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CITY OF POTTSBORO, TEXAS REPORT OF AUDIT September 30, 2010
CITY OF POTTSBORO, TEXAS
REPORT OF AUDIT
September 30, 2010
CITY OF POTTSBORO, TEXAS Table of Contents
September 30, 2010
Page Independent Auditors' Report 1-2
REQUIRED SUPPLEMENTARY INFORMATION
Management's Discussion and Analysis 3-6
BASIC FINANCIAL STATEMENTS
Government-Wide Financial Statements: Statement of Net Assets
7
Statement of Activities
8
Fund Financial Statements: Balance Sheet - Governmental Fund 9
Statement of Revenues, Expenditures, and Changes in Fund Balances - Governmental Fund 10
Statement of Net Assets - Proprietary Fund 11 Statement of Revenues, Expenses, and Changes in Net Assets - Proprietary Fund 12
Statement of Cash Flows - Proprietary Fund 13
Notes to Financial Statements 14-29
REQUIRED SUPPLEMENTARY INFORMATION
Budgetary Comparison Schedule - Budget and Actual - General Fund 30
Notes to Budgetary Comparison Schedule 31 Texas Municipal Retirement System - Schedule of Funding Progress 32
SUPPLEMENTARY INFORMATION
City Profile 33
McClanahan and Holmes, LLP CERTIFIED PUBLIC ACCOUNTANTS
R. FRANK RAY, CPA 228 SIXTH STREET S.E. R. E. BOSTWICK, CPA PARIS, TEXAS 75460 STEVEN W. MOHUNDRO, CPA 903-784-4316 GEORGE H. STRUVE, CPA FAX 903-784-4310 ANDREW B. REICH, CPA RUSSELL P. WOOD, CPA 304 WEST CHESTNUT
DENISON, TEXAS 75020 903-465-6070
FAX 903-465-6093
1400 WEST RUSSELL BONHAM, TEXAS 75418
903-583-5574 FAX 903-583-9453
INDEPENDENT AUDITORS' REPORT
Honorable Mayor and Members of the City Council City of Pottsboro, Texas
We have audited the accompanying financial statements of the governmental activities, the business-type activities, the component units, and each major fund of the City of Pottsboro, Texas, as of and for the year ended September 30, 2010, which collectively comprise the City's basic financial statements as listed in the table of contents. These financial statements are the responsibility of the City's management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the basic financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the basic financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall basic financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the basic financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, the business-type activities, the component units, and each major fund of the City of Pottsboro, Texas, as of September 30, 2010, and the respective changes in financial position and cash flows, where applicable, thereof for the year then ended in conformity with accounting principles generally accepted in the United States of America.
1 AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS
Honorable Mayor and Members of the City Council
City of Pottsboro, Texas
The Management's Discussion and Analysis, Budgetary Comparison Schedule — Budget and Actual — General Fund, and Texas Municipal Retirement System — Schedule of Funding Progress are not a required part of the basic financial statements but are supplementary information required by accounting principles generally accepted in the United States of America. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation of the required supplementary information. However, we did not audit the information and express no opinion on it.
Our audit was made for the purpose of forming an opinion on the financial statements that collectively comprise the City's basic financial statements. The accompanying supplementary City Profile on page 33 is presented for informational purposes only and is not a required part of the basic financial statements. The supplementary schedule has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly presented in all material respects in relation to the basic financial statements taken as a whole.
ilk-elm446effiet4 ,1 Certified Public Accountants
Denison, Texas January 31, 2011
2 AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS
CITY OF POTTSBORO MANAGEMENT'S DISCUSSION AND ANALYSIS
Our discussion and analysis of City of Pottsboro's financial performance provides an overview of the City's financial activities for the fiscal year ended September 30, 2010. Please read it in conjunction with the City's financial statements, which begin on page 7.
FINANCIAL HIGHLIGHTS
• The assets of the City exceeded its liabilities at the close of FY10 by $6,338,343. This is an increase of $260,224 over FY09's net asset value of $6,078,119. Unrestricted net assets at the close of FY10 are $680,895, and may be used to meet the City's ongoing obligations to citizens and creditors.
• The City's total net assets increased by $260,224, or 4.3%, as a result of this year's operations.
• The City's General Fund ending fund balance is $201,835, which is a decrease of $72,473 in comparison with the prior year amount of $274,308. All the fund balance is available for spending at the City's discretion (unreserved fund balance).
USING THIS ANNUAL REPORT
This annual report consists of a series of financial statements. The government-wide financial statements include the Statement of Net Assets and the Statement of Activities (on pages 7 and 8). These provide information about the activities of the City as a whole and present a long-term view of the City's financial condition. They reflect the flow of total economic resources in a manner similar to the financial reports of a business enterprise.
Fund financial statements (starting on page 9) report the City's operations in more detail than the government-wide statements by providing information about the City's most significant funds. Governmental fund statements tell how services were financed in short-term, as well as what resources remain for future spending. They reflect the flow of current financial resources, and supply the basis for funding requests and the appropriations from the State. Proprietary fund financial statements report activity for the City's water, and sewer operations.
The notes to the financial statements (starting on page 14) provide narrative explanations or additional data needed for full disclosures for the government-wide statements and the fund financial statements.
Reporting the City as a Whole — Government-Wide Financial Statements
The Statement of Net Assets and the Statement of Activities
Government-wide financial statements, which provide an analysis of the City's overall financial condition and operation, begin on page 7. The primary objective of these statements is to show whether the City's financial condition has improved or deteriorated as a result of the year's activities.
The statement of Net Assets includes all the City's assets and liabilities (including long-term items) while the Statement of Activities includes all the revenue and expenses generated by the City's operations during the year. Government-wide statements utilize the accrual basis of accounting, which is the same method used by most private sector companies.
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All of the current year's revenue and expenses are taken into account regardless of when cash is received or paid. The City's revenue is divided into the following categories: 1) charges for services, 2) operating grants and contributions, 3) capital grants and contributions, 4) general revenues not associated with any specific program function. All of the City's assets are reported whether they serve the current or future years. Liabilities are also reported regardless of whether they must be paid in the current or future years.
These two statements report the City's net assets and changes in them. The City's net assets (the difference between assets and liabilities) provide one measure of the City's financial health or financial position. Over time, increases or decreases in the City's net assets are one indicator of whether its financial health is improving or deteriorating. To fully assess the overall health of the City however, you should consider non-financial factors as well, such as changes in the City's request for services from citizens and the condition of the City's facilities.
In the Statement of Net Assets and the Statement of Activities, the City has two kinds of activities:
Governmental Activities — City services such as police protection, fire protection, trash service, court services, street maintenance, and City administration are reported here. City property taxes finance most of these activities.
Business-Type Activities - The City uses proprietary (business-type) funds to account for its water, and sewer operations. The services are supported by monthly charges to citizens.
Reporting the City's Most Significant Funds
Fund Financial Statements
The fund financial statements begin on page 9 and provide detailed information about the most significant funds. The City's two kinds of funds-governmental and proprietary — use different accounting approaches.
Governmental Funds — The City reports most of its basic services in governmental funds. Governmental funds use the modified accrual basis of accounting (a method that measures the receipt and disbursement of cash and other financial assets that can be readily converted to cash) and they report balances that are available for future spending. Governmental fund statements provide a detailed short-term view of the City's general operations and the basic services it provides. We describe the accounting differences between governmental activities (reported in the Statement of Net Assets and the Statement of Activities) and governmental funds in reconciliation schedules found on pages 9 and 10.
Proprietary Funds — The City uses proprietary (business-type) funds to account for its water, and sewer operations. The full-accrual basis of accounting is used for all proprietary type funds.
