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CAFR FY 2003-04 I I I CITY OF SCHERTZ, TEXAS I COMPREHENSIVE ANNUAL . FINANCIAL REPORT II I I I I I I I I I I I FISCAL YEAR ENDED I SEPTEMBER 30, 2004 I CITY OF SCHERTZ, TEXAS COMPREHENSIVE ANNUAL FINANCIAL REPORT FISCAL YEAR ENDED SEPTEMBER 30, 2004 OFFICIALS ISSUING REPORT John E. Bierschwale Interim City Manager Juan F. Santoya Director of Finance (This Page Intentionally Left Blank) II CONTENTS PAGE NUMBER INTRODUCTORY SECTION Letter of Transmittal City Officials Organizational Chart 2003 Certificate of Achievement FINANCIAL SECTION Independent Auditor's Report Management Discussion and Analysis Basic Financial Statements Statement of Net Assets Statement of Activities Balance Sheet - Governmental Funds Reconciliation of Balance Sheet - Governmental Funds to Statement of Net Assets Statement of Revenues, Expenditures, and Changes in Fund Balances - Governmental Funds Reconciliation of Change in Fund Balances - Governmental Funds to Change in Net Assets - Governmental Activities Statement of Net Assets - Proprietary Funds Statement of Revenues, Expenses, and Changes In Fund Net Assets - Proprietary Funds Statement of Cash Flows - Proprietary Funds Notes to Basic Financial Statements Required Supplementary Information Schedule of Revenues, Expenditures, and Change in Fund Balances - Budget and Actual - General Fund Notes to Required Supplementary Information ix xiii xiv xv 3 7 16 19 20 21 22 23 24 26 27 29 48 50 III kQNIfNI~ PAGE TABLE NUMBER Combining And Individual Fund Statements And Schedules Nonmajor Governmental Funds (Special Revenue Funds) Combining Balance Sheet 54 Combining Statement of Revenues, Expenditures and Changes in Fund Balances 56 Park Special Revenue Fund - Schedule of Revenues, Expenditures, and Changes in Fund Balance - Budget to Actual 58 Recycling Special Revenue Fund - Schedule of Revenues, Expenditures, and Changes in Fund Balance - Budget to Actual 59 Hotel Occupancy Tax Special Revenue Fund - Schedule of Revenues, Expenditures, and Changes in Fund Balance - Budget to Actual 60 Debt Service Fund - Schedule of Revenues, Expenditures and Changes in Fund Balance - Budget to Actual 61 Discretely Presented Component Units Combining Balance Sheet 64 Combining Schedule of Revenues, Expenditures, and Changes in Fund Balances 65 STATISTICAL SECTION Government-Wide Expenses by Function, Last Two Fiscal Years 1 68 Government-Wide Revenues, Last Two Fiscal Years 2 69 General Governmental Expenditures by Function, Last Ten Fiscal Years 3 70 General Government Revenues by Source, Last Ten Fiscal Years 4 71 Property Tax Levies and Collections, Last Ten Fiscal Years 5 73 Assessed and Taxable Value of Property, Last Ten Fiscal Years 6 74 IV kQNI.ENI~ Property Tax Rates - All Direct and Overlapping Governments, Last Ten Fiscal Years Ratio of Net General Obligation Bonded Debt to Assessed Value and Net General Bonded Debt Per Capita Computation of Direct and Overlapping Debt Legal Debt Margin Ratio of Annual Debt Service Expenditures for General Obligation Bonded Debt to Total General Expenditures - Last Ten Fiscal Years Revenue Bond Coverage - Utility System Bonds, Last Ten Fiscal Years Waterworks and Sewer System Fund Revenue Bond Requirements Demographic Statistics - Last Ten Fiscal Years Property Value and New Construction - Last Ten Fiscal Years Principal Taxpayers Miscellaneous Statistics SINGLE AUDIT SECTION Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards Report on Compliance with Requirements Applicable to each Major Program and Internal Control Over Compliance in Accordance with OMB Circular A-133 Schedule of Expenditures of Federal Awards Notes to Schedule of Expenditures of Federal Awards Schedule of Findings and Questioned Costs TABLE 10 1 1 12 13 14 15 16 17 PAGE NUMBER 7 75 8 76 9 77 78 79 81 82 83 85 86 87 91 95 98 99 100 v (This Page Intentionally Left Blank) vi INTRODUCTORY SECTION VII (This Page Intentionally Left Blank) VIII 1400 SCHERTZ PARKWAY P.O. DRAWER I SCHERTZ, TEXAS 78154-0890 AC (210) 658-7477 FAX (210) 659-3204 -w March 29,2005 To the Honorable Mayor, City Council, and the Citizens of City of Schertz: State law requires that local governments publish a complete set of financial statements presented in conformity with generally accepted accounting principles in the United States of America (U.S. GAAP) and audited in accordance with generally accepted auditing standards in the United States of America by a firm of licensed certified public accountants. Pursuant to that requirement, we hereby issue the comprehensive annual financial report of the City of Schertz for the fiscal year ended September 30,2004. This report consists of management's representations concerning the finances of the City of Schertz. Consequently, management assumes full responsibility for the completeness and reliability of all the information presented in this report. To provide a reasonable basis for making these representations, management of the City of Schertz has established a comprehensive internal control framework that is designed both to protect the government's assets from loss, theft, or misuse and to compile sufficient reliable information for the preparation of the City of Schertz's financial statements in conformity with U.S. GAAP. Because the cost of internal controls should not outweigh their benefits, the City of Schertz comprehensive framework of internal controls has been designed to provide reasonable rather than absolute assurance that the financial statements will be free from material misstatement. As management, vle assert that, to the best of our knowledge and belief, this financial report is complete and reliable in all material respects. The City of Schertz's financial statements have been audited by Thompson, Williams, Biediger, Kastor and Young, L.C., a firm of licensed certified public accountants. The goal of the independent audit was to provide reasonable assurance that the financial statements of the City of Schertz for the fiscal year ended September 30, 2004, are free of material misstatement. The independent audit involved examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements; assessing the accounting principles used and significant estimates made by management; and evaluating the overall financial statement presentation. The independent auditor concluded, based upon the audit, that there was a reasonable basis for rendering an unqualified opinion that the City of Schertz's financial statements for the fiscal year ended September 30, 2004, are fairly presented in conformity with U.S. GAAP. The independent auditor's report is presented as the first component of the financial section of this report. The independent audit of the financial statements of the City of Schertz was part of a broader, federally mandated "Single Audit" designed to meet the special needs of federal grantor IX agencies. The standards governing Single Audit engagements require the independent auditor to report not only on the fair presentation of the financial statements, but also on the audited government's internal controls and compliance with legal requirements, with special emphasis on internal controls and legal requirements involving the administration of federal awards. U.S. GAAP requires that management provide a narrative introduction, overview, and analysis to accompany the basic financial statements in the form of Management's Discussion and Analysis (MD&A). This letter of transmittal is designed to complement MD&A and should be read in conjunction with it. The City of Schertz's MD&A can be found immediately following the report of the independent auditors. Profile of the Government The City of Schertz, incorporated in 1958, is located in the central part of Texas, which is considered to be a top growth area in the state, and one of the top growth areas in the country. The City of Schertz currently occupies a land area of 28 square miles and serves a population of 26,463. The City of Schertz is empowered to levy a property tax on both real and personal properties located within its boundaries. It also is empowered by state statue to extend its corporate limits by annexation, which occurs periodically when deemed appropriate by the governing body. The City of Schertz has operated under the council-manager form of government since November 30, 1972. Policymaking and legislative authority are vested in a city council consisting of the mayor and 5 other members. The city council is responsible, for establishing public policy on City matters by the passage of appropriate ordinances and resolutions. The city manager is responsible for overseeing the day-to-day operations of the government, implementing policy established by the city council, and for appointing the heads of the various departments. The council is elected on a non-partisan basis. Council members serve two-year staggered terms, with two council members elected every two years. The mayor is elected to serve a two-year term. The mayor and all five council members are elected at large. The City of Schertz provides a full range of services including police and fire protection, the construction and maintenance of streets, recreational activities, cultural events, water and sewer services, and EMS services. The annual budget serves as the foundation for the City of Schertz's financial planning and control. All departments of the City of Schertz are required to submit requests for appropriation to the city manager in June of each year. The city manager uses these requests as the starting point for developing a proposed budget. The city manager then presents this proposed budget to the council for review prior to August 1. The council then holds public hearings on the proposed budget and to adopt a final budget by no later than September 30, the close of the City of Schertz's fiscal year. The appropriated budget is prepared by department. e.g., police. Department heads may make transfers of appropriations within a department. Transfers of appropriations between departments, however, require a special approval of the city council. Budget to actual comparisons are provided in this report for each individual governmental fund x for which an appropriated annual budget has been adopted. For the general fund, this comparison is presented on pages 48-50 as part of the required supplementary information. Factors Affecting Financial Condition The information presented in the financial statements is perhaps best understood when it is considered from the broader perspective of the specific environment within which the City of Schertz operates. Local economy. The City of Schertz currently enjoys a favorable economic environment and local indicators point to continued stability. The region has a growing manufacturing and industrial base that adds to the reiative stability of the unemployment rate. Major industries with headquarters or divisions located within the government's boundaries or in close proximity include Verizon, Sprint, Nabisco, Block Distributing, and WalMart. The region has a labor force of approximately 750,000 which is anticipated to grow at a rate of 2.3 percent each year for the next several years. Meanwhile, there continues to be a trend toward steady residential growth. Long-term financial planning. The city council plans to explore the possibility of adding new office and recreational facilities. Preliminary estimates point to a project timetable of one to three years with a projected total cost to the City of Schertz of $7,600,000. Cash management policies and practices. Cash temporarily idle during the year was invested through state local investment pools. These funds are essentially liquid. The average yield on investments is about 1 percent (1 %). Active involvement in investment vehicles was limited due to extremely low interest rates. The rate of return was simply not sufficient to justify the management expense. Risk Management. During 2004, the City continued a risk management program for worker's compensation. Various control techniques, including employee accident prevention training, have been implemented during the year to minimize accident-related losses. Third-party coverage is currently maintained for individual worker's compensation claims and all other potential losses. Additional information on the City of Schertz's risk management activity can be found in the notes to the financial statements. Pension benefits. The City of Schertz sponsors an agent multiple-employer defined benefit pension plan for its employees. Each year, an independent actuary engaged by the pension plan calculates the amount of the annual contribution the City of Schertz must make to the pension plan to ensure that the plan will be able to fully meet its obligations to retired employees on a timely basis. As a matter of policy, the City of Schertz fully funds each year's annual required contribution to the pension plan as determined by the actuary. The remaining unfunded amount is being systematically funded as part of the annual required contribution calculated by the actuary. XI A wards and Acknowledgements The Government Finance Officers Association of the United States and Canada (GFOA) awarded a Certificate of Achievement for Excellence in Financial Reporting to the City of Schertz for its comprehensive annual financial report for the fiscal year ended September 30, 2003. This was the 16th consecutive year that the City has received this prestigious award. In order to be awarded a Certificate of Achievement, the City must publish an easily readable and efficiently organized comprehensive annual financial report. This report must satisfy both generally accepted accounting principles in the United States of America and applicable legal requirements. A Certificate of Achievement is valid for a period of one year only. We believe our current comprehensive annual financial report continues to meet the Certificate of Achievement Program's requirements and we are submitting it to the GFOA to determine its eligibility for another certificate. The preparation of this report would not have been possible without the efficient and dedicated services of the entire staff of the finance department. We would like to express our appreciation to all members of the department who assisted and contributed to the preparation of this report. In addition, without the assistance of each and every department head on staff, we would have none of the successes we've enjoyed. Credit also must be given to the mayor and the city council for their unfailing support for the city manager and staff. Respectfully submitted, John E. Bierschwale Interim City Manager Juan F. Santoya Finance Director XII CITY OF SCHERTZ, CITY OFFICIALS MAYOR HONORABLE HAL BALDWIN CITY COUNCIL INTERIM CITY MANAGER DIRECTOR OF FINANCE INDEPENDENT AUDITORS Thompson, Williams, Biediger, Kastor & Young, L.C. San Antonio, Texas REGINNA AGEE MAYOR PRO-TEM KEN GREENWALD CARL DOUGLAS STEVE SIMONSON TONY WILENCHIK JOHN E. BIERSCHWALE JUAN F. SAN TOY A XIII ~ o o N - ~ o - \j.., o '" ~ ;;.. ... ~ ...... ~ , """ U ~ rJJ ;;.. ...... . ... U r / I - ~ ~ eJJ ~"'Cl .... ::l .