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Home My WebLink About2014CITY OF FAIRHOPE, ALABAMA COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2014 CITY OF FAIRHOPE, ALABAMA COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2014 CITY OF FAIRHOPE, ALABAMA COMPREHENSIVE ANNUAL FINANCIAL REPORT SEPTEMBER 30, 2014 TABLE OF CONTENTS INTRODUCTORY SECTION Letter of Transmittal Certificate of Achievement for Excellence in Financial Reporting Organization Chart City Elected and Appointed Officials FINANCIAL SECTION INDEPENDENT AUDITORS' REPORT MANAGEMENT'S DISCUSSION AND ANALYSIS BASIC FINANCIAL STATEMENTS Government-Wide Financial Statements Statement of Net Position Statement of Activities Fund Financial Statements Governmental Fund Financial Statements Fund Balance Sheets -Governmental Funds Reconciliation of Governmental Fund Balances to Net Position lV x xi Xll 3 15 16 17 of Governmental Activities 18 Statement of Revenues, Expenditures and Changes in Fund Balances - Governmental Funds 19 Reconciliation of the Statement of Revenues, Expenditures and Changes in Fund Balances of Governmental Funds to the Statement of Activities 20 Proprietary Fund Financial Statements Fund Balance Sheets -Proprietary Funds 21 Statement of Revenues, Expenses and Changes in Net Position - Proprietary Funds 22 Statement of Cash Flows -Proprietary Funds 23 Discretely Presented Component Units Combining Statement of Net Position -Discretely Presented Component Units 24 Combining Statement of Activities -Discretely Presented Component Units 25 Notes to the Financial Statements 26 ii CITY OF FAIRHOPE, ALABAMA COMPREHENSIVE ANNUAL FINANCIAL REPORT SEPTEMBER 30, 2014 TABLE OF CONTENTS (continued) REQUIRED SUPPLEMENTARY INFORMATION Budgetary Comparison Schedule -General Fund Notes to Required Supplementary Information OTHER SUPPLEMENTARY INFORMATION 52 53 Combining Balance Sheets -Nonmajor Governmental Funds 55 Combining Statement of Revenues, Expenditures and Fund Balances -56 Nonmajor Governmental Funds Fund Balance Sheet -Fairhope Public Library Board 57 Reconciliation of Governmental Fund Balances to Net Postion of Governmental Activities -Fairhope Public Library Board 58 Statement of Revenues, Expenditures and Changes in Fund Balances - Fairhope Public Library Board 59 Reconciliation of the Statement of Revenues, Expenditures and Changes in Fund Balances of Governmental Funds to the Statement of Activities -Fairhope Public Library Board 60 Fund Balance Sheet -Fairhope Airport Authority 61 Reconciliation of Governmental Fund Balances to Net Position of Governmental Activities -Fairhope Airport Authority 62 Statement of Revenues, Expenditures and Changes in Fund Balances - Fairhope Airport Authority 63 Reconciliation of the Statement of Revenues, Expenditures and Changes in Fund Balances of Governmental Funds to the Statement of Activities -Fairhope Airport Authority 64 Schedule of Capital Projects Expenditures 65 Schedule of Information Required By Bond Indentures 66 Summary of Deposits, Withdrawals and Balances of Selected Trust Accounts as Required Under Certain Trust Indentures 67 iii CITY OF FAIRHOPE, ALABAMA COMPREHENSIVE AN.NUAL FINANCIAL REPORT SEPTEMBER 30, 2014 TABLE OF CONTENTS (continued) ST A TISTICAL SECTION Net Position by Component Changes in Net Position Governmental Activities Tax Revenues by Source Fund Balances of Governmental Funds Changes in Fund Balances of Govermnental Funds Assessed and Estimated Actual Value of Taxable Property Property Tax Rates -Direct and Overlapping Governments Principal Property Taxpayers Property Tax Levies and Collections Direct and Overlapping Sales Tax Rates Principal Sales Tax Remitters Ratios of Outstanding Debt by Type Ratios of General Bonded Debt Outstanding Computation of Overlapping Debt Legal Debt Margin Infonnation Demographic and Economic Statistics Principal Employers Full-time Equivalent City Government Employees by Function Operating Indicators by Function Capital Asset Statistics by Function 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 69 70 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 INTRODUCTORY SECTION A.CM 0 G Boone J Brewe1 AC.MO Sr MMC CPA January 15, 2015 The Honorable Timothy M. Kant Members of the City Council Citizens of Fairhope, Alabama iv The Comprehensive Annual Financial Report (CAFR) of the City of Fairhope, Alabama (the "City") for the Fiscal Year ending September 30, 2014 is hereby submitted. Responsibility for both the accuracy of the data and the completeness of the presentation, including all disclosures, rests with the City. To the best of our knowledge and belief, the enclosed data is accurate in all material respects and is reported in a manner designed to present fairly the financial position and results of operations of the various funds of the City. All disclosures necessary to enable the reader to gain an understand1ng of the City's financial activities have been included. The reader is directed to the Management's Discussion and Analysis section of this report for discussion and insight into financial results and significant trends during the fiscal year. REPORTING ENTITY The City of Fairhope, incorporated in 1908, is governed by a Mayor I Council form of government, with each official elected on an at-large basis for a four-year term, and has a population of 16, 794. The financial reporting entity includes all funds of the primary government as well as its component units, the Fairhope Public Library and the Fairhope Airport Authority. Component units are legally separate entities for which the primary government is financially accountable. The component units are reported in separate columns in the financial statements to emphasize the legal separation from the primary government, as well as to differentiate the financial positions, results of operations and cash flows from those of the primary government. In addition to the Public Library and Airport Authority, the government provides natural gas, electricity, water and waste water services for its citizens, as well as police and fire protection, sanitation and recycling services, maintenance of streets and infrastructure, numerous parks, recreational activities for all ages, a recreation center, a museum, a welcome center, a public golf course, indoor and outdoor swimming v pools, a tennis complex, a skate park, a pet park, and sponsorship of many cultural events. ECONOMIC CONDITION AND OUTLOOK The City of Fairhope continued to show economic growth during the year. The revenue from new construction and building permits, inspection and impact fees totaled $1, 105,621 for the year. These key economic indicators reflect sound growth and consumer confidence in our city. Fairhope enjoys a strong sense of community ownership and responsibility among city officials and local citizens, resulting in active community participation and involvement in all current city projects and issues. Clean industry within the City supports health services and higher education. For the second consecutive year, the City made a $350,000 payment to the five public schools in Fairhope for educational enhancement. The budget for fiscal year 2015 includes a third contribution to the Fairhope schools in this same amount. Fairhope gains strong economic stability from the significant industrial and commercial development in surrounding Baldwin County cities and in neighboring Mobile County. Austal Shipbuilding and Airbus aircraft manufacturer, both located within 30 miles of Fairhope, promise to positively impact commercial growth and property values in our area. Operations and staffing at Airbus have begun and will reach capacity during 2015. Austal Shipbuilding now employs over 4,200 people. The Fairhope Airport Authority's new 15,000-square-foot Aviation Academy neared completion at year end, and will be enrolling students from high schools in Baldwin County in January, 2015, for flight and mechanical training. The Airport received a grant from the Federal Aviation Administration in the amount of $1,080,000 for construction of an east terminal apron, which will enhance and attract additional economic development at that site. These factors, along with citizen involvement in planning, and strong city management provide strength and promise for continued economic good health for the City of Fairhope. vi On May 28, 2014, Standard & Poors upgraded by two notches the City of Fairhope's long-term bond rating on General Obligation Warrants, to AA+. The upgrade was credited by S & P to the city's strong management with good financial practices, budgetary flexibility, strong liquidity, very favorable debt to governmental funds revenue ratio, and Fairhope's strong local economy and per capita market value. Researcher N ewGeography named Fairhope as one of the four Alabama cities in the Top 100 of' America's Smartest Cities,' based on a high quality of life and a high percentage of citizens with college degrees. (http://www.newgeography.com/ content/004 77 4-ameri cas-smartest- cities ). The Alabama Policy Institute listed Fairhope in the Top 10 Business-Friendly Cities for 2014. (The Alabama Policy Institute, Birmingham, Alabama, March, 2014, page 7; www.alabamapolicy.org). Baldwin County was described by Forbes magazine as a top place to grow a business. (Baldwin Insider Qumierly, Vol. 1 V, 2014). Alabama ranked 4th in the Top 10 states for doing business. (Baldwin Insider Quarterly, Vol. lV, 2014). MAJOR INITIATIVES For the Year: Sales tax receipts for the fiscal year totaled over $6.51 million, exceeding the budgeted projection by $618,249. As part of the sales tax ordinance, one half of each month's sales tax receipts must go into reserves, to be used for debt prepayment and capital improvements, as authorized by the City Council. During the year the City paid off in advance $2.4 million in General Obligation Warrants in addition to $480,000 in scheduled debt service. The sales tax reserve account balance at fiscal year-end totaled $8.1 million. Fairhope and surrounding Eastern Shore and Gulf coast cities continue to enjoy increasing revenues from tourism and corporate functions. Lodging tax and sales tax receipts, major indicators of tourism, remained strong during 2014. Total sales and lodging tax receipts increased by 17% over the prior year's totals. The Mayor, City Council, and City department heads continue to strive to adhere to the City's established goals in planning for continuing growth, and in maintaining the quality of life and the highest level of governmental services to all residents in the City. The City Council initiated a series of public meetings for input from citizens and city managers to define and prioritize major issues of concern to the citizens, to be used in updating the city's Comprehensive Plan. This will continue into the next fiscal year. In addition, the city received a grant through the Alabama Department of Conservation and Natural vii Resources for the development of a Low Impact Design Allowance Plan, as part of the Coastal Zone Management Act of 1972. Low Impact design techniques will be incorporated into the City's Comprehensive Plan through revisions to existing ordinances and regulations, as needed. Fairhope and other small cities in Baldwin County remain somewhat buffered from national economic downturns due to high percentages of resident retirees and by the majority of stable service, health, and education employers. At fiscal year-end, according to the Alabama Department of Labor, the unemployment rate for Baldwin County was 5.8%, while the rate for the state as a whole was 6.3%. The Finance Department was once again awarded the Certificate of Achievement for Excellence in Financial Reporting for its CAFR for the fiscal year 2013, by the Government Finance Officers Association (GFOA) of the United States and Canada. We believe that our current CAFR continues to meet the Certificate of Achievement Program's requirements and we are submitting it to the GFOA to be considered for another certificate. For The Future: The City continues its focus on improvements to existing infrastructure for drainage, streets and the utilities, along with dependable excellent government services, with maximum efficiency and fiduciary responsibility. The budget for the fiscal year 2015 contains over $9.6 million in the General, Capital Projects, Gas Tax, Impact, and Utility Funds for capital purchases, infrastructure improvements, and special projects throughout the City. Transfers from the Enterprise Funds are budgeted for fiscal year 2015 at $1,826,575, a reduction of $2,084,084 from the previous year. Other improvements being completed in the next year include major street projects for resurfacing, widening and new sidewalks, drainage improvements, completion of a new soccer complex, additional tennis courts, and irrigation system for the golf course. ENTERPRISE FUNDS HIGHLIGHTS The City's enterprise funds, made up ofNatural Gas, Electric, Water and Waste Water, recorded a combined increase in net assets of $4,149,976 for the year, after transfers of $3.6 million to support the General fund. Transfers to support the General fund represented 42% of the enterprise funds' operating income before transfers, a decrease of 1 % from the prior year. The Enterprise funds expended over $18 viii million in capital purchases, funded by operating income, reserves designated for capital purchases, and borrowed funds. Capital purchases included $8.75 million for a 108-acre tract ofland, $6.8 million of a $12 million upgrade to the waste water treatment plant, additions to distribution and collection systems totaling $2.9 million and upgrades to vehicles and equipment. Cash and cash equivalents in the enterprise funds totaled $16,202,401 at year-end, a decrease of 17% from the prior year. Total long-tenn debt at year-end for the Enterprise Funds was $26, 714,220, an increase of $4,514,540. The purchase of land by the enterprise funds utilized $3 million in cash and a General Obligation Warrant in the amount of $5,750,000 for a term of five years. Payments for construction costs for the waste water treatment plant upgrade additionally affected the decrease in cash at year-end. The City historically has used a short- term line of credit each year for use in funding the seasonally high electric power costs during the summer months, however this has not been necessary for the past six fiscal years. GOVERNMENTAL FUNDS HIGHLIGHTS The Governmental funds are comprised of General, Capital Projects, Debt Service, Impact and Special Revenue funds. The General Fund supports the General Administration, Police and Fire, Adult and Youth Recreation, Quail Creek Golf Course, Streets, and Sanitation. The Governmental Funds experienced a net surplus of $1, 107 ,692 for the fiscal year, including receipt of $3.6 million in transfers from the utilities. This $1.1 million in net surplus was made up of the General Fund's net surplus of $2,072 and the combined net results in the Capital Projects and other Governmental funds. Total revenues in the Governmental Funds before utility transfers increased by $1, 109 ,460 from the prior year. Operating expenses in the Governmental fund during the 2014 fiscal year increased by $3,505,014, an increase of 15%. A leading factor in the increase in expenses and resulting net surplus in the General Fund was the transfer of $2.6 million from the General fund into the Capital Projects fund for budgeted capital projects during the year, as authorized by the City Council. Capital purchases and improvements in the Governmental Fund totaled $1,908,464. The City completed a $352,000 upgrade to the Fairhopers Community Park. A severe rainstorm on April 28 dropped 26 inches of rain on the city, resulting in over $800,000 damage to streets, drainage ways, and the waste water treatment plant. The Governmental Fund Balance was $14,815,120 at year-end, an 7% increase from the prior year. Total General Fund cash was $14,925,730 at year-end, an increase of 11 %. Total debt of the Governmental Funds ix at year-end was $9,820,396, a decrease of $2,894,540 or 22%, in long tenn debt. INDEPENDENT AUDIT Alabama State law requires an annual audit by independent Certified Public Accountants. The accounting firm of Hartmann, Blackmon & Kilgore, P.C., was selected by the City to perform the audit. The Independent Auditors' Report on the basic financial statements is included in the financial section of this report. The preparation of the CAFR on a timely basis has been accomplished with the efficient and dedicated service of the entire staff of the Finance and the Treasury Departments. Preparation of this report would not have been possible without the leadership and support of the Mayor and City Council. Respectfully submitted, . ~!