City of Mesa, Arizona COM P R E H E NS I V E A NNUAL F IN AN CIAL R E POR T For the Fiscal Year Ended June 30, 2017 Mayor John Giles Councilmember Mark Freeman – District 1 Councilmember Jeremy Whitaker – District 2 Councilmember Francisco Heredia – District 3 Councilmember Christopher Glover – District 4 Vice Mayor David Luna – District 5 Councilmember Kevin Thompson – District 6 Chris Brady, City Manager Kari Kent, Deputy City Manager John Pombier, Deputy City Manager Prepared by: Financial Services Department P.O. Box 1466 Mesa, Arizona 85211-1466 (480) 644-2275 www.mesaaz.gov Citizens of Mesa Mayor and City Council City Clerk DeeAnn Mickelsen City Court Matt Tafoya CITY MANAGER Chris Brady City Attorney Jim Smith City Auditor Jennifer Ruttman Advisory Boards and Committees Economic Development Bill Jabjiniak Assistant City Manager Kari Kent Development Services Christine Zielonka Energy Resources Frank McRae Engineering Beth Huning Assistant City Manager John Pombier Chief Financial Officer Michael Kennington Office of Management and Budget Candace Cannistraro Financial Services Irma Ashworth Parks, Recreation & Community Facilities Marc Heirshberg Business Services Ed Quedens Transportation RJ Zeder Enterprise Resource Planning (ERP) Water Resources Jake West Deputy City Manager Scott J. Butler Deputy City Manager Natalie Lewis Police Department Ramon Batista Falcon Field Corinne Nystrom Fire & Medical Department Mary Cameli Mayor and City Council Support Arts & Culture Cindy Ornstein Information Technology Travis Cutright Mesa Counts on College Library Heather Wolf Fleet Services Pete Scarafiotti Grants Community Services Ruth Giese Human Resources Gary Manning Federal and State Affairs Downtown Coordination, DMA Transit Jodi Sorrell U.S. Conference of Mayors/ National League of Cities Regional Initiatives, Maricopa Association of Governments Public Information & Communications Steve Wright Environmental Management & Sustainability Scott Bouchie Introductory Section COM P R E H E NS I VE A NNUAL F IN AN CIAL R E POR T 2 0 1 7 TABLE OF CONTENTS Exhibit Page SECTION I – INTRODUCTORY SECTION Table of Contents Letter of Transmittal Certificate of Achievement for Excellence in Financial Reporting I V XI SECTION II - FINANCIAL SECTION Independent Auditors’ Report 1 Management’s Discussion and Analysis 4 Basic Financial Statements Government-wide Financial Statements Statement of Net Position Statement of Activities A-1 A-2 16 17 A-3 19 A-4 A-5 20 21 A-6 22 A-7 A-8 A-9 23 25 27 A-10 29 Fund Financial Statements Governmental Funds Financial Statements Balance Sheet Reconciliation of the Balance Sheet of Governmental Funds to the Statement of Net Position Statement of Revenues, Expenditures and Changes in Fund Balances Reconciliation of the Statement of Revenues, Expenditures and Changes in Fund Balances of Governmental Funds to the Statement of Activities Proprietary Funds Financial Statements Statement of Net Position Statement of Revenues, Expenses and Changes in Net Position Statement of Cash Flows Fiduciary Funds Financial Statements Statement of Fiduciary Assets and Liabilities I TABLE OF CONTENTS (Continued) Exhibit Page Notes to the Financial Statements Note 1 – Summary of Significant Accounting Policies Note 2 – Reconciliation of Governmental Fund Financial Statements to Government-wide Financial Statements Note 3 – Fund Balance Note 4 – Pooled Cash and Investments Note 5 – Accounts Receivable and Due from Other Governments Note 6 – Interfund Receivables, Payables and Transfers Note 7 – Capital Assets Note 8 – Long-term Obligations Note 9 – Refunded, Refinanced and Defeased Obligations Note 10 – Self-Insurance Internal Service Fund Note 11 – Commitments and Contingent Liabilities Note 12 – Net Position Note 13 – Enterprise Activities Operations Detail Note 14 – Joint Ventures Note 15 – Retirement and Pension Plans Note 16 – Post-Employment Benefits Note 17 – Subsequent Events 30 40 47 48 52 53 55 58 70 71 72 73 74 74 77 89 92 Required Supplementary Information Schedule of the City’s Proportionate Share of Net Pension Liability Cost-Sharing Pension Plan Schedule of Changes in the City’s Net Pension Liability and Related Ratios Agent Pension Plans Schedule of City Pension Contributions Notes to Pension Plan Schedules Schedule of Agent Other Post-Employment Benefits Plan’s Funding Progress Schedule of Other Post-Employment Benefits Plan’s Funding Progress Budgetary Comparison Schedule – General Fund Notes to Budgetary Comparison Schedules II B-1 93 B-2 B-3 94 96 97 B-4 B-5 B-6 98 99 100 101 TABLE OF CONTENTS (Continued) Exhibit Page C-1 102 C-2 106 C-3 C-4 C-5 110 111 112 C-6 113 D-1 D-2 D-3 D-4 D-5 D-6 D-7 D-8 D-9 114 115 116 117 118 119 120 121 122 Combining Statements Non-Major Governmental Funds Combining Balance Sheet Combining Statement of Revenues, Expenditures and Changes in Fund Balances Internal Service Funds Combining Statement of Net Position Combining Statement of Revenues, Expenses and Changes in Net Position Combining Statement of Cash Flows Agency Fund Statement of Changes in Assets and Liabilities Supplemental Information Budgetary Comparison Schedules – Other Non-major Funds Budgetary Comparison Schedule – Community Facilities District Budgetary Comparison Schedule – Environmental Compliance Budgetary Comparison Schedule – Grants and Special Programs Budgetary Comparison Schedule – Highway User Revenue Budgetary Comparison Schedule – Mesa Housing Authority Budgetary Comparison Schedule – Quality of Life Sales Tax Budgetary Comparison Schedule – Street Sales Tax Budgetary Comparison Schedule – General Capital Projects Budgetary Comparison Schedule – Streets III TABLE OF CONTENTS (Concluded) Exhibit Page I II 123 125 III 131 IV 133 V VI 135 137 VII VIII IX X XI 138 140 141 142 144 XII XIII 146 147 XIV XV XVI 148 150 152 SECTION III – STATISTICAL SECTION Financial Trends Net Position by Components – Last Ten Fiscal Years (Accrual Basis of Accounting) Changes in Net Position – Last Ten Fiscal Years (Accrual Basis of Accounting) Fund Balance, Governmental Funds – Last Ten Fiscal Years (Modified Accrual Basis of Accounting) Changes in Fund Balance, Governmental Funds – Last Ten Fiscal Years (Modified Accrual Basis of Accounting) 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 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 Year and Ten Years Ago Operating Information Full-Time Equivalent City Government Employees by Function/Program – Last Ten Fiscal Years Operating Indicators by Function/Program – Last Ten Fiscal Years Capital Asset Statistics by Function/Program – Last Ten Fiscal Years IV Financial Services Department January 2, 2018 To the Citizens, Honorable Mayor, City Council and City Manager: The Comprehensive Annual Financial Report of the City of Mesa (the “City”) for the fiscal year ended June 30, 2017 is hereby submitted. Prepared by the Financial Services Department, this report consists of management’s representations concerning the finances of the City of Mesa. Consequently, management assumes full responsibility for the completeness and reliability of all of the information presented in this report. To provide a reasonable basis for making these representations, management of the City has established a comprehensive internal control framework that is designed both to protect the government’s assets from loss, theft, or misuse and to compile sufficient reliable information for the preparation of the City’s financial statements in conformity with accounting principles generally accepted in the United States of America. Because the cost of internal controls should not outweigh their benefits, the City’s comprehensive framework of internal controls has been designed to provide reasonable rather than absolute assurance that the financial statements will be free from material misstatement. As management, we assert that, to the best of our knowledge and belief, this financial report is complete and reliable in all material respects. The City’s financial statements have been audited by CliftonLarsonAllen, LLP, a firm of licensed certified public accountants. The goal of the independent audit was to provide reasonable assurance that the basic financial statements of the City for the fiscal year ended June 30, 2017, are free of material misstatement. The independent audit involved examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements; assessing the accounting principles used and significant estimates made by management; and evaluating the overall financial statement presentation. The independent auditor concluded, based upon the audit that there was a reasonable basis for rendering an unmodified opinion that the City’s financial statements for the fiscal year ended June 30, 2017, are fairly presented in conformity with accounting principles generally accepted in the United States of America. The independent auditor’s report is presented as the first component of the financial section of this report. The independent audit of the financial statements of the City was part of a broader, federally mandated “Single Audit” designed to meet the special needs of federal grantor agencies. The standards governing Single Audit engagements require the independent auditor to report not only on the fair presentation of the financial statements, but also on the audited government’s internal controls and compliance with legal requirements, with special emphasis on internal controls and legal requirements involving the administration of federal awards. These reports are available in the City’s separately issued Single Audit Report. Accounting principles generally accepted in the United States of America require that management provide a narrative introduction, overview, and analysis to accompany the basic financial statements in the form of Management’s Discussion and Analysis (MD&A) and should be read in conjunction with it. The City’s MD&A can be found immediately following the report of the independent auditors. V Profile of the City The City was founded in 1878 and incorporated July 15, 1883 with an approximate population of 300 and an area of one square mile. Today, the City’s estimated population is 493,089 compared with the 2010 decennial census count of 439,041, within an incorporated area of approximately 141 square miles. Total land area encompasses 138 square miles. The City is the 36th largest city in the United States and is the third largest city in the State of Arizona. Mesa is located 16 miles east of Phoenix, the State Capitol. The City operates under a charter form of government with citizens electing a Mayor and six Councilmembers to set policy for the City. City Councilmembers are elected from districts and serve terms of four years, with three members being elected every two years. The Mayor is elected at-large every four years. The Mayor and Council are elected on a non-partisan basis, and the Vice Mayor is selected by the City Council. The Mayor and City Council are responsible for appointing the City Manager, City Attorney, City Auditor, City Clerk and the Presiding City Magistrate. The City Manager has full responsibility for carrying out City Council policies and administering City operations and is responsible for the hiring of City employees. Additionally, City employees are hired under merit system procedures as specified in the City Charter. An allocated staff of 3,834 full-time (equivalent) City employees working within 27 different City departments undertakes the various functions of Mesa’s city government and its operation. The City provides a full range of municipal services, including police and fire protection, parks and recreation, library, transportation, health and certain social services and general administration; and, the City owns and operates enterprises including operations of electric, gas, water, wastewater, solid waste, airport and a golf course. The Mesa Art Center, which includes 212,755 square feet of performing arts, visual arts and art education facilities, is the largest comprehensive arts campus in the Southwest. The Mesa Art Center was awarded the Venue Excellence Award by the International Association of Venue Managers. This prestigious award recognizes venues such as stadiums, convention centers, arenas, performing arts centers, and academic institutions that demonstrate excellence in the following four criteria: service to the community, team building/professional development, safety and security, and operational excellence. The annual budget serves as the foundation for the City’s financial planning and control. Historical data is analyzed during the creation of a multi-year financial forecast. The forecast provides a framework to assist Mesa’s elected officials and executive team make important decisions about the direction of the City. The City Council sets the City’s long-term strategic direction and provides staff with budget priorities for the upcoming fiscal year. A proposed budget is presented to the City Council for review and discussion in mid spring with the final adoption of the operating budget by resolution in late spring. The City of Mesa begins the fiscal year on July 1st. Legal control over the budget derives from State statutes that prohibit the City from exceeding its adopted budget in total, and from the resolution itself that sets the limit. The residents of Mesa approved a Home Rule exemption to the State of Arizona’s expenditure limitation requirement. The City can determine the budget level as long as the City can identify resources to cover the expenses. The budget appropriated by the City Council consists of all planned expenditures and the associated resources to cover them. While the State does not require trust fund expenditures to be appropriated, the City chooses to include them in order to fully represent City activity. VI Factors Affecting Financial Condition The information presented in the financial statements is perhaps best understood when it is considered from the broader perspective of the specific environment within which the City operates. Local Economy The City’s economic indicator for residential construction in fiscal year (FY) 16/17 is up 15% from FY 15/16 and over 100% from FY 13/14. Commercial construction increased 34% in FY 16/17 over the previous year. During FY 16/17 the City issued 2,456 permits for new residential construction. This is 19% more than the previous fiscal year. The corresponding dollar valuation associated with all FY 16/17 permits increased approximately $281 million from the prior fiscal year. Analysis of the recent data indicates a continued increase in construction activity in both the residential and commercial sectors. Activity levels have been increasing for the past seven years and represents a sustained recovery from the economic slowdown of the prior years. The increase in construction activity resulted in an associated increase in sales tax revenues. For the year ending June 30, 2017, retail sales tax was up 5.1% while overall sales tax revenues were up 5.5%. Tourism also increased as evidence by a 3.3% increase in the transient lodging (‘bed’) tax. Other financial resources followed the economy’s continuation of a slow and steady recovery. The City incorporated this in the preparation of the FY 17/18 budget. Conservative budget practices and willingness to respond to economic indicators continues to allow the City to maintain unrestricted fund balance reserve levels as established in the City’s financial policies. The FY 17/18 budget continues the City’s fiscally conservative approach and reinforces the City’s effort to invest in economic development, improve public safety and attract and retain excellent employees. All fund balances were maintained at or above the levels prescribed by financial policy and prudent practice. Major Initiatives During the year, various major accomplishments were realized. Some of these were: • Benedictine University at Mesa marked yet another significant milestone for the branch campus in May when it sent off its first four-year graduating class. The University continues to invest in the Mesa campus and the Arizona community by expanding its workforce to serve students better. Benedictine also officially opened the doors to its first residence hall for the Mesa campus earlier this spring. The former Alhambra Hotel can house 53 students. The $3.3 million renovation project provides students with single- and double-room suites with such amenities as study areas, lounges, a café, kitchen, laundry rooms, an outdoor commons area, patio space, and parking. • Construction began on the first market-rate multi-residence project in downtown in the last 30 years. The Residences on First is a three-story, 24-unit apartment building. Additionally, Mesa Housing Associates have entered escrow to allow development of market-rate housing on the portion of the site originally contemplated for a Senior LIHTC project. Concepts for an additional three buildings and approximately 70 units are currently in process. • As the City of Mesa continues to focus on the revitalization of Downtown, the City has created the Downtown Mesa Façade Improvement Program which provides grant funding to help property and business owners revitalize their storefronts. The City opened the program for applications from VII property owners in February and secured grant funding dollars to design and construct approximately 8-15 facade facelifts. The program is focused on properties affected by 1980s colonnade structures that obscure business frontages from the public space and mask the architecture of some of Mesa’s most attractive historic buildings. • In the first six months of 2017, Eastmark, the master-planned community located in Mesa, sold 502 new homes, the same number previously sold in all of 2016. Home sales have been averaging 82 per month, double the monthly rate in 2016, earning it the number 6 spot among the top 20 bestselling master-planned communities in the nation according to real estate advisory firm RCLCO (Robert Charles Lesser & Company) Mid-Year Report released July 6, 2017. This is the third year in a row Eastmark has been ranked #1 in Arizona on the prestigious RCLCO list. With more than 500 total homes sold each of the last two years, Eastmark finished #7 nationally in 2015 and #11 in 2016. • GECO Inc., a Mesa-based aerospace technology company, was selected to provide essential ground control system hardware and software that will enable secure communications for unmanned U.S. Army aviation. GECO was awarded a one-year, $7.4 million contract to develop hand controllers that will allow operators to control any tactical unmanned aircraft system with a single, universal device. Fueled by this new work and other important wins, GECO is expanding its manufacturing facilities and growing its workforce by 25 percent. • German semiconductor solutions company, Infineon Technologies, spent millions of dollars this year expanding its Mesa semiconductor fabrication facility. The 100-employee Mesa facility is a manufacturing site for Infineon and home to its Gallium Nitride (GaN) cleanroom. GaN is a new semiconductor material that will help increase the efficiency and performance of power electronics used in everyday products such as laptop power adapters. • DuPont Fabros Technology Inc. purchased a 56.5-acre undeveloped site in Mesa with plans for a data center campus. That East Valley campus could total as much as 1 million square feet. Washington D.C.-based DuPont specializes in data center development. • Niagara Bottling, LLC announced plans for a 450,000-square-foot, highly automated manufacturing and bottling operation in Mesa. The private-label bottled water supplier will invest $76 million in the facility and will create 45 to 55 new jobs. The company expects to begin production in the first quarter of 2018. • The Boeing Company announced plans to transfer a substantial piece of the work of its Shared Services Group (SSG) from the Puget Sound region to Mesa. The SSG employs about 3,000 people and provides a wide range of support services to Boeing’s corporate and production units. The work shifting to Mesa will involve hundreds of jobs. • The Boeing Company’s Mesa facility picked up a $3.4 billion contract to modernize 244 Apaches for the U.S. Army and 24 new helicopters will go to the Kingdom of Saudi Arabia. • 2017 marks the beginning of major improvement projects at Falcon Field Airport. The Federal Aviation Administration (FAA) has awarded Falcon Field Airport a $1.8 million grant for upgrades to airfield lighting and signage. Falcon Field Airport has also been awarded a grant of more than $520,000 by the FAA to update its Airport Master Plan. The master plan assesses airport facilities and industry trends and guides future decisions about development. It will help identify airport capital improvements for the next 12 to 15 years. Finally, renovation of Falcon Field Airport’s VIII Financial Section COM P R E H E NS I VE A NNUAL F IN AN CIAL R E POR T 2 0 1 7 CliftonLarsonAllen LLP CLAconnect.com INDEPENDENT AUDITORS’ REPORT The Honorable Mayor and Members of City Council City of Mesa, Arizona Report on the Financial Statements We have audited the accompanying financial statements of the governmental activities, the businesstype activities, each major fund, and the aggregate remaining fund information of the City of Mesa, Arizona (City) as of and for the year ended June 30, 2017, and the related notes to the financial statements, which collectively comprise the City’s basic financial statements as listed in the table of contents. Management’s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditors’ Responsibility Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the 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. (1) The Honorable Mayor and Members of City Council City of Mesa, Arizona Opinions In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City of Mesa, Arizona as of June 30, 2017, and the respective changes in financial position and, where applicable, cash flows thereof for the year then ended in accordance with accounting principles generally accepted in the United States of America. Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the management’s discussion and analysis, the Schedule of the City’s Proportionate Share of Net Pension Liability, Schedule of Changes in the City’s Net Pension Liability and Related Ratios, Schedule of City Pension Contributions, Schedule of Agent Other Post-Employment Benefits Plan’s Funding Progress, the Schedule of Other Post Employment Benefit Plan’s Funding Progress, and the budgetary comparison 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. Supplementary and Other Information Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the City’s basic financial statements. The combining and individual fund financial statements and schedules and the introductory and statistical sections are presented for purposes of additional analysis and are not a required part of the basic financial statements. The combining and individual fund financial statements and schedules are the responsibility of management and were derived from and relate directly to the underlying accounting and other records used to prepare the 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 financial statements and schedules are fairly stated, in all material respects, in relation to the basic financial statements as a whole. The introductory and statistical sections have not been subjected to the auditing procedures applied in the audit of the basic financial statements, and accordingly, we do not express an opinion or provide any assurance on it. (2) The Honorable Mayor and Members of City Council City of Mesa, Arizona Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated January 2, 2018, on our consideration of the City’s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is solely to describe the scope of our testing of internal control over financial reporting and compliance and the result of that testing, and not to provide an opinion on the effectiveness of the City’s internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the City’s internal control over financial reporting and compliance. a Phoenix, Arizona January 2, 2018 (3) MANAGEMENT’S DISCUSSION AND ANALYSIS As management of the City of Mesa, Arizona (the City), we offer this discussion and analysis of the financial activities of the City for the fiscal year ended June 30, 2017. This discussion and analysis is designed to 1) assist the reader in focusing on significant financial issues, 2) provide an overview of the City’s financial activities, 3) identify changes in the City’s financial position, 4) identify any material deviations from the financial plan (the approved annual budget), and 5) identify individual fund issues and concerns. The management’s discussion and analysis should be read in conjunction with the transmittal letter presented on pages V-IX, as well as the financial statements beginning on page 16 and the accompanying notes to the financial statements. FINANCIAL HIGHLIGHTS  The City’s net position at the end of the fiscal year was $882.5 million. The City’s total net position decreased by $8 million from $890.5 million in fiscal year 2016.  The City’s total revenues increased by $46.6 million from $897.2 million to $943.8 million. The increase is primarily from Charges for Services and Gain on Sale of Assets.  As of the end of fiscal year 2017, the City’s governmental funds reported a combined ending fund balance of $257.4 million, a $38.4 million increase from the previous year. The increase is due to an increase in Sales Taxes, Intergovernmental Revenues, and Transfers In; combined with a decrease in Capital Outlay expenditures.  The City’s governmental fund balance is reported in one of five categories. Approximately 55.5% of the total fund balance amount, or $143 million, is designated by the City as committed, assigned, or unassigned. The remaining 44.5% or $114.4 million is designated as non-spendable or restricted.  The City’s total long-term liabilities increased by $280 million to $3.2 billion at June 30, 2017. Increase is related to new bond issuances, net of amounts refinanced and paid off; increase in postemployment benefit liabilities; and increase in pension liabilities. OVERVIEW OF THE FINANCIAL STATEMENTS This management discussion and analysis serves as an introduction to the City’s basic financial statements. The City’s basic financial statements are comprised of three components: government-wide financial statements, fund financial statements, and 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 (pages 16-18) are designed to provide a broad overview of the City’s finances in a manner similar to private businesses. All the activities of the City, except fiduciary activities, are included in these statements. The statement of net position, Exhibit A-1, presents information on all the City’s assets, deferred outflows of resources, liabilities, and deferred inflows of resources with the difference being reported as net position. Over time increases and decreases in net position may serve as a useful indicator of whether the financial position of the City is improving or deteriorating. The statement of activities, Exhibit A-2, presents information showing how the City’s net position changed over the most recent fiscal year. All changes to net position are reported at the time that the underlying 4 event giving rise to the change occurs, regardless of the timing of the related cash flows. This is the accrual basis of accounting. Thus, revenues and expenses are reported in this statement for some items that will only result in cash flows in future fiscal periods. Both the Statement of Net Position and the Statement of Activities divide the functions of the City that are principally supported by taxes and intergovernmental revenues (Governmental Activities) from other functions that are intended to recover all or a significant portion of their cost through user fees and charges (Business-Type Activities):  The governmental activities include the City’s basic services including general government (administration), public safety, community environment and cultural-recreational. Taxes and general revenues generally support these activities.  The business-type activities include private sector type activities such as the City-owned electric, gas, water, wastewater, and solid waste systems, as well as the City-owned airport, golf course, stadiums, convention center, and district cooling. These activities are primarily supported by user charges and fees. Government-Wide Financial Statement Analysis The following tables, graphs and analysis discuss the financial position and changes to the financial position for the City as a whole as of and for the year ended June 30, 2017 and 2016. Condensed Statement of Net Position As of June 30 (In thousands of dollars) Cash and Other Assets Capital Assets Total Assets Deferred Amounts on Refunding Deferred Outflows on Pensions Total Deferred Amounts Non-Current Liabilities Outstandin Net Pension Liability Other Liabilities Total Liabilities Deferred Inflows on Pensions Net Investment in Capital Assets Restricted Net Position Unrestricted Net Position Total Net Position Governmental Activities 2017 2016 $ 636,195 $ 563,378 1,436,952 1,409,939 2,073,147 1,973,317 Business-Type Activities 2017 2016 $ 568,374 $ 470,837 1,455,419 1,425,547 2,023,793 1,896,384 Total Government 2017 2016 $ 1,204,569 $ 1,034,215 2,892,371 2,835,486 4,096,940 3,869,701 10,112 187,082 197,194 7,700 105,401 113,101 30,843 10,485 41,328 30,956 4,555 35,511 40,955 197,567 238,522 38,656 109,956 148,612 955,445 755,877 139,028 1,850,350 912,385 634,414 121,635 1,668,434 1,389,958 55,385 94,069 1,539,412 1,282,159 47,493 87,174 1,416,826 2,345,403 811,262 233,097 3,389,762 2,194,544 681,907 208,809 3,085,260 56,283 37,881 6,905 4,653 63,188 42,534 247,598 43,046 228,160 $ 518,804 302,521 49,139 158,756 $ 510,416 986,354 88,721 (711,367) $ 363,708 965,148 81,941 (666,986) $ 380,103 5 1,233,952 131,767 (483,207) $ 882,512 1,267,669 131,080 (508,230) $ 890,519 Net Position - As noted earlier, net position may serve over time as a useful indicator of a government’s financial position. The City’s net position, the amounts by which assets plus deferred outflows of resources, exceeded liabilities plus deferred inflows of resources, was $882.5 million at the end of fiscal year 2017. The largest portion of net position ($1.2 billion or 139.8%) reflects the City’s investment in capital assets (land, buildings, equipment, infrastructure, etc.) less any outstanding related debt used to acquire those assets. The City uses these capital assets to provide services to citizens; consequently, these assets are not available for future spending. Although the City’s investment in its capital assets is reported net of related debt, it should be noted that the resources needed to repay this debt must be provided from other sources, since the capital assets themselves cannot be used to liquidate these liabilities. Restricted net position represents resources that are subject to external restrictions on how they may be used. Such restrictions include debt service payments, transportation programs, and required bond indentures. The City’s restricted assets are at $131.8 million in fiscal year 2017. The unrestricted net position may be used to meet the City’s ongoing obligations to citizens and creditors. Unrestricted net position increased during fiscal year 2017 by $25.0 million to ($483.2) million primarily due to an increase in unrestricted revenues. Capital Assets – The following table provides a breakdown of the City’s capital assets at June 30, 2017 and 2016: Capital Assets (net of accumulated depreciation/amortization) As of June 30 (In thousands of dollars) Land Infrastructure - Nondepr Buildings Other Improvements Machinery & Equipment Intangibles Infrastructure Construction-in-Progress Total Governmental Activities 2017 2016 $ 388,552 $ 383,742 3,612 3,321 237,651 238,691 85,004 80,027 64,552 62,385 6,712 10,544 540,808 549,943 110,061 81,286 $ 1,436,952 $ 1,409,939 Business-Type Activities 2017 2016 $ 50,717 $ 54,813 17,666 17,666 77,927 77,665 78,738 82,604 37,081 37,795 5,685 6,647 1,007,923 1,005,053 179,682 143,304 $ 1,455,419 $ 1,425,547 Total Government 2017 2016 $ 439,269 $ 438,555 21,278 20,987 315,578 316,356 163,742 162,631 101,633 100,180 12,397 17,191 1,548,731 1,554,996 289,743 224,590 $ 2,892,371 $ 2,835,486 The City’s investment in capital assets for its governmental and business-type activities amounts to $2.9 billion (net of accumulated depreciation/amortization) as of June 30, 2017. This net investment in capital assets includes land, buildings, other improvements, machinery and equipment, intangibles, and infrastructure. Infrastructure assets are items that are normally immovable and have value only to the City, such as streets, street lighting systems, and storm drainage systems. As noted in the above table, the City’s capital asset balances at June 30, 2017 were overall consistent with prior year balances. Construction-in-progress also increased $65 million during fiscal year 2017. Some of the larger current year project expenditures include $34.8 million for the Signal Butte Water Treatment Plant, $9.9 million for the Val Vista Pipelines, $9.3 million for the Greenfield Wastewater Plant Expansion, $8.8 million for the Mesa Regional Dispatch Center and $7.2 million for the Gilbert Road Light Rail Extension. The remaining projects primarily related to street overlay, transportation projects, water projects and wastewater projects. Additional information on the City’s capital assets can be found in Note 7 of the notes to the basic financial statements. 6 Debt Administration – The following schedule shows the outstanding long-term debt of the City as of June 30, 2017 and 2016. Outstanding Long-term Debt As of June 30 (In thousands of dollars) Governmental Activities 2017 2016 General Obligation Bonds $ 374,443 $ 350,560 Utility System Revenue Bonds Highway User Revenue Fund Bonds 84,995 92,895 Excise Tax Obligations Special Assessment Bonds with Governmental Commitment 1,340 2,085 Community Facility District 19,172 19,315 Notes Payable Total $ 479,950 $ 464,855 Business-Type Activities 2017 2016 $ 312 $ 390 1,161,755 1,063,710 94,060 94,060 1,851 $ 1,257,978 1,985 $ 1,160,145 $ $ Total Government 2017 2016 374,755 $ 350,950 1,161,755 1,063,710 84,995 92,895 94,060 94,060 1,340 19,172 1,851 1,737,928 2,085 19,315 1,985 $ 1,625,000 At the end of the current fiscal year, the City had total outstanding debt of $1.7 billion. Of this amount, $468.8 million comprises debt backed by the full faith and credit of the City and $1.2 billion represents bonds secured by specified revenue sources (i.e., Utility System Revenue and Highway User Revenue). An additional amount of $20.5 million are special assessment and community facility district bonds. The City is contingently liable in the event that the special assessment revenues are insufficient to satisfy the special assessment debt payments. The City has no liability for the community facility district bonds. The City’s outstanding long-term debt (considering new borrowings, debt retirements, and refunding) increased $112.9 million. The change in debt includes new borrowings during the fiscal year totaling $171.6 million, refundings of $122.3 million, principal payments of $52.8 million, and payments to refund bond escrow agent of $128.7 million. The City’s current bond ratings are as follows: General Obligation Bonds Highway User Revenue Bonds Utility Systems Revenue Bonds Standard and Poor’s Corporation Moody’s Investors Service AAAA AA- Aa2 A2 Aa2 The Arizona Constitution provides that the general obligation bonded indebtedness of a city for general municipal purposes may not exceed 6 percent of the secondary assessed valuation of the taxable property in that city. In addition to the 6 percent limitation for general municipal purpose bonds, cities may issue general obligation bonds up to an additional 20 percent of the secondary assessed valuation for supplying such city with water, artificial light, or sewers, and for the acquisition and development of land for open space preserves, parks, playgrounds and recreational facilities, public safety, law enforcement, fire and emergency services facilities, and streets and transportation facilities. The City’s total debt margin available at June 30, 2017 was $172.5 million in the 6% capacity and $203.7 million in the 20% capacity. Additional information on the City’s long-term obligations can be found in Note 8 of the notes to the basic financial statements and also Table X in the Statistical Section. 