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Home My WebLink AboutComprehensive Annual Financial Report September 30, 2016rl n d CITY OF FRIENDSWOOD TEXAS COMPREHENSIVE ANNUAL FINANCIAL REPORT Year Ended September 30, 2016 Officials Issuing Report: Roger C. Roecker City Manager Cindy S. Edge Director of Administrative Services THIS PAGE LEFT BLANK INTENTIONALLY CITY OF FRIENDSWOOD, TEXAS COMPREHENSIVE ANNUAL FINANCIAL REPORT TABLE OF CONTENTS SEPTEMBER 30, 2016 Page Number INTRODUCTORY SECTION Letterof Transmittal..................................................................................................... i — iv PrincipalOfficials......................................................................................................... v GFOA Certificate of Achievement............................................................................... vi OrganizationalChart ..................................................................................................... vii FINANCIAL SECTION Independent Auditors' Report....................................................................................... 1-3 Management's Discussion and Analysis...................................................................... 4 — 17 Basic Financial Statements Government -wide Financial Statements Statement of Net Position....................................................................................... 18 Statement of Activities............................................................................................ 19 — 20 Fund Financial Statements Balance Sheet — Governmental Funds.................................................................... 21 Reconciliation of the Balance Sheet of Governmental Funds to the Statement of Net Position.......................................................................... 22 Statement of Revenues, Expenditures and Changes in Fund Balances — Governmental Funds................................................................ 23 CITY OF FRIENDSWOOD, TEXAS COMPREHENSIVE ANNUAL FINANCIAL REPORT TABLE OF CONTENTS SEPTEMBER 30, 2016 Page Number Reconciliation of the Statement of Revenues, Expenditures and Changes in Fund Balances of Governmental Funds to the Statement of Activities......................................................................................... 24 Statement of Net Position — Proprietary Funds ....................................................... 25 26 Statement of Revenues, Expenses and Changes in Net Position — Proprietary Funds....................................................................... 27 Statement of Cash Flows — Proprietary Funds ........................................................ 28 — 29 Notes to Financial Statements.................................................................................... 30 — 64 Required Supplementary Information Schedule of Changes in Net Pension Liability andRelated Ratios.............................................................................................. 65 Schedule of Pension Contributions............................................................................ 66 Schedule of Funding Progress — Post Employment Benefits Plan Other Than Pensions ........................................ 67 Schedule of Revenues, Expenditures, and Changes in Fund Balance — Budget and Actual — General Fund ............................................ 68 75 Notes to Required Supplementary Budget Information ............................................. 76 — 78 Combining And Individual Fund Statement and Schedules Nonmajor Governmental Funds: Combining Balance Sheet.......................................................................................... 79 80 Combining Statement of Revenues, Expenditures, and Changes inFund Balances.................................................................................................. 81 — 82 CITY OF FRIENDSWOOD, TEXAS COMPREHENSIVE ANNUAL FINANCIAL REPORT TABLE OF CONTENTS SEPTEMBER 30, 2016 Page Number Schedule of Revenues, Expenditures and Changes in Fund Balance — Budget and Actual BondConstruction.................................................................................................. 83 PoliceInvestigation................................................................................................. 84 Fire/EMS Donation Fund........................................................................................ 85 DebtService Fund................................................................................................... 86 Court Security Technology..................................................................................... 87 1776 Park................................................................................................................ 88 ParkLand Dedication............................................................................................. 89 TDRAGrant............................................................................................................ 90 STATISTICAL SECTION (Unaudited) Page Table Number Net Position by Component........................................................................... 1 91 — 92 Changes in Net Position................................................................................. 2 93 — 96 Fund Balances — Governmental Funds.......................................................... 3 97 98 Changes in Fund Balances — Governmental Funds ....................................... 4 99 100 Assessed Value and Actual Value of Taxable Property ................................ 5 101 Direct and Overlapping Property Tax Rates .................................................. 6 102 Principal Property Taxpayers......................................................................... 7 103 Property Tax Levies and Collections............................................................. 8 104 CITY OF FRIENDSWOOD, TEXAS COMPREHENSIVE ANNUAL FINANCIAL REPORT TABLE OF CONTENTS SEPTEMBER 30, 2016 Page Table Number Ratios of Outstanding Debt by Type............................................................. 9 105 Ratio of Net General Bonded Debt Outstanding ........................................... 10 106 Direct and Overlapping Governmental ActivitiesDebt............................................................................................ 11 107 Legal Debt Margin Information..................................................................... 12 108 Pledged -Revenue Coverage............................................................................ 13 109 Demographic and Economic Statistics.......................................................... 14 110 Principal Employers....................................................................................... 15 111 Full -Time Equivalent City Government Employees by Function/Program.................................................................................. 16 112 Operating Indicators by Function/Program................................................... 17 113 Capital Assets Statistics by Function/Program.............................................. 18 114 COMPLIANCE SECTION Independent Auditors' Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Governmental Auditing Standards...................................................... 115 — 116 INTRODUCTORY SECTION THIS PAGE LEFT BLANK INTENTIONALLY - CITY OF FRIENDSWOOD April 25, 2017 The Honorable Mayor, Members of the City Council, and the Citizens of Friendswood: The Comprehensive Annual Financial Report (CAFR) of the City of Friendswood for the fiscal year ended September 30, 2016, is hereby submitted. Responsibility for both the accuracy of the data, and the completeness and fairness of the presentation, including all disclosures, rests with the City. To the best of our knowledge and belief, the enclosed data are accurate in all material respects and are reported in a manner designed to present fairly the financial position and results of operations of the various funds and account groups of the City. All disclosures necessary to enable the reader to gain an understanding of the City's financial activities have been included. The comprehensive annual financial report is presented in three sections: introductory, financial, and statistical. The introductory section includes a list of principal officials, this transmittal letter, and the City's organizational chart. The financial section includes the auditor's report on the financial statements, a Management Discussion and Analysis (MD&A), the basic financial statements, required supplementary information and combining and individual fund financial statements and schedules. The MD&A, found immediately following the report of the independent auditor, is a narrative introduction; overview and analysis required by generally accepted accounting principles (GAAP). This letter of transmittal is designed to complement the MD&A and should be read in conjunction with it. The statistical section includes selected financial and demographic information, generally presented on a multi -year basis. Management of the City is responsible for establishing and maintaining an internal control structure designed to ensure that the assets of the City are protected from loss, theft or misuse and to ensure that adequate accounting data are compiled to allow for the preparation of financial statements in conformity with generally accepted accounting principles. The internal control structure is designed to provide reasonable, but not absolute, assurance that these objectives are met. The concept of reasonable assurance recognizes that: (1) the cost of a control should not exceed the benefits likely to be derived; and (2) the valuation of costs and benefits requires estimates and judgments by management. The City Charter requires an annual audit of the financial statements of all of the various funds of the City by independent certified public accountants. The accounting firm of Pattillo, Brown & Hill, L.L.P. has performed such an audit and their opinion has been included in this report. PROFILE OF THE CITY Established in 1895 as a Quaker colony, the City of Friendswood is rich in heritage. The City was incorporated in 1960 and chartered a home -rule city under Texas law in 1971. The City operates under a Council -Manager form of government. Policy -making and legislative authority are vested in a governing council consisting of the Mayor and six (6) Council Members. The Mayor and Council are responsible, among other things, for passing ordinances, adopting the budget, appointing board and committee members and hiring the City Manager, City Attorney, Municipal Judge, and City Secretary. The City Manager is responsible for carrying out the policies and ordinances of the City Council and overseeing the day-to-day operations of the City government, and for appointing heads of various departments. The Mayor and Council are elected on an at -large, non -partisan basis. The Mayor and Council are elected to serve no more than four consecutive three-year terms. The City provides a full range of municipal services including public safety (police, fire and emergency medical), maintenance of streets and infrastructure, sanitation services, maintenance of the treated waste distribution system and both sanitary and storm sewer collection transmission systems, recreational activities and cultural events as well as general administrative services. FACTORS AFFECTING FINANCIAL CONDITION Location Encompassing 21 square miles, Friendswood is located in southeast Texas near the Texas Gulf Coast, between downtown Houston and Galveston, spanning across two counties — northern Galveston County and southern Harris County. The current estimated population is 39,767. Residents and visitors can access Friendswood through FM 2351, FM 518, and FM 528 (NASA Parkway). Hobby Airport and Ellington Airport are located within a 15 minute drive from Friendswood, and Bush Intercontinental Airport is just 45 minutes away. Major sectors of the area's economic base include aerospace, specialty chemicals, health care, retail, and tourism. Community Friendswood has been nationally recognized as one of the best places to live in the country. With low tax rates, outstanding public education, and the lowest crime rate in the region, Friendswood is the perfect place to live, work, and play. The city features beautiful parks and lush landscaping, along with a championship golf course. Children academically excel via two superior public school systems — Friendswood ISD and Clear Creek ISD. These attributes perfectly match Friendswood's affluent resident base of well-educated, high -income families. More than 50% of residents work in executive, professional, and managerial positions. The average household income is $131,024 and the median household income is $103,618. Business Friendswood is the perfect choice for many types of commercial enterprises. Target markets include professional offices, retail, commercial, and light industrial developments. A key City focus is to encourage redevelopment of the downtown area and development of the City's panhandle area. City leaders have approved special tools and incentives to revitalize downtown to promote mixed -use, multi- story developments with pedestrian streetscapes and other amenities. The City offers competitive business incentives, including a municipal grant program, tax abatement that includes "green" development, freeport tax exemption, and downtown development fee waivers. Additionally, the City received a $2 million EDA grant that provided utilities to serve a large commercial area located at the northeast corner of ii the City along FM 2351 near Beamer Road and Interstate 45. This commercial area will provide opportunities for new construction, employment and sales tax revenue in the City. Quality Lifestyle As with any city, the goal is planning for continued quality growth to create a well-balanced community. Friendswood offers single-family residential housing in pleasant park -like settings, tucked -away from the busy stream of vehicular traffic. Friendswood is committed to attracting more local enterprises that will complement and enhance the unique community environment that has been carefully built over the past 100 years; one that has come to be cherished by residents and business owners alike. LONG TERM PLANNING Budgeting Controls The objective of the City's budgetary controls is to ensure compliance with legal provisions embodied in the annual appropriated budget approved by Council. The charter requires the City Manager to submit a proposed budget and an accompanying message to the City Council on or before August 1. The council shall review and revise as deemed appropriate prior to general circulation for the public hearing. The Public Notice and Hearing must be posted in the city hall and published in the official newspaper. The budget must be adopted by the 15th of September or as soon thereafter as practical. The City legally adopts annual budgets for the General, Special Revenue and Debt Service Funds. Annual and project budgets are also adopted for the Proprietary and Capital Projects Funds, respectively. The level of budgetary control; that is, the level at which expenditures cannot legally exceed the appropriated amount, is established by department within a fund. The City also maintains an encumbrance accounting system as one technique of accomplishing budgetary control. Encumbrances lapse at fiscal year end, but can be re -appropriated through a budget amendment the following fiscal year. The City Manager is authorized to transfer budgeted amounts between departments within any fund, but revisions that increase the total expenditures of any fund must be approved by Council. Multi -Year Financial Planning A Multi -Year financial plan (MYFP) was developed in 2006. Originally, staff was directed to develop a plan to forecast the City's financial condition through 2020, the projected build -out date. The first version of this plan was drafted and later reduced in scope to a five year projection. The MYFP is based on the City's strategic planning efforts, including the Comprehensive Land Use Plan, Vision 2020 and the Capital Improvements Plan. Departmental operational plans funding requirements to provide programs and services are included in the MYFP as well. Funding needs and available resources, both current and alternative revenue enhancements, are identified. Expenditures are projected based on departmental needs assessments and are organized based on "one-time" and "on- going" expenditures. In collaboration with Council, the plan is updated at least annually and serves as the basis of budget development. Relevant Financial Policies As part of the annual budget process, the City adopts Financial Management Policy Statements that establish a framework for fiscal decision making and that ensure that financial resources are available to meet the present and future needs of its citizens. These statements provide guidelines for financial planning and management, addressing every major financial function and process. iii Most importantly, the Financial Management Policy requires that the City maintain the General Fund unassigned fund balance at a minimum of 90 days of prior year audited operating expenditures. Any unassigned funds after the fiscal year-end audit will be allowed to accumulate to build this 90-day reserve. After the General Fund has gathered sufficient resources, additional unassigned funds will be allowed to accumulate for future General Fund capital improvements. The Financial Management Policy also requires the minimum working capital in the Water and Sewer Fund be 90 days of prior year audited operating expenditures. Any unrestricted funds after the fiscal year-end audit will be allowed to accumulate to build this 90-day reserve. After these funds have gathered sufficient resources, additional unrestricted funds will be allowed to accumulate in working capital for future utility /operating fund capital improvements. Awards The Government Finance Officers Association (GFOA) awarded a Certificate of Achievement for Excellence in Financial Reporting to the City of Friendswood for its comprehensive annual financial report for the fiscal year ended September 30, 2015. This was the twenty-eighth consecutive year that the City has received this prestigious award. In order to be awarded a Certificate of Achievement, the City published an easily readable and efficiently organized comprehensive annual financial report. This report satisfied both generally accepted accounting principles and applicable legal requirements. A Certificate of Achievement is valid for a period of one year only. We believe that our current comprehensive annual financial report continues to meet the Certificate of Achievement program's requirements and we are submitting it to the GFOA to determine its eligibility for another certificate. Acknowledgements The preparation of the comprehensive annual financial report was made possible by the dedicated service of the entire staff of the Administrative Services Department. Each member of the department has my sincere appreciation for the contributions made in the preparation of this report. In closing, I also express my thanks to the Mayor, members of the City Council and the City Manager for their leadership, interest and support in conducting the financial operations of the City in a responsible and progressive manner. Sincerely, Cindy S. Edge Director of Administrative Services iv CITY OF FRIENDSWOOD, TEXAS PRINCIPAL OFFICIALS AS OF SEPTEMBER 30, 2016 Elected Officials Position Term Expires Kevin M. Holland Mayor May 2018 Steve Rockey Council Member — Position No. 1 May 2018 Billy J. Enochs Council Member — Position No. 2 May 2017 Jim Hill Council Member — Position No. 3 May 2018 Mike Foreman Council Member — Position No. 4 May 2019 John H. Scott Council Member — Position No. 5 May 2017 Carl W. Gustafson Council Member — Position No. 6 May 2019 Key Staff Position Roger C. Roecker City Manager Morad Kabiri Assistant City Manager Cindy Edge Director of Administrative Services Terry Byrd Fire Marshal/Emergency Management Coordinator Patrick Donart Director of Public Works Melinda Welsh City Secretary James Toney Director of Parks and Recreation Robert B. Wieners Police Chief Arnold Polanco City Attorney James W. Woltz Judge — Municipal Court ►n E06 Government Finance Officers Association Certificate of Achievement for Excellence in Financial Reporting Presented to City of Friendswood Texas For its Comprehensive Annual Financial Report for the Fiscal Year Ended September 30, 2015 Executive Director/CEO A Citizens of Friendswood City Attorney CITY OF FRIENDSWOOD Organization Chart ' City Secretary Mayor and City Council • Administration • Records Management Municipal Judge • Elections Boards, Committees, City Manager & Commissions • Administration • Economic Development • Public Information Assistant City Administrative Services Manager • Finance • Utility Billing • Municipal Court Community Development • HR/Risk Management • Information Technology 11• Administration • Planning • Inspections/Code Enforcement Fire Marshal • Administration Parks and Recreation • Emergency Management • Investigations/Inspections • Administration • Recreation Programs • Park Operations Police Department • Facility Operations • Administration • Communications • Patrol Public Works • Criminal Investigations • Animal Control • Administration • Streets/Sidewalks • Drainage Operations Library Services • water Operations & Utilities • Friendswood Public Library • Sewer Operations & Utilities • Engineering & Capital Projects Vll THIS PAGE LEFT BLANK INTENTIONALLY FINANCIAL SECTION THIS PAGE LEFT BLANK INTENTIONALLY PATTILLQ, BROWN & HILL, L.L.P. CERTIFIED PUBLIC ACCOUNTANTS ■ BUSINESS CONSULTANTS INDEPENDENT AUDITORS' REPORT To the Honorable Mayor, City Council and City Manager City of Friendswood, Texas Report on the Financial Statements We have audited the accompanying financial statements of the governmental activities, the business -type activities, the discretely presented component unit, each major fund, and the aggregate remaining fund information of the City of Friendswood, Texas, as of and for the year ended September 30, 2016, and the related notes to the financial statements, which collectively comprise the City of Friendswood, Texas' basic financial statements as listed in the table of contents. Management's Responsibility for the Financial Statements The City of Friendswood, Texas' management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditors' Responsibility Our responsibility is to express opinions on these financial statements based on our audit. We did not audit the financial statements of the West Ranch Management District, a discretely presented component unit of the City, which represents 100% percent of the discretely presented component unit. Those financial statements were audited by other auditors whose report thereon has been furnished to us, and our opinion, insofar as it relates to the amounts included for the West Ranch Management District, is based solely on the report of the other auditors. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. The financial statements of West Ranch Management District were not audited in accordance with Government Auditing Standards. WACO, TX 401 West Highway 6 Waco, Texas 76710 2.54.772,4901 ww7 .phhcpa.cum HOU5TON, TX 281.671.6259 RIO GRANDE VALLEY, TX 956.544.7778 1 TEMPLE, TX 254.791.3460 ALBUQUERQUE, NM 505.266.5904 AICPA Governmental Audit Quality Center An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors' judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. Opinions In our opinion, based on our audit and the report of the other auditors, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, the business -type activities, the discretely presented component unit, each major fund, and the aggregate remaining fund information of the City of Friendswood, Texas, as of September 30, 2016, and the respective changes in financial position and, where applicable, cash flows thereof for the year then ended in accordance with accounting principles generally accepted in the United States of America. Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the management's discussion and analysis, budgetary comparison information, and pension and other post - employment benefit information be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management's responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. 2 Other Information Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the City of Friendswood, Texas' basic financial statements. The introductory section, combining and individual nonmajor fund financial statements and schedules, and statistical section are presented for purposes of additional analysis and are not a required part of the basic financial statements. The combining and individual nonmajor fund financial statements and schedules are the responsibility of management and were derived from and relate directly to the underlying accounting and other records used to prepare the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America by us and the other auditors. In our opinion, the combining and individual nonmajor fund financial statements and schedules are fairly stated in all material respects in relation to the basic financial statements as a whole. The introductory and statistical sections have not been subjected to the auditing procedures applied in the audit of the basic financial statements, and, accordingly, we do not express an opinion or provide any assurance on them. