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HomeMy WebLinkAboutComprehensive Annual Financial Report September 30, 2023TY OF FRIENDSWOOD, TEXAS f 1 / .- � ANNUAL _ �p 1 • I COMPREHENSIVE.ZIP 41� FINANCIAL REPORT FISCAL YEAR ENDED SEPTEMBER 30, 2023 -5.1 R Ja, ! �• '�;Y y d V # }/ City of ,,Pnd6wood -Texas CITY OF FRIENDSWOOD, TEXAS ANNUAL COMPREHENSIVE FINANCIAL REPORT FOR THE FISCAL YEAR ENDED Fiscal Year Ended September 30, 2023 Officials Issuing Report: Morad Kabiri City Manager Katina Hampton Director of Administrative Services City of ,,Pnd6wood -Texas CITY OF FRIENDSWOOD, TEXAS TABLE OF CONTENTS Page Introductory Section Letter of Transmittal i Principal Officials v GFOA Certificate of Achievement vi Organizational Chart vii Financial Section Independent Auditor's Report 3 Management's Discussion and Analysis 7 Basic Financial Statements: Government -Wide Financial Statements: Statement of Net Position 21 Statement of Activities 22 Fund Financial Statements: Balance Sheet - Governmental Funds 24 Reconciliation of the Governmental Funds Balance Sheet to the Statement of Net Position 25 Statement of Revenues, Expenditures, and Changes in Fund Balances - Governmental Funds 26 Reconciliation of the Statement of Revenues, Expenditures, and Changes in Fund Balances of Governmental Funds to the Statement of Activities 27 Statement of Net Position - Proprietary Funds 28 Statement of Revenues, Expenses and Changes in Net Position - Proprietary Funds 31 Statement of Cash Flows - Proprietary Funds 32 Notes to the Financial Statements 35 Required Supplementary Information: Schedule of Revenues, Expenditures, and Changes in Fund Balances - Budget and Actual - General Fund 74 Notes to Budgetary Schedule 83 Schedule of Changes in the Net Pension Liability and Related Ratios - Texas Municipal Retirement System 86 Schedule of City Contributions - Texas Municipal Retirement System 88 Notes to Schedule of Contributions 89 Schedule of Changes in the Total OPEB Liability and Related Ratios - Texas Municipal Retirement System Supplemental Death Benefits Fund 90 Schedule of Changes in the Total OPEB Liability and Related Ratios - City of Friendswood Retiree Health Care Plan 91 City of Friendswood, Texas 2023 ACFR CITY OF FRIENDSWOOD, TEXAS TABLE OF CONTENTS (continued) Page Financial Section (continued) Other Supplementary Information: Combining and Individual Fund Financial Statements and Schedules: Combining Balance Sheet - Nonmajor Governmental Funds 97 Combining Statement of Revenues, Expenditures and Changes in Fund Balances - Nonmajor Governmental Funds 100 Schedule of Revenue, Expenditures and Changes in Fund Balances - Budget and Actual: Police Investigation 103 Fire/EMS Donation 104 Municipal Court 105 CDBG — DR Harris County 106 Hazard Mitigation 107 CDBG — DR Galveston County 108 1776 Park 109 Sidewalk Installation 110 Park Land Dedication 111 Street Improvement 112 Debt Service 113 Bond Construction 114 Page Table Statistical Section (Unaudited) Net Position by Component 118 1 Changes in Net Position 120 2 Fund Balances of Governmental Funds 124 3 Changes in Fund Balances of Governmental Funds 126 4 Assessed Value and Taxable Value of Property 128 5 Direct and Overlapping Property Tax Rates 130 6 Principal Property Taxpayers 131 7 Property Tax Levies and Collections 132 8 Ratios of Outstanding Debt by Type 133 9 Ratio of Net General Bonded Debt Outstanding 134 10 Direct and Overlapping Governmental Activities Debt 135 11 Legal Debt Margin Information 136 12 Pledged Revenue Coverage 137 13 Demographic and Economic Statistics 138 14 Principal Employers 139 15 Full -Time Equivalent City Government Employees by Function/Program 140 16 Operating Indicators by Function/Program 142 17 Capital Asset Statistics by Function/Program 144 18 City of Friendswood, Texas 2023 ACFR INTRODUCTORY SECTION City of Friendswood, Texas 2023 ACFR City of ��0 r¢nd6wood �--Texas City of Friendswood, Texas 2023 ACFR CITY OF FRIENDSWOOD FI �? iai March 22, 2024 The Honorable Mayor, Members of the City Council, and the Citizens of Friendswood: The Annual Comprehensive Financial Report (ACFR) of the City of Friendswood for the fiscal year ended September 30, 2023, is hereby submitted. Responsibility for both the accuracy of the data, and the completeness and fairness of the presentation, including all disclosures, rests with the City. To the best of our knowledge and belief, the enclosed data is accurate in all material respects and is reported in a manner designed to present fairly the financial position and results of operations of the various funds of the City. All disclosures necessary to enable the reader to gain an understanding of the City's financial activities have been included. This report consists of management's representations concerning the finances of the City. Consequently, management assumes full responsibility for the completeness and reliability of all the information presented in this report. To provide a reasonable basis for making these representations, management of the City has established a comprehensive internal control framework that is designed both to protect the government's assets from loss, theft, or misuse and to compile sufficient reliable information for the preparation of the City's financial statements in conformity with Generally Accepted Accounting Principles (GAAP). Because the cost of internal controls should not outweigh their benefits, the City's comprehensive framework of internal controls has been designed to provide reasonable rather than absolute assurance that the financial statements will be free from material misstatement. As management, we assert that, to the best of our knowledge and belief, this financial report is complete and reliable in all material respects. The City Charter requires an annual audit of the financial statements of all of the various funds of the City by independent certified public accountants. The accounting firm of Whitley Penn LLP has performed such an audit. The goal of the independent audit was to provide reasonable assurance that the financial statements of the City for the fiscal year ended September 30, 2023, are free of material misstatement. The independent audit involved examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements; assessing the accounting principles used and significant estimates made by management and evaluating the overall financial statement presentation. The independent auditor concluded, based upon the audit, that there was a reasonable basis for rendering an unmodified opinion that the City's financial statements for the fiscal year ended September 30, 2023, are fairly presented in conformity with GAAP. The independent auditors' report is presented as the first component of the financial section of this report. City of Friendswood, Texas 2023 ACFR GAAP requires that management provide a narrative introduction, overview and analysis to accompany the basic financial statements in the form of Management's Discussion and Analysis (MD&A). This letter of transmittal is designed to complement MD&A and should be read in conjunction with it. The City's MD&A can be found immediately following the report of the independent auditors. PROFILE OF THE CITY Established in 1895 as a Quaker colony, the City of Friendswood is rich in heritage. The City was incorporated in 1960 and chartered a home -rule city under Texas law in 1971. The City operates under a Council -Manager form of government. Policy - making and legislative authority are vested in a governing council consisting of the Mayor and six (6) Council Members. The Mayor and Council are responsible, among other things, for passing ordinances, adopting the budget, appointing board and committee members and hiring the City Manager, City Attorney, Municipal Judge, and City Secretary. The City Manager is responsible for carrying out the policies and ordinances of the City Council and overseeing the day-to-day operations of the City government, and for appointing heads of various departments. The Mayor and Council are elected on an at -large, non- partisan basis. The Mayor and Council are elected to serve no more than four consecutive three-year terms. The City provides a full range of municipal services including public safety (police, fire and emergency medical), maintenance of streets and infrastructure, sanitation services, maintenance of the treated waste distribution system and both sanitary and storm sewer collection transmission systems, recreational activities and cultural events as well as general administrative services. FACTORS AFFECTING FINANCIAL CONDITION Location Encompassing 21 square miles, Friendswood is located in southeast Texas near the Texas Gulf Coast, between downtown Houston and Galveston, spanning across two counties — northern Galveston County and southern Harris County. The current estimated population is 42,757. Residents and visitors can access Friendswood through FM 2351, FM 518, and FM 528 (NASA Parkway). Hobby Airport and Ellington Airport are located within a 15 minute drive from Friendswood, and Bush Intercontinental Airport is just 45 minutes away. Major sectors of the area's economic base include aerospace, specialty chemicals, health care, retail, and tourism. Community Friendswood has been nationally recognized as one of the best places to live in the country. With low tax rates, outstanding public education, and the lowest crime rate in the region, Friendswood is the perfect place to live, work, and play. The city features beautiful parks and lush landscaping, along with a championship golf course. Children academically excel via two superior public school systems— Friendswood ISD and Clear Creek ISD. These attributes perfectly match Friendswood's affluent resident base of well-educated, high -income families. More than 50% of residents work in executive, professional, and managerial positions and generate an average household income of over $164,000, one of the highest in the Houston area. Business Friendswood is the perfect choice for many types of commercial enterprises. Target markets include professional offices, retail, commercial, and light industrial developments. A key City focus is to encourage redevelopment of the downtown area along FM 518, development of the City's "panhandle" area near FM 2351 and most recently the development of 106 acres on FM 528 near Bay Area Blvd. City leaders have approved special tools and incentives to revitalize and develop these areas to promote mixed -use, multi -story developments with retail spaces, medical and office buildings, hotels and multi -family residential complexes. The City offers competitive business incentives, including a municipal grant program, tax abatement that includes "green" development, freeport tax exemption, downtown development fee waivers, and most recently the creation of a Tax Increment Reinvestment Zone. Quality Lifestyle As with any city, the goal is planning for continued quality growth to create a well-balanced community. Friendswood offers single-family residential housing in pleasant park -like settings, tucked -away from the busy stream of vehicular traffic. Friendswood is committed to attracting more local enterprises that will complement and enhance the unique community environment that has been carefully built over the past 100 years; one that has come to be cherished by residents and business owners alike. City of Friendswood, Texas 2023 ACFR LONG TERM PLANNING Budgeting Controls The objective of the City's budgetary controls is to ensure compliance with legal provisions embodied in the annual appropriated budget approved by Council. The charter requires the City Manager to submit a proposed budget and an accompanying message to the City Council on or before August 1. The council shall review and revise as deemed appropriate prior to general circulation for the public hearing. The Public Notice and Hearing must be posted in the city hall and published in the official newspaper. The budget must be adopted by the 15th of September or as soon thereafter as practical. The City legally adopts annual budgets for the General, Special Revenue and Debt Service Funds. Annual and project budgets are also adopted for the Proprietary and Capital Projects Funds, respectively. The level of budgetary control; that is, the level at which expenditures cannot legally exceed the appropriated amount, is established by department within a fund. The City also maintains an encumbrance accounting system as one technique of accomplishing budgetary control. Encumbrances lapse at fiscal year end, but can be re -appropriated through a budget amendment the following fiscal year. The City Manager is authorized to transfer budgeted amounts within departments in any fund, but revisions that increase the total expenditures of any fund or transfers between departments must be approved by Council. Multi -Year Financial Planning A Multi -Year financial plan (MYFP) was developed in 2006. Originally, staff was directed to develop a plan to forecast the City's financial condition through 2020, the projected build -out date. The first version of this plan was drafted and later reduced in scope to a five year projection. The MYFP is based on the City's strategic planning efforts, including the Comprehensive Land Use Plan, Vision 2020 and the Capital Improvements Plan. Departmental operational plans funding requirements to provide programs and services are included in the MYFP as well. Funding needs and available resources, both current and alternative revenue enhancements, are identified. Expenditures are projected based on departmental needs assessments and are organized based on "one-time" and "on -going" expenditures. In collaboration with Council, the plan is updated at least annually and serves as the basis of budget development. Relevant Financial Policies As part of the annual budget process, the City adopts Financial Management Policy Statements that establish a framework for fiscal decision making and that ensure that financial resources are available to meet the present and future needs of its citizens. These statements provide guidelines for financial planning and management, addressing every major financial function and process. iii City of Friendswood, Texas 2023 ACFR Most importantly, the Financial Management Policy requires that the City maintain the General Fund unassigned fund balance at a minimum of 90 days of prior year audited operating expenditures. Any unassigned funds after the fiscal year-end audit will be allowed to accumulate to build this 90-day reserve. After the General Fund has gathered sufficient resources, additional unassigned funds will be allowed to accumulate for future General Fund capital improvements. The Financial Management Policy also requires the minimum working capital in the Water and Sewer Fund be 90 days of prior year audited operating expenditures. Any unrestricted funds after the fiscal year-end audit will be allowed to accumulate to build this 90-day reserve. After these funds have gathered sufficient resources, additional unrestricted funds will be allowed to accumulate in working capital for future utility /operating fund capital improvements. Awards The Government Finance Officers Association (GFOA) awarded a Certificate of Achievement for Excellence in Financial Reporting to the City of Friendswood for its annual comprehensive financial report for the fiscal year ended September 30, 2022. This was the thirty-fifth consecutive year that the City has received this prestigious award. In order to be awarded a Certificate of Achievement, the City published an easily readable and efficiently organized annual comprehensive financial report. This report satisfied both generally accepted accounting principles and applicable legal requirements. A Certificate of Achievement is valid for a period of one year only. We believe that our current annual comprehensive financial report continues to meet the Certificate of Achievement program's requirements and we are submitting it to the GFOA to determine its eligibility for another certificate. Acknowledgements The preparation of the annual comprehensive financial report was made possible by the dedicated service of the entire staff of the Administrative Services Department. Each member of the department has my sincere appreciation for the contributions made in the preparation of this report. In closing, I also express my thanks to the Mayor, members of the City Council and the City Manager for their leadership, interest and support in conducting the financial operations of the City in a responsible and progressive manner. Sincerely, Katina Hampton Director of Administrative Services iv City of Friendswood, Texas 2023 ACFR CITY OF FRIENDSWOOD, TEXAS PRINCIPAL OFFICIALS September 30, 2023 Elected Officials Position Term Expires Mike Foreman Mayor May 2024 Steve Rockey Council Member - Position No. 1 May 2024 Sally Branson Council Member - Position No. 2 May 2026 Trish Hanks Council Member - Position No. 3 May 2024 Robert J. Griffon Council Member - Position No. 4 May 2025 Joe Matranga Council Member - Position No. 5 May 2026 Brent Erenwert Council Member - Position No. 6 May 2025 Key Staff Position Morad Kabiri City Manager Steven Rhea Assistant City Manager Katina Hampton Director of Administrative Services Aubrey Harbin Director of Community Development Jildardo Arias Director of Engineering Matt Riley Library Director Brian Mansfield Director of Emergency Services Haley Brown Director of Human Resources Terry Prindle Director of Information Technology Rene Ibarra Director of Public Works James Toney Director of Parks and Recreation Leticia Brysch City Secretary Christoper Rogers Chief of Police Karen Horner City Attorney James W. Woltz Judge - Municipal Court v City of Friendswood, Texas 2023 ACFR Government Finance Officers Association Certificate of Achievement for Excellence in Financial Reporting Presented to City of Friendswood Texas For its Annual Comprehensive Financial Report For the Fiscal Year Ended September 30, 2022 G P. Executive Director/CEO vi City of Friendswood, Texas 2023 ACFR CITY OF FRIENDSWOOD, TEXAS ORGANIZATIONAL CHART Citizens of Friendswood City Attorney Mayor and City CoUnciJ • Prosacutars Municipal ,Judge City Manager ■ Administratron Administrative Services . Finance ■ Utilityj9-7lirtg ■ Municipai Court City Secretary . Administration • Records l4fanagemerd . Erections Human Resources . Human Resources . lr�surar�ce . Risk Managerrrent Information Technology . Cybemecurity . fnfrastructure Services & Cps Fire Marshal . Adrrrinis�a�orr . Irr vestig a SorrsJlrrsp a cti c rrs ■ Emergency Management ■ FVFD Contract Police Department . ,4drrrrnistratrart + Patrol + Criminal investigations • Animal Control Comm rnicabons Boards, Committees, & Commission Assistant City Manager Economic Oeveiopment GommunicatronslPubfie Intbrmagon Community Development . AdrrrrnislraiJavr Planning and Zonlug • lnspectronslC-ode Enforcement Parks & Recreation . Administration r f?ecrea6on Progmms • Park Operations • Facility Operations Public Works Admrnis�atran + Streets 1 Skfewaiks + Drainage OperaUons + Water Operations + Sewer Operations Engineering • Engineering + Pro}ects Library Services ■ Fnendswood Public Library vii City of Friendswood, Texas 2023 ACFR City of ,,pnd6wood0 Texas viii City of Friendswood, Texas 2023 ACFR FINANCIAL SECTION City of Friendswood, Texas 2023 ACFR City of ,,Pnd6wood0 Texas City of Friendswood, Texas 2023 ACFR on whitleypenri' INDEPENDENT AUDITOR'S REPORT To the Honorable Mayor and Members of City Council City of Friendswood, Texas Report on the Audit of the Financial Statements Opinions Houston Office 3737 Buffalo Speedway Suite 1600 Houston, Texas 77098 713.621.1515 Main whitleypenn.com We have audited the accompanying financial statements of the governmental activities, the business -type activities, the aggregate discretely presented component units, each major fund, and the aggregate remaining fund information of City of Friendswood, Texas (the "City"), as of and for the year ended September 30, 2023, and the related notes to the financial statements, which collectively comprise the City's basic financial statements as listed in the table of contents. In our opinion, based on our report and the report of other auditors, the accompanying financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, the business - type activities, the aggregate discretely presented component units, each major fund, and the aggregate remaining fund information of the City, as of September 30, 2023, 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. We did not audit the financial statements of West Ranch Management District, a discretely presented component unit of the City, which represents 77%, 100%, and 75%, respectively, of the assets, liabilities, and revenues of the aggregate discretely presented component units. Those financial statements were audited by other auditors whose report thereon has been furnished to us, and our opinion, insofar as it related to the amounts included for West Ranch Management District, is based solely on the report of the other auditors. The financial statements of West Ranch Management District were not audited in accordance with Government Auditing Standards. Basis for Opinions We conducted our audit in accordance with auditing standards generally accepted in the United States of America (GAAS) and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Our responsibilities under those standards are further described in the Auditor's Responsibilities for the Audit of the Financial Statements section of our report. We are required to be independent of the City, and to meet our other ethical responsibilities, in accordance with the relevant ethical requirements relating to our audit. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. Responsibilities of Management for the Financial Statements Management is responsible for the preparation and fair presentation of the financial statements in accordance with accounting principles generally accepted in the United States of America, and for 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. In preparing the financial statements, management is required to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the City's ability to continue as a going concern for twelve months beyond the financial statement date, including any currently known information that may raise substantial doubt shortly thereafter. OWE ARE AN INDEPENDENT MEMBER OE HLBTHE GLOBAL ADVISORY ACCOUNTING NETWORK City of Friendswood, Texas 2023 ACFR The Honorable Mayor and Members of the City Council City of Friendswood, Texas Auditor's Responsibilities for the Audit of the Financial Statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinions. Reasonable assurance is a high level of assurance but is not absolute assurance and therefore is not a guarantee that an audit conducted in accordance with GAAS and Government Auditing Standards will always detect a material misstatement when it exists. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Misstatements are considered material if there is a substantial likelihood that, individually or in the aggregate, they would influence the judgment made by a reasonable user based on the financial statements. In performing an audit in accordance with GAAS and Government Auditing Standards, we: • Exercise professional judgment and maintain professional skepticism throughout the audit. • Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, and design and perform audit procedures responsive to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. • Obtain an understanding of internal control relevant to the audit 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 City's internal control. Accordingly, no such opinion is expressed. • Evaluate the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluate the overall presentation of the financial statements. • Conclude whether, in our judgment, there are conditions or events, considered in the aggregate, that raise substantial doubt about the City's ability to continue as a going concern for a reasonable period of time. We are required to communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit, significant audit findings, and certain internal control -related matters that we identified during the audit. Required Supplementary Information Accounting principles generally accepted in the United States of America require that management's discussion and analysis, general fund budgetary comparison schedule, coronavirus state fiscal recovery fund budgetary comparison schedule, pension information, and other -post employment benefit information, as listed in the table of contents, be presented to supplement the basic financial statements. Such information is the responsibility of management and, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management's responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. 4 City of Friendswood, Texas 2023 ACFR The Honorable Mayor and Members of the City Council City of Friendswood, Texas Supplementary Information Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the City's basic financial statements. The combining and individual fund financial statements and schedules, are presented for purposes of additional analysis and are not a required part of the basic financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the basic financial statements. The information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the combining and individual fund financial statements and schedules are fairly stated, in all material respects, in relation to the basic financial statements as a whole. Other Information Management is responsible for the other information included in the annual report. The other information comprises the introductory section and statistical section but does not include the basic financial statements and our auditor's report thereon. Our opinions on the basic financial statements do not cover the other information, and we do not express an opinion or any form of assurance thereon. In connection with our audit of the basic financial statements, our responsibility is to read the other information and consider whether a material inconsistency exists between the other information and the basic financial statements, or the other information otherwise appears to be materially misstated. If, based on the work performed, we conclude that an uncorrected material misstatement of the other information exists, we are required to describe it in our report. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated March 22, 2024, on our consideration of the City's internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is solely to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion of the effectiveness of the City's internal control over financial reporting or compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the City's internal control over financial reporting and compliance. wk-A-F/�Z LI-P Houston, Texas March 22, 2024 City of Friendswood, Texas 2023 ACFR City of ,,Pnd6wood Texas City of Friendswood, Texas 2023 ACFR CITY OF FRIENDSWOOD, TEXAS MANAGEMENT'S DISCUSSION AND ANALYSIS As management of the City of Friendswood, 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, 2023. Please read this information in conjunction with the basic financial statements that follow this section. Financial Highlights Some of the City's financial highlights for the fiscal year ending September 30, 2023 include: • The assets and deferred outflows of resources of the City exceeded its liabilities and deferred inflows of resources at the close of the most recent fiscal year by $151,015,158. • The City's total net position increased during the year by $12,606,375. The City's net pension and total OPEB liabilities were $18.9 million and $1.6 million, respectively. The net pension liability increased by $13.8 million and the total OPEB liability decreased by $365.1 thousand compared to the prior year. • As of the close of the current fiscal year, the City reported unrestricted net position of $21,280,699. • Program revenues of $30,066,518 reduced the net cost of the City's functions to be financed from the City's general revenues to $27,950,639 . Overview of the Financial Statements Coinponeut= ofthe :5M3UCialSection _M=gement's Pequred Base Fiaaniia] Disco scion and Supplermo-at�: A1.3 sic S-ater�t LRfocm3tion >}' L•tsependeo- Gove-spent-aide Fund Financial nSt3-.em.LLzLts Audita¢s'F.epart Fran€i3L 5t3fbMM rs 5t3ftEMM .� suRun7Y'S'<===> I}g t711 This discussion and analysis is intended to serve as an introduction to the City's basic financial statements. The basic financial statements are comprised of three components: 1) government -wide financial statements, 2) fund financial statements, and 3) notes to the financial statements. This report also includes supplementary information intended to furnish additional detail to support the basic financial statements themselves. City of Friendswood, Texas 2023 ACFR CITY OF FRIENDSWOOD, TEXAS MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Government -wide Financial Statements The government -wide financial statements report information for the City as a whole. These statements include transactions and balances relating to all assets, including infrastructure capital assets. These statements are designed to provide information about cost of services, operating results, and financial position of the City as an economic entity. The Statement of Net Position and the Statement of Activities, which appear first in the City's financial statements, report information on the City's activities that enable the reader to understand the financial condition of the City. These statements are prepared using the accrual basis of accounting, which is similar to the accounting used by most private -sector companies. All of the current year's revenues and expenses are taken into account even if cash has not yet changed hands. The Statement of Net Position presents information on all of the City's assets and deferred outflows of resources and liabilities and deferred inflows of resources with the difference reported as net position. Over time, increases or decreases in the 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 — the accrual method rather than modified accrual that is used in the fund level statements. Both of the government -wide financial statements distinguish functions of the City that are principally supported by taxes and intergovernmental revenues (governmental activities) from functions that are intended to recover all or significant portion of their costs through user fees (business -type activities). Governmental activities — Most of the City's basic services are reported here including general government (mayor and council, city secretary, city manager, administrative services, human resources, information technology, and city attorney); public safety (police and fire marshal); engineering (capital projects administration); public works (streets and drainage); community development (building inspection and planning and zoning); parks and recreation (parks, facility operations and community activities) and library. Interest payments on the City's debt and internal lease payments are also reported here. Property tax, sales tax, franchise taxes, municipal court fines and permit fees finance most of the activities. Business -type activities — Services involving a fee for those services, which include the City's water and sewer system are reported here. Component Units — Activities of the West Ranch Management District and Friendswood Downtown Economic Development Corporation. Fund Financial Statements A fund is a self -balancing set of accounts that is used to maintain control over resources that have been segregated for specific activities or objectives. The City uses fund accounting to ensure and demonstrate compliance with finance -related legal requirements. The City uses two fund types — governmental and proprietary. 