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HomeMy WebLinkAboutFY04 CAFRTOWN OF FOUNTAIN HILLS, ARIZONA COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR THE FISCAL YEAR ENDED JUNE 30, 2004 ______________________________________________________________________ Mr. Wallace J. Nichols Mayor Mr. Mike Archambault Vice Mayor Councilmembers Dr. John Kavanagh Mr. Edwin Kehe Mr. Keith McMahan Ms. Kathleen Nicola Mr. Jay Schlum Timo thy G. Pickering, CEcD, CM Town Manager Julie A. Ghetti, MPA, CPA Accounting Supervisor Prepared by: Financial Services Department TOWN OF FOUNTAIN HILLS, ARIZONA COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR THE FISCAL YEAR ENDED JUNE 30, 2004 TABLE OF CONTENTS INTRODUCTORY SECTION Letter of Transmittal 1 List of Principal Officials 8 Organizational Chart 9 GFOA Certificate of Achievement 10 FINANCIAL SECTION Independent Auditor's Report 13 Management's Discussion and Analysis 15 Basic Financial Statements Statement of Net Assets 28 Statement of Activities 29 Balance Sheet - Governmental Funds 30 Reconciliation of the Balance Sheet to the Statement of Net Assets - Governmental Funds 31 Statement of Revenues, Expenditures and Changes in Fund Balances - Governmental Funds 32 Reconciliation of the Statement of Revenues, Expenditures, and Changes in Fund Balances to the Statement of Activities - Governmental Funds 33 General Fund Statement of Revenues, Expenditures, and Changes in Fund Balances - Budget and Actual 34 Excise Tax Fund Statement of Revenues, Expenditures, and Changes in Fund Balances - Budget and Actual 35 Notes to the Basic Financial Statements 37 Required Supplementary Information: Public Safety Personnel Retirement System Schedule of Funding Progress 55 TOWN OF FOUNTAIN HILLS, ARIZONA COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR THE FISCAL YEAR ENDED JUNE 30, 2004 TABLE OF CONTENTS Combining and Individual Fund Statements and Schedules Combining Balance Sheet - Nonmajor Governmental Funds 59 Combining St atement of Revenues, Expenditures, and Changes in Fund Balances - Nonmajor Governmental Funds 61 General Obligation Debt Service Fund - Schedule of Revenues, Expenditures, and Changes in Fund Balances - Budget and Actual 63 Eagle Mountain Debt Service Fund - Schedule of Revenues, Expenditures, and Changes in Fund Balances - Budget and Actual 64 HURF Fund - Schedule of Revenues, Expenditures, and Changes in Fund Balances - Budget and Actual 65 Grants Fund - Schedule of Revenues, Expenditures, and Changes in Fund Balances - Budget and Actual 66 Municipal Property Corporation Fund - Schedule of Revenues, Expenditures, and Changes in Fund Balances - Budget and Actual 67 HURF Debt Service Fund - Schedule of Revenues, Expenditures, and Changes in Fund Balances - Budget and Actual 68 Cottonwoods Special Assessment Fund - Schedule of Revenues, Expenditures, and Changes in Fund Balances - Budget and Actual 69 Development Fees Fund - Schedule of Revenues, Expenditures, and Changes in Fund Balances - Budget and Actual 70 TOWN OF FOUNTAIN HILLS, ARIZONA COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR THE FISCAL YEAR ENDED JUNE 30, 2004 TABLE OF CONTENTS STATISTICAL SECTION Government-wide information: Government-wide Expenses by Function 73 Government-wide Revenues 74 Fund Information: General Government Expenditures by Function 75 General Government Revenues by Source 76 General Governmental Tax Revenues by Source 77 Town Transaction Privilege (Sales) Tax Collections by Industry Classification 78 Property Tax Levies and Collections 79 Assessed and Estimated Actual Value of Property 80 Primary and Secondary Taxable Property Assessed Valuation 81 Property Tax Rates for All Direct and Overlapping Governments 82 Primary and Secondary Property Tax Rates - All Direct and Overlapping Governments 83 Assessed Valuation of Major Taxpayers 84 Computation of Legal Debt Margin 85 Ratio of Net General Bonded Debt to Assessed Value and Net Bonded Debt Per Capita 86 Ratio of Annual Debt Service Expenditures to Total General Expenditures 87 Direct and Overlapping General Obligation Bonded Debt 88 Miscellaneous Statistical Data 89 INTRODUCTORY SECTION THIS PAGE BLANK December 10, 2004 To the Honorable Mayor, Members of the Governing Council, and Citizens of the Town of Fountain Hills, Arizona: State law requires that all general-purpose local governments publish within 120 days of the close of each fiscal year a complete set of financial statements presented in conformity with Generally Accepted Accounting Principles (GAAP) and audited in accordance with Generally Accepted Auditing Standards (GAAS) by a firm of licensed certified public accountants. The Comprehensive Annual Financial Report (CAFR) of the Town of Fountain Hills, Arizona (Town) fo r the fiscal year ended June 30, 2004, is hereby submitted. This document represents a joint effo rt by Town staff as well as our auditors, Cronstrom & Trbovich, P.C. This report consists of management's representations concerning the finances of the Town of Fountain Hills. Responsibility for the accuracy of the data and the completeness and fairness of the presentation, including all disclosures, rests with management. To provide a reasonable basis fo r making these representations, management of the Town of Fountain Hills has established an int ernal control framework that is designed to both protect the government's assets from loss, theft , or misuse and to compile sufficient reliable information for the preparation of the Town's financial st atements in conformity with GAAP. Because the cost of internal controls should not outweigh their benefits, the Town's framework of internal controls has been designed to provide reasonable rather than absolute assurance that the financial statements will be free from material misst atement. As management, we assert that, to the best of our knowledge and belief, this financial report is complete and reliable in all material respects. All disclosures necessary for the reader to understand the Town's activities have been included. The Town's financial statements have been audited by Cronstrom & Trbovich, PC, a firm of licensed certified public accountants. The goal of the independent audit was to provide reasonable assurance that the financial statements of the Town of Fountain Hills, Arizona for the fiscal year ended June 30, 2004, are free of material misstatement. The independent audit invo lved examining, on a test basis, evidence supporting the amounts and disclosures in the financial st atements; assessing the accounting principles used and significant estimates made by management; and evaluating the overall financial statement presentation. The independent auditor concluded, based upon the audit, that there was a reasonable basis for rendering an unqualified opinio n t hat the Town's financial statements for the fiscal year ended June 30, 2004, are fairly presented in conformity with GAAP. The independent auditor's report is presented as the first component of the financial section of this report. 1 GAAP requires that management provide a narrative introduction, overview, and analysis to accompany the basic financial statements in the form of Management's Discussion and Analysis (MD&A). This letter of transmittal is designed to complement the MD&A and should be read in conjunction with it. The Town of Fountain Hills' MD&A can be found immediately following the report of the independent auditor. Town of Fountain Hills Profile The Town of Fountain Hills is a planned, family-o riented community established in 1970 by McCulloch Properties (now MCO Properties, Inc.). Prior to 1970 the area was a cattle ranch and was part of one of the largest land and cattle holdings in Arizona. It was purchased by Robert McCulloch in the late 1960s and designed by Charles Wood, Jr. (designer of Disneyland in southern California). The centerpiece of Fountain Hills is one of the world's tallest man-made fountains, a focal point that attracts thousands of visitors each year. Located on 11,340 acres of land, and bordering northeast Scottsdale, the Town is surrounded by the 3,500-foot McDowell Mountains on the west, the Fort McDowell Indian Reservation on the east, the Salt River Indian Reservation on the south and by the McDowell Mountain Regional Park on the north. Elevation is 1,520 feet at the fountain, 3,000 feet on Golden Eagle Boulevard, and is 500 feet above Phoenix. Over the past thirteen years the Town has grown from 10,190 residents to a town of over 22,000 in 2004. The Maricopa Association of Governments estimates that the population of Fountain Hills will co nt inue to grow to near 25,000 by 2010. Although the rate of growth has slowed due to the general downturn of the national economy, the Town continues to attract residents who are building large custom homes to take advantage of the scenic vistas surrounding its mountain communit y. The Town offers a range of living styles, from small community subdivisions to a number of large custom homes. The Town also offers recreational, cultural and retirement programs that address the needs and lifestyles of active families and adults. The community primarily consists of residential property; of the total 11,700 acres of land only 500 acres are zoned commercial (approximately 4%) and 3,600 acres are reserved as open space (31%). The Town's Mission Statement for the Organization The Town of Fountain Hills' purpose is to serve the best interests of the community by: providing for its safety and well-being; respecting its special, small-town character and quality of life; providing superior public services; sustaining the public trust through open and responsive government; and maint aining t he stewardship and preservation of its financial and natural resources. In four words, serve, respect, trust, stewardship. 2 The Town of Fountain Hills is an Arizona Municipal Corporation, acting as a general law Town as prescribed in the Arizona Revised statutes. The Town was incorporated on December 5, 1989 wit h t he governmental and administrative affairs of the Town operating under the Council- Manager form of government. The Town Council is responsible, among other things, for the adoption of local ordinances, budget adoption, the development of citizen advisory committees and hiring the Town Manager. The Town Manager is responsible for implementation of the policies of the Town Council and administering the Town's operations through five department directors and approximately 77 employees. The Magistrate, Town Attorney and Town Prosecutor are under the direction of the Town Council. The Town provides or administers a full range of services including public safety (police, fire, animal cont rol, building inspection); community development (code enforcement, planning, zoning and engineering); the construction and maintenance of streets and infrastructure, municipal court, recreational activities, community center and cultural events. The Town does not maintain utilit y o r other operations that require the establishment of enterprise funds. The financial reporting entity (the Town) includes all the funds of the primary government (i.e., the Town of Fountain Hills as legally defined) as well as all of its component units. The component units consist of legally separate entities for which the primary government is financially accountable. Blended component units, although legally separate entities, are, in substance, part of the primary government's operations and are included as part of the primary government. Accordingly, the Cottonwoods Maint enance District, the Eagle Mountain Community Facilities District and Fountain Hills Municipal Property Corporation are included in the financial reports of the Town. The annual budget serves as the foundation for the Town's financial planning and control. The Town Council formally adopts the budget and legally allocates, or appropriates, available monies fo r the General Fund, Highway User Revenue Fund, Special Revenue Funds, Debt Service Funds, and Capital Projects Funds. Therefore, these funds have appropriated budgets, and budget to actual information is presented. On or before the second public meeting in May the Town Manager submits to the Town Council a proposed budget for the fiscal year commencing the fo llo wing July 1. The budget includes proposed expenditures and the means of financing them. The Town Council is then required to hold public hearings on the proposed budget and to adopt a final budget by no later than June 30, the close of the Town's fiscal year. The budget is legally enacted through passage of an ordinance and is prepared by fund and department. The ordinance sets the limit for expenditures during the fiscal year. The Town Manager may authorize transfers from and within personnel and from operating capital to services or supplies within a department. Additional expenditures may be authorized for expenditures directly necessitated by a natural or man-made disaster as prescribed in the State Constitution, Article 9, Section 20. During fiscal year 2003/2004 there were no supplemental budgetary appropriations to the original budget. 3 Factors Affecting Financial Condition The information presented in the financial statements is perhaps best understood when it is considered from the broader perspective of the specific environment within which the Town of Fountain Hills operates. Local economy. Despite the uncertain economic conditions of the nation and slower growth of the State's economy, the Town's economy remained stable. Local sales tax receipts increased 10% from FY2003 (excluding the rate increase effective 4/1/2003) and building permit activity increased 33%. Recent development along the commercial corridor includes a Target Store, PetCo, Pier One, Ross Clothing, Famous Footwear and other national retailers. Future retail additions anticipated are Discount Tire, Dollar Tree store and a 35,000 square foot office and retail co mplex. This increase in retail sales tax base will compensate for the decrease in construction activit y t hat is anticipated in the next several years as the Town approaches build- out. The following chart provides a historical perspective of the local sales tax collections over the last three fiscal years showing the increase in retail activity. The downtown area of the community is located on Avenue of the Fountains, which will be designed to revitalize the downtown area and create connectivity to Phase II of the Civic Center project. Phase I included the construction of a Library/Museum and Community Center during FY2000 and 2001. Phase II will be completed during FY2005 and includes a new 32,000 square fo ot Town Hall facilit y t hat will provide a one stop shop for all municipal services. New lighting, pedestrian walkways, water features and cultural amenities will provide interest for adults and children. 