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GOVERNMENT-WIDE FINANCIAL ANALYSIS
Net assets serve as one useful indicator of a government's financial position. In the case of the City, assets exceeded liabilities by $6,338,889 at the close of FY10.
Eighty percent (80%) of the City's net assets are invested in capital assets; land, buildings, vehicles and electronic equipment, less any outstanding debt used to acquire these assets. The City uses capital assets to provide services to the citizens they serve; consequently, these assets are not available for future spending.
City of Pottsboro-Statement of Net Assets
FY10 FY09 Current and Other Assets $ 1,603,705 $ 971,791 Capital Assets 10,146,186 8,335,412
Total Assets 11,749,891 9,307,203
Current Liabilities 575,003 190,466 L-T Liabilities 4,836,545 3,038,618
Total Liabilities 5,411,548 3,229,084
Net Assets: Invested in Capital Assets, Net of Related Debt 5,081,902 5,322,830
Restricted for GTUA Deposit 558,046 123,538 Restricted for Future Development 17,500 17,500 Unrestricted 680,895 614,251 Total Net Assets $6,338,343 $6,078,119
City of Pottsboro-Statement of Activities
Revenues: Program Revenues
Water and Sewer Fund Charges for Services $1,119,928 $1,157,002 General Fund Charges for Services 302,692 349,641 Grants and Contributions 301,241 213,392
General Revenues 854,852 926,585 Total Revenues 2,578,713 2,646,620
Expenses: General Government 669,952 634,603 Water and Sewer 1,036,497 1,200,016 Public Safety 427,363 402,502 Fire 91,454 84,341 Municipal Court 91,312 108,305 Other 1,911 3,463
Total Expenses 2,318,489 2,433,230
Increase in Net Assets $ 260,224 $ 213,390
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FINANCIAL ANALYSIS OF THE GOVERNMENT-WIDE STATEMENTS
Net assets of the City's governmental activities decreased from $3,186,713 to $3,185,889. Unrestricted net assets — the part of net assets that can be used to finance day-to-day operations without constraints established by debt covenants, enabling legislation, or other legal requirements — is $249,385 for governmental activities.
FINANCIAL ANALYSIS OF THE CITY'S FUNDS
Revenues and other sources for the City's general fund (as shown on page 10) were $1,345,633 while total expenses and other uses were $1,418,106. This resulted in an excess of expenditures over revenues of $72,473 from current operations. Last year's result was an excess of expenditures over revenues of $44,047.
Revenues and transfers from other funds for the City's water fund were $1,297,545 while total expenses were $1,036,497. This resulted in an excess of revenues over expenditures of $261,048. Last year's result was an excess of revenues over expenditures of $64,581.
THE CITY'S FUNDS
Governmental ending fund balance (as presented in the balance sheet on page 9) is $201,835 compared to $274,308 in FY09. This represents a decrease of $72,473. The City's governmental type revenues and other financing sources for FY10 were $140,227 less than the previous year. The City's expenditures and other financing uses were $111,801 less than the previous year. The decrease in expenditures is mostly attributable to a decrease in capital outlay expenditures.
CAPITAL ASSET AND DEBT ADMINISTRATION
Capital Assets
The City's investment in capital assets for all activities as of September 30, 2010 amounts to $10,146,186, compared to $8,335,412 (net of accumulated depreciation) at September 30, 2009. This investment in capital assets includes land, buildings and improvements, street improvements, utility plant, city parks, equipment and vehicles. The total increase in the City's net investment in capital assets for the current fiscal year was $1,810,774. The main capital asset activity during the current fiscal year was an additional $1,860,937 of construction in progress for the City's water and sewer utility plant facilities.
Long-Term Debt
At year-end, the City had total contractual obligation and bonded debt outstanding of $5,096,957.
CONTACTING THE CITY'S FINANCIAL MANAGEMENT
This financial report is designed to provide our citizens, taxpayers, customers, and creditors with a general overview of the City's finances and to show the City's accountability for the money it receives. If you have questions about this report or need additional financial information, write to City Hall, at P.O. Box 1089, Pottsboro, Texas 75076 or call (903) 786-2281.
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CITY OF POTTSBORO, TEXAS Statement of Net Assets
September 30, 2010
ASSETS
Primary Government Component Units
Governmental Activities
Business-Type Activities Total
Community Development Corporation
Development Alliance
Corporation
Cash and Cash Equivalents $ 67,498 $ 97,465 $ 164,963 $ 24,616 $ 8,191 Pooled and Temporary Investments 228,880 175,675 404,555 495,006 145,109 Receivables, net:
Water/sewer/sanitation 184,661 184,661 Property taxes 30,313 30,313 Sales taxes 43,173 43,173 17,269 8,635 Other 55,112 55,112
Note Receivable 9,279 Prepaid Bond Issue Costs 145,382 145,382 Restricted Assets:
Temporarily Restricted: Pooled and Temporary Investments 17,500 17,500 Deposits Held in Trust by GTUA 558,046 558,046
Capital Assets not being Depreciated: Land 80,641 3,642 84,283 Construction in Progress 3,186,775 3,186,775
Capital Assets net of Accumulated Depreciation: Water and Sewer Systems 2,657,103 2,657,103 Buildings 153,394 5,877 159,271 Improvements other than Buildings 203,516 4,953 208,469 Streets and Other Infrastructure 2,199,100 1,239,216 3,438,316 Machinery and Equipment 321,137 90,832 411,969
Total Assets 3,382,764 8,367,127 11,749,891 546,170 161,935
LIABILITIES
Accounts Payable 70,563 86,251 156,814 125 Accrued Salaries Expense 19,387 7,985 27,372 Customer Water Deposits 43,543 43,543 Interest Payable 20,351 20,351 13,599 Deferred Revenue 66,511 66,511 Long-Term Liabilities:
Due Within One Year 20,369 240,043 260,412 39,722 Due in More Than One Year 20,045 4,816,500 4,836,545 385,670
Total Liabilities 196,875 5,214,673 5,411,548 439,116
NET ASSETS
Invested in Capital Assets, net of Related Debt 2,936,504 2,145,398 5,081,902
Restricted for: Deposits Held in Trust by GTUA 558,046 558,046 Future Development 17,500 17,500
Unrestricted 249,385 431,510 680,895 107,054 161,935
Total Net Assets $ 3,185,889 $ 3,152,454 $ 6,338,343 107,054 $ 161,935
The accompanying notes to the financial statements are an integral part of this statement.
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CITY OF POTTSBORO, TEXAS Statement of Activities
For the Year Ended September 30, 2010
Net (Expense) Revenue and Program Revenues Changes in Net Assets
Primary Government Component Units Operating Capital Community Development
Charges for Grants and Grants and Governmental Business-Type Development Alliance Functions/Programs Expenses Services Contributions Contributions Activities Activities Total Corporation Corporation
Primary Government: Governmental Activities: General Government $ 669,952 $ 179,005 $ 43,571 $ 128,197 $ (319,179) $ $ (319,179) Public Safety 427,363 1,011 (426,352) (426,352) Fire 91,454 17,974 (73,480) (73,480) Courts 91,312 123,687 32,375 32,375 Interest on Long-Term Debt 1,911 (1,911) (1,911)
Total Governmental Activities 1,281,992 302,692 62,556 128,197 (788,547) (788,547)
Business-Type Activities: Water and Sewer - Operating 1,036,497 1,119,928 110,488 193,919 193,919
Total Business-Type Activities 1,036,497 1,119,928 110,488 193,919 193,919
Total Primary Government $ 2,318,489 $ 1,422,620 $ 62,556 $ 238,685 (788,547) 193,919 (594,628)
Components Units: Community Development Corporation $ 99,466 $ 455 $ $ (99,011) Development Alliance Corporation 59 (59)
Total Component Units 99,525 455 $ (99,011) (59)
General revenues: Taxes:
Property Taxes 511,573 511,573 Franchise Taxes 104,432 104,432 Sales Taxes 233,000 233,000 93,079 46.540
Interest 757 5,090 5,847 1,930 94 Transfers (62,039) 62,039 Total General Revenues 787,723 67,129 854,852 95,009 46,634
Change in Net Assets (824) 261,048 260,224 (4,002) 46,575 Net Assets - Beginning of Year 3,186,713 2,891,406 6,078,119 111,056 115,360 Net Assets - End of Year $ 3,185,889 $ 3,152,454 $ 6,338,343 107,054 161,935
The accompanying notes to the financial statements are an integral part of this statement.