8 City of Friendswood, Texas 2023 ACFR CITY OF FRIENDSWOOD, TEXAS MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Governmental Funds Governmental funds are used to account for essentially the same functions reported as governmental activities in the government -wide financial statements with the exclusion of internal service fund activity. However, unlike the government - wide financial statements, governmental funds focus on near -term inflows and outflows of spendable resources, as well as on balances of spendable resources available at the end of the fiscal year. Such information may be useful in evaluating the City's near -term financing requirements. Because the focus of the 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, the reader may better understand the long-term impact of the government's near -term financial decisions. Both the governmental fund balance sheet and the governmental statement of revenues, expenditures, and changes in fund balances provide a reconciliation to facilitate this comparison between governmental funds and governmental activities. The City maintains fourteen governmental funds. Information is presented separately in the governmental funds balance sheet and the governmental fund statement of revenues, expenditures, and changes in fund balance for the General Fund, Coronavirus State and Local Fiscal Recovery Fund, and Bond Construction Fund, which are considered to be major funds. The other eleven funds are combined into a single, aggregated presentation. Individual fund data for each of these non -major governmental funds is provided in the form of combining statements found in this report. Proprietary Funds The City maintains two types of proprietary funds: enterprise and internal service funds. Enterprise funds are used to report the same functions presented as business -type activities in the government -wide financial statements. The City uses an enterprise fund to account for its operation in water distribution and wastewater collection/treatment along with its water and wastewater impact fees, and water construction projects. Management would note that trash collection services are provided by a franchise agreement. Internal service funds 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 fleet management services. Because these services predominately benefit governmental rather than business -type functions, they have been included within the governmental activities in the government -wide financial statements. Notes to the Financial Statements The notes to the financial statements provide additional information that is essential to a full understanding of the data provided in the government -wide fund financial statements. The notes are the last section of the basic financial statements. Other Information In addition to the basic financial statements and accompanying notes, this report also presents certain Required Supplementary Information ("RSI"). The City adopts an annual appropriated budget for its General Fund. A budgetary comparison schedule has been provided as RSI to demonstrate compliance with this budget. RSI can be found after the notes to the financial statements. The RSI also includes schedules related to the City's progress in funding its obligation to provide pension and other post -employment benefits to its employees. The combining and individual fund financial statements and schedules that further support the information in the financial statements are presented immediately following the required supplementary information. 9 City of Friendswood, Texas 2023 ACFR CITY OF FRIENDSWOOD, TEXAS MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) GOVERNMENT -WIDE FINANCIAL ANALYSIS Statement of Net Position As noted earlier, net position may serve over time as a useful indicator of a government's financial position. For the City, assets and deferred outflows of resources exceed liabilities and deferred inflows of resources by $151,015,158 as of September 30, 2023 in the primary government, which is an increase in the City's overall financial position compared to the prior year. The largest portion of the City's net position (79.3%) reflects its investments in capital assets (e.g., land, buildings and improvements, machinery and equipment, infrastructure, water and sewer system, construction in progress and water rights); less any debt outstanding used to acquire those assets. The City uses these capital assets to provide services to citizens; consequently, these assets are not available for future spending. Although the City's investment in its capital assets is reported net of related debt, it should be noted that the resources needed to repay this debt must be provided from other resources, since the assets themselves cannot be used to liquidate these liabilities. The following table reflects the condensed Statement of Net Position. Governmental Activities 2023 2022 Business -Type Activities 2023 2022 Totals 2023 2022 Current and other assets $ 73,574,397 $ 48,901,051 $ 39,975,446 $ 42,738,547 $ 113,549,843 $ 91,639,598 Capital assets 123,606,676 115,789,091 77,842,844 71,551,212 201,449,520 187,340,303 Total Assets 197,181,073 164,690,142 117,818,290 114,289,759 314,999,363 278,979,901 Deferred Outflows of Resources 9,104,231 3,221,061 1,687,348 1,002,527 10,791,579 4,223,588 Total Assets and Deferred Outflows of Resources 206,285,304 167,911,203 119,505,638 115,292,286 325,790,942 283,203,489 Long-term liabilities 96,996,075 57,513,830 58,213,317 60,296,656 155,209,392 117,810,486 Other Liabilities 14,383,827 16,380,206 3,277,179 3,611,658 17,661,006 19,991,864 Total Liabilities 111,379,902 73,894,036 61,490,496 63,908,314 172,870,398 137,802,350 Deferred Inflows of Resources 1,783,691 6,282,137 121,695 710,219 1,905,386 6,992,356 Net Position: Net investment in capital assets 79,714,165 74,006,329 40,075,768 35,999,342 119,789,933 110,005,671 Restricted 7,105,294 5,059,835 2,839,232 2,897,578 9,944,526 7,957,413 Unrestricted 6,302,252 8,668,866 14,978,447 11,776,833 21,280,699 20,445,699 Total Net Position $ 93,121,711 $ 87,735,030 $ 57,893,447 $ 50,673,753 $ 151,015,158 $ 138,408,783 A portion of the primary government's net position, $9,944,526 or 6.6%, represents resources that are subject to external restrictions on how they may be used. These restrictions include monies accounted for in special revenue funds for which the use is legally restricted and capital project funds. The remaining balance of unrestricted net position, $21,280,699 or 14.1%, may be used to meet the City's ongoing obligations to citizens and creditors. 10 City of Friendswood, Texas 2023 ACFR CITY OF FRIENDSWOOD, TEXAS MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) The following table provides a summary of the City's changes in net position. Governmental Activities Business Type Activities Totals 2023 2022 2023 2022 2023 2022 Revenues Program Revenues: Charges for services $ 2,680,917 $ 2,848,589 $ 21,293,632 $ 19,419,622 $ 23,974,549 $ 22,268,211 Operating grants and contributions 2,229,755 841,537 104,354 289,181 2,334,109 1,130,718 Capital grants and contributions 3,757,860 2,620,495 - - 3,757,860 2,620,495 General Revenues: Property taxes 22,731,678 20,845,938 22,731,678 20,845,938 Sales and alcohol taxes 12,126,784 11,176,190 12,126,784 11,176,190 Franchise taxes 2,235,689 2,170,152 2,235,689 2,170,152 Investment earnings 1,726,549 49,151 1,450,648 130,401 3,177,197 179,552 Miscellaneous 285,666 638,418 - - 285,666 638,418 Total Revenues 47,774,898 41,190,470 22,848,634 19,839,204 70,623,532 61,029,674 Expenses General government 7,873,719 6,210,336 - - 7,873,719 6,210,336 Public safety 18,526,954 15,655,859 18,526,954 15,655,859 Public works 6,990,046 6,994,042 6,990,046 6,994,042 Engineering 640,292 570,098 640,292 570,098 Community development 1,406,566 1,017,509 1,406,566 1,017,509 Parks and recreation 5,608,792 4,870,623 5,608,792 4,870,623 Library services 1,485,716 1,283,007 1,485,716 1,283,007 Water and sewer - - 12,075,080 11,124,562 12,075,080 11,124,562 Interest on long-term debt 1,659,932 1,268,435 1,750,060 1,861,881 3,409,992 3,130,316 Total Expenses 44,192,017 37,869,909 13,825,140 12,986,443 58,017,157 50,856,352 Increase (decrease) in net position before transfers 3,582,881 3,320,561 9,023,494 6,852,761 12,606,375 10,173,322 Transfers 1,803,800 1,795,683 (1,803,800) (1,795,683) - - Change in net position 5,386,681 5,116,244 7,219,694 5,057,078 12,606,375 10,173,322 Net Position - Beginning 87,735,030 82,618,786 50,673,753 45,616,675 138,408,783 128,235,461 Net Position - Ending $ 93,121,711 $ 87,735,030 $ 57,893,447 $ 50,673,753 $ 151,015,158 $ 138,408,783 11 City of Friendswood, Texas 2023 ACFR CITY OF FRIENDSWOOD, TEXAS MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Governmental Activities Governmental activities increased the City's net position by $5,386,681. Key elements of this change are as follows: • Property taxes continue to be the City's largest revenue source. Property tax revenue increased by $1,885,740 as a result of new construction and property tax increases to cover operating expenses, deferred facilities maintenance, deferred equipment purchases and debt service obligations related to the general obligation bonds authorized by voters in 2013 and 2019. • Sales and alcohol tax revenue remained strong during fiscal year 2023, providing a 8.51% increase for the year, from $11.2 million to $12.1 million. This increase is primarily a result of commercial growth and inflation. • Operating grants and contributions increased $1,388,218 from the prior year. This increase is primarily a result of the City's interlocal agreement with Harris County in which funds of $1.2 million were received for the Blackhawk Boulevard Reconstruction project. • Capital grants and contributions increased $1,137,365 from the prior year. This increase is due to more activity with the CDBG-DR grants. • Overall, total expenses increased $6.3 million from the prior year. The largest increase of $2,871,095 was in Public Safety which was primarily a result of an increase in personnel cost due to merit, pay plan adjustments, overtime as well as the cost to fund future retirement benefits. In addition, the Fire/EMS contract with the Friendswood Volunteer Fire Department increased approximately $322 thousand. General Government had the next largest increase of $1,663,383 resulting from increased software support services and personnel costs. In addition, an economic incentive grant in the amount of $350 thousand was awarded for commercial development. Governmental Activities - Revenues Investment earnings Franchise taxes 4% Sales and alcohol to xe 25% Pro p e rty 47 5% Miscellaneous 1% Ch a rges for services 5% Operating grants and contri butions 5% Ca pital grants and contri butions 8% 12 City of Friendswood, Texas 2023 ACFR CITY OF FRIENDSWOOD, TEXAS MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Governmental Activities - Expense! Libra ryservices Interestonlong- term debt Parks and 3° �0� 45/c recreation 13% Community developmen 3% Engi neeri 1% Pu bl is works 16% Business -Type Activities General government 18% Pu b l i c s afety 42% Business -type activities increased the City's net position by $7,219,694. Key elements of this change are as follows: • Revenues increased by $3.0 million or 15.2% resulting from an increase in utility rates and consumption due to drought like conditions. Expenses increased $839 thousand primarily a result of increased personnel costs, increased water purchases due to the drought and the purchase of additional automated meters for new development. 25,000,000 20,000,000 15,000,000 10,000,000 5,000,000 2023 2022 ■ Operating Revenues ■ Operating Expenses 13 City of Friendswood, Texas 2023 ACFR CITY OF FRIENDSWOOD, TEXAS MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) FINANCIAL ANALYSIS OF THE CITY'S FUNDS As noted earlier, fund accounting is used to demonstrate and ensure compliance with finance -related legal requirements. Governmental Funds The focus of the City's governmental funds is to provide information on near -term inflows, outflows and balances of spendable resources. Such information is useful in assessing the City's financing requirements. In particular, unassigned fund balance may serve as a useful measure of the City's net resources available for spending at the end of the year. At the end of the current fiscal year, the City's governmental funds reported combined ending fund balance of $56,818,872. Approximately 19.55% of this amount or $11,111,696 is unassigned fund balance; however, $8.7 million is set aside for the 90-day operating reserve, as set forth in the City's financial policies. The remaining $45,707,176 is nonspendable, restricted, or assigned as follows: 0.78% - Nonspendable Prepaid items Permanent fund Total Nonspendable 71.52% - Restricted Public education and government channels Debt service Municipal court operations Public safety operations Capital projects Total Restricted 8.15% - Assigned $ 430,434 11,501 $ 441,935 $ 566,041 30,793 201,568 500,548 39,335,309 $ 40,634,259 Subsequent year's budget appropriation of fund balance $ 3,891,673 Capital projects 739,309 Total Assigned $ 4,630,982 The General Fund is the chief operating fund of the City. At the end of the current fiscal year, total fund balance reached $16.7 million of which unassigned fund balance of the General Fund was $11.1 million. As a measure of the General Fund's liquidity, it may be useful to compare both unassigned and total fund balance to total fund expenditures. Unassigned fund balance represents 28.6% of total General Fund expenditures, while total fund balance represents 43.1% of that same amount. At year end, the City's operating reserve was $8.7 million, representing 25% of total General Fund expenditures, excluding capital expenditures. 14 City of Friendswood, Texas 2023 ACFR CITY OF FRIENDSWOOD, TEXAS MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Key differences between last year's General Fund activity and this year's include: • $4.4 million increase in total revenues —This increase is primarily related to an increase in property taxes of $1.6 million due to new home construction as well as the increase in rates to cover operating costs and debt service payments. In addition, intergovernmental revenue increased $1.4 million as a result of the City receiving $1.2 million from Harris County for the Blackhawk Boulevard Reconstruction project. Investment income increased $628 thousand due to the rise in interest rates. • $4.4 million increase in total expenditures — This increase in expenditures can be attributed to the following: $1.6 million in capital improvements related to the Public Safety Building expansion and the Blackhawk Building renovation, $1.3 million in Public Safety due to increased personnel costs and an increase in the Fire/EMS contract, $905 thousand in General Government resulting from increased personnel and software support services costs and the awarding of an economic development grant, and $612 thousand in Parks and Recreation due to the increased cost of utilities and contracts to maintain operations. The Coronavirus State and Local Fiscal Recovery Fund has $10.0 million of unearned revenue that will be expended in fiscal year 2024. The fund balance of the Bond Construction Fund was $33,540,466, an increase of $25,387,754 compared to the prior year. This increase is related to the issuance of the remaining bonds that were approved by voters in 2019. These bonds were issued for drainage improvement projects. Other non -major governmental funds fund balance increased by $1,749,849. This increase is primarily a result of a sales tax collections for the Street Improvement fund exceeding improvement cost by $1.8 million. Proprietary Funds The City's proprietary funds financial statements provide the same type of information found in the government -wide financial statements, but in more detail. At the end of the year, unrestricted net position was $15.0 million for the Water and Sewer Fund. The total increase in the net position of the Water and Sewer Fund was $7,219,694. Other factors concerning the finances of this fund have already been addressed in the discussion of the City's business -type activities. Unrestricted net position of the Internal Service Fund was $1,083,495. The net position of the Internal Service Fund increased by $393,211 resulting from lease revenue from the City's participating funds. General Fund Budgetary Highlights The City made revisions to the original appropriations approved by the City Council. Budgeted revenues increased by $1,323,418 or 4.08% and budgeted expenditures were increased by $9,171,203 or 26.39%. 15 City of Friendswood, Texas 2023 ACFR CITY OF FRIENDSWOOD, TEXAS MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Total revenues were above budget by $1,983,264. The more significant variances are detailed below: • $1,037,519 over budget in sales and mixed beverage taxes as a result of commercial growth and inflation. • $296,193 over budget in miscellaneous revenue as a result of a reimbursement from Lakes of Falcon Ridge HOA for their portion of the Centennial Wall project. • $234,567 over budget in investment earnings due to increased interest rates resulting from inflation. • $191,589 over budget in franchise taxes as a result of increased gas and electric franchise fees and the receipt of unbudgeted Public Education and Government (PEG)/In-Kind fees. Total expenditures of the General Fund were $5.1 million below the final expenditure budget. The more significant variances are detailed below: $656,119 below budget in general government expenditures as a result of a decrease in other services and charges (legal, contract, consulting, etc.). $556,747 below budget in parks and recreation expenditures as a result of repairs and maintenance being approved in FY23 but completed in FY24. $3,985,864 below budget in capital improvements due to projects either not being started or completed in FY23. These projects are primarily related to facility and streets improvements. Capital Assets The City's investment in capital assets (net of accumulated depreciation) for its governmental and business -type activities as of September 30, 2023 is $201.4 million. The investment in capital assets include land, buildings and improvements, machinery and equipment, infrastructure, water and sewer system, water rights and construction in progress. Major capital events during the year included the following: • Business -type improvements include the completion of the Sanitary Sewer Assessment Phase IV construction, which was completed for $1,367,517 and the purchase of property at 23 Wilderness Trail for $832,798 to accommodate future water and sewer projects. • Using grant funds, the City purchased properties along Deepwood Drive for a total cost of $325,349 for flood mitigation projects. • Necessary upgrades were made to improve the City's technological infrastructure for $789,099. • Heavy equipment purchases included a dump truck, an excavator, and a boom mower for a total cost of $417,859. • From the Vehicle Replacement Plan, the City purchased 9 new vehicles this year and the equipment to upfit an additional 13 vehicles from the previous year. The total cost was approximately $953,296. • Self-contained breathing apparatus packs for $411,000 were purchased on behalf of the Friendswood Volunteer Fire Department using funds from the Fire and EMS Donation Fund. • Furniture, fixtures, and equipment totaling $935,424 was purchased for the Public Safety Expansion project, Blackhawk Building renovation project, and the reconstruction of Fire Station #2. • The following major projects are in Construction in Progress at the end of fiscal year 2023: Parks Master Plan, Blackhawk Shelter, Blackhawk Building Renovation, Blackhawk Blvd Reconstruction, Fire Station #2, Public Safety Building, Centennial Park Wall, Utility Relocation at Clear Creek Utility Bridge, Forest Bend Detention Pond, Deepwood Flood Control, Friendswood Regional Detention Basin, Water System Improvement Study & Engineering, Lift Station Mitigation Program, 2023 Tank Rehabilitation, Automated Water Meter installation, and the 42" Southeast Transmission Line. 16 City of Friendswood, Texas 2023 ACFR CITY OF FRIENDSWOOD, TEXAS MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Governmental Activities Business -type Activities Totals 2023 2022 2023 2022 2023 2022 Land $ 32,720,334 $ 32,355,840 $ 1,152,271 $ 319,473 $ 33,872,605 $ 32,675,313 Buildings and improvements 22,057,982 22,938,656 299,092 318,849 22,357,074 23,257,505 Machinery and equipment 9,242,231 7,845,397 2,417,307 2,596,552 11,659,538 10,441,949 Infrastructure 40,696,318 43,675,282 35,250,381 38,970,139 75,946,699 82,645,421 Right -to -use SBITA asset 88,617 176,744 - - 88,617 176,744 Water rights - - 19,716,695 19,716,695 19,716,695 19,716,695 Construction in progress 18,801,194 8,797,172 19,007,098 9,629,504 37,808,292 18,426,676 $ 123,606,676 $ 115,789,091 $ 77,842,844 $ 71,551,212 $ 201,449,520 $ 187,340,303 More detailed information on the City's capital assets is presented in Note 4 to the financial statements. Debt Administration At the end of the current fiscal year, the City had a total bonded debt, premiums and notes payable obligation of $133.3 million. Governmental Activities 2023 2022 Business -type Activities 2023 2022 Totals 2023 2022 General obligation bonds $ 71,325,000 $ 43,950,000 $ 16,920,000 $ 18,635,000 $ 88,245,000 $ 62585,000 Revenue bonds - - 34,120,000 35,630,000 34,120,000 35,630,000 Premium on bond issuance 3,366,542 3,193,902 4,861,781 5,264,036 8,228,323 8,457,938 Notes payable 2,645,629 2,613,729 - 2,645,629 2,613,729 SBITA liability 92,494 176,744 - - 92,494 176,744 $ 77,429,665 $ 49,934,375 $ 55,901,781 $ 59,529,036 $ 133,331,446 $ 109,463,411 The City's General Obligation and Revenue Bonds bond ratings are listed below: General Obligation Bonds Revenues Bonds Standard & Poor's AA+ AA - More detailed information about the City's outstanding debt can be found in Note 5 to the financial statements. 17 City of Friendswood, Texas 2023 ACFR CITY OF FRIENDSWOOD, TEXAS MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Economic Factors and Next Year's Budgets and Rates Friendswood continues to experience moderate growth. The City's current population is estimated to be 42,757. Friendswood is expected to reach build out with an estimated population of 58,012. The City is continuing to focus on economic development initiatives, including the revitalization of downtown as well as commercial and mixed -use development outside of the downtown area. These development projects include medical office buildings, hotels, retail and office spaces as well as multi -family complexes. In addition, to commercial growth the City is also experiencing residential growth with several large master -planned communities in progress or in the planning stages. The City's largest single source of revenue in the General Fund continues to be ad valorem taxes. The adopted budget for fiscal year 2024 has a tax rate of $0.500728 per $100 taxable value. This rate consists of a maintenance and operation (M&O) tax rate of $0.379450 and an interest and sinking (debt service) tax rate of $0.121278. The rate was set based on a net assessed value of $5,023,334,676. This is an increase of $130,483,289 above certified values including supplemental rolls for tax year 2022. The City's financial management policy sets the guideline to maintain the fund balance and net position of the various operating funds at levels sufficient to protect the City's creditworthiness as well as its financial position from unforeseeable emergencies. The City second largest source of revenue in the General Fund is sales tax. The City anticipates an increase in this revenue stream from the prior year and has adjusted the budget from $8,621,519 to $9,150,001. The franchise fees budget increased from $2,044,100 to $2,112,803 and the budget for licenses and permits has decreased from $873,730 to $753,524. If all projections are accurate, the total General Fund unassigned fund balance net of the 90 day operating requirement ($8.7 million) is estimated to be approximately $2.1 million on September 30, 2024. Water revenues are budgeted at $9,557,321 which is an increase of $1,009,235 in revenues, or 11.81 percent. Sewer revenues are budgeted at $9,568,474 which is an increase of $530,894 or 5.9 percent. Water and Sewer Fund working capital net of the 90 day operating requirement ($2.5 million) is projected to be $6.4 million at the end of fiscal year 2024. Pursuant to the City's financial management policy, funds in excess of the 90 day operating reserve are designated for future capital improvements. Requests for Information The financial report is designed to provide our citizens, customers, investors, and creditors with a general overview of the City's finance and to show the City's accountability for the money it receives. If you have questions about this report or need additional information, contact Administrative Services, P.O. Box 1288, Friendswood, Texas 77549-1288, or call Katina Hampton at 281-996-3221, or email khampton@friendswood.com. Separately issued financial statements for the West Ranch Management District can be obtained by writing to: West Ranch Management District, a Component Unity of the City of Friendswood, c/o Allen Boone Humphries Robinson, LLP, 3200 Southwest Freeway, Suite 2600, Houston, Texas 77027. 18 City of Friendswood, Texas 2023 ACFR BASIC FINANCIAL STATEMENTS 19 City of Friendswood, Texas 2023 ACFR City of i0 r¢nd3wood -Texas 20 City of Friendswood, Texas 2023 ACFR CITY OF FRIENDSWOOD, TEXAS STATEMENT OF NET POSITION September 30, 2023 Primary Government Component Units West Ranch Governmental Business -type Management Friendswood Activities Activities Total District Downtown EDC Assets Cash and cash equivalents $ 7,492,092 $ 3,581,022 $ 11,073,114 $ 225,017 $ 677,713 Investments 59,489,532 13,151,105 72,640,637 4,860,757 2,489,457 Receivables, net of allowances Taxes 3,110,710 - 3,110,710 12,310 142,824 Leases 995,808 - 995,808 - - Customer accounts 488,383 4,926,480 5,414,863 Other 263,733 - 263,733 - - Accrued interest 29,427 14,054 43,481 137 2,576 Due from other governments 1,274,278 - 1,274,278 - - Prepaid items 430,434 95,415 525,849 4,398 Working capital deposit - 571,884 571,884 - Restricted investments - 17,635,486 17,635,486 - - Capital Assets: Non -depreciable 51,521,528 39,876,064 91,397,592 7,695,748 505,174 Depreciable, net 72,085,148 37,966,780 110,051,928 345,439 - Total Capital Assets 123,606,676 77,842,844 201,449,520 8,041,187 505,174 Total Assets 197,181,073 117,818,290 314,999,363 13,143,806 3,817,744 Deferred Outflows of Resources Deferred loss on issuance of refunding bonds 48,209 523,479 571,688 273,687 - Deferred outflow of resources for pensions 8,732,353 1,122,271 9,854,624 - Deferred outflow of resources for OPEB 323,669 41,598 365,267 Total Deferred Outflows of Resources 9,104,231 1,687,348 10,791,579 273,687 - Total Assets and Deferred Outflows of Resources 206,285,304 119,505,638 325,790,942 13,417,493 3,817,744 Liabilities Accounts payable 2,047,743 2,277,751 4,325,494 25,783 - Accrued liabilities 981,017 119,646 1,100,663 - - Retainage payable 929,652 167,881 1,097,533 - 9,909 Accrued interest 237,167 169,871 407,038 227,269 - Unearned revenue 10,023,192 - 10,023,192 - Customer deposits 66,544 542,030 608,574 Due to other governments 98,512 - 98,512 - Noncurrent liabilities: Due within one year 3,720,611 3,370,285 7,090,896 900,000 Due in more than one year 74,959,594 52,657,922 127,617,516 17,141,921 Net pension liability 16,951,983 1,978,562 18,930,545 - Total OPEB liability 1,363,887 206,548 1,570,435 - Total Liabilities 111,379,902 61,490,496 172,870,398 18,294,973 9,909 Deferred Inflows of Resources Deferred gain on issuance of refunding bonds 51,521 24,260 75,781 - - Deferred Inflows of resources for leases 974,036 - 974,036 Deferred Inflows of resources for pensions 43,942 5,647 49,589 Deferred Inflows of resources for OPEB 714,192 91,788 805,980 Total Deferred Inflows of Resources 1,783,691 121,695 1,905,386 Net Position Net investment in capital assets 79,714,165 40,075,768 119,789,933 6,512,015 Restricted for: Public education and government channels 566,041 - 566,041 - Debt service 30,793 2,759,284 2,790,077 2,029,067 Municipal court operations 201,568 - 201,568 - - Economic development - - 3,807,835 Public safety 500,548 500,548 - Parks and recreation - nonexpendable 11,501 - 11,501 - Capital projects 5,794,843 79,948 5,874,791 71,156 Unrestricted 6,302,252 14,978,447 21,280,699 (13,489,718) - Total Net Position $ 93,121,711 $ 57,893,447 $ 151,015,158 $ (4,877,480) $ 3,807,835 See notes to the financial statements. 21 City of Friendswood, Texas 2023 ACFR CITY OF FRIENDSWOOD, TEXAS STATEMENT OFACTIVITIES For the Year Ended September 30, 2023 Program Revenues Charges for Operating Grants Capital Grants Functions/Programs Expenses Services and Contributions and Contributions Primary government Governmental Activities: General government $ 7,873,719 $ 921,752 $ 16,000 $ Public safety 18,526,954 1,023,874 2,145,679 - Public works 6,990,046 241,445 - 3,757,860 Engineering 640,292 - - Community development 1,406,566 - - Parks and recreation 5,608,792 493,846 68,076 Library services 1,485,716 - - Interest on long-term debt 1,659,932 - - - Total Governmental Activities 44,192,017 2,680,917 2,229,755 3,757,860 Business -type Activities: Water and sewer 13,825,140 21,293,632 104,354 Total Business -type Activities 13,825,140 21,293,632 104,354 - Total Primary Government 58,017,157 23,974,549 2,334,109 3,757,860 Component Units West Ranch Management District 913,045 - - - Friendswood Downtown EDC 30,444 Total Component Units $ 943,489 $ $ $ Page 1 of 2 See notes to the financial statements. 22 City of Friendswood, Texas 2023 ACFR CITY OF FRIENDSWOOD, TEXAS Page 2 of 2 STATEMENT OF ACTIVITIES For the Year Ended September 30, 2023 Net (Expense) Revenue and Changes in Net Position Primary Government Component Units West Ranch Governmental Business -type Management Friendswood Functions/Programs Activities Activities Total District Downtown EDC Primary government Governmental Activities: General government $ (6,935,967) $ $ (6,935,967) $ $ Public safety (15,357,401) (15,357,401) Public works (2,990,741) (2,990,741) Engineering (640,292) (640,292) Community development (1,406,566) (1,406,566) Parks and recreation (5,046,870) (5,046,870) Library services (1,485,716) (1,485,716) Interest on long-term debt (1,659,932) (1,659,932) Total Governmental Activities (35,523,485) (35,523,485) Business -type Activities: Water and sewer 7,572,846 7,572,846 Total Business -type Activities 7,572,846 7,572,846 Total Primary Government (35,523,485) 7,572,846 (27,950,639) Component Units West Ranch Management District (913,045) Friendswood Downtown EDC (30,444) Total Component Units (913,045) (30,444) General revenues: Taxes: Property taxes 22,731,678 22,731,678 2,269,540 Franchise and other taxes 2,235,689 2,235,689 - - Sales taxes 12,126,784 - 12,126,784 - 803,085 Interest 1,726,549 1,450,648 3,177,197 169,562 103,572 Miscellaneous 285,666 - 285,666 342,934 - Transfers 1,803,800 (1,803,800) - - - Total General Revenues and Transfers 40,910,166 (353,152) 40,557,014 2,782,036 906,657 Change in net position 5,386,681 7,219,694 12,606,375 1,868,991 876,213 Net Position - Beginning 87,735,030 50,673,753 138,408,783 (6,746,471) 2,931,622 Net Position - Ending $ 93,121,711 $ 57,893,447 $ 151,015,158 $ (4,877,480) $ 3,807,835 See notes to the financial statements. 23 City of Friendswood, Texas 2023 ACFR CITY OF FRIENDSWOOD, TEXAS BALANCE SHEET GOVERNMENTAL FUNDS September 30, 2023 Coronavirus State Total Nonmajor Total Fiscal Recovery Bond Governmental Governmental General Fund Fund Construction Funds Funds Assets Cash and cash equivalents $ 3,595,467 $ 2,217,263 $ 35,374 $ 1,412,325 $ 7,260,429 Investments 10,443,545 8,144,712 34,866,060 5,184,240 58,638,557 Receivables, net of allowance: Taxes 2,625,155 - - 485,555 3,110,710 Leases 995,808 - - - 995,808 Customer accounts 485,644 2,739 488,383 Other receivables 260,160 - - 3,573 263,733 Accrued interest 14,261 8,821 5,488 28,570 Due from other funds 1,787,687 - - 1,787,687 Due from other governments 9,462 - - 1,264,816 1,274,278 Prepaid items 430,134 - 300 430,434 Total Assets $ 20,647,323 $ 10,370,796 $ 34,901,434 $ 8,359,036 $ 74,278,589 Liabilities, Deferred Inflows and Fund Balances Liabilities: Accounts payable $ 1,208,784 $ - $ 710,187 $ 128,772 $ 2,047,743 Accrued liabilities 981,017 - - 981,017 Due to other governments 98,512 98,512 Customer deposits 66,544 - - - 66,544 Retainage payable 87,846 650,781 191,025 929,652 Due to other funds - - - 1,787,687 1,787,687 Unearned revenue - 10,003,026 - 20,166 10,023,192 Total Liabilities 2,442,703 10,003,026 1,360,968 2,127,650 15,934,347 Deferred Inflows of Resources: Unavailable revenue 491,731 - - 59,603 551,334 Leases 974,036 - - - 974,036 Total Deferred Inflows of resources 1,465,767 - - 59,603 1,525,370 Fund Balances: Nonspendable: Prepaid items 430,134 - - 300 430,434 Permanent fund - - - 11,501 11,501 Restricted: Public education and government channels 566,041 - 566,041 Municipal court operations - 201,568 201,568 Debt service - - - 30,793 30,793 Public safety - - 500,548 500,548 Capital projects - 367,770 33,540,466 5,427,073 39,335,309 Assigned: Subsequent year's budget appropriation of fund balance 3,891,673 - - - 3,891,673 Capital projects 739,309 - - - 739,309 Unassigned 11,111,696 - - - 11,111,696 Total Fund Balances 16,738,853 367,770 33,540,466 6,171,783 56,818,872 Total Liabilities, Deferred Inflows of Resources, and Fund Balances $ 20,647,323 $ 10,370,796 $ 34,901,434 $ 8,359,036 $ 74,278,589 See notes to the financial statements. 