The URL can be used to link to this page

Home My WebLink About2011 CITY OF FAIRHOPE, ALABAMA COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2011 PREPARED BY: THE OFFICE OF THE FINANCE DIRECTOR i CITY OF FAIRHOPE, ALABAMA COMPREHENSIVE ANNUAL FINANCIAL REPORT SEPTEMBER 30, 2011 TABLE OF CONTENTS Page INTRODUCTORY SECTION Letter of Transmittal iv Certificate of Achievement for Excellence in Financial Reporting viii Organization Chart ix City Elected and Appointed Officials x FINANCIAL SECTION INDEPENDENT AUDITORS’ REPORT 1 MANAGEMENT’S DISCUSSION AND ANALYSIS 3 BASIC FINANCIAL STATEMENTS Government-Wide Financial Statements Statement of Net Assets 14 Statement of Activities 15 Fund Financial Statements Governmental Fund Financial Statements Fund Balance Sheets - Governmental Funds 16 Reconciliation of Governmental Fund Balance to Net Assets of Governmental Activities 17 Statement of Revenues, Expenditures and Changes in Fund Balances - Governmental Funds 18 Reconciliation of the Statement of Revenues, Expenditures and Changes in Fund Balances of Governmental Funds to the Statement of Activities 19 Proprietary Fund Financial Statements Fund Balance Sheets - Proprietary Funds 20 Statement of Revenues, Expenses and Changes in Net Assets - Proprietary Funds 21 Statement of Cash Flows - Proprietary Funds 22 Discretely Presented Component Units Combining Statement of Net Assets - Discretely Presented Component Units 23 Combining Statement of Activities - Discretely Presented Component Units 24 Notes to the Financial Statements 25 ii CITY OF FAIRHOPE, ALABAMA COMPREHENSIVE ANNUAL FINANCIAL REPORT SEPTEMBER 30, 2011 TABLE OF CONTENTS (continued) Page REQUIRED SUPPLEMENTARY INFORMATION Budgetary Comparison Schedule - General Fund 50 Schedule of Funding Progress - Employee Retirement System 51 Notes to Required Supplementary Information 52 OTHER SUPPLEMENTARY INFORMATION Combining Balance Sheets – Nonmajor Governmental Funds 54 Combining Statement of Revenues, Expenditures and Fund Balances - 55 Nonmajor Governmental Funds Fund Balance Sheet - Fairhope Public Library Board 56 Reconciliation of Governmental Fund Balance to Net Assets of Governmental Activities - Fairhope Public Library Board 57 Statement of Revenues, Expenditures and Changes in Fund Balances - Fairhope Public Library Board 58 Reconciliation of the Statement of Revenues, Expenditures and Changes in Fund Balances of Governmental Funds to the Statement of Activities - Fairhope Public Library Board 59 Fund Balance Sheet - Fairhope Airport Authority 60 Reconciliation of Governmental Fund Balance to Net Assets of Governmental Activities - Fairhope Airport Authority 61 Statement of Revenues, Expenditures and Changes in Fund Balances - Fairhope Airport Authority 62 Reconciliation of the Statement of Revenues, Expenditures and Changes in Fund Balances of Governmental Funds to the Statement of Activities - Fairhope Airport Authority 63 Schedule of Capital Projects Expenditures 64 Schedule of Information Required By Bond Indentures 65 Summary of Deposits, Withdrawals and Balances of Selected Trust Accounts as Required Under Certain Trust Indentures 66 iii CITY OF FAIRHOPE, ALABAMA COMPREHENSIVE ANNUAL FINANCIAL REPORT SEPTEMBER 30, 2011 TABLE OF CONTENTS (continued) Page STATISTICAL SECTION Net Assets by Component 68 Changes in Net Assets 69 Governmental Activities Tax Revenues by Source 71 Fund Balances of Governmental Funds 72 Changes in Fund Balances of Governmental Funds 73 Assessed and Estimated Actual Value of Taxable Property 74 Property Tax Rates - Direct and Overlapping Governments 75 Principal Property Taxpayers 76 Property Tax Levies and Collections 77 Direct and Overlapping Sales Tax Rates 78 Principal Sales Tax Remitters 79 Ratios of Outstanding Debt by Type 80 Ratios of General Bonded Debt Outstanding 81 Computation of Overlapping Debt 82 Legal Debt Margin Information 83 Demographic and Economic Statistics 84 Principal Employers 85 Full-time Equivalent City Government Employees by Function 86 Operating Indicators by Function 87 Capital Asset Statistics by Function 88 COMPLIANCE SECTION Independent Auditors’ Report on Compliance and on Internal Control Over Financial Reporting Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards 89 INTRODUCTORY SECTION x CITY OF FAIRHOPE, ALABAMA CITY ELECTED AND APPOINTED OFFICIALS SEPTEMBER 30, 2011 Timothy M. Kant, ACMO Mayor Michael A. Ford , ACMO Councilmember Rick Kingrea Councilmember Lonnie L. Mixon Councilmember Debbie W. Quinn, ACMO Councilmember Daniel R. Stankoski, CMO Councilmember Lisa Hanks City Clerk Nancy K. Wilson, CPA City Treasurer Bill D. Press Police Chief Marion E. Wynne, Jr. City Attorney FINANCIAL SECTION MANAGEMENT’S DISCUSSION AND ANALYSIS - 3 - MANAGEMENT’S DISCUSSION AND ANALYSIS Our discussion and analysis of the City of Fairhope’s (the “City”) financial performance provides a narrative overview of the City’s financial activities for the fiscal year ended September 30, 2011. The intent of this Management Discussion and Analysis (MD&A) is to review the City’s financial performance as a whole. Please read it in conjunction with the City’s financial reports, which follow this section and the additional information furnished in the letter of transmittal, which can be found in the introductory section of this comprehensive annual financial report (CAFR). FINANCIAL HIGHLIGHTS • Assets of the City exceeded its liabilities at the close of the fiscal year by $111,159,866, a current year increase in net assets of $6,806,124 (pages 14 and 15). • At the close of the fiscal year, the City’s combined governmental funds, including General, Capital Projects and Other Governmental Funds, reported ending fund balances totaling $8,353,760, an increase of $2,803,470 from the prior year. The General Fund closed with a fund balance of $7,160,155, an increase of $2,450,645. The Capital Projects Fund had an increase in fund balance of $313,445 after capital expenditures of $128,334 and transfers from the General Fund of $441,186 (page 18). A detailed explanation of these increases can be viewed on page six of this Management’s Discussion and Analysis (MD&A). • Governmental Funds cash increased by $2,767,003. Most of the increase, approximately, $2.3 million, was from funds set aside for emergencies by the City Council from sales tax receipts. Additionally, while revenues were down by $1.1 million from the previous year, expenses were down $1.4 million (Figure 3, page 11). Governmental Funds cash totaled $8,135,146 at September 30, 2011 (page 16). • During fiscal 2011, revenues from the City’s 2% sales tax totaled $4,590,149, an increase of approximately $150,000 over the previous year. Fifty percent of sales tax revenues have been designated by the City Council to be restricted for approved emergencies. The amount of these reserved funds at September 30, 2011 was $5,014,205 (pages 14 and 16). • The combined governmental funds expended $1,474,937 for capital projects and purchases, including vehicles, equipment and recreation capital improvements, without incurring any new debt (page 18). • The business-type activities, Gas, Electric, Water and Waste Water activities, ended the year with income before transfers of $9,839,682, compared to $8,155,391 for fiscal 2010. While revenues increased approximately $2.3 million, costs of energy and operating expenses increased only about $600,000. The utilities made transfers to the General Fund of $4,827,147 from income. The business-type activities recorded an increase in net assets, after transfers, of $5,012,535 (page 21). Details pertaining to these increases can be seen on pages six and seven of this MD&A. • The City’s business-type activities made additions to property, plant and equipment of $2,193,779, while incurring no new long-term debt. Funding for these additions was prior debt issues, current income and money set aside for this purpose (pages 22 and 34). • The City of Fairhope’s total debt decreased by $1,532,837 (4.84%) during fiscal year 2011, yielding total outstanding debt of $30,132,785, compared to last year at $31,665,622. Governmental activities total debt was $14,965,792. Business-type activities total debt was $15,166,993 (pages 35 and 36). OVERVIEW OF THE FINANCIAL STATEMENTS This discussion and analysis is intended to serve as an introduction to the City’s basic financial statements. The City’s basic financial statements are comprised of four components: 1) government-wide financial statements, 2) fund financial statements, 3) notes to financial statements, and 4) required supplementary information. The Statement of Net Assets and the Statement of Activities provide information about the activities of the City as a whole and present a longer-term view of the City’s finances. For governmental activities, the fund financial statements tell how these services were financed in the short term as well as what remains for future spending. Fund financial statements also report the City’s operations in more detail than the government-wide statements by providing information about the City’s most significant funds. The notes to financial - 4 - statements provide additional information that is essential to a full understanding of the data provided in the government-wide and fund financial statements. The notes to financial statements start on page 25. In addition to the basic financial statements and accompanying notes, this report also presents certain required supplementary information concerning the City’s General Fund budget. A budgetary comparison schedule has been provided for the General Fund to demonstrate compliance with the budget on page 51. The Statement of Net Assets and the Statement of Activities The Fund Balance Sheets and the Statements of Revenues, Expenditures, and Changes in Fund Balances report information about the City as a whole and about its activities. These statements include all assets and liabilities using the accrual basis of accounting, which is similar to the accounting used by most private-sector companies. All of the current year’s revenues and expenses are taken into account regardless of when cash is received or paid. These two statements report the City’s net assets and any changes in them. Consideration of the City’s net assets, i.e., - the difference between assets and liabilities, is one tool to measure the City’s financial health, or financial position. Over time, increases or decreases in the City’s net assets are indicators of whether its financial health is improving or deteriorating. Consideration of other non-financial factors, however, such as changes in the City’s revenue sources and the condition of the City’s infrastructure, utility systems and roads, is also necessary for a valid assessment of the overall health of the City. In the Statement of Net Assets and the Statement of Activities, we divide the City into three kinds of activities: • Governmental activities — Most of the City’s basic services are reported here, including the police, fire, public works, youth and senior recreation departments, and general administration. Gross receipts, business license fees, property and sales taxes, franchise fees, and state and federal grants finance most of these activities. Funds for Capital Projects and Debt Service are also reported with Governmental activities. • Business-type activities — The City charges a fee to customers to help it cover all or most of the cost of certain services provided. Financial information for the Electric Fund, Natural Gas Fund and the Water and Waste Water Fund is reported in this section. • Component units — The City has two entities classified as component units, the Fairhope Public Library and the Airport Authority. Although legally separate and managed by City appointed boards, the Library and Airport Authority receive significant support from the City and the City is responsible for any deficits. Net assets may serve over time as a useful indicator of a government’s financial position. The City’s assets exceeded liabilities by $111,159,866 at the close of the most recent fiscal year, as shown in Figure 1, page 9 and page 14. This is an increase of $6,806,124. The largest portion of the City’s net assets, approximately 83.3 percent, reflects its investment in capital assets (e.g. land, streets, sidewalks, buildings, infrastructure, equipment, etc.), less any related debt still outstanding used to acquire those assets. The City uses these capital assets to provide services and utilities to citizens; therefore, these assets are not available for future spending. Although the City’s investment in capital assets is reported net of related debt, it should be noted that the resources needed to repay debt must be provided from other sources, since capital assets themselves cannot be used to liquidate these liabilities. An additional portion of the City’s net assets, approximately seven percent, represents resources that are subject to restrictions as to how they may be used. Funds restricted for debt service were $2,008,651; for capital projects, $675,798; for road maintenance and construction, $167,786; for City Council determined emergencies, $5,014,205. Restricted funds increased approximately $2.6 million over the previous year. The unrestricted net assets, approximately 9.6 percent, may be used to meet the City’s ongoing obligations to citizens and creditors. Unrestricted net assets, $10,660,763, increased $3,794,681 during fiscal 2011 (pages 9 and 14). The City has implemented Government Accounting Standards Statement 45, Accounting and Financial Reporting by Employers for Post Employment Benefits Other Than Pensions (GASB 45). The City’s Annual Required Contribution (ARC) was actuarially determined to be $908,803. The current year retirement premium was $336,258.The liability for OPEB obligation at year end was $1,350,711. This amount is reported on the Statement of Net Assets, page 14, as Net - 5 - OPEB Obligation and on page 47, Note 18. Figure 2, page 10, is a condensed Statement of Activities for the City as a whole for all activity types. This condensed statement includes comparative information from the prior year for the governmental and business-type activities, as well as the Library and Airport Authority component units. Fund Financial Statements The fund financial statements provide detailed information about the most significant funds — not the City as a whole. Some funds are required to be established by State Law and by bond covenants. However, the City Council established many other funds to help control and manage money for particular purposes or to show that it is meeting legal responsibilities for using certain taxes, grants, and other money. The City’s two kinds of funds —governmental and proprietary — use different accounting approaches. • Governmental funds — Most of the City’s basic services are reported in governmental funds, which focus on how money flows into and out of those funds and the balances left at year-end that are available for spending. These funds are reported using an accounting method called modified accrual accounting, which measures cash and all other financial assets that can be readily converted to cash. The governmental fund statements provide a detailed short-term view of the City’s general government operations and the basic services it provides. Government fund information helps determine whether there are more or fewer resources that can be spent in the near future to finance the City’s programs. • Proprietary funds — When the City charges customers for the services it provides, whether to outside customers or to other units of the City, these services are reported as proprietary, or enterprise, funds. Proprietary funds are reported separately, on an accrual basis of accounting, in the Proprietary Fund Balance Sheet and the Statement of Revenues, Expenses, and Changes in Net Assets. The City’s enterprise funds are the same as the business-type activities we report in the government-wide statements but provide more detail and additional information, such as cash flows. The City’s proprietary funds include the Electric Fund, Natural Gas Fund and Water and Waste Water Fund, which are used to account for the operations of the utilities. Governmental Funds The focus of the City’s governmental funds is to provide information on near-term inflows, outflows, and balances of spendable resources. Such information is useful in assessing the City’s financing requirements. In particular, unrestricted fund balances may serve as a useful measure of a government’s net resources available for spending at the end of the fiscal year. Figure 3, page 11, presents summaries of the governmental funds (General Fund, Capital Projects and Other Governmental Funds) revenues and expenditures, by function, for the fiscal year ended September 30, 2011, and the amounts of increases and decreases in relation to prior year revenues and expenditures. Governmental activities revenues decreased $1,053,284 from the previous fiscal year. Expenditures of Governmental funds decreased $1,413,593 for the same period. The following significant events, related to revenues and expense, occurred during fiscal 2011 (the figures are rounded): Related to revenue: • British Petroleum provided $1.15 million, distributed by the State of Alabama, to offset costs related to the Deep Water Horizon oil rig explosion in April of 2010. The $1.1 million decrease in revenues for fiscal 2011 is directly related to the decrease in this revenue. Other net increases in income, $100,000, are the result of annual fluctuations in the various income centers. • Local taxes related to property were down $250,000, while those related to local taxes, including sales, liquor and lodging taxes, were up $150,000, resulting in a net decrease of $100,000. • Business Licenses were up $220,000, other licenses and permits were down $105,000, resulting in an increase of $115,000. • Fines and forfeitures were down $20,000. • State of Alabama and United States Government tax and grant income decreased by $200,000. • The Fairhope Library Board made a payment of $185,000 for the “bridge loan” provided by the City for - 6 - uncollected donations for the construction of the new Library (page 37, Note 6). This compared to a payment last year of $65,000, an increase of $120,000. • There were modest increases in interests, rents and charges for service of $40,000. • Income from the City’s golf course, $1 million, was up $160,000 from the previous year. A credit given in fiscal 2010 to season pass holders for the months the course was closed in fiscal 2009 for renovation had expired in fiscal 2011. Related to expenditure: • Capital outlay expenditures were $1.5 million, down $90,000 from the prior year. Expenditures of $1.6 million for fiscal 2010 included $900,000 for land for future recreation activities; $170,000 for parks and recreation facilities; and $400,000 for vehicles and equipment. Major capital expenditures for fiscal 2011 were: $450,000 for fire department equipment; $70,000 for capital improvements at the James P. Nix Center; $170,000 for street department equipment, including a new street sweeper; $430,000 for sanitation collection equipment; and $280,000 for vehicles and equipment. • The City’s General Department had decreases in expenditures of $944,000. Major decreases for 2011 were: direct costs related to the BP oil spill, $3,000 for the current year, compared to $727,000 for fiscal 2010; and decreases in employee costs of $250,000. • The Police Department had increases of $540,000. Major increases for 2011 included increases in employee costs ($390,000), computer