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Home My WebLink About1994 09 30 Other - City of Friendswood 1 1 1 .I 1 1 CITY OF FRIENDSWOOD, TEXAS 1 GENERAL PURPOSE FINANCIAL STATEMENTS Year Ended September 30, 1994 I I I 1 1 I 1 1 1 1 1 CITY OF FRIENDS WOOD, TEXAS GENERAL PURPOSE FINANCIAL STATEMENTS Year Ended September 30, 1994 TABLE OF CONTENTS Exhibit Paste Independent Auditors'Report 1 GENERAL PURPOSE FINANCIAL STATEMENTS Combined Balance Sheet—All Fund Types and Account Groups A-1 2-3 Combined Statement of Revenues,Expenditures and Changes in Fund Balances—All Governmental Fund Types A-2 4-5 Combined Statement of Revenues,Expenditures and Changes in Fund Balances— Budget and Actual(GAAP Basis)— General, Special Revenue and Debt Service Funds A-3 6-7 Combined Statement of Revenues,Expenses and Changes in Retained Earnings/Fund Balance—Proprietary Fund Type and Non—Expendable Trust Fund A-4 8-9 Combined Statement of Cash Flows —Proprietary Fund Type and Non—Expendable Trust Fund A—S 10-11 Notes to Financial Statements A-6 12-31 I t 1 1 p 1 1 i Null &Associates Houston Fort Bend County Professional Corporation 11 Greenvvay Plaza Suite 1515 One Sugar Creek Center Blvd.,Suite 975 Houston,Texas 77046 Sugar Land,Texas 77478 Certified Public Accountants (713)621-1515•FAX 621-1570 (713)242-8600•FAX 242-7333 IIndependent Auditors'Report ITo the Honorable Mayor and Members of the City Council City of Friendswood,Texas 1 We have audited the accompanying general purpose financial statements of the City of I Friendswood,Texas, as of September 30, 1994,and for the year then ended,as listed in the table of contents. These general purpose financial statements are the responsibility of the City's management. Our responsibility is to express an opinion on these general purpose financial Istatements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those I standards require that we plan and perform the audit to obtain reasonable assurance about whether the general purpose financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the I general purpose financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall general purpose financial statement presentation. We believe that our audit provides a reasonable basis I for our opinion. In our opinion, the general purpose financial statements referred to above present fairly, in all I material respects, the financial position of the City of Friendswood, Texas, as of September 30, 1994, and the results of its operations and the cash flows of its proprietary fund type and non—expendable trust fund for the year then ended in conformity with generally accepted Iaccounting principles. I �-) Aje i_ 4-0 oe Ile 5 z �.-C • 1 I Houston,Texas IIDecember 7, 1994 I MEMBERS:AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS,TEXAS SOCIETY OF CERTIFIED PUBLIC ACCOUNTANTS, iCPA ASSOCIATES INTERNATIONAL,INC.WITH ASSOCIATED OFFICES IN PRINCIPAL U.S.AND INTERNATIONAL CITIES. w NM — — N 4111111 O — — O' N WS ell MN MN M M MI MN I CITY OF FRIENDSWOOD, TEXAS I COMBINED BALANCE SHEET — ALL FUND TYPES AND ACCOUNT GROUPS September 30, 1994 with comparative totals for September 30, 1993 Governmental Fund Types Special Debt Capital General Revenue Service Projects Assets and Other Debits Assets Cash and temporary investments $ 2,188,156 $ 46,700 $ 47,378 $ 2,005,788 Receivables: Taxes 178,787 61,426 Customer accounts 155,270 Interest Other 53,780 Investments with fiscal agent Fixed assets,net of accumulated depreciation, 111 where applicable Investment in Blackhawk joint venture Other assets 63,782 5,087 a Other Debits Amount available for debt service Amount to be provided for retirement of general long—term debt Total Assets and Other Debits S 2.639.775 S 46.700 S 108.804 $ 22,010 875 I Liabilities.Equity, and Other Credits Liabilities I Accounts payable and accrued liabilities $ 356,850 $ 3,001 $ 97 S 227,916 Compensated absences 678,395 Customer deposits Deferred revenue 272,122 61,426 Deferred compensation benefits payable Bonds payable Certificates of obligation payable Notes payable Obligations under capital leases Acreted interest on premium compound interest bonds Total Liabilities 1,307,367 3,001 61,523 227,916 Equity and Other Credits111 Investment in general fixed assets Contributed capital Retained Earnings Fund Balances: Reserved 164,863 47,281 Unreserved Designated 850,000 43,699 1,782,959 I Undesignated 317,545 Total Equity and Other Credits 1,332,408 43,699 47,281 1,782,959 Total Liabilities,Equity,and Other Credits S 2,639.775 S 46,700 S 108,804 S 1010.875 See Notes to Financial Statements. 2 I I Exhibit A-1 I IIIProprietary Fiduciaryry Totals Fund Type Fund Type Account Groups (Memorandum Only) I Trust and General General Long- September 30, September 30, Enterprise Agency Fixed Assets Term Debt 1994 1993 I $ 1,710,134 $ 29,854 $ $ $ 6,028,010 $ 7,561,051 240,213 313,078 111 655,513 810,7835 782,795 5,531 5,531 28,588 53,780 69,030 446,805 446,805 378,444 I23,344,603 57,200 25,085,447 48,487,250 44,854,245 172,831 172,831 140,927 60,280 129,149 181,304 1 47,281 47,281 45,501 8,878,642 8,878,642 9,016,148 I $ 25.948.892 S 533.859 $ 25,085.447 $ 8.925.923 S 65300275 S 63371,111 I $ 405,270 S $ $ $ 993,134 $ 1,248,295 I 72,056 164,850 750,451 690,306 164,850 147,535 333,548 385,375 446,805 446,805 378,444 1 3,320,000 3,510,000 5,620,777 8,940,777 10,015,777 2,160,000 5,670,000 5,865,000 598,567 598,567 I 166,461 166,461 380,118 380,118 320,872 7,472,176 446,805 8,925,923 18,444,711 19,051,604 085 447 25,085,447 25, 22,094,506 15,511,200 15,511,200 14,812,068 I2,965,516 2,965,516 3,371,139 67,200 279,344 607,024 I 19,854 2,696,512 317,545 3,071,563 363,207 18,476,716 87,054 25,085,447 46,855,564 44,319,507 I $ 25.948.892 S 533.859 $ 25.085.447 $ 8.925.923 $ 65,300.275 S 63371.111 3 I CITY OF FRIENDSWOOD, TEXAS COMBINED STATEMENT OF REVENUES,EXPENDITURES,AND CHANGES IN FUND BALANCES - ALL GOVERNMENTAL FUND TYPES Year Ended September 30, 1994 1 with comparative totals for Year Ended September 30, 1993 Governmental Fund Types Special Debt Capital General Revenue Service Protects Revenues I Property taxes $ 4,206,305 $ S 1,346,913 S Sales taxes 1,001,832 Franchise fees 570,031 Sanitation 966,066 Fines and forfeitures 217,411 Permits and fees 296,003 Donations 20,447 140,818 74,375 Intergovernmental 48,101 29,230 1 Interest on investments 97,880 1,687 7,522 81,133 Other 117,591 32,839 215,156 Total Revenues 7,541,667 175,344 1,354,435 399,894 ii Expenditures I Current: General government 1,478,817 Public safety 2,687,160 159,009 Public works 1,783,738 Community development 413,489 Community services 1,386,846 39,946 Capital outlay 2,695,500 I Debt Service: Principal retirement 989,463 Interest and fiscal charges 437,897 Total Expenditures 7,750,050 198,955 1,427,360 2,695,500 I Revenues (Under) Expenditures (208,383) (23,611) (72,925) (2,295,606) Other Financing Sources (Uses) III Operating transfers in 265,189 58,963 74,705 790,874 Operating transfers(out) (132,957) Proceeds from issuance of long-term debt 195,924 598,567 III Payment to refunded bond escrow agent Total Other Financing Sources (Uses) 328,156 58,963 74,705 1,389,441 Revenues and Other Financing Sources Over(Under) Expenditures and Other Financing(Uses) 119,773 35,352 1,780 (906,165) Fund balances-Beginning 1,212,635 8,347 45,501 2,689,124 I Fund