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated April 25, 2017 on our consideration of the City of Friendswood, Texas' internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements, and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the City of Friendswood, Texas' internal control over financial reporting and compliance. po"4 i 4Tp, k-,Ouryl Waco, Texas April 25, 2017 3 THIS PAGE LEFT BLANK INTENTIONALLY MANAGEMENT'S DISCUSSION AND ANALYSIS THIS PAGE LEFT BLANK INTENTIONALLY CITY OF FRIENDSWOOD, TEXAS MANAGEMENT'S DISCUSSION AND ANALYSIS As management of the City of Friendswood, Texas ("the City"), we offer readers of the City's financial statements this narrative overview and analysis of the financial activities of the City of Friendswood for the fiscal year ended September 30, 2016. Please read this information in conjunction with the basic financial statements that follow this section. The discussion and analysis includes comparative data for 2015. FINANCIAL HIGHLIGHTS Some of the City's financial highlights for the fiscal year ending September 30, 2016 include: • The assets and deferred outflows of resources of the City exceeded its liabilities and deferred inflows of resources at the close of the most recent fiscal year by $119,234,785. • The City's total net position increased during the year by $288,796 from operations. • Unrestricted net position is $15,818,670. • Program revenues of $14,907,229 reduced the net cost of the City's functions to be financed from the City's general revenues to $23,635,233. OVERVIEW OF THE FINANCIAL STATEMENTS Management's Discussion and Analysis Independent Auditors' Report Summary Components of the Financial Section Basic Financial Statements Government -wide Financial Statements Fund Financial Statements Required Supplementary Infomnation Notes to the Financial Statements Detail This discussion and analysis is intended to service as an introduction to the City's basic financial statements. The basic financial statements are comprised of three components: 1) government -wide financial statements, 2) fund financial statements, and 3) notes to the financial statements. This report also includes supplementary information intended to furnish additional detail to support the basic financial statements themselves. Government -wide Financial Statements The government -wide financial statements report information for the City as a whole. These statements included transactions and balances relating to all assets, including infrastructure capital assets. These statements are assigned to provide information about cost of services, operating results, and financial position of the City as an economic entity. The Statement of Net Position and the Statement of Activities, which appear first in the City's financial statements, report information on the City's activities that enable the reader to understand the financial condition of the City. These statements are prepared using the accrual basis of accounting, which is similar to the accounting used by most private - sector companies. All of the current year's revenues and expenses are taken into account even if cash has not yet changed hands. The Statement of Net Position presents information on all of the City's assets and deferred outflows of resources and liabilities and deferred inflows of resources with the difference reported as net position. Over time, increases or decreases in the net position may serve as a useful indicator of whether the financial position of the City is improving or deteriorating. Other non -financial factors, such as the City's property tax base and the condition of the City's infrastructure, need to be considered in order to assess the overall health of the City. The Statement of Activities presents information showing how the City's net position changed during the most recent fiscal year. All changes in net position are reported as soon as the underlying event giving rise to the change occurs, regardless of the timing of related cash flows — the accrual method rather than modified accrual that is used in the fund level statements. Both of the government -wide financial statements distinguish functions of the City that are principally supported by taxes and intergovernmental revenues (governmental activities) from functions that are intended to recover all or significant portion of their costs through user fees (business -type activities). • Governmental activities — Most of the City's basic services are reported here including general government (mayor and council, city secretary, city manager, and administrative services); public safety (police, volunteer fire department and fire marshal); public works (streets and drainage); community development (engineering, building inspection and planning and zoning); community services (parks, facility operations and community activities) and library. Interest payments on the City's debt are also reported here. Property tax, sales tax, franchise taxes, municipal court fines and permit fees finance most of the activities. • Business -type activities — Services involving a fee for those services, which include the City's water and sewer system are reported here. • Component Unit — activities include activities of The West Ranch Management District. 5 Fund Financial Statements A fund is a self -balancing set of accounts that is used to maintain control over resources that have been segregated for specific activities or objectives. The City uses fund accounting to ensure and demonstrate compliance with finance -related legal requirements. The City uses two fund types — governmental and proprietary. Governmental Funds Governmental funds are used to account for essentially the same functions reported as governmental activities in the government -wide financial statements with the exclusion of internal service fund activity. However, unlike the government -wide financial statements, governmental funds focus on near - term inflows and outflows of spendable resources, as well as on balances of spendable resources available at the end of the fiscal year. Such information may be useful in evaluating the City's near -term financing requirements. Because the focus of the governmental funds is narrower than that of the government -wide financial statements, it is useful to compare the information presented for governmental funds with similar information presented for governmental activities in the government -wide financial statements. By doing so, the reader may better understand the long-term impact of the government's near -term financial decisions. Both the governmental fund balances sheet and the governmental statement of revenues, expenditures, and change sin fund balances provide a reconciliation to facilitate this comparison between governmental funds and governmental activities. The City maintains eleven governmental funds. Information is presented separately in the governmental funds balance sheet and the governmental fund statement of revenues, expenditures, and changes in fund balance for the General Fund and Bond Construction Fund which are considered to be major funds. The other nine funds are combined into a single, aggregated presentation. Individual fund data for each of these non -major governmental funds is provided in the form of combing statements founds in this report. Proprietary Funds The City maintains two types of proprietary funds: enterprise and internal service funds. Enterprise funds are used to report the same functions presented as business -type activities in the government -wide financial statements. The City uses an enterprise fund to account for fits operation in water distribution and wastewater collection/treatment along with its water and wastewater impact fees, and water construction projects. Management would note that trash collection services are provided by a third part contract. Internal service funds are an accounting device used to accumulate and allocate costs internally among the City's various functions. The City uses an internal service fund to account for fleet management services. Because these services predominately benefits governmental rather than business -type functions, they have been included within the governmental activities in the government -wide financial statements. 6 Notes to the Financial Statements The notes to the financial statements provide additional information that is essential to a full understanding of the data provided tin the government -wide fund financial statements. The notes are the last section of the basic financial statements. Other Information In addition to the basic financial statements and accompanying notes, this report also presents certain Required Supplementary Information ("RSI"). The RSI includes a schedule of funding progress for the City's other post -employment healthcare benefits and two schedules related to the City's pension with the Texas Municipal Retirement System ("TMRS"). The City adopts an annual appropriated budget for its General Fund. Budgetary comparison schedules have been provided in RSI to demonstrate compliance with this budget. RSI can be found after the basic financial statements. The combining and individual fund statements and schedule that further support the information in the financial statements are presented immediately following the notes to the required supplementary information. GOVERNMENT -WIDE FINANCIAL ANALYSIS Statement of Net Position As noted earlier, net position may serve over time as a useful indicator of a government's financial position. For the City of Friendswood, assets and deferred outflows of resources exceed liabilities and deferred inflows of resources by $119,234,785 as of September 30, 2016 in the primary government, which is an increase in the City's overall financial position compared to the prior year. The largest portion of the City's net position (85.47%) reflects its investments in capital assets (e.g., land, buildings and improvements, machinery and equipment, infrastructure, water and sewer system, construction in progress and water rights); less any debt outstanding used to acquire those assets. The City uses these capital assets to provide services to citizens; consequently these assets are not available for future spending. Although the City's investment in its capital assets is reported net of related debt, it should be noted that the resources needed to repay this debt must be provided from other resources, since the assets themselves cannot be used to liquidate these liability. 7 The following table reflects the condensed Statement of Net Position. CONDENSED STATEMENT OF NET POSITION Governmental Activities Business -Type Activities Totals 2016 2015 2016 2015 2016 2015 Current and other assets $ 26,449,063 $ 24,121,182 $ 19,395,572 $ 15,803,423 $ 45,844,635 $ 39,924,605 Capital assets 97,575,331 91,797,299 60,640,086 59,180,312 158,215,417 150,977,611 Total assets 124,024,394 115,918,481 80,035,658 74,983,735 204,060,052 190,902,216 Deferred outflows of resources 5,424,885 2,434,725 1,606,929 822,111 7,031,814 3,256,836 Total assets and deferred outflows of resources 129,449,279 118,353,206 81,642,587 75,805,846 211,091,866 194,159,052 Long-term liabilities 41,910,551 31,805,424 38,574,221 33,769,292 80,484,772 65,574,716 Other liabilities 5,805,898 5,316,575 4,233,414 3,280,363 10,039,312 8,596,938 Total liabilities 47,716,449 37,121,999 42,807,635 37,049,655 90,524,084 74,171,654 Deferred inflows of resources 1,158,762 538,448 174,235 59,828 1,332,997 598,276 Net Position: Net investment in capital assets 73,588,484 73,611,490 28,322,718 26,628,714 101,911,202 100,240,204 Restricted 1,405,907 1,179,764 99,006 27,468 1,504,913 1,207,232 Unrestricted 5,579,677 5,901,505 10,238,993 12,040,181 15,818,670 17,941,686 Total net position $ 80,574,068 $ 80,692,759 $ 38,660,717 $ 38,696,363 $ 119,234,785 $ 119,389,122 A portion of the primary government's net position, $1,504,913 or 1.26%, represents resources that are subject to external restrictions on how they may be used. These restrictions include monies accounted for in special revenue finds for which the use is legally restricted and capital project funds. The remaining balance of unrestricted net position, $15,818,670 or 13.27%, may be used to meet the City's ongoing obligations to citizens and creditors. 8 Change in Net Position The following table provides a summary of the City's changes in net position. Governmental Activities Business -Type Activities Totals 2016 2015 2016 2015 2016 2015 Revenues: Program revenues: Charges for services $ 2,468,620 $ 2,185,012 $ 11,319,801 $ 11,020,029 $ 13,788,421 $ 13,205,041 Operating grants and contributions 800,151 660,633 - - 800,151 660,633 Capital grants and contributions 318,657 3,225,672 - - 318,657 3,225,672 General revenues: Property taxes 16,350,101 15,574,684 - - 16,350,101 15,574,684 Sales and alcohol taxes 5,393,920 5,291,186 - - 5,393,920 5,291,186 Franchise taxes 1,779,234 1,726,557 - - 1,779,234 1,726,557 Investment earnings 149,003 79,071 95,825 49,138 244,828 128,209 Miscellaneous 148,377 108,306 7,569 7,839 155,946 116,145 Total revenues 27,408,063 28,851,121 11,423,195 11,077,006 38,831,258 39,928,127 Expenses: General government 4,736,867 5,410,643 - - 4,736,867 5,410,643 Public safety 13,101,691 11,763,659 - - 13,101,691 11,763,659 Public works 4,429,482 3,933,288 - - 4,429,482 3,933,288 Community development 1,577,813 1,406,288 - - 1,577,813 1,406,288 Parks and recreation 3,080,453 2,869,345 - - 3,080,453 2,869,345 Library 1,134,859 1,026,967 - - 1,134,859 1,026,967 Water and sewer - - 7,975,920 7,629,711 7,975,920 7,629,711 Interest on long-term debt 793,219 567,142 1,215,685 1,413,962 1,220,257 1,981,104 Bond issuance costs 69,435 163,472 427,038 110,314 496,473 273,786 Total expenses 28,923,819 27,140,804 9,618,643 9,153,987 36,533,558 34,313,687 Increases/(Decrease) in net position before transfers and extraordinary item ( 1,515,756) 1,710,317 1,804,552 1,923,019 288,796 1,638,637 Transfers 1,397,065 1,226,205 ( 1,397,065) ( 1,226,205) - - Extraordinary item - - - 1,259,848 - 1,259,848 Change in net position ( 118,691) 2,936,522 407,487 1,956,662 288,796 2,898,485 Net position - beginning as originally reported 80,692,759 76,857,194 38,696,363 39,404,315 119,389,122 116,261,509 Prior period adjustment - 899,043 ( 443,133) ( 2,664,614) ( 443,133) ( 1,765,571) Net position - beginning, as restated 80,692,759 77,756,237 38,253,230 36,739,701 118,945,989 114,495,938 Net position, ending $ 80,574,068 $ 80,692,759 $ 38,660,717 $ 38,696,363 $ 119,234,785 $ 119,389,122 9 Governmental Activities Governmental activities decreased the City of Friendswood's net position by $118,691 from operations. Key elements of this change are as follows: • Property taxes continue to be the City's largest revenue source. Property tax revenue increased by $775,417 due to increased appraisals on property within the City. • Sales and alcohol tax revenue remained strong during fiscal year 2016, providing a 1.94% increase for the year, from $5.3 million to $5.4 million. • Capital grants and contributions decreased $2,907,015 from prior year, primarily due to the completion of the Friendswood Link Road expansion project in the City funded by a Community Development Block Grant through the Texas Department of Rural Affairs. • Total expenses increased $1,783,015 from the prior year. The largest increase was in Public Safety ($1,338,032). The overall expenditure increase is related to salary and associated benefits and interest payments resulting from bond issuance and refunding of existing bonds in the fiscal year. Governmental Activities — Revenues Franchisetaxes Interestandother 6% 1% Sales and alcohol taxes 20% Charges for s ervi ces 9% Operatinggrants and contributions 3% Property taxes 60% 10 Capital grants and contributions 1% Governmental Activities — Expenses Li bra ry 4% Interest and other Community 3% services 11% Genera I Community development 6% Publ is works 15% Business -Type Activities government 16% Publicsafety 45% Business -type activities increased the City of Friendswood's net position by $407,487. Key elements of this change are as follows: • Revenues increased by $346,189 or 3.13%; resulting from greater utility fees revenue. Drier weather conditions attributed to higher customer consumption patterns. • Expenses increased $464,656 or 5.08% due to salary and associated benefits, additional water and sewer operational costs and bond issuance cost during the fiscal year. 11 12,000,000 10,000,000 8,000,000 6,000,000 4,000,000 2,000,000 2016 2015 ■ Operating revenues ■ Operating expenses FINANCIAL ANALYSIS OF THE CITY'S FUNDS As noted earlier, fund accounting used to demonstrate and ensure compliance with finance -related legal requirements. Governmental Funds The focus of the City's governmental funds is to provide information on near -term inflows, outflows and balances of spendable resources. Such information is useful in assessing the City's financing requirements. In particular, unassigned fund balance may serve as a useful measure of the City's net resources available for spending at the end of the year. At the end of the current fiscal year, the City's governmental funds reported combined ending fund balance of $21,762,867. Approximately 44.03% of this amount ($9,582,281) is unassigned fund balance; however, $5.84 million is set aside for the 90-day operating reserve, as set forth in the City's financial policies. 12 The remaining $12,180,586 is nonspendable, restricted, committed, or assigned as follows: 3.1% - Nonspendable Prepaid items $ 163,571 Notes receivable 483,364 Permanent fund 31,564 $ 678,499 40.4% - Restricted Public education and government channels $ 626,229 Debt service 130,356 Municipal court operations 201,783 Public safety operations 186,524 Capital projects 7,646,686 $ 8,791,578 0.0% - Cominitted Capital projects under contract $ 3,612 12.4% - Assigned Purchases on order $ 312,476 Park improvements 510,000 Capital projects 884,421 Mud Gully detention project 1,000,000 $ 2,706,897 The General Fund is the chief operating fund of the City of Friendswood. At the end of the current fiscal year, unassigned fund balance of the General Fund was $9.8 million, which the total fund balance reached $13.8 million. As a measure of the General Fund's liquidity, it may be useful to compare both unassigned and total fund balance to total fund expenditures. Unassigned fund balance represents 38.44% of total General Fund expenditures, while total fund balance represents 54.10% percent of that same amount. At year end, the City's operating reserve was $5.84 million, representing 23% of total General Fund expenditures. Key differences between last year's General Fund activity and this year's include: $716,781 increases in total revenues — new homes added to the property tax roll increased the property levy, and sales tax remained strong and increased from the prior year. $1,635,032 increase in total expenditures — salary merit increases and associated benefits, additional personnel, higher health insurance premiums and several one-time expenditures incurred during the fiscal year as approved in the adopted budget. Fund balance in the Capital Projects Fund increased $1,567,324. This increase was primarily caused by the issuance of $7,345,000 in bonds during the fiscal year which was offset by capital expenditures of $7,064,773. 13 Proprietary Funds The City's proprietary funds financial statements provide the same type of information found in the government -wide financial statements, but in more detail. At the end of the year, unrestricted net position was $10,238,993 for the Water and Sewer Fund. The total increase in the net position of the Water and Sewer Fund was $407,487 from operations. Other factors concerning the finances of this fund have already been addressed in the discussion of the City of Friendswood's business -type activities. Unrestricted net position of the Internal Service Fund was $292,651. The net position of the internal service fund increased by $150,654 primarily as a result of expenditures, especially depreciation expense, exceeding the allocations to the City's participating funds. GENERAL FUND BUDGETARY HIGHLIGHTS The City made revisions to the original appropriations approved by the City Council. Budgeted revenues increased by $137,949 or 0.58% and expenditures were increased by $3,735,000 or 14.78%. Total revenues were above budget by $352,300. The more significant variances are detailed below: $413,818 below budget in property taxes due fewer of the property values under protest at the time of budget development becoming taxable than projected. • $395,762 above budget in sales taxes and alcohol tax due to improved economic conditions. $126,009 above budget in franchise taxes mainly due to the restricted use PEG in -kind payments associated with telecommunications franchise fees received. Total expenditures of the General Fund were $3,560,767 below the final expenditure budget. The more significant variances are detailed below: $938,678 below budget in total general government expenditures primarily a result of personnel vacancies, fuel costs, and other services such as retainage of payment(s) for software support and contract services related to the City's new enterprise software implementation. $2,048,911 below budget in capital improvements. Budgeted projects were either not started or incomplete will be reappropriated in the subsequent year. 14 CAPITAL ASSETS The City of Friendswood's investment in capital assets (net of accumulated depreciation) for its governmental and business -type activities as of September 30, 2016 is $158,215,417. The investment in capital assets include land, buildings and improvements, machinery and equipment, infrastructure, water and sewer system, water rights and construction in progress. Major capital events during the year included the following: • Completion of the pedestrian bridge and walking trails connecting Stevenson Park with Old City Park. The total cost of the project was approximately $418,000. • Completion of the Sports Park project which was approximately $2.5 million. • Completion of Water Plant #2 Rehabilitation. Total project cost was $1.3 million. • Completion of Water Plant #7 Rehabilitation. Total project cost was $1.9 million. • Completion of Lift Station #3 Replacement. Total cost of the project was $1.2 million. • Completion of Lift Station #18 Replacement. Total cost of the project was $815 thousand. • The following major water and sewer projects are in construction in progress at the end of fiscal year 2016: Blackhawk Water Plant Rehabilitation ($3.1 million) and Lift Station #23 ($1.4 million). CITY OF FRIENDSWOOD'S CAPITAL ASSETS AT YEAR-END Governmental Activities Business -Type Activities Totals 2016 2015 2016 2015 2016 2015 Land $ 25,805,161 $ 25,805,161 $ 319,473 $ 319,473 $ 26,124,634 $ 26,124,634 Buildings and improvements 24,866,740 26,269,837 353,533 371,385 25,220,273 26,641,222 Equipment 4,824,343 5,060,951 292,008 331,943 5,116,351 5,392,894 Infrastructure 25,543,237 27,019,663 30,851,335 32,403,002 56,394,572 59,422,665 Water rights - - 19,716,695 19,716,695 19,716,695 19,716,695 Construction in progress 16,535,850 7,641,687 9,107,042 6,037,814 25,642,892 13,679,501 Total capital assets $ 97,575,331 $ 91,797,299 $ 60,640,086 $ 59,180,312 $ 158,215,417 $ 150,977,611 More detailed information on the City's capital assets is presented in Note VI to the financial statements. 15 DEBT ADMINISTRATION At the end of the current fiscal year, the City of Friendswood had a total bonded debt and capital lease obligation of $65,415,408. CITY OF FRIENDSWOOD'S OUTSTANDING DEBT AT YEAR-END Governmental Activities Business -Type Activities Totals 2016 2015 2016 2015 2016 2015 General obligations $ 29,260,000 $ 23,305,000 $ 30,240,000 $ 9,255,000 $ 59,500,000 $ 32,560,000 Revenue bonds payable - - 5,735,000 24,540,000 5,735,000 24,540,000 Capital leases 180,408 360,584 - - 180,408 360,584 $ 29,440,408 $ 23,485,494 $ 35,975,000 $ 33,795,000 $ 65,415,408 $ 57,460,584 The City's General Obligation and Revenue Bonds bond ratings are listed below: Standard & Poor's General Obligation Bonds AA+ Revenues Bonds AA - More detailed information about the City's outstanding debt can be found in Note VIII to the financial statements. ECONOMIC FACTORS AND NEXT YEAR'S BUDGETS AND RATES Friendswood continues to experience moderate growth. The City's current population is estimated to be 39,767. Friendswood is expected to reach build out with an estimated population of 57,000. The City is continuing to focus on economic development initiatives, including the revitalization of downtown and a large residential and commercial development called West Ranch. The West Ranch residential development is currently under way, with commercial construction scheduled to follow as the area's residential population growth. The City's largest single source of revenue in the General Fund continues to be ad valorem taxes. The adopted budget for fiscal year 2017 has a tax rate of $0.5460 per $100 of taxable value. This rate consists of a maintenance and operations (M&O) tax rate of $0.4620 and an interest and sinking (debt service) tax rate of $0.0840. The rate was set based on a net assessed value of $3,267,348,436. This is an increase of $341,252,719 from certified taxable values for tax year 2015. This increase is mainly a result of new construction in the City. This additional value results in a total levy increase of $1,288,294. This City's financial management policy sets the guideline to maintain the fund balance and net position of the various operating funds at levels sufficient to protect the City's creditworthiness as well as its financial position from unforeseeable emergencies. 16 The City's second largest source of revenue in the General Fund is sales tax. The City anticipates an increase in this revenue stream from the prior year and has adjusted the budget from $4,956,193 to $5,372,934. The franchise fees budget is increased from $1,644,011 to $1,657,673 and the budget for license and permits has been increased from $717,056 to $780,324. If all projections are accurate, the total General Fund unassigned fun balance net of the 90 day operating requirement ($5.8 million) is estimated to be approximately $5.1 million at September 30, 2017. Water revenues are budgeted at $6,424,591 which is a slight decrease of $12,596 in revenues, or 0.20% percent. Sewer revenues are budgeted at $4,598,321 which is a decrease of $374,109 in revenues, or 7.5 percent. Water and Sewer Fund net position, net of the 90 day operating requirement ($1.5 million), is projected to be $7.2 million at the end of fiscal year 2017. Pursuant to the City's financial management policy, funds in excess of the 90-day operating reserve are designated for future capital improvements. CONTACTING THE CITY'S FINANCIAL MANAGEMENT The financial report is designed to provide our citizens, customers, investors, and creditors with a general overview of the City's finance and to show the City's accountability for the money it receives. If you have questions about this report or need additional information, contact Administrative Services, P.O. Box 1288, Friendswood, Texas 77549-1288, or call Cindy S. Edge at 281-996-3224, or email cedge@friendswood.com. Separately issued financial statements for the West Ranch Management District can be obtained by writing to: West Ranch Management District, a Component Unity of the City of Friendswood, c/o Allen Boone Humphries LLP, 3200 Southwest Freeway, Suite 2600, Houston, Texas 77027. 