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Item 4FM E M O R A N D U M March 11, 2019 To: Shana Yelverton, City Manager From: Sharen Jackson, Chief Financial Officer Subject: Approve the 2018 Comprehensive Annual Financial Report Action Requested: Approval of September 30, 2018 Comprehensive Annual Financial Report. Background Information: The purpose of this item is to seek approval of the 2018 Comprehensive Annual Financial Report. •City Charter requires the City at the close of each fiscal year have an independent audit performed by a Certified Public Accountant. Weaver L.L.P., Certified Public Accountants, performed the audit for fiscal year 2018. •City received an unmodified (“clean”) opinion on the City’s financial statements for the year ended September 30, 2018. •John DeBurro, Partner, will present the report to the audit committee on Tuesday during the committee meeting scheduled at 5:00 prior to the city council meeting. Financial Considerations: None required Strategic Link: F4 Establish and maintain effective internal controls Citizen Input/ Board Review: None required Legal Review: None required Alternatives: None required Supporting Documents: 2018 CAFR Staff Recommendation: Approval of 2018 Comprehensive Annual Financial Report Item 4F CITY OF SOUTHLAKE, TEXAS COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2018 As Prepared By Sharen Jackson, CPA Chief Financial Officer Exhibit Page I.INTRODUCTORY SECTION Letter of Transmittal i Certificate of Achievement viii Organizational Chart ix List of Principal Officials x II.FINANCIAL SECTION Independent Auditor’s Report 1 A.MANAGEMENT'S DISCUSSION AND ANALYSIS 4 B.BASIC FINANCIAL STATEMENTS Government-Wide Financial Statements Statement of Net Position 1 16 Statement of Activities 2 17 Fund Financial Statements Governmental Funds Financial Statements Balance Sheet 3 18 Reconciliation of the Governmental Funds Balance Sheet to the Statement of Net Position 4 20 Statement of Revenues, Expenditures, and Changes in Fund Balance 5 21 Reconciliation of the Governmental Funds Statement of Revenues, Expenditures and Changes in Fund Balance to the Statement of Activities 6 23 Proprietary Funds Financial Statements Statement of Net Position 7 24 Statement of Revenues, Expenses, and Changes in Net Position 8 25 Statement of Cash Flows 9 26 Fiduciary Fund Financial Statement Statement of Fiduciary Net Position 10 27 Statement of Changes in Fiduciary Net Position 11 28 Notes to the Basic Financial Statements 29 CITY OF SOUTHLAKE, TEXAS COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2018 TABLE OF CONTENTS Exhibit Page C.REQUIRED SUPPLEMENTARY INFORMATION Budgetary Comparison Schedule - General Fund A-1 70 Budgetary Comparison Schedule - Southlake Parks Development Corporation Special Revenue Fund A-2 71 Budgetary Comparison Schedule - Tax Increment Financing District Special Revenue Fund A-3 72 Notes to Budgetary Comparison Schedules 73 Schedule of Changes in Net Pension Liability and Related Ratios - TMRS A-4 74 Schedule of Pension Contributions - TMRS A-5 75 Notes to TMRS for Pension Liability - Required Supplementary Information 76 Schedule of Changes in Net OPEB Liability and Related Ratios - Southlake Net OPEB Liability for Health Insurance A-6 77 Schedule of Contributions - Southlake Net OPEB Liability for Health Insurance A-7 78 Notes to the Southlake Net OPEB Liability 79 Schedule of Changes in the Total OPEB Liability and Related Ratios - TMRS - Supplemental Death Benefits A-8 80 Schedule of OPEB Contributions - TMRS - Supplemental Death Benefits A-9 81 Notes to TMRS for OPEB Liability - Supplemental Death Benefits 82 Condition Rating of Street System A-10 83 D.COMBINING AND INDIVIDUAL FUND FINANCIAL STATEMENTS AND SCHEDULES Major Governmental Funds Budgetary Comparison Schedule - General Obligation Debt Service Fund B-1 85 Nonmajor Governmental Funds Combining Balance Sheet - Nonmajor Governmental Funds C-1 88 Combining Statement of Revenues, Expenditures, and Changes in Fund Balance - Nonmajor Governmental Funds C-2 92 Budgetary Comparison Schedule - Parks and Recreation Special Revenue Fund C-3 96 Budgetary Comparison Schedule - Parks Dedication Special Revenue Fund C-4 97 Budgetary Comparison Schedule - Crime Control District Special Revenue Fund C-5 98 Budgetary Comparison Schedule - Hotel Occupancy Special Revenue Fund C-6 99 Budgetary Comparison Schedule - Storm Water Utility Special Revenue Fund C-7 100 Budgetary Comparison Schedule - Court Security Special Revenue Fund C-8 101 Budgetary Comparison Schedule - Court Technology Special Revenue Fund C-9 102 Budgetary Comparison Schedule - Library Special Revenue Fund C-10 103 Budgetary Comparison Schedule -Red Light Camera Special Revenue Fund C-11 104 Budgetary Comparison Schedule - Storm Water Maintenance Special Revenue Fund C-12 105 Budgetary Comparison Schedule - Southlake Community Enhancement Development Corporation Special Revenue Fund C-13 106 Budgetary Comparison Schedule - Commercial Vehicle Enforcement C-14 107 Budgetary Comparison Schedule - Southlake Parks Development Corporation Debt Service Fund C-15 108 Budgetary Comparison Schedule - Community Enhancement Development Corporation Debt Service Fund C-16 109 CITY OF SOUTHLAKE, TEXAS COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2018 TABLE OF CONTENTS Agency Funds Exhibit Page Statement of Changes in Assets and Liabilities - Cash Escrow Agency Fund F-1 111 Schedules of Capital Assets Used in the Operation of Governmental Funds Comparative Schedules of Capital Assets by Source G-1 112 Schedule of Changes in Capital Assets by Function and Activity G-2 113 III.STATISTICAL SECTION Table Net Position By Component 1 115 Changes in Net Position 2 117 Fund Balances, Governmental Funds 3 119 Changes in Fund Balances, Governmental Funds 4 120 Assessed Value and Estimated Actual Value of Taxable Property 5 121 Direct and Overlapping Property Tax Rates 6 122 Principal Property Tax Payers 7 123 Ad Valorem Tax Levies and Collections 8 124 Ratio of Outstanding Debt By Type 9 125 Ratio of General Bonded Debt Outstanding 10 127 Direct and Overlapping Governmental Activities Debt 11 128 Pledged-Revenue Coverage 12 129 Demographic and Economic Statistics 13 130 Principal Employers 14 131 Full-Time Equivalent City Government Employees By Function/Program 15 132 Operating Indicators By Function/Program 16 133 Capital Asset Statistics By Function/Program 17 134 CITY OF SOUTHLAKE, TEXAS COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2018 TABLE OF CONTENTS INTRODUCTORY SECTION 1400 Main Street, Suite 440, Southlake, TX 76092 (817) 748-8345 Innovation ◊ Integrity ◊ Accountability ◊ Commitment to Excellence ◊ Teamwork i Finance Department March 11, 2019 Honorable Mayor Laura Hill and Members of City Council City of Southlake Southlake, Texas Honorable Mayor and Councilmembers: It is with pleasure that we submit to you the Comprehensive Annual Financial Report (CAFR) of the City of Southlake for the fiscal year ended September 30, 2018. This report was prepared by the Finance Department in accordance with the Southlake Charter, Statutes and generally accepted accounting principles for governments. In addition to meeting legal requirements, this report reflects the City’s commitment to full financial disclosure. We encourage you to thoroughly read this report and take the opportunity to discuss some of the important items it addresses. In developing and evaluating the City’s accounting system, consideration is given to the adequacy of internal accounting controls. These controls are designed to provide reasonable, but not absolute, assurance regarding the safeguarding of assets against loss from unauthorized use or disposition, and the reliability of financial records for preparing financial statements and maintaining accountability for assets. The concept of reasonable assurance recognizes that the cost of a control should not exceed the benefits likely to be derived, and the evaluation of costs and benefits requires estimates and judgments by management. We believe that the City’s current system of internal controls adequately safeguards assets and provides reasonable assurance of proper recording of financial transactions. The financial statements are presented in accordance with Governmental Accounting Standards Board Statement 34, Basic Financial Statements-and Management’s Discussion and Analysis-For State and Local Governments. The presentation of the City’s financial information includes two financial statements that provide a government- wide perspective using the accrual basis of accounting. The two government -wide statements present governmental activities separately from business-type activities. The inclusion of the government-wide statements in this format enables a more thorough understanding of the financial operations and condition of the City. ii The fund financial statements focus on individual major funds. Each major fund is presented in a separate column in the fund financial statements. Nonmajor funds are aggregated and presented in a combined column. Budget to actual comparisons are presented as required supplementary information and are limited to the general fund and special revenue funds. The comparisons are now more informative, including both the original adopted budget and the final amended budget. We believe the reporting model will assist in making economic, social and political decisions and in assessing accountability to the residents by:  comparing actual financial results with the legal adopted budget, where appropriate;  assessing financial condition and results of operations;  assisting in determining compliance with fiscally-oriented laws, rules and regulations; and  assisting in evaluating the efficiency and effectiveness of City operations. Responsibility for both the accuracy of the presented data and the completeness and fairness of the presentation, including all disclosures, rests with the City. To the best of our knowledge and belief, the data, as presented, is accurate in all material respects and is reported in a manner designed to present fairly the financial position and results of operations. All disclosures necessary to enable the reader to gain an understanding of the City’s financial activities have been included. FINANCIAL STATEMENT FORMAT This report has been prepared and organized to meet the requirements of the Government Finance Officers Association (GFOA) Certificate of Achievement for Excellence in Financial Reporting Program. By following the guidelines of this program, the report’s format facilitates understanding by the residents and provides information needed by the most sophisticated and interested financial observers. The report is presented in three sections: introductory, financial and statistical.  The introductory section, which is unaudited, includes this transmittal letter, GFOA certificate, the City’s organizational chart, and a list of principal officials. This section is designed to provide an overview and general understanding of the report.  The financial section provides a detailed presentation of the financial position and results of operations for the fiscal year ended September 30, 2018. The financial section is divided into four main subsections: iii o Management’s Discussion and Analysis o Basic Financial Statements and related notes o Required Supplementary Information o Combining and Individual Fund Financial Statements Readers are encouraged to pay particular attention to Management’s Discussion and Analysis and to the footnotes to the basic financial statements. These provide valuable analysis and explanation of the financial statements.  The statistical section, which is unaudited, includes a number of multi-year tables and other data designed to present social, economic and financial trends of the City, providing an overall view of the fiscal capacity of the City. The financial reporting entity includes all the funds of the primary government, as well as all of its component units in accordance with GASB Codification of Governmental Accounting and Financial Reporting Standards, Section 2100, “Defining the Reporting Entity.” Component units are legally separate entities for which the primary government is financially accountable and for which the nature and significance of their relationship with the primary government are such that exclusion would cause the City’s basic financial statements to be misleading or incomplete. The primary government is considered financially accountable if it appoints a voting majority of an organization’s governing body and imposes its will on that organization. The primary government may also be financially accountable if an organization is fiscally dependent on the primary government regardless of the authority of the organization’s governing board. Blended component units, although legally separate entities, are, in substance, part of the primary government’s operations and are included as part of the primary government. Accordingly, the Southlake Parks Development Corporation (“SPDC”), Southlake Crime Control and Prevention District (the “District”), Southlake Community Enhancement and Development Corporation (CEDC) and Tax Increment Reinvestment Zone (“TIF”) are included in the governmental funds (special revenue) of the primary government as blended component units. SPDC was formed in January 1994 pursuant to a successful election in November 1993 to adopt an additional half-cent sales tax for park and recreation facility development. SPDC is organized exclusively to act on behalf of the City for the financing, development and operation of parks and recreation facilities. Also included in this report is financial information for the District. In November 1997, voters approved an additional half-cent sales tax for Crime Control and Prevention initiatives. The District is organized exclusively to act on behalf of the City for the financing, development and crime control throughout the City. In May 2015, Southlake voters overwhelmingly approved the reallocation of a portion of the District half-cent sales tax for the purpose of constructing and operating a recreation center through CEDC. The District’s half-cent sales tax was reduced to a one-eighth cent tax, and the remaining three-eighths was reallocated to address recreational and economic development needs for the City, as permitted by State law, through CEDC. Also, included are the financial statements of the TIF which was created in 1997 to encourage quality commercial growth. The TIF was formed to finance and make public improvements, under the authority of the Tax Increment Financing Act. iv PROFILE OF THE GOVERNMENT General Information Although Southlake has been a high-growth community for years, when the first settlers arrived in 1845 they found only a vast area of land and trees where the grand prairie and cross timbers merged. As the site of the first permanent settlement in Tarrant County, a portion of present day Southlake was homesteaded in 1866, which consisted of 360 acres. Keeping with the time, the primary industry was agriculture. Farmers grew peanuts, grains and cotton, and families raised their own livestock. The area that would become Southlake remained a rural farming community for more than 100 years until the U.S. Army Corps of Engineers built Lake Grapevine in 1952. The lake spurred much of the area’s early growth and was the beginning of dramatic change. The town officially incorporated on September 25, 1956 by a public vote of 30 in favor and 24 against. The original town contained 1.62 square miles and had a population of just over 100. The residents chose to call this new town Southlake because it was… south of Lake Grapevine! The Southlake Fire Department was launched in 1965 and the first piece of fire equipment was a 1950 Diamond T-Military unit with a tank capacity of 1,000 gallons and an auxiliary pump. The first chief of police was hired in 1966, and the City purchased its first patrol car in 1967. The opening of the Dallas-Fort Worth International Airport in 1974 served as the next catalyst of growth in the area and Southlake residents adopted a home-rule charter in April 1987, which created the current council-manager form of government with six Council Members and a Mayor who are elected at large on a non-partisan basis for staggered three-year terms. But the single most important event in bringing residential subdivision development to Southlake was the completion of water and sewer lines in the southern portion of the City in the early 1990s. Since that time, much like the area’s first settlers were attracted to the area with its endless possibilities, Southlake has continued to attract the suburban settler desiring a high quality of life and the small town charm that has been preserved from Southlake’s past. Services Provided Services provided by the City under general governmental functions include public events, public safety, planning and development, engineering, street maintenance, parks operation and maintenance, recreation, library services, and general administrative services. The City does not provide educational or welfare services. Water and sewer services and solid waste collection are provided under an Enterprise Fund concept, with user charges set by the City Council to ensure adequate coverage of operating expenses and payments of outstanding debt. v Economic Condition and Outlook The City of Southlake continues to be one of the major growth areas in Texas. The City is in a prime location in Northeast Tarrant County, 5 minutes west of Dallas/Fort Worth International Airport, and 10 minutes east of the Alliance Airport, a commercial aviation and industrial complex in north Fort Worth. State Highway 114, FM1709, and FM1938, the regional road arterials, serve the City. There were 127 single family residential permits issued in Fiscal Year 2018 with an average new home construction value, excluding land value, of approximately $890,000. As noted on the chart the City experienced a reduction in residential home construction. Water customers increased from 10,922 in Fiscal Year 2017 to 11,092 in 2018, while wastewater customers increased from 8,735 to 8,908 during the same year. The chart shows the five-year trend of increasing water customers, the result of the building permit activity. The City has developed master plans for land use, water, sewer, parks, trails, and thoroughfares, and has implemented regulatory controls that will maintain the anticipated quality growth into the future. The City of Southlake experienced an increase in sales tax collections during the fiscal year as indicated on the chart. Sales tax collections totaled $29,044,818 in fiscal year 2018, a 2.2% increase from the previous year. vi Future Development During 2018, approximately 23 new construction commercial permits were issued by the City representing over 358,899 square feet of future retail/office.  In 2019, the long awaited Champions Club at The Marq Southlake will be opening. At approximately 82,000 square feet, Champions Club will include spaces for fitness, performance training, gymnasium, indoor job/walk track, indoor aquatics, indoor playground, party rooms, child watch and multipurpose classrooms for programs. Membership sales are currently underway. Financial Management Principles The City has strong financial management principles that provide the framework for the City’s financial sustainability.  Tax rate management. The tax rate is allocated properly between maintenance/operations and debt service.  Structural balance. The City’s ability to weather potential economic downturns or other financial challenges is critical. The City does not use reserves to balance the operating budget.  Reserve management. The City’s fund balance policy requires a minimum 15% and optimum 25% balance. The City uses “excess” reserves as a means to fund one-time, “pay-as-you-go” projects.  Multi-year financial plan. The long-term effect of today’s decisions on tomorrow’s financial situation is an important consideration during the budget process.  Quality service delivery. The City is committed to meeting the needs of our community through high quality service delivery.  Risk management. The City supports ongoing initiatives to safeguard the public trust by internal audits and other initiatives to maintain a strong control environment. For fiscal year 2018, the property tax rate was held steady at $0.462 per $100 net taxable valuation. OTHER INFORMATION Independent Audit The City Charter requires an annual audit of the financial status of the City by independent Certified Public Accountants selected by the City Council. This requirement has been met and the auditor’s report has been included in this report. Awards The Certificate of Achievement is a prestigious national award recognizing conformance with the highest standards for preparation of state and local government financial reports. In order to be awarded a Certificate of Achievement, a government unit must publish an easily readable and efficiently organized comprehensive annual financial report, whose contents conform to program standards. vii Such CAFR must satisfy both generally accepted accounting principles and applicable legal requirements. A Certificate of Achievement is valid for a period of one year only. The City of Southlake received a Certificate of Achievement for the year ended September 30, 2017, and believes our current report conforms to the Certificate of Achievement program requirements, and we are submitting it to GFOA. In addition, the City also received the GFOA’s Distinguished Budget Presentation award for its annual budget dated October 1, 2017. In order to qualify for this award, the City’s budget document was judged to be proficient in all categories, including as a policy document, a financial plan, and operations guide, and a communications device. Acknowledgments The preparation of this report could not be accomplished without the dedication and efficiency of the entire staff and our independent auditor. I would like to express my sincere appreciation to all employees who contributed to its preparation. I would also like to thank the Mayor and members of the City Council for their support in planning and conducting the financial operations of the City in a responsible and efficient manner. Respectfully submitted, Sharen Jackson, CPA Chief Financial Officer viii ix x LIST OF PRINCIPAL OFFICIALS Laura K. Hill Mayor Randy Williamson Mayor Pro Tem Shawn McCaskill Deputy Mayor Pro Tem Shahid Shafi Council Member Chad Patton Council Member John Huffman Council Member Christopher Archer Council Member Shana K. Yelverton City Manager Benjamin Thatcher Assistant City Manager Alison Ortowski Assistant City Manager Amy Shelley City Secretary Sharen Jackson Chief Financial Officer Alison Ortowski Director of Economic Development Robert Cohen Director of Public Works Chris Tribble Director of Community Services Stacey Black Director of Human Resources Ken Baker Director of Planning/Development FINANCIAL SECTION Austin | Conroe | Dallas | Fort Worth | Houston Los Angeles | Midland | New York City | San Antonio Weaver and Tidwell, L.L.P. 2300 North Field Street, Suite 1000 | Dallas, Texas 75201 Main: 972.490.1970 | Fax: 972.702.8321 CPAs AND ADVISORS | WEAVER.COM 1 Independent Auditor’s Report To Members of the City Council and City Manager City of Southlake, Texas We have audited the accompanying financial statements of the governmental activities, the business - type activities, each major fund, and the aggregate remaining fund information of the City of Southlake, Texas (the City) as of and for the year ended September 30, 2018, and the related notes to the financial statements, which col lectively comprise the City’s basic financial statements as listed in the table of contents. Management’s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor’s Responsibility Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express n o such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. Opinions In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City, as of September 30, 2018, and the respective changes in financial position, and, where applicable, cash flows thereof for the year then ended in conformity with accounting principles generally accepted in the United States of America. Members of the City Council and City Manager City of Southlake, Texas 2 Change in Accounting Principles As discussed in Note 15 to the financial statements, in 2018, the City adopted new accounting guidance, GASB Statement No. 75, Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions. Beginning net position has been restated to reflect the change in accounting principle for implementation of this Statement. Our opinion is not modified with respect to this matter. Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that th e management’s discussion and analysis (pages 4 through 15), budgetary comparison information (pages 70 through 73), TMRS pension schedules (pages 74 through 76), OPEB schedules (pages 77 through 82) and condition rating of street system (page 83) be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United S tates 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 the City’s basic financial statements. The introductory section, combining and individual fund financial statements and schedules, and statistical section, are presented for purposes of additional analysis and are not a required part of the financial statements. The combining and individual fund financial statements and schedules are the responsibility of management and were derived from and relate directly to the underlying accounting and other records used to prepare the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the 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 procedure s in accordance with auditing standards generally accepted in the United States of America. In our opinion, the combining and individual fund financial statements and schedules are fairly stated in all material respects in relation to the basic financial statements as a whole. The introductory and statistical sections have not been subjected to the auditing procedures applied in the audit of the basic financial statements and, accordingly, we do not express an opinion or provide any assurance on them. Members of the City Council and City Manager City of Southlake, Texas 3 Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated March 11, 2019, on our consideration of the City’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 reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the City’s internal control over financial reporting and compliance. WEAVER AND TIDWELL, L.L.P. Dallas, Texas March 11, 2019 MANAGEMENT’S DISCUSSION AND ANALYSIS 4 MANAGEMENT’S DISCUSSION AND ANALYSIS The City of Southlake’s Management’s Discussion and Analysis (MD&A) is designed to provide an objective and easy to read analysis of the City’s financial activities based on currently known facts, decisions, and conditions. It is intended to provide a broad overview and short-term analysis of the City’s activities based on information presented in the financial statements. Specifically, this information is designed to assist the reader in focusing on significant financial issues, provide an overview of the City’s financial activity, identify changes in the City’s financial position (its ability to address the next and subsequent years’ challenges), identify material deviations from the approved budget, and identify individual fund issues. The City presents its financial statements in accordance with the reporting model required by Governmental Accounting Standards Board Statement 34, Basic Financial Statements-and Management’s Discussion and Analysis- for State and Local Governments. This reporting model significantly changes not only the presentation of financial data, but also the manner in which the information is recorded. The information contained within this MD&A is only a component of the entire financial statement report. Readers should take time to read and evaluate all sections of the report, including the footnotes and the other Required Supplementary Information that is provided in addition to this MD&A. FINANCIAL HIGHLIGHTS The assets and deferred outflows of resources of the City of Southlake exceeded its liabilities and deferred inflows of resources at September 30, 2018 by $609,861,562 (net position). Of this amount, $105,501,002 (unrestricted net position) may be used to meet the government’s ongoing obligations to citizens and creditors. The City’s total net position increased by $23,888,320 exclusive of the cumulative effect of the change in accounting principle. This increase can be attributed to increases in ad valorem, sales tax revenue, charges for services and interest on investments. At September 30, 2018, the City’s governmental funds reported combined ending fund balances of $125,765,892. Approximately 9.4% of this amount, $11,799,021 is available for spending at the government’s discretion (unassigned fund balance). At the end of the current fiscal year, unassigned fund balance for the General Fund was $11,799,021 or 29.9% of total General Fund expenditures. At the end of the current fiscal year, the City of Southlake outstanding debt totals $153,443,180 a net decrease of $18,583,570 from the previous year. 5 OVERVIEW OF THE FINANCIAL STATEMENTS The discussion and analysis is intended to serve as an introduction to the City’s basic financial statements. The reporting focus is on the City as a whole and on individual major funds. It is intended to present a more comprehensive view of the City’s financial activities. The basic financial statements are comprised of three components: 1) government-wide financial statements, 2) fund financial statements, and 3) notes to the financial statements. This report also contains other supplementary information in addition to the basic financial statements themselves. GOVERNMENT-WIDE FINANCIAL STATEMENTS The government-wide financial statements include the Statement of Net Position and the Statement of Activities. These statements are designed to provide readers with a broad overview of the City’s finances in a manner similar to a private-sector business. Both are prepared using the economic resources measurement focus and the accrual basis of accounting; meaning that all the current year’s revenues and expenses are included regardless of when cash is received or paid. The Statement of Net Position presents information on all of the City’s assets and deferred outflows of resources and liabilities and deferred inflows of resources, including capital assets and long-term obligations. The difference between the two is reported as net position. Over time, the increases or decreases in net position may serve as a useful indicator of whether the financial position of the City is improving or deteriorating. Other indicators of the City’s financial position should be taken into consideration, such as the change in the City’s property tax base and condition of the City’s infrastructure (i.e., roads, drainage systems, water and sewer lines, etc.), in order to more accurately assess the overall financial condition of the City. The Statement of Activities presents information showing how the City’s net position changed during the most recent fiscal year. It focuses on both the gross and net costs of the government’s various activities and thus summarizes the cost of providing specific government services. This statement includes all current year revenues and expenses. The Statement of Net Position and the Statement of Activities divide the City’s activities into two types: Governmental activities- Most of the City’s basic services are reported here, including general administration, debt services, public safety, public works, parks and community services, public library, public events and facilities, planning and development and finance. Property, sales and franchise taxes provide the majority of the financing for these activities. Business-Type activities- Activities for which the City charges a fee to customers to pay most or all of the costs of a service it provides are reported here. The City’s business-type activities include water distribution and wastewater collection and solid waste collection and disposal. The government-wide financial statements are found on pages 16-17 of this report. 