24 City of Friendswood, Texas 2023 ACFR CITY OF FRIENDSWOOD, TEXAS RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET POSITION September 30, 2023 Total Fund Balance, Governmental Funds $ 56,818,872 Amounts reported for governmental activities in the Statement of Net Position are different because: Capital assets used in governmental activities are not current financial resources and therefore are not reported in the fund financial statement, but are reported in the governmental activities of the Statement of Net Position. 121,020,965 The assets and liabilities of certain internal service funds are not included in the fund financial statement, but are included in the governmental activities of the Statement of Net Position. 3,669,206 Some liabilities are not due and payable in the current period and are not included in the fund financial statement, but are included in the governmental activities of the Statement of Net Position. Bonds and certificates of obligation payable (71,325,000) Notes payable (2,645,629) SBITA payable (92,494) Compensated absences (1,250,540) Accrued interest payable (237,167) Unamortized premium on bonds (3,366,542) Unavailable revenues in the governmental fund statements is recognized as revenue in the government -wide financial statements. 551,334 Deferred gain on refunding (51,521) Deferred loss on refunding 48,209 Certain other long-term assets and liabilities are not available to pay current period expenditures and therefore are not reported in this fund financial statement, but are reported in the governmental activities of the Statement of Net Position. Net pension liability (16,951,983) Total OPEB liability (1,363,887) Deferred outflows and inflows of resources related to the net pension liability 8,688,411 Deferred outflows and inflows of resources related to the total OPEB liability (390,523) Net Position of Governmental Activities in the Statement of Net Position $ 93,121,711 See notes to the financial statements. 25 City of Friendswood, Texas 2023 ACFR CITY OF FRIENDSWOOD, TEXAS STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS For the Year Ended September 30, 2023 Revenues Property taxes Sales taxes Franchise fees and other Fines and forfeitures Permits and fees Intergovernmental Investment income (loss) Donations Miscellaneous Total Revenues Expenditures Current: General government Public safety Public works Engineering Community development Parks and recreation Library services Debt service: Principal Interest and other charges Capital outlay Total Expenditures Excess (deficiency) of revenues over (under) expenditures Other Financing Sources (Uses) Issuance of capital -related debt Notes payable issued Premium on bond issuance Insurance recoveries Transfers in Transfers out Sale of capital assets Total Other Financing Sources (Uses) Net change in fund balances Fund Balances - Beginning Fund Balances - Ending Coronavirus Total Nonmajor Total State Fiscal Bond Governmental Governmental General Fund Recovery Fund Construction Funds Funds $ 18,122,796 $ $ $ 4,602,691 $ 22,725,487 9,717,528 2,409,256 12,126,784 2,235,689 - 2,235,689 834,135 61,442 895,577 1,800,725 60,600 1,861,325 1,973,125 3,757,860 5,730,985 612,954 369,436 479,377 230,205 1,691,972 112,474 - - 183,494 295,968 348,413 - 1,682 350,095 35,757,839 369,436 479,377 11,307,230 47,913,882 6,893,644 16,640,299 2,749,650 641,204 1,293,280 4,914,245 1,401,299 42,734 6,936,378 - - 16,640,299 11,001 811,675 3,572,326 - - 641,204 - 1,293,280 4,093 4,918,338 - 1,401,299 84,250 - 3,293,100 3,377,350 - 311,664 1,597,147 1,908,811 4,175,531 5,080,622 4,230,970 13,487,123 38,793,402 - 5,403,287 9,979,719 54,176,408 (3,035,563) 369,436 (4,923,910) 1,327,511 (6,262,526) - - 29,775,000 - 29,775,000 514,000 - 411,000 925,000 - 536,664 4,470 541,134 69,683 - - 69,683 1,803,800 6,868 1,810,668 (16,335) - (16,335) 18,181 - - 18,181 2,389,329 30,311,664 422,338 33,123,331 (646,234) 369,436 25,387,754 1,749,849 26,860,805 17,385,087 (1,666) 8,152,712 4,421,934 29,958,067 $ 16,738,853 $ 367,770 $ 33,540,466 $ 6,171,783 $ 56,818,872 See notes to the financial statements. 26 City of Friendswood, Texas 2023 ACFR CITY OF FRIENDSWOOD, 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, 2023 Net Change in Fund Balances - Total Governmental Funds $ 26,860,805 Amounts reported for Governmental Activities in the Statement of Activities are different because: Governmental funds report outlays for capital assets as expenditures because such outlays use current financial resources. In contrast, the Statement of Activities reports only a portion of the outlay as expense. The outlay is allocated over the assets' estimated useful lives as depreciation/amortization expense for the period. Capital outlay 13,488,086 Depreciation/amortization expense (5,891,025) Governmental funds do not present revenues that are not available to pay current obligations. In contrast, such revenues are reported in the Statement of Activities when earned. Unavailable property tax revenue and other revenues (207,749) Governmental funds report proceeds from long-term debt as current financial resources. In contrast, the Statement of Activities treats such issuance of debt as a liability. Governmental funds report repayment of long-term debt principal as an expenditure, In contrast, the Statement of Activities treats such repayments as a reduction in long-term liabilities. Debt service principal 3,293,100 SBITA principal 84,250 Proceeds from issuance of long-term debt (29,775,000) Proceeds from notes payable (925,000) Premium from issuance of long-term debt (541,134) Contributions are treated as expenditures in the fund based financial statements, but are treated as reductions in the City's net pension/06EB liability in the statement of net position. This amount is the difference between contributions and net pension/OPEB expense (revenue) for the current fiscal year. Pension (1,481,350) OPEB (53,232) Some expenses reported in the statement of activities do not require the use of current financial resources and these are not reported as expenditures in governmental funds: (Increase) decrease in accrued interest (118,365) (Increase) decrease in compensated absences (106,197) Amortization of deferred loss on refunding (6,506) Amortization of deferred gain on refunding 4,293 Amortization of premium on bonds 368,494 Internal service fund is used by management to charge the cost of fleet management to individual funds. The change in net position of the internal service fund is included in the governmental activities in the statement of activities. 393,211 Change in Net Position of Governmental Activities $ 5,386,681 See notes to the financial statements. 27 City of Friendswood, Texas 2023 ACFR CITY OF FRIENDSWOOD, TEXAS Page 1 of 2 STATEMENT OF NET POSITION PROPRIETARY FUNDS September 30, 2023 Business -Type Activities Governmental Activities Enterprise Fund Water and Sewer Internal Service Assets Current Assets Cash and cash equivalents $ 3,581,022 $ 231,663 Investments 13,151,105 850,975 Accounts receivable, net of allowance: Customer accounts 4,926,480 - Accrued interest 14,054 857 Prepaids and other assets 95,415 - Restricted investments 17,635,486 - Total Current Assets 39,403,562 1,083,495 Non -current Assets Working capital deposit 571,884 - Capital Assets: Land 1,152,271 Construction in progress 19,007,098 Water rights 19,716,695 Buildings and improvements 683,906 - Machinery and equipment 7,934,769 5,862,037 Water and sewer systems 76,058,499 - Accumulated depreciation (46,710,394) (3,276,326) Total Capital Assets 77,842,844 2,585,711 Total Non -current Assets 78,414,728 2,585,711 Total Assets 117,818,290 3,669,206 Deferred Outflows of Resources Deferred loss on bond refunding 523,479 - Deferred outflows - pension related 1,122,271 Deferred outflows - OPEB related 41,598 Total Deferred Outflows of Resources 1,687,348 Total Assets and Deferred Outflows of Resources 119,505,638 3,669,206 See notes to the financial statements. 28 City of Friendswood, Texas 2023 ACFR CITY OF FRIENDSWOOD, TEXAS STATEMENT OF NET POSITION PROPRIETARY FUNDS September 30, 2023 Liabilities Current Liabilities Accounts payable Accrued liabilities Accrued interest Customer deposits Retainage payable Compensated absences Bonds and other long-term debt payable Total Current Liabilities Non -current Liabilities Compensated absences Net Pension liability Total OPEB liability Bonds and other long-term debt payable Total Non -current Liabilities Total Liabilities Deferred Inflows of Resources Deferred gain on issuance of refunding bonds Deferred inflows - pension related Deferred inflows of resources for OPEB Total Deferred Inflows of Resources Total Liabilities and Deferred Inflows of Resources Net Position Net investment in capital assets Restricted for capital projects Restricted for debt service Unrestricted Total Net Position Business -Type Activities Enterprise Fund Water and Sewer $ 2,277,751 119,646 169,871 542,030 167,881 25,285 3,345,000 6,647,464 101,141 1,978,562 206,548 52,556,781 54,843,032 61,490,496 24,260 5,647 91,788 121,695 61,612,191 Page 2 of 2 Governmental Activities Internal Service 40,075,768 2,585,711 79,948 - 2,759,284 - 14,978,447 1,083,495 $ 57,893,447 $ 3,669,206 See notes to the financial statements. 29 City of Friendswood, Texas 2023 ACFR City of nd6wood -Texas 30 City of Friendswood, Texas 2023 ACFR CITY OF FRIENDSWOOD, TEXAS STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET POSITION PROPRIETARY FUNDS For the Year Ended September 30, 2023 Business -Type Activities Enterprise Governmental Fund Activities Water and Sewer Internal Service Operating Revenues Charges for services $ 21,092,670 $ 998,340 Miscellaneous 200,962 35,224 Total Operating Revenues 21,293,632 1,033,564 Operating Expenses Personnel services 3,140,920 - Sewer operations 2,337,235 - Water purchases 2,144,603 - Repairs and maintenance 814,793 - Supplies 184,000 - Other services and charges 1,433,517 - Depreciation 2,020,012 630,721 Total Operating Expenses 12,075,080 630,721 Operating income 9,218,552 402,843 Non -Operating Revenues (Expenses) Intergovernmental 104,354 - Investment income 1,450,648 34,577 Loss on disposal of capital assets - (53,676) Interest expense (1,750,060) - Total Non -Operating Revenues (Expenses) (195,058) (19,099) Income before transfers 9,023,494 383,744 Transfers in - 9,467 Transfers out (1,803,800) - Change in net position 7,219,694 393,211 Net position - Beginning 50,673,753 3,275,995 Total Net Position - Ending $ 57,893,447 $ 3,669,206 See notes to the financial statements. 31 City of Friendswood, Texas 2023 ACFR CITY OF FRIENDSWOOD, TEXAS STATEMENT OF CASH FLOWS PROPRIETARY FUNDS For the Year Ended September 30, 2023 Cash flows from operating activities Cash received from customers Receipts from interfund charges for fleet management Cash payments to suppliers for goods and services Cash payments to employees for services Net cash provided by operating activities Cash flows from noncapital financing activities Transfer in from other funds Transfers out to other funds Operating grants Net cash provided (used) by noncapital financing activities Cash flows from capital and related financing activities Acquisition and construction of property, plant and equipment Disposal of capital assets Capital grants Repayment of debt Interest paid on debt Net cash provided (used) by capital and related financing activities Cash flows from investing activities Purchase of investments Investment income Net cash provided (used) by investing activities Net increase (decrease) in cash and cash equivalents Cash and Cash Equivalents, Beginning Cash and Cash Equivalents, Ending Reconciliation of Total Cash and Cash Equivalents Current assets - cash and cash equivalents Restricted assets - cash and cash equivalents Page 1 of 2 Business -Type Activities Enterprise Governmental Fund Activities Water and Sewer Internal Service $ 20,328,341 $ - - 1,033,564 (7,404,810) (46,406) (2,931,256) - 9,992,275 987,158 - 9,467 (1,803,800) - 79,646 - (1,724,154) 91467 (8,149,560) (851,245) - (53,676) 24,708 - (3,225,000) - (2,101,100) - (13,450,952) (904,921) (2,776,206) (175,233) 1,444,852 34,289 (1,331,354) (140,944) (6,514,185) (49,240) 27,730,693 280,903 $ 21,216,508 $ 231,663 $ 3,581,022 $ 231,663 17,635,486 - $ 21,216,508 $ 231,663 See notes to the financial statements. 32 City of Friendswood, Texas 2023 ACFR CITY OF FRIENDSWOOD, TEXAS STATEMENT OF CASH FLOWS PROPRIETARY FUNDS For the Year Ended September 30, 2023 Reconciliation of operating income to net cash provided (used) by operating activities: Operating income Adjustments to reconcile operating income to net cash provided by operating activities: Depreciation Change in assets, deferred inflows and outflows, and liabilities: Decrease (increase) in customer receivable Decrease (increase) in prepaids and other assets Decrease (increase) in deferred outflow for pensions Decrease (increase) in deferred outflow for OPEB Increase (decrease) in accounts payable Increase (decrease) in accrued liabilities Increase (decrease) in customer deposits Increase (decrease) in deferred inflows for pensions Increase (decrease) in deferred inflows for OPEB Increase (decrease) in total OPEB liability Increase (decrease) in net pension liability Increase (decrease) in compensated absences Total Adjustments Net cash provided by operating activities Page 2 of 2 Business -type Activities - Enterprise Governmental Funds Activities Water and Sewer Internal Service $ 9,218,552 $ 402,843 2,020,012 630,721 (936,891) - (32,191) - (754,178) - 5,418 (417,075) (46,406) (41,396) - (28,400) - (625,245) - 39,753 - (41,578) - 1,568,478 - 17,016 - 773,723 584,315 $ 9,992,275 $ 987,158 See notes to the financial statements. 33 City of Friendswood, Texas 2023 ACFR City of nd6wood -Texas 34 City of Friendswood, Texas 2023 ACFR CITY OF FRIENDSWOOD, TEXAS NOTES TO THE FINANCIAL STATEMENTS Note 1. Summary of Significant Accounting Policies The City of Friendswood, Texas ("the City") was incorporated on October 15, 1960. The City charter provides for a City Council -City Manager form of government. The Mayor and six Council members are elected from the City at large serving three-year terms. The City Council is the principal legislative body of the City. The City Manager is appointed by a majority vote of the City Council and is responsible to the Council for the administration of all the affairs of the City. The City Manager is responsible for law enforcement, appointment and removal of department directors and employees, supervision and control of all City departments, and preparation of the annual budget. The Mayor resides at meetings of the City Council and can vote. The City provides the following services: public safety, streets, parks and recreation, library, water and sewer, sanitation, planning and zoning, building inspection, code enforcement, and general administrative services. A. Reporting Entity The City is an independent political subdivision of the State of Texas governed by an elected six- member Council and Mayor and is considered a primary government. As required by generally accepted accounting principles, these 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. Based on these considerations, the West Ranch Management District and Friendswood Downtown Economic Development Corporation have been included in the City's reporting entity as discretely presented component units. 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. Consideration regarding the potential for inclusion of other entities, organizations, or functions in the City's financial reporting entity is based on criteria prescribed by general 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 it is financial independent of other state and local governments. Additional prescribed criteria under generally accepted accounting principles include considerations pertaining to organizations for which the primary government is financially accountable; and considerations pertaining to other organizations for which the nature and significance of the relationship with the primary government are such that exclusion would cause the reporting entity's financial statements to be misleading or incomplete. The West Ranch Management District ("the District"), a discretely presented component unit, was created under Section 59, Article XVI of the Texas Constitution added by an Act of the 79`" Legislature of the State of Texas, effective June 17, 2005, in accordance with the Texas Water Code, Chapter 54. The District operates in accordance with Chapters 3837, Texas Special District Local Laws Code, Chapters 49 and 54 of the Texas Water Code and Chapter 375 of the Texas Local Government Code, and is subject to the continuing supervision of the Texas Commission on Environmental Quality. The District was created to promote and encourage employment and the public welfare within the District. The affairs of the District are managed by a Board of Directors composed of persons appointed by the City Council. The City is financially accountable for the District because City Council must approve any debt issuances. Complete financial statements from the component may be obtained at the District's administrative office. The Friendswood Downtown Economic Development Corporation ("FDEDC") was incorporated August 1, 2016 as a nonprofit economic development corporation under the Development Corporation Act. The citizens of Friendswood voted to pass a one- half cent sales tax dedicated to support and enhance the welfare and prosperity of the citizens of the City and of this State by promotion of economic development and growth by encouraging the development of new business enterprises and the retention or expansion of existing business enterprises. 35 City of Friendswood, Texas 2023 ACFR CITY OF FRIENDSWOOD, TEXAS NOTES TO THE FINANCIAL STATEMENTS (continued) Note 1. Summary of Significant Accounting Policies (continued) A. Reporting Entity (continued) To serve this purpose, the Corporation shall have the authority and power of a Type B corporation to undertake projects as described in Subchapter C of Chapter 501 of the Local Government Code and Chapter 505 of the Local Government Code, including undertaking projects as authorized by law, including but not limited to projects to promote new or expanded business enterprises in the downtown area as defined by the City of Friendswood Downtown District Map, including but not limited to streets, targeted infrastructure, paved sidewalks, pedestrian amenities including lighting, benches, signage, and other related public improvements, and the maintenance and operations expenses for any of the above -described projects. A separate governing board oversees FDEDC, which is appointed by Friendswood City Council, and consists of members of City Council, City's management, and individuals from the community. The City can remove appointed board members and approves the FDEDC's budget. The FDEDC is reported as a discretely presented component unit because the governing body is not identical to the governing body of the City, the FDEDC does not solely serve the City, and the City has the ability to impose its will on FDEDC. Complete financial statements of the FDEDC may be obtained by contacting FDEDC's administration office. B. Government -Wide and Fund Financial Statements The government -wide financial statements (i.e., the statement of net position and the statement of activities) report information on all activities of the primary government and its component unit. For the most part, the effect of interfund activity has been removed from these statements. Governmental activities, which normally are supported by taxes and intergovernmental revenue, are reported separately from business -type activities, which rely to a significant extent on fees and charges for support. Likewise, the primary government is reported separately from certain legally separate component units for which the primary government is financial accountable. The statement of activities demonstrates the degree to which the direct expenses of a given function or segment are offset by program revenue. Direct expenses are those that are clearly identifiable with a specific function or segment. Program revenue includes 1) charges to customers or applicants who purchase, use, or directly benefit from goods, services, or privileges provided by a given function or segment, and 2) grants and contributions that are restricted to meeting the operations or capital requirements of a particular function or segment. Taxes and other items not properly included among program revenue are reported instead as general revenue. Separate financial statements are provided for governmental funds and proprietary funds. Major individual governmental funds and major individual enterprise funds are reported as separate columns in the fund financial statements. 36 City of Friendswood, Texas 2023 ACFR CITY OF FRIENDSWOOD, TEXAS NOTES TO THE FINANCIAL STATEMENTS (continued) Note 1. Summary of Significant Accounting Policies (continued) C. Measurement Focus, Basis of Accounting, and Financial Statement Presentation The government -wide financial statements are reported using the economic resources measurement focus and the 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 considered revenue to be available if collected within 60 days of the end of the current fiscal period. Expenditures generally are recorded when a liability is incurred, as under accrual accounting. However, debt service expenditures, including subscription -based technology arrangements (SBITA) liabilities, as well as expenditures related to compensated absences and claims and judgements, are recorded only when payment is due. Property taxes, franchise taxes, sales taxes, and interest associated with the current fiscal period are all considered to be susceptible to accrual and, accordingly, have been recognized as revenue of the current fiscal period. All of revenue items are considered to be measurable and available only when cash is received by the City. The City reports the following major governmental funds: The General Fund is the City's primary operating fund. It accounts for all financial resources of the general government, except those required to be accounted for in another fund. The Coronavirus State and Local Fiscal Recovery Fund is used to account for federal funds related to the fiscal recovery of Coronavirus. Funds will be used for water and sewer infrastructure projects. The Bond Construction Fund is used to account for the construction of public facilities, and park, street and drainage improvements that are funded by the proceeds from Permanent Improvement Bonds. Other governmental funds is a summarization of all the non -major governmental funds. The City reports the following major enterprise fund: The Water and Sewer Fund is used to account for the activities of the City's water and wastewater operations. Additionally, the City reports the following fund type: The Internal Service Fund is used to account for fleet management services provided to other departments of the City on a cost reimbursement basis. As a general rule, the effect of interfund activity has been eliminated from the government -wide financial statements. Exceptions to this general rule are charges between the City's water and sewer function and various other functions of the government. Elimination of these charges would distort the direct costs and program revenue reported for the various functions concerned. Proprietary funds distinguish operating revenues and expenses from nonoperating items. Operating revenues and expenses generally result from providing services and producing and delivering goods in connection with a proprietary fund's principal ongoing operations. The principal operating revenues of the Water and Sewer enterprise fund and of the City's internal service fund are charges to customers for sales and services. Operating expenses for the enterprise fund and internal service fund include the cost of sales and services, administrative expenses, and depreciation on capital assets. All revenue and expenses not meeting this definition are reported as nonoperating revenue and expenses. 37 City of Friendswood, Texas 2023 ACFR CITY OF FRIENDSWOOD, TEXAS NOTES TO THE FINANCIAL STATEMENTS (continued) Note 1. Summary of Significant Accounting Policies (continued) D. Assets, Liabilities, Deferred Outflows/Inflows and Net Position/Fund Balance Cash and Investments Cash and investments include cash on hand, deposits with financial institutions, short-term investments in a state -managed public funds investment pool account (TexPool), and a privately managed public funds investment pool (Texas Class). Other investments consist mainly of U.S. government treasury bills, treasury notes and other U.S. government obligations. Restricted cash and investments are assets restricted for specific use. Restricted includes cash deposits with financial institutions and investment pools. The City maintains a pooled cash and investments account for all funds of the City. Each fund's positive equity in the pooled cash account is presented as "cash and investments" in the financial statements. Negative equity balances are reclassified and are reflected as interfund accounts payable. Interest income and interest expense are allocated monthly to each respective individual fund based on their representative fund balances. 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. Investments for the City are reported at fair value, except for the position in investment pools. The City's investment in pools are reported at the net asset value per share (which approximates fair value) even though it is calculated using the amortized cost method. TexPool and Texas Class have a redemption notice period of one day and may redeem daily. The investment pool's authority may only impose restrictions on redemptions in the event of a general suspension of trading on major securities markets, general banking moratorium or national state of emergency that affects the pool's liquidity. Property Taxes All trade and property tax receivables are shown net of an allowance for uncollectible accounts. Management estimates an allowance for trade accounts receivable based on past experience, historical losses, and other pertinent factors. The City's property taxes are levied annually in October on the basis of the Appraisal District's assessed values as of January 1 of that calendar year. Appraised values are established by the Appraisal District at market value and assessed at 100% of appraised value less exemptions. The City's property taxes are billed and collected by Galveston County. Such taxes are applicable to the fiscal year in which they are levied and become delinquent with an enforceable lien on property on February 1 of the subsequent calendar year. Property taxes are prorated between operations and debt service based on rates adopted for the year of the levy. For the current year, the City levied property taxes of $0.487314 per $100 of assessed valuation that were prorated between operations and debt service in the amounts of $0.388560 and $0.098754, respectively. The resulting tax levies were approximately $18.1 and $4.6 million for operations and debt service, respectively, based on a total taxable valuation of approximately $4.6 billion for the 2022 tax year. West Ranch Management District bond resolutions require that the District levy and collect an ad valorem debt service tax sufficient to pay interest and principal on bonds when due. During the year ended July 31, 2023, the District levied an ad valorem tax at the rate of $0.1650 per $100 of assessed valuation, which resulted in tax levy of $1.2 million on the taxable valuation of approximately $753.1 million for the 2022 tax year. 38 City of Friendswood, Texas 2023 ACFR CITY OF FRIENDSWOOD, TEXAS NOTES TO THE FINANCIAL STATEMENTS (continued) Note 1. Summary of Significant Accounting Policies (continued) D. Assets, Liabilities, Deferred Outflows/Inflows and Net Position/Fund Balance (continued) Interfund Receivables/Payables Activity between funds that are representative of lending/borrowing arrangements outstanding at the end of the fiscal year are referred to as either "due to/from other funds" (i.e., the current portion of interfund loans"). All other outstanding balances between funds are reported as "due to/from other funds." Any residual balances outstanding between the governmental activities and business -type activities are reported in the government -wide financial statements as "internal balances." Prepaid Items Certain payments to vendors reflect costs applicable to future accounting periods and are recorded as prepaid items in both government -wide and fund financial statements. The City applies the consumption method in accounting for prepaid items in the governmental funds. Restricted Assets Certain proceeds of the City's enterprise fund revenue bonds, as well as certain resources set aside for their repayment, are classified as restricted assets on the balance sheet because their use is limited by applicable bond covenants. Contract with West Ranch Management District The District approved a contract with the City effective August 15, 2005, as amended. Under the terms of the contract, the District is to pay for construction of water distribution, sanitary sewer, drainage, transportation, education and recreation facilities to serve the District. The District shall be the owner of the system until the system is completed, approved by the City and conveyed to it, at which time ownership will vest in the City. The District will own and operate these facilities to serve the District. Pursuant to the contract, the District shall have a security interest therein until all bonds issued by the District are retired. Capital Assets Capital assets, which include property, plant, equipment, infrastructure, and water rights, are reported in the applicable governmental or business -type activities columns in the government- wide financial statements. The City defines capital assets as assets with an initial, individual cost of more than $5,000 and an estimated historical cost if actual historical cost is not available. The City has established a SBITA recognition threshold of $100,000. Donated capital assets are recorded at acquisition cost, which is the price that would be paid to acquire an asset with equivalent service potential at the acquisition date. The City's water rights have an indefinite life. The cost of normal maintenance and repairs that do not add to the value of the asset or materially extend assets' lives are not capitalized. 39 City of Friendswood, Texas 2023 ACFR CITY OF FRIENDSWOOD, TEXAS NOTES TO THE FINANCIAL STATEMENTS (continued) Note 1. Summary of Significant Accounting Policies (continued) D. Assets, Liabilities, Deferred Outflows/Inflows and Net Position/Fund Balance (continued) Capital Assets The City's property, plant, equipment, and right -to -use SBITA assets are depreciated/amortized using the straight-line method over the following useful lives: Right -to -use SBITA asset 2 years Buildings and improvements 20-50 years Machinery and equipment 5 - 10 years Infrastructure 40-50 years Water and sewer system 40-50 years The West Ranch Management District's capital assets are depreciated using the straight-line method over estimated useful lives of 10 to 45 years. Compensated Absences The City's employees earn vacation leave, which may either be taken or accumulated, up to certain amounts, until paid upon resignation or retirement. All vacation leave pay is accrued when incurred in the government -wide and proprietary fund financial statements. A liability for these amounts is reported in the governmental funds only if they have matured, for example, as a result of employee resignations and retirements. Long-term Debt In the government -wide financial statements and proprietary fund types in the fund financial statements, long-term debt and other long-term obligations are reported as liabilities in the applicable governmental activities, business -type activities, or proprietary fund type statement of net position. Bond premiums and discounts are deferred and amortized over the life of the bonds using the straight-line method, which approximates the effective interest method. Bonds payable are reported net of the applicable bond premium or discount. Bond issuance cost are expenses in the period incurred. Leases The City is a lessor for noncancellable lease agreements. The City recognizes a lease receivable and a deferred inflow of resources in the government -wide and governmental fund financial statements. At the commencement of a lease, the City initially measures the lease receivable at the present value of payments expected to be received during the lease term. Subsequently, the lease receivable is reduced by the principal portion of lease payments received. The deferred inflow of resources is initially measured as the initial amount of the lease receivable, adjusted for lease payments received at or before the lease commencement date. Subsequently, the deferred inflow of resources is recognized as revenue over the life of the lease term. Key estimates and judgments include how the City determines (1) the discount rate it uses to discount the expected lease receipts to present value, (2) lease term, and (3) lease receipts. • The City uses its estimated incremental borrowing rate as the discount rate for leases. • The lease term includes the noncancellable period of the lease. Lease receipts included in the measurement of the lease receivable is composed of fixed payments from the lessee. 