7 Changes in Net Position The following table shows the revenues and expenses of the City for the fiscal years ended June 30, 2017 and 2016. Changes in Net Position Year Ended June 30 (In thousands of dollars) Governmental Activities 2017 2016 Program Revenues: Charges for Services $ Operating Grants & Contributions Capital Grants & Contributions General Revenues: Sales Taxes Property Taxes Occupancy Taxes Unrestricted Intergovernmental Contributions Unrestricted Investment Income Gain on Disposal of Capital Asset M iscellaneous Total Revenues $ 359,060 158 28,711 159,735 34,684 2,536 158,916 46,817 448 (1,411) 11,161 536,995 151,826 33,825 2,331 149,350 44,928 2,210 6,008 534,630 1,085 983 16,364 466 406,827 101,301 379,505 104,173 55,739 19,279 96,860 305,376 117,120 54,967 20,424 - - - 659,997 594,747 (123,002) 106,607 (60,117) 102,148 Change in Net Position (16,395) 42,031 8,388 Beginning Net Position 380,103 338,072 510,416 536,253 890,519 363,708 $ 380,103 $ 518,804 $ 510,416 $ 882,512 Increase (Decrease) in Net Position Before Transfers Transfers Net Position - Ending $ $ 8 $ 346,331 267 16,929 Total Government 2017 2016 81,866 26,361 35,925 Governmental Activities Expenses: General Government Public Safety Community Environment Cultural-Recreational Interest on Long-Term Debt Business-Type Activities: Electric Gas Water Wastewater Solid Waste Airport Golf Course Convention Center Hohokam Stadium/Fitch Complex Cubs Stadium District Cooling Total Expenses 72,703 26,955 24,451 Business-Type Activities 2017 2016 1,161 3,020 (6,145) 1,039 362,602 $ 431,763 27,113 53,162 $ 428,197 26,628 52,854 159,735 34,684 3,621 158,916 46,817 1,431 14,953 11,627 943,822 151,826 33,825 3,492 149,350 44,928 5,230 (6,145) 7,047 897,232 - 101,301 379,505 104,173 55,739 19,279 96,860 305,376 117,120 54,967 20,424 26,561 37,109 95,608 71,782 37,911 5,125 2,028 4,711 3,687 6,042 1,268 291,832 27,647 31,549 95,574 73,877 36,586 4,865 2,575 4,252 2,913 5,271 1,182 286,291 26,561 37,109 95,608 71,782 37,911 5,125 2,028 4,711 3,687 6,042 1,268 951,829 27,647 31,549 95,574 73,877 36,586 4,865 2,575 4,252 2,913 5,271 1,182 881,038 114,995 (106,607) 76,311 (102,148) (8,007) - 16,194 - (25,837) (8,007) 16,194 874,325 $ 890,519 Governmental Activities As presented in the following two graphs, the largest funding sources, including transfers, for the governmental activities are taxes (31%), Unrestricted Intergovernmental (25%), Transfers (16%), and Charges for Services (11%). The largest users of resources for the governmental activities are Public Safety (58%), Community Environment (16%), and General Government (15%). Revenues by Source Including Transfers – Governmental Activities For the Fiscal Year Ended June 30, 2017 Taxes 31% Capital Grants & Contributions 4% Operating Grants & Contributions 4% Charges for Services 11% Other 2% Unrestricted Contributions 7% Unrestricted InterGovernmental 25% Transfers 16% Functional Expenses – Governmental Activities For the Fiscal Year Ended June 30, 2017 Public Safety 58% General Government 15% Interest on Long-Term Debt 3% CulturalRecreational 8% 9 Community Environment 16% Governmental Activities Revenues For Fiscal Years 2017 and 2016 (In thousands of dollars) $250,000 $200,000 $150,000 $100,000 $50,000 $0 Program Revenues Taxes Unrestricted Intergovernmental 2016 Contributions 2017 Governmental Activities Functional Expenses For Fiscal Years 2017 and 2016 (In thousands of dollars) $400,000 $350,000 $300,000 $250,000 $200,000 $150,000 $100,000 $50,000 $0 General Government Public Safety Community Environment 2016 10 2017 Cultural-Recreational Interest on Long-term Debt The graphs on the previous page compare governmental activities revenues and expenses from fiscal year 2017 to fiscal year 2016. Total governmental activities revenues increased $2.4 million from $534.6 million to $537 million. Total governmental expenses increased by $65.3 million from $594.7 million to $660 million. Key factors in this change include:  The largest increases in revenues were in Taxes ($9 million) and Unrestricted Intergovernmental ($9.6 million). Increase in taxes and unrestricted intergovernmental revenues was due to the overall improvement in the economy.  There was also a corresponding decrease in Charges for Services and Capital Grants of $20.6 million. Decrease in Charges for Services and Capital Grants were due to special assessments and developer contributions, respectively.  Increase in governmental expenditures is primarily related to pension expense and claims and judgment expense in Public Safety activities. Business-type Activities As presented in the following two graphs, the largest funding sources and users of resources for the business-type activities are Water, Wastewater, Solid Waste, Gas, and Electric. Revenues by Source – Business-type Activities 160,000 140,000 120,000 100,000 80,000 60,000 40,000 20,000 Electric Gas Water 2016 11 Wastewater 2017 Solid Waste Other Programs Functional Expenses – Business-Type Activities 60,000 50,000 40,000 30,000 20,000 10,000 Electric Gas Water 2016 Wastewater Solid Waste Other Programs 2017 Total business-type activities program and general revenues increased by $44.2 million from $362.6 million to $406.8 million. Increase is primarily attributed to charges for services and gain on sale of assets. The business-type activities total expenses increased by $5.5 million from $286.3 million to $291.8 million. Increase is primarily due to an increase in Gas Commodity charges. Net (Expenses) Revenue – Business-Type Activities 70,000 60,000 50,000 40,000 30,000 20,000 10,000 Electric Gas Water 2016 2017 12 Wastewater Solid Waste Fund Financial Statements The fund financial statements are presented in Exhibits A-3 through A-10 beginning on page 19 of this report. A fund is a grouping of related accounts that is used to maintain control over resources that have been segregated for specific activities or objectives. The City uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements as well as for managerial control to demonstrate fiduciary responsibility over the assets of the City. Traditional fund financial statements are presented for Governmental Funds (Exhibits A-3 through A-6), Proprietary Funds (Exhibits A-7 through A-9), and Fiduciary Funds (Exhibit A-10). Governmental funds – Governmental funds are used to account for essentially the same functions reported as governmental activities in the government-wide financial statements. However, unlike the governmentwide financial statements, governmental fund financial statements focus on near-term inflows and outflows of spendable resources as well as on balances of spendable resources available at the end of the fiscal year. Such information is useful in evaluating the City’s near-term financing requirements. Since the governmental fund financial statements focus on near-term spendable resources, while the governmental activities on the government-wide financial statements have a longer-term focus, a reconciliation of the differences between the two is provided with the fund financial statements and also in Note 2 to the basic financial statements. Proprietary funds – The City maintains two different types of proprietary funds. Enterprise funds are used to report the same functions presented as business-type activities in the government-wide financial statements. Internal service funds are used to accumulate and allocate costs internally among the City’s various functions. The City uses internal service funds to account for its fleet support; materials and supplies; printing and graphics; property and public liability; workers’ compensation; and employee benefits self-insurance programs. Since the primary customers of the internal service funds are the governmental activities, the assets and liabilities of those funds are included in the governmental activities column of the government-wide statement of net position. The costs of internal service funds are allocated to the various user functions on the government-wide statement of activities. The proprietary fund financial statements are prepared on the same long-term focus as the government-wide financial statements. The enterprise funds provide the same information as the government-wide financial statements, only with more detail. The internal service funds are combined into a single column on the proprietary funds statements. Additional detail of the internal service funds can be found in the combining statements (Exhibits C-3 through C-5). Fiduciary funds – Fiduciary funds are used to account for resources held for the benefit of others outside the City government. Fiduciary funds are not reflected in the government-wide financial statements because the resources are not available to support the City’s programs. The fiduciary fund financial statement is prepared on the same basis as the government-wide and proprietary fund financial statements. Notes to the financial statements – The notes to the financial statements provide additional information that is essential to the full understanding of the data provided in the government-wide and fund financial statements and should be read with the financial statements. Other information – Governments have an option of including the budgetary comparisons statements for the General Fund as either part of the fund financial statements within the basic financial statements or as required supplementary information after the notes to the financial statements. The City has chosen to present the budgetary statements as required supplementary information beginning on page 93. 13 Fund Financial Statement Analysis As previously mentioned, the City uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. The following is a brief discussion of the financial highlights from the fund financial statements. Governmental Funds - The focus of the City’s governmental funds is to provide information on near-term inflows, outflows and balances of spendable resources. Such information is useful in assessing the City’s financing requirements. Unassigned fund balance may serve as a useful measure of a government’s net resources available for spending at the end of the fiscal year. The City’s governmental funds reported combined ending fund balance of $257.4 million, a $38.4 million increase from the previous year. $112.3 million of this total amount is restricted, $31.5 million is committed, and $2.2 million is Nonspendable, thus the balances are not available for spending in the coming year. The increase of $38.4 million in the governmental funds is the net result of the increase in Sales Taxes and Intergovernmental Revenue, decrease in Capital Outlay expenditures and an increase in Transfers In from the Enterprise Fund. The General Fund is the chief operating fund of the City and accounts for many of the major functions of the government including general government, public safety, community environment and culturalrecreational. At the end of the current fiscal year, total fund balance of the General Fund was $114.4 million, while unassigned fund balance was $92.2 million. Total fund balance of the City’s General Fund increased by $19.6 million during the current fiscal year from $94.8 million to $114.4 million. This is primarily due to an increase in Transfers In in current year. Proprietary Funds - The City’s Enterprise Fund provides the same type of information as the governmentwide financial statements, except in more detail. The total net position of the Enterprise Fund increased by $8.4 million during the current fiscal year from $510.4 million to $518.8 million. The increase in current year is primarily related to an increase in operating revenue, specifically water, wastewater and solid waste. The unrestricted net position of the Enterprise Fund amounted to $228.2 million. Budgetary Highlights The City’s annual budget is the legally adopted expenditure control document of the City. Budgetary comparison schedules are required for the General Fund and can be found in Exhibit B-6. This schedule compares the original adopted budget, the budget as amended throughout the year, and the actual expenditures prepared on a budgetary basis. Amendments to the adopted budget may occur throughout the year in a legally permissible manner (see Note 1.f. of the notes to the financial statements for more information on budget policies). No amendments increasing the City’s total adopted budget of $1.7 billion occurred during fiscal year 2017. General Fund revenues of $286 million, on a budgetary basis, were less than the budgeted revenues of $292.3 million. Decrease in revenues, compared to budgeted, was primarily due to the City receiving less Intergovernmental revenues than budgeted. Expenditures of $365.8 million were less than the budgeted expenditures of $402.6 million. Savings were primarily in general government, followed by Public Safety and capital outlay. 14 ECONOMIC FACTORS In June 2017, the City Council approved a $1.7 billion budget, which is an increase of $70 million compared to prior year’s budget. The fiscal year 2018 budget includes $1.5 billion for operations and $191.8 million for scheduled bond capital improvements. The adopted fiscal year 2018 budget continues the City’s fiscally conservative approach and reinforces the City’s effort to invest in economic development, improve public safety and attract and retain excellent employees. Conservative budget practices and willingness to respond to economic indicators continues to allow the City to maintain unrestricted fund balance reserve levels as established in the City’s financial policies. REQUESTS FOR INFORMATION This financial report is designed to provide a general overview of the City of Mesa, Arizona’s finances for all those with an interest in the government’s finances. Questions concerning any of the information provided in this report or requests for additional financial information should be addressed to the City of Mesa Finance Director, P.O. Box 1466, Mesa, Arizona, 85211-1466. 15 Basic Financial Section COM P R E H E NS I VE A NNUAL F IN AN CIAL R E POR T 2 0 1 7 CITY OF MESA, ARIZONA EXHIBIT A-1 STATEMENT OF NET POSITION JUNE 30, 2017 (in thousands) ASSETS Pooled Cash and Investments Accounts Receivable, Net Accrued Interest Receivable Due from Other Governments Internal Balances Inventory Prepaid Costs Deposits Restricted Assets: Pooled Cash and Investments Cash with Fiscal Agent Cash with Trustee Accounts Receivable, Net Due from Other Governments Customer Deposits Joint Venture Construction Deposits Investment in Joint Ventures Capital Assets, Not Being Depreciated Capital Assets, Being Depreciated, Net Total Assets Primary Government Governmental Activities Business-Type Activities $ $ DEFERRED OUTFLOWS OF RESOURCES Debt Refunding Pensions Total Deferred Outflows of Resources LIABILITIES Accounts Payable and Accrued Liabilities Claims Payable Customer and Defendant Deposits Liabilities Payable from Restricted Assets Noncurrent Liabilities, Due Within One Year Noncurrent Liabilities, Due in More Than One Year Net Pension Liability Total Liabilities DEFERRED INFLOWS OF RESOURCES Pensions Total Deferred Inflows of Resources NET POSITION Net Investment in Capital Assets Restricted For: Bond Indentures Construction Debt Service Public Safety Transportation Programs Other Programs Unrestricted Total Net Position $ 293,965 26,124 417 31,391 (876) 5,948 2,706 268 126,870 34,252 720 2,223 876 959 3,061 Total $ 420,835 60,376 1,137 33,614 5,948 3,665 3,329 13,711 40,245 6,791 10,747 932 203,826 502,225 934,727 2,073,147 153,234 38,923 61 4,082 4,086 199,027 248,065 1,207,354 2,023,793 166,945 79,168 6,852 10,747 932 4,082 4,086 402,853 750,290 2,142,081 4,096,940 10,112 187,082 197,194 30,843 10,485 41,328 40,955 197,567 238,522 42,012 38,837 6,600 51,579 42,226 913,219 755,877 1,850,350 7,212 86,857 32,682 1,357,276 55,385 1,539,412 49,224 38,837 6,600 138,436 74,908 2,270,495 811,262 3,389,762 56,283 56,283 6,905 6,905 63,188 63,188 986,354 247,598 1,233,952 21,954 5,307 58,599 2,861 (711,367) 363,708 26,405 4,086 12,555 228,160 518,804 The accompanying notes are an integral part of the financial statements. 16 $ $ 26,405 4,086 34,509 5,307 58,599 2,861 (483,207) 882,512 CITY OF MESA, ARIZONA EXHIBIT A-2 STATEMENT OF ACTIVITIES FOR THE FISCAL YEAR ENDED JUNE 30, 2017 (in thousands) Functions/Programs: Governmental Activities: General Government Public Safety Community Environment Cultural-Recreational Interest on Long-Term Debt Total Governmental Activities Expenses $ Business-type Activities: Electric Gas Water Wastewater Solid Waste Airport Golf Course Convention Center Hohokam Stadium/Fitch Complex Cubs Stadium District Cooling Total Business-type Activities Total Government Charges for Services 101,301 379,505 104,173 55,739 19,279 659,997 $ 26,561 37,109 95,608 71,782 37,911 5,125 2,028 4,711 3,687 6,042 1,268 291,832 $ 951,829 10,786 31,464 18,689 11,764 72,703 Program Revenues Operating Grants and Contributions $ 33,534 39,752 138,335 79,056 58,117 3,846 1,545 3,299 54 291 1,231 359,060 $ 431,763 445 9,294 17,031 185 26,955 Capital Grants and Contributions $ 158 158 $ 27,113 325 897 12,923 11,572 568 2,126 200 100 28,711 $ General Revenues: Sales Taxes Property Taxes Occupancy Taxes Unrestricted Intergovernmental Revenues Contributions Not Restricted to Specific Programs Investment Income Gain (Loss) on Sale of Capital Assets Miscellaneous Revenues (Expenses) Transfers Total General Revenues and Transfers Change in Net Position Net Position - Beginning Net Position - Ending The notes to the financial statements are an integral part of this statement. 17 13,050 1,348 9,958 95 24,451 53,162 EXHIBIT A-2 (Continued) Net (Expense) Revenue and Changes in Net Position Primary Government Governmental Business-type Activities Activities Total * * $ (77,020) (337,399) (58,495) (43,695) (19,279) (535,888) $ - $ 7,298 3,540 55,808 18,846 20,774 847 (483) (1,212) (3,533) (5,751) (37) 96,097 (77,020) (337,399) (58,495) (43,695) (19,279) (535,888) 7,298 3,540 55,808 18,846 20,774 847 (483) (1,212) (3,533) (5,751) (37) 96,097 (535,888) 96,097 (439,791) 159,735 34,684 2,536 158,916 46,817 448 (1,411) 11,161 106,607 519,493 1,085 983 16,364 466 (106,607) (87,709) 159,735 34,684 3,621 158,916 46,817 1,431 14,953 11,627 431,784 (16,395) 8,388 380,103 $ - 363,708 (8,007) 510,416 $ 518,804 890,519 $ 882,512 18 CITY OF MESA, ARIZONA EXHIBIT A-3 BALANCE SHEET GOVERNMENTAL FUNDS JUNE 30, 2017 (in thousands) General Fund ASSETS Pooled Cash and Investments Accounts Receivable, Net Accrued Interest Receivable Due from Other Governments Due from Other Funds Advances to Other Funds Prepaid Costs Deposits Restricted Assets: Pooled Cash and Investments Cash with Fiscal Agent Cash with Trustee Accounts Receivable Due from Other Governments Total Assets LIABILITIES Accounts Payable and Accrued Liabilities Due to Other Funds Advances from Other Funds Customer and Defendant Deposits Payable from Restricted Assets: Accrued Interest Payable Unearned Revenue Matured Bonds Payable Total Liabilities $ $ $ DEFERRED INFLOWS OF RESOURCES Unavailable Revenue Total Deferred Inflows of Resources FUND BALANCES Nonspendable Restricted Committed Assigned Unassigned Total Fund Balances Total Liabilities, Deferred Inflows of Resources and Fund Balances 93,270 20,080 100 17,733 1,093 234 1,911 134,421 9,676 876 353 Non-major Governmental Funds $ $ $ 13,711 40,245 6,791 10,747 932 226,285 15,140 1,093 234 6,247 $ $ $ 227,723 25,414 278 31,391 1,093 234 1,948 199 13,711 40,245 6,791 10,747 932 360,706 24,816 1,093 1,110 6,600 2,836 13,741 8,540 8,459 31,744 71,457 8,540 11,295 31,744 85,198 6,254 6,254 11,825 11,825 18,079 18,079 37 112,105 30,928 2 (69) 143,003 2,182 112,251 31,456 19,369 92,171 257,429 2,145 146 528 19,367 92,240 114,426 $ 134,453 5,334 178 13,658 37 199 Total Governmental Funds 134,421 $ The accompanying notes are an integral part of the financial statements. 19 226,285 $ 360,706 CITY OF MESA, ARIZONA EXHIBIT A-4 RECONCILIATION OF THE BALANCE SHEET OF GOVERNMENTAL FUNDS TO THE STATEMENT OF NET POSITION JUNE 30, 2017 (in thousands) Fund Balances - total governmental funds $ 257,429 Amounts reported for governmental activities in the statement of net position are different because (also see Note 2 to the basic financial statements): Capital assets used in governmental activities are not financial resources and therefore not reported in the governmental funds. 1,435,012 Other assets used in governmental activities are not financial resources and therefore not reported in the governmental funds. 203,826 Deferred outflows related to deferred amounts on refunding and pensions are not financial resources and therefore not reported in the funds. 194,775 Long-term liabilities, including bonds payable and net pension liabilities are not due and payable in the current period and therefore not reported in the governmental funds. (1,700,637) Deferred inflows relating to pensions represent a future acquisition of net position that is not reported in the funds. Also, because the focus of governmental funds is on short term financing, some assets will not be available to pay for current period expenditures. Those assets are offset by unavailable revenue in the funds. (36,655) Internal service funds are used by management to charge the costs of certain activities to individual funds. 9,958 Net position of the governmental activities - statement of net position The accompanying notes are an integral part of the financial statements. 20 $ 363,708 CITY OF MESA, ARIZONA EXHIBIT A-5 STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS FOR THE FISCAL YEAR ENDED JUNE 30, 2017 (in thousands) REVENUES Sales Taxes Property Taxes Occupancy Taxes Special Assessments Licenses and Permits Intergovernmental Charges for Services Fines and Forfeitures Investment Income Contributions Miscellaneous Revenue Total Revenues General Fund Non-major Governmental Funds Total Governmental Funds $ $ $ EXPENDITURES Current: General Government Public Safety Community Environment Cultural-Recreational Debt Service: Principal Interest on Bonds Service Charges Cost of Issuance Capital Outlay Total Expenditures 109,364 18,425 129,221 22,691 7,911 46 19 1,466 289,143 50,371 34,675 2,536 2,125 4,727 71,599 15,657 1,962 285 341 2,882 187,160 159,735 34,675 2,536 2,125 23,152 200,820 38,348 9,873 331 360 4,348 476,303 77,649 229,287 14,801 36,493 8,711 32,605 53,602 7,251 86,360 261,892 68,403 43,744 7,976 366,206 32,587 17,994 15 1,271 74,086 228,122 32,587 17,994 15 1,271 82,062 594,328 Excess (Deficiency) of Revenues Over (Under) Expenditures (77,063) (40,962) (118,025) OTHER FINANCING SOURCES (USES) Transfers In Transfers Out Face Amount of Bonds Issued Premium on Issuance of Bonds (Net) Issuance of Refunding Bonds Payment to Refunding Bond Escrow Agent Total Other Financing Sources (Uses) 111,449 (14,766) 96,683 28,067 (17,165) 47,682 4,613 47,450 (50,891) 59,756 139,516 (31,931) 47,682 4,613 47,450 (50,891) 156,439 19,620 18,794 38,414 94,806 124,209 219,015 Net Change in Fund Balances Fund Balance - Beginning Fund Balances - Ending $ 114,426 $ The accompanying notes are an integral part of the financial statements. 21 143,003 $ 257,429 CITY OF MESA, ARIZONA EXHIBIT A-6 RECONCILIATION OF THE STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES OF GOVERNMENTAL FUNDS TO THE STATEMENT OF ACTIVITIES FOR THE FISCAL YEAR ENDED JUNE 30, 2017 (in thousands) Net change in fund balances - total governmental funds $ 38,414 Amounts reported for governmental activities in the statement of activities are different because (also see Note 2 to the basic financial statements): Revenues in the statement of activities that do not provide current financial resources are not reported in the governmental funds. 4,836 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. (150,221) Current-year pension contributions are reclassified to deferred outflows of resources and therefore not reported as expenditures in governmental funds. 53,264 Governmental funds report capital outlays as expenditures. However, in the statement of activities, the costs of those assets are allocated over their estimated useful lives and reported as depreciation expense. This is the amount by which capital outlay $88,577 exceeded depreciation ($68,686) in the current period. 19,891 The net effect of miscellaneous transactions involving capital assets (e.g., donations, transfers and disposals) is to increase net position. 7,113 Change in equity in Joint Venture 26,110 The issuance of long-term debt (e.g., bonds and capital leases) provides current financial resources to governmental funds, while the repayment of principal of long-term debt consumes financial resources of governmental funds. Neither transaction has any effect on net position. (15,095) Governmental funds report the effect of premiums and deferred amounts related to refunding when the new debt is first issued, whereas these amounts are deferred and amortized in the statement of activities. (37) Internal service funds are used by management to charge the costs of certain activities to individual funds. The net revenue (expense) of certain internal service funds is reported with governmental activities. (670) Change in net position of the governmental activities - statement of activities The accompanying notes are an integral part of the financial statements. 22 $ (16,395) CITY OF MESA, ARIZONA EXHIBIT A-7 STATEMENT OF NET POSITION PROPRIETARY FUNDS JUNE 30, 2017 (in thousands) ASSETS Current Assets: Pooled Cash and Investments Accounts Receivable (Net of Allowances) Accrued Premiums Receivable Accrued Interest Receivable Due from Other Governments Advances to Other Funds Inventory Prepaid Costs Deposits Restricted Assets: Pooled Cash and Investments Cash with Fiscal Agents Cash with Trustees Customer Deposits Joint Venture Construction Deposits Total Current Assets Business-type Activities Enterprise Fund Governmental Activities Internal Service Funds $ $ Noncurrent Assets: Investment in Joint Ventures Capital Assets, Not Being Depreciated Captial Assets, Being Depreciated, Net Total Noncurrent Assets Total Assets DEFERRED OUTFLOWS OF RESOURCES Deferred Amounts on Refundings Deferred Outflows Related to Pensions Total Deferred Outflows of Resources Total Assets and Deferred Outflows of Resources $ 126,870 34,252 720 2,223 876 959 3,061 153,234 38,923 61 4,082 4,086 369,347 73,866 199,027 248,065 1,207,354 1,654,446 324 1,616 1,940 2,023,793 75,806 30,843 10,485 41,328 2,419 2,419 2,065,121 The accompanying notes are an integral part of the financial statements. 23 66,242 548 162 139 5,948 758 69 $ 78,225 (Continued) CITY OF MESA, ARIZONA EXHIBIT A-7 (Continued) STATEMENT OF NET POSITION PROPRIETARY FUNDS JUNE 30, 2017 (in thousands) LIABILITIES Current Liabilities-Payable From Current Assets: Accounts Payable and Accrued Liabilities Claims Payable Current Liabilities-Payable From Restricted Assets: Accounts Payable and Accrued Liabilities Interest Payable Unearned Revenue Matured Bonds Payable Customer Deposits and Prepayments Current Portion of Long-Term Liabilities: Current Portion of Bonds Payable Current Portion of Notes Payable Current Portion of Compensated Absences Total Current Liabilities Business-type Activities Enterprise Fund Governmental Activities Internal Service Funds $ $ Long-Term Liabilities: Bonds Payable Notes Payable Compensated Absences Net Pension Liability Post Employment Benefits Total Long-Term Liabilities Total Liabilities DEFERRED INFLOWS OF RESOURCES Deferred Inflows Related to Pensions Total Deferred Inflows of Resources NET POSITION Net Investment in Capital Assets Restricted For: Bond Indentures Construction Debt Service Unrestricted Total Net Position $ 7,212 18,096 24,960 226 13,963 29,612 - 31,431 137 1,114 126,751 133 42,671 1,270,061 1,714 3,109 55,385 82,392 1,412,661 509 12,423 11,115 24,047 1,539,412 66,718 6,905 6,905 1,549 1,549 247,598 1,940 26,405 4,086 12,555 228,160 518,804 8,018 9,958 The accompanying notes are an integral part of the financial statements. 24 3,701 38,837 $ CITY OF MESA, ARIZONA EXHIBIT A-8 STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET POSITION PROPRIETARY FUNDS FOR THE FISCAL YEAR ENDED JUNE 30, 2017 (in thousands) Operating Revenues: Electric Sales Pledged as Security for Revenue Bonds Gas Sales Pledged as Security for Revenue Bonds Water Sales Pledged as Security for Revenue Bonds Wastewater Charges Pledged as Security for Revenue Bonds Solid Waste Charges Pledged as Security for Revenue Bonds Airport Fees Golf Course Fees Convention Center Fees Hohokam Stadium/Fitch Complex Fees Cubs Stadium Fees District Cooling Charges Charges For Services Self-Insurance Contributions Other Revenue Total Operating Revenues Business-type Activities Enterprise Fund Governmental Activities Internal Service Funds $ $ 33,534 39,752 138,335 79,056 58,117 3,846 1,545 3,299 54 291 1,231 359,060 25,531 84,806 1,192 111,529 Operating Expenses: Electric Gas Water Wastewater Solid Waste Airport Golf Course Convention Center Hohokam Stadium/Fitch Complex Cubs Stadium District Cooling Warehouse, Maintenance & Services Self-Insurance Total Operating Expenses 21,589 28,591 46,718 35,032 35,221 3,397 1,861 4,448 1,936 2,133 846 181,772 Operating Income (Loss) Before Depreciation and Amortization 177,288 (480) (66,337) (347) Depreciation and Amortization Operating Income (Loss) 110,951 The accompanying notes are an integral part of the financial statements. 25 25,528 86,481 112,009 (827) (Continued) CITY OF MESA, ARIZONA EXHIBIT A-8 (Continued) STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET POSITION PROPRIETARY FUNDS FOR THE FISCAL YEAR ENDED JUNE 30, 2017 (in thousands) Business-type Activities Enterprise Fund Governmental Activities Internal Service Funds 785 198 158 117 - Nonoperating Revenues (Expenses): Investment Income Pledged as Security for Revenue Bonds Investment Income Unpledged Intergovernmental Interest Expense: Bonds Notes Payable and Other Long-Term Obligations Bond Administrative Costs Gain/(Loss) on Disposal of Capital Assets Net Gain from Joint Venture Utility Development Fees Bond Issuance Costs Occupancy Tax Miscellaneous Revenue Total Nonoperating Revenues (Expenses) Income before Transfers and Capital Contributions Capital Contributions Transfers In Transfers Out Change in Net Position (46,980) (14) (41) 12,275 1,004 16,629 (1,816) 1,085 4,590 (12,127) 3 120 98,824 (707) 17,149 1,810 (109,395) 37 - 8,388 Total Net Position - Beginning (670) 510,416 Total Net Position - Ending $ The accompanying notes are an integral part of the financial statements. 26 518,804 10,628 $ 9,958 CITY OF MESA, ARIZONA EXHIBIT A-9 STATEMENT OF CASH FLOWS PROPRIETARY FUNDS FOR THE FISCAL YEAR ENDED JUNE 30, 2017 (in thousands) Business-type Activities Enterprise Fund Cash Flows From Operating Activities: Cash Received from Customers Cash Received from Users Cash Payments to Suppliers Cash Payments to Employees Other Non-Operating Revenue $ Net Cash Provided By (Used For) Operating Activities 348,500 (120,011) (51,439) 4,590 Governmental Activities Internal Service Funds $ 181,640 112,140 (99,901) (11,106) 1,133 Cash Flows From Noncapital Financing Activities: Intergovernmental Transient Occupancy Tax Payments on advances to Other Funds Transfers In from Other Funds Transfers Out to Other Funds 1,102 1,085 1,897 1,810 (109,395) - Net Cash Used For Noncapital Financing Activities (103,501) - Cash Flows From Capital and Related Financing Activities: Proceeds from Bond Sales Payment to Refunded Bond Escrow Agent Proceeds From Sale of Capital Assets Acquisition and Construction of Capital Assets Principal Paid on Bonds, Leases and Notes Maturities Interest Paid on Bonds, Leases and Notes Developer Contributions and Capital Grants 209,153 (84,248) 23,141 (89,046) (23,084) (48,224) 22,898 (323) - Net Cash Used For Capital and Related Financing Activities 10,590 (323) Cash Flows From Investing Activities: Interest Received on Investments 724 82 Net Cash Provided By Investing Activities 724 82 89,453 892 229,635 65,350 Net Change in Pooled Cash and Investments Total Cash and Investments at Beginning of Year Total Cash and Investments at End of Year $ The accompanying notes are an integral part of the financial statements. 27 319,088 $ 66,242 (Continued) CITY OF MESA, ARIZONA EXHIBIT A-9 (Continued) STATEMENT OF CASH FLOWS PROPRIETARY FUNDS FOR THE FISCAL YEAR ENDED JUNE 30, 2017 (in thousands) Reconciliation of Operating Income to Net Cash Provided By (Used For) Operating Activities: Operating Income Business-type Activities Enterprise Fund Governmental Activities Internal Service Funds $ $ Adjustments to Reconcile Operating Income to Net Cash Provided By Operating Activities: Depreciation and Amortization Miscellaneous Revenue Changes in Assets and Liabilities: (Increase)/Decrease in Receivables (Increase)/Decrease in Inventory (Increase)/Decrease in Deposits and Prepaid Costs Increase/(Decrease) in Accounts Payable Increase/(Decrease) in Unearned Revenue Increase/(Decrease) in Pension Liability Increase/(Decrease) in Other Accrued Expenses Total Adjustments Net Cash Provided By (Used For) Operating Activities $ Noncash Transactions Affecting Financial Position: Contributions of Capital Assets Gain (Loss) on Disposal of Capital Assets Amortization of Bond Premium Amortization of Deferred Amounts on Refunding $ The accompanying notes are an integral part of the financial statements. 28 110,951 (827) 66,337 4,590 347 - (7,961) (1,894) 1,338 68 4,214 3,997 (235) (51) (12) 1,283 (475) 1,103 70,689 1,960 181,640 10,880 12,275 (3,874) (3,061) $ 1,133 $ 37 3 - CITY OF MESA, ARIZONA EXHIBIT A-10 STATEMENT OF FIDUCIARY ASSETS AND LIABILITIES FIDUCIARY FUNDS JUNE 30, 2017 (in thousands) Payroll Agency ASSETS Pooled Cash and Investments $ 8,257 Due from Others 33 Total Assets $ 8,290 LIABILITIES Accounts Payable Accrued Payroll Payable Total Liabilities $ $ 2,559 5,731 8,290 The accompanying notes are an integral part of the financial statements. 29 CITY OF MESA, ARIZONA NOTES TO FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 30, 2017 The City of Mesa, Arizona, (the City) was incorporated July 15, 1883 with an approximate population of 300 and an area of one square mile. Today, the City’s estimated population is 493,089 within an area of approximately 141 square miles. The City’s charter was adopted August 18, 1967 providing for a CouncilManager form of government. The City provides a full range of municipal services including police and fire protection, parks and recreation, library, transportation, health and certain social services and general administration. In addition, the City owns and operates an enterprise whose activities include operations of electricity, gas, water, wastewater, and solid waste utilities, an airport, golf course, convention center, two stadiums and district cooling. 