6 FUND FINANCIAL STATEMENTS The City of Southlake, like other state and local governments, uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. A fund is a grouping of related accounts that is used to maintain control over resources that have been segregated for specific activities or objectives. These statements focus on the most significant funds and may be used to find more detailed information about the City’s most significant activities. All of the funds of the City can be divided into two categories: governmental funds and proprietary funds. Governmental Funds- These funds are used to account for the majority of the City’s activities, which are essentially the same functions reported as governmental activities in the government - wide statements. However, unlike the government-wide financial statements, governmental fund financial statements focus on near-term inflows and outflows of spendable resources, as well as spendable resources available at the end of the fiscal year for future spending. Such information may be useful in evaluating a government’s near-term financing requirements. The focus of the governmental funds financial statements is narrower than that of the government-wide financial statements. Therefore, it is useful to compare the information presented for governmental funds with similar information presented for governmental activities in the government-wide financial statements. By doing so, readers may better understand the long-term impact of the government’s near-term financing decisions. Both the governmental funds Balance Sheet and the governmental funds Statement of Revenues, Expenditures and Changes in Fund Balances provided a reconciliation to facilitate this comparison. The reconciliation explains the differences between the government’s activities as reported in the government-wide financial statements and the information presented in the governmental funds financial statements. The City maintains 25 individual governmental funds. Information is presented separately in the governmental funds Balance Sheet and in the governmental funds Statement of Revenues, Expenditures and Changes in Fund Balances for the General Fund, General Obligation Debt Service Fund, General Capital Projects Fund, Southlake Parks Development Corporation, Tax Increment Financing District Fund, and Community Enhancement and Development Corporation Capital Projects Fund, all of which are considered to be major funds. Data for the other governmental funds are combined into a single, aggregated presentation. Individual fund data for each of the non-major governmental funds is provided in the form of combining statements elsewhere in this report. The basic governmental funds financial statements can be found on pages 18-23 of this report. Proprietary Funds- When the City charges customers for services it provides, the activities are generally reported in proprietary funds. The City of Southlake maintains two different types of proprietary funds: enterprise and internal service funds. Enterprise funds are used to report the same functions presented as business-type activities in the government-wide financial statements. The City uses enterprise funds to account for its water and sewer operations and solid waste. These services are primarily provided to outside or non - governmental customers. 7 Internal service funds are an accounting device used to accumulate and allocate costs internally among the City’s various functions. The City uses internal service funds to account for vehicle and equipment replacement. Proprietary funds financial statements provide the same type of information as the government- wide financial statements, only in more detail. The proprietary funds financial statements provide separate information for the water and sewer operations, which is considered to be a major fund of the City, and can be found on pages 24-26 of this report. Fiduciary funds – the City presents one agency fund, the Cash Escrow Agency Fund, which is custodial in nature and does not involve measurement of results of operations; and one trust fund, the Southlake OPEB Liability Trust Fund, which accounts for the funding of post -employment healthcare benefits for retirees of the City and their dependents. The financial statements for the fiduciary funds can be found on pages 27-28 of this report. NOTES TO THE FINANCIAL STATEMENTS The Notes 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 the Financial Statements can be found on pages 29-69 of this report. GOVERNMENT-WIDE FINANCIAL ANALYSIS Total assets of the City at September 30, 2018 were $773,040,508 while total liabilities were $166,839,181 along with deferred outflows $(6,458,070) and inflows $(2,797,835) of resources resulting in a net position balance of $609,861,562. The largest portion of the City’s net position, $475,867,969 reflects its investment in capital assets (land and improvements, building, infrastructure, machinery and equipment net of accumulated depreciation); less any related debt used to acquire those assets that is still outstanding. The City uses these assets to provide services to its citizens; consequently, these assets are not available for future spending. Although the City reports its capital assets net of related debt, the resources needed to repay this debt must be provided from other sources, since the capital assets themselves cannot be used to liquidate these liabilities. Governmental Activities net position increased by $19,246,016 exclusive of the cumulative effect of the implementation of GASB Statement No. 75. This increase is primarily attributable to increases in property taxes, sales taxes, and interest on investments. Business-type Activities net position increased by $4,642,304 exclusive of the cumulative effect of the implementation of GASB Statement No. 75. The majority of this change can be attributed to an increase in charges for services and decreases in expenses. 8 The following analysis highlights the net position as of September 30, 2018: Governmental Business-Type 2018 Activities Activities Total Current and other assets:141,882,871$ 47,308,187$ 189,191,058$ Capital assets 475,681,859 108,167,591 583,849,450 Total assets 617,564,730 155,475,778 773,040,508 Deferred outflows of resources 5,538,733 919,337 6,458,070 Other liabilities 10,554,523 2,841,478 13,396,001 Long-term debt outstanding 110,448,216 42,994,964 153,443,180 Total liabilities 121,002,739 45,836,442 166,839,181 Deferred inflows of resources 2,615,640 182,195 2,797,835 Net position: Net investment in capital assets 392,406,812 83,461,157 475,867,969 Restricted-debt service 7,345,622 - 7,345,622 Restricted-other 21,146,969 - 21,146,969 Unrestricted 78,585,681 26,915,321 105,501,002 Total net position 499,485,084$ 110,376,478$ 609,861,562$ The following analysis highlights the net position as of September 30, 2017: Governmental Business-Type 2017 Activities Activities Total Current and other assets:153,607,008$ 43,139,642$ 196,746,650$ Capital assets 458,372,726 108,214,181 566,586,907 Total assets 611,979,734 151,353,823 763,333,557 Deferred outflows of resources 8,254,360 1,232,268 9,486,628 Other liabilities 11,212,082 2,602,803 13,814,885 Long-term debt outstanding 127,035,224 44,141,210 171,176,434 Total liabilities 138,247,306 46,744,013 184,991,319 Deferred inflows of resources 699,534 65,112 764,646 Net position: Net investment in capital assets 385,506,389 82,251,014 467,757,403 Restricted-debt service 7,444,512 - 7,444,512 Restricted-other 42,405,927 - 42,405,927 Unrestricted 45,930,426 23,525,952 69,456,378 Total net position 481,287,254$ 105,776,966$ 587,064,220$ 9 The following analysis highlights the changes in net position for the year ended September 30, 2018: Governmental Business-Type 2018 Activities Activities Total Revenues: Program revenues: Charges for services 8,327,945$ 32,229,361$ 40,557,306$ Operating grants and contributions 459,006 - 459,006 Capital grants and contributions 1,044,834 2,367,774 3,412,608 General revenues: Taxes 74,175,500 - 74,175,500 Interest on investments 2,108,804 320,473 2,429,277 Gain on sale of capital assets - - - Miscellaneous - 4,166 4,166 Total revenues 86,116,089 34,921,774 121,037,863 Expenses: General government 18,255,444 - 18,255,444 Public safety 23,962,971 - 23,962,971 Public works 10,040,453 - 10,040,453 Culture and recreation 12,775,020 - 12,775,020 Interest on long-term debt 3,047,221 - 3,047,221 Water and sewer - 29,068,434 29,068,434 Total expenses 68,081,109 29,068,434 97,149,543 Increase in net position before transfers 18,034,980 5,853,340 23,888,320 Transfers 1,211,036 (1,211,036)- Increase in net position 19,246,016 4,642,304 23,888,320 Net position-beginning of year 481,287,254 105,776,966 587,064,220 Cumulative effect of change in accounting principle (1,048,186)(42,792)(1,090,978) Net position-End of Year 499,485,084$ 110,376,478$ 609,861,562$ 10 The following analysis highlights the changes in net position for the year ended September 30, 2017: Governmental Business-Type 2017 Activities Activities Total Revenues: Program revenues: Charges for services 8,150,065$ 27,939,504$ 36,089,569$ Operating grants and contributions 328,288 - 328,288 Capital grants and contributions 7,714,765 3,851,057 11,565,822 General revenues: Taxes 70,581,664 - 70,581,664 Interest on investments 843,082 167,068 1,010,150 Gain on sale of capital assets 71,284 350 71,634 Miscellaneous 216,881 3,968 220,849 Total revenues 87,906,029 31,961,947 119,867,976 Expenses: General government 17,430,052 - 17,430,052 Public safety 21,179,963 - 21,179,963 Public works 8,979,020 - 8,979,020 Culture and recreation 11,780,022 - 11,780,022 Interest on long-term debt 3,834,897 - 3,834,897 Water and sewer - 24,703,007 24,703,007 Total expenses 63,203,954 24,703,007 87,906,961 Increase in net position before transfers 24,702,075 7,258,940 31,961,015 Transfers (157,975)157,975 - Increase in net position 24,544,100 7,416,915 31,961,015 Net position-beginning of year 456,743,154 98,360,051 555,103,205 Net position-End of Year 481,287,254$ 105,776,966$ 587,064,220$ 11 FINANCIAL ANALYSIS OF THE GOVERNMENTAL FUNDS Governmental Funds- The focus of the City of Southlake’s governmental funds is to provide information on near-term inflows, outflows and balances of spendable resources. Such information is useful in assessing the City’s financing requirements. In particular, unassigned fund balance may serve as a useful measure of a government’s net resources available for spending at the end of the fiscal year. As of the end of the current fiscal year, the City’s governmental funds reported combined fund balances of $125,765,892. Approximately 9.4% or $11,799,021 constitutes unassigned fund balance, which is available for spending at the government’s discretion. Other portions of the fund balance are either nonspendable, restricted, committed or assigned for specific purposes to pay for debt service $(7,750,782) recycling $(59,163), police expenditures $(4,743,948) parks $(8,904,671), capital projects $(75,012,705), reinvestment zone expenditures $(923,093), municipal court expenditures $(851,104), oil and gas expenditures $(53,719), storm water expenditures $(456,388), strategic initiative expenditures $(5,299,595), facility maintenance $(6,708,556), economic investment $(2,237,211) and other $(965,936). The General Fund is the chief operating fund of the City. At the end of the current fiscal year, unassigned fund balance of the general fund was $11,799,021. As a measure of the General Fund’s liquidity, it may be useful to compare both the unassigned fund balance and total fund balance to total fund expenditures. Unassigned fund balance represents 29.9% of total General Fund expenditures, while total fund balance represents 68.5% of total General Fund expenditures. The fund balance of the General fund increased $1,913,049 during the current fiscal year. The key factor in the increase in fund balance is the increase in taxes of $1,773,635. The General Obligation Debt Service Fund has a fund balance of $5,425,612 all of which is restricted for the payment of debt service. The fund balance decreased during the year by $358,433 primarily due to the increased debt service payments. The fund balance in the General Capital Projects Funds ended the year at $43,565,693 an increase of $1,464,851 due to the transfers from other funds. The Southlake Parks Development Corporation Special Revenue fund balance increased $286,317 primarily due to increased sales tax revenue. The Tax Increment Financing District fund balance decreased $1,031,878 primarily the result of transfers to other funds and infrastructure-related expenditures. Community Enhancement Development Corporation Capital Projects fund balance decreased $13,818,993 due to continued construction. FINANCIAL ANALYSIS OF THE PROPRIETARY FUNDS The City’s proprietary funds provide the same type of information found in the government-wide financial statements, but in more detail. Unrestricted net position reported in the Proprietary Funds were: $26,915,321 in the Water and Sewer Fund and $5,829,507 in the Vehicle and Equipment Replacement Fund. Total net position in the Water and Sewer Fund increased by $4,642,304 while the Vehicle and Equipment Replacement Fund net position increased by $893,406. The increase in water, sewer and garbage charges; transfers from other funds and decrease in water and sewer expenses are the primary reasons for the respective changes in net position. 12 GENERAL FUND BUDGETARY HIGHLIGHTS The City made revisions to the original budget approved by the City Council. Management’s estimate of the General Fund’s budgeted revenues increased $890,232 or 2.0% from original budget based on year-to-date experience. CAPITAL ASSETS AND DEBT ADMINISTRATION Capital Assets- The City’s investment in capital assets for its governmental and business-type activities as of September 30, 2018 amount to $583,849,450 (net of accumulated depreciation). This investment in capital assets includes land, buildings, improvements, machinery and equipment, infrastructure and construction in progress. The City has elected to use the modified approach for its street system in lieu of the depreciation method. An up-to-date inventory of these infrastructure assets was performed and the annual costs to maintain and preserve these assets was established and disclosed through administrative policy. The current condition level of the street system meets the target condition level established by the City. There were no significant changes in the condition levels of infrastructure assets, and the differences between the estimated amounts necessary to maintain and preserve the street system at target condition levels and the actual amount of expense incurred for that purpose for 2018 was not material. Major capital projects completed during the current year included the following:  Kirkwood, Stockton to Tyler  Kirkwood intersection improvements  Sidewalks citywide  Dove @ Peytonville and Sam School Roundabout  8” sewer along Market Loop and Commerce  Sewer, North Carroll, Highland-Whispering Governmental Business-Type 2018 Activities Activities Total Land and improvements 112,957,473$ 19,890,764$ 132,848,237$ Buildings and improvements 75,398,434 259,233 75,657,667 Improvements 85,427,061 85,427,061 Infrastructure 242,393,501 242,393,501 Machinery and equipment 7,480,061 564,037 8,044,098 Construction in Progress 37,452,390 2,026,496 39,478,886 Total 475,681,859$ 108,167,591$ 583,849,450$ Governmental Business-Type 2017 Activities Activities Total Land and improvements 110,378,086$ 19,721,007$ 130,099,093$ Buildings and improvements 77,783,182 289,551 78,072,733 Improvements - 85,908,756 85,908,756 Infrastructure 242,830,785 - 242,830,785 Machinery and equipment 7,446,264 775,735 8,221,999 Construction in Progress 19,934,409 1,519,132 21,453,541 Total 458,372,726$ 108,214,181$ 566,586,907$ 13 Additional information on the City’s capital assets can be found in Note 4 on pages 47-48 of this report. Long-term Debt- At the end of the current fiscal year, the City of Southlake had $101,861,831 total long-term debt outstanding of bonds issued to finance capital improvements for roadway, parks and recreation, public building and infrastructure. $41,991,292 of Utility System bonds, which financed projects to increase capacity of the Utility system, was also outstanding. An additional $1,349,019 was reported for compensated absences at year-end. Governmental Business-Type 2018 Activities Activities Total Bonds payable 101,861,831$ 41,991,292$ 143,853,123$ Unearned revenue - 223,383 223,383 Total OPEB liability 627,758 51,634 679,392 Net OPEB liability 186,457 - 186,457 Net pension liability 6,502,130 649,676 7,151,806 Compensated absences 1,270,040 78,979 1,349,019 Total 110,448,216$ 42,994,964$ 153,443,180$ Governmental Business-Type 2017 Activities Activities Total Bonds payable 114,937,101$ 42,810,130$ 157,747,231$ Unearned revenue - 229,433 229,433 Total OPEB liability 521,741 42,914 564,655 Net OPEB liability 285,661 - 285,661 Net pension liability 10,911,939 1,012,388 11,924,327 Compensated absences 1,186,184 89,259 1,275,443 Total 127,842,626$ 44,184,124$ 172,026,750$ The City takes it debt obligation very seriously. Several years ago, the City Council working with City staff set goals to reduce the debt as percentage of assessed valuation over the total long term debt. As you can see in the figure below, the City has reduced the percentage from 3.29% in 2002 to 0.58% in 2018, during a time of growth for the City. The line that you see on this chart is a graphic illustration of one of the reasons why two bond rating agencies have rated Southlake’s bonds “AAA”. The City has been able to effectively manage its debt during a period of growth using cash to partially offset borrowing needs. Additionally, managing debt amortization has been a tool used to reduce borrowing costs. 14 The City’s bonds are rated “AAA” by Standard and Poor’s and Fitch Ratings. The City is permitted by Article XI, Section 5, of the State of Texas Constitution to levy taxes up to $2.50 per $100 of assessed valuation for general governmental services including the payment of principal and interest on general obligation long-term debt. Additional information on the City’s long-term debt can be found in Note 6 on pages 49-53 of this report. ECONOMIC FACTORS AND NEXT YEAR’S BUDGETS AND RATES The State of Texas, by constitution, does not have a personal income tax and therefore the State operates primarily using sales and gasoline taxes. Local governments primarily rely on property and sales taxes and fees to fund their government activities. While property taxes are important to the City, they represent 53.3% of total governmental revenue. Sales tax continues to grow as the second largest governmental resource representing 29.8% of total governmental revenue. The City monitors all of its resources and determines the need for program adjustment or fee increases accordingly. The FY 2019 Adopted Budget reduced the City’s property tax rate from $0.462 to $0.447 per $100 net taxable valuation. The City’s property tax roll on net taxable value increased $624,404,178 or 9.4 percent from the 2017 certified roll to the 2018 certified roll, the largest portion of the increase is attributable to new construction value of $426,443,267. As an element of the City’s tax relief initiative the homestead exemption was held at the maximum level of 20%. The estimate of the FY 2019 tax roll is based on the certified roll as provided by the Tarrant Appraisal District (TAD) in July. The assumed collection rate is 100 percent. 15 Requests for Information This financial report is designed to provide a general overview of the City of Southlake’s finances for all those with an interest in the government’s finances. Questions concerning any of the information provided in this report or requests for additional financial information should be addressed to the Office of the Chief Financial Officer, 1400 Main Street, 4th Floor Finance Department, Southlake, Texas 76092. BASIC FINANCIAL STATEMENTS GOVERNMENT-WIDE FINANCIAL STATEMENTS CITY OF SOUTHLAKE, TEXAS EXHIBIT 1 EXHIBIT 2 STATEMENT OF NET POSITION SEPTEMBER 30, 2018 The Notes to Financial Statements are an integral part of this statement. 16 GOVERNMENTAL BUSINESS-TYPE ACTIVITIES ACTIVITIES TOTAL ASSETS Cash and cash equivalents 92,455,710$ 11,399,482$ 103,855,192$ Investments 37,073,699 1,684,315 38,758,014 Receivables (net of allowance for uncollectibles)6,768,838 5,093,220 11,862,058 Prepaid items 107,884 - 107,884 Inventories 28,579 - 28,579 Restricted assets Cash and cash equivalents 3,746,680 26,349,290 30,095,970 Investments 1,669,878 2,781,880 4,451,758 Receivables 31,603 - 31,603 Capital assets: Non-depreciable 337,676,358 21,917,261 359,593,619 Depreciable (net of depreciation)138,005,501 86,250,330 224,255,831 TOTAL ASSETS 617,564,730 155,475,778 773,040,508 Deferred charge for refunding 2,580,818 662,598 3,243,416 Deferred outflows - TMRS pension 2,757,801 252,533 3,010,334 Deferred outflows - TMRS OPEB 51,142 4,206 55,348 Deferred outflows - OPEB Health 148,972 - 148,972 TOTAL DEFERRED OUTFLOWS OF RESOURCES 5,538,733 919,337 6,458,070 Accounts payable 7,725,136 2,033,226 9,758,362 Accrued liabilities 1,520,312 327,776 1,848,088 Accrued interest payable - 186,167 186,167 Unearned revenue 881,366 - 881,366 Liabilities payable from restricted assets Accrued interest 427,709 - 427,709 Customer meter deposits - 294,309 294,309 Non-current liabilities: Due within one year 9,655,099 3,918,920 13,574,019 Due in more than one year 100,793,117 39,076,044 139,869,161 TOTAL LIABILITIES 121,002,739 45,836,442 166,839,181 Deferred inflows - TMRS pension 2,571,180 182,195 2,753,375 Deferred inflows - OPEB Health 44,460 - 44,460 TOTAL DEFERRED INFLOWS OF RESOURCES 2,615,640 182,195 2,797,835 NET POSITION Net investment in capital assets 392,406,812 83,461,157 475,867,969 Restricted for debt service 7,345,622 - 7,345,622 Restricted for municipal court 851,104 - 851,104 Restricted for reinvestment zone 923,093 - 923,093 Restricted for capital projects 19,372,772 - 19,372,772 Unrestricted 78,585,681 26,915,321 105,501,002 TOTAL NET POSITION 499,485,084$ 110,376,478$ 609,861,562$ PRIMARY GOVERNMENT LIABILITIES DEFERRED OUTFLOWS OF RESOURCES DEFERRED INFLOWS OF RESOURCES CITY OF SOUTHLAKE, TEXAS EXHIBIT 2 STATEMENT OF ACTIVITIES FOR THE YEAR ENDED SEPTEMBER 30, 2018 The Notes to Financial Statements are an integral part of this statement. 17 Charges for Operating Grants Capital Grants Governmental Business - Type Expenses Services and Contributions and Contributions Activities Activities TOTAL Functions/Program Activities PRIMARY GOVERNMENT: Governmental Activities: General government 18,255,444$ 2,895,701$ 20$ -$ (15,359,723)$ -$ (15,359,723)$ Public safety 23,962,971 2,495,288 35,796 - (21,431,887) - (21,431,887) Public works 10,040,453 1,635,163 - 1,044,834 (7,360,456) - (7,360,456) Culture and recreation 12,775,020 1,301,793 423,190 - (11,050,037) - (11,050,037) Interest on long-term debt 3,047,221 - - - (3,047,221) - (3,047,221) Total governmental activities 68,081,109 8,327,945 459,006 1,044,834 (58,249,324) - (58,249,324) Business-type Activities: Water and sewer 29,068,434 32,229,361 - 2,367,774 - 5,528,701 5,528,701 Total business-type activities 29,068,434 32,229,361 - 2,367,774 - 5,528,701 5,528,701 TOTAL PRIMARY GOVERNMENT 97,149,543$ 40,557,306$ 459,006$ 3,412,608$ (58,249,324)$ 5,528,701$ (52,720,623)$ General revenues and transfers: Taxes: Property taxes, levied for general purposes 40,380,926$ -$ 40,380,926$ Sales taxes 30,822,431 - 30,822,431 Franchise taxes 2,972,143 - 2,972,143 Interest on investments 2,108,804 320,473 2,429,277 Miscellaneous - 4,166 4,166 Transfers 1,211,036 (1,211,036) - Total general revenues and transfers 77,495,340 (886,397) 76,608,943 CHANGE IN NET POSITION 19,246,016 4,642,304 23,888,320 NET POSITION, beginning of year 481,287,254 105,776,966 587,064,220 Cumulative effect of change in accounting principle (1,048,186)(42,792) (1,090,978) NET POSITION, end of year 499,485,084$ 110,376,478$ 609,861,562$ Changes in Net Position Net (Expense) Revenue and Primary Government Program Revenues FUND FINANCIAL STATEMENTS GOVERNMENTAL FUNDS FINANCIAL STATEMENTS CITY OF SOUTHLAKE, TEXAS BALANCE SHEET GOVERNMENTAL FUNDS SEPTEMBER 30, 2018 The Notes to Financial Statements are an integral part of this statement. 18 GENERAL OBLIGATION GENERAL DEBT CAPITAL GENERAL SERVICE PROJECTS ASSETS Cash and cash equivalents 15,981,792$ 3,746,680$ 31,278,031$ Investments 11,464,065 1,669,878 13,110,544 Receivables, net of allowances for uncollectibles: Ad valorem taxes 97,352 26,900 - Franchise taxes 603,539 - - Sales taxes 2,591,390 - - Interest 49,234 4,703 52,487 Other 96,226 - 250,000 Inventories 28,402 - - Prepaid items 57,884 - - TOTAL ASSETS 30,969,884$ 5,448,161$ 44,691,062$ LIABILITIES, DEFERRED INFLOWS OF RESOURCES, AND FUND BALANCES LIABILITIES Accounts payable 1,657,815$ -$ 1,125,369$ Accrued liabilities 1,401,762 - - Unearned revenue 763,330 - - TOTAL LIABILITIES 3,822,907 - 1,125,369 DEFERRED INFLOWS OF RESOURCES Unavailable resources 138,009 22,549 - TOTAL DEFERRED INFLOWS OF RESOURCES 138,009 22,549 - FUND BALANCES Nonspendable for: Inventories 28,402 - - Prepaid expenditures 57,884 - - Restricted for: Debt service - 5,425,612 - Municipal court expenditures - - - Reinvestment zone expenditures - - - Capital projects from restricted sources - - - Capital projects from unspent bond proceeds - - 9,279,819 Committed for: Police expenditures - - - Parks and recreation - - - Oil and gas expenditures - - - Storm water expenditures - - - Library - - - Capital projects - - 34,285,874 Assigned for: Teen Court expenditures 19,835 - - Senior Center expenditures 10,743 - - Recycling 59,163 - - Reforestation expenditures 111,728 - - Public art 678,829 - - Facility Maintenance 6,708,556 - - Economic investment 2,237,211 - - Strategic initiatives 5,299,595 - - Unassigned 11,799,021 - - TOTAL FUND BALANCES 27,010,967 5,425,612 43,565,693 TOTAL LIABILITIES, DEFERRED INFLOWS OF RESOURCES, AND FUND BALANCES 30,971,883$ 5,448,161$ 44,691,062$ EXHIBIT 3 19 COMMUNITY ENHANCEMENT SOUTHLAKE TAX DEVELOPMENT PARKS INCREMENT CORPORATION NON-MAJOR TOTAL DEVELOPMENT FINANCING CAPITAL GOVERNMENTAL GOVERNMENTAL CORPORATION DISTRICT PROJECTS FUNDS FUNDS 5,882,369$ 699,100$ 12,161,133$ 22,588,414$ 92,337,519$ 3,457,265 230,015 3,503,753 3,328,662 36,764,182 - - - - 124,252 - - - - 603,539 1,270,009 - - 1,368,622 5,230,021 9,926 - 16,525 13,625 146,500 12,819 - - 328,833 687,878 - - - 177 28,579 - - - 50,000 107,884 10,632,388$ 929,115$ 15,681,411$ 27,678,333$ 136,030,354$ 76,864$ -$ 3,607,171$ 1,234,907$ 7,702,126$ 5,516 6,022 - 109,011 1,522,311 - - - 118,036 881,366 82,380 6,022 3,607,171 1,461,954 10,105,803 - - - 100 160,658 - - - 100 160,658 - - - 177 28,579 - - - 50,000 107,884 - - - 2,325,170 7,750,782 - - - 851,104 851,104 - 923,093 - - 923,093 10,550,008 - 8,822,764 19,372,772 - - 12,074,240 - 21,354,059 - - - 4,743,948 4,743,948 - - - 8,904,671 8,904,671 - - - 53,719 53,719 - - - 456,388 456,388 - - - 8,338 8,338 - - - - 34,285,874 - - - - 19,835 - - - - 10,743 - - - - 59,163 - - - - 111,728 - - - - 678,829 - - - - 6,708,556 - - - - 2,237,211 - - - - 5,299,595 - - - - 11,799,021 10,550,008 923,093 12,074,240 26,216,279 125,765,892 10,632,388$ 929,115$ 15,681,411$ 27,678,333$ 136,032,353$ CITY OF SOUTHLAKE, TEXAS EXHIBIT 4 RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET POSITION AS OF SEPTEMBER 30, 2018 The Notes to Financial Statements are an integral part of this statement. 20 Total fund balances - governmental funds 125,765,892$ Amounts reported for governmental activities in the statement of net position are different because: Capital assets used in governmental activities are not current financial resources and, therefore, are not reported in the governmental funds balance sheet (Less $2,474,985 in assets allocated to governmental activities from the internal service fund).473,206,874 Interest payable on long-term debt does not require current financial resources; therefore, interest payable is not reported as a liability in the governmental funds balance sheet.(427,709) Internal service funds are used by management to charge the cost of certain activities, such as fleet management, to individual funds. This amount represents the assets less the liabilities of the internal service fund allocated to governmental activities.8,304,492 Revenues earned but not available within sixty days of the year end are not recognized as revenue on the fund financial statements.160,658 For debt refundings, the difference between the acquisition price and net carrying amount of the debt has been deferred and amortized in the government-wide financial statements.2,580,818 Deferred outflows of resources related to the City's pension and OPEB liabilities result in an increase in net position in the government-wide financial statements.2,957,915 Deferred inflows of resources related to the City's pension and OPEB liabilities result in a decrease in net position in the government-wide financial statements.(2,615,640) Long-term liabilities, including bonds payable, are not due and payable in the current period and therefore are not reported in the fund financial statements.(110,448,216) Net position of governmental activities 499,485,084$ CITY OF SOUTHLAKE, TEXAS STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS FOR THE YEAR ENDED SEPTEMBER 30, 2018 The Notes to Financial Statements are an integral part of this statement. 21 GENERAL OBLIGATION GENERAL DEBT CAPITAL GENERAL SERVICE PROJECTS REVENUES Ad valorem taxes, penalties and interest 24,028,296$ 6,730,185$ -$ Franchise taxes 2,972,143 - - Municipal sales and mixed beverage taxes 14,129,335 - - Licenses, permits and fees 2,029,005 - - Charges for services 1,984,377 - - Fines and forfeitures 1,236,846 - - Grants 123,537 - - Capital recovery fees - - 376,004 Interest earned 390,340 59,115 438,793 Contributions - - 6,559 Miscellaneous 273,889 - - TOTAL REVENUES 47,167,768 6,789,300 821,356 EXPENDITURES Current General government City secretary/mayor 451,992 - - City manager's office 928,508 - - Human resources 762,204 - - Support services 3,354,125 - - Economic development 148,659 - - Finance 1,411,726 - - Municipal court 676,781 - - Teen court 116,923 - - Information technology 3,156,668 - - Public safety Police services 6,772,693 - - Fire services 8,849,612 - - Public safety support 1,343,875 - - Building inspection 1,124,796 - - Public works Public works administration 1,760,993 - - Streets and drainage 1,707,626 - 293,351 Planning 1,005,124 - - Cultural and recreation Community services 1,401,068 - - Parks and recreation 3,704,125 - - Library services 741,095 - - Intergovernmental - - - Capital outlay - - 6,928,154 Debt service: Principal retirement - 8,990,242 - Interest and fiscal charges - 1,599,537 - TOTAL EXPENDITURES 39,418,593 10,589,779 7,221,505 Excess (deficiency) of revenues over (under) expenditures 7,749,175 (3,800,479)(6,400,149) OTHER FINANCING SOURCES (USES) Transfers from other funds 2,158,874 3,442,046 7,865,000 Transfers to other funds (7,995,000) - - TOTAL OTHER FINANCING SOURCES (USES)(5,836,126)3,442,046 7,865,000 NET CHANGE IN FUND BALANCES 1,913,049 (358,433)1,464,851 FUND BALANCES, BEGINNING OF YEAR 25,097,918 5,784,045 42,100,842 FUND BALANCES, END OF YEAR 27,010,967$ 5,425,612$ 43,565,693$ EXHIBIT 5 22 COMMUNITY ENHANCEMENT SOUTHLAKE TAX DEVELOPMENT PARKS INCREMENT CORPORATION NON-MAJOR TOTAL DEVELOPMENT FINANCING CAPITAL GOVERNMENTAL GOVERNMENTAL CORPORATION DISTRICT PROJECTS FUNDS FUNDS -$ 9,726,030$ -$ -$ 40,484,511$ - - - - 2,972,143 7,705,009 - - 8,988,087 30,822,431 - - - 155,960 2,184,965 - - - - 1,984,377 - - - 803,190 2,040,036 - - - 1,984,691 2,108,228 - - - - 376,004 164,433 1,237 486,037 504,867 2,044,822 - - - 91,085 97,644 153,824 - - 54,206 481,919 8,023,266 9,727,267 486,037 12,582,086 85,597,080 - - - - 451,992 - - - - 928,508 - - - - 762,204 - - - - 3,354,125 - - - - 148,659 - - - - 1,411,726 - - - 45,424 722,205 - - - - 116,923 - - - - 3,156,668 - - - 1,715,488 8,488,181 - - - - 8,849,612 - - - - 1,343,875 - - - - 1,124,796 - 1,455,000 - - 3,215,993 1,339,463 - 15,305,030 358,844 19,004,314 - - - - 1,005,124 - - - - 1,401,068 - - - 2,170,227 5,874,352 - - - 9,634 750,729 - 6,045,218 - - 6,045,218 - - - 5,286,174 12,214,328 - - - 3,230,000 12,220,242 - - - 2,095,511 3,695,048 1,339,463 7,500,218 15,305,030 14,911,302 96,285,890 6,683,803 2,227,049 (14,818,993)(2,329,216)(10,688,810) - - 1,000,000 8,591,053 23,056,973 (6,397,486) (3,258,927) - (5,694,524) (23,345,937) (6,397,486) (3,258,927)1,000,000 2,896,529 (288,964) 286,317 (1,031,878)(13,818,993)567,313 (10,977,774) 10,263,691 1,954,971 25,893,233 25,648,966 136,743,666 10,550,008$ 923,093$ 12,074,240$ 26,216,279$ 125,765,892$ CITY OF SOUTHLAKE, TEXAS EXHIBIT 6 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, 2018 The Notes to Financial Statements are an integral part of this statement. 