40 City of Friendswood, Texas 2023 ACFR CITY OF FRIENDSWOOD, TEXAS NOTES TO THE FINANCIAL STATEMENTS (continued) Note 1. Summary of Significant Accounting Policies (continued) D. Assets, Liabilities, Deferred Outflows/Inflows and Net Position/Fund Balance (continued) Leases (continued) The City monitors changes in circumstances that would require a remeasurement of its lease and will remeasure the lease receivable and deferred inflows of resources if certain changes occur that are expected to significantly affect the amount of the lease receivable. Subscription -Based Information Technology Arrangements The City is under a contract for SBITA for governmental software. The agreement/contract is noncancellable and the City recognizes a SBITA liability and an intangible right -to -use SBITA asset in the government -wide financial statements. The City recognizes SBITA liabilities with an initial, individual value of $100,000 or more. At the commencement of the SBITA, the City initially measures the SBITA liability at the present value of payments expected to be made during the SBITA term. Subsequently, the SBITA liability is reduced by the principal portion of SBITA payments made. The SBITA asset is initially measured as the initial amount of the SBITA liability, adjusted for payments made at or before the SBITA commencement date, plus certain initial direct costs. Subsequently, the SBITA asset is amortized on a straight-line basis over its useful life. Key estimates and judgments related to SBITA include how the City determines (1) the discount rate it uses to discount the expected SBITA payments to present value, (2) SBITA term, and (3) SBITA payments. The City uses the interest rate charged by the SBITA vendor as the discount rate. When the interest rate charged by the SBITA vendor is not provided, the City generally uses its estimated incremental borrowing rate as the discount rate for SBITAs. • The SBITA term includes the noncancellable period of the SBITA and payments included in the measurement of the SBITA liability are composed of fixed payments and purchase option price that the City is reasonably certain to exercise. The City monitors changes in circumstances that would require a remeasurement of its SBITA and will remeasure the SBITA asset and liability if certain changes occur that are expected to significantly affect the amount of the SBITA liability. SBITA assets are reported with other capital assets and SBITA liabilities are reported with long-term debt on the statement of net position. Deferred Outflows/Inflows of Resources In addition to assets, the statement of financial position and/or balance sheet 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 assets that applies to a future period(s) and so will not be recognized as an outflow of resources (expense/expenditure) until then. The City has the following items that qualify for reporting in this category: Deferred loss on refunding debt - A deferred loss 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. 41 City of Friendswood, Texas 2023 ACFR CITY OF FRIENDSWOOD, TEXAS NOTES TO THE FINANCIAL STATEMENTS (continued) Note 1. Summary of Significant Accounting Policies (continued) D. Assets, Liabilities, Deferred Outflows/Inflows and Net Position/Fund Balance (continued) Deferred Outflows/Inflows of Resources (continued) Deferred outflows of resources for pension - Reported in the government -wide financial statement of net position, this deferred outflow results from pension plan contributions made after the measurement date of the net pension liability and the results of 1) differences between projected and actual earnings on pension plan investments; 2) changes in actuarial assumptions; 3) differences between expected and actual actuarial experiences; and 4) changes in the City's proportional share of pension liabilities. The deferred outflows of resources related to pensions resulting from City contributions subsequent to the measurement date will be recognized as a reduction of the net pension liability in the next fiscal year. The deferred outflows resulting from differences between projected and actual earnings on pension plan investments will be amortized over a closed five year period. The remaining pension related deferred outflows will be amortized over the expected remaining service lives of all employees five year period. Deferred outflows of resources for other post -employment benefits (OPEB) - Reported in the government wide financial statement of net position, these deferred outflows result from OPEB plan contributions made after the measurement date of the total OPEB liability and the results of changes in assumptions and other inputs. The deferred outflows of resources resulting from City contributions subsequent to the measurement date will be recognized as a reduction of the total OPEB liability in the next fiscal year. The other OPEB related outflow will be amortized over the expected remaining service lives of all employees (active and inactive employees) who are provided with OPEB benefits. In addition to liabilities, the statement of financial position and/or balance sheet 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 assets that applies to a future period(s) and so will not be recognized as an inflow of resources (revenue) until that time. The City has the following items that qualify for reporting in this category: • Deferred inflows of resources for unavailable revenues - Reported only in the governmental funds balance sheet, unavailable revenues arise under the modified accrual basis of accounting. These amounts are deferred and recognized as an inflow of resources in the period that the amounts become available. • Deferred inflows of resources for leases - This deferred inflow of resources is initially measured as the initial amount of the lease receivable, adjusted for lease payments received at or before the lease commencement date. Subsequently, the deferred inflow of resources is recognized as revenue over the life of the lease term. • Deferred inflows of resources for pension - Reported in the government wide financial statement of net position, these deferred inflows result primarily from changes in actuarial assumptions. These pension related deferred inflows will be amortized over the expected remaining service lives of all employees (active and inactive employees) that are provided with pensions through the pension plan. • Deferred inflows of resources for gain on issuance of refunding bonds - Reported in the government wide financial statement of net position, these deferred inflows result primarily from differences from 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. • Deferred inflows of resources for OPEB - Reported in the government wide financial statement of net position, this deferred inflow results primarily from 1) changes in actuarial assumptions; and 2) differences between expected and actual actuarial experiences. These OPEB related deferred inflows will be amortized over the expected remaining service lives of all employees (active and inactive employees) that are provided with OPEB through the OPEB plans. 42 City of Friendswood, Texas 2023 ACFR CITY OF FRIENDSWOOD, TEXAS NOTES TO THE FINANCIAL STATEMENTS (continued) Note 1. Summary of Significant Accounting Policies (continued) D. Assets, Liabilities, Deferred Outflows/Inflows and Net Position/Fund Balance (continued) Pension For purposes of measuring the net pension liability, pension related deferred outflows and inflows of resources, and pension expense, City specific information about its Fiduciary Net Position in 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. Other Post -Employment Benefits (OPEB) The City provides its retirees the opportunity to maintain health insurance coverage by participating in the City's insurance plan. The City reports the total liability for this plan on the government -wide and proprietary fund financial statements. The actual cost recorded in the governmental fund financial statements is the cost of the health benefits incurred on behalf of the retirees less the premiums collected from the retirees. Information regarding the City's total liability for this plan is obtained through a report prepared by Gabriel Roeder Smith & Company, the City's third -party actuary, in compliance with GASB Statement No. 75, Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions. Additionally, the City participates in a defined -benefit group -term life insurance plan, both for current and retired employees, administered by the Texas Municipal Retirement System (TMRS). The City reports the total liability for this plan on the government -wide and proprietary fund financial statements. Information regarding the City's total OPEB liability is obtained from TMRS through a report prepared for the City by TMRS' consulting actuary, Gabriel Roeder Smith & Company, in compliance with GASB Statement No. 75. Fund Balance The governmental fund financial statements present fund balances based on classifications that comprise a hierarchy that is based primarily on the extent to which the City is bound to honor constraints on the specific purposes for which amounts in the respective governmental funds can be spent. The classifications used in the governmental fund financial statements are as follows: Non -spendable — includes amounts that cannot be spent because they are either not in spendable form, or, for legal or contractual reasons, must be kept intact. This classification includes prepaid items and the fund balance of the City's permanent fund. Restricted — includes fund balance amounts that are constrained for specific purposes which are imposed by providers, such as creditors or amounts restricted due to constitutional provision or enabling legislation. This classification includes retirement of long-term debt, construction programs, City ordinances, and other federal and state grants. Committed — includes fund balance amounts that are constrained for specific purposes that are internally imposed by the City through formal action in an open meeting of the highest level of decision making authority. Committed fund balance is reported pursuant to resolution passes by the City Council. Assigned — includes fund balance amounts that are self-imposed by the City to be used for particular purpose. Fund balance can be assigned by the City Councilor the City Manager, pursuant to the City's fund balance policy. At September 30, 2023, the City's assigned fund balance included amounts assigned for encumbrances and capital projects. 43 City of Friendswood, Texas 2023 ACFR CITY OF FRIENDSWOOD, TEXAS NOTES TO THE FINANCIAL STATEMENTS (continued) Note 1. Summary of Significant Accounting Policies (continued) D. Assets, Liabilities, Deferred Outflows/Inflows and Net Position/Fund Balance (continued) Fund Balance (continued) Unassigned — includes residual positive fund balance within the general fund which has not been classified within the other above mentioned categories. Unassigned fund balance may also include negative balances for any governmental fund if expenditures exceed amounts restricted, committed, or assigned for those specific purposes. When both restricted and unrestricted fund balances are available for use, it is the City's policy to use restricted fund balance first, then unrestricted fund balance. Furthermore, committed fund balances are reduced first, followed by assigned amounts and then unassigned amounts when expenditures are incurred for purposes for which amounts in any of those unrestricted fund balance classifications are available. The City has established a minimum fund balance policy whereby the City's unassigned general fund balance will be maintained at levels sufficient to protect the City's creditworthiness, as well as its financial position, from unforeseeable emergencies. The City will strive to maintain the unassigned general fund balance at a minimum of 90 days of prior year audited operating expenditures. Net Position Government -Wide Financial Statements: The Statement of Net Position includes the following categories of net position: Net investment in capital assets — the component unit of net position that reports the difference between capital assets less both the accumulated depreciation and the outstanding balance of debt, net of premiums and discounts, that is directly attributable to the acquisition, construction or improvement of these capital assets. Restricted — Net position is reported as restricted when there are limitations imposed on its use either through the enabling legislation adopted by the City or through external restrictions imposed by creditors, grantors, or laws or regulations of other governments. Unrestricted —the difference between assets, deferred outflows and inflows, and liabilities that are not reported in any of the classifications above. Use of Estimates The preparation of financial statements, in conformity with generally accepted accounting principles, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual amounts could differ materially from those estimates. 44 City of Friendswood, Texas 2023 ACFR CITY OF FRIENDSWOOD, TEXAS NOTES TO THE FINANCIAL STATEMENTS (continued) Note 1. Summary of Significant Accounting Policies (continued) E. Implementation of New Accounting Standards The following GASB pronouncements were effective during fiscal year 2023. GASB Statement No. 96 Subscription -Based Information Technology Arrangements (SBITA), was issued in May 2020 and was effective for periods beginning after June 15, 2022. This Statement (1) defines a SBITA; (2) establishes that a SBITA results in a right -to -use subscription asset —an intangible asset —and a corresponding subscription liability; (3) provides the capitalization criteria for outlays other than subscription payments, including implementation costs of a SBITA; and (4) requires note disclosures regarding a SBITA. To the extent relevant, the standards for SBITAs are based on the standards established in Statement No. 87, Leases, as amended. The City has evaluated the effects of this standard and has determined that it does impact the financial statements. As such the City has incorporated such SBITAs into its capital assets and long- term liabilities on both the face of the financial statements and the note disclosures. Note 2. Cash and Investments Under provisions of state and local statutes, the City's investment policies, and provisions of the City's depository contract with an area financial institution, the City is authorized to place available deposits and investments in the following: 1. Obligations of the U.S., it's agencies and instrumentalities; 2. Certificates of Deposit issued by state and national banks or savings or loan associations domiciled in this state that are guaranteed or incurred by the Federal Deposit Insurance Corporation or collateralized in accordance with Section 2256.010, the Texas Government Code, in face amounts not to exceed $100,000; 3. No-load money market mutual funds; and 4. TexPool and Texas CLASS. The City Council has adopted a written investment policy regarding the investments of its funds as defined by the Public Funds Investment Act of 1995 (Chapter 2256, Texas Government Code). The investments of the City are in compliance with the Council's investment policies. The City did not have any derivative investment products during the current year. All significant legal and contractual provisions for investments were complied with during the year. At September 30, 2023, the carrying amount of the City and Friendswood Downtown Economic Development Corporation's deposits was $11,750,827 and the bank balance of $11,727,729. As of September 30, 2023, the City and Friendswood Downtown Economic Development Corporation held the following investments. Reported Weighted Value of Average Investments Maturity (Days) Investment pools: TexPool $ 7,193,654 28 Texas CLASS 77,748,191 49 Total investment pools 84,941,845 Debt Securities: Federal Farm Credit Bonds 1,969,592 184 Federal Home Loan Bank Bonds 3,462,880 204 Federal Home Loan Mortgage Corporation 1,440,100 272 Federal National Mortgage Association 951,163 386 Total debt securities 7,823,735 Total investments $ 92,765,580 45 City of Friendswood, Texas 2023 ACFR CITY OF FRIENDSWOOD, TEXAS NOTES TO THE FINANCIAL STATEMENTS (continued) Note 2. Cash and Investments (continued) The City categorizes its fair value measurements within the fair value hierarchy established by generally accepted accounting principles. The hierarchy is based on the valuation inputs used to measure the fair value of the asset. Level 1 inputs are quoted prices in active markets for identical assets; Level 2 inputs are significant other observable inputs; and Level 3 inputs are significant unobservable inputs. The valuation techniques used in the fair value measurement are based on quoted market closing prices for Level 2 inputs. The City has the following recurring fair value measurements as of September 30, 2023: Investment Securities: Federal Farm Credit Bank Federal Home Loan Bank Federal Home Loan Mortgage Corp. Federal National Mortgage Assoc. Total Investment Securities Fair Value / Amortized Cost Level 1 Inputs Level 2 Inputs Level 3 Inputs $ 1,969,592 3,462,880 1,440,100 $ 1,969,592 3,462,880 1,440,100 951,163 951,163 $ 7,823,735 $ $ 7,823,735 $ The City invests in Texas Local Government Investment Pool (TexPool), which was created under the Interlocal Cooperation Act, Texas Government Code Ann. Chapter 791 and the Texas Public Funds Investment Act. The Texas Treasury Safekeeping Trust Company ("the Trust") is trustee of TexPool and is a limited purpose trust company authorized pursuant to Texas Government Code Ann. Section 404.103 for which the Texas State Comptroller is sole officer, director and shareholder. The advisory board of TexPool is composed of members appointed pursuant to the requirements of the Texas Public Funds Investment Act. The City invests in Texas CLASS Investment Pool which was established in 1996 pursuant to the Texas Public Funds Investment Act. The pool is governed by a 7-member board of trustees, who are elected by pool participants. The Cutwater Investor Services Corp. serves as the pools program administrator and Wells Fargo Bank Texas, NA, serves as custodian. Interest Rate Risk. In accordance with its investment policy, the City manages its exposure to declines in fair values by structuring the investment portfolio so that securities mature to meet cash requirements for ongoing operations and invest operating funds primarily in short-term securities. Custodial Credit Risk. In the case of deposits, this is the risk that in the event of a bank failure, the City's deposits may not be returned. State statutes require that all deposits in financial institutions be fully collateralized by U.S. Government obligations or its agencies and instrumentalities or direct obligations of Texas or its agencies and instrumentalities that have a fair value of not less than the principal amount of deposits. As of September 30, 2023, all of the City's cash deposits with financial institutions were collateralized with securities held by the pledging financial institution in the City's name. 46 City of Friendswood, Texas 2023 ACFR CITY OF FRIENDSWOOD, TEXAS NOTES TO THE FINANCIAL STATEMENTS (continued) Note 2. Cash and Investments (continued) Credit Risk Credit Risk. It is the City's policy to limit its investments to investment types with an investment quality rating not less than A or its equivalent by a nationally recognized statistical rating organization. The City's investments as of September 30, 2023, were rated as follows: Investment Type: Credit Quality Rating Rating Agency Investment Pools: Texas CLASS AAAm Standard & Poor's TexPool AAAm Standard & Poor's Debt Securities: Federal Home Loan Mortgage Corp. Aaa Moody's Investor Service Federal Home Loan Bank Aaa Moody's Investor Service Federal Farm Credit Bank Aaa Moody's Investor Service Federal National Mortgage Association Aaa Moody's Investor Service Note 3. Receivables and Deferred Inflows of Resources Receivables as of September 30, 2023 for the City's individual major funds and nonmajor funds in the aggregate including the applicable allowances for uncollectible accounts, are as follows: Receivables: Property taxes Penalties and interest Sales tax Franchise taxes Customer accounts Court fines Leases Other Gross receivables Less: allowance for uncollectibles Net total receivables Governmental Funds fonorml $ 272,975 $ 134,474 1,727,118 613,509 360,968 859,271 995,808 Nnmmninr Proprietary Fund Water and Cowor TnYnl 58,808 $ - $ 331,783 22,936 157,410 428,472 2,155,590 - 613,509 21739 5,205,639 5,569,346 - - 859,271 - 995,808 47 City of Friendswood, Texas 2023 ACFR CITY OF FRIENDSWOOD, TEXAS NOTES TO THE FINANCIAL STATEMENTS (continued) Note 3. Receivables and Deferred Inflows of Resources (continued) Governmental funds reported deferred inflows of resources in connection with receivables for revenue that is not considered to be available to liquidate liabilities of the current period. At the end of the current fiscal year, the various components of deferred inflows of resources for unavailable revenues reported in the governmental funds were as follows: General Fund: Delinquent property taxes Property tax penalties and interest Court fines Grants Leases Miscellaneous Total General Fund Nonmajor funds: Delinquent property taxes Property tax penalties and interest Court fines Total Nonmajor Funds Total governmental funds Note 4. Capital Assets Deferred Inflows of Resources $ 176,887 100,990 171,854 33,834 974,036 8,166 1,465,767 40,216 15,631 3,756 59,603 $ 1,525,370 Capital assets activity for the primary government for the fiscal year ended September 30, 2023, is as follows: Governmental activities Capital assets, not being depreciated/amortized: Land Construction in progress Total capital assets, not being depreciated/amortized Capital assets, being depreciated/amortized: Buildings and improvements Machinery and equipment Infrastructure Right -to -use SBITA asset Total capital assets, being depreciated/amortized Less accumulated depreciation/amortization for: Buildings & improvements Machinery and equipment Infrastructure Right -to -use SBITA asset Total accumulated depreciation/amortization Total capital assets - being depreciated/amortized Governmental capital assets, net Beginning Balance Reclassification/ as restated Increases Decreases Ending Balance $ 32,355,840 $ 364,494 $ - $ 32,720,334 8,797,172 10,243,904 (239,882) 18,801,194 41,153,012 10,608,398 (239,882) 51,521,528 46,352,029 501,160 46,853,189 21,219,383 3,331,824 (67,440) 24,483,767 105,214,782 - 105,214,782 176,744 - 176,744 172,962,938 3,832,984 (67,440) 176,728,482 (23,413,373) (1,381,834) - (24,795,207) (13,373,986) (2,072,821) 205,271 (15,241,536) (61,539,500) (2,978,964) - (64,518,464) (88,127) - (88,127) (98,326,859) (6,521,746) 205,271 (104,643,334) 74,636,079 (2,688,762) 137,831 72,085,148 $ 115,789,091 $ 7,919,636 $ (102,051) $ 123,606,676 48 City of Friendswood, Texas 2023 ACFR CITY OF FRIENDSWOOD, TEXAS NOTES TO THE FINANCIAL STATEMENTS (continued) Note 4. Capital Assets (continued) Business -type activities Capital assets, not being depreciated: Land Water rights Construction in progress Total capital assets, not being depreciated Capital assets, being depreciated: Buildings and improvements Machinery and equipment Water and sewer system Total capital assets, being depreciated Less accumulated depreciation for: Buildings and improvements Machinery and equipment Water and sewer system Total accumulated depreciation Total capital assets - being depreciated Business -type capital assets, net Reclassification/ Beginning Balance Increases Decreases Ending Balance $ 319,473 $ 832,798 $ $ 1,152,271 19,716,695 - 19,716,695 9,629,504 7,13S,579 2,242,015 19,007,098 29,665,672 7,968,377 2,242,015 39,876,064 683,906 - 683,906 7,878,937 55,832 7,934,769 78,013,079 1,654,952 (3,609,532) 76,058,499 86,575,922 1,710,784 (3,609,532) 84,677,174 (365,057) (19,757) (384,814) (5,282,385) (235,077) (5,517,462) (39,042,940) (1,765,178) (40,808,118) (44,690,382) (2,020,012) (46,710,394) 41,885,540 (309,228) (3,609,532) 37,966,780 $ 71,551,212 $ 7,659,149 $ (1,367,517) $ 77,842,844 Capital assets activity for the discretely presented component units for the fiscal year ended September 30, 2023, is as follows: Component Unit Capital assets, not being depreciated: Land Construction in progress Total capital assets, not being depreciated Capital assets, being depreciated: Water production and distribution facilities Total capital assets, being depreciated Less accumulated depreciation for: Water production and distribution facilities Total accumulated depreciation Total capital assets - being depreciated Component Unit capital assets, net Reclassification/ Beginning Balance Increases Decreases Ending Balance $ 7,762,414 $ - $ (66,666) $ 7,695,748 - 505,174 505,174 7,762,414 505,174 (66,666) 8,200,922 483,467 483,467 483,467 483,467 (127,282) (10,746) (138,028) (127,282) (10,746) (138,028) 356,185 (10,746) 345,439 $ 8,118,599 $ 494,428 $ (66,666) $ 8,546,361 49 City of Friendswood, Texas 2023 ACFR CITY OF FRIENDSWOOD, TEXAS NOTES TO THE FINANCIAL STATEMENTS (continued) Note 4. Capital Assets (continued) Depreciation/Amortization Depreciation/amortization expense was charged to functions/programs of the City as follows: Depreciation/ Amortization Expense Primary Government Governmental activities: General government $ 615,626 Public safety 1,317,872 Public works 3,365,034 Community development 17,651 Parks and recreation 574,842 Capital assets held by the City's internal service fund are charged to the various functions based on their usage 630,721 Total Governmental activities 6,521,746 Business -type activities: Water and sewer 2,020,012 Total Business -type activities: 2,020,012 Total Primary Government $ 8,541,758 50 City of Friendswood, Texas 2023 ACFR CITY OF FRIENDSWOOD, TEXAS NOTES TO THE FINANCIAL STATEMENTS (continued) Note 4. Capital Assets (continued) Construction commitments The City has active construction projects as of September 30, 2023. At year end, the City's commitments with contractors were as follows: Construction Construction in Projects Commitment Progress Governmental funds: Parks Master Plan $ 146,200 $ 101,420 $ Blackhawk Emergency Shelter 871,475 28,400 Blackhawk Building Renovation 3,577,797 1,989,186 Blackhawk Blvd Reconstruction 2,394,576 258,564 Fire Station #2 4,745,568 4,559,306 Public Safety Building 6,387,158 6,115,905 Centennial Wall 452,247 428,175 Utility Relocation at Clear Creek Utility Bridge 240,200 223,550 Forest Bend Detention Pond 3,954,602 3,895,068 Deepwood Flood Control 251,369 214,737 Friendswood Regional Detention Basin 954,233 954,233 Access Control Project 65,300 32,650 _ 24,040,725 18,801,194 Enterprise funds: Southeast Transmission Water Line Settlement Lift Station Mitigation Program Automated Water Meters Water Systems Improvements 2023 Tank Rehabilitation Project Lift Station SCADA Server Upgrade Fire Station #2 Blackhawk Building Construction Blackhawk Boulevard Blackhawk Shelter Component unit: FDEDC FM 518 Illumination Total Commitments Remaining Commitment 44,780 843,075 1,588,611 2,136,012 186,262 271,253 24,072 16,650 59,534 36,632 32,650 5,239,531 $ 20,489,887 $ 5,134,296 $ 15,355,591 4,784,904 889,053 3,895,851 8,995,300 8,991,024 4,276 2,454,824 1,481,064 973,760 1,556,675 - 1,556,675 91,229 49,369 41,860 191,244 82,589 108,655 2,123,692 2,114,466 9,226 297,734 265,237 32,497 92,000 - 92,000 41,077,489 19,007,098 22,070,391 $ 2,371,974 $ 505,174 $ 1,866,800 2,371,974 505,174 1,866,800 $ 67,490,188 $ 38,313,466 $ 29,176,722 The remaining commitment amounts were encumbered at year end. The encumbrances and related appropriation lapse at the end of the fiscal year, but they are re -appropriated and become a part of the subsequent year's budget because performance under the executory contract is expected in the next year. At year end, the amount of significant encumbrances expected to be honored upon performance by the vendors in the next year were $3,891,673 for General Fund. Note 5. Long-term Debt The City issues a variety of long-term debt instruments in order to acquire and/or construct major capital facilities and equipment for governmental and business -type activities. These instruments include general obligation bonds, certificates of obligation, revenue bonds, and notes payable. These debt obligations are secured by either future tax revenue, water and sewer system revenue, or liens on property and equipment. Debt obligations that are intended to be repaid from water and sewer system revenue have been recorded as business -type activities. All other long-term obligations of the City are considered to be governmental type activities. 