4 The Town has approved plans for a Holiday Inn resort with 108 rooms that is scheduled to open in FY 2005 in the downtown area. Another downtown project is the Fountain Hills Resort Villas wit h 71 condo units and 250 resort rooms (currently in plan review) that will expand tourism wit hin t he community and bring additional retail tax revenue to Fountain Hills. Long-term financial planning. A five-year financial and capital improvement plan process has been init iat ed that will identify projects to be integrated with the annual budget including sources of funding to pay for them. Additional sources of revenue are being researched to diversify resources. The Town recognizes the need to secure reserves for future revenue shortfalls in case of economic downturns. A large portion of General Fund operating revenue comes from construction related activity that eventually will be constrained by availability of land. The Council has adopted a fund balance policy to provide financial stability and ensure that adequate future reserves are maintained. The policy states: 1. A contingency fund of no less than 30 days operating expenditures for the upcoming fiscal year to be designated for unanticipated expenditure or loss of revenue (contingency). 2. A designated unreserved fund balance of a minimum of ten percent (10%) of the average actual revenues for the preceding five fiscal years designated for "pay-as-you- go" capital. 3. A reserved fund balance of twenty percent (20%) of the average actual revenues for the preceding five fiscal years which is unavailable for appropriation. These amounts will not be programmed for expenditure and are only available for use within the confines of expenditure limitations imposed by the State. The contingency fund can be used for unexpected emergencies and projects upon approval by the Town Council. A historical perspective of past fund reserves is shown below. The general fund reserves recovered significant ly aft er three years of decline that is reflective of the growth of the local and national economies, capital project funding and the establishment of a new municipal fire department. Town Council and management are committed to maintaining and improving the current level of reserves in the future. 5 The Town Council also adopted financial policies that include guidelines for the issuance of debt fo r capital expenditures, Community Facility Districts, financing alternatives, expenditure controls and financial planning. The debt policy was prepared with a preference for "pay-as-you-go" financing fo r capital spending. An investment policy was adopted and was awarded the Investment Policy Certification from the Association of Public Treasurers of United States and Canada. Cash management policies and practices. State statutes permit municipalit ies in Arizona to invest in o bligat io ns of the U.S. Treasury, commercial paper, corporate bonds, repurchase agreements, and the State Treasurer's Local Government Investment Pool (LGIP). The Town's debt policy restricts investments to securities that are 100% backed by the full faith and credit of the U.S. government. The Town invests all idle cash in the State LGIP-GOV, which consists of government-backed securities. The year-to-date yield on investments as of June 30, 2004 was 1.032%. Investment income includes appreciation in the fair value of investments. Increases in fair value during the current year, however, do not necessarily represent trends that will continue; nor is it always possible to realize such amounts, especially in the case of temporary changes in the fair value of investments that the government intends to hold to maturity. Daily cash deposits are made with the local bank and are maintained for payroll and payables; these accounts are fully collateralized to $1 million. Risk management. The Town of Fountain Hills, Arizona is a member of the Arizona Municipal Risk Retention Pool. Risk coverage includes general liability, errors and omissions, property and automobile insurance. The policy insures up to $2,000,000 per incident occurrence plus any excess liabilit y o f up to $13,000,000 per occurrence per year. Coverage is provided on a claims- made basis. The Arizona Municipal Workers Compensation Fund is the Town's insurance provider for Wo rkers' Compensation. The rates vary according to the functions performed by personnel. Retirement plans. The Town of Fountain Hills, Arizona provides two deferred compensation plans through the International City/County Management Association (ICMA) in accordance with Internal Revenue Code Sections 401A and 457. The 401A is funded by mandatory employee wage deductions and matching Town contributions. The 457 is voluntary and funded 100% through employee participation. For further information on these plans please refer to Note 4.D in the financial statements. Awards and acknowledgements. The Government Finance Officers Association (GFOA) awarded a Certificate of Achievement for Excellence in Financial Reporting to the Town of Fountain Hills, Arizona for its comprehensive annual financial report (CAFR) for the fiscal year ended June 30, 2003. This was the eighth consecutive year that the government has received this prestigious award. In order to be awarded a Certificate of Achievement, the government published an easily readable and efficiently organized CAFR. This report satisfied both GAAP and applicable legal requirements. 6 A Certificate of Achievement is valid for a period of one year only. We believe that our current CAFR continues to meet the Certificate of Achievement Program's requirements and we are submit ting it to the GFOA to determine its eligibility for another certificate. In addition, the government also received the GFOA's Distinguished Budget Presentation Award fo r its annual budget document dated June 19, 2003. In order to qualify for the Distinguished Budget Presentation Award, the government's budget document was judged to be proficient in several categories, including as a policy document, a financial plan, an operations guide, and a communications device. The preparation of this report would not have been possible without the efficient and dedicated services of the entire staff of the Finance and Administration Department. I would also like to extend my appreciation to the Mayor and Council for their leadership and support. Each member of the department has my sincere appreciation for the contributions made in the preparation of this report. Respectfully submitted, Timo thy G. Pickering, CEcD, CM Town Manager 7 TOWN OF FOUNTAIN HILLS, ARIZONA LIST OF PRINCIPAL OFFICIALS ELECTED OFFICIALS Mayor Mr. Wallace J. Nichols Vice-Mayor Mr. Mike Archambault Councilmember Dr. John Kavanagh Councilmember Mr. Edwin Kehe Councilmember Mr. Keith McMahan Councilmember Ms. Kathleen Nicola Councilmember Mr. Jay Schlum DEPARTMENT DIRECTORS Town Manager Timo thy G. Pickering Magistrate Ted Armbruster Public Works Director Tom Ward Parks & Recreation Director Mark Mayer Fire Chief Mark Zimmerman, Rural Metro Corporation District Commander Captain John Kleinheinz, Maricopa County Sheriff's Office Town Prosecutor Iacovino & Kayler Town Attorney Andrew McGuire, Jorden Bischoff McGuire 8 org chart 9 GFOA Certificate 10 FINANCIAL SECTION 11 THIS PAGE BLANK 12 INDEPENDENT AUDITOR'S REPORT The Honorable Mayor and the Town Council of the Town of Fountain Hills, Arizona We have audited the accompanying financial statements of the governmental activities, each major fund, and the aggregate remaining fund information of the Town of Fountain Hills, Arizona (Town), as of and for the year ended June 30, 2004, which collectively comprise the Town's basic financial st atements as listed in the table of contents. These financial statements are the responsibility of the Town's management. Our responsibility is to express an opinion on these financial st atements 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 financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial st atements. An audit also includes assessing the accounting principles used and significant estimat es made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinio n, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, each major fund, and the aggregate remaining fund information of the Town of Fountain Hills, Arizona, as of June 30, 2004, and the respective changes in financial position, thereof and the respective budgetary comparison for the General and Excise Tax Funds for the year then ended in conformity with accounting principles generally accepted in the United States of America. A prior period adjustment is presented in Note 3.A to correct an error in the previously issued financial st atements. The management's discussion and analysis on pages 15 - 25 and the Public Safety Personnel Retirement System Schedule of Funding Progress on page 55 are not a required part of the basic financial st atements but are supplementary information required by the Governmental Accounting Standards Board. 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. 13 Our audit was conducted for the purpose of forming an opinion on the financial statements that collectively comprise the Town's basic financial statements. The introductory section, combining and individual 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 fund financial statements and schedules have been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, are fairly st ated in all mat erial respects in relation to the basic financial statements taken 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 express no opinion on them. Cronstrom & Trbovich, P.C. December 10, 2004 14 Management's Discussion and Analysis We (the Town of Fountain Hills, Arizona) are pleased to provide an overview of our financial activit ies fo r the fiscal year ended June 30, 2004. The intended purpose of the Management's Discussion and Analysis (MD&A) is to provide an introduction to the basic financial statements and notes, that provides an objective and easy to read analysis of our financial activities based on currently known facts, decisions, and conditions, by providing an easily readable summary of operating results and reasons for changes, which will help to determine if our financial position improved or deteriorated over the past year. This report addresses current operational activities, the sources, uses, and changes in resources, adherence to budget, service levels, limitations, significant economic factors, and the status of infrastructure and its impacts on our debt and operations. When referring to prior years' data in this analysis we will be drawing upon info rmation from last years audited financial reports. Financial Highlights ¨The assets of the Town exceeded its liabilities at the close of the most recent fiscal year by $25,709,232 (net assets). Of this amount $7,976,113 (unrestricted net assets) may be used to meet the government's ongoing obligations to citizens and creditors. ¨As of the close of the current fiscal year, the Town's governmental funds reported combined ending fund balances of $12,871,628, an increase of $4,308,750 in co mparison with the prior year. ¨At the end of the current fiscal year, unreserved fund balance for the general fund was $6,293,941 or 61 percent of total general fund expenditures. The fund balance policy adopted by the Council in May, 2003 requires a minimum of $4,469,191 in designated, undesignated and reserve funds; the general fund will co nt ribute $2,333,563 to the fund balance in the upcoming fiscal year. ¨General fund revenues (on a budgetary basis) exceeded budgeted revenues by $964,938 fo r fiscal year 2004. Additionally, budgetary basis expenditures were only 85%($1,763,892 (15%) in savings) of the final budget in the General Fund. ¨General fund revenues exceeded expenditures by $3,243,813; a positive variance of $2,728,830 from the original budget. ¨The Town includes two types of separate legal entities in its report - a Municipal Property Corporation and Community Facilities Districts. Although legally separate, these "component units" are important because the Town is financially accountable for them. A description of these three component units is available in Note 1 on page 37. Separate Financial Statements are not available for these entities. 15 Overview of the Financial Statements The Town implemented the Governmental Accounting Standards Board (GASB) Statement 34 - Basic Financial Statements - and Management's Discussion and Analysis - for State and Local Governments (the new model) with the financial statements for the year ended June 30, 2003. The new model contained sweeping changes to the requirements for governmental reporting. The majo r changes were as follows: ¨Government-wide reporting - while governments have traditionally focused reporting on groupings of funds (i.e. General Fund, Special Revenue Funds, Capital Project Funds, etc.), the new model also contains financial statements on a government-wide basis. ¨Fund financial statements - the new model maintains governmental, proprietary and fiduciary fund financial statements, but the focus is on major funds within each fund type. ¨New focus for governmental activities - in the government-wide financial statements all activities, including the governmental activities, are reported using the economic resources measurement focus and accrual basis of accounting. The traditional current financial resources focus and modified accrual basis of accounting are maintained for the governmental fund financial statements in the new model. ¨Infrastructure reporting - the new model requires governments to report the value of infrastructure assets of governmental activities (roads, bridges, storm drainage syst ems, parks, street lighting, etc.). These assets are reported in the governmental activit ies on the government-wide financial statements. The Town has historically capitalized assets for governmental activities that were reported in the General Fixed Assets Account Group and were not depreciated under the old reporting mo del. ¨Changes in budgetary reporting - the new model requires the display of both the original adopted budget and the amended budget, if applicable, in the budgetary comparison schedules. These schedules are only required for the general fund and majo r special revenue funds, although they may be presented for other funds as additional information. ¨Required narrative analysis - the new model requires that the financial statements be accompanied by narrative introduction and analytical overview of the government's financial activities in the form of "Management's Discussion and Analysis" (MD&A). 16 Required C omponents of the Annual Financial Report Sum mary Detail Managem ent’s Discussion and Analysis Basic Financial Statem ents Required Supplem entary In fo rm ation Governm ent- Wide Financial Statem ents Fund Financial Statem ents Notes To the Financial Statem ents As pictured above, the financial section of the Comprehensive Annual Financial Report (CAFR) fo r the Town of Fountain Hills, Arizona consists of this discussion and analysis, the basic financial statements and the required supplementary schedules presented after the basic financial statements. The basic financial statements include the government-wide financial statements, fund financial st atements, including the budgetary statements for the general fund and major special revenue funds, and notes to the financial statements. Government-wide financial statements The government-wide financial statements are designed to provide readers with a broad overview of the Town's finances, in a manner similar to private-sector business. The statement of net assets presents information on all of the Town's assets and liabilities, with the difference between the two reported as net assets. Over time, increases or decreases in net assets may serve as useful indicators of whether the financial position of the Town is improving or deteriorating. The statement of activities presents information showing how the government's net assets changed during the most recent fiscal year. All changes in net assets are reported as soon as the underlying event giving rise to the change occurs, regardless of the timing of related cash flows. Thus, revenues and expenses are reported in this statement for some items that will only result in cash flo ws in future fiscal periods (e.g., uncollected taxes and earned but unused vacation leave). The government-wide financial statements distinguish functions of the Town that are principally supported by taxes and intergovernmental revenues (governmental activities) from other functions that are int ended to recover all or a significant portion of their costs through user fees and charges (business-type activities). The governmental activities of the Town include general government, communit y development, public safety, highways and streets, and culture and recreation. The Town does not have any business-type activities. 