expense ($120,000), supplies and gasoline ($50,000). The employee cost increase was due to the reassignment of certain personnel that were formerly expensed in the Fire Department. • The Fire Department had a decrease in expense ($440,000) related to the reassignment of dispatch personnel to the Police Department. • The Street Department’s expenses were down $185,000 from the previous year, primarily because of reductions in employee costs of $125,000. • Debt service payments, $1.5 million, decreased $250,000 from the previous year’s $1.75 million total. • Recreation activities expenses were down $80,000. Costs related to employees were $100,000 less than the previous year. Fund Balances and Net Assets When reviewing the City’s finances it is important to ask if the City as a whole is in better financial condition when compared with the prior year. An indicator of the City’s financial health is whether the fund balances of the governmental and net assets of the proprietary funds increased or decreased as a result of operating activities. Fund balances for all governmental funds, including General Fund, Capital Projects Fund, and Other Governmental Funds totaled $8,353,760, an increase of $2,803,470. This follows an increase in fund balances of $2,513,117 the previous year. The General Fund had a fund balance of $7,160,155, an increase of $2,450,645. The Capital Projects Fund had an increase in fund balance of $313,445 after capital outlay of $128,334 and a transfer from the General Fund of $441,186. Of the cash transferred to the Capital Projects Fund from the General Fund, $435,000 was from funds provided by BP for losses related to the Deepwater Horizon oil spill. Those funds will be expended for future, approved, capital projects. The Other Governmental Funds had fund balances of $517,806 at year end, including reserved for Debt Service $350,020, a decrease of $988 and unreserved funds reported in special revenue fund (Gas Tax) of $167,786, an increase of $40,367, after expenditures of $46,794 for road repair and maintenance (see pages 16, 18 and 54). Increases and decreases in revenues and expenses are discussed in the Governmental Funds section of this MD&A, pages 5 and 6 above. The Gas, Electric and Water and Waste Water Funds had net assets of $38,055,728 at year end, an increase of $5,012,535 (see pages 15 and 21). This follows an increase in the previous year of $3,258,287. Capital Project and Other Governmental Funds increases in fund balance are discussed above. Following are major factors effecting increases in fund balance and net assets in the General Fund and business-type operations. General Fund Balance: The General Fund had a decrease in revenues of $1,053,135. Expenditures for the General Fund were down $1,505,816 from the prior year. Transfers from the proprietary funds (Gas, Electric, Water and Waste Water Funds) were $4,827,147 for the current year, a decrease of $309,446 from the prior year. After transfers, the fund balance of the General Fund increased by $2,450,645 during fiscal 2011. - 7 - The most significant revenue and expense decreases were funds provided by British Petroleum Company, through the State of Alabama for costs related to the Deep Water Horizon explosion and oil spill in fiscal 2010 and expenditures related to the clean-up. Funds provided for fiscal 2010 were $1.15 million, compared to nothing for fiscal 2011. The costs related to the spill totaled approximately $727,000 for 2010 and less than $3,000 for fiscal 2011. Another factor affecting the fund balance of the General Fund was, again related to the Deep Water Horizon spill. The money remaining from funds provided for the clean-up, $435,000, was transferred to the Capital Projects fund for future projects. No determination has been made as to the disposition of those funds. Two other major decreases in expenditures in the General Fund were: debt service payments decreased by $250,000 and employee costs in the General, Street and Recreation departments decreased $475,000 Enterprise Operations: The City’s enterprise operations consist of the Electric Fund, Natural Gas Fund and Water and Waste Water Fund. The enterprise funds operating revenues increased by $2,257,722 over the prior fiscal year. This represented a 6.25% increase. Operating expenses increased by $594,952, a 2.2% increase. The increase in expenses was due to increases in energy purchases for resale of $539,224, an increase of 3.6%. Combined, other expenses were up from the prior year, $55,728, less than one-half of one percent. Utility rate calculations are based on costs of energy, expenditures for operations, debt service costs, infrastructure upgrades, capacity increases and transfers to the General Fund to fund public safety, recreational and environmental activities of the City. The City employs a consultant to assist in the rate setting process. Income for the enterprise funds, before transfers to the General Fund, was $9,839,682, an increase of $1,684,291. Transfers to the General Fund were $4,827,147, or 49% of income. For fiscal 2010 the transfers to the General Fund were $4,897,104, or 60% of income. For fiscal 2009 the transfers were $5,094,136 or 66%. The reduced transfers, as a percent of income, have enabled the utilities to fund capital additions and reserves for emergencies. The change in net assets of the three utilities was an increase of $5,012,535. General Fund Budgetary Highlights Although there is no legal requirement to establish a budget, the City of Fairhope prepares an annual budget. The preparation process involves input from the Mayor, City managers, Council members and the City’s Financial Advisory and Budget committees. Page 52 of this report lists the procedure for preparing the annual budgets. No adjustments to the budget were made during the year. On page 51, in the Required Supplementary Information section of this report, there is a budgetary comparison schedule for the General Fund. For the purposes of this discussion, variance amounts in excess of $50,000 in each category or department will be discussed. All amounts are rounded. The total revenue variance was $39,000 for fiscal 2011. Licenses and permits were $190,000 over budget. Of that amount, $180,000 was from business licenses due to heightened collection efforts and new businesses. Fines and forfeitures were $60,000 under budget. Intergovernmental revenues were down $325,000 from budgeted grants that were not awarded in fiscal 2011. Charges for services were $70,000 over budget. Subdivision fees and impact fees, both related to an improved construction outlook in Fairhope, and sanitation collections exceeded budgeted amounts. The Library Board contributed $115,000 more than anticipated toward the loan for the construction of the new library. The total expenditure variance was $1,730,000. The favorable variance in the general government was $715,000 due to reductions in employee costs. Reductions in overtime, unfilled positions and unfunded OPEB contributions contributed to this variance. The Sanitation Department had a favorable variance of $260,000. It was contemplated that some of the solid waste collection would be outsourced at a cost of $900,000. No collection was outsourced and the amounts that were not budgeted for employees were less than the budget cost of outsourcing the service. The Airport Authority appropriation for debt service was reduced $55,000 from the budgeted amount due to favorable interest rates. The Recreation department was $80,000 under budget due to employee cost reductions. The golf course operations had an unfavorable variance of $115,000. Most of that amount was goods purchased for resale. Members purchased a large amount of special order items during fiscal 2011. These were items outside of the normal items ordered for stock in the shop. Capital projects and equipment for the Street Department were budgeted at $1,100,000. Expenditures for fiscal 2011 were $170,000. While some other unbudgeted capital purchases were made due to unforeseen conditions, the over-budgeted amount in capital additions for the Street Department are largely responsible for the $554,000 favorable variance in capital outlay. One of the most significant unbudgeted capital purchases was in the Sanitation Department for the replacement of collection equipment. - 8 - Other financing sources and uses and the budget variances were: unfavorable variance of $1,350,000 in loan proceeds for capital purchases and improvements not made in fiscal 2011 and therefore had no need of funding; a reduction in the amount budgeted for transfers from the business-type activities of $275,000, to accomplish a goal of not transferring more than 50% of earnings from operations of the utilities; an unfavorable variance of $225,000 in transfers out: $215,000 budgeted for transfers to the Debt Service Fund were not required and $440,000 in unbudgeted transfers to the Capital Projects Fund, $435,000 for future projects funded by remaining resources from the Deep Water Horizon oil spill recovery funds. Capital Assets As of September 30, 2011, the City’s governmental activities had $81,799,619 invested in capital assets, net of depreciation. This is a decrease of $1,561,071 from the prior year. The business-type activities had invested capital assets, net of depreciation of $40,396,719, an increase of $422,761 (see Note 3, Fixed Assets, pages 33 and 34). The City’s governmental activities capital assets, at cost, were $124,526,981 at September 30, 2011, an increase of $1.5 million from the prior year. The business-type activities, the Gas, Electric and Water and Waste Water Funds, had capital assets, at cost, of $72,681,048, an increase of $2.1 million. Figure 4, page 12, summarizes capital assets by asset type, at cost, and changes in fixed assets during the year. Debt Administration As of September 30, 2011, the City had long-term debt of $30,157,234 (excluding premiums and discounts), including bonds and warrants payable, notes payable, and obligations under capital leases. This is a net decrease, city wide, of $1,556,133 from the prior year. Governmental activities’ decrease in long-term debt was $831,483. Business-type activities’ reduction in long-term debt was $724,650. See Notes 5 through 10 in the financial statements for more detail. Figure 5, page 13, summarizes the City’s long-term debt, including compensated absences. ECONOMIC FACTORS The City’s management has set a budget decrease in revenue for fiscal 2012 of $550,000. While the overall budget variance for fiscal 2011 was a favorable $39,000, it was thought that while the economy appears to be recovering, a modest approach to budget expectations for revenue should be followed. Similarly, the General Fund budget has a $400,000 decrease in expenses for fiscal 2012, compared to fiscal 2011. Capital projects and purchases funded in the General Fund were budgeted $1 million less than the prior year. Modest increases over all cost centers, administration, public safety, parks and recreation, streets and sidewalks, sanitation collections, agency appropriations and debt service, totaled $600,000. Gas Fund, Electric Fund and Water and Waste Water Fund operations revenues are expected to be relatively flat for fiscal 2012. Increases in revenues budgets are 3% over actual amounts for 2011. Costs of energy and operating expenses in the three utilities are projected to increase by approximately 6% over actual amounts for 2011. For the business-type activities, reported as Gas Fund, Electric Fund and Water and Waste Water Fund, a projected excess of revenues over expenditures, before transfers, is $9,392,519 for fiscal 2012, compared to actual $9,839,682 for fiscal 2011. This represents a projected decrease of 4.5%. Transfers to the General Fund for fiscal 2012 are budgeted to be $4,902,949, compared to $4,827,147 for 2011. This represents an increase of 1.5%. However, earnings from operations in the utilities are monitored during the year to insure that excessive amounts are not transferred. CONTACTING THE CITY’S FINANCIAL MANAGEMENT This financial report is designed to provide our citizens, taxpayers, customers, investors and creditors with a general overview of the City’s finances and to show the City’s accountability for the money it receives. If you have questions about this report or need any additional financial information, please contact Rose Fogarty, Finance Director, or Nancy Wilson, City Treasurer, at 161 N. Section Street, Fairhope, Alabama, (251) 928-2136. Figure 1 9/30/2011 9/30/2010 9/30/2011 9/30/2010 9/30/2011 9/30/2010 9/30/2011 9/30/2010 9/30/2011 9/30/2010Current & Other Assets 9,365,227$ 6,370,662$ 17,098,616$ 12,919,880$ 26,463,843$ 19,290,542$ 96,306$ 142,920$ 701,050$ 659,724$ Capital Assets, net 81,799,619 83,360,690 40,396,719 39,973,958 122,196,338 123,334,648 78,267 104,964 22,022,916 21,991,441 Total Assets91,164,846$ 89,731,352$ 57,495,335$ 52,893,838$ 148,660,181$ 142,625,190$ 174,573$ 247,884$ 22,723,966$ 22,651,165$ Long-Term Debt 14,700,965$ 15,596,347$ 14,362,872$ 15,074,544$ 29,063,837$ 30,670,891$ -$ -$ 8,935,000$ 8,935,000$ Other Liabilities 3,359,743 2,824,456 5,076,735 4,776,101 8,436,478 7,600,557 3,822 3,197 - - Total Liabilities18,060,708$ 18,420,803$ 19,439,607$ 19,850,645$ 37,500,315$ 38,271,448$ 3,822$ 3,197$ 8,935,000$ 8,935,000$ Net Assets: Invested in Capital Assets, net of related debt 66,845,689$ 67,577,041$ 25,786,974$ 24,697,607$ 92,632,663$ 92,274,648$ 78,267$ 104,964$ 13,087,916$ 13,038,211$ Restricted 6,207,809 3,564,376 1,658,631 1,649,106 7,866,440 5,213,482 - - 112,573 32,32350,640 169,132 10,610,123 6,696,480 10,660,763 6,865,612 92,484 139,723 588,477 645,631 Total Net Assets 73,104,138 71,310,549 38,055,728 33,043,193 111,159,866 104,353,742 170,751 244,687 13,788,966 13,716,165 Total Liabilities & Net Assets91,164,846$ 89,731,352$ 57,495,335$ 52,893,838$ 148,660,181$ 142,625,190$ 174,573$ 247,884$ 22,723,966$ 22,651,165$ ACTIVITIESACTIVITIES UnrestrictedLIBRARYAIRPORT AUTHORITYGOVERNMENT-9-CITY OF FAIRHOPE CONDENSED STATEMENT OF NET ASSETS FOR THE YEAR ENDED 9/30/2011GOVERNMENTALCOMPONENT UNITS BUSINESS - TYPE TOTAL PRIMARY Figure 2AIRPORT AUTHORITY9/30/2011 9/30/2010 9/30/2011 9/30/2010 9/30/2011 9/30/2010 9/30/2011 9/30/2010 9/30/2011 9/30/2010Program Revenues Charges for Services 8,376,902$ 8,079,332$ 38,345,349$ 36,087,627$ 46,722,251$ 44,166,959$ 43,040 87,337 129,358 131,514 Operating Grants & Contributions24,402 22,267 24,402 22,267 569,597 609,176 438,107 260,155 Capital Grants & Contributions 302,963 1,389,592 302,963 1,389,592General Revenues Taxes 10,190,500 10,292,352 10,190,500 10,292,352 Intergovernmental 248,011 424,359 248,011 424,359 Investment Earnings 249,489 239,256 58,522 23,385 308,011 262,641 4,746 5,156 Other 124,161 1,293,419 124,161 1,293,419Total Revenues 19,516,428$ 21,740,577$ 38,403,871$ 36,111,012$ 57,920,299$ 57,851,589$ 612,637$ 696,513$ 572,211$ 396,825$ Expenses General Government 6,176,077$ 6,929,734$ 6,176,077$ 6,929,734$ Sanitation 1,868,364 1,973,942 1,868,364 1,973,942 Police 5,213,031 4,740,344 5,213,031 4,740,344 Fire 483,670 1,017,184 483,670 1,017,184 Airport 225,843 249,856 225,843 249,856 Street 4,251,404 4,452,370 4,251,404 4,452,370 Adult Recreation 654,736 601,232 654,736 601,232 Recreation 1,138,079 1,269,393 1,138,079 1,269,393 Golf 1,106,624 1,102,861 1,106,624 1,102,861 Public Library Board 798,997 772,539 798,997 772,539 Interest on Long Term Debt 633,161 694,083 633,161 694,083 Electric 16,909,931 15,664,835 16,909,931 15,664,835 Natural Gas 5,037,587 5,757,648 5,037,587 5,757,648 Water and Wastewater 6,616,671 6,533,138 6,616,671 6,533,138 Golf Airport Authority499,410 759,885 Fairhope Public Library686,573 704,268Total Expenses 22,549,986$ 23,803,538$ 28,564,189$ 27,955,621$ 51,114,175$ 51,759,159$ 686,573$ 704,268$ 499,410$ 759,885$ Change in net assets before transfers (3,033,558) (2,062,961) 9,839,682 8,155,391 6,806,124 6,092,430 (73,936) (7,755) 72,801 (363,060)Special Item - Trans of Golf to Governmental ActivitiesTransfers 4,827,147 4,897,104 (4,827,147) (4,897,104)Change in net assets 1,793,589 2,834,143 5,012,535 3,258,287 6,806,124 6,092,430 (73,936) (7,755) 72,801 (363,060)Net Assets, beginning 71,310,549 67,922,838 33,043,193 29,784,906 104,353,742 97,707,744 244,687 252,442 13,716,165 14,079,225Prior year adjustment 553,568 553,568Net Assets, ending 73,104,138$ 71,310,549$ 38,055,728$ 33,043,193$ 111,159,866$ 104,353,742$ 170,751$ 244,687$ 13,788,966$ 13,716,165$ GOVERNMENTACTIVITIESGOVERNMENTAL ACTIVITIES-10-CITY OF FAIRHOPEBUSINESS - TYPECOMPONENT UNITS LIBRARYTOTAL PRIMARYCONDENSED STATEMENT OF ACTIVITIES FOR THE YEAR ENDED 9/30/2011 Figure 39/30/2011 9/30/2010 IncreaseRevenues Total Total (Decrease)Local taxes $ 10,190,500 $ 10,292,352 $ (101,852) Licenses & Permits 2,295,795 2,178,982 116,813 Fines & Forfeitures 241,104 261,070 (19,966) State of Alabama 223,511 176,832 46,679 U. S. Government 122,455 370,724 (248,269) Contribution from Public Library Board 183,285 65,000 118,285 Interests and Rents 249,489 239,256 10,233 Charges for Service 4,479,749 4,450,535 29,214 Golf Course Revenue 1,020,250 858,237 162,013 Other 539,557 1,705,991 (1,166,434) Totals $ 19,545,695 $ 20,598,979 $ (1,053,284) IncreaseExpenditures Total Total (Decrease)General $ 5,335,143 $ 6,279,197 $ (944,054) Sanitation 1,745,785 1,758,543 (12,758) Police 4,941,051 4,404,803 536,248 Fire 395,224 837,597 (442,373) Airport 225,843 249,856 (24,013) Street Department 2,639,416 2,797,566 (158,150) Adult Recreation 577,015 553,125 23,890 Debt Service Principal 831,483 1,047,483 (216,000) Interest 666,652 704,043 (37,391) Recreation Department 969,025 1,050,957 (81,932) Golf 1,113,178 1,094,604 18,574 Public Library Board 565,000 565,000 - Other 89,620 75,000 14,620 Capital Outlay 1,474,937 1,565,192 (90,255) Totals $ 21,569,372 $ 22,982,966 $ (1,413,594) Statement of Revenues and Expeditures Governmental Funds For the Year Ended September 30, 2011-11- Figure 4 Balance Reclassifications/ Balance Governmental Activities @ 10/1/10 Additions Retirements @ 9/30/11Land $ 19,827,727 $ - $ - $ 19,827,727Buildings & Structures 32,186,356 268,836 - 32,455,192Vehicles and equipment 11,821,480 1,180,919 (30,330) 12,972,069Infrastructure 59,200,685 71,308 - 59,271,993Total Capital Assets $ 123,036,248 $ 1,521,063 $ (30,330) $ 124,526,981Business-type activitiesElectric Fund Natural Gas Fund Water/WastewaterFundBalance @ 10/01/10 $ 21,017,070 $ 11,843,499 $ 37,681,685Additions to Plant 776,586 272,492 758,034Addition to land, buildings, vehicles and equipment 245,565 55,551 85,551Completed Construction in Progress - - - Disposals (18,329) (18,328) (18,328)Total Capital Assets @ 9/30/2011 $ 22,020,892 $ 12,153,214 $ 38,506,942-12-City of FairhopeCapital Assets Figure 5GOVERNMENTAL BUSINESS-TYPELONG TERM DEBT FUNDS ACTIVITIESGeneral Obligation Warrants, 2002 $ 4,037,422General Obligation Warrants, 2008 847,460General Obligation Warrants, 2007 7,130,000General Obligation Refunding Warrant, 2009 2,950,910Obligations under capital leases 24,449Utilities Revenue Warrants, 2005 7,135,000$ Utilities Revenue Warrants, 2002 6,720,000Utilities Revenue Warrants, 2009 1,070,000General Obligation Refunding Warrant, 2009 54,090General Obligation Warrants, 2002 187,903Compensated absences 1,069,676 560,563TOTALS $ 16,059,917 $ 15,727,556See Notes 5 through 10 beginning on page 35 for additional detail.