51 City of Friendswood, Texas 2023 ACFR CITY OF FRIENDSWOOD, TEXAS NOTES TO THE FINANCIAL STATEMENTS (continued) Note S. Long-term Debt (continued) Federal Arbitrage The Tax Reform Act of 1986 instituted certain arbitrage restrictions 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 (IRS) at least every five years for applicable bond issues. Accordingly, there is the risk that if such calculations are not performed, or are not performed correctly, a substantial liability to the City could result. The City periodically engages an arbitrage consultant to perform the calculations in accordance with the rules and regulations of the IRS. There was no liability for arbitrage recorded as of year-end. Bonds Payable and Certificates of Obligation The following schedule summarizes the terms of the City's general obligation bonds, combination tax and revenue bonds, and certificates of obligation outstanding and their corresponding allocations to the governmental and business -type activities at September 30, 2023: Original Issue Final Interest Governmental Business -Type General Obligation Bonds: Amount Maturity Rates Activities Activities 2014 General Obligation Refunding $ 8,805,000 2028 2.0%- 4.0% $ 1,430,000 $ 4,005,000 2015 General Obligation Refunding 9,595,000 2030 2.0%- 3.0% 5,945,000 - 2016 General Obligation Permanent Improvement and Refunding 19,095,000 2031 2.0%- 5.0% 6,510,000 6,190,000 2016A General Obligation Refunding 9,765,000 2034 2.0%- 4.0% - 6,725,000 2017 General Obligation Bonds 5,605,000 2031 2.0%- 4.0% 3,885,000 - 2020 General Obligation and Refunding Bonds 10,465,000 2050 2.0%-4.0% 9,220,000 2021 General Obligation and Refunding Bonds 16,235,000 2051 2.375%-4.0% 14,560,000 2023 General Obligation Bonds 27,995,000 2053 4.0%- 5.0% 29,775,000 - Total general obligation bonds 71,325,000 16,920,000 Revenue Bonds: 2016 Waterworks and Sewer System 5,735,000 2036 2.0%- 4.0% - 4,105,000 2018 Waterworks and Sewer System 20,170,000 2038 4.0%- 5.0% 17,285,000 2021 Waterworks and Sewer System 13,690,000 2041 3.0%- 4.0% 12,730,000 Total revenue bonds - 34,120,000 Total $ 71,325,000 $ 51,040,000 52 City of Friendswood, Texas 2023 ACFR CITY OF FRIENDSWOOD, TEXAS NOTES TO THE FINANCIAL STATEMENTS (continued) Note S. Long-term Debt (continued) Bonds Payable and Certificates of Obligation (continued) Annual debt service requirements for the City's bonds and revenue bonds are as follows: Governmental Activities Business -type Activities Fiscal Year Principal Interest Principal Interest Total 2024 $ 2,485,000 $ 2,846,566 $ 3,345,000 $ 1,973,275 $ 10,649,841 2025 2,840,000 2,663,788 3,485,000 1,837,125 10,825,913 2026 2,965,000 2,555,988 3,685,000 1,687,950 10,893,938 2027 3,085,000 2,438,997 3,760,000 1,528,000 10,811,997 2028 3,210,000 2,312,388 3,930,000 1,362,225 10,814,613 2029-2033 14,575,000 9,504,439 17,340,000 4,316,600 45,736,039 2034-2038 10,770,000 6,929,845 12,830,000 1,510,225 32,040,070 2039-2043 10,165,000 4,945,852 2,665,000 121,575 17,897,427 2044-2048 10,760,000 3,101,674 - - 13,861,674 2049-2053 10,470,000 989,558 - 11,459,558 $ 71,325,000 $ 38,289,095 $ 51,040,000 $ 14,336,975 $ 174,991,070 Changes in the City's long-term liability activity for the year ended September 30, 2023, are as follows: Beginning Balance as Due Within One restated Additions Reductions Ending Balance Year Primary Government Governmental activities: General obligation bonds $ 43,950,000 $ 29,775,000 $ (2,400,000) $ 71,325,000 $ 2,485,000 Premium on bond issuance 3,193,902 541,134 (368,494) 3,366,542 - Notes payable 2,613,729 925,000 (893,100) 2,645,629 893,009 SBITA payable 176,744 - (84,250) 92,494 92,494 Compensated absences 1,144,343 1,369,826 (1,263,629) 1,250,540 250,108 Governmental activity Long-term liabilities $ 51,078,718 $ 32,610,960 $ (5,009,473) $ 78,680,205 $ 3,720,611 Beginning Additions Reductions Ending Balance Due Within One Balance Year Business -type activities: Revenue bonds 35,630,000 $ $ (1,510,000) $ 34,120,000 $ 1,575,000 General obligation bonds 18,635,000 (1,715,000) 16,920,000 1,770,000 Premium on bond issuance 5,264,036 (402,255) 4,861,781 - Compensated absences 109,410 175,841 (158,825) 126,426 25,285 Business -type activity Long-term liabilities $ 59,638,446 $ 175,841 $ (3,786,080) $ 56,028,207 $ 3,370,285 iotai Primary government $ 110,717,164 $ 32,786,801 $ (8,795,553) $ 134,708,412 $ 7,090,896 53 City of Friendswood, Texas 2023 ACFR CITY OF FRIENDSWOOD, TEXAS NOTES TO THE FINANCIAL STATEMENTS (continued) Note S. Long-term Debt (continued) Bonds Payable and Certificates of Obligation (continued) The compensated absences, net pension liability and total OPEB liabilities attributable to the governmental activities will be liquidated primarily by the General Fund. West Ranch Management District The following schedule summarizes the terms of the West Ranch Management District's general obligation bonds at July 31, 2023: General Obligation Bonds: Road Series 2014 Series 2015 Series 2016 Refunding Series 2016 Series 2020 Refunding Series 2016 Total general obligation bonds Amounts Outstanding $ 1,780,000 3,530,000 2,080,000 540,000 8,735,000 1,520,000 $ 18,185,000 Interest Rates 2.00% - 3.75% 2.950% - 4.125% 3.00% - 4.00% 2.00% - 4.00% 2.00% - 4.00% 2.00% - 4.00% Range of Maturities 2023-2040 2023-2030 2031-2040 2023-2026 2023-2040 2023-2040 * Or any date thereafter, callable at par plus accrued interest to the date of redemption. Annual debt service requirements for the District's bonds are as follows: Fiscal Year 2024 2025 2026 2027 2028 2029-2033 2034-2038 2039-2041 Principal $ 900,000 930,000 970,000 1,005,000 1,065,000 5,205,000 4,865,000 3,245,000 $ 18,185,000 Interest $ 530,329 497,763 461,806 426,238 393,396 1,484,082 818,269 145,358 $ 4,757,241 Callable Date * September 1, 2022 September 1, 2023 September 1, 2024 September 1, 2024 September 1, 2025 September 1, 2025 Total $ 1,430,329 1,427,763 1,431,806 1,431,238 1,458,396 6,689,082 5,683,269 3,390,358 $ 22,942,241 The District's bonds are payable from the proceeds of an ad valorem tax levied upon all property within the District subject to taxation, without limitation as to rate or amount. 54 City of Friendswood, Texas 2023 ACFR CITY OF FRIENDSWOOD, TEXAS NOTES TO THE FINANCIAL STATEMENTS (continued) Note S. Long-term Debt (continued) Bonds Payable and Certificates of Obligation (continued) West Ranch Management District (continued) Changes in the discretely presented component units' long-term liabilities for the year end July 31, 2023, are as follows: Beginning Due Within One West Ranch Management District Balance Increase Decrease Ending Balance Year Component Unit General obligation bonds $ 19,050,000 $ $ (865,000) $ 18,185,000 $ 900,000 Discount on bonds (213,410) 12,284 (201,126) - Premium on bonds 67,448 (9,401) 58,047 Developer advances 40,000 (40,000) - Due to developer 369,600 (369,600) - - Total $ 19,313,638 $ $ (1,271,717) $ 18,041,921 $ 900,000 AtJuly 31, 2023, the District had $3,775,000 of unlimited tax bonds and recreational facilities' bonds authorized, but unissued, for the purposes of acquiring, constructing and improving recreational facilities, transportation, education, and the water, sanitary sewer and drainage systems within the District. A developer of the District has advanced $40,000 to the District for operating expenses. The District has agreed to pay these amounts, plus interest, to the extent approved by the Commission from the proceeds of future bond sales. These amounts have been paid in fiscal year 2023. The developer of the District has constructed underground utilities on behalf of the District. The District's engineer estimates reimbursable costs for completed projects are $369,600. The District has agreed to reimburse the developers for these amounts, plus interest, to the extent approved by the Texas Commission on Environmental Quality from the proceeds of future bond sales. These amounts have been paid in fiscal year 2023. Defeasance of Bonds The City defeased certain bonds by placing the proceeds of new bonds in an irrevocable trust to provide future debt service payments on the old bonds. Accordingly, the trust account assets and liabilities for the defeased bonds are not included in the City's financial statements. On September 30, 2023, the City has no bonds considered defeased that were outstanding. Notes Payable During the current fiscal year, the City entered into a five-year agreement for the acquisition and use of an ambulance and related equipment. An initial liability was recorded in the amount of $925,000 during the current fiscal year. The City is required to make annual principal and interest payments of $204,587. The agreement has an interest rate of 4.45%. 55 City of Friendswood, Texas 2023 ACFR CITY OF FRIENDSWOOD, TEXAS NOTES TO THE FINANCIAL STATEMENTS (continued) Note S. Long-term Debt (continued) Notes Payable (continued) The following is a summary of future notes payments due on this machinery and equipment: Fiscal Year 2024 2025 2026 2027 Principal Interest $ 893,009 $ 84,582 585,639 58,242 573,838 39,093 593,143 19,888 Total $ 2,645,629 $ 201,805 Pledged Revenues On February 1, 2016, the City issued $5,735,000 in Waterworks and Sewer System Revenue Bonds, Series 2016. On December 3, 2018, the City issued $20,170,000 in Waterworks and Sewer System Revenue Bonds, Series 2018. On February 4, 2021, the City issued $13,690,000 in Water and Sewer System Revenue Bonds, Series 2021. These bonds represent special obligations of the City and are payable solely from a first lien on and pledge of the net revenues of the City's waterworks and sanitary sewer system. The proceeds of the bonds were and are to be used to finance sanitary sewer and waterworks system extensions and improvements. The outstanding revenue bonds have a final maturity of March 1, 2036 for the 2016 bonds, March 1, 2038 for the 2018 bonds, and March 1, 2041 for the 2021 bonds. The City will commit revenues each year the bonds are outstanding. At September 30, 2023, the remaining principal on the series 2016, 2018 and 2021 bonds was $4,105,000, $17,285,000, and $12,730,000, respectively. Principal and interest payments for the fiscal year were $1,510,000 and $1,372,275, respectively. Net pledged revenue in 2023 produced 421 percent of the current debt service requirement. 56 City of Friendswood, Texas 2023 ACFR CITY OF FRIENDSWOOD, TEXAS NOTES TO THE FINANCIAL STATEMENTS (continued) Note 6. Interfund Balances and Transfers Due to/from Other Funds The City had interfund receivable and payable balances at September 30, 2023 as follows: Due To Due From General Fund HMGP Acquisition and Demolition General Fund 2017 CDBG- DR Harvey - Harris County General Fund 2017 CDBG- DR Harvey - Galveston County Interfund Transfers Amount Purpose Expenditures funded by General Fund $ 205,178 pending grant reimbursement. Expenditures funded by General Fund 1,248,144 pending grant reimbursement. Expenditures funded by General Fund 334,365 pending grant reimbursement. $ 1,787,687 The composition of interfund transfers for the year ended September 30, 2023, were as follows: Transfer In Transfers Out Amount Purpose Budgeted annual transfers for indirect water General Fund Water and Sewer Fund $ 1,803,800 and sewer costs by the General Fund Internal Service Fund General Fund 9,467 To fund new vehicle for Public Works and Fire Marshal Office Nonmajor governmental f General Fund 6,868 To fund expenditures not reimbursable by the CDBG-DR Grant $ 1,820,135 Note 6. Leases Lease Receivable The City leases real property to third parties for the placement of their telecommunication towers. The City recognized $37,653 in lease revenue and $29,164 in interest revenue during the current fiscal year related to these leases. As of September 30, 2023, the City's receivable for lease payments was $995,808. Also, the City has a deferred inflow of resources associated with this lease that will be recognized as revenue over the lease term. As of September 30, 2023, the balance of the deferred inflow of resources was $974,036. Note 7. SBITA Liabilities During the current fiscal year, the City entered into a two-year SBITA agreement for the acquisition of governmental software. An initial SBITA liability was recorded in the amount of $176,744 during the current fiscal year. As of September 30, 2023, the value of the SBITA liability was $92,494. There are no variable payments. The City is required to make annual principal and interest payments of $84,250 and $95,500 respectively. The SBITA has an interest rate of 3.25%. The value of the right -to -use asset as of the end of the current fiscal year was $176,744 and had accumulated amortization of $88,127. There are no commitments under SBITAs before the commencement of the subscription term. The future principal and interest SBITA payments as of September 30, 2023, were as follows: Fiscal Year Principal Interest 2024 $ 92,494 $ 3,006 Total $ 95,500 57 City of Friendswood, Texas 2023 ACFR CITY OF FRIENDSWOOD, TEXAS NOTES TO THE FINANCIAL STATEMENTS (continued) Note 8. Employee Retirement System Texas Municipal Retirement System Plan Description and Provisions The City participates as one of 901 plans in the nontraditional, joint contributory, hybrid defined benefit pension plan administered bythe Texas Municipal Retirement System (TMRS). TMRS is an agency created by the State of Texas and administered in accordance with the TMRS Act, Subtitle G, Title 8, Texas Government Code (the TMRS Act) as an agent multiple -employer retirement system for municipal employees in the State of Texas. The TMRS Act places the general administration and management of the System with a six -member Board of Trustees. Although the Governor, with the advice and consent of the Senate, appoints the Board, TMRS is not fiscally dependent on the State of Texas. TMRS's defined benefit pension plan is a tax -qualified plan under Section 401(a) of the Internal Revenue Code. TMRS a report (ACFR) that can be obtained at www.tmrs.com. All eligible employees of the City are required to participate in TMRS. 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 actuarially equivalent 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 City has approved an annually repeating (automatic) basis monetary credit referred to as an updated service credit (USC) which is a theoretical amount which takes into account salary increases or plan improvements. If at any time during their career an employee earns a USC, this amount remains in their account earning interest at 5% until retirement. At retirement, the benefit is calculated as if the sum of the employee's accumulated contributions with interest and the employer match plus employer -financed monetary credits, such as USC, with interest were used to purchase an annuity. Additionally, City provides on an annually repeating (automatic) basis cost of living adjustments (COLA) for retirees equal to a percentage of the change in the consumer price index (CPI). A summary of plan provisions for the City are as follows: Employee deposit rate: 7% Matching ratio (City to employee): 2 to 1 Years required for vesting: 5 Service retirement eligibility: Vested at age 60 or 20 years at any age Updated Service Credit: 100% Repeating Annuity increase to retirees 50% of CPI; Repeating Supplement death benefit — active Employees and retirees Yes 58 City of Friendswood, Texas 2023 ACFR CITY OF FRIENDSWOOD, TEXAS NOTES TO THE FINANCIAL STATEMENTS (continued) Note 8. Employee Retirement System (continued) Texas Municipal Retirement System (continued) Employees covered by benefit terms At the December 31, 2022 valuation and measurement date, the following employees were covered by the benefit terms: Inactive employees or beneficiaries currently receiving benefits 169 Inactive employees entitled to but not yet receiving benefits 132 Active employees 228 Total 529 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 consulting 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 were required to contribute 7.0% of their annual gross earnings during the fiscal year. The contribution rates for the City were 16.27% and 16.33% in calendar years 2022 and 2023, respectively. The City's contributions to TMRS for the year ended September 30, 2023, were $3,039,855 and were equal to the required contributions. Net Pension Liability The City's Net Pension Liability (NPL) was measured as of December 31, 2022, and the Total Pension Liability (TPL) used to calculate the Net Pension Liability was determined by an actuarial valuation as of that date. Actuarial Assumptions The Total Pension Liability in the December 31, 2022 actuarial valuation was determined using the following actuarial assumptions: Actuarial cost method: Amortization method: Remaining amortization period Asset valuation method: Inflation: Salary increases: Investment rate of return: Entry age normal Level percentage of payroll, closed 23 years 10 year smoothed market; 12% soft corridor 2.50% 3.50% to 11.50% including inflation 6.75% 59 City of Friendswood, Texas 2023 ACFR CITY OF FRIENDSWOOD, TEXAS NOTES TO THE FINANCIAL STATEMENTS (continued) Note 8. Employee Retirement System (continued) Texas Municipal Retirement System (continued) Actuarial Assumptions (continued) Salary increases are based on a service -related table. Mortality rates for active members are based on the PUB (10) mortality tables with the Public Safety table used for males and the General Employee table used for females. Mortality rates for healthy retirees and beneficiaries are based on the Gender distinct 2019 Municipal Retirees of Texas mortality tables. The rates for actives, healthy retirees and beneficiaries are projected on a fully generational basis by Scale UMP to account for future mortality improvements. For disabled annuitants, the same mortality tables for healthy retirees is used with a 4- year set -forward for males and a 3-year set -forward for females. In addition, a 3.5% and 3.0% minimum mortality rate is applied, for males and females respectively, to reflect the impairment for younger members who become disabled. The rates are projected on a fully generational basis by Scale UMP to account for future mortality improvements subject to the floor. The actuarial assumptions were developed primarily from the actuarial investigation of the experience of TMRS over the four- year period from December 31, 2014, to December 31, 2018. They were adopted in 2019 and first used in the December 31, 2019, actuarial valuation. The post -retirement mortality assumption for annuity purchase rates is based on the Mortality Experience Investigation Study covering 2009 through 2011 and dated December 31, 2013. Plan assets are managed on a total return basis with an emphasis on both capital appreciation as well as the production of income, in order to satisfy the short-term and long-term funding needs of TMRS. The long-term expected rate of return on pension plan investments was determined using a building block method in which best estimate ranges of expected future real rates of return (expected returns, net of pension plan investment expense and inflation) are developed for each major asset class. These ranges are combined to produce the long-term expected rate of return by weighting the expected future real rates of return by the target asset allocation percentage and by adding expected inflation. 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 2020 are summarized in the table below: Global Equity Core Fixed Income Non -Core Fixed Income Other Public and Private Markets Real Estate Hedge Funds Private Equity Total Discount Rate Long -Term Expected Real Rate of Return Target Allocation (Arithmetic) 35.0% 7.70% 6.0% 4.90% 20.0% 8.70% 12.0% 8.10% 12.0% 5.80% 5.0% 6.90% 10.0% 11.80% 100.0% 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 statue. 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. 60 City of Friendswood, Texas 2023 ACFR CITY OF FRIENDSWOOD, TEXAS NOTES TO THE FINANCIAL STATEMENTS (continued) Note 8. Employee Retirement System (continued) Texas Municipal Retirement System (continued) Changes in the Net Pension Liability Balance at 12/31/2021 Changes for the year: Service Cost Interest (on the Total Pension Liability) Difference between expected and actual experience Changes of assumptions Benefit payments, including refunds of employee contributions Contributions — employer Contributions — employee Net investment income Administrative Expense Other Balance at 12/31/2022 Increase (Decrease) Total Pension Plan Fiduciary Net Net Pension Liability Position Liability $ 96,863,664 $ 91,705,874 $ 5,157,790 3,205,331 - 3,205,331 6,508,227 - 6,508,227 1,493,003 - 1,493,003 (4,096,292) (4,096,292) - - 2,879,665 (2,879,665) - 1,238,946 (1,238,946) - (6,696,002) 6,696,002 - (57,928) 57,928 - 69,125 (69,125) $ 103,973,933 $ 85,043,388 $ 18,930,545 Sensitivity of the Net Pension Liability to Changes in the Discount Rate The following presents the net pension liability (asset) 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 in Current Single Rate 1% Increase in Discount Discount Rate (5.75%) Discount Rate (6.75%) Rate (7.75%) City's net pension liability $ 33,425,805 $ 18,930,545 $ 7,025,492 Pension Plan Fiduciary Net Position Detailed information about the pension plan's Fiduciary Net Position is available in a separately issued TMRS financial report. That report may be obtained on the Internet at www.tmrs.com. 61 City of Friendswood, Texas 2023 ACFR CITY OF FRIENDSWOOD, TEXAS NOTES TO THE FINANCIAL STATEMENTS (continued) Note 8. Employee Retirement System (continued) Texas Municipal Retirement System (continued) Pension Expense and Deferred Outflows of Resources and Deferred Inflows of Resources Related to Pensions For the year ended September 30, 2023, the City recognized a pension expense of $4,710,265. At September 30, 2023, the City reported deferred outflows and inflows of resources related to pensions from the following sources: Deferred Outflows of Deferred Inflows Resources of Resources Difference in expected and actual economic experience $ 1,725,609 $ (49,589) Changes in actuarial assumptions 47,269 - Difference between projected and actual investment earnings 5,850,262 - Contributions subsequent to the measurement date 2,231,484 - Total $ 9,854,624 $ (49,589) The $2,231,484 reported as deferred outflows of resources related to pension resulting from contributions subsequent to the measurement date will be recognized as a reduction of the net pension liability for the year ending September 30, 2024. Other amounts reported as deferred outflows and inflows of resources related to pensions will be recognized in pension expenses as follows: Net Deferred Outflows (Inflows) of Resources 2024 $ 974,311 2025 1,932,022 2026 1,982,604 2027 2,684,614 Thereafter - Total $ 7,573,551 62 City of Friendswood, Texas 2023 ACFR CITY OF FRIENDSWOOD, TEXAS NOTES TO THE FINANCIAL STATEMENTS (continued) Note 9. Post Employee Benefits Other Than Pensions TMRS Supplemental Death Benefits Fund Benefit Plan Description The City's single -employer defined benefit group -term life insurance plan is operated by the Texas Municipal Retirement System (TMRS) via the Supplemental Death Benefits Fund (SDBF). The City elected, by ordinance, to provide group -term life insurance coverage to both current and retired employees. The City may terminate coverage under and discontinue participation in the SDBF by adopting an ordinance before November 1 of any year to be effective the following January 1. The death benefit for active employees provides a lump -sum payment approximately equal to the employee's annual salary (calculated based on the employee's actual earnings, for the 12-month period preceding the month of death); retired employees are insured for $7,500; this coverage is another post -employment benefit (OPEB). As the SDBF covers both active and retiree participants, with no segregation of assets, the SDBF is considered to be an unfunded OPEB plan (i.e. no assets are accumulated). Membership in the plan as of the measurement date of December 31, 2022 was as follows: Inactive employees currently receiving benefits 114 Inactive employees entitled to but not yet receiving benefits 31 Active employees 228 Tota 1 373 Contributions Contributions are made monthly based on the covered payroll of employee members of the participating member city. The contractually required contribution rate is determined annually for each city (currently 0.30% of covered payroll). The rate is based on the mortality and service experience of all employees covered by the SDBF and the demographics specific to the workforce of the city. There is a one-year delay between the actuarial valuation that serves as the basis for the employer contribution rate and the calendar year when the rate goes into effect. The funding policy of this plan is to assure that adequate resources are available to meet all death benefit payments for the upcoming year; the intent is not to prefund retiree term life insurance during employees' entire careers. As such, contributions are utilized to fund active member deaths on a pay-as-you-go basis; any excess contributions and investment income over payments then become net position available for benefits. Discount Rate The TMRS SDBF program is treated as unfunded OPEB plan because the SDBF trust covers both active employees and retirees and the assets are not segregated for these groups. Under GASB Statement No. 75, the discount rate for an unfunded OPEB plan should be based on 20-year tax-exempt AA or higher Municipal Bonds. Therefore, a discount rate of 4.05% based on the Fidelity Index's "20-Year Municipal GO AA Index" rate as of December 31, 2022. 63 City of Friendswood, Texas 2023 ACFR CITY OF FRIENDSWOOD, TEXAS NOTES TO THE FINANCIAL STATEMENTS (continued) Note 9. Post Employee Benefits Other Than Pensions (continued) TMRS Supplemental Death Benefits Fund (continued) Actuarial Assumptions The City's total OPEB liability was measured at December 31, 2022 and was determined by an actuarial valuation as of that date using the following actuarial assumptions: Valuation Date: December 31, 2022 Methods and Assumptions: Inflation: 2.50% Salary Increases: 3.50%to 11.50%, including inflation Discount rate *: 4.05% Retirees' share of benefit related costs: $0 Administrative expenses: All administrative expenses are paid through the Pension Trust and accounted for under reporting requirements under GASB Statement No. 68. Mortality rates — service retirees: 2019 Municipal Retirees of Texas Mortality Tables. The rates are projected on a fully generational basis with scale UMP. Mortality rates — disabled retirees: 2019 Municipal Retirees of Texas Mortality Tables with a 4 year set -forward for males and a 3 year set -forward for females. In addition, a 3.5% and 3% minimum mortality rate will be applied to reflect the impairment for younger members who become disabled for males and females, respectively. The rates are projected on a fully generational basis by Scale UMP to account for future mortality improvements subject to the floor. *The discount rate was based on the Fidelity Index's "20-Year Municipal GO AA Index' rate as of December 31,2022. Note: The actuarial assumptions used in the December 31, 2022 valuation were based on the results of an actuarial experience study for the period December 31, 2014 to December 31, 2018. Changes in the Total OPEB Liability Service cost Interest Changes of benefit terms Difference between expected and actual experience Changes of assumptions Benefit payments Net change in total OPEB liability Total OPEB liability - beginning Total OPEB liability - ending $ 51,328 16,968 122 (326,179) (12,389) (270,150) 902,708 $ 632,558 Ending total OPEB liability is $632,558 as of December 31, 2022. Changes of assumptions reflect a change in the discount rate from 1.84% as of December 31, 2021 to 4.05% as of December 31, 2022. 64 City of Friendswood, Texas 2023 ACFR CITY OF FRIENDSWOOD, TEXAS NOTES TO THE FINANCIAL STATEMENTS (continued) Note 9. Post Employee Benefits Other Than Pensions (continued) TMRS Supplemental Death Benefits Fund (continued) Sensitivity Analysis The following presents the total OPEB liability of the employer, calculated using the discount rate of 4.05%, as well as what the City's total OPEB liability would be if it were calculated using a discount rate that is 1 percentage point lower (3.05%) or 1 percentage point higher (5.05%) than the current rate. Note that the healthcare cost trend rate does not affect the total OPEB liability, so sensitivity to the healthcare cost trend rate is not shown. 1% Decrease to 3.05% Current Discount Rate Assumption 4.05 % 1% Increase to 5.05% $ 757,005 $ 632,558 $ 535,641 OPEB Expense and Deferred Outflows of Resources and Deferred Inflows of Resources Related to OPEB Activity For the year ended September 30, 2023, the City recognized OPEB expense of $37,685 related to the TMRS Supplemental Death Benefit Fund and OPEB expense of $73,598 related to the City's retiree healthcare plan for total OPEB expense of $111,283. As of September 30, 2023, the City reported deferred outflows of resources related to OPEB from the following sources: Differences between expected and actual experience Changes in assumptions and other inputs Contributions made subsequent to the measurement date Total Deferred Outflows of Resources $ 101 125,084 12,298 $ 137,483 Deferred Inflows of Resources $ (55,072) (281,709) $ (336,781) The $12,298 reported as deferred outflows of resources related to OPEB resulting from contributions subsequent to the measurement date will be recognized as a reduction of the total OPEB liability for the year ending September 30, 2024. Other amounts reported as deferred outflows and inflows of resources related to OPEB, excluding contributions subsequent to the measurement date, will be recognized in OPEB expenses as follows: Net Deferred Outflows (Inflows) of Resources 2024 $ (36,057) 2025 (32,902) 2026 (37,015) 2027 (48,184) 2028 (52,619) Thereafter (4,819) Total $ (211,596) 65 City of Friendswood, Texas 2023 ACFR CITY OF FRIENDSWOOD, TEXAS NOTES TO THE FINANCIAL STATEMENTS (continued) Note 9. Post Employee Benefits Other Than Pensions (continued) Retiree Health Care Plan (RHCP) Plan Description The City's defined benefit OPEB plan, City of Friendswood Retiree Health Care Plan (RHCP), provides OPEB through an implicit healthcare premium for retirees for all permanent full-time employees of the City. RHCP is a single -employer defined benefit OPEB plan administered by the City. At this time, no assets are accumulated in a trust to fund the future requirements of the RHCP. Benefits Provided RHCP provides access to post retirement employees by offering a "blended premium" structure, that is, the overall health care premiums for active employees and non -Medicare retirees, are stated in terms of a single "blended premium". The difference between the underlying retiree claims and the blended overall health care premium is referred to as an "implicit" subsidy. Because the underlying claims costs for a non -Medicare retiree are on average higher than the blended premium, there is a positive implicit subsidy for the non -Medicare retirees. Employees covered by benefit terms. At December 31, 2022, the following employees were covered by the benefit terms: Retirees and beneficiaries 5 Inactive, nonretired members 0 Active members 219 Total 224 Total OPEB Liability The City's total OPEB liability of $937,877 was measured as of December 31, 2022, and was determined by an actuarial valuation as of December 31, 2022. 66 City of Friendswood, Texas 2023 ACFR CITY OF FRIENDSWOOD, TEXAS NOTES TO THE FINANCIAL STATEMENTS (continued) Note 9. Post Employee Benefits Other Than Pensions (continued) Retiree Health Care Plan (RHCP) (continued) Actuarial Assumptions and Methods The actuarial valuation was performed as of December 31, 2022. The total OPEB liability in the December 31, 2022 actuarial valuation was determined using the following actuarial assumptions and other inputs, applied to all periods included in the measurement, unless otherwise specified: Valuation Date: December 31, 2022 Measurement Date: December 31, 2022 Methods and Assumptions: Actuarial Cost Method: Individual Entry -Age Normal Discount Rate: 4.05% as of December 31, 2022 Inflation: 2.50% Salary Increases: 3.50% to 11.50%, including inflation Demographic Assumptions: Based on the experience study covering the four year period ending December 31, 2018 as conducted for the Texas Municipal Retirement System (TMRS). Mortality: For healthy retirees, the gender -distinct 2019 Municipal Retirees of Texas mortality tables are used. The rate are projected on a fully generational basis using the ultimate mortality improvement rates in the MP tables published through 2019 to account for future mortality improvements. Health Care Trend Rates: Initial rate of 7.00% declining to an ultimate rate of 4.25% after 12 years. Participation Rates: It was assumed 20% of employees retiring at the age of 50 or over would choose to receive retiree health care coverage through the City. Employees retiring before the age of 50 were not assumed to elect coverage. Other Information: Notes: The discount rate changed from 1.84% as of December 31, 2021 to 4.05% as of December 31, 2022. Additionally, the period of service used for the allocation of service costs was changed to only reflect service with the City. Discount Rate For plans that do not have formal assets, the discount rate should equal the tax-exempt municipal bond rate based on an index of 20-year general obligation bonds with an average AA credit rating as of the measurement date. For the purpose of this valuation, the municipal bond rate is 4.05% (based on the daily rate closest to but not later than the measurement date of the Fidelity "20-Year Municipal GO AA Index'). The discount rate was 1.84% as of the prior measurement date. Plan Assets There are no plan assets accumulated in a trust that meets the criteria in paragraph 4 of GASB Statement No. 75. 