17 The government-wide financial statements can be found on pages 28 - 29 of this report. Fund financial statements Also presented are the traditional fund financial statements for governmental funds. The fund financial st atements now focus on major funds of the Town, rather than fund type used in the old mo del. A fund is a grouping of related accounts that is used to maintain control over resources that have been segregated for specific activities or objectives. The Town, like other state and lo cal governments, uses fund accounting to ensure and demonstrate compliance with finance- related legal requirements. All of the funds of the Town are included in the governmental funds. Governmental funds Governmental funds - Governmental funds are used to account for essentially the same functions reported as governmental activities in the government-wide financial statements. However, unlike the government-wide financial statements, governmental fund financial statements focus on near- term inflo ws and outflows of spendable resources, as well as balances of spendable resources available at the end of the fiscal year. Such information may be useful in evaluating a government's near-term financing requirements. Since the governmental fund financial statements fo cus on near-term spendable resources, while the governmental activities on the government- wide financial statements have a longer term focus, a reconciliation of the differences between the two is provided following the fund financial statements' balance sheet and statement of revenues, expenditures and changes in fund balances, respectively. Notes to the basic financial statements The notes to the basic financial statements (pages 37 - 53) provide additional information that is essential to a full understanding of the data provided in the government-wide and fund financial statements and should be read with the financial statements. Required supplementary information other than MD&A Governments have an option of including the budgetary comparison statements for the general fund and major special revenue funds as either part of the fund financial statements within the basic financial statements, or as required supplementary information after the footnotes. The Town has chosen to present these budgetary statements as part of the basic financial statements. Additionally, governments are required to disclose certain information about employee pension funds. The Town has disclosed this information in Note 4.D to the basic financial statements. Government-Wide Financial Analysis Net assets may serve over time as useful indicators of a government's financial position. The fo llo wing table reflects the condensed Statement of Net Assets of the Town for June 30, 2004 compared to the prior year. 18 Town of Fountain Hills, Arizona Condensed Statement of Net Assets As of June 30, 2004 Governmental Activities 2004 2003 Percent Change Assets Current and other assets $21,638,047 $16,801,782 %28.8 Capital assets Non-depreciable 23,571,668 23,571,668 %- Depreciable (net) 16,485,725 17,071,272 %(3.4) Total assets 61,695,440 57,444,722 %7.4 Liabilities Other liabilities 8,338,841 7,307,826 %14.1 Non-current liabilities Due within one year 1,603,159 1,484,604 %8.0 Due in more than one year 26,044,208 27,489,398 %(5.3) Total liabilities 35,986,208 36,281,828 %(0.8) Net assets Invested in capital assets, net of related debt 11,261,256 11,843,575 %(4.9) Restricted 6,471,863 6,681,170 %(3.1) Unrestricted 7,976,113 2,638,149 %202.3 Total net assets $25,709,232 $21,162,894 %21.5 The combined net assets of the Town increased by 21.5% from $21.2 million to $25.7 million in fiscal year 2004, a difference of $4.5 million in governmental activities. The Town does not currently have any proprietary or enterprise funds that would otherwise be classified as business- type activities. All Town funds are considered governmental activities. Net Assets consist of three components. The largest portion of the Town's net assets (44%) reflects its investment in capital assets (e.g., land, buildings, machinery and equipment), less any related debt used to acquire those assets that is still outstanding. The Town uses these capital assets to provide services to citizens; consequently, these assets are not available for future spending. Although the Town'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 sources, since the capital assets themselves cannot be used to liquidate these liabilities. This category of net assets decreased $582,319 in fiscal year 2004 primarily as a result of depreciation of the capital assets. The second portion of the Town's net assets (25%) represents resources that are subject to external restrictions on how they may be used. The remaining balance of unrestricted net assets ($7,976,113) may be used to meet the government's ongoing obligations to citizens and creditors. This category increased $5,337,964 in fiscal year 2004 primarily due to increases to reserves. 19 At the end of the current fiscal year, the Town of Fountain Hills, Arizona is able to report positive balances in all three categories of net assets for the government as a whole. Analysis of changes in net assets The program revenues (charges for services and grants that are clearly identifiable to an operating function) of governmental activities increased $531,634 (12%) from the previous year, primarily due to increased building related activity. Total governmental revenues increased $1.5 million primarily due to increased local sales tax collections derived from an increase in the local tax rate. Program expenses decreased in public safety with the reduction from a dual law enforcement syst em t o a single contract provider. The following table compares the revenue and expenses for the current and previous fiscal year. Town of Fountain Hills, Arizona Changes in Net Assets For the Year Ended June 30, 2004 Governmental Activities 2004 2003 Percent Change Revenues Program revenues Fees, fines and charges for services $3,421,132 $2,782,385 %23.0 Operating grants and contributions 1,590,787 1,697,900 %(6.3) General revenues: Property taxes 2,195,856 1,905,770 %15.2 Local taxes 7,860,005 5,204,414 %51.0 State shared revenues 4,489,844 4,740,758 %(5.3) Investment earnings 122,082 1,976,809 %(93.8) Other 195,978 79,706 %145.9 Total revenues 19,875,684 18,387,742 %8.1 Expenses General government 3,686,452 3,479,333 %6.0 Public safety 4,918,280 5,494,708 %(10.5) Highways and streets 1,419,509 1,310,683 %8.3 Culture and recreation 2,068,613 2,363,897 %(12.5) Community development 1,144,964 1,235,985 %(7.4) Interest on long-term debt 1,499,575 1,576,842 %(4.9) Total expenses 14,737,393 15,461,448 %(4.7) Increase in net assets 5,138,291 2,926,294 %75.6 Net assets, beginning of year (as restated) 20,570,941 18,236,600 %12.8 Net assets, end of year $25,709,232 $21,162,894 %21.5 20 Governmental activities.The following graph illustrates the Town's government-wide revenue resources that were previously discussed in a comparative analysis of government-wide revenues, expenses and changes in net assets. Governmental activities account for 100% of the total revenues and expenditures of the Town. The largest financing source for the Town is the local sales tax (38%) and state shared revenues account for 23% of the government-wide revenue sources. Financial analysis of the Town's funds The focus of the Town's governmental funds is to provide information on near-term inflows, outflo ws, and balances of resources that are available for spending. Such information is useful in assessing the Town's financing requirements. In particular, unreserved fund balance may serve as a useful measure of a government's net resources available for spending at the end of the fiscal year. Types of Governmental funds reported by the Town include the General Fund, Special Revenue Funds, Debt Service Funds and Capital Project Funds. As a measure of the general fund's liquidity, it may be useful to compare both general fund balance and total fund balance to total fund expenditures. General fund balance represents 41 percent of total fund expenditures, while total fund balance represents 83 percent of that same amo unt. 21 The fund balance of the Town's general fund increased by $2,333,563 during the current fiscal year. Key factors in this change are as follows: ¨General Fund revenues exceeded projections by $964,938 (primarily due to building-related activity and state sales tax); expenditures were $1,763,892 less than projected due to expenditures delayed until next fiscal year. ¨A Budget Reduction Plan was implemented in February 2003 as a result of declining revenues and the addition of a fire department; the majority of the plan remains in place. As of the end of the fiscal year 2004 the Town's governmental funds reported combined ending fund balances of $12,871,628, an increase of $4,308,750 over the prior year. Approximately 49% of this t otal amo unt $6,371,426 constitutes general fund balance, which is available for contribution to the designated, undesignated and reserved fund balance. At fiscal year-end 2003- 2004 fund balances were as follows: Fund Balance Increase (Decrease) From 2002-03 General Fund $6,371,426 $2,333,563 Excise Tax Fund 2,432,170 519,766 General Obligation Debt Service Fund 268,842 204,609 Eagle Mountain Debt Service Fund 261,530 62,770 Nonmajor Governmental Funds 3,537,660 1,188,042 The Excise Tax Fund is a dedicated portion of the local sales tax (0.4%) that can only be used for debt retirement of Municipal Property Corporation bonds and expenses relating to development of the downtown area. Revenues have exceeded the expenditures each year; the surplus will continue to accumulate in the fund for possible future defeasance of outstanding bonds. All no nmajo r governmental funds of the Town are combined into one column on the governmental fund statements. The Highway User Revenue Fund, included with the nonmajor governmental funds of the Town, is required by state statute to track the state allocation of gasoline taxes and other state revenues shared with local governments and required to be used for transportation purposes. Revenue in this fund increased $81,913 (6%) in fiscal year 2004 due to the increase in state shared revenues. Expenditures increased $127,993 from the prior year due to increased expenses for road maint enance. Nonmajor governmental funds of the Town also include the Capital Projects Fund, consisting of governmental impact (development) fees for streets and highways, parks and recreation, law enforcement, general government and open space. This is a restricted fund and may only be appropriated for the particular purpose for which they were imposed. The fund balance as of June 30, 2004 in this fund is $1,740,295; expenditures were made in FY2004 for open space (trailhead design) and recreation (Fountain Park Phase II). 22 Budgetary highlights The Town's annual budget is the legally adopted expenditure control document of the Town. Budgetary comparison statements are required for the General Fund and all major special revenue funds and may be found on pages 34 - 35. These statements compare the original adopted budget, the budget if amended throughout the fiscal year, and the actual expenditures prepared on a budgetary basis. The Town did not amend its budget during the fiscal year. General Fund revenues of $13,643,823, on a budgetary basis, exceeded budgeted revenues of $12,678,885 by $964,938 while budgetary basis expenditures of $10,400,010 were only 85% of budgeted expenditures (savings of $1,763,892). The excess of revenues over budgeted revenues is primarily due to better than expected building permit activity and greater State Sales Tax revenues. The expenditure savings were derived from capital project costs in Fountain Park that were not completed ($652,468), a budgeted General and Administrative expenditure for a sales tax refund that has been referred for a tax hearing ($400,000) as well as organizational vacancy savings ($170,000) and landscape maintenance savings ($55,000). The Town staff is committed to maint aining t he level of service without jeopardizing future infrastructure or capital. Capital asset and debt administration The Town's capital assets for its governmental activities as of June 30, 2004 amount to $40,057,393 (net of accumulated depreciation), a decrease from 2003 of 1.4%. For government- wide financial statement presentation, all depreciable capital assets were depreciated from acquisition date to the end of the current fiscal year. Fund financial statements record capital asset purchases as expenditures. See Note 3.B.3 in the Notes to the Basic Financial Statements fo r further information regarding capital assets. The Town recorded its capital assets as part of the general fixed asset account group in past years as they were acquired or constructed. Capital assets include land, buildings and improvements, machinery and equipment, roads and improvements, vehicles, office and computer equipment. During fiscal year 2003-2004 the annual depreciation expense was $977,496. The following table provides a comparison of current and prior year capital assets. Town of Fountain Hills, Arizona Capital Assets at June 30, 2004 (Net of depreciation) Governmental Activities 2004 2003 Percent Change Land $23,571,668 $23,571,668 %- Buildings and improvements 9,559,273 9,514,951 %0.5 Improvements other than buildings 5,397,938 5,711,469 %(5.5) Infrastructure 451,888 377,221 %19.8 Furniture, machinery and equipment 582,890 728,500 %(20.0) Vehicles 493,736 739,131 %(33.2) $40,057,393 $40,642,940 %(1.4) 23 Long-term debt At the end of the current fiscal year, the Town had total long-term obligations outstanding of $27,647,367 with no debt issued during the year. Of the outstanding debt, $11,740,000 is general obligation bonds backed by the full faith and credit of the Town. An additional $4,615,000 of special assessment bonds are backed by a guaranteed investment contract with the developer of the district property. All o ther outstanding debt is secured by pledges of specific revenue sources of the Town. The State imposes certain debt limitations on the Town of six percent (6%) and twenty percent (20%) of the outstanding secondary net assessed valuation of the Town. The Town's available debt margin at June 30,2004 is $16,988,114 in t he 6% capacity and $55,352,046 in t he 20% capacity. Additional information on the debt limitations and capacities may be found in the statistical section of this report (page 85). The following schedule shows the outstanding debt of the Town (both current and long-term) as of June 30,2003 and 2004. Further detail on the Town's outstanding debt may be found in Note 3.E on pages 49 - 50. Town of Fountain Hills, Arizona Outstanding Debt at June 30, 2004 Governmental Activities 2004 2003 Percent Change General Obligation Debt $11,110,000 $11,865,000 %(6.4) Highway User Revenue Bonds 630,000 720,000 %(12.5) Special Assessment Debt 16,137 19,365 %(16.7) Community Facilities District Debt 4,615,000 4,765,000 %(3.1) Municipal Property Corporation Debt 11,005,000 11,430,000 %(3.7) Compensated Absences 271,230 174,637 %55.3 $27,647,367 $28,974,002 %(4.6) The Town currently maintains a rating on its general obligation debt of Aa3 from Moody's Investor Services. Economic factors and next year's budgets and rates The Town of Fountain Hills, Arizona, as well as all other Arizona cities, remains dependent on state shared revenues (33%) and local sales taxes for resources (49%). These revenue sources are sensitive to economic downturns and legislative appropriations. The Town's economic activity has remained fairly stable during the national recession and is expected to continue to grow at a mo derate pace over the next year, fueled primarily by the residential construction industry. The Town of Fountain Hills, Arizona has a number of high-end properties that are currently being developed for custom homes. 