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Home My WebLink About2012 CAFR COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED SEPTEMBER 30, 2012 PREPARED BY FINANCE DEPARTMENT CITY OF STEPHENVILLE, TEXAS THIS PAGE LEFT BLANK INTENTIONALLY CITY OF STEPHENVILLE, TEXAS TABLE OF CONTENTS FOR THE YEAR ENDED SEPTEMBER 30, 2012 Page Number INTRODUCTORY SECTION Letter of Transmittal ..................................................................................................... i – iv GFOA Certificate of Achievement ............................................................................... v Organizational Chart ..................................................................................................... vi Principal City Officials ................................................................................................. vii FINANCIAL SECTION Independent Auditors’ Report ....................................................................................... 1 – 2 Management’s Discussion and Analysis ...................................................................... 3 – 11 Basic Financial Statements Government-wide Financial Statements Statement of Net Assets .......................................................................................... 12 Statement of Activities ............................................................................................ 13 Fund Financial Statements Balance Sheet – Governmental Funds .................................................................... 14 Statement of Revenues, Expenditures and Changes in Fund Balances – Governmental Funds ................................................................ 15 (continued) CITY OF STEPHENVILLE, TEXAS TABLE OF CONTENTS (Continued) FOR THE YEAR ENDED SEPTEMBER 30, 2012 Page Number FINANCIAL SECTION (Continued) Fund Financial Statements (Continued) Reconciliation of the Statement of Revenues, Expenditures and Changes in Fund Balances of Governmental Funds to the Statement of Activities ......................................................................................... 16 Statement of Revenues, Expenditures and Changes in Fund Balances – Budget and Actual – General Fund .......................................... 17 – 19 Statement of Net Assets – Proprietary Funds ......................................................... 20 Statement of Revenues, Expenses and Changes in Fund Net Assets – Proprietary Funds .................................................................. 21 Statement of Cash Flows – Proprietary Funds ........................................................ 22 – 23 Notes to Financial Statements .................................................................................... 24 – 47 Required Supplementary Information Schedule of Funding Progress for the Retirement Plan ............................................. 48 Combining Fund Statements and Schedules Nonmajor Governmental Funds Combining Balance Sheet ....................................................................................... 49 Combining Statement of Revenues, Expenditures and Changes in Fund Balances ................................................................................... 50 (continued) CITY OF STEPHENVILLE, TEXAS TABLE OF CONTENTS (Continued) FOR THE YEAR ENDED SEPTEMBER 30, 2012 Page Number FINANCIAL SECTION (Continued) Combining Fund Statements and Schedules (Continued) Nonmajor Special Revenue Funds Schedule of Revenues, Expenditures and Changes in Fund Balance – Budget and Actual – Hotel/Motel Occupancy Tax Fund ........................................................................................... 51 Schedule of Revenues, Expenditures and Changes in Fund Balance – Budget and Actual – Child Safety Fund .................................... 52 Schedule of Revenues, Expenditures and Changes in Fund Balance – Budget and Actual – Public Safety Fund ................................... 53 Schedule of Revenues, Expenditures and Changes in Fund Balance – Budget and Actual – Court Technology Fund ........................... 54 Nonmajor Debt Service Fund Schedule of Revenues, Expenditures and Changes in Fund Balances – Budget and Actual .................................................................... 55 Nonmajor Enterprise Funds Combining Balance Sheet ....................................................................................... 56 Combining Statement of Revenues, Expenses and Changes in Fund Net Assets ................................................................................ 57 Combining Statement of Cash Flows ..................................................................... 58 (continued) CITY OF STEPHENVILLE, TEXAS TABLE OF CONTENTS (Continued) FOR THE YEAR ENDED SEPTEMBER 30, 2012 Table Page Number Number STATISTICAL SECTION (Unaudited) Net Assets by Component .............................................................................. 1 59 – 60 Changes in Net Assets ................................................................................... 2 61 – 64 Fund Balances – Governmental Funds .......................................................... 3 65 – 66 Changes in Fund Balances – Governmental Funds ....................................... 4 67 – 68 Assessed Value and Estimated Actual Value of Taxable Property ..................................................................................... 5 69 Direct and Overlapping Property Tax Rates .................................................. 6 70 Principal Property Taxpayers ......................................................................... 7 71 Property Tax Levies and Collections ............................................................. 8 72 Ratios of Outstanding Debt by Type ............................................................. 9 73 Ratios of Net General Bonded Debt Outstanding .......................................... 10 74 Direct and Overlapping Governmental Activities Debt ................................. 11 75 Legal Debt Margin and Tax Rate Limitations Information ........................... 12 76 Pledged Revenue Coverage ........................................................................... 13 77 Demographic and Economic Statistics .......................................................... 14 78 Principal Employers ....................................................................................... 15 79 Fulltime Equivalent City Government Employees by Function/Program ....................................................................................... 16 80 Operating Indicators by Function/Program ................................................... 17 81 Capital Asset Statistics by Function/Program ................................................ 18 82 (continued) CITY OF STEPHENVILLE, TEXAS TABLE OF CONTENTS (Continued) FOR THE YEAR ENDED SEPTEMBER 30, 2012 Page Number REPORT REQUIRED BY GOVERNMENT AUDITING STANDARDS Report on Internal Control Over Financial Reporting Standards And on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance With Government Auditing Standards ................................................................................... 83 – 84 Independent Auditors’ Report on Compliance With Requirements That Could Have a Direct and Material Effect on Each Major Program and on Internal Control Over Compliance In Accordance with OMB Circular A-133 .................................................................... 85 – 86 Schedule of Expenditures of Federal Awards .................................................................. 87 Notes to Schedule of Expenditures of Federal Awards ................................................... 88 Schedule of Findings and Questioned Costs .................................................................... 89 THIS PAGE LEFT BLANK INTENTIONALLY INTRODUCTORY SECTION THIS PAGE LEFT BLANK INTENTIONALLY January 4, 2013 TO: The Honorable Mayor, Members of the City Council, and the Citizens of Stephenville (the “City”) The Finance Department and City Administrator's Office are pleased to submit the Comprehensive Annual Financial Report for the City of Stephenville, Texas for the fiscal year ended September 30, 2012. This report provides the city council, city staff, our citizens, our bondholders and other interested parties with detailed information concerning the financial condition and activities of the city government. Responsibility for both the accuracy of the presented data and the completeness and fairness of the presentation, including all disclosures, rests with the City. To the best of our knowledge and belief the enclosed data is accurate in all material respects, and is organized in a manner designed to fairly present the financial position and results of operations of the City as measured by the financial activity of its various funds. We also believe that all disclosures necessary to enable the reader to gain the maximum understanding of the City's financial affairs have been included. Pattillo, Brown and Hill, LLP, Independent Certified Public Accountants, has issued an unqualified (“clean”) opinion on the City’s financial statements for the year ended September 30, 2012. The independent auditor’s report is located at the front of the financial section of this report. Management’s discussion and analysis (MD&A) immediately follows the independent auditor’s report and provides a narrative introduction, overview, and analysis of the basic financial statements. MD&A complements this letter of transmittal and should be read in conjunction with it. CITY PROFILE Location The City is a political subdivision and municipal corporation of the State of Texas, duly organized and existing under the laws of the state and the City’s home rule charter. The City was incorporated in 1854 and chartered a home-rule city under Texas law in 1961. The City is located on the intersection of U.S. Highways 67, 281, and 377. The City occupies approximately 11.79 square miles and serves a population of about 18,290. The City is empowered by state statute to levy a tax on both real and business personal property located within its boundaries. The City also has the power by state statute to extend its corporate city limits by annexation, which is done periodically when deemed appropriate by the city council. The City operates under the mayor-council form of government. Policy-making and legislative authority are vested in a governing council consisting of the mayor and eight (8) council members. The city council is responsible for, among other things, passing ordinances, adopting the budget, appointing committees, and hiring the city administrator. The city administrator is responsible for carrying out the policies and ordinances of the city council, for overseeing the day-to-day operations of the City, and appointing heads of various departments. The mayor and city council members each serve two-year terms, and are elected at large. The basic financial statements of the City include all governmental activities, organizations and functions for which the City is i financially accountable as defined by the Government Accounting Standards Board (GASB). Based on these criteria no other governmental organizations are included in this report. Services Provided The City provides a full range of services, including public safety (police, fire, and emergency medical), maintenance of streets and infrastructure, sanitation services, maintenance of the treated water distribution system and both sanitary and storm sewer collection and transmission systems, recreational activities and cultural events, landfill operations, airport facility maintenance as well as general administrative services. Accounting System and Budgetary Control The City’s accounting records for general governmental operations are maintained on a modified accrual basis, with the revenues being recorded when available and measurable, and expenditures being recorded when the services or goods are received and the liabilities incurred. Accounting records for the City’s utilities are maintained on the accrual basis. In developing and maintaining the City’s accounting system, consideration is given to the adequacy of the internal control structure. Internal accounting controls are designed to provide reasonable, but not absolute, assurance regarding: (1) the safeguarding of assets against loss from unauthorized use or disposition; and (2) the reliability of financial records for preparing financial statements and maintaining accountability of assets. The concept of reasonable assurance recognizes that: (1) the cost of a control should not exceed the benefits likely to be derived; and (2) the evaluation of costs and benefits requires estimates and judgments by management. All internal control evaluations occur within the above framework. We believe that the City’s internal controls adequately safeguard assets and provide reasonable assurance of proper recording of financial transactions. The annual budget serves as the foundation of the City’s financial planning and control. The city council formally adopts the budget and legally appropriates available monies for activities of the General Fund, Enterprise Funds, Internal Service Funds, Special Revenue Funds, Debt Service Fund and capital improvements. of No later than August 1each year, the city administrator submits to the city council a proposed budget which provides a complete plan for the fiscal year commencing October 1. The budget includes proposed expenditures and means of financing them. The proposed budget is made available for public inspection, and a public hearing is held to allow for citizen comment. After the public hearing, council may make changes to any item in the budget, except those fixed by law. No later than September 23, the budget is legally enacted by ordinance which sets the limit on expenditures during the fiscal year. Additional expenditures may be authorized in the case of grave public necessity to meet unusual and unforeseen conditions which could not have reasonably been foreseen at the time the budget was adopted. The level of budgetary control (that is, the level at which expenditures cannot legally exceed the appropriated amount) is at the departmental level; however, expenditures are monitored monthly at the department level to ensure financial accountability by department directors. Management control of budgets is further maintained at the line item level within the department. The City also maintains an encumbrance accounting system to further accomplish budgetary control. Under the City’s financial policies, encumbered amounts in the General Fund at year’s end lapse and balances flow forward as unassigned fund balances. For Capital Improvement Funds and Special Revenue Funds the encumbered amounts are reflected as a restriction of the fund balance at year’s end. Encumbrances are generally re-appropriated as a part of the following year’s budget. As demonstrated by the statements and schedules included in the financial section of this report, the City continues to meet its responsibility for sound financial management. ii ECONOMIC CONDITION Local Economy The City serves as the center of commerce and recreation to over 37,000 Erath County residents. The City is the county seat and the principal commercial, medical, retail, educational and industrial center of Erath County. The City currently enjoys a fairly stable and diversified economic environment, bolstered by the strength of both the Cross Timbers area and the State of Texas. Our economy is based on agriculture, manufacturing, and Tarleton State University. Agriculture has long been Erath County’s leading industry with livestock, especially beef, th dairy and other livestock production. Erath County was the State’s 10 largest for cattle production in 2010. The City is fortunate to have several manufacturing industries in town. Local manufacturing includes coated abrasives, oilfield related products, cream cheese, fiber gratings and fasteners, metal processing of electrical products, trailer customization, and forged pipe unions. Tarleton State University, a member of the Texas A&M System, provides further economic stability as the largest employer. The student body includes representatives from 220 Texas counties, 45 states, and 34 foreign countries. Tarleton’s 2012 fall enrollment was in excess of 10,000 students. Stephenville ranks high in the state for a quality of work environment. As of September 2012, with unemployment at 6.8% statewide, Stephenville’s unemployment was 5.2%. The city has adequate—yet below- average—wealth and income. According to the U. S. Census Bureau’s 2010 American Community Survey published in 2011, Stephenville’s median household income is $33,175 compared to $40,650 for DFW and $48,615 for Texas. Also, according to the survey, the workforce is educated with 24.5% of the population having a bachelor’s degree or higher, compared to 28.9% for DFW and 25.9% for Texas. The stable property values, sales tax receipts and building activity reflect the area’s positive economic climate. During 2011, the City participated in Economic Development Programs with Tejas Tubular and FMC Technologies Fluid Control Division to expand their facilities and create jobs. The expansions were completed in 2012 and created approximately 100 to 150 new jobs for Stephenville. The overall tax base is anticipated to increase property valuations for 2014 from the expansions. Tarleton State University has experienced double- digit growth for several years, and this trend is expected to continue. Long-term Financial Planning The City’s ability to respond to on-going economic challenges will require careful long-range planning. The City has responded to the economy by fiscal conservatism and implementing operating budget efficiencies that have resulted in maintaining healthy fund balances in its general fund and water/wastewater funds. Users of this document are encouraged to read the City’s Fiscal Year 2012-2013 Budget. The document details the City’s long-term goals and financial policies, describes program accomplishments and initiatives, and outlines the City’s capital improvement program. Also available for reference is the City of Stephenville’s Comprehensive Plan which was adopted in 2006 and maps out the City’s future strategies. In addition, the City has recognized the long-term financial implications of its pension and retiree health benefits. Regarding pensions, we have adopted accelerated funding as proposed by the Texas Municipal Retirement System to ensure the long-term sustainability of the plan. The City does not provide for retiree health care. The City intends to provide a sustainable benefit to our employees without shifting costs to future tax payers. iii Relevant Financial Policies The City Council has adopted a series of financial standards and policies for operating and debt management. Management of the City has made every effort to comply with these standards and policies and believe we are currently in compliance. The City Council Finance Committee meets on an as-needed basis to discuss financial and budgetary information, financial policies, fund balance requirements and tax rate setting information. None of the City’s financial policies had a significant impact on the current period’s financial statements, as the City was able to maintain equity levels within the stated policies for the governmental funds. Constant review of revenue and expenditure trends and equity levels is maintained with specific responsibility assigned to the Finance Director and City Administrator. The City’s Finance Department publishes a monthly financial report which provides internal and external users with the general awareness of the City’s financial positions and economic activity. Major Initiatives The City issued $4.0 million in Certificates of Obligation in October 2011 for the purpose of constructing a new Fire Station No. 2, and for major street reconstruction projects. Construction began on the fire station in July 2012 and is expected to be completed by July 2013. The City has designated $1.5 million of the issue to fund street reconstruction projects to be completed in 2013. The City anticipates issuing $1 million in debt for wastewater line replacements in 2013. AWARDS AND ACKNOWLEDGEMENTS The Government Finance Officers Association of the United States and Canada (GFOA) awarded a Certificate of Achievement in Financial Reporting to the City of Stephenville for its Comprehensive Annual Financial Report for the fiscal year ended September 30, 2011. The Certificate of Achievement is a prestigious national award recognizing conformance with the highest th standards for preparation of state and local government financial reports. This award was the 27 consecutive year that the City of Stephenville has achieved this prestigious award. In order to be awarded a Certificate of Achievement, a governmental unit must publish an easily readable and efficiently organized comprehensive annual financial report. This report must satisfy both generally accepted accounting principles and applicable legal requirements. A Certificate of Achievement is valid for a period of one year only. We believe our current comprehensive annual financial report continues to meet the Certificate of Achievement Program’s requirements and we are submitting it to GFOA to determine its eligibility for another certificate. The preparation of this report on a timely basis could not be accomplished without the efficient and dedicated services of the entire city staff. We would like to express our appreciation to all staff members who assisted and contributed to its preparation. We would also like to thank the Mayor and City Council Members for their interest and support in planning and conducting the financial operations of the City in a responsible and progressive manner. iv Certificate of Achievement for Excellence in Financial Reporting Presented to City of Stephenville Texas For its Comprehensive Annual Financial Report for the Fiscal Year Ended September 30, 2011 A Certificate of Achievement for Excellence in Financial Reporting is presented by the Government Finance Officers Association of the United States and Canada to government units and public employee retirement systems whose comprehensive annual financial reports (CAFRs) achieve the highest standards in government accounting and financial reporting. v .