~~~ City Treasurer x Government Finance Officers Association Certificate of Achievement for Excellence in Financial Reporting Presented to City of Fairhope Alabama For its Comprehensive Annual Financial Report for the Fiscal Year Ended September 30, 2013 Executive Director/CEO xii CITY OF FAIRHOPE, ALABAMA CITY ELECTED AND APPOINTED OFFICIALS SEPTEMBER 30, 2014 Timothy M. Kant, ACMO Mayor Michael A. Ford, ACMO Councilmem ber Kevin Boone Councilmember Diana J. Brewer Councilmember Jack Burrell Councilmember Rich Mueller Councilmember Lisa Hanks City Clerk Nancy K. Wilson, CPA City Treasurer Joseph Petties Police Chief Marion E. Wynne, Jr. City Attorney Honorable Haymes Snedeker City Judge FINANCIAL SECTION -2- information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management's responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Other Information Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise City of Fairhope, Alabama's basic financial statements. The introductory section, other supplementary information, and statistical information listed in the table of contents are presented for purposes of additional analysis and are not a required part of the basic financial statements. The other supplementary infonnation is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the basic financial statements. Such infonnation has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the other supplementary information is fairly stated, in all material respects, in relation to the basic financial statements as a whole. The introductory section and the statistical section are the responsibility of management and have not been subjected to the auditing procedures applied in the audit of the basic financial statements, and accordingly, we do not express an opinion or provide any assurance on it. Restatement of Prior Periods The financial statements of the City as of September 30, 2013, dated January 15, 2014, express.ed an unmodified opinion on the financials statements. As discussed in Note 22 to the financial statements, the City has adjusted its September 30, 2013, financial statements to retrospectively apply the implementation of Governmental Accounting Standards Board Statement No. 65, Items Previously Reported as Assets and Liabilities. As part of our audit, we also audited the adjustments to the September 30, 2013, financials statements to retroactively apply the change in accounting principle as described in Note 22. In our opinion, such adjustments are appropriate and have been properly applied. Other Reporting Required by Governmental Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated January 15, 2015, on our consideration of City of Fairhope, Alabama's internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial repoiiing or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering City of Fairhope, Alabama's internal control over financial reporting and compliance. January 15, 2015 Fairhope, Alabama ~p_~1 fl!etJ,.~1 ~I f.t, Certified Public Accountants THIS PAGE INTENTIONALLY LEFT BLANK 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, 2014. The intent of this Management's 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 $133,892,293, a current year increase in net position of $14,178,308 (pages 15 and 16). • 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 $14,815,120, an increase of $1, l 07 ,692 from the pd or year. The General Fund closed with a fund balance of $10,449 ,5 23, an increase of $2,072. The reason for this small increase is from an additional principal debt payment paid during the year, as discussed below, as well as greater than anticipated transfers into Capital Projects for projects scheduled for the first part of fiscal year 2015. The Capital Projects Fund had an increase in fund balance of $1,717,276 after capital expenditures of $1,526,487 and transfers from the General Fund of $2,649,389 (page 19). A detailed explanation of these increases can be viewed on page six and seven of thisMD&A. • City wide, governmental and business type funds, cash (including restricted cash) totaled $31, 128, 128, a decrease of $6,780,560 from the previous year. Governmental Funds cash totaled $14,925,727 at September 30, 2014 (page 15). This is an increase of $1,261,665 over the prior year. Most of the increase, approximately $1.1 million was from sales tax receipts directly related to additional annexations into the city limits. The business type funds cash totaled $16,202,401 at year end (page 21 ), a decrease of $8,042,225 from last year. This decrease is primarily a result of payments made on sewer plant upgrades totaling $6,770,512 and $3,000,000 on a real estate purchase discussed below. Of this $3 million, $1,750,000 in cash reserves was replenished by year end. Revenues in the governmental funds increased approximately $1.1 million from the previous year. Expenses increased approximately $3.5 million. • During fiscal 2014, revenues from the sales tax totaled $6,518,249, an increase of approximately $1,080,000 over the previous year. At year end, the City's reserve fund was $7 million with $2.9 million paid in principal debt payments. Of this $2.9 million, $2.4 million paid off the 2009 General Obligation Refunding Warrant. • The combined governmental funds expended $1,908,464 for capital projects and purchases, including $1,189,389 for special projects, such as the Community Park as well as widening of Fairhope Avenue, $30,292 for impact fees transportation projects and $689,000 for vehicles, equipment and other infrastructure additions. • The business-type activities, Gas, Electric, Water and Waste Water activities, ended the year with income before transfers of $8,047,842, compared to $6,728,201 for fiscal 2013. Although revenues increased approximately $2.7 million, costs of energy and operating expenses also increased about $1.4 million. The utilities made transfers to the General Fund of $3,612,482 from income, which is $376,231 more than transfers last year. The business-type activities recorded an increase in net position, after transfers, of $4,435,360 (page 22). Details pertaining to these increases can be seen on page seven and eight of this MD&A. • The City's business-type activities made additions to property, plant and equipment of $18,893,644. There are two main factors contributing to this significant increase. The City purchased land for $8,750,000, $3 million of which was paid in cash and $5,750,000 of which was financed as mentioned below. In addition, approximately $6.8 million was spent on sewer plant upgrades. The remaining increase was due to routine system improvements totaling $2.9 million and vehicles and equipment of $450,000. Funding for these additions, excluding the land purchase, was prior debt issues, current income and money set aside for this purpose (pages 23 and 3 7). -4 - • The City of Fairhope's long term debt increased by $1,620,000 during fiscal year 2014, yielding total outstanding debt of $36,534,616 compared to the previous year's $34,914,616. In fiscal year 2014, the City entered into a real estate purchase agreement in which $5,750,000 of the purchase was financed through General Obligation Warrant Series 2013. Additionally, the 2009 General Obligation Refunding Warrant of approximately $2.4 million was paid off in full. Governmental activities total debt was $9,820,396. Business-type activities total debt was $26,714,220 (pages 38 and 39). OVERVIEW O:F 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 Position 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 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 26. 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 52. The Statement of Net Position and the Statement of Activities The Statement of Net Position and the Statement of Activities 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 position and any changes in them. Consideration of the City's net position, i.e., the difference between assets and liabilities plus deferred, is one tool to measure the City's financial health, or financial condition. Over time, increases or decreases in the City's net position 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 Position 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, Debt Service, Gas Tax, and Impact Fees 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 position may serve over time as a useful indicator of a government's financial condition. The City's assets exceeded liabilities by $133,892,293 at the close of the most recent fiscal year, as shown in Figure 1, page 10 and page 15. This - 5 - is an increase of $14,178,308. The two major factors contributing to this increase are as follows: revenues among the governmental funds increased $1,248,865 from last year due mainly to an increase in sales tax of $1,080,386. This was a result of receiving a full year's worth of income from additional annexations into the city limits. In addition, revenue from the utility funds increased $2,693,581 from the prior year due primarily to the increase in sale of energy in both the Gas and Electric funds. This amount totaled approximately $2.5 million. The largest portion of the City's net position, approximately 87 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 position, approximately 9.2 percent, represents resources that are subject to restrictions as to how they may be used. Funds restricted for debt service were $4,075,444; for capital projects, $1,154,000; for road maintenance and construction, $46,007; for City Council determined emergencies, $7,000,000. Restricted funds decreased approximately $191,500 from the previous year. The unrestricted net position, approximately 3.6 percent, may be used to meet the City's ongoing obligations to citizens and creditors. Unrestricted net position, $4,786,613, decreased $7,237,293 during fiscal 2014 (pages 10 and 15). Under 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 $960,415. The current year retirement premium was $422,248. The liability for OPEB obligation at year end was $3,162,541. This amount is reported on the Statement of Net Position, page 15, as Net OPEB Obligation and on page 48, Note 17. Under Government Accounting Standards Statement 63, Financial Reporting of Deferred Outflows of Resources, Deferred Inflows of Resources, and Net Position (GASB 63), a service concession arrangement exists between the Airport Authority and the Baldwin County Board of Education (BCBOE). See Note 20, page 51 for detailed explanation of this agreement. At year end, the balance of this deferred inflow of resources is $2,632,500 million. Effective for year ended September 30, 2014, the City implemented Government Accounting Standards Statement 65, Items Previously Reported as Assets and Liabilities (GASB 65), which requires certain items that are currently reported as assets and liabilities to be reclassified as deferred outflows of resources, deferred inflows of resources or current period outflows (expenses) and inflows (revenues). One example affecting this new standard is debt issuance costs. See Note 1, page 30 and Note 22, page 51 for additional details. Another new accounting principle has been issued and is discussed in Note 1, page 30. Figure 2, page 11, 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. - 6 - 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 rep01ied 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 Position. 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 12, presents summaries of the governmental funds (General Fund, Capital Projects, Debt Service, Gas Tax, and Impact Fees) revenues and expenditures, by function, for the fiscal year ended September 30, 2014, and the amounts of increases and decreases in relation to prior year revenues and expenditures. Governmental activities revenues increased $1,109,460 from the previous fiscal year. Expenditures of Governmental funds also increased $3,505,014 for the same period. The following significant events, related to revenues and expense, occurred during fiscal 2014 (the figures are rounded): Related to revenue: • Taxes, property and local, were up $1,102,000, with the majority of the increase from sales tax. • Licenses and pennits increased by $270,000 while fines and forfeitures decreased by $6,000. • State of Alabama and United States Government tax and grant income decreased by $30,000. • Charges for services were down $152,000 due mainly to a decrease in utility collection fees. • Income from the City's golf course, approximately $1,068,000 was down $46,000 from the previous year while income from the Recreation department was up $45,000, with the majority of the increase from memberships. • Other income was down $56,000 due mainly to a decrease in fixed asset sales. Related to expenditure: • Capital outlay expenditures were approximately $1,908,000, up $490,000 from the prior year. Expenditures of $1,419,000 for fiscal 2013 included $637,000 for special projects, $127,000 for impact fees transportation projects and $654,000 for vehicles and equipment. Major capital expenditures for fiscal 2014 were: $1,189,000 for special projects, including the Community Park and the widening of Fairhope Avenue, $30,000 for impact fees transportation projects and $689,000 for vehicles and equipment. • The City's General Department had an increase in expenditures of $1.4 million. The major increase for 2014 was the shift of all General Fund departmental casualty/workers comp insurance costs into the general department. This increase was approximately $591,000. This was a result of the disproportionate insurance costs among the individual General Fund departments. In addition, employee and retiree insurance costs increased $550,000. The remaining in<;:rease related to legal fees of $265,000. • The Police Department had decreases of $228,000. This decrease was from the shift in casualty/workers comp insurance costs into the general department. This amount was $220,000. • The Street Department's expenses were up $347,000 due to unforeseen emergency repairs as a result of the - 7 - April 2014 flood event. These costs totaled $337,000. • Debt service payments, $3.4 million, increased $1.4 million from the previous year's $2 million total. This was due to the payoff of the 2009 General Obligation Warrant in the amount of $2.4 million. Fund Balances and Net Position 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 position 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 $14,815,120, an increase of $1,107,692. This follows an increase in fund balances of $3,127,016 the previous year. The General Fund had a fund balance of $10,449,523, an increase of $2,072. The Capital Projects Fund had an increase in fund balance of $1,717,276 after $448,858 for park and soccer projects, $421,191 for road widening projects, capital outlay of $656,43 8 and transfers from the General Fund of $2,649 ,3 89. The Other Governmental Funds had fund balances of $1,254,611 at year end, including restrictions for Debt Service of $357,156, an increase of $17,848 and assigned funds reported in special revenue fund (Gas Tax and Impact Fees) of $851,448, a decrease of $400)65, after expenditures of $30,292 for capital outlay and $66,472 for road repair and maintenance. (see pages 17, 19, 55 and 56). Increases and decreases in revenues and expenses are discussed in the Governmental Funds section of this MD&A, page 6 above. The governmental activities' net position at year end was $85,874,638, an increase of $9,742,948. This increase is directly related to transfers from the utilities in the amount of $3,612,482. The Gas, Electric and Water and Waste Water Funds had a net position of $48,017,655 at year end, an increase of $4,435,360 (see pages 16 and 22). The increase in the previous year was $3,491,950. The significant change of $6,325,166 from last year to this year is due to an increase in the change in net position before transfers and investment earnings. Capital Project and Other Governmental Funds increases in fund balance are discussed above. Following are major factors affecting increases in fund balance and net position in the General Fund and business-type operations. General Fund Balance: The General Fund had an increase in revenues of $981,110. Expenditures for the General Fund were up $579,445 from the prior year. Transfers from the proprietary funds (Gas, Electric, Water and Waste Water Funds) were $3,612,482 for the current year, an increase of $376,231 from the prior year. After transfers, the fund balance of the General Fund increased by $2,072 during fiscal 2014. The reason for this small increase is from an additional principal debt payment paid during the year, as discussed below, as well as greater than anticipated transfers into Capital Projects for projects scheduled for the first part of fiscal year 2015. The most significant revenue increase was related to local taxes of $1,101,515, with the majority from sales tax. The other major increase in revenue during the year was licenses and permits of $268,907. Although local taxes and licenses and permits increased, all other General Fund revenue decreased throughout the year. Fines and forfeitures, interest and rents, as well as recreation and other income had modest decreases totaling $31,528. There was a decrease in intergovernmental and grant income of $245,337. Charges for services were down $65,262 due to a decrease in utility collection fees. Golf revenue was down $45,684 from last year due mainly to decreases in memberships and pro shop sales. The most significant increase relating to General Fund expenditures was in the General department. Total expenses of $8,311,040 increased $1,451,900 over last year. This was a result of all General Fund departmental casualty and workers comp insurance expensed to the General department as opposed to the individual General Fund departments in the prior year. This amount was $590,768. The remaining increase was from an increase in employee and retiree insurance costs of $551,289 as well as an increase in legal fees of $265,000. Police department expenditures were down $227,523 from last year due to the aforementioned shift of casualty and workers comp insurance costs to the General department. Debt service payments decreased $732,270 due to the City's payoff of the library bridge loan in the previous year. 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 $2,693,581 over the prior fiscal year. This represented a 7.4% increase. Operating expenses increased by $1,392,257, a 4.8% increase. The increase in expenses was due to mainly to increases in energy purchases for resale of $1,936,340, an increase of 13.2%. Combined, other expenses were down from the prior year, $544,083. Utility rate calculations are based on costs of energy, expenditures -8 - 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 $8,047,842, an increase of $1,319,641. Transfers to the General Fund were $3,612,482, or 45% of income. For fiscal 2013 the transfers to the General Fund were $3,236,251, or 48% of income. For fiscal 2012 the transfers were $4,173,802 or 64%. The reduced transfers, as a percent of income, have enabled the utilities to fund capital additions and reserves for emergencies. The change in net position of the three utilities was an increase of $4,435,360. 