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2011 Annual Financial Report CITY OF SANGER, TEXAS FINANCIAL REPORT SEPTEMBER 30, 2011 C O N T E N T S Page(s) INDEPENDENT AUDITOR’S REPORT ........................................................................................ 1 MANAGEMENT’S DISCUSSION AND ANALYSIS (UNAUDITED) .............................................. 3 BASIC FINANCIAL STATEMENTS Government-wide Financial Statements Statement of Net Assets ................................................................................................. 12 Statement of Activities ..................................................................................................... 13 Fund Financial Statements Governmental Funds Balance Sheet ........................................................................................................... 14 Reconciliation of the Governmental Funds Balance Sheet to the Statement of Net Assets ...................................................................................... 16 Statement of Revenues, Expenditures, and Changes in Fund Balances .................. 17 Reconciliation of the Statement of Revenues, Expenditures and Changes in Fund Balances of Governmental Funds to the Statement of Activities ......................................................................................... 19 Proprietary Funds Statement of Net Assets ............................................................................................ 20 Statement of Revenues, Expenses, and Changes in Fund Net Assets .................... 21 Statement of Cash Flows .......................................................................................... 22 Notes to Basic Financial Statements .................................................................................... 24 REQUIRED SUPPLEMENTARY INFORMATION (UNAUDITED) Schedule of Funding Progress for Participation in Texas Municipal Retirement System ............................................................................. 47 Budgetary Comparison Schedule – General Fund ............................................................... 48 SUPPLEMENTARY INFORMATION Combining Schedule of Revenues and Expenses – Proprietary Fund by Department ......... 49 Analysis of Property Taxes Receivable ................................................................................. 51 WEAVER AND TIDWELL LLP CERTIFIED PUBLIC ACCOUNTANTS AND CONSULTANTS WWW.WEAVERLLP.COM 1 AN INDEPENDENT MEMBER OF BAKER TILLY INTERNATIONAL FORT WORTH 2821 W SEVENTH STREET, SUITE 700, FORT WORTH, TX 76107 P: (817) 332 7905 F: (817) 429 5936 INDEPENDENT AUDITOR’S REPORT To the Honorable Mayor Thomas Muir and Members of the City Council City of Sanger, Texas We have audited the accompanying financial statements of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City of Sanger, Texas (the City) as of and for the year ended September 30, 2011, which collectively comprise the City’s basic financial statements as listed in the table of contents. These financial statements are the responsibility of the City’s management. Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinions. In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City as of September 30, 2011, and the respective changes in financial position and, where applicable, cash flows thereof for the year then ended in conformity with accounting principles generally accepted in the United States of America. As discussed in Note 1 to the basic financial statements, the City implemented GASB Statement No. 54 Fund Balance Reporting and Governmental Fund Type Definitions. The management’s discussion and analysis, the schedule of funding progress and budgetary comparison schedule on pages 3 through 11 and 47 through 48, are not a required part of the basic financial statements but are supplementary information required by accounting principles generally accepted in the United States of America. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation of the supplementary information. However, we did not audit the information and express no opinion on it. 2 To the Honorable Mayor Thomas Muir and the Members of the City Council City of Sanger, Texas Page 2 Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the City’s basic financial statements. The supplementary information on pages 49 through 51 is presented for purposes of additional analysis and is not a required part of the basic financial statements. This information has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole. WEAVER AND TIDWELL, L.L.P. Fort Worth, TX March 5, 2012 MANAGEMENT’S DISCUSSION AND ANALYSIS SEPTEMBER 30, 2011 3 The City of Sanger’s Management’s Discussion and Analysis is designed to provide a narrative overview of the City’s financial activity, and assist the reader in identifying changes in the City’s financial position. The information presented here should be considered in conjunction with the City’s financial statements and accompanying footnotes, which can be found on pages 24 through 46 of this report. FINANCIAL HIGHLIGHTS • The City’s total combined net assets were $20,831,016 at September 30, 2011. • The General Fund reported a fund balance of $800,223 at September 30, 2011. • The City’s combined governmental funds reported a fund balance of $2,746,300 at September 30, 2011. OVERVIEW OF THE FINANCIAL STATEMENTS The Management’s Discussion and Analysis is intended to serve as an introduction to the City of Sanger’s basic financial statements. This annual report consists of three components: (1) government-wide financial statements, (2) fund financial statements, and (3) notes to the financial statements. This report contains other supplementary information in addition to the basic financial statements themselves. The basic financial statements include two types of statements that present different views of the City: • The first two statements are government-wide financial statements that provide both long-term and short-term information about the City’s overall financial status. • The two remaining sets of statements are fund financial statements that focus on individual parts of the government, reporting the City’s operations in more detail than the government-wide statements. o The governmental fund statements tell how general government services were financed in the short term as well as what remains for future spending. o Proprietary fund statements provide short and long-term financial information about the activities the government operates like businesses, such as utility services. The financial statements include notes to the financial statements explaining information in the financial statements and providing more detailed data. The report also contains other supplementary information in addition to the basic financial statements themselves. 4 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 private-sector business. The statements report information about the City as a whole using accounting methods similar to those used by private-sector companies. The statement of net assets includes all of the government’s assets and liabilities, with the difference between the two being reported as net assets. Over time, increases or decreases in net assets are an indicator as to whether the financial position of the City is improving or deteriorating. To assess the overall health of the City, additional non-financial factors (such as the City’s tax base) will need to be considered. The statement of activities presents information on how the City’s net assets changed during the fiscal year. All of the current year’s revenues and expenses are accounted for in the statement of activities regardless of when cash is received or paid. Thus, revenues and expenses are reported in this statement for some items that will only result in cash flows in future fiscal periods (e.g., uncollected taxes and earned, but not used vacation leave). Both the statement of net assets and the statement of activities are prepared using the accrual basis of accounting as opposed to the modified accrual basis of accounting. In its Statement of Net Assets and Statement of Activities, the City of Sanger is divided between two kinds of activities: • Governmental activities. Most of the City’s basic services are included here, such as general government, public safety, streets, sanitation, and culture and recreation. Property taxes, sales taxes, franchise fees, and charges for services finance most of these activities. • Business-type activities. A fee is charged to customers by the City to cover the cost of services it provides. The City’s utility systems (electric, water and wastewater) activities are reported here. 5 Fund Financial Statements The fund financial statements provide more detailed information about the City’s most significant funds and not the City as a whole. Funds are accounting devices that the City uses to keep track of specific sources of funding and spending for particular purposes. • Some funds are restricted by State law and by bond covenants. • The City Council establishes guidelines to control and manage money for particular purposes or to show that it is properly using certain revenue resources. Major Features of the City of Sanger's Government-wide and Fund Financial Statements Fund Statements Government-wide Governmental Funds Proprietary Funds Fiduciary Funds Scope Entire Agency's government (except fiduciary funds) and the Agency's component units The activities of the City that are not proprietary or fiduciary Activities the City operates similar to private business: electric, water, and wastewater utilities Instances in which the City is the trustee or agent for someone else's resources Required Financial Statements Statement of net assets Balance Sheet Statement of net assets Statement of fiduciary net assets Statement of activities Statement of revenues, expenditures and changes in fund balances Statement of revenues, expenses and changes in fund net assets Statement of changes in fiduciary net assets Statement of cash flows Accounting basis and measurement focus Accrual accounting and economic resources focus Modified accrual accounting and current financial resources focus Accrual accounting and economic resources focus Accrual accounting and economic resources focus Type of asset/liability information All assets and liabilities, both financial and capital, short-term and long- term Only assets expected to be used up and liabilities that come due during the year or soon thereafter; no capital assets included All assets and liabilities, both financial and capital, and short- term and long-term All assets and liabilities, both short-term and long-term, the City's funds do not currently contain capital assets, although they can Type of inflow/outflow information All revenues and expenses during year, regardless of when cash is received or paid Revenues for which cash is received during or soon after the end of the year; expenditures when goods or services have been received and payment is due during the year or soon thereafter All revenues and expenses during year, regardless of when cash is received or paid All revenues and expenses during year, regardless of when cash is received or paid 6 The City has two categories of funds: governmental funds and proprietary funds. • Governmental funds. The City’s basic services are included in governmental funds, which focus on cash and other financial assets that can readily be converted to cash flow, as well as the balances left at year-end that are available for spending. Consequently, the governmental fund statements provide a detailed short-term view that helps determine whether there are more or fewer financial resources that can be spent in the near future to finance the City’s programs. Because this information does not encompass the additional long-term focus of the government-wide statements, additional information is provided on the subsequent pages, explaining the relationship (or differences) between them. The relationship or differences between governmental activities (reported in the Statement of Net Assets and the Statement of Activities) and governmental funds is detailed in a reconciliation following the fund financial statements. • Proprietary funds (business-type funds). Services for which the City charges customers a fee are generally reported in proprietary funds. Proprietary funds, like government- wide statements, provide both short and long-term financial information. Proprietary funds are reported in the same manner that all activities are reported in the Statement of Net Assets and the Statement of Activities. The notes provide additional information that is essential to understanding the data provided in the government-wide and fund financial statements. The notes to the financial statements can be found on pages 24 through 46 of this report. 