 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. 76 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA NOTES TO THE FINANCIAL STATEMENTS June 30, 2017 Changes in the Agent Plans Net Pension Liability Police: Balances at June 30, 2016 Increase/Decrease Total Pension Plan Fiduciary Net Net Pension Liability Position Liability $ 92,037,035 $ 59,026,558 $ 33,010,477 Changes for the year: Service cost 3,466,239 3,466,239 Interest on the total pension liability 7,222,969 7,222,969 Changes in benefit terms 9,149,421 9,149,421 Difference between expected and actual experience in the measurement of the total pension liability Changes in assumptions 547,040 547,040 4,549,861 4,549,861 Contributions – employer 4,426,923 (4,426,923) Contributions – employee 2,243,118 (2,243,118) 365,916 (365,916) Net investment income Benefit payments, including refunds of employee contributions (3,515,621) (3,515,621) Administrative expenses (53,053) 53,053 Other changes 113,260 (113,260) Net changes Balances at June 30, 2017 21,419,909 3,580,543 17,839,366 $ 113,456,944 $ 62,607,101 $ 50,849,843 Fire: Increase/Decrease Balances at June 30, 2016 Total Pension Plan Fiduciary Net Liability Position Liability $ 48,656,228 $ 8,218,798 $ 56,875,026 Net Pension Changes for the year: Service cost 2,728,554 2,728,554 Interest on the total pension liability 4,550,994 4,550,994 Changes in benefit terms 7,610,545 7,610,545 (1,091,858) (1,091,858) Difference between expected and actual experience in the measurement of the total pension liability Changes in assumptions 3,069,903 3,069,903 Contributions – employer 3,183,837 (3,183,837) Contributions – employee 1,792,809 (1,792,809) 300,260 (300,260) Net investment income Benefit payments, including refunds of employee contributions (529,722) Administrative expenses Other changes Net changes Balances at June 30, 2017 (529,722) (43,606) 43,606 96,335 (96,335) 16,338,416 4,799,913 11,538,503 $ 73,213,442 $ 53,456,141 $ 19,757,301 77 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA NOTES TO THE FINANCIAL STATEMENTS June 30, 2017 Sensitivity of the Net Pension Liability to Changes in the Discount Rate – The following presents Gilbert’s net pension liability calculated using the discount rate of 7.5%, as well as what the net pension liability would be if it were calculated using a discount rate that is 1 percentage point lower (6.5%) or 1 percentage point higher (8.5%) than the current rate: Police net pension liability Fire net pension liability 1% Decrease (6.5%) $ 62,280,184 31,864,612 Current Discount Rate (7.5%) $ 50,849,843 19,757,301 1% Increase (8.5%) $ 36,740,050 9,943,060 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, 2017, Gilbert recognized $15,694,891 as pension expense for Police and $10,074,289 as pension expense for Fire. Pension Deferred Outflows/Inflows of Resources – At June 30, 2017, 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 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 $ 2,348,319 6,900,672 Deferred Inflows of Resources $ - 3,854,039 12,700,837 $ 25,803,867 - $ Deferred Outflows of Resources $ 1,603,163 3,711,316 Deferred Inflows of Resources $ 1,974,711 - 3,261,815 5,307,483 $ 13,883,777 1,974,711 $ The $12,700,837 for Police and the $5,307,483 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, 2018. Other amounts reported as deferred outflows of resources and deferred inflows of resources related to pensions will be recognized in pension expense as follows: 78 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA NOTES TO THE FINANCIAL STATEMENTS June 30, 2017 Year Ending June 30 2018 2019 2020 2021 2022 Thereafter $ Police 2,896,931 2,896,930 3,422,811 2,776,907 871,289 238,161 $ Fire 1,121,219 1,121,220 1,541,895 1,159,737 420,564 1,236,948 Agent Plan OPEB Actuarial Assumptions – The health insurance premium benefit contribution requirements for the year ended June 30, 2017, were established by the June 30, 2015, 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. 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 2017 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, 2015 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 corridor 7.85% 4.0% – 8.0% 4.0% 79 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA NOTES TO THE FINANCIAL STATEMENTS June 30, 2017 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: Year Ending June 30 2017 2016 2015 Annual OPEB Cost $ 70,227 64,377 48,585 Percentage of Annual Cost Contributed 100.0% 100.0% 100.0% Net OPEB Obligation $ - Year Ending June 30 2017 2016 2015 Annual OPEB Cost $ 80,967 54,820 35,372 Percentage of Annual Cost Contributed 100.0% 100.0% 100.0% Net OPEB Obligation $ - Fire: Agent Plan OPEB Funded Status – The health insurance premium benefit plans’ funded status as of the most recent valuation date, June 30, 2016, along with the actuarial assumptions and methods used in those valuations follow. 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 91.7% $ 17,784,704 339,306 79.9% $ 14,459,743 1.1% 2.4% 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, 2016 Entry age normal Level percent closed for unfunded actuarial accrued liability, open for excess 20 years for unfunded actuarial accrued liability, 20 years for excess 7-year smoothed market value; 80%/120% market corridor 7.5% 4.0% – 8.0% 4.0% 80 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA NOTES TO THE FINANCIAL STATEMENTS June 30, 2017 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) is 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 2017. Administrative costs are financed through investment earnings. There is only one remaining pensioner receiving retirement benefits from the Fund. Note 13 - 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, 2017, there are 55 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 109% 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, 2017, retirees contributed $598,497 and Gilbert contributed $39,944 (implied subsidy). 81 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA NOTES TO THE FINANCIAL STATEMENTS June 30, 2017 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, 2017: Annual Required Contribution (ARC) ARC Adjustment Interest on the Net OPEB Obligation Annual OPEB Cost Contributions Made Decrease in Net OPEB Obligation Net OPEB Obligation – Beginning of year Net OPEB Obligation – End of year $ 196,857 (3,191,803) 111,712 $ (2,883,234) (39,944) $ (2,923,178) 3,191,803 $ 268,625 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, 2017 is as follows: Year Ending June 30 2017 2016 2015 Annual OPEB Cost $ (2,883,234) 1,605,574 1,367,779 Employer Contributions $ 39,944 185,952 478,335 Percentage of OPEB Cost Contributed 138.54% 11.58% 34.97% Net OPEB Obligation $ 268,625 3,191,803 1,772,181 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: Actuarial Valuation Date July 1 2016 2015 (1) Actuarial Value of Plan Assets $ - (2) Actuarial Accrued Liability (AAL) $ 169,957 12,952,570 (3) (4) (5) Unfunded AAL (1)-(2) $ (169,957) (12,952,570) Funded Ratio (1)/(2) 0.0% 0.0% Annual Covered Payroll $ 72,503,788 70,730,330 (6) Unfunded AAL as Percentage of Covered Payroll (3)/(5) ( 0.23)% (18.31)% 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. 82 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA NOTES TO THE FINANCIAL STATEMENTS June 30, 2017 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 1 year. 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 and preferred plans of (0.85%) initially, 7.50% after 2 years, the reduced by decrements to an ultimate rate of 5.0% after 7 years; an annual medical healthcare cost trend for the Banner plan of (18.22%) 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 4.0% initially, reduced to 3.0% after 7 years; and an inflation rate of 3%. Note 14 – Claims and Judgements During the fiscal year, the Supreme Court ruled on the Hall v. Elected Officials Retirement Plan (EORP) and the Parker v. Public Safety Personnel Retirement System Plan lawsuits. The courts found that a 2011 law’s increases in employee contribution rates for active PSPRS plan and EORP members hired prior to the law’s effective date were unconstitutional. As a result, these members are entitled to refunds of their excess employee contributions, plus interest. Employers must provide these refunds because Internal Revenue Service regulations prevent PSPRS from issuing them from the plan’s trusts. As such, Gilbert refunded the excess contributions on September 1, 2017. The excess contributions and interest totaling $6,548,270 is reflected on the Statement of Net Position in Accrued Liabilities and Statement of Activities within the respective function. Note 15 - Capital Contributions During the year ended June 30, 2017, the Enterprise funds external capital contributions consisted of the following: Water Contributions from developers Development fees Total $ 8,033,046 11,864,120 $ 19,897,166 Wastewater $ 4,207,438 6,992,364 $ 11,199,802 83 Environmental Services $ 3,036,589 $ 3,036,589 Total $ 15,277,073 18,856,484 $ 34,133,557 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA NOTES TO THE FINANCIAL STATEMENTS June 30, 2017 Note 16 – Interfund Transfers As of June 30, 2017, interfund transfers were as follows: Transfers-In 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: Employee Benefit Self-Insurance Total internal service funds Total transfers Transfers-Out 1,185,555 20,568,617 1,579,937 23,334,109 $ 10,419,190 809,020 11,235,314 417,252 22,880,776 780,498 780,498 1,226,499 1,226,499 - 7,332 7,332 $ 24,114,607 $ 24,114,607 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 2017 that were either non-routine in nature or inconsistent with the activities of the fund making the transfer. Note 17 - Individual Fund Disclosures Individual funds with deficiencies in fund balance/net position at June 30, 2017, were as follows: Internal service funds Equipment Maintenance $1,353,544 The deficiency in the equipment maintenance internal service fund is due to the net pension liability. Note 18 – Contingent Liabilities Gilbert is a defendant in various lawsuits. Although the outcome of these lawsuits is not presently determinable, in the opinion of Gilbert’s legal counsel, the resolution of these matters will not have a material adverse effect on the financial condition of Gilbert. 