17 BASIC FINANCIAL STATEMENTS THIS PAGE LEFT BLANK INTENTIONALLY CITY OF FRIENDSWOOD, TEXAS STATEMENT OF NET POSITION SEPTEMBER 30, 2016 ASSETS Cash and investments Receivables (net of allowance) Taxes Customer accounts Other Due from other governments Prepaid items Notes receivable Working capital deposit Restricted cash and investments Capital assets Nondepreciable Depreciable, net Total capital assets, net Total assets DEFERRED OUTFLOWS OF RESOURCES Deferred loss on issuance of refunding bonds Deferred outflow of resources for pensions Total deferred outflows of resources Total assets and deferred outflows of resources LIABILITIES Accounts payable Accrued liabilities Retainage payable Accrued interest Customer deposits Due to other governments Noncurrent liabilities: Due within on year Due in more than one year Total liabilities DEFERRED INFLOWS OF RESOURCES Deferred gain on issuance of refunding bonds Deferred inflow of resources for pensions Total deferred inflows of resources Total liabilities and deferred inflows of resources NET POSITION Net investment in capital assets Restricted for: Public education and government channels Debt service Municipal court operations Public safety operations Community development - nonexpendable Capital projects Unrestricted Total net position The accompanying notes are an integral part of these financial statements. Primary Government Governmental Business -type Component Activities Activities Total Unit $ 23,197,706 $ 10,590,163 $ 33,787,869 $ 5,992,870 1,625,617 - 1,625,617 31,937 743,915 1,923,355 2,667,270 - 14,312 - 14,312 12 220,578 - 220,578 - 163,571 54,999 218,570 4,813 483,364 - 483,364 - - 389,080 389,080 - - 6,437,975 6,437,975 - 42,341,012 29,143,210 71,484,222 6,006,988 55,234,319 31,496,876 86,731,195 420,656 97,575,331 60,640,086 158,215,417 6,427,644 124,024,394 80,035,658 204,060,052 12,457,276 430,325 1,051,977 1,482,302 - 4,994,560 554,952 5,549,512 - 5,424,885 1,606,929 7,031,814 - 129,449,279 81,642,587 211,091,866 12,457,276 2,827,205 1,252,876 4,080,081 9,827 617,299 66,416 683,715 - 289,159 234,096 523,255 159,180 106,338 265,518 380,959 131 461,881 462,012 - 186,520 - 186,520 - 1,726,404 2,111,807 3,838,211 425,000 41,910,551 38,574,221 80,484,772 24,670,545 47,716,449 42,807,635 90,524,084 25,486,331 - 45,484 45,484 - 1,158,762 128,751 1,287,513 - 1,158,762 174,235 1,332,997 - 48,875,211 42,981,870 91,857,081 25,486,331 73,588,484 28,322,718 101,911,202 ( 765,318) 626,229 626,229 159,686 - 159,686 1,441,920 201,783 - 201,783 - 186,524 - 186,524 - 31,564 - 31,564 - 200,121 99,006 299,127 12,794 5,579,677 10,238,993 15,818,670 ( 13,718,451) $ 80,574,068 $ 38,660,717 $ 119,234,785 $( 13,029,055) 18 CITY OF FRIENDSWOOD, TEXAS STATEMENT OF ACTIVITIES FOR THE YEAR ENDED SEPTEMBER 30, 2016 Functions/Programs Expenses Primary government Governmental activities: General government $ 4,736,867 Public safety 13,101,691 Public works 4,429,482 Community development 1,577,813 Parks and recreation 3,080,453 Library 1,134,859 Interest on long-term debt 793,219 Bond issuance costs 69,435 Total governmental activities 28,923,819 Program Revenue Operating Capital Grants Charges for Grants and and $ 1,002,022 28,760 174,568 949,011 286,727 27,532 2,468,620 Business -type activities: Water and sewer 9,618,643 11,319,801 Total business -type activities 9,618,643 11,319,801 Total primary government 38,542,462 13,788,421 Component Unit West Ranch Management District Total component unit 589,728 318,657 196,657 - 9,771 - 3,995 - 800,151 318,657 800,151 318,657 6,989,429 - - $ 6,989,429 $ General revenues: Taxes: Property Sales and alcohol Franchise Interest Gain on disposal of capital assets Other Transfers Total general revenues and transfers Change in net position Net position - beginning Prior period adjustment Net position - beginning, as restated Net position - ending The accompanying notes are an integral part of these financial statements. 19 Net (Expense) Revenue and Changes in Net Position Primary Government Governmental Business -type Component Activities Activities Total Unit $( 3,734,845) $ - $( 3,734,845) $ - ( 12,164,546) - ( 12,164,546) - ( 4,058,257) - ( 4,058,257) - ( 628,802) - ( 628,802) - ( 2,783,955) - ( 2,783,955) - ( 1,103,332) - ( 1,103,332) - ( 793,219) - ( 793,219) - ( 69,435) - ( 69,435) - ( 25,336,391) - ( 25,336,391) - - 1,701,158 1,701,158 - - 1,701,158 1,701,158 - ( 25,336,391) 1,701,158 ( 23,635,233) - ( 6,989,429) ( 6,989,429) 16,350,101 - 16,350,101 2,193,447 5,393,920 - 5,393,920 - 1,779,234 - 1,779,234 - 149,003 95,825 244,828 9,501 19,564 7,569 27,133 - 128,813 - 128,813 - 1,397,065 ( 1,397,065) - - 25,217,700 ( 1,293,671) 23,924,029 2,202,948 ( 118,691) 407,487 288,796 ( 4,786,481) 80,692,759 38,696,363 119,389,122 ( 8,242,574) - ( 443,133) ( 443,133) - 80,692,759 38,253,230 118,945,989 ( 8,242,574) $ 80,574,068 $ 38,660,717 $ 119,234,785 $( 13,029,055) 20 CITY OF FRIENDSWOOD, TEXAS BALANCESHEET GOVERNMENTAL FUNDS SEPTEMBER 30, 2016 Other Total Bond Governmental Governmental General Construction Funds Funds ASSETS Cash and investments $ 13,298,907 $ 8,511,381 $ 1,093,715 $ 22,904,003 Receivables, net of allowance Taxes receivable 1,601,265 - 24,352 1,625,617 Customer accounts 736,831 - 7,084 743,915 Other receivables 10,616 - 3,696 14,312 Due from other funds 71,256 - - 71,256 Due from other governments 23,918 - 196,660 220,578 Notes receivable 483,364 - - 483,364 Prepaids and other assets 163,414 - 157 163,571 Total assets 16,389,571 8,511,381 1,325,664 26,226,616 LIABILITIES Accounts payable 1,293,223 1,064,816 468,114 2,826,153 Accrued liabilities 617,299 - - 617,299 Due to other governments 186,520 - - 186,520 Customer deposits 131 - - 131 Due to other funds - - 71,256 71,256 Total liabilities 2,097,173 1,064,816 539,370 3,701,359 DEFERRED INFLOWS OF RESOURCES Unavailable revenues 532,851 - 229,539 762,390 Total deferred inflows of resources 532,851 - 229,539 762,390 FUND BALANCES Nonspendable: Prepaid items 163,414 - 157 163,571 Notes receivable 483,364 - - 483,364 Permanent fund - - 31,564 31,564 Restricted for: Public education and government channels 626,229 - - 626,229 Debt service - - 130,356 130,356 Municipal court operations - 201,783 201,783 Public safety operations - - 186,524 186,524 Capital projects - 7,446,565 200,121 7,646,686 Committed for: Capital projects under contract 3,612 - - 3,612 Assigned for: Purchases on order 312,476 - - 312,476 Park improvements 510,000 510,000 Capital projects 884,421 884,421 Mud Gully detention project 1,000,000 - - 1,000,000 Unassigned 9,776,031 - ( 193,750) 9,582,281 Total fund balances 13,759,547 7,446,565 556,755 21,762,867 Total liabilities, deferred inflows of resources and fund balances $ 16,389,571 $ 8,511,381 $ 1,325,664 $ 26,226,616 The accompanying notes are an integral part of these financial statements. 21 CITY OF FRIENDSWOOD, TEXAS RECONCILIATION OF THE BALANCE SHEET OF GOVERNMENTAL FUNDS TO THE STATEMENT OF NET POSITION SEPTEMBER 30, 2016 Total fund balances - governmental funds $ 21,762,867 Amounts reported for governmental activities in the statement of net position are different because: Capital assets used in governmental activities are not current financial resources and therefore are not reported in the governmental funds balance sheet. 96,239,821 Interest payable on long term debt does not require current financial resources; therefore, it is not reported as a liability in the governmental funds balance sheet. ( 159,180) An internal service fund is used by management to charge the cost of certain activities, such as fleet management to individual funds. The assets and liabilities of the internal service fund are included in the governmental activities in the statement of net position. 1,339,002 Revenues earned but not available within sixty days of the year-end are not recognized as revenue on the fund financial statements. 762,390 Long-term liabilities are not due and payable in the current period and therefore are not reported in the fund financial statements. These long-term liabilities at year end consists of - Bonds payable ( 29,260,000) Premiums on issuance ( 2,508,805) Capital leases payable ( 180,408) Net pension liability ( 10,308,673) Net OPEB obligation ( 765,757) Compensated absences ( 613,312) Deferred inflows and outflows of resources related to pensions are reported in conjunction with the net pension liability and are not reported in the City's fund financial statements. 3,835,798 Deferred losses on issuances of refunding bonds are recorded s deferred outflows of resources in the statement of net position. This is the difference between the reacquisition price and the net carrying amount of refunded bonds, net of amortization. 430,325 Net position of governmental activities $ 80,574,068 The accompanying notes are an integral part of these financial statements. 22 CITY OF FRIENDSWOOD, TEXAS STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS FOR THE YEAR ENDED SEPTEMBER 30, 2016 Other Total Bond Governmental Governmental General Construction Funds Funds REVENUES Property taxes $ 14,300,346 $ - $ 2,059,794 $ 16,360,140 Sales and alcohol taxes 5,393,920 - - 5,393,920 Franchise taxes 1,779,234 - - 1,779,234 Fines and forfeitures 845,112 - 28,760 873,872 Permits and fees 1,407,439 - 43,500 1,450,939 Intergovernmental 330,063 - 334,364 664,427 Investment earnings 84,542 54,097 8,764 147,403 Donations 68,323 - 189,401 257,724 Miscellaneous 79,135 - 300 79,435 Total revenues 24,288,114 54,097 2,664,883 27,007,094 EXPENDITURES Current: General government 4,371,790 - 13,531 4,385,321 Public safety 12,121,741 - 14,215 12,135,956 Public works 2,118,572 - - 2,118,572 Community development 954,103 - - 954,103 Parks and recreation 3,032,979 - - 3,032,979 Library 1,096,614 - - 1,096,614 Debt service: Principal - - 1,570,176 1,570,176 Interest and other - - 852,547 852,547 Bond issuance costs - 69,435 - 69,435 Capital outlay 1,736,033 7,064,773 531,594 9,332,400 Total expenditures 25,431,832 7,134,208 2,982,063 35,548,103 EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER) EXPENDITURES ( 1,143,718) ( 7,080,111) ( 317,180) ( 8,541,009) OTHER FINANCING SOURCES (USES) Issuance of capital -related debt - 7,345,000 - 7,345,000 Premium on bond issuance - 1,484,593 - 1,484,593 Insurance recoveries 19,564 - - 19,564 Transfers in 1,321,284 - 182,158 1,503,442 Transfers out - ( 182,158) ( 345) ( 182,503) Sale of capital assets 2,743 - - 2,743 Total other financing sources and uses 1,343,591 8,647,435 181,813 10,172,839 NET CHANGE IN FUND BALANCES 199,873 1,567,324 ( 135,367) 1,631,830 FUND BALANCES, BEGINNING 13,559,674 5,879,241 692,122 20,131,037 FUND BALANCES, ENDING $ 13,759,547 $ 7,446,565 $ 556,755 $ 21,762,867 The accompanying notes are an integral part of these financial statements. 23 CITY OF FRIENDSWOOD, TEXAS RECONCILIATION OF THE STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES OF GOVERNMENTAL FUNDS TO THE STATEMENT OF ACTIVITIES FOR THE YEAR ENDED SEPTEMBER 30, 2016 Amounts reported for governmental activities in the Statement of Activities are different because: Net change in fund balances - total governmental funds $ 1,631,830 Governmental funds report capital outlays as expenditures. However, in the statement of activities, the cost of those assets is allocated over their estimated useful lives and reported as depreciation expense. This is the amount of capital outlays reported in the current period. 9,266,336 Depreciation is not recognized as an expenditure in governmental funds since it does not require the use of current financial resources. The effect of recording current year depreciation is to decrease net position. ( 3,615,789) The internal service fund is used by management to charge the cost of fleet management to individual funds. The change in net position of the internal service fund is included in the governmental activities in the statement of net position. 150,654 The issuance of long-term debt (e.g., bonds, leases) provides current financial resources to governmental funds, while the repayment of the principal of long-term debt consumes the current financial resources of governmental funds. Neither transaction, however, has any effect on net position. Also, governmental funds report the premiums and similar items when debt is first issued, whereas these amounts are deferred and amortized in the statement of activities. This amount is the net effect of these differences in the treatment of long-term debt and related items. Issuance of bonds ( 8,829,593) Repayment of principal on long-term debt 1,570,176 Amortization of Premium on bond issuance 196,073 Loss on refunding ( 42,145) Current year changes in certain long-term liabilities do not require the use of current financial resources and, therefore, are not reported as expenditures in governmental funds. Compensated absences liability 60,514 Retainage payable ( 14,101) Net pension liability ( 668,785) Net OPEB obligation ( 59,388) Interest payable on long-term debt is accrued in the government -wide financial statements, whereas in the fund financial statements, interest expenditures are reported when due. ( 94,600) Revenues from property taxes and fines that do not provide current financial resources are not reported as revenues in the funds. 330,127 Change in net position of governmental activities $( 118,691) The accompanying notes are an integral part of these financial statements. 24 CITY OF FRIENDSWOOD, TEXAS STATEMENT OF NET POSITION - PROPRIETARY FUNDS SEPTEMBER 30, 2016 ASSETS Current assets Cash and investments Accounts receivable, net of allowance Customer accounts Prepaids and other assets Restricted cash and investments Total current assets Noncurrent assets Working capital deposit Capital assets Land Construction in progress Water rights Buildings and improvements Machinery and equipment Water and sewer system Accumulated depreciation Net capital assets Total noncurrent assets Total assets DEFERRED OUTFLOWS OF RESOURCES Deferred loss on issuance of refunding bonds Deferred outflow of resources for pensions Total deferred outflows of resources Total assets and deferred outflows of resources Business Type Activities Enterprise Fund Water and Sewer $ 10,590,163 1,923,355 54,999 6,437,975 19,006,492 389,080 319,473 9,107,042 19,716,695 589,624 1,200,796 63,267,248 ( 33,560,792) 60,640,086 61,029,166 80,035,658 1,051,977 554,952 1,606,929 81,642,587 Governmental Activities Internal Service $ 293,703 293,703 3,204,223 ( 2,157,872) 1,046,351 1,046,351 1,340,054 1,340,054 25 CITY OF FRIENDSWOOD, TEXAS STATEMENT OF NET POSITION - PROPRIETARY FUNDS SEPTEMBER 30, 2016 LIABILITIES Current liabilities Accounts payable Accrued liabilities Accrued interest Deposits Retainage payable Compensated absences Bonds and other long-term debt payable Total current liabilities Noncurrent liabilities Compensated absences Net pension liability Net OPEB obligation Bonds and other long-term debt payable Total noncurrent liabilities Total liabilities DEFERRED INFLOWS OF RESOURCES Deferred gain on issuance of refunding bonds Deferred inflow of resources for pensions Total deferred inflows of resources Total liabilities and deferred inflows of resources NET POSITION Net investment in capital assets Restricted for capital projects Unrestricted Total net position The accompanying notes are an integral part of these financial statements. 26 Business -Type Activities Enterprise Fund Water and Sewer $ 1,252,876 66,416 106,338 461,881 234,096 11,807 2,100,000 4,233,414 47,229 1,145,409 133,353 37,248,230 38,574,221 42,807,635 45,484 128,751 174,235 42,981,870 28,322,718 99,006 10,238,993 $ 38,660,717 Governmental Activities Internal Service $ 1,052 1,052 1,052 1,052 1,046,351 292,651 $ 1,339,002 CITY OF FRIENDSWOOD, TEXAS STATEMENT OF REVENUES, EXPENSES AND CHANGES IN FUND NET POSITION PROPRIETARY FUNDS FOR THE YEAR ENDED SEPTEMBER 30, 2016 Business -Type Activities Governmental Enterprise Fund Activities Water and Sewer Internal Service OPERATING REVENUES Charges for services $ 11,319,801 $ 355,132 Total operating revenues 11,319,801 355,132 OPERATING EXPENSES Personnel services 1,995,978 - Sewer operations 1,573,019 - Water purchases 1,280,556 - Repairs and maintenance 684,363 - Supplies 93,296 - Other services and charges 734,017 - Depreciation 1,614,691 376,342 Total operating expenses 7,975,920 376,342 Operating income (loss) 3,343,881 ( 21,210) NONOPERATING REVENUES (EXPENSES) Investment income 95,825 1,600 Gain (loss) on disposal of capital assets 7,569 46,935 Bond issuance costs ( 427,038) - Interest expense ( 1,215,685) - Total nonoperating revenues (expenses) ( 1,539,329) 48,535 Income (loss) before capital contributions and transfers 1,804,552 27,325 Capital contributions - 47,203 Transfers in 345 76,126 Transfers out ( 1,397,410) - Change in net position 407,487 150,654 Net position, beginning 38,696,363 1,188,348 Prior period adjustment ( 443,133) - Net position, beginning - as restated 38,253,230 1,188,348 Net position, ending $ 38,660,717 $ 1,339,002 The accompanying notes are an integral part of these financial statements. 27 CITY OF FRIENDSWOOD, TEXAS STATEMENT OF CASH FLOWS - PROPRIETARY FUNDS FOR THE YEAR ENDED SEPTEMBER 30, 2016 Business -Type Activities Governmental Enterprise Fund Activities Water and Sewer Internal Service OPERATING ACTIVITIES Cash received from customers $ 11,428,364 $ - Receipts from interfund charges for fleet management - 355,132 Cash payments to suppliers for goods and services ( 2,029,552) 352 Cash payments to employees for services ( 3,812,500) - Net cash provided by operating activities 5,586,312 355,484 NONCAPITAL FINANCING ACTIVITIES Cash paid from other funds 729,725 - Transfers to other funds ( 1,397,410) Net cash used by noncapital financing activities ( 667,340) - CAPITAL AND RELATED FINANCING ACTIVITIES Proceeds from the sale of capital assets 7,569 123,061 Acquisition and construction of capital assets ( 2,954,372) ( 456,624) Proceeds from issuance of capital related debt 29,263,870 - Refunding of capital related debt ( 23,374,900) - Repayment of debt ( 1,770,000) - Interest paid on debt ( 1,364,522) - Net cash used in capital and related financing activities ( 192,355) ( 333,563) INVESTING ACTIVITIES Investment income 95,825 1,600 Net cash provided by investing activities 95,825 1,600 Net change in cash and cash equivalents 4,822,442 23,521 CASH AND CASH EQUIVALENTS, BEGINNING 12,205,696 270,182 CASH AND CASH EQUIVALENTS, ENDING $ 17,028,138 $ 293,703 28 CITY OF FRIENDSWOOD, TEXAS STATEMENT OF CASH FLOWS - PROPRIETARY FUNDS FOR THE YEAR ENDED SEPTEMBER 30, 2016 Reconciliation of operating income (loss) to net cash provided by operating activities Operating income (loss) Adjustments to reconcile operating income (loss) to net cash provided by operating activities Depreciation Change in assets, deferred inflows and outflows, and liabilities Decrease (increase) in customer receivable Decrease (increase) in prepaids and other assets Decrease (increase) in working capital deposit Decrease (increase) in deferred outflow for pensions Increase (decrease) in accounts payable Increase (decrease) in other liabilities Increase (decrease) in customer deposits Increase (decrease) deferred inflows for pensions Increase (decrease) in net OPEB obligation Increase (decrease) in net pension liability Increase (decrease) in compensated absences Net cash provided by operating activities SCHEDULE OF NON -CASH CAPITAL AND RELATED FINANCING ACTIVITIES Contributions of capital assets The accompanying notes are an integral part of these financial statements. 29 Business -Type Activities Governmental Enterprise Fund Activities Water and Sewer Internal Service $ 3,343,881 $( 21,210) 1,614,691 376,342 77,239 ( 14,215) ( 5,589) ( 336,923) 572,555 ( 88,859) 31,324 68,923 8,557 342,309 ( 27,581) $ 5,586,312 352 $ 355,484 $ 123,061 CITY OF FRIENDSWOOD, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS SEPTEMBER 30, 2016 I. 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 County -City manager form of government. The Mayor and six Council members are elected from the City at large serving three-year terms. The City Council is the principal legislative body of the City. The City Manager is appointed by a majority vote of the City Council and is responsible to the Council for the administration of all the affairs of the City. The City Manager is responsible for law enforcement, appointment and removal of department directors and employees, supervision and control of all City departments, and preparation of the annual budget. The Mayor resides at meetings of the City Council and can vote. The City provides the following services: public safety, streets, parks and recreation, library, water and sewer, sanitation, planning and zoning, building inspection, code enforcement, and general administrative services. Financial Reporting Entity The City is an independent political subdivision of the State of Texas governed by an elected six - member Council and Mayor and is considered a primary government. As required by generally accepted accounting principles, these financial statements have been prepared based on considerations regarding the potential for inclusion of other entities, organizations, or functions as part of the City's financial reporting entity. Based on these considerations, the West Ranch Management District has been included in the City's reporting entity as a discretely presented component unit. Additionally, as the City is considered a primary government for financial reporting purposes, its activities are not considered a part of any other governmental or other type of reporting entity. Consideration regarding the potential for inclusion of other entities, organizations, or functions in the City's financial reporting entity is based on criteria prescribed by general accepted accounting principles. These same criteria are evaluated in considering whether the City is a part of any other governmental or other type of reporting entity. The overriding elements associated with prescribed criteria considered in determining that the City's financial reporting entity status is that of a primary government are that it has a separately elected governing body; it is legally separate; and it is financial independent of other state and local governments. Additional prescribed criteria under generally accepted accounting principles include considerations pertaining to organizations for which the primary government is financially accountable; and considerations pertaining to other organizations for which the nature and significance of the relationship with the primary government are such that exclusion would cause the reporting entity's financial statements to be misleading or incomplete. 30 The West Ranch Management District ("the District"), a discretely presented component unit, was created under Section 59, Article XVI of the Texas Constitution added by an Act of the 791h Legislature of the State of Texas, effective June 17, 2005, in accordance with the Texas Water Code, Chapter 54. The District operates in accordance with Chapters 3837, Texas Special District Local Laws Code, Chapters 49 and 54 of the Texas Water Code and Chapter 375 of the Texas Local Government Code, and is subject to the continuing supervision of the Texas Commission on Environmental Quality. The District was created to promote and encourage employment and the public welfare within the District. The affairs of the District are managed by a Board of Directors composed of persons appointed by the City Council. The City is financially accountable for the District because City Council must approve any debt issuances. Complete financial statements from the component may be obtained at the District's administrative office. Basis of Presentation The government -wide financial statements (i.e., the statement of net position and the statement of activities) report information on all activities of the primary government and its component unit. For the most part, the effect of interfund activity has been removed from these statements. Governmental activities, which normally are supported by taxes and intergovernmental revenue, are reported separately from business -type activities, which rely to a significant extent on fees and charges for support. Likewise, the primary governmental is reported separately from certain legally separate component units for which the primary government is financial accountable. The statement of activities demonstrates the degree to which the direct expenses of a given function or segment are offset by program revenue. Direct expenses are those that are clearly identifiable with a specific function or segment. Program revenue includes 1) charges to customers or applicants who purchase, use, or directly benefit from goods, services, or privileges provided by a given function or segment, and 2) grants and contributions that are restricted to meeting the operations or capital requirements of a particular function or segment. Taxes and other items not properly included amount program revenue are reported instead as general revenue. Separate financial statements are provided for governmental funds and proprietary funds. Major individual governmental funds and major individual enterprise funds are reported as separate columns in the fund financial statements. Measurement Focus/Basis of Accounting The government -wide financial statements are reported using the economic resources measurement focus and the modified accrual basis of accounting. Revenues are recognized as soon as they are both measurable and available. Revenues are considered to be available when they are collectible within the current period or soon enough thereafter to pay liabilities of the current period. For this purpose, the government considered revenue to be available if collected within 60 days of the end of the current fiscal period. Expenditures generally are recorded when a liability is incurred, as under accrual accounting. However, debt service expenditures, as well as expenditures related to compensated absences and claims and judgements, are recorded only when payment is due. 31 Property taxes, franchise taxes, sales taxes, and interest associated with the current fiscal period are all considered to be susceptible to accrual and, accordingly, have been recognized as revenue of the current fiscal period. All of revenue items are considered to be measureable and available only when cash is received by the City. The City reports the following major governmental funds: The General Fund is the City's primary operating fund. It accounts for all financial resources of the general government, except those required to be accounted for in another fund. The Bond Construction Fund is used to account for the construction of public facilities, and park, street and drainage improvements that are funded by the proceeds from Permeant Improvement Bonds. Other governmental funds is a summarization of all the non -major governmental funds. The City reports the following major enterprise fund: The Water and Sewer Fund is used to account for the activities of the City's water and wastewater operations. Additionally, the City reports the following fund type: The Internal Service Fund is used to account for fleet management services provided to other departments of the City on a cost reimbursement basis. As a general rule, the effect of interfund activity has been eliminated from the government -wide financial statements. Exceptions to this general rule are charges between the City's water and sewer function and various other functions of the government. Elimination of these charges would distort the direct costs and program revenue reported for the carious functions concerned. Proprietary funds distinguish operating revenues and expenses from nonoperating items. Operating revenues and expenses generally result from providing services and providing the delivering goods in connection with a proprietary fund's principal ongoing operations. The principal operating revenues of the Water and Sewer enterprise fund and of the City's internal service fund are charges to customers for sales and services. Operating expenses for the enterprise fund and internal service fund include the cost of sales and services, administrative expenses, and depreciation on capital assets. All revenue and expenses not meeting this definition are reported as nonoperating revenue and expenses. 