Comprehensive Annual Financial Report Fiscal Year Ended June 30, 2018 Gilbert, Arizona TABLE OF CONTENTS INSTRUCTIONS FOR NAVIGATING IN THE “COMPREHENSIVE ANNUAL FINANCIAL REPORT” PDF Files  Bookmarks for major sections are provided in the navigation pane on the left. Click on the bookmark to jump directly to that section.  If a “+” sign is at the left of a bookmark, click on the “+” to bring up subheadings.  All pages are linked to the Table of Contents. To jump to a specific page or subsection from the Table of Contents, put the pointer finger on the title or page number within and click the mouse.  Click the “Table of Contents” text located in the top right hand corner of any page or click the Table of Contents bookmark on the left. TABLE OF CONTENTS TABLE OF CONTENTS Comprehensive Annual Financial Report Year Ended June 30, 2018 Jenn Daniels, Mayor Brigette Peterson, Vice Mayor Scott Anderson, Council Member Eddie Cook, Council Member Victor Petersen, Council Member Jordan Ray, Council Member Jared Taylor, Council Member Patrick Banger, Manager Prepared by the Finance & Management Services Department Håkon Johanson, Finance & Management Services Director TOWN OF GILBERT, ARIZONA Comprehensive Annual Financial Report For the Year Ended June 30, 2018 TABLE OF CONTENTS INTRODUCTORY SECTION Letter of Transmittal Advisory Organizational Chart Organizational Reporting Chart FINANCIAL SECTION Independent Auditor's Report Page 1 8 9 11 Management's Discussion and Analysis (required supplementary information) 13 Basic Financial Statements: Government-wide Financial Statements: Statement of Net Position Statement of Activities 25 26 Fund Financial Statements: Balance Sheet - Governmental Funds Reconciliation of the Balance Sheet to the Statement of Net Position Statement of Revenues, Expenditures, and Changes in Fund Balances - Governmental Funds Reconciliation of the Statement of Revenues, Expenditures, and Changes in Fund Balances to the Statement of Activities Statement of Revenues, Expenditures, and Changes in Fund Balances Budget and Actual - General Fund Statement of Revenues, Expenditures, and Changes in Fund Balances Budget and Actual -Streets Special Revenue Fund Statement of Net Position - Proprietary Funds Statement of Revenues, Expenses, and Changes in Fund Net Position - Proprietary Funds Statement of Cash Flows - Proprietary Funds Statement of Fiduciary Net Position - Fiduciary Funds Statement of Changes in Fiduciary Net Position - Fiduciary Funds Notes to the Financial Statements Required Supplementary Information Schedule of the Proportionate Share of the Net Pension Liability - ASRS Schedule of Changes in the Net Pension Liability and Related Ratios - PSPRS - Police Schedule of Changes in the Net Pension Liability and Related Ratios - PSPRS - Fire Schedule of Pension Contributions - ASRS Schedule of Pension Contributions - PSPRS Schedule of Changes in the Town’s Total OPEB Liability and Related Ratios Note to Pension Plan Schedules - Actuarially Determined Contribution Rates - PSPRS Combining and Individual Fund Statements and Schedules: Combining Balance Sheet - Nonmajor Governmental Funds Combining Statement of Revenues, Expenditures, and Changes in Fund Balances - Nonmajor Governmental Funds Schedules of Revenues, Expenditures, and Changes in Fund Balances Budget and Actual: Grants Special Revenue Fund Other Special Revenue Funds CDBG/HOME Special Revenue Fund Street Light Improvement District Special Revenue Fund 28 31 32 35 36 37 38 40 42 44 45 47 88 89 90 91 92 93 94 96 98 102 103 104 105 TOWN OF GILBERT, ARIZONA Comprehensive Annual Financial Report For the Year Ended June 30, 2018 TABLE OF CONTENTS Page Parkway Maintenance District Special Revenue Fund General Debt Obligations Debt Service Fund Special Assessments Debt Service Fund Outside Sources Capital Projects Fund Prop 400 Capital Projects Fund General Obligation Bonds Capital Projects Fund Municipal Property Corporation Capital Projects Fund System Development Fees Capital Projects Fund University Building Capital Projects Fund Schedules of Revenues, Expenses and Changes in Net Position Budget and Actual: Water Enterprise Fund Wastewater Enterprise Fund Environmental Services Enterprise Fund Combining Statement of Net Position - Internal Service Funds Combining Statement of Revenues, Expenses and Changes in Fund Net Position - Internal Service Funds Combining Statement of Cash Flows - Internal Service Funds Schedules of Revenues, Expenses and Changes in Net Position Budget and Actual: Equipment Maintenance Internal Service Fund Employee Benefit Self-Insurance Internal Service Fund Agency Funds Combining Statement of Changes in Assets and Liabilities STATISTICAL SECTION Financial Trends Net Position by Component - Last Ten Fiscal Years Changes in Net Position - Last Ten Fiscal Years Program Revenues by Function - Last Ten Fiscal Years Fund Balances of Governmental Funds - Last Ten Fiscal Years Changes in Fund Balances of Governmental Funds - Last Ten Fiscal Years Revenue Capacity Sales Tax Collections by Category - Last Ten Fiscal Years Direct and Overlapping Sales Tax Rates - Last Ten Fiscal Years Debt Capacity Ratios of Outstanding Debt by Type - Last Ten Fiscal Years Ratios of General Bonded Debt Outstanding - Last Ten Fiscal Years Direct and Overlapping Governmental Activities Debt - As of June 30, 2018 Legal Debt Margin Information - Last Ten Fiscal Years Pledged-Revenue Coverage - Last Ten Fiscal Years Demographic and Economic Information Demographic and Economic Statistics - Last Ten Fiscal Years Principal Employers - Current Fiscal Year and Nine Years Ago Operating Information Full-time Equivalent Employees by Function - Last Ten Fiscal Years Operating Indicators by Function - Last Ten Fiscal Years Capital Asset Statistics by Function - Last Ten Fiscal Years Other information Property Value, Construction and Bank Deposits - Last Ten Fiscal Years System Development Fees - Fiscal Year 2018 Property Tax Levies and Collections - Last Ten Fiscal Years Principal Property Taxpayers - Fiscal Year 2018 106 107 108 109 110 111 112 113 114 115 116 117 120 121 122 123 124 126 131 132 134 135 136 137 139 140 141 142 143 144 145 146 147 148 149 150 151 152 153 TABLE OF CONTENTS TABLE OF CONTENTS Introductory Section ________________________________ Letter of Transmittal Advisory Organization Chart Organization Reporting Chart TABLE OF CONTENTS December 10, 2018 Honorable Mayor, Members of the Council, and Gilbert Citizens: I am pleased to submit to you the Comprehensive Annual Financial Report (CAFR) for the Town of Gilbert (Gilbert), for the fiscal year ended June 30, 2018. State law (Arizona Revised Statutes §9-481) requires that local governments publish a complete set of audited financial statements within six months of the close of each fiscal year. Management assumes full responsibility for the completeness and reliability of the information contained in this report, based upon a comprehensive framework of internal control that it has established for this purpose. Because the cost of internal control should not exceed anticipated benefits, the objective is to provide reasonable, rather than absolute, assurance that the financial statements are free of any significant misstatements. Heinfeld, Meech & Company, a firm of licensed certified public accountants, has issued an unmodified opinion on Gilbert’s financial statements for the year ended June 30, 2018. The independent auditors’ report is located in the Financial Section of this report. This letter of transmittal is designed to complement Management’s Discussion and Analysis (MD&A) and should be read in conjunction with it. The MD&A can be found in the Financial Section of this report. GILBERT PROFILE Governmental Structure Gilbert is an Arizona Municipal Corporation, operating as a general law community as prescribed in the Arizona Revised Statutes. Gilbert was incorporated July 6, 1920, and operates under the CouncilManager form of government. The Mayor is a member of the Council and is elected by the voters for a four-year term. Six additional council members are elected at-large to staggered four-year terms. The Mayor is the chief executive officer and chairperson of the Council. The Town Manager (Manager) is appointed by the Council and serves as the chief administrative officer. During fiscal year 2018, the Manager administered Gilbert's operations through a staff of 1,358 budgeted full-time equivalent positions. Gilbert provides or administers a full range of services including police and fire protection, development services (planning, code enforcement, and engineering), public works (water, wastewater, environmental services, and streets), and parks and recreation services. Transit and “dial-a-ride” services are provided through an intergovernmental agreement with the Regional Public Transportation Authority. Library services, incarceration and animal control are provided through intergovernmental agreements with Maricopa County. Town of Gilbert | A Community of Excellence 50 E Civic Center Drive, Gilbert, AZ 85296 | Phone 480‐503‐6871 | Fax: 480 497‐4943 | www.GilbertAz.gov 1 TABLE OF CONTENTS Geography and Population Gilbert is located in the southeastern section of the greater Phoenix metropolitan area in Maricopa County, bounded on the north and east by the City of Mesa, on the west by the City of Chandler, on the southeast by the Town of Queen Creek, and on the south by the Gila River Indian Community. Gilbert has a planning area of 72.6 square miles. The most recent estimate of population as of July 1, 2018 is 247,600, which was derived from the Gilbert’s Office of Management and Budget. The following graph depicts the ten-year population trend for Gilbert. FACTORS AFFECTING FINANCIAL CONDITION Growth and Construction There were 1,604 new residential permits and 199 commercial permits issued in fiscal year 2018, which represents a slight decrease from the prior fiscal year of 1,754 and 264, respectively. The total value of all new construction in fiscal year 2018, including commercial, was $531.6 million, down slightly from $532.2 million in fiscal year 2017. System Development Fees (SDF’s) are collected for capital needs related to growth in the community. The Council has adopted SDF’s for police, fire, general government, traffic signals, parks and recreation, water resources, water, and wastewater. The fees are based on build-out system requirements to serve the projected population and land uses. During fiscal year 2018, a total of $36.6 million was collected in SDF’s compared to $37.0 million in fiscal year 2017. Economic Development With nearly 250,000 residents, Gilbert, Arizona is thriving as evidenced by its growth and development, commitment to safety, premier education, playfulness, and innovation. Over the past few years, Gilbert has received numerous awards and recognitions, a few of which are included below.          General obligation bonds rating upgraded to AAA (Moody’s Investor Service, 2015) Water Resources Municipal Property Corporation revenue bonds upgraded to AAA (Standard and Poor’s Ratings Group, 2016) Arizona's Fastest Growing City (WalletHub, 2018) 3rd Most Livable City in the U.S. (SmartAsset, 2018) 4th Best School District in America - Gilbert Public Schools (Alarms.org, 2018) 5th Best Place to Find a Job in America (WalletHub, 2018) Most Prosperous City in the U.S. (Economic Innovation Group, 2017) 12th Best Place to Live in America (24/7 Wall Street, 2017) 2nd Safest City in the United States (Law Street Media, 2016) 2 TABLE OF CONTENTS    Best Phoenix Suburb (Thrillist, 2016) Top 5 Safest Cities to Build Your Startup (Tech.Co, 2016) Best City for Raising a Family (Move.org, 2016) Gilbert is a community committed to education; 43.7% of residents age 25 and older hold a bachelor’s degree or higher, compared with about 32% nationally. Notable employers like Banner Health, Dignity Health, Banner MD Anderson Cancer Center, Go Daddy, the worldwide headquarters of Isagenix, Mapfre Insurance, Silent-Aire, Unicon, Northrop Grumman, Lockheed Martin, and Deloitte, benefit from this commitment to education and have helped keep Gilbert’s unemployment near 3.2%, as compared to approximately 4.7% for the state. Knowledge assets that support the community include Park University, the University of Arizona, Arizona State University Polytechnic Campus, Chandler-Gilbert Community College, A.T. Still University, and numerous other colleges, universities, and technical schools within a 30-minute commute. Additionally, more than 30 charter/private schools and four A-rated school districts – Gilbert, Higley, Mesa, and Chandler – serve more than 100,000 students as well as the citizens of Gilbert. The Gilbert Office of Economic Development (OED) is one of approximately 60 Accredited Economic Development Organizations (AEDO) in the nation. Gilbert achieved this accreditation through the International Economic Development Council in 2013 and was the first Arizona economic development organization, and the second municipality in the nation, to do so. In fiscal year 2018, the business development lines of services saw record performance, and Gilbert attracted a diverse mix of projects and property types. Probably the most significant achievement was the attraction of Deloitte, an industryleading audit, tax, and consulting firm with 245,000 world-wide employees. This announcement brings Deloitte’s third U.S. Delivery Center to Gilbert, with the potential to employ 2,500 at an average salary of $95,000. In addition, Park University, based in Parkville, Mo., chose the Gilbert Heritage District as the location of their newest campus center. These projects, along with 32 other successes in fiscal year 2018, demonstrate the community’s commitment to creating the place where the market wants to invest. Investment in the Heritage District also continued with a focus on critical infrastructure to support future growth. During fiscal year 2018, the OED underwent a rigorous process to gather stakeholder input and feedback regarding the future of the Heritage District. This input and feedback was a key component of the Redevelopment Plan Update. This plan will guide the growth and development of the Heritage District, a culturally and historically significant part of the community, for the next ten years. On the tourism front, the Discover Gilbert Official Guide was produced to help inspire more visitation. Substantial efforts were also made to expose new groups to Gilbert including partnering with Condor Airlines and the Arizona Office of Tourism to conduct a familiarization tour for German travel writers, and hosting the Arizona Food and Farm Forum in partnership with the Local First Arizona Foundation. Gilbert’s connectivity to major markets is provided through a comprehensive transportation network which includes the Santan Loop 202 and US-60 Superstition Freeways, Sky Harbor International Airport, and Phoenix-Mesa Gateway Airport. This network provides access to Gilbert-based businesses while connecting the community to local, national and international markets. Located just over 10 miles west of Gilbert, Phoenix Sky Harbor Airport is served by 17 airlines. Sky Harbor is one of the busiest airports in the nation for passenger traffic with over 100,000 passengers daily. Phoenix-Mesa Gateway Airport is located on Gilbert’s eastern border and handles over one million passengers yearly with flights to over 35 destinations throughout the United States. The airport also provides air cargo services and is located within a Foreign Trade Zone. 3 TABLE OF CONTENTS Transaction Privilege (Sales) Tax Trend Sales tax revenues represented 50.2% of General Fund revenues for fiscal year 2018, totaling approximately $89.5 million. Local sales taxes are collected by the Arizona Department of Revenue and remitted to Gilbert weekly. The following graph depicts sales tax receipts by source for the past five years. Property Taxes State law requires municipalities to adopt a property tax levy based on the amount of scheduled and projected debt service for the year plus a reasonable amount for delinquencies and certain costs. For fiscal year 2018, Gilbert’s property tax rate is $1.03 per $100 of limited property valuation and is used exclusively for the payment of voter approved general obligation bond debt. Gilbert does not levy a primary property tax for general operating purposes. Limited Property Value The limited property value of real property within the Gilbert annexed area is a vital economic forecast variable, as the State Constitution contains regulatory restrictions on the amount of debt a community may have outstanding based on limited property valuation. Taking the market value of a property and applying the statutory assessment rate derives the limited property value. Residential properties are assessed at 10%, vacant land is assessed at 16%, and commercial properties are assessed at 18%. This illustrates how crucial the additions of commercial properties are to the tax base. The limited property valuation increased by 6.3% in fiscal year 2018 from $1.979 billion to $2.106 billion. The following graph depicts the changes in the limited property valuation in Gilbert for the past ten years: 4 TABLE OF CONTENTS State-Shared Revenues State-shared revenues totaled $62.0 million for the General Fund and $15.5 million for the Streets Special Revenue Fund in fiscal year 2018, representing approximately 34.8% of total General Fund revenues and 98.7% of total Streets Special Revenue Fund revenues. State-shared revenues include allocations of state sales tax, income tax, gas tax, motor vehicle in-lieu tax, and lottery funds. These revenues are shared based upon relative population in the State as determined by the most recent population estimates of the United States Census Bureau. Budget and Financial Policies Gilbert’s financial policies establish the framework for overall fiscal planning and management. The policies set forth guidelines for both current activities and long range planning. The purposes of the financial policies are: Balanced Budget - Gilbert is required by Arizona Revised Statutes to adopt a balanced budget each fiscal year. A balanced budget is one in which the sum of estimated revenues and appropriated fund balances is equal to appropriations. Fiscal Conservatism – To ensure that Gilbert is at all times in solid financial condition, defined as: Maximum efficiency – best possible service at the lowest possible cost Cash solvency – the ability to pay bills Budgetary solvency – the ability to balance the budget Long-term solvency – the ability to pay future costs Service level solvency – the ability to provide needed and desired services Flexibility – To ensure Gilbert is in a position to respond to changes in the economy or new service challenges without an undue amount of financial stress. Transparency and Communication – To utilize best practices in communicating financial information to facilitate sound decision-making, to promote openness and transparency, and to inspire public confidence and trust. Adherence to the Highest Accounting and Management Practices – As set by the Governmental Accounting Standards Board and the Government Finance Officers Association standards for financial reporting and budgeting. A five-year financial plan is developed for each operating fund, and current year decisions are made with a forecasted future impact. Other financial policies that guide the budget include: maintaining a minimum general fund balance sufficient to cover 90 days of operating expenditures and the annual debt service payments; one-time revenues are not applied toward ongoing expenditures; and establishment of an economic development reserve. Gilbert’s Council adopted a comprehensive listing of policies of responsible financial management in November of 2011. These policies are reviewed annually to ensure their continued relevance and adherence. Long-Term Financial Planning In addition to Gilbert’s General Plan and Capital Improvement Plan, Gilbert is developing infrastructure inventories (including repair and replacement plans) and functional area master plans. Gilbert also has a total of six strategic initiatives as follows: Long and Short-Term Financial Plans, Community Livability, Technology Leader, Economic Development, Proactive Infrastructure, and High Performing Government, which will be discussed in more detail throughout the document. The Town is also working to set a Moonshot Goal for fiscal year 2019. We have implemented Franklin Covey’s The 4 Disciplines of Execution, providing an exceptional tool for advancing these goals while managing the challenges of the daily whirlwind, and have begun implementing Lean Six Sigma (Lean) process improvement events to optimize processes throughout the organization. Several staff members have completed Lean certification requirements to further enhance Gilbert’s long-term financial resiliency. Gilbert continues to 5 TABLE OF CONTENTS 6 TABLE OF CONTENTS 7 TABLE OF CONTENTS Advisory Organizational Chart 8 TABLE OF CONTENTS Organizational Reporting Chart Town Clerk Intergovernmental Relations Municipal Court Town Manager Town Attorney Assistant to the Town Manager Water Resources, CDBG, Emergency Management Deputy Town Manager Deputy Town Manager Deputy Town Manager Economic Development Police Human Resources Parks and Recreation Fire and Rescue Digital Government Development Services Public Works Information Technology Management and Budget Management Services Management Services 9 TABLE OF CONTENTS 10 TABLE OF CONTENTS Financial Section ________________________________ Independent Auditor’s Report Management’s Discussion and Analysis Basic Financial Statements Government-wide Financial Statements Fund Financial Statements Notes to the Financial Statements Required Supplementary Information Combining and Individual Fund Statements and Schedules TABLE OF CONTENTS INDEPENDENT AUDITOR’S REPORT Honorable Mayor and Members of the Town Council Town of Gilbert, Arizona Report on the Financial Statements We have audited the accompanying financial statements of the governmental activities, business-type activities, each major fund, and the aggregate discretely presented component unit and remaining fund information of Town of Gilbert, Arizona (Town), as of and for the year ended June 30, 2018, and the related notes to the financial statements, which collectively comprise the Town’s basic financial statements as listed in the table of contents. Management’s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor’s Responsibility Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. Opinions In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, business-type activities, each major fund, and the aggregate discretely presented component unit and remaining fund information of the Town of Gilbert, Arizona, as of June 30, 2018, and the respective changes in financial position and, where applicable, cash flows thereof and the respective budgetary comparison for the General Fund and Streets Special Revenue Fund for the year then ended in accordance with accounting principles generally accepted in the United States of America. 11 TABLE OF CONTENTS Change in Accounting Principle As described in Note 1, the Town implemented the provisions of the Governmental Accounting Standards Board (GASB) Statement No. No. 75, Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions, for the year ended June 30, 2018, which represents a change in accounting principle. Our opinion is not modified with respect to this matter. Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the Management’s Discussion and Analysis, net pension liability information, and other postemployment benefit plan information, as listed in the table of contents, be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management’s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Other Information Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the Town’s basic financial statements. The accompanying supplementary information such as the Introductory Section, Combining and Individual Fund Statements and Schedules, and Statistical Section are presented for purposes of additional analysis and are not a required part of the financial statements. The Combining and Individual Fund Statements and Schedules, as listed in the table of contents, are the responsibility of management and were derived from and relate directly to the underlying accounting and other records used to prepare the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the Combining and Individual Fund Statements and Schedules information is fairly stated in all material respects in relation to the basic financial statements as a whole. The Introductory Section and Statistical Section have not been subjected to the auditing procedures applied in the audit of the basic financial statements and, accordingly, we do not express an opinion or provide any assurance on them. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated December 10, 2018, on our consideration of Town of Gilbert, Arizona’s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering Town of Gilbert, Arizona’s internal control over financial reporting and compliance. Heinfeld, Meech & Co., P.C. Tucson, Arizona December 10, 2018 12 TABLE OF CONTENTS MANAGEMENT’S DISCUSSION AND ANALYSIS As management of the Town of Gilbert (Gilbert), we offer this narrative overview and analysis of Gilbert’s financial activities for the fiscal year ended June 30, 2018. We encourage readers to consider the information presented here in conjunction with information provided in the transmittal letter. Financial Highlights         Gilbert’s assets and deferred outflows of liabilities exceeded its liabilities and deferred inflows of resources at the end of the fiscal year by $1.7 billion. Included in this amount, defined as net position, is $435.3 million of unrestricted net position, of which $149.8 million is invested in joint ventures with the Cities of Mesa and Chandler and the Town of Queen Creek, and $285.5 million which may be used to fund ongoing operations in future years. Net position includes a $790.3 million net investment in capital assets such as streets, park land, and municipal buildings and a $392.6 million net investment in water, wastewater and environmental services infrastructure and equipment. The combined fund balance for all governmental funds is $263.8 million, of which $111.5 million is unrestricted. The General Fund unrestricted fund balance is $113.8 million, of which $41.4 million has been assigned for capital replacement and road maintenance. The General Fund unassigned balance of $72.5 million is approximately 42.5% of the total fund expenditures. Gilbert’s total bonded debt outstanding at the end of the fiscal year was $406.8 million, as compared to $413.9 million at the end of fiscal year 2017. Gilbert’s total net pension liability at the end of the fiscal year was $144.1 million, as compared to $150.8 million at the end of fiscal year 2017. Gilbert’s total other post-employment benefits (OPEB) liability at the end of the fiscal year was $2.0 million, as compared to $2.6 million at the end of fiscal year 2017. Overview of the Financial Statements This discussion and analysis are intended to serve as an introduction to Gilbert’s basic financial statements, which are comprised of three components: 1) government-wide financial statements, 2) fund financial statements, and 3) notes to the financial statements. This report also contains other supplementary information in addition to the basic financial statements. Government-wide financial statements The government-wide financial statements are designed to provide readers with a broad overview of the finances of Gilbert as a whole, in a manner similar to a private-sector business. The statement of net position presents information on all of Gilbert’s assets, liabilities, and deferred inflows/outflows of resources, with the difference between the two reported as net position. Over time, increases or decreases in net position may serve as a useful indicator of whether Gilbert’s financial position is improving or declining. The statement of activities presents the changes in net position from the previous year. All changes in net position are reported as soon as the underlying event giving rise to the change occurs, regardless of the timing of related cash flows. Thus, revenues and expenses are reported in this statement for some items that will only result in cash flows in future fiscal periods (e.g., earned but unused vacation leave). Both of the government-wide financial statements distinguish functions of Gilbert that are principally supported by taxes and intergovernmental revenues (governmental activities) from other functions that are intended to recover a majority or all of their costs through user fees and charges (business-type activities). The governmental activities of Gilbert include general government, public safety, highways and streets, parks and recreation, and transportation. The business-type activities include water, wastewater, and environmental services. 13 TABLE OF CONTENTS The government-wide financial statements also include the Industrial Development Authority (Authority) as a component unit of Gilbert. The Authority provides financing for eligible private sector entities to acquire and construct facilities deemed to be in the public interest. The financial information for the Authority is presented separately in the statements. The government-wide financial statements can be found on pages 25-27 of this report. Fund financial statements A fund is a grouping of related accounts used to maintain control over resources segregated for specific activities or objectives. Gilbert, like other state and local governments, uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. All of Gilbert’s funds can be divided into three categories: governmental funds, proprietary funds, and fiduciary funds. Governmental Funds Governmental funds account for essentially the same functions reported as governmental activities in the government-wide financial statements. Unlike the government-wide financial statements, however, governmental fund financial statements focus on near-term inflows and outflows of spendable resources, as well as balances of spendable resources available at fiscal year end. This information may be useful in evaluating a government’s near-term financing ability. Because the focus of governmental funds is narrower than that of the government-wide financial statements, it is useful to compare the information presented for governmental funds with similar information presented for governmental activities in the government-wide financial statements. By doing so, readers may better understand the long-term impact of Gilbert’s near-term financing decisions. To facilitate this comparison, reconciliations are provided with the fund financial statements. The basic governmental fund financial statements can be found on pages 28-37. Proprietary Funds Gilbert maintains two different types of proprietary funds. Enterprise Funds report the same functions presented as business-type activities in the government-wide financial statements, which include water, wastewater, and environmental services. Internal Service Funds accumulate and allocate costs internally among the various functions. Gilbert uses internal service funds to account for maintenance of its fleet of vehicles, and employee health and dental self-insurance. The assets and liabilities of the internal service funds are included in the governmental activities column of the government-wide statement of net position. Costs of internal service funds are allocated to the various user functions on the government-wide statement of activities. Enterprise funds provide the same information as the government-wide financial statements, only with more detail. Internal service funds are combined into a single column on the proprietary funds statements. Additional detail for the internal service funds can be found on pages 119-124. The proprietary fund statements can be found on pages 38-43. Fiduciary Funds Fiduciary funds account for resources held for the benefit of parties outside the government. These funds are not included in the government-wide statements as these funds are not available to support Gilbert’s operations. The fiduciary fund statements can be found on pages 44-45. Notes to the financial statements The notes to the financial statements provide additional information that is essential to a full understanding of the data provided in the government-wide and fund financial statements and should be read with the financial statements. 14 TABLE OF CONTENTS The notes to the financial statements can be found on pages 47-85. Government-wide Financial Analysis Net position serves as a useful indicator of a government’s financial position. The following table reflects the condensed Statement of Net Position as of June 30, 2018 and 2017. Town of Gilbert Condensed Statement of Net Position Current and other assets Capital assets Total assets Governmental Activities 2018 2017 $ 324,288,568 $ 343,959,030 1,003,716,206 995,388,402 1,328,004,774 1,339,347,432 Business-type Activities 2018 2017 $ 484,532,991 $ 433,663,204 538,116,338 518,095,419 1,022,649,329 951,758,623 Total 2018 2017 $ 808,821,559 $ 777,622,234 1,541,832,544 1,513,483,821 2,350,654,103 2,291,106,055 Deferred outflows of resources 48,665,850 57,308,335 5,732,620 7,499,472 54,398,470 64,807,807 Long-term liabilities Other liabilities Total liabilities 387,736,704 70,078,349 457,815,053 430,723,892 69,076,436 499,800,328 184,909,546 25,636,127 210,545,673 152,681,675 19,003,206 171,684,881 572,646,250 95,714,476 668,360,726 583,405,567 88,079,642 671,485,209 5,905,423 9,119,023 1,369,007 2,607,355 7,274,430 11,726,378 Deferred inflows of resources Net position: Net investment in capital assets 790,284,938 753,972,864 Restricted 76,701,521 72,781,019 Unrestricted 45,963,689 60,982,533 Total net position $ 912,950,148 $ 887,736,416 392,632,143 399,536,898 34,499,382 42,813,414 389,335,744 342,615,547 $ 816,467,269 $ 784,965,859 1,182,917,081 1,153,509,762 111,200,903 115,594,433 435,299,433 403,598,080 $ 1,729,417,417 $ 1,672,702,275 Net position consists of three components. The largest portion of Gilbert’s net position (68.4%) is its investment in capital assets (land, buildings, equipment, infrastructure, etc.), less depreciation and any related debt used to acquire those assets that is still outstanding. Gilbert uses these capital assets to provide services to citizens; consequently, these assets are not available for appropriation. Although Gilbert’s investment in its capital assets is reported net of related debt, it should be noted that the resources needed to repay this debt are provided from other sources, since the capital assets themselves cannot be used to liquidate these liabilities. An additional portion of Gilbert’s net position (6.4%) represents resources that are subject to external restrictions on how they may be used. The remaining portion of net position (25.2%) includes $149.8 million which is invested in joint ventures with the Cities of Mesa and Chandler and the Town of Queen Creek and $285.5 million which may be used to meet the government’s ongoing obligations to citizens, customers, and creditors. Governmental Activities Governmental activities in fiscal year 2018 increased Gilbert’s net position by $26.8 million. Taxes and program revenues (charges for services and grants and contributions that are clearly identifiable to operating functions) were Gilbert’s most significant revenue sources comprising 97.4% of total revenues for governmental activities. Taxes (local and state-shared) were $167.3 million, an increase of $6.9 million from the prior year. Program revenues were $80.0 million, a decrease of $17.1 million from the prior year, which was mostly due to a decrease in capital grants and contributions specifically related to developer contributed capital related to streets projects. It should be noted that $12.1 million of the total program revenues represent capital contributions from developers of street related infrastructure and, therefore, were not cash revenues available to cover operating expenses. The other component of the change in net position is expenses. The largest expense functions were public safety, which represented 39.2%, and highways and streets, which represented 23.1% of total governmental activities expenses. Total expenses decreased $16.3 million (6.7%) over the prior fiscal year. 15 TABLE OF CONTENTS The following table details the changes in net position for governmental and business-type activities. Changes in Net Position Governmental Activities 2018 Business-type Activities Total 2017 2018 2017 2018 2017 Revenues Program revenues: Charges for services 18,748,898 $ 22,013,700 $ 87,822,540 $ 84,997,939 $ 106,571,438 $ 107,011,639 Operating grants and contributions $ 28,380,757 33,203,523 1,183,844 952,598 29,564,601 34,156,121 Capital grants and contributions 32,903,842 41,877,118 30,615,480 34,133,557 63,519,322 76,010,675 Sales taxes 89,497,493 82,797,456 - - 89,497,493 82,797,456 Property taxes 21,549,105 20,761,108 - - 21,549,105 20,761,108 Unrestricted state-shared revenue 52,192,543 52,860,596 - - 52,192,543 52,860,596 Other taxes 4,034,937 3,973,141 - - 4,034,937 3,973,141 General revenues: Grants and contributions not restricted to specific programs 2,443,552 2,400,140 - - 2,443,552 2,400,140 Unrestricted investment earnings 1,549,131 858,725 1,894,199 1,009,127 3,443,330 1,867,852 Other 2,685,193 1,377,777 211,238 213,102 2,896,431 1,590,879 253,985,451 262,123,284 121,727,301 121,306,323 375,712,752 383,429,607 19,454,066 Total revenues Expenses Management and policy 19,176,241 19,454,066 - - 19,176,241 Finance and management services 2,000,040 2,109,345 - - 2,000,040 2,109,345 Court 4,078,064 4,299,922 - - 4,078,064 4,299,922 Development services 10,311,997 9,400,105 - - 10,311,997 9,400,105 Police 54,116,887 63,151,020 - - 54,116,887 63,151,020 Fire 34,969,018 42,513,168 - - 34,969,018 42,513,168 Highw ays and streets 52,545,194 51,930,598 - - 52,545,194 51,930,598 25,202,281 Parks and recreation 29,985,036 25,202,281 - - 29,985,036 Transportation 1,151,199 1,132,340 - - 1,151,199 1,132,340 Non departmental 7,975,659 13,689,668 - - 7,975,659 13,689,668 10,792,759 10,505,999 - - 10,792,759 10,505,999 - - 44,605,188 42,329,438 44,605,188 42,329,438 Interest and fiscal charges on long-term debt Water Wastew ater - - 27,244,229 26,791,069 27,244,229 26,791,069 Environmental services - - 18,182,971 16,857,046 18,182,971 16,857,046 227,102,094 243,388,512 90,032,388 85,977,553 317,134,482 329,366,065 26,883,357 18,734,772 31,694,913 35,328,770 58,578,270 54,063,542 (63,678) 446,000 63,678 (446,000) - - 26,819,679 19,180,772 31,758,591 34,882,770 58,578,270 54,063,542 as restated (see Note 2) 886,130,469 868,555,644 784,708,678 750,083,089 1,670,839,147 1,618,638,733 Net position, end of year $ 912,950,148 $887,736,416 $816,467,269 $ 784,965,859 $1,729,417,417 $1,672,702,275 Total expenses Increase in net position before transfers Transfers Change in net position Net position, beginning year, 16 TABLE OF CONTENTS Business-type Activities Development-related growth increased Gilbert’s net position for business-type activities in fiscal year 2018 by $31.8 million, including $19.0 million in system development fee collections and $10.7 million in water and wastewater infrastructure contributed by developers. The revenues for business-type activities increased by $421 thousand (0.3%) from the prior year, and expenses increased $4.1 million (4.7%) from the prior year. Financial Analysis of Gilbert’s Funds As noted earlier, Gilbert maintains fund accounting to demonstrate compliance with budgetary and legal requirements. The following is a brief discussion of financial highlights from the fund financial statements. Governmental Funds The focus of the governmental funds is to provide information on near-term inflows, outflows, and balances of resources available for spending. Such information is useful in assessing Gilbert’s financing requirements. In particular, unrestricted fund balance may serve as a useful measure of a government’s net resources available for spending at the end of the fiscal year. Gilbert operated and separately reported the following major governmental funds:       General Fund Streets Special Revenue Fund General Debt Service Fund Special Assessments Debt Service Fund General Obligation Bonds Capital Projects Fund System Development Fees Capital Projects Fund All nonmajor funds are combined for reporting purposes captioned “Other Governmental Funds”. As of the end of fiscal year 2018, the governmental funds reported ending unrestricted fund balances totaling $111.5 million, a decrease of $19.2 million in comparison with the prior fiscal year. The large decrease was mainly due to the decrease of $10.6 million unrestricted fund balance in the General Debt Service Fund. This fund balance was used to advance refund the Series 2009 Public Facilities Municipal Property Corporation (MPC) Revenue Bonds (see Note 11). General Fund The General Fund is the primary operating fund. At the end of fiscal year 2018, the fund balance of the General Fund was $131.7 million, a decrease of $2.9 million from the prior year mainly due to an increase of $1.6 million in transfers out to the General Debt Service Fund for the new 2017 Public Facilities MPC Revenue Bonds debt payment. The unrestricted portion of the fund balance was $113.8 million, of which $14.7 million has been assigned for capital replacement, $11.2 million for highways and streets, and $15.4 million for roads and maintenance. As a measure of the General Fund’s liquidity, it may be useful to compare its available fund balance to total fund expenditures. The General Fund’s unassigned fund balance represents 42.5% of total General Fund expenditures for the current year. 17 TABLE OF CONTENTS Key elements of General Fund sources and uses are as follows:  Overall, revenues exceeded expenditures in the General Fund by $7.8 million; however, other financing sources and uses (net) were ($10.7) million resulting in a decrease in fund balance of $2.9 million. The transfers out of $12.1 million were for debt obligations.  