24 The budget for fiscal year 2004-2005 includes resources targeted towards economic development in t he downtown area (Avenue of the Fountains). An economic development coordinator has been hired and capital funds for improvements to the area are included to focus on developing the area to promote economic development. Financial contact This financial report is designed to provide a general overview of the Town's finances for all of those with an interest in government's finances and to demonstrate accountability for the use of public funds. Questions about any of the information provided in this report, or requests for additional financial information should be addressed to: Town of Fountain Hills Accounting Department P.O. Box 17958 Fountain Hills, AZ 85269 Or visit our website at: ht tp://www.fh.az.gov 25 THIS PAGE BLANK 26 Basic Financial Statements 27 TOWN OF FOUNTAIN HILLS, ARIZONA STATEMENT OF NET ASSETS JUNE 30, 2004 Governmental Activities Assets Cash and equivalents $17,477,529 Cash with paying agent 2,342,129 Receivables, net Accounts receivable 444,828 Taxes receivable 83,646 Intergovernmental receivable 1,207,303 Special assessments receivable 5,127 Inventories 10,517 Prepaid items 66,968 Capital assets Non-depreciable 23,571,668 Depreciable (net) 16,485,725 Total assets 61,695,440 Liabilities Accounts payable 903,465 Accrued wages and benefits 118,419 Interest payable 744,778 Intergovernmental payable 50,000 Deposits payable 25,000 Due to developers 5,077,179 Matured debt principal payable 1,420,000 Noncurrent liabilities Due within one year 1,603,159 Due in more than one year 26,044,208 Total liabilities 35,986,208 Net assets Invested in capital assets, net of related debt 11,261,256 Restricted for Public safety 168,885 Highways and streets 331,560 Debt service 1,018,867 Capital outlay 2,382,386 Other 2,570,165 Unrestricted 7,976,113 Total net assets $25,709,232 The notes to the financial statements are an integral part of this statement. 28 TOWN OF FOUNTAIN HILLS, ARIZONA STATEMENT OF ACTIVITIES FOR THE FISCAL YEAR ENDED JUNE 30, 2004 Program Revenues Net (Expenses) Revenue and Changes in Net Assets Expenses Fees, Fines and Charges for Services Operating Grants and Contributions Totals Functions/Programs Governmental activities General government $3,686,452 $3,388,923 $-$(297,529) Public safety 4,918,280 -75,000 (4,843,280) Highways and streets 1,419,509 28,597 1,515,787 124,875 Culture and recreation 2,068,613 --(2,068,613) Community development 1,144,964 --(1,144,964) Interest on long-term debt 1,499,575 3,612 -(1,495,963) Totals $14,737,393 $3,421,132 $1,590,787 (9,725,474) General revenues Taxes Sales taxes 7,733,643 Property taxes 2,195,856 Franchise taxes 126,362 State revenue sharing 1,967,973 State sales tax revenue sharing 1,702,374 Auto lieu tax revenue sharing 819,497 Investment earnings 122,082 Other - not program 195,978 Total general revenues 14,863,765 Change in net assets 5,138,291 Net assets, beginning of year (as restated) 20,570,941 Net assets, end of year $25,709,232 The notes to the financial statements are an integral part of this statement. 29 TOWN OF FOUNTAIN HILLS, ARIZONA BALANCE SHEET GOVERNMENTAL FUNDS JUNE 30, 2004 General Excise Tax General Obligation Debt Service Eagle Mountain Debt Service Nonmajor Governmental Funds Totals Assets Cash and equivalents $5,853,264 $2,351,692 $253,559 $5,624,482 $3,394,532 $17,477,529 Cash with paying agent --1,057,064 -1,285,065 2,342,129 Accounts receivable 434,237 ---10,591 444,828 Taxes receivable 12,748 -52,986 17,912 -83,646 Intergovernmental receivable 949,220 137,022 --121,061 1,207,303 Special assessments receivable ----5,127 5,127 Due from other funds 3,514 ----3,514 Inventories 10,517 ----10,517 Prepaid items 66,968 ----66,968 Total assets $7,330,468 $2,488,714 $1,363,609 $5,642,394 $4,816,376 $21,641,561 Liabilities and Fund Balances Liabilities Accounts payable $460,789 $54,922 $594 $-$387,160 $903,465 Accrued wages and benefits 98,859 1,622 --17,938 118,419 Interest payable --302,064 152,737 289,977 744,778 Intergovernmental payable ---50,000 -50,000 Due to other funds ----3,514 3,514 Deferred revenue 374,394 -37,109 10,948 5,127 427,578 Deposits payable 25,000 ----25,000 Due to developers ---5,017,179 60,000 5,077,179 Matured debt principal payable --755,000 150,000 515,000 1,420,000 Total liabilities 959,042 56,544 1,094,767 5,380,864 1,278,716 8,769,933 Fund balances Reserved for inventories 10,517 ----10,517 Reserved for prepaid items 66,968 ----66,968 Unreserved 6,293,941 2,432,170 268,842 261,530 -9,256,483 Unreserved, reported in nonmajor Special revenue funds ----666,779 666,779 Debt service funds ----488,495 488,495 Capital projects funds ----2,382,386 2,382,386 Total fund balances 6,371,426 2,432,170 268,842 261,530 3,537,660 12,871,628 Total liabilities and fund balances $7,330,468 $2,488,714 $1,363,609 $5,642,394 $4,816,376 $21,641,561 The notes to the financial statements are an intergral part of this statement. 30 TOWN OF FOUNTAIN HILLS, ARIZONA RECONCILIATION OF THE BALANCE SHEET TO THE STATEMENT OF NET ASSETS GOVERNMENTAL FUNDS JUNE 30, 2004 Fund balances - total governmental funds $12,871,628 Amounts reported for governmental activities in the statement of net assets are different because: Property taxes not collected within 60 days subsequent to fiscal year-end are deferred in the governmental funds. 113,610 Capital assets used in governmental activities are not financial resources and therefore are not reported in the governmental funds. Governmental capital assets 45,082,942 Less accumulated depreciation (5,025,549) Capital assets used in governmental activities 40,057,393 Other long-term assets are not available to pay for current-period expenditures and are not susceptible to accrual. 313,968 Long-term liabilities, including bonds payable, are not due and payable in the current period and therefore are not reported in the governmental funds. General obligation bonds (11,740,000) Revenue bonds (11,005,000) Special assessment debt with government commitment (16,137) Community facilities district bonds payable (4,615,000) Compensated absences (271,230) Net assets of governmental activities $25,709,232 The notes to the financial statements are an integral part of this statement. 31 TOWN OF FOUNTAIN HILLS, ARIZONA STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS FOR THE FISCAL YEAR ENDED JUNE 30, 2004 General Excise Tax General Obligation Debt Service Eagle Mountain Debt Service Nonmajor Governmental Funds Totals Revenues Taxes Sales taxes $6,543,988 $1,189,655 $-$-$-$7,733,643 Property taxes --1,563,508 574,193 -2,137,701 Franchise taxes 126,362 ----126,362 Intergovernmental 4,489,844 ---1,590,787 6,080,631 Fines and forfeitures 192,150 ---169,189 361,339 Licenses and permits 1,600,934 ----1,600,934 Charges for services 167,749 ---870,421 1,038,170 Rents and royalties 242,704 ----242,704 Special assessments ----3,612 3,612 Investment earnings 68,823 23,473 1,415 3,391 24,980 122,082 Other 211,269 ---50,292 261,561 Total Revenues 13,643,823 1,213,128 1,564,923 577,584 2,709,281 19,708,739 Expenditures Current General government 3,125,413 96,701 -55,000 337,344 3,614,458 Public safety 4,598,934 ---17,227 4,616,161 Highways and streets ----1,402,502 1,402,502 Culture and recreation 1,530,699 ---66,451 1,597,150 Community development 1,144,964 ----1,144,964 Debt Service Principal retirement --755,000 150,000 518,228 1,423,228 Interest on long-term debt --605,314 309,814 584,447 1,499,575 Capital outlay ----101,951 101,951 Total Expenditures 10,400,010 96,701 1,360,314 514,814 3,028,150 15,399,989 Excess (deficiency) of revenues over expenditures 3,243,813 1,116,427 204,609 62,770 (318,869)4,308,750 Other financing sources (uses) Transfers in ----1,630,907 1,630,907 Transfers out (910,250)(596,661)--(123,996)(1,630,907) Total other financing sources (uses) (910,250)(596,661)--1,506,911 - Net change in fund balances 2,333,563 519,766 204,609 62,770 1,188,042 4,308,750 Fund balances, beginning of year (as restated) 4,037,863 1,912,404 64,233 198,760 2,349,618 8,562,878 Fund balances, end of year $6,371,426 $2,432,170 $268,842 $261,530 $3,537,660 $12,871,628 The notes to the financial statements are an intergral part of this statement. 32 TOWN OF FOUNTAIN HILLS, ARIZONA RECONCILIATION OF THE STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES TO THE STATEMENT OF ACTIVITIES GOVERNMENTAL FUNDS FOR THE FISCAL YEAR ENDED JUNE 30, 2004 Net change in fund balances - total governmental funds $4,308,750 Amounts reported for governmental activities in the statement of activities are different because: 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. Expenditures for capital assets 391,949 Less current year depreciation (977,496) Excess capital expenditures over depreciation (585,547) Some revenues reported in the statement of activities do not provide current financial resources and therefore are not reported as revenues in governmental funds. Court fines 108,790 Property taxes 58,155 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 assets. The issuance of long-term debt increases long-term liabilities on the statement of net assets and the repayment of principal on long-term debt reduces long-term debt on the statement of net assets. Also, governmental funds report the effect of issuance costs, premiums, discounts, and similar items when the debt is first issued, whereas these items are deferred and amortized over the term of the long-term debt in the statement of activities. Principal payments on long-term debt 1,423,228 Some expenses reported in the statement of activities do not require the use of current financial resources and therefore are not reported as expenditures in the governmental funds. Net increase in compensated absences (96,593) Bad debt expense on court fines receivable (78,492) Change in net assets of governmental activities $5,138,291 The notes to the financial statements are an integral part of this statement. 33 TOWN OF FOUNTAIN HILLS, ARIZONA GENERAL FUND STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES - BUDGET AND ACTUAL FOR THE FISCAL YEAR ENDED JUNE 30, 2004 Original and Final Budget Actual Variance with Final Budget Revenues Taxes $6,609,293 $6,670,350 $61,057 Intergovernmental 4,250,137 4,489,844 239,707 Fines and forfeitures 213,500 192,150 (21,350) Licenses and permits 969,005 1,600,934 631,929 Charges for services 203,950 167,749 (36,201) Rents and royalties 258,000 242,704 (15,296) Investment earnings 85,000 68,823 (16,177) Other 90,000 211,269 121,269 Total Revenues 12,678,885 13,643,823 964,938 Expenditures Current General government Mayor and Town Council 85,360 77,106 8,254 Magistrate Court 299,870 296,272 3,598 General and Administrative 3,507,940 2,741,331 766,609 Contingency 50,000 10,704 39,296 Total general government 3,943,170 3,125,413 817,757 Public safety Building Safety 587,900 548,471 39,429 Law Enforcement 1,743,538 1,708,052 35,486 Fire Department 2,335,830 2,342,411 (6,581) Total public safety 4,667,268 4,598,934 68,334 Culture and recreation Parks and Recreation 1,748,910 1,096,442 652,468 Civic Center 469,994 434,257 35,737 Total culture and recreation 2,218,904 1,530,699 688,205 Community development Community Development 252,000 212,541 39,459 Public Works Dept 1,082,560 932,423 150,137 Total community development 1,334,560 1,144,964 189,596 Total Expenditures 12,163,902 10,400,010 1,763,892 Excess (deficiency) of revenues over expenditures 514,983 3,243,813 2,728,830 Other financing sources (uses) Transfers out -(910,250)(910,250) Total other financing sources (uses) -(910,250)(910,250) Net change in fund balances 514,983 2,333,563 1,818,580 Fund balances, beginning of year 3,380,677 4,037,863 657,186 Fund balances, end of year $3,895,660 $6,371,426 $2,475,766 The notes to the financial statements are an integral part of this statement. 34 TOWN OF FOUNTAIN HILLS, ARIZONA EXCISE TAX FUND STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES - BUDGET AND ACTUAL FOR THE FISCAL YEAR ENDED JUNE 30, 2004 Original and Final Budget Actual Variance with Final Budget Revenues Taxes $1,174,413 $1,189,655 $15,242 Investment earnings -23,473 23,473 Total Revenues 1,174,413 1,213,128 38,715 Expenditures Current General government 958,065 96,701 861,364 Total Expenditures 958,065 96,701 861,364 Excess (deficiency) of revenues over expenditures 216,348 1,116,427 900,079 Other financing sources (uses) Transfers out -(596,661)(596,661) Total other financing sources (uses) -(596,661)(596,661) Net change in fund balances 216,348 519,766 303,418 Fund balances, beginning of year -1,912,404 1,912,404 Fund balances, end of year $216,348 $2,432,170 $2,215,822 The notes to the financial statements are an integral part of this statement. 