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CITY OF POTTSBORO, TEXAS Balance Sheet - Governmental Fund
September 30, 2010 General
Fund
Assets
Cash and Cash Equivalents $ 67,498
Pooled and Temporary Investments 228,880
Accounts Receivable, net:
Property taxes 30,313 Other 98,285
Total Assets $ 424,976
Liabilities and Fund Balance
Accrued Salaries Expense 19,387 Accounts Payable 70,563 Deferred Revenue 133,191
Total Liabilities 223,141
Fund Balance:
Unreserved 201,835
Total Fund Balance 201,835
Total Liabilities and Fund Balance $ 424,976
Fund Balance - Total Governmental Funds (above) $ 201,835
Amounts reported for governmental activities in the statement of
net assets are different because:
Capital assets used in governmental activities are not financial
resources and therefore, are not reported in the funds. 2,957,788
Long-term liabilities, including bonds payable, are not due and
payable in the current period and are therefore not reported in the
funds. Those liabilities consist of
Accrued Compensated Absences (19,130)
Note Payable (21,284)
Some revenues receivable (Deferred Revenue above) are not current
financial resources and therefore, are deferred in the funds.
Net Assets of governmental activities (page 7)
The accompanying notes to the financial statements are
an integral part of this statement.
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66,680
$ 3,185,889
CITY OF POTTSBORO, TEXAS Statement of Revenues, Expenditures, and Changes
in Fund Balances - Governmental Fund For the Year Ended September 30, 2010
General Fund
Revenues: Property Tax 511,651 Sales and Use Taxes 233,000 Trash Service 164,998 Franchise Tax 104,432 Fines and Forfeitures 126,033 Donations and Miscellaneous 61,546 Capital Contributions 57,601 Building Permits 14,007 Grants 71,608 Interest Income 757
Total Revenues 1,345,633
Operating Expenditures: Administrative and General 574,764 Police 403,681 Fire Department 59,605 Municipal Court 91,312 Debt Service:
Principal Retirement 19,973 Interest Expense 2,055
Capital Outlay 204,677
Total Expenditures 1,356,067
Excess (Deficiency) of Revenues over Expenditures (10,434)
Other Financing Sources (Uses): Transfers In/(Out) (62,039)
Total Other Sources (Uses) (62,039)
Net Change in Fund Balance (72,473)
Fund Balances - Beginning of Year 274,308
Prior Period Adjustments
Fund Balances - End of Year $ 201,835
Net Change in Fund Balances - Total Governmental Funds (above) $ (72,473)
Amounts reported for governmental activities in the statement of activities are different because:
Governmental funds report capital outlays as expenditures. However, in the government- wide statement of activities the cost of those assets is allocated over their estimated useful lives and reported as depreciation expense. Capital outlays of $204,677 exceeded depreciation of $131,307 and asset dispositions of $15,060 in the current period. 58,310
Repayment of long-term debt is an expenditure in the governmental funds, however, it reduces long-term liabilities in the Statement of Net Assets. 19,973
Some expenditures in the Statement of Activities do not require the use of current financial resources, and therefore, are not reported as expenditures in governmental funds. Compensated absences of $(4,355) were incurred in the current period. (4,355)
Governmental funds report some prior year tax and court revenues as income in the current year, and current year property taxes still receivable are deferred revenues in the General Fund. However, in the statement of activities the revenue is recognized in the year in which it is earned. The amount of tax revenue received in the current year that is related to prior year earnings is:
Accrued interest paid in prior year 144 Net taxes receivable earned in prior year (77) Net taxes and court receivable earned in prior year (2,346)
Change in Net Assets - Governmental Activities (page 8) (824)
The accompanying notes to the financial statements are an integral part of this statement.
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CITY OF POTTSBORO, TEXAS Statement of Net Assets - Proprietary Fund
September 30, 2010
ASSETS
Water and
Sewer Fund
Current Assets:
Cash and Cash Equivalents 97,465 Pooled and Temporary Investments 175,675 Accounts Receivable, net 184,661 Prepaid Bond Issue Costs 145,382
Total Current Assets: 603,183
Restricted Assets:
Pooled and Temporary Investments - Impact Fees 17,500 Deposit Held in Trust-GTUA 558,046
Total Restricted Assets 575,546
Property, Plant, and Equipment, net 7,188,398
Total Assets 8,367,127
LIABILITIES
Current Liabilities:
Accounts Payable 86,251
Accrued Salaries Expense 7,985
Customers Water Deposits 43,543 Compensated Absences 13,543
Bond Interest Payable 20,351 Current Portion of Bonds Payable 226,500
Total Current Liabilities 398,173
Long-Term Liabilities: Bonds Payable 4,816,500
Total Long-Term Liabilities 4,816,500
Total Liabilities 5,214,673
NET ASSETS
Invested in Capital Assets, Net of Related Debt 2,145,398
Restricted - GTUA Deposit 558,046
Restricted - Future Development 17,500
Unrestricted 431,510
Total Net Assets $ 3,152,454
The accompanying notes to the financial statements are
an integral part of this statement.
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CITY OF POTTSBORO, TEXAS Statement of Revenues, Expenses, and Changes
in Net Assets - Proprietary Fund For the Year Ended September 30, 2010
Operating Revenues:
Water and
Sewer Fund
Water Charges $ 604,551
Sewer Charges 494,557
Tap and Connection Fees 14,171
Tower Rental Fee 4,800
Miscellaneous 1,849
Total Revenues: 1,119,928
Operating Expenses:
Water and Sewer System Expenses 284,218
Personnel Costs - Wages 281,994
Office and Utilities 138,926
Depreciation 134,080
Vehicle and Equipment Expenses 7,872
Legal and Professional 50,163
Total Operating Expenses: 897,253
Operating Income 222,675
Nonoperating Revenues (Expenses):
Interest Income 5,090
Interest Expense (101,832)
Fiscal Agent Fees (37,412)
Contributed Capital 110,488
Total Nonoperating Revenues (Expenses) (23,666)
Income before Transfers 199,009
Transfers In 62,039
Change in Net Assets 261,048
Net Assets - Beginning of Year 2,891,406
Net Assets - End of Year $ 3,152,454
The accompanying notes to the financial statements are an integral part of this statement.