84 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA NOTES TO THE FINANCIAL STATEMENTS June 30, 2017 Note 19 – 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 29 percent of revenue. The total principal and interest remaining to be paid on the bonds is $153,294,888. Principal and interest paid for the current year was $9,814,570. Total water system development fees revenue was $9,914,166 and water and wastewater net revenues were $24,907,961. 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 10 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 22 percent of revenues. The total principal and interest remaining to be paid on the bonds is $6,824,750. Principal and interest paid for the current year was $3,411,250, and the total street and highway revenues were $15,847,097. Gilbert has pledged future excise taxes and state-shared revenues to repay $95,570,000 in public facilities municipal property corporation (MPC) revenue bonds issued since 2009, 80,585,000 in public facilities MPC revenue bonds issued in 2009, $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 state-shared revenues. The total principal and interest remaining to be paid on the bonds and obligations is $188,176,169. Principal and interest paid for the current year was $16,537,081, and the total excise taxes and state-shared revenues were $146,007,063. Note 20 - 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. 85 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA NOTES TO THE FINANCIAL STATEMENTS June 30, 2017 Total investment (net of depreciation) as of June 30, 2017, was: Mesa’s Share Gilbert’s Share Queen Creek’s Share Total $ 60,345,763 55,512,672 23,752,263 $ 139,610,698 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, 2017, was: Gilbert’s Share Chandler’s Share Total $ 66,535,770 56,024,463 $ 122,560,233 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, 2017, was: Mesa’s Share Apache Junction’s Share Gilbert’s Share Superstition F&M’s Share Queen Creek’s Share Rio Verde FD’s Share Total $ 5,409,285 418,383 225,542 153,879 106,738 13,026 $ 6,326,853 Note 21 – Tax Abatements Gilbert has made a commitment as part of our economic development program to reimburse certain public improvement costs through transaction privilege taxes generated out of the respective development area. Additional information regarding this agreement may only be disclosed when a sufficient number of participants can be aggregated together. Gilbert has an insufficient number of participants within the development area to authorize such disclosure, as detailed information on such commitments is prohibited from disclosure under Arizona Revised Statute 42-2002 Disclosure of Confidential Information Prohibited. 86 TABLE OF CONTENTS REQUIRED SUPPLEMENTARY INFORMATION 87 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA REQUIRED SUPPLEMENTARY INFORMATION June 30, 2017 Schedule of the Proportionate Share of the Net Pension Liability: Arizona State Retirement System Fiscal Year 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 2017 2016 2015 2014 through 2008 0.49% $78,813,297 45,764,167 0.49% $75,695,863 43,765,044 0.47% $69,412,268 42,295,765 Information not available (2) 172% 172% 164% 67.06% 68.35% 69.49% (1) The covered payroll amount will be as of the measurement date of the net pension liability. For fiscal year 2017, the measurement date of the net pension liability is June 30, 2016. See also Note 12. (2) The pension schedules in this required supplementary information are intended to show information for ten years. Additional years’ information will be displayed as it becomes available. 88 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA REQUIRED SUPPLEMENTARY INFORMATION June 30, 2017 Schedule of Changes in the Net Pension Liability and Related Ratios: Public Safety Personnel Retirement System – Police Fiscal Year 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) 2017 2016 2015 2014 through 2008 $ 3,466,239 7,222,969 9,149,421 $ 3,570,214 6,604,564 - $ 3,293,404 5,414,469 605,849 Information not available (2) 547,040 4,549,861 713,111 - 2,479,128 5,473,070 (3,515,621) 21,419,909 92,037,035 $113,456,944 (2,400,631) 8,487,258 83,549,777 $92,037,035 (2,087,138) 15,178,782 68,370,995 $83,549,777 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) $ 4,426,923 2,243,118 365,916 $ 3,280,061 2,107,439 2,037,534 $ 3,103,356 2,088,159 6,306,779 (3,515,621) (53,053) 113,260 3,580,543 59,026,558 $62,607,101 (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 Net pension liability – ending (a) – (b) $50,849,843 $33,010,477 $29,572,970 55.18% 64.13% 64.60% $19,250,942 $19,071,843 $18,990,156 264.14% 173.08% 155.73% 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 (1) The covered payroll amount will be as of the measurement date of the net pension liability. For fiscal year 2017, the measurement date of the net pension liability is June 30, 2016. See also Note 12. (2) The pension schedules in this required supplementary information are intended to show information for ten years. Additional years’ information will be displayed as it becomes available. 89 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA REQUIRED SUPPLEMENTARY INFORMATION June 30, 2017 Schedule of Changes in the Net Pension Liability and Related Ratios: Public Safety Personnel Retirement System – Fire Fiscal Year 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) 2017 2016 2015 2014 through 2008 $ 2,728,554 4,550,994 7,610,545 $ 2,785,128 4,138,400 - $ 2,545,607 3,408,433 (131,651) Information not available (2) (1,091,858) 3,069,903 (1,235,512) - 2,247,902 1,333,403 (529,722) 16,338,416 56,875,026 $73,213,442 (277,805) 5,410,211 51,464,815 $56,875,026 (171,217) 9,232,477 42,232,338 $51,464,815 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) $ 3,183,837 1,792,809 300,260 $ 1,845,382 1,903,578 1,653,304 $ 1,954,145 1,667,772 5,045,090 (529,722) (43,606) 96,335 4,799,913 48,656,228 $53,456,141 (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 Net pension liability – ending (a) – (b) $19,757,301 $ 8,218,798 $ 7,662,805 73.01% 85.55% 85.11% $15,388,900 $15,274,115 $15,508,151 128.39% 53.81% 49.41% 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 (1) The covered payroll amount will be as of the measurement date of the net pension liability. For fiscal year 2017, the measurement date of the net pension liability is June 30, 2016. See also Note 12. (2) The pension schedules in this required supplementary information are intended to show information for ten years. Additional years’ information will be displayed as it becomes available. 90 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA REQUIRED SUPPLEMENTARY INFORMATION June 30, 2017 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 2017 $ 6,028,778 2016 $ 5,278,569 Fiscal Year 2015 $ 5,137,457 2014 $ 4,763,978 2013 $ 4,162,425 6,028,778 $ $48,187,902 5,278,569 $ $45,764,166 5,137,457 $ $43,765,044 4,763,978 $ $42,295,765 4,162,425 $ $38,356,312 12.51% 11.53% 11.74% 11.26% 10.85% 2012 $ 3,880,631 2011 $ 3,448,898 Fiscal Year 2010 $ 3,329,705 2009 $ 3,407,288 2008 $ 3,546,148 3,880,631 $ $36,582,049 3,448,898 $ $37,474,457 3,329,705 $ $37,007,042 3,407,288 $ $38,106,015 3,546,148 $ $38,803,852 10.61% 9.20% 9.00% 8.94% 9.14% 91 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA REQUIRED SUPPLEMENTARY INFORMATION June 30, 2017 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 2017 $ 4,501,937 2016 $ 4,021,770 Fiscal Year 2015 $ 3,414,607 2014 $ 3,231,755 2013 $ 2,930,117 12,700,837 $(8,198,900) $19,885,815 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 63.87% 20.89% 17.90% 17.02% 16.77% 2012 $ 2,384,390 2011 $ 2,239,987 Fiscal Year 2010 $ 2,330,954 2009 $ 2,540,087 2008 $ 1,626,604 2,384,390 $ $16,492,849 2,239,987 $ $16,550,117 2,330,954 $ $16,686,272 2,540,087 $ $17,138,480 1,626,604 $ $16,159,092 14.46% 13.54% 13.97% 14.82% 10.07% 2017 $ 3,266,367 2016 $ 2,241,688 Fiscal Year 2015 $ 1,982,159 2014 $ 2,037,266 2013 $ 1,793,907 5,307,483 $(2,041,116) $17,048,971 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 31.13% 14.51% 12.98% 13.14% 12.86% 2012 $ 1,479,746 2011 $ 1,422,964 Fiscal Year 2010 $ 1,446,837 2009 $ 1,528,199 2008 $ 1,099,558 1,479,746 $ $13,335,971 1,422,964 $ $13,220,688 1,446,837 $ $12,186,063 1,528,199 $ $12,476,282 1,099,558 $ $12,766,878 11.10% 10.76% 11.87% 12.25% 8.61% 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 92 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA REQUIRED SUPPLEMENTARY INFORMATION June 30, 2017 Note to Pension Plan Schedules Note 1 - 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 2015 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 21 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) Note 2 – Factors That Affect Trends In February 2014, the Arizona Supreme Court affirmed a Superior Court ruling that a 20111 law that changes the mechanism for funding permanent benefit increases was unconstitutional. As a result, the PSPRS changed benefit terms to reflect the prior mechanism for funding permanent benefit increases and revised actuarial assumptions to explicitly value future permanent benefit increases. These changes are included in the PSPRS’ changes in total pension liability for the fiscal year 2015 in the schedule of changes in Gilbert’s net pension liability and related ratios. These changes also increase the PSPRS required contributions beginning in fiscal year 2016 in the schedule of Gilbert pension contributions. 93 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA REQUIRED SUPPLEMENTARY INFORMATION June 30, 2017 Schedule of Agent OPEB Plans’ Funding Progress: Arizona Public Safety Personnel Retirement System – Police Schedule of Funding Progress – Health Insurance Premium Benefit (most recent information available) 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)% Arizona Public Safety Personnel Retirement System – Fire Schedule of Funding Progress – Health Insurance Premium Benefit (most recent information available) 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) 94 Fund Ratio (1)/(2) 79.90% 82.51% 77.82% 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)% 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. University Building Revenue Obligations – accounts for the design, acquisition and construction of a building to be utilized and leased for educational purposes. 