35 THIS PAGE BLANK 36 TOWN OF FOUNTAIN HILLS, ARIZONA NOTES TO THE BASIC FINANCIAL STATEMENTS FISCAL YEAR ENDED JUNE 30, 2004 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accompanying financial statements of the Town of Fountain Hills, Arizona (Town) have been prepared in conformity with U.S. generally accepted accounting principles applicable to governmental units adopted by the Governmental Accounting Standards Board (GASB). A summary of the Town's more significant accounting policies follows. A. Reporting entity The Town is a municipal government that is governed by a separately elected governing body. It is legally separate from and fiscally independent of other state and local governments. The accompanying financial statements present the Town and its component units, entities for which the Town is considered to be financially accountable. Blended component units, although legally separate entities, are, in substance, part of the Town's operations. Included within the reporting entity: The Eagle Mountain Community Facilities District and the Cottonwoods Improvement District. As special purpose districts and separate political subdivisions under the Arizona Constitution, the Districts can levy taxes and issue bonds independently of the Town. Property owners in the designated areas are assessed for District taxes and thus for the costs of operating the Districts. The Town Council serves as the Board of Directors; however, the Town has no liability for the Districts' debt. For financial reporting purposes, transactions of the Districts are combined together and included as if they were part of the Town's operations. A separately issued annual financial report was issued for the Eagle Mountain Community Facilities District and is available at Town Hall. Town of Fountain Hills, Arizona Municipal Property Corporation. The Town of Fountain Hills, Arizona Municipal Property Corporation's (MPC) board of directors consists of three members which are appointed by the Fountain Hills Town Council. The MPC, which is a nonprofit corporation incorporated under the laws of the State of Arizona, was formed for the sole purpose of assisting the Town in obtaining financing for various projects of the Town. The Town has a "moral obligation" for the repayment of the MPC's bonds. For financial reporting purposes, transactions of the MPC are combined together and included as if they were part of the Town's operations. B. Government-wide and fund financial statements The government-wide financial statements (i.e., the statement of net assets and the statement of changes in net assets) report information on all of the nonfiduciary activities of the primary government and its component units. The effect of interfund activity has been removed from these statements. Governmental activities are normally supported by taxes and intergovernmental revenues. 37 TOWN OF FOUNTAIN HILLS, ARIZONA NOTES TO THE BASIC FINANCIAL STATEMENTS FISCAL YEAR ENDED JUNE 30, 2004 The statement of activities demonstrates the degree to which the direct expenses of a given function or segment are offset by program revenues. Direct expenses are those that are clearly identifiable with a specific function or segment. Program revenues include 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 operational or capital requirements of a particular function or segment. Taxes and other items not properly included among program revenues are reported instead as general revenues. Separate financial statements are provided for governmental funds. Major individual governmental funds are reported as separate columns in the fund financial statements. C. Measurement focus, basis of accounting, and financial statement presentation The government-wide financial statements are reported using the economic resources measurement focus and the accrual basis of accounting. Revenues are recorded when earned and expenses are recorded when a liability is incurred, regardless of the timing of related cash flows. Property taxes are recognized as revenues in the year for which they are levied. Grants and similar items are recognized as revenue as soon as all eligibility requirements imposed by the provider have been met. Governmental fund financial statements are reported using the current financial 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 liabilit ies of the current period. For this purpose, the Town considers revenues to be available if t hey are 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, except expenditures related to compensated absences and claims and judgments, which are recorded only when payment is due. However, since debt service resources are provided during the current year for payment of long-term principal and int erest due early in the following year, the expenditures and related liabilities have been recognized in the Debt Service Funds. Property taxes, intergovernmental grants and aid, and interest associated with the current fiscal period are all considered to be susceptible to accrual and so have been recognized as revenues of the current fiscal period. All other revenue items are considered to be measurable and available only when cash is received by the government. 38 TOWN OF FOUNTAIN HILLS, ARIZONA NOTES TO THE BASIC FINANCIAL STATEMENTS FISCAL YEAR ENDED JUNE 30, 2004 The Town reports the following major governmental funds: The General Fund is t he Town's primary operating fund. It accounts for all financial resources of the Town, except those required to be accounted for in another fund. The Excise Tax Fund accounts for the portion of Town sales tax reserved by the Town Council for special projects including Town beautification and economic development. The General Obligation Debt Service Fund accounts for the Town's property tax revenues received to pay the debt service of the Town's general obligation bonds. The Eagle Mountain Debt Service Fund accounts for the property tax revenues received to pay the debt service of the Eagle Mountain Community Facilities District component unit. As a general rule the effect of interfund activity has been eliminated from the government- wide financial statements. Amo unts reported as program revenues include 1) fees, fines and charges for services, 2) operating grants and contributions, and 3) capital grants and contributions. Internally dedicated resources are reported as general revenues rather than as program revenues. Likewise, general revenues include all taxes. When both restricted and unrestricted resources are available for use, for governmental activit ies, it is the Town's policy to use restricted resources first, then unrestricted resources as they are needed. D. Assets, liabilities, and net assets or equity 1. Deposits and investments The Town's cash and cash equivalents are considered to be cash on hand, demand deposits, cash and investments held by the State Treasurer, and highly liquid investments wit h mat urities of three months or less from the date of acquisition. 39 TOWN OF FOUNTAIN HILLS, ARIZONA NOTES TO THE BASIC FINANCIAL STATEMENTS FISCAL YEAR ENDED JUNE 30, 2004 Cash and investments are pooled except for funds required to be held by fiscal agents or restricted under provisions of bond indentures. Interest earned from investments purchased with such pooled monies is allocated to each of the funds based on the average daily cash balances. State statutes authorize the Town to invest in obligations of the U.S. Treasury and U.S. agencies, certificates of deposit in eligible depositories, repurchase agreements, obligations of the State of Arizona or any of its counties or incorporated cit ies, towns or duly organized school districts, improvement districts in this state and the State Treasurer's Local Government Investment Pool. Investments are stated at fair value. 2. Receivables All t rade and property taxes receivables are shown net of an allowance for uncollectibles. Maricopa County levies real property taxes on or before the third Monday in August that become due and payable in two equal installments. The first installment is due on the first day of October and becomes delinquent after the first business day of November. The second installment is due on the first day of March of the next year and becomes delinquent after the first business day of May. However, a lien against real and personal property assessed attaches on the first day of January preceding assessment and levy thereof. 3. Short-term interfund receivables/payables During the course of operations, individual funds within the Town's pooled cash accounts may bo rrow money from the other funds within the pool on a short-term basis. These receivables and payables are classified as "due from other funds" or "due to other funds" on the balance sheet of the fund financial statements and are eliminated in the preparation of the government-wide financial statements. 4. Inventories and prepaid items Inventories consist of expendable supplies held for consumption. Inventories are valued at cost using the first-in/first-out (FIFO) method. Inventories of governmental funds are recorded as expenditures when consumed rather than when purchased. 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. 5. Capital assets Capital assets, which include property, plant, and equipment, are reported in the governmental activities column in the government-wide financial statements. Capital assets are defined by the Town as assets with an initial, individual cost of more than $10,000 and an estimated useful life in excess of one year. 40 TOWN OF FOUNTAIN HILLS, ARIZONA NOTES TO THE BASIC FINANCIAL STATEMENTS FISCAL YEAR ENDED JUNE 30, 2004 Property, plant and equipment purchased or acquired is carried at historical cost or estimat ed historical cost. Contributed assets are recorded at fair market value as of the date received. Additions, improvements and other capital outlays that significantly extend the useful life of an asset are capitalized. Other costs incurred for repairs and maintenance are expensed as incurred. General infrastructure assets acquired prior to July 1,2002 are not reported in t he basic financial st atements. Those assets will be transitioned in over the next two fiscal years in accordance with GASB Statement No. 34. Depreciation on all assets is provided on a straight-line basis over the following estimated useful lives: Buildings and improvements 50 years Improvements other than buildings 20 years Infrastructure 50 years Furniture, machinery and equipment 5 years Vehicles 5 years 6. Compensated absences The liabilit y fo r compensated absences reported in the government-wide statements consists of unpaid, accumulated leave balances. The liability has been calculated using the vesting method, in which leave amounts for both employees who currently are eligible to receive termination payments and other employees who are expected to become eligible in the future to receive such payments upon termination are included. 7. Long-term obligations In the government-wide financial statements, long-term debt and other long-term obligations are reported as liabilities in the applicable governmental activities. Bond premiums and discounts, as well as issuance costs, are deferred and amortized over the life of the bonds using the straight line method. Bonds payable are reported net of the applicable bond premium or discount. Bond issuance costs are reported as deferred charges and amortized over the term of the related debt. The Town did not have any premiums, discounts or issuance costs related to any outstanding bonds. 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 financing sources. Premiums received on debt issuances are reported as other financing 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 service expenditures. 41 TOWN OF FOUNTAIN HILLS, ARIZONA NOTES TO THE BASIC FINANCIAL STATEMENTS FISCAL YEAR ENDED JUNE 30, 2004 8. Net assets In the government-wide financial statements, net assets are reported in three categories: net assets invested in capital assets, net of related debt; restricted net assets; and unrestricted net assets. Net assets invested in capital assets, net of related debt is separately reported because the Town reports all Town assets which make up a significant portion of total net assets. Restricted net assets account for the portion of net assets restricted by parties outside the Town. Unrestricted net assets are the remaining net assets not included in the previous two categories. 9. Fund equity In the fund financial statements, governmental funds report reservations of fund balance fo r amounts that are not available for appropriation or are legally restricted by outside parties for use for a specific purpose. Designations of fund balance represent tentative management plans that are subject to change. NOTE 2 - STEWARDSHIP, COMPLIANCE, AND ACCOUNTABILITY A. Budgetary information The Town Council follows these procedures in establishing the budgetary data reflected in the financial st atements: 1. In accordance with Arizona Revised Statutes, the Town Manager submits a proposed budget for the fiscal year commencing the following July 1 to the Town Council. The operating budget includes proposed expenditures and the means of financing t hem fo r the upcoming year. 2. Public hearings are conducted to obtain taxpayer comment. 3. State law requires that, prior to April 1, the Economic Estimates commission provides the Town with a final expenditure limit for the coming fiscal year. To ensure compliance with the expenditure limitation, a uniform expenditure report must be filed with the State each year. This report, issued under a separate cover, reconciles total Town expenditures from the basic financial statements to total expenditures for reporting in accordance with the State's uniform expenditure reporting system (A.R.S. §41-1279.07). 42 TOWN OF FOUNTAIN HILLS, ARIZONA NOTES TO THE BASIC FINANCIAL STATEMENTS FISCAL YEAR ENDED JUNE 30, 2004 4. By Arizona Constitution, expenditures may not legally exceed the expenditure limit ation described below of all fund types as a whole. For management purposes, the Town adopts a budget by department for the General Fund and in total by fund fo r other funds. The Town Manager, subject to Town Council approval, may at any time transfer any unencumbered appropriation balance or portion thereof between departments. The adopted budget cannot be amended in any way without Town Council approval. 5. Legal budgets are adopted for the General, Special Revenue, Debt Service and Capital Projects Funds on essentially the same modified accrual basis of accounting used to record actual revenues and expenditures, with the exception of the Criminal Enhancement Justice Fund and Capital Projects Fund in which a budget was not prepared. The Town is subject to the State of Arizona's Spending Limitation Law for Towns and Cit ies. This law does not permit the Town to spend more than budgeted revenues plus the carryover unrestricted cash balance from the prior fiscal year. The limitation is applied to the total of the combined funds. The Town complied with this law during the year. No supplementary budgetary appropriations were necessary during the year. B. Excess of expenditures over appropriations Expenditures exceeded appropriations in the following funds: Amo unt of Overexpenditure General Fund: Fire Department $6,581 Eagle Mountain Debt Service Fund 314 43 TOWN OF FOUNTAIN HILLS, ARIZONA NOTES TO THE BASIC FINANCIAL STATEMENTS FISCAL YEAR ENDED JUNE 30, 2004 NOTE 3 - DETAILED NOTES ON ALL FUNDS A. Prior period adjustment The Town made a prior period adjustment in the Eagle Mountain Debt Service Fund in the amo unt of $591,953 to correct an error in t he previously issued financial statements. Interest earned on $4,435,000 of developer contributions the Town holds until the debt service is repaid was recorded as revenue. However, the Town was contractually liable to the developers for any amount of interest earned in excess of the interest revenue used to make the required principal and interest payments. Therefore, the beginning net assets in the government-wide financial statements and the beginning fund balance of the Eagle Mountain Debt Service Fund in the fund financial statements were restated to reflect the int erest due to the developers. The following summary is necessary to reconcile beginning net assets and beginning fund balance to the government-wide and fund financial statements, respectively. Statement of Activities Statement of Revenues, Expenditures, and Changes in Fund Balances Net assets / fund balance, July 1, 2003 (as previously stated) $21,162,894 $790,713 Prior period adjustment (591,953)(591,953) Net assets / fund balance July 1, 2003 (as restated) $20,570,941 $198,760 44 TOWN OF FOUNTAIN HILLS, ARIZONA