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, and the City Council budget committee. Page 53 of this report lists the procedure for preparing the annual budgets. No adjustments to the budget were made during the year. On page 52, 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 $648,000 for fiscal 2014. Local taxes were $347,000 over budget due primarily to greater than expected sales tax revenue. Licenses and permits were $176,000 over budget. Of that amount, $171,000 was from business licenses and franchise fees. Charges for services were $53,000 over budget. Subdivision fees related to an improved construction outlook in Fairhope, and sanitation collections exceeded budgeted amounts. Recreation department revenue was $68,000 over budget due primarily to an increase in memberships. Other revenue was up $60,000 from the sale of fixed assets. At year end, expenditures were $205,000 under budget. The favorable variances in police, recreation, and golf totaled $368,000 due primarily from less than anticipated employee costs of $225,000, $80,000, and $38,000, respectively .. Adult recreation was $52,000 under budget due to employee cost reductions as well as decreases in maintenance and supplies. The favorable variance in capital outlay was $129,000 due to an overall departmental cutback in capital spending throughout the year. In contrast, the street department had an unfavorable variance of $104,000 due to greater than anticipated street materials and landscaping supplies totaling $100,000. Sanitation also had an unfavorable variance of $230,000 due primarily to an increase in equipment and vehicle repairs as well as an increase in gas and oil. Capital Assets As of September 30, 2014, the City's governmental activities had $84,593,843 invested in capital assets, net of depreciation. This is an increase of $6,240,419 from the prior year. The business-type activities had invested capital assets, net of depreciation of $60,385,330, an increase of $16,785,349 (see Note 3, Capital Assets, pages 36 and 37). The City's governmental activities capital assets, at cost, were $133,353,891 at September 30, 2014, an increase of $6,845,962 from the prior year. The reason for this significant increase was due to a three and a half mile road being transferred from the County to the City. The value of this road is estimated at $7.5 million. The business-type activities, the Gas, Electric and Water and Waste Water Funds, had capital assets, at cost, of $98,566,902, an increase of $18 .9 million. Figure 4, page 13, summarizes capital assets by asset type, at cost, and changes in fixed assets during the year. Debt Administration As of September 30, 2014, the City had long-term debt of $36,534,616 (excluding premiums and discounts), including bonds and warrants payable, notes payable, and obligations under capital leases. This is a net increase, city wide, of $1,620,000 from the prior year. Governmental activities' decrease in long-term debt was $2,894,540. Conversely, business-type activities' increase in long-term debt was $4,514,540. In January 2014, the City paid off the General Obligation Refunding Warrant Series 2009 of approximately $2.4 million. During the year, the City entered into a real estate purchase agreement in which $5,750,000 of this purchase - 9 - was financed through General Obligation Warrant Series 2013. See Notes 5 through 8 in the financial statements for more detail. Figure 5, page 14, 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 2015 of $1.3 million. Although, local taxes and licenses and permits are expected to increase $821,000, transfers from the utilities are budgeted to decrease $2,000,000. On the contrary, the General Fund budget has a $462,000 increase in expenses for fiscal 2015, compared to fiscal 2014. Most departments are relatively flat, or have seen small increases in their budgets. Over half of this increa5e, $240,000, relates to General administrative department expenses. The two major increases are: employee costs of $102,000 as well as professional services and vehicle and equipment purchases totaling $132,000. The remaining difference is due to an increase in the sanitation department's budget of $197,000 primarily from an increase in vehicles and equipment purchases of $127,000. Gas Fund, Electric Fund and Water and Waste Water Fund operations budgeted revenues are expected to decrease less than 1 % from actual amounts for 2014, Costs of energy and operating expenses in the three utilities are projected to decrease by approximately 2% from actual amounts for 2014. 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 $8,948,442 for fiscal 2015, compared to actual $8,047,842 for fiscal 2014. This represents a projected increase of 11 %. Transfers to the General Fund for fiscal 2015 are budgeted to be $1,826,575, compared to $3,910,659 for 2014. This represents a 53% decrease. By significantly reducing transfers, the City will be able to make an extra principal debt payment in the amount of $2,000,000. Earnings from operations in the utilities are monitored during the year to insure that excessive amounts are not transferred. CONT ACTING 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 Jill Cabaniss, Finance Director, or Nancy Wilson, City Treasurer, at 161 N. Section Street, Fairhope, Alabama, (251) 928-2136. -10- Figure l CITY OF FAIRHOPE CONDENSED STATEMENT OF NET POSITION FOR THE YEAR E:N'DED 9/30/2014 COMPONENT UNITS GOVERl~MENTAL BUSINESS -TYPE TOTAL PRI!\<1ARY ACTIVITIES ACTIVITIES GOVERNMENT LIBRARY AIRPORT AUTHORITY 9/30/2014 9/30/2013 9/30/2014 9/30/2013 9/30/2014 9/3012013 9/30/2014 9/30/2013 9/30/2014 9/30/2013 Current & Other Assets $ 15,708,701 $ 14,575,528 $ 19,973,176 $ 28,441,845 35,681,877 $ 43,017,373 $ 155,642 $ 163,570 $ 1,327,960 $ 3,429, 128 Capital Assets, net 84,593,843 78,353,424 60,385,330 43,599,981 144,979,173 121,953,405 69,032 50,637 24,212,839 22.:180.982 Total Assets $ 100,302,544 $ 92,928,952 $ 80,358,506 $ 72,041,826 180,66L050 $ 164,970, 778 224,674 $ 25,540,799 $ 25.810,110 Long-Tenn Debt $ 10,048,834 $ 12,559,397 $ 24,529,566 $ 21,088,313 $ 34,578,400 $ 33,647,710 $ 8,440,000 $ 8,695.000 Other Liabilities 4,379,072 4,103,607 7,811,285 7,085,834 12,190,357 11,189,441 4,306 7,669 Total Liabilities $ 14,427,906 $ 16,663,004 $ 32,340,851 $ 28,174,147 $ 46,768,757 $ 44,837,151 4,306 7,669 $ 8,440,000 $ 8,695,000 Service concession arrangement revenue applicable in future years 2,632,500.00 2,700,000 00 Deferred Inflows of Resources 2,632,500.00 2,700.000.00 Net Position: Invested in Capital Assets, net of related debt 74,804,467 $ 65,671,272 $ 42,025,762 $ 29,971.506 116,830,229 95,642,778 $ 69,032 50,637 15,772,839 D.685,982 Restricted 8,557,163 8,768,054 3,718,288 3,698,889 12,275,451 12,466,943 Unrestricted 2,513,008 1,826,622 2,273,605 10,197,284 4,786,613 12,023,906 151,336 155,901 (1,304,540) 729,128.00 Total Net Position 85,874,638 76,265,948 48,017,655 43,867,679 133,892,293 120, 133,627 220,368 206,538 14,468,299 14,415,110 Total Liabilities & Net Position $100,302,544 $ 92,928,952 $ 80,358,506 $ 72,041,826 180,661,050 $ 164,970, 778 $ 224,674 $ 214,207 $ 25,540,799 $ 25.810,110 -11- Figure 2 CITY OF FAIRHOPE CONDENSED STATEMENT OF ACTIVITIES FOR THE YEAR ENDED 9/30/2014 COMPONENT UNITS GOVER,'IJMENTAL BUSINESS -TYPE TOTAL PRIMARY LIBRARY AIRPORT AUTHORITY ACTIVITIES ACTIVITIES GOVERNMENT 9/30/2014 9/3012013 9/30/2014 9/30/2013 9/30/2014 9/30/2013 9/30/2014 9/30/2013 9/30/2014 9/30/2013 Progratn Revenues Charges for Services 9,526,574 $ 9,320,403 $ 39,090,981 $ 36,397,400 48,617,555 $ 45,717,803 32,527 34,803 163,065 158,316 Operating Grants & Contributions 9,144 9,144 730,811 705,179 516,715 601,990 Capital Grants & ('ontrihutions 8,416,283 438,033 8,416,283 438.033 General Revenues Taxes 12,046.400 10,944,886 12,046,400 10,944,886 Tntergovernmenta l 389,561 596,816 389,561 596,816 Investment Earnings 239,205 251,512 30,815 25,268 270,020 276,780 9.224 1,667 Gain (loss) on sale of Assets (261,340) (261,340) Other 147,672 213,169 147,672 213,169 Total Revenues $ 30,513,499 $ 21,764,819 $ 39, 121,796 $ 36,422,668 $ 69,635,295 $ 58,187.487 763,338 $ 739,982 689,004 $ 761.973 Expenses General Government 9,067,340 $ 7,451,793 9,067,340 $ 7,451,793 Sanitation 1,873,508 1,824,259 1,873,508 1,824,259 Police 4,220,003 4,441,429 4.220,003 4,441,429 Fire 431,955 407,361 431,955 407,361 Airport 443,000 443,000 443,000 443.000 Street 4,095.487 3,996,599 4,095,487 3,996,599 Adult Recreation 663,982 640,917 663,982 640,917 Recreation 1,250,689 1,281,865 1,250,689 1.281,865 Golf 978,819 987,869 978,819 987,869 Public Lihrary Board 886,028 840,636 886,028 840,636 Interest on Long Term Debt 472,222 507,982 472,222 507,982 Electric 18,379,231 17,164,781 18,379,231 17,164,781 Natural Gas 5,529,610 5,234,887 5,529,610 5,234,887 Water and Wastewater 7,165,113 7,294,799 7,165,113 7,294,799 Golf Airport Authority 612,581 508,761 Fairhope Public T -ibrary 749,508 715,772 Total Expenses $ 24,383,033 $ 22,823,710 $ 31,073,954 $ 29,694,467 55,456,987 52,518,177 749,508 715.772 612,581 508,761 Change in Net Position before transfers 6,130,466 (l,058,891) 8,047,842 6,728,201 14,178,308 5,669,310 13,830 24,210 76,423 253.212 Special Item -Trans of Golf to Governmental Activities Transfers 3,612,482 3,236,251 (3,612,482) (3,236,251) Change in Net Position 9,742,948 2,177,360 4,435,360 3,491,950 14,178,308 5,669,310 13,830 24,210 76,423 253.212 Net Position, beginning 76,131,690 74,088,588 43,582,295 40,375,729 119,713,985 114,464,317 206,538 182,328 14,391,876 14,161,898 Prior year adjus1ment Net Position, ending $ 85,874,638 $ 76,265,948 $ 48,017.655 $ 43,867,679 133,892,293 $ 120,133,627 220,368 206,538 14,468299 $ 14,415,110 -12- Figure3 Statement of Revenues and Expeditures Governmental Funds For the Year Ended September 30, 2014 9/30/2014 9/30/2013 Increase Revenues Total Total (Decrease} Local taxes $ 12,046,399 $ 10,944,885 $ 1,101,514 Licenses & Permits 3,000,673 2,731,766 268,907 Fines & Forfeitures 285,573 291,749 (6,176) State of Alabama 320,432 532,116 (211,684) U. S. Govenunent 671,182 490,533 180,649 Contribution from Public Library Board 1,500 (1,500) Interests and Rents 239,205 253,003 (13,798) Charges for Service 5,165,291 5,317,255 (151,964) Golf Course Revenue 1,067,593 1,113,277 (45,684) Assessments Recreation Department 436,453 391,024 45,429 Other 196,913 253,146 (56,233) Totals $ 23,429,714 $ 22,320,254 $ 1,109,460 Increase Expenditures Total Total (Decrease) General $ 8,311,150 $ 6,862,597 $ 1,448,553 Sanitation 1,673,938 1,643,715 30,223 Police 3,937,151 4,164,674 (227,523) Fire 339,623 312,647 26,976 Airport 443,000 443,000 Street Department 2,705,732 2,358,383 347,349 Adult Recreation 566,000 543,109 22,891 Debt Service Principal 2,894,540 1,485,545 1,408,995 Interest 465,409 508,483 (43,074) Recreation Department 1,024,526 1,062,174 (37,648) Golf 901,085 907,216 (6,131) Public Library Board 674,100 630,000 44,100 Other 89,785 89,133 652 Capital Outlay 1,908,464 1,418,813 489,651 Totals $ 25,934,503 $ 22,429,489 $ 3,505,014 Figure 4 Governmental Activities Land $ Buildings & Structures Vehicles and equipment Infrastructure Total Capital Assets $ Business-D::ue activities Balance@ 10/01/13 $ Additions to Plant Addition to land, buildings, vehicles and equipment Completed Construction in Progress Disposals Total Capital Assets@ 9/30/2014 $ -13- City of Fairhope Capital Assets Balance @ 10/1/13 Additions 19,838,427 $ 2,123,375 34,558,677 1,219,682 12,838,832 688,782 59,271,993 5,700,000 126,507 ,929 $ 9,731,839 Electric Fund Natural Gas Fund 24,867,847 $ 13,499,318 1,438,887 348,866 7,451,753 1,659,959 (12,805) 33,758,487 $ 15,495,338 Reclassifications/ Balance Retirements @9/30/14 $ $ 21,961,802 (490,249) 35,288,110 (2,395,628) 11,131,986 64,971,993 $ (2,885,877) $ 133,353,891 Water/Wastewater Fund $ 41,318,900 1,096,968 126,697 6,770,512 $ 49,313,077 Figure 5 LONG TERM DEBT General Obligation Warrants, 2011 General Obligation Warrants, 2007 Obligations under capital leases Notes Payable Utilities Revenue Warrants, 2011 Utilities Revenue Warrants, 2005 Utilities Revenue Warrants, 2009 General Obligation Warrant, 2013 General Obligation Warrants, 2011 Obligations under capital leases Compensated absences TOTALS -14- City of Fairhope Debt Administration GOVERNMENTAL FUNDS $ 3,350,396 6,470,000 1,268,068 $ 11,088,464 See Notes 5 through 8 beginning on page 38 for additional detail. BUSINESS-TYPE ACTIVITIES $ 14,800,000 5,260,000 750,000 5,750,000 154,220 537,099 $ 27,251,319 BASIC FINANCIAL STATEMENTS -15- CITY OF FAIRHOPE, ALABAMA STATEMENT OF NET POSITION SEPTEMBER 30, 2014 Governmental Fund Types Governmental Business-type Component Activities Activities Total Units ASSETS Cash $ 14,568,571 $ 10,205,511 $ 24,774,082 $ 1,483,602 Restricted cash 357,156 5,996,890 6,354,046 Receivables, net 761,355 2,360,739 3,122,094 Internal balances (13,306) 13,306 Inventories 730,992 730,992 Other assets 34,925 665,738 700,663 Land and construction in progress 21,961,802 16,948,979 38,910,781 13,125,920 Capital assets, net 62,632,041 43,436,351 106,068,392 11,155,951 Total assets $ 100,302,544 $ 80,358,506 $ 180,661,050 $ 25,765,473 LIABILITIES Accounts payable and accrued expenses $ 964,984 $ 2,751,379 $ 3,716,363 $ 4,306 Customer deposits 1,820,032 1,820,032 Long-term liabilities Due within one year 1,008,610 2,482,810 3,491,420 270,000 Due in more than one year 10,048,834 24,529,566 34,578,400 8,170,000 Net OPEB obligation 2,405,478 757,064 3,162,542 Total liabilities 14,427,906 32,340,851 46,768,757 8,444,306 DEFERRED INFLOWS OF RESOURCES Service concession arrangement revenue applicable to future years 2,632,500 Total deferred inflows of resources 2,632,500 NET POSITION Net investment in capital assets 74,804,467 42,025,762 116,830,229 15,841,871 Restricted for: Debt service 357,156 3,718,288 4,075,444 Capital projects 1,154,000 1,154,000 Road maintenance and construction 46,007 46,007 Council approved emergencies 7,000,000 7,000,000 Unrestricted 2,513,008 2,273,605 4,786,613 (1, 153,204) Total net position 85,874,638 48,017,655 133,892,293 14,688,667 Total liabilities and net position $ 100,302,544 $ 80,358,506 $ 180,661,050 $ 25,765,473 See independent auditors' report and notes to the financial statements. Functions/Programs Primary Government Governmental activities: General Sanitation Police Fire Airport Authority Street Adult Recreation Recreation Golf Public Library Board Interest on long tenn debt Total governmental activities Business-type activities Electric Natural gas Water and Waste water Total business-type activities Total primary government Component Units $ $ $ -16- CITY OF FAIRHOPE, ALABAMA STATEMENT OF ACTIVITIES FOR THE YEAR ENDED SEPTEMBER 30, 2014 Program Revenues Operating Capital Charges for Grants and Grants and Expenses Services Contributions Contributions 9,067,340 $ 6.225A71 $ -$ -$ 1,873,508 1,462,243 4,220,003 285,573 9,144 431,955 443,000 4,095,487 8.416,283 663,982 49,241 1,250,689 436,453 978,819 1,067,593 886,028 472,222 24,383,033 9,526,574 9,144 8,416,283 18,379,231 21,049,277 5,529,610 8,023,473 7,165,113 10.018.231 31,073,954 39.090,981 55,456,987 $ 48,617555 $ 9,144 $ 8Al6.283 1,362,089 $ 195,592 $ 1.247,526 $ General revenues: Property taxes Sales tax Liquor taxes Lodging taxes Other taxes Intergovernmental Investment earnings Gain (loss) on sale of assets Other Transfers Total general revenues and transfers Change in net position Net position, beginning, as previously reported Prior period adjustment Net position, ending $ Net (Expense) Revenue and Changes in Net Position Primary Government Governmental Business-type Activities Activities Total (2,841.869) $ (2,84L869) (411,265) (411,265) (3,925,286) (3,925,286) (431,955) (431,955) (443,000) (443,000) 4.320,796 4,320,796 (614,741) (614,741) (814,236) (814,236) 88,774 88,774 (886,028) (886,028) (472,222) (472,222) (6,431,032) (6,431,032l -$ 2.670.046 2,670,046 2,493,863 2,493,863 2,853,118 2,853,118 8,017,027 8,017,027 (6,431,032) 8,017.027 1,585,995 4,330,537 4,330,537 6,518,249 6,518,249 445,132 445.132 614,278 614,278 138,204 138.204 389,561 389.561 239,205 30,815 270,020 (261,340) (261,340) 147,672 147,672 3,612,482 (3,612,482) 16,173,980 (3,581,667) 12,592,313 9,742,948 4,435,360 14,178,308 76,265,948 43,867.679 120, 133,627 (134,258) (285,384) (419,642) 85,874,638 $ 48,017,655 $ 133,892,293 See independent auditors' report and notes to the financial statements. $ $ C0mponent Units 8L029 9,224 9,224 90,253 14,621,648 (23,234) 14,688,667 -17- CITY OF FAIRHOPE FUND BALANCE SHEETS GOVERNMENTAL FUNDS SEPTEMBER 30, 2014 Other Total Capital Governmental Governmental General Projects Funds Funds ASSETS Cash $ 10,526,463 $ 3,141,252 $ 1,258,015 $ 14,925,730 Investments 34,925 34,925 Receivables, net 631,475 104,258 25,617 761,350 Total assets $ 11,192,863 $ 3,245,510 $ 1,283,632 $ 15,722,005 LIABILITIES Accounts payable $ 515,727 $ 130,153 $ 29,021 $ 674,901 Accrued expenses and taxes 196,884 196,884 Deferred revenue 21,794 21,794 Due to other funds 8,935 4,371 13,306 Total liabilities 743,340 134,524 29,021 906,885 FUND BALANCES Restricted for: Debt service 357,156 357,156 Council approved emergencies 7,000,000 7,000,000 Construction 1,154,000 1,154,000 Road maintenance and construction 46,007 46,007 Assigned to: Construction and road maintenance 1,956,986 851,448 2,808,434 Unassigned 3,449,523 3,449,523 Total fund balances 10,449,523 3,110,986 1,254,611 14,815,120 Total liabilities and fund balances $ 11,192,863 $ 3,245,510 $ 1,283,632 $ 15,722,005 See independent auditors' report and notes to the financial statements. -18- CITY OF FAIRHOPE, ALABAMA RECONCILIATION OF GOVERNMENTAL FUND BALANCES TO NET POSITION OF GOVERNMENTAL ACTIVITIES SEPTEMBER 30, 2014 Fund balances as reported on page 17 Net position reported for governmental activities in the statement of net position are different from Fund Balances for governmental activities because: Capital assets used in governmental activities are financial resources and therefore are not reported in fund financial statements. Depreciation is provided for the above capital assets in government-wide reporting, but is not in fund financial statements. Other long-tem1 assets are not available to pay for current-period expenditures and therefore are deferred revenue in fund financial statements. 