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Home My WebLink About1996 09 30 Other - City of Friendswood I I 3 I I CITY OF FRIENDSWOOD, TEXAS GENERAL PURPOSE FINANCIAL STATEMENTS Year Ended September 30, 1996 I I I I I I I CITY OF FRIENDSWOOD, TEXAS 3 GENERAL PURPOSE FINANCIAL STATEMENTS Year Ended September 30, 1996 TABLE OF CONTENTS Exhibit Page Independent Auditors' Report 1 GENERAL PURPOSE FINANCIAL STATEMENTS Combined Balance Sheet — All Fund Types and Account Groups A-1 2 Combined Statement of Revenues,Expenditures and Changes in Fund Balances — All Governmental Fund Types A-2 6 Combined Statement of Revenues,Expenditures and Changes in Fund Balances— Budget and Actual(GAAP Basis)— General, Special Revenue and Debt Service Funds A-3 8 Combined Statement of Revenues,Expenses and Changes in Retained Earnings/Fund Balance — Proprietary Fund Type and Non—Expendable Trust Fund A-4 10 Combined Statement of Cash Flows — Proprietary Fund Type and Non—Expendable Trust Fund A-5 12 Notes to Financial Statements A-6 14 1 iv I Null&Associates Houston Fort Bend County Professional Corporation 11 Greenway Plaza,Suite 1515 One Sugar Creek Center Blvd.,Suite 1150 Certified Public AAA Houston,Texas 77046 Sugar Land,Texas 77478 (713)621-1515•FAX:621-1570 (281)242-8600•FAX:242-7333 3 I Independent Auditors' Report ITo the Honorable Mayor and Members of the City Council City of Friendswood,Texas We have audited the accompanying general purpose financial statements of the City of I Friendswood, Texas, as of and for the year ended September 30, 1996, as listed in the table of contents. These general purpose financial statements are the responsibility of the City of Friendswood, Texas management. Our responsibility is to express an opinion on these general 1 purpose financial statements 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 Ifor 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, 1996, and the results of its operations and the cash flows of its proprietary fund type and nonexpendable trust fund for the year then ended in conformity with generally accepted accounting principles. I �4...,eteZ ii,C/Q. 5 /C - IHouston,Texas January 23, 1997 1 U a a AO Uri Ira Ira IN 112411 Ira UM - C7 40 3 CITY OF FRIENDSWOOD, TEXAS COMBINED BALANCE SHEET ALL FUND TYPES AND ACCOUNT GROUPS September 30, 1996 1 Governmental Fund Types Special Debt Capital General Revenue Service Projects Assets and Other Debits Assets Cash and cash equivalents $ 1,039,380 S 52,793 S 113,587 $ 307,414 Investments 1,648,831 84,258 181,283 490,394 Receivables Taxes 170,863 61,110 Customer accounts 154,745 Interest 28,947 3,183 8,609 Other 43,897 1,479 Investments with fiscal agent Due from other governments 52,313 Due from other funds 44,037 Inventory 8,195 Prepaids and other assets 44,715 2,383 Restricted cash and investments Fixed Assets: General Fixed Assets Enterprise system property,plant and equipment at cost,less depreciation Non—expendable Trust assets Other Debits Amount available for debt service Amount to be provided for retirement of general long—term debt Total Assets and Other Debits $ 3,235,923 $ 138,530 $ 359,163 $ 808,800 I I I See Notes to Financial Statements. 2 Exhibit A-1 Page 1 of 2 3 I Proprietary Fiduciary Totals 2 Fund Type Fund Type Account Groups (Memorandum Only) Trust and General General Long- September 30, September 30, Enterprise Agency Fixed Assets Term Debt 1996 1995 I $ 559,853 $ 9,208 $ $ $ 2,082,135 $ C 6,087,827) 676,694 14,701 3,096,161 I231,973 263,532 685,549 840,294 914,102 17,951 258 58,948 21 45,397 61,113 729,374 729,374 586,995 52,313 I81,250 125,287 19,794 8,195 41 72,272 119,370 176,962 346,026 346,026 179,637 I 28,049,373 28,049,373 1 53,477,264 24,397,084 24,397,084 57,200 57,200 I298,053 298,053 56,968 II 4,320,476 4,320,476 5,326,980 $ 26,836,700 $ 810,741 $ 28,049,373 $ 4,618,529 $ 64,857,759 $ 67,151,174 3 2 ill! „, air E 3 3 CITY OF FRIENDSWOOD, TEXAS COMBINED BALANCE SHEET — ALL FUND TYPES AND ACCOUNT GROUPS September 30, 1996 I Governmental Fund Types Special Debt Capital General Revenue Service Projects Liabilities, Equity, and Other Credits Liabilities II Accounts payable $ 370,217 $ 1,485 $ $ 29,864 Accrued liabilities 186,784 Compensated absences 683,097 Customer deposits Deferred revenue 293,590 61,110 Deferred compensation benefits payable Bonds payable Certificates of obligation payable Notes payable I Obligations under capital leases Due to other funds 81,250 Accretion on premium compound interest bonds 3 Total Liabilities 1,614,938 1,485 61,110 29,864 Equity and Other Credits Investment in general fixed assets Contributed capital Retained Earnings I Fund Balances Reserved for encumbrances 62,343 227,493 Reserved for inventory 8,195 Reserved for debt services 298,053 Reserved for prepaids and other 44,715 Unreserved: Designated 900,000 137,045 551,443 Undesignated 605,732 Total Equity and Other Credits 1,620,985 137,045 298,053 778,936 Total Liabilities, Equity, and Other Credits $ 3,235,923 $ 138,530 $ 359,163 $ 808,800 11 See Notes to Financial Statements. 