Local sales tax and intergovernmental revenues are the largest revenue sources for the General Fund accounting for 86.6% of the total revenues.  Local sales tax, which accounts for half of total General Fund revenues, increased $6.5 million (7.9%) from the prior fiscal year due to increased construction and retail sales from new and existing businesses.  Fire expenditures increased $3.7 million (11.6%) mainly due to the addition of 7 full time equivalents and excess PSPRS contributions paid due to the Hall-Parker lawsuits.  Non departmental expenditures decreased $5.7 million (41.9%) from prior year due to decreased economic development incentive expenditures. 18 TABLE OF CONTENTS Streets Special Revenue Fund The Streets Fund contains state-shared revenues that are required by state statute to be used for transportation purposes, such as highway user revenues and lottery funds. Total revenues in the Streets Fund decreased $444 thousand (2.8%) from the prior year due to the decrease in highway user revenues of $390 thousand. Total expenditures also decreased by $194 thousand (1.5%). In total, revenues exceeded expenditures by $3.0 million; however, the net transfers out of $837 thousand resulted in a $2.2 million increase in fund balance. Other Major Governmental Funds General e t Service The fund balance decreased by $6.8 million during the year. This was primarily due to the use of fund balance to advance refund outstanding Series 2009 Public Facilities MPC Revenue Bonds. The remaining restricted fund balance of $6.0 million will be used to fund future debt service payments on voter approved general obligation bonds. S ecial Assessments e t Service The fund balance of $75 thousand is restricted to pay future debt service requirements on special assessment bonds. General O li ation Bonds Ca ital ro ects The General Obligation Bonds Fund consists of general obligation bond proceeds and the expenditure of those proceeds to purchase or construct capital assets. The fund balance decreased by $10.4 million during the year. This was due to the use of general obligation bond proceeds to purchase or construct capital assets. System evelo ment Fees Ca ital ro ects. The System Development Fees Fund accounts for fees collected from building permits paid and the expenditure of those funds for infrastructure related to growth in Gilbert. The fund balance increased by $2.2 million during the year. This was primarily due to the current year system development fees revenues of $17.6 million offset by $3.6 million in capital outlay expenditures and $12.2 million transferred to the general debt service fund for principal and interest payments on bonds. The remaining fund balance of $23.4 million will be used to fund future infrastructure needs related to growth in Gilbert. Nonmajor Governmental Funds All nonmajor governmental funds are combined into one column on the governmental fund statements. The combined fund balance of these funds decreased $9.9 million (22.0%) to a balance at year-end of $35.2 million. Nonmajor funds represent 13.3% of the total governmental fund balance. ro rietary F nds Gilbert’s proprietary funds statements are prepared on the same basis (accrual) as the government-wide financial statements. Gilbert operates, and separately reports, the following proprietary funds:    Water Fund Wastewater Fund Environmental Services Fund Water Fund The Water Fund is responsible for producing and distributing potable water that exceeds all county, state and federal drinking water standards. The water system is also sized and pressurized to provide adequate fire suppression to the entire planning area and operates two surface water treatment facilities now capable of producing 69 million gallons per day (mgd), an increase of 12 mgd due to the completion of the Santan Vista Water Treatment Plant completed this year (see note 19), and 19 ground water wells capable of producing 43.5 mgd. Net position increased by $19.6 million to $436.0 million due primarily to capital contributions of $20.0 million, including $12.8 million in system development fees and $7.3 million in distribution lines contributed by developers. Operating income was $2.0 million. 19 TABLE OF CONTENTS Wastewater Fund The Wastewater Fund provides wastewater collection and treatment services to residents and businesses in Gilbert. The services also include the storage and distribution of effluent (treated wastewater). Net position increased $10.5 million to $348.5 million due primarily to capital contributions of $9.7 million, including $6.3 million in system development fees and $3.4 million in collection lines contributed by developers. Operating loss was $952.1 thousand. Environmental Services Fund Gilbert operates the Environmental Services Fund to provide residential and commercial refuse collection and residential recycling services. Residential services are provided exclusively by Gilbert, while the commercial service competes with the private sector for customers. Net position increased by $1.0 million to $31.4 million, primarily from storm water infrastructure contributed by developers of $896.6 thousand. Operating loss was $13.3 thousand. The following graph compares the fiscal year revenues to expenses for the Water, Wastewater and Environmental Services Funds. General Fund Budgetary Highlights There was a difference of $2.5 million between the original adopted budget and the final amended budget. The final amended budget projected that expenditures would exceed revenues by $45.4 million resulting in a $55.8 million reduction to fund balance per the budget. This was mainly due to budgeting an additional $9.1 million in capital outlay expenditures and an additional $3.6 million for public safety. During the year, actual revenues exceeded the budgeted amount by $6.0 million (3.5%) mainly due to higher than expected sales taxes collected. Actual expenditures were less than budgeted by $47.2 million (21.7%) mainly due to $22.9 million lower than expected capital outlay expenditures and excess budgeted contingency of $14.2 million. This resulted in an excess of revenues over expenditures of $53.2 million more than budgeted. This also resulted in the actual net change in fund balance being $52.9 million more than budgeted. Capital Asset and Debt Administration Capital Assets. As of June 30, 2018, Gilbert had $1.5 billion in capital assets. Major capital assets completed during the fiscal year included the following: 20 TABLE OF CONTENTS Governmental Activities   Streets projects totaling $19.6 million and municipal facilities projects totaling $5.4 million. Developer contributions of street related infrastructure valued at $12.0 million. Business-type Activities    Reservoir #7 tank replacement and site improvements of $5.9 million. Purchase of 15 environmental services residential collection CNG vehicles totaling $4.9 million. Developer contributions of water, wastewater, and storm water infrastructure valued at $11.6 million. The following table presents capital assets balances, net of accumulated depreciation, for the fiscal years ended June 30, 2018 and 2017. Town of Gilbert Capital Assets (net of depreciation) Governmental Activities Land Nondepreciable w ater rights Business-type Activities 2018 2017 2018 $ 181,849,320 $ 182,578,216 $ Total 2017 2018 2017 18,233,843 $ 18,211,689 $ 200,083,163 $ 200,789,905 - - 55,361,334 49,578,561 55,361,334 49,578,561 Construction-in-progress 65,544,603 64,360,703 45,953,446 46,058,818 111,498,049 110,419,521 Buildings 150,535,848 153,418,101 - - 150,535,848 153,418,101 Improvements 24,839,501 27,803,858 - - 24,839,501 27,803,858 Plant, machinery & equip 16,433,140 13,362,956 69,357,016 68,515,662 85,790,156 81,878,618 Depreciable w ater rights - - 6,962,410 7,060,702 6,962,410 7,060,702 564,513,794 553,864,568 342,248,289 328,669,987 906,762,083 882,534,555 Total Capital Assets $ 1,003,716,206 $ 995,388,402 538,116,338 $ 518,095,419 $ 1,541,832,544 $ 1,513,483,821 Infrastructure $ Total governmental capital assets increased $8.3 million and business-type capital assets increased $20.0 million. The change in governmental capital assets can be attributed to an increase in infrastructure of $47.7 million and buildings of $7.4 million, offset by depreciation expense of $53.5 million. The majority of the increase for the business-type capital assets can be attributable to infrastructure of $25.5 million and water rights of $5.8 million, offset by depreciation expense of $18.0 million. See Note 7 on pages 61-62 for further information regarding capital assets. Long-term Debt. At June 30, 2018, Gilbert had total bonded debt obligations of $258.2 million related to governmental activities and $148.6 million in business-type activities; $128.1 million of the outstanding debt is general obligation (GO) bonds backed by the full faith and credit of the Town of Gilbert; $5.4 million is special assessment bonds secured by a lien against the land of the benefited property owners in Improvement Districts #19 and #20; and all other outstanding debt is secured by pledges of specific revenue sources. The Arizona Constitution and State Statutes limit a municipality’s bonded debt capacity to certain percentages of its limited property valuation and by the type of project to be constructed with GO bonds. For projects involving water, wastewater, artificial lighting, parks, open space, recreational facility improvements, streets, public safety, and fire and emergency facilities, Gilbert can issue GO bonds up to 20% of its limited property valuation. For any other general-purpose improvements, Gilbert may issue bonds up to 6% of its limited property valuation. Gilbert’s available debt margin at June 30, 2018 was $157.4 million in the 6% capacity and $387.1 million in the 20% capacity. See Note 10 on pages 64-69 for additional information on debt. The following schedule shows Gilbert’s outstanding debt as of June 30, 2018 and 2017. 21 TABLE OF CONTENTS Town of Gilbert Outstanding Debt Governmental Activities 2018 $ 128,090,000 Special Assessment 5,445,000 Street and Highw ay User 3,250,000 Revenue Obligations 36,325,000 Municipal Property Corporation 85,105,000 Totals $ 258,215,000 General Obligation Business-type Activities 2017 $ 143,945,000 6,105,000 6,345,000 36,980,000 104,575,000 $ 297,950,000 2018 $ 148,570,000 $148,570,000 Total 2017 2018 115,940,000 $ 115,940,000 $ 128,090,000 5,445,000 3,250,000 36,325,000 233,675,000 $ 406,785,000 $ 2017 $ 143,945,000 6,105,000 6,345,000 36,980,000 220,515,000 $ 413,890,000 Gilbert’s bonds are rated by leading rating agencies that assess the risk of default based on Gilbert’s financial condition. The following schedule shows Gilbert’s bond ratings as of June 30, 2018. Town of Gilbert Long-term Debt Ratings As of June 30, 2018 Moody's Investor Service Aaa Not Rated Aa1 Not Rated Aa1 Aa1 General Obligation Street and Highway User Revenue Public Facilities Municipal Property Corporation Water Resources Municipal Property Corporation Subordinate Lien Pledged Revenue Obligations Improvement Districts Standard and Poors Ratings Group AA+ AA AA+ AAA AA+ A+ Fitch Ratings AAA Not Rated AAA AAA AAA Not Rated Economic Factors and Next Year’s Budget Gilbert, Arizona continues to effectively manage rapid growth and economic expansion while successfully preserving hometown traditions. With an estimated population of over 247,000 residents, Gilbert has been named the #1 Most Prosperous City in the U.S. (Economic Innovation Group, 2017) and #1 Place to Raise a Family in Arizona (WalletHub, 2017). Gilbert remains the 2nd Safest City in the U.S. according to the 2016 FBI Uniform Crime Report as well as the #11 Best City for Hispanic Entrepreneurs (WalletHub, 2017). In fiscal year 2018, Gilbert’s economic development team facilitated 34 projects representing over $240 million in capital investments, over 3,000 jobs, and 1 million new or expanded square feet ensuring Gilbert remains a premier destination for both residents and businesses alike. Gilbert is also very proud to report that both Fitch and Moody’s gave Gilbert’s General Obligation bonds a AAA rating, which is the highest rating available. These decisions were based on Gilbert’s exceptionally strong credit characteristics, including a demonstrated commitment to building and maintaining strong reserves, robust long-term planning, strengthening regional economy, and manageable debt burdens. The AAA rating places Gilbert in the top 1% of municipalities nationally. Gilbert’s Heritage District continued to see growth in fiscal year 2018. Construction wrapped up on the 11,000+ square-foot Gilbert Shops development, home to OHSO Brewery, and Park University announced an expansion of their campus to be located in the Gilbert University Building, with classes scheduled to start fall 2018. In fiscal year 2019, the Heritage District will see completion of the new 600+ stall parking garage, construction of new retail by Gilbert Market Partners, and the opening of Sam Fox’s Culinary Dropout/The Yard. Gilbert’s northwest employment corridor and central business district also continue to thrive. Prenexus Health chose to relocate from California, bringing at least 50 researchoriented jobs, and Footprint expanded into a new 131,000 square-foot manufacturing facility at Park Lucero that represents 285 new and retained jobs. Gilbert attracted Audi, Morgan Stanley, and other retail users to the Rivulon development in fiscal year 2018. In May 2018, Deloitte announced that the Rivulon 22 TABLE OF CONTENTS development will be the location of their newest US Delivery Center, representing the addition of at least 1,500 new technology-oriented jobs in Gilbert. A progressive community demands progressive governance, and Gilbert’s Council and executive leadership stepped up. Gilbert undertakes a zero-based process for one third of the organization every year, and always applies priority, program, and performance-based approaches. In preparation for the fiscal year 2019 budget, nearly $2.8 million was removed due to the zero-based efforts. Directors are tasked with balancing the budget through consensus, rather than presenting requests and waiting to hear back. Only once the directors achieve consensus is the Town Manager presented with the recommended budget. This collaborative approach allows Gilbert to promote transparency, the importance of short- and long-term planning, and maintain a strong return on investment for the zero-based process while staying focused on the citizens and businesses that we all serve in different capacities. The Town has a long history of utilizing innovative practices and solutions to deliver high-quality, efficient services to the community. In fiscal year 2019, the town will kick-off a focused effort aimed at avoiding the rise and fall life-cycle of cities to create long-term sustainability for our quality of life to our projected build-out and beyond. A key part of this strategy will be the development of an Innovation Roadmap to build on our current practices. This will incorporate the emerging principles involved with Smart Cities initiatives utilizing a citizen-centered approach, big data analytics, internet of things, and advanced communication practices to create excellence in our local economy, mobility, environment and the overall well-being of our residents. The budget for fiscal year 2019 reflects an effort to deliver both effective and efficient services to our community. Even given Gilbert’s growth, the budget is balanced assuming planned revenue increases in the utility funds as discussed and publically posted in May 2018, and applies the non-recurring level of construction-related revenues toward non-recurring costs. Recommended increases in ongoing expenses are within the growth in ongoing levels of revenue recognized as a result of growth both in population and in additional retail opportunities within Gilbert. Budget Highlights for Fiscal Year 2019 With carry forwards and contingency adjustments, the proposed budget of $966,501,770 is an increase of less than $2 million from fiscal year 2018. It reflects a net decrease in construction-in-progress of $6 million ($477 million in fiscal year 2019 versus $483 million which was included in fiscal year 2018), $4 million of new personnel and operating requests in the General Fund, adjustments to the Streets and Enterprise funds, and $1 million of an additional early payment on the 2008 General Obligation bonds. The budget also includes a capital projects contingency budget of $100 million to allow Council the flexibility and legal authority to respond to community needs. This contingency is consistent with practice in prior years. Balanced Financial Plan: The proposed fiscal year 2019 Budget is balanced based upon identified revenues and expenditures. Constitutional Expenditure Limit: The proposed fiscal year 2019 Budget reflects expenses that will be under the constitutional expenditure limitation. Staff regularly monitors conformity with the constitutional expenditure requirements and will recommend, if necessary, continuing adjustments and modifications necessary to comply with expenditure limitation requirements. State-Shared Revenues: The proposed fiscal year 2019 Budget reflects state-shared revenues based upon Census population adjustments and statutory distribution formulas, taking into account currently projected State sales and income tax collections (provided by the Arizona League of Cities and Towns), which reflect the state’s budgeted HURF distributions. Secondary Property Tax Levy: Council voted to adopt a tax levy of $22.3 million, which reduces the tax rate to $0.99 per $100 of assessed value, down from last year’s rate of $1.03. $1 million of General Fund money will be used to pay down the outstanding 2008 General Obligation bonds, which will save taxpayers about $150,000 in interest. 23 TABLE OF CONTENTS Utility Rate Modifications: The fiscal year 2019 Budget reflects revenues projected from rate changes in Gilbert’s water, wastewater, environmental services, and reclaimed water rates. Rate changes were noticed to the public in May 2018, and approved by Council in September 2018. Cost of service has been increasing over the past decade, but no increases in rates have been made since 2009. Gilbert does not make a profit on these funds, but rather charges only what is needed to provide the services. Current rates are projected to provide too little revenue to support ongoing service. Fund Balance: The Revenue Summary lists the use of carry over funds in an amount just over $407 million. This reflects use of revenues which were received in prior fiscal years in excess of minimum fund balance. Capital Project Financing – System Development Fees: The fiscal year 2019 Budget reflects revenues projected from the continued collection of System Development Fees as allowed under current State Law. Financial Contact This financial report is designed to provide a general overview of Gilbert’s finances and to demonstrate accountability for the use of public funds. This report is also available on Gilbert’s website at www.gilbertaz.gov. Questions about any of the information provided in this report, or requests for additional financial information should be addressed to: Town of Gilbert Accounting Manager 50 E Civic Center Drive Gilbert, AZ 85296 (480) 503-6930 24 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA Statement of Net Position June 30, 2018 Primary Government ASSETS Pooled cash and investments Receivables, net: Taxes Special assessments Accrued interest Accounts Due from other governments Internal balances Prepaid items Inventories Restricted assets: Cash and investments Accrued interest Other post-employment benefits Investment in joint venture Capital assets: Non-depreciable Depreciable, net Total assets DEFERRED OUTFLOWS OF RESOURCES Deferred charge on refundings Pensions and other post-employment benefits Total deferred outflows of resources LIABILITIES Accounts payable Accrued liabilities Claims payable Deposits held for others Utility deposits Bond interest payable Unearned revenue Other liabilities: Due within one year Due in more than one year Total liabilities DEFERRED INFLOWS OF RESOURCES Pensions and other post-employment benefits Total deferred inflows of resources NET POSITION Net investment in capital assets Restricted for: Debt service Capital projects Highways and streets Grant programs Court/police programs Special districts Other purposes Unrestricted Total net position Component Unit Industrial Development Authority Governmental Activities Business-type Activities $ 277,134,136 $ 224,809,989 3,883,463 5,500,766 1,062,961 13,404,896 3,873,531 (627,366) 7,517 692,457 807,652 5,645,997 1,322,684 627,366 58,498 3,883,463 5,500,766 1,870,613 19,050,893 5,196,215 7,517 750,955 - 18,961,977 196,881 197,349 101,387,746 186,793 74,127 149,612,139 120,349,723 186,793 271,008 149,809,488 - 247,393,923 756,322,283 1,328,004,774 119,548,623 418,567,715 1,022,649,329 366,942,546 1,174,889,998 2,350,654,103 17,294 8,237,856 40,427,994 48,665,850 2,892,371 2,840,249 5,732,620 11,130,227 43,268,243 54,398,470 - 17,556,015 9,262,539 1,514,000 957,047 1,722,204 523,461 10,118,646 726,696 2,760,080 2,582,167 - 27,674,661 9,989,235 1,514,000 957,047 2,760,080 4,304,371 523,461 10 - 38,543,083 387,736,704 457,815,053 9,448,538 184,909,546 210,545,673 47,991,621 572,646,250 668,360,726 10 5,905,423 5,905,423 1,369,007 1,369,007 7,274,430 7,274,430 - 790,284,938 392,632,143 1,182,917,081 - 11,566,719 57,857,213 4,118,038 628,776 2,027,083 438,846 64,846 45,963,689 $ 912,950,148 34,499,382 389,335,744 $ 816,467,269 11,566,719 92,356,595 4,118,038 628,776 2,027,083 438,846 64,846 435,299,433 $ 1,729,417,417 17,284 17,284 The notes to the financial statements are an integral part of this statement. 25 Total $ 501,944,125 $ $ 17,294 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA Statement of Activities For the Year Ended June 30, 2018 Program Revenues Charges for Services Expenses Functions/Programs Primary government Governmental activities: General government Management and policy Finance and management services Court Development services Public safety Police Fire Highways and streets Parks and recreation Transportation Non departmental Interest and fiscal charges on long-term debt Total governmental activities Business-type activities: Water Wastewater Environmental services Total business-type activities Total primary government Component unit Industrial development authority $ 19,176,241 2,000,040 4,078,064 10,311,997 $ 40,257 26,668 681,907 7,227,068 Operating Grants and Contributions Capital Grants and Contributions $ $ 802,157 49,387 - 1,392,183 - 54,116,887 34,969,018 52,545,194 29,985,036 1,151,199 7,975,659 3,825,886 359,706 1,887,079 4,700,327 - 259,824 1,760,192 25,276,623 182,690 49,884 3,742,916 2,082,819 17,780,353 7,275,972 629,599 - 10,792,759 227,102,094 18,748,898 28,380,757 32,903,842 44,605,188 27,244,229 18,182,971 90,032,388 $ 317,134,482 42,868,121 26,517,229 18,437,190 87,822,540 $ 106,571,438 $ 1,183,844 1,183,844 29,564,601 $ 20,003,842 9,715,068 896,570 30,615,480 63,519,322 $ $ $ - $ - 10 - General revenues: Sales taxes Property taxes, levied for debt service In-Lieu property taxes Franchise taxes Unrestricted state-shared revenue Grants and contributions not restricted to specific programs Unrestricted investment earnings Gain on sale of capital assets Miscellaneous Transfers Total general revenues and transfers Change in net position Net position, July 1, 2017, as restated (see Note 2) Net position, June 30, 2018 26 TABLE OF CONTENTS Net (Expense) Revenue and Changes in Net Position Primary Government Governmental Activities Business-type Activities $ $ (16,941,644) (1,973,372) (3,346,770) (3,084,929) - Component Unit Industrial Development Authority Total $ (16,941,644) (1,973,372) (3,346,770) (3,084,929) $ - (46,288,261) (30,766,301) (7,601,139) (17,826,047) (521,600) (7,925,775) - (46,288,261) (30,766,301) (7,601,139) (17,826,047) (521,600) (7,925,775) - (10,792,759) (147,068,597) - (10,792,759) (147,068,597) - $ (147,068,597) 19,450,619 8,988,068 1,150,789 29,589,476 29,589,476 19,450,619 8,988,068 1,150,789 29,589,476 (117,479,121) - $ $ $ (10) 89,497,493 - 89,497,493 21,549,105 - 21,549,105 1,124,246 - 1,124,246 2,910,691 - 2,910,691 52,192,543 - 52,192,543 - 2,443,552 - 2,443,552 - 1,549,131 1,894,199 3,443,330 3 1,332,889 39,037 1,371,926 - 1,352,304 172,201 1,524,505 - (63,678) 63,678 - - 173,888,276 2,169,115 176,057,391 3 26,819,679 31,758,591 58,578,270 (7) 886,130,469 784,708,678 1,670,839,147 $ 912,950,148 $ 816,467,269 $ 1,729,417,417 17,291 $ 17,284 The notes to the financial statements are an integral part of this statement. 27 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA Balance Sheet Governmental Funds June 30, 2018 ASSETS Pooled cash and investments Receivables, net: Taxes Special assessments Accrued interest Accounts Due from other governments Due from other funds Prepaid items Inventories Advances to other funds Restricted assets: Cash and investments Total assets $ General Streets Special Revenue 121,191,250 $ 4,279,723 General Debt Service $ 2,841,538 Special Assessments Debt Service $ 62,675 3,728,259 448,658 13,270,408 390,819 627,356 7,517 17,869,748 5,521 1,405,325 - 138,528 53,346 - 5,500,766 307 - 283,685 157,817,700 5,690,569 15,919,272 18,952,684 5,563,748 LIABILITIES, DEFERRED INFLOWS OF RESOURCES AND FUND BALANCES Liabilities: Accounts payable Accrued liabilities Deposits held for others Due to other funds Bonds payable Interest payable Advances from other funds Unearned revenue Total liabilities 9,984,225 8,979,592 182,622 32,953 19,179,392 812,361 147,470 959,831 11,210,000 1,722,204 12,932,204 475 17,034 17,509 Deferred Inflows of Resources: Unavailable revenue - special assessments Unavailable revenue - court fines Unavailable revenue - sales tax Total deferred inflows of resources 6,774,978 162,589 6,937,567 - - 5,470,780 5,470,780 17,877,265 41,370,468 72,453,008 131,700,741 4,730,738 4,730,738 6,020,480 6,020,480 75,459 75,459 Fund Balances: Nonspendable Restricted Assigned Unassigned Total fund balances Total liabilities, deferred inflows of resources, and fund balances $ 157,817,700 $ 28 5,690,569 $ 18,952,684 $ 5,563,748 TABLE OF CONTENTS System Development Fees Capital Projects General Obligation Bonds Capital Projects $ $ 63,690,952 $ Other Governmental Funds 41,836,651 $ 36,521,019 Total Governmental Funds $ 270,423,808 231,499 - 164,856 - 16,676 142,455 47,342 2,077,387 1,306 - 3,883,463 5,500,766 1,041,121 13,323,271 3,873,531 627,356 7,517 1,306 17,869,748 27,279 63,949,730 42,001,507 2,731,741 41,537,926 18,961,977 335,513,864 1,185,250 1,185,250 781,526 17,869,748 18,651,274 4,434,888 67,694 774,425 610,322 490,508 6,377,837 17,198,725 9,194,756 957,047 627,356 11,210,000 1,722,204 17,869,748 523,461 59,303,297 - - - 5,470,780 6,774,978 162,589 12,408,347 62,764,480 62,764,480 41,219,981 (17,869,748) 23,350,233 1,306 19,629,582 15,970,562 (441,361) 35,160,089 17,878,571 134,440,720 57,341,030 54,141,899 263,802,220 63,949,730 $ 42,001,507 $ 41,537,926 $ 335,513,864 The notes to the financial statements are an integral part of this statement. 29 TABLE OF CONTENTS 30 TOWN OF GILBERT, ARIZONA Reconciliation of the Balance Sheet to the Statement of Net Position June 30, 2018 TABLE OF CONTENTS Fund balances - total governmental funds $ 263,802,220 Amounts reported for governmental activities in the statement of net position are different because: Capital assets used in governmental activities are not financial resources and, therefore, are not reported in the governmental funds. Governmental capital assets Accumulated depreciation 1,786,944,358 (783,302,563) 1,003,641,795 The investment in joint venture is not a financial resource and, therefore, is not reported in the funds. 197,349 Some receivables are not available to pay for current period expenditures and, therefore, are reported as unavailable revenue in the governmental funds. 12,408,347 Internal service funds are used by management to charge the costs of certain activities, such as equipment maintenance, to the individual funds. The assets and liabilities of the internal service funds are included in the governmental activities in the statement of net position, but are not included on the governmental funds balance sheet. 2,802,807 Deferred outflows and inflows of resources related to pensions, other post-employment benefits, and deferred charges on debt refundings are applicable to future reporting periods and, therefore, are not reported in the funds. Unamortized deferred outflow on bond refunding Pension and other post-employment benefits-related items 8,237,856 34,387,422 42,625,278 (247,005,000) (25,696,029) (17,239,806) (1,417,900) (121,168,913) (412,527,648) Certain liabilities applicable to the Town's governmental activities are not due and payable in the current period, and accordingly are not reported as fund liabilities in the governmental funds balance sheet. Bonds payable Bonds premium Compensated absences Net other post-employment benefits Net pension Net position of governmental activities - statement of net position $ The notes to the financial statements are an integral part of this statement. 31 912,950,148 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA Statement of Revenues, Expenditures, and Changes in Fund Balances Governmental Funds For the Year Ended June 30, 2018 Revenues Taxes: Sales Property Franchise Licenses and permits Intergovernmental Special assessments Charges for services Other entities' participation System development fees Gifts and donations Fines and forfeitures Investment earnings Miscellaneous Total revenues General $ Expenditures Current: General government: Management and policy Finance and management services Court Development services Public safety: Police Fire Highways and streets Parks and recreation Transportation Non departmental Debt service: Principal Interest Payment to refunded bond escrow agent Bond issuance costs Fiscal and other charges Capital outlay Total expenditures Excess (deficiency) of revenues over (under) expenditures Other financing sources (uses) Transfers in Transfers out Refunding bonds issued Premium on refunding bonds Revenue bonds issued Premium on revenue bonds Payment to refunded bond escrow agent Sale of capital assets Total other financing sources and uses Net change in fund balances Fund balances at beginning of year Fund balances at end of year $ 89,516,354 2,910,691 4,644,714 65,055,797 10,933,775 68,349 3,625,730 524,027 1,146,411 178,425,848 Streets Special Revenue $ Special Assessments Debt Service General Debt Service 15,457,442 848 10,676 13,283 32,539 153,328 15,668,116 $ 21,549,105 113,448 21,662,553 $ 958,317 5,298 963,615 21,194,925 2,338,182 3,211,278 7,199,716 - - - 51,677,466 35,556,686 162,496 19,600,079 350,000 7,925,775 12,558,811 - - - 21,387,730 170,604,333 45,658 12,604,469 33,305,000 11,462,873 12,096,000 353,794 6,985 57,224,652 660,000 294,670 6,639 961,309 7,821,515 3,063,647 (35,562,099) 2,306 1,294,765 (12,061,469) (10,766,704) (836,820) (836,820) 28,408,410 43,075,000 6,440,912 (49,162,118) 28,762,204 - (2,945,189) 2,226,827 (6,799,895) 2,306 134,645,930 131,700,741 2,503,911 4,730,738 12,820,375 6,020,480 73,153 75,459 $ 32 $ $ TABLE OF CONTENTS System Development Fees Capital Projects General Obligation Bonds Capital Projects $ $ 31,611 399,412 99,753 530,776 $ 17,616,947 224,696 17,841,643 Other Governmental Funds $ 2,918,584 4,410,060 1,216,499 1,542,784 126,173 425,727 223,737 396,027 11,259,591 Total Governmental Funds $ 89,516,354 24,467,689 2,910,691 4,644,714 84,923,299 958,317 12,151,122 1,585,071 17,616,947 194,522 4,064,740 1,523,157 1,795,519 246,352,142 - 214 662,586 388,699 - 21,857,511 2,338,182 3,599,977 7,199,930 - 125,970 - 1,370,412 141,395 1,824,050 4,750,655 801,199 49,884 53,173,848 35,698,081 14,545,357 24,350,734 1,151,199 7,975,659 10,883,711 10,883,711 3,568,089 3,694,273 54,697 15,010,079 25,053,656 33,965,000 11,757,543 12,096,000 408,491 13,624 50,895,267 281,026,403 (10,352,935) 14,147,370 (13,794,065) (34,674,261) - 295,965 (12,236,416) (11,940,451) (4,928,113) 6,450,000 1,104,697 1,225,504 3,852,088 29,999,140 (30,062,818) 43,075,000 6,440,912 6,450,000 1,104,697 (49,162,118) 1,225,504 9,070,317 (10,352,935) 2,206,919 (9,941,977) (25,603,944) 73,117,415 62,764,480 21,143,314 23,350,233 45,102,066 35,160,089 289,406,164 263,802,220 $ $ The notes to the financial statements are an integral part of this statement. $ 33 TABLE OF CONTENTS 34 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA Reconciliation of the Statement of Revenues, Expenditures and Changes in Fund Balances to the Statement of Activities For the Year Ended June 30, 2018 Net change in fund balances - total governmental funds $ (25,603,944) Amounts reported for governmental activities in the statement of activities are different because: Governmental funds report capital outlays as expenditures. However, in the statement of activities, the cost of those assets is allocated over their estimated useful lives as depreciation expense. Capital outlay Depreciation expense 50,895,267 (53,453,450) (2,558,183) In the statement of activities, the gain on the sale of capital assets is reported, whereas in the government funds, the proceeds from the sale increased financial resources. Thus, the change in net position differs from the change in fund balance by the book value of the capital assets sold. (1,191,635) Issuance of debt, applicable premium and payment to refunded bond escrow agent are reported as a financing source (use) in the governmental funds and thus contribute to the change in fund balance. In the government-wide statements, however, issuing debt increases long-term liabilities in the statement of net position and does not affect the statement of activities. Bond premium is deferred and amortized in the statement of activities. Revenue bonds and revenue refunding bonds Premium on revenue bonds and revenue refunding bonds Town contribution towards refunding Payment to refunded bond escrow agent (49,525,000) (7,545,609) 12,096,000 49,162,118 4,187,509 Repayment of bond principal is reported as expenditures in governmental funds and thus has the effect of reducing fund balance because current financial resources have been used. For the government-wide statements, however, the principal payments reduce the long-term liabilities in the statement of net position and do not result in an expense in the statement of activities. Also, governmental funds report the effect of deferred outflows and resources, premiums, discounts and similar items when debt is first issued, whereas these amounts are deferred and amortized in the statement of activities. Principal payments 33,965,000 Amortization expense 1,386,897 35,351,897 Internal service funds are used by management to charge the costs of certain activities, such as equipment maintenance, to the individual funds. The adjustments for internal service funds "close" those funds by charging the additional amounts to participating governmental activities to completely cover the internal service funds' costs for the year. 2,211,542 Capital assets contributed by developers are not shown on the governmental fund statements but are included in the assets of the Town. On the statement of activities, these donations are shown as capital contributions. 