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 $32, 784) OPEB obligations Accrued interest on long-tenn debt is not due and payable in the current-period and therefore not included in fund financial statements. Compensated absences not expected to be paid with current resources as determined under Governmental Accounting Standards are not reported in fund financial statements. Net position of governmental activities as reported on page 15 See independent auditors' report and notes to the financial statements. $ $ 14,815,120 133,353,890 ( 48,760,048) 78,214 (9,789,376) (2,405,478) ( 149,617) ( 1,268,068) 85,874,638 -19- CITY OF FAIRHOPE, ALABAMA STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS FOR THE YEAR ENDED SEPTEMBER 30, 2014 Other Total Capital Governmental Governmental General Projects Funds Funds REVENUES Local taxes $ 12,046,399 $ $ $ 12,046,399 Licenses and permits 3,000,673 3,000,673 Fines and forfeitures 285,573 285,573 Intergovernmental 310,956 592,908 87,750 991,614 Interest and rents 236,225 1,466 1,514 239,205 Charges for services 4,687,041 478,250 5, 165,291 Golf course revenue 1,067,593 1,067,593 Recreation department 436,453 436,453 Other 196,913 196,913 Total revenues 22,267,826 594,374 567,514 23,429,714 EXPENDITURES General 8,311,040 110 8,311,150 Sanitation 1,673,938 1,673,938 Police 3,937,151 3,937 ,151 Fire 339,623 339,623 Airport 443,000 443,000 Street 2,302,272 336,988 66,472 2,705,732 Adult recreation 566,000 566,000 Recreation 1,024,526 1,024,526 Golf 901,085 901,085 Public Library Board 674,100 674,100 Other 89,000 785 89,785 Debt service payments Principal 2,894,540 2,894,540 Interest 465,409 465,409 Capital outlay 688,783 1, 189,389 30,292 1,908,464 Total expenditures 20,950,518 1,526,487 3,457,498 25,934,503 Excess of Revenues over (under) Expenditures 1,317,308 (932,113) (2,889,984) (2,504,789) OTHER FINANCING SOURCES (USES) Transfers in 3,612,482 2,649,389 3,378,328 9,640,199 Transfers out (4,927,718) (1,100,000) (6,027,718) Total other financing sources (uses) (1,315,236) 2,649,389 2,278,328 3,612,481 Net change in fund balances 2,072 1,717,276 (611,656) 1,107,692 Fund balances -beginning of year 10,447,451 1,393,710 1,866,267 13,707,428 FUND BALANCES-END OF YEAR $ 10,449,523 $ 3,110,986 $ 1,254,611 $ 14,815,120 See independent auditors' report and notes to the financial statements. -20- CITY OF FAIRHOPE, ALABAMA RECONCILIATION OF THE STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES OF GOVERNMENTAL FUNDS TO THE STATEMENT OF ACTIVITIES FOR THE YEAR ENDED SEPTEMBER 30, 2014 Net change in fund balances -total governmental funds, page 19 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. 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 Depreciation expense for the year Loss on assets disposed 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-tenn 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 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 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. Increase in compensated absences liability Decrease in accrued interest payable Increase in OPEB liability Change in net position of governmental activities, page 16 See independent auditors' report and notes to the financial statements. $ 1,107,692 (14,165) 1,908,464 (3,230,080) (261,340) 2,894,540 7,823,374 (84,840) 9,545 (410,243) $ 9,742,948 ======== -21- CITY OF FAIRHOPE, ALABAMA FUND BALANCE SHEETS PROPRIETARY FUNDS SEPTEMBER 30, 2014 Major Funds Water and Electric Natural Gas Waste Water Fund Fund Fund Total ASSETS Current assets Cash and cash equivalents $ 4,341,374 $ 3,349,044 $ 2,515,093 $ l 0,205,511 Restricted cash for debt service 329, 172 149,627 5,518,091 5,996,890 Receivables, net 2,347,672 1,700 11,367 2,360,739 Inventories 308,616 168,998 253,378 730,992 Prepaid expenses 27,060 6,067 8,747 41,874 Total current assets 7,353,894 3,675,436 8,306,676 19,336,006 Noncurrent assets Unamortized expense 587,774 587,774 Due from other funds 18,657 115,336 764, 158 898, 151 Other assets 12,030 12,030 12,030 36,090 Capital assets Distribution and collection systems 20,542, 125 10,352,579 38,496,817 69,391,521 Buildings, vehicles and equipment 5,343,357 3,567,267 3,315,777 12,226,401 Land and construction in progress 7,873,004 1,575,492 7,500,483 16,948,979 Less accumulated depreciation (12,308,318) (6,522,075) (19,351,] 78) (38,181,571) Total noncurrent assets 21,480,855 9,100,629 31,325,861 61,907,345 Total assets $ 28,834,749 $ 12,776,065 $ 39,632,537 $ 81,243,351 LIABILITIES Current liabilities Accounts payable and accrued liabilities $ 1,827,523 $ 274,752 $ 649, 104 $ 2,751,379 Customer deposits 1,746,432 73,600 1,820,032 Warrants, notes and capital leases payable 1,325,984 79,217 1,077,609 2,482,810 Total current liabilities 4,899,939 353,969 1,800,313 7,054,221 Noncurrent liabilities Compensated absences 162,463 126,243 146,803 435,509 Warrants, notes and capital leases payable 5,752,965 640,001 17,701,091 24,094,057 Net OPEB obligation 232,936 220,470 303,658 757,064 Due to other funds 884,845 884,845 Total noncurrent liabilities 7,033,209 986,714 18,151,552 26,171,475 Total liabilities 11,933, 148 1,340,683 19,951,865 33,225,696 NET POSITION Net investment in capital assets 14,3 71,219 8,254,045 19,400,498 42,025,762 Restricted for debt service 329,172 149,627 3,239,489 3,718,288 Unrestricted 2,201,210 3,031,710 (2,959,315) 2,273,605 Total net position 16,901,601 11,435,382 19,680,672 48,017,655 Total liabilities and net position $ 28,834,749 $ 12,776,065 $ 39,632,537 $ 81,243,351 See independent auditors' report and notes to the financial statements. -22- CITY OF FAIRHOPE, ALABAMA STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET POSITION PROPRIETARY FUNDS FOR THE YEAR ENDED SEPTEMBER 30, 2014 Business Ty.Ee Activities Major Funds Water and Electric Natural Gas Waste Water Fund Fund Fund Total OPERATING REVENUES Sales and services $ 20,192,746 $ 8,014,665 $ 9,065,755 $ 37,273,166 Other charges, sales and receipts 856,531 8,808 952,476 1,817,815 Total operating revenues 21,049,277 8,023,473 10,018,231 39,090,981 OPERATING EXPENSES Energy purchases and cost of goods sold 13,216,564 2,584,466 792,124 16,593,154 Salaries 781,246 536,758 968,480 2,286,484 Depreciation 702,769 390,242 1,015,281 2, 108,292 Insurance 163,580 61,221 117,261 342,062 Electric energy furnished to other departments 1,122,906 1,122,906 Maintenance 395,612 125,477 1,442,530 1,963,619 Community development projects 204,520 213,885 210,219 628,624 Other operating expense 1,698,177 1,577,620 1,951,513 5,227,310 Total operating expenses 18,285,374 5,489,669 6,497,408 30,272,451 OPERATING INCOME 2,763,903 2,533,804 3,520,823 8,818,530 NONOPERATJNG REVENUES (EXPENSES) Interest expense (93,857) (28,941) (667,705) (790,503) Interest income 7,796 7,260 15,759 30,815 Distribution of joint revenue (expense) -net (11,000) (11,000) Total nonoperating revenues(expenses) (86,061) (32,681) (651,946) (770,688) . INCOME BEFORE TRANSFERS AND OTHER ITEMS 2,677,842 2,501,123 2,868,877 8,047,842 TRANSFERS AND OTHER ITEMS Transfers out (867,448) (1,378,832) (1,366,202) (3,612,482) Total transfers (out) (867,448) (1,378,832) ( 1,366,202) (3,612,482) Change in net position 1,810,394 1,122,291 1,502,675 4,435,360 NET POSITION -BEGINNING OF YEAR 15,113,989 10,324,737 18,428,953 43,867,679 Prior period adjustment (22,782) (11,646) (250,956) (285,384) NET POSITION -END OF YEAR $ 16,901,601 $ 11,435,382 $ 19,680,672 $ 48,017,655 See independent auditors' report and notes to the financial statements. -23- CITY OF FAIRHOPE, ALABAMA STATEMENT OF CASH FLOWS PROPRIETARY FUNDS FOR THE YEAR ENDED SEPTEMBER 30, 2014 Business T~Ee Activities Major Funds Water and Electric Natural Gas Waste Water Fund Fund Fund Total CASH FLOWS FROM OPERA TING ACTIVITIES Received from customers $ 21,078,074 $ 8,022,415 $ 10.134.203 $ 39.234,692 Paid to suppliers for goods and services (16,846,408) (4,571,886) (4,981,673) (26,399,967) Paid to personnel for services (781.246) (536.758) (968,480) (2,286,484) Net cash provided (used) by operating activities 3,450,420 2,913,771 4,184,050 10.548,241 CASH FLOWS FROM INVESTING ACTIVITIES Interest income and joint revenue (expense) 7,796 (3,740) 15,759 19,815 CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Proceeds from borrowings 5,750,000 5.750,000 Repayment of debt (81,303) (27,600) (1 ,024,967) (l '133,870) Interest paid (86,685) (26,771) (572,779) (686,235) Acquisition of capital assets (8,890,639) (2,008,830) (7,994.175) (18,893,644) Net cash provided (used) by capital and related financing activities (3,308,627) (2,063,201) (9,591,9212 (14,963,749) CASH FLOWS FROM NONCAPITAL AND RELATED FINANCING ACTIVITIES Change in interfund receivable (18,655) 170,298 (31,316) 120,327 Change in interfund payable (154,377) (154,377) Transfers out (867,448) (1,378,832) ( 1,366.202) (3,612,482) Net cash provided (used) by noncapital financing activities ( 1,040,480) (l ,208,534) (l,397.518) (3,646,532) INCREASE (DECREASE) IN CASH (890,891) (361,704) (6, 789,630) (8,042,225) Cash -beginning of year 5,561,437 3,860,375 14,822,814 24,244,626 CASH -END OF YEAR $ 4,670,546 $ 3,498,671 $ 8,033,184 $ 16,202,401 Reconciliation of operating income to net cash provided (used) by operating activities Income (loss) from operations $ 2,763,903 $ 2,533,804 $ 3,520,823 $ 8,818,530 Adjustments to reconcile income from operations to net cash provided (used) by operating activities Depreciation 702,769 390,242 1,015,281 2,108,292 Amortization 534,562 534,562 Change in assets and liabilities Decrease (increase) in accounts receivable 28,797 (l,058) 115,974 143,713 Decrease (increase) in inventories 7,114 (24.l 14) 67,356 50,356 Decrease (increase) in prepaid expenses 6.228 73 1.350 7,651 Decrease (increase) in unamortized expense (561,169) (561,169) Increase (decrease) in accounts payable 268,717 (25,362) (490,474) (247,119) Increase (decrease) in customer deposits (377,094) (53,704) (430,798) Increase (decrease) in compensated absences 3,669 9,308 (16,678) (3,701) Increase (decrease) in net OPEB obligation 46,317 30,878 50,729 127,924 Net cash provided (used) by operating activities $ 3,450,420 $ 2,913,771 $ 4.184.050 $ ] 0.548,241 See independent auditors' report and notes to the financial statements. THIS PAGE INTENTIONALLY LEFT BLANK -24- CITY OF FAIRHOPE, ALABAMA COMBINING STATEMENT OF NET POSITION DISCRETELY PRESENTED COMPONENT UNITS FOR THE YEAR ENDED SEPTEMBER 30, 2014 Governmental Activities ASSETS Cash Land and construction in progress Capital assets, net Total assets LIABILITIES Accounts payable and accrued expenses Long-term liabilities Due within one year Due in more than one year Total liabilities DEFERRED INFLOWS OF RESOURCES Service concession arrangement revenue applicable to future years Total deferred inflows of resources NET POSITION Net investment in capital assets Unrestricted Total net position Total liabilities and net position $ $ $ $ Public Library Board 155,642 $ 69,032 224,674 $ 4,306 $ 4,306 69,032 151,336 220,368 224,674 $ See independent auditors' report and notes to the financial statements. Airport Authority 1,327,960 $ 13, 125,920 11,086,919 25,540,799 $ $ 270,000 8,170,000 8,440,000 2,632,500 2,632,500 15,772,839 (1,304,540) 14,468,299 25,540,799 $ Total 1,483,602 13, 125,920 11,155,951 25,765,473 4,306 270,000 8,170,000 8,444,306 2,632,500 2,632,500 15,841,871 ( 1, 153,204) 14,688,667 25,765,473 -25- CITY OF FAIRHOPE, ALABA1'1A COMBINING STATEMENT OF ACTIVITIES DISCRETELY PRESENTED COMPONENT UNITS FOR THE YEAR ENDED SEPTEMBER 30, 2014 Program Revenues Operating Capital Net (Expense) Revenue and Changes in Net Position Governmental Activities Charges for Grants and Grants and Public Library Airport Functions/Programs Expenses Services Contributions Contributions Board Authority Total Airport Authority $ 612,581 $ 163,065 $ 516,715 $ - $ - $ 67,199 $ 67,199 Public Library Board 749,508 32,527 730,811 13,830 13,830 $ 1,362,089 $ 195,592 $ 1,247,526 $ 13,830 67,199 81,029 General revenues: Investment earnings 9,224 9,224 Total general revenues 9,224 9,224 Change in net position 13,830 76,423 90,253 Net position, beginning 206,538 14,415,110 14,621,648 Prior period adjustment (23,234) (23,234.00) Net position, ending $ 220,368 $ 14,468,299 $ 14,688,667 See independent auditors' report and notes to the financial statements. THIS PAGE INTENTIONALLY LEFT BLANK NOTES TO THE FINANCIAL STATEMENTS -26- CITY OF FAIRHOPE, ALABAMA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2014 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 accounting principles generally accepted in the United States of America 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 confonnity with the accounting principles generally accepted in the United States of America 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 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. (continued) -27- CITY OF FAIRHOPE, ALABAMA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2014 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 Position, governmental and business-type activities (a) are presented on a consolidated basis, (b) reflect, full accrual accounting, which incorporates long-term assets and receivables as well as long-tern1 debt and obligations, and (c) are reported using the economic resources measurement focus. Receivables and payables between activities are eliminated in the government-wide presentation through the caption "Internal Balances" on the Statement of Net Position. 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 pennits, 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 capita] 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. (continued) -28- CITY OF FAIRHOPE, ALABAMA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2014 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 mmnnum 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 Position (govemment-wide level). Depreciation has been provided over the estimated useful lives using the straight line rates as follows: Plant and distribution systems Buildings Golf course improvements Vehicles and equipment Infrastructure (roads, bridges, drainage) Runways and taxiways (continued) 30 -40 years 25 -50 years 10 -40 years 3 -10 years 25 -50 years 75year -29- CITY OF FAIRHOPE, ALABAMA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2014 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 accrnal basis of accounting. Under the modified accrnal 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 accrnal 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, pennits and fines. The proprietary fund financial statements are presented on the accrnal 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 Proprietmy Fund Accounting. E. IMP ACT OF RECENTLY ISSUED ACCOUNTING PRINCIPLES Recently Issued and Adopted Accounting Principles On October 1, 2012, the City adopted the provisions of Governmental Accounting Standards Board (GASB) Statement No. 62, Codification of Accounting and Financial Reporting Guidance Contained in Pre-November 30, 1989 FASB and AJCPA Pronouncements. The adoption of GASB Statement No. 62 did not have any impact on the City's consolidated financial statements for the year ended September 30, 2014. On October 1, 2012, the City implemented GASB Statement No. 63, Financial Reporting of Deferred Ou(flows of Resources, D~ferred !71flows qf Resources, and Net Position. GASB Statement No. 63 provides financial reporting guidance for deferred outflows of resources and defen-ed inflows of resources. The Balance Sheet is renamed the Statement of Net Position and includes four components: assets, deferred outflows of resources, liabilities and deferred inflows of resources. The City has dete1mined they have no deferred outflows of resources at September 30, 2013, under the requirements of GASB Statement No. 63. The City's component unit, the Airport Authority, has determined they have a deferred inflow of resources related to a service concession an-angement as discussed in Note 20 to the financial statements at September 30, 2014. (continued) -30- CITY OF FAIRHOPE, ALABAMA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2014 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) During the year ended September 30, 2014, the City implemented GASB Statement No. 65, Items Previously Reported as Assets and Liabilities. GASB Statement No. 65 requires certain items that are currently reported as assets and liabilities to be reclassified as deferred outflows of resources, deferred inflows ofresources or current-period outflows (expenses) and inflows (revenues). These determinations are based on the definitions of those elements in Concepts Statement No. 4, Elements of Financial Statements. Deferred ou~fiows of resources are consumptions of net assets by the City that are applicable to a future reporting period. Deferred inflows of resources are acquisitions of net assets by the City that are applicable to a future reporting period. Ou~fiows of resources are consumptions of net assets by the City that are applicable to the reporting period. Ir1;fiows of resources are acquisitions of net assets by the City that are applicable to the reporting period. See Note 22, Restatement of Beginning Balances, for additional details. Recently Issued Accounting Principles In June 2012, the GASB issued Statement No. 68, Accounting and Financial Reporting for Pensions -An Amendment of GASE Statement No. 27. GASB Statement No. 68 requires a net pension liability to be recognized, to the extent unfunded, on the Statement of Net Position. Previously, no such liability was recognized. GASB Statement No. 68 is effective for periods beginning after June 15, 2014. The City estimates that upon implementation of GASB Statement No. 68, a liability will be shown on the Statement of Net Position as well as a reduction in unrestricted net position equal to the unfunded accrued actuaiial liability. At September 30, 2013, the Government-wide unfunded accrued actuarial liability is $10,368,775 as shown in Note 13 to the financial statements. (continued) -31- CITY OF FAIRHOPE, ALABAMA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2014 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) F. 