3 4 I I Exhibit A-1 Page 2 of 2 I Proprietary Fiduciary Totals Fund Type Fund Type Account Groups (Memorandum Only) Trust and General General Long- September 30, September 30, Enterprise Agency Fixed Assets Term Debt 1996 1995 I $ 286,798 $ $ $ $ 688,364 $ 1,039,437 I 98,122 284,906 74,578 757,675 802,211 171,055 171,055 184,523 I 354,700 371,732 729,374 729,374 586,995 4,925„301"- 1,835,477 6,760,778 7,895,778 \6,170,000 ( C v's 2,100,000 8,270,000 8,630,000 ` 181,805 181,805 384,642 219,209 219,209 223,043 r 44,037 125,287 19,794 ■ 230,758 282,038 512,796 443,975 12,000,649 729,374 c4,618,5297 19,055,949 20,582,130 I 28,049,373 28,049,373 27,967,545 11,761,849 11,761,849 13,140,148 3,074,202 3,074,202 2,658,169 67,200 357,036 215,948 8,195 298,053 44,715 I 14,167 1,602,655 2,133,625 605,732 453,609 14,836,051 81,367 28,049,373 45,801,810 46,569,044 $ 26,836,700 $ 810,741 $ 28,049,373 $ 4,618,529 $ 64,857,759 $ 67,151,174 5 I CITY OF FRIENDSWOOD, TEXAS COMBINED STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES - ALL GOVERNMENTAL FUND TYPES Year Ended September 30, 1996 Governmental Fund Types Special Debt Capital General Revenue Service Projects Revenues Property taxes $ 4,303,607 $ $ 1,357,090 $ Sales taxes 1,439,030 Franchise fees 852,091 Sanitation 1,017,028 Fines and forfeitures 353,742 Permits and fees 401,720 Donations 10,087 118,172 2,05011 Intergovernmental 40,055 9,184 Interest on investments 202,771 5,624 29,614 41,112 Other 95,172 666 60,966 Total Revenues 8,715,303 124,462 1,386,704 113,312 II Expenditures Current General government 1,615,770 Public safety 3,238,069 91,891 Public works 1,805,947 Community development 450,916 Community services 1,658,465 28,444 Capital outlay 912,833 Debt Service Principal retirement 963,272 2 Interest and fiscal charges 238,920 Total Expenditures 8,769,167 120,335 1,202,192 912,833 Revenues Over (Under) Expenditures (53,864) 4,127 184,512 (799,521) Other Financing Sources (Uses) Operating transfers in 229,460 56,573 390,152 Operating transfers(out) (840) (59,823) Proceeds from sale of equipment 9,600 Proceeds from issuance of debt 160,000 Total Other Financing Sources (Uses) 229,460 8,760 56,573 490,329 Revenues and Other Financing Sources Over (Under) Expenditures and Other Financing (Uses) 175,596 12,887 241,085 (309,192) Fund balances - Beginning 1,445,389 124,158 56,968 1,088,128 Fund Balances - Ending $ 1.620.985 $ 137.045 $ 298.053_ $ 778.936 See Notes to Financial Statements. 6 1 I Exhibit A-2 I I Totals (Memorandum Only) September 30, September 30, 1996 1995 $ 5,660,697 $ 5,865,855 1,439,030 1,028,528 852,091 863,183 1,017,028 1,085,149 353,742 266,287 401,720 234,518 130,309 151,411 49,239 325„399 279,121 269,455 156,804 268,684 10,339,781 10,358,469 I1,615,770 1,481,710 3„329,960 3,206,222 1,805,947 1,792,014 450,916 463,813 1,686,909 1,656,146 912,833 2,400,940 963,272 1,184,592 238,920 394,898 11,004,527 12,580„335 (664,746) (2,221,866) I 676,185 2,060,943 (60,663) (447,957) 9,600 160,000 117,176 785,122 1,730,162 120,376 (491,704) 2,714,643 3,206,347 ig $ 2,835.019 $ 2.714,643 7 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, 1996 I General Fund Variance Favorable Budget Actual (Unfavorable) Revenues Property taxes $ 4,301,223 $ 4,303,607 $ 2,384 2 Sales taxes 1,371,590 1,439,030 67,440 Franchise fees 826,574 852,091 25,517 Sanitation 1,029,935 1,017,028 (12,907) 2 Fines and forfeitures 232,088 353,742 121,654 Permits and fees 283,555 401,720 118,165 Donations 7,280 10,087 2,807 Intergovernmental 34,654 40,055 5,401 Interest on investments 156,500 202,771 46,271 Other 73,112 95,172 22,060 Total Revenues 8,316,511 8,715,303 398,792 Expenditures Current General government 1,772,988 1,615,770 157,218 Public safety 3,231,676 3,238,069 (6,393) Public works 1,841,310 1,805,947 35,363 Community development 466,074 450,916 15,158 Community services 1,692,506 1,658,465 34,041 Debt Service Principal retirement Interest and fiscal charges Total Expenditures 9,004,554 8,769,167 235,387 Revenues Over (Under) Expenditures (688,043) (53,864) 634,179 Other Financing Sources (Uses) Operating transfers in 229,460 229,460 Operating transfers (out) Proceeds from the sale of equipment Proceeds from issuance of long-term debt Total Other Financing Sources (Uses) 229,460 229,460 Revenues and Other Financing Sources Over (Under) Expenditures and Other Financing (Uses) (688,043) 175,596 863,639 Fund balances - Beginning 1,445,389 1,445,389 I Fund Balances - Ending $ 757,346_ $ 1,620,985 $ 863,639 See Notes to Financial Statements. 8 I I Exhibit A-3 I I Special Revenue Fund Variance Debt Service Fund Variance Favorable Favorable Budget Actual (Unfavorable) Budget Actual (Unfavorable) I $ $ $ $ 1,358,055 $ 1,357,090 $ (965) I I125,252 118,172 (7,080) 2,525 5,624 3,099 16,221 29,614 13,393 10,000 666 (9,334) 137,777 124,462 (13„315) 1,374,276 1„386,704 12,428 ill103,969 91,891 12,078 I1,928 28,444 (26,516) 1,137,273 963,272 174,001 1 252,097 238,920 13,177 105,897 120,335 (14,438) 1„389„370 1,202,192 187,178 31,880 4,127 (27,753) (15,094) 184,512 199,606 56,573 56,573 (840) (840) I4,600 9,600 3,760 8,760 56,573 56,573 35,640 12,887 (22,753) 41,479 241,085 199,606 124,158 124,158 _ 56,968 56,968 $ 159.798 $ 137.045 $ (22.753) $ 98.447 $ 298.053 $ 199.606 9 1 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, 1996 I Proprietary Fiduciary Fund Type Fund Type Non—Expendable Enterprise Trust Operating Revenues Water charges $ 2,796,977 $ Sewer charges 1,919,924 Fees and penalties 114,460 p J Other 163,758 /1.. , / ti,. l_ Interest on investments / T 1,428 I Total Operating Revenues 4,995,119 1,428 Operating Expenses Water operations 989,535 Sewer operations 1,325,931 Operation administration 100,825 Finance administration 208,935 8,600 Computer services 5,403 Insurance 42,077 Engineering 58,013 Depreciation 873,217 Total Operating Expenses 3,603,936 8,600 Operating Income (Loss) 1,391,183 (7,172) Nonoperating Revenues (Expenses) I Interest revenue 124,604 Impact fees 241,725 Gain on sale of property 1,317 Interest expense (727,274) Total Nonoperating Revenues (Expenses) (359,628) Income (Loss) Before Operating Transfers 1,031,555 (7,172) Operating Transfers In (Out) I Operating transfers in Operating transfers(out) (615,522) (615,522) Net Income (Loss) 416,033 (7,172) Retained earnings/Fund balance — Beginning of Year 2,658,169 88,539 Retained Earnings/Fund Balance — End of Year $ 3,074.202 $ 81,367 See Notes to Financial Statements. 