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02/20/2018-CC-Agenda Packet-RegularAGENDA COUNCILCITY - r TUESDAY FEBRUARY 7:00 PM 502 ELM STREET SANGER, TEXAS 1. Call Meeting to Order, Invocation, Pledge of Allegiance. 2. Citizens Input: (Citizens are allowed 3 minutes to speak. The City Council is unable to respond or to discuss any issues brought up during this section). 3. CONSENT AGENDA: a) Approval of Minutes: 1. City Council Work Session, February 5, 2018 2. City Council Regular Meeting, February 5, 2018. b) Disbursements c) Approve Audit for Fiscal Year End 2016-2017 by Brooks Cardiel PLLC. 4. Consider Any Items Removed from Consent Agenda. REGULAR AGENDA None. 5. INFORMATION ITEMS: a) All American Dogs Report — January 2018 6. ADJOURN. I, the undersigned authority, do hereby certify that this Notice of Meeting was posted on the bulletin board, at the City Hall of the City of Sanger, Texas, a place convenient and readily accessible to the general public at all times, and said notice was posted on the following date and time: - :g at I. m. and shall remain posted until meeting is adjourned/ OF 6/1./VC City t;e'City Secretary nger, Texas This facility is wheelchair accessible an accessible parking spaces are available. accommodations or interpretive services must be made 48 hours prior to this meeting. the City Secretary's office at (940) 458-7930 for further information. Requests for Please contact CITY OF SANGER, TEXAS MINUTES: CITY COUNCIL WORK SESSION February 5, 2018, 6:00 P. M. 502 Elm Street, Sanger, Texas COUNCIL MEMBERS PRESENT: Mayor Thomas Muir, Councilman Dill Doutwell, Councilman Gary Bilyeu, Councilman Lee Allison COUNCIL MEMBERS ABSENT: Councilman David Clark, Councilman Allen Chick The Mayor and Three (3) Council Members Were Present Constituting a Quorum. STAFF MEMBERS PRESENT: Alina Ciocan, Acting City Manager; Cheryl Price, City Secretary 1. Call Meeting to Order. 2. EXECUTIVE SESSION - CLOSED MEETING Pursuant to the Open Meetings Act, Chapter 551, the City council Will Meet in a Closed Executive Session in Accordance with the Texas Government Code: -Section 551.071 — Consult with City Attorney Consultation Regarding Utility Matters. The City Council convened into closed Executive Session at 6:01 P.M. 3. RECONVENE: OPEN MEETING Any Action Taken. The City Council reconvened at 6:24 p.m. No Action was taken. 4. Overview of Items on Regular Agenda. 5. Discuss Development Services and Need for Additional Resources. Alina Ciocan, Acting City Manager was recognized. She stated that the goal of this presentation is to give a brief overview of the Development Services Department and the increased level of activity that we have seen in the past 12 to 18 months. There has been a significant increase in workload, both in Planning and Zoning as well as Building Inspections. Based on projects lining up and working cases we anticipate the trend to continue well into next year. She presented a power point presentation with charts showing the considerable increases in Fiscal Year comparisons in building permits, Planning and Zoning case submissions, and fees collected. In every case there was considerable increases noted. She noted that her numbers do not include all of the inquiries and projects that have not turned into applications yet. As the city continues to grow our development projects are becoming more and more complex and require a more specialized skillset. She noted the Development Services Department consists of a Development Services Director (herself), a Building Official, a Building Inspector and a Permit Technician. The department is missing a Planner. We have looked at other communities our size and a majority of them have a Planner on staff. Some of them have more than one. Cities like Pilot Point, Anna, Krum have a Planner on staff. It has come to the point where a Planner is needed. As you recall we had Joe Iliff who was an AICP Planner/Building Official. When Joe Iliff left, Mike Brice chose to hire a Chief Building Official and not a Planner. We are a small town and when someone leaves with a combined title it is hard to replace both positions. There was discussion regarding the different positions in Development Services and the primary responsibilities of each position. It was noted that a Planner would have the responsibility of plats, zoning cases, anything to do with actually working the cases and also the visionary plans which include that of the Comprehensive Plan and Future Land Use Maps, etc. She noted she is working the cases now and it was supposed to be a temporary fix. The department has gotten very busy. She noted she is also doing Economic Development and as we are growing and we don't want to let any part of this go because there is a lot of opportunity as we develop. We are at the highest level that we. have ever seen in development activity in the town. Councilman Boutwell asked if this is going to continue and if the figures would be the same as they have been next year. Ms. Ciocan noted that she did a report for the school district back in October and at that time we had around 892 lots at some stage in planning. To do this the right way we need to have the skill set in the positions to be able to manage this growth. There was additional discussion regarding the numbers on the charts. Councilman Allison noted that there are a lot of cities that wait too long to do this and then it is too late. He said it is good we are looking at this and that a Planner is a good thing. Planning, Zoning and Platting is one thing; and, after that you get into the permitting process and in between there related to the planning is the infrastructure process, reviews and proper codes. The Mayor noted that he and Alina have discussed this and the gap that he believed Councilman Allison is talking about is a City Engineer. The Planner is a first step and the City Engineer will be a second step. The City Engineer is also a critical component that we currently do not have. We currently send out plats and plans for review. There was additional discussion regarding the needs for a City Engineer. Mayor Muir noted that what they would lean on the Engineer for is the technical review capability with all of the subdivisions and commercial projects coming in. Councilman Boutwell noted that it bothers him that we do not have someone that checks the engineering designs that are presented to us. It was noted we are sending them out for review right now. Mayor Muir noted that getting an Engineer is where we are going but we have to take it in small bites. Ms. Ciocan noted we are also looking at our process and there are some fees that we are not implementing which a majority of the cities around us have. There are ways to bring in more revenue, not to deter development, but it is the cost of doing business that developers pay in every other community. Incrementally, we are looking at implementing those as well. Some fees we already have in our ordinances, and have never enforced them. Currently a planner is the needed position. Councilman Bilyeu asked if there was someone on staff that could take this position. Ms. Ciocan stated there was no one on staff that has the skills to be a Planner and we are going to have to go outside. Councilman Allison noted concern regarding getting the plats reviewed and that a planner would be a good person to coordinate this. Development is coming, not just residential, but commercial as well. Mayor Muir noted that we need to bite the bullet and get someone with the experience. If they have been in the City arena for a while they will have contacts and when an issue comes across they can use that network and contacts. This has happened since Alina has come on board as Acting City Manager and she has called on people she knew and it has helped a lot. Acting City Manager Alina Ciocan noted that what she would like to do is go ahead and open the position and come before the Council with a budget amendment. Councilman Bilyeu asked if fees would support the cost of the position. It was noted that there was growth enough that the fees would help support this position. Staff has done research and to get someone with an AICP certification it would be in the $60,000 range. Councilman Allison noted that was a minimum. Mayor Muir noted that we just wanted to give staff a sense of direction and when the budget amendment comes in and Council will know the reasoning behind it and where the funds have come from to bring in the position. Acting City Manager Alina Ciocan noted that there are two engagement letters with Lloyd Gosselink, the first being a utility matter that has been discussed. The second, Item 17 is also an engagement letter with Lloyd Gosselink. She summarized noting we received a letter from TCEQ, a notice of enforcement documenting some alleged violations that happened in September around the same time Last we had an illegal dumping incident (September 26th). We received a notice of enforcement that alleges the violation and we have talked to our consultants and they have recommended we get specialized legal counsel to help us with this matter. She noted that she has called other communities and did research and this is the approach that they all take. Lloyd Gosselink is an environmental firm that is well known in handling TCEQ matters. We feel confident that we have picked the right firm. We have initiated contact right away and this needs to be handled in a timely manner. If this gets approved tonight we will move forward with the next steps. Councilman Boutwell asked what the timeline was on this and Ms. Ciocan noted that TCEQ has not provided a timeline, nor have they assessed any penalties to date. Tonight, we are just looking to engage the attorney during the regular Council meeting session tonight. Councilman Boutwell asked if the Council could get an updated map where the City boundaries are on the north end of town. Acting City Manager noted she would e-mail the map to Councilmembers. 7. ADJOURN. There being no further business, Mayor Muir adjourned the meeting at 6:49 P.M. l MINUTES: REGULAR CITY COUNCIL MEETING February „ 502 Elm Street, Sanger, CouncilmanCOUNCIL MEMBERS PRESENT: Mayor Thomas Muir, Councilman Bill Boutwell, •, The Mayor and three (3) Council Members were present constituting a quorum. STAFF MEMBERS PRESENT: Alina Ciocan, Acting City Manager; Neal Welch, Director of Public Works; David Pennington, Fire Chief, Ramie Hammonds Building Official, Cheryl Price, City Secretary 1. Call Meeting to Order, Invocation, Pledge of Allegiance. The Regular City Council Meeting was called to order by Mayor Muir on Monday, February 5, 2018 at 7:00 P.M. The Invocation was given by Councilman Allision. The Pledge of Allegiance was led by Councilman Boutwell. 2. Citizens Input: (Citizens are allowed 3 minutes to speak. The City Council is unable to respond or to discuss any issues brought up during this section). There were no citizens who wished to speak. 3. CONSENT AGENDA: a) Approval of Minutes: 1. City Council Work Session, February 5, 2018 2. City Council Regular Meeting, February 5, 2018. b) Disbursements c) Approve and Authorize Fire Chief to Sign the Interlocal Cooperation Agreement with Denton County for Fire Protection Services. d) Approve and Authorize Fire Chief to Sign the Interlocal Cooperation Agreement with Denton County for Ambulance Services. e) Approve Appointing David Cale Trail to An Open Park Board Position — Alternate. Fire Chief, David Pennington was recognized and gave a brief summary regarding the Interlocal Cooperation Agreements for Fire and Ambulance Services. A motion was made by Councilman Bilyeu to approve the Consent Agenda as presented. The motion carried unanimously (3-0 vote), Councilman Clark and Councilman Chick absent. None. Consider,. Act on the Final -r of the Sanger,.. g Addition, Being 2.637 Acres in the Henry Tierwester Survey, Abstract No. 1241, Generally Located East of IH 35 and South of Maple Street. Acting City Manager, Alina Ciocan summarized. She noted the applicant is also present. They are proposing to plat approximately 2.6 acres to accommodate a hotel development for Holiday Inn Express. As far as infrastructure, we have an incentive agreement with the applicant where the city would provide some improvements to the site and those are listed in the staff report. Staff has found the plat to be in compliance with the subdivision ordinance and recommends approval. Councilman Allison noted that with this plat we are not assuring driveway locations or TxDOT permits or future 1-35 right-of-way. Staff noted that he is correct. The applicant noted that they are submitting a whole packet for approval to TxDOT. A motion was made by Councilman Bilyeu to approve the Final Plat of the Sanger Lodging Addition, being 2.637 Acres in the Henry Tierwester Survey, Abstract No. 1241, generally Located East of IH-35 and South of Maple Street, as presented. Motion was seconded by Councilman Allison. The motion carried unanimously (3-0 vote), Councilman Clark and Councilman Chick absent. 6. Consider, Discuss and Act on the Preliminary Plat of the Indian Creek Addition, Being 35.726 Acres in the Henry Tierwester Survey, Abstract No. 1241, Generally Located South of Belz Road and East of Metz Road. Acting City Manager, Alina Ciocan summarized. She noted the applicant, Justin Newland, is present for any questions. He is proposing to subdivide the tract into five (5) lots of record which range from two (2) acres to fifteen (15) acres. The Bolivar District will be providing the water and there will be private septic systems for sewer. Staff has found the plat to be in compliance with the subdivision ordinance and recommends approval. She noted the next agenda item is the Final Plat for the subdivision. Councilman Allison noted FEMA Floodplain - Zone A on the site which has not been studied. He noted that the homes would be required to be two feet above the base flood elevation and that would require a study to determine the base flood elevation. He noted that FEMA is in the process in updating the maps and asked if staff knew if this area would be changed. Neal Welch, Public Works Director was recognized who is the Flood Plain Administrator. He stated if it is changed it will probably be reduced instead of enlarged. Councilman Allision noted that this is not typical, that he has worked with several properties where FEMA has typically doubled the size of the Flood Plain area. Councilman Bilyeu asked if this was a property we have seen before and it was noted that this property was a different property located at Lois and Metz and it did have a similar configuration to an application we received recently. A motion was made by Councilman Bilyeu to approve the Preliminary Plat of the Indian Creek Addition, being 35.726 Acres in the Henry Tierwester Survey, Abstract No. 1241, generally located South of Belz Road and East of Metz Road as presented. Motion was seconded by Councilman Boutwell. The motion carried unanimously (3-0 vote), Councilman Clark and Councilman Chick absent. 7. Consider, Discuss and Act on the Final Plat of the Indian Creek Addition, Being 7 2 6 Acres in the Henry Tierwester urvey,Abstract - o 1241, Generally Located South of Belz Road and East of Metz Road. Mayor Muir noted this is the Final Plat for the previous item. Councilman Boutwell noted the right-of-way on the plat and it was noted it was set according to our thoroughfare plan. A motion was made by Councilman Bilyeu to approve the Final Plat of the Indian Creek Addition, being 35.726 Acres in the Henry Tierwester Survey, Abstract No. 1241, generally located South of Belz Road and East of Metz Road as presented. Motion was seconded by Councilman Allison. The motion carried unanimously (3-0 vote), Councilman Clark and Councilman Chick absent. 8. Conduct a Public Hearing Concerning a Request for Approval of Alternative Exterior Building Materials and/or Design for a Proposed Bardominium Located at 10922 Metz Road. Mayor Muir opened the Public Hearing at 7:16 PM. Building Official Ramie Hammonds was recognized to summarize the Public Hearing. She advised the applicant is proposing to construct a Bardominium on their property consisting of a little over three (3) Acres. They are proposing a request for approval for alternative building materials of metal and stone. Article 3.2100 of the Code of Ordinances (Exterior Construction of Residential Dwellings) requires all exterior facades for the first story of a new single-family resident be constructed of a minimum of one hundred percent (100%) masonry construction, including and limited to: brick, stone, granite, marble, case stone or stucco. All other floors shall be constructed of a minimum of fifty (50) percent masonry. They would like to use metal with a three-foot rock accent. The applicants are present. The applicants, Ann Fick and Christopher Fick were recognized. Ann Fick stated that she has lived in Sanger for 30 years. They purchased this property in May and they had some friends that had built a bardominium on Metz Road. When they purchased the property, they did not know for sure whether it was actually in the city. She noted that across the street is county. She provided photos. She advised that there was an ordinance back in 2001 that did not allow mobile homes in the city and noted that there are three mobile homes next door to their property and she is unsure when they were put there. There is also an abandoned mobile home across the street. They are building the home 367 feet from the road so they are basically halfway in the middle of the property. They would like to request to be allowed to build a bardominimum on their property with the metal and stone. Mayor Muir solicited anyone else who wished to speak on the Public Hearing. There being no further citizens approaching the podium to speak, the Public Hearing was closed at 7:19 PM. 9. • •. Discuss and Possibly Act on a Request• • • Materials and/orDesign forProposed Barndorniniurn Located at 1922 Wetz•.r, Councilman Bilyeu noted that we entertain alternative materials but need to get specific on what they are planning to build, so that when the building inspection is done staff knows what to look for. He asked the applicant if they were planning on putting the stone three feet up all the way around the house. The applicant stated that they were planning on putting it all the way around the home. He noted the pictures with the metal and the rock home with the porch was the one they were planning on it looking like. Councilman Allison noted he was a believer of alternate materials and also a believer in holistic design. He asked if the Council was just approving the combination of stone and metal or if we are looking at the overall appearance. Acting City Manager Alina Ciocan noted we need to specify what we want because we are deviating from the one -hundred (100%) percent masonry requirement. Councilman Bilyeu noted that we needed to get the percentage of stone down so that staff knows what to look for during inspection. There was brief discussion and it was noted that it needed to be a measurable amount. Building Official Ramie Hammonds echoed that they would need to have whatever the percentage is so it can be calculated when it is inspected. The applicant noted that the siding was going to be a lot like the photo at about three feet up. Councilman Bilyeu asked if they were planning on that all around the property 360 degrees. They noted they would put the rock at three feet all the way around entire exterior. There was brief discussion regarding other materials the home was going to be built with. They were going to have metal roofing and shutters on the front. It was noted there were seven notices sent out and two responses were returned in favor of the request. A motion was made by Councilman Bilyeu to approve the Alternative Exterior Building Materials and/or Design for a proposed Barndominium located at 10922 Metz Road with the following stipulation: The Barndominium have a masonry skirt of a minimum height of three feet (3') to encircle the entire dwelling on all sides. Discussion was called and Councilman Boutwell asked if the motion could include having the metal shutters on any of the front windows facing the major road. The applicants agreed and stated they were planning to put them on the home already. Councilman Bilyeu noted he wanted to stick to what he said before, that the request was for masonry. He noted if the applicant is willing to put the shutters on it and he can add it, but did not want to tell them how to build their home. The applicant stated they did not have a problem with that at all. Councilman Bilyeu agreed that he would amend his motion to include Shutters. The motion was amended by Councilman Bilyeu to approve the Alternative Exterior Building Materials and/or Design for a proposed Barndominium located at 10922 Metz Road with the following stipulations: 1. A masonry skirt of a minimum height of three feet (T) to encircle the entire dwelling on all sides. 