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. G. 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. H. 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. I. 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) Statement No. 33, revenue is recorded based upon taxes assessed and considered available. Any taxes not considered available are recorded as deferred revenue. J. DEBT ISSUE COST Issuance expenses on long term debt of proprietary funds are expensed as incurred in accordance with GASB Statement No. 65. 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 and premiums are deferred and amortized over the term of the bonds using the bonds outstanding method. Bond discounts and premiums are presented as a reduction or addition to the face amount of the bonds payable whereas issuance costs are expensed as incurred. Deferred losses associated with the issuance of long-tenn debt are presented as Deferred Outflows , of Resources and are amortized on the straight-line method over the term of the bond. (continued) -32- CITY OF FAIRHOPE, ALABAMA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2014 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) K. 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 services. L. 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 ofU. S. Treasury money market accounts which are presented at cost which equals fair market value. M. USE OF ESTIMATES The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. N. NET POSITION AND EQUITY CLASSIFICATIONS Government-wide Financial Statements The City adopted GASB Statement No. 63, Financial Reporting of Deferred Ouiflows of Resources, Deferred Inflows of Resources, and Net Position, that superseded GASB Statement No. 34, Basic Financial Statements -and Management's Discussion and Analysis for State and Local Government. Equity is classified as net position and displayed in three components: • Net investment in capital assets -Consists of 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. Deferred outflows of resources and deferred inflows of resources that are attributable to the acquisition, construction, or improvement of those assets or related debt also should be included in this component of net position. If there are significant unspent related debt proceeds or deferred inflows of resources at year-end, the portion of the debt of deferred inflows of resources attributable to the unspent proceeds is not included in the calculation of invested in capital assets, net of the related debt. Rather, that portion of the debt or deferred inflows of resources is included in the same net position as the unspent proceeds. (continued) -33- CITY OF FAIRHOPE, ALABAMA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2014 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) • Restricted net position -Consists of restricted assets reduced by liabilities and deferred inflows of resources related to those assets. • Unrestricted net position -The net amount of the assets, deferred outflows of resources, liabilities, and deferred inflows of resources that are not included in the detennination of net investment in capital assets or the restricted component of net position. Fund Financial Statements The Fund equity of the governmental fund financial statements is classified as fund balance. The City adopted a GASB standard establishing 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, by passage of a resolution. • 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 general fund is the only fund that reports a positive unassigned fund balance amount. 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. (continued) -34- CITY OF FAIRHOPE, ALABAMA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2014 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 0. 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 2014, the General Fund transferred to the Debt Service Fund $3,378,328 in support of long term debt service. The utility operations transfer a p01iion of their earnings to the General Fund each year to support general government operations. In fiscal year 2014, the following amounts were transferred from the utility funds noted to the General Fund. Electric Fund Natural Gas Fund Water and Waste Water Fund Total $ 867,448 1,378,832 1,366,202 $ 3.612.482 In fiscal year 2014, the City transferred $443,000 to the Airport Authority and $674,100 to the Public Library Board, both discretely presented component units. (continued) -35- CITY OF FAIRHOPE, ALABAMA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2014 NOTE 2 INTERFUND TRANSACTIONS (CONTINUED) Interfund receivables and payables at September 30, 2014 are: Due from Due to General Fund Electric Water and Waste Water Natural Gas Capital Projects Electric Fund General Water and Waste Water Natural Gas Natural Gas Fund General Electric Water and Waste Water Fund Electric General Capital Projects Fund General $ $ 4,804 548 4,370 18,657 115,884 768,961 $ 18,657 768,961 115,884 548 4,804 4,370 913,224 $ 913,224 ======= 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 as revenues in the receiving fund. -36- CITY OF FAIRHOPE, ALABAMA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2014 NOTE 3 CAPITAL ASSETS Changes in capital assets, during the fiscal year, were as follows: Balance 10/01/13 Governmental Activities Capital assets not subject to depreciation Land $ 19,838,427 $ Total 19,838,427 Other capital assets Buildings and structures 34,558,677 Vehicles and equipment 12,838,832 Infrastructure 59,271,993 Total 106,669,502 Less accumulated depreciation for Buildings and structures (8,514,850) Vehicles and equipment (11,411,123) Infrastructure (28,228,532) Total accumulated depreciation ( 48, 154,505) Other capital assets, net 58,514,997 Governmental capital assets, net $ 78,353,424 $ Depreciation was charged to governmental activities as follows: General Government Police Department Fire Department Recreation Department Adult Recreaction Department Street Department Sanitation Department Golf Department Total Increases 2,123,375 $ 2,123,375 1,219,682 688,782 5,700,000 7,608,464 (865,213) (719,165) (1,645,702) (3,230,080) 4,378,384 6,501,759 $ $ $ Decreases $ (490,249) (2,395,628) (2,885,877) 438,858 2,185,679 2,624,537 (261,340) (261,340) $ 585,333 256,660 91,229 220,067 94,383 1,716,146 192,722 73,540 3,230,080 Balance 09/30/14 21,961,802 21,961,802 35,288,110 11,131,986 64,971,993 111,392,089 (8,941,205) (9,944,609) (29,874,234) (48,760,048) 62,632,041 84,593,843 During the year ended September 30, 2014, the City disposed of unused, outdated equipment in the general fund in the amount of $2,885,877. Items disposed were primarily items that were fully depreciated, resulting in a minimal change in net capital assets due to the mass disposal. (continued) -37- CITY OF FAIRHOPE, ALABAMA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2014 NOTE3 CAPITAL ASSETS (CONTINUED) Balance Balance 10/01/13 Increases Decreases 09/30/14 Business TYQe Activities Capital assets not subject to depreciation Land $ 837,943 $ 8,774,095 $ $ 9,612,038 Construction in progress 566,429 6,770,512 7,336,941 Total 1,404,372 15,544,607 16,948,979 Other capital assets Distribution and collection system 66,506,801 2,884,720 69,391,521 Buildings, vehicles and equipment 11,774,892 464,314 (12,805) 12,226,401 Total 78,281,693 3,349,034 (12,805) 81,617,922 Less accumulated depreciation for Distribution and collection system (27 ,490,435) (1,610,837) (29,101,272) Buildings, vehicles and equipment (8,595,649) ( 497 ,455) 12,805 (9,080,299) Total accumulated depreciation (36,086,084) (2, 108,292) 12,805 (38,181,571) Other capital assets, net 42,195,609 1,240,742 43,436,351 Capital assets, net $ 43,599,981 $ 16,785,349 $ $ 60,385,330 Comnonent Unit -Public Librarv Equipment $ 364,771 $ 32,166 $ $ 396,937 Less accumulated depreciation (314,134) (13,771) (327,905) Capital assets, net $ 50,637 $ 18,395 $ 69,032 Comnonent Unit -Ai.mart Authority Capital assets not subject to depreciation Land $ 10,934,228 $ $ $ 10,934,228 Construction in progress 127,646 2,064,046 2,191,692 Total 11,061,874 2,064,046 13,125,920 Other capital assets Runways 10,373,708 10,373,708 Buildings and improvements 3,968,008 3,968,008 Equipment 98,885 98,885 Total 14,440,601 14,440,601 Less accumulated depreciation for Runways (1,147,500) (124, 133) (1,271,633) Buildings and improvements (1,883,154) (104,915) (1,988,069) Equipment (90,839) (3,141) (93,980) Total accumulated depreciation (3,121,493) (232,189) (3,353,682) Other capital assets, net 11,319,108 (232,189) 11,086,919 Capital assets, net $ 22,380,982 $ 1,831,857 $ $ 24,212,839 -38- CITY OF FAIRHOPE, ALABAMA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2014 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, 2014: Utilities Revenue Warrants, Series 2011 dated October 13, 2011, original debt obligation of$16,140,000, interest rate 3.15%, payable semi-annually, principal payable December 1, 2011 through December 1, 2030. General Obligation Warrant, Series 2011, dated October 13, 2011, original debt obligation of $195,000, interest at 2.55% payable semi-annually, principal payments due December 1, 2012 through June 1, 2025. Utilities Revenue Warrants, Series 2005 dated March 1, 2005, original debt obligation of $8,455,000, interest rate 2.20% to 4.25%, payable semi-annually, principal payable December 1, 2005 through December 1, 2020. General Obligation Warrant, Series 2013, dated December 30, 2013, original debt obligation of $5,750,000, interest rate equal to 65% times the LIBOR rate+ 1.23%, 1.34% at September 30, 2014, payable semi-annually, principle payments are due December 1, 2015 through December 1, 20 I 8. Utilities Revenue Warrants, Series 2009 dated April 2, 2009, original debt obligation of $1,250,000, interest rate 3 .85%, payable semi-annually, principal payable 2009 through 2019. TOTAL $14,800,000 154,220 5,260,000 5,750,000 750,000 $26.714.220 Revenue bonds, notes, and warrants payable from the proprietary funds (2011 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. -39- CITY OF FAIRHOPE, ALABAMA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2014 NOTE 6 NOTE AND WARRANTS PAY ABLE-GOVERNMENTAL ACTIVITIES The following is a governmental fund summary of long term debt at September 30, 2014: General Obligation Warrant, Series 2011, dated October 13, 2011, original debt obligation of $4,005,000, interest at 2.55%, payable semi-annually, principal payments due December 1, 2012 through June 1, 2025. General Obligation Warrants, Series 2007 dated June 1, 2007, original debt obligation of $7 ,900,000, interest rate 4.00% to 5 .00%, payable semi-annually, principal payable June 1, 2008 through June 1, 2032. TOTAL $ 3,350,396 6,470,000 $ 9.820.396 The General Obligation Warrant Series 2011 was issued for the purpose of refunding the City's General Obligation Warrants Series 2002. 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. NOTE7 -40- CITY OF FAIRHOPE, ALABAMA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2014 CHANGES IN LONG TERM DEBT Balance 10/01/13 Additions Reductions GOVERNMENT AL ACTIVITIES Warrants and notes payable General obligation warrants $ 12,714,936 $ - $ (2,894,540) $ Total warrants and notes payable 12,714,936 (2,894,540) Warrant discount (32,784) 1,764 12,682,152 (2,892, 776) Other liabilities Compensated absences 1,183,228 659,274 (574,434) Governmental activities long-term liabilities $ 13,865,380 $ 659,274 $ (3,467,210) $ Amounts Balance due within 09/30/14 one year 9,820,396 $ 483,780 9,820,396 483,780 (31,020) ----- 9,789,376 483,780 1,268,068 524,830 11,057,444 $ 1,008,610 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 10/01/13 Additions Reductions 09/30/14 one year BUSINESS-TYPE ACTIVJTJES Warrants and notes payable General obligation warrants $ 209,680 $ 5,750,000 $ (55,460) $ 5,904,220 $ 1,161,220 Utilities revenue warrants 21,990,000 (1,180,000) 20,810,000 1,220,000 Total wanants and notes payable 22,199,680 5,750,000 (l ,235,460) 26,714,220 2,381,220 Deferred amount on refunding (205,791) 31,786 (174,005) Warrant discounts (148,115) 83,177 (64,938) 21,845,774 5,750,000 (1,120,497) 26,475,277 2,381,220 Other liabilities Compensated absences 531,072 97,889 (91,862) 537,099 101,590 Business-type activities long-term liabilities $ 22,376,846 $ 5,847,889 $ (1,212,359) $ 27,012,376 $ 2,482,810 Compensated absences due within one year included in accrued liabilities $ 101,590 Compensated absences due in more than one year included in noncurrent liabilities 435,509 Total compensated absences liability $ 537,09_2_ -41- CITY OF FAIRHOPE, ALABAMA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2014 NOTE 8 SUMMARY OF DEBT SERVICE REQUIREMENTS TO MATURITY GOVERNMENT AL ACTIVITIES The following is a summary of debt service requirements to maturity of long tenn debt of the Governmental Funds as of September 30, 2014, including interest payments: Year Ending September 30, Principal Interest Total 2015 $ 483,780 $ 374,716 $ 858,496 2016 503,560 356,500 860,060 2017 513,560 337,411 850,971 2018 533,340 317,823 851,163 2019 552,900 299,813 852)13 2020 -2024 3,346,680 1, 190,380 4,537,060 2025 -2029 2,431,960 620,176 3,052,136 2030 -2032 1,454,616 132,750 1,587 ,366 TOTALS $ 9,820,396 $ 3,629,569 $ 13,449,965 BUSINESS-TYPE ACTIVITES The following is a summary of debt service requirements to maturity of long tenn debt of the Proprietary Funds as of September 30, 2014, including interest payments and excluding discounts and premiums related to warrant issuance: Year Ending September 30, Principal Interest Total 2015 $ 2,387,070 $ 761,532 $ 3,148,602 2016 2,432,560 700,703 3,133,263 2017 2,477,740 637,391 3,115,131 2018 2,528,230 572,303 3,100,533 2019 2,583,940 504,769 3,088,709 2020-2024 7,965,430 1,666,506 9,631,936 2025-2029 5,188,040 482,253 5,670,293 2030-2031 1,151,210 37,800 1,189,010 $ 26,714,220 $ 5,363,257 $ 32,077,477 -42- CITY OF FAIRHOPE, ALABAMA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2014 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% 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, 2014, was 1.53%. The following is a summary of debt service requirements to maturity of long term debt of the Airport Authority as of September 30, 2014, including estimated interest payments at 1.53% and excluding discounts related to bonds: Year Ending Sept. 30, Principal Interest Total 2015 270,000 126,946 396,946 2016 285,000 122,885 407,885 2017 305,000 118,598 423,598 2018 320,000 114,011 434,011 2019 340,000 109,198 449, 198 2020 and thereafter 6,920,000 17,347 6,937,347 $ 8,440,000 $ 608,985 $ 9,048,985 NOTE 10 SALARIES -PROPRIETARY FUNDS The following is a summary of employees' salaries by Utility Fund for the year ended September 30, 2014: Water and Electric Natural Gas Waste Water Fund Fund Fund Total salaries $ 1,123,079 $ 694,709 $ 1,048,346 Less: Salaries capitalized for plant additions 341,833 157,951 79,866 Amount of salaries charged to operations $ 781~246 $_5_361758 $ 968!48Q -43- CITY OF FAIRHOPE, ALABAMA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2014 NOTE 11 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. 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 12 COMPENSATED ABSENCES The City accrues vacation eamed by employees as well as other compensated absences with similar characteristics. Sick leave, which can be paid at tennination, if certain conditions are met, is accrued based on the ptob<:tbility that a portion of the current employees will meet required criteria. A liability for sick leave to be paid at tennination 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 eamed at current pay rates. Accumulated unpaid vacation and sick pay are accrued when incurred in the Proprietary Funds. Amounts n01mally paid with expendable available financial resources are recorded in the General Fund when the obligation has matured. Employees must use all vacation time annually, and the maximum accumulation of sick leave is limited to 960 hours. 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). NOTE 13 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, 2013, RSA had a total of 1,151 participating units. RSA issues a publicly available financial report that includes financial statements and required supplementary infonnation 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. 