23 Net change in fund balances - total governmental funds (10,977,774)$ Amounts reported for governmental activities in the statement of activities are different because: Governmental funds report capital outlays as expenditures. However, in the statement of activities the cost of those assets is allocated over their estimated useful lives and reported as depreciation expense. This is the amount of capital assets recorded in the current period. (Does not include additions of $1,194,454 allocated from internal service fund).23,406,944 Depreciation expense on capital assets is reported in the statement of activities but does not require the use of current financial resources. Therefore, depreciation expense is not reported as expenditures in the governmental funds. (Does not include $621,618 allocated from internal service fund).(7,231,454) The issuance of long-term debt (e.g. bonds) provides current financial resources to governmental funds, while the repayment of the principal of long-term debt consumes the current financial resources of governmental funds. Neither transaction, however, has any effect on net position. Also, governmental funds report the effect of premiums, discounts, and similar items when debt is first issued, whereas the amounts are deferred and amortized in the statement of activities. This amount is the net effect of the following items: o Repayments 12,220,242 o Amortization of premiums and deferred losses 447,166 12,667,408 The changes in pension liability and deferred outflows/inflows from TMRS are not reported in the governmental funds.30,285 The changes in total OPEB liability and deferred outflows/inflows from TMRS are not reported in the governmental funds.(56,356) The changes in net OPEB liability and deferred outflows/inflows for healthcare are not reported in the governmental funds.106,132 Current year changes in the long-term liability for compensated absences do not require the use of current financial resources; and therefore, are not reported as expenditures in governmental funds.(83,856) Current year changes in accrued interest payable do not require the use of current financial resources; and therefore, are not reported as expenditures in governmental funds.200,661 Internal service funds are used by management to charge the costs of certain activities, such as fleet management, to individual funds. The net income of the internal service fund is allocated entirely to governmental activities.893,406 Governmental funds do not recognize assets contributed by developers. However, in the statement of activities the fair market value of those assets are recognized as revenue, then allocated over their estimated useful lives and reported as depreciation expense.662,271 Loss on disposal of capital assets results in a decrease in net position, but the net effect is not reported in governmental funds. (Does not include disposals of $77,985 allocated from internal service fund).(23,478) Certain revenues in the government-wide statement of activities that do not provide current financial resources are not reported as revenue in the governmental funds.(348,173) Change in net position of governmental activities 19,246,016$ PROPRIETARY FUNDS FINANCIAL STATEMENTS CITY OF SOUTHLAKE, TEXAS EXHIBIT 7 STATEMENT OF NET POSITION PROPRIETARY FUNDS SEPTEMBER 30, 2018 The Notes to Financial Statements are an integral part of this statement. 24 BUSINESS-TYPE GOVERNMENTAL ACTIVITIES ACTIVITIES WATER AND SEWER REPLACEMENT VEHICLE ENTERPRISE AND EQUIPMENT INTERNAL FUND SERVICE FUND ASSETS CURRENT ASSETS Cash and cash equivalents 11,399,482$ 3,864,871$ Investments 1,684,315 1,979,395 Receivables, net of allowance for uncollectibles: Trade accounts 3,372,677 - Unbilled trade accounts 1,704,791 - Interest 15,752 8,251 Restricted assets Cash restricted for capital 26,349,290 - Investments restricted for customer meter deposits 294,309 - Investments restricted for capital 2,487,571 - Total current assets 47,308,187 5,852,517 NON-CURRENT ASSETS Capital assets Land and improvements 19,890,765 - Buildings and improvements 935,501 - Distribution system 145,116,749 - Equipment 2,553,907 589,465 Vehicles 542,123 5,628,860 Capacity rights 9,190,988 - Construction in progress 2,026,496 - Total capital assets 180,256,529 6,218,325 Less: accumulated depreciation (72,088,938) (3,743,340) Capital assets, net of accumulated depreciation 108,167,591 2,474,985 Total non-current assets 108,167,591 2,474,985 TOTAL ASSETS 155,475,778$ 8,327,502$ DEFERRED OUTFLOW OF RESOURCES Deferred charge for refunding 662,598$ -$ Deferred inflows - TMRS pension 252,533 - Deferred inflows - TMRS OPEB 4,206 - Total deferred outflows of resources 919,337 - LIABILITIES, DEFERRED INFLOWS OF RESOURCES, AND NET POSITION CURRENT LIABILITIES Accounts payable 2,033,226 23,010 Accrued liabilities 327,776 - Accrued interest 186,167 - Current portion of general obligation debt 3,839,941 - Current portion of compensated absences 78,979 - Payable from restricted assets: Customer meter deposits 294,309 - Total current liabilities 6,760,398 23,010 NON-CURRENT LIABILITIES Unearned revenue 223,383 - General obligation debt 38,151,351 - Net pension liability 649,676 - Total OPEB liability 51,634 - Total non-current liabilities 39,076,044 - TOTAL LIABILITIES 45,836,442 23,010 DEFERRED INFLOW OF RESOURCES Deferred inflows - TMRS pension 182,195 - Total deferred inflows of resources 182,195 - NET POSITION Net investment in capital assets 83,461,157 2,474,985 Unrestricted 26,915,321 5,829,507 TOTAL NET POSITION 110,376,478$ 8,304,492$ CITY OF SOUTHLAKE, TEXAS EXHIBIT 8 STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET POSITION PROPRIETARY FUNDS FOR THE YEAR ENDED SEPTEMBER 30, 2018 The Notes to Financial Statements are an integral part of this statement. 25 BUSINESS-TYPE GOVERNMENTAL ACTIVITIES ACTIVITIES WATER AND SEWER VEHICLE AND EQUIPMENT ENTERPRISE REPLACEMENT INTERNAL FUND SERVICE FUND OPERATING REVENUES Charges for sales and services: Water, sewer and garbage 32,193,537$ -$ Service charges 35,824 - Miscellaneous 4,166 - Total operating revenues 32,233,527 - OPERATING EXPENSES: Personnel services 2,560,252 - Contractual services 3,700,931 - Lease payments 21,480 17,520 Supplies 194,007 - Utilities 10,766,326 - Administrative 343,188 100,823 Maintenance 5,434,309 3,750 Professional benefits 41,890 - Depreciation and amortization 4,662,201 621,618 Total operating expenses 27,724,584 743,711 OPERATING INCOME (LOSS)4,508,943 (743,711) NON-OPERATING REVENUES (EXPENSES) Gain on sale of capital assets - 73,135 Interest income 320,473 63,982 Interest expense (1,343,850)- Total non-operating revenues (expenses)(1,023,377)137,117 INCOME (LOSS) BEFORE CAPITAL CONTRIBUTIONS AND TRANSFERS 3,485,566 (606,594) CAPITAL CONTRIBUTIONS AND TRANSFERS Capital contributions - property owners 1,786,212 - Contributions - impact fees 581,562 - Transfers from other funds - 1,500,000 Transfers to other funds (1,211,036)- Total capital contributions and transfers 1,156,738 1,500,000 CHANGE IN NET POSITION 4,642,304 893,406 NET POSITION, BEGINNING OF YEAR 105,776,966 7,411,086 Cumulative effect of change in accounting principle (42,792) - NET POSITION, END OF YEAR 110,376,478$ 8,304,492$ CITY OF SOUTHLAKE, TEXAS EXHIBIT 9 STATEMENT OF CASH FLOWS PROPRIETARY FUNDS FOR THE YEAR ENDED SEPTEMBER 30, 2018 The Notes to Financial Statements are an integral part of this statement. 26 BUSINESS-TYPE GOVERNMENTAL ACTIVITIES ACTIVITIES WATER AND SEWER VEHICLE REPLACEMENT ENTERPRISE INTERNAL SERVICE FUND FUND CASH FLOWS FROM OPERATING ACTIVITIES Cash received from customers and users 32,214,996$ -$ Cash payments to suppliers (20,064,369) (24,078) Cash payments to employees (2,568,388) - Net cash provided by (used in) operating activities 9,582,239 (24,078) CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Capital expenses (3,029,114) (1,171,443) Principal payments on bonds (4,923,107) - Bond administration cost (109,726) - Proceeds from issuance of bonds 4,205,000 - Premium on the issuance of bonds 130,958 - Interest paid (1,343,141) - Proceeds from sale of capital assets - 149,954 Contributions - impact fees 581,562 - Net cash used in capital and related financing activities (4,487,568) (1,021,489) CASH FLOWS FROM NON-CAPITAL FINANCING ACTIVITIES Transfers from other funds - 1,500,000 Transfers to other funds (1,211,036) - Net cash provided by (used in) non-capital financing activities (1,211,036) 1,500,000 CASH FLOWS FROM INVESTING ACTIVITIES Sales of investments net of purchases (983,160) (999,015) Interest received 281,045 58,340 Net cash used in investing activities (702,115) (940,675) NET CHANGE IN CASH AND CASH EQUIVALENTS 3,181,520 (486,242) CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 34,567,252 4,351,113 CASH AND CASH EQUIVALENTS, END OF YEAR 37,748,772$ 3,864,871$ RECONCILIATION TO STATEMENT OF NET POSITION Cash and cash equivalents 11,399,482$ 3,864,871$ Cash restricted for capital 26,349,290 - Total cash and cash equivalents 37,748,772$ 3,864,871$ RECONCILIATION OF OPERATING INCOME (LOSS) TO NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES Operating income (loss)4,508,943$ (743,711)$ Adjustments to reconcile operating income (loss) to net cash provided by (used in) operating activities: Pension and OPEB expense (353,992) - Depreciation and amortization 4,662,201 621,618 Bad debt expense 197,712 100,823 Decrease (increase) in assets and deferred outflows of resources Receivables (33,128) - Deferred outflows of resources - pensions and OPEB 239,053 - Unearned revenue (6,050) Increase (decrease) in liabilities and deferred outflows of resources Payables and accruals 269,678 (2,808) Customer deposits (19,261) - Deferred inflows of resources - pensions and OPEB 117,083 - Net cash provided by (used in) operating activities 9,582,239$ (24,078)$ NON-CASH CAPITAL AND RELATED FINANCING: Contributions of capital assets from developers 1,786,212$ -$ FIDUCIARY FUND FINANCIAL STATEMENTS CITY OF SOUTHLAKE, TEXAS EXHIBIT 10 OPEB LIABILITY TRUST FUND AND CASH ESCROW AGENCY FUND STATEMENT OF FIDUCIARY NET POSITION SEPTEMBER 30, 2018 The Notes to Financial Statements are an integral part of this statement. 27 Trust Fund*Agency Fund Southlake OPEB Cash Liability Escrow ASSETS Cash and cash equivalents -$ 60,888$ Investments 1,419,507 7,947 TOTAL ASSETS 1,419,507$ 68,835$ LIABILITIES Due to builders -$ 68,835$ TOTAL LIABILITIES - 68,835$ NET POSITION Restricted for post employment benefits other than pensions 1,419,507 TOTAL NET POSITION 1,419,507$ *The Southlake Other Post Employment Benefit (OPEB) Liability Trust fund is reported as of December 31, 2017. CITY OF SOUTHLAKE, TEXAS EXHIBIT 11 OPEB LIABILITY TRUST FUND STATEMENT OF CHANGES IN FIDUCIARY NET POSITION FOR THE YEAR ENDED DECEMBER 31, 2017 The Notes to Financial Statements are an integral part of this statement. 28 Trust Fund Southlake OPEB Liability ADDITIONS Employer contributions 116,779$ Investment earnings, net of unrealized/realized gain/(loss)121,500 TOTAL ADDITIONS 238,279 DEDUCTIONS Benefit Payments 76,779 Administrative expenses 3,484 TOTAL DEDUCTIONS 80,263 CHANGE IN NET POSITION 158,016 NET POSITION - BEGINNNING OF YEAR 1,261,491 NET POSITION - END OF YEAR 1,419,507$ NOTES TO BASIC FINANCIAL STATEMENTS CITY OF SOUTHLAKE, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS SEPTEMBER 30, 2018 29 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES General Statement The City of Southlake (the City) operates under a Home Rule Council – Manager form of government. All powers of the City are vested in an elected council, which enables local legislation, adopts budgets, determines policies and appoints the City Manager. The City Manager is responsible for executing the laws and administering the government of the City. The accounting and reporting policies of the City relating to the funds included in the accompanying basic financial statements conform to accounting principles generally accepted in the United States of America applicable to state and local governments. Generally accepted accounting principles for local governments include those principles prescribed by the Governmental Accounting Standards Board (GASB). The more significant accounting policies of the City are described below. Financial Reporting Entity The City is governed by an elected mayor and a six -member council and has the authority to make decisions, appoint administrators and managers, and significantly influence operations. It also has the primary accountability for fiscal matters. Therefore, the City is a financial reporting entity as defined by the Governmental Accounting Standards Board (GASB) in its Statement No. 14, “The Financial Reporting Entity”, as amended by GASB Statement No. 39 “Determining Whether Certain Organizations Are Component Units” and GASB Statement No. 61, “The Financial Reporting Entity: Omnibus—an amendment of GASB Statements No. 14 and No. 34.” Under GASB 14 component units are organizations for which the City is financially accountable and all other organizations for which the nature and significance of their relationship with the City are such that exclusion would cause the reporting entity’s financial statements to be misleading or incomplete. Financial accountability exists if the City appoints a voting majority of an organization’s governing board and is either able to impose its will on that organization or there is a potential for the organization to provide specific financial benefits to, or impose specific financial burdens on, the City. The City may be financially accountable for governmental organizations with a separately elected governing board, a governing board appointed by another government, or a jointly appointed board that is fiscally dependent on the City. The financial statements of the component units may be discretely presented in a separate column fr om the primary government or blended with the financial statements of the primary government. GASB 39 added clarification to GASB 14 by including entities which meet all three of the following requirements: 1. The economic resources received or held by the separate organization are entirely for the direct benefit of the primary government, its component units, or its constituents. 2. The primary government, or its component units, is entitled to, or has the ability to otherwise access, a majority of the econom ic resources received or held by the separate organization. 3. The economic resources received or held by an individual organization that the specific primary government, or its component units, is entitled to, or has the ability to otherwise access, are significant to that primary government. CITY OF SOUTHLAKE, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS SEPTEMBER 30, 2018 30 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – CONTINUED Financial Reporting Entity – Continued Based on these criteria, the financial information of the following entities has been blended within the reporting entity. Individual financial statements are not available for these component units. Southlake Parks Development Corporation (the Corporation) - The Corporation is a nonprofit industrial development corporation formed in January 1994 under the Development Corporation Act of 1979. The Corporation is organized exclusively to act on behalf of the City for the financing, development and operation of parks and recreation facilities. The affairs of the Corporation are managed by a seven member board of direc tors, of which four are members of the City Council. The annual corporate budget and issuance of debt must be approved by the City Council. Since the Board of the Corporation is substantively the same as the City Council, the Corporation has been reported as a blended component unit. Southlake Community Enhancement and Development Corporation (CEDC) – The CEDC was formed under the Development Corporation Act of 1979, as amended, Title 12, Subtitle C1 of the Texas Local Government Code. The CEDC is organized to promote economic development within the City, including developing, implementing, providing and financing projects including a community entertainment and recreation center for the City. The District is governed by a seven member board appointed by the City Council. The annual budget and issuance of debt must be approved by the City Council. Since the CEDC provides services entirely to the City, it has been reported as a blended component unit. Southlake Tax Increment Financing Districts (the TIF) – The TIF was formed to finance and make public improvements, under the authority of the Tax Increment Financing Act. The TIF is governed by a twelve member board of directors consisting of the eight members appointed by the City Council, and one member each appointed by Carroll Independent School District, Tarrant County, Tarrant County Junior College District, and the Tarrant County Hospital District Board of Directors. Since the Board of the TIF is substantively the same as the City Council; the City has operational responsibility for the TIF and the City receives financial benefit from the TIF, the TIF has been reported as a blended component unit. Southlake Crime Control and Prevention District (the District) – The District was formed under Chapter 363 of the Texas Local Government Code, the Crime Control and Prevention Act. The District is organized exclusively to act on behalf of the City for the financing, development and crime control throughout the City. The District is governed by a seven member board appointed by the City Council. The annual budget and issuance of debt must be approved by the City Council. Since the District provides services entirely to the City, it has been reported as a blended component unit. Basis of Presentation The government-wide financial statements (the statement of net position and the statement of activities) report information on all of the activities of the City, except for fiduciary funds. The effect of interfund activity, within the governmental and business-type activities columns, has been removed from these statements. Governmental activities, which normally are supported by taxes and intergovernmental revenues, are reported separately from business -type activities, which rely to a significant extent on fees and charges for support. CITY OF SOUTHLAKE, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS SEPTEMBER 30, 2018 31 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – CONTINUED Basis of Presentation – Continued The statement of activities demonstrates the degree to which the direct expenses of a given program are offset by program revenu es. Direct expenses are those that are clearly identifiable with a specific program. Program revenues include 1) charges to customers or applicants who purchase, use, or directly benefit from goods, services, or privileges provided by a given program a nd 2) operating or capital grants and contributions that are restricted to meeting the operational or capital requirements of a particular program. Taxes and other items not properly included among program revenues are reported instead as general revenues. Fund Financial Statements: The City segregates transactions related to certain functions or activities in separate funds in order to aid financial management and to demonstrate legal compliance. Separate statements are presented for governmental funds and proprietary funds. These statements present each major fund as a separate column in the fund financial statements; all non-major funds are aggregated and presented in a single column. Governmental funds are those funds through which most governmental functions typically are financed. The measurement focus of governmental funds is on the sources, uses and balances of current financial resources. Governmental Funds The City reports the following major governmental funds: General Fund- The General Fund is the general operating fund of the City. It is used to account for all financial resources not accounted for in other funds. All general tax revenues and other receipts that are not restricted by law or contractual agreement to some other fund a re accounted for in this fund. General operating expenditures, fixed charges and capital improvement costs that are not paid through other funds are paid from the General Fund. General Obligation Debt Service Fund- The General Obligation Debt Service Fund is used to account for the accumulation of financial resources for the payment of principal, interest and related costs on long -term debt paid primarily from taxes levied by the City. The fund balance of the General Obligation Debt Service Fund is restricted exclusively for debt service expenditures. General Capital Projects Fund- The General Capital Projects Fund is used to account for resources used for the acquisition and/or construction of capital facilities by the City, except those financed by p roprietary funds and not accounted for by another capital projects fund. Southlake Parks Development Corporation- The Southlake Parks Development Corporation (“SPDC”) Fund was established to account for the general operations of the non-profit corporation established to finance, develop and operate park and recreational facilities. The SPDC is funded primarily through the municipal sales taxes. CITY OF SOUTHLAKE, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS SEPTEMBER 30, 2018 32 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – CONTINUED Basis of Presentation – Continued Tax Increment Financing District- The Tax Increment Financing (TIF) District Fund was established to account for the general operations of the TIF, which was formed to finance and make public improvements. The TIF is funded primarily through the assessment of ad valorem taxes. Community Enhancement and Development Corporation Capital Projects Fund - The Community Enhancement and Development Corporation (CEDC) Capital Projects Fund is utilized to fund the acquisition and construction of a community entertainment and recreation center as approved by the CEDC board of directors. The fund has been financed through the issuance of sales tax revenue bonds. In addition, the City reports the following non-major governmental funds: Special Revenue Funds – The City’s Special Revenue Funds are used to account for revenue sources that are committed or restricted to expenditures for specified purposes, as follows: Police Fund- The Police Fund was established to account for the resources required to be utilized by the poli ce department. Parks and Recreation Fund- The Parks and Recreation Fund was established to account for resources restricted to the community services department. Parks Dedication Fund- The Parks Dedication Fund was established to account for resources restricted to the community services department. The primary source of revenue for the Parks Dedication Fund is user charges for the use of City parks. Crime Control District- The Crime Control District Special Revenue Fund was established to account for the operations of the Crime Control District, which was established for the financing and development of crime control within the City. The Crime Control Fund is funded primarily through municipal sales taxes. Hotel Occupancy- The Hotel Occupancy Tax Fund accounts for all revenues and expenditures relating to the hotel occupancy tax received by the City. CITY OF SOUTHLAKE, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS SEPTEMBER 30, 2018 33 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – CONTINUED Basis of Presentation – Continued Storm Water Utility- The Storm Water Utilit y Fund is used to account for fees collected for the purpose of improving, upgrading and maintaining the City’s drainage system. Court Security Fund- The Court Security Fund is used to account for Municipal Court fees assessed to provide for court security. Court Technology Fund- The Court Technology Fund is used to account for Municipal Court fees assessed to provide for court technology. Library Fund- The Library Fund was established to account for resources donated for City library services. Red Light Camera Fund- The Red Light Camera Fund is used to account for fees assessed for red light violations captured through the City’s camera monitoring system. Storm Water Maintenance Fund- The Storm Water Maintenance Fund is used to account for the maintenance on storm water infrastructure. Community Enhancement and Development Corporation – The Community Enhancement and Development Corporation (“CEDC”) Fund was established to account for the general operations of the non-profit corporation established to finance, develop and operate a community entertainment and recreation center. The CEDC is funded primarily through municipal sales taxes. Oil and Gas Fund- The Oil and Gas Fund is used to account for permit fees and the related expenditures for oil and gas drilling. Commercial Vehicle Enforcement Fund- The Commercial Vehicle Enforcement Fund is used to account for the fees assessed for commercial vehicle violations. CITY OF SOUTHLAKE, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS SEPTEMBER 30, 2018 34 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – CONTINUED Basis of Presentation – Continued Southlake Parks Development Corporation Debt Service Fund- The Southlake Parks Development Corporation Debt Service Fund is utilized to account for the accumulation of financial resources, primarily transfers from other funds, for the payment of long- term principal and interest costs associated with the financing of improvements of the Southlake Parks Development Corporation. Community Enhancement and Development Corporation Debt Service Fund- The Community Enhancement and Development Corporation Debt Service Fund is utilized to account for the accumulation of financial resources , primarily transfers from other funds, for the payment of long-term principal and interest costs associated with the financing of the community entertainment and recreation center. Capital Projects Funds – The City’s Capital Projects Funds are utilized to account for financial resources to be used for the acquisition or construction of specified capital improvements (other than those financed by proprietary funds). Such resources are derived from proceeds of general obligation debt, other sources designated for improvements and interest earned on such proceeds. The City’s non-major Capital Projects Funds are as follows: Tax Increment Financing District Capital Projects Fund- The Tax Increment Financing District Capital Projects Fund is utilized to fund the acquisition and construction of public improvements as approved by the TIF board of directors. The fund has been financed through the issuance of general obligation debt. Southlake Parks Development Corporation Capital Projects Fund - The Southlake Parks Development Corporation (SPDC) Capital Projects Fund is utilized to fund the acquisition and construction of park recreational facilities as approved by the SPDC board of directors. The fund has been financed through the issuance of general obligation debt. Crime Control District Capital Projects Fund- The Crime Control District Capital Projects Fund is utilized to account for the acquisition and construction of capital assets as approved by the District’s board of directors. The fund has been funded primarily through the issuance of general obligation debt. CITY OF SOUTHLAKE, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS SEPTEMBER 30, 2018 35 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – CONTINUED Basis of Presentation – Continued Proprietary Funds- Proprietary Funds are accounted for using the economic resources measurement focus and the accrual basis of accounting. The accounting objectives are determinations of net income, financial position and cash flow. All assets and liabilities are included in the Statement of Net Position. The City reports the following major proprietary fund: Water and Sewer Enterprise Fund- The Water and Sewer Enterprise Fund is used to account for the acquisition, operation and maintenance of a municipal water and sewer utility, supported primarily by user charges to the public. Additionally, the City reports an Internal Service Fund which is used to account for vehicle and equipment replacement provided to departments of the City. Proprietary funds distinguish operating revenues and expenses from non -operating items. Operating revenues and expenses generally result from providing services and producing and delivering goods in connection with a proprietary fund’s principal ongoing o perations. Operating expenses for the proprietary funds include the cost of personnel and contractual services, supplies and depreciation on capital assets. All revenues and expenses not meeting this definition are reported as non-operating revenues and expenses. Fiduciary Funds The City also presents one agency fund, the Cash Escrow Agency Fund and one trust fund, Southlake OPEB Liability Trust Fund. The agency fund is custodial in nature and does not involve measurement of results of operations. Financial statements for the Cash Escrow Agency Fund are prepared on the accrual basis of accounting and reported as of September 30, 2018. The City’s OPEB Liability Trust Fund accounts for the funding of post-employment healthcare benefits for retirees of the City and their dependents which is presented as of December 31, 2017. Measurement Focus and Basis of Accounting Measurement focus refers to what is being measured; basis of accounting refers to when revenues and expenditures are recognized in the accounts and reported in the financial statements. Basis of accounting relates to the timing of the measurement made, regardless of the measurement focus applied. The government-wide statements and fund financial statements for proprietary and fiduciary funds are reported using the accrual basis of accounting. The government-wide and proprietary fund financial statements are prepared using the economic resources measurement focus; however, the fiduciary funds have no measurement focus. The economic resources measurement focus means all assets and liabilities (whether current or non -current) are included in the statement of net position and the operating statements present increases (revenues) and decreases (expenses) in total net position. Under the accrual basis of accounting, revenues are recognized when earned, including unbilled water and sewer services which are accrued. Expenses are recognized at the time the liability is incurred. CITY OF SOUTHLAKE, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS SEPTEMBER 30, 2018 36 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – CONTINUED Measurement Focus and Basis of Accounting – Continued Governmental fund financial statements are reported using the current financial resources measurement focus and are accounted for using the modified accrual basis of accounting. Under the modified accrual basis of accounting, revenues are recognized when susceptible to accrual; i.e., when they become both measurable and available. “Measurable” means the amount of the transaction can be determined and “available” means collectible within the current period or soon enough thereafter to be used to pay liabilities of the current period. The City considers all revenues as available if they are collected within 60 days after year end. Expenditures are recorded when the related fund liability is incurred, e xcept for unmatured interest on long-term debt which is recognized when due, and certain compensated absences and claims and judgments which are recognized when the obligations are expected to be liquidated with expendable available financial resources. Property taxes, sales taxes, franchise taxes and interest are susceptible to accrual. Other receipts become measurable and available when cash is received by the City and are recognized as revenue at that time. Cash, Cash Equivalents and Investments In accordance with GASB Statement No. 31, the City’s general policy is to report money market investments and short-term participating interest-earning investment contracts at