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Res 2017-04-299 FY 16 Audit
CITY OF ANNA, TEXAS RESOLUTION NO. 2017-04- ,;2 A A RESOLUTION ACCEPTING THE FISCAL YEAR 2016 FINANCIAL AUDIT OF THE CITY OF ANNA. WHEREAS, the City of Anna, Texas ("the City") is committed to principles and practices of open and fair government that honor the public trust; and WHEREAS, Article 7 Section 7.18 of the City's Home-Rule Charter ("the Charter") requires an annual independent audit of all accounts of the City by a certified public accountant NOW THEREFORE, BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF ANNA, TEXAS, THAT: Section 1. Recitals Incorporated. The above-referenced recitals are incorporated herein as if set forth in full for all purposes. Section 2. Audit Accepted The City Council has hereby accepted the FY 16 Audit attached hereto as Exhibit 1. PASSED AND APPROVED by the City Council of the City of Anna, Texas, on this the11tn day of April 2017. ATTEST: APPR VED:. City Secretary Carrie L. Smith Mayor Mike Crist Resolution 2017-04-299 Page 1 of 122 FY 2016 Audit Report EXHIBIT 1 IIII! v y �>V � I The City of Anna 111 N. Powell Parkway I Anna, Texas 75409 CITY OF ANNA TEXAS (P) 972.924.3325 1 www.annatexas.gov Resolution 2017-04-299 Page 2 of 122 FY 2016 Audit Report (This page intentionally left blank.) Resolution 2017-04-299 Page 3 of 122 FY 2016 Audit Report COMPREHENSIVE ANNUAL FINANCIAL REPORT of the City of Anna, Texas For the Year Ended September 30,2016 Prepared bX Philip Sanders City Manager Dana Thornhill Finance Director Resolution 2017-04-299 Page 4 of 122 FY 2016 Audit Report (Page intentionally left blank.) Resolution 2017-04-299 Page 5 of 122 FY 2016 Audit Report City of Anna, Texas TABLE OF CONTENTS September 30,2016 INTRODUCTORY SECTION Page Letter of Transmittal i Organizational Chart vi List of Elected and Management vii FINANCIAL SECTION Independent Auditor's Report 1 Management's Discussion and Analysis 7 Basic Financial Statements: Government-wide Financial Statements Statement of Net Position 21 Statement of Activities 22 Fund Financial Statements: Balance Sheet - Governmental Funds 24 Reconciliation of the Governmental Funds Balance Sheet to the Statement of Net Positioi 25 Statement of Revenues, Expenditures, and Changes in Fund Balance - Governmental Fuw 26 Reconciliation of the Statement of Revenues, Expenditures, and Changes in Fund Governmental Funds to the Statement of Activities 27 Statement of Net Position - Proprietary Fund 28 Statement of Revenues, Expenses, and Changes in Net Position - Proprietary Fund 31 Statement of Cash Flows - Proprietary Fund 32 Notes to the Financial Statements 35 Required Supplementary Information: Schedule of Revenues, Expenditures, and Changes in Fund Balances - Budget (GAAP Basis) and Actual - General Fund 68 Schedule of Changes in Net Pension Liability and Related Ratios - Schedule of Revenues, Expenditures, and Changes in Fund Balances - Budget (GAAP Basis) and Actual - Economic Development Fund 69 Texas Municipal Retirement System 70 Schedule of Employer Contributions to Pension Plan - Texas Municipal Retirement Syster 71 Resolution 2017-04-299 Page 6 of 122 FY 2016 Audit Report Combining and Individual Fund Financial Statements and Schedules: Combining Balance Sheet - Nonmajor Governmental Funds 74 Combining Statement of Revenues, Expenditures and Changes in Fund Balances- Nonmajor Governmental Funds 78 Schedule of Revenues, Expenditures and Changes in Fund Balance- Budget and Actual Debt Service Fund 82 Community Development Fund 83 STATISTICAL SECTION Financial Trends: Net Position by Component 86 Changes in Net Position 87 Fund Balances of Governmental Funds 89 Changes in Fund Balances of Governmental Funds 90 Revenue Capacity: Assessed Value and Estimated Actual Value of Taxable Property 91 Direct and Overlapping Property Tax Rates 92 Principal Property Taxpayers 93 Property Tax Levies and Collections 94 Debt Capacity: Ratios of Outstanding Debt by Type 95 Ratios of General Bonded Debt Outstanding 96 Direct and Overlapping Governmental Activities Debt 97 Pledged-Revenue Coverage 98 Demographic and Economic Information Demographic and Economic Statistics 99 Principal Employers 100 Operating Information: Full-Time Equivalent City Government Employees by Function 101 Operating Indicators by Function 102 Capital Asset Statistics by Function 103 Resolution 2017-04-299 Page 7 of 122 FY 2016 Audit Report INTRODUCTORY SECTION Resolution 2017-04-299 Page 8 of 122 FY 2016 Audit Report Resolution 2017-04-299 This page intentionally left blank.) Page 9 of 122 FY 2016 Audit Report 1� g y f1"UIt)1110MRRf"OW April 7, 201'7 To the Honorable Mayor and City Council, City Manager, Citizens of the City of Anna: The Comprehensive Annual Financial Deport (CAFR) of the City of Anna, Texas, for the fiscal year ended September 30, 2016, including the independent auditor's report, is hereby submitted in accordance with the provisions of Section 1.0.3 of the City Charter. Also, state law requires that all general-purpose local governments publish within six montlrn.s of the close of each fiscal year a complete set of financial statements presented in conformity with the generally accepted accorurting principles (GAAP), and audited in accordance with generally accepted audited. standards by an independent firm of licensed public accountants. This report is published to fulfill those requirements for the fiscal year ended September 30,2016. This report is published to provide the Mayor and City Corutcil, city staff, aur Citizens, representatives of financial institutions, our bondholders and other interested parties with detailed information concerning the financial condition and activities of the City. Responsibility for the accuracy of the data and the completeness and fairness of the presentation, including all disclosures, rests with the City. To the best of our l<nowledge and belief, the enclosed data is accurate in all material respects and is reported in a manner designed to present fairly the financial position and results of operations of the various funds of the City. Because the east of internal controls should not Outweigh their benefits, the City of Anna's comprehensive framework of internal controls has been designed to provide reasonable, rather than absolute assurarnce, that the financial statements will be free from material misstatement. The City of Anna's financial statements have been audited by BrooksCardiel, PLLC a firrn of licensed certified public accountants. The goal of the independent audit was to provide reasonable assurance that the financial statements of the City for the fiscal year ended September 30, 2016, are free of material misstatement. The hidepender-nt audit involved j examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements; assessing the accounting principles used and significant estimates made by management; and evaluating the overall financial statement presentation. The independent auditor's report is presented as the first component of the financial section of this report. 1 r i Resolution 2017-04-299 Page 10 of 122 FY 2016 Audit Report Management's discussion and analysis (MD&A) immediately follows the independent auditor's report and provides a narrative introduction, overview, and analysis to accompany the basic financial statements. This letter of transmittal is designed to compliment MD&A and should be read in conjunction with it. Profile of the Government The City of Anna, incorporated in 1913, is located in north central Collin County on U.S. 75, State Highway 5, and State Highway 121, about 40 miles north of Dallas, and is one of the fastest growing cities in the Dallas/Fort Worth Metroplex. The City currently occupies a land area of approximately 15.6 square miles and services approximately 13,000 residents. The City of Anna is empowered to levy a property tax on both real and personal properties located within its boundaries. It also is empowered by state statue to extend its corporate limits by annexation,which occurs periodically when deemed appropriate by the governing body. The City of Anna operates under a home rule charter adopted in 2005, with a Council-Manager form of government. Policy-making and legislative authority are vested in the City Council consisting of the Mayor and six Council members. The City Council is responsible for, among other things, passing ordinances, resolutions, and regulations governing the City as well as adopting the budget which serves as the foundation for financial planning and control. The City Council appoints the City Manager, who has full responsibility for carrying out the policies and ordinances of the City Council, for overseeing the day-to-day operations of the government and appointing the heads of the various departments. The City Council also appoints the City Attorney, City Secretary, and Municipal Judge. The Council is elected on a non-partisan basis. Council members serve three year staggered terms. The City of Anna provides a full range of services, including police and fire protection; municipal court;parks and recreation; water and sewer services;solid waste collection/disposal; and the construction and maintenance of streets and other infrastructure. Ill addition, the City of Anna is also financially accountable for a legally separate economic development corporation and community development corporation, which are reported separately with the City of Anna's financial statements. Additional information on these legally separate entities can be found in the Notes to the Financial Statements, The City employees 63 full time equivalent positions. The annual budget serves as the foundation for the City of Anna's financial planning and control. All departments of the City of Anna are required to submit a budget that would maintain current services and new requests for appropriations separately to the City Manager, The City Manager and Finance Director then use these requests as the starting point for developing a proposed budget. The City Manager and Finance Director then presents a proposed budget to Council for review in July. The Council is required to hold public hearings on the proposed budget and to adopt the final budget no later than September 15". s F Resolution 2017-04-299 Page 11 of 122 FY 2016 Audit Report 11 The appropriated budget is prepared by fund and department (e.g., police). The City Manager may authorize transfers of appropriations within a department and between departments within a fund and within major line item categories. Increases or decreases of appropriations to a fund; however, require special approval of the City Council in the form of an Ordinance formally amending the adopted budget. Budget-to-actual comparisons are provided in this report for each individual governmental fund for which an appropriated annual budget has been adopted. For the General Fund, this comparison is presented as part of the basic financial statement for the governmental funds. For other governmental funds with appropriated annual budgets, this comparison is presented in the governmental fund subsection of the report. Factors Affecting Financial Condition The information presented in the financial statements is perhaps best understood when it is considered from the broader perspective of the specific environment within which the City of Anna operates. Local Economy The City of Anna's economic outlook continues to improve due to the overall improvement in the economy and continued residential and commercial growth. This is evidenced by local economic indicators such as an increase h-t tax appraisal values, the increase in residential building permits, and continued sales tax growth. Residential construction activity remains strong in the City of Anna. In 2016, the City received 324 single family building permit applications. The City currently has 589 new residential lots under development and another 3,300 residential lots in the planning or design phase. A 180-unit multi-family apartment complex is also currently under design. The Anna Economic Development Corporation actively recruits companies that add to the diversity of the City's local industry while providing residents with good employment. A new Walmart Super Center is under construction and is expected to open in April of this year. This will have a significant impact on the City's sales tax revenue. The Walmart store is the primary anchor of a 30-acre retail site that we anticipate will fill quickly after the new Walmart opens. Anticipated growth is expected to continue for the north Collin County region. This has improved the overall connectivity and mobility to and within Anna, but also will bring continued growth and new development. Long---Term Financial PIanning 3 7 Resolution 2017-04-299 Page 12 of 122 FY 2016 Audit Report iii The City's fund balance/operating position concept continues to be an important factor in policy decisions. The City's Financial Policy states that the City's target unassigned fund balance is an amount equal or greater than 25% of annual general fund operating expenditures. The City's ending unassigned fund balance for fiscal year 2016 reflected a fund balance of 56% of total expenditures, well above the stated goal. These resources allow the City to avoid disruptions in services during economic downturns and to ensure that there will adequate Iiquid resources to serve as a financial cushion against the potential shock of unanticipated events. Major Initiatives At the end of the 2015-16 fiscal year, the City of Anna had a number of major projects. The City Council and City staff continue to work to ensure completion of ongoing projects that will provide infrastructure improvements to the City of Anna. US 75 and FM 455, which are both TxDOT projects, are currently under construction. Last Fall, the City met with governmental partners including Collin County, TxDOT and the North Central Texas Council of Governments (NCTCOG) to review the City's transportation priorities and to discuss opportunities to partner on future projects. The City also continues to use developer incentives/agreements to improve other critical roadways within the City. In addition, for the past several years, the City of Anna has been studying alternatives for the construction of a new buildings and facilities as we continue to grow. In 2016, an architectural firm hired by the City prepared a Needs Assessment, Site Assessment, and Conceptual Design of a new City Hall. The City also purchased a 4.1-acre tract of land located at the southeast corner of Fifth Street and Powell Parkway (SH 5). The property's size and proximity to existing City buildings make it an ideal location for the long-term expansion and construction of a City Hall. The City continues to plan for the construction of a new city hall within the next two to three years. 1 Additional information related to the capital improvement projects and funding for those improvements is located in the Five-Year Capital Improvements Plan, Other Information Fund .Accounting: The City's accounthig system is organized and operated on a "fund basis." Each fund is a distinct, self-balancing entity. A description of the various major funds and fund types is contained in the Notes of the financial statements. A description of each individual non- major fund is contained at the beginning of its related combined financial statement. Basis of Accounting: The City's accounting records for all governmental funds are maintained s on the modified accrual basis of accounting. This method recognizes revenue when it is measurable and available and expenditures when goods or services are received. All I proprietary funds are accounted for using the accrual basis of accounting;revenue is recognized when it is earned, and expenses are recognized when they are incurred. 3 Resolution 2017-04-299 Page 13 of 122 FY 2016 Audit Report iv Internal Control: Management of the City is responsible for establishing and maintaining an internal control structure. This structure is designed to provide reasonable, but not absolute, assurance that: (1) City assets are protected from loss, theft or misuse; and (2) City financial records and data are accurate and reliable. The concept of reasonable assurance recognizes that the cost of a control should not exceed the benefits Iikely to be derived from it, and that the evaluation of cost and benefits requires estimates and judgments by management. Budgetary Control: Each year, on or before September 15,15, the City Council adopts an annual operating budget for the ensuing fiscal year. The operating budget includes anticipated revenues and expenditures for the General Fund, Special Revenue Funds, the Debt Service Fund, and Proprietary Funds. The budget is a planning device that defines the type, quality, and quantity of City goods and services that will be provided to our citizens. The budget is also a control device that serves as a system of "checks and balances" between levels of City government. The budgetary system ensures that individual departments contain their expenditures within limitations set by the City management, and that City management contains expenditures for the entire City within limitations set by the City Council. After adoption, the City Manager may authorize transfers of appropriations within a department and between departments within a fund and within major line item categories. Any changes to the budget outside of an individual department such as increases or decreases of appropriations to a fund require special approval of the City Council in the form of an Ordinance formally amending the adopted budget. Acknowledgements The presentation of this report could not have been accomplished without the efficient and dedicated services of the entire staff of the Finance Department and all department head directors. We would like to express our appreciation to all members of the departments who assisted and contributed to the preparation of this report. We would also like to thank the Mayor and the City Council for their continued interest and support for maintaining the highest standards of professionalism in the management of the City of Anna financial operations. Furthermore, the work of the independent auditors from BrooksCardiel, PLLC, is greatly appreciated. Respectfully submitted, Dana Thornhill Finance Director Resolution 2017-04-299 Page 14 of 122 FY 2016 Audit Report v ' FY 2016 Adopted Budget ��-r�roo i�a'r.>luaym�ap•arawa�'rrr City Organization Organization Chart ......................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................... 1 . r � � I ✓ r _ry I��, � uoo avdv�vr� r liilil IIIiPiiY�j ir0lgliil�� d(( Pl/ aaaur✓r✓rVlu I� '� �� � I r Y �/� /l � ,1��DIU�> f� ,IIS Nu191��1 !�➢�������� a f07���� N��, ry i r� III� l �/ ,I,✓, r, ,, ��M ,vrr;WP rlr. ,,,,,,,,,,, ,,,, „,,.