0. Box 302150, Montgomery, Alabama 36130-2150. (continued) -44- CITY OF FAIRHOPE, ALABAMA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2014 NOTE 13 PENSION PLAN (CONTINUED) 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 During its 2012 session, the Alabama Legislature passed and the Governor signed into law changes in the pension plan effective January 1, 2013. Employees hired prior to January 1, 2013 (Tier 1 employees) must contribute 5% of his or her gross earnings, except law enforcement who must contribute 6%, to the pension plan. Employees hired on or after that date (Tier 2 employees) will contribute on gross earnings at a rate of 6%, except law enforcement who must contribute 7%. The City is required to contribute at an actuarially determined rate. At September 30, 2013, RSA decreased the City's contribution rate to 9.38% for Tier 1 employees and established at rated of 7.08% for Tier 2 employees. The contribution requirements of plan members and the City are established and may be amended by RSA. A Tier 1 employee may retire after 25 years of credited service and receive pension benefits equal to 2.0125% of the employee's average final salary multiplied times years of credited service. A Tier 2 employee may retire after attainment of age 62 and ten years of service years and with benefits equal to 1.65% of the employee's average final salary multiplied by years of credited service. Average final salary is defined as the average of the three highest years' salary out of the last ten years of service. The pension plan also provides death benefits and disability benefits as determined by state statutes. (continued) -45- CITY OF FAIRHOPE, ALABAMA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2014 NOTE 13 PENSION PLAN (CONTINUED) 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. The Schedule of Funding Progress -Em12loyee Retirement System Actuarial Accrued UAALas a Actuarial Liability (AAL) Funded Percentage of Valuation Actuarial Value Entry Age Unfunded AAL Ratio Covered Payroll Covered Payroll Date of Assets (a) (UAAL) b-a (alb) ( c) (b-a)/c) 9/30/20132'4 $ 25,073,787 $ 35,442,562 $ 10,368,775 70.7% $ 11,752,353 88.2% 9/30/20123 $ 23,502,551 $ 32,809,270 $ 9,306,719 71.6% $ 11,752,353 79.2% 9/30/2011 1 $ 23,552,946 $ 33,999,408 $ 10,446,462 69.3% $ 11,212,324 93.2% 1 Reflects changes in actuarial assumptions. 2 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. 3 Reflects changes to interest smoothing methodology. 4 Reflects implementation of Board Funding Policy. Annual Pension Cost For 2014, the City's annual pension cost of $960,242 was equal to the City's required and actual contributions. The required contribution was determined as part of an actuarial valuation (dated September 30, 2013) using the entry age actuarial cost method. Amortization is detennined 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 3.75-7.25% per year, and (c) no cost-of-living adjustments. Both (a) and (b) included an inflation component of 3.0%. 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, 2014 NOTE 13 PENSION PLAN (CONTINUED) Trend Informatio:q Fiscal Annual Percentage Year Pension of APC Funding Cost (APC) Contributed 9/30/13 $ 960,242 100% 9/30/12 $ 949,822 100% 9/30/11 $ 1,056,337 100% Funded status and Funding Progress The funded status of the plan as of October 1, 2013 was as follows: Actuarial accrued liability (AAL) Actuarial value of plan assets Unfunded actuarial accrued liability (UAAL) Funded ratio Covered payroll UAAL as a percentage of covered payroll Net Pension Obligation $ 35,442,562 25,073,787 $ 10,368,775 70.7% $ 11,752,353 88.2% Actuarial valuations of an ongoing plan involve estimates of the value of reported amounts and assumptions about the probability of occurrence of events far into the future. Amounts determined regarding the funded status of the plan and the annual required contributions of the employer are subject to continual revision as actual results are compared with past expectations and new estimates are made about the future. The Schedule of Funding Progress is presented in these notes to the financial statements. This schedule presents multi-year trend infomrntion about whether the actuarial value of plan assets is increasing or decreasing relative to the actuarial accrued liability for benefits over time. -47- CITY OF FAIRHOPE, ALABAMA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2014 NOTE 14 DEPOSIT AND INVESTMENT RISK At September 30, 2014, the City had investments in U. S. Treasury money market mutual funds through its trustee agreement for debt sinking funds. The fair value was $6,354,046 ($357,156 in governmental activities and $5,996,890 in business-type activities). The average maturity of the portfolio was 56 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, 2014, 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 15 COMMITMENTS The City has various contractual commitments outstanding at year-end. The commitments under these contracts totaled $4,377,407. The commitments funded from governmental activities will be $161,067 and from business-type activities will be $4,216,340. NOTE 16 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 tennination, 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. -48- CITY OF FAIRHOPE, ALABAMA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2014 NOTE 17 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. The City implemented Government Accounting Standards Statement No. 45, Accounting and Financial Reporting by Employers for Post Employment Benefits Other Than Pensions (GASB Statement No. 45), for its financial disclosure and reporting purposes. The City intends to fund the OPEB Obligation pursuant to GASB Statement No. 45 to the extent the funding requirement is not met by the retiree health care premiums paid outright. During the year ended September 30, 2014, the City's portion of health care funding cost for retired employees (retiree premiums) totaled $502,682. Contribution Rates -Eligible retirees are subject to employer contributions for medical benefits equal to 90% of the premium. At September 30, 2013, the valuation date, 23 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 Statement No. 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, 2014, was 30 years. The following table shows the components of the City's annual OPEB cost for the year, the amount actually contributed to the plan using operating funds, and changes in the City's net OPEB obligation to the Plan: Annual required contribution Interest on net OPEB obligation Adjustment to ARC Annual OPEB cost (expense) Current year retiree premium Change in net OPEB obligation Net OPEB obligation -beginning of year Net OPEB obligation -end of year $ 982,982 54,028 (76,595) 960,415 (422,248) 538,167 2,624,374 $ 3.162.541 The OPEB obligation is primarily funded using the operating funds of the General Fund. (continued) -49- CITY OF FAIRHOPE, ALABAMA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2014 NOTE 17 POST EMPLOYMENT HEALTH BENEFITS (CONTINUED) Actuarial 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) 9/30/14 $ 960,415 33.2% $ 3,104,675 9/30/13 951,222 32.7% 2,624,374 9/30/12 908,803 30.2% 1,985,035 Funded Status and Funding Progress -The first actuarial valuation under GASB Statement No. 45 was as of September 30, 2008, and the most recent actuarial valuation was as of September 30, 2012. There were no assets accumulated in the Plan, however, market value will be used to value such assets. At September 30, 2012, the Actuarial Accrued Liability (AAL) was $9,379,777, 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 Accrued UAAL as a Actuarial Value of Liability (AAL)* -Unfunded (AAL) Percentage of Valuation Dated Assets Entry Age (UAAL) Funded Ratio Covered Payroll Covered Payroll (a) (b) (a/b) (c} (b-a}/c 9/30/2013 $ $ 9,379,777 $ (9,379,777) 0.0% $ 11,752,353 79.8% 9/30/2012 $ $ 9,379,777 $ (9,379,777) 0.0% $11,752,353 79.8% 9/30/2011 $ $ 8,093,303 $ (8,093,303) 0.0% $ 11,212,324 72.2% *GASB 45 permits the AAL determined at September 30, 2012 to be used for two consecutive years 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. (continued) -50- CITY OF FAIRHOPE, ALABAMA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2014 NOTE 17 POST EMPLOYMENT HEALTH BENEFITS (CONTINUED) 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 18 OPERA TING 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. NOTE 19 LEASE EXPENSE The City rents equipment, primarily, on monthly arrangements. The leases are not significant to the operations of the City. -51- CITY OF FAIRHOPE, ALABAMA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2014 NOTE 20 SERVICE CONCESSION ARRANGEMENT The Airport Authority, entered into an agreement with the Baldwin County Board of Education (BCBOE), under which the BCBOE will operate and collect tuition from aviation training facility at the airport for the next 40 years with an automatic extension of 5 years unless written notice is received six months prior to the expiration of the initial term. BCBOE paid the City $2,700,000 upon execution of the arrangement. The initial payment was used in the construction of the aviation training facility. The initial payment was considered a deferred inflow of resources and rental revenue will be recognized over the life of the initial tenn of the lease. The City will report the aviation training facility as a capital asset upon completion of the facility and will depreciate the capital asset in accordance with the City's depreciation policy. Upon receipt, the City reported a cash balance in the construction fund of $2,700,000 with a corresponding balance of $2,700,000 as a deferred inflow of resources pursuant to the service concession arrangement. The construction fund balance at September 30, 2014, totaled $740,615. The balance of the deferred inflow of resources is $2,632,500 at September 30, 2014. NOTE21 SUBSEQUENTEVENTS The City has evaluated subsequent events through January 15, 2015, the date which the financial statements were available to be issued. There were no material subsequent events which require disclosure at September 30, 2014. NOTE 22 RESTATEMENT OF BEGINNING BALANCES In accordance with GASB Statement No. 65, Items Previously Reported as Assets and Liabilities, GASB concluded that most debt issuance costs do not meet the definition of an asset, because the costs incurred do not result in service capacity that the Board presently controls. GASB also concluded that debt issuance costs do not meet the definition of a deferred outflow of resources because the costs are not applicable to a future period. As a result, the GASB concluded that these costs should be recognized as an outflow of resources (expense) in the reporting period in which they are incurred. Debt issuance costs incurred in previous years have been restated to reflect current treatment of debt issuance costs. Accordingly, debt issuance costs incurred prior to the 2011 issuance which were reported as assets amortized over the life of the debt, have been restated through a prior-period adjustment to adjust the beginning unrestricted net position to account for implementation of this accounting standard. The effect is as follows: Unamortized debt issuance costs -Proprietary Funds Unrestricted net position -Proprietary Funds Unamortized debt issuance costs -Governmental Activities Unrestricted net position -Governmental Activities Unamortized debt issuance costs -Discretely presented component units Unrestricted net position -Discretely presented component units 2013 Previously Reported $ 285,384 43,867,679 134,258 76,265,948 23,234 14,621,648 Restatement/ Adjustment 2013 Restated $ (285,384) $ (285,384) 43,582,295 (134,258) (134,258) 76,131,690 (23,234) (23,234) 14,598,414 THIS PAGE INTENTIONALLY LEFT BLANK REQUIRED SUPPLEMENTARY INFORMATION OTHER THAN MANAGEMENT'S DISCUSSION AND ANALYSIS -52- CITY OF FAIRHOPE, ALABAMA BUDGETARY COMPARISON SCHEDULE-GENERAL FUND FOR THE YEAR ENDED SEPTEMBER 30, 2014 Variance Budgeted Amounts Actual with Final Original Final Amounts Budget REVENUES Local taxes $ 11,699,300 $ 11,699,300 $ 12,046,399 $ 347,099 Licenses and permits 2,824,800 2,824,800 3,000,673 175,873 Fine and forfeitures 320,000 320,000 285,573 (34,427) Intergovernmental 305,700 305,700 310,956 5,256 Interest and rents 241,800 241,800 236,225 (5,575) Charges for services 4,634,000 4,634,000 4,687,041 53,041 Golf course revenue 1,088,800 1,088,800 1,067,593 (21,207) Recreation department 417,800 417,800 436,453 18,653 Other revenue 87,250 87,250 196,913 109,663 Total revenues 21,619,450 21,619,450 22,267,826 648,376 EXPENDITURES General government 8,315,636 8,315,636 8,311,040 4,596 Sanitation 1,444,367 1,444,367 1,673,938 (229,571) Police 4,167,072 4,167,072 3,937,151 229,921 Fire 324,119 324,119 339,623 (15,504) Airport Authority 443,000 443,000 443,000 Streets 2,198,187 2,198,187 2,302,272 (104,085) Adult recreation 618,470 618,470 566,000 52,470 Recreation 1,108,725 1,108,725 1,024,526 84,199 Golf 955,187 955,187 901,085 54,102 Public Library Board 674,100 674,100 674,100 Other 89,000 89,000 89,000 Capital outlay 818,000 818,000 688,783 129,217 Total expenditures 21,155,863 21,155,863 20,950,518 205,345 Excess of Revenues over (under) Expenditures 463,587 463,587 1,317,308 853,721 Other financing sources (uses) Transfers in 3,910,659 3,910,659 3,612,482 (298,177) Transfers out (4,222,255) (4,222,255) (4,927,718) (705,463) Total other financing sources (uses) (311,596) (311,596) (1,315,236) (1,003,640) NET CHANGE IN FUND BALANCES $ 151,991 $ 151,991 2,072 $ (149,919) FUND BALANCES -BEGINNING OF YEAR 10,447,451 FUND BALANCES -END OF YEAR $ 10,449,523 See independent auditors' report. -53- CITY OF FAIRHOPE, ALABAMA NOTES TO REQUIRED SUPPLEMENTARY INFORMATION SEPTEMBER 30, 2014 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 Budget Committee works 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 accounting principles generally accepted in the United States of America (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. -54- CITY OF FAIRHOPE, ALABAMA NOTES TO REQUIRED SUPPLEMENTARY INFORMATION SEPTEMBER 30, 2014 NOTE 2 EXCESS EXPENDITURES The following are General Fund expenditures in excess of final budget amounts: Excess Expenditures General Government Recreation Department Grant expenditures $ 4,025 General supplies Employee payroll taxes 12,932 Equipment and vehicle repair Training, school, travel 27,083 Uniforms Legal fees 277,002 Services -excluding accounting and legal 59,803 Adult Recreation Department Office supplies 3,844 Employee retirement expense Postage 280 Office expense General supplies 5,092 Other expenses maintenance/ equipment 13,811 Dues, memberships, subscription 1,243 Street Department Uniforms 1,628 Salaries Credit card processing fees 3,990 Employee payroll taxes Book and sidewalk brick 103 Employee retirement expense Beach repairs and maintenance 12 Equipment and vehicle repair Sales tax collection fees 10,125 Uniforms Equipment rental Police Department Street material and landscaping General supplies 5,501 General maintenance 10,577 Sanitation Department Equipment and vehicle repair 2,721 General supplies Jail expense 35,776 Gasoline and oil DEA funds purchases 29,640 Equipment and vehicle repair Landfill maintenance Purchases of recycle bins and Fire Department garbage cans Salaries 979 Fire call payments 4,020 Golf Department Employee payroll taxes 75 Professional services Gasoline and oil 669 General maintenance Equipment and vehicle repair 17,000 Gasoline and oil Supplies -grill Pro-shop custom orders Excess Expenditures $ 4,181 316 35 1,657 7 3,807 29,680 1,680 109 50,612 6,464 10,469 100,387 7,469 75,105 155,921 5,741 8,624 271 3,415 2,642 386 9,191 THIS PAGE INTENTIONALLY LEFT BLANK OTHER SUPPLEMENTARY INFORMATION COMBINING FINANCIAL STATEMENTS NONMAJOR GOVERNMENTAL FUNDS -55- CITY OF FAIRHOPE, ALABAMA COMBINING BALANCE SHEETS NONMAJOR GOVERNMENTAL FUNDS SEPTEMBER 30, 2014 Total Special Special Nonmajor Revenue Fund Revenue Fund Governmental Impact Fees Gas Tax Debt Service Funds ASSETS Cash $ 851,448 $ 49,411 $ 357,156 $ 1,258,015 Receivables 25,617 25,617 Total assets $ 851,448 $ 49,411 $ 382,773 $ 1,283,632 LIABILITIES Accounts payable -trade $ $ 3,404 $ 25,617 $ 29,021 Total liabilities 3,404 25,617 29,021 FUND BALANCES Restricted for: Debt service 357,156 357,156 Road maintenance and construction 46,007 46,007 Assigned to: Construction and road maintenance 851,448 851,448 Total fund balances 851,448 46,007 357,156 1,254,611 Total liabilities and fund balances $ 851,448 $ 49,411 $ 382,773 $ 1,283,632 -56- CITY OF FAIRHOPE, ALABAMA COMBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES NONMAJOR GOVERNMENTAL FUNDS FOR THE YEAR ENDED SEPTEMBER 30, 2014 Total Special Special Nonmajor Revenue Fund Revenue Fund Debt Governmental Impact Fees Gas Tax Service Funds REVENUES Intergovernmental $ $ 87,750 $ $ 87,750 Charges for services 478,250 478,250 Interest and rents 1,277 237 1 14 Total revenues 479,527 87,750 237 567,514 EXPENDITURES Street department 66,472 66,472 Other 17 768 785 Debt service Principal 2,894,540 2,894,540 Interest 465,409 465,409 Capital outlay 30,292 30,292 Total expenditures 30,292 66,489 3,360,717 3,457,498 Excess of revenues over 449,235 21,261 (3,360,480) (2,889,984) (under) expenditures OTHER FINANCING SOURCES (USES) Transfers in 3,378,328 3,378,328 Transfers out (850,000) (250,000) (1,100,000) Total other financing sources (uses) (850,000) (250,000) 3,378,328 2,278,328 Net change in fund balances (400,765) (228,739) 17,848 (611,656) Fund balances -beginning of year 1,252,213 274,746 339,308 1,866,267 FUND BALANCES - END OF YEAR $ 851,448 $ 46,007 $ 357,156 $ 1,254,611 THIS PAGE INTENTIONALLY LEFT BLANK INDIVIDUAL FUND FINANCIAL STATEMENTS DISCRETELY PRESENTED COMPONENT UNITS ASSETS Cash and cash equivalents Total assets LIABILITIES -57- CITY OF FAIRHOPE, ALABAMA FUND BALANCE SHEET FAIRHOPE PUBLIC LIBRARY BOARD SEPTEMBER 30, 2014 Accounts payable and accrued expenses FUND BALANCES Restricted for: Capital projects Unassigned Total fund balances Total liabilities and fund balances See independent auditors' report. $ 155,642 --------- $ 155,642 ======== $ 4,306 -------- 48,761 102,575 151,336 $ 155,642 ======== -58- CITY OF FAIRHOPE, ALABAMA RECONCILIATION OF GOVERNMENTAL FUND BALANCES TO NET POSITION OF GOVERNMENTAL ACTIVITIES FAIRHOPE PUBLIC LIBRARY BOARD SEPTEMBER 30, 2014 Fund balances as reported on page 57 Net position reported for governmental activities in the statement of net position are different from fund balances for governmental activities because: Capital assets used in governmental activities are financial resources and therefore are not reported in fund financial statements. Depreciation is provided for the above capital assets in government-wide reporting, but is not in fund financial statements. $ 151,336 396,937 (327,905) Net position of governmental activities as reported on page 25 $ 220,368 ========= See independent auditors' report. -59- CITY OF FAIRHOPE, ALABAMA STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES FAIRHOPE PUBLIC LIBRARY BOARD FOR THE YEAR ENDED SEPTEMBER 30, 2014 REVENUES Fines and lost books Donations, gifts, memorials and bequests State aid Lease income Payments from City of Fairhope Miscellaneous Total revenues EXPENDITURES Salaries Payroll taxes Employees' retirement Books, periodicals, audio visual Supplies Janitorial service Professional fees Telecommunications Capital outlay Maintenance Miscellaneous Total expenditures Net change in fund balances Fund balances -beginning of year FUND BALANCES -END OF YEAR See independent auditors' report. $ 18,501 44,568 15,818 670,425 14,028 763,340 457,069 34,753 45,142 80,712 11,580 21,374 7,229 468 39,234 31,897 38,447 767,905 (4,565) 155,901 $ 151,336 ====== -60- CITY OF FAIRHOPE, ALABAMA RECONCILIATION OF THE STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES OF GOVERNMENTAL FUNDS TO THE STATEMENT OF ACTIVITIES FAIRHOPE PUBLIC LIBRARY BOARD FOR THE YEAR ENDED SEPTEMBER 30, 2014 Net change in fund balances -total governmental funds, page 59 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. Capital outlays for the year Depreciation expense for the year Change in net position of governmental activities, page 25 See independent auditors' report. $ (4,565) 32,166 (13,771) $ 13,830 ====== ASSETS Cash and cash equivalents Total assets LIABILITIES Unearned rent FUND BALANCES Restricted for: Capital projects Unassigned Total fund balances -61- CITY OF FAIRHOPE, ALABAMA FUND BALANCE SHEET FAIRHOPE AIRPORT AUTHORITY SEPTEMBER 30, 2014 Total liabilities and fund balances See independent auditors' report. $ 1,327,960 $ 1,327,960 ======== $ 2,632,500 --------- 103, 167 (1,407,707) (1,304,540) $ 1,327,960 ===== -62- CITY OF FAIRHOPE, ALABAMA RECONCILIATION OF GOVERNMENTAL FUND BALANCES TO NET POSITION OF GOVERNMENTAL ACTIVITIES FAIRHOPE AIRPORT AUTHORITY SEPTEMBER 30, 2014 Fund balances as reported on page 61 Net position reported for governmental activities in the statement of net position are different from fund balances for governmental activities because: Capital assets used in governmental activities are financial resources and therefore are not reported in fund financial statements Depreciation is provided for the above capital assets in government-wide reporting, but is not in fund financial statements. 