2. Shutters on the front windows facing the road. The amended motion was seconded by Councilman Boutwell. The motion carried unanimously (3-0 vote), Councilman Clark and Councilman Chick absent. 10. Conduct a Public Hearing to Consider a Request for a Specific Use Permit for Recreational Vehicle Sales on Property Zoned B-2 Business District 2 Located at 201 N. Stemmons Street. Mayor Muir opened the Public Hearing at 7:32 PM soliciting anyone who wished to speak. Alina Ciocan, Acting City Manager gave a brief summary. The subject property is zoned B-2 Business District. The applicant is requesting a Specific Use Permit (SUP) to be able to conduct RV Sales on the property. The Planning and Zoning Commission considered the request and approved it with the stipulations reflected in the packet and the Proposed Ordinance #02-03-18, with a term limit of two years and added a stipulation that the property will conform with the City's off-street parking regulations, and that the parking will be brought up meet the current code. Seven (7) Public Hearing Notices were mailed and no response forms were received as of the time of this report. Mr. Mark Laznowski, Owner of My RV, was recognized. He stated My RV is the proposed business for this location summarized the business and noted that there are a lot of people who are interested in owning RV's in the area. He stated he felt the business environment of Sanger will prosper from their activity and it would bring people to the City to stay a few days. He noted that Quality-1 RV is right next door and he is best friends with his neighbor. He noted that they were very big on the presentation of their property, as he stated on his letter of intent. They have to look good to present the product to the people. He noted what the property was used for before them and that they believed they were going to be an improvement. He stated they are requesting the Council's support and permission for the next 22 months of RV sales. They will take good care of customers and make good friends around town. There being no further citizens approaching the podium who wished to speak on the Public Hearing item, Mayor Muir closed the Public Hearing at 7:36 PM. 11. Consider, Discuss and Possibly Acton Ordinance #02-03-18 -Granting a Specific Use Permit for Recreational Vehicle Sales on Property Located at 201 N. Stemmons Street. Mayor Muir set the stage with some comments and asked that the Council chime in. He noted that; obviously, it would be nice to have some diversity of what is happening along our interstate which is a visible corridor for the city. There seems to be a theme. He noted he is not necessarily opposed to the request, but felt there does need to be a time constraint so that it can be revisited in the future. Councilman Bilyeu explained the reason for Specific Use Permits, and why they take such a close look at them, and put time constraints on them. He noted he heard Mr. Laznowski say that he would bring people to the City to stay a few days. He asked if this was just proposed for RV Sales, because he did not note that there would be any RV hook-ups. Mr. Laznowski advised there were not going to be any RV hook-ups. That when some people are looking for a specific RV they come into an area and if they find the one they want, it takes some time for them to get the RV ready and do the walk through, etc. He assured there would be no hookups. Mayor Muir asked if staff could clarify the parking. Acting City Manager, Alina Ciocan noted that there is existing gravel, when they had the Planning and Zoning Commission meeting the condition of the property, at the time, was gravel. There was extensive discussion about making sure that it was brought up to code. The Ordinance prohibits parking on gravel or unequal surface. The applicant noted that they have paved the front of the parking lot and have not paved the whole area yet. Councilman Bilyeu asked about the buildings on the diagram and it was noted that they are currently existing on the property. Councilman Boutwell asked about the garage. He asked if there was going to be any kinds of hazardous materials located on the property or in the garage and what kind of fencing they were going to have for security purposes. The applicant noted that they were not going to have hazardous chemicals, that even the antifreeze they use can be run through the fresh water system of the RV. They have upgraded the fencing from piping to wood fence and spent $14,000 to make it look nice. Councilman Allison asked staff some administrative questions. He asked if any improvements to the site were requiring building permits and being constructed and designed according to our ordinances for parking lots, buildings, fences. He noted that typically if there is a change in occupancy there has to be a CO Inspection. Acting City Manager Alina Ciocan noted that Councilman Allision is correct and whatever we have in our ordinances applies and they have to conform. Also there would be a Certificate of Occupancy (CO) inspection required. Councilman Allison also noted concern regarding TxDOT coming through with the highway improvements in the future and that it was going to cost TxDOT more with all of the improvements going on to the properties adjacent to it. There was brief discussion regarding the parking lot standards and that the Planning and Zoning Commission wanted it to be specifically clarified that it be included as a stipulation because at the time of the Planning and Zoning Meeting there was gravel area. They specifically asked that any parking shall be brought up to meet the current code, because our ordinance does allow if you have gravel you can maintain it but can not expand it. They wanted to make sure that it clarified that and that it is all brought up to code and all improved. A motion was made by Councilman Bilyeu to approve Ordinance #02-03-18 - Granting a Specific Use Permit for Recreational Vehicle Sales on Property Located at 201 N. Stemmons Street (A1241A Tierwester, TR 102A, 1.14 acres), with the following conditions as presented in the ordinance: 1. The Specific Use Permit will expire two (2) years after going into effect. 2. The Specific Use Permit is subject to the City's off-street parking regulations and any parking shall be brought up to meet the current code. The motion was seconded by Councilman Allison. There was brief discussion and Councilman Bilyeu mentioned fencing and buildings but noted that he wanted the motion as it was drafted in the Ordinance. He wanted the applicant to understand that the standard is that the parking lot all be paved and that gravel is no longer acceptable and they would have to follow ordinances. Motion carried unanimously (3-0 vote), Councilman Clark and Councilman Chick absent. 12. Conduct a Public Hearing to Consider a Request for a Specific Use Permit for a Quick Service Food and Beverage Shop on Property Zoned 1-1 Industrial District I Locatedat 203 East Chapman Mayor Muir opened the Public Hearing at 7:50 PM. Acting City Manager Alina Ciocan summarized. Back in 2014 the applicant was granted a Specific Use Permit subject to several stipulations (included in the agenda packet) to operate a BBQ type establishment at 203 East Chapman. The SUP was valid for one (1) year. Staff did an audit of SUP's and found out that the SUP was expired. The applicant was made aware and they contacted the office. They were told by a former planner in 2015 that they did not have to take any action and that they were good for another three years. As soon as staff brought it to their attention that this statement was not valid they submitted their application and went to the Planning and Zoning Commission. The Planning and Zoning Commission recommended approval with a two-year stipulation and also asked that the same stipulations that were included in the original ordinance carry over into the new ordinance. The applicant is here tonight. Leonard Dodson, Owner, Pepper Belly BBQ was recognized. He stated that; to make a long story short, that he hopes that the Council approves the application so he can go another two years; and, in two years he will be back again. There being no further citizens approaching the podium who wished to speak on the item, Mayor Muir closed the Public Hearing at 7:36 PM. 13. Consider, Discuss and Possibly Act on Ordinance #02-04-18 — Granting a Specific Use Permit for a Quick Service Food and Beverage Shop on Property Located at 203 East Chapman Drive. Mayor Muir noted that the applicant has been in business for a good while and provides a good meal to many Sanger residents. While we are appreciative of their long tenure, we are also looking toward the future with FM 455 expansion and it being one of the major thoroughfares through the City. We think about what we would like for that area to look like in the future and where we would want it to be, so there may be a point in time where there may be a different vision for that area, possibly a more established facility, it may not be right now, that is up to Council. He wanted the applicant to know that when he spoke about coming back in the future for additional requests, that it may not be in perpetuity. He noted that there may need to be a preliminary talk and maybe a long-term plan to fit in with what is going on, on FM 455. Councilman Bilyeu noted that the Council may not be here in two years and a future Council may not want it there. Councilman Allision noted that the SUP will be in effect for two (2) years but in #5 it says "The site must fully mitigate the effects of traffic and parking on the site, maintaining the site in day one conditions throughout the one-year life of the SUP." Alina Ciocan, Acting City Manager apologized that it was a typographical error that carried over from the previous ordinance. Councilman Allison also noted that #2 of the SUP notes that the SUP will expire upon abandonment of the quick service food and beverage shop for a period of forty-five days and noted that what if someone was in the hospital for more than that and really did not intend to abandon their business. Alina Ciocan, Acting City Manager noted that the if the establishment was closed for over 45 days the SUP could be considered abandoned. Councilman Allison also noted the maximum building site of 128 square feet and it was noted that she believed that when it was approved it meant the footprint. Councilman Allison noted that when this was approved the first time it was kind of an incubator see if it works and to see if it leads to something a little more permanent. Although, right now with the expansion of FM 455 a trailer may be a better thing to have right now. He noted he would like to see this business become brick and mortar. The applicant noted that the discussion of abandonment was a concern and he was not aware of the stipulation and last year did have a heart attack and was closed for three months. There was brief discussion regarding the time frame and if it included extenuating circumstances and it was noted that it does not read that way and would expire if it was abandoned. They discussed extending it to 90 days. There was discussion regarding the temporary snow cone stands around the city that have been abandoned in the past, that if the business is no longer operating that the buildings need to be moved. A motion was made by Councilman Bilyeu to approve Ordinance 02-04-18 — Granting a Specific Use Permit for a Quick Service Food and Beverage Shop on property located at 203 East Chapman Drive with the following stipulations: 1. The SUP will expire two (2) years after going into effect. 2. The SUP will expire upon abandonment of the quick service food and beverage shop for a period of ninety (90) days. 3. No vehicles parking will be permitted within thirty (30) feet of the right-of- way of Chapman Drive. 4. No night-time operation of the business is permitted without adequate lighting. 5. The site must fully mitigate the effects of traffic and parking on the site, maintaining the site in day one conditions throughout the life of the SUP. 6. Maximum building site of 128 square feet. 7. Minimum setback between building and parking area of fifteen (15) feet. 8. A wooden walkway or other approval surface must be provided between building and parking area. The motion was seconded by Councilman Boutwell.. Motion carried unanimously (3-0 vote), Councilman Clark and Councilman Chick absent. 14. Consider, Discuss and Possibly Approve Soliciting Bid for Annual Concrete, Labor and Material Contract and Asphalt Paving Material Contract. Public Works Director Neal Welch was recognized to summarize the request. He advised that we are going out to bid because we spend $50,000 annually on concrete and asphalt. The law stipulates if you are going to spend over $50,000 you go to out to bid. We had a three-year option and it has expired so we need to go out to bid again so we meet the letter of the law. Councilman Bilyeu asked if it was for a specific job. Mr. Welch advised it was for various jobs and random repairs and it keeps us from having to get quotes every time we do a repair and if a contractor knows they are going to get that much business from us, we bet better pricing. Councilman Allision asked if there were guaranteed minimums and Mr. Welch stated there were no guaranteed minimums. A motion was made by Councilman Boutwell to approve soliciting bid for annual concrete, labor and material contract and asphalt paving material contract. The motion was seconded by Councilman Bilyeu. Motion carried unanimously (3-0 vote), Councilman Clark and Councilman Chick absent. County15. Consider, Discuss and Possibly Approve Ordinance #02-02-18 — Ordering and Providing Notice of a General Election for the Purpose of Electing A Mayor and Two (2) Council Members (Place 2 and Place 4); and, Approve and Authorize the Mayor's Signature on a Joint Election Agreement and Contract with Denton • Mayor Muir noted that election is on May 5, 2018 from 7:00 AM to 7:00 PM, as outlined in the Ordinance. The election is for Mayor, Place 2 and Place 4. The location is Church of Christ at 400 Locust Street, Sanger, Texas; Early Voting hours will be: Monday — Friday April 23, 2018 — April 27, 2018 8:00 am to 5:00 pm Saturday April 28, 2018 8:00 am to 5:00 pm Monday April 30, 2018 7:00 am to 7:00 pm Tuesday May 1, 2018 7:00 am to 7:00 pm The filing deadline is February 16, 500 PM and packets are available at City Hall. The Election agreement with Denton County is also included in the packet. A motion was made by Councilman Boutwell to approve Ordinance #02-02-18 — Ordering and Providing Notice of a General Election for the purpose of electing A Mayor and Two (2) Council Members (Place 2 and Place 4); and to approve and authorize the Mayor's Signature on a Joint Election Agreement and Contract with Denton County for election services. Motion was seconded by Councilman Allison. Motion carried unanimously (3-0 vote), Councilman Clark and Councilman Chick absent. 16. Consider Authorizing the Acting City Manager to Execute an Engagement Letter with Lloyd Gosselink Rochelle & Townsend, P.C. to Provide Assistance with Respect to Utility Matters. A motion was made by Councilman Bilyeu to authorize the Acting City Manager to execute an engagement letter with Lloyd Gosselink Rochelle & Townsend, P.C. to provide assistance with respect to utility matters. The motion was seconded by Councilman Boutwell. Motion carried unanimously (3-0 vote), Councilman Clark and Councilman Chick absent. 17. Consider Authorizing the Acting City Manager to Execute an Engagement Letter with Lloyd Gosselink Rochelle & Townsend, P.C. to Provide Assistance with Respect to Wastewater Treatment Plant Matters. A motion was made by Councilman Boutwell to Authorize the Acting City Manager to execute an engagement letter with Lloyd Gosselink Rochelle & Townsend, P.C. to provide assistance with respect to wastewater treatment plant matters. Motion was seconded by Councilman Bilyeu. Motion carried unanimously (3-0 vote), Councilman Clark and Councilman Chick absent. 