32 Cash and Investments Cash and investments include cash on hand, deposits with financial institutions, short-term investments in a state -managed public funds investment pool account (TexPool), and a privately managed public funds investment pool (Texas Class). Other investments consist mainly of U.S. government treasury bills, treasury notes and other U.S. government obligations. Restricted cash and investments are assets restricted for specific use. Restricted includes cash deposits with financial institutions and investment pools. The City maintains a pooled cash and investments account for all funds of the City. Each fund's positive equity in the pooled cash account is presented as "cash and investments" in the financial statements. Negative equity balances are reclassified and are reflected as interfund accounts payable. Interest income and interest expense are allocated monthly to each respective individual fund based on their representative fund balances. The City's cash and cash equivalents are considered to be cash on hand, demand deposits, and short-term investments with original maturities of three months or less from the date of acquisition. Investments for the City are reported at fair value, except for the position in investment pools. The City's investment in pools are 2a7-like pools and are reported at the net asset value per share (which approximates fair value) even though it is calculated using the amortized cost method. A 2a7-like pool is one which is not registered with the Securities and Exchange Commission ("SEC") as an investment company, but nevertheless has a policy that will, and does, operate in a manner consistent with the SEC's Rule 2a7 of the Investment Company Act of 1940. Receivables and Payables Activity between funds that are representative of lendingiborrowing arrangements outstanding at the end of the fiscal year are referred to as either "due to/from other funds" (i.e., the current portion of interfund loans"). All other outstanding balances between funds are reported as "due to/from other funds." Any residual balances outstanding between the governmental activities and business -type activities are reported in the government -wide financial statements as "internal balances." All trade and property tax receivables are shown net of an allowance for uncollectible accounts. Management estimates an allowance for trade accounts receivable based on past experience, historical losses, and other pertinent factors. The City's property taxes are levied annually in October on the basis of the Appraisal District's assessed values as of January 1 of that calendar year. Appraised values are established by the Appraisal District at market value and assessed at 100% of appraised value less exemptions. The City's property taxes are billed and collected by Galveston County. Such taxes are applicable to the fiscal year in which they are levied and become delinquent with an enforceable lien on property on February 1 of the subsequent calendar year. 33 Property taxes are prorated between operations and debt service based on rates adopted for the year of the levy. For the current year, the City levied property taxes of $0.5687 per $100 of assessed valuation that were prorated between operations and debt service in the amounts of $0.4972 and $0.0715, respectively. The resulting tax levies were approximately $14.2 and $2.1 million for operations and debt service, respectively, based on a total taxable valuation of approximately $2.7 billion for the 2015 tax year. West Ranch Management District bond resolutions require that the District levy and collect an ad valorem debt service tax sufficient to pay interest and principal on bonds when due. During the year ended July 31, 2015, the District levied an ad valorem debt service tax at the rate of $0.1500 per $100 of assessed valuation, which resulted in tax levy of $496,626 on the taxable valuation of approximately $330.4 million for the 2015 tax year. Prepaid Items Certain payments to vendors reflect costs applicable to future accounting periods and are recorded as prepaid items in both government -wide and fund financial statements. The City applies the consumption method in accounting for prepaid items in the governmental funds. Restricted Assets Certain proceeds of the City's enterprise fund revenues bonds, as well as certain resources set aside for their repayment, are classified as restricted assets on the balance sheet because their use is limited by applicable bond covenants. Contract with West Ranch Management District The District approved a contract with the City effective August 15, 2005, as amended. Under the terms of the contract, the District is to pay for construction of water distribution, sanitary sewer, drainage, transportation, education and recreation facilities to serve the District. The District shall be the owner of the system until the system is completed, approved by the City and conveyed to it, at which time ownership will vest in the City. The District will own and operate detention facilities to serve the District. Pursuant to the contract, the District shall have a security interest therein until all bonds issued by the District are retired. Capital Assets Capital assets, which include property, plant, equipment, infrastructure, and water rights, are reported in the applicable governmental or business -type activities columns in the government - wide financial statements. The City defines capital assets as assets with an initial, individual cost of more than $5,000 and an estimated historical cost if actual historical cost is not available. Donated capital assets are recorded at acquisition cost, which is the price that would be paid to acquire an asset with equivalent service potential at the acquisition date. The cost of normal maintenance and repairs that do not add to the value of the asset or materially extend assets' lives are not capitalized. 34 The City's property, plant and equipment is depreciated using the straight-line method over the following useful lives: Buildings and improvements 20-50 years Machinery and equipment 5 - 10 years Infrastructure 40-50 years Water and sewer system 40-50 years The West Ranch Management District's capital assets are depreciated using the straight-line method over estimated useful lives of 10 to 45 years. Deferred Outflows/Inflows of Resources In addition to assets, the statement of financial position and/or balance sheet will sometimes report a separate section for deferred outflows of resources. This separate financial statement element, deferred outflows of resources, represents a consumption of net position that applies to a future period(s) and so will not be recognized as an outflow of resources (expense/expenditure) until then. The City has the following items that qualify for reporting in this category. • Deferred loss on refunding debt — A deferred loss on refunding results from the difference in the carrying value of refunded debt and its reacquisition price. This amount is deferred and amortized over the shorter of the life of the refunded or refunding debt. • Pension contributions after measurement date — These contributions are deferred and recognized in the following fiscal year. • Difference in projected and actual earnings on pension assets — This difference is deferred and amortized over a closed five year period. • Changes in actuarial assumptions related to pensions — These changes are deferred and recognized over the estimated average remaining lives of all members determined as of the measurement date In addition to liabilities, the statement of financial position and/or balance sheet will sometimes report a separate section for deferred inflows of resources. This separate financial statement element, deferred inflows of resources, represents an acquisition of net position that applies to a future period(s) and so will not be recognized as an inflow of resources (revenue) until that time. The City has two types of items that qualify for reporting in this category under the full accrual basis of accounting. The first, the difference in expected and actual pension experience, is deferred and recognized over the estimated average remaining lives of all members determined as of the measurement date. The second, deferred gains on refunding debt, results from the difference in the carrying value of refunded debt and its reacquisition price. This amount is deferred and amortized over the shorter of the life of the refunded or refunding debt. The City also has one item that qualifies for reporting in this category under the modified accrual basis of accounting. This item, unavailable revenues, represents revenues that are not considered available because they are not collected by the City within the 60-day accrual period. 35 Compensated Absences The City's employees earn vacation and sick leave, which may either be taken or accumulated, up to certain amounts, until paid upon resignation or retirement. All vacation and sick leave pay is accrued when incurred in the government -wide and proprietary fund financial statements. A liability for these amounts is reported in the governmental funds only if they have matured, for example, as a result of employee resignations and retirements. Long -Term Obligations In the government -wide financial statements and proprietary fund types in the fund financial statements, long-term debt and other long-term obligations are reported as liabilities in the applicable governmental activities, business -type activities, or proprietary fund type statement of net position. Bond premiums and discounts are deferred and amortized over the life of the bonds using the straight-line method, which approximates the effective interest method. Bonds payable are reported net of the applicable bond premium or discount. Bond issuance cost are expenses in the period incurred. In the fund financial statements, governmental fund types recognize bond premiums and discounts, as well as bond issuance costs during the current period. The face amount of debt issued is reported as other financial sources. Premiums received in debt issuances are reported as other financial sources while discounts on debt issuances are reported as other financing uses. Issuance costs, whether or not withheld from the actual debt proceeds received, are reported as debt services expenditures. Pensions For purposes of measuring the net pension liability, pension related deferred outflows and inflows of resources, and pension expense, City specific information about its Fiduciary Net Position in the Texas Municipal Retirement System (TMRS) and additions to/deductions from TMRS's Fiduciary Net Position have been determined on the same basis as they are reported by TMRS. For this purpose, plan contributions are recognized in the period that compensation is reported for the employee, which is when contributions are legally due. Benefit payments and refunds are recognized when due and payable in accordance with the benefit terms. Investments are reported at fair value. Fund Balances and Net Position Government -Wide Financial Statements: The Statement of Net Position includes the following categories of net position: Net investment in capital assets — the component unit of net position that reports the difference between capital assets less both the accumulated depreciation and the outstanding balance of debt, net of premiums and discounts, that is directly attributable to the acquisition, construction or improvement of these capital assets. 36 Restricted — Net position is reported a restricted when there are limitations imposed on its use either through the enabling legislation adopted by the City or through external restrictions imposed by creditors, grantors, or laws or regulations of other governments. Unrestricted — the difference between assets, deferred outflows and inflows, and liabilities that are not reported in any of the classifications above. Governmental Fund Financial Statements: The City classifies governmental fund balances as follows: Non -spendable — includes amounts that cannot be spent because they are either not in spendable form, or, for legal or contractual reasons, must be kept intact. This classification includes prepaid items and the fund balance of the City's permanent fund. Restricted — includes fund balance amounts that are constrained for specific purposes which are imposed by providers, such as creditors or amounts restricted due to constitutional provision or enabling legislation. This classification includes retirement of long-term debt, construction programs, City ordinances, and other federal and state grants. Committed — includes fund balance amounts that are constrained for specific purposes that are internally imposed by the City through formal action in an open meeting of the highest level of decision making authority. Committed fund balance is reported pursuant to resolution passes by the City Council. Assigned — includes fund balance amounts that are self-imposed by the City to be used for particular purpose. Fund balance can be assigned by the City Council or the City Manager, pursuant to the City's fund balance policy. At September 30, 2016, the City's assigned fund balance included amounts assigned for encumbrances. Unassigned — includes residual positive fund balance within the general fund which has not been classified within the other above mentioned categories. Unassigned fund balance may also include negative balances for any governmental fund if expenditures exceed amounts restricted, committed, or assigned for those specific purposes. When both restricted and unrestricted fund balances are available for use, it is the City's policy to use restricted fund balance first, then unrestricted fund balance. Furthermore, committed fund balances are reduced first, followed by assigned amounts and ten unassigned amounts when expenditures are incurred for purposes for which amounts in any of those unrestricted fund balance classifications are available. The City has established a minimum fund balance policy whereby the City's unassigned general fund balance will be maintained at levels sufficient to protect the City's creditworthiness, as well as its financial position, from unforeseeable emergencies. The City will strive to maintain the unassigned general fund balance at a minimum of 90 days of prior year audited operation expenditures. 37 Estimates The preparation of financial statements, in conformity with generally accepted accounting principles, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual amounts could differ materially from those estimates. II. STEWARDSHIP, COMPLIANCE AND ACCOUNTABILITY The TDRA Grant Fund had a deficit fund balance of $193,750 as of September 30, 2016. This deficit will be resolved when delayed payments from granting agencies are received in subsequent years. III. DEPOSITS AND INVESTMENTS 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 deposits and investments in the following: 1. Obligations of the U.S., it's agencies and instrumentalities; 2. Certificates of Deposit issued by state and national banks or savings or loan associations domiciled in this state that are guaranteed or incurred by the Federal Deposit Insurance Corporation or collateralized in accordance with Section 2256.010, the Texas Government Code, in face amounts not to exceed $100.000; 3. No-load money market mutual funds; and 4. TexPool, Lone State Investment Pool and Texas CLASS. The City Council has adopted a written investment policy regarding the investments of its funds as defined by the Public Funds Investment Act of 1995 (Chapter 2256, Texas Government Code). The investments of the City are in compliance with the Council's investment policies. The City did not have any derivative investment products during the current year. All significant legal and contractual provisions for investments were complied with during the year. In fiscal year 2016, the Entity adopted GASB Statement No. 72 ("GASB 72"), Fair Value Measurement and Application. GASB 72 was issued to address accounting and financial reporting issues related to fair value measurements. 38 The City categorizes its fair value measurements within the fair value hierarchy established by generally accepted accounting principles. The hierarchy is based on the valuation inputs used to measure the fair value of the asset. Level 1 inputs are quoted prices in active markets for identical assets; Level 2 inputs are significant other observable inputs; and Level 3 inputs are significant unobservable inputs. As of September 30, 2016, the City held the following at fair value measurements: Primary ¢overnment Cash deposits - City Investments measured at net asset value per share: Investment pools: TexPool Texas CLASS Total investment pools Investments by fair value level: Debt securities: Federal Farm Credit Bonds Federal Home Loan Bank Bonds Federal Home Loan Mortgage Corporation Federal National Mortgage Association Total debt securities Total cash and investments of the primary government Comuonent unit Cash deposits Total cash and investments of the reporting entity Weighted Fair Value Measurement Using Average Maturity 9/30/2016 (Level1) (Level2) (Level3) (Days) $ 3,018,036 $ - $ - $ 3,351,807 44 21,367,568 56 24,719,375 3,498,251 - 3,498,251 772 1,501,896 501,471 1,000,425 492 3,998,066 499,551 3,498,515 653 3,490,220 499,170 2,991,050 898 12,488,433 1,500,192 10,988,241 $ 40,225,844 $ 1,500,192 $ 10,988,241 $ $ 5,992,870 $ $ $ $ 46,218,714 $ 1,500,192 $ 10,988,241 $ The City's investment pools are 20-like pools. A 20-like pool is one which is not registered with the Securities and Exchange Commission (SEC) as an investment company, but nevertheless has a policy that it will, and does, operate in a manner consistent with the SEC's Rule 2a7 of the Investment Company Act of 1940. The City's investments in these pools are the same as the value of the pool shares, which are valued based on quoted market rates. 39 The City invests in Texas Local Government Investment Pool (TexPool), which was created under the Interlocal Cooperation Act, Texas Government Code Ann. Chapter 791 and the Texas Public Funds Investment Act. The Texas Treasury Safekeeping Trust Company ("the Trust") is trustee of TexPool and is a limited purpose trust company authorized pursuant to Texas Government Code Ann. Section 404.103 for which the Texas State Comptroller is sole officer, director and shareholder. The advisory board of TexPool is composed of members appointed pursuant to the requirements of the Texas Public Funds Investment Act. The City invests in Texas CLASS Investment Pool which was established in 1996 pursuant to the Texas Public Funds Investment Act. The pool is governed by a 7-member board of trustees, who are elected by pool participants. The Cutwater Investor Services Corp. serves as the pools program administrator and Wells Fargo Bank Texas, NA, serves as custodian. Interest Rate Risk. In accordance with its investment policy, the City manages its exposure to declines in fair values by structuring the investment portfolio so that securities mature to meet cash requirements for ongoing operations and invest operation funds primarily in short-term securities. Custodial Credit Risk. In the case of deposits, this is the risk that in the event of a bank failure, the City's deposits may not be returned. State statutes require that all deposits in financial institutions be fully collateralized by U.S. Government obligations or its agencies and instrumentalities or direct obligations of Texas or its agencies and instrumentalities that have a fair value of not less than the principal amount of deposits. As of September 30, 2016, all of the City's cash deposits with financial institutions were collateralized with securities held by the pledging financial institution in the City's name. Credit Risk. It is the City's policy to limit its investments to investment types with an investment quality rating not less than A or its equivalent by a nationally recognized statistical rating organization. The City's investments as of September 30, 2016, were rated as follows: Investment Type Rating Rating Agency Texas CLASS AAAm Standard & Poor's TexPool AAAm Standard & Poor's U.S. Agency Securities: Federal Home Loan Mortgage Corporation Aaa Moody's Investor Service Federal Home Loan Bank Aaa Moody's Investor Service Federal Farm Credit Bank Aaa Moody's Investor Service Federal National Mortgage Association Aaa Moody's Investor Service 40 IV. ACCOUNTS RECEIVABLE AND DEFERRED INFLOWS OF RESOURCES Receivables as of September 30, 2016 for the City's individual major funds, nonmajor funds in the aggregate and the Internal Service Fund including the applicable allowances for uncollectible accounts, are as follows: Governmental Funds Proprietary Water and General Nonmajor Sewer Total Receivables: Property taxes $ 265,058 $ 35,953 $ - $ 301,011 Penalties and interest 106,233 14,679 - 120,912 Sales taxes 978,983 - - 978,983 Franchise taxes 440,684 - - 440,684 Customer accounts 485,243 7,820 2,167,642 2,660,705 Court fines 1,338,814 3,573 - 1,342,387 Intergovernmental 23,918 196,660 220,578 Other 26,654 123 - 26,777 Gross receivables 3,665,587 258,808 2,167,642 6,092,037 Less: allowance for uncollectibles ( 1,292,957) ( 27,016) ( 244,287) ( 1,564,260) Net receivables $ 2,372,630 $ 231,792 $ 1,923,355 $ 4,527,777 Governmental funds reported deferred inflows of resources in connection with receivables for revenue that is not considered to be available to liquidate liabilities of the current period. At the end of the current fiscal year, the various components of deferred inflows of resources for unavailable revenues reported in the governmental funds were as follows: Deferred Inflows of Resources General Fund Delinquent property taxes $ 182,552 Property taxpenalties and interest 73,165 Court fines 264,021 Miscellaneous 13,113 Total General Fund 532,851 Nonmajor funds Delinquent property taxes 24,761 Property taxpenalties and interest 4,569 Court fines 3,552 Intergovernmental revenue 196,657 Total nonmajor funds 229,539 Total governmental funds $ 762,390 41 V. NOTES RECEIVABLE On June 1, 2015, The City Council approved the purchase of a fire truck for the Friendswood Volunteer Fire Department for $483,364. This purchase is supported with a repayment agreement whereby the Friendswood Volunteer Fire Department where the City would be repaid $72,000 per year for the first six years, with a final payment of $65,000. The City set an initial interest rate of 1% with an option to increase should interest rates rise significantly. VI. CAPITAL ASSETS Capital asset activity for the year ended September 30, 2016 was as follows: Beginning Reclassifications/ Governmental Activities Balance Increases Decreases Capital assets not being depreciated Land $ 25,805,161 $ - $ Construction in progress 7,641,687 8,894,164 Total capital assets not being depreciated Capital assets being depreciated Buildings and improvements Machinery and equipment Infrastructure Total capital assets being depreciated Less accumulated depreciation Buildings and improvements Machinery and equipment Infrastructure Total accumulated depreciation Total capital assets being depreciation, net Government activities capital assets, net Ending Balance $ 25,805,161 16,535,851 33,446,848 8,894,164 - 42,341,012 41,250,535 - - 41,250,535 14,864,228 875,999 ( 167,081) 15,573,146 68,751,444 - - 68,751,444 124,866,207 875,999 ( 167,081) 125,575,125 ( 14,980,698) ( 1,403,097) - ( 16,383,795) ( 9,803,277) ( 1,112,606) 167,081 ( 10,748,802) ( 41,731,781) ( 1,476,428) - ( 43,208,209) ( 66,515,756) ( 3,992,131) 167,081 ( 70,340,806) 58,350,451 ( 3,116,132) - 55,234,319 $ 91,797,299 $ 5,778,032 $ - $ 97,575,331 42 Beginning Reclassifications/ Decreases Business -type Activities Balance Increases Capital assets not being depreciated Land $ 319,473 $ - $ Water rights 19,716,695 - Construction in progress 6,037,814 3,069,228 Total capital assets not being depreciated 26,073,982 3,069,228 Capital assets being depreciated Buildings and improvements 589,624 - Machinery and equipment 1,195,559 5,237 Water and sewer system 63,267,248 - Total capital assets being depreciated 65,052,431 5,237 Less accumulated depreciation: Buildings and improvements ( 218,239) ( 17,852) Machinery equipment ( 863,616) ( 45,172) Water and sewer system ( 30,864,246) ( 1,551,667) Total accumulation deprecation ( 31,946,101) ( 1,614,691) Total capital assets being depreciated, net 33,106,330 ( 1,609,454) Business -type activities Ending Balance $ 319,473 19,716,695 - 9,107,042 - 29,143,210 589,624 1,200,796 - 63,267,248 - 65,057,668 ( 236,091) ( 908,788) - ( 32,415,913) - ( 33,560,792) 31,496,876 capital assets, net $ 59,180,312 $ 1,459,774 $ - $ 60,640,086 43 Beginning Reclassifications/ Ending Component Unit Balance Increases Decreases Balance Capital assets not being depreciated Land $ 6,006,988 $ - $ - $ 6,006,988 Capital assets being depreciated Water production and distribution facilities 483,467 - - 483,467 Less accumulated deprecation: Water production and distribution facilities ( 52,066) ( 10,745) - ( 62,811) Total capital assets being depreciated, net 431,401 ( 10,745) - 420,656 Component units capital assets, net $ 6,438,389 $( 10,745) $ - $ 6,427,644 Depreciation expense was charged to functions/programs of the primary government as follows: Governmental activities General government $ 203,262 Public safety 595,741 Public works 2,236,903 Community services 579,883 Capital assets held by the City's internal service fund are charged to the various functions based on their usage 376,342 Total deprecation expense - governmental activities $ 3,992,131 Business -type activities Water and sewer $ 1,614,691 Total deprecation expense - business -type activities $ 1,614,691 VII. INTERFUND BALANCES AND ACTIVITIES Interfund balances at September 30, 2016 consisted of the following individual fund balances that are scheduled to be repaid within one year: Due to Fund Due fromFund Amount Purpose General Nonmajor governmental $ 71,256 Balance of fund expenditures funded by the General Fund, pending reimbursements 44 During the year ended September 30, 2016, transfers between funds occurred as described below: Transfer In Transfers Out Amount Purpose Debt Service (nonmajor) Capital Projects $ 182,158 Bond proceeds Internal service Water and Sewer 76,126 Transfer of capital assets Water and Sewer IDA Grant (nonmajoe 345 Transfer of excess fund balance on close grant fund. General Water and Sewer 1,321,284 Budgeted annual transfer for indirect water and sewer costs by the General Fund $ 1,579,913 VIII. LONG-TERM DEBT The City issues a variety of long-term debt instruments in order to acquire and/or construct major capital facilities and equipment for governmental and business -type activities. These instruments include general obligation bonds, certificates of obligation, revenue bonds, and capital leases. These debt obligations are secured by either future tax revenue, water and sewer system revenue, or liens on property and equipment. Debt obligations that are intended to be repaid from water and sewer system revenue have been recorded as business -type activities. All other long-term obligations of the City are considered to be governmental type activities. Federal Arbitrage General obligation bonds, combination tax and revenue bonds, and certificates of obligation are subject to the provisions of the Internal Revenue Code of 1986 related to arbitrage and interest income tax regulations under those provisions. 