NOTES TO THE BASIC FINANCIAL STATEMENTS FISCAL YEAR ENDED JUNE 30, 2004 B. Assets 1. Deposits and investments Deposits and investments at June 30, 2004 consist of the following: Deposits Cash on hand $1,360 Cash in bank 513,944 Cash on deposit with paying agent 2,342,129 Investments Money Market Mutual Fund 338,015 U.S. Government Securities 16,138 State Treasurer's Investment Pool 10,983,590 Cash on deposit with trustee 5,624,482 Total cash and investments 19,819,658 Cash on deposit with paying agent (2,342,129) Total cash and equivalents $17,477,529 Deposits - The Town's deposits at June 30, 2004, were entirely covered by federal depository insurance or by collateral held by the Town's custodial bank in the Town's name. Investments - The State Board of Deposit provides oversight for the State Treasurer's pools, and the Local Government Investment Pool Advisory Committee provides consultation and advice to the Treasurer. The fair value of a participant's position in the pool approximates the value of that participant's pool shares. The shares are not identified wit h specific investments and are not subject to custodial credit risk. In addition, the mo ney market mutual fund is not subject to custodial credit risk. All other investments of the Town are uninsured and unregistered with the securities held by the counterparty's trust department or agent in the Town's name. 45 TOWN OF FOUNTAIN HILLS, ARIZONA NOTES TO THE BASIC FINANCIAL STATEMENTS FISCAL YEAR ENDED JUNE 30, 2004 2. Receivables Court fines are recorded net of uncollectible amounts in the government-wide statements and are recorded as a receivable and a deferred revenue in the fund financial statements because the court fines did not meet the revenue recognition criteria under the modified accrual basis of accounting. The total receivable at June 30, 2004 was $392,460, which was reduced by $78,492 for uncollectible amounts for a net receivable balance at June 30, 2004 of $313,968. Governmental funds report deferred revenue in connection with receivables for revenues that are not considered to be available to liquidate liabilities of the current period. Governmental funds also defer revenue recognition in connection with resources that have been received, but not yet earned. At the end of the current fiscal year, the various components of deferred revenue reported in the governmental funds were as follows: Unavailable Delinquent property taxes receivables (General Fund) $60,426 Deferred court revenue (General Fund) 313,968 Delinquent property taxes receivables (General Obligation Debt Service Fund) 37,109 Delinquent property taxes receivables (Eagle Mountain Debt Service Fund) 10,948 Special assessments receivables (Nonmajor funds) 5,127 $427,578 46 TOWN OF FOUNTAIN HILLS, ARIZONA NOTES TO THE BASIC FINANCIAL STATEMENTS FISCAL YEAR ENDED JUNE 30, 2004 3. Capital assets Capital asset activity for the year ended June 30, 2004 was as follows: Beginning Balances Increases Decreases Ending Balances Governmental Activities: Capital assets not being depreciated: Land $23,571,668 $-$-$23,571,668 Total capital assets, not being depreciated 23,571,668 --23,571,668 Capital assets being depreciated: Buildings and improvements 10,080,070 246,242 -10,326,312 Improvements other than buildings 7,491,921 62,619 -7,554,540 Infrastructure 397,976 83,088 -481,064 Furniture, machinery and equipment 1,518,647 --1,518,647 Vehicles 1,825,873 -(195,162)1,630,711 Total capital assets being depreciated 21,314,487 391,949 (195,162)21,511,274 Less accumulated depreciation for: Buildings and improvements (565,119)(201,920)-(767,039) Improvements other than buildings (1,780,452)(376,150)-(2,156,602) Infrastructure (20,755)(8,421)-(29,176) Furniture, machinery and equipment (790,147)(145,610)-(935,757) Vehicles (1,086,742)(245,395)195,162 (1,136,975) Total accumulated depreciation (4,243,215)(977,496)195,162 (5,025,549) Total capital assets, being depreciated, net 17,071,272 (585,547)-16,485,725 Governmental activities capital assets, net $40,642,940 $(585,547)$-$40,057,393 47 TOWN OF FOUNTAIN HILLS, ARIZONA NOTES TO THE BASIC FINANCIAL STATEMENTS FISCAL YEAR ENDED JUNE 30, 2004 Depreciation expense was charged to functions/programs as follows: Governmental activities: General government $96,997 Public safety 295,769 Highways and streets 48,376 Culture and recreation 536,354 Total depreciation expense-governmental activities $977,496 C. Interfund receivables, payables and transfers As of June 30, 2004 int erfund receivable and payables were as follows: Due From Due To Nonmajor General Fund $3,514 The above interfund receivables and payables are due to a deficit cash balance in the nonmajor Municipal Property Corporation Debt Service Fund at the end of the fiscal year. Property tax revenues were received subsequent to June 30, 2004 to cover the deficit. Interfund transfers for the year ended June 30, 2004 consisted of the following: Transfers From Transfers To General Fund Excise Tax Nonmajor Total Nonmajor $910,250 $596,661 $123,996 $1,630,907 The General Fund transfer of $910,250 to the Nonmajor Capital Projects Fund was to fund future construction projects. The transfer of $596,661 from the Excise Tax Fund to the Nonmajor funds was for the debt service requirements on the Municipal Property Corporation bonds. The nonmajor transfer of $123,996 was a transfer from Highway User Revenue Fund to the Highway User Debt Service Fund for the annual debt service payments on outstanding revenue bonds. 48 TOWN OF FOUNTAIN HILLS, ARIZONA NOTES TO THE BASIC FINANCIAL STATEMENTS FISCAL YEAR ENDED JUNE 30, 2004 D. Obligations under operating leases The Town leases office space under the provisions of a long-term lease agreement classified as an operating lease. Rental expenditures under the terms of the operating lease totaled $385,421 for the year ended June 30, 2004. The lease expires June 30, 2005. Future rental expenditures under the terms of the lease are $401,520 due monthly through June 30, 2005. E. Long-term obligations The Town has long-term bonds and special assessments payable issued to provide funds fo r the acquisition and construction of major capital facilities. The Town has also issued debt to refund earlier obligations with higher interest rates. The debt is being repaid by various debt service funds. Compensated absences are paid by the applicable fund where each employee is regularly paid, primarily the General Fund. Special Assessment districts are created only by petition of the Town Council by property owners within the District areas. The Cottonwoods Improvement District was created so the Town could fund improvements. Each of the 54 homeowners within the District has been assessed taxes by the Town for repayment of the bond. In case of default, the Town has the responsibility to cover delinquencies of special assessment bonds with other sources until foreclosure proceeds are received. Communit y facilit ies districts (CFDs) are created only by petition to the Town Council by property owners within the District areas. As board of directors for the District, the Town Council has adopted a formal policy that CFD debt will be permitted only when the ratio of full cash value of the District property (prior to improvements being installed), when compared to proposed District debt, is a minimum o f 3 to 1 prior to issuance of debt and 5 to 1 or higher after construction of improvements. These ratios are verified by an appraisal paid for by the District and administered by the Town. In addition, cumulative debt of all CFDs cannot exceed 5 percent of the Town's secondary assessed valuation. 49 TOWN OF FOUNTAIN HILLS, ARIZONA NOTES TO THE BASIC FINANCIAL STATEMENTS FISCAL YEAR ENDED JUNE 30, 2004 Changes in long-term obligations for the year ended June 30, 2004 are as follows: July 1, 2003 Increases Decreases June 30, 2004 Due within One Year Governmental Activities: Bonds and special assessments General obligation bonds $12,585,000 $-$(845,000)$11,740,000 $895,000 Municipal Property Corporation debt 11,430,000 -(425,000)11,005,000 450,000 Special assessment debt with government commitment 19,365 - (3,228) 16,137 3,228 Community facilities district bonds payable 4,765,000 - (150,000) 4,615,000 160,000 Total bonds and special assessment debt 28,799,365 - (1,423,228) 27,376,137 1,508,228 Other liabilities Compensated absences 174,637 280,064 (183,471)271,230 94,931 $28,974,002 $280,064 $(1,606,699)$27,647,367 $1,603,159 Debt service requirements on long-term debt at June 30, 2004 are as follows: Governmental Activities Year Ending June 30 Principal Interest 2005 $1,508,228 $1,419,829 2006 1,583,228 1,344,319 2007 1,673,227 1,265,927 2008 1,788,227 1,182,207 2009 1,798,227 1,095,684 2010-14 8,650,000 4,161,264 2015-19 7,595,000 2,060,488 2020-24 2,780,000 213,594 $27,376,137 $12,743,312 NOTE 4 - OTHER INFORMATION A. Risk management The Town of Fountain Hills, Arizona, is exposed to various risks of loss related to torts; theft of, damage to and destruction of assets; errors and omissions; and natural disasters. The Town's insurance protection is provided by the Arizona Municipal Risk Retention Pool, of which the Town is a participating member. The limit for basic coverage is for $2,000,000 per occurrence on a claims made basis. Excess coverage is for an additional $13,000,000 per occurrence on a follow form, claims made basis. No significant reduction in insurance coverage occurred during the year and no settlements exceeded insurance coverage during any of the past three fiscal years. 50 TOWN OF FOUNTAIN HILLS, ARIZONA NOTES TO THE BASIC FINANCIAL STATEMENTS FISCAL YEAR ENDED JUNE 30, 2004 The Arizona Municipal Risk Retention Pool is structured such that member premiums are based on an actuarial review that will provide adequate reserves to allow the pool to meet it s expected financial obligations. The pool has the authority to assess its members additional premiums should reserves and annual premiums be insufficient to meet the pool's obligations. The Town is also insured by Arizona Municipal Workers Compensation Fund for potential worker related accidents. B. Contingent Liabilities Accumulated sick leave - Sick leave benefits provide for ordinary sick pay and are cumulative but do not vest with employees and; therefore, are not accrued. Unvested accumulated sick leave of Town employees at June 30, 2004, totaled $206,952. Lawsuits - The Town is a defendant in various lawsuits. In the opinion of the Town's attorney the outcome of these lawsuits is not presently determinable. C. Subsequent events Subsequent to June 30, 2004, the Town approved the issuance of $3,685,000 of Municipal Property Corporation Municipal Facilities Revenue Bonds, Series 2004 to pay a portion of the costs in connection with the second phase of construction of the Town's Civic Center, fund a debt services reserve fund or pay a reserve fund surety policy and pay costs in connection with the issuance of the bond. The term of the loan is fifteen years and the rate has not yet been determined. The bond is secured by general revenues of the Town. D. Retirement plans Defined Contribution Pension Plan All full-t ime emplo yees of the Town, except participants in the Arizona Public Safety Personnel Retirement System, participate in a defined contribution pension plan administ ered by the ICMA Retirement Corporation as a 401(a) plan. The payroll for the Town employees covered by this plan the year ended June 30,2004 was $2,425,022. The Town's total payroll was $2,843,829. 51 TOWN OF FOUNTAIN HILLS, ARIZONA NOTES TO THE BASIC FINANCIAL STATEMENTS FISCAL YEAR ENDED JUNE 30, 2004 A defined contribution pension plan provides benefits in return for services rendered, provides an individual account for each participant, and specifies how contributions to the individual's account are to be determined instead of specifying the amount of benefit the individual is t o receive. Under a defined contribution pension plan, the benefits a participant will receive depend solely on the amount contributed to the participant's account, the returns earned on investment of those contributions, and forfeitures of other participant's benefits that may be allocated to such participant's account. All non-peace officer full-time Town employees must participate in the pension plan from the date they are hired. Contributions made by an employee vest immediately and contributions made by t he Town vest after three years of service. An employee that leaves the employment of the Town is entitled to his or her contributions and the vested portion of the Town's contributions, plus interest earned. Each employee must contribute 11% of his or her gross earnings. The Town must contribute 11% of covered earnings. During fiscal year 2003-04, the Town's required and actual contributions amounted to $266,752. The employees' contributions totaled $266,752. No pension provision changes occurred during the year that affected the required contributions to be made by the Town or its employees. The ICMA Retirement Corporation held no securities of the Town or other related parties during the fiscal year 2003-04 or as of the close of the fiscal year. Public Safety Personnel Retirement System (PSPRS) Plan description - The Town contributes to the Public Safety Personnel Retirement System (PSPRS), an agent multiple-employer, public employee retirement system that acts as a common investment and administrative agent to provide retirement and death and disabilit y benefit s fo r public safety personnel who are regularly assigned hazardous duty in the employ of the State of Arizona or a political subdivision thereof. All benefit provisions and other requirements are established by State statute. The Public Safety Personnel Retirement System issues a publicly available financial report that includes financial statements and required supplementary information for PSPRS. That report may be obtained by writing to Public Safety Personnel, 1020 E. Missouri Ave., Phoenix, AZ 85014 or by calling (602) 255-5575. Funding policy - Covered employees are required to contribute 7.65 percent of their annual salary to the PSPRS. The Town is required to contribute the remaining amounts necessary to fund the PSPRS, as determined by the actuarial basis specified by statute. The current rate is 10.90 percent of annual covered payroll. 52 TOWN OF FOUNTAIN HILLS, ARIZONA NOTES TO THE BASIC FINANCIAL STATEMENTS FISCAL YEAR ENDED JUNE 30, 2004 Annual pension cost - During the year ended June 30, 2003 (the date of the latest available information), the Town's annual pension cost of $38,522 for police was equal to the Town of Fountain Hill's required and actual contributions. The required contribution was determined as part of the June 30, 2003 actuarial valuation using an entry age actuarial funding method. Significant actuarial assumptions used in determining t he entry age actuarial accrued liability include (a) a rate of return on the investment of present and future assets of 9.0% per year compounded annually, (b) projected salary increases of 6.5% per year compounded annually, and (c) additional projected salary increases of 0.0% to 3.0% per year attributable to seniority/merit. The actuarial value of the Town's assets was determined using techniques that smooth the effects of short-term volatility in the market value of investments over a four-year period. The Town's unfunded actuarial accrued liability is being amortized as a level percentage of projected payroll o n a closed basis. The remaining amortization period at June 30, 2003, was 20 years. The preceding methods comply with the financial reporting standards established by the Governmental Accounting Standards Board. Three-Year Trend Information Police Fiscal Year Ended June 30, Annual Pension Cost (APC) Percent Contributed Net Pension Obligation 2001 $57,277 %100.0 $- 2002 61,102 100.0 - 2003 38,522 100.0 - Additional historical trend information for the Town's PSPRS is disclosed on page 55. Historical trend information is presented in order for a reader to assess the progress made in accumulating sufficient assets to pay pension benefits as they become payable. 