7 GOVERNMENT-WIDE FINANCIAL ANALYSIS As of September 30, 2011, the City’s combined net assets were $20,831,016, of which $9,342,536 can be attributed to governmental activities and $11,488,480 attributed to business- type activities. This analysis focuses on the net assets (Table 1) and changes in net assets (Table 2) of the City’s governmental and business-type activities. Net Assets Net assets at September 30, 2010, were $19,141,779, representing an increase of $1,689,237 in total net assets of governmental and business-type activities. The largest portion of the City’s net assets reflects its investment in capital assets (e.g., land, building, machinery, and equipment) less any related debt used to acquire those assets that is still outstanding. The City uses these capital assets to provide services to citizens; consequently, these assets are not available for future spending. Although the City’s investment in its capital assets is reported net of related debt, it should be noted that the resources needed to repay this debt must be provided from other sources, since the capital assets themselves cannot be used to liquidate these liabilities. Table 1 – Net Assets 2011 2010 2011 2010 2011 2010 Assets Cash and cash equivalents (1)477,062$ 692,005$ 1,053,839$ 1,292,304$ 1,530,901$ 1,984,309$ Certificates of deposit 405,436 - 419,966 - 825,402 - Accounts receivable, net 344,678 311,885 1,178,950 1,142,592 1,523,628 1,454,477 Inventories - - 300,607 276,825 300,607 276,825 Prepaid expense - 11,910 - - - 11,910 Internal balances - - - - - - Restricted cash and cash equivalents (1)2,424,955 5,075,797 2,312,309 2,171,109 4,737,264 7,246,906 Bond issuance costs, net 295,168 316,292 102,643 123,161 397,811 439,453 Capital assets, net of accumulated depreciation 14,146,175 10,752,346 13,165,213 13,593,285 27,311,388 24,345,631 Total assets 18,093,474$ 17,160,235$ 18,533,527$ 18,599,276$ 36,627,001$ 35,759,511$ Liabilities Accounts payable 695,541$ 198,142$ 498,353$ 565,806$ 1,193,894$ 763,948$ Customer deposits - - 297,609 280,721 297,609 280,721 Other liabilities 99,009 97,238 166,171 125,929 265,180 223,167 Current portion long-term debt 578,015 575,710 534,466 746,494 1,112,481 1,322,204 Compensated absences 77,947 53,598 54,220 56,333 132,167 109,931 Long-term debt 7,311,051 7,889,067 5,494,228 6,028,694 12,805,279 13,917,761 Total liabilities 8,761,563$ 8,813,755$ 7,045,047$ 7,803,977$ 15,806,610$ 16,617,732$ Net assets Invested in capital assets 6,274,498$ 6,213,125$ 7,150,229$ 6,831,720$ 13,424,727$ 13,044,845$ Restricted for specific purpose 524,980 540,435 2,014,700 1,890,388 2,539,680 2,430,823 Unrestricted 2,543,058 1,592,920 2,323,551 2,073,191 4,866,609 3,666,111 Net assets 9,342,536$ 8,346,480$ 11,488,480$ 10,795,299$ 20,831,016$ 19,141,779$ (1) Approximately 57% of the City's cash equivalent balances at September 30, 2010 were comprised of bank certificates of deposit which were treated as cash for financial statement presentation purposes. Governmental Activities Business-Type Activities Total 8 Changes in Net Assets Governmental activities increased the City’s net assets by $1,032,637 and business-type activities increased the City’s net assets by $693,181. The key elements of these changes are contained in Table 2. Table 2 – Changes in Net Assets 2011 2010 2011 2010 2011 2010 Revenues Program Revenues: Charges for services 1,424,884$ 1,127,202$ 10,189,544$ 9,458,927$ 11,614,428$ 10,586,129$ Grants and donations 195,102 - - - 195,102 - General Revenues: Taxes 4,046,632 3,759,621 - - 4,046,632 3,759,621 Licenses and permits 44,827 44,635 - - 44,827 44,635 Investment earnings 34,292 75,402 30,882 37,360 65,174 112,762 Transfers 307,241 (231,245) (307,241) 231,245 - - Miscellaneous 150,708 102,288 - - 150,708 102,288 Gain (loss) on sale of assets 7,436 (33,255) - 11,814 7,436 (21,441) Total revenues 6,211,122 4,844,648 9,913,185 9,739,346 16,124,307 14,583,994 Expenses General government 705,012 725,355 - - 705,012 725,355 Public safety 1,436,505 1,276,750 - - 1,436,505 1,276,750 Streets and sanitation 1,349,968 1,260,016 - - 1,349,968 1,260,016 Fire and rescue 692,184 655,874 - - 692,184 655,874 Court 228,030 194,526 - - 228,030 194,526 Culture and recreation 425,674 465,034 - - 425,674 465,034 Interest on long-term debt 377,693 378,755 317,323 403,065 695,016 781,820 Proprietary expenses - - 8,902,681 8,494,299 8,902,681 8,494,299 Total expenses 5,215,066 4,956,310 9,220,004 8,897,364 14,435,070 13,853,674 Change in net assets 996,056 (111,662) 693,181 841,982 1,689,237 730,320 Beginning net assets 8,346,480 8,458,142 10,795,299 9,953,317 19,141,779 18,411,459 Ending net assets 9,342,536$ 8,346,480$ 11,488,480$ 10,795,299$ 20,831,016$ 19,141,779$ Governmental Business-Type Activities Activities Total 9 The City’s total revenues for the year ended September 30, 2011, was $16,124,307 with a significant portion, 72.6%, of the City’s total revenue coming from charges for services, 15.7% from property taxes, 6.5% from sales taxes, while 5.2% is obtained from the remaining revenue sources (see Figure 1). Because Sanger owns an electric utility, revenues from charges for services are a large percentage of overall revenues. Without the ownership of its electricity utility, the City’s property tax rate would be approximately ten cents higher per $100 valuation than its current rate in order to generate the same amount of operating revenue. Figure 1 Governmental activities revenues total $6,211,122 for the year ended September 30, 2011, of which $4,046,632 (65%) is attributed to taxes. Significant general governmental expenses include public safety (including fire and rescue, police, and animal control), which incurred expenses of $2,128,689, and streets and sanitation, which incurred expenses of $1,349,968. Business-type activities increased the City’s net assets by $693,181 and governmental activities increased the City’s net assets by $996,056, accounting for positive growth in the government- wide net assets in fiscal year ended September 30, 2011. Business-type operating revenues increased by $173,839 to $9,913,185 for the year ended September 30, 2011, as a result of minimal increases in water and sewer rates and increased electricity consumption due to an excessively hot summer. Business-type expenses also increased in fiscal year ending September 30, 2011 due to increases in water, sewer, and electric expenses, resulting in total business-type activity expenses of $9,220,004. 10 FINANCIAL ANALYSIS OF THE GOVERNMENT’S FUNDS The City uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. Governmental Funds The focus of the City’s governmental funds is to provide information on near-term inflows, outflows, and balances of resources available to spend. This information is useful in assessing the financial requirements of the City. As of September 30, 2011, the City’s governmental funds reported a combined ending fund balance of $2,746,300, a reduction of $2,979,934 from the previous fiscal year’s balance of $5,726,234. The decline in fund balance is primarily due to expenditures for infrastructure improvements and park additions. Of this fund balance, $800,223 constitutes unassigned fund balance, which is available for spending at the government’s discretion. The remainder of the fund balance is restricted to indicate that it is not available for new spending because it has already been committed to either purchase or construct capital assets ($749,978), pay debt service ($236,535), or enhance economic development ($959,564). General Fund. The General Fund is the chief operating fund of the City. At September 30, 2011, the unassigned fund balance of the General Fund was $800,223, an increase of $61,213 over the prior year. The increase is primarily due to reductions in spending and continued vacancies in nonessential personnel positions. The City has continued a very conservative approach to purchasing and employment during 2011 as a result of the depressed economic conditions. Capital Projects Fund. The entire balance of the capital projects fund is restricted for capital construction and acquisition. At September 30, 2011, the capital projects fund has a fund balance of $749,978, a decrease of $3,160,046 from 2010. At the end of 2011, the City had invested $27,311,388 in a broad range of capital assets, including land, equipment, buildings, and vehicles (see Table 3). Table 3 – Capital Assets 2011 2010 2011 2010 2011 2010 Land 862,307$ 600,351$ 323,164$ 323,164$ 1,185,471$ 923,515$ Construction in progress 3,239,639 3,039,158 - - 3,239,639 3,039,158 Infrastructure 9,800,941 6,131,964 22,072,504 21,653,018 31,873,445 27,784,982 Buildings and equipment 5,667,489 5,588,158 2,282,128 2,265,559 7,949,617 7,853,717 Total historical cost 19,570,376 15,359,631 24,677,796 24,241,741 44,248,172 39,601,372 Total accumulated depreciation (5,424,201) (4,607,285) (11,512,583) (10,648,456) (16,936,784) (15,255,741) Net capital assets 14,146,175$ 10,752,346$ 13,165,213$ 13,593,285$ 27,311,388$ 24,345,631$ Governmental Business-Type Activities Activities Total 11 Debt Service Fund. The debt service fund has a total fund balance of $236,535 at September 30, 2011, an increase of $129,989 over 2010. As of September 30, 2011, the City had $13,917,760 in long-term debt (see Table 4). Table 4 – Long-term Debt 2011 2010 2011 2010 2011 2010 Notes payable 596,104$ 646,881$ -$ -$ 596,104$ 646,881$ Capital leases 70,162 148,196 376,494 494,888 446,656 643,084 Bonds payable 7,222,800 7,669,700 5,652,200 6,280,300 12,875,000 13,950,000 Total long-term debt 7,889,066$ 8,464,777$ 6,028,694$ 6,775,188$ 13,917,760$ 15,239,965$ Governmental Business-Type Activities Activities Total Proprietary Fund. The City’s proprietary fund provides the same type of information found in the government-wide financial statements, but