45 Bonds Payable and Certificates of Obligation The following schedule summarizes the terms of the City's general obligation bonds, combination tax and revenue bonds, and certificates of obligation outstanding and their corresponding allocations to the governmental and business -type activities at September 30, 2016: Series and Original Issue Amount General Obligation Bonds 2010A Permanent Improvement 2010B Permanent Improvement and Refunding 2012 General Obligation Refunding 2014 General Obligation Refunding 2015 General Obligation Refunding 2016 General Obligation Permanent Improvement and Refunding 2016A General Obligation Refundi Revenue Bonds 2016 Waterworks and Sewer Syste Total $ 9,800,000 Final Governmental Business -Type Maturity Interest Rate Activities Activities 2035 1.0% - 4.75% $ 2,855,000 $ - 3,460,000 2021 1.0% - 4.75% - 2,910,000 5,460,000 2026 2.0% - 3.5% 7,500,000 - 8,805,000 2028 2.0% - 4.0% 2,375,000 5,815,000 9,595,000 2030 2.0% - 3.0% 9,185,000 - 19,095,000 2031 2.0% - 5.0% 7,345,000 11,750,000 9,765,000 2034 2.0% - 4.0% - 9,765,000 29,260,000 30,240,000 5,735,000 2036 2.0% - 4.0% - 5,735,000 - 5,735,000 $ 29,260,000 $ 35,975,000 Annual debt service requirements for the City's bonds and certificates of obligation are as follows: Year Ending Governmental Activities Business -Ty September 30, Principal Interest Principal 2017 $ 1,545,000 $ 977,663 $ 2,100,000 2018 1,575,000 942,494 2,160,000 2019 1,610,000 906,031 2,215,000 2020 1,650,000 868,581 2,275,000 2021 1,695,000 824,081 2,335,000 2022 - 2026 9,350,000 3,244,656 10,220,000 2027 - 2031 11,125,000 1,396,190 10,765,000 2032 - 2036 710,000 69,350 3,905,000 $ 29,260,000 $ 9,229,046 $ 35,975,000 46 ie Activities Interest $ 1,229,025 1,171,425 1,112,250 1,053,500 992,850 4,035,500 1,662,875 306,500 $ 11,563,925 Total $ 5,851,688 5,848,919 5,843,281 5,847,081 5,846,931 26,850,156 24,949,065 4,990,850 $ 86,027,971 Current Refunding On February 1, 2016, the City issued $19,095,000 in Series 2016 General Obligation Permanent Improvement and Refunding Bonds with interest rates ranging from 2 to 5 percent. $11,750,000 of these bonds were issued to refund $13,145,000 of outstanding Series 2006 Waterworks and Sewer System Revenue and Refunding Bonds (the Refunded Bonds) with interest rates ranging from 4 to 5 percent. The net proceeds of the debt issued for refunding were deposited in an irrevocable trust with an escrow agent to provide for the final payment of the Refunded Bonds on the redemption date of March 4, 2016. As a result, the Refunded Bonds are considered to be defeased and the liability for those bonds has been removed from the statements of position. The refunding resulted in a difference between the reacquisition price and the net carrying amount of the old debt of $48,516. This difference, reported in the accompanying financial statements as a deferred inflow of resources, is being charged to operations through the year 2031. The City completed the advance refunding to reduce its total debt service payments by $2,425,878 and to obtain an economic gain (difference between the present values of the old and new debt service payments) of $2,019,226. Advance Refunding On August 23, 2016, the City issued $9,765,000 in General Obligation Refunding Bonds, Series 2016A with interest rates ranging from 2 to 4 percent. These bonds were issued to refund $10,155,000 of outstanding Series 2009 Waterworks and Sewer System Revenue Bonds (the Refunded Bonds) with interest rates ranging from 2 to 4.8 percent. The net proceeds of the debt issued for refunding were used to purchase U.S. government securities. Those securities were deposited in an irrevocable trust with an escrow agent to provide for all future debt service payments on the Refunded Bonds. As a result, the Refunded Bonds are considered to be defeased and the liability for those bonds has been removed from the statements of position. The refunding resulted in a difference between the reacquisition price and the net carrying amount of the old debt of $645,321. This difference, reported in the accompanying financial statements as a deferred outflow of resources, is being charged to operations through the year 2034. The City completed the advance refunding to reduce its total debt service payments by $1,793,347 and to obtain an economic gain (difference between the present values of the old and new debt service payments) of $1,498,809. Defeasance of Bonds The City defeased certain bonds by placing the proceeds of new bonds in an irrevocable trust to provide future debt service payments on the old bonds. Accordingly, the trust account assets and liabilities for the defeased bonds are not included in the City's financial statements. On September 30, 2016, $10,155,000 of bonds considered defeased are still outstanding. 47 Obligations Under Capital Leases The City has entered into capital lease agreements in order to purchase machinery and equipment for public works, police and fire departments. The assets acquired through these lease agreements are as follows: Asset: Machinery and equipment Less: accumulated deprecation Total Governmental Activities $ 467,270 ( 116,068) $ 351,202 The following is a summary of future lease payments due on this machinery and equipment: Year Ending Lease September 30, Obligation 2017 $ 63,056 2018 63,056 2019 63,056 Total Less: interest portion Obligations under capital leases 48 189,168 ( 8,760) $ 180,408 Changes in Long -Term Liabilities Long-term liability activities of the primary government for the year ended September 30, 2016, was as follows: Governmental activities General obligation bonds Premium on bond issuance Capital lease obligation Net pension liability Net OPEB obligation Compensated absences Total governmental activities Business -type activities Revenue bonds General obligation bonds Discount on bond issuance Premium on bond issuance Net pension liability Net OPEB obligation Compensated absences Total business -type activities Total primary government Balance Balance Due Beginning End of Within One of Year Increase Decrease Year Year $ 23,305,000 $ 7,345,000 $( 1,390,000) $ 29,260,000 $ 1,545,000 1,220,285 1,484,593 ( 196,073) 2,508,805 - 360,584 - ( 180,176) 180,408 58,742 7,227,897 3,671,675 ( 590,899) 10,308,673 - 706,369 76,529 ( 17,141) 765,757 - 673,826 1,059,700 ( 1,120,214) 613,312 122,662 33,493,961 13,637,497 ( 3,494,503) 43,636,955 1,726,404 24,540,000 5,735,000 ( 24,540,000) 5,735,000 220,000 9,255,000 21,515,000 ( 530,000) 30,240,000 1,880,000 ( 47,457) - 47,457 - - 791,544 2,968,927 ( 387,243) 3,373,228 - 803,100 407,964 ( 65,655) 1,145,409 - 124,796 11,027 ( 2,470) 133,353 - 86,617 109,963 ( 137,542) 59,038 11,807 35,553,600 30,747,881 ( 25,615,453) 40,686,028 2,111,807 $ 69,047,561 $ 44,385,378 $( 29,109,956) $ 84,322,983 $ 3,838,211 The compensated absences, net pension liability, and net OPEB obligation attributable to the governmental activities will be liquidated primarily by the General Fund. 49 West Ranch Management District The following schedule summarizes the terms of the West Ranch Management District's general obligation bonds at July 31, 2016: Series Amounts Outstanding July 31, 2016 Interest Rates Range of Maturities Callable Dates * Series 2010 $ 6,310,000 3.25% to 5.25% 2016 - 2040 September 1, 2020 Road Series 2010A 1,700,000 3.50% to 5.00% 2016 - 2040 September 1, 2020 Series 2012A 3,110,000 3.50% to 4.10% 2027 - 2040 September 1, 2020 Series 2012B 1,390,000 3.00% to 4.75% 2016 - 2026 September 1, 2016 Road Series 2013 1,205,000 2.00% to 3.00% 2016 - 2028 September 1, 2021 Series 2013 1,245,000 3.00% to 5.00% 2016 - 2040 September 1, 2021 Road Series 2014 2,190,000 2.00% to 3.75% 2016 - 2040 September 1, 2022 Series 2015 5,655,000 1.30% to 4.125% 2017 - 2040 September 1, 2023 $ 22,805,000 * Or any date thereafter, callable at par plus accrued interest to the date of redemption. Annual debt service requirements for the District's bonds are as follows: Year Ending July 31, Principal 2017 $ 425,000 2018 785,000 2019 800,000 2020 830,000 2021 850,000 2022 - 2026 4,760,000 2027 - 2031 5,630,000 2032 - 2036 3,850,000 2037 - 2041 4,875,000 $ 22,805,000 Interest Total $ 908,314 893,801 875,483 853,781 828,702 3,663,423 2,621,626 1,598,691 594,775 $ 12,838,596 $ 1,333,314 1,678,801 1,675,483 1,683,781 1,678,702 8,423,423 8,251,626 5,448,691 5,469,775 $ 35,643,596 The District's bonds are payable from the proceeds of an ad valorem tax levied upon all property within the District subject to taxation, without limitation as to rate or amount. 50 Long-term liability activity of the West Ranch Management District for the year ended July 31, 2016, was as follows: Balance Balance Beginning End of Due Within of Year Increase Decrease Year One Year Component Unit General obligation bonds $ 17,560,000 $ 5,655,000 $( 410,000) $ 22,805,000 $ 425,000 Discount on bond issuance ( 369,272) ( 57,890) 10,410 ( 416,752) - Bond anticipation note 660,000 - ( 660,000) - - Developer advances 40,000 - - 40,000 - Due to developer 709,861 2,400,639 ( 443,203) 2,667,297 - Total component unit $ 18,600,589 $ 7,997,749 $( 1,502,793) $ 25,095,545 $ 425,000 Developers of the District have constructed underground utilities on behalf of the District. The District's engineer estimates reimbursable costs for completed projects are $2,667,297. The District has agreed to reimburse the developers for these amounts, plus interest, to the extent approved by the Texas Commission on Environmental Quality from the proceeds of future bond sales. These amounts have been recorded in the financial statement as long-term liabilities. IX. PLEDGED REVENUES On February 1, 2016, the City issued $5,735,000 in Waterworks and Sewer System Revenue Bonds, Series 2016. These bonds represent special obligations of the City and are payable solely from a first lien on and pledge of the net revenues of the City's waterworks and sanitary sewer system. The proceeds of the bonds were and are to be used to finance sanitary sewer and waterworks system extensions and improvements. At September 30, 2016, the remaining principal and interest on the series 2016 bonds was $5,735,000. Interest payments for the fiscal year were $481,140 and no principal was paid during the year ended September 30, 2016. Water and Sewer revenues for the current year were $11,319,801. The outstanding revenue bonds have a final maturity of March 1, 2036. 51 X. CONSTRUCTION COMMITMENTS AND ENCUMBRANCES Construction Commitments The City has active construction projects as of September 30, 2016. At year end the City's commitments with contractors are as follows: Remaining Project Commitment Governmental funds Library expansion $ 37,000 City Hall paver sidewalk 3,612 Sportspark 20,738 Lake Friendswood 617,728 Basketball pavilion 469,538 Firestation 4 remodel and new firestation 3,909,962 Streets - round 1 engineering 1,546,291 6,604,869 Enterprise fund Lift station #3 replacement 61,355 Lift station #18 28,286 Water Plant #2 replacement 266,114 Water Plant #7 rehab 64,175 SCADA monitoring system 28,966 Lift Station #23 replacement 121,104 570,000 Total $ 7,174,869 The remaining commitment amounts of $7,174,869 were encumbered at year end. The encumbrances and related appropriation lapse at the end of the fiscal year, but they are re - appropriated and become a part of the subsequent year's budget because performance under the executory contract is expected in the next year. Encumbrances At year end, the amount of encumbrances expected to be honored upon performance by a vendor in the next fiscal year were as follows: General Fund $ 1,196,897 Bond Construction Fund 4,453,998 Nonmajor governmental funds 214,780 Total $ 5,865,675 52 XI. RESTRICTED ASSETS The balances of the restricted asset accounts in the enterprise fund are as follows: Cash and investments: Customer deposits $ 461,881 Construction - 2009 bonds 352,314 Construction - 2016 bonds 5,603,738 Construction - impact fees 20,042 Total restricted assets $ 6,437,975 XII. DEFINED BENEFIT PENSION POLICIES Plan Descriptions The City participates as one of 866 plans in the nontraditional, joint contributory, hybrid defined benefit pension plan administered by the Texas Municipal Retirement System (TMRS). TMRS is an agency created by the State of Texas and administered in accordance with the TMRS Act, Subtitle G, Title 8, Texas Government Code (the TMRS Act) as an agency multiple -employer retirement system for municipal employees in the State of Texas. The TMRS Act places the general administration and management of the System with a six -member Board of Trustees. Although the Governor, with the advice and consent of the Senate, appoints the Board, TMRS is not fiscally dependent on the State of Texas. TMRS's defined benefit pension plan is a tax - qualified plan under Sections 401(a) of the Internal Revenue Code. TMRS issues a publicly available comprehensive annual financial report (CAFR) that can be obtained at www.tmrs.com. All eligible employees of the City are required to participate in TMRS. Benefits Provided TMRS provides retirement, disability, and death benefits. Benefit provisions are adopted by the governing body of the City, within the options available in the state statutes governing TMRS. At retirement, the benefit is calculated as if the sum of the employee's contributions, with interest, and the City -financed monetary credits with interest were used to purchase an annuity. Members may choose to receive their retirement benefit in one of seven payments options. Members may also choose to receive a portion of their benefit as a Partial Lump Sum Distribution in an amount equal to 12, 24, or 36 monthly payments, which cannot exceed 75% of the member's deposits and interest. 53 A summary of plan provisions for the City are as follows: Employee deposit rate Matching ratio (City to employee) Years required for vesting Service retirement eligibility Updated Service Credit Annuity Increase to retirees Employees covered by benefit terms 7% 2 to 1 20 years to any age, 5 years at age 60 and above 100%; Repeating 50% of CPI; Repeating At the December 31, 2015 valuation and measurement date, the following employees were covered by the benefit terms: Inactive employees or beneficiaries currently receiving benefits 101 Inactive employees entitled to but not yet receiving benefits 104 Active employees 199 404 Contributions The contribution rates for employees in TMRS are either 5%, 6%, or 7% of employee gross earnings, and the City matching percentages are with 100%, 150%, or 200%, both as adopted by the governing body of the City. Under the state law governing TMRS, the contributions rate for each city is determined annually by the actuary, using the Entry Age Normal (EAN) actuarial cost method. The actuarially determined rate is the estimated amount necessary to finance the cost of benefits earned by employees during the year, with an additional amount to finance any unfunded accrued liability. Employees for the City were required to contribute 7% of their annual gross earnings during the fiscal year. The contribution rates for the City were 15.79% and 15.44% in calendar years 2015 and 2016, respectively. The City's contributions to TMRS for the year ended September 30, 2016, were $2,100,698, and were equal to the required contributions. Net Pension Liability The City's Net Pension Liability (NPL) was measured as of December 31, 2015, and the Total Pension Liability (TPL) used to calculate the Net Pension Liability was determined by an actuarial valuation as of that date. 54 Actuarial assumptions: The Total Pension Liability in the December 31, 2015 actuarial valuation was determined using the following actuarial assumptions: Inflation 2.5% per year Overall payroll growth 3.0% per year Investment rate of return 6.75%, net of pension plan investment expense, including inflation Salary increases were based on a service -related table. Mortality rates for active members, retirees, and beneficiaries were based on the gender -distinct RP2000 Combined Healthy Mortality Tables with Blue Collar Adjustment, with male rates multiplied by 109% and female rates multiplied by 103%. The rates are projected on a fully generational basis by scale BB to account for future mortality improvements. For disabled annuitants, the gender -distinct RP2000 Combined Healthy Mortality Tables with Blue Collar Adjustment are used with males rates multiplied by 109% and female rates multiplied by 103% with a 3-year set -forward for both males and females. In addition, a 3% minimum mortality rate is applied to reflect the impairment for younger members who become disabled. The rates are projected on a fully generational basis by scale BB to account for future mortality improvements subject to the 3% floor. Actuarial assumptions used in the December 31, 2015, valuation were based on the results of actuarial experience studies. The experience study in TMRS was for the period December 31, 2010 through December 31, 2014. Healthy post -retirement mortality rates and annuity purchase rates were updated based on a Mortality Experience Investigation Study covering 2009 through 2011, and dated December 31, 2013. These assumptions were first used in the December 31, 2013 valuation, along with a change to the Entry Age Normal (EAN) actuarial cost method. Assumptions are reviewed annually. No additional changes were made for the 2014 valuation. After the Asset Allocation Study analysis and experience investigation study, the Board amended the long-term expected rate of return on pension plan investments from 7% to 6.75%. Plan assets are managed on a total return basis with an emphasis on both capital appreciation as well as the production of income, in order to satisfy the short-term and long-term funding needs of TMRS. 55 The long-term expected rate of return on pension plan investments was determined using a building-block method in which best estimate ranges of expected future real rates of return (expected returns, net of pension plan investment expense and inflation) are developed for each major asset class. These ranges are combined to produce the long-term expected rate of return by weighting the expected future real rates of return by the target asset allocation percentage and by adding expected inflation. In determining their best estimate of a recommended investment return assumption under the various alternative asset allocation portfolios, GRS focused on the area between (1) arithmetic mean (aggressive) without an adjustment for time (conservative) and (2) the geometric mean (conservative) with an adjustment for time (aggressive). At its meeting on July 30, 2015, the TMRS Board approved a new portfolio target allocation. The target allocation and best estimates of real rates of return for each major asset class are summarized in the following table: Asset Class Long-Tem Expected Target Rate of Return Allocation (Arithmetic) Domestic Equity 17.5% 4.55% International Equity 17.5% 6.10% Core Fined Income 10.00/0 1.00% Non -Core Fixed Income 20.0% 3.65% Real Return 10.00/0 4.03% Real Estate 10.00/0 5.00% Absolute Return 10.00/0 4.00% Private Equity 5.0% 8.00% Total 100.0% Discount Rate The discount rate used to measure the Total Pension Liability was 6.75%. The projection of cash flows used to determine the discount rate assumed that employee and employer contributions will be made at the rates specified in statue. Based on that assumption, the pension plan's Fiduciary Net Position was projected to be available to make all projected future benefit payments of current active and inactive employees. Therefore, the long-term expected rate of return on pension plan investments was applied to all period of projected benefit payments to determine the Total Pension Liability. 56 Changes in the Net Pension Liability Increase (Decrease) Total Pension Plan Fiduciary Net Pension Liability Net Position Liability (a) (b) (a) - (b) Balance at 12/31/2014 $ 61,703,281 $ 53,672,285 $ 8,030,996 Changes for the year: Service cost 2,204,299 - 2,204,299 Interest 4,317,394 - 4,317,394 Difference between expected and actual experience ( 1,032,789) - ( 1,032,789) Changes of assumptions 847,469 - 847,469 Contributions - employer - 1,998,038 ( 1,998,038) Contributions - employee - 886,669 ( 886,669) Net investment income - 79,202 ( 79,202) Benefit payments, including refunds of employee ( 2,256,734) ( 2,256,734) - Administrative expense - ( 48,239) 48,239 Other changes - ( 2,383) 2,383 Net changes 4,079,639 656,553 3,423,086 Balance at 12/31/2015 $ 65,782,920 $ 54,328,838 $ 11,454,082 Sensitivity of the net pension liability to changes in the discount rate The following presents the net pension liability of the City, calculated using the discount rate of 6.75%, as well as what the City's net pension liability would be if it were calculated using a discount rate that is 1-percentage-point lower (5.75%) of 1-percentage-point higher (7.75%) than the current rate: 1% Decrease in Current Single Rate 1% Increase in Discount Rate (5.75%) Discount Rate (6.75%) Discount Rate (7.75% City's net pension liability $ 20,871,573 $ 11,454,082 $ 3,736,683 Pension Plan Fiduciary Net Position Detailed information about the pension plan's Fiduciary Net Position is available in a separately - issued TMRS financial report. The report may be obtained on the Internet at www.tmrs.com. Pension Expense and Deferred Outflows of Resources and Deferred Inflows of Resources Related to Pensions For the year ended September 30, 2016, the City recognized pension expense of $2,617,670. 57 At September 30, 2016, the City reported deferred outflows of resources and deferred inflows of resources related to pensions from the following sources: Deferred Deferred Outflows of Resources Inflows of Resources Differences between expected and actual economic experience $ - $ 1,287,513 Changes in actuarial assumptions 678,650 Difference between projected and actual investment earnings 3,327,020 Contributions subsequent to the measurement date 1,543,842 Total $ 5,549,512 $ 1,287,513 $1,543,842 reported as deferred outflows of resources related to pension resulting from contributions subsequent to the measurement date will be recognized as a reduction of the net pension liability for the year ending September 30, 2017. Other amounts reported as deferred outflows and inflows of resources related to pensions will be recognized in pension expenses as follows: Forthe Year Ended September 30: 2017 $ 689,084 2018 689,084 2019 689,082 2020 651,646 2021 ( 739) Total $ 2,718,157 XIII. POST EMPLOYMENT BENEFITS OTHER THAN PENSIONS Retiree Insurance Coverage The City Council has established a single -employer medical, dental, and vision insurance defined benefit plan for retirees. Eligible retirees are provide insurance benefits at a set premium rate equal to the City's employees' rate. Eligible retirees may also cover their dependents. Retirees are responsible for paying the premium cost associated with their coverage. A retiree is defined as a person who is received lifetime monthly TMRS pension benefits payments and retired directly from active employment at the City. The City will stop insurance coverage on the retiree and all dependents on the last day of the month the retiree fails to submit the required premium payment or upon death of the employee. The retiree health plan does not issue a publically available financial report. 58 Retirement Benefit Eligibility The retiring employee must be 60 years of age with 5 years of service or have 20 years of service at any age. Employees terminating before normal retirement conditions are net are not eligible for retiree health plans. Retirees are not required to enroll in Medicare Parts A and B once eligible. Plan Participants Permanent full-time employees and any dependents covered on the employee's lost date of employment are eligible for coverage. Dependents are no eligible for coverage unless the retired employee is covered. Should the retiring employee reject any of the plans, he/she is never eligible to re -enroll in the rejected plans. At the time of coverage election, the retiring employee has the option of cancelling coverage on any dependent with the understanding that that dependent can never be re -enrolled; new dependents cannot be added to the plan. Medical Plan The retiring employee is eligible to retain the medical plan the employee had on the last day of employment. Any dependents covered at that time may remain on the retired employee's plan as long as the retired employee remains active on the plan. All terms and conditions of the plan are the same as active employees. Dental Plan The retiring employee is eligible to retain the dental plan the employee had on the last day of employment. Any dependents covered at the time may remain on the retired employee's plan as long as the retired employee remains active on the plan. All terms and conditions of the plan are the same as active employees. Vision Plan The retiring employee is eligible to retain the vision plan the employee had on the last day of employment. Any dependents covered at that time may remain on the retired employee's plan as long as the retired employee remains active on the plan. All terms and conditions of the plan are the same as active employees. Premiums Paid All premiums are 100% paid monthly by the retiree. The City does not contribute to any of the plans once an employee retires. 