10 I I Exhibit A-4 I I I Totals (Memorandum Only) September 30, September 30, 1996 1995 I $ 2,796,977 $ 2,569,083 1,919,924 1,226,495 114,460 91,565 I 163,758 32,869 1,428 I4,996,547 3,920,012 989,535 860,714 1 1,325,931 100,825 1,094,056 94,868 217,535 169,829 I 5,403 3,623 42,077 25,867 58,013 56,996 873,217 692,954 I3,612,536 2,998,907 1,384,011 921,105 124,604 102,687 727 274 (371,7741 I (602,670) (269,087) 781,341 652,018 I (615,522) (1,056,774) 165,819 (404,756) 3,052,570 3,457,326 $ 3,155569 $ 3,052570 11 CITY OF FRIENDSWOOD, TEXAS COMBINED STATEMENT OF CASH FLOWS — PROPRIETARY FUND TYPE AND NON—EXPENDABLE TRUST FUND Year Ended September 30, 1996 Proprietary Fiduciary Fund Type Fund Type Non—Expendable Enterprise Trust Cash Flows from Operating Activities Operating Income (Loss) $ 1,391,183 $ (7,172) Adjustments to Reconcile Operating Income (Loss) to Net Cash Provided(Used) by Operating Activiites: Depreciation and amortization 873,217 (Increase)Decrease in accounts receivable 54,184 (Increase)Decrease in due from other funds (81,250) (Increase)Decrease in prepaids and other assets 18,254 Increase(Decrease) in accounts payable and accrued liabilities 74,495 Incrase (Decrease)in due to other funds 44,037 Increase(Decrease) in customer deposits (13,468) Increase(Decrease)in compensated absences (8,743) Net Cash Provided (Used) by 2,351,909 (7,172) Cash Flows from Noncapital Financing Activities Operating transfers (out) (615,522) Net Cash (Used) by Financing Activities (615,522) I Cash Flows from Capital and Related Financing Activities Contributed capital Impact fees 241,725 Capital expenditures for property,plant, and equipment (1,234,320) Proceeds from the sale of equipment 1,317 Issuance of long—term debt Principal payments on long—term debt (898,400) Interest payments on long—term debt (661,133) Net Cash (Used) by Capital and Related Financing Activities (2,550,811) Cash Flows from Investing ActivitiesI Purchase of investments (673,627) (14,632) Interest on investments 124,604 (327) Net Cash Provided by Investing Activities (549,023) (14,959) Net Increase (Decrease)in Cash and Cash Equivalents (1,363,447) (22,131) Cash and cash equivalents,beginning of year 2,269„326 31,339 Cash and Cash Equivalents, End of Year $ 905,879 $ 9.208 Unrestricted cash and cash equivalents $ 559,853 $ 9,208 Restricted cash and cash equivalents 346,026 Cash and Cash Equivalents, End of Year $ 905.879 $ 9208 See Notes to Financial Statements. 12 1 I Exhibit A-5 I I Totals (Memorandum Only) September 30, September 30, 1996 1995 I $ 1,384,011 $ 1,516,177 873,217 744,370 54,184 (96,661) I18,254 (37,052) I74,495 (94,845) (13,468) 19,673 (8,743) 11,265 I2,381,950 2,062,927 I (615,522)(615,522) (1,612,986) (1,612,986) 1 167,438 I (1,234,320) (2,852,286) 1,317 3,200,000 (898,400) (375,000) (661,133) (361„359) (2,792,536) (221,207) 124,277 152„306 124,277 152,306 11 (901,831) 381,040 2,300,665 1,919,625 $ 915.087 $ 2,300.665 I $ 569,061 2,121,028 346,026 179,637 $ 915.087 2.300.665 I 13 r CITY OF FRIENDSWOOD, TEXAS NOTES TO FINANCIAL STATEMENTS Exhibit A-6 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 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 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 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 a mayor and is considered a primary government. As required by generally accepted accounting principles, these general purpose 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,no other entities have been included in the City's reporting entity. Additionally, as the City is considered a primary government for financial reporting purposes, its activities are not considered a part of any other governmental or i other type of reporting entity. Considerations regarding the potential for inclusion of other entities,organizations,or functions in the City's financial reporting entity are based on criteria prescribed by generally accepted accounting principles. These same criteria are evaluated in considering whether the City is a part of any other governmental or other type of reporting entity. The overriding elements associated with prescribed criteria considered in determining that the City's financial reporting entity status is that of a primary government are that is has a separately elected governing body; it is legally separate; and it is fiscally 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 their relationship with the primary government are such that exclusion would cause the reporting entity's financial statements to be misleading or incomplete. As indicated in Note 13, 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 Authority. This venture is accounted for under the equity method in the City's Enterprise Fund. 14 4 CITY OF FRIENDSWOOD, TEXAS Exhibit A-6 NOTES TO FINANCIAL STATEMENTS S NOTE 1 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) B. Fund Accounting 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 providing a set of self—balancing accounts which consist of each fund's assets, liabilities, fund equity, revenues, and expenditures or expenses, as appropriate. The following paragraphs describe the various fund types and account groups. 