18. INFORMATION ITEMS: a) Sanger Public Library Report — 1st Quarter FY 17-18 c) City of Sanger — Capital Projects As of January 20, 2018 Mayor Muir noted that there is a lot of growth coming our way. There are growing pains that come with that and staff requirements that come with that will be reflected in the financials and continue to reflect that growth and the need to expend funds to keep pace with the growth. There will be some budget amendments in the future as we look for additional staff, etc. Neal Welch gave a quick update on McReynolds Road noting that they shut down the asphalt because of the weather. They have partially opened the road. When the weather improves they will be back. It is still on track to finish on schedule. Eddie Piercy, Streets Superintendent advised he is working to implement some a drainage structure plan. The sidewalk projects will be ongoing this year and repair of base failures and stabilization will continue. noew-MITOURM] There being no further business, Mayor Muir adjourned the meeting at 8:15 PM. COUNCILA ITEIV AGENDA TYPE ❑ Regular ❑ Special ® Consent Reviewed by ® Yes ❑ Not Applicable ❑ Workshop ❑ Executive ❑ Public Hearing Finance Reviewed by Legal ❑ Yes ❑ Not Applicable COUNCIL MEETING DATE: SUBMITTED BY: February 20, 2018 Clayton Gray, Finance Director City Manager Reviewed/Approval Initials A-0 Date �140S ACTION REQUESTED: ❑ORDINANCE ❑ RESOLUTION ® APPROVAL ❑ CHANGE ORDER ❑ AGREEMENT ❑ APPROVAL OF BID ❑ AWARD OF CONTRACT ❑ CONSENSUS ❑ REAPPOINTMENTS AGENDA CAPTION Approve Audit for Fiscal Year End 2016-2017 by Brook Cardiel PLLC. FINANCIAL SUMMARY ®N/A ❑GRANT FUNDS ❑OPERATING EXPENSE [—]REVENUE [:]CI P ❑BUDGETED ❑NON -BUDGETED FISCAL YEAR: PRIOR YEAR CURRENT YEAR FUTURE YEARS TOTALS Pro osed Expenditure Amount Encumbered Amount BALANCE FUND(S) TO BE USED: General ❑$ Utility ❑ $ Special ❑ $ BACKGROUND/SUMMARY OF ITEM Brooks Cardiel PLLC has completed the audit for Fiscal Year 2016-16 and is submitting it to Council for approval. STAFF OPTIONS & RECOMMENDATION List of Supporting Documents/Exhibits Attached: Prior Action/Review by Council, Boards, Commissions or Other • Annual Financial Report Agencies: *TEXAS 502 Elm Street I Sanger, Texas 76266 (P) 940.458.7930 1 www.sangertexas.org (This page intentionally left blank.) of the City of Sanger, Texas For the Year Ended September 30, 2017 (This page intentionally left blank.) City of Sanger, Texas TABLE OF CONTENTS September 30, 2017 FINANCIAL SECTION Independent Auditor's Report 1 Management's Discussion and Analysis 7 Basic Financial Statements Government -Wide Financial Statements Statement of Net Position 18 Statement of Activities 22 Fund Financial Statements Governmental Funds: Balance Sheet 24 Reconciliation of the Balance Sheet to the Statement of Net Position - Governmental Funds 27 Statement of Revenues, Expenditures, and Changes in Fund Balance - Governmental Funds 28 Reconciliation of the Statement of Revenues, Expenditures, and Changes in Fund Balances of Governmental Funds to the Statement of Activities 31 Proprietary Funds: Statement of Net Position 32 Statement of Revenues, Expenses, and Changes in Fund Net Position 33 Statement of Cash Flows 34 Notes to Financial Statements REQUIRED SUPPLEMENTARY INFORMATION 37 Schedule of Revenues, Expenditures, and Changes in Fund Balances - Budget and Actual - General Fund 74 Schedule of Changes in Net Pension Liability and Related Ratios 76 Schedule of Employer Contributions to Plan 77 COMBINING AND INDIVIDUAL FUND FINANCIAL SCHEDULES Combining Schedule of Revenues, Expenses, and Changes in Fund Net Position - Proprietary Funds — by Department 80 (This page intentionally left blank.) & CO, CI:R 1 11 1 E U 1)tIBLIC ACC0tI\''l'AN T 5 INDEPENDENT AUDITOR'S REPORT To the Honorable Mayor and Members of the City Council City of Sanger, Texas: Report on the Financial Statements We have audited the accompanying financial statements of the governmental activities, the business -type activities, the discretely presented component units, 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, 2017, and the related notes to the financial statements, which collectively comprise the City's basic financial statements as listed in the table of contents. Management's Responsibility for the Financial Statements The City's management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor's Responsibility Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. 14950 Heathrow Forest Pkwy I Suite 530 1 Houston, TX 77032 1 Tel: 281.907.8788 1 Fax: 888.875.0587 1 www.BrooksWatsonCo.com 1 We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. Opinions In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, the business -type activities, the discretely presented component units, each major fund, and the aggregate remaining fund information of the City as of September 30, 2017, and the respective changes in financial position and, where applicable, cash flows thereof for the year then ended in accordance with accounting principles generally accepted in the United States of America. Emphasis of Matter As discussed in Note V.G. to the financial statements, the City restated the beginning net position of governmental activities and business -type activities, and the beginning fund balance of the general fund due to accounting errors occurring in the prior year and the change in the presentation of the City's component units. Our opinion is not modified with respect to this matter. Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the management's discussion and analysis, schedule of changes in net pension liability and related ratios, schedule of employee contributions to pension plan, and budgetary comparison information for the general fund be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management's responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. In our opinion, the information is fairly stated in all material respects in relation to the financial statements as a whole. 2 Other bzformation Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise City of Sanger, Texas's basic financial statements. The combining schedule by department for the proprietary fund is presented for purposes of additional analysis and is not a required part of the basic financial statements. The combining schedule by department for the proprietary fund is the responsibility of management and was derived from and relate directly to the underlying accounting and other records used to prepare the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the combining financial statements are fairly stated, in all material respects, in relation to the basic financial statements as a whole. BrooksWatson & Co. Certified Public Accountants Houston, Texas February 13, 2018 3 (This page intentionally left blank.) MANAGEMENT'S DISCUSSION AND ANALYSIS (This page intentionally left blank.) City of Sanger, Texas MANAGEMENT'S DISCUSSIONAND ANALYSIS (MD&A) September 30, 2017 As management of the City of Sanger, Texas (the "City"), we offer readers of the City's financial statements this narrative overview and analysis of the financial activities of the City for the fiscal year ended September 30, 2017. Financial Highlights • The City's total combined net position is $32,788,027 at September 30, 2017. Of this, $16,701,249 (unrestricted net position) may be used to meet the City's ongoing obligations to its citizens and creditors. • At the close of the current fiscal year, the City's governmental funds reported combined fund balances of $4,077,155, an increase of $138,149. • As of the end of the year, the unassigned fund balance of the general fund was $3,190,939 or 57% of total general fund expenditures. • The City had an overall increase in net position of $4,654,389, which is primarily due to strong general and utility revenues and increased investment in capital assets compared to the prior year. Overview of the Financial Statements The discussion and analysis provided here are intended to serve as an introduction to the City's basic financial statements. The City's basic financial statements consist of three components: 1) government - wide financial statements, 2) fund financial statements, and 3) the notes to financial statements. This report also includes supplementary information intended to furnish additional detail to support the basic financial statements themselves. Government -Wide Statements The government -wide financial statements are designed to provide readers with a broad overview of the City's finances, in a manner similar to a private -sector business. The statement of net position presents information on all of the City's assets, liabilities, and deferred inflows/outflows with the difference reported as net position. Over time, increases or decreases in net position may serve as a useful indicator of whether the financial position of the City is improving or deteriorating. Other non -financial factors, such as the City's property tax base and the condition of the City's infrastructure, need to be considered in order to assess the overall health of the City. The statement of activities presents information showing how the City's net position changed during the most recent fiscal year. All changes in net position are reported as soon as the underlying event giving rise to the change occurs, regardless of the timing of related cash flows. Thus, revenues and expenses 7 City of Sanger, Texas MANAGEMENT'S DISCUSSIONAND ANALYSIS, Continued September 30, 2017 are reported for some items that will only result in cash flows in future fiscal periods (e.g., uncollected taxes and earned but unused vacation leave). Both of the government -wide financial statements distinguish functions of the City that are principally supported by taxes and intergovernmental revenues (governmental activities) from other functions that are intended to recover all or a significant portion of their costs through user fees and charges (business - type activities). The governmental activities of the City include general government, public safety, public works, and culture and recreation. The business -type activities of the City include water, sewer and electric operations. The government -wide financial statements include not only the City itself (known as the primary government), but also the legally separate Sanger Industrial Development Corporation ("4A") and the Sanger Texas Development Corporation ("413"), for which the City is financially accountable. Financial information for these component units is reported separately from the financial information presented for the primary government itself. FUND FINANCIAL STATEMENTS Funds may be considered as operating companies of the parent corporation, which is the City of Sanger. They are usually segregated for specific activities or objectives. The City of Sanger uses fund accounting to ensure and demonstrate compliance with finance -related legal reporting requirements. The two categories of City funds are governmental and proprietary. Governmental Funds Governmental funds are used to account for essentially the same functions reported as governmental activities in the government -wide financial statements. However, unlike the government -wide financial statements, governmental fund financial statements focus on near -term inflows and outflows of spendable resources, as well as on balances of spendable resources available at the end of the year. Such information may be useful in evaluating the City's near -term financing requirements. Because the focus of governmental funds is narrower than that of the government -wide financial statements, it is useful to compare the information presented for governmental funds with similar information presented for governmental activities in the government -wide financial statements. By doing so, readers may better understand the long-term impact of the government's near -term financing decisions. Both the governmental fund balance sheet and the governmental fund statement of revenues, expenditures, and changes in fund balances provide a reconciliation to facilitate this comparison between governmental funds and governmental activities. The City of Sanger maintains three individual governmental funds. Information is presented separately in the governmental fund balance sheet and in the governmental fund statement of City of Sanger, Texas MANAGEMENT'S DISCUSSIONAND ANALYSIS, Continued September 30, 2017 revenues, expenditures, and changes in fund balances for the general, debt service, and capital projects funds. The general and capital projects hinds are considered to be major funds. The City of Sanger adopts an annual appropriated budget for all funds. A budgetary comparison schedule has been provided to demonstrate compliance with the general fund budget. Proprietary Funds The City maintains two different types of proprietary funds. Proprietary funds are used to report the same functions presented as business -type activities in the government -wide financial statements. The City uses a proprietary fund to account for its public utilities. All activities associated with providing such services are accounted for in these funds, including administration, operation, maintenance, debt service, capital improvements, meter maintenance, billing and collection. The City's intent is that costs of providing the services to the general public on a continuing basis is financed through user charges in a manner similar to a private enterprise. Internal service hinds are an accounting device used to accumulate and allocate costs internally among the City's various functions. The City uses an internal service fund to account for administrative support servies to other funds of the City. Component Units The City maintains the accounting and financial statements for two component units. The 4A and the 4B are both discretely presented component units displayed on the government -wide financial statements. Notes to Financial Statements The notes to the financial statements provide additional information that is essential to a full understanding of the data provided in the government -wide and fund financial statements. The notes are the last section of the basic financial statements. Other Information In addition to the basic financial statements, MD&A, and accompanying notes, this report also presents certain Required Supplementary Information (RSI). The RSI that GASB Statement No. 34 requires is a budgetary comparison schedule for the general fund and schedules for the City's Defined Pension Plan. RSI can be found after the basic financial statements. GOVERNMENT -WIDE FINANCIAL ANALYSIS As noted previously, net position may serve over time as a useful indicator of the City's financial position. For the City of Sanger, assets exceeded liabilities by $32,788,027 as of September 30, 2017, in the primary government. City of Sanger, Texas MANAGEMENT'S DISCUSSIONAND ANALYSIS, Continued September 30, 2017 The largest portion of the City's net position, $15,230,983, reflects its investments in capital assets (e.g., land, city hall, police station, streets, and drainage systems, as well as the public works facilities), less any debt used to acquire those assets that are still outstanding. The City uses these capital assets to provide services to citizens; consequently, these assets are not available for future spending. Although the City's investment in its capital assets is reported net of related debt, it should be noted that the resources needed to repay this debt must be provided from other sources, since the assets themselves cannot be used to liquidate these liabilities. An additional portion of the City's net position, $855,795, represents resources that are subject to external restrictions on how they may be used. The remaining balance of $16,701,249 is unrestricted and may be used to meet the government's ongoing obligations to its citizens and creditors. Current assets of business -type activities as of September 30, 2017 and September 30, 2016 were $23,313,512 and $16,093,043, respectively. The increase of $7,220,469 was primarily attributable to unspent bond proceeds from a new bond issuance during the year. Long term liabilities of business -type activities as of September 30, 2017 and September 30, 2016 were $21,767,087 and $12,739,769, respectively. The increase of $9,027,318 was due to the aforementioned bond issuance during the year. 10 City of Sanger, Texas MANAGEMENT'S DISCUSSIONAND ANALYSIS, Continued September 30, 2017 Statement of Net Position: The following table reflects the condensed Statement of Net Position: 2017 2016 Governmental Business -Type Governmental Business -Type Activities Activities Total Activities Activities Total Current and other assets $ 5,153,316 $ 23,313,512 $ 28,466,828 $ 4,401,941 $ 16,093,043 $ 20,494,984 Capital assets, net 16,264,468 18,881,652 35,146,120 14,036,819 15,045,344 29,082,163 Total Assets 21,417,784 42,195,164 63,612,948 18,438,760 31,138,387 49,577,147 Deferred Outflows of Resources 465,724 178,790 644,514 489,156 196,393 685,549 Other liabilities 1,716,929 2,788,037 4,504,966 1,288,848 2,365,563 3,654,411 Long-term liabilities 5,069,886 21,767,087 26,836,973 5,734,878 12,739,769 18,474,647 Total Liabilities 6,786,815 24,555,124 31,341,939 7,023,726 15,105,332 22,129,058 Deferred Inflows of Resources 97,970 29,526 127,496 - - - Net Position: Net investment in capital assets 10,968,978 4,262,005 15,230,983 8,436,670 7,235,242 15,671,912 Restricted 855,795 - 855,795 1,555,196 - 1,555,196 Unrestricted 3,173,950 13,527,299 16,701,249 1,912,324 8,994,206 10,906,530 Total Net Position $ 14,998,723 $ 17,789,304 $ 32,788,027 $ 11,904,190 $ 16,229,448 $ 28,133,638 11 City of Sanger, Texas MANAGEMENT'S DISCUSSIONAND ANALYSIS, Continued September 30, 2017 Statement of Activities: The following table provides a summary of the City's changes in net position: For the Year Ended September 30, 2017 For the Year Ended September 30, 2016 Total Total Governmental Business -Type Primary Governmental Business -Type Primary Activities Activities Government Activities Activities Government Revenues Program revenues: Charges for services $ 1,810,697 $ 12,180,291 $ 13,990,988 $ 1,663,963 $ 11,236,562 $ 12,900,525 Grants and contributions 1,718,787 725,000 2,443,787 185,385 472,500 657,885 General revenues: Property taxes 3,584,390 - 3,584,390 3,329,733 - 3,329,733 Sales taxes 883,562 883,562 815,547 815,547 Franchise and local taxes 236,082 - 236,082 240,206 - 240,206 Investment income 4,372 21,875 26,247 6,410 21,429 27,839 Other revenues 210,949 - 210,949 133,359 - 133,359 Total Revenues 8,448,839 12,927,166 21,376,005 6,374,603 11,730,491 18,105,094 Expenses General government 1,797,001 - 1,797,001 1,797,824 - 1,797,824 Public safety 2,369,510 2,369,510 2,421,517 2,421,517 Public works 1,074,157 1,074,157 998,940 998,940 Culture and recreation 792,090 - 792,090 731,562 - 731,562 Interest and fiscal charges 186,772 741,243 928,015 253,181 401,239 654,420 Water, sewer, & electric - 9,760,843 9,760,843 - 9,458,017 9,458,017 Total Expenses 6,219,530 10,502,086 16,721,616 6,203,024 9,859,256 16,062,280 Change in Net Position Before Transfers 2,229,309 2,425,080 4,654,389 171,579 1,871,235 2,042,814 Transfers 865,224 (865,224) - 1,257,423 (1,257,423) - Total 865,224 (865,224) - 1,257,423 (1,257,423) - Change in Net Position 3,094,533 1,559,856 4,654,389 1,429,002 613,812 2,042,814 Beginning Net Position 11,904,190 16,229,448 28,133,638 10,475,188 15,615,636 26,090,824 Ending Net Position $ 14,998,723 $ 17,789,304 $ 32,788,027 $ 11,904,190 $ 16,229,448 $ 28,133,638 12 City of Sanger, Texas MANAGEMENT'S DISCUSSIONAND ANALYSIS, Continued September 30, 2017 Graphic presentations of selected data from the summary tables are displayed below to assist in the analysis of the City's activities. Charges for Qtherreventies services 3% 21% For the year ended September 30, 2017, revenues from governmental activities totaled $8,448,839. Property tax, sales tax and charges for services are the City's largest revenue sources. Property tax increased by $254,657 or 8% due to higher property values. Sales taxes increased $68,015 or 8% due to economic growth within the city limits. Charges for services increased $146,734 or 9% primarily due to increases in EMS services and building permit revenue. Grants and contributions increased by $1,533,402 funds received from an interlocal agreement with Denton County for street construction. All other revenues remained relatively stable when compared to the previous year. This graph shows the governmental function expenses of the City: Governmental Activities - Expenses General Interest and goverment fiscal charges 29% 3% For the year ended September 30, 2017, expenses for governmental activities totaled $6,219,530. This represents an increase of $16,506 or < 1% from the prior year. The City's largest functional expense is general government of $1,797,001, which primarily includes contractual costs for garbage removal, salaries for finance and city administration, plus depreciation of related capital assets. Interest and 13 City of Sanger, Texas MANAGEMENT'S DISCUSSIONAND ANALYSIS, Continued September 30, 2017 fiscal charges decreased $66,409 or 26% due to the recognition of bond issuance costs in the prior year. All other expenditures remained relatively consistent with the previous year. Business -type activities are shown comparing operating costs to revenues generated by related services. For the year ended September 30, 2017, charges for services by business -type activities totaled $12,180,291, This is an increase of $943,729, or 8%, from the previous year. The increase was due to the increase in water and sewer billing rates and consumption in the current year. Business -Type Activities - Revenues and Expenses 1000,000 p Expenses ® Charges for Services Total expenses increased $642,830 primarily due to increases in interest and amortization expenses, and increases in repairs and maintenance expense. FINANCIAL ANALYSIS OF THE CITY'S FUNDS As noted earlier, fund accounting is used to demonstrate and ensure compliance with finance -related legal requirements. Governmental Funds - The focus of the City's governmental fiords is to provide information of near - term inflows, outflows and balances of spendable resources. Such information is useful in assessing the City's financing requirements. In particular, unreserved fund balance may serve as a useful measure of the City's net resources available for spending at the end of the year. As of the end of the year the general fund reflected a total fund balance of $3,376,924. Of this, $8,131 is restricted for municipal court, $21,744 is restricted for tourism, $88,436 is restricted for library improvements, $29,191 for public safety, and $8,062 is restricted for parks. In addition, $30,421 is committed for employee benefits. Unassigned fund balance totaled $3,190,939 as of yearend. 