95 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA Combining Balance Sheet Nonmajor Governmental Funds June 30, 2017 Special Revenue Other Special Revenue Grants 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 Bonds payable Interest payable Unearned revenue Total liabilities Fund Balances: Nonspendable Restricted Assigned Unassigned Total fund balances Total liabilities and fund balances $ $ $ $ CDBG/HOME Street Light Improvement District Parkway Maintenance District $ $ $ 797,137 $ 1,289,475 1,001 84,464 - 5,620 75,600 1,123,535 - 36 327,964 - 11,997 - 9,789 809 1,976 882,602 $ 2,494,230 $ 340,403 123,170 273,857 $ $ 59,470 59,470 823,132 823,132 882,602 85,765 46,456 503,673 635,894 1,961,698 151,098 (254,460) 1,858,336 $ 2,494,230 96 $ 12,403 223,958 5,588 98,917 328,463 12,439 (499) 11,940 340,403 $ $ $ 111,173 - 123,170 123,170 123,170 $ $ $ 261,283 34,754 6,575 41,329 1,976 230,552 232,528 273,857 TABLE OF CONTENTS Capital Projects Municipal Property Corporation Total Nonmajor Governmental Funds University Building Outside Sources Prop 400 $ 21,666,786 $ 17,131,873 62,421 - 41,216 - - - 21,786 111,103 75,600 1,535,963 1,976 $ 21,729,207 $ 17,173,089 $ - 6,166,058 2,586 6,168,644 6,166,058 2,586 49,185,202 $ $ $ 429,437 554,869 984,306 20,744,901 20,744,901 $ 21,729,207 323,252 323,252 16,849,837 16,849,837 $ 17,173,089 $ $ - - - $ $ $ $ - 252,469 655,000 802,953 1,710,422 4,458,222 4,458,222 6,168,644 97 $ $ $ $ 41,270,130 1,156,636 58,619 554,869 351,386 655,000 802,953 503,673 4,083,136 1,976 24,459,050 20,895,999 (254,959) 45,102,066 49,185,202 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, 2017 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: Principal Interest 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 $ 1,195,710 1,345 1,197,055 $ 35,000 1,058,866 88,631 521,045 10,325 1,713,867 CDBG/HOME Street Light Improvement District Parkway Maintenance District $ $ $ 711,605 82 711,687 1,945,635 1,945,635 999,868 909 1,000,777 104,655 - 142,731 433,782 604,073 - - - 284,721 166,505 785,028 - 1,283,088 26,523 49,884 - 1,805,715 - 973,334 - 134,033 1,474,942 1,936,008 105,474 709,547 1,805,715 973,334 (222,141) 2,140 139,920 27,443 (85,251) (85,251) - - - (307,392) 2,140 139,920 27,443 9,800 11,940 (16,750) 123,170 205,085 232,528 (277,887) (277,887) 1,101,019 $ 823,132 2,165,728 $ 1,858,336 98 $ $ $ TABLE OF CONTENTS Capital Projects Outside Sources $ Municipal Property Corporation Prop 400 259,596 1,188,608 99,888 305,000 1,853,092 $ 3,564,936 58,213 3,623,149 $ - Total Nonmajor Governmental Funds University Building $ 68,155 68,155 $ 2,945,503 5,766,847 1,058,866 1,188,608 88,631 521,045 238,917 305,000 12,113,417 - - - - 851,459 433,782 782,783 - - - - 1,567,809 193,028 1,805,715 1,756,117 785,028 49,884 389,600 1,172,383 1,880,269 1,880,269 5,425 5,425 655,000 1,605,906 1,250 14,175 2,276,331 655,000 1,605,906 6,675 2,523,551 12,233,954 680,709 1,742,880 (5,425) (2,208,176) (120,537) 411,000 411,000 - 6,739 (332,001) (325,262) 1,162,198 1,162,198 1,579,937 (417,252) 1,162,685 1,091,709 1,742,880 (330,687) (1,045,978) 1,042,148 19,653,192 $ 20,744,901 15,106,957 $ 16,849,837 $ 330,687 - $ 5,504,200 4,458,222 99 $ 44,059,918 45,102,066 TABLE OF CONTENTS 100 TABLE OF CONTENTS BUDGETARY COMPARISON SCHEDULES 101 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, 2017 Variance with 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 Deficiency of revenues under expenditures Net change in fund balances Final 8,321,280 8,321,280 $ 8,321,280 8,321,280 $ 1,195,710 1,345 1,197,055 Final Budget Positive (Negative) $ (7,125,570) 1,345 (7,124,225) - 104,700 104,655 45 121,400 58,000 1,030,330 2,200,360 5,000,000 8,410,090 469,400 207,186 1,232,330 2,474,286 4,772,559 9,260,461 284,721 166,505 785,028 134,033 1,474,942 184,679 40,681 447,302 2,340,253 4,772,559 7,785,519 (88,810) $ Actual Amounts (88,810) Fund balance at beginning of year Fund balance at end of year (939,181) $ (277,887) (939,181) (277,887) $ 102 1,101,019 823,132 661,294 $ 661,294 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, 2017 Variance with Budgeted Amounts Original Revenues Intergovernmental Charges for services Gifts and donations Fines and forfeitures Investment earnings Total revenues $ Expenditures Current: General government: Management and policy Court Public safety: Police Fire Parks and recreation Non departmental Capital outlay Contingency Total expenditures 20,000 1,713,120 1,119,390 604,000 3,456,510 Actual Amounts Final $ 20,000 1,713,120 1,119,390 604,000 3,456,510 $ 35,000 1,058,866 88,631 521,045 10,325 1,713,867 Final Budget Positive (Negative) $ 15,000 (654,254) (1,030,759) (82,955) 10,325 (1,742,643) 201,110 602,710 201,110 602,710 142,731 433,782 58,379 168,928 1,836,890 38,000 49,000 49,890 148,600 1,000,000 3,926,200 1,889,890 39,720 49,000 49,890 148,600 71,709 3,052,629 1,283,088 26,523 49,884 1,936,008 606,802 13,197 49,000 6 148,600 71,709 1,116,621 Excess (deficiency) of revenues over (under) expenditures (469,690) 403,881 (222,141) (626,022) Other financing uses Transfers out Total other financing uses (230,000) (230,000) (230,000) (230,000) (85,251) (85,251) 144,749 144,749 173,881 (307,392) Net change in fund balances $ (699,690) Fund balance at beginning of year Fund balance at end of year $ $ 103 2,165,728 1,858,336 $ (481,273) 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, 2017 Variance with Budgeted Amounts Original Revenues Intergovernmental Investment earnings Total revenues $ Expenditures Current: Management and policy Capital outlay Contingency Total expenditures Final $ 662,770 1,285,690 1,948,460 Excess (deficiency) of revenues over (under) expenditures Net change in fund balances 1,938,500 1,938,500 (9,960) Fund balance at beginning of year Fund balance at end of year 1,938,500 1,938,500 $ 662,770 1,264,820 20,870 1,948,460 (9,960) $ Actual Amounts $ $ (1,226,895) 82 (1,226,813) 604,073 105,474 709,547 58,697 1,159,346 20,870 1,238,913 (9,960) 2,140 12,100 (9,960) 2,140 $ 104 711,605 82 711,687 Final Budget Positive (Negative) 9,800 11,940 $ 12,100 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, 2017 Variance with Budgeted Amounts Original Revenues Taxes Total revenues $ Expenditures Current: Highways and streets Total expenditures Final $ 1,997,650 1,997,650 Excess (deficiency) of revenues over (under) expenditures Net change in fund balances 1,952,850 1,952,850 (44,800) Fund deficit at beginning of year Fund balance at end of year 1,952,850 1,952,850 $ 1,997,650 1,997,650 (44,800) $ Actual Amounts $ $ (7,215) (7,215) 1,805,715 1,805,715 191,935 191,935 (44,800) 139,920 184,720 (44,800) 139,920 $ 105 1,945,635 1,945,635 Final Budget Positive (Negative) (16,750) 123,170 $ 184,720 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, 2017 Variance with Budgeted Amounts Original Revenues Taxes Investment earnings Total revenues $ Expenditures Current: Parks and recreation Total expenditures Final $ 1,097,720 1,097,720 Excess (deficiency) of revenues over (under) expenditures Net change in fund balances 1,001,140 1,001,140 $ (96,580) 1,001,140 1,001,140 $ 1,120,920 1,120,920 (96,580) Fund balance at beginning of year Fund balance at end of year Actual Amounts (119,780) $ (119,780) $ (1,272) 909 (363) 973,334 973,334 147,586 147,586 27,443 147,223 27,443 $ 106 999,868 909 1,000,777 Final Budget Positive (Negative) 205,085 232,528 $ 147,223 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, 2017 Variance with Budgeted Amounts Original Revenues Property taxes Investment earnings Total revenues $ Expenditures Debt service: Principal Interest Bond issuance costs Fiscal and other charges Total expenditures 23,000,000 100,000 23,100,000 Actual Amounts Final $ 23,000,000 100,000 23,100,000 $ 20,761,108 52,824 20,813,932 Final Budget Positive (Negative) $ (2,238,892) (47,176) (2,286,068) 30,570,000 10,183,680 21,000 40,774,680 33,905,000 10,959,680 402,000 21,000 45,287,680 33,905,000 9,656,359 387,788 1,310 43,950,457 Deficiency of revenues under expenditures (17,674,680) (22,187,680) (23,136,525) (948,845) Other financing sources (uses) Transfers in Refunding bonds issued Premium on refunding bonds Payment to refunded bond escrow agent Total other financing sources and uses 20,235,930 20,235,930 20,605,230 (64,182,000) (43,576,770) 20,568,617 57,155,000 7,428,334 (64,181,634) 20,970,317 (36,613) 57,155,000 7,428,334 366 64,547,087 2,561,250 $ (65,764,450) Net change in fund balances $ (2,166,208) Fund balance at beginning of year 14,986,583 Fund balance at end of year $ 107 12,820,375 1,303,321 14,212 19,690 1,337,223 $ 63,598,242 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, 2017 Variance with Budgeted Amounts Original Revenues Special assessments Investment earnings Total revenues $ Expenditures Debt service: Principal Interest Fiscal and other charges Total expenditures Final 6,965,000 6,965,000 $ 6,965,000 6,965,000 $ 695,540 87 695,627 6,110,000 830,000 25,000 6,965,000 6,110,000 830,000 25,000 6,965,000 - - (1,167) - (1,167) Deficiency of revenues under expenditures Net change in fund balances Actual Amounts $ - Fund balance at beginning of year Fund balance at end of year $ $ 375,000 321,072 722 696,794 $ 108 Final Budget Positive (Negative) 74,320 73,153 (6,269,460) 87 (6,269,373) 5,735,000 508,928 24,278 6,268,206 (1,167) $ (1,167) 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, 2017 Variance with Budgeted Amounts Original Revenues Intergovernmental Other entities' participation Investment earnings Miscellaneous Total revenues $ Actual Amounts Final 2,056,000 2,056,000 $ 2,056,000 2,056,000 $ 259,596 1,188,608 99,888 305,000 1,853,092 Final Budget Positive (Negative) $ 259,596 (867,392) 99,888 305,000 (202,908) Expenditures Current: Parks and recreation Capital outlay Contingency Total expenditures Excess (deficiency) of revenues over (under) expenditures 11,360,000 2,184,670 13,544,670 11,354,876 2,130,392 59,402 13,544,670 (11,488,670) - Other financing sources Transfers in Total other financing sources Net change in fund balances $ (11,488,670) $ 782,783 389,600 1,172,383 10,572,093 1,740,792 59,402 12,372,287 (11,488,670) 680,709 12,169,379 - 411,000 411,000 411,000 411,000 (11,488,670) 1,091,709 Fund