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CITY OF POTTSBORO, TEXAS Statement of Cash Flows - Proprietary Fund
For the Year Ended September 30, 2010
Water and Sewer Fund
Cash Flows from Operating Activities: Cash Received from Customers $ 1,092,366 Cash Payments to Suppliers for Goods and" Services (432,759) Cash Payments to Employees (277,244)
Net Cash Provided by Operating Activities 382,363
Cash Flows from Noncapital Financing Activities: Transfer from General Fund
Net Cash Provided by Noncapital Financing Activities 62,039 62,039
Cash Flows from Capital and Related Financing Activities: Cash Paid to Restricted Accounts Held by GTUA (434,508) Payment of Bond Issue Costs (92,617) Capital Contributions 110,488 Acquisition and Construction of Capital Assets (1,886,544) Proceeds from Bond Issues 2,238,000 Principal Paid on Capital Debt (166,325) Interest Paid on Capital Debt (122,039)
Net Cash Used by Capital and Related Financing Activities (353,545)
Cash Flows from Investing Activities: Interest Received 5,090 Purchases of Investments, net (25,340)
Net Cash Used by Investing Activities (20,250)
Net Increase in Cash and Cash Equivalents 70,607
Cash and Cash Equivalents, Beginning of Year 26,858
Cash and Cash Equivalents, End of Year 97,465
Reconciliation of Operating Income to Net Cash Provided by Operating Activities
Operating Income $ 222,675
Adjustments to Reconcile Operating Income to Net Cash Provided by Operating Activities:
Depreciation Expense 134,080 Decrease (Increase) in Accounts Receivable, net (28,582) Increase (Decrease) in Compensated Absences 2,282 Increase (Decrease) in Customer Deposits 1,020 Increase (Decrease) in Accrued Salaries Expense 2,468 Increase (Decrease) in Accounts Payable 48,420
Net Cash Provided by Operating Activities (Above) $ 382,363
Noncash Capital and Financing Activities: Contribution of Capital Assets from Component Unit Amortization of Bond Expense
The accompanying notes to the financial statements are an integral part of this statement.
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$ 110,488 26,913
CITY OF POTTSBORO, TEXAS Notes to Financial Statements
September 30, 2010
Note 1: Summary of Significant Accounting Policies
The City of Pottsboro, Texas (City), was established in 1876 and incorporated in 1880. The City operates under a city manager form of government. The general governmental functions include law enforcement, fire and other public safety activities, streets, sanitation, public improvements, public charities, parks and recreation, library services, zoning and general administrative services. Enterprise Funds are used to account for the operations of its water and sewer systems.
The accounting and reporting policies of the City relating to the funds included in the accompanying basic financial statements conform to accounting principles generally accepted in the United States of America applicable to state and local governments. Generally accepted accounting principles for local governments include those principles prescribed by the Governmental Accounting Standards Board (GASB), the American Institute of Certified Public Accountants in the publication entitled Audits of State and Local Governmental Units and by the Financial Accounting Standards Board (when applicable). For the fiscal year ended September 30, 2004, the City implemented the new financial reporting requirements of GASB Statement Nos. 33 and 34. The more significant accounting policies of the City are described below.
A. Financial Reporting Entity
The City's basic financial statements include the accounts of all City operations. The criteria for including organizations as component units with the City's reporting entity, as set forth in Section 2100 of GASB's Codification of Governmental Accounting and Financial Reporting Standards, include whether: • the organization is legally separate (can sue and be sued in their own name) • the City holds the corporate powers of the organization • the City appoints a voting majority of the organization's board • the City is able to impose its will on the organization
the organization has the potential to impose a financial benefit/burden on the City there is fiscal dependency by the organization on the City
Based on the aforementioned criteria, the Pottsboro Development alliance Corporation (4A) and the Pottsboro Community Development Corporation (4B) are component units of the City. The Pottsboro 4A and 4B are non-profit organizations established on behalf of the City under the Development Act of 1979, section 4A and 4B, respectively, The City of Pottsboro 4A and 4B are discretely presented in separate columns in the financial statements and do not prepare separate financial statements.
The Keep Pottsboro Beautiful Commission (Commission) was organized, as the result of an ordinance adopted by the City Council, to promote public interest in the general improvement of the environment of the City of Pottsboro. The transactions of the Commission are maintained in a separate fund and presented in the financial statements of the government as a blended presentation.
B. Basis of Presentation
The government-wide financial statements (the statement of net assets and the statement of activities) report information on all of the activities of the City. The effect of interfund activity, within the governmental and business-type activities columns, has been removed from these statements. Governmental activities, which normally are supported by taxes and intergovernmental revenues, are reported separately from business-type activities, which rely to a significant extent on fees and charges for support.
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CITY OF POTTSBORO, TEXAS Notes to Financial Statements
September 30, 2010
Note 1: Summary of Significant Accounting Policies (continued)
B. Basis of Presentation (continued)
The statement of activities demonstrates the degree to which the direct expenses of a given program are offset by program revenues. Direct expenses are those that are clearly identifiable with a specific program. Program revenues include 1) charges to customers or applicants who purchase, use, or directly benefit from goods, services, or privileges provided by a given program and 2) operating or capital grants and contributions that are restricted to meeting the operations or capital requirements of a particular program. Taxes and other items not properly included among program revenues are reported instead as general revenues.
Fund Financial Statements
The City segregates transactions related to certain functions or activities in separate funds in order to aid financial management and to demonstrate legal compliance. Separate statements are presented for governmental and proprietary activities. These statements present each major fund as a separate column on the fund financial statements; all non-major funds, if any, are aggregated and presented in a single column.
Governmental funds are those funds through which most governmental functions typically are financed. The measurement focus of governmental funds is on the sources, uses and balance of current financial resources. The City has presented the following major governmental funds:
General Fund - The General Fund is the main operating fund of the City. This fund is used to account for all financial resources not accounted for in other funds. All general tax revenues and other receipts that are not restricted by law or contractual agreement to some other fund are accounted for in this fund. General operating expenditures, fixed charges and capital improvement costs that are not paid through other funds are paid from the General Fund.
Proprietary Funds are accounted for using the economic resources measurement focus and the accrual basis of accounting. The accounting objectives are determinations of net income, financial position and cash flow. All assets and liabilities are included on the Statement of Net Assets. The City has presented the following major proprietary fund:
Water and Sewer Fund - The Water and Sewer Fund is used to account for the provision of water and sewer services to the residents of the City. Activities of the fund include administration, operations and maintenance of the water and sewer system and billing and collection activities. The fund also accounts for the accumulation of resources for, and the payment of long-term debt principal and interest for water and sewer debt. All costs are financed through charges to utility customers with rates reviewed regularly and adjusted if necessary to ensure integrity of the funds.
15
CITY OF POTTSBORO, TEXAS Notes to Financial Statements
September 30, 2010
Note 1: Summary of Significant Accounting Policies (continued)
B. Basis of Presentation (continued)
Proprietary funds distinguish operating revenues and expenses from non-operating items. Operating revenues and expenses generally result from providing services and producing and delivering goods in connection with a proprietary fund's principal ongoing operations. Operating expenses for the proprietary funds include the cost of personnel and contractual services, supplies and depreciation on capital assets. All revenues and expenses not meeting this definition are reported as non-operating revenues and expenses.
C. Measurement Focus and Basis of Accounting
Measurement focus refers to what is being measured; basis of accounting refers to when revenues and expenditures are recognized in the accounts and reported in the financial statements. Basis of accounting is related to the timing of the measurement made, regardless of the measurement focus applied.
The government-wide statements and fund financial statements for proprietary funds are reported using the economic resources measurement focus and the accrual basis of accounting. The economic resources measurement focus means all assets and liabilities (whether current or non-current) are included on the statement of net assets and the operating statements present increase (revenues) and decrease (expenses) in net total assets. Under the accrual basis of accounting, revenues are recognized when earned, including unbilled water and sewer services which are accrued. Expenses are recognized at the time the liability is incurred.
Governmental fund financial statements are reported using the current financial resources measurement focus and are accounted for using the modified accrual basis of accounting. Under the modified accrual basis of accounting, revenues are recognized when susceptible to accrual; i.e., when they become both measurable and available. "Measurable" means the amount of the transaction can be determined and "available" means collectible within the current period or soon enough thereafter to be used to pay liabilities of the current period. The City considers property taxes as available if they are collected within 60 days after year-end. Expenditures are recorded when the related fund liability is incurred. However, debt service expenditures, as well as expenditures related to compensated absences are recorded only when payment is due.
The revenues susceptible to accrual are property taxes, franchise fees, licenses, charges for service, interest income and intergovernmental revenues. Sales taxes collected and held by the state at year-end on behalf of the government are also recognized as revenue. All other governmental fund revenues are recognized when received.