14 City of Sanger, Texas MANAGEMENT'S DISCUSSION AND ANALYSIS, Continued September 30, 2017 The capital projects fund reflected an ending balance of $240,936, a decrease of $789,935. This decrease is attributed to greater capital outlay expenditures compared to intergovernmental funds received. There was an increase in governmental fund balance of $138,149 over the prior year. The increase was primarily due to transfers received from the proprietary fund. Proprietary Funds - The City's proprietary funds provide the same type of information found in the government -wide financial statements, but in more detail. GENERAL FUND BUDGETARY HIGHLIGHTS There was a total positive budget variance of $812,045 in the general fund. This is a combination of a positive revenue variance of $421,097, a positive expenditure variance of $453,992, and a negative variance of $63,044 in other financing sources and uses. The most significant variances were for property taxes, sales taxes, licenses and permits, charges for services, capital outlay, and the police department, which all had positive variances for the City. CAPITAL ASSETS As of the end of the year, the City's governmental activities funds had invested $16,264,468 in a variety of capital assets and infrastructure, net of accumulated depreciation. Depreciation is included with the governmental capital assets as required by GASB Statement No. 34. The City's business -type activities funds had invested $18,881,652 in a variety of capital assets and infrastructure, net of accumulated depreciation. Major capital asset events during the current year include the following: • McReynolds road construction in the amount of $2,789,579 • Waste water line improvements to Smith, Sims, Kirkland, Jones & Lois for $1,828,315 • New water well for $381,307 • Sewer plant expansion for $1,816,933 • Waste water treatment plant pipeline and a new lift station totaling $384,619 • Acquisition of machinery and equipment for water department for $140,074 • Purchase of public safety vehicles for $153,905 More detailed information about the City's capital assets is presented in note IV. D to the financial statements. 15 City of Sanger, Texas MANAGEMENT'S DISCUSSIONAND ANALYSIS, Continued September 30, 2017 LONG-TERM DEBT At the end of the current year, the City had total bonds outstanding of $25,115,000 and capital leases of $573,438. During the year, the City had principal payments on bonds and capital leases of $1,559,098. During the year, the City had a $9,240,000 bond issuance for the water, sewer, and electric fund. More detailed information about the City's long-term liabilities is presented in note IV. E to the financial statements. ECONOMIC FACTORS AND NEXT YEAR'S BUDGET The Mayor and City Council are committed to maintaining and improving the overall wellbeing of the City of Sanger and improving services provided to their public citizens. The City is budgeting for growth in the upcoming year. CONTACTING THE CITY'S FINANCIAL MANAGEMENT This financial report is designed to provide a general overview of the City of Sanger's finances for all those with an interest in the City's finances. Questions concerning this report or requests for additional financial information should be directed to the City Manager at the City of Sanger City Hall at 502 Elm Street, Sanger, Texas 76266. 16 (This page intentionally left blank.) 17 City of Sanger, Texas STATEMENT OF NET POSITION (Page 1 of 2) September 30, 2017 Assets Current assets: Cash and cash equivalents Restricted cash Investments Restricted investments Receivables, net Inventory Internal balances Total Current Assets Capital assets: Non -depreciable Net depreciable capital assets Total Assets Deferred Outflows of Resources Deferred charge on refunding Pension contributions Pension investment earnings Pension assumption changes Total Deferred Outflows of Resources See Notes to Financial Statements. Primary Government Governmental Business -Type Activities Activities Total $ 3,609,746 $ 12,227,941 $ 15,837,687 - 8,255,967 8,255,967 532,221 417,201 949,422 - 300,000 300,000 1,114,924 1,622,297 2,737,221 - 386,531 386,531 (103,575) 103,575 - 5,153,316 23,313,512 28,466,828 4,378,857 8,391,661 12,770,518 11, 885,611 10,489,991 22,375,602 16,264,468 18,881,652 35,146,120 21,417,784 42,195,164 63,612,948 26,537 46,428 72,965 160,147 48,265 208,412 234,017 70,528 304,545 45,023 13,569 58,592 465,724 178,790 644,514 W. Component Units Sanger Industrial Sanger Texas Dev. Corp. (4A) Dev. Corp. (413) $ 1,154,579 $ 724,225 94,483 278,079 71,503 71,503 1,320,565 1,073,807 817,307 - 817,307 - 2,137,872 1,073,807 19 City of Sanger, Texas STATEMENT OF NET POSITION (Page 2 of 2) September 30, 2017 Liabilities Current liabilities: Accounts payable and accrued liabilities Accrued interest payable Customer deposits Long term debt due within one year Total Current Liabilities Noncurrent liabilities: Debt due in more than one year Net pension liability Total Liabilities Primary Government Governmental Business -Type Activities Activities Total $ 793,485 $ 1,185,534 $ 1,979,019 37,433 233,321 270,754 - 438,426 438,426 886,011 930,756 1,816,767 1,716,929 2,788,037 4,504,966 4,197,725 21,504,235 25,701,960 872,161 262,852 1,135,013 5,069,886 21,767,087 26,836,973 6,786,815 24,555,124 31,341,939 Deferred Inflows of Resources Pension (gains) losses 97,970 29,526 127,496 Net Position Net investment in capital assets 10,968,978 4,262,005 15,230,983 Restricted for: Debt service 459,295 - 459,295 Capital projects 240,936 - 240,936 Parks 8,062 - 8,062 Economic development - - - Other purposes 147,502 - 147,502 Unrestricted 3,173,950 13,527,299 16,701,249 Total Net Position $ 14,998,723 $ 17,789,304 $ 32,788,027 See Notes to Financial Statements. 20 Component Units Sanger Industrial Sanger Texas Dev. Corp. (4A) Dev. Corp. (413) $ 3,216 $ - 50,699 - 53,915 - 307,321 - 307,321 - 361,236 - 464,493 - 1,312,143 1,073,807 $ 1,776,636 $ 1,073,807 21 City of Sanger, Texas STATEMENT OF ACTIVITIES For the Year Ended September 30, 2017 Program Revenues Operating Capital Charges for Grants and Grants and Functions/Programs Expenses Services Contributions Contributions Primary Government Governmental Activities General government $ 1,797,001 $ 1,119,153 $ 300 $ - Public safety 2,369,510 691,544 53,743 - Public works 1,074,157 - - 1,452,244 Culture and recreation 792,090 - - - Interest and fiscal charges 186,772 - 212,500 - Total Governmental Activities 6,219,530 1,810,697 266,543 1,452,244 Business -Type Activities Water 1,474,412 2,133,938 - 725,000 Sewer 1,015,563 2,204,011 - - Electric 7,256,080 7,788,610 - - Fleet services 525 - - - Utility administration 755,506 53,732 - - Total Business -Type Activities 10,502,086 12,180,291 - 725,000 Total Primary Government $ 16,721,616 $ 13,990,988 $ 266,543 2,177,244 Component Units 4A 918,183 - - 30,000 4B 237,500 - - - $ 1,155,683 $ - $ - $ 30,000 See Notes to Financial Statements. General Revenues: Taxes Property taxes Sales taxes Franchise and local taxes Investment income Other revenues Gain on sale of assets Insurance recoveries Transfers Total General Revenues and Transfers Change in Net Position Beginning Net Position Ending Net Position 22 Net (Expense) Revenue and Changes in Net Position Primary Government Component Units Governmental Business -Type Sanger Industrial Sanger Texas Activities Activities Total Dev. Corp. (4A) Dev. Corp. (4B) $ (677,548) $ - $ (677,548) $ - $ - (1,624,223) - (1,624,223) - - 378,087 - 378,087 - - (792,090) - (792,090) - - 25,728 - 25,728 - - (2,690,046) - (2,690,046) - - - 1,384,526 1,384,526 - - - 1,188,448 1,188,448 - - - 532,530 532,530 - - - (525) (525) - - - (701,774) (701,774) - - - 2,403,205 2,403,205 - - (2,690,046) 2,403,205 (286,841) - - (888,183) - - (237,500) (888,183) (237,500) 3,584,390 - 3,584,390 - - 883,562 - 883,562 439,500 439,500 236,082 - 236,082 - - 4,372 21,875 26,247 - 1,346 85,990 - 85,990 8,409 - 10,834 - 10,834 - - 114,125 - 114,125 - - 865,224 (865,224) - - - 5,784,579 (843,349) 4,941,230 3,094,533 1,559,856 4,654,389 11,904,190 16,229,448 28,133,638 $ 14,998,723 $ 17,789,304 $ 32,788,027 $ 447,909 440,846 (440,274) 2,216,910 1,776,636 $ 203,346 870,461 1,073,807 23 City of Sanger, Texas BALANCE SHEET GOVERNMENTAL FUNDS September 30, 2017 Nonmaj or Capital Debt General Projects Fund Service Assets Cash and cash equivalents $ 2,916,475 $ 60,156 $ 459,191 Investments 532,221 - - Receivables, net 485,660 609,231 20,033 Total Assets $ 3,934,356 $ 669,387 $ 479,224 Liabilities Accounts payable and accrued liabilities $ 320,093 $ 428,451 $ - Due to other funds 103,575 - - Total Liabilities 423,668 428,451 - Deferred Inflows of Resources Unavailable revenue Property taxes 43,237 - 19,929 EMS revenue 90,527 - - Total Deferred Inflows of Resources 133,764 - 19,929 Fund Balances Restricted for: Municipal court 8,131 - - Tourism 21,744 - - Library 88,436 - - Public safety 29,191 - - Debt service - - 459,295 Capital projects - 240,936 - Parks 8,062 - - Committed for: Employee benefits 30,421 - - Unassigned reported in: General fund 3,190,939 - - Total Fund Balances 3,376,924 240,936 459,295 Total Liabilities, Deferred Inflows, and Fund Balances $ 3,934,356 $ 669,387 $ 479,224 See Notes to Financial Statements. 24 Total Governmental Funds $ 3,435,822 532,221 1,114,924 $ 5,082,967 $ 748,544 103,575 852,119 63,166 90,527 153,693 8,131 21,744 88,436 29,191 459,295 240,936 8,062 30,421 3,190,939 4,077,155 $ 5,082,967 25 (Page intentionally left blank.) 26 City of Sanger, Texas RECONCILIATION OF THE BALANCE SHEET TO THE STATEMENT OF NET POSITION GOVERNMENTAL FUNDS September 30, 2017 Fund Balances - Total Governmental Funds $ 4,077,155 Adjustments for the Statement of Net Position: Capital assets used in governmental activities are not current financial resources and, therefore, not reported in the governmental funds. Capital assets - non -depreciable 4,378,857 Capital assets - net depreciable 11,845,875 Other long-term assets are not available to pay for current -period expenditures and, therefore, are deferred in the governmental funds. Property tax receivable 63,166 EMS receivable 90,527 Deferred outflows of resources, represent a consumption of net position that applies to a future period(s) and is not recognized as an outflow of resources (expense/ expenditure) until then. Deferred charge on refunding 26,537 Pension contributions 119,451 Pension investment earnings 174,549 Pension gains (losses) (73,074) Pension assumption changes 33,582 Internal service funds are used by management to charge the cost of internal services to individual funds. The assets and liabilities of the internal service funds are included in governmental activities in the statement of net position. Net position - governmental activities (4,913) Some liabilities, including bonds payable and deferred charges, are not reported as liabilities in the governmental funds. Accrued interest (37,433) Compensated absences (144,352) Bond premium (120,759) Net pension liability (650,530) Non -current liabilities due in one year (721,255) Non -current liabilities due in more than one year (4,058,660) $ 14,998,723 See Notes to Financial Statements. 27 City of Sanger, Texas STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE GOVERNMENTAL FUNDS For the Year Ended September 30, 2017 Revenues Property tax Sales tax Franchise and local taxes License and permits Charges for services Fire and rescue Contributions and donations Intergovernmental Fines and forfeitures Investment income Other revenue Expenditures Current: General government Police department Municipal court Fire and EMS Parks and recreation Public works Debt service: Principal Interest Capital outlay Nonmaj or Capital Debt General Projects Fund Service $ 2,950,887 $ - $ 684,262 883,562 - - 236,082 - - 289,775 - - 829,378 - - 588,124 - - 300 - - 53,743 1,452,244 212,500 103,420 - - 4,258 - 114 85,990 - - Total Revenues 6,025,519 1,452,244 896,876 1,502,906 1,339,076 184,528 991,227 597,346 730,096 111,095 18,257 169,822 Total Expenditures 5,644,353 Excess of Revenues Over (Under) Expenditures 381,166 Other Financing Sources (Uses) Transfers in 916,760 Transfers (out) (550,000) Proceeds from sale of capital assets 10,834 Insurance recoveries 114,125 Total Other Financing Sources (Uses) 491,719 Net Change in Fund Balances 872,885 Beginning fund balances 2,504,039 2,792,179 �vrrrrri-r-a 550,000 550,000 (789,935) Ending Fund Balances $ 3,376,924 $ 240,936 $ See Notes to Financial Statements. 875 596,800 192,466 790,141 (51,536) (51,536) 55,199 459,295 Total Governmental Funds $ 3,635,149 883,562 236,082 289,775 829,378 588,124 300 1,718,487 103,420 4,372 85,990 8,374,639 1,503,781 1,339,076 184,528 991,227 597,346 730,096 707,895 210,723 2,962,001 9,226,673 (852,034) 1,466,760 (601,536) 10,834 114,125 990,183 138,149 3,939,006 $ 4,077,155 29 (This page intentionally left blank.) 30 City of Sanger, Texas RECONCILIATION OF THE STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES OF GOVERNMENTAL FUNDS TO THE STATEMENT OF ACTIVITIES For the Year Ended September 30, 2017 Amounts reported for governmental activities in the statement of activities are different because: Net changes in fund balances - total governmental funds Governmental funds report capital outlays as expenditures. However, in the statement of activities the cost of those assets is allocated over their estimated useful lives and reported as depreciation expense. Capital outlay Depreciation expense Revenues in the statement of activities that do not provide current financial resources are not reported as revenues in the funds. EMS receivable Some expenses reported in the statement of activities do not require the use of current financial resources and, therefore, are not reported as expenditures in governmental funds. Compensated absences Accrued interest Pension expense The issuance of long-term debt (e.g., bonds, leases, certificates of obligation) provides current financial resources to governmental funds, while the repayment of the principal of long-term debt consumes the current financial resources of governmental funds. Neither transaction, however, has any effect on net position. Also, governmental funds report the effect of issuance costs, premiums, discounts, and similar items when they are first issued; whereas, these amounts are deferred and amortized in the statement of activities. This amount is the net effect of these differences in the treatment of long-term debt and related items. Deferred charges on refunding Premium on debt Principal payments Internal service funds are used by management to charge the cost of internal services to individual funds. The City reports the net gain (loss) of internal service funds within governmental activities. See Notes to Financial Statements. Change in Net Position of Governmental Activities $ 138,149 3,163,870 (942,156) (50,759) (9,675) 4,852 (71,967) (7,250) 26,349 707,895 135,225 $ 3,094,533 31 City of Sanger, Texas STATEMENT OF NET POSITION PROPRIETARY FUND September 30, 2017 Governmental Water, Sewer Internal & Electric Service Assets Current Assets Cash and cash equivalents $ 12,227,941 $ 173,924 Restricted cash 8,255,967 - Investments 417,201 - Restricted investments 300,000 - Receivables, net 1,622,297 - Inventory 386,531 - Due from other funds 103,575 - Total Current Assets 23,313,512 173,924 Noncurrent Assets Capital assets: Non -depreciable 8,391,661 - Net depreciable capital assets 10,489,991 39,736 Total Noncurrent Assets 18,881,652 39,736 Total Assets 42,195,164 213,660 Deferred Outflows of Resources Pension contributions 48,265 40,696 Pension investment earnings 70,528 59,468 Pension assumption changes 13,569 11,441 Deferred charge on refunding 46,428 - Total Deferred Outflows of Resources 178,790 111,605 Liabilities Current Liabilities Accounts payable and accrued liabilities 1,185,534 44,941 Accrued interest 233,321 - Customer deposits 438,426 - Compensated absences - current 94,379 34,839 Bonds and capital leases payable -current 836,377 - Total Current Liabilities 2,788,037 79,780 Noncurrent Liabilities Compensated absences 10,487 3,871 Net pension liability 262,852 221,631 Bonds and capital leases payable 21,493,748 - Total Liabilities 24,555,124 305,282 Deferred Inflows of Resources Pension (gains) losses 29,526 24,896 Net Position Net investment in capital assets 4,370,129 39,736 Unrestricted 13,419,175 (44,649) Total Net Position $ 17,789,304 $ (4,913) See Notes to Financial Statements. 32 City of Sanger, Texas STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN FUND NET POSITION PROPRIETARY FUND For the Year Ended September 30, 2017 Governmental Activities Water, Sewer Internal & Electric Service Operating Revenues Charges for services $ 11,144,839 $ 1,676,148 Connection fees 57,720 - Tap fees 924,000 Other revenue 53,732 - Total Operating Revenues 12,180,291 1,676,148 Operating Expenses Salaries and wages 1,935,540 1,057,951 Contracted services 324,471 293,394 Utilities 315,524 34,476 Materials and supplies 200,241 129,942 Water and electric purchases 5,483,292 - Repairs and maintenance 685,346 17,801 Depreciation 816,429 7,359 Total Operating Expenses 9,760,843 1,540,923 Operating Income (Loss) 2,419,448 135,225 Nonoperating Revenues (Expenses) Investment income 21,875 - Intergovernmental 725,000 - Interest expense (741,243) - Total Nonoperating Revenues (Expenses) 5,632 - Income (Loss) Before Transfers 2,425,080 135,225 Transfers (out) (865,224) - Change in Net Position 1,559,856 135,225 Beginning net position 16,229,448 (140,138) Ending Net Position $ 17,789,304 $ (4,913) See Notes to Financial Statements. 