amortized cost and to report nonparticipating interest-earning investment contracts using a cost-based measure. However, if the fair value of an investment is significantly affected by the impairment of the credit standing of the issuer or by other factors, it is reported at fair value. All other investments are reported at fair value unless a legal contract exists which guarantees a higher value. The term “short-term” refers to investments, which have a remaining term of one year or less at the time of purchase. The term “nonparticipating” means that the investment’s value does not vary with market interest rate changes. The City’s cash and cash equivalents are defined as cash on hand, demand deposits, and short- term investments with original maturities of three months or less from the date of acquisition for classification in the statement of cash flows for proprietary fund types. The City pools idle cash from all funds for the purpose of increasing income through coordinated investment activities. As of September 30, 2018, the investments held by the City had a remaining maturity of greater than one year from purchase and accordingly are carried at fair value. Interest earnings are allocated to the respective funds based upon each fund’s relative balance in the pool. Cash and cash equivalents and investments reported as restricted are restricted for the acquisition and construction of capital assets, and for utility deposits held by the City. Property Taxes The City’s property tax is levied each October 1 on the assessed value listed as of the prior January 1 for all real and certain personal property located within the City. Appraised values are established by the Central Appraisal Districts at 100% of estimated market value and certified by the Appraisal Review Board. The assessed value upon which the 2018 levy was based on was $6,892,432,070. Taxes are due on October 1 and are delinquent after the following January 31. CITY OF SOUTHLAKE, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS SEPTEMBER 30, 2018 37 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – CONTINUED Property Taxes – Continued The City is permitted by Article XI, Section 5 of the State of Texas Constitution to levy taxes up to $2.50 per $100 of assessed valuation for general governmental services, including the payment of principal and interest on general obligation long-term debt. The combined tax rate to finance general governmental services including the payment of principal and interest on long -term debt for the year ended September 30, 2018 was 0.462 per $100 of assessed valuation. In Texas, countywide central appraisal districts are required to assess all property within the appraisal district on the basis of 100% of its appraised value and are prohibited from applying any assessment ratios. The value of property within the appraisal district must be reviewed every five years; however, the City may, at its own expense, require annual reviews of appraised values. Interfund Receivables and Payables Activities between funds that are representative of lending/borrowing arrangements outstanding at the end of the fiscal year are referred to as “due to/from other funds.” Any residual balances outstanding between the governmental activities and business -type activities are reported in the government-wide financial statements as “internal balances”. Transactions Between Funds Interfund services provided and used are accounted for as revenues, expenditures or expenses. Transactions that constitute reimbursements to a fund for expenditures/expenses initially made from it that are properly applicable to another fund , are recorded as expenditures/expenses in the reimbursing fund and as a reduction of expenditures/expenses in the fund reimbursed. All other interfund transactions, except interfund services provided and used and reimbursements, are recorded as transfers. Interfund services provided and used are not eliminated in the process of consolidation. Restricted Resources When both restricted and unrestricted resources are available for use, it is the City’s policy to use restricted first, then unrestricted resources as required. Inventories Inventories are stated at cost (first-in, first-out) and are determined annually by taking a physical inventory. Inventory in the general fund consists of gasoline and supplies held for consumption and is reported on the consumption method. Under the consumption method the cost is recorded as an expenditure at the time individual inventory items are utilized. Prepaid Items Certain payments reflect costs applicable to future periods and are recorded as prepaid items in the government-wide and fund financial statements. These items consist principally of postage and building deposits and are reported on the consumption method. CITY OF SOUTHLAKE, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS SEPTEMBER 30, 2018 38 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – CONTINUED Capital Assets Capital assets, which include property, plant, equipment, and infrastructure assets, are reported in the applicable governmental or business-type activities columns in the government-wide financial statements and in the fund financial statements for proprietary funds. All capital assets are valued at historical cost or estimated historical cost if actual historical cost is not available. Donated assets are valued at acquisition value on the date donated. The costs of normal repairs and maintenance that do not add to the value of the asset or materially extend the asset lives are not capitalized. Renewals and betterments are capitalized. Interest has not been capitalized during the construction period on property, plant and equipment. Assets capitalized have an original cost of $5,000 or more and over one year of useful life. Depreciation has been calculated on each class of depreciable property using the straight -line method. Estimated useful lives are as follows: Buildings 20 - 50 Years Water and Sewer distribution system 35 - 50 Years Water hydrants 10-15 Years Water tanks 35 Years Computer equipment 5 Years Heavy equipment and vehicles 10 - 20 Years Light vehicles 2 - 10 Years Vehicles 5 Years Improvements 25 Years Infrastructure 10 Years The street network is not depreciated. The City has elected to use the modified approach in accounting for its street infrastructure. The modified approach allows governmen ts to report as expenses in lieu of depreciation, infrastructure expenditures which maintain the asset but do not add to or improve the asset. Additions and improvements to the street networ k are capitalized. The City uses an asset management system to rate street condition and quantify the results of maintenance efforts. The City has established the Vehicle and Equipment Replacement Internal Service Fund to account for City-owned vehicles. The fund receives transfer from other funds. Vacation and Sick Leave (Compensated Absences) City employees earn vacation and sick leave, which may either be taken or accumulated, up to certain amounts, until paid upon retirement or termination. Sick leave is not paid upon termination. Upon termination or retirement, an employee is reimbursed up to a maximum number of hours of vacation pay based upon the years of service. All vacation is accrued in the government-wide and proprietary fund financial statements. A liability for these amounts is reported in the governmental funds only if they have matured. Long-Term Obligations In the government-wide financial statements and proprietary fund financial statements, long -term debt and other long-term obligations are reported as liabilities in the applicable governmental activities, business-type activities, or proprietary fund statement of net position. Bond premiums and discounts, as well as any deferred losses on the refunding of bonds, are amortized over the CITY OF SOUTHLAKE, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS SEPTEMBER 30, 2018 39 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – CONTINUED Long-Term Obligations – Continued life of the bonds using the effective interest method. Bonds payable are reported net of the applicable bond premium or discount. Issuance costs are recorded as expenses when incurred. In the fund financial statements, governmental fund types recognize bond premiums and discounts, as well as bond issuance costs, during the current period. The face amount of debt issued is reported as other financing sources. Premiums and discounts received on debt issuances are reported as other financing sources or uses. Issuance costs, whether or not withheld from the actual debt proceeds received, are reported as debt service expenditures. Pensions and Other Post-Employment Benefits (OPEB) For purposes of measuring the net pension and total OPEB liabilities, pension and OPEB related deferred outflows and inflows of resources and pension and OPEB expense, City specific information about its Fiduciary Net Position in the Texas Municipal Retirement System (TMRS) and additions to/deductions from the City’s Fiduciary Net Position have been determined on the same basis as they are reported by TMRS. For this purpose, plan contributions are recognized in the period that compensation is reported for the employee, which is when contr ibutions are legally due. Benefit payments and refunds are recognized when due and payable in accordance with the benefit terms. Investments are reported at fair value. Information regarding the City’s Total Pension Liability and Total OPEB Liability is obtained from TMRS through reports prepared for the City by TMRS consulting actuary, Gabriel Roeder Smith & Company, in compliance with Governmental Accounting Standards Board (GASB) Statement No. 68, Accounting and Financial Reporting for Pensions, and G ASB Statement No. 75, Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions. Deferred Outflows of Resources In addition to assets, the statement of financial position and/or balance sheet will sometimes report a separate section for deferred outflows of resources. This separate financial statement element, deferred outflows of resources, represents a consumption of net position that applies to a future period(s) and so will not be recognized as an outflow of resources (expen se/expenditure) until then. The City has the following items that qualify for reporting in this category: Deferred Loss on Refunding – these deferred outflows result from the difference in the carrying value of refunded debt and its reacquisition price. This amount is deferred and amortized over the shorter of the life of the refunded or refunding debt. Pensions/OPEB – these deferred outflows result from pension/OPEB contributions after the measurement date (deferred and recognized in the following fisc al year) and/or differences in projected and actual earnings on pension/OPEB assets (deferred and amortized over a closed five year period). Deferred Inflows of Resources In addition to liabilities, the statement of net position and/or balance sheet will sometimes report a separate section for deferred inflows of resources. While deferred inflow items reported in the balance sheet are described in detail in Note 5, those that qualify for reporting in the statement of net position consist of pension and OPEB items (difference in expected and actual experience and difference in assumption changes). These differences are deferred and amortized over a closed period equal to the average of the expected remaining service lives of all employees provided pensions through the plan, while investment experience differences are amortized over a closed 5-year period. CITY OF SOUTHLAKE, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS SEPTEMBER 30, 2018 40 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – CONTINUED Fund Equity The City has adopted the provisions of GASB Statement No. 54, Fund Balance Reporting and Government Fund Type Definitions. The objective of the statement is to enhance the usefulness of fund balance information by providing clearer fund balance classifications that can be more consistently applied and by clarifying the existing government fund type definitions. The statement establishes fund balance classifications that comprise a hierarchy based primarily on the extent to which a government is bound to observe constraints imposed upon the use of the resources reported in governmental funds. Fund balance classifications, under GASB 54 are Nonspendable, Restricted, Committed, Assigned, and Unassigned. These classifications reflect not only the nature of funds, but also provide clarity to the level of restriction placed upon fund balance. Fund balance can have different levels of constraint, such as external versus internal compliance requirements. The General Fund should be the only fund that reports a positive unassigned balance. In all other funds, unassigned is limited to negative residual fund balance. In accordance with GASB Statement No. 54, the City classifies governmental fund balances as follows: 1. Nonspendable fund balance – includes amounts that are not in a spendable form or are required to be maintained intact (example – inventory or permanent funds). 2. Restricted fund balance – includes amounts that can be spent only for the specific purposes stipulated by external resource providers either constitutionally or through enabling legislation (example – court technology and court security funds). 3. Committed fund balance – includes amounts that can only be used for s pecific purposes determined by City Council (example – capital projects and police expenditures). 4. Assigned fund balance – comprises amounts intended to be used by the City for specific purposes. Intent can be expressed by the City Council or their designee (Chief Financial Officer). In governmental funds other than the general fund, assigned fund balance represents the amount that is not restricted or committed. This indicates that resources in other governmental funds are, at a minimum, intended to be used for the purpose of that fund (example – Facility Maintenance and economic investments). 5. Unassigned fund balance – is the residual classification of the general fund and includes all amounts not contained in other classifications. In accordance with GASB 54, the City has also adopted the following policies: Committed Fund Balance - The City Council is the City’s highest level of decision-making authority and approval by resolution is required to establish, modify, or rescind a fund balance commitment. The resolution must either be approved or rescinded, as applicable, prior to the last day of the fiscal year. The amount subject to the constraint may be determined in the subsequent period. Assigned Fund Balance - The City Council has authorized the City’s Chief Financial Officer as the official authorized to assign fund balance to a specific purpose as approved by this fund balance policy. Unassigned Fund Balance - It is the goal of the City to maintain a fund balance in the General Fund, equal to a minimum of 15% of General Fund budgeted operating expenditures, with the optimum goal of 25%. The City considers a balance of less than 15% to be cause for concern, barring unusual or deliberate circumstances. It is the goal of the City to maintain 60 days of working capital in the Enterprise Fund, with the optimum goal of 90 days of working capital. CITY OF SOUTHLAKE, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS SEPTEMBER 30, 2018 41 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – CONTINUED Fund Equity – Continued The City shall also maintain all Reserve funds for all statutorily required reserve funds to guarantee debt service. Order of Expenditure of Funds - When multiple categories of fund balance are available for expenditures, the City will start with the most restricted category and spend those funds first before moving to the next category with available funds (restricted, committed, assigned and unassigned). During fiscal year 2006, the City began designating funds for strategic initia tives. The source of these funds is reserves in excess of 25% of general fund expenditures. The funds will be used for one-time high impact projects involving infrastructure maintenance, community enhancement and capital acquisition; and are reported as assigned fund balance in the general fund. Net Position Net position represents the difference between assets plus deferred outflows of resources and liabilities plus deferred inflows of resources. Net investment in capital assets consists of capital assets, net of accumulated depreciation, reduced by the outstanding balances of any borrowing used for the acquisition, construction or improvements of those assets, and adding back unspent proceeds. Net position is reported as restricted when there are lim itations imposed on their use either through the enabling legislations adopted by the City or through external restrictions imposed by creditors, grantors or laws or regulations of other governments. 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 the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses/expenditures during the reporting period. Actual results could differ from those estimates. Subsequent Events The City has evaluated all events or transactions that occurred after September 30, 2018 up through March 11, 2019, the date the financial statements were available to be issued. During this period, there were no subsequent events requiring disclosure. NOTE 2. CASH AND INVESTMENTS The funds of the City must be deposited and invested under the terms of a contract, contents of which are set out in the Depository Contract Law. The depository bank places approved pledged securities for safekeeping and trust with the City's agent bank in an amount sufficient to protect City funds on a day-to-day basis during the period of the contract. The pledge of approved securities is waived only to the extent of the depository bank's dollar amount of Federal Deposit Insurance Corporation (FDIC) insurance. At September 30, 2018 the carrying amount of the City's deposits was $14,886,181 and the bank balance was $15,186,480. As of September 30, 2018, none of the City’s deposits were uncollateralized. Legal and contractual provisions governing deposits and investments: CITY OF SOUTHLAKE, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS SEPTEMBER 30, 2018 42 NOTE 2. CASH AND INVESTMENTS – CONTINUED The Public Funds Investment Act (Government Code Chapter 2256) contains specific provisions in the areas of investment practices, management reports and establishment of appropriate policies. Among other things, it requires the City to adopt, implement, and pu blicize an investment policy. That policy must address the following areas: (1) safety of principal and liquidity, (2) portfolio diversification, (3) allowable investments, (4) acceptable risk levels, (5) expected rates of return, (6) maximum allowable stated maturity of portfolio investments, (7) maximum average dollar -weighted maturity allowed based on the stated maturity date for the portfolio, (8) investment staff quality and capabilities, (9) and bid solicitation preferences for certificates of deposit. Statutes and the City’s investment policy authorized the City to invest in the following investments as summarized in the table below: Maximum Maximum Authorized Maximum Percentage Investment Investment Type Maturity of Portfolio In One Issuer U.S. Government Securities 5 years 100%None Commercial Paper 270 days 20%None Eligible Investment Pools 365 days 100%None The Act also requires the City to have independent auditors perform test procedures related to investment practices as provided by the Act. The City is in substantial compliance with the requirements of the Act and with local policies. Cash and investments as of September 30, 2018 are classified in the accompanying financial statements as follows: Primary Government: Cash and cash equivalents 103,855,192$ Investments 38,758,014 Restricted cash and cash equivalents 30,095,970 Restricted investments 4,451,758 Total primary government 177,160,934 Agency and Trust Funds: Cash 60,888 Investments 1,427,454 Total fiduciary funds 1,488,342 Total cash and investments 178,649,276$ CITY OF SOUTHLAKE, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS SEPTEMBER 30, 2018 43 NOTE 2. CASH AND INVESTMENTS – CONTINUED Cash and investments of the primary government as of September 30, 2018 consist of the following: Cash on hand 4,600$ Deposits with financial institutions 14,886,181 Investments 162,270,153 Total cash and investments 177,160,934$ Disclosures relating to Interest Rate Risk Interest rate risk is the risk that changes in market interest rates will adversely affect the fair value of an investment. Generally, the longer the maturity of an investment, the greater the sensitivity of its fair value to changes in market interest rates. One of the ways that the City manages its exposure to interest rate risk is by investing mainly in investment pools which purchase a combination of shorter term investments with an average maturity of less than 60 days, thus reducing the interest rate risk. The City monitors the interest rate risk inherent in its portfolio by measuring the weighted average maturity of its portfolio. The City has no specific limitations with respect to this metric. As of September 30, 2018 the City did not invest in any securities which are highly sensitive to interest rate fluctuations. Disclosures relating to Credit Risk Generally, credit risk is the risk that an issuer of an investment will not fulfill its obligation to the holder of the investment. This is measured by the assignment of a rating by a nationally recognized statistical rating organization. Presented below is the minimum rating required by (where applicable) the Public Funds Investment Act, the City’s investment policy, or debt agreem ents, and the actual rating as of year-end for each investment type. Minimum Rating as Legal of Year Amount Rating End Government agency securities 43,209,772$ N/A Not rated Mutual funds 28,030,508 N/A AAAm TexStar 26,506,569 N/A AAAm TexPool 55,727,538 N/A AAAm Lonestar Investment Pool 3,675,619 N/A AAAm Texas Class 5,120,147 N/A AAAm Total 162,270,153$ Investment Type Concentration of Credit Risk The investment policy of the City contains no limitations on the amount that can be invested in any one issuer. As of September 30, 2018, the City investments other than external investment pools that represent 5% or more of the City’s investments include mutual funds and U.S. Government Agency securities as described in the table below. Custodial Credit Risk Custodial credit risk for deposits is the risk that, in the event of the failure of a depository financial institution, a government will not be able to recover its deposits or will not be able to recover collateral CITY OF SOUTHLAKE, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS SEPTEMBER 30, 2018 44 NOTE 2. CASH AND INVESTMENTS – CONTINUED Custodial Credit Risk – Continued securities that are in the possession of an outside party. The custodial credit risk for investments is the risk that, in the event of the failure of the counterparty to a transaction, a government will not be able to recover the value of its investment or collateral securities that are in the possession of another party. The Public Funds Investment Act and the City’s investment policy do not contain legal or policy requirements that would limit the exposure to custodial cred it risk for deposits or investments, other than the following provision for deposits: The Public Funds Investment Act requires that a financial institution secure deposits made by state or local governmental units by pledging securities in an undivided collateral pool held by a depository regulated under state law (unless so waived by the governmental unit). The market value of the pledged securities in the collateral pool must equal at least the bank balance less the FDIC insurance at all times. As of September 30, 2018, none of the City’s cash deposits were uncollateralized. The City categorizes its fair value measurements within the fair value hierarchy established by generally accepted accounting principles. GASB Statement No. 72, Fair Value Measurement and Application, provides a framework for measuring fair value which establishes a three -level fair value hierarchy that describes the inputs that are used to measure assets and liabilities.  Level 1 inputs are quoted prices (unadjusted) for identical assets or liabilities in active markets that a government can access at the measurement date.  Level 2 inputs are inputs —other than quoted prices included within Level 1—that are observable for an asset or liability, either directly or indirectly.  Level 3 inputs are unobservable inputs for an asset or liability. The fair value hierarchy gives the highest priority to Level 1 inputs and the lowest priority to Level 3 inputs. If a price for an identical asset or liability is not observable, a government should measure fair value using another valuation technique that maximizes the use of relevant observable inputs and minimizes the use of unobservable inputs. If the fair value of an asset or a liability is measured using inputs from more than one level of the fair value hierarchy, the measurement is considered to be based on the lowest priority level input that is significant to the entire measurement. The City has recurring fair value measurements as presented in the table below. The City’s investment balances and weighted average maturity of such investments are as follows: Value at 9/30/18 Level 1 Inputs Level 2 Inputs Level 3 Inputs Percent of Total Investments Investments not subject to Fair Value Investment Pools TexPool 55,727,538$ -$ -$ -$ 34%28 TexStar 26,506,569 - - - 16%40 Lone Star 3,675,619 - - - 2%28 Texas CLASS 5,120,147 - - - 3%56 Investments by Fair Value Level Federal Farm Credit Bank 2,966,640 - 2,966,640 - 2%278 Federal Home Loan Bank 14,902,352 - 14,902,352 - 9%211 Federal Home Loan Mortgage Corp.14,932,850 - 14,932,850 - 9%200 Federal National Mortgage Association 10,407,930 - 10,407,930 - 7%152 Mutual Funds - Short-Term Investments Trust 28,030,508 28,030,508 - - 18%34 Total 162,270,153$ 28,030,508$ 43,209,772$ -$ 100% Fair Value Measurements Weighted Average Maturity (Days) CITY OF SOUTHLAKE, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS SEPTEMBER 30, 2018 45 NOTE 2. CASH AND INVESTMENTS – CONTINUED Custodial Credit Risk – Continued U.S. Government Agency Securities classified in Level 2 of the fair value hier archy are valued using a matrix pricing technique. Matrix pricing is used to value securities based on the securities’ relationship to benchmark quoted prices. Mutual funds reported as level 1 are valued at the net asset value (NAV) of shares held by the City at year end. The NAV is a quoted price in an active market. Investment in State Investment Pools The City is a voluntary participant in four investment pools: TexPool, TexStar, Texas Class and Lone Star. The State Comptroller of Public Accounts exercises responsibility over TexPool. This oversight includes the ability to significantly influence operations, designation of management, and accountability for fiscal matters. Additionally, the State Comptroller has established an advisory board composed of both participants in TexPool and other persons who do not have a business relationship with TexPool. TexPool operates in a manner consistent with the SEC’s Rule 2a7 of the Investment Company Act of 1940. TexPool uses amortized costs rather than m arket value to report net position to compute share prices. Accordingly, the fair value of the position in TexPool is the same as the value of TexPool shares. TexStar is administered by First Southwest Asset Management, Inc. and JPMorgan Chase. TexStar is a local government investment pool created under the Interlocal Cooperation Act specifically tailored to meet Texas state and local government investment objectives of preservation of principal, daily liquidity, and competitive yield. TexStar uses amortized costs rather than market value to report net position to compute share prices. Accordingly, the fair value of the position in TexStar is the same as the value of TexStar shares. Texas CLASS is organized under the Sixth Amended and Restated Trust Agreement in accordance with all the requirements contained in section 2256.016 of the Act. Texas CLASS is administered by Public Trust Advisors, LLC and all funds are held by the custodial agent, Wells Fargo N.A. Texas CLASS may invest in obligations of the U.S. or its agencies and instrumentalities; repurchase agreements; SEC-registered money market funds rated in the highest rating category by at least one NRSRO; and commercial paper rated A-1, P-1 or equivalent by two nationally recognized rating agencies. The Lone Star Investment Pool (the Pool) is organized in conformity with the Interlocal Cooperation Act, Chapter 791 of the Texas Government Code, and the Public Funds Investment Act, Chapter 2256 of the Texas Government Code. The Pool is governed by a n 11 member Board of Trustees, consisting of individuals representing entities participating in the Pool. The fair value of the City’s position in the Pool is the same as the value of the Pool shares. CITY OF SOUTHLAKE, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS SEPTEMBER 30, 2018 46 NOTE 3. RECEIVABLES Receivables at September 30, 2018, for the government’s individual major, non-major, internal service, and fiduciary funds in the aggregate, including the applicable allowances for uncollectible accounts, consist of the following: General Community Obligation General SPDC Enhancement Debt Capital Special Rev.Dev. Corp. General Service Projects Fund Capital Projects Receivables: Property taxes 536,096$ 148,136$ -$ -$ -$ Sales taxes 2,591,390 - - 1,270,009 - Franchise taxes 603,539 - - - - Accounts - - 250,000 12,819 - Interest 49,234 4,703 52,487 9,926 16,525 Other 177,970 - - - - Gross receivables 3,958,229 152,839 302,487 1,292,754 16,525 Less: allowance 520,488 121,236 - - - Net total receivables 3,437,741$ 31,603$ 302,487$ 1,292,754$ 16,525$ Non- Major Water Govern-and Internal mental Sewer Service Total Receivables: Property taxes -$ -$ -$ 684,232$ Sales taxes 1,368,622 - - 5,230,021 Franchise taxes - - - 603,539 Accounts 264,879 5,589,601 - 6,117,299 Interest 13,625 15,752 8,251 170,503 Other 64,761 - - 242,731 Gross receivables 1,711,887 5,605,353 8,251 13,031,800 Less: allowance 807 512,133 - 1,154,664 Net total receivables 1,711,080$ 5,093,220$ 8,251$ 11,893,661$ The Water and Sewer Fund and the Storm Water Utility Fund accounts receivable include unbilled charges for services rendered through September 30, 2018 of $1,807,422. CITY OF SOUTHLAKE, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS SEPTEMBER 30, 2018 47 NOTE 4. CAPITAL ASSETS Capital asset activity for the year ended September 30, 2018, was as follows: Beginning Capital Sales or Adjustments/Ending Balance Acquisitions Disposals Transfers Balance Governmental Activities: Capital assets not being depreciated: Land 91,401,608$ 62,941$ -$ -$ 91,464,549$ Street infrastructure 204,578,641 106,465 - 4,074,313 208,759,419 Construction-in-progress 19,934,410 22,670,904 - (5,152,924) 37,452,390 Total capital assets not being depreciated 315,914,659 22,840,310 - (1,078,611) 337,676,358 Capital assets being depreciated: Land improvements 39,028,278 - (5,583) 266,097 39,288,792 Buildings and building improvements 96,122,363 - - - 96,122,363 Public art 1,156,202 - - - 1,156,202 Equipment 16,419,449 1,286,908 (514,511) - 17,191,846 Vehicles 11,542,237 643,583 (410,984) - 11,774,836 Drainage 57,001,581 492,865 - 812,514 58,306,960 Total capital assets being depreciated 221,270,110 2,423,356 (931,078) 1,078,611 223,840,999 Accumulated depreciation: Land improvements (15,673,243) (2,128,208) 5,583 - (17,795,868) Buildings and building improvements (18,891,580) (2,269,128) - - (21,160,708) Public art (603,803) (115,620) - - (719,423) Equipment (12,641,417) (856,839) 491,035 - (13,007,221) Vehicles (7,874,005) (938,396) 333,001 - (8,479,400) Infrastructure (23,127,995) (1,544,883) - - (24,672,878) Total accumulated depreciation (78,812,043) (7,853,074) 829,619 - (85,835,498) Total capital assets being depreciated, net 142,458,067 (5,429,718) (101,459) 1,078,611 138,005,501 Governmental activities capital assets, net 458,372,726$ 17,410,592$ (101,459)$ -$ 475,681,859$ CITY OF SOUTHLAKE, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS SEPTEMBER 30, 2018 48 NOTE 4. CAPITAL ASSETS – CONTINUED Beginning Capital Sales or Adjustments/Ending Balance Acquisitions Disposals Transfers Balance Business Type Activities: Capital assets not being depreciated: Land 19,721,007$ 169,758$ -$ -$ 19,890,765$ Construction-In-Progress 1,519,132 2,738,507 - (2,231,143) 2,026,496 Total capital assets not being depreciated 21,240,139 2,908,265 - (2,231,143) 21,917,261 Capital assets being depreciated: Buildings and building improvements 935,501 - - - 935,501 Equipment 2,685,531 - (131,624) - 2,553,907 Vehicles 542,123 - - - 542,123 Capacity rights 9,190,988 - - - 9,190,988 Distribution system 141,020,571 1,865,035 - 2,231,143 145,116,749 Total capital assets being depreciated 154,374,714 1,865,035 (131,624) 2,231,143 158,339,268 Accumulated depreciation: Buildings and building improvements (645,950) (30,318) - - (676,268) Equipment (2,025,072) (179,684) 131,624 - (2,073,132) Vehicles (426,847) (32,016) - - (458,863) Capacity rights (4,071,676) (183,820) - - (4,255,496) Distribution system (60,231,127) (4,394,052) - - (64,625,179) Total accumulated depreciation (67,400,672) (4,819,890) 131,624 - (72,088,938) Total capital assets being depreciated, net 86,974,042 (2,954,855) - 2,231,143 86,250,330 Business type activities capital assets, net 108,214,181$ (46,590)$ -$ -$ 108,167,591$ Depreciation expense was charged as a direct expense to functions of the primary government as follows: Governmental activities: General government 966,808$ Public safety 1,951,304 Public works 1,736,238 Culture and recreation 3,198,724 Total depreciation expense- governmental activities 7,853,074$ Business-type activities: Water and Sewer 4,819,890$ CITY OF SOUTHLAKE, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS SEPTEMBER 30, 2018 49 NOTE 5. DEFERRED INFLOWS OF RESOURCES/UNEARNED REVENUE Governmental funds report deferred inflows of resources in connection with receivables for revenue that is not considered to be available to liquidate liabilities of the current period. Governmental funds also defer revenue recognition in connection with resources that have been rece ived, but not yet earned (unearned revenue). At the end of the current fiscal year, the various components of unearned revenue and deferred inflows of resources reported in the governmental funds were as follows: General Debt Service Non-major Fund Fund Governmental Total Deferred inflows of resources: Property taxes 81,604$ 22,549$ -$ 104,153$ Other 56,405 - 100 56,505 Total deferred inflows of resources 138,009$ 22,549$ 100$ 160,658$ Unearned revenue: Franchise taxes 662,952$ -$ -$ 662,952$ Other 100,378 - 118,036 218,414 Total unearned revenue 763,330$ -$ 118,036$ 881,366$ NOTE 6. LONG-TERM DEBT The City issues general obligation bonds, combinatio n tax and revenue certificates of obligation and tax notes to provide for the acquisition and construction of major capital facilities and infrastructure. Combination tax and revenue certificates of obligation are issued for both governmental and business-type activities. General obligation bonds, governmental revenue bonds and tax notes pledge the full faith and credit of the City. Combination tax and revenue certificates of obligation are payable from the net revenues of the water and sewer system and general debt service tax. In June 2018, the City issued $4,205,000 Tax and Waterworks and Sewer System (Limited Pledge) Revenue Certificates of Obligations, Series 2018. Proceeds from the sale of the Certificates will be used for the purpose of paying contractual obligations for the construction of public works; constructing and improving streets and sidewalks, including the acquisition of land and rights -of-way; and improvements and extensions to the City’s combined Waterworks and Sewer System, includin g the purchase of land, rights-of-way, and equipment. In prior years, the City has legally defeased certain outstanding general obligation and revenue debt by placing funds into irrevocable trusts pledged to pay all future debt service payments of the refunded debt. Accordingly, a liability for the defeased debt issues is not included in the City’s financial statements. As of September 30, 2018, the City had no additional outstanding bonds that were legally defeased. CITY OF SOUTHLAKE, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS SEPTEMBER 30, 2018 50 NOTE 6. LONG-TERM DEBT – CONTINUED General obligation bonds, combination certificates of obligation, tax notes and governmental revenue bonds are as follows as of September 30, 2018: Final Interest Business- General Obligation Bonds and Certificates of Obligation Maturity Rates Governmental Type $24,835,000 Series 2009, Combination Tax and Waterworks and Sewer System Revenue Certificates of Obligation 2029 2.0 - 5.0%7,100,000$ 4,200,000$ $26,730,000 Series 2010, General Obligation Refunding Bonds 2023 3.0 - 4.0%282,187 357,813 $3,365,000 Series 2011B, Tax and Waterworks and Sewer System (Limited Pledge) Certificates of Obligation 2031 2.0 - 4.125%- 2,440,000 $15,745,000 Series 2010, Tax and Waterworks and Sewer System (Limited Pledge) Certificates of Obligation 2030 3.0 - 4.25%3,020,000 3,670,000 $11,300,000 Series 2012, Tax and Waterworks and Sewer System (Limited Pledge) Certificates of Obligation 2032 3.0 - 4.25%- 2,100,000 $9,965,000 Series 2012, General Obligation Refunding Bonds 2026 3.0 - 4.25%6,055,000 175,000 $14,250,000 Series 2013, Tax and Waterworks and Sewer System (Limited Pledge) Certificates of Obligation 2033 2.0 - 5.0%- 2,020,000 $22,295,000 Series 2013, General Obligation Refunding Bonds 2026 2.0 - 5.0%17,975,000 870,000 $21,330,000 Series 2014, General Obligation Refunding Bonds 2026 2.0 - 5.0%1,970,000 3,705,000 $8,780,000 Series 2014, Tax and Waterworks and Sewer System (Limited Pledge) Certificates of Obligation 2034 2.0 - 3.5%930,000 3,715,000 $3,295,000 Series 2015, Tax and Waterworks and Sewer System (Limited Pledge) Certificates of Obligation 2035 2.75 - 4.0%- 2,950,000 $7,910,000 Series 2017, General Obligation Refunding Bonds 2028 3.0 - 4.0%3,830,000 4,080,000 $5,400,000 Series 2017, Tax and Waterworks and Sewer System (Limited Pledge) Certificates of Obligation 2037 2.25 - 5.0%- 5,250,000 $4,080,000 Series 2018, Tax and Waterworks and Sewer System (Limited Pledge) Certificates of Obligation 2038 3.0 - 4.0%- 4,205,000 41,162,187$ 39,737,813$ CITY OF SOUTHLAKE, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS SEPTEMBER 30, 2018 51 NOTE 6. LONG-TERM DEBT – CONTINUED Final Interest Governmental Revenue Bonds Maturity Rates Governmental $15,745,000 Series 2010, Tax and Waterworks and Sewer System (Limited Pledge) Certificates of Obligation 2030 3.00 - 4.25%2,250,000$ $3,285,000 Series 2011C, Tax and Waterworks and Sewer System (Limited Pledge) Certificates of Obligation 2031 2.00 - 4.125%2,380,000 $11,300,000 Series 2012, Tax and Waterworks and Sewer System (Limited Pledge) Certificates of Obligation 2032 3.0 - 4.25%4,455,000 $16,000,000 Series 2014, Southlake Parks Development Corporation, Sales Tax Revenue Refunding Bonds 2027 3%11,315,000 $24,450,000 Series 2016, Southlake Community Enhancement and Development Corporation, Sales Tax Revenue Bonds 2036 3.00 - 5.00%23,585,000 $9,945,000 Series 2017, Southlake Community Enhancement 2036 2.00 - 5.00%9,620,000 and Development Corporation, Sales Tax Revenue Bonds 53,605,000$ The following is a summary of long-term transactions for the year ended September 30, 2018: Amount Beginning Ending Due within Balance Additions Reductions Balance One year Governmental activities: General obligation bonds and certificates of obligation 50,427,429$ -$ (9,265,242)$ 41,162,187$ 5,290,059$ Sales tax revenue bonds 56,560,000 - (2,955,000) 53,605,000 3,095,000 Bond premiums (discounts)7,949,672 - (855,028) 7,094,644 - Total bonds payable 114,937,101 - (13,075,270) 101,861,831 8,385,059 Net OPEB liability - Health 285,661 - (99,204) 186,457 - Total OPEB liability - SDBF 521,741 106,017 - 627,758 - Net pension liability 10,911,939 - (4,409,809) 6,502,130 - Compensated absences 1,186,184 2,640,533 (2,556,677) 1,270,040 1,270,040 Total governmental activities 127,842,626$ 2,746,550$ (20,140,960)$ 110,448,216$ 9,655,099$ T ypically, liquidation of the liabilities for compensated absences, net and total OPEB, and net pension occurs with the governmental funds where payroll costs are incurred. CITY OF SOUTHLAKE, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS SEPTEMBER 30, 2018 52 NOTE 6. LONG-TERM DEBT – CONTINUED Amount Beginning Ending Due within Balance Additions Reductions Balance One year Business-type activities: Revenue bonds and certificates of obligation 40,455,920$ 4,205,000$ (4,923,107)$ 39,737,813$ 3,839,941$ Bond premiums 2,354,210 130,958 (231,689) 2,253,479 - Total bonds payable 42,810,130 4,335,958 (5,154,796) 41,991,292 3,839,941 Unearned revenue 229,433 - (6,050) 223,383 - Total OPEB liability - SDBF 42,914 8,720 - 51,634 - Net pension liability 1,012,388 - (362,712) 649,676 - Compensated absences 89,259 163,790 (174,070) 78,979 78,979 Total business-type activities 44,184,124$ 4,508,468$ (5,697,628)$ 42,994,964$ 3,918,920$ The annual aggregate maturities for each bond type are as follows: General Obligation Bonds and Certificates of Obligation Fiscal Year Ending September 30,Principal Interest Total 2019 5,290,059$ 1,490,267$ 6,780,326$ 2020 4,426,790 1,311,241 5,738,031 2021 4,516,316 1,125,492 5,641,808 2022 4,480,625 933,422 5,414,047 2023 4,659,560 751,637 5,411,197 2024-2028 16,388,837 1,494,590 17,883,427 2029-2033 1,400,000 43,838 1,443,838 Total 41,162,187$ 7,150,487$ 48,312,674$ Governmental Activities Sales Tax Revenue Bonds Fiscal Year Ending September 30,Principal Interest Total 2019 3,095,000$ 1,788,274$ 4,883,274$ 2020 3,215,000 1,671,161 4,886,161 2021 3,340,000 1,544,548 4,884,548 2022 3,475,000 1,418,750 4,893,750 2023 3,590,000 1,286,601 4,876,601 2024-2028 16,955,000 4,409,758 21,364,758 2029-2033 12,940,000 2,005,609 14,945,609 2034-2037 6,995,000 322,556 7,317,556 Total 53,605,000$ 14,447,257$ 68,052,257$ Governmental Activities CITY OF SOUTHLAKE, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS SEPTEMBER 30, 2018 53 NOTE 6. LONG-TERM DEBT – CONTINUED Revenue Bonds and Certificates of Obligation Fiscal Year Ending September 30,Principal Interest Total 2019 3,839,941$ 1,341,896$ 5,181,837$ 2020 3,173,210 1,216,124 4,389,334 2021 2,803,684 1,117,710 3,921,394 2022 2,504,375 1,023,272 3,527,647 2023 2,600,440 927,154 3,527,594 2024-2028 13,051,163 3,160,211 16,211,374 2029-2033 8,310,000 1,143,544 9,453,544 2034-2037 3,455,000 226,020 3,681,020 Total 39,737,813$ 10,155,931$ 49,893,744$ Business-Type Activities The City has entered into various contractual agreements to unconditionally finance the principal and interest or a fixed percentage of principal and interest of Trinity River Authority (TRA) Contract Revenue Bonds. Under the agreements, the TRA utilized the bond proceeds to administer and construct various sewer and wastewater treatment projects on the City’s behalf. Such agreements provide the City title to the assets upon retirement of the debt or capacity rights in the use of constructed assets. The City has included in its financial statements its proportionate share of these obligations and its investment in these assets as capacity rights. The contract revenue obligations were paid as of September 30, 2018. NOTE 7. TRANSFERS All interfund transfers between the various funds are approved supplements to the operations of those funds. Individual fund transfers for fiscal year 2018 were as follows: Transfer In Transfer Out Amount Purpose General fund Non major governmental funds 202,258$ To fund large projects to assist with development for visitors Southlake Parks Development General fund Corporation operations 311,673 To fund indirect charges General fund Water and sewer enterprise fund 1,211,036 To fund indirect charges General fund Non major governmental funds 433,907 To fund indirect charges General obligation debt service Non major governmental funds 183,119 To pay the principal and interest on debt incurred General obligation debt service Tax Increment Financing District fund 3,258,927 To pay debt service for bonds issued General capital project funds Non major governmental funds 300,000 To fund capital projects for parks and development for visitors General capital project funds Non major governmental funds 1,125,000 To fund drainage projects General capital project funds General fund 6,440,000 To fund future infrastructure Community Development Enhancement Corporation capital projects Non major governmental funds 1,000,000 To assist with funding of large projects Non major governmental funds General fund 55,000 To fund commercial vehicles Southlake Parks Development Non major governmental funds Corporation of operations 6,085,813 To fund debt repayments Non major governmental funds Non major governmental funds 2,450,240 To fund debt repayments Internal Service Fund General fund 1,500,000 To replace aging vehicles 24,556,973$ CITY OF SOUTHLAKE, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS SEPTEMBER 30, 2018 54 NOTE 8. RETIREMENT PLAN A. Plan Description The City participates as one of 866 plans in the nontraditional, joint contributory, hybrid defined benefit pension plan administered by the Texas Municipal Retirement System (TMRS). TMRS is an agency created by the State of Texas and administered in accordance with the TMRS Act, Subtitle G, Title 8, Texas Government Code (the TMRS Act) as an agent multiple-employer retirement system for municipal employees in the State of Texas. The TMRS Act places the general administration and management of the System with a six-member Board of Trustees. Although the Governor, with the advice and consent of the Senate, appoints the Board, TMRS is not fiscally dependent on the State of Texas. TMRS’ defined benefit pension plan is a tax - qualified plan under Section 401(a) of the Internal Revenue Code. TMRS issues a publicly available comprehensive annual financial report (CAFR) that can be obtained at www.tmrs.com. All eligible employees of the City are required to participate in TMRS. B. Benefits Provided TMRS provides retirement, and disability. Benefit provisions are adopted by the governing body of the City, within the options available in the state statutes governing TMRS. At retirement, the benefit is calculated as if the sum of the employee’s contributions, with interest, and the city-financed monetary credits with interest were used to purchase an annuity. Members may choose to receive their retirement benefit in one of seven payments options. Members may also choose to receive a portion of their benefit as a Partial Lump Sum Distribution in an amount equal to 12, 24, or 36 monthly payments, which cannot exceed 75% of the member’s deposits and interest. At the date the plan began, the City granted monetary credits for service rendered before the plan began of a theoretical amount at least equal to two times what would have been contributed by the employee, with interest, prior to establishment of the plan. Monetary credits for service since the plan began are a percent (100%, 150%, or 200%) of the employee 's accumulated contributions. In addition, the City can grant, as often as annually, another type of monetary credit referred to as an updated service credit which is a theoretical amount which, when added to the employee's accumulated contributions and the monetary credits for service since the plan began, would be the total monetary credits and employee contributions accumulated with interest if the current employee contribution rate and city matching percent had always been in existence and if the employee's salary had always been the average of his salary in the last three years that are one year before the effective date. At retirement, the benefit is calculated as if the sum of the employee's accumulated contributions with interest and the employer -financed monetary credits with interest were used to purchase an annuity. CITY OF SOUTHLAKE, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS SEPTEMBER 30, 2018 55 NOTE 8. RETIREMENT PLAN – CONTINUED B. Benefits Provided – Continued Members can retire at ages 60 and above with 5 or more years of service or with 20 years of service. A member is vested after 5 years. The plan provisions are adopted by the governing body of the City, within the options available in the state statutes governing TMRS and within the actuarial constraints also in the statutes. At the December 31, 2017 valuation and measurement date, the following employees were covered by the benefit terms: Inactive employees or beneficiaries currently receiving benefits 114 Inactive employees entitled to but not yet receiving benefits 190 Active employees 321 625 C. Contributions The contribution rates for employees in TMRS are either 5%, 6%, or 7% of em ployee gross earnings, and the city matching percentages are either 100%, 150%, or 200%, both as adopte d by the governing body of the city. Under the state law governing TMRS, the contribution rate for each city is determined annually by the actuary, using the Entry Age Normal (EAN) actuarial cost method. The actuarially determined rate is the estimated amount necessary to finance the cost of benefits earned by employees during the year, with an additional amount to finance any unfunded accrued liability. Employees for the City were required to contribute 7% of their annual gross earnings during the fiscal year. The contribution rates for the City were 12.35% and 12.56% in calendar years 2017 and 2018, respectively. The City’s contributions to TMRS for the year ended September 30, 2018 were $2,894,219, and was greater than the required contributions by $64,604. D. Net Pension Liability The City’s Net Pension Liability (NPL) was measured as of December 31, 2017 and the Total Pension Liability (TPL) used to calculate the NPL was determined by an actuarial valuation as of that date. Actuarial Assumptions: The Total Pension Liability in the December 31, 2017 actuarial valuation was determined using the following actuarial assumptions: Inflation 2.5% per year Overall payroll growth 3.50% to 10.50% including inflation Investment Rate of Return 6.75%, net of pension plan investment expense, including inflation CITY OF SOUTHLAKE, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS SEPTEMBER 30, 2018 56 NOTE 8. RETIREMENT PLAN – CONTINUED D. Net Pension Liability – Continued Salary increases were based on a service-related table. Mortality rates for active members, retirees, and beneficiaries were based on the gender distinct RP2000 Combined Healthy Mortality Table, which male rates multiplied by 109% and female rates multiplied by 103%. The rates are projected on a fully generational basis by scale BB to account fo r future mortality improvements. For disabled annuitants, the gender-distinct RP2000 Combined Healthy Mortality Tables with Blue Collar Adjustment are used with males rates multiplied by 109% and female rates multiplied by 103% with a 3-year set-forward for both males and females. In addition, a 3% minimum mortality rate is applied to reflect the impairment for younger members who become disabled. The rates are projected on a fully generational basis by scale BB to account for future mortality improvements subject to the 3% floor. Actuarial assumptions used in the December 31, 2017, valuation were based on the results of actuarial experience studies. The experience study in TMRS was for the period December 31, 2010 through December 31, 2014. Healthy post-retirement mortality rates and annuity purchase rates were updated based on a Mortality Experience Investigation Study covering 2009 through 2011, and dated December 31, 2013. These assumptions were first used in the December 31, 2013 valuation, along with a change to the Entry Age Normal (EAN) actuarial cost method. Assumptions are reviewed annually. No additional changes were made for the 2014 valuation. After the Asset Allocation Study analysis and experience investigation study, the Board amended the long-term expected rate of return on pension plan investments from 7% to 6.75%. Plan assets are managed on a total return basis with an emphasis on both capital appreciation as well as the production of income, in order to satisfy the short-term and long-term funding needs of TMRS. The long-term expected rate of return on pension plan investments was determined using a building-block method in which best estimate ranges of expected future real rates of return (expected returns, net of pension plan investment expense and inflation) are developed for each major asset class. These ranges are combined to produce the long -term expected rate of return by weighting the expected future real rates of return by the target asset allocation percentage and by adding expected inflation. In determining their best estimate of a recommended investment return assumption under the various alternative asset allocation portfolios, GRS focused on the area between (1) arithmetic mean (aggressive) without an adjustment for time (conse rvative) and (2) the geometric mean (conservative) with an adjustment for time (aggressive). At its meeting on July 30, 2016, the TMRS Board approved a new portfolio target allocation. The target allocation and best estimates of arithmetic real rates of r eturn for each major asset class are summarized in the following table: Long-Term Expected Real Target Rate of Return Asset Class Allocation (Arithmetic) Domestic Equity 17.5%4.55% International Equity 17.5%6.35% Core Fixed Income 10.0%1.00% Non-Core Fixed Income 20.0%4.15% Real Return 10.0%4.15% Real Estate 10.0%4.75% Absolute Return 10.0%4.00% Private Equity 5.0%7.75% Total 100.0% CITY OF SOUTHLAKE, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS SEPTEMBER 30, 2018 57 NOTE 8. RETIREMENT PLAN – CONTINUED D. Net Pension Liability – Continued Discount Rate The discount rate used to measure the Total Pension Liability was 6.75%. The projection of cash flows used to determine the discount rate assumed that employee and employer contributions will be made at the rates specified in statute. Based on that assumption, the pension plan’s Fiduciary Net Position was projected to be available to make all projected future benefit payments of current active and inactive employees. Therefore, the long-term expected rate of return on pension plan investments was applied to all periods of projected benefit payments to determine the Total Pension Liability. Allocations The City’s net pension liability, pension expense, and deferred outflows of resources related to TMRS have been allocated between governmental activities and business-type activities using a contribution-based method. Changes in the Net Pension Liability Increase (Decrease) Total Plan Net Pension Fiduciary Pension Liability Net Position Liability (a)(b)(a) - (b) Balance at 12/31/2016 86,072,966$ 74,148,639$ 11,924,327$ Changes for the year: Service Cost 3,579,734 - 3,579,734 Interest 5,865,601 - 5,865,601 Change of benefit terms - - - Difference between expected and actual experience 213,937 - 213,937 Changes of assumptions - - - Contributions - employer - 2,682,629 (2,682,629) Contributions - employee - 1,520,518 (1,520,518) Net investment income - 10,284,603 (10,284,603) Benefit payments, including refunds of employee contributions (1,930,078) (1,930,078) - Administrative expense - (53,258) 53,258 Other changes - (2,699) 2,699 Net Changes 7,729,194 12,501,715 (4,772,521) Balance at 12/31/17 93,802,160$ 86,650,354$ 7,151,806$ CITY OF SOUTHLAKE, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS SEPTEMBER 30, 2018 58 NOTE 8. RETIREMENT PLAN – CONTINUED D. Net Pension Liability – Continued Sensitivity of the Net Pension Liability to Changes in the Discount Rate The following presents the net pension liability of the City, calculated using the discount rate of 6.75%, as well as what the City’s net pension liability would be if it were calculated using a discount rate that is 1 percentage-point lower (5.75%) or 1 percentage-point higher (7.75%) than the current rate: 1% Decrease 1% Increase in Discount Discount in Discount Rate (5.75%)Rate (6.75%)Rate (7.75%) Net pension liability 22,255,811$ 7,151,806$ (5,072,899)$ Pension Plan Fiduciary Net Position Detailed information about the pension plan’s Fiduciary Net Position is available in a separately-issued TMRS financial report. That report may be obtained at www.tmrs.com. E. Pension Expense and Deferred Outflows of Resources and Deferred Inflows of Resources Related to Pensions For the year ended September 30, 2018, the City recognized pension expense of $2,919,441. At September 30, 2018, the City reported deferred outflows of resources and deferred inflows of resources related to pensions from the following sources: Deferred Deferred Outflows of Inflows of Resources Resources Differences between expected and actual economic experience 341,290$ 485,313$ Changes in actuarial assumptions 353,088 - Difference between projected and actual investment earnings - 2,268,062 Contributions subsequent to the measurement date 2,315,956 - Total 3,010,334$ 2,753,375$ CITY OF SOUTHLAKE, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS SEPTEMBER 30, 2018 59 NOTE 8. RETIREMENT PLAN – CONTINUED E. Pension Expense and Deferred Outflows of Resources and Deferred Inflows of Resources Related to Pensions – Continued The $2,315,956 reported as deferred outflows of resources related to pensions result from contributions subsequent to the measurement date and will reduce the net pension liability during the fiscal year ended September 30, 2019. The other amounts reported as deferred outflows and inflows of resources related to pensions will be recognized in pension expense as follows: Fiscal Year Ended Sept. 30: 2019 (56,300)$ 2020 (137,716) 2021 (896,445) 2022 (990,773) 2023 22,237 Total (2,058,997)$ NOTE 9. OTHER POSTEMPLOYMENT BENEFITS (OPEB) HEALTH INSURANCE CITY OF SOUTHLAKE RETIREE HEALTH CARE PLAN Plan Description The City provides other postemployment benefits (OPEB) in the form of health insurance benefits through a single-employer defined benefit medical plan. The City passed a resolution in September 2009, electing to participate in the PARS Public Agencies Post-Retirement Health Care Plan Trust (the Trust) to fund post-employment benefits for its employees as specified in the City’s policies and/or applicable collective bargaining agreements. T he Trust is a multiple employer trust arrangement established to provide economies of scale and efficiency of administration to public agencies that adopt it to hold the assets used to fund its OPEB obligation. The Trust is accounted for in the City’s OPEB Liability Trust Fund. A third-party administrator is utilized to provide claims administration and payment of claims. Insurance is purchased to provide specific stop loss and aggregate stop loss protection. A separate financial statement is not issued for the plan. Benefits Provided Regular full-time employees retiring from the City of Southlake have the option to continue medical insurance coverage until the retiree becomes eligible for Medicare or is eligible to be covered under another medical plan. The City contributes $125 per month towards the premium for retiree insurance coverage or $225 towards the premium for retirees and dependents. Recommendations for plan benefits are presented to City Council for their approval during the annual budget process. CITY OF SOUTHLAKE, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS SEPTEMBER 30, 2018 60 NOTE 9. OTHER POSTEMPLOYMENT BENEFITS (OPEB) HEALTH INSURANCE – CONTINUED Employees Covered by Benefit Terms The following table provides a summary of the number of participants in the plan as of December 31, 2017: Inactive employees currently receiving benefits 9 Inactive employees entitled to but not yet receiving benefits 0 Active Employees 303 312 Contributions The City’s contributions during the fiscal year ending September 30, 2018 of $168,167 include trust contributions of $97,000 and benefit payments of $71,167, which were paid by the City using its own assets. The benefit payments were determined in a manner similar to how the benefit payments for the measurement period were developed. The City through its budgeting process determines the annual contributions to the Plan based on the actuarially determined contribution and the availability of funds. Net OPEB Liability The net OPEB liability was measured as of December 31, 2017, and the total OPEB liability used to calculate the net OPEB liability was determined by an actuarial valuation as of December 31, 2016. CITY OF SOUTHLAKE, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS SEPTEMBER 30, 2018 61 NOTE 9. OTHER POSTEMPLOYMENT BENEFITS (OPEB) HEALTH INSURANCE – CONTINUED Actuarial Assumptions The total OPEB liability in the December 31, 2016 actuarial valuation was determined using the following actuarial assumptions, applied to all periods included in the measurement: Actuarial cost method Individual Entry-Age Amortization method Level dollar amount Amortization period 9 years remaining as of FYE 2018 Asset valuation Market value Investment rate of return 5.50%, net of investment expenses, including inflation Inflation 2.50% per year Salary increases 3.50% to 10.50%, including inflation Demographic assumptions Mortality Participation rates Healthcare cost trend rates Based on the experience study covering the four-year period ending December 31, 2014 as conducted for the Texas Municipal Retirement System. For healthy retirees, the gender-distinct RP2000 Combined Healthy Mortality Tables with Blue Collar Adjustment are used with male rates multiplied by 109% and female rates multiplied by 103%. The rates are projected on a fully generational basis by scale BB to account for future mortality improvements. 