59 Funding Policy and Annual OPEB Cost The City's annual other post -employment benefits (OPEB) cost is calculated based on the annual required contribution of the employer (ARC), an amount actuarially determined in accordance with the parameters of GASB Statement No. 45. The ARC represents a level of accrual that, if paid on an ongoing basis, is projected to cover the normal cost each year and to amortize the unfunded actuarial liability (or funding excesses) over a period not to exceed thirty years. The City's annual OPEB cost he fiscal year ending September 30, 2016 is as follows: Annual required contribution $ 84,807 Interest on OPEB obligation 37,402 Adjustment to ARC ( 34,653) Annual OPEB cost (expense) end of year 87,556 Net estimated employer contributions ( 19,611) Increase in net OPEB obligation 67,945 Net OPEB obligation -beginning of year 831,165 Net OPEB obligation - end of year $ 899,110 City historical data is as follows: Annual Actual Percentage Net OPEB Fiscal OPEB Contribution ofOPEB Obligation Year Cost Made Cost Contributed at September 30 2014 $ 88,587 $ 18,135 20.0% $ 756,183 2015 84,838 9,856 11.6% 831,165 2016 87,556 19,611 22.4% 899,110 Funding Status and Funding Progress The funded status of the City's retiree health care plan, under GASB Statement No. 45 as of December 31, 2014, the most recent valuation date, is as follows: (1) (2) (3) (4) (5) (6) Actuarial UAAL as a Actuarial Actuarial Accrued Funded Unfunded AAL % of Covered Valuation Value of Liability Ratio (UAAL) Covered Payroll Date Assets (AAL) ((1) / (2)) ((2) - (l)) Payroll ((4) / (5)) 12/31/2014 $ - $ 641,352 0.00% $ 641,352 $ 12,423,310 5.16% Under the reporting parameters, the City's retiree health care plan is 0% funded with as estimated actuarial liability exceeding actuarial assets by $641,352 at December 31, 2014. As of the most recent valuation, the ratio of the unfunded actuarial accrued liability to annual covered payroll is 5.16%. 60 The schedule of funding progress, presented as Required Supplementary Information following the notes to the financial statements, presents multi -year trend information about whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued liability of benefits. Actuarial Methods and Assumptions The Projected Unit Credit actuarial cost method is used to calculate the GASB ARC for the City's retiree health care plan. Using the plan benefits, the present health premiums and a set of actuarial assumptions, the anticipated future payments are projected. The projected unit credit method then provides for a systematic funding for these anticipated payments. The yearly ARC is computed to cover the cost of benefits being earned by covered members as well as to amortize a portion of the unfunded accrued liability. Projections of health benefits are based on the plan as understood by the City and include the types of benefits in force at the valuation date and the pattern of sharing benefits costs between the City and the City's employees to that point. Actuarial calculations reflect a long-term perspective and employ methods and assumptions that are designed to reduce short-term volatility in actuarial accrued liabilities and the actuarial value of assets. Significant methods and assumptions were as follows: Investment rate of return Inflation rate Healthcare cost trend rates Actuarial cost method Amortization method Payroll growth rate 4.5%, net of expenses 3.00% 4.5% to 7.5% Projected Unit Credit Cost Method Level Percent of Payroll over an open period of 30 years 3.00% Actuarial valuations involve estimates of the value of reported amounts and assumptions about the probability of events in the future. Amounts determined regarding the funded status and the annual required contributions of the City's retiree health care plan are subject to continual revision as actual results are compared to past expectations and new estimates are made about the future. Supplemental Death Benefits Fund Plan Descriptions The City also participates in the cost sharing multiple -employer defined benefit group -term life insurance plan operated by the Texas Municipal Retirement System (TMRS) known as the Supplemental Death Benefits Fund (SDBF). The City elected, by ordinance, to provide group - term life insurance coverage to both current and retired employees. The City may terminate coverage under and discontinue participation in the SDBF by adopting an ordinance before November 1 of any year to be effective the following January 1. 61 The death benefit for active employees provide a lump -sum payment approximately equal to the employee's annual salary (calculated based on the employee's actual earnings, for the 12-month period preceding the month of death); retired employees are insured for $7,500; this coverage is an "other post -employment benefit," or OPEB. Contributions The City contributes to the SDBF at a contractually required rate as determined by the annual actuarial valuation. The rate is equal to the cost of providing one-year term life insurance. The funding policy for the SDBF program is to assure that adequate resources are available to meet all death benefit payments for the upcoming year; the intent is not to pre -fund retiree term life insurance during employee's entire careers. The City's contributions to the TMRS SDBF for the years ended September 30, 2016, 2015, and 2014 were $28,051, $24,187, and $20,884, respectively, which equaled the required contributions each year. XIV. RISK MANAGEMENT The City is exposed to various risks of loss related to torts; theft of, damage to, and destruction of assets; errors and omissions; injuries to employees; and natural disasters. The City's risk management program encompasses obtaining property and liability insurance through Texas Municipal League (TML), an Intergovernmental Risk Pool. The City has not had any significant reduction in insurance coverage and the amounts of insurance settlements have not exceeded insurance coverage for any of the last three years. The participation of the City in TML is limited to payment of premiums. During the year ended September 30, 2016, the City paid premiums to TML for provision of various liability, property and casualty insurance. The City has various deductible amounts ranging from $500 to $5,000 on various policies. At year-end, the City did not have any significant open claims. The City also provides workers' compensation insurance on its employees through TML. Workers' compensation is subject to change when audited by TML. At year-end, September 30, 2016, the City believed the amounts paid on workers' compensation would not change significantly from the amounts recorded. During the year ended September 30, 2016, employees of the City were covered by a health and dental insurance plan. The City pays 90% of the monthly premium of employees choosing individual coverage only. The City pays 70% of the monthly premium for employees choosing to cover themselves and their dependents. 62 XV. COMMITMENTS AND CONTINGENCIES Southeast Water Purification Plant The City has entered into a contract with the City of Houston for construction, operating and maintaining a water purification plant known as Southeast Water Purification Plant. The City's pro rata share of the actual pumping construction costs is 1.33 percent. The City began receiving water from the plant on October 15, 1990. The City is billed on a monthly basis for the actual gallons of water received times the City's pro rata share of actual costs. At the end of each quarter, the City of Houston computes the total operation and maintenance expenses for the quarter just ended, recalculates the cost per one thousand gallons, and adjusts previous billings on the next invoice. As of September 30, 2016, the City has purchased water capacity with an indefinite life of $19,716,695. The relationship of the parties is of a fiduciary character, no partnership or joint venture is created by this contract. Blackhawk Regional Wastewater Treatment Facility On December 12, 1974, the City entered into an agreement with Gulf Coast Waste Disposal Authority to construct the Blackhawk Regional Wastewater Treatment Facility. The Blackhawk Wastewater Treatment Facility was constructed in the early 1980s and is a regional wastewater treatment plant serving MUD 55, Baybrook MUD 1, City of Houston and the City of Friendswood. The plant has a capacity of 9.25 million gallons per day (MGD) and is operated and maintained by Gulf Coast Waste Disposal Authority. Friendswood is the majority owner having 52.465% or 4.853 MGD of its capacity. As a part of the contract with Gulf Coast Waste Disposal Authority, the City and all participants pay their share of operational costs and expenses (direct and indirect) incurred monthly at the Blackhawk Wastewater Treatment Facility based upon actual flows. This includes the maintenance of the plant and the creation and maintenance of reasonable reserves for repairs and other contingencies. Capital expenditures on the other hand shall be the responsibility of all participants based upon their purchased capacity in the plant. For Friendswood, that equates to 52.465% for capital projects identified and approved at the plant. Federal and State Programs The City recognizes grant monies received as reimbursement for costs incurred in certain federal and state programs it administers as revenue. Amounts received or receivable from grantor agencies are subject to audit and adjustment by grantor agencies. Any disallowed claims, including amounts already collected, may constitute a liability of the applicable funds. The amount, if any, of expenditures which may be disallowed by the grantor cannot be determined at this time although the City expects such amounts, if any, to be immaterial. 63 Litigation The City is a defendant in various lawsuits. The outcome and the impact of these lawsuits is not presently determinable. XVI. PRIOR PERIOD ADJUSTMENT At September 30, 2016, prior period expenditures of the EDA Grant Fund were determined to be unreimbursable by the federal granting agency. These prior period expenditures were adjusted to the Water and Sewer Fund and caused a decrease of beginning net position of $443,133. XVII. SUBSEQUENT EVENTS On February 6, 2017, the City issued $5,605,000 of General Obligation Bonds, Series 2017. These bonds were issued to fund construction and improvements to City streets and to pay the cost of issuance on the bonds. These bonds have interest rates ranging from 2.0 — 4.0% and will have a final maturity of March 1, 2031. 64 THIS PAGE LEFT BLANK INTENTIONALLY REQUIRED SUPPLEMENTARY INFORMATION THIS PAGE LEFT BLANK INTENTIONALLY CITY OF FRIENDSWOOD, TEXAS SCHEDULE OF CHANGES IN NET PENSION LIABILITY AND RELATED RATIOS SEPTEMBER 30, 2016 Plan Year A. Total pension liability Service Cost Interest (on the Total Pension Liability) Difference between expected and actual experience Changes of assumptions Benefit payments, including refunds of employee contributions Net change in total pension liability Total pension liability - beginning Total pension liability - ending (a) B. Plan fiduciary net position Contributions - employer Contributions - employee Net investment income Benefit payments, including refunds of employee contributions Administrative expenses Other Net change in plan fiduciary net position Plan fiduciary net position - beginning Plan fiduciary net position - ending (b) C. Net pension liability - ending (a) - (b) D. Plan fiduciary net position as a percentage of total pension liability E. Covered employee payroll F. Net position liability as a percentage of covered employee payroll 2014 2015 $ 2,018,353 4,084,392 ( 736,093) ( 2,005,311) 3,361,341 58,341,940 61,703,281 1,867,782 829,598 2,868,842 ( 2,005,311) ( 29,949) ( 2,462) 3,528,500 50,143,785 53,672,285 $ 8,030,996 86.98% $ 11,851,396 67.76% $ 2,204,299 4,317,394 ( 1,032,789) 847,469 ( 2,256,734) 4,079,639 61,703,281 65,782,920 1,998,038 886,669 79,202 ( 2,256,734) ( 48,239) ( 2,383) 656,553 53,672,285 54,328,838 $ 11,454,082 82.59% $ 12,653,842 90.52% Note - GASB 68 requires 10 years of data to be included in the schedule of pension contributions. Additional years will be added in subsequent periods as data becomes available. 65 CITY OF FRIENDSWOOD, TEXAS SCHEDULE OF PENSION CONTRIBUTIONS Fiscal Year Actuarial determined contribution Contributions in relation to the actuarially determined contribution Contribution deficiency (excess) Covered employee payroll Contributions as a percentage of covered employee payroll SEPTEMBER 30, 2016 2014 2015 2016 $ 1,847,375 $ 1,960,652 $ 2,100,698 1,847,375 11,781,281 15.68% 1,960,652 12,423,310 15.78% 2,100,698 13,525,613 15.53% Note - GASB 68 requires 10 years of data to be included in the schedule of pension contributions. Additional years will be added in subsequent periods as data becomes available. NOTES TO SCHEDULE OF CONTRIBUTIONS Valuation Date Actuarially determined contribution rates are calculated as of December 31 and become effective in January, 13 months later. Methods and Assumptions Used to Determine Contribution Rates: Actuarial Cost Method Entry Age Normal Amortization Method Level Percentage of Payroll, Closed Remaining Amortization 30 years Period Asset Valuation Method 10 Year smoothed market; 15% soft corridor Inflation 2.50% Salary Increases 3.50% to 10.5% including inflation Investment Rate of Return 6.75% Retirement Age Experience -based table of rates that are specific to the City's plan of benefits. Last updated for the 2015 valuation pursuant to an experience study of the period 2010-2014 Mortality RP2000 Combined Mortality Table with Blue Collar Adjustment with male rates multiplied by 109% and female rates multiplied by 103% and projected on a fully generational basis of with scale BB. Other Information There were no benefit changes during the year. 66 CITY OF FRIENDSWOOD, TEXAS SCHEDULE OF FUNDING PROGRESS POST EMPLOYMENT BENEFITS PLAN OTHER THAN PENSIONS SEPTEMBER 30, 2016 (1) (2) (3) (4) (5) (6) ((1) / (2)) ((2) - (1)) ((4) / (5)) Actuarial Actuarial Unfunded UAAL as a Actuarial Value of Accrued Funded AAL Covered Percentage of Valuation Date Assets Liability (AAL) Ratio (UAAL) Payroll Covered Payroll 12/31/2010 $ - $ 610,795 0.0% $ 610,795 $ 11,160,286 5.5% 12/31/2012 - 676,248 0.0% 676,248 11,513,756 5.9% 12/31/2014 - 641,352 0.0% 641,352 12,423,310 5.2% 67 CITY OF FRIENDSWOOD, TEXAS SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL GENERAL FUND FOR THE YEAR ENDED SEPTEMBER 30, 2016 Variance with Final Budget Budgeted Amounts Actual Positive Original Final Amounts (Negative) REVENUES Property taxes $ 14,711,243 $ 14,714,164 $ 14,300,346 $( 413,818) Sales and alcohol taxes 4,998,158 4,998,158 5,393,920 395,762 Franchise taxes 1,644,011 1,653,225 1,779,234 126,009 Fines and forfeitures 842,856 842,856 845,112 2,256 Permits and fees 1,278,631 1,282,551 1,407,439 124,888 Intergovernmental 241,352 302,522 330,063 27,541 Investment earnings 48,713 48,713 84,542 35,829 Donations 17,000 66,832 68,323 1,491 Miscellaneous 15,901 26,793 79,135 52,342 Total revenues 23,797,865 23,935,814 24,288,114 352,300 EXPENDITURES General government Mayor and council - governing body Supplies and maintenance 4,036 4,036 3,146 890 Other services and charges 52,479 85,798 35,914 49,884 Total governing body 56,515 89,834 39,060 50,774 Mayor and council - city attorney Personnel services 197,211 197,211 197,033 178 Supplies 450 450 120 330 Other services and charges 18,600 18,700 1,937 16,763 Total city attorney 216,261 216,361 199,090 17,271 City manager - administration Personnel services 482,446 575,631 581,246 ( 5,615) Supplies 15,220 22,789 14,807 7,982 Other services and charges 64,521 59,937 27,434 32,503 Total administration 562,187 658,357 623,487 34,870 City manager - economic development Personnel services 164,268 164,268 164,272 ( 4) Supplies 6,000 6,035 2,133 3,902 Other services and charges 90,650 120,650 78,375 42,275 Total economic development 260,918 290,953 244,780 46,173 City secretary - municipal clerk Personnel services 285,734 285,734 284,659 1,075 Supplies 5,558 5,408 2,686 2,722 Other services and charges 17,721 17,251 15,692 1,559 Total municipal clerk 309,013 308,393 303,037 5,356 68 CITY OF FRIENDSWOOD, TEXAS (Continued) SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL GENERAL FUND FOR THE YEAR ENDED SEPTEMBER 30, 2016 Variance with Final Budget Budgeted Amounts Actual Positive Original Final Amounts (Negative) City secretary - election services Personnel services $ 7,962 $ 7,962 $ 2,871 $ 5,091 Supplies 6,477 6,477 3,973 2,504 Repairs and maintenance 525 525 281 244 Other services and charges 12,554 12,554 11,380 1,174 Total election services 27,518 27,518 18,505 9,013 City secretary - records management Personnel services 119,641 119,641 116,784 2,857 Supplies 944 944 491 453 Other services and charges 30,044 37,464 18,165 19,299 Total records management 150,629 158,049 135,440 22,609 Administrative services - finance Personnel services 896,849 882,192 681,232 200,960 Supplies 7,920 7,720 7,330 390 Other services and charges 75,813 92,362 69,466 22,896 Total finance 980,582 982,274 758,028 224,246 Administrative services - other admin Other services and charges 162,909 168,522 164,701 3,821 Total other admin 162,909 168,522 164,701 3,821 Administrative services - municipal court Personnel services 433,904 433,904 365,310 68,594 Supplies 11,175 11,175 5,902 5,273 Other services and charges 27,724 27,724 22,793 4,931 Total municipal court 472,803 472,803 394,005 78,798 Administrative services - human resources Personnel services 346,633 346,633 307,613 39,020 Supplies 14,160 23,960 8,019 15,941 Other services and charges 64,069 65,159 48,639 16,520 Total human resources 424,862 435,752 364,271 71,481 Administrative services - Insurance Other services and charges 163,913 163,913 150,488 13,425 Total insurance 163,913 163,913 150,488 13,425 69 CITY OF FRIENDSWOOD, TEXAS (Continued) SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL GENERAL FUND FOR THE YEAR ENDED SEPTEMBER 30, 2016 Variance with Final Budget Budgeted Amounts Actual Positive Original Final Amounts (Negative) Administrative services - risk management Personnel services $ 114,233 $ 114,233 $ 114,686 $( 453) Supplies 33,175 21,375 13,612 7,763 Other services and charges 22,411 24,411 11,958 12,453 Total risk management 169,819 160,019 140,256 19,763 Administrative services - information technology Personnel services 425,455 425,455 414,502 10,953 Supplies 11,750 23,592 21,813 1,779 Repairs and maintenance 70,550 85,661 48,519 37,142 Other services and charges 387,445 624,012 334,147 289,865 Capital outlay 19,000 19,000 17,661 1,339 Total information technology 914,200 1,177,720 836,642 341,078 Total general government 4,872,129 5,310,468 4,371,790 938,678 Public safety Police department - administration Personnel services 733,757 713,757 711,990 1,767 Supplies 38,746 39,441 22,532 16,909 Repairs and maintenance 3,500 3,983 3,519 464 Other services and charges 474,009 486,631 456,590 30,041 Total administration 1,250,012 1,243,812 1,194,631 49,181 Police department - communications Personnel services 1,037,961 1,071,636 1,080,755 ( 9,119) Supplies 7,600 7,921 5,180 2,741 Repairs and maintenance 30,975 40,975 38,109 2,866 Other services and charges 19,000 19,059 10,982 8,077 Total communications 1,095,536 1,139,591 1,135,026 4,565 Police department - patrol Personnel services 4,515,262 4,477,000 4,506,933 ( 29,933) Supplies 325,107 389,706 286,494 103,212 Repairs and maintenance 130,309 152,484 132,214 20,270 Capital outlay 61,488 68,283 58,673 9,610 Total patrol 5,032,166 5,087,473 4,984,314 103,159 Police department - patrol - DOT program Personnel services 90,158 95,735 97,371 ( 1,636) Supplies 8,579 9,218 3,093 6,125 Repairs and maintenance 1,000 1,000 225 775 Total patrol - DOT program 99,737 105,953 100,689 5,264 70 CITY OF FRIENDSWOOD, TEXAS (Continued) SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL GENERAL FUND FOR THE YEAR ENDED SEPTEMBER 30, 2016 Variance with Final Budget Budgeted Amounts Actual Positive Original Final Amounts (Negative) Police department - criminal investigation Personnel services $ 1,698,918 $ 1,697,941 $ 1,702,177 $( 4,236) Supplies 65,506 67,506 41,506 26,000 Repairs and maintenance 32,000 32,315 29,979 2,336 Other services and charges 2,000 2,000 600 1,400 Total criminal investigation 1,798,424 1,799,762 1,774,262 25,500 Police department - animal control Personnel services 268,185 283,966 300,958 ( 16,992) Supplies 33,749 34,341 29,590 4,751 Repairs and maintenance 3,500 5,700 4,982 718 Other services and charges 68,903 74,817 64,680 10,137 Total animal services 374,337 398,824 400,210 ( 1,386) Friendswood Volunteer Fire Department - fire administration Repairs and maintenance - - 8,007 ( 8,007) Other services and charges 1,499,035 1,499,735 1,501,615 ( 1,880) Total fire administration 1,499,035 1,499,735 1,509,622 ( 9,887) Fire marshal - administration Personnel services 600,266 602,466 604,413 ( 1,947) Supplies 23,386 23,386 20,467 2,919 Repairs and maintenance 5,005 5,752 4,131 1,621 Other services and charges 40,955 38,921 31,787 7,134 Total administration 669,612 670,525 660,798 9,727 Fire marshal - emergency management Personnel services 82,817 82,817 80,670 2,147 Supplies 27,845 70,923 60,865 10,058 Repairs and maintenance 4,725 4,725 2,042 2,683 Other services and charges 48,415 55,551 38,472 17,079 Capital outlay - 7,511 7,511 - Total emergency management 163,802 221,527 189,560 31,967 Fire marshal - storm Other services and charges - 186,680 172,629 14,051 Total emergency management - 186,680 172,629 14,051 Total public safety 11,982,661 12,353,882 12,121,741 218,090 71 CITY OF FRIENDSWOOD, TEXAS (Continued) SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL GENERAL FUND Public works Administration Personnel services Supplies Other services and charges Total administration Streets Personnel services Supplies Repairs and maintenance Other services and charges Total streets Drainage FOR THE YEAR ENDED SEPTEMBER 30, 2016 Variance with Final Budget Budgeted Amounts Actual Positive Original Final Amounts (Negative) $ 366,481 $ 325,561 $ 326,973 $( 1,412) 1,900 2,314 1,729 585 10,800 10,536 4,484 6,052 379,181 338,411 333,186 5,225 621,611 621,611 569,078 52,533 83,686 73,400 73,418 ( 18) 119,205 129,689 129,688 1 411,055 414,597 413,494 1,103 1,235,557 1,239,297 1,185,678 53,619 Personnel services 315,233 315,233 319,197 ( 3,964) Supplies 12,455 8,405 6,636 1,769 Repairs and maintenance 37,300 39,164 37,671 1,493 Other services and charges 18,292 18,292 17,560 732 Total drainage 383,280 381,094 381,064 30 Capital projects administration Personnel services 214,982 214,982 181,652 33,330 Supplies 6,047 7,047 4,298 2,749 Repairs and maintenance 625 1,279 1,047 232 Other services and charges 17,965 37,491 31,647 5,844 Total capital projects administration 239,619 260,799 218,644 42,155 Total public works 2,237,637 2,219,601 2,118,572 101,029 Community development Administration Personnel services 212,681 224,848 226,028 ( 1,180) Supplies 3,975 4,855 4,470 385 Other services and charges 4,155 4,869 2,383 2,486 Total administration 220,811 234,572 232,881 1,691 72 CITY OF FRIENDSWOOD, TEXAS (Continued) SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL GENERAL FUND FOR THE YEAR ENDED SEPTEMBER 30, 2016 Variance with Final Budget Budgeted Amounts Actual Positive Original Final Amounts (Negative) Community development Planning and zoning Personnel services $ 328,798 $ 288,986 $ 259,657 $ 29,329 Supplies 630 2,630 2,528 102 Other services and charges 300 300 - 300 Repairs and maintenance 35,180 28,335 26,513 1,822 Total planning and zoning 364,908 320,251 288,698 31,553 Inspection and code enforcement Personnel services 401,368 401,368 401,364 4 Supplies 13,169 16,469 11,063 5,406 Repairs and maintenance 2,325 2,325 1,330 995 Other services and charges 36,461 36,450 18,767 17,683 Total inspection and code enforcement 453,323 456,612 432,524 24,088 Total community development 1,039,042 1,011,435 954,103 57,332 Parks and recreation Administration Personnel services 285,583 262,583 263,431 ( 848) Supplies 4,500 4,500 3,297 1,203 Repairs and maintenance 26,384 26,384 24,254 2,130 Total administration 316,467 293,467 290,982 2,485 Recreation programs Personnel services 206,924 211,355 213,609 ( 2,254) Supplies 24,250 15,584 8,771 6,813 Other services and charges 60,029 68,008 59,630 8,378 Total recreation programs 291,203 294,947 282,010 12,937 July 4th program Personnel services 27,854 27,854 27,289 565 Supplies 3,705 8,232 6,460 1,772 Other services and charges 57,009 53,347 52,423 924 Total July 4th program 88,568 89,433 86,172 3,261 Summer day camp program Personnel services 71,360 71,360 67,765 3,595 Supplies 11,050 11,050 10,513 537 Other services and charges 28,380 28,920 24,743 4,177 Total summer day camp program 110,790 111,330 103,021 8,309 73 CITY OF FRIENDSWOOD, TEXAS (Continued) SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL GENERAL FUND FOR THE YEAR ENDED SEPTEMBER 30, 2016 Variance with Final Budget Budgeted Amounts Actual Positive Original Final Amounts (Negative) Keep Friendswood beautiful committee Supplies $ 10,360 $ 10,202 $ 9,991 $ 211 Repairs and maintenance 9,500 7,087 7,087 - Other services and charges 17,125 39,039 34,069 4,970 Capital outlay - 6,500 6,500 - Total keep Friendswood beautiful committee 36,985 62,828 57,647 5,181 Stevenson park pool Personnel services 54,187 54,187 49,083 5,104 Supplies 6,330 21,353 17,266 4,087 Repairs and maintenance 7,843 6,658 4,983 1,675 Other services and charges 39,397 31,867 28,204 3,663 Total Stevenson park pool 107,757 114,065 99,536 14,529 Senior activity center Personnel services 161,740 162,061 164,248 ( 2,187) Supplies 14,812 12,186 10,005 2,181 Repairs and maintenance 1,200 3,400 3,051 349 Other services and charges 20,951 20,306 13,138 7,168 Total senior activity center 198,703 197,953 190,442 7,511 Parks operations Personnel services 473,161 484,032 488,704 ( 4,672) Supplies 100,317 96,098 77,167 18,931 Repairs and maintenance 131,484 205,077 205,067 10 Other services and charges 524,500 460,170 449,745 10,425 Capital outlay - 56,472 56,432 40 Total parks operations 1,229,462 1,301,849 1,277,115 24,734 Facility operations Supplies 27,930 29,530 21,610 7,920 Repairs and maintenance 120,767 133,952 127,944 6,008 Other services and charges 524,746 525,546 481,608 43,938 Capital outlay - 14,893 14,892 1 Total facility operations 673,443 703,921 646,054 57,867 Total parks and recreation 3,053,378 3,169,793 3,032,979 136,814 Library Administration Personnel services 947,496 947,496 915,509 31,987 Supplies 129,402 145,225 123,828 21,397 Repairs and maintenance 300 300 - 300 Other services and charges 9,065 9,276 8,187 1,089 Total administration 1,086,263 1,102,297 1,047,524 54,773 74 CITY OF FRIENDSWOOD, TEXAS (Continued) SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL GENERAL FUND FOR THE YEAR ENDED SEPTEMBER 30, 2016 Board Supplies Repairs and maintenance Other services and charges Total board Total library Capital improvements Repairs and maintenance Supplies and Maintenance Capital outlay Total capital improvements Total expenditures EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER) EXPENDITURES OTHER FINANCING SOURCES (USES) Insurance recoveries Sale of capital assets Transfers in Total other financing sources (uses) NET CHANGE IN FUND BALANCE FUND BALANCE, BEGINNING FUND BALANCE, ENDING Variance with Final Budget Budgeted Amounts Actual Positive Original Final Amounts (Negative) $ 25,067 $ 39,948 $ 37,587 $ 2,361 440 440 420 20 13,560 13,842 11,083 2,759 39,067 54,230 49,090 5,140 1,125,330 1,156,527 1,096,614 59,913 866,473 59,083 60,998 ( 1,915) - 24,960 33,612 ( 8,652) 95,000 3,700,901 1,641,423 2,059,478 961,473 3,784,944 1,736,033 2,048,911 25,271,650 29,006,650 25,431,832 3,560,767 ( 1,473,785) ( 5,070,836) ( 1,143,718) 3,913,067 - 18,182 19,564 ( 1,382) - - 2,743 ( 2,743) 1,321,284 1,321,284 1,321,284 - 1,321,284 1,339,466 1,343,591 ( 4,125) ( 152,501) ( 3,731,370) 199,873 3,908,942 13,559,674 13,559,674 13,559,674 - $ 13,407,173 $ 9,828,304 $ 13,759,547 $ 3,908,942 75 CITY OF FRIENDSWOOD, TEXAS NOTES TO REQUIRED SUPPLEMENTARY INFORMATION SEPTEMBER 30, 2016 I. BUDGETARY CONTROL The City's Code of Ordinances establishes the following framework for the preparation and format of the City's annual budget: Content The budget shall provide a complete financial plan of all City funds and activities and, except as required by law or this Charter, shall be in such form as the City Manager deems desirable or the Council may require. The budget shall begin with a clear general summary of its contents; shall show in details all estimated income, the proposed property tax levy, and all proposed expenditures for the ensuing fiscal years, including debt service and an itemized estimate of the expense of conducting each Department of the City. The proposed budget expenditures shall not exceed the total of estimated income. It shall also include, in separate sections: 1) Tax levies, rates and collections for the preceding five years. 