¸§´¯À§º¯µ´§²"®§¸º #«©«³¨«¸ŵųȍŵųŴŵ vi /źƷǤƚŅ{ƷĻƦŷĻƓǝźƌƌĻͲĻǣğƭ ЋВБ͵ğƭŷźƓŭƷƚƓ tƩźƓĭźƦğƌ/źƷǤhŅŅźĭźğƌƭ /źƷǤ/ƚǒƓĭźƌ Mayor:KennyWeldon Place1:JoeCude Place2:MalcolmCross Place3:DougSvien Place4:RussMcDanel Place5:BradyPendleton Place6:AlanNix Place7:MarthaTaylor Place8:ScottEvans {ƷğŅŅ CityAdministrator,MarkKaiser DirectorofFinance/Administration,WalterG.Wood DirectorofUtilities,NickWilliams DirectorofCommunityDevelopment,BettyChew PoliceChief,PatrickBridges FireChief,JimmyChew DirectorofCommunityServices,DrewWells CitySecretary,CindyStafford vii THIS PAGE LEFT BLANK INTENTIONALLY FINANCIAL SECTION THIS PAGE LEFT BLANK INTENTIONALLY INDEPENDENT AUDITORS’ REPORT To the Honorable Mayor and Members of City Council City of Stephenville, Texas We have audited the accompanying financial statements of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City of Stephenville, Texas, as of and for the year ended September 30, 2012, which collectively comprise the City’s basic financial statements as listed in the table of contents. These financial statements are the responsibility of the City of Stephenville’s management. 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 of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinions. In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City of Stephenville, Texas, as of September 30, 2012, and the respective changes in financial position, and cash flows, where applicable, thereof, and the budgetary comparison for the General Fund for the year then ended in conformity with accounting principles generally accepted in the United States of America. In accordance with Government Auditing Standards, we have also issued our report dated January 4, 2013, on our consideration of the City’s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements and other matters. The purpose of that report is 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 and should be considered in assessing the results of our audit. 1 401 WEST HIGHWAY 6 P. O. BOX 20725 WACO, TX 76702-0725 (254) 772-4901 FAX: (254) 772-4920 www.pbhcpa.com AFFILIATE OFFICES: BROWNSVILLE, TX (956) 544-7778 HILLSBORO, TX (254) 582-2583 TEMPLE, TX (254) 791-3460 ALBUQUERQUE, NM (505) 266-5904 Accounting principles generally accepted in the United States of America require that the management's discussion and analysis on pages 3 through 11 and the schedule of funding progress for the Texas Municipal Retirement System on page 48 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. Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the City’s financial statements as a whole. The introductory section, combining and individual nonmajor fund financial statements and schedules, and statistical section are presented for purposes of additional analysis and are not a required part of the financial statements. The accompanying schedule of expenditures of federal awards is presented for purposes of additional analysis as required by U.S. Office of Management and Budget Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations, and is also not a required part of the financial statements. The combining and individual nonmajor fund financial statements and schedules and the schedule of expenditures of federal awards are the responsibility of management and were derived from and relate directly to the underlying accounting and other records used to prepare the financial statements. The information has been subjected to the auditing procedures applied in the audit of the financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the financial statements or to the financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated in all material respects in relation to the financial statements as a whole. The introductory and statistical sections have not been subjected to the auditing procedures applied in the audit of the basic financial statements and, accordingly, we do not express an opinion or provide any assurance on it. January 4, 2013 2 MANAGEMENT’S DISCUSSION AND ANALYSIS THIS PAGE LEFT BLANK INTENTIONALLY CITY OF STEPHENVILLE, TEXAS MANAGEMENT’S DISCUSSION AND ANALYSIS FISCAL YEAR ENDED SEPTEMBER 30, 2012 (Unaudited) This section of the City of Stephenville’s (City) annual financial report presents our discussion of the City’s financial performance during the fiscal year ended September 30, 2012. Please read it in conjunction with the transmittal letter, which can be found preceding this narrative, and with the City’s financial statements, which follow this section. FINANCIAL HIGHLIGHTS The assets of the City exceed its liabilities as of September 30, 2012, by $60,460,734 (net assets). Of this amount, $13,228,629 (unrestricted net assets) may be used to meet the City’s ongoing obligations to citizens and creditors in accordance with the City’s fund designation and fiscal policies. The City's total net assets increased by $2,475,476. The majority of this increase is attributable to capital grants and excess revenue over expenditures. As of the close of the current fiscal year, the City's governmental funds reported combined ending fund balances of $11,855,870, an increase of $3,397,337 over the prior year. The increase in combined ending fund balances is attributable to revenues received higher than budget and expenditures being less than budgeted. Approximately 64% of this total amount, $7,632,024 is available for spending at the government’s discretion (assigned and unassigned fund balance). As of September 30, 2012, unassigned fund balance for the General Fund was $5,113,489 or 43% of total General Fund expenditures. During the current fiscal year the City issued certificates of obligation for the purpose of constructing and improving roads and constructing and equipping a fire station. The City’s total long-term debt increased by $1,826,000 (8%) during the current fiscal year. OVERVIEW OF THE FINANCIAL STATEMENTS This discussion and analysis are intended to serve as an introduction to the City of Stephenville's basic financial statements. The City's basic financial statements comprise three components: 1) government-wide financial statements, 2) fund financial statements, and 3) notes to the financial statements. This report also contains other supplementary information in addition to the basic financial statements themselves. Government-wide Financial Statements. The government-wide financial statements are designed to provide readers with a broad overview of the City's finances, in a manner similar to a private-sector business. The Statement of Net Assets presents information on all of the City's assets and liabilities, with the difference between the two reported as net assets. Over time, increases or decreases in net assets may serve as a useful indicator of whether the financial position of the City of Stephenville is improving or deteriorating. The government-wide financial statements can be found on pages 12 -13 of this report. The Statement of Activities presents information showing how the City's net assets changed during the most recent fiscal year. All changes in net assets are reported when 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., uncollected taxes and earned but unused compensation absences). Both the Statement of Net Assets and the Statement of Activities are prepared utilizing the accrual basis of accounting as opposed to the modified accrual basis. 3 Both of the government-wide financial statements distinguish functions of the City that are principally supported by taxes and intergovernmental revenues (governmental activities) from functions that are intended to recover all or a significant portion of their cost through user fees and charges (business-type activities). The governmental activities of the City include general government, public safety, streets, library, cemetery, culture and recreation, and community development. The business-type activities of the City include water and wastewater, storm water drainage, solid waste, and airport operations. Reporting the City’s Most Significant Funds Fund Financial Statements. The fund financial statements provide detailed information about the most significant funds, not the City as a whole. Funds are accounting devices that the City uses to keep tack of specific sources of funding and spending for particular purposes. Some funds are required by state laws or bond covenants. The Council establishes other funds to control and manage money for particular purposes or as evidence of meeting legal responsibilities for using certain taxes, grants and other money. The City has two types of funds: governmental funds and proprietary funds. Governmental Funds. The majority of the City’s basic services are reported in governmental funds, which focus on how money flows into and out of those funds and the available balances at year-end. These funds are reported using an accounting method identified as the modified accrual basis of accounting, which measures cash and all other financial assets that can readily be converted to cash. The governmental fund statements provide a detailed short-term view of the City’s general government operations and the basic services it provides. Governmental fund information helps the reader determine whether there has been an increase of decrease in financial resources that can be spent in the near future to finance the City’s programs. By comparing information presented for governmental funds with similar information presented for governmental activities in the government-wide financial statements, readers may better understand the long-term impact of the government’s near-term financing decisions. The relationship or differences between governmental activities (reported in the Statement of Net Assets and the Statement of Activities) and governmental funds are detailed in a reconciliation following the fund financial statements. The basic governmental fund financial statements can be found on pages 14-16 of this report. A budgetary comparison statement has been provided for the General Fund to demonstrate compliance with the annual appropriated budget. Data for the other governmental funds are combined into a single, aggregated presentation. Individual fund data for each of these nonmajor governmental funds is provided in the form of combining fund statements and schedules elsewhere in this report. Proprietary Funds. The City charges customers for the services it provides through service delivery agreements to outside customers or through customer service agreements within the City. These services are generally reported in proprietary funds. Proprietary funds are reported in the same manner that all activities are reported in the Statement of Net Assets and the Statement of Activities. In fact, the City’s enterprise funds (a component of proprietary funds) are identical to the business-type activities that are reported in the government-wide statements, but with additional detail and information, such as cash flows. Individual proprietary fund data is found on pages 20 – 23 of this report. The City maintains one type of proprietary fund-Enterprise Funds. Enterprise Funds are used to report the same functions presented as business-type activities in the government-wide financial statements. The City uses the Enterprise Funds to account for water, wastewater, storm water drainage, solid waste, and airport operations. All activities associated with providing such services are accounted for in these funds, including administration, operation, maintenance, debt service, capital improvements, billing and collection. The City’s intent is that costs of providing the services to the general public on a continuing basis is financed through user charges in a manner similar to a private enterprise. Notes to the Financial Statements. The notes provide additional information that is essential to a full understanding of the data provided in the government-wide and funds financial statements. The notes to the financial statements can be found on pages 24 – 47 of this report. Other Information. In addition to the basic financial statements and accompanying notes, this report also presents certain required supplementary information in the form of combining fund statements and schedules for nonmajor funds. These are presented immediately following the notes to the financial statements beginning on page 49 of this report. 4 THE CITY AS A WHOLE GOVERNMENT WIDE FINANCIAL ANALYSIS The City’s combined net assets were $60,460,734 as of September 30, 2012, an increase of 4.3% compared to fiscal year ending 2011. As noted earlier, net assets may serve over time as a useful indicator of a government's financial position. Analyzing the net assets and net expenses of governmental and business-type activities separately, the business-type activities net assets are $34,671,625, an increase of $1,869,799 over prior year. The governmental activities net assets are $25,789,109, an increase of $605,677 over prior year. By far, the largest portion of the City's net assets (76 percent) reflects its investments in capital assets (e.g., land, buildings, machinery, equipment and infrastructure) less any outstanding debt used to acquire those assets. The City uses these capital assets to provide services to citizens; consequently, these assets are not available for future spending. Although the City’s investment in its capital assets is reported net of related debt, it should be noted that the resources needed to repay this debt must be provided from other sources, since the capital assets themselves cannot be used to liquidate these liabilities. An additional portion of the City’s net assets, $1,292,751, represents resources that are subject to external restrictions on how they may be used. The remaining balance of unrestricted net assets, $13,228,629, may be used to meet the government’s ongoing obligations to citizens and creditors. As of September 30, 2012, the City is able to report positive balances in all three categories of net assets, both for government as a whole, as well as for its separate governmental and business-type activities. The same held true for the prior fiscal year. Overall, the City had an increase in net assets of $2,475,476. CITY OF STEPHENVILLE'S NET ASSETS Governmental Activities Business-type Activities Totals 201220112012201120122011 Current and other assets$12,948,381 $9,231,566 $7,264,987 $7,466,296 $20,213,368 $16,697,862 Capital assets19,478,800 18,850,089 47,566,191 47,439,098 67,044,991 66,289,187 Total assets32,427,181 28,081,655 54,831,178 54,905,394 87,258,359 82,987,049 Current liabilities590,835 420,768 852,326 968,823 1,443,161 1,389,591 Non Current liabilities6, 2,470,159047,237 19,307,227 21,119,385 25,354,464 23,589,544 Total liabilities6, 2,890,927638,072 20,159,553 22,088,208 26,797,625 24,979,135 Net Assets: Invested in capital assets, net of related debt17,500,689 16,605,859 28,438,665 26,538,623 45,939,354 43,144,482 Restricted450,527 420,877 842,224 714,547 1,292,751 1,135,424 Unrestricted7,837,893 8,156,696 5,390,736 5,548,656 13,228,629 13,705,352 Total net assets$25,789,109 $25,183,432 $34,671,625 $32,801,826 $60,460,734 $57,985,258 Governmental Activities. The table on the following page provides a summary of the City’s operations for the year ended September 30, 2012, with comparative totals for the year ended September 30, 2011. Governmental activities increased the City’s net assets by $605,677 or 24% of the total growth in net assets. The City’s total revenues for governmental activities increased from the previous year by $963,031 or 8%. General revenues increased $846,302 or 8% compared to prior year. The ad valorem tax revenue increased $258,904 or 6% compared to prior year. This increase was due primarily to a change in the tax rate from .4600 to .4850 per $100 assessed valuation. A 1.4% increase in the net assessed taxable value also contributed to this increase. Sales tax revenue increased $574,901 or 12% compared to the prior year. This increase was primarily due to the economic development incentives given to Tejas Tubular and FMC as well as the continued growth at Tarleton State University. 5 CITY OF STEPHENVILLE'S CHANGES IN NET ASSETS Governmental Activities Business-type Activities Totals 201220112012201120122011 Revenues: Program revenues: Charges for services$1,949,792 $1,722,659 $6,954,206 $7,092,932 $8,903,998 $8,815,591 Operating grants29,142 40,015 7,868 5,184 37,010 45,199 Capital grants and contributions159,402 258,933 813,212 528,471 972,614 787,404 General revenues: Property taxes4,381,371 4,122,467 - - 4,381,371 4,122,467 Sales taxes5,191,213 4,616,312 - - 5,191,213 4,616,312 Franchise taxes1,122,934 1,120,678 - - 1,122,934 1,120,678 Other taxes393,461 363,645 - - 393,461 363,645 Gain on sale of capital assets- 12,159 - - - 12,159 Investment earnings14,651 13,517 7,716 5,151 22,367 18,668 Miscellaneous18,320 26,870 - - 18,320 26,870 Total revenues 13,260,286 12,297,255 7,783,002 7,631,738 21,043,288 19,928,993 Expenses: General government1,518,207 1,374,221 - - 1,518,207 1,374,221 Public safety 6,496,290 6,274,700 - - 6,496,290 6,274,700 Streets1,567,117 1,479,381 - - 1,567,117 1,479,381 Culture and recreation2,509,599 2,522,284 - - 2,509,599 2,522,284 Community development433,360 374,335 - - 433,360 374,335 Interest on long-term debt151,197 97,809 - - 151,197 97,809 Water and wastewater- - 4,833,953 4,846,996 4,833,953 4,846,996 Storm water drainage- - 562,207 600,859 562,207 600,859 Sanitary landfill- - 313,978 313,982 313,978 313,982 Airport- - 181,904 160,803 181,904 160,803 Total expenses 12,675,770 12,122,730 5,892,042 5,922,640 18,567,812 18,045,370 Increases in net assets before transfers584,516 174,525 1,890,960 1,709,098 2,475,476 1,883,623 Transfers21,161 (137,203) (21,161) 137,203 - - Change in net assets605,677 37,322 1,869,799 1,846,301 2,475,476 1,883,623 Net assets-beginning25,183,432 25,146,110 32,801,826 30,955,525 57,985,258 56,101,635 Net assets-ending$25,789,109 25,183,432 34,671,625 32,801,826 60,460,734 57,985,258 Business-type Activities. Net assets from business-type activities increased by $1,869,799 or 6% from $32,801,826 to $34,671,625, accounting for 76% of the total growth in net assets. The change in net assets of business-type activities remained relatively consistent with the prior year due to the offsetting effects of changes in revenues and transfers. Revenues of the City’s business-type activities were approximately $7.8 million for the fiscal year ended September 30, 2012. Revenues increased approximately $151,264 or 2% compared to the prior fiscal year. The increase was primarily due to the flow of resources between governmental activities and business-type activities through transfers reversed from the prior year because of a decrease in grant-matching requirements normally funded by governmental activities. Expenses for the City’s business-type activities decreased approximately $30,598 or 1%. Net Assets from business-type activities increased by $1,869,799 or 6 percent, from $32,801,826 to $34,671,625, accounting for the majority of the total growth in net assets. 