D. Assets, Liabilities and Equity
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand and demand and time deposit accounts at local financial institutions.
16
CITY OF POTTSBORO, TEXAS Notes to Financial Statements
September 30, 2010
Note 1: Summary of Significant Accounting Policies (continued)
D. Assets, Liabilities and Equity (continued)
Cash and Cash Equivalents (continued)
For purposes of the statement of cash flows (proprietary fund types), the City considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents.
All investments are recorded at fair value based on quoted market prices. Fair value is the amount at which a financial instrument could be exchanged in a current transaction between willing parties.
Transactions Between Funds
Legally authorized transfers are treated as interfund transfers and are included in the results of operations of both Governmental and Proprietary Funds.
The City allocates to the Proprietary Funds an indirect cost percentage of information technology services and salaries and wages and related costs of personnel who perform administrative services for those funds but are paid through the General Fund along with other indirect costs deemed necessary for their operations.
Capital Assets
Capital assets, which include property, plant, and equipment, are reported in the applicable governmental or business-type activities columns in the government-wide financial statements and in the fund financial statements for proprietary funds. All capital assets are valued at historical cost or estimated historical cost if actual historical is not available. Donated assets are valued at their fair market value on the date donated. Repairs and maintenance are recorded as expenses. Renewals and betterments are capitalized. Interest has not been capitalized during the construction period on property, plant, and equipment.
Assets capitalized have an original cost of $5,000 or more and over three years of useful life. Depreciation has been calculated on each class of depreciable property using the straight-line methods. Estimated useful lives are as follows:
Buildings 50 Years Water and Sewer System 40 - 75 Years Infrastructure 40 - 75 Years Machinery and Equipment 3-10 Years Improvements 20 Years
Compensated Absences
City employees accrue two weeks of vacation leave after one year of service. City employees accumulate sick leave at the rate of one day per month with a maximum accumulation. Accumulated sick leave will not be compensated for in any way at the time of termination. The accrued compensated absence for governmental and business-type activities at September 30, 2010 are $19,130 and $13,543, respectively.
17
CITY OF POTTSBORO, TEXAS Notes to Financial Statements
September 30, 2010
Note 1: Summary of Significant Accounting Policies (continued)
E. Net Assets
Net assets represent the difference between assets and liabilities. Net assets invested in capital assets, net of related debt consists of capital assets, net of accumulated depreciation, reduced by the outstanding balances of any borrowing used for the acquisition, construction or improvements of those assets, and adding back unspent proceeds. Net assets are reported as restricted when there are limitations imposed on their use either through the enabling legislations adopted by the City or through external restrictions imposed by creditors, grantors, or laws or regulation of other governments.
When both restricted and unrestricted resources are available for use, it is the City's policy to use restricted resources first, and then unrestricted resources as they are needed.
Note 2: Deposits and Investments
Per GASB Statement No. 40, Deposit and Investment Risk Disclosures the following disclosures are presented:
Deposits
Statutes authorize the City to invest in obligations of the U.S. Treasury or the State of Texas, certain U.S. agencies, certificates of deposit, money market savings accounts, certain municipal securities, repurchase agreements, common trust funds and other investments specifically allowed by Chapter 2256 Public Funds Investment and Chapter 2257 Collateral for Public Funds of the Government Code. The City's funds are required to be deposited and invested under the terms of a depository contract and investment policy pursuant to state statute. The depository bank deposits for safekeeping and trust with its agent approved pledged securities authorized by Chapter 2257 Collateral for Public Funds of the Government Code in an amount sufficient to protect City funds on a day-to-day basis during the period of the contract. The pledge of approved securities is waived only to the extent of the dollar amount of Federal Deposit Insurance Corporation (FDIC) insurance.
Category 1 — Insured or collateralized with securities held by the City or its agent in the City's name.
Category 2 — Collateralized by securities held by the depository bank or its agent in the City's name.
Category 3 — Uncollateralized.
Custodial credit risk is the risk that in the event of a bank failure, the City's deposits may not be returned to it. At September 30, 2010, the carrying amount of City deposits was $164,663 and the bank balance was $234,826. The bank balance was covered by federal depository insurance (Category 1) and collateralized by pledged securities held by the depository bank's agent (Category 2).
18
CITY OF POTTSBORO, TEXAS Notes to Financial Statements
September 30, 2010
Note 2: Deposits and Investments (continued)
Custodial Credit Risk
Investments
Investments are classified into these categories of credit risk:
Category 1 — Insured or registered, or securities held by the City or its agent in the City's name.
Category 2 — Insured and unregistered, with securities held by the counterparty's trust department or agent in the City's name.
Category 3 — Uninsured and unregistered, with securities held by the counterparty, or by its trust department or agent, but not in the City's name.
The City's pooled and temporary investments at September 30, 2010, are comprised of governmental investment pools — TexSTAR.
Texas Short Term Asset Reserve Program (TexSTAR) — TexSTAR is an ivestment pool created by the initial participants for the joint investment of participants' public funds and funds under their control. TexSTAR was created under the authority of applicable Texas law, including the Cooperating Act and the Investment Act. A governing board manages the business and affairs of TexSTAR. The Governing board has appointed an advisory board consisting of representative of participants and other persons who do not have a business relationship with TexSTAR and are qualified to advise the Board.
This public funds investment pool agency operates in a manner consistent with SEC's Rule 2a7 of the Investment company Act of 1940 and is rated AAAm by Standard and Poor's. All investments are stated at amortized costs, and accordingly, the fair value of the position of the pool funds is the same as the value of shares. As a requirement to maintain the rating weekly portfolio, information must be submitted to Standard & Poor's, as well as the Office of the Comptroller of Public Accounts for review. Deposits held in this public funds investment pool are not subject to custodial credit risk.
Credit Risk
Credit risk is the risk that an issuer or other counterparty to an investment will not fulfill its obligations. According to the City's investment policy, to mitigate credit risk, funds shall be invested in, or collateralized by, U.S. Treasury Bonds, Notes, and Bills and "highly liquid" U.S. agency securities. As of September 30, 2010, all of the City's investments in U.S. Agency securities are rated AAAm by Standard & Poor's.
19
CITY OF POTTSBORO, TEXAS Notes to Financial Statements
September 30, 2010
Note 2: Deposits and Investments (continued)
The following is a summary of the City's pooled, temporary and other investments, including all accrued interest, as of September 30, 2010, categorized by categories of credit risk:
Investments not subject to categorization:
TexSTAR Total Investments
Carrying Fair Amount Value
$ 422.056 $ 422,056 $ 422,056 $ 422,056
The fair value of investments in TexSTAR is materially the same as the value of the pooled shares held. Because the carrying value of the investment pool approximates fair value at September 30, 2010, this investment is carried at cost.
Concentration of Credit Risk
Concentration of credit risk is the risk of loss attributed to the magnitude of investment in a single issuer. As of September 30, 2010, the City had no investments that were exposed to concentration of credit risk.
Interest Rate Risk
Interest rate risk is the risk that changes in rates will adversely affect the fair value of an investment. The City's investment policy specifies that, in order to mitigate investment rate risk, the investment portfolio should be structured so that securities mature to meet cash requirements, limiting the needs to sell securities on the open market before maturity.