12,062,545 Some expenses reported in the statement of activities do not require the use of current financial resources and therefore are not reported as expenditures in governmental funds. Compensated absences Post-employment benefits Claims payable (1,207,785) 70,364 6,548,270 5,410,849 16,596,964 (18,176,395) (1,579,431) Pension/OPEB contributions are reported as expenditures in the governmental funds when made. However, they are reported as deferred outflows of resources in the statement of net position because the reported net pension/OPEB liability is measured a year before the report date. Pension/OPEB expense, which is the change in the net pension/OPEB liability adjusted for changes in deferred outflows and inflows of resources related to pensions/OPEB, is reported in the statement of activities. Pension/OPEB contributions Pension/OPEB expense Certain revenues are not reported in the governmental funds because they do not provide current financial resources due to unavailability but are recognized as revenue in the statement of activities. However, other revenues in the governmental funds that provide current financial resources are not included in the statement of activities because they were recognized in a prior period. Special assessments Court fines (650,206) (802,403) Sales tax (18,861) Change in net position of governmental activities - statement of activities (1,471,470) $ The notes to the financial statements are an integral part of this statement. 35 26,819,679 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA General Fund Statement of Revenues, Expenditures, and Changes in Fund Balances - Budget and Actual - Budgetary Basis For the Year Ended June 30, 2018 Variance with Budgeted Amounts Original Revenues Taxes: Sales Franchise Licenses and permits Intergovernmental Charges for services Gifts and donations Fines and forfeitures Investment earnings Miscellaneous Total revenues $ Final 86,000,000 2,675,000 4,367,000 64,285,000 9,921,860 25,000 3,626,000 760,000 803,500 172,463,360 $ 86,000,000 2,675,000 4,367,000 64,285,000 9,921,860 25,000 3,626,000 760,000 803,500 172,463,360 Actual Amounts Final Budget Positive (Negative) $ $ 89,516,354 2,910,691 4,644,714 65,055,797 10,933,775 68,349 3,625,730 524,027 1,146,411 178,425,848 3,516,354 235,691 277,714 770,797 1,011,915 43,349 (270) (235,973) 342,911 5,962,488 Expenditures Current: General government: Management and policy Finance and management services Court Development services Public safety: Police Fire Highways and streets Parks and recreation Transportation Non departmental Capital outlay Contingency Total expenditures 22,277,330 2,725,920 3,298,070 7,563,620 23,422,438 2,725,920 3,298,070 7,622,835 21,194,925 2,338,182 3,211,278 7,199,716 2,227,513 387,738 86,792 423,119 53,336,380 33,641,880 139,500 20,194,930 350,000 7,142,300 48,774,820 15,900,000 215,344,750 53,421,370 36,022,122 184,500 21,820,804 350,000 10,421,917 44,333,758 14,221,016 217,844,750 51,677,466 35,556,686 162,496 19,600,079 350,000 7,925,775 21,387,730 170,604,333 1,743,904 465,436 22,004 2,220,725 2,496,142 22,946,028 14,221,016 47,240,417 Excess (deficiency) of revenues over (under) expenditures (42,881,390) (45,381,390) 7,821,515 53,202,905 Other financing sources (uses) Transfers in Transfers out Total other financing sources and uses 1,191,820 (11,612,690) (10,420,870) 1,191,820 (11,612,690) (10,420,870) 1,294,765 (12,061,469) (10,766,704) 102,945 (448,779) (345,834) Net change in fund balances $ (53,302,260) $ (55,802,260) (2,945,189) Fund balance at beginning of year 134,645,930 Fund balance at end of year $ The notes to the financial statements are an integral part of this statement. 36 131,700,741 $ 52,857,071 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA Streets Special Revenue Fund Statement of Revenues, Expenditures, and Changes in Fund Balances - Budget and Actual - Budgetary Basis For the Year Ended June 30, 2018 Variance with Budgeted Amounts Original Revenues Intergovernmental Charges for services Other entities' participation Fines and forfeitures Investment earnings Miscellaneous Total revenues $ Expenditures Current: Highways and streets Capital outlay Contingency Total expenditures 15,550,000 1,000 100,000 15,651,000 Actual Amounts Final $ 15,550,000 1,000 100,000 15,651,000 $ 15,457,442 848 10,676 13,283 32,539 153,328 15,668,116 Final Budget Positive (Negative) $ (92,558) (152) 10,676 13,283 (67,461) 153,328 17,116 14,075,320 38,000 556,000 14,669,320 13,777,783 42,530 844,660 14,664,973 12,558,811 45,658 12,604,469 1,218,972 (3,128) 844,660 2,060,504 Excess of revenues over expenditures 981,680 986,027 3,063,647 2,077,620 Other financing uses Transfers out Total other financing uses (836,820) (836,820) (836,820) (836,820) (836,820) (836,820) - 149,207 2,226,827 Net change in fund balances $ 144,860 $ Fund balance at beginning of year 2,503,911 Fund balance at end of year $ The notes to the financial statements are an integral part of this statement. 37 4,730,738 $ 2,077,620 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA Statement of Net Position Proprietary Funds June 30, 2018 ASSETS Current assets: Pooled cash and investments Receivables (net): Accrued interest Accounts Due from other governments Inventories Total current assets Water $ Business-type Activities - Enterprise Funds Environmental Wastewater Services 126,532,328 $ 77,195,383 $ 21,082,278 $ Total 224,809,989 447,001 3,290,001 1,322,684 58,498 131,650,512 272,794 1,430,093 78,898,270 87,857 925,903 22,096,038 807,652 5,645,997 1,322,684 58,498 232,644,820 36,669,388 86,848 97,902,288 37,429 64,718,358 99,945 51,709,851 12,343 24,355 101,387,746 186,793 149,612,139 74,127 75,294,464 240,205,254 450,195,671 581,846,183 44,192,915 160,915,363 321,648,775 400,547,045 61,244 17,447,098 17,532,697 39,628,735 119,548,623 418,567,715 789,377,143 1,022,021,963 DEFERRED OUTFLOWS OF RESOURCES Deferred charge on refunding Pensions and other post-employment benefits Total deferred outflows of resources 2,892,371 1,434,133 4,326,504 472,933 472,933 933,183 933,183 2,892,371 2,840,249 5,732,620 LIABILITIES Current liabilities: Accounts payable Accrued liabilities Current portion of accrued compensated absences Claims payable Bond interest payable Bonds payable Utility deposits Total current liabilities 3,432,073 375,719 491,406 2,388,781 5,055,000 2,741,905 14,484,884 5,599,551 117,739 188,757 193,386 3,425,000 9,524,433 1,087,022 233,238 288,375 18,175 1,626,810 10,118,646 726,696 968,538 2,582,167 8,480,000 2,760,080 25,636,127 Noncurrent liabilities: Utility revenue bonds payable Accrued compensated absences Other post-employment benefits Net pension liability Total noncurrent liabilities Total liabilities 123,519,485 825,856 181,520 10,437,855 134,964,716 149,449,600 38,517,727 385,584 60,240 3,853,672 42,817,223 52,341,656 457,469 132,627 6,537,511 7,127,607 8,754,417 162,037,212 1,668,909 374,387 20,829,038 184,909,546 210,545,673 690,804 690,804 227,829 227,829 450,374 450,374 1,369,007 1,369,007 211,958,281 9,173,629 214,900,373 436,032,283 163,165,550 25,325,753 159,959,190 348,450,493 17,508,312 13,848,815 31,357,127 392,632,143 34,499,382 388,708,378 815,839,903 Adjustment to reflect the consolidation of internal service fund activities related to enterprise funds Net position of business-type activities 627,366 Noncurrent assets: Restricted assets: Cash and investments Accrued interest Investment in joint venture Other post-employment benefits Capital assets: Non-depreciable Depreciable, net Total noncurrent assets Total assets DEFERRED INFLOWS OF RESOURCES Pensions and other post-employment benefits Total deferred inflows of resources NET POSITION Net investment in capital assets Restricted for capital projects Unrestricted Total net position $ 38 $ $ $ 816,467,269 TABLE OF CONTENTS Governmental Activities Internal Service Funds $ 6,710,328 21,840 81,625 691,151 7,504,944 6,813 74,411 81,224 7,586,168 261,049 261,049 357,290 67,783 89,074 1,514,000 2,028,147 139,492 35,631 2,087,874 2,262,997 4,291,144 125,900 125,900 $ 74,411 3,355,762 3,430,173 The notes to the financial statements are an integral part of this statement. 39 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA Statement of Revenues, Expenses, and Changes in Fund Net Position Proprietary Funds For the Year Ended June 30, 2018 Water Operating revenues Charges for services $ Business-type Activities - Enterprise Funds Environmental Wastewater Services 42,868,121 $ 26,517,229 $ 18,437,190 $ Total 87,822,540 Other Total operating revenues 100,218 42,968,339 2,224 26,519,453 69,759 18,506,949 172,201 87,994,741 Operating expenses General and administrative Personnel services Operation and maintenance Claims incurred Depreciation 1,224,974 8,549,311 16,075,384 12,944,665 1,074,298 3,936,030 10,959,645 10,478,057 979,575 7,065,032 7,800,006 1,642,226 3,278,847 19,550,373 34,835,035 25,064,948 Allocation of indirect expenses Total operating expenses 2,170,950 40,965,284 1,023,530 27,471,560 1,033,380 18,520,219 4,227,860 86,957,063 Operating income (loss) 2,003,055 (952,107) (13,270) 1,037,678 Nonoperating revenues (expenses) Intergovernmental Interest expense Investment earnings 1,183,844 (3,812,648) 1,149,981 148,939 610,808 133,410 1,183,844 (3,663,709) 1,894,199 Gain (loss) on sale of capital assets Total nonoperating revenues (expenses) (37,393) (1,516,216) 759,747 23,796 157,206 (13,597) (599,263) 486,839 (192,360) 143,936 438,415 Capital contributions Transfers in Transfers out 20,003,842 98,678 (985,670) 9,715,068 950,670 - 896,570 - 30,615,480 1,049,348 (985,670) Change in net position 19,603,689 10,473,378 1,040,506 31,117,573 Total net position, beginning of year, as restated (see Note 2) 416,428,594 337,977,115 30,316,621 $ 436,032,283 $ 348,450,493 Income (loss) before capital contributions and transfers Total net position, end of year $ 31,357,127 641,018 Adjustment to reflect the consolidation of internal service fund activities related to enterprise funds Change in net position of business-type activities 40 $ 31,758,591 TABLE OF CONTENTS Governmental Activities Internal Service Funds $ 24,923,868 422,601 25,346,469 1,563,514 1,792,946 5,285,592 13,891,695 16,106 22,549,853 2,796,616 25,974 1,670 27,644 2,824,260 2,824,260 605,913 $ 3,430,173 The notes to the financial statements are an integral part of this statement. 41 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA Statement of Cash Flows Proprietary Funds For the Year Ended June 30, 2018 Water Cash flows from operating activities: Cash receipts from customers Other operating cash receipts Cash receipts from other funds for services Cash receipts from deposits Cash payments to suppliers for goods and services Cash payments to employees for services Cash payments to other funds for services Net cash provided by operating activities $ 50,232,779 100,218 (62,077) (17,233,944) (8,444,088) (2,170,950) 22,421,938 Cash flows from noncapital financing activities: Transfers from other funds Transfers to other funds Net cash provided by (used in) noncapital financing activities Business-type Activities - Enterprise Funds Environmental Wastewater Services $ 26,465,500 2,224 (10,097,092) (3,901,865) (1,023,530) 11,445,237 $ 18,386,112 69,759 (3,984) (8,051,580) (7,060,355) (1,033,380) 2,306,572 Total $ 95,084,391 172,201 (66,061) (35,382,616) (19,406,308) (4,227,860) 36,173,747 98,678 (985,670) (886,992) 950,670 950,670 - 1,049,348 (985,670) 63,678 (31,937,888) 12,753,465 (4,876,663) (4,830,000) 1,183,844 (37,393) (27,744,635) (23,466,451) 42,287,553 6,292,927 (2,500) 25,111,529 (5,676,140) 23,796 (5,652,344) (61,080,479) 42,287,553 19,046,392 (4,879,163) (4,830,000) 1,183,844 (13,597) (8,285,450) 1,012,787 1,012,787 533,799 533,799 119,418 119,418 1,666,004 1,666,004 Net increase (decrease) in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year (5,196,902) 168,398,618 $ 163,201,716 38,041,235 103,872,506 $ 141,913,741 $ (3,226,354) 24,308,632 21,082,278 29,617,979 296,579,756 $ 326,197,735 Cash and cash equivalents at end of year includes: Equity in pooled cash and investments Restricted cash and investments Total cash and cash equivalents 126,532,328 36,669,388 $ 163,201,716 77,195,383 64,718,358 $ 141,913,741 $ 21,082,278 21,082,278 224,809,989 101,387,746 $ 326,197,735 $ $ $ (13,270) Cash flows from capital and related financing activities: Acquisition and construction of capital assets Proceeds from revenue bonds Proceeds from development fees Cash paid for interest and fiscal charges Principal payments on bonds Proceeds from intergovernmental agreements Proceeds from sale of capital assets Net cash provided by (used in) capital and related financing activities Cash flows from investing activities: Interest received on investments Net cash provided by investing activities Reconciliation of operating income (loss) to net cash provided by operations: Operating income (loss) Adjustments to reconcile operating income (loss) to net cash provided by operating activities: Depreciation Provision for uncollectible accounts Changes in assets and liabilities: (Increase) decrease in accounts receivable Increase in inventories Decrease in deferred outflows of resources Increase in accounts payable Decrease in claims payable Decrease in deposits Increase in accrued expenses Increase in other post-employment benefits Decrease in net pension liability Decrease in deferred inflows of resources Total adjustments Net cash provided by operating activities Supplemental disclosures of noncash financing activities: Additions to property and equipment: Contributions from developers Total additions to property and equipment 2,003,055 (952,107) $ 1,037,678 12,944,665 9,065 10,478,057 5,854 1,642,226 6,635 25,064,948 21,554 7,355,593 (6,621) 788,641 73,035 (62,077) 219,821 1,710 (273,957) (630,992) 20,418,883 (57,584) 250,064 1,936,852 71,902 594 (86,286) (202,109) 12,397,344 (57,713) 505,656 728,001 (3,984) 77,215 2,271 (175,218) (405,247) 2,319,842 7,240,296 (6,621) 1,544,361 2,737,888 (66,061) 368,938 4,575 (535,461) (1,238,348) 35,136,069 $ 22,421,938 $ 11,445,237 $ 2,306,572 $ 36,173,747 $ 7,250,377 7,250,377 $ 3,422,141 3,422,141 $ 896,570 896,570 $ 11,569,088 11,569,088 42 TABLE OF CONTENTS Governmental Activities Internal Service Funds $ 423,203 24,874,078 (20,739,251) (1,809,118) 2,748,912 - 1,670 1,670 14,080 14,080 $ 2,764,662 3,945,666 6,710,328 $ 6,710,328 6,710,328 $ 2,796,616 16,106 (49,188) (23,197) 166,939 161,064 (136,317) 4,324 518 (59,345) (128,608) (47,704) $ 2,748,912 $ - The notes to the financial statements are an integral part of this statement. 43 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA Statement of Fiduciary Net Position Fiduciary Funds June 30, 2018 Firemen's Pension Trust Agency Funds $ $ ASSETS Restricted cash and investments Prepaid items Total assets 86,556 - 23,484 6,062 86,556 29,546 - 29,546 LIABILITIES Dependent care benefits payable Total liabilities - NET POSITION Restricted for pensions $ The notes to the financial statements are an integral part of this statement. 44 86,556 $ 29,546 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA Statement of Changes in Fiduciary Net Position Fiduciary Fund For the Year Ended June 30, 2018 Firemen's Pension Trust Additions Interest on investments $ Total additions 1,076 1,076 Deductions Benefits Administration 2,400 100 Total deductions 2,500 Change in net position (1,424) Net position - beginning of the year 87,980 Net position - end of the year $ The notes to the financial statements are an integral part of this statement. 45 86,556 TABLE OF CONTENTS 46 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA NOTES TO THE FINANCIAL STATEMENTS June 30, 2018 The Town of Gilbert, Arizona (Gilbert) was incorporated on July 6, 1920, under the provisions of Article 13, Section 1 of the Constitution of the State of Arizona. Gilbert operates as a general law community, under the provisions of Title 9, Chapter 2, Article 3 (Common Council provision). Gilbert operates under the Council-Manager form of government, as empowered in Chapter 2, Article 2-51 of the Code of the Town of Gilbert, Arizona. There are seven members of the Council, elected to staggered four-year terms. The voters select the Mayor and the Council membership annually elects the Vice Mayor. Note 1 - Summary of Significant Accounting Policies Gilbert’s accounting policies conform to accounting principles generally accepted in the United States of America (GAAP) as applicable to governmental units. The Governmental Accounting Standards Board (GASB) is the accepted standard-setting body for establishing governmental accounting and financial reporting principles. During the fiscal year ended June 30, 2018, Gilbert implemented the provisions of GASB Statement No. 75, Accounting and Reporting for Postemployment Benefits Other than Pensions, as amended by GASB Statement No. 85, Omnibus 2017. GASB Statement No. 75 established standards for measuring and recognizing net assets or liabilities, deferred outflows of resources, deferred inflows of resources, and expenses/expenditures related to other postemployment benefits (OPEB) provided through defined benefit OPEB plans. A. Reporting Entity Gilbert’s operations include public safety (police, fire, and animal control), parks and recreation (parks, recreation, library, culture and arts, and social services), development services (planning, code enforcement, and engineering), and general administration in support of operations. Gilbert also operates three enterprise funds to provide water, wastewater, and environmental services, and two internal service funds that provide equipment and fleet maintenance and employee self-insurance for medical and dental claims. The accompanying financial statements present the activities of Gilbert (the primary government) and its component units. Component units are legally separate entities for which Gilbert is considered to be financially accountable. Blended component units, although legally separate entities, are in substance part of Gilbert’s operations. Therefore, data from these units is combined with data of the primary government. Discretely presented component units, on the other hand, are reported in a separate column in the combined financial statements to emphasize they are legally separate from the Town of Gilbert. Each blended and discretely presented component unit discussed below has a June 30 year-end. Blended Component Units - The Water Resources Municipal Property Corporation (Water MPC) is a legally separate, non-profit corporation which exists solely for the purpose of financing the construction or acquisition of water and wastewater capital improvement projects. The Public Facilities Municipal Property Corporation (Public Facilities MPC) is a legally separate, non-profit corporation which exists solely for the purpose of financing construction of municipal facilities. Each is considered a blended component unit because the Council appoints the five-member board of directors of the MPC, the Council must approve any amendments to the articles of incorporation of the MPC, the Council must approve any debt issues of the MPC, and the MPC provides services solely to the Town of Gilbert. At June 30, 2018, the Water MPC bonded debt is reported within the water and wastewater funds and the Public Facilities MPC bonded debt is reported within the debt service fund (current portion only) and within the governmental activities in the government-wide statement of net position. 47 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA NOTES TO THE FINANCIAL STATEMENTS June 30, 2018 Discretely Presented Component Unit - The Industrial Development Authority (IDA) issues industrial revenue bonds to provide financial assistance to private sector entities for the acquisition and construction of eligible industrial and commercial facilities deemed to be in the public interest. The IDA is considered a component unit because the Council appoints the board of directors of the IDA, the Council must approve any amendments to the articles of incorporation of the IDA, and the Council must approve any debt issues of the IDA. The IDA is discretely presented in these combined financial statements because the IDA does not provide services solely to Gilbert. Separate financial statements for the IDA have not been prepared. B. Jointly Governed Organizations Phoenix-Mesa Gateway Airport Authority (PMGAA) is a non-profit corporation established and funded by the Towns of Gilbert and Queen Creek, the Cities of Mesa and Phoenix, and the Gila River Indian Community. The purpose of the entity is the redevelopment of Williams Air Force Base, which was closed in September 1993 and became Phoenix-Mesa Gateway Airport. The airport has three runways, a passenger terminal and is positioned to be a reliever airport to Phoenix’s Sky Harbor International Airport. The Board of Directors consists of the mayors of the respective communities and the governor of the tribal community. Gilbert contributed $350,000 in fiscal year 2018 to the PMGAA operating and capital budget. Regional Public Transportation Authority (RPTA) is a voluntary association of local governments, including Maricopa County, Mesa, Tempe, Scottsdale, Glendale, Phoenix, and Gilbert. Its purpose is to create a regional public transportation plan for Maricopa County. The Board of Directors consists of the mayors of those municipalities and a member of the County Board of Supervisors. C. Government-wide and Fund Financial Statements The government-wide financial statements (Statement of Net Position and Statement of Activities) report on Gilbert and its component units as a whole, excluding fiduciary activities. Governmental activities, which normally are supported by taxes and intergovernmental revenues, are reported separately from business-type activities, which rely to a significant extent on fees and charges for support. The government-wide Statement of Net Position reports all financial and capital resources of the government (excluding fiduciary funds). It is displayed in a format of assets less liabilities equals net position, with the assets and liabilities shown in order of their relative liquidity. Net position is required to be displayed in three components: 1) net investment in capital assets, 2) restricted and 3) unrestricted. Net investment in capital assets is capital assets net of accumulated depreciation and reduced by outstanding balances of any bonds, mortgages, notes or other borrowings that are attributable to the acquisition, construction, or improvement of those assets. Restricted net position has constraints placed on its use by either: 1) externally imposed by creditors (such as through debt covenants), grantors, contributors, or laws or regulations of other governments, or 2) imposed by law through constitutional provisions or enabling legislation. All net position not otherwise classified as restricted, is shown as unrestricted. The government-wide Statement of Activities demonstrates the degree to which the direct expenses of the various functions or departments are offset by program revenues. Direct expenses are those that are clearly identifiable with a specific function or department. Interest and fiscal charges on long-term debt are not allocated to the various functions. Program revenues include charges for services, fines and forfeitures, licenses and permit fees, special assessment fees, certain system development fees, intergovernmental grants and other entities participation. Taxes, investment earnings, and other revenues not identifiable with a particular function or department are included as general revenues. The general revenues support the net costs of the functions and departments not covered by program revenues. 48 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA NOTES TO THE FINANCIAL STATEMENTS June 30, 2018 For the most part, the effect of internal activity has been removed from the government-wide financial statements. Net internal activity and balances between governmental activities and business-type activities are shown in the government-wide financial statements. However, certain charges between the enterprise funds’ utility systems and the various functional activities are not eliminated in the government-wide statements, as this would distort the direct costs and program revenues reported for the various functions concerned. Separate financial statements are provided for the governmental funds, proprietary funds and fiduciary funds. The focus of the fund financial statements is on major funds. Major individual governmental funds and proprietary funds are reported as separate columns in the fund financial statements. Other nonmajor governmental funds, as well as the internal service funds, are summarized into a single column on the fund financial statements and are detailed in the combining statements included as supplementary information. As stated above, the fiduciary funds are presented in the fund financial statements and not included in the government-wide statements. By definition these assets are being held for the benefit of a third party and cannot be used to address Gilbert’s activities or obligations. The internal service funds, which provide services to the other funds of the government, are presented in a single combined column in the proprietary fund financial statements. Because the principal users of the internal service funds are the governmental activities, the assets and liabilities of the internal service funds are consolidated into the governmental activities column of the government-wide Statement of Net Position. The costs of the internal service fund services are spread to the appropriate function or department on the government-wide Statement of Activities and the revenues and expenses within the internal service funds are eliminated from the government-wide financial statements to avoid any doubling up effect from these revenues and expenses. D. Measurement Focus and Basis of Accounting The government-wide financial statements are reported using the economic resources measurement focus and the accrual basis of accounting, as are the proprietary fund and fiduciary fund financial statements. Agency fund financial statements have no measurement focus. Revenues are recorded when earned and expenses are recorded when a liability is incurred, regardless of the timing of related cash flows. Property taxes are recognized as revenue in the year for which they are levied. Grants and similar items are recognized as revenue as soon as all eligibility requirements imposed by the grantor or provider have been met. The governmental fund financial statements are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Revenues are recognized as soon as they are both measurable and available. Revenues are considered to be available when they are collectible within the current period or soon enough thereafter to pay liabilities of the current period. For this purpose, revenues are considered available if they are collected within 60 days of the end of the current fiscal period. Principal revenue sources considered to be susceptible to accrual are property taxes, sales taxes, franchise taxes, licenses and permits, intergovernmental revenue and investment earnings associated with the current fiscal period. Charges for services, fines and forfeitures, and miscellaneous revenues are recorded as revenue when received as cash because they are generally not measurable until actually received. Expenditures generally are recorded when a liability is incurred, as under accrual accounting. 49 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA NOTES TO THE FINANCIAL STATEMENTS June 30, 2018 Since the governmental fund financial statements are presented on a different measurement focus and basis of accounting than the government-wide statements’ governmental activities column, a reconciliation is presented on the page following each fund statement. These reconciliations briefly explain the adjustments necessary to transform the fund financial statements into the governmental activities column of the government-wide presentation. The proprietary funds and the pension trust fund are reported using the economic resources measurement focus and the accrual basis of accounting (same basis as the government-wide financial statements). Proprietary funds distinguish operating revenues and expenses from nonoperating items. Operating revenues and expenses generally result from providing services and producing and delivering goods in connection with a proprietary fund’s principal ongoing operations. The principal operating revenue of Gilbert’s internal service funds are charges to user departments for services provided. The principal operating revenue of Gilbert’s enterprise funds are user fees and charges to customers for water, wastewater, and environmental services. Operating expenses for these funds include the cost of sales and services, administrative and payroll expenses, and depreciation. All revenues and expenses not meeting this definition are reported as nonoperating revenues and expenses. E. Fund Accounting Gilbert uses funds to report its financial position and the results of its operations. Fund accounting segregates funds according to their intended purpose and is designed to demonstrate legal compliance and to aid financial management by segregating transactions related to certain governmental functions or activities. A fund is a separate accounting entity with a self-balancing set of accounts, which includes assets, liabilities, fund equity, revenues and expenditures/expenses. Gilbert uses the following fund categories, further divided by fund type: Governmental Funds Governmental funds are those through which most of the governmental functions are financed. The measurement focus is based upon determination of changes in financial position rather than upon net income determination. Gilbert reports the following major governmental funds: General Fund - The general fund is the primary operating fund and is used to account for all financial resources except those required to be accounted for in another fund. The general fund will always be considered a major fund in the basic financial statements. Streets Special Revenue Fund – The streets special revenue fund accounts for Gilbert’s portion of the Arizona Highway User Revenue Tax. The revenue is used exclusively for the maintenance and improvement of highways and streets. General Debt Service Fund – The general debt service fund accounts for the principal and interest requirements of general obligation, highway user revenue and municipal property corporation revenue bonds not recorded in proprietary funds. Financing is provided from the levy of secondary property taxes and revenue-supported transfers. 50 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA NOTES TO THE FINANCIAL STATEMENTS June 30, 2018 Special Assessments Debt Service Fund – The special assessments fund accounts for the principal and interest requirements of special assessment bonds not recorded in proprietary funds. Financing is provided by special assessment levies against benefited property owners. General Obligation Bonds Capital Projects Fund – The general obligation bonds fund accounts for the receipt of proceeds from general obligation bonds and the expenditure of those proceeds to purchase or construct capital assets. System Development Fees Capital Projects Fund – The system development fees fund accounts for the receipt of fees collected from building permits paid and the expenditure of those funds for infrastructure related to growth in Gilbert. Proprietary Funds Proprietary funds are used to account for Gilbert's ongoing activities which are similar to those found in the private sector, where cost-recovery and the determination of net income is useful or necessary for sound fiscal management. The measurement focus is based upon determination of net income, changes in net position, financial position and cash flows. Gilbert reports the following major proprietary funds: Water Fund – The water fund accounts for the revenues and expenses from the operation and maintenance of the domestic water system. Wastewater Fund – The wastewater fund accounts for the revenues and expenses from the operation of the sanitary wastewater collection and treatment and reclaimed water distribution system. Environmental Services Fund – The environmental services fund accounts for the revenues and expenses of operating the solid waste collection system. Additionally, Gilbert reports the following fund types: Internal Service Funds – The internal service funds account for operations that provide services to other departments on a cost-reimbursement basis. These services include maintenance of Gilbert’s motorized equipment and self-insurance for employee benefit programs. Pension Trust Fund - The pension trust fund accounts for assets held by the government in a trustee capacity. The fund includes the assets and pension payments to retired volunteer firefighters and survivors. Agency Funds – The agency funds are used to account for assets held by the government as an agent for individuals, private organizations, other governments and/or other funds. Gilbert currently maintains agency funds to account for monies collected from employees to pay medical and dependent care claims and monies collected from sworn fire employees for providing a monthly stipend for retirees to apply to the cost of their medical and/or dental insurance, medical and dental co-pays, and prescriptions and other benefits. 