2) The amount required for interest on the City's debts, for sinking fund and for maturing serial bonds. 3) The total amount of outstanding City debts, with a schedule of maturities on bond issues. 4) Anticipated net surplus of deficit for the ensuing fiscal year of each utility owned or operated by the City and the proposed method of its disposition, subsidiary budgets for each such utility giving detailed income and expenditure information shall be attached as appendices to the budget. 76 5) A capital program, which may be revised and extended each year to indicate capital improvements pending or in process of construction or acquisition, and shall include the following items which shall be attached as appendices to the budget: a) A summary of proposed programs; b) A list of all capital improvements which are proposed to be undertaken during the five fiscal years next ensuing, with appropriate support information as to the necessity for such improvements; c) Cost estimates, method of financing and recommended time schedules from each such improvement and d) The estimated annual cost of operating and maintaining the facilities to bid constructed or acquired. 6) Such other information as may be required by the Council. Submission On or before the first day of August of each year, the City Manager shall submit to the Council a proposed budget and an accompanying message. The Council shall review the proposed budget and revise as deemed appropriate prior to general circulation for public hearing. Public Notice and Hearing The Council shall post in the City Hall and publish in the official newspaper a general summary of their proposed budget and a notice stating: 1) The times and places where copies of the message and budget are available for inspection by the public; and 2) The time and place, not less than ten nor more than 30 days after such publication, for a public hearing on the budget. Amendment Before Adoption After the public hearing, the Council may adopt the budget with or without amendment. In amending the budget, it may add or increase programs or amounts and may delete or decrease any programs or amounts, except expenditures required by law or for debt service or for estimated cash deficit, provide that no amendment to the budget shall increase the authorized expenditures to an amount greater than the total of estimated income plus funds available from prior years. 77 If the Council fails to adopt an annual budget before the start of the fiscal year to which it applies, appropriations of the last budget adopted shall be considered as adopted for the current fiscal year on a month to month, pro rata basis, until the annual budget is adopted. Adoption of the budget shall require an affirmative vote of at least a majority of all members of the Council. Adoption of the budget shall constitute appropriations of the amounts specified therein as expenditures from the funds indicated. Amendments After Adoption At any time during the fiscal year, the City Manager may transfer part or all of any unencumbered appropriation balance among programs within a department, division, or office, and, upon written request by the City Manager, the Council may be ordinance transfer part of all of any unencumbered appropriation balance from one department, office, or agency to another. No appropriation for debt service may be reduced or transferred and no appropriation may be reduced below any amount required by law to be appropriated or by more than the amount of the unencumbered balance thereof. The City Council made supplemental budgetary appropriation changes during the fiscal year. The reported budgetary data has been revised for these amendments legally authorized during the year. 78 COMBINING AND INDIVIDUAL STATEMENTS AND SCHEDULES THIS PAGE LEFT BLANK INTENTIONALLY NONMAJOR GOVERNMENTAL FUNDS SPECIAL REVENUE FUNDS Special revenue funds are used to account for revenues that are restricted in nature for a special purpose limited by state law and management intentions for expenditures. Police Investigation Fund — This fund is used to account for revenues that are restricted to police investigation expenditures. Fire/EMS Donation Fund — This fund accounts for revenues that are restricted for Fire/EMS capital outlays and debt repayments. EDA Grant Fund — This fund is used to account for receipts and expenditures related to the U.S. Department of Commerce Economic Development Administration grant. Court Security and Technology Fund — This fund accounts for revenues that are restricted for court technology and building security. In 1999, the state legislature authorized a court technology and court security fee for municipal court fines. DEBT SERVICE FUND Debt service funds are used to account for the accumulation of resources that are restricted, committed, or assigned for the repayment of principal and interest on long-term obligations of the governmental funds. Debt Service Fund — is used to account for the accumulation of resources for the payment of general long-term debt principal, interest and related costs. PERMANENT FUND The Permanent Fund is used to report resources that are legally restricted to the extent that only earnings, not principal, may be used for purposes that support the City's programs. 1776 Park Fund — This fund is used to account for assets held by the City in a trustee capacity and the earnings benefit this City Park. CAPITAL PROJECTS FUNDS Sidewalk Installation Fund — This fund is used to account for receipts from developers to install sidewalks in neighborhood developments. Park Land Dedication Fund — This fund is used to account for receipts from developers to build or enhance neighborhood and community parks. TDRA Grant Fund — This fund is used to account for receipts and expenditures related to the Texas Community Development Block Grant. CITY OF FRIENDSWOOD, TEXAS COMBINING BALANCE SHEET NONMAJOR GOVERNMENTAL FUNDS SEPTEMBER 30, 2016 Special Revenue Court Police Fires/EMS EDA Security and Investigation Donation Grant Technology ASSETS Cash and investments $ 46,896 $ 136,180 $ - $ 201,767 Receivables, net of allowance Taxes receivable - - - - Customer accounts - 7,084 - - Other receivables 123 - - 3,573 Due from other governments - - - - Prepaids and other assets - - - 157 Total assets 47,019 143,264 - 205,497 LIABILITIES Accounts payable 3,759 - - 5 Due to other funds - - - - Total liabilities 3,759 - - 5 DEFERRED INFLOWS OF RESOURCES Unavailable revenues - - - 3,552 Total deferred inflows of resources - - - 3,552 FUND BALANCES Nonspendable: Prepaid items - - - 157 Permanent fund - - - - Restricted for: Municipal court operations - - - 201,783 Debt service - - - - Public safety 43,260 143,264 - - Capital projects - - - - Unassigned - - - - Total fund balances 43,260 143,264 - 201,940 Total liabilities, deferred inflows of resources, and fund balance $ 47,019 $ 143,264 $ - $ 205,497 79 Permanent Capital Projects Total Nonmaj or Debt Sidewalk Park Land TDRA Governmental Service 1776 Park Installation Dedication Grant Funds $ 206,590 $ 31,564 $ 20,587 $ 179,534 $ 270,597 $ 1,093,715 24,352 - - - - 24,352 - - - - - 7,084 - - - - - 3,696 - - - - 196,660 196,660 230,942 31,564 20,587 179,534 467,257 1,325,664 - - - 464,350 468,114 71,256 - - - - 71,256 71,256 - - - 464,350 539,370 29,330 - - - 196,657 229,539 29,330 - - - 196,657 229,539 157 31,564 - - - 31,564 - - - - - 201,783 130,356 - - - - 130,356 - - - - - 186,524 - 20,587 179,534 - 200,121 - - - - ( 193,750) ( 193,750) 130,356 31,564 20,587 179,534 ( 193,750) 556,755 $ 230,942 $ 31,564 $ 20,587 $ 179,534 $ 467,257 $ 1,325,664 80 CITY OF FRIENDSWOOD, TEXAS COMBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES NONMAJOR GOVERNMENTAL FUNDS FOR THE YEAR ENDED SEPTEMBER 30, 2016 REVENUES Taxes Licenses, permits and fees Intergovernmental Fines and forfeitures Contributions Interest Miscellaneous Total revenues EXPENDITURES Current: General government Public safety Debt Service Principal Interest and other Capital outlay Total expenditures EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER) EXPENDITURES OTHER FINANCING SOURCES (USES) Transfers in Transfers out Total other financing sources (uses) NET CHANGE IN FUND BALANCES FUND BALANCES, BEGINNING FUND BALANCES, ENDING Special Revenue Court Police Fires/EMS EDA Security and Investigation Donation Grant Technology 15,707 - - - - - - 28,760 - 189,401 - - 323 206 - 1,344 16,030 189,607 - 30,104 - - - 13,531 14,215 - - - - 121,197 - - - 8,770 - - 16,281 - - - 30,496 129,967 - 13,531 ( 14,466) 59,640 - 16,573 - - ( 345) - - - ( 345) - ( 14,466) 59,640 ( 345) 16,573 57,726 83,624 345 185,367 $ 43,260 $ 143,264 $ - $ 201,940 81 Permanent Capital Projects Total Nonmaj or Debt Sidewalk Park Land TDRA Governmental Service 1776 Park Installation Dedication Grant Funds $ 2,059,794 $ - $ - $ - $ - $ 2,059,794 - - - 43,500 - 43,500 - - - 318,657 334,364 - - - - - 28,760 - - - - - 189,401 3,490 186 64 541 2,610 8,764 - - - 300 - 300 2,063,284 186 64 44,341 321,267 2,664,883 - - - - - 13,531 - - - - - 14,215 1,448,979 - - - - 1,570,176 843,777 - - - - 852,547 - - - - 515,313 531,594 2,292,756 - - - 515,313 2,982,063 ( 229,472) 186 64 44,341 ( 194,046) ( 317,180) 182,158 - - - - 182,158 - - - - - ( 345) 182,158 - - - - 181,813 ( 47,314) 186 64 44,341 ( 194,046) ( 135,367) 177,670 31,378 20,523 135,193 296 692,122 $ 130,356 $ 31,564 $ 20,587 $ 179,534 $( 193,750) $ 556,755 82 CITY OF FRIENDSWOOD, TEXAS SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL BOND CONSTRUCTION FOR THE YEAR ENDED SEPTEMBER 30, 2016 REVENUES Interest income Total revenues EXPENDITURES Capital outlay Debt service Bond issuance costs Total expenditures EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER) EXPENDITURES OTHER FINANCING SOURCES (USES) Issuance of capital -related debt Premium on bond issuance Transfers out Total other financing sources (uses) NET CHANGE IN FUND BALANCES FUND BALANCES, BEGINNING FUND BALANCES, ENDING Budgeted Amounts Original Final Variance with Final Budget Actual Positive Amounts (Negative) $ 54,097 $ 54,097 54,097 54,097 6,558,376 14,077,882 7,064,773 7,013,109 - - 69,435 ( 69,435) 6,558,376 14,077,882 7,134,208 6,943,674 ( 6,558,376) ( 14,077,882) ( 7,080,111) 6,997,771 - 8,578,000 7,345,000 ( 1,233,000) - - 1,484,593 1,484,593 - - ( 182,158) ( 182,158) - 8,578,000 8,647,435 69,435 ( 6,558,376) ( 5,499,882) 1,567,324 7,067,206 5,879,241 5,879,241 5,879,241 - $( 679,135) $ 379,359 $ 7,446,565 $ 7,067,206 83 CITY OF FRIENDSWOOD, TEXAS SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL POLICE INVESTIGATION FOR THE YEAR ENDED SEPTEMBER 30, 2016 REVENUES Intergovernmental Interest income Total revenues EXPENDITURES Current Public safety Capital outlay Total expenditures NET CHANGE IN FUND BALANCE FUND BALANCE, BEGINNING FUND BALANCE, ENDING Budgeted Amounts Original Final $ 2,276 $ 6,341 $ Variance with Final Budget Actual Positive Amounts (Negative) 15,707 $ 9,366 2,276 21,337 14,215 7,122 - 16,281 16,281 - 2,276 37,618 30,496 7,122 250 ( 31,027) ( 14,466) 16,561 57,726 57,726 57,726 - $ 57,976 $ 26,699 $ 43,260 $ 16,561 84 CITY OF FRIENDSWOOD, TEXAS SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL FIRE/EMS DONATION FUND FOR THE YEAR ENDED SEPTEMBER 30, 2016 REVENUES Donations Interest income Total revenues EXPENDITURES Current: Public safety Debt service: Principal Interest and other charges Total expenditures NET CHANGE IN FUND BALANCE FUND BALANCE, BEGINNING FUND BALANCE, ENDING Budgeted Amounts Original Final $ 269,200 $ 269,200 $ Variance with Final Budget Actual Positive Amounts (Negative) 189,401 $( 79,799) 72,352 72,352 - 72,352 180,110 181,524 121,197 60,327 16,848 15,434 8,770 6,664 269,310 269,310 129,967 139,343 - - 59,640 59,640 83,624 83,624 83,624 - $ 83,624 $ 83,624 $ 143,264 $ 59,640 85 CITY OF FRIENDSWOOD, TEXAS SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL DEBT SERVICE FUND FOR THE YEAR ENDED SEPTEMBER 30, 2016 REVENUES Property taxes Interest Total revenues EXPENDITURES Debt service Principal Interest and other Total expenditures EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER) EXPENDITURES OTHER FINANCING SOURCES (USES) Transfers in Total other financing sources NET CHANGE IN FUND BALANCE FUND BALANCE, BEGINNING FUND BALANCE, ENDING Variance with Final Budget Budgeted Amounts Actual Positive Original Final Amounts (Negative) $ 2,150,330 $ 2,150,330 $ 2,059,794 $( 90,536) 2,100 2,100 3,490 1,390 2,152,430 2,152,430 2,063,284 ( 89,146) 1,980,881 1,980,881 1,448,979 531,902 1,001,849 1,001,849 843,777 158,072 2,982,730 2,982,730 2,292,756 689,974 ( 830,300) ( 830,300) ( 229,472) 600,828 851,800 851,800 21,500 177,670 $ 199,170 851,800 182,158 ( 669,642) 851,800 182,158 ( 669,642) 21,500 ( 47,314) ( 68,814) 177,670 177,670 - $ 199,170 $ 130,356 $( 68,814) 86 CITY OF FRIENDSWOOD, TEXAS SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL COURT SECURITY TECHNOLOGY FOR THE YEAR ENDED SEPTEMBER 30, 2016 REVENUES Fines and forfeitures Interest income Total revenues EXPENDITURES Current General government Total expenditures NET CHANGE IN FUND BALANCE FUND BALANCE, BEGINNING Variance with Final Budget Budgeted Amounts Actual Positive Original Final Amounts (Negative) $ 34,500 $ 34,500 $ 28,760 $( 5,740) 875 875 1,344 469 35,375 35,375 30,104 ( 5,271) 27,732 43,725 13,531 30,194 27,732 43,725 13,531 30,194 7,643 ( 8,350) 16,573 24,923 185,367 185,367 185,367 - FUND BALANCE, ENDING $ 193,010 $ 177,017 $ 201,940 $ 24,923 87 CITY OF FRIENDSWOOD, TEXAS SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL 1776 PARK FOR THE YEAR ENDED SEPTEMBER 30, 2016 REVENUES Interest income Total revenues EXPENDITURES Current Total expenditures NET CHANGE IN FUND BALANCE FUND BALANCE, BEGINNING FUND BALANCE, ENDING Budgeted Amounts Original Final $ 115 $ 115 $ 115 115 Variance with Final Budget Actual Positive Amounts (Negative) 186 $ 71 115 115 186 71 31,378 31,378 31,378 - $ 31,493 $ 31,493 $ 31,564 $ 71 88 CITY OF FRIENDSWOOD, TEXAS SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL PARK LAND DEDICATION FOR THE YEAR ENDED SEPTEMBER 30, 2016 REVENUES Licenses, permits and fees Interest income Miscellaneous Total revenues EXPENDITURES Capital outlay Total expenditures NET CHANGE IN FUND BALANCE FUND BALANCE, BEGINNING FUND BALANCE, ENDING Budgeted Amounts Original Final $ 40,000 $ 40,000 $ 500 500 Variance with Final Budget Actual Positive Amounts (Negative) 43,500 $ 3,500 541 41 163,001 170,003 - 170,003 163,001 170,003 - 170,003 ( 122,501) ( 129,503) 44,341 173,844 135,193 135,193 135,193 - $ 12,692 $ 5,690 $ 179,534 $ 173,844 89 CITY OF FRIENDSWOOD, TEXAS SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL TDRA GRANT FOR THE YEAR ENDED SEPTEMBER 30, 2016 REVENUES Intergovernmental Interest income Total revenues EXPENDITURES Current Capital outlay Total expenditures EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER) EXPENDITURES OTHER FINANCING SOURCES (USES) Transfers in Total other financing sources (uses) NET CHANGE IN FUND BALANCE FUND BALANCE, BEGINNING FUND BALANCE, ENDING Variance with Final Budget Budgeted Amounts Actual Positive Original Final Amounts (Negative) $ 751,310 $ 751,310 $ 318,657 $( 432,653) - - 2,610 2,610 751,310 751,310 321,267 ( 430,043) 751,310 751,310 515,313 235,997 751,310 751,310 515,313 235,997 - ( 194,046) ( 194,046) 56,650 - ( 56,650) 56,650 - ( 56,650) - 56,650 ( 194,046) ( 250,696) 296 296 296 - $ 296 $ 56,946 $( 193,750) $( 250,696) 90 THIS PAGE LEFT BLANK INTENTIONALLY STATISTICAL SECTION THIS PAGE LEFT BLANK INTENTIONALLY STATISTICAL SECTION (Unaudited) This part of City of Friendswood, Texas' comprehensive annual financial report presents detailed information as a context for understanding what the information in the financial statements, note disclosures, and required supplementary information says about the government's overall financial health. Contents Page Financial Trends These schedules contain trend information to help the reader understand how the City's financial performance has changed over time. 91 —100 Revenue Capacity These schedules contain trend information to help the reader assess the factors affecting the City's ability to generate its electric utility, sales tax and property tax revenues. 101 — 104 Debt Capacity These schedules present information to help the reader assess the affordability of the City's current levels of outstanding debt and its ability to issue additional debt in the future. 105 — 109 Economic and Demographic Indicators These schedules contain economic and demographic information to help the reader understand the environment within which the City's financial activities take place. 110 — 112 Operating Information These schedules contain information about the City's operations and resources to help the reader understand how the City's financial information relates to the services the City provides and the activities it performs. 113 — 114 CITY OF FRIENDSWOOD, TEXAS NET POSITION BY COMPONENT LAST TEN FISCAL YEARS (Accrual Basis of Accounting) (Unaudited) Fiscal Year 2007 2008 2009 2010 Governmental activities Net investment in capital assets $ 71,777,140 $ 70,591,236 $ 69,313,348 $ 70,480,334 Restricted 2,391,482 2,773,910 2,461,510 1,977,801 Unrestricted 10,785,998 10,548,129 9,892,077 8,447,179 Total governmental activities net position 84,954,620 83,913,275 81,666,935 80,905,314 Business -type activities Net investment in capital assets 16,884,376 20,375,620 21,122,644 19,565,756 Restricted 162,218 27,246 93,526 593,597 Unrestricted 7,475,597 4,227,253 6,730,812 8,677,882 Total business -type activities net position 24,522,191 24,630,119 27,946,982 28,837,235 Primary government Net investment in capital assets 88,661,516 90,966,856 90,436,992 90,046,090 Restricted 2,553,700 2,801,156 2,555,036 2,571,398 Unrestricted 18,261,595 14,775,382 16,622,889 17,125,061 Total primary government net position $ 109,476,811 $ 108,543,394 $ 109,614,917 $ 109,742,549 91 TABLE 1 Fiscal Year 2011 2012 2013 2014 2015 2016 $ 66,580,049 $ 65,582,783 $ 65,056,180 $ 65,404,791 $ 73,611,490 $ 73,588,484 922,874 872,869 718,275 653,496 1,179,764 1,405,907 8,227,254 8,828,132 9,565,406 10,798,907 5,901,505 5,579,677 75,730,177 75,283,784 75,339,861 76,857,194 80,692,759 80,574,068 26,251,346 25,618,823 22,961,547 24,495,816 26,628,714 28,322,718 731,410 786,600 176,882 90,395 27,468 99,006 11,373,311 13,032,798 16,790,183 14,818,104 12,040,181 10,238,993 38,356,067 39,438,221 39,928,612 39,404,315 38,696,363 38,660,717 92,831,395 91,201,606 88,017,727 89,900,607 100,240,204 101,911,202 1,654,284 1,659,469 895,157 743,891 1,207,232 1,504,913 19,600,565 21,860,930 26,355,589 24,617,011 17,941,686 15,818,670 $ 114,086,244 $ 114,722,005 $ 115,268,473 $ 115,261,509 $ 119,389,122 $ 119,234,785 92 CITY OF FRIENDSWOOD, TEXAS CHANGES IN NET POSITION LAST TEN FISCAL YEARS (Accrual basis of accounting) (Unaudited) Fiscal Year 2007 2008 2009 2010 Expenses Governmental activities: General government $ 4,472,602 $ 4,339,620 $ 5,164,623 $ 5,145,447 Public safety 7,565,797 12,652,812 14,929,941 10,175,028 Community development and public works 5,475,447 4,921,298 5,292,000 - Public works - - - 3,853,685 Community development - - - 1,203,204 Community services 3,420,244 3,841,387 4,002,165 3,034,523 Library - - - 979,084 Interest and fiscal charges 835,511 803,733 678,705 789,652 Bond issuance costs - - - - Total governmental activities expenses 21,769,601 26,558,850 30,067,434 25,180,623 Business -type activities: Water and sewer 5,711,063 6,523,501 6,640,062 6,663,308 Interest and fiscal charges 1,583,551 1,543,859 1,604,174 2,037,104 Bond issuance costs - - - - Total business -type activities expenses 7,294,614 8,067,360 8,244,236 8,700,412 Total primary government expenses 29,064,215 34,626,210 38,311,670 33,881,035 Program Revenues Governmental activities: Charges for services General government 1,353,160 1,178,523 1,327,484 1,072,289 Public safety 23,267 21,356 46,773 38,438 Community development and public works 998,625 838,060 602,265 - Public works - - - 152,163 Community development - - - 550,286 Community services 219,944 132,244 411,207 258,030 Library - - - 44,313 Operating grants and contributions 489,707 4,021,908 5,755,038 2,819,418 Capital grants and contributions - - - - Total governmental activities program revenues 3,084,703 6,192,091 8,142,767 4,934,937 Business -type activities: Charges for services Water and sewer 8,021,040 8,624,546 12,028,895 9,854,083 Total business -type activities program revenues 8,021,040 8,624,546 12,028,895 9,854,083 Total primary government program revenues 11,105,743 14,816,637 20,171,662 14,789,020 Net (Expense) Revenues Governmental activities ( 18,684,898) ( 20,366,759) ( 21,924,667) ( 20,245,686) Business -type activities 726,426 557,186 3,784,659 1,153,671 Total primary government net expense $( 17,958,472) $( 19,809,573) $( 18,140,008) $( 19,092,015) 93 mW.1a0DWa Fiscal Year 2011 2012 2013 2014 2015 2016 $ 4,876,064 $ 4,737,702 $ 4,679,339 $ 4,589,795 $ 5,410,643 $ 4,736,867 10,548,568 10,736,805 10,800,130 11,236,402 11,763,659 13,101,691 3,517,707 3,738,111 4,385,090 3,921,658 3,933,288 4,429,482 1,284,188 1,520,401 1,207,264 1,097,075 1,406,288 1,577,813 3,058,313 3,227,731 3,260,931 3,356,587 2,869,345 3,080,453 979,978 1,004,303 1,002,801 1,083,043 1,026,967 1,134,859 871,790 757,011 703,275 630,542 567,142 793,219 - - - - 163,472 69,435 25,136,608 25,722,064 26,038,830 25,915,102 27,140,804 28,923,819 6,955,505 6,902,279 7,681,366 7,995,106 7,629,711 7,975,920 1,644,074 1,638,495 1,590,395 1,514,804 1,413,962 1,215,685 - - - - 110,314 427,038 8,599,579 8,540,774 9,271,761 9,509,910 9,153,987 9,618,643 33,736,187 34,262,838 35,310,591 35,425,012 36,294,791 38,542,462 1,158,392 1,167,619 989,190 912,910 807,245 1,002,022 39,914 39,661 34,944 31,620 30,275 28,760 158,858 171,890 186,504 193,064 190,099 174,568 643,150 730,211 825,366 877,132 843,648 949,011 267,837 271,912 316,047 315,702 280,046 286,727 43,147 39,543 36,686 36,081 33,699 27,532 3,150,808 648,058 644,458 843,995 660,633 800,151 - 527,288 543,763 1,202,376 3,225,672 318,657 5,462,106 3,596,182 3,576,958 4,412,880 6,071,317 3,587,428 12,726,936 11,258,216 11,462,779 11,117,391 11,020,029 11,319,801 12,726,936 11,258,216 11,462,779 11,117,391 11,020,029 11,319, 801 18,189,042 14,854,398 15,039,737 15,530,271 17,091,346 14,907,229 ( 19,674,502) ( 22,126,882) ( 22,461,872) ( 21,502,222) ( 21,069,487) ( 25,336,391) 4,127,357 2,717,442 2,191,018 1,607,481 1,866,042 1,701,158 $( 15,547,145) $( 19,409,440) $( 20,270,854) $( 19,894,741) $( 19,203,445) $( 23,635,233) 94 CITY OF FRIENDSWOOD, TEXAS CHANGES IN NET POSITION LAST TEN FISCAL YEARS (Accrual basis of accounting) (Unaudited) Fiscal Year 2007 2008 2009 2010 General Revenues and Other Changes in Net Position Governmental activities: Taxes Property $ 11,876,246 $ 12,512,950 $ 13,481,500 $ 13,664,765 Sales and alcohol 3,904,436 3,767,526 3,871,995 3,853,161 Franchise 1,239,167 1,317,166 1,363,221 1,510,794 Other 16,186 25,429 28,859 28,859 Investment earnings 1,063,715 648,301 166,492 93,018 Gain (loss) on disposal of capital assets 345,976 - 4,320 33,647 Miscellaneous 4,152 73,026 214,484 131,545 Transfers 875,616 981,016 547,456 168,276 Total governmental activities 19,325,494 19,325,414 19,678,327 19,484,065 Business -type activities: Investment earnings 1,236,092 531,758 128,338 87,056 Gain (loss) on disposal of capital assets - - ( 48,678) ( 182,198) Miscellaneous 4,182 - - - Transfers ( 875,616) ( 981,016) ( 547,456) ( 168,276) Total business -type activities 364,658 ( 449,258) ( 467,796) ( 263,418) Total primary government 19,690,152 18,876,156 19,210,531 19,220,647 Change in Net Position Governmental activities 640,596 ( 1,041,345) ( 2,246,340) ( 761,621) Business -type activities 1,091,084 107,928 3,316,863 890,253 Total primary government $ 1,731,680 $( 933,417) $ 1,070,523 $ 128,632 95 Fiscal Year 2011 2012 2013 2014 2015 2016 $ 13,944,725 $ 14,165,599 $ 4,002,740 3,907,577 1,598,407 1,556,556 28,883 23,356 110,863 137,202 23,831 17,601 126,228 147,457 5,336,312) 1,725,141 14,499,365 21,680,489 14,630,961 $ 14,864,284 $ 4,293,794 4,693,484 1,583,258 1,673,615 24,974 32,799 88,510 109,849 43,788 34,359 78,682 84,275 1,773,982 1,799,344 22,517,949 23,292,009 15,574,684 $ 5,291,186 1,726,557 79,071 108,306 1,226,205 24,006,009 16,350,101 5,393,920 1,779,234 149,003 19,564 128,813 1,397,065 25,217,700 TABLE 2 (continued) 55,163 82,853 37,565 40,713 49,138 95,825 - 7,000 - - - 7,569 - - 35,790 - 7,839 - 5,336,312 ( 1,725,141) ( 1,773,982) ( 1,799,344) ( 1,226,205) ( 1,397,065) 5,391,475 ( 1,635,288) ( 1,700,627) ( 1,758,631) ( 1,169,228) ( 1,293,671) 19,890,840 20,045,201 20,817,322 21,533,378 22,836,781 23,924,029 ( 5,175,137) ( 446,393) 56,077 1,789,787 2,936,522 ( 118,691) 9,518,832 1,082,154 490,391 ( 151,150) 1,956,662 407,487 $ 4,343,695 $ 635,761 $ 546,468 $ 1,638,637 $ 4,893,184 $ 288,796 96 General Fund Reserved Unreserved Nonspendable Restricted Committed Assigned Unassigned Total General Fund All other governmental funds Reserved Unreserved, reported in: Special revenue funds Capital projects fund Permanent fund Nonspendable Restricted Unassigned Total all other