balance at beginning of year 19,653,192 Fund balance at end of year $ 109 20,744,901 $ 12,580,379 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, 2017 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 $ Actual Amounts Final - $ - $ 3,564,936 58,213 3,623,149 Final Budget Positive (Negative) $ 3,564,936 58,213 3,623,149 7,909,770 7,909,770 7,556,246 353,524 7,909,770 1,880,269 1,880,269 5,675,977 353,524 6,029,501 (7,909,770) (7,909,770) 1,742,880 9,652,650 (7,909,770) 1,742,880 (7,909,770) $ Fund balance at beginning of year 15,106,957 Fund balance at end of year $ 110 16,849,837 $ 9,652,650 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA General Obligation Bonds Capital Projects Fund Schedule of Revenues, Expenditures, and Changes in Fund Balances - Budget and Actual - Budgetary Basis For the Year Ended June 30, 2017 Variance with Budgeted Amounts Original Revenues Investment earnings Total revenues Expenditures General government: Bond issuance costs Capital outlay Contingency Total expenditures Excess (deficiency) of revenues over (under) expenditures Other financing sources General obligation bonds issued Premium on general obligation bonds Total other financing sources Net change in fund balances $ Actual Amounts Final Final Budget Positive (Negative) - - 102,862 102,862 102,862 102,862 500,000 42,264,540 42,764,540 500,000 40,832,588 2,427,506 43,760,094 391,207 10,523,425 10,914,632 108,793 30,309,163 2,427,506 32,845,462 (42,764,540) (43,760,094) (10,811,770) 32,948,324 71,010,000 71,010,000 71,010,000 71,010,000 64,515,000 6,710,366 71,225,366 (6,495,000) 6,710,366 215,366 27,249,906 60,413,596 28,245,460 Fund balance at beginning of year Fund balance at end of year $ $ 111 12,703,819 73,117,415 $ 33,163,690 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, 2017 Variance with Final Budget Positive (Negative) Budgeted Amounts Original Revenues Total revenues Actual Amounts Final - - - - 20,000 20,000 20,000 20,000 5,425 5,425 14,575 14,575 Deficiency of revenues under expenditures (20,000) (20,000) (5,425) 14,575 Other financing sources (uses) Transfers in Transfers out Total other financing sources and uses 20,110 20,110 20,690 (332,100) (311,410) 6,739 (332,001) (325,262) (331,410) (330,687) Expenditures Debt service: Fiscal and other charges Total expenditures Net change in fund balances $ 110 Fund balance at beginning of year Fund balance at end of year $ $ 112 330,687 - (13,951) 99 (13,852) $ 723 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, 2017 Variance with Budgeted Amounts Original Revenues System development fees Investment earnings Total revenues Expenditures Debt service: Capital outlay Contingency Total expenditures Excess of revenues over expenditures Other financing uses Transfers out Total other financing uses Net change in fund balances $ Actual Amounts Final Final Budget Positive (Negative) 19,400,000 80,000 19,480,000 19,400,000 80,000 19,480,000 18,101,156 145,361 18,246,517 (1,298,844) 65,361 (1,233,483) 7,889,790 7,889,790 5,870,265 2,262,825 8,133,090 1,662,706 1,662,706 4,207,559 2,262,825 6,470,384 11,590,210 11,346,910 16,583,811 5,236,901 (11,196,040) (11,196,040) (11,196,040) (11,196,040) (11,235,314) (11,235,314) 394,170 $ 150,870 5,348,497 Fund balance at beginning of year 15,794,817 Fund balance at end of year $ 113 21,143,314 (39,274) (39,274) $ 5,197,627 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA University Building Revenue Obligations Capital Projects Fund Schedule of Revenues, Expenditures, and Changes in Fund Balances - Budget and Actual - Budgetary Basis For the Year Ended June 30, 2017 Variance with Budgeted Amounts Original Revenues Investment earnings Total revenues $ Expenditures Debt Service: Principal Interest 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 $ Actual Amounts Final - $ - $ 68,155 68,155 Final Budget Positive (Negative) $ 68,155 68,155 655,000 1,605,910 10,000 4,453,130 6,724,040 655,000 1,605,910 10,000 2,427,892 2,025,238 6,724,040 655,000 1,605,906 1,250 14,175 2,276,331 4 8,750 2,413,717 2,025,238 4,447,709 (6,724,040) (6,724,040) (2,208,176) 4,515,864 1,200,200 1,200,200 1,163,000 1,163,000 1,162,198 1,162,198 (5,561,040) (1,045,978) (5,523,840) Fund balance at beginning of year Fund balance at end of year $ $ 114 5,504,200 4,458,222 (802) (802) $ 4,515,062 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, 2017 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 Gain on sale of capital assets Total nonoperating revenues (expenses) Loss before contributions and transfers Capital contributions Transfers out Change in net position $ 39,786,000 40,000 39,826,000 Actual Amounts Final $ 39,786,000 40,000 39,826,000 $ 40,695,922 60,897 40,756,819 Final Budget Positive (Negative) $ 909,922 20,897 930,819 102,167,550 9,583,050 17,190,830 95,357,820 2,054,360 2,780,534 9,582,350 17,499,426 94,330,091 2,054,360 1,728,769 8,573,831 13,426,871 25,596,853 2,054,360 1,051,765 1,008,519 4,072,555 68,733,238 - 8,500,000 1,812,100 236,665,710 13,330,000 7,693,397 147,270,158 4,830,000 56,210,684 8,500,000 7,693,397 91,059,474 (196,839,710) (107,444,158) (15,453,865) 91,990,293 1,100,000 (4,514,070) 625,000 (2,789,070) 1,100,000 (9,668,400) 625,000 (7,943,400) 952,597 (4,334,848) 552,040 14,888 (2,815,323) (199,628,780) (115,387,558) (18,269,188) 12,580,000 (855,000) 12,580,000 (855,000) 11,864,120 (1,226,498) $ (187,903,780) $ (103,662,558) (7,631,566) Explanation of difference between budgetary change in net position at June 30, 2017, 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, 2016 1,038,263 Less compensated absences at June 30, 2017 (1,166,250) Add post-employment benefits at June 30, 2016 316,978 Less post-employment benefits at June 30, 2017 (15,594) Capital outlays are not recognized as GAAP expenses but are recognized as expenses on the budget basis. 25,596,853 Debt service principal payments are not recognized as expenses on the GAAP basis but are recognized as expenses on the budget basis. 4,830,000 Capital assets contributed by developers are recognized as revenue for GAAP purposes by are not recognized as revenue on the budget basis. 8,033,046 Depreciation is recognized as an expense for GAAP purposes but is not recognized for budgetary purposes. (12,616,269) Change in net position as reported on the statement of revenues, expenses and changes in fund net position $ 18,385,461 115 (147,403) 5,333,552 (72,960) 14,888 5,128,077 97,118,370 (715,880) (371,498) $ 96,030,992 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, 2017 Variance with Budgeted Amounts Original Operating revenues Charges for services Total operating revenues Operating expenses General and administrative Personal services Operation and maintenance Capital outlay Allocation of indirect expenses Contingency Total operating expenses Operating loss Nonoperating revenues Investment earnings Gain on sale of capital assets Total nonoperating revenues Loss before capital contributions and transfers Capital contributions Transfers in Change in net position $ 25,602,000 25,602,000 Final $ 25,602,000 25,602,000 767,300 4,169,840 11,600,890 48,051,220 985,790 3,210,960 68,786,000 525,290 4,169,840 11,942,495 48,648,850 985,790 5,210,280 71,482,545 (43,184,000) (45,880,545) 243,000 243,000 243,000 243,000 (42,941,000) (45,637,545) 7,300,000 820,000 7,300,000 820,000 ($34,821,000) Actual Amounts ($37,517,545) $ 26,031,784 26,031,784 763,069 3,773,105 10,859,722 10,556,418 985,790 26,938,104 (906,320) 387,274 25,056 412,330 (493,990) 6,992,364 780,498 7,278,872 Explanation of difference between budgetary change in net position at June 30, 2017, 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, 2016 489,327 Less compensated absences at June 30, 2017 (516,990) Add post-employment benefits at June 30, 2016 114,272 Less post-employment benefits at June 30, 2017 (15,705) Capital outlays are not recognized as GAAP expenses but are recognized as expenses on the budget basis. 10,556,418 Capital assets contributed by developers are recognized as revenue for GAAP purposes but are not recognized as revenue on the budget basis. 4,207,438 Depreciation is recognized as an expense for GAAP purposes but is not recognized for budgetary purposes. (10,561,019) Change in net position as reported on the statement of revenues, expenses and changes in fund net position 11,552,613 116 Final Budget Positive (Negative) $ 429,784 429,784 (237,779) 396,735 1,082,773 38,092,432 5,210,280 44,544,441 44,974,225 144,274 25,056 169,330 45,143,555 (307,636) (39,502) $44,796,417 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, 2017 Variance with Budgeted Amounts Original Operating revenues Charges for services Other Total operating revenues $ 17,117,170 85,000 17,202,170 Actual Amounts Final $ 17,117,170 85,000 17,202,170 $ 18,270,233 59,774 18,330,007 Final Budget Positive (Negative) $ 1,153,063 (25,226) 1,127,837 Operating expenses General and administrative Personal services Operation and maintenance Capital outlay Allocation of indirect expenses Contingency Total operating expenses 644,850 7,993,230 7,482,860 6,085,870 1,009,200 2,067,530 25,283,540 766,490 7,913,230 7,552,907 5,309,927 1,009,200 2,731,786 25,283,540 824,466 6,977,014 6,886,265 1,148,813 1,009,200 16,845,758 (57,976) 936,216 666,642 4,161,114 2,731,786 8,437,782 Operating income (loss) (8,081,370) (8,081,370) 1,484,249 9,565,619 Nonoperating revenues Investment earnings Gain on sale of capital assets Total nonoperating revenues Change in net position 156,000 156,000 $ (7,925,370) 156,000 156,000 $ (7,925,370) 69,813 52,487 122,300 1,606,549 Explanation of difference between budgetary change in net position at June 30, 2017, 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, 2016 628,351 Less compensated absences at June 30, 2017 (701,595) Add post-employment benefits at June 30, 2016 230,625 Less post-employment benefits at June 30, 2017 (7,214) Capital outlays are not recognized as GAAP expenses but are recognized as expenses on a budget basis. 1,148,813 Capital assets contributed by developers are recognized as revenue for GAAP purposes by are not recognized as revenue on the budget basis. 