20
CITY OF POTTSBORO, TEXAS Notes to Financial Statements
September 30, 2010
Note 3: Capital Assets
Capital asset activity for the year ended September 30, 2010 was as follows:
Governmental Activities
Beginning
Balance Additions
Retirements/
Transfers
Ending
Balance
Land (Non-Depreciable) $ 80,641 $ $ 80,641
Buildings 272,833 11,240 284,073
Improvements other than Buildings 438,512 8,315 446,827
Machinery and Equipment 864,297 123,119 (45,954) 941,462
Infrastructure 3,128,811 62,003 3,190,814
Totals at Historical Cost 4,785,094 204,677 (45,954) 4,943,817
Less Accumulated Depreciation for: Buildings 124,784 5,895 - 130,679
Improvements other than Buildings 225,852 17,459 243,311
Machinery and Equipment 587,330 63,889 (30,894) 620,325
Infrastructure 947,650 44,064 - 991,714
Total Accumulated Depreciation 1,885,616 131,307 (30,894) 1,986,029
Governmental Activities Capital Assets, Net $ 2,899,478 $ 73,370 $ (15,060) $ 2,957,788
Business-Type Activities Land (Non-Depreciable) $ 3,642 $ $ $ 3,642
Buildings 8,905 8,905
Utility Plant 3,750,958 9,600 3,760,558
Improvements other than Buildings 37,170 37,170
Machinery and Equipment 272,564 16,007 288,571
Construction in Progress 1,325,838 1,860,937 3,186,775
Infrastructure 1,375,877 - 1,375,877
Totals at Historical Cost 6,774,954 1,886,544 8,661,498
Less Accumulated Depreciation for: Buildings 2,850 178 3,028
Utility Plant 1,016,599 86,856 1,103,455
Improvements other than Buildings 31,290 927 32,217
Machinery and Equipment 170,099 27,640 197,739
Infrastructure 118,182 18,479 136,661
Total Accumulated Depreciation 1,339,020 134,080 1,473,100
Business-Type Activities Capital Assets, Net $ 5,435,934 $ 1,752,464 $ $ 7,188,398
21
CITY OF POTTSBORO, TEXAS Notes to Financial Statements
September 30, 2010
Note 3: Capital Assets (continued)
September 30, 2010 was charged to functions of the activities as follows:
Depreciation expense for the year ended primary government and the business-type
Governmental Activities General Government $ 78,919 Public Safety 20,539 Fire 31,849
$131,307
Business-Type Activities Water and Sewer $134,080
$134,080
Note 4: Receivables
Receivables as of the year ended September 30, 2010 for the governmental funds and the proprietary funds, including the applicable allowances for uncollectible accounts, are as follows:
General Water and
Sewer Total
Property Taxes $ 30,931 $ - $ 30,931 Sales Taxes 43,173 43,173 Municipal Court 279,774 - 279,774 Accounts 15,966 240,131 256,097
369,844 240,131 609,975
Less: Allowance for Doubtful Accounts (241,246) (55,470) (296,716)
Net $ 128,598 $ 184,661 $ 313,259
Receivables not expected to be collected within one year are property taxes in the amount of approximately $15,000.
Governmental funds report deferred revenue in connection with receivables for revenue that are not considered available to liquidate liabilities of the current period. At September 30, 2010, the various components of the deferred revenue are as follows:
Delinquent Property Taxes Deferred Grant Revenue Municipal Court Fines
$ 27,813 66,511 38,867
$ 133,191
22
CITY OF POTTSBORO, TEXAS Notes to Financial Statements
September 30, 2010
Note 5: Changes in Long-Term Liabilities
The following schedule summarizes the changes in long-term debt for the year ended September 30, 2010:
Governmental Activities:
Balance October 1,
2009 Additions Retirements
Balance September 30,
2010
Amounts Due Within One Year
Compensated Absences $ 14,775 $ 26,562 $ ( 22,207) $ 19,130 $ 19,130 Note Payable 41,257 ( 19,973) 21,284 1,239
$ 56,032 $ 26,562 $ ( 42,180) $ 40,414 $ 20,369
Business- Type Activities: Bond Obligations $2,970,000 $2,238,000 $ ( 165,000) $ 5,043,000 $ 226,500 Capital Lease Obligations 1,325 ( 1,325) Compensated Absences 11,261 9,426 ( 7,144) 13,543 13,543
$2,982,586 $2,247,426 $__( 173,469) $ 5,056.543 $ 240,043
Total $3,038 , 618 $2,273,988 $ (215,649) $ 5,096,957 $ 260,412
Note 6: Long-term Debt
Governmental Activities $60,000 Note Payable dated October 30, 2008 is payable in monthly installments of $315 beginning October 30, 2008, including interest at 6.375%. The Note is secured by land which is included in Capital Assets with a carrying value of $60,000 $ 21,284
Total Governmental Fund $ 21,284
The future note payments, including interest, at September 30, 2010 are as follows:
Fiscal Year Principal Interest Total
2011 $ 1,239 $ 2,540 $ 3,779 2012 20,045 20,045
$ 21,284 $ 2,540 $ 23,824
23
CITY OF POTTSBORO, TEXAS Notes to Financial Statements
September 30, 2010
Note 7: Commitments
Long-Term Commitment of the Water and Sewer Fund
Under the terms of long term water supply and sewer service contracts between the City and Greater Texoma Utility Authority (GTUA), the city recognizes that GTUA has an undivided ownership interest in the City's sewer collection and treatment facility equivalent to the percentage of the total cost of the facility provided by GTUA through the issuance and sale of GTUA bonds. The City has an obligation to make payments as specified in the contract with GTUA to pay the principal and interest on the bonds, maintain cash reserves for the security and payment of the bonds similarly secured, pay the administrative and overhead expenses of GTUA directly attributable to the bonds, and pay any extraordinary expenses incurred by GTUA in connection with the bonds.
Under terms of the contracts, the City's obligation to make payments to GTUA and GTUA's ownership interest in the facilities will terminate when all of GTUA's bonds issued in connection with construction of the facilities have been paid in full, are retired, and are no longer outstanding. The City is obligated for the repayment of principal and interest on the debt through a pledging of water and sewer revenues. The structure of the transaction has the qualities of a capital lease therefore the amounts are included in long-term liabilities and capital assets with the associated accumulated depreciation.
The original total principal obligation of the 1998 sewer contract was $440,000, with interest rates varying between 2.55% and 4.05%. During September 2010, the outstanding principal balance of $110,000 was retired with funds from the 2010 refunding bonds.
The original total principal obligation of the 1999 sewer contract was $150,000, with interest rates varying between 3.05% and 5.05%. During September 2010, the outstanding principal balance of $95,000 was retired with funds from the 2010 refunding bonds.
The original total principal obligation of the 1999 water contract was $315,000, with interest rates varying between 4.65% and 5.74%. During September 2010, the outstanding principal balance of $205,000 was retired with funds from the 2010 refunding bonds.
The original total principal obligation of the 2001 water contract was $1,000,000, with interest rates varying between 4.85% and 5.98%. As of September 30, 2010, the outstanding principal balance of the obligation was $30,000. During September 2010, principal in the amount of $790,000 was retired with funds from the 2010 Refunding Bonds. The City's obligation to GTUA under the 2001 long-term contract expires with the retirement of GTUA bonds in the fiscal year ending September 30, 2011. At that time the undivided interest in the property transfers from GTUA to the City.
The original total principal obligation of the 2006 sewer contract was $400,000, with interest rates varying between 3.00% and 4.05%. As of September 30, 2010, the outstanding principal balance of the obligation was $345,000. The City's obligation to GTUA under the 2006 long-term contract expires with the retirement of GTUA bonds in the fiscal year ending September 30, 2026. At that time the undivided interest in the property transfers from GTUA to the City.
24
CITY OF POTTSBORO, TEXAS Notes to Financial Statements
September 30, 2010
Note 7: Commitments (continued)
Long-term Commitment of the Water and Sewer Fund (continued)
The original total principal obligation of the 2007 water contract was $1,745,000, with interest rates varying between 2.55% and 3.15%. As of September 30, 2010, the outstanding principal balance of the obligation was $1,275,000. The City's obligation to GTUA under the 2007 long-term contract expires with the retirement of GTUA bonds in the fiscal year ending September 30, 2025. At that time the undivided interest in the property transfers from GTUA to the City.