51 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA NOTES TO THE FINANCIAL STATEMENTS June 30, 2018 F. Budgetary Data In January of each year, the Office of Management & Budget (OMB) prepares a revenue estimate based upon local and state-shared revenue forecasts, historic trends, economic indicators, anticipated growth, and year-todate revenue performance to develop guidelines for departments to follow in preparing budget requests. The Council is briefed on this information and asked to approve boundaries and priorities for consideration in the preparation of departmental requests. Simultaneously, departments develop operating budget requests and submit them to the OMB. Departments work with the Capital Improvement Program (CIP) Division to finalize project estimates for the CIP, and submit them to the OMB for funding. Estimates for trust and agency, debt service, maintenance improvement districts, and internal service funds are prepared by the OMB and submitted for review. In March, the Council is presented with a working budget request for preliminary review and discussion, and approves a schedule of hearings and dates for approval of the budget. A public hearing is held in May, in anticipation of the adoption of the final budget. Prior to June 30 of each year, the Council adopts a preliminary budget as the maximum legal expenditure limit for the upcoming year. Council establishes dates for the final public hearing, the final adoption of the budget, and the setting of tax levies. The Council adopts the final tax levy and reports the levy amounts to Maricopa County for collection not later than the third Monday in August. The Council sets policy and adopts the annual budget at the fund level as a total amount of expenditures. Financial control is set by Council at the fund level, with budgetary control for operating performance administered at the departmental level. Budget adjustments for special revenue funds, excluding streets special revenue funds, will be administered by the OMB and will not exceed the available revenues. Grants and restricted appropriations are administered by departments. Directors may authorize transfers within nonpersonnel budget lines at the same fund, department, and project level. Council action is required to approve adjustments between funds, projects, or contingency transactions over $50,000. All annual appropriations lapse at year-end and are considered for inclusion in the subsequent year’s budget on a case-by-case basis. Gilbert prepares its budget on a basis generally consistent with GAAP, with certain exceptions as explained in Note 3. In addition, the financial statements present the budget and actual information for the departments at a summary level by function. G. Pooled Cash and Investments Gilbert maintains pooled cash and investment accounts for funds that are not legally required to be maintained separately. Each fund's equity in pooled cash and investments represents that fund's position in the consolidated accounts and determines that fund's allocation of interest earned in the pool. The Arizona Revised Statutes require a pooled collateral program for public deposits and regulate the investment of surplus cash. Gilbert limits its investments to the Local Government Investment Pool (managed by the Arizona State Treasurer), U.S. government securities, certificates of deposit, bonds, repurchase agreements, corporate notes, commercial paper, and money market accounts. Investments are stated at fair value based on quoted market prices and cash equivalents are stated at amortized cost. 52 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA NOTES TO THE FINANCIAL STATEMENTS June 30, 2018 H. Inventories and Prepaid Items Inventories are recorded in the equipment maintenance internal service fund and the water enterprise fund. Inventories are recorded as assets when purchased and expensed when consumed. These inventories are stated at cost using the weighted average method. Certain payments to vendors reflect costs applicable to future accounting periods and are recorded as prepaid items in both government-wide and fund financial statements. I. Restricted Assets Certain bond proceeds, as well as certain resources set aside for their repayment, are classified as restricted on the Balance Sheet, or Statement of Net Position, because they are maintained in trust accounts and their use is limited by applicable debt covenants. J. Capital Assets Capital assets, including public domain infrastructure (e.g., roads, bridges, sidewalks and similar assets), are defined as assets with an initial, individual cost of more than $10,000 and an estimated useful life greater than one year. All infrastructure, including infrastructure acquired prior to June 30, 1980, is reported. Capital assets are recorded at cost or estimated historical cost if purchased or constructed. Donated capital assets (including streets, water and wastewater lines installed by developers) are recorded at acquisition value. Gain or loss is recognized when assets are retired from service or otherwise disposed. The cost of normal maintenance and repairs that do not add to the value of the asset or materially extend its life are not capitalized. Major improvements are capitalized and depreciated over the remaining useful lives of the related capital assets. Major outlays for capital assets and improvements are capitalized as projects are constructed. Interest incurred during the construction phase of capital assets of business-type activities is included as part of the capitalized value of the assets constructed, if appropriate. Capital assets are depreciated using the straight-line method based on the following estimated useful lives (land, certain water rights, and construction-in-progress are not depreciated): Buildings Improvements Machinery and equipment Infrastructure Water rights 25 to 50 years 25 to 50 years 3 to 10 years 15 to 50 years 100 years K. Compensated Absences Annual leave is based on a graduated scale of years of employment and is credited to each employee as it accrues. Annual leave hours vary according to years of employment and job class, and is either taken as time off from work or paid to employees upon separation or retirement. Sick leave accumulated in excess of 520 hours (728 hours for fire personnel) is convertible annually to a partial cash benefit. Sick leave is convertible to a cash benefit upon retirement or death of the employee (at 100%) or upon resignation (at 50%) when the employee has ten or more years of service (calculated at a five year average hourly rate). 53 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA NOTES TO THE FINANCIAL STATEMENTS June 30, 2018 For the governmental funds, a liability for compensated absences is reported only if they have matured, for example, as a result of employee resignations and retirements. For the government-wide financial statements, as well as the proprietary fund financial statements, all of the outstanding compensated absences are recorded as a liability. L. Long-Term Obligations In the government-wide financial statements, and proprietary fund types in the fund financial statements, longterm debt and other long-term obligations are reported as liabilities in the applicable governmental activities, business-type activities, or proprietary fund type statement of net position. Bond premiums and discounts are deferred and amortized over the life of the bonds using the effective interest method. Bonds payable are reported net of the applicable bond premium or discount. In the fund financial statements, governmental fund types recognize bond premiums and discounts, as well as bond issuance costs, during the current period. The face amount of debt issued is reported as an other financing source. Premiums received on debt issuances are reported as other financing sources while discounts on debt issuances are reported as other financing uses. Issuance costs, whether or not withheld from the actual debt proceeds received, are reported as debt service expenditures. The debt service funds are specifically established to account for and service the long-term obligations for the governmental funds and special assessment debt. Each enterprise fund individually accounts for and services the applicable bonds that benefit these funds. Long-term obligations are recognized as a liability of a governmental fund when due, or when resources have been accumulated for payment early in the following year. For other long-term obligations, only that portion expected to be financed from expendable available financial resources is reported as a fund liability of a governmental fund. M. Transactions Between Funds Transactions that would be recorded as revenues and expenditures/expenses if they involved entities external to the governmental unit are recorded as revenues and expenditures/expenses in the respective funds. Transactions constituting a reimbursement of a fund for expenditures/expenses originally recorded in that fund, but properly applicable to another fund, are recorded as expenditures/expenses in the reimbursing fund, and as reductions of the expenditures/expenses in the fund which is reimbursed, excluding indirect administrative costs which are recorded as revenues and expenditures/expenses in the related funds. Indirect administrative expenses represent overhead costs which have been allocated to the enterprise funds based upon a formula approved with the budget. All other interfund transactions are reported as transfers. Activity between funds that are representative of lending/borrowing arrangements outstanding at the end of the fiscal year are referred to as either “due to/from other funds” (i.e., the current portion of interfund loans) or “advances to/from other funds” (i.e., the non-current portion of interfund loans). Any residual balances outstanding between the governmental activities and business-type activities are reported in the governmentwide financial statements as “internal balances”. Advances between funds, as reported in the fund financial statements, are offset by a fund balance reserve account in the applicable governmental funds to indicate that they are not available for appropriation and are not expendable available financial resources. See Note 6 for further discussion of the interfund receivables/payables at June 30. 54 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA NOTES TO THE FINANCIAL STATEMENTS June 30, 2018 N. Property Tax Gilbert's property tax levy is adopted by the Council each year on or before the third Monday of August, based on the previous year's limited property value as of the lien date (January 1). Maricopa County, at no charge, levies and collects all property taxes. Levies are due and payable in two installments, on September 1 and March 1, and become delinquent on November 1 and May 1, respectively. Public auctions of properties that have delinquent real estate taxes are held in February following the May 1 delinquency of the second installment. The purchaser is given a certificate of purchase, issued by the County Treasurer. Five years from the date of sale, the holder of a certificate of purchase, which has not been redeemed, may demand of the County Treasurer, a County Treasurer's Deed. Gilbert does not levy property taxes for general operations (primary tax). Secondary property taxes are levied solely for the purpose of retiring the principal, interest, and servicing fees on voter approved general obligation bonded indebtedness. Gilbert may levy the amount deemed necessary to meet its bonded debt service requirements. State law requires municipalities to adopt a property tax levy based on the amount of scheduled and projected debt service for the year plus a reasonable amount for delinquencies and certain costs. For fiscal year 2018, Gilbert’s property tax rate is $1.03 per $100 of secondary assessed valuation. O. Deferred outflows/inflows of resources On the government-wide and proprietary funds Statement of Net Position, deferred outflows of resources are reported and represent a consumption of net position that applies to a future period and so will not be recognized as an outflow of resources (expenditure/expense) until then. Gilbert has two items that qualify for reporting in this category. A deferred charge on refunding results from the difference in the carrying value of refunded debt and its reacquisition price. This amount is deferred and amortized over the shorter of the life of the refunded or refunding debt. A deferred charge on pension and other postemployment-related items results from the difference between expected and actual experience and also changes in proportion and differences between Gilbert contributions and proportionate share of contributions. These amounts are deferred and will be recognized as an expenditure/expense in future periods. On the governmental funds Balance Sheet, deferred inflows of resources are reported and represent an acquisition of net position that applies to a future period and so will not be recognized as an inflow of resources (revenue) until that time. Gilbert only has one item, which arises under a modified accrual basis of accounting, which qualifies for reporting in this category. The governmental funds report unavailable revenues from several sources: special assessments, court fines, and sales tax. These amounts are deferred and recognized as an inflow of resources in the period that the amount becomes available. On the government-wide and proprietary funds Statement of Net Position, deferred inflows of resources are reported on pension and other postemployment-related items for the net difference between projected and actual investment earnings on pension and other postemployment plan investments. These amounts are amortized as an expenditure/expense in future periods. P. Postemployment Benefits For purposes of measuring the net pension and other postemployment benefits (OPEB) assets and liabilities, deferred outflows of resources and deferred inflows of resources related to pensions and OPEB, and pension and OPEB expense, information about the plans’ fiduciary net position and additions to/deductions from the plans’ fiduciary net position have been determined on the same basis as they are reported by the plans. For this purpose, benefit payments (including refunds of employee contributions) are recognized when due and payable in accordance with the benefit terms. Investments are reported at fair value. 55 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA NOTES TO THE FINANCIAL STATEMENTS June 30, 2018 Q. Fund Balance Classifications Fund balance classifications comprise a hierarchy based primarily on the extent to which Gilbert is bound to observe constraints imposed upon the use of the resources reported in the governmental funds. Nonspendable and Restricted fund balances represent the restricted classifications and Committed, Assigned and Unassigned represent the unrestricted classifications. Nonspendable fund balance includes amounts that cannot be spent because they are either (a) not in spendable form such as inventory or (b) legally or contractually required to be maintained intact. Restricted fund balance includes amounts that can only be used for specific purposes pursuant to constraints imposed externally by creditors, grantors, contributors, or laws or regulations of other governments; or imposed by law through constitutional provisions or enabling legislation. Committed fund balance includes amounts that can only be used for specific purposes pursuant to constraints imposed internally by formal action of the Council. Formal action by Council through resolution is required to establish, modify or rescind committed fund balance. Assigned fund balance includes amounts that are limited to specific purposes by management. Per the Policies of Responsible Financial Management, Council has authorized the Finance & Management Services Director to assign fund balance amounts to a specific purpose. Unassigned fund balance represents the residual net resources in excess of the other classifications. The general fund is the only fund that can report a positive unassigned fund balance and any other governmental fund can report a negative unassigned fund balance. When an expenditure is incurred for purposes for which both restricted and unrestricted fund balance is available, as a general rule, restricted resources are considered spent before unrestricted. Within unrestricted, committed amounts would be reduced first, followed by assigned amounts (if available) and then unassigned amounts. As of June 30, 2018, the fund balance details by classification are listed below: Fund balances: Major Major Capital Projects Funds Streets Debt Service Funds General Special Special Fund Revenue Assmnts General GO Bonds System Other Dev Fees Gov’t Total Nonspendable: Advances $17,869,748 Inventory - - - - - - 1,306 1,306 7,517 - - - - - - 7,517 120,293,485 Prepaid items $ - $ - $ - $ - $ - $ - $ 17,869,748 Restricted for: Capital projects - - - - 62,764,480 41,219,981 16,309,024 Court/public safety programs - - - - - - 2,107,804 2,107,804 Debt service - - 6,020,480 75,459 - - - 6,095,939 Federal/state/local grants - - - - - - 664,760 664,760 Highways and streets - 4,730,738 - - - - - 4,730,738 46,062 Contract agreements - - - - - - 46,062 Parks & recreation programs - - - - - - 18,784 18,784 Special districts - - - - - - 483,147 483,147 Capital replacement 14,737,200 - - - - - - 14,737,200 Capital projects 15,409,891 - - - - - 15,914,090 31,323,981 Highways and streets 11,223,377 - - - - - - 11,223,377 Assigned to: Management and policy Unassigned: Total fund balances - - - - - 56,473 56,473 72,453,008 - - - - (17,869,748) (441,361) 54,141,899 $131,700,741 $4,730,738 $6,020,480 $ 75,459 $62,764,480 $ 23,350,233 $35,160,089 $263,802,220 56 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA NOTES TO THE FINANCIAL STATEMENTS June 30, 2018 R. Statement of Cash Flows A statement of cash flows classifies cash receipts and payments according to whether they stem from operating, noncapital financing, capital and related financing, or investing activities. For purposes of the statement of cash flows, all highly liquid investments (including restricted assets) with an original maturity of three months or less when purchased are considered cash equivalents. S. Use of Estimates The preparation of financial statements in conformity with GAAP requires management to make a number of estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the Statement of Net Position/Balance Sheet and the reported amounts of revenues and expenditures/expenses during the reporting period. Actual results could differ from those estimates. Note 2 – Change in Accounting Principle Net position as of July 1, 2017, has been restated as follows for implementation of GASB Statement No. 75, Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions (OPEB), as amended by GASB Statement No. 85, Omnibus 2017. Net position as previously reported at June 30, 2017 Prior period adjustmentimplementation of GASB 75: Net OPEB liability (measurement date as of June 30, 2016) Deferred outflows-Town contributions made during fiscal year 2017 Total prior period adjustment Net position as restated, July 1, 2017 Wastewater Enterprise Fund Environmental Services Enterprise Fund Internal Service Funds Governmental Activities Business-type Activities Water Enterprise Fund $ 887,736,416 $ 784,965,859 $ 416,555,381 $ 338,008,713 $ 30,415,408 $ 634,213 (1,981,488) (348,865) (173,081) (46,864) (128,911) (36,728) 375,541 (1,605,947) $ 886,130,469 91,684 (257,181) $ 784,708,678 46,294 (126,787) $ 416,428,594 15,266 (31,598) $ 337,977,115 30,124 (98,787) $ 30,316,621 8,428 (28,300) $ 605,913 Note 3 - Budgetary Basis of Accounting Budgetary comparison statements for the general fund and major special revenue funds are presented in the basic financial statements. These statements display original budget, amended budget, and actual results. Budgetary comparison schedules are also included as supplementary schedules for the other governmental funds. The budgets for the proprietary funds are adopted on a basis other than GAAP. For these funds, the budgetary schedules include a reconciliation of the adjustments required to convert budgetary revenues and expenses to GAAP revenues and expenses. The primary differences between the GAAP and budget basis statements for the proprietary funds are: 1. Obligations for compensated absences, postemployment benefits, net pension liability and rebatable arbitrage are accrued on the GAAP basis but are not recognized on the budget basis. 57 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA NOTES TO THE FINANCIAL STATEMENTS June 30, 2018 2. Capital outlays are not recognized as GAAP expenses but are recognized as expenses on the budget basis. 3. Debt service principal payments are not recorded as expenses on the GAAP basis but are recognized as expenses on the budget basis. 4. Depreciation is expensed on the GAAP basis but is not recognized on the budget basis. 5. Capital assets contributed by developers are recognized as revenue on the GAAP basis but are not recognized on the budget basis. Note 4 - Deposits and Investments The Arizona Revised Statutes require a pooled collateral program for public deposits and a Statewide Collateral Pool Administrator (Administrator) in the State Treasurer’s Office. The purpose of the pooled collateral program is to ensure that governmental entities’ public deposits placed in participating depositories are secured with collateral of 102% of the public deposits, less any applicable deposit insurance. An eligible depository may not retain or accept any public deposit unless it has deposited the required collateral with a qualified escrow agent or the Administrator. The Administrator manages the pooled collateral program, including reporting on each depository’s compliance with the program. The investment of public monies is also regulated by the Arizona Revised Statutes Title 35. Gilbert limits its investments to the Local Government Investment Pools 7 and 700 (that only invest in U.S. government securities and managed by the Arizona State Treasurer), U.S. government securities, certificates of deposit, bonds, commercial paper, corporate notes and money market accounts. The State Board of Investment provides oversight for the State Treasurer’s pools. The fair value of a participant’s position in the pool approximates the value of that participant’s pool shares, and the participant’s shares are not identified with specific investments. Participants in the pool are not required to categorize the value of shares in accordance with the fair value hierarchy. Gilbert categorizes its fair value measurements within the fair value hierarchy established by generally accepted accounting principles. The hierarchy is based on the valuation inputs used to measure the fair value of the asset. Investments categorized as Level 1 are valued using prices quoted in active markets for those investments. Investments categorized as Level 2 are valued using other significant observable inputs. Gilbert’s investments at June 30, 2018, categorized within the fair value hierarchy established by generally accepted accounting principles, were as follows: Investment Type U.S. Government Treasuries U.S. Government Agencies Certificates of Deposit Corporate Notes Commercial Paper Money Market – U.S. Treasuries Total Investments by Fair Value Level Amount $ 106,903,056 201,015,607 95,961,160 88,084,495 19,676,754 48,455,295 560,096,367 External Investment Pools Measured at Fair Value State Treasurer’s Investment Pool Total Investments Measured at Fair Value 50,491,321 $ 610,587,688 58 Fair Value Measurement Using Level 1 Level 2 $ 106,903,056 $ 201,015,607 95,961,160 88,084,495 19,676,754 48,455,295 $ 106,903,056 $ 453,193,311 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA NOTES TO THE FINANCIAL STATEMENTS June 30, 2018 Interest rate risk – Interest rate risk is the risk that changes in market interest rates will adversely affect the fair value of an investment. Generally, the longer the maturity of an investment, the greater the sensitivity of its fair value to changes in market interest rates. As a means of limiting its exposure to fair value losses arising from rising interest rates, Gilbert’s investment policy limits its investment portfolio to maturities of five years or less. At June 30, 2018, Gilbert’s investment maturities were as follows: Investment Type U.S. Government Treasuries U.S. Government Agencies Certificates of Deposit Corporate Notes Commercial Paper State Treasurer’s Investment Pool Money Market – U.S. Treasuries Total Fair Value $ 106,903,056 201,015,607 95,961,160 88,084,495 19,676,754 50,491,321 48,455,295 $ 610,587,688 Investment Maturities (in Years) Less than 1 1-3 $ 7,534,038 $ 99,369,018 13,170,737 187,844,870 51,140,742 44,820,418 6,463,347 81,621,148 19,676,754 10,676,039 39,815,282 48,455,295 $ 157,116,952 $ 453,470,736 Credit risk – Generally, credit risk is the risk that an issuer of an investment will not fulfill its obligation to the holder of the investment. Gilbert addresses credit risk through its investment policy by restricting the allowable investment instruments. As of June 30, 2018, the investments in the U.S. Government Agencies were rated AA+ and the investments in Corporate Notes ranged from BBB+ ratings to AA- ratings. Gilbert’s investment in the State Treasurer’s Investment Pool did not receive a credit quality rating from a national rating agency. Custodial credit risk - deposits – Custodial credit risk is the risk that in the event of a bank failure, the Town’s deposits may not be returned. As of June 30, 2018, Gilbert’s bank balance was $13,877,731, of which $7,492,202 was with JP Morgan and $6,385,029 was held in trust accounts with US Bank and Bank of New York. $7,242,202 of JP Morgan’s bank balance and $6,107,750 of the Bank of New York’s balance was exposed to custodial credit risk. JP Morgan’s balance was uninsured but collateralized with securities held by the pledging financial institution’s trustee. These securities are not in Gilbert’s name, but cannot be released without Gilbert’s authorization. Bank of New York’s balance was uninsured and not collateralized. At the end of each day, a portion of Gilbert’s bank balance is transferred to a sweep investment account. Custodial credit risk - investments – The custodial credit risk for investments is the risk that, in the event of the failures of the counterparty (e.g. broker-dealer) to a transaction, Gilbert will not be able to recover the value of its investment or collateral securities that are in the possession of another party. Gilbert’s investment policy limits its exposure to custodial credit risk by requiring that all security transactions entered into by Gilbert be conducted on a delivery-versus-payment basis. Securities are to be held by a third party custodian. Gilbert’s investment in the State Treasurer’s Investment Pool represents a proportionate interest in the Pool’s portfolio; however, Gilbert’s portion is not identified with specific investments and is not subject to custodial credit risk. Concentration of credit risk - Gilbert’s investment policy limits corporate notes to 20% of total funds and 3% per issuer. As of June 30, 2018, of Gilbert’s investments, 33% were in U.S. Government Agencies, 14% were in Corporate Notes, 16% were in Certificates of Deposit, 18% were in U.S. Government Treasuries and 8% were in the State Treasurer’s Investment Pool. 59 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA NOTES TO THE FINANCIAL STATEMENTS June 30, 2018 Reconciliation of pooled cash and investments as reported on the statement of net position: Primary government: Carrying amount of cash Carrying amount of deposits/investments Total cash and investments 11,816,200 610,587,688 $ 622,403,888 Pooled cash and investments Restricted cash and investments Total cash and investments (per Statement of Net Position) Agency funds Total cash and investments $ 501,944,125 120,349,723 622,293,848 110,040 $ 622,403,888 $ Note 5 - Taxes Receivable and Due from Other Governments The general fund taxes receivable amount at June 30, 2018, includes $852,687 in state shared sales tax and $2,875,572 in local sales tax. The general fund due from other governments includes $379,834 in vehicle license tax due from the State of Arizona. Amounts in the streets special revenue fund represents $1,405,325 in highway user revenues due from the State of Arizona. Other governmental funds include federal grant receivables of $758,752 from the U.S. Department of Housing and Urban Development, $39,970 from the U.S. Department of Transportation, and $53,959 from the U.S. Department of Homeland Security. Additionally, other governmental funds include Racketeer Influenced Corrupt Organizations (RICO) funds of $1,220,167 from Maricopa County Attorney’s Office. The water fund includes $128,217 and $1,194,467 in amounts due from the City of Chandler for the joint operation of the SanTan Vista Water Treatment Plant and expansion expenses, respectively. The balance of these receivables represents various grants from the state and federal governments. Note 6 – Interfund Receivables and Payables The composition of interfund balances as of June 30, 2018, is as follows: Due to/from other funds are short-term loans that cover cash deficits and are recorded in the following funds (cash deficits are temporary, until reimbursements are received): General Fund Special Assessments Debt Service Fund Other Governmental Funds Total $ $ Due To 17,034 610,322 627,356 Due From 627,356 $ 627,356 $ Advances from/to other funds are long-term loans that cover cash deficits for capital expenditures and are recorded in the following funds: Advances to $ 17,869,748 $ 17,869,748 General Fund System Development Fees Capital Projects Total 60 Advances from $ 17,869,748 $ 17,869,748 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA NOTES TO THE FINANCIAL STATEMENTS June 30, 2018 Note 7 – Capital Assets A summary of changes in capital assets for governmental activities, for the fiscal year ended June 30, 2018, is as follows: Non-depreciable assets: Land Construction-in-progress Total non-depreciable assets Depreciable assets: Buildings Improvements other than buildings Machinery and equipment Infrastructure Total depreciable assets Less accumulated depreciation: Buildings Improvements other than buildings Machinery and equipment Infrastructure Total accumulated depreciation Total depreciable assets, net Governmental activities capital assets, net July 1, 2017 $ 182,578,216 64,360,703 246,938,919 Additions $ 303,693 42,668,397 42,972,090 $ Deletions June 30, 2018 (1,032,589) (41,484,497) (42,517,086) $ 181,849,320 65,544,603 247,393,923 257,691,557 73,544,532 7,384,773 - - 265,076,330 73,544,532 62,244,729 1,086,285,740 1,479,766,558 6,422,240 47,663,207 61,470,220 (1,402,484) (1,402,484) 67,264,485 1,133,948,947 1,539,834,294 (104,273,456) (45,740,674) (10,267,026) (2,964,357) - (114,540,482) (48,705,031) (48,881,773) (532,421,172) (731,317,075) (3,224,192) (37,013,981) (53,469,556) 1,274,620 1,274,620 (50,831,345) (569,435,153) (783,512,011) 748,449,483 8,000,664 (127,864) 756,322,283 $ 995,388,402 $ 50,972,754 $ (42,644,950) $ 1,003,716,206 Depreciation expense was charged to governmental functions in the government-wide financial statement as follows: Management and policy Finance and management services Legal and court Development services Police Fire Highways and streets Parks and recreation Total depreciation expense not including internal service funds Capital assets held by the Town’s internal service funds are charged to the various functions based on their usage of the assets Total depreciation expense – governmental activities 61 $ 718,198 295,654 493,045 2,187,458 2,571,607 2,908,062 38,105,881 6,173,545 $ 53,453,450 16,106 $ 53,469,556 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA NOTES TO THE FINANCIAL STATEMENTS June 30, 2018 A summary of changes in capital assets for business-type activities, for the fiscal year ended June 30, 2018, is as follows: Non-depreciable assets: Land Water Rights1 Construction-in-progress Total non-depreciable assets July 1, 2017 Additions Deletions $ 18,211,689 49,578,561 46,058,818 113,849,068 $ $ 22,154 5,782,773 54,356,891 60,161,818 June 30, 2018 - (54,462,263)2 (54,462,263) $ 18,233,843 55,361,334 45,953,446 119,548,623 Depreciable assets: Plant and equipment Water rights Infrastructure Total depreciable assets Less accumulated depreciation: Plant and equipment Water rights Infrastructure Total accumulated depreciation Total depreciable assets, net 139,456,400 9,146,281 490,102,723 638,705,404 6,786,072 25,514,943 32,301,015 (552,140) (552,140) 145,690,332 9,146,281 515,617,666 670,454,279 (70,940,738) (2,085,579) (161,432,736) (234,459,053) 404,246,351 (5,944,718) (98,292) (11,936,641) (17,979,651) 14,321,364 552,140 552,140 - (76,333,316) (2,183,871) (173,369,377) (251,886,564) 418,567,715 Business-type activities capital assets, net $ 518,095,419 $ 74,483,182 $ (54,462,263) $ 538,116,338 1 2 Water rights previously reported as land are shown on a separate line in non-depreciable assets. Deletions for Construction-in-progress amount includes $34,648,993 in additions for the investment in joint venture which is recorded as a separate line item on the Statement of Net Position. Note 8 – Construction-in-Progress and Commitments Governmental activities construction-in-progress and related construction commitments at June 30, 2018, were as follows: Constructionin-Progress Commitments Redevelopment Municipal facilities Parks Traffic control Streets Total $ 9,011,536 18,844,462 9,461,135 2,291,505 25,935,965 $ 65,544,603 62 $ $ 2,400,742 1,498,665 12,388,892 97,376 7,361,358 23,747,033 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA NOTES TO THE FINANCIAL STATEMENTS June 30, 2018 Business-type activities construction-in-progress and related construction commitments at June 30, 2018, were as follows: Constructionin-Progress Commitments Water system Wastewater system Environmental services Total $ 11,959,639 33,932,563 61,244 $ 45,953,446 $ 12,963,644 54,631,670 89,925 $ 67,685,239 Note 9 - Risk Management Traditional Commercial Insurance Programs Gilbert operates with traditional commercial insurance programs against major losses in property, plant, equipment, and liability. Administrative responsibility for the safety program and education resides with the Office of the Town Manager. Administrative responsibility for risk management resides with the Office of the Town Attorney. Insurance is procured on a competitive quotation basis, using the services of an independent broker as a consultant. Gilbert processes all claims and evaluates their validity to determine if insurance reporting is warranted, or if the claim can be resolved administratively. Claims settled administratively, which are generally less than the deductibles of the appropriate policy, are paid from the funds where the claims occurred. During fiscal year 2018, there was no reduction in insurance coverage from prior years. Additionally, settlements have not exceeded insurance coverage during any of the last three fiscal years. Self-Insurance Gilbert has established an employee benefit self-insurance trust to account for and finance its uninsured risks of loss for medical claims. Gilbert purchases commercial stop loss insurance to limit the claims liability to the employee benefit self-insurance fund. The stop loss insurance provides reimbursement to the Plan for medical claims incurred by an individual member in excess of $250,000 after an additional $125,000 aggregate Plan risk retention. Premiums are paid into the employee benefit self-insurance trust by all other funds and are available to pay claims and administrative costs of the program and fund claim reserves. As with any risk retention program, Gilbert is contingently liable with respect to claims beyond those actuarially projected. The claims liability of $1,514,000 reported in the employee benefit self-insurance trust at June 30, 2018, is based on the requirements of Governmental Accounting Standards Board Statement No. 10, which requires that a liability be reported when it is probable that a loss has occurred and the amount of the loss can be reasonably estimated. Liabilities include an amount for claims that have been incurred but not reported (IBNR). The employee benefit self-insurance trust includes medical and dental benefits. For fiscal year 2018, a decrease of $163,398 and an increase of $27,081 were recorded for IBNR claims under the medical and dental plans, respectively. Claim liabilities are calculated considering the effects of inflation, recent claim settlement trends including frequency and amount of payouts and other economic and social factors. Fiscal year 2018 reflected a decrease in claims costs of $838,292 from fiscal year 2017. This was due to a decrease of $886,389 in medical claims and an increase of $48,097 in dental claims. Changes in the fund’s claim liability amount in fiscal years 2018 and 2017 were: Year Ended, June 30 2018 2017 Claim Liability at Beginning of Fiscal Year $ 1,650,317 1,706,260 Fiscal Year Claims and Changes in Estimates $ 13,891,695 14,729,987 63 Fiscal Year Claim Payments $ (14,028,012) (14,785,930) Claim Liability at End of Fiscal Year $ 1,514,000 1,650,317 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA NOTES TO THE FINANCIAL STATEMENTS June 30, 2018 Note 10 – Long-Term Debt General Obligation Bonds Gilbert issues general obligation bonds to provide funds for the acquisition and construction of major capital facilities. General obligation bonds have been issued for both governmental and business-type activities. Currently, there are no outstanding general obligation bonds for business-type activities. General obligation bonds are direct obligations and pledge the full faith and credit of Gilbert. General obligation bonds outstanding at June 30, 2018, were as follows: 2008 General Obligation Bonds, 3.0% to 5.0%, original amount $187,990,000, annual retirements due July 1, 2009, through July 1, 2023 2017 General Obligation and General Obligation Refunding Bonds, Series 2017, 3.0% to 5.0%, original amount $121,670,000, annual retirements due July 1, 2017, through July 1, 2036 Total Governmental $ 17,000,000 111,090,000 $ 128,090,000 Annual debt service requirements to maturity for general obligation bonds are as follows: Year Ending June 30 2019 2020 2021 2022 2023 2024-2028 2029-2033 2034-2036 Total Governmental Activities Principal Interest $ 16,645,000 $ 5,631,800 17,480,000 4,799,550 18,355,000 3,925,550 16,180,000 3,007,800 17,000,000 2,198,800 13,725,000 7,138,500 16,905,000 3,949,050 11,800,000 714,900 $ 128,090,000 $ 31,365,950 64 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA NOTES TO THE FINANCIAL STATEMENTS June 30, 2018 Under the provisions of the Arizona Constitution, outstanding general obligation bonded debt for combined water, wastewater, electric, parks and open space, streets, and public safety purposes may not exceed 20% of Gilbert's net full cash (NFC) valuation, nor may outstanding general obligation bonded