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 Net position of governmental activities as reported on page 25 See independent auditors' report. $ $ ( 1,304,540) 27,566,521 (3,353,682) (8,440,000) 14,468,299 -63- CITY OF FAIRHOPE, ALABAMA STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES FAIRHOPE AIRPORT AUTHORITY FOR THE YEAR ENDED SEPTEMBER 30, 2014 REVENUES Fuel sales and rentals $ 163,067 Interest income 9,224 Federal grant revenue 6,215 Payments from City of Fairhope 510,500 Total revenues 689,006 EXPENDITURES Insurance 30,938 Legal and professional 126,735 Maintenance 71,870 Capital outlay 2,064,046 Debt service payments Principal 255,000 Interest 129,523 Other 21,331 Total expenditures 2,699,443 Net change in fund balances (2,010,437) Fund balances -beginning of year 705,897 FUND BALANCES -END OF YEAR $ ( 1,304,540) See independent auditors' report. -64- CITY OF FAIRHOPE, ALABAMA RECONCILIATION OF THE STATEMENT OF REVENUES, EXPENDITURES AND CHANGESINFUNDBALANCESOFGOVERNMENTALFUNDSTO THE STATEMENT OF ACTIVITIES FAIRHOPE AIRPORT AUTHORITY FOR THE YEAR ENDED SEPTEMBER 30, 2014 Net change in fund balances -total governmental funds, page 63 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: Bond proceeds provide current financial resources to governmental funds, but issuing debt increases long-tenn liabiities in the statement of net position. Repayment of long-term liabilities is an expenditure in governmental funds, but the repayment reduces long-term liabilities in the statement of net position. Principal payments on long-term debt 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 Depreciation expense for the year Change in net position of governmental activities, page 25 See independent auditors' report. $ (2,010,43 7) 255,000 2,064,046 (232,186) $ 76,423 ======== -65- CITY OF FAIRHOPE, ALABAMA Emergency Repairs SCHEDULE OF CAPITAL PROJECTS EXPENDITURES FOR THE YEAR ENDED SEPTEMBER 30, 2014 Manley Road Soccer Complex Welcome Center Restrooms Floral Clock Church Street Drainage Fairhope A venue Road Widening Resurfacing of Fairhope Avenue from Highway 181 to Bancroft Community Park Troyer Booth Extension Fairhope Sidewalk from Idelwild to Highway 181 Flood Event Other projects Total capital projects expenditures See independent auditors' report. $ 83,008 96,400 57,538 27,257 32,405 421,191 76,676 352,458 38,921 80,255 253,979 6,399 $ 1,526,487 -66- CITY OF FAIRHOPE, ALABAMA SCHEDULE OF INFORMATION REQUIRED BY BOND INDENTURES SEPTEMBER 30, 2014 A. Utility customers at September 30, 2014 were as foJlows: Number of customers Number of metered customers Number of unmetered customers Number of waste water customers B. Annual Net Income of Utility Operations Income from operations Add: Depreciation and amortization Interest income Annual net income as prescribed by debt covenants Electric Fund 6,630 6,630 Electric Fund $2,763,903 702,769 7,796 $3,474,468 Natural Gas Fund 9,729 9,729 Natural Gas Fund $2,533,804 390,242 7,260 $2,931,306 Water and Waste Water Fund 16,870 16,870 9,638 Water and Waste Water Fund $ 3,520,823 1,015,281 15,759 $ 4,551,863 Total $ 8,818,530 2, 108,292 30,815 $ 10,957,637 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 2015 Buildings and facilities -expires January 2015 Automobile -expires January 2015 Liability Uninsured motorist Inland Marine expires January 2015 Public officials errors and omissions liability-expires January 2015 Police liabilty -expires January 2015 Aggregate Per occurrence Excess liability policy for general liabilty, police and public official expires January 2015 D. The City has complied with all requirements of the respective bond indentures. $ 5,000,000 76,812,532 1,000,000 50,000 44, 112 5,000,000 5,000,000 2,000,000 5,000,000 Balance 10/01/13 $ Deposits Disbursements Balance 9/30/14 $ -67- CITY OF FAIRHOPE, ALABAMA SUMMARY OF DEPOSITS, WITHDRAWALS AND BALANCES OF SELECTED TRUST ACCOUNTS AS REQUIRED UNDER CERTAIN TRUST INDENTURES SEPTEMBER 30, 2014 1996 2011 Capital 2005 2005 2007 2009 2009 Construction 2011 Improvement Warrant Fund Reserve Fund Warrant Fund Warrant Fund Reserve Fund Fund Warrant Fund 50,000 $ 616,731 $ 874,715 $ 176,942 $ 102,708 $ 125,003 $ 8,217,299 $ 514,053 5 883,286 87 530,272 147,915 13 5,960,674 897,599 (5) (870,514) (87) (530,771) (140,993) (13) (11,899,371) (897,894) $ 50,000 $ 629,503 $ 874,715 $ 176,443 $ 109,630 $ 125,003 $ 2,278,602 $ 513,758 $ 2011 Reserve Fund 1,415.679 142 (142) 1,415,679 THIS PAGE INTENTIONALLY LEFT BLANK ST A TIS TI CAL SECTION 68 STATISTICAL SECTION This part of the Chy of Fairhope, Alabama's comprehensive annual financial report presents detailed infonnation as a context for understanding what the infonnation in the financial statements, note disclosures, and required supplementary infonnation says about the government's overall financial health. Contents 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. 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. 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. 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 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. Page 69-74 75-80 81-84 85-86 87-89 Sources: Unless otherwise noted, the infonnation in these schedules is derived from the comprehensive annual financial reports for the relevant year. -69- CITY OF FAIRHOPE, ALABAMA NET POSITION BY COMPONENT LAST TEN FISCAL YEARS (accrual basis of accounting) Fiscal Year 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Governmental activities Invested in capital assets, net of related debt $ 60,149,769 $ 67,742,360 $ 61,450,916 $ 67,338,065 $ 66,295,379 65,963,325 $ 66,845,689 $ 66,016,012 $ 65,671,272 $ 74,804,467 Restricted 1,908,452 787,538 1,073,262 847,580 1,462,430 3,564,376 6,207,809 8,015,592 9,007,967 8,557,163 Unrestricted 88,053 (l,195} 54,300 (84,709) 165,029 1,782,848 50,640 56,984 1,586,709 2,513,008 Total governmental activities net positions $ 62,146,274 $ 68,528,703 $ 62,578,478 $ 68,100,936 $ 67,922,838 $ 71,310,549 $ 73,104,138 $ 74,088,588 $ 76,265,948 $ 85,874,638 Business-type activities Invested in capital assets, net of related debt $ 15,801,139 $ 19,307,068 $ 23,076,992 $ 24,573,181 24,210,082 $ 24,697,607 $ 25,786,974 $ 17,990,946 $ 29,971,506 $ 42,025,762 Restricted 2,058,968 2,089,642 2,106,516 2,092,174 1,883,768 1,649,106 1,658,631 12,337,047 3,698,889 3,718,288 Unrestricted 5,082,800 3,334,264 2,105,886 1,422,972 3,691,056 6,696,480 10,610,123 10,047,736 10,197,284 2,273,605 Total business-type activities net positions $ 22,942,907 $ 24,730,974 $ 27,289,394 $ 28,088,327 $ 29,784,906 33,043,193 $ 38,055,728 40,375,729 $ 43,867,679 $ 48,017,655 Primary government Invested in capital assets, net of related debt $ 75,950,908 $ 87,049,428 $ 84,527,908 $ 91,911,246 $ 90,505,461 $ 90,660,932 $ 92,632,663 $ 84,006,958 $ 95,642,778 $ 116,830,229 Restricted 3,967,420 2,877,180 3,179,778 2,939,754 3,346,198 5,213,482 7,866,440 20,352,639 12,706,856 12,275,451 Unrestricted 5,170,853 3,333,069 2,160,186 1,338,263 3,856,085 8,479,328 10,660,763 10,104,720 11,783,993 4,786,613 Total primary government net position $ 85,089,181 $ 93,259,677 $ 89,867,872 $ 96,189,263 $ 97,707,744 $ 104,353,742 $ 111,159,866 $ 114,464,317 $ 120,133,627 $ 133,892,293 -70- CITY OF FAIRHOPE, ALABAMA CHANGES IN NET POSITIONS LAST TEN FISCAL YEARS (accrual basis of accounting) Fiscal Year 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Expenses Governmental activities· General 2,679,665 3.873,823 5,540,860 $ 6,392,335 6,536.802 $ 6,929,734 $ 6.176,077 $ 8,103,118 7.451.793 9.067,340 Puhlic safety Police 3,202,753 3,482,683 3,789,666 4,011,091 4.090,851 4,740,344 5.213.031 4,925,437 4.441.429 4.220.003 Fire 550,602 692,972 781,696 843.469 878,148 1,017,184 483.670 461,865 407,361 431,955 Puhlic works Sanitation 990,511 1,123,517 1,479,374 1,564,126 1,657,615 1,973,942 1,868,364 1,814,947 1,824,259 1,873,508 Street 6,767,426 4,653,792 3,757,204 3,671,572 4,308,575 4,452,370 4,251,404 5,502,244 3,996,599 4,095.487 Public Library Board 355,908 336,823 594,378 771,373 760,174 772,539 798,997 810,636 840,636 886,028 Airport 95,272 149,179 397.183 545,000 242,090 249,856 225.843 281,124 443.000 443.000 Recreation 596,686 645,154 819,051 900,759 1,031,886 1,269,393 1,138,079 1,176,191 1,281,865 1.250.689 Adult Recreation 305,018 321,557 390,125 459.961 438,442 601,232 654.736 613,614 640.917 663.982 Golf 1.292.200 U02,861 l.106,624 932.284 987.869 978.819 Interest on long-term debt 503,428 475,699 624,883 743,451 878,534 694,083 633,161 589,174 507,982 472,222 Total governmental activities expenses 16,047,269 15,755,199 18,174,420 19,903,137 22, 115,317 23,803,538 22,549,986 25,210,634 22,823,710 24.383,033 Business-type activities: Natural gas 5,345,092 6,329.438 5,948,144 6.709.491 5,349.209 5,757,648 5.037,587 4.484,683 5.234.887 5,529.610 Electric 11,213,904 12,842,542 14,029,975 16,006,139 15,540,148 15,664,835 16,909,931 16,912,834 17,164,781 18.379.231 Water and wastewater 5,255,779 5.682,694 6,387,739 6,502.942 6,803,566 6,533,138 6,616,671 7,050,997 7.294.799 7.165,113 Golf 1,320,403 1.476,373 1,544,528 1.713.486 Total business-type activities expenses 23,135,178 26,331,047 27,910,386 30,932,058 27,692,923 27,955,621 28,564,189 28,448,514 29,694,467 31,073,954 Total primaiy government expenses $ 39,182,447 $ 42,086,246 $ 46,084,806 $ 50,835,195 $ 49,808,240 $ 51,759,159 $ 51,114,175 $ 53,659,148 $ 52,518,177 55,456,987 Program Revenues Governmental activities: Charges for services: General $ 2,098,805 3.726,334 $ 5,862,118 5,952.299 $ 5.140.160 5,249,279 5,383.822 6,301,207 6,052.493 6.225.471 Police 325,728 354,504 362,441 252,838 224,022 261,070 241,104 289,432 291.749 285,573 Sanitation 749,301 1,252.282 1,294,033 1,331,617 L368.656 1,380,238 1,391,722 1,408,179 1.431.883 1.462.243 Recreation 70.665 73,975 75,592 83.919 130.740 366,683 369,135 368.493 391.024 436.453 Adult Recreation 40,019 41,590 34,534 32,791 36,316 45,889 46,261 41,018 39,977 49.241 Golf 847,016 776,173 944,858 1,001,627 1,113,277 1,067.593 Operating grants and contiibutions 3,472,502 3,065,387 631,133 206,012 87,416 22.267 24,402 9,144 Capital grants and contrihntions 3,792.402 4,861,100 8,526,591 7,310,387 384,358 1,389,592 302,963 1,317,475 438,033 8.416.283 Total governmental activities program revenues 10,549,422 13,375,172 16,786,442 15,169,863 8,218,684 9,491,191 8,704,267 10,727,431 9,758,436 17.952,001 Business-type activities: Charges for services· Gas 6,606,396 7,112,944 7,388,531 7,841,853 8,341,855 8,631,935 8,219,447 6,191,986 6,769,649 8,023.473 Electric 12,497,288 14,683,254 16,658,326 17,777,703 18,800,459 18,496,651 19,838,004 18,891,334 19,647,662 21,049.277 Water and wastewater 7,330,152 8,348,064 8,669,895 8,166,344 8,194,949 8,959,041 10,287,898 9,838,580 9,980.089 10.018.231 Golf course 1,233,703 1,527,311 1,505,211 1,487,811 Total business-type activities program revenues 27,667,539 31,671,573 34,221,963 35,273,711 35,337,263 36,087,627 38,345,349 34,921,900 36,397.400 39.090.981 Total primary government program reYenues $ 38,216,961 45.046,745 $ 51,008,405 $ 50.443,574 43,555,947 $ 45,578,818 $ 47.049.616 45,649,331 $ 46, 155,836 57.042.982 -71- CITY OFF AIRHOPE, ALABAMA CHANGES IN NET POSITIONS LAST TEN FISCAL YEARS (accrual basis of accounting) Fiscal Year 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Net (expense )/revenue Governmental activities (5,497,847) (2,380,027) $ ( 1,387 ,978) (4,733,274) (13,896,633) $ (14,312,347) $ (13,845,719) ( 14,483,203) $ (13,065,274) $ (6,431.032) Business-type activities 4,532,361 5,340,526 6,31L577 4,341,653 7,644.340 8,132,006 9,781,160 6,473,386 6.702,933 8.017.027 Total primary government net expense $ (965,486) $ 2,960,499 $ 4,923,599 (391,621) $ ( 6,252,293) $ (6,180,341) $ (4,064,559) $ (8,009,817) $ ( 6,362,341) $ 1.585,995 General Revenues and Other Changes in Net Positions Governmental activities: Taxes Property taxes $ 2,710,256 $ 3,159,187 $ 3,589,489 $ 4,631,476 $ 4,939,840 4,842,366 $ 4,590,840 $ 4,591,739 4,298,046 $ 4,330,537 Sales tax 1,003,864 4,443,325 4,590,149 4,898,362 5,437,863 6,518,249 Liquor taxes 352,827 347,415 373,794 396,196 385,411 392,255 393,123 425,888 425,816 445,132 Lodging taxes 449,079 196,224 420,024 495,850 474,852 483,271 495,870 569,142 643,495 614,278 Other 130,305 124,738 138,857 145,836 134,413 131J35 120,518 124,234 139,666 138,204 Intergovernmental 325,557 522,196 472,667 293,007 436,472 424,359 248,011 314,525 596,816 389,561 Investment earnings 327,687 394,006 508,558 340,530 225,860 239,256 249,489 226,642 251,512 239,205 Gain (loss) on sale of assets (261,340) Other 205,060 230,691 251,476 294,469 109,958 1,293,419 124,161 143,319 213,169 147,672 Transfer of Golf Fund to Governmental Activities 913,729 Transfers in/( out) 4,058,380 3,787,999 (10,317,112) 3,658,368 5,094,136 4,897,104 4,827,147 4,173,802 3,236,251 3,612,482 Total government activities 8,559,151 8,762,456 (4,562,247) 10,255,732 13,718,535 17,146,490 15,639,308 15,467,653 15.242,634 16.173,980 Business-type activities: Investment earnings 190,330 235,538 266,888 115.648 60,104 23,385 58,522 20,417 25.268 30.815 Transfer of Golf Fund to Governmental Activities (913,729) Transfers in/( out) ( 4,058,3802 (3, 787,999) ( 4,020,046) (3,658,368) (5,094, 136) (4,897,104) (4,827,147) (4,173,802) (3,236,251) (3,612,482) Total business-type activities (3,868,050) (3,552,461) (3,753,1582 (3,542, 720) (5,947,761) (4,873,719) (4,768,625) (4,153,385) (3,210,983) (3,581,6672 Total primaiy government $ 4,69IJ01 5,209,995 $ ( 8,315 ,405) 6,713,012 $ 7,770,774 12,272,771 10,870,683 $ 11,314,268 $ 12,031,651 12,592.313 Change in Net Positions Governmental activities $ 3,061,304 $ 6,382,429 $ (5,950,225) 5,522,458 $ (178,098) 2,834,143 1,793,589 984,450 2,177,360 $ 9,742,948 Business-type activities 664,311 L788,065 2,558,419 798,933 1,696,579 3,258,287 5,012.535 2,320,001 3,491,950 4,435,360 Total primary government $ 3,725,615 $ 8.170,494 $ (3,391,8062 $ 6.321.391 $ 1,518,481 $ 6,092,430 6,806.124 3,304,451 $ 5.669,310 $ 14.178,308 -72- CITY OF FAIRHOPE, ALABAMA GOVERNMENTAL ACTIVITIES TAX REVENUES BY SOURCE LAST TEN FISCAL YEARS (accrual basis of accounting) Beer, Wine Burglar Fiscal Sales Ad Valorem Automobile and Liquor Cigarette Lodging Dog Alarm Year Tax Tax Tax Tax Tax Tax Tax Tax Total 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 2012 4,898,362 4,065,822 525,917 425,888 124,183 569,142 50 10,609,364 2013 5,437,863 3,738,511 559,534 425,816 139,526 643,495 140 10,944,885 2014 6,518,249 3,759,584 570.954 445.132 138,204 614,278 75 12,046.475 -73- CITY OF FAIRHOPE, ALABAMA FUNDBALANCESOFGOVERNMENTALFUNDS (modified accrual basis of accounting) 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 General fund Restricted $ $ $ $ $ 501,932 $ 2,723,595 $ 5,014,205 $ 7,000,000 $ 7.000.000 $ 7,000.000 { Jnassigned 1,033,668 1,087,642 1,703,619 1,083,383 1,574,743 1,985,914 2,145,950 3,295,547 3,447,451 3.449.523 Total general fund $ 1,033,668 $ 1,087,642 $ 1,703,619 $ 1,083,383 $ 2,076,675 $ 4,709,509 $ 7,160,155 $ 10,295,547 $ 10,447.451 $ 10.449,523 All other governmental funds Restricted Debt Service -Other Gov. Funds $ 272,950 $ 235,348 $ 456,957 $ 470,671 $ 350,987 $ 351,008 $ 350,020 $ 325,214 $ 339,308 $ 357.156 Road Maint & Const. -Other Gov. Funds 274.746 46.007 Construction -Capital Projects 1.154,000 1,154,000 Assigned, reported in- Other Governmental Funds 227,109 257,881 311,553 66,907 59.142 127,419 167,786 1,029,075 1,252,213 851,448 Capital Projects Funds L602.259 263.202 3.892,524 2.070,337 550.369 362,354 675.799 58.625 1.956,986 { Tnassigned Capital projects funds (1,069,424) 181,085 Total all other governmental funds $ 2,102,318 $ 756.431 $ 4.661.034 $ 2,607,915 $ 960,498 $ 840.781 $ 1,193,605 $ 284.865 $ 3.259.977 $ 4,365.597 The City implemented GASE Statement number 