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) as applied to governmental units. The Governmental Accounting Standards Board (“GASB”) is the accepted standard-setting body for establishing governmental accounting and financial reporting principles. The City’s other significant accounting policies are described below: a. Reporting Entity The accompanying financial statements include the City and its blended component units, Eastmark and Cadence Community Facilities Districts, collectively referred to as “the financial reporting entity”. In accordance with GASB Statement No. 14, and as amended by GASB Statements No. 61 and No. 80, the component units discussed below have been included in the City’s reporting entity because of the significance of their operational or financial relationship with the City. Community Facilities District (“Districts”) The City has two municipal corporation political subdivisions of the State of Arizona that are organized to provide a vehicle for financing certain public infrastructure that is necessary for development of the land within the boundaries of the Districts. The City Council serves as the board of directors of the Districts and the City Manager of the City currently serves as the Manager of the Districts. Although they are legally separate from the City, the Districts are reported as if they are part of the primary government because the District’s governing body is substantively the same as the governing body of the City and management of the City has operational responsibility for the Districts. Separate financial statements for Eastmark Community Facilities District can be obtained from the City’s Finance Department, through Accounting Services at 20 E. Main Street, 3rd Floor, Mesa, Arizona 85211. Separate financial statements for Cadence Community Facilities District are not prepared. b. Jointly Governed Organizations Phoenix – Mesa Gateway Airport Authority (“PMGAA”) is a Joint-Powers Airport Authority established and funded by the City, the City of Phoenix, the Towns of Gilbert and Queen Creek, and the Gila River Indian Community. The purpose of the entity is the redevelopment of Williams Air Force Base that was closed in September of 1993 to become PMGAA. The Board of Directors consists of the mayors for the respective municipalities and the governor of the tribal community. The City contributed $1.7 million to the PMGAA operating and capital budget during this fiscal year. Regional Public Transportation Authority (“RPTA”) is a voluntary association of local governments, including the cities of Mesa, Tempe, Scottsdale, Glendale, Phoenix and Maricopa County. Its purpose is to create a regional public transportation plan for Maricopa County. The 30 CITY OF MESA, ARIZONA NOTES TO FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 30, 2017 Board of Directors consists of the mayors of those cities and a member of the County Board of Supervisors. Arizona Municipal Water Users Association (“AMWUA”) is a nonprofit corporation established and funded by cities in Maricopa County for the development of an urban water policy and to represent the cities’ interests before the Arizona legislature. AMWUA performs certain accounting, administrative and support services for the cities who are jointly using a multi-city sanitary sewer system. c. Basic Financial Statements Government-wide Financial Statements: The government-wide financial statements (the statement of net position and the statement of activities) report on the City 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 services. The government-wide focus is more on the sustainability of the City as an entity and the change in aggregate financial position resulting from the activities of the fiscal period. For the most part, the effect of interfund activity has been removed from the government-wide financial statements. Net interfund activity and balances between governmental activities and business-type activities are shown in the government-wide financial statements. Certain charges between the Enterprise Fund’s 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. The government-wide statement of net position reports all financial and capital resources of the City, excluding fiduciary funds. It is presented in a format of assets plus deferred outflows of resources less liabilities plus deferred inflows of resources equals net position, with the assets and liabilities shown in order of their relative liquidity. Net position is required to be presented in three components: net investment in capital assets, restricted and unrestricted. Net investment in capital assets is capital assets net of accumulated depreciation and reduced by outstanding balances of bonds, capital leases, notes or other borrowings that are attributable to the acquisition, construction, or improvement of those assets. Restricted net position are those with constraints placed on their use externally either imposed by creditors (such as bond covenants), grantors, contributors, laws or regulations of other governments or imposed by law through constitutional provisions or enabling legislation. Unrestricted net position are those not otherwise classified as restricted, and are shown as unrestricted. Generally, the City would first apply restricted resources when an expense is incurred for purposes for which both restricted and unrestricted net position is available. The government-wide statement of activities demonstrates the degree to which the direct expenses of the various functional activities and segments of the City are offset by program revenues. Direct expenses are those that are clearly identifiable with a specific functional activity (General Government, Public Safety, Cultural-Recreational, etc.) or segment. Expenses reported for the various functional activities or segments include indirect expenses, such as overhead costs. Interest on long-term debt is not allocated to the various functions in the governmental activities. Program revenues include charges to customers or applicants who directly benefit from goods, services or privileges provided by a given function or segment. Program revenues also include grants and contributions that are restricted to meeting the operational or capital requirements of a particular function or segment, including special assessments. Taxes and other items not properly included as 31 (Continued) CITY OF MESA, ARIZONA NOTES TO FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 30, 2017 program revenues are reported as general revenues. The general revenues support the net costs of the functions and segments not covered by program revenues. Fund Financial Statements: The fund financial statements are, in substance, very similar to the financial statements presented in the previous model. Separate financial statements are provided for governmental funds, proprietary funds and fiduciary funds. However, the fiduciary funds are not included in the government-wide financial statements. The focus of the fund financial statements is on major funds, as defined by GASB Statement No. 34. Major individual governmental funds are reported as separate columns in the fund financial statements. The City has only one enterprise fund, which is reported as a major fund. Non-major governmental funds, as well as the internal service funds, are summarized into a single column on the fund financial statements and are detailed in combining statements included as supplementary information after the basic financial statements. d. Measurement Focus, Basis of Accounting and Financial Statement Presentation Government-wide Financial Statements: The government-wide financial statements are reported using the economic resources measurement focus and the accrual basis of accounting. Revenues are recorded when earned and expenses are recorded when the liability is incurred, regardless of the timing of related cash flows. Grants and similar items are recognized as revenues as soon as all eligibility requirements imposed by the provider have been met. Governmental Fund Financial Statements: The governmental fund financial statements are reported using the current financial resources measurement focus and modified accrual basis of accounting. Revenues are recognized in the accounting period in which they become susceptible to accrual, i.e., measurable and available to finance the City’s operations. Available means collectible within the current period or soon enough thereafter to be used to pay liabilities of the current period. The City considers revenues to be available if they are collected within 60 days of the end of the current period. Principal revenue sources considered to be susceptible to accrual are City sales taxes, property taxes, intergovernmental revenues and interest on investments. In applying the susceptible to accrual concept to intergovernmental revenues pursuant to GASB Statement No. 33, receivables and revenues are recognized when all the applicable eligibility requirements, including time requirements, have been met. Resources transmitted before the eligibility requirements are met are reported as unearned revenue. Expenditure-driven grants are recognized as revenue when the qualifying expenditures have been incurred and all other grant requirements have been met. City sales taxes, State shared revenues, including sales and income taxes, highway user and auto lieu taxes, and lottery distributions for transportation assistance, which are collected and held by the State at year-end, on behalf of the City, are also recognized as revenue. Special assessments are recognized as revenue only to the extent that individual installments are considered current assets. Annual installments not currently receivable are reflected as unavailable revenue. Licenses and permits, charges for services and miscellaneous revenues are recorded as revenue when received as cash because they are generally not available until actually received. Changes in the fair value of investments are recognized in revenue at the end of each year. Expenditures are generally recognized when the related fund liability is incurred, as under accrual accounting. 32 (Continued) CITY OF MESA, ARIZONA NOTES TO FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 30, 2017 Since the governmental fund financial statements are presented on a different measurement focus and basis of accounting than the government-wide financial statements, a reconciliation is presented on the page following each governmental fund financial statement, which briefly explains the adjustments necessary to transform the fund-based financial statements into the governmental activities column of the government-wide financial statements. Additional reconciliations are also provided in Note 2. Proprietary Funds Financial Statements: The financial statements of the proprietary fund are reported using the economic resources measurement focus and accrual basis of accounting, similar to the government-wide financial statements described above. The proprietary fund financial statements 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. All revenues and expenses not meeting this definition, such as investment income and interest expense are reported as non-operating revenues and expenses. Internal service funds of the City, which provide services primarily to the other funds of the City, are presented in summary form as part of the proprietary fund financial statements. Since the principal users of internal services are the City’s governmental activities, financial statements of the internal service funds are consolidated into the governmental activities column when presented at the government-wide level. The costs of these services are reflected in the appropriate functional activity 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 of these revenues and expenses. Fiduciary Funds Financial Statements: The City’s fiduciary fund is presented in the fund financial statements. The City’s fiduciary fund is an agency fund, which is custodial in nature and does not involve measurement of results of operations. The agency fund is accounted for on the accrual basis of accounting. Since by definition these assets are being held for the benefit of a third party and cannot be used to address activities or obligations of the City, these funds are not incorporated into the government-wide financial statements. e. Fund Accounting The financial transactions of the City are recorded in individual funds. Each fund is accounted for by providing a separate set of self-balancing accounts that comprises its assets, liabilities, reserves, fund equity, revenues and expenditures/expenses. The various funds are reported by generic classification within the fund financial statements. GASB Statement No. 34 sets forth minimum criteria for the determination of major funds. The non-major funds are combined in a column in the fund financial statements and detailed in the combining section. The City reports the following major governmental fund: The General Fund is the general operating fund of the City. It is used to account for all financial resources except those required to be accounted for in another fund. The City reports the following non-major governmental funds: Ten non-major Special Revenue Funds are used to account for specific revenues that are legally restricted to expenditures for specific purposes. 33 (Continued) CITY OF MESA, ARIZONA NOTES TO FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 30, 2017 Five non-major Capital Project Funds are used to account for the acquisition and construction of major capital facilities other than those financed by proprietary funds. Five non-major Debt Service Funds are used to account for the accumulation of resources for the payment of long-term obligation principal, interest and service charges. The City reports the following major proprietary fund: The Enterprise Fund has been established to account for all enterprise functions. This includes the City-owned electric, gas, water, wastewater and solid waste systems, as well as the City-owned airport, golf course, convention center, stadiums and district cooling. Additionally, the City reports the following fund types: The Internal Service Funds are used to account for operations that provide services to other departments of the government on a cost-reimbursement basis. These services include fleet support, materials and supply, printing and graphics, self-insurance for property and public liability, workers’ compensation and employee benefit programs. The Agency Fund is used to account for assets being held by the City as an agent in a temporary custodial capacity. The Payroll Agency Fund accounts for all payroll transactions. f. Budgets and Budgetary Accounting Each year the City Manager issues a budget calendar giving specific completion dates for various phases of the budget preparation process. The final adoption of the operating budget is by ordinance. Prior to June 1, the City Manager submits a proposed operating budget to the City Council for the fiscal year commencing the following July 1. The operating budget includes proposed expenditures and the means of financing them. Public hearings are conducted by the City to obtain citizen comments. Prior to June 30, the budget for the ensuing year is legally adopted through passage of an ordinance; these appropriations lapse at the end of each fiscal year. Legal control over the budget derives from State statutes that prohibit the City from exceeding its adopted budget in total and from the resolution itself that limits expenditures by fund and by departmental groupings. Transfers of sums within a specific fund or departmental group may be made upon City Manager approval. The legally adopted budget consists of all funds except the Agency Fund. Capital Projects are budgeted as one item and governmental debt service expenditures are budgeted in the Special Revenue Funds or Debt Service Funds. A budget schedule for the General Fund is presented in the Required Supplementary Information Section, and the other funds are located in the Supplementary Information Section. 34 (Continued) CITY OF MESA, ARIZONA NOTES TO FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 30, 2017 On June 3, 1980, the voters of Arizona approved an expenditure limitation for all local governments. This limitation restricts the growth of expenditures to a percentage determined by population and inflation, with certain expenditures excluded from the limitation. The State Economic Estimates Commission determines and publishes, prior to April 1st of each year, the expenditure limitation for the following fiscal year for each governmental unit. Fiscal year 1979-80 is the base year for calculations. Budgets for all funds are adopted in accordance with the requirements of the Arizona Constitution, Arizona Revised Statutes and the Mesa City Charter. There are certain differences between the basis used for budgetary purposes and that used for reporting in accordance with generally accepted accounting principles. For additional detail, see the notes to budgetary comparison schedule. Budgeted amounts are as originally adopted by the City Council on June 6, 2016. g. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make a number of estimates and assumptions that affect the reported amounts of assets, deferred outflows of resources, liabilities, deferred inflows of resources and net position, the disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses/expenditures during the reporting period. Actual results could differ from those estimates. h. Pooled Cash and Investments The City maintains an invested pool that is available for use by all City funds. Each fund’s portion of this pool is reported on the financial statements as “pooled cash and investments”. Assets related to long-term investments of the invested pool are held by a single master custodian. In addition, certain cash deposits and short-term investments are held separately in State of Arizona Local Government Investment Pools (LGIP), and FDIC Insured Cash Sweep accounts with two local banks. The City considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. Investments are recorded at fair value in accordance with GASB Statement No. 72, Fair Value Measurement and Application. Accordingly, the change in fair value of investments is recognized as an increase or decrease to investment assets and investment income. Interest income from investments is recorded as revenue within the fund that made the investment, with the exception of the Capital Projects and Agency Funds. Income from investments within these funds is recorded in the General or Enterprise Fund based upon their general governmental or enterprise related function. i. Inventories Inventories consist of expendable supplies held for consumption. The warehouse inventory is valued at the lower of average cost or market, while fleet support services inventory is valued at cost on a first-in, first out (FIFO) basis. The cost of inventory is reported as an expenditure at the time individual items are consumed. 35 (Continued) CITY OF MESA, ARIZONA NOTES TO FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 30, 2017 j. Capital Assets Capital assets, including infrastructure (streets, sidewalks, street lighting, storm drainage and other assets that are immovable and of value only to the City) are defined as assets with an initial cost of $5,000 or more and an estimated useful life of more than one year. Intangible assets for the City include goodwill, right of way, easements and computer software. The City has elected to capitalize software with an initial cost of $100,000 or more. All capital assets, whether owned by governmental activities or business-type activities, are required to be recorded and depreciated in the government-wide financial statements. Capital assets are recorded at cost or estimated historical cost if purchased or constructed. Contributions of assets are stated at fair market value based on appraisals or engineering estimates of value at the time of receipt. When assets are retired or sold, the costs of the assets and the related accumulated depreciation are eliminated from the accounts, and any resultant gain or loss is charged to income or expense. Depreciation has been provided using the straight-line method based on the estimated useful lives of the assets. The estimated useful lives are as follows: Buildings Other Improvements Machinery and Equipment Intangibles Infrastructure 15-50 Years 5-50 Years 3-30 Years 6-15 Years 5-50 Years Capital assets transferred between funds are transferred at their net book value (cost less accumulated depreciation) or net realizable value, if lower, as of the date of the transfer. k. Compensated Absences Vacation, compensatory time and sick leave benefits are accrued as liabilities as employees earn the benefits to the extent that they meet both of the following criteria: 1) the City’s obligation is attributable to employees’ services already rendered; and 2) it is probable that the City will compensate the employees for the benefits through paid time off or some other means, such as cash. For governmental funds a liability for vacation, compensatory time and sick leave are reported only if they have matured, for example, as a result of employee resignations and retirements. The entire amount of accumulated unpaid vested vacation pay, compensatory time and an estimated amount for sick leave related to the proprietary funds is included as a liability in the fund financial statements. The remaining long-term balances related to governmental activities are included in the government-wide financial statement. l. Reserve for Loss and Loss Adjustment Expenses The Property and Public Liability, Workers’ Compensation and Employee Benefits Internal Service Funds establish claim liabilities based on actuarial estimates of the ultimate cost of claims (including future claim adjustment expenses) that have been reported but not settled, and of claims that have been incurred but not reported. Adjustments to claim liabilities are charged or credited to expenses in the periods in which they are made. 36 (Continued) CITY OF MESA, ARIZONA NOTES TO FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 30, 2017 m. Long-Term Obligations In the government-wide financial statements and the proprietary 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 statement of net position. Bond premiums and discounts are amortized over the life of the bonds using the straight-line method. Bonds payable are reported net of the applicable bond premium or discount. In the fund financial statements, governmental fund types recognize bond premiums and discounts during the current period. The face amount of debt issued is reported as other financing sources. Premiums received on debt issuances are reported as other financing sources while discounts on debt issuance are reported as other financing uses. n. 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 fiduciary net position of the Arizona State Retirement System Defined Benefit Plan (ASRS) and Public Safety Personnel Retirement System (PSPRS) and additions to/deductions from ASRS and PSPRS’s fiduciary net position have been determined on the same basis as they are reported by ASRS and PSPRS. 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. o. Fund Balance Policies In the fund financial statements, fund balance is reported in classifications that comprise a hierarchy based on the extent to which the City is bound to honor constraints on the specific purposes for which amounts in those funds can be spent. The classifications of fund balance are Nonspendable, Restricted, Committed, Assigned, and Unassigned. Nonspendable and Restricted fund balances represent restricted classifications and Committed, Assigned, and Unassigned represent unrestricted classifications. Nonspendable fund balance includes amounts that cannot be spent because either 1) it is not in a spendable form, such as inventory or prepaid items or 2) it is legally or contractually required to be maintained intact. Restricted fund balance has externally (outside the City) enforceable limitations imposed by creditors, grantors, contributors, laws and regulations of other governments, or laws through constitutional provisions or enabling legislation (changes in City Charter). Committed fund balance has self-imposed limitations imposed at the highest level of decision making authority, namely, Mayor and Council. Mayor and Council approval is required by resolution to commit resources or to rescind the commitment. Assigned fund balance represents limitations imposed by management. Assigned fund balance requests are submitted to the Chief Financial Officer for approval/nonapproval. City Charter authorizes the City Manager or Designee the authority to perform all financial transactions. The City Manager has authorized the Chief Financial Officer this responsibility. 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 governmental fund can report a negative unassigned fund balance. 37 (Continued) CITY OF MESA, ARIZONA NOTES TO FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 30, 2017 When both restricted and unrestricted resources are available for specific expenditures, restricted resources are considered spent before unrestricted resources. Within unrestricted resources, committed and assigned are considered spent (if available) before unassigned amounts. p. Statement of Cash Flows A statement of cash flows classifies cash receipts and payments according to whether they stem from operating, non-capital financing, capital and related financing, or investing activities. For purposes of the statements of cash flows, the City considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. This includes repurchase agreements and all monies in the State Treasurer’s Local Government Investment Pool since the City may deposit or withdraw cash at any time without prior notice or penalty. q. Contingency Services The principal purpose of a contingency is to cover any unforeseen expenditures that may arise after the budget is adopted, and to cover expenditures resulting from prior year encumbrances. It is impossible to estimate revenues exactly or to determine in a prior year the exact expenditure of each program or activity for the ensuing year. Thus, a contingency is essential for budgetary purposes. Any balance of a contingency appropriation not used during one fiscal year is available to help finance the following year’s budget. The contingency applications are reflected in the budget basis financial statements for the fiscal year ended June 30, 2017 and are made in accordance with State Statutes. r. Property Taxes The City’s secondary property tax is levied each year on or before the third Monday in August based on the previous January 1 full cash value as determined by the Maricopa County Assessor. Levies are due and payable in two installments, on October 1 and March 1, and become delinquent after November 1 and after May 1, respectively. A lien attaches to the property on the first day of January preceding the assessment and levy of taxes. Delinquent amounts bear interest at the rate of 16.0%. Maricopa County, at no charge to the taxing entities, bills and collects all property taxes. Public auctions of properties which have delinquent real estate taxes are held in February. Secondary property taxes are levied to pay principal and interest on bonded indebtedness. The dollar amount of the secondary property tax is “unlimited” and the actual full cash value of property is used in determining the tax rate. In fiscal year 2016-2017, current property tax collections were $32,765,223 or 98.28% of the tax levy, and were recognized as revenue when received. At fiscal year end, the delinquent property tax is recorded as a receivable. Revenue is recognized for those payments expected to be collected within 60 days and the remaining balance is reported as unavailable revenue. The receivable at June 30, 2017 was $932,260 of which $451,636 was recorded as revenue and $480,624 as unavailable revenue. 38 (Continued) CITY OF MESA, ARIZONA NOTES TO FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 30, 2017 s. New Accounting Pronouncements GASB Statement No. 75, Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions, improves accounting and financial reporting by governments for postemployment benefits other than pensions. It also improves information provided by governmental employers about financial support for OPEB that is provided by other entities. This Statement replaces the requirements of Statements No. 45, Accounting and Financial Reporting by Employers for Postemployment Benefits Other Than Pensions, as amended, and No. 57, OPEB Measurements by Agent Employers and Agent Multiple-Employer Plans, for OPEB. This Statement is effective for fiscal years beginning after June 15, 2017. The City will implement this Statement in fiscal year 2018. GASB Statement No. 77, Tax Abatement Disclosures, requires disclosure of tax abatement information about a reporting government’s own tax abatement agreements and those that are entered into by other governments and that reduce the reporting government’s tax revenues. The requirements of this Statement are effective for financial statements for periods beginning after December 15, 2015. The City has implemented this Statement in fiscal year 2017 with no impact. GASB Statement No. 80, Blending Requirements for Certain Component Unites – an amendment of GASB Statement No. 14, amends the blending requirements for certain component units. The requirements of this Statement are effective for reporting periods beginning after June 15, 2016. The City has implemented this Statement in fiscal year 2017 with no impact. GASB Statement No. 81, Irrevocable Split-Interest Agreements, provides recognition and measurement guidance for situations in which a government is a beneficiary of an irrevocable splitinterest agreement. The requirements of this Statement are effective for financial statements for periods beginning after December 15, 2016, and should be applied retroactively. The City has implemented this Statement in fiscal year 2017 with no impact. Implementation Guide No. 2016-1, Implementation Guidance Update – 2016, provides guidance that clarifies, explains or elaborates on GASB Statements and Interpretations and amends, removes, supersedes, or adds questions not originally contained in Implementation Guide No. 2015-1. The requirements of this Implementation Guide are effective for reporting periods beginning after June 15, 2016. The requirements of this Implementation Guide were implemented by the City in fiscal year 2017 with no effect. GASB Statement No. 83, Certain Asset Retirement Obligations, addresses accounting and financial reporting for certain asset retirement obligations, or legally enforceable liabilities associated with the retirement of a tangible capital asset. The requirements of this Statement are effective for reporting periods beginning after June 15, 2018. The City will implement this Statement in fiscal year 2019. GASB Statement No. 84, Fiduciary Activities, establishes criteria for identifying fiduciary activities of all state and local governments. The requirements of this Statement are effective for reporting periods beginning after December 15, 2018. The City will implement this Statement in fiscal year 2020. GASB Statement No. 85, Omnibus, addresses practice issues that have been identified during implementation and application of certain GASB Statements. The requirements of this Statement are effective for reporting periods beginning after June 15, 2017. The City will implement this Statement in fiscal year 2018. 39 (Continued) CITY OF MESA, ARIZONA NOTES TO FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 30, 2017 GASB Statement No. 86, Certain Debt Extinguishment Issues, provides guidance for transactions in which cash and other monetary assets acquired with only existing resources are placed in an irrevocable trust for the sole purpose of extinguishing debt. The requirements of this Statement are effective for reporting periods beginning after June 15, 2017. The City has implemented this Statement in fiscal year 2017. See Note 9 for the current year effect of implementing GASB Statement No. 86. GASB Statement No. 87, Leases, provides new guidance for recognition of operating leases and the related assets. The requirements of this Statement are effective for reporting periods beginning after December 15, 2019. The City will implement this Statement in fiscal year 2021. Implementation Guide No. 2017-1, Implementation Guidance Update – 2017, provides guidance that clarifies, explains or elaborates on GASB Statements and Interpretations and amends, removes, supersedes, or adds questions not originally contained in Implementation Guide No. 2015-1 and 2016-1. The requirements of this Implementation Guide are effective for reporting periods beginning after June 15, 2017. The requirements of this Implementation Guide will be implemented in fiscal year 2018. Although expected to be significant, the City has not fully determined the effects that implementation of Statements No. 75 and 87 will have on the City’s financial statements. 2. RECONCILIATION OF GOVERNMENTAL FUND FINANCIAL STATEMENTS TO GOVERNMENT-WIDE FINANCIAL STATEMENTS The governmental fund financial statements are presented on a current financial resources measurement focus and modified accrual accounting basis while the government-wide financial statements are prepared on a long-term economic resources measurement focus and accrual accounting basis. Reconciliations briefly explaining the adjustments necessary to transform the fund financial statements into the governmental activities column of the government-wide financial statements immediately follow each governmental fund financial statement. 40 (Continued) CITY OF MESA, ARIZONA NOTES TO FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 30, 2017 Reconciliation of the Governmental Funds Balance Sheet to the government-wide Statement of Net Position (in thousands): Asse ts Pooled Cash and Investments Account and Misc Receivables, Net Accrued Interest Receivable Due from Other Governments Due from Other Funds Advances to Other Funds Inventory Prepaid Costs Deposits Restricted Assets: Pooled Cash and Investments Cash with Fiscal Agent Cash with T rustee Accounts Receivable Due from Other Governments Investment in Joint Ventures Capital Assets T otal Assets T otal Governmental Funds Long-term Assets/ Liabilities (1) Internal Service Funds (2) Reclassifications and Eliminations Statement of Net Position T otal $ $ - $ 66,242 710 139 5,948 758 69 $ $ 13,711 40,245 6,791 10,747 932 360,706 203,826 1,435,012 1,638,838 1,940 75,806 - 10,112 184,663 194,775 2,419 2,419 $ 360,706 $ 1,833,613 $ 78,225 $ (2,203) $ 2,270,341 $ 24,816 1,093 1,110 6,600 8,540 11,295 31,744 85,198 $ $ $ (1,093) (1,110) (2,203) $ De fe rre d O utflows of Re source s Deferred Amounts on Refunding Pensions T otal Deferred Outflows of Resources T otal Assets and Deferred Outflows of Resources Liabilitie s Accounts Payable and Accrued Liabilities Claims Payable Due T o Other Funds Advances from Other Funds Customer and Defendant Deposits Restricted Bond Interest Payable Restricted Unearned Revenue Matured Bonds Payable Pension Long-term Liabilities T otal Liabilities Deferred Inflows of Resources Unavailable Revenue Pension Total Deferred Inflows of Resources Fund Balance /Ne t Position T otal Fund Balance/Net Position T otal Liabilities and Fund Balance/Net Position $ 227,723 25,414 278 31,391 1,093 234 1,948 199 13,495 743,454 943,688 1,700,637 3,701 38,837 12,423 11,757 66,718 (1,093) (1,110) (2,203) 293,965 26,124 417 31,391 (876) 5,948 2,706 268 13,711 40,245 6,791 10,747 932 203,826 1,436,952 2,073,147 - 10,112 187,082 197,194 42,012 38,837 6,600 8,540 11,295 31,744 755,877 955,445 1,850,350 18,079 18,079 (18,079) 54,734 36,655 1,549 1,549 - 56,283 56,283 257,429 96,321 9,958 - 363,708 360,706 $ 1,833,613 $ 78,225 41 $ (2,203) $ 2,270,341 (Continued) CITY OF MESA, ARIZONA NOTES TO FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 30, 2017 (1) Investment in joint ventures that are to be used in governmental activities are also reported in the governmental funds as expenditures as constructed. These assets are included in the statement of net position for the City as a whole. Investment in joint ventures $ 203,826 When capital assets (land, buildings, equipment, etc.) that are to be used in governmental activities are purchased or constructed, the costs of those assets are reported as expenditures in governmental funds, and thus a reduction in fund balance. However, the statement of net position includes those capital assets among the assets of the City as a whole. Costs of capital assets Accumulated depreciation Total $ $ 2,366,839 (931,827) 1,435,012 Long-term liabilities applicable to the City’s governmental activities are not due and payable in the current period, and accordingly are not reported as fund liabilities in the governmental fund statement. Bonds payable Compensated absences Post-employment benefits Unamortized bond premiums Claims and Judgement Pension liability Total $ $ 479,950 27,680 420,043 16,015 13,495 743,454 1,700,637 Deferred outflows consist of items that will consume net position in a future reporting period(s) and do not meet the definition of an asset. Deferred amounts on refunding result from the difference between the carrying value of refunded debt and its reacquisition price. The pension-related amounts result from differences between expected and actual experience, changes of assumptions or other inputs, the difference between projected and actual investment earnings, and contributions made to the pension plan from the employer subsequent to the measurement date of the net pension liability and before the end of the reporting period. Deferred charge on refunding Pensions Total $ $ 10,112 184,663 194,775 Deferred inflows relating to pensions represent a future acquisition of net position that is not reported in the funds. Deferred Inflows – Pensions 42 $ 54,734 (Continued) CITY OF MESA, ARIZONA NOTES TO FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 30, 2017 Unavailable revenues shown on the governmental fund statements are not deferred on the statement of net position. Unavailable property tax revenues Unavailable special assessment revenue Receivables not yet collected Total $ $ 481 10,720 6,878 18,079 (2) Internal service funds are used by management to charge the costs of certain activities, such as fleet support, materials and supplies, printing and graphics, and self-insurance, to the individual funds. The assets, liabilities, deferred inflows and deferred outflows 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. Internal Service Funds total 43 $ 9,958 (Continued) CITY OF MESA, ARIZONA NOTES TO FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 30, 2017 Reconciliation of the Governmental Funds Statement of Revenues, Expenditures and Changes in Fund Balance to the Government-wide Statement of Activities (in thousands): Re ve nue s and O the r Source s Revenues: Sales T axes Property T axes Occupancy T axes Special Assessments Licenses and Permits Intergovernmental Charges for Services Fines and Forfeitures Investment Income Contributions Miscellaneous Other Sources: T ransfers In Face Amount of Bonds Issued Premiums on Issuance of Bonds T otal Revenue and Other Sources Expe nditure s/Expe nse s and O the r Financing Use s Expenditures/Expenses: Current: General Government Public Safety Community Environment Cultural-Recreational Debt Service: Principal Interest on Bonds Service Charge Cost of Issuance Capital Outlay Other Financing Uses: T ransfers Out Pmt to Ref Bond Escrow Agent T otal Expenditures\Expenses & Other Financing Uses Net Change for the Year T otal Governmental Funds Long-term Revenues/ Expenses(1) Capital Related Items(2) Internal Service Funds(3) Long-term Debt (4) Eliminations (5) $ $ 9 (795) 5,622 $ $ $ $ 4,836 4,089 $ 39,701 $ 21,656 (95,132) (4,613) $ (99,745) $ $ $ 9,531 8,820 2,984 991 $ $ $ $ $ 159,735 34,675 2,536 2,125 23,152 200,820 38,348 9,873 331 360 4,348 139,516 95,132 4,613 715,564 86,360 261,892 68,403 43,744 $ $ 869 97,518 (4,545) 3,115 35,612 - 6,102 11,565 37,802 8,113 117 20,347 1,192 - (1,135) - (31,931) (31,931) Statement of Activities $ 159,735 34,684 2,536 1,330 23,152 200,820 38,348 9,873 448 56,319 11,162 111,674 $ 650,081 - $ 101,727 379,795 104,644 55,963 - 17,994 15 1,271 - 32,587 17,994 15 1,271 82,062 - (82,062) - (32,587) - 31,931 50,891 - 5,067 - - (50,891) (31,931) - 5,067 - 677,150 96,957 22,326 (84,613) (31,931) 666,476 38,414 $ (92,121) (13,413) $ 53,114 $ (670) $ (15,132) $ - $ (16,395) (1) Revenues in the statement of activities that do not provide current financial resources include unavailable revenues. Revenues that are “unavailable” and do not provide current financial resources are not reported in the governmental funds. However, the subsequent collection of these revenues in the governmental funds will reduce the amount reported in the statement of activities. 