��,. r..,r.rurr, �vv�=rr^r�i ,r, r✓'�r✓,���A.� r,., , , ,;r;,„� , r„war,~-. 4 Irl > > ✓,r�.,. ✓y✓r;✓ ✓vr I° ,y �,. :,�, ,, �r„--,. ,, ,vr,,r rr .r, �„��, r 1�^I,✓,�,, �m ,r,�r�; yr m�„, �„�^�*✓, ,�rr�... 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SII 1 IIIIIIIIII� � �.�0 r..�.�v,r.�.+ nv,urv..y,rrngnr,. /I�l� ���iir tri)ti rv✓r irr�ia g L. it Resolution 2017-04-299 Page 15 of 122 FY 2016 Audit Report Vl City of Anna, Texas ELECTED OFFICIALS AND MANAGEMENT September 30,2016 City Council Mike Crist Mayor Justin Burr Council Member Place 1 Rene Martinez Council Member Place 2 John Beazley, Mayor Pro Tem Council Member Place 3 Kenneth Pelham Council Member Place 4 Nathan Bryan Council Member Place 5/Deputy Mayor Pro Tem Lee Miller Council Member Place 6 Mana a ment Philip Sanders City Manager Dana Thornhill Finance Director Kenny Jenks Police Chief Tim Gothard Fire Chief Carrie Smith City Secretary Joseph Johnson Public Works Director Maurice Schwanke Director of Planning and Development Jessica Perkins Assistant to the City Manager/Economic Development Officer vii Resolution 2017-04-299 Page 16 of 122 FY 2016 Audit Report (This page intentionally left blank.) Resolution 2017-04-299 Page 17 of 122 FY 2016 Audit Report FINANCIAL SECTION Resolution 2017-04-299 Page 18 of 122 FY 2016 Audit Report Resolution 2017-04-299 This page intentionally left blank.) Page 19 of 122 FY 2016 Audit Report 1� g y „, / 111 ; 11 1111111 ,111 :,, ����'111 :111 Certified Public Accountants ”"""' """' ..` ........... INDEPENDENT AUDITOR'S REPORT To the Honorable Mayor and Members of the City Council City of Anna, Texas Report on the Financial Statements 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 Anna, Texas (the "City"), as of and for the year ended September 30, 2016, and the related notes to the financial statements, which collectively comprise the City's basic financial statements as listed in the table of contents. Management's Responsibility for the Financial Statements The City's management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor's Responsibility Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. 1095 Evergreen Circle I Suite 200 1 The Woodlands,TX 77380 1 Tel: 281.907.8788 1 Fax: 888.875.0587 1 www.BrooksCardiel.com Resolution 2017-04-299 1 Page 20 of 122 FY 2016 Audit Report We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. Opinion 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 as of September 30, 2016 and the respective changes in financial position and, where applicable, cash flows thereof for the year then ended in accordance with accounting principles generally accepted in the United States of America. Emphasis of Matter As discussed in Note V.F. the City restated net position within the utility fund. Our opinion is not modified with respect to this matter. Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the management's discussion and analysis, schedule of changes in net pension liability and related ratios, schedule of employee contributions to pension plan, and budgetary comparison information be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management's responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Other Information Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise City of Anna, Texas's basic financial statements. The combining and individual nonmajor fund financial statements are presented for purposes of additional analysis and are not a required part of the basic financial statements. Resolution 2017-04-299 2 Page 21 of 122 FY 2016 Audit Report This accompanying supplementary information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the accompanying supplementary information is fairly stated, in all material respects, in relation to the basic financial statements as a whole. The introductory and statistical sections have not been subjected to the auditing procedures applied in the audit of the basic financial statements, and accordingly, we do not express an opinion or provide any assurance on it. BrooksCardiel, PLLC Certified Public Accountants The Woodlands, Texas April 7, 2017 Resolution 2017-04-299 3 Page 22 of 122 FY 2016 Audit Report (This page intentionally left blank.) Resolution 2017-04-299 4 Page 23 of 122 FY 2016 Audit Report MANAGEMENT'S DISCUSSION AND ANALYSIS Resolution 2017-04-299 5 Page 24 of 122 FY 2016 Audit Report (This page intentionally left blank.) Resolution 2017-04-299 6 Page 25 of 122 FY 2016 Audit Report City of Anna, Texas MANAGEMENT'S DISCUSSIONAND ANALYSIS (MD&A) September 30,2016 As management of the City of Anna, Texas (the "City"), we offer readers of the City's financial statements this narrative overview and analysis of the financial activities of the City for the fiscal year ended September 30, 2016. We encourage readers to consider the information presented here in conjunction with additional information contained in this report. Financial Highlights • The City's total combined net position was $38,969,252 at September 30, 2016. Of this, $3,814,520 (unrestricted net position)may be used to meet the City's ongoing obligations to its citizens and creditors. • At the close of the current fiscal year, the City's governmental funds reported combined fund balances of$5,029,270, an increase of$833,168. • As of the end of the year, the unassigned fund balance of the general fund was $3,114,627 or 58% of total general fund expenditures. • The City had an overall increase in net position of $1,844,537. The increase is primarily a result of an increase in revenues for property tax, sales tax, and charges for services due to continued population growth. • On a government-wide basis, the City's total liabilities decreased by$1,010,206. Overview of the Financial Statements The discussion and analysis provided here are intended to serve as an introduction to the City's basic financial statements. The City's basic financial statements consist of three components: 1) government- wide financial statements, 2) fund financial statements, and 3) the notes to financial statements. This report also includes supplementary information intended to furnish additional detail to support the basic financial statements themselves. Government-Wide 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 position presents information on all of the City's assets and liabilities. The difference between the two is reported as net position. Over time, increases or decreases in net position may serve as a useful indicator of whether the financial position of the City is improving or deteriorating. Other non-financial factors, such as the City's property tax base and the condition of the City's infrastructure, need to be considered in order to assess the overall health of the City. Resolution 2017-04-2997 Page 26 of 122 FY 2016 Audit Report City of Anna, Texas MANAGEMENT'S DISCUSSIONAND ANALYSIS, Continued September 30,2016 The statement of activities presents information showing how the City's net position changed during the most recent fiscal year. All changes in net position are reported as soon as the underlying event giving rise to the change occurs, regardless of the timing of related cash flows. Thus, revenues and expenses are reported for some items that will only result in cash flows in future fiscal periods (e.g., uncollected taxes and earned but unused vacation leave). Both of the government-wide financial statements distinguish functions of the City that are principally supported by taxes and intergovernmental revenues (govcrnmcntal activitics) from other functions that are intended to recover all or a significant portion of their costs through user fees and charges (busincss- typc activities). The governmental activities of the City include general government,public safety,public works, culture and recreation, and economic development. The business-type activities of the City include water, sewer, and sanitation operations. FUND FINANCIAL STATEMENTS A fund is a grouping of related accounts that is used to maintain control over resources that have been segregated for specific activities or objectives. The City, like other state and local governments, uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. All of the funds of the City can be divided into three categories: governmental funds and proprietary funds. Governmental Funds Govcrnmcntal funds are used to account for essentially the same functions reported as governmental activities in the government-wide financial statements. However, unlike the government-wide financial statements, governmental fund financial statements focus on near-term inflows and outflows of spendable resources, as well as on balances of spendable resources available at the end of the fiscal year. Such information may be useful in assessing a government's near-term financing requirements. Because the focus of governmental funds is narrower than that of the government-wide financial statements, it is useful to compare the information presented for governmental funds with similar information presented for governmental activities in the government-wide financial statements. By doing so, readers may better understand the long-term impact of the government's near-term financing decisions. Both the governmental fund balance sheet and the governmental fund statement of revenues, expenditures, and changes in fund balances provide a reconciliation to facilitate this comparison between govcrnmcntal funds and governmental activities. The City maintains fifteen individual governmental funds. Information is presented separately in the governmental fund balance sheet and in the governmental fund statement of revenues, expenditures, and changes in fund balances for the general fund, which is considered to be a major fund. Data from the other governmental funds are combined into a single, aggregated presentation. Individual fund data for each of these nonmajor governmental funds is provided in a separate section of the report. Resolution 2017-04-299 Page 27 of 122 FY 2016 Audit Report 8 City of Anna, Texas MANAGEMENT'S DISCUSSIONAND ANALYSIS, Continued September 30,2016 The City adopts an annual appropriated budget for its general, debt service, economic development, and community development corporation funds. A budgetary comparison statement has been provided for each fund to demonstrate compliance with their respective budget. Proprietary Funds The City's proprietary funds are all 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 an enterprise fund to account for its water, sewer, and sanitation operations. All activities associated with providing such services are accounted for in these funds, including administration, operation, maintenance, debt service, capital improvements, meter maintenance, 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. Proprietary financial statements provide the same type of information as the government-wide financial statements, only in more detail. The proprietary fund financial statements provide separate information for the utility funds, all of which are considered to be major funds of the City. Component Units The City maintains the accounting and financial statements for two component units. The Anna Economic Development Corporation and Anna Community Development Corporation, which are blended component units, are presented as special revenue funds within the governmental fund financial statements. Notes to Financial Statements The notes provide additional information that is necessary to acquire a full understanding of the data provided in the government-wide and fund financial statements. Other Information In addition to the basic financial statements, MD&A, and accompanying notes, this report also presents certain Required Supplementary Information(RSI). The required RSI includes a budgetary comparison schedule for the general fund, schedule of changes in the net pension asset and related ratios and schedule of employer contributions for the Texas Municipal Retirement System. RSI can be found after the basic financial statements. Resolution 2017-04-299 Page 28 of 122 FY 2016 Audit Report 9 City of Anna, Texas MANAGEMENT'S DISCUSSIONAND ANALYSIS, Continued September 30,2016 GOVERNMENT-WIDE FINANCIAL ANALYSIS As noted previously, net position may serve over time as a useful indicator of the City's financial position. For the City of Anna, assets exceed liabilities by $38,969,252 as of September 30, 2016, in the primary government. The largest portion of the City's net position, $26,254,724, reflects its investments in capital assets (e.g., land, park improvements, buildings, furniture and fixtures, streets, drainage, machinery and equipment, etc.), less any debt used to acquire those assets that are still outstanding. 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 assets themselves cannot be used to liquidate these liabilities. The following table reflects the condensed Statement of Net Position: 2016 2015 Governmental Business-Type Governmental Business-Type Activities Activities Total Activities Activities Total Current and other assets $ 6,588,249 $ 3,242,149 $ 9,830,398 $ 5,618,149 $ 4,905,922 $ 10,524,071 Restricted assets 19,580 7,349,941 7,369,521 - 8,000,466 8,000,466 Capital assets,net 18,671,866 38,116,329 56,788,195 19,388,284 35,400,713 54,788,997 Total Assets 25,279,695 48,708,419 73,988,114 25,006,433 48,307,101 73,313,534 Deferred Ouflows of Resources 402,311 302,507 704,818 204,805 264,325 469,130 Other liabilities 1,812,477 3,074,569 4,887,046 1,800,083 2,080,658 3,880,741 Long-term liabilities 5,648,586 24,983,872 30,632,458 6,178,660 26,470,309 32,648,969 Total Liabilities 7,461,063 28,058,441 35,519,504 7,978,743 28,550,967 36,529,710 Deferred Inflows of Resources 151,679 52,497 204,176 89,266 38,973 128,239 Net Position: Net investment An capital assets 13,466,866 12,787,858 26,254,724 13,288,789 9,150,846 22,439,635 Restricted 1,550,067 7,349,941 8,900,008 1,781,301 10,029,856 11,811,157 Unrestricted 3,052,331 762,189 3,814,520 2,073,139 800,784 2,873,923 Total Net Position $ 18,069,264 $ 20,899,988 $ 38,969,252 $ 17,143,229 $ 19,981,486 $ 37,124,715 Resolution 2017-04-299 Page 29 of 122 FY 2016 Audit Report 10 City of Anna, Texas MANAGEMENT'S DISCUSSIONAND ANALYSIS, Continued September 30,2016 Statement of Activities: The following table provides a summary of the City's changes in net position: For the Year Ended September 30,2016 For the Year Ended September 30,2015 Total Total Governmental Business-Type Primary Governmental Business-Type Primary Activities Activities Government Activities Activities Government Revenues Program revenues: Charges for services $ 1,301,767 $ 7,523,193 $ 8,824,960 $ 1,060,450 $ 6,194,327 $ 7,254,777 Operating grants and contributions 333,948 - 333,948 15,053 - 15,053 Capital grants and contributions - 776,416 776,416 1,417,514 755,508 2,173,022 General revenues: Property taxes 3,973,028 - 3,973,028 3,322,054 - 3,322,054 Sales taxes 1,542,309 1,542,309 1,473,097 11473,097 Franchise and local taxes 447,498 - 447,498 450,799 - 450,799 Investment income 31,816 69,608 101,424 23,685 77,064 100,749 Other revenue 166,773 29,193 195,966 355,848 - 355,848 Total Revenues 7,797,139 8,398,410 16,195,549 8,118,500 7,026,899 15,145,399 Expenses General government 1,393,256 - 1,393,256 1,058,719 - 1,058,719 Public safety 2,727,997 2,727,997 2,511,931 21511,931 Culture and recreation 584,676 584,676 573,249 573,249 Public works 1,261,514 1,261,514 1,053,123 11053,123 Community services 690,842 690,842 558,541 558,541 Economic and Community developer 146,929 - 146,929 355,165 - 355,165 Interest and fiscal charges 174,446 1,173,240 1,347,686 316,079 1,111,836 1,427,915 Water,sewer,&sanitation - 6,198,112 6,198,112 - 5,375,263 5,375,263 Total Expenses 6,979,660 7,371,352 14,351,012 6,426,807 6,487,099 12,913,906 Change in Net Position Before Transfers 817,479 1,027,058 1,844,537 1,691,693 539,800 2,231,493 Transfers 108,556 (108,556) - (649) 649 - Total 108,556 (108,556) - (649) 649 - Change in Net Position 926,035 918,502 1,844,537 1,691,044 540,449 2,231,493 Beginning Net Position 17,143,229 19,981,486 37,124,715 15,452,185 19,441,037 34,893,222 Ending Net Position $ 18,069,264 $ 20,899,988 $ 38,969,252 $ 17,143,229 $ 19,981,486 $ 37,124,715 Resolution 2017-04-299 Page 30 of 122 FY 2016 Audit Report 11 � �`� City ��� �n]�a� Texas MANAGEMENT'S DISCUSSION AND ANALYSIS, Continued September 30L2016 Graphic presentations of selected data from the summary tables are displayed below to assist in the analysis ofthe City's activities. Governmental Activities °�� �� ����`���]����]���� �����`������ � Revenues Property taxes Sales taxes 51% 8% Franchise and localtaues 6% Investment income 0%{]tberreveznzes Charges for services 2% 17% For the year ended September 30, 2016, revenues from governmental activities totaled $7,797,139. Property tax, sales tax and franchise tax are the City's largest revenue sources. Sales tax increased $69,212 or 5% due to an overall recovery in the economy. Property tax increased 6m $65O,974 or 20% when compared to 2015 due to an increase in overall assessed property values. Other revenues decreased by $189,075 due to nonrecurring revenues received in the prior year. All other revenues remained relatively stable when compared tothe previous year. This graph shows the governmental function expenses ofthe City: Governmental � � � Activities° � U� ������������]����& ~ Expenses � Ctilmure and recreation 8% Itiblic works PobQcsmfety 18?6 39% Economic and Community development 2% Interest and fiscal charges General government Commonity services 3% 20% 10% For the year ended September 30, 2016, expenses for governmental activities totaled $6,979,660. This represents an increase of $552,853 or 9% from the prior year. The City's largest functional expense is public safety of $2,727,997which increased by $216,066 due to additional salaries and capital outlay. Resolution 2017-04-299 Page a1or122 FY2o1sAudit Report 12 City of Anna, Texas MANAGEMENT'S DISCUSSIONAND ANALYSIS, Continued September 30,2016 Public works totaled $1,261,514 as of yearend for an increase of $208,391 or 20% due to an additional position, street rehabilitation projects, and advanced paving. Community services increased by $132,301 or 24% due to an increase in permit fees for Bureau Veritas. Business-type activities are shown comparing operating costs to revenues generated by related services. Business-Type Activities - Revenues and Expenses 9,000,000 8,000,000 7,000,000 6,000,000 5,000,000 4,000,000 Expenses 3,000,000 IIIIIIIII Charges for Services 2,000,000 1,000,000 For the year ended September 30, 2016, charges for services by business-type activities totaled $7,523,193. This is an increase of $1,328,866, or 21%, from the previous year. This increase directly relates to an increase in the water and sewer rates which occurred on October 1, 2015 and growth within the