~ ~ = ...... ::l ... ~ 5 u r -, ;;........ ...... = .... ~ :: s ... f""\ 8 0- 8~ o > l U ~ ~ rJl L U > - rJJ ...... u ~ ~ - ~ ~ Q I ~ ~ u . ... - 0 l~ ..-J - - ~ ...... ... ~ .... ~ ~Q rJJ ...... I ~ fr ~Q L I 1 - .c . ..... U :..: eJl ~ ..z V'l V'l < l_ -" .., 1 I = > o ~ ~Q f-- - - ~ 0 S .b .... == = 0 <u L J l ~ - ~ ~...... rJl 'C ... ... .... ::l ~ == 0 ~ ~UO l I I - - rJl ~ ~ ;... 0 ~ 0 ~ ~ L1~T I 1 -' ;;.. ... ~ ... ..c . ... ~ c .... rJl = ~ ::l U 8 'S: S ~ o rJJ - U ~ 1- rJl - ~ r.rJ ... ~ ~ 0 > = ~Q. rJJ . ... rJl ~ - ~ U Q ~ -= . ... ... - U ..c ~ == ;... ::l ~ ::l ~ V ~ L. I ---.J I "I r--- o ~ ~ L I I -1 ~ U ...... == ~ - ~ ~ == Q . ... ~ I ~ - 0:: - == - --' 1 ~ rJl U _ ::l ~ ~O I -' - - L-- ~ ..c = ~ ~~ I ~ ::r:: CJ ....:l 4; Z o H 8 4; N H ~ ~ Certificate of Achievement for Excellence in Financial Reporting Presented to City of Schertz, Texas For its Comprehensive Annual Financial Report for the Fiscal Year Ended September 30, 2003 A Certificate of Achievement for Excellence in Financial Reporting is presented by the Government Finance Officers Association ofthe United States and Canada to government nnits and public employee retirement systems whose comprehensive annual financial reports (CAFRs) achieve the highest standards in government accounting and fmancial reporting. -?l~x~ President ~~~ Executive Director xv (This Page Intentionally Left Blank) XVI FINANCIAL SECTION (This Page Intentionally Left Blank) 2 s NORTH TOWER 800 N.w WOP 410, SUITE 300N SAN ANTONIO, TEXAS 78216-5633 210/341-2581 FAX 210/341-2588 cpas@twblwcom Thompson, Williams, Biediger, Kastor '& Yoopg, LC CERTIfIED PUBLIC ACCOUNTANTS MEMBERS AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTA"ITS Independent Auditor's Report To the Honorable Mayor and Members of the City Council City of Schertz, Texas We have audited the accompanying financial statements of the governmental actiVities, the business-type activities, the aggregate discretely presented component units, each major fund, and the aggregate remaining fund information of the City of Schertz, Texas, as of and for the year ended September 30, 2004, which collectively comprise the City's basic financial statements, as listed in the table of contents. These financial statements are the responsibility of the City of Schertz, Texas, management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America 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 includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We beliElve that our audit provides a reasonable basis for our opinion. 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, the aggregate discretely presented component units, each major fund, and the aggregate remaining fund information of the City of Schertz, Texas, as of September 30, 2004, and the respective changes in financial position and cash flows, where applicable, thereof, for the year then ended in conformity with accounting principles generally accepted in the United States of America. In accordance with Government Auditing Standards, we have also issued our report dated February 4, 2005 on our consideration of City of Schertz, Texas', 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 the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be considered in assessing the results of our audit. JAMES L. BIEDIGER JR, CPA 1 C TED KASTOR CPA 1 CHARUE E. YOUNG, JR.. CPA H LEE SCHWARTZMAN. CRA 1 f GLENN CRAVEY. CPA 1 FRED J. TIMMONS, CPA 1 JOHN W GREEN, CRA PAUL E WIlliAMS, CPA (RETIRED) 1 R LARRY THOMPSON, eRA (RETIRED) 3 (This Page Intentionally Left Blank) 4 The management's discussion and analysis and budgetary comparison information on pages 7 through 14 and 48 through 50, are not a required part of the basic financial statements but are supplementary information required by accounting principles generally accepted in the United States of America. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation of the required supplementary information. However, we did not audit the information and express no opinion on it. Our audit was conducted for the purpose of forming an opinion on the financial statements that collectively comprise the City of Schertz, Texas, basic financial statements. The introductory section, combining and individual nonmajor fund financial statements, other schedules, and statistical tables are presented for purposes of additional analysis and are not a required part of the basic financial statements. The accompanying schedule of expenditures of federal awards is presented for purposes of additional analysis as required by U. S. Office of Management and Budget Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations, and is also not a required part of the basic financial statements of the City of Schertz, Texas. The combining and individual nonmajor fund financial statements, other schedules, and the schedule of expenditures of federal awards have been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, are fairly stated, in all material respects, in relation to the basic financial statements taken as a whole. The introductory section and statistical tables have not been subjected to the auditing procedures applied in the audit of the basic financial statements, and accordingly, we express no opinion on them. ~>!JJihuru~~<tMa'.c-. Certified Public Accountants San Antonio, Texas February 4, 2005 5 i'l U hi! .Dl{ J"_!;:. h/\~'d'I,_ll, '(\' \1,'\( 1 ! ( (This Page Intentionally Left Blank) 6 MANAGEMENT'S DISCUSSION AND ANALYSIS As management of the City of Schertz, we offer readers of the City's financial statements this narrative overview and analysis of the financial activities of the City of Schertz for the fiscal year ended September 30, 2004. We encourage readers to consider the information presented here in conjunction with additional information that we have furnished in our letter of transmittal, which can be found in the introductory section of this report. Financial Highlights The assets of the City of Schertz exceeded its liabilities at the close of the most recent fiscal year by $52,152,141 (net assets). Of this amount, $4,973,756 (unrestricted net assets) may be used to meet the City's ongoing obligations to citizens and creditors. The City's total net assets increased by $4,660,878. Approximately one third of this increase is attributable to resources from a federal grant and one half of this increase is attributable to capital contributions from developers. As of the close of the current fiscal year, the City's governmental funds reported combined ending fund balances of $14,387,012, an increase of $6,518,464 in comparison with the prior year. The key factor in this increase was the issuance of $7,750,000 in certificates of obligation. At the end of the current fiscal year, unreserved fund balances for the general fund was $4,319,428, or 53.4% of total general fund expenditures, including capital outlay. The City's total debt increased by $7,750,000 (33.2%) during the current fiscal year due to the issuance of certificates of obligation. Overview of the Financial Statements This discussion and analysis is intended to serve as an introduction to the City's basic financial statements. The City's basic financial statements comprise 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 are designed to provide readers with a broad overview of the City's finances, in a manner similar to a private-sector business. The statement of net assets presents information on all of the City's assets and liabilities, with the difference between the two reported as net assets. Over time, increases or decreases in net assets may serve as a useful indicator of whether the financial position of the City of Schertz is improving or deteriorati ng. The statement of activities presents information showing how the City's net assets changed during the most recent fiscal year. All changes in net assets are reported as soon as the underlying event giving to the change occurs, regardless of the timing of related cash flows. Thus, revenues and expenses are reported in this statement for some items that will only result in cash flows in future fiscal periods (e.g. uncollected taxes and earned but unused vacation leave). 7 Both of the government-wide financial statements distinguish functions of the City of Schertz that are principally supported by taxes and intergovernmental revenues (governmental activities) from other functions that are intended to recover all or a significant portion of their costs through user fees and charges (business-type activities). The governmental activities of the City of Schertz include general government, public safety, streets and parks, health, and culture and recreation. The business-type activities of the City of Schertz include a water and sewer department and an emergency medical services department. The government-wide financial statements include not only the City of Schertz itself (known as the primary government). but also legally separate component units for which the City is financially accountable. Financial information for these component units is reported separately from the primary government. The government-wide financial statements can be found on pages 16-19 of this report. Fund financial statements. A fund is a grouping of related accounts that is used to maintain control over resources that have been segregated for specific activities or objectives. The City of Schertz, like other state and local governments, uses fund accounting to ensure and demonstrate compliance with finance- related legal requirements. The City of Schertz can be divided into two categories: governmental funds and proprietary funds. Governmental funds. Governmental funds are used to account for essentially the same functions reported as governmental activities in the government-wide financial statements. However, unlike the government-wide financial statements; governmental fund financial statements focus on near-term inflows and outflows of spendable resources, as well as on balances of spendable resources available at the end of the fiscal year. Such information may be useful in evaluating a government's near-term financing requirements. Because the focus of governmental funds is narrower than that of the government-wide financial statements, 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 fund balance sheet and the governmental fund statement of revenues, expenditures, and changes in fund balances provide a reconciliation to facilitate this comparison between governmental funds and governmental activities. The City of Schertz maintains nine individual governmental funds. Information is presented separately in the governmental fund balance sheet and in the governmental fund statement of revenues, expenditures, and changes in fund balances for the general fund, the debt service fund, and the capital projects fund, all of which are considered to be major funds. Data from the other six governmental funds are combined into a single, aggregated presentation. Individual fund data for each of these non- major governmental funds is provided in the form of combining statements elsewhere in this report. The basic governmental fund financial statements can be found on pages 20-23 of this report. Proprietary funds. The City of Schertz maintains two different types of proprietary funds. Enterprise funds are used to report the same functions presented as business-type activities in the government- wide financial statements. The City of Schertz uses enterprise funds to account for its water and sewer department and for its emergency medical services department. 