67 City of Friendswood, Texas 2023 ACFR CITY OF FRIENDSWOOD, TEXAS NOTES TO THE FINANCIAL STATEMENTS (continued) Note 9. Post Employee Benefits Other Than Pensions (continued) Retiree Health Care Plan (RHCP) (continued) Changes in the Total OPEB Liability Service cost $ 89,471 Interest 19,387 Changes of benefit terms - Difference between expected and actual experience 74,496 Changes of assumptions (230,413) Benefit payments (47,887) Net change in total OPEB liability (94,946) Total OPEB liability - beginning 1,032,823 Total OPEB liability - ending $ 937,877 The ending Total OPEB Liability was $937,877 as of December 31, 2022. Sensitivity of the total OPEB liability to changes in the discount rate The following presents the plan's total OPEB liability, calculated using a discount rate of 4.05%, as well as what the plan's total OPEB liability would be if it were calculated using a discount rate that is one percent lower or one percent higher: 1% Decrease to 3.05% $ 1,034,303 Current Discount Rate Assumption 4.05 % $ 937,877 1% Increase to 5.05 % $ 850,988 Sensitivity of the total OPEB liability to changes in the healthcare cost trend rates The following presents the plan's total OPEB liability, calculated using the assumed trend rates as well as what the plan's total OPEB liability would be if it were calculated using a trend rate that is one percent lower or one percent higher: Current Healthcare Cost Trend Rate 1% Decrease Assumption 1% Increase $ 831,715 $ 937,877 $ 1,062,748 68 City of Friendswood, Texas 2023 ACFR CITY OF FRIENDSWOOD, TEXAS NOTES TO THE FINANCIAL STATEMENTS (continued) Note 9. Post Employee Benefits Other Than Pensions (continued) Retiree Health Care Plan (RHCP) (continued) OPEB Expense and Deferred Outflows of Resources and Deferred Inflows of Resources Related to OPEB For the year ended September 30, 2023, the City recognized OPEB expense of $37,685 related to the TMRS Supplemental Death Benefit Fund and OPEB expense of $73,598 related to the City's retiree healthcare plan for total OPEB expense of $111,283. As of September 30, 2023, the City reported deferred outflows of resources related to OPEB from the following sources: Differences between expected and actual experience Changes assumptions Contributions subsequent to the measurement date Total Deferred Outflows of Deferred Inflows of Resources Resources $ 83,151 $ (173,690) 125,550 (295,509) 19,083 $ 227,784 $ (469,199) The $19,083 reported as deferred outflows of resources related to OPEB resulting from contributions subsequent to the measurement date will be recognized as a reduction of the total OPEB liability for the year ending September 30, 2024. Other amounts reported as deferred outflows and inflows of resources related to OPEB, excluding contributions subsequent to the measurement date, will be recognized in OPEB expenses as follows: Net Deferred Outflows Fiscal Year (Inflows) of Resources 2023 $ (35,260) 2024 (35,260) 2025 (35,260) 2026 (36,902) 2027 (31,101) Thereafter (86,715) Total $ (260,498) 69 City of Friendswood, Texas 2023 ACFR CITY OF FRIENDSWOOD, TEXAS NOTES TO THE FINANCIAL STATEMENTS (continued) Note 10.Commitments and Contingencies Southeast Water Purification Plant The City has entered into a contract with the City of Houston for construction, operating and maintaining a water purification plant known as Southeast Water Purification Plant. The City's pro rata share of the actual pumping construction costs is 1.33 percent. Due to the fac that the City is responsible for its pro rata share of maintaining the water purification plant, the City capitalizes its pro rata share of capital improvements. The City began receiving water from the plant on October 15, 1990. The City is billed on a monthly basis for the actual gallons of water received times the City's pro rata share of actual costs. At the end of each quarter, the City of Houston computes the total operation and maintenance expenses for the quarter just ended, recalculates the cost per one thousand gallons, and adjusts previous billings on the next invoice. The relationship of the parties is of a fiduciary character, no partnership or joint venture is created by this contract. Blackhawk Regional Wastewater Treatment Facility On December 12, 1974, the City entered into an agreement with Gulf Coast Waste Disposal Authority to construct the Blackhawk Regional Wastewater Treatment Facility. The Blackhawk Wastewater Treatment Facility was constructed in the early 1980s and is a regional wastewater treatment plant serving MUD 55, Baybrook MUD 1, City of Houston and the City of Friendswood. The plant has a capacity of 9.25 million gallons per day (MGD) and is operated and maintained by Gulf Coast Waste Disposal Authority. Friendswood is the majority owner having 52.465% or 4.853 MGD of its capacity. As a part of the contract with Gulf Coast Waste Disposal Authority, the City and all participants pay their share of operational costs and expenses (direct and indirect) incurred monthly at the Blackhawk Wastewater Treatment Facility based upon actual flows. This includes the maintenance of the plant and the creation and maintenance of reasonable reserves for repairs and other contingencies. Capital expenditures on the other hand shall be the responsibility of all participants based upon their purchased capacity in the plant. For Friendswood, that equates to 52.465% for capital projects identified and approved at the plant. Federal and State Programs The City recognizes grant monies received as reimbursement for costs incurred in certain federal and state programs it administers as revenue. Amounts received or receivable from grantor agencies are subject to audit and adjustment by grantor agencies. Any disallowed claims, including amounts already collected, may constitute a liability of the applicable funds. The amount, if any, of expenditures which may be disallowed by the grantor cannot be determined at this time although the City expects such amounts, if any, to be immaterial. Risk Management The City is exposed to various risks of loss related to torts; theft of, damage to, and destruction of assets; errors and omissions; injuries to employees; and natural disasters. The City's risk management program encompasses obtaining property and liability insurance through Texas Municipal League (TML), an Intergovernmental Risk Pool. The City has not had any significant reduction in insurance coverage and the amounts of insurance settlements have not exceeded insurance coverage for any of the last three years. The participation of the City in TML is limited to payment of premiums. During the year ended September 30, 2023, the City paid premiums to TML for provision of various liability, property and casualty insurance. The City has various deductible amounts ranging from $500 to $5,000 on various policies. 70 City of Friendswood, Texas 2023 ACFR CITY OF FRIENDSWOOD, TEXAS NOTES TO THE FINANCIAL STATEMENTS (continued) Note 10. Commitments and Contingencies (continued) The City also provides workers' compensation insurance on its employees through TML. Workers' compensation is subject to change when audited by TML. At year-end, September 30, 2023, the City believed the amounts paid on workers' compensation would not change significantly from the amounts recorded. During the year ended September 30, 2023, employees of the City were covered by a health and dental insurance plan. The City pays 90% of the monthly premium of employees choosing individual coverage only. The City pays 70% of the monthly premium for employees choosing to cover themselves and their dependents. Note 11. Subsequent Events In December 2023, the City Council approved the establishment of the Reinvestment Zone Number One, City of Friendswood, and the creation of the Friendswood City Center Public Improvement District in January 2024. 71 City of Friendswood, Texas 2023 ACFR City of f!,,pnd6wood Texas 72 City of Friendswood, Texas 2023 ACFR REQUIRED SUPPLEMENTARY INFORMATION 73 City of Friendswood, Texas 2023 ACFR CITY OF FRIENDSWOOD, TEXAS SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES - BUDGET AND ACTUAL (WITH VARIANCES) GENERAL FUND For the Year Ended September 30, 2023 Revenues Property taxes Sales and alcohol taxes Franchise taxes Fines and forfeitures Permits and fees Intergovernmental Investment earnings Donations Miscellaneous Total Revenues Expenditures General Government: Mayor and Council - Governing Body: Supplies and maintenance Other services and charges Total Governing Body City Attorney: Personnel services Supplies Other services and charges Total City Attorney City Manager - Administration: Personnel services Supplies Other services and charges Total Administration City Manager - Economic Development: Supplies Other services and charges Total Economic Development City Secretary - Municipal Clerk: Personnel services Supplies Other services and charges Total Municipal Clerk Budgeted Amounts Actual Orieinal Final Amounts Page 1 of 8 Variance with Final budget - Positive (Neeative) $ 18,006,381 $ 18,006,381 $ 18,122,796 $ 116,415 8,680,009 8,680,009 9,717,528 1,037,519 2,044,100 2,044,100 2,235,689 191,589 922,160 922,160 834,135 (88,025) 1,740,360 1,760,360 1,800,725 40,365 618,060 1,829,218 1,973,125 143,907 378,387 378,387 612,954 234,567 17,000 101,740 112,474 10,734 44,700 52,220 348,413 296,193 32,451,157 33,774,575 35,757,839 1,983,264 11,700 11,700 9,570 2,130 71,508 69,008 59,733 9,275 83,208 80,708 69,303 11,405 339,111 339,111 356,262 (17,151) 1,160 2,861 2,677 184 51,748 50,047 27,846 22,201 392,019 392,019 386,785 5,234 776,571 776,571 780,379 (3,808) 21,780 20,180 12,368 7,812 38,350 39,950 30,357 9,593 836,701 836,701 823,104 13,597 5,000 5,000 147 4,853 59,820 409,820 375,790 34,030 64,820 414,820 375,937 38,883 497,227 497,227 492,796 4,431 7,370 8,390 7,913 477 97,412 122,241 110,853 11,388 ew nn9 f,77 RSR F11 S67 16 796 74 City of Friendswood, Texas 2023 ACFR CITY OF FRIENDSWOOD, TEXAS SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES - BUDGET AND ACTUAL (WITH VARIANCES) GENERAL FUND For the Year Ended September 30, 2023 Expenditures (continued) General Government (continued): Administrative Services - Finance: Personnel services Supplies Other services and charges Total Finance Administrative Services - Municipal Court: Personnel services Supplies Other services and charges Total Municipal Court Human Resources -Administration: Personnel services Supplies Other services and charges Total Administration Human Resources - Insurance: Other services and charges Total Insurance Budgeted Amounts Actual Original Final Amounts Page 2 of 8 Variance with Final budget - Positive (Negative) $ 1,048,263 $ 1,048,263 $ 1,041,574 $ 6,689 7,930 12,520 11,709 811 311,061 307,822 262,445 45,377 1,367,254 1,368,605 1,315,728 52,877 427,344 427,344 439,278 (11,934) 9,680 9,680 4,928 4,752 29,425 29,425 22,815 6,610 466,449 466,449 467,021 (572) 397,716 397,716 387,737 9,979 11,700 9,200 3,264 5,936 87,131 88,806 56,277 32,529 496,547 495,722 447,278 48,444 321,754 325,054 283,474 41,580 321,754 325,054 283,474 41,580 75 City of Friendswood, Texas 2023 ACFR CITY OF FRIENDSWOOD, TEXAS Page 3 of 8 SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES - BUDGET AND ACTUAL (WITH VARIANCES) GENERAL FUND For the Year Ended September 30, 2023 Variance with Final budget - Budgeted Amounts Actual Positive Original Final Amounts (Negative) Expenditures (continued) General Government (continued): Human resources - Risk Management: Personnel services $ 155,152 $ 155,152 $ 155,088 $ 64 Supplies 10,960 27,603 18,522 9,081 Other services and charges 40,740 31,440 11,417 20,023 Total Risk Management 206,852 214,195 185,027 29,168 Information Technology - Administration: Personnel services 784,569 784,569 773,820 10,749 Supplies 80,290 119,566 72,647 46,919 Repairs and maintenance 65,630 65,630 35,992 29,638 Other services and charges 1,011,304 1,357,867 1,045,966 311,901 Total Administration 1,941,793 2,327,632 1,928,425 399,207 Total General Government 6,779,406 7,549,763 6,893,644 656,119 Public Safety: Police Department - Administration: Personnel services 958,111 958,111 967,944 (9,833) Supplies 30,760 55,807 28,163 27,644 Repairs and maintenance 77,507 18,263 14,899 3,364 Other services and charges 91,227 347,973 265,376 82,597 Total Administration 1,157,605 1,380,154 1,276,382 103,772 Police Department - Communications Personnel services 1,290,816 1,234,116 1,206,218 27,898 Supplies 10,400 11,191 5,689 5,502 Repairs and maintenance 33,700 70,700 25,025 45,675 Other services and charges 22,190 18,118 12,764 5,354 Total Communications 1,357,106 1,334,125 1,249,696 84,429 Police Department - Patrol: Personnel services 6,526,512 6,517,598 6,724,474 (206,876) Supplies 343,175 363,504 330,499 33,005 Repairs and maintenance 231,400 266,022 261,666 4,356 Other services and charges 681,755 685,521 685,559 (38) Total Patrol 7,782,842 7,832,645 8,002,198 (169,553) Police Department - Patrol - DOT Program Personnel services 109,058 109,104 118,175 (9,071) Supplies 7,060 6,560 5,931 629 Repairs and maintenance 1,250 4,950 4,884 66 Other services and charges 13,260 10,060 8,768 1,292 Total Patrol - DOT Program 130,628 130,674 137,758 (7,084) 76 City of Friendswood, Texas 2023 ACFR CITY OF FRIENDSWOOD, TEXAS Page 4 of 8 SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES - BUDGET AND ACTUAL (WITH VARIANCES) GENERAL FUND For the Year Ended September 30, 2023 Variance with Final budget - Budgeted Amounts Actual Positive Original Final Amounts (Negative) Expenditures (continued) Public Safety (continued): Police Department - Criminal Investigation: Personnel services $ 2,064,588 $ 1,904,744 $ 1,833,970 $ 70,774 Supplies 60,500 61,897 54,748 7,149 Repairs and maintenance 53,900 33,805 33,197 608 Other services and charges 196,353 190,698 184,266 6,432 Total Criminal Investigation 2,375,341 2,191,144 2,106,181 84,963 Police Department - Animal Control: Personnel services 362,576 362,575 382,624 (20,049) Supplies 33,750 47,312 36,091 11,221 Repairs and maintenance 12,000 9,000 5,925 3,075 Other services and charges 69,492 79,592 67,695 11,897 Total Animal Services 477,818 498,479 492,335 6,144 Fire Marshal - Administration: Personnel services 978,289 978,289 1,018,564 (40,275) Supplies 37,430 45,670 44,129 1,541 Repairs and maintenance 11,000 11,478 10,627 851 Other services and charges 79,694 79,444 76,625 2,819 Total Administration 1,106,413 1,114,881 1,149,945 (35,064) Fire Marshal - Emergency Management: Personnel services 102,932 102,932 108,508 (5,576) Supplies 24,300 31,475 29,715 1,760 Repairs and maintenance 5,000 3,000 1,560 1,440 Other services and charges 50,190 59,104 45,616 13,488 Total Emergency Management 182,422 196,511 185,399 11,112 Fire Marshal - Fire/EMS Administration: Other services and charges 1,963,400 1,963,400 2,040,405 (77,005) Total Fire/EMS Administration 1,963,400 1,963,400 2,040,405 (77,005) Total Public Safety 16,533,575 16,642,013 16,640,299 1,714 77 City of Friendswood, Texas 2023 ACFR CITY OF FRIENDSWOOD, TEXAS Page 5 of 8 SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES - BUDGET AND ACTUAL (WITH VARIANCES) GENERAL FUND For the Year Ended September 30, 2023 Variance with Final budget - Budgeted Amounts Actual Positive Original Final Amounts (Negative) Expenditures (continued) Public Works: Administration: Personnel services $ 263,038 $ 263,038 $ 263,660 $ (622) Supplies 4,020 4,720 4,123 597 Other services and charges 13,365 16,313 4,910 11,403 Total Administration 280,423 284,071 272,693 11,378 Streets: Personnel services 861,972 861,972 998,612 (136,640) Supplies 164,515 152,615 146,787 5,828 Repairs and maintenance 151,830 498,565 438,126 60,439 Other services and charges 465,794 461,721 525,927 (64,206) Total Streets 1,644,111 1,974,873 2,109,452 (134,579) Drainage: Personnel services 326,286 326,286 308,430 17,856 Supplies 17,600 15,481 13,062 2,419 Repairs and maintenance 66,000 65,052 33,006 32,046 Other services and charges 16,310 14,010 13,007 1,003 Total Drainage 426,196 420,829 367,505 53,324 Total Public Works 2,350,730 2,679,773 2,749,650 (69,877) Engineering: Capital Projects Administration: Personnel services 502,851 502,851 549,405 (46,554) Supplies 14,985 22,005 21,594 411 Repairs and maintenance 2,000 2,863 2,322 541 Other services and charges 100,718 84,828 67,883 16,945 Total Capital Projects Administration: 620,554 612,547 641,204 (28,657) Total Engineering 620,554 612,547 641,204 (28,657) Community Development: Administration: Personnel services 382,772 382,772 380,208 2,564 Supplies 6,680 6,560 4,251 2,309 Other services and charges 15,795 10,564 8,295 2,269 Total Administration 405,247 399,896 392,754 7,142 78 City of Friendswood, Texas 2023 ACFR CITY OF FRIENDSWOOD, TEXAS Page 6 of 8 SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES - BUDGET AND ACTUAL (WITH VARIANCES) GENERAL FUND For the Year Ended September 30, 2023 Variance with Final budget - Budgeted Amounts Actual Positive Original Final Amounts (Negative) Expenditures (continued) Community Development (continued): Planning and Zoning: Personnel services $ 417,751 $ 417,751 $ 360,848 $ 56,903 Supplies 5,250 3,250 2,432 818 Other services and charges 50,305 57,656 37,672 19,984 Total Planning and Zoning 473,306 478,657 400,952 77,705 Inspection and Code Enforcement: Personnel services 428,532 428,532 437,032 (8,500) Supplies 11,310 11,310 8,326 2,984 Repairs and maintenance 3,650 3,650 2,995 655 Other services and charges 67,230 71,730 51,221 20,509 Total Inspection and Code Enforcement 510,722 515,222 499,574 15,648 Total Community Development 1,389,275 1,393,775 1,293,280 100,495 Parks and recreation: Administration: Personnel services 303,798 303,798 354,495 (50,697) Supplies 4,450 13,684 13,641 43 Repairs and maintenance 32,950 33,840 29,913 3,927 Total Administration 341,198 351,322 398,049 (46,727) Recreation Programs: Personnel services 353,167 353,167 332,296 20,871 Supplies 21,000 25,708 25,510 198 Other services and charges 129,870 145,212 139,061 6,151 Total Recreation programs 504,037 524,087 496,867 27,220 July 4th Program: Personnel services 32,103 32,103 54,509 (22,406) Supplies 4,450 5,216 5,215 1 Other services and charges 101,100 105,334 103,212 2,122 Total July 4th Program 137,653 142,653 162,936 (20,283) Summer Day Camp Program: Personnel services 120,619 120,619 89,279 31,340 Supplies 18,000 22,791 22,793 (2) Other services and charges 51,774 46,983 44,905 2,078 Total Summer Day Camp Program 190,393 190,393 156,977 33,416 79 City of Friendswood, Texas 2023 ACFR CITY OF FRIENDSWOOD, TEXAS Page 7of 8 SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES - BUDGET AND ACTUAL (WITH VARIANCES) GENERAL FUND For the Year Ended September 30, 2023 Variance with Final budget - Budgeted Amounts Actual Positive Original Final Amounts (Negative) Expenditures (continued) Parks and recreation (continued): Keep Friendswood Beautiful committee: Supplies $ 13,900 $ 13,755 $ 13,803 $ (48) Repairs and maintenance 2,500 5,253 5,075 178 Other services and charges 37,514 41,294 40,457 837 Total Keep Friendswood Beautiful committee 53,914 60,302 59,335 967 Stevenson Park pool: Personnel services 78,944 78,944 70,176 8,768 Supplies 31,300 38,590 31,568 7,022 Repairs and maintenance 9,000 15,917 15,908 9 Other services and charges 23,020 21,261 18,547 2,714 Total Stevenson park pool 142,264 154,712 136,199 18,513 Senior Activity Center: Personnel services 189,230 189,230 189,555 (325) Supplies 10,960 10,345 6,605 3,740 Repairs and maintenance 4,000 12,985 7,148 5,837 Other services and charges 19,704 26,724 24,625 2,099 Total Senior Activity Center 223,894 239,284 227,933 11,351 Park Operations: Personnel services 870,890 870,890 897,242 (26,352) Supplies 111,570 120,977 111,388 9,589 Repairs and maintenance 588,000 246,719 207,951 38,768 Other services and charges 602,245 911,855 901,423 10,432 Total Park Operations 2,172,705 2,150,441 2,118,004 32,437 Facility Operations: Supplies 45,000 43,144 36,220 6,924 Repairs and maintenance 314,001 710,306 386,910 323,396 Other services and charges 1,044,240 904,348 734,815 169,533 Total Facility Operations 1,403,241 1,657,798 1,157,945 499,853 Total parks and recreation 5,169,299 5,470,992 4,914,245 556,747 Library: Administration: Personnel services 1,209,731 1,209,731 1,216,097 (6,366) Supplies 158,785 172,559 157,349 15,210 Repairs and maintenance 2,482 3,016 1,016 2,000 Other services and charges 22,122 30,598 26,837 3,761 Total Administration 1,393,120 1,415,904 1,401,299 14,605 Total library 1,393,120 1,415,904 1,401,299 14,605 80 City of Friendswood, Texas 2023 ACFR CITY OF FRIENDSWOOD, TEXAS Page 8 of 8 SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES - BUDGET AND ACTUAL (WITH VARIANCES) GENERAL FUND For the Year Ended September 30, 2023 Variance with Final budget - Budgeted Amounts Actual Positive Original Final Amounts (Negative) Expenditures (continued) Capital improvements: Repairs and Maintenance $ $ - $ - $ - Other services and charges 27,007 26,817 190 Capital outlay 519,000 8,134,388 4,148,714 3,985,674 Total capital improvements 519,000 8,161,395 4,175,531 3,985,864 Debt service: Principal on long-term debt - - 84,250 (84,250) Total debt service - - 84,250 (84,250) Total Expenditures 34,754,959 43,926,162 38,793,402 5,132,760 Excess (deficiency) of revenues over expenditures (2,303,802) (10,151,587) (3,035,563) 7,116,024 Other Financing Sources (Uses) Insurance recoveries 63,799 69,683 5,884 Sale of capital assets - 18,181 18,181 Notes payable issued - 514,000 514,000 - Transfers in 1,803,800 1,803,800 1,803,800 Transfers out - (16,335) (16,335) - Total Other Financing Sources (Uses) 1,803,800 2,365,264 2,389,329 24,065 Net change in fund balances (500,002) (7,786,323) (646,234) 7,140,089 Fund Balances - Beginning 17,385,087 17,385,087 17,385,087 - Fund Balances - Ending $ 16,885,085 $ 9,598,764 $ 16,738,853 $ 7,140,089 81 City of Friendswood, Texas 2023 ACFR CITY OF FRIENDSWOOD, TEXAS SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES - BUDGET AND ACTUAL (WITH VARIANCES) CORONA VIRUS STATE FISCAL RECOVERY FUND For the Year Ended September 30, 2023 Page 1 of 1 Variance with Final Budget - Positive Original Budget Final Budget Actual Amounts (Negative) Revenues Investment earnings $ 86,249 $ 86,249 $ 369,436 $ 283,187 Total Revenues 86,249 86,249 369,436 283,187 Expenditures Current: - - - - Total Expenditures - - - - Net change in fund balances 86,249 86,249 369,436 283,187 Fund Balances - Beginning (1,666) (1,666) (1,666) - Fund Balances - Ending $ 84,583 $ 84,583 $ 367,770 $ 283,187 82 City of Friendswood, Texas 2023 ACFR CITY OF FRIENDSWOOD, TEXAS Page 1 of 3 NOTES TO BUDGETARY SCHEDULE For the Year Ended September 30, 2023 Budgetary Basis of Accounting Annual budgets are adopted on a basis consistent with generally accepted accounting principles. Budgetary Information The City's Code of Ordinances establishes the following framework for the preparation and format of the City's annual budget: Content The budget shall provide a complete financial plan of all City funds and activities and, except as required by law or this Charter, shall be in such form as the City Manager deems desirable or the Council may require. The budget shall begin with a clear general summary of its contents; shall show in details all estimated income, the proposed property tax levy, and all proposed expenditures for the ensuing fiscal years, including debt service and an itemized estimate of the expense of conducting each Department of the City. The proposed budget expenditures shall not exceed the total of estimated income. It shall also include, in separate sections: 1) Tax levies, rates and collections for the preceding five years. 2) The amount required for interest on the City's debts, for sinking fund and for maturing serial bonds. 3) The total amount of outstanding City debts, with a schedule of maturities on bond issues. 4) Anticipated net surplus of deficit for the ensuing fiscal year of each utility owned or operated by the City and the proposed method of its disposition, subsidiary budgets for each such utility giving detailed income and expenditure information shall be attached as appendices to the budget. 5) A capital program, which may be revised and extended each year to indicate capital improvements pending or in process of construction or acquisition, and shall include the following items which shall be attached as appendices to the budget: a) A summary of proposed programs; b) A list of all capital improvements which are proposed to be undertaken during the five fiscal years next ensuing, with appropriate supporting information as to the necessity for such improvements; c) Cost estimates, method of financing and recommended time schedules from each such improvement; and d) The estimated annual cost of operating and maintaining the facilities to bid constructed or acquired. 6) Such other information as may be required by the Council. Submission On or before the first day of August of each year, the City Manager shall submit to the Council a proposed budget and an accompanying message. The Council shall review the proposed budget and revise as deemed appropriate prior to general circulation for public hearing. 83 City of Friendswood, Texas 2023 ACFR CITY OF FRIENDSWOOD, TEXAS NOTES TO BUDGETARY SCHEDULE For the Year Ended September 30, 2023 Public Notice and Hearing Page 2 of 3 The Council shall post in the City Hall and publish in the official newspaper a general summary of their proposed budget and a notice stating: 1) The times and places where copies of the message and budget are available for inspection by the public; and 2) The time and place, not less than ten nor more than 30 days after such publication, for a public hearing on the budget. Amendment Before Adoption After the public hearing, the Council may adopt the budget with or without amendment. In amending the budget, it may add or increase programs or amounts and may delete or decrease any programs or amounts, except expenditures required by law or for debt service or for estimated cash deficit, provided that no amendment to the budget shall increase the authorized expenditures to an amount greater than the total of estimated income plus funds available from prior years. If the Council fails to adopt an annual budget before the start of the fiscal year to which it applies, appropriations of the last budget adopted shall be considered as adopted for the current fiscal year on a month to month, pro rata basis, until the annual budget is adopted. Adoption of the budget shall require an affirmative vote of at least a majority of all members of the Council. Adoption of the budget shall constitute appropriations of the amounts specified therein as expenditures from the funds indicated. Amendments After Adoption At any time during the fiscal year, the City Manager may transfer part or all of any unencumbered appropriation balance among programs within a department, division, or office, and, upon written request by the City Manager, the Council may be by ordinance transfer part or all of any unencumbered appropriation balance from one department, office, or agency to another. No appropriation for debt service may be reduced or transferred and no appropriation may be reduced below any amount required by law to be appropriated or by more than the amount of the unencumbered balance thereof. The City Council made supplemental budgetary appropriation changes during the fiscal year. The reported budgetary data has been revised for these amendments legally authorized during the year. 84 City of Friendswood, Texas 2023 ACFR CITY OF FRIENDSWOOD, TEXAS Page 3 of 3 NOTES TO BUDGETARY SCHEDULE For the Year Ended September 30, 2023 Excess of Expenditures over Appropriations For the year ended September 30, 2023, expenditures exceeded appropriations in the following departments (the legal level of budgetary control): General Fund Fire marshal Public works Engineering Debt service Debt Service Fund Debt service - principal and interest Bond Consutction Fund Debt service - interest and other charges CDBG - DR Galveston County Fund Public works CDBG - DR Harris County Fund Capital outlay Fire/EMS Donation Fund Debt service - principal $100,957 $69,877 $28,657 $84,250 $112, 933 $311,664 $129,082 $505,048 $18, 905 85 City of Friendswood, Texas 2023 ACFR CITY OF FRIENDSWOOD, TEXAS Page 1 of SCHEDULE OF CHANGES IN THE NET PENSION LIABILITYAND RELATED RATIOS TEXAS MUNICIPAL RETIREMENT SYSTEM Last Nine Measurement Years 2022 2021 2020 2019 A. Total pension liability 1. Service Cost $ 3,205,331 $ 3,032,100 $ 2,979,569 $ 2,738,906 2. Interest (on the Total Pension Liability) 6,508,227 6,110,807 5,780,980 5,345,140 3. Difference between expected and actual experience 1,493,003 788,166 (146,825) 1,150,459 4. Changes of assumptions - - 378,973 5. Benefit payments, including refunds of employee contributions 6. Net change in total pension liability 7. Total pension liability — beginning 8. Total pension liability — ending B. Plan fiduciary net position 1. Contributions —employer 2. Contributions —employee 3. Net investment income 4. Benefit payments, including refunds of employee contributions 5. Administrative Expense 6. Other 7. Net change in plan fiduciary net position 8. Plan fiduciary net position — beginning 9. Plan fiduciary net position — ending (4,096,292) (4,163,654) (3,343,679) (3,210,157) 7,110,269 5,767,419 5,270,045 6,403,321 96,863,664 91,096,245 85,826,200 79,422,879 103,973,933 96,863,664 91,096,245 85,826,200 2,879,665 2,777,049 2,620,564 2,395,398 1,238,946 1,174,582 1,158,078 1,068,692 (6,696,002) 10,611,017 5,713,369 10,053,454 (4,096,292) (4,163,654) (3,343,679) (3,210,157) (57,928) (49,073) (36,958) (56,778) 69,125 337 (1,442) (1,704) (6,662,486) 10,350,258 6,109,932 10,248,905 91,705,874 81,355,616 75,245,684 64,996,779 85,043,388 91,705,874 81,355,616 75,245,684 C. Net pension liability (A.9 — 13.9) $ 18,930,545 $ 5,157,790 $ 9,740,629 $ 10,580,516 D. Plan fiduciary net position as a percentage of the total pension liability 81.79% 94.68% 89.31% 87.67% E. Covered payroll $ 17,699,233 $ 16,779,748 $ 16,543,970 $ 15,267,034 F. Net position liability as a percentage of covered payroll 106.96% 30.74% 58.88% 69.30% Note: Ten years of data should be presented in this schedule but data was unavailable prior to 2014 86 City of Friendswood, Texas 2023 ACFR CITY OF FRIENDSWOOD, TEXAS SCHEDULE OF CHANGES IN THE NET PENSION LIABILITYAND RELATED RATIOS TEXAS MUNICIPAL RETIREMENT SYSTEM Last Nine Measurement Years A. Total pension liability 1. Service Cost 2. Interest (on the Total Pension Liability) 3. Difference between expected and actual experience 4. Changes of assumptions 5. Benefit payments, including refunds of employee contributions 6. Net change in total pension liability 7. Total pension liability — beginning 8. Total pension liability — ending B. Plan fiduciary net position 1. Contributions —employer 2. Contributions —employee 3. Net investment income 4. Benefit payments, including refunds of employee contributions 5. Administrative Expense 6. Other 7. Net change in plan fiduciary net position 8. Plan fiduciary net position — beginning 9. Plan fiduciary net position — ending C. Net pension liability (A.9 — B.9) D. Plan fiduciary net position as a percentage of the total pension liability E.Covered payroll F. Net position liability as a percentage of covered payroll 2018 2017 $ 2,626,099 $ 2,505,392 $ 5,044,613 4,755,782 59,617 (60,180) 2016 2015 Page 2 of 2 2014 2,334,817 $ 2,204,299 $ 2,018,353 4,435,987 4,317,394 4,084,392 366,687 (1,032,789) (736,093) - 847,469 (3,458,824) (2,505,921) (2,464,107) (2,256,734) (2,005,311) 4,271,505 4,695,073 4,673,384 4,079,639 3,361,341 75,151,374 70,456,304 65,782,920 61,703,281 58,341,940 79,422,879 75,151,377 70,456,304 65,782,920 61,703,281 2,305,344 2,182,093 2,037,849 1,998,038 1,867,782 1,025,248 987,399 923,896 886,669 829,598 (2,013,270) 8,104,390 3,672,583 79,202 2,868,842 (3,458,824) (2,505,921) (2,464,107) (2,256,734) (2,005,311) (38,892) (41,987) (41,467) (48,239) (29,949) (2,032) (2,127) (2,234) (2,383) (2,462) (2,182,426) 8,723,847 4,126,520 656,553 3,528,500 67,179,205 58,455,358 54,328,838 53,672,285 50,143,785 64,996,779 67,179,205 58,455,358 54,328,838 53,672,285 $ 14,426,100 $ 7,972,172 $ 12,000,946 $ 11,454,082 $ 8,030,996 81.84% 89.39% 82.97% 82.59% 86.98% $ 14,646,398 $ 14,098,997 $ 13,198,512 $ 12,653,842 $ 11,851,396 98.50% 56.54% 90.93% 90.52% 67.76% Note: Ten years of data should be presented in this schedule but data was unavailable prior to 2014. 