-13-City of FairhopeDebt Administration BASIC FINANCIAL STATEMENTS Governmental Fund Types Governmental Business-type Component Activities Activities Total Units ASSETS Cash $ 8,135,146 $ 12,137,147 $ 20,272,293 $ 766,891 Restricted cash 320,963 1,658,631 1,979,594 - Receivables, net 491,929 2,610,705 3,102,634 - Internal balances 267,812 (267,812) - - Inventories - 687,729 687,729 - Other assets 149,377 272,216 421,593 30,465 Land and construction in progress 19,827,727 369,280 20,197,007 11,300,711 Capital assets, net 61,971,892 40,027,439 101,999,331 10,800,472 Total assets $ 91,164,846 $ 57,495,335 $ 148,660,181 $ 22,898,539 LIABILITIES Accounts payable and accrued expenses $ 1,009,435 $ 2,008,065 $ 3,017,500 $ 3,822 Deferred revenue 4,714 - 4,714 - Customer deposits - 2,020,319 2,020,319 - Long-term liabilities Due within one year 1,322,641 720,593 2,043,234 - Due in more than one year 14,700,965 14,362,872 29,063,837 8,935,000 Net OPEB obligation 1,022,953 327,758 1,350,711 - Total liabilities 18,060,708 19,439,607 37,500,315 8,938,822 NET ASSETS Invested in capital assets, net of related debt 66,845,689 25,786,974 92,632,663 13,166,183 Restricted for: Debt service 350,020 1,658,631 2,008,651 - Capital projects 675,798 - 675,798 112,573 Road maintenance and construction 167,786 - 167,786 - Council approved emergencies 5,014,205 - 5,014,205 - Unrestricted 50,640 10,610,123 10,660,763 680,961 Total net assets 73,104,138 38,055,728 111,159,866 13,959,717 Total liabilities and net assets $ 91,164,846 $ 57,495,335 $ 148,660,181 $ 22,898,539 See independent auditors' report and notes to the financial statements. -14- CITY OF FAIRHOPE, ALABAMA STATEMENT OF NET ASSETS SEPTEMBER 30, 2011 Operating Capital Component UnitCharges for Grants and Grants and Governmental Business-type ComponentFunctions/Programs Expenses Services Contributions Contributions Activities Activities Total UnitsPrimary GovernmentGovernmental activities:General $ 6,176,077 $ 5,383,822 $ - $ - $ (792,255) $ (792,255) Sanitation 1,868,364 1,391,722 - - (476,642) (476,642) Police 5,213,031 241,104 24,402 71,120 (4,876,405) (4,876,405) Fire 483,670 - - - (483,670) (483,670) Airport Authority 225,843 - - - (225,843) (225,843) Street 4,251,404 - - 10,558 (4,240,846) (4,240,846) Adult Recreation 654,736 46,261 - - (608,475) (608,475) Recreation 1,138,079 369,135 - 38,000 (730,944) (730,944) Golf 1,106,624 944,858 - - (161,766) (161,766) Public Library Board 798,997 - - 183,285 (615,712) (615,712) Interest on long term debt 633,161 - - - (633,161) (633,161) Total governmental activities 22,549,986 8,376,902 24,402 302,963 (13,845,719) (13,845,719) Business-type activitiesElectric 16,909,931 19,838,004 - - - $ 2,928,073 2,928,073 Natural gas 5,037,587 8,219,447 - - - 3,181,860 3,181,860 Water and Wastewater 6,616,671 10,287,898 - - - 3,671,227 3,671,227 Total business-type activities 28,564,189 38,345,349 - - - 9,781,160 9,781,160 Total primary government $ 51,114,175 $ 46,722,251 $ 24,402 $ 302,963 (13,845,719) 9,781,160 (4,064,559) Component Units $ 1,185,983 $ 172,398 $ 1,007,704 $ - $ (5,881) General revenues:Property taxes 4,590,840 - 4,590,840 - Sales tax 4,590,149 - 4,590,149 - Liquor taxes 393,123 - 393,123 - Lodging taxes 495,870 - 495,870 - Other taxes 120,518 - 120,518 - Intergovernmental 248,011 - 248,011 - Investment earnings 249,489 58,522 308,011 4,746 Other124,161 - 124,161 - Transfers 4,827,147 (4,827,147) - - Total general revenues, special item and transfers 15,639,308 (4,768,625) 10,870,683 4,746 Change in net assets 1,793,589 5,012,535 6,806,124 (1,135) Net assets, beginning, as previously reported 71,310,549 33,043,193 104,353,742 13,960,852 Net assets, ending $ 73,104,138 $ 38,055,728 $ 111,159,866 $ 13,959,717 See independent auditors' report and notes to the financial statements. -15-Primary GovernmentCITY OF FAIRHOPE, ALABAMASTATEMENT OF ACTIVITIESSEPTEMBER 30, 2011Program RevenuesNet (Expense) Revenue andChanges in Net Assets Other Total Capital Governmental Governmental General Projects Funds Funds ASSETS Cash $ 7,257,978 $ 676,846 $ 200,322 $ 8,135,146 Investments - - 320,963 320,963 Receivables, net 462,653 - 29,276 491,929 Due from other funds 267,812 - - 267,812 Other assets 34,925 - - 34,925 Total assets $8,023,368 $676,846 $550,561 $9,250,775 LIABILITIES Accounts payable $ 655,816 $ 1,047 $ 3,479 $ 660,342 Accrued expenses and taxes 182,683 - - 182,683 Deferred revenue 24,714 - 29,276 53,990 Total liabilities 863,213 1,047 32,755 897,015 FUND BALANCES Restricted for: Debt service - - 350,020 350,020 Council approved emergencies 5,014,205 - - 5,014,205 Assigned to:- Construction and road maintenance - 675,799 167,786 843,585 Unassigned 2,145,950 2,145,950 Total fund balances 7,160,155 675,799 517,806 8,353,760 Total liabilities and fund balances $8,023,368 $676,846 $550,561 $9,250,775 See independent auditors' report and notes to the financial statements SEPTEMBER 30, 2011 -16- CITY OF FAIRHOPE, ALABAMA FUND BALANCE SHEETS GOVERNMENTAL FUNDS Fund balance as reported on page 16 $ 8,353,760 Net Assets reported for governmental activities in the Statement of Net Assets are different from Fund Balance for governmental activities because: Capital assets used in governmental activities are financial resources and therefore are not reported in fund financial statements. 124,526,981 Depreciation is provided for the above capital assets in government-wide reporting, but is not in fund financial statements. (42,727,362) Other long-term assets are not available to pay for current-period expenditures and therefore are deferred revenue in fund financial statements. 163,724 Long-term liabilities, including warrants, notes, capital lease obligations and OPEB obligations are not due and payable in the current period and therefore are not reported in fund financial statements: Warrants and notes payable (net of warrant discount of $36,311) (14,929,481) Obligations under capital leases (24,449) OPEB obligations (1,022,953) Accrued interest on long-term debt is not due and payable in the current-period and therefore not included in fund financial statements. (216,092) Compensated absences not expected to be paid with current resources as determined under Governmental Accounting Standards are not reported in fund financial statements. (1,019,990) Net Assets of Governmental Activities as reported on page 14 $ 73,104,138 See independent auditors’ report and notes to the financial statements. SEPTEMBER 30, 2011 -17- CITY OF FAIRHOPE, ALABAMA RECONCILIATION OF GOVERNMENTAL FUND BALANCE TO NET ASSETS OF GOVERNMENTAL ACTIVITIES Other Total Capital Governmental Governmental General Projects Funds Funds REVENUES Local taxes $ 10,190,500 $ - $ - $ 10,190,500 Licenses and permits 2,295,795 - - 2,295,795 Fines and forfeitures 241,104 - - 241,104 Intergovernmental 258,472 - 87,494 345,966 Contribution from Public Library Board 183,285 - - 183,285 Interest and rents 248,780 593 116 249,489 Charges for services 4,479,749 - - 4,479,749 Golf course revenue 1,020,250 - - 1,020,250 Other 539,557 - - 539,557 Total revenues 19,457,492 593 87,610 19,545,695 EXPENDITURES General 5,335,143 - - 5,335,143 Sanitation 1,745,785 - - 1,745,785 Police 4,941,051 - - 4,941,051 Fire 395,224 - - 395,224 Airport 225,843 - - 225,843 Street 2,592,622 - 46,794 2,639,416 Adult Recreation 577,015 - - 577,015 Recreation 969,025 - - 969,025 Golf 1,113,178 - - 1,113,178 Public Library Board 565,000 - - 565,000 Other 89,000 - 620 89,620 Debt service payments Principal 176,353 - 655,130 831,483 Interest 31,591 - 635,061 666,652 Capital Outlay 1,346,603 128,334 - 1,474,937 Total expenditures 20,103,433 128,334 1,337,605 21,569,372 Excess of Revenues over (under) Expenditures (645,941) (127,741) (1,249,995) (2,023,677) OTHER FINANCING SOURCES (USES) Transfers in 4,827,147 441,186 1,289,375 6,557,708 Transfers out (1,730,561) - - (1,730,561) Total other financing sources (uses) 3,096,586 441,186 1,289,375 4,827,147 Net change in fund balances 2,450,645 313,445 39,380 2,803,470 Fund balances - beginning of year 4,709,510 362,354 478,426 5,550,290 FUND BALANCES - END OF YEAR $ 7,160,155 $ 675,799 $ 517,806 $ 8,353,760 See independent auditors’ report and notes to the financial statements. FOR THE YEAR ENDED SEPTEMBER 30, 2011 -18- CITY OF FAIRHOPE, ALABAMA STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS Net change in fund balances - total governmental funds, page 18 $ 2,803,470 Amounts reported for governmental activities in the Statement of Activities are different from the Statements of Revenues, Expenditures and Changes in Fund balances - Governmental Funds because: Amortization of bond costs and discounts is not recorded in fund level statements. (7,308) Governmental funds report capital outlays as expenditures while governmental activities report depreciation expense to allocate those expenditures over the life of the assets. Capital outlays for the year 1,474,937 Depreciation expense for the year (3,055,309) Loss on assets disposed (26,825) Bond and other debt proceeds provide current financial resources to governmental funds, but issuing debt increases long-term liabilities in the statement of net assets. Repayment of long-term liabilities is an expenditure in governmental funds, but the repayment reduces long-term liabilities in the statement of net assets. Principal payments on long term debt 831,483 Some capital assets were acquired through capital contributions and reported as such in the statement of activities and therefore are not reported as a capital outlay in the governmental funds. Capital contributions for the year 46,125 Some expenses reported in the statement of activities do not require the use of current resources and therefore are not reported as expenditures in governmental funds. Decrease in compensated absences liability 116,831 Decrease in accrued interest payable 40,797 Increase in OPEB liability (430,612) Change in Net Assets of Governmental Activities, page 15 $ 1,793,589 See independent auditors’ report and notes to the financial statements. FOR THE YEAR ENDED SEPTEMBER 30, 2011 THE STATEMENT OF ACTIVITIES -19- CITY OF FAIRHOPE, ALABAMA RECONCILIATION OF THE STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES OF GOVERNMENTAL FUNDS TO Water and Electric Natural Gas Waste Water Fund Fund Fund Total ASSETS Current assets Cash and cash equivalents $ 4,281,277 $ 3,805,763 $ 4,050,107 $ 12,137,147 Restricted cash for debt service 152,143 80,872 1,425,616 1,658,631 Receivables, net 2,588,421 5,294 16,990 2,610,705 Inventories 258,568 157,196 271,965 687,729 Prepaid expenses 28,009 13,782 13,327 55,118 Total current assets 7,308,418 4,062,907 5,778,005 17,149,330 Noncurrent assets Unamortized expense 23,388 9,180 148,440 181,008 Due from other funds 123,565 - 379,568 503,133 Other assets 12,030 12,030 12,030 36,090 Capital assets Distribution and collection systems 17,248,541 9,397,563 35,429,299 62,075,403 Buildings, vehicles and equipment 4,642,106 2,680,158 2,914,101 10,236,365 Land and construction in progress 130,246 75,492 163,542 369,280 Less accumulated depreciation (10,292,547) (5,522,051) (16,469,731) (32,284,329) Total noncurrent assets 11,887,329 6,652,372 22,577,249 41,116,950 Total assets $ 19,195,747 $ 10,715,279 $ 28,355,254 $ 58,266,280 LIABILITIES Current liabilities Accounts payable and accrued liabilities $ 1,290,958 $ 291,945 $ 425,162 $ 2,008,065 Customer deposits 1,976,215 - 44,104 2,020,319 Warrants, notes and capital leases payable 113,806 41,481 565,306 720,593 Total current liabilities 3,380,979 333,426 1,034,572 4,748,977 Noncurrent liabilities Compensated absences 116,423 146,954 210,343 473,720 Warrants, notes and capital leases payable 1,519,028 798,233 11,571,891 13,889,152 Net OPEB Obligation 94,902 100,484 132,372 327,758 Due to other funds 491,776 204,247 74,922 770,945 Total noncurrent liabilities 2,222,129 1,249,918 11,989,528 15,461,575 Total liabilities 5,603,108 1,583,344 13,024,100 20,210,552 NET ASSETS Invested in capital assets, net of related debt 10,095,512 5,791,448 9,900,014 25,786,974 Restricted for debt service 152,143 80,872 1,425,616 1,658,631 Unrestricted 3,344,984 3,259,615 4,005,524 10,610,123 Total net assets 13,592,639 9,131,935 15,331,154 38,055,728 $ 19,195,747 $ 10,715,279 $ 28,355,254 $ 58,266,280 See independent auditors’ report and notes to the financial statements. Major Funds Business Type Activities -20- CITY OF FAIRHOPE, ALABAMA FUND BALANCE SHEETS PROPRIETARY FUNDS SEPTEMBER 30, 2011 Water and Electric Natural Gas Waste Water Fund Fund Fund Total OPERATING REVENUES Sales and services $ 19,405,538 $ 8,218,092 $ 9,568,506 $ 37,192,136 Other charges, sales and receipts 432,466 1,355 719,392 1,153,213 Total operating revenues 19,838,004 8,219,447 10,287,898 38,345,349 OPERATING EXPENSES Energy purchases and cost of goods sold 12,324,346 2,473,061 744,504 15,541,911 Salaries 579,235 466,758 915,640 1,961,633 Depreciation 603,978 269,733 890,981 1,764,692 Insurance 321,461 255,166 363,130 939,757 Electric energy furnished to other departments 1,050,275 - - 1,050,275 Maintenance 423,605 144,549 1,438,202 2,006,356 Community development projects 57,131 56,831 58,166 172,128 Other operating expense 1,471,133 1,272,697 1,605,891 4,349,721 Total operating expenses 16,831,164 4,938,795 6,016,514 27,786,473 OPERATING INCOME 3,006,840 3,280,652 4,271,384 10,558,876 NONOPERATING REVENUES (EXPENSES) Interest expense (78,767) (40,392) (600,157) (719,316) Interest income 25,209 18,964 14,349 58,522 Distribution of joint revenue (expense) – net - (58,400) - (58,400) Total nonoperating revenues (expenses) (53,558) (79,828) (585,808) (719,194) INCOME(LOSS) BEFORE TRANSFERS AND OTHER ITEMS 2,953,282 3,200,824 3,685,576 9,839,682 TRANSFERS AND OTHER ITEMS Transfers out (1,400,586) (1,667,782) (1,758,779) (4,827,147) Total transfers (out) in (1,400,586) (1,667,782) (1,758,779) (4,827,147) Change in net assets 1,552,696 1,533,042 1,926,797 5,012,535 NET ASSETS – BEGINNING OF YEAR 12,039,943 7,598,893 13,404,357 33,043,193 NET ASSETS – END OF YEAR $ 13,592,639 $ 9,131,935 $ 15,331,154 $ 38,055,728 See independent auditors’ report and notes to the financial statements. FOR THE YEAR ENDED SEPTEMBER 30, 2011 Business Type Activities Major Funds -21- CITY OF FAIRHOPE, ALABAMA STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS PROPRIETARY FUNDS Water and Electric Natural Gas Waste Water Fund Fund Fund Total CASH FLOWS FROM OPERATING ACTIVITIES Received from customers $ 19,573,022 $ 8,221,597 $ 10,308,749 $ 38,103,368 Paid to suppliers for goods and services (15,615,527) (4,168,060) (4,009,259) (23,792,846) Paid to personnel for services (579,235) (466,758) (915,640) (1,961,633) Net cash provided (used) by operating activities 3,378,260 3,586,779 5,383,850 12,348,889 CASH FLOWS FROM INVESTING ACTIVITIES Interest income and joint revenue (expense)25,209 (39,436) 14,349 122 CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Repayment of debt (116,913) (47,817) (559,920) (724,650) Interest paid (72,700) (38,188) (555,017) (665,905) Purchase of property, plant and equipment (1,022,152) (328,043) (843,584) (2,193,779) Net cash provided (used) by capital and related financing activities (1,211,765) (414,048) (1,958,521) (3,584,334) CASH FLOWS FROM NONCAPITAL AND RELATED FINANCING ACTIVITIES Change in interfund receivable/payable (50,595) 167,597 125,787 242,789 Transfers in (out) (1,400,586) (1,667,782) (1,758,779) (4,827,147) Net cash provided (used) by noncapital financing activities (1,451,181) (1,500,185) (1,632,992) (4,584,358) INCREASE (DECREASE) IN CASH 740,523 1,633,110 1,806,686 4,180,319 Cash – beginning of year 3,692,897 2,253,525 3,669,037 9,615,459 CASH – END OF YEAR $ 4,433,420 $ 3,886,635 $ 5,475,723 $ 13,795,778 Reconciliation of operating income to net cash provided (used) by operating activities Income (loss) from operations $ 3,006,840 $ 3,280,652 $ 4,271,384 $ 10,558,876 Adjustments to reconcile income from operations to net cash provided (used) by operating activities Depreciation 603,978 269,733 890,981 1,764,692 Amortization 2,336 912 21,643 24,891 Loss on disposal of property, plant and equipment 2,618 1,091 2,616 6,325 Change in assets and liabilities Decrease (increase) in accounts receivable (264,982) 2,150 20,853 (241,979) Decrease (increase) in inventories 6,225 (4,857) (19,357) (17,989) Decrease (increase) in prepaid expenses (9,347) (158) 3,376 (6,129) Increase (decrease) in accounts payable (42,739) 42,509 136,340 136,110 Increase (decrease) in customer deposits 36,132 - (4,850) 31,282 Increase (decrease) in compensated absences (3,697) (48,555) 3,128 (49,124) Increase (decrease) in net OPEB obligation 40,896 43,302 57,736 141,934 Net cash provided (used) by operating activities $ 3,378,260 $ 3,586,779 $ 5,383,850 $ 12,348,889 See independent auditors’ report and notes to the financial statements. Business Type Activities Major Funds -22- CITY OF FAIRHOPE, ALABAMA STATEMENT OF CASH FLOWS PROPRIETARY FUNDS FOR THE YEAR ENDED SEPTEMBER 30, 2011 Public Library Airport Board Authority Total ASSETS Cash $ 96,306 $ 670,585 $ 766,891 Other assets - 30,465 30,465 Land and construction in progress - 11,300,711 11,300,711 Capital assets, net 78,267 10,722,205 10,800,472 Total assets $ 174,573 $ 22,723,966 $ 22,898,539 LIABILITIES Accounts payable and accrued expenses $ 3,822 $ - $ 3,822 Long-term liabilities Due in more than one year - 8,935,000 8,935,000 Total liabilities 3,822 8,935,000 8,938,822 NET ASSETS Invested in capital assets, net of related debt 78,267 13,087,916 13,166,183 Restricted for: Capital projects - 112,573 112,573 Unrestricted 92,484 588,477 680,961 Total net assets 170,751 13,788,966 13,959,717 Total liabilities and net assets $ 174,573 $ 22,723,966 $ 22,898,539 See independent auditors' report and notes to the financial statements. Governmental Activities DISCRETELY PRESENTED COMPONENT UNITS -23- CITY OF FAIRHOPE, ALABAMA COMBINING STATEMENT OF NET ASSETS SEPTEMBER 30, 2011 Operating CapitalCharges for Grants and Grants and Airport Public LibraryFunctions/Programs Expenses Services Contributions Contributions Authority Board TotalAirport Authority $ 499,410 $ 129,358 $ 438,107 $ - $ 68,055 $ - $ 68,055 Public Library Board 686,573 43,040 569,597 - - (73,936) (73,936) $ 1,185,983 $ 172,398 $ 1,007,704 $ - 68,055 (73,936) (5,881) General revenues:Investment earnings 4,746 - 4,746 Total General Revenues 4,746 - 4,746 Change in net assets 72,801 (73,936) (1,135) Net assets, beginning 13,716,165 244,687 13,960,852Net assets, ending $ 13,788,966 $ 170,751 $ 13,959,717See independent auditors' report and notes to the financial statements.Governmental Activities Net (Expense) Revenue and Changes in Net Assets Program Revenues -24-CITY OF FAIRHOPE, ALABAMACOMBINING STATEMENT OF ACTIVITIESDISCRETELY PRESENTED COMPONENT UNITSSEPTEMBER 30, 2011 NOTES TO THE FINANCIAL STATEMENTS -25- CITY OF FAIRHOPE, ALABAMA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2011 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The City of Fairhope, Alabama (the City) was incorporated in April, 1908. The City operates under a Mayor – Council form of government chosen at large every four years. The accounting policies of the City conform to generally accepted accounting principles as applicable to municipal governments. The following is a summary of the more significant policies. A. REPORTING ENTITY The financial statements of the City have been prepared in conformity with the accounting principles generally accepted in the United States as specified by the Governmental Accounting Standards Board (GASB). These financial statements present the primary government (the City) and its discretely presented component units, entities for which the government is considered financially accountable. The units are governmental fund type component units and are reported in a separate column of the government-wide