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. Proprietary fund types follow generally accepted accounting principles prescribed by the Governmental Accounting Standards Board (the GASB),and all Financial Accounting Standards Board's standards issued prior to November 30, 1989. Subsequent to this date, the City accounts for its proprietary funds as presented by the GASB. I 15 I 4 CITY OF FRIENDSWOOD, TEXAS Exhibit A-6 NOTES TO FINANCIAL STATEMENTS NOTE 1 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) B. Fund Accounting(continued) 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. Account Groups General Fired 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, notes payable, and capital leases 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 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 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 total assets. 16 7 CITY OF FRIENDSWOOD, TEXAS Exhibit A-6 NOTES TO FINANCIAL STATEMENTS NOTE 1 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) C. Basis of Accounting(continued) 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 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 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 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. D. Budgets I Procedures in establishing budgetary data reflected in the financial statements are as follow: I 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. I 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, I 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. I 17 1 CITY OF FRIENDSWOOD, TEXAS NOTES TO FINANCIAL STATEMENTS Exhibit A-6 NOTE 1 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) D. Budgets(continued) 5. Annual appropriations budgets are adopted for the General, Special Revenue, and Debt Service Funds and 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—appropriated budget is adopted for the City's Water and Sewer Enterprise Fund on a non—GAAP basis for managerial control. Project length budgets are adopted for Capital 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 1996 fiscal year,expenditures exceeded appropriations at the departmental level(the legal level of compliance) in the General Fund — Public Safety by $6,393 and the Centennial Special Revenue Fund by$26,516. E. Cash and Temporary Investments All investments are stated at cost which approximates market value except for assets in a deferred compensation plan which are stated at market value. The City holds all investments until maturity date. 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 Cash Equivalents" in the financial statements. Negative equity balances have been reclassified and are reflected as interfund accounts payable. Interest income and interest expense are allocated to each respective individual fund monthly based on their respective fund balances. F. Interfund Transactions Interfund transactions that would be treated as revenues, expenditures, or expenses if they involved organizations external to the governmental unit are accounted for as revenues, 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. 18 CITY OF FRIENDSWOOD, TEXAS Exhibit A-6 NOTES TO FINANCIAL STATEMENTS NOTE 1 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 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 segregated for a specific future use. Designated fund balances represent management's tentative plans for future use of financial resources. H. Compensated Employee Absences The City's employees earn vacation and sick leave which may either be taken or accumulated, up 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, 1996, has been recorded in the General and Enterprise Funds since the liability is to be liquidated with expendable available resources. L Encumbrances Encumbrance accounting, under which purchase orders, contracts and other commitments for the expenditure of funds are recorded in the accounting system in order to reserve the portion of the applicable appropriation, is employed in the governmental funds. Appropriations lapse at fiscal year—end. Encumbrances which have not been liquidated are reported as reservations of fund balances since they do not constitute expenditures or liabilities. J. Inventories Inventories are recorded in the General and Enterprise Funds and are stated at cost, using the first—in, first—out method. Inventories consist of expendable supplies held for consumption,and the cost thereof is recorded as an expense/expenditure at the time the inventory items are issued (Consumption method). K Fixed 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. I 19 CITY OF FRIENDSWOOD, TEXAS Exhibit A-6 NOTES TO FINANCIAL STATEMENTS NOTE 1 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) K Fixed Assets(continued) 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 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 1 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. L. 