8 Proprietary funds provide the same type of information as the government-wide financial statements, only in more detail. The proprietary fund financial statements provide separate information for the water and sewer department and for the emergency medical services department, both of which are considered to be major funds of the City of Schertz. The basic proprietary fund financial statements can be found on 24-28 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 30-46 of this report. Other information. In addition to the basic financial statements and accompanying notes, this report also presents certain required supplementary information concerning the City's general fund budgetary schedule. The City of Schertz adopts an annual appropriated budget for its general fund. A budgetary comparison schedule has been provided for the general fund to demonstrate compliance with this budget. Required supplementary information can be found on page 48-50 of this report. The combining statements referred to earlier in connection with non-major governmental funds are presented immediately following the required supplementary information. Combining and individual fund statements and schedules can be found on pages 54-65 of this report. Government-wide Financial Analysis As noted earlier, net assets may serve over time as a useful indicator of a government's financial position. In the case of the City of Schertz, assets exceeded liabilities by $52,152,141 at the close of the most recent fiscal year. By far the largest portion of the City's total net assets (75%) reflects its investment in capital assets (e.g. land, buildings, machinery, and equipment), less any related debt used to acquire those assets that is still outstanding. The City of Schertz uses these capital assets to provide services to citizens; consequently, these assets are not available for future spending. Although the City's investment in its capital assets is reported net of related debt, it should be noted that the resources needed to repay this debt must be provided from other sources, since the capital assets themselves cannot be used to liquidate these liabilities. The remainder of this page is left blank intentionally. 9 Current and Other Assets Capital Assets Total Assets NET ASSETS GOVERNMENTAL BUSINESS-TYPE AcrIVrnES ACTIVrnES TOTAL 2004 2003 2004 2003 2004 2003 $16,208,533 $ 9,113)01 $ 5,885,959 $ 7,568,651 $22,094,492 $16,682,352 29.303.054 24.554.173 27.503.753 26.913.075 56.806.807 51.467,248 45,511.587 33.667.874 33.389,712 34.481.726 78.901.299 68,149,600 18,745,328 12,220,941 4,359,562 4,773,786 23,104,890 16,994,727 2,514,768 2.127.386 1.129,500 1.222.948 3,644,268 3,350.334 21.260,096 14.348,327 5.489.062 5.996,734 26,749,158 20.345,061 Long-Term Liabilities Outstanding Other Liabilities Total Liabilities Net Assets Invested in Capital Assets, Net of Related Debt Restricted Unrestricted TOTAL NET ASSETS 16,228,134 11,380,173 22,901,982 21,806,626 39,130,116 33,186,799 7,037,607 491,313 1,010,662 1,384,083 8,048,269 1,875,396 985.750 7.448.061 3.988.006 5.294.283 4,973.756 12.742.344 $:14 251 491 $1g 11g 547 $:17 gOO 650 $28 484 gg2 $52152141 $47 804 51g Table A-l An additional portion of the City's total net assets (15.4%) represents resources that are subject to external restrictions on how they may be used. The remaining balance of unrestricted net assets, ($4,973,756) may be used to meet the government's ongoing obligations to citizens and creditors. At the end of the current fiscal year, the City of Schertz is able to report positive balances in all three categories of net assets, both for the government as a whole, as well as for its separate governmental and business-type activities. The same situation held true for the prior fiscal year. There was an increase of $6,546,294 in restricted net assets reported in connection with the City's governmental activities. This increase is due to unspent bond proceeds from the current year issue of certificates of obligations. The government's net assets increased by $4,347,602 during the current fiscal year. About 75% of this increase represents capital contributions from developers. Governmental activities. Governmental activities accounted for all the growth in the net assets of the City of Schertz. Most of this increase is the result of capital contributions from developers. Key elements of this increase are as follows: The remainder of this page is left blank intentionally. 10 CHANGES IN NET ASSETS GOVERNMENTAL BUSINESS-TYPE ACTIvrnES ACTIVrnES TOTAL 2004 2003 2004 2003 2004 2003 Revenues Program Revenues Charges for Services $ 2,920,424 $ 2,802,949 $ 9,258,452 $10,149,425 $12,178,876 $12,952,374 Operating Grants and Contributions 2,280,629 2,788,821 2,280,629 2,788,821 Capital Grants and Contributions 2,153,213 1,045)34 279,913 3,198,547 279,913 General Revenues Property Taxes 4,410,567 3,984,262 4,410,567 3,984,262 Other Taxes 2,411,342 2,758,612 2,411,342 2,758,612 Unrestricted Investment Earnings 114,323 93,690 61,025 94,731 175,348 188,421 Other 58.770 16.028 120.043 158.372 178.813 174.400 Total Revenues 14.349.268 12.444.362 10.484.854 10.682.441 24.834.122 23.126.803 Expenses General Government 2,873,573 2,630,450 2,873,573 2,630,450 Public Safety 4,586,498 3,705,722 4,586,498 3,705,722 Streets and Parks 1,019,101 1,182,993 1,019,101 1,182,993 Health 192,506 156,927 192,506 156,927 Culture and Recreation 310,013 451,215 310,013 451,215 Interest and Other Fees 707,090 499,011 707,090 499,011 Water and Sewer 8,302,505 8,300,590 8,302,505 8,300,590 EMS 2.509.858 2.248.651 2.509.858 2.248.651 Total Expenses 9.688.781 8.626.318 10.812.363 10.549.241 20.501.144 19.175.559 Increase in Net Assets before Special Item and Transfers 4,660,487 3,818,044 (327,509) 133,200 4,332,978 3,951,244 Special Item 327,900 327,900 Transfers 584.733 410.802 (584.733) (410.802) Change in Net Assets 5.245.220 4.228.846 (584.342) (277.602) 4.660.878 3.951.244 Net Assets, as Previously Reported 19,319,547 15,090,701 28,484,992 19,696,385 47,804,539 34,787,086 Restatement of Net Assets (313.276) 9.066.209 (313.276) 9.066.209 Net Assets - Beginning as Restated 19.006.271 15.090.701 28.484.992 28.762.594 47.491.263 43.853.295 NET ASSETS - ENDING $74 15t 4g1 $tg 3tg 547 $27 900 650 $28 484 gg7 $57 157 141 $47804 53g Table A-2 For the most part, Increases In expenses closely paralleled inflation and growth In the demand for services. Business-type activities. Charges for services decreased by $890,973. This decrease was offset by an increase of $765,421 in capital contributions from developers. Financial Analysis of the Government's Funds As noted earlier, the City of Schertz uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. 1 1 Governmental funds. The focus of the City's governmental funds is to provide information on near-term inflows, outflows, and balances of spendable resources. Such information is useful in assessing the City's financing requirements. In particular, unreserved fund balance may serve as a useful measure of a government's net resources available for spending at the end of the fiscal year. As of the end of the current fiscal year, the City's governmental funds reported combined ending fund balances of $14,387,012. Of this total amount, $5,114,157 constitutes unreserved fund balance, which is available for spending at the government's discretion. The remainder of fund balances is reserved to indicate that it is not available for new spending because it has already been committed to pay debt service, for capital improvement projects, and other restricted purposes. The general fund is the chief operating fund of the City of Schertz. At the end of the current fiscal year, unreserved fund balance of the general fund was $4,319,428, while total fund balance reached $4,384,979. As a measure of the general fund's liquidity, it may be useful to compare both unreserved fund balance and total fund balance to total fund expenditures. Unreserved fund balance represents 53.4% of total general fund expenditures, including capital, while total fund balance represents 54.2% of that same amount. The debt service fund has a total fund balance of $247,293, all of which is reserved for the payment of debt service. The net decrease in fund balance during the current year in the debt service fund was minimal and was a planned decrease. 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 assets of the water and sewer fund at the end of the year amounted to $4,173,223 and those for the Schertz EMS fund amounted to a deficit of ($185,217). General Fund Budgetary Highlights Differences between the original budget and the final amended budget and the final budget and actual expenditures were relatively minor and can be briefly summarized as follows: . The fleet services shortfall was due to an unanticipated increase in fleet maintenance activity . . The shortfall in the police department resulted from additional staff needed for annexation of a subdivision. . The shortfall in the fire department resulted from upgrading staff positions and additional staff. During the year, revenues exceeded budgetary estimates and funded the overexpenditures In various departments. Capital Asset and Debt Administration Capital assets. The City's investment in capital assets for its governmental and business-type activities as of September 30, 2004, amounts to $56,806,807 (net of accumulated depreciation). 12 Major capital asset events during the current fiscal year included the following: The City was awarded a $4,000,000 grant to construct a drainage channel as a result of the 1998 flood. The City's share of that amount was $1,000,000. Completion of the channel would remove 90 percent of the floodplain in the City. The City purchased property and a vacant building adjacent to the city hall complex for expansion purposes. Funds were allocated to build a new fire sub-station on IH-35 to better serve citizens in the northern section of the City as well as the growing Tri-County Industrial Park. One new ambulance was purchased for the EMS department. CAPITAL ASSETS (NET OF DEPREOATION) GOVERNMENTAL ACfIVmES 2004 2003 BUSINESS-TYPE ACfIVmES 2004 2003 Land Buildings and Improvements Machinery, Equipment, and Vehicles Infrastructure Construction in Progress $ 3,521,509 $ 3,521,509 $ 301,170 $ 301,170 6,385,945 5,827,330 26,236,398 24,111,037 1,054,852 1,068,270 822,187 827,473 11,533,334 10,045,705 6.807.414 3.778.083 143.998 1.673.395 TOTALS TOTAL 2004 2003 $ 3,822,679 32,622,343 1,877,039 11,533,334 6.951.412 $ 3,822,679 29,938,367 1,895,743 10,045,705 5.451.478 $29 103.054 $24 740 897 $27503 753 $26 gn 075 $56 806 807 $51 1 S3 972 Table A-3 Additional information on the City's capital assets can be found In Note 5 on pages 37-38 of this report. long-Term debt. At the end of the current fiscal year, the City of Schertz had total bonded debt outstanding of $24,420,000. Of this amount, $19,761,000 comprises debt backed by the full faith and credit of the government. The remainder of the City's debt represents bonds secured solely by specified revenue sources, i.e., revenue bonds. OUTSTANDING DEBT GENERAL OBUGATION AND REVENUE BONDS GOVERNMENTAL ACfIvmES 2004 2003 BUSINESS-TYPE ACfIvmES 2004 2003 General Obligation Bonds Certificates of Obligation Tax Notes Revenue Bonds Other Debt $ 4,844,000 7,600,000 730,000 $ 64,000 $ 4,456,000 14,785,000 450,000 $ 126,000 4,625,000 40.000 4,990,000 46.000 $19 691 000 $13 174.000 $4 ng.ooo $5 162 000 $24420000 $18116000 TOTALS Table A-4 TOTAL 2004 2003 $ 4,520,000 14,785,000 450,000 4,625,000 40.000 $ 4,970,000 7,600,000 730,000 4,990,000 46.000 13 The City's total debt increased by 33.2% during the current fiscal year. The key factor in the increase is the City of Schertz issued certificates of obligation bonds in the amount of $7,750,000 for major the capital projects such as the capital projects noted above. The City of Schertz and its water and sewer department both maintain a "AA" rating from Standard and Poor's and Fitch and a "AA" rating from Moody's for general obligation debt. The revenue bonds of the water and sewer department have been rated" A" by all three of these rating agencies. State statues limit the amount of general obligation debt a governmental entity may issue to 10 percent of its total assessed valuation. The current debt limitation for the City of Schertz is approximately $113,999,216 which is significantly in excess of the City's outstanding general obligation debt. Additional information on the City's long-term debt can be found in note 9 on pages 40-42 of this report. Economic Factors and Next Year's Budgets and Rates During the current fiscal year, unreserved fund balance in the general fund increased to $4,319,428. The City of Schertz has not appropriated any of this amount for spending in the 2005 fiscal year budget. It is intended that the available fund balance will avoid the need to raise taxes or charges during the 2005 fiscal year. Water and sewer rates are expected to remain stable. A portion of the debt service fund balance will be used to offset the debt service ad valorem rate. Requests for Information This financial report is designed to provide a general overview of the City'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 Finance Director, City of Schertz, 1400 Schertz Parkway, Schertz, Texas 78154. 