City. Expenses totaled $7,371,352, which was an increase of $844,253, or 14%. A significant portion of this increase was due to the cost of water in addition to ongoing utility repairs and improvement projects. FINANCIAL ANALYSIS OF THE CITY'S FUNDS As noted earlier, fund accounting is used to demonstrate and ensure compliance with finance-related legal requirements. Governmental Funds - The focus of the City's governmental funds is to provide information of 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 the City's net resources available for spending at the end of the year. As of the end of the year the general fund reflected a total fund balance of$3,319,995. Of this, $19,580 is considered restricted for debt service, parks, and public safety & $185,788 is committed for revenue stabilization. Unassigned fund balance totaled $3,114,627 as of year end. The general fund saw a significant increase in property taxes when compared to the prior year. This directly relates to an increase in property values and a growing economy. Resolution 2017-04-299 Page 32 of 122 FY 2016 Audit Report 13 City of Anna, Texas MANAGEMENT'S DISCUSSIONAND ANALYSIS, Continued September 30,2016 The economic development fund had an ending fund balance of $917,371. This was an increase of $374,983. The reason for this increase was due to the sale of land for$500,000. The debt service fund had an ending fund balance of$2,848 at yearend for an increase of$47,013. Total principal and interest payments made during the year were$307,000 and$121,948, respectively. There was an overall increase in governmental fund balance of $833,168 from the prior year. The increase was primarily related to an increase in revenues and the gain on sale of EDC land in the amount of$500,000. Proprietary Funds - The City's proprietary funds provide the same type of information found in the government-wide financial statements,but in more detail. GENERAL FUND BUDGETARY HIGHLIGHTS There was a total positive revenue variance of$187,547 and a positive expenditure variance of$238,295 for the year. Other financing sources (uses) had an overall positive budget variance of $3,054. This positive revenue variance was primarily the result of more than anticipated licenses and permit fees due to new development within the City. Several supplemental budget amendments were made during the year. CAPITAL ASSETS As of the end of the year, the City's governmental activities funds had invested$18,671,866 in a variety of capital assets and infrastructure, net of accumulated depreciation. Depreciation is included with the governmental capital assets as required by GASB Statement No. 34. The City's business-type activities funds had invested $38,116,329 in a variety of capital assets and infrastructure, net of accumulated depreciation. Major capital asset events during the current year include the following: • Purchase of land for a total of$50,000 • Construction in process for City Hall project totaling$708,715 • Park improvements totaling$58,041 • Purchase of vehicles and equipment totaling$330,729 • Street and drainage improvements totaling$105,592 • Construction in progress for various water and sewer projects totaling$3,608,521 • Purchase of vehicles and equipment for water and sewer totaling$313,365 Resolution 2017-04-299 Page 33 of 122 FY 2016 Audit Report 14 City of Anna, Texas MANAGEMENT'S DISCUSSIONAND ANALYSIS, Continued September 30,2016 More detailed information about the City's capital assets is presented in note IV. C to the financial statements. LONG-TERM DEBT At the end of the current year, the City had total bonds and outstanding of $30,701,493. During the year, the City made payments on the long-term debt of $1,525,592. More detailed information about the City's long-term liabilities is presented in note IV. D to the financial statements. ECONOMIC FACTORS AND NEXT YEAR'S BUDGET The economy continues to be strong for the City of Anna and the North Central area. Focused on having a balanced community, the City takes a proactive approach to economic development with its business recruitment efforts, as well as continued development of residential housing options. In addition, the City conservatively manages its' budget. The fiscal year 2016-17 budget reflects the commitment of the City Council and staff to preserve and enhance the quality of existing services to our citizens and respond to our city's continuing growth and development, while maintaining a strong financial position. Since property values stabilized in 2013 following the 2008-2011 housing recession, the City has continued to see healthy increases in the value of existing properties. In 2015, the City saw existing property values increase just over 10% and over $43,000,000 in new value was added the tax roll. Again, in 2016, the City saw existing property values increase just over 13% and over $35,000,000 in new value was added the tax roll. We remain cautiously optimistic that we will experience modest,but slowing, appreciation in the value of existing properties and that additional value will be added to the tax roll as a result of new construction in the near term. New value added to the tax role will continue to be primarily from residential growth,however, a new Wal-Mart store is planned to open in the April of 2017 marking a substantial contribution to the growth of our commercial tax base. The growth in both sales tax and taxable value of real property corresponds to a significant increase in residential growth and population over the past 36 months. According to the most recent population estimates published by the North Central Texas Council of Governments, the City of Anna population as of January 1, 2016 was 11,320. As the inventory of finished lots has declined, population growth has slowed down; however, we anticipate steady growth over the next few years as the inventory of available lots increases. The City has forecasted the construction of approximately 200 new single family homes during the 2017 fiscal year. There are currently several residential developments either in design or under construction that will add 1,435 single family lots to our inventory over the next 12 to 36 months. Of course, with the growth in population comes a proportional increase in demand for municipal services that are funded primarily by property taxes. In order to fund the FY 2017 budget, the City Resolution 2017-04-299 Page 34 of 122 FY 2016 Audit Report 15 City of Anna, Texas MANAGEMENT'S DISCUSSIONAND ANALYSIS, Continued September 30,2016 adopted a tax rate of $0.629 per $100 valuation which is a decrease from the tax rate adopted in FY 2016. This marks the 3rd year in row that that the City Council has been able to decrease the City property tax rate. When compared with other cities in our area, the City of Anna still has one of lowest per-capita property tax levies. Rapid population growth has also resulted in significant investment over the past 10 to 15 years in the City's water and sewer system. Currently the Water and Sewer Fund holds just over $25.5 million in outstanding debt. The City has worked closely with our financial advisors, First Southwest, to develop a sound debt management plan for the Water and Sewer Fund. Looking to the future, the City anticipates a spike in debt service obligations in 2020 and again in 2026. In order to appropriately manage this debt, the City and First Southwest developed a plan to take advantage of call dates and pursue advance refundings of the City's outstanding debt. Every effort has been made to minimize the present value costs to the City. The current plan makes very conservative assumptions regarding interest rates and was reviewed and analyzed in conjunction with a utility rate study to evaluate the current water and sewer rates. Depending on market conditions and the City's growth, refundings are slated for early FY2016-17. These refundings will also free up cash and reduce pressure on utility rates. The City of Anna along with the cities of Melissa,Van Alstyne, and Howe belong to a strategic alliance called the Collin Grayson Municipal Alliance (CGMA). The alliance (CGMA) purchases treated surface water from the North Texas Municipal Water District (NTMWD) through a contract with the Greater Texoma Utility Authority (GTUA). The CMGA purchases a minimum take or pay (MT/P) allocation of water through GTUA from NTMWD. Currently each city is responsible for 25% of the total MT/P amount. This treated surface water supplements the City's water supply especially during the summer months when water consumption is highest. As our population has grown and water demand has increased, we have been required to increasingly supplement our well water with treated surface water. As we have forecasted consumption and production of our wells, it appears that the CGMA as a group will likely exceed the MT/P allocation in FY 2017. When this happens, the City of Anna will be responsible for the cost of all of the water we consume above the original MT/P amount. This increased water consumption coupled with a 10.3% increase in the price of water supplied from NTMWD has resulted in a 65.51%increase in the budgeted cost for treated surface water. In order to ensure that our utility rates will continue to support our operating costs and debt service obligations, staff hires a rate consultant to evaluate our utility system's operation costs and debt payments, and recommend any rate adjustments that would be necessary to fully fund the cost of operating our system while maintaining an adequate financial reserve. Based on preliminary results from the most recent rate study, we do not anticipate the need for any water and sewer rate increase this year. However, average consumption has been trending downward. Should consumption patterns change and result in decreased consumption, the City's water revenues may fall below the Resolution 2017-04-299 Page 35 of 122 FY 2016 Audit Report 16 City of Anna, Texas MANAGEMENT'S DISCUSSIONAND ANALYSIS, Continued September 30,2016 budget estimate. Staff will monitor revenues throughout FY 16-17 and recommend any action should actual revenue not meet budgeted projections. CONTACTING THE CITY'S FINANCIAL MANAGEMENT This financial report is designed to provide a general overview of the City of Anna's finances for all those with an interest in the City's finances. Questions concerning this report or requests for additional financial information should be directed to the City Finance Director, 111 N. Powell Parkway, Anna, Texas 75409. Resolution 2017-04-299 Page 36 of 122 FY 2016 Audit Report 17 (This page intentionally left blank.) Resolution 2017-04-299 18 Page 37 of 122 FY 2016 Audit Report FINANCIAL STATEMENTS Resolution 2017-04-299 19 Page 38 of 122 FY 2016 Audit Report (This page intentionally left blank.) Resolution 2017-04-299 20 Page 39 of 122 FY 2016 Audit Report City of Anna, Texas STATEMENT OF NET POSITION September 30,2016 Primary Government Governmental Business-Type Activities Activities Total Assets Current assets: Cash and cash equivalents $ 5,730,605 $ 2,147,367 $ 7,877,972 Investments 122,775 122,775 245,550 Receivables,net 734,869 962,112 1,696,981 Inventories - 9,895 9,895 Total Current Assets 6,588,249 3,242,149 9,830,398 Restricted assets: Restricted cash and pooled investments 19,580 5,360,969 5,380,549 GTUA prepaid reserves - 1,988,972 1,988,972 Capital assets: Non-depreciable 2,546,468 4,229,228 6,775,696 Net depreciable capital assets 16,125,398 33,887,101 50,012,499 18,691,446 45,466,270 64,157,716 Total Assets 25,279,695 48,708,419 73,988,114 Deferred Outflows of Resources Deferred loss on bond refunding - 168,022 168,022 Pension contributions 249,134 83,045 332,179 Pension investment earnings 153,177 51,440 204,617 Total Deferred Outflows of Resources 402,311 302,507 704,818 Liabilities Current liabilities: Accounts payable and accrued liabilities 1,262,899 574,489 1,837,388 Accrued salaries 52,513 14,917 67,430 Customer deposits - 719,209 719,209 Accrued interest payable 21,529 974,394 995,923 Current portion of long-term debt 475,536 791,560 1,267,096 1,812,477 3,074,569 4,887,046 Noncurrent liabilities: Due in more than one year 4,868,948 24,723,993 29,592,941 Net pension liability 779,638 259,879 1,039,517 5,648,586 24,983,872 30,632,458 Total Liabilities 7,461,063 28,058,441 35,519,504 Deferred Inflows of Resources Pension(gains)losses 151,679 52,497 204,176 Total Deferred Inflows of Resources 151,679 52,497 204,176 Net Position Net investment in capital assets 13,466,866 12,787,858 26,254,724 Restricted for: Water and sewer improvements - 7,349,941 7,349,941 Capital projects and other 1,550,067 - 1,550,067 Unrestricted 3,052,331 762,189 3,814,520 Total Net Position $ 18,069,264 $ 20,899,988 $ 38,969,252 See Notes to Financial Statements. Resolution 2017-04-299 21 Page 40 of 122 FY 2016 Audit Report City of Anna, Texas STATEMENT OF ACTIVITIES For the Year Ended September 30,2016 Program Revenues Operating Capital Charges for Grants and Grants and Functions/Programs Expenses Services Contributions Contributions Primary Government Governmental Activities General government $ 1,393,256 $ 48,181 $ 193,420 $ - Culture and recreation 584,676 117,990 - - Community services 690,842 768,988 12,500 - Public safety 2,727,997 129,914 128,028 - Public works 1,261,514 236,694 - - Economic and Community developn 146,929 - - - Interest and fiscal charges 174,446 - - - Total Governmental Activities 6,979,660 1,301,767 333,948 - Business-Type Activities Utilities 7,371,352 7,523,193 - 776,416 Total Business-Type Activities 7,371,352 7,523,193 - 776,416 Total Primary Government $ 14,351,012 $ 8,824,960 $ 333,948 776,416 General Revenues: Taxes Property taxes Sales taxes Franchise and local taxes Investment income Other revenue Transfers Total General Revenues and Transfers Change in Net Position Beginning Net Position Ending Net Position See Notes to Financial Statements. Resolution 2017-04-299 22 Page 41 of 122 FY 2016 Audit Report Net(Expense)Revenue and Changes in Net Position Primary Government Governmental Business-Type Activities Activities Total $ (1,151,655) $ - $ (1,151,655) (466,686) - (466,686) 90,646 - 90,646 (2,470,055) - (2,470,055) (1,024,820) - (1,024,820) (146,929) - (146,929) (174,446) - (174,446) (5,343,945) - (5,343,945) 928,257 928,257 928,257 928,257 (5,343,945) 928,257 (4,415,688) 3,973,028 - 3,973,028 1,542,309 - 1,542,309 447,498 - 447,498 31,816 69,608 101,424 166,773 29,193 195,966 108,556 (108,556) - 6,269,980 (9,755) 6,260,225 926,035 918,502 1,844,537 17,143,229 19,981,486 37,124,715 $ 18,069,264 $ 20,899,988 $ 38,969,252 Resolution 2017-04-299 23 Page 42 of 122 FY 2016 Audit Report City of Anna, Texas BALANCE SHEET GOVERNMENTAL FUNDS September 30,2016 Economic Nonmajor Total Development Governmental Governmental General Corporation Funds Funds Assets Cash and cash equivalents $ 3,415,910 $ 845,128 $ 1,469,567 $ 5,730,605 Investments 122,775 - - 122,775 Receivables,net 385,866 222,662 126,341 734,869 Due from other funds 619,184 - 103 619,287 Restricted cash 19,580 - - 19,580 Total Assets $ 4,563,315 $ 1,067,790 $ 1,596,011 $ 7,227,116 Liabilities Accounts payable $ 178,058 $ 355 $ - $ 178,413 Accrued liabilities 953,407 - 131,079 1,084,486 Accrued salaries 46,175 - - 46,175 Unclaimed property 6,338 - - 6,338 Due to other funds - - 619,287 619,287 Total Liabilities 1,183,978 355 750,366 1,934,699 Deferred Inflows of Resources Unavailable revenue: Property tax 59,342 - 11,890 71,232 Local business loans - 150,064 41,851 191,915 Total Deferred Inflows of Resources 59,342 150,064 53,741 263,147 Fund Balances Committed for: Revenue stabilization 185,788 - - 185,788 Restricted for: Community development - 917,371 632,696 1,550,067 Debt service 6,386 - 2,848 9,234 Parks 12,713 - - 12,713 Public safety 481 - 37,754 38,235 Municipal court - - 18,310 18,310 Capital projects - - 675,233 675,233 Unassigned reported in: General fund 3,114,627 - (574,937) 2,539,690 Total Fund Balances 3,319,995 917,371 791,904 5,029,270 Total Liabilities,Deferred Inflows,and Fund Balances $ 4,563,315 $ 2,251,413 $ 2,029,623 $ 6,476,395 See Notes to Financial Statements. Resolution 2017-04-299 24 Page 43 of 122 FY 2016 Audit Report City of Anna, Texas RECONCILIATION OF THE BALANCE SHEET TO THE STATEMENT OF NET POSITION GOVERNMENTAL FUNDS September 30,2016 Fund Balances-Total Governmental Funds $ 5,029,270 Adjustments for the Statement of Net Position: Capital assets used in governmental activities are not current financial resources and,therefore,not reported in the governmental funds. Capital assets-non-depreciable 2,546,468 Capital assets-net depreciable 16,125,398 Other long-term assets are not available to pay for current-period expenditures and,therefore,are deferred in the governmental funds. 263,147 Deferred outflows of resources,represent a consumption of net position that applies to a future period(s)and is not recognized as an outflow of resources(expenditure) until then. Pension contributions 249,134 Pension investment earnings 153,177 Deferred inflows of resources,represents an acquisition of net position that applies to a future period(s)and so will not be recognized as an inflow of resources(revenue)until that time. Pension(gains)losses (151,679) Some liabilities,including bonds payable and deferred charges,are not reported as liabilities in the governmental funds. Accrued interest payable (21,529) Non-current liabilities due in one year (475,536) Non-current liabilities due in more than one year (4,868,948) Net pension liability (779,638) Net Position of Governmental Activities $ 18,069,264 See Notes to Financial Statements. Resolution 2017-04-299 25 Page 44 of 122 FY 2016 Audit Report City of Anna, Texas STATEMENT OF REVENUES, EXPENDITURES,AND CHANGES IN FUND BALANCE GOVERNMENTAL FUNDS For the Year Ended September 30,2016 Economic Nonmajor Total Development Governmental Governmental General Corporation Funds Funds Revenues Property tax $ 3,314,026 $ - $ 661,891 $ 3,975,917 Sales tax 771,155 385,577 385,577 1,542,309 Franchise and local taxes 447,498 - - 447,498 Intergovernmental 193,420 - - 193,420 Charges for services 110,166 - 378,025 488,191 Grants and contributions 99,456 12,500 28,572 140,528 License and permits 711,462 - - 711,462 Fines and forfeitures 84,360 - 17,754 102,114 Investment income 19,967 3,986 7,863 31,816 Other revenue 77,116 47,030 21,400 145,546 Total Revenues 5,828,626 449,093 1,501,082 7,778,801 Expenditures Current: General government 1,116,696 137,377 1,254,073 Police department 1,565,068 - 3,471 1,568,539 Municipal court 110,420 - 14,230 124,650 Fire department 708,963 - 96,325 805,288 Ambulance 135,968 - - 135,968 Park 265,825 - 2,713 268,538 Streets 539,049 - - 539,049 Development and animal control 689,308 - - 689,308 Community and economic developm - 128,601 - 128,601 Debt Service: Principal - 390,842 389,000 779,842 Interest and fiscal charges - 4,667 178,275 182,942 Capital outlay 203,873 50,000 840,572 1,094,445 Total Expenditures 5,335,170 574,110 1,661,963 7,571,243 Excess (Deficiency) of Revenues Over(Under)Expenditures 493,456 (125,017) (160,881) 207,558 Other Financing Sources (Uses) Transfers in - - 298,419 298,419 Transfers(out) - - (189,863) (189,863) Gain(loss)on sale of capital assets 17,054 500,000 - 517,054 Total 17,054 500,000 108,556 625,610 Net Change in Fund Balances 510,510 374,983 (52,325) 833,168 Beginning fund balances 2,809,485 542,388 844,229 4,196,102 Ending Fund Balances $ 3,319,995 $ 917,371 $ 791,904 $ 5,029,270 See Notes to Financial Statements. Resolution 2017-04-299 26 Page 45 of 122 FY 2016 Audit Report City of Anna, Texas RECONCILIATION OF THE STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES OF GOVERNMENTAL FUNDS TO THE STATEMENT OF ACTIVITIES For the Year Ended September 30,2016 Amounts reported for governmental activities in the statement of activities are different because: Net changes in fund balances-total governmental funds $ 833,168 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. Capital outlay 1,267,976 Depreciation expense (1,488,567) Net effect of capital disposals and transfers (495,827) Revenues in the statement of activities that do not provide current financial resources are not reported as revenues in the funds. 