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 financial analysis. Data in these columns do not represent financial position, results of operations, or cash flows on a consolidated basis in conformity with generally accepted accounting principles. Interfund eliminations have not been made in the 1 aggregation of this data. Certain reclassifications have been made to the prior year totals to conform with the current year presentation. M. Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of financial statements and the reported amounts of revenues and expenditures during the reporting period. Actual results could differ from those estimates. NOTE 2 — CASH AND INVESTMENTS Cash The City's cash and investments are classified as: cash and cash equivalents, investments, and restricted cash and investments. The cash and cash equivalents include cash on hand, deposits with financial institutions, and short term investments in a state—managed public funds investment pool account (Texpool and Lone Star). The Investments, which have maturities at purchase of greater than three months, consist mainly of US government treasury bills, treasury notes and other US government obligations. The restricted cash and investments are the assets restricted for specific use. The restricted cash includes cash on deposit with financial institutions, Texpool and cash for the Blackhawk operations. 20 CITY OF FRIENDSWOOD, TEXAS Exhibit A-6 NOTES TO FINANCIAL STATEMENTS NOTE 2 — CASH AND INVESTMENTS (continued) Cash (continued) Cash and cash equivalents consisted of: Carrying Market Amount Value Cash on hand $ 34,600 $ 34,600 Petty cash 2,859 2,859 Blackhawk operating 191,763 191,763 Texpool 1,175,662 1,175,662 Lone Star Investment Pool 1,023,377 1,023,377 Total cash and cash equivalents 2 428 261 �'� $ 2,428,261 Credit Risk Categorization for Deposits Cash deposits held at financial institutions can be categorized according to three levels of risk. These three levels of risk are: Category 1 — Deposits which are insured or collateralized with securities held by the City or by its agent in the City's name. Category 2— Deposits which are collateralized with securities held by the pledging financial institution's trust department or agent in the City's name. Category 3— Deposits which are not collateralized or collateralized with securities held by the pledging financial institution or by its trust department or agent but not in the City's name. At September 30, 1996,the carrying amount of the City's cash deposited in bank was $34,600 of which all is covered by federal depository insurance. For seven days during the year due to large tax receipts, the deposits were not collateralized in accordance with state law. The City did not suffer any losses during this period. The TexPool and Lone Star amounts of$1.2 million and $1 million, respectively, are not evidenced by securities that exist in physical or book entry form and, accordingly are not categorized by risk. However, the nature of these funds requires that they be used to purchase investments authorized by the Public Funds Investment Act of 1995. The primary objective of these investment pools is to provide a safe environment for the placement of public funds in short—term, fully collateralized investments. I 21 CITY OF FRIENDSWOOD, TEXAS Exhibit A-6 NOTES TO FINANCIAL STATEMENTS NOTE 2 — CASH AND INVESTMENTS (continued) IInvestments Under provisions of state and local statutes,the City's investment policies,and provisions of the City's depository contracts with an area financial institution, the City is authorized to place available Ideposits and investments in the following: 1. Obligations of the U.S.,its agencies and instrumentalities, 1 2. Certificates of Deposit issued by state and national banks or savings or loan associations domiciled in this state that are: —guaranteed or insured by the Federal Deposit Insurance Corporation; I or —collateralized in accordance with Section 2256.010, the Texas Government Code, in face amount not to exceed$100,000, I 3. No—load money market mutual funds, 4. Texas Local Government Investment Pool, Lone Star Investment Pool, and the Local Government Investment Cooperative (LOGIC). I City council has adopted a written investment policy regarding the investments of its funds as defined I 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. Investments at year end are Irepresentative of the types of investments maintained by the City during the year. The carrying amounts and market values of the City's investments can be categorized according to three levels of risk. These credit risk categories are as follows: ICategory 1 — Insured or registered, or securities held by the entity or its agent in the entity's name, I Category 2— Uninsured and unregistered, with securities held by the counterparty's trust department or agent in the entity's name, Category 3— Uninsured and unregistered, with securities held by counterparty, or by its trust Idepartment or agent but not in the entity's name. At year—end,the City's investment balances were as follows: I Carrying Market U.S.Government Securities Category Amount Value FNMA discount notes 1 $ 645,396 $ 645,442 FNMA term notes 1 2,450,765 2,445,097 1 3,096,161 3,090,539 Investments not subject to categorization: Deferred compensation mutual fund 729,374 729,374 ITotal Investments $ 3.825.535 $ 3.819.913 I 22 1 CITY OF FRIENDSWOOD, TEXAS Exhibit A-6 NOTES TO FINANCIAL STATEMENTS NOTE 3 — PROPERTY TAXES 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. The City's property taxes are billed and collected by the City's Tax Assessor/Collector. 