statements to emphasize they are legally separate from the primary government. The discretely presented component units have a September 30 fiscal year-end. Component Units Fairhope Public Library - The Library has its own governing body which operates the City public library and is appointed by the City Council. The City provides significantly all the annual operating financial support to the Library. The Library's other sources of revenue come from State financial assistance, gifts, bequests and user fees. The Library Board does not issue separate financial statements. Fairhope Airport Authority - The Authority operates the City Airport and has its own governing body which is appointed by the City Council. The City provides a significant portion of the annual operating funds support to the Airport. The Airport's other sources of revenue come from the Festival of Flight, T Hanger and Office rentals, and fuel sales. The Airport Authority does not issue separate financial statements. These financial statements do not include the following: Bay Medical Clinic Board Industrial Board of the City of Fairhope Medical Clinic Board – East, West or North Downtown Redevelopment Authority Parking Authority City management does not exert significant influence or control and does not guarantee any of their outstanding debts. -26- CITY OF FAIRHOPE, ALABAMA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2011 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) B. BASIS OF PRESENTATION – GOVERNMENT-WIDE AND FUND LEVEL Government-wide The basic financial statements include government-wide and fund financial statements. The reporting model focuses on the City, as a whole, and major funds. Government-wide and fund financial statements categorize primary activities as governmental or business-type. In the Statement of Net Assets, governmental and business-type activities (a) are presented on a consolidated basis, and (b) reflect, full accrual accounting, which incorporates long-term assets and receivables as well as long-term debt and obligations. Receivables and payables between activities are eliminated in the government-wide presentation through the caption “Internal Balances” on the Statement of Net Assets. The Statement of Activities reflects both the gross and net cost per functional category (street, police, fire, etc.) which are otherwise being supported by general government revenues (taxes, licenses, and permits, etc.). The Statement of Activities reduces gross expenses, including depreciation, by related program revenues. The program revenues must be directly associated with a function or a business-type activity. Operating grants include operating-specific and discretionary (either operating or capital) grants while the capital grants column reflects capital- specific grants. Fund Level The governmental fund level financial statements are presented on a current financial resource and modified accrual basis of accounting. Since governmental fund level financial statements are presented on a different basis of accounting and measurement focus than governmental activities in the government-wide presentation, a summary is presented to explain adjustments necessary to reconcile fund level statements to the government-wide presentation. The accounts of the City are organized on the basis of funds which are each considered a separate accounting entity. The operations of each fund are accounted for with a separate set of self- balancing accounts that comprise its assets, liabilities, fund equity, revenues and expenditures, as appropriate. Government resources are allocated to and accounted for in individual funds based upon the purposes for which they are to be spent and the means by which spending activities are controlled. The various funds are grouped into broad fund categories as follows: General Fund – The General Fund is used to account for all revenues and expenditures applicable to the general operations of City government which are not properly accounted for in another fund. All general operating revenues which are not restricted or designated as to use by outside sources are recorded in the General Fund. Special Revenue Fund – Special revenue funds are operating funds for which the use of revenues (usually from taxes) is restricted or designated by outside sources. They are usually required by state or local laws to finance certain activities or functions. -27- CITY OF FAIRHOPE, ALABAMA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2011 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Debt Service Fund – Debt service funds are used to account for the payment of interest and principal on general long term warrants and notes not accounted for in the proprietary funds. Capital Project Fund – Capital project funds are used to account for the financial resources used to construct or acquire major capital items (other than those financed by proprietary funds). Enterprise Funds: The Electric Fund, Natural Gas Fund, and Water and Waste Water Fund are Enterprise Funds, which are used to account for the operations of the utilities. Utilities are provided to residents in and around the City of Fairhope. Enterprise Funds are used to account for operations which are financed or operated in a manner similar to private business enterprises – where the intent of the governing body is that the costs of providing goods or services to the general public on a continuing basis be financed or recovered through user charges and fees. Operating revenues, shown for proprietary operations, generally result from producing or providing goods and services. Operating expenses include all costs related to providing services or products. All other revenues or expenses not meeting these criteria are reported as nonoperating income or expenses. C. CAPITAL ASSETS The accounting treatment for capital assets depends on whether the assets are used by governmental funds or proprietary funds and fund level or government-wide reporting. In government-wide reporting, all capital assets are reported as capital assets for both governmental-type and business-type activities. The City has not established a minimum capitalization threshold at this time. Depreciation is provided on all capital assets at the government-wide level. In fund level reporting, capital assets are reported as expenditures by governmental funds, while they remain capital assets in proprietary funds. Depreciation is provided, only, in proprietary funds at the fund level. Capital assets are valued at historical cost or estimated historical cost if actual historical cost is not available. Donated capital assets are valued at estimated fair value on the date donated. Depreciation is allocated as an expense in the Statement of Activities (government-wide level) and accumulated depreciation is reflected in the Statement of Net Assets (government-wide level). Depreciation has been provided over the estimated useful lives using the straight line rates as follows: Plant and distribution systems 30 - 40 years Buildings 25 - 50 years Golf course improvements 10 - 40 years Vehicles and equipment 3 - 10 years Infrastructure (roads, bridges, drainage) 25 - 50 years Runways and taxiways 75 years -28- CITY OF FAIRHOPE, ALABAMA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2011 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) D. BASIS OF ACCOUNTING Basis of accounting refers to when revenues and expenditures/expenses are recognized in the accounts and reported in the financial statements. Basis of accounting relates to the timing of the measurements made, regardless of the measurement focus applied. All governmental funds are accounted for using the modified accrual basis of accounting. Under the modified accrual basis, revenues are recognized when they become susceptible to accrual, that is when they become both “measurable” and “available” to finance expenditures of the current period. Ad valorem and other taxes collected by an intermediary are considered “measurable” when in the hand of the intermediary collecting governments and may be recognized as revenue at that time. Expenditures, generally, are recorded at the time liabilities are incurred. Revenues susceptible to accrual are: lodging tax, property taxes, and federal financial assistance programs, which are measurable and available to finance expenditures of the current period. The City uses a 60-day availability period except for FEMA disaster recovery grants which are recognized using a 12-month availability period. Revenue which is not both measurable and available includes licenses, rents, permits and fines. The proprietary fund financial statements are presented on the accrual basis of accounting in accordance with Governmental Accounting Standards Board (GASB) Statement No. 20, Accounting and Financial Reporting for Proprietary Funds and Other Governmental Entities That Use Proprietary Fund Accounting. The City has elected to apply all applicable GASB pronouncements as well as any statements and interpretations issued by the Financial Accounting Standards Board (FASB) on or before November 30, 1989, unless those pronouncements conflict or contradict GASB pronouncements. The City also elected to apply all statements and interpretations issued by the FASB after November 30, 1989, that do not conflict with or contradict GASB pronouncements. E. CASH The City maintains a system in which some excess cash is placed in interest bearing accounts. Cash applicable to a particular fund is readily identifiable. Interest earned is allocated to each fund based upon the proportionate balances of each fund’s cash in the account. F. RECEIVABLES FROM UTILITY CUSTOMERS The Electric Fund purchases at face value, the utility receivables of the Natural Gas Fund and the Water and Waste Water Fund as well as the garbage receivable of the General Fund. Purchase is made at the time customers are billed. Customer payments for all are then deposited to the Utility Account in the Electric Fund. -29- CITY OF FAIRHOPE, ALABAMA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2011 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) G. INVENTORIES Governmental fund inventories are maintained on a purchase method of accounting where items are purchased and charged to the budgetary accounts upon receipt. Year-end balances are not significant in governmental funds. Proprietary fund inventories are maintained on a consumption basis and consist of supplies for the utility plant. H. PROPERTY TAX All ad valorem taxes levied by the state, county and any municipality in Baldwin County are assessed and collected by the Revenue Commissioner of Baldwin County. The Baldwin County property tax calendar requires the Revenue Commissioner to assess and attach taxes as enforceable liens on property as of September 30, and taxes are due October 1 through December 31. Property taxes not paid by January 1 are considered as delinquent. Tax collections received by the County Revenue Commissioner are remitted to the City monthly. In accordance with the implementation of Governmental Accounting Standard (GASB) Number 33, revenue is recorded based upon taxes assessed and considered available. Any taxes not considered available are recorded as deferred revenue. I. DEBT ISSUE COST Issuance expenses on long term debt of proprietary funds are deferred and amortized, on the bonds outstanding method, over the terms of the related issues. In the fund financial statements, bond discounts, premiums, and issuance costs are treated as period costs in the year of issue. In the government-wide financial statements, bond discounts, premiums, and issuance costs are deferred and amortized over the term of the bonds using the bonds outstanding method. Bond discounts/premiums are presented as a reduction/addition to the face amount of the bonds payable whereas issuance costs are recorded as other assets. J. DEFERRED REVENUE The City reports deferred revenue on its fund balance sheet. Deferred revenues arise when potential revenue does not meet both the measurable and available criteria for recognition in the current period. Revenues derived from Street Assessments are deferred and included in revenue when the receivables become available (collected). Proprietary funds defer revenue recognition when monies are collected for goods and services prior to the provision of those services. -30- CITY OF FAIRHOPE, ALABAMA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2011 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) K. CASH AND CASH EQUIVALENTS For purposes of the statements of cash flows, the proprietary funds consider all highly liquid investments, with an original maturity of three months or less, to be cash equivalents. Investments consist of U. S. Treasury money market accounts which are presented at cost which equals fair market value. L. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. M. NET ASSET AND EQUITY CLASSIFICATIONS Government-wide Financial Statements Equity is classified as net assets and displayed in three components: • Invested in capital assets, net of related debt - Consists of capital assets including restricted capital assets, net of accumulated depreciation, and reduced by the outstanding balances of any bonds, mortgages, notes, or other borrowings that are attributable to the acquisition, construction, or improvement of those assets. • Restricted net assets - Consists of net assets with constraints placed on the use either by (1) external groups such as creditors, grantors, contributors, or laws or regulations of other governments; or (2) the City's own laws through its enabling legislation and other provisions of its laws and regulations. • Unrestricted net assets - All other net assets that do not meet the definition of "restricted" or "invested in capital assets, net of related debt.” Fund Financial Statements The fund equity of the governmental fund financial statements is classified as fund balance. In March 2009, GASB adopted a standard that establishes a hierarchy based on the extent to which a government is bound to observe constraints imposed on the use of the resources reported in governmental funds. Fund balance is classified into one of the following four components: • Restricted fund balance – Consists of fund balances with constraints placed on the use either by (1) external groups such as creditors, grantors, contributors, or laws or regulations of other governments; (2) or the City’s own laws through its enabling legislation and other provisions of its laws and regulations. • Committed fund balance – Consists of fund balances that are useable only for specific purposes by formal action of the government’s highest level of decision making authority. The City’s highest level of decision making lies with the Mayor of the City and the City Council. In order to establish, modify or rescind a fund balance commitment, the Mayor and City Council must pass a law by formal action committing the funds. -31- CITY OF FAIRHOPE, ALABAMA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2011 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) • Assigned fund balance – Consists of fund balances that are intended to be used for specific purposes but are neither restricted nor committed. Intent should be expressed by (1) the governing body itself, or (2) a subordinate high-level body or official who the governing body has delegated the authority to assign amounts to be used for specific purposes. The Mayor and the City Council have the power to assign fund balance amounts to specific purposes. The governing body must vote to grant authorization of assigned fund balances to specific purposes. • Unassigned fund balances – All other fund balances that do not meet the definition of “restricted, committed or assigned fund balances.” The City considers restricted fund balances to have been spent when both restricted and unrestricted fund balances are available. Also, the City considers assigned and committed fund balances to have been spent when unassigned or unrestricted amounts are available. N. MAJOR FUNDS The City reports the following major Governmental funds: • General Fund • Capital Projects Fund The City reports the following enterprise funds as major funds: • Electric Fund • Natural Gas Fund • Water and Waste Water Fund NOTE 2 INTERFUND TRANSACTIONS The selling price of electric energy delivered without charge by the Electric Fund to various other funds, boards, and offices of the City of Fairhope is charged to the Electric Fund’s operations as electric energy furnished to other divisions of the City of Fairhope. The Water and Waste Water Fund and Golf Department purchase electric energy they receive, at cost. In fiscal year 2011, the General Fund transferred to the Debt Service Fund $1,289,375 in support of long term debt service. The utility operations transfer a portion of their earnings to the General Fund each year to support general government operations. In fiscal year 2011, the following amounts were transferred from the utility funds noted to the General Fund. Electric Fund $ 1,400,586 Natural Gas Fund 1,667,782 Water and Waste Water Fund 1,758,779 Total $ 4,827,147 In fiscal year 2011, the City transferred $226,483 to the Airport Authority and $517,917 to the Public Library Board both discretely presented component units. NOTE 2 INTERFUND TRANSACTIONS (continued) Interfund receivables and payables at September 30, 2011 are: Due from Due to General Fund Electric $ 121,657 $ - Water and Waste Water 74,922 - Natural Gas 71,233 - Electric Fund General - 121,657 Water and Waste Water - 370,119 Natural Gas 123,565 - Natural Gas Fund General - 71,233 Electric - 123,565 Water and Waste Water - 9,449 Water and Wastewater Fund General - 74,922 Electric 370,119 - Natural Gas 9,449 - $ 770,945 $ 770,945 CITY OF FAIRHOPE, ALABAMA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2011 -32- During the course of normal operations, the City has numerous transactions between funds to provide services, construct assets, service debt, etc. These transactions are generally reflected as interfund receivables and liabilities. Transactions reimbursing a fund for expenditures are recorded as expenditures in the disbursing fund and as revenues in the receiving fund. -33- CITY OF FAIRHOPE, ALABAMA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2011 NOTE 3 CAPITAL ASSETS Changes in capital assets, during the fiscal year, were as follows: Balance Balance 10/01/10 Increases Decreases 09/30/11 Governmental Activities Capital assets not subject to depreciation Land $ 19,827,727 $ - $ - $ 19,827,727 Total 19,827,727 - - 19,827,727 Other capital assets Buildings and structures 32,186,356 268,836 - 32,455,192 Vehicles and equipment 11,821,480 1,180,919 (30,330) 12,972,069 Infrastructure 59,200,685 71,308 - 59,271,993 Total 103,208,521 1,521,063 (30,330) 104,699,254 Less accumulated depreciation for Buildings and structures (6,086,011) (773,681) - (6,859,692) Vehicles and equipment (10,092,752) (705,153) 3,505 (10,794,400) Infrastructure (23,496,795) (1,576,475) - (25,073,270) Total accumulated depreciation (39,675,558) (3,055,309) 3,505 (42,727,362) Other capital assets, net 63,532,963 (1,534,246) (26,825) 61,971,892 Governmental capital assets, net $ 83,360,690 $ (1,534,246) $ (26,825) $ 81,799,619 Depreciation was charged to governmental activities as follows: General $ 328,571 Sanitation 130,952 Police 311,137 Fire 89,934 Public Library 233,997 Street 1,626,918 Adult Recreation 82,129 Recreation 176,279 Golf 75,392 Total $ 3,055,309 (continued) -34- CITY OF FAIRHOPE, ALABAMA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2011 