in more detail. Table 5 represents the cost of each of the City’s business-type activities as well as each function’s net cost (total cost less fees generated by the activities and intergovernmental aid). The cost of business-type activities for fiscal year ended September 30, 2011 was $9,220,004. The amount for charges for services that the City’s tax payers paid for these activities was $10,189,544. Excess funds are used by the City to help support the general fund, keeping the property tax rate from increasing. Excess funds are also used to fund capital improvements. Table 5 – Proprietary Fund Activities % Change % Change 2011 2010 2011 2010 Water 1,166,704$ 998,059$ 16.90% 113,337$ 127,849$ -11.35% Sewer 785,829 714,895 9.92% 306,110 215,085 42.32% Electric 6,249,768 6,202,332 0.76% 1,498,344 1,155,642 29.65% Other 700,380 982,078 -28.68% (630,928) (937,013) -32.67% Total 8,902,681$ 8,897,364$ 0.06% 1,286,863$ 561,563$ 129.16% Total Cost of Services Total Operating Income ECONOMIC FACTORS AND FISCAL YEAR BUDGET AND RATES Certified appraised values used for the fiscal year 2012 budget preparation are consistent with the amounts budgeted in the 2011 fiscal year. If revenues projected in the 2012 budget are realized, the City will be able to continue operations and absorb inflationary costs without a decrease in its fund balance. REQUESTS FOR INFORMATION This financial report is designed to provide our citizens, taxpayers, customers, and investors and creditors with a general overview of the City’s finances and to demonstrate the City’s accountability for the funds it receives. If you have questions about this report or would like additional information, please contact the City Manager at the City of Sanger City Hall at 502 Elm Street, Sanger, Texas 76266. CITY OF SANGER, TEXAS GOVERNMENT-WIDE STATEMENT OF NET ASSETS SEPTEMBER 30, 2011 The Notes to Basic Financial Statements are an integral part of this statement. 12 Governmental Business-type Activities Activities Total Cash and cash equivalents 477,062$ 1,053,839$ 1,530,901$ Certificates of deposit 405,436 419,966 825,402 Accounts receivable, net Property taxes net of allowance of $57,642 82,802 - 82,802 Sales taxes 161,388 - 161,388 Emergency medical services, net of allowance of $1,550,718 70,667 - 70,667 Utility accounts, net of allowance of $24,326 - 1,167,921 1,167,921 Other 29,821 11,029 40,850 Inventories - 300,607 300,607 Restricted cash 1,953,258 623,398 2,576,656 Restricted certificates of deposit 471,697 1,688,911 2,160,608 Bond issue costs, net 295,168 102,643 397,811 Capital assets Capital assets not being depreciated 4,101,946 323,164 4,425,110 Capital assets being depreciated, net 10,044,229 12,842,049 22,886,278 TOTAL ASSETS 18,093,474$ 18,533,527$ 36,627,001$ Accounts payable and accrued liabilities 684,916$ 498,353$ 1,183,269$ Customer deposits - 297,609 297,609 Accrued interest payable 31,563 52,707 84,270 Compensated absences, due within one year 36,581 21,215 57,796 Bonds payable, due within one year 463,800 446,200 910,000 Notes payable, due within one year 44,053 - 44,053 Capital leases, due within one year 70,162 88,266 158,428 Other 67,446 113,464 180,910 Noncurrent liabilities Compensated absences, due in more than one year 41,366 33,005 74,371 Bonds payable, due in more than one year 6,759,000 5,206,000 11,965,000 Notes payable, due in more than one year 552,051 - 552,051 Capital leases, due in more than one year - 288,228 288,228 TOTAL LIABILITIES 8,750,938 7,045,047 15,795,985 Invested in capital assets, net of related debt 6,274,498 7,150,229 13,424,727 Restricted Debt service 524,980 671,943 1,196,923 Capital improvements - 1,342,757 1,342,757 Unrestricted 2,543,058 2,323,551 4,866,609 TOTAL NET ASSETS 9,342,536$ 11,488,480$ 20,831,016$ LIABILITIES Primary Government ASSETS NET ASSETS CITY OF SANGER, TEXAS GOVERNMENT – WIDE STATEMENT OF ACTIVITIES YEAR ENDED SEPTEMBER 30, 2011 The Notes to Basic Financial Statements are an integral part of this statement. 13 Fees, Fines and Capital Grants Charges for and Governmental Business- type Expenses Services Contributions Activities Activities Total Governmental activities General government 705,012$ 745,389$ -$ 40,377$ -$ 40,377$ Public safety 1,436,505 - - (1,436,505) - (1,436,505) Streets and sanitation 1,349,968 - 195,102 (1,154,866) - (1,154,866) Fire and rescue 692,184 474,149 - (218,035) - (218,035) Court 228,030 205,346 - (22,684) - (22,684) Culture and recreation 425,674 - - (425,674) - (425,674) Interest on long term debt 377,693 - - (377,693) - (377,693) Total governmental activities 5,215,066 1,424,884 195,102 (3,595,080) - (3,595,080) Business-type activities Water 1,166,704 1,280,041 - - 113,337 113,337 Sewer 785,829 1,091,939 - - 306,110 306,110 Electric 6,249,768 7,748,112 - - 1,498,344 1,498,344 Interest on long-term debt 317,323 - - - (317,323) (317,323) Other 700,380 69,452 - - (630,928) (630,928) Total business-type activities 9,220,004 10,189,544 - - 969,540 969,540 Total primary government 14,435,070$ 11,614,428$ 195,102$ (3,595,080)$ 969,540$ (2,625,540)$ General revenues Taxes Ad valorem 2,363,574$ -$ 2,363,574$ Sales 1,126,705 - 1,126,705 Franchise taxes 556,353 - 556,353 Licenses and permits 44,827 - 44,827 Interest income 34,292 30,882 65,174 Gain on sale of assets 7,436 - 7,436 Miscellaneous revenues 150,708 - 150,708 Transfers 307,241 (307,241) - Total general revenues and transfers 4,591,136 (276,359) 4,314,777 Change in net assets 996,056 693,181 1,689,237 NET ASSETS, beginning of year 8,346,480 10,795,299 19,141,779 NET ASSETS, end of year 9,342,536$ 11,488,480$ 20,831,016$ Changes in Net Assets Net (Expenses) Revenue and Program Activities Program Revenues CITY OF SANGER, TEXAS BALANCE SHEET – GOVERNMENTAL FUNDS SEPTEMBER 30, 2011 The Notes to Basic Financial Statements are an integral part of this statement. 14 Debt Capital General Service Projects Cash and equivalents 258,607$ 25,471$ 167,298$ Certificates of deposit 405,436 - - Accounts receivable, net Property taxes, net of allowance of $57,642 57,962 24,840 - Sales taxes 80,694 - - Emergency medical services, net of allowance of $1,550,718 70,667 - - Other 28,146 - - Due from other funds - - - Restricted cash 89,099 211,064 1,192,649 Restricted certificates of deposit 110,402 - - Total assets 1,101,013$ 261,375$ 1,359,947$ Liabilities Accounts payable 74,947$ -$ 609,969$ Due to other funds 29,768 - - Deferred revenue 128,629 24,840 - Other liabilities 67,446 - - Total liabilities 300,790 24,840 609,969 Fund balances Restricted Debt service - 236,535 - Capital projects - - 749,978 Economic development - - - Unassigned 800,223 - - Total fund balances 800,223 236,535 749,978 TOTAL LIABILITIES AND FUND BALANCES 1,101,013$ 261,375$ 1,359,947$ LIABILITIES AND FUND BALANCES ASSETS 15 Total Governmental 4A Fund 4B Fund Funds 25,686$ -$ 477,062$ - - 405,436 - - 82,802 40,347 40,347 161,388 - - 70,667 277 1,398 29,821 14,884 14,884 29,768 400,707 59,739 1,953,258 92,746 268,549 471,697 574,647$ 384,917$ 3,681,899$ -$ -$ 684,916$ - - 29,768 - - 153,469 - - 67,446 - - 935,599 - - 236,535 - - 749,978 574,647 384,917 959,564 - - 800,223 574,647 384,917 2,746,300 574,647$ 384,917$ 3,681,899$ CITY OF SANGER, TEXAS RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET ASSETS SEPTEMBER 30, 2011 The Notes to Basic Financial Statements are an integral part of this statement. 16 Total fund balances - governmental funds 2,746,300$ Net assets of governmental activities 9,342,536$ Amounts reported for governmental activities in the statement of net assets are different because: Capital assets used in governmental activities are not current financial resources and therefore are not reported in the governmental funds balance sheet. Interest payable on long term debt does not require current financial resources, therefore interest payable is not reported as a liability in the governmental funds balance sheet. Revenues earned but not available within sixty days of the year end are not recognized as revenue on the fund financial statements. Costs associated with the issuance of governmental long term debt are expensed when incurred in the fund statements and capitalized and amortized over the life of the debt in the government-wide financial statements. 14,146,175 (31,563) 153,469 Long-term liabilities, including bonds payable, are not due and payable in the current period and therefore are not reported in the fund financial statements. 295,168 (7,967,013) CITY OF SANGER, TEXAS STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES – GOVERNMENTAL FUNDS YEAR ENDED SEPTEMBER 30, 2011 The Notes to Basic Financial Statements are an integral part of this statement. 17 Debt Capital General Service Projects REVENUES Property taxes 1,631,129$ 718,822$ -$ Sales taxes 565,055 Licenses and permits 44,827 - - Charges for services 745,389 - - Fire and rescue 439,910 - - Court 205,346 - - Franchise taxes 556,353 - - Intergovernmental revenues - - 195,102 Interest 8,477 2,103 17,065 Miscellaneous 114,397 - - Total revenues 4,310,883 720,925 212,167 EXPENDITURES Current General government 601,955 - - Public safety 1,350,096 - - Streets and sanitation 842,491 - - Fire and rescue 615,283 - - Court 227,645 - - Culture and recreation 358,638 - - Capital outlay 152,859 - 3,719,454 Debt service Principal retirement 95,380 446,900 - Interest charges 8,759 324,036 - Total expenditures 4,253,106 770,936 3,719,454 Excess (deficiency) of revenues over expenditures 57,777 (50,011) (3,507,287) Other financing sources (uses) Proceeds on sale of assets 7,436 - - Transfers in 36,000 180,000 347,241 Transfers out (40,000) - - Total other financing sources (uses)3,436 180,000 347,241 Net change in fund balances 61,213 129,989 (3,160,046) FUND BALANCES, beginning of year 739,010 106,546 3,910,024 FUND BALANCES, end of year 800,223$ 236,535$ 749,978$ 18 Total Governmental 4A Fund 4B Fund Funds -$ -$ 2,349,951$ 280,825 280,825 1,126,705 - - 44,827 - - 745,389 - - 439,910 - - 205,346 - - 556,353 - - 195,102 1,851 4,796 34,292 36,311 - 150,708 318,987 285,621 5,848,583 - - 601,955 - - 1,350,096 - - 842,491 - - 615,283 - - 227,645 - - 358,638 30,000 308,432 4,210,745 33,431 - 575,711 27,835 - 360,630 91,266 308,432 9,143,194 227,721 (22,811) (3,294,611) - - 7,436 - - 563,241 (18,000) (198,000) (256,000) (18,000) (198,000) 314,677 209,721 (220,811) (2,979,934) 364,926 605,728 5,726,234 574,647$ 384,917$ 2,746,300$ CITY OF SANGER, TEXAS RECONCILIATION OF THE STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES OF GOVERNMENTAL FUNDS TO THE STATEMENT OF ACTIVITIES YEAR ENDED SEPTEMBER 30, 2011 The Notes to Basic Financial Statements are an integral part of this statement. 