44 (Continued) CITY OF MESA, ARIZONA NOTES TO FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 30, 2017 Property tax revenue Special assessment revenue Unavailable revenue Total $ $ 9 (795) 5,622 4,836 Some expenses reported in the statement of activities do not require the use of current financial resources and therefore are not reported as expenditures in governmental funds. Accrual of long-term compensation absences Accrual of post-employment benefits Claims and Judgement Pension Expense Total $ $ (892) (23,911) (13,495) (111,923) (150,221) Current-year pension contributions are reclassified to deferred outflows of resources, and therefore are not reported as expenditures in governmental funds. Deferral of current year pension contribution $ 53,264 (2) When capital assets that are to be used in the governmental activities are purchased or constructed the resources expended for those assets are reported as expenditures in governmental funds. However, in the statement of activities, the cost of those assets is allocated over their useful lives and reported as depreciation expense. As a result, fund balance decreases by the amount of the financial resources expended, whereas net position decreases by the amount of depreciation expense charged for the year. Capital outlay for capital assets Depreciation expense Total $ $ 88,577 (68,686) 19,891 The net effect of miscellaneous transactions involving capital assets (donations, transfers and disposals) and investment in joint venture activity is to increase net position. Change in equity interest for joint venture Donated capital and transfers Loss on Disposal Total $ $ $ 26,110 8,524 (1,411) 33,223 (3) Internal service funds are used by management to charge the costs of certain activities, such as fleet support, materials and supplies, printing and graphics, and self-insurance, to the individual funds. The adjustments for internal service funds “close” those funds by charging the additional amounts to participating governmental activities to completely cover the internal service funds’ costs for the year. Revenue and other sources Expenditures and other uses Change in net position 45 $ $ 21,656 (22,326) (670) (Continued) CITY OF MESA, ARIZONA NOTES TO FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 30, 2017 (4) Bond and note proceeds are reported as financing sources and the repayment of principal consumes financial resources in the governmental funds. Neither transaction has any effect on the statement of activities. New debt issued (including refunded debt): General Obligation bond proceeds Community Facilities District Bonds Principal repayments Payment to refunded bond escrow accounts Total $ (94,630) (502) 32,587 47,450 (15,095) $ Governmental funds report bond premiums and deferred amounts relating to refunding when first issued. In the statement of activities these amounts are amortized. Amortization of deferred refunding amounts Amortization of bond premiums Premiums on bonds Deferred Amounts on refunding Total $ $ (1,030) 2,165 (4,613) 3,441 (37) (5) Interfund transfers between governmental activities, other than Internal Service Funds, are eliminated in the consolidation of these activities for the statement of activities. The elimination is reflected as a reduction of transfers in and transfers out to eliminate the doubling up effect of these transactions within the governmental activities. Elimination of transfers to/from the Internal Service Funds is netted into the results of the Internal Service Funds in (3) above. Transfers out Transfers in Total 46 $ $ (31,931) 31,931 - (Continued) CITY OF MESA, ARIZONA NOTES TO FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 30, 2017 3. FUND BALANCE As of June 30, 2017, the fund balance details by classification are listed below (in thousands): Fund Balances: Nonspendable: Prepaid Costs Advances to Other Funds Nonspendable Sub-total General Fund $ 1,911 234 2,145 Non-Major Governmental Funds Total Governmental Funds $ $ 37 37 1,948 234 2,182 Restricted: Arts & Culture Capital Projects Community Facility District Court Debt Service Fire Housing Library Police Transportation Programs Restricted Sub-total 146 146 35,255 23 1,616 10,753 3,351 691 385 1,956 58,075 112,105 146 35,255 23 1,616 10,753 3,351 691 385 1,956 58,075 112,251 Committed To: Arts & Culture Capital Projects Cemetery Development Services Economic Development Environmental Compliance Parks & Recreation Vehicle Replacement Committed To Sub-total 481 47 528 958 8,423 6,987 788 10,032 60 3,680 30,928 958 8,423 7,468 788 47 10,032 60 3,680 31,456 Assigned To: Development Services Economic Development Fire General Government Parks & Recreation Police Sustainability Transit Assigned To Sub-total 73 2,010 1,000 14,521 448 1,243 60 12 19,367 2 2 73 2,010 1,000 14,523 448 1,243 60 12 19,369 Unassigned 92,240 (69) 92,171 Total Fund Balances $ 114,426 $ 143,003 $ 257,429 The Mayor and Council has established a minimum fund balance policy for the General Fund of eight to ten percent of budgeted expenditures. The fund balance in the General Fund as of June 30, 2017 as reported in Exhibit B-6 is 23.6% of General Fund expenditures budgeted for fiscal year 2016-2017. 47 (Continued) CITY OF MESA, ARIZONA NOTES TO FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 30, 2017 4. POOLED CASH AND INVESTMENTS Total Pooled City Cash and Investments at fair value are as follows (in thousands): Cash on Hand Carrying Amount of City Deposits Investment in Insured Cash Sweep Accounts Investments in Local Govt Invest Pool Cash with Trustee (1) Cash with Fiscal Agent (2) Long-Term Investments Pooled Cash and Investments Less: Cash in Agency Fund Total City Pooled Cash and Investments $ $ 136 51,891 20,139 180,144 6,852 79,168 343,727 682,057 (8,257) 673,800 (1) Represents bond and note proceeds held with trustee in compliance with bond/note agreements. Proceeds are invested in the Local Govt Investment Pool and are used by the City for authorized capital projects. (2) Represents cash sent by the City to fiscal agents on June 30, 2017 for debt service payments due to bondholders on July 1, 2017. Deposits At year-end, the City’s cash totaled $52,027,140 which included $136,305 of petty cash. The carrying amount of the City’s deposits was $51,890,835 and the bank balance was $60,431,416. The difference of $8,540,581 represents outstanding checks and deposits in transit. Custodial Risk Cash deposits are subject to custodial risk. Custodial risk is the risk that in the event of bank failure, the city’s deposits may not be returned. To mitigate this risk, on July 1, 2014 Arizona House Bill 2619 Arizona Revised Statute (§35-1201 et. seq.) went into effect establishing a pooled collateral program for public deposits and creating a Statewide Collateral Pool Administrator (the “Administrator”) in the State Treasurer’s Office. The purpose of this Bill is to ensure that public deposits of governmental entities placed with participating banks are backed with collateral of 102% of the amount on deposit less applicable FDIC Deposit Insurance. The Administrator will monitor, audit and report on each bank’s compliance. Collateral under this program is pledged in the name of the Administrator and the City’s current bank is a participant in this program. The City’s cash balances on deposit as of June 30, 2017 are covered under House Bill 2619. Investments The City’s Investment Policy is consistent with the City Charter which authorizes the investment of City funds in accordance with Arizona Revised Statute §35-313. These investments include obligations of the U.S. Treasury and U.S. agencies, certificates of deposit in eligible depositories, repurchase agreements, obligations of the State of Arizona or any of its counties or incorporated cities, towns or duly organized school districts, improvement districts in this state, State Treasurer’s Investment Pool, 48 (Continued) CITY OF MESA, ARIZONA NOTES TO FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 30, 2017 and investment grade corporate bonds, debentures, notes and other evidence of indebtedness issued or guaranteed by solvent U.S. corporations which are not in default as to principal or interest. Interest Rate Risk The City’s investment policy for limiting its exposure from rising interest rates complies with Arizona Revised Statute §35-323, which limits investments of public monies to maturities of five years or less. Credit Risk The City’s investment policy for credit risk complies with Arizona Revised Statute §35-323. The City’s portfolio is primarily invested in securities issued by the U.S. Treasury and by U.S. Government agencies that carry a minimum “A” or better rating, at the time of purchase, from Moody’s or Standard & Poor’s or other nationally recognized rating agency. The City’s portfolio also invests in Corporate Notes rated “A” or better by Moody’s or Standard & Poor’s and participates in the State Treasurer’s Investment Pool (LGIP), which is overseen according to Arizona State Statute by the State Board of Investment. Within the State Treasurer’s Investment Pools, the City participates in Investment Pool 7. Pool 7 is a short-term fund which invests only in products backed by the full faith and credit of the United States Government. The Pool carries a weighted average credit rating of AAA. The City also maintains short-term investments in FDIC Insured Cash Sweep Accounts held by two local banks. The City’s investment in their own Special Improvement District bonds have no credit rating. Fair Value of Investments The City measures and records its investments using fair value measurement guidelines established by generally accepted accounting principles. These guidelines recognize a three-tiered fair value hierarchy, as follows: • • • Level 1: Quoted prices for identical investments in active markets; Level 2: Observable inputs other than quoted market prices; and, Level 3: Unobservable inputs. 49 (Continued) CITY OF MESA, ARIZONA NOTES TO FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 30, 2017 At June 30, 2017, the City had the following recurring fair value measurements (in thousands): Fair Value M easurements Using: Investment by Fair Value Level Debt S ecurities U.S. Treasuries U.S. Agencies: Federal Home Loan Bank Federal Home Loan M ortgage Corp. Federal National M ortgage Assn Corporate Notes American Express Credit American Honda Finance Corp. Apple, Inc. Bank of New York M ellon Inc. BB&T Berkshire Hathaway Inc. Chevron Corp Cisco Systems Inc. Walt Disney Goldman Sachs Home Depot Inc. IBM Intel John Deere JP M organ Chase & Co M icrosoft M organ Stanley Pepsico Inc. Pfizer Inc. Texas Instruments Inc. Toyota M otor Credit Corp Wells Fargo & Co City of M esa Special Improvement District Bonds Total Debt Securities at Fair Value Fair Value 6/30/2017 $ 77,888 $ 65,611 27,894 87,362 3,332 1,588 1,519 5,003 3,099 807 3,340 3,153 4,055 1,680 1,601 3,401 1,725 2,739 3,346 3,818 1,668 2,482 3,315 3,560 3,330 4,276 1,473 323,065 Investments M easured at Fair Value Arizona State Treasurers Investment Pool: State of Arizona Pool 7 Level 2 Level 1 $ - $ 77,888 - 65,611 27,894 87,362 - 1,473 $ 323,065 Level 3 $ - 3,332 1,588 1,519 5,003 3,099 807 3,340 3,153 4,055 1,680 1,601 3,401 1,725 2,739 3,346 3,818 1,668 2,482 3,315 3,560 3,330 4,276 $ - 180,144 Total Investments M easured At Fair Value $ 503,209 Amortized Cost Securities FDIC Insured Cash Sweep M oney M arket Funds $ 20,139 Debt securities classified in Level 2 are valued using quoted prices for similar securities in active markets. 50 (Continued) CITY OF MESA, ARIZONA NOTES TO FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 30, 2017 Investments valued using the net asset value (NAV) per share (or its equivalent) are City investments in Arizona State Treasurers Investment Pool (LGIP) and unlike more traditional investments, generally do not have readily obtainable market values. Investments valued at NAV utilized Net Asset Values as provided by State of Arizona Treasurer’s Office at June 30, 2017. The City’s investments at June 30, 2017 are as follows (in thousands): Investment M aturities (in Years) Investment Type Fair Value Less Than 1 U.S. Treasuries U.S. Agencies: Federal Home Loan Bank Federal Home Loan M ortgage Corp. Federal National M ortgage Assn Corporate Notes American Express Credit American Honda Finance Corp. Apple, Inc. Bank of New York M ellon Inc. BB&T Berkshire Hathaway Inc. Chevron Corp Cisco Systems Inc. Walt Disney Goldman Sachs Home Depot Inc. IBM Intel John Deere JP M organ Chase & Co M icrosoft M organ Stanley Pepsico Inc. Pfizer Inc. Texas Instruments Inc. Toyota M otor Credit Corp Wells Fargo & Co Certificates of Deposit Bank of M ontreal Chicago Bank of Nova Scotia Houston Sumitomo Bitsui Bank City of M esa Special Improvement District Bonds JP M organ M M F Total $ $ 77,888 1-2 3,820 $ 20,626 M ore than 3 Concentration of Credit Risk % 39,618 $ 13,824 22.66% 9,725 11,704 29,194 - 19.09% 8.12% 25.42% 3,332 1,588 1,519 3,099 348 4,055 1,680 1,601 3,401 1,725 2,094 3,818 1,668 822 3,315 - 3,428 0.97% 0.46% 0.44% 1.46% 0.90% 0.23% 0.97% 0.92% 1.18% 0.49% 0.47% 0.99% 0.50% 0.80% 0.97% 1.11% 0.49% 0.72% 0.96% 1.04% 0.97% 1.24% 65,611 27,894 87,362 16,819 5,735 3,332 1,588 1,519 5,003 3,099 807 3,340 3,153 4,055 1,680 1,601 3,401 1,725 2,739 3,346 3,818 1,668 2,482 3,315 3,560 3,330 4,276 5,003 2,806 3,560 848 6,840 6,796 6,810 - 6,840 6,796 6,810 - - 1.99% 1.98% 1.98% 1,473 216 $ 343,727 380 216 39,187 355 $ 162,243 365 $ 124,671 373 $ 17,625 0.43% 0.06% 100.00% $ 39,066 16,189 52,433 $ 2-3 * 807 3,340 645 3,346 ** 1,660 3,330 - * $5,003 of these securities are callable at or before April 22, 2018 ** $3,346 of these securities are callable at or before February 22, 2019 51 (Continued) CITY OF MESA, ARIZONA NOTES TO FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 30, 2017 5. ACCOUNTS RECEIVABLE AND DUE FROM OTHER GOVERNMENTS Accounts receivable are recorded in the various funds and displayed in the financial statements net of an allowance for uncollectible accounts as follows (in thousands): Fund Governmental Activities: General Fund: Taxes Courts Other Customers Due from Other Governments: State Shared Revenues Other Non-Major Governmental Funds: Taxes Other Customers Restricted-Spec. Assessments Restricted-Other Restricted-Due from Other Governments Due from Other Governments Internal Service Funds Premiums Other Customers Total Governmental Activities Business-Type Activities: Utility Customers Other Customers Due from Other Governments Total Business-type Activities Receivables Allowance $ $ $ $ $ 11,806 6,199 7,825 (2,195) (3,555) Net $ 9,611 6,199 4,270 13,190 4,543 - 13,190 4,543 4,303 1,031 10,720 27 932 13,658 - 4,303 1,031 10,720 27 932 13,658 162 548 74,944 32,837 2,737 2,223 37,797 $ $ $ (5,750) 162 548 $ 69,194 (670) (652) (1,322) $ 32,167 2,085 2,223 $ 36,475 Unbilled Accounts Receivable Unbilled utility service receivables are recorded in the year in which the services are provided. At June 30, 2017, unbilled utility service receivables are recorded in the Enterprise Fund as follows (in thousands): Gas Water Wastewater Solid Waste 52 1,044 7,924 3,596 2,388 $ 17,330 (Continued) CITY OF MESA, ARIZONA NOTES TO FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 30, 2017 Governmental funds report unavailable revenue in connection with receivables for revenues that are not considered to be available to liquidate liabilities of the current period. Additionally, governmental funds record unearned revenue when resources have been received, but not yet earned. At the end of the current fiscal year, the various components of unavailable and unearned revenue reported in the governmental funds were as follows (in thousands): General Non-Major Fund Funds Unearned Revenue Mesa Arts Center advanced ticket sales $ 908 $ 62 Grants received prior to meeting all eligibility requirements Amounts paid in advance - 2,112 1,928 6,285 $ 2,836 Unavailable Revenue Receivables not yet collected Non-Major Fund Funds $ - Special Assessments not yet due 8,459 General $ 6,254 Delinquent Property Taxes $ $ 6,254 624 481 10,720 $ 11,825 6. INTERFUND RECEIVABLES, PAYABLES AND TRANSFERS The following interfund activities are included in the fund financial statements at June 30, 2017 (in thousands): Due from Other Funds $ 1,093 $ 1,093 Fund General Fund Non-major Governmental Funds Total Governmental Funds Due to Other Funds $ 1,093 $ 1,093 Interfund balances at June 30, 2017 are short-term loans used to cover temporary cash deficits in various funds and are expected to be repaid within one year. 53 (Continued) CITY OF MESA, ARIZONA NOTES TO FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 30, 2017 The following advances are included in the fund financial statements at June 30, 2017 (in thousands): Advances to Other Funds Fund Governmental Funds: General Fund Non-major Governmental Funds $ Total Governmental Funds Proprietary Funds: Enterprise Fund Total 234 - Advances from Other Funds $ 234 $ 876 1,110 876 234 1,110 $ 1,110 The Advances at June 30, 2017 are long-term loans to the Development Impact Fees fund to cover expenses which exceeded revenues received, and an advance from the Enterprise Fund to the General Fund for property acquisition. The advances outstanding at June 30, 2017 are not expected to be repaid within one year. The following interfund transfers are reflected in the fund financial statements for the year ended June 30, 2017 (in thousands): Fund Governmental Funds: General Fund Non-major Governmental Funds Total Governmental Funds Proprietary Funds: Enterprise Fund Total Transfers Out $ $ 14,766 17,165 31,931 109,395 141,326 Transfers In $ $ 111,449 28,067 139,516 1,810 141,326 Transfers from business-type activities to governmental activities on the government-wide statement of activities include a $109,395,000 operational subsidy from the Enterprise Fund to the General Fund. The remaining interfund transfers generally fall within one of the two following categories: 1) debt service payments made from a debt service fund but funded from an operating fund; and 2) subsidy transfers. In addition to the cash transfers, the City had capital asset transfers out of the business-type activities to the governmental activities in the amount of $4,089,000 and capital asset transfers from the governmental activities to the business-type activities in the amount of $5,067,000. 54 (Continued) CITY OF MESA, ARIZONA NOTES TO FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 30, 2017 7. CAPITAL ASSETS A summary of capital asset activity, for the government-wide financial statements, for the year ended June 30, 2017 follows (in thousands): Balance July 1, 2016 Governmental Activities: Non-depreciable Assets: Land Infrastructure Construction-in-Progress Total Non-depreciable Assets Depreciable Assets: Buildings Other Improvements Machinery & Equipment Intangibles Infrastructure Total Depreciable Assets Less Accumulated Depreciation for: Buildings Other Improvements Machinery & Equipment Intangibles Infrastructure Total Accum. Depreciation Total Depreciable Assets, net Governmental Activities Capital Assets, net Additions $ $ 383,742 3,321 81,286 468,349 334,942 184,696 194,660 23,251 1,088,341 1,825,890 (96,251) (104,669) (132,275) (12,707) (538,398) (884,300) 941,590 5,391 291 79,653 85,335 $ (581) (45,811) (46,392) Transfers $ (5,067) (5,067) 6,228 12,678 13,576 26,431 58,913 (1,219) (7,059) (4,542) (1,010) (13,830) 48 4,041 4,089 (7,194) (7,524) (11,370) (3,832) (39,113) (69,033) (10,120) 1,145 6,882 4,455 516 12,998 (832) 4,089 $ 75,215 $1,409,939 Retirements $ (47,224) $ (978) Balance June 30, 2017 $ 388,552 3,612 110,061 502,225 339,951 190,315 203,742 23,251 1,117,803 1,875,062 (102,300) (105,311) (139,190) (16,539) (576,995) (940,335) 934,727 $ 1,436,952 Depreciation and Amortization expense was charged to governmental functions in the governmentwide financial statements as follows (in thousands): General Government Public Safety Community Environment Cultural-Recreational Capital assets held by the City's Internal Service funds are charged to the various functions based on their usage of assets 55 $ 8,209 11,854 40,285 8,338 347 $69,033 (Continued) CITY OF MESA, ARIZONA NOTES TO FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 30, 2017 Balance July 1, 2016 Business-type Activities: Non-depreciable Assets: Land Water Rights Collections of Art Construction-in-Progress Total Non-depreciable Assets Depreciable Assets: Buildings Other Improvements Machinery & Equipment Intangibles Infrastructure Total Depreciable Assets Less Accumulated Depreciation for: Buildings Other Improvements Machinery & Equipment Intangibles Infrastructure Total Accum. Depreciation Total Depreciable Assets, net Business-type Activities Capital Assets, net $ 54,813 17,560 106 143,304 215,783 Additions Retirements $ $ 2,011 102,243 104,254 (6,107) (61,776) (67,883) Transfers $ (4,089) (4,089) Balance June 30, 2017 $ 50,717 17,560 106 179,682 248,065 105,244 136,983 86,278 27,753 1,762,400 2,118,658 2,454 587 7,920 49,016 59,977 (4,741) (1,909) (204) (3,865) (10,719) 25 228 119 4,695 5,067 107,723 133,057 92,408 27,549 1,812,246 2,172,983 (27,579) (54,379) (48,483) (21,106) (757,347) (908,894) 1,209,764 (2,217) (4,666) (8,753) (909) (49,792) (66,337) (6,360) 4,726 1,909 151 2,816 9,602 (1,117) 5,067 (29,796) (54,319) (55,327) (21,864) (804,323) (965,629) 1,207,354 $1,425,547 $ 97,894 $ (69,000) $ 978 $ 1,455,419 Depreciation and Amortization expense was charged to enterprise functions in the government-wide financial statements as follows (in thousands): Electric Gas Water Wastewater Solid Waste Airport Golf Course Convention Center Hohokam Stadium/Fitch Complex Cubs Stadium District Cooling $ $ 3,694 4,532 26,290 21,039 2,551 1,728 158 263 1,751 3,909 422 66,337 56 (Continued) CITY OF MESA, ARIZONA NOTES TO FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 30, 2017 Construction in progress and related construction commitments are composed of the following (in thousands): Construction in Progress Governmental Activities General Government Public Safety Community Environment Cultural-Recreational Warehouse, Maintenance & Services Total $ $ 59,812 1,694 45,634 2,596 325 110,061 Construction in Progress Business-type Activities Electric Gas Water Wastewater Solid Waste Airport Golf Course Convention Center Spring Training Total $ $ 1,762 9,866 117,194 36,248 4,953 8,173 20 916 550 179,682 Commitments $ $ 21,659 300 1 251 22,211 Commitments $ $ 374 771 94,821 5,923 4,794 1,407 3 108,093 For the year ended June 30, 2017, the City capitalized net interest costs of $4,110,164. Total interest expense in the Business-type Activities Enterprise Fund before capitalization was $51,916,491. 57 (Continued) CITY OF MESA, ARIZONA NOTES TO FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 30, 2017 8. LONG-TERM OBLIGATIONS a. Changes in Long-Term Obligations The following is a summary of changes in long-term obligations (in thousands). Beginning Balances Governmental Activities: Bonds Payable: General Obligation Bonds Highway User Revenue Bonds Special Assessment Bonds with Governmental Commitment Community Facility District Total Bonds Payable $ 350,560 92,895 Additions $ 94,630 - Ending Balances Reductions $ (70,747) (7,900) $ 374,443 84,995 Amounts Due Within One Year $ 25,044 8,375 2,085 19,315 464,855 502 95,132 (745) (645) (80,037) 1,340 19,172 479,950 335 525 34,279 13,567 406,518 27,445 912,385 4,613 41,063 24,998 165,806 (2,165) (16,423) (24,121) (122,746) $ 16,015 431,158 28,322 955,445 7,947 42,226 (101,265) (78) (101,343) $ 1,161,755 312 94,060 1,256,127 (134) (3,874) (2,590) (3,771) (111,712) 1,851 45,365 82,392 4,223 $ 1,389,958 Unamortized Premiums Post Employment Benefits Compensated Absences Governmental Activities Total $ Business-type Activities: Bonds Payable: Revenue Bonds General Obligation Bonds Excise Tax Revenue Obligations Total Bonds Payable $ 1,063,710 390 94,060 1,158,160 Notes Payable Unamortized Bond Premiums Post Employment Benefits Compensated Absences Business-type Activities Total 1,985 39,396 78,507 4,111 $ 1,282,159 $ $ $ 199,310 199,310 9,843 6,475 3,883 219,511 $ $ $ $ $ $ 31,355 76 31,431 137 1,114 32,682 Internal service funds predominantly serve the governmental funds. Accordingly, long-term liabilities for internal service funds are included as part of the above totals for governmental activities. At year-end, $11,756,922 of internal service funds post-employment benefits and compensated absences are included in the above amounts. For governmental activities, post-employment benefits and compensated absences are generally liquidated by the general fund. 58 (Continued) CITY OF MESA, ARIZONA NOTES TO FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 30, 2017 b. Bonds Payable At June 30, 2017, long-term bonds payable consisted of: Classified in Governmental Activities on the government-wide financial statements: General Obligation Bonds Bonds Outstanding (In Thousands) $46,230,300 2004 general obligation refunding serial bonds, (partially refunded by 2016 taxable general obligation refunding), due in annual installments ranging from $34,839 to $31,852,800, plus semi-annual interest ranging from 2.4 percent to 5.0 percent through July 1, 2018. $ 9,023 $9,710,000 2006 general obligation serial bonds, (partially refunded by 2016 general obligation refunding bonds), due in annual installments ranging from $135,000 to $4,225,000, plus semi-annual interest ranging from 4.40 percent to 5.0 percent through July 1, 2020. 1,575 $15,915,000 2007 general obligation serial bonds, (partially refunded by 2016 general obligation refunding bonds), due in annual installments ranging from $615,000 to $5,500,000, plus semi-annual interest ranging from 4.125 percent to 6.0 percent through July 1, 2022. 2,815 $15,450,000 2008 general obligation serial bonds, (partially refunded by 2017 general obligation refunding bonds), due in annual installments ranging from $375,000 to $6,675,000, plus semi-annual interest ranging from 4.25 percent to 5.0 percent through July 1, 2021. 1,875 $61,830,000 2009 general obligation serial bonds, (partially refunded by 2017 general obligation refunding bonds), due in annual installments ranging from $1,750,000 to $10,125,000, plus semi-annual interest ranging from 4.0 percent to 4.625 percent through July 1, 2019. 4,370 $30,865,000 2010 general obligation bonds due in annual installments ranging from $1,115,000 to $13,225,000, plus semi-annual interest ranging from 4.75 percent to 5.85 percent through July 1, 2030. 30,865 $29,320,000 2011 general obligation serial bonds due in annual installments ranging from $800,000 to $6,825,000, plus semi-annual interest ranging from 2 percent to 4.25 percent through July 1, 2031. 22,125 $27,290,000 2012 general obligation serial bonds due in annual installments ranging from $840,000 to $8,550,000, plus semi-annual interest ranging from 2 percent to 4 percent through July 1, 2032. 22,925 $31,148,160 2012 general obligation refunding serial bonds due in annual installments ranging from $419,601 to $7,350,252, plus semi-annual interest ranging from 2 percent to 4 percent through July 1, 2022. 10,600 59 (Continued) CITY OF MESA, ARIZONA NOTES TO FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 30, 2017 $8,915,000 2013 general obligation refunding serial bonds due in annual installments ranging from $30,000 to $3,250,000, plus semi-annual interest ranging from .7 percent to 5 percent through July 1, 2024. $ 8,795 $59,960,000 2013 general obligation serial bonds due in annual installments ranging from $1,635,000 to $12,675,000, plus semi-annual interest ranging from 1.5 percent to 4 percent through July 1, 2023. 52,400 $37,550,000 2014 general obligation serial bonds due in annual installments ranging from $1,050,000 to $5,575,000, plus semi-annual interest ranging from 2 percent to 3.6 percent through July 1, 2034. 29,825 $13,690,000 2015 general obligation serial bonds due in annual installments ranging from $250,000 to $6,700,000, plus semi-annual interest ranging from 2 percent to 5 percent through July 1, 2035. 6,740 $37,700,000 2016 general obligation serial bonds due in annual installments ranging from $825,000 to $2,775,000, plus semi-annual interest ranging from 2 percent to 4 percent through July 1, 2036. 35,500 $20,475,000 2016 general obligation refunding serial bonds due in annual installments ranging from $60,000 to $5,300,000, plus semi-annual interest ranging from 2 percent to 4 percent through July 1, 2027. 20,415 $22,829,500 2016 taxable general obligation refunding serial bonds due in annual installments ranging from $1,000,000 to $3,565,000, plus semiannual interest ranging from .85 percent to 30 percent through July 1, 2029. 20,525 $47,180,000 2017 general obligation serial bonds due in annual installments ranging from $1,500,000 to $5,725,000, plus semi-annual interest ranging from 3 percent to 3.25 percent through July 1, 2037. 47,180 $47,450,000 2017 general obligation refunding serial bonds due in annual installments ranging from $50,000 to $9,920,000, plus semi-annual interest ranging from 2 percent to 4 percent through July 1, 2029. Total General Obligation Bonds $ 46,890 $ 374,443 Street and Highway User Revenue Bonds $26,805,000 2003 street and highway user revenue bonds, (partially refunded by street and highway user revenue refunding bonds, series 2012) due in annual principal installments ranging from $500,000 to $9,750,000, plus semi-annual interest ranging from 4.25 percent to 5.50 percent through July 1, 2018. 60 $ 850 (Continued) CITY OF MESA, ARIZONA NOTES TO FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 30, 2017 $9,585,000 2004 street and highway user revenue bonds (partially refunded by street and highway user revenue refunding bonds, series 2005), due in annual principal installments ranging from $100,000 to $225,000, plus semi-annual interest ranging from 4.00 percent to 5.00 percent through July 1, 2022. $ 775 $17,760,000 2004 street and highway user revenue refunding bonds, due in annual installments ranging from $20,000 to $7,250,000, plus semiannual interest ranging from 3.5 percent to 5.0 percent through July 1, 2018. 7,250 $23,800,000 2005 street and highway user revenue refunding bonds, due in annual principal installments ranging from $25,000 to $8,000,000, plus semi-annual interest ranging from 2.75 percent to 5.0 percent through July 1, 2023. 23,750 $10,225,000 2005 street and highway user revenue bonds, due in annual principal installments ranging from $50,000 to $8,500,000, plus semiannual interest ranging from 4.0 percent to 5.0 percent through July 1, 2023. 825 $11,675,000 2006 street and highway user revenue bonds, due in annual installments ranging from $850,000 to $9,850,000, plus semi-annual interest ranging from 4.50 percent to 5.25 percent through July 1, 2024. 1,825 $10,675,000 2007 street and highway user revenue bonds, due in annual principal installments ranging from $1,000,000 to $3,900,000, plus semiannual interest ranging from 4.25 percent to 5.0 percent through July 1, 2025. 3,000 $36,090,000 2012 street and highway user revenue refunding bonds, due in annual installments ranging from $665,000 to $9,700,000, plus semiannual interest ranging from 3.0 percent to 5.0 percent through July 1, 2022. 20,665 $8,500,000 2013 street and highway user revenue refunding bonds, due in one installment of $8,500,000 plus semi-annual interest of 5 percent through July 1, 2024. 8,500 $17,555,000 2015 street and highway user revenue refunding bonds, due in annual installments ranging from $15,000 to $9,880,000 plus semiannual interest of 3 to 5 percent through July 1, 2027. $ 17,555 Total Street and Highway User Revenue Bonds $ 84,995 Special Assessment Bonds (payable from special assessments levied on the benefited properties) $5,025,000 2005 special assessment district bonds, due in annual principal installments of $335,000, plus semi-annual interest of 5.80 percent, through January 1, 2021. 61 $ 1,340 (Continued) CITY OF MESA, ARIZONA NOTES TO FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 30, 2017 Community Facilities District $2,712,000 2013 Eastmark Community Facilities District No. 1 (City of Mesa, Arizona) Assessment District No. 1 Special Assessment Revenue Bonds, due in annual principle installments ranging from $62,000 to $95,000, plus semi-annual interest ranging from 4.6 percent to 5.3 percent through July 1, 2038. $ 2,346 $3,250,000 2014 Eastmark Community Facilities District No. 1 (City of Mesa, Arizona) General Obligation Bonds, due in annual principle installments ranging from $65,000 to $225,000, plus semi-annual interest ranging from 4.8 percent to 5.3 percent through July 15, 2038. 3,020 $3,367,000 2014 Eastmark Community Facilities District No. 1 (City of Mesa, Arizona) Assessment District No. 2 Special Assessment Revenue Bonds, due in annual principle installments ranging from $85,000 to $225,000, plus semi-annual interest ranging from 2 percent to 5.375 percent through July 1, 2039. 