3,036,589 Depreciation is recognized as an expense for GAAP purposes but is not recognized for budgetary purposes. (1,449,610) Change in net position as reported on the statement of revenues, expenses and changes in fund net position $ 4,492,508 117 (86,187) 52,487 (33,700) $ 9,531,919 TABLE OF CONTENTS 118 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. Employee Benefit Self-Insurance - to account for and finance Gilbert’s uninsured risks of loss for medical and dental claims. 119 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA Internal Service Funds Combining Statement of Net Position June 30, 2017 Employee Benefit SelfInsurance Equipment Maintenance ASSETS Current assets: Pooled cash and investments Receivables (net): Accrued interest Accounts Inventories Total current assets $ Noncurrent assets: Capital assets: Property, plant and equipment Less accumulated depreciation Total capital assets (net) Total assets 339,919 $ Total 3,605,747 $ 3,945,666 10,028 667,954 1,017,901 9,946 22,409 3,638,102 9,946 32,437 667,954 4,656,003 283,859 (193,342) 90,517 1,108,418 3,638,102 283,859 (193,342) 90,517 4,746,520 DEFERRED OUTFLOWS OF RESOURCES Pension-related items Total deferred outflows of resources 427,988 427,988 - 427,988 427,988 LIABILITIES Current liabilities: Accounts payable Accrued liabilities Current portion of compensated absences Claims payable Total current liabilities 196,198 63,368 94,554 354,120 28 1,650,317 1,650,345 196,226 63,368 94,554 1,650,317 2,004,465 Noncurrent liabilities: Long-term portion of compensated absences Net pension liability Total noncurrent liabilities 134,103 2,147,219 2,281,322 - 134,103 2,147,219 2,281,322 Total liabilities 2,635,442 1,650,345 4,285,787 254,508 254,508 - 254,508 254,508 1,987,757 1,987,757 90,517 543,696 634,213 DEFERRED INFLOWS OF RESOURCES Pension-related items Total deferred inflows of resources NET POSITION Net investment in capital assets Unrestricted Total net position $ 120 90,517 (1,444,061) (1,353,544) $ $ 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, 2017 Employee Benefit SelfInsurance 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 $ 112,261 1,917,343 4,714,178 9,388 6,753,170 Operating income (loss) (87,326) Nonoperating revenues Investment earnings Total nonoperating revenues 735 735 Income (loss) before transfers (86,591) Transfers out - Change in net position 121 (1,353,544) $ 1,300,912 1,917,343 4,714,178 14,729,987 9,388 22,671,808 2,623,663 2,536,337 22,128 22,128 22,863 22,863 2,645,791 2,559,200 (7,332) 2,551,868 (650,702) $ 24,942,365 265,780 25,208,145 1,188,651 14,729,987 15,918,638 2,638,459 (1,266,953) $ 18,276,521 265,780 18,542,301 (7,332) (86,591) Total net position, beginning of year Total net position, end of year 6,665,844 6,665,844 Total 1,987,757 (1,917,655) $ 634,213 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA Internal Service Funds Combining Statement of Cash Flows Year Ended June 30, 2017 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 $ Net cash provided by (used in) operating activities 6,664,353 (5,068,232) (1,822,948) (226,827) Cash flows from noncapital financing activities: Changes in due to other funds Transfers to other funds Net cash used in noncapital financing activities Cash flows from capital and related financing activities: Acquisition and construction of capital assets Net cash used in capital and related financing activities Cash flows from investing activities: Interest received on investments Net cash provided by investing activities Net increase (decrease) in cash and cash equivalents Cash and cash equivalents at beginning of year 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 Changes in assets and liabilities: (Increase) decrease in accounts receivable Increase in inventories Increase in deferred outflows of resources Decrease in accounts payable Decrease in claims payable Increase in accrued expenses Increase in net pension liability Increase in deferred inflows of resources $ 593,548 24,940,874 (21,043,025) (1,822,948) - (1,200,000) (7,332) (1,200,000) (7,332) - (1,207,332) (1,207,332) (93,526) - (93,526) (93,526) - (93,526) 1,204 14,140 15,344 1,204 14,140 15,344 1,702,084 1,903,663 1,382,935 2,562,731 $ 339,919 $ 3,605,747 $ 3,945,666 $ (87,326) $ 2,623,663 $ 2,536,337 - 9,388 Total adjustments $ 122 593,548 18,276,521 (15,974,793) - 2,668,449 9,388 Net cash provided by (used in) operating activities $ Total 2,895,276 (319,149) 659,068 Cash and cash equivalents at end of year Employee Benefit SelfInsurance (1,491) (140,975) (117,449) (100,818) 41,351 84,042 86,451 327,768 (212) (55,943) - 326,277 (140,975) (117,449) (101,030) (55,943) 41,351 84,042 86,451 (139,501) 271,613 132,112 (226,827) $ 2,895,276 $ 2,668,449 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, 2017 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 Operating loss 8,156,000 3,000 8,159,000 $ 8,156,000 3,000 8,159,000 80,150 2,025,430 6,260,970 77,030 1,000,000 9,443,580 124,150 2,025,430 6,208,654 129,346 956,000 9,443,580 (1,284,580) (1,284,580) Nonoperating revenues Investment earnings Total nonoperating revenues Change in net position $ Actual Amounts Final (1,284,580) $ 6,665,844 6,665,844 $ 112,261 1,877,794 4,714,178 93,526 6,797,759 1,152,665 735 735 (1,284,580) (131,180) 93,526 189,108 (228,657) (9,388) $ (86,591) (1,490,156) (3,000) (1,493,156) 11,889 147,636 1,494,476 35,820 956,000 2,645,821 (131,915) - Explanation of difference between budgetary change in net position at June 30, 2017, and GAAP change in net position: Capital outlays are not recognized as GAAP expenses but are recognized as expenses on the budget basis. Obligations for compensated absences are accrued on the GAAP basis but are not recognized on the budget basis: Add compensated absences at June 30, 2016 Less compensated absences at June 30, 2017 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 123 $ Final Budget Positive (Negative) 735 735 $ 1,153,400 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, 2017 Variance with Budgeted Amounts Original Operating revenues Charges for services Other Total operating revenues $ Operating expenses General and administrative Claims Incurred Total operating expenses Operating income Nonoperating revenues Investment earnings Total nonoperating revenues Income before transfers Transfers out Change in net position $ 20,808,290 61,340 20,869,630 Actual Amounts Final $ 20,808,290 61,340 20,869,630 $ 18,276,521 265,780 18,542,301 Final Budget Positive (Negative) $ (2,531,769) 204,440 (2,327,329) 1,405,340 17,596,500 19,001,840 1,405,340 17,596,500 19,001,840 1,188,651 14,729,987 15,918,638 216,689 2,866,513 3,083,202 1,867,790 1,867,790 2,623,663 755,873 2,000 2,000 2,000 2,000 22,128 22,128 20,128 20,128 1,869,790 1,869,790 2,645,791 776,001 (2,000,000) (1,586,320) (130,210) 124 $ 283,470 (7,332) $ 2,638,459 1,578,988 $ 2,354,989 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. 125 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA Combining Statement of Changes in Assets and Liabilities Agency Funds Year Ended June 30, 2017 Flexible Spending Assets Restricted cash and investments Prepaid items Beginning Balance Additions Ending Balance Deductions $ 11,217 15,452 $ 464,616 360,524 $ 465,295 361,149 $ 10,538 14,827 $ 26,669 $ 825,140 $ 826,444 $ 25,365 Liabilities Dependent care benefits payable $ 26,669 $ 103,467 $ 104,771 $ 25,365 Total liabilities $ 26,669 $ 103,467 $ 104,771 $ 25,365 $ - $ 59,025 $ 59,025 $ - $ - $ 59,025 $ 59,025 $ - $ - $ 59,025 $ 59,025 $ - $ - $ 59,025 $ 59,025 $ - Total assets Fire Retirement Health Fund Assets Restricted cash and investments Total assets Liabilities Other deposits Total liabilities 126 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA Combining Statement of Changes in Assets and Liabilities Agency Funds Year Ended June 30, 2017 Total-All Agency Funds Assets Restricted cash and investments Prepaid items Total assets Beginning Balance Ending Balance Deductions $ 11,217 15,452 $ 523,641 360,524 $ 524,320 361,149 $ 10,538 14,827 $ 26,669 $ 884,165 $ 885,469 $ 25,365 Liabilities Other deposits Dependent care benefits payable Total liabilities Additions 26,669 $ 26,669 127 59,025 103,467 $ 162,492 59,025 104,771 $ 163,796 25,365 $ 25,365 TABLE OF CONTENTS 128 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 131 These schedules contain trend information to help the reader understand how Gilbert's financial performance and well-being have changed over time. Revenue Capacity 137 These schedules contain information to help the reader assess Gilbert's most significant local revenue source, sales tax. Debt Capacity 140 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 145 These schedules offer demographic and economic indicators to help the reader understand the environment within which Gilbert's financial activities take place. Operating Information 147 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 150 Sources: Unless otherwise noted, the information in these schedules is derived from the Comprehensive Annual Financial Report for the relevant fiscal year. 129 TABLE OF CONTENTS 130 TABLE OF CONTENTS Schedule 1 Town of Gilbert, Arizona Net Position by Component Last Ten Fiscal Years (accrual basis of accounting) (1,000's) 2008 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 Primary government Net investment in capital assets Restricted Unrestricted Total primary government net position $ $ $ $ $ 2009 688,393 34,926 48,022 771,341 $ 273,513 106,871 136,635 517,019 $ 961,906 141,797 184,657 $ 1,288,360 $ $ $ 2010 704,908 24,036 63,994 792,938 $ 261,028 91,738 182,090 534,856 $ 965,936 115,774 246,084 $ 1,327,794 $ $ $ 2011 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 $ $ 705,986 38,404 77,284 821,674 $ 294,516 76,504 209,680 580,700 $ $ 1,000,502 114,908 286,964 $ 1,402,374 131 2012 $ $ 2013 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 $ $ 2014 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 $ $ 2015 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 $ $ 2016 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 $ $ 2017 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 $ $ 753,973 72,780 60,983 887,736 399,537 42,814 342,616 784,966 $ 1,153,510 115,594 403,598 $ 1,672,702 TABLE OF CONTENTS Schedule 2 Town of Gilbert, Arizona Changes in Net Position Last Ten Fiscal Years (accrual basis of accounting) (1,000's) 2008 Expenses Governmental activities: General