The original total principal obligation of the 2010 contract revenue bonds was $2,123,000, with interest rates varying between 0.75% and 2.48%. As of September 30, 2010, the outstanding principal balance of the obligation was $2,123,000. The City's obligation to GTUA under the 2010 long-term contract expires with the retirement of GTUA bonds in the fiscal year ending September 30, 2030. At that time the undivided interest in the property transfers from GTUA to the City.
The original total principal obligation of the 2010 refunding bonds was $1,270,000, with interest rates varying between 2.00% and 4.00%. As of September 30, 2010, the outstanding principal balance of the obligation was $1,270,000. The City's obligation to GTUA under the 2010 long-term contract expires with the retirement of GTUA bonds in the fiscal year ending September 30, 2021. At that time the undivided interest in the property transfers from GTUA to the City.
The principal and interest requirements related to these business-type revenue bonds are as follows:
Year Principal Interest Totals
2011 $ 226,500 $ 136,732 $ 363,232 2012 286,000 120,124 406,124 2013 288,000 115,479 403,479 2014 300,000 110,239 410,239 2015 307,500 104,112 411,612 2016-2020 1,683,000 403,245 2,086,245 2021-2025 1,284,000 173,923 1,457,923 2026-2030 668,000 48,790 716,790
$ 5,043,000 $ 1,212,644 $ 6,255,644
Note 8: Pension Plan
Plan Description The City provides pension benefits for all of its full-time employees through a nontraditional, joint contributory, hybrid defined benefit plan in the state-wide Texas Municipal Retirement System (TMRS), one of 827 administered by TMRS, an agent multiple-employer public employee retirement system. TMRS issues stand-alone financial reports annually, and these can be obtained by request at the following address:
TMRS PO Box 149153
Austin, TX 78714-9153
25
CITY OF POTTSBORO, TEXAS Notes to Financial Statements
September 30, 2010
Note 8: Pension Plan (continued)
Plan Description (continued)
Benefits depend upon the sum of the employee's contributions to the Plan, with interest, and the City-financed monetary credits, with interest. At the date the Plan began, the City granted monetary credits for service rendered before the Plan began of a theoretical amount equal to two times what would have been contributed by the employee, with interest, prior to establishment of the Plan. Monetary credits for service since the Plan began are a percent (100%, 150%, or 200%) of the employee's accumulated contributions. In addition, the City can grant, as often as annually, another type of monetary credit referred to as an updated service credit which is a theoretical amount which, when added to the employee's accumulated contributions and the monetary credits for service since the Plan began, would be the total monetary credits and employee contributions accumulated with interest if the current employee contributions rate and City matching percent had always been in existence and if the employee's salary had always been the average of his salary in the last three years that are one year before the effective date. At retirement, the benefit is calculated as if the sum of the employee's accumulated contributions with interest and the employer-financed monetary credits with interest were used to purchase an annuity.
The Plan provisions are adopted by the governing body of the City, within the options available in the state statutes governing TMRS and within the actuarial constraints also in the statutes. Plan provisions for the City were as follows:
Deposit Rate: 5% Matching Ratio (City to Employee): 1 to 1 A member is vested after: 5 years
Members can retire at certain ages, based on the years of service with the City. The Service Retirement Eligibilities for the City are: 5 years/age 60, 25 years/any age.
Contributions
Under state law governing TMRS, the actuary annually determines the City contribution rate using the Projected Unit Credit actuarial cost method. This rate consists of the normal cost contribution rate and the prior service contribution rate, both of which are calculated to be a level percent of payroll from year to year. The normal cost contribution rate finances the currently accruing monetary credits due to the City matching percent, which are the obligation of the City as of an employee's retirement date, not at the time the employee's contributions are made. The normal cost contribution rate is the actuarially determined percent of payroll necessary to satisfy the obligation of the City to each employee at the time his/her retirement becomes effective. The prior service contribution rate amortized the unfunded (overfunded) actuarial liability (asset) over the remainder of the plan's 25-year amortization period. The unit credit actuarial cost method is used for determining the City contribution rate. Both the employees and the City make contributions monthly. Since the City needs to know its contribution rate in advance for budgetary purposes, there is a one-year delay between the actuarial valuation that is the basis for the rate and the calendar year when the rate goes into effect. (i.e. December 31, 2009 valuation is effective for rate beginning January 2011.)
26
CITY OF POTTSBORO, TEXAS Notes to Financial Statements
September 30, 2010
Note 8: Pension Plan (continued)
Contributions (continued)
Schedule of Actuarial Liabilities and Funding Progress
For Fiscal Years Ended September 30., 2010 2009 2008
Actuarial Valuation Date 12/31/2009 12/31/2008 12/31/2007 Actuarial Value of Assets $ 368,339 $ 360,283 $ 331,469 Actuarial Accrued Liability 327,389 318,071 281,594 Unfunded Actuarial Accrued Liability (40,950) (42,212) (39,875) Percentage Funded 112.5% 113.3% 113.7% Annual Covered Payroll 692,248 612,577 463,152 Ratio of Unfunded to Annual
Covered Payroll (5.9%) (6.9%) (8.6%) Net Pension Obligation at
Beginning of Period -
Annual Required Contribution (ARC) 10,922 9,623 13,849
Contributions Made (10,922) (9,623) (13,849) NPO at the End of the Period
Note 9: Other Information
Other Post-Employment Benefits
In addition to the pension benefits discussed above, the City provides post-employment benefit options for health care, life, and dental insurance to eligible retirees. The benefits are provided in accordance with the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA). The criteria to determine eligibility include years of service and employee age. The death benefit for retired employees is $7,500. The City plans to fund the benefits on a pay-as-you-go basis. During the year ended September 30, 2010 there were no eligible employees. Also, no liability for these post-employment benefits was recognized at September 30, 2010 as the amount is not readily determinable and is considered to be immaterial to the financial statements taken as whole.
Property Taxes
Property taxes are levied on October 1 each year and become delinquent on February 1. Delinquent real property taxes are expected to be collected, as the delinquent amounts are a lien against the related property until paid. Revenue from property taxes not collected during the current period is deferred until such collection is made. Property subject to taxation consists of real property and certain personal property situated in the City. Certain properties of religion, education and charitable organizations, as well as the Federal government and the State of Texas are exempt from taxation. Additionally, certain exemptions are granted to property owners in arriving at the net assessed valuation of property subject to City taxation. For the current year's tax levy of $509,392 a total of 96.45% of the tax levy was collected. Property ad valorem tax rate for the year 2009 was .465255 per $100 of assessed value.
27
CITY OF POTTSBORO, TEXAS Notes to Financial Statements
September 30, 2010
Note 9: Other Information (continued)
Operating Leases
At September 30, 2010, the City has various operating leases for copiers. The City's lease expense the year ended September 30, 2010 is $ 9,579 for the copiers. Following are the future minimum lease requirements under the leases at September 30, 2010:
Fiscal Year Payments 2010 $ 5,292 2011 5,292 2012 5,096 Total $ 15,680
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 disaster. The City purchases commercial insurance through the Texas Municipal League. The City retains no risk of loss for these coverages. The City accounts for risk management issues in accordance with GASB Statement No. 10, "Accounting and Financial Reporting for Risk Financing and Related Insurance Issues."
Restricted Assets
The Water Fund has restricted cash held by GTUA in amount of $558,046 that will be used for water and sewer system capital improvements and repayment of contractual obligation. Also, the water fund net assets in the amount of $17,500 are restricted for future development.
Inter-Fund Balances
A transfer from the general fund to the water fund in the amount of $62,039 was made to move tax revenues received in the general fund, which has collection authorization, to the water fund for principle and interest payments, and for allocation of employee health insurance benefits.