3,058 $1,942,000 2015 Eastmark Community Facilities District No. 1 (City of Mesa, Arizona) Assessment District No. 3 Special Assessment Revenue Bonds, due in annual principle installments ranging from $52,000 to $135,000, plus semi-annual interest ranging from 2.3 percent to 5.2 percent through July 1, 2039. 1,875 $6,800,000 2015 Eastmark Community Facilities District No. 1 (City of Mesa, Arizona) General Obligation Bonds, due in annual principle installments ranging from $165,000 to $680,000, plus semi-annual interest ranging from 4 percent to 5 percent through July 15, 2039. 6,430 $970,000 2015 Eastmark Community Facilities District No. 1 (City of Mesa, Arizona) Assessment District No. 4 Special Assessment Revenue Bonds, due in annual principle installments ranging from $25,000 to $65,000, plus semi-annual interest ranging from 2.4 percent to 5 percent through July 1, 2040. 914 $1,060,000 2016 Eastmark Community Facilities District No. 1 (City of Mesa, Arizona) Assessment District No. 5 Special Assessment Revenue Bonds, due in annual principle installments ranging from $30,000 to $70,000, plus semi-annual interest ranging from 1.85 percent to 4.75 percent through July 1, 2040. 1,027 $502,000 2017 Eastmark Community Facilities District No. 1 (City of Mesa, Arizona) Assessment District No. 6 Special Assessment Revenue Bonds, due in annual principle installments ranging from $7,000 to $35,000, plus semi-annual interest ranging from 3.5 percent to 5.25 percent through July 1, 2041. 502 Total Community Facilities District Bonds Total bonds payable recorded in governmental activities 62 $ 19,172 $ 479,950 (Continued) CITY OF MESA, ARIZONA NOTES TO FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 30, 2017 Classified in Business-type Activities on the government-wide financial statements: General Obligation Bonds $214,700 2004 general obligation refunding serial bonds, due in annual principal installments ranging from $34,839 to $31,852,800, plus semiannual interest ranging from 2.4 percent to 5.0 percent through July 1, 2018. $ 41 $516,840 2012 general obligation refunding serial bonds, due in annual principal installments ranging from $15,399 to $269,748, plus semiannual interest ranging from 2 percent to 4 percent through July 1, 2022. 176 $105,501 2016 general obligation refunding serial bonds, due in annual principal installments ranging from $4,600 to $16,399, plus semi-annual interest ranging from .85 percent to 3 percent through July 1, 2029. 95 Total General Obligation Bonds $ 312 Utility Systems Revenue Bonds $64,625,000 2004 utility systems revenue serial bonds, (partially refunded by 2006 (Series 2) and 2016 utility systems revenue refunding bonds), due in annual principal installments ranging from $1,125,000 to $11,000,000, plus semi-annual interest ranging from 5.00 percent to 6.00 percent through July 1, 2022. $ 2,250 $40,345,000 2004 utility systems revenue refunding serial bonds, due in annual principal installments ranging from $20,000 to $21,010,000, plus semi-annual interest ranging from 3.50 percent to 5.00 percent through July 1, 2019. 37,025 $91,200,000 2005 utility systems revenue serial bonds, (partially refunded by 2006, 2012 & 2016 utility systems revenue refunding bonds), due in annual principal installments ranging from $750,000 to $24,000,000, plus semi-annual interest ranging from 4.125 percent to 5.0 percent through July 1, 2023. 10,750 $105,400,000 2006 utility systems revenue serial bonds, (partially refunded by 2006 (Series 2), 2016 and 2017 utility systems revenue refunding bonds), due in annual principal installments ranging from $8,650,000 to $36,750,000, plus semi-annual interest ranging from 4.375 percent to 5.0 percent through July 1, 2024. 13,255 $61,300,000 2006 utility systems revenue refunding serial bonds, due in annual principal installments ranging from $2,075,000 to $18,000,000, plus semi-annual interest ranging from 4.0 percent to 5.0 percent through July 1, 2021. 56,000 63 (Continued) CITY OF MESA, ARIZONA NOTES TO FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 30, 2017 $127,260,000 2006 (Series 2) utility systems revenue refunding serial bonds, (partially refunded by 2017 utility systems revenue refunding bonds), due in annual principal installments ranging from $50,000 to $25,845,000, plus semi-annual interest ranging from 4.0 percent to 5.25 percent through July 1, 2024. $ 56,445 $65,550,000 2007 utility systems revenue serial bonds, (partially refunded by 2016 and 2017 utility systems revenue refunding bonds), due in annual principal installments ranging from $2,500,000 to $41,800,000, plus semiannual interest ranging from 4.25 percent to 6.25 percent through July 1, 2025. 6,315 $52,875,000 2008 utility systems revenue serial bonds, (partially refunded by 2016 utility systems revenue refunding bonds), due in annual principal installments ranging from $700,000 to $44,675,000, plus semi-annual interest ranging from 4.875 percent to 5.25 percent through July 1, 2029. 6,100 $21,125,000 2008 utility systems revenue refunding serial bonds, due in annual principal installments ranging from $100,000 to $2,200,000, plus semi-annual interest ranging from 3.00 percent to 4.00 percent through July 1, 2018. 2,200 $59,900,000 2009 utility systems revenue serial bonds, due in annual principal installments ranging from $900,000 to $48,250,000, plus semiannual interest ranging from 5.875 percent to 6.375 percent through July 1, 2033. 59,900 $50,380,000 2010 utility systems revenue serial bonds, due in one principal installment, plus semi-annual interest of 6.10 percent through July 1, 2034. 50,380 $53,950,000 2011 utility systems revenue serial bonds, due in one principal installment, plus semi-annual interest of 5.0 percent through July 1, 2035. 53,950 $67,300,000 2012 utility systems revenue serial bonds, due in one principal installment, plus semi-annual interest of 4.0 percent through July 1, 2036. 67,300 $31,580,000 2012 utility systems revenue refunding serial bonds, (partially refunded by 2017 utility systems revenue refunding bonds), due in annual principal installments ranging from $7,440,000 to $9,150,000, plus semi-annual interest ranging from 4.0 percent to 4.826 percent through July 1, 2021. 14,905 $80,295,000 2012 taxable utility systems revenue refunding serial bonds, due in annual principal installments ranging from $3,225,000 to $9,150,000, plus semi-annual interest ranging from 3.269 percent to 5.048 percent through July 1, 2035. 80,295 64 (Continued) CITY OF MESA, ARIZONA NOTES TO FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 30, 2017 $47,290,000 2013 utility systems revenue bonds, due in one principal installment plus semi-annual interest of 4.0 percent through July 1, 2037. $ 47,290 $36,385,000 2014 utility systems revenue bonds, due in two principal installments of $20,000,000 and $16,385,000, plus semi-annual interest of 4.0 percent through July 1, 2038. 36,385 $102,945,000 2014 utility systems revenue refunding serial bonds, due in annual principal installments ranging from $475,000 to $22,955,000, plus semi-annual interest ranging from 2 percent to 4 percent through July 1, 2030. 102,945 $30,220,000 2015 utility systems revenue bonds, due in principal installments ranging from $1,000,000 to $2,375,000, plus semi-annual interest of 2 percent to 5 percent through July 1, 2039. 30,220 $90,500,000 2016 utility systems revenue serial bonds, due in annual principal installments ranging from $1,000,000 to $22,550,000, plus semiannual interest ranging from 3 percent to 5 percent through July 1, 2040. 90,500 $138,035,000 2016 utility systems revenue refunding serial bonds, due in annual principal installments ranging from $3,375,000 to $44,890,000, plus semi-annual interest ranging from 4 percent to 5 percent through July 1, 2032. 138,035 $123,875,000 2017 utility systems revenue serial bonds, due in annual principal installments ranging from $2,000,000 to $18,900,000, plus semiannual interest ranging from 3 percent to 5 percent through July 1, 2041. 123,875 $74,435,000 2017 utility systems revenue refunding serial bonds, due in annual principal installments ranging from $885,000 to $26,565,000, plus semi-annual interest of 4 percent through July 1, 2028. 75,435 Total Utility Systems Revenue Bonds $ 1,161,755 Excise Tax Revenue Obligations $94,060,000 2013 excise tax revenue obligation, due in annual principal installments ranging from $6,620,000 to $10,785,000, plus semi-annual interest of 5.0 percent through July 1, 2032. $ Total bonds payable recorded in business-type activities $ 1,256,127 94,060 The following tables summarize the City’s debt service requirements to maturity for its long-term bonds payable at June 30, 2017 (in thousands). The deferred amounts on refundings are not included. 65 (Continued) CITY OF MESA, ARIZONA NOTES TO FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 30, 2017 Governmental Activities General Obligation Bonds Fiscal Year 2018 2019 2020 2021 2022 2023-27 2028-32 2033-37 Principal $ 25,044 19,309 18,896 19,492 20,161 115,907 112,079 43,555 Interest $ 13,242 12,155 11,482 10,834 10,180 39,999 17,870 2,786 TOTALS $ 374,443 $ 118,548 $ Highway User Revenue Bonds Total 38,286 31,464 30,378 30,326 30,341 155,906 129,949 46,341 $ 492,991 Fiscal Year 2018 2019 2020 2021 2022 2023-27 2028-32 2033-37 TOTALS $ Principal 8,375 8,715 9,155 9,645 10,075 39,030 - $ 84,995 Special Assessment Bonds Fiscal Year 2018 2019 2020 2021 2022 2023-27 2028-32 2033-37 2038-41 TOTALS Principal $ 335 335 335 335 - Interest $ 68 48 29 10 - $ $ 1,340 155 $ $ 20,506 $ $ Total 12,455 12,378 12,398 12,441 12,390 43,439 105,501 Community Facilities District Total 403 383 364 345 - $ Interest $ 4,080 3,663 3,243 2,796 2,315 4,409 - 1,495 Fiscal Year 2018 2019 2020 2021 2022 2023-27 2028-32 2033-37 2038-41 TOTALS $ Principal 525 546 564 589 619 3,506 4,420 5,684 2,719 $ 19,172 Interest $ 919 896 876 854 831 3,741 2,829 1,591 221 $ 12,758 $ $ Total 1,444 1,442 1,440 1,443 1,450 7,247 7,249 7,275 2,940 31,930 Business-type Activities General Obligation Bonds Fiscal Year 2018 2019 2020 2021 2022 2023-27 2028-32 2033-37 2038-41 TOTALS Principal $ 76 46 40 43 44 48 15 - Interest $ 11 7 6 5 3 7 1 - $ $ 312 40 Revenue Bonds $ 87 53 46 48 47 55 16 - Fiscal Year 2018 2019 2020 2021 2022 2023-27 2028-32 2033-37 2038-41 $ 352 TOTALS Total 66 Principal 31,355 32,660 30,560 33,840 38,305 219,680 272,450 345,400 157,505 Interest $ 51,186 49,205 47,595 46,166 44,557 193,528 143,318 73,735 11,053 $ 1,161,755 $ 660,343 $ $ Total 82,541 81,865 78,155 80,006 82,862 413,208 415,768 419,135 168,558 $ 1,822,098 (Continued) CITY OF MESA, ARIZONA NOTES TO FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 30, 2017 Excise Tax Revenue Obligations Fiscal Year 2018 2019 2020 2021 2022 2023-27 2028-32 TOTALS Principal $ 6,620 38,415 49,025 Interest $ 4,703 4,703 4,703 4,703 4,703 18,206 7,593 $ $ 94,060 49,314 $ Total 4,703 4,703 4,703 4,703 11,323 56,621 56,618 $ 143,374 General Obligation Bonds The general obligation bonds are backed by the ultimate taxing power and general revenues of the City; however, $312,183 of these bonds at June 30, 2017 is carried as a liability of the Enterprise Fund to reflect the intention of retirement from resources of that fund. All bonds, except Special Assessment Bonds, are callable by the City at various dates and at various premiums. The Arizona Constitution provides that the general obligation bonded indebtedness of a city for general municipal purposes may not exceed 6 percent of the secondary assessed valuation of the taxable property in that city. In addition to the 6 percent limitation for general municipal purpose bonds, cities may issue general obligation bonds up to an additional 20 percent of the secondary assessed valuation for supplying such city with water, artificial light or sewers, and for the acquisition and development of land for open space preserves, parks, playgrounds and recreation facilities, public safety, law enforcement, fire and emergency services facilities and streets and transportation facilities. General obligation bonds of community facilities districts are not subject to or included in this calculation. The total debt margin available July 1, 2017 is (in thousands): 6% Bonds 20% Bonds Total Available $ 172,451 203,749 $ 376,201 Special Assessment Bonds The City acts as trustee for Special Assessment districts whereby it collects special assessments levied against owners of property within established districts and disburses the amounts collected to retire bonds issued to finance improvements. The improvement bonds are collateralized by these properties. In the event of default by the property owner, the City may enforce an auction sale to satisfy the debt service requirements of the improvement bonds. The City is contingently liable on special assessment bonds to the extent that proceeds from auction sales are insufficient to retire outstanding bonds. Special assessment revenues collected by the City are pledged to repay $9.1 million of improvement bonds issued since 2005. Proceeds from the bonds are used to finance improvements that property owners have agreed to pay. In the event of default by the property owner, an auction sale may be enforced by the City. If collections and auction proceeds are not sufficient to retire outstanding bonds, the City is contingently liable. These bonds are payable through 2021. Annual 67 (Continued) CITY OF MESA, ARIZONA NOTES TO FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 30, 2017 principal and interest payments on the bonds are expected to be covered 100% with collections from the property owners. The total principal and interest remaining to be paid on the bonds is $1,495,440. Principal and interest paid for the current year and total assessments collected were $842,685, and $1,041,033, respectively. Community Facilities Districts Special Assessment and General Obligation Bonds Community Facilities District Special Assessment and General Obligation Bonds are issued by Community Facilities Districts (CFDs), which are special purpose districts created specifically to acquire and improve public infrastructure in specified land areas. The City has no liability for CFD bonds. CFD general obligation bonds are repaid by ad valorem taxes levied directly by the districts and collected by the county. Property owners in the districts are assessed for district taxes and thus for all costs associated with the districts. As of June 30, 2017, total principal and interest outstanding for CFD general obligation bonds was $15,682,650. CFD special assessment bonds are collateralized by properties within established districts. In the event of default by the property owner, the CFD may enforce an auction sale to satisfy the debt service requirements of the assessment bonds. At June 30, 2017, the special assessments receivable for CFDs, together with amounts paid in advance and interest to be received over the life of the assessment period, is adequate for the scheduled maturities of the bonds payable and the related interest. The total principal and interest remaining to be paid on the bonds is $16,247,881. Principal and interest paid for the current year and total assessments collected were $847,595, and $789,473, respectively. Utility System Revenue Bonds City revenue bond indenture ordinances require that the net amount of revenues of the electric, gas, water, wastewater and solid waste systems (total revenues less operations and maintenance expenses) equal 120 percent of the principal and interest requirement in each fiscal year. The above covenant and all other bond covenants have been met. Pursuant to the provisions of the Bond Resolution of the City of Mesa Utility System Revenue and Refunding bonds, Replacement and Reserve Funds are required to be established, into which a sum equal to 2 percent of the gross revenues – as determined on a modified accrual basis – must be deposited until a sum equal to 2 percent of all tangible assets of the Utility System is accumulated. As of June 30, 2017, the amount provided in the Replacement and Extension Funds equaled $26,520,040 which is in compliance with the bond provisions. c. Notes Payable Business Type Activities The City entered into four separate loan agreements with the Water Infrastructure Finance Authority of Arizona. The purposes of the loans are to make improvements and upgrades to existing water and wastewater projects. The loans utilize funds from the United States Environmental Protection Agency pursuant to the federal American Reinvestment and Recovery Act of 2009. Subject to the City meeting the required specifications of the loan documents, two of the loans include a combined interest and fee rate subsidy and the two remaining loans include a principal forgiveness portion. Total principal (without principal forgiveness) is $3,486,902 and the loans have a 20-year repayment period. The total principal forgiveness is $626,000. Total interest over the 20 years with principal forgiveness and the combined interest and fee rate subsidy is $635,736. 68 (Continued) CITY OF MESA, ARIZONA NOTES TO FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 30, 2017 The following table reflects the annual requirements to amortize all notes outstanding as of June 30, 2017 (in thousands): Fiscal Year 2018 2019 2020 2021 2022 2023-27 2028-32 TOTALS Business-type Activities Interest Principal & Fees Total $ 137 $ 41 $ 178 140 38 178 143 35 178 146 31 177 149 28 177 798 91 889 338 11 349 $ 1,851 $ 275 $ 2,126 d. Short-term Debt The City had no short-term debt activity for the fiscal year ended June 30, 2017. e. Series 2012 Special Activity Revenue Bonds PMGAA issued $19,220,000 in special facility Revenue Bonds on February 29, 2012. The City has entered into a memorandum of understanding (MOU) with PMGAA and Able Engineering and Component Services for the development, construction and lease of an aircraft maintenance repair and overhaul facility at Phoenix-Mesa Gateway Airport. In general, the MOU addresses PMGAA issuing Special Facility Revenue Bonds, constructing the facility and leasing the facility to the City. The City, in turn, will sublease the facility to Able Engineering. The City pledged a portion of its excise taxes as security for payment of the base rent. The pledge of such excise taxes will be a junior lien subordinate to certain outstanding senior obligations. The bonds are payable from the future revenues from the City through 2038. During that time frame, total principal and interest to be paid on the bonds will be $35,216,300. The bonds are not considered the debt of the City. f. Pledged Revenues Utility System Revenue Bonds The City has pledged future utility customer revenues, net of specified operating expenses, to repay approximately $2.1 billion in utility system revenue bonds issued since 2004. Proceeds from the bonds provided financing for the construction of various utility related projects including new gas pipelines and water and wastewater treatment plants. The bonds are payable solely from utility customer net revenues and are payable through 2041. Annual principal and interest payments on the bonds were 33.0 percent of net revenues. The total principal and interest remaining to be paid on the bonds is $1.8 billion. Principal and interest paid for the current year and total customer net revenues were $60,598,804 and $181,641,832, respectively. 69 (Continued) CITY OF MESA, ARIZONA NOTES TO FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 30, 2017 Highway User Revenue Bonds The City has pledged future Highway User Taxes Revenue to repay $230.5 million in highway user revenue bonds issued since 2002. Proceeds from the bonds provided financing for streets projects. The bonds are payable solely from the state shared Highway User Tax revenues and are payable through 2027. Annual principal and interest payments on the bonds were 32.5 percent of eligible revenues. The total principal and interest remaining to be paid on the bonds is $105,500,988. Principal and interest paid for the current year and total highway user tax revenues were $12,373,013 and $38,030,435, respectively. 9. REFUNDED, REFINANCED AND DEFEASED OBLIGATIONS On February 23, 2017, the City called for the early redemption of $6,080,000 in utility revenue bonds from existing resources of the City to increase the margin available for additional new money bond issuance. This defeasance was funded with Utility Systems Impact fees of $7,370,298 provided to a defeasance escrow agent for the purchase of United States Government securities, and Utility Systems Net Revenues of $41,000 to cover transaction costs. The securities were deposited to an irrevocable trust to provide for all future debt service payments of the defeased bonds totaling $8,343,156. As a result, the liability for the defeased bonds has been removed from the debt of the City. On April 5, 2017, the City issued $75,435,000 of utility revenue bonds with an original issue premium of $7,908,452 to advance refund $81,300,000 of outstanding utility revenue bonds. The refunding bonds were issued with an interest rate of 4 percent. Net proceeds in the amount of $83,219,961 (after payment of $119,185 in underwriters’ fees and deposit of $4,306 to the City’s bond fund) were provided to a refunding escrow agent to pay issuance costs of $260,817 and the remaining $82,959,144 used to provide cash and purchase United States Government securities. The cash and securities were deposited in an irrevocable trust to provide for all future debt service payments of the refunded bonds. As a result, the refunded bonds are considered defeased and the liability for those bonds has been removed from the debt of the City. The advanced refunding resulted in a difference between the reacquisition price and the net carrying amount of the old debt of $1,659,144. This difference, reported in the accompanying financial statements as a deduction from utility revenue bonds payable, is being charged to operations through the year 2028 using the effective interest method. The purpose of the refunding was to take advantage of lower interest rates. The refunding will decrease debt service payments by $8,071,563 over the next 16 years producing an economic gain (difference between the present value of old and new debt service payments) of $8,603,245. On April 5, 2017, the City issued $47,450,000 of general obligation bonds with an original issue premium of $3,843,391 to advance refund $47,450,000 of outstanding general obligation bonds. The refunding bonds were issued with an interest rate ranging from 2 to 4 percent. Net proceeds of $51,097,107 (after payment of $88,761 in underwriters’ fees and a deposit of $107,523 to the debt service fund) were provided to a refunding escrow agent to pay issuance costs of $205,000 with the remaining $50,892,107 used to provide cash and purchase United States Government securities. The cash and securities were deposited in an irrevocable trust to provide for all future debt service payments of the refunded bonds. As a result, the refunded bonds are defeased and the liability for those bonds has been removed from the debt of the City. The advanced refunding resulted in a difference between the reacquisition price and the net carrying amount of the old debt of $3,442,107. This difference, reported in the accompanying financial statements as a deduction from general obligation bonds payable, is being charged to operations through the year 2029 using the effective interest method. The purpose of the refunding was to take advantage 70 (Continued) CITY OF MESA, ARIZONA NOTES TO FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 30, 2017 of lower interest rates. The refunding will decrease debt service payments by $3,755,652 over the next 11 years producing an economic gain (difference between the present value of old and new debt service payments) of $3,284,375. Liabilities to be Paid from Assets Held in Escrow Liabilities to be paid from assets held in escrow include bonded debt of the City that has been provided for through an Advanced Refunding Bond Issue. Under an advanced refunding arrangement, refunding bonds are issued and the net proceeds, plus additional resources that may be required, are used to purchase securities issued or guaranteed by the United States Government. These securities are then deposited in an irrevocable trust under an escrow agreement which provides that all proceeds from the trust will be used to fund the principal and interest payments of the previously issued bonded debt being refunded. The trust deposits have been computed so that the securities in the trust, along with future cash flow generated by the securities, will be sufficient to service the previously issued bonds. In accordance with GASB Statement No. 7, the refunded debt outstanding at June 30, 2017 as reflected below is not included in the City’s financial statements (in thousands). Utility System Revenue Bond Issue dated February 1, 2003 $ 2,000 General Obligation Bond Issue dated January 15, 2004 22,935 Utility System Revenue Bond Issue dated June 1, 2004 3,875 Utility System Revenue Bond Issue dated June 1, 2005 2,750 Utility System Revenue Bond Issue dated May 29, 2008 46,775 General Obligation Bond Issue dated May 8, 2008 11,575 General Obligation Bond Issue dated May 27, 2009 35,875 Utility System Revenue Bond Issue dated June 28, 2006 4,395 Utility System Revenue Bond Issue dated May 30, 2007 1,685 Total Refunded and Defeased Bonds Outstanding $ 131,865 10. SELF-INSURANCE INTERNAL SERVICE FUND The Property and Public Liability, Workers’ Compensation and Employee Benefits Internal Service Funds have been established to account for the costs of claims incurred by the City under self-insurance programs. The City is fully self-insured for all public liability risks, up to a maximum of $3,000,000 per occurrence, for the current policy year under the Property and Public Liability Insurance program. In addition, the City carries full property insurance with a $50,000 per occurrence deductible. Under the Workers’ Compensation Program, the City is subject to a maximum deductible of $1,000,000 liability per occurrence. In the Employee Benefits Fund, the City has excess insurance coverage when an individual’s claims exceed $225,000 per contract year. There were no changes in insurance coverage during this fiscal year for any of the three Self-Insurance Funds. 71 (Continued) CITY OF MESA, ARIZONA NOTES TO FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 30, 2017 The Workers’ Compensation Fund does not have a stop loss receivable at June 30, 2017. Over the past three fiscal years the Fund has received settlements in excess of insurance coverage of $226,148 with $199,372 received this fiscal year. The Fund has not received any settlements in excess of insurance coverage this past year. The Property and Public Liability Fund does not have a stop loss receivable at June 30, 2017, and the Fund has not received any settlements in excess of insurance coverage over the past three fiscal years. The Employee Benefits Fund does not have stop loss receivable at June 30, 2017. Over the past three fiscal years the Fund has received settlements in excess of insurance coverage of $3,706,051 with $1,225,568 received this current fiscal year. The various funds of the City include, as expenditures, amounts contributed to each of the selfinsurance funds during the fiscal year. The estimated liability for claims outstanding is determined by a yearly actuarial study in the Property and Public Liability Fund and the Workers Compensation Fund. The claims liability in the Employee Benefits Fund is generated by a third-party claims processing company. Changes in the balances of claims liabilities during the past two fiscal years are as follows (in thousands): Property & Public Workers' Employee Liability Compensation Benefits Total Unpaid Claims, 6/30/15 Adjustments to Reserves-FY 15-16 Claim Payments-FY 15-16 Unpaid Claims, 6/30/16 Adjustments to Reserves-FY 16-17 Claim Payments-FY 16-17 Unpaid Claims, 6/30/17 $ 9,624 3,578 (603) $ 12,599 23,153 (894) (366) $11,339 23,665 2,481 (2,993) 347 (254) $ 23,246 $ 2,738 66,977 (67,019) $36,027 73,036 (70,615) 2,696 38,448 69,643 (68,087) 69,096 (68,707) $ 4,252 $38,837 All unpaid claims are reported as current liabilities in the Statement of Net Position as the change in these amounts have already been expensed in the statement of activities. 11. COMMITMENTS AND CONTINGENT LIABILITIES a. Pending Litigation The City is subject to a number of lawsuits, investigations, and other claims (some of which involve substantial amounts) that are incidental to the ordinary course of its operations, including those related to wrongful death and personal injury matters. Although the City Attorney does not currently possess sufficient information to reasonably estimate the amounts of the liabilities to be recorded upon the settlement of such claims and lawsuits, some claims could be significant to the City’s operations. While the ultimate resolution of such lawsuits, investigations, and claims cannot be determined at this time, in the opinion of City management, based on the advice of the City Attorney, the resolution of these matters will not have a material adverse effect on the City’s financial position. 72 (Continued) CITY OF MESA, ARIZONA NOTES TO FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 30, 2017 b. Sick Leave Benefits Sick leave benefits provided for ordinary sick pay are not vested with the employee. Fifty percent of unused benefits are payable only upon retirement of an employee. In accordance with the criteria, sick leave paid within 60 days of the year-end has been recorded as a liability in the governmental fund financial statements. Long-term liabilities of governmental funds are not shown on the fund financial statements. In the government-wide financial statements as well as the proprietary fund financial statements, an amount of estimated sick leave payable to employees has been expensed and the liability is shown in the appropriate funds. These amounts have been calculated based on the vested method. The total sick leave balance recorded as a liability at June 30, 2017, is $11,306,868. 12. NET POSITION a. Restricted Net Position The government-wide statement of net position reports $131.8 million of restricted net position, of which $59.5 million is restricted by enabling legislation. b. Designated Net Position The net position in the Employee Benefits Self Insurance Fund is designated for anticipated future losses and is a result of excess premiums charged to increase the fund balance specifically for this purpose. c. Deficit Net Position The deficit in the Worker’s Compensation Self-Insurance Fund consists of prior years’ deficit where claims expenses exceeded revenues received. The City’s funding plan calls for yearly contributions from various funds to equal the years estimated claims and claim related expenses. Future claim liabilities are not considered in determining funding for each year. The deficit in the Property and Public Liability Fund was a result of other post-employment benefit charges and pension expense. The City’s funding plan calls for yearly contributions from the general fund to equal the years estimated claims and claim related expenses. Post-employment benefit charges and pension expense are not considered in determining funding for each year. The deficit in the Warehouse, Maintenance and Services fund was a result of other postemployment benefit charges and pension expense. The City’s funding plan calls for Charges for Services to cover operational expenses. Post-employment benefit charges and pension expense are not considered in determining Charges for Services. 73 (Continued) CITY OF MESA, ARIZONA NOTES TO FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 30, 2017 13. ENTERPRISE ACTIVITIES OPERATIONS DETAIL The Enterprise Fund includes operations of electricity, gas, water, wastewater, solid waste, airport, golf course, convention center, stadiums and district cooling. Although the City’s Enterprise Fund does not meet the requirements for disclosing segment information, the services provided by the City are of such significance as to warrant certain additional disclosures. Operating revenue, expenses and operating income (loss) for the year ended June 30, 2017 for these services are as follows (in thousands): Functions Electric Gas Water Wastewater Solid Waste Airport Golf Course Convention Center Hohokam /Fitch Complex Cubs Stadium District Cooling Total Operating Expenses Depreciation and Amortization Other $ 3,694 $ 21,589 4,532 28,591 26,290 46,718 21,039 35,032 2,551 35,221 1,728 3,397 158 1,861 263 4,448 1,751 1,936 3,909 2,133 422 846 $ 66,337 $ 181,772 Operating Revenues $ 33,534 39,752 138,335 79,056 58,117 3,846 1,545 3,299 54 291 1,231 $ 359,060 Operating Income (Loss) $ 8,251 6,629 65,327 22,985 20,345 (1,279) (474) (1,412) (3,633) (5,751) (37) $ 110,951 14. JOINT VENTURES The City currently participates in five joint ventures. The Greenfield Water Reclamation Plant and TOPAZ Regional Wireless Cooperative are managed by the City of Mesa, while the Subregional Operating Group, the Val Vista Water Treatment Plant, and Valley Metro Rail, Inc. are managed externally. The City's investment in these Joint Ventures as of June 30, 2017, is as follows (in thousands): Valley Metro Rail Inc. TOPAZ Regional Wireless Cooperative Subregional Operating Group Val Vista Water Treatment Plant Greenfield Water Reclamation Plant Joint Ventures Construction Deposits Total Investment in Joint Ventures Governmental Activities $ 198,417 5,409 $ 203,826 74 Business-Type Activities $ 85,293 53,388 60,346 4,086 $ 203,113 Total $ 198,417 5,409 85,293 53,388 60,346 4,086 $ 406,939 (Continued) CITY OF MESA, ARIZONA NOTES TO FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 30, 2017 Valley Metro Rail, Inc. “VMRI” The City currently participates in the Central Phoenix/East Valley Light Rail Transit (LRT) along with the cities of Phoenix, Tempe and Glendale. Valley Metro Rail, Inc. (VMRI) is the management agency that was incorporated to administer the joint agreement between the cities and has oversight responsibility for the planning, design, construction and operation of the system. The agreement provides voting rights for members of the representative cities, including passage of an annual budget. The City has ongoing financial responsibility as a result of the joint agreement including participation in the cost to construct and to operate the light rail project less any Federal reimbursements and operating fares. A total of $1,318,248,933 has been spent on this project through the fiscal year ended June 30, 2017, of which the City’s share and equity interest is $198,417,000. The City has received and accrued $64.6 million of funding from the Federal Transit Administration (FTA), Congestion Mitigation Air Quality (CMAQ) and Public Transit Funds (PTF) related to this project. In May 2011, the City entered into an agreement with VMRI for a developmental study to further extend the LRT system an additional two miles from Mesa Drive to Gilbert Road. Construction started fall of 2016. The extension is expected to open in late 2018. Separate financial statements for the activity can be obtained through Valley Metro Rail Inc. at 101 North First Avenue, Suite 1300, Phoenix, Arizona, 85003. TOPAZ Regional Wireless Cooperative The City of Mesa currently participates with the City of Apache Junction, Superstition Fire and Medical, the Town of Gilbert, the Town of Queen Creek and Rio Verde Fire District (the Parties) in an intergovernmental agreement to plan, design, construct, operate, maintain and finance the TOPAZ Regional Wireless Cooperative Network (TOPAZ). TOPAZ is a 700/800 MHz Network procured and built by the City of Mesa. The City acts as the lead agency and is responsible for the planning, budgeting, construction, operation and maintenance of the network. As lead agent, the City provides 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. The City’s equity in the joint venture is $5,409,285 and is reflected in the governmental funds financial statements. Separate financial statements are not prepared. Total investment in the joint venture as of June 30, 2017, is (in thousands): City of Mesa Town of Gilbert City of Apache Junction Superstition Fire and Medical Town of Queen Creek Rio Verde Fire District Fort McDowell Total Joint Venture 75 $ $ 5,409 1,272 418 154 107 13 3 7,376 (Continued) CITY OF MESA, ARIZONA NOTES TO FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 30, 2017 Wastewater Subregional Operating Group The City participates with the cities of Phoenix, Glendale, Scottsdale and Tempe in the Subregional Operating Group (SROG). SROG was formed pursuant to the Joint Exercise of Powers Agreement (JEPA) in order to govern the construction, operation and maintenance of a multi-city sanitary sewer system (the “System”). The System includes the 91st Avenue Wastewater Treatment Plant, the Salt River Outfall Sewer, the Southern Avenue Interceptor and related transportation facilities. The City of Phoenix acts as the lead agency in SROG and is responsible for the planning, budgeting, construction, operation and maintenance of the plant in addition to providing all management personnel and financing arrangements. The various cities participate in ownership of the plant and are charged for operating expenses based on gallons of flow. The different agencies participate in each facility at varying rates depending on their needs at the time each facility was constructed. The City’s equity in the joint venture is $85,293,201 and is reflected in the proprietary funds financial statements. SROG has no bonded debt outstanding. Separate financial statements for the activity under the joint venture agreement can be obtained through the AMWUA office at 3003 N. Central Avenue, Suite 1550, Phoenix, Arizona, 85012. Greenfield Water Reclamation Project Construction of a joint water reclamation plant with the Towns of Gilbert and Queen Creek was completed on December 2, 2006. An expansion of the plant is expected to be completed in 2020. The City acts as the lead agency and is responsible for the planning, budgeting, construction, operation and maintenance of the plant. As lead agent, the City provides all management personnel and financing arrangements. Mesa, Gilbert and Queen Creek participate in ownership of the plant and are charged for operating expenses based on gallons of flow. The City’s equity in the joint venture is $60,345,763 and is reflected in the proprietary funds financial statements. Separate financial statements are not prepared. Total investment in the joint venture as of June 30, 2017, is (in thousands): Mesa's Share Gilbert's Share Queen Creek's Share Total Joint Venture $ $ 60,346 55,032 23,752 139,130 Water Val Vista Water Treatment Plant The City also participates with the City of Phoenix in the Val Vista Water Treatment Plant and Transmission Line. The City of Phoenix is responsible for the planning, budgeting, construction, operation and maintenance of the plant. As lead agency, Phoenix provides all management personnel and financing arrangements. Phoenix and Mesa participate in ownership of the plant and are charged for operating expenses based on gallons of water treated. The City’s investment in the joint venture is $53,387,794 and is reflected in the proprietary funds financial statements. The water treatment plant has no bonded debt outstanding. Separate financial statements for the activity can be obtained through the City of Phoenix, Finance Department, Financial Accounting and Reporting Division at 251 W. Washington Street, 9th Floor, Phoenix, Arizona, 85003. 