25% of employees who retire at age 55 or older, or retire through disability retirement at any age, were assumed to maintain their health coverage after retirement. Initial rates of 7.50% declining to ultimate rates of 4.25% after 15 years. Single Discount Rate. Projected benefit payments are required to be discounted to their actuarial present values using a Single Discount Rate that reflects (1) a long -term expected rate of return on OPEB plan investments (to the extent that the plan’s fiduciary net position is projected to be sufficient to pay benefits), and (2) tax-exempt municipal bond rate based on an index of 20-year general obligation bonds with an average AA credit rating as of the measurement date (to the extent that the contributions for use with the long-term expected rate of return are not met). For the purpose of this valuation, the expected rate of return on OPEB plan investments is 5.50%; the municipal bond rate is 3.31% (based on the daily rate closest to but not later than the measurement date of the Fidelity “20-Year Municipal GO AA Index”); and the resulting Single Discount Rate is 5.50%. The City’s has consistently funded the actuarially determined employer contribution, which is based on a closed amortization policy. As a result, the plan’s fiduciary net position is projected to be sufficient to pay benefits for all future years. CITY OF SOUTHLAKE, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS SEPTEMBER 30, 2018 62 NOTE 9. OTHER POSTEMPLOYMENT BENEFITS (OPEB) HEALTH INSURANCE – CONTINUED Changes in the Net OPEB Liability Total OPEB Liability (a) Plan Fiduciary Net Position (b) Net OPEB Liability (a) - (b) Balances as of 12/31/16 1,547,151$ 1,261,490$ 285,661$ Changes for the year: Service cost 55,061 - 55,061 Interest 84,496 - 84,496 Change of benefit terms - - Difference between expected and actual experience (3,965) - (3,965) Changes of assumptions - - - Net investment income - 121,500 (121,500) Benefit Payment (76,779) (76,779) - Administrative expense - (3,483) 3,483 Contributions - employer - 116,779 (116,779) Net Changes 58,813 158,017 (99,204) Balances as of 12/31/17 1,605,964$ 1,419,507$ 186,457$ Consistent with the requirements of GASB Statements No. 74, the employer contributions include “amounts for OPEB as the benefits come due that will not be reimbursed to the employer using OPEB plan assets.” The $76,779 in benefit payments was paid by the City using its own assets. The benefit payments during the measurement period were determined as follows: City's explicit subsidy 17,100$ City's implicit subsidy (explicit subsidy * 3.49)59,679 Total benefit payments 76,779$ The 3.49 implicit factor equals the ratio of the expected implicit subsidy to the expected explicit subsidy. CITY OF SOUTHLAKE, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS SEPTEMBER 30, 2018 63 NOTE 9. OTHER POSTEMPLOYMENT BENEFITS (OPEB) HEALTH INSURANCE – CONTINUED Sensitivity of the Net OPEB Liability to Changes in the Discount Rate and Healthcare Cost Trend Rates Regarding the sensitivity of the net OPEB liability to changes in the Single D iscount Rate, the following presents the plan’s net OPEB liability, calculated using a discount rate of 5.50%, as well as what the plan’s net OPEB liability would be if it were calculated using a discount rate that is one percent lower or one percent higher: 1% Decrease (4.50%) Current Single Discount Rate (5.50%) 1% Increase (6.50%) Net OPEB liability 326,126$ 186,457$ 61,109$ Regarding the sensitivity of the net OPEB liability to changes in the healthcare cost trend rates, the following presents the plan’s net OPEB liability, calculated using the assumed trend rates as well as what the plan’s net OPEB liability would be if it were calculated using a trend rate th at is one percent lower or one percent higher: 1% Decrease Current Healthcare Cost Trend Rate Assumption 1% Increase Net OPEB liability 34,941$ 186,457$ 364,519$ OPEB Expense and Deferred Outflows of Resources and Deferred Inflows of Resources For the year ended December 31, 2017, the City recognized OPEB expense of $62,035. At September 30, 2018, the reported deferred outflows of resources and deferred inflows of resources related to OPEB from the following sources: Deferred Outflows of Resources Deferred Inflows of Resources Difference between Expected and Actual Economic Experience -$ 3,569$ Investment Experience - 40,891 Contributions subsequent to the measurement date 148,972 - 148,972$ 44,460$ The $148,972 reported as deferred outflows of resources related to OPEB resulting from contributions subsequent to the measurement date will reduce the net OPEB liability during the year ending September 30, 2019. CITY OF SOUTHLAKE, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS SEPTEMBER 30, 2018 64 NOTE 9. OTHER POSTEMPLOYMENT BENEFITS (OPEB) HEALTH INSURANCE – CONTINUED OPEB Expense and Deferred Outflows of Resources and Deferred Inflows of Resources – Continued Amounts reported as deferred outflows of resources and def erred inflows of resources related to OPEB will be recognized in OPEB expense as follows: Fiscal Year Ended Sept. 30: 2019 (10,619)$ 2020 (10,619) 2021 (10,619) 2022 (10,618) 2023 (396) Thereafter (1,589) Total (44,460)$ Differences between expected and actual experience and changes in assumptions are recognized in OPEB expense using a systematic and rational method over a closed period equal to the average of the expected remaining service lives of all employees that are provided with OPEB through the OPEB plan (active employees and inactive employees) determined as of the beginning of the measurement period. The expected remaining service lives of all active employees in the plan were approximately 3,237 years. Additionally, the total plan membership (active employees and inactive employees) was 323. As a result, the average of the expected remaining service lives for purposes of recognizing the applicable deferred outflows and inflows of resources established in the current measurement period is 10.0231 years. Additionally, differences between projected and actual earnings on OPEB plan investments should be recognized in OPEB expense using a systematic and rational metho d over a closed five-year period. For this purpose, the deferred outflows and inflows of resources are recognized in the OPEB expense as a level dollar amount over the closed period identified above. NOTE 10. OTHER POST EMPLOYMENT BENEFITS SUPPLEMENTAL DEATH BENEFIT FUND Plan Description Texas Municipal Retirement System (“TMRS”) administers a defined benefit group-term life insurance plan known as the Supplemental Death Benefits Fund (“SDBF”). This is a voluntary program in which participating member cities may elect, by ordinance, to provide group-term life insurance coverage for their active members, including or not including retirees. Employers may terminate coverage under and discontinue participation in the SDBF by adopting an ordinance before November 1 of any year to be effective the following January 1. The City has elected to participate in the SDBF for its active members including retirees. As the SDBF covers both active and retiree participants, with no segregation of assets, the SDBF is con sidered to be an unfunded single-employer OPEB plan (i.e. no assets are accumulated in a trust that meets the criteria in paragraph 4 of GASB Statement No. 75) for City reporting. CITY OF SOUTHLAKE, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS SEPTEMBER 30, 2018 65 NOTE 10. OTHER POST EMPLOYMENT BENEFITS SUPPLEMENTAL DEATH BENEFIT FUND – CONTINUED Benefits Provided The death benefit for active employees provides a lump-sum payment approximately equal to the employee’s annual salary (calculated based on the employee’s actual earnings, for the 12 -month period preceding the month of death). The death benefit for retirees is considered an other postemployment benefit (“OPEB”) and is a fixed amount of $7,500. At the December 31, 2017 valuation and measurement date, the following employees were covered by the benefit terms: Inactive employees currently receiving benefits 82 Inactive employees entitled to but not yet receiving benefits 61 Active Employees 321 464 Contributions The member city contributes to the SDBF at a contractually required rate as determined by an annual actuarial valuation. The rate is equal to the cost of providing one -year term life insurance. The funding policy for the SDBF program is to assure that adequate resources are available to meet all death benefit payments for the upcoming year. The intent is not to pre-fund retiree term life insurance during employees’ entire careers. Contributions are made monthly based on the covered payroll of employee members of the participating member city. The contractually required contribution rate is determined annually for each city. The rate is based on the mortality and service experience of all employees covered by the SDBF and the demographics specific to the workforce of the city. There is a one -year delay between the actuarial valuation that serves as the basis for the employer contribution rate and the calendar year when the rate goes into effect. The funding policy of this plan is to assure that adequate resources are available to meet all death benefit payments for the upcoming year. The retiree portion of contribution rates t o the SDBF for the City was 0.02% and 0.01% in calendar years 2017 and 2018. The City’s contributions to the SDBF for the year ended September 30, 2018 were $2,376, and were equal to the required contributions. Total OPEB Liability The City’s Total OPEB Liability (TOL) was measured as of December 31, 2017 and was determined by an actuarial valuation as of that date. CITY OF SOUTHLAKE, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS SEPTEMBER 30, 2018 66 NOTE 10. OTHER POST EMPLOYMENT BENEFITS SUPPLEMENTAL DEATH BENEFIT FUND – CONTINUED Actuarial Assumptions The Total OPEB Liability in the December 31, 2017 actuarial valuation was determined using the following actuarial assumptions: Inflation 2.5% per year Salary increases 3.5% to 10.5% including inflation Discount rate 3.31% Retiree's share of benefit-related costs 0.00% Salary increases were based on a service-related table. Mortality rates for service retirees were based on the RP2000 Combined Mortality Table with Blue Collar Adjustment with male rat es multiplied by 109% and female rates multiplied by 103% and projected on a fully generational basis with scale BB. Mortality rates for disabled retirees were based on the RP2000 Combined Mortality Table with Blue Collar Adjustment with male rates multiplied by 109% and female rates multiplied by 103% with a 3-year set-forward for both males and females. The rates are projected on a fully generational basis with scale BB to account for future mortality improvements subject to the 3% floor. The actuarial assumptions used in the December 31, 2017, valuation were developed primarily from an actuarial experience study of the four-year period from December 31, 2010 through December 31, 2014. They were adopted in 2015 and first used in the December 31, 2015 actuarial valuation. The post-mortality assumption for healthy annuitants and Annuity Purchase Rate (APRs) are based on the Mortality Experience Investigation Study covering 2009 through 2011 and dated December 31, 2013. In conjunction with these changes first used in the December 31, 2013 valuation, TMRS adopted the Entry Age Normal Actuarial Cost Method. The discount rate used to measure the Total OPEB Liability was 3.31% and was based on the Fidelity Index’s “20-Year Municipal GO AA Index” rate as of December 31, 2017. CITY OF SOUTHLAKE, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS SEPTEMBER 30, 2018 67 NOTE 10. OTHER POST EMPLOYMENT BENEFITS SUPPLEMENTAL DEATH BENEFIT FUND – CONTINUED Changes in Total OPEB Liability Total OPEB Liability Balances as of 12/31/16 564,655$ Changes for the year: Service cost 34,755 Interest 21,919 Changes of assumptions 62,407 Contributions - employer (4,344) Net Changes 679,392 Balances as of 12/31/17 679,392$ Sensitivity of the Total OPEB Liability to Changes in the Discount Rate The following presents the total OPEB liability of the City, calculated using the discount rate of 3.31%, as well as what the City’s total OPEB liability would be if it were calculated using a discount rate that is 1 percentage-point lower (2.31%) or 1 percentage-point higher (4.31%) than the current rate: 1% Decrease in Discount Rate (2.31%) Discount Rate (3.31%) 1% Increase in Discount Rate (4.31%) Total OPEB liability 842,138$ 679,392$ 555,739$ OPEB Expense and Deferred Outflows of Resources and Deferred Inflows of Re sources Related to OPEB For the year ended September 30, 2018, the City recognized pension expense of $65,577. At September 30, 2018, the City reported deferred outflows of resources related to pensions from the following sources: Deferred Outflows of Resources Changes in assumptions and other inputs 53,504$ Contributions subsequent to the measurement date 1,844 55,348$ CITY OF SOUTHLAKE, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS SEPTEMBER 30, 2018 68 NOTE 10. OTHER POST EMPLOYMENT BENEFITS SUPPLEMENTAL DEATH BENEFIT FUND FUND – CONTINUED OPEB Expense and Deferred Outflows of Resources and Deferred Inflows of Resources Related to OPEB – Continued The $1,844 reported as deferred outflows of resources related to OPEB resulting from contributions subsequent to the measurement date will reduce the Total OPEB liability during the year ending September 30, 2019. The other amounts reported as deferred outflows and inflows of resources related to OPEB will be recognized in OPEB expense as follows: Fiscal Year Ended Sept. 30: 2019 8,903$ 2020 8,903 2021 8,903 2022 8,903 2023 8,903 Thereafter 8,989 Total 53,504$ NOTE 11. DEFERRED COMPENSATION PLAN The City offers its employees a deferred compensation plan created in accordance with Internal Revenue Code Section 457. The plan, available to all City employees, permits them to defer a portion of their salary until future years. The deferred compensation is not available to employees until termination, retirement, death, or unforeseeable emergency. The laws governing 457 plans were changed to state that plans would not be considered eligible plans unless all assets and income of the plans are held in trust for the exclusive benefit of the participants and their beneficiaries. The City amended the plan documents to comply with these requirements. In accordance with GASB 32, the plans as amended are not included in the City’s financial statements. NOTE 12. RISK FINANCING AND INSURANCE The City is exposed to various risks of loss related to torts, theft of, damage to, and destruction of assets; errors and omissions; injuries to employees; and natural disasters. During the fiscal year 1990, the City joined the Texas Municipal League Workers Compensation Joint Insurance Fund (“the Pool”) for risks related to employees. Premiums are paid to the Pool, which retains a limit of loss. Reinsurance companies insure the risks beyond those limits. The City retains, as a risk, only the deductible amount of each policy. The City continues to carry commercial insurance with Texas Municipal League provided by Mutual of Omaha for other risks including general liability, property, and errors and omissions. There were no significant reductions in coverage in the past year and there were no settlements exceeding insurance coverage in any of the past three years. CITY OF SOUTHLAKE, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS SEPTEMBER 30, 2018 69 NOTE 13. COMMITMENTS AND CONTINGENCIES The City has entered into various contracts with the Trinity River Authority (TRA) and other cities. Terms of the agreements provide the City will pay an amount equal to its proportional share of maintenance and operations and debt service based upon volumes of wastewater transported, treated, or disposed of. The City’s proportional share of future costs under these contracts is indeterminable and has not been recorded. Payments to the TRA under these contracts for t he year ended September 30, 2018 were $4,884,688. The City has authorized various contracts obligating future funds of the City as the contracted services are performed. Significant amounts unexpended under such contracts at year end are reflected as reserves for authorized contracts in the applicable funds. The City has certain claims and litigation pending with respect to matters arising in the normal course of operations. City management is of the opinion that the settlement of these matters will not have a material adverse impact on the Cit y’s financial statements. NOTE 14. TAX ABATEMENT The City enters into economic development agreements authorized under Chapter 380 of the Texas Local Government Code. These agreements are planning tools designed to stimulate economic activity, redevelopment, community improvement, and provide a return on investment for the community. These programs abate or rebate property and/or sales taxes and may include other incentive payments such as fee reductions or construction cost reimbursements. Economic development agreements are considered on a case by case basis by the City Council and generally contain recapture provisions, which may require repayment or termination if recipients do not meet the required provisions of the economic incentives. Chapter 380 of the Texas Local Government Code allows the City to provide grants for the purpose of promoting local economic development. These grants are based on a percentage of property and/or sales tax received by the City. For the fiscal year ending September 30, 2018, the City rebated $333,667 in property taxes and $1,414,819 in sales taxes. NOTE 15. CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE As a result of the implementation of GASB Statement No. 75, “Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions”, an adjustment has been made to record the City’s OPEB liability as of October 1, 2017. As a result, beginning net position of the governmental activities and the beginning net position of the business-type activities has changed by the following: Governmental Business-Type Activities Activities Beginning net position before restatement 481,287,254$ 105,776,966$ Per change in GASB 45 OPEB asset (health benefits)(339,850) - Per GASB 75 Deferred outflow - OPEB (health benefits)97,584 - Deferred outflow - OPEB (SDBF)1,482 122 Net OPEB liability (health benefits)(285,661) - Total OPEB liability (SDBF)(521,741) (42,914) Beginning net position as restated 480,239,068$ 105,734,174$ REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON GENERAL FUND CITY OF SOUTHLAKE, TEXAS EXHIBIT A-1 GENERAL FUND BUDGETARY COMPARISON SCHEDULE (GAAP BASIS) FOR THE YEAR ENDED SEPTEMBER 30, 2018 See Notes to Budgetary Comparison Schedules 70 VARIANCE WITH FINAL BUDGET - POSITIVE ORIGINAL FINAL ACTUAL (NEGATIVE) REVENUES Ad valorem taxes, penalties and interest 23,257,049$ 24,020,000$ 24,028,296$ 8,296$ Franchise taxes 2,954,360 3,088,244 2,972,143 (116,101) Municipal sales and mixed beverage tax 13,320,800 13,120,800 14,129,335 1,008,535 License, permits and fees 1,474,400 1,797,902 2,029,005 231,103 Charges for services 1,822,250 1,819,750 1,984,377 164,627 Fines and forfeitures 1,312,350 1,189,000 1,236,846 47,846 Grants 72,000 72,000 123,537 51,537 Interest earned 169,980 180,550 390,340 209,790 Miscellaneous 326,000 311,175 273,889 (37,286) TOTAL REVENUES 44,709,189 45,599,421 47,167,768 1,568,347 EXPENDITURES Current: General government City secretary/mayor 517,426 491,786 451,992 39,794 City manager's office 929,833 936,015 928,508 7,507 Human resources 757,433 766,258 762,204 4,054 Support services 3,568,915 3,593,976 3,354,125 239,851 Economic development 165,309 164,274 148,659 15,615 Finance 1,397,748 1,422,539 1,411,726 10,813 Municipal court 726,628 722,737 676,781 45,956 Teen court 155,704 146,596 116,923 29,673 Information technology 3,207,193 3,202,995 3,156,668 46,327 Public safety Police services 6,747,528 6,810,465 6,772,693 37,772 Fire services 8,691,566 8,776,507 8,849,612 (73,105) Public safety support 1,356,872 1,346,522 1,343,875 2,647 Building inspection 1,163,528 1,161,383 1,124,796 36,587 Public works Public works administration 2,283,032 2,141,687 1,760,993 380,694 Streets and drainage 1,663,459 1,688,233 1,707,626 (19,393) Planning 1,035,044 1,033,143 1,005,124 28,019 Culture and recreation Community services 1,470,092 1,463,514 1,401,068 62,446 Parks and recreation 3,881,842 3,762,325 3,704,125 58,200 Library services 730,624 726,339 741,095 (14,756) TOTAL EXPENDITURES 40,449,776 40,357,294 39,418,593 938,701 Excess of revenues over expenditures 4,259,413 5,242,127 7,749,175 2,507,048 OTHER FINANCING SOURCES (USES) Transfers from other funds 2,032,830 2,158,872 2,158,874 2 Transfers to other funds (7,695,000) (7,995,000) (7,995,000) - TOTAL OTHER FINANCING SOURCES (USES)(5,662,170) (5,836,128) (5,836,126) 2 NET CHANGE IN FUND BALANCE (1,402,757) (594,001) 1,913,049 2,507,050 FUND BALANCES, BEGINNING OF YEAR 25,097,918 25,097,918 25,097,918 - FUND BALANCES, END OF YEAR 23,695,161$ 24,503,917$ 27,010,967$ 2,507,050$ BUDGETED AMOUNTS CITY OF SOUTHLAKE, TEXAS EXHIBIT A-2 SOUTHLAKE PARKS DEVELOPMENT CORPORATION SPECIAL REVENUE FUND BUDGETARY COMPARISON SCHEDULE (GAAP BASIS) FOR THE YEAR ENDED SEPTEMBER 30, 2018 See Notes to Budgetary Comparison Schedules 71 VARIANCE WITH FINAL BUDGET - POSITIVE ORIGINAL FINAL ACTUAL (NEGATIVE) REVENUES: Municipal sales tax 7,593,000$ 7,593,000$ 7,705,009$ 112,009$ Miscellaneous 153,824 153,824 153,824 - Interest 45,000 45,000 164,433 119,433 Total revenues 7,791,824 7,791,824 8,023,266 231,442 EXPENDITURES: Parks and recreation 1,456,477 1,454,077 1,339,463 114,614 Excess of revenues over expenditures 6,335,347 6,337,747 6,683,803 346,056 OTHER FINANCING USES: Transfers to other funds (6,397,486) (6,397,486) (6,397,486) - Net change in fund balance (62,139) (59,739) 286,317 346,056 Fund balance, beginning of year 10,263,691 10,263,691 10,263,691 - Fund balance, end of year 10,201,552$ 10,203,952$ 10,550,008$ 346,056$ BUDGETED AMOUNTS CITY OF SOUTHLAKE, TEXAS EXHIBIT A-3 TAX INCREMENT FINANCING DISTRICT SPECIAL REVENUE FUND BUDGETARY COMPARISON SCHEDULE (GAAP BASIS) FOR THE YEAR ENDED SEPTEMBER 30, 2018 See Notes to Budgetary Comparison Schedules 72 VARIANCE WITH FINAL BUDGET - POSITIVE ORIGINAL FINAL ACTUAL (NEGATIVE) REVENUES Ad valorem taxes, penalties and interest 8,568,107$ 9,726,030$ 9,726,030$ -$ Interest 1,400 1,400 1,237 (163) Total revenues 8,569,507 9,727,430 9,727,267 (163) EXPENDITURES: Public works: Public works administration - 1,455,000 1,455,000 - Intergovernmental 4,986,182 6,045,218 6,045,218 - Total expenditures 4,986,182 7,500,218 7,500,218 - Excess of revenues over expenditures 3,583,325 2,227,212 2,227,049 (163) OTHER FINANCING USES Transfers to other funds (3,258,927) (3,258,927) (3,258,927) - Total other financing uses (3,258,927) (3,258,927) (3,258,927) - Net change in fund balance 324,398 (1,031,715) (1,031,878) (163) Fund balance at beginning of year 1,954,971 1,954,971 1,954,971 - Fund balance at end of year 2,279,369$ 923,256$ 923,093$ (163)$ BUDGETED AMOUNTS CITY OF SOUTHLAKE, TEXAS NOTES TO BUDGETARY COMPARISON SCHEDULES YEAR ENDED SEPTEMBER 30, 2018 73 Budgetary Data The City Council adheres to the following procedures in establishing the budgets reflected in the financial statements: 1. Each year the City Manager is required to submit to the City Council, between sixty and ninety days prior to the beginning of each fiscal year, a proposed budget for the fiscal year beginning on the following October 1. The operating budget includes proposed expenditures and the means of financing them. 2. Public hearings are conducted to obtain taxpayers' comments. 3. Prior to October 1, the budget is legally enacted by the City Council through passage of an ordinance. 4. Annual budgets are legally adopted for the General Fund, the Tax I ncrement Financing District, Crime Control, Parks Dedication, Hotel Occupancy, Storm Water Utility, Red Light Camera, Southlake Community Enhancement and Development Corporation, Parks and Recreation, Court Security, Court Technology, Library, Storm Water Maintenance, Commercial Vehicle Enforcement, and Southlake Parks Development Corporation Special Revenue Funds and all Debt Service Funds on a basis consistent with accounting principles generally accepted in the United States of America. Formal budgetary integration is not employed for proprietary funds. However, the City does adopt an annual budget for those funds for managerial control. 5. During the fiscal year, the City Council may transfer funds allocated to a department to another department or re-estimate revenues or expenditures. The City Manager may transfer budgeted funds within a department. Expenditures should not exceed appropriations at the department level. 6. Budgetary data for the Police, Oil and Gas, and all Capital Projects Funds are not presented, as such funds are budgeted over the life of the respective project, and not on an annual basis. Budgetary information for the Proprietary Funds have not been presented since reporting on such budgets is not legally required. 7. Expenditures in excess of appropriations for the year ended September 30, 2018 were: Public Safety: Fire services ($73,105) Public Works Streets and drainage ($19,393) Cultural and recreation Library services ($14,756) CITY OF SOUTHLAKE, TEXAS EXHIBIT A-4 SCHEDULE OF CHANGES IN NET PENSION LIABILITY AND RELATED RATIOS TEXAS MUNICIPAL RETIREMENT SYSTEM LAST FOUR MEASUREMENT YEARS 74 Measurement Year Measurement Year Measurement Year Measurement Year 2017 2016 2015 2014 Total pension liability: Service cost 3,579,734$ 3,482,384$ 3,222,126$ 2,906,949$ Interest 5,865,601 5,393,997 5,090,308 4,779,462 Changes of benefit terms - - - - Difference between expected and actual experience 213,937 179,076 102,364 (1,602,645) Change in assumptions - - 760,500 - Benefit payments, including refunds of employee contributions (1,930,078) (2,304,726) (1,921,361) (1,680,030) Net change in total pension liability 7,729,194 6,750,731 7,253,937 4,403,736 Total pension liability - beginning 86,072,966 79,322,235 72,068,298 67,664,562 Total pension liability - ending (a)93,802,160 86,072,966 79,322,235 72,068,298 Plan fiduciary net position: Contributions - employer 2,682,629 2,595,919 2,425,455 2,283,310 Contributions - employee 1,520,518 1,480,965 1,409,008 1,340,870 Net investment income 10,284,603 4,588,256 97,252 3,463,018 Benefit payments, including refunds of employee contributions (1,930,078) (2,304,726) (1,921,361) (1,680,030) Administrative expense (53,258) (51,781) (59,224) (36,150) Other (2,699) (2,790) (2,925) (2,972) Net change in plan fiduciary net position 12,501,715 6,305,843 1,948,205 5,368,046 Plan fiduciary net position - beginning 74,148,639 67,842,796 65,894,591 60,526,545 Plan fiduciary net position - ending (b)86,650,354 74,148,639 67,842,796 65,894,591 Net pension liability - ending (a) - (b)7,151,806$ 11,924,327$ 11,479,439$ 6,173,707$ Plan fiduciary net position as a percentage of total pension liability 92.38%86.15%85.53%91.43% Covered payroll 21,721,689$ 21,156,637$ 20,113,150$ 19,154,225$ Net pension liability as a percentage of covered payroll 32.92%56.36%57.07%32.23% Note: Only four years of data is presented in accordance with GASB #68, paragraph 138. “The information for all periods for the 10-year schedules that are required to be presented as required supplementary information may not be available initially. In these cases, during the transition period, that information should be presented for as many periods as are avai lable. The schedules should not include information that is not measured in accordance with the requirements of this statement.” Additional years’ information will be displayed as it becomes available. CITY OF SOUTHLAKE, TEXAS EXHIBIT A-5 SCHEDULE OF PENSION CONTRIBUTIONS TEXAS MUNICIPAL RETIREMENT SYSTEM LAST FOUR FISCAL YEARS 75 Fiscal Year Fiscal Year Fiscal Year Fiscal Year 2018 2017 2016 2015 Actuarially determined contribution 2,829,615$ 2,580,380$ 2,508,791$ 2,439,627$ Contribution in relation of the actuarially determined contribution 2,894,219 2,654,303 2,632,209 2,439,627 Contribution deficiency (excess)(64,604)$ (73,923)$ (123,418)$ -$ Covered payroll 23,132,172$ 21,525,552$ 21,551,426$ 20,034,712$ Contributions as a percentage of covered payroll 12.51%12.33%12.21%12.18% Note: GASB #68, paragraph 81.2.b requires that the data in this schedule be presented as of the City’s fiscal year as opposed to the time period covered by the measurement date. Note: Only four years of data is presented in accordance with GASB #68, paragraph 138. “The information for all periods for the 10-year schedules that are required to be presented as required supplementary information may not be available initially. In these cases, during the transition period, that information should be presented for as many periods as are available. The schedules should not include information that is not measured in accordance with the requirements of this statement.” Additional years’ information will be displayed as it becomes available. CITY OF SOUTHLAKE, TEXAS NOTES TO TEXAS MUNICIPAL RETIREMENT SYSTEM FOR PENSION LIABILITY REQUIRED SUPPLEMENTARY INFORMATION FOR THE YEAR ENDED SEPTEMBER 30, 2018 76 Actuarial Cost Method Entry Age Normal Amortization Method Level Percentage of Payroll, Closed Remaining Amortization Period 28 years Asset Valuation Method 10 Year smoothed market; 15% soft corridor Inflation 2.50% Salary Increases 3.50% to 10.5% including inflation Investment Rate of Return 6.75% Retirement Age Experience-based table of rates that are specific to the City's plan of benefits. Last updated for the 2015 valuation pursuant to an experience study of the period 2010 - 2014 Mortality RP2000 Combined Mortality Table with Blue Collar Adjustment with male rates multiplied by 109% and female rates multiplied by 103% and projected on a fully generational basis with scale BB Other Information There were no benefit changes during the year. CITY OF SOUTHLAKE, TEXAS EXHIBIT A-6 SCHEDULE OF CHANGES IN NET OPEB LIABILITY AND RELATED RATIOS SOUTHLAKE NET OPEB LIABILITY FOR HEALTH INSURANCE LAST MEASUREMENT YEAR 77 Measurement Year 2017 Total OPEB liability: Service cost 55,061$ Interest 84,496 Changes of benefit terms - Difference between expected and actual experience (3,965) Change in assumptions - Benefit payments, including refunds of employee contributions (76,779) Net change in total OPEB liability 58,813 Total OPEB liability - beginning 1,547,151 Total OPEB liability - ending (a)1,605,964 Plan fiduciary net position: Contributions - employer 116,779 Net investment income 121,500 Benefit payments, including refunds of employee contributions (76,779) Administrative expense (3,483) Net change in plan fiduciary net position 158,017 Plan fiduciary net position - beginning 1,261,490 Plan fiduciary net position - ending (b)1,419,507 Net OPEB liability - ending (a) - (b)186,457$ Plan fiduciary net position as a percentage of total OPEB liability 88.39% Covered payroll 20,607,676$ Net OPEB liability as a percentage of covered payroll 0.90% Note: Only one year of data is presented in accordance with GASB #75. Additional years’ information will be displayed as it becomes available. CITY OF SOUTHLAKE, TEXAS EXHIBIT A-7 SCHEDULE OF CONTRIBUTIONS SOUTHLAKE NET OPEB LIABILITY FOR HEALTH INSURANCE LAST FISCAL YEAR 78 Fiscal Year 2018 Actuarially determined contribution 89,240$ Contribution in relation of the actuarially determined contribution 168,167 Contribution deficiency (excess)(78,927)$ Covered payroll 23,132,172$ Contributions as a percentage of covered payroll 0.73% Note: Only one year of data is presented in accordance with GASB #75. Additional years’ information will be displayed as it becomes available. CITY OF SOUTHLAKE, TEXAS NOTES TO SOUTHLAKE NET OPEB LIABILITY REQUIRED SUPPLEMENTARY INFORMATION FOR HEALTH INSURANCE FOR THE YEAR ENDED SEPTEMBER 30, 2018 79 Actuarial Cost Method Individual Entry-Age Amortization Method Level dollar amount Amortization Period 9 years remaining as of FYE 2018 Asset Valuation Method Market value Inflation 2.50% Salary Increases 3.50% to 10.5% including inflation Investment Rate of Return 5.50%, net of investment expenses, including inflation Demographic assumption Based on the experience study covering the four-year period ending December 31, 2014 as conducted for the Texas Municipal Retirement System. Mortality For healthy retirees, the gender-distinct RP2000 Combined Healthy Mortality Tables with Blue Collar Adjustment are used with male rates multiplied by 109% and female rates multiplied by 103%. The rates are projected on a fully generational basis by scale BB to account for future mortality improvements. Participation rates 25% of employees who retire at age 55 or older, or retire through disability retirement at any age, were assumed to maintain their health coverage after retirement. Healthcare cost trend rates Initial rates of 7.50% declining to ultimate rates of 4.25% after 15 years. CITY OF SOUTHLAKE, TEXAS EXHIBIT A-8 SCHEDULE OF CHANGES IN THE TOTAL OPEB LIABILITY AND RELATED RATIOS TEXAS MUNICIPAL RETIREMENT SYSTEM – SUPPLEMENTAL DEATH BENEFITS LAST MEASUREMENT YEAR 80 Measurement Year 2017 Total OPEB liability: Service cost 34,755$ Interest 21,919 Changes of benefit terms - Difference between expected and actual experience - Change in assumptions 62,407 Contributions - employer (4,344) Net change in total pension liability 114,737 Total OPEB liability - beginning 564,655 Total OPEB liability - ending (a)679,392$ Covered payroll 21,721,689$ Net pension liability as a percentage of covered payroll 3.13% Note: Only one year of data is presented in accordance with GASB #75. Additional years’ information will be displayed as it becomes available. The TMRS Supplementary Death Benefit Fund (SDBF) is considered to be an unfunded OPEB plan; therefore, no plan fiduciary net position and related ratios are reported in the above schedule. CITY OF SOUTHLAKE, TEXAS EXHIBIT A-9 SCHEDULE OF OPEB CONTRIBUTIONS TEXAS MUNICIPAL RETIREMENT SYSTEM – SUPPLEMENTAL DEATH BENEFITS LAST FISCAL YEAR 81 Fiscal Year 2018 Actuarially determined contribution 2,846$ Contribution in relation of the actuarially determined contribution 2,846 Contribution deficiency (excess)-$ Covered payroll 23,132,172$ Contributions as a percentage of covered payroll 0.01% Note: GASB #75, paragraph 57 requires that the data in this schedule be presented as of the City’s fiscal year as opposed to the time period covered by the measurement date. The TMRS Supplementary Death Benefit Fund (SDBF) is considered to be an unfunded OPEB plan; therefore, no plan fiduciary net position and related ratios are reported in the above schedule. CITY OF SOUTHLAKE, TEXAS NOTES TO TEXAS MUNICIPAL RETIREMENT SYSTEM FOR OPEB LIABILITY REQUIRED SUPPLEMENTARY INFORMATION – SUPLEMENTAL DEATH BENEFITS FOR THE YEAR ENDED SEPTEMBER 30, 2018 82 Inflation 2.50% Discount rate 3.31% Salary Increases 3.50% to 10.5% including inflation Retirees' share of benefit-related costs $0 Administrative expenses All