government: Management and policy Support services Finance and management services Court Development services Public works Public safety: Police a Fire a 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 $ 3,167 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 - 2017 $ 19,454 2,109 4,300 9,400 - 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 63,151 42,513 51,931 25,202 1,132 13,690 10,506 243,389 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 42,329 26,791 16,857 85,978 $ 232,701 $ 247,620 $ 244,522 $ 244,809 $ 250,773 $ 255,281 $ 275,637 $ 285,150 $ 298,275 $ 329,366 $ $ $ $ $ $ $ $ $ $ 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 61,707 132 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 6,900 7,484 231 1,951 4,603 844 33,204 41,877 97,094 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 32,321 18,440 15,642 18 34,556 100,977 $ 188,346 $ Net (Expense)/Revenue Governmental activities b Business-type activities Total primary government net expense $ (72,698) 28,343 $ (44,355) $ (107,276) 17,126 $ (90,150) $ $ $ General Revenues and Other Changes in Net Position Governmental activities: Taxes: Sales taxes $ 56,980 Property taxes, levied for debt service 26,345 In-Lieu property taxes 831 Franchise taxes 2,595 Unrestricted state shared revenue c 41,303 Unrestricted grants and contributions 2,195 Unrestricted investment earnings 4,463 Gain on sale of capital assets 260 Miscellaneous 544 Transfers 1,257 Total governmental activities 136,773 Business-type activities: Investment earnings 7,509 Gain on sale of capital assets 56 Miscellaneous 400 Transfers (1,257) Total business-type activities 6,708 Total primary government $ 143,481 Change in Net Position Governmental activities Business-type activities Total primary government a b $ $ 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 40,561 939 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 35,952 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 31,068 864 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 33,882 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 38,355 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 41,323 904 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 44,263 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) $ (146,294) 34,107 $ (112,188) 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 $ $ $ 40,696 26,032 18,270 953 34,134 120,084 217,178 82,797 20,761 1,159 2,814 52,861 2,400 859 154 1,224 446 165,475 1,009 92 121 (446) 776 166,251 19,181 34,883 54,064 The increase in Police and Fire expenditures for fiscal years 2017 is due to the addition of 17 full time equivalent positions and salary increases. 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. c For fiscal year 2016, Unrestricted state shared sales taxes and income taxes were combined and the name was changed to Unrestricted state shared revenue. 133 TABLE OF CONTENTS Schedule 3 Town of Gilbert, Arizona Program Revenues by Function Last Ten Fiscal Years (1,000's) 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Function/Program Governmental activities: General government: Management and policy $ Support services a Finance and management services Court Development services Public works a Public Safety: Police Fire Highways and streets b Parks and recreation Transportation Non departmental 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 11,551 3,877 54,059 18,190 626 50 Subtotal governmental activities 87,369 68,494 75,501 61,707 64,118 76,535 60,297 79,361 123,551 97,094 Business-type activities: Water Wastewater Environmental services a Irrigation 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 - 61,546 37,232 21,307 - 100,977 88,976 94,243 93,162 114,577 110,451 115,278 109,150 127,421 120,084 $ 188,346 $ 157,470 $ 169,744 $ 154,869 $ 178,695 $ 186,986 $ 175,575 $ 188,511 $ 250,972 $ 217,178 Subtotal business-type activities Total primary government 47 1,184 675 8,101 1,948 $ 11 128 586 4,571 901 $ 10 215 597 4,576 1,005 $ 15 649 9 597 4,273 - $ 16 242 11 670 6,891 - $ 36 251 792 7,240 - $ 59 262 823 6,807 - $ 962 27 824 6,608 - a The public works function, support services function, and irrigation services were eliminated in fiscal years 2012, 2013, and 2010, respectively. b 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 years 2015 and 2016 is mainly due to increased developer contributions. 134 $ 690 24 859 6,826 - $ 991 20 831 6,900 - 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 a Unassigned Total general fund $ $ 2008 2009 2010 2011b 2012 2013 2014 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 $ - $ - $ - $ 25,380 24,470 19,866 18,995 12,081 17,046 13,681 32,766 61,764 67,057 85,498 82,885 99,225 $ 108,573 $ 119,046 $ 134,646 2015 2016 2017 All other governmental funds Reserved - $ - $ - $ - $ - $ - $ $ 42,863 $ 67,626 $ 45,147 $ Unreserved, reported in: 29,348 25,886 27,635 Special revenue funds Debt service funds Capital projects funds (36,581) 99,570 86,482 (7,233) 125,456 114,117 Total Unreserved 4 2 1 83 2 4 Nonspendable 2 108,051 100,572 89,654 92,337 96,837 87,005 Restricted 139,725 28,261 26,159 36,258 18,764 22,462 38,337 34,387 Assigned (20,781) (23,199) (23,609) (25,466) (23,981) (19,897) Unassigned (19,353) Total all other governmental funds $ 35,630 $ 193,082 $ 159,264 $ 115,535 $ 103,534 $ 102,304 $ 85,718 $ 95,320 $ 105,449 $ 154,760 a The increase in Assigned fund balance in fiscal year 2017 was due to the change in reporting of vehicle license tax revenue and the expenditure of those funds as well as a reclassification of the Streets Capital Replacement fund balance. See Note 2. b GASB Statement No. 54 was implemented in fiscal year 2011. This statement established new fund balance classifications for governmental funds. 135 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) 2008 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 $ 2009 2010 2011 2012 2013 2014 2015 2016 2017 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 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 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 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 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 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 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 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 82,980 23,707 2,814 4,785 87,364 696 11,161 2,252 18,101 120 4,336 836 5,683 244,835 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 - 22,001 2,270 3,657 7,049 - 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 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 54,397 32,048 14,680 19,660 1,135 13,690 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 34,935 11,583 779 9 34,111 252,004 Excess (deficiency) of revenues over (under) expenditures (45,029) (118,059) (34,116) (32,363) (27) 13,562 (11,234) (21,207) 20,581 (7,169) 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 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 23,334 (22,881) 121,670 14,139 (64,182) 72,080 (40,012) $ 156,936 $ (33,142) $ (31,677) $ 27.9% 28.3% 31.2% 30.9% Net change in fund balances $ Debt service as a percentage of noncapital expenditures 136 (308) $ 25.7% 13,683 $ 25.5% (10,534) $ 23.4% 18,950 $ 20,601 $ 64,911 20.8% 23.4% 21.3% TABLE OF CONTENTS Schedule 6A Town of Gilbert, Arizona Sales Tax Collections by Category Fiscal Years 2008 - 2016 2008 Construction Manufacturing Communications & Utilities Wholesale Retail Restaurant & Bar Real Estate, Rental & Leasing Accommodation Services $ 15,416,006 789,804 5,269,633 577,086 23,550,094 3,228,910 5,538,416 b $ 7,804,840 650,179 5,303,338 527,933 23,305,081 3,509,671 5,751,120 2010 $ 5,193,872 635,188 5,724,639 610,065 23,775,975 3,566,427 5,249,645 2011 $ 4,389,279 706,514 5,562,364 854,466 25,540,515 3,820,368 5,874,288 2012 $ 5,718,727 727,755 5,774,403 965,523 28,390,526 4,072,187 6,078,364 2013 $ 7,867,067 763,152 5,931,935 1,100,749 30,784,509 4,402,299 7,944,973 2014 $ 8,837,079 939,861 6,120,225 1,207,006 33,078,748 4,867,638 7,952,365 2015 $ 7,663,801 882,509 6,342,578 1,320,977 37,463,617 5,526,275 8,286,878 2016 $ 7,326,040 1,042,710 6,327,257 1,486,450 40,406,219 6,177,869 9,290,919 1,729,464 319,810 13,347 93,008 8,272 1,039,678 243,510 12,575 100,490 4,748 1,002,691 481,122 16,464 100,293 9,503 252,974 1,069,661 652,043 21,161 89,990 - 299,270 1,211,864 520,302 25,830 112,496 4,586 377,228 1,369,608 487,279 25,667 154,772 2,271 487,680 1,676,438 505,146 22,721 398,169 4,311 533,870 2,018,647 629,740 30,529 438,257 3,020 569,390 2,223,706 784,957 37,823 557,582 18,977 446,057 483,123 506,855 481,592 600,794 594,043 674,274 652,973 858,177 $ 56,979,907 $ 48,736,286 $ 46,872,739 $ 49,315,215 $ 54,502,627 $ 61,805,552 66,771,661 $ 71,793,671 $ 77,108,076 b Other Transportation & Warehousing Finance & Insurance Public Administration Arts & Entertainment Total 2009 a Gilbert's local sales tax rate 1.5% 1.5% 1.5% 1.5% 1.5% 1.5% $ 1.5% 1.5% 1.5% Source: Arizona Department of Revenue a Effective July 1, 2016, the Arizona Department of Revenue changed the way taxpayers report city tax on their tax returns and simultaneously changed the manner in which they summarize the tax data in their reports to the cities. As a result, we no longer receive the tax data in the same categories that we had in the past. See Schedule 6B for Fiscal Year 2017 data. b 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. 137 TABLE OF CONTENTS Schedule 6B Town of Gilbert, Arizona Sales Tax Collections by Category Fiscal Year 2017 a 2017 Accommodation Amusement Communications & Utilities $ Construction Contracting Maintenance, Repair, Replacement & Alteration Personal Property Rental Publications, Advertising & Job Printing Rental of Commercial Property/Non-Residential Residential Rental Restaurant & Bar Retail Tax License Fees 599,950 793,681 5,625,248 9,611,076 89,165 1,392,591 Other 174,054 4,116,417 3,367,073 6,974,438 49,491,813 14,632 730,191 Total $ 82,980,329 Gilbert's local sales tax rate 1.5% Source: Arizona Department of Revenue a Effective July 1, 2016, the Arizona Department of Revenue changed the way taxpayers report city tax on their tax returns and simultaneously changed the manner in which they summarize the tax data in their reports to the cities. As a result, we no longer receive the tax data in the same categories that we had in the past. See Schedule 6A for Fiscal Years 2008 - 2016 data. Note: State and local laws prohibit the disclosure of individual taxpayer information. 