47,289 Some expenses reported in the statement of activities do not require the use of current financial resources and,therefore, are not reported as expenditures in governmental funds. Compensated absences (37,768) Accrued interest 8,496 Pension expense 11,426 The issuance of long-term debt(e.g.,bonds,leases, certificates of obligation) 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.Neither transaction,however,has any effect on net position.Also,governmental funds report the effect of premiums, discounts, and similar items when they are first issued;whereas, these amounts are deferred and amortized in the statement of activities. This amount is the net effect of these differences in the treatment of long-term debt and related items. Principal payments 779,842 Change in Net Position of Governmental Activities $ 926,035 See Notes to Financial Statements. Resolution 2017-04-299 27 Page 46 of 122 FY 2016 Audit Report City of Anna, Texas STATEMENT OF NET POSITION PROPRIETARY FUND (Page I of 2) September 30,2016 Utility Fund Assets Current Assets Cash and cash equivalents $ 2,147,367 Certificates of deposit 122,775 Receivables,net 962,112 Inventories 9,895 Total Current Assets 3,242,149 Noncurrent Assets Restricted cash and pooled investments 5,360,969 GTUA prepaid reserves 1,988,972 Capital assets: Non-depreciable 4,229,228 Net depreciable capital assets 33,887,101 Total Noncurrent Assets 45,466,270 Total Assets 48,708,419 Deferred Outflows of Resources Deferred loss on bond refunding 168,022 Pension investment earnings 51,440 Pension contributions 83,045 Total Deferred Outflows of Resources 302,507 Total Assets and Deferred Outflows of Resources $ 49,010,926 Resolution 2017-04-299 28 Page 47 of 122 FY 2016 Audit Report City of Anna, Texas STATEMENT OF NET POSITION PROPRIETARY FUND (Page 2 of 2) September 30,2016 Liabilities Current Liabilities Accounts payable $ 557,730 Salaries payable 14,917 Other liabilities 16,759 Bond interest payable 974,394 Customer deposits 719,209 Accrued compensated absences 19,060 Current portion of long-term debt 772,500 Total Current Liabilities 3,074,569 Noncurrent Liabilities Due in more than one year 24,723,993 Net pension liability 259,879 Total Noncurrent Liabilities 24,983,872 Total Liabilities 28,058,441 Deferred Inflows of Resources Pension(gains)losses 52,497 Total Deferred Inflows of Resources 52,497 Total Liabilities and Deferred Inflows of Resources 28,110,938 Net Position Net investment in capital assets 12,787,858 Restricted for: Water and sewer improvements 7,349,941 Unrestricted 762,189 Total Net Position $ 20,899,988 See Notes to Financial Statements. Resolution 2017-04-299 29 Page 48 of 122 FY 2016 Audit Report (This page intentionally left blank.) Resolution 2017-04-299 30 Page 49 of 122 FY 2016 Audit Report City of Anna, Texas STATEMENT OF REVENUES, EXPENSES,AND CHANGES IN FUND NET POSITION PROPRIETARY FUNDS For the Year Ended September 30,2016 Utility Fund Operating Revenues Water $ 3,181,932 Sewer 2,083,189 Sanitation 818,317 Inspection fees 313,188 Installation and tap fees 154,730 Groundwater production fees 50,237 Intergovernmental 776,416 Total Operating Revenues 7,378,009 Operating Expenses Personal services 992,224 Sanitation contract 693,798 Supplies 409,099 North Texas municipal water district contract 1,366,150 Utilities 417,134 Contracted services 499,685 Reimbursed developer fees 344,000 Other expenses 30,035 Depreciation 1,445,987 Total Operating Expenses 6,198,112 Operating Income(Loss) 1,179,897 Nonoperating Revenues (Expenses) Investment income 69,608 Developer and impact fees 921,600 Other revenue 29,193 Interest expense (1,173,240) Total Nonoperating Revenues (Expenses) (152,839) Income (Loss)Before Transfers 1,027,058 Transfers in 187,000 Transfers(out) (295,556) Change in Net Position 918,502 Beginning net position 19,981,486 Ending Net Position $ 20,899,988 See Notes to Financial Statements. Resolution 2017-04-299 31 Page 50 of 122 FY 2016 Audit Report City of Anna, Texas STATEMENT OF CASH FLOWS PROPRIETARY FUNDS (Page I of 2) For the Year Ended September 30,2016 Utility Fund Cash Flows from Operating Activities Receipts from customers and users $ 6,948,167 Payments to suppliers (3,956,803) Payments to employees (1,008,357) Net Cash Provided by Operating Activities 1,983,007 Cash Flows from Noncapital Financing Activities Transfer in 187,000 Transfer(out) (295,556) Net Cash Provided (Used)by Noncapital Financing Activities (108,556) Cash Flows from Capital and Related Financing Activities Cash paid for acquisition and construction of capital assets (4,161,603) Developer and impact fees 921,600 Principal payments on debt (753,374) Interest paid on long-term debt (949,195) Net Cash(Used) by Capital and Related Financing Activities (4,942,572) Cash Flows from Investing Activities Interest on investments 69,608 Net Cash Provided by Investing Activities 69,608 Increase (Decrease) in Cash and Cash Equivalents (2,998,513) Beginning cash and cash equivalents 10,629,624 Ending Cash and Cash Equivalents $ 7,631,111 See Notes to Financial Statements. Resolution 2017-04-299 32 Page 51 of 122 FY 2016 Audit Report City of Anna, Texas STATEMENT OF CASH FLOWS PROPRIETARY FUNDS (Page 2 of 2) For the Year Ended September 30,2016 Utility Fund Reconciliation of Operating Income (Loss) to Net Cash Provided by Operating Activities Operating Income(Loss) $ 1,179,897 Adjustments to reconcile operating income(loss) to net cash provided: Depreciation 1,445,987 Changes in Operating Assets and Liabilities: (Increase) Decrease in: Accounts receivable (500,347) Inventory 16,237 GTUA prepaid reserves 40,418 Increase(Decrease)in: Accounts payable (807) Salaries payable (17,318) Other liabilities (12,229) Due to General Fund (200,195) Due to Capital Projects Fund (40,326) Customer deposits 70,505 Compensated absences 3,208 Net pension liability 39,437 Deferred Outflows of Resources: Pension contributions (63,099) Investment experience 8,115 Deferred Inflows of Resources: Actual experience vs. assumption 13,524 Net Cash Provided by Operating Activities $ 1,983,007 See Notes to Financial Statements. Resolution 2017-04-299 33 Page 52 of 122 FY 2016 Audit Report (This page intentionally left blank.) Resolution 2017-04-299 34 Page 53 of 122 FY 2016 Audit Report City of Anna, Texas NOTES TO FINANCIAL STATEMENTS September 30,2016 I. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The City of Anna, Texas (the "City") is a home rule charter city that operates under a council- manager form of government. The City provides the following services: public safety, ambulance, streets, sanitation, planning and zoning, and general administrative services. Other services include water, sewer, and sanitation operations. The accounting policies of the City conform to generally accepted accounting principles (GAAP) applicable to government units. The following is a summary of the more significant accounting policies. A. Description of Government-Wide Financial Statements The government-wide financial statements (i.e., the statement of net position and the statement of activities) report information on all of the nonfiduciary activities of the primary government and its component units. Governmental activities, which normally are supported by taxes, intergovernmental revenues, and other nonexchange transactions, are reported separately from business-type activities, which rely to a significant extent on fees and charges to external customers for support. Likewise, the primary government is reported separately from certain legally separate component units for which the primary government is financially accountable. B. Reporting Entity The City is an independent political subdivision of the State of Texas governed by an elected council and is considered a primary government for financial reporting purposes as its activities are not considered a part of any other governmental or other type of reporting entity. As required by generally accepted accounting principles, these basic financial statements have been prepared based on considerations regarding the potential for inclusion of other entities, organizations, or functions as part of the City's financial reporting entity. The Anna Economic Development Corporation ("EDC") and Anna Community Development Corporation ("CDC'), although legally separate, are considered part of the reporting entity. No other entities have been included in the City's reporting entity. Additionally, as the City is considered a primary government for financial reporting purposes, its activities are not considered a part of any other governmental or other type of reporting entity. Considerations regarding the potential for inclusion of other entities, organizations or functions in the City's financial reporting entity are based on criteria prescribed by generally accepted accounting principles. These same criteria are evaluated in considering whether the City is a part of any other governmental or other type of reporting entity. The overriding elements associated with prescribed criteria considered in determining that the City's financial reporting entity status is that of a primary government are that it has a separately elected governing body; it is legally separate; and is fiscally independent of other state and local governments. Additionally prescribed criteria under generally accepted accounting principles include 35 Resolution 2017-04-299 Page 54 of 122 FY 2016 Audit Report City of Anna, Texas NOTES TO FINANCIAL STATEMENTS, Continued September 30,2016 considerations pertaining to organizations for which the primary government is financially accountable, and considerations pertaining to organizations for which the nature and significance of their relationship with the primary government are such that exclusion would cause the reporting entity's financial statements to be misleading or incomplete. Blended Component Units Anna Economic Development Corporation The Anna Economic Development Corporation is governed by a board of seven directors, all of whom are appointed by the City Council at its will. The EDC fund was incorporated in the state of Texas as a nonprofit industrial development corporation under Section 4B of the Development Corporation Act of 1979. The purpose of the EDC is to promote economic development within the City of Anna. Criteria for blended presentation was met due to the financial benefitiburden relationship. Separately audited financial statements are not issued. Anna Community Development Corporation The Anna Community Development Corporation is governed by a board of seven directors, all of whom are appointed by the City Council at its will. The CDC fund was incorporated in the state of Texas as a nonprofit industrial development corporation under Section 4A of the Development Corporation Act of 1979. The purpose of the CDC is to promote community development within the City of Anna. Criteria for blended presentation was met due to the financial benefitiburden relationship. Separately audited financial statements are not issued. C. Basis of Presentation-Government-Wide and Fund Financial Statements While separate government-wide and fund financial statements are presented, they are interrelated. The governmental activities column incorporates data from governmental funds while business-type activities incorporate data from the government's enterprise funds. Separate financial statements are provided for governmental funds and the proprietary funds. As a general rule, the effect of interfund activity has been eliminated from the government-wide financial statements. Exceptions to this general rule are payments in lieu of taxes where the amounts are reasonably equivalent in value to the interfund services provided and other charges between the government's water and transit functions and various other functions of the government. Elimination of these charges would distort the direct costs and program revenues reported for the various functions concerned. The fund financial statements provide information about the government's funds, including its blended component units. Separate statements for each fund category—governmental and proprietary are presented. The emphasis of fund financial statements is on major governmental and enterprise funds, each displayed in a separate column. All remaining governmental and Resolution 2017-04-299 36 Page 55 of 122 FY 2016 Audit Report City of Anna, Texas NOTES TO FINANCIAL STATEMENTS, Continued September 30,2016 enterprise funds are aggregated and reported as nonmajor funds. Major individual governmental and enterprise funds are reported as separate columns in the fund financial statements. The government reports the following major governmental funds: General Fund The general fund is the main operating fund of the City and is used to account for all financial transactions not properly includable in other funds. The principal sources of revenues include local property taxes, sales and franchise taxes, licenses and permits, fines and forfeitures, and charges for services. Expenditures include general government, public safety, public works, and culture and recreation. Economic Development Corporation The Economic Development Corporation is a special revenue fund that accounts for the accumulation of State of Texas 4B sales tax revenues and related economic development expenditures. Proprietary Fund Types Proprietary funds are used to account for activities that are similar to those often found in the private sector. All assets, liabilities, equities, revenues, expenses, and transfers relating to the government's business activities are accounted for through proprietary funds. The measurement focus is on determination of net income, financial position, and cash flows. Proprietary funds distinguish operating revenues and expenses from non-operating items. Operating revenues include charges for services. Operating expenses include costs of materials, contracts, personnel, and depreciation. All revenues and expenses not meeting this definition are reported as non- operating revenues and expenses. Proprietary fund types follow GAAP prescribed by the Governmental Accounting Standards Board (GASB) and all financial Accounting Standards Board's standards issued prior to November 30, 1989. Subsequent to this date, the City accounts for its enterprise funds as presented by GASB. The government reports the following major enterprise fund: Utility Fund The utility fund is used to account for the provision of water, sewer, and solid waste collection services and wastewater treatment operations. Activities of the fund include administration, operations and maintenance of the water system, and billing and collection activities. The fund also accounts for the accumulation of resources for, and the payment of, long-term debt principal and interest. All costs are financed through charges to utility customers with rates reviewed regularly and adjusted if necessary to ensure integrity of the Resolution 2017-04-29937 Page 56 of 122 FY 2016 Audit Report City of Anna, Texas NOTES TO FINANCIAL STATEMENTS, Continued September 30,2016 fund. Additionally, the government reports the following fund types: Debt Service Fund The City accounts for the accumulation of financial resources for the payments of principal, interest and related costs on general long-term debt paid primarily from taxes levied by the City. The fund balance of the debt service fund is restricted exclusively for debt service expenditures. Capital Projects Fund Accounts for the acquisition and construction of governmental-type assets from expenditures of debt proceeds, capital grants, or other sources restricted for governmental type asset acquisition. Special Revenue Funds The Anna CDC is a special revenue fund that accounts for the accumulation of State of Texas 4A sales tax revenues and related community development expenditures. The City accounts for resources restricted to, or designated for, specific purposes in a special revenue fund. These funds consist of the child safety fund, police seizure fund, police training fund, court security fund, court technology fund, PEG capital fund, park construction fund, fire department capital improvement fund, roadway impact fee service area one, and road capital developer agreements fund. During the course of operations the government has activity between funds for various purposes. Any residual balances outstanding at year end are reported as due from/to other funds and advances to/from other funds. While these balances are reported in fund financial statements, certain eliminations are made in the preparation of the government-wide financial statements. Balances between the funds included in governmental activities (i.e., the governmental and internal service funds) are eliminated so that only the net amount is included as internal balances in the governmental activities column. Similarly, balances between the funds included in business-type activities (i.e., the enterprise funds) are eliminated so that only the net amount is included as internal balances in the business-type activities column. Further, certain activity occurs during the year involving transfers of resources between funds. In fund financial statements these amounts are reported at gross amounts as transfers in/out. While reported in fund financial statements, certain eliminations are made in the preparation of the government-wide financial statements. Transfers between the funds included in governmental