administrative expenses are paid through the Pension Trust and accounted for under reporting requirements under GASB Statement No. 68. Mortality - service retirees RP2000 Combined Mortality Table with Blue Collar Adjustment with male rates multiplied by 109% and female rates multiplied by 103% and projected on a fully generational basis with scale BB. Mortality rates - disabled retirees RP2000 Combined Mortality Table with Blue Collar Adjustment with male rates multiplied by 109% and female rates multiplied by 103% with a 3 year set-forward for both males and females. The rates are projected on a fully generational basis with scale BB to account for future mortality improvements subject to the 3% floor. CITY OF SOUTHLAKE, TEXAS EXHIBIT A-10 CONDITION RATING OF STREET SYSTEM SEPTEMBER 30, 2018 83 CONDITION OF ROADWAY SYSTEM Index 2018 RCI 5.4 SDI 8.8 PQI 8.2 COMPARISON OF NEEDED-TO-ACTUAL M AINTENANCE/PRESERVATION Needed Actual Difference 2014 $ 800,000 $1,050,404 $250,404 2015 800,000 830,768 30,768 2016 800,000 726,381 (73,619) 2017 800,000 650,447 (149,553) 2018 800,000 903,868 103,868 Total $4,000,000 $4,161,868 $161,868 The City hired a consultant to implement a pavement management system (PMS) to cover all public streets within the City. The condition of street pavement is measured using t he Asphalt Pavement Rating Form as developed by the Asphalt Institute. The Asphalt Pavement Rating Form is based on a weighted average of thirteen defects found in pavement surfaces. The consultant conducted a pavement condition survey on all City owned streets. This consisted of a ride condition or roughness survey, a surface distress survey and a deflection survey. A present status analysis was conducted using data obtained from the pavement condition survey to determine the Ride Condition Index (RCI ) and the Surface Distress Index (SDI). These indices were then combined into the composite Pavement Quality Index (PQI). Values of PQI can range from 0 to 10. Typical values for a newly constructed pavement range from 9.5 to 10.0. The PQI level at which a pavement becomes in need of rehabilitation is typically in the 5.0 to 7.0 range. It was the City’s policy to maintain a PQI of 7.3 until 2013 when the City increased the minimum PQI to 7.8. Needed maintenance is calculated based upon inspections and the pavement quality index. In accordance with GASB Statement No. 34, the City is required to report at least one complete condition assessment at transition using the modified approach. The condition assessment was completed by the City and documented that the eligible infrastructure assets are being preserved at or above the condition level established by the City. A third of the City’s public streets will be assessed annually to ensure all public streets are assessed every three years. The City calculates needed maintenance of its street system annually. However, the scheduling of these road projects often crosses fiscal years. Therefore, actual maintenance may be less than the calculated needed maintenance in one fiscal year and greater than the calculated needed maintenance in the subsequent fiscal year. COMBINING AND INDIVIDUAL FUND FINANCIAL STATEMENTS AND SCHEDULES 84 MAJOR GOVERNMENTAL FUNDS GENERAL OBLIGATION DEBT SERVICE FUND The General Obligation Debt Service Fund is used to account for the accumulation of resources for, and the payment of, general obligation bonds and interest from governmental resources. CITY OF SOUTHLAKE, TEXAS EXHIBIT B-1 GENERAL OBLIGATION DEBT SERVICE FUND BUDGETARY COMPARISON SCHEDULE (GAAP BASIS) FOR THE YEAR ENDED SEPTEMBER 30, 2018 85 VARIANCE WITH FINAL BUDGET- POSITIVE ORIGINAL FINAL ACTUAL (NEGATIVE) REVENUES: Ad valorem taxes 6,647,670$ 6,741,106$ 6,730,185$ (10,921)$ Interest 45,000 45,000 59,115 14,115 Total revenues 6,692,670 6,786,106 6,789,300 3,194 EXPENDITURES: Principal retirement 8,666,624 9,201,784 8,990,242 211,542 Interest and fiscal charges 1,557,120 1,561,227 1,599,537 (38,310) Total expenditures 10,223,744 10,763,011 10,589,779 173,232 Deficiency of revenues under expenditures (3,531,074) (3,976,905) (3,800,479) 176,426 OTHER FINANCING SOURCES (USES): Transfers from other funds 3,315,117 3,442,046 3,442,046 - Total other financing sources (uses)3,315,117 3,442,046 3,442,046 - Net change in fund balance (215,957) (534,859) (358,433) 176,426 Fund balance, beginning of year 5,784,045 5,784,045 5,784,045 - Fund balance, end of year 5,568,088$ 5,249,186$ 5,425,612$ 176,426$ BUDGETED AMOUNTS 86 NON-MAJOR GOVERNMENTAL FUNDS SPECIAL REVENUE FUNDS The Special Revenue Funds are used to account for revenue sources that are legally rest ricted to expenditures for specified purposes. Police Fund –- Established to account for resources required to be utilized by the police department. Parks and Recreation Fund – Established to account for resources restricted for use by the community services department. Parks Dedication Fund – Established to account for resources restricted for use by the community services department. Crime Control District Fund – Established to account for the operations of the Crime Control District, which was established for the financing and development of crime control within the City. The Crime Control Fund is funded primarily through the municipal sales taxes. Hotel Occupancy Fund – Established to account for all revenues and expenditures relating to the hotel occupancy tax received by the City. Storm Water Utility Fund – Established to account for fees collected for the purpose of improving, upgrading and maintaining the City's drainage system. The City is mandated by the Texas Commission on Environmental Quality (TCEQ) to develop and maintain a Storm Water Management Plan in order to address capacity and quality issues and protect its residents and their properties from possible flooding and pollution problems. Drainage fees are collected to fund the activi ties required to comply with TCEQ regulations. Court Security Fund – Established to account for municipal court fees assessed to provide court security. Court Technology Fund – Established to account for municipal court fees assessed to provide court technology. Library Fund – Established to account for resources donated for use by library services. Red Light Camera Fund – Established to account for fees assessed for red light violations captured through the City’s camera monitoring system. Storm Water Maintenance Fund – Established to account for the maintenance on storm water infrastructure. Community Enhancement and Development Corporation Special Revenue Fund - Established to account for the general operations of the non-profit corporation established to finance, develop and operate a community entertainment and recreation center. Oil and Gas Fund- Established to account for permits fees and the related expenditures for oil and gas drilling. Commercial Vehicle Enforcement Fund – Established to account for the fees assessed for commercial vehicle violations. 87 DEBT SERVICE FUNDS The Debt Service Funds are utilized to account for the accumulation of financial resources for, and the payment of, long-term debt principal, interest, and related costs arising from the issuance of bonds. Southlake Parks Development Corporation Debt Service Fund – Established to accumulate resources to finance the debt service of debt issues of the Southlake Parks Development Corporation. Community Enhancement and Development Corporation Debt Service Fund - Established to accumulate resources to finance the debt service of debt issues for the community entertainment and recreation center. CAPITAL PROJECTS FUNDS The Capital Projects Funds are utilized to account for financial resources to be used for the acquisition or construction of specified capital improvements (other than those financed by proprietary funds). Tax Increment Financing District Capital Projects Fund – Established to account for the financing and construction of projects of the Tax Increment Financing District. Southlake Parks Development Corporation Capital Projects Fund – Established to fund the acquisition and construction of park recreational facilities as approved by the SPDC board of directors. The fund has been financed through the issuance of general obligation debt. Crime Control District Capital Projects Fund – Established to account for the acquisition and construction of capital assets as approved by the District’s board of director s. The fund has been funded primarily through the issuance of general obligation debt. CITY OF SOUTHLAKE, TEXAS NON-MAJOR GOVERNMENTAL FUNDS COMBINING BALANCE SHEET SEPTEMBER 30, 2018 88 Parks Crime and Parks Control Police Recreation Dedication District ASSETS Cash and cash equivalents 25,359$ 162,434$ 463,732$ 3,134,642$ Investments 1,519 4,718 5,482 621,979 Accounts receivable - 6,750 - - Sales tax receivable - - - 309,671 Interest receivable - - - 2,181 Inventory - - - - Prepaids - - - - TOTAL ASSETS 26,878$ 173,902$ 469,214$ 4,068,473$ LIABILITIES AND FUND BALANCES LIABILITIES Accounts payable 7,984$ 4,616$ -$ 5,218$ Accrued liabilities - - - 33,634 Unearned revenue - - - - TOTAL LIABILITIES 7,984 4,616 - 38,852 DEFERRED INFLOWS OF RESOURCES Unavailable resources - - - - FUND BALANCES Nonspendable - - - - Restricted for: Municipal court expenditures - - - - Debt service - - - - Capital projects - - - - Committed for: Police expenditures 18,894 - - 4,029,621 Parks and recreation - 169,286 469,214 - Storm water expenditures - - - - Oil and gas drilling - - - - Library - - - - TOTAL FUND BALANCES 18,894 169,286 469,214 4,029,621 TOTAL LIABILITIES AND FUND BALANCES 26,878$ 173,902$ 469,214$ 4,068,473$ SPECIAL REVENUE EXHIBIT C-1 CONTINUED 89 Community Storm Enhancement Hotel Water Court Court Red Light Storm Water Development Occupancy Utility Security Technology Library Camera Maintenance Corporation 914,761$ 808,158$ 378,299$ 386,361$ 9,846$ 766,157$ 421,310$ 6,335,871$ 619,970 61,852 52,751 35,402 655 68,626 35,078 1,238,202 100 264,879 - - 220 52,635 - 4,249 118,203 - - - - - - 940,748 2,181 - - - - - - 7,082 - - - - - - - 177 - - - - - - - 50,000 1,655,215$ 1,134,889$ 431,050$ 421,763$ 10,721$ 887,418$ 456,388$ 8,576,329$ 52,490$ 3,616$ -$ 138$ 2,383$ 197,436$ -$ 89,821$ 7,445 7,653 1,571 - - 984 - 52,124 - - - - - - - 118,036 59,935 11,269 1,571 138 2,383 198,420 - 259,981 100 - - - - - - - - - - - - - - 50,177 - - 429,479 421,625 - - - - - - - - - - - - 1,595,180 1,123,620 - - - - - - - - - - - 688,998 - - - - - - - - - 8,266,171 - - - - - - 456,388 - - - - - - - - - - - - - 8,338 - - - 1,595,180 1,123,620 429,479 421,625 8,338 688,998 456,388 8,316,348 1,655,115$ 1,134,889$ 431,050$ 421,763$ 10,721$ 887,418$ 456,388$ 8,576,329$ SPECIAL REVENUE CITY OF SOUTHLAKE, TEXAS NON-MAJOR GOVERNMENTAL FUNDS COMBINING BALANCE SHEET SEPTEMBER 30, 2018 90 Southlake Community Commercial Parks Enhancement Oil and Vehicle Development Development Gas Enforcement Corporation Corporation ASSETS Cash and cash equivalents 47,532$ 12,004$ 1,308,165$ 523,094$ Investments 6,187 36 491,355 375 Accounts receivable - - - - Sales tax receivable - - - - Interest receivable - - 2,181 - Inventory - - - - Prepaids - - - - TOTAL ASSETS 53,719$ 12,040$ 1,801,701$ 523,469$ LIABILITIES AND FUND BALANCES LIABILITIES Accounts payable -$ 5$ -$ -$ Accrued liabilities - 5,600 - - Unearned revenue - - - - TOTAL LIABILITIES - 5,605 - - DEFERRED INFLOWS OF RESOURCES Unavailable resources - - - - FUND BALANCES Nonspendable - - - - Restricted for: Municipal court expenditures - - - - Debt service - - 1,801,701 523,469 Capital projects - - - - Committed for: Police expenditures - 6,435 - - Parks and recreation - - - - Storm water expenditures - - - - Oil and gas drilling 53,719 - - - Library - - - - TOTAL FUND BALANCES 53,719 6,435 1,801,701 523,469 TOTAL LIABILITIES AND FUND BALANCES 53,719$ 12,040$ 1,801,701$ 523,469$ SPECIAL REVENUE DEBT SERVICE EXHIBIT C-1 CONCLUDED 91 Tax Southlake TOTAL Increment Parks Crime NON-MAJOR Financing Development Control GOVERNMENTAL District Corporation District FUNDS -$ 6,628,856$ 261,833$ 22,588,414$ - 997 83,478 3,328,662 - - - 328,833 - - - 1,368,622 - - - 13,625 - - - 177 - - - 50,000 -$ 6,629,853$ 345,311$ 27,678,333$ -$ 774,436$ 96,764$ 1,234,907$ - - - 109,011 - - - 118,036 - 774,436 96,764 1,461,954 - - - 100 - - - 50,177 - - - 851,104 - - - 2,325,170 - 5,855,417 248,547 8,822,764 - - - 4,743,948 - - - 8,904,671 - - - 456,388 - - - 53,719 - - - 8,338 - 5,855,417 248,547 26,216,279 -$ 6,629,853$ 345,311$ 27,678,233$ CAPITAL PROJECTS CITY OF SOUTHLAKE, TEXAS NON-MAJOR GOVERNMENTAL FUNDS COMBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES FOR THE YEAR ENDED SEPTEMBER 30, 2018 92 Parks Crime and Parks Control Police Recreation Dedication District REVENUES Municipal sales tax -$ -$ -$ 1,923,567$ Licenses, permits and fees - - 155,960 - Fines and forfeitures - - - - Charges for services - - - - Interest 167 1,154 2,627 119,444 Contributions - 83,940 - - Miscellaneous 4,494 540 - - Total revenues 4,661 85,634 158,587 2,043,011 EXPENDITURES Current: General government Municipal court - - - - Public safety Police services - - - 1,007,919 Public works Streets and drainage - - - - Cultural and recreation Parks and recreation - 68,869 - - Library services - - - - Capital outlay - - - - Debt service Principal retirement - - - - Interest and fiscal charges - - - - Total expenditures - 68,869 - 1,007,919 Excess (deficiency) of revenues over expenditures 4,661 16,765 158,587 1,035,092 OTHER FINANCING SOURCES (USES) Transfers from other funds - - - - Transfers to other funds - - (100,000) (74,510) Total other financing sources (uses)- - (100,000) (74,510) NET CHANGE IN FUND BALANCES 4,661 16,765 58,587 960,582 FUND BALANCES, BEGINNING OF YEAR 14,233 152,521 410,627 3,069,039 FUND BALANCES, END OF YEAR 18,894$ 169,286$ 469,214$ 4,029,621$ SPECIAL REVENUE EXHIBIT C-2 CONTINUED 93 Community Storm Enhancement Hotel Water Court Court Red Light Storm Water Development Occupancy Utility Security Technology Library Camera Maintenance Corporation 1,357,106$ -$ -$ -$ -$ -$ -$ 5,707,414$ - - - - - - - - - - 31,226 41,576 - 676,219 - - - 1,530,397 - - - - - 454,294 10,193 4,298 2,825 2,818 68 5,090 3,014 148,752 - - - - - - - 7,145 - - - - 10,472 - - - 1,367,299 1,534,695 34,051 44,394 10,540 681,309 3,014 6,317,605 - - 45,424 - - - - - - - - 50,310 - 525,059 - - - 358,844 - - - - - - 653,045 - - - - - - 1,448,313 - - - - 9,634 - - - - - - - - - - - - - - - - - - - - - - - - - - - 653,045 358,844 45,424 50,310 9,634 525,059 - 1,448,313 714,254 1,175,851 (11,373) (5,916) 906 156,250 3,014 4,869,292 - - - - - - - - (456,195) (1,369,019) - - - - - (3,694,800) (456,195) (1,369,019) - - - - - (3,694,800) 258,059 (193,168) (11,373) (5,916) 906 156,250 3,014 1,174,492 1,337,121 1,316,788 440,852 427,541 7,432 532,748 453,374 7,141,856 1,595,180$ 1,123,620$ 429,479$ 421,625$ 8,338$ 688,998$ 456,388$ 8,316,348$ SPECIAL REVENUE CITY OF SOUTHLAKE, TEXAS NON-MAJOR GOVERNMENTAL FUNDS COMBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES FOR THE YEAR ENDED SEPTEMBER 30, 2018 94 Southlake Community Commercial Parks Enhancement Oil and Vehicle Development Development Gas Enforcement Corporation Corporation REVENUES Municipal sales tax -$ -$ -$ -$ Licenses, permits and fees - - - - Fines and forfeitures - 54,169 - - Charges for services - - - - Interest 315 260 40,648 28,418 Contributions - - - - Miscellaneous - - - - Total revenues 315 54,429 40,648 28,418 EXPENDITURES Current: General government Municipal court - - - - Public safety Police services - 132,200 - - Public works Streets and drainage - - - - Cultural and recreation Parks and recreation - - - - Library services - - - - Capital outlay - - - - Debt service: Principal retirement - - 2,040,000 1,190,000 Interest and fiscal charges - - 851,272 1,244,239 Total expenditures - 132,200 2,891,272 2,434,239 Excess (deficiency) of revenues over expenditures 315 (77,771) (2,850,624) (2,405,821) OTHER FINANCING SOURCES (USES) Transfers from other funds - 55,000 2,885,813 2,450,240 Transfers to other funds - - - - Total other financing sources (uses)- 55,000 2,885,813 2,450,240 NET CHANGE IN FUND BALANCES 315 (22,771) 35,189 44,419 FUND BALANCES, BEGINNING OF YEAR 53,404 29,206 1,766,512 479,050 FUND BALANCES, END OF YEAR 53,719$ 6,435$ 1,801,701$ 523,469$ SPECIAL REVENUE DEBT SERVICE EXHIBIT C-2 CONCLUDED 95 Tax Southlake TOTAL Increment Parks Crime NON-MAJOR Financing Development Control GOVERNMENTAL District Corporation District FUNDS -$ -$ -$ 8,988,087$ - - - 155,960 - - - 803,190 - - - 1,984,691 3 127,805 6,968 504,867 - - - 91,085 - 38,700 - 54,206 3 166,505 6,968 12,582,086 - - - 45,424 - - - 1,715,488 - - - 358,844 - - - 2,170,227 - - - 9,634 6 3,146,247 2,139,921 5,286,174 - - - 3,230,000 - - - 2,095,511 6 3,146,247 2,139,921 14,911,302 (3) (2,979,742) (2,132,953) (2,329,216) - 3,200,000 - 8,591,053 - - - (5,694,524) - 3,200,000 - 2,896,529 (3) 220,258 (2,132,953) 567,313 3 5,635,159 2,381,500 25,648,966 -$ 5,855,417$ 248,547$ 26,216,279$ CAPITAL PROJECTS CITY OF SOUTHLAKE, TEXAS EXHIBIT C-3 PARKS AND RECREATION SPECIAL REVENUE FUND BUDGETARY COMPARISON SCHEDULE (GAAP BASIS) FOR THE YEAR ENDED SEPTEMBER 30, 2018 96 VARIANCE WITH FINAL BUDGET - POSITIVE ORIGINAL FINAL ACTUAL (NEGATIVE) REVENUES Interest 200$ 200$ 1,154$ 954$ Contributions 85,000 85,000 83,940 (1,060) Miscellaneous - - 540 540 Total revenues 85,200 85,200 85,634 434 EXPENDITURES Current: Cultural and recreation Parks and recreation 76,500 76,500 68,869 7,631 Total expenditures 76,500 76,500 68,869 7,631 Excess (deficiency) of revenues over expenditures 8,700 8,700 16,765 8,065 NET CHANGE IN FUND BALANCES 8,700 8,700 16,765 8,065 FUND BALANCES, BEGINNING OF YEAR 152,521 152,521 152,521 - FUND BALANCES, END OF YEAR 161,221$ 161,221$ 169,286$ 8,065$ BUDGETED AMOUNTS CITY OF SOUTHLAKE, TEXAS EXHIBIT C-4 PARKS DEDICATION SPECIAL REVENUE FUND BUDGETARY COMPARISON SCHEDULE (GAAP BASIS) FOR THE YEAR ENDED SEPTEMBER 30, 2018 97 VARIANCE WITH FINAL BUDGET - POSITIVE ORIGINAL FINAL ACTUAL (NEGATIVE) REVENUES: Park fees 90,000$ 93,000$ 155,960$ 62,960$ Interest 800 1,800 2,627 827 Total revenues 90,800 94,800 158,587 63,787 EXPENDITURES: Parks and recreation - - - - Total expenditures - - - - Excess of revenues over expenditures 90,800 94,800 158,587 63,787 OTHER FINANCING USES: Transfers to other funds (100,000) (100,000) (100,000) - Total other financing uses (100,000) (100,000) (100,000) - Net change in fund balance (9,200) (5,200) 58,587 63,787 Fund balance, beginning of year 410,627 410,627 410,627 - Fund balance, end of year 401,427$ 405,427$ 469,214$ 63,787$ BUDGETED AMOUNTS CITY OF SOUTHLAKE, TEXAS EXHIBIT C-5 CRIME CONTROL DISTRICT SPECIAL REVENUE FUND BUDGETARY COMPARISON SCHEDULE (GAAB BASIS) FOR THE YEAR ENDED SEPTEMBER 30, 2018 98 VARIANCE WITH FINAL BUDGET - POSITIVE ORIGINAL FINAL ACTUAL (NEGATIVE) REVENUES: Municipal sales tax 1,842,750$ 1,842,750$ 1,923,567$ 80,817$ Interest 20,000 20,000 119,444 99,444 Total revenues 1,862,750 1,862,750 2,043,011 180,261 EXPENDITURES: Police services 1,083,544 1,083,544 1,007,919 75,625 Excess of revenues over expenditures 779,206 779,206 1,035,092 255,886 OTHER FINANCING SOURCES USES: Transfers to other funds (74,510) (74,510) (74,510) - Net change in fund balance 704,696 704,696 960,582 255,886 Fund balance, beginning of year 3,069,039 3,069,039 3,069,039 - Fund balance, end of year 3,773,735$ 3,773,735$ 4,029,621$ 255,886$ BUDGETED AMOUNTS CITY OF SOUTHLAKE, TEXAS EXHIBIT C-6 HOTEL OCCUPANCY SPECIAL REVENUE FUND BUDGETARY COMPARISON SCHEDULE (GAAP BASIS) FOR THE YEAR ENDED SEPTEMBER 30, 2018 99 VARIANCE WITH FINAL BUDGET - POSITIVE ORIGINAL FINAL ACTUAL (NEGATIVE) REVENUES: Municipal sales tax 1,268,500$ 1,345,888$ 1,357,106$ 11,218$ Interest 2,000 2,500 10,193 7,693 Total revenues 1,270,500 1,348,388 1,367,299 18,911 EXPENDITURES: Parks and recreation 1,100,704 820,229 653,045 167,184 Excess of revenues over expenditures 169,796 528,159 714,254 186,095 OTHER FINANCING USES: Transfers to other funds (441,395) (456,195) (456,195) - Net change in fund balance (271,599) 71,964 258,059 186,095 Fund balance, beginning of year 1,337,121 1,337,121 1,337,121 - Fund balance, end of year 1,065,522$ 1,409,085$ 1,595,180$ 186,095$ BUDGETED AMOUNTS CITY OF SOUTHLAKE, TEXAS EXHIBIT C-7 STORM WATER UTILITY SPECIAL REVENUE FUND BUDGETARY COMPARISON SCHEDULE (GAAP BASIS) FOR THE YEAR ENDED SEPTEMBER 30, 2018 100 VARIANCE WITH FINAL BUDGET - POSITIVE ORIGINAL FINAL ACTUAL (NEGATIVE) REVENUES: Licenses, permits and fees 1,515,000$ 1,520,000$ 1,530,397$ 10,397$ Interest 2,500 2,500 4,298 1,798 Total revenues 1,517,500 1,522,500 1,534,695 12,195 EXPENDITURES: Public works 417,782 410,902 358,844 52,058 Excess of revenues over expenditures 1,099,718 1,111,598 1,175,851 64,253 OTHER FINANCING USES: Transfers to other funds (1,241,890) (1,369,019) (1,369,019) - Net change in fund balance (142,172) (257,421) (193,168) 64,253 Fund balance, beginning of year 1,316,788 1,316,788 1,316,788 - Fund balance, end of year 1,174,616$ 1,059,367$ 1,123,620$ 64,253$ BUDGETED AMOUNTS CITY OF SOUTHLAKE, TEXAS EXHIBIT C-8 COURT SECURITY SPECIAL REVENUE FUND BUDGETARY COMPARISON SCHEDULE (GAAP BASIS) FOR THE YEAR ENDED SEPTEMBER 30, 2018 101 VARIANCE WITH FINAL BUDGET - POSITIVE ORIGINAL FINAL ACTUAL (NEGATIVE) REVENUES Fines and forfeitures 32,500$ 29,000$ 31,226$ 2,226$ Interest 500 1,500 2,825 1,325 Total revenues 33,000 30,500 34,051 3,551 EXPENDITURES Current: General government Municipal court 68,606 68,606 45,424 23,182 Total expenditures 68,606 68,606 45,424 23,182 Excess (deficiency) of revenues over expenditures (35,606) (38,106) (11,373) 26,733 NET CHANGE IN FUND BALANCES (35,606) (38,106) (11,373) 26,733 FUND BALANCES, BEGINNING OF YEAR 440,852 440,852 440,852 - FUND BALANCES, END OF YEAR 405,246$ 402,746$ 429,479$ 26,733$ BUDGETED AMOUNTS CITY OF SOUTHLAKE, TEXAS EXHIBIT C-9 COURT TECHNOLOGY SPECIAL REVENUE FUND BUDGETARY COMPARISON SCHEDULE (GAAP BASIS) FOR THE YEAR ENDED SEPTEMBER 30, 2018 102 VARIANCE WITH FINAL BUDGET - POSITIVE ORIGINAL FINAL ACTUAL (NEGATIVE) REVENUES Fines and forfeitures 43,200$ 39,000$ 41,576$ 2,576$ Interest 500 1,200 2,818 1,618 Total revenues 43,700 40,200 44,394 4,194 EXPENDITURES Current: Public safety Police services 10,500 55,588 50,310 5,278 Total expenditures 10,500 55,588 50,310 5,278 Excess (deficiency) of revenues over expenditures 33,200 (15,388) (5,916) 9,472 NET CHANGE IN FUND BALANCES 33,200 (15,388) (5,916) 9,472 FUND BALANCES, BEGINNING OF YEAR 427,541 427,541 427,541 - FUND BALANCES, END OF YEAR 460,741$ 412,153$ 421,625$ 9,472$ BUDGETED AMOUNTS CITY OF SOUTHLAKE, TEXAS EXHIBIT C-10 LIBRARY SPECIAL REVENUE FUND BUDGETARY COMPARISON SCHEDULE (GAAP BASIS) FOR THE YEAR ENDED SEPTEMBER 30, 2018 103 VARIANCE WITH FINAL BUDGET - POSITIVE ORIGINAL FINAL ACTUAL (NEGATIVE) REVENUES Interest 25$ 25$ 68$ 43$ Miscellaneous 10,000 10,000 10,472 472 Total revenues 10,025 10,025 10,540 515 EXPENDITURES Current: Cultural and recreation Library services 10,000 10,000 9,634 366 Total expenditures 10,000 10,000 9,634 366 Excess of revenues over expenditures 25 25 906 881 NET CHANGE IN FUND BALANCES 25 25 906 881 FUND BALANCES, BEGINNING OF YEAR 7,432 7,432 7,432 - FUND BALANCES, END OF YEAR 7,457$ 7,457$ 8,338$ 881$ BUDGETED AMOUNTS CITY OF SOUTHLAKE, TEXAS EXHIBIT C-11 RED LIGHT CAMERA SPECIAL REVENUE FUND BUDGETARY COMPARISON SCHEDULE (GAAP BASIS) FOR THE YEAR ENDED SEPTEMBER 30, 2018 104 VARIANCE WITH FINAL BUDGET- POSITIVE ORIGINAL FINAL ACTUAL (NEGATIVE) REVENUES: Fines and forfeitures 560,000$ 704,390$ 676,219$ (28,171)$ Interest 1,000 1,000 5,090 4,090 Total revenues 561,000 705,390 681,309 (24,081) EXPENDITURES: Public safety 507,834 507,834 525,059 (17,225) Excess (deficiency) of revenues 53,166 197,556 156,250 (41,306) over (under) expenditures Fund balance, beginning of year 532,748 532,748 532,748 - Fund balance, end of year 585,914$ 730,304$ 688,998$ (41,306)$ BUDGETED AMOUNTS CITY OF SOUTHLAKE, TEXAS EXHIBIT C-12 STORM WATER MAINTENANCE SPECIAL REVENUE FUND BUDGETARY COMPARISON SCHEDULE (GAAP BASIS) FOR THE YEAR ENDED SEPTEMBER 30, 2018 105 VARIANCE WITH FINAL BUDGET - POSITIVE ORIGINAL FINAL ACTUAL (NEGATIVE) REVENUES Interest -$ -$ 3,014$ 3,014$ Total revenues - - 3,014 3,014 EXPENDITURES Current: Public works Streets and drainage - - - - Total expenditures - - - - Excess (deficiency) of revenues over expenditures - - 3,014 3,014 NET CHANGE IN FUND BALANCES - - 3,014 3,014 FUND BALANCES, BEGINNING OF YEAR 453,374 453,374 453,374 - FUND BALANCES, END OF YEAR 453,374$ 453,374$ 456,388$ 3,014$ BUDGETED AMOUNTS CITY OF SOUTHLAKE, TEXAS EXHIBIT C-13 SOUTHLAKE COMMUNITY ENHANCEMENT DEVELOPMENT CORPORATION SPECIAL REVENUE FUND BUDGETARY COMPARISON SCHEDULE (GAAP BASIS) FOR THE YEAR ENDED SEPTEMBER 30, 2018 106 VARIANCE WITH FINAL BUDGET - POSITIVE ORIGINAL FINAL ACTUAL (NEGATIVE) REVENUES: Municipal sales tax 5,619,000$ 5,619,000$ 5,707,414$ 88,414$ Licenses, permits and fees 393,000 446,000 454,294 8,294 Interest 25,000 45,000 148,752 103,752 Contributions 15,000 4,000 7,145 3,145 Miscellaneous 1,000 - - - Total revenues 6,053,000 6,114,000 6,317,605 203,605 EXPENDITURES: Parks and recreation 3,762,816 2,157,139 1,448,313 708,826 Total expenditures 3,762,816 2,157,139 1,448,313 708,826 Excess of revenues over expenditures 2,290,184 3,956,861 4,869,292 912,431 OTHER FINANCING USES: Transfers to other funds (2,593,076) (3,694,800) (3,694,800) - Net change in fund balance (302,892) 262,061 1,174,492 912,431 Fund balance, beginning of year 7,141,856 7,141,856 7,141,856 - Fund balance, end of year 6,838,964$ 7,403,917$ 8,316,348$ 912,431$ BUDGETED AMOUNTS CITY OF SOUTHLAKE, TEXAS EXHIBIT C-14 COMMERCIAL VEHICLE ENFORCEMENT BUDGETARY COMPARISON SCHEDULE (GAAP BASIS) FOR THE YEAR ENDED SEPTEMBER 30, 2018 107 VARIANCE WITH FINAL BUDGET - POSITIVE ORIGINAL FINAL ACTUAL (NEGATIVE) REVENUES Fines and forfeitures 75,000$ 62,000$ 54,169$ (7,831)$ Interest - - 260 260 Total revenues 75,000 62,000 54,429 (7,571) EXPENDITURES Current: Public safety Police services 136,089 136,089 132,200 3,889 Total expenditures 136,089 136,089 132,200 3,889 Excess (deficiency) of revenues over expenditures (61,089) (74,089) (77,771) (3,682) OTHER FINANCING SOURCES (USES) Transfers from other funds 55,000 55,000 55,000 - Total other financing sources (uses)55,000 55,000 55,000 - NET CHANGE IN FUND BALANCES (6,089) (19,089) (22,771) (3,682) FUND BALANCES, BEGINNING OF YEAR 29,206 29,206 29,206 - FUND BALANCES, END OF YEAR 23,117$ 10,117$ 6,435$ (3,682)$ BUDGETED AMOUNTS CITY OF SOUTHLAKE, TEXAS EXHIBIT C-15 SOUTHLAKE PARKS DEVELOPMENT CORPORATION DEBT SERVICE FUND BUDGETARY COMPARISON SCHEDULE (GAAP BASIS) FOR THE YEAR ENDED SEPTEMBER 30, 2018 108 VARIANCE WITH FINAL BUDGET- POSITIVE ORIGINAL FINAL ACTUAL (NEGATIVE) REVENUES: Interest 6,000$ 12,000$ 40,648$ 28,648$ EXPENDITURES: Principal retirement 2,040,000 2,040,000 2,040,000 - Interest and fiscal charges 851,813 851,813 851,272 541 Total expenditures 2,891,813 2,891,813 2,891,272 541 Excess (deficiency) of revenues over (under) expenditures (2,885,813) (2,879,813) (2,850,624) 29,189 OTHER FINANCING SOURCES: Transfers from other funds 2,885,813 2,885,831 2,885,813 (18) Net change in fund balance - 6,018 35,189 29,171 Fund balance, beginning of year 1,766,512 1,766,512 1,766,512 - Fund balance, end of year 1,766,512$ 1,772,530$ 1,801,701$ 29,171$ BUDGETED AMOUNTS CITY OF SOUTHLAKE, TEXAS EXHIBIT C-16 COMMUNITY ENHANCEMENT DEVELOPMENT CORPORATION DEBT SERVICE FUND BUDGETARY COMPARISON SCHEDULE (GAAP BASIS) FOR THE YEAR ENDED SEPTEMBER 30, 2018 109 VARIANCE WITH FINAL BUDGET- POSITIVE ORIGINAL FINAL ACTUAL (NEGATIVE) REVENUES: Interest -$ 14,000$ 28,418$ 14,418$ EXPENDITURES: Principal retirement 1,190,000 1,190,000 1,190,000 - Interest and fiscal charges 1,260,240 1,260,240 1,244,239 16,001 Total expenditures 2,450,240 2,450,240 2,434,239 16,001 Excess (deficiency) of revenues over (under) expenditures (2,450,240) (2,436,240) (2,405,821) 30,419 OTHER FINANCING SOURCES: Transfers from other funds 2,450,240 2,450,240 2,450,240 - Net change in fund balance - 14,000 44,419 30,419 Fund balance, beginning of year 479,050 479,050 479,050 - Fund balance, end of year 479,050$ 493,050$ 523,469$ 30,419$ BUDGETED AMOUNTS 110 AGENCY FUNDS An Agency Fund is used to account for resources held for others in a custodial capacity. The City maintains the following Agency Fund: Cash Escrow Agency Fund - accounts for the receipt and subsequent disbursement of deposits paid to the City by builders/developers. CITY OF SOUTHLAKE, TEXAS EXHIBIT F-1 CASH ESCROW AGENCY FUND STATEMENT OF CHANGES IN ASSETS AND LIABILITIES FOR THE YEAR ENDED SEPTEMBER 30, 2018 111 Balance at Balance at Beginning End of Year Additions Deletions of Year ASSETS Cash and cash equivalents 60,434$ 454$ -$ 60,888$ Investments 7,947 - - 7,947 TOTAL ASSETS 68,381$ 454$ -$ 68,835$ LIABILITIES Due to builders 68,381$ 454$ -$ 68,835$ TOTAL LIABILITIES 68,381$ 454$ -$ 68,835$ CITY OF SOUTHLAKE, TEXAS EXHIBIT G-1 COMPARATIVE SCHEDULES OF CAPITAL ASSETS BY SOURCE SEPTEMBER 30, 2018 AND 2017 112 2018 2017 General capital assets Land and improvements 130,753,341$ 130,429,886$ Buildings and improvements 97,278,565 97,278,565 Equipment 28,966,691 27,961,696 Infrastructure 267,066,370 261,580,213 Construction in progress 37,452,390 19,934,409 Total capital assets 561,517,357$ 537,184,769$ Investment in general capital assets Capital projects funds 413,639,802$ 390,968,897$ General and other fund revenues 83,739,510 82,740,098 Gifts 64,138,045 63,475,774 Total investment in capital assets 561,517,357$ 537,184,769$ CITY OF SOUTHLAKE, TEXAS EXHIBIT G-2 SCHEDULE OF CHANGES IN CAPITAL ASSETS BY FUNCTION AND ACTIVITY FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2018 113 Capital Capital Assets Assets October 1,September 30, Function and Activity 2017 Additions Deductions 2018 General government 188,373,010$ 606,817$ -$ 188,979,827$ Public safety 67,182,932 605,305 (460,500) 67,327,737 Public works 175,771,823 10,689,038 (5,428,848) 181,032,013 Cultural and Recreation 105,857,004 18,515,429 (194,653) 124,177,780 Total capital assets 537,184,769$ 30,416,589$ (6,084,001)$ 561,517,357$ General Public Public Cultural and Government Safety Works Recreation Total Land and improvements 2,193,366$ 4,303,925$ 65,568,188$ 58,687,862$ 130,753,341$ Buildings and improvements 26,381,000 48,647,676 2,386,761 19,863,128 97,278,565 Equipment 6,771,408 14,376,136 5,102,797 2,716,350 28,966,691 Infrastructure 153,634,053 - 103,828,394 9,603,923 267,066,370 Construction in Progress - - 4,145,873 33,306,517 37,452,390 Total 188,979,827$ 67,327,737$ 181,032,013$ 124,177,780$ 561,517,357$ STATISTICAL SECTION 114 Contents Table #s Financial Trends 1, 2, 3 & 4 These tables contain trend information to help the reader understand how the City's financial performance and well-being have changed over time. Revenue Capacity 5, 6, 7 & 8 These tables contain information to help the reader assess the City's two most significant local revenue sources, the property and sales taxes. Debt Capacity 9, 10, 11 & 12 These tables present information to help the reader assess the affordability of the City's current levels of outstanding debt and the City's ability to issue additional debt in the future. Economic and Demographic Information 13 & 14 These tables offer economic and demographic indicators to help the reader understand the environment within which the City's financial activities take place. Operating Information 15, 16 & 17 These tables contain service and infrastructure data to help the reader understand how the information in the City's financial report relates to the services the City provides. STATISTICAL SECTION This part of the City of Southlake's comprehensive annual financial report presents detailed information as a context for understanding what the information in the financial statements,notes disclosures,and required supplementary information says about the City's overall financial health.This information has not been audited by the independent auditor. Source: Unless otherwise noted, the information in these tables is derived from the comprehensive annual financial reports for the relevant year. The City implemented GASB Statement 34 in fiscal year 2003: tables presenting government-wide information include information beginning in that year. CITY OF SOUTHLAKE, TEXAS TABLE 1 NET POSITION BY COMPONENT LAST TEN FISCAL YEARS (ACCRUAL BASIS OF ACCOUNTING) (UNAUDITED) 115 2009 2010 2011 2012 Governmental activities Net investment in capital