19 Net change in fund balances - total governmental funds (2,979,934)$ 4,210,745 (816,916) 530,238 4,061 47,862 Change in net assets of governmental activities 996,056$ 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. Neither transaction, however, has any effect on net assets. Also, governmental funds report the effect of issuance costs, premiums, discounts, and similar items when debt is first issued, whereas the amounts are deferred and amortized in the statement of activities. This amount consists of proceeds of $0 less repayments of $575,711 plus amortization of debt issuance costs of $21,124 plus a change in long-term compensated absences payable of $24,349, which is the net effect of these differences in the treatment of long- term debt and related items. Current year changes in accrued interest payable do not require the use of current financial resources; therefore, are not reported as expenditures in governmental funds. Certain revenues in the government-wide statement of activities that do not provide current financial resources are not reported as revenue in the governmental funds. Amounts reported for governmental activities in the statement of activities are different because: Governmental funds report capital outlays as expenditures. However, in the statement of activities the cost of those assets is allocated over their estimated useful lives and reported as depreciation expense. This is the amount of capital assets recorded in the current period. Depreciation expense on capital assets is reported in the statement of activities and does not require the use of current financial resources. Therefore, depreciation expense is not reported as expenditures in the governmental funds. CITY OF SANGER, TEXAS STATEMENT OF NET ASSETS – PROPRIETARY FUNDS SEPTEMBER 30, 2011 The Notes to Basic Financial Statements are an integral part of this statement. 20 Water, Sewer, and Electric Fund CURRENT ASSETS Cash and investments 1,053,839$ Certificates of deposit 419,966 Receivables Utility accounts receivable, net of allowance of $24,326 1,167,921 Other 11,029 Inventories 300,607 Total current assets 2,953,362 NONCURRENT ASSETS Capital assets, at cost Land and land improvements 323,164 Buildings and equipment 2,282,128 Infrastructure 22,072,504 Accumulated depreciation (11,512,583) Total capital assets, net of accumulated depreciation 13,165,213 Bond issue costs, net 102,643 Restricted cash 623,398 Restricted certificates of deposit 1,688,911 Total noncurrent assets 15,580,165 TOTAL ASSETS 18,533,527$ CURRENT LIABILITIES Accounts payable and accrued expenses 498,353$ Accrued interest payable 52,707 Compensated absences, due within one year 21,215 Bonds payable, due within one year 446,200 Capital lease obligation, due within one year 88,266 Other 113,464 Total current liabilities 1,220,205 NONCURRENT LIABILITIES Compensated absences, due in more than one year 33,005 Bonds payable, due in more than one year 5,206,000 Capital lease obligation, due in more than one year 288,228 Customer deposits 297,609 Total liabilities 7,045,047 NET ASSETS Invested in capital assets, net of related debt 7,150,229 Restricted Revenue bond retirement 671,943 Capital improvements 1,342,757 Unrestricted 2,323,551 TOTAL NET ASSETS 11,488,480$ LIABILITIES AND NET ASSETS ASSETS CITY OF SANGER, TEXAS STATEMENT OF REVENUES, EXPENSES AND CHANGES IN FUND NET ASSETS – PROPRIETARY FUNDS YEAR ENDED SEPTEMBER 30, 2011 The Notes to Basic Financial Statements are an integral part of this statement. 21 Water, Sewer, and Electric Fund OPERATING REVENUES Charges for services 10,027,784$ Connection fees 62,678 Tap fees 31,500 Miscellaneous 67,582 Total operating revenue 10,189,544 OPERATING EXPENSES Salaries, wages and benefits 1,383,790 Purchased professional and technical services 124,565 Utilities 322,549 Materials and supplies 124,632 Water and electric purchases 5,031,243 Franchise fees 379,342 Depreciation 864,127 Repairs and maintenance 615,510 Bad debt expense 56,923 Total operating expenses 8,902,681 Operating income 1,286,863 NONOPERATING REVENUES (EXPENSES) Interest and investment income 30,882 Interest and amortization expense (317,323) Total nonoperating expenses (286,441) Income before transfers 1,000,422 Transfers out (307,241) Total transfers (307,241) Change in net assets 693,181 NET ASSETS, beginning of year 10,795,299 NET ASSETS, end of year 11,488,480$ CITY OF SANGER, TEXAS STATEMENT OF CASH FLOWS – PROPRIETARY FUNDS YEAR ENDED SEPTEMBER 30, 2011 (CONTINUED) The Notes to Basic Financial Statements are an integral part of this statement. 22 Water, Sewer, and Electric Fund CASH FLOWS FROM OPERATING ACTIVITIES Cash received from customers 10,170,074$ Cash paid to employees (1,420,895) Cash paid to suppliers (6,662,284) Net cash provided by operating activities 2,086,895 CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES Transfers to other funds (500,000) Transfers from other funds 192,759 Net cash used in noncapital financing activities (307,241) CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Principal paid on long-term debt (746,494) Capital expenditures (436,055) Interest paid on long-term debt (305,286) Net cash used in capital and related financing activities (1,487,835) CASH FLOWS FROM INVESTING ACTIVITIES Purchase of investments (313,359) Interest on investments 30,882 Net cash used in investing activities (282,477) Net change in cash 9,342 CASH AND CASH EQUIVALENTS, beginning of the year 1,667,895 CASH AND CASH EQUIVALENTS, end of the year 1,677,237$ CITY OF SANGER, TEXAS STATEMENT OF CASH FLOWS – PROPRIETARY FUNDS YEAR ENDED SEPTEMBER 30, 2011 (CONTINUED) The Notes to Basic Financial Statements are an integral part of this statement. 23 Water, Sewer, and Electric Fund RECONCILIATION OF CASH AND CASH EQUIVALENTS PER STATEMENT OF CASH FLOWS TO THE STATEMENT OF NET ASSETS Cash and investments 1,053,839$ Restricted cash and cash equivalents 623,398 Cash and cash equivalents - ending 1,677,237$ RECONCILIATION OF OPERATING INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES Operating income 1,286,863$ Adjustments to reconcile operating income to net cash provided by operating activities Depreciation 864,127 Increase in accounts receivable (36,358) Increase in inventory (23,782) Decrease in accounts payable and accrued expenses (67,453) Increase in other liabilities 46,610 Increase in customer deposits 16,888 Net cash provided by operating activities 2,086,895$ CITY OF SANGER, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS 24 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The City of Sanger (the City) was incorporated in 1886. The City operates under a Council- Manager form of government and provides the following services as authorized by its charter: general government, police and fire protection, emergency ambulance services, highways and streets, water and wastewater operations, electricity operations, and public improvements. The accounting and reporting policies of the City relating to the funds included in the accompanying basic financial statements conform to accounting principles generally accepted in the United States of America applicable to state and local governments. Generally accepted accounting principles for local governments include those principles prescribed by the Governmental Accounting Standards Board (GASB), the American Institute of Certified Public Accountants in the publication entitled Audits of State and Local Governmental Units and by the Financial Accounting Standards Board (when applicable). As allowed in Section P80 of GASB’s Codification of Governmental Accounting and Financial Reporting Standards, the City has elected not to apply Financial Accounting Standards Board Statements and Interpretations, Accounting Principles Board Opinions, and Accounting Research Bulletins of the Committee of Accounting Procedure issued after November 30, 1989. The more significant accounting policies of the City are described below. Financial Reporting Entity As required by accounting principles generally accepted in the United States of America, these financial statements include the primary government and organizations for which the primary government is financially accountable and other 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. The definition of the reporting entity is based primarily on the notion of financial accountability. A primary government is financially accountable for the organizations that make up its legal entity. It is also financially accountable for legally separate organizations if its officials appoint a voting majority of an organization's governing body and either it is able to impose its will on that organization or there is a potential for the organization to provide specific financial benefits to, or to impose specific financial burdens on, the primary government. A primary government may also be financially accountable for governmental organizations that are fiscally dependent on it. A primary government has the ability to impose its will on an organization if it can significantly influence the programs, projects, or activities of, or the level of services performed or provided by, the organization. A financial benefit or burden relationship exists if the primary government (a) is entitled to the organization's resources; (b) is legally obligated or has otherwise assumed the obligation to finance the deficits of, or provide financial support to, the organization; or (c) is obligated in some manner for the debt of the organization. Some organizations are included as component units because of their fiscal dependency on the primary government. CITY OF SANGER, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS 25 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – CONTINUED Financial Reporting Entity – Continued An organization is fiscally dependent on the primary government if it is unable to adopt its budget, levy taxes, set rates or charges, or issue bonded debt without approval by the primary government. The following entities were found to be component units of the City and are included in the accompanying financial statements: Blended Component Unit (4A) - The Sanger Texas Industrial Development Corporation (STIDC) is governed by a board of five directors, all of whom are appointed by the City Council of the City of Sanger and any of whom can be removed from office by the City Council at its will. The STIDC was incorporated in the state of Texas a non-profit industrial development corporation under Section 4A of the Development Corporation Act of 1979. The purpose of the STIDC is to promote economic development within the City of Sanger. Blended Component Unit (4B) - The Sanger Texas Development Corporation (STDC) is governed by a board of seven directors, all of whom are appointed by the City Council at its will. The STDC was incorporated in the state of Texas as a non- profit industrial development corporation under Section 4B of the Development Corporation Act of 1979. The purpose of the STDC is to promote economic and community development within the City of Sanger. Basis of Presentation The government-wide financial statements (the statement of net assets and the statement of activities) report information on all of the activities of the City. The effect of interfund activity within the governmental and business-type activities columns has been removed from these statements. Governmental activities, which normally are supported by taxes and intergovernmental revenues, are reported separately from business-type activities, which rely to a significant extent on fees and charges for support. The statement of activities demonstrates the degree to which the direct expenses of a given program are offset by program revenues. Direct expenses are those that are clearly identifiable with a specific program. Program revenues include 1) charges to customers or applicants who purchase, use, or directly benefit from goods, services, or privileges provided by a given program and 2) operating or capital grants