debt for all other purposes exceed 6% of Gilbert's NFC valuation. The following is a summary of legal borrowing capacity at June 30, 2018: Water, Wastewater, Electric, Streets, Fire, Police, and Parks and Open Space Special Purpose Bonds NFC – Assessed Valuation $2,623,742,589 All Other General Obligation Bonds NFC – Assessed Valuation 20% constitutional limit Less general obligation bonds outstanding Less premium adjustment Available 20% limitation borrowing capacity 6% constitutional limit Less general obligation bonds outstanding Less premium adjustment Available 6% limitation borrowing capacity $ 524,748,518 (128,090,000) (9,516,726) $ 387,141,792 $2,623,742,589 $ 157,424,555 $ 157,424,555 Special Assessment Bonds with Governmental Commitment As trustee for the improvement districts, Gilbert is responsible for collection of assessments levied against the owners of property within the improvement districts and for disbursement of these amounts for retirement of the respective bonds issued to finance the improvements. At June 30, 2018, the special assessments receivable, together with amounts paid in advance and interest to be received over the life of the assessment period, were adequate for the scheduled maturities of the bonds payable and the related interest. Special assessment bonds are collateralized by properties within the districts. In the event of default by the owner, Gilbert may enforce an auction sale to satisfy the debt service requirements of the improvement bonds. Gilbert is contingently liable on special assessment bonds to the extent that proceeds from auction sales are insufficient to retire outstanding bonds. Special assessment bonds outstanding at June 30, 2018, were as follows: 2002 Improvement District #19 Bonds, 5.2%, original amount $6,510,000, annual retirements due January 1, 2005, through January 1, 2027 Governmental $ 2009 Improvement District #20 Bonds, 5.1%, original amount $8,675,000, annual retirements due January 1, 2012 through January 1, 2029 Total 5,305,000 $ 65 140,000 5,445,000 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA NOTES TO THE FINANCIAL STATEMENTS June 30, 2018 Annual debt service requirements to maturity for special assessment bonds are as follows: Year Ending June 30 2019 2020 2021 2022 2023 2024-2028 2029 Total Governmental Activities Principal Interest $ 380,000 $ 268,140 400,000 248,238 425,000 227,185 450,000 204,857 465,000 181,510 2,720,000 513,715 605,000 15,428 $ 5,445,000 $ 1,659,073 Street and Highway User Revenue Bonds Street and highway user revenue bonds are issued specifically for the purpose of street and highway construction projects. These bonds are payable solely from the revenues derived from highway user taxes, including motor vehicle fuel taxes and all other taxes; fees and charges relating to registration, operation or use of vehicles on public highways or streets; or to fuels or any other energy source used for the vehicles collected by the State and returned to Gilbert. Street and highway user revenue bonds outstanding at June 30, 2018, were as follows: 2012 Street and Highway User Revenue Refunding Bonds, 3.0% to 5.0% original amount $16,945,000, annual retirements due July 1, 2014 through July 1, 2019 Governmental $ 3,250,000 Annual debt service requirements to maturity for street and highway user revenue bonds are as follows: Year Ending June 30 2019 Total Governmental Activities Principal Interest $ 3,250,000 $ 162,500 $ 3,250,000 $ 162,500 66 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA NOTES TO THE FINANCIAL STATEMENTS June 30, 2018 Municipal Property Corporation (MPC) Revenue Bonds The Public Facilities MPC exists solely for the purpose of financing the cost of acquisition of certain interests in real property to locate public safety and parks and recreation facilities, the costs of design, construction and outfitting of parks and recreation facilities and a parking facility (the 2009 issue); the cost of design and construction of Fire and Rescue Station #9 (the 2017 issue); and the refunding of certain maturities of outstanding bonds (the 2011, 2014, and 2017 issues). The Water MPC exists solely for the purpose of financing the construction of water and wastewater capital improvement projects. (See also Note 18 regarding Pledged Revenues.) Municipal property corporation revenue bonds outstanding at June 30, 2018, were as follows: 2009 Public Facilities Municipal Property Corporation Revenue Bonds, 4.0% to 5.5%, original amount $80,585,000, annual retirements due July 1, 2009 through July 1, 2028 Governmental Business-Type $ 5,850,000 $ - 2011 Public Facilities Municipal Property Corporation Revenue Refunding Bonds, 3.0% to 4.75%, original amount $20,980,000, annual retirements due July 1, 2013 through July 1, 2021 10,365,000 - 2014 Public Facilities Municipal Property Corporation Revenue Refunding Bonds, 2.0% to 5.0%, original amount $28,080,000, annual retirements due July 1, 2016 through July 1, 2021 22,510,000 - 2017 Public Facilities Municipal Property Corporation Revenue Refunding Bonds, 3.0% to 5.0%, original amount $43,075,000, annual retirements due July 1, 2018 through July 1, 2027 39,930,000 - 2017 Public Facilities Municipal Property Corporation Revenue Bonds, 4.0% to 5.0%, original amount $6,450,000, annual retirements due July 1, 2022 through July 1, 2027 6,450,000 - 2016 Water Resources Municipal Property Corporation, Senior Lien Utility System Revenue and Revenue Refunding Bonds, 2.25% to 5.0%, original amount $115,940,000, annual retirements due July 1, 2017 through July 1, 2036 - 111,110,000 2018 Water Resources Municipal Property Corporation, Senior Lien Utility System Revenue Bonds, 3.0% to 5.0%, original amount $37,460,000, annual retirements due July 1, 2018 through July 1, 2031 - 37,460,000 $ 85,105,000 $ 148,570,000 Total 67 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA NOTES TO THE FINANCIAL STATEMENTS June 30, 2018 Annual debt service requirements to maturity for municipal property corporation revenue bonds are as follows: Year Ending June 30 2019 2020 2021 2022 2023 2024-2028 2029-2033 2034-2037 Total Governmental Activities Principal Interest $ 11,545,000 $ 3,905,913 15,800,000 3,345,162 12,805,000 2,659,788 14,590,000 1,991,212 5,500,000 1,508,250 24,865,000 3,184,000 $ 85,105,000 $ 16,594,325 Business-type Activities Principal Interest $ 8,480,000 $ 5,685,748 7,225,000 6,036,238 7,560,000 5,676,312 7,950,000 5,288,563 8,340,000 4,881,313 48,365,000 17,657,512 47,620,000 6,738,106 13,030,000 1,067,800 $ 148,570,000 $ 53,031,592 University Revenue Obligations The University Revenue Obligations were issued specifically for the purpose of providing funds to design and construct a four-story building to be utilized for educational purposes. These obligations are payable solely from the revenues generated by excise taxes and state-shared revenue. Subordinate lien pledged revenue obligations outstanding at June 30, 2018, were as follows: Subordinate Lien Pledged Revenue Obligations, Series 2015, 3.0% to 5.0% original amount $36,980,000, annual retirements due July 1, 2017 through July 1, 2045 Governmental $ 36,325,000 Annual debt service requirements to maturity for subordinate lien pledged revenue obligations are as follows: Year Ending June 30 2019 2020 2021 2022 2023 2024-2028 2029-2033 2034-2038 2039-2043 2044-2046 Total Governmental Activities Principal Interest $ 670,000 $ 1,572,856 700,000 1,541,956 735,000 1,506,081 770,000 1,468,456 810,000 1,428,957 4,700,000 6,479,032 5,930,000 5,242,978 7,095,000 4,062,378 8,625,000 2,588,172 6,290,000 482,000 $ 36,325,000 $ 26,372,866 68 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA NOTES TO THE FINANCIAL STATEMENTS June 30, 2018 Changes in Long-term Liabilities Long-term liability activity for the year ended June 30, 2018, was as follows: Reductions Balance June 30, 2018 Due Within One Year - $(15,855,000) $128,090,000 $ 16,645,000 6,105,000 110,920,000 36,980,000 21,320,338 319,270,338 129,463,167 16,260,678 49,525,000 7,545,609 57,070,609 10,505,643 (660,000) (72,090,000) (655,000) (3,169,918) (92,429,918) (6,206,380) (9,297,949) 5,445,000 88,355,000 36,325,000 25,696,029 283,911,029 123,256,787 17,468,372 380,000 14,795,000 670,000 32,490,000 6,053,083 2,211,601 - (568,002) 1,643,599 - Total long-term liabilities $467,205,784 $67,576,252 $(108,502,249) $426,279,787 $ 38,543,083 Business-type activities: Bonds payable: Revenue bonds Unamortized bond premium Total bonds payable Net pension liability Compensated absences Net other postemployment benefits $115,940,000 18,654,390 134,594,390 21,364,490 2,384,835 $ 37,460,000 4,827,553 42,287,553 1,935,692 $ (4,830,000) (1,534,731) (6,364,731) (535,452) (1,683,080) $148,570,000 21,947,212 170,517,212 20,829,038 2,637,447 $ 8,480,000 8,480,000 968,538 387,368 - (12,981) 374,387 - Total long-term liabilities $158,731,083 $ 44,223,245 $ (8,596,244) $194,358,084 $ 9,448,538 Governmental activities: Bonds payable: General obligation bonds Special assessment bonds with government commitment Revenue bonds Revenue obligations Unamortized bond premium Total bonds payable Net pension liability Compensated absences Net other postemployment benefits Balance July 1, 2017 Additions $143,945,000 $ Internal service funds predominantly serve the governmental funds. Accordingly, long-term liabilities for them are included as part of the above totals for governmental activities. At year-end, $228,566 of internal service funds compensated absences, $2,087,874 net pension liability, and $28,818 of net other post-employment benefits liability are included in the above amounts. The net pension liability, long-term compensated absences and postemployment benefits of governmental activities are expected to be liquidated by the operating funds (primarily the general fund and the streets special revenue fund) as they come due. Conduit Debt Obligations The Industrial Development Authority, a discretely presented component unit of the Town of Gilbert, has issued Industrial Revenue Bonds and Master Lease and Sublease Agreements to provide financial assistance to private sector entities for the acquisition and construction of industrial and commercial facilities deemed to be in the public interest. Neither Gilbert, Maricopa County nor the State of Arizona shall, in any event, be liable for payment of principal, premium or interest on these bonds and leases, and accordingly, they have not been reported in the accompanying combined financial statements. At June 30, 2018, Industrial Development Authority Revenue Bonds and Master Lease and Sublease Agreements outstanding were $28,722,957 and $7,865,140 respectively. 69 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA NOTES TO THE FINANCIAL STATEMENTS June 30, 2018 Note 11 – Refunding Bonds On December 19, 2017, Gilbert issued $43,075,000 of refunding bonds with a net premium of $6,440,912 to advance refund $56,845,000 of outstanding Series 2009 Public Facilities Municipal Property Corporation Revenue Bonds. In addition, Gilbert issued $6,450,000 of revenue bonds with a net premium of $1,104,697 to provide funds for the construction of a fire station. See Note 10 for additional detail on municipal property corporation revenue bonds issued. The Series 2017 Public Facilities Municipal Property Corporation Revenue Refunding Bonds were issued with an average interest rate of 5.0%. Gilbert realized net proceeds of $49,415,116 after payment of $100,796 for underwriting fees. In addition, Gilbert contributed $12,096,000 from funds set aside for this refunding purpose. These proceeds and contribution were provided to an escrow trustee to pay issuance costs of approximately $252,998 with the remaining $61,258,118 used to provide cash and purchase United States government securities. The cash and government securities were deposited in an irrevocable trust to provide for all future debt service payments of the Series 2009 refunded bonds. As a result, the refunded bonds are considered to be defeased and the liability for those bonds has been removed. The purpose of the refunding was to take advantage of lower interest rates, thereby reducing future debt service payments. The refunding will reduce debt service payments by $26,297,755 over the next 10 years, producing an economic gain (difference between present value of old and new debt service payments) of $9,342,967. Note 12 – Pension and Other Postemployment Benefits Gilbert contributes to the pension plans described below. Gilbert contributes to the Elected Officials Retirement Plan (EORP), Arizona State Retirement System (ASRS) health insurance premium supplement OPEB plan, ASRS long-term disability (OPEB) plan, Public Safety Retirement System (PSPRS) health insurance premium benefit (OPEB) plan, and Gilbert also provides post-employment medical care, prescription drug, and dental care for retired employees through a single-employer defined benefit medical and dental plan. The ASRS, PSPRS, and EORP OPEB plan information is not disclosed below due to their relative insignificance to the financial statements. See Note 13 for information on Gilbert’s OPEB plan. The ASRS and PSPRS plans are component units of the State of Arizona. Statement of Net Position and Statement of Activities Net OPEB asset Net pension and OPEB liability Deferred outflows of resources related to pensions and OPEB Deferred inflows of resources related to pensions and OPEB Pension and OPEB expense Governmental Activities $ 196,881 124,900,386 40,427,994 5,905,423 18,176,394 Businesstype Activities $ 74,127 21,203,425 2,840,249 1,369,007 1,436,874 $ Total 271,008 146,103,811 43,268,243 7,274,430 19,613,268 Gilbert reported $17,500,440 of pension and OPEB contributions as expenditures in the governmental funds related to all pension plans to which it contributed for fiscal year 2018. A. Arizona State Retirement System Plan Description – Gilbert employees not covered by the other pension plans described below participate in the ASRS. The ASRS administers a cost-sharing multiple-employer defined benefit pension plan, a costsharing multiple-employer defined benefit health insurance premium supplement (OPEB) plan, and a costsharing multiple-employer defined benefit long-term disability (OPEB) plan. The ASRS is governed by the Arizona State Retirement System Board according to the provisions of A.R.S. Title 38, Chapter 5, Articles 2 and 2.1. The ASRS issues a publicly available financial report that includes financial statements and required supplementary information. This report is available on their website at www.azasrs.gov. 70 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA NOTES TO THE FINANCIAL STATEMENTS June 30, 2018 Benefits Provided – The ASRS provides retirement, health insurance premium supplement, long-term disability, and survivor benefits. State statute establishes benefit terms. Retirement benefits are calculated on the basis of age, average monthly compensation, and service credit as follows: Retirement Initial Membership Date: Before July 1, 2011 On or After July 1, 2011 Years of service and age required to Sum of years and age equals 80 30 years, age 55 receive benefit 10 years, age 62 25 years, age 60 5 years, age 50* 10 years, age 62 Any years, age 65 5 years, age 50* Any years, age 65 Final average salary is based on Benefit percent per year of service Highest 36 consecutive months of last Highest 60 consecutive months of last 120 months 120 months 2.1% to 2.3% 2.1% to 2.3% *With actuarially reduced benefits Retirement benefits for members who joined the ASRS prior to September 13, 2013, are subject to automatic cost-of-living adjustments based on excess investment earnings. Members with a membership date on or after September 13, 2013, are not eligible for cost-of-living adjustments. Survivor benefits are payable upon a member’s death. For retired members, the retirement benefit option chosen determines the survivor benefit. For all other members, the beneficiary is entitled to the member’s account balance that includes the member’s contributions and employer’s contributions, plus interest earned. Contributions – In accordance with state statutes, annual actuarial valuations determine active member and employer contribution requirements. The combined active member and employer contribution rates are expected to finance the costs of benefits employees earn during the year, with an additional amount to finance any unfunded accrued liability. For the year ended June 30, 2018, statute required active ASRS members to contribute at the actuarially determined rate of 11.5% (11.34% for retirement and 0.16% for long term disability) of the members’ annual covered payroll, and statute required Gilbert to contribute at the actuarially determined rate of 11.5% (10.9% for retirement, 0.44% for health insurance premium benefit, and 0.16% for long-term disability) of the members’ annual covered payroll. During fiscal year 2018, Gilbert paid for ASRS pension and OPEB contributions as follows: 62% from the general fund, 37% from major funds, and 1% from other funds. The contributions to the pension plan for fiscal year 2018 were $5,338,739. Pension Liability – At June 30, 2018, Gilbert reported a liability of $76,832,504 for its proportionate share of the ASRS’ net pension liability. The net pension liability was measured as of June 30, 2017. The total pension liability used to calculate the net pension liability was determined using updated procedures to roll forward the total pension liability from an actuarial valuation as of June 30, 2016, to the measurement date of June 30, 2017. The total pension liability as of June 30, 2017 reflects a change in actuarial assumption for a decrease in loads for future potential permanent benefit increases. Gilbert’s proportion of the net pension liability was based on Gilbert’s actual contributions to the plan relative to the total of all participating employers’ contributions for the year ended June 30, 2017. Gilbert’s proportion measured as of June 30, 2017, was 0.49321%, which was an increase of 0.00493% from its proportion measured as of June 30, 2016. 71 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA NOTES TO THE FINANCIAL STATEMENTS June 30, 2018 Gilbert’s reported liability at June 30, 2018, decreased by $1,980,793 from the prior year liability of $78,813,297 because of changes in the ASRS’ net pension liability and Gilbert’s proportionate share of that liability. The ASRS’ publicly available financial report provides details on the change in the net pension liability. The allocation of pension liability to the funds is based on employer contributions for the fiscal year. Pension Expense and Deferred Outflows/Inflows of Resources – For the year ended June 30, 2018, Gilbert recognized pension expense for ASRS of $4,388,377. At June 30, 2018, Gilbert reported deferred outflows of resources and deferred inflows of resources related to pensions from the following sources: Differences between expected and actual experience Changes of assumptions or other inputs Net difference between projected and actual earnings on pension plan investments Changes in proportion and differences between Gilbert contributions and proportionate share of contributions Gilbert contributions subsequent to the measurement date Total Deferred Outflows of Resources $ 3,337,012 Deferred Inflows of Resources $ 2,303,863 2,297,430 551,604 - 862,777 5,338,739 $ 10,090,132 $ 4,601,293 The $5,338,739 reported as deferred outflows of resources related to ASRS pensions resulting from Gilbert’s contributions subsequent to the measurement date will be recognized as a reduction of the net pension liability in the year ended June 30, 2019. Other amounts reported as deferred outflows of resources and deferred inflows of resources related to ASRS pensions will be recognized in pension expense as follows: Year Ending June 30 2019 2020 2021 2022 2023 Thereafter $ Amount (2,542,238) 3,468,729 991,032 (1,767,377) - 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, 2016 June 30, 2017 Entry age normal 8.0% 3.0% – 6.75% 3.0% Included 1994 GAM Scale BB Actuarial assumptions used in the June 30, 2016, valuation were based on the results of an actuarial experience study for the 5-year period ended June 30, 2012. 72 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA NOTES TO THE FINANCIAL STATEMENTS June 30, 2018 The long-term expected rate of return on ASRS pension plan investments was determined to be 8.7% using a building-block method in which best-estimate ranges of expected future real rates of return (expected returns, net of pension plan investment expense and inflation) are developed for each major asset class. These ranges are combined to produce the long-term expected rate of return by weighting the expected future real rates of return by the target asset allocation percentage and by adding expected inflation. The target allocation and best estimates of arithmetic real rates of return for each major asset class are summarized in the following table: Long-Term Expected Target Arithmetic Real Asset Class Allocation Rate of Return Equity 58% 6.73% Fixed income 25 3.70% Real estate 10 4.25% Multi-asset 5 3.41% Commodities 2 3.84% Total 100% Discount Rate – The discount rate used to measure the ASRS total pension liability was 8.0%, which is less than the long-term expected rate of return of 8.7%. The projection of cash flows used to determine the discount rate assumed that contributions from participating employers will be made based on the actuarially determined rates based on the ASRS Board’s funding policy, which establishes the contractually required rate under Arizona statute. Based on those assumptions, the pension plan’s fiduciary net position was projected to be available to make all projected future benefit payments of current plan members. Therefore, the long-term expected rate of return on pension plan investments was applied to all periods of projected benefit payments to determine the total pension liability. Sensitivity of Gilbert’s Proportionate Share of the ASRS Net Pension Liability to Changes in the Discount Rate – The following presents Gilbert’s proportionate share of the net pension liability calculated using the discount rate of 8.0%, as well as what Gilbert’s proportionate share of the net pension liability would be if it were calculated using a discount rate that is 1 percentage point lower (7.0%) or 1 percentage point higher (9.0%) than the current rate: Current Discount 1% Decrease Rate 1% Increase (7.0%) (8.0%) (9.0%) Gilbert’s proportionate share of $ 98,615,854 $ 76,832,504 $ 58,630,650 the net pension liability Pension Plan Fiduciary Net Position – Detailed information about the pension plan’s fiduciary net position is available in the separately issued ASRS financial report. The report is available on the ASRS website at www.azasrs.gov. B. Public Safety Personnel Retirement System Plan Description – Gilbert public safety employees who are regularly assigned hazardous duty participate in the PSPRS. The PSPRS administers agent and cost-sharing multiple-employer defined benefit pension plans and agent multiple-employer defined benefit health insurance premium benefit (OPEB) plans. A nine-member board known as the Board of Trustees and the participating local boards govern the PSPRS according to the provisions of A.R.S. Title 38, Chapter 5, Article 4. The PSPRS issues a publicly available financial report that 73 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA NOTES TO THE FINANCIAL STATEMENTS June 30, 2018 includes financial statements and required supplementary information. This report is available on their website at www.psprs.com. Benefits Provided – The PSPRS provides retirement, health insurance premium supplement, disability, and survivor benefits. State statute establishes benefits terms. Retirement and disability benefits are calculated on the basis of age, average monthly compensation, and service credit as follows: Retirement Initial Membership Date: On or After January 1, 2012 and before Before January 1, 2012 July 1, 2017 Retirement and Disability: Years of service and age required to 20 years of service, any age 25 years of service or 15 years of receive benefit 15 years of service, age 62 credited service, age 52.5 Final average salary is based on Highest 36 months of last 20 years Highest 60 months of last 20 years Normal retirement 50% less 2.0% for each year of credited 1.5% to 2.5% per year of credited service less than 20 years or plus 2.0% service, not to exceed 80% to 2.5% for each year of credited service over 20 years, not to exceed 80% Accidental disability retirement 50% or normal retirement, whichever is greater Catastrophic disability retirement 90% of the first 60 months then reduced to either 62.5% or normal retirement, whichever is greater Ordinary disability retirement Normal retirement calculated with actual years of credited service or 20 years of credited service, whichever is greater, multiplied by years of credited service (not to exceed 20 years) divided by 20 Survivor benefit: Retired members 80% to 100% of retired member’s pension benefit Active members 80% to 100% of accidental disability retirement benefit or 100% of average monthly compensation if death was the result of injuries received on the job Employees Covered by Benefit Terms – At June 30, 2018, the following employees were covered by the agent pension plan’s benefit terms: Inactive employees or beneficiaries currently receiving benefits Inactive employees entitled to but not yet receiving benefits Active employees Total 74 Police 67 42 219 328 Fire 11 14 175 200 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA NOTES TO THE FINANCIAL STATEMENTS June 30, 2018 Contributions and Annual OPEB Cost – State statutes establish the pension contribution requirements for active PSPRS employees. In accordance with state statutes, annual actuarial valuations determine employer contribution requirements for PSPRS pension and health insurance premium benefits. The combined active member and employer contribution rates are expected to finance the costs of benefits employees earn during the year, with an additional amount to finance any unfunded accrued liability. Contribution rates for the year ended June 30, 2018 are indicated below. Rates are a percentage of active members’ annual covered payroll. Police PSPRS Tier 1 PSPRS Tier 2 PSPRS Tier 3 Defined benefit only PSPRS Tier 3 Defined contribution only Fire PSPRS Tier 1 PSPRS Tier 2 PSPRS Tier 3 Defined benefit only PSPRS Tier 3 Defined contribution only Active MemberPension GilbertPension GilbertHealth Insurance 7.65% 11.65% 33.29% 33.29% 0.40% 0.40% 9.94% 27.64% 0.26% 10.55% 28.51% 7.65% 11.65% 23.06% 23.06% 0.43% 0.43% 9.94% 17.84% 0.26% 10.55% 18.71% For the agent plans, the contributions to the pension plan for the year ended June 30, 2018, were as follows (actual contributions made exceeded the annual pension cost due to a prepayment and additional payment towards the unfunded liability) (100% from the general fund): Pension contributions made Police $ 7,330,436 Fire $ 5,096,285 Pension Liability – At June 30, 2018, Gilbert reported $65,387,635 in net pension liability. The net pension liabilities were measured as of June 30, 2017, and the total pension liability used to calculate the net pension liability was determined by an actuarial valuation as of that date. The total liability as of June 30, 2017, reflects changes in actuarial assumptions based on the results of an actuarial experience study for the 5-year period ended June 30, 2016, including decreasing the investment rate of return from 7.5% to 7.4%, decreasing the wage inflation from 4.0% to 3.5%, and updating mortality, withdrawal, disability, and retirement assumptions. The total pension liability also reflects changes of benefit terms for legislation that changed benefit eligibility and multipliers for employees who became members on or after January 1, 2012, and before July 1, 2017, and a court decision that decreased the contribution rates for employees who became members before July 20, 2011. 75 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA NOTES TO THE FINANCIAL STATEMENTS June 30, 2018 Actuarial Assumptions – The significant actuarial assumptions used to measure the total pension liability are as follows: Actuarial valuation date Actuarial cost method Investment rate of return Wage inflation Price Inflation Permanent benefit increase Mortality rates June 30, 2017 Entry age normal 7.4% 3.5% 2.5% Included RP-2014 tables using MP-2016 improvement scale with adjustments to match current experience Actuarial assumptions used in the June 30, 2017, valuation were based on the results of an actuarial experience study for the 5-year period ended June 30, 2016. The long-term expected rate of return on PSPRS pension plan investments was determined to be 7.4% using a building-block method in which best-estimate ranges of expected future real rates of return (expected returns, net of pension plan investment expenses and inflation) are developed for each major asset class. The target allocation and best estimates of geometric real rates of return for each major asset class are summarized in the following table: Long-Term Expected Target Arithmetic Real Asset Class Allocation Rate of Return U.S. equity 16% 7.60% Credit opportunities 16 5.83% Non-U.S. equity 14 8.70% Private credit 12 6.75% Real estate 10 3.75% Global tactical asset allocation 10 3.96% Real assets 9 4.52% Fixed income 5 1.25% Risk parity 4 5.00% Absolute return 2 3.75% Short term investments 2 0.25% Total 100% Pension Discount Rates – At June 30, 2017, the discount rate used to measure total pension liability was 7.4%, which was a decrease of 0.1% from the discount rate used as of June 30, 2016. The projection of cash flows used to determine the discount rate assumed that plan member contributions will be made at the current contribution rate and that employer contributions will be made at rates equal to the difference between actuarially determined contribution rates and the member rate. Based on those assumptions, the pension 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. 76 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA NOTES TO THE FINANCIAL STATEMENTS June 30, 2018 Changes in the Agent Plans Net Pension Liability Police: Balances at June 30, 2017 Increase/Decrease Total Pension Plan Fiduciary Net Net Pension Liability Position Liability $ 62,607,101 $ 50,849,843 $ 113,456,944 Changes for the year: Service cost 4,361,408 4,361,408 Interest on the total pension liability 8,535,995 8,535,995 Changes in benefit terms 1,136,619 1,136,619 Difference between expected and actual experience in the measurement of the total pension liability 928,575 928,575 Changes in assumptions 3,680,906 3,680,906 Contributions – employer 12,682,256 (12,682,256) Contributions – employee 2,271,326 (2,271,326) Net investment income 8,763,809 (8,763,809) Benefit payments, including refunds of employee contributions (3,648,774) (3,648,774) Administrative expenses (77,945) 77,945 Other changes 153,768 (153,768) Net changes Balances at June 30, 2018 14,994,729 20,144,440 (5,149,711) $ 128,451,673 $ 82,751,541 $ 45,700,132 Fire: Increase/Decrease Balances at June 30, 2017 Total Pension Plan Fiduciary Net Liability Position Net Pension Liability $ 73,213,442 $ 53,456,141 $ 19,757,301 Changes for the year: Service cost 3,652,130 3,652,130 Interest on the total pension liability 5,586,910 5,586,910 434,841 434,841 total pension liability 3,761,967 3,761,967 Changes in assumptions 444,609 Changes in benefit terms Difference between expected and actual experience in the measurement of the Contributions – employer 444,609 5,192,069 (5,192,069) Contributions – employee 1,860,471 (1,860,471) Net investment income 6,959,055 (6,959,055) Benefit payments, including refunds of employee contributions (1,094,738) Administrative expenses (61,976) Other changes Net changes Balances at June 30, 2018 (1,094,738) 61,976 636 (636) 12,785,719 12,855,517 (69,798) $ 85,999,161 $ 66,311,658 $ 19,687,503 77 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA NOTES TO THE FINANCIAL STATEMENTS June 30, 2018 Sensitivity of the Net Pension Liability to Changes in the Discount Rate – The following presents Gilbert’s net pension liability calculated using the discount rate of 7.4%, as well as what the net pension liability would be if it were calculated using a discount rate that is 1 percentage point lower (6.4%) or 1 percentage point higher (8.4%) than the current rate: Police net pension liability Fire net pension liability 1% Decrease (6.4%) $ 66,209,350 34,374,324 Current Discount Rate (7.4%) $ 45,700,132 19,687,503 1% Increase (8.4%) $ 29,298,339 7,905,917 Pension Plan Fiduciary Net Position – Detailed information about the pension plan’s fiduciary net position is available in the separately issued PSPRS financial report. The report is available on the PSPRS website at www.psprs.com. Pension Expense – For the year ended June 30, 2018, Gilbert recognized $9,493,318 as pension expense for Police and $4,787,689 as pension expense for Fire. Pension Deferred Outflows/Inflows of Resources – At June 30, 2018, Gilbert reported deferred outflows of resources and deferred inflows of resources related to pensions from the following sources: Police Differences between expected and actual experience Changes of assumptions or other inputs Net difference between projected and actual earnings on pension plan investments Gilbert contributions subsequent to the measurement date Total Fire Differences between expected and actual experience Changes of assumptions or other inputs Net difference between projected and actual earnings on pension plan investments Gilbert contributions subsequent to the measurement date Total 78 Deferred Outflows of Resources $ 2,569,716 8,466,750 Deferred Inflows of Resources $ - 124,372 7,330,436 $ 18,491,274 $ - Deferred Outflows of Resources $ 4,745,652 3,671,083 Deferred Inflows of Resources $ 1,743,334 - 378,178 5,096,285 $ 13,891,198 1,743,334 $ TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA NOTES TO THE FINANCIAL STATEMENTS June 30, 2018 The $7,330,436 for Police and the $5,096,285 for Fire reported as deferred outflows of resources related to PSPRS pension resulting from contributions subsequent to the measurement date will be recognized as a reduction of the net pension liability in the year ended June 30, 2019. Other amounts reported as deferred outflows of resources and deferred inflows of resources related to pensions will be recognized in pension expense as follows: Year Ending June 30 2019 2020 2021 2022 2023 Thereafter $ Police 2,920,327 3,436,049 2,790,145 884,529 979,700 160,247 $ Fire 1,035,980 1,448,529 1,066,371 327,196 872,943 2,308,686 Volunteer Firemen’s Relief and Pension Fund The Volunteer Firemen’s Relief and Pension Fund covers retired volunteer firemen and survivors and was established solely upon the provision for such pension and relief funds in the Arizona Revised Statutes. The statutes grant discretionary powers to Boards of Trustees of such plans related to payment/nonpayment of benefits to qualified retired or disabled volunteer firemen out of the assets of the Fund. These discretionary powers do not extend, however, to the volunteer firemen’s right to their own contributions to the Fund. Gilbert has no actuarial liability for pension benefits as individual retirement benefits are not defined in the plan. Reserves for pensions, therefore, have not been established as the amounts are not vested and payment of benefits (if any) is at the discretion of the Board of Trustees of the plan. Gilbert no longer operates a Volunteer Fire Department. Accordingly, there were no contributions required or made to this plan nor refunds paid for fiscal year 2018. Administrative costs are financed through investment earnings. There is only one remaining pensioner receiving retirement benefits from the Fund. Note 13 - Postemployment Healthcare Benefits Under authority of Town Council, Gilbert provides postretirement insurance benefits, for certain retirees and their dependents in accordance with the Town of Gilbert, Arizona Self-Insured Trust Fund for Health Insurance Benefits. The plan is a single-employer defined benefit OPEB plan administered by Gilbert. No assets are accumulated in a trust that meets the criteria in paragraph 4 of GASB Statement No. 75. Generally, retiree contributions are used to pay for postemployment benefits. Benefits Provided – Gilbert provides postemployment medical care, prescription drug, and dental care for retired employees through a single-employer defined benefit medical and dental plan (the Plan). The Plan provides medical and dental benefits for eligible retirees, their spouses and dependents through Gilbert’s group health and dental insurance plans, which cover active and retired members. To be eligible for benefits, the retired employee must retire under one of the state retirement plans for public employees, must have a minimum of ten years of service with Gilbert, and be covered under Gilbert’s medical plan during their active status. Plan benefits and coverage levels are reviewed annually by Town staff and the Board of Trustees for recommendation to and approval from Town Council. The Board of Trustees makes corresponding premium recommendations to the Town Council based on revenues needed to cover the projected cost to operate the plan which are subject to approval by the Town Council. As of June 30, 2018, there are 55 retirees that are currently receiving medical and/or dental benefits. 