6 FINANCIAL ANALYSIS OF THE GOVERNMENT’S FUNDS As noted earlier, the City uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. Governmental Funds. The focus of the City’s governmental funds is to provide information on near-term inflows, outflows, and balances of spendable resources. Such information is useful in assessing the City’s financing requirements. In particular, unreserved fund balance may serve as a useful measure of a government’s net resources available for spending at the end of the fiscal year. As of the end of the current fiscal year, the City’s governmental funds reported combined ending fund balances of $11,855,870, an increase of $3,397,337 from the prior year. Approximately 64% of this total amount, $7,632,024, constitutes assigned and unassigned fund balance, which is available for spending at the City’s discretion. The remaining fund balance is nonspendable or restricted to indicate that it is not available for new spending. Refer to page 14 of this report for a more detailed presentation of governmental fund balances. In the General Fund, the City budgeted for a decrease in the fund balance on a budget basis of $2,587,206, but due to actual revenues being more than budgeted and actual expenditures being less than budgeted, the fund balance only decreased by $427,744 during the current fiscal year. Sales tax collections increased by 12% from the previous year but the City collected $665,713 or 15% more than budgeted. Other actual revenues collected were also higher than budgeted: 1) current year and delinquent property taxes were collected at higher rates than projected to generate $77,157; 2) licenses and permit fees were $36,217 more than budgeted; and 3) service charges were also higher than budgeted by $123,799. Expenditures were lower than budgeted across all functions. The fund balance of the Capital Projects Fund was $4,295,982 as of September 30, 2012, an increase of $3,809,747 as compared to the fiscal year ended September 30, 2011. The increase resulted from the issuance of certificates of obligation for the purpose of constructing and improving roads and constructing and equipping a fire station. The Debt Service Fund has an ending fund balance of $120,405, an increase of 13 percent over the prior year, all of which is reserved for the repayment of debt. The Special Revenue Funds have a fund balance of $319,153, an increase of 1 percent over the prior year, all of which is restricted for the special programs defined by revenue source. Proprietary Funds. The City's proprietary funds provide the same type of information found in the government-wide financial statements, but in more detail. Unrestricted net assets of the City's Enterprise Funds at the end of the year amounted to $5,390,736. The increase in net assets was $1,869,799. Other factors concerning the finances of these funds have already been addressed in the discussion of the City's business-type activities. General Fund Budgetary Highlights During the year there was a $1,082,528 increase in appropriations between the original budget and final amended budget. Following are the main components of the increase: $ 67,750 additional appropriation to replace city-wide telephone system $130,661 additional appropriation for an Energy Efficient Light Project. $320,000 additional appropriation for street reconstruction. $500,000 additional appropriation to begin construction of Fire Station #2. Even with these increases in appropriations, the excess in revenues during the year was sufficient to fund these increases without reducing the budgeted General Fund fund balance. 7 Actual expenditures on a budgetary basis were $11,982,239 compared to the final budget expenditures of $13,191,675. The $1,209,436 variance was primarily attributable to capital projects not initiated during the year, due to close monitoring of expenditures by departments and performing better than anticipated. Actual revenues on a budgetary basis were $11,993,955 compared to the final budget of $11,087,269. The $906,686 variance was due primarily to increases in taxes (sales and property), ambulance revenue and licenses/permit fees. Capital Assets. The City's investment in capital assets for its governmental and business-type activities as of September 30, 2012, amounts to $67,044,991 (net of accumulated depreciation). This investment in capital assets includes land, buildings, improvements, vehicles and equipment, park facilities and infrastructure. Major capital asset events occurring during the current fiscal year included the following: Bosque River Trail $122,649; New Fire Truck $368,361; Water Line Replacement $185,500; Major Thoroughfare Renovation Project $310,000 and Construction in Progress - Fire Station #2 $618,951 CITY OF STEPHENVILLE'S CAPITAL ASSETS AT YEAR-END Governmental Activities Business-type Activities Totals 201220112012201120122011 Land$2,323,057 $ $1,083,1202,323,057 $909,278 $3,406,177 $3,232,335 Buildings and improvements5,388,783 4,750,224 18,679,775 17,606,457 24,068,558 22,356,681 Equipment6,997,564 6,408,502 2,949,971 2,631,963 9,947,535 9,040,465 Infrastructure18,761,094 18,205,713 50,796,920 50,662,037 69,558,014 68,867,750 Construction in progress72,368 100,249 72,368 100,249 Less: accumulated depreciation(13,991,698) (12,837,407) (26,015,963) (24,470,886) (40,007,661) (37,308,293) Total Capital Assets$19,478,800 $ $47,566,19118,850,089 $47,439,098 $67,044,991 $66,289,187 Additional information on the City's capital assets can be found on page 36 – 37 of this report. 8 DEBT ADMINISTRATION At the end of the current fiscal year, the City had total bonded debt of $24,772,865. Of this amount, $5,745,000 represents bonded debt backed by the full faith and credit of the City, $11,410,000 represents utility revenue bonds secured by water and sewer revenues and $127,865 represents revenue bonds secured by airport revenues, and $7,490,000 secured by storm water drainage revenues. OUTSTANDING DEBT AT YEAR-END Governmental Activities Business-type Activities Totals 201220112012201120122011 Certificates of obligation$5,745,000 $2,185,000 $- $- $5,745,000 $2,185,000 Revenue bonds payable- - 19,027,865 20,761,865 19,027,865 20,761,865 Total Debt$5,745,000 $2,185,000 $19,027,865 $20,761,865 $24,772,865 $22,946,865 The City's General Obligation, Tax and Certificates of Obligation Bond ratings are listed below. Moody'sStandard Investors Serviceand Poor's General Obligation BondsA3A+ Additional information on the City’s long term-debt can be found in pages 38 – 41 this report. 9 ECONOMIC FACTORS AND NEXT YEAR’S BUDGETS AND RATES The unemployment rate for the City of Stephenville as of the fiscal year-end was 5.2% compared to the prior year rate of 6.5% which is an indication that the local economy is starting to stabilize. This rate compares favorably with state and national unemployment levels. Sales tax collections for 2011-2012 were up by 12% compared to the previous year and collections still exceeded budget by $665,713. Economy seems to be on a rebound but we are still taking a conservative approach in determining estimated collections for the upcoming budget year. The above factors were considered in preparing the City of Stephenville’s budget for the 2012-13 fiscal year. Accordingly, next years’ budget does not include an increase in the property tax rate and will remain at $.4850 per $100 valuation. Certified taxable property value for 2012 is $946 million. This is a 5.72% increase over the last year’s values, or $51 million. The largest portion of the increase, $14.4 million, is new property coming onto the tax rolls and the remainder of the increase due to the reevaluation of existing property. 10 The City uses reserves from the General Fund to supplement capital projects during the year as needs arise and where favorable unit pricing is received on such projects. Additionally, the City’s Fiscal Management Practices call for the designation of any surplus of revenues over expenses at fiscal year-end as a means of providing resources for major capital projects. There are ample funds for transfers during 2013, should the City Council so desire, and still retain the minimum fund balance provisions established by the Fiscal Management Practices. REQUESTS FOR INFORMATION This financial report is designed to provide a general overview of the City's finances for all those with an interest in the government's finances. Questions concerning any of the information provided in this report or requests for additional information should be addressed to Walter G. Wood, Director of Finance, 298 West Washington, Stephenville, Texas 76401- 4257 or call (254) 918-1211. 11 THIS PAGE LEFT BLANK INTENTIONALLY BASIC FINANCIAL STATEMENTS THIS PAGE LEFT BLANK INTENTIONALLY CITY OF STEPHENVILLE, TEXAS STATEMENT OF NET ASSETS SEPTEMBER 30, 2012 GovernmentalBusiness-type ActivitiesActivitiesTotal ASSETS Cash and investments11,117,966$ 4,944,046$ 16,062,012$ Receivables (net of allowances for uncollectibles): Taxes1,178,113 - 1,178,113 Accounts577,153 1,152,788 1,729,941 Inventory17,399 - 17,399 Restricted cash and cash equivalents- 1,021,165 1,021,165 Deferred charges57,750 146,988 204,738 Capital assets: Land2,323,057 1,083,120 3,406,177 Buildings and improvements5,388,783 18,679,775 24,068,558 Machinery and equipment6,997,564 2,949,971 9,947,535 Infrastructure/water and wastewater distribution18,761,094 50,796,920 69,558,014 Construction in progress- 72,368 72,368 26,015,963)( 40,007,661)( (13,991,698) Less: accumulated depreciation 47,566,19119,478,800 67,044,991 Total capital assets 54,831,17832,427,181 87,258,359 Total assets LIABILITIES Accounts payable435,622 420,703 856,325 Accrued liabilities103,036 14,708 117,744 Accrued interest payable17,840 186,126 203,966 Customer deposits- 216,069 216,069 Unearned revenue34,337 14,720 49,057 Noncurrent liabilities: Due within one year687,060 1,939,694 2,626,754 17,367,5335,360,177 22,727,710 Due in more than one year 20,159,5536,638,072 26,797,625 Total liabilities NET ASSETS Invested in capital assets, net of related debt17,500,689 28,438,665 45,939,354 Restricted for: Retirement of long-term debt111,086 818,439 929,525 Airport development- 23,785 23,785 Tourism252,758 - 252,758 Child and public safety42,036 - 42,036 Court technology44,647 - 44,647 5,390,7367,837,893 13,228,629 Unrestricted 34,671,625$ 60,460,734$ $ 25,789,109 Total net assets The notes to the financial statements are an integral part of this statement. 12 THIS PAGE LEFT BLANK INTENTIONALLY CITY OF STEPHENVILLE, TEXAS STATEMENT OF ACTIVITIES FOR THE YEAR ENDED SEPTEMBER 30, 2012 Net (Expense) Revenue and Program RevenuesChanges in Net Assets OperatingCapital Charges forGrants andGrants andGovernmentalBusiness-type Functions/ProgramsExpensesServicesContributionsContributionsActivitiesActivitiesTotal Governmental activities: General government$ 219,0821,518,207$ 4,800$ 61,283$ 1,233,042$( -)$ 1,233,042$() Public safety 1,077,5146,496,290 6,249 - 5,412,527( -) 5,412,527() Streets1,567,117 95,954 - - 1,471,163( -) 1,471,163() Culture and recreation2,509,599 363,650 18,093 98,119 2,029,737 ( -) 2,029,737() Community development 193,592433,360 - - 239,768( -) 239,768() -151,197 - - 151,197)( - 151,197)( Interest on long-term debt 1,949,79212,675,770 29,142 159,402 10,537,434)( - 10,537,434)( Total governmental activities Business-t ype activities: Water and wastewate r 6,055,9364,833,953 - - - 1,221,983 1,221,983 Sanitar y landfill313,978 200,546 - - - 113,432( 113,432)() Airport181,904 93,493 7,868 813,212 - 732,669 732,669 604,231562,207 - - - 42,024 42,024 Storm water drainage 6,954,2065,892,042 7,868 813,212 - 1,883,244 1,883,244 Total business-type activities $ 8,903,99818,567,812$ 37,010$ 972,614$ 10,537,434)( 1,883,244 8,654,190)( Total General revenues: Taxes: Pro perty - generalpurposes -3,787,828 3,787,828 Property - debt service -593,543 593,543 Sales -5,191,213 5,191,213 Franchise -1,122,934 1,122,934 Other -393,461 393,461 Investment earnings 7,71614,651 22,367 Miscellaneous 18,320 - 18,320 21,161 21,161)( - Transfers 13,445)11,143,111( 11,129,666 Total general revenues and transfers Change in net assets605,677 1,869,799 2,475,476 32,801,82625,183,432 57,985,258 Net assets, beginning $ 34,671,62525,789,109$ 60,460,734$ Net assets, ending The notes to the financial statements are an integral part of this statement. 13 THIS PAGE LEFT BLANK INTENTIONALLY CITY OF STEPHENVILLE, TEXAS BALANCE SHEET GOVERNMENTAL FUNDS SEPTEMBER 30, 2012 OtherTotal CapitalGovernmentalGovernmental GeneralProjectsFundsFunds ASSETS Cash and investments6,377,653$ 4,305,688$ 434,625$ 11,117,966$ Receivables (net of allowance for uncollectibles): Taxes1,057,597 - 120,516 1,178,113 Accounts479,034 98,119 - 577,153 17,399 - - 17,399 Inventory 7,931,683 4,403,807 555,141 12,890,631 Total assets LIABILITIES AND FUND BALANCES Liabilities: Accounts payable241,023 107,825 84,560 433,408 Accrued liabilities103,036 - - 103,036 Deferred revenue467,294 - 28,809 496,103 -- 2,214 2,214 Other liabilities 107,825 115,583 1,034,761 811,353 Total liabilities Fund balances: Nonspendable 17,399 - - 17,399 Restricted for: Retirement of long-term debt- - 120,405 120,405 Tourism- - 232,470 232,470 Child and public safety- - 42,036 42,036 Court technology- - 44,647 44,647 Street projects- 1,385,839 - 1,385,839 Construction of fire station- 2,381,050 - 2,381,050 Assigned for: Purchase of emergency ambulance139,442 - - 139,442 Right of way500,000 - - 500,000 Capital projects500,000 529,093 - 1,029,093 Grant matching500,000 - - 500,000 Facilities300,000 - - 300,000 Economic development50,000 - - 50,000 5,113,489 - - 5,113,489 Unassigned 7,120,330 4,295,982 439,558 11,855,870 Total fund balances $ 7,931,683 4,403,807$ 555,141$ Total liabilities and fund balances Capital assets used in governmental activities are not financial resources and therefore are not reported in the funds. 19,478,800 Other long-term assets are not available to pay for current-period expenditures and, therefore, are deferred in the funds. 461,766 Long-term liabilities are not due and payable in the current period and therefore are not reported in the funds. (6,007,327) $ 25,789,109 Net assets of governmental activities The notes to the financial statements are an integral part of this statement. 14 CITY OF STEPHENVILLE, TEXAS STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS FOR THE YEAR ENDED SEPTEMBER 30, 2012 OtherTotal CapitalGovernmentalGovernmental GeneralProjectsFundsFunds REVENUES Taxes: Property3,782,791$ -$ 592,403$ 4,375,194$ Sales5,191,213 - - 5,191,213 Franchise1,122,934 - - 1,122,934 Other39,171 - 334,002 373,173 Service charges1,228,959 62,378 - 1,291,337 Fines and forfeitures283,762 - 35,137 318,899 Licenses and permits182,517 - - 182,517 Intergovernmental135,551 98,119 - 233,670 Investment earnings8,868 5,010 773 14,651 -18,189 - 18,189 Miscellaneous 165,50711,993,955 962,315 13,121,777 Total revenues EXPENDITURES Current: General government1,504,855 - - 1,504,855 Public safety6,193,924 - 16,968 6,210,892 Streets968,236 - - 968,236 Culture and recreation1,917,708 - 350,678 2,268,386 Community development414,769 - - 414,769 Debt service: Principal - - 440,000 440,000 Interest and fiscal charges- - 139,305 139,305 Bond issuance costs- 45,000 - 45,000 810,760982,747 - 1,793,507 Capital outlay 855,76011,982,239 946,951 13,784,950 Total expenditures EXCESS(DEFICIENCY) OF REVENUES 690,253)11,716( 15,364 663,173)( OVER (UNDER) EXPENDITURES OTHER FINANCING SOURCES (USES) Transfers in241,161 500,000 - 741,161 Transfers out720,000)( - - 720,000)( Proceeds from sale of capital assets27,851 - - 27,851 Proceeds from debt issuance- 4,000,000 - 4,000,000 -11,498 - 11,498 Proceeds from insurance ( 4,500,000439,490) - 4,060,510 Total other financing sources (uses) ( 3,809,747427,774) 15,364 3,397,337 NET CHANGE IN FUND BALANCES 486,2357,548,104 424,194 8,458,533 FUND BALANCES, BEGINNING $ 4,295,9827,120,330$ 439,558$ 11,855,870$ FUND BALANCES, ENDING The notes to the financial statements are an integral part of this statement. 15 CITY OF STEPHENVILLE, TEXAS RECONCILIATION OF THE STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE OF GOVERNMENTAL FUNDS TO THE STATEMENT OF ACTIVITIES FOR THE YEAR ENDED SEPTEMBER 30, 2012 AmountsreportedforgovernmentalactivitiesintheStatementofActivities(page13)are different because: Net change in fund balances - total governmental funds (page 15)3,397,337$ Governmentalfundsreportcapitaloutlaysasexpenditures.However,inthestatementof activitiesthecostofthoseassetsisallocatedovertheirestimatedusefullivesandreportedas depreciation expense. 661,985 Theneteffectofvariousmiscellaneoustransactionsinvolvingcapitalassets(i.e.,sales,trade- ins, and donations) is to decrease net assets.33,274)( nthestatementofactivitiesthatdonotprovidecurrentfinancialresourcesarenot Revenuesi reported as revenues in the funds. 123,599 Theissuanceoflong-termdebtprovidescurrentfinancialresourcestogovernmentalfunds, whiletherepaymentoftheprincipaloflong-termdebtconsumesthecurrentfinancialresources ofgovernmentalfunds.Also,governmentalfundsreporttheeffectofissuancecostswhendebt is first issued, whereas these amounts are deferred and amortized in the statement of activities. 3,519,750)( Someexpensesreportedinthestatementofactivitiesdonotrequiretheuseofcurrentfinancial resources and, therefore, are not reported as expenditures in governmental funds. (24,220) $ 605,677 Change in net assets of governmental activities (page 13) The notes to the financial statements are an integral part of this statement. 16 THIS PAGE LEFT BLANK INTENTIONALLY CITY OF STEPHENVILLE, TEXAS GENERAL FUND STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL FOR THE YEAR ENDED SEPTEMBER 30, 2012 Budgeted Amounts ActualVariance with OriginalFinalAmountsFinal Budget REVENUES Taxes8,842,383$ 9,386,134$ 10,136,109$ 749,975$ Service charges973,225 1,105,160 1,228,959 123,799 Fines and forfeitures250,000 295,000 283,762 11,238)( Licenses and permits146,300 146,300 182,517 36,217 Intergovernmental68,600 133,675 135,551 1,876 Investment earnings5,500 5,500 8,868 3,368 15,5007,200 18,189 2,689 Miscellaneous 11,087,26910,293,208 11,993,955 906,686 Total revenues EXPENDITURES Current: General government: City council59,176 56,976 45,996 10,980 City administrator137,497 137,497 135,843 1,654 City secretary90,341 94,482 91,366 3,116 Emergency management6,850 9,450 8,634 816 Municipal buildings128,245 193,608 164,189 29,419 Municipal Service Center101,420 103,019 79,598 23,421 Financial administration and accounting366,882 433,893 431,476 2,417 Purchasing60,109 61,566 58,136 3,430 Tax assessment and collection119,000 120,800 119,124 1,676 Legal counsel66,489 121,489 118,648 2,841 Municipal court138,770 153,770 153,762 8 107,693109,224 98,083 9,610 Human resources 1,594,2431,384,003 1,504,855 89,388 Total general government Public safety: Fire and ambulance administration213,407 249,533 239,654 9,879 Fire prevention and investigation160,381 165,629 88,827 76,802 Fire suppression1,079,165 1,140,331 1,069,230 71,101 Emergency medical services1,133,535 1,094,140 1,088,342 5,798 Volunteer29,841 29,841 16,372 13,469 Police administration123,250 126,123 121,013 5,110 Police patrol1,895,093 1,949,120 1,835,731 113,389 Police communications436,555 453,155 436,845 16,310 Police records272,105 278,502 259,604 18,898 Criminal investigation537,616 556,018 506,808 49,210 (continued) 17 CITY OF STEPHENVILLE, TEXAS GENERAL FUND STATEMENT OF REVENUE, EXPENDITURES AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL (Continued) FOR THE YEAR ENDED SEPTEMBER 30, 2012 Budgeted Amounts ActualVariance with OriginalFinalAmountsFinal Budget EXPENDITURES (Continued) Current: Public safety (continued): Police reserve226,874$ 233,884$ 230,313$ 3,571$ Animal control122,433 129,126 119,482 9,644 205,710204,589 181,703 24,007 Public safety facility 6,611,1126,434,844 6,193,924 417,188 Total public safety Streets: 1,092,007991,743 968,236 123,771 Street maintenance 1,092,007991,743 968,236 123,771 Total streets Culture and recreation: Recreation administration687,477 760,801 784,154 23,353)( Park maintenance443,123 498,273 442,860 55,413 Cemeteries 136,491 140,812 131,776 9,036 Library211,198 244,080 229,459 14,621 Senior citizens center130,198 132,622 129,489 3,133 199,500197,800 199,970 470)( Aquatic Center 1,976,0881,806,287 1,917,708 58,380 Total culture and recreation Community development: Community development planning182,909 187,339 178,635 8,704 Community development inspection204,325 206,944 151,641 55,303 81,03680,036 84,493 3,457)( Code enforcement 475,319467,270 414,769 60,550 Total community development 11,748,76911,084,147 10,999,492 749,277 Total current (continued) 18 CITY OF STEPHENVILLE, TEXAS GENERAL FUND STATEMENT OF REVENUE, EXPENDITURES AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL (Continued) FOR THE YEAR ENDED SEPTEMBER 30, 2012 Budgeted Amounts ActualVariance with OriginalFinalAmountsFinal Budget EXPENDITURES (Continued) Capital outlay: General government: $ - 70,050$ 70,813$ 763)$( Municipal buildings - 70,050 70,813 763)( Total general government Public safety: Fire and ambulance administration- 3,556 3,523 33 Fire suppression380,000 380,000 368,362 11,638 Emergency medical services140,000 152,300 13,183 139,117 Police patrol95,000 95,000 101,917 6,917)( - 12,000 11,870 130 Police communications 642,856615,000 498,855 144,001 Total public safety Streets: 610,000290,000 392,191 217,809 Street maintenance 610,000290,000 392,191 217,809 Total streets Culture and recreation: 120,000120,000 20,888 99,112 Park maintenance 120,000120,000 20,888 99,112 Total culture and recreation 1,442,9061,025,000 982,747 460,159 Total capital outlay 13,191,67512,109,147 11,982,239 1,209,436 Total expenditures EXCESS (DEFICIENCY) OF REVENUES ( 2,104,406)1,815,939)( 11,716 2,116,122 OVER (UNDER) EXPENDITURES OTHER FINANCING SOURCES (USES) Transfers in206,000206,000 241,16135,161 Transfers out- 720,000)( 720,000)( - Proceeds from sale of capital assets7,000 26,700 27,851 1,151 - 4,500 11,498 6,998 Proceeds from insurance 482,800)213,000( 439,490)( 43,310 Total other financing sources (uses) ( 2,587,206)1,602,939)( 427,774)( 2,159,432 NET CHANGE IN FUND BALANCE 7,548,1047,548,104 7,548,104 - FUND BALANCE, BEGINNING $ 4,960,8985,945,165$ 7,120,330$ 2,159,432$ FUND BALANCE, ENDING The notes to the financial statements are an integral part of this statement. 