activities are eliminated so that only the net amount is included as transfers in the governmental activities column. Similarly,balances between the funds included in business-type Resolution 2017-04-299 3g Page 57 of 122 FY 2016 Audit Report City of Anna, Texas NOTES TO FINANCIAL STATEMENTS, Continued September 30,2016 activities are eliminated so that only the net amount is included as transfers in the business-type activities column. D. Measurement Focus and Basis of Accounting The accounting and financial reporting treatment applied to a fund is determined by its measurement focus. Measurement focus refers to what is being measured and basis of accounting refers to when transactions are recorded in the financial records and reported on the financial statements and relates to the timing of the measurement made, regardless of the measurement focus applied. The government-wide statements and fund financial statements for proprietary funds are reported using the economic resources measurement focus and the accrual basis of accounting. The economic resources measurement focus means all assets and liabilities (whether current or non-current) are included on the statement of net position and the operating statements present increases (revenues) and decreases (expenses) in total net position. Under the accrual basis of accounting, revenues are recognized in the accounting period in which they are earned and become measurable, and expenses in the accounting period in which they are incurred and become measurable. Proprietary fund equity consists of net position. Proprietary fund-type operating statements present increases (i.e., revenues) and decreases (i.e., expenses) in net total assets. All governmental funds and component units are reported using the current financial resources measurement focus and are accounted for using the modified accrual basis of accounting. Under the modified accrual basis of accounting, revenues are recognized in the accounting period when they are susceptible to accrual (i.e., when they are measurable and available). Measurable means the amount of the transaction can be determined and available means collectible within the current period or soon enough thereafter to pay liabilities of the current period. For this purpose, the City considers revenues available if they are collected within 60 days of the end of the current period. Property taxes, sales taxes, franchise taxes, and interest associated with the current period are all considered to be susceptible to accrual and so have been recognized as revenues of the current period. Other receipts and other taxes become measurable and available when cash is received by the government and are recognized as revenue at that time. Generally, the effect of interfund activity has been eliminated from the government-wide financial statements. E. 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 disclosure of contingent assets and liabilities at the date of Resolution 2017-04-299 39 Page 58 of 122 FY 2016 Audit Report City of Anna, Texas NOTES TO FINANCIAL STATEMENTS, Continued September 30,2016 the financial statements and the reported amounts of revenues and expenditures/expenses during the reporting period. Actual results could differ from those estimates. F. Assets,Liabilities,Deferred Inflows/Outflows, and Net Position/Fund Balance 1. Deposits and Investments The City's cash and cash equivalents are considered to be cash on hand, demand deposits and short term investments with original maturities of three months or less from the date of acquisition. For the purpose of the statement of cash flows, the proprietary fund types consider temporary investments with maturity of three months or less when purchased to be cash equivalents. In accordance with GASB Statement No. 31, Accounting and Reporting for Certain Investments and External Investment Pools, the City reports all investments at fair value, except for "money market investments" and "2a7-like pools." Money market investments, which are short-term highly liquid debt instruments that may include U.S. Treasury and agency obligations, are reported at amortized costs. Investment positions in external investment pools that are operated in a manner consistent with the SEC's Rule 2a7 of the Investment Company Act of 1940, such as TexSTAR, are reported using the pools' share price. The City has adopted a written investment policy regarding the investment of its funds as defined in the Public Funds Investment Act, Chapter 2256, of the Texas Governmental Code. In summary, the City is authorized to invest in the following: Direct obligations of the U.S. Government Fully collateralized certificates of deposit and money market accounts Statewide investment pools 2. Fair Value As of September 30, 2016, The City has applied Governmental Accounting Standards Board ("GASB") Statement No. 72, Fair Value Measurement and Application. GASB Statement No. 72 provides guidance for determining a fair value measurement for reporting purposes and applying fair value to certain investments and disclosures related to all fair value measurements. 3. Receivables and Interfund Transactions Transactions between funds that are representative of lendingiborrowing arrangements outstanding at the end of the year are referred to as either "interfund receivables/payables" (i.e., the current portion of interfund loans) or "advances to/from other funds" (i.e., the non- current portion of interfund loans). All other outstanding balances between funds are Resolution 2017-04-299 40 Page 59 of 122 FY 2016 Audit Report City of Anna, Texas NOTES TO FINANCIAL STATEMENTS, Continued September 30,2016 reported as "due to/from other funds" in the fund financial statements. If the transactions are between the primary government and its component unit, these receivables and payables are classified as "due to/from component unit/primary government." Any residual balances outstanding between the governmental activities and business-type activities are reported in the government-wide financial statements as "internal balances." Advances between funds are offset by a fund balance reserve account in the applicable governmental fund to indicate they are not available for appropriation and are not expendable available financial resources. All trade receivables are shown net of any allowance for uncollectible amounts. 4. Property Taxes Property taxes are levied by October 1 on the assessed value listed as of the prior January 1 for all real and business personal property in conformity with Subtitle E, Texas Property Tax Code. Taxes are due on receipt of the tax bill and are delinquent if not paid before February 1 of the year following the year in which imposed. Penalties are calculated after February 1 up to the date collected by the government at the rate of 6%for the first month and increased 1% per month up to a total of 12%. Interest is calculated after February 1 at the rate of 1% per month up to the date collected by the government. Under state law, property taxes levied on real property constitute a lien on the real property which cannot be forgiven without specific approval of the State Legislature. The lien expires at the end of twenty years. Taxes levied on personal property can be deemed uncollectible by the City. 5. Inventories and Prepaid Items The costs of governmental fund type inventories are recorded as expenditures when the related liability is incurred, (i.e., the purchase method). The inventories are valued at the lower of cost or market using the first-in/first-out method. Certain payments to vendors reflect costs applicable to future accounting periods (prepaid expenditures) are recognized as expenditures when utilized. 6. 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. Capital assets are defined by the government, as assets with an initial individual cost of more than $5,000 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. Major outlays for capital assets and improvements are capitalized as projects are constructed. Resolution 2017-04-299 41 Page 60 of 122 FY 2016 Audit Report City of Anna, Texas NOTES TO FINANCIAL STATEMENTS, Continued September 30,2016 Interest costs incurred in connection with construction of enterprise fund capital assets are capitalized when the effects of capitalization materially impact the financial statements. 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. Property, plant, and equipment of the primary government, as well as the component units, are depreciated using the straight-line method over the following estimated useful years. Estimated Asset Description Useful Life Buildings 20 years Water & Sewer System Infrastructure 35 years Equipment 3 to 20 years Streets 20 years 7. Deferred Outflows/Inflows of Resources In addition to assets, the statement of net position will sometimes report a separate section for deferred outflows of resources. This separate financial statement element, deferred outflows of resources, represents a consumption of net position that applies to a future period(s) and so will not be recognized as an outflow of resources (expense/ expenditure) until then. An example is a deferred charge on refunding reported in the government-wide statement of net position. A deferred charge on refunding results from the difference in the carrying value of refunded debt and its reacquisition price. This amount is deferred and amortized over the shorter of the life of the refunded or refunding debt. In addition to liabilities, the statement of financial position will sometimes report a separate section for deferred inflows of resources. This separate financial statement element, deferred inflows of resources, represents an acquisition of net position that applies to a future period(s) and so will not be recognized as an inflow of resources (revenue) until that time. The government has only one type of item, which arises only under a modified accrual basis of accounting that qualifies for reporting in this category. Accordingly, the item, unavailable revenue, is reported only in the governmental funds balance sheet. The governmental funds report unavailable revenues from property taxes and fines and forfeitures. These amounts are deferred and recognized as an inflow of resources in the period that the amounts become available. Deferred inflows of resources can also occur at the government wide level due to differences between investment gains and losses realized on pension investments compared to assumption used within the pension actuarial valuation model. Resolution 2017-04-299 42 Page 61 of 122 FY 2016 Audit Report City of Anna, Texas NOTES TO FINANCIAL STATEMENTS, Continued September 30,2016 8. Net Position Flow Assumption Sometimes the government will fund outlays for a particular purpose from both restricted (e.g., restricted bond or grant proceeds) and unrestricted resources. In order to calculate the amounts to report as restricted - net position and unrestricted - net position in the government-wide statements, a flow assumption must be made about the order in which the resources are considered to be applied. It is the government's policy to consider restricted - net position to have been depleted before unrestricted-net position is applied. 9. Fund Balance Flow Assumptions Sometimes the government will fund outlays for a particular purpose from both restricted and unrestricted resources (the total of committed, assigned, and unassigned fund balance). In order to calculate the amounts to report as restricted, committed, assigned, and unassigned fund balance in the governmental fund financial statements a flow assumption must be made about the order in which the resources are considered to be applied. It is the government's policy to consider restricted fund balance to have been depleted before using any of the components of unrestricted fund balance. Further, when the components of unrestricted fund balance can be used for the same purpose, committed fund balance is depleted first, followed by assigned fund balance. Unassigned fund balance is applied last. 10. Fund Balance Policies Fund balance of governmental funds is reported in various categories based on the nature of any limitations requiring the use of resources for specific purposes. The government itself can establish limitations on the use of resources through nonspendable (nonspendable fund balance), restricted (restricted fund balance), commitment (committed fund balance), assignment (assigned fund balance), and unassigned (unassigned fund balance). The nonspendable fund balance classification includes inventories, prepaids, long-term loans and notes receivable, and property held for resale (unless the proceeds are restricted, committed, or assigned). The restricted fund balance classification includes amounts that can be spent only for the specific purposes stipulated by constitution, external resource providers, or through enabling legislation. The committed fund balance classification includes amounts that can be used only for the specific purposes determined by a formal action of the government's highest level of decision-making authority. The governing council is the highest level of decision-making Resolution 2017-04-299 43 Page 62 of 122 FY 2016 Audit Report City of Anna, Texas NOTES TO FINANCIAL STATEMENTS, Continued September 30,2016 authority for the government that can, by adoption of an ordinance prior to the end of the fiscal year, commit fund balance. Once adopted, the limitation imposed by the ordinance remains in place until a similar action is taken (the adoption of another ordinance) to remove or revise the limitation. Amounts in the assigned fund balance classification are intended to be used by the government for specific purposes but do not meet the criteria to be classified as committed. The governing body (council) has by resolution authorized the finance director to assign fund balance. The council may also assign fund balance as it does when appropriating fund balance to cover a gap between estimated revenue and appropriations in the subsequent year's appropriated budget. Unlike commitments, assignments generally only exist temporarily. In other words, an additional action does not normally have to be taken for the removal of an assignment. Conversely, as discussed above, an additional action is essential to either remove or revise a commitment. Unasssigned fund balance is the residual classification for the government's General Fund and includes all spendable amounts not contained in the other classifications, and other funds that have total negative fund balances. 11. Compensated Absences The City maintains formal programs for vacation and sick leave. Eligible employees are granted vacation pay benefits in varying amounts to specified maximums depending on tenure with the City. The City's personnel policy permits its eligible employees to accumulate earned but unused vacation pay benefits. There is no liability for unpaid accumulated sick leave as the City will not pay any unused amounts when employees separate from service with the City. The estimated amount of accrued vacation and sick pay benefits that is expected to be liquidated with expendable available financial resources is reported as an expenditure and a fund liability of the governmental fund that will pay it upon maturity. Amounts of accrued vacation pay benefits that are not expected to be liquidated with expendable available financial resources are maintained separately and represent a reconciling item between the fund and government-wide presentations. 12. Long-Term Obligations In the government-wide financial statements, long-term debt and other long-term obligations are reported as liabilities in the applicable governmental activities statement of net position. The long-term debt consists primarily of bonds payable and accrued compensated absences. Resolution 2017-04-29944 Page 63 of 122 FY 2016 Audit Report City of Anna, Texas NOTES TO FINANCIAL STATEMENTS, Continued September 30,2016 Long-term debt for governmental funds is not reported as liabilities in the fund financial statements until due. The debt proceeds are reported as other financing sources, net of the applicable premium or discount and payments of principal and interest reported as expenditures. In the governmental fund types, issuance costs, even if withheld from the actual net proceeds received, are reported as debt service expenditures. However, claims and judgments paid from governmental funds are reported as a liability in the fund financial statements only for the portion expected to be financed from expendable available financial resources. Long-term debt and other obligations, financed by proprietary funds, are reported as liabilities in the appropriate funds. For proprietary fund types, bond premiums, discounts and issuance costs are deferred and amortized over the life of the bonds using the effective interest method, if material. Bonds payable are reported net of the applicable bond premium or discount. 13. Pensions For purposes of measuring the net pension liability (asset), deferred outflows of resources and deferred inflows of resources related to pensions, and pension expense, information about the Fiduciary Net Position of the Texas Municipal Retirement System (TMRS) and additions to/deductions from TMRS's Fiduciary Net Position have been determined on the same basis as they are reported by TMRS. For this purpose, plan contributions are recognized in the period that compensation is reported for the employee, which is when contributions are legally due. Benefit payments and refunds are recognized when due and payable in accordance with the benefit terms. Investments are reported at fair value. G. Revenues and Expenditures/Expenses 1. Program Revenues Amounts reported as program revenues include 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 (including special assessments) that are restricted to meeting the operational or capital requirements of a particular function or segment. All taxes, including those dedicated for specific purposes, and other internally dedicated resources are reported as general revenues rather than as program revenues. 