Balances - Ending S 1332,408 $ 43.699 $ 47.281 $ 1.782,959 See Notes to Financial Statements. i 4 I I Exhibit A-2 I I I (Memorandum Only) Septem r 30,Totals September 30, 1994 1993 Is 5,553,218 S 5,249,517 1,001,832 979,890 570,031 530,059 I 966,066 838,542 217,411 174,487 296,003 319,384 235,640 693,528 I 31 188,222 2173 365 86 ,267 138 031 9,47140 9,171,978 II 1,478,817 1,149,344 1 2,846,169 2,814,658 1,783,738 1,621,896 413,489 386,976 1,426,792 1,319,689 I2,695,500 2,318,794 989,463 945,000 437,897 489,052 1 12,071,865 11,045,409 (2,600,525) (1,873,431) I 1,189,731 1,812,405 I (132,957) (304,802) 794,491 8,631,674 1 (6,471,674) 1,851,265 3,667,603 I (749,260) 1,794,172 1 3,955,607 2,161,435 S 3.206347 S 3.955,607 I 1 5 I CITY OF FRIENDSWOOD. TEXAS COMBINED STATEMENT OF REVENUES,EXPENDITURES,AND CHANGES IN FUND BALANCES - BUDGET(GAAP BASIS)AND ACTUAL GENERAL, SPECIAL REVENUE,AND DEBT SERVICE FUNDS Year Ended September 30, 1994 II General Fund Variance Favorable Budget Actual (Unfavorable) I Revenues Property taxes $ 4,169,467 $ 4,206,305 $ 36,838 Sales taxes 1,033,200 1,001,832 (31,368) 1 Franchise fees 543,000 570,031 27,031 Sanitation 869,421 966,066 96,645 Fines and forfeitures 166,300 217,411 51,111 Permits and fees 305,466 296,003 (9,463) a Donations 15,694 20,447 4,753 Intergovernmental 49,128 48,101 (1,027) Interest on investments 100,550 97,880 (2,670) Other 75,755 117,591 41,836 Total Revenues 7,327,981 7,541,667 213,686 Expenditures Current: General government 1,444,459 1,478,817 (34,358) Public safety 2,789,226 2,687,160 102,066 Public works 1,716,275 1,783,738 (67,463) 1 Community development 481,661 413,489 68,172 Community services 1,474,450 1,386,846 87,604 Debt Service: Principal retirement Interest and fiscal charges Total Expenditures 7,906,071 7,750,050 156,021 Revenues (Under) Expenditures (578,090) (208,383) 369,707 Other Financing Sources (Uses) Operating transfers in 527,967 265,189 (262,778) a Operating transfers(out) (168,621) (132,957) 35,664 Proceeds from issuance of long-term debt 195,924 195,924 Total Other Financing Sources (Uses) 359,346 328,156 (31,190) Revenues and Other Financing Sources Over(Under) Expenditures and Other Financing(Uses) (218,744) 119,773 338,517 Fund balances-Beginning 1,212,635 1,212,635 1 Fund Balances - Ending S 993,891 S 1332,408 S 338.517 See Notes to Financial Statements. I 6 1 I I Exhibit A-3 1 I I Special Revenue Fund Debt Service Fund Variance Variance Favorable Favorable I Budget Actual (Unfavorable) Budget Actual (Unfavorable) $ $ $ $ 1,331,596 $ 1,346,913 S 15,317 I 1 138,495 140,818 2,323 204 1,687 1,483 9,000 7,522 (1,478) I 12,950 32,839 19,889 151,649 175,344 23,695 1,340,596 1,354,435 13,839 I 157,600 159,009 (1,409) 2,396 39,946 (37,550) I 989,389 989,463 (74) 440,272 437,897 2,375 159,996 198,955 (38,959) 1,429,661 1,427,360 2,301 1 (8,347) (23,611) (15,264) (89,065) (72,925) 16,140 1 58,963 58,963 54,531 74,705 20,174 I58,963 58,963 54,531 74,705 20,174 I (8,347) 35,352 43,699 (34,534) 1,780 36,314 8,347 8,347 45,501 45,501 $ $ 43.699 S 43.699 $ 10.967 $ 47.281 $ 36314 I II 7 I I CITY OF FRIENDSWOOD, TEXAS COMBINED STATEMENT OF REVENUES,EXPENSES,AND CHANGES IN RETAINED EARNINGS/FUND BALANCE — PROPRIETARY FUND TYPE AND NON—EXPENDABLE TRUST FUND Year Ended September 30. 1994 $ with comparative totals for Year Ended September 30, 1993 - 1 Fi duciary iduciary Fund Type Fund Type Non—Expendable I Enterprise Trust Operating Revenues Water charges $ 2,569,083 $ Sewer charges 1,226,495 Fees and penalties 91,565 Other 32,869 Total Operating Revenues 3,920,012 I Operating.Expenses Water operations 860,714III Sewer operations 1,094,056 Operation administration 94,868 Finance administration 169,829 Computer services 3,623 Insurance 25,867 Engineering 56,996 Depreciation 692,9541 Total Operating Expenses 2,998,907 Operating Income 921,105 I Nonoperating Revenues(Expenses) Interest revenue 101,820 867 Interest expense (371,774) Total Nonoperating Revenues(Expenses) (269,954) 867 Income Before Operating Transfers 651,151 867 Operating Transfers In (Out) I Operating transfers(out) (1,056,774) Net Income (Lou) (405,623) 867 Retained earnings/Fund balance— Beginning of Year 3,371,139 _ 86,187 Retained Earnings/Fund Balance — End of Year S 2.965516 $ 87,054 I See Notes to Financial Statements. 8 I I 1 Exhibit A-4 1 I IIITotals (Memorandum Only) I September 30, September 30, 1994 1993 2,569,083 S 2,612,847 Is 1,226,495 1,070,081 91,565 85,820 32,869 39,818 1 3,920,012 3,808,566 I 860,714 824,110 1,094,056 1,063,052 94,868 88,353 I 169,829 3,623 163,132 4,294 25,867 26,259 56,996 77,769 I692,954 695,616 2,998.907 2,942,585 I921,105 865,981 I 102,687 173,305 (371,774) (390,307) (269,0871 (217,002) 652,018 648,979 I (1,056,774) (1,507,603) II (404,756) (858,624) 1 3,457,326 4,315,950 $ 3,052.570 S 3.457326 9 I OF FRIENDSWOOD,, TEXAS III COMBINED STATEMENT OF CASH FLOWS — PROPRIETARY FUND TYPE AND NON—EXPENDABLE TRUST FUND Year Ended September 30. 1994 I with comparative totals for Year Ended September 30, 1993 Proprietary Fiduciary Fund Type Fund Type Non—Expendable Enterprise Trust Cash Flows from Operating Activities Operating Income $ 921,105 $ Adjustments to Reconcile Operating Income to Net Cash Provided by Operating Activities: Depreciation and amortization 692,954 (Increase)Decrease in accounts receivable 24,365 (Increase)Decrease in other assets 13,100 Increase(Decrease)in accounts payable and accrued liabilities (189,886) Increase in customer deposits 17,315 Increase in compensated absences 7,360 Net Cash Provided by Operating Activities 1,486,313 Cash Flows from Noncapital Financing Activities Operating transfers(out) (1,056,774) Net Cash(Used) by Financing Activities (1,056,774) Cash Flows from Capital and Related Financing Activities Contributed capital 290,217 Capital expenditures for property,plant, and equipment (967,674) Proceeds from the sale of equipment 9,667 Issuance of long—term debt Principal payments on long—term debt (310,000) Interest payments on long—term debt (371,774) Net Cash Provided(Used)by Capital and Related Financing Activities (1,349,564) Cash Flows from Investing Activities Interest on investments 101,820 867 Net Cash Provided by Investing Activities 101,820 867 Net Increase (Decrease)in Cash I and Cash Equivalents (818,205) 867 Cash and cash equivalents,beginning of year 2,528,339 28,987 Cash and Cash Equivalents,End of Year S 1.710.134 $ 29,854 I I See Notes to Financial Statements. 