and contributions that are restricted to meeting the operational or capital requirements of a particular program. Taxes and other items not properly included among program revenues are reported instead as general revenues. CITY OF SANGER, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS 26 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – CONTINUED Fund Financial Statements The City segregates transactions related to certain functions or activities in separate funds in order to aid financial management and to demonstrate legal compliance. Separate statements are presented for governmental and proprietary activities. These statements present each major fund as a separate column on the fund financial statements; all non-major funds are aggregated and presented in a single column. Governmental funds are those funds through which most governmental functions typically are financed. The measurement focus of governmental funds is on the sources, uses and balance of current financial resources. The City has presented the following major governmental funds: General Fund The General Fund is the main operating fund of the City. This fund is used to account for all financial resources not accounted for in other funds. All general tax revenues and other receipts that are not restricted by law or contractual agreement to some other fund are accounted for in this fund. General operating expenditures, fixed charges and capital improvement costs that are not paid through other funds are paid from the General Fund. Debt Service Fund The Debt Service Fund is used to account for the accumulation of financial resources for the payment 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 to signify the amounts that are restricted exclusively for debt service expenditures. Capital Projects Fund The Capital Projects Fund is used to account for funds received and expended for the construction and renovation of thoroughfares, arterial streets and drainage improvements in the City and construction, renovation, expansion and major improvement of various City facilities, acquisition of land and other large nonrecurring projects. 4A and 4B Funds The 4A and 4B Funds are used to account for sales tax revenues collected for the purposes set forth by the Sanger Economic Development Corporation. CITY OF SANGER, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS 27 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – CONTINUED Fund Financial Statements – Continued Proprietary Funds are accounted for using the economic resources measurement focus and the accrual basis of accounting. The accounting objectives are determinations of net income, financial position and cash flow. All assets and liabilities are included on the Statement of Net Assets. The City has presented the following major proprietary fund: Water, Sewer and Electric Fund The Water, Sewer and Electric Fund is the primary operating fund for water, sewer distribution and electric. It also accounts for all financial resources of the City concerning water, sewer and electric sales. Its activity is financed with debt secured by a pledge of the net revenues and has the requirement that the cost of providing services, including capital costs, be recovered by user fees and charges. Proprietary funds distinguish operating revenues and expenses from non-operating 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. Operating expenses for the proprietary funds include the cost of personal and contractual services, supplies and depreciation on capital assets. All revenues and expenses not meeting this definition are reported as non-operating revenues and expenses. Measurement Focus and Basis of Accounting Measurement focus refers to what is being measured; basis of accounting refers to when revenues and expenditures are recognized in the accounts and reported in the financial statements. Basis of accounting 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 assets and the operating statements present increases (revenues) and decreases (expenses) in net total assets. Under the accrual basis of accounting, revenues are recognized when earned, including unbilled water and wastewater services which are accrued. Expenses are recognized at the time the liability is incurred. Governmental fund financial statements 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 when susceptible to accrual; i.e., when they become both 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 be used to pay liabilities of the current period. The City considers receivables collected within sixty days after year-end to be available and recognizes them as revenues of the current year. Expenditures are recorded when the related fund liability is incurred. CITY OF SANGER, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS 28 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – CONTINUED Measurement Focus and Basis of Accounting – Continued However, debt service expenditures are recorded only when payment is due. The revenues susceptible to accrual are property taxes, franchise fees, licenses, charges for service, interest income and intergovernmental revenues. Sales taxes collected and held by the state at year end on behalf of the government are also recognized as revenue. All other governmental fund revenues are recognized when received. Cash and Investments Cash of all funds, including restricted cash, are pooled into common pooled accounts in order to maximize investment opportunities. Each fund whose monies are deposited in the pooled cash accounts has equity therein, and interest earned on the investment of these monies is allocated based upon relative equity at month end. An individual fund’s pooled cash and investments are available upon demand. The City considers pooled and other cash and investments amounts that are purchased with a maturity of ninety days or less to be cash equivalents. All investments are recorded at fair value based on quoted market prices. Fair value is the amount at which a financial instrument could be exchanged in a current transaction between willing parties. State statutes authorize the City to invest in obligations of the U.S. Government or its agencies; obligations of the State of Texas or its agencies; and contain other obligations, repurchase agreements, money market mutual funds and certificates of deposits within established criterion. Restricted Resources If both restricted and unrestricted resources are available for use, it is the City’s policy to use restricted resources first and unrestricted resources as needed. 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 person 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. On January 1 of each year, a tax lien attaches to property to secure the payment of all taxes, penalties, and interest ultimately imposed. Property tax revenues are considered available when they become due or past due and receivable within the current period. Personal property taxes not collected by April 1 are forwarded for collection proceedings. Real property taxes not collected by July 1 are forwarded for collection proceedings. CITY OF SANGER, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS 29 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – CONTINUED Inventories and Prepaid Items Inventories, which are recognized as expenses as consumed, are stated at cost (first-in, first-out method). Inventories consist primarily of expendable supplies for the Proprietary Fund. Prepaid balances are for payments made by the City in the current year to provide services occurring in the subsequent fiscal year. Interfund Receivables and Payables Any residual balances outstanding between the governmental activities and business- type activities are reported in the government-wide financial statements as internal balances. Transactions between Funds Interfund services provided and used are accounted for as revenues and expenditures or expenses. Transactions that constitute reimbursements to a fund for expenditures or expenses initially made from it that are properly applicable to another fund, are recorded as expenditures or expenses in the reimbursing fund and as a reduction of expenditures or expenses in the fund reimbursed. All other interfund transactions are recorded as transfers. Capital Assets Capital assets, which include property, plant, equipment and infrastructure assets, are reported in the applicable governmental or business-type activities columns in the government-wide financial statements and in the fund financial statements for proprietary funds. All capital assets are valued at historical cost or estimated historical cost if actual historical cost is not available. Donated assets are valued at their fair market value on the date donated. Repairs and maintenance are recorded as expenses. Renewals and betterments are capitalized. Assets capitalized, not including infrastructure assets, have an original cost of $5,000 or more and over one year of useful life. Depreciation has been calculated on each class of depreciable property using the straight-line method. Estimated useful lives are as follows: Buildings and improvements 5-50 years Machinery and equipment 3-20 years Infrastructure 10-30 years CITY OF SANGER, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS 30 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – CONTINUED Accumulated Vacation, Compensatory Time and Sick Leave The amounts owed to employees for unpaid vacation and sick leave liabilities, including the City’s share of employment-related taxes, are reported on the accrual basis of accounting in the applicable governmental or business-type activity columns of the government-wide statements and in the enterprise activities of the fund financial statements. The liabilities and expenditures are reported on the modified accrual basis in the governmental fund financial statements. Nature and Purpose of Reservations and Designations of Fund Equity The City has implemented Governmental Accounting Standards Board Statement 54, Fund Balance Reporting and Governmental Fund Type Definitions (GASB 54) during the year ended September 30, 2011. This statement establishes fund balance classifications that comprise a hierarchy based primarily on the extent to which a government is bound to observe constraints imposed upon the use of the resources reported in governmental funds. The objective of this statement is to enhance the usefulness of fund balance information by providing clearer fund balance classifications that can be more consistently applied and by clarifying the existing governmental fund type definitions. Fund balance categories under GASB 54 are Nonspendable and Spendable. Classifications under the Spendable category are Restricted, Committed, Assigned, and Unassigned. These classifications reflect not only the nature of funds, but also provide clarity to the level of restriction placed upon fund balance. Unassigned fund balance is a residual classification within the General Fund. The General Fund should be the only fund that reports a positive unassigned balance. In all other funds, unassigned is limited to negative residual fund balance. In accordance with GASB 54, the City classifies governmental fund balances effective with its financial statements for the year ended September 30, 2011, and thereafter, as follows: 1. Nonspendable Fund Balance – Includes fund balance amounts that cannot be spent either because they are not in spendable form or because of legal or contractual requirements. Examples include inventories, long-term receivables, endowment principal, and/or prepaid/deferred items. 