governmental funds CITY OF FRIENDSWOOD, TEXAS FUND BALANCES - GOVERNMENTAL FUNDS LAST TEN FISCAL YEARS (Modified accrual basis of accounting) (Unaudited) Fiscal Year 2007 2008 2009 2010 $ 601,646 $ 1,037,279 $ 9,926,479 9,177,390 686,404 $ 1,731,056 9,185,590 7,399,217 3,575,592 2,310,481 1,385,265 667,682 558,653 643,223 1,075,343 1,328,145 1,957,116 323,597 326,600 - 28,901 30,070 30,507 30,720 97 TABLE 3 Fiscal Year 2011 2012 2013 2014 2015 2016 220,151 99,874 122,927 143,201 822,226 646,778 97,728 173,015 281,826 400,411 518,119 626,229 - - - - 685,486 3,612 1,085,527 434,931 487,201 1,421,785 2,773,419 2,706,897 7,511,998 9,379,399 9,714,206 10,554,183 8,760,424 9,776,031 8,915,404 10,087,219 10,606,160 12,519,580 13,559,674 13,759,547 30,869 31,027 31,137 31,241 31,378 31,721 4,162,423 2,184,855 995,269 666,317 6,539,985 8,165,349 - - - ( 239,078) - ( 193,750) $ 4,193,292 $ 2,215,882 $ 1,026,406 $ 458,480 $ 6,571,363 $ 8,003,320 98 CITY OF FRIENDSWOOD, TEXAS CHANGES IN FUND BALANCES - GOVERNMENTAL FUNDS LAST TEN FISCAL YEARS (Modified accrual basis of accounting) (Unaudited) Fiscal Year 2007 2008 2009 2010 Revenues Taxes $ 16,961,818 $ 17,606,273 $ 18,763,998 $ 19,104,625 Fines and penalties 1,288,794 1,161,903 1,143,102 1,043,126 Licenses and permits 1,017,502 944,756 966,797 960,479 Intergovernmental 248,702 3,801,013 5,794,303 2,652,037 Investment earnings 1,054,698 639,402 161,106 90,337 Donations 229,939 265,535 272,911 280,223 Other revenues 279,788 37,876 34,448 81,366 Total revenues 21,081,241 24,456,758 27,136,665 24,212,193 Expenditures General governmental 4,605,245 4,114,662 4,178,062 4,224,384 Public safety 7,482,603 12,404,745 14,717,404 9,799,372 Community development and public works 3,600,798 3,045,904 3,406,881 - Public works - - - 1,956,479 Community development - - - 1,208,899 Community services 2,866,388 3,266,250 3,439,475 2,458,422 Library - - - 979,084 Capital outlay 3,711,569 4,339,546 2,489,845 3,799,303 Debt principal payment 658,073 774,584 787,293 787,590 Interest and fiscal agent charges 739,487 704,136 691,638 773,744 Bond issuance costs and fees - - - - Total expenditures 23,664,163 28,649,827 29,710,598 25,987,277 Excess of revenues over (under) expenditures ( 2,582,922) ( 4,193,069) ( 2,573,933) ( 1,775,084) Other financing sources (uses) Sale of capital assets 785,942 22,600 - 23,340 Insurance recoveries - 63,106 123,707 50,579 Issuance of capital related debt - - - - Issuanceofcapitallease - - 1,133,460 - Ref ending bonds issued - - - - Payment to refunding escrow agent - - - - Premium on issuance of debt - - - - Transfer in 11226,304 992,586 2,098,405 1,512,987 Transfer out ( 350,688) ( 11,570) ( 1,613,970) ( 1,344,711) Total other financing sources (uses) 1,661,558 1,066,722 1,741,602 242,195 Net change in fund balance $( 921,364) $( 3,126,347) $( 832,331) $( 1,532,889) Debt service as a percentage of noncapital expenditures 7.0% 6.1% 5.4% 7.0% 99 TABLE 4 Fiscal Year 2011 2012 2013 2014 2015 2016 $ 19,592,092 $ 19,630,172 $ 20,563,848 $ 21,335,527 $ 22,513,317 $ 23,533,294 1,012,592 1,037,880 939,380 860,257 907,557 873,872 1,069,845 1,174,013 1,327,918 1,385,898 1,349,264 1,450,939 3,109,645 1,077,890 918,641 1,791,451 3,536,980 664,427 109,272 135,483 87,330 109,117 77,947 147,403 276,209 306,119 363,413 349,166 349,325 257,724 78,243 41,410 84,673 54,989 72,837 79,435 25,247,898 23,402,967 24,285,203 25,886,405 28,807,227 27,007,094 4,397,858 4,322,631 4,250,320 4,306,143 5,343,160 4,385,321 10,093,964 10,201,010 10,234,811 10,599,575 11,348,346 12,135,956 1,637,237 1,702,119 2,204,176 1,689,987 2,066,349 2,118,572 1,284,188 1,520,401 1,207,264 1,092,982 925,947 954,103 2,472,015 2,622,970 2,675,813 2,772,072 2,917,857 3,032,979 979,978 1,004,303 1,002,801 1,083,043 1,036,843 1,096,614 4,254,582 3,705,622 1,942,746 2,500,254 7,255,229 9,332,400 1,065,865 1,562,088 1,721,983 1,668,692 1,272,823 1,570,176 864,746 768,329 712,822 662,718 612,868 852,547 200,227 131,380 - - 163,472 69,435 27,250,660 27,540,853 25,952,736 26,375,466 32,942,894 35,548,103 ( 2,002,762) ( 4,137,886) ( 1,667,533) ( 489,061) ( 4,135,667) ( 8,541,009) 8,992 9,250 27,566 6,325 99 2,743 45,334 105,502 48,132 28,886 39,257 19,564 3,460,000 8,890,000 - - 9,595,000 7,345,000 - 464,270 147,318 - - - 5,460,000 - - - 2,840,000 - - ( 9,425,538) - - ( 3,058,663) - 317,452 563,666 - - 646,746 1,484,593 1,235,892 1,970,819 1,973,106 1,799,344 1,544,662 1,503,442 ( 6,573,032) ( 245,678) ( 199,124) - ( 318,457) ( 182,503) 3,954,638 2,332,291 1,996,998 1,834,555 11,288,644 10,172,839 $ 1,951,876 $( 1,805,595) $ 329,465 $ 1,345,494 $ 7,152,977 $ 1,631,830 8.4% 9.8% 10.1% 9.8% 7.5% 9.5% 100 Table 5 CITY OF FRIENDSWOOD, TEXAS ASSESSED VALUE AND TAXABLE VALUE OF PROPERTY LAST TEN FISCAL YEARS (Unaudited) Less: Total Commercial Total Exemptions and Total Direct Fiscal Tax Residential and Industrial Other Assessed Tax Exempt Taxable Tax Year Year Property Property Property Value Property Value Rate 2007 2006 $ 2,163,006,305 $ 260,809,119 $ 215,897,086 $ 2,639,712,510 $ 622,333,722 $ 2,017,378,788 0.58210 2008 2007 2,305,398,212 266,240,487 223,856,148 2,795,494,847 642,347,609 2,153,147,238 0.57640 2009 2008 2,443,040,835 271,618,942 254,262,180 2,968,921,957 672,410,955 2,296,511,002 0.57970 2010 2009 2,509,894,027 277,693,532 248,910,248 3,036,497,807 695,681,434 2,340,816,373 0.57970 2011 2010 2,547,883,315 276,080,104 235,256,040 3,059,219,459 703,419,784 2,355,799,675 0.58510 2012 2011 2,584,070,993 280,043,373 230,531,859 3,094,646,225 706,059,683 2,388,586,542 0.59020 2013 2012 2,622,105,658 286,288,277 235,960,049 3,144,353,984 710,718,423 2,433,635,561 0.59700 2014 2013 2,695,532,057 294,316,218 238,127,209 3,227,975,484 724,153,848 2,503,821,636 0.59140 2015 2014 2,850,404,776 300,533,643 237,028,723 3,387,967,142 761,444,427 2,626,522,715 0.59140 2016 2015 3,156,205,930 335,006,408 206,365,157 3,697,577,495 776,779,458 2,920,798,037 0.56870 Source: Galveston County Tax Assessor/Collector and City of Friendswood records. Note: Property in the City of Friendswood is reassessed once every two years on average. (Source: Galveston Central Appraisal District) Tax rates per $100 of assessed value. Residential property includes both single-family and multi -family properties. 101 Fiscal Year Ended September 30, CITY OF FRIENDSWOOD, TEXAS DIRECT AND OVERLAPPING PROPERTY TAX RATES LAST TEN FISCAL YEAR (Unaudited) (rate per $100 of assessed value) Direct Rates Debt Total General Service Direct Overlapping Rates Friendswood Clear Creek Galveston County Independent Independent Drainage School District School District District Table 6 Galveston Harris County County 2007 $ 0.5120 $ 0.0701 $ 0.5821 $ 1.5700 $ 1.6300 $ 0.1450 $ 0.5874 $ 0.63998 2008 0.5016 0.0748 0.5764 1.1770 1.3200 0.1425 0.5686 0.62998 2009 0.5097 0.0700 0.5797 1.3670 1.3600 0.1425 0.5586 0.62998 2010 0.4997 0.0800 0.5797 1.3670 1.3600 0.1425 0.6186 0.62998 2011 0.5198 0.0653 0.5851 1.3670 1.3600 0.1425 0.6198 0.62998 2012 0.5218 0.0684 0.5902 1.3670 1.3600 0.1400 0.6129 0.62998 2013 0.5307 0.0663 0.5970 1.3670 1.3600 0.1400 0.5999 0.62998 2014 0.5303 0.0611 0.5914 1.3670 1.4000 0.1400 0.5837 0.62998 2015 0.5303 0.0611 0.5914 1.3670 1.4000 0.1350 0.5788 0.62998 2016 0.4972 0.0715 0.5687 1.3670 1.4000 0.1150 0.5612 0.62998 Source: Galveston County Tax Assessor/Collector and City of Friendswood records. Note: Overlapping rates are those of local and county governments that apply to property owners within the City of Friendswood. Not all overlapping rates apply to all property owners. Overlapping rates for Friendswood Independent School District, Galveston County Consolidated Drainage District and Galveston County apply only to residents whose property is in Galveston County. Overlapping rates for Clear Creek Independent School District and Harris County apply only to residents whose property is in Harris County. 102 Table 7 CITY OF FRIENDSWOOD, TEXAS PRINCIPAL PROPERTY TAX PAYERS CURRENT YEAR AND NINE YEARS AGO (Unaudited) 2016 2007 Percentage Percentage of Total City of Total City Taxable Taxable Taxable Assessed Taxable Assessed Taxpayer Value Rank Value Value Rank Value Reserve at Autumn Crk LTD $ 25,406,546 1 0.87% $ 12,029,980 2 0.60% Texas -New Mexico Power Co. 16,687,804 2 0.57% 12,092,450 1 0.60% Kroger Co. 12,965,039 3 0.44% - - - LSREF3 Bravo Houston LLC 12,378,326 4 0.42% - - - Autumn Creek Dev LTD 8,024,200 5 0.27% - - - HSRE Friendswood, LLC 8,000,000 6 0.27% - - - A-S 108 Friendswood Crossing LP 6,796,870 7 0.23% - - - H E Butt Grocery Company 5,950,240 8 0.20% 8,431,640 5 0.42% HCP Friendswood LLC 5,855,990 9 0.20% - - - Timber Creek Holdings LP 5,614,359 10 0.19% - - - Southwestern Bell Telephone Co. - - 9,059,760 3 0.45% Kroger Texas L.P. - - 8,680,990 4 0.43% Texas HCP Holding, LP - - 7,187,840 6 0.36% Southwest Properties, L.P. - - 6,967,100 7 0.35% MB Friendswood Parkwood - - 5,396,300 8 0.27% Friendswood Retirement - - 5,358,015 9 0.27% Exxon Mobil Pipeline Co. - - 51213,590 10 0.26% Total 107,679,374 3.69% 80,417,665 4.00% All other taxpayers 2,813,118,663 96.31% 1,931,213,155 96.00% $ 2,920,798,037 100.00% $ 2,011,630,820 100.00% Source: Galveston Central Appraisal District and Harris County Appraisal District 103 Table 8 CITY OF FRIENDSWOOD, TEXAS PROPERTY TAX LEVIES AND COLLECTIONS LAST TEN FISCAL YEARS (Unaudited) Collected within the Collections Fiscal Year Taxes Levied Fiscal Year of the Levy (adjustments) Total Collections to Date Ended for the Percentage in Subsequent Percentage September 30, Fiscal Year Amount of Levy Years Amount of Levy 2007 $ 11,741,323 $ 11,532,882 98.23% $ 199,751 $ 11,732,633 99.93% 2008 12,421,754 12,193,715 98.73% 220,210 12,413,925 99.94% 2009 13,317,911 13,113,928 99.12% 192,440 13,306,368 99.91% 2010 13,553,716 13,395,543 99.36% 142,688 13,538,231 99.89% 2011 13,738,978 13,608,076 99.47% 113,137 13,721,213 99.87% 2012 14,068,660 13,916,558 99.51% 131,248 14,047,806 99.85% 2013 14,454,404 14,361,379 99.63% 69,157 14,430,536 99.83% 2014 14,747,526 14,656,257 99.38% 55,498 14,711,755 99.76% 2015 15,424,948 15,306,943 99.23% 8,305 15,315,248 99.29% 2016 16,431,153 16,264,080 98.98% - 16,271,153 99.03% Source: Galveston County Tax Assessor/Collector and City of Friendswood records. Note: Percentage of levy collected to date exceeds taxes levied for some fiscal years due to adjustments made to the tax levy in subsequent years. Taxes levied per this schedule represent the original taxes levied, while collections include amounts related to adjustments. 104 Table 9 CITY OF FRIENDSWOOD, TEXAS RATIOS OF OUTSTANDING DEBT BY TYPE LAST TEN FISCAL YEARS (Unaudited) Governmental Activities Business -Type Activities General General Certificates Water Total Percentage Fiscal Obligation Capital Obligation of Revenue Primary of Personal Per Year Bonds Leases Bonds Obligation Bonds Government Income Capita 2007 $ 16,660,000 $ 96,380 $ 2,375,000 $ 50,000 $ 30,515,000 $ 49,696,380 0.46% $ 1,430 2008 16,065,000 16,351 1,680,000 - 30,355,000 48,116,351 0.41% 1,355 2009 15,445,000 982,518 865,000 - 42,260,000 59,552,518 0.50% 1,582 2010 14,800,000 839,928 - - 42,045,000 57,684,928 0.47% 1,516 2011 22,885,000 710,023 - - 35,205,000 58,800,023 0.46% 1,579 2012 21,605,000 975,726 - - 34,115,000 56,695,726 0.42% 1,498 2013 20,230,000 876,981 - - 32,995,000 54,101,981 0.37% 1,410 2014 18,815,000 623,407 - - 31,830,000 51,268,407 0.35% 1,318 2015 24,525,285 360,584 9,875,671 - 24,663,416 59,424,956 0.40% 1,510 2016 31,768,805 180,408 33,238,357 - 6,109,871 71,297,441 0.46% 1,793 Notes: Details regarding the City's outstanding debt can be found in the notes to the financial statements. See Table 14 for personal income and population data. These ratios are calculated using personal income and population for the prior calendar year. 105 Table 10 CITY OF FRIENDSWOOD, TEXAS RATIOS OF NET GENERAL BONDED DEBT OUTSTANDING LAST TEN FISCAL YEARS (Unaudited) General Bonded Debt Outstanding General Less Debt Net Percentage of Fiscal Taxable Obligation Service General Taxable Value Per Year Population Value Bonds Funds Bonded Debt Property Capita 2007 34,759 $ 2,017,378,788 $ 16,660,000 $ 1,803,928 $ 14,856,072 0.74% $ 427 2008 35,500 2,153,147,238 16,065,000 2,100,617 13,964,383 0.65% 393 2009 37,653 2,296,511,002 15,445,000 952,951 14,492,049 0.63% 385 2010 38,057 2,340,816,373 14,800,000 545,676 14,254,324 0.61% 375 2011 37,247 2,355,799,675 22,885,000 240,869 22,644,131 0.96% 608 2012 37,839 2,388,586,542 21,605,000 193,714 21,411,286 0.90% 566 2013 38,369 2,433,635,561 20,230,000 134,339 20,095,661 0.83% 524 2014 38,911 2,503,821,636 18,815,000 130,147 18,684,853 0.75% 480 2015 39,458 2,626,522,715 34,400,956 147,193 34,253,763 1.30% 868 2016 39,767 2,920,798,037 65,007,162 159,686 64,847,476 2.22% 1,631 Note: Details regarding the City's outstanding debt can be found in the notes to the financial statements. 106 CITY OF FRIENDSWOOD, TEXAS DIRECT AND OVERLAPPING GOVERNMENTAL ACTIVITIES DEBT AS OF SEPTEMBER 30, 2016 (Unaudited) Governmental Unit Debt repaid with property taxes Friendswood Independent School District Clear Creek Independent School District Galveston County Harris County Subtotal, overlapping debt City direct debt Total direct and overlapping debt Estimated Debt Percentage Outstanding Applicable 97,150,000 932,935,839 270,900,000 3,260,457,000 100.00% $ 5.331% 12.542% 1.525% Table 11 Estimated Share of Overlapping Debt 97,150,000 49,735,000 33,977,000 49.735.000 230,597,000 31,949,213 $ 262,546,213 Sources: Information was obtained from either the governmental unit's website or the finance department of the governmental unit. Notes: Overlapping governments are those that coincide, at least in part, with the geographic boundaries of the City. This schedule estimates the portion of the outstanding debt of those overlapping governments that is borne by the residents and businesses of the City of Friendswood. The City's share of the debt of the overlapping governments is based on the ratio of the assessed value of the City's own property to that of each of the other governments. This process recognizes that, when considering the City's ability to issue and repay long-term debt, the entire debt burden borne by the residents and businesses should be taken into account. However, this does not imply that every taxpayer is a resident --and therefore responsible for repaying the debt --of each overlapping government. 107 Table 12 CITY OF FRIENDSWOOD, TEXAS LEGAL DEBT MARGIN INFORMATION (Unaudited) As a City Council -City Manager form of government, the City of Friendswood is not limited by law in the amount of debt it may issue. The City's charter states: "In keeping with the Constitution of the State of Texas and not contrary thereto, the City of Friendswood shall have the power to borrow money on the credit of the City for any public purpose not now or hereafter prohibited by the Constitution and laws of the State of Texas, and shall have the right to issue all tax bonds, revenue bonds, funding and refunding bonds, time warrants and other evidence of indebtedness as now authorized or as may hereafter be authorized to be issued by cities and towns by the laws of the State of Texas." Article 11, Section 5 of the State of Texas Constitution states in part: "but no tax for any purpose shall ever be lawful for any one year, which shall exceed two and one-half percent of the taxable property of such city" The tax rate for fiscal year ended September 30, 2016 is $0.5687 per $100 of assessed valuation with assessed valuation being 100% of market value. 108 CITY OF FRIENDSWOOD, TEXAS PLEDGED -REVENUE COVERAGE LAST TEN FISCAL YEARS (Unaudited) Waterworks and Sewer Revenue Bonds Utility Less: Fiscal Service Operating Year Charges Expenses 2007 $ 8,021,040 $ 4,338,819 $ 2008 8,624,546 5,143,516 2009 12,028,895 5,249,388 2010 9,854,083 5,184,330 2011 12,726,936 5,410,497 2012 11,258,216 5,361,567 2013 11,462,779 6,113,276 2014 11,117,391 6,376,510 2015 11,020,029 6,220,331 2016 11,319,801 6,361,229 Net Available Debt Service Revenue Principal Interest 3,682,221 $ 150,000 $ 1,441,234 3,481,030 160,000 1,416,465 6,779,507 215,000 1,986,015 4,669,753 215,000 1,904,689 7,316,439 1,440,000 1,640,437 5,896,649 1,090,000 1,589,565 5,349,503 1,120,000 1,548,303 4,740,881 1,165,000 1,504,006 4,799,698 1,205,000 1,457,772 4,958,572 1,770,000 1,121,362 Notes: Details regarding the City's outstanding debt can be found in the notes to the financial statements. Operating expenses do not include interest, depreciation or amortization expenses. Table 13 Coverage 2.31 2.21 3.08 2.20 2.38 2.20 2.00 1.78 1.80 1.71 109 Calendar 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 CITY OF FRIENDSWOOD, TEXAS DEMOGRAPHIC AND ECONOMIC STATISTICS LAST TEN CALENDAR YEARS (Unaudited) Estimated Population 34,759 35,500 37,653 38,057 37,247 37,839 38,369 38,911 39,358 39,767 Per Capita Personal Personal Income Income Table 14 Unemployment Rate $ 10,913,785,000 $ 38,553 3.4% 11,744,572,000 40,711 4.9% 11,937,436,000 41,621 6.2% 12,257,208,000 41,876 7.1 % 12,848,571,000 43,444 6.8% 13,651,835,000 45,433 5.0% 14,475,816,000 47,186 4.5% 14,741,197,000 46,917 3.4% 14,774,880,000 47,011 3.7% 15,463,890,000 47,991 4.9% Sources: Population information was provided from past financial reports. Unemployment rates, personal income and per capita personal income were obtained from the U.S. Department of Labor Bureau of Labor Statistics website or the Texas Workforce Commission website. 110 Table 15 CITY OF FRIENDSWOOD, TEXAS PRINCIPAL EMPLOYERS CURRENT YEAR AND NINE YEARS AGO (Unaudited) 2016 2007 Percentage Percentage Estimated of Total City Estimated of Total City Employer Employees Workforce Employees Workforce Friendswood ISD 711 28.32% 675 34.83% HEB 304 12.11% 275 14.19% Kroger 293 11.67% 234 12.07% City of Friendswood 222 8.84% 222 11.46% Clear Creek ISD 180 7.17% 2 - - 1 Friendship Haven Nursing Home 154 6.13% 135 6.97% McDonalds 76 3.03% 33 1.70% Friendswood Healthcare (Autumn Hills) 72 2.87% 90 4.64% U.S. Post Office 67 2.67% 70 3.61% Brookdale 65 2.59% - - 1 UTMB 61 2.43% - - 1 Sonic 49 1.95% 49 2.53% Timber Creek Golf Club 45 1.79% 41 2.12% AAA Blastcote 42 1.67% - - 1 Perry & Sons Market and Grille 40 1.59% - - 1 Village on the Park 35 1.39% 34 1.75% 24 Hour Fitness 40 1.59% - - 1 Luna's Mexican Restaurant 30 1.19% 40 2.06% Masa Sushi Japanese Fusion Restaurant 25 1.00% - - 1 Gary Greene Realtors - - 3 40 2.06% Total 2,511 100.00% 1,938 100.00% Source: City Economic Development Division Note: Principal Employer data was not available for fiscal year 2003 - 2005. 1 Data was not available for fiscal year 2007. 2 Includes Wedgewood Elementary and Brookside Intermediate. 3 Data was not available for fiscal year 2015. 111 Function/Program General Government: City Attorney City Manager City Secretary Administrative Services Public Safety: Police Fire marshal and fire Public Works: Community Development: Community Development and Public Works: Community Services: Table 16 CITY OF FRIENDSWOOD, TEXAS FULL-TIME EQUIVALENT CITY GOVERNMENT EMPLOYEES BY FUNCTION/PROGRAM LAST TEN FISCAL YEARS (Unaudited) Full-time Equivalent Employees as of September 30 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 - - - - - - - - 1.00 1.00 5.50 5.50 5.50 5.50 5.50 4.65 4.15 4.15 4.55 5.40 5.00 5.00 5.00 5.00 5.00 5.00 5.00 5.00 5.00 5.00 26.19 27.20 27.20 27.20 27.20 28.20 28.20 28.70 28.70 27.70 81.41 83.90 79.40 79.40 80.40 80.40 81.40 82.40 85.72 86.72 6.11 6.10 6.10 6.10 6.10 6.10 6.10 6.50 6.60 6.60 - - - 19.00 19.00 19.33 20.33 26.33 25.33 29.00 - - - 17.70 17.70 16.89 16.89 10.89 10.89 11.70 36.00 36.00 36.70 - - - - - 32.18 32.20 32.20 18.95 18.95 19.28 19.20 19.03 Library - - - 14.72 14.72 14.72 14.37 14.37 Water: 9.00 9.00 10.30 10.30 10.30 10.30 9.30 9.30 Sewer: 8.00 8.00 9.00 9.00 9.00 9.00 9.00 9.00 Total City Employees: 209.39 212.90 211.40 212.87 213.87 213.87 213.94 215.67 Source: City of Friendswood Budget Documents Notes: Beginning with fiscal year 2006, the fulltime equivalent for Fire Marshal and Fire include only the Fire Marshal Department. The City has a contract with the Friendswood Volunteer Fire Department and there are no employees paid directly by the City. From 2007 - 2009, public works and community development were combined. In 2010 - 2014, they are shown as two separate departments. Beginning in fiscal year 2010, the fulltime equivalent for Library is shown separate from Community Services. In previous years, the fulltime equivalent is included with Community Services. In-house City Attorney added to staff in fiscal year 2015. 112 19.63 19.63 14.62 14.62 8.30 8.30 8.00 8.00 218.34 223.67 Table 17 CITY OF FRIENDSWOOD, TEXAS OPERATING INDICATORS BY FUNCTION/PROGRAM LAST TEN FISCAL YEARS (Unaudited) Fiscal Year 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Function/Proeram General Government: Building permits issued 975 872 1,189 984 1,222 1,317 1,469 1,395 1,377 1,865 Building inspections conducted 11,135 11,472 6,673 8,744 9,514 10,486 11,470 10,611 12,145 11,026 Police: Physical arrests 1,923 1,868 1,794 2,002 1,962 1,885 1,601 1,596 1,479 1,464 Parking violations 34 46 33 27 82 61 107 58 63 44 Traffic violations 11,374 7,897 7,821 7,000 7,291 6,518 5,718 5,815 4,540 5,001 Fire Marshal: Inspections 1,300 1,312 1,653 1,509 1,444 1,616 1,673 1,427 1,512 1,354 Fire: Emergency responses 2,723 2,794 2,950 2,737 2,818 2,975 2,993 3,261 3,258 3,303 Fires extinguished 74 118 102 110 108 86 86 116 78 76 Parks and Recreation: Recreation participants NA 7,547 12,283 13,792 13,894 16,068 18,607 15,178 16,153 21,369 Facility reservations 1,115 1,065 1,727 1,451 503 493 686 728 1,443 1,444 Library: Volumes in collection 93,028 96,100 94,512 99,880 97,622 125,251 133,865 141,383 133,165 147,726 Total volumes borrowed 308,718 323,323 350,892 356,787 349,223 355,447 367,948 367,452 350,145 301,158 Water: New connections 289 202 46 160 173 185 189 193 - 183 Water main breaks 44 73 73 64 516 112 193 149 57 46 Average daily consumption 3,472 4,217 4,209 3,408 6,406 4,584 5,577 5,171 4,970 4,963 (thousands of gallons) Peak daily consumption 6,358 11,004 7,187 7,606 13,698 10,896 11,505 9,917 12,623 10,472 Sewer: Average daily sewage treatment 3,425 3,120 2,950 3,465 2,787 2,968 2,956 2,867 3,306 3,382 (thousands of gallons) Maximum daily flow 10,484 7,520 9,537 11,393 10,833 10,777 10,401 10,770 11,237 12,188 (thousands of gallons) Source: Various City departments and prior year CAFRs 113 Table 18 CITY OF FRIENDSWOOD, TEXAS CAPITAL ASSET STATISTICS BY FUNCTION/PROGRAM LAST TEN FISCAL YEARS (Unaudited) Fiscal Year 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Function/Program Police Stations 1 1 1 1 1 1 1 1 1 1 Patrol units 28 27 24 26 26 25 26 27 29 31 Fire Stations 3 3 4 4 4 4 4 4 4 4 Public Works Streets - paved (miles) 150 159 160 161 162 164 165 167 169 172 Streets - unpaved (miles) 0 2 2 2 2 2 2 2 2 2 Traffic signals 3 3 3 3 3 3 3 3 3 3 Parks and Recreation Acreage 189 189 189 189 189 189 189 189 232 266 Parks 8 8 8 8 8 8 8 8 8 9 Swimming pool 1 1 1 1 1 1 1 1 1 1 Tennis courts 4 4 4 4 4 4 4 4 4 4 Library 1 1 1 1 1 1 1 1 1 1 Water Water mains (miles) 180 180 181 183 184 186 187 207 209 212 Fire hydrants 1,275 1,275 1,275 1,305 1,324 1,588 1,608 1,610 1,631 1,672 Connections 11,748 11,982 12,057 12,231 12,476 12,711 12,929 13,093 13,289 13,482 Storage capacity 5,993 5,993 5,993 5,993 7,500 7,500 7,500 8,000 8,100 7,850 (thousands of gallons) Sewer Sanitary sewers (miles) 155 155 156 158 159 162 163 194 195 198 Connections 10,902 11,115 11,256 11,404 11,563 11,828 12,072 12,236 12,407 12,378 Storm sewers (miles) 95 95 96 98 99 100 100 105 106 109 Treatment capacity 4,850 4,850 4,850 4,850 4,850 4,850 4,850 12,000 9,250 9,250 (thousands of gallons) Source: Various City departments and prior year CAFRs 114 THIS PAGE LEFT BLANK INTENTIONALLY COMPLIANCE SECTION THIS PAGE LEFT BLANK INTENTIONALLY P115�I PATTILLO, BLOWN & HILL, L_L.P_ CERTIFIE❑ PUBLIC ACCOUNTANTS E BUSINESS CONSULTANTS INDEPENDENT AUDITORS' REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS To the Honorable Mayor City Council and City Manager, City of Friendswood, Texas We have audited in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States, the financial statements of the governmental activities, the business -type activities, the discretely presented component unit, each major fund, and the aggregate remaining fund information the City of Friendswood, Texas as of and for the year ended September 30, 2016, and the related notes to the financial statements, which collectively comprise the City of Friendswood, Texas' basic financial statements, and have issued our report thereon dated April 25, 2017. Our report includes a reference to other auditors who audited the financial statements of the West Ranch Management District, as described in our report on the City of Friendswood, Texas' financial statements. The financial statements of West Ranch Management District were not audited in accordance with Government Auditing Standards. Internal Control over Financial Reporting In planning and performing our audit of the financial statements, we considered the City of Friendswood, Texas' internal control over financial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the City of Friendswood, Texas' internal control. Accordingly, we do not express an opinion on the effectiveness of the City of Friendswood, Texas' internal control. A deficiency in internal control exists when the design or operation of a control does not allow management or employees in the normal course of performing their assigned functions, to prevent, or detect and correct misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the entity's financial statements will not be prevented, or detected and corrected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. WACO, TX 401 Wert Highway 6 Waco, Texe 76710 254.772.4901 ww .phhcpa.com EIOUSTON, TX 281.671.6259 RIO GRANDE VALLEY, TX 956.544.7778 115 TEMPLE, TX 254.791.3460 ALBUQUERQUE,NM 505.266.5904 AICPA Governmental Audit Quality Center Our consideration of internal control over financial reporting was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over financial reporting that might be material weaknesses or significant deficiencies. Given these limitations, during our audit we did not identify any deficiencies in internal control over financial reporting that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. Compliance and Other Matters As part of obtaining reasonable assurance about whether the City of Friendswood, Texas' financial statements are free from material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit and, accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. Purpose of this Report The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the entity's internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the City of Friendswood, Texas' internal control and compliance. Accordingly, this communication is not suitable for any other purpose. i Waco, Texas April 25, 2017 116