14 BASIC FINANCIAL STATEMENTS 15 CITY OF SCHERTZ, TEXAS STATEMENT OF NET ASSETS SEPTEMBER 30, 2004 PRIMARY GOVERNMENT GOVERNMENTAL BUSINESS-TYPE ACTIVITIES ACTIVITIES TOTAL COMPONENT UNITS ASSETS CURRENT ASSETS Cash and Cash Equivalents $13,290,662 $ 269,686 $13,560,348 $896,974 Receivables: Delinquent Taxes, Net of Allowance for Uncollectible Accounts 164,934 164,934 Accounts and Other 1,885,347 1,250,001 3,135,348 74,857 Inventories 7,464 127,974 135,438 Prepaids 58,087 141,087 199,174 Capital Lease Receivable 54,693 54,693 Deferred Charges 8,675 6,739 15,4 14 Cash and Cash Equivalents - Restricted 4,363,075 4,363,075 Internal Balances 654,185 (654,185) Total Current Assets 16,069,354 5,559,070 21.628,424 971 ,831 NONCURRENT ASSETS Capital Lease Receivable 222,307 222,307 Deferred Charges 139 ,179 104,582 243,761 Totals 139,179 326,889 466,068 Capital Assets: Land 3,521,509 301,170 3,822,679 Buildings and Improvements 8,551,313 35,661,088 44,212,401 Machinery, Equipment, and Vehicles 1,903,087 2,543,857 4,446,944 Infrastructure 16,008,124 16,008,124 Construction in Progress 6,807,414 143,998 6,951,411 Accumulated Depreciation (7,488,393) (11,146,360) (18,634,753) Total Capital Assets 29,303,054 27 ,503, 753 56,806,807 Total Noncurrent Assets 29,442,233 27,830,642 57,272,875 TOT AL ASSETS 45,511 ,587 33,389,712 78,901 ,299 971,831 (The Accompanying Notes are an Integral Part of these Financial Statements) 16 CITY OF SCHERTZ, TEXAS STATEMENT OF NET ASSETS SEPTEMBER 30, 2004 PRIMARY GOVERNMENT GOVERNMENTAL BUSINESS-TYPE ACTIVITIES ACTIVITIES TOTAL COMPONENT UNITS LIABILITIES CURRENT LIABILITIES Accounts Payable and Accrued Liabilities $ 878,835 $ 437,122 $ 1,315,957 $ 2,275 Compensated Absences and Salary Reserves 102,137 32,037 134,174 Accrued Interest Payable 172,000 172,000 Contract Retainage 126,689 126,689 Current Portion of Long-Term Debt 1,235,107 1.235,107 Total Current Liabilities 2,514,768 469,159 2,983,927 2,275 CURRENT LIABILITIES PAYABLE FROM RESTRICTED ASSETS Customer Deposits 210,700 210,700 Accrued Interest Payable 19,641 19,641 Current Portion of Long-Term Debt 430,000 430,000 Total Current Liabilities Payable from Restricted Assets 660,341 660,341 NONCURRENT LIABILITIES Long-Term Debt 18,438,917 4,263,451 22,702,368 Compensated Absences and Salary Reserves 306.411 96,111 402,522 Total Noncurrent Liabilities 18,745,328 4,359,562 23,104,890 TOTAL LIABILITIES 21 ,260,096 5.489,062 26,749,158 2,275 NET ASSETS Invested in Capital Assets, Net of Related Debt 16,228,134 22,901,982 39,130,116 Restricted for: Construction 6,623,250 6,623,250 Debt Service 247,293 1,010,662 1,257,955 Tree Mitigation 167,064 167,064 Unrestricted 985,750 3,988,006 4,973,756 969,556 TOTAL NET ASSETS $24,251.491 $27.900,650 $52,152,1A1 ~6~.5Q6 (The Accompanying Notes are an Integral Part of these Financial Statements) 17 (This Page Intentionally Left Blank) (The Accompanying Notes are an Integral Part of these Financial Statements) 18 '<t o o VlrDN <(i=o ~>C'l f--a; f-w NUCIl f-<(:2 a;LLW ~Otl: Uf-w VlZVl LLWO O:2w >-~O f-<(Z -f-W UVla; <( W >- o ZVlf- <(f-Z wWw ~Vl<:: ZVl<::' (Jl W<(Z(Jl W > a;(Jl - Wt;:;WW~t: a;z>~>-> OVlf-- U:;ZCJ~ t; Vl->-CIl <( ZVla; WW<( ~~:2 ~<(a: f-Ia.. wU Z (Jl Vl W W CJa;U CI:O> <(LLa; I W U (Jl f- Z w(Jl Zf- 0- a..Z :2::1 o U -' <( f- o I- -' <( f- ZVl WW :2i= Z> a;- wf- >U 0<( CJ Vl w (Jl Z w a.. 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QlEQ) ::l~Z ~S .... '" Q) Ql Zo:: -a Q) .... I1l .... '" Q) 0:: CJ Z Cl Z w I Vl I- W Vl Vl <( I- W Z m Vl ..... c Q) E Q) ..... ctl ..... (f) ctl U C ctl C u.. Q) Vl Q) .c ..... '+- o ..... ..... ctl 0.... ctl ..... OJ Q) ..... c c ctl Q) ..... ctl Vl Q) ..... o Z OJ C >- C ctl 0. E o U u <:t: Q) .c f- CITY OF SCHERTZ, TEXAS BALANCE SHEET - GOVERNMENTAL FUNDS SEPTEMBER 30, 2004 MAJOR FUNDS GENERAL DEBT SERVICE CAPITAL PROJECTS OTHER GOVERNMENT AL FUNDS TOTAL GOVERNMENTAL FUNDS TOTAL LIABILITIES AND FUND BALANCES $6,031,311 $320,758 $9,267,830 ~961. 793 $16.581.692 (The Accompanying Notes are an Integral Part of these Financial Statements) 20 CITY OF SCHERTZ. TEXAS RECONCILIATION OF BALANCE SHEET GOVERNMENTAL FUNDS TO STATEMENT OF NET ASSETS SEPTEMBER 30. 2004 TOTAL FUND BALANCES - GOVERNMENTAL FUNDS $14,387,012 Amounts reported for governmental activities in the statement of net assets are different because: Capital assets used in governmental activities are not financial resources and therefore are not reported as assets in governmental funds. 29,303,054 Certain receivables are not available, and therefore, are deferred in governmental funds. 503,209 Certain receivables will be collected this year, but are not avai.lable soon enough to pay for the current period's expenditures, and therefore are deferred in the funds. 164,934 Long-term liabilities, including bonds payable, are not due and payable in the current period and therefore are not reported as liabilities in the funds: Bonds Payable Deferred Charge for Issuance Cost (to be Amortized as Interest Expense) Accrued Interest Payable Compensated Absences and Salary Reserves $(19,674,024) 147,854 (172,000) (408,548) (20.106.718) TOTAL NET ASSETS - GOVERNMENTAL ACTIVITIES ~24.251.491 (The Accompanying Notes are an Integral Part of these Financial Statements) 21 (The Accompanying Notes are an Integral Part of these Financial Statements) 22 CITY OF SCHERTZ, TEXAS RECONCILIATION OF CHANGE IN FUND BALANCES - GOVERNMENTAL FUNDS TO CHANGE IN NET ASSETS - GOVERNMENTAL ACTIVITIES SEPTEMBER 30, 2004 NET CHANGE IN FUND BALANCES - TOTAL GOVERNMENTAL FUNDS 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. Capital Outlay Depreciation Expense Revenues and contributed assets in the statement of activities that do not provide current financial resources are not reported as revenues in the funds. Certain long-term liabilities are accrued at the government-wide level but not at the fund level. This is the current year change in those liabilities, reported as expense in the statement of activities. Bond proceeds provide current financial resources to governmental funds, but issuing debt increases long-term liabilities in the statement of net assets. Repayment of bond principal is an expenditure in the governmental funds, but the repayment reduces long-term liabilities in the statement of net assets. Issuance of Certificates of Obligations Principal Repayments: General Obligation Bonds Certificates of Obligations Tax Notes Bond Issue Costs Discount Interest Expense CHANGE IN NET ASSETS OF GOVERNMENTAL ACTIVITIES (The Accompanying Notes are an Integral Part of these Financial Statements) $6,518,464 $3,827,879 (915,708) 2,912,171 2,334,776 (35,294) $(7,750,000) 388,000 564,107 280,000 111,802 17,869 (96,675) (6,484,897) ~Ii.245-+220 23 ASSETS CURRENT ASSETS Cash and Cash Equivalents Accounts Receivable Due from Other Funds Inventory Cash and Cash Equivalents - Restricted Assets Prepaids Capital Lease Receivable Deferred Charges Total Current Assets NONCURRENT ASSETS Capital Lease Receivable Deferred Charges Totals Capital Assets: Land Buildings and Improvements Machinery, Equipment, and Vehicles Construction in Progress Totals Accumulated Depreciation Total Capital Assets Total Noncurrent Assets TOTAL ASSETS CITY OF SCHERTZ, TEXAS STATEMENT OF NET ASSETS PROPRIETARY FUNDS SEPTEMBER 30, 2004 BUSINESS-TYPE ACTIVITIES - ENTERPRISE FUNDS WATER AND SEWER SCH ERTZ SYSTEM EMS TOTAL $ 269,686 880,778 241,939 91,125 4,363,075 141,087 54,693 6,739 6,049,122 222,307 104,582 326,889 301 , 1 70 35,661,088 1,412,700 143,998 37,518,956 (10.464,146) 27,054,810 27,381,699 33.430,821 $ 369,223 36,849 406,072 1,131,157 1,131,157 (682,214) 448,943 448,943 855,015 (The Accompanying Notes are an Integral Part of these Financial Statements) $ 269,686 1,250,001 241,939 127,974 4,363,075 141,087 54,693 6,739 6.455,194 222,307 104,582 326,889 301 ,1 70 35,661,088 2,543,857 143,998 38,650,113 (11,146,360) 27,503,753 27,830,642 34,285,836 24 CITY OF SCHERTZ, TEXAS STATEMENT OF NET ASSETS PROPRIETARY FUNDS SEPTEMBER 30, 2004 BUSINESS-TYPE ACTIVITIES - ENTERPRISE FUNDS WATER AND SEWER SCHERTZ SYSTEM EMS TOTAL LIABILITIES CURRENT LIABILITIES Accounts Payable and Accrued Liabilities Due to Other Funds Compensated Absences and Salary Reserves Total Current Liabilities $ 386,213 394,185 22,427 802,825 $ 50,909 501,939 9,610 562,458 $ 437,122 896,124 32,037 1,365,283 CURRENT LIABILITIES PAYABLE FROM RESTRICTED ASSETS Customer Deposits Revenue Bonds General Obligation Bonds Public Facility Loan Accrued Interest Total Current Liabilities Payable from Restricted Assets 210,700 360,000 64,000 6,000 19,641 210,700 360,000 64,000 6,000 19,641 660,341 660,341 NONCURRENT LIABILITIES Revenue Bonds Payable Public Facility Loan Compensated Absences and Salary Reserves Total Noncurrent Liabilities TOTAL LIABILITIES 4,229,451 34,000 67,280 4,330,731 5,793,897 28,831 28,831 591,289 4,229,451 34,000 96,111 4,359,562 6,385,186 NET ASSETS Invested in Capital Assets, Net of Related Debt Restricted for Debt Service Unrestricted TOTAL NET ASSETS 22,453,039 448,943 22,901,982 1,010,662 1,010,662 4,173,223 (185,217) 3,988,006 $27.636.924 ~2.a3, 726 ~,-9illL6M2 (The Accompanying Notes are an Integral Part of these Financial Statements) 25 CITY OF SCHERTZ. TEXAS STATEMENT OF REVENUES, EXPENSES. AND CHANGES IN FUND NET ASSETS PROPRIETARY FUNDS YEAR ENDED SEPTEMBER 30. 2004 TOTAL NET ASSETS - ENDING BUSINESS-TYPE ACTIVITIES - ENTERPRISE FUNDS WATER AND SEWER SCHERTZ SYSTEM EMS TOTAL $ 7,534,841 $1,723,611 $9,258,452 31,384 31,384 16.911 71 .748 88.659 7.583.136 1 ,795.359 9,378,495 1,165,241 1,133,625 2,298,866 2,400,755 2,400,755 1,833,255 143,798 1,977,053 93,981 55,809 149,790 86,391 122,496 208,887 73,561 933,087 1,006,648 841.248 121 ,043 962.291 6.494.432 2,509,858 9,004,290 1,088,704 (714.499) 374,205 61,025 61,025 (232,864) (232,864) (1,548,468) (1,548,468) (26,741) (26,741) (1,747,048) (1, 747 ,048) (658,344) (714,499) (1,372,843) (512,733) (72,000) (584,733) 1,045,334 1,045,334 327.900 327,900 202,157 (786,499) (584,342) 27.434.767 1.050,225 28.484,992 UZ.636.924 $ 263.726 ~7,900.650 OPERATING REVENUES , Fees Charged to Users Reimbursements Other Total Operating Revenue OPERATING EXPENSES Personnel Services Sewage Treatment General and Administrative Contractual Services Supplies/Maintenance Bad Debts Depreciation Total Operating Expenses Operating Income (Loss) NONOPERATING REVENUES (EXPENSES) Investment Income Interest Expense Contributions to Joint Venture Amortization of Bond Costs Total Non-Operating Revenues (Expenses) Income (Loss) before Transfers Capital Contributions, and Special Item TRANSFERS OUT CAPITAL CONTRIBUTIONS SPECIAL ITEM - GAIN ON SALE OF CAPITAL ASSETS Change in Net Assets TOTAL NET ASSETS - BEGINNING (The Accompanying Notes are an Integral Part of these Financial Statements) 26 CITY OF SCHERTZ, TEXAS STATEMENT OF CASH FLOWS - PROPRIETARY FUNDS YEAR ENDED SEPTEMBER 30, 2004 BUSINESS-TYPE ACTIVITIES - ENTERPRISE FUNDS WATER AND SEWER SCHERTZ SYSTEM EMS TOTAL CASH FLOWS FROM OPERATING ACTIVITIES Cash Received from Customers Cash Received from Other Funds Cash Payments to Suppliers for Goods and Services Cash Payments to Employees for Services Cash Payments to Other Funds Cash Received for Reimbursements and Other Net Cash Provided by Operating Activities $8,045,998 $1,4 70,064 $9,516,062 394,185 253,270 647,455 (4,697,441 ) (319,986) (5,017,427) (1,138,909) (1,138,922) (2,277,831 ) 12,878 12,878 48,295 71 ,748 120,043 2,665,006 336,174 3,001 ,180 CASH FLOWS FROM NON-CAPITAL FINANCING ACTIVITIES Transfers Out (512,733) (72,000) (584,733) CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Cash Received on Sale of Capital Assets Acquisition and Construction of Capital Assets Principal Payments on Long-Term Debt Interest Paid on Long-Term Debt Capital Contributed to Joint Venture Net Cash Used in Capital and Related Financing Activities CASH AND CASH EQUIVALENTS AT END OF YEAR 364,500 364,500 (557,061) (264,174) (821,235) (433,000) (433,000) (235,064) (235,064) (1 ,548.468) 11 ,548.468) (2.409,093) 1264,174) (2,673,267) 61,025 61 ,025 (195,795) (195,795) 4,828,556 4,828,556 $4.632,761 $ ~4.632. 761 $ 269,686 $ $ 269,686 4,363,075 4,363,075 ~-,-632.761 $ $4.632.261 (Continued) CASH FLOWS FROM INVESTING ACTIVITIES Interest on Investments Net Increase (Decrease) in Cash CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR Comprised of Current Assets Restricted Assets CASH AND CASH EQUIVALENTS AT END OF YEAR (The Accompanying Notes are an Integral Part of these Financial Statements) 27 CITY OF SCHERTZ, TEXAS STATEMENT OF CASH FLOWS - PROPRIETARY FUNDS YEAR ENDED SEPTEMBER 30, 2004 BUSINESS-TYPE ACTIVITIES - ENTERPRISE FUNDS WATER AND SEWER SVST~M RECONCILIATION OF OPERATING INCOME (LOSS) TO NET CASH PROVIDED BY OPERATING ACTIVITIES Operating Income (Loss) Adjustments to Reconcile Operating Income (Loss) to Net Cash Provided by Operating Activities Depreciation (Increase) Decrease in the Following Assets Accounts Receivable Inventory Due from Other Funds Prepaid Increase (Decrease) in the Following Liabilities Accounts Payable and Accrued Liabilities Due to Other Funds Compensated Absences Customer Deposits $1,088,704 841,248 568,113 4,957 12,878 (141,087) ( 146,929) 394,185 26,332 16,605 NET CASH PROVIDED BY OPERATING ACTIVITIES $2.665.006 NONCASH OPERATING, CAPITAL AND RELATED FINANCING ACTIVITIES Contributions of Capital Assets from Developers Amortization of Loss on Defeasance Amortization of Bond Issuance Costs Amortization of Bond Discount (The Accompanying Notes are an Integral Part of these Financial Statements) SCHERTZ ~MS $(714,499) 121,043 679,540 (14,698) 16,815 253,270 (5,297) ~,174 TOTAL $ 374,205 962,291 1,247,653 (9,741 ) 12,878 (141,087) (130,114) 647,455 21,035 16,605 $3,001.180 $1,045,334 $ 19,153 $ 6,739 $ 849 28 NOTES TO BASIC FINANCIAL STATEMENTS 29 CITY OF SCHERTZ, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS SEPTEMBER 30, 2004 NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A. Reportinq Entity The City of Schertz is a municipal corporation governed by an elected mayor and five-member council. The accompanying financial statements present the City and its discretely presented component units, entities for which the City is considered to be financially accountable. The discretely presented component units are reported in a separate column in the government-wide financial statements to emphasize that they are legally separate from the City. Discretely presented component units - The component units' column in the government-wide financial statements includes the financial data of the component units of the City of Schertz, Texas. The component units are presented as governmental fund types. Following is a summary of the component units: 1. Schertz Economic Development Corporation - The corporation was organized for the purpose of promoting economic development in order to eliminate unemployment and underemployment and to promote and encourage employment and public welfare of, for, and on behalf of the City. The board of directors consists of seven (7) members appointed by the city council. The City is financially accountable for the corporation because the city council approves the corporation's budget. 