2. Spendable Fund Balance a. Restricted Fund Balance – Includes amounts that can be spent only for the specific purposes as imposed by law, or imposed by creditors, grantors, contributors, or other governments’ laws and regulations. Examples include federal and state grant programs, retirement of long- term debt, and construction. i. The aggregate fund balance of the debt service fund is legally restricted for payment of bonded indebtedness and is not available for other purposes until all bonded indebtedness is liquidated. CITY OF SANGER, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS 31 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – CONTINUED Nature and Purpose of Reservations and Designations of Fund Equity – Continued ii. The fund balance of the capital projects fund reflects an amount restricted for construction and major renovation projects, and it usually represents unexpended proceeds from the sale of bonds, which primarily have restricted use. iii. The proceeds of specific revenue sources that are restricted to expenditures for specified purposes as designated by grantors, contributors, by vote of citizens, or governmental entities over state or local program grants. Committed Fund Balance – Includes amounts that can be used only for the specific purposes as determined by the governing body by formal action recorded in the minutes of the governing body. Commitments may be changed or lifted only by the governing body taking the same formal action that imposed the constraint originally. Examples include, but not specifically limited to, council action regarding construction, claims, and judgments, retirement of loans/notes payable, and capital expenditures. The City Council must take action to commit funds for a specific purpose prior to the end of the fiscal year, but the amount of the commitment may be determined after the end of the fiscal year. b. Assigned Fund Balance – Includes amounts intended to be used by the City for specific purposes. Pursuant to GASB 54, this intent can be expressed by an official or body to which the governing body delegates that authority. The City has delegated to the City Manager the ability to determine and define the amounts of those components of fund balance that are classified as Assigned. Examples take on the similar appearance as those enumerated for committed fund balance, including the appropriation of existing fund balance to eliminate a deficit in next year’s budget. c. Unassigned Fund Balance – Includes the residual classification of the General Fund and includes all amounts not contained in other classifications. By accounting for amounts in other funds, the City has implicitly assigned the funds for the purposes of those particular funds. In circumstances where an expenditure is to be made for a purpose for which amounts are available in multiple fund balance classifications, the order in which resources will be expended is as follows: restricted fund balance, followed by committed fund balance, assigned fund balance, and lastly unassigned fund balance. CITY OF SANGER, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS 32 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – CONTINUED Net Assets Net assets represent the difference between assets and liabilities. Net assets invested in capital assets, net of related debt consists of capital assets, net of accumulated depreciation, reduced by the outstanding balances of any borrowing used for the acquisition, construction or improvements of those assets, and adding back unspent proceeds. Net assets are reported as restricted when there are limitations imposed on their use either through the enabling legislations adopted by the City or through external restrictions imposed by creditors, grantors or laws or regulations of other governments. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the financial statements and the reported amounts of revenues and expenditures during the reporting period. Actual results could differ from those estimates. Reclassifications Certain beginning balances have been reclassified to conform with the presentation in the current-year financial statements. NOTE 2. CASH AND INVESTMENTS Cash and investments as of September 30, 2011 consist of the following: Deposits with financial institutions 4,107,557$ Certificates of deposit 2,986,010 7,093,567$ CITY OF SANGER, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS 33 NOTE 2. CASH AND INVESTMENTS – CONTINUED Disclosures Relating to Interest Rate Risk Interest rate risk is the risk that changes in market interest rates will adversely affect the fair value of an investment. Generally, the longer the maturity of an investment the greater the sensitivity of its fair value to changes in market interest rates. One of the ways that the City manages its exposure to interest rate risk is by investing mainly in certificates of deposit which purchase a combination of shorter term investments with an average maturity of less than 30 days thus reducing the interest rate risk. The City monitors the interest rate risk inherent in its portfolio by measuring the weighted average maturity of its portfolio. The City has no specific limitations with respect to this metric. As of September 30, 2011, the City had the following investments: Amount Certificates of deposit 2,986,010$ 272 days Investment Type Weighted Average Maturity As of September 30, 2011 the City did not invest in any securities which are highly sensitive to interest rate fluctuations. Disclosures Relating to Credit Risk Generally, credit risk is the risk that an issuer of an investment will not fulfill its obligation to the holder of the investment. This is measured by the assignment of a rating by a nationally recognized statistical rating organization. Presented below is the minimum rating required by (where applicable) the Public Funds Investment Act, the City’s investment policy, or debt agreements, and the actual rating as of year-end for each investment type. Amount Certificates of deposit 2,986,010$ N/A N/A Investment Type Minimum Legal Rating Rating as of September 30, 2011 Concentration of Credit Risk The investment policy of the City contains no limitations on the amount that can be invested in any one issuer. As of September 30, 2011, other than certificates of deposit, the City did not have 5% or more of its investments with one issuer. CITY OF SANGER, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS 34 NOTE 2. CASH AND INVESTMENTS – CONTINUED Custodial Credit Risk Custodial credit risk for deposits is the risk that, in the event of the failure of a depository financial institution, a government will not be able to recover its deposits or will not be able to recover collateral securities that are in the possession of an outside party. The custodial credit risk for investments is the risk that, in the event of the failure of the counterparty to a transaction, a government will not be able to recover the value of its investment or collateral securities that are in the possession of another party. The Public Funds Investment Act and the City’s investment policy do not contain legal or policy requirements that would limit the exposure to custodial credit risk for deposits or investments, other than the following provision for deposits: The Public Funds Investment Act requires that a financial institution secure deposits made by state or local governmental units by pledging securities in an undivided collateral pool held by a depository regulated under state law (unless so waived by the governmental unit). The market value of the pledged securities in the collateral pool must equal at least the bank balance less the FDIC insurance at all times. At September 30, 2011, the carrying amount of the City’s cash on hand and deposits was $4,107,557 and the bank balance was $4,604,220. The full bank balance was covered by depository insurance under the FDIC and pledged securities in the City’s name. NOTE 3. RESTRICTED ASSETS Restricted assets are held for the following purposes in accordance with bond ordinances or other legal restrictions for the Proprietary Fund as follows: Debt service - interest and sinking fund 671,943$ Capital improvements 1,342,757 Refundable utility deposits 297,609 2,312,309$ Restricted assets are held for the following purposes in accordance with bond ordinances or other legal restrictions for the Governmental Funds as follows: Debt service 211,064$ Capital improvements 1,342,640 Economic and community development 871,251 2,424,955$ CITY OF SANGER, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS 35 NOTE 4. CAPITAL ASSETS Capital asset activity for the year ended September 30, 2011, was as follows: Balance Balance October 1, Additions/ Retirements/ September 30, 2010 Completions Adjustments 2011 Governmental activities Capital assets not being depreciated Land 600,351$ 261,956$ -$ 862,307$ Construction in progress 3,039,158 200,481 - 3,239,639 Total capital assets not being depreciated 3,639,509 462,437 - 4,101,946 Capital assets being depreciated Infrastructure 6,131,964 3,668,977 - 9,800,941 Buildings and improvements 2,938,259 629,724 - 3,567,983 Machinery and equipment 2,649,899 49,333 (599,726) 2,099,506 Total capital assets being depreciated 11,720,122 4,348,034 (599,726) 15,468,430 Less accumulated depreciation Infrastructure 2,828,867 476,692 3,305,559 Buildings and improvements 654,361 133,461 787,822 Machinery and equipment 1,124,057 206,763 1,330,820 Total accumulated depreciation 4,607,285 816,916 - 5,424,201 Total capital assets being depreciated, net 7,112,837 3,531,118 (599,726) 10,044,229 Net governmental activities capital assets 10,752,346$ 3,993,555$ (599,726)$ 14,146,175$ CITY OF SANGER, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS 36 NOTE 4. CAPITAL ASSETS – CONTINUED Balance Balance October 1, Additions/ Retirements/ September 30, 2010 Completions Adjustments 2011 Business-type activities Capital assets not being depreciated Land 323,164$ -$ -$ 323,164$ Total capital assets not being depreciated 323,164 - - 323,164 Capital assets being depreciated Infrastructure 21,653,018 419,486 22,072,504 Buildings and improvements 860,132 - 860,132 Machinery and equipment 1,405,427 16,569 1,421,996 Total capital assets being depreciated 23,918,577 436,055 - 24,354,632 Less accumulated depreciation Infrastructure 9,522,024 713,107 10,235,131 Buildings and improvements 112,326 52,239 164,565 Machinery and equipment 1,014,106 98,781 1,112,887 Total accumulated depreciation 10,648,456 864,127 - 11,512,583 Total capital assets being depreciated, net 13,270,121 (428,072) - 12,842,049 Net business-type activities capital assets 13,593,285$ (428,072)$ -$ 13,165,213$ CITY OF SANGER, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS 37 NOTE 4. CAPITAL ASSETS – CONTINUED Depreciation expense was charged as direct expense to programs of the primary government as follows: Governmental activities General government 78,708$ Public safety 86,409 Streets and sanitation 507,477 Fire and rescue 76,901 Court 385 Culture and recreation 67,036 Total governmental activities 816,916$ Business-type activities Water 281,443$ Sewer 221,354 Electric 360,675 Other 655 Total business-type activities 864,127$ CITY OF SANGER, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS 38 NOTE 5. LONG-TERM DEBT At September 30, 2011, the City's bonds and notes payable consisted of the following: Governmental Business-type $1,060,000 Series 1996, Utility System Revenue Bonds, dated May 15, 1996, due in annual installments through 2016, bearing interest rates of -$ 380,000$ $2,540,000 Series 2002, Utility System Revenue Bonds, dated June 1, 2002, due in annual installments through 2019, bearing interest rates of 4.5% to 6.0%.