10 1 I I Exhibit A—S I I I Totals (Memorandum Only) September 30, September 30, I1994 1993 S 921,105 S 867,029 I 692,954 695,616 I 24,365 (95,086) 13,100 (47,433) (189,886) 305,485 I 17,315 25,670 7,360 15,669 1,486,313 1,766,950 (1,056,774) (1,507,603) I (1,056,774) (1,507,603) I290,217 353,020 (967,674) (1,868,716) I2,840,000 (310,000) (310,000) (371,774) (390,307) I (1,349,564) 623,997 I102,687 172,257 102,687 172,257 I (817,338) 1,055,601 2,557,326 1,501,725 IS 1.739.988 S 2,557326 I 1 11 I CITY OF FRIENDSWOOD, TEXAS Exhibit A-6 NOTES TO 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.Currently, the City charter provides for a Council term limitation of three terms. The City Council is the principal legislative body of the City. The City Manager is appointed by a I 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 I of the annual budget. The Mayor presides 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 I administrative services. A. Reporting Entity The combined financial statements of the City include all funds and operations which are controlled by or dependent upon the City. The criteria considered in determining governmental activities to be reported within the City's combined financial statements include the degree of I oversight responsibility exercised by the City Council over an organization, activity, or function. Oversight responsibility is demonstrated by financial interdependency, selection of governing authority, designation of management, ability to significantly influence operations, and accountability for fiscal matters. The City is the lowest level of government exercising oversight responsibility and control over all activities related to operations of the City within the boundaries of the City of Friendswood,Texas. 11/ The City is not included in any other governmental "reporting entity" as defined by the Governmental Accounting Standards Board,since the City Council is elected by the public and has decision making authority, the power to designate management, the ability to significantly I influence operations,and primary accountability for fiscal matters. As indicated in Note 8, the City participates in a joint venture (Blackhawk Regional Waste Treatment Plant)with three other entities,under the authority of the Gulf Coast Waste Disposal I Authority. This venture is accounted for under the equity method in the City's Enterprise Fund. B. Fund Accounting I The accounts of the City are organized on the basis of funds or account groups,each of which is considered to be a separate accounting entity. The operations of each fund are accounted for by II providing a set of self—balancing accounts which consist of each fund's assets, liabilities, fund 111 equity,revenues,and expenditures or expenses,as appropriate. The following paragraphs describe the various fund types and account groups. 1 12 1 CITY OF FRIENDSWOOD, TEXAS Exhibit A-6 NOTES TO FINANCIAL STATEMENTS NOTE 1 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(continued) B.Fund Accounting(continued) Governmental Fund Types(Budgeted) General Fund The General Fund accounts for the resources used to finance all the operations of the City not properly includable in other funds. The principal sources of revenue of the General Fund include property taxes,sales and use taxes, franchise taxes, fines and forfeitures, permits and fees, and charges for sanitation services. Expenditures include general government, public safety,public works,community development,and community services. Special Revenue Funds ' The Special Revenue Funds are used to account for the proceeds of specific revenue sources that are legally restricted or designated for specified activities. Debt Service Fund The Debt Service Fund is used to account for the accumulation of resources for the retirement of general long—term debt and related costs. The primary source of revenue of the Debt Service Fund is property taxes. Capital Projects Funds The Capital Projects Funds are used to account for the financial resources to be used for the acquisition or construction of major capital facilities financed principally by proceeds of long—term debt. Capital project funds are budgeted on a project rather than an annual basis. Proprietary Fund Type(Unbudgeted) Enterprise Fund The Enterprise Fund is used to account for the operations that provide water and wastewater utility services to the public. These services are financed and operated in a manner similar to private business enterprises where the intent of the Council is that costs (expenses, including depreciation)of providing goods or services to the general public on a continuing basis will be financed or recovered primarily through user charges. Fiduciary Fund Types(Unbudgeted) Trust Fund The Non—Expendable Trust Fund(1776 Park)is used to account for assets held by the City in a trustee capacity or as an agent for individuals, private organizations, other governments and/or other funds. This fund is accounted for on the same basis as proprietary funds. Agency Fund The Agency Fund (Deferred Compensation Fund) is used to account for assets held for employees in accordance with the provisions of Internal Revenue Code Section 457. The Agency Fund is custodial in nature(assets equal liabilities) and does not involve measurement of results of operations. I 13 1 CITY OF FRIENDSWOOD. TEXAS Exhibit A-6 NOTES TO FINANCIAL STATEMENTS NOTE 1 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(continued) B.Fund Accounting(continued) Account Groups 1 General Fixed Assets The General Fixed Assets Account Group is used to account for the City's land, buildings, improvements,and equipment except those recorded in proprietary and fiduciary fund types. General Long—Term Debt This account group is used to account for the City's liability for general obligation bonds, certificates of obligation, and notes payable which are payable from governmental fund resources. The debt is offset by the amount available in the Debt Service Fund and the amount to be provided in future years. C.Basis of Accounting The basis of accounting is the method by which revenues and expenditures or expenses are recognized in the accounts and reported in the financial statements. The accounting and financial 2 reporting treatment applied to a fund is determined by its measurement focus.All Governmental Fund Types are accounted for using a current financial resources measurement focus. With this • measurement focus, only current assets and current liabilities generally are included on the balance sheet. Operating statements of these funds present increases (i.e., revenues and other I financing sources)and decreases(i.e.,expenditures and other financing uses)in net current assets. The Proprietary Fund Type and the Non—expendable Trust Fund are accounted for on a flow of economic resources measurement focus. With this measurement focus, all assets and liabilities associated with the operation of this fund are included on the balance sheet. Fund equity(i.e.,net total assets) is segregated into contributed capital and retained earnings components. Operating statements for these funds present increases (i.e., revenues) and decreases (e.g., expenses) in net 11 total assets. The modified accrual basis of accounting is used by the Governmental Fund Types and Agency Fund. Under the modified accrual basis of accounting,revenues are recognized when susceptible to accrual,i.e.,both measurable and available. "Measurable"means the amount of the transaction can be determined and "available" means collectible within the current period or soon enough thereafter to be used to pay liabilities of the current period. Most types of revenue are recorded as I revenues when received in cash because they are generally not measurable until actually received. Investment earnings are recorded as earned since they are measurable and available. Under the modified accrual basis of accounting, expenditures (including capital outlay) are 111 recorded when the liability is incurred, except for general obligation debt principal and interest which are recorded when paid rather than when incurred. The Proprietary Fund Type and Non—expendable Trust Fund are accounted for using the accrual I basis of accounting,whereby revenues are recognized in the period in which they are earned and expenses are recognized in the period in which they are incurred. 