NOTE 3 CAPITAL ASSETS - CONTINUED Balance Balance 10/01/10 Increases Decreases 09/30/11 Business Type Activities Capital assets not subject to depreciation Land $ 369,280 $ - $ - $ 369,280 Total 369,280 - - 369,280 Other capital assets Distribution and collection system 60,268,290 1,807,113 - 62,075,403 Buildings, vehicles and equipment 9,904,683 386,666 (54,984) 10,236,365 Total 70,172,973 2,193,779 (54,984) 72,311,768 Less accumulated depreciation for Distribution and collection system (22,920,526) (1,469,147) - (24,389,673) Buildings, vehicles and equipment (7,647,770) (295,545) 48,659 (7,894,656) Total accumulated depreciation (30,568,296) (1,764,692) 48,659 (32,284,329) Other capital assets, net 39,604,677 429,087 (6,325) 40,027,439 Capital assets, net $ 39,973,957 $ 429,087 $ (6,325) $ 40,396,719 Balance Balance 10/01/10 Increases Decreases 09/30/11 Component Unit - Public Library Equipment $ 332,938 $ - $ - $ 332,938 Less accumulated depreciation (227,974) (26,697) - (254,671) Net $ 104,964 $ (26,697) $ - $ 78,267 Component Unit - Airport Authority Capital assets not subject to depreciation Land $ 10,934,228 $ - $ - $ 10,934,228 Construction in progress 108,233 258,250 - 366,483 Total 11,042,290 258,250 - 11,300,711 Other capital assets Runways 9,309,815 - - 9,309,815 Buildings and improvements 3,968,008 - - 3,968,008 Equipment 98,885 - - 98,885 Total 13,376,877 - - 13,376,708 Less accumulated depreciation for Runways (786,295) (124,131) - (910,426) Buildings and improvements (1,560,013) (99,505) - (1,659,518) Equipment (81,418) (3,141) - (84,559) Total accumulated depreciation (2,427,726) (226,777) - - - (2,654,503) Other capital assets, net 10,949,151 (226,777) - 10,722,205 Capital assets, net $ 21,991,441 $ 31,473 $ - $ 22,022,916 -35- CITY OF FAIRHOPE, ALABAMA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2011 NOTE 3 CAPITAL ASSETS (continued) Section 1033 of the National Defense Authorization Act of 1997 authorizes the Department of Defense to transfer excess military property to state and local law enforcement agencies. The City’s police department is a participant in this program (“1033 Program”). During fiscal year 2011, management estimated the value of capital assets received through the 1033 Program to be $70,170. This value was estimated by management using 80 to 90 percent of the military’s original acquisition cost. Assets received with an estimated value of less than $5,000 have been reflected as both capital contributions and capital expenditures in the amount of totaling $24,045 in the government-wide financial statements. Assets received with an estimated value greater than $5,000 have been reflected as a capital contribution and a depreciable capital asset in the amount totaling $46,125 in the government wide financial statements. NOTE 4 SINKING FUNDS – PROPRIETARY FUNDS The cash and investments in these sinking funds (bond, reserve, and replacement funds) are restricted as to their use in accordance with their respective bond indentures. Amounts in bond funds are included in current assets, while amounts in reserve funds are separately listed as restricted assets. NOTE 5 NOTES AND WARRANTS PAYABLE – BUSINESS-TYPE ACTIVITIES The following is a summary of revenue bonds, notes and warrants payable from the proprietary funds as of September 30, 2011: Utilities Revenue Warrants, Series 2005 dated March 1, 2005, interest rate 2.20% to 4.25%, payable semi-annually, principal payable December 1, 2005 through December 1, 2020. $ 7,135,000 Utilities Revenue Warrants, Series 2002 dated September 1, 2002, interest rate 4.75% to 5.00%, payable semi-annually, principal payable 2020 through 2025. 6,720,000 General Obligation Warrants, Series 2002 dated September 1, 2002, interest rate 1.60% to 5.00%, payable semi-annually, principal payable 2003 through 2025. 187,903 Utilities Revenue Warrants, Series 2009 dated April 2, 2009, interest rate 3.85%, payable semi-annually, principal payable 2009 through 2019. 1,070,000 General Obligation Refunding Warrant, Series 2009, dated April 2, 2009, interest rate 3.62%, payable semi-annually, principal payable 2010 through 2020. 54,090 TOTAL $15,166,993 -36- CITY OF FAIRHOPE, ALABAMA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2011 NOTE 5 NOTES AND WARRANTS PAYABLE – BUSINESS-TYPE ACTIVITIES (continued) Revenue bonds, notes, and warrants payable from the proprietary funds 2009 and prior were for the purpose of financing, or re-financing, new water tanks, new water wells, UV Sewer System, new booster pump, radio system, support tower, phone system, construction of warehouse building and mechanics shop, and extensions to the City’s water and sewer lines. NOTE 6 NOTE AND WARRANTS PAYABLE – GOVERNMENTAL ACTIVITIES The following is a governmental fund summary of long term debt at September 30, 2011: General Obligation Warrants, Series 2002 dated September 1, 2002, interest rate 1.60% to 5.00%, payable semi-annually, principal payable 2003 through 2025. $4,037,422 General Obligation Warrant, Series 2008, dated March 6, 2008, interest at 2.91%, payable semi-annually, $130,000 annual principal payments are due on April 1 from 2009 to 2018. 847,460 General Obligation Warrants, Series 2007 dated June 1, 2007, interest rate 4.00% to 5.00%, payable semi-annually, principal payable June 1, 2008 through June 1, 2032. 7,130,000 General Obligation Refunding Warrant, Series 2009, dated April 2, 2009, interest rate 3.62%, payable semi-annually, principal payable 2010 through 2020. 2,950,910 TOTAL $14,965,792 -37- CITY OF FAIRHOPE, ALABAMA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2011 NOTE 6 NOTE AND WARRANTS PAYABLE – GOVERNMENTAL ACTIVITIES (continued) The General Obligation Warrant Series 2009 were issued for the purpose of refunding the City’s General Obligation Warrants Series 1999. The General Obligation Warrant Series 2008 related to construction costs on the new Library. The Public Library Board requested the City secure a warrant as a “bridge loan” until pledges from outside donors are collected and remitted to the City. In 2008, the City refunded the original short term note with a general obligation warrant to be paid over 10 years. The Library Board committed to pay costs of the Library project in excess of $3,000,000. Excluding interest on related long-term debt, the Library project costs, to date, are $8,070,288. As of September 30, 2011, the Library Board has provided funding of $3,263,461 from donations and grants. General Obligation Warrants and notes payable from the governmental funds issued prior to 2008 were for the purpose of financing, or re-financing, automated garbage equipment, fire truck pumper, city drainage projects, hurricane damage repairs and upgrade to Municipal pier, construction of new facilities, including justice center, public library, tennis complex, recreation center, outdoor swimming pool, baseball facility, and renovation of Fairhope historic museum. NOTE 7 CHANGES IN LONG TERM DEBT Amounts Balance Balance due within 10/01/10 Additions Reductions 09/30/11 one year GOVERNMENTAL ACTIVITIES Warrants and notes payable General obligation warrants $ 15,773,979 $ - $ (808,187) $ 14,965,792 $ 809,407 Total warrants and notes payable 15,773,979 - (808,187) 14,965,792 809,407 Warrant discount (38,075) - 1,764 (36,311) - 15,735,904 - (806,423) 14,929,481 809,407 Other liabilities Obligations under capital leases 47,745 - (23,296) 24,449 24,449 Compensated absences 1,199,780 691,364 (821,468) 1,069,676 488,785 Governmental activities long-term liabilities $ 16,983,429 $ 691,364 $ (1,651,187) $ 16,023,606 $ 1,322,641 The City's general obligation warrants are paid through the Debt Service Fund while notes and capital leases are paid directly by the General Fund. The compensated absences liability will be liquidated by the General Fund. Amounts Balance Balance due within 10/01/10 Additions Reductions 09/30/11 one year BUSINESS-TYPE ACTIVITIES Warrants and notes payable General obligation warrants $ 256,962 $ - $ (14,969) $ 241,993 $ 15,593 Utilities revenue warrants 15,610,000 - (685,000) 14,925,000 705,000 Notes payable 24,681 - (24,681) - - Total warrants and notes payable 15,891,643 - (724,650) 15,166,993 720,593 Deferred amount on refunding (385,698) - 26,348 (359,350) - Warrant discounts (229,595) - 31,697 (197,898) - 15,276,350 - (666,605) 14,609,745 720,593 Other liabilities Compensated absences 623,665 37,719 (100,821) 560,563 86,843 Business-type activities long-term liabilities $ 15,900,015 $ 37,719 $ (767,426) $ 15,170,308 $ 807,436 Compensated absences due within one year included in accrued liabilities $ 86,843 Compensated absences due in more than one year included in noncurrent liabilities 473,720 Total compensated absences liability $ 560,563 -38- CITY OF FAIRHOPE, ALABAMA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2011 NOTE 8 SUMMARY OF DEBT SERVICE REQUIREMENTS TO MATURITY The following is a summary of debt service requirements to maturity of long term debt of the Governmental Funds as of September 30, 2011, including interest payments: Year Ending September 30, Principal Interest Total 2012 $ 809,407 $ 636,899 $ 1,446,306 2013 850,319 607,401 1,457,720 2014 874,785 576,158 1,450,943 2015 904,161 541,459 1,445,620 2016 943,447 505,199 1,448,646 2017 - 2021 4,467,597 1,943,643 6,411,240 2022 - 2026 3,386,076 1,062,469 4,448,545 2027 - 2031 2,225,000 423,000 2,648,000 2032 505,000 22,725 527,725 TOTALS $ 14,965,792 $ 6,318,953 $ 21,284,745 The City Governmental funds have entered into capital lease arrangements for vehicles and equipment. Future payments under these lease agreements are as follows: Present Value Year Minimum Amount of Minimum Ending Future Lease Representing Lease September 30, Payments Interest Payments 2011 $ 24,449 $ 1,210 $ 23,296 TOTALS $ 24,449 $ 1,210 $ 23,296 Capital assets under capital lease had original costs of $141,458 and accumulated depreciation of $141,458 at September 30, 2011 in the governmental activities. GOVERNMENTAL ACTIVITIES -39- CITY OF FAIRHOPE, ALABAMA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2011 NOTE 8 SUMMARY OF DEBT SERVICE REQUIREMENTS TO MATURITY (continued) The following is a summary of debt service requirements to maturity of long term debt of the Proprietary Funds as of September 30, 2011, including interest payments and Year Ending Sept. 30, Principal Interest Total 2012 $ 720,593 $ 675,843 $ 1,396,436 2013 749,681 651,194 1,400,875 2014 770,215 625,425 1,395,640 2015 805,839 597,602 1,403,441 2016 826,553 567,931 1,394,484 2017 - 2021 4,764,863 2,330,698 7,095,561 2022 - 2026 6,529,249 1,157,949 7,687,198 $15,166,993 $6,606,642 $21,773,635 excluding discounts and premiums related to warrant issuance: BUSINESS-TYPE ACTIVITES -40- CITY OF FAIRHOPE, ALABAMA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2011 NOTE 9 BONDS PAYABLE - COMPONENT UNITS On August 26, 2010, the Airport Authority issued Airport Improvement Refunding Bonds in the amount of $8,935,000 at a variable interest rate. The bonds are repriced monthly by the remarketing agent at a rate to maintain market value of 100% of principal. This issue was used to refund the Series 2007 Airport Improvement Bonds with an outstanding balance of $8,845,000. The 2010 Airport Improvement Refunding Bonds mature March 1, 2020, but have mandatory redemption requirements as presented below. The bonds are limited obligations of the Airport Authority, payable solely out of appropriations received from the City of Fairhope, Alabama. The Appropriation Agreement between the Airport Authority and the City expires annually on September 30 and is renewable at the City's option. The bond rate at September 30, 2011 was 1.58944%. As a result of the 2010 refunding, the Airport Authority reduced its total debt service requirements by approximately $1,400,000 which resulted in an economic gain (difference between the present value of the debt service payments on the old debt and the new debt of debt of approximately $452,000. The following is a summary of debt service requirements to maturity of long term debt of the Airport Authority as of September 30, 2011, including estimated interest payments at 1.58944% and excluding discounts related to bonds: Year Ending Sept. 30, Principal Interest Total 2012 $ - $ 142,016 $ 142,016 2013 240,000 138,202 378,202 2014 255,000 134,149 389,149 2015 270,000 129,857 399,857 2016 285,000 125,327 410,327 2017 - 2020 7,885,000 52,220 7,937,220 $8,935,000 $721,771 $9,656,771 -41- CITY OF FAIRHOPE, ALABAMA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2011 -42- CITY OF FAIRHOPE, ALABAMA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2011 NOTE 10 LINE OF CREDIT PAYABLE At September 30, 2011, the City has no unsecured or secured open lines of credit. NOTE 11 SALARIES – PROPRIETARY FUNDS The following is a summary of employees’ salaries by Utility Fund for the year ended September 30, 2011: Water and Electric Natural Gas Waste Water Fund Fund Fund Total salaries $ 835,002 $ 650,540 $ 976,320 Less: Salaries capitalized for plant additions 255,767 183,782 60,680 Amount of salaries charged to operations $ 579,235 $ 466,758 $ 915,640 NOTE 12 RISK MANAGEMENT AND CONTINGENICES The City is exposed to various risks of losses related to torts; theft of, damage to, and destruction of assets; errors and omissions; injuries to employees; and natural disasters. The City obtains coverage from commercial insurance companies and effectively manages risk through various employee education and prevention programs. There were no instances where settlements exceeded insurance coverage in the last three years. -43- CITY OF FAIRHOPE, ALABAMA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2011 NOTE 12 RISK MANAGEMENT AND CONTINGENICES (continued) Various lawsuits are pending against the City. City management believes that the potential adverse impact of these claims is mitigated by insurance and will not be material to the financial statements of the City. The City receives Federal and State grants for specific purposes that are subject to review and audit by the grantor agencies. Such audits could lead to requests for reimbursements to the grantor agency for expenditures disallowed under the terms of the grant. City management believes such disallowances, if any, will be immaterial. NOTE 13 COMPENSATED ABSENCES The City accrues vacation earned by employees as well as other compensated absences with similar characteristics. Sick leave, which can be paid at termination, if certain conditions are met, is accrued based on the probability that a portion of the current employees will meet required criteria. A liability for sick leave to be paid at termination has been accrued based on estimated probability factors to years of service. The liability to employees who currently meet the criteria to receive sick leave pay has been accrued at 100% of the current hours sick leave earned at current pay rates. Accumulated unpaid vacation and sick pay are accrued when incurred in the Proprietary Funds. Amounts normally paid with expendable available financial resources are recorded in the General Fund when the obligation has matured. Employees may accumulate vacation leave without limitation, however, the maximum accumulation of sick leave is limited to 960 hours. Employees are paid 100% of their accumulated vacation upon termination. Accumulated sick leave is paid only upon retirement to employees with 25 years or more of service, at any age, and to employees with 10 years of service who have attained age sixty (60). -44- CITY OF FAIRHOPE, ALABAMA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2011 NOTE 14 PENSION PLAN Plan Description The City’s defined benefit pension plan provides retirement and disability benefits, cost-of-living adjustments, and death benefits to plan members and beneficiaries. The plan is affiliated with the Employees Retirement System of Alabama (RSA), an agent multiple-employer pension plan. At September 30, 2010, RSA had a total of 1,145 participating units. RSA issues a publicly available financial report that includes financial statements and required supplementary information for the plan. RSA prepares its financial statements using the accrual basis of accounting and recognizes contributions as revenues when earned. Benefits and refunds are recognized when due and payable. The report may be obtained by writing the Retirement Systems of Alabama, P. O. Box 302150, Montgomery, Alabama 36130-2150. Substantially all employees are members of RSA. Membership is mandatory for covered or eligible employees. Vested employees may retire with full benefits at age 60 (with 10 years of service) or after 25 years of service. Retirement benefits are calculated by two methods with the retiree receiving payment under the method producing the highest benefit. The methods are: (1) Minimum Guaranteed, and (2) Formula. The Formula method usually produces the highest benefit. Under this method, the retiree receives an amount equal to 2.0125% of their average final salary (best three of last ten years) for each year of service. Disability retirement benefits are calculated in the same manner. Pre- retirement benefits in the amount of the annual salary for the fiscal year preceding death are provided to plan members. The RSA was established as of October 1, 1945, under the provisions of Act 515, Acts of Alabama 1945, for the purpose of providing retirement allowances and other specified benefits for state employees, State police, and on an elective basis to all cities, counties, towns and quasi public organizations. The responsibility for general administration and operation of the RSA is vested in the Board of Control. Benefit provisions are established by the Code of Alabama 1975, Sections 36-27-1 through 36-27-103, as amended, Sections 36-27-120 through 36-27-139, as amended, and Sections 36- 27B-1 through 36-27B-6. Authority to amend the plan rests with the Legislature of Alabama. However, the Legislature has granted the City authority to accept or reject various cost-of-living adjustments granted to retirees. Funding Policy All full-time employees are required to contribute 5% of their annual covered salary, except law enforcement personnel who must contribute 6% of their annual covered salary. The City is required to contribute at an actuarially determined rate; the current rate is 8.92 % of annual covered payroll. The contribution requirements of plan members and the City are established and may be amended by RSA. The following is the Schedule of Funding Progress – Employee Retirement System which provides trend information about whether the actuarial value of plan assets is increasing or decreasing relative to the actuarial accrued liability for benefits over time. (continued) -45- CITY OF FAIRHOPE, ALABAMA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2011 NOTE 14 PENSION PLAN (continued) The Schedule of Funding Progress – Employee Retirement System Actuarial Accrued UAAL as a Actuarial Liability Unfunded Percentage Actuarial Value of (AAL) AAL Funded Covered of Covered Valuation Assets Entry (UAAL) Ratio Payroll Payroll Date (a) Age (b) 1 b – a (a/b) (c) (b-1)/c) 9/30/106 $23,618,878 $33,649,326 $ 10,030,448 70.2% $11,212,324 89.5% 9/30/09 $23,297,926 $32,295,205 $8,997,279 72.1% $11,396,085 79.0% 9/30/08 $22,906,152 $30,483,488 $7,577,336 75.1% $11,367,443 66.7% 9/30/07 $21,712,337 $28,365,980 $6,653,643 76.5% $10,431,006 63.8% 9/30/065 $19,895,139 $26,367,319 $6,472,180 75.5% $9,530,701 67.9% 9/30/05 $18,565,922 $23,773,976 $5,208,054 78.1% $9,706,576 52.9% 9/30/044 $17,075,176 $19,888,433 $2,813,257 85.9% $7,537,837 36.7% 9/30/033 $16,083,240 $18,576,805 $2,493,565 86.6% $7,555,473 33.0% 9/30/022 $15,177,087 $16,920,564 $1,743,477 90.0% $7,190,278 24.0% 9/30/011 $14,577,706 $15,046,428 $ 468,722 96.9% $6,617,043 7.1% 1 Reflects changes in actuarial assumptions (as of September 30, 2001). 