- 1,710,000 $2,360,000 Series 2002, Combination Tax and Revenue Certificates of Obligation, dated June 1, 2002, due in annual installments through 2020, bearing interest rates of 4.2% to 5.7%.1,605,000 - $6,500,000 Series 2006, Combination Tax and Revenue Ceritifcates of Obligation, dated August 7, 2006, due in annual installments through 2022, bearing interest rates of 4% to 5%.2,182,700 2,562,300 Revenue Certificates of Obligation, dated December 18, 2007, due in annual installments through 2027, bearing interest at 4.4%.515,100 999,900 $3,200,000 Series 2009, Combination Tax and Revenue Certificates of Obligation, dated July 30, 2009, due in annual installments through 2026, bearing interest rates of 3% to 4.75%.2,920,000 - Note payable to a financial institution in monthly installments of $1,542 including interest at 6.25%, due January 15, 2012, secured by property financed.9,051 - Note payable to a financial institution in monthly installments of $5,106 including interest at 4.6%, due June 5, 2024, secured by property financed.587,053 - 7,818,904$ 5,652,200$ CITY OF SANGER, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS 39 NOTE 5. LONG-TERM DEBT – CONTINUED The following is a summary of long-term debt transactions of the City for the year ended September 30, 2011: Balance Balance Due Beginning End within of Year Increases Decreases of Year One Year Governmental activities Compensated absences 53,598$ 101,811$ (77,462)$ 77,947$ 36,581$ Notes payable 646,881 - (50,777) 596,104 44,053 Certificates of obligation 7,669,700 - (446,900) 7,222,800 463,800 Capital leases 148,196 - (78,034) 70,162 70,162 Total governmental activities 8,518,375 101,811 (653,173) 7,967,013 614,596 Business-type activities Compensated absences 56,333 46,757 (48,870) 54,220 21,215 Revenue bonds 6,280,300 - (628,100) 5,652,200 446,200 Capital leases 494,888 - (118,394) 376,494 88,266 Total business-type activities 6,831,521 46,757 (795,364) 6,082,914 555,681 Total primary government 15,349,896$ 148,568$ (1,448,537)$ 14,049,927$ 1,170,277$ The City issues general obligation bonds, which are direct obligations of the City and pledge the full faith and credit of the City. For the governmental activities, compensated absences are generally liquidated with resources of the General Fund. General obligation bonds issued for governmental activity purposes are liquidated by the debt service fund. Notes payable issued for governmental activity purposes are liquidated by the General Fund. Revenue bonds and notes payable issued for business-type activities are repaid from those activities. CITY OF SANGER, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS 40 NOTE 5. LONG-TERM DEBT – CONTINUED The annual requirements to amortize all debts outstanding as of September 30, 2011, are as follows: Revenue Bonds Due Fiscal Year Ending September 30 Principal Interest Total 2012 446,200$ 255,758$ 701,958$ 2013 462,600 236,442 699,042 2014 484,000 216,264 700,264 2015 507,100 195,010 702,110 2016 531,200 172,528 703,728 2017-2021 2,567,400 512,747 3,080,147 2022-2026 567,900 79,936 647,836 2027-2031 85,800 3,775 89,575 5,652,200$ 1,672,460$ 7,324,660$ Certificates of Obligation Due Fiscal Year Ending September 30 Principal Interest Total 2012 463,800$ 308,358$ 772,158$ 2013 487,400 290,888 778,288 2014 506,000 271,592 777,592 2015 522,900 251,425 774,325 2016 543,800 230,582 774,382 2017-2021 3,102,600 781,594 3,884,194 2022-2026 1,552,100 213,497 1,765,597 2027-2031 44,200 1,945 46,145 7,222,800$ 2,349,881$ 9,572,681$ Notes Payable Due Fiscal Year Ending September 30 Principal Interest Total 2012 44,053$ 26,466$ 70,519$ 2013 36,647 24,620 61,267 2014 38,368 22,898 61,266 2015 40,171 21,094 61,265 2016 42,058 19,209 61,267 2017-2021 241,854 64,481 306,335 2022-2026 152,953 9,809 162,762 596,104$ 188,577$ 784,681$ Business-Type Activities Governmental Activities Governmental Activities CITY OF SANGER, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS 41 NOTE 6. CAPITAL LEASE OBLIGATIONS The City has entered into capital lease agreements. The leased property under capital leases is classified as machinery and equipment with a total capitalized cost of approximately $976,970 and an amortized value of approximately $736,046 at September 30, 2011. Amortization expense has been included in depreciation expense for the year ended September 30, 2011. The following is a schedule of future minimum payments under the capital leases together with the present value of the net minimum lease payments as of September 30, 2011: 2011 174,362$ 2012 104,455 2013 104,455 2014 104,453 487,725 Less amount representing interest 41,069 Present value of net minimum lease payments 446,656$ NOTE 7. PENSION PLAN Plan Description The City of Sanger provides pension benefits for all of its full-time employees through a non-traditional, joint contributory, hybrid defined benefit plan in the state-wide Texas Municipal Retirement System (TMRS), an agent multiple-employer public employee retirement system. The plan provisions that have been adopted by the City are within the options available in the governing state statutes of TMRS. TMRS issues a publicly available comprehensive annual financial report that includes financial statements and required supplementary information (RSI) for TMRS; the report also provides detailed explanations of the contributions, benefits and actuarial methods and assumptions used by the System. The report may be obtained from TMRS’ website at www.TMRS.com. CITY OF SANGER, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS 42 NOTE 7. PENSION PLAN – CONTINUED The plan provisions are adopted by the governing body of the City, within the options available in the state statutes governing TMRS and within the actuarial constraints also in the statutes. Plan provisions for the City are as follows: Deposit rate 6% Matching ratio (City to employee) 2-1 A member is vested after 5 years Updated service credit 100% repeating, transfers Annuity increase (to retirees) 0% of CPI repeating Benefits Benefits depend upon the sum of the employee’s contributions to the plan, with interest, and City-financed monetary credits, with interest. At the date the plan began, the City granted monetary credits for service rendered before the plan began of a theoretical amount equal to two times what would have been contributed by the employee with interest, prior to establishment of the plan. Monetary credits for service since the plan began are a percent (100%, 150%, 200%) of the employee’s accumulated contributions. In addition, the City can grant as often as annually another type of monetary credit referred to as an updated service credit which is a theoretical amount which, when added to the employee’s accumulated contributions and the monetary credits for service since the plan began, would be the total monetary credits and employee contributions accumulated with interest if the current employee contribution rate and the City matching percent had always been in existence and if the employee’s salary had always been the average of his salary in the last three years that are one year before the effective date. At retirement, the benefit is calculated as if the sum of the employee’s accumulated contributions with interest and the employer-financed monetary credits with interest were used to purchase an annuity. Members can retire at certain ages, based on the years of service with the City. The Service Retirement Eligibilities for the City are 5 years at 60 years of age or 20 years at any age. Contributions Under the state law governing TMRS, the contribution rate for each city is determined annually by the actuary, using the Projected Unit Credit actuarial cost method. This rate consists of the normal cost contribution rate and the prior service cost contribution rate, which is calculated to be a level percent of payroll from year to year. The normal cost contribution rate finances the portion of an active member's projected benefit allocated annually; the prior service contribution rate amortizes the unfunded (overfunded) actuarial liability (asset) over the applicable period for the City. Both the normal cost and prior service contribution rates include recognition of the projected impact of annually repeating benefits, such as Updated Service Credits and Annuity Increases. CITY OF SANGER, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS 43 NOTE 7. PENSION PLAN – CONTINUED Contributions – Continued The City contributes to the TMRS Plan at an actuarially determined rate. Both the employees and the City make contributions monthly. Since the City needs to know its contribution rate in advance for budgetary purposes, there is a one-year delay between the actuarial valuation that serves as the basis for the rate and the calendar year when the rate goes into effect (i.e., December 31, 2010 valuation is effective for rates beginning January 2012). The annual pension cost is $217,754 for the year ended September 30, 2011, and there is no net pension obligation as of September 30, 2011. Trend information for the past three years for TMRS is as follows: Annual Percentage Actual Amount Net Pension Cost of APC of APC Pension Year (APC) Contributed Contributed Obligation 2009 193,722$ 100% 193,722$ -$ 2010 187,668 100% 187,668 - 2011 217,754 100% 217,754 - The required contribution rates for fiscal year 2011 were determined as part of the December 31, 2008 and 2009 actuarial valuations. Additional information as of the latest actuarial valuation, December 31, 2010, also follows: Valuation Date 12/31/08 12/31/09 12/31/2010 - prior to restructuring 12/31/2010 - restructured Actuarial Cost Method Projected Unit Credit Projected Unit Credit Projected Unit Credit Projected Unit Credit Amortization Method Level Percent Level Percent Level Percent Level Percent of Payroll of Payroll of Payroll of Payroll GASB 25 Equivalent Single 24 years; 23 years; 22.4 years; 22.7 years; Amortization Period closed period closed period closed period closed period Amortization Period For New Gains/Losses 25 years 25 years 25 years 25 years Asset Valuation Method Amortized Cost 10-Year Smoothed 10-Year Smoothed 10-Year Smoothed Market Market Market Actuarial Assumptions: Investment Rate of Return* 7.5% 7.5% 7.5% 7.0% Projected Salary Increases* Varies by Varies by Varies by Varies by age and service age and service age and service age and service * Includes inflation at 3.0% 3.0% 3.0% 3.0% cost of living adjustments 0.0% 0.0% 0.0% 0.0% CITY OF SANGER, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS 44 NOTE 7. PENSION PLAN – CONTINUED Contributions – Continued In June 2011, SB 350 was enacted by the Texas Legislature, resulting in a