2. Proprietary Funds Operating and Nonoperating Revenues and Expenses 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. Resolution 2017-04-299 45 Page 64 of 122 FY 2016 Audit Report City of Anna, Texas NOTES TO FINANCIAL STATEMENTS, Continued September 30,2016 The principal operating revenues of the utility fund are charges to customers for sales and services. The utility fund also recognizes as operating revenue the portion of tap fees intended to recover the cost of connecting new customers to the system. All revenues and expenses not meeting this definition are reported as nonoperating revenues and expenses. II. RECONCILIATION OF GOVERNMENT-WIDE AND FUND FINANCIAL STATEMENTS A. Explanation of certain differences between the governmental fund balance sheet and the government-wide statement of net position. The governmental fund balance sheet includes reconciliation between fund balance-total governmental funds and net position-governmental activities as reported in the government-wide statement of net position. One element of that reconciliation explains that long-term liabilities, including bonds, are not due and payable in the current period and, therefore, are not reported in the funds. Reconciling items have been presented on the balance sheet of governmental funds in the basic financial statements B. Explanation of certain differences between the governmental fund statement of revenues, expenditures, and changes in fund balances and the government-wide statement of activities. The governmental fund statement of revenues, expenditures, and changes in fund balances includes a reconciliation between net changes in fund balances - total governmental funds and changes in net position of governmental states that, "the issuance of long-term debt (e.g.,bonds) 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 premiums, discounts, and similar items when debt is first issued, whereas these amounts are deferred and amortized in the statement of activities." A reconciliation has been presented in the basic financial statements. III. STEWARDSHIP, COMPLIANCE,AND ACCOUNTABILITY Annual budgets are adopted on a basis consistent with generally accepted accounting principles (GAAP) for the general, debt service, EDC, CDC, and utility funds. The original budget is adopted by the City Council prior to the beginning of the year. The legal level of control as defined as the fund level. No funds can be transferred or added to a budgeted fund without Council approval. Appropriations lapse at the end of the year. Resolution 2017-04-299 46 Page 65 of 122 FY 2016 Audit Report City of Anna, Texas NOTES TO FINANCIAL STATEMENTS, Continued September 30,2016 IV. DETAILED NOTES ON ALL FUNDS A. Deposits and Investments As of September 30, 2016, the City had the following investments: Average Maturity Investment Type Fair Value (Years) Certificates of deposit $ 245,550 0.11 External investment pools 263,071 0.12 Total fair value $ 508,621 Portfolio weighted average maturity 0.12 Interest rate risk In accordance with its investment policy, the City manages its exposure to declines in fair values by limiting the weighted average of maturity not to exceed five years; structuring the investment portfolio so that securities mature to meet cash requirements for ongoing operations; monitoring credit ratings of portfolio position to assure compliance with rating requirements imposed by the Public Funds Investment Act; and invest operating funds primarily in short-term securities or similar government investment pools. Credit risk The City's investment policy limits investments to obligations of the United States, State of Texas, or their agencies and instrumentalities with an investment quality rating of not less than "A" or its equivalent, by a nationally recognized investment rating firm. Other obligations must be unconditionally guaranteed (either express or implied) by the full faith and credit of the United States Government or the issuing U.S. agency and investment pools with an investment quality not less than AAA or AAA-m, or equivalent, by at least one nationally recognized rating service. Custodial credit risk — deposits 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 statutes require that all deposits in financial institutions be insured or 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 market value of not less than the principal amount of the deposits. The City's investment policy requires funds on bank deposit at the depository bank to be collateralized by securities with a collective market value (market value of the principal and accrued interest) of at least 102%. As of September 30, 2016, the market values of pledged securities and FDIC exceeded bank balances. Custodial credit risk—investments For an investment,this is the risk that,in the event of the failure of the counterparty, the City will not be able to recover the value of its investments or collateral securities that are in the possession of an outside party. The City's investment policy requires that it will seek to safekeeping securities at financial institutions, avoiding physical possession. Resolution 2017-04-299 47 Page 66 of 122 FY 2016 Audit Report City of Anna, Texas NOTES TO FINANCIAL STATEMENTS, Continued September 30,2016 Further, all trades, where applicable, are executed by delivery versus payment to ensure that securities are deposited in the City's safekeeping account prior to the release of funds. B. Receivables The following comprise receivable balances of the primary government at year end: Economic General Development Nonmajor Utility Total Property taxes $ 59,342 $ 73,139 $ 11,890 $ - $ 144,371 Sales tax 146,278 - 73,139 7,201 226,618 Franchise and other taxes 83,219 - - - 83,219 Other 78,118 149,523 41,312 231,578 500,531 Accounts 18,909 - - 885,858 904,767 Allowance - - - (162,525) (162,525) $ 385,866 $ 222,662 $ 126,341 $ 962,112 $ 1,696,981 C. Capital Assets A summary of changes in governmental activities capital assets for the year end was as follows: Beginning Decreases/ Ending Balances Increases Reclassifications Balances Capital assets,not being depreciated: Land $ 2,177,876 $ 50,000 $ (459,176) $ 1,768,700 Construction in process 69,053 708,715 - 777,768 Total capital assets not being depreciated 2,246,929 758,715 (459,176) 2,546,468 Capital assets,being depreciated: Park improvements 5,410,083 58,041 - 5,468,124 Buildings 2,013,364 - - 2,013,364 Furniture and fixtures 290,108 14,898 (235,109) 69,897 Streets and drainage 17,460,644 105,593 (30,709) 17,535,528 Machinery and equipment 2,366,520 330,729 188,110 2,885,359 Total capital assets being depreciated 27,540,719 509,261 (77,708) 27,972,272 Less accumulated depreciation 10,399,364 1,488,567 (41,057) 11,846,874 Total accumulated depreciation 10,399,364 1,488,567 (41,057) 11,846,874 Net capital assets being depreciated 17,141,355 (979,306) (36,651) 16,125,398 Total Capital Assets $ 19,388,284 $ (220,591) $ (495,827) $ 18,671,866 Resolution 2017-04-299 4g Page 67 of 122 FY 2016 Audit Report City of Anna, Texas NOTES TO FINANCIAL STATEMENTS, Continued September 30,2016 Depreciation was charged to governmental functions as follows: General government $ 52,541 Police department 131,868 Fire department 70,081 Streets 896,502 Community and economic development 18,329 Parks 316,639 Development and animal control 2,607 Total Governmental Activities Depreciation Expense $ 1,488,567 A summary of changes in business-type activities capital assets for the year end was as follows: Beginning Decreases/ Ending Balances Increases Reclassifications Balances Capital assets,not being depreciated: Land $ 708,016 $ 100,642 $ - $ 808,658 Construction in progress 732,493 3,608,521 (920,444) 3,420,570 Total capital assets not being depreciated 1,440,509 31709,163 (920,444) 4,229,228 Capital assets,being depreciated: Furniture 5,620 - - 5,620 Buildings and improvements 486,244 - - 486,244 Equipment 1,392,726 313,364 - 1,706,090 Water treatment system 7,854,007 - 42,569 7,896,576 GTUA water improvements 16,979,634 139,076 - 17,118,710 GTUA sewer improvements 939,796 - - 939,796 Water and sewer system 17,020,580 - 877,875 17,898,455 Total capital assets being depreciated 44,678,607 452,440 920,444 46,051,491 Less accumulated depreciation 10,718,403 11445,987 - 12,164,390 Total accumulated depreciation 10,718,403 1,445,987 - 12,164,390 Net capital assets being depreciated 33,960,204 (993,547) 920,444 33,887,101 Total Capital Assets $ 35,400,713 $ 2,715,616 $ - $ 38,116,329 Depreciation was charged to business-type functions as follows: Water and sewer $ 1,445,987 Total Business-type Activities Depreciation Expense $ 1,445,987 Resolution 2017-04-299 49 Page 68 of 122 FY 2016 Audit Report City of Anna, Texas NOTES TO FINANCIAL STATEMENTS, Continued September 30,2016 D. Long-term Debt The following is a summary of changes in the City's total governmental long-term liabilities for the year ended. In general, the City uses the debt service fund to liquidate governmental long- term liabilities. Beginning Ending Due within Balance Additions Reductions Balance One Year Governmental Activities: Bonds,notes and other payables: General obligation bonds $ 1,615,000 $ - $ (52,000) $ 1,563,000 $ 42,000 Certificates of obligation 2,165,000 - (255,000) 1,910,000 225,000 Sales Tax Revenue Bonds 1,814,000 - (82,000) 1,732,000 83,000 Notes Payable 390,842 - (390,842) - - 5,984,842 - (779,842) 5,205,000 350,000 Other liabilities: Compensated absences 101,716 139,484 (101,716) 139,484 125,536 Net pension liability 657,310 122,328 - 779,638 - Total Governmental Activities $ 6,743,868 $ 261,812 $ (881,558) $ 6,124,122 $ 475,536 Long-term liabilities due in more than one year $ 5,648,586 Beginning Ending Due within Balance Additions Reductions Balance One Year Business-type Activities: Bonds,notes and other payables: Contract revenue bonds $ 9,441,250 $ - $ (443,750) $ 8,997,500 $ 457,500 Contract revenue refunding bonds 1,990,000 - (95,000) 1,895,000 100,000 TWDB state participation agreement 2,168,750 - - 2,168,750 - General obligation water bonds 5,000 - (5,000) - - Combination tax&revenue certificates of obligation 8,310,000 - (150,000) 8,160,000 150,000 Combination tax&revenue refunding bonds 4,251,000 - (52,000) 4,199,000 65,000 Premium 83,867 - (7,624) 76,243 - 26,249,867 - (753,374) 25,496,493 772,500 Other liabilities: Compensated absences 15,852 19,060 (15,852) 19,060 19,060 Net pension liability 219,103 40,776 - 259,879 - Total Business-type Activities $ 26,484,822 $ 59,836 $ (769,226) $ 25,775,432 $ 791,560 Long-term liabilities due in more than one year $ 24,983,872 Resolution 2017-04-299 50 Page 69 of 122 FY 2016 Audit Report City of Anna, Texas NOTES TO FINANCIAL STATEMENTS, Continued September 30,2016 Long-term liabilities applicable to the City's governmental activities are not due and payable in the current period and accordingly, are not reported as fund liabilities in the governmental funds. Interest on long-term debt is not accrued in governmental funds,but rather is recognized as an expenditure when due. Primary government long-term debt at year end was comprised of the following debt issues: Interes Original Current Rates Balance Balance Governmental Activities: General Obligation Bonds 2007 Revenue Bonds 3.95%to 15% $ 370,000 $ 180,000 Series 2014B General Obligation Refunding Bond 0.3%to 2.395% 1,462,000 1,383,000 Total General Obligation Bonds $ 1,832,000 $ 1,563,000 Certificates of Obligation 2006 Combination Tax&Limited Surplus Revenue Certificates of Obligation 3.5%to 5.25% 2,480,000 530,000 2007 Certificate of Obligation Bonds 3.95%to 15% 1,420,000 700,000 4.28%(to 15% 2009 Tax&Revenue Certificate of Obligation on 02/15/2018) 900,000 680,000 Total Certificates of Obligation $ 4,800,000 $ 1,910,000 Sales Tax Revenue Bonds CDC-Sales Tax Revenue Refunding Bonds-Series 2012A 3.25% 396,000 137,000 CDC-Sales Tax Revenue Bonds-Series 2012B 3.30% 1,655,000 1,595,000 Total Sales Tax Revenue Bonds $ 2,051,000 $ 1,732,000 Notes Payable EDC-Note Payable 4.47% 335,000 - EDC-Note Payable 5.00% 380,300 - Total Sales Tax Revenue Bonds $ 715,300 $ - Total Debt $ 9,398,300 $ 5,205,000 Resolution 2017-04-299 51 Page 70 of 122 FY 2016 Audit Report City of Anna, Texas NOTES TO FINANCIAL STATEMENTS, Continued September 30,2016 Interest Original Current Rates Balance Balance Business-Type Activites: Contract Revenue Bonds Series 2006 GTUA Contract Revenue Bonds(12&15) 2.95%to 3.75% 2,125,000 1,255,000 Series 2007 GTUA Contract Revenue Bonds 3.07%to 5.57% 760,000 520,000 2007 GTUA Contract 3.07%to 5.57% 1,105,000 770,000 2007 GTUA Contract 2.95%to 4.10% 2,325,000 1,605,000 2007 GTUA Contract 3.07%to 5.62% 3,365,000 3,060,000 2008 GTUA Contract 2.29%to 5.74% 540,000 370,000 CGMA Pipeline Project Phase I 2.29%to 5.74% 700,000 462,500 CGMA Pipeline Project Phase III 2.67%to 5.62% 1,250,000 955,000 Total Contract Revenue Bonds $ 12,170,000 $ 8,997,500 Contract Revenue Refunding Bonds 2005 GTUA Contract Revenue Bond 4.42% 2,885,000 1,895,000 Total Contract Revenue Refunding Bonds $ 2,885,000 $ 1,895,000 TWDB State Participation Agreement CGMA Pipeline Project Phase II 5.68%to 5.83% 2,168,750 2,168,750 Total TWDB State Participation Agreement $ 2,168,750 $ 2,168,750 Combination Tax&Revenue Certificates of Obligation 2012 Combination Tax&Revenue Certificates of Obligation 1.5%to 2.5% 4,210,000 4,050,000 2014 Combination Tax&Revenue Certificates of Obligation 2.0%to 3.65% 4,180,000 4,110,000 Total Combination Tax&Revenue Certificates of Obligation $ 8,390,000 $ 8,160,000 Combination Tax&Revenue Refunding Bonds 4.28%(to 15% 2009 Combination Tax&Revenue Refunding Bond on 12/15/2018) 4,165,000 1,705,000 2014A Refunding Bonds 2.11% 2,598,000 2,494,000 Total Combination Tax&Revenue Refunding Bonds $ 6,763,000 $ 4,199,000 Total Debt $ 32,376,750 $ 25,420,250 Resolution 2017-04-299 52 Page 71 of 122 FY 2016 Audit Report City of Anna, Texas NOTES TO FINANCIAL STATEMENTS, Continued September 30,2016 The annual requirements to amortize the primary government debt issues outstanding at year ending were as follows: General Obligation Bonds Certificates of Obligation Special Tax Revenue Bonds Principal Interest Principal Interest Principal Interest 2017 $ 42,000 $ 43,845 $ 225,000 $ 108,773 $ 83,000 $ 54,468 2018 38,000 51,652 200,000 166,046 89,000 52,507 2019 60,000 49,672 215,000 183,800 90,000 49,995 2020 60,000 47,472 225,000 165,925 90,000 47,025 2021 204,000 43,948 95,000 149,625 95,000 43,973 2022 216,000 38,514 105,000 134,625 100,000 40,755 2023 217,000 32,234 110,000 118,500 100,000 37,455 2024 228,000 25,142 130,000 100,500 105,000 34,073 2025 229,000 17,336 140,000 80,250 110,000 30,525 2026 239,000 8,938 160,000 57,750 110,000 26,895 2027 30,000 2,250 175,000 32,625 115,000 23,183 2028 - - 65,000 14,625 120,000 19,305 2029 - - 65,000 4,875 125,000 15,263 2030 - - - - 130,000 11,055 2031 - - - - 135,000 6,683 2032 - - - - 135,000 2,228 Total $ 1,563,000 $ 361,003 $ 1,910,000 $ 1,317,919 $ 1,732,000 $ 495,388 General obligation bonds are direct obligations of the City for which its full faith and credit are pledged. Repayment of general obligation bonds are from taxes levied on all taxable property located within the City. The City is not obligated in any manner for special assessment debt. Resolution 2017-04-299 53 Page 72 of 122 FY 2016 Audit Report City of Anna, Texas NOTES TO FINANCIAL STATEMENTS, Continued September 30,2016 Business-type Activities Contract Revenue Refunding TWDB State Participation Contract Revenue Bonds Bonds Agreement Principal Interest Principal Interest Principal Interest 2017 $ 457,500 $ 437,167 $ 100,000 $ 83,758 $ - $ 125,206 2018 431,250 418,948 105,000 79,339 - 125,206 2019 463,750 400,680 105,000 74,698 - 125,206 2020 581,250 380,587 110,000 70,056 - 125,206 2021 608,750 354,582 210,000 65,195 - 125,206 2022 631,250 326,779 210,000 55,913 - 125,206 2023 665,000 297,500 220,000 46,631 - 125,206 2024 687,500 266,363 230,000 36,907 - 125,206 2025 740,000 233,422 235,000 26,741 - 125,206 2026 778,750 197,679 245,000 16,354 95,000 125,206 2027 662,500 159,734 60,000 5,525 100,000 119,810 2028 492,500 125,331 65,000 2,873 106,250 114,080 2029 325,000 99,035 - - 112,500 107,992 2030 345,000 80,647 - - 118,750 101,545 2031 363,750 61,153 - - 125,000 94,741 2032 382,500 40,605 - - 133,750 87,578 2033 87,500 18,968 - - 140,000 79,915 2034 92,500 13,910 - - 148,750 71,823 2035 97,500 8,571 - - 156,250 63,225 2036 103,750 2,915 - - 166,250 54,194 2037 - - - - 176,250 44,584 2038 - - - - 185,000 34,397 2039 - - - - 197,500 23,612 2040 - - - - 207,500 12,097 Total $ 8,997,500 $ 3,924,572 $ 1,895,000 $ 563,990 $ 2,168,750 $ 2,261,647 Resolution 2017-04-299 54 Page 73 of 122 FY 2016 Audit Report City of Anna, Texas NOTES TO FINANCIAL STATEMENTS, Continued September 30,2016 Business-type Activities Cont. Combination Tax&Revenue Combination Tax&Revenue Certificates of Obligation Refunding Bonds Principal Interest Principal Interest 2017 $ 150,000 $ 236,288 $ 65,000 $ 145,083 2018 155,000 233,238 52,000 235,604 2019 160,000 230,088 270,000 323,863 2020 160,000 226,888 595,000 293,931 2021 170,000 223,388 487,000 247,589 2022 170,000 219,588 510,000 207,700 2023 175,000 215,300 524,000 165,338 2024 210,000 210,000 544,000 120,953 2025 245,000 203,663 565,000 74,177 2026 420,000 193,413 587,000 25,101 2027 735,000 175,750 - - 2028 765,000 153,650 - - 2029 790,000 130,738 - - 2030 815,000 106,801 - - 2031 840,000 81,830 - - 2032 870,000 55,999 - - 2033 905,000 29,183 - - 2034 425,000 7,756 - - Total $ 8,160,000 $ 2,933,556 $ 4,199,000 $ 1,839,337 CONTRACTUAL OBLIGATIONS WITH GREATER TEXOMA UTILITY AUTHORITY Under the terms of long term water supply and sewer service contracts between the City and Greater Texoma Utility Authority (GTUA), the City recognizes that GTUA has an undivided ownership interest in the City's water system and sewer collection and treatment facility equivalent to the percentage of the total cost of the facility provided by GTUA through the issuance of GTUA bonds. The City has a contractual obligation to make payments specified by the contract to GTUA to pay the principal and interest on the bonds, maintain a Reserve Fund for the security and payment of bonds similarly secured, pay the administrative and overhead expenses of GTUA directly attributable to the bonds, and pay any extraordinary expenses incurred by GTUA in connection with the bonds. Under terms of the contracts the City's obligation to make payments to GTUA, as well as GTUA's ownership interest in the facilities terminates, when all of GTUA's bonds issued in connection with construction of the facilities have been paid in full, are retired, and are no longer outstanding. Resolution 2017-04-299 55 Page 74 of 122 FY 2016 Audit Report City of Anna, Texas NOTES TO FINANCIAL STATEMENTS, Continued September 30,2016 Collin Grayson Municipal Alliance Transmission Water Pipeline In 2004, the City, along with the City of Van Alstyne, Howe, and Melissa, formed a group called the Collin Grayson Municipal Alliance ("COMA"). COMA entered into a long-term contractual obligation with GTUA for the purpose of providing funds for the construction of a transmission water pipeline that will provide water to COMA cities. The cost of the pipeline is being funded in four phases. Each CMGA city was required to make payments to GTUA in an amount equivalent to 25% of the total obligation to cover their portion of the cost of the obligation until the pipeline project was completed. As water continues to flow to each COMA city, the City shall be charged it's