33 City of Sanger, Texas STATEMENT OF CASH FLOWS PROPRIETARY FUND (Page 1 of 2) For the Year Ended September 30, 2017 Cash Flows from Operating Activities Receipts from customers Payments to suppliers Payments to employees Payments/receipts for other Net Cash Provided by Operating Activities Cash Flows from Noncapital Financing Activities Operating transfers out Net Cash Provided by Noncapital Financing Activities Cash Flows from Capital and Related Financing Activities Capital purchases Capital contributions Proceeds from bond issuance Principal paid on debt Interest paid on debt Net Cash (Used) by Capital and Related Financing Activities Cash Flows from Investing Activities Purchases of investments, net Interest on investments Net Cash Provided by Investing Activities Net Increase (Decrease) in Cash and Cash Equivalents Beginning cash and cash equivalents Governmental Activities Water, Sewer Internal & Electric Service $ 12,315,664 $ 1,676,148 (6,691,173) (467,273) (1,883,865) (1,021,659) (20,420) - 3,720,206 187,216 (865,224) - (865,224) - (4,652,737) (13,292) 725,000 - 9,997,697 - (851,203) - (692,956) - 4,525,801 (13,292) (1,871) - 21,875 - 20,004 - 7,400,787 173,924 13,083,121 - Ending Cash and Cash Equivalents $ 20,483,908 $ See Notes to Financial Statements. 173,924 34 City of Sanger, Texas STATEMENT OF CASH FLOWS PROPRIETARY FUND (Page 2 of 2) For the Year Ended September 30, 2017 Governmental Activities Water, Sewer Internal & Electric Service Reconciliation of Overatina Income to Net Cash Provided by OUeratine Activities Operating Income $ Adjustments to reconcile operating income to net cash provided: Depreciation Changes in Operating Assets and Liabilities: (Increase) Decrease in: Accounts receivable Inventory Due from/to other funds Deferred outflows of resources - pension contributions Deferred outflows of resources - pension investment earnings Deferred inflows of resources - pension (gains) losses Deferred outflows of resources - pension assumption changes Increase (Decrease) in: Accounts payable and accrued liabilities Compensated absences Customer deposits Net pension liability Net Cash Provided by Operating Activities $ See Notes to Financial Statements. 2,419,448 $ 135,225 816,429 7,359 94,514 - 108,095 - (20,420) - (6,229) (5,252) 24,920 16,681 12,050 24,896 3,663 (7,317) 209,606 8,340 22,596 11,773 40,859 - (5,325) (4,489) 3,720,206 $ 187,216 35 (This page intentionally left blank.) 36 City of Sanger, Texas NOTES TO FINANCIAL STATEMENTS September 30, 2017 I. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A. Description of Government -Wide Financial Statements The government -wide financial statements (i.e., the statement of net position and the statement of activities) report information on all of the nonfiduciary activities of the primary government and its component units. Governmental activities, which normally are supported by taxes, intergovernmental revenues, and other nonexchange transactions, are reported separately from business -type activities, which rely to a significant extent on fees and charges to external customers for support. Likewise, the primary government is reported separately from certain legally separate component units for which the primary government is financially accountable. B. Reporting Entity The City of Sanger, Texas (the "City") was incorporated in 1886 and operates under a Council -Manager form of government. The City provides: general government, public safety, public works, culture and recreation, water, sewer, and electricity operations. The City is an independent political subdivision of the State of Texas governed by an elected council and a mayor and is considered a primary government. As required by generally accepted accounting principles, these basic financial statements have been prepared based on considerations regarding the potential for inclusion of other entities, organizations, or functions as part of the City's financial reporting entity. The Sanger Industrial Development Corporation ("4A fund") and the Sanger Texas Development Corporation ("413 fund"), although legally separate, are considered part of the reporting entity. No other entities have been included in the City's reporting entity. Additionally, as the City is considered a primary government for financial reporting purposes, its activities are not considered a part of any other governmental or other type of reporting entity. Considerations regarding the potential for inclusion of other entities, organizations or functions in the City's financial reporting entity are based on criteria prescribed by generally accepted accounting principles. These same criteria are evaluated in considering whether the City is a part of any other governmental or other type of reporting entity. The overriding elements associated with prescribed criteria considered in determining that the City's financial reporting entity status is that of a primary government are that it has a separately elected governing body; it is legally separate; and is fiscally independent of other state and local governments. 37 City of Sanger, Texas NOTES TO FINANCIAL STATEMENTS, Continued September 30, 2017 Additionally prescribed criteria under generally accepted accounting principles include considerations pertaining to organizations for which the primary government is financially accountable, and considerations pertaining to organizations for which the nature and significance of their relationship with the primary government are such that exclusion would cause the reporting entity's financial statements to be misleading or incomplete. Discretely Presented Component Units Sanger Industrial Develojment Corporation (4A) The Sanger Texas Industrial Development Corporation ("4A") 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 4A fund was incorporated in the state of Texas as a non-profit industrial development corporation under Section 4A of the Development Corporation Act of 1979. The purpose of the 4A fund is to promote economic development within the City of Sanger. Discrete presentation is appropriate because the District's Board is not substantially the same as the City. Sanger Texas Development Corporation (4B) The Sanger Texas Development Corporation ("413") is governed by a board of seven directors, all of whom are appointed by the City Council at its will. The 413 fund was incorporated in the state of Texas as a nonprofit industrial development corporation under Section 4B of the Development Corporation Act of 1979. The purpose of the 4B fund is to promote economic and community development within the City of Sanger. Discrete presentation is appropriate because the District's Board is not substantially the same as the City. C. Basis of Presentation Government -Wide and Fund Financial Statements While separate government -wide and fund financial statements are presented, they are interrelated. The governmental activities column incorporates data from governmental funds while business -type activities incorporate data from the government's enterprise funds. Separate financial statements are provided for governmental funds and the proprietary funds. As a general rule, the effect of interfund activity has been eliminated from the government -wide financial statements. Exceptions to this general rule are payments in lieu of taxes where the amounts are reasonably equivalent in value to the City of Sanger, Texas NOTES TO FINANCIAL STATEMENTS, Continued September 30, 2017 interfund services provided and other charges between the government's water and transit functions and various other functions of the government. Elimination of these charges would distort the direct costs and program revenues reported for the various functions concerned. The fund financial statements provide information about the government's funds. Separate statements for each fund category —governmental and proprietary are presented. The emphasis of fund financial statements is on major governmental and enterprise funds, each displayed in a separate column. All remaining governmental and enterprise funds are aggregated and reported as nonmajor funds. Major individual governmental and enterprise funds are reported as separate columns in the fund financial statements. The government reports the following major governmental funds: Governmental Funds Governmental funds are those funds through which most governmental functions are typically financed. General Fund The general fund is used to account for all financial transactions not properly includable in other funds. The principal sources of revenues include local property taxes, sales and franchise taxes, licenses and permits, fines and forfeitures, and charges for services. Expenditures include general government, public safety, parks and recreation and public works. Capital Projects Fund The capital projects fund is used to account for capital asset activities for governmental fund types. The government reports the following nonmajor govermnental fund: Debt Service Fund The debt service fund is used to account for debt service activities for governmental fund types. 39 City of Sanger, Texas NOTES TO FINANCIAL STATEMENTS, Continued September 30, 2017 Proprietary Fund Types Proprietary funds are used to account for activities that are similar to those often found in the private sector. All assets, liabilities, equities, revenues, expenses, and transfers relating to the government's business activities are accounted for through proprietary funds. The measurement focus is on determination of net income, financial position, and cash flows. Proprietary funds distinguish operating revenues and expenses from non -operating items. Operating revenues include charges for services. Operating expenses include costs of materials, contracts, personnel, and depreciation. All revenues and expenses not meeting this definition are reported as non -operating revenues and expenses. Proprietary fund types follow GAAP prescribed by the Governmental Accounting Standards Board (GASB) and all financial Accounting Standards Board's standards issued prior to November 30, 1989. Subsequent to this date, the City accounts for its enterprise funds as presented by GASB. The proprietary fund types used by the City include enterprise funds. The government reports the following major enterprise fund: Water, Sewer, & Electric Fund This fund is used to account for the provision of water, sewer and electric services to the residents of the City. Activities of the fund include administration, operations and maintenance of the water production and distribution system, water collection and treatment systems, and electric services. The fund also accounts for the accumulation of resources for and the payment of long-term debt. All costs are financed through charges to utility customers. Additionally, the government reports the following fund type: Internal Service Fund Revenues and expenses related to services provided to organizations inside the City on a cost reimbursement basis are accounted for in an internal service fund. The City's internal service fund was set up to provide administrative support services to other funds of the City. During the course of operations the government has activity between funds for various purposes. Any residual balances outstanding at year end are reported as due from/to other funds and advances to/from other funds. While these balances are reported in fund financial statements, certain eliminations are made in the 40 City of Sanger, Texas NOTES TO FINANCIAL STATEMENTS, Continued September 30, 2017 preparation of the government -wide financial statements. Balances between the funds included in governmental activities (i.e., the governmental and internal service funds) are eliminated so that only the net amount is included as internal balances in the governmental activities column. Similarly, balances between the funds included in business -type activities (i.e., the enterprise funds) are eliminated so that only the net amount is included as internal balances in the business -type activities column. Further, certain activity occurs during the year involving transfers of resources between funds. In fund financial statements these amounts are reported at gross amounts as transfers in/out. While reported in fund financial statements, certain eliminations are made in the preparation of the government -wide financial statements. Transfers between the funds included in governmental activities are eliminated so that only the net amount is included as transfers in the governmental activities column. Similarly, balances between the funds included in business -type activities are eliminated so that only the net amount is included as transfers in the business -type activities column. D. Measurement Focus and Basis of Accounting The accounting and financial reporting treatment is determined by the applicable measurement focus and basis of accounting. Measurement focus indicates the type of resources being measured such as current financial resources or economic resources. The basis of accounting indicates the timing of transactions or events for recognition in the financial statements. The government -wide financial statements are reported using the economic resources measurement focus and the accrual basis of accounting. Revenues are recorded when earned and expenses are recorded when a liability is incurred, regardless of the timing of related cash flows. Property taxes are recognized as revenues in the year for which they are levied. Grants and similar items are recognized as revenue as soon as all eligibility requirements imposed by the provider have been met. The governmental fund financial statements are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Revenues are recognized as soon as they are both measurable and available. Revenues are considered to be available when they are collectible within the current period or soon enough thereafter to pay liabilities of the current period. For this purpose, the government considers revenues to be available if they are collected within 60 days of the end of the current fiscal period. Expenditures generally are recorded when a liability is incurred, as under accrual accounting. However, debt service 41 City of Sanger, Texas NOTES TO FINANCIAL STATEMENTS, Continued September 30, 2017 expenditures, as well as expenditures related to compensated absences, and claims and judgments, are recorded only when payment is due. General capital asset acquisitions are reported as expenditures in governmental funds. Issuance of long- term debt and acquisitions under capital leases are reported as other financing sources. Property taxes, sales taxes, franchise taxes, licenses, and interest associated with the current fiscal period are all considered to be susceptible to accrual and so have been recognized as revenues of the current fiscal period. Entitlements are recorded as revenues when all eligibility requirements are met, including any time requirements, and the amount is received during the period or within the availability period for this revenue source (within 60 days of year end). Expenditure -driven grants are recognized as revenue when the qualifying expenditures have been incurred and all other eligibility requirements have been met, and the amount is received during the period or within the availability period for this revenue source (within 60 days of year end). All other revenue items are considered to be measurable and available only when cash is received by the government. E. Assets, Liabilities, Deferred Outflows/Inflows of Resources and Net Position/Fund Balance 1. Deposits and Investments The City's cash and cash equivalents are considered to be cash on hand, demand deposits and short term investments with original maturities of three months or less from the date of acquisition. For the purpose of the statement of cash flows, the proprietary fund types consider temporary investments with maturity of three months or less when purchased to be cash equivalents. In accordance with GASB Statement No. 31, Accounting and Reporting for Certain Investments and External Investment Pools, the City reports all investments at fair value, except for "money market investments" and "2aMike pools." Money market investments, which are short-term highly liquid debt instruments that may include U.S. Treasury and agency obligations, are reported at amortized costs. Investment positions in external investment pools that are operated in a manner consistent with the SEC's Rule 2a7 of the Investment Company Act of 1940, such as TexPool, are reported using the pools' share price. 42 City of Sanger, Texas NOTES TO FINANCIAL STATEMENTS, Continued September 30, 2017 The City has adopted a written investment policy regarding the investment of its funds as defined in the Public Funds Investment Act, Chapter 2256, of the Texas Governmental Code. In summary, the City is authorized to invest in the following: Direct obligations of the U.S. Government Fully collateralized certificates of deposit and money market accounts Statewide investment pools 2. Fair Value The City has applied Governmental Accounting Standards Board ("GASB") Statement No. 72, Fair Value Measurement and Application. GASB Statement No. 72 provides guidance for determining a fair value measurement for reporting purposes and applying fair value to certain investments and disclosures related to all fair value measurements. 3. Receivables and Interfund Transactions Transactions between funds that are representative of lendingiborrowing arrangements outstanding at the end of the year are referred to as either "interfund receivables/payables" (i.e., the current portion of interfund loans) or "advances to/from other funds" (i.e., the non -current portion of interfund loans). All other outstanding balances between funds are reported as "due to/from other funds" in the fund financial statements. If the transactions are between the primary government and its component unit, these receivables and payables are classified as "due to/from component unit/primary government." Any residual balances outstanding between the governmental activities and business -type activities are reported in the government -wide financial statements as "internal balances." Advances between funds are offset by a fund balance reserve account in the applicable governmental fund to indicate they are not available for appropriation and are not expendable available financial resources. All trade receivables are shown net of any allowance for uncollectible amounts. 4. Property Taxes Property taxes are levied by October 1 on the assessed value listed as of the prior January 1 for all real and business personal property in conformity with Subtitle E, Texas Property Tax Code. Taxes are due on receipt of the tax bill and are delinquent if not paid before February 1 of the year following the year in which imposed. 