2 Reflects effect of DROP if unit elected to enroll prior to June 20, 2003. 3 Reflects effect of DROP if unit elected to enroll prior to May 18, 2004. 4 Reflects effect of DROP if unit elected to enroll prior to August 4, 2005. 5 Reflects changes in actuarial assumptions. 6 Reflects impact of Act 2011-27, as well as Act 2011-676, which increases the member contribution rates by 2.25% beginning October 1, 2011 and by an additional 0.25% beginning October 1, 2012. Annual Pension Cost For 2011, the City’s annual pension cost of $1,056,337 was equal to the City’s required and actual contributions. The required contribution was determined as part of an actuarial valuation (dated September 30, 2010) using the entry age actuarial cost method. Amortization is determined using the level open percent method over a remaining amortization period of 30 years. The actuarial assumptions included (a) 8.0% investment rate of return, (b) projected salary increases ranging from 4.61% to 7.75% per year, and (c) no cost-of-living adjustments. Both (a) and (b) included an inflation component of 4.5%. The actuarial value of the City of Fairhope’s assets was determined using techniques that smooth the effects of short-term volatility in the market value of investments over a 5- year period. (continued) -46- CITY OF FAIRHOPE, ALABAMA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2011 NOTE 14 PENSION PLAN (continued) Trend Information Fiscal Annual Percentage Net Year Pension of APC Pension Funding Cost (APC) Contributed Obligation 9/30/11 $ 1,056,337 100% - 9/30/10 $ 1,086,667 100% - 9/30/09 $ 1,091,972 100% - 9/30/08 $ 985,276 100% - 9/30/07 $ 804,930 100% - NOTE 15 DEPOSIT AND INVESTMENT RISK At September 30, 2011, the City had investments in U. S. Treasury money market mutual funds through its trustee agreement for debt sinking funds. The fair value was $1,979,594 ($320,963 in governmental activities and $1,658,631 in business-type activities). The average maturity of the portfolio was 21 days. Investment Risk – The City does not have a formal investment policy that limits investment maturities as a means of managing its exposure to fair value losses arising from increasing interest rates. Credit Risk - State statutes authorize the City’s investments. The City is authorized to invest in U.S. Government obligations and its agencies or instrumentalities, direct obligations of the state, or SEC registered mutual funds holding like securities. The City has no investment policy that further limits investment choices. As of September 30, 2011, the City’s mutual fund investments principal stability rating was AAAm as reported by Standard & Poor’s. Custodial Credit Risk - The City is a participant in the Security for Alabama Funds Enhancement (SAFE) Program, a multiple financial institution collateral pool, administered by the State of Alabama. The program, by law, provides administration of pledged collateral coverage for all governments and agencies in the state and requires qualified financial institutions to provide collateral to the administrator adequate to secure all deposits of public funds in that financial institution. The State guarantees deposits identified as “public funds” will be adequately secured by insurance or collateral. Any collateral shortages of one financial institution are assessed to other member financial institutions. NOTE 16 COMMITMENTS The City has various contractual commitments outstanding at year-end. The commitments under these contracts totaled $191,069. The commitments funded from governmental activities will be $54,253 and from business-type activities will be $136,816. -47- CITY OF FAIRHOPE, ALABAMA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2011 NOTE 17 DEFERRED COMPENSATION PLAN The City offers its employees a deferred compensation plan created in accordance with Internal Revenue Code Section 457. The plan permits employees to defer a portion of their salary until future years. The plan was established by and is administered by the Retirement Systems of Alabama. Any plan changes are at the discretion of the administrator. The deferred compensation is not available to employees until termination, retirement, death, or unforeseeable emergency. The City makes no contributions to the plan. All amounts of compensation deferred under the plan, all property and rights purchased with those amounts, and all income attributable to those amounts, property, or rights are (until paid or made available to the employee or other beneficiary) solely the property and rights of the individuals who participate in the deferred compensation plan and are not subject to the claims of the City's general creditors. NOTE 18 POST EMPLOYMENT HEALTH BENEFITS Plan Description – The City provides a comprehensive medical plan to eligible retirees and their spouses through the City’s group health insurance plan (the Plan), which covers both active and retired members. The Plan is a single-employer defined benefit healthcare plan administered and governed solely by the City and does not issue a publicly available financial report. Effective with the Fiscal Year beginning October 1, 2008, the City implemented Government Accounting Standards City Statement Number 45, Accounting and Financial Reporting by Employers for Post Employment Benefits Other Than Pensions (GASB 45), for its financial disclosure and reporting purposes. The City intends to fund the OPEB Obligation pursuant to GASB 45 to the extent the funding requirement is not met by the retiree health care premiums paid outright. During the year ended September 30, 2011, the City’s portion of health care funding cost for retired employees (retiree premiums) totaled $336,259. Contribution Rates – Eligible retirees are subject to employer contributions for medical benefits equal to 90% of the premium. At September 30, 2010, the valuation date, 29 participants were receiving benefits under various provisions of the Plan. Complete plan provisions are included in the official plan documents. Employees do not contribute to their post employment benefits costs until they become retirees and begin receiving those benefits. The plan provisions and contribution rates are contained in the official plan documents. Annual Required Contribution – The City’s Annual Required Contribution (ARC) is an amount actuarially determined using the Projected Unit Credit Method in accordance with GASB 45. The ARC represents a level of funding that, if paid on an ongoing basis, is projected to cover normal cost each year and amortize any unfunded actuarial liabilities over a level percentage of pay, open amortization period of thirty years. The remaining amortization period at September 30, 2011, was 29 years. (continued) -48- CITY OF FAIRHOPE, ALABAMA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2011 NOTE 18 POST EMPLOYMENT HEALTH BENEFITS (continued) The following table shows the components of the City’s annual OPEB cost for the year, the amount actually contributed to the plan, and changes in the City’s net OPEB obligation to the Plan: Annual required contribution $ 908,803 Interest on net OPEB obligation - Adjustment to ARC - Annual OPEB cost (expense) 908,803 Current year retiree premium (336,259) Change in net OPEB obligation 572,545 Net OPEB obligation – beginning of year 778,165 Net OPEB obligation – end of year $ 1,350,711 The City’s annual OPEB cost, the percentage of annual OPEB cost contributed to the Plan, and the net OPEB obligation is as follows: Fiscal Percentage of Net OPEB Year Annual Annual OPEB Obligation Ended OPEB Cost Cost Contributed (Asset) 9/30/11 $ 908,803 37.0% $ 1,350,711 9/30/10 611,853 39.3% 778,165 9/30/09 611,853 33.5% 406,645 Funded Status and Funding Progress – The first actuarial valuation under GASB 45 was as of September 30, 2008, and the most recent actuarial valuation was as of September 30, 2010. There were no assets accumulated in the Plan, however, market value will be used to value such assets. At September 30, 2010, the Actuarial Accrued Liability (AAL) was $8,093,303, which is defined as that portion, as determined by a particular actuarial cost method (the City uses the Projected Unit Credit Method), of the actuarial present value of post employment plan benefits and expenses which is not provided by normal cost. The funded ratio is developed below. Schedule of Funding Progress Actuarial Valuation Dated Actuarial Value of Assets Actuarial Accrued Liability (AAL)* - Entry Age Unfunded (AAL) (UAAL) Funded Ratio Covered Payroll UAAL as a Percentage of Covered Payroll (a)(b) (b-a)(a/b) (c) (b-a)/c 9/30/2010 -$ 8,093,303$ (8,093,303)$ 0.0% 11,212,324$ 72.2% 9/30/2009 -$ 6,740,895$ (6,740,895)$ 0.0% 11,396,085$ 59.2% 9/30/2008 -$ 6,740,895$ (6,740,895)$ 0.0% 11,189,043$ 60.2% *GASB 45 permits the AAL determined at September 30, 2008 to be used for two consecutive years -49- CITY OF FAIRHOPE, ALABAMA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2011 NOTE 18 POST EMPLOYMENT HEALTH BENEFITS (continued) Actuarial Methods and Assumptions - The actuarial calculations are based on the types of benefits provided under the terms of the substantive plan (the plan as understood by the employer and the plan members) at the time of the valuation and on the pattern of sharing costs between the City and its plan members to that point. The projection of benefits for financial reporting purposes does not explicitly incorporate the potential effects of legal or contractual funding limitations on the pattern of cost sharing between the City and plan members in the future. Consistent with the long-term perspective of actuarial calculations, the actuarial methods and assumptions used include techniques that are designed to reduce short-term volatility in actuarial liabilities and the actuarial value of assets. Actuarial valuations involve estimates of the value of reported amounts and assumptions about the probability of events far into the future. Actuarially determined amounts are subject to continual revision as actual results are compared to past expectations and new estimates are made about the future. The following assumptions were made: Turnover Rate - An age-related turnover scale based on actual experience has been used. Retirement Rate - Based on past experience, it has been assumed that entitlement to benefits will commence at the earlier of: first, completion of 25 years of service, regardless of age; and, second, attainment of age 60 and completion of 10 years of service. Health Care Cost Trend Rate - The expected rate of increase in medical cost is based on a 10.5% projected increase for 2011 graduated down to an ultimate annual rate of 5% for 2018 and beyond. Mortality Rate - Life expectancies were based accordingly to the 1994 Group Annuity Mortality Table set forward three years for males and set forward two years for females. Special tables are used for the period after disability retirement. Investment Return Assumption (Discount Rate) - Based on the assumption that the ARC will be funded, a 4% annual investment return has been used in this valuation. Inflation Rate and Projected Salary Increase - A rate of 4.5% has been used for both inflation and projected salary increases. Method of Determining Value of Benefits - The "value of benefits" has been assumed to be the portion of the premium after retirement date expected to be paid by the City for each retiree and has been used as the basis for calculating the actuarial present value of OPEB benefits to be paid. NOTE 19 OPERATING LEASES The City holds various leases with entities for use of City property. Most of these leases are monthly and insignificant. In addition, the City rents certain facilities to groups for events and activities on a per use basis. -50- CITY OF FAIRHOPE, ALABAMA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2011 NOTE 20 LEASE EXPENSE The City rents equipment, primarily, on monthly arrangements. The leases are not significant to the operations of the City. NOTE 21 SUBSEQUENT EVENTS The City has evaluated subsequent events through January 19, 2012, the date which the financial statements were available to be issued. On October 13, 2011, the City issued Utilities Revenue Warrants, Series 2011 in the amount of $16,140,000 and General Obligation Warrants, Series 2011 in the amount of $4,200,000 for the purpose of refunding the City’s Utilities Revenue Warrants, Series 2002 and General Obligation Warrants, Series 2002, providing for capital improvements and paying any 2011 issuance expenses. There were no other material subsequent events which require disclosure at September 30, 2011. REQUIRED SUPPLEMENTARY INFORMATION OTHER THAN MANAGEMNT’S DISCUSSION AND ANALYSIS Variance Actual with Final Original Final Amounts Budget REVENUES Local taxes $ 10,175,088 $ 10,175,088 $ 10,190,500 $ 15,412 Licenses and permits 2,101,487 2,101,487 2,295,795 194,308 Fine and forfeitures 300,000 300,000 241,104 (58,896) Intergovernmental 586,484 586,484 258,472 (328,012) Interest and rents 211,022 211,022 248,780 37,758 Charges for services 4,409,975 4,409,975 4,479,749 69,774 Golf course revenue 1,014,429 1,014,429 1,020,250 5,821 Contributions from Public Library Board 70,000 70,000 183,285 113,285 Other revenue 549,781 549,781 539,557 (10,224) Total revenues 19,418,266 19,418,266 19,457,492 39,226 EXPENDITURES General government 6,051,698 6,051,698 5,335,143 716,555 Sanitation 2,002,102 2,002,102 1,745,785 256,317 Police 4,986,166 4,986,166 4,941,051 45,115 Fire 383,783 383,783 395,224 (11,441) Airport Authority 281,124 281,124 225,843 55,281 Streets 2,602,522 2,602,522 2,592,622 9,900 Adult recreation 616,474 616,474 577,015 39,459 Recreation 1,050,832 1,050,832 969,025 81,807 Golf 995,919 995,919 1,113,178 (117,259) Public Library Board 565,000 565,000 565,000 - Other 65,002 65,002 89,000 (23,998) Debt service 334,054 334,054 207,944 126,110 Capital outlay 1,900,500 1,900,500 1,346,603 553,897 Total expenditures 21,835,176 21,835,176 20,103,433 1,731,743 Excess of Revenues over (under) Expenditures (2,416,910) (2,416,910) (645,941) 1,770,969 Other financing sources (uses) Proceeds from issuance of debt 1,350,000 1,350,000 - (1,350,000) Transfers in 5,101,784 5,101,784 4,827,147 (274,637) Transfers out (1,506,134) (1,506,134) (1,730,561) (224,427) Total other financing sources (uses) 4,945,650 4,945,650 3,096,586 (1,849,064) NET CHANGE IN FUND BALANCE $ 2,528,740 $ 2,528,740 2,450,645 $ (78,095) FUND BALANCE - BEGINNING OF YEAR 4,709,510 FUND BALANCE - END OF YEAR $ 7,160,155 See independent auditors’ report. FOR THE YEAR ENDED SEPTEMBER 30, 2011 Budgeted Amounts -51- REQUIRED SUPPLEMENTARY INFORMATION CITY OF FAIRHOPE, ALABAMA BUDGETARY COMPARISON SCHEDULE - GENERAL FUND -52- CITY OF FAIRHOPE, ALABAMA NOTES TO REQUIRED SUPPLEMENTARY INFORMATION SEPTEMBER 30, 2011 NOTE 1 BUDGETS AND BUDGETARY ACCOUNTING Although no legal requirement to establish a budget exists, the City Council follows these procedures in establishing the budgets: (1) The City Council has appointed a Budget Committee to work with City Management to prepare a proposed working budget for the fiscal year commencing the following October 1. The budget includes proposed expenditures and the means of financing them for the upcoming year. Line item budgets are used for administrative control. The level of control for the detailed budgets is at the department head/function level. (2) Council budget meetings are conducted to obtain manager and taxpayer input. (3) The budget is enacted through council action. (4) Reports are submitted to the City Council, showing approved budget and actual operations. (5) The Mayor is authorized to transfer budgeted amounts within departments within any fund; however, any revisions that alter the total expenditures of any fund or transfer of funds between departments must be approved by the City Council. (6) Formal budgetary integration is employed as a management control device during the year for the General Fund. (7) Budgets are adopted on a basis consistent with generally accepted accounting principles (GAAP). (8) Budgetary data, if any, for Capital Project Funds are budgeted over the life of the respective project and not on an annual basis. (9) All appropriations lapse at year-end. NOTE 2 EXCESS EXPENDITURES Excess Excess Expenditures Expenditures General Government Adult Recreation Department Salaries-Judge & Court Clerk 8,670$ Casualty/Workers Compensation Expense 983$ Salaries-Mechanics 1,143 Welcome Center Maintenance 600 Salaries-Building & Zoning 4,681 Museum Expense 12,346 Audit & Accounting 575 Office Expense 143 Legal Fees 265,541 Shuttle Bus Expense 857 Services - Excluding Accounting & Legal 5,207 Office Supplies 6,786 Street Department Postage 1,634 Casualty/Workers Compensation Expense 12,505 General Maintenance 18,215 Services - Excluding Accounting & Legal 11,639 Telephone 24,005 Gasoline & Oil 61,551 Dues/Memberships/Subscriptions 539 Equipment Rental 177,345 Miscellaneous 19,506 Street Material & Landscaping 65,589 Lease on Credit Card Terminals 917 Natural Disaster Expense 4,704 Sanitation Department Book & Sidewalk Bricks 716 Salaries 297,640 Historical District Expense 2,535 Employee Payroll Taxes 21,702 Fishermans Wharf Maintenance 5,356 Employee Retirement Expense 24,598 Beach Repairs & Maintenance 4,707 Employee Medical Insurance 88,893 Oil Spill 2010 Cost 2,706 Casualty/Workers Compensation Expense 76,751 Grant Expenditures 32,871 General Supplies 45,800 Sales Tax Collection Fees 33,960 Gasoline & Oil 30,945 Legal Settlements 61,654 Equipment & Vehicle Repair 156,079 Uniforms 829 Police Department Salaries 2,602 Golf Department Services Excluding Accounting & Legal 3,998 Salaries-Grounds 7,280 Office Supplies 1,343 Salaries-Club House 17,508 General Supplies 21,166 Employee Payroll Taxes 269 General Maintenance 5,521 Casualty/Workers Compensation Expense 505 Miscellaneous 24,045 Supplies-Club House 727 Gasoline & Oil 26,899 General Maintenance 8,038 Equipment & Vehicle Repair 16,330 Gasoline & Oil 629 NCIC Data System 3,000 Purchases-Beer & Wine 5,364 Court Supplies & Expense 3,393 Purchases-Food 15,005 DEA Funds Purchases 61,990 Cost of Pro Shop Sales 81,139 Pro Shop Custom Orders 5,160 Fire Department Salaries 7,178 Capital Outlay Fire Call Payments 450 Vehicles & Equipment 636,264 Employee Payroll Taxes 314 Employee Retirement Expense 155 Debt Service General Supplies 6,332 Loan for Library 23,156 Gasoline & Oil 7,601 Transfers to Capital Projects Fund 231,186 Equipment & Vehicle Repair 20,467 Staff Agencies Recreation Department Baldwin County Transit Hub 24,000 General Supplies 19,820 General Maintenance 6,139 Equipment & Vehicle Repair 6,784 Uniforms 229 The following are General Fund expenditures in excess of final budget amounts. NOTES TO REQUIRED SUPPLMENTARY INFORMATION SEPTEMBER 30, 2011 -53- CITY OF FAIRHOPE, ALABAMA OTHER SUPPLEMENTARY INFORMATION COMBINING FINANCIAL STATEMENTS NONMAJOR GOVERNMENTAL FUNDS Total Special Nonmajor Revenue Fund Governmental Gas Tax Debt Service Funds ASSETS Cash $ 170,105 $ 30,217 $ 200,322 Investments - 320,963 320,963 Receivables - 29,276 29,276 TOTAL ASSETS $ 170,105 $ 380,456 $ 550,561 LIABILITIES Accounts payable – trade $ 2,319 $ 1,160 $ 3,479 Deferred assessment revenue - 29,276 29,276 TOTAL LIABILITIES 2,319 30,436 32,755 FUND BALANCES Restricted for: Debt service - 350,020 350,020 Unassigned 167,786 - 167,786 TOTAL FUND BALANCES 167,786 350,020 517,806 TOTAL LIABILITIES AND FUND BALANCES $ 170,105 $ 380,456 $ 550,561 See independent auditors’ report. SEPTEMBER 30, 2011 -54- CITY OF FAIRHOPE, ALABAMA COMBINING BALANCE SHEETS NONMAJOR GOVERNMENTAL FUNDS CITY OF FAIRHOPE, ALABAMA COMBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES NONMAJOR GOVERNMENTAL FUNDS FOR THE YEAR ENDED SEPTEMBER 30, 2011 Total Special Nonmajor Revenue Fund Debt Governmental Gas Tax Service Funds REVENUES Intergovernmental $ 87,494 $ - $ 87,494 Interest and rents 68 48 116 Total 87,562 48 87,610 EXPENDITURES Street department 46,794 - 46,794 Other 401 219 620 Debt service Principal - 655,130 655,130 Interest - 635,061 635,061 Total 47,195 1,290,410 1,337,605 Excess of Revenues over (under) expenditures 40,367 (1,290,362) (1,249,995) OTHER FINANCING SOURCES (USES) Transfers in - 1,289,375 1,289,375 Total other financing sources (uses) - 1,289,375 1,289,375 Net change in fund balances 40,367 (987) 39,380 Fund balances – beginning of year 127,419 351,007 478,426 FUND BALANCES – END OF YEAR $167,786 $350,020 $517,806 See independent auditors’ report. -55- INDIVIDUAL FUND FINANCIAL STATEMENTS DISCRETELY PRESENTED COMPONENT UNITS ASSETS Cash and cash equivalents $ 96,306 TOTAL ASSETS $96,306 LIABILITIES Accounts payable and accrued expenses $ 3,822 FUND BALANCES Restricted for: Capital projects 43,136 Unrassigned 49,348 Total fund balances 92,484 TOTAL LIABILITIES AND FUND BALANCES $ 96,306 See independent auditors' report. FAIRHOPE PUBLIC LIBRARY BOARD -56- SEPTEMBER 30, 2011 CITY OF FAIRHOPE, ALABAMA FUND BALANCE SHEET Fund balance as reported on page 56 $ 92,484 Net Assets reported for governmental activities in the Statement of Net Assets are different from Fund Balance for governmental activities because: Capital assets used in governmental activities are financial resources and therefore are not reported in fund financial statements. 