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$.6156 per $100 of assessed valuation which were prorated between operations and debt service in the amounts of $.4680 and $.1476, respectively.The resulting adjusted tax levies were approximately$43 and$1.3 million for operations and debt service, respectively, based on a total adjusted taxable valuation of approximately $911 million for the 1995 tax year. Property taxes receivable,at September 30, 1996,consists of the following: Debt General Service Tax Year Fund Fund Total 1995 $ 40,464 $ 12,762 $ 53,226 1994 23,338 6,765 30,103 1993 14,042 4,485 18,527 1992 13,604 4,377 17,981 1991 8,849 3,234 12,083 1990 and prior 70,566 29,487 100,053 S 170,863 $ 61,110 $ 231,973 NOTE 4 — LAND, BUILDINGS AND EQUIPMENT A summary of changes in the General Fixed Assets Account Group, for the year ended September 30, 1996,follows: Transfers, Balance, Adjustments Balance, October 1, and Retirements September 30, 1995 Additions In (Out) 1996 Land $ 2,951,139 $ $ 213,043 $ 3,164,182 Buildings 3,482,953 879,785 4,362,738 Improvements other than buildings 14,308,969 2,061,510 16,370,479 Furniture and equipment 4,480,157 221,376 (590,144) 4,111,389 Construction in progress 2,744,327 898,473 (3,602,215) 40,585 Total $ 27.967,545 $ 1,1194849 S (1,038.021) 4 377> 1 I 23 1 CITY OF FRIENDSWOOD, TEXAS I Exhibit A-6 NOTES TO FINANCIAL STATEMENTS 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, 1996 is as follows: ITotal in Project Description Progress 1 Library Renovations $ 11,782 Activity Building Renovations 4,761 Panic Alarm System 1,944 I Eagle Lakes Street Drainage 3,645 Master Plan Centennial Park 8,078 Old City Park Improvements 1,775 1776 Park Improvements 8,600 ITotal $ 40585 IA summary of Enterprise Fund fixed assets at September 30, 1996,follows: Land $ 1,033,666 I Plant and equipment 1,736,750 Plant and equipment— Blackhawk 11,478,150 Water and sewer lines 17,858,233 Construction in progress 1,502,523 I 33,609,322 r f IN�' y Less accumulated depreciation (9,212,238) ,, Total $ 24397.084 i- I Construction in progress and remaining commitments under related construction contracts for water and sewer construction projects at September 30, 1996 is as follows: Total in I Project Description Progress Shady Oaks 18 inch Sewer Line $ 87,588 Rancho Viejo Collection System 373,211 I Sunmeadow Lift Station 11,898 Waster water diversion 216,172 I&I analysis 149,522 Shady Oaks 87,587 I Cowarts creek 52,111 Deepwood lift station 42,439 SE water purification plant 118,761 Forest Bend Lift 106,195 Other 257,039 $ 1502,523 I 24 CITY OF FRIENDSWOOD, TEXAS Exhibit A-6 NOTES TO FINANCIAL STATEMENTS 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 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 obligations which are intended to be 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. Bonds Payable and Certificates of Obligation 3 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, 1996 follows: I General Series and Original Final Interest Long—Term Enterprise Issue Amount Maturity Rate (%) Debt Fund General Obligation Bonds 1986 Refunding Bonds 10,650,777 2004 4.25 — 7.90 $ 242,427 $ 198,351 1993 Refunding Bonds 6,555,000 2004 2.25 — 4.625 1,543,750 4,631,250 1,786,177 4,829,601 1 General I Series and Original Final Interest Long—Term Enterprise Issue Amount Maturity _ Rate (%) Debt Fund Combination Tax and Revenue Certificates of Obligation 1988 Series 4,400,000 1997 7.0 — 8375 285,000 1992 Series 5,000,000 2008 530 — 6.75 2,100,000 2,685,000 1995 Series 3,200,000 2010 5375 — 7375 3,200,000 2,100,000 6,170,000 Revenue Bonds 1969 Series 700,000 1999 5.5 — 6.125 49,300 95,700 1979 Series 1,750,000 1996 53 — 6.125 49,300 95,700 Total Bonds and Certificates of Obligation $ 3.935.477 $ 11.095301 I 3 3 25 II CITY OF FRIENDSWOOD, TEXAS III Exhibit A-6 NOTES TO FINANCIAL STATEMENTS NOTE 5 — LONG—TERM DEBT (continued) I Annual debt service requirements for bonds and certificates of obligation are as follows: I General Long—Term Enterprise Fiscal Year Debt Fund 1997 $ 509,160 $ 1,838,749 1998 563,831 1,565,987 1999 554,016 1,547,760 2000 807,211 1,296,477 I 2001 408,361 977,951 Thereafter 2,732,354 8,077,270 5,574,933 15„304,194 I less interest portion 1,639,456 4,208,893 Total requirements $ 3.935,477 $ 11,095.301 IAccretion on Premium Compound Interest Bonds A portion of the bonds sold in the Series 1986 refunding bond issue were premium compound interest bonds. These obligations have par values of$440,777 and maturity values of$1,305,000.The interest on I 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, 1996, is approximately $953,573,of which $429,108 has been allocated to the Enterprise Fund and$524,465 has been allocated the the General Long—Term I Debt Account Group. Accordingly,accretion on these bonds of$230,758 and$282,038 has been recorded in the Enterprise Fund and the General Long—Term Debt Account Group,respectively. I Note Payable During the year ended September 30, 1994, the City entered into an agreement to purchase a tract of land for building a sports complex. As a result of this agreement, the City issued a note to the seller of I 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: IDebt Service Fiscal Year Requirements I1997 $ 192,713 Total 192,713 less