14 , CITY OF FRIENDSWOOD. TEXAS Exhibit A-6 1 NOTES TO FINANCIAL STATEMENTS NOTE 1 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) D.Budgets Procedures in establishing budgetary data reflected in the financial statements are as follow: 1. 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. The Council shall adopt the budget by ordinance on one reading on or before the 15th day of September or as soon thereafter as practical 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. If, during the fiscal year, the City Manager certifies that there are available for appropriation, revenues in excess of those estimated in the budget, the Council may make supplemental appropriation for the year up to the amount of such excess. 2. 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 by ordinance transfer part or all of any unencumbered appropriation balance from one department, office, or agency to another. 3. Limitations: 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. 4. Lapse of Appropriations: Every appropriation, except an appropriation for a capital expenditure, shall lapse at the close of the fiscal year to the extent that it has not been expended or encumbered. An appropriation for a capital expenditure shall continue in force ' under the purpose for which it was made until it has been accomplished or abandoned. The purpose of any such appropriation shall be deemed abandoned if three years pass without disbursement from or encumbrance of the appropriation. 5. Annual appropriations budgets are adopted for the General, Special Revenue, and Debt Service Funds are prepared on a basis consistent with generally accepted accounting principles (GAAP) at the departmental level, the legal level of budgetary control An annual non—ap riated budget is adopted for the City's Water and Sewer Enterprise Fund on a non—GArAPP basis for managerial control Project length budgets are adopted for Capital i Projects Funds and amended on an annual basis to reflect the uncompleted portion of the projects. 6. Encumbrances represent commitments related to unperformed contracts for goods or services. Encumbrance accounting — under which purchase orders, contracts, and other commitments for the expenditure of resources are recorded to reserve that portion of the applicable appropriation — is utilized in the governmental funds.Encumbrances outstanding at year end are reported as reservations of fund balances and do not constitute expenditures or liabilities ' because the commitments will be honored during the subsequent year. Encumbrances that lapse are reappropriated in the ensuing years budget. ' During the 1994 fiscal year,expenditures exceeded appropriations at the functional level(the legal level of compliance)in the General and Special Revenue Funds. 15 I CITY OF FRIENDSWOOD, TEXAS Exhibit A-6 NOTES TO FINANCIAL STATEMENTS NOTE 1 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(continued) E. Cash and Cash Equivalents For the Purpose of the statement of cash flows, the Proprietary Fund Type considers temporary I investments with original maturities of three months or less to be cash equivalents. F.Interfund Transactions Interfund transactions that would be treated as revenues, expenditures, or expenses if they involved organ rations external to the governmental unit are accounted for as revenues, 1 expenditures,or expenses in the funds involved. Transactions which constitute reimbursements of a fund for expenditures or expenses initially made from that fund which are properly attributable to another fund are recorded as expenditures or expenses in the reimbursing fund and primarily as reductions of the expenditure or expense in the fund that is reimbursed. Non—recurring or non—routine transfers of equity between funds are reported as additions to or reductions of the fund balance of Governmental Funds. Transfers of equity to the Enterprise Fund are treated as contributed capital,and such transfers from the Enterprise Fund are reported as reductions of retained earnings or contributed capital,as is appropriate in the circumstances. All other legally authorized transfers are treated as operating transfers and are included in the results of operations of both the Governmental and Proprietary Fund Types. 11 G.Fund Equity Contributed capital is recorded in the Enterprise Fund which has received capital grants, contributions from developers and customers, and/or other funds of the City. Reserved fund balances represent those portions of fund balance not appropriable for expenditure or legally I segregated for a specific future use. Designated fund balances represent management's tentative plans for future use of financial resources. H. Compensated Employee Absences Pe The City's employees earn vacation and sick leave which may either be taken or accumulated, up I to certain amounts,until paid upon termination or retirement. The City accrues vacations and sick leave based on criteria established by the Governmental Accounting Standards Board. For all funds, this liability reflects amounts attributable to cumulative employee services previously rendered, where the payment is probable and can be reasonably estimated. The liability for accumulated vacation and sick leave, as of September 30, 1994,has been recorded in the General and Enterprise Funds since the liability is to be liquidated I with expendable available resources. 1 I 16 I CITY OF FRIENDSWOOD, TEXAS Exhibit A-6 NOTES TO FINANCIAL STATEMENTS NOTE 1 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(continued) ' I. Fined Assets General Fixed Assets ' General fixed assets have been acquired or constructed for general governmental purposes. Such fixed assets are recorded as expenditures in the Governmental Funds and capitalized at historical cost in the General Fixed Assets Account Group. Gifts or contributions of general fixed assets are recorded at estimated fair market value upon receipt. Public domain ("infrastructure") general fixed assets consisting of certain improvements other than buildings,including roads,bridges,curbs and gutters,streets and sidewalks,drainage systems,and lighting systems are capitalized as general fixed assets. No depreciation has been provided on general fixed assets. ' Enterprise Fund Fixed Assets The land,buildings, and equipment owned by the Enterprise Fund are recorded at historical cost or at estimated fair market value for contributed assets. Interest costs during construction are I capitalized when the effects of capitalization materially impact the financial statements. Some of the assets on which such interest was capitalized are still under construction and are classified as construction in progress in the Enterprise Fund. Depreciation of buildings and equipment is provided using the straight—line method over the following estimated useful lives: Years Water and sewer system 40-50 Equipment 5-10 Additions to the water and sewer systems are financed principally from sources other than Enterprise Fund operating revenues such as long—term debt and contributed capital.The costs of ' normal maintenance and repairs are charged to operations as incurred. Improvements and betterments which extend the useful lives