43 City of Sanger, Texas NOTES TO FINANCIAL STATEMENTS, Continued September 30, 2017 Penalties are calculated after February 1 up to the date collected by the government at the rate of 6% for the first month and increased 1% per month up to a total of 12%. Interest is calculated after February 1 at the rate of 1% per month up to the date collected by the government. Under state law, property taxes levied on real property constitute a lien on the real property which cannot be forgiven without specific approval of the State Legislature. The lien expires at the end of twenty years. Taxes levied on personal property can be deemed uncollectible by the City. 5. Inventories and Prepaid Items The costs of governmental fund type inventories are recorded as expenditures when the related liability is incurred, (i.e., the purchase method). The inventories are valued at the lower of cost or market using the average cost method. Certain payments to vendors reflect costs applicable to future accounting periods (prepaid expenditures) are recognized as expenditures when utilized. 6. Capital Assets Capital assets, which include property, plant, equipment, and infrastructure assets (e.g., roads, bridges, sidewalks, and similar items) are reported in the applicable governmental or business -type activities columns in the government -wide financial statements. Capital assets are defined by the government, as assets with an initial individual cost of more than $5,000 and an estimated useful life in excess of one year. Such assets are recorded at historical cost or estimated historical cost if purchased or constructed. Donated capital assets are recorded at estimated fair market value at the date of donation. Major outlays for capital assets and improvements are capitalized as projects are constructed. Interest costs incurred in connection with construction of enterprise fund capital assets are capitalized when the effects of capitalization materially impact the financial statements. The costs of normal maintenance and repairs that do not add to the value of the asset or materially extend assets' lives are not capitalized. 44 City of Sanger, Texas NOTES TO FINANCIAL STATEMENTS, Continued September 30, 2017 Property, plant, and equipment of the primary government, as well as the component units, are depreciated using the straight-line method over the following estimated useful years. Estimated Asset Description Useful Life Vehicles 5-10 years Furniture and equipment 5 to 10 years Infrastructure 10-30 years Water and sewer system 10-30 years Buildings and improvements 5-40 years 7. Deferred Outflows/Inflows of Resources In addition to assets, the statement of financial position will sometimes report a separate section for deferred outflows of resources. This separate financial statement element, deferred outflows of resources, represents a consumption of net position that applies to a future period(s) and so will not be recognized as an outflow of resources (expense/ expenditure) until then. An example is a deferred charge on refunding reported in the government -wide statement of net position. A deferred charge on refunding results from the difference in the carrying value of refunded debt and its reacquisition price. This amount is deferred and amortized over the shorter of the life of the refunded or refunding debt. In addition to liabilities, the statement of financial position will sometimes report a separate section for deferred inflows of resources. This separate financial statement element, deferred inflows of resources, represents an acquisition of net position that applies to a future period(s) and so will not be recognized as an inflow of resources (revenue) until that time. The government has only one type of item, which arises only under a modified accrual basis of accounting, which qualifies for reporting in this category. Accordingly, the item, unavailable revenue, is reported only in the governmental funds balance sheet. The governmental funds report unavailable revenues from two sources: property taxes and EMS revenues. These amounts are deferred and recognized as an inflow of resources in the period that the amounts become available. 8. Net Position Flow Assumption Sometimes the government will fund outlays for a particular purpose from both restricted (e.g., restricted bond or grant proceeds) and unrestricted resources. In order to calculate the amounts to report as restricted — net position and unrestricted — net position in the government -wide and proprietary fund financial statements, a 45 City of Sanger, Texas NOTES TO FINANCIAL STATEMENTS, Continued September 30, 2017 flow assumption must be made about the order in which the resources are considered to be applied. 9. Fund Balance Flow Assumptions Sometimes the government will fund outlays for a particular purpose from both restricted and unrestricted resources (the total of committed, assigned, and unassigned fund balance). In order to calculate the amounts to report as restricted, committed, assigned, and unassigned fund balance in the governmental fund financial statements a flow assumption must be made about the order in which the resources are considered to be applied. It is the government's policy to consider restricted fund balance to have been depleted before using any of the components of unrestricted fund balance. Further, when the components of unrestricted fund balance can be used for the same purpose, committed fund balance is depleted first, followed by assigned fund balance. Unassigned fund balance is applied last. 10. Fund Balance Policies Fund balance of governmental funds is reported in various categories based on the nature of any limitations requiring the use of resources for specific purposes. The government itself can establish limitations on the use of resources through either a commitment (committed fund balance) or an assignment (assigned fund balance). The committed fund balance classification includes amounts that can be used only for the specific purposes determined by a formal action of the government's highest level of decision -making authority. The governing council is the highest level of decision -making authority for the government that can, by adoption of an ordinance prior to the end of the fiscal year, commit fund balance. Once adopted, the limitation imposed by the ordinance remains in place until a similar action is taken (the adoption of another ordinance) to remove or revise the limitation. Amounts in the assigned fund balance classification are intended to be used by the government for specific purposes but do not meet the criteria to be classified as committed. The governing body (council) has by resolution authorized the City Manager to assign fund balance. The Council may also assign fund balance as it does when appropriating fund balance to cover a gap between estimated revenue and appropriations in the subsequent year's appropriated budget. Unlike commitments, assignments generally only exist temporarily. In other words, an additional action does not normally have to be taken for the removal of an assignment. Conversely, as discussed above, an additional action is essential to either remove or revise a commitment. 46 City of Sanger, Texas NOTES TO FINANCIAL STATEMENTS, Continued September 30, 2017 11. Compensated Absences The liability for compensated absences reported in the government -wide and proprietary fund statements consist of unpaid, accumulated vacation balances. The liability has been calculated using the vesting method, in which leave amounts for both employees who currently are eligible to receive termination payments and other employees who are expected to become eligible in the future to receive such payments upon termination are included. Vested or accumulated vacation leave and compensated leave of government -wide and proprietary funds are recognized as an expense and liability of those funds as the benefits accrue to employees. It is the City's policy to liquidate compensated absences with future revenues rather than with currently available expendable resources. Accordingly, the City's governmental funds recognize accrued compensated absences when it is paid. 12. Long -Term Obligations In the government -wide financial statements, long-term debt and other long-term obligations are reported as liabilities in the applicable governmental activities statement of net position. The long-term debt consists primarily of bonds payable and accrued compensated absences. Long-term debt for governmental funds is not reported as liabilities in the fund financial statements until due. The debt proceeds are reported as other financing sources, net of the applicable premium or discount and payments of principal and interest reported as expenditures. In the governmental fund types, issuance costs, even if withheld from the actual net proceeds received, are reported as debt service expenditures. However, claims and judgments paid from governmental funds are reported as a liability in the fund financial statements only for the portion expected to be financed from expendable available financial resources. Long-term debt and other obligations, financed by proprietary funds, are reported as liabilities in the appropriate funds. For proprietary fund types, bond premiums, and discounts are deferred and amortized over the life of the bonds using the effective interest method, if material. Bonds payable are reported net of the applicable bond premium or discount. Issuance costs are expensed as incurred in accordance with GASB statement no. 65. Assets acquired under the terms of capital leases are recorded as liabilities and capitalized in the government -wide financial statements at the present value of net minimum lease payments at inception of the lease. In the year of acquisition, capital 47 City of Sanger, Texas NOTES TO FINANCIAL STATEMENTS, Continued September 30, 2017 lease transactions are recorded as other financing sources and as capital outlay expenditures in the general fund. Lease payments representing both principal and interest are recorded as expenditures in the general fund upon payment with an appropriate reduction of principal recorded in the government -wide financial statements. 13. Estimates The preparation of financial statements, in conformity with generally accepted accounting principles, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenditures/expenses during the reporting period. Actual results could differ from those estimates. 14. Pensions For purposes of measuring the net pension liability, deferred outflows of resources and deferred inflows of resources related to pensions, and pension expense, information about the Fiduciary Net Position of the Texas Municipal Retirement System (TMRS) and additions to/deductions from TMRS's Fiduciary Net Position have been determined on the same basis as they are reported by TMRS. For this purpose, plan contributions are recognized in the period that compensation is reported for the employee, which is when contributions are legally due. Benefit payments and refunds are recognized when due and payable in accordance with the benefit terms. Investments are reported at fair value. II. RECONCILIATION OF GOVERNMENT -WIDE AND FUND FINANCIAL STATEMENTS A. Explanation of certain differences between the governmental fund balance sheet and the government -wide statement of net position. The governmental fund balance sheet includes reconciliation between fund balance - total governmental funds and net position -governmental activities as reported in the government -wide statement of net position. One element of that reconciliation explains that long-term liabilities, including bonds, are not due and payable in the current period and, therefore, are not reported in the funds. i; City of Sanger, Texas NOTES TO FINANCIAL STATEMENTS, Continued September 30, 2017 B. Explanation of certain differences between the governmental fund statement of revenues, expenditures, and changes in fund balances and the government -wide statement of activities. The governmental fund statement of revenues, expenditures, and changes in fund balances includes a reconciliation between net changes in fund balances — total governmental funds and changes in net position of governmental states that, "the issuance of long-term debt (e.g., bonds) provides current financial resources to governmental funds, while the repayment of the principal of long-term debt consumes the current financial resources of governmental funds. Also, governmental funds report the effect of premiums, discounts, and similar items when debt is first issued, whereas these amounts are deferred and amortized in the statement of activities." III. STEWARDSHIP, COMPLIANCE, AND ACCOUNTABILITY Annual budgets are adopted on a basis consistent with generally accepted accounting principles for all governmental and enterprise funds. The appropriated budget is prepared by fund, function, and department. The legal level of control is the fund level. No funds can be transferred or added to a budgeted item without Council approval. Appropriations lapse at the end of the year. Budget amendments were only re -classes at the function level and below and there was no increase in budgeted revenues or expenses by function from amendments. IV. DETAILED NOTES ON ALL FUNDS A. Deposits and Investments As of September 30, 2017, the primary government had the following investments: Investment Type Certificates of deposit $ Total fair value Portfolio weighted average maturity Average Maturity Fair Value (Years) 1,249,422 $ 1,249,422 0.51 0.51 49 City of Sanger, Texas NOTES TO FINANCIAL STATEMENTS, Continued September 30, 2017 As of September 30, 2017, the 4A Component Unit had the following investments: Investment Type Average Maturity Fair Value (Years) Certificates of deposit $ 94,483 0.01 Total fair value $ 94,483 Portfolio weighted average maturity 0.01 As of September 30, 2017, the 4B Component Unit had the following investments: Investment Type Certificates of deposit Average Maturity Fair Value (Years) $ 278,079 0.46 Total fair value $ 278,079 Portfolio weighted average maturity 0.46 Interest rate risk — In accordance with its investment policy, the City manages its exposure to declines in fair values by limiting the weighted average of maturity not to exceed five years; structuring the investment portfolio so that securities mature to meet cash requirements for ongoing operations; monitoring credit ratings of portfolio position to assure compliance with rating requirements imposed by the Public Funds Investment Act; and invest operating funds primarily in short-term securities or similar government investment pools. Credit risk — The City's investment policy limits investments to obligations of the United States, State of Texas, or their agencies and instrumentalities with an investment quality rating of not less than "A" or its equivalent, by a nationally recognized investment rating firm. Other obligations must be unconditionally guaranteed (either express or implied) by the full faith and credit of the United States Government or the issuing U.S. agency and investment pools with an investment quality not less than AAA or AAA-m, or equivalent, by at least one nationally recognized rating service. Custodial credit risk — deposits In the case of deposits, this is the risk that in the event of a bank failure, the City's deposits may not be returned to it. State statutes require that all deposits in financial institutions be insured or fully collateralized by U.S. government obligations or its agencies and instrumentalities or direct obligations of Texas or its agencies and instrumentalities that have a market value of not less than the principal amount of the deposits. As of September 30, 2017, the market values of pledged securities and FDIC exceeded bank balances. 50 City of Sanger, Texas NOTES TO FINANCIAL STATEMENTS, Continued September 30, 2017 Custodial credit risk — investments For an investment, this is the risk that, in the event of the failure of the counterparty, the City will not be able to recover the value of its investments or collateral securities that are in the possession of an outside party. The City's investment policy requires that it will seek to safekeeping securities at financial institutions, avoiding physical possession. Further, all trades, where applicable, are executed by delivery versus payment to ensure that securities are deposited in the City's safekeeping account prior to the release of funds. B. Receivables The following comprise receivable balances of the primary government at year end: Debt Capital Water, Sewer General Service Projects &Electric Total Property taxes $ 75,400 $ 31,177 $ - $ - $ 106,577 Sales tax 143,005 - - - 143,005 Franchise & local taxes 35,236 - - - 35,236 Intergovernmental - - 609,231 - 609,231 EMS 292,017 - - - 292,017 Accounts 118,785 - - 1,738,586 1,857,371 Other 38,930 - - - 38,930 Allowance (217,713) (11,144) - (116,289) (345,146) $ 485,660 $ 20,033 $ 609,231 $ 1,622,297 $ 2,737,221 The following comprise receivable balances of the component units at year end: 4A 4B Total Sales tax $ 71,503 $ 71,503 $ 143,006 41 1 51 City of Sanger, Texas NOTES TO FINANCIAL STATEMENTS, Continued September 30, 2017 C. Inventory The following comprise the inventory balances of the primary government at year end: Inventory type Cost Electric Department $ 334,969 Water Department 51,562 Total $ 386,531 D. Capital Assets A summary of changes in governmental activities capital assets for the year end was as follows: Capital assets, not being depreciated: Land Construction in progress Total capital assets not being depreciated Capital assets, being depreciated: Infrastructure Buildings and improvements Machinery and equipment Total capital assets being depreciated Less accumulated depreciation Infrastructure Buildings and improvements Machinery and equipment Total accumulated depreciation Net capital assets being depreciated Total Capital Assets Beginning Disposals / Ending Balances Increases Reclassifications Balances $ 1,044,933 $ - $ - $ 1,044,933 1,010,993 2,798,410 (475,479) 3,333,924 2,055,926 2,798,410 (475,479) 4,378,857 11,958,388 17,800 11,500 11,987,688 6,037,026 67,904 463,979 6,568,909 3,616,608 293,049 (69,322) 3,840,335 21,612,022 378,753 406,157 22,396,932 5,816,900 320,717 - 6,137,617 1,682,788 295,941 - 1,978,729 2,131,440 332,857 (69,322) 2,394,975 9,631,128 949,515 (69,322) 10,511,321 11,980,894 (570,762) 475,479 11,885,611 $ 14,036,820 $ 2,227,648 $ - $ 16,264,468 52 City of Sanger, Texas NOTES TO FINANCIAL STATEMENTS, Continued September 30, 2017 Depreciation was charged to governmental functions as follows: General government $ 106,752 Public safety 117,555 Public works 359,369 Culture and recreation 240,696 Fire and rescue 117,784 Internal service 7,359 Total Governmental Activities Depreciation Expense $ 949,515 A summary of changes in business -type activities capital assets for the year end was as follows: Beginning Disposals / Ending Balances Increases Reclassifications Balances Capital assets, not being depreciated: Land $ 496,857 $ - $ - $ 496,857 Construction in progress 3,449,956 4,444,848 - 7,894,804 Total capital assets not being depreciated 3,946,813 4,444,848 - 8,391,661 Capital assets, being depreciated: Infrastructure 23,566,545 89,185 - 23,655,730 Buildings and improvements 865,245 - - 865,245 Machinery and equipment 2,082,611 118,704 (24,700) 2,176,615 Total capital assets being depreciated 26,514,401 207,889 (24,700) 26,697,590 Less accumulated depreciation Infrastructure 13,617,158 634,126 - 14,251,284 Buildings and improvements 419,568 51,855 - 471,423 Machinery and equipment 1,379,144 130,448 (24,700) 1,484,892 Total accumulated depreciation 15,415,870 816,429 (24,700) 16,207,599 Net capital assets being depreciated 11,098,531 (608,540) - 10,489,991 Total Capital Assets $ 15,045,344 $ 3,836,308 $ - $ 18,881,652 53 City of Sanger, Texas NOTES TO FINANCIAL STATEMENTS, Continued September 30, 2017 Depreciation was charged to business -type activities as follows: Water $ 292,183 Sewer 272,292 Electric 237,166 Other 14,788 Total Business -type Activities Depreciation Expense $ 816,429 A summary of changes in component unit (4A Component Unit) capital assets for the year end was as follows: Beginning Retirements/ Ending Balances Additions Reclassifications Balances Capital assets, being depreciated: Buildings and improvements $ 1,080,797 $ - $ - $ 1,080,797 Furniture and fixtures 40,950 - - 40,950 Total capital assets being depreciated 1,121,747 - - 1,121,747 Less accumulated depreciation Buildings and improvements 253,145 38,360 - 291,505 Furniture and fixtures 8,572 4,363 - 12,935 Total accumulated depreciation 261,717 42,723 - 304,440 Net capital assets being depreciated 860,030 (42,723) - 817,307 Total Capital Assets $ 860,030 $ (42,723) $ - $ 817,307 The 4A Component Unit recognized depreciation expense of $42,723 during the year ended September 30, 2017. 