332,938 Depreciation is provided for the above capital assets in government-wide reporting, but is not in fund financial statements. (254,671) Net Assets of Governmental Activities as reported on page 23 $170,751 See independent auditors’ report. SEPTEMBER 30, 2011 FAIRHOPE PUBLIC LIBRARY BOARD -57- CITY OF FAIRHOPE, ALABAMA RECONCILIATION OF GOVERNMENTAL FUND BALANCE TO NET ASSETS OF GOVERNMENTAL ACTIVITIES REVENUES Fines and lost books $ 19,979 Donations, gifts, memorials and bequests 36,177 State aid 15,503 Lease income 6,500 Payments from City of Fairhope 517,917 Miscellaneous 16,560 Total revenues 612,636 EXPENDITURES Salaries 416,413 Payroll taxes 31,679 Employees’ retirement 18,972 Books, periodicals, audio visual 89,184 Supplies 11,015 Janitorial service 18,290 Professional fees 8,049 Consultant and fundraising 7,675 Telecommunications 390 Payments to City of Fairhope for Library Debt 1,000 Capital outlay 2,948 Maintenance 25,557 Friends expenses 5,843 Miscellaneous 22,860 Total expenditures 659,875 Net change in fund balance (47,239) Fund balance – beginning of year 139,723 Fund balance – end of year $ 92,484 See independent auditors' report. FAIRHOPE PUBLIC LIBRARY BOARD -58- CITY OF FAIRHOPE, ALABAMA STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE FOR THE YEAR ENDED SEPTEMBER 30, 2011 Net change in fund balances - total governmental funds, page 58 $ (47,239) Amounts reported for governmental activities in the Statement of Activities are different from the Statements of Revenues, Expenditures and Changes in Fund balances - Governmental Funds because: Governmental funds report capital outlays as expenditures while governmental activities report depreciation expense to allocate those expenditures over the life of the assets. Depreciation expense for the year (26,697) Change in Net Assets of Governmental Activities, page 24 $ (73,936) See independent auditors’ report. THE STATEMENT OF ACTIVITIES FOR THE YEAR ENDED SEPTEMBER 30, 2011 FAIRHOPE PUBLIC LIBRARY BOARD -59- CITY OF FAIRHOPE, ALABAMA RECONCILIATION OF THE STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES OF GOVERNMENTAL FUNDS TO ASSETS Cash and cash equivalents $ 670,585 TOTAL ASSETS $ 670,585 LIABILITIES Accounts payable and accrued expenses $ - FUND BALANCES Restricted for: Capital projects 112,573 Unassigned 558,012 Total fund balances 670,585 TOTAL LIABILITIES AND FUND BALANCES $ 670,585 See independent auditors' report. -60- CITY OF FAIRHOPE, ALABAMA FAIRHOPE AIRPORT AUTHORITY FUND BALANCE SHEET SEPTEMBER 30, 2011 Fund balance as reported on page 60 $ 670,585 Net Assets reported for governmental activities in the Statement of Net Assets are different from Fund Balance for governmental activities because: Capital assets used in governmental activities are financial resources and therefore are not reported in fund financial statements 24,677,419 Depreciation is provided for the above capital assets in government-wide reporting, but is not in fund financial statements. (2,654,503) Cost associated with warrant issuance are expensed in the current period in Fund Financial Statements Warrant Issuance costs, net 30,465 Long-term liabilities, including warrants payable, capital lease obligations and notes payable are not due and payable in the current period and therefore are not reported in fund financial statements (8,935,000) Net Assets of Governmental Activities as reported on page 23 $ 13,788,966 See independent auditors’ report. SEPTEMBER 30, 2011 FAIRHOPE AIRPORT AUTHORITY -61- CITY OF FAIRHOPE, ALABAMA RECONCILIATION OF GOVERNMENTAL FUND BALANCE TO NET ASSETS OF GOVERNMENTAL ACTIVITIES REVENUES Fuel sales and rentals $ 129,358 Interest income 4,746 Federal grant revenue 211,624 Payments from City of Fairhope 226,483 Total revenues 572,211 EXPENDITURES Insurance 30,995 Legal and professional 276,728 Maintenance 62,809 Capital outlay 644 Debt service interest 141,677 Other 14,409 Total expenditures 527,262 Net change in fund balance 44,949 Fund balance – beginning of year 625,636 Fund balance – end of year $ 670,585 See independent auditors' report. FOR THE YEAR ENDED SEPTEMBER 30, 2011 CITY OF FAIRHOPE, ALABAMA -62- FAIRHOPE AIRPORT AUTHORITY STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE Net change in fund balances - total governmental funds, page 62 $ 44,949 Amounts reported for governmental activities in the Statement of Activities are different from the Statements of Revenues, Expenditures and Changes in Fund balances - Governmental Funds because: Amortization of bond costs and discounts is not recorded in fund level statements (3,621) Governmental funds report capital outlays as expenditures while governmental activities report depreciation expense to allocate those expenditures over the life of the assets. Capital outlays for the year 258,250 Depreciation expense for the year (226,777) Change in Net Assets of Governmental Activities, page 24 $ 72,801 See independent auditors’ report. THE STATEMENT OF ACTIVITIES FOR THE YEAR ENDED SEPTEMBER 30, 2011 FAIRHOPE AIRPORT AUTHORITY -63- CITY OF FAIRHOPE, ALABAMA RECONCILIATION OF THE STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES OF GOVERNMENTAL FUNDS TO Special Projects $94,774 Skate Board Park 19,987 Fairhope Paving Projects 7,014 Recreation Department Driveway Paving 6,559 Total capital projects expenditures $128,334 See independent auditors' report. -64- CITY OF FAIRHOPE, ALABAMA SCHEDULE OF CAPITAL PROJECTS EXPENDITURES FOR THE YEAR ENDED SEPTEMBER 30, 2011 Natural Water and Electric Gas Waste Water Fund Fund Fund A. Utility customers at September 30, 2011 were as follows: Number of customers 6,409 9,082 15,578 Number of metered customers 6,409 9,082 15,578 Number of unmetered customers - - - Number of waste water customers - - 8,784 B. Annual Net Income of Utility Operations Natural Water and Electric Gas Waste Water Fund Fund Fund Total Income from operations 3,006,840$ 3,280,652$ 4,271,384$ 10,558,876$ Add: Depreciation and amortization 606,314 270,645 912,624 1,789,583 Interest income 25,209 18,964 14,349 58,522 Annual net income as prescribed by debt covenants 3,638,363$ 3,570,261$ 5,198,357$ 12,406,981$ C. Utility fund casualty insurance coverage on electrical sub stations, natural gas facilities, water and waste- water facilities is included in a blanket policy with the Governmental Funds general capital assets building and facilities. The City of Fairhope, Alabama is the named insured on all policies. Comprehensive general liability – expires January 2012 $ 3,000,000 Buildings and facilities – expires January 2012 67,404,800 Automobile – expires January 2012 Liability 1,000,000 Uninsured motorist 50,000 Inland Marine – expires January 2012 2,246,050 Public officials errors and omissions liability – expires January 2012 2,000,000 Police liabilty – expires January 2012 4,000,000 Aggregate 2,000,000 Per occurrence Excess liability policy for general liabilty, police and public official – expires January 2012 5,000,000 D. The City has complied with all requirements of the respective bond indentures. -65- CITY OF FAIRHOPE, ALABAMA SCHEDULE OF INFORMATION REQUIRED BY BOND INDENTURES SEPTEMBER 30, 2011 1996 2002 2002 2002 2005 2007 2009 2009Capital Improvement Warrant Fund Warrant Fund Reserve Fund Warrant Fund Warrant Fund Warrant Fund Reserve FundBalance 10/01/10 $ 50,000 $ 110,567 $ 151,139 $ 672,023 $ 586,694 $ 177,071 $ 98,353 $ 125,004 Deposits 5 331,641 453,666 68 884,483 530,107 141,837 13 Disbursements (5) (331,650) (453,373) (68) (873,676) (531,171) (143,120) (14) Balance 9/30/11 $ 50,000 $ 110,558 $ 151,432 $ 672,023 $ 597,501 $ 176,007 $ 97,070 $ 125,003 -66-CITY OF FAIRHOPE, ALABAMASUMMARY OF DEPOSITS, WITHDRAWALS AND BALANCES OF SELECTED TRUST ACCOUNTS ASREQUIRED UNDER CERTAIN TRUST INDENTURESSEPTEMBER 30, 2011 STATISTICAL SECTION This part of the City of Fairhope, Alabama's comprehensive annual financial report presents detailed information as a context for understanding what the information in the financial statements, note disclosures, and required supplementary information says about the government's overall financial health. Contents Page Financial Trends These schedules contain trend information to help the reader understand how the government's financial performance and well-being have changed over time.68-73 Revenue Capacity These schedules contain information to help the reader assess the government's most significant local revenue sources, the sales tax and the property tax.74-79 Debt Capacity These schedules present information to help the reader assess the affordability of the government's current levels of outstanding debt and the government's ability to issue additional debt in the future.80-83 Demographic and Economic Information These schedules offer demographic and economic indicators to help the reader understand the environment within which the government's financial activities 84-85 take place. Operating Information These schedules contain service and infrastructure data to help the reader understand how the information in the government's financial report relates to the services the government provides and the activities it performs.86-88 Sources: Unless otherwise noted, the information in these schedules is derived from the comprehensive annual financial reports for the relevant year. -67- STATISTICAL SECTION 2003 2004 2005 2006 2007 2008 2009 2010 2011Governmental activities Invested in capital assets, net of related debt 54,678,761$ 57,031,298$ 60,149,769$ 67,742,360$ 61,450,916$ 67,338,065$ 66,295,379$ 65,963,325$ 66,845,689$ Restricted 1,695,559 1,788,014 1,908,452 787,538 1,073,262 847,580 1,462,430 3,564,376 6,207,809 Unrestricted (12,322) 273,964 88,053 (1,195) 54,300 (84,709) 165,029 1,782,848 50,640 Total governmental activities net assets 56,361,998$ 59,093,276$ 62,146,274$ 68,528,703$ 62,578,478$ 68,100,936$ 67,922,838$ 71,310,549$ 73,104,138$ Business-type activities Invested in capital assets, net of related debt 11,617,954$ 17,337,442$ 15,801,139$ 19,307,068$ 23,076,992$ 24,573,181$ 24,210,082$ 24,697,607$ 25,786,974$ Restricted 1,652,831 1,991,871 2,058,968 2,089,642 2,106,516 2,092,174 1,883,768 1,649,106 1,658,631 Unrestricted 8,962,015 2,949,282 5,082,800 3,334,264 2,105,886 1,422,972 3,691,056 6,696,480 10,610,123 Total business-type activities net assets 22,232,800$ 22,278,595$ 22,942,907$ 24,730,974$ 27,289,394$ 28,088,327$ 29,784,906$ 33,043,193$ 38,055,728$ Primary government Invested in capital assets, net of related debt 66,296,715$ 74,368,740$ 75,950,908$ 87,049,428$ 84,527,908$ 91,911,246$ 90,505,461$ 90,660,932$ 92,632,663$ Restricted 3,348,390 3,779,885 3,967,420 2,877,180 3,179,778 2,939,754 3,346,198 5,213,482 7,866,440 Unrestricted 8,949,693 3,223,246 5,170,853 3,333,069 2,160,186 1,338,263 3,856,085 8,479,328 10,660,763 Total primary government net assets 78,594,798$ 81,371,871$ 85,089,181$ 93,259,677$ 89,867,872$ 96,189,263$ 97,707,744$ 104,353,742$ 111,159,866$ The City implemented GASB Statement number 34 fiscal year 2003. Therefore, net asset information is not available years prior.-68-Fiscal YearCITY OF FAIRHOPE, ALABAMANET ASSETS BY COMPONENTLAST NINE FISCAL YEARS(accrual basis of accounting) 2003 2004 2005 2006 2007 2008 2009 2010 2011ExpensesGovernmental activities: General 2,493,723$ 3,674,382$ 2,679,665$ 3,873,823$ 5,540,860$ 6,392,335$ 6,536,802$ 6,929,734$ 6,176,077$ Public safety Police 2,316,492 2,683,124 3,202,753 3,482,683 3,789,666 4,011,091 4,090,851 4,740,344 5,213,031 Fire 572,709 559,002 550,602 692,972 781,696 843,469 878,148 1,017,184 483,670 Public works Sanitation 826,924 922,013 990,511 1,123,517 1,479,374 1,564,126 1,657,615 1,973,942 1,868,364 Street 5,208,843 3,488,870 6,767,426 4,653,792 3,757,204 3,671,572 4,308,575 4,452,370 4,251,404 Public Library Board 300,451 341,789 355,908 336,823 594,378 771,373 760,174 772,539 798,997 Airport 166,760 98,890 95,272 149,179 397,183 545,000 242,090 249,856 225,843 Recreation 448,782 518,126 596,686 645,154 819,051 900,759 1,031,886 1,269,393 1,138,079 Adult Recreation 274,802 281,383 305,018 321,557 390,125 459,961 438,442 601,232 654,736 Golf - - - - - - 1,292,200 1,102,861 1,106,624 Interest on long-term debt 673,220 526,835 503,428 475,699 624,883 743,451 878,534 694,083 633,161 Total governmental activities expenses 13,282,706 13,094,414 16,047,269 15,755,199 18,174,420 19,903,137 22,115,317 23,803,538 22,549,986 Business-type activities: Natural gas 4,714,305 4,891,447 5,345,092 6,329,438 5,948,144 6,709,491 5,349,209 5,757,648 5,037,587 Electric 10,406,720 10,428,908 11,213,904 12,842,542 14,029,975 16,006,139 15,540,148 15,664,835 16,909,931 Water and wastewater 4,521,100 4,756,900 5,255,779 5,682,694 6,387,739 6,502,942 6,803,566 6,533,138 6,616,671 Golf 1,154,390 1,278,737 1,320,403 1,476,373 1,544,528 1,713,486 - - - Total business-type activities expenses 20,796,515 21,355,992 23,135,178 26,331,047 27,910,386 30,932,058 27,692,923 27,955,621 28,564,189 Total primary government expenses 34,079,221$ 34,450,406$ 39,182,447$ 42,086,246$ 46,084,806$ 50,835,195$ 49,808,240$ 51,759,159$ 51,114,175$ Program RevenuesGovernmental activities: Charges for services: General 1,396,101$ 1,637,995$ 2,098,805$ 3,726,334$ 5,862,118$ 5,952,299$ 5,140,160$ 5,249,279$ 5,383,822$ Police 267,834 249,181 325,728 354,504 362,441 252,838 224,022 261,070 241,104 Sanitation 824,893 772,645 749,301 1,252,282 1,294,033 1,331,617 1,368,656 1,380,238 1,391,722 Recreation 28,736 90,954 70,665 73,975 75,592 83,919 130,740 366,683 369,135 Adult Recreation 43,677 44,608 40,019 41,590 34,534 32,791 36,316 45,889 46,261 Golf847,016 776,173 944,858 Operating grants and contributions 130,119 1,453,233 3,472,502 3,065,387 631,133 206,012 87,416 22,267 24,402 Capital grants and contributions 2,392,663 2,325,885 3,792,402 4,861,100 8,526,591 7,310,387 384,358 1,389,592 302,963 Total governmental activities program revenues 5,084,023 6,574,501 10,549,422 13,375,172 16,786,442 15,169,863 8,218,684 9,491,191 8,704,267 Business-type activities: Charges for services: Gas 5,995,994 6,330,451 6,606,396 7,112,944 7,388,531 7,841,853 8,341,855 8,631,935 8,219,447 Electric 12,196,246 11,918,793 12,497,288 14,683,254 16,658,326 17,777,703 18,800,459 18,496,651 19,838,004 Water and wastewater 5,603,119 7,119,904 7,330,152 8,348,064 8,669,895 8,166,344 8,194,949 8,959,041 10,287,898 Golf course 1,250,380 1,259,510 1,233,703 1,527,311 1,505,211 1,487,811 - - - Total business-type activities program revenues 25,045,739 26,628,658 27,667,539 31,671,573 34,221,963 35,273,711 35,337,263 36,087,627 38,345,349 Total primary government program revenues 30,129,762$ 33,203,159$ 38,216,961$ 45,046,745$ 51,008,405$ 50,443,574$ 43,555,947$ 45,578,818$ 47,049,616$ The City implemented GASB Statement number 34 fiscal year 2003. Therefore, net asset information is not available years prior.Fiscal Year-69- CITY OF FAIRHOPE, ALABAMACHANGES IN NET ASSETSLAST NINE FISCAL YEARS(accrual basis of accounting) 2003 2004 2005 2006 2007 2008 2009 2010 2011Net (expense)/revenueGovernmental activities (8,198,683)$ (6,519,913)$ (5,497,847)$ (2,380,027)$ (1,387,978)$ (4,733,274)$ ########## ########## (13,845,719)$ Business-type activities 4,249,224 5,272,666 4,532,361 5,340,526 6,311,577 4,341,653 7,644,340 8,132,006 9,781,160 Total primary government net expense (3,949,459)$ (1,247,247)$ (965,486)$ 2,960,499$ 4,923,599$ (391,621)$ (6,252,293)$ (6,180,341)$ (4,064,559)$ General Revenues and Other Changes in Net AssetsGovernmental activities: Taxes Property taxes 2,278,650$ 2,674,204$ 2,710,256$ 3,159,187$ 3,589,489$ 4,631,476$ 4,939,840$ 4,842,366$ 4,590,840$ Sales tax - - - - - - 1,003,864 4,443,325 4,590,149 Liquor taxes 299,681 317,899 352,827 347,415 373,794 396,196 385,411 392,255 393,123 Lodging taxes - 362,860 449,079 196,224 420,024 495,850 474,852 483,271 495,870 Other 27,152 100,554 130,305 124,738 138,857 145,836 134,413 131,135 120,518 Intergovernmental 288,487 243,469 325,557 522,196 472,667 293,007 436,472 424,359 248,011 Investment earnings 328,868 290,659 327,687 394,006 508,558 340,530 225,860 239,256 249,489 Other 4,613 107,685 205,060 230,691 251,476 294,469 109,958 1,293,419 124,161 Transfer of Golf Fund to Governmental Activities - - - - - - 913,729 - - Transfers in/(out) 4,360,675 5,330,481 4,058,380 3,787,999 (10,317,112) 3,658,368 5,094,136 4,897,104 4,827,147 Total government activities 7,588,126 9,427,811 8,559,151 8,762,456 (4,562,247) 10,255,732 13,718,535 17,146,490 15,639,308 Business-type activities: Investment earnings 176,061 103,610 190,330 235,538 266,888 115,648 60,104 23,385 58,522 Transfer of Golf Fund to Governmental Activities - - - - - - (913,729) - - Transfers in/(out) (4,360,675) (5,330,481) (4,058,380) (3,787,999) (4,020,046) (3,658,368) (5,094,136) (4,897,104) (4,827,147) Total business-type activities (4,184,614) (5,226,871) (3,868,050) (3,552,461) (3,753,158) (3,542,720) (5,947,761) (4,873,719) (4,768,625) Total primary government 3,403,512$ 4,200,940$ 4,691,101$ 5,209,995$ (8,315,405)$ 6,713,012$ 7,770,774$ 12,272,771$ 10,870,683$ Change in Net AssetsGovernmental activities (610,557)$ 2,907,898$ 3,061,304$ 6,382,429$ (5,950,225)$ 5,522,458$ (178,098)$ 2,834,143$ 1,793,589$ Business-type activities 64,610 45,795 664,311 1,788,065 2,558,419 798,933 1,696,579 3,258,287 5,012,535 Total primary government (545,947)$ 2,953,693$ 3,725,615$ 8,170,494$ (3,391,806)$ 6,321,391$ 1,518,481$ 6,092,430$ 6,806,124$ The City implemented GASB Statement number 34 fiscal year 2003. Therefore, net asset information is not available years prior. LAST NINE FISCAL YEARSFiscal Year (accrual basis of accounting)-70- CITY OF FAIRHOPE, ALABAMACHANGES IN NET ASSETS Beer, WineBurglarFiscal Sales Ad Valorem Automobile and Liquor Cigarette Lodging Dog AlarmYear Tax Tax Tax Tax Tax Tax Tax Tax Total2003 $ - $ 1,953,186 $ 325,464 $ 299,681 $ 26,941 $ - $ 211 $ - $ 2,605,483 2004 - 2,328,984 345,220 317,899 100,379 362,860 175 - 3,455,517 2005 - 2,268,195 442,061 352,827 130,168 449,079 137 - 3,642,467 2006 - 2,639,610 519,577 347,415 124,606 196,224 107 25 3,827,539 2007 - 3,103,284 486,205 373,794 138,754 420,024 103 - 4,522,164 2008 - 4,143,286 488,190 396,080 145,836 495,852 114 - 5,669,358 2009 1,003,864 4,424,103 515,737 385,411 134,297 474,852 116 - 6,938,380 2010 4,443,325 4,421,646 420,720 392,255 131,063 483,271 73 - 10,292,352 2011 4,590,149 4,102,942 487,897 393,123 120,458 495,870 60 - 10,190,500 The City implemented GASB Statement number 34 fiscal year 2003. Therefore, governmental activities information is not available years prior.