of the assets are capitalized. J.Total Columns on Combined Statements Total columns presented in the combined financial statements are captioned(Memorandum Only) to indicate that they are presented only to facilitate itate financial analysis. Data in these columns do not represent financial position, results of operations, or changes in financial position on a consolidated basis in conformity with generally accepted accounting principles. Interfund eliminations have not been made in the aggregation of this data. Certain reclassifications have been made to the data for the prior year to conform with the current year presentation. I 1 17 1 CITY OF FRIENDSWOOD. TEXAS Exhibit A-6 NOTES TO FINANCIAL STATEMENTS , NOTE 2 — DEPOSITS (CASH)AND TEMPORARY INVESTMENTS I The City's cash and temporary investments,at September 30,1994,are shown below. Carrying Market ' Amount Value Cash $ 19,650 $ 19,650 I United States Government Securities 500,000 500,000 Texpool 1,000,000 1,015,571 Lone Star Investment Pool 4,508,360 4,508,360 I Total Temporary Investments 6,008,360 6,023,931 Total Cash and Temporary Investments $ 6.028.010 $ 6.043.381 Deposits(Cash) The City's funds are required to be deposited and invested under the terms of a depository contract pursuant to state statutes. The depository bank deposits, for safekeeping and trust with the City's agent bank, approved pledged securities in an amount sufficient to protect City funds on a I day—to—day basis during the period of the contract. The pledge of approved securities is waived only to the extent of the depository bank's dollar amount of Federal Deposit Insurance Corporation (FDIC")Insurance. Credit Risk Categorization The City's cash deposits,at September 30, 1994,were entirely covered by FDIC insurance or by pledged collateral held by the City's agent bank in the City's name. The deposits were III collateralized in accordance with state law and were properly secured throughout the year. Temporary Investments , Statutes authorize the City to invest in obligations of the US.Treasury or the State of Texas,certain U. S. agencies, certificates of deposit, money market savings accounts, certain municipal securities, I repurchase agreements,common trust funds,and other investments specifically allowed by the Public Funds Investment Act of 1987,as amended. Temporary investments are recorded at cost. Credit Risk Categorization 1 Temporary investments, with the exception of balances in two public funds investment pools (Texpool and Lone Star Investment Pool),are held by the City's agent in the City's name. Balances in Texpool and Lone Star Investment Pool are not evidenced by securities that exist in I physical or book entry form and accordingly are not subject to credit risk categorization. However, the investment pools' policies require that local government deposits be used to purchase I investments authorized by the Public Funds Investment Act of 1987,as amended. 1 18 1 I 1 CITY OF FRIENDSWOOD, TEXAS Exhibit A-6 INOTES TO FINANCIAL STATEMENTS INOTE 3 — PROPERTY TAXES The City's property taxes are levied annually in October on the basis of the Appraisal District's I 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. The City's property taxes are billed and collected by the City's Tax Assessor/Collector. Such taxes are applicable to the fiscal I 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 I of the levy. For the current year,the City levied property taxes of$.663 per$100 of assessed valuation which were prorated between operations and debt service in the amounts of $3025 and $.1605, respectively. The resulting adjusted tax levies were approximately$4.1 and$13 million for operations I and debt service, respectively, based on a total adjusted taxable valuation of approximately $824 million for the 1993 tax year. Property taxes receivable,at September 30,1994,consists of the following: I Debt General Service Tax Year Fund Fund 1 1993 $ 60,771 S 19,413 1992 37,136 11,747 1991 18,568 6,785 I 1990 10,442 9,725 3,822 1989 2,949 1988 and prior 42,145 16,710 IS 178.787 $ 61.426 NOTE 4 — LAND,BUILDINGS AND EQUIPMENT I A summary of changes in the General Fixed Assets Account Group,for the year ended September 30, 1994,follows: IBalance, Balance, October 1, Retirements September 30, 1993 Additions and Transfers 1994 I Land S 1,928,112 S 1,023,027 $ $ 2,951,139 Buildings 2,929,638 553,315 3,482,953 Improvements other I Than buildings 12,662,801 30,071 1,180,427 13,873,299 Furniture and equipment 3,714,789 383,909 (34,774) 4,063,924 Construction in I progress 859,166 1,650,661 (1,795,695) 714,132 Totals S 22,094506 S 3.087.668 S (.727) S 25,085.447 I I19 I CITY OF FRIENDSWOOD. TEXAS Exhibit A-6 NOTES TO FINANCIAL STATEMENTS I NOTE 4 — LAND, BUILDINGS AND EQUIPMENT(continued) I Construction in progress and remaining commitments under related construction contracts for general government construction projects at September 30,1994 follow: I Authorized Total in Remaining Project Description Contract Pro&ress Commitment City hall building $ 1,592,858 $ 423,576 S 1,169,282 111 Melody Lane Street 230,967 76,989 153,978 Cedarwood Street 232,375 150,898 81,477 Wdlowick Street 63,530 51,777 11,753 I Echo Street 58,988 10,417 48,571 Sidewalk construction 65,440 475 64,965 S 2,244,158 $ 714.132 S 1,530,026 I A summary of Enterprise Fund fixed assets at September 30,1994,follows: Land $ 252,528 Plant and equipment 9,682,077 Plant and equipment—Blackhawk 9,749,543 III Water and sewer lines 11,286,105 Construction in progress 16,834 30,987,087 111 Less accumulated depreciation (7,642,484) Total $ 23344,603 1 Construction in progress and remaining commitments under related construction contracts for water and sewer construction projects at September 30,1994 follow: Authorized Total in Remaining 111 Project Description Contract Prozress Commitment Elevated storage tank $ 50,750 $ 10,187 $ 40,563 I Bladchawk wastewater treatment 10,500 6,647 3,853 S 61,250 $ 16.834 $ 44,416 I I I 20 I I ICITY OF FRIENDSWOOD. TEXAS Exhibit A-6 111 NOTES TO FINANCIAL STATEMENTS INOTE 5 — LONG—TERM DEBT The City issues a variety of long—term debt instruments in order to acquire and/or construct major I capital facilities and equipment for general government and enterprise fund activities. These instruments include general obligation bonds,certificates of obligation,revenue bonds,notes payable, and capital leases. These debt obligations are secured by either future tax revenues,water and sewer system revenues, or liens on property and equipment. Debt obliptions which are intended to be I repaid from water and sewer system revenues have been recorded in the City's Enterprise Fund. All other long—term obligations of the City have been recorded in the General Long—Term Debt Account Group. A summary of the terms of general obligation bonds, combination tax and revenue bonds, and certificates of obligation outstanding and their corresponding allocations to the General Long—Term Debt Account Group and the Enterprise Fund at September 30,1994 follows: General I Series and Original Final Interest Long—Tern Enterprise Issue Amount Maturity Rate(%) Debt Fund General Obligation Bonds 1986 Refunding Bonds I 10,650,777 2004 4.25 — 7.90 $ 2,230,777 $ 1993 Refunding Bonds 6,555,000 2004 225 — 4.625 3,390,000 2,990,000 I 5,620,777 2,990,000 Combination Tax and