Significant Component Unit Disclosures
On January 1, 2008, the 4B entered into a 12 year loan agreement with the State Infrastructure Bank (SIB) in the original principal amount of $500,000, with a stated interest rate of 4.29%. The proceeds were utilized for utility relocation along State Highway 289. Loan payments commenced on January 1, 2009 and end on January 1, 2019 with annual installments of $57,971. The cost of the project was capitalized into infrastructure on the City's financial statements. The loan is secured by the 4B sales tax revenue.
Activity for this loan for the year ended September 30, 2010 was as follows:
Balance Balance Due Within 9-30-09 Additions Retirements 9-30-10 One Year
$463,479 $ - $ 38,087 $425,392 $ 39,722
28
CITY OF POTTSBORO, TEXAS Notes to Financial Statements
September 30, 2010
Note 9: Other Information (continued)
Significant Component Unit Disclosures (continued)
The principal and interest requirements related to the SIB loan payable as of September 30, 2010 are as follows:
Year Principal Interest Totals
2011 $ 39,721 $ 18,250 $ 57,971 2012 41,425 16,546 57,971 2013 43,203 14,768 57,971 2014 45,056 12,915 57,971 2015 46,989 10,982 57,971 2016-2019 209,002 22,886 231,888
$ 425,392 $ 96,347 $ 579,708
Note 10: Stewardship, Compliance, and Accountability
By its nature as a local government, the City and its component units are subject to various federal, state, and local laws and regulations related to the City budget. The City's expenditures for Capital Outlay and Municipal Court exceeded the budget appropriation for the year ended September 30, 2010. These over-expenditures were funded by available fund balance.
Note 11: Commitments and Contingencies
The City has awarded a construction contract for a water line project. The total unfinished portion of this contract totaled $119,069 as of September 30, 2010.
Note 12: Subsequent Events
On December 1, 2010, the City purchased five acres of land for $50,000 and received a donation of 23 acres of land adjoining the purchased tract. The total of 28 acres was appraised at a value of $420,000 as of August 13, 2008. The donation of the land is contingent upon the property being used and maintained by the City for public park and recreation purposes. A grant has been approved by the Texas Parks and Wildlife Commission in the amount of $400,000 with a dollar-for-dollar matching portion for construction of the park.
Management has evaluated subsequent events through January 31, 2011, the date on which the financial statements were available to be issued.
29
CITY OF POTTSBORO, TEXAS
Required Supplementary Information
Budgetary Comparison Schedule
Budget and Actual - General Fund
For the Year Ended September 30, 2010
Revenues
Budgeted Amounts Actual
Amounts
Variance with
Final Budget Original Final
Property Tax $ 522,983 $ 522,983 $ 511,651 $ (11,332)
Sales and Use Taxes 298,000 298,000 233,000 (65,000)
Trash Service 195,000 195,000 164,998 (30,002)
Franchise Tax 135,000 135,000 104,432 (30,568)
Fines and Forfeitures 157,500 157,500 126,033 (31,467)
Donations and Miscellaneous 44,900 64,516 61,546 (2,970)
Capital Contributions 57,601 57,601
Building Permits 10,000 10,000 14,007 4,007
Grants 10,000 10,000 71,608 61,608
Interest Income 8,000 8,000 757 (7,243)
Total Revenues 1,381,383 1,400,999 1,345,633 (55,366)
Expenditures
Administrative and General 657,105 670,971 574,764 96,207
Police 444,922 447,522 403,681 43,841
Fire Department 70,954 71,104 59,605 11,499
Municipal court 83,336 83,336 91,312 (7,976)
Principal Retirement 56,039 56,039 19,973 36,066
Interest Expense 2,055 (2,055)
Capital Outlay 69,027 72,027 204,677 (132,650)
Total Expenditures 1,381,383 1,400,999 1,356,067 44,932
Excess (Deficiency) of Revenues
Over Expenditures (10,434) (10,434)
Other Financing Sources (Uses):
Capital Financing
Transfers In/(Out) (62,039) (62,039)
Total Other Sources (Uses) (62,039) (62,039)
Net Change in Fund Balance (72,473) (72,473)
Fund Balances, Beginning of year 274,308 274,308 274,308
Fund Balances, End of year 274,308 $ 274,308 $ 201,835 $ (72,473)
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CITY OF POTTSBORO, TEXAS Notes to Budgetary Comparison Schedule For the Year Ended September 30, 2010
Note 1: Budgetary Data
The City follows the procedures outlined below in establishing budgetary data reflected in the financial statements:
Annual budgets are legally adopted for all funds of the City. The adopted budgets are prepared on a basis consistent with generally accepted accounting principles, except that depreciation is not budgeted in the proprietary funds.
The City's fiscal year commences October 1 and ends September 30. Fifty (50) days prior to the end of the fiscal year, the City Manager is requested to submit to the City Council a proposed operating budget for the fiscal year commencing the following October 1. The operating budget includes the proposed expenditures/expenses and the proposed method to finance them.
Dates for public hearings, the purpose of which are to obtain taxpayers' comments, are set by the City Council at the time the budget is submitted to that body.
The City Council may add to, subtract from or change appropriations, but may not change the form of the proposed budget. Any changes must be within the revenue and reserves estimated as available by the City Manager. Prior to September 25 of each year, the budget is legally enacted through the passage of an ordinance.
At any time during the fiscal year, the City Manager can reallocate expenditures within a fund without the approval of the City Council. However, any revisions to the budget, which increase the total budgeted expenditures/expenses within any fund, must be approved by the City Council.
Formal budgetary accounting is employed as a management control technique to assist in controlling revenue and expenditures in the General Fund, and the Enterprise Fund. The budgetary accounts are compared to actual revenue and expenditures for the above funds on an annual basis. Appropriations lapse at the end of each fiscal year.
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CITY OF POTTSBORO, TEXAS Texas Municipal Retirement System
Schedule of Funding Progress September 30, 2010
Texas Municipal Retirement System Schedule of Funding in Progress:
Actuarial Actuarial Accrued UAAL as a
Actuarial Value of Liability Funded Unfunded Covered Percentage of
Valuation Date Assets (AAL) Ratio AAL (UAAL) Payroll Covered Payroll
12/31/2007 331,469 $ 281,594 113.7% $ (39,875) $ 463,152 (8.6%)
12/31/2008 360,283 318,071 113.3% (42,212) 612,577 (6.9%)
12/31/2009 368,339 327,389 112.5% (40,950) 692,248 (5.9%)
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City Profile
City of Pottsboro, County of Grayson, State of Texas, located 78 miles North of Dallas on Highway 120 at Lake Texoma
POPULATION Year 2010 (est) 2000 Census 1990 City 2,231 1,579 1,200
County 115,781 110,595 95,021
TAXATION TAX RATE (PER $100 ASSESSED VALUE) — Oct. 2010
Grayson County $ 0.490900 Pottsboro, City 0.465255 Pottsboro ISD 1.220000
Special Districts: (Hospital, 0.183715 College, etc.)
TOTAL: $ 2.359865 Municipal Sales Tax: 1%
State Sales Tax: 6-1/4% Econ. Dev. Sales Tax 4-A & 4-B: 3/4% Other Sales Taxes Street Maint: 1/4%
UTILITY WATER SUPPLIER:
Water Customers Source: Max. System Capacity (daily): Max. Daily Use To Date: Storage Capacity:
954 3 wells/Denison Water
1,500,000 gallons 440,000 gallons 650,000 gallons
SEWER SYSTEM: WASTEWATER CUSTOMERS 848 Type Treatment Plant: Orbital Activated Sludge Maximum Capacity: 350,000 gallons Max. Daily Use To Date: 350,000 gallons
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