138 TABLE OF CONTENTS Schedule 7 Town of Gilbert, Arizona Direct and Overlapping Sales Tax Rates Last Ten Fiscal Years 2008 2009 2010 2011 2012 2013a 2014 2015 2016 2017 Town Direct Rates: Hotel/Transient Lodging All Others 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% 4.50% 1.50% County Rates: Hotel/Transient Lodging All Others 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% 1.77% 0.70% State Rates: Hotel/Transient Lodging All Others 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% 5.50% 5.60% Source: Gilbert Finance & Management Services Department 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. Note: Gilbert sales tax rate may be changed with the approval of Council. 139 TABLE OF CONTENTS Schedule 8 Town of Gilbert, Arizona Ratios of Outstanding Debt by Type Last Ten Fiscal Years General Obligation Bonds Fiscal Year 2008 2009 2010 2011 2012 $ Governmental Activities Municipal Street and Property Special Highway User Corporation Assessment Revenue Revenue Bonds Bonds Bonds Business-type Activities Revenue Obligations 57,390,066 $ 226,030,524 204,147,283 178,722,625 159,547,197 2,999,660 $ 11,633,524 11,548,249 11,457,958 11,056,456 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 - 2013 2014 2015 147,640,933 135,775,830 123,420,395 10,469,338 9,445,797 8,306,402 18,130,241 16,864,197 13,754,807 142,828,198 133,835,907 126,607,711 39,685,688 2016 2017 105,296,311 157,102,290 6,504,185 6,126,440 10,538,003 7,174,209 118,310,093 109,229,636 39,685,688 39,637,764 General Obligation Bonds $ 10,353,095 $ 8,900,510 7,127,925 5,540,340 3,877,755 2,115,170 247,585 - 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. 140 Special Assessment Bonds Water and Wastewater Revenue Bonds Municipal Property Corporation Revenue Bonds - $ - 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 - - - Total Primary Government $ 406,385,162 638,357,898 598,535,799 541,996,729 481,579,670 Percentage of Personal Income 6.65 % $ 10.25 9.40 8.56 7.72 Per Capita 1,967 2,946 2,871 2,585 2,249 111,081,450 104,083,879 98,190,924 446,023,143 400,253,194 409,965,927 6.31 6.09 5.59 2,008 1,735 1,712 135,410,861 134,594,390 415,745,141 453,864,729 5.18 5.30 1,679 1,833 TABLE OF CONTENTS Schedule 9 Town of Gilbert, Arizona Ratios of General Bonded Debt Outstanding Last Ten Fiscal Years Fiscal Year 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 a b Less Amount Available in Debt Service Fund General Bonded Debt Outstanding b $ 67,743,161 234,931,034 211,275,208 184,262,965 163,424,952 149,756,103 136,023,415 123,420,395 105,296,311 157,102,290 $ 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 2,186,272 Net General Bonded Debt Outstanding $ 60,463,246 228,275,530 204,554,620 $ 177,896,868 154,089,134 140,156,135 127,080,466 113,254,802 98,344,128 154,916,018 Secondary Assessed Property Value a Limited Property Value a 2,370,134,999 2,768,391,194 2,672,949,852 N/A N/A N/A 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 1,979,359,269 $ Percentage of Applicable Property Value 2.55 % 8.25 7.65 7.74 8.28 8.37 7.97 6.19 5.33 7.83 Per Capita $ 292.65 1053.61 981.30 848.34 719.63 630.91 550.87 473.05 397.28 625.67 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 obligation bonds principal and interest payments are paid for with secondary property taxes. 141 TABLE OF CONTENTS Schedule 10 Town of Gilbert, Arizona Direct and Overlapping Governmental Activities Debt As of June 30, 2017 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 d East Valley Institute of Technology District No. 401 $ None 445,570,000 37,000,000 99,795,000 115,040,000 269,202,222 245,005,000 None Estimated Share of Direct and Overlapping Debt Estimated Percentage Applicable a 5.50% 5.50% 5.51% 70.25% 88.94% 13.05% 0.35% 12.40% $ Subtotal, overlapping debt Town of Gilbert direct debt None 24,506,350 2,038,700 70,105,988 102,316,576 35,130,890 857,518 None 234,956,021 e 319,270,338 100.00% Total direct and overlapping debt 319,270,338 $ 554,226,359 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 2016/17. 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. 142 TABLE OF CONTENTS Schedule 11 Town of Gilbert, Arizona Legal Debt Margin Information Last Ten Fiscal Years 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 20% Limitation Debt limit equal to 20% of limited property valuation $ 350,232,053 $ 51,705,000 Total net debt applicable to 20% limit Premium adjustment - 423,394,572 $ 471,773,198 $ 437,048,132 $ 369,996,694 $ 333,373,568 $ 317,092,733 $ 346,856,631 $ 369,065,090 $ 395,871,854 217,730,000 195,320,000 175,915,000 163,335,000 149,675,000 135,310,000 122,715,000 105,250,000 143,945,000 - - - - - - - 9,675,637 - Legal 20% debt margin (available borrowing capacity) $ 298,527,053 $ 205,664,572 $ 276,453,198 $ 261,133,132 $ 206,661,694 $ 183,698,568 $ 181,782,733 $ 224,141,631 $ 263,815,090 $ 242,251,217 Total net debt applicable to the 20% limit as a percentage of 20% debt limit 14.76% 51.42% 41.40% 40.25% 44.14% 44.90% 42.67% 35.38% 28.52% 38.81% 6% Limitation Debt limit equal to 6% of limited property valuation $ Total net debt applicable to 6% limit 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 $ - 118,761,556 - Legal 6% debt margin (available borrowing capacity) $ 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 $ 118,761,556 Total net debt applicable to the 6% limit as a percentage of 6% debt limit 0.81% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% Legal Debt Margin Calculation for Fiscal Year 2017 Limited property valuation as of June 30, 2017 $ 1,979,359,269 20% Limitation Debt limit equal to 20% of limited property valuation 395,871,854 Debt applicable to limit: General obligation bonds Premium adjustment 143,945,000 9,675,637 Legal 20% debt margin (available borrowing capacity) $ 242,251,217 6% Limitation 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 2017, HB 2452: bonding; amortized premium; segregated fund passed, requiring the net premium associated with a general obligation bond to be amortized for all debt limitation purposes on a pro-rata basis each year. 143 Debt limit equal to 6% of limited property valuation 118,761,556 Debt applicable to limit: General obligation bonds Legal 6% debt margin (available borrowing capacity) $ 118,761,556 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 2008 $ Debt Service Principal Interest User Tax Coverage $ Excise Taxes & Debt Service Revenue Principal Interest c Revenue Coverage 1,390,000 $ 191,620 1.34 12,333,576 $ 1,925,000 $ 1,347,313 3.77 5,410,000 $ 4,567,400 10.75 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 2017 695,541 375,000 321,073 1.00 15,847,097 2,975,000 436,250 4.65 146,007,063 9,660,000 6,877,081 8.83 Net Fiscal Operating Operating Available Year Revenues a Expenses a Revenue $ Water Resources Municipal Property Corp. Revenue Bonds Net Water Available System System Coverage Revenue b Dev't Fee Dev't Fee Debt Service Principal 107,273,375 $ Interest 421,894 Less: $ Debt Service Principal 2,121,038 $ 2008 b State-Shared Coverage 2009 Water and Wastewater Revenue Bonds c a & Subordiante Lien Pledged Revenue Obligations Highway Interest 11,697,125 $ Wastewater 10,923,733 $ Debt Service Principal - $ Interest Coverage 9,130,452 4.32 51,061,203 $ 32,100,716 $ 18,960,487 $ 1,250,000 $ 866,563 8.96 $ 16,843,924 $ 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 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 3.57 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 2014 62,873,206 37,514,942 25,358,264 1,500,000 610,163 12.02 23,248,101 10,567,046 - 3,875,000 5,198,059 3.73 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 2017 66,788,603 41,921,216 24,867,387 - - N/A 24,867,387 9,914,166 - 4,830,000 4,984,570 3.54 Combined operating revenues and expenses for the Water and Wastewater Funds, as applicable. Combined operating revenues and expenses for the Water and Wastewater Funds less debt service payments for the Water and Wastewater Revenue Bonds. 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. 144 TABLE OF CONTENTS Schedule 13 Town of Gilbert, Arizona Demographic and Economic Statistics Last Ten Fiscal Years Personal Income b a b c d e Fiscal Year Population 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 206,604 216,661 208,453 209,699 214,123 222,148 230,690 239,415 247,542 247,600 a (in thousands) (estimate) 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 8,558,000 Per Capita Income c (estimate) 30,518 30,416 30,559 29,731 28,413 31,035 28,184 30,639 32,418 34,565 Median Age c 31.3 30.4 30.7 32.7 31.5 33.1 37.5 32.7 33.2 33.1 School Enrollment d Unemployment Rate e 38,662 39,142 39,089 38,660 38,696 38,573 38,573 37,240 34,079 35,449 2.4% 4.6% 5.1% 5.1% 5.4% 5.7% 5.2% 4.3% 4.2% 3.7% Sources: 2008 through 2015: Maricopa Association of Governments; 2016 Census.gov; 2017 Office of Management & Budget Estimated based on population and per capita income 2008 through 2015: American Community Survey; 2016 through 2017: Census.gov Arizona Department of Education; beginning in 2011, school enrollment was obtained from the Gilbert Public Schools website. laborstats.az.gov Note: The 2008 through 2010 median age, school enrollment, and unemployment rates were obtained from Gilbert's Development Services Department. 