54 City of Sanger, Texas NOTES TO FINANCIAL STATEMENTS, Continued September 30, 2017 E. Long-term Debt The following is a summary of changes in the City's total governmental long-term liabilities for the year ended. The City uses the debt service fund to liquidate governmental activities debts. Beginning Amortization/ Ending Due within Balance Additions Payments Balance One Year Governmental Activities: Bonds, notes and other payables: General Obligation Bonds $ 1,946,800 $ - $ (372,500) $ 1,574,300 $ 377,000 Certificates of Obligation 2,964,600 - (224,300) 2,740,300 229,900 Less deferred amounts: For issuance premiums 147,108 - (26,349) 120,759 - 5,058,508 - (623,149) 4,435,359 606,900 Other liabilities: Capital leases payable 576,410 - (111,095) 465,315 114,355 Compensated absences 161,614 135,798 (114,350) 183,062 164,756 Total Governmental Activities $ 5,796,532 $ 135,798 $ (848,594) $ 5,083,736 $ 886,011 Long-term liabilities due in more than one year $ 4,197,725 Business -Type Activities: General Obligation Bonds $ 2,363,200 $ - $ (452,500) $ 1,910,700 $ 458,000 Certificates of Obligation 9,955,400 9,240,000 (305,700) 18,889,700 325,100 Less deferred amounts: For issuance premiums 743,091 757,697 (79,186) 1,421,602 - 13,061,691 9,997,697 (837,386) 22,222,002 783,100 Other liabilities: Capital leases payable 201,126 - (93,003) 108,123 53,277 Compensated absences 79,493 78,226 (52,853) 104,866 94,379 Total Business -Type Activities $ 13,342,310 $ 10,075,923 $ (983,242) $ 22,434,991 $ 930,756 Long-term liabilities due in more than one year $ 21,504,235 Component Units (4A Fund) Notes payable $ 396,451 $ - $ (43,637) $ 352,814 $ 46,014 Compensated absences 2,888 3,860 (1,542) 5,206 4,685 $ 399,339 $ 3,860 $ (45,179) $ 358,020 $ 50,699 Long-term liabilities due in more than one year $ 307,321 55 City of Sanger, Texas NOTES TO FINANCIAL STATEMENTS, Continued September 30, 2017 Long-term debt at year end was comprised of the following debt issues: Business - Component Governmental Type Unit General Obligation Bonds: $3,495,000 General Obligation Refunding Bond, Series 2012, due in installments through 2021, interest at 2% to 3% $ 633,600 $ 806,400 $ $2,535,000 General Obligation Refunding Bond, Series 2016, due in installments through 2021, interest at 2% to 4% 940,700 1,104,300 Total General Obligation Bonds $ 1,574,300 $ 1,910,700 $ Certificates of Obligation: $1,750,000 Certificates of Obligation, Series 2007, due in annual installments through 2027, interest at 4.4% $ 362,100 $ 702,900 $ $3,200,000 Certificates of Obligation, Series 2009, due in annual installments through 2026, interest at 3% to 4.75% 1,945,000 - $4,260,000 Certificates of Obligation, Series 2013, due in annual installments through 2033, interest at 2% to 3.7% 433,200 3,176,800 $5,870,000 Certificates of Obligation, Series 2015, due in annual installments through 2035, interest at 3.4% to 5.5% - 5,770,000 $9,240,000 Certificates of Obligation, Series 2017, due in annual installments through 2035, interest at 3% to 4% - 9,240,000 Less deferred amounts: Issuance premium Total Certificates of Obligation $ 2,740,300 $ 18,889,700 $ $ 120,759 $ 1,421,602 $ Total Deferred Amounts $ 120,759 $ 1,421,602 $ Notes Payable: $660,000 Notes payable to a financial institution, due in monthly Total - $ 1,440,000 - $ 3,485,000 - $ 1,065,000 - 1,945,000 - 3,610,000 - 5,770,000 - 9,240,000 $ 1,542,361 $ 1,542,361 installments of $5,106 through June 2024, including interest at 4.6% $ - $ - $ 352,814 $ 352,814 Total Notes Payable $ - $ - $ 352,814 $ 352,814 Capital Leases Payable: $435,000 Capital lease payable to financial institution, due in annual installments of $51,535 through 2024, interest at 3.346% $ 316,303 $ - $ - $ 316,303 $500,000 Capital lease payable to financial institution, due in annual installments of $134,279 through 2019, interest at 2.947% 149,012 108,123 - 257,135 Total Capital Leases Payable $ 465,315 $ 108,123 $ - $ 573,438 Compensated Absences 183,062 104,866 5,206 293,134 Total Long-term Liabilities $ 5,083,736 $ 22,434,991 $ 358,020 $ 27,876,747 56 City of Sanger, Texas NOTES TO FINANCIAL STATEMENTS, Continued September 30, 2017 Long-term liabilities applicable to the City's governmental activities are not due and payable in the current period and accordingly, are not reported as fund liabilities in the governmental funds. Interest on long-term debt is not accrued in governmental funds, but rather is recognized as an expenditure when due. The City issued $9,240,000 of Series 2017 Certificates of Obligation in the current year. The City received proceeds of $9,997,697 from this issuance resulting in premium recorded of $757,697. The City also recognized debt issuance costs to interest expense of $242,289 from this issuance. Principal payments are due annually in May, beginning May 2022. The bonds bear an interest rate ranging from 3% to 4%. Interest payments are due semi-annually on November 15th and May 15th through 2037. The annual requirements to amortize governmental and business -type activities debt issues outstanding at year ending were as follows: General Obligation Bonds Year ending September 30, 2018 2019 2020 2021 Governmental Activities Principal Interest $ 377,000 $ 55,426 392,800 41,908 410,900 27,824 393,600 13,929 Business -Type Activities Principal Interest $ 458,000 $ 66,824 477,200 50,492 $ 1,574,300 $ 139,087 $ 499,100 33,476 476,400 16,746 1,910,700 $ 167,538 57 City of Sanger, Texas NOTES TO FINANCIAL STATEMENTS, Continued September 30, 2017 Combination Tax and Revenue Certificates of Obligations Year ending Governmental Activities September 30, Principal Interest 2018 $ 229,900 $ 119,387 2019 241,600 110,391 2020 248,900 100,919 2021 261,200 91,050 2022 273,500 79,919 2023 286,400 68,258 2024 297,000 55,768 2025 309,300 42,686 2026 323,900 28,194 2027 71,800 13,024 2028 28,800 9,768 2029 30,600 8,400 2030 31,800 6,870 2031 33,600 5,280 2032 35,400 3,600 2033 36,600 1,830 2034 - - 2035 - - 2036 - - 2037 - - Business -Type Activities Principal Interest 325,100 328,400 331,100 408,800 616,500 633,600 658,000 675,700 701,100 998,200 1,086,200 1,124,400 1,173,200 1,221,400 1,269,600 1,323,400 1,420,000 1,475,000 1,535,000 1,585,000 721,343 715,779 706,516 694,655 679,742 660,427 640,327 618,519 593,113 566,321 526,357 482,800 436,574 387,920 337,338 284,626 229,713 173,656 115,344 63,400 $ 2,740,300 $ 745,345 $ 18,889,700 $ 9,634,468 General obligation bonds are direct obligations of the City for which its full faith and credit are pledged. Repayment of general obligation bonds are from taxes levied on all taxable property located within the City. The City is not obligated in any manner for special assessment debt. City of Sanger, Texas NOTES TO FINANCIAL STATEMENTS, Continued September 30, 2017 Capital Leases Year ending Governmental Activities Business -Type Activities September 30, Principal Interest Principal Interest 2018 $ 114,355 $ 14,995 $ 53,277 $ 3,186 2019 117,889 11,463 54,846 1,616 2020 43,716 7,819 - - 2021 45,179 6,357 - - 2022 46,690 4,845 - - 2023 48,252 3,283 - - 2024 49,234 1,668 - - $ 465,315 $ 50,430 $ 108,123 $ 4,802 The City has entered into capital lease agreements. The leased property under capital leases is classified as machinery and equipment with a total carrying value as of yearend for governmental activities and business type activities of $506,762 and $178,737, respectively. Note Payable for Component Unit - 4A Year ending Component Unit - 4A Fund September 30, Principal Interest 2018 $ 46,014 $ 15,253 2019 48,176 13,091 2020 50,439 10,828 2021 52,809 8,458 2022 55,290 5,977 2023 57,887 3,380 2024 42,199 3,063 $ 352,814 $ 60,050 F. Conduit Debt Before the current year, the City issued notes payable totaling $230,461,407 for the purpose of assisting with financing needed by not -for -profit organizations to promote their cause. The final maturities on notes payable range from March 2017 through December 2041. The notes are secured by various assets of the borrower. 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. 59 City of Sanger, Texas NOTES TO FINANCIAL STATEMENTS, Continued September 30, 2017 G. Deferred Charge on Refunding Deferred charges resulting from the issuance of the 2012 and 2016 general obligation refunding bonds have been recorded as a deferred outflow of resources and are being amortized to interest expense over the terms of the respective refunded debts. Current year balances for governmental and business -type activities totaled $26,537 and $46,428, respectively. Current year amortization expense for governmental and business -type activities totaled $7,250 and $12,725, respectively. H. Interfund Transactions Amounts transferred between funds relate to amounts collected, various capital expenditures, annual funding, and debt payments. Transfer In Capital Transfer out: General Projects Total General $ - $ 550,000 $ 550,000 Debt Service 51,536 - 51,536 Enterprise 865,224 - 865,224 $ 916,760 $ 550,000 $ 1,466,760 The internal service fund provides administrative services to the general and water, sewer, & electric funds. Below is a summary of the amounts paid from these funds to the internal service fund for the year ended September 30, 2017: Received by: Paid by: Internal Service General $ 502,845 Enterprise 1,173,303 $ 1,676,148 City of Sanger, Texas NOTES TO FINANCIAL STATEMENTS, Continued September 30, 2017 The compositions of interfund due to/from balances as of the year ended September 30, 2017 were as follows: Payable Fund General Total Receivable Fund Water, Sewer, & Electric Total $ 103,575 $ 103,575 $ 103,575 $ 103,575 Interfund balances resulted from the timing difference between the dates that (1) interfund goods and services are provided or reimbursable expenditures occur, (2) transactions are recorded in the accounting system, and (3) payments between funds are made. All balances are expected to be paid in the subsequent year. I. Fund Equity The City records fund balance restrictions on the fund level to indicate that a portion of the fund balance is legally restricted for a specific future use or to indicate that a portion of the fund balance is not available for expenditures. The following is a list of fund balances restricted/committed by the City: Municipal court Tourism Library Public safety Debt service Capital projects Parks Employee benefits V. OTHER INFORMATION A. Risk Management Restricted $ 8,131 21,744 88,436 29,191 459,295 240,936 8,062 Committed 30,421 $ 855,795 $ 30,421 The City is exposed to various risks of loss related to torts; theft of, damage to and destruction of assets, errors and omissions; and natural disasters for which the City participates along with 2,800 other entities in the Texas Municipal League's 61 City of Sanger, Texas NOTES TO FINANCIAL STATEMENTS, Continued September 30, 2017 Intergovernmental Risk Pools. The Pool purchases commercial insurance at group rates for participants in the Pool. The City has no additional risk or responsibility to the Pool outside of the payment of insurance premiums. The City has not significantly reduced insurance coverage or had settlements which exceeded coverage amounts for the past three years. B. Contingent Liabilities Amounts received or receivable from granting agencies are subject to audit and adjustment by grantor agencies, principally the federal government. Any disallowed claims, including amounts already collected, may constitute a liability of the applicable funds. The amounts of expenditures which may be disallowed by the grantor cannot be determined at this time although the City expects such amounts, if any, to be immaterial. Liabilities are reported when it is probable that a loss has occurred and the amount of the loss can be reasonably estimated. Liabilities include an amount for claims that have been incurred but not reported. Claim liabilities are calculated considering the effects of inflation, recent claim settlement trends, including frequency and amount of payouts, and other economic and social factors. 62 City of Sanger, Texas NOTES TO FINANCIAL STATEMENTS, Continued September 30, 2017 C. Construction commitments The government has active construction projects as of September 30, 2017. The projects include street construction and improvements, sewer plant and the construction of additional water lines and repairs. At year end the government's commitments with contractors are as follows: Project McReynolds Road Reconstruction McReynolds Road Reconstruction McReynolds Road Reconstruction McReynolds Road Reconstruction Server Consolidation 15" Water Line Chapman to Belz Water Line Lois to View Water Well and Ground Storage Water Well and Ground Storage 12" Line Chapman to Belz E35 WWL to Lois E35 WWL to Lois E35 WWL to Lois 12" Line Lois to View New Sewer Line New Sewer Plant Remaining Vendor Commitment Pacheco Koch, LLC $ 9,027 HRM Land Acquisition 397 Pavecon 3,889,379 D&S Engineering 38,141 Project Total 3,936,944 Austin Lane Technology 20,166 Pacheco Koch 3,833 Pacheco Koch 19,542 Perkins Engineering 54,327 Cory Miller Drilling 32,052 Project Total 86,379 Pacheco Koch 18,794 Pacheco Koch LLC 35,490 Dickerson Construction 202,498 HRM Land Acquisition 5,835 Project Total 243,823 Pacheco Koch 21,333 Alan Plummer Associates 82,550 Perkins Engineering 9,749,495 Project Total 9,832,045 Total $ 14,182,859 63 City of Sanger, Texas NOTES TO FINANCIAL STATEMENTS, Continued September 30, 2017 D. Related Party Activity On March 1, 2012, the City entered into a non -cancelable lease agreement with a corporation of which a former city council member is a principal member of management. The leased property is owned by the 4A Component Unit and has a cost of $1,080,797 with accumulated depreciation of $291,505 as of September 30, 2017. The lease provides for a base rent and an adjustment each year related to excess operating expenses (if any) incurred annually. The lease was continued on a month to month basis beginning in July 2015. On January 6, 2017, the City terminated the lease agreement. During the year ended September 30, 2017, the City recognized $6,556 in rental revenue and collected $32,777 from this lease. As of September 30, 2017, the City had no receivables from this lease. E. Arbitrage The Tax Reform Act of 1986 instituted certain arbitrage consisting of complex regulations with respect to issuance of tax-exempt bonds after August 31, 1986. Arbitrage regulations deal with the investment of tax-exempt bond proceeds at an interest yield greater than the interest yield paid to bondholders. Generally, all interest paid to bondholders can be retroactively rendered taxable if applicable rebates are not reported and paid to the Internal Revenue Service at least every five years for applicable bond issues. Accordingly, there is the risk that if such calculations are not performed correctly, a substantial liability to the City could result. The City does anticipate that it will have an arbitrage liability and performs annual calculations to estimate this potential liability. The City will also engage an arbitrage consultant to perform the calculations in accordance with Internal Revenue Service's rules and regulations if indicated. F. Defined Benefit Pension Plans 1. Plan Description The City of Sanger, Texas participates as one of 872 plans in the nontraditional, joint contributory, hybrid defined benefit pension plan administered by the Texas Municipal Retirement System (TMRS). TMRS is an agency created by the State of Texas and administered in accordance with the TMRS Act, Subtitle G, Title 8, Texas Government Code (the TMRS Act) as an agent multiple -employer retirement system for municipal employees in the State of Texas. The TMRS Act places the general administration and management of the System with a six -member Board of 64 City of Sanger, Texas NOTES TO FINANCIAL STATEMENTS, Continued September 30, 2017 Trustees. Although the Governor, with the advice and consent of the Senate, appoints the Board, TMRS is not fiscally dependent on the State of Texas. TMRS's defined benefit pension plan is a tax -qualified plan under Section 401 (a) of the Internal Revenue Code. TMRS issues a publicly available comprehensive annual financial report (CAFR) that can be obtained at www.tmrs.com. All eligible employees of the city are required to participate in TMRS. 2. Benefits Provided TMRS provides retirement, disability, and death benefits. Benefit provisions are adopted by the governing body of the city, within the options available in the state statutes governing TMRS. At retirement, the benefit is calculated as if the sum of the employee's contributions, with interest, and the city -financed monetary credits with interest were used to purchase an annuity. Members may choose to receive their retirement benefit in one of seven payments options. Members may also choose to receive a portion of their benefit as a Partial Lump Sum Distribution in an amount equal to 12, 24, or 36 monthly payments, which cannot exceed 75% of the member's deposits and interest. The plan provisions are adopted by the governing body of the City, within the options available in the state statutes governing TMRS. Plan provisions for the City were as follows: Employee deposit rate Matching ratio (city to employee) Years required for vesting Service retirement eligibility (expressed as age / years of service) Updated service credit Annuity increase (to retirees) Plan Year 2016 6.0% 2to1 60/5, 0/20 100% Repeating Transfers 0% of CPI Plan Year 2015 6.0% 2to1 5 60/5, 0/20 100% Repeating Transfers 0% of CPI 65 City of Sanger, Texas NOTES TO FINANCIAL STATEMENTS, Continued September 30, 2017 Employees covered by benefit terms At the December 31, 2016 valuation and measurement date, the following employees were covered by the benefit terms: Inactive employees or beneficiaries currently receiving benefits 13 Inactive employees entitled to but not yet receiving benefits 26 Active employees 64 Total 103 3. Contributions The contribution rates for employees in TMRS are either 5%, 6%, or 7% of employee gross earnings, and the city matching percentages are either 100%, 150%, or 200%, both as adopted by the governing body of the City. Under the state law governing TMRS, the contribution rate for each city is determined annually by the actuary, using the Entry Age Normal (EAN) actuarial cost method. The actuarially determined rate is the estimated amount necessary to finance the cost of benefits earned by employees during the year, with an additional amount to finance any unfunded accrued liability. Employees for the City of Sanger were required to contribute 6% of their annual gross earnings during the fiscal year. The contribution rates for the City of Sanger were 7.13% and 7.63% in calendar years 2016 and 2017, respectively. The City's contributions to TNTRS for the year ended September 30, 2017, were $266,753, and were equal to the required contributions. 