79 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA NOTES TO THE FINANCIAL STATEMENTS June 30, 2018 Contributions – Gilbert requires retirees to pay 114% of the full blended contribution rate. Gilbert makes no contributions for retirees other than allowing them to participate through Gilbert’s pooled benefits. By providing retirees access to Gilbert’s healthcare plans, Gilbert is in effect providing a subsidy to retirees. This implied subsidy exists because on average, retiree healthcare costs are higher than active employee healthcare costs. Gilbert pays for and reports retiree benefits on a pay-as-you-go basis, which is the practice of paying for these benefits as they become due each year. As of June 30, 2018, retirees contributed $544,495, which was in excess of claims paid by $96,758. Gilbert’s regular insurance providers underwrite the retiree policies. Retirees may not convert the benefit into an in-lieu payment to secure coverage under independent plans. The Plan does not issue a separate financial report. Employees Covered by Benefit Terms – The following employees were covered as of the effective date of the OPEB valuation: Inactive employees or beneficiaries currently receiving benefit payments Inactive employees entitled to but not yet receiving benefits Active employees Total 55 1,104 1,159 Total OPEB Liability – The Plan’s total OPEB liability of $1,597,293 was measured as of June 30, 2018. The total liability was determined using update procedures to roll forward the total liability from an actuarial valuation date of July 1, 2016, to the measurement date of June 30, 2018. Actuarial Assumptions and Other Inputs – Projections of benefits for financial reporting purposes are based on the substantive plan (the plan as understood by the employer and plan members) and includes the types of benefits provided at the time of each valuation and the historical pattern of sharing of benefit cost between the employer and plan members to that point. The total OPEB liability in the June 30, 2018 actuarial valuation was determined using the following actuarial assumptions and other inputs, applied to all periods included in the measurement, unless otherwise specified: Measurement date Actuarial valuation date Interest rate Inflation rate Projected salary increases Health care cost trend rate: Medical and prescription drug Retiree contribution increase ASRS subsidy increases Cost of living adjustments June 30, 2018 July 1, 2016 3.62% 2.20% 3.00% 7.50% graded down to an ultimate rate of 5.00% over 8 years Consistent with medical/drug trends None N/A The discount rate is the Fidelity General Obligation AA 20 year yield as of the measurement date. Mortality rates were based on the RPH-2014 Employee Mortality Table for males or females, as appropriate, with generational projection using Scale MP-2017. Mortality rates for retirees was based on the RPH-2014 Annuitant Mortality Table for males or females, as appropriate, with generational projection using Scale MP2017. 80 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA NOTES TO THE FINANCIAL STATEMENTS June 30, 2018 Changes in the Total OPEB Liability Total OPEB Liability – beginning of year Changes for the year: Service cost Interest Differences between expected and actual experience Benefit payments Net changes Net OPEB Obligation – end of year $ 1,469,818 84,727 58,026 (112,036) 96,758 127,475 $ 1,597,293 Sensitivity of the Total OPEB Liability to Changes in the Discount Rate – The following presents the total OPEB liability of the Plan, as well as what the Plan’s total OPEB 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: Total OPEB Liability 1% Decrease $ 1,772,612 Current Discount Rate $ 1,597,293 1% Increase $ 1,292,220 Sensitivity of the Total OPEB Liability to Changes in the Healthcare Cost Trend Rates – The following presents the total OPEB liability of the Plan, as well as what the Plan’s total OPEB liability would be if it were calculated using healthcare cost trend rates that are 1 percentage point lower or 1 percentage point higher than the current rate: Current Healthcare 1% Cost Trend 1% Decrease Rates Increase Total OPEB Liability $ 1,245,702 $ 1,597,293 $ 1,841,985 OPEB Expense and Deferred Outflows/Inflows of Resource Related to OPEB – For the year ended June 30, 2018, the Plan recognized OPEB expense of $126,748. At June 30, 2018, the Plan reported deferred outflows of resources and deferred inflows of resources related to OPEB from the following sources: Differences between expected and actual experience Changes of assumptions or other inputs Gilbert contributions subsequent to the measurement date Total Deferred Outflows of Resources $ $ - Deferred Inflows of Resources $ 96,031 $ 96,031 The $96,031 reported as deferred inflows of resources will be recognized in pension expense as ($16,005) each year from fiscal year 2019 through 2024. 81 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA NOTES TO THE FINANCIAL STATEMENTS June 30, 2018 Note 14 - Capital Contributions During the year ended June 30, 2018, the enterprise funds external capital contributions consisted of the following: Water Contributions from developers Development fees Total Environmental Services Wastewater $ 7,250,377 12,753,465 $ 20,003,842 $ 3,422,141 6,292,927 $ 9,715,068 Total $ 896,570 $ 896,570 $ 11,569,088 19,046,392 $ 30,615,480 Note 15 – Interfund Transfers As of June 30, 2018, interfund transfers were as follows: Governmental funds: General Fund Streets Special Revenue General Debt Service System Development Fees Other Governmental Funds Total governmental funds Enterprise funds: Water Wastewater Total enterprise funds Total transfers Transfers-In Transfers-Out $ 1,294,765 28,408,410 295,965 29,999,140 $ 12,061,469 836,820 12,236,416 4,928,113 30,062,818 98,678 950,670 1,049,348 985,670 985,670 $ 31,048,488 $ 31,048,488 The interfund transfers generally fall within one of the following categories: 1) subsidy transfers; 2) transfers to cover debt service payments; 3) transfers for the town match for grants; or 4) transfers to fund capital replacement. There were no significant transfers during fiscal year 2018 that were either non-routine in nature or inconsistent with the activities of the fund making the transfer. Note 16 - Individual Fund Disclosures Individual funds with deficiencies in fund balance/net position at June 30, 2018, were as follows: Internal service funds Equipment Maintenance $1,126,306 The deficiency in the equipment maintenance internal service fund is due to the net pension liability. 82 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA NOTES TO THE FINANCIAL STATEMENTS June 30, 2018 Note 17 – Contingent Liabilities Gilbert is a defendant in various lawsuits. Although the outcome of these lawsuits is not presently determinable, in the opinion of Gilbert’s legal counsel, the resolution of these matters will not have a material adverse effect on the financial condition of Gilbert. Note 18 – Pledged Revenues Gilbert has pledged future water system development fees revenue and future water and wastewater revenues, net of specified operating expenses, to repay $153,400,000 in utility system revenue bonds and revenue refunding bonds issued since 2016. Proceeds from the utility system revenue bonds provided financing for water and wastewater system improvements, and the proceeds from the revenue refunding bonds were used to advance refund $75,326,000 of outstanding 2007 utility system revenue bonds. The bonds are payable from water and wastewater system development fees revenue and water and wastewater net revenues and are payable through 2036. Annual principal and interest payments on the bonds are expected to require less than 34 percent of revenue. The total principal and interest remaining to be paid on the bonds is $190,539,425. Principal and interest paid for the current year was $13,450,948. Total water and wastewater system development fees revenue was $15,253,267 and water and wastewater net revenues were $24,473,670. Gilbert has pledged future street and highway revenues to repay $16,945,000 in highway user revenue refunding bonds issued in 2012. Proceeds from the 2012 refunding bonds were used to advance refund $17,950,000 of outstanding 2003 highway user revenue bonds (proceeds from the 2003 bonds provided financing for the purpose of street and highway construction projects). The refunding bonds are payable solely from street and highway revenues (see note 10 for the detail of the sources of these revenues) and are payable through 2019. Annual principal and interest payments on the bonds are expected to require less than 23 percent of revenues. The total principal and interest remaining to be paid on the bonds is $3,412,500. Principal and interest paid for the current year was $3,412,250, and the total street and highway revenues were $15,457,442. Gilbert has pledged future excise taxes and state-shared revenues to repay $179,170,000 in public facilities municipal property corporation (MPC) revenue bonds issued since 2009, $80,585,000 in public facilities MPC revenue bonds issued in 2009, $20,980,000 in public facilities MPC revenue refunding bonds issued in 2011, $28,080,000 in public facilities MPC revenue refunding bonds issued in 2014, $43,075,000 in public facilities MPC revenue refunding bonds in 2017, and $6,450,000 in public facilities MPC revenue bonds issued in 2017. Proceeds from the bonds provided financing of the multipurpose public safety complex, the service center facility, a police property facility, a sports complex, various other parks and recreation facilities, a parking facility, and a fire and rescue station. Proceeds from the 2011 refunding bonds were used to advance refund $21,670,000 of outstanding 2001 public facilities MPC revenue bonds. Proceeds from the 2014 refunding bonds were used to advance refund $30,205,000 of outstanding 2006 public facilities MPC revenue bonds. Proceeds from the 2017 refunding bonds were used to advance refund $56,845,000 of outstanding 2009 public facilities MPC revenue bonds. The bonds are payable through 2028. In addition, Gilbert has pledged future excise taxes and state-shared revenues to repay $36,980,000 in revenue obligations issued in 2015. Proceeds from the obligations provided financing to design and construct a four-story building for use as a university building. Annual principal and interest payments on the bonds and obligations are expected to require less than 10 percent of excise taxes and state-shared revenues. The total principal and interest remaining to be paid on the bonds and obligations is $151,464,988. Principal and interest paid for the current year was $19,076,073, and the total excise taxes and state-shared revenues were $159,912,939. 83 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA NOTES TO THE FINANCIAL STATEMENTS June 30, 2018 Note 19 - Investment in Joint Venture Construction of a joint water reclamation plant with the City of Mesa and the Town of Queen Creek was completed during fiscal year 2007. Mesa is the lead agent and is responsible for the operation and maintenance of the plant. Mesa, Gilbert and Queen Creek participate in ownership of the plant and are charged for operating expenses based on gallons of flow. Gilbert’s investment in joint venture is reflected as a separate line item in the proprietary funds financial statements. Separate financial statements for the joint venture are not prepared. Total investment (net of depreciation) as of June 30, 2018, was: Mesa’s Share Gilbert’s Share Queen Creek’s Share Total $ 72,086,878 51,709,851 24,575,281 $ 148,372,010 Construction for the Phase I of a joint water treatment plant with the City of Chandler was completed in fiscal year 2009 and construction for Phase II began in fiscal year 2015. Phase I of the plant treats 12 million gallons per day each for Gilbert and Chandler. Phase II of the plant was completed this fiscal year and added an additional 12 million gallons per day each for Gilbert and Chandler. Gilbert’s investment in joint venture is reflected as a separate line item in the proprietary funds financial statements. Separate financial statements for the joint venture are not prepared. Total investment (net of depreciation) as of June 30, 2018, was: Gilbert’s Share Chandler’s Share Total $ 97,902,288 83,194,468 $ 181,096,756 In August 2008, Gilbert entered into an Intergovernmental Agreement with the Cities of Mesa and Apache Junction, Superstition Fire & Medical (F&M), and the Town of Queen Creek (the Parties) to plan, design, construct, operate, maintain and finance the TOPAZ Regional Wireless Cooperative Network (Trunked Open Arizona Network – 700/800 MHz Network procured and built by the City of Mesa). On May 1, 2012 and October 26, 2015, Rio Verde Fire District and Fort McDowell Yavapai Nation, respectively, joined TOPAZ. The City of Mesa acts as the lead agency and is responsible for the planning, budgeting, construction, operation and maintenance of the network, in addition to providing all management personnel and financing arrangements. The Parties participate in ownership of the network and are charged for operating and capital expenses based on six month rolling average of airtime. Gilbert’s investment in joint venture is reflected within the governmental activities in the government-wide statement of net position. Separate financial statements are not prepared. Total investment (net of depreciation) as of June 30, 2018, was: Mesa’s Share Apache Junction’s Share Gilbert’s Share Superstition F&M’s Share Queen Creek’s Share Rio Verde FD’s Share Fort McDowell’s Share Total 84 $ 6,066,969 491,691 197,349 162,198 110,612 13,041 21,500 $ 7,063,360 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA NOTES TO THE FINANCIAL STATEMENTS June 30, 2018 Note 20 – Tax Abatements Gilbert has made a commitment as part of our economic development program to reimburse certain public improvement costs through transaction privilege taxes generated out of the respective development area. Additional information regarding this agreement may only be disclosed when a sufficient number of participants can be aggregated together. Gilbert has an insufficient number of participants within the development area to authorize such disclosure, as detailed information on such commitments is prohibited from disclosure under Arizona Revised Statute 42-2002 Disclosure of Confidential Information Prohibited. 85 TABLE OF CONTENTS 86 TABLE OF CONTENTS REQUIRED SUPPLEMENTARY INFORMATION 87 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA REQUIRED SUPPLEMENTARY INFORMATION June 30, 2018 Schedule of the Proportionate Share of the Net Pension Liability: Arizona State Retirement System Fiscal Year Proportion of the net pension liability Proportionate share of the net pension liability Covered payroll (1) Proportionate share of the net pension liability as a percentage of its covered payroll Plan fiduciary net position as a percentage of the total pension liability 2018 2017 2016 2015 2014 through 2009 0.49% $76,832,504 48,187,902 0.49% $78,813,297 45,764,166 0.49% $75,695,863 43,765,044 0.47% $69,412,268 42,295,765 Information not available (2) 159% 172% 172% 164% 69.92% 67.06% 68.35% 69.49% (1) The covered payroll amount will be as of the measurement date of the net pension liability. For fiscal year 2018, the measurement date of the net pension liability is June 30, 2017. See also Note 12. (2) The pension schedules in this required supplementary information are intended to show information for ten years. Additional years’ information will be displayed as it becomes available. 88 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA REQUIRED SUPPLEMENTARY INFORMATION June 30, 2018 Schedule of Changes in the Net Pension Liability and Related Ratios: Public Safety Personnel Retirement System – Police Fiscal Year Total pension liability: Service cost Interest on the total pension liability Changes in benefit terms Differences between expected and actual experience in the measurement of the total pension liability Changes of assumptions or other inputs Benefit payments, including refunds of employee contributions Net change in total pension liability Total pension liability – beginning Total pension liability – ending (a) Plan fiduciary net position: Contributions – employer Contributions – employee Net investment income Benefit payments, including refunds of employee contributions Administrative expense Other changes Net change in plan fiduciary net position Plan fiduciary net position – beginning Plan fiduciary net position – ending (b) Net pension liability – ending (a) – (b) Plan fiduciary net position as a percentage of the total pension liability Covered payroll (1) Gilbert’s net pension liability as a percentage of covered payroll 2018 2017 2016 2015 2014 through 2009 $ 4,361,408 8,535,995 1,136,619 $ 3,466,239 7,222,969 9,149,421 $ 3,570,214 6,604,564 - $ 3,293,404 5,414,469 605,849 Information not available (2) 928,575 3,680,906 547,040 4,549,861 713,111 - 2,479,128 5,473,070 (3,648,774) 14,994,729 113,456,944 $128,451,673 (3,515,621) 21,419,909 92,037,035 $113,456,944 (2,400,631) 8,487,258 83,549,777 $92,037,035 (2,087,138) 15,178,782 68,370,995 $83,549,777 $ 12,682,256 2,271,326 8,763,809 $ 4,426,923 2,243,118 365,916 $ 3,280,061 2,107,439 2,037,534 $ 3,103,356 2,088,159 6,306,779 (3,648,774) (77,945) 153,768 20,144,440 62,607,101 $82,751,541 (3,515,621) (53,053) 113,260 3,580,543 59,026,558 $62,607,101 (2,400,631) (50,099) 75,447 5,049,751 53,976,807 $59,026,558 (2,087,138) (50,793) 49,298 9,409,661 44,567,146 $53,976,807 $45,700,132 $50,849,843 $33,010,477 $29,572,970 64.42% 55.18% 64.13% 64.60% $18,694,661 $19,247,567 $19,071,843 $18,990,156 244.46% 264.14% 173.08% 155.73% (1) The covered payroll amount will be as of the measurement date of the net pension liability. For fiscal year 2018, the measurement date of the net pension liability is June 30, 2017. See also Note 12. (2) The pension schedules in this required supplementary information are intended to show information for ten years. Additional years’ information will be displayed as it becomes available. 89 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA REQUIRED SUPPLEMENTARY INFORMATION June 30, 2018 Schedule of Changes in the Net Pension Liability and Related Ratios: Public Safety Personnel Retirement System – Fire Fiscal Year Total pension liability: Service cost Interest on the total pension liability Changes in benefit terms Differences between expected and actual experience in the measurement of the total pension liability Changes of assumptions or other inputs Benefit payments, including refunds of employee contributions Net change in total pension liability Total pension liability – beginning Total pension liability – ending (a) Plan fiduciary net position: Contributions – employer Contributions – employee Net investment income Benefit payments, including refunds of employee contributions Administrative expense Other changes Net change in plan fiduciary net position Plan fiduciary net position – beginning Plan fiduciary net position – ending (b) Net pension liability – ending (a) – (b) Plan fiduciary net position as a percentage of the total pension liability Covered payroll (1) Gilbert’s net pension liability as a percentage of covered payroll 2018 2017 2016 2015 $ 3,652,130 5,586,910 $ 2,728,554 4,550,994 $ 2,785,128 4,138,400 $ 2,545,607 3,408,433 434,841 7,610,545 - (131,651) 3,761,967 444,609 (1,091,858) 3,069,903 (1,235,512) - 2,247,902 1,333,403 (1,094,738) 12,785,719 73,213,442 $85,999,161 (529,722) 16,338,416 56,875,026 $73,213,442 (277,805) 5,410,211 51,464,815 $56,875,026 (171,217) 9,232,477 42,232,338 $51,464,815 $ 5,192,069 1,860,471 6,959,055 $ 3,183,837 1,792,809 300,260 $ 1,845,382 1,903,578 1,653,304 $ 1,954,145 1,667,772 5,045,090 (1,094,738) (61,976) 636 12,855,517 53,456,141 $66,311,658 (529,722) (43,606) 96,335 4,799,913 48,656,228 $53,456,141 (277,805) (40,728) (229,513) 4,854,218 43,802,010 $48,656,228 (171,217) (40,631) 8,455,159 35,346,851 $43,802,010 $19,687,503 $19,757,301 $ 8,218,798 $ 7,662,805 77.11% 73.01% 85.55% 85.11% $16,132,031 $15,444,728 $15,274,115 $15,508,151 122.04% 128.39% 53.81% 49.41% 2014 through 2009 Information not available (2) (1) The covered payroll amount will be as of the measurement date of the net pension liability. For fiscal year 2018, the measurement date of the net pension liability is June 30, 2017. See also Note 12. (2) The pension schedules in this required supplementary information are intended to show information for ten years. Additional years’ information will be displayed as it becomes available. 90 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA REQUIRED SUPPLEMENTARY INFORMATION June 30, 2018 Schedule of Pension Contributions: Arizona State Retirement System Actuarially determined contribution Contributions in relation to the actuarially determined contributions Contribution deficiency (excess) Covered payroll Contributions as a percentage of covered payroll Actuarially determined contribution Contributions in relation to the actuarially determined contributions Contribution deficiency (excess) Covered payroll Contributions as a percentage of covered payroll 2018 $ 5,338,739 2017 $ 5,187,460 Fiscal Year 2016 $ 5,278,569 2015 $ 5,137,457 2014 $ 4,763,978 5,338,739 $ $49,511,839 5,187,460 $ $48,187,902 5,278,569 $ $45,764,166 5,137,457 $ $43,765,044 4,763,978 $ $42,295,765 10.78% 10.77% 11.53% 11.74% 11.26% 2013 $ 4,162,425 2012 $ 3,880,631 Fiscal Year 2011 $ 3,448,898 2010 $ 3,329,705 2009 $ 3,407,288 4,162,425 $ $38,356,312 3,880,631 $ $36,582,049 3,448,898 $ $37,474,457 3,329,705 $ $37,007,042 3,407,288 $ $38,106,015 10.85% 10.61% 9.20% 9.00% 8.94% 91 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA REQUIRED SUPPLEMENTARY INFORMATION June 30, 2018 Schedule of Pension Contributions: Public Safety Retirement System - Police Actuarially determined contribution Contributions in relation to the actuarially determined contributions Contribution deficiency (excess) Covered payroll Contributions as a percentage of covered payroll Actuarially determined contribution Contributions in relation to the actuarially determined contributions Contribution deficiency (excess) Covered payroll Contributions as a percentage of covered payroll 2018 $ 6,170,252 2017 $ 4,501,937 Fiscal Year 2016 $ 4,021,770 2015 $ 3,414,607 2014 $ 3,231,755 7,330,436 $(1,160,184) $18,572,542 12,700,837 $(8,198,900) $18,694,661 4,449,337 $ (427,567) $19,247,567 3,414,607 $ $19,071,843 3,231,755 $ $18,990,156 39.47% 67.94% 23.12% 17.90% 17.02% 2013 $ 2,930,117 2012 $ 2,384,390 Fiscal Year 2011 $ 2,239,987 2010 $ 2,330,954 2009 $ 2,540,087 2,930,117 $ $17,477,557 2,384,390 $ $16,492,849 2,239,987 $ $16,550,117 2,330,954 $ $16,686,272 2,540,087 $ $17,138,480 16.77% 14.46% 13.54% 13.97% 14.82% 2018 $ 4,644,867 2017 $ 3,266,367 Fiscal Year 2016 $ 2,241,688 2015 $ 1,982,159 2014 $ 2,037,266 5,096,285 $ (451,418) $16,176,854 5,307,483 $(2,041,116) $16,132,031 3,088,477 $ (846,789) $15,444,728 1,982,159 $ $15,274,115 2,037,266 $ $15,508,151 31.50% 32.90% 20.00% 12.98% 13.14% 2013 $ 1,793,907 2012 $ 1,479,746 Fiscal Year 2011 $ 1,422,964 2010 $ 1,446,837 2009 $ 1,528,199 1,793,907 $ $13,954,822 1,479,746 $ $13,335,971 1,422,964 $ $13,220,688 1,446,837 $ $12,186,063 1,528,199 $ $12,476,282 12.86% 11.10% 10.76% 11.87% 12.25% Public Safety Retirement System - Fire Actuarially determined contribution Contributions in relation to the actuarially determined contributions Contribution deficiency (excess) Covered payroll Contributions as a percentage of covered payroll Actuarially determined contribution Contributions in relation to the actuarially determined contributions Contribution deficiency (excess) Covered payroll Contributions as a percentage of covered payroll 92 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA REQUIRED SUPPLEMENTARY INFORMATION June 30, 2018 Schedule of Changes in the Town’s Total OPEB Liability and Related Ratios: Town of Gilbert Defined Benefit Plan 2018 Total OPEB liability: Service cost Interest on the total OPEB liability Differences between expected and actual experience in the measurement of the total OPEB liability Benefit payments, including refunds of employee contributions Net change in total OPEB liability Total OPEB liability – beginning Total OPEB liability – ending (a) 96,758 127,475 1,469,818 $ 1,597,293 Covered-employee payroll (1) $72,409,115 $ 84,727 58,026 2017 through 2009 Information not available (2) (112,036) Gilbert’s total OPEB liability as a percentage of covered payroll 2.2% (1) The covered payroll amount will be as of the measurement date of the total OPEB liability. For fiscal year 2018, the measurement date of the total OPEB liability is June 30, 2018. See also Note 13. (2) The OPEB schedule in this required supplementary information are intended to show information for ten years. Additional years’ information will be displayed as it becomes available. (3) No assets are accumulated in a trust that meets the criteria of a trust as defined in GASB Statement No. 75, Accounting and Reporting for Postemployment Benefits Other than Pensions, to pay for the related benefits of this plan. 93 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA REQUIRED SUPPLEMENTARY INFORMATION June 30, 2018 Note to Pension Plan Schedules Note 1 - Actuarially Determined Contribution Rates Actuarial determined contribution rates for the Public Safety Personnel Retirement System are calculated as of June 30 two years prior to the end of the fiscal year in which contributions are made. The actuarial methods and assumptions used to establish the contribution requirements are as follows: Actuarial cost method Amortization method Remaining amortization period as of the 2016 actuarial valuation Asset valuation method Actuarial assumptions: Investment rate of return Projected salary increases Wage growth Retirement age Mortality Individual entry age normal Level percent closed for unfunded actuarial accrued liability, open for excess 20 years for unfunded actuarial accrued liability, 20 years for excess 7-year smoothed market value, 80%/120% market corridor PSPRS members with initial membership date before July 1, 2017: In the 2016 actuarial valuation, the investment rate of return was decreased from 7.85% to 7.5%. In the 2013 actuarial valuation, the investment rate of return was decreased from 8.0% to 7.85%. PSPRS members with initial membership on or after July 1, 2017: 7.0%. In the 2014 actuarial valuation, projected salary increases were decreased from 4.5%-8.5% to 4.0%-8.0%. In the 2013 actuarial valuation, projected salary increases were decreased from 5.0%-9.0% to 4.5%-8.5%. In the 2014 actuarial valuation, wage growth was decreased from 4.5% to 4.0%. In the 2013 actuarial valuation, wage growth was decreased from 5.0% to 4.5%. Experience-based table of rates that is specific to the type of eligibility condition. Last updated for the 2012 valuation pursuant to the experience study of the period July 1, 2006 – June 30, 2011. RP-2000 mortality table (adjusted by 105% for both males and females) Note 2 – Factors That Affect Trends Arizona courts have ruled that provisions of a 2011 law that changed the mechanism for funding permanent pension benefit increases and increased employee pension contribution rates were unconstitutional or a breach of contract because those provisions apply to individuals who were members as of the law’s effective date. As a result, the PSPRS and EORP changed benefit terms to reflect the prior mechanism for funding permanent benefit increases for those members and revised actuarial assumptions to explicitly value future permanent benefit increases. PSPRS and EORP also reduced those members’ employee contribution rates. These changes are reflected in the plans’ pension liabilities for fiscal year 2015 (measurement date 2014) for members who were retired as of the law’s effective date and fiscal year 2018 (measurement date 2017) for members who retired or will retire after the law’s effective date. These changes also increased the PSPRS required pension contributions beginning in fiscal year 2016 for members who were retired as of the law’s effective date. These changes will increase the PSPRS required contributions beginning in fiscal year 2019 for members who retired or will retire after the law’s effective date. EORP-required contributions are not based on actuarial valuations, and therefore, these changes did not affect them. 94 TABLE OF CONTENTS NONMAJOR FUNDS OTHER GOVERNMENTAL FUNDS Special Revenue Funds Special Revenue Funds are used to account for revenues and expenditures from specific taxes or other earmarked sources. Such funds are usually required by statute or ordinance to finance particular functions or activities. Grants - accounts for miscellaneous grants received from Federal, State and local governments that require segregation of revenues and expenditures. Other Special Revenue - accounts for revenues received from various agencies and sources, including seized funds from law enforcement agencies that are required to be used for specific purposes. Community Development Block Grants (CDBG) – accounts for a series of ongoing entitlements received directly from the U.S. Department of Housing and Urban Development (HUD) and used for affordable housing and redevelopment activities. HOME Program accounts for HUD monies received from Maricopa County for affordable housing activities including housing rehabilitation. Street Light Improvement District - accounts for taxes received from and expenditures of the street light maintenance improvement districts. Parkway Maintenance District - accounts for taxes received from and expenditures of the parkway maintenance improvement districts. Capital Projects Funds Capital Projects Funds are established to account for the acquisition and construction of major capital facilities other than those financed by proprietary funds. Outside Sources - accounts for the purchase or construction of capital assets with funds from outside sources, i.e., developers or other governments. Prop 400 - accounts for the receipt of state funds in accordance with the MAG Regional Transportation Plan approved by voters as Proposition 400 in 2004. The expenditure of those funds are for various street improvement projects. Municipal Property Corporation - accounts for the construction or purchase of capital assets to be funded through the use of Public Facilities Municipal Property Corporation revenue bonds. University Building - accounts for the design and construction of a building to be utilized and leased for educational purposes. 95 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA Combining Balance Sheet Nonmajor Governmental Funds June 30, 2018 Special Revenue Other Special Revenue Grants ASSETS Pooled cash and investments Receivables, net: Taxes Accrued interest Accounts Due from other governments Inventories Restricted assets: Cash and investments Total assets $ CDBG/HOME Street Light Improvement District Parkway Maintenance District $ $ $ 603,855 $ 1,014,174 1,590 98,468 - 5,607 47,342 1,220,167 - 758,752 - 10,217 - 6,459 912 1,306 703,913 2,287,290 758,752 172,067 350,509 LIABILITIES AND FUND BALANCES Liabilities: Accounts payable Accrued liabilities Deposits held for others Due to other funds Unearned revenue Total liabilities 1,627 50,000 51,627 6,901 51,622 440,508 499,031 129,926 6,527 610,322 746,775 - 28,577 9,545 38,122 Fund Balances: Nonspendable Restricted Assigned Unassigned Total fund balances Total liabilities and fund balances 652,286 652,286 703,913 2,172,650 56,473 (440,864) 1,788,259 $ 2,287,290 12,474 (497) 11,977 758,752 172,067 172,067 172,067 1,306 311,081 312,387 350,509 $ 96 $ - $ 161,850 $ 341,832 TABLE OF CONTENTS Capital Projects Outside Sources $ $ Prop 400 Municipal Property Corporation $ 19,972,324 $ 14,426,984 74,288 - 49,092 - 10,966 - - 16,676 142,455 47,342 2,077,387 1,306 20,046,612 14,476,076 2,731,741 2,742,707 - 2,731,741 41,537,926 3,358,098 774,425 4,132,523 123,039 123,039 786,720 786,720 - 4,434,888 67,694 774,425 610,322 490,508 6,377,837 15,914,089 15,914,089 20,046,612 14,353,037 14,353,037 $ 14,476,076 1,955,987 1,955,987 2,742,707 - 1,306 19,629,582 15,970,562 (441,361) 35,160,089 41,537,926 $ - Total Nonmajor Governmental Funds University Building $ - $ 97 $ $ 36,521,019 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA Combining Statement of Revenues, Expenditures, and Changes in Fund Balances Nonmajor Governmental Funds For the Year Ended June 30, 2018 Special Revenue Other Special Revenue Grants Revenues Taxes: Property Intergovernmental Charges for services Other entities' participation Gifts and donations Fines and forfeitures Investment earnings $ Miscellaneous Total revenues Expenditures Current: General government: Management and policy Court Public safety: Police Fire Highways and streets Parks and recreation Transportation Non departmental Debt service: Bond issuance costs 974,855 3,376 $ 35,000 1,216,499 126,173 425,727 15,055 CDBG/HOME Street Light Improvement District Parkway Maintenance District $ $ $ 1,984,768 36 1,872,947 - 1,045,637 1,013 978,231 60 1,818,514 1,984,804 1,872,947 1,046,650 19,387 70,002 369,312 592,584 - - - 192,399 105,324 20,000 801,199 - 1,178,013 36,071 14,635 49,884 - 1,824,050 - 966,791 - - - - - - 10,768 1,149,077 95,426 1,813,343 1,392,183 1,984,767 1,824,050 966,791 (170,846) 5,171 37 48,897 79,859 Other financing sources (uses) Transfers out Revenue bonds issued Premium on revenue bonds - (75,248) - - - - Sale of capital assets Total other financing sources and uses - (75,248) - - - (170,846) (70,077) 37 48,897 79,859 Capital outlay Total expenditures Excess (deficiency) of revenues over (under) expenditures Net change in fund balances Fund balances at beginning of year Fund balances at end of year $ 823,132 1,858,336 652,286 $ 1,788,259 98 11,940 $ 11,977 123,170 $ 172,067 232,528 $ 312,387 TABLE OF CONTENTS Capital Projects Outside Sources $ Municipal Property Corporation Prop 400 15,866 1,542,784 112,752 $ 1,399,571 85,971 $ 5,534 Total Nonmajor Governmental Funds University Building $ - $ 2,918,584 4,410,060 1,216,499 1,542,784 126,173 425,727 223,737 395,967 2,067,369 1,485,542 5,534 - 396,027 11,259,591 - - - - 662,586 388,699 3,749,229 - - - - 1,370,412 141,395 1,824,050 4,750,655 801,199 49,884 - - 54,697 - 54,697 4,275,778 8,025,007 3,982,342 3,982,342 5,253,582 5,308,279 - 15,010,079 25,053,656 (5,957,638) (2,496,800) (5,302,745) - (13,794,065) (98,678) - - (295,965) 6,450,000 1,104,697 (4,458,222) - (4,928,113) 6,450,000 1,104,697 1,225,504 1,126,826 - 7,258,732 (4,458,222) 1,225,504 3,852,088 (4,830,812) (2,496,800) 1,955,987 (4,458,222) (9,941,977) 20,744,901 16,849,837 $ 15,914,089 $ 14,353,037 $ 1,955,987 4,458,222 $ - 99 45,102,066 $ 35,160,089 TABLE OF CONTENTS 100 TABLE OF CONTENTS BUDGETARY COMPARISON SCHEDULES 101 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA Grants Special Revenue Fund Schedule of Revenues, Expenditures, and Changes in Fund Balances - Budget and Actual - Budgetary Basis For the Year Ended June 30, 2018 Variance with Budgeted Amounts Original Revenues Intergovernmental Investment earnings Total revenues $ Actual Amounts Final 7,548,120 7,548,120 $ 7,548,120 7,548,120 $ 974,855 3,376 978,231 Final Budget Positive (Negative) $ (6,573,265) 3,376 (6,569,889) Expenditures Current: General government: Court Public safety: Police Fire Parks and recreation Transportation Capital outlay Contingency Total expenditures - 19,388 19,387 1 95,540 59,680 1,277,120 1,709,850 5,000,000 8,142,190 310,540 209,780 20,000 1,255,095 1,146,000 5,181,387 8,142,190 192,399 105,324 20,000 801,199 10,768 1,149,077 118,141 104,456 453,896 1,135,232 5,181,387 6,993,113 Excess (deficiency) of revenues over (under) expenditures (594,070) (594,070) (170,846) 423,224 (594,070) (170,846) Net change in fund balances $ (594,070) $ Fund balance at beginning of year 823,132 Fund balance at end of year $ 102 652,286 $ 423,224 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA Other Special Revenue Funds Schedule of Revenues, Expenditures, and Changes in Fund Balances - Budget and Actual - Budgetary Basis For the Year Ended June 30, 2018 Variance with Budgeted Amounts Original Revenues Intergovernmental Charges for services Gifts and donations Fines and forfeitures Investment earnings Miscellaneous Total revenues $ 20,000 1,385,020 1,100,890 484,000 2,989,910 Actual Amounts Final $ 20,000 1,385,020 1,100,890 484,000 2,989,910 $ 35,000 1,216,499 126,173 425,727 15,055 60 1,818,514 Final Budget Positive (Negative) $ 15,000 (168,521) (974,717) (58,273) 15,055 60 (1,171,396) Expenditures Current: General government: Management and policy Court Public safety: Police Fire Parks and recreation Non departmental Capital outlay Contingency Total expenditures 181,410 600,290 185,610 600,290 70,002 369,312 115,608 230,978 2,012,300 115,410 49,000 49,890 148,600 1,000,000 4,156,900 2,012,300 115,410 74,000 49,890 148,600 454,126 3,640,226 1,178,013 36,071 14,635 49,884 95,426 1,813,343 834,287 79,339 59,365 6 53,174 454,126 1,826,883 Excess (deficiency) of revenues over (under) expenditures (1,166,990) (650,316) 5,171 655,487 (95,000) (95,000) (95,000) (95,000) (75,248) (75,248) 19,752 19,752 (745,316) (70,077) Other financing uses Transfers out Total other financing uses Net change in fund balances $ (1,261,990) $ Fund balance at beginning of year 1,858,336 Fund balance at end of year $ 103 1,788,259 $ 675,239 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA CDBG/HOME Special Revenue Fund Schedule of Revenues, Expenditures, and Changes in Fund Balances - Budget and Actual - Budgetary Basis For the Year Ended June 30, 2018 Variance with