interest portion 10,908 INote Payable $ 181.805 I I 26 I CITY OF FRIENDSWOOD, TEXAS Exhibit A-6 NOTES TO FINANCIAL STATEMENTS NOTE 5 — LONG—TERM DEBT(continued) Obligations Under Capital Leases g P The City entered into capital lease agreements in order to purchase management information system equipment for City hall and the police and fire department. Following is a summary of future lease payments due on this equipment: Lease Fiscal Year ObligationI 1997 $ 93,812 1998 93,814 1999 59,819 2000 2,200 Total 249,645 less interest portion 30,436 Obligations under capital leases $ 219209 Prior Year Defeasance of Debt In 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 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, 1996, approximately $7.5 million of bonds outstanding are considered defeased. Changes in Long—Term Debt The following are summaries of long—term debt transactions of the City for the year ended September 30, 1996. General Long—Term Debt Account GroupI Balance, Balance, October 1, September 30, 1995 Additions Retirements 1996 General obligation bonds $ 2,339,177 $ $ (553,000) $ 1,786,177 Revenue bonds 62,900 (13,600) 49,300 Certificates of obligation 2,130,000 (30,000) 2,100,000 Notes payable 384,642 s (202,837) 181,805 Obligations under capital leases 223,043 --Ill ' 160,000 (163,834) 219,209 Accreted interest on premium compound interest bonds 244,186 37,852 282,038 $ 5.383.948 $ 197,852 $ (963271) $ 4,618.529 I 27 1 I CITY OF FRIENDSWOOD, TEXAS I Exhibit A-6 NOTES TO FINANCIAL STATEMENTS NOTE 5 — LONG—TERM DEBT(continued) IEnterprise Fund Long—Term Debt Balance, Balance, I October 1, September 30, 1995 Additions Retirements 1996 I Revenue bonds $ 127,100 $ $ (31,400) $ 95,700 General obligation bonds 5,366,601 (537,000) 4,829,601 Certificates of obligation 6,500,000 (330,000) 6,170,000 Accreted interest on premium Icompound interest bonds 199,789 30,969 230,758 $ 12.193.490 $ 30.969 $ (898.400) $ 11326.059 I Summary of Long—Term Debt Requirements I The annual requirements to amortize all long—term debt outstanding at September 30, 1996, including interest payments are as follows: General I Fiscal Long—Term Enterprise Year Debt Fund Total I 1997 1998 $ 795,685 $ 1,838,749 $ 2,634,434 657,645 1,565,987 2,223,632 1999 613,835 1,547,760 2,161,595 2000 809,411 1,296,477 2,105,888 I 2001 408,361 977,951 1,386,312 2002 441,304 937,868 1,379,172 2003 442,039 941,121 1,383,160 2004 445,052 935,744 1,380,796 2005 346,320 873,494 1,219,814 2006 350,238 871,064 1,221„302 2007 352,913 867,935 1,220,848 1 2008 354,488 872,488 1,226,976 884,175 884,175 893,381 893„381 $ 6.017.291 $ 15304.194 $ 21321.485 I I I 28 3 CITY OF FRIENDSWOOD, TEXAS Exhibit A-6 NOTES TO FINANCIAL STATEMENTS NOTE 6 — FUND EQUITY 3 Retained Earnings A portion of retained earnings in the Enterprise Fund is reserved for the following: Water and sewer construction $ 1,953,908 Central service area construction 191,763 Debt service 115,924 $ 2.261.595 Contributed Capital The following is a schedule of changes in contributed capital for the Enterprise Fund for the year ended September 30, 1996: Contributed capital at beginning of year $ 13,140,148 Reductions Reclassification of contributed capital to retained earnings (1,378,299) Contributed Capital at End of Year $ 11.761.849 Fund Balance Fund Balances in the various Governmental Fund Types are reserved or designated as follows: Special Capital General Revenue Debt Service Projects Reserved for: Encumbrances $ 62,343 $ $ $ 227,493 Inventories 8,195 Prepaids and other assets 44,715 Debt service 298,053 Total reserved fund balance 115,253 298.053 227,493 Designated for: Emergency operations 900,000 Police investigations 8,000 Centennial observance 4,175 Fire/EMS 124,870 Authorized construction 551,443 Total designated fund balance $ 900.000 $ 137,045 $ $ 551.443 In the Non—expendable Trust Fund,$67,200 of the fund balance is reserved for an endowment. 29 CITY OF FRIENDSWOOD, TEXAS Exhibit A-6 NOTES TO FINANCIAL STATEMENTS NOTE 7 — INTERFUND OPERATING TRANSFERS Operating transfers between funds during the 1996 year were as follow: Operating Operating Transfer From Transfer To Amounts Special Revenue Fund Capital Projects Fund $ 840 Capital Projects Fund Debt Service Fund 56,573 Enterprise Fund General Fund 229,460 Enterprise Fund Capital Projects Fund 348,550 Enterprise Fund Capital Projects Fund 37,512 Capital Project Facitilies Capital Projects Fund 3,250 $ 676.185 NOTE 8 — INTERFUND RECEIVABLES AND PAYABLES At September 30, 1996 interfund receivable and payable balances consisted of the following: Fund Due From (To) Due From Due To General Fund Enterprise Fund $ 44,037 $ 81,250_ Enterprise Fund General Fund 81,250 44,037 Total Due From (To) $ 125.287 125.287 NOTE 9 —IMPACT FEES 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 developments. 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 the City were identified for the proposed extension of water distribution and wastewater collection systems and are included in the impact fee structure. An impact fee was also included to defray the costs of water distribution facilities extended to the Bay Area Boulevard Service Area under the terms of a contractual agreement with Bay Area Land Company,Ltd. y>a 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. 