54 fiscal year 2011. This statement replaces the previous classifications of reserved, unreserved, designated and undesignated fund balances. -74- CITY OF FAIRHOPE, ALABAMA CHANGES IN FUND BALANCES OF GOVERNMENT AL FUNDS (modified accrual basis of accounting) 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 REVENUES Local taxes 3,642,467 3,827,564 4,522,164 5,669,358 6,938,380 10,292,352 10,190,500 10,609,364 10,944,885 12,046,399 Licenses and permits 2,055,861 3,401,207 2,996,213 2,729,209 2,058,105 2,178,982 2,295,795 2,612,793 2,731,766 3,000,673 Fines and forfeitures 325,728 354,504 362,441 252,838 224,022 261,070 241,104 289,432 291,749 285,573 Intergovernmental 6,514,824 7,319,833 3,167,141 1,826,517 837,246 547,556 345,966 667,344 1,022,649 991,614 Contribution from Public Library Bd 1,500,000 1,128,850 685,003 208,931 71,000 65,000 183,285 1,000 1,500 Interest and rents 327,686 394,009 377,743 340,530 225,861 239,256 249,489 226,748 253,003 239,205 Charges for services 792,245 1,577,409 4,149,905 4,610,307 4,450,711 4,450,535 4,479,749 5,096,593 5,317,255 5,165,291 Assessments 124,582 39,199 1,831 3,659 Golf course revenue 959,730 858,237 1,020,250 1,001,627 1,113,277 1,067,593 Recreation Department 369,135 368,493 391,024 436,453 Other 315,745 343,588 492,419 411,179 277,015 1,705,991 170,422 184,411 253,146 196,913 Total revenues 15,599,138 18,386,163 16,754,860 16,048,869 16,042,070 20,598,979 19,545,695 21,061,464 22,320,254 23,429,714 EXPENDITURES General government 2,412,693 2,731,819 5,090,777 6,318,322 5,948,479 6,279,197 5,335,143 7,026,721 6,862,394 8,311,150 Sanitation 929,815 960,328 1,254,694 1,405,774 1,475,035 1, 758,543 1,745,785 1,607,918 1,643,715 1,673,938 Police 2,881,293 3,110,086 3,405,687 3,913,015 3,922,163 4,404,803 4,941,051 4,671,591 4,164,674 3,937,151 Fire 492,552 576,191 619,434 707,513 765,645 837,597 395,224 339,080 312,647 339,623 Airport 9,124 63,031 397,183 545,000 242,090 249,856 225,843 281,124 443,000 443,000 Street 5,636,288 3,580,189 2,552,328 2,554,959 2,704,242 2,797,566 2,639,416 3,872,517 2,358,383 2,705,732 Recreation 472,129 513,503 658,837 785,425 867,174 1,050,957 969,025 989,463 1,062,174 1,024,526 Adult recreation 261,569 277,808 328,744 431,481 400,494 553,125 577,015 525,212 543,109 566,000 Golf 1,303,135 1,094,604 1,113,178 863,593 907,216 90L085 Capital outlay 4,131,361 14,308,234 6,054,830 3,227,604 1,775,834 1,565,192 1,474,937 664,526 1,418,813 1,908,464 Debt service Principal 1,288,488 835,627 4,412,690 2,424,796 863,329 1,047,483 831,483 4,804,960 1,485,545 2,894,540 Interest 512,025 482,436 532,687 802,140 809,715 704,043 666,652 616,221 508,483 465,409 Bond issuance costs 138,476 Public Library Board 330,806 336,823 396,000 504,560 530,000 565,000 565,000 600,000 630,000 674,100 Other 60,000 60,000 60,000 60,000 60,000 75,000 89,620 160,888 89,133 89,785 Total expenditures 19,418,143 27,836,075 25,902 367 23,680,589 21,667,335 22,982,966 21,569,372 27,023,814 22,429,286 25,934,503 Excess (deficiency) of revenues over expenditures p,819,0052 (9,449,9122 (9,147,5072 F,631,1202 (5,625,265} (2,383,9872 (2,023,677} {5,962,3502 {109,0322 (2,504, 7892 OTHER FINANCING SOURCES (USES) Transfers in 4,876,111 5,325,589 4,897,503 5,228,182 9,542,134 6,541,730 6,557,708 10,379,818 7,236,241 9,640, 199 Proceeds from issuance of debt 734,934 4,370,000 9,692,000 1,300,000 3,368,260 4,015,200 Cost from issuance of debt (78,364) Payment to Defeased Wanants Escrow Agent (3,412,892) Transfer to Debt Service to defease warrants (3,289,896) Warrant discount (43,956) Transfers out (817,7312 (1,537,5902 (877,457} (1,569,814} (1,158,102} ( 1,644,626} (1, 730,561} (6,206,016} (3,999,990} (6,027,718} Total other financing sources (uses) 4,793,314 8,157,999 13,668,090 4,958,368 4,971,140 4,897,104 4,827,147 8,189,002 3,236,251 3,612,481 Net change in fond balance 974,309 $ (l,291,913} 4,520 583 (2,673,352} {654,125} 2,513,117 $ 2,803,470 2,226,652 3,127,219 1,107,692 Debt service as a percentage of noncapital expenditures 11.8% 9.7% 24.9% 15.8% 8.4% 8.2% 7.5% 20.6% 9.5% 14.0% -75- CITY OF FAIRHOPE, ALABAMA ASSESSED VALUE AND ESTIMATED ACTUAL VALUE OF TAXABLE PROPERTY LAST TEN FISCAL YEARS Fiscal Total Estimated Year Less: Total Taxable Direct Actual Ended Residential Commercial Industrial Tax Exempt Assessed Tax Taxable September 30 Pro(!ert;r Prol!er!;r Pro(!ert;r Real Pro(!ert;r Value Rate Value 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 2012 151,955,400 1,165,600 205,976,380 69,676,780 289,420,600 15 4,341,309,000 2013 142,695,840 1,188,460 189,033,860 64,091,460 268,826, 700 15 4,032,400,500 2014 146,270,400 1,188,460 195,105,420 67,346,480 275,217,800 15 4,128,267.000 Source: Baldwin County Revenue Commissioner Total Fiscal General School Bond Tax City Year Millage Millage Millage Millage 2005 5.0 5.0 5.0 15.0 2006 5.0 5.0 5.0 15.0 2007 5.0 5.0 5.0 15.0 2008 5.0 5.0 5.0 15.0 2009 5.0 5.0 5.0 15.0 2010 5.0 5.0 5.0 15.0 2011 5.0 5.0 5.0 15.0 2012 5.0 5.0 5.0 15.0 2013 5.0 5.0 5.0 15.0 2014 5.0 5.0 5.0 15.0 Source: Baldwin County Commission -76- CITY OF FAIRHOPE, ALABAMA PROPERTY TAX RATES DIRECT AND OVERLAPPING GOVERNMENTS LAST TEN FISCAL YEARS Overlapping Rates Coun Road/ Health Care Total General Bridge Fire School Authority County Millage Millage Millage Millage Millage Millage 5.0 2.5 1.5 12.0 0.5 21.5 5.0 2.5 1.5 12.0 0.5 21.5 5.0 2.5 1.5 12.0 0.5 21.5 5.0 2.5 1.5 12.0 0.5 21.5 5.0 2.5 1.5 12.0 0.5 21.5 5.0 2.5 1.5 12.0 0.5 21.5 5.0 2.5 1.5 12.0 0.5 21.5 5.0 2.5 1.5 12.0 0.5 21.5 5.0 2.5 1.5 12.0 0.5 21.5 5.0 2.5 1.5 12.0 0.5 21.5 State Total Total Direct & General School Soldier State Overlapping Millage Millage :\fill age Millage Rates 2.5 3.0 1.0 6.5 43.0 2.5 3.0 1.0 6.5 43.0 2.5 3.0 1.0 6.5 43.0 2.5 3.0 1.0 6.5 43.0 2.5 3.0 1.0 6.5 43.0 2.5 3.0 1.0 6.5 43.0 2.5 3.0 1.0 6.5 43.0 2.5 3.0 1.0 6.5 43.0 2.5 3.0 1.0 6.5 43.0 2.5 3.0 1.0 6.5 43.0 Taxpayer FST Wal-mart Stores East LP $ Arbor Gates LLC Fairhope LLC FST Mississippi Baldwin Square CHS Properties, Inc. Fairhope Ridge LLC Health Care Reit Inc. Bellsouth Tele Communications, LLC Bones & Babies LLC Mediacom Communications Corp. AI Corte Jr Family Limited Partnership FST E&A Southeast Limited Partnership FST Eastern Shores Shopping Center Fairhope Mob, LLC Rohr Aero Services, Inc. FST Central Bank of the South FST Greeno Properties North II LTD $ Source: Baldwin County Revenue Commissioner -77- CITY OFF AIRHOPE, ALABAMA PRINCIPAL PROPERTY TAXPAYERS CURRENT YEAR AND TEN YEARS AGO 2014 Taxable Percentage of Assessed Total Taxable Value Rank Assessed Value 2,915,780 1 1.1% 2,014,940 2 0.7% 1,782,880 3 0.6% 1,543,500 4 0.6% 1,196,340 5 0.4% 1,102,900 6 0.4% 1,102,280 7 0.4% 1,043,100 8 0.4% 991,980 9 0.4% 991,760 10 0.4% 14,685,460 5.3% 2005 Taxable Percentage of Assessed Total Taxable Value Rank Assessed Value 2,443,800 1.5% 1,948,780 3 1.2% 1,306,000 5 0.8% 1,644,840 4 1.0% 2,314,920 2 1.4% 890,080 6 0.5% 876,240 7 0.5% 775,660 8 0.5% 710,840 9 0.4% 643,900 10 0.4% $ 13,555,060 8.2%1 Fiscal Year Total Tax Ended Levy for -78- CITY OFF AIRHOPE, ALABAMA PROPERTY TAX LEVIES AND COLLECTIONS LAST TEN FISCAL YEARS Collected within the Collections Fiscal Year of the Levy in Subsequent September 30 Fiscal Year Amount Percentage of Levy Years 2005 $ 2,471,984 $ 2,240,259 90.63% $ 140,397 2006 $ 2,897,008 $ 2,650,741 91.50% $ 138,659 2007 $ 3,363,710 $ 3,053,904 90.79% $ 185,405 2008 $ 4,918,559 $ 4,087,005 83.09% $ 344,238 2009 $ 4,958,658 $ 4,378,939 88.31% $ 338,819 2010 $ 4,771,906 $ 4,293,008 89.96% $ 347,908 2011 $ 4,375,791 $ 3,336,261 76.24% $ 971,558 2012 $ 4,341,309 $ 3,327,041 76.64% $ 673,667 ** 2013 $ 4,032,401 $ 3,590,944 89.05% $ 414,166 ** 2014 $ 4,128,267 $ 3,834,734 92.89% $ 175,177 * Source: Baldwin County Revenue Commissioner. * Report only included 7 days oflate payments. **Updated (now includes an extra year oflate payments) Total Collections to Date Amount Percentage of Levy $ 2,380,656 96.31% $ 2,789,400 96.29% $ 3,239,309 96.30% $ 4,431,243 90.09% $ 4,717,758 95.14% $ 4,640,916 97.25% $ 4,307,819 98.45% $ 4,000,708 92.15% $ 4,005,110 99.32% $ 4,009,911 97.13% -79- CITY OF FAIRHOPE, ALABAMA DIRECT AND OVERLAPPING SALES TAX RATES CURRENT & LAST THREE FISCAL YEARS City Fiscal Direct Baldwin State of Year Rate County Alabama 2011 2.00% 3.00% 4.00% 2012 2.00% 3.00% 4.00% 2013 2.00% 3.00% 4.00% 2014 2.00% 3.00% 4.00% Source: City Clerk's Office The City implemented its first sales tax effective July 1, 2009 2009 (partial year) 2010 2011 2012 2013 2014 -80- CITY OF FAIRHOPE, ALABAMA PRINCIPAL SALES TAX REMITTERS * LAST SIX YEARS Top 25 Taxpayers (approximate) Total Tax $ 632,797 $ 1,003,864 $ 2,124,169 $ 4,443,325 $ 2,502,259 $ 4,591,088 $ 2,525,722 $ 4,855,972 $ 2,641,175 $ 5,437,863 $ 3,673,425 $ 6,518,249 % of Total Tax 63% 48% 55% 52% 49% 56% *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 Ala Tax Revenue Discovery Systems Note: State law prohibits the disclosure of tax information for specific taxpayers. Governmental Activities General Fiscal Obligation Notes Capital Year Debt Parable Leases 2005 9,046,405 650,780 290,221 2006 11,437,202 1,943,967 140,632 2007 18,430,349 230,130 111,245 2008 17,474,232 81,604 91,092 2009 16,768,901 30,364 69,942 2010 15,773,979 47,745 2011 14,965,792 24,449 2012 14,200,481 2013 12,682,152 2014 9,789,376 Note: 2013 has been revised -81- CITY OF FAIRHOPE, ALABAMA RATIOS OF OUTSTANDING DEBT BY TYPE LAST TEN FISCAL YEARS Business-T~'.l:!e Activities General Utilities Obligation Revenue Notes Debt Debt Parable 453,595 18,615,000 593,077 442,820 18,045,000 446,267 431,688 17,465,000 293,764 413,404 16,865,000 170, 145 271,397 16,235,000 86,035 256,962 15,610,000 24,681 241,993 14,925,000 226,260 23,125,000 209,680 21,636,094 5,904,220 20,571,057 Total Percentage Capital Primary of Personal Per Leases Government Income Ca~ita 448,007 30,097,085 7.29% 2,134 284,572 32,740,460 7.46% 2,203 122,438 37,084,614 8.28% 2,465 7,387 35,102,864 7.26% 2,204 33,461,639 6.65% 2,067 31,713,367 6.43% 1,933 30,157,234 6.47% 1,818 37,551,741 8.07% 2,279 34,527,926 6.93% 2,107 36,264,653 6.23% 2,159 Fiscal Year 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 -82- CITY OF FAIRHOPE, ALABAMA RATIOS OF GENERAL BONDED DEBT OUTSTANDING LAST TEN FISCAL YEARS Percentage of Estimated General Less: Amounts Actual Taxable Obligation Available in Debt Value of Debt Service Fund Total Property 9,500,000 272,950 9,227,050 2.23% 11,880,022 235,347 11,644,675 2.65% 18,862,037 456,957 18,405,080 4.11% 17,887,636 470,671 17,416,965 3.60% 17,040,298 350,987 16,689,311 3.32% 16,030,941 351,008 15,679,933 3.18% 15,207,785 350,020 14,857,765 3.19% 14,426,741 325,214 14,101,527 3.03% 12,891,832 339,308 12,552,524 2.52% 15,693,596 357,156 15,336,440 2.64% Note: 2013 has been revised Per Capita 654 783 1,223 1,094 1,031 956 896 856 766 913 Direct debt of the City -83- CITY OF FAIRHOPE, ALABAMA COMPUTATION OF OVERLAPPING DEBT SEPTEMBER 30, 2014 $ Outstanding Debt 9,789,376 Percentage of debt Applicable to the City FairhoEe (1) 100.00% Overlapping Debt (Supported by ad valorem tax) Baldwin County $ 106,707,902 7.71% (I) Amount of debt Applicable to City of FairhoEe $ 9,789,376 8,231,264 $ 18,020,640 (1) Percentage of net assessed value of property in City ($275,217,800) to net assessed value of property in Baldwin County ($3,567,849,840) on 10/1/2014. Debt limit Total net debt applicable to limit Legal debt margin Total net debt applicable to limit as a percentage of debt limit 2005 2006 $ 32,959,792 $ 38,626,776 $ 9,987,406 13,381,169 $ 22,972,386 $ 25,245,607 $ 30.30% 34.64% -84- CITY OF FAIRHOPE. ALABAMA LEGAL DEBT MARGIN INFORMATION LAST TEN FISCAL YEARS 2007 2008 2009 2010 44,849,472 $ 65,580,788 $ 66,115,436 $ 63,625,408 18,660,479 17,555,836 17,070,662 16,030,941 26,188,993 $ 48,024,952 $ 49,044,774 $ 47,594,467 41.61% 26.77% 25.82% 25.20% Legal Debt Margin Calculation for Fiscal Year 2014 Total assessed value Debt limit (20% of total assessed value) Debt applicable to limit: General obligation wan-ants Notes payable Total net debt applicable to limit Legal debt margin $ $ 275,217,800 55,043,560 15,693,596 15,693,596 39,349,964 2011 2012 2013 2014 $ 58,343,880 $ 57,884,120 $ 53,765340 $ 55,043,560 15,207,785 14,426,741 12,924,616 15,693,596 $ 43,136,095 $ 43,457,379 $ 40,840,724 $ 39,349,964 26.07% 24.92% 24.04% 28.51% Fiscal Year 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 -85- CITY OF FAIRHOPE, ALABAMA DEMOGRAPHIC AND ECONOMIC STATISTICS LAST TEN FISCAL YEARS Per Capita Personal Personal School Population Income Income Enrollment 14,106 413,136,528 29,288 3,906 14,863 438,948,979 29,533 4,305 15,046 447,693,730 29,755 4,050 15,927 483,400,377 30,351 4,307 16,185 503,418,240 31,104 4,320 16,409 492,959,178 30,042 4,385 16,588 466,189,152 28,104 4,477 16,479 * 465,548,229 28,251 4,487 16,385 497,890,995 30,387 4,526 16,794 581,996,070 34,655 4,734 Sources: U.S. Census Bureau Sperling's Best Places Website State of Alabama Department of Industrial Relations Eastern Shore Chamber of Commerce www.schooldigger.com * Revised with U.S. Census Bureau Figure Unemployment Rate 3.4% 2.8% 2.7% 4.1% 8.6% 8.9% 8.7% 7.1% 6.1% 5.8% -86- CITY OF FAIRHOPE, ALABAMA PRINCIPAL EMPLOYERS CURRENT YEAR AND TEN YEARS AGO 2014 Percentage of Total City Employer Employees Rank Employment Employees Thomas Hospital Grand Hotel City of Fairhope Wal-Mart Publix Segers Aero Corporation Winn-Dixie Print Xcel (formerly Poser Business Forms) Balloons Everywhere riggly Wiggly Bruno's Rock Creek Food World Seton Home Health Sources: Eastern Shore Chamber of Commerce State Department of Industrial Relations 1,048 700 330 325 100 93 75 66 65 60 2,862 15.3% 2 10.2% 3 4.8% 4 4.7% 5 1.5% 6 1.4% 7 1.1% 8 1.0% 9 0.9% 10 0.9% 41.7% NOTE: Total city employment number represents people residing in COF that are employed (place of residence) rather than employmentfor COF businesses 2005: 6,222 2014: 6,862 900 450 275 75 170 58 95 70 65 55 2,213 2005 Percentage of Total City Rank Employment 1 14.5% 2 7.2% 3 4.4% 6 1.2% 4 2.7% 9 0.9% 5 1.5% 7 1.1% 8 1.0% 10 0.9% 35.6% Function General Government Public Safety Police Fire Firefighters and Dispatch Highways and Streets Public Works Sanitation Culture and Recreation Recreation Adult Recreation Gas Department Electric Department Water/Waste Water Department Golf Department Total -87- CITY OFF AIRHOPE, ALABAMA FULL-TIME EQUIVALENT CITY GOVERNMENT EMPLOYEES BY FUNCTION LAST TEN FISCAL YEARS Full-time Eguivalent Emetorees as of Seetember 30, 2005 2006 2007 2008 2009 2010 2011 49 58 61 62 54 55 53 39 40 41 42 51 48 48 7 9 9 14 13 13 17 28 27 29 28 37 37 35 19 25 22 20 21 20 20 8 8 8 9 18 18 19 1 3 6 10 13 14 17 16 16 19 18 18 18 17 17 20 19 17 17 17 23 24 24 25 23 23 24 12 12 13 13 19 19 16 220 237 246 257 281 281 281 Source: City of Fairhope human resources department 2012 2013 2014 53 48 48 44 48 46 18 17 18 36 39 39 19 17 21 19 24 23 14 9 10 18 17 15 18 17 22 26 24 23 14 15 16 279 275 281 2005 2006 F'unction Police Physical arrests 949 1,255 Parking violations 27 56 Traffic violations 2,381 2,589 Fire Number of calls answered 429 381 Inspections 585 463 Highways and streets Street resurfacing (miles) 0.25 2.30 Potholes repaired 312 312 Sanitation Garbage collected (tons/year) 7,000 7,200 Trash collected (tons/year) 6,411 4,845 Recyclables collected (tons/year) 2,112 1,959 Culture and recreation Golf course rounds @ 9 hole rounds 80,603 93,082 Pavilion/park parties 87 59 Waste water Average daily sewage treatment 1.8 1.6 (millions of gallons) Sources: Various government departments -88- CITY OF FAIRHOPE,ALABAMA OPERATING INDICATORS BY FUNCTION LAST TEN FISCAL YEARS 2007 2008 2009 2010 1,710 1,131 993 833 13 71 285 201 1,516 996 1,004 1,245 339 432 427 658 282 196 382 291 1.5 312 414 384 400 8.246 7,520 7,782 8,627 5,213 5,915 5,744 7,385 2,131 1,989 1,297 1,281 92,702 88,475 53,755 62,720 74 88 84 80 1.7 1.7 1.7 1.8 *** Ordinance was passed in June 2004 -no rent collected prior to this time 2011 2012 2013 2014 1,134 603 759 750 163 128 22 49 1,419 2,215 1,379 887 801 657 690 853 143 101 85 35 8.1 425 450 1,345 1,480 9.100 8,711 7,564 8,509 6,487 5,767 5,513 6,292 1,495 1,508 1,512 1,714 61,283 65,500 62,266 59,261 64 56 58 61 1.8 1.8 1.8 1.8 2005 2006 Function Puhlic safety Police Stations Patrol units 32 33 Fire stations 3 Highways and streets Streets (miles) 84.2 89.7 Culture and recreation Parks acreage 168 168 Parks 46 46 Swimming pools 2 2 Tennis courts 4 4 Community center 2 2 Sewer Sanitary sewers (miles) 117 119 Storm sewers (miles) 12.45 14.05 Maximum daily treatment capacity 4 4 (millions of gallons) Sources: Various government depm1ments -89- CITY OF FAIRHOPE, ALABAMA CAPITAL ASSET STATISTICS BY FUNCTION LAST TEN FISCAL YEARS 2007 2008 2009 2010 1 35 36 40 45 3 3 89.7 98.1 98.1 98.1 208 208 208 248 50 50 50 51 3 3 3 3 6 6 6 6 2 120 121 121 125 15.55 16.75 16.75 16.75 4 4 4 4 2011 2012 2013 2014 l 45 45 43 37 3 3 98.1 99.1 99.1 104.57 248 248 248 356 51 51 51 52 3 3 3 3 6 6 6 3 125 125 126 126 16.75 17.25 17.25 19.17 4 4 4 4 COMPLIANCE SECTION -91- Our consideration of internal control over financial reporting was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over financial reporting that might be material weaknesses or significant deficiencies. Given these limitations, during our audit we did not identify any deficiencies in internal control over financial reporting that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. . Compliance and Other Matters As part of obtaining reasonable assurance about whether City of Fairhope, Alabama's financial statements are free from material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit and, accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. Purpose of this Report The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the entity's internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the entity's internal control and compliance. Accordingly, this communication is not suitable for any other purpose. January 15, 2015 Fairhope, Alabama ~t~~ f5!u~1 ~I f.L. Certified Public Accountants