Budgeted Amounts Original Revenues Intergovernmental Investment earnings Total revenues $ Expenditures Current: Management and policy Capital outlay Contingency Total expenditures $ 2,239,650 2,239,650 $ 1,984,768 36 1,984,804 $ (254,882) 36 (254,846) 632,250 1,607,400 2,239,650 666,552 1,594,352 13,048 2,273,952 592,584 1,392,183 1,984,767 73,968 202,169 13,048 289,185 - (34,302) 37 34,339 (34,302) 37 Excess (deficiency) of revenues over (under) expenditures Net change in fund balances Final 2,239,650 2,239,650 Final Budget Positive (Negative) Actual Amounts $ - $ Fund balance at beginning of year 11,940 Fund balance at end of year $ 104 11,977 $ 34,339 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA Street Light Improvement District Special Revenue Fund Schedule of Revenues, Expenditures, and Changes in Fund Balances - Budget and Actual - Budgetary Basis For the Year Ended June 30, 2018 Variance with Budgeted Amounts Original Revenues Taxes Total revenues $ 1,902,530 1,902,530 Actual Amounts Final $ 1,902,530 1,902,530 $ 1,872,947 1,872,947 Final Budget Positive (Negative) $ (29,583) (29,583) Expenditures Current: Highways and streets Total expenditures 2,038,600 2,038,600 2,038,600 2,038,600 1,824,050 1,824,050 214,550 214,550 Excess (deficiency) of revenues over (under) expenditures (136,070) (136,070) 48,897 184,967 (136,070) 48,897 Net change in fund balances $ (136,070) $ Fund balance at beginning of year 123,170 Fund balance at end of year $ 105 172,067 $ 184,967 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA Parkway Maintenance District Special Revenue Fund Schedule of Revenues, Expenditures, and Changes in Fund Balances - Budget and Actual - Budgetary Basis For the Year Ended June 30, 2018 Variance with Budgeted Amounts Original Revenues Taxes Investment earnings Total revenues $ 1,050,550 1,050,550 Actual Amounts Final $ 1,050,550 1,050,550 $ 1,045,637 1,013 1,046,650 Final Budget Positive (Negative) $ (4,913) 1,013 (3,900) Expenditures Current: Parks and recreation Total expenditures 1,216,260 1,216,260 1,216,260 1,216,260 966,791 966,791 249,469 249,469 Excess (deficiency) of revenues over (under) expenditures (165,710) (165,710) 79,859 245,569 (165,710) 79,859 Net change in fund balances $ (165,710) $ Fund balance at beginning of year 232,528 Fund balance at end of year $ 106 312,387 $ 245,569 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA General Debt Obligations Debt Service Fund Schedule of Revenues, Expenditures, and Changes in Fund Balances - Budget and Actual - Budgetary Basis For the Year Ended June 30, 2018 Variance with Budgeted Amounts Original Revenues Property taxes Investment earnings Total revenues $ 21,650,000 50,000 21,700,000 Actual Amounts Final $ 21,650,000 50,000 21,700,000 $ 21,549,105 113,448 21,662,553 Final Budget Positive (Negative) $ (100,895) 63,448 (37,447) Expenditures Debt service: Principal Interest Payment to refunded bond escrow agent Bond issuance costs Fiscal and other charges Total expenditures 27,553,750 15,778,540 41,000 43,373,290 33,305,000 11,462,877 12,096,000 357,045 37,750 57,258,672 33,305,000 11,462,873 12,096,000 353,794 6,985 57,224,652 4 3,251 30,765 34,020 Deficiency of revenues under expenditures (21,673,290) (35,558,672) (35,562,099) (3,427) Other financing sources (uses) Transfers in Refunding bonds issued Premium on refunding bonds Payment to refunded bond escrow agent Total other financing sources and uses 22,533,310 22,533,310 22,533,310 (49,162,120) (26,628,810) 28,408,410 43,075,000 6,440,912 (49,162,118) 28,762,204 5,875,100 43,075,000 6,440,912 2 55,391,014 (62,187,482) (6,799,895) Net change in fund balances $ 860,020 $ Fund balance at beginning of year 12,820,375 Fund balance at end of year $ 107 6,020,480 $ 55,387,587 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA Special Assessments Debt Service Fund Schedule of Revenues, Expenditures, and Changes in Fund Balances - Budget and Actual - Budgetary Basis For the Year Ended June 30, 2018 Variance with Budgeted Amounts Original Revenues Special assessments Investment earnings Total revenues $ Expenditures Debt service: Principal Interest Fiscal and other charges Total expenditures Final 5,486,430 5,486,430 $ 5,486,430 5,486,430 $ 958,317 5,298 963,615 Final Budget Positive (Negative) $ (4,528,113) 5,298 (4,522,815) 5,160,000 301,430 25,000 5,486,430 5,160,000 301,430 25,000 5,486,430 660,000 294,670 6,639 961,309 4,500,000 6,760 18,361 4,525,121 - - 2,306 2,306 - 2,306 Excess of revenues over expenditures Net change in fund balances Actual Amounts $ - $ Fund balance at beginning of year 73,153 Fund balance at end of year $ 108 75,459 $ 2,306 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA Outside Sources Capital Projects Fund Schedule of Revenues, Expenditures, and Changes in Fund Balances - Budget and Actual - Budgetary Basis For the Year Ended June 30, 2018 Variance with Budgeted Amounts Original Revenues Intergovernmental Other entities' participation Gifts and donations Investment earnings Miscellaneous Total revenues $ 2,646,000 885,000 3,531,000 Actual Amounts Final $ 2,646,000 885,000 3,531,000 $ 15,866 1,542,784 112,752 395,967 2,067,369 Final Budget Positive (Negative) $ 15,866 (1,103,216) (885,000) 112,752 395,967 (1,463,631) Expenditures Current: Parks and recreation Capital outlay Contingency Total expenditures 11,358,410 15,181,250 26,539,660 10,877,094 14,231,326 2,467,107 27,575,527 3,749,229 4,275,778 8,025,007 7,127,865 9,955,548 2,467,107 19,550,520 Excess (deficiency) of revenues over (under) expenditures (23,008,660) (24,044,527) (5,957,638) 18,086,889 83,000 1,343,000 1,426,000 83,000 1,343,000 1,426,000 (98,678) 1,225,504 1,126,826 (83,000) (98,678) (117,496) (299,174) (22,618,527) (4,830,812) Other financing sources (uses) Transfers in Transfers out Sale of capital assets Total other financing sources and uses Net change in fund balances $ (21,582,660) $ Fund balance at beginning of year 20,744,901 Fund balance at end of year $ 109 15,914,089 $ 17,787,715 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA Prop 400 Capital Projects Fund Schedule of Revenues, Expenditures, and Changes in Fund Balances - Budget and Actual - Budgetary Basis For the Year Ended June 30, 2018 Variance with Budgeted Amounts Original Revenues Intergovernmental Investment earnings Total revenues $ 6,725,000 6,725,000 Actual Amounts Final $ 6,725,000 6,725,000 $ 1,399,571 85,971 1,485,542 Final Budget Positive (Negative) $ (5,325,429) 85,971 (5,239,458) Expenditures Capital outlay Contingency Total expenditures 35,537,930 35,537,930 33,815,267 1,722,663 35,537,930 3,982,342 3,982,342 29,832,925 1,722,663 31,555,588 Excess (deficiency) of revenues over (under) expenditures (28,812,930) (28,812,930) (2,496,800) 26,316,130 (28,812,930) (2,496,800) Net change in fund balances $ (28,812,930) $ Fund balance at beginning of year 16,849,837 Fund balance at end of year $ 110 14,353,037 $ 26,316,130 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA General Obligation Bonds Capital Projects Fund Schedule of Revenues, Expenditures, and Changes in Fund Balances - Budget and Actual - Budgetary Basis For the Year Ended June 30, 2018 Variance with Budgeted Amounts Original Revenues Other entities' participation Investment earnings Miscellaneous Total revenues $ Actual Amounts Final - $ - $ 31,611 399,412 99,753 530,776 Final Budget Positive (Negative) $ 31,611 399,412 99,753 530,776 Expenditures Debt service: Bond issuance costs Capital outlay Contingency Total expenditures 500,000 63,998,560 323,000 64,821,560 500,000 55,195,773 9,225,547 64,921,320 10,883,711 10,883,711 500,000 44,312,062 9,225,547 54,037,609 Excess (deficiency) of revenues over (under) expenditures (64,821,560) (64,921,320) (10,352,935) 54,568,385 (64,921,320) (10,352,935) Net change in fund balances $ (64,821,560) $ Fund balance at beginning of year 73,117,415 Fund balance at end of year $ 111 62,764,480 $ 54,568,385 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA Municipal Property Corporation Capital Projects Fund Schedule of Revenues, Expenditures, and Changes in Fund Balances - Budget and Actual - Budgetary Basis For the Year Ended June 30, 2018 Variance with Budgeted Amounts Original Revenues Investment earnings Total revenues $ Final - $ Final Budget Positive (Negative) Actual Amounts - $ 5,534 5,534 $ 5,534 5,534 Expenditures Debt service: Bond issuance costs Capital outlay Total expenditures - 54,700 8,990,042 9,044,742 54,697 5,253,582 5,308,279 3 3,736,460 3,736,463 Excess (deficiency) of revenues over (under) expenditures - (9,044,742) (5,302,745) 3,741,997 Other financing sources (uses) Transfers out Revenue bonds issued Premium on revenue bonds Total other financing sources and uses - - (295,965) 6,450,000 1,104,697 7,258,732 (295,965) 6,450,000 1,104,697 7,258,732 (9,044,742) 1,955,987 Net change in fund balances $ - $ Fund balance at beginning of year - Fund balance at end of year $ 112 1,955,987 $ 11,000,729 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA System Development Fees Capital Projects Fund Schedule of Revenues, Expenditures, and Changes in Fund Balances - Budget and Actual - Budgetary Basis For the Year Ended June 30, 2018 Variance with Budgeted Amounts Original Revenues System development fees Investment earnings Total revenues $ 20,200,000 80,000 20,280,000 Actual Amounts Final $ 20,200,000 80,000 20,280,000 $ 17,616,947 224,696 17,841,643 Final Budget Positive (Negative) $ (2,583,053) 144,696 (2,438,357) Expenditures Current: General government: Development services Public safety: Police Capital outlay Contingency Total expenditures 74,000 74,000 214 73,786 45,187,784 45,261,784 147,500 34,754,977 1,491,265 36,467,742 125,970 3,568,089 3,694,273 21,530 31,186,888 1,491,265 32,773,469 Excess (deficiency) of revenues over (under) expenditures (24,981,784) (16,187,742) 14,147,370 30,335,112 Other financing sources (uses) Transfers in Transfers out Total other financing sources and uses (11,228,620) (11,228,620) (11,228,620) (11,228,620) 295,965 (12,236,416) (11,940,451) 295,965 (1,007,796) (711,831) (27,416,362) 2,206,919 Net change in fund balances $ (36,210,404) $ Fund balance at beginning of year 21,143,314 Fund balance at end of year $ 113 23,350,233 $ 29,623,281 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA University Building Revenue Obligations Schedule of Revenues, Expenditures, and Changes in Fund Balances - Budget and Actual - Budgetary Basis For the Year Ended June 30, 2018 Variance with Budgeted Amounts Original Revenues Investment earnings Total revenues $ Final 331,500 331,500 $ Final Budget Positive (Negative) Actual Amounts 331,500 331,500 $ - $ (331,500) (331,500) Expenditures Capital outlay Total expenditures 2,382,000 2,382,000 2,382,000 2,382,000 - 2,382,000 2,382,000 Excess (deficiency) of revenues over (under) expenditures (2,050,500) (2,050,500) - 2,050,500 - - (4,458,222) (4,458,222) (4,458,222) (4,458,222) (2,050,500) (4,458,222) Other financing uses Transfers out Total other financing uses Net change in fund balances $ (2,050,500) $ Fund balance at beginning of year 4,458,222 Fund balance at end of year $ 114 - $ (2,407,722) TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA Water Enterprise Fund Schedule of Revenues, Expenses and Changes in Net Position - Budget and Actual - Budgetary Basis For the Year Ended June 30, 2018 Variance with Budgeted Amounts Original Operating revenues Charges for services Other Total operating revenues $ Operating expenses General and administrative Personal services Operation and maintenance Capital outlay Allocation of indirect expenses Debt service: Principal Contingency Total operating expenses Operating income (loss) Nonoperating revenues (expenses) Intergovernmental Interest expense Investment earnings Gain (loss) on sale of capital assets Total nonoperating revenues (expenses) Income (loss) before capital contributions and transfers Capital contributions Transfers in Transfers out Change in net position $ 41,689,000 15,000 41,704,000 Actual Amounts Final $ 41,689,000 15,000 41,704,000 $ 42,868,121 100,218 42,968,339 Final Budget Positive (Negative) $ 1,179,121 85,218 1,264,339 1,943,740 9,452,370 17,808,840 130,727,176 2,170,950 1,975,030 9,452,370 18,323,103 113,566,884 2,170,950 1,224,974 8,427,290 16,075,384 32,000,374 2,170,950 750,056 1,025,080 2,247,719 81,566,510 - 5,055,000 1,873,250 169,031,326 5,055,000 18,487,989 169,031,326 5,055,000 64,953,972 18,487,989 104,077,354 (127,327,326) (127,327,326) (21,985,633) 105,341,693 26,370,980 (4,950,090) 625,000 22,045,890 26,370,980 (4,950,090) 625,000 22,045,890 1,183,844 (3,812,648) 1,149,981 (37,393) (1,516,216) (25,187,136) 1,137,442 524,981 (37,393) (23,562,106) (105,281,436) (105,281,436) (23,501,849) 81,779,587 14,500,000 (855,000) 14,500,000 (855,000) 12,753,465 98,678 (985,670) (1,746,535) 98,678 (130,670) (91,636,436) (11,635,376) (91,636,436) $ Explanation of difference between budgetary change in net position at June 30, 2018, and GAAP change in net position: Obligations for compensated absenses and postemployment benefits are accrued on the GAAP basis but are not recognized on the budget basis: Add compensated absences at June 30, 2017 1,166,250 Less compensated absences at June 30, 2018 (1,317,261) Add net postemployment benefits at June 30, 2017 173,081 Less net postemployment benefits at June 30, 2018 (144,091) Capital outlays are not recognized as GAAP expenses but are recognized as expenses on the budget basis. 32,000,374 Debt service principal payments are not recognized as expenses on the GAAP basis but are recognized as expenses on the budget basis. 5,055,000 Capital assets contributed by developers are recognized as revenue for GAAP purposes by are not recognized as revenue on the budget basis. 7,250,377 Depreciation is recognized as an expense for GAAP purposes but is not recognized for budgetary purposes. (12,944,665) Change in net position as reported on the statement of revenues, expenses and changes in fund net position $ 19,603,689 115 $ 80,001,060 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA Wastewater Enterprise Fund Schedule of Revenues, Expenses and Changes in Net Position - Budget and Actual - Budgetary Basis For the Year Ended June 30, 2018 Variance with Budgeted Amounts Original Operating revenues Charges for services Other Total operating revenues Operating expenses General and administrative Personal services Operation and maintenance Capital outlay Allocation of indirect expenses Debt service: Principal Contingency Total operating expenses Operating loss Nonoperating revenues (expenses) Interest expense Investment earnings Total nonoperating revenues (expenses) Loss before capital contributions and transfers Capital contributions Transfers in Change in net position $ 26,553,000 26,553,000 Actual Amounts Final $ 26,553,000 26,553,000 $ 26,517,229 2,224 26,519,453 Final Budget Positive (Negative) $ (35,771) 2,224 (33,547) 519,800 4,169,430 12,032,880 132,007,980 1,023,530 821,082 4,169,430 12,207,345 123,079,396 1,023,530 1,074,298 3,877,646 10,959,645 23,466,450 1,023,530 (253,216) 291,784 1,247,700 99,612,946 - 2,334,770 152,088,390 3,425,000 11,536,612 156,262,395 3,425,000 43,826,569 11,536,612 112,435,826 (125,535,390) (129,709,395) (17,307,116) (112,402,279) 222,000 222,000 (637,274) 222,000 (415,274) 148,939 610,808 759,747 786,213 388,808 1,175,021 (125,313,390) (130,124,669) (16,547,369) (113,577,300) 5,000,000 820,000 5,000,000 820,000 6,292,927 950,670 1,292,927 130,670 $ (119,493,390) $ (124,304,669) (9,303,772) Explanation of difference between budgetary change in net position at June 30, 2018, and GAAP change in net position: Obligations for compensated absences and postemployment benefits are accrued on the GAAP basis but are not recognized on the budget basis: Add compensated absences at June 30, 2017 516,990 Less compensated absences at June 30, 2018 (574,341) Add net postemployment benefits at June 30, 2017 46,864 Less net postemployment benefits at June 30, 2018 (47,897) Capital outlays are not recognized as GAAP expenses but are recognized as expenses on a budget basis. 23,466,450 Debt service principal payments are not recogznied as expenses on the GAAP basis but are recognized as expenses on the budget basis. 3,425,000 Capital assets contributed by developers are recognized as revenue for GAAP purposes by are not recognized as revenue on the budget basis. 3,422,141 Depreciation is recognized as an expense for GAAP purposes but is not recognized for budgetary purposes. (10,478,057) Change in net position as reported on the statement of revenues, expenses and changes in fund net position $ 10,473,378 116 $ 115,000,897 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA Environmental Services Enterprise Fund Schedule of Revenues, Expenses and Changes in Net Position - Budget and Actual - Budgetary Basis For the Year Ended June 30, 2018 Variance with Budgeted Amounts Original Operating revenues Charges for services Other Total operating revenues $ 17,630,940 3,785,000 21,415,940 Actual Amounts Final $ 17,630,940 3,785,000 21,415,940 $ 18,437,190 69,759 18,506,949 Final Budget Positive (Negative) $ 806,250 (3,715,241) (2,908,991) Operating expenses General and administrative Personal services Operation and maintenance Capital outlay Allocation of indirect expenses Contingency Total operating expenses 685,270 7,792,090 8,344,610 8,695,490 1,033,380 2,041,620 28,592,460 859,841 7,675,437 8,346,320 8,717,499 1,033,380 1,964,330 28,596,807 979,575 7,017,067 7,800,006 5,676,139 1,033,380 22,506,167 (119,734) 658,370 546,314 3,041,360 1,964,330 6,090,640 Operating income (loss) (7,176,520) (7,180,867) (3,999,218) 3,181,649 156,000 150,000 306,000 156,000 150,000 306,000 133,410 23,796 157,206 (22,590) (126,204) (148,794) (6,874,867) (3,842,012) Nonoperating revenues (expenses) Investment earnings Gain (loss) on sale of capital assets Total nonoperating revenues (expenses) Change in net position $ (6,870,520) $ Explanation of difference between budgetary change in net position at June 30, 2018, and GAAP change in net position: Obligations for compensated absences and postemployment benefits are accrued on the GAAP basis but are not recognized on the budget basis: Add compensated absences at June 30, 2017 701,595 Less compensated absences at June 30, 2018 (745,844) Add net postemployment benefits at June 30, 2017 128,911 Less net postemployment benefits at June 30, 2018 (132,627) Capital outlays are not recognized as GAAP expenses but are recognized as expenses on a budget basis. 5,676,139 Capital assets contributed by developers are recognized as revenue for GAAP purposes by are not recognized as revenue on the budget basis. 896,570 Depreciation is recognized as an expense for GAAP purposes but is not recognized for budgetary purposes. (1,642,226) Change in net position as reported on the statement of revenues, expenses and changes in fund net position $ 1,040,506 117 $ 3,032,855 TABLE OF CONTENTS 118 TABLE OF CONTENTS INTERNAL SERVICE FUNDS Internal Service Funds are used to account for the financing of goods or services provided by one department to other departments of the government, on a cost reimbursement basis. Equipment Maintenance - to account for the revenues and expenses from the maintenance of Gilbert's motorized equipment. Employee Benefit Self-Insurance - to account for and finance Gilbert’s uninsured risks of loss for medical and dental claims. 119 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA Internal Service Funds Combining Statement of Net Position June 30, 2018 Employee Benefit SelfInsurance Equipment Maintenance ASSETS Current assets: Pooled cash and investments Receivables (net): Accrued interest Accounts Inventories Total current assets $ 682,726 $ Total 6,027,602 $ 6,710,328 59,818 691,151 1,433,695 21,840 21,807 6,071,249 21,840 81,625 691,151 7,504,944 6,813 - 6,813 283,859 (209,448) 81,224 1,514,919 6,071,249 283,859 (209,448) 81,224 7,586,168 DEFERRED OUTFLOWS OF RESOURCES Pensions and other post-employment benefits Total deferred outflows of resources 261,049 261,049 - 261,049 261,049 LIABILITIES Current liabilities: Accounts payable Accrued liabilities Current portion of compensated absences Claims payable Total current liabilities 356,520 67,783 89,074 513,377 770 1,514,000 1,514,770 357,290 67,783 89,074 1,514,000 2,028,147 Noncurrent liabilities: Long-term portion of compensated absences Other post-employment benefits Net pension liability Total noncurrent liabilities 139,492 35,631 2,087,874 2,262,997 - 139,492 35,631 2,087,874 2,262,997 Total liabilities 2,776,374 1,514,770 4,291,144 125,900 125,900 - 125,900 125,900 74,411 (1,200,717) (1,126,306) 4,556,479 4,556,479 74,411 3,355,762 3,430,173 Noncurrent assets: Other post-employment benefits Capital assets: Property, plant and equipment Less accumulated depreciation Total noncurrent assets Total assets DEFERRED INFLOWS OF RESOURCES Pensions and other post-employment benefits Total deferred inflows of resources NET POSITION Net investment in capital assets Unrestricted Total net position $ 120 $ $ TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA Internal Service Funds Combining Statement of Revenues, Expenses and Changes in Fund Net Position For the Year Ended June 30, 2018 Employee Benefit SelfInsurance Equipment Maintenance Operating revenues Charges for services Other Total operating revenues $ Operating expenses General and administrative Personal services Operation and maintenance Claims Incurred Depreciation Total operating expenses Operating income Nonoperating revenues Investment earnings Gain on sale of capital assets Total nonoperating revenues Change in net position 7,400,955 11,574 7,412,529 $ 17,522,913 411,027 17,933,940 Total $ 24,923,868 422,601 25,346,469 66,108 1,792,946 5,285,592 16,106 7,160,752 1,497,406 13,891,695 15,389,101 1,563,514 1,792,946 5,285,592 13,891,695 16,106 22,549,853 251,777 2,544,839 2,796,616 2,091 1,670 3,761 23,883 23,883 25,974 1,670 27,644 255,538 2,568,722 2,824,260 (1,381,844) 1,987,757 605,913 Total net position, beginning of year as restated (see Note 2) Total net position, end of year $ 121 (1,126,306) $ 4,556,479 $ 3,430,173 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA Internal Service Funds Combining Statement of Cash Flows Year Ended June 30, 2018 Cash flows from operating activities: Other operating cash receipts Cash receipts from other funds for services Cash payments to suppliers for goods and services Cash payments to employees for services Equipment Maintenance Employee Benefit SelfInsurance $ $ Net cash provided by operating activities 11,574 7,351,165 (5,214,575) (1,809,118) 411,629 17,522,913 (15,524,676) - Total $ 423,203 24,874,078 (20,739,251) (1,809,118) 339,046 2,409,866 2,748,912 1,670 - 1,670 1,670 - 1,670 2,091 11,989 14,080 Net cash provided by investing activities 2,091 11,989 14,080 Net increase in cash and cash equivalents Cash and cash equivalents at beginning of year 342,807 339,919 2,421,855 3,605,747 2,764,662 3,945,666 $ 682,726 $ 6,027,602 $ 6,710,328 $ 251,777 $ 2,544,839 $ 2,796,616 16,106 - 16,106 (49,790) (23,197) 166,939 160,322 4,324 518 (59,345) (128,608) 602 742 (136,317) - (49,188) (23,197) 166,939 161,064 (136,317) 4,324 518 (59,345) (128,608) 87,269 (134,973) (47,704) 339,046 $ 2,409,866 $ 2,748,912 Cash flows from capital and related financing activities: Proceeds from sale of capital assets Net cash provided by capital and related financing activities Cash flows from investing activities: Interest received on investments Cash and cash equivalents at end of year Reconciliation of operating income to net cash provided by operations: Operating income Adjustments to reconcile operating income to net cash provided by operating activities: Depreciation Changes in assets and liabilities: (Increase) decrease in accounts receivable Increase in inventories Decrease in deferred outflows of resources Increase in accounts payable Decrease in claims payable Increase in accrued expenses Increase in net other post-employment benefits Decrease in net pension liability Decrease in deferred inflows of resources Total adjustments Net cash provided by operating activities $ 122 - TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA Equipment Maintenance Internal Service Fund Schedule of Revenues, Expenses and Changes in Net Position - Budget and Actual - Budgetary Basis For the Year Ended June 30, 2018 Variance with Budgeted Amounts Original Operating revenues Charges for services Other Total operating revenues $ Actual Amounts Final 8,226,000 3,000 8,229,000 $ 8,226,000 3,000 8,229,000 $ 7,400,955 11,574 7,412,529 Final Budget Positive (Negative) $ (825,045) 8,574 (816,471) Operating expenses General and administrative Personal services Operation and maintenance Contingency Total operating expenses 86,540 2,061,530 5,956,750 400,000 8,504,820 86,540 2,061,530 5,977,750 400,000 8,525,820 66,108 1,800,948 5,285,592 7,152,648 20,432 260,582 692,158 400,000 1,373,172 Operating income (loss) (275,820) (296,820) 259,881 556,701 - - 2,091 1,670 3,761 2,091 1,670 3,761 (296,820) 263,642 Nonoperating revenues Investment earnings Gain on sale of capital assets Total nonoperating revenues Change in net position $ (275,820) $ Explanation of difference between budgetary change in net position at June 30, 2018, and GAAP change in net position: Obligations for compensated absences are accrued on the GAAP basis but are not recognized on the budget basis: Add compensated absences at June 30, 2017 Less compensated absences at June 30, 2018 Add net postemployment benefits at June 30, 2017 Less net postemployment benefits at June 30, 2018 Depreciation is recognized as an expense for GAAP purposes but is not recognized for budgetary purposes. Change in net position as reported on the statement of revenues, expenses and changes in fund net position 123 228,657 (228,565) 36,728 (28,818) (16,106) $ 255,538 $ 560,462 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA Employee Benefit Self-Insurance Internal Service Fund Schedule of Revenues, Expenses and Changes in Net Position - Budget and Actual - Budgetary Basis For the Year Ended June 30, 2018 Variance with Budgeted Amounts Original Operating revenues Charges for services Other Total operating revenues $ Operating expenses General and administrative Claims Incurred Total operating expenses Operating income Nonoperating revenues Investment earnings Total nonoperating revenues Change in net position $ 17,901,100 395,000 18,296,100 Actual Amounts Final $ 17,901,100 395,000 18,296,100 $ 17,522,913 411,027 17,933,940 Final Budget Positive (Negative) $ (378,187) 16,027 (362,160) 1,551,400 16,396,500 17,947,900 1,551,400 16,396,500 17,947,900 1,497,406 13,891,695 15,389,101 53,994 2,504,805 2,558,799 348,200 348,200 2,544,839 2,196,639 7,000 7,000 7,000 7,000 23,883 23,883 16,883 16,883 355,200 124 $ 355,200 $ 2,568,722 $ 2,213,522 TABLE OF CONTENTS AGENCY FUNDS Agency Funds are used to account for assets held by the government as an agent for individuals, private organizations, other governments and/or other funds. Flexible Spending - accounts for monies received from employees for medical and dependent care expenses under Internal Revenue Code Section 125. Fire Retirement Health - accounts for monies received from sworn fire employees for providing a monthly stipend for retirees to apply to the cost of their medical and/or dental insurance, medical and dental co-pays, and prescriptions and other benefits. 125 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA Combining Statement of Changes in Assets and Liabilities Agency Funds Year Ended June 30, 2018 Flexible Spending Beginning Balance Additions Ending Balance Deductions Assets Restricted cash and investments Prepaid items $ 10,538 14,827 $ 502,587 395,365 $ 489,641 404,130 $ 23,484 6,062 Total assets $ 25,365 $ 897,952 $ 893,771 $ 29,546 Liabilities Dependent care benefits payable $ 25,365 $ 98,458 $ 94,277 $ 29,546 Total liabilities $ 25,365 $ 98,458 $ 94,277 $ 29,546 Assets Restricted cash and investments $ - $ 61,750 $ 61,750 $ - Total assets $ - $ 61,750 $ 61,750 $ - $ - $ 61,750 $ 61,750 $ - $ - $ 61,750 $ 61,750 $ - Fire Retirement Health Fund Liabilities Other deposits Total liabilities 126 TABLE OF CONTENTS TOWN OF GILBERT, ARIZONA Combining Statement of Changes in Assets and Liabilities Agency Funds Year Ended June 30, 2018 Total-All Agency Funds Beginning Balance Additions Ending Balance Deductions Assets Restricted cash and investments Prepaid items $ 10,538 14,827 $ 564,337 395,365 $ 551,391 404,130 $ 23,484 6,062 Total assets $ 25,365 $ 959,702 $ 955,521 $ 29,546 Liabilities Other deposits Dependent care benefits payable $ 25,365 $ 61,750 98,458 $ 61,750 94,277 $ 29,546 Total liabilities $ 25,365 $ 160,208 $ 156,027 $ 29,546 127 TABLE OF CONTENTS 128 TABLE OF CONTENTS STATISTICAL SECTION This part of Gilbert's Comprehensive Annual Financial Report presents detailed information as a context for understanding what the information in the financial statements and note disclosures says about the Gilbert's overall financial health. Contents Page Financial Trends 131 These schedules contain trend information to help the reader understand how Gilbert's financial performance and well-being have changed over time. Revenue Capacity 137 These schedules contain information to help the reader assess Gilbert's most significant local revenue source, sales tax. Debt Capacity 140 These schedules present information to help the reader assess the affordability of Gilbert's current levels of outstanding debt and Gilbert's ability to issue additional debt in the future. Demographic and Economic Information 145 These schedules offer demographic and economic indicators to help the reader understand the environment within which Gilbert's financial activities take place. Operating Information 147 These schedules contain service and infrastructure data to help the reader understand how the information in Gilbert's financial report relates to the services Gilbert provides and the activities it performs. Other Information 150 Sources: Unless otherwise noted, the information in these schedules is derived from the Comprehensive Annual Financial Report for the relevant fiscal year. 129 TABLE OF CONTENTS 130 TABLE OF CONTENTS Schedule 1 Town of Gilbert, Arizona Net Position by Component Last Ten Fiscal Years (accrual basis of accounting) (1,000's) 2009 Governmental activities Net investment in capital assets Restricted Unrestricted Total governmental activities net position Business-type activities Net investment in capital assets Restricted Unrestricted Total business-type activities net position Primary government Net investment in capital assets Restricted Unrestricted Total primary government net position $ 2010 704,908 24,036 63,994 792,938 $ 261,028 91,738 182,090 534,856 $ 965,936 115,774 246,084 $ 1,327,794 $ $ $ $ $ $ $ 2011 707,100 43,766 66,030 816,896 $ 276,059 86,943 195,803 558,805 $ 983,159 130,709 261,833 $ 1,375,701 $ $ 2012 705,986 38,404 77,284 821,674 $ 294,516 76,504 209,680 580,700 $ $ 1,000,502 114,908 286,964 $ 1,402,374 $ $ 695,983 52,219 83,273 831,475 $ 316,268 71,376 236,097 623,741 $ $ 1,012,251 123,595 319,370 $ 1,455,216 131 2013 $ $ 2014 687,910 60,525 107,172 855,607 $ 325,357 70,879 263,978 660,214 $ $ 1,013,267 131,404 371,150 $ 1,515,821 $ $ 2015 680,717 80,924 92,357 853,998 $ 351,797 65,577 281,391 698,765 $ $ 1,032,514 146,501 373,748 $ 1,552,763 $ $ 2016 688,900 82,546 30,276 801,722 $ 363,333 54,084 290,870 708,287 $ $ 1,052,233 136,630 321,146 $ 1,510,009 $ $ 2017 735,369 83,227 49,960 868,556 $ 411,831 34,054 304,198 750,083 $ $ 1,147,200 117,281 354,158 $ 1,618,639 $ $ 2018 753,973 72,780 60,983 887,736 $ 399,537 42,814 342,616 784,966 $ $ 1,153,510 115,594 403,598 $ 1,672,702 $ $ 790,285 76,701 45,964 912,950 392,632 34,499 389,336 816,467 $ 1,182,917 111,200 435,299 $ 1,729,416 TABLE OF CONTENTS Schedule 2 Town of Gilbert, Arizona Changes in Net Position Last Ten Fiscal Years (accrual basis of accounting) (1,000's) Expenses Governmental activities: General government: Management and policy Support services Finance and management services Court Development services Public works Public safety: Police Fire Highways and streets Parks and recreation Transportation Non departmental Interest and fiscal charges on long-term debt Total governmental activities expenses Business-type activities: Water Wastewater Environmental services Irrigation Total business-type activities expenses Total primary government expenses Program Revenues Governmental activities: Charges for services: Development services Police Fire Highways and streets Parks and recreation Other activities Operating grants and contributions Capital grants and contributions Total governmental activities program revenues 2009 $ 3,068 10,137 5,838 12,243 1,451 2010 $ 2,831 9,297 5,937 10,085 2,782 2011 $ 3,110 8,503 1,287 5,126 8,201 - 2012 $ 2,983 8,632 1,216 5,410 8,551 - 2013 $ 10,461 4,150 5,474 6,850 - 2014 $ 13,378 4,347 5,975 9,062 - 2015 $ 19,090 1,814 4,053 7,082 - 2016 $ 20,049 2,110 4,164 7,611 - 2017 $ 19,454 2,109 4,300 9,400 - 2018 $ 19,176 2,000 4,078 10,312 - 42,109 24,255 38,541 19,350 1,682 17,096 175,770 41,328 22,871 36,906 19,826 1,170 18,418 171,451 38,869 24,473 40,440 19,764 1,010 2,194 17,675 170,652 40,467 24,906 43,438 19,932 1,269 2,910 15,785 175,499 42,759 25,867 44,048 20,858 461 3,114 15,142 179,184 45,931 28,853 45,781 22,493 842 4,104 15,216 195,982 47,541 28,071 46,932 28,429 778 4,423 12,780 200,993 50,115 31,972 48,726 25,647 1,051 5,311 12,911 209,666 63,151 42,513 51,931 25,202 1,132 13,690 10,506 243,389 54,117 34,969 52,545 29,985 1,151 7,976 10,793 227,102 35,451 22,398 13,843 158 71,850 36,163 23,002 13,852 54 73,071 36,863 23,039 14,255 74,157 37,695 22,662 14,918 75,275 38,339 22,170 15,588 76,097 39,927 23,615 16,113 79,655 41,817 25,620 16,720 84,157 44,360 26,530 17,719 88,609 42,329 26,791 16,857 85,978 44,605 27,244 18,183 90,032 $ 247,620 $ 244,522 $ 244,809 $ 250,773 $ 255,281 $ 275,637 $ 285,150 $ 298,275 $ 329,366 $ 317,134 $ $ $ $ $ $ $ $ $ $ 3,773 6,594 100 1,454 3,193 703 21,183 31,494 68,494 4,027 6,374 79 1,659 3,735 789 19,206 39,632 75,501 3,178 2,891 136 1,739 3,740 853 21,168 28,002 61,707 5,347 5,584 129 1,497 3,595 861 21,045 26,060 64,117 132 7,240 5,512 185 1,516 3,706 1,017 21,270 36,089 76,535 6,783 5,477 254 1,440 3,765 1,066 22,326 19,186 60,297 6,608 4,526 224 1,643 4,146 829 24,171 37,214 79,361 6,826 5,343 197 1,745 4,366 873 38,666 65,535 123,551 6,900 7,484 231 1,951 4,603 844 33,204 41,877 97,094 7,227 3,826 360 1,887 4,700 748 28,381 32,904 80,033 TABLE OF CONTENTS Business-type activities: Charges for services: Water Wastewater Environmental services Irrigation Operating grants and contributions Capital grants and contributions Total business-type activities program revenues Total primary government program revenues $ Net (Expense)/Revenue Governmental activities Business-type activities Total primary government net expense $ (107,276) 17,126 $ (90,150) 33,416 19,722 16,592 18 19,228 88,976 157,470 General Revenues and Other Changes in Net Position Governmental activities: Taxes: Sales taxes $ 49,060 Property taxes, levied for debt service 30,836 In-Lieu property taxes 948 Franchise taxes 2,544 Unrestricted state-shared revenue a 40,561 Unrestricted grants and contributions 939 Unrestricted investment earnings 2,003 Gain on sale of capital assets 152 Miscellaneous 669 Transfers 1,161 Total governmental activities 128,873 Business-type activities: Investment earnings 1,066 Gain on sale of capital assets 52 Miscellaneous 754 Transfers (1,161) Total business-type activities 711 Total primary government $ 129,584 Change in Net Position Governmental activities Business-type activities Total primary government a $ $ 21,597 17,837 39,434 $ $ $ $ $ $ $ 34,601 21,024 16,567 25 22,026 94,243 169,744 $ (95,950) 21,172 (74,778) $ (108,945) 19,005 $ (89,940) $ (111,381) 39,303 $ (72,078) $ (102,649) 34,354 $ (68,295) $ (135,685) 35,624 $ (100,061) $ (121,632) 24,993 $ (96,639) $ 47,119 30,117 1,328 2,448 35,952 1,235 1,301 74 680 (346) 119,908 $ $ $ $ $ $ 739 148 1,544 346 2,777 122,685 23,958 23,949 47,907 $ $ $ 35,966 21,678 17,194 18,324 93,162 154,869 49,249 25,796 1,351 2,401 31,068 864 2,137 355 537 113,758 1,012 164 2,216 (537) 2,855 116,613 4,813 21,860 26,673 $ $ $ $ 36,692 22,740 17,924 37,222 114,578 178,696 54,513 21,502 1,331 2,463 33,882 1,349 1,910 178 4,744 (690) 121,182 1,244 39 1,765 690 3,738 124,920 9,801 43,041 52,842 $ $ $ $ 36,455 23,083 16,760 34,153 110,451 186,986 61,813 19,184 1,377 3,083 38,355 1,193 722 932 121 126,780 1,061 1,179 (121) 2,119 128,899 24,131 36,473 60,604 $ $ $ $ 37,867 23,852 17,308 36,252 115,279 175,576 66,757 18,315 1,287 2,616 41,323 904 1,508 29 1,226 110 134,076 1,742 30 1,266 (110) 2,928 137,004 (1,609) 38,552 36,943 $ $ $ $ 37,501 24,625 18,007 29,017 109,150 188,511 71,773 19,423 1,201 2,737 44,263 2,595 1,224 106 847 184 144,353 1,457 172 1,310 (184) 2,755 147,108 22,722 27,748 50,469 $ $ $ $ $ For fiscal year 2016, Unrestricted state-shared sales taxes and income taxes were combined and the name was changed to Unrestricted state-shared revenue. 