4. Net Pension Liability The City's Net Pension Liability (NPL) was measured as of December 31, 2016, and the Total Pension Liability (TPL) used to calculate the Net Pension Liability was determined by an actuarial valuation as of that date. City of Sanger, Texas NOTES TO FINANCIAL STATEMENTS, Continued September 30, 2017 Actuarial assumptions: The Total Pension Liability in the December 31, 2016 actuarial valuation was determined using the following actuarial assumptions: Inflation 2.5% per year Overall payroll growth 3.0% per year Investment Rate of Return 6.75%, net of pension plan investment expense, including inflation Salary increases were based on a service -related table. Mortality rates for active members, retirees, and beneficiaries were based on the gender -distinct RP2000 Combined Healthy Mortality Tables with Blue Collar Adjustment, with male rates multiplied by 109% and female rates multiplied by 103%.The rates are projected on a fully generational basis by scale BB to account for future mortality improvements. For disabled annuitants, the gender -distinct RP2000 Combined Healthy Mortality Tables with Blue Collar Adjustment are used with males rates multiplied by 109% and female rates multiplied by 103% with a 3-year set -forward for both males and females. In addition, a 3% minimum mortality rate is applied to reflect the impairment for younger members who become disabled. The rates are projected on a fully generational basis by scale BB to account for future mortality improvements subject to the 3% floor. Actuarial assumptions used in the December 31, 2016, valuation were based on the results of actuarial experience studies. The experience study in TMRS was for the period December 31, 2010 through December 31, 2014. Healthy post -retirement mortality rates and annuity purchase rates were updated based on a Mortality Experience Investigation Study covering 2009 through 2011, and dated December 31, 2013. These assumptions were first used in the December 31, 2013 valuation, along with a change to the Entry Age Normal (EAN) actuarial cost method. Assumptions are reviewed annually. Plan assets are managed on a total return basis with an emphasis on both capital appreciation as well as the production of income, in order to satisfy the short-term and long-term funding needs of TMRS. The long-term expected rate of return on pension plan investments was determined using a building-block method in which best estimate ranges of expected future real rates of return (expected returns, net of pension plan investment expense and inflation) are developed for each major asset class. These ranges are combined to produce the long-term expected rate of return by weighting the expected future real rates of return by the target asset allocation percentage and by adding expected 67 City of Sanger, Texas NOTES TO FINANCIAL STATEMENTS, Continued September 30, 2017 inflation. In determining their best estimate of a recommended investment return assumption under the various alternative asset allocation portfolios, GRS focused on the area between (1) arithmetic mean (aggressive) without an adjustment for time (conservative) and (2) the geometric mean (conservative) with an adjustment for time (aggressive). The target allocation and best estimates of real rates of return for each major asset class in fiscal year 2017 are summarized in the following table: Asset Class Target Allocation Long -Term Expected Real Rate of Return (Arithmetic) Domestic Equity 17.5% 4.55% International Equity 17.5% 6.35% Core Fixed Income 10.0% 1.00% Non -Core Fixed Income 20.0% 4.15% Real Return 10.0% 4.15% Real Estate 10.0% 4.75% Absolute Return 10.0% 4.00% Private Equity 5.0% 7.75% Total 100.0% Discount Rate: The discount rate used to measure the Total Pension Liability was 6.75%. The projection of cash flows used to determine the discount rate assumed that employee and employer contributions will be made at the rates specified in statute. Based on that assumption, the pension plan's Fiduciary Net Position was projected to be available to make all projected future benefit payments of current active and inactive employees. Therefore, the long-term expected rate of return on pension plan investments was applied to all periods of projected benefit payments to determine the Total Pension Liability. .: City of Sanger, Texas NOTES TO FINANCIAL STATEMENTS, Continued September 30, 2017 Changes in the Net Pension Liability: Balance at 12/31/15 Changes for the year: Service Cost Interest (on the Total Pension Liab.) Difference between expected and actual experience Contributions — employer Contributions — employee Net investment income Benefit payments, including refunds of emp. contributions Administrative expense Other changes Net changes Balance at 12/31/16 Total Pension Liability (a) $ 7,989,659 408,943 545,333 (78,516) (230,245) Plan Fiduciary Net Position M $ 6,831,656 240,177 202,113 461,955 (230,245) (5,214) (281) 645,515 668,505 $ 8,635,174 $ 7,500,161 Net Pension Liability (a) — M $ 1,158,003 408,943 545,333 (78,516) (240,177) (202,113) (461,955) 5,214 281 (22,990) $ 1,135,013 Sensitivity of the net pension liability to changes in the discount rate The following presents the net pension liability of the City, calculated using the discount rate of 6.75%, as well as what the City's net pension liability would be if it were calculated using a discount rate that is 1-percentage-point lower (5.75%) or 1- percentage-point higher (7.75%) than the current rate: 1% Decrease 5.75% Current Single Rate Assumption 6.75% 1% Increase 7.75% $ 2,559,316 $ 1,135,013 $ (23,988) Pension Plan Fiduciary Net Position: Detailed information about the pension plans Fiduciary Net Position is available in a separately -issued TMRS financial report. That report may be obtained on the internet at www.tmrs.com. City of Sanger, Texas NOTES TO FINANCIAL STATEMENTS, Continued September 30, 2017 5. Pension Expense and Deferred Outflows of Resources Related to Pensions For the year ended September 30, 2017, the City recognized pension expense of $391,339. At September 30, 2017, the City reported deferred outflows of resources related to pensions from the following sources: Deferred Outflows (Inflows) of Resources Difference between projected and investment earnings $ 304,545 Changes in actuarial assumptions 58,592 Differences between expected and actual economic experience (127,496) Contributions subsequent to the measurement date 208,412 Total $ 444,053 The City reported $208,412 as deferred outflows of resources related to pensions resulting from contributions subsequent to the measurement date that will be recognized as a reduction of the net pension liability for the year ending September 30, 2018. Other amounts reported as deferred outflows of resources related to pensions will be recognized in pension expense as follows: Year ended December 31: 2017 $ 95,140 2018 95,140 2019 79,491 2020 (14,547) 2021 (13,878) Thereafter (5,705) $ 235,641 Supplemental Death Benefits Plan The City also participates in the cost sharing multiple -employer defined benefit group -term life insurance plan operated by the Texas Municipal Retirement System (TMRS) known as the Supplemental Death Benefits Fund (SDBF). The City elected, by ordinance, to provide group -term life insurance coverage to both current and 70 City of Sanger, Texas NOTES TO FINANCIAL STATEMENTS, Continued September 30, 2017 retired employees. The City may terminate coverage under and discontinue participation in the SDBF by adopting an ordinance before November 1 of any year to be effective the following January 1. The death benefit for active employees provides a lump -sum payment approximately equal to the employee's annual salary (calculated based on the employee's actual earnings, for the 12-month period preceding the month of death); retired employees are insured for $7,500; this coverage is an "other postemployment benefit," or,OPEB. The City contributes to the SDBF at a contractually required rate as determined by an annual actuarial valuation. The rate is equal to the cost of providing one-year term life insurance. The funding policy for the SDBF program is to assure that adequate resources are available to meet all death benefit payments for the upcoming year; the intent is not to pre -fund retiree term life insurance during employees' entire careers. The City's retiree contribution rates to the TMRS SDBF for the years ended 2017, 2016 and 2015 are as follows: Annual Actual Required Contribution Percentage of Plan/ Contribution Made ARC Calendar Year (Rate) (Rate) Contributed 2015 0.01% 0.01% 100.0% 2016 0.01% 0.01% 100.0% 2017 0.01% 0.01% 100.0% The City's contributions to the TMRS SDBF for the years ended 2017, 2016, and 2015 were $355, $348, and $322, respectively, which equaled the required contributions each year. 71 City of Sanger, Texas NOTES TO FINANCIAL STATEMENTS, Continued September 30, 2017 G. Restatement The City restated the beginning net position of governmental activities and business -type activities, and the beginning fund balance of the general fund due to accounting errors related to capital assets, interfund borrowings, reallocation of debt between governmental and business -type activities, and the change in the presentation of the City's component units (4A & 413) to be discretely presented rather than blended with governmental activities. The City has restated net position and fund balance as follows: Proprietary Fund Governmental Funds Water, Sewer General & Electric Fund 4A 4B Prior year ending net position/ fund balance as reported $ 16,307,150 $ 2,548,000 $ 1,756,219 $ 870,461 Correction for interfund borrowing 83,155 (83,155) - - Correction to prior year EMS deferred inflow - 39,194 - - Reallocation of debt to business -type activities (160,857) - - - Discrete presentation of component units - - (1,756,219) (870,461) Restated beginning net position/fund balance $ 16,229,448 $ 2,504,039 $ - $ - Business -Type Governmental Component Units Activities Activities 4A 4B Prior year ending net position $ 16,307,150 $ 14,790,448 $ - $ - Correction for interfund borrowing 83,155 (83,155) - - Correction to capital assets - 123,411 - - Reallocation of debt to business -type activities (160,857) 160,857 - - Discrete presentation of component units - (3,087,371) 2,216,910 870,461 Restated beginning net position $ 16,229,448 $ 11,904,190 $ 2,216,910 $ 870,461 H. Subsequent Events There were no material subsequent events through February 13, 2018, the date the financial statements were available to be issued. 72 REQUIRED SUPPLEMENTARY INFORMATION 73 City of Sanger, Texas SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL- GENERAL FUND (Page 1 of 2) For the Year Ended September 30, 2017 Revenues Property tax Sales tax Franchise and local taxes License and permits Charges for services Fire and rescue Contributions and donations Intergovernmental Fines and forfeitures Investment income Other revenue Expenditures Current: General government Police department Municipal court Fire and EMS Parks and recreation Public works Debt service: Principal Interest Capital outlay Original & Variance with Final Budget Actual Final Budget $ 2,844,518 $ 2,950,887 $ 106,369 805,000 883,562 78,562 218,600 236,082 17,482 130,100 289,775 159,675 748,500 829,378 80,878 585,000 588,124 3,124 - 300 300 - 53,743 53,743 140,000 103,420 (36,580) 4,000 4,258 258 128,704 85,990 (42,714) Total Revenues 5,604,422 6,025,519 421,097 Total Expenditures Revenues Over (Under) Expenditures $ 1,475,294 1,506,743 241,728 1,064,065 608,376 759,018 1,502,906 1,339,076 184,528 991,227 597,346 730,096 91,358 111,095 16,642 18,257 335,121 169,822 6,098,345 5,644,353 (493,923) $ 381,166 (27,612) 167,667 57,200 72,838 11,030 28,922 (19,737) (1,615) 165,299 453,992 $ 875,089 74 City of Sanger, Texas SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL- GENERAL FUND (Page 2 of 2) For the Year Ended September 30, 2017 Original & Final Budget Other Financing Sources (Uses) Transfers in $ 1,025,964 Transfers (out) (509,201) Sale of capital assets 25,000 Insurance recoveries 13,000 Total Other Financing Sources (Uses) 554,763 Net Change in Fund Balance $ 60,840 Begimling fund balance Ending Fund Balance Variance with Actual Final Budget $ 916,760 (550,000) 10,834 114,125 491,719 872,885 2,504,039 $ 3,376,924 $ (109,204) (40,799) (14,166) 101,125 (63,044) $ 812,045 Notes to Required Supplementary Information 1. Annual budgets are adopted on a basis consistent with generally accepted accounting principles (GAAP). 75 City of Sanger, Texas SCHEDULE OF CHANGES IN NET PENSION LIABILITYAND RELATED RATIOS Years ended December 31, 2016 2015 2014 1 Total pension liability Service cost $ 408,943 $ 369,950 $ 340,004 Interest (on the Total Pension Liability) 545,333 521,853 476,571 Changes in benefit terms - - - Differences between expected and actual experience (78,516) (89,808) 47,610 Changes of assumptions - 47,847 - Benefit payments, including refunds of participant contributions (230,245) (260,514) (204,026) Net change in total pension liability 645,515 589,328 660,159 Total pension liability - beginning 7,989,659 7,400,331 6,740,172 Total pension liability - ending (a) $ 8,635,174 $ 7,989,659 $ 7,400,331 Plan fiduciary net position Contributions - employer $ 240,177 $ 231,097 $ 211,283 Contributions - members 202,113 195,568 187,821 Net investment income 461,955 9,831 350,203 Benefit payments, including refunds of participant contributions (230,245) (260,514) (204,026) Administrative expenses (5,214) (5,988) (3,656) Other (281) (296) (301) Net change in plan fiduciary net position 668,505 169,698 541,324 Plan fiduciary net position - beginning 6,831,656 6,661,957 6,120,633 Plan fiduciary net position - ending (b) $ 7,500,161 $ 6,831,655 $ 6,661,957 Fund's net pension liability - ending (a) - (b) $ 1,135,013 $ 1,158,004 $ 738,374 Plan fiduciary net position as a percentage of the total pension liability 86.86% 85.51% 90.02% Covered employee payroll $ 3,368,554 $ 3,259,471 $ 3,130,346 Fund's net position as a percentage of covered employee payroll 33.69% 35.530/c Notes to schedule: 1) This schedule is presented to illustrate the requirement to show information for ten years. However, until a full ten-year trend is compiled, only available information is shown. 23.59% 76 City of Sanger, Texas SCHEDULE OF EMPLOYER CONTRIBUTIONS TO PENSION PLAN Years Ended: Actuarially determined employer contributions $ Contributions in relation to the actuarially determined contribution $ Contribution deficiency (excess) $ Annual covered employee payroll $ Employer contributions as a percentage of covered employee payroll 9/30/2017 9/30/2016 9/30/2015 1 266,753 $ 247,432 $ 225,111 266,753 $ 247,432 $ 225,111 3,549,724 $ 3,475,512 $ 3,130,346 7.51% 7.12% 7.19% 1) This schedule is presented to illustrate the requirement to show information for ten years. However, until a full ten-year trend is compiled, only available information is shown. NOTES TO SCHEDULE OF EMPLOYER CONTRIBUTIONS TO PENSION PLAN Valuation Date: Notes Actuarially determined contribution rates are calculated as of December 31 and become effective in January 13 months later. Methods and Assumptions Used to Determine Contribution Rates: Actuarial Cost Method Entry Age Normal Amortization Method Level Percentage of Payroll, Closed Remaining Amortization Period 27 years Asset Valuation Method 10 Year smoothed market; 15% soft corridor Inflation 2.5% Salary Increases 3.0% to 10.5% including inflation Investment Rate of Return 6.75% Retirement Age Experience -based table of rates that are specific to the City's plan of benefits. Last updated for the 2015 valuation pursuant to an experience study of the period 2010 - 2014 Mortality RP2000 Combined Mortality Table with Blue Collar Adjustment with male rates multiplied by 109% and female rates multiplied by 103% and projected on a fully generational basis with scale BB Other Information: Notes There were no benefit changes during the year. 77 (This page intentionally left blank.) r: OTHER SUPPLEMENTARY INFORMATION 79 City of Sanger, Texas COMBINING SCHEDULE OF REVENUES, EXPENSES, AND CHANGES IN FUND NET POSITION PROPRIETARY FUNDS - BY DEPARTMENT For the Year Ended September 30, 2017 Water Sewer Electric Fleet Services Operating Revenues Charges for services $ 1,737,938 $ 1,676,011 $ 7,730,890 $ - Connection fees - - 57,720 - Tap fees 396,000 528,000 - Other revenue - - - Total Operating Revenues 2,133,938 2,204,011 7,788,610 - Operatine Expenses Salaries and wages 626,294 283,104 1,026,142 Contracted services 44,203 36,240 244,028 Utilities 120,226 185,720 9,578 Materials and supplies 29,860 78,676 91,705 Water and electric purchases 87,128 - 5,396,164 Repairs and maintenance 274,518 159,531 251,297 Depreciation 292,183 272,292 237,166 Total Operating Expenses 1,474,412 1,015,563 7,256,080 Operating Income (loss) 659,526 1,188,448 532,530 Nonoperating Revenues (Expenses) Investment income - - - Intergovernmental 725,000 - - Interest expense - - - Nonoperating Revenues (Expenses) 725,000 - Income Before Transfers 1,384,526 1,188,448 Transfers (out) - - Change in Net Position $ 1,384,526 $ 1,188,448 $ 532,530 525 (525) (525) 456,456 $ (525) Na Administration Total $ - $ 11,144,839 - 57,720 - 924,000 53,732 53,732 53,732 12,180,291 - 1,935,540 - 324,471 - 315,524 - 200,241 - 5,483,292 - 685,346 14,263 816,429 14,263 9,760,843 39,469 2,419,448 21,875 21,875 - 725,000 (741,243) (741,243) (719,368) 5,632 (679,899) 2,425,080 (789,150) (865,224) $ (1,469,049) $ 1,559,856 NJ (This page intentionally left blank.) is All American Dogs- Sanger Total Ir poulnded Dogs: 5 January 2017 Cats: 2 Adoption- Clog Adoption- Cat 0 Rescue Pick up 0 Owner Pick up- Dog 3 Owner Fick up- Cat 0 Release to Barn- Cat 0 Died 0 Buthanized Total Surrendered 5