percentage or fraction share of debt service on the obligation based upon the amount of water to be paid by the City under its water contract (i.e. the greater of its minimum take-or-pay amount or the actual amount of water taken) divided by the total amount of water to be paid by all COMA cities. The sum of the four (4) fractional amounts shall always equal 100% of the debt service on the contractual obligation with GTUA. The billing rates for each City will be calculated to provide funds necessary to cover the contractual obligation, interest, repairs, maintenance, and production costs. At the end of the contractual obligation with GTUA, the City will own an undivided interest in the transmission water pipeline based on the percentage of water it utilized and paid for during the contract term. The contract will expire and the transfer of ownership will occur during the fiscal year ended September 30, 2040, as long as no new debt is issued. E. Deferred Charges on Refunding Deferred charges resulting from the issuance of series 2014 tax and revenue refunding bonds have been recorded as deferred outflows of resources and are being amortized to interest expense over the shorter of either the remaining term of the refunded debt or the refunding bonds. The current year balance for business-type activities totaled $168,022. Current year amortization expense for business-type activities totaled$16,802. F. Customer Deposits The City had customer deposits of$719,209 in the utility fund as of year-end. The City requires a refundable deposit for all new utility customers. This amount will be returned to the customer when utility service is discontinued and all outstanding utility expenses are paid. Resolution 2017-04-299 56 Page 75 of 122 FY 2016 Audit Report City of Anna, Texas NOTES TO FINANCIAL STATEMENTS, Continued September 30,2016 G. Fund Balances and Restricted Net Position Governmental-T3�pe Fund Balances The City authorized the City Administrator to designate certain fund balances as assigned. Excluding unassigned fund balances, the following describes the City's fund balance classifications at September 30, 2016: Restricted Fund Balances All fund balances in spendable form for the Capital Projects, Debt Service, and Special Revenue funds are restricted for the intended purpose of these funds. Restricted Fund Balances of$19,580 for the General Fund represents assets restricted by law or by agreements with third parties. Committed Fund Balances The City Council has committed $185,788 of General Fund fund balance for 2016 revenue stabilization in the event of budget shortfalls. This contingency amount must be expended in accordance with Section 7.08 of the Anna City Charter. Negative Fund Balances The Capital Projects Fund has a $574,937 negative fund balance at September 30, 2016. The City's annual budget is adopted and amended as necessary to ensure any negative fund balances are only temporary in nature. The City expects both fund balances to become positive during fiscal year 2017 with reimbursement made to them by other funds and/or third parties. H. Interfund Transactions The compositions of interfund due to/from balances as of the year ended September 30, 2016 were as follows: Due from: Nonmaj or Due to: General Governmental Total Nonmajor $ 619,184 $ 103 $ 619,287 Total $ 619,184 $ 103 $ 619,287 Interfund balances resulted from the timing difference between the dates that (1) interfund goods and services are provided or reimbursable expenditures occur, (2) transactions are recorded in the accounting system, and (3) payments between funds are made. All balances are expected to be paid in the subsequent year. Resolution 2017-04-299 57 Page 76 of 122 FY 2016 Audit Report City of Anna, Texas NOTES TO FINANCIAL STATEMENTS, Continued September 30,2016 Transfers between the primary government funds during the 2016 year were as follows: Transfer out: Nonmaj or Transfer in: Utility Governmental Total Utility $ - $ 187,000 $ 187,000 Nonmajor 295,556 2,863 298,419 Total $ 295,556 $ 189,863 $ 485,419 Amounts transferred between funds relate to amounts collected by the governmental and enterprise funds for various capital expenditures and principal and interest payments. IV.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; and natural disasters for which the City participates along with more than 2,800 other entities in the Texas Municipal League's Intergovernmental Risk Pools. The Pool purchases commercial insurance at group rates for participants in the Pool. The City has no additional risk or responsibility to the Pool outside of the payment of insurance premiums. The City has not significantly reduced insurance coverage or had settlements which exceeded coverage amounts for the past three years. The City uses a number of approaches to decrease risks and protect against losses to the City, including internal practices, employee training, and a code of ethics, which all employees are required to acknowledge The City owns and operates motor vehicles and may provide such vehicle to employees for business use during the course and scope of their employment. The City is insured as to its own property losses, and the liability of loss to others. B. Contingent Liabilities Amounts received or receivable from granting agencies are subject to audit and adjustment by grantor agencies, principally the federal government. Any disallowed claims, including amounts already collected, may constitute a liability of the applicable funds. The amounts 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. Liabilities are reported when it is probable that a loss has occurred and the amount of the loss can be reasonably estimated. Liabilities include an amount for claims that have been incurred Resolution 2017-04-299 58 Page 77 of 122 FY 2016 Audit Report City of Anna, Texas NOTES TO FINANCIAL STATEMENTS, Continued September 30,2016 but not reported. Claim liabilities are calculated considering the effects of inflation, recent claim settlement trends, including frequency and amount of payouts, and other economic and social factors. The City participates in grant programs which are governed by various rules and regulations of the grantor agencies. Costs charged to the respective grant programs are subject to audit and adjustment by the grantor agencies; therefore, to the extent that the City had not complied with the rules and regulations governing the grants, refunds of any money received may be required and the collectability of any related receivable may be impaired. In the opinion of the City, there are no significant contingent liabilities relating to compliance with the rules and regulations governing the respective grants; therefore, no provision has been recorded in the accompanying basic financial statements for such contingencies. C. Arbitrage The Tax Reform Act of 1986 instituted certain arbitrage consisting of complex regulations with respect to issuance of tax-exempt bonds after August 31, 1986. Arbitrage regulations deal with the investment of tax-exempt bond proceeds at an interest yield greater than the interest yield paid to bondholders. Generally, all interest paid to bondholders can be retroactively rendered taxable if applicable rebates are not reported and paid to the Internal Revenue Service at least every five years for applicable bond issues. Accordingly, there is the risk that if such calculations are not performed correctly, a substantial liability to the City could result. The City does not anticipate that it will have an arbitrage liability and reviews the estimate for this potential liability annually. The City will also engage an arbitrage consultant to perform the calculations in accordance with Internal Revenue Service's rules and regulations if indicated. D. Defined Benefit Pension Plans Texas Municipal Retirement System 1. Plan Description The City of Anna, Texas participates as one of 860 plans in the nontraditional,joint contributory, hybrid defined benefit pension plan administered by the Texas Municipal Retirement System (TMRS). TMRS is an agency created by the State of Texas and administered in accordance with the TMRS Act, Subtitle G, Title 8, Texas Government Code (the TMRS Act) as an agent multiple- employer retirement system for municipal employees in the State of Texas. The TMRS Act places the general administration and management of the System with a six-member Board of Trustees. Although the Governor, with the advice and consent of the Senate, appoints the Board, TMRS is not fiscally dependent on the State of Texas. TMRS's defined benefit pension plan is a tax- qualified plan under Section 401 (a) of the Internal Revenue Code. TMRS issues a publicly available comprehensive annual financial report (CAFR) that can be obtained at www.tmrs.com. Resolution 2017-04-299 59 Page 78 of 122 FY 2016 Audit Report City of Anna, Texas NOTES TO FINANCIAL STATEMENTS, Continued September 30,2016 All eligible employees of the city are required to participate in TMRS. 2. Benefits Provided TMRS provides retirement, disability, and death benefits. Benefit provisions are adopted by the governing body of the city, within the options available in the state statutes governing TMRS. At retirement, the benefit is calculated as if the sum of the employee's contributions, with interest, and the city-financed monetary credits with interest were used to purchase an annuity. Members may choose to receive their retirement benefit in one of seven payments options. Members may also choose to receive a portion of their benefit as a Partial Lump Sum Distribution in an amount equal to 12, 24, or 36 monthly payments, which cannot exceed 75% of the member's deposits and interest. 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 2015 Plan Year 2016 Employee deposit rate 7% 7% Matching ratio (city to 2 to 1 2 to 1 employee) Years required for vesting 5 5 Service retirement eligibility (expressed as age/years of 60/5, 0/20 60/5, 0/20 service) Updated service credit 100% Repeating transfers 100% Repeating transfers Annuity increase (to retirees) 70% of CPI 70% of CPI Employees covered by benefit terms At the December 31, 2015 valuation and measurement date, the following employees were covered by the benefit terms: Inactive employees or beneficiaries currently receiving benefits 5 Inactive employees entitled to but not yet receiving benefits 20 Active employees 52 Total 77 3. Contributions The contribution rates for employees in TMRS are either 5%, 6%, or 7% of employee gross earnings, and the City matching percentages are either 100%, 150%, or 200%,both as adopted by the governing body of the City. Under the state law governing TMRS, the contribution rate for Resolution 2017-04-299 60 Page 79 of 122 FY 2016 Audit Report City of Anna, Texas NOTES TO FINANCIAL STATEMENTS, Continued September 30,2016 each city is determined annually by the actuary, using the Entry Age Normal (EAN) actuarial cost method. The actuarially determined rate is the estimated amount necessary to finance the cost of benefits earned by employees during the year, with an additional amount to finance any unfunded accrued liability. Employees for the City of Anna, Texas were required to contribute 7% of their annual gross earnings during the fiscal year. The contribution rates for the City of Anna, Texas were 13.92% and 14.24% in calendar years 2015 and 2016, respectively. The City's contributions to TMRS for the year ended September 30, 2016, were$444,631, and were equal to the required contributions. 4. Net Pension Liability (Asset) The City's Net Pension Liability (Asset) was measured as of December 31, 2015, and the Total Pension Liability (TPL) used to calculate the Net Pension Liability (Asset) was determined by an actuarial valuation as of that date. Actuarial assumptions The Total Pension Liability in the December 31, 2015 actuarial valuation was determined using the following actuarial assumptions: Inflation 2.5%per year Overall payroll growth 3.0%per year Investment Rate of Return 6.75% net of pension plan investment expense, including inflation Salary increases were based on a service-related table. Mortality rates for active members, retirees, and beneficiaries were based on the gender-distinct RP2000 Combined Healthy Mortality Table, with male rates multiplied by 109% and female rates multiplied by 103%. The rates are projected on a fully generational basis by scale BB to account for future mortality improvements. For disabled annuitants, the gender-distinct RP2000 Disabled Retiree Mortality Table is used, with slight adjustments. Actuarial assumptions used in the December 31, 2015, valuation were based on the results of actuarial experience studies. The experience study in TMRS was for the period January 1, 2010 through December 31, 2014, first used in the December 31, 2015 valuation. Healthy post- retirement mortality rates and annuity purchase rates were updated based on a Mortality Experience Investigation Study covering 2009 through 2011, and dated December 31, 2013. These assumptions were first used in the December 31, 2013 valuation, along with a change to the Entry Age Normal (EAN) actuarial cost method. Assumptions are reviewed annually. No additional changes were made for the 2014 valuation. Resolution 2017-04-299 61 Page 80 of 122 FY 2016 Audit Report City of Anna, Texas NOTES TO FINANCIAL STATEMENTS, Continued September 30,2016 The long-term expected rate of return on pension plan investments is 6.75%. The pension plan's policy in regard to the allocation of invested assets is established and may be amended by the TMRS Board of Trustees. Plan assets are managed on a total return basis with an emphasis on both capital appreciation as well as the production of income, in order to satisfy the short-term and long-term funding needs of TMRS. The long-term expected rate of return on pension plan investments was determined using a building-block method in which best estimate ranges of expected future real rates of return (expected returns, net of pension plan investment expense and inflation) are developed for each major asset class. These ranges are combined to produce the long-term expected rate of return by weighting the expected future real rates of return by the target asset allocation percentage and by adding expected inflation. The target allocation and best estimates of arithmetic real rates of return for each major asset class are summarized in the following table: Long-Term Expected Real Asset Class Target Allocation Rate of Return (Arithmetic) Domestic Equity 17.5% 4.55% International Equity 17.5% 6.10% Core Fixed Income 10.0% 1.00% Non-Core Fixed Income 20.0% 3.65% Real Return 10.0% 4.03% Real Estate 10.0% 5.00% Absolute Return 10.0% 4.00% Private Equity 5.0% 8.00% Total 100.0% Discount Rate The discount rate used to measure the Total Pension Liability was 6.75%. The projection of cash flows used to determine the discount rate assumed that employee and employer contributions will be made at the rates specified in statute. Based on that assumption, the pension plan's Fiduciary Net Position was projected to be available to make all projected future benefit payments of current active and inactive employees. Therefore, the long-term expected rate of return on pension plan investments was applied to all periods of projected benefit payments to determine the Total Pension Liability. Sensitivity of the Net Pension Liability (Asset) to Changes in the Discount Rate The following presents the net pension liability of the City, calculated using the discount rate of 6.75%, as well as what the City's net pension liability (asset) would be if it were calculated using a discount rate that is 1-percentage-point lower (5.75%) or 1-percentage-point higher (7.75%) than the current rate: Resolution 2017-04-299 62 Page 81 of 122 FY 2016 Audit Report City of Anna, Texas NOTES TO FINANCIAL STATEMENTS, Continued September 30,2016 1%Decrease Current Single Rate 1% Increase 5.75% Assumption 6.75% 7.75% $ 1,894,285 $ 1,039,517 $ 356,812 Changes in the Net Pension Liability (Asset) Total Pension Plan Fiduciary Net Net Pension Liability(a) Position (b) Liability (a)-(b) Balance at 12/31/14 $ 4,205,380 $ 3,328,967 $ 876,413 Changes for the year: Service cost 527,867 - 527,867 Interest 309,015 - 309,015 Difference between expected and actual experience (110,141) - (110,141) Changes of assumptions 19,349 - 19,349 Contributions-employer - 386,733 (386,733) Contributions-employee - 194,478 (194,478) Net investment income - 4,915 (4,915) Benefit payments,including refunds of emp. contributions (109,637) (109,637) - Administrative expense - (2,992) 2,992 Other changes - (148) 148 Net changes 636,453 473,349 163,104 Balance at 12/31/15 $ 4,841,833 $ 3,802,316 $ 1,039,517 Pension Plan Fiduciary Net Position Detailed information about the pension plans Fiduciary Net Position is available in a separately- issued TMRS financial report. That report may be obtained on the internet at www.tmrs.com. 5. Pension Expense and Deferred Outflows of Resources and Deferred Inflows of Resources Related to Pensions For the year ended September 30, 2016, the City recognized pension expense of$428,819. At September 30, 2016, the City reported deferred outflows of resources and deferred inflows of resources related to pensions from the following sources: Resolution 2017-04-299 63 Page 82 of 122 FY 2016 Audit Report City of Anna, Texas NOTES TO FINANCIAL STATEMENTS, Continued September 30,2016 Deferred Deferred Outflows of Inflows of Resources Resources Difference between projected and investment earnings $ 204,617 $ - Differences between expected and actual economic experience - 204,176 Contributions subsequent to the measurement date 332,179 - Total $ 536,796 $ 204,176 The City reported $332,179 as deferred outflows of resources related to pensions resulting from contributions subsequent to the measurement date that will be recognized as a reduction of the net pension liability for the year ending September 30, 2016. Other amounts reported as deferred outflows and inflows of resources related to pensions will be recognized in pension expense as follows: Year ended December 31: 2016 $ 16,302 2017 16,302 2018 16,302 2019 8,927 2020 (36,696) Thereafter (20,696) $ 441 E. Other Postemployment Benefit 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. 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. 