87 City of Friendswood, Texas 2023 ACFR CITY OF FRIENDSWOOD, TEXAS SCHEDULE OF CITY CONTRIBUTIONS TEXAS MUNICIPAL RETIREMENT SYSTEM Last Ten Fiscal Years 2023 2022 2021 2020 2019 Actuarially required contributions $ 3,039,855 $ 2,844,852 $ 2,721,688 $ 2,485,117 $ 2,376,185 Contributions in relation to the actuarially required contributions 3,039,855 2,844,852 2,721,688 2,485,117 2,376,185 Contribution deficiency (excess) $ _ $ _ $ _ $ _ $ _ City's covered payroll $ 18,633,414 $ 17,404,825 $ 16,639,755 $ 15,724,041 $ 15,133,171 Contributions as a percentage of covered payroll 16.31% 16.35% 16.36% 15.80% 15.70% 2018 2017 2016 2015 2014 Actuarially required contributions $ 2,255,270 $ 2,161,617 $ 2,100,698 $ 1,960,652 $ 1,847,375 Contributions in relation to the actuarially required contributions 2,255,270 2,161,617 2,100,698 1,960,652 1,847,375 Contribution deficiency (excess) $ _ $ _ $ _ $ _ $ _ City's covered payroll $ 14,385,208 $ 13,986,135 $ 13,525,613 $ 12,423,310 $ 11,781,281 Contributions as a percentage of covered payroll 15.68% 15.46% 15.53% 15.78% 15.68% 88 City of Friendswood, Texas 2023 ACFR CITY OF FRIENDSWOOD, TEXAS NOTES TO SCHEDULE OF CONTRIBUTIONS For the Year Ended September 30, 2023 Valuation Date: 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 Amortization Method Remaining Amortization Period Asset Valuation Method Inflation Salary Increases Investment Rate of Return Entry Age Normal Level Percentage of Payroll, Closed 23 years 10 Year smoothed market; 12% soft corridor 2.50% 3.50% to 11.50% including inflation 6.75% Retirement Age Experience -based table of rates that are specific to the City's plan of benefits. Last updated for the 2019 valuation pursuant to an experience study of the period 2014 — 2018 Mortality Post -retirement: 2019 Municipal Retirees of Texas Mortality Tables. The rates are projected on a fully generational basis with scale UMP. Pre - retirement: PUB (10) mortality tables, with the Public Safety table used for males and the General Employee table used for females. The rates are projected on a fully generational basis with scale UMP. Other Information: There were no benefit changes during the year. 89 City of Friendswood, Texas 2023 ACFR CITY OF FRIENDSWOOD, TEXAS SCHEDULE OF CHANGES IN THE TOTAL OPEB LIABILITY AND RELATED RATIOS TEXAS MUNICIPAL RETIREMENT SYSTEM SUPPLEMENTAL DEATH BENEFITS FUND Last Six Measurement Years Service cost Interest Difference between expected and actual experience Changes of assumptions Benefit payments ** Net change in total OPEB liability Total OPEB liability - beginning Total OPEB liability - ending Covered -employee payroll Total OPEB liability as a percentage of covered -employee payroll Service cost Interest Difference between expected and actual experience Changes of assumptions Benefit payments ** Net change in total OPEB liability Total OPEB liability - beginning Total OPEB liability - ending Covered -employee payroll Total OPEB liability as a percentage of covered -employee payroll 2022 2021 2020 $ 51,328 $ 45,305 $ 36,397 16,968 17,025 20,150 122 (9,842) (48,181) (326,179) 29,168 115,737 (12,389) (15,102) (4,963) (270,150) 66,554 119,140 902,708 836,154 717,014 $ 632,558 $ 902,708 $ 836,154 $ 17,699,233 $ 16,779,748 $ 16,543,970 3.57% 5.38% 5.05% 2019 2018 2017 $ 27,481 $ 30,757 $ 26,788 23,199 20,933 20,384 (60,356) (7,425) - 118,183 (43,775) 49,777 (6,107) (5,859) (5,640) 102,400 (5,369) 91,309 614,614 619,983 528,674 $ 717,014 $ 614,614 $ 619,983 $ 15,267,034 $ 14,646,398 $ 14,098,997 4.70% 4.20% 4.40% Note: Ten years of data should be presented in this schedule but data was unavailable prior to 2017. No assets are accumulated in a trust that meets the criteria in paragraph 4 of GASB 75 to pay related benefit. ** Due to the SDBF being considered an unfunded OPEB plan under GASB 75, benefit payments are treated as being equal to the employer's yearly contributions for retirees. Notes to Required Supplementary Information: Changes of assumptions: Changes of assumptions reflect the effects of changes in the discount rate each period. The following are the discount rates used in each period: 2022 4.05% 2021 1.84% 2020 2.00% 2019 2.75% 2018 3.71% 2017 3.31% 90 City of Friendswood, Texas 2023 ACFR CITY OF FRIENDSWOOD, TEXAS SCHEDULE OF CHANGES IN THE TOTAL OPEB LIABILITY AND RELATED RATIOS CITY OF FRIENDSWOOD RETIREE HEALTH CARE PLAN Last Six Measurement Years Service cost Interest Difference between expected and actual experience Changes of assumptions Benefit payments Net change in total OPEB liability Total OPEB liability - beginning Total OPEB liability - ending Covered -employee payroll Total OPEB liability as a percentage of covered -employee payroll Service cost Interest Difference between expected and actual experience Changes of assumptions Benefit payments Net change in total OPEB liability Total OPEB liability - beginning Total OPEB liability - ending Covered -employee payroll Total OPEB liability as a percentage of covered -employee payroll 2022 2021 2020 $ 89,471 $ 60,759 $ 60,972 19,387 22,218 30,484 74,496 11,967 (104,038) (230,413) (111,991) 75,401 (47,887) (61,339) (59,267) (94,946) (78,386) 3,552 1,032,823 1,111, 209 1,107, 657 $ 937,877 $ 1,032,823 $ 1,111,209 $ 17,701,249 $ 16,779,752 $ 16,543,973 5.30% 6.16% 6.72% 2019 2018 2017 $ 46,995 $ 53,919 $ 44,637 36,314 37,843 39,497 8,768 (214,124) 4,573 86,718 7,071 51,765 (52,896) (38,566) (38,414) 125,899 (153,857) 102,058 981,758 1,135,615 1,033,557 $ 1,107,657 $ 981,758 $ 1,135,615 $ 15,267,037 $ 14,646,402 $ 12,035,859 7.26% 6.70% 9.44% Note: Ten years of data should be presented in this schedule but data was unavailable prior to 2017. No assets are accumulated in a trust that meets the criteria in paragraph 4 of GASB 75 to pay related benefit. 91 City of Friendswood, Texas 2023 ACFR Notes to Required Supplementary Information: Methods and Assumptions Used to Determine Contribution Rates: The demographic assumptions are based on the assumptions that were developed for the defined benefit plan in which the City participates (TMRS). The assumptions are based on the experience study covering the four year period ending December 31, 2018 as conducted for the Texas Municipal Retirement System (TMRS). Changes of assumptions: 2022 — The spousal coverage and health care trend assumptions were modified. 2021- The period of service used for allocation of service costs was changed to only reflect service with the City. 2019 - The demographic study and salary increase assumptions were updated to reflect the 2019 TMRS Experience Study. 2018 - The health care trend assumption was modified. Changes of assumptions reflect the effects of changes in the discount rate each period. The following are the discount rates used in each period: 2022 4.05% 2021 1.84% 2020 2.00% 2019 2.75% 2018 3.71% 2017 3.31% 92 City of Friendswood, Texas 2023 ACFR COMBINING AND INDIVIDUAL FUND FINANCIAL STATEMENTS AND SCHEDULES 93 City of Friendswood, Texas 2023 ACFR City of ,,Pnd6wood Texas 94 City of Friendswood, Texas 2023 ACFR NONMAJOR GOVERNMENTAL FUNDS The Special Revenue Funds are used to account for specific revenue sources (other than major capital projects) that are legally restricted to expenditures for specified purposes. Police Investigation Fund — This fund is used to account for revenues that are restricted to police investigation expenditures. Fire/EMS Donation Fund — This fund accounts for revenues that are restricted for Fire/EMS capital outlays and debt repayments. Municipal Court Fund —This fund accounts for revenues that are restricted for court technology and building security. In 1999, the state legislature authorized a court technology and court security fee for municipal court fines. In 2019, the state legislature authorized additional fees for truancy and jury services. Community Development Block Grant (CDBG) — Disaster Recovery (DR) Harris County — This fund is used to account for revenues that are restricted to the Community Development Block Grant — Disaster Recovery expenditures. Funds will be used for the Harris County side of the City. Hazard Mitigation Grant Program —This fund is used to account for federal grants that are restricted to the acquisition and demolition of flood -prone residential structures located within the City. Community Development Block Grant (CDBG) — Disaster Recovery (DR) Galveston County — This fund is used to account for revenues that are restricted to the Community Development Block Grant— Disaster Recovery expenditures. Funds will be used for the Galveston County side of the City. The Permanent Fund is used to report resources that are legally restricted to the extent that only earnings, not principal, may be used for purposes that support the City's programs. 1776 Park Fund —This fund is used to account for assets held by the City in a trustee capacity and the earnings benefit this City Park. 95 City of Friendswood, Texas 2023 ACFR NONMAJOR GOVERNMENTAL FUNDS (continued) Debt Service Funds are used to account for the accumulation of resources that are restricted, committed, or assigned for the repayment of principal and interest on long-term obligations of the governmental funds. Debt Service Fund — This fund is used to account for the accumulation of resources for the payment of general long- term debt principal, interest and related costs. Capital Projects Funds are used to account for the acquisition and construction of major capital facilities. Sidewalk Installation Fund — This fund is used to account for receipts from developers to install sidewalks in neighborhood developments. Park Land Dedication Fund — This fund is used to account for receipts from developers to build or enhance neighborhood and community parks. Street Improvement Fund —This fund is used to record sales tax revenue collected for City's streets maintenance and improvements. MAJOR GOVERNMENTAL FUNDS The Special Revenue Funds are used to account for specific revenue sources (other than major capital projects) that are legally restricted to expenditures for specified purposes. Coronavirus State and Local Fiscal Recovery Fund —This fund is used to account for federal funds related to the fiscal recovery of Coronavirus. Funds will be used for water and sewer infrastructure projects. Capital Projects Funds are used to account for the acquisition and construction of major capital facilities. Bond Construction Fund — is used to account for the construction of public facilities, and park, street and drainage improvements that are funded by the proceeds from Permanent Improvement Bonds. 96 City of Friendswood, Texas 2023 ACFR CITY OF FRIENDSWOOD, TEXAS COMBINING BALANCE SHEET NONMAJOR GOVERNMENTAL FUNDS September 30, 2023 Page 1 of 3 Special Revenue Funds Police Fires/EMS CDBG - DR Harris Investigation Donation Municipal Court County Assets Cash and cash equivalents $ 29,059 $ 78,587 $ 44,186 $ 150,900 Investments 103,066 288,673 162,305 554,302 Receivables, net of allowance: Taxes - - - - Customer accounts 2,739 - Other receivables - - 3,573 Accrued interest 125 385 172 Prepaid items - - 300 - Due from other governments - - - 764,243 Total Assets $ 132,250 $ 370,384 $ 210,536 $ 1,469,445 Liabilities, Deferred Inflows of Resources, and Fund Balances Liabilities: Accounts payable $ 2,086 $ - $ - $ 54,502 Retainage payable - - 4,912 166,799 Due to other funds - - 1,248,144 Unearned revenues - - - - Total Liabilities 2,086 - 4,912 1,469,445 Deferred Inflows of Resources: Unavailable revenue - - 3,756 - Total Deferred Inflows - 3,756 Fund Balances: Nonspendable: Prepaid items - 300 Permanent fund - - Restricted: Municipal court operations - 201,568 Debt service - - - Public safety 130,164 370,384 Capital projects - - Unassigned - - - Total Fund Balances 130,164 370,384 201,868 - Total Liabilities, Deferred Inflows of Resources, and Fund Balances $ 132,250 $ 370,384 $ 210,536 $ 1,469,445 97 City of Friendswood, Texas 2023 ACFR CITY OF FRIENDSWOOD, TEXAS Page 2 of 3 COMBINING BALANCE SHEET NONMAJOR GOVERNMENTAL FUNDS September 30, 2023 Special Revenue Funds Permanent HMGP Acquisition & CDBG - DR Demolition Galveston Debt Service Project County 1776 Park Fund Fund Assets Cash and cash equivalents $ - $ 23,895 $ 2,459 $ 6,146 Investments - 87,775 9,032 22,580 Receivables, net of allowance: Taxes - - - 57,083 Customer accounts - - - - Other receivables - - - - Accrued interest - - 10 831 Prepaid items - - - - Due from other governments 205,178 295,395 - - Total Assets $ 205,178 $ 407,065 $ 11,501 $ 86,640 Liabilities, Deferred Inflows of Resources, and Fund Balances Liabilities: Accounts payable $ - $ 21,540 $ $ - Retainage payable - 13,020 - Due to other funds 205,178 334,365 Unearned revenues - 20,166 Total Liabilities 205,178 389,091 - Deferred Inflows of Resources: Unavailable revenue - - - 55,847 Total Deferred Inflows - - - 55,847 Fund Balances: Nonspendable: Prepaid items - - - - Permanent fund - - 11,501 - Restricted: Municipal court operations - - - - Debt service - - - 30,793 Public safety - - - - Capital projects - 17,974 - - Unassigned - - - - Total Fund Balances - 17,974 11,501 30,793 Total Liabilities, Deferred Inflows of Resources, and Fund Balances $ 205,178 $ 407,065 $ 11,501 $ 86,640 98 City of Friendswood, Texas 2023 ACFR CITY OF FRIENDSWOOD, TEXAS Page 3 of 3 COMBINING BALANCE SHEET NONMAJOR GOVERNMENTAL FUNDS September 30, 2023 Capital Projects Funds Street Total Nonmajor Sidewalk Install Park Land Improvements Governmental Fund Dedication Funds Fund Funds Assets Cash and cash equivalents $ 1,307 $ 15,457 $ 1,060,329 $ 1,412,325 Investments 4,803 56,779 3,894,925 5,184,240 Receivables, net of allowance: Taxes - - 428,472 485,555 Customer accounts - - - 2,739 Other receivables - - - 3,573 Accrued interest 5 47 3,913 5,488 Prepaid items - - - 300 Due from other governments - - - 1,264,816 Total Assets $ 6,115 $ 72,283 $ 5,387,639 $ 8,359,036 Liabilities, Deferred Inflows of Resources, and Fund Balances Liabilities: Accounts payable $ - $ - $ 50,644 $ 128,772 Retainage payable - - 6,294 191,025 Due to other funds - - - 1,787,687 Unearned revenues - - - 20,166 Total Liabilities - - 56,938 2,127,650 Deferred Inflows of Resources: Unavailable revenue - - - 59,603 Total Deferred Inflows - - 59,603 Fund Balances: Nonspendable: Prepaid items - - - 300 Permanent fund - - - 11,501 Restricted: Municipal court operations - - - 201,568 Debt service - - - 30,793 Public safety - - - 500,548 Capital projects 6,115 72,283 5,330,701 5,427,073 Unassigned - - - - Total Fund Balances 6,115 72,283 5,330,701 6,171,783 Total Liabilities, Deferred Inflows of Resources, and Fund Balances $ 6,115 $ 72,283 $ 5,387,639 $ 8,359,036 99 City of Friendswood, Texas 2023 ACFR CITY OF FRIENDSWOOD, TEXAS COMBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES NONMAJOR GOVERNMENTAL FUNDS For the Year Ended September 30, 2023 Special Revenue Funds Police Fires/EMS CDBG - DR Harris Investigation Donation Municipal Court County Revenues Property taxes $ $ $ $ Sales taxes Fines and forfeitures 5,060 56,382 Permits and fees - - - Intergovernmental 3,131,816 Miscellaneous - Donations - 183,494 - Investment income (loss) 7,339 17,214 7,850 - Total Revenues 12,399 200,708 64,232 3,131,816 Expenditures Current: General government 42,734 Public works - Parks and recreation - Debt Service: Principal 206,438 Interest and other charges - 17,298 - - Capital Outlay 70,208 504,151 102,931 2,934,262 Total Expenditures 70,208 727,887 145,665 2,934,262 Excess (deficiency) of revenues over (under) expenditures (57,809) (527,179) (81,433) 197,554 Other Financing Sources (Uses) Premium on issuance of bonds - Transfers in - 6,868 Notes payable issued 411,000 - Total Other Financing Sources (Uses) 411,000 6,868 Net change in fund balances (57,809) (116,179) (81,433) 204,422 Fund Balances - Beginning 187,973 486,563 283,301 (204,422) Fund Balances - Ending $ 130,164 $ 370,384 $ 201,868 $ Page 1 of 3 100 City of Friendswood, Texas 2023 ACFR CITY OF FRIENDSWOOD, TEXAS COMBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES NONMAJOR GOVERNMENTAL FUNDS For the Year Ended September 30, 2023 Revenues Property taxes Sales taxes Fines and forfeitures Permits and fees Intergovernmental Miscellaneous Donations Investment income (loss) Total Revenues Expenditures Current: General government Public works Parks and recreation Debt Service: Principal Interest and other charges Capital Outlay Total Expenditures Excess (deficiency) of revenues over (under) expenditures Other Financing Sources (Uses) Premium on issuance of bonds Transfers in Notes payable issued Total Other Financing Sources (Uses) Net change in fund balances Fund Balances - Beginning Fund Balances - Ending Page 2 of 3 Special Revenue Funds Permanent HMGP Acquisition & CDBG - DR Demolition Galveston Debt Service Project County 1776 Park Fund Fund $ $ $ $ 4,602,691 626,044 - - 1,682 - - - 408 43,768 - 627,726 408 4,646,459 169,264 - 3,086,662 - 1,579,849 _ 467,163 - 636,427 4,666,511 - (8,701) 408 (20,052) - 4,470 - 4,470 (8,701) 408 (15,582) 26,675 11,093 46,375 $ $ 17,974 $ 11,501 $ 30,793 101 City of Friendswood, Texas 2023 ACFR CITY OF FRIENDSWOOD, TEXAS COMBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES NONMAJOR GOVERNMENTAL FUNDS For the Year Ended September 30, 2023 Revenues Page 3 of 3 Capital Projects Funds Street Total Nonmajor Sidewalk Install Park Land Improvements Governmental Fund Dedication Funds Fund Funds Property taxes $ $ $ - $ 4,602,691 Sales taxes 2,409,256 2,409,256 Fines and forfeitures - - - 61,442 Permits and fees 60,600 60,600 Intergovernmental - 3,757,860 Miscellaneous 1,682 Donations - - 183,494 Investment income (loss) 256 1,472 151,898 230,205 Total Revenues 256 62,072 2,561,154 11,307,230 Expenditures Current: General government - - - 42,734 Public works - 642,411 811,675 Parks and recreation 4,093 - 4,093 Debt Service: Principal - 3,293,100 Interest and other charges - - 1,597,147 Capital Outlay 20,358 131,897 4,230,970 Total Expenditures - 24,451 774,308 9,979,719 Excess (deficiency) of revenues over (under) expenditures 256 37,621 1,786,846 1,327,511 Other Financing Sources (Uses) Premium on issuance of bonds - - - 4,470 Transfers in 6,868 Notes payable issued 411,000 Total Other Financing Sources (Uses) - - - 422,338 Net change in fund balances 256 37,621 1,786,846 1,749,849 Fund Balances - Beginning 5,859 34,662 3,543,855 4,421,934 Fund Balances - Ending $ 6,115 $ 72,283 $ 5,330,701 $ 6,171,783 102 City of Friendswood, Texas 2023 ACFR CITY OF FRIENDSWOOD, TEXAS SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES BUDGET AND ACTUAL POLICE INVESTIGATION For the Year Ended September 30, 2023 Revenues Fines and forfeitures Investment earnings Total Revenues Expenditures Capital outlay Total Expenditures Net change in fund balances Fund Balances - Beginning Fund Balances - Ending Variance with Final Budget - Positive Original Budget Final Budget Actual Amounts (Negative) $ - $ - $ 5,060 $ 5,060 4,073 4,073 12,399 8,326 - 76,505 70,208 6,297 4,073 (72,432) (57,809) 14,623 187,973 187,973 187,973 - $ 192,046 $ 115,541 $ 130,164 $ 14,623 103 City of Friendswood, Texas 2023 ACFR CITY OF FRIENDSWOOD, TEXAS SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES BUDGET AND ACTUAL FIRE/EMS DONATION For the Year Ended September 30, 2023 Variance with Final Budget - Positive Original Budget Final Budget Actual Amounts (Negative) Revenues Donations $ 200,000 $ 200,000 $ 183,494 $ (16,506) Investment earnings 12,630 12,630 17,214 4,584 Total Revenues 212,630 212,630 200,708 (11,922) Expenditures Debt service: Principal 187,533 187,533 206,438 (18,905) Interest and other charges 22,272 22,272 17,298 4,974 Capital outlay 114,800 571,329 504,151 67,178 Total Expenditures 324,605 781,134 727,887 53,247 Excess (deficiency) of revenues over expenditures (111,975) (568,504) (527,179) 41,325 Other Financing Sources (Uses) Notes payable issued 411,000 411,000 - Total Other Financing Sources (Uses) 411,000 411,000 - Net change in fund balances (111,975) (157,504) (116,179) 41,325 Fund Balances - Beginning 486,563 486,563 486,563 - Fund Balances - Ending $ 374,588 $ 329,059 $ 370,384 $ 41,325 104 City of Friendswood, Texas 2023 ACFR CITY OF FRIENDSWOOD, TEXAS SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES BUDGET AND ACTUAL MUNICIPAL COURT For the Year Ended September 30, 2023 Revenues Fines and forfeitures Investment earnings Total Revenues Expenditures Current: General government Capital outlay Total Expenditures Net change in fund balances Fund Balances - Beginning Fund Balances - Ending Variance with Final Budget - Positive Original Budget Final Budget Actual Amounts (Negative) $ 49,000 $ 49,000 $ 56,382 $ 7,382 5,450 5,450 7,850 2,400 54,450 54,450 64,232 9,782 55,914 55,914 42,734 13,180 - 113,081 102,931 10,150 55,914 168,995 145,665 23,330 (1,464) (114,545) (81,433) 33,112 283,301 283,301 283,301 - $ 281,837 $ 168,756 $ 201,868 $ 33,112 105 City of Friendswood, Texas 2023 ACFR CITY OF FRIENDSWOOD, TEXAS SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES BUDGET AND ACTUAL CDBG - DR HARRIS COUNTY For the Year Ended September 30, 2023 Variance with Final Budget - Positive Original Budget Final Budget Actual Amounts (Negative) Revenues Intergovernmental $ - $ 2,400,115 $ 3,131,816 $ 731,701 Total Revenues - 2,400,115 3,131,816 731,701 Expenditures Capital outlay - 2,429,214 2,934,262 (S05,048) Total Expenditures - 2,429,214 2,934,262 (S05,048) Other Financing Sources (Uses) Transfers in - 6,868 6,868 - Total Other Financing Sources (Uses) - 6,868 6,868 - Net change in fund balances - (22,231) 204,422 226,653 Fund Balances - Beginning (204,422) (204,422) (204,422) - Fund Balances - Ending $ (204,422) $ (226,653) $ - $ 226,653 106 City of Friendswood, Texas 2023 ACFR CITY OF FRIENDSWOOD, TEXAS SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES BUDGET AND ACTUAL Hazard Mitigation Grant Program For the Year Ended September 30, 2023 Variance with Final Budget - Positive Original Budget Final Budget Actual Amounts (Negative) Revenues Intergovernmental $ $ $ $ Total Revenues Expenditures Current: Public works Capital outlay Total Expenditures Excess (deficiency) of revenues over expenditures Other Financing Sources (Uses) Transfers in Total Other Financing Sources (Uses) Net change in fund balances Fund Balances - Beginning Fund Balances - Ending $ $ $ $ 107 City of Friendswood, Texas 2023 ACFR CITY OF FRIENDSWOOD, TEXAS SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES BUDGET AND ACTUAL CDBG - DR GALVESTON COUNTY For the Year Ended September 30, 2023 Variance with Final Budget - Positive Original Budget Final Budget Actual Amounts (Negative) Revenues Intergovernmental $ $ 337,349 $ 626,044 $ 288,695 Miscellaneous revenue 1,682 1,682 - Total Revenues 339,031 627,726 288,695 Expenditures Current: Public works 40,182 169,264 (129,082) Capital outlay 514,444 467,163 47,281 Total Expenditures 554,626 636,427 (81,801) Net change in fund balances - (215,595) (8,701) 206,894 Fund Balances - Beginning 26,675 26,675 26,675 - Fund Balances - Ending $ 26,675 $ (188,920) $ 17,974 $ 206,894 108 City of Friendswood, Texas 2023 ACFR CITY OF FRIENDSWOOD, TEXAS SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES BUDGET AND ACTUAL 1776 PARK For the Year Ended September 30, 2023 Revenues Investment earnings Total Revenues Expenditures Current Total Expenditures Net change in fund balances Fund Balances - Beginning Fund Balances - Ending Variance with Final Budget - Positive Original Budget Final Budget Actual Amounts (Negative) $ 230 $ 230 $ 408 $ 178 230 230 408 178 230 230 408 178 11,093 11,093 11,093 - $ 11,323 $ 11,323 $ 11,501 $ 178 109 City of Friendswood, Texas 2023 ACFR CITY OF FRIENDSWOOD, TEXAS SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES BUDGET AND ACTUAL SIDEWALK INSTALLATION For the Year Ended September 30, 2023 Revenues Investment earnings Total Revenues Expenditures Capital outlay Total Expenditures Net change in fund balances Fund Balances - Beginning Fund Balances - Ending Variance with Final Budget - Positive Original Budget Final Budget Actual Amounts (Negative) $ 871 $ 871 $ 256 $ (615) 871 871 256 (615) - 5,969 - 5,969 - 5,969 - 5,969 871 (5,098) 256 5,354 5,859 5,859 5,859 - $ 6,730 $ 761 $ 6,115 $ 5,354 110 City of Friendswood, Texas 2023 ACFR CITY OF FRIENDSWOOD, TEXAS SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES BUDGET AND ACTUAL PARK LAND DEDICATION For the Year Ended September 30, 2023 Revenues Permit and fees Investment earnings Total Revenues Expenditures Current: Parks and recreation Capital outlay Total Expenditures Net change in fund balances Fund Balances - Beginning Fund Balances - Ending variance wnn Final Budget - Positive Original Budget Final Budget Actual Amounts (Negative) $ 50,000 $ 50,000 $ 60,600 $ 10,600 1,800 1,800 1,472 (328) 51,800 51,800 62,072 10,272 - 4,093 4,093 - - 20,358 20,358 - 24,451 24,451 - 51,800 27,349 37,621 10,272 34,662 34,662 34,662 - $ 86,462 $ 62,011 $ 72,283 $ 10,272 111 City of Friendswood, Texas 2023 ACFR CITY OF FRIENDSWOOD, TEXAS SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES BUDGET AND ACTUAL STREET IMPROVEMENT For the Year Ended September 30, 2023 Variance with Final Budget - Positive Original Budget Final Budget Actual Amounts (Negative) Revenues Sales taxes $ 2,155,380 $ 2,155,380 $ 2,409,256 $ 253,876 Investment earnings 37,480 37,480 151,898 114,418 Total Revenues 2,192,860 2,192,860 2,561,154 368,294 Expenditures Public works - 644,289 642,411 1,878 Capital outlay - 727,556 131,897 595,659 Total Expenditures - 1,371,845 774,308 597,537 Net change in fund balances 2,192,860 821,015 1,786,846 965,831 Fund Balances - Beginning 3,543,855 3,543,855 3,543,855 - Fund Balances - Ending $ 5,736,715 $ 4,364,870 $ 5,330,701 $ 965,831 112 City of Friendswood, Texas 2023 ACFR CITY OF FRIENDSWOOD, TEXAS SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES BUDGET AND ACTUAL DEBT SERVICE FUND For the Year Ended September 30, 2023 Revenues Property taxes Investment earnings Total Revenues Expenditures Debt service: Principal Interest and other charges Total Expenditures Other Financing Sources (Uses) Premium on bond issuance Total Other Financing Sources Net change in fund balances Fund Balances - Beginning Fund Balances - Ending Variance with Final Budget - Positive Original Budget Final Budget Actual Amounts (Negative) $ 4,573,578 $ 4,573,578 $ 4,602,691 $ 29,113 18,186 18,186 43,768 25,582 4,591,764 4,591,764 4,646,459 54,695 2,980,984 2,980,984 3,086,662 (105,678) 1,572,594 1,572,594 1,579,849 (7,255) 4,553,578 4,553,578 4,666,511 (112,933) 4,470 4,470 4,470 4,470 38,186 38,186 (15,582) (53,768) 46,375 46,375 46,375 $ 84,561 $ 84,561 $ 30,793 $ (53,768) 113 City of Friendswood, Texas 2023 ACFR CITY OF FRIENDSWOOD, TEXAS SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES BUDGET AND ACTUAL BOND CONSTRUCTION For the Year Ended September 30, 2023 Variance with Final Budget - Positive Original Budget Final Budget Actual Amounts (Negative) Revenues Investment earnings $ 323,943 $ 323,943 $ 479,377 $ 155,434 Total Revenues 323,943 323,943 479,377 155,434 Expenditures Current: Public works - 59,001 11,001 48,000 Parks and recreation - - - Debt service: Interest and other charges - 311,664 (311,664) Capital outlay 7,880,943 5,080,622 2,800,321 Total Expenditures 7,939,944 5,403,287 2,536,657 Other Financing Sources (Uses) Issuance of capital -related debt - 29,775,000 29,775,000 Premium on issuance of bonds 536,664 536,664 Total Other Financing Sources (Uses) - 30,311,664 30,311,664 Net change in fund balances 323,943 (7,616,001) 25,387,754 33,003,755 Fund Balances - Beginning 8,152,712 8,152,712 8,152,712 - Fund Balances - Ending $ 8,476,655 $ 536,711 $ 33,540,466 $ 33,003,755 114 City of Friendswood, Texas 2023 ACFR STATISTICAL SECTION (Unaudited) 115 City of Friendswood, Texas 2023 ACFR City of f!, Texas 116 City of Friendswood, Texas 2023 ACFR STATISTICAL SECTION (Unaudited) This part of the City of Friendswood's annual comprehensive financial report presents detailed information as a context for understanding what the information in the financial statements, note disclosures, and required supplementary information says about the government's overall financial health. Contents Pages Financial Trends 118 These schedules contain trend information to help the reader understand how the government's financial performance and well-being have changed over time. Revenue Capacity 128 These schedules contain information to help the reader assess the government's most significant local revenue source, the property tax. Debt Capacity 133 These schedules present information to help the reader assess the affordability of the government's current levels of outstanding debt and the government's ability to issue additional debt in the future. Demographic and Economic Information 138 This schedule offers demographic and economic indicators to help the reader understand the environment within which the government's financial activities take place. Operating Information 142 These schedules contain service and infrastructure data to help the reader understand how the information in the government's financial report relates to the services the government provides and activities it performs. Sources: Unless otherwise noted, the information in these schedules is derived from the annual comprehensive financial reports for the relevant year. 117 City of Friendswood, Texas 2023 ACFR CITY OF FRIENDSWOOD, TEXAS NET POSITION BY COMPONENT LAST TEN FISCAL YEARS (Accrual Basis of Accounting) Table 1 Page 1 of 2 2023 2022 2021 2020 2019 Governmental Activities Net investment in capital assets $ 79,714,165 $ 74,006,329 $ 72,240,727 $ 68,990,597 $ 66,823,023 Restricted 7,105,294 5,059,835 3,491,974 4,606,124 4,003,468 Unrestricted 6,302,252 8,668,866 6,886,085 2,563,947 5,402,312 Total Governmental Activities Net Position $ 93,121,711 $ 87,735,030 $ 82,618,786 $ 76,160,668 $ 76,228,803 Business -Type Activities Net investment in capital assets $ 40,075,768 $ 35,999,342 $ 32,910,959 $ 32,242,803 $ 27,038,046 Restricted 2,839,232 2,897,578 2,721,465 2,186,731 1,982,666 Unrestricted 14,978,447 11,776,833 9,984,251 8,438,509 12,077,564 Total Business -Type Activities Net Position $ 57,893,447 $ 50,673,753 $ 45,616,675 $ 42,868,043 $ 41,098,276 Primary Government Net investment in capital assets $ 119,789,933 $ 110,005,671 $ 105,151,686 $ 101,233,400 $ 93,861,069 Restricted 9,944,526 7,957,413 6,213,439 6,792,855 5,986,134 Unrestricted 21,280,699 20,445,699 16,870,336 11,002,456 17,479,876 Total Primary Government Net Positions $ 151,015,158 $ 138,408,783 $ 128,235,461 $ 119,028,711 $ 117,327,079 118 City of Friendswood, Texas 2023 ACFR CITY OF FRIENDSWOOD, TEXAS NET POSITION BY COMPONENT LAST TEN FISCAL YEARS (Accrual Basis of Accounting) Table 1 Page 2 of 2 2018 2017 2016 2015 2014 Governmental Activities Net investment in capital assets $ 68,320,682 $ 72,631,192 $ 73,588,484 $ 73,611,490 $ 65,404,791 Restricted 4,085,999 2,534,312 1,405,907 1,179,764 653,496 Unrestricted 6,248,751 5,532,198 5,579,677 5,901,505 10,798,907 Total Governmental Activities Net Position $ 78,655,432 $ 80,697,702 $ 80,574,068 $ 80,692,759 $ 76,857,194 Business -Type Activities Net investment in capital assets $ 27,088,280 $ 29,305,429 $ 28,322,718 $ 26,628,714 $ 24,495,816 Restricted 582,697 260,703 99,006 27,468 90,395 Unrestricted 13,620,211 10,584,764 10,238,993 12,040,181 14,818,104 Total Business -Type Activities Net Position $ 41,291,188 $ 40,150,896 $ 38,660,717 $ 38,696,363 $ 39,404,315 Primary Government Net investment in capital assets $ 95,408,962 $ 101,936,621 $ 101,911,202 $ 100,240,204 $ 89,900,607 Restricted 4,668,696 2,795,015 1,504,913 1,207,232 743,891 Unrestricted 19,868,962 16,116,962 15,818,670 17,941,686 25,617,011 Total Primary Government Net Positions $ 119,946,620 $ 120,848,598 $ 119,234,785 $ 119,389,122 $ 116,261,509 119 City of Friendswood, Texas 2023 ACFR CITY OF FRIENDSWOOD, TEXAS Table 2 CHANGES IN NET POSITION Page 1 of 4 LAST TEN FISCAL YEARS (Accrual Basis of Accounting) 2023 2022 2021 2020 2019 Expenses Governmental Activities: General government $ 7,873,719 $ 6,210,336 $ 5,867,654 $ 6,119,806 $ 5,912,467 Public safety 18,526,954 15,655,859 15,645,527 15,501,734 15,134,465 Public works 6,990,046 6,994,042 7,160,229 8,840,113 7,897,373 Engineering 640,292 570,098 506,959 434,976 - Community development 1,406,566 1,017,509 1,035,202 1,122,506 1,359,878 Parks and recreation 5,608,792 4,870,623 4,604,943 4,439,511 4,839,076 Library services 1,485,716 1,283,007 1,221,740 1,214,130 1,257,970 Interest and fiscal charges 1,659,932 1,268,435 1,244,881 1,055,889 923,350 Total Government Activities Expenses 44,192,017 37,869,909 37,287,135 38,728,665 37,324,579 Business -Type Activities: Water and wastewater 12,017,020 11,178,323 11,864,245 12,071,159 11,507,880 Interest and other 1,808,120 1,808,120 1,808,120 1,733,123 1,579,182 Total Business -Type Activities 13,825,140 12,986,443 13,672,365 13,804,282 13,087,062 Total Primary Government Expenses $ 58,017,157 $ 50,856,352 $ 50,959,500 $ 52,532,947 $ 50,411,641 Program Revenues Governmental activities: Charges for services: General government $ 921,752 $ 974,029 $ 871,362 $ 930,686 $ 751,112 Public safety 1,023,874 1,197,570 1,372,432 871,714 811,768 Public works 241,445 234,103 225,419 222,337 236,352 Community development - 1,238 - 9,275 6,841 Parks and recreation 493,846 441,649 384,489 181,709 341,560 Library services - - - - - Operating grants and contributions 2,229,755 841,537 3,874,866 3,430,645 1,842,704 Capital grants and contributions 3,757,860 2,620,495 3,864,589 708,306 - Total Governmental Activities Program Revenues: 8,668,532 6,310,621 10,593,157 6,354,672 3,990,337 Business -Type Activities: Charges for services: Water and wastewater 21,293,632 19,419,622 17,919,751 16,638,758 13,669,552 Operating grants and contributions 104,354 289,181 - 22,602 - Total Business -Type activities Program Revenues 21,397,986 19,708,803 17,919,751 16,661,360 13,669,552 Total Primary Government Program Revenues $ 30,066,518 $ 26,019,424 $ 28,512,908 $ 23,016,032 $ 17,659,889 Net(Expense)Revenues Governmental activities (35,523,485) (31,559,288) (26,693,978) (32,373,993) (33,334,242) Business -type activities 7,572,846 6,722,360 4,247,386 2,857,078 582,490 Total Primary Government Net Expense $ (27,950,639) $ (24,836,928) $ (22,446,592) $ (29,516,915) $ (32,751,752) 120 City of Friendswood, Texas 2023 ACFR CITY OF FRIENDSWOOD, TEXAS CHANGES IN NET POSITION LAST TEN FISCAL YEARS (Accrual Basis of Accounting) Expenses Governmental Activities: General government Public safety Public works Engineering Community development Parks and recreation Library services Interest and fiscal charges Total Government Activities Expenses Business -Type Activities: Water and wastewater Interest and other Total Business -Type Activities Total Primary Government Expenses Program Revenues Governmental activities: Charges for services: General