133 39,457 25,116 18,141 1,051 43,655 127,421 250,972 $ (86,115) 38,812 (47,303) $ (146,295) 34,107 $ (112,188) $ (147,069) 29,589 $ (117,479) 77,070 19,424 1,187 2,989 45,028 3,204 2,651 136 1,162 98 152,949 $ $ 2,666 158 259 (98) 2,984 155,933 66,834 41,796 108,630 $ $ $ 40,696 26,032 18,270 953 34,134 120,084 217,178 82,797 20,761 1,159 2,814 52,861 2,400 859 154 1,224 446 165,475 1,009 92 121 (446) 776 166,251 19,180 34,883 54,063 $ $ $ $ 42,868 26,517 18,437 1,184 30,615 119,622 199,655 89,497 21,549 1,124 2,911 52,193 2,444 1,549 1,333 1,352 (64) 173,888 1,894 39 172 64 2,169 176,057 26,820 31,758 58,579 TABLE OF CONTENTS Schedule 3 Town of Gilbert, Arizona Program Revenues by Function Last Ten Fiscal Years (1,000's) 2010 2011 2012 2013 2014 2015 2016 2017 2018 7,838 4,386 39,126 10,539 408 - 8,495 3,447 45,193 11,649 314 - 3,989 3,163 39,324 9,422 215 51 7,689 6,892 25,634 15,314 624 135 7,669 4,079 41,280 14,475 662 51 7,207 3,697 28,218 12,461 712 51 8,975 3,766 44,497 13,012 639 51 10,645 4,170 69,791 29,861 635 50 11,551 3,877 54,059 18,190 626 50 7,829 4,203 44,943 12,158 630 50 Subtotal governmental activities 68,494 75,501 61,707 64,118 76,535 60,297 79,361 123,551 97,094 80,033 Business-type activities: Water Wastewater Environmental services Irrigation a 43,997 28,369 16,592 18 47,232 30,419 16,567 25 46,133 29,835 17,194 - 56,904 39,735 17,938 - 55,662 38,029 16,760 - 57,750 40,220 17,308 - 55,590 35,552 18,008 - 68,102 41,178 18,141 - 61,546 37,232 21,307 - 64,056 36,232 19,334 - Subtotal business-type activities 88,976 94,243 93,162 114,577 110,451 115,278 109,150 127,421 120,084 119,622 $ 157,470 $ 169,744 $ 154,869 $ 178,695 $ 186,986 $ 175,575 $ 188,511 $ 250,972 $ 217,178 $ 199,655 Total primary government a 2009 Function/Program Governmental activities: General government: Management and policy $ Support services a Finance and management services Court Development services Public works a Public Safety: Police Fire Highways and streets Parks and recreation Transportation Non departmental 11 128 586 4,571 901 $ 10 215 597 4,576 1,005 $ 15 649 9 597 4,273 - $ 16 242 11 670 6,891 - $ 36 251 792 7,240 - $ 59 262 823 6,807 - $ 962 27 824 6,608 - $ 690 24 859 6,826 - The public works function, support services function, and irrigation services were eliminated in fiscal years 2012, 2013, and 2010, respectively. 134 $ 991 20 831 6,900 - $ 2,235 27 731 7,227 - TABLE OF CONTENTS Schedule 4 Town of Gilbert, Arizona Fund Balances of Governmental Funds Last Ten Fiscal Years (modified accrual basis of accounting) (1,000's) General fund Reserved Unreserved Nonspendable Restricted Committed Assigned a Unassigned Total general fund All other governmental funds Reserved Unreserved, reported in: Special revenue funds Debt service funds Capital projects funds Total Unreserved Nonspendable Restricted Assigned Unassigned Total all other governmental funds a 2009 2010 2011a 2012 2013 2014 $ 17,630 $ 36,245 53,875 $ 21,383 $ 33,168 54,551 $ - $ 22,317 10,729 33,521 66,568 $ - $ 23,213 10,797 44,250 78,260 $ - $ 23,527 10,092 59,555 93,174 $ - $ 25,380 24,470 12,081 17,046 61,764 67,057 99,225 $ 108,573 $ 67,626 $ 45,147 $ - $ - $ $ - $ 2015 - $ 2016 - 25,886 27,635 99,570 86,482 125,456 114,117 4 2 1 83 2 108,051 100,572 89,654 92,337 96,837 28,261 26,159 36,258 18,764 22,462 (20,781) (23,199) (23,609) (25,466) (23,981) $ 193,082 $ 159,264 $ 115,535 $ 103,534 $ 102,304 $ 85,718 $ 95,320 2017 $ - $ - $ 19,866 18,995 17,877 13,681 32,766 41,371 85,498 82,885 72,453 $ 119,046 $ 134,646 $ 131,701 $ - $ - $ - 4 2 1 87,005 139,725 134,441 38,337 34,387 15,971 (19,897) (19,353) (18,311) $ 105,449 $ 154,760 $ 132,102 GASB Statement No. 54 was implemented in fiscal year 2011. This statement established new fund balance classifications for governmental funds. 135 2018 TABLE OF CONTENTS Schedule 5 Town of Gilbert, Arizona Changes in Fund Balances of Governmental Funds Last Ten Fiscal Years (modified accrual basis of accounting) Revenues Taxes: Sales Property Franchise Licenses and permits Intergovernmental Special assessments Charges for services Other entities' participation System development fees Gifts and donations Fines and forfeitures Investment earnings Miscellaneous Total revenues $ 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 48,736 $ 33,131 2,544 2,459 67,053 422 8,596 1,055 8,395 114 4,223 1,978 819 179,525 46,873 $ 33,073 2,448 2,614 72,535 437 8,795 1,234 11,608 124 4,445 1,286 754 186,226 49,315 $ 28,732 2,401 2,365 55,362 559 7,288 2,313 8,736 176 4,351 2,106 355 164,059 54,503 $ 24,045 2,463 3,995 61,468 879 8,164 1,300 17,957 186 4,442 1,889 4,947 186,238 61,890 $ 21,548 2,374 5,434 72,904 1,299 9,573 2,252 17,836 119 4,710 706 933 201,578 66,772 $ 20,681 2,700 4,748 68,046 2,090 10,027 1,977 13,435 155 4,469 1,494 1,255 197,849 71,794 $ 21,953 2,737 4,791 76,284 1,184 10,440 382 18,836 192 4,476 1,210 953 215,232 77,108 $ 22,000 3,389 4,787 77,007 2,233 11,147 1,666 22,944 187 4,618 2,639 14,797 244,523 82,980 $ 23,707 2,814 4,785 87,364 696 11,161 2,252 18,101 120 4,336 836 5,683 244,835 89,516 24,468 2,911 4,645 84,923 958 12,151 1,585 17,617 195 4,065 1,523 1,796 246,352 3,642 10,386 5,203 11,321 1,798 3,458 10,257 5,261 9,204 1,225 3,845 9,239 1,416 4,403 7,160 - 3,676 9,160 1,722 4,617 7,514 - 12,584 4,235 4,753 5,999 - 15,336 4,413 5,089 6,078 - 20,485 1,943 3,493 6,069 - 20,997 2,134 3,608 6,239 - 22,001 2,270 3,657 7,049 - 21,858 2,338 3,600 7,200 - Expenditures Current: General government: Management and policy Support services Finance and management services Court Development services Public works Public safety: Police Fire Highways and streets Parks and recreation Transportation Non departmental Debt service: Principal Interest Payment to refunded bond escrow agent Bond issuance costs Fiscal and other charges Capital outlay Total expenditures 37,851 21,171 10,378 13,151 1,682 - 37,669 20,115 10,097 12,684 1,170 - 35,007 20,200 9,736 12,591 1,010 2,194 36,384 21,552 10,815 12,688 1,269 2,910 38,817 22,543 10,637 13,895 461 3,114 41,947 24,993 11,969 15,614 841 4,104 43,084 25,631 12,478 21,836 774 4,423 44,402 28,295 12,831 18,591 1,046 5,311 54,397 32,048 14,680 19,660 1,135 13,690 53,174 35,698 14,545 24,351 1,151 7,976 29,805 16,501 670 12 134,013 297,584 31,855 18,553 9 58,785 220,342 29,215 18,451 20 41,935 196,422 23,055 15,992 402 9 34,500 186,265 24,705 15,411 13 30,849 188,016 25,630 14,252 13 38,804 209,083 23,750 13,108 209 307 58,849 236,439 30,105 13,773 37 36,573 223,942 34,935 11,583 779 9 34,111 252,004 33,965 11,758 12,096 408 14 50,895 281,026 Excess (deficiency) of revenues over (under) expenditures (118,059) (34,116) (32,363) (27) 13,562 (11,234) (21,207) 20,581 (7,169) (34,674) Other financing sources (uses) Transfers in Transfers out Sale of capital assets Revenue obligations issued Premium on revenue obligations Bonds issued Premium on bonds Payment to refunded bond escrow agent Total other financing sources and uses 90,680 (89,519) 273,490 344 274,995 26,608 (25,634) 974 25,272 (24,586) 686 25,195 (25,885) 37,925 4,111 (41,627) (281) 25,774 (25,653) 121 45,891 (45,781) 590 700 23,401 (23,216) 36,980 2,706 28,080 4,417 (32,211) 40,157 21,406 (21,385) 21 23,334 (22,881) 121,670 14,139 (64,182) 72,080 29,999 (30,063) 1,226 49,525 7,546 (49,162) 9,070 156,936 $ (33,142) $ (31,677) $ (308) $ 13,683 $ (10,534) $ 18,950 $ 20,601 $ 64,911 $ (25,604) 28.3% 31.2% 30.9% 25.7% 25.5% 23.4% 20.8% 23.4% 21.3% 25.1% Net change in fund balances $ Debt service as a percentage of noncapital expenditures 136 TABLE OF CONTENTS Schedule 6A Town of Gilbert, Arizona Sales Tax Collections by Category Fiscal Years 2009 - 2016 2009 Construction Manufacturing Communications & Utilities Wholesale Retail Restaurant & Bar Real Estate, Rental & Leasing Accommodation Services $ 7,804,840 650,179 5,303,338 527,933 23,305,081 3,509,671 5,751,120 $ 5,718,727 727,755 5,774,403 965,523 28,390,526 4,072,187 6,078,364 299,270 1,211,864 520,302 25,830 112,496 4,586 600,794 $ 7,867,067 763,152 5,931,935 1,100,749 30,784,509 4,402,299 7,944,973 377,228 1,369,608 487,279 25,667 154,772 2,271 594,043 2014 $ 46,872,739 $ 49,315,215 $ 54,502,627 $ 61,805,552 $ 66,771,661 1.5% 1.5% 1.5% 1.5% 1.5% 1.5% Gilbert's local sales tax rate 4,389,279 706,514 5,562,364 854,466 25,540,515 3,820,368 5,874,288 252,974 1,069,661 652,043 21,161 89,990 481,592 2013 $ 48,736,286 b $ 2012 1,039,678 243,510 12,575 100,490 4,748 483,123 Other Transportation & Warehousing Finance & Insurance Public Administration Arts & Entertainment $ 2011 5,193,872 635,188 5,724,639 610,065 23,775,975 3,566,427 5,249,645 1,002,691 481,122 16,464 100,293 9,503 506,855 b Total 2010 a $ 2015 2016 8,837,079 939,861 6,120,225 1,207,006 33,078,748 4,867,638 7,952,365 487,680 1,676,438 505,146 22,721 398,169 4,311 674,274 $ 7,663,801 882,509 6,342,578 1,320,977 37,463,617 5,526,275 8,286,878 533,870 2,018,647 629,740 30,529 438,257 3,020 652,973 $ 7,326,040 1,042,710 6,327,257 1,486,450 40,406,219 6,177,869 9,290,919 569,390 2,223,706 784,957 37,823 557,582 18,977 858,177 $ 71,793,671 $ 77,108,076 1.5% 1.5% Source: Arizona Department of Revenue a Effective July 1, 2016, the Arizona Department of Revenue changed the way taxpayers report city tax on their tax returns and simultaneously changed the manner in which they summarize the tax data in their reports to the cities. As a result, we no longer receive the tax data in the same categories that we had in the past. See Schedule B for fiscal years 2017 forward. b Prior to fiscal year 2011, Accommodations was included in the "Other" category due to confidentiality requirements. Beginning in fiscal year 2011, it was broken out into its own category. Note: State and local laws prohibit the disclosure of individual taxpayer information. 137 TABLE OF CONTENTS Schedule 6B Town of Gilbert, Arizona Sales Tax Collections by Category Fiscal Years 2017 - 2018 a 2017 Accommodation Amusement Communications & Utilities $ Construction Contracting Maintenance, Repair, Replacement & Alteration Personal Property Rental Publications, Advertising & Job Printing Rental of Commercial Property/Non-Residential Residential Rental Restaurant & Bar Retail Tax License Fees 599,950 793,681 5,625,248 9,611,076 89,165 1,392,591 2018 $ 598,668 844,634 5,763,531 10,833,291 b 1,535,298 Other 174,054 4,116,417 3,367,073 6,974,438 49,491,813 14,632 730,191 165,942 4,435,844 3,652,056 7,638,319 53,366,713 13,246 668,812 Total $ 82,980,329 $ 89,516,354 1.5% 1.5% Gilbert's local sales tax rate Source: Arizona Department of Revenue a Effective July 1, 2016, the Arizona Department of Revenue changed the way taxpayers report city tax on their tax returns and simultaneously changed the manner in which they summarize the tax data in their reports to the cities. As a result, we no longer receive the tax data in the same categories that we had in the past. See Schedule 6A for Fiscal Years 2008 - 2016 data. b Maintenance, Repair, Replacement & Alteration has been combined with Construction Contracting due to disclosure laws concerning confidentiality. Note: State and local laws prohibit the disclosure of individual taxpayer information. 138 TABLE OF CONTENTS Schedule 7 Town of Gilbert, Arizona Direct and Overlapping Sales Tax Rates Last Ten Fiscal Years 2009 2010 2011 2012 2013a 2014 2015 2016 2017 2018 Town Direct Rates: Hotel/Transient Lodging All Others 4.50% 1.50% 4.50% 1.50% 4.50% 1.50% 4.50% 1.50% 4.50% 1.50% 4.50% 1.50% 4.50% 1.50% 4.50% 1.50% 4.50% 1.50% 4.30% 1.50% County Rates: Hotel/Transient Lodging All Others 1.77% 0.70% 1.77% 0.70% 1.77% 0.70% 1.77% 0.70% 1.77% 0.70% 1.77% 0.70% 1.77% 0.70% 1.77% 0.70% 1.77% 0.70% 1.77% 0.70% State Rates: Hotel/Transient Lodging All Others 5.50% 5.60% 6.50% 6.60% 6.50% 6.60% 6.50% 6.60% 6.50% 6.60% 5.50% 5.60% 5.50% 5.60% 5.50% 5.60% 5.50% 5.60% 5.50% 5.60% Source: Gilbert Finance & Management Services Department a The temporary state sales tax increase passed by voters in 2010 expired on May 31, 2013. 5.50% and for all others to 5.60% on June 1, 2013. Note: Gilbert sales tax rate may be changed with the approval of Council. 139 The state sales tax for hotel/transient lodging decreased to TABLE OF CONTENTS Schedule 8 Town of Gilbert, Arizona Ratios of Outstanding Debt by Type Last Ten Fiscal Years Fiscal Year General Obligation Bonds Governmental Activities Municipal Street and Property Special Highway User Corporation Assessment Revenue Revenue Bonds Bonds Bonds 2009 $ 226,030,524 $ 2010 204,147,283 2011 178,722,625 2012 159,547,197 11,633,524 $ 11,548,249 11,457,958 11,056,456 29,796,281 $ 27,712,795 25,502,688 20,836,060 175,810,000 $ 169,750,000 161,045,000 152,243,537 2013 2014 2015 147,640,933 135,775,830 123,420,395 10,469,338 9,445,797 8,306,402 18,130,241 16,864,197 13,754,807 142,828,198 133,835,907 126,607,711 2016 2017 2018 105,296,311 157,102,290 140,551,095 6,504,185 6,126,440 5,464,645 10,538,003 7,174,209 3,664,605 118,310,093 109,229,636 95,342,840 Business-type Activities General Obligation Bonds Revenue Obligations - $ Special Assessment Bonds Water and Wastewater Revenue Bonds Municipal Property Corporation Revenue Bonds 8,900,510 $ 7,127,925 5,540,340 3,877,755 - $ - 19,155,224 $ 17,861,117 16,527,813 15,164,911 167,031,835 160,388,430 143,200,304 118,853,753 39,685,688 2,115,170 247,585 - - 13,757,813 - 39,685,688 39,637,764 38,887,844 - - - Notes: See Schedule 13 for personal income and population data. Details regarding Gilbert's outstanding debt can be found in the notes to the financial statements. Includes unamortized bond discounts/premiums. 140 Total Primary Government $ Percentage of Personal Income Per Capita 638,357,898 598,535,799 541,996,729 481,579,670 10.25 % $ 9.40 8.56 7.72 3,134 2,871 2,587 2,277 111,081,450 104,083,879 98,190,924 446,023,143 400,253,194 409,965,927 6.31 6.09 5.89 2,066 1,807 1,804 135,410,861 134,594,390 170,517,212 415,745,141 453,864,729 454,428,241 5.52 5.30 5.13 1,789 1,833 1,835 TABLE OF CONTENTS Schedule 9 Town of Gilbert, Arizona Ratios of General Bonded Debt Outstanding Last Ten Fiscal Years General Bonded Debt Outstanding b Fiscal Year 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 a b $ 234,931,034 211,275,208 184,262,965 163,424,952 149,756,103 136,023,415 123,420,395 105,296,311 157,102,290 140,551,095 $ Less Amount Available in Debt Service Fund Net General Bonded Debt Outstanding 6,655,504 6,720,588 $ 228,275,530 204,554,620 6,366,097 9,335,818 9,599,968 8,942,949 10,165,593 6,952,183 2,186,272 6,020,480 177,896,868 154,089,134 140,156,135 127,080,466 113,254,802 98,344,128 154,916,018 134,530,615 $ Secondary Assessed Property Value a Limited Property Value a 2,768,391,194 2,672,949,852 N/A N/A 8.25 % 7.65 2,297,228,317 1,861,193,961 1,675,360,422 1,594,806,737 1,829,471,839 N/A N/A N/A N/A N/A N/A N/A N/A 1,845,325,449 1,979,359,269 2,105,762,268 7.74 8.28 8.37 7.97 6.19 5.33 7.83 6.39 $ Percentage of Applicable Property Value Per Capita $ 1,121 981 849 729 649 574 498 423 626 543 Maricopa County Assessor's Office Includes unamortized bond discounts/premiums. Notes: In accordance with Proposition 117, The Arizona Property Tax Assessed Valuation Amendment , property taxes are calculated based on the limited property value beginning with tax year 2015. See Schedule 13 for population data. General obligation bonds principal and interest payments are paid for with secondary property taxes. 141 TABLE OF CONTENTS Schedule 10 Town of Gilbert, Arizona Direct and Overlapping Governmental Activities Debt As of June 30, 2018 Governmental Unit Debt repaid with property taxes Maricopa County b Maricopa County Community College District c Maricopa County Special Health District Gilbert Unified School District No. 41 Higley Elementary School District No. 60 Chandler Unified School District No. 80 Mesa Unified School District No. 4 East Valley Institute of Technology District No. 401 d $ Debt Outstanding Estimated Percentage Applicable a None 380,740,000 75,000,000 110,560,000 109,455,000 243,249,444 231,900,000 None 5.51% 5.51% 5.51% 70.39% 88.78% 12.34% 0.34% 12.39% Estimated Share of Direct and Overlapping Debt $ Subtotal, overlapping debt Town of Gilbert direct debt e None 20,978,774 4,132,500 77,823,184 97,174,149 30,016,981 788,460 None 230,914,048 283,911,029 100.00% Total direct and overlapping debt 283,911,029 $ 514,825,077 Source: The various jurisdictions a Proportion applicable to Town of Gilbert, Arizona is computed on the ratio of limited property valuation for fiscal year 2017/18. b Excludes various other non-property tax supported debt such as Public Finance Corporation lease revenue bonds, Stadium District revenue bonds, Stadium District loans, Housing Authority loans and capital leases. c Excludes non-property tax supported debt such as revenue bonds. d Based on the East Valley Institute of Technology's secondary assessed valuation and does not include amount of secondary assessed valuation in Pinal County. e Includes: General Obligation bonds, Special Assessments bonds, Revenue obligations, Revenue bonds and unamortized bond premiums. Note: Overlapping governments are those that coincide, at least in part, with the geographic boundaries of Gilbert. This schedule estimates the portion of the outstanding debt of those overlapping governments that is borne by the residents and businesses of Gilbert. This process recognizes that, when considering Gilbert's ability to issue and repay long-term debt, the entire debt burden borne by the residents and businesses should be taken into account. However, this does not imply that every taxpayer is a resident, and therefore responsible for repaying the debt, of each overlapping government. 142 TABLE OF CONTENTS Schedule 11 Town of Gilbert, Arizona Legal Debt Margin Information Last Ten Fiscal Years 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 20% Limitation Debt limit equal to 20% of net full cash assessed valuation $ Total net debt applicable to 20% limit Premium adjustment Legal 20% debt margin (available borrowing capacity) $ Total net debt applicable to the 20% limit as a percentage of 20% debt limit 423,394,572 $ 471,773,198 $ 437,048,132 $ 369,996,694 $ 333,373,568 $ 317,092,733 $ 346,856,631 $ 369,065,090 $ 395,871,854 $ 524,748,518 217,730,000 195,320,000 175,915,000 163,335,000 149,675,000 135,310,000 122,715,000 105,250,000 143,945,000 128,090,000 - - - - - - - - 9,675,637 9,516,726 387,141,792 205,664,572 $ 276,453,198 $ 261,133,132 $ 206,661,694 $ 183,698,568 $ 181,782,733 $ 224,141,631 $ 263,815,090 $ 242,251,217 $ 51.42% 41.40% 40.25% 44.14% 44.90% 42.67% 35.38% 28.52% 38.81% 127,018,372 $ 141,531,960 $ 131,114,440 $ 110,999,008 $ 100,012,071 $ 95,127,820 $ 104,056,989 $ 110,719,527 $ 118,761,556 $ 26.22% 6% Limitation Debt limit equal to 6% of net full cash assessed valuation $ Total net debt applicable to 6% limit Legal 6% debt margin (available borrowing capacity) Total net debt applicable to the 6% limit as a percentage of 6% debt limit - $ 127,018,372 $ 0.00% - 141,531,960 $ 0.00% - 131,114,440 $ - 110,999,008 $ 0.00% 0.00% - 100,012,071 $ 0.00% - 95,127,820 $ 0.00% - 104,056,989 $ 0.00% - 110,719,527 $ - - 118,761,556 $ 0.00% 157,424,555 0.00% 157,424,555 0.00% Legal Debt Margin Calculation for Fiscal Year 2018 Net full cash assessed valuation as of June 30, 2018 $ 2,623,742,589 20% Limitation Debt limit equal to 20% of net full cash assessed valuation 524,748,518 Debt applicable to limit: General obligation bonds Premium adjustment 128,090,000 9,516,726 Legal 20% debt margin (available borrowing capacity) $ 387,141,792 6% Limitation Note: The Constitution of the State of Arizona establishes two levels of bonded indebtedness limits based upon the type of improvement constructed with the debt. The twenty percent bond type is restricted to water, wastewater, electric, parks and open space improvements, streets, public safety, and fire and emergency facilities. The six percent bond type is all other general purpose improvements. In 2017, HB 2452: bonding; amortized premium; segregated fund passed, requiring the net premium associated with a general obligation bond to be amortized for all debt limitation purposes on a pro-rata basis each year. 143 Debt limit equal to 6% of net full cash assessed valuation 157,424,555 Debt applicable to limit: General obligation bonds Legal 6% debt margin (available borrowing capacity) $ 157,424,555 TABLE OF CONTENTS Schedule 12 Town of Gilbert, Arizona Pledged-Revenue Coverage Last Ten Fiscal Years Public Facilities Municipal Property Corp. Revenue Bonds Special Assessment Bonds Highway User Revenue Bonds Special Fiscal Assessment Year Collections 2009 $ Debt Service Principal Interest User Tax Coverage $ Excise Taxes & Debt Service Principal Interest Coverage c Principal Interest Coverage 421,894 $ 75,000 $ 153,530 1.85 10,651,366 $ 2,050,000 $ 1,251,063 3.23 97,901,565 $ 6,060,000 $ 5,404,460 8.54 437,493 85,000 149,370 1.87 10,090,894 2,175,000 1,148,563 3.04 91,609,318 8,705,000 8,014,525 5.48 2011 559,284 90,000 587,245 0.83 10,356,131 2,275,000 1,039,813 3.12 89,202,148 9,030,000 7,705,188 5.33 2012 878,981 400,000 574,655 0.90 10,437,844 2,400,000 570,375 3.51 97,342,250 9,335,000 7,149,316 5.91 2013 1,298,984 585,000 553,258 1.14 11,414,425 2,525,000 807,400 3.43 109,637,647 9,695,000 6,873,353 6.62 2014 2,089,887 1,020,000 507,965 1.37 11,747,325 2,030,000 693,450 4.31 117,627,904 10,080,000 6,458,288 7.11 2015 1,184,368 1,135,000 470,225 0.74 12,900,529 2,750,000 632,550 3.81 125,743,087 7,515,000 6,030,998 9.28 2016 2,232,678 1,795,000 394,755 1.02 13,588,215 2,845,000 550,050 4.00 133,104,631 8,000,000 7,457,791 8.61 2017 695,541 375,000 321,073 1.00 15,847,097 2,975,000 436,250 4.65 146,007,063 9,660,000 6,877,081 8.83 2018 952,679 660,000 294,670 1.00 15,457,442 3,095,000 317,250 4.53 159,912,939 14,355,000 4,721,073 8.38 Less: Net Fiscal Operating Operating Available Year Revenues a Expenses a Revenue $ Water Resources Municipal Property Corp. Revenue Bonds Net Water Available System System Coverage Revenue b Dev't Fee Dev't Fee Debt Service Principal $ Debt Service Revenue 2010 2009 b State-Shared Revenue Water and Wastewater Revenue Bonds c a & Subordiante Lien Pledged Revenue Obligations Highway Interest Wastewater Debt Service Principal Interest Coverage 53,633,557 $ 32,618,247 $ 21,015,310 $ 1,280,000 $ 835,313 9.93 $ 18,899,997 $ 6,329,797 $ 6,190,815 $ 3,200,000 $ 7,808,650 2.85 2010 57,096,936 32,034,177 25,062,759 1,315,000 803,313 11.83 22,944,446 8,491,638 8,715,622 3,300,000 7,910,188 3.58 2011 59,780,559 33,231,244 26,549,315 1,355,000 763,863 12.53 24,430,452 6,485,383 6,878,502 3,400,000 7,198,049 3.57 2012 61,087,190 34,505,518 26,581,672 1,385,000 723,213 12.61 24,473,459 13,590,998 15,154,154 3,550,000 6,096,337 5.52 2013 60,627,063 36,124,117 24,502,946 1,430,000 681,663 11.60 22,391,283 12,466,409 - 3,700,000 5,542,403 3.77 2014 62,873,206 37,514,942 25,358,264 1,500,000 610,163 12.02 23,248,101 10,567,046 - 3,875,000 5,198,059 3.73 2015 63,338,422 40,316,645 23,021,777 - - N/A 23,021,777 10,461,708 - 4,075,000 4,894,864 3.73 2016 64,659,329 42,119,371 22,539,958 - - N/A 22,539,958 11,873,824 - 4,275,000 4,683,019 3.84 2017 66,788,603 41,921,216 24,867,387 - - N/A 24,867,387 9,914,166 - 4,830,000 4,984,570 3.54 2018 69,487,792 45,014,122 24,473,670 - - N/A 24,473,670 9,944,975 5,308,292 8,480,000 4,970,948 2.56 Combined operating revenues and expenses for the Water and Wastewater Funds, as applicable. Combined operating revenues and expenses for the Water and Wastewater Funds less debt service payments for the Water and Wastewater Revenue Bonds. These bonds were paid off in fiscal year 2014. Note: Details regarding Gilbert's outstanding debt can be found in the notes to the financial statements. 144 TABLE OF CONTENTS Schedule 13 Town of Gilbert, Arizona Demographic and Economic Statistics Last Ten Fiscal Years Personal Income b Fiscal Year Population 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 203,693 208,453 209,468 211,491 215,938 221,506 227,217 232,399 247,600 247,600 Per Capita Income c (in thousands) (estimate) a $ 6,230,000 6,370,000 6,329,000 6,240,000 7,064,000 6,568,000 6,962,000 7,534,000 8,558,000 8,858,000 $ (estimate) Median Age c School Enrollment d Unemployment Rate e 30,416 30,559 29,731 28,413 31,035 28,184 30,639 32,418 34,565 35,777 30.4 30.7 32.7 31.5 33.1 37.5 32.7 33.2 33.1 34.4 39,142 39,089 38,660 38,696 38,573 38,573 37,240 34,079 35,449 34,552 4.6% 5.1% 5.1% 5.4% 5.7% 5.2% 4.3% 4.2% 3.7% 3.5% Sources: 2009 through 2016 Census.gov; 2017 and 2018 Office of Management & Budget b Estimated based on population and per capita income c 2009 through 2015: American Community Survey; 2016 through 2018: Census.gov d Arizona Department of Education; beginning in 2011, school enrollment was obtained from the Gilbert Public Schools website. e laborstats.az.gov a Note: The 2008 through 2010 median age, school enrollment, and unemployment rates were obtained from Gilbert's Development Services Department. 145 TABLE OF CONTENTS Schedule 14 Town of Gilbert, Arizona Top Ten Principal Employers Current Fiscal Year Compared to Nine Years Ago Employer Fiscal Year 2018 Percentage of Total Town Employees Rank Employment Gilbert Unified School District Banner Health Go Daddy Software, Inc. Town of Gilbert Fry's Food and Drug Higley Unified School District B H Drywall Wal-Mart Stores, Inc. Dignity Health Isagenix International Target Stores, Inc Mercy Gilbert Medical Center Costco Dillard's 2,875 1,756 1,430 1,349 1,142 1,112 997 899 875 650 --------- Total 13,085 1 2 3 4 5 6 7 8 9 10 Source: Maricopa Association of Governments 146 Fiscal Year 2009 Percentage of Total Town Employees Rank Employment 3.28% 2.01% 1.63% 1.54% 1.30% 1.27% 1.14% 1.03% 1.00% 0.74% --------- 5,000 1,485 707 1,318 675 ----1,535 ----1,075 817 600 590 14.94% 13,802 1 3 7 4 8 2 5 6 9 10 10.12% 3.00% 1.43% 2.67% 1.37% ----3.11% ----2.17% 1.65% 1.21% 1.19% 27.92% TABLE OF CONTENTS Schedule 15 Town of Gilbert, Arizona Full-time Equivalent Employees by Function Last Ten Fiscal Years 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Function Governmental Funds General government: Management and policy 32.2 29.2 21.2 22.2 88.5 95.8 120.0 128.6 131.6 132.6 Support services 91.3 88.3 62.0 62.0 - - - - - - - - 18.25 19.3 29.0 19.0 19.0 21.0 21.0 25.0 Court 52.3 52.9 52.9 51.9 49.9 51.9 32.9 32.9 32.9 33.9 Development services 70.5 70.5 72.5 72.5 69.6 68.8 73.3 66.7 68.7 83.7 Public works 17.5 17.5 - - - - - - - - Finance and management services Public safety: Police 347.0 346.0 346.0 346.0 346.0 349.0 354.0 358.0 369.0 385.5 Fire 199.5 197.0 197.0 197.0 197.0 201.0 201.0 203.0 210.0 217.0 Highways and streets 55.3 49.3 49.3 49.3 51.0 58.0 58.0 51.7 51.7 53.7 Parks and recreation 117.1 106.8 101.7 102.0 106.8 121.8 118.7 125.3 126.2 128.3 79.0 83.0 118.1 120.0 118.2 118.0 116.5 125.0 130.0 131.0 Enterprise Funds Water Wastewater 40.7 40.7 40.7 41.7 41.7 44.7 45.4 42.5 42.5 43.5 Environmental services 79.0 79.0 79.0 78.5 79.0 83.5 84.0 94.3 96.3 97.3 Irrigation 0.7 0.7 - - - - - - - - 26.0 26.0 26.0 26.0 26.0 26.0 26.0 26.0 26.0 26.0 1,208.1 1,186.9 1,184.8 1,188.4 1,202.7 1,237.5 1,248.8 1,275.0 1,305.9 1,357.5 Internal Service Funds Equipment maintenance Total Source: Gilbert Office of Management & Budget 147 TABLE OF CONTENTS Schedule 16 Town of Gilbert, Arizona Operating Indicators by Function Last Ten Fiscal Years Function General government: Management and policy % of population satisfied with value received from tax dollar Number of recruitments Employee turnover Legal and court Case filings % of cases charged after review Development services Building permits issued Value of permits issued (in millions) Public Safety: Police Number of arrests Crimes per 1,000 population Fire Number of emergency calls Response time average (enroute to on-scene) b Total dispatch time (dispatch to onscene) b Highways and streets Average pavement condition index 2009 2010 2011 2012 2013 a 2014 2015 a 2016 2017 74% 175 9.7% N/A 149 9.3% 2018 a 89% 87 8.1% 86% 90 4.9% 90% 86 6.6% N/A 79 6.8% 77% 110 8.0% 75% 155 7.5% N/A 148 8.3% 36,890 61% 32,299 64% 25,888 64% 26,271 72% 31,794 72% 28,896 72% 29,499 71% 32,091 70% 29,501 74% 26,147 74% 2,054 $ 266.3 2,506 $ 324.3 2,219 $ 238.7 3,474 474.9 3,418 $ 534.4 3,254 $ 472.5 3,364 $ 496.0 3,584 $ 553.8 4,157 $ 532.2 4,607 $ 531.6 12,487 23.3 11,411 20.4 8,330 19.3 9,003 18.3 8,734 16.5 8,474 16.6 8,900 15.5 8,702 15.3 8,250 15.5 8,360 15.2 12,972 4 min 11 sec 13,566 3 min 43 sec 13,946 3 min 37 sec 14,133 3 min 49 sec 15,509 3 min 47 sec 16,185 3 min 51 sec 17,777 3 min 57 sec 18,923 3 min 55 sec 19,422 20,506 3 min 32 sec N/A N/A N/A N/A N/A N/A N/A N/A $ N/A 5 min 9 sec 71% 156 10.3% 4 min 48 sec 91 91 91 91 80 75 75 72 74 72 19,222 N/A 48,892 15,681 N/A 50,038 16,637 N/A 47,493 16,880 N/A 48,725 16,277 N/A 52,714 16,440 N/A 52,616 N/A 11,747 62,815 N/A 19,835 69,423 N/A 18,000 71,651 N/A 16,000 98,286 Transportation Average daily ridership 1,039 835 845 560 635 685 687 669 679 784 Water Daily average water production (mg) Average # of meters read per month Number of utility locates 44 70,630 12,000 42 71,814 12,373 42 71,910 10,576 43 73,469 15,190 43 71,952 23,277 43 72,712 20,235 43 73,199 20,100 43 82,871 21,197 46 83,945 26,850 47 84,243 27,380 Wastewater Daily average wastewater influent (mg) Annual effluent produced/reused (mg) 12.37 4,160 12.91 4,420 12.67 4,840 12.20 4,457 12.79 4,667 12.82 4,646 13.21 4,822 14.03 4,815 14.91 4,931 15.41 5,115 110,144 18,810 110,403 19,191 111,943 19,242 109,472 18,653 115,536 18,695 113,965 19,851 112,778 19,418 114,144 19,894 110,520 22,567 113,745 24,058 Parks and recreation Facility reservation requests c Facility reservations c Participants in recreation programs d Environmental services Solid waste tonnage Recycle tonnage Source: Various Town departments a Survey completed every other year. b Beginning in 2017, the Fire Department began reporting total dispatch time instead of average time enroute to on-scene. Beginning in 2015, tracking actual facility reservations. d Only includes adult sports, youth ball programs, adaptive recreation, and town-sponsored special events. c Indicator no longer being tracked. 148 TABLE OF CONTENTS Schedule 17 Town of Gilbert, Arizona Capital Asset Statistics by Function Last Ten Fiscal Years 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 162 156 166 164 164 180 185 217 224 251 9 9 9 10 10 10 10 10 10 10 Highways and streets Street centerline miles (estimate) a Traffic control signals 872 169 903 168 923 173 979 175 989 177 905 180 1,032 185 1,055 185 973 194 985 201 Parks and recreation Total acres of park land, trails, open space, municipal areas and support facilities, operated and maintained 676 690 690 652 653 605 605 605 645 645 1,137 1,175 1,189 1,216 1,219 1,261 1,304 1,660 1,322 1,335 843 860 868 970 976 1,006 1,019 1,038 887 896 54 57 61 61 61 66 67 57 56 71 Function Public safety: Police Number of police cars Fire Fire stations Water Miles of water main c Wastewater Miles of wastewater main c Environmental services Garbage trucks b Source: Various Town departments a The street centerline miles were previously estimated using different methods, such as end of warranty and beginning of Town ownership. Beginning in 2015, the estimate is based on acceptance letter date. Beginning in 2017, estimates were updated to exclude miles not owned by Gilbert. b Prior to fiscal year 2016, wheel loaders were included in the statistic. Note: No capital asset statistics are available for the general government or transportation functions. 149 TABLE OF CONTENTS Schedule 18 Town of Gilbert, Arizona Property Value, Construction and Bank Deposits Last Ten Fiscal Years Fiscal Year 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Residential Construction a Number of Permits Value 1,038 1,427 1,130 2,331 2,015 1,613 1,668 1,764 1,754 1,604 $ 161,128,906 213,032,031 182,201,825 408,322,951 385,182,885 315,632,904 350,707,421 402,071,499 336,676,752 312,805,353 Commercial Construction a Number of Permits Value 151 147 180 182 224 284 268 278 264 199 $ 60,768,344 67,488,230 25,831,880 31,550,416 102,447,825 99,959,286 81,934,987 71,594,349 119,477,874 129,703,582 Other Construction a Number of Permits Value 865 932 909 961 1,179 1,357 1,428 1,542 2,139 2,804 $ 44,414,870 $ 43,754,466 30,710,863 35,017,191 46,773,456 56,890,360 63,344,257 80,164,565 76,023,423 89,093,501 Secondary Assessed Property Value b 2,768,391,194 2,672,949,852 2,297,228,317 1,861,193,961 1,675,360,422 1,594,806,737 1,829,471,839 N/A $ N/A N/A Limited Property Value b N/A $ N/A N/A N/A N/A N/A N/A 1,845,325,449 1,979,359,269 2,105,762,268 Maricopa County Bank Deposits c 55,358,822,000 61,925,568,000 60,408,631,000 61,673,751,000 65,485,982,000 70,253,713,000 76,889,448,000 84,014,143,000 92,567,543,000 98,288,781,000 Sources: Development Services Department b Maricopa County Assessor's Office c Federal Deposit Insurance Corporation a Note: In accordance with Proposition 117, The Arizona Property Tax Assessed Valuation Amendment, property taxes are calculated based on the limited property value beginning with tax year 2015. 150 TABLE OF CONTENTS Schedule 19 Town of Gilbert, Arizona System Development Fees Fiscal Year 2018 Traffic signal system development fee Beginning System Development Other Balance Fees Collected Revenue $ 8,232,386 $ 2,071,690 $ Ending Expenditures 46,107 $ Balance (1,367,702) $ 8,982,481 Police system development fee 1,198,568 3,742,916 11,113 (3,130,418) 1,822,179 Fire system development fee (12,433,697) 2,082,819 295,965 (1,137,735) (11,192,648) a General government system development fee (6,664,646) 2,443,552 - (2,456,006) (6,677,100) a Parks and recreation system development fee 30,810,701 7,275,972 167,476 (7,838,831) 30,415,318 Water system development fee 7,324,219 9,944,975 56,320 (10,297,272) 7,028,242 Water resources system development fee 5,102,614 2,808,490 17,092 (5,782,808) 2,145,388 Wastewater system development fee 24,184,519 6,275,428 142,864 (5,277,058) 25,325,753 (37,287,830) $ 57,849,613 Totals $ 57,754,664 Wastewater system development fee - Greenfield $ 4,015 Wastewater system development fee - Neely $ 3,176 $ 36,645,842 $ 736,937 $ Equivalent Residential Unit Source: Gilbert Finance & Management Services Department a The negative ending balances for the fire and general government system development fees are funded by the general fund. $121,191,250 at June 30, 2018. 151 The general fund had a cash balance of TABLE OF CONTENTS Schedule 20 Town of Gilbert, Arizona Property Tax Levies and Collections Last Ten Fiscal Years Fiscal Year Tax Levy 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 $ 31,332,659 $ 30,389,882 26,198,053 21,380,254 19,253,745 18,327,289 19,487,085 19,495,256 20,913,149 21,667,785 County Resolutions (134,438) $ (153,319) (107,618) (96,162) (99,396) (57,876) (72,483) (32,290) (80,844) (53,647) Initial Year Collections Net Current Tax Levy Collections Percent Of Levy 31,198,221 $ 29,744,757 30,236,563 28,984,405 26,090,435 25,253,466 21,284,092 20,772,494 19,154,349 18,962,640 18,269,413 18,056,441 19,414,602 19,230,809 19,462,966 19,286,314 20,832,305 20,645,301 21,614,138 21,411,196 95.34% $ 95.86% 96.79% 97.60% 99.00% 98.83% 99.05% 99.09% 99.10% 99.06% Source: Maricopa County Treasurer's Office 152 County Resolutions Cumulative Collections Net Delinquent Total Tax Levy Collections Collections (305,192) $ 31,027,467 $ 1,262,304 $ 997,231 (390,702) 29,999,180 659,090 (277,675) 25,920,378 385,288 (217,916) 21,162,338 144,117 (143,890) 19,109,855 179,474 (89,302) 18,237,987 126,509 (128,520) 19,358,565 134,850 (69,932) 19,425,324 141,078 (125,046) 20,788,103 (53,647) 21,614,138 31,007,061 29,981,636 25,912,556 21,157,782 19,106,757 18,235,915 19,357,318 19,421,164 20,786,379 21,411,196 Percent of Levy 99.93% 99.94% 99.97% 99.98% 99.98% 99.99% 99.99% 99.98% 99.99% 99.06% TABLE OF CONTENTS Schedule 21 Town of Gilbert, Arizona Principal Property Taxpayers Fiscal Year 2018 Principal Taxpayer Type of Business Westcor Santan Village LLC Southwest Gas Corporation (T&D) Vestar CTC Phase 1 LLC American Furniture Warehouse Co. Verizon Wireless Power & Ray LLC Santan MP LP Target Corporation Liv Northgate LLC Earnhardt Arizona Properties LLC Breit Olympus Mf Redstone LLC Breit Olympus MF Vistara LLC 155 Rivulon Boulevard LLC Lowe's Hardware Inc. 275 Rivulon Boulevard LLC Jabbel Holdings LLC San Privada Apartments LLC Branch Brook Gardens Pillar at SanTan LLC Smiths Food & Drug Centers Inc. Arizona Public Service Company LIT Industrial Limited Partnership SY Gilbert Commons I LLC Qwest Corporation Echostar Broadcasting Holdings Corp. Shopping Center Utility Real Estate Development / Holdings Retail Utility Real Estate Development / Holdings Real Estate Development / Holdings Retail Real Estate Development / Holdings Real Estate Development / Holdings Real Estate Development / Holdings Real Estate Development / Holdings Real Estate Development / Holdings Retail Real Estate Development / Holdings Real Estate Development / Holdings Retail Real Estate Development / Holdings Real Estate Development / Holdings Real Estate Development / Holdings Utility Real Estate Development / Holdings Real Estate Development / Holdings Utility Real Estate Development / Holdings Limited Property Valuation As % of Town's Total Limited Property Valuation $ 20,758,218 7,228,828 5,207,633 5,197,771 5,166,233 4,912,314 4,633,546 4,428,332 4,225,015 4,144,688 4,124,141 3,986,569 3,742,582 3,541,074 3,411,620 3,374,714 3,340,959 3,285,884 3,255,195 3,238,642 3,238,166 3,197,201 3,096,180 3,024,455 3,007,736 0.99% 0.34% 0.25% 0.25% 0.25% 0.23% 0.22% 0.21% 0.20% 0.20% 0.20% 0.19% 0.18% 0.17% 0.16% 0.16% 0.16% 0.16% 0.15% 0.15% 0.15% 0.15% 0.15% 0.14% 0.14% $ 116,767,696 5.54% Source: Maricopa County. Top taxpayers based on Net Assessed Limited Property Value of Real and Secured Personal Property for tax year 2018. Note: Information included for current fiscal year only as this is what is required for continuing disclosure requirements for Gilbert's bond issues. 153 TABLE OF CONTENTS 50 E. Civic Center Drive Gilbert, AZ 85296 (480) 503-6871 | gilbertaz.gov