(accrual basis of accounting)-71-CITY OF FAIRHOPE, ALABAMAGOVERNMENTAL ACTIVITIES TAX REVENUES BY SOURCELAST NINE FISCAL YEARS 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011General fund Restricted -$ -$ -$ -$ -$ -$ -$ -$ -$ 501,932$ 2,723,595$ 5,014,205$ Unassigned 4,002,369$ (8,283) 21,189 369,032 382,274 421,331 1,033,668 1,087,642 1,703,619 1,083,383 1,574,743 1,985,914 2,145,950Total general fund (8,283)$ 21,189$ 369,032$ 382,274$ 421,331$ 1,033,668$ 1,087,642$ 1,703,619$ 1,083,383$ 2,076,675$ 4,709,509$ 7,160,155$ All other governmental funds Restricted-Debt Service 2,050,255 1,744,104$ 1,665,750$ 4,438,497$ 558,630$ 377,983$ 272,950$ 235,348$ 456,957$ 470,671$ 350,987$ 351,008$ 350,020$ Assigned, reported in: Special revenue funds (8,002) 107,851 161,307 169,668 92,201 143,257 227,109 257,881 311,553 66,907 59,142 127,419 167,786 Capital projects funds - 2,972,957 1,263,203 863,518 876,358 1,219,106 1,602,259 263,202 3,892,524 2,070,337 550,369 362,354 675,799Total all other governmental funds 2,042,253$ 4,824,912$ 3,090,260$ 5,471,683$ 1,527,189$ 1,740,346$ 2,102,318$ 756,431$ 4,661,034$ 2,607,915$ 960,498$ 840,781$ 1,193,605$ The City implemented GASB Statement number 54 fiscal year 2011. This statement replaces the previous classifications of reserved, unreserved, designated and undesignated fund balances.(modified accrual basis of accounting)FUND BALANCES OF GOVERNMENTAL FUNDSCITY OF FAIRHOPE, ALABAMA-72- 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011REVENUES Local taxes 2,366,153$ 2,513,172$ 2,605,483$ 3,455,517$ 3,642,467$ 3,827,564$ 4,522,164$ 5,669,358$ 6,938,380$ 10,292,352$ 10,190,500$ Licenses and permits 1,046,440 1,224,196 1,363,785 1,527,160 2,055,861 3,401,207 2,996,213 2,729,209 2,058,105 2,178,982 2,295,795 Fines and forfeitures 221,864 209,233 267,834 249,181 325,728 354,504 362,441 252,838 224,022 261,070 241,104 Intergovernmental 656,440 1,574,345 2,336,195 3,598,224 6,514,824 7,319,833 3,167,141 1,826,517 837,246 547,556 345,966 Contribution from Public Library Bd - - - - 1,500,000 1,128,850 685,003 208,931 71,000 65,000 183,285 Interest and rents 517,064 315,162 328,868 290,659 327,686 394,009 377,743 340,530 225,861 239,256 249,489 Charges for services 667,705 683,445 704,228 735,311 792,245 1,577,409 4,149,905 4,610,307 4,450,711 4,450,535 4,479,749 Assessments 256,060 243,251 182,764 122,170 124,582 39,199 1,831 - - - - Golf course revenue - - - - - - - - 959,730 858,237 1,020,250 Other 277,022 310,159 258,351 391,478 315,745 343,588 492,419 411,179 277,015 1,705,991 539,557 Total revenues 6,008,748 7,072,963 8,047,508 10,369,700 15,599,138 18,386,163 16,754,860 16,048,869 16,042,070 20,598,979 19,545,695 EXPENDITURES General government 2,049,471 2,387,201 2,353,659 3,595,220 2,412,693 2,731,819 5,090,777 6,318,322 5,948,479 6,279,197 5,335,143 Sanitation 688,238 836,798 745,802 861,317 929,815 960,328 1,254,694 1,405,774 1,475,035 1,758,543 1,745,785 Police 1,575,277 1,845,698 2,124,786 2,476,353 2,881,293 3,110,086 3,405,687 3,913,015 3,922,163 4,404,803 4,941,051 Fire 359,786 396,772 372,263 366,421 492,552 576,191 619,434 707,513 765,645 837,597 395,224 Airport 20,090 10,850 6,895 12,742 9,124 63,031 397,183 545,000 242,090 249,856 225,843 Street 2,095,209 2,167,030 4,159,154 2,453,144 5,636,288 3,580,189 2,552,328 2,554,959 2,704,242 2,797,566 2,639,416 Recreation 331,712 324,385 366,531 396,660 472,129 513,503 658,837 785,425 867,174 1,050,957 969,025 Adult recreation 191,030 208,020 231,615 238,007 261,569 277,808 328,744 431,481 400,494 553,125 577,015 Golf - - - - - - - - 1,303,135 1,094,604 1,113,178 Capital outlay 2,314,640 3,596,843 4,146,979 2,544,947 4,131,361 14,308,234 6,054,830 3,227,604 1,775,834 1,565,192 1,474,937 Debt service: Principal 745,891 749,567 891,680 712,321 1,288,488 835,627 4,412,690 2,424,796 863,329 1,047,483 831,483 Interest 376,379 337,944 666,600 532,508 512,025 482,436 532,687 802,140 809,715 704,043 666,652 Bond issuance costs - - - - - - 138,476 - - - - Public Library Board 286,205 297,147 300,450 288,400 330,806 336,823 396,000 504,560 530,000 565,000 565,000 Other - - - - 60,000 60,000 60,000 60,000 60,000 75,000 89,620 Total expenditures 11,033,928 13,158,255 16,366,414 14,478,040 19,418,143 27,836,075 25,902,367 23,680,589 21,667,335 22,982,966 21,569,372 Excess (deficiency) of revenues over expenditures (5,025,180) (6,085,292) (8,318,906) (4,108,340) (3,819,005) (9,449,912) (9,147,507) (7,631,720) (5,625,265) (2,383,987) (2,023,677) OTHER FINANCING SOURCES (USES) Transfers in 4,167,792 4,654,781 5,293,525 5,561,528 4,876,111 5,325,589 4,897,503 5,228,182 9,542,134 6,541,730 6,557,708 Proceeds from issuance of debt - 5,386,930 126,903 - 734,934 4,370,000 9,692,000 1,300,000 3,368,260 - - Cost from issuance of debt - - - - - - - - (78,364) - - Payment to Defeased Warrants Escrow Agent - - - - - - - - (3,412,892) - - Transfer to Debt Service to defease warrants - - - - - - - - (3,289,896) - - Warrant discount - (620,107) - - - - (43,956) - - - - Transfers out (847,792) (706,969) (932,851) (1,200,974) (817,731) (1,537,590) (877,457) (1,569,814) (1,158,102) (1,644,626) (1,730,561) Total other financing sources (uses) 3,320,000 8,714,635 4,487,577 4,360,554 4,793,314 8,157,999 13,668,090 4,958,368 4,971,140 4,897,104 4,827,147 Net change in fund balance (1,705,180)$ 2,629,343$ (3,831,329)$ 252,214$ 974,309$ (1,291,913)$ 4,520,583$ (2,673,352)$ (654,125)$ 2,513,117$ 2,803,470$ Debt service as a percentage of noncapital expenditures 12.9% 11.4% 12.8% 10.4% 11.8% 9.7% 24.9%15.8% 8.4% 8.2% 7.5%-73-CITY OF FAIRHOPE, ALABAMACHANGES IN FUND BALANCES OF GOVERNMENTAL FUNDS(modified accrual basis of accounting) FiscalTotal EstimatedYearLess: Total Taxable Direct ActualEnded Residential Commercial Industrial Tax Exempt Assessed Tax TaxableSeptember 30 Property Property Property Real Property Value Rate Value2002 62,132,860 1,824,680 95,099,142 25,951,300 133,105,382 15 1,996,580,730 2003 66,037,480 1,446,470 99,099,267 25,446,440 141,136,777 15 2,117,051,655 2004 76,237,460 1,512,340 109,796,799 28,481,560 159,065,039 15 2,385,975,585 2005 81,947,620 1,615,900 110,912,740 29,677,300 164,798,960 15 2,471,984,400 2006 96,692,100 1,715,620 127,556,120 32,829,960 193,133,880 15 2,897,008,200 2007 111,365,480 1,842,120 147,264,040 36,224,280 224,247,360 15 3,363,710,400 2008 167,784,240 1,268,220 217,340,040 58,488,560 327,903,940 15 4,918,559,100 2009 166,205,000 1,412,140 224,300,620 61,340,580 330,577,180 15 4,958,657,700 2010 166,238,280 1,362,280 212,323,800 61,797,320 318,127,040 15 4,771,905,600 2011 152,409,500 1,293,000 199,340,360 61,323,460 291,719,400 15 4,375,791,000 Source: Baldwin County Revenue CommissionerCITY OF FAIRHOPE, ALABAMAASSESSED VALUE AND ESTIMATED ACTUAL VALUE OF TAXABLE PROPERTYLAST TEN FISCAL YEARS-74- TotalTotal Road/ Health Care Total Total Direct &Fiscal General School Bond Tax City General Bridge Fire School Authority County General School Soldier State OverlappingYear Millage Millage Millage Millage Millage Millage Millage Millage Millage Millage Millage Millage Millage Millage Rates2002 5.0 5.0 5.0 15.0 5.0 2.5 1.5 12.0 0.5 21.5 2.5 3.0 1.0 6.5 43.02003 5.0 5.0 5.0 15.0 5.0 2.5 1.5 12.0 0.5 21.5 2.5 3.0 1.0 6.5 43.02004 5.0 5.0 5.0 15.0 5.0 2.5 1.5 12.0 0.5 21.5 2.5 3.0 1.0 6.5 43.02005 5.0 5.0 5.0 15.0 5.0 2.5 1.5 12.0 0.5 21.5 2.5 3.0 1.0 6.5 43.02006 5.0 5.0 5.0 15.0 5.0 2.5 1.5 12.0 0.5 21.5 2.5 3.0 1.0 6.5 43.02007 5.0 5.0 5.0 15.0 5.0 2.5 1.5 12.0 0.5 21.5 2.5 3.0 1.0 6.5 43.02008 5.0 5.0 5.0 15.0 5.0 2.5 1.5 12.0 0.5 21.5 2.5 3.0 1.0 6.5 43.02009 5.0 5.0 5.0 15.0 5.0 2.5 1.5 12.0 0.5 21.5 2.5 3.0 1.0 6.5 43.02010 5.0 5.0 5.0 15.0 5.0 2.5 1.5 12.0 0.5 21.5 2.5 3.0 1.0 6.5 43.02011 5.0 5.0 5.0 15.0 5.0 2.5 1.5 12.0 0.5 21.5 2.5 3.0 1.0 6.5 43.0Source: Baldwin County Commission-75-County StateOverlapping RatesCITY OF FAIRHOPE, ALABAMAPROPERTY TAX RATESDIRECT AND OVERLAPPING GOVERNMENTSLAST TEN FISCAL YEARS Taxable TaxableAssessed AssessedTaxpayer Value Rank Value RankBayview II Developer LLC 8,042,720$ 1 2.8%Arbor Gates LLC 2,279,380 2 0.8% 1,803,700 2 1.4%Point Clear Partners LLC 1,813,460 3 0.6%FST Mississippi Baldwin Square 1,800,520 4 0.6%Fairhope LLC 1,671,700 5 0.6%AI Corte Jr Family Limited Partnership 1,481,240 6 0.5% 1,454,340 4 1.1%CHS Properties, Inc. 1,162,540 7 0.4% 1,732,400 3 1.3%Fairhope Yacht Club 1,133,740 8 0.4%Bones & Babies, LLC 1,115,100 9 0.4%Fairhope Commercial Investments, LLC 1,093,900 10 0.4%Bellsouth Tele, Inc. dba AT&T1,315,870 6 1.0%FST Eastern Shores Shopping Center616,260 10 0.5%FST E&A Southeast Limited Partnership1,444,340 5 1.1%Fairhope Mob, LLC876,240 7 0.7%Rock Creek Partners LLC2,130,000 1 1.6%Rohr Aero Services, Inc.618,920 8 0.5%Rock Creek LLC618,200 9 0.5%21,594,300$ 7.4% 12,610,270$ 9.5%Source: Baldwin County Revenue Commissioner-76-CITY OF FAIRHOPE, ALABAMAPRINCIPAL PROPERTY TAXPAYERSCURRENT YEAR AND NINE YEARS AGOAssessed Value2011Percentage ofTotal TaxableAssessed ValuePercentage ofTotal Taxable2002 Fiscal Year Total Tax Collections Ended Levy for in SubsequentSeptember 30 Fiscal Year Amount Years Amount2002 1,996,581$ 1,831,812$ 84,609$ 1,916,421$ 95.99%2003 2,117,052$ 1,936,184$ 109,150$ 2,045,334$ 96.61%2004 2,385,976$ 2,233,532$ 119,877$ 2,353,409$ 98.64%2005 2,471,984$ 2,240,259$ 140,397$ 2,380,656$ 96.31%2006 2,897,008$ 2,650,741$ 138,659$ 2,789,400$ 96.29%2007 3,363,710$ 3,053,904$ 185,405$ 3,239,309$ 96.30%2008 4,918,559$ 4,087,005$ 344,238$ 4,431,243$ 90.09%2009 4,958,658$ 4,378,939$ 338,819$ 4,717,758$ 95.14%2010 4,771,906$ 4,293,008$ 347,908$ 4,640,916$ 97.25%2011 * * * *Source: Baldwin County Revenue Commissioner.*2011 information was not available from the Baldwin County Revenue Commissioner at the time of issuance. **91.75%93.61%90.63%91.46%89.96%83.09%90.79%91.50%88.31%Percentage of LevyTotal Collections to DateFiscal Year of the Levy-77-CITY OF FAIRHOPE, ALABAMAPROPERTY TAX LEVIES AND COLLECTIONSLAST TEN FISCAL YEARSCollected within the Percentage of Levy City Fiscal Direct Baldwin State of Year Rate County Alabama 2009 2.00% 2.00% 4.00% 2010 2.00% 2.00% 4.00% 2011 2.00% 3.00% 4.00% Source: City Clerk's Office The City implemented its first sales tax effective July 1, 2009 -78- CITY OF FAIRHOPE, ALABAMA DIRECT AND OVERLAPPING SALES TAX RATES CURRENT & LAST TWO FISCAL YEARS Top 25 Taxpayers (approximate) Total Tax % of Total Tax 2009 (partial year)632,797$ 1,003,864$ 63% 2010 2,124,169$ 4,443,325$ 48% 2011 2,502,259$ 4,591,088$ 55% * The City implemented its first sales tax effective July 1, 2009. Fiscal year 2009 is partial year. Source: City Treasurer's Office, AL Dept of Revenue and AlaTax Revenue Discovery Systems Note: State law prohibits the disclosure of tax information for specific taxpayers. -79- CITY OF FAIRHOPE, ALABAMA PRINCIPAL SALES TAXPAYERS * LAST THREE YEARS General General Utilities Total PercentageFiscal Obligation Notes Capital Obligation Revenue Notes Capital Primary of Personal PerYear Debt Payable Leases Debt Debt Payable Leases Government Income Capita2002 11,138,233 7,348 1,030,084 480,867 19,065,014 195,000 850,159 32,766,705 9.01% 2,424 2003 9,988,410 285,104 979,700 471,590 18,470,000 177,395 1,076,351 31,448,550 8.30% 2,249 2004 9,522,129 246,607 772,224 462,871 18,340,000 158,761 993,213 30,495,805 7.46% 2,168 2005 9,046,405 650,780 290,221 453,595 18,615,000 593,077 448,007 30,097,085 7.29% 2,134 2006 11,437,202 1,943,967 140,632 442,820 18,045,000 446,267 284,572 32,740,460 7.46% 2,203 2007 18,430,349 230,130 111,245 431,688 17,465,000 293,764 122,438 37,084,614 8.28% 2,465 2008 17,474,232 81,604 91,092 413,404 16,865,000 170,145 7,387 35,102,864 7.26% 2,204 2009 16,768,901 30,364 69,942 271,397 16,235,000 86,035 - 33,461,639 6.65% 2,067 2010 15,773,979 - 47,745 256,962 15,610,000 24,681 - 31,713,367 6.43% 1,933 2011 14,965,792 - 24,449 241,993 14,925,000 - - 30,157,234 6.47% 1,818 -80-Governmental Activities Business-Type ActivitiesCITY OF FAIRHOPE, ALABAMARATIOS OF OUTSTANDING DEBT BY TYPELAST TEN FISCAL YEARS Percentage of Estimated General Less: Amounts Actual Taxable Fiscal Obligation Available in Debt Value of Per Year Debt Service Fund Total Property Capita 2002 11,619,100 863,518 10,755,582 2.96% 796 2003 10,460,000 558,630 9,901,370 2.61% 708 2004 9,985,000 377,983 9,607,017 2.35% 683 2005 9,500,000 272,950 9,227,050 2.23% 654 2006 11,880,022 235,347 11,644,675 2.65% 783 2007 18,862,037 456,957 18,405,080 4.11% 1,223 2008 17,887,636 470,671 17,416,965 3.60% 1,094 2009 17,040,298 350,987 16,689,311 3.32% 1,031 2010 16,030,941 351,008 15,679,933 3.18% 956 2011 15,207,785 350,020 14,857,765 3.19% 896 CITY OF FAIRHOPE, ALABAMA RATIOS OF GENERAL BONDED DEBT OUTSTANDING LAST TEN FISCAL YEARS -81- Percentage Amount of debt of debt Applicable Applicable Outstanding to the City to City of Debt Fairhope (1) Fairhope Direct debt of the City 14,990,241$ 100.00% 14,990,241$ Overlapping Debt (Supported by ad valorem tax) Baldwin County 109,954,393$ 8.17%(1)8,983,274 23,973,515$ (1) Percentage of net assessed value of property in City ($291,719,400) to net assessed value of property in Baldwin County ($3,570,497,540) on 10/1/2011. -82- CITY OF FAIRHOPE, ALABAMA COMPUTATION OF OVERLAPPING DEBT SEPTEMBER 30, 2011 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011Debt limit 26,621,076$ 28,227,355$ 31,813,008$ 32,959,792$ 38,626,776$ 44,849,472$ 65,580,788$ 66,115,436$ 63,625,408$ 58,343,880$ Total net debt applicable to limit 11,619,099 11,724,805 11,003,831 9,987,406 13,381,169 18,660,479 17,555,836 17,070,662 16,030,941 15,207,785 Legal debt margin 15,001,977$ 16,502,550$ 20,809,177$ 22,972,386$ 25,245,607$ 26,188,993$ 48,024,952$ 49,044,774$ 47,594,467$ 43,136,095$ Total net debt applicable to limit as a percentage of debt limit 43.65% 41.54% 34.59% 30.30% 34.64% 41.61% 26.77% 25.82% 25.20% 26.07%Legal Debt Margin Calculation for Fiscal Year 2011Total assessed value $ 291,719,400 Debt limit (20% of total assessed value) 58,343,880 Debt applicable to limit:General obligation warrants 15,207,785 Notes payable - Total net debt applicable to limit 15,207,785 Legal debt margin $ 43,136,095 LAST TEN FISCAL YEARSLEGAL DEBT MARGIN INFORMATIONCITY OF FAIRHOPE, ALABAMA-83- Per Capita Fiscal Personal Personal School Unemployment Year Population Income Income Enrollment Rate 2002 13,518 363,499,020 26,890 3,701 4.6% 2003 13,985 378,923,575 27,095 3,701 4.5% 2004 14,067 408,899,556 29,068 3,965 4.6% 2005 14,106 413,136,528 29,288 3,906 3.4% 2006 14,863 438,948,979 29,533 4,305 2.8% 2007 15,046 447,693,730 29,755 4,050 2.7% 2008 15,927 483,400,377 30,351 4,307 4.1% 2009 16,185 503,418,240 31,104 4,320 8.6% 2010 16,409 492,959,178 30,042 4,385 8.9% 2011 16,588 466,189,152 28,104 4,477 8.7% Sources: U.S. Census Bureau State of Alabama Department of Industrial Relations Eastern Shore Chamber of Commerce www.schooldigger.com CITY OF FAIRHOPE, ALABAMA DEMOGRAPHIC AND ECONOMIC STATISTICS LAST TEN FISCAL YEARS -84- Percentage of Percentage of Total City Total City Employer Employees Rank Employment Employees Rank Employment Thomas Hospital 1,150 1 19.3% 812 1 14.7% Grand Hotel 750 2 12.6% 400 2 7.2% Wal-Mart 400 3 6.7% City of Fairhope 320 4 5.4% 196 3 3.5% Winn-Dixie 90 5 1.5% 75 7 1.4% Publix 75 6 1.3% Balloons Everywhere 65 7 1.1% 60 9 1.1% Print Xcel (formerly Poser Business Forms) 64 8 1.1% 170 4 3.1% Bruno's 60 9 1.0% 100 5 1.8% BF Goodrich Aerospace Rock Creek 80 6 1.4% Food World 70 8 1.3% Seton Home Health 58 10 1.0% 2,974 49.8% 2,021 32.7% Sources: Eastern Shore Chamber of Commerce State Department of Industrial Relations 2001 data used due to unavailability of 2002 employment data. 2010 data used due to 2011 not yet reported in census NOTE: Total city employment number represents people residing in COF that are employed (place of residence) rather than employment for COF businesses 2002: 5,541 2011: 5,971 2011 2002 -85- CITY OF FAIRHOPE, ALABAMA PRINCIPAL EMPLOYERS CURRENT YEAR AND NINE YEARS AGO 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011FunctionGeneral Government 42 46 48 49 58 61 62 54 55 53Public Safety Police 32 35 37 39 40 41 42 51 48 48 Fire Firefighters and Dispatch24579914 13 13 17Highways and Streets Public Works 25 26 28 28 27 29 28 37 37 35Sanitation 16 19 21 19 25 22 20 21 20 20Culture and Recreation Recreation6688889 18 18 19 Adult Recreation1111136 10 13 14Gas Department 16 16 17 17 16 16 19 18 18 18Electric Department 15 17 17 17 17 20 19 17 17 17Water/Waste Water Department 20 21 23 23 24 24 25 23 23 24Golf Department 12 13 13 12 12 13 13 19 19 16Total 187 204 218 220 237 246 257 281 281 281Source: City of Fairhope human resources department-86-CITY OF FAIRHOPE, ALABAMAFULL-TIME EQUIVALENT CITY GOVERNMENT EMPLOYEES BY FUNCTIONLAST TEN FISCAL YEARSFull-time Equivalent Employees as of September 30, 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011FunctionPolice Physical arrests 562 539 840 949 1,255 1,710 1,131 993 833 1,134 Parking violations 120 65 65 27 56 13 71 285 201 163 Traffic violations 1,895 1,566 2,116 2,381 2,589 1,516 996 1,004 1,245 1,419 Fire Number of calls answered 311 332 364 429 381 339 432 427 658 801 Inspections 376 429 505 585 463 282 196 382 291 143 Highways and streets Street resurfacing (miles) 0.25 7.80 0.25 0.25 2.30 - - 1.5 - - Potholes repaired 780 416 416 312 312 312 414 384 400 425 Sanitation Garbage collected (tons/year) 5,800 6,010 6,566 7,000 7,200 8,246 7,520 7,782 8,627 9,100 Trash collected (tons/year) 4,220 5,227 4,953 6,411 4,845 5,213 5,915 5,744 7,385 6,487 Recyclables collected (tons/year) 1,549 1,660 1,699 2,112 1,959 2,131 1,989 1,297 1,281 1,495 Culture and recreation Golf course rounds @ 9 hole rounds 69,874 70,948 82,695 80,603 93,082 92,702 88,475 53,755 62,720 61,283 Pavilion/park parties 9 87 59 74 88 84 80 64 Waste water Average daily sewage treatment 1.6 1.7 1.8 1.8 1.6 1.7 1.7 1.7 1.8 1.8 (millions of gallons)Sources: Various government departments*** Ordinance was passed in June 2004 - no rent collected prior to this time***LAST TEN FISCAL YEARSOPERATING INDICATORS BY FUNCTIONCITY OF FAIRHOPE, ALABAMA-87- 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011FunctionPublic safety Police Stations 11111111 1 1 Patrol units 24 26 29 32 33 35 36 40 45 45 Fire stations 33333333 3 3Highways and streets Streets (miles) 69.7 75.2 82.2 84.2 89.7 89.7 98.1 98.1 98.1 98.1Culture and recreation Parks acreage 168 168 168 168 168 208 208 208 248 248 Parks 46 46 46 46 46 50 50 50 51 51 Swimming pools12222333 3 3 Tennis courts 44444666 6 6 Community center 22222213 3 3Sewer Sanitary sewers (miles) 112 114 115 117 119 120 121 121 125 125 Storm sewers (miles) 3.75 6.559.45 12.45 14.05 15.55 16.75 16.75 16.75 16.75 Maximum daily treatment capacity 44444444 4 4 (millions of gallons)Sources: Various government departments LAST TEN FISCAL YEARS CAPITAL ASSET STATISTICS BY FUNCTIONCITY OF FAIRHOPE, ALABAMA-88- COMPLIANCE SECTION