145 TABLE OF CONTENTS Schedule 14 Town of Gilbert, Arizona Top Ten Principal Employers Current Fiscal Year Compared to Nine Years Ago Employer Fiscal Year 2017 Percentage of Total Town Employees Rank Employment Gilbert Unified School District Banner Health Go Daddy Software, Inc. Town of Gilbert Wal-Mart Stores, Inc. Fry's Food and Drug B H Drywall Higley Unified School District Dignity Health Isagenix International Mercy Gilbert Medical Center General Dynamics C4 Systems Inc Dillard's Total 3,152 1,806 1,364 1,297 1,138 1,044 997 995 891 650 ------- 1 2 3 4 5 6 7 8 9 10 3.01% 1.73% 1.30% 1.24% 1.09% 1.00% 0.95% 0.95% 0.85% 0.62% ------- 13,334 12.75% Source: Maricopa Association of Governments 146 Fiscal Year 2008 Percentage of Total Town Employees Rank Employment 5,139 1,492 575 1,365 578 704 600 ------653 587 550 12,243 1 2 9 3 8 4 6 5 7 10 10.40% 3.02% 1.16% 2.76% 1.17% 1.42% 1.21% ------1.32% 1.19% 1.11% 24.76% TABLE OF CONTENTS Schedule 15 Town of Gilbert, Arizona Full-time Equivalent Employees by Function Last Ten Fiscal Years 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Function Governmental Funds General government: Management and policy 32.0 32.2 29.2 21.2 22.2 88.5 95.8 120.0 128.6 92.75 91.3 88.3 62.0 62.0 - - - - - - - - 18.25 19.3 29.0 19.0 19.0 21.0 21.0 Court 53.3 52.3 52.9 52.9 51.9 49.9 51.9 32.9 32.9 32.9 Development services 99.1 70.5 70.5 72.5 72.5 69.6 68.8 73.3 66.7 68.7 Public works 18.0 17.5 17.5 - - - - - - - Police 352.5 347.0 346.0 346.0 346.0 346.0 349.0 354.0 358.0 369.0 Fire 193.0 199.5 197.0 197.0 197.0 197.0 201.0 201.0 203.0 210.0 Support services Finance and management services 131.6 Public safety: Highways and streets 55.3 55.3 49.3 49.3 49.3 51.0 58.0 58.0 51.7 51.7 Parks and recreation 120.0 117.1 106.8 101.7 102.0 106.8 121.8 118.7 125.3 126.2 Water 72.0 79.0 83.0 118.1 120.0 118.2 118.0 116.5 125.0 130.0 Wastewater 35.0 40.7 40.7 40.7 41.7 41.7 44.7 45.4 42.5 42.5 Environmental services 77.1 79.0 79.0 79.0 78.5 79.0 83.5 84.0 94.3 96.3 - - - - - - Enterprise Funds Irrigation 0.7 0.7 0.7 - 26.0 26.0 26.0 26.0 26.0 26.0 26.0 26.0 26.0 26.0 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 1,305.9 Internal Service Funds Equipment maintenance Total Source: Gilbert Office of Management & Budget 147 TABLE OF CONTENTS Schedule 16 Town of Gilbert, Arizona Operating Indicators by Function Last Ten Fiscal Years 2008 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) Public Safety: Police Number of arrests Crimes per 1,000 population Fire Number of emergency calls Response time average (enroute to on-scene) b Total dispatch time (dispatch to onscene) b Highways and streets Average pavement condition index 2009 2010 2011 2012 87% 107 9.2% 89% 87 8.1% 86% 90 4.9% 90% 86 6.6% N/A 79 6.8% 37,821 61% 36,890 61% 32,299 64% 25,888 64% 26,271 72% 2013 a 2014 2015 77% 110 8.0% 75% 155 7.5% N/A 148 8.3% 31,794 72% 28,896 72% 29,499 71% a 2016 2017 74% 175 9.7% N/A 149 9.3% 32,091 70% 29,501 74% 3,663 $ 539.6 2,054 $ 266.3 2,506 $ 324.3 2,219 $ 238.7 3,474 $ 474.9 3,418 $ 534.4 3,254 $ 472.5 3,364 $ 496.0 3,584 $ 553.8 4,157 $ 532.2 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 8,250 15.5 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 19,422 N/A 91 N/A 91 N/A 91 N/A N/A 91 91 N/A 80 N/A N/A 75 75 N/A 72 N/A 5 min 9 sec 74 Parks and recreation Facility reservation requests c Facility reservations c Participants in recreation programs d 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 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 11,747 62,815 N/A 19,835 69,423 N/A 18,000 71,651 421 1,039 835 845 560 635 685 687 669 679 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 46 83,945 26,850 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 14.91 4,931 113,777 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 19,894 110,520 22,567 Source: Various Town departments a b c d Survey completed every other year. Beginning in 2017, the Fire Department began reporting total dispatch time instead of average time enroute to on-scene. Indicator no longer being tracked. Beginning in 2015, tracking actual facility reservations. Only includes adult sports, youth ball programs, adaptive recreation, and town-sponsored special events. 148 TABLE OF CONTENTS Schedule 17 Town of Gilbert, Arizona Capital Asset Statistics by Function Last Ten Fiscal Years 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 151 162 156 166 164 164 180 185 217 224 9 9 9 9 10 10 10 10 10 10 1,017 159 872 169 903 168 923 173 979 175 989 177 905 180 1,032 185 1,055 185 973 194 676 676 690 690 652 653 605 605 605 645 1,067 1,137 1,175 1,189 1,216 1,219 1,261 1,304 1,660 1,322 809 843 860 868 970 976 1,006 1,019 1,038 887 52 54 57 61 61 61 66 67 57 56 Function Public safety: Police Number of police cars Fire Fire stations Highways and streets Street centerline miles (estimate) a c Traffic control signals Parks and recreation Total acres of park land, trails, open space, municipal areas and support facilities, operated and maintained Water Miles of water main c Wastewater c Miles of wastewater main Environmental services Garbage trucks b Source: Various Town departments a b c The street centerline miles were previously estimated using different methods, such as end of warranty and beginning of Town ownership. Beginning in 2015, the estimate is based on acceptance letter date. Prior to fiscal year 2016, wheel loaders were included in the statistic. In 2017, estimates were updated to exclude miles not owned by Gilbert. Note: No capital asset statistics are available for the general government or transportation functions. 149 TABLE OF CONTENTS Schedule 18 Town of Gilbert, Arizona Property Value, Construction and Bank Deposits Last Ten Fiscal Years Fiscal Year 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Residential Construction a Number of Permits Value 1,536 1,038 1,427 1,130 2,331 2,015 1,613 1,668 1,764 1,754 $ 268,197,375 161,128,906 213,032,031 182,201,825 408,322,951 385,182,885 315,632,904 350,707,421 402,071,499 336,676,752 Commercial Construction Number of Permits Value 349 151 147 180 182 224 284 268 278 264 $ a 180,776,005 60,768,344 67,488,230 25,831,880 31,550,416 102,447,825 99,959,286 81,934,987 71,594,349 119,477,874 Other Construction a Number of Permits Value 1,778 865 932 909 961 1,179 1,357 1,428 1,542 2,139 $ 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 76,023,423 Secondary Assessed Property Value b 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 $ N/A Limited Property Value b N/A $ N/A N/A N/A N/A N/A N/A N/A 1,845,325,449 1,979,359,269 Maricopa County Bank Deposits c 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 92,567,543,000 Sources: Development Services Department b Maricopa County Assessor's Office c 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. 150 TABLE OF CONTENTS Schedule 19 Town of Gilbert, Arizona System Development Fees Fiscal Year 2017 Traffic signal system development fee Beginning System Development Other Balance Fees Collected Revenue $ Ending Expenditures 6,989,850 2,337,313 28,013 389,395 3,706,920 (13,205,778) General government system development fee Parks and recreation system development fee Balance (1,122,790) $ 8,232,386 9,208 (2,906,955) 1,198,568 1,895,180 - (1,123,099) (12,433,697) a (6,651,994) 2,400,140 - (2,412,792) (6,664,646) a 28,273,344 7,761,603 108,140 (5,332,384) 30,810,703 Water system development fee 7,832,200 9,914,166 90 (10,422,237) 7,324,219 Water resources system development fee 8,347,819 1,949,954 13,462 (5,208,621) 5,102,614 17,874,428 6,992,364 105,511 (787,784) 24,184,519 49,849,262 36,957,640 264,424 (29,316,662) $ 57,754,664 Police system development fee Fire system development fee Wastewater system development fee Totals $ Equivalent Residential Unit Water system development fee $ 4,927 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 $118,443,372 at June 30, 2017. 151 TABLE OF CONTENTS Schedule 20 Town of Gilbert, Arizona Property Tax Levies and Collections Last Ten Fiscal Years Fiscal Year Tax Levy 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 $ 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 20,913,149 County Resolutions (402,220) $ (134,438) (153,319) (107,618) (96,162) (99,396) (57,876) (72,483) (32,290) (80,844) Initial Year Collections Net Current Tax Levy Collections 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 20,832,305 20,645,301 Percent Of Levy 95.85% $ 95.34% 95.86% 96.79% 97.60% 99.00% 98.83% 99.05% 99.09% 99.10% Source: Maricopa County Treasurer's Office 152 County Resolutions Cumulative Collections Net Delinquent Total Tax Levy Collections Collections (506,452) $ 26,808,649 $ 1,012,757 $ (304,665) 31,027,994 1,262,304 (390,037) 29,999,845 996,924 (276,531) 25,921,522 659,343 384,122 (217,442) 21,162,812 142,673 (143,216) 19,110,529 179,505 (88,708) 18,238,581 127,809 (126,520) 19,360,565 136,781 (67,050) 19,428,206 (80,844) 20,832,305 26,809,817 31,007,061 29,981,329 25,912,809 21,156,616 19,105,313 18,235,946 19,358,618 19,423,095 20,645,301 Percent of Levy 100.00% 99.93% 99.94% 99.97% 99.97% 99.97% 99.99% 99.99% 99.97% 99.10% TABLE OF CONTENTS Schedule 21 Town of Gilbert, Arizona Principal Property Taxpayers Fiscal Year 2017 Limited Property Valuation Principal Taxpayer Type of Business Westcor Santan Village LLC Southwest Gas Corporation (T&D) American Furniture Warehouse Co. Verizon Wireless Power & Ray LLC Vestar CTC Phase 1 LLC BRE DDR BR SAN TAN II AZ LLC Target Corporation Earnhardt Arizona Properties LLC Redstone at Santan Village Apartments LLC Lowe's HIW Inc. 155 Rivulon Boulevard LLC San Privada Apartments LLC Arizona Public Service Company Sy Gilbert Commons I LLC Branch Brook Gardens Smiths Food & Drug Centers Inc Pillar at San Tan LLC LIT Industrial Limited Partnership Fulton Homes Corporation Qwest Corporation CTC Gilbert LLC Echostar Broadcasting Holding Corporation Dillard Store Services Inc (Lease) FRI San Tan LLC Shopping Center Utility Retail Utility Real Estate Development / Holdings Real Estate Development / Holdings Real Estate Development / Holdings Retail Real Estate Development / Holdings Real Estate Development / Holdings 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 Utility Real Estate Development / Holdings Utility Retail Real Estate Development / Holdings As % of Town's Total Limited Property Valuation $ 20,844,768 6,782,213 6,741,277 5,233,196 5,110,118 5,106,902 4,956,707 4,217,459 4,057,056 3,927,753 3,648,343 3,564,364 3,181,865 3,175,374 3,135,502 3,129,413 3,103,774 3,100,185 3,044,954 3,017,265 3,010,144 2,873,122 2,864,511 2,835,847 2,801,453 1.05% 0.34% 0.34% 0.26% 0.26% 0.26% 0.25% 0.21% 0.20% 0.20% 0.18% 0.18% 0.16% 0.16% 0.16% 0.16% 0.16% 0.16% 0.15% 0.15% 0.15% 0.15% 0.14% 0.14% 0.14% $ 113,463,565 5.73% Source: Maricopa County. Top taxpayers based on Net Assessed Limited Property Value of Real and Secured Personal Property for tax year 2017. Note: Information included for current fiscal year only as this is what is required for continuing disclosure requirements for Gilbert's bond issues. 153 TABLE OF CONTENTS gilbertaz.gov