Revenue Certificates of Obligation 1988 Series 4,400,000 1997 7.0 — 8.375 690,000 1992 Series 5,000,000 2008 530 — 6.75 2,160,000 2,820,000 2,160,000 3,510,000 Revenue Bonds 1969 Series 700,000 1999 5.5 — 6.125 225,000 I 1979 Series 1,750,000 1996 5.5 — 6.125 105,000 330,000 ITotal Bonds and Certificates of Obligation S 7.780.777 S 6.830,000 Annual debt service requirements including for bonds and certificates of obligation follows: I General Long—Term Enterprise Fiscal Year Debt Fund 1995 $ 1,268,551 S 724,871 1996 1,335,778 771,256 I 1997 877,692 1,219,738 1998 940,360 938,508 1999 924,182 926,206 I Thereafter 5,348,400 4,606,533 10,694,963 9,187,112 less interest portion (2,914,186) (2,357,112) I Total requirements $ 7,780,777 $ 6,830,000 21 1 CITY OF FRIENDSWOOD. TEXAS Exhibit A-6 NOTES TO FINANCIAL STATEMENTS NOTE 5 — LONG—TERM DEBT(continued) , Accreted Interest on Premium Compound Interest Bonds I A portion of the bonds sold in the Series 1986 refunding bond issue were premium compound interest bonds. These obligations have par values of S440,777 and maturity values of$1,305,000.The interest on these obligations will be paid upon maturity in the fiscal years ending September 30,2000,through 2004. The accreted values of these bonds at September 30, 1994, is approximately $820,895; and 11 accordingly,accreted interest on these bonds of$380,118 has been recorded in the General Long—Term Debt Account Group. , Note Payable I During the year ended September 30, 1994,the City entered into an agreement to purchase a tract of land for budding a sports complex. Asa result of this agreement,the City issued a note to the seller of the property for approximately$598,567. The Note is secured by a first lien Deed of Trust against the property and is payable in three annual installments bearing an interest rate of 6 percent. The installments are due on or before September 15, each year. Anticipated future debt service requirements for this note are as follow: Debt Service Fiscal Year Requirements 1995 $ 235,914 1996 223,914 1997 210,481 Total 670,309 less interest portion (71,742) Note Payable $ 598,567 Obligations Under Capital Lease The City entered into a capital lease agreement in order to purchase management information system I equipment for the police and fire department. Following is a summary of future lease payments due on this equipment: Lease Fiscal Year Obligation 1995 S 45,453 1996 45,453 1997 45,453 1998 45,453 1999 11,363 Total 193,175 less interest portion (26,714) Obligations under capital leases $ 166,461 1 22 i I CITY OF FRIENDSWOOD. TEXAS Exhibit A-6 INOTES TO FINANCIAL STATEMENTS INOTE 5 — LONG—TERM DEBT(continued) Prior Year Defeasance of Debt IIn prior years,the City defeased certain general obligation and revenue bonds by placing the proceeds of the 1986 and 1993 refunding bonds in an irrevocable trust to provide for all future debt service I payments on the old bonds. Accordingly, the trust account assets and the liability for the defeased bonds are not included in the City's financial statements. On September 30, 1994,approximately$82 million of bonds outstanding are considered defeased. IChanges in Long—Term Debt The following are summaries of long—term debt transactions of the City for the year ended ISeptember 30,1994. General Long—Term Debt Account Group Balance, Balance, I October 1, September 30, 1993 Additions Retirements 1994 General obligation bonds $ 6,535,777 $ $ (915,000) $ 5,620,777 I Certificates of obligation 2,205,000 (45,000) 2,160,000 Notes Payable 598,567 598,567 Obligations under capital leases 195,924 (29,463) 166,461 I Accreted interest on premium compound interest bonds 320,872 59,246 380,118 IS 9.061.649 S 853.737 S (989.463) S 8,925.923 Enterprise Fund Long—Term Debt IBalance, Balance, October 1, September 30, I Revenue bonds 1993 Additions Retirements 1994 S 465,000 $ $ (135,000) S 330,000 General obligation bonds 3,015,000 (25,000) 2,990,000 I Certificates of obligation 3,660,000 (150,000) 3,510,000 S 7.140.000 S S (310.000) $ 6,830.000 I I I 23 I CITY OF FRIENDSWOOD. TEXAS III Exhibit A-6 NOTES TO FINANCIAL STATEMENTS NOTE 5 - LONG-TERM DEBT(continued) I Summary of Long-term Debt Requirements The annual requirements to amortize all long-term debt outstanding at September 30, 1994, 111 including interest payments are as follows: General Fiscal Long-Term Enterprise Year Debt Fund Total 1995 S 1,549,918 $ 724,871 $ 2,274,789111 1996 1,605,145 771,256 2,376,401 1997 1,133,626 1,219,738 2,353,364 1998 985,813 938,508 1,924,321 1999 935,545 926,206 1,861,751 2000 1,360,458 492,041 1,852,499 2001 649,639 486,569 1,136,208 2002 645,364 485,157 1,130,521 2003 643,257 488,258 1,131,515 2004 645,723 490,803 1,136,526 2005 346,320 583,530 929,850 2006 350,238 556,825 907,063 2007 352,913 525,012 877,925 2008 354,488 498,338 852,826 S 11.558,447 S 9.187.112 S 20.745,559 NOTE 6 - FUND EQUITY I Retained Earnings I A portion of retained earnings in the Enterprise Fund is reserved for the following. Water and sewer construction $ 331,130 Surface water construction 35,492 Central service area construction 919,795 Debt service 211,996 S 1,498.413 CONTRIBUTED CAPITAL I The following is a schedule of changes in contributed capital for the Enterprise Fund for the year ended September 30,1994: Contributed capital at beginning of year $ 14,812,068 Additions Contribution from City 408,915 Impact fees 290,217 Contributed Capital at End of Year $ 15,511.200 I 24 I I CITY OF FRIENDSWOOD, TEXAS Exhibit A-6 NOTES TO FINANCIAL STATEMENTS INOTE 6 — FUND EQUITY(continued) Fund Balance IFund Balances in the various Governmental Fund Types are reserved or designated as follows: Il Special Capital II General Revenue Debt Service Projects Reserved for. Encumbrances $ 164,863 $ I Debt service 47,281 Total reserved fund Ibalance $ 164.863 $ 47,281 Designated for. I Emergency operations $ 850,000 $ $ Police investigations 7,465 Centennial observance 36,234 I Authorized construction 1,782,959 Total designated fund balance $ 850,000 $ 43.699 $ 1.782,959 I A portion of fund balance ($67,200) in the Non—expendable Trust Fund is reserved for an endowment. INOTE 7 — INTERFUND TRANSACTIONS Operating transfers between funds during the 1994 year were as follow: Ioperating Operating Transfer From Transfer To Amounts General Fund Special Revenue Fund $ 58,963 I General Fund Debt Service Fund 34,090 General Fund Capital Projects Fund 39,904 Enterprise Fund General Fund 265,189 I Enterprise Fund Debt Service Fund 40,615 Enterprise Fund Capital Projects Fund 750,970 S 1.189.731 I I 25 CITY OF FRIENDS WOOD, TEXAS Exhibit A-6 NOTES TO FINANCIAL STATEMENTS NOTE 8 —IMPACT FEES111 On April 27, 1990, the City, in conformance with the provisions of Senate Bill 336 and House Bill 1786,adopted a Capital Improvements Plan for Water Supply and Distribution Improvements and for Wastewater Treatment and Collection Improvements that were needed to serve new development.An , Impact Fee Structure to defray the costs of these improvements was also adopted. In recent years the City has committed funds to the construction of surface water facilities and ' wastewater capacity necessary to provide service to current residents, as well as for projected development within the City. The cost of water and wastewater capacity that has been constructed to support new growth is