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. Resolution 2017-04-299 64 Page 83 of 122 FY 2016 Audit Report City of Anna, Texas NOTES TO FINANCIAL STATEMENTS, Continued September 30,2016 The City's contributions to the TMRS SDBF for the years ended 2016, 2015 and 2014 were$4,083, $3,182 and$3,135, respectively, which equaled the required contributions each year. F. Restatement The City has restated beginning net position within business-type activities and the utility fund due to a change in the reporting of unbilled utilities and GTUA deposits. The restatement of beginning net position is as follows: Business-type Activities Utility Prior year ending net position as reported $ 19,776,440 $ 19,776,440 Change in reporting of accounts receivable 205,046 2051046 Restated beginning net position $ 19,981,486 $ 19,981,486 G. New Accounting Pronouncements The City has adopted the provision of Governmental Accounting Standard Board (GASB Statement No. 68, entitled Accounting and Financial Reporting for Pensions, an amendment of GASB Statement No. 27 and Statement No. 71, Pension Transition for Contributions Made Subsequent to the Measurement Date. As part of GASB 68 the City is required to record its net funded pension liability. GASB also issued Statement No. 69, entitled Government Combinations and Disposals of Government Operation, and GASB Statement No. 70, entitled Accounting and Financial Reporting for Nonexchange Financial Guarantees. Both statements were adopted this fiscal year but had no effect on these accompanying financial statements. The, GASB has issued Statement No. 72, entitled Fair Value Measurement and Application, Statement No. 73, entitled, Accounting and Financial Reporting for Pensions and Related Assets That Are Not within the Scope of GASB Statement 68, and Amendments to certain Provisions of GASB Statements 67 and 68, GASB Statement No. 74 entitled, Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans, GASB Statement No. 75, entitled, Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions; GASB Statement No. 76; entitled, The Hierarchy of Generally Accepted Accounting Principles for State and Local Government; and GASB Statement No. 77; entitled, Tax Abatement Disclosures, which will require adoption in the future, if applicable. These statements may or will have a material effect on the City's financial statements once implemented. The City will be analyzing the effects of these pronouncements and plans to adopt them as applicable by their effective date. Resolution 2017-04-299 65 Page 84 of 122 FY 2016 Audit Report City of Anna, Texas NOTES TO FINANCIAL STATEMENTS, Continued September 30,2016 H. Subsequent Events On December 22, 2016, the City issued $850,000 worth of general obligation refunding bonds. The bonds have an interest rate of 2% and a maturity date of February 15, 2027. In addition, on December 29, 2016, the CDC issued$1,850,000 of sales tax revenue bonds. In October of 2017, the City executed an interlocal agreement between Collin County and the City of Anna regarding the construction of trails at Natural Springs Park. In November of 2017, the City executed an agreement with HD Supply Waterworks, Ltd. for the purchase and installation of Advanced Metering Infrastructure. The total budget for the project is approximately$1.3 million, and is being funded through a 10-year lease-purchase. There were no other material subsequent events through April 7, 2017, the date the financial statements were available to be issued. Resolution 2017-04-299 66 Page 85 of 122 FY 2016 Audit Report REQUIRED SUPPLEMENTARY INFORMATION Resolution 2017-04-299 67 Page 86 of 122 FY 2016 Audit Report City of Anna, Texas SCHEDULE OF REVENUES, EXPENDITURES,AND CHANGES IN FUND BALANCE -BUDGET AND ACTUAL GENERAL FUND For the Year Ended September 30,2016 Variance with Final Budget Original 2016 Positive Budget Final Budget Actual (Negative) Revenues Property tax $ 3,238,907 $ 3,240,489 $ 3,314,026 $ 73,537 Sales tax 700,000 750,000 771,155 21,155 Franchise and local taxes 420,000 451,000 447,498 (3,502) Intergovernmental 205,499 196,595 193,420 (3,175) Charges for services 95,700 95,700 110,166 14,466 Contributions and donations 17,000 173,577 99,456 (74,121) License and permits 386,312 545,312 711,462 166,150 Fines and forfeitures 114,500 114,500 84,360 (30,140) Investment income 12,000 12,000 19,967 7,967 Other revenue 53,310 61,906 77,116 15,210 Total Revenues 5,243,228 5,641,079 5,828,626 187,547 Expenditures Current: General government 1,123,237 1,133,258 1,116,696 16,562 Police department 1,527,568 1,608,810 1,565,068 43,742 Municipal court 120,124 136,954 110,420 26,534 Fire department 775,567 757,338 708,963 48,375 Ambulance 127,594 135,967 135,968 (1) Park 335,275 335,275 265,825 69,450 Streets 492,032 492,032 539,049 (47,017) Development and animal control 567,368 667,368 689,308 (21,940) Capital outlay 180,463 306,463 203,873 102,590 Total Expenditures 5,249,228 5,573,465 5,335,170 238,295 Revenues Over(Under) (6,000) 67,614 493,456 425,842 Other Financing Sources (Uses) Gain(loss)on sale of capital assets 6,000 14,000 17,054 3,054 Fotal Other Financing Sources (Uses) 6,000 14,000 17,054 3,054 Net Change in Fund Balance $ - $ 81,614 510,510 $ 428,896 Beginning fund balance 2,809,485 Ending Fund Balance $ 3,319,995 Notes to Required Supplementary Information 1.Annual budgets are adopted on a basis consistent with generally accepted accounting principles (GAAP). Resolution 2017-04-299 68 Page 87 of 122 FY 2016 Audit Report City of Anna, Texas SCHEDULE OF REVENUES, EXPENDITURES,AND CHANGES IN FUND BALANCE -BUDGET AND ACTUAL ECONOMIC DEVELOPMENT CORPORATION For the Year Ended September 30,2016 Variance with Final Budget Original 2016 Positive Budget Final Budget Actual (Negative) Revenues Property tax $ 350,000 $ 350,000 $ 385,577 $ 35,577 Charges for services 30,000 30,000 12,500 (17,500) Investment income 2,500 2,500 3,986 1,486 Other revenue - - 47,030 47,030 Total Revenues 382,500 382,500 449,093 66,593 Expenditures Current: Community and economic developm 149,150 148,150 128,601 19,549 Debt Service: Principal 73,250 73,250 390,842 (317,592) Interest and fiscal charges 16,900 16,900 4,667 12,233 Capital outlay 100,000 825,000 50,000 775,000 Total Expenditures 339,300 1,063,300 574,110 489,190 Revenues Over(Under) 43,200 (680,800) (125,017) 555,783 Other Financing Sources (Uses) Gain(loss)on sale of capital - - 500,000 500,000 Total Other Financing Sources (Uses) - - 500,000 500,000 Net Change in Fund Balance $ 43,200 $ (680,800) 374,983 $ 1,055,783 Beginning fund balance 542,388 Ending Fund Balance $ 917,371 Notes to Required Supplementary Information 1. Annual budgets are adopted on a basis consistent with generally accepted accounting principles (GAAP). Resolution 2017-04-299 69 Page 88 of 122 FY 2016 Audit Report City of Anna, Texas SCHEDULE OF CHANGES IN NET PENSION LIABILITY AND RELATED RATIOS September 30,2016 2015 2014 1 Total pension liability Service cost $ 527,867 $ 429,268 Interest 309,015 277,884 Changes in benefit terms - - Differences between expected and actual experience (110,141) (173,824) Changes of assumptions 19,349 - Benefit payments,including refunds of participant (109,637) (166,160) Net change in total pension liability 636,453 367,168 Total pension liability-beginning 4,205,380 3,838,212 Total pension liability- ending (a) $ 4,841,833 $ 4,205,380 Plan fiduciary net position Contributions-employer $ 386,733 $ 270,279 Contributions-members 194,478 170,293 Net investment income 4,915 165,488 Benefit payments,including refunds of participant (109,637) (166,160) Administrative expenses (2,992) (1,727) Other (148) (142) Net change in plan fiduciary net position 473,349 438,031 Plan fiduciary net position-beginning 3,328,967 2,890,936 Plan fiduciary net position-ending (b) $ 3,802,316 $ 3,328,967 Fund's net pension liability (asset) -ending (a) - (b) $ 1,039,517 $ 876,413 Plan fiduciary net position as a percentage of the total pension liability 79% 79% Covered employee payroll $ 2,778,260 $ 2,432,756 Fund's net position as a percentage of covered employee 37% 36% Notes to schedule: 1) This schedule is presented to illustrate the requirement to show information for ten years. However, until a full ten-year trend is compiled,only available information is shown. Resolution 2017-04-299 70 Page 89 of 122 FY 2016 Audit Report City of Anna, Texas SCHEDULE OF EMPLOYER CONTRIBUTIONS TO PENSION PLAN For the Year Ended September 30,2016 2016 2015 i Actuarially determined employer contributions $ 444,631 $ 353,170 Contributions in relation to the actuarially determined contribution $ 444,631 $ 353,170 Contribution deficiency(excess) $ - $ - Annual covered employee payroll $ 3,140,567 $ 2,881,090 Employer contributions as a percentage of covered employee payroll 14.16% 12.26% 1)This schedule is presented to illustrate the requirement to show information for ten years. However, until a full ten-year trend is compiled,only available information is shown. NOTES TO SCHEDULE OF EMPLOYER CONTRIBUTIONS TO PENSION PLAN Valuation Date: Notes Actuarially determined contribution rates are calculated as of December 31 and become effective in January 13 months later. Methods and Assumptions Used to Determine Contribution Rates: Actuarial Cost Method Entry Age Normal Amortization Method Level Percentage of Payroll,Closed Remaining Amortization Period 30 years Asset Valuation Method 10 Year smoothed market;15% soft corridor Inflation 2.5% Salary Increases 3.50%to 10.5%including inflation Investment Rate of Return 6.75% Retirement Age Experience-based table of rates that are specific to the City's plan of benefits. Last updated for the 2015 valuation pursuant to an experience study of the period 2010-2014 Mortality RP2000 Combined Mortality Table with Blue Collar Adjustment with male rates multiplied by 109% and female rates multiplied by 103%and projected on a fully generational basis with scale BB Other Information: Notes There were no benefit changes during the year. Resolution 2017-04-299 71 Page 90 of 122 FY 2016 Audit Report (This page intentionally left blank.) Resolution 2017-04-299 72 Page 91 of 122 FY 2016 Audit Report COMBINING STATEMENTS AND INDIVIDUAL FUND SCHEDULES Resolution 2017-04-299 73 Page 92 of 122 FY 2016 Audit Report City of Anna, Texas COMBINING BALANCE SHEET NONMAJOR GOVERNMENTAL FUNDS September 30,2016 Capital Debt Community Projects Service Development Child Safety Fund Fund Corporation Fund Assets Cash and cash equivalents $ 23,486 $ 2,847 $ 560,097 $ 7,910 Receivables,net - 11,891 114,450 - Due from other funds - - - - Total Assets $ 23,486 $ 14,738 $ 674,547 $ 7,910 Liabilities Accured liabilities $ - $ - $ - $ - Due to other funds 598,423 - - - Total Liabilities 598,423 - - - Deferred Inflows of Resources Unavailable revenue: Property tax $ - $ 11,890 $ - $ - Local business loans - - 41,851 - Total Deferred Inflows of - 11,890 41,851 - Fund Balances Restricted for: Community development $ - $ - $ 632,696 $ - Debt service - 2,848 - - Public saftey - - - 7,910 Municipal court - - - - Capital projects - - - - Unassigned (574,937) - - - Total Fund Balances (574,937) 2,848 632,696 7,910 Total Liabilities,Deferred Inflows,and Fund Balances $ 23,486 $ 14,738 $ 674,547 $ 7,910 Resolution 2017-04-299 74 Page 93 of 122 FY 2016 Audit Report Police Court Court PEG Police Seizure Training Security Technology Capital Fund Fund Fund Fund Fund $ 20,668 $ 3,676 $ 17,328 $ 2,634 $ 49,864 - - 103 - - $ 20,668 $ 3,676 $ 17,431 $ 2,634 $ 49,864 $ 878 $ - $ - $ - $ - 15,000 3,401 - 1,755 - 15,878 3,401 - 1,755 - 4,790 275 - - - - - 17,431 879 - - - 49,864 4,790 275 17,431 879 49,864 $ 20,668 $ 3,676 $ 17,431 $ 2,634 $ 49,864 Resolution 2017-04-299 75 Page 94 of 122 FY 2016 Audit Report City of Anna, Texas COMBINING BALANCE SHEET NONAL4JOR GOVERNMENTAL FUNDS September 30,2016 Park Fire Dept. Roadway Road Capital Construction Capital Impr. Impact Fee Dev.Agr. Fund Fund SVC Area 1 Fund Assets Cash and cash equivalents $ 335,157 $ 24,779 $ 182,472 $ 238,649 Receivables,net - - - - Due from other funds - - - - Total Assets $ 335,157 $ 24,779 $ 182,472 $ 238,649 Liabilities Accured liabilities $ - $ - $ - $ 130,201 Due to other funds 708 - - - Total Liabilities 708 - - 130,201 Deferred Inflows of Resources Unavailable revenue: Property tax $ - $ - $ - $ - Local Business Loans - - - - Total Deferred Inflows of - - - - Fund Balances Restricted for: Community development $ - $ - $ - $ - Debt service - - - - Public saftey - 24,779 - - Municipal court - - - - Capital projects 334,449 - 182,472 108,448 Unassigned - - - - Total Fund Balances 334,449 24,779 182,472 108,448 Total Liabilities,Deferred Inflows,and Fund Balances $ 335,157 $ 24,779 $ 182,472 $ 238,649 Resolution 2017-04-299 76 Page 95 of 122 FY 2016 Audit Report Total $ 1,469,567 126,341 103 $ 1,596,011 $ 131,079 619,287 750,366 $ 11,890 41,851 53,741 $ 632,696 2,848 37,754 18,310 675,233 (574,937) 791,904 $ 1,596,011 Resolution 2017-04-299 77 Page 96 of 122 FY 2016 Audit Report City of Anna, Texas COMBINING STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES NONMAJOR GOVERNMENTAL FUNDS For the Year Ended September 30,2016 Capital Debt Community Projects Service Development Child Safety Fund Fund Corporation Fund Revenues Property tax $ - $ 661,891 $ - $ - Sales tax - - 385,577 - Contributions and donations - - - - Charges for services - - - - Fines and forfeitures - - - 11,463 Investment income 559 1,070 21894 30 Other revenue - - 20,000 - Total Revenues 559 662,961 408,471 11,493 Expenditures Current: General government 500 - 136,877 - Police department - - - - Municipal court - - - 7,500 Fire department - - - - Park - - - - Debt Service: Principal - 307,000 82,000 - Interest and fiscal charges - 121,948 56,327 - Capital outlay 708,715 - 58,816 - Total Expenditures 709,215 428,948 334,020 7,500 Revenues Over Expenditures (708,656) 234,013 74,451 3,993 Other Financing Sources (Uses) Transfers in 295,556 - - - Transfers(out) (2,863) (187,000) - - Total Other Financing (Uses) 292,693 (187,000) - - Net Change in Fund Balances (415,963) 47,013 74,451 3,993 Beginning fund balances (158,974) (44,165) 558,245 3,917 Ending Fund Balances $ (574,937) $ 2,848 $ 632,696 $ 7,910 Resolution 2017-04-299 78 Page 97 of 122 FY 2016 Audit Report Police Court Court PEG Police Seizure Training Security Technology Capital Fund Fund Fund Fund Fund - - - - 9,781 725 - 2,384 3,182 - 108 17 85 16 - - 1,400 - - - 833 1,417 2,469 3,198 9,781 3,471 - - - - - 6,730 - 15,000 - - - - 15,000 3,471 - 6,730 - (14,167) (2,054) 2,469 (3,532) 9,781 2,863 - - - - 2,863 - - - - (11,304) (2,054) 2,469 (3,532) 9,781 16,094 2,329 14,962 4,411 40,083 $ 4,790 $ 275 $ 17,431 $ 879 $ 49,864 Resolution 2017-04-299 79 Page 98 of 122 FY 2016 Audit Report City of Anna, Texas COMBINING STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES NONIVIAJOR GOVERNMENTAL FUNDS For the Year Ended September 30,2016 Park Fire Dept. Roadway Road Capital Construction Capital Impr. Impact Fee Dev.Agr. Fund Fund SVC Area 1 Fund Revenues Property tax $ - $ - $ - $ - Sales tax - - - - Contributions and donations - 28,572 - - Charges for services 115,750 15,800 181,963 54,731 Fines and forfeitures - - - - Investment income 1,579 385 509 611 Other revenue - - - - Total Revenues 117,329 44,757 182,472 55,342 Expenditures Current: General government - - - - Police department - - - - Municipal court - - - - Fire department - 96,325 - - Park 2,713 - - - Debt Service: Principal - - - - Interest and fiscal charges - - - - Capital outlay 58,041 - - - Total Expenditures 60,754 96,325 - - Revenues Over Expenditures 56,575 (51,568) 182,472 55,342 Other Financing Sources (Uses) Transfers in - - - - Transfers(out) - - - - Total Other Financing (Uses) - - - - Net Change in Fund Balances 56,575 (51,568) 182,472 55,342 Beginning fund balances 277,874 76,347 - 53,106 Ending Fund Balances $ 334,449 $ 24,779 $ 182,472 $ 108,448 Resolution 2017-04-299 80 Page 99 of 122 FY 2016 Audit Report Total $ 661,891 385,577 28,572 378,025 17,754 7,863 21,400 1,501,082 137,377 3,471 14,230 96,325 2,713 389,000 178,275 840,572 1,661,963 (160,881) 298,419 (189,863) 108,556 (52,325) 844,229 $ 791,904 Resolution 2017-04-299 81 Page 100 of 122 FY 2016 Audit Report City of Anna, Texas SCHEDULE OF REVENUES, EXPENDITURES,AND CHANGES INFUND BALANCE -BUDGET AND ACTUAL DEBT SERVICE FUND For the Year Ended September 30,2016 Variance with Final Budget Original 2016 Positive Budget Final Budget Actual (Negative) Revenues Property tax $ 649,228 $ 649,228 $ 661,891 $ 12,663 Investment income - - 1,070 1,070 Total Revenues 649,228 649,228 662,961 13,733 Expenditures Debt Service: Principal 307,000 307,000 307,000 - Interest and fiscal charges 123,000 123,000 121,948 1,052 Total Expenditures 430,000 430,000 428,948 1,052 Revenues Over(Under) 219,228 219,228 234,013 14,785 Other Financing Sources (Uses) Transfers(out) (219,228) (219,228) (187,000) 32,228 Total Other Financing Sources (Uses) (219,228) (219,228) (187,000) 32,228 Net Change in Fund Balance $ - $ - 47,013 $ 47,013 Beginning fund balance (44,165) Ending Fund Balance $ 2,848 Notes to Required Supplementary Information 1. Annual budgets are adopted on a basis consistent with generally accepted accounting principles (GAAP). Resolution 2017-04-299 82 Page 101 of 122 FY 2016 Audit Report City of Anna, Texas SCHEDULE OF REVENUES, EXPENDITURES,AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL COMMUNITY DEVELOPMENT CORPORATION For the Year Ended September 30,2016 Variance with Final Budget Original 2016 Positive Budget Final Budget Actual (Negative) Revenues Sales and use tax $ 350,000 $ 350,000 $ 385,577 $ 35,577 Investment income 2,500 2,500 2,894 394 Other revenue - - 20,000 20,000 Total Revenues 352,500 352,500 408,471 55,971 Expenditures Current: General government 148,750 147,700 136,877 10,823 Debt Service: Principal 82,000 82,000 82,000 - Interest and fiscal charges 56,400 56,400 56,327 73 Capital outlay 60,000 60,000 58,816 1,184 Total Expenditures 347,150 346,100 334,020 12,080 Revenues Over(Under) 5,350 6,400 74,451 68,051 Net Change in Fund Balance $ 5,350 $ 6,400 74,451 $ 68,051 Beginning fund balance 558,245 Ending Fund Balance $ 632,696 Notes to Required Supplementary Information 1.Annual budgets are adopted on a basis consistent with generally accepted accounting principles(GAAP). Resolution 2017-04-299 83 Page 102 of 122 FY 2016 Audit Report (This page intentionally left blank.) Resolution 2017-04-299 84 Page 103 of 122 FY 2016 Audit Report STATISTICAL SECTION This part of the City's comprehensive annual financial report presents detailed information as a context for understanding what the information in the financial statements, note disclosures, and required supplementary information says about the City's overall financial health. This information has not been audited by the independent auditor. Contents Tables Financial Trends 1, 2, 3 &4 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 5, 6, 7&8 These schedules contain information to help the reader assess the City's most significant local revenue source,property tax. Debt Capacity 9, 10, 11 & 12 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 13 & 14 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 15, 16 & 17 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. 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