19 THIS PAGE LEFT BLANK INTENTIONALLY CITY OF STEPHENVILLE, TEXAS STATEMENT OF NET ASSETS PROPRIETARY FUNDS SEPTEMBER 30, 2012 Business-type Activities - Enterprise Funds Water andStorm WaterOther WastewaterDrainageFundsTotal ASSETS Current assets: Cash and investments3,729,493$ 1,189,800$ 24,753$ 4,944,046$ 1,082,05367,2033,532 1,152,788 Accounts receivable - net 1,257,0034,811,546 28,285 6,096,834 Total current assets Noncurrent assets: Restricted cash and cash equivalents801,084 196,296 23,785 1,021,165 ges76,266 70,722 - 146,988 Deferred char Capital assets: Land163,721 - 919,399 1,083,120 gs and improvements2,367,988 10,213,0226,098,765 18,679,775 Buildin quipment1,675,581 - 1,274,390 2,949,971 E Water and wastewater distribution50,796,920- - 50,796,920 progress- - 72,368 72,368 Construction in ( 764,064)23,259,151)( 1,992,748)( 26,015,963)( Less: accumulated depreciation 9,448,95831,745,059 6,372,174 47,566,191 Total capital assets 9,715,97632,622,409 6,395,959 48,734,344 Total noncurrent assets 10,972,97937,433,955 6,424,244 54,831,178 Total assets LIABILITIES Current liabilities: Accounts payable417,000 - 3,703 420,703 Accrued liabilities12,948 - 1,760 14,708 Accrued interest141,545 37,396 7,185 186,126 Customer deposits214,869 - 1,200 216,069 Unearned revenue- - 14,720 14,720 Compensated absences payable31,900 - 3,133 35,033 Capital lease- - 99,661 99,661 20,000235,000 1,805,000 1,550,000 Bonds payable 272,396 151,362 2,792,020 2,368,262 Total current liabilities Long-term liabilities: Compensated absences payable11,257 - 92 11,349 Bonds payable9,860,000 7,255,000 107,865 17,222,865 -- 133,319 133,319 Liability for landfill closure 7,255,0009,871,257 241,276 17,367,533 Total long-term liabilities 7,527,39612,239,519 392,638 20,159,553 Total liabilities NET ASSETS pital assets, net of related debt20,335,0591,958,958 6,144,648 28,438,665 Invested in ca Restricted for debt service659,539 158,900 - 818,439 port development- - 23,785 23,785 Restricted for air 1,327,725 136,827)( 5,390,736 4,199,838 Unrestricted $ 3,445,58325,194,436$ 6,031,606$ 34,671,625$ Total net assets The notes to the financial statements are an integral part of this statement. 20 THIS PAGE LEFT BLANK INTENTIONALLY CITY OF STEPHENVILLE, TEXAS STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN FUND NET ASSETS PROPRIETARY FUNDS FOR THE YEAR ENDED SEPTEMBER 30, 2012 Business-type Activities - Enterprise Funds Water andStorm WaterOther WastewaterDrainageFundsTotal OPERATING REVENUES Water sales3,420,745$ -$ -$ 3,420,745$ Wastewater charges2,421,952 - - 2,421,952 Tap and collection fees143,861 - - 143,861 Delinquent charges38,590 8,363 - 46,953 Gate charges- - 199,704 199,704 88,010 Hanger rental- - 88,010 Storm water drainage fees- 595,868 - 595,868 -30,78837,113 6,325 Other service charges 604,2316,055,936 294,039 6,954,206 Total operating revenues OPERATING EXPENSES Personnel services1,067,828 - 1,200,456 132,628 Contractual services1,060,392 - 1,095,347 34,955 Utilities443,314 - 469,888 26,574 Repairs and maintenance325,643 - 344,768 19,125 Other 209,358 201 249,711 40,152 255,2451,291,8411,776,506 229,420 Depreciation 255,4464,398,376 482,854 5,136,676 Total operating expenses 348,7851,657,560 188,815)( 1,817,530 OPERATING INCOME (LOSS) NONOPERATING REVENUES (EXPENSES) Investment earnings6,138 1,547 7,716 31 Interest and fiscal charges on debt487,963)( 306,761)( 13,028)( 807,752)( Intergovernmental - 7,868 - 7,868 -52,386 - 52,386 Gain on sale of assets ( 305,214)429,439)( 5,129)( 739,782)( Total nonoperating revenues (expenses) INCOME (LOSS) BEFORE CONTRIBUTIONS 43,5711,228,121 193,944)( 1,077,748 AND TRANSFERS -- 813,212 CAPITAL CONTRIBUTIONS 813,212 -- 220,000 220,000 TRANSFERS IN ( -241,161) - 241,161)( TRANSFERS OUT 43,571986,960 839,268 1,869,799 CHANGE IN NET ASSETS 3,402,01224,207,476 5,192,338 32,801,826 TOTAL NET ASSETS, BEGINNING $ 3,445,58325,194,436$ 6,031,606$ 34,671,625$ TOTAL NET ASSETS, ENDING The notes to the financial statements are an integral part of this statement. 21 CITY OF STEPHENVILLE, TEXAS STATEMENT OF CASH FLOWS PROPRIETARY FUNDS FOR THE YEAR ENDED SEPTEMBER 30, 2012 Business-type Activities - Enterprise Funds Water andStorm WaterOther WastewaterDrainageFundsTotal CASH FLOWS FROM OPERATING ACTIVITIES Cash received from customers6,079,630$ 599,137$ 295,892$ 6,974,659$ Cash payments to employees1,053,229)( - 132,407)( 1,185,636)( ( 417)2,080,188)( 119,512)( 2,200,117)( Cash payments to suppliers for goods and services 598,7202,946,213 43,973 3,588,906 Cash provided by operating activities CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES Interfund receivables repaid by other funds12,393 - - 12,393 Cash received from operating grant- - 7,868 7,868 ( -241,161) - 241,161)( Transfers to other funds ( -228,768) 7,868 220,900)( Cash provided (used) by noncapital financing activities CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Principal payments on capital lease- - 94,460)( 94,460)( Principal payments on bonds1,490,000)( 225,000)( 19,000)( 1,734,000)( Interest and fiscal charges on debt482,600)( 303,614)( 17,208)( 803,422)( Transfers from other funds for capital acquisition- - 220,000 220,000 Proceeds from sale of capital assets78,100 - - 78,100 ( 30,000)678,908)( 292,505)( 1,001,413)( Acquisition and construction of capital assets Cash used by capital and ( 558,614)2,573,408)( 203,173)( 3,335,195)( related financing activities CASH FLOWS FROM INVESTING ACTIVITIES 1,5476,138 31 7,716 Interest on investments 1,5476,138 31 7,716 Cash provided by investing activities NET INCREASE (DECREASE) IN CASH AND 41,653150,175 151,301)( 40,527 CASH EQUIVALENTS 1,344,4434,380,402 199,839 5,924,684 CASH AND CASH EQUIVALENTS, BEGINNING $ 1,386,0964,530,577$ 48,538$ 5,965,211$ CASH AND CASH EQUIVALENTS, ENDING (Including $801,084 for the Water and Wastewater Fund, $196,296 for the Storm Water Drainage Fund, and $23,785 for nonmajor funds in restricted cash and cash equivalents) (continued) 22 CITY OF STEPHENVILLE, TEXAS STATEMENT OF CASH FLOWS PROPRIETARY FUNDS (Continued) FOR THE YEAR ENDED SEPTEMBER 30, 2012 Business-type Activities - Enterprise Funds Water andStorm WaterOther WastewaterDrainageFundsTotal RECONCILIATION OF OPERATING INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES Operating income (loss)1,657,560$ 348,785$ 188,815)$( 1,817,530$ Adjustments to reconcile operating income to net cash provided by operating activities: Depreciation1,291,841 255,245 229,420 1,776,506 Change in assets and liabilities: Decrease (increase) in accounts receivable12,302 5,094)( 2,193 9,401 Increase (decrease) in accounts payable41,481)( 216)( 940)( 42,637)( Increase (decrease) in accrued liabilities675 - 2,311 2,986 Increase (decrease) in unearned revenue- - 640)( 640)( Increase (decrease) in customer deposits11,392 - 300 11,692 -13,924 144 14,068 Increase (decrease) in compensated absences 249,9351,288,653 232,788 1,771,376 Total adjustments $ 598,7202,946,213$ 43,973$ 3,588,906$ Net cash provided by operating activities NONCASH INVESTING, CAPITAL, AND FINANCING ACTIVITIES $ --$ 813,212$ 813,212$ Contributions of capital assets The notes to the financial statements are an integral part of this statement. 23 CITY OF STEPHENVILLE, TEXAS NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2012 I. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The City of Stephenville, Texas, was incorporated August 6, 1989, and operates as a home rule City. The City operates under a mayor-council form of government and provides the following services as authorized by its charter, general government, public safety (police, fire and EMS), streets, community development (planning and zoning, licensing, permitting and inspection), water and wastewater system, culture and recreation, airport and sanitary landfill. A. Reporting Entity The accompanying financial statements comply with the provisions of the GASB Statements No. 14 and 39, “The Financial Reporting Entity,” in that the financial statements include all organizations, activities, functions and component units for which the City (the “primary government”) is financially accountable. Financial accountability is defined as the appointment of a voting majority of a legally separate organization’s governing body and either (1) the City’s ability to impose its will over the organization, or (2) the potential that the organization will provide a financial benefit to or impose a financial burden on the City. There are no component units which satisfy requirements for blending within the City’s financial statements or for discrete presentation. B. Government-wide Fund Financial Statements The government-wide financial statements (i.e., the statement of net assets and the statement of activities) report information on all of the nonfiduciary activities of the primary government. For the most part, the effect of interfund activity has been removed from these statements. Governmental activities, which normally are supported by taxes and intergovernmental revenue, are reported separately from business-type activities, which rely to a significant extent on fees and charges for support. The statement of activities demonstrates the degree to which the direct expenses of a given function or segment are offset by program revenue. Direct expenses are those that are clearly identifiable with a specific function or segment. Program revenue includes 1) charges to customers or applicants who purchase, use, or directly benefit from goods, services, or privileges provided by a given function or segment, and 2) grants and contributions that are restricted to meeting the operational or capital requirements of a particular function or segment. Taxes and other items not properly included among program revenue are reported instead as general revenue. (continued) 24 I. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) B. Government-wide Fund Financial Statements (Continued) Separate financial statements are provided for governmental funds and proprietary funds. Major individual governmental funds and major individual enterprise funds are reported as separate columns in the fund financial statements. C. Measurement Focus, Basis of Accounting and Financial Statement Presentation The government-wide financial statements are reported using the economic resources measurement focus and the accrual basis of accounting, as are the proprietary fund and fiduciary fund financial statements. 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 provider have been met. 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, the government considers revenue to be available if collected within 60 days of the end of the current fiscal period. Expenditures generally are recorded when a liability is incurred, as under accrual accounting. However, debt service expenditures, as well as expenditures related to compensated absences and claims and judgments, are recorded only when payment is due. Property taxes, franchise taxes, sales taxes, charges for services, fines and interest associated with the current fiscal period are all considered to be susceptible to accrual and so have been recognized as revenue of the current fiscal period. All other revenue items are considered to be measurable and available only when cash is received by the City. Governmental Funds are those through which most governmental functions of the City are financed. The acquisition, use, and balances of the City’s expendable financial resources and the related liabilities (except those accounted for in the proprietary fund type) are accounted for through governmental funds. The measurement focus is upon determination of changes in financial position, rather than upon net income determination. (continued) 25 I. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) C. Measurement Focus, Basis of Accounting and Financial Statement Presentation (Continued) The City reports the following major governmental funds: TheGeneral Fund is the general operating fund of the City. It is used to account for all financial resources except those required to be accounted for in another fund. TheCapital Projects Fund is used to account for financial resources to be used for the acquisition or construction of general major capital facilities. Financing is provided primarily by the sale of general obligation bonds and developer contributions. The City reports the following major proprietary funds: TheWater and Wastewater Fund is used to account for the activities necessary for the provisions of water and wastewater services. TheStorm Water Drainage Fund is used to account for the activities necessary for the provisions of storm water drainage services. Private-sector standards of accounting and financial reporting issued prior to December 1, 1989, generally are followed in both the government-wide and proprietary fund financial statements to the extent that those standards do not conflict with or contradict guidance of the Governmental Accounting Standards Board. Governments also have the option of following subsequent private-sector guidance for their business-type activities and Enterprise Funds, subject to this same limitation. The City has elected not to follow subsequent private-sector guidance. As a general rule, the effect of interfund activity has been eliminated from the government- wide financial statements. Exceptions to this general rule are charges between the City’s water and wastewater function and various other functions of the government. Elimination of these charges would distort the direct costs and program revenue reported for the various functions concerned. Amounts reported as program revenues include: 1) charges to customers or applicants for goods, services, or privileges provided, 2) operating grants and contributions, and 3) capital grants and contributions, including special assessments. Internally dedicated resources are reported as general revenues rather than as program revenue. Likewise, general revenue includes all taxes. (continued) 26 I. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) C. Measurement Focus, Basis of Accounting and Financial Statement Presentation (Continued) 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 revenues of the City’s Enterprise Funds are charges to customers for sales and services. Operating expenses for enterprise funds include the cost of sales and services, administrative expenses, and depreciation on capital assets. All revenue and expenses not meeting this definition are reported as nonoperating revenue and expenses. D. Assets, Liabilities and Net Assets or Equity Cash and Cash Equivalents For purpose of presenting the proprietary fund cash flow statement, cash and cash equivalents include cash demand and time deposits and investments with a maturity date within three months of the date acquired by the City. Investments State statutes authorize the City to invest in (1) obligations of the United States or its agencies and instrumentalities; (2) direct obligations of the State of Texas or its agencies; (3) other obligations, the principal of and interest on which are unconditionally guaranteed or insured by the State of Texas or the United States; (4) obligations of states, agencies, counties, cities, and other political subdivisions of any state having been rated as to investment quality by a nationally recognized investment rating firm and having received a rating of not less than “A” or its equivalent; (5) certificates of deposit by state and national banks domiciled in this state that are (a) guaranteed or insured by the Federal Deposit Insurance Corporation, or its successor; or, (b) secured by obligations that are described by (1) – (4); or, (6) fully collateralized direct repurchase agreements having a defined termination date, secured by obligations described by (1) pledged with third-party selected or approved by the City, and placed through a primary government securities dealer. Investments maturing within one year of date of purchase are stated at cost or amortized cost. All other investments are stated at fair value, which is based on quoted market prices. Short-term Interfund Receivables/Payables During the course of operations, numerous transactions occur between individual funds for goods provided or services rendered. These receivables and payables are classified as “due from other funds” or “due to other funds” on the balance sheet. Any residual balances outstanding between the governmental activities and business-type activities are reported in the government-wide financial statements as “internal balances.” (continued) 27 I. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) D. Assets, Liabilities and Net Assets or Equity (Continued) Inventories All inventories are valued at cost (first-in, first-out method). Inventories of governmental funds are recorded as expenditures when consumed rather than when purchased. Restricted Assets Certain bond proceeds, as well as certain resources set aside for their repayment, are classified as restricted assets on the balance sheet because their use is limited by applicable bond covenants. Capital Assets Capital assets, which include property, plant, equipment and infrastructure assets (e.g. roads, bridges, sidewalks and similar items) are reported in the applicable governmental or business-type activities columns in the government-wide financial statements. The City defines capital assets as assets with an initial, individual cost of more than $1,000 and an estimated useful life in excess of one year. Such assets are recorded at historical cost or estimated historical cost if purchased or constructed. Donated capital assets are recorded at estimated fair market value at the date of donation. The costs of normal maintenance and repairs that do not add to the value of the asset or materially extend assets’ lives are not capitalized. Major outlays for capital assets and improvements are capitalized as projects are constructed. Property, plant and equipment is depreciated using the straight-line method over the following estimated useful lives: AssetsYears Airport improvements40 Buildings20 to 40 Waterworks and sanitation systems33 1/3 Infrastructure20 Machinery and equipment7 to 10 Compensated Absences The City permits employees to accumulate earned but unused vacation pay benefits. Certain employees previously covered by civil service policies also have carried forward unused sick leave benefits. No liability is reported for unpaid accumulated sick leave for the remaining employees. Vacation pay is accrued when incurred in the applicable governmental activities, business-type activities, or proprietary fund type statement of net assets. A liability for these amounts is reported in governmental funds only if they have matured (for example, as a result of employee resignations and retirements). (continued) 28 I. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) D. Assets, Liabilities and Net Assets or Equity (Continued) Long-term Obligations In the government-wide financial statements and proprietary fund types in the fund financial statements, long-term debt and other long-term obligations are reported as liabilities in the applicable governmental activities, business-type activities, or proprietary fund type statement of net assets. Bond premiums and discounts, as well as issuance costs, are deferred and amortized over the life of the bonds using the straight-line method, which approximates the effect interest method. Bonds payable are reported net of the applicable bond premium or discount. Bond issuance costs are reported as deferred charges and amortized over the term of the related debt. In the fund financial statements, governmental fund types recognize bond premiums and discounts, as well as issuance costs during the current period. The face amount of debt issued is reported as other financing sources. Premiums received on debt issuances are reported as other financing sources while discounts are reported as other financing uses. Issuance costs, even if withheld from the actual net proceeds received, are reported as expenditures. Fund Balance Classification The governmental fund financial statements present fund balances based on classifications that comprise a hierarchy that is based primarily on the extent to which the City is bound to honor constraints on the specific purposes for which amounts in the respective governmental funds can be spent. The classifications used in the governmental fund financial statements are as follows: Nonspendable: This classification includes amounts that cannot be spent because they are either (a) not in spendable form or (b) are legally or contractually required to be maintained intact. Nonspendable items are not expected to be converted to cash or are not expected to be converted to cash within the next year. Restricted: This classification includes amounts for which constraints have been placed on the use of the resources either (a) externally imposed by creditors, grantors, contributors, or laws or regulations of other governments, or (b) imposed by law through constitutional provisions or enabling legislation. Committed: This classification includes amounts that can be used only for specific purposes pursuant to constraints imposed by ordinance of the City Council, the City’s highest level of decision making authority. These amounts cannot be used for any other purpose unless the Council approves a new ordinance to remove or change the specified use for which the funds were initially committed. This classification also includes contractual obligations to the extent that existing resources have been specifically committed for use in satisfying those contractual requirements. (continued) 29 I. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) D. Assets, Liabilities and Net Assets or Equity (Continued) Fund Balance Classification (Continued) Assigned: This classification includes amounts that are constrained by the City’s intent to be used for a specific purpose but are neither restricted nor committed. This intent can be expressed by the City Council. Unassigned: This classification includes the residual fund balance for the General Fund. The unassigned classification also includes negative residual fund balance of any other governmental fund that cannot be eliminated by offsetting of assigned fund balance amounts. When an expenditure is incurred for purposes for which both restricted and unrestricted fund balance is available, the City considers restricted funds to have been spent first. When an expenditure is incurred for which committed, assigned, or unassigned fund balances are available, the City considers amounts to have been spent first out of committed funds, then assigned funds, and finally unassigned funds. Net Assets Net assets represent the difference between assets and liabilities. Net assets invested in capital assets, net of related debt consists of capital assets, net of accumulated depreciation, reduced by the outstanding balances of any borrowing used for the acquisition, construction or improvements of those assets, and adding back unspent proceeds. Net assets are reported as restricted when there are limitations imposed on their use either through the enabling legislations adopted by the City or through external restrictions imposed by creditors, grantors or laws or regulations of other governments. Estimates The preparation of financial statements, in conformity with generally accepted accounting principles, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual amounts could differ from those estimates. 30 II. RECONCILIATION OF GOVERNMENT-WIDE AND FUND FINANCIAL STATEMENTS Explanation of Certain Differences Between the Governmental Fund Balance Sheet and the Government-wide Statement of Net Assets The governmental fund balance sheet includes a reconciliation between fund balance – total governmental funds and net assets – governmental activities as reported in the government-wide statement of net assets. One element of that reconciliation explains, “Long-term liabilities are not due and payable in the current period and therefore are not reported in the funds.” The details of this $6,007,327 difference are as follows: General obligations5,745,000$ Accrued interest payable17,840 Compensated absences302,237 ( 57,750) Deferred charges Net adjustment to reduce fund balance - total governmental funds to arrive at net assets - $6,007,327 governmental activities Explanation of Certain Differences Between the Governmental Fund Statement of Revenue, Expenditures and Changes in Fund Balances and the Government-wide Statement of Activities The governmental fund statement of revenue, expenditures and changes in fund balances includes a reconciliation between net changes in fund balances – total governmental fund and changes in net assets of governmental activities as reported in the government-wide statement of activities. One element of that reconciliation explains, “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 and reported as depreciation expense.” The details of this $661,985 difference are as follows: Capital outlay1,907,864$ (1,245,879) Depreciation expense Net adjustment to increase net changes in fund balances - total governmental funds to arrive at $ 661,985 changes in net assets of governmental activities Another element of that reconciliation states, “Revenues in the statement of activities that do not provide current financial resources are not reported as revenues in the funds.” The details of this $123,599 difference are as follows: Property taxes6,177$ Occupancy taxes20,288 Ambulance charges for services117,055 ( 19,921) Municipal court fines Net adjustment to increase net changes in fund balances - total governmental funds to arrive at changes in net $ 123,599 assets of governmental activities (continued) 31 II. RECONCILIATION OF GOVERNMENT-WIDE AND FUND FINANCIAL STATEMENTS (Continued) Explanation of Certain Differences Between the Governmental Fund Statement of Revenue, Expenditures and Changes in Fund Balances and the Government-wide Statement of Activities (Continued) Another element of that reconciliation states that, “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.” The details of this $88,200 difference are as follows: Accrued interest7,142$ Retainage payment59,230)( 76,308 Compensated absences Net adjustment to decrease net changes in fund balances - total governmental funds to arrive at changes in net $ 24,220 assets of governmental activities Another element of that reconciliation states that, “The issuance of long-term debt provides current financial resources to governmental funds, while the repayment of the principal of long- term debt consumes the current financial resources of governmental funds. Also, governmental funds report the effect of issuance costs when debt is first issued, whereas these amounts are deferred and amortized in the statement of activities.” The details of this $3,455,770 difference are as follows: Issuance of general obligation bonds4,000,000$ Issuance costs deferred45,000)( Principal repayments on general obligation bonds440,000)( 4,750 Amortization of deferred charges Net adjustment to decrease net changes in fund balances - total governmental funds to arrive at changes in net $ 3,519,750 assets of governmental activities III. STEWARDSHIP, COMPLIANCE AND ACCOUNTABILITY A. Budgets Budgets are adopted on a basis consistent with generally accepted accounting principles. Annual appropriated budgets are adopted for the General Fund, Special Revenue Funds, and the Debt Service Fund. All annual appropriations lapse at the end of each fiscal year. Budgets are adopted for the proprietary funds annually only as a management tool. There are no legally mandated budgetary constraints for the proprietary funds. (continued) 32 III. STEWARDSHIP, COMPLIANCE AND ACCOUNTABILITY (Continued) A. Budgets (Continued) In May of each year, budget preparation packages are distributed to all City agencies. The agencies of the City submit requests for appropriation to the City Administrator before June 15 so that a budget may be prepared. The budget is prepared by department and includes information on the past year, current year estimates and requested appropriations for the next fiscal year. During August, the proposed budget is presented to the City Council for review. The City Council holds one public hearing before August 31 and may add to, subtract from, or change appropriations. Any changes in the budget must be within the revenue and reserves estimated as available by the City Administrator, or the revenue estimates must be changed by an affirmative vote of a majority of the City Council. The appropriated budget is prepared by fund, function and department. The City’s management may make transfers of appropriations within a department. Transfers of appropriations between departments require the approval of the City Council. The legal level of budgetary control is the department level. The City Council made several supplementary budget appropriations during the year. Encumbrances represent commitments related to unperformed contracts for goods or services. Encumbrance accounting, under which purchase orders, contracts and other commitments for the expenditure of resources are recorded to reserve that portion of the applicable appropriation, is utilized in the governmental funds. Encumbrances lapse at year- end and do not constitute expenditures or liabilities because the commitments must be reappropriated and honored during the subsequent year. B. Expenditures over Appropriations Expenditures exceeded appropriations in the General Fund in various departments. The following overruns were funded by unexpected revenues. Culture and recreation: Recreation administration23,353$ Aquatic center470 Community development: Code enforcement3,457 33 IV. DETAILED NOTES ON ALL FUNDS A. Deposits and Investments Substantially all deposits and investments are maintained in consolidated cash and investment accounts. Interest income relating to consolidated deposits and investments is allocated to the individual funds monthly based on each fund’s prorate share of total consolidated cash, deposits and investments. Legal provisions generally permit the City to invest in certificates of deposit, repurchase agreements, public funds investment pools, direct obligations of the United States of America or its subdivisions and state and local government securities. During the year ended September 30, 2012, the City did not own any types of securities other than those permitted by statute. As of September 30, 2012, the City had the following investments: Weighted Average Investment TypeFair ValueMaturity (Days) Tex Pool9,914,660$ 41 6,667,395 TexStar44 $16,582,055 Total fair value Portfolio weighted average maturity (days)42 The City’s investment pools are 2a7-like pools. A 2a7-like pool is one which is not registered with the Securities and Exchange Commission (“SEC”) as an investment company, but nevertheless has a policy that it will, and does, operate in a manner consistent with the SEC’s Rule 2a7 of the Investment Company Act of 1940. Under the TexPool Participation Agreement, administrative and investment services to TexPool are provided by Lehman Brothers, Inc. and Federated Investors, Inc. through an agreement with the State of Texas Comptroller of Public Accountants. The State Comptroller is the sole officer, director, and shareholder of the Texas Treasury Safekeeping Trust Company authorized to operate TexPool. The fund is rated AAAm by Standard & Poor’s. TexSTAR is a local government investment pool created under the Interlocal Cooperation Act. The fund is rated AAAm by Standard & Poor’s and maintains a maturity of 60 days or less, with a maximum maturity of 13 months for any individual security. The fund fulfills all requirements of the Texas Public Funds Investment Act for local government investment pools. TexSTAR is administered by First Southwest Asset Management, Inc. and JP Morgan Chase. The fair value of the City’s position in these pools is the same as the value of the pool shares. Interest Rate Risk. In accordance with its investment policy, the City manages its exposure to declines in fair market values by limiting the weighted average maturity of its investment portfolios to a maximum of 180 days. (continued) 34 IV. DETAILED NOTES ON ALL FUNDS (Continued) A. Deposits and Investments (Continued) Custodial Credit Risk. In the case of deposits, this is the risk that in the event of a bank failure, the City’s deposits may not be returned to it. State statues require that all deposits in financial institutions be fully collateralized by U. S. Government obligations or its agencies and instrumentalities or direct obligations of Texas or its agencies and instrumentalities that have a fair value of not less than the principal amount of deposits. As of September 30, 2012, the City’s entire deposit balance was collateralized with securities held by the pledging financial institution or covered by FDIC insurance. Credit Risk. It is the City’s policy to limit its investments to investment types with an investment quality rating not less than A or its equivalent by a nationally recognized statistical rating organization. B. Receivables Receivables as of year-end for the City’s individual major funds and nonmajor funds in the aggregate, including the applicable allowances for uncollectible accounts, are as follows: Governmental FundsEnterprise Funds CapitalNonmajorWater andStorm WaterNonmajor GeneralProjectsFundsWastewaterDrainageFundsTotal Receivables: Accounts: Customers3,050$ -$ -$ 1,494,666$ 77,574$ 3,532$ 1,578,822$ Ambulance1,085,244 - - - - - 1,085,244 Municipal court fines1,134,615 - - - - - 1,134,615 Intergovernmental- 98,119 - - - - 98,119 Other51,472 - - 14,925 - - 66,397 Taxes: Property110,143 - 19,156 - - - 129,299 Sales 965,328 - - - - - 965,328 Occupancy- - 109,156 - - - 109,156 - - - - - 28,212 28,212 Other Gross receivables3, 98,119378,064 128,312 1,509,591 77,574 3,532 5,195,192 Less: allowance for - 7,796)( 427,538)( 10,371)( - 2,287,138)( (1,841,433) uncollectibles $1,536,631 98,119$ 120,516$ 1,082,053$ 67,203$ 3,532$ 2,908,054$ Net total receivables (continued) 35 IV. DETAILED NOTES ON ALL FUNDS (Continued) B. Receivables (Continued) Governmental funds report deferred revenue in connection with receivables for revenue that is not considered to be available to liquidate liabilities of the current period. Governmental funds also defer revenue recognition in connection with resources that have been received, but not yet earned. At the end of the current fiscal year, the various components of deferred revenue and unearned revenue reported in the governmental funds were as follows: UnavailableUnearned Delinquent property taxes receivable (general fund)55,439$ -$ Delinquent property taxes receivable (debt service)8,521 - Other taxes20,288 - Ambulance charges for services 180,063 - Municipal court fines197,455 - - 34,337 Other 34,337$ $ 461,766 Total governmental funds C. Property Tax Calendar Property taxes assessed on property valuations as of January 1 each year are levied on the subsequent October 1. Property taxes attach as an enforceable lien on property at the time levied. Property taxes are considered due when levied and become delinquent on the following February 1. On this date, penalties and interest may be assessed by the City. D. Capital Assets Capital asset activity for the year ended September 30, 2012, was as follows: BeginningEnding BalanceIncreasesDecreasesBalance Governmental activities: Capital assets, not being depreciated: $ 2,323,057 -$ -$ 2,323,057$ Land 2,323,057 - - 2,323,057 Total assets not being depreciated Capital assets, being depreciated: Buildings and improvements4,750,224 638,559 - 5,388,783 Machinery and equipment6,408,502 713,924 124,862 6,997,564 18,205,713 555,381 - 18,761,094 Infrastructure 29,364,439 1,907,864 124,862 31,147,441 Total capital assets being depreciated Accumulated depreciation: Buildings and improvements1,253,097 112,543 - 1,365,640 Machinery and equipment4,445,086 410,396 91,588 4,763,894 7,139,224 722,940 - 7,862,164 Infrastructure 12,837,407 1,245,879 91,588 13,991,698 Total accumulated depreciation 16,527,032 661,985 33,274 17,155,743 Total capital assets being depreciated, net $18,850,089 661,985$ 33,274$ 19,478,800$ Governmental activities capital assets, net (continued) 36 IV. DETAILED NOTES ON ALL FUNDS (Continued) D. Capital Assets (Continued) BeginningEnding BalanceIncreasesDecreasesBalance Business-type activities: Capital assets, not being depreciated: Land909,278$ 173,842$ -$ 1,083,120$ 72,368100,249 100,249 72,368 Construction in progress 246,2101,009,527 100,249 1,155,488 Total assets not being depreciated Capital assets, being depreciated: Buildings and improvements17,606,457 1,083,318 10,000 18,679,775 Machinery and equipment2,631,963 575,151 257,143 2,949,971 194,46750,662,037 59,584 50,796,920 Water and wastewater system 1,852,93670,900,457 326,727 72,426,666 Total capital assets being depreciated Accumulated depreciation: Buildings and improvements2,194,012 423,727 - 2,617,739 Machinery and equipment1,719,677 210,800 231,429 1,699,048 1,141,97920,557,197 - 21,699,176 Water and wastewater system 1,776,50624,470,886 231,429 26,015,963 Total accumulated depreciation 76,43046,429,571 95,298 46,410,703 Total capital assets being depreciated, net $ 322,64047,439,098$ 195,547$ 47,566,191$ Business-type activities capital assets, net Depreciation expense was charged to functions/programs of the City as follows: Governmental activities: General government69,163$ Public safety255,627 Streets 598,427 Culture and recreation316,252 6,410 Community development $ 1,245,879 Total depreciation expense - governmental activities Business-type activities: Water and wastewater1,291,841$ Storm water drainage255,245 Landfill106,421 122,999 Airport $ 1,776,506 Total depreciation expense - business-type activities (continued) 37 IV. DETAILED NOTES ON ALL FUNDS (Continued) E. Interfund Transfers Interfund transfers during the year ended September 30, 2012, are as follows: Transfers InTransfers OutAmount Nonmajor enterpriseGeneral220,000$ Capital projectsGeneral500,000 241,161 GeneralWater and wastewater $ 961,161 Total interfund transfers The transfer to nonmajor Enterprise Funds was to fund capital improvements to the airport and landfill. The transfer to the Capital Projects Fund was to fund the construction of a new fire station. The transfer from the Water and Wastewater Fund to the General Fund was for payments in lieu of taxes. F. Long-term Debt Changes in Long-term Liabilities Long-term liability activity from the year ended September 30, 2012, was as follows: BalanceBalanceDue Within 09/30/11AdditionsReductions09/30/12One Year Governmental activities: General obligation bonds2,185,000$ 4,000,000$ 440,000$ 5,745,000$ 445,000$ Retainage payable59,230 - 59,230 - - 323,861225,929 247,553 302,237 242,060 Compensated absences payable $ 4,323,8612,470,159$ 746,783$ 6,047,237$ 687,060$ Total governmental activities Business-type activities: Revenue bonds/certificates of obligation20,761,865$ -$ 1,734,000$ 19,027,865$ 1,805,000$ Capital lease194,121 - 94,460 99,661 99,661 Estimated landfill closure and postclosure costs131,085 2,234 - 133,319 - 50,46032,314 36,392 46,382 35,033 Compensated absences payable $ 52,69421,119,385$ 1,864,852$ 19,307,227$ 1,939,694$ Total business-type activities The General Fund is generally used to liquidate compensated absences for governmental activities. (continued) 38 IV. DETAILED NOTES ON ALL FUNDS (Continued) F. Long-term Debt (Continued) General Obligation Bonds The City issues general obligation bonds to provide funds for the acquisition and construction of major capital facilities of governmental activities and to refund previous issues. General obligation bonded debt of the City is as follows: Governmental activities: $1,325,000CombinationTaxandRevenueCertificatesof Obligation-Series2008,principaldueannuallyinseriesthrough 2015, interest due semi-annually at 4.06%.530,000$ $1,500,000CombinationTaxandRevenueCertificatesof Obligation-Series2009,principaldueannuallyinseriesthrough 2019, interest due semi-annually at 3.85%.1,435,000 $4,000,000CombinationTaxandRevenueCertificatesof Obligation-Series2011,principaldueannuallyinseriesthrough 2031, interest due semi-annually at 1.75% - 4.25%. 3,780,000 $ 5,745,000 (continued) 39 IV. DETAILED NOTES ON ALL FUNDS (Continued) F. Long-term Debt (Continued) Revenue Bonds The City also issues revenue bonds to finance business-type activities, where it pledges net income from service revenue to repay debt. Revenue bonds outstanding as of September 30, 2012, are as follows: Business-type activities: $5,500,000CombinationTaxandRevenueCertificatesof Obligation-Series2001,principaldueannuallyinseriesthrough 2016, interest due semi-annually at 4.59%.3,520,000$ $1,600,000CombinationTaxandRevenueCertificatesof Obligation-Series2003B,principaldueannuallyinseries through 2018, interest due semi-annually at 3.5%.750,000 $4,975,000CombinationTaxandRevenueRefundingBonds- Series2003,principaldueannuallyinseriesthrough2013, interest due semi-annually at 2.75%.430,000 $275,000CombinationTaxandRevenueCertificatesof Obligation-Series2003A,principaldueannuallyinseries through 2018, interest due semi-annually at 4.125%.127,865 $7,160,000CombinationTaxandRevenueCertificatesof Obligation-Series2004,principaldueannuallyinseriesthrough 2019, interest due semi-annually at 3.41%.5,805,000 $2,000,000CombinationTaxandRevenueCertificatesof Obligation-Series2006,principaldueannuallyinseriesthrough 2016, interest due semi-annually at 3.77%.905,000 $4,300,000CombinationTaxandRevenueCertificatesof Obligation-Series2006A,principaldueannuallyinseries through 2027, interest due semi-annually at 3.92%.3,520,000 $4,130,000CombinationTaxandRevenueCertificatesof Obligation-Series2008,principaldueannuallyinseriesthrough 2033, interest due semi-annually at 4.06%. 