reflected in the City Wide impact fees. Based on population growth projections, two areas (Melody Lane and Central Service Area)within II the City were identified for the proposed extension of water distribution and wastewater collection systems and are included in the impact fee structure. An .1. ct fee was also included to defray the I costs of water distribution facilities extended to the Bay Area : •ulevard Service Area under the terms of a contractual agreement with Bay Area Land Company,Ltd. The Capital Improvements Plan and Impact Fee structure was amended by City Council on January 7, 1991, to include an impact fee for sanitary sewer collection system costs serving the area known as Mills,Murphy,and Briarmeadow Avenue between Sunset Drive and Greenbriar. The following is a summary of the Impact Fees that apply on a City Wide Basis and for each of the designated service areas. The fees represent the charge for single equivalent service units as defined in the Capital Improvement Plan. Fee Per Single Equivalent Service Unit City Wide Impact Fees Surface water facilities $ 685 Wastewater treatment facilities 69 Impact fee study and update study 36111 Total City Wide Impact Fee $ '790 Water Distribution Impact Fees Melody Lane service area $ 854 Bay Area Boulevard service area 294 South Friendswood service area 293 Wastewater Collection Impact Fees , Melody Lane service area $ 450 Mills,Murphy,Briarmeadow Avenue 2,532 South Friendswood Service Area Area A 378 Area B-1 378 Area B-2 378 Area C 285 Area D 161 Area E-1 784 Area E-2 784 Area E-3 161 Area E-4 161 Area F 378 1 26 ' CITY OF FRIENDSWOOD TEXAS Exhibit A-6 NOTES TO FINANCIAL STATEMENTS ' NOTE 8 —IMPACT FEES (continued) The impact fees are deposited into a separate, interest bearing bank account in compliance with the referenced legislation and transferred to the Enterprise Fund cash account as needed. The impact fees and interest income for each service area are maintained in separate equity schedules.Interest is applied based on a percentage of the daily equity balance of each service area. The portion of City Wide Impact Fees collected for Surface Water Facilities are used to meet the current debt service obligations for the 1988 Certificates of Obligations issued to fund the surface water facilities capital improvements. The remaining City Wide Impact Fees collected for Wastewater Treatment Facilities and Impact fee study and Update Study are used to fund other water and wastewater system improvements. All Impact Fees collected for specific service areas are used to fund new capital improvements for those designated areas. NOTE 9 — RETIREMENT PLANS ' A.Texas Municipal Retirement System Plan Description and Provisions The City provides pension benefits for all of its full—time employees through a non—traditional, joint contributory, defined contribution plan in the state—wide Texas Municipal Retirement System ('TMRS�, one of over 570 admini stered by TMRS, an agent multiple—employer public employee retirement system. It is the opinion of TMRS management that the plans in TMRS are substantially defined contribution plans, but they have elected to provide additional voluntary ' disclosure to help foster a better understanding of some of the non—traditional characteristics of the plan. Benefits depend upon the sum of the employee's contributions to the plan,with interest,and the City—financed monetary credits, with interest. At the inception of the plan, the City granted monetary credits for service rendered before the plan began of a theoretical amount equal to two times what would have been contributed by the employee,with interest,prior to establishment of the plan. Monetary credits for service since initiation of the plan are a percent(100%, 150%, or ' 200%) of the employee's accumulated contributions. In addition, the City can grant as often as annually another type of monetary credit referred to as an updated service credit which is a theoretical amount which, when added to the employee's accumulated contributions and the monetary credits for service since the plan began, would be the total' monetary credits and employee contributions accumulated, with interest if the current employee contribution rate and the City matching percent had always been in existence and if the employee's salary had always been the average of his salary in the last three years that are one year before the effective date. At retirement,the benefit is calculated as if the sum of the employee's accumulated contributions with interest and the employer—financed monetary credits with interest were used to purchase an annuity. Members can retire at ages 60 and above with ten or more years of service or with 25 years of service regardless of age. The plan also provides for death and disability benefits. A member is vested after ten years, but he must leave his accumulated contributions in the plan. If a member withdraws his own money,he is not entitled to the employer—financed monetary credits,even if he was vested. The plan provisions are adopted by the governing body of the City,within the options available in the state statutes governing TMRS and within the actuarial constraints also in the statutes. I 27 1 I CITY OF FRIENDSWOOD. TEXAS Exhibit A-6 NOTES TO FINANCIAL STATEMENTS NOTE 9 — RETIREMENT PLANS (continued) A.Texas Municipal Retirement System(continued) Contributions I The contribution rate for the employees is 6%,and the City's matching percent is currently 150% of that contribution, both as adopted by the governing body of the City. Under the state law I governing TMRS, the City contribution rate is annually determined by the actuary. This rate consists of the normal cost contribution rate and the prior service contribution rate,both of which are calculated to be a level percent of payroll from year to year. The normal cost contribution rate finances the currently accruing monetary credits due to City matching percent, which are the I obligation of the City as of an employee's retirement date, not at the time the employee's contributions are made. The normal cost contribution rate is the actuarially determined percent of payroll necessary to satisfy the obligation of the City to each employee at the time his retirement becomes effective. The prior service contribution rate amortizes the unfunded actuarial liability I over the remainder of the plan's 25—year amortization period. When the City periodically adopts updated service credits and increases in annuities, the increased unfunded actuarial liability is to be amortized over a new 25—year period. Currently, the unfunded actuarial liability is being I amortized over the 25—year period which began January 1991. The unit credit actuarial cost method is used for determining the City contribution rate. Contributions are made monthly by both the employees and the City. Since the City needs to know its contribution rate in advance to budget for it,there is a one—year lag between the actuarial valuation that is the basis for the rate I and the calendar year when the rate goes into effect. The City's total payroll in fiscal year 1994 was$3,699,490,and the City's contributions were based on a payroll of $3,339,878. Both the City and the covered employees made the required contributions, amounting to $208,440 (6.98% of covered payroll for the months in