2. Librarv - The library provides services to the Citizens of the City of Schertz as well as surrounding communities. The function of the library board is to work cooperatively with City management to provide funding and oversight for special projects of the library. All projects must be approved by the city council. The library's governing board is appointed by the city council. 3. Schertz Development Foundation - The foundation was organized to assist the City in developing and implementing plans for economic viability for the City. The board of directors is appointed by the city council and the executive director is employed by the City. The City is financially accountable for the foundation because the city council approves the foundation's budget. Complete financial statements for each of the individual component units may be obtained at City Hall located at 1400 Schertz Parkway, Schertz, Texas 78154. B. Government-Wide and Fund Financial Statements The government-wide financial statements (i.e., the statement of net assets and the statement of activities) report information on all of the activities of the primary government and its component units. For the most part, the effect of interfund activity 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. Likewise, the primary government is reported separately from legally separate component units for which the primary government is financially accountable. 30 CITY OF SCHERTZ. TEXAS NOTES TO BASIC FINANCIAL STATEMENTS SEPTEMBER 30. 2004 NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) B. Government-Wide and Fund Financial Statements (Continued) The statement of activities demonstrates the degree to which the direct expenses of a given function or segments are offset by program revenues. Direct expenses are those that are clearly identifiable with a specific function or segment. Program revenues include 1) charges of customers or applicants who purchase, use, or directly benefit from goods, services, or privileges provided by a given function or segment and 2) grants and contributions that are restricted to meeting the operational or capital requirements of a particular function or segment. Taxes and other items not properly included among program revenues are reported instead as general revenues. Separate financial statements are provided for governmental funds and proprietary funds. Major individual governmental funds and major individual enterprise funds are reported as separate columns in the fund financial statements. C. Measurement Focus. Basis of Accountinq. and Financial Statement Presentation The government-wide financial statements are reported using the economic resources measurement focus and the accrual basis of accounting, as are the proprietary fund financial statements. Revenues are recorded when earned and expenses are recorded when a liability is incurred, regardless of the timing of related cash flows. Property taxes are recognized as revenues in the year for which they are levied. Grants and similar items are recognized as revenue as soon as all eligibility requirements imposed by the provider have been met. Governmental fund financial statements are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Revenues are recognized as soon as they are both measurable and available. Revenues are considered to be available when they are collectible within the current period or soon thereafter to pay liabilities of the current period. For this purpose, the City considers revenues to be available if they are collected within 60 days of the end of the current fiscal period. Expenditures generally are recorded when a liability is incurred, as under accrual accounting. However, debt service expenditures, as well as expenditures related to compensated absences and claims and judgments, are recorded only when payment is due. Property and sales taxes, utility franchises, and interest associated with the current fiscal period are all considered to be susceptible to accrual and so have been recognized as revenues of the current fiscal period. All other revenue items are considered to be measurable and available only when cash is received by the City. The City reports the following major governmental funds: The general fund is the City's primary operating fund. It accounts for all financial resources of the general government, except those required to be accounted for in another fund. 31 CITY OF SCHERTZ, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS SEPTEMBER 30, 2004 NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) C, Measurement Focus, Basis of Accountinq, and Financial Statement Presentation (Continued) The debt service fund accounts for the resources accumulated and payments made for principal and interest on long-term general obligation debt of governmental funds. The capital projects fund accounts for financial resources to be used for the acquisition and construction of major capital facilities and is principally financed by the sale of bonds or certificates of obligation and grants. The government reports the following major proprietary funds: The water and sewer fund accounts for the water and sewer services provided to the citizens through user charges. The EMS fund accounts for the ambulance services provided to the citizens of the City and other participating governments through user charges. Private-sector standards of accounting and financial reporting issued prior to December 1, 1989, generally are followed in both the government-wide and proprietary fund financial statements to the extent that those standards do not conflict with or contradict guidance of the Governmental Accounting Standards Board (GASB). Governments also have the option of following subsequent private-sector for their business-type activities and enterprise funds, subject to this same limitation. The City has elected not to follow subsequent private-sector guidance. As a general rule the effect of interfund activity has been eliminated from the government-wide financial statements. Exceptions to this are charges between the City's general government function and various other functions of the City. Eliminations of these charges would distort the direct costs and program revenues reported for the various functions concerned. Amounts reported as program revenues include 1) charges to customers or applications for goods, services, or privileges provided, 2) operating grants and contributions, and 3) capital grants and contributions. General revenues include all taxes. Proprietary funds distinguish operating revenues and expenses from nonoperating items. Operating revenues and expenses generally result from providing services and producing and delivering goods in connection with a proprietary fund's principal ongoing operations. The principal operating revenues of the water and sewer enterprise fund and the EMS enterprise fund are charges to customers for sales and services. Operating expenses for enterprise funds include the cost of sales and services, administrative expenses, and depreciation on capital assets. All revenues and expenses not meeting this definition are reported as nonoperating revenues and expenses. When both restricted and unrestricted resources are available for use, it is the City's policy to use restricted resources first, then unrestricted resources as they are needed. 32 CITY OF SCHERTZ, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS SEPTEMBER 30, 2004 NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) D. Cash and Cash Equivalents The City's cash and cash equivalents are considered to be cash on hand, demand deposits, and deposits in local government investment pools. The City is authorized to invest in (1) obligations of the United States or its agencies and instrumentalities; (2) direct obligations of the State of Texas or its agencies; (3) other obligations, the principal of and interest on which are unconditionally guaranteed or insured by the State of Texas of the United States; (4) obligations of states, agencies, counties, cities, and other political subdivisions of any state having been rated of not less than IJAA" or its equivalent; (5) certificates of deposit issued by state and national banks domiciled in Texas that are guaranteed or insured by the Federal Deposit Insurance Corporation (FDIC) or its successor, or secured by obligations mentioned above; and (6) fully collateralized direct repurchase agreements having a defined termination date. In addition, the City is authorized to invest in local government investment pools. The investment pools operate in accordance with appropriate state laws and regulations and have regulatory oversight from the Texas Public Funds Investment Act Sec. 2256.0016. The fair value of the City's position in each pool is the same as the fair value of the pool shares. E. Receivables and Pavables Activity between the funds that are representative of interfund loans 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." Accounts receivable are reported net of allowances for uncollectible accounts. The allowance account represents management's estimate of uncollectible accounts based upon experience and historical trends. Property taxes for the City are levied each October 1 on the taxable value as of the preceding January 1, the date a lien attaches, for all taxable real and personal property located in the City. Taxes are due by January 31 following the October 1 assessment date and become delinquent on February 1, at which time they begin accruing penalty and interest. The enforceable legal claim date for property taxes is the assessment date, therefore, the City did not record a receivable for accrual of future taxes at year end. Accordingly, no current taxes receivable are reported. Taxes have been reported in the financial statements net of the allowance for uncollectible taxes. Tax revenues are recognized as they become available. Accordingly, an amount equal to taxes not yet available has been reported as deferred revenue at the government fund level. F. Inventories and Prepaid Items All inventories are valued at cost using the first-in/first-out (FIFO) method. Inventories of governmental funds are recorded as expenditures when consumed rather than when purchased. 33 CITY OF SCHERTZ, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS SEPTEMBER 30, 2004 NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) F. Inventories and Prepaid Items (Continued) Certain payments to vendors reflect costs applicable to future accounting periods and are recorded as prepaid items in both government-wide and fund financial statements. G. Restricted Assets Certain proceeds of the City's enterprise fund revenue bonds, as well as certain resources set aside for their repayment, are classified as restricted assets on the balance sheet because they are maintained in separate bank accounts and their use is limited by applicable bond covenants. H. Capital Assets Capital assets, which include land, buildings and improvements, machinery, equipment, vehicles, and infrastructure assets (i.e., roads, bridges, sidewalks, and similar items), are reported in the applicable governmental or business-type activities columns in the government-wide financial statements. Capital assets are defined by the City as assets with an initial, individual cost of more than $5,000 and an estimated useful life in excess of one year. When capital assets are purchased, they are capitalized and depreciated in the government-wide financial statements and the proprietary fund statements. Capital assets are recorded as expenditures of the current period in the governmental fund financial statements. Capital assets are valued at cost where historical records are available and at an estimated cost where no records exist. Donated capital assets are valued at their estimated fair market value at the date of donation. The costs of normal maintenance and repairs that do not add to the value of the asset or materially extend assets lives are not capitalized. Improvements to capital assets that materially extend the life of the asset or add to the value are capitalized. Major outlays for capital assets and improvements are capitalized as projects are constructed. Interest incurred during construction will not be capitalized in the governmental activities on the government-wide financial statements; however capitalization of interest is required for business-type activities. There was no capitalized interest during the current fiscal year. Capital assets are depreciated over their useful lives on a straight-line basis as follows: ASSETS YEARS Buildings and improvements Machinery, equipment, and vehicles Infrastructure 20 - 50 2 - 20 1 5 - 30 34 CITY OF SCHERTZ, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS SEPTEMBER 30, 2004 NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) I. Compensated Absences and Salarv Reserve It is the City's policy to permit employees to accumulate earned but unused vacation and compensatory time benefits. There is no liability for unpaid accumulated sick leave since the City does not have a policy to pay any amounts when employees separate from service with the City. In addition, it is the policy of the City to retain as a liability the first forty (40) hours of service for each employee. The liability is to be paid upon termination at the rate of pay in existence at that time. All vacation, compensatory time, and salary reserve pay is accrued when incurred in the government-wide and proprietary fund financial statements. A liability for these amounts is reported in governmental funds only if they have matured, for example, as a result of employee resignations and retirements. J. Lonq-Term Obliqations In the government-wide financial statements, and proprietary fund types in the 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 type statement of net assets. Bond premiums and discounts, losses on defeasance, as well as issuance costs, are deferred and amortized over the life of the bonds using the effective interest method. Bonds payable are reported net of the applicable bond premium or discount and losses on defeasance. Bond issuance costs are reported as deferred charges and amortized over the term of the related debt. In the fund financial statements, governmental fund types recognize bond premiums and discounts, as well as bond issuance costs, during the current period. The face amount of debt issued is reported as other financing sources. Premiums received on debt issuances are reported as other financing sources while discounts on debt issuances are reported as other financing uses. Issuance costs, whether or not withheld from the actual debt proceeds received, are reported as debt service expenditures. K. Fund Equity In the fund financial statements, governmental funds report reservations of fund balance for amounts that are not available for appropriation or are legally restricted by outside parties for use for a specific purpose. Designations of fund balance represent tentative management plans that are subject to change. NOTE 2: CASH AND CASH EQUIVALENTS At year end, the City's carrying amount of deposits was $17,923,423 and the bank balance was $19,526,755. Of the bank balance, $1,109,048 was covered by federal depository insurance or by collateral held by the government's agent in the government's name. The remaining balance of $18,417,707 is invested in local government investment pools which is not subject to categorization. 