53 Required Supplementary Information 54 TOWN OF FOUNTAIN HILLS, ARIZONA REQUIRED SUPPLEMENTARY INFORMATION PUBLIC SAFETY PERSONNEL RETIREMENT SYSTEM SCHEDULE OF FUNDING PROGRESS Fountain Hills Police Valuation Date June 30, Actuarial Value of Assets Entry Age Actuarial Accrued Liability (AAL) Percent Funded Over(Under) funded AAL Annual Covered Payroll Over(Under) funded AAL as a Percentage of Covered Payroll 1996 $17,463 $16,084 %108.6 $1,379 $77,574 %1.8 1997 54,809 48,512 %113.0 6,297 216,163 %2.9 1998 184,135 125,791 %148.7 58,344 394,005 %14.8 1999 258,664 263,285 %98.2 (4,621) 412,182 %(1.1) 2000 375,860 401,167 %93.7 (25,307) 556,445 %(4.5) 2001 562,905 409,913 %137.3 152,992 639,753 %23.9 2002 591,957 557,666 %106.1 34,291 549,166 %6.2 2003 158,079 225,917 %70.0 (67,838) 172,698 %(39.3) * Information prior to 1996 is not available. 55 Combining and Individual Fund Statements and Schedules 56 THIS PAGE BLANK 57 NONMAJOR GOVERNMENTAL FUNDS SPECIAL REVENUE FUNDS Highway User Revenue Fund (HURF)- accounts for the Town's share of motor fuel tax revenues and lottery proceeds. Grants Fund - accounts for the activities of various grants and contributions received by the Town. Local Court Enhancement Fund - accounts for the activities of grants from the Arizona Supreme Court. DEBT SERVICE FUNDS Municipal Property Corporation Debt Service Fund - accounts for the revenues received to pay the debt service on MPC revenue bonds. HURF Debt Service - accounts for operating transfers received from the HURF special revenue fund to pay the debt service of the Street and Highway User Revenue Bonds. Cottonwoods Special Assessment - accounts for all special assessments received to pay the debt service of the Cottonwoods Special Assessment District. CAPITAL PROJECTS FUND Development Fees Fund - accounts for development fees collected from developers restricted for projects approved by Council. Capital Projects Fund - accounts for the Capital improvements to various projects of the Town. 58 TOWN OF FOUNTAIN HILLS, ARIZONA COMBINING BALANCE SHEET NONMAJOR GOVERNMENTAL FUNDS JUNE 30, 2004 Special Revenue Debt Service HURF Grants Local Court Enhancement Totals Municipal Property Corporation HURF Debt Service Cottonwoods Special Assessment Totals Assets Cash and equivalents $400,801 $186,452 $168,885 $756,138 $-$1,662 $10,259 $11,921 Cash with paying agent ----1,178,999 106,066 -1,285,065 Receivables, net Accounts receivable 10,591 --10,591 ---- Intergovernmental receivable 121,061 --121,061 ---- Special assessments receivable ------5,127 5,127 Total assets $532,453 $186,452 $168,885 $887,790 $1,178,999 $107,728 $15,386 $1,302,113 Liabilities and Fund Balances Liabilities Accounts payable $182,955 $20,118 $-$203,073 $-$-$-$- Accrued wages and benefits 17,938 --17,938 ---- Interest payable ----273,487 16,066 424 289,977 Due to other funds ----3,514 --3,514 Deferred revenue ------5,127 5,127 Matured debt principal payable ----425,000 90,000 -515,000 Due to developers -------- Total liabilities 200,893 20,118 -221,011 702,001 106,066 5,551 813,618 Fund balances Unreserved 331,560 166,334 168,885 666,779 476,998 1,662 9,835 488,495 Total fund balances 331,560 166,334 168,885 666,779 476,998 1,662 9,835 488,495 Total liabilities and fund balances $532,453 $186,452 $168,885 $887,790 $1,178,999 $107,728 $15,386 $1,302,113 59 Capital Projects Development Fees Capital Projects Totals Total Nonmajor Governmental Funds $1,832,021 $794,452 $2,626,473 $3,394,532 ---1,285,065 ---10,591 ---121,061 ---5,127 $1,832,021 $794,452 $2,626,473 $4,816,376 $31,726 $152,361 $184,087 $387,160 ---17,938 ---289,977 ---3,514 ---5,127 ---515,000 60,000 -60,000 60,000 91,726 152,361 244,087 1,278,716 1,740,295 642,091 2,382,386 3,537,660 1,740,295 642,091 2,382,386 3,537,660 $1,832,021 $794,452 $2,626,473 $4,816,376 60 TOWN OF FOUNTAIN HILLS, ARIZONA COMBINING STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES - NONMAJOR GOVERNMENTAL FUNDS FOR THE FISCAL YEAR ENDED JUNE 30, 2004 Special Revenue Debt Service HURF Grants Local Court Enhancement Totals Municipal Property Corporation HURF Debt Service Cottonwoods Special Assessment Totals Revenues Intergovernmental $1,515,787 $75,000 $-$1,590,787 $-$-$-$- Fines and forfeitures --169,189 169,189 ---- Charges for services 28,597 --28,597 ---- Special assessments ------3,612 3,612 Investment earnings 3,700 -846 4,546 6,036 421 10 6,467 Other -28,601 -28,601 ---- Total revenues 1,548,084 103,601 170,035 1,821,720 6,036 421 3,622 10,079 Expenditures Current General government -33,147 1,150 34,297 ---- Public safety -17,227 -17,227 ---- Highways and streets 1,280,346 4,094 -1,284,440 ---- Culture and recreation -66,451 -66,451 ---- Debt Service Principal retirement ----425,000 90,000 3,228 518,228 Interest on long-term debt ----550,983 32,532 932 584,447 Capital outlay -18,863 -18,863 ---- Total expenditures 1,280,346 139,782 1,150 1,421,278 975,983 122,532 4,160 1,102,675 Excess (deficiency) of revenues over expenditures 267,738 (36,181)168,885 400,442 (969,947)(122,111)(538)(1,092,596) Other financing sources (uses) Transfers in ----596,661 123,996 -720,657 Transfers out (123,996)--(123,996)---- Total other financing sources (uses) (123,996)--(123,996)596,661 123,996 -720,657 Net change in fund balances 143,742 (36,181)168,885 276,446 (373,286)1,885 (538)(371,939) Fund balances, beginning of year 187,818 202,515 -390,333 850,284 (223)10,373 860,434 Fund balances, end of year $331,560 $166,334 $168,885 $666,779 $476,998 $1,662 $9,835 $488,495 61 Capital Projects Development Fees Capital Projects Totals Total Nonmajor Governmental Funds $-$-$-$1,590,787 ---169,189 841,824 -841,824 870,421 ---3,612 13,819 148 13,967 24,980 -21,691 21,691 50,292 855,643 21,839 877,482 2,709,281 13,049 289,998 303,047 337,344 ---17,227 118,062 -118,062 1,402,502 ---66,451 ---518,228 ---584,447 83,088 -83,088 101,951 214,199 289,998 504,197 3,028,150 641,444 (268,159)373,285 (318,869) -910,250 910,250 1,630,907 ---(123,996) -910,250 910,250 1,506,911 641,444 642,091 1,283,535 1,188,042 1,098,851 -1,098,851 2,349,618 $1,740,295 $642,091 $2,382,386 $3,537,660 62 TOWN OF FOUNTAIN HILLS, ARIZONA GENERAL OBLIGATION DEBT SERVICE FUND SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES - BUDGET AND ACTUAL FOR THE FISCAL YEAR ENDED JUNE 30, 2004 Original and Final Budget Actual Variance with Final Budget Revenues Taxes Property taxes $1,540,000 $1,563,508 $23,508 Investment earnings 1,000 1,415 415 Total Revenues 1,541,000 1,564,923 23,923 Expenditures Debt Service Principal retirement 755,000 755,000 - Interest on long-term debt 615,000 605,314 9,686 Total Expenditures 1,370,000 1,360,314 9,686 Excess (deficiency) of revenues over expenditures 171,000 204,609 33,609 Fund balances, beginning of year -64,233 64,233 Fund balances, end of year $171,000 $268,842 $97,842 63 TOWN OF FOUNTAIN HILLS, ARIZONA EAGLE MOUNTAIN DEBT SERVICE FUND SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES - BUDGET AND ACTUAL FOR THE FISCAL YEAR ENDED JUNE 30, 2004 Original and Final Budget Actual Variance with Final Budget Revenues Taxes Property taxes $561,500 $574,193 $12,693 Investment earnings -3,391 3,391 Total Revenues 561,500 577,584 16,084 Expenditures Current General government 54,000 55,000 (1,000) Debt Service Principal retirement 150,000 150,000 - Interest on long-term debt 310,500 309,814 686 Total Expenditures 514,500 514,814 (314) Excess (deficiency) of revenues over expenditures 47,000 62,770 15,770 Fund balances, beginning of year (as restated) -198,760 198,760 Fund balances, end of year $47,000 $261,530 $214,530 64 TOWN OF FOUNTAIN HILLS, ARIZONA HURF FUND SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES - BUDGET AND ACTUAL FOR THE FISCAL YEAR ENDED JUNE 30, 2004 Original and Final Budget Actual Variance with Final Budget Revenues Intergovernmental $1,516,400 $1,515,787 $(613) Charges for services 6,000 28,597 22,597 Investment earnings 500 3,700 3,200 Other 1,000 -(1,000) Total Revenues 1,523,900 1,548,084 24,184 Expenditures Current Highways and streets 1,523,900 1,280,346 243,554 Total Expenditures 1,523,900 1,280,346 243,554 Excess (deficiency) of revenues over expenditures -267,738 267,738 Other financing sources (uses) Transfers out -(123,996)(123,996) Total other financing sources (uses) -(123,996)(123,996) Net change in fund balances -143,742 143,742 Fund balances, beginning of year -187,818 187,818 Fund balances, end of year $-$331,560 $331,560 65 TOWN OF FOUNTAIN HILLS, ARIZONA GRANTS FUND SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES - BUDGET AND ACTUAL FOR THE FISCAL YEAR ENDED JUNE 30, 2004 Original and Final Budget Actual Variance with Final Budget Revenues Intergovernmental $861,600 $75,000 $(786,600) Other -28,601 28,601 Total Revenues 861,600 103,601 (757,999) Expenditures Current General government 680,000 33,147 646,853 Public safety 24,150 17,227 6,923 Highways and streets -4,094 (4,094) Culture and recreation 320,000 66,451 253,549 Capital outlay -18,863 (18,863) Total Expenditures 1,024,150 139,782 884,368 Excess (deficiency) of revenues over expenditures (162,550)(36,181)126,369 Fund balances, beginning of year -202,515 202,515 Fund balances, end of year $(162,550)$166,334 $328,884 66 TOWN OF FOUNTAIN HILLS, ARIZONA MUNICIPAL PROPERTY CORPORATION FUND SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES - BUDGET AND ACTUAL FOR THE FISCAL YEAR ENDED JUNE 30, 2004 Original and Final Budget Actual Variance with Final Budget Revenues Investment earnings $-$6,036 $6,036 Total Revenues -6,036 6,036 Expenditures Debt Service Principal retirement 425,000 425,000 - Interest on long-term debt 555,500 550,983 4,517 Total Expenditures 980,500 975,983 4,517 Excess (deficiency) of revenues over expenditures (980,500)(969,947)10,553 Other financing sources (uses) Transfers in 980,500 596,661 (383,839) Total other financing sources (uses) 980,500 596,661 (383,839) Net change in fund balances -(373,286)(373,286) Fund balances, beginning of year -850,284 850,284 Fund balances, end of year $-$476,998 $476,998 67 TOWN OF FOUNTAIN HILLS, ARIZONA HURF DEBT SERVICE FUND SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES - BUDGET AND ACTUAL FOR THE FISCAL YEAR ENDED JUNE 30, 2004 Original and Final Budget Actual Variance with Final Budget Revenues Investment earnings $1,000 $421 $(579) Total Revenues 1,000 421 (579) Expenditures Debt Service Principal retirement 90,000 90,000 - Interest on long-term debt 34,000 32,532 1,468 Total Expenditures 124,000 122,532 1,468 Excess (deficiency) of revenues over expenditures (123,000)(122,111)889 Other financing sources (uses) Transfers in 124,000 123,996 (4) Proceeds of long-term debt issuance 1,540,000 -(1,540,000) Total other financing sources (uses) 1,664,000 123,996 (1,540,004) Net change in fund balances 1,541,000 1,885 (1,539,115) Fund balances, beginning of year -(223)(223) Fund balances, end of year $1,541,000 $1,662 $(1,539,338) 68 TOWN OF FOUNTAIN HILLS, ARIZONA COTTONWOODS SPECIAL ASSESSMENT FUND SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES - BUDGET AND ACTUAL FOR THE FISCAL YEAR ENDED JUNE 30, 2004 Original and Final Budget Actual Variance with Final Budget Revenues Special assessments $4,500 $3,612 $(888) Investment earnings -10 10 Total Revenues 4,500 3,622 (878) Expenditures Debt Service Principal retirement 3,228 3,228 - Interest on long-term debt 1,272 932 340 Total Expenditures 4,500 4,160 340 Excess (deficiency) of revenues over expenditures -(538)(538) Fund balances, beginning of year -10,373 10,373 Fund balances, end of year $-$9,835 $9,835 69 TOWN OF FOUNTAIN HILLS, ARIZONA DEVELOPMENT FEES FUND SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES - BUDGET AND ACTUAL FOR THE FISCAL YEAR ENDED JUNE 30, 2004 Original and Final Budget Actual Variance with Final Budget Revenues Charges for services $1,021,725 $841,824 $(179,901) Investment earnings -13,819 13,819 Total Revenues 1,021,725 855,643 (166,082) Expenditures Current General government 413,170 13,049 400,121 Highways and streets -118,062 (118,062) Capital outlay -83,088 (83,088) Total Expenditures 413,170 214,199 198,971 Excess (deficiency) of revenues over expenditures 608,555 641,444 32,889 Fund balances, beginning of year -1,098,851 1,098,851 Fund balances, end of year $608,555 $1,740,295 $1,131,740 70 THIS PAGE BLANK 71 STATISTICAL SECTION 72 TOWN OF FOUNTAIN HILLS, ARIZONA GOVERNMENT-WIDE EXPENSES BY FUNCTION LAST TEN FISCAL YEARS (UNAUDITED) Fiscal Year General Government Public Safety Highways and Streets Culture and Recreation Community Development Interest on Long-term Debt Totals 2003 $3,479,333 $5,494,708 $1,310,683 $2,363,897 $1,235,985 $1,576,842 $15,461,448 2004 3,686,452 4,918,280 1,419,509 2,068,613 1,144,964 1,499,575 14,737,393 Note: 2002-03 was the Town's first year to prepare government-wide financial statements. 73 TOWN OF FOUNTAIN HILLS, ARIZONA GOVERNMENT-WIDE REVENUES LAST TEN FISCAL YEARS (UNAUDITED) Program Revenues General Revenues Fiscal Year Fees, Fines and Charges for Services Operating Grants and Contributions Taxes Revenue Sharing Investment Earnings Other Totals 2003 $2,782,385 $1,697,900 $7,100,184 $4,740,758 $1,976,809 $79,706 $18,377,742 2004 3,421,132 1,590,787 10,055,861 4,489,844 122,082 195,978 19,875,684 Note: 2002-03 was the Town's first year to prepare government-wide financial statements. 74 TOWN OF FOUNTAIN HILLS, ARIZONA GENERAL GOVERNMENT EXPENDITURES BY FUNCTION (1) LAST TEN FISCAL YEARS (UNAUDITED) Fiscal Year General Government Public Safety Highways and Streets Culture and Recreation Community Development Capital Outlay Debt Service Total 1995 $1,131,817 $979,482 $610,858 $382,026 $560,325 $843,650 $491,219 $4,999,377 1996 1,617,365 1,241,694 1,687,403 1,196,115 821,796 578,099 524,553 7,667,025 1997 1,757,431 1,499,538 1,627,952 625,928 864,022 5,343,433 1,132,399 12,850,703 1998 1,964,427 2,074,441 2,020,450 1,471,559 947,251 1,352,936 799,941 10,631,005 1999 2,631,245 2,205,600 1,984,879 2,334,901 955,451 557,374 795,088 11,464,538 2000 2,528,953 3,059,020 2,468,498 3,359,509 1,276,951 1,787,469 924,014 15,404,414 2001 3,646,500 3,354,037 2,212,432 3,866,245 1,175,649 5,261,585 1,851,602 21,368,050 2002 3,859,633 5,084,532 1,877,790 3,069,695 1,064,913 14,770,507 2,903,116 32,630,186 2003 3,318,574 5,174,492 1,198,080 1,815,416 1,215,387 79,427 2,970,070 15,771,446 2004 3,614,458 4,616,161 1,402,502 1,597,150 1,144,964 101,951 2,922,803 15,399,989 (1) Includes all governmental fund types. 