76 (Continued) CITY OF MESA, ARIZONA NOTES TO FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 30, 2017 15. RETIREMENT AND PENSION PLANS All benefitted employees of the City are covered by one of three pension systems. The Arizona State Retirement System is for the benefit of the employees of the state and certain other governmental jurisdictions. All benefited City employees, except sworn fire and police personnel and the Mayor and City Council Members, are included in the plan that is a multiple-employer cost-sharing defined benefit pension plan. All sworn fire and police personnel participate in the Public Safety Personnel Retirement System that is an agent multiple-employer plan. The Mayor and City Council Members contribute to the State’s Elected Officials Retirement Plan that is also a multiple-employer cost-sharing pension plan. The Elected Officials Retirement Plan is not described below because of its relative insignificance to the financial statements. At June 30, 2017, the City reported the following aggregate amounts related to pensions for all plans to which it contributes (in thousands): Statement of Net Position and Statement of Activities Net Pension Liabilities Deferred Outflows of Resources Deferred Inflows of Resources Pension Expense Governmental Activities $ 755,877 187,082 56,283 116,380 Business-Type Activities $ 55,385 10,485 6,905 7,532 Total $ 811,262 197,567 63,188 123,912 Arizona State Retirement System Defined Benefit Plan: a. Plan Description All the City’s eligible benefitted general employees participate in the Arizona State Retirement System (“ASRS”), a multiple-employer, cost-sharing defined benefit pension plan. ASRS was established by the State of Arizona to provide pension benefits for employees of the state and employees of participating political subdivisions and school districts. ASRS is administered by the ASRS Governing Board in accordance with Title 38, Chapter 5 Articles 2 and 2.1 of the Arizona Revised Statutes (“A.R.S.”). ASRS provides for retirement, disability, and death and survivor benefits. ASRS issues a publicly available financial report that includes financial statements and required supplementary information. The report may be obtained by writing to the Arizona State Retirement System, P.O. Box 33910, Phoenix, Arizona, 85067-3910 or by calling 1-800-621-3778. b. 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: 77 (Continued) CITY OF MESA, ARIZONA NOTES TO FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 30, 2017 Retirement Initial Membership Date: Before On or After July 1, 2011 July 1, 2011 Years of service and age required to receive benefit Sum of years and age equals 80 30 years, age 55 10 years, age 62 25 years, age 60 5 years, age 50* 10 years, age 62 any years, age 65 5 years, age 50* any years, age 65 Final average salary is based on Highest 36 consecutive Highest 60 consecutive months of last 120 months months of last 120 months 2.1% to 2.3 % 2.1% to 2.3 % Benefit percentage per year of service * 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 survivor benefit is determined by the retirement benefit option chosen. 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. c. Contributions The A.R.S. provide statutory authority for determining the employees’ and employers’ contribution amounts as a percentage of covered payroll. Employers are required to contribute at the same rate as employees. 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, covered employees were required by state statute to contribute at the actuarially determined rate of 11.48% (11.34% pension plus 0.14% long-term disability) of the members’ annual covered payroll, and the City was required by statute to contribute at the actuarially determined rate of 11.48% (10.78% for retirement, 0.56% for the health insurance premium benefit, and 0.14% for long-term disability) of the active members’ annual covered payroll. Additionally, the City is required by Statute to pay an ASRS Alternate Contribution Rate (ACR) for retired members who return to work on or after July 1, 2012, in any capacity and in a position ordinarily filled by an employee of the City to mitigate the potential impact that retired members who return to work may have on the ASRS Trust Fund. The contribution rate for the year ended June 30, 2017 was 9.47% (9.17% retirement, 0.21% health, 0.09% long-term disability). The City’s ACR contributions to the System for the year ending June 30, 2017 were $122,429. d. Pension Liability At June 30, 2017, the City reported a liability of $268,013,311 for its proportionate share of the ASRS’ net pension liability. The net pension liability was measured as of June 30, 2016. The total 78 (Continued) CITY OF MESA, ARIZONA NOTES TO FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 30, 2017 pension liability used to calculate the net pension liability was determined using update procedures to roll forward the total pension liability from an actuarial valuation as of June 30, 2015, to the measurement date of June 30, 2016. The total pension liability as of June 30, 2016, reflects a change in actuarial assumption for a decrease in loads for future potential permanent benefit increases. The City’s reported liability at June 30, 2017, increased by $12,676,241 from the City’s prior year liability of $255,337,070 because of changes in the ASRS’ net pension liability and the City’s proportionate share of that liability. The ASRS’ publicly available financial report provides details on the change in the net pension liability. The City’s proportion of the net pension liability was based on the City’s fiscal year 2016 contributions. The City’s proportion measured as of June 30, 2016, was 1.66045%, which was an increase of 0.0212% from its proportion measured as of June 30, 2015. e. Pension Expense and Deferred Outflows/Inflows of Resources For the year ended June 30, 2017, the City recognized pension expense for ASRS of $12,066,464. At June 30, 2017, the City reported deferred outflows of resources and deferred inflows of resources related to pensions from the following sources (in thousands): Differences between expected and actual experience Changes of assumptions Net difference between projected and actual earnings on pension plan investments Changes in proportion and differences between City contributions City contributions subsequent to the measurement date Total Deferred Outflows of Resources $ 1,629 - Deferred Inflows of Resources $ 18,437 14,180 29,043 - 2,710 17,423 50,805 797 $ 33,414 $ The $17,422,966 reported as deferred outflows of resources related to ASRS pensions resulting from City contributions subsequent to the measurement date will be recognized as a reduction of the net pension liability in the year ended June 30, 2018. Other amounts reported as deferred outflows of resources and deferred inflows of resources related to ASRS pensions will be recognized in pension expense as follows (in thousands): Year Ended June 30, 2018 $ (12,059) 2019 (8,169) 2020 12,052 2021 8,208 2022 Thereafter $ 32 79 (Continued) CITY OF MESA, ARIZONA NOTES TO FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 30, 2017 f. 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% 3 - 6.75% 3% Included 1994 GAM Scale BB Actuarial assumptions used in the June 30, 2015 valuation were based on the results of an actuarial study for the 5-year period ended June 30, 2012. The ASRS Board adopted the experience study which recommended changes, and those changes were effective as of the June 30, 2013 actuarial valuation. 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 arithmetic rate of return by weighing 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: Target Allocation 58% 25% 2% 10% 5% 100% Real Return Arithmeti 6.73% 3.70% 3.84% 4.25% 3.41% Asset Class Equity Fixed Income Commodities Real Estate Multi-asset class Total Inflation Expected arithmetic nominal return Long-Term Expected Real Rate of Return 3.90% 0.93% 0.08% 0.42% 0.17% 5.50% 3.25% 8.75% g. Discount Rate The discount rate used to measure the ASRS total pension liability was 8 percent, 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 80 (Continued) CITY OF MESA, ARIZONA NOTES TO FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 30, 2017 contractually required rate under Arizona statutes. 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. h. Sensitivity of the City’s Proportionate Share of the ASRS Net Pension Liability to Changes in the Discount Rate The following table presents the City’s proportionate share of the net pension liability calculated using the discount rate of 8 percent, as well as what the City’s proportionate share of the net pension liability would be if it were calculated using a discount rate that is 1 percentage point lower (7 percent) or 1 percentage point higher (9 percent) than the current rate (in thousands): City's proportionate share of the net pension liability i. 1% Decrease 7% Current Discount Rate 8% 1% Increase 9% $ $ $ 208,903 341,737 268,013 Pension Plan Fiduciary Net Position Detailed information about the pension plan’s fiduciary net position is available in the separately issued ASRS financial report. Public Safety Personnel Retirement System: a. Plan Description The City contributes to the Public Safety Personnel Retirement System (“PSPRS”), an agent multiple-employer public safety employee retirement system that acts as a common investment and administrative agent for the various sworn fire and police agencies within the state. All sworn fire and police personnel regularly assigned hazardous duty are eligible to participate in the plan. The plan provides retirement, disability benefits, and death benefits to plan members and beneficiaries. The PSPRS is jointly administered by a nine-member board known as the board of trustees, and 256 Local Boards and was established by Title 38, Chapter 5 Article 4 of the Arizona Revised Statutes. The PSPRS issues a publicly available financial report that includes financial statements and required supplementary information. This report may be obtained by writing to Public Safety Personnel Retirement System, 1020 East Missouri, Phoenix, Arizona, 85014 or by calling 602-2555575. 81 (Continued) CITY OF MESA, ARIZONA NOTES TO FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 30, 2017 b. Benefits Provided The PSPRS provides retirement, health insurance premium supplement, disability, and survivor benefits. State statute establishes benefits terms. Retirement, disability, and survivor benefits are calculated on the basis of age, average monthly compensation, and service credit as follows: Membership Dates Tier 1 Tier 2 Before January 1, 2012 On or after January 1, 2012 20 years, any age 25 years, age of 52.5 Retirement and Disability Years of service and age required to receive bene Final average salary is based on Benefit percentage Normal Retirement (80% max) Accidental Disability Retirement 15 years, age 62 Highest 36 consecutive Highest 60 consecutive months months of last 20 years of last 20 years 50% less 2.0% for each year of credited service less than 20 years OR plus 2.0% to 2.5% for each year of credited service, not to exceed 80% 2.5% for each year of credited service not to exceed 80% 50% or normal retirement, whichever is greater Catastrophic Disability Retiremen 90% for 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 Retirement and survivor benefits are subject to automatic cost-of-living adjustments based on excess investment earning. In addition, the Legislature may enact permanent one-time benefit increases after a Joint Legislative Budget Committee analysis of the increase’s effects on the plan. PSPRS also provides temporary disability benefits of 50 percent of the member’s compensation for up to 12 months. 82 (Continued) CITY OF MESA, ARIZONA NOTES TO FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 30, 2017 c. Employees Covered by Benefit Terms At June 30, 2017, the following employees were covered by the agent pension plans’ benefit terms: Inactive employees or beneficiaries currently receiving benefits Inactive employees entitled to but not yet receiving benefits Active employees Total PSPRS Fire 235 51 392 678 PSPRS Police 513 135 715 1,363 d. Contributions Benefit and contribution provisions are established by state law and may be amended only by the State of Arizona Legislature (A.R.S. Section 38-843). Tier 1 members required contribution was 11.65% from July 1, 2016 to April 1, 2017. As a result of a court ruling, the contribution rate changed to 7.65% of their annual covered salary on April 2, 2017. Tier 2 members are required to contribute 11.65% of their annual covered salary. The City is required to contribute an actuarially determined rate expressed as a percent of covered salary and a distribution of the net earnings of the Fund. The City’s rates for the fiscal years ending June 30, 2017 were 41.24% (40.97% pension plus 0.27% health care), for fire personnel and 42.38% (41.39% pension plus 0.99% health care) for police members. e. Annual Pension Contributions Fire personnel contributed $3,739,306 ($3,601,120 regular members plus $138,186 DROP members) and police personnel contributed $7,402,036 ($7,094,726 regular members plus $307,310 DROP members) during fiscal year 2017. For 2017, the City’s annual pension contribution of $13,564,174 ($13,475,369 pension, $88,805 health care) for fire and $27,436,722 ($26,795,798 pension, $640,924 health care) for police was equal to the City’s required and actual contributions, including health care. The required contribution was determined as part of the June 30, 2015 actuarial valuation using an individual entry-age actuarial cost method. The City is also required to pay a PSPRS Alternate Contribution Rate (ACR) for retired members who return to work in any capacity and in a position ordinarily filled by an employee of the City, unless the retired member is required to participate in another state retirement system and the retired member returned to work before July 20, 2011. The ACR rate is equal to the portion of the total required contribution that is applied to the amortization of the unfunded actuarial accrued liability for the fiscal year beginning July 1, based on the actuarial calculation of the total required contribution for the preceding fiscal year ended on June 30. The contribution rate for the year ended June 30, 2017 was 28.78% for both fire and police. The City’s ACR contributions for the year ending June 30, 2017 were $14,462 for fire and $13,428 for police. f. Pension Liability At June 30, 2017, the City reported net pension liabilities of $185,042,419 and $358,206,502 for fire and police, respectively. The net pension liabilities were measured as of June 30, 2016, and the total pension liability used to calculate the net pension liability was determined by an actuarial valuation as of that date. 83 (Continued) CITY OF MESA, ARIZONA NOTES TO FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 30, 2017 The total pension liabilities as of June 30, 2016, reflect the following changes of 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 cost-of-living 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, changed the benefit formula and contribution requirements for members hired on or after July 1, 2017. • The investment rate of return actuarial assumption was decreased from 7.85% to 7.50%. The net pension liabilities measured as of June 30, 2017, will reflect changes of actuarial assumptions based on the results of an actuarial experience study for the 5-year period ended June 30, 2016. The change in the County’s net pension liabilities as a result of these changes is not known. g. Pension Expense and Deferred Outflows/Inflows of Resources For the year ended June 30, 2017, the City recognized pension expense of $39,285,037 and $72,561,474 for fire and police, respectively. At June 30, 2017, the City reported deferred outflows of resources and deferred inflows of resources related to pensions from the following sources (in thousands): Deferred Deferred Outflows of Inflows of Resources Resources Fire $ $ 10,485 Differences between expected and actual experience Changes in assumptions 23,885 Net difference between projected and actual earnings on pension plan investments 13,464 3,245 City contributions subsequent to the measurement date 13,490 Total $ 50,839 $ 13,730 Police Differences between expected and actual experience Changes in assumptions Net difference between projected and actual earnings on pension plan investments City contributions subsequent to the measurement date Total 84 Deferred Outflows of Resources $ 45,870 Deferred Inflows of Resources $ 10,587 - 23,244 26,809 95,923 5,457 $ 16,044 $ (Continued) CITY OF MESA, ARIZONA NOTES TO FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 30, 2017 The amounts reported as deferred outflows of resources related to pensions resulting from City contributions subsequent to the measurement date will be recognized as a reduction of the net pension liability in the year ended June 30, 2018. Other amounts reported as deferred outflows of resources and deferred inflows of resources related to pensions will be recognized in pension expense as follows (in thousands): Year Ending June 30, 2018 2019 2020 2021 2022 Thereafter $ $ Fire 4,826 4,826 6,448 5,110 931 1,478 23,619 Police $ 13,015 13,015 15,742 7,693 3,145 460 $ 53,070 h. Pension Actuarial Methods and Assumptions The significant actuarial assumptions used to measure the total pension liability are as follows: Actuarial Valuation Date June 30, 2016 Actuarial Cost Method Entry Age Normal Investment Rate of Return 7.50% Projected Salary Increases 4% - 8% including inflation Inflation Assumed Future Permanent Benefit Increase Mortality Rates 3% 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 pension plan investments was determined using a building-block method in which expected future real rates of return (expected returns, net of pension plan investment expense and inflation) are developed for each major asset class. These real rates of return 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. 85 (Continued) CITY OF MESA, ARIZONA NOTES TO FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 30, 2017 The target allocation and best estimates of arithmetic real rates of return for each major asset class are summarized in the following table: Target Allocation 2% 5% 4% 7% 8% 10% 10% 11% 13% 14% 16% 100% Asset Class Short Term Investments Absolute Return Risk Parity Fixed Income Real Assets GTAA Real Estate Private Equity Credit Opportunities Non-U.S. Equity U.S. Equity Total i. Long-Term Expected Arithmetic Real Rate of Return 0.75% 4.11% 5.13% 2.92% 4.77% 4.38% 4.48% 9.50% 7.08% 8.25% 6.23% Discount Rate A discount rate of 7.50% was used to measure the total pension liability. This discount rate was based on the expected rate of return on pension plan investments of 7.50%. This was a decrease of 0.35% from the discount rated used at June 30, 2015. The projection of cash flows used to determine this 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 these 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. 86 (Continued) CITY OF MESA, ARIZONA NOTES TO FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 30, 2017 j. Changes in the Agent Plans Net Pension Liability The following tables present changes in the City’s net pension liability for the PSPRS – Fire and Police pension plans as follows (in thousands): Fire Balance at June 30, 2016 Changes for the Year: Service Cost Interest on the Total Pension Liability Changes of Benefit Terms Differences Between Expected and Actual Experience in the M easurement of the Liability Changes of Assumptions or Other Inputs Contributions - Employer Contributions - Employee Net Investment Income Benefit Payments, Including Refunds of Employee Contributions Administrative Expenses Other Changes Net Changes Balances as of June 30, 2017 Police Balance at June 30, 2016 Changes for the Year: Service Cost Interest on the Total Pension Liability Changes of Benefit Terms Differences Between Expected and Actual Experience in the M easurement of the Liability Changes of Assumptions or Other Inputs Contributions - Employer Contributions - Employee Net Investment Income Benefit Payments, Including Refunds of Employee Contributions Administrative Expenses Other Changes Net Changes Balances as of June 30, 2017 87 Total Pension Liability $ 308,053 Plan Fiduciary Net Position $ 164,095 Net Position Liability $ 143,958 6,439 23,654 21,380 - 6,439 23,654 21,380 $ (4,423) 11,970 - 12,735 4,396 954 (4,423) 11,970 (12,735) (4,396) (954) (19,893) 39,127 347,180 (19,893) (138) (12) (1,958) 162,137 138 12 41,085 185,043 $ $ Total Pension Liability $ 564,698 Plan Fiduciary Net Position $ 282,088 Net Position Liability $ 282,610 12,438 43,573 34,005 - 12,438 43,573 34,005 $ (4,001) 23,614 - 24,067 8,157 1,667 (4,001) 23,614 (24,067) (8,157) (1,667) (31,689) 77,940 642,638 (31,689) (240) 382 2,344 284,432 240 (382) 75,596 358,206 $ $ (Continued) CITY OF MESA, ARIZONA NOTES TO FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 30, 2017 k. Sensitivity of the City’s Net Pension Liability to Changes in the Discount Rate The following table presents the City’s net pension liabilities calculated using the discount rates noted above, as well as what the City’s net pension liability would be if it were calculated using a discount rate that is 1 percentage point lower or 1 percentage point higher than the current rate (in thousands): Current Discount Rate 1% Decrease 1% Increase 6.50% 7.50% 8.50% Fire Net Pension Liability $ 229,155 $ 185,043 $ 148,497 Police Net Pension Liability 444,419 358,206 287,434 l. Annual Other Post-Employment Benefits Cost (Health Insurance Subsidy) For 2016 the City’s annual Other Post-Employment Benefits (OPEB) cost of $76,577 for fire and $606,848 for police was equal to the City’s required contributions. Funded Status and Funding Progress The funded status of the Health Insurance Subsidy plans as of June 30, 2016 (Latest actuarial date available) is as follows (in thousands): Fire Police Actuarial accrued liability (AAL) $ 8,153 $ 18,591 Actuarial value of plan assets 7,770 10,786 Unfunded actuarial accrued liability (UAAL) $ 383 $ 7,805 Funded ratio (actuarial value of plan assets/AAL) 95.3% 58.0% Covered payroll (active plan members) $ 32,453 $ 61,211 UAAL as a percentage of covered payroll 1.18% 12.75% The schedule of funding progress, presented as required supplementary information following the notes to the financial statements, presents multiyear trend information that shows whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued liabilities for benefits. Actuarial 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. 88 (Continued) CITY OF MESA, ARIZONA NOTES TO FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 30, 2017 Actuarial Valuation Date June 30, 2015 Actuarial Cost Method Amortization Method Entry Age Normal Level percent closed for unfunded actuarial accrued liability, open for excess 21 years for unfunded actuarial accrued liabilty, 20 years for excess 7-year smoothed market value; 80%/120% market corridor Remaining Amortization Period Asset Valuation Method Investment Rate of Return 7.85% Projected Salary Increases 4% - 8% Wage Growth 4% The City’s annual OPEB cost, the percentage of annual OPEB cost contributed to the plan, and the net OPEB obligation for 2016 and the two preceding years were as follows (in thousands): Fire Fiscal Year Ending 2014 2015 2016 Annual OPEB Cost 495 542 77 Percentage of Annual OPEB Cost Contributed 100% 100% 100% Net OPEB Obligation $ - Annual OPEB Cost 1,083 1,188 607 Percentage of Annual OPEB Cost Contributed 100% 100% 100% Net OPEB Obligation $ - Police Fiscal Year Ending 2014 2015 2016 16. POST-EMPLOYMENT BENEFITS In addition to the pension benefits described in Note 15, the City provides post-retirement health care benefits to all eligible retirees in accordance with the compensation plan adopted by the City Council each fiscal year. These benefits include medical, dental and vision insurance programs and are the same as those offered to active employees. Retirees may select single or family coverage. As of June 30, 2017, approximately 1,825 former employees were eligible for these benefits. The cost of post-employment healthcare benefits, from an accrual accounting perspective, similar to the cost of pension benefits, should be associated with the periods in which the cost occurs, rather than in the future year when it will be paid. In implementing the requirements of GASB Statement No. 45, the City recognizes the cost of post-employment healthcare in the year the employee services are received, reports the accumulated liability from prior years, and provides information useful in assessing potential demands on the City’s future cash flows. Recognition of the liability accumulated 89 (Continued) CITY OF MESA, ARIZONA NOTES TO FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 30, 2017 from prior years will be amortized over 30 years, the first period commencing with the fiscal year ending June 30, 2008. The unfunded actuarial accrued annual required contribution for current retirees as well as current active members for fiscal year 2016-2017 was $28,524,665. A liability of $3,885,159 is accrued in the business-type activities financial statements; the remaining $24,639,506 has been accrued in the governmental activities column in the government-wide financial statements. Plan Description The City provides post-employment medical care (OPEB) for retired employees through a singleemployer defined benefit medical plan. The plan provides medical benefits for eligible retirees, their spouses and dependents through the City’s self-insurance health insurance plan which covers both active and retired members. The benefits, benefit levels and contribution rates are determined annually by the City’s Benefits Advisory Board and approved by the Mesa City Council. The plan is not accounted for as a trust fund, and an irrevocable trust has not been established to account for the plan. The plan does not issue a separate financial report. Benefits Provided The City provides post-employment medical care benefits to its retirees. To be eligible for benefits, an employee must qualify for retirement under one of the state retirement plans for public employees and be covered under the City’s medical plan during their active status. Employees must enroll in a City plan immediately after they retire or their eligibility for this benefit ceases. All medical care benefits are provided through the City’s self-insured health plan. The benefit levels are the same as those afforded to active employees. Upon a retiree’s death, the retiree’s dependents are no longer eligible for City coverage. As of July 1, 2015 (Date of most recent valuation), Membership Consisted of: Retirees and Beneficiaries Receiving Benefits Active Employees Total 1,825 3,176 5,001 Funding Policy The plan premium rates are determined annually by the Benefits Advisory Board and approved by the City Council. The City’s contribution to the retiree’s health insurance premium is determined by their length of service with the City and their original hire date. To receive maximum benefits an employee must meet the following: • Ten years of service for employees hired prior to January 1, 2001 • Fifteen years of service for employees hired at January 1, 2001 but before January 1, 2006. • Twenty years of service for employees hired on or after January 1, 2006. • As of January 1, 2009, new hires are no longer eligible for benefits. For fiscal year ended June 30, 2017, the City contributed $19,012,605 to the plan (approximately 70.0 percent of total premiums). Plan members receiving benefits contributed $8,142,830 or approximately 30.0 percent of total premiums. 90 (Continued) CITY OF MESA, ARIZONA NOTES TO FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 30, 2017 Annual OPEB Costs / Net OPEB Obligation The City’s annual other post-employment benefit (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 45. The ARC represents a level of funding that, if paid on an ongoing basis, is projected to cover normal cost each year and to amortize any unfunded actuarial liabilities over a period not to exceed thirty years. The City’s annual OPEB cost for the current year and the related information for the plan are as follows at June 30, 2017 (in thousands): Annual Required Contribution Interest on Net OPEB Obligation Adjusted to Annual Required Contribution Annual OPEB Cost Contributions Made Increase in Net OPEB Obligation Net OPEB Obligation – Beginning of year Net OPEB Obligation – End of year $ 53,744 21,826 (28,032) 47,538 (19,013) 28,525 485,025 $513,550 The City’s annual OPEB cost, the percentage of annual OPEB cost contributed to the plan, and the net OPEB obligation for the three years ending June 30, 2015 through 2017 were as follows: Fiscal Year Ended 2015 2016 2017 Annual OPEB Cost 50,750 46,258 47,538 Actual Contribution 17,125 17,858 19,013 Percentage of OPEB Cost Contributed 33.7% 38.6% 40.0% Net OPEB Obligation 456,625 485,025 513,550 Funded Status and Funding Progress The funded status of the plan as of July 1, 2015 was as follows (in thousands): (Latest actuarial date available) Actuarial Value of Plan Assets $ Actuarial Accrued Liability 639,564 Unfunded actuarial accrued liability $ 639,564 Funded ratio 0.0% Covered payroll $ 380,860 Unfunded actuarial accrued liability as a percentage of covered payroll 167.9% The schedule of funding progress, presented as required supplementary information following the notes to the financial statements, presents multiyear trend information that shows whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued liabilities for benefits. 91 (Continued) CITY OF MESA, ARIZONA NOTES TO FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 30, 2017 Actuarial Methods and Assumptions Projections of benefits are based on the substantive plan (the plan understood by the employer and plan members) and include the type of benefits in force at the valuation date and the pattern of sharing benefits between the City and the plan members at 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. Significant methods and assumptions used for this fiscal year valuation were as follows: Valuation Date Actuarial Cost Method Amortization method Remaining amortization period Asset Valuation Method Actuarial Assumptions: Discount rate Health care cost trend rate: • Medical, Drugs • • Dental, Mental Health, Vision Retiree contribution increase July 1, 2015 Entry age normal, level dollar amount 30-year amortization open 30 years N/A, no assets in trust 4.50% 8.5% in 2013-2014, grading down by 0.5% each year to an ultimate rate of 5.0% 5% Same as medical trend 17. SUBSEQUENT EVENTS On August 15, 2017, the City called for the optional redemption of $45,035,000 of Excise Tax Revenue Obligations Bonds, Series 2013 plus accumulated interest of $275,214. On October 12, 2017, the Eastmark Community Facility District issued 2017 Eastmark Community Facilities District No. 1 (City of Mesa, Arizona) General Obligation Bonds in the amount of $8,160,000. These bonds are due in annual principal installments ranging from $215,000 to $510,000, plus semiannual interest ranging from 2 percent to 5 percent through July 15, 2042. On December 7, 2017, the Eastmark Community Facility District issued 2017 Eastmark Community Facilities District No. 1 (City of Mesa, Arizona) Special Assessment District 7 Special Assessment Bonds in the amount of $1,326,500. These bonds are due in annual principal installments ranging from $36,500 to $389,000, plus semi-annual interest ranging from 2% percent to 4.5% percent through July 1, 2042. 