35 CITY OF SCHERTZ, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS SEPTEMBER 30, 2004 NOTE 3: RECEIVABLES The following is a summary of the gross delinquent taxes receivable and the allowances for uncollectible taxes: TAXES ALLOWANCE FOR UNCOLLECTIBLE TAXES NET TAXES Delinquent Taxes General Fund Debt Service Fund $141,351 34,111 $ 8,481 2,047 $132,870 32,064 tl25.462 $10.528 $164.934 Other receivables as of year end for the City's individual major funds and other governmental funds, including the applicable allowances for uncollectible accounts are as follows: OTHER CAP IT AL GOVERNMENTAL WATER AND GENERAL PROJECTS FUNDS SEWER EMS TOTAL Fines and Forfeitures $1,006,418 $ $ $ $ $1,006,418 Sales Tax 151,982 151,982 Utility Franchise 163,988 163,988 FEMA 1,056,435 1,056,435 Accounts - Customers 5,924 882,672 525,930 1,414,526 Other 3,809 21.512 1 ,072 26.393 Gross Receivables 1,328,312 1,056,435 3,809 904,184 527,002 3,819,742 Less: Allowance 1503,209) 123,406) (157,779) (684,394) NET TOTAL RECEIV ABLES $ 825.103 ~ 1.056.435 $3.809 ~80.778 ~.223 $3.135 348 NOTE 4: REST A TEMENT OF NET ASSETS The beginning net assets of the governmental activities were restated for a prior period adjustment. The City implemented GASB Statement No. 34, "Basic Financial Statements and Management's Discussion and Analysis - for State and Local Governments" in fiscal year 2003. The statement requires, among other things, accumulated depreciation on capital assets to be recognized in governmental activities. During the year ended September 30, 2004, the City noted that accumulated depreciation on various capital assets had not been recognized in the year of implementation. The correction of this error resulted in a decrease to the beginning net assets of the governmental activities and an increase in accumulated depreciation of $313,276. 36 CITY OF SCHERTZ, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS SEPTEMBER 30, 2004 NOTE 5: CAPITAL ASSETS Capital asset activity for the year ended September 30, 2004 was as follows: Primary Government Governmental Activities Capital Assets, not being Depreciated Land Construction in Progress Total Capital Assets, not being Depreciated BEGINNING ENDING BALANCE INCREASE DECREASE BALANCE $ 3,521,509 $ $ $ 3,521,509 3,778,083 3,677,564 (648,233) 6,807.414 7,299,592 3,677,564 (648,233) 10,328,923 Governmental Activities (Continued) Capital Assets, being Depreciated Buildings and Improvements Machinery, Equipment, and Vehicles Infrastructure Total Capital Assets being Depreciated Less Accumulated Depreciation for Buildings and Improvements Machinery, Equipment, and Vehicles Infrastructure Total Accumulated Depreciation Total Capital Assets, being Depreciated - Net 7,790,011 1,750,807 14,017,031 23,557,849 (1,962,681) (682,537) (3,971,326) (6,616,544) 16,941,305 GOVERNMENTAL ACTIVITIES CAPITAL ASSETS - NET ~24.240.897 Business-Tvpe Activities Capital Assets, not being Depreciated Land Construction in Progress Total Capital Assets, not being Depreciated $ 301,170 1,673,395 1,974,565 761,302 8,551,313 (47,086) 1,903,087 16,008,124 (47,086) 26.462,524 (2,165,368) 43,859 (848,235) (4.474,790) 43,859 (7.488,393) 199,366 1,991,093 2,951,761 (202,687) (209,557) (503.464) (915.708) 2,036,053 (3,227) 18,974,131 $ 5 .71 3. 6ll $(651.460) ~2g.3Q:L-OM $ $ (2,086.458) $ 301,170 143,998 557,061 557,061 (2,086.458) 445,168 37 CITY OF SCHERTZ, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS SEPTEMBER 30, 2004 NOTE 5: CAPITAL ASSETS (CONTINUED) Primary Government BEGINNING BALANCE INCREASE DECREASE ENDING BALANCE Business-Tvpe Activities (Continued) Capital Assets, being Depreciated Buildings and Improvements $33,298,971 $3,131,792 $ (769,675) $35,661,088 Machinery, Equipment, and Vehicles 2,271 ,183 272,674 2,543.857 Total Capital Assets, being Depreciated 35,570,154 3.404.466 (769,675) 38,204,945 Accumulated Depreciation for Buildings and Improvements (9,187,934) (692,831) 456,075 (9.424,690) Machinery, Equipment, and Vehicles (1 .443,710) (277,960) (1 ,721 ,670) Total Accumulated Depreciation (10,631 ,644) (970,791) 456,075 (11 ,146,360) Total Capital Assets, being Depreciated - Net 24,938,510 2.433,675 (313,600) 27,058.585 BUSINESS-TYPE ACTIVITIES CAPITAL ASSETS - NET $26.913.075 $2.990.736 ill.400.058) $27.50U5..3 Depreciation expense was charged to functions/programs of the primary government as follows: GOVERNMENTAL ACTIVITIES General government Public Safety Streets and Parks Culture and Recreation Health $ 89,336 732,018 72,662 10,811 10,881 TOTAL DEPRECIATION EXPENSE - GOVERNMENTAL ACTIVITIES $915.708 BUSINESS-TYPE ACTIVITIES Water and Sewer EMS $841,248 121,043 TOTAL DEPRECIATION EXPENSE - BUSINESS-TYPE ACTIVITIES $962.291 NOTE 6: CONSTRUCTION COMMITMENTS The City is committed under one contract in connection with a drainage improvement project as of September 30, 2004 for approximately $ 750,000. 38 CITY OF SCHERTZ. TEXAS NOTES TO BASIC FINANCIAL STATEMENTS SEPTEMBER 30. 2004 NOTE 7: INTERFUND BALANCES AND TRANSFERS In the fund financial statements, interfund balances are the result of normal transactions and will be liquidated in the subsequent fiscal year. The composition of interfund balances as of September 30, 2004, is as follows: INTERFUND BALANCES RECEIVABLE FUND PA Y ABLE FUND AMOUNT General Fund Capital Projects Capital Projects Capital Projects Water and Sewer Capital Projects General Fund Water and Sewer EMS EMS $ 13,297 $507,716 $394,185 $260,000 $241,939 Balances between governmental funds and enterprise funds are eliminated In the government-wide financial statements. INTERFUND TRANSFERS TRANSFER IN DEBT CAPITAL SERVICE PROJECTS TOTAL TRANSFER OUT General Fund $ $1,691,163 $1,691,163 Water and Sewer 124,581 388,152 512,733 EMS 72,000 72,000 TOTAL $196.581 $2.079.315 $2.275.896 The transfer from the general fund to the capital projects fund in the amount of $1,691,163 was to transfer the balance of the 2003 bond proceeds to fund various capital projects. The transfer from water and sewer fund to the capital projects fund in the amount of $388,152 was to fund costs associated with road improvements. The remaining transfers are the result of normal transactions between funds. NOTE 8: CAPITAL LEASE RECEIVABLE During the year the City entered into a capital lease/purchase agreement for the sale of various water wells, water well motors and pumps, water storage tanks and all connecting lines, valves and pipes, to another local government entity. This lease is classified as direct financing lease. 39 CITY OF SCHERTZ, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS SEPTEMBER 30, 2004 NOTE 8: CAPITAL LEASE RECEIVABLE (CONTINUED) The following lists the components of the net investment in the lease as of September 30, 2004: Total Minimum Lease Payments to be Received Less Amounts Representing Executory and Uncollectibles Net Minimum Lease Payments Receivable Less Unearned Income $309,822 309,822 32,822 NET INVESTMENT IN DIRECT FINANCING LEASES ~277,QQQ At September 30, 2004, minimum lease payments for each of the five (5) succeeding fiscal years are as follows: FISCAL YEAR 2005 2006 2007 2008 2009 $ 54,693 51,961 54,299 56,742 59,305 ~227,00Q There are no estimated residual values or contingent rentals related to the leased property. NOTE 9: LONG-TERM DEBT The City had the following changes In long-term debt outstanding for the year ended September 30, 2004: BALANCE BALANCE AMOUNTS OUTSTANDING OUTSTANDING DUE ORIGINAL INTEREST OCTOBER 1, SEPTEMBER 30, IN ONE AMOUNT RA TES 2003 ISSUED RETIRED 2004 YEAR Governmental Activities General Obligation Bonds 1 992 Series $ 620,000 5.2-7.2% $ 370,000 $ $ 50,000 $ 320,000 $ 50,000 1998 Series 4,930,000 4.37-5.375 4,150,000 180,000 3,970,000 195,000 1995 Refunding Bonds 447,000 3.75-5.00 84,000 43,000 41,000 41,000 1999 Combination Tax and Revenue 455,000 5.25 240.000 115,000 125,000 125.000 Total Bonds 4.844,000 388,000 4.456,000 411.000 Certificates of ObliQation 2001 Series $4,500,000 4.1-6.0 4,240,000 140,000 4,100,000 150,000 2003 Series 3,360,000 2.0-3.9 3,360,000 425,000 2,935,000 225,000 2004 Series 7,750,000 4.0-4.7 7,750,000 7,750,000 160,000 Discount 117.869) (893) 116,976) (8931 Total Certificates of Obligation 7 .600,000 7.732,131 564,107 14,768,024 534,107 40 CITY OF SCHERTZ, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS SEPTEMBER 30, 2004 NOTE 9: LONG-TERM DEBT (CONTINUED) ORIGINAL AMOUNT INTEREST RATES BALANCE OUTSTANDING OCTOBER 1, 2003 ISSUED RETIRED BALANCE OUTST ANDING SEPTEMBER 30, 2004 AMOUNTS DUE IN ONE YEAR T ax Notes 2001 Notes $750,000 2.90-4.0% $ 460,000 $ $145,000 $ 315,000 $ 155,000 2002 Notes 400,000 2.90-3.15 270,000 135,000 135,000 135,000 Total Tax Notes 730,000 280.000 450,000 290,000 TOTAL GOVERNMENTAL ACTIVITIES $13 174 000 $7732131 $1 232 107 $19674024 ~~DZ Business- Tvpe Activities Revenue Bonds 2001 Series $5,550,000 3.4-5.2% $ 4,990,000 $ $365,000 $4,625,000 $380,000 Unamortized Discounts And Loss on Defeasance /55.551 ) /20.002) (35.549) (20.000) 4,934.449 344,998 4,589.451 360,000 General Obligation Bonds 1995 Refunding Bonds 1,253,000 3.75-5.0 126,000 62,000 64,000 64,000 Other Debt Public Facility Loan (HUD) 142,000 5.00 46.000 6,000 40.000 6.000 TOTAL BUSINESS-TYPE ACTIVITIES $ 5106449 $ M-1L93.8 ~.4 693.451 ~JlOO Annual debt service requirements as of September 30, 2004, are as follows: GOVERNMENTAL ACTIVITIES BUSINESS-TYPE ACTIVITIES FISCAL YEAR PRINCIPAL INTEREST TOTAL PRINCIPAL INTEREST TOTAL 2005 $ 1,236,000 $ 922,471 $ 2,158,471 $ 450,000 $ 216,890 $ 666,890 2006 1,155,000 800,530 1,955,530 296,000 200,360 496,360 2007 910,000 749,492 1,659,492 302,000 188,750 490,750 2008 955,000 703,889 1,658,889 302,000 176,600 478,600 2009 935,000 658,314 1,593,314 312,000 164,081 476,081 2010-2104 5,160,000 2,608,096 7,768,096 1,212,000 639,341 1,851,341 2015-2019 5,640,000 1,499,422 7,139,422 1,335,000 328,274 1,663,274 2020-2024 3,700,000 419.404 4,119.404 520,000 40,629 560,629 $19691.000 $8.361 618 $28.052.618 $4.729.0QQ $1 954.925 $6.683.925 During the year, the City issued $7,750,000 of combination tax and limited pledge revenue certificates of obligation, with the payment of the related principal and interest to be made from an annual ad valorem tax levied against all taxable property within the City. The bonds were issued to provide funds for various construction projects and the purchase of various equipment. In the government-wide financial statements, bond issuance costs are deferred and amortized over the life of the bonds. Bond issuance costs are reported as deferred charges. 41 CITY OF SCHERTZ, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS SEPTEMBER 30, 2004 NOTE 9: LONG-TERM DEBT (CONTINUED) Bonded debt of the City consists of various series of general obligation bonds, revenue bonds, certificates of obligation, tax notes, and a public facility loan. General obligation bonds, certificates of obligation, and tax notes are direct obligations of the City for which its full faith and credit are pledged, and are payable from taxes levied on all taxable property located within the City. Revenue bonds are generally payable from pledged revenues generated by the water and sewer fund. The debenture agreement for water and sewer bonds require that funds be available for 1 /12th of the principal and 1/6th of the interest requirements of the next fiscal year. The City is required to accumulate a reserve fund in an amount equal to the average principal and interest on the revenue bonds. The City has purchased a surety bond through MBIA Insurance Corporation to fund the required reserve amount. There are no amounts outstanding at the end of the current fiscal year related to bonds that were considered defeased. Compensated Absences and Salary Reserves Changes in compensated absences and salary reserves for the year ended September 30, 2004, were as follows: GOVERNMENTAL BUSINESS-TYPE ACTIVITIES ACTIVITIES Balance at October 1, 2003 Additions Deletions $373,254 128,608 (93,314) $107,113 47,813 (26,778) BALANCES AT SEPTEMBER 30, 2004 $408.548 tl2a.JAB Of these balances, $102,137 is due in the current year in governmental activities and $32,037 is due in the current year in business-type activities. Compensated absences and salary reserves are paid from the fund responsible for the employee's compensation. Claims and judgments are generally liquidated by the general fund. NOTE 10: RETIREMENT PLAN Plan Description The City provides pension benefits for all of its full-time employees through a nontraditional, joint contributory, hybrid defined benefit plan in the state-wide Texas Municipal Retirement System (TMRS), one of over 794 administered by TMRS, an agent multiple-employer public employee retirement system. TMRS issues a publicly available financial report that includes financial statements and required supplementary information for TMRS. That report may be obtained by writing to Texas Municipal Retirement System, Post Office Box 149153, Austin, Texas 78714. 