30 CITY OF FRIENDSWOOD, TEXAS Exhibit A-6 NOTES TO FINANCIAL STATEMENTS NOTE 9 —IMPACT FEES (continued) The followingis a summaryof the Impact Fees that applyon a CityWide Basis and for each of the P 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 36 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 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. 3 31 CITY OF FRIENDSWOOD, TEXAS Exhibit A-6 NOTES TO FINANCIAL STATEMENTS NOTE 10 — RETIREMENT PLANS A. Texas Municipal Retirement System Plan Description and Provisions O 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 administered 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. Contributions 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 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 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 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 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 3 between the actuarial valuation that is the basis for the rate and the calendar year when the rate goes into effect. 32 3 CITY OF FRIENDSWOOD, TEXAS Exhibit A-6 NOTES TO FINANCIAL STATEMENTS NOTE 10 — RETIREMENT PLANS (continued) A. Texas Municipal Retirement System (continued) Contributions (continued) The City's total payroll in fiscal year 1995 was$4,519,116,and the City's contributions were based on a payroll of $4,150,533. Both the City and the covered employees made the required contributions, amounting to $284,653 (6.50% of covered payroll for the months in calendar year 1995 consisting of 5.61% normal cost plus 0.89% to amortize the unfunded actuarial liability, and 6.97% for the months in calendar year 1996 comprised of 6.16% normal cost plus 0.81% to amortize the unfunded actuarial liability) for the City and $249,032 (6.0%) 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 1996 by 0.03%of payroll. There were no related—party transactions. Funding Status and Progress 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, assess progress made in accumulating sufficient assets to pay benefits when due,and make comparisons among public employee pension plans. The pension benefit obligation shown below is similar in nature to the standardized disclosure measure required by GASB 5 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 December 31, 1995. Because of the money— purchase nature of the plan, the interest rate assumption,currently 8.0%per year, does not have as much impact on the results as it does for a 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 114.2%of book value as of September 31, 1995. Pension Benefit Obligation Annuitants currently receiving benefits $ 512,197 Terminated employees 564,080 Current Employees: Accumulated employee contributions,including allocated invested earnings 2,330,904 Employer—financed vested 2,622,153 Employer—financed nonvested 530,131 Total Pension Benefit Obligation 6,559,465 Net assets available for benefits,at book value 5,838,306 Unfunded Pension Benefit Obligation $ 721.159 3 33 3 CITY OF FRIENDSWOOD, TEXAS Exhibit A-6 NOTES TO FINANCIAL STATEMENTS 3 NOTE 10 — RETIREMENT PLANS (continued) A. Texas Municipal Retirement System(continued) Funding Status and Progress (continued) 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$16,094. Trend Information Trend information gives an indication of the progress made in accumulating sufficient assets to pay benefits when due. Ten—year historical trend information presenting the progress in accumulating sufficient assets to pay benefits when due is presented in the statistical section (Table 14)of the City's Comprehensive Annual Financial Report. Trend information for the last three calendar years follows: 0 1993 Calendar Year 1994 1995 Net assets available for benefits as a percentage of pension benefit obligation 84% 87% 89% Unfunded pension benefit obligation as a percentage of annual covered payroll 25% 17% 17% Employer contribution as a percentage of annual covered payroll 6% 6% 7% NOTE 11 — DEFERRED COMPENSATION PLAN The City offers its employees a tax—deferred compensation plan meeting the requirements of 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 compensation is not available to employees until termination, retirement, death, or emergency. At September 30, 1996,the plan assets had a market value of$729,374. All amounts of compensation deferred under the plan, all property and rights purchased with 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 account for each participant. 3 34 I CITY OF FRIENDSWOOD, TEXAS Exhibit A-6 NOTES TO FINANCIAL STATEMENTS NOTE 12 — SOUTHEAST WATER PURIFICATION PLANT The City has entered into a contract with the City of Houston for constructing, operating, and 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 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. NOTE 13 — 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 treatment plant known as Blackhawk 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, 1996 are as follows: City of Friendswood 52.47 % City of Houston 16.18 Harris County MUD No.55 20.27 Baybrook MUD No. 1 11.08 100.00 % 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). Separate financial statements for the joint venture were available in the December 31, 1995 audited financial statements of the Gulf Coast Waste Disposal Authority and are summarized below: Joint Venture Total assets $ 150,138,488 Total liabilities (61,284,417) Total fund equity (88,854,071) Total revenues 89,582,763 Total expenditures/expenses (90,508,749) Net Increase 925,986 $ —0— 35 1