92 (Concluded) Required Supplementary Information COM P R E H E NS I VE A NNUAL F IN AN CIAL R E POR T 2 0 1 7 CITY OF MESA, ARIZONA EXHIBIT B-1 REQUIRED SUPPLEMENTARY INFORMATION SCHEDULE OF THE CITY'S PROPORTIONATE SHARE OF NET PENSION LIABILITY COST-SHARING PENSION PLAN JUNE 30, 2017 (in thousands) Arizona State Retirement System City's Proportion of the Net Pension Liability City's Proportionate Share of the Net Pension Liability City's Covered Payroll City's 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 Reporting Fiscal Year* (Measurement Date) 2015 2016 2017 (2014) (2015) (2016) 1.634103% 1.639250% 1.660450% $ 241,792 $ 255,337 $ 268,013 $ See accompanying notes to pension plan schedules. *2014 through 2008 Information not available 93 147,402 $ 151,154 $ 155,868 164.04% 168.93% 171.95% 69.49% 68.35% 67.06% CITY OF MESA, ARIZONA EXHIBIT B-2 REQUIRED SUPPLEMENTARY INFORMATION SCHEDULE OF CHANGES IN THE CITY'S NET PENSION LIABILITY AND RELATED RATIOS AGENT PENSION PLANS JUNE 30, 2017 (in thousands) Public Safety Personnel Retirement System - Fire 2015 (2014) Total Pension Liability Service Cost Interest on the Total Pension Liability Changes of Benefit Terms Differences Between Expected and Actual Experience in the Measurement of the Pension Liability Changes of Assumptions or Other Inputs Benefit Payments, Including Refunds of Employee Contributions Net Change in Total Pension Liability Total Pension Liability - Beginning Total Pension Liability - Ending (a) $ Plan Fiduciary Net Position Contributions - Employer Contributions - Employee Net Investment Income Benefit Payments, Including Refunds of Employee Contributions Administrative Expense Other Changes Net Change in Plan Fiduciary Net Position Plan Fiduciary Net Position - Beginning Plan Fiduciary Net Position - Ending (b) Reporting Fiscal Year * (Measurement Date) 2016 (2015) 6,281 20,708 4,044 $ Plan Fiduciary Net Position as a Percentage of the Total Pension Liability (4,423) 11,970 (16,309) 30,860 268,821 299,681 (17,323) 8,372 299,681 308,053 (19,893) 39,127 308,053 347,180 9,828 3,847 5,878 137,717 $ City's Proportionate Share of the Net Pension Liability as a Percentage of its Covered Payroll 30,782 447.39% See accompanying notes to pension plan schedules. *2014 through 2008 Information not available 94 12,735 4,396 954 (17,323) (144) 45 2,131 161,964 164,095 $ 54.05% City's Covered Payroll 6,439 23,654 21,380 (3,518) - (16,309) (160) (113) 15,903 146,061 161,964 $ $ (6,961) 23,097 9,157 3,488 19,840 City's Net Pension Liability - Ending (a) - (b) 6,127 23,086 - 2017 (2016) 143,958 (19,893) (138) (12) (1,958) 164,095 162,137 $ 53.27% $ 31,661 454.69% 185,043 46.70% $ 32,453 570.18% CITY OF MESA, ARIZONA EXHIBIT B-2 (concluded) REQUIRED SUPPLEMENTARY INFORMATION SCHEDULE OF CHANGES IN THE CITY'S NET PENSION LIABILITY AND RELATED RATIOS AGENT PENSION PLANS JUNE 30, 2017 (in thousands) Public Safety Personnel Retirement System - Police 2015 (2014) Total Pension Liability Service Cost Interest on the Total Pension Liability Changes of Benefit Terms Differences Between Expected and Actual Experience in the Measurement of the Pension Liability Changes of Assumptions or Other Inputs Benefit Payments, Including Refunds of Employee Contributions Net Change in Total Pension Liability Total Pension Liability - Beginning Total Pension Liability - Ending (a) $ Plan Fiduciary Net Position Contributions - Employer Contributions - Employee Net Investment Income Benefit Payments, Including Refunds of Employee Contributions Administrative Expense Other Changes Net Change in Plan Fiduciary Net Position Plan Fiduciary Net Position - Beginning Plan Fiduciary Net Position - Ending (b) City's Net Pension Liability - Ending (a) - (b) $ Plan Fiduciary Net Position as a Percentage of the Total Pension Liability 12,481 36,514 8,728 Reporting Fiscal Year (Measurement Date) 2016 (2015) $ $ City's Proportionate Share of the Net Pension Liability as a Percentage of its Covered Payroll *2014 through 2008 Information not available 95 12,438 43,573 34,005 (2,173) - (4,001) 23,614 (27,566) 70,054 472,691 542,745 (29,998) 21,953 542,745 564,698 (31,689) 77,940 564,698 642,638 17,443 6,784 33,360 19,680 7,613 10,065 24,067 8,157 1,667 (27,566) (269) 288 30,040 244,906 274,946 (29,998) (246) 28 7,142 274,946 282,088 (31,689) (240) 382 2,344 282,088 284,432 267,799 59,688 448.66% See accompanying notes to pension plan schedules. $ (11,331) 51,228 $ 50.66% City's Covered Payroll 12,216 41,908 - 2017 (2016) 282,610 $ 49.95% $ 62,461 452.46% 358,206 44.26% $ 61,211 585.20% CITY OF MESA, ARIZONA EXHIBIT B-3 REQUIRED SUPPLEMENTARY INFORMATION SCHEDULE OF CITY PENSION CONTRIBUTIONS JUNE 30, 2017 (in thousands) Arizona State Retirement System Statutorily Required Contribution City's Contribution in Relation to the Statutorily Required Contribution City's Contribution Deficiency (Excess) City's Covered Payroll City's Contributions as a Percentage of Covered Payroll $ 2014 15,750 $ 2015 16,146 $ $ 15,750 - $ 147,402 $ 10.68% $ 2016 16,955 $ 2017 17,423 16,146 - $ 16,955 - $ 17,423 - 151,154 $ 155,868 $ 158,958 10.67% 10.88% 10.96% Public Safety Personnel Retirement System - Fire Actuarially Determined Contribution City's Contribution in Relation to the Actuarially Determined Contribution City's Contribution Deficiency (Excess) $ 2014 9,157 $ 2015 9,827 $ $ 9,157 - $ 9,827 - $ City's Covered Payroll City's Contributions as a Percentage of Covered Payroll $ 30,782 $ 31,661 $ 29.75% 31.04% 2016 11,197 $ 2017 13,490 12,735 (1,538) $ 13,490 - 32,453 $ 32,941 39.24% 40.95% Public Safety Personnel Retirement System - Police Actuarially Determined Contribution City's Contribution in Relation to the Actuarially Determined Contribution City's Contribution Deficiency (Excess) City's Covered Payroll City's Contributions as a Percentage of Covered Payroll $ 2014 17,443 $ 2015 19,680 $ $ 17,443 - $ 19,680 - $ $ 59,688 $ 62,461 $ 29.22% 31.51% See accompanying notes to pension plan schedules. *2013 through 2008 Information not available 96 2016 21,697 $ 2017 26,809 24,067 (2,370) $ 26,809 - 61,211 $ 64,740 39.32% 41.41% CITY OF MESA, ARIZONA REQUIRED SUPPLEMENTARY INFORMATION NOTES TO PENSION PLAN SCHEDULES JUNE 30, 2017 (in thousands) Actuarial determined contribution rates for PSPRS are calculated as of June 30 two years prior to the end of the fiscal year in which contributions are made. The actuarial methods and assumptions used to establish the contribution requirements are as follows: Actuarial Cost Method Amortization Method Remaining Amortization Period Asset Valuation Method Actuarial Assumptions: Investment Rate of Return Projected Salary Increases Wage Growth Retirement Age Mortality Entry age normal Level percent of payroll, closed 21 years for unfunded actuarial accrued liability, 20 years for excess 7-year smoothed market value; 80%/120% market In the 2013 actuarial valuation, the investment rate of return was decreased from 8.0% to 7.85%; In the 2016 actuarial valuation, the investment rate of return was decreased from 7.85% to 7.50% 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 an experience study of the period July 1, 2006-June 30, 2011. RP-2000 mortality table (adjusted by 105% for both males and females) 97 CITY OF MESA, ARIZONA EXHIBIT B-4 REQUIRED SUPPLEMENTARY INFORMATION SCHEDULE OF AGENT OTHER POST-EMPLOYMENT BENEFITS PLAN'S FUNDING PROGRESS JUNE 30, 2017 (in thousands) Health Insurance Premium Benefit Actuarial Valuation Date June 30, Annual Covered Payroll (c) UAAL as a % of Covered Payroll (( b - a ) / c ) Actuarial Value of Assets (a) Actuarial Accrued Liability (AAL) (b) Unfunded AAL (UAAL) (b-a) Funded Ratio (a/b) 2014 2015 2016 7,364 7,727 7,770 7,578 7,702 8,153 214 (25) 383 97.2% 100.3% 95.3% 30,782 31,661 32,453 0.7% -0.1% 1.2% Police 2014 2015 2016 10,193 10,724 10,786 16,585 17,283 18,591 61.5% 62.0% 58.0% 59,688 62,461 61,211 10.7% 10.5% 12.8% Fire 6,392 6,559 7,805 98 CITY OF MESA, ARIZONA EXHIBIT B-5 REQUIRED SUPPLEMENTARY INFORMATION SCHEDULE OF OTHER POST-EMPLOYMENT BENEFITS PLAN'S FUNDING PROGRESS FOR THE FISCAL YEAR ENDED JUNE 30, 2017 (in thousands) Actuarial Valuation Date July 1, 2011 2013 2015 Actuarial Value of Assets (a) $ - Actuarial Accrued Liability (AAL) (b) $ 992,016 650,918 639,563 Percent Funded (a/b) 0.0% 0.0% 0.0% Unfunded AAL (b-a) $ 992,016 650,918 639,563 99 Annual Covered Payroll (c) $ 330,113 360,860 380,860 Unfunded AAL as a Percentage of Covered Payroll (( b - a ) / c ) 300.5% 180.4% 167.9% CITY OF MESA, ARIZONA EXHIBIT B-6 REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON SCHEDULE GENERAL FUND FOR THE FISCAL YEAR ENDED JUNE 30, 2017 (in thousands) Budgeted Amounts Original Revenues: Sales Taxes Occupancy Taxes Licenses and Permits Intergovernmental Charges for Services Fines and Forfeitures Investment Income Contributions Miscellaneous Revenues Total Revenues $ Expenditures: Current: General Government Public Safety Community Environment Cultural-Recreational Capital Outlay Total Expenditures Actual Budgetary Basis Final 107,196 25 16,372 136,223 23,100 7,283 491 1,606 292,296 $ 107,196 25 16,372 136,223 23,100 7,283 491 1,606 292,296 $ 109,364 18,310 128,457 20,774 7,850 (226) 38 1,435 286,002 Variance with Final Budget $ 2,168 (25) 1,938 (7,766) (2,326) 567 (717) 38 (171) (6,294) 96,524 233,219 16,502 38,721 14,821 399,787 96,364 235,994 16,370 38,756 15,095 402,579 77,646 228,987 14,817 36,326 7,976 365,752 18,718 7,007 1,553 2,430 7,119 36,827 (107,491) (110,283) (79,750) 30,533 Other Financing Sources (Uses): Transfers In Transfers Out Total Other Financing Sources (Uses) 133,012 (37,741) 95,271 133,012 (58,990) 74,022 111,449 (14,766) 96,683 (21,563) 44,224 22,661 Net Change in Fund Balances (12,220) (36,261) 16,933 53,194 77,315 77,315 78,153 838 Excess (Deficiency) of Revenues Over (Under) Expenditures Fund Balance - Beginning Fund Balance - Ending $ 65,095 See accompanying note to budgetary comparison schedule. 100 $ 41,054 $ 95,086 $ 54,032 CITY OF MESA, ARIZONA REQUIRED SUPPLEMENTARY INFORMATION NOTES TO BUDGETARY COMPARISON SCHEDULE JUNE 30, 2017 (in thousands) The financial statements for the City are prepared in accordance with generally accepted accounting principles – “GAAP basis”. Since Mesa, like most other Arizona cities, prepares its annual budget on a modified cash basis that differs from the “GAAP basis”, additional schedules of revenues and expenditures are presented for the General Fund to provide a meaningful comparison of actual results to budget on the “budget basis”. Adjustments necessary to convert the results of operations of the General Fund for the year ended June 30, 2017 on the “GAAP basis” to the “budget basis” as follows: Net Change in Fund Balance-Budget Basis Exhibit B-6 $ 16,933 Basis Differences: Compensated Absences Bad Debt Payroll Accrual Unavailable Revenue Unrealized Gain on Investments Net Change in Fund Balance-GAAP Basis Exhibit A-5 240 10 (704) 2,869 272 $ 19,620 101 Combining Statements COM P R E H E NS I VE A NNUAL F IN AN CIAL R E POR T 2 0 1 7 NON-MAJOR GOVERNMENTAL FUNDS Special Revenue Funds Special Revenue Funds are used to account for specific revenues that are legally restricted to expenditures for particular purposes. Cemetery is designed to provide an accumulation of monies from which the interest earnings will provide perpetual care of the Cemetery. Community Facilities District accounts for the operations of the Eastmark and other Community Facilities District which are paid from special assessments levied against the benefited properties. Development Impact Fees is designed to provide a balance of monies to ensure that new development bears a proportionate share of the cost of improvements to the City’s parks, cultural facilities, libraries, fire facilities and equipment, police facilities and equipment, general government facilities and storm sewers. These funds are provided through the collection of development impact fees. Environmental Compliance accounts for expenditures that are a result of federal and state environmental requirements. Financing for this fund is derived from a monthly environmental compliance fee that is charged to each utility customer. Grants and Special Programs accounts for federal and state grant expenditures and other City programs. The principle financing source is federal and state grant revenues. Highway User Revenue accounts for capital projects and maintenance of the City’s streets and highways, as mandated by the Arizona Revised Statutes. Financing for this fund is provided by the state shared fuel taxes. Mesa Arts Center Restoration is designed to provide an accumulation of monies to be used to replace or refurbish the Mesa Arts Center facilities. These funds are provided through a fee on all ticketed events at the facility. Mesa Housing Authority accounts for expenditures of the City’s housing assistance programs that provide rent subsidy payments to private sector owners of dwelling units. Financing for this fund is derived from grants from the United States Department of Housing and Urban Development. Quality of Life Sales Tax accounts for expenditures of the voter-approved sales tax to improve the quality of life for Mesa residents. Street Sales Tax accounts for expenditures of the voter-approved sales tax that is used as the City match for the MAG Proposition 400 sales tax funds and also provides a local revenue source that is dedicated for street programs. Capital Projects Funds Capital Projects Funds are used to account for the acquisition and construction of major capital facilities other than those financed by proprietary funds and special revenue funds. Community Facilities District accounts for the costs of construction of drains, basins, channels and other storm sewer improvements and street improvements in the Eastmark and other Community Facilities District. General Capital Projects accounts for the costs of general City construction projects and for expenditures related to the acquisition of replacement vehicles for the City’s governmental funds. The funds are provided through transfers from the City’s General Fund Parks accounts for the costs of park facilities and improvements. Public Safety accounts for the cost of public safety facilities. Streets accounts for the cost of right-of-way acquisitions and street improvements. Debt Service Funds These funds are established to account for the accumulation of resources for, and the payment of, principal and interest not serviced by the Enterprise Fund. Community Facilities District accumulates monies for the payment of Eastmark and other Community Facilities District Bonds that are issued to finance the costs of improvements which are to be paid from special assessments levied against the benefited properties. General Obligation Bonds accumulates monies for the payment of principal and interest requirements of the City’s General Obligation Bonds. Highway Project Advancement Notes accumulates monies for the payment of principal and interest requirements of the Highway Project Advancement Notes. Highway User Revenue Bonds accumulates monies for the payment of principal and interest requirements of the City’s Highway User Revenue Bonds. Special Assessment Bonds accumulates monies for the payment of the Special Assessment Bonds that are issued to finance the costs of improvements which are to be paid from special assessments levied against the benefited properties. CITY OF MESA, ARIZONA EXHIBIT C-1 COMBINING BALANCE SHEET NON-MAJOR GOVERNMENTAL FUNDS JUNE 30, 2017 (in thousands) ASSETS Pooled Cash and Investments Accounts Receivable, Net Accrued Interest Receivable Due from Other Governments Prepaid Costs Deposits Restricted Assets: Pooled Cash and Investments Cash with Fiscal Agent Cash with Trustee Accounts Receivable Due from Other Governments Total Assets LIABILITIES Accounts Payable and Accrued Liabilities Due to Other Funds Advances from Other Funds Customer and Defendant Deposits Payable from Restricted Assets: Accrued Interest Payable Unearned Revenue Matured Bonds Payable Total Liabilities Special Revenue Funds Cemetery Community Facilities District Development Impact Fees Environmental Compliance $ $ $ $ $ $ DEFERRED INFLOWS OF RESOURCES Unavailable Revenue Total Deferred Inflows of Resources FUND BALANCES Nonspendable Restricted Committed Assigned Unassigned Total Fund Balances Total Liabilities, Deferred Inflows of Resources and Fund Balances $ 6,961 15 23 6,999 - $ $ 106 106 - $ $ 4,854 14 4,868 234 - $ $ 11,065 2 18 3 11,088 1,053 - - 83 83 234 1,053 12 12 - - - 6,987 6,987 23 23 4,634 4,634 3 10,032 10,035 6,999 $ 102 106 $ 4,868 $ 11,088 EXHIBIT C-1 (Continued) Special Revenue Funds Grants and Special Programs Highway User Revenue Mesa Arts Center Restoration Mesa Housing Authority Quality of Life Sales Tax $ $ $ $ 1,361 13 1,942 - $ $ $ 6,505 225 9 2,274 14 9,027 1,184 - $ $ 9,610 1,992 - $ $ 1,230 6 1,236 216 - $ $ Total Special Revenue Funds 1,957 - $48,134 3,066 74 - $ 86,319 5,278 160 7,707 17 - 3,316 $ 1,957 $51,274 $ 99,481 1,073 - $ 1,093 - $ 2,519 6,247 $ 8,037 1,093 234 6,247 560 1,744 1,992 62 278 1,552 2,625 1,093 8,766 2,257 17,868 44 44 - - - - 524 524 580 580 7,618 7,618 958 958 691 691 864 864 41,984 41,984 3,316 $ 1,957 $51,274 14 6,444 848 2 (69) 7,239 $ 6,103 16 3,491 - Street Sales Tax 9,027 $ 9,610 $ 1,236 $ 103 17 62,258 18,825 2 (69) 81,033 $ 99,481 CITY OF MESA, ARIZONA EXHIBIT C-1 COMBINING BALANCE SHEET NON-MAJOR GOVERNMENTAL FUNDS JUNE 30, 2017 (in thousands) Capital Projects Funds Community Facilities District General Capital Projects Parks Public Safety Streets Total Capital Projects Funds $ - $13,100 44 4 20 - $ 6,064 12 - $ 5,852 - $23,118 8 5,951 199 $48,134 56 12 5,951 20 199 - $13,168 $ 6,076 $ 5,852 $29,276 $54,372 - $ 1,001 - $ 3,299 - $ 1,195 - $ 1,455 - $ 6,950 - - 1,001 3,299 1,195 1,455 6,950 DEFERRED INFLOWS OF RESOURCES Unavailable Revenue Total Deferred Inflows of Resources - 44 44 - - - 44 44 FUND BALANCES Nonspendable Restricted Committed Assigned Unassigned Total Fund Balances - 20 12,103 12,123 2,777 2,777 4,657 4,657 27,821 27,821 20 35,255 12,103 47,378 - $13,168 $ 6,076 $ 5,852 $29,276 $54,372 ASSETS Pooled Cash and Investments Accounts Receivable, Net Accrued Interest Receivable Due from Other Governments Prepaid Costs Deposits Restricted Assets: Pooled Cash and Investments Cash with Fiscal Agent Cash with Trustee Accounts Receivable Due from Other Governments Total Assets LIABILITIES Accounts Payable and Accrued Liabilities Due to Other Funds Advances from Other Funds Customer and Defendant Deposits Payable from Restricted Assets: Accrued Interest Payable Unearned Revenue Matured Bonds Payable Total Liabilities Total Liabilities, Deferred Inflows of Resources and Fund Balances $ $ $ 104 EXHIBIT C-1 (Concluded) Community Facilities District General Obligation Bonds Highway Project Advancement Notes Highway User Revenue Bonds Special Assessment Bonds Total Debt Service Funds Total Nonmajor Governmental Funds $ $ $ $ $ $ $ $ $ $ 1 931 1,000 9,767 11,699 6 - $ $ 5 4,659 29,108 21 932 34,725 147 - $ $ 7,884 6,791 14,675 - - 10,137 $ 10,137 $ $ $ - 237 959 1,196 - 6 - 13,711 40,245 6,791 10,747 932 $72,432 $ $ $ 153 - 134,453 5,334 178 13,658 37 199 13,711 40,245 6,791 10,747 932 226,285 15,140 1,093 234 6,247 453 547 1,006 5,811 23,297 29,255 6,202 6,202 2,237 7,900 10,137 39 39 8,540 6,202 31,744 46,639 8,540 8,459 31,744 71,457 9,761 9,761 481 481 - - 959 959 11,201 11,201 11,825 11,825 932 932 4,989 4,989 8,473 8,473 - 198 198 14,592 14,592 37 112,105 30,928 2 (69) 143,003 14,675 $ 10,137 1,196 $72,432 11,699 $ 34,725 $ 105 $ $ 226,285 CITY OF MESA, ARIZONA EXHIBIT C-2 COMBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES NON-MAJOR GOVERNMENTAL FUNDS FOR THE FISCAL YEAR ENDED JUNE 30, 2017 (in thousands) Revenues: Sales Taxes Property Taxes Occupancy Taxes Special Assessments Licenses and Permits Intergovernmental Charges for Services Fines and Forfeitures Investment Income Contributions Miscellaneous Revenues Total Revenues Cemetery Community Facilities District Development Impact Fees Environmental Compliance $ $ $ $ Expenditures: Current: General Government Public Safety Community Environment Cultural-Recreational Debt Service: Principal Retirement Interest on Bonds Service Charges Cost of Issuance Capital Outlay Total Expenditures Excess (Deficiency) of Revenues Over (Under) Expenditures 105 19 124 Net Change in Fund Balances Fund Balances - Beginning $ 64 11 75 3,871 12 3,883 15,413 17 15,430 - 91 - - 1,084 110 4,635 6,297 - 2 93 - 2,763 14,889 (18) 3,883 541 - 19 19 (2,765) (2,765) 124 1 1,118 541 6,863 22 3,516 9,494 124 Other Financing Sources (Uses): Transfers In Transfers Out Face Amount of Bonds Issued Premium on Issuance of Bonds (Net) Issuance of Refunding Bonds Payment to Refunding Bond Agent Total Other Financing Sources (Uses) Fund Balances - Ending Special Revenue Funds 6,987 $ 106 23 $ 4,634 - $ 10,035 EXHIBIT C-2 (Continued) Special Revenue Funds Grants and Special Programs Highway User Revenue Mesa Arts Center Restoration Mesa Housing Authority $ $ $ $ $ 2,536 551 11,708 11 989 18 285 2,362 18,460 38,030 18 38,048 322 5 3 330 Quality of Life Sales Tax Street Sales Tax Total Special Revenue Funds 17,729 2 118 2 17,851 $ 22,902 45 (14) 22,933 $ 27,469 260 1 126 74 89 28,019 $ 50,371 64 2,536 4,727 67,468 15,657 1,311 267 296 2,456 145,153 2,953 7,446 415 954 92 24,698 - - 123 16,927 - 24,702 - 4,368 347 6,927 - 8,711 32,605 53,602 7,251 6,061 17,829 7,349 32,139 625 625 774 17,824 24,702 8,231 19,873 2 25,803 127,974 631 5,909 (295) (1,769) 8,146 17,179 35 35 (12,340) (12,340) 666 (6,431) 6,573 14,049 7,239 $ 7,618 27 - - (295) 1,253 $ 958 $ - - 54 (15,105) (15,051) 27 (1,769) 8,146 2,128 664 2,633 33,838 78,905 864 $ 41,984 $ 81,033 691 $ 107 CITY OF MESA, ARIZONA EXHIBIT C-2 COMBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES NON-MAJOR GOVERNMENTAL FUNDS FOR THE FISCAL YEAR ENDED JUNE 30, 2017 (in thousands) Capital Projects Funds Revenues: Sales Taxes Property Taxes Occupancy Taxes Special Assessments Licenses and Permits Intergovernmental Charges for Services Fines and Forfeitures Investment Income Contributions Miscellaneous Revenues Total Revenues Community Facilities District General Capital Projects $ $ Expenditures: Current: General Government Public Safety Community Environment Cultural-Recreational Debt Service: Principal Retirement Interest on Bonds Service Charges Cost of Issuance Capital Outlay Total Expenditures Excess (Deficiency) of Revenues Over (Under) Expenditures Other Financing Sources (Uses): Transfers In Transfers Out Face Amount of Bonds Issued Premium on Issuance of Bonds (Net) Issuance of Refunding Bonds Payment to Refunding Bond Agent Total Other Financing Sources (Uses) 45 45 294 (2) 252 544 Parks $ (5) 12 7 Public Safety Streets Total Capital Projects Funds $ $ $ (5) (5) 3,573 (2) 162 3,733 294 3,573 (14) 45 426 4,324 - - - - - - 157 344 501 8,541 8,541 170 14,160 14,330 268 13,095 13,363 403 12,143 12,546 998 48,283 49,281 (456) (7,997) (14,323) (13,368) (8,813) (44,957) (8) 464 456 12,684 12,684 10,050 149 10,199 15,050 223 15,273 (2,052) 22,080 328 20,356 12,684 (2,060) 47,644 700 58,968 Net Change in Fund Balances - 4,687 (4,124) 1,905 11,543 14,011 Fund Balances - Beginning - 7,436 6,901 2,752 16,278 33,367 - $ 12,123 $ 2,777 $ 4,657 $ 27,821 $ 47,378 Fund Balances - Ending $ 108 EXHIBIT C-2 (Concluded) Community Facilities District Debt Service Funds Highway Highway General Project User Obligation Advancement Revenue Bonds Notes Bonds $ $ $ 821 790 1 1,612 33,790 558 651 5 35,004 $ 26 26 $ - Special Assessment Bonds $ 1,041 1,041 Total Debt Service Funds $ 34,611 1,831 558 651 32 37,683 Total Nonmajor Governmental Funds $ 50,371 34,675 2,536 2,125 4,727 71,599 15,657 1,962 285 341 2,882 187,160 - - - - - - 8,711 32,605 53,602 7,251 645 914 2 1,561 23,297 12,509 7 273 36,086 - 7,900 4,473 4 12,377 745 98 843 32,587 17,994 13 273 50,867 32,587 17,994 15 1,271 74,086 228,122 (12,377) 198 (13,184) (40,962) - 15,329 38 3,913 47,450 (50,891) 15,839 28,067 (17,165) 47,682 4,613 47,450 (50,891) 59,756 198 2,655 18,794 - 11,937 124,209 198 $ 14,592 51 (1,082) 26 8 38 46 2,981 3,913 47,450 (50,891) 3,453 - 97 2,371 26 835 2,618 8,447 932 $ 4,989 $ 8,473 12,340 12,340 (37) 37 $ - 109 $ $ 143,003 INTERNAL SERVICE FUNDS Internal Service Funds are used to account for the financing of goods or services provided by one department or agency to other departments or agencies of the government and to other government units, on a cost reimbursement basis. Warehouse, Maintenance and Services Fund was established to finance and account for services and commodities furnished by Fleet Support, Materials and Supply, and Printing and Graphics. Property and Public Liability Self-Insurance Fund was established to account for the cost of claims incurred by the City under a self-insurance program. Workers’ Compensation Self-Insurance Fund was established to account for the costs of maintaining a self-insurance program for industrial insurance at the City. Employee Benefits Self-Insurance Fund was established to account for the costs of maintaining the City’s self-insurance health program. CITY OF MESA, ARIZONA EXHIBIT C-3 INTERNAL SERVICE FUNDS COMBINING STATEMENT OF NET POSITION JUNE 30, 2017 (in thousands) ASSETS Current Assets: Pooled Cash and Investments Accounts Receivable Accrued Premiums Receivable Accrued Interest Receivable Inventory Prepaid Costs Deposits Total Current Assets Warehouse, Maintenance and Services Property and Public Liability Self Insurance Workers' Compensation Self Insurance $ $ $ Noncurrent Assets: Capital Assets, Not Being Depreciated Captial Assets, Being Depreciated, Net Total Noncurrent Assets Total Assets DEFERRED OUTFLOWS OF RESOURCES Deferred Outflows Related to Pensions Total Deferred Outflows of Resources Total Assets and Deferred Outflows of Resources LIABILITIES Current Liabilities Accounts Payable and Accrued Liabilities Claims Payable Current Portion of Compensated Absences Total Current Liabilities Long-Term Liabilities Compensated Absences Net Pension Liability Post Employment Benefits Total Long-Term Liabilities Total Liabilities DEFERRED INFLOWS OF RESOURCES Deferred Inflows Related to Pensions Total Deferred Inflows of Resources NET POSITION Net Investment in Capital Assets Unrestricted Total Net Position $ 518 534 5,948 19 7,019 9,736 24 524 10,284 Employee Benefits Self Insurance Total 9,682 10 208 9,900 $ 46,306 14 162 105 7 69 46,663 $ 66,242 548 162 139 5,948 758 69 73,866 317 1,308 1,625 - - 7 308 315 324 1,616 1,940 8,644 10,284 9,900 46,978 75,806 1,710 1,710 256 256 221 221 232 232 2,419 2,419 10,354 10,540 10,121 47,210 78,225 962 133 1,095 3 11,339 11,342 82 23,246 23,328 2,654 4,252 6,906 3,701 38,837 133 42,671 509 9,035 8,444 17,988 1,351 1,071 2,422 809 463 1,272 1,228 1,137 2,365 509 12,423 11,115 24,047 19,083 13,764 24,600 9,271 66,718 1,127 1,127 168 168 101 101 153 153 1,549 1,549 315 37,471 $ 37,786 1,940 8,018 9,958 1,625 (11,481) (9,856) $ 110 (3,392) (3,392) $ (14,580) (14,580) $ CITY OF MESA, ARIZONA EXHIBIT C-4 INTERNAL SERVICE FUNDS COMBINING STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET POSITION FOR THE FISCAL YEAR ENDED JUNE 30, 2017 (in thousands) Operating Revenues: Charges For Services: Warehouse Fleet Support Services Printing and Graphics Self-Insurance Contributions: Employee City State Retirement System Other Total Operating Revenues Warehouse, Maintenance and Services Property and Public Liability Self Insurance Workers' Compensation Self Insurance Employee Benefits Self Insurance $ $ $ $ Operating Expenses: Warehouse, Maintenance & Services: Warehouse Fleet Support Services Printing and Graphics Self-Insurance: Administrative Costs Claims and Premiums Paid Total Operating Expenses Operating Income (Loss) Before Depreciation 6,066 18,132 1,333 - - - Total $ 6,066 18,132 1,333 25,531 3,631 3,631 5,666 96 5,762 15,077 56,009 4,423 1,096 76,605 15,077 65,306 4,423 1,192 111,529 6,766 17,916 846 - - - 6,766 17,916 846 25,528 1,079 1,229 2,308 1,196 3,871 5,067 7,292 71,814 79,106 9,567 76,914 112,009 3 1,323 695 (2,501) (480) Depreciation (211) - - (136) (347) Operating Income (Loss) (208) 1,323 695 (2,637) (827) 20 20 9 9 1,343 704 - - 1,343 704 Nonoperating Revenues (Expense): Investment Income Gain/(Loss) on Disposal of Capital Assets Total Nonoperating Revenues (Expenses) 3 3 Income (Loss) Before Capital Contributions (205) Capital Contributions 37 Change in Net Position (168) Total Net Position - Beginning Total Net Position - Ending (9,688) $ (9,856) (4,735) $ 111 (3,392) 88 88 (2,549) (14,580) (707) - 37 (2,549) (15,284) $ 117 3 120 (670) 40,335 $ 37,786 10,628 $ 9,958 CITY OF MESA, ARIZONA EXHIBIT C-5 INTERNAL SERVICE FUNDS COMBINING STATEMENT OF CASH FLOWS FOR THE FISCAL YEAR ENDED JUNE 30, 2017 (in thousands) Cash Flows from Operating Activities: Cash Received from Users Cash Payments to Suppliers Cash Payments to Employees Net Cash Provided by (Used For) Operating Activities Warehouse, Maintenance and Services Property and Public Liability Self Insurance Workers' Compensation Self Insurance $ $ $ 104 Cash Flows from Capital and Related Financing Activities: Acquisition and Construction of Capital Assets Net Cash Provided By (Used For) Capital and Related Financing Activities Cash Flows from Investing Activities: Interest Received on Investments Net Cash Provided by Investing Activities 5,763 (4,461) (241) $ 77,457 (76,527) (1,044) $ 112,140 (99,901) (11,106) 1,061 (323) - - - (323) (323) - - - (323) 11 11 7 7 64 64 82 82 93 1,068 (50) 892 9,643 8,614 46,356 $ 46,306 $ $ $ (219) Pooled Cash and Investments at Beginning of Year 3,631 (2,615) (934) Total 82 - Net Change in Cash and Cash Equivalents Pooled Cash and Investments at End of Year 25,289 (16,298) (8,887) Employee Benefits Self Insurance 737 $ 518 $ 9,736 $ 9,682 $ (208) $ 1,323 $ 695 (114) 1,133 65,350 66,242 Reconciliation of Operating Income (Loss) to Net Cash Provided by Operating Activities: Operating Income (Loss) Adjustments to Reconcile Operating Income (Loss) to Net Cash Provided by Operating Activities: Depreciation Changes in Assets and Liabilities: (Increase)/Decrease in Receivables (Increase)/Decrease in Inventory (Increase)/Decrease in Deposits and Prepaid Costs (Decrease)/Increase in Accounts Payable (Decrease)/Increase in Pension Liability (Decrease)/Increase in Other Accrued Expenses 211 Total Adjustments - - (2,637) (827) 136 347 (241) (51) (12) 389 (504) 520 (7) (27) (17) (1,190) 1 49 177 139 6 6 872 (131) 1,634 (235) (51) (12) 1,283 (475) 1,103 312 (1,241) 366 2,523 1,960 Net Cash Provided by (Used for) Operating Activities $ 104 $ 82 $ 1,061 $ Noncash Transactions Affecting Financial Position: Contributions of Capital Assets Gain/(Loss) on Disposal of Capital Assets $ 37 3 $ - $ - $ 112 (114) - $ 1,133 $ 37 3 AGENCY FUND The Agency Fund accounts for assets held by the City in a custodial capacity for the benefit of a third party and cannot be used to address activities or obligations of the City. The Payroll Agency Fund accounts for all payroll transactions. CITY OF MESA, ARIZONA EXHIBIT C-6 AGENCY FUND STATEMENT OF CHANGES IN ASSETS AND LIABILITIES FOR THE FISCAL YEAR ENDED JUNE 30, 2017 (in thousands) Balance July 1, 2016 Additions PAYROLL AGENCY FUND Assets: Pooled Cash and Investments Due from Others Total Assets Liabilities: Accounts Payable Accrued Payroll Payable Total Liabilities $ $ $ $ 10,236 6 10,242 $ 1,335 8,907 10,242 $ $ $ Deductions 725,537 172 725,709 $ 51,865 777,664 829,529 $ 113 $ $ 727,516 145 727,661 50,641 780,840 831,481 Balance June 30, 2017 $ $ $ $ 8,257 33 8,290 2,559 5,731 8,290 Supplemental Information COM P R E H E NS I VE A NNUAL F IN AN CIAL R E POR T 2 0 1 7 CITY OF MESA, ARIZONA EXHIBIT D-1 SUPPLEMENTAL INFORMATION BUDGETARY COMPARISON SCHEDULE COMMUNITY FACILITIES DISTRICT FOR THE FISCAL YEAR ENDED JUNE 30, 2017 (in thousands) Budgeted Amounts Original Revenues: Property Taxes Special Assessments Contributions Miscellaneous Revenues Total Revenues $ Expenditures: Current: General Government Debt Service: Service Charges Cost of Issuance Capital Outlay Total Expenditures Final 61 192 253 $ Variance with Final Budget Actual 61 192 253 $ 64 56 120 $ 64 (61) 56 (192) (133) 1,265 1,256 91 1,165 600 2,138 4,003 2 605 2,133 3,996 2 157 344 594 448 1,789 3,402 Excess (Deficiency) of Revenues Over (Under) Expenditures (3,750) (3,743) (474) 3,269 Other Financing Uses: Transfers In Transfers Out Face Amount of Bonds Issued Total Other Financing Uses 3,750 3,750 (8) 3,750 3,742 19 (8) 464 475 19 3,286 3,305 - (1) 1 2 (263) 22 285 Net Change in Fund Balances Fund Balance - Beginning Fund Balance - Ending (263) $ (263) $ (264) Note: Includes both the Special Revenue and the Capital Projects Funds $ 23 $ 287 CITY OF MESA, ARIZONA EXHIBIT D-2 SUPPLEMENTAL INFORMATION BUDGETARY COMPARISON SCHEDULE ENVIRONMENTAL COMPLIANCE FOR THE FISCAL YEAR ENDED JUNE 30, 2017 (in thousands) Budgeted Amounts Original Revenues: Charges for Services Investment Income Total Revenues $ Final 15,233 41 15,274 $ 15,233 41 15,274 Expenditures: Current: General Government Public Safety Community Environment Cultural-Recreational Capital Outlay Total Expenditures 1,408 101 6,739 6,408 4,263 18,919 1,410 105 6,157 6,407 7,067 21,146 Excess (Deficiency) of Revenues Over (Under) Expenditures (3,645) (5,872) Other Financing Uses: Transfers In Transfers Out Total Other Financing Uses - Net Change in Fund Balances Fund Balances - Beginning Fund Balance - Ending $ $ (5,872) 6,231 6,231 $ 359 115 15,413 17 15,430 $ 1,084 110 4,635 6,297 2,763 14,889 - (3,645) 2,586 Variance with Final Budget Actual $ 180 (24) 156 326 (5) 1,522 110 4,304 6,257 541 6,413 - - 541 6,413 9,494 3,263 10,035 $ 9,676 CITY OF MESA, ARIZONA EXHIBIT D-3 SUPPLEMENTAL INFORMATION BUDGETARY COMPARISON SCHEDULE GRANTS AND SPECIAL PROGRAMS FOR THE FISCAL YEAR ENDED JUNE 30, 2017 (in thousands) Budgeted Amounts Original Revenues: Occupancy Taxes Licenses and Permits Intergovernmental Charges for Services Fines and Forfeitures Investment Income Contributions Miscellaneous Revenues Total Revenues $ Final 2,275 342 12,862 15 1,021 255 2,012 18,782 $ 2,275 342 12,862 15 1,021 255 2,012 18,782 Expenditures: Current: General Government Public Safety Community Environment Cultural-Recreational Capital Outlay Total Expenditures 3,002 14,053 699 1,008 2,339 21,101 3,437 14,195 699 1,418 4,705 24,454 Excess (Deficiency) of Revenues Over (Under) Expenditures (2,319) (5,672) Other Financing Sources (Uses): Transfers In Total Other Financing Uses - Net Change in Fund Balances Fund Balances - Beginning Fund Balance - Ending $ $ (5,672) 6,848 6,848 $ 1,176 116 2,536 551 11,708 11 989 18 285 2,362 18,460 $ 2,953 7,446 415 954 6,061 17,829 - (2,319) 4,529 Variance with Final Budget Actual 484 6,749 284 464 (1,356) 6,625 631 6,303 35 35 35 35 666 6,338 6,573 $ 261 209 (1,154) (4) (32) 18 30 350 (322) 7,239 (275) $ 6,063 CITY OF MESA, ARIZONA EXHIBIT D-4 SUPPLEMENTAL INFORMATION BUDGETARY COMPARISON SCHEDULE HIGHWAY USER REVENUE FOR THE FISCAL YEAR ENDED JUNE 30, 2017 (in thousands) Budgeted Amounts Original Revenues: Intergovernmental Investment Income Total Revenues $ Final 37,565 126 37,691 $ Actual 37,565 126 37,691 $ 38,030 18 38,048 Variance with Final Budget $ 465 (108) 357 Expenditures: Current: General Government Community Environment Capital Outlay Total Expenditures 88 15,451 9,586 25,125 88 25,549 9,548 35,185 92 24,698 7,349 32,139 (4) 851 2,199 3,046 Excess (Deficiency) of Revenues Over (Under) Expenditures 12,566 2,506 5,909 3,403 (12,377) (12,377) (12,377) (12,377) (12,340) (12,340) 37 37 (9,871) (6,431) 3,440 14,049 14,049 Other Financing Uses: Transfers Out Total Other Financing Uses Net Change in Fund Balances 189 Fund Balances - Beginning Fund Balance - Ending $ 189 $ (9,871) 117 $ 7,618 $ 17,489 CITY OF MESA, ARIZONA EXHIBIT D-5 SUPPLEMENTAL INFORMATION BUDGETARY COMPARISON SCHEDULE MESA HOUSING AUTHORITY FOR THE FISCAL YEAR ENDED JUNE 30, 2017 (in thousands) Budgeted Amounts Original Revenues: Intergovernmental Charges for Services Investment Income Miscellaneous Revenues Total Revenues $ Expenditures: Current: General Government Community Environment Capital Outlay Total Expenditures 29,225 9 29,234 Final $ 25 29,624 4 29,653 29,225 9 29,234 Variance with Final Budget Actual $ 25 29,524 104 29,653 17,729 2 118 2 17,851 $ 123 16,927 774 17,824 (11,496) 2 109 2 (11,383) (98) 12,597 (670) 11,829 Excess (Deficiency) of Revenues Over (Under) Expenditures (419) (419) 27 446 Net Change in Fund Balances (419) (419) 27 446 664 (852) Fund Balances - Beginning Fund Balance - Ending 1,516 $ 1,097 1,516 $ 1,097 118 $ 691 $ (406) CITY OF MESA, ARIZONA EXHIBIT D-6 SUPPLEMENTAL INFORMATION BUDGETARY COMPARISON SCHEDULE QUALITY OF LIFE SALES TAX FOR THE FISCAL YEAR ENDED JUNE 30, 2017 (in thousands) Budgeted Amounts Original Revenues: Sales Taxes Licenses and Permits Investment Income Total Revenues $ 22,333 26 22,359 Final $ Actual 22,333 26 22,359 $ 22,902 45 (14) 22,933 Variance with Final Budget $ 569 45 (40) 574 Expenditures: Current: Public Safety Total Expenditures 24,703 24,703 24,703 24,703 24,702 24,702 Excess (Deficiency) of Revenues Over (Under) Expenditures (2,344) (2,344) (1,769) 575 Net Change in Fund Balances (2,344) (2,344) (1,769) 575 2,488 2,488 2,633 145 Fund Balances - Beginning Fund Balance - Ending $ 144 $ 144 119 $ 864 1 1 $ 720 CITY OF MESA, ARIZONA EXHIBIT D-7 SUPPLEMENTAL INFORMATION BUDGETARY COMPARISON SCHEDULE STREET SALES TAX FOR THE FISCAL YEAR ENDED JUNE 30, 2017 (in thousands) Budgeted Amounts Original Revenues: Sales Taxes Licenses and Permits Intergovernmental Charges for Services Fines and Forfeitures Investment Income Miscellaneous Revenues Total Revenues $ Expenditures: Current: General Government Public Safety Community Environment Capital Outlay Total Expenditures 26,799 51 612 40 191 390 28,083 Final $ 26,799 51 612 40 191 390 28,083 Actual $ 27,469 260 1 126 74 89 28,019 Variance with Final Budget $ 670 209 1 (486) (40) (117) (301) (64) 3,284 354 24,234 17,181 45,053 3,346 359 23,243 18,333 45,281 4,368 347 6,927 8,231 19,873 (1,022) 12 16,316 10,102 25,408 Excess (Deficiency) of Revenues Over (Under) Expenditures (16,970) (17,198) 8,146 25,344 Net Change in Fund Balances (16,970) (17,198) 8,146 25,344 45,990 45,990 33,838 (12,152) Fund Balances - Beginning Fund Balance - Ending $ 29,020 $ 28,792 120 $ 41,984 $ 13,192 CITY OF MESA, ARIZONA EXHIBIT D-8 SUPPLEMENTAL INFORMATION BUDGETARY COMPARISON SCHEDULE GENERAL CAPITAL PROJECTS FOR THE FISCAL YEAR ENDED JUNE 30, 2017 (in thousands) Budgeted Amounts Original Revenues: Special Assessments Investment Income Miscellaneous Revenues Total Revenues $ Expenditures: Capital Outlay Total Expenditures 223 223 Final $ Actual 223 223 $ 294 (2) 252 544 Variance with Final Budget $ 294 (2) 29 321 19,500 19,500 20,117 20,117 8,541 8,541 11,576 11,576 Excess (Deficiency) of Revenues Over (Under) Expenditures (19,277) (19,894) (7,997) 11,897 Other Financing Sources (Uses): Transfers In Total Other Financing Uses 11,070 11,070 11,070 11,070 12,684 12,684 (1,614) (1,614) Net Change in Fund Balances (8,207) (8,824) 4,687 13,511 9,575 9,575 7,436 (2,139) Fund Balances - Beginning Fund Balance - Ending $ 1,368 $ 751 121 $ 12,123 $ 11,372 CITY OF MESA, ARIZONA EXHIBIT D-9 SUPPLEMENTAL INFORMATION BUDGETARY COMPARISON SCHEDULE STREETS FOR THE FISCAL YEAR ENDED JUNE 30, 2017 (in thousands) Budgeted Amounts Original Revenues: Intergovernmental Investment Income Miscellaneous Revenues Total Revenues $ Expenditures: Debt Service: Cost of Issuance Capital Outlay Total Expenditures Excess (Deficiency) of Revenues Over (Under) Expenditures Other Financing Sources (Uses): Transfers Out Face Amount of Bonds Issued Premium on Issuance of Bonds (Net) Total Other Financing Uses Net Change in Fund Balances Fund Balances - Beginning Fund Balance - Ending $ 3,806 3,806 Final $ 3,806 3,806 Actual $ 3,573 (2) 162 3,733 Variance with Final Budget $ (233) (2) 162 (73) 116 23,597 23,713 406 23,597 24,003 403 12,143 12,546 3 11,454 11,457 (19,907) (20,197) (8,813) 11,384 23,713 23,713 (2,110) 23,713 21,603 (2,052) 22,080 328 20,356 3,806 1,406 11,543 16,374 16,374 16,278 20,180 $ 122 17,780 $ 27,821 (58) 1,633 (328) 1,247 10,137 (96) $ 10,041 Statistical Section COM P R E H E NS I VE A NNUAL F IN AN CIAL R E POR T 2 0 1 7 STATISTICAL SECTION This part of the City of Mesa’s comprehensive annual financial report presents detailed information as a context for understanding what the information in the financial statements, note disclosures, and required supplementary information says about the City’s overall financial health. Contents Page Financial Trends These schedules contain trend information to help the reader understand how the City’s financial performance and well-being have changed over time. 123 Revenue Capacity These schedules contain information to help readers assess the City’s most significant local revenue source, the sales tax. 135 Debt Capacity These schedules present information to help the reader assess the affordability of the City’s current level of outstanding debt and the City’s ability to issue additional debt in the future. 