42 CITY OF SCHERTZ, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS SEPTEMBER 30, 2004 NOTE 10: RETIREMENT PLAN (CONTINUED Plan Description (Continued) Benefits depend upon the sum of the employee's contributions to the plan, with interest, and the City- financed monetary credits, with interest. At the date the plan began, the City granted monetary credits for service rendered before the plan began of a theoretical amount equal to two times what would have been contributed by the employee, with interest, prior to establishment of the plan. Monetary credits for service since the plan began are a percent (100%, 150%, or 200%) of the employee's accumulated contributions. In addition, the City can grant, as often as annually, another type of monetary credit referred to as an updated service credit which is a theoretical amount which, when added to the employee's accumulated contributions and the monetary credits for service since the plan began, would be the total monetary credits and employee contributions accumulated with interest if the current employee 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 (3) 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. Members can retire at age 60 and above with 5 or more years of service or with 20 years of service, regardless of age. 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. Contributions The contribution rate for the employees is 5%, and the City matching percent is currently 1.5 to 1, both as adopted by the governing body of the City. Under the state law governing TMRS, the City contribution rate is annually determined by the actuary. This rate consists of the normal cost contribution rate and the prior service contribution rate, both of which are calculated to be a level percent of payroll from year to year. The normal cost contribution rate finances the currently accruing monetary credits due to the City matching percent, which are the obligation of the City as of an employee's retirement date, not at the time the employee's contributions are made. The normal cost contribution rate is the actuarially determined percent of payroll necessary to satisfy the obligation of the City to each employee at the time his/her retirement becomes effective. The prior service contribution rate amortizes the unfunded (overfunded) actuarial liability (asset) over the remainder of the plan's 25-year amortization period. The unit credit actuarial cost method is used for determining the City contribution rate. Contributions are made monthly by both the employees and the City. Since the City needs to know its contribution rate in advance for budgetary purposes, there is a one-year delay between the actuarial valuation that is the basis for the rate and the calendar year when the rate goes into effect (i.e., December 31, 2003 valuation is effective for rates beginning January 2005). For 2003, the City's annual pension cost of $418,770 was equal to the City's required and actual contributions. The actuarial assumptions included (a) 7% investment rate of return, (b) no projected salary increases, (c) no inflation or cost of living adjustments, and (d) the amortization period is open. The actuarial value of TMRS assets was determined based on amortized cost. 43 CITY OF SCHERTZ, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS SEPTEMBER 30. 2004 NOTE 10: RETIREMENT PLAN (CONTINUED Schedule of Actuarial Liabilities and Funding Progress ACTUARIAL VALUATION DATE DECEMBER 31 DECEMBER 31 DECEMBER 31 2003 2002 2001 Actuarial Value of Assets Actuarial Accrued Liability Percentage Funded Unfunded (Overfunded) Actuarial Accrued Liability (UAAL) Annual Covered Payroll UAAL as a Percentage of Covered Payroll Annual Pension Cost Annual Required Contribution Contributions Made $4,313,616 6,163,929 70.0% $3,520,733 4,965,573 70.9% $2,795,264 4,128,746 67.7% 1,850,313 5,985,459 30.9% 1,444,840 5,306,146 27.2% 1,333,482 4,419,848 30.1 % 418,770 418,770 393,140 393,140 369,210 369,210 NET PENSION OBLIGATION AT THE END OF THE PERIOD $ $ -~ NOTE 11: RISK MANAGEMENT The City is exposed to various risks of loss related to torts; theft of, damage to, and destruction of assets; errors and omissions; and natural disasters. The City contracts with the Texas Municipal League Intergovernmental Risk Pool, a public entity risk pool currently operating as a common risk management and insurance program providing insurance coverage in the following areas: general liability, automobile liability and physical damage, law enforcement liability, worker's compensation, real and personal property, mobile equipment, and errors and omissions liability. The agreement for formation of the Texas Municipal League Intergovernmental Risk Pool provides that the pool will be self sustaining through member premiums and will be adjusted annually through an experience modifier. The City continues to carry commercial insurance for all other risks of loss including public official bond, employee dishonesty blanket bond, and underground tank pollution liability. Settled claims resulting from these risks have not exceeded coverage for each of the past three (3) years. The pooling agreement requires the pool to be self-sustaining. It is not possible to estimate the amount of any losses for which the City might be liable. The Texas Municipal League Intergovernmental Risk Pool has published its own financial report for the year ended September 30, 2004, which can be obtained from the Texas Municipal League. 44 CITY OF SCHERTZ, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS SEPTEMBER 30, 2004 NOTE 12: CONTINGENT LIABILITIES Amounts received or receivable from grant agencies are subject to audit and adjustment by grantor agencies, principally the federal government. Any disallowed claims, including amounts already collected, may constitute a liability of the applicable funds. The amount, if any, of expenditures that may be disallowed by the grantor cannot be determined at this time, although the City expects such amounts, if any, to be immaterial. The City is a defendant in various lawsuits. Although the outcome of these lawsuits is not presently determinable, in the opinion of management the resolution of these matters will not have a material adverse effect on the financial condition of the City. NOTE 13: JOINT VENTURE Schertz/Sequin Local Government Corporation The corporation is a public, nonprofit corporation organized to aid, assist, and act on behalf of the cities of Schertz and Seguin in acquiring, constructing, maintaining, and operating a water utility system. The City of Schertz is jointly liable, together with the City of Seguin, for operating deficits and long-term debt of the Schertz/Seguin Local Government Corporation. The corporation has issued revenue bonds in the amount of $ 51,040,000 to provide funds to build, improve, extend, enlarge, and repair the corporation's utility system, fund a reserve, and pay the costs of bond issuance. As of September 30, 2004, $ 50, 200,000 remained outstanding on the bonds and the corporation has accumulated approximately $3,621,932 in unrestricted net assets. The bond resolution pledges intergovernmental contract revenues from the cities of Schertz and Seguin. Under the intergovernmental water supply contract, the cities are unconditionally obligated to pay their respective shares of annual contract revenue bond debt service as expenses from their respective utility systems. Contributions to the corporation are reflected as "nonoperating expenses" in the water and sewer fund and totaled $1 ,548,468 for the year ended September 30, 2004. Separate financial statements for the Schertz/Seguin Local Government Corporation may be obtained from the City of Seguin, Texas 78156. NOTE 14: SPECIAL ITEM The City sold various water wells, water well motors and pumps, water storage tanks and all connecting lines, valves, and pipes to another local government entity which resulted in a gain of $327,900. 45 CITY OF SCHERTZ, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS SEPTEMBER 30. 2004 NOTE 15 : DISCRETELY PRESENTED COMPONENT UNITS INFORMATION Condensed Statement Of Net Assets Total Assets Total Liabilities TOTAL NET ASSETS, UNRESTRICTED Condensed Statement Of Activities Total Expenses Program Revenues Charges for Services Operating Grants and Contributions Net Program (Expense) Revenue General Revenues Sales Tax Unrestricted Investment Earnings Total General Revenues Change in Net Assets Net Assets, Beginning NET ASSETS, ENDING SCHERTZ ECONOMIC SCHERTZ DEVELOPMENT THE DEVELOPMENT CORPORA TION LIBRARY FOUNDA TION TOTAL $851,738 $20,401 $ 99,692 $971,831 2.241 34 2,275 $849.497 llQ.367 $ 99.692 ~9.556 $784,380 $ 3,081 $ 1,760 $789,221 3,750 3,750 895 895 (784,380) 1.564 (1,760) (784.576) 850,863 850,863 7.359 177 1 ,170 8,706 858.222 177 1 ,170 859.569 73,842 1,741 (590) 74,993 775,655 18.626 100,282 894,563 $849.497 $20.367 $ 99.692 $969.556 46 REQUIRED SUPPLEMENTARY INFORMATION 47 CITY OF SCHERTZ, TEXAS GENERAL FUND SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES - BUDGET AND ACTUAL YEAR ENDED SEPTEMBER 30, 2004 CITY OF SCHERTZ, TEXAS GENERAL FUND SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES - BUDGET AND ACTUAL YEAR ENDED SEPTEMBER 30, 2004 49 CITY OF SCHERTZ, TEXAS NOTES TO REQUIRED SUPPLEMENTARY INFORMATION SEPTEMBER 30, 2004 NOTE 1: BUDGETARY INFORMATION The budget for the general fund is adopted on a basis consistent with generally accepted accounting principles. Annual appropriations lapse at fiscal year end. The original budget for the general fund is adopted by the city council by September 30. Budgetary preparation and control is exercised at the department level. The city manager is authorized to transfer budget amounts between line items within a department; however, any transfer or supplemental appropriation that amends the total expenditures of a department or total budget requires city council approval. Both the original and final amended budget are included. NOTE 2: EXCESS OF EXPENDITURES OVER APPROPRIATIONS For the year ended September 30, 2004, expenditures exceeded appropriations in the legal, fleet services, other - unclassified, police, fire, parks, and library departments of the general fund by $35,415, $28,934, $75,614, $149,666, $113,501, $80,678, and $56,271, respectively. These oV8rexpenditures were funded by greater than anticipated revenues in the general fund. 50 COMBINING AND INDIVIDUAL FUND STATEMENTS AND SCHEDULES 51 (This Page Intentionally Left Blank) 52 NON MAJOR GOVERNMENTAL FUNDS Nonmajor Governmental Funds (Special Revenue Funds) are used to account for the proceeds of specific revenue sources that are legally restricted to expenditure for specified purposes. Park Fund - will account for revenues from developers' fees (in lieu of park land dedication), grants, and donations and is designed to monitor and manage improvement of park system. Recyclinq Fund - will account for revenues received from the recycling fee on all residential water bills and the sale of recyclable material and used to buy down solid waste collection costs. Tax Increment Financinq Fund - will account for the proceeds of designated property taxes to be used for the widening of Schertz Parkway. Hotel Occupancy Tax Fund - will account for proceeds of hotel occupancy taxes to be used strictly for those kinds of programs that promote the tourism industry. Library Grant Fund - will account for funds from a state grant to be used for purchasing computers at the library to be used for access to the internet. Police Department Forfeitures Fund - will account for revenue received from drug related cases In conjunction with other law enforcement agencies. 53 CITY OF SCHERTZ, TEXAS COMBINING BALANCE SHEET NONMAJOR GOVERNMENTAL FUNDS SEPTEMBER 30, 2004 SPECIAL REVENUE PARK FUND RECYCLING FUND TAX INCREMENT FINANCING 54 FUN D S HOTEL OCCUPANCY TAX LIBRARY GRANT FUND POLICE DEPARTMENT FORFEITURES FUND TOTAL OTHER GOVERNMENTAL FUNDS $290,688 $422 $325,181 $957,984 - 3,809 - $290.688 H22 ll25.181 $961.793 $ $ $ $167,064 290,688 422 325,181 794,729 $290.aaa ~422 ~,J 8J_ _~a6J-,-lH3 55 CITY OF SCHERTZ, TEXAS COMBINING STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES NONMAJOR GOVERNMENTAL FUNDS YEAR ENDED SEPTEMBER 30, 2004 SPECIAL REVENUE TAX PARK RECYCLING INCREMENT FUND FUND FINANCING $ $ $ 7,875 REVENUES Taxes Developer Fees Grants Property Forfeitures Sale of Recyclihg/Materials Miscellaneous Revenue Interest Total Revenues FUND BALANCES AT SEPTEMBER 30, 2004 22,080 34 2,554 953 10.463 22,080 953 12,382 500 16,562 12,382 16,562 500 ( 1,919) 5,518 453 251,818 1 ,256 88,376 $249,8aQ -$- 6,774 _~8B"E29 EXPENDITURES General and Administrative Contractual Services Total Expenditures Excess (Deficiency) of Revenues Over (Under) Expenditures FUND BALANCES AT OCTOBER 1, 2003 56 F U N D S POLICE TOTAL HOTEL LIBRARY DEPARTMENT OTHER OCCUPANCY GRANT FORFEITURES GOVERNMENTAL TAX FUND FUND FUNDS $ 37,688 $ $ $ 37,688 7,875 3,495 3,495 127,330 127,330 22,080 34 2.714 2.217 8,438 40,402 3,495 129,547 206,940 22,196 6,978 19,957 62,013 16,562 22.196 6,978 19.957 78.575 18,206 (3,483) 109,590 128,365 272,482 3,905 215.591 833,428 $290.Ji88 LA22 $32~J 81 $961.793 57 CITY OF SCHERTZ, TEXAS PARK SPECIAL REVENUE FUND SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE BUDGET TO ACTUAL YEAR ENDED SEPTEMBER 30, 2004 FUND BALANCE AT SEPTEMBER 30, 2004 ORIGINAL V ARIANC~ WITI-l AND FINAL BUDGET FINAL POSITIVE BUDGET ACTUAL (NEGA TIVE) $20,000 $ 7,875 $(12,125) 50,000 (50,000) 34 34 500 2,554 2,054 70,500 10,463 (60,037) 1 0 ,000 12,382 (2,382) $60,500 (1,919) $lf32 L~ll~) 251,818 .