75 TOWN OF FOUNTAIN HILLS, ARIZONA GENERAL GOVERNMENT REVENUES BY SOURCE (1) LAST TEN FISCAL YEARS (UNAUDITED) Fiscal Year Taxes Inter- Governmenta l Fines and Forfeitures Licenses and Permits Charges for Services Rents and Royalties Contribution s and Donations Special Assessment s Net Investment Income (Loss) Other Total 1995 $468,503 $2,896,271 $171,675 $1,346,134 $358,657 $21,228 $20,000 $-$150,357 $10,263 $5,443,088 1996 2,024,461 2,762,906 211,289 1,653,561 204,541 14,462 --163,457 18,800 7,053,477 1997 3,101,787 3,988,424 209,485 1,770,347 419,976 14,170 1,500 -464,633 19,477 9,989,799 1998 3,326,207 4,364,859 208,930 1,961,687 795,700 13,591 100,000 -582,757 17,487 11,371,218 1999 3,861,337 4,929,062 259,484 2,472,215 624,744 18,140 -14,524 620,639 25,657 12,825,802 2000 4,876,466 4,771,792 293,970 2,569,472 454,366 27,208 10,598 9,241 743,259 21,055 13,777,427 2001 6,088,047 5,281,156 310,359 2,177,614 431,316 35,781 400 7,958 (1,063,339)10,957 13,280,249 2002 7,595,748 5,895,676 265,605 1,351,209 1,067,814 107,613 12,760 4,520 726,441 1,771,091 18,798,477 2003 7,114,486 6,311,458 195,091 1,308,747 810,412 188,745 127,200 4,302 1,976,809 148,143 18,185,393 2004 9,997,706 6,080,631 361,339 1,600,934 1,038,170 242,704 -3,612 122,082 261,561 19,708,739 (1) Includes all governmental fund types. 76 TOWN OF FOUNTAIN HILLS, ARIZONA GENERAL GOVERNMENTAL TAX REVENUES BY SOURCE LAST TEN FISCAL YEARS (UNAUDITED) Fiscal Year Sales Tax Property Tax Franchise Tax Total 1995 $16,622 $357,033 $94,848 $468,503 1996 1,610,116 336,000 78,345 2,024,461 1997 2,664,923 350,024 86,840 3,101,787 1998 2,920,084 302,375 103,748 3,326,207 1999 3,394,152 348,778 118,407 3,861,337 2000 4,087,514 657,026 131,926 4,876,466 2001 4,923,174 1,038,891 125,982 6,088,047 2002 4,355,701 3,109,353 130,694 7,595,748 2003 5,051,872 1,910,072 152,542 7,114,486 2004 7,733,643 2,137,701 126,362 9,997,706 77 TOWN OF FOUNTAIN HILLS, ARIZONA TOWN TRANSACTION PRIVILEGE (SALES) TAX COLLECTIONS BY INDUSTRY CLASSIFICATION FISCAL YEAR BASIS (UNAUDITED) Business Activity Category 2004 Excise Tax Collections Percent of Total Construction $1,482,981 %19.8 Transportation/Utilities/Communication 916,498 %12.2 Wholesale/Retail 3,212,062 %42.8 Restaurants/Bars 419,107 %5.6 Fire, Insurance and Real Estate 341,951 %4.6 Services 423,433 %5.6 Advertising 101,590 %1.3 All Other Services Not Specified 605,226 %8.1 $7,502,848 %100.0 78 TOWN OF FOUNTAIN HILLS, ARIZONA PROPERTY TAX LEVIES AND COLLECTIONS LAST TEN FISCAL YEARS (UNAUDITED) Fiscal Year (1) Total Tax Levy Current Tax Collections Percent of Current Taxes Collected Delinquent Tax Collections Total Tax Collections Ratio of Total Tax Collections to Total Tax Levy Outstanding Delinquent Taxes Ratio of Delinquent Taxes to Tax Levy 1995 $339,832 $339,605 %99.9 $9 $339,614 %99.9 $218 %0.06 1996 323,517 323,511 %100.0 6 323,517 %100.0 -%- 1997 312,638 312,489 %100.0 143 312,632 %100.0 6 %- 1998 268,917 261,704 %97.3 7,213 268,917 %100.0 -%- 1999 248,607 235,953 %94.9 12,653 248,606 %100.0 1 %- 2000 444,138 432,965 %97.5 11,171 444,136 %100.0 2 %- 2001 699,006 676,682 %96.8 22,321 699,003 %100.0 3 %- 2002 1,335,787 1,282,844 %96.0 51,532 1,334,376 %99.9 1,411 %0.11 2003 1,378,862 1,329,929 %96.5 46,186 1,376,115 %99.8 2,747 %0.20 2004 1,545,051 1,496,005 %96.8 -1,496,005 %96.8 49,046 %3.17 (1) The amount levied and collected is net of resolutions and does not include component units. Note 1: Amounts collected are on a cash basis rather than modified accrual basis as in the financial statements. Note 2: Unsecured personal property taxes are not included in this schedule. Source: The Maricopa County Treasurer's Office. 79 TOWN OF FOUNTAIN HILLS, ARIZONA ASSESSED AND ESTIMATED ACTUAL VALUE OF PROPERTY (1) LAST TEN FISCAL YEARS (UNAUDITED) PRIMARY Tax Year Total Assessed Value Exempt Amount Total Full Cash Value Estimated Actual Value Net Assessed Value Ratio of Total Assessed Value to Total Estimated Actual Value 1995 $99,271,154 $5,082,517 $826,917,659 $992,301,191 $94,288,637 %10.00 1996 105,912,474 5,262,641 884,979,322 1,061,975,186 100,649,833 %9.97 1997 118,888,547 6,602,978 1,002,546,459 1,203,055,751 112,285,569 %9.88 1998 141,077,170 7,355,989 1,208,968,752 1,450,762,502 133,721,181 %9.72 1999 170,258,614 9,255,978 1,467,193,748 1,760,632,498 161,002,636 %9.67 2000 198,224,776 8,578,615 1,713,029,238 2,055,635,086 189,646,161 %9.64 2001 232,442,986 12,213,849 1,997,525,319 2,397,030,383 220,229,137 %9.70 2002 260,635,914 13,484,185 2,240,702,344 2,688,842,813 247,151,729 %9.69 2003 299,743,562 16,942,705 2,565,522,177 3,078,626,612 282,800,857 %9.74 2004 340,673,759 21,460,295 2,899,977,948 3,479,973,538 319,213,464 %9.79 SECONDARY Tax Year Total Assessed Value Exempt Amount Total Full Cash Value Estimated Actual Value Net Assessed Value Ratio of Total Assessed Value to Total Estimated Actual Value 1995 $105,660,296 $5,498,728 $866,122,390 $1,039,346,868 $100,161,568 %10.17 1996 109,463,361 5,519,310 906,495,406 1,087,794,487 103,944,051 %10.06 1997 123,097,961 6,764,555 1,034,892,731 1,241,871,277 116,333,406 %9.91 1998 155,729,430 8,785,700 1,317,946,863 1,581,536,236 146,943,730 %9.85 1999 185,540,741 10,575,923 1,583,072,952 1,899,687,542 174,964,818 %9.77 2000 221,922,165 9,894,702 1,889,016,352 2,266,819,622 212,027,463 %9.79 2001 253,269,562 14,555,025 2,154,928,885 2,585,914,662 238,714,537 %9.79 2002 287,891,481 17,288,615 2,418,235,666 2,901,882,799 270,602,866 %9.92 2003 344,047,844 20,662,614 2,842,849,050 3,411,418,860 323,385,230 %10.09 2004 377,590,037 28,191,703 3,162,854,959 3,795,425,951 349,398,334 %9.95 (1) Arizona uses two types of property values for taxing purposes. Primary values are used to calculate primary property taxes which are collected to fund the maintenance and operation of school districts, community college districts, counties, cites, and state government. Secondary values are used to pay off secondary property taxes which are collected for such things as debt service (bonds), budget overrides and special districts. Source: Arizona Department of Revenue. 80 TOWN OF FOUNTAIN HILLS, ARIZONA PRIMARY AND SECONDARY TAXABLE PROPERTY ASSESSED VALUATION LAST TEN FISCAL YEARS (UNAUDITED) Tax Year Assessed Valuation Town of Fountain Hills Assessed Valuation Fountain Hills School District Assessed Valuation Maricopa County Assessed Valuation State of Arizona 1995 P $94,188,637 $88,978,760 $13,302,326,609 $21,688,438,645 S 100,161,568 90,394,390 13,521,174,915 22,179,317,949 1996 P 100,649,833 95,155,307 13,493,736,826 22,109,868,588 S 103,944,051 101,137,745 14,119,434,946 23,022,330,962 1997 P 112,285,569 101,573,954 13,975,668,204 22,811,158,500 S 116,333,406 104,881,097 14,343,156,861 23,333,678,475 1998 P 133,721,181 113,072,537 15,006,270,531 21,001,064,273 S 146,943,730 117,144,929 15,723,498,194 22,333,861,362 1999 P 190,102,361 134,650,036 17,463,875,533 21,670,300,013 S 212,415,476 147,884,952 18,676,830,848 22,533,348,150 2000 P 189,646,161 191,579,669 19,362,298,255 22,645,463,514 S 212,027,463 214,037,354 20,877,715,546 23,547,348,817 2001 P 220,229,137 192,200,924 19,603,718,629 30,144,285,019 S 238,714,537 214,726,796 21,138,917,389 32,071,738,214 2002 P 247,151,729 223,185,771 21,355,326,477 32,518,431,991 S 270,602,866 242,086,985 22,913,134,480 34,468,574,240 2003 P 282,800,857 288,969,887 25,447,850,971 34,868,596,227 S 323,385,230 331,458,411 27,477,987,528 36,825,660,973 2004 P 319,213,464 326,230,578 28,070,870,413 41,886,818,760 S 349,398,334 358,634,532 30,066,986,670 44,480,893,202 P = Primary assessed valuation S = Secondary assessed valuation Source: Maricopa County and Arizona Tax Research Foundation. 81 TOWN OF FOUNTAIN HILLS, ARIZONA PROPERTY TAX RATES FOR ALL DIRECT AND OVERLAPPING GOVERNMENTS LAST TEN FISCAL YEARS (UNAUDITED) Fiscal Year Arizona Community College County Fountain Hills School District East Valley Inst. of Tech District Fire District Royalties Sanitary District Road District Flood Control District Library District Volunteer Fire District Central Arizona Project Town of Fountain Hills Total 1995 0.4700 0.8934 1.7726 7.1976 0.0554 0.9781 1.9097 0.5624 0.3632 0.0417 0.0107 0.1400 0.3852 14.7800 1996 0.4700 1.1130 1.8344 7.6367 0.0693 0.9397 1.8590 0.2626 0.3332 0.0099 0.0108 0.1400 0.3192 14.9978 1997 - 1.0476 1.7929 7.1501 0.1616 0.9826 1.8983 0.3186 0.3425 0.0421 0.0109 0.1400 0.3036 14.1908 1998 - 1.1346 1.7929 7.2466 0.1216 1.0407 1.6619 0.1806 0.3425 0.0421 0.0105 0.1400 0.2330 13.9470 1999 - 1.1125 1.8084 7.2134 0.1320 0.9482 1.9394 0.0370 0.3270 0.0421 0.0103 0.1400 0.1699 13.8802 2000 - 1.1285 1.2816 6.2969 0.1217 0.8933 1.8315 -0.2858 0.0421 0.0096 0.1400 0.2578 12.2888 2001 - 1.4557 1.2732 6.3373 0.1120 0.9739 2.0515 -0.2319 0.0421 0.0091 0.1300 0.5605 13.1772 2002 - 1.6016 1.7682 6.3373 0.1117 - 1.2948 -0.2119 0.0421 0.0076 0.1300 1.5344 13.0396 2003 - 1.0785 1.2808 5.7025 0.0976 - 1.1527 -0.2119 0.0521 0.0070 0.1200 0.4762 10.1793 2004 - 1.0372 1.2108 5.5710 0.1032 - 1.1307 -0.2119 0.0521 0.0069 0.1200 0.4250 9.8688 82 TOWN OF FOUNTAIN HILLS, ARIZONA PRIMARY AND SECONDARY PROPERTY TAX RATES - ALL DIRECT AND OVERLAPPING GOVERNMENTS LAST TEN FISCAL YEARS (UNAUDITED) Fiscal Year Rate Town Rate School District Rate County Rate State Rate Total 1995 P - 5.50 1.77 0.47 7.74 S 0.39 1.69 - - 2.08 1996 P - 4.96 1.69 0.47 7.12 S 0.32 2.67 0.15 - 3.14 1997 P - 4.98 1.64 - 6.62 S 0.30 2.17 0.16 - 2.63 1998 P - 4.89 1.68 - 6.57 S 0.23 2.32 0.13 - 2.68 1999 P - 3.89 1.19 - 5.08 S 0.17 1.96 0.11 - 2.24 2000 P - 3.91 1.16 - 5.07 S 0.26 2.38 0.12 - 2.76 2001 P - 4.09 1.18 - 5.27 S 0.56 2.25 0.09 - 2.90 2002 P 0.97 * 4.33 1.68 - 6.98 S 0.56 2.00 0.09 - 2.65 2003 P - 3.56 1.21 - 4.77 S 0.48 2.14 0.07 - 2.69 2004 P - 3.50 1.21 - 4.71 S 0.43 2.07 - - 2.50 P = Primary assessed valuation S = Secondary assessed valuation Source: Maricopa County and Arizona Tax Research Foundation. * The primary tax rate represents the Fountain Hills Fire District and is included with the Town because the Town took over operations in November 2001. 83 TOWN OF FOUNTAIN HILLS, ARIZONA ASSESSED VALUATION OF MAJOR TAXPAYERS JUNE 30, 2002* (UNAUDITED) Taxpayer Land Description 2003/04 Assessed Valuation As % of Town's Total Secondary Assessed Valuation Firerock LLC Vacant Land $4,045,273 %1.25 Qwest Corporation TV Systems 3,385,045 %1.05 MCO Properties Vacant Land 3,079,071 %0.95 Chaparral Town Water Company Water Utility 2,931,751 %0.91 Fountain Hills Village LLC Nursing Home 1,947,937 %0.60 Target Corporation Shopping Center 1,481,678 %0.46 Cox Communications TV Systems 1,404,400 %0.43 Four Peaks Limited Partnership Condominiums 1,353,366 %0.42 Fountain Hills-Old Vine LP Shopping Center 928,888 %0.29 Sun Tech Development Condominiums 895,446 %0.28 Kimco Barclay Fountain Hills Shopping Center 859,491 %0.27 Safeway Inc. #1291 Shopping Center 857,444 %0.27 Inn at Eagle Mountain LLC Hotel 853,886 %0.26 Southwest Gas Gas & Electric 840,795 %0.26 $24,864,471 %7.70 Source: Treasurer of Maricopa County. * M ost recent data available. 84 TOWN OF FOUNTAIN HILLS, ARIZONA COMPUTATION OF LEGAL DEBT MARGIN JUNE 30, 2004 (UNAUDITED) Net secondary assessed valuation $323,385,230 Water, Sewer, Light, Parks, Open Space and Recreational Facility Boards Debt limit - 20% of secondary net assessed valuation $64,677,046 Bonds outstanding 9,325,000 Net 20% General Obligation Bonding Capacity 55,352,046 All Other General Obligation Bonds Debt limit - 6% of secondary net assessed valuation 19,403,114 Bonds outstanding subject to debt limit 2,415,000 Net 6% General Obligation Bonding Capacity 16,988,114 Total 20% and 6% Bonding Capacity $72,340,160 Source: Maricopa County Assessor's Office. 85 TOWN OF FOUNTAIN HILLS, ARIZONA RATIO OF NET GENERAL BONDED DEBT TO ASSESSED VALUE AND NET BONDED DEBT PER CAPITA LAST TEN FISCAL YEARS (UNAUDITED) Fiscal Year Population Net Secondary Assessed Valuation Net Bonded Debt Ratio of Net Bonded Debt to Assessed Value Net Bonded Debt Per Capita 1994-95 13,100 $88,796,834 $4,144,881 %4.67 $316 1995-96 14,160 100,161,566 4,277,315 %4.27 302 1996-97 15,220 103,944,051 4,056,473 %3.90 267 1997-98 16,275 116,333,406 3,883,018 %3.34 239 1998-99 18,015 146,943,730 3,913,952 %2.66 217 1999-00 18,595 212,415,476 8,677,053 %4.08 467 2000-01 20,235 212,027,463 8,209,873 %3.87 406 2001-02 20,235 238,714,537 13,410,000 %5.62 663 2002-03 21,740 270,602,866 12,585,000 %4.65 579 2003-04 22,105 * 323,385,230 11,740,000 %3.63 531 * League of Arizona Cities and Towns. 86 TOWN OF FOUNTAIN HILLS, ARIZONA RATIO OF ANNUAL DEBT SERVICE EXPENDITURES TO TOTAL GENERAL EXPENDITURES LAST TEN FISCAL YEARS (UNAUDITED) Fiscal Year Principal Interest and Fiscal Charges Bond Issuance Cost Total Debt Service Total Expenditures (*) Ratio of Debt Service to Total Expenditures 1994-95 $125,000 $327,463 $-$452,463 $4,999,377 %9.05 1995-96 209,193 208,477 -417,670 7,667,025 %5.45 1996-97 222,321 247,311 -469,632 12,850,703 %3.65 1997-98 245,210 554,731 -799,941 10,631,005 %7.52 1998-99 223,024 517,696 54,368 795,088 11,464,538 %6.94 1999-00 339,013 585,001 -924,014 15,404,414 %6.00 2000-01 620,408 1,086,208 144,986 1,851,602 21,368,050 %8.67 2001-02 1,229,215 1,372,965 300,936 2,903,116 32,630,186 %8.90 2002-03 1,393,228 1,576,842 -2,970,070 15,771,446 %18.83 2003-04 1,423,228 1,499,575 -2,922,803 15,399,989 %18.98 (*) Includes all Governmental Fund Types. 87 TOWN OF FOUNTAIN HILLS, ARIZONA DIRECT AND OVERLAPPING GENERAL OBLIGATION BONDED DEBT JUNE 30, 2004 (UNAUDITED) Proportion Applicable to Town of Fountain Hills Overlapping Jurisdiction 2003-04 Net Secondary Assessed Valuation Net Outstanding General Obligation Bonded Debt Approximate Percent Net Debt Amount State of Arizona $44,480,893,202 $-%0.79 $- Maricopa County 30,066,986,670 -%1.16 - Maricopa County Community College District 28,070,870,413 234,440,000 %1.24 2,907,056 Eagle Mountain Community Facilities District 22,726,874 4,615,000 %100.00 4,615,000 Fountain Hills Unified School District No. 98 358,634,532 27,990,000 %97.24 27,217,476 East Valley Institute of Technology District 13,339,130,459 6,235,000 %2.62 163,357 Fountain Hills Sanitary District 344,262,269 1,320,000 %100.00 1,320,000 Town of Fountain Hills 323,385,230 11,740,000 %100.00 11,740,000 Total Direct and Overlapping General Obligation Bonded Debt $47,962,889 Source: Maricopa County Treasurer's Office. 88 TOWN OF FOUNTAIN HILLS, ARIZONA MISCELLANEOUS STATISTICAL DATA JUNE 30, 2004 (UNAUDITED) DATE OF INCORPORATION December 5, 1989 FORM OF GOVERNMENT Council - Manager NUMBER OF EMPLOYEES (no police and fire) Classified - Full time 59 Classified - Part time 18 Exempt 21 AREA 18.27 sq. miles TOWN OF FOUNTAIN HILLS FACILITIES AND SERVICES Miles of Street Surfaced 178.5 Un surfaced 2 Population 1990 census 10,190 1995 census 14,160 2000 census 20,235 Housing Units 11,601 Building Permits Issued 918 Culture and Recreation Community Centers 1 Parks 4 Park acreage 121 Tennis courts 6 Senior center 1 FACILITIES AND SERVICES NOT INCLUDED IN PRIMARY GOVERNMENT Fire Protection: Number of stations 2 The Town of Fountain Hills has no fire employees, but contracts with Rural/Metro Corporation to provide fire services to all residents. The Town does, however, own the fire station and equipment. Police Protection: Number of stations 1 Number of police personnel and officers 29 Number of patrol units 9 Number of law violations Physical arrests 601 Traffic/Parking violations 3,186 Sewerage System: Special District Miles of sanitary sewers 200 Number of treatment plants 1 Maximum daily capacity of treatment plant in gallons 2.6mgd Water System: Private Miles of water mains 178 Number of hydrants 1,217 Maximum daily capacity of plant in gallons 11,570,000 Education: Number of elementary schools 3 Number of secondary schools 1 Source: Town government offices and related districts. 89