government Public safety Public works Community development Parks and recreation Library services Operating grants and contributions Capital grants and contributions Total Governmental Activities Program Revenues: Business -Type Activities: Charges for services: Water and wastewater Operating grants and contributions Total Business -Type activities Program Revenues Total Primary Government Program Revenues Net(Expense)Revenues Governmental activities Business -type activities Total Primary Government Net Expense Table 2 Page 2 of 4 2018 2017 2016 2015 2014 $ 5,734,611 $ 5,128,399 $ 4,736,867 $ 5,410,643 $ 4,589,795 17,538,040 15,861, 719 13,101,691 11,763,659 11,236,402 6,267,824 4,429,664 4,429,482 3,933,288 3,921,658 945,701 1,495,001 1,577,813 1,406,288 1,097,075 4,554,114 3,459,053 3,080,453 2,869,345 3,356,587 1,210,207 1,215,683 1,134,859 1,026,967 1,093,043 953,509 953,146 862,654 730,614 630,542 37,204,006 32,542,665 28,923,819 27,140,804 25,925,102 9,019,197 8,502,218 7,975,920 7,629,711 7,995,106 1,029,715 1,086, 278 1,642,723 1,524,276 1,514,804 10,048,912 9,588,496 9,618,643 9,153,987 9,509,910 $ 47,252,918 $ 42,131,161 $ 38,542,462 $ 36,294,791 $ 35,435,012 $ 861,271 $ 1,004,968 $ 1,002,022 $ 807,245 $ 912,910 868,761 35,007 28,760 30,275 31,620 213,042 242,184 174,568 190,099 193,064 - 1,036,741 949,011 843,648 877,132 344,064 387,915 286,727 280,046 315,702 - 30,600 27,532 33,699 36,081 4,924,228 2,591,025 800,151 660,633 843,995 - 219,808 318,657 3,225,672 1,202,376 12,183, 711 12,295,441 11, 319, 801 12,183, 711 12,295,441 11, 319, 801 11,020,029 11,020,029 11,117,391 $ 19,395,077 $ 17,843,689 $ 14,907,229 $ 17,091,346 $ 15,530,271 (29,992,640) (26,994,417) (25,336,391) (21,069,487) (21,502,222) 5 (27,857,841) 5 (24,287,472) $ (23,635,233) 5 (19,203,445) 5 (19,894,741) 121 City of Friendswood, Texas 2023 ACFR CITY OF FRIENDSWOOD, TEXAS Table 2 CHANGES IN NET POSITION Page 3 of 4 LAST TEN FISCAL YEARS (Accrual Basis of Accounting) 2023 2022 2021 2020 2019 General Revenues and Other Changes in Net Position Governmental activities: Taxes: Property taxes $ 22,731,678 $ 20,845,938 $ 19,163,858 $ 18,731,549 $ 18,111,247 Sales taxes 12,126,784 11,176,190 9,915,046 8,846,359 8,407,249 Franchise and other taxes 2,235,689 2,170,152 2,090,001 2,142,660 2,054,395 Other - - - - - Investment earnings 1,726,549 49,151 50,805 880,606 526,867 Gain (loss) on disposal of capital assets - - - - - Miscellaneous 285,666 638,418 390,533 269,855 351,165 Transfers 1,803,800 1,795,683 1,541,853 1,434,829 1,456,690 Total Governmental Activities 40,910,166 36,675,532 33,152,096 32,305,858 30,907,613 Business -Type Activities: Investment earnings 1,450,648 130,401 43,099 347,518 681,288 Gain (loss) on disposal of capital assets - - - - - Miscellaneous Transfers (1,803,800) (1,795,683) (1,541,853) (1,434,829) (1,456,690) Total Business -Type Activities (353,152) (1,665,282) (1,498,754) (1,087,311) (775,402) Total Primary Government 40,557,014 35,010,250 31,653,342 31,218,547 30,132,211 Change in Net Position Governmental activities 5,386,681 5,116,244 6,458,118 (68,135) (2,426,629) Business -type activities 7,219,694 5,057,078 2,748,632 1,769,767 (192,912) Total Primary Government $ 12,606,375 $ 10,173,322 $ 9,206,750 $ 1,701,632 $ (2,619,541) 122 City of Friendswood, Texas 2023 ACFR CITY OF FRIENDSWOOD, TEXAS Table 2 CHANGES IN NET POSITION Page 4 of 4 LAST TEN FISCAL YEARS (Accrual Basis of Accounting) 2018 2017 2016 2015 2014 General Revenues and Other Changes in Net Position Governmental activities: Taxes: Property taxes $ 17,608,094 $ 17,270,647 $ 16,350,101 $ 15,574,684 $ 14,864,284 Sales taxes 7,965,662 6,482,367 5,393,920 5,291,186 4,693,484 Franchise and other taxes 1,617,121 1,661,654 1,779,234 1,726,557 1,673,615 Other - - - - 32,799 Investment earnings 321,468 187,001 149,003 79,071 109,849 Gain (loss) on disposal of capital assets - 25,999 19,564 - 34,359 Miscellaneous 263,245 131,639 128,813 108,306 84,275 Transfers 1,554,849 1,358,744 1,397,065 1,226,205 1,799,344 Total Governmental Activities 29,330,439 27,118,051 25,217,700 24,006,009 23,292,009 Business -Type Activities: Investment earnings 200,449 141,978 95,825 49,138 40,713 Gain (loss) on disposal of capital assets - - 7,569 - - Miscellaneous - 7,839 Transfers (1,554,849) (1,358,744) (1,397,065) (1,226,205) (1,799,344) Total Business -Type Activities (1,354,400) (1,216,766) (1,293,671) (1,169,228) (1,758,631) Total Primary Government 27,976,039 25,901,285 23,924,029 22,836,781 21,533,378 Change in Net Position Governmental activities (662,201) 123,634 (118,691) 2,936,522 1,789,787 Business -type activities 780,399 1,490,179 407,487 696,814 (151,150) Total Primary Government $ 118,198 $ 1,613,813 $ 288,796 $ 3,633,336 $ 1,638,637 123 City of Friendswood, Texas 2023 ACFR CITY OF FRIENDSWOOD, TEXAS FUND BALANCES OF GOVERNMENTAL FUNDS LAST TEN FISCAL YEARS (Modified Accrual Basis of Accounting) General fund Nonspendable Restricted Committed Assigned Unassigned Total General Fund All Other Governmental Funds Nonspendable Restricted Unassigned Total Other Governmental Funds Total Fund Balances of Governmental Funds Table 3 Page 1 of 2 2023 2022 2021 2020 2019 430,134 260,066 355,011 255,796 378,736 566,041 460,154 597,908 650,424 727,704 4,630,982 4,667,500 4,320,912 2,591,745 2,508,234 11,111,696 11,997,367 11,953,314 13,374,059 10,608,815 16,738,853 17,385,087 17,227,145 16,872,024 14,223,489 11,801 11,484 11,101 11,070 24,738 40,068,218 12,740,909 18,106,088 4,757,183 5,568,395 - (179,413) (165,886) (1,826,743) - 40,080,019 12,572,980 17,951,303 2,941,510 5,593,133 $ 56,818,872 $ 29,958,067 $ 35,178,448 $ 19,813,534 $ 19,816,622 124 City of Friendswood, Texas 2023 ACFR CITY OF FRIENDSWOOD, TEXAS FUND BALANCES OF GOVERNMENTAL FUNDS LAST TEN FISCAL YEARS (Modified Accrual Basis of Accounting) General fund Nonspendable Restricted Committed Assigned Unassigned Total General Fund All Other Governmental Funds Nonspendable Restricted Unassigned Total Other Governmental Funds Total Fund Balances of Governmental Funds Table 3 Page 2 of 2 2018 2017 2016 2015 2014 371,610 434,750 646,778 822,226 143,201 631,971 667,271 626,229 518,119 400,411 - - 3,612 685,486 - 4,229,725 2,893,697 2,706,897 2,773,419 1,421,875 9,052,000 9,547,039 9,776,031 8,760,424 10,554,183 14,285,306 13,542,757 13, 759, 547 13,559,674 12, 519, 670 24,307 31,869 31,721 31,378 31,241 9,304,724 8,464,859 8,165,349 6,539,985 666,317 - - (193,750) - (239,078) 9,329,031 8,496,728 8,003,320 6,571,363 458,480 $ 23,614,337 $ 22,039,485 $ 21,762,867 $ 20,131,037 $ 12,978,150 125 City of Friendswood, Texas 2023 ACFR CITY OF FRIENDSWOOD, TEXAS CHANGES IN FUND BALANCES OF GOVERNMENTAL FUNDS LAST TEN FISCAL YEARS (Modified Accrual Basis of Accounting) Revenues Taxes Fines and forfeitures Permits and fees Intergovernmental Investment earnings Donations Miscellaneous Total Revenues Expenditures General government Public safety Public works Engineering Community development Parks and recreation Library services Capital outlay Debt principal payment Interest and other charges Total expenditures Excess of revenues over (under) expenditures Other Financing Sources (Uses) Sale of capital assets Insurance recoveries Issuance of capital related debt Issuance of notes payable Issuance of capital lease Refunding bonds issued Payment to refunding escrow agent Premium on issuance of debt Transfers in Transfers out Total other financing sources (uses) Net change in fund balances Debt service as a percentage of noncapital expenditures Table 4 Page 1 of 2 2023 2022 2021 2020 2019 $ 37,087,960 $ 34,192,280 $ 30,974,155 $ 29,712,771 $ 28,389,651 895,577 1,052,940 1,219,096 780,717 866,812 1,861, 325 1,847,985 1,669,033 1,504,555 1,483, 554 5,730,985 3,215,269 7,495,971 3,828,898 1,576,838 1,691,972 49,580 48,609 274,405 518,221 295,968 255,638 264,938 274,945 290,069 350,095 345,364 124,627 719,721 18,777 47,913,882 40,959,056 41,796,429 37,096,012 33,143,922 6,936,378 6,040,832 5,591,248 5,690,428 5,336,269 16, 640, 299 15, 370, 261 14,897,465 14,306,864 13,545, 539 3,572,326 5,765,313 4,612,796 6,021,313 4,127,539 641,204 571,010 507,933 434,976 - 1,293,280 1,187,413 1,131, 498 1,139, 566 1,099,154 4,918,338 4,312,856 3,715,517 3,426,521 3,796,589 1,401, 299 1,336,185 1,223,726 1,182, 289 1,204,415 13,487,123 10,277,134 7,037,490 12,865,475 6,219,243 3,377,350 2,840,720 2,556,282 2,221,257 2,168,876 1,908,811 1,624,891 1,567,472 1,285,807 1,112,127 54,176,408 49,326,615 42,841,427 48,574,496 38,609,751 (6,262,526) (8,367,559) (1,044,998) (11,478,484) (5,465,829) 18,181 32,029 21,270 72,568 6,614 69,683 74,126 175,351 8,548 235,443 29,775,000 - 13,185,000 7,795,000 - 925, 000 1,457, 640 - - 306,329 1,791,015 3,050,000 2,065,000 - (3,321,347) (2,372,262) 541,134 - 1,451,456 753,840 - 1,810,668 1,708,331 1,751,915 1,584,985 1,473,591 (16,335) (124,948) (210,062) (223,298) (47,534) 33,123, 331 3,147,178 16, 409, 912 11, 475, 396 1,668,114 $ 26,860,805 $ (5,220,381) $ 15,364,914 $ (3,088) $ (3,797,715) 13.0% 12.1% 11.7% 9.9% 10.1% 126 City of Friendswood, Texas 2023 ACFR CITY OF FRIENDSWOOD, TEXAS CHANGES IN FUND BALANCES OF GOVERNMENTAL FUNDS LAST TEN FISCAL YEARS (Modified Accrual Basis of Accounting) Revenues Taxes Fines and forfeitures Permits and fees Intergovernmental Investment earnings Donations Miscellaneous Total Revenues Expenditures General government Public safety Public works Engineering Community development Parks and recreation Library services Capital outlay Debt principal payment Interest and other charges Total expenditures Excess of revenues over (under) expenditures Other Financing Sources (Uses) Sale of capital assets Insurance recoveries Issuance of capital related debt Issuance of notes payable Issuance of capital lease Refunding bonds issued Payment to refunding escrow agent Premium on issuance of debt Transfers in Transfers out Total other financing sources (uses) Net change in fund balances Debt service as a percentage of noncapital expenditures Table 4 Page 2 of 2 2018 2017 2016 2015 2014 $ 27,247,421 $ 25,509,760 $ 23,533,294 $ 22,513,317 $ 21,335,527 957,671 1,023,556 873,872 907,557 860,257 1,566,656 1,708,357 1,450o939 1,349,264 1,385,898 4,398,836 1,763,974 664,427 3,536,980 1,791,451 313,793 184,127 147,403 77,947 109,117 396,010 434,164 257,724 349,325 349,166 181,017 165,619 79,435 72,837 54,989 35,061,404 30,789,557 27,007,094 28,807,227 25,886,405 5,440,888 4,975,926 4,385,321 5,343,160 4,306,143 16,868,931 14,751,381 12,135,956 11,348,346 10,599,575 2,157,277 2,160,152 2,118,572 2,066,349 1,689,987 985,309 893,663 954,103 925,947 1,092,982 3,511,146 3,339,864 3,032,979 2,917,857 2,772,072 1,200,512 1,172,245 1,096,614 1,036,843 1,083,043 2,615,538 8,429,200 9,332,400 7,255,229 2,500,254 2,137, 284 1,813,130 1,570,176 1,272,823 1,668,692 1,145,400 1,170,958 921,982 776,340 662,718 36,062,285 38,706,519 35,548,103 32,942,894 26,375,466 (1,000,881) (7,916,962) (8,541,009) (4,135,667) (489,061) 9,135 12,757 2,743 99 6,325 725,304 25,999 19,564 39,257 28,886 485,305 5,605,000 7,345,000 9,595,000 - - 2,840,000 (3,058,663) - 435,074 1,484,593 646,746 - 1,402,989 1,364,399 1,503,442 1,544,662 1,799,344 (47,000) (5,655) (182,503) (318,457) - 2,575,733 8,193,580 10,172,839 11,288,644 1,834,555 $ 1,574,852 $ 276,618 $ 1,631,830 $ 7,152,977 $ 1,345,494 9.8% 9.9% 9.2% 7.5% 9.8% 127 City of Friendswood, Texas 2023 ACFR CITY OF FRIENDSWOOD, TEXAS ASSESSED VALUE AND TAXABLE VALUE OF PROPERTY LAST TEN FISCAL YEARS (Unaudited) Fiscal Year Tax Year Residential Property Commercial and Industrial Property Other Property 2014 2013 $ 2,695,532,057 $ 294,316,218 $ 238,127,209 $ 2015 2014 2,850,404,776 300,533,643 237,028,723 2016 2015 3,156,205,930 335,006,408 206,365,157 2017 2016 3,546,622,242 320,646,912 230,805,066 2018 2017 3,795,456,220 222,328,923 376,053,145 2019 2018 3,749,539,307 227,659,302 352,044,261 2020 2019 4,078,991,715 241,927,251 414,739,865 2021 2020 4,526,853,385 290,599,941 451,358,776 2022 2021 5,112,738,325 337,329,366 528,637,507 2023 2022 5,591,194,518 379,247,117 591,110,272 Total Assessed Value 3,227,975,484 3,387,967,142 3,697,577,495 4,098,074,220 4,393,838,288 4,329,242,870 4,735,658,831 5,268,812,102 5,978,705,198 6,561,551,907 Source: Galveston Central Appraisal District, Harris County Appraisal District, and City of Friendswood records. Table 5 Page 1 of 2 Note: Property in the City of Friendswood is reassessed once every two years on average. (Source: Galveston Central Appraisal District) Tax rates per $100 of assessed value. Residential property includes both single-family and multi -family properties. 128 City of Friendswood, Texas 2023 ACFR CITY OF FRIENDSWOOD, TEXAS Table 5 ASSESSED VALUE AND TAXABLE VALUE OF PROPERTY Page 2 of 2 LAST TEN FISCAL YEARS (Unaudited) Less: Total Exemptions and Total Direct Fiscal Tax Tax Exempt Taxable Tax Year Year Property Value Rate 2014 2013 $ 724,153,848 $ 2,503,821,636 $ 0.59140 2015 2014 761,444,427 2,626,522,715 0.59140 2016 2015 776,779,458 2,920,798,037 0.56870 2017 2016 977,353,948 3,120,720,272 0.54600 2018 2017 894,716,055 3,499,122,233 0.52735 2019 2018 955,005,811 3,374,237,059 0.53240 2020 2019 1,066,920,381 3,668,738,450 0.52140 2021 2020 1,349,948,370 3,918,863,732 0.48740 2022 2021 1,735,137,851 4,243,567,347 0.48731 2023 2022 1,947,407,979 4,614,143,928 0.48731 129 City of Friendswood, Texas 2023 ACFR CITY OF FRIENDSWOOD, TEXAS DIRECT AND OVERLAPPING PROPERTY TAX RATES Last Ten Fiscal Years (Unaudited) (rate per $100 of assessed value) Table 6 City Direct Rates Overlapping Rates Fiscal Year Friendswood Clear Creek Galveston County Ended Debt Total Independent Independent Consolidate Drainage Galveston Harris September 30, General Service Direct School District School District District County County 2014 $ 0.5303 $ 0.0611 $ 0.5914 $ 1.3670 $ 1.4000 $ 0.1400 $ 0.5837 $ 0.62998 2015 0.5303 0.0611 0.5914 1.3670 1.4000 0.1350 0.5788 0.62998 2016 0.4972 0.0715 0.5687 1.3670 1.4000 0.1150 0.5612 0.62998 2017 0.4620 0.0840 0.5460 1.3870 1.4000 0.1120 0.5462 0.62998 2018 0.4323 0.0950 0.5273 1.3670 1.4000 0.1080 0.5461 0.62998 2019 0.4372 0.0952 0.5324 1.3670 1.4000 0.1080 0.5298 0.62998 2020 0.4322 0.0893 0.5214 1.2594 1.3100 0.1122 0.5044 0.61170 2021 0.3922 0.0952 0.4874 1.3440 1.2659 0.1131 0.4651 0.59920 2022 0.3851 0.1022 0.4873 1.2394 1.1797 0.1320 0.4149 0.58135 2023 0.3886 0.0988 0.4873 1.2094 1.1146 0.1298 0.3676 0.53548 Source: Galveston County Tax Assessor/Collector and City of Friendswood records Note: Overlapping rates are those of local and county governments that apply to property owners within the City of Friendswood. Not all overlapping rates apply to all property owners. Overlapping rates for Friendswood Independent School District, Galveston County Consolidated Drainage District and Galveston County apply only to residents whose property is in Galveston County. Overlapping rates for Clear Creek Independent School District and Harris County apply only to residents whose property is in Harris County. 130 City of Friendswood, Texas 2023 ACFR CITY OF FRIENDSWOOD, TEXAS PRINCIPAL PROPERTY TAXPAYERS CURRENT AND NINE YEARS AGO (Unaudited) Taxpayer Reserve at Autumn Creek LTD Texas -New Mexico Power Co. Bellevue at Clear Creek LP Kroger Co. Tannos Land Holding III LLC Bay Meadows LLP The Beldon Friendswood LLC Frontier Land V P L L Taylor Morrison of Texas Inc A-S 108 Friendswood Crossing LP Autumn Creek Dev LTD G&I VI Sky Hawk LP H E Butt Grocery Company HCP Friendswood LLC HSRE Friendswood LLC Timber Creek Holdings LP Total All other taxpayers Table 7 2023 2014 Percentage Percentage of Total City of Total City Taxable Taxable Taxable Assessed Taxable Assessed Value Rank Value Value Rank Value $ 35,632,199 1 0.77% $18,864,491 1 0.75% 28,765,360 2 0.62% 12,084,650 3 0.48% 23,669,000 3 0.51% - 13,708,567 4 0.30% 13,570,271 2 0.54% 13,703,590 5 0.30% - 11,813,387 6 0.26% - 11,000,150 7 0.24% - 11,000,000 8 0.24% - 9,647,960 9 0.21% - 8,451,620 10 0.18% 6,310,430 9 0.25% - 9,046,190 4 0.36% - 9,292,240 5 0.37% - 8,149,920 6 0.33% - 6,995,240 8 0.28% - 7,535,390 7 0.30% - 5,646,290 10 0.23% 167,391,833 3.63% 97,495,112 3.89% 41446,752,095 96.37% 2,406,326,524 96.11% 4,614,143,928 100.00% $2,503,821,636 100.00% Source: Galveston Central Appraisal District and Harris County Appraisal District. 131 City of Friendswood, Texas 2023 ACFR CITY OF FRIENDSWOOD, TEXAS Table 8 PROPERTY TAX LEVIES AND COLLECTIONS LAST TEN FISCAL YEARS (Unaudited) Collected within the Collections Fiscal Year Taxes Levied Fiscal Year of the Levy (adjustments) Total Collections to Date Ended forthe Percentage in Subsequent Percentage September 30, Fiscal Year Amount of Levy Years Amount of Levy 2014 $ 14,747,526 $ 14,656,257 99.38% $ 81,610 $ 14,737,867 99.93% 2015 15,424,948 15,306,943 99.23% 105,556 15,412,499 99.92% 2016 16,431,153 16,264,080 98.98% 155,283 16,419,363 99.93% 2017 17,014,685 16,922,419 99.46% 80,214 17,002,633 99.93% 2018 17,633,192 17,554,220 99.55% 65,370 17,619,590 99.92% 2019 17,952,134 17,756,864 98.91% 180,445 17,937,309 99.92% 2020 18,682,563 18,605,868 99.59% 58,053 18,663,921 99.90% 2021 18,879,840 18,877,842 99.99% (23,841) 18,854,001 99.86% 2022 20,843,713 20,793,321 99.76% 9,546 20,802,867 99.80% 2023 22,761,758 22,713,172 99.79% - 22,713,172 99.79% Source: Galveston County Tax Assessor/Collector and City of Friendswood records 132 City of Friendswood, Texas 2023 ACFR CITY OF FRIENDSWOOD, TEXAS RATIOS OF OUTSTANDING DEBY BT TYPE LAST TEN FISCAL YEARS (Unaudited) Table 9 Governmental Activities Business -Type Activities General General Water Total Percentage Fiscal Obligation Notes SBITAs Obligation Revenue Primary of Personal Per Year Bonds Payable Payable Bonds Bonds Government Income Capita 2014 $ 18,815,000 $ 623,407 $ $ - $ 31,830,000 $ 51,268,407 0.35% $ 1,318 2015 24,525,285 360,584 9,875,671 24,663,416 59,424,956 0.40% 1,510 2016 31,768,805 180,408 33,238,357 6,109,871 71,297,441 0.46% 1,793 2017 36,067,806 668,284 31,160,729 5,871,129 73,767,948 0.47% 1,818 2018 34,065,657 791,305 29,028,108 5,627,385 69,512,455 0.42% 1,695 2019 32,023,508 436,620 26,845,483 27,039,600 86,345,211 0.49% 2,093 2020 38,058,822 1,861,762 24,587,858 26,037,385 90,545,827 0.49% 2,175 2021 49,809,357 1,681,709 22,310,234 40,736,057 114,537,357 0.57% 2,733 2022 47,143,902 2,613,729 20,447,609 39,081,427 109,286,667 0.51% 2,588 2023 74,691,542 2,645,629 92,494 18,534,984 37,366,797 133,331,446 0.61% 3,118 Notes: Details regarding the City's outstanding debt can be found in the notes to the financial statements. See Table 14 for personal income and population data. These ratios are calculated using personal income and population for the prior calendar year. 133 City of Friendswood, Texas 2023 ACFR CITY OF FRIENDSWOOD, TEXAS RATIOS OF NET GENERAL BONDED DEBY OUTSTANDING LAST TEN FISCAL YEARS (Unaudited) General Bonded Debt Outstanding General Less Debt Net Percentage of Fiscal Taxable Obligation Service General Taxable Value Population Value Bonds * Funds Bonded Debt Property 2014 38,911 $ 2,503,821,636 $ 19,491,826 $ 130,147 $ 18,684,853 2015 39,458 2,626,522,715 34,400,956 147,193 34,253,763 2016 39,767 2,920,798,037 65,007,162 159,686 64,847,476 2017 40,570 3,120,720,272 67,228,535 115,152 67,113,383 2018 41,003 3,499,122,233 63,093,765 - 63,093,765 2019 41,253 3,374,237,059 58,868,991 18,302 58,850,689 2020 41,637 3,668,738,450 62,646,680 31,909 62,614,771 2021 41,916 3,918,863,732 72,119,591 10,608 72,108,983 2022 42,222 4,243,567,347 67,591,511 46,376 67,545,135 2023 42,757 4,614,143,928 93,226,526 30,793 93,195,733 Note: Details regarding the City's outstanding debt can be found in the notes to the financial statements. * Includes both Governmental Activities and Business -type Activities 0.75 1.30% 2.22 2.15 1.80% 1.74% 1.71 1.84% 1.59 2.02 Table 10 Per Capita $ 480 868 1,631 1,654 1,539 1,427 1,504 1,720 1,600 2,180 134 City of Friendswood, Texas 2023 ACFR CITY OF FRIENDSWOOD, TEXAS Table 11 DIRECT AND OVERLAPPING GOVERNMENTAL ACTIVITIES DEBT AS OF September 30, 2023 (Unaudited) Estimated Estimated Share of Debt Percentage Overlapping Governmental Unit Outstanding Applicable Debt Debt repaid with property taxes Friendswood Independent School District $189,905,000 100.00% $ 189,905,000 Clear Creek Independent School District 1,101,371,754 2.843% 31,311,999 Galveston County 203,115,000 7.220% 14,664,903 Harris County 3,757,467,000 0.148% 5,561,051 Subtotal, overlapping debt 241,442,953 City Direct Debt 77,337,171 Total Direct and Overlapping Debt $ 318,780,124 Source: Information was obtained from either the governmental unit's website or the finance department of the governmental unit. Notes: Overlapping governments are those that coincide, at least in part, with the geographic boundaries of the City. This schedule estimates the portion of the outstanding debt of those overlapping governments that is borne by the residents and businesses of the City of Friendswood. The City's share of the debt of the overlapping governments is based on the ratio of the assessed value of the City's own property to that of each of the other governments. This process recognizes that, when considering the City's ability to issue and repay long-term debt, the entire debt burden borne by the residents and businesses should be taken into account. However, this does not imply that every taxpayer is a resident --and therefore responsible for repaying the debt --of each overlapping government. 135 City of Friendswood, Texas 2023 ACFR CITY OF FRIENDSWOOD, TEXAS LEGAL DEBT MARGIN INFORMATION (UNAUDITED) As a City Council -City Manager form of government, the City of Friendswood is not limited by law in the amount of debt it may issue. The City's charter states: "In keeping with the constitution of the State of Iexas and not contrary thereto, the City of Friendswood shall have the power to borrow money on the credit of the City for any public purpose not now or hereafter prohibited by the Constitution and laws of the State of Texas, and shall have the right to issue all tax bonds, revenue bonds, funding and refunding bonds, time warrants and other evidence of indebtedness as now authorized or as may hereafter be authorized to be issued by cities and towns by the laws of the State of Texas." Article 11, Section S of the State of Texas Constitution states in part: "but no tax for any purpose shall ever be lawful for any one year, which shall exceed two and one-half percent of the taxable property of such city" The tax rate for fiscal year ended September 30, 2023 is $0.4873 per $100 of assessed valuation with assessed valuation being 100% of market value. Table 12 136 City of Friendswood, Texas 2023 ACFR CITY OF FRIENDSWOOD, TEXAS PLEDGED REVENUE COVERAGE LAST TEN FISCAL YEARS (Unaudited) Waterworks and Sewer Revenue Bonds Table 13 Utility Less: Net Fiscal Service Operating Available Debt Service Year Charges Expenses Revenue Principal Interest Coverage 2014 $ 11,117,391 $ 6,376,510 $ 4,740,881 $ 1,165,000 $ 1,504,006 1.78 2015 11,020,029 6,220,331 4,799,698 1,205,000 1,153,522 2.04 2016 11,319,801 6,361,229 4,958,572 - 481,140 10.31 2017 12,295,441 6,911,675 5,383,766 220,000 184,100 13.32 2018 12,183,711 7,205,293 4,978,418 225,000 179,250 12.32 2019 13,130,943 9,378,672 3,752,271 230,000 787,319 3.69 2020 16,638,758 10,050,967 6,587,791 905,000 952,470 3.55 2021 17,690,843 9,690,325 8,000,518 935,000 1,113,685 3.91 2022 19,408,330 9,130,574 10,277,756 1,450,000 1,221,488 3.85 2023 21,293,632 10,055,068 11,238,564 1,510,000 1,162,374 4.21 Notes: Details regarding the City's outstanding debt can be found in the notes to the financial statements. Operating expenses do not include interest, depreciation or amortization expenses. 137 City of Friendswood, Texas 2023 ACFR CITY OF FRIENDSWOOD, TEXAS DEMOGRAPHIC AND ECONOMIC STATISTICS LAST TEN CALENDAR YEARS (Unaudited) Per Capita Calendar Estimated Personal Personal Unemployment Year Population Income Income Rate 2014 38,911 $ 14,741,197,000 $ 46,917 3.4% 2015 39,358 14,774,880,000 47,011 3.7% 2016 39,767 15,463,890,000 47,991 4.9% 2017 40,570 15,682,608,000 47,605 4.7% 2018 41,003 16,443,373,000 49,079 4.3% 2019 41,253 17,497,755,000 51,785 3.2% 2020 41,637 18,561,154,000 54,250 5.9%"' 2021 41,916 19,994,969,000 57,941 3.9% 2022 42,222 21,328,914,000 60,071 3.4% 2023 42,757 21,872,079,000 61,246 3.2% Sources: Population information was provided from past financial reports. Unemployment rates, personal income and per capita personal income were obtained from the U.S. Department of Labor Bureau of Labor Statistics website or the Texas Workforce Commission website. (1) Increase in unemployment rate is a result of the COVID-19 pandemic. Table 14 138 City of Friendswood, Texas 2023 ACFR CITY OF FRIENDSWOOD, TEXAS PRINCIPAL EMPLOYERS CURRENT YEAR AND NINE YEARS AGO (Unaudited) Table 15 2023 2014 Percentage Estimated of Total Estimated Employer Employees Employment Rank Employees Rank Friendswood ISD 817 3.78% 1 700 1 H E B 505 2.34% 2 317 2 City of Friendswood 258 1.19% 3 232 4 Kroger 226 1.05% 4 292 3 Clear Creek ISD 173 0.80% 5 155 5 Friendship Haven Nursing Home 100 0.46% 6 140 6 McDonalds 102 0.47% 7 75 7 U.S. Post Office 75 0.35% 8 62 10 Morada (formerly Atria) 72 0.33% 9 - UTMB 60 0.28% 10 - Brookdale - - 69 8 Friendswood Healthcare (Autumn Hills) - - 65 9 Total 2,388 11.06% 2,107 Source: City Manager's Office Note: Percentage of total employment is based on total City employment of 21,601 for 2023. Total City employment for 2014 is not available. 139 City of Friendswood, Texas 2023 ACFR CITY OF FRIENDSWOOD, TEXAS Table 16 FULL-TIME EQUIVALENT CITY GOVERNMENT EMPLOYEES BY FUNCTION/PROGRAM Page 1 of 2 LAST TEN CALENDAR YEARS (Unaudited) Full-time Equivalent Employees as of September 30 2023 2022 2021 2020 2019 Function/Program General Government: City Attorney 2.15 2.15 2.10 2.10 2.10 City Manager 4.00 4.00 6.00 6.00 5.00 City Secretary 4.00 4.00 4.00 4.00 5.00 Administrative Services 16.60 16.60 18.60 18.60 27.60 Human Resources 5.00 5.00 5.00 5.00 - Information Technology 6.00 6.00 5.00 5.00 - Public Safety: Police 90.40 90.38 90.38 90.38 90.38 Fire marshal 7.38 7.38 7.20 7.20 7.20 Public Works 24.00 23.00 23.00 23.00 23.00 Community Development 11.70 11.18 10.70 10.70 10.70 Engineering 8.45 7.45 7.00 7.00 6.00 Parks and Recreation 25.30 25.30 24.90 24.50 23.10 Library 15.62 15.62 14.97 14.97 14.97 Water 11.30 11.30 9.30 9.30 9.30 Sewer 11.00 11.00 11.00 11.00 11.00 Total City Employees: 242.90 240.36 239.15 238.75 235.35 Source: City of Friendswood Budget Documents Notes: In-house City Attorney added to staff in fiscal year 2015. In fiscal year 2019, Engineering became an independent department, separate from Public Works. In fiscal year 2020, Human Resources and Information Technology became independent departments, separate from Administrative Services. 140 City of Friendswood, Texas 2023 ACFR CITY OF FRIENDSWOOD, TEXAS Table 16 FULL-TIME EQUIVALENT CITY GOVERNMENT EMPLOYEES BY FUNCTION/PROGRAM Page 2 of 2 LAST TEN CALENDAR YEARS (Unaudited) Full-time Equivalent Employees as of September 30 2018 2017 2016 2015 2014 Function/Program General Government: City Attorney 2.10 1.00 1.00 1.00 - City Manager 5.40 5.40 5.40 4.55 4.15 City Secretary 5.00 5.00 5.00 5.00 5.00 Administrative Services 27.60 27.70 27.70 28.70 28.70 Human Resources - - - - - Information Technology - - - - - Public Safety: Police 87.72 88.72 86.72 85.72 82.40 Fire marshal 6.60 6.60 6.60 6.60 6.50 Public Works 27.00 26.00 29.00 25.33 26.33 Community Development 10.70 11.70 11.70 10.89 10.89 Engineering - - - - - Parks and Recreation 21.90 20.90 19.63 19.63 19.03 Library 14.97 14.97 14.62 14.62 14.37 Water 9.30 8.30 8.30 8.30 9.30 Sewer 10.00 11.00 8.00 8.00 9.00 Total City Employees: 228.29 227.29 223.67 218.34 215.67 Source: City of Friendswood Budget Documents Notes: In-house City Attorney added to staff in fiscal year 2015. In fiscal year 2019, Engineering became an independent department, separate from Public Works. In fiscal year 2020, Human Resources and Information Technology became independent departments, separate from Administrative Services. 141 City of Friendswood, Texas 2023 ACFR CITY OF FRIENDSWOOD, TEXAS OPERATING INDICATORS BY FUNCTION/PROGRAM LAST TEN CALENDAR YEARS (Unaudited) Fiscal Year 2023 2022 2021 Function/Program Community Development Building permits issued 1,582 Building inspections conducted 9,297 Police: Physical arrests 100 Parking violations 6 Traffic violations 4,856 Fire Marshal: Inspections 983 Fire: Emergency responses 4,199 Fires extinguished 82 Parks and Recreation: Recreation participants 20,356 Facility reservations 3,060 Library: Volumes in collection 94,162 Total volumes borrowed 350,419 Water: New connections 87 Water main breaks 201 Average daily consumption 6,217 (thousands of gallons) Peak daily consumption 12,801 Sewer: Average daily sewage treatment 3,072 (thousands of gallons) Maximum daily flow 11,558 (thousands of gallons) Source: Various City departments and prior year ACFRs 2020 2019 1,682 1,658 1,605 1,465 9,325 9,998 9,124 9,251 1,051 1,368 847 1,190 11 36 17 26 9,952 11,081 8,807 4,468 1,315 1,730 1,146 1,448 4,458 4,405 3,650 3,655 129 92 65 80 36,861 16,907 6,027 19,657 5,356 1,033 3,166 3,293 95,470 101,061 99,930 101,532 349,814 340,478 271,078 342,592 136 92 185 169 126 49 41 84 5,714 5,064 5,319 5,129 11,166 14,041 9,927 9,390 2,840 3,255 3,113 3,345 8,369 11,006 10,520 12,491 Table 17 Page 1 of 2 142 City of Friendswood, Texas 2023 ACFR CITY OF FRIENDSWOOD, TEXAS OPERATING INDICATORS BY FUNCTION/PROGRAM LAST TEN CALENDAR YEARS (Unaudited) Fiscal Year 2018 2017 2016 2015 2014 Function/Program Community Development: Building permits issued 2,788 2,177 1,865 1,377 1,395 Building inspections conducted 14,157 12,134 11,026 12,145 10,611 Police: Physical arrests 1,145 903 1,464 1,479 1,596 Parking violations 15 61 44 63 58 Traffic violations 6,785 3,669 5,001 4,540 5,815 Fire Marshal: Inspections 1,139 1,233 1,354 1,512 1,427 Fire: Emergency responses 3,720 3,599 3,303 3,258 3,261 Fires extinguished 80 75 76 78 116 Parks and Recreation: Recreation participants 18,299 20,556 21,369 16,153 15,178 Facility reservations 2,123 1,004 1,444 1,443 728 Library: Volumes in collection 102,852 100,678 147,726 133,165 141,383 Total volumes borrowed 348,554 341,048 301,158 350,145 367,452 Water: New connections 125 137 183 - 193 Water main breaks 116 44 46 57 149 Average daily consumption 5,455 5,282 4,963 4,970 5,171 (thousands of gallons) Peak daily consumption 9,475 10,110 10,472 12,623 9,917 Sewer: Average daily sewage treatment 3,117 3,286 3,382 3,306 2,867 (thousands of gallons) Maximum daily flow 10,370 12,766 12,188 11,237 10,770 (thousands of gallons) Source: Various City departments and prior year ACFRs Table 17 Page 2 of 2 143 City of Friendswood, Texas 2023 ACFR CITY OF FRIENDSWOOD, TEXAS CAPITAL ASSET STATISTICS BY FUNCTION/PROGRAM LAST TEN CALENDAR YEARS (Unaudited) Function/Program Police Stations Patrol units Fire Stations Public Works Streets - paved (miles) Streets - unpaved (miles) Traffic signals Parks and Recreation Acreage Parks Swimming pool Tennis courts Library Water Water mains (miles) Fire hydrants Connections Storage capacity (thousands of gallons) Sewer Sanitary sewers (miles) Connections Storm sewers (miles) Treatment capacity (thousands of gallons) Fiscal Year 2023 2022 2021 1 1 1 48 29 38 4 4 4 223 221 221 2 2 2 3 3 3 343 320 273 11 11 10 1 1 1 4 4 4 1 1 1 227 222 222 1,821 1,755 1,747 14,415 14,328 14,192 7,850 7,850 7,850 184 182 182 13,324 13,241 13,132 120 117 117 9,250 9,250 9,250 Source: Various City departments and prior year ACFRs. Table 18 Page 1 of 2 2020 2019 1 1 31 33 4 4 185 176 2 2 3 3 266 266 10 10 1 1 4 4 1 1 216 216 1,713 1,707 14,098 13,913 7,850 7,850 202 202 13,029 12,870 112 112 9,250 9,250 144 City of Friendswood, Texas 2023 ACFR CITY OF FRIENDSWOOD, TEXAS CAPITAL ASSET STATISTICS BY FUNCTION/PROGRAM LAST TEN CALENDAR YEARS (Unaudited) Fiscal Year 2018 2017 2016 2015 2014 Function/Program Police Stations 1 1 1 1 1 Patrol units 34 32 31 29 27 Fire Stations 4 4 4 4 4 Public Works Streets - paved (miles) 176 174 172 169 167 Streets - unpaved (miles) 2 2 2 2 2 Traffic signals 3 3 3 3 3 Parks and Recreation Acreage 266 266 266 232 189 Parks 9 9 9 8 8 Swimming pool 1 1 1 1 1 Tennis courts 4 4 4 4 4 Library 1 1 1 1 1 Water Water mains (miles) 216 214 212 209 207 Fire hydrants 1,707 1,690 1,672 1,631 1,610 Connections 13,744 13,619 13,482 13,289 13,093 Storage capacity 7,850 7,850 7,850 8,100 8,000 (thousands of gallons) Sewer Sanitary sewers (miles) 202 200 198 195 194 Connections 12,721 12,588 12,378 12,407 12,236 Storm sewers (miles) 112 110 109 106 105 Treatment capacity 9,250 9,250 9,250 9,250 12,000 (thousands of gallons) Source: Various City departments and prior year ACFRs. Table 18 Page 2 of 2 145 City of Friendswood, Texas 2023 ACFR City of ri¢ ndg5wood Texas 146 City of Friendswood, Texas 2023 ACFR