138 Demographic and Economic Information These schedules offer demographic and economic indicators to help the reader understand the environment within which the City’s financial activities take place. 146 Operating Information These schedules contain service and infrastructure data to help the reader understand how the information in the City’s financial report relates to the services the City provides and the activities it performs. 148 Sources: Unless otherwise noted, the information in these schedules is derived from the comprehensive annual financial reports for the relevant year. CITY OF MESA, ARIZONA TABLE I NET POSITION BY COMPONENTS LAST TEN FISCAL YEARS (accrual basis of accounting) (in thousands) 2007-08 GOVERNMENTAL ACTIVITIES Net Investment in Capital Assets Restricted Unrestricted 2009-10 2010-11 794,720 86,252 125,128 $ 791,523 92,533 91,363 $ 844,777 86,955 3,651 $ 872,302 39,296 (6,376) $ 1,006,100 $ 975,419 $ 935,383 $ 905,222 $ 410,074 94,133 308,216 $ 413,944 82,697 278,892 $ 434,814 47,011 271,706 $ 430,436 55,873 258,131 Total Business-type Activities $ 812,423 $ 775,533 $ 753,531 $ 744,440 PRIMARY GOVERNMENT Net Investment in Capital Assets Restricted Unrestricted $ 1,204,794 180,385 433,344 $ 1,205,467 175,230 370,255 $ 1,279,591 133,966 275,357 $ 1,302,738 95,169 251,755 Total Primary Government $ 1,818,523 $ 1,750,952 $ 1,688,914 $ 1,649,662 Total Governmental Activities Net Position BUSINESS-TYPE ACTIVITIES Net Investment in Capital Assets Restricted Unrestricted $ 2008-09 123 TABLE I (Concluded) 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 $ 913,702 41,257 (96,986) $ 902,397 56,719 (184,355) $ 866,332 60,555 (120,803) $ 932,660 72,170 (666,758) $ 965,148 81,941 (666,986) $ 986,354 88,721 (711,367) $ 857,973 $ 774,761 $ 806,084 $ 338,072 $ 380,103 $ 363,708 $ 412,016 69,739 254,189 $ 346,352 37,795 271,619 $ 393,720 43,023 178,702 $ 327,743 47,576 160,934 $ 302,521 49,139 158,756 $ 247,598 43,046 228,160 $ 735,944 $ 655,766 $ 615,445 $ 536,253 $ 510,416 $ 518,804 $ 1,325,718 110,996 157,203 $ 1,248,749 94,514 87,264 $ 1,260,052 103,578 57,899 $ 1,260,403 119,746 (505,824) $ 1,267,669 131,080 (508,230) $ 1,233,952 131,767 (483,207) $ 1,593,917 $ 1,430,527 $ 1,421,529 $ $ $ 874,325 124 890,519 882,512 CITY OF MESA, ARIZONA TABLE II CHANGES IN NET POSITION LAST TEN FISCAL YEARS (accrual basis of accounting) (in thousands) EXPENSES GOVERNMENTAL ACTIVITIES: General Government Public Safety Community Environment Cultural-Recreational Interest on Long-term Debt Total Governmental Activities Expenses BUSINESS-TYPE ACTIVITIES: Electric Gas Water Wastewater Solid Waste Airport Golf Course Convention Center Hohokam Stadium/Fitch Complex Cubs Stadium District Cooling Interest on Long-term Debt Total Business-type Activities Expenses Total Primary Government Expenses 2007-08 2008-09 2009-10 2010-11 2011-12 $ 63,633 292,396 99,415 72,999 19,083 $ 54,226 290,928 121,736 67,039 18,659 $ 54,863 288,929 104,096 54,010 20,013 $ 59,552 273,320 106,434 54,550 21,078 $ 57,472 287,918 97,593 57,171 21,631 547,526 552,588 521,911 514,934 521,785 31,612 43,247 59,225 61,293 32,877 3,317 3,012 5,447 769 - 27,634 35,992 68,956 80,349 31,953 3,703 3,083 4,558 976 - 27,106 35,466 80,915 70,228 31,504 3,944 2,715 4,158 7,408 1,000 - 26,817 36,020 82,378 63,613 31,462 3,972 2,679 3,849 8,324 15 965 - 29,751 34,275 74,162 68,540 32,485 3,737 2,589 3,486 8,525 54 974 - 240,799 257,204 264,444 260,094 258,578 $ 788,325 $ 809,792 $ 786,355 $ 775,028 $ 780,363 125 TABLE II (Continued) 2012-13 2013-14 $ 105,410 287,451 129,164 61,717 23,443 $ 103,819 277,614 125,700 49,275 24,431 607,185 580,839 28,897 35,653 103,432 91,739 33,694 4,300 3,353 3,946 9,094 1,081 3,653 2014-15 $ $ 2016-17 96,860 305,376 117,120 54,967 20,424 $ 101,301 379,505 104,173 55,739 19,279 582,929 594,747 659,997 30,044 35,020 93,871 65,637 32,908 4,343 2,555 3,060 2,879 6,201 1,153 - 28,495 32,104 101,863 71,161 36,979 2,863 2,210 3,715 1,200 8,581 885 4,124 27,647 31,549 95,574 73,877 36,586 4,865 2,575 4,252 2,913 5,271 1,182 - 26,561 37,109 95,608 71,782 37,911 5,125 2,028 4,711 3,687 6,042 1,268 - 318,842 277,671 294,180 286,291 291,832 $ 926,027 $ 858,510 877,109 $ 881,038 $ 951,829 $ 102,396 302,633 101,531 52,430 23,939 2015-16 126 CITY OF MESA, ARIZONA TABLE II (Continued) CHANGES IN NET POSITION LAST TEN FISCAL YEARS (accrual basis of accounting) (in thousands) PROGRAM REVENUES GOVERNMENTAL ACTIVITIES: Charges for services: Licenses and Permits Charges for Services Fines and Forfeitures Other activities Operating Grants and Contributions Capital Grants and Contributions Total Governmental Activities Program Revenues 2007-08 $ BUSINESS-TYPE ACTIVITIES: Charges for services: Electric Gas Water Wastewater Solid Waste Airport Golf Course Convention Center Hohokam Stadium/Fitch Complex Cubs Stadium District Cooling Economic Investment Operating Grants and Contributions Capital Grants and Contributions Total Business-type Activities Program Revenues 23,342 23,703 10,761 324 63,787 21,916 143,833 2008-09 $ 34,148 46,540 97,559 53,951 46,168 3,192 2,448 3,658 229 11 80,570 368,474 Total Primary Government Program Revenues $ 512,307 NET (EXPENSE)/REVENUE Governmental Activities Business-type Activities $ (403,693) 127,675 Total Primary Government Net Expense $ (276,018) 127 13,426 24,740 10,215 78 63,055 35,436 146,950 2009-10 $ 35,313 41,708 95,995 54,720 46,762 2,959 2,310 2,687 834 101 31,222 314,611 $ 461,561 11,824 20,419 10,135 9 72,812 30,343 145,542 2010-11 $ 33,079 38,924 98,806 57,699 46,685 3,125 2,265 1,971 5,837 984 210 17,782 307,367 12,577 20,304 11,820 8 65,284 31,461 141,454 33,138 41,370 102,215 59,659 47,538 3,318 2,250 2,826 6,161 52 945 25 10,774 310,271 $ 452,909 $ 451,725 $ (405,638) 57,407 $ (376,369) 42,923 $ (373,480) 50,177 $ (348,231) $ (333,446) $ (323,303) TABLE II (Continued) 2011-12 $ 13,359 25,779 11,294 18 60,355 23,503 134,308 2012-13 $ 34,625 39,139 113,418 64,544 47,631 3,271 2,169 2,122 6,074 825 1,092 2,126 15,814 332,850 $ 467,158 17,693 27,675 9,885 2,945 55,312 25,049 138,559 2013-14 $ 31,075 39,125 111,933 64,413 47,369 3,484 1,472 2,597 5,496 975 148 9,401 7,997 325,485 18,797 32,106 9,890 400 29,514 20,714 111,421 2014-15 $ 20,892 36,260 10,505 5,741 26,418 75,907 175,723 31,198 38,600 112,003 66,457 47,452 3,813 1,622 2,057 36 174 1,142 9,056 17,331 330,941 2015-16 $ 33,601 39,422 121,205 77,172 52,748 3,454 1,737 2,475 2 202 1,274 157 18,107 351,556 23,254 38,178 11,049 9,385 26,361 35,925 144,152 2016-17 $ 32,254 38,962 130,674 79,523 55,354 3,623 1,645 2,798 63 201 1,234 267 16,929 363,527 23,152 38,348 9,873 1,330 26,955 24,451 124,109 33,534 39,752 138,335 79,056 58,117 3,846 1,545 3,299 54 291 1,231 158 28,711 387,929 $ 464,044 $ 442,362 $ 527,279 $ 507,679 $ 512,038 $ (387,477) 74,272 $ (468,626) 6,643 $ (469,418) 53,270 $ (407,206) 57,376 $ (450,595) 77,236 $ (535,888) 96,097 $ (313,205) $ (461,983) $ (416,148) $ (349,830) $ (373,359) $ (439,791) 128 CITY OF MESA, ARIZONA TABLE II (Continued) CHANGES IN NET POSITION LAST TEN FISCAL YEARS (accrual basis of accounting) (in thousands) GENERAL REVENUES AND OTHER CHANGES IN NET POSITION GOVERNMENTAL ACTIVITIES: Sales Taxes Property Taxes Occupancy Taxes Unrestricted Intergovernmental Revenues Contributions Not Restricted to Specific Programs Investment Income Miscellaneous Gain (Loss) on Sale of Capital Assets Transfers 2007-08 $ 2008-09 2009-10 147,763 2,395 122,561 14,746 6,282 6,679 $ 126,520 1,808 117,543 14,741 1,896 15,849 94,121 96,599 65,433 121,046 14,244 2,148 92,613 15,610 617 7,060 83,334 Total Governmental Activities 394,547 374,956 336,333 336,672 BUSINESS-TYPE ACTIVITIES: Occupancy Taxes Investment Income Gain (Loss) on Sale of Capital Assets Miscellaneous Transfers 6,546 694 (94,121) 1,894 407 (96,599) 508 (65,433) 839 (83,334) Total Business-type Activities (86,881) (94,298) (64,925) (82,495) Total Primary Government $ Change in Net Position Governmental Activities Business-type Activities $ Total Primary Government $ 307,666 129 $ 121,557 14,318 1,581 104,580 14,757 261 13,846 2010-11 $ $ 280,658 $ 271,408 $ 254,177 (9,146) 40,794 $ (30,682) (36,891) $ (40,036) (22,002) $ (36,808) (32,318) 31,648 $ (67,573) $ (62,038) $ (69,126) TABLE II (Concluded) 2011-12 $ 126,644 14,234 2,019 86,103 17,171 1,503 8,939 83,615 2012-13 $ 137,280 14,354 1,903 104,462 49,569 1,692 7,424 83,615 2013-14 $ 140,567 22,549 1,919 135,075 88,646 966 5,550 109,520 2014-15 $ 146,337 33,241 2,081 145,266 47,761 1,786 7,844 94,427 2015-16 $ 151,826 33,825 2,331 149,350 44,928 2,210 6,008 102,148 2016-17 $ 159,735 34,684 2,536 158,916 46,817 448 11,161 (1,411) 106,607 340,228 400,299 504,792 478,743 492,626 519,493 850 (83,615) 825 860 (83,615) 851 1,453 18,697 288 (109,520) 999 1,141 5,157 233 (94,427) 1,161 3,020 (6,145) 1,039 (102,148) 1,085 983 16,364 466 (106,607) (82,765) (81,930) (88,231) (86,897) (103,073) (87,709) $ 257,463 $ 318,369 $ 416,561 $ 391,846 $ 389,553 $ 431,784 $ (47,249) (8,493) $ (68,327) (75,287) $ 35,374 (34,961) $ 71,537 (29,521) $ 42,031 (25,837) $ (16,395) 8,388 $ (55,742) $ (143,614) $ $ 42,016 $ 16,194 $ (8,007) 413 130 CITY OF MESA, ARIZONA TABLE III FUND BALANCE, GOVERNMENTAL FUNDS LAST TEN FISCAL YEARS (modified accrual basis of accounting) (in thousands) 2007-08 GENERAL FUND Reserved (1)(2) Unreserved Nonspendable Restricted Committed Assigned Unassigned Total General Fund ALL OTHER GOVERNMENTAL FUNDS Reserved Unreserved, Reported in: Special Revenue Funds Capital Project Funds Nonspendable Restricted (3)(4) Committed Assigned Unassigned Total All Other Governmental Funds 2008-09 2009-10 2010-11 $ 84,886 50,283 - $ 51,862 74,711 - $ 4,048 92,187 - $ $ 135,169 $ 126,573 $ 96,235 $ 101,170 $ 8,643 $ 17,013 $ 53,674 $ 24,922 11,143 $ 44,708 24,816 28,442 $ 70,271 $ 405 1,992 4,898 93,875 - 31,871 15,724 - 2,906 112,538 19,166 - 101,269 $ 134,610 (1) During fiscal Year 1998-99, a voter-approved 1/2 percent increase to sales tax was enacted. This additional tax is restricted to fund improvements to quality of life projects and is reported as reserved fund balance in the General Fund. (2) During FY 2006-07, a quarter percent portion of the sales tax increase described in (1) above to fund capital improvements to quality of life projects expired and was not renewed. Also during FY 2006-07, a voter-approved 1/2 percent increase to sales tax was enacted. This additional tax is restricted to fund street improvements and is reported as restricted fund balance in the General Fund. (3) Effective with fiscal year 2010-11 the fund balance related to the sales tax for street improvements was moved to the Special Revenue funds. (4) Effective with fiscal year 2011-12 the fund balance related to the sales tax for Quality of Life projects was moved to the Special Revenue funds. 131 TABLE III (Concluded) 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 $ 754 2,012 4,992 78,035 $ 1,724 284 1,185 50,426 $ 2,956 188 1,484 72,683 $ 3,490 184 126 74,145 $ 4,035 184 227 10,703 79,657 $ $ 85,793 $ 53,619 $ 77,311 $ 77,945 $ 94,806 $ 114,426 $ - $ - $ - $ - $ - 84 211,279 16,360 (1) $ 227,722 55 243,831 23,005 (1,177) $ 265,714 23 190,609 21,379 (675) $ 211,336 138 172,316 30,092 (31) $ 202,515 132 77 95,701 28,580 6 (155) $ 124,209 $ 2,145 146 528 19,367 92,240 37 112,105 30,928 2 (69) $ 143,003 CITY OF MESA, ARIZONA TABLE IV CHANGES IN FUND BALANCE, GOVERNMENTAL FUNDS LAST TEN FISCAL YEARS (modified accrual basis of accounting) (in thousands) 2007-08 REVENUES Sales Taxes (1)(2) $ 147,763 Property Taxes Occupancy Taxes 2,395 Special Assessments 1,218 Licenses and Permits 23,342 Intergovernmental 193,585 Charges for Services 23,703 Fines and Forfeitures 10,761 Investment Income 5,178 Contributions Miscellaneous 6,422 Total Revenues 414,367 EXPENDITURES Current General Government Public Safety Community Environment Cultural-Recreational Debt Service Principal Interest Service Charges Cost of Issuance Capital Outlay Total Expenditures 2008-09 $ 126,520 1,808 806 13,426 191,085 24,343 10,215 2,018 14,755 384,976 2009-10 $ 121,557 13,886 1,581 923 11,824 190,731 20,419 10,135 191 13,675 384,922 2010-11 $ 121,046 14,274 2,148 1,069 12,577 174,781 20,304 11,820 587 7,417 366,023 48,112 233,507 66,616 57,765 36,507 230,864 72,647 53,171 40,113 216,026 72,081 40,150 38,843 215,166 68,463 42,191 25,871 19,230 58 77,309 528,468 36,906 18,845 28 77,899 526,867 34,846 21,186 9 539 82,530 507,480 31,690 21,211 10 29 60,173 477,776 Excess of Revenues Under Expenditures (114,101) (141,891) (122,558) (111,753) OTHER FINANCING SOURCES (USES) Transfers In Transfers Out Face Amount of Bonds Issued Face Amount of Notes Issued Premium on Issuance of Bonds (Net) Premium on Issuance of Notes Proceeds from Capital Leases Issuance of Refunding Bonds Payment to Refunding Bond Agent Total Other Financing Sources (Uses) 147,478 (53,960) 15,450 195 2,529 111,692 155,697 (59,106) 61,830 437 158,858 149,437 (66,654) 30,865 45,000 402 869 159,919 128,065 (44,418) 29,320 360 113,327 Net Change in Fund Balances Debt Service as a percentage of Noncapital Expenditures $ (2,409) $ 10.01% 16,967 12.42% $ 37,361 13.19% (1) During fiscal year 1998-99, a voter approved one-half percent increase to sales tax was enacted. (2) During fiscal year 2006-07, a voter approved one-half percent increase to sales tax was enacted. In addition, a quarter percent portion of the sales tax described in (1) above expired and was not renewed by the voters. 133 $ 1,574 12.67% TABLE IV (Concluded) 2011-12 $ $ 126,644 14,323 2,019 996 13,359 168,433 25,779 11,294 1,284 7,573 371,704 2012-13 $ 137,280 14,404 1,903 897 17,693 184,823 27,675 9,885 1,501 2,264 5,940 404,265 2013-14 $ 140,567 22,500 1,919 1,062 18,797 185,303 32,106 9,890 589 1,212 4,524 418,469 2014-15 $ 146,337 34,022 2,081 1,264 20,892 185,529 36,260 10,505 1,793 1,344 6,587 446,614 2015-16 $ 151,826 34,765 2,331 1,433 23,254 191,360 38,178 11,049 1,483 961 3,994 460,634 2016-17 $ 159,735 34,675 2,536 2,125 23,152 200,820 38,348 9,873 331 360 4,348 476,303 41,083 226,429 64,404 43,904 74,596 226,677 55,197 37,787 75,077 231,364 56,573 38,788 81,066 243,570 60,512 40,365 79,448 254,528 65,559 43,651 86,360 261,892 68,403 43,744 25,513 22,643 8 870 66,951 491,805 31,519 23,433 10 1,448 91,537 542,204 71,015 23,704 727 102,657 599,905 28,367 23,269 13 657 74,150 551,969 107,383 18,905 14 1,505 91,784 662,777 32,587 17,994 15 1,271 82,062 594,328 (120,101) (137,939) (181,436) (105,355) (202,143) (118,025) 121,459 (38,136) 27,290 77,835 8,027 8,250 67,238 (74,127) 197,836 147,818 (64,203) 62,672 3,681 17,415 (19,889) 147,494 141,909 (32,389) 40,800 430 150,750 123,044 (45,324) 18,999 2,952 17,555 (20,058) 97,168 122,572 (24,298) 46,530 2,283 43,304 (49,693) 140,698 139,516 (31,931) 47,682 4,613 47,450 (50,891) 156,439 77,735 11.34% $ 9,555 12.20% $ (30,686) 19.05% $ (8,187) 10.81% 134 $ (61,445) 22.12% $ 38,414 9.88% CITY OF MESA, ARIZONA TABLE V SALES TAX COLLECTIONS BY CATEGORY LAST TEN FISCAL YEARS (in thousands) 2007-08 2008-09 2009-10 2010-11 Utilities Communications Publishing Printing & Advertising Contracting Retail Sales Restaurants & Bars Amusements Rentals Miscellaneous $ 9,668 4,312 1,923 375 19,301 77,308 12,039 1,349 21,369 119 $ 9,654 3,749 1,402 280 15,263 63,230 10,956 1,363 20,514 107 $ 9,757 3,809 1,102 175 10,913 63,469 10,948 1,176 20,123 84 $ 11,104 4,456 999 342 8,388 60,266 11,165 1,433 22,219 674 Total $ 147,763 $ 126,518 $ 121,555 $ 121,046 City Direct Tax Rate 1.75% 1.75% 1.75% 2011-12 $ $ 126,645 1.75% Note: Amounts shown include penalties and interest. Occupancy tax not included. (1) During FY 2006-07, 1/4 percent of the 1/2 percent voter-approved sales tax increase that was enacted in August 1998 to fund capital improvements to quality of life projects expired and was not renewed. Also during FY 2006-07, a voter-approved 1/2 percent increase to sales tax was enacted and is restricted to fund street improvements. Source: City of Mesa Tax & Licensing Division 135 11,878 4,483 934 336 9,962 62,191 11,864 1,434 22,968 595 1.75% TABLE V (Concluded) 2012-13 $ 12,549 4,651 866 434 12,402 66,789 12,577 1,432 24,847 732 $ 137,279 1.75% 2013-14 $ 2014-15 12,344 4,230 830 455 13,794 69,276 12,972 1,469 24,374 823 $ 13,111 4,796 747 461 14,103 71,996 13,708 1,542 25,102 771 $ 140,567 $ 146,337 1.75% 1.75% 2015-16 $ 2016-17 13,251 4,229 688 428 14,623 76,160 14,240 1,561 25,578 1,068 $ 13,575 4,432 526 446 16,806 79,715 15,002 1,581 26,340 1,313 $ 151,826 $ 159,736 1.75% 136 1.75% CITY OF MESA, ARIZONA TABLE VI DIRECT AND OVERLAPPING SALES TAX RATES LAST TEN FISCAL YEARS Fiscal Year City Direct Rate Maricopa County 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 1.75% 1.75% 1.75% 1.75% 1.75% 1.75% 1.75% 1.75% 1.75% 1.75% 0.70% 0.70% 0.70% 0.70% 0.70% 0.70% 0.70% 0.70% 0.70% 0.70% State of Arizona 5.60% 5.60% 6.60% * 6.60% 6.60% 5.60% 5.60% 5.60% 5.60% 5.60% Source: City of Mesa Tax & Licensing Office *Note: The State of Arizona increased its tax to 6.60% effective 6/1/10 for a 3 year period 137 CITY OF MESA, ARIZONA TABLE VII RATIOS OF OUTSTANDING DEBT BY TYPE LAST TEN FISCAL YEARS (in thousands) 2007-08 Governmental Activities General Obligation Bonds Municipal Development Corporation Bonds Highway User Revenue Bonds Special Assessment Bonds Community Facilities District Capital Leases Notes Payable $ Business-type Activities Utility System Revenue Bonds General Obligation Bonds Excise Tax Revenue Obligation Bonds Municipal Development Corporation Bonds Notes Payable Capital Leases Total Primary Government $ 267,063 140,265 7,294 9,730 - 2009-10 $ 273,869 134,545 6,550 5,406 45,000 2010-11 $ 281,514 128,515 5,806 2,166 45,000 767,445 3,290 432 1,541 817,530 2,957 333 158 857,435 2,691 2,964 - 898,800 2,221 2,731 - $ 1,172,142 $ 1,245,330 $ 1,328,460 $ 1,366,753 Percentage of Personal Income (1) Per Capita (1) 221,625 9,970 142,290 8,046 17,503 - 2008-09 10.68% $ 2,529 (1) Information on personal income and population is presented on Table XII. 138 11.03% $ 2,677 11.49% $ 2,843 13.06% $ 3,101 TABLE VII (Concluded) 2011-12 $ 288,669 121,395 5,062 822 122,835 2012-13 $ 327,265 120,942 4,318 2,712 140 129,435 2013-14 $ 346,860 112,882 3,574 5,897 72 83,610 2014-15 $ 338,401 106,740 2,830 11,012 82,785 2015-16 $ 350,593 98,743 2,085 19,300 - 2016-17 $ 374,443 84,995 1,340 19,172 - 952,500 1,601 2,493 - 973,670 887 105,079 2,370 - 987,454 605 104,499 2,244 - 996,705 474 103,919 2,116 - 1,062,871 390 103,339 1,985 - 1,161,755 312 94,060 1,851 - $ 1,495,377 $ 1,666,818 $ 1,647,697 $ 1,644,982 $ 1,639,306 $ 1,737,928 14.10% $ 3,390 16.09% $ 3,747 15.42% $ 3,621 14.53% $ 3,561 139 13.91% $ 3,451 13.74% $ 3,525 CITY OF MESA, ARIZONA TABLE VIII RATIOS OF GENERAL BONDED DEBT OUTSTANDING LAST TEN FISCAL YEARS (in thousands) Year Secondary Assessed Value (1) General Obligation Bonds Less: Amounts Available in Debt Service Fund 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 4,114,527 4,793,082 4,749,617 4,094,037 3,164,277 2,770,422 2,559,634 2,821,173 2,757,913 2,888,291 224,915 259,895 276,560 283,735 290,270 328,152 347,465 338,875 350,983 374,755 134 1 138 372 3,584 2,618 4,989 Total 224,915 259,895 276,560 283,601 290,269 328,014 347,093 335,291 348,365 369,766 Source: (1) Maricopa County Finance Department Assessor's Office. (2) Population figures are found on Table XII. 140 Percentage of Secondary Assessed Value 5.47% 5.42% 5.82% 6.93% 9.17% 11.84% 13.56% 11.88% 12.63% 12.80% Per Capita (2) 486 559 592 645 658 739 765 726 733 750 CITY OF MESA, ARIZONA TABLE IX DIRECT AND OVERLAPPING GOVERNMENTAL ACTIVITIES DEBT (1) JUNE 30, 2017 (in thousands) Governmental Unit Debt repaid with property taxes Maricopa County Community College District Mesa Unified School District No. 4 Gilbert Unified School District No. 41 Queen Creek Unified School District No. 95 Higley Unified School District No. 60 Tempe Union High School District No. 213 Tempe Elementary School District No. 3 Eastmark Community Facilities District Debt Outstanding (2) $ Other Debt: Maricopa County Estimated Percentage Applicable to City of Mesa Percent (2)(4) Amount 557,390 280,905 116,725 59,945 120,095 96,300 147,675 9,700 7.99% 86.37% 25.79% 30.82% 0.86% 0.31% 0.75% 100.00% 239,320 7.99% $ 44,535 242,618 30,103 18,475 1,033 299 1,108 9,700 19,122 Subtotal, overlapping debt 366,993 City direct debt (3) 525,315 Total Direct and Overlapping Debt $ (1) Does not include debt issued by the Salt River Project Agricultural Improvement and Power District, which is considered self-supporting from earnings of the district or special assessment debt issued by City of Mesa, which is considered a junior lien. (2) Source: Hilltop Securities, Inc. (3) Includes: General Obligation Bonds, Highway User Revenue Bonds, Special Assesment Bonds, Community Facilities District Bonds, Deferred Amounts on Refundings, Capital Leases, Highway Project Advancement Notes, and Unamortized Bond Premiums. (4) Proportion applicable to the City is computed on the ratio of secondary assessed valuation for fiscal year 2016/17 Note: Overlapping governments are those that coincide, at least in part, with the geographic boundaries of the City. This schedule estimates the portion of the outstanding debt of those overlapping governments that is borne by the residents and businesses of the City of Mesa. This process recognizes that, when considering the City's ability to issue and repay long-term debt, the entire debt burden borne by the residents and businesses should be taken into account. However, this does not imply that every taxpayer is a resident, and therefore responsible for repaying the debt of each overlapping government. 141 892,308 CITY OF MESA, ARIZONA TABLE X LEGAL DEBT MARGIN INFORMATION LAST TEN FISCAL YEARS (in thousands) 6% Limitation Legal Debt Limitation Equal to 6% of Assessed Valuation Total Net Debt Applicable to 6% Limit Margin Available for Future General Obligation Bond Issues for 6% Bonds Total Net Debt Applicable to the 6% Limit as a Percentage of the 6% Legal Debt Limitation 20% Limitation Legal Debt Limitation Equal to 20% of Assessed Valuation Total Net Debt Applicable to 20% Limit Margin Available for Future General Obligation Bond Issues for 20% Bonds Total Net Debt Applicable to the 20% Limit as a Percentage of the 20% Legal Debt Limitation Total Margin Available 2007-08 2008-09 2009-10 2010-11 2011-12 $ 246,872 $ 287,585 $ 284,977 $ 245,642 $ 189,857 17,688 13,569 6,064 5,326 1,370 $ 229,184 $ 274,016 $ 278,913 $ 240,316 $ 188,487 7.16% 4.72% 2.13% 2.17% 0.72% $ 922,905 $ 958,616 $ 949,923 $ 818,807 $ 632,855 207,227 246,326 270,496 278,409 288,900 $ 715,678 $ 712,290 $ 679,427 $ 540,398 $ 343,955 22.45% $ 944,862 25.70% $ 986,306 28.48% $ 958,340 34.00% $ 780,714 (1) Under Arizona law, cities can issue General Obligation Bonds for all purposes other than those listed in Note 2 below, up to an amount not exceeding 6 percent of assessed secondary valuation. (2) Under Arizona law, cities can issue General Obligation Bonds for purposes of water, wastewater, artificial light, open space preserves, parks playgrounds and recreational facilities up to an amount not exceeding 20 percent of assessed secondary valuation. 142 45.65% $ 532,442 TABLE X (Concluded) Legal Debt Margin Calculation for Fiscal Year 2016-17 Secondary Assessed Value $ 2,888,291 Legal Debt Limitation Debt Applicable to Limit: General Obligation Bonds Total Net Debt Applicable to Limit Margin Available for Future General Obligation Bond Issues 6% Bonds (1) $ 173,297 20% Bonds (2) $ 577,658 846 846 373,909 373,909 $ 172,451 Total Margin Available 2012-13 2013-14 $ 166,225 $ 153,578 175 605 $ 166,050 $ 152,973 0.11% $ 511,927 300,735 344,040 $ 253,349 $ 167,887 $ 419,399 $ $ $ 167,995 $ 564,235 $ 220,865 $ 388,860 2016-17 165,475 $ 164,428 551,583 $ 201,680 $ 366,108 143 172,451 0.49% $ 577,658 373,909 $ 63.44% $ 173,297 846 349,903 60.86% $ 376,201 0.63% 343,370 $ $ 1,047 0.75% 67.20% $ 320,860 169,270 203,749 2015-16 1,275 0.39% $ 554,084 54.28% 2014-15 $ 203,749 64.73% $ 376,200 CITY OF MESA, ARIZONA TABLE XI PLEDGED-REVENUE COVERAGE LAST TEN FISCAL YEARS (in thousands) Operating Revenues (1) 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 278,366 274,497 275,193 283,921 299,356 293,915 295,710 311,506 323,099 348,794 Operating Expenses 196,130 197,992 194,159 190,441 180,296 241,128 203,187 209,677 218,706 225,257 Utility System Revenue Bonds Net Revenue Available for Debt Debt Service Service Principal Interest 82,236 76,505 81,034 93,480 119,060 52,787 92,523 101,829 104,393 123,537 7,960 9,815 10,475 12,585 21,365 21,630 22,550 21,860 25,800 13,885 Coverage Ratio 34,658 37,225 40,380 42,814 43,465 46,412 51,927 46,423 44,794 47,187 Highway User Revenue Fund Revenue Bonds Highway User Fund Revenues 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 38,512 34,260 31,791 32,053 27,825 30,046 30,923 33,952 35,383 38,048 Debt Service Principal Interest 170 2,025 5,720 6,030 3,290 6,145 6,945 6,305 7,390 7,900 6,828 6,823 6,691 6,365 5,563 5,627 5,472 5,158 4,844 4,473 Coverage Ratio 5.50 3.87 2.56 2.59 3.14 2.55 2.49 2.96 2.89 3.08 (1) Includes electric, gas, water, wastewater and solid waste systems. (2) Excise tax revenues include city use and sales taxes, unrestricted license, fees and permits, fines and forfeitures, state-shared sales tax, state revenue sharing, and state shared vehicle license tax. Note: Details regarding the City's outstanding debt can be found in the notes to the financial statements. 144 1.93 1.63 1.59 1.69 1.84 0.78 1.24 1.49 1.48 2.02 TABLE XI (Concluded) Special Assessment Bonds Special Assessment Collections 1,710 1,202 923 1,088 996 897 861 827 790 1,041 Debt Service Principal Interest 752 752 744 744 744 744 744 744 745 745 Community Facility District Bonds Coverage Ratio Community Facility District Collections 1.41 1.03 0.82 1.01 0.96 0.90 0.90 0.90 0.89 1.23 195 672 1,320 1,612 457 417 377 337 297 257 217 178 138 98 Municipal Development Corporation Bonds Excise Tax Revenues (2) 226,910 203,198 - Debt Service Principal Interest 5,100 9,970 - 108 17 - Debt Service Principal Interest 65 232 489 645 Coverage Ratio 7 131 456 832 914 0.99 0.98 1.00 1.03 Highway Project Advancement Notes Excise Tax Revenues (2) Coverage Ratio 44 20 - 208,547 200,873 199,949 213,309 221,355 234,183 242,020 - 145 Debt Service Principal Interest 77,835 - 449 1,576 4,312 5,404 4,790 3,892 324 - Coverage Ratio 464.30 127.48 46.37 39.47 46.21 60.17 3.10 - CITY OF MESA, ARIZONA TABLE XII DEMOGRAPHIC AND ECONOMIC STATISTICS LAST TEN FISCAL YEARS Year Population (1) Personal Income (in thousands) 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 463,397 465,272 467,355 440,677 441,160 444,856 454,981 462,376 475,274 493,089 10,977,412 11,288,895 11,563,297 10,465,197 10,603,281 10,361,141 10,687,959 11,321,276 11,783,944 12,644,774 Sources: (1) (2) (3) Per Capita Personal Income (1) Median Age (1) Public School Enrollment (2) 23,689 24,263 24,742 23,748 24,035 23,291 23,491 24,485 24,794 25,644 33.1 33.3 33.6 32.6 34.3 34.4 35.3 35.5 35.7 36.0 73,054 70,297 67,749 66,144 65,662 64,892 64,932 64,532 65,049 63,779 Unemployment Rate (3) 2007-2010 Claritas, 2011-2013 SitesUSA, 2014-2016 ESRI Community Analyst Arizona Department of Education AZ Dept of Economic Security. Data is Phoenix-Mesa-Scottsdale Metropolitan Area. Beginning in 2011 unemployment rate is not seasonally adjusted. 146 4.3% 8.0% 8.7% 9.0% 7.5% 7.2% 6.5% 5.4% 5.3% 4.5% CITY OF MESA, ARIZONA TABLE XIII PRINCIPAL EMPLOYERS CURRENT YEAR AND NINE YEARS AGO 2017 Employer Employees Banner Health Systems Mesa Public Schools Boeing City of Mesa Drivetime Automotive Group County of Maricopa Gilbert Unified School District Maricopa County Community College District Special Devices Inc Santander Consumer Wal-Mart The Kroger Company Home Depot Empire Southwest Machinery Bashas' Mesa Community College Total 8,741 8,439 4,200 3,526 1,280 986 983 896 722 720 702 - Rank 1 2 3 4 5 6 7 8 9 10 31,195 Source: City of Mesa Office of Economic Development 147 2008 Percentage of Total City Employment Employees 5.42% 5.24% 2.61% 2.19% 0.79% 0.61% 0.61% 0.56% 0.45% 0.45% 0.00% 0.00% 0.00% 0.44% 0.00% 0.00% 6,600 10,000 4,000 3,500 1,300 2,280 1,000 750 1,800 1,000 1,500 19.35% 33,730 Rank 2 1 3 4 8 5 9 10 6 9 7 Percentage of Total City Employment 3.43% 5.19% 2.08% 1.82% 0.00% 0.67% 0.00% 0.00% 0.00% 0.00% 1.18% 0.52% 0.39% 0.93% 0.52% 0.78% 17.51% CITY OF MESA, ARIZONA TABLE XIV FULL-TIME EQUIVALENT CITY GOVERNMENT EMPLOYEES BY FUNCTION/PROGRAM LAST TEN FISCAL YEARS 2007-08 2008-09 2009-10 Function/Program General Government Police Fire Community Environment Cultural-Recreational Energy Resources Water Resources Environmental Management & Sustainability Airport 966 1,306 472 181 417 132 166 136 9 838 1,282 470 189 335 140 213 126 10 835 1,240 455 184 329 122 232 124 10 Total 3,785 3,603 3,531 Source: City of Mesa Office of Management and Budget and Human Resources 148 TABLE XIV (Concluded) 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 824 1,163 457 189 334 116 230 120 9 870 1,158 473 184 332 115 233 117 9 864 1,163 479 183 313 117 229 127 10 880 1,173 482 178 317 117 238 125 10 876 1,154 503 182 338 116 240 127 10 860 1,155 492 189 599 116 238 138 11 811 1,189 518 194 289 118 249 147 11 3,442 3,491 3,485 3,520 3,545 3,798 3,526 149 2016-17 CITY OF MESA, ARIZONA TABLE XV OPERATING INDICATORS BY FUNCTION/PROGRAM LAST TEN FISCAL YEARS Function/Program Police Major Crimes Traffic Accidents Fire Fires Rescue or Emergency False Alarms Hazardous Conditions Other Calls Libraries Number of Registered Borrowers Total Attendance Access to Electronic Resources Electric Connections Gas Connections Water Connections Average Daily Consumption (mgd)* Peak Daily Consumption (mg)** Wastewater Connections Average Daily Sewage Treatment (mgd)* Solid Waste Customers Served Refuse Collected (tons) Recyclables Collected (tons) Green Waste Collected (tons) Falcon Field Average Number of Aircraft Based Aircraft Operations (annual) 2007-08 2008-09 2009-10 2010-11 21,388 7,578 18,482 6,256 17,345 5,890 16,623 5,952 1,200 34,207 2,456 567 12,976 1,165 32,478 2,125 663 11,923 1,048 34,079 1,478 701 12,819 981 38,788 1,478 478 11,840 275,449 1,165,451 2,910,088 15,215 51,454 306,427 1,348,555 3,661,261 14,546 51,911 352,607 1,367,667 2,542,927 14,738 52,832 220,812 1,095,196 1,691,966 15,064 53,434 133,086 85.76 125.72 132,771 79.72 108.68 133,701 72.67 111.14 134,072 76.23 114.30 116,465 38.00 116,721 36.00 117,831 33.60 118,413 33.70 112,632 243,208 39,296 17,601 112,832 234,709 37,841 18,936 113,079 217,295 36,490 18,588 115,811 223,217 35,486 19,149 934 337,178 873 283,336 841 248,381 789 221,910 * mgd - millions of gallons per day ** mg - millions of gallons 150 TABLE XV (Concluded) 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 16,740 6,047 16,149 6,186 14,561 6,107 14,795 6,622 13,208 6,968 13,151 6,966 1,012 42,925 1,292 446 11,192 929 43,416 1,255 454 11,803 1,075 44,885 1,176 477 9,403 1,083 45,832 1,106 534 8,964 1,053 49,743 1,083 507 10,613 1,153 50,024 989 488 14,034 142,943 1,143,718 1,566,775 15,841 55,828 166,492 1,178,137 1,515,299 13,815 55,544 196,020 1,166,560 1,541,323 16,460 58,011 125,336 1,166,131 1,549,150 16,703 59,214 122,810 1,157,394 1,345,977 16,854 60,383 121,340 1,067,207 1,272,859 16,724 62,010 135,138 81.60 122.30 136,640 81.03 115.68 137,910 80.85 117.13 139,560 79.55 113.45 141,824 78.55 116.62 144,276 79.78 120.35 119,615 33.40 120,953 33.60 122,623 33.10 124,142 33.30 126,359 34.60 128,782 34.28 118,949 209,116 34,443 17,882 119,142 215,463 34,616 19,878 121,674 217,745 34,629 18,854 122,552 233,754 35,541 21,151 127,517 236,849 35,499 20,602 129,479 232,812 35,546 19,639 749 222,650 700 190,605 729 276,731 702 241,848 663 270,702 689 289,801 151 CITY OF MESA, ARIZONA TABLE XVI CAPITAL ASSET STATISTICS BY FUNCTION/PROGRAM LAST TEN FISCAL YEARS Function/Program Police Stations Stations Vehicular Patrol Units Fire Stations Libraries Parks and Recreation Developed Parks (acres) Undeveloped Acres Swimming Pools Recreation Facilities Community Environment Streets (miles) Paved Unpaved Storm Sewers (miles) Gas Mains (miles) Water Mains (miles) Storage Capacity (millions of gallons) Wastewater Mains (miles) Treatment Capacity (millions of gallons per day) Solid Waste Collection Trucks Golf Courses 2007-08 2008-09 2009-10 2010-11 2011-12 4 368 17 3 4 330 17 3 4 289 18 3 4 290 18 4 5 267 19 4 1,180 1,251 12 6 1,180 1,251 12 6 1,154 1,078 12 6 1,154 1,074 13 6 1,553 705 9 6 1,178 12 308 1,202 1,182 12 316 1,223 1,184 12 321 1,243 1,190 12 329 1,247 1,303 1 438 1,240 2,068 117 2,104 125 2,127 125 2,136 125 2,270 125 1,577 60 1,598 60 1,606 60 1,613 60 1,652 60 70 2 69 2 69 2 69 2 70 1 Note: The decrease in water storage capacity is due to Reservoir FFR6 being decommissioned in FY 16/17. 152 TABLE XVI (Concluded) 2012-13 2013-14 2014-15 2015-16 2016-17 6 267 20 4 8 291 20 4 8 292 20 4 8 287 20 4 8 281 20 4 1,177 1,104 9 6 1,232 1,157 9 4 1,901 633 9 4 1,901 633 9 4 2,300 475 9 5 1,307 1 432 1,256 1,418 1 440 1,256 1,427 1 423 1,311 1,427 1 423 1,311 1,387 82 394 1,325 2,284 125 2,315 125 2,364 112 2,364 112 2,398 109 1,677 60 1,677 60 1,781 60 1,781 60 1,778 60 72 1 72 1 74 1 73 1 75 1 153 Financial Services Department P.O. Box 1466 Mesa, Arizona, 85211-1466 (480) 644-2275 www.mesaaz.gov