assets 246,238,808$ 277,985,305$ 298,418,769$ 291,690,099$ Restricted 7,850,231 8,814,621 9,739,189 67,444,322 Unrestricted 69,949,380 58,438,700 53,157,494 16,726,782 Total governmental activities net position 324,038,419$ 345,238,626$ 361,315,452$ 375,861,203$ Business-type activities Net investment in capital assets 60,541,445$ 65,039,374$ 68,911,163$ 67,918,830$ Restricted - - - - Unrestricted 21,171,185 18,831,525 17,613,924 18,908,505 Total business-type activities net position 81,712,630$ 83,870,899$ 86,525,087$ 86,827,335$ Primary government Net investment in capital assets 306,780,253$ 343,024,679$ 367,329,932$ 359,608,929$ Restricted 7,850,231 8,814,621 9,739,189 67,444,322 Unrestricted 91,120,565 77,270,225 70,771,418 35,635,287 Total primary governmental net position 405,751,049$ 429,109,525$ 447,840,539$ 462,688,538$ Source:Comprehensive Annual Financial Report Fiscal Year TABLE 1 116 Fiscal Year 2013 2014 2015 2016 2017 2018 324,928,883$ 338,303,633$ 366,796,228$ 364,161,725$ 385,506,389$ 392,406,812$ 15,178,798 15,092,604 13,624,164 11,589,350 49,850,439 28,492,591 50,356,758 58,732,145 59,447,800 80,992,079 45,930,426 78,585,681 390,464,439$ 412,128,382$ 439,868,192$ 456,743,154$ 481,287,254$ 499,485,084$ 70,968,919$ 73,126,147$ 78,143,445$ 79,055,138$ 82,251,014$ 83,461,157$ - - - - - - 17,673,963 16,085,060 13,660,807 19,304,913 23,525,952 26,915,321 88,642,882$ 89,211,207$ 91,804,252$ 98,360,051$ 105,776,966$ 110,376,478$ 395,897,802$ 411,429,780$ 444,939,673$ 443,216,863$ 467,757,403$ 475,867,969$ 15,178,798 15,092,604 13,624,164 11,589,350 49,850,439 28,492,591 68,030,721 74,817,205 73,108,607 100,296,992 69,456,378 105,501,002 479,107,321$ 501,339,589$ 531,672,444$ 555,103,205$ 587,064,220$ 609,861,562$ CITY OF SOUTHLAKE, TEXAS CHANGES IN NET POSITION, LAST TEN FISCAL YEARS (ACCRUAL BASIS OF ACCOUNTING) (UNAUDITED) 117 2009 2010 2011 2012 Expenses Governmental activities: General government 11,068,965$ 11,814,836$ 13,754,529$ 13,277,006$ Public safety 12,920,263 14,885,499 15,144,173 15,891,911 Public works 5,840,432 5,767,688 6,279,687 6,399,819 Culture and recreation 6,439,100 7,287,434 7,897,173 8,158,291 Interest on long-term debt 5,854,931 6,515,269 5,638,272 5,865,798 Total governmental activities expenses 42,123,691 46,270,726 48,713,834 49,592,825 Business-type activities: Water and sewer 18,066,346 18,948,438 20,724,651 22,530,688 Total business-type activities expenses 18,066,346 18,948,438 20,724,651 22,530,688 Total primary government expenses 60,190,037$ 65,219,164$ 69,438,485$ 72,123,513$ Program Revenues Governmental activities: Charges for Services: General government 1,949,993$ 2,476,000$ 2,616,321$ 2,575,773$ Public safety 2,633,437 2,706,847 2,818,913 3,744,708 Public works 68,369 240,916 71,129 179,094 Culture and recreation 1,369,725 1,387,558 1,384,823 1,400,794 Operating grants and contributions 239,364 688,803 532,100 200,434 Capital grants and contributions 1,833,160 5,994,206 2,309,613 518,617 Total governmental activities program revenues 8,094,048 13,494,330 9,732,899 8,619,420 Business-type activities: Charges for services: Water and sewer 19,321,095 18,897,356 22,571,056 22,451,738 Capital grants and contributions 2,212,867 2,578,400 1,433,278 1,214,395 Total business-type activities program revenues 21,533,962 21,475,756 24,004,334 23,666,133 Total primary government program revenues 29,628,010$ 34,970,086$ 33,737,233$ 32,285,553$ Net (Expenses) Revenue Governmental activities (34,029,643)$ (32,776,396)$ (38,980,935)$ (40,973,405)$ Business-type activities 3,467,616 2,527,318 3,279,683 1,135,445 Total primary government net expenses (30,562,027)$ (30,249,078)$ (35,701,252)$ (39,837,960)$ General Revenues and Other Changes in Net Position Governmental activities: Taxes: Property taxes 30,911,161$ 32,298,360$ 31,568,583$ 31,166,847$ Sales taxes 17,256,272 17,610,781 18,969,870 20,076,478 Franchise taxes 2,816,111 2,606,248 2,783,279 2,598,074 Interest on investments 1,703,418 414,852 258,556 232,722 Gain (Loss) on sale of capital assets 167,127 21,465 26,741 91,134 Transfers 341,957 596,093 791,830 890,220 Miscellaneous 339,510 428,804 658,902 463,681 Total governmental activities 53,535,556 53,976,603 55,057,761 55,519,156 Business-type activities: Interest on investments 953,739 155,173 123,872 46,212 Gain (Loss) on sale of capital assets - - - - Transfers 2,187 (596,093) (791,830) (890,220) Miscellaneous (339,510) 71,871 42,463 10,811 Total business-type activities 616,416 (369,049) (625,495) (833,197) Total primary government 54,151,972$ 53,607,554$ 54,432,266$ 54,685,959$ Change in Net Position Governmental activities 19,505,913$ 21,200,207$ 16,076,826$ 14,545,751$ Business-type activities 4,084,032 2,158,269 2,654,188 302,248 Total primary government 23,589,945$ 23,358,476$ 18,731,014$ 14,847,999$ Source:Comprehensive Annual Financial Report Fiscal Year TABLE 2 118 2013 2014 2015 2016 2017 2018 12,892,140$ 13,417,904$ 14,602,425$ 12,851,787$ 17,430,052$ 18,255,444$ 18,425,878 18,245,617 18,176,698 19,300,590 21,179,963 23,962,971 8,528,331 8,870,998 9,762,184 11,950,671 8,979,020 10,040,453 8,829,394 8,948,841 9,311,006 10,655,763 11,780,022 12,775,020 6,747,628 5,097,036 2,528,113 3,005,359 3,834,897 3,047,221 55,423,371 54,580,396 54,380,426 57,764,170 63,203,954 68,081,109 22,119,518 25,030,426 26,692,373 24,741,428 24,703,007 29,068,434 22,119,518 25,030,426 26,692,373 24,741,428 24,703,007 29,068,434 77,542,889$ 79,610,822$ 81,072,799$ 82,505,598$ 87,906,961$ 97,149,543$ 2,755,038$ 2,657,883$ 2,309,861$ 2,363,499$ 2,262,247$ 2,895,701$ 3,650,079 3,907,068 4,427,137 4,620,030 3,929,564 2,495,288 291,926 360,529 265,432 223,533 143,935 1,635,163 1,422,552 1,379,658 1,399,822 1,537,185 1,814,319 1,301,793 639,230 443,157 455,575 310,636 328,288 459,006 2,244,965 4,436,346 8,967,466 2,228,863 7,714,765 1,044,834 11,003,790 13,184,641 17,825,293 11,283,746 16,193,118 9,831,785 22,806,432 23,591,438 24,792,619 25,474,777 27,939,504 32,229,361 1,981,354 3,510,936 5,776,438 1,638,842 3,851,057 2,367,774 24,787,786 27,102,374 30,569,057 27,113,619 31,790,561 34,597,135 35,791,576$ 40,287,015$ 48,394,350$ 38,397,365$ 47,983,679$ 44,428,920$ (44,419,581)$ (41,395,755)$ (36,555,133)$ (46,480,424)$ (47,010,836)$ (58,249,324)$ 2,668,268 2,071,948 3,876,684 2,372,191 7,087,554 5,528,701 (41,751,313)$ (39,323,807)$ (32,678,449)$ (44,108,233)$ (39,923,282)$ (52,720,623)$ 31,844,930$ 33,099,007$ 33,176,285$ 34,501,608$ 37,705,796$ 40,380,926$ 22,659,917 26,623,661 30,090,614 29,047,285 29,968,331 30,822,431 2,646,394 2,841,025 3,327,739 2,955,114 2,907,537 2,972,143 30,110 482,607 523,954 379,342 843,082 2,108,804 89,923 99,109 102,900 102,960 71,284 - 915,475 915,116 968,160 (3,767,400) (157,975) 1,211,036 836,068 639,571 1,066,818 136,477 216,881 - 59,022,817 64,700,096 69,256,470 63,355,386 71,554,936 77,495,340 25,227 101,469 112,967 94,837 167,068 320,473 - - 23,100 317,276 350 - (915,475) (915,116) (968,160) 3,767,400 157,975 (1,211,036) 37,527 6,963 4,521 4,095 3,968 4,166 (852,721) (806,684) (827,572) 4,183,608 329,361 (886,397) 58,170,096$ 63,893,412$ 68,428,898$ 67,538,994$ 71,884,297$ 76,608,943$ 14,603,236$ 23,304,341$ 32,701,337$ 16,874,962$ 24,544,100$ 19,246,016$ 1,815,547 1,265,264 3,049,112 6,555,799 7,416,915 4,642,304 16,418,783$ 24,569,605$ 35,750,449$ 23,430,761$ 31,961,015$ 23,888,320$ Fiscal Year CITY OF SOUTHLAKE, TEXAS TABLE 3 FUND BALANCES, GOVERNMENTAL FUNDS (MODIFIED ACCRUAL BASIS OF ACCOUNTING) LAST TEN FISCAL YEARS (UNAUDITED) 119 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 General Fund Nonspendable -$ -$ 36,519$ 37,791$ 292,356$ 46,008$ 27,826$ 86,286$ 57,997$ 86,286$ Committed for: Police expenditures - - 48,543 33,624 22,643 28,647 34,609 - 46,657 - Assigned for: Police expenditures - - 31,979 - - - - - - - Teen Court expenditures - - 17,954 18,314 18,606 18,832 19,077 19,835 19,684 19,835 Senior Center expenditures - - 10,391 10,397 10,629 10,623 10,624 10,743 10,671 10,743 Recycling - - 33,624 22,642 28,629 34,609 40,612 59,163 52,811 59,163 Reforestation expenditures - - 165,253 113,907 69,128 44,098 101,873 111,728 112,300 111,728 Public art - - - - - - - - - 678,829 Facility maintenance - - - - - - - - - 6,708,556 Economic investment - - - - - - - - - 2,237,211 Strategic initiatives - - 4,303,823 6,517,692 5,988,904 7,980,605 7,673,680 5,297,998 6,052,063 5,299,595 Unassigned - - 12,400,379 13,205,240 14,351,627 16,399,991 18,230,317 19,762,633 18,745,735 11,799,021 Reserveda 221,617 164,205 - - - - - - - - Unreserved 15,133,468 17,982,361 - - - - - - - - Total general fund 15,355,085$ 18,146,566$ 17,048,465$ 19,959,607$ 20,782,522$ 24,563,413$ 26,138,618$ 25,348,386$ 25,097,918$ 27,010,967$ All Other Governmental Funds Nonspendable -$ -$ -$ -$ -$ -$ -$ -$ -$ 50,177$ Restricted for: Debt Service - - 11,885,706 12,657,819 12,406,902 12,150,184 11,057,196 9,005,985 8,029,607 7,750,782 Municipal court expenditures - - 738,259 770,071 823,737 860,556 878,490 838,458 868,393 851,104 Reinvestment zone expenditures - - 5,348,592 4,718,865 4,298,510 4,422,565 4,010,195 3,851,783 1,954,971 923,093 Capital projects - - 43,779,957 51,436,227 55,898,283 53,053,840 41,949,791 72,654,652 78,664,646 40,726,831 Committed for: Police expenditures - - 7,409,770 5,969,294 4,951,542 5,532,996 7,813,849 4,986,804 3,645,226 4,743,948 Parks and recreation - - 6,411,344 6,381,618 7,692,049 8,020,248 10,720,498 11,125,967 17,968,695 8,904,671 Oil and gas expenditures - - 53,185 53,211 53,220 53,160 53,168 53,227 53,404 53,719 Storm water expenditures - - 300,963 451,127 451,164 450,824 451,371 4,856,336 453,374 456,388 Library expenditures - - 3,784 3,422 15,844 7,967 8,832 7,132 7,432 8,338 Capital projects - - - - - - - - - 34,285,874 Reserved for: Debt service 9,997,763 10,768,763 - - - - - - - - Police expenditures 1,432,698 4,961,222 - - - - - - - - Parks 9,793,631 8,136,946 - - - - - - - - Capital projects 51,037,490 45,433,316 - - - - - - - - Reinvestment zone expenditures 3,858,132 5,465,595 - - - - - - - - Municipal court expenditures 746,735 767,464 - - - - - - - - Storm water expenditures - 150,000 - - - - - - - - Oil and gas expenditures - 44,240 - - - - - - - - Library expenditures - - - - - - - - - - Unreserved, reported in:- Special revenue funds (106) (11) - - - - - - - - Total all other governmental funds 76,866,343$ 75,727,535$ 75,931,560$ 82,441,654$ 86,591,251$ 84,552,340$ 76,943,390$ 107,380,344$ 111,645,748$ 98,754,925$ Source:Comprehensive Annual Financial Report Notes:aIncludes encumbrances and prepaid items. The City implemented GASB 54 in 2011 Fiscal Year CITY OF SOUTHLAKE, TEXAS TABLE 4 CHANGES IN FUND BALANCES, GOVERNMENTAL FUNDS (MODIFIED ACCRUAL BASIS OF ACCOUNTING) LAST TEN FISCAL YEARS (UNAUDITED) 120 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 REVENUES Ad valorem taxes, penalties and interest 30,879,621$ 32,295,959$ 31,564,305$ 31,137,199$ 31,844,934$ 33,174,810$ 33,294,062$ 34,445,902$ 37,688,372$ 40,484,511$ Franchise taxes 2,816,111 2,606,248 2,783,279 2,598,074 2,646,394 2,841,025 3,327,739 2,955,114 2,907,537 2,972,143 Municipal sales tax and mixed beverage tax 17,256,272 17,610,781 18,969,870 20,076,478 22,659,917 26,623,661 30,090,614 29,047,285 29,968,331 30,822,431 Licenses, permits and fees 2,547,528 2,854,076 2,620,703 3,431,600 3,517,378 3,925,956 4,385,000 4,590,477 4,103,003 2,184,965 Charges for services 1,498,823 1,535,363 1,660,154 1,805,022 1,876,302 1,778,003 1,849,747 1,797,676 1,909,922 1,984,377 Fines and forfeitures 1,654,034 2,116,405 2,347,729 2,307,407 2,473,444 2,374,221 1,943,406 2,011,137 1,969,180 2,040,036 Grants 43,962 409,498 207,533 117,810 205,846 214,152 90,428 128,489 100,899 2,108,228 Capital recovery fees 267,036 295,987 645,022 435,406 794,976 474,172 866,782 1,237,552 308,095 376,004 Contributions 73,574 24,479 8,392 26,693 33,316 130,564 112,409 383,732 859,199 97,644 Interest earned 1,665,060 429,323 280,510 198,601 33,092 457,820 490,551 71,411 118,956 2,044,822 Miscellaneous 540,748 676,599 596,885 521,598 735,539 552,544 672,333 528,093 544,727 481,919 Total revenues 59,242,769 60,854,718 61,684,382 62,655,888 66,821,138 72,546,928 77,123,071 77,196,868 80,478,221 85,597,080 EXPENDITURES General government 7,433,576 7,773,116 8,175,858 7,756,647 8,617,226 8,629,250 8,974,058 9,301,750 9,608,516 11,053,010 Public safety 13,426,040 13,985,817 14,209,607 14,692,116 17,096,436 16,924,285 16,968,939 17,376,310 18,520,588 19,806,464 Public works 6,448,961 4,401,924 4,699,931 4,662,449 5,818,028 6,303,749 5,332,402 5,483,131 19,112,170 23,225,431 Culture and recreation 5,497,492 6,041,352 6,548,072 6,590,252 6,980,508 7,227,628 7,441,366 8,456,526 8,783,323 8,026,149 Intergovernmental 3,220,906 3,158,243 3,349,211 2,972,849 3,572,221 3,834,118 4,478,312 4,623,919 5,348,444 6,045,218 Capital outlay 23,837,990 21,636,017 17,852,536 11,072,944 17,097,340 14,623,962 21,349,324 8,658,067 4,800,627 12,214,328 Debt service Principal retirement 5,717,773 7,560,738 9,104,921 9,901,754 10,660,527 11,930,280 14,489,311 13,394,604 13,258,185 12,220,242 Interest and fiscal charges 5,505,799 5,987,246 5,607,918 5,659,876 4,839,491 4,982,567 3,894,535 3,796,740 4,084,086 3,695,048 Total expenditures 71,088,537 70,544,453 69,548,054 63,308,887 74,681,777 74,455,839 82,928,247 71,091,047 83,515,939 96,285,890 Excess (deficiency) of revenues over (under) expenditures (11,845,768) (9,689,735) (7,863,672) (652,999) (7,860,639) (1,908,911) (5,805,176) 6,105,821 (3,037,718) (10,688,810) OTHER FINANCING SOURCES (USES) Sale of vehicles - - - - - - - - - - Proceeds from sale of property - - 4,849 - 80 1,521 3,271 - - - Proceeds from issuance of general obligation bonds 18,425,000 7,210,000 7,765,000 8,545,000 11,765,000 4,380,000 - - - - Premium (Discount) on issuance of refunding bonds 846,139 - - - - - - - 884,928 - Proceeds from issuance of sales tax revenue bonds - 3,245,000 - - - - - 24,450,000 9,945,000 - Proceeds from issuance of refunding bonds - 19,325,790 - 9,690,000 20,830,000 23,400,000 - - 3,830,000 - Proceeds from capital lease obligation - - - - - - - - - - Premium (Discount) on issuance of general obligation bonds - 1,321,370 407,917 1,737,875 3,753,175 1,301,376 - 2,168,153 - - Payment to refund bond escrow agent - (20,120,845) - (10,788,860) (24,030,579) (25,547,122) - - (4,309,151) - Transfer from other funds 18,853,859 13,510,915 17,004,152 20,292,866 18,730,003 20,498,983 21,925,067 23,584,605 23,332,602 23,056,973 Transfer to other funds (18,514,349) (13,149,822) (18,212,322) (19,402,646) (18,214,528) (20,383,867) (22,156,907) (28,352,005) (24,940,577) (23,345,937) Total other financing sources (uses)19,610,649 11,342,408 6,969,596 10,074,235 12,833,151 3,650,891 (228,569) 21,850,753 8,742,802 (288,964) NET CHANGE IN FUND BALANCES 7,764,881$ 1,652,673$ (894,076)$ 9,421,236$ 4,972,512$ 1,741,980$ (6,033,745)$ 27,956,574$ 5,705,084$ (10,977,774)$ Debt service as a percentage of noncapital expenditures 26.2%28.3%28.4%29.1%25.9%27.7%29.1%27.0%25.5%21.8% Source: Comprehensive Annual Financial Report Fiscal Year CITY OF SOUTHLAKE, TEXAS TABLE 5 ASSESSED VALUE AND ESTIMATED ACTUAL VALUE OF TAXABLE PROPERTY LAST TEN FISCAL YEARS (UNAUDITED) 121 Fiscal Year Real Property Personal Property Less: Tax-Exempt Property Total Taxable Assessed Value Total Direct Tax Rate 2009 5,469,445,428 419,329,000 563,799,909 5,324,974,519 0.46200 2010 5,705,149,612 434,998,249 579,515,687 5,560,632,174 0.46200 2011 5,597,281,840 422,882,032 585,644,425 5,434,519,447 0.46200 2012 5,640,517,144 449,611,387 581,725,777 5,508,402,754 0.46200 2013 5,841,369,884 438,836,614 631,016,684 5,649,189,814 0.46200 2014 5,935,122,961 588,389,191 638,106,472 5,885,405,680 0.46200 2015 6,341,625,915 614,607,452 756,399,951 6,199,833,416 0.46200 2016 6,635,586,201 542,023,423 1,039,819,893 6,137,789,731 0.46200 2017 7,556,442,291 543,192,799 1,364,174,169 6,735,460,921 0.46200 2018 8,254,704,348 602,971,804 1,683,599,421 7,174,076,731 0.46200 Source: Tarrant Appraisal District Estimated Market Value CITY OF SOUTHLAKE, TEXAS TABLE 6 DIRECT AND OVERLAPPING PROPERTY TAX RATES (PER $100 OF ASSESSED VALUE) LAST TEN FISCAL YEARS (UNAUDITED) 122 Fiscal Year Operating/ General Rate General Obligation Debt Service Total Direct Carroll Independent School District Tarrant County Tarrant County Hospital District Tarrant County College District 2009 0.32200 0.14000 0.46200 1.41500 0.264000 0.227897 0.13796 2010 0.33200 0.13000 0.46200 1.41500 0.264000 0.227897 0.13767 2011 0.33200 0.13000 0.46200 1.41500 0.264000 0.227897 0.13764 2012 0.33200 0.13000 0.46200 1.41500 0.264000 0.227897 0.14897 2013 0.34200 0.12000 0.46200 1.40000 0.264000 0.227897 0.14897 2014 0.34200 0.12000 0.46200 1.40000 0.264000 0.227897 0.14950 2015 0.34200 0.12000 0.46200 1.40000 0.264000 0.227897 0.14950 2016 0.36200 0.10000 0.46200 1.39500 0.264000 0.227897 0.14950 2017 0.36200 0.10000 0.46200 1.39500 0.254000 0.227897 0.14473 2018 0.36200 0.10000 0.46200 1.38500 0.244000 0.224429 0.14006 Source: Tarrant Appraisal District City Direct Rates Overlapping Rates CITY OF SOUTHLAKE, TEXAS TABLE 7 PRINCIPAL PROPERTY TAX PAYERS CURRENT YEAR AND FIVE YEARS AGO (UNAUDITED) 123 Taxpayer Taxable Assessed Value Percentage of Total City Taxable Assessed Valuea Taxpayer Taxable Assessed Value Percentage of Total City Taxable Assessed Valueb Town Square Ventures LP 164,558,289$ 2.29%Verizon Wireless Texas LLC 155,843,401$ 2.76% Dallas MTA LP 163,011,845 2.27%Town Square Ventures / IV LP 111,314,841 1.97% SLTS Grand Avenue LP/ II LP 87,873,611 1.22%SLTS Grand Avenue/ II LP 63,940,854 1.13% Wyndham Properties LTD/ II Ltd 63,342,152 0.88%Wyndham Properties LTD 52,250,411 0.92% Carroll/1709 LTD 58,818,452 0.82%Sabre Headquarters LLC 45,538,856 0.81% Excel Southlake LP 51,505,178 0.72%Carroll/1709 Ltd 36,550,000 0.65% Sabre Headquarters LLC 45,417,356 0.63%H and C Southlake Hilton LLC 28,876,161 0.51% GAHC3 Southlake TX Hospital LLC 44,000,000 0.61%Inland Western Southlake Corners Ltd 23,112,200 0.41% H and C Southlake Hilton LLC 37,188,799 0.52%Cambridge 114 Inc.20,124,941 0.36% Inland Western Southlake Corners 29,866,000 0.42%Costco Wholesale Corp 20,102,967 0.36% Total 745,581,682$ 10.39%Total 557,654,632$ 9.87% Total Assessed Valuation 7,174,076,731 100.00%Total Assessed Valuation 5,649,189,814 100.00% Source: Tarrant Appraisal District Notes: aTaxpayers are assessed on January 1, 2017 (2017 tax year) for the 2018 fiscal year. bTaxpayers are assessed on January 1, 2012 (2012 tax year) for the 2013 fiscal year. 2018 2013 CITY OF SOUTHLAKE, TEXAS TABLE 8 AD VALOREM TAX LEVIES AND COLLECTIONS LAST TEN FISCAL YEARS (UNAUDITED) 124 Fiscal Year Taxes Levied for the Fiscal Year Amount Percentage of levy Collections in Subsequent Years Amount Percentage of levy 2009 24,474,501 24,239,946 99.04 107,676 24,347,622 99.48 2010 25,833,584 25,610,983 99.14 123,772 25,734,755 99.62 2011 25,497,367 25,297,255 99.22 168,912 25,466,166 99.88 2012 25,745,889 25,552,394 99.25 191,156 25,743,550 99.99 2013 25,896,127 25,762,457 99.48 413,995 26,176,451 101.08 2014 26,945,723 26,865,897 99.70 424,745 27,290,642 101.28 2015 27,652,417 27,556,790 99.65 102,506 27,659,296 100.02 2016 28,811,728 28,684,131 99.56 86,553 28,770,684 99.86 2017 31,204,663 31,054,006 99.52 77,029 31,131,035 99.76 2018 33,103,373 32,975,600 99.61 83,555 33,059,155 99.87 Source: Tarrant County Tax Office Total Collections Collected within the Fiscal Year of the Levy CITY OF SOUTHLAKE, TEXAS TABLE 9 RATIO OF OUTSTANDING DEBT BY TYPE LAST TEN FISCAL YEARS (UNAUDITED) 125 Fiscal Year General Obligation Bonds Certificates of Obligation Revenue Bonds 2009 25,468,753 79,315,754 21,655,000 2010 61,889,954 42,928,760 23,720,000 2011 57,467,696 44,043,985 25,690,000 2012 55,747,995 38,971,935 30,360,045 2013 49,975,889 44,402,760 28,910,000 2014 45,355,674 41,553,855 27,150,000 2015 40,847,363 33,182,855 25,540,000 2016 40,733,282 29,511,905 48,330,000 2017 39,022,933 18,706,525 57,207,643 2018 30,112,187 11,050,000 53,605,000 Note:Details regarding the City's outstanding debt can be found in the notes to the financial statements. aSee Table 13 for personal income and population data. Governmental Activities CITY OF SOUTHLAKE, TEXAS TABLE 9 (CONT.) RATIO OF OUTSTANDING DEBT BY TYPE LAST TEN FISCAL YEARS (UNAUDITED) 126 General Obligation Bonds Certificates of Obligation Revenue Bonds Contract Revenue Obligations Total Primary Government Percentage of Personal Incomea Per Capitaa 24,644,419 23,516,072 - 3,553,680 178,153,678 12.32 6,685 29,240,686 20,755,540 - 2,665,900 181,200,840 12.40 6,818 26,907,806 23,420,800 - 2,060,000 179,590,287 12.29 6,752 24,692,508 23,126,850 1,790,000 1,755,000 176,444,333 11.44 6,591 23,163,624 24,660,985 - 1,435,000 172,548,258 9.81 6,372 18,923,955 28,009,860 - 1,100,000 162,093,344 10.93 5,910 15,422,270 30,035,860 - 750,000 145,778,348 9.03 5,238 12,974,232 29,143,202 - 385,000 161,077,621 9.30 5,694 13,846,422 28,963,708 - - 157,747,231 8.08 5,358 9,187,813 30,550,000 - - 134,505,000 6.14 4,547 Business-Type Activities CITY OF SOUTHLAKE, TEXAS TABLE 10 RATIO OF GENERAL BONDED DEBT OUTSTANDING LAST TEN FISCAL YEARS (UNAUDITED) 127 Fiscal Year General Obligation Bonds Certificates of Obligation Total Less: Available Debt Service Funds Net General Bonded Debt Percentage of Actual Taxable Value of Propertya Per Capitab 2009 50,113,172 102,831,826 152,944,998 9,997,763 142,947,235 2.68%5,364 2010 91,130,640 63,684,300 154,814,940 10,768,763 144,046,177 2.59%5,420 2011 84,375,502 67,464,785 151,840,287 11,885,706 139,954,581 2.58%5,261 2012 80,440,503 62,098,785 142,539,288 12,657,819 129,881,469 2.36%4,852 2013 73,139,513 69,063,745 142,203,258 12,406,902 129,796,356 2.30%4,793 2014 64,279,629 69,563,715 133,843,344 12,150,184 121,693,160 2.07%4,437 2015 56,269,633 63,218,715 119,488,348 11,057,196 108,431,152 1.75%3,896 2016 53,707,514 58,655,107 112,362,621 9,005,985 103,356,636 1.68%3,653 2017 52,869,355 47,670,233 100,539,588 7,444,512 93,095,076 1.38%3,162 2018 39,300,000 41,600,000 80,900,000 7,345,622 73,554,378 1.03%2,487 Note:Details regarding the city's outstanding debt can be found in the notes to the financial statements. aSee Table 5 for property value data. bSee Table 13 for population data. General Bonded Debt Outstanding CITY OF SOUTHLAKE, TEXAS TABLE 11 DIRECT AND OVERLAPPING GOVERNMENTAL ACTIVITIES DEBT AS OF SEPTEMBER 30, 2017 (UNAUDITED) 128 Governmental Unit Gross Bonded Debt Percentage of Debt Applicable to Area Share of Overlapping Debt Debt repaid with property taxes Carroll ISD 254,924,999$ 93.14%237,437,144$ Denton County 612,630,000 0.15%918,945 Grapevine-Colleyville ISD 415,917,406 1.49%6,197,169 Keller ISD 680,508,707 2.72%18,509,837 Northwest ISD 870,670,379 0.61%5,311,089 Tarrant County 294,500,000 4.14%12,192,300 Tarrant County Hospital District 19,300,000 4.14%799,020 Subtotal, overlapping debt 281,365,506 City of Southlake (direct debt)89,985,000$ 100.00%89,985,000 Total direct and overlapping debt 371,350,506$ Source: Municipal Advisory Council of Texas. CITY OF SOUTHLAKE, TEXAS TABLE 12 PLEDGED-REVENUE COVERAGE LAST TEN FISCAL YEARS (UNAUDITED) 129 Fiscal Year Total Revenuesa Less: Operating Expensesb Net Available Revenue Annual Requirementc Times Coverage 2009 22,545,251 11,637,103 10,908,148 6,403,274 1.70 2010 21,702,800 12,153,476 9,549,324 5,832,842 1.64 2011 24,170,666 14,333,095 9,837,571 5,825,610 1.69 2012 23,723,156 15,869,436 7,853,720 4,394,749 1.79 2013 24,852,430 14,846,831 10,005,599 4,894,720 2.04 2014 24,702,585 17,270,262 7,432,323 5,120,685 1.45 2015 26,112,528 18,238,461 7,874,067 5,335,396 1.48 2016 26,987,100 19,424,610 7,562,490 5,466,814 1.38 2017 28,110,890 20,039,979 8,070,911 6,090,382 1.33 2018 32,554,350 24,273,419 8,280,931 5,181,837 1.60 Note:aIncludes operating and non-operating revenues. bIncludes operating expenses minus depreciation plus transfers out. cIncludes Principal and Interest. Water and Sewer System Revenue Bonds CITY OF SOUTHLAKE, TEXAS TABLE 13 DEMOGRAPHIC AND ECONOMIC STATISTICS LAST TEN CALENDAR YEARS (UNAUDITED) 130 Year Estimated Populationa Personal Income Per Capita Personal Income School Enrollmentc Unemployment Rated 2009 26,650 1,446,339,035 54,272 7,852 6.6% 2010 26,575 1,461,343,140 54,989 7,745 6.7% 2011 26,600 1,461,336,252 54,937 7,710 6.8% 2012 26,770 1,542,009,658 57,602 7,692 5.3% 2013 27,080 1,758,105,132 64,923 7,665 5.6% 2014 27,425 1,483,496,607 54,093 7,864 4.4% 2015 27,833 1,613,950,961 57,987 7,884 3.5% 2016 28,290 1,732,874,762 61,254 8,177 3.5% 2017 29,440 1,951,900,038 66,301 8,190 3.0% 2018 29,580 2,189,030,472 74,004 8,341 3.2% Sources:aCity of Southlake Economic Development bCarroll Independent School District cTexas Workforce Commission CITY OF SOUTHLAKE, TEXAS TABLE 14 PRINCIPAL EMPLOYERS CURRENT YEAR AND NINE YEARS AGO (UNAUDITED) 131 Employera Employeesa Percentage of Total City Employment Employera Employeesa Percentage of Total City Employment Sabre Holdings 2,134 14.82%Sabre Holdings 2,784 24.12% TD Ameritrade 1,900 13.19%Carroll ISD 1,108 9.60% Carroll ISD 1,140 7.92%Verizon Wireless 569 4.93% Keller Williams 700 4.86%Tri Dal Ltd.450 3.90% Gateway Church 613 4.26%City of Southlake 307 2.66% Verizon Wireless 585 4.06%Hilton Dallas/Town Square 250 2.17% City of Southlake 539 3.74%Cheesecake Factory 200 1.73% Costco 180 1.56% Total 7,611 52.85%Total 5,848 50.68% Total Southlake Daytime Employeesb 14,401 Total Southlake Daytime Employeesb 11,540 Source: aCity of Southlake Economic Development bTexas Workforce Commission 2018 2009 CITY OF SOUTHLAKE, TEXAS TABLE 15 FULL-TIME EQUIVALENT CITY GOVERNMENT EMPLOYEES BY FUNCTION/PROGRAM LAST TEN FISCAL YEARS (UNAUDITED) 132 Function/Program 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 General Government and Administration 48.75 48.75 50.75 45.75 49.00 55.75 52.00 59.00 57.00 60.00 Public Safety 113.50 113.50 113.50 119.50 138.45 140.45 140.95 140.95 139.95 141.45 Public Works 25.00 24.50 24.50 29.70 29.95 27.25 33.25 28.25 34.50 35.50 Culture and Recreational 61.50 61.50 61.50 62.15 62.15 62.15 65.65 71.40 72.03 114.78 Water and Sewer 30.50 29.50 29.50 29.30 29.30 29.50 29.50 30.25 31.00 31.00 Community Development 24.00 23.00 21.00 21.00 21.00 23.00 23.00 23.00 23.00 23.00 Economic Development 4.00 3.00 3.00 3.50 3.50 4.00 4.00 4.00 1.00 1.00 Total 307.25 303.75 303.75 310.90 333.35 342.10 348.35 356.85 358.48 406.73 Source:City Budget Fiscal Year CITY OF SOUTHLAKE, TEXAS TABLE 16 OPERATING INDICATORS BY FUNCTION/PROGRAM LAST TEN FISCAL YEARS (UNAUDITED) 133 Function/Program 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Public Safety Police Number of Employees 56 56 54 54 53 68 68 68 67 68 Number of Violations (Citations)15,091 16,213 17,878 14,062 21,497 32,641 30,451 14,858 13,840 13,492 Number of Arrests 927 1,045 886 1,420 1,079 1,284 1,095 513 1,148 1,027 Number of Alarm callsa 3,666 3,208 3,922 4,267 3,889 3,087 3,497 3,673 3,284 3,434 Fire Number of Employees 51 50 50 56 68 72 72 73 73 73 Number of Fire runs 844 896 1,058 990 1,215 1,245 1,220 760 807 811 Number of EMS runs 913 960 1,246 985 1,356 1,492 1,448 1,745 1,808 1,802 Number of Hazardous materials runs 71 84 80 44 80 56 43 95 105 109 Number of Alarm calls 401 450 460 392 448 461 501 608 652 651 Development Services Streets maintained (miles)225 226 228 228 245 268 204 209 199 211 Streets crack sealed (blocks)64 78 92 117 121 94 N/A N/A 75 391 Roadway signage replaced/installed 312 258 292 255 216 188 N/A 568 N/A 21 Asphalt repairs (tons)683 885 1,045 1,833 2,414 2,802 4,849 4,667 6,671 5,191 Concrete repairs to roads/sidewalks (cu. yds.)551 366 344 288 294 240 2,421 308 1,462 1,188 Right-of-way maintenance (miles)450 450 456 456 484 484 N/A N/A 5 417 Building Permits Issuedb 2,546 2,772 2,709 2,727 2,917 3,051 2,979 2,703 3,163 3,453 Planning & Zoning cases heard 97 78 65 85 121 143 136 190 100 110 Cultural and Recreational Parks and Recreation Park maintain & operate per acre 800 800 800 800 800 1,205 1,200 1,106 1,106 1,106 Participants in Leisure Service Programs 12,471 14,397 13,579 12,259 13,170 6,227 6,200 8,687 8,735 9,844 Participants in Special Events 39,500 40,200 45,150 37,546 46,500 47,000 60,000 66,000 72,625 71,400 Participants in Senior Center Programs 8,201 8,255 8,255 10,401 10,609 4,935 4,900 8,868 13,449 13,552 Library Volumes in Collection 54,950 55,950 52,350 51,790 50,250 46,781 44,971 45,416 44,899 43,947 Patrons 18,559 19,446 18,889 20,902 21,622 16,662 16,838 13,461 13,764 14,327 Water and Sewer Number of Water Consumers 9,207 9,379 9,466 9,543 9,765 9,825 10,183 10,581 10,941 11,009 Number of Sewer accounts 7,075 7,296 7,431 7,522 7,918 7,770 8,167 8,470 8,889 9,111 Line inspections (feet)84,000 240,000 190,000 190,000 190,000 217,000 1,086,624 789,266 687,246 574,136 Water meters installed/repaired/replaced 1,158 801 1,158 1,047 565 745 1,284 10,566 135 191 Transmitters installed/replaced 115 235 77 115 140 610 N/A 10,566 489 124 Gallons purchased from Ft. Worth (millions)3,738,063 4,191,077 4,456,921 3,573,648 3,472,212 3,220,075 3,069,971 2,904,048 3,206,363 3,156,019 Gallons distributed (millions)3,698,634 3,850,792 4,112,056 3,241,014 3,125,358 2,964,457 3,069,971 2,935,818 2,900,926 3,229,438 Maximum Storage Capacity (million of gallons)20.0 20.0 20.0 20.0 20.0 20.0 20.0 20.0 20.0 20.0 Source:City Departments Notes:N/A Data not available aPolice and Fire alarm calls combined through 2008. bIncludes residential, commercial, and miscellaneous (e.g. pools, fences) permits. Fiscal Year CITY OF SOUTHLAKE, TEXAS TABLE 17 CAPITAL ASSET STATISTICS BY FUNCTION/PROGRAM LAST TEN FISCAL YEARS (UNAUDITED) 134 Function/Program 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Public Safety Police Stations 2 2 2 2 2 3 3 3 3 3 Police Patrol Units 26 24 24 24 23 26 25 25 25 25 Fire Stations 2 2 2 2 2 3 3 3 3 3 Police Motorcycle Units 6 6 6 6 5 5 5 5 5 5 Cultural and Recreational Parks 18 18 18 18 18 18 18 18 18 18 Playgrounds 4 4 4 3 3 5 7 6 6 6 Dog Park 1 1 1 1 1 1 1 1 1 1 Senior Center 1 1 1 1 1 1 1 1 1 1 Tennis Courts 15 21 21 21 21 21 21 21 21 21 In-line hockey rink 1 1 1 1 1 1 1 1 1 1 Ballfields 13 21 21 21 21 44 32 27 29 29 Soccer Fields 17 17 17 17 17 17 13 12 21 21 Nature Center 1 1 1 1 1 1 1 1 1 1 Water and Sewer Water Mains (miles)236 241 255 258 206 294 285 290 284 298 Lift Stations 15 15 15 15 15 14 13 13 14 15 Sanitary Sewer Mains (miles)184 188 193 195 206 209 206 209 212 216 Drainage, ditches/creeks (miles)85 85 85 89 91 91 36 36 48 52 Fire hydrants 2,171 2,227 2,374 2,902 2,395 2,486 2,594 2,643 2723 2,774 Water valves 5,509 5,680 6,690 7,614 6,388 6,686 N/A 7,154 7360 7,553 Source:City Departments N/A - Data not available Fiscal Year Austin | Conroe | Dallas | Fort Worth | Houston Los Angeles | Midland | New York City | San Antonio Weaver and Tidwell, L.L.P. 2300 North Field Street, Suite 1000 | Dallas, Texas 75201 Main: 972.490.1970 | Fax: 972.702.8321 CPAs AND ADVISORS | WEAVER.COM To the Members of the City Council and City Manager City of Southlake Southlake, Texas We have audited, in accordance with the auditing standards generally accepted in the United States of America and the standards applicable to financial audits contain ed in Government Auditing Standards issued by the Comptroller General of the United States, the financial statements of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of City of Southlake, Texas, as of and for the year ended September 30, 2018, and the related notes to the financial statements, which collectively compr ise City of Southlake’s basic financial statements, and have issued our report thereon dated March 11, 2019. Internal Control over Financial Reporting In planning and performing our audit of the financial s tatements, we considered City of Southlake’s internal control over financial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of City of Southlake’s internal control. Accordingly, we do not express an opinion on the ef fectiveness of City of Southlake’s internal control. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the entity’s financial statements will not be prevented, or detected and corrected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or, significant deficiencies. Given these limitations, during our audit we did not identify any deficiencies in internal control 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 Southlake’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. The Members of the City Council and City Manager City of Southlake 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. WEAVER AND TIDWELL, L.L.P. Dallas, Texas March 11, 2019