3,970,000 $ 19,027,865 Total Revenue Bonds (continued) 40 IV. DETAILED NOTES ON ALL FUNDS (Continued) F. Long-term Debt (Continued) Debt Service Requirements Annual debt service requirements to maturity for general obligation bonds are as follows: Fiscal Year Ending September 30,PrincipalInterestTotal 2013445,000$ 136,236$ 581,236$ 2014465,000 122,977 587,977 2015405,000 109,797 514,797 2016425,000 96,941 521,941 2017410,000 120,097 530,097 2018-20221,380,000 588,060 1,968,060 2023-20271,125,000 355,406 1,480,406 95,2001,090,000 1,185,200 2028-2031 $ 1,624,7145,745,000$ 7,369,714$ Total Annual debt service requirements to maturity for revenue bonds are as follows: Fiscal Year Ending September 30,PrincipalInterestTotal 20131,805,000$ 727,452$ 2,532,452$ 20141,866,000 661,491 2,527,491 20151,941,000 583,521 2,524,521 20162,027,000 502,201 2,529,201 20171,863,000 421,990 2,284,990 2018-20224,845,865 1,267,427 6,113,292 2023-20271,875,000 760,725 2,635,725 2028-20322,290,000 344,495 2,634,495 10,455515,000 525,455 2033 $ 5,279,75719,027,865$ 24,307,622$ Total Capital Lease The City has entered into a lease agreement as lessee for financing the acquisition of equipment for landfill maintenance. This lease agreement qualifies as a capital lease for accounting purposes and, therefore, has been recorded at the present value of the future minimum lease payments as of the inception date. The assets acquired through capital leases are as follows: Landfill Asset: Machinery and equipment473,731$ ( 243,633) Less: accumulated depreciation $ 230,098 Total (continued) 41 IV. DETAILED NOTES ON ALL FUNDS (Continued) F. Long-term Debt (Continued) Capital Lease (Continued) The future minimum lease obligation and the net present value of the minimum lease payments as of September 30, 2012, were as follows: Fiscal Year Ending September 30, $ 105,163 2014 Total minimum lease payments105,163 ( 5,502) Less: amount representing interest $ 99,661 Present value of minimum lease payments G. Contingent Arbitrage Liabilities The City has invested a portion of revenue bond proceeds as a reserve for the retirement of the bonds. Any excess of interest revenue earned on invested proceeds over interest paid on the bonds must be rebated to the federal government every five years. V. OTHER INFORMATION A. Risk Management The City is exposed to various risks of loss related to torts; theft of, damage to, and destruction of assets; errors and omissions; injuries to employees; employee health benefits; and other claims of various nature. The City participates in the Texas Municipal League Intergovernmental Risk Pool. As an insured, the City is not obligated to reimburse the pool for losses. The City has not had any significant reductions in insurance coverage, nor have insurance settlements for the last three fiscal years exceeded insurance coverage. Any losses reported but unsettled or incurred and not reported, are believed to be insignificant to the City’s financial statements. B. Commitments and Contingencies The City is defendant in lawsuits occurring in the normal course of business. Although the outcome of these matters is not presently determinable, in the opinion of the City’s attorney, their resolution will not have a material adverse effect on the financial condition of the City. (continued) 42 V. OTHER INFORMATION (Continued) B. Commitments and Contingencies (Continued) Amounts received or receivable from grantor agencies are subject to audit and adjustment by such agencies. Any disallowed claims, including amounts already collected may constitute a liability of the applicable funds. The amount, if any, of expenditures which may be disallowed by the grantor cannot be determined at this time although the City expects such amounts, if any, to be immaterial. C. Municipal Solid Waste Landfill Closure and Post Closure Costs The City has constructed a Type IV sanitary landfill, which began operations on December 1, 1995. This facility is permitted to accept only brush and/or construction demolition wastes and rubbish free of household wastes. State and federal laws and regulations require the City to place a final cover on the landfill site when it stops accepting waste and to perform certain maintenance and monitoring functions at the site for a period of five years after closure. Although closure and post closure care costs will be paid only near or after the date that the landfill stops accepting waste, the City will report a portion of these closure and post closure costs as an operating expense in each period based on landfill capacity used to date. Estimated closure and 5-year post closure costs are approximately $263,273. The landfill site has an estimated net capacity of 584,974 cubic yards and is expected to be closed within the next 10 years; approximately 43% of the landfill was used at year-end. Actual costs may be higher due to inflation, changes in technology, or changes in regulations. The City has received written authorization from the state that no annual contributions are required, thus the intent of the City is to fund the required expenses as incurred. D. Retirement Plan Plan Description The City provides pension benefits for all of its eligible employees through a non-traditional, joint contributory, hybrid defined benefit plan in the statewide Texas Municipal Retirement System (TMRS), an agent multiple-employer public employee retirement system. The plan provisions that have been adopted by the City are within the options available in the governing state statutes of TMRS. (continued) 43 V. OTHER INFORMATION (Continued) D. Retirement Plan (Continued) Plan Description (Continued) TMRS issues a publicly available comprehensive annual financial report that includes financial statements and required supplementary information (RSI) for TMRS; the report also provides detailed explanations of the contributions, benefits and actuarial methods and assumptions used by the System. This report may be obtained from TMRS’ website at www.TMRS.com. The plan provisions are adopted by the governing body of the City, within the options available in the state statutes governing TMRS. Plan provisions for the City were as follows: Plan Year 2010Plan Year 2011Plan Year 2012 Employee deposit rate6.0%6.0%6.0% Matching ratio (city to employee)2 to 12 to 12 to 1 Years required for vesting555 Service retirement eligibility (expressed as age/years of service)60/5, 0/2060/5, 0/2060/5, 0/20 Updated service credit100% repeating,100% repeating,100% repeating, transferstransferstransfers Annuity increase (to retirees)70% of CPI70% of CPI70% of CPI repeatingrepeatingrepeating Contributions Under the state law governing TMRS, the contribution rate for each City is determined annually by the actuary, using the Projected Unit Credit actuarial cost method. This rate consists of the normal cost contribution rate and the prior service cost contribution rate, which is calculated to be a level percent of payroll from year to year. The normal cost contribution rate finances the portion of an active member’s projected benefit allocated annually; the prior service contribution rate amortizes the unfunded (overfunded) actuarial liability (asset) over the applicable period for that city. Both the normal cost and prior service contribution rates include recognition of the projected impact of annually repeating benefits, such as Updated Service Credits and Annuity Increases. (continued) 44 V. OTHER INFORMATION (Continued) D. Retirement Plan (Continued) Contributions (Continued) The City contributes to the TMRS Plan at an actuarially determined rate. Both the employees and the City make contributions monthly. Since the City needs to know its contribution rate in advance for budgetary purposes, there is a one-year delay between the actuarial valuation that serves as the basis for the rate and the calendar year when the rate goes into effect. The annual pension cost and net pension obligation/(asset) are as follows: AccountingAnnual ActualPercentageNet YearPensionContributionof APCPension EndingCost (APC)MadeContributedObligation 09/30/101,068,923$ 1,068,923$ 100%- 09/30/111,102,965 1,102,965 100%- 09/30/121,013,729 1,013,729 100%- The required contribution rates for fiscal year 2012 were determined as part of the December 31, 2009 and 2010 actuarial valuations. Additional information as of the latest actuarial valuation, December 31, 2011, also follows: Actuarial Valuation Date12/31/0912/31/1012/31/2011 Actuarial cost methodProjected Unit Projected UnitProjected Unit CreditCreditCredit Amortization methodLevel percentLevel percentLevel percent of payrollof payrollof payroll GASB 25 equivalent single28 years;27 years;26 years; amortization periodclosed periodclosed periodclosed period Amortization period for30 years30 years30 years new gains/losses Asset valuation method10-year smoothed10-year smoothed10-year smoothed marketmarketmarket Actuarial Assumptions: Investment rate of return*7.5%7.0%7.0% Projected salary increases*varies by agevaries by agevaries by age and serviceand serviceand service *Includes inflation at3.0%3.0%3.0% Cost-of-living adjustments2.1%2.1%2.1% (continued) 45 V. OTHER INFORMATION (Continued) D. Retirement Plan (Continued) Funded Status and Funding Progress The funded status as of December 31, 2011, the most recent actuarial valuation date, is presented as follows: $ 30,467,484 Actuarial accrued liability (AAL) Actuarial value of plan assets25,554,817 $ 4,912,667 Unfunded actuarial accrued liability (UAAL) Funded ratio (actuarial value of plan assets/ALL)83.9% Covered payroll ( annual payroll of active $ 5,949,603 employees covered by the plan) UAAL as a percentage of covered payroll82.6% Actuarial valuations involve estimates of the value of reported amounts and assumptions about the probability of events far into the future. Actuarially determined amounts are subject to continual revision as actual results are compared to past expectations and new estimates are made about the future. Actuarial calculations are based on the benefits provided under the terms of the substantive plan in effect at the time of each valuation, and reflect a long-term perspective. Consistent with that perspective, actuarial methods and assumptions used include techniques that are designed to reduce short-term volatility in actuarial accrued liabilities and the actuarial value of assets. E. Other Postemployment Benefits Supplemental Death Benefits Fund (SDBF) The City also participates in the cost sharing multiple-employer defined benefit group term life insurance plan operated by the Texas Municipal Retirement System (TMRS) known as the Supplemental Death Benefits Fund (SDBF). The City elected, by ordinance, to provide group term life insurance coverage to both current and retired employees. The City may terminate coverage under and discontinue participation in the SDBF by adopting an ordinance before November 1 of any year to be effective the following January 1. (continued) 46 V. OTHER INFORMATION (Continued) E. Other Postemployment Benefits (Continued) Supplemental Death Benefits Fund (SDBF) (Continued) The death benefit for active employees provides a lump sum payment approximately equal to the employee’s annual salary (calculated based on the employee’s actual earnings, for the 12- month period preceding the month of death); retired employees are insured for $7,500; this coverage is an “other postemployment benefit,” or OPEB. Contributions The City contributes to the SDBF at a contractually required rate as determined by an annual actuarial valuation. The rate is equal to the cost of providing one-year term life insurance. The funding policy for the SDBF program is to assure that adequate resources are available to meet all death benefit payments for the upcoming year; the intent is not to pre-fund retiree term life insurance during employees’ entire careers. The City’s contributions to the TMRS SDBF for the years ended 2012, 2011 and 2010 were $2,486, $2,487 and $2,455, respectively, which equaled the required contributions each year. Schedule of Contribution Rates (Retiree-only portion of the rate) Plan/Annual Required Actual Contribution Percentage of Calendar YearContribution (Rate)Made (Rate)ARC Contributed 20100.04%0.04%100% 20110.04%0.04%100% 20120.04%0.04%100% F. Subsequent Events On November 6, 2012, the City Council approved the issuance of General Obligation Refunding Bonds, Series 2013, in the amount of $5,235,000. The bonds will be issued to refund a portion of the City’s 2003B and 2008 Certificates of Obligation and will be deliverable on or about January 8, 2013. 47 THIS PAGE LEFT BLANK INTENTIONALLY REQUIRED SUPPLEMENTARY INFORMATION THIS PAGE LEFT BLANK INTENTIONALLY CITY OF STEPHENVILLE, TEXAS REQUIRED SUPPLEMENTARY INFORMATION TEXAS MUNICIPAL RETIREMENT SYSTEM SCHEDULE OF FUNDING PROGRESS UnfundedUnfunded Actuarial ActuarialActuarialActuarialActuarialAnnualAccrued Liability ValuationValue ofAccruedFunded AccruedCoveredas a Percentage DateAssetsLiabilityRatioLiabilityPayrollof Covered Payroll 12/31/200916,141,135$ 23,087,454$ 69.9% 6,946,319$ 6,040,379$ 115.0% 12/31/201023,356,321 28,698,942 81.4% 5,342,621 6,150,305 86.9% 12/31/201125,554,817 30,467,484 83.9% 4,912,667 5,949,603 82.6% Note: Fiscal years 2010 and 2011 include the impact of Senate Bill 350 enacted by the Texas Legislature in June of 2011. This legislation provided a restructuring of the Texas Municipal Retirement System funds effective December 31, 2010. 48 THIS PAGE LEFT BLANK INTENTIONALLY COMBINING FUND STATEMENTS AND SCHEDULES THIS PAGE LEFT BLANK INTENTIONALLY NONMAJOR GOVERNMENTAL FUNDS Special Revenue Funds are used to account for specific revenue that is legally restricted to expenditures for particular purposes. Hotel/Motel Occupancy Tax – This fund is used to account for hotel/motel occupancy tax revenue to be used for enhancing and promoting tourism and convention activity for the benefit of the hotel industry. Child Safety – This fund is used to account for court costs used to operate a City school crossing guard program, or programs designated to enhance child safety, health, or nutrition; including child abuse prevention and intervention and drug and alcohol abuse prevention. Public Safety – This fund is used to account for court costs used to promote various public safety programs. Court Technology – This fund is used to account for court costs used to maintain technological enhancements for the municipal court. The Debt Service Fund is used to account for the accumulation of resources and payment of general obligation bond principal and interest from governmental resources. CITY OF STEPHENVILLE, TEXAS COMBINING BALANCE SHEET NONMAJOR GOVERNMENTAL FUNDS SEPTEMBER 30, 2012 Special Revenue Total Hotel/MotelNonmajor OccupancyChildPublicCourtDebtGovernmental TaxSafety Safety TechnologyServiceFunds ASSETS Cash and investments228,162$ 18,505$ 25,745$ 44,647$ 117,566$ 434,625$ Receivables (net of allowance for uncollectibles): - - - 11,360 120,516 109,156 Taxes 18,505$ 25,745$ 44,647$ 128,926$ 555,141$ $ 337,318 Total assets LIABILITIES Accounts payable84,560 - - - - 84,560 Deferred revenue20,288 - - - 8,521 28,809 - 2,214 - - 2,214 - Other liabilities -104,848 2,214 - 8,521 115,583 Total liabilities FUND BALANCES Restricted for: Retirement of long-term debt- - - - 120,405 120,405 Tourism232,470 - - - - 232,470 Child and public safety- 18,505 23,531 - - 42,036 - - 44,647 - 44,647 - Court technology 18,505232,470 23,531 44,647 120,405 439,558 Total fund balances Total liabilities $ 18,505337,318$ 25,745$ 44,647$ 128,926$ 555,141$ and fund balances 49 CITY OF STEPHENVILLE, TEXAS COMBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES NONMAJOR GOVERNMENTAL FUNDS FOR THE YEAR ENDED SEPTEMBER 30, 2012 Special Revenue Total Hotel/MotelNonmajor OccupancyChildPublicCourtDebtGovernmental TaxSafetySafetyTechnologyServiceFunds REVENUES Taxes: Property-$ -$ -$ -$ 592,403$ 592,403$ Other334,002 - - - - 334,002 Fines and forfeitures- 13,575 11,905 9,657 - 35,137 -374 - - 399 773 Investment earnings 13,575334,376 11,905 9,657 592,802 962,315 Total revenues EXPENDITURES Current: Public safety- 7,535 9,433 - - 16,968 Culture and recreation350,678 - - - - 350,678 Debt service: Principal - - - - 440,000 440,000 -- - - 139,305 139,305 Interest and fiscal charges 7,535350,678 9,433 - 579,305 946,951 Total expenditures EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER) ( 6,04016,302) 2,472 9,657 13,497 15,364 EXPENDITURES 12,465 21,059 34,990 106,908 424,194 248,772 FUND BALANCES, BEGINNING $ 18,505232,470$ 23,531$ 44,647$ 120,405$ 439,558$ FUND BALANCES, ENDING 50 CITY OF STEPHENVILLE, TEXAS SPECIAL REVENUE FUND HOTEL/MOTEL OCCUPANCY TAX FUND SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL FOR THE YEAR ENDED SEPTEMBER 30, 2012 Final BudgetActualVariance REVENUES Taxes - other280,000$ 334,002$ 54,002$ 374- 374 Investment income 280,000 334,376 54,376 Total revenues EXPENDITURES Current: 345,000 350,678 5,678)( Culture and recreation 345,000 350,678 5,678)( Total culture and recreation 345,000 350,678 5,678)( Total expenditures EXCESS (DEFICIENCY) OF REVENUES ( 16,302)65,000)( 48,698 OVER (UNDER) EXPENDITURES 248,772 - 248,772 FUND BALANCE, BEGINNING $ 183,772 232,470$ 48,698$ FUND BALANCE, ENDING 51 CITY OF STEPHENVILLE, TEXAS SPECIAL REVENUE FUND CHILD SAFETY FUND SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL FOR THE YEAR ENDED SEPTEMBER 30, 2012 Final BudgetActualVariance REVENUES $ 13,5754,500$ 9,075$ Fines and forfeitures 13,5754,500 9,075 Total revenues EXPENDITURES Current: 7,5356,000 1,535)( Public safety 7,5356,000 1,535)( Total public safety 7,5356,000 1,535)( Total expenditures EXCESS (DEFICIENCY) OF REVENUES ( 6,0401,500) 7,540 OVER (UNDER) EXPENDITURES 12,465 - 12,465 FUND BALANCE, BEGINNING $ 18,50510,965$ 7,540$ FUND BALANCE, ENDING 52 CITY OF STEPHENVILLE, TEXAS SPECIAL REVENUE FUND PUBLIC SAFETY FUND SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL FOR THE YEAR ENDED SEPTEMBER 30, 2012 Final BudgetActualVariance REVENUES Fines and forfeitures10,000$ 11,905$ 1,905$ - 3,700)( 3,700 Intergovernmental 11,90513,700 1,795)( Total revenues EXPENDITURES Current: 9,43313,700 4,267 Public safety 9,43313,700 4,267 Total public safety 9,433 4,267 13,700 Total expenditures EXCESS (DEFICIENCY) OF REVENUES 2,472- 2,472 OVER (UNDER) EXPENDITURES 21,05921,059 - FUND BALANCE, BEGINNING 23,531$ 2,472$ $ 21,059 FUND BALANCE, ENDING 53 CITY OF STEPHENVILLE, TEXAS SPECIAL REVENUE FUND COURT TECHNOLOGY FUND SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL FOR THE YEAR ENDED SEPTEMBER 30, 2012 Final BudgetActualVariance REVENUES $ 9,6574,000$ 5,657$ Fines and forfeitures 9,6574,000 5,657 Total revenues - - - EXPENDITURES EXCESS (DEFICIENCY) OF REVENUES 9,6574,000 5,657 OVER (UNDER) EXPENDITURES 34,99034,990 - FUND BALANCE, BEGINNING 44,647$ 5,657$ $ 38,990 FUND BALANCE, ENDING 54 CITY OF STEPHENVILLE, TEXAS DEBT SERVICE FUND SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL FOR THE YEAR ENDED SEPTEMBER 30, 2012 Final BudgetActualVariance REVENUES Taxes - property 587,747$ 592,403$ 4,656$ 399 299 100 Investment earnings 592,802587,847 4,955 Total revenues EXPENDITURES Debt service: Principal440,000 440,000 - 139,305 8,542 147,847 Interest and fiscal charges 579,305587,847 8,542 Total debt service 579,305587,847 8,542 Total expenditures EXCESS (DEFICIENCY) OF REVENUES 13,497- 13,497 OVER (UNDER) EXPENDITURES 106,908 - 106,908 FUND BALANCE, BEGINNING $ 120,405106,908$ 13,497$ FUND BALANCE, ENDING 55 NONMAJOR ENTERPRISE FUNDS Enterprise Funds are used to account for operations that are financed and operated in a manner similar to private business enterprises – where the intent is that the costs of providing goods or services to the general public on a continuing basis be financed or recovered primarily through user charges; or where the City has decided that periodic determination of net income is appropriate for accountability purposes. Sanitary Landfill – This fund is used to account for solid waste collection and disposal services provided to the residents of the City. Airport – This fund is used to account for municipal airport services and to support air transportation and charter services. CITY OF STEPHENVILLE, TEXAS COMBINING BALANCE SHEET NONMAJOR ENTERPRISE FUNDS SEPTEMBER 30, 2012 Sanitary LandfillAirportTotal ASSETS Current assets: s$ 4,12620,627$ 24,753$ Cash and investment 2,1991,333 3,532 Accounts receivable (net of allowances for uncollectibles) 6,32521,960 28,285 Total current assets Noncurrent assets: Restricted cash- 23,785 23,785 Capital assets: Land40,000 879,399 919,399 Buildings and improvements915,135 5,183,630 6,098,765 quipment1,111,834 162,556 1,274,390 E Construction in progress- 72,368 72,368 889,606)( 1,992,748)( (1,103,142) Less: accumulated depreciation 5,408,347963,827 6,372,174 Total capital assets 5,432,132963,827 6,395,959 Total noncurrent assets 5,438,457985,787 6,424,244 Total assets LIABILITIES Current liabilities: payable2,260 1,443 3,703 Accounts Accrued liabilities1,760 - 1,760 Accrued interest payable5,503 1,682 7,185 Customer deposits1,200 - 1,200 Unearned revenue- 14,72014,720 Compensated absences payable3,133 - 3,133 Capital lease99,661 - 99,661 20,000- 20,000 Bonds payable 37,845113,517 151,362 Total current liabilities Long-term liabilities: Compensated absences payable92 - 92 Bonds payable- 107,865 107,865 - 133,319 133,319 Liability for landfill closure 107,865133,411 241,276 Total long-term liabilities 145,710246,928 392,638 Total liabilities NET ASSETS pital assets, net of related debt864,166 5,280,482 6,144,648 Invested in ca Restricted for airport development- 23,785 23,785 11,520)( 136,827)( (125,307) Unrestricted 5,292,747$ 6,031,606$ $ 738,859 Total net assets 56 CITY OF STEPHENVILLE, TEXAS COMBINING STATEMENT OF REVENUES, EXPENSES AND CHANGES IN FUND NET ASSETS NONMAJOR ENTERPRISE FUNDS FOR THE YEAR ENDED SEPTEMBER 30, 2012 Sanitary LandfillAirportTotal OPERATING REVENUES Gate charges199,704$ -$ 199,704$ Hanger rental- 88,010 88,010 5,483 6,325 842 Other service charges 93,493200,546 294,039 Total operating revenues OPERATING EXPENSES Personnel services132,628 - 132,628 Contractual services31,005 3,950 34,955 Utilities493 26,081 26,574 Repairs and maintenance3,357 15,768 19,125 Other 32,753 7,399 40,152 122,999 229,420 106,421 Depreciation 176,197306,657 482,854 Total operating expenses ( 82,704)106,111)( 188,815)( OPERATING LOSS NONOPERATING REVENUES (EXPENSES) Investment earnings31 - 31 Interest and fiscal charges7,321)( 5,707)( 13,028)( 7,868 7,868 - Intergovernmental 2,161 5,129)( (7,290) Total nonoperating revenues (expenses) ( 80,543)113,401)( 193,944)( LOSS BEFORE CONTRIBUTIONS AND TRANSFERS 813,212- 813,212 CAPITAL CONTRIBUTIONS 115,000105,000 220,000 TRANSFER IN ( 847,6698,401) 839,268 CHANGE IN NET ASSETS 4,445,078 5,192,338 747,260 TOTAL NET ASSETS, BEGINNING $ 5,292,747738,859$ 6,031,606$ TOTAL NET ASSETS, ENDING 57 CITY OF STEPHENVILLE, TEXAS COMBINING STATEMENT OF CASH FLOWS NONMAJOR ENTERPRISE FUNDS FOR THE YEAR ENDED SEPTEMBER 30, 2012 Sanitary LandfillAirportTotal CASH FLOWS FROM OPERATING ACTIVITIES Cash received from customers200,745$ 95,147$ 295,892$ Cash payments to employees132,407)( - 132,407)( ( 53,906)65,606)( 119,512)( Cash payments to suppliers for goods and services 41,2412,732 43,973 Cash provided by operating activities CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES 7,868 7,868 - Cash received from operating grant 7,868- 7,868 Cash provided by noncapital financing activities CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Principal payments on capital lease94,460)( - 94,460)( Principal payments on bonds- 19,000)( 19,000)( Interest and fiscal charges on debt10,703)( 6,505)( 17,208)( Transfers from other funds for capital acquisition105,000 115,000 220,000 ( 183,820)108,685)( 292,505)( Acquisition and construction of capital assets Cash used by capital and ( 94,325)108,848)( 203,173)( related financing activities CASH FLOWS FROM INVESTING ACTIVITIES - 31 31 Interest on investments -31 31 Cash provided by investing activities ( 45,216)106,085)( 151,301)( NET DECREASE IN CASH AND CASH EQUIVALENTS 73,127126,712 199,839 CASH AND CASH EQUIVALENTS, BEGINNING $ 27,91120,627$ 48,538$ CASH AND CASH EQUIVALENTS, ENDING (Including $23,785 for the Airport Fund in restricted cash) RECONCILIATION OF OPERATING INCOME (LOSS) TO NET CASH PROVIDED BY OPERATING ACTIVITIES Operating loss106,111)$( 82,704)$( 188,815)$( Adjustments to reconcile operating income (loss) to net cash provided by operating activities: Depreciation106,421 122,999 229,420 Change in assets and liabilities: Decrease (increase) in accounts receivable101)( 2,294 2,193 Increase (decrease) in accounts payable232)( 708)( 940)( Increase (decrease) in accrued liabilities2,311 - 2,311 Increase (decrease) in customer deposits300 - 300 Increase (decrease) in unearned revenue- 640)( 640)( -144 144 Increase (decrease) in compensated absences 123,945108,843 232,788 Total adjustments $ 41,2412,732$ 43,973$ Net cash provided by operating activities NONCASH INVESTING, CAPITAL, AND FINANCING ACTIVITIES 813,212$ 813,212$ $ - Contributions of capital assets 58 STATISTICAL SECTION This part of the City of Stephenville, Texas’ comprehensive annual financial report presents detailed information as a context for understanding what the information in the financial statements, note disclosures, and required supplementary information says about the City’s overall financial health. Contents Page Financial Trends 59 These schedules contain trend information to help the reader understand how the City’s financial performance and well-being have changed over time. Revenue Capacity 69 These schedules contain information to help the reader assess the City’s most significant local revenue sources. Although sales taxes are the City’s most significant local revenue source, information about revenue base is unavailable and information about principal revenue payers is confidential under Texas statutes. Trend information about sales tax revenues is provided in Table 2. Additionally, information about the City’s second most significant local revenue source, the property tax, is provided. Debt Capacity 73 These schedules present information to help the reader assess the affordability of the City’s current levels of outstanding debt and the City’s ability to issue additional debt in the future. Demographic and Economic Information 78 These schedules offer demographic and economic indicators to help the reader understand the environment within which the City’s financial activities take place. Operating Information 80 These schedules contain service and infrastructure data to help the reader understand how the information in the City’s financial report relates to the services the City provides and the activities it performs. Sources: Unless otherwise noted, the information in these schedules is derived from the comprehensive annual financial reports for the relevant year. CITY OF STEPHENVILLE, TEXAS NET ASSETS BY COMPONENT LAST TEN FISCAL YEARS (Accrual Basis of Accounting) Fiscal Year 2003200420052006 Governmental activities: Invested in capital assets, net of related debt8,671,383$ 8,877,241$ 9,070,652$ 9,734,777$ Restricted- 620,104 295,721 381,849 8,181,0767,932,439 9,548,977 10,237,660 Unrestricted $ 17,678,42116,603,822$ 18,915,350$ 20,354,286$ Total governmental activities net assets Business-type activities: Invested in capital assets, net of related debt11,789,690$ 14,229,406$ 16,190,916$ 17,432,394$ Restricted508,583 470,750 514,842 599,910 4,134,8415,621,026 5,301,524 6,516,830 Unrestricted 18,834,997$ 22,007,282$ 24,549,134$ $17,919,299 Total business-type activities net assets Total: Invested in capital assets, net of related debt20,461,073$ 23,106,647$ 25,261,568$ 27,167,171$ Restricted508,583 1,090,854 810,563 981,759 12,315,91713,553,465 14,850,501 16,754,490 Unrestricted $ 36,513,41834,523,121$ 40,922,632$ 44,903,420$ Total net assets 59 TABLE 1 Fiscal Year 200720082009201020112012 $ 10,513,38610,157,475$ 18,471,335$ 16,763,870$ 16,605,859$ 17,500,689$ 397,365366,934 434,394 405,640 420,877 450,527 12,162,24011,232,319 5,252,462 7,952,264 8,156,696 7,837,893 $ 23,072,99121,756,728$ 24,158,191$ 25,121,774$ 25,183,432$ 25,789,109$ $ 21,231,38816,564,217$ 23,495,495$ 25,323,978$ 26,538,623$ 28,438,665$ 554,647665,099 710,870 690,998 714,547 842,224 7,178,4899,087,784 5,974,684 4,566,114 5,548,656 5,390,736 28,964,524$ 30,181,049$ 30,581,090$ 32,801,826$ 34,671,625$ $26,317,100 $ 31,744,77426,721,692$ 41,966,830$ 42,087,848$ 43,144,482$ 45,939,354$ 952,0121,032,033 1,145,264 1,096,638 1,135,424 1,292,751 19,340,72920,320,103 11,227,146 12,518,378 13,705,352 13,228,629 $ 52,037,51548,073,828$ 54,339,240$ 55,702,864$ 57,985,258$ 60,460,734$ 60 CITY OF STEPHENVILLE, TEXAS CHANGES IN NET ASSETS LAST TEN FISCAL YEARS (Accrual Basis of Accounting) Fiscal Year 2003200420052006 EXPENSES Governmental activities: General government1,262,164$ 1,421,563$ 1,453,986$ 1,441,939$ Public safety4,028,747 4,026,402 4,345,846 4,689,443 Streets894,193 995,046 979,051 1,098,979 Culture and recreation1,522,896 1,574,032 1,582,864 1,646,017 Community development317,743 296,244 348,177 343,135 130,388153,445 109,153 91,817 Interest on long-term debt 8,443,6758,179,188 8,819,077 9,311,330 Total governmental activities expenses Business-type activities: Water and wastewater3,790,830 4,582,690 4,367,671 4,681,174 Sanitary landfill211,159 151,309 99,078 119,832 Airport99,847 101,082 8,633 18,075 35,46214,034 166,346 232,955 Storm water drainage 4,870,5434,115,870 4,641,728 5,052,036 Total business-type activities expenses $ 13,314,21812,295,058$ 13,460,805$ 14,363,366$ Total expenses PROGRAM REVENUES Governmental activities: Charges for services: General government21,421$ 195,176$ 172,292$ 177,636$ Public safety884,349 524,561 488,292 600,332 Streets22,388 28,748 17,213 17,444 Culture and recreation157,741 147,563 135,607 132,125 Community development82,182 165,803 163,490 180,304 Operating grants and contributions146,257 189,805 125,068 172,884 366,478185,625 556,425 177,503 Capital grants and contributions 1,618,1341,499,963 1,658,387 1,458,228 Total governmental activities program revenues Business-type activities: Charges for services: Water and wastewater4,261,555$ 4,564,193$ 5,245,901$ 5,628,658$ Sanitary landfill154,650 174,152 174,845 162,306 Airport24,865 31,077 39,088 51,037 Storm water drainage511,427 478,143 485,600 485,314 Operating grants and contributions- - - - 411,474273,101 1,513,020 599,393 Capital grants and contributions 5,659,0395,225,598 7,458,454 6,926,708 Total business-type activities program revenues $ 7,277,1736,725,561$ 9,116,841$ 8,384,936$ Total program revenues 61 TABLE 2 Fiscal Year 200720082009201020112012 $ 1,331,5831,591,258$ 1,309,902$ 1,412,441$ 1,374,221$ 1,518,207$ 5,504,9755,187,628 6,043,653 6,252,861 6,274,700 6,496,290 1,183,4351,144,681 1,210,135 1,426,590 1,479,381 1,567,117 2,166,5451,733,627 2,340,312 2,438,756 2,522,284 2,509,599 395,182381,091 408,144 427,769 374,335 433,360 103,49065,926 72,220 141,220 97,809 151,197 10,685,21010,104,211 11,384,366 12,099,637 12,122,730 12,675,770 4,526,8934,776,359 4,819,886 5,054,152 4,846,996 4,833,953 290,349272,010 527,255 294,407 313,982 313,978 127,018130,169 170,287 158,085 160,803 181,904 245,371141,516 346,159 580,590 600,859 562,207 5,189,6315,320,054 5,863,587 6,087,234 5,922,640 5,892,042 $ 15,874,84115,424,265$ 17,247,953$ 18,186,871$ 18,045,370$ 18,567,812$ $ 219,353243,929$ 231,122$ 215,757$ 216,870$ 219,082$ 906,131687,567 677,662 834,180 893,207 1,077,514 24,04627,425 21,472 24,713 24,419 95,954 145,225171,931 221,589 317,917 338,662 363,650 272,729160,745 126,186 177,401 249,501 193,592 57,969115,859 109,861 43,417 40,015 29,142 148115,556 740,974 1,602,301 258,933 159,402 1,625,6011,523,012 2,128,866 3,215,686 2,021,607 2,138,336 $ 5,469,9325,092,578$ 5,492,233$ 5,396,349$ 6,147,606$ 6,055,936$ 275,915170,814 414,503 175,153 277,985 200,546 68,18661,916 73,180 72,408 76,015 93,493 577,766500,779 584,439 588,141 591,326 604,231 -- 20,062 17,808 5,184 7,868 870,718169,370 249,253 402,702 528,471 813,212 7,262,5175,995,457 6,833,670 6,652,561 7,626,587 7,775,286 $ 8,888,1187,518,469$ 8,962,536$ 9,868,247$ 9,648,194$ 9,913,622$ (continued) 62 CITY OF STEPHENVILLE, TEXAS CHANGES IN NET ASSETS (Continued) LAST TEN FISCAL YEARS (Accrual Basis of Accounting) Fiscal Year 2003200420052006 NET (EXPENSE) REVENUES Governmental activities6,679,225)$( 6,825,541)$( 7,160,690)$( 7,853,102)$( 1,109,728 788,496 2,816,726 1,874,672 Business-type activities ( 6,037,045)5,569,497)( 4,343,964)( 5,978,430)( Total net expense GENERAL REVENUES AND OTHER CHANGES IN NET ASSETS Governmental activities: Taxes: Property - general purposes1,994,728 2,249,922 2,447,610 2,657,106 Property - debt service545,552 540,467 448,663 437,146 Sales3,217,670 3,538,100 3,654,232 4,101,973 Franchise934,965 1,209,036 1,264,298 1,423,615 Other208,534 262,467 292,447 312,528 Gain on sale of capital assets- - - - Investment earnings196,542 87,990 286,301 441,986 Miscellaneous33,971 12,158 54,068 34,663 -315,638 50,000)( 116,979)( Transfers 7,900,1407,447,600 8,397,619 9,292,038 Total governmental activities Business-type activities: Investment earnings105,970 100,773 305,559 518,164 Miscellaneous9,137 26,429 - 32,037 ( -315,638) 50,000 116,979 Transfers ( 127,202200,531) 355,559 667,180 Total business-type activities Total general revenues and other 8,027,3427,247,069 8,753,178 9,959,218 changes in net assets CHANGE IN NET ASSETS Governmental activities768,375 1,074,599 1,236,929 1,438,936 915,698909,197 3,172,285 2,541,852 Business-type activities $ 1,990,2971,677,572$ 4,409,214$ 3,980,788$ Total change in net assets 63 Fiscal Year 200720082009201020112012 $( 9,059,609)8,581,199)$( 9,255,500)$( 8,883,951)$( 10,101,123)$( 10,537,434)$( 675,403 2,072,886 970,083 565,327 1,703,947 1,883,244 ( 6,986,723)7,905,796)( 8,285,417)( 8,318,624)( 8,397,176)( 8,654,190)( 3,131,7022,913,521 3,382,272 3,371,138 3,595,948 3,787,828 527,921476,117 536,671 608,404 526,519 593,543 4,745,3094,351,269 4,622,690 4,275,545 4,616,312 5,191,213 1,169,8581,370,838 1,186,650 1,018,036 1,120,678 1,122,934 434,498388,013 372,815 341,456 363,645 393,461 -- - 323,641 12,159 - 454,269623,810 108,218 32,294 13,517 14,651 17,18675,994 124,613 14,190 26,870 18,320 ( 104,871)215,921)( 6,771 112,834)( 137,203)( 21,161 10,375,8729,983,641 10,340,700 9,871,870 10,138,445 11,143,111 469,667876,642 68,079 6,714 5,151 7,716 -- 7,888 - - - 104,871215,921 6,771)( 112,834 137,203 21,161)( 574,5381,092,563 69,196 119,548 142,354 13,445)( 10,950,410 10,409,896 9,991,418 10,280,799 11,129,666 11,076,204 1,316,2631,402,442 1,085,200 987,919 37,322 605,677 2,647,4241,767,966 1,039,279 684,875 1,846,301 1,869,799 $ 3,963,6873,170,408$ 2,124,479$ 1,672,794$ 1,883,623$ 2,475,476$ 64 CITY OF STEPHENVILLE, TEXAS FUND BALANCES GOVERNMENTAL FUNDS LAST TEN FISCAL YEARS (Modified Accrual Basis of Accounting) Fiscal Year 200320042005 General fund Reserved7,178$ 4,072$ 13,349$ Unreserved7,309,934 8,017,965 8,361,416 Nonspendable - - - Assigned- - - -- - Unassigned $ 8,022,0377,317,112$ 8,374,765$ Total general fund All other governmental funds Reserved Debt service funds41,081$ 41,285$ 50,563$ Unreserved, reported in: Special revenue funds237,911 211,765 247,743 Capital projects funds772,431 735,191 1,063,030 Restricted- - - -- - Assigned Total all other $ 988,2411,051,423$ 1,361,336$ governmental funds Note: TheCityimplementedGASBStatement54infiscalyear2011.Prioryearbalanceshavenotbeenrestatedtoconformto GASB Statement 54. 65 TABLE 3 2006200720082009201020112012 $ 15,22410,352$ 8,653$ 12,680$ 9,148$ -$ -$ 10,039,4169,045,429 9,555,553 7,358,831 7,196,152 - - -- - - - 18,836 17,399 -- - - - 3,750,000 1,989,442 -- - - - 3,779,268 5,113,489 $ 10,054,6409,055,781$ 9,564,206$ 7,371,511$ 7,205,300$ 7,548,104$ 7,120,330$ $ 82,23369,443$ 89,253$ 96,071$ 93,267$ -$ -$ 280,798318,028 350,750 332,799 337,679 - - 1,069,3031,051,972 2,429,680 1,676,876 1,155,196 - - -- - - - 424,194 4,206,447 -- - - - 486,235 529,093 $ 1,432,3341,439,443$ 2,869,683$ 2,105,746$ 1,586,142$ 910,429$ 4,735,540$ 66 CITY OF STEPHENVILLE, TEXAS CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS LAST TEN FISCAL YEARS (Modified Accrual Basis of Accounting) Fiscal Year 200320042005 REVENUES Taxes6,891,072$ 7,804,900$ 8,103,134$ Service charges545,763 697,355 651,021 Fines and forfeitures248,426 229,922 207,407 Licenses and permits84,669 168,519 168,523 Intergovernmental249,564 306,510 104,228 Investment earnings194,772 87,991 286,300 Miscellaneous125,027 52,734 108,222 -- 402,789 Special assessments 9,347,9318,339,293 10,031,624 Total revenues EXPENDITURES General government1,113,323 1,274,807 1,231,709 Public safety3,821,859 3,874,454 4,140,738 Streets561,646 630,057 578,126 Culture and recreation1,357,624 1,336,974 1,412,305 Community development317,743 295,036 346,969 Debt service Principal470,000 500,000 420,000 Interest157,032 133,441 111,582 Bond issuance costs- - - 661,419366,753 1,014,372 Capital outlay 8,706,1888,165,980 9,255,801 Total expenditures EXCESS OF REVENUES OVER 641,743173,313 775,823 (UNDER) EXPENDITURES) OTHER FINANCING SOURCES (USES) Issuance of bonds- - - Proceeds from capital assets- - - Proceeds from insurance- - - Transfers in423,414 90,000 90,000 ( 90,000)107,776)( 140,000)( Transfers out -315,638 50,000)( Total other financing sources (uses) $ 641,743488,951$ 725,823$ NET CHANGE IN FUND BALANCES DEBT SERVICE AS A PERCENTAGE 8.5%8.7% 6.9% OF NONCAPITAL EXPENDITURES 67 TABLE 4 Fiscal Year 2006200720082009201020112012 $ 9,506,5288,942,235$ 10,004,265$ 10,104,779$ 9,570,777$ 10,251,019$ 11,062,514$ 738,526640,935 839,684 948,049 1,178,800 1,076,971 1,291,337 353,889279,716 361,027 226,083 229,357 295,075 318,899 164,071183,839 275,887 131,341 138,675 255,269 182,517 111,889188,096 87,730 124,581 1,366,544 147,510 233,670 623,810441,986 454,269 108,218 32,294 13,517 14,651 119,73160,110 19,734 35,189 19,269 37,977 18,189 -28,122 - - - - - 11,618,44410,765,039 12,042,596 11,678,240 12,535,716 12,077,338 13,121,777 1,491,2021,349,248 1,293,925 1,355,822 1,359,012 1,319,243 1,504,855 4,955,7714,562,217 5,459,268 5,827,418 6,048,150 6,084,813 6,210,892 735,614699,290 824,764 845,429 850,428 937,367 968,236 1,518,9381,466,261 1,931,846 2,006,999 2,072,331 2,189,768 2,268,386 375,614337,659 394,833 407,208 420,982 367,228 414,769 455,000430,000 475,000 425,000 460,000 420,000 440,000 71,10591,817 49,195 99,652 144,279 98,117 139,305 -- 12,725 25,000 - - 45,000 807,528952,446 1,902,168 5,265,493 2,099,912 889,326 1,793,507 10,410,7729,888,938 12,343,724 16,258,021 13,455,094 12,305,862 13,784,950 1,207,672876,101 301,128)( 4,579,781)( 919,378)( 228,524)( 663,173)( -- 1,325,000 1,500,000 - - 4,000,000 -- 27,914 21,881 338,054 27,316 27,851 -- - 94,497 8,343 5,502 11,498 55,00094,500 207,629 2,461,037 204,320 292,052 741,161 ( 270,921)211,479)( 312,500)( 2,454,266)( 317,154)( 429,255)( 720,000)( ( 215,921)116,979)( 1,248,043 1,623,149 233,563 104,385)( 4,060,510 991,751$ 946,915$ 2,956,632)$( 685,815)$( 332,909)$( 3,397,337$ $ 759,122 5.8%6.2% 5.3% 5.0% 5.6% 4.8% 4.9% 68 TABLE 5 CITY OF STEPHENVILLE, TEXAS ASSESSED VALUE AND ESTIMATED ACTUAL VALUE OF TAXABLE PROPERTY LAST TEN FISCAL YEARS Estimated Less:Total TaxableTotalActual FiscalResidentialCommercia lIndustrialTax-exemptAssessedDirectTaxable YearPropertyPropertyPropertyPropertyValueTax RateValue 2003300,285,040$ 341,944,306$ 97,673,680$ 221,495,172$ 518,407,854$$0.4850528,987,606$ 2004332,268,337 380,965,905 111,273,080 249,575,629 574,931,6930.4850586,664,993 2005352,795,683 386,744,845 105,901,750 253,232,383 592,209,8950.4850604,295,811 2006387,312,400 403,019,380 113,971,870 260,321,554 643,982,0960.4750657,124,588 2007436,191,340 446,012,320 124,665,270 287,207,489 719,661,4410.4650734,348,409 2008473,515,020 493,287,390 139,045,430 287,501,749 818,346,0910.4450835,047,032 2009530,504,500 521,967,390 134,864,860 296,981,931 890,354,8190.4350908,525,326 2010541,059,730 514,106,150 145,588,370 305,171,070 895,583,1800.4435913,860,388 2011546,372,660 514,213,740 127,553,350 302,938,397 885,201,3530.4600903,266,687 2012555,032,740 511,780,800 148,096,980 317,517,724 897,392,7960.4850915,706,935 Source:Erath County Appraisal District. Note:PropertyinErathCountyisreassessedonceeverythreeyearsonaverage.TheCountyassessespropertyatapproximately95percentofactualvaluefor commercial,industrialandresidentialproperty.Estimatedactualtaxablevalueiscalculatedbydividingtaxableassessedvaluebythosepercentages.Tax rates are per $100 of assessed value. 69 TABLE 6 CITY OF STEPHENVILLE, TEXAS DIRECT AND OVERLAPPING PROPERTY TAX RATES LAST TEN FISCAL YEARS City Direct RatesOverlapping Rates GeneralMiddleTotal ObligationTotalStephenvilleTrinit yDirect and FiscalBasicDebtDirectSchoolWaterErathOverlapping YearRateServiceRateDistrictDistrictCountyRates 2003$0.3812$0.1038$0.4850$1.69000.0150$0.4700$2.6600 20040.39130.09370.48501.67000.01500.45122.6212 20050.41070.07430.48501.67000.01500.46252.6325 20060.40790.06710.47501.66000.01500.44102.5910 20070.39960.06540.46501.51990.01500.43522.4351 20080.38110.06390.44501.19200.01500.41872.0707 20090.37620.05880.43501.14700.01500.39151.9885 20100.37620.06730.44351.14700.01500.39001.9955 20110.40150.05850.46001.14700.01500.45002.0720 20120.41940.06560.48501.17000.01500.47002.1400 Source: Erath County Appraisal District Notes:TheCity'sbasicpropertytaxratemaybeincreasedonlybyamajorityvoteoftheCity'sresidents.Ratesfordebtserviceare set based on each year's requirements. OverlappingratesarethoseoflocalandcountygovernmentsthatapplytopropertyownerswithintheCityofStephenville, Texas. 70 TABLE 7 CITY OF STEPHENVILLE, TEXAS PRINCIPAL PROPERTY TAXPAYERS CURRENT YEAR AND NINE YEARS AGO 20122003 PercentagePercentage of Total Cityof Total City TaxableTaxableTaxableTaxable AssessedAssessedAssessedAssessed TaxpayerValueValueValueValue FMC Compan y$ 4.89%43,921,753 22,114,881$ 4.52% Saint Gobain Abrasives15,483,558 1.73% 15,311,010 3.13% Seam Mac Tube LLC- -% 4,285,960 0.88% Stephenville Campus Cres t 1.23%11,030,880 - -% Stephenville Student Housing LP10,259,330 1.14% - -% Wal-Mart Stores, Inc. #18,394,510 0.94% 7,694,070 1.57% Bosque River Associates8,211,620 0.92% 8,553,570 1.75% Oncor Electric Delivery7,457,580 0.83% 7,310,290 1.49% United Telephone Company (Century Link 0.73%6,511,740 5,424,040 1.11% Wilmington Trust (Wal-Mart #2)6,000,730 0.67% 6,748,260 1.38% Rayloc Genaut -%- 4,134,076 0.84% -%- 4,112,286 Emerson Electric Company0.84% Subtotal117,271,701$ 13.07% 85,688,443$ 17.51% 86.93% 403,671,265 82.49% 780,121,095 Remaining Roll $ 100.00%897,392,796 489,359,708$ 100.00% Total Source: Erath County Appraisal District State Property Tax Board Report. 71 TABLE 8 CITY OF STEPHENVILLE, TEXAS PROPERTY TAX LEVIES AND COLLECTIONS LAST TEN FISCAL YEARS Collected Within the Fiscal Year of the LevyTotal Collections to Date Taxes LeviedCollections Fiscalfor thePercentagein SubsequentPercentageO/S as of Year EndedFiscal YearAmountof LevyYearsAmountof Levy09/30/12 20032,513,625$ 2,462,155$ 97.95% 44,531$ 2,506,686$ 99.72% 6,939$ 20042,788,419 2,726,244 97.77% 58,974 2,785,218 99.89% 3,201 20052,832,529 2,808,747 99.16% 19,774 2,828,521 99.86% 4,008 20063,066,225 3,018,008 98.43% 44,457 3,062,465 99.88% 3,760 20073,344,539 3,307,083 98.88% 33,018 3,340,101 99.87% 4,438 20083,641,808 3,602,598 98.92% 32,781 3,635,379 99.82% 6,429 3,822,4923,874,843 2009 41,91098.65% 3,864,402 99.73% 10,441 3,887,0383,965,938 2010 54,03398.01% 3,941,071 99.37% 24,867 4,007,4494,059,655 2011 30,81598.71% 4,038,264 99.47% 21,391 4,302,5134,343,596 2012 -99.05% 4,302,513 99.05% 41,083 Sources: Erath County Appraisal District and Erath County Tax Assessor-Collector. 