calendar year 1993 consisting of 538% normal cost plus 1.60% to amortize the unfunded actuarial liability,and 5.97% for the months in calendar year 1994 comprised of 5.40% normal cost plus 2.57% to i amortize the unfunded actuarial liability)for the City and$200,363 (6%) for the employees. The City adopted changes in the plan subsequent to the previous actuarial valuation, which had the effect of increasing the City's contribution rate for 1994 by 0.50% of payroll. There were no related—party transactions. Funding Status and Progress I Even though the substance of the City's plan is not to provide a defined benefit in some form, some additional voluntary disclosure is appropriate due to the non—traditional nature of the defined contribution plan which had an initial unfunded pension benefit obligation due to the monetary credits granted by the City for services rendered before the plan began and which can have additions to the unfunded pension benefit obligation through the periodic adoption of increases in benefit credits and benefits. Statement No. 5 of the Governmental Accounting Standards Board (GASB 5) defines pension benefit obligation as a standardized disclosure measure of the actuarial present value of pension benefits, adjusted for the effects of projected salary increases,estimated to be payable in the future as a result of employee service to date. The measure is intended to help users assess the funding status of public employee pension plans, I assess progress made in accumulating sufficient assets to pay benefits when due, and make comparisons among public employee pension plans. I 28 1 CITY OF FRIENDSWOOD, TEXAS Exhibit A-6 NOTES TO FINANCIAL STATEMENTS NOTE 9 — RETIREMENT PLANS (continued) A. Texas Municipal Retirement System(continued) Fundint Status and Pronress (continued) ' The pension benefit obligation shown below is similar in nature to the standardized disclosure measure required by GASB S for defined benefit plans except that there is no need to project salary increases since the benefit credits earned for service to date are not dependent upon future salaries. The calculations were made as part of the annual actuarial valuation as of September 30, ' 1993. Because of the money— purchase nature of the plan,the interest rate assumption,currently 83%per year,does not have as much impact on the results as it does fora defined benefit plan. Market value of assets is not determined for each City's plan, but the market value of assets for TMRS as a whole was 1123%of book value as of September 30,1993. Pension Benefit Obligation Annuitants currently receiving benefits S 135,734 ' Terminated employee 577,998 Current Employees Accumulated employee contributions, including allocated invested earnings 1,600,115 ' Employer—financed vested 1,584,453 Employer—financed nonvested 347,673 Total Pension Benefit Obligation 4,245,973 ' Net assets available for benefits,at book value 3,954,115 Unfunded Pension Benefit Obligation $ 291,858 ' Unfunded Pension Benefit Obligation ' The book value of assets is amortized cost for bonds and original cost for short—term securities and stocks. The assumptions used to compute the actuarially determined City contribution rate are the same as those used to compute the pension benefit obligation. The numbers above reflect the adoption of changes in the plan since the previous actuarial valuation,which had the effect of ' increasing the pension benefit obligation by$26,527. Trend information gives an indication of the progress made in accumulating sufficient assets to pay benefits when due. Ten—year trend information may be found in Table 14 of the Statistical ' Section of the City's comprehensive annual financial report. For the years ended September 30, 1992, 1993, and 1994, respectively, net assets available for benefits were sufficient to fund 75%, 92%, and 93% of the PBO. The unfunded PBO represented 26%, 9%, and 9% of the annual payroll for employees covered by TMRS for 1992, 1993,and 1994, respectively. In addition, the City's contributions to TMRS were 5.8%,6.9%,and 62%, respectively,of annual covered payroll for the years ending September 30,1992,1993,and 1994. 1 29 CITY OF FRIENDSWOOD, TEXAS Exhibit A-6 NOTES TO FINANCIAL STATEMENTS NOTE 9 — RETIREMENT PLANS (continued) , B. Deferred Compensation Plan The City offers its employees a tax—deferred compensation plan meeting the requirements of I Internal Revenue Code Section 457. The plan was established by City Ordinance which appointed ICMA Retirement Corporation as plan administrator. The City's fiduciary responsibility is to remit employee deferred compensation to the administrator on a regular basis. The deferred I compensation is not available to employees until termination,retirement,death,or emergency.At September 30,1994,the plan assets had a market value of$446,805. All amounts of compensation deferred under the plan, all property and rights purchased with I those amounts,and all income attributable to those amounts,property,or rights are (until paid or made available to the employee or other beneficiary) solely the property and rights of the City (without being restricted to the provisions of the benefits under the plan), subject only to the claims of the City's general creditors. Participants' rights under the plan are equal to those of general creditors of the City in an amount equal to the fair market value of the deferred amount for each participant. NOTE 10 —SOUTHEAST WATER PURIFICATION PLANT The City has entered into a contract with the City of Houston for constructing, operating, and 1 maintaining a water purification plant known as Southeast Water Purification Plant. The City's pro rata share of the actual production construction costs of the project is 3.75 percent. The City's pro rata share of the actual pumping construction costs is 133 percent. 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 I of each quarter, the City of Houston computes the total operation and maintenance expense 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. 1 30 i CITY OF FRIENDSWOOD. TEXAS Exhibit A-6 NOTES TO FINANCIAL STATEMENTS NOTE 10 — BLACKHAWK REGIONAL WASTE TREATMENT PLANT The City has entered into an arrangement with the Gulf Coast Waste Disposal Authority for the operation and maintenance of a joint waste treatment plant known as Bladchawk Regional Waste Treatment Plant. The City of Friendswood, the City of Houston,Harris County MUD No. 55, and CDC, Inc. (the 'participants") share in the expense of operation and maintenance based on their respective usage on a monthly basis. The percentages of equity in the joint venture based on their ' respective capacity rights,at September 30,1994,follow: ' City of Friendswood 52.71 % City of Houston 15.94 Harris County MUD No.55 20.28 Baybrook MUD No.1 11.07 100.00 % An annual budget for operations is submitted to the Gulf Coast Waste Disposal Authority each year. The Gulf Coast Waste Disposal Authority is the governing authority and consists of nine members (three appointed by the governor, three appointed by Harris County, Galveston County, and Chambers County,and three appointed by the participants). The City's investment in the Bladchawk ' joint venture at September 30, 1994 was approximately S 172,831.The City accounts for its interest in the regional plant on the equity method. 1 I I 1 31