restructure of the TMRS funds. This legislation provided for the actuarial valuation to be completed, as if restructuring had occurred on December 31, 2010. In addition, the actuarial assumptions were updated for the new fund structure, based on an actuarial experience study that was adopted by the TMRS Board at their May 2011 meeting (the review compared actual to expected experience for the four-year period of January 1, 2006 through December 31, 2009). For a complete description of the combined impact of the legislation and new actuarial assumptions, including the effects on TMRS city rates and funding ratios, please see the December 31, 2010 TMRS Comprehensive Annual Financial Report (CAFR). The funded status as of December 31, 2010, the most recent actuarial valuation date, is as follows: Actuarial Actuarial Actuarial UAAL as a Valuation Value of Accrued Funded Unfunded AAL Covered percentage of Date Assets Liability (AAL) Ratio (UAAL) Payroll Covered Payroll 12/31/10 (1) 3,555,107$ 4,166,603$ 85.3% 611,496$ 2,454,429$ 24.9% 12/31/10 (2) 4,202,344$ 4,663,669$ 90.1% 461,325$ 2,454,429$ 18.8% (1) Actuarial valuation performed under the original fund structure (2) Actuarial valuation performed under the new fund structure Actuarial valuations involve estimates of the value of reported amounts and assumptions about the probability of events far into the future. Actuarially determined amounts are subject to continual revision as actual results are compared to past expectations and new estimates are made about the future. Actuarial calculations are based on the benefits provided under the terms of the substantive plan in effect at the time of each valuation, and reflect a long-term perspective. Consistent with that perspective, actuarial methods and assumptions used include techniques that are designed to reduce short-term volatility in actuarial accrued liabilities and the actuarial value of assets. The schedule of funding progress, presented as Required Supplementary Information following the notes to basic financial statements, presents multi-year trend information about whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued liability of benefits. CITY OF SANGER, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS 45 NOTE 8. COMMITMENTS The City entered into a three (3) year contract in 2009 with the AEP Energy Partners, Inc. for the delivery of electricity. Payments under this contract are based on meter readings charged per month. The City had outstanding encumbrances totaling $23,022 as of September 30, 2011. At September 30, 2011, the City was committed to several long-term construction contracts. The Capital Projects Fund was contractually committed to $688,236 under these contracts. NOTE 9. INTERFUND RECEIVABLES AND PAYABLES The general fund owes each the 4A and 4B Fund $14,884 for a total due of $29,768 at September 30, 2011. Interfund balances are related to the in-house sales tax earned by the City allocated to the funds, and are to be repaid or collected in the normal course of business, within one year of the fiscal year-end. NOTE 10. INTERFUND TRANSFERS All interfund transfers between the various funds are approved supplements to the operations of those funds. Transfers In Transfers Out Amount General fund 4A fund 18,000$ General fund 4B fund 18,000 Capital projects fund General fund 40,000 Capital projects fund Enterprise fund 307,241 Debt service fund 4B fund 180,000 563,241$ Transfers are primarily used to move funds from: − The 4A and 4B funds to the general fund for payment of administrative costs. − The general fund to the capital projects fund to reimburse for project costs. − The enterprise fund to the capital projects fund for reimbursement of projects. − 4B fund to the debt service fund to service the debt related to the 4B fund. CITY OF SANGER, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS 46 NOTE 11. RISK MANAGEMENT The City is exposed to various risks of loss related to torts; theft of, damage to, and destruction of assets; errors and omissions; injuries to employees; and natural disasters. The City insures its buildings and contents, law enforcement liability, public officials' liability, general liability and auto liability under a renewable one year policy with the Texas Municipal League. The City insures its workers compensation risk by participating in the Texas Municipal League Intergovernmental Risk Pool which is a self-insurance policy mechanism for political subdivisions in Texas. Rates are set by the State Insurance Board. Each participant's contribution to the pool is adjusted based on its workers' compensation history. The City is responsible only to the extent of premiums paid and contributions made to Texas Municipal League and the Intergovernmental Risk Pool. There have been no significant changes in insurance coverage as compared to last year and settlements have not exceeded coverage in each of the past three fiscal years. NOTE 12. CONDUIT DEBT The City issued notes payable totaling $39,823,091 for the purpose of assisting with financing needed by not-for-profit organizations to promote their cause. Final maturities on the notes payable range from March 2017 through July 2040. The notes are secured by various assets of the borrower. The total amount outstanding on all of the notes payable is $38,825,913 as of September 30, 2011. The City has no liability for the notes payable in the event of default by the borrowers. Accordingly, the bonds are not reported as liabilities in the City’s financial statements. NOTE 13. PLEDGED REVENUES The City has pledged revenues derived from the operation of the utility system, net of operating and maintenance expenses, to repay $9,995,000 in utility revenue bonds. The total amount of outstanding principal as of September 30, 2011 was $5,652,600. Proceeds from the bonds provided financing for improvements to the utility system, as well as refunding a $1,735,000 bond. The bonds are payable solely from the net earnings of the utility system and are payable through 2027. The total principal and interest remaining to be paid on the bonds is $7,324,660. Principal and interest paid for the current year and net utility system revenues were $910,913 and $1,286,863, respectively. REQUIRED SUPPLEMENTARY INFORMATION CITY OF SANGER, TEXAS SCHEDULE OF FUNDING PROGRESS FOR PARTICIPATION IN TEXAS MUNICIPAL RETIREMENT SYSTEM YEAR ENDED SEPTEMBER 30, 2011 47 Unfunded Actuarial Unfunded Accrued Liability Actuarial Actuarial Actuarial Actuarial Annual as a Valuation Value of Accrued Percentage Accrued Covered Percentage of Date Assets Liability Funded Liability Payroll Covered Payroll 12/31/08 2,981,655 3,457,019 86.2% 475,364 2,495,573 19.0% 12/31/09 3,419,092 3,973,365 86.1% 554,273 2,503,067 22.1% 12/31/10 (1) 3,555,107 4,166,603 85.3% 611,496 2,454,429 24.9% 12/31/10 (2) 4,202,344 4,663,669 90.1% 461,325 2,454,429 18.8% (1) Actuarial valuation performed under the original fund structure (2) Actuarial valuation performed under the new fund structure CITY OF SANGER, TEXAS BUDGETARY COMPARISON SCHEDULE – GENERAL FUND YEAR ENDED SEPTEMBER 30, 2011 48 Variance with Actual Final Budget Original Final Amount Over / (Under) Revenues Property taxes 1,543,668$ 1,543,688$ 1,631,129$ 87,441$ Sales taxes 425,000 425,000 565,055 140,055 Licenses and permits 67,500 67,500 44,827 (22,673) Charges for services 656,000 656,700 745,389 88,689 Fire and rescue 575,000 580,000 439,910 (140,090) Court 185,000 185,000 205,346 20,346 Franchise taxes 525,000 525,000 556,353 31,353 Interest 15,000 15,000 8,477 (6,523) Miscellaneous revenues 88,500 104,450 114,397 9,947 Total revenues 4,080,668 4,102,338 4,310,883 208,545 Expenditures Current General government 659,234 659,034 601,955 (57,079) Public safety 1,166,568 1,180,768 1,350,096 169,328 Streets and sanitation 1,074,267 1,073,767 842,491 (231,276) Fire and rescue 781,229 781,229 615,283 (165,946) Court 219,004 220,754 227,645 6,891 Culture and recreation 624,777 624,777 358,638 (266,139) Principal - - 95,380 95,380 Interest and other - - 8,759 8,759 Capital outlay - - 152,859 152,859 Total expenditures 4,525,079 4,540,329 4,253,106 (287,223) Excess (deficiency) of revenues over expenditures (444,411) (437,991) 57,777 495,768 Other financing sources (uses) Proceeds on sale of assets - - 7,436 7,436 Operating transfers in 465,115 465,115 36,000 (429,115) Operating transfers out - - (40,000) (40,000) Total other financing sources (uses)465,115 465,115 3,436 (461,679) Excess (deficiency) of revenues and other financing sources over expenditures and other financing uses 20,704 27,124 61,213 34,089 FUND BALANCE, beginning of year 739,010 739,010 739,010 - FUND BALANCE, end of year 759,714$ 766,134$ 800,223$ 34,089$ Budgeted Amounts SUPPLEMENTARY INFORMATION CITY OF SANGER, TEXAS COMBINING SCHEDULE OF REVENUES AND EXPENSES PROPRIETARY FUND BY DEPARTMENT YEAR ENDED SEPTEMBER 30, 2011 49 Water Sewer OPERATING REVENUES Charges for services 1,264,041$ 1,076,439$ Connection fees - - Tap fees 16,000 15,500 Miscellaneous - - Total operating revenue 1,280,041 1,091,939 OPERATING EXPENSES Salaries and wages 262,149 151,127 Purchased professional and technical services 3,290 2,128 Utilities 132,700 164,287 Materials and supplies 15,981 14,513 Water and electric purchases 256,947 - Franchise fees - - Depreciation 282,098 221,354 Repairs and maintenance 206,616 226,050 Bad debt expense 6,923 6,370 Total operating expenses 1,166,704 785,829 Operating income (loss) 113,337 306,110 NONOPERATING REVENUES (EXPENSES) Interest and investment income - - Interest and amortization expense (132,379) (76,020) Total nonoperating revenues (expenses)(132,379) (76,020) Income (loss) before transfers (19,042) 230,090 Transfers out - - CHANGE IN NET ASSETS (19,042)$ 230,090$ 50 Fleet Data Electric Services Administration Processing Total 7,685,434$ -$ 1,870$ -$ 10,027,784$ 62,678 - - - 62,678 - - - - 31,500 - - 67,582 - 67,582 7,748,112 - 69,452 - 10,189,544 485,617 41,745 239,582 203,570 1,383,790 14,996 56 66,544 37,551 124,565 9,999 4,462 5,737 5,364 322,549 42,778 3,195 30,695 17,470 124,632 4,774,296 - - - 5,031,243 379,342 - - - 379,342 360,675 - - - 864,127 138,435 5,419 29,782 9,208 615,510 43,630 - - - 56,923 6,249,768 54,877 372,340 273,163 8,902,681 1,498,344 (54,877) (302,888) (273,163) 1,286,863 - - 30,882 - 30,882 (108,924) - - - (317,323) (108,924) - 30,882 - (286,441) 1,389,420 (54,877) (272,006) (273,163) 1,000,422 (307,241) - - - (307,241) 1,082,179$ (54,877)$ (272,006)$ (273,163)$ 693,181$ CITY OF SANGER, TEXAS ANALYSIS OF PROPERTY TAXES RECEIVABLE YEAR ENDED SEPTEMBER 30, 2011 WITH COMPARATIVE TOTALS FOR FOUR YEARS PRIOR 51 2011 2010 2009 2008 2007 Adjusted tax roll 2,330,034$ 2,256,987$ 2,308,903$ 2,118,117$ 2,014,381$ Less collections 2,276,461 2,216,114 2,256,275 2,078,588 1,961,241 Current year property taxes receivable 53,573 40,873 52,628 39,529 53,140 Prior year property taxes receivable 86,871 79,796 74,407 71,283 66,629 Total property taxes receivable, gross (1) 140,444$ 120,669$ 127,035$ 110,812$ 119,769$ Total assessed property value 359,484,787$ 364,030,183$ 341,028,251$ 336,831,151$ 341,154,524$ Tax rate per $100 0.63305$ 0.62000$ 0.62000$ 0.59960$ 0.59046$ Percent of current taxes collected to billed 97.70% 98.19% 97.72% 98.13% 97.36% (1) before deducting allowance for doubtful accounts Fiscal Year