72 TABLE 9 CITY OF STEPHENVILLE, TEXAS RATIOS OF OUTSTANDING DEBT BY TYPE LAST TEN FISCAL YEARS Governmental ActivitiesBusiness-type Activities GeneralCertificatesWaterCertificatesTotalPercentage FiscalObligationofRevenueofCapitalPrimaryof PersonalPer YearBondsParticipationBondsParticipationLeasesGovernmentIncomeCapita 20031,615,000$ 1,330,000$ 6,660,000$ 7,905,000$ -$ 17,510,000$ 4.91% 1,118$ 2004 1,210,0001,235,000 6,295,000 14,174,233 - 22,914,233 6.09% 1,443 2005 1,080,000945,000 5,910,000 13,250,233 - 21,185,233 5.19% 1,300 2006 950,000645,000 5,500,000 14,305,233 259,184 21,659,417 5.03% 1,283 2007 810,000330,000 5,210,000 17,660,134 219,920 24,230,054 5.02% 1,421 2008 665,0001,325,000 4,905,000 20,644,155 177,337 27,716,492 5.56% 1,607 2009 515,0002,550,000 4,585,000 19,456,865 499,724 27,606,589 N/A1,538 2010 350,0002,255,000 4,250,000 18,179,865 364,740 25,399,605 N/A1,483 2011 -2,185,000 3,895,000 16,866,865 194,121 23,140,986 N/A1,324 2012 -5,745,000 3,520,000 15,507,865 99,661 24,872,526 N/A1,360 Notes:The City issued $4 million of general obligation bonds in 2012. The City issued over $5 million of new certificates of participation in 2008. See Table 14 for personal income and population data. These ratios are calculated using personal income and population for the prior calendar year. 73 TABLE 10 CITY OF STEPHENVILLE, TEXAS RATIOS OF GENERAL BONDED DEBT OUTSTANDING LAST TEN FISCAL YEARS General Bonded Debt Outstanding Percentage of GeneralActual Taxable FiscalObligationCertificates ofValue ofPer YearBondsObligationsTotalPropertyCapita 20031,615,000$ 1,330,000$ 2,945,000$ 0.57% 188$ 20041,235,000 1,210,000 2,445,000 0.43% 154 2005945,000 1,080,000 2,025,000 0.34% 124 2006645,000 950,000 1,595,000 0.25% 94 2007330,000 810,000 1,140,000 0.16% 67 20081,325,000 665,000 0.24%1,990,000 115 20092,550,000 515,000 0.34%3,065,000 171 20102,255,000 350,000 0.29%2,605,000 152 20112,185,000 - 0.25%2,185,000 125 20125,745,000 - 0.64%5,745,000 314 Notes: See Table 5 for property value data. Population data can be found in Table 14. 74 TABLE 11 CITY OF STEPHENVILLE, TEXAS DIRECT AND OVERLAPPING GOVERNMENTAL ACTIVITIES DEBT AS OF SEPTEMBER 30, 2012 Estimated Share of EstimatedDirect and DebtPercentageOverlapping Government Uni t OutstandingApplicableDebt Debt repaid with property taxes: Stephenville Independent School District38,155,452$69.26%26,426,466$ 2,389,397 Erath County6,066,000 39.39% Subtotal, overlapping debt28,815,863 5,745,000 City of Stephenville direct debt5,745,000 100.00% $ 34,560,863 Total direct and overlapping debt Sources: AssessedvaluedatausedtoestimateapplicablepercentagesprovidedbytheErathCountyAppraisalDistrictand debt outstanding data provided by each governmental unit. Notes: Overlappinggovernmentsarethosethatcoincide,atleastinpart,withthegeographicboundariesoftheCity. Thisscheduleestimatestheportionoftheoutstandingdebtofthoseoverlappinggovernmentsthatisbornebythe residentsandbusinessesoftheCityofStephenville.Thisprocessrecognizesthat,whenconsideringtheCity's abilitytoissueandrepaylong-termdebt,theentiredebtburdenbornebytheresidentsandbusinessesshouldbe takenintoaccount.However,thisdoesnotimplythateverytaxpayerisaresident--andthereforeresponsiblefor repaying the debt--of each overlapping government. 75 TABLE 12 CITY OF STEPHENVILLE, TEXAS LEGAL DEBT MARGIN AND TAX RATE LIMITATIONS INFORMATION As a home rule city, the City of Stephenville is not limited by law in the amount of debt it may issue. UnderArticleXI,Section5oftheTexasConstitution,notaxforanypurposeshalleverbelawfulforanyoneyear,whichshallexceedtwoandone-halfpercentofthetaxablepropertyof the City. AlltaxablepropertywithintheCityissubjecttoassessment,levyandcollectionbytheCityofacontinuing,directannualadvaloremtaxsufficienttoprovideforthepaymentofprincipal andinterestonthebondswithinthelimitsprescribedbylaw.UnderrulespromulgatedbytheOfficeoftheAttorneyGeneralofTexas,suchofficewillnotapprovetaxbondsoftheCity unless the City can demonstrate its ability to pay debt service requirements on all outstanding City tax bonds, including the issue to be approved. Tax Rate Limitation Calculation for Fiscal Year 2012 Taxable assessed valuation897,392,796$ Constitutional tax rate limit2.50% of assessed valuation Maximum constitutional revenue available 22,434,820$ Tax rate to achieve maximum tax revenue $2.50 per $100 of valuation Tax rate for FY 2010-2011$0.4850 per $100 of valuation Available unused constitutional max tax rate$2.0150 per $100 of valuation Debt applicable to limit: General obligation debt5,745,000$ DEBT TAX RATE ADEQUACY 2012 Principal and Interest Requirements $ 582,189 $0.0662 Tax Rate at 98% Collection Produces 582,193 Average Annual Principal and Interest Requirement, 2013-2031 388,176 $0.044139 Tax Rate at 98% Collection Produces 388,176 Maximum Principal and Interest Requirements 582,189 $0.0662 Tax Rate at 98% Collection Produces 582,193 DEBT SERVICE FUND BUDGET PROJECTION Tax Obligation Debt Service Requirements, Fiscal Year Ending 9-30-2013 582,189 Debt Service Fund, 9-30-12 $ 120,405 702,598582,193$ Debt Service Fund Tax Levy @ 98% Collection 76 TABLE 13 CITY OF STEPHENVILLE, TEXAS PLEDGED REVENUE COVERAGE LAST TEN FISCAL YEARS Water and Wastewater Revenue Bonds UtilityLess:Net FiscalServiceOperatingAvailable Debt Service YearChargesExpensesRevenuePrincipalInterestCoverage 20034,372,612$ 2,321,847$ 2,050,765$ 1,145,000$ 642,281$ 1.15$ 20044,556,045 2,569,643 1,986,402 1,240,000 559,001 1.10 20055,511,586 2,553,909 2,957,677 1,331,000 712,056 1.45 20065,628,658 2,931,743 2,696,915 1,355,000 752,077 1.28 20075,092,578 2,946,356 2,146,222 1,220,000 819,564 1.05 20085,469,932 2,851,562 2,618,370 1,290,000 650,238 1.35 20095,492,233 3,060,691 2,431,542 1,340,000 652,120 1.22 20105,396,349 3,283,861 2,112,488 1,390,000 600,240 1.06 20116,147,606 3,106,016 3,041,590 1,435,000 543,289 1.54 20126,055,936 3,106,535 2,949,401 1,490,000 487,963 1.49 Notes:Operating expenses do not include interest, depreciation, or amortization expenses. 77 TABLE 14 CITY OF STEPHENVILLE, TEXAS DEMOGRAPHIC AND ECONOMIC STATISTICS LAST TEN FISCAL YEARS Per Capita CalendarPersonalPersonalSchool CollegeUnemployment YearPopulationIncomeIncomeEnrollmentEnrollmentRate 200315,665$ 356,817,370$ 22,778$ 3,530$ 7,197$ 3.2% 200415,884 376,387,264 23,696 3,417 7,347 2.7% 200516,300 407,858,600 25,022 3,512 7,589 3.9% 200616,882 430,929,932 25,526 3,550 7,776 3.9% 200717,050 483,043,550 28,331 3,521 7,840 3.8% 200817,250 498,231,750 28,883 3,496 7,763 4.0% 200917,950 535,448,500 29,830 3,553 8,242 7.1% 201017,123 511,549,625 29,875 3,794 8,896 7.0% 201117,480 N/AN/A 9,5753,584 6.5% 201218,290 N/AN/A 10,2273,702 5.2% Sources:Population,medianage,andeducationlevelinformationprovidedbytheStateDepartmentofPlanning. PersonalincomeandunemploymentdataprovidedbytheStateDepartmentofCommerceandLabor.School enrollment data provided by the Stephenville Independent School District and Tarleton State University. Note:Population,medianage,andeducationlevelinformationarebasedonsurveysconductedduringthelast quarterofthecalendaryear.Personalincomeinformationisatotalfortheyear.Unemploymentrate informationisanadjustedyearlyaverage.Schoolenrollmentisbasedonthecensusatthestartoftheschool year. Personal income is not available for 2011-2012 78 Table 15 CITY OF STEPHENVILLE, TEXAS PRINCIPAL EMPLOYERS R CURRENT YEA 2012 Percentage of Total City EmployerEmployeesEmployment Tarleton State University1,238 6.95% FMC Compan y 4.54%809 Saint Gobain Abrasives450 2.53% Wal-Mart Stores, Inc.429 2.41% Scheiber Foods385 2.16% Texas Health Harris Methodist Stephenville294 1.65% Stephenville Independent School District262 1.47% Western Dairy Transport175 0.98% Erath County 0.98%175 Fibergrate Composite Structures132 0.74% Emerson Electric Company 0.73%130 Outlaw Conversions 0.65%115 Stephenville Medical & Surgical Clinic115 0.65% Tejas Tubular (Caporal Forging)110 0.62% Bruner Motors105 0.59% United Cooperative Services50 0.28% Southwestern Linen 0.25%45 Texstar Ford35 0.20% Reynolds Nationwide Transport 0.19%34 20 USTRA (USTRC)0.11% Subtotal5,108 28.68% 71.32%12,703 Remaining employers 100.00%17,811 Total Source: City Community Development Division. Total employee data is provided by the State Department of Commerce and Labor. Notes: Total employee information is based on entire Erath County. Principal employers are only those that operate from within the corporate city limits of Stephenville. Data for the period nine years prior to the current period is not available. 79 TABLE 16 CITY OF STEPHENVILLE, TEXAS FULLTIME EQUIVALENT CITY GOVERNMENT EMPLOYEES BY FUNCTION/PROGRAM LAST TEN FISCAL YEARS Fiscal Year Function/Program2003200420052006200720082009201020112012 General government Management services4 4 4 4 4 4 4 4 4 4 Finance7 7 7 7 7 7 7 7 7 7 Planning2 2 2 2 2 2 2 2 2 2 Building1 1 1 2 2 2 2 2 2 2 Other1 1 1 1 1 1 1 1 1 2 Police Officers30 31 31 31 34 38 38 38 38 38 Civilians11 11 13 13 12 12 12 12 12 12 Fire Firefighters and officers26 26 26 27 28 31 31 31 31 31 Parks and recreation13 13 13 13 13 13 13 13 13 14 Library4 4 4 4 3 3 3 3 3 3 Streets7 7 7 7 7 7 7 7 7 7 Water9 9 9 10 13 13 13 13 13 13 Wastewater8 8 8 8 5 5 5 5 5 5 2 2 2 2 2 2 2 2 2 Landfill 125 126 128 131 133 140 140 140 140 142 Total Source:City Human Resource Office Notes:Afulltimeemployeeisscheduledtowork2080hoursperyear(includingvacationandsickleave).Fulltimeequivalentemploymentis calculated by dividing total labor hours by 2080. 80 TABLE 17 CITY OF STEPHENVILLE, TEXAS OPERATING INDICATORS BY FUNCTION/PROGRAM LAST TEN FISCAL YEARS Fiscal Year Function/Program2003200420052006200720082009201020112012 General government Building permits issued222 140 172 125 153 135 109 90 148 96 Building permits value$10,467,400$21,515,373$18,442,334$12,262,542$16,144,842$27,821,098$11,978,341$8,456,287$29,365,010$11,174,610 Police Calls for service10,203 10,483 10,358 11,234 11,730 11,739 12,730 13,424 17,278 11,166 Physical arrests1,134 825 959 999 1,447 1,023 953 916 717 882 Parking violations530 324 386 334 498 171 206 346 401 417 Traffic violations5,094 5,350 3,588 3,066 4,469 2,473 1,634 1,478 4,639 2,035 Fire Ambulance responses1,372 1,183 1,291 1,255 1,537 1,472 1,502 1,442 1,524 1,517 Fires responses339 185 235 305 235 219 230 241 282 229 Inspections135 132 109 105 313 280 326 359 316 289 Refuse collection Refuse collected (tons)- - - - - - - 15,984 15,538 16,930 Other public works Street resurfacing (miles)2.391.351.141.522.702.232.681.250.901.30 Library Volumes in collection43,331 46,938 48,548 47,510 43,737 43,827 44,200 39,333 33,709 32,504 Total volumes borrowed110 138 155 114 116 94 227 129 132 161 Water New connections5,242 5,521 5,253 5,550 5,660 5,670 5,700 5,624 5,698 5,920 Water main breaks49 54 50 48 49 44 61 62 70 80 Average daily consumption2,124,000 1,971,990 2,042,000 2,254,000 1,828,000 2,080,000 2,004,000 1,970,000 2,447,000 2,115,000 (thousands of gallons) Peak daily consumption4,133,000 3,598,000 3,499,000 4,397,000 3,091,000 3,848,000 3,663,000 3,666,000 4,765,000 3,937,000 (thousands of gallons) Wastewater Average daily sewage treatment1,354,000 1,456,000 1,334,000 1,414,000 1,691,000 1,548,000 1,518,000 1,745,000 1,395,000 1,610,000 (thousands of gallons) WW Peak- - - - - - - - 2,716,000 4,494,000 Source: Various City departments 81 TABLE 18 CITY OF STEPHENVILLE, TEXAS CAPITAL ASSET STATISTICS BY FUNCTION/PROGRAM LAST TEN FISCAL YEARS Fiscal Year Function/Program2003200420052006200720082009201020112012 Police Stations1 1 1 1 1 1 1 1 1 1 Patrol units10 10 10 10 10 10 10 10 10 10 Fire Stations2 2 2 2 2 2 2 2 2 2 Other public works Streets (miles)92 92 92 92 96 96 96 91 91 91 Highways (miles)19 19 19 19 21 21 21 23 23 23 Streetlights1,013 1,013 1,013 1,013 1,070 1,080 1,096 1,119 1,121 1,125 Parks and recreation Acreage134 134 134 134 134 130 130 130 130 130 Playgrounds4 4 4 4 4 4 4 4 4 4 Baseball/softball diamonds9 9 9 9 9 9 9 11 11 11 Soccer/football fields1 1 1 1 1 1 1 1 1 1 Community centers2 2 2 2 2 2 2 2 2 2 Water Water mains (miles)116 117 117 120 122 124 125 125 126 126 Fire hydrants650 670 670 680 692 720 735 771 788 798 Storage capacity5,500,000 5,500,000 5,500,000 5,500,000 5,500,000 5,750,000 5,750,000 5,750,000 5,750,000 5,750,000 (thousands of gallons) Wastewater Sanitary sewers (miles)105 105 110 110 113 114 115 115 116 116 Storm sewers (miles)10 10 10 10 10 10.5 10.5 10.5 10.5 10.5 Treatment capacity9,000,000 9,000,000 9,000,000 9,000,000 9,000,000 9,000,000 9,000,000 9,000,000 9,000,000 9,000,000 (thousands of gallons) Source: Various City departments Note: No capital asset indicators are available for the general government function. 82 THIS PAGE LEFT BLANK INTENTIONALLY SINGLE AUDIT SECTION THIS PAGE LEFT BLANK INTENTIONALLY REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS The Honorable Mayor and Members of the City Council City of Stephenville, Texas We have audited the financial statements of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City of Stephenville, Texas, (the “City”) as of and for the year ended September 30, 2012, which collectively comprise the City’s basic financial statements and have issued our report thereon dated January 4, 2013. 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. Internal Control Over Financial Reporting In planning and performing our audit, we considered the City’s internal control over financial reporting as a basis for designing our auditing procedures for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the City’s internal control over financial reporting. Accordingly, we do not express an opinion on the effectiveness of the City’s internal control over financial reporting. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control such that there is a reasonable possibility that a material misstatement of the entity’s financial statements will not be prevented, or detected and corrected on a timely basis. Our consideration of internal control over financial reporting was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over financial reporting that might be deficiencies, significant deficiencies, or material weaknesses. We did not identify any deficiencies in internal control over financial reporting that we consider to be material weaknesses, as defined above. 83 401 WEST HIGHWAY 6 P. O. BOX 20725 WACO, TX 76702-0725 (254) 772-4901 FAX: (254) 772-4920 www.pbhcpa.com AFFILIATE OFFICES: BROWNSVILLE, TX (956) 544-7778 HILLSBORO, TX (254) 582-2583 TEMPLE, TX (254) 791-3460 ALBUQUERQUE, NM (505) 266-5904 Compliance and Other Matters As part of obtaining reasonable assurance about whether the City’s financial statements are free of material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. This report is intended solely for the information and use of management, the City Council, federal and state awarding agencies and pass-through entities and is not included to be and should not be used by anyone other than these specified parties. January 4, 2013 84 INDEPENDENT AUDITOR’S REPORT ON COMPLIANCE WITH REQUIREMENTS THAT COULD HAVE A DIRECT AND MATERIAL EFFECT ON EACH MAJOR PROGRAM AND ON INTERNAL CONTROL OVER COMPLIANCE IN ACCORDANCE WITH OMB CIRCULAR A-133 The Honorable Mayor and Members of the City Council City of Stephenville, Texas Compliance We have audited City of Stephenville, Texas’ (the “City’s”) compliance with the types of compliance requirementsdescribed in the OMB Circular A-133 Compliance Supplement that could have a direct and material effect on each of the City’s major federal programs for the year ended September 30, 2012. The City’s major federal programs are identified in the summary of auditor’s results section of the accompanying schedule of findings and questioned costs. Compliance with the requirements of laws, regulations, contracts, and grants applicable to each of its major federal programs is the responsibility of the City’s management. Our responsibility is to express an opinion on the City’s compliance based on our audit. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and OMB Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations. Those standards and OMB Circular A-133 require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major federal program occurred. An audit includes examining, on a test basis, evidence about the City’s compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Our audit does not provide a legal determination of the City’s compliance with those requirements. In our opinion, the City of Stephenville, Texas, complied, in all material respects, with the compliance requirements referred to above that could have a direct and material effect on each of its major federal programs for the year ended September 30, 2012. 85 401 WEST HIGHWAY 6 P. O. BOX 20725 WACO, TX 76702-0725 (254) 772-4901 FAX: (254) 772-4920 www.pbhcpa.com HILLSBORO, TX (254) 582-2583 AFFILIATE OFFICES: BROWNSVILLE, TX (956) 544-7778 TEMPLE, TX (254) 791-3460 ALBUQUERQUE, NM (505) 266-5904 Internal Control Over Compliance Management of the City of Stephenville, Texas, is responsible for establishing and maintaining effective internal control over compliance with the requirements of laws, regulations, contracts, and grants applicable to federal programs. In planning and performing our audit, we considered the City’s internal control over compliance with the requirements that could have a direct and material effect on a major federal program to determine the auditing procedures for the purpose of expressing our opinion on compliance and to test and report on internal control over compliance in accordance with OMB Circular A-133, but not for the purpose of expressing an opinion on the effectiveness of internal control over compliance. Accordingly, we do not express an opinion on the effectiveness of the City’s internal control over compliance. Adeficiency in internal control over compliance exists when the design or operation of a control over compliance does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, noncompliance with a type of compliance requirement of a federal program on a timely basis. A material weakness in internal control over compliance is a deficiency, or combination of deficiencies, in internal control over compliance, such that there is a reasonable possibility that material noncompliance with a type of compliance requirement of a federal program will not be prevented, or detected and corrected, on a timely basis. Our consideration of internal control over compliance was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over compliance that might be deficiencies, significant deficiencies, or material weaknesses. We did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses, as defined above. The purpose of this report is solely to describe the scope of our testing of compliance with the types of compliance requirements applicable to each of the City’s major programs and our testing of internal control over compliance and the results of our testing, and to provide an opinion on the City’s compliance but not to provide an opinion on the effectiveness of the City’s internal control over compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the City’s compliance with requirements applicable to each major program and its internal control over compliance. Accordingly, this report is not suitable for any other purpose. January 4, 2013 86 CITY OF STEPHENVILLE, TEXAS SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS FOR THE YEAR ENDED SEPTEMBER 30, 2012 FederalPass-through Federal Grantor/Pass-through Grantor/CFDAEntity IdentifyingFederal Program TitleNumberNumberExpenditures U. S. Department of Transportation Passed through the Texas Department of Transportation: Airport Development Grant20.10611ALSTVLE18,622$ Airport Development Grant20.10611HGSTVLE729,459 Airport Development Grant20.1061202STVLE65,131 98,119 Bosque River Trail20.2050902-49-032 911,331 Total Passed through the Texas Department of Transportation 911,331 Total U. S. Department of Transportation $ 911,331 Total Expenditures of Federal Awards 87 CITY OF STEPHENVILLE, TEXAS NOTES TO SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS FOR THE YEAR ENDED SEPTEMBER 30, 2012 1. GENERAL The Schedule of Expenditures of Federal Awards presents the activity of all applicable federal awards programs of the City. The City's reporting entity is defined in Note 1 of the basic financial statements. Federal awards received directly from federal agencies, as well as federal awards passed through other government agencies, are included on the Schedule of Expenditures of Federal Awards. 2. BASIS OF ACCOUNTING The Schedule of Expenditures of Federal Awards is presented using the modified accrual basis of accounting. The modified accrual basis of accounting is described in Note 1 of the basic financial statements. 88 CITY OF STEPHENVILLE, TEXAS SCHEDULE OF FINDINGS AND QUESTIONED COSTS FOR THE YEAR ENDED SEPTEMBER 30, 2012 Summary of Auditors' Results Financial Statements: Type of auditors' report issuedUnqualified Internal control over financial reporting: Material weakness(es) identified?No Significant deficiency(ies) identified?None reported Noncompliance material to financial statements noted?None Federal Awards: Internal control over major programs: Material weakness(es) identified?No Significant deficiency(ies) identified?None reported Type of auditors' report issued on compliance for major programsUnqualified Any audit findings disclosed that are required to be reported in accordance with Section 510(a) of of OMB Circular A-133 None Identification of major programs: CFDA Number(s)Name of Federal Program or Cluster: CFDA #20.106 Airport Development Grant Dollar threshold used to distinguish between type A and type B federal programs300,000 Auditee qualified as low-risk auditee for federal single audit?No Findings Relating to the Financial Statements Which are Required to be Reported in Accordance With Generally Accepted Government Auditing Standards None Findings and Questioned Costs for Federal Awards None 89 THIS PAGE LEFT BLANK INTENTIONALLY