~ 249~a.9 REVENUES Developer Fees Tree Mitigation Miscellaneous Revenue Interest Income Total Revenues EXPENDITURES General and Administrative Excess (Deficiency) of Revenues Over (Under) Expenditures FUND BALANCE AT OCTOBER 1, 2003 58 CITY OF SCHERTZ, TEXAS RECYCLING SPECIAL REVENUE FUND SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE BUDGET TO ACTUAL YEAR ENDED SEPTEMBER 30, 2004 FUND BALANCE AT SEPTEMBER 30, 2004 ORIGINAL V ARIANCE WITH AND FINAL BUDGET FINAL POSITIVE BUDGET ACTUAL (NEGATIVE) $18,000 $22,080 $4,080 18,000 16,562 1 .438 ~ 5,518 ~ 1 ,256 ~ 6.714 REVENUES Sale of Recycling Materials EXPENDITURES Contractual Services Excess of Revenues Over Expenditures FUND BALANCE AT OCTOBER 1, 2003 59 CITY OF SCHERTZ, TEXAS HOTEL OCCUPANCY TAX SPECIAL REVENUE FUND SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE BUDGET TO ACTUAL YEAR ENDED SEPTEMBER 30, 2004 FUND BALANCE AT SEPTEMBER 30, 2004 V ARIANCE WITH FINAL BUDGET ORIGINAL FINAL POSITIVE BUDGET BUDGET ACTUAL (NEGATIVE) $35,000 $35,000 $ 37,688 $ 2,688 3,200 3,200 2,714 (486) 38,200 38,200 40,402 2,202 78,000 73,129 22,196 50,933 $(39.800) $134.929) 18,206 $53.135 272.482 $290.688 REVENUES Occupancy Tax Interest Income Total Revenues EXPENDITURES General and Administrative Excess (Deficiency) of Revenues Over (Under) Expenditures FUND BALANCE AT OCTOBER 1, 2003 60 CITY OF SCHERTZ, TEXAS DEBT SERVICE FUND SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE - BUDGET TO ACTUAL YEAR ENDED SEPTEMBER 30, 2004 REVENUES Taxes Interest Income Total Revenues ORIGINAL V ARIANCE WITH AND FINAL BUDGET FINAL POSITIVE BUDGET ACTUAL (NEGA TIVE) $ 971,501 $1,564,717 $593,216 3,800 4,951 1 ,151 975,301 1 ,569,668 594,367 EXPENDITURES Debt Service Bond Principal Bond Interest Fiscal Agent Fees Total Expenditures Excess (Deficiency) of Revenues Over (Under) Expenditures FUND BALANCE AT SEPTEMBER 30, 2004 793,000 1,233,000 (440,000) 378,672 605,902 (227,230) 3,000 3,220 (220) 1 ,174,672 1 ,842,122 (667,450) $ (19~) (272,454) _L123r-O_R3) 196,581 (75,873) 323,166 $ 2 4 L~.9_3 OTHER FINANCING SOURCES Transfer In Net Change in Fund Balance FUND BALANCE AT OCTOBER 1, 2003 61 (This Page Intentionally Left Blank) 62 DISCRETELY PRESENTED COMPONENT UNITS Discretely presented component units consist of separate entities whose governing bodies are not substantively the same as the governing body of the primary government. The discretely presented component units also provide services to areas other than the primary government. 63 CITY OF SCHERTZ, TEXAS DISCRETELY PRESENTED COMPONENT UNITS COMBINING BALANCE SHEET SEPTEMBER 30, 2004 ASSETS Cash and Cash Equivalents Accounts Receivable TOTAL ASSETS LIABILITIES AND FUND BALANCES LIABILITIES Accounts Payable Accrued Salaries and Benefits Total Liabilities FUND BALANCES Unreserved Designated - Economic Development Designated - Library Projects Total Fund Balances TOTAL LIABILITIES AND FUND BALANCES SCHERTZ ECONOMIC DEVELOPMENT THE CORPORATION LIBRARY SCHERTZ DEVELOPMENT FOUNDATION TOTAL $776,881 74,857 $20,401 $99,692 $896,974 74,857 $851,738 $20.401 $99,692 ~92L83~ $ 592 1,649 2,241 $ 34 $ $ 626 1,649 2,275 34 849,497 99,692 949,189 20,367 20,367 849,497 20,367 99,692 969,556 ~51 ,73~ ~20.401 $99,692 $971.831 64 CITY OF SCHERTZ, TEXAS DISCRETELY PRESENTED COMPONENT UNITS COMBINING SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES YEAR ENDED SEPTEMBER 30, 2004 SCHERTZ ECONOMIC DEVELOPMENT THE CORPORATION LIBRARY SCHERTZ DEVELOPMENT FOUNDA TION TOTAL REVENUES Taxes Other Net Sales Donations Interest Total Revenues $850,863 7,359 858,222 $ $ $850,863 3,750 3,750 895 895 177 1 ,170 8,706 4,822 1 ,170 864,214 EXPENDITURES Current Culture and Recreation Economic Development Total Expenditures Excess (Deficiency) of Revenues Over (Under) Expenditures 3,081 3,081 1,760 1,760 3,081 786,140 789,221 784,380 784,380 73,842 1,741 (590) 74,993 FUND BALANCES AT OCTOBER 1,2003 775,655 18,626 100,282 894,563 FUND BALANCES AT SEPTEMBER 30, 2004 ~4il1 ~2Q3 67 L!19JiQ2 ~~fi!1, 5~5_6 65 (This Page Intentionally Left Blank) 66 STATISTICAL SECTION 67 CITY OF SCHERTZ, TEXAS GOVERNMENT-WIDE EXPENSES BY FUNCTION LAST TWO FISCAL YEARS GOVERNMENTAL ACTIVITIES General Government Public Safety Streets and Parks Health Culture and Recreation Interest and Other Fees TOTAL GOVERNMENTAL ACTIVITIES BUSINESS-TYPE ACTIVITIES Water and Sewer EMS 2004 $ 2,873,573 4,586,498 1,019,101 192,506 310,013 707,090 .iJL6_8_8 ,78 1 $ 8,302,505 2,509,858 TABLE 1 2003 $ 2,630,450 3,705,722 1,182,993 156,927 451,215 499,011 La+.6 2J3~_8 $ 8,300,590 2,248,651 TOTAL BUSINESS-TYPE ACTIVITIES .ilQB_1Uli3 11.Q, 549 s--Ml NOTE Less than ten (10) years of data has been presented because this is the second year of implementation of GASB 34. The information will be presented on a prospective basis. 68 CITY OF SCHERTZ, TEXAS GOVERNMENT-WIDE REVENUES LAST TWO FISCAL YEARS GOVERNMENTAL ACTIVITIES Program Revenues Charges for Services Operating Grants and Contributions Capital Grants and Contributions General Revenues Taxes Unrestricted Investment Earnings Miscellaneous TOTAL GOVERNMENTAL ACTIVITIES BUSINESS-TYPE ACTIVITIES Program Revenues Charges for Services Capital Grants and Contributions General Revenues Unrestricted Investment Earnings Miscellaneous Special Item TOTAL BUSINESS-TYPE ACTIVITIES NOTE 2004 $ 2,920,424 2,280,629 2,153,213 6,821,909 114,323 58,770 ~14,349~ $ 9,258,452 1,045,334 61,025 120,043 327,900 ~JQ,B12.75A TABLE 2 2003 $ 2,802,949 2.788,821 6,742,874 93,690 16,028 li2.444.~62 $10,149,425 279,913 94.731 158,372 _$_lQ~62A4 1 Less than ten (10) years of data has been presented because this is the second year of implementation of GASB 34. The information will be presented on a prospective basis. 69 CITY OF SCHERTZ, TEXAS GENERAL GOVERNMENTAL EXPENDITURES BY FUNCTION LAST TEN FISCAL YEARS TABLE 3 FISCAL GENERAL PUBLIC STREETS TOTAL (1) YEAR GOVERNMENT SAFETY AND PARKS HEALTH OTHER EXPENDITURES 1995 $ 813,789 $1,059,331 $349,659 $ 80,324 $ 633,582 $2,936,685 1996 886,090 1,174,371 304,722 85,685 1,510,303 3,961,171 1997 976,032 1,472,534 397,807 102,293 798,071 3,746,737 1998 1,063,835 1,702,684 408,461 127,065 1,165,475 4,467,520 1999 1,306,500 2,023,379 806,029 142,287 2,142,364 6,420,559 2000 1,479,496 2,172,619 793,700 155,814 1,898,888 6,500,517 2001 1,668,235 2,561,055 627,110 175,048 1,710,880 6,742,328 2002 2,599,549 2,963,924 689,150 120,530 3,217,877 9,591,030 2003 2,488,134 3,530,4 70 675,687 156,927 4,130,086 10,981,304 2004 2,760,584 3,833,243 942,942 181,074 2,290,616 10,008,459 (1) Includes General, Special Revenue, and Debt Service Funds 70 CITY OF SCHERTZ, TEXAS GENERAL GOVERNMENT REVENUES BY SOURCE LAST TEN FISCAL YEARS TABLE 4 LICENSES CHARGES FINES FISCAL AND FOR AND YEAR TAXES PERMITS SERVICES FORFEITURES OTHER TOT AL * 1995 $2,285,735 $134,391 $353,050 $209,719 $ 340,232 $ 3,323,127 1996 2,389,765 394,841 375,767 317,403 244,638 3,722,414 1997 2,698,175 546,159 452,890 331,244 242,905 4,271,373 1998 3,168,926 610,943 472,366 343,943 654,095 5,250,273 1999 3,768,037 680,316 558,904 379,584 1,100,315 6,487,156 2000 4,088,491 731,488 626,464 444,331 625,841 6,516,615 2001 4,452,964 620,652 659,145 749,201 499,921 6,981,883 2002 5,305,902 663,682 883,126 538,831 841,674 8,233,215 2003 6,747,330 941,515 944,506 646,613 1,029,248 10,309,212 2004 7,322,727 852,577 793,096 842,322 629,954 10,440,676 *Includes General, Special Revenue, and Debt Service Funds 71 (This Page Intentionally Left Blank) 72 C/) Z o I-C/) UCI: C/)W<X: <x:-lW xo>- Wu-l I- <X: Ou NZC/) I-<X:LL ffiC/)z I~W u>1- C/)WI- LL-lC/) OX<X: <X:-l >-1- I- ->- Ul- CI: W Cl. o a: Cl. 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(f) CITY OF SCHERTZ, TEXAS ASSESSED AND TAXABLE VALUE OF PROPERTY LAST TEN FISCAL YEARS TABLE 6 FISCAL ESTIMA TED LEVY YEAR ACTUAL ASSESSMENT ASSESSED TAX TAX YEAR ENDED VALUES PERCENTAGE VALUATIONS RATE LEVY 1994 09-30-95 $ 362,247,758 86.3% $ 312,676,505 .4275% $1,337,010 1995 09-30-96 346,130,091 96.5 334,122,763 .4072 1,360,548 1996 09-30-97 396,917,233 95.4 378,784,051 .3719 1,408,699 1997 09-30-98 452,163,752 99.6 450,199,212 .3554 1,600,008 1998 09-30-99 545,742,286 97.9 534,039,183 .3544 1,892,640 1999 09-30-00 636,157,284 100 636,157,284 .3456 2,198,381 2000 09-30-01 731,305,433 100 731,305,433 .3405 2,490,095 2001 09-30-02 827,142,321 100 827,142,321 .3825 3,163,819 2002 09-30-03 1,149,705,321 89.1 1,024,412,713 .3825 3,918,379 2003 09-30-04 1,231,083,652 92.6 1,139,992,157 .3825 4,360,470 74 CITY OF SCHERTZ. TEXAS PROPERTY TAX RATES - ALL DIRECT AND OVERLAPPING GOVERNMENTS LAST TEN FISCAL YEARS TABLE 7 COUNTY CITY SCHOOL COUNTY ROAD 100% 100% 100% 100% ASSESSMENT ASSESSMENT ASSESSMENT ASSESSMENT YEAR H RATE* RATE* RATE RATE 1995 .4275% 1.3095% .2995% .0867% 1996 .4072 1.3712 .3018 .0833 1997 .3719 1.4089 .2997 .0758 1998 .3554 1.4299 .3040 .0730 1999 .3444 1.6923 .3192 .0600 2000 .3455 1.4945 .3417 .0582 2001 .3405 1.6267 .3193 .0630 2002 .3825 1 .71 00 .3499 .0420 2003 .3825 1.7300 .3668 .0463 2004 .3825 1.7800 .3654 .0477 .. All rates shown are per $100 assessed valuation .. *Year shown is the fiscal year of collection. Taxes were levied the previous calendar year. 75 CITY OF SCHERTZ, TEXAS RATIO OF NET GENERAL OBLIGATION BONDED DEBT TO ASSESSED VALUE AND NET GENERAL BONDED DEBT PER CAPITA TABLE 8 NET RATIO GENERAL OF NET BONDED NET GENERAL BONDED DEBT DEBT PER FISCAL YEAR ESTIMATED ASSESSED BONDED DEBT TO ASSESSED CAPIT A September 30, 1995 13,500 $ 312,676,405 $1,056,611 .34 78.27 September 30, 1996 14,500 334,122,763 1,215,000 .36 83.79 September 30, 1997 15,000 378,784,051 1,095,000 .29 73.00 September 30, 1998 17,500 450,199,212 5,901,000 1.31 337.20 September 30, 1999 18,000 534,039,183 5,622,230 1.05 312.35 September 30, 2000 18,694 636,157,284 5,321,410 .84 284.66 September 30, 2001 22,000 731,305,433 5,129,000 .70 233.14 September 30, 2002 23,000 827,142,321 5,222,000 .63 227.04 September 30, 2003 24,000 1,024,412,713 4,844,000 .47 201.83 September 30, 2004 26,463 1,139,992,157 4,456,000 .39 168.39 76 CITY OF SCHERTZ, TEXAS COMPUTATION OF DIRECT AND OVERLAPPING DEBT YEAR ENDED SEPTEMBER 30, 2004 TABLE 9 DIRECT AND NET ESTIMA TED ESTIMA TED BONDED PERCENT OVERLAPPING DEBT APPLICABLE BONDED DEBT * Bexar County $134,774,962 1.96% $ 2,641,589 *Comal County 8,095,000 1.99 161,091 *Comal Independent School District 176,068,934 0.12 211,283 *Guadalupe County 13,365,000 20.37 2,722,451 * Schertz-Ci bolo-Universal City Independent School District 90,955,619 51.88 47,187,775 *San Antonio, RA 56,110,000 2.06 1,155,866 * Alamo Community College District 32,652,811 2.06 672,648 Total Net Overlapping Debt 54,752,703 *City of Schertz 19,443,707 100.00% 19,443,707 TOTAL DIRECT AND OVERLAPPING DEBT (6.51 % OF ASSESSED VALUE - $2,804 PER CAPITA) ~74.19fi~ *Source of Data - Texas Municipal Reports, City of Schertz Compiled and Published by Municipal Advisory Council of Texas 77 CITY OF SCHERTZ, TEXAS LEGAL DEBT MARGIN YEAR ENDED SEPTEMBER 30, 2004 TABLE 10 Texas municipalities are not bound by any direct constitutional or statutory maximums as to the amount of general obligation bonds which may be issued; however, all local bonds must be submitted to and approved by the State Attorney General. It is the established practice of the Attorney General not to approve prospective bond issue if it will result in the levy of a tax for bonded debt of over $1.00 for cities under 5,000 population or $1.50 for cities over 5,000 population. 78 CITY OF SCHERTZ, TEXAS RATIO OF ANNUAL DEBT SERVICE EXPENDITURES FOR GENERAL OBLIGATION BONDED DEBT TO TOTAL GENERAL EXPENDITURES LAST TEN FISCAL YEARS TABLE 11 PERCENT OF DEBT DEBT SERVICE TO SERVICE GENERAL FISCAL YEAR PRINCIPAL INTEREST TOTAL EXPENDITURES .. EXPENDITURES September 30, 1995 $ 85,000 $74,139 $159,139 $ 2,936,945 5.4% September 30, 1996 341,000 87,098 428,098 3,961,171 10.8 September 30, 1997 120,000 65,540 185,540 3,746,737 5.0 September 30, 1998 124,000 58,916 182,916 4,467,520 4.1 September 30, 1999 278,770 303,468 582,238 6,420,559 11.0 September 30, 2000 300,820 286,435 587,255 6,500,51 7 9.0 September 30, 2001 192,410 269,942 462,352 6,742,328 6.9 September 30, 2002 577,000 289,792 866,792 9,591,030 9.0 September 30, 2003 378,000 259,172 637,172 10,981,304 5.8 September 30, 2004 388,000 236,954 624,954 10,008,459 6.2 *Includes General, Special Revenue, and Debt Service Funds 79 (This Page Intentionally Left Blank) 80 N a:1 ,..... 'i" N f'.. <.0 'i" La ,..... f'.. ro w <Xl (") N <.0 N <Xl <.0 <Xl w S -.J l.L.U) La 0 <.0 f'.. N <Xl La N <Xl ClJ w (") 'i" 'i" <.0 <.0 <.0 <! otE U) La La f'.. f'.. I- a:~ Wo a: OJ I- N f'.. ,..... 'i" ,..... f'.. (") La 0) ~U) w I- <Xl f'.. 'i" ,..... La (") 0 ,..... 'i" <Xl ::>::> <! 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RESERVE FUND REQUIREMENTS The City is required to make monthly deposits sufficient to meet the total reserve fund requirement within sixty (60) months of the closing date for the 2001 issue. The City has purchased a surety bond through MBIA Insurance Corporation to meet the reserve fund requirement. 82 CITY OF SCHERTZ, TEXAS DEMOGRAPHIC STATISTICS LAST TEN FISCAL YEARS TABLE 14 LEVEL IN PER YEARS OF CAPIT A MEDIAN FORMAL SCHOOL UNEMPLOYMENT FISCAL POPULA TION INCOME AGE EDUCA TION ENROLLMENT RATE IN % YEAR ( 1 ) (2) (3) (3) (4) (3) 1995 13,500 Est. $13,600 32 14 4,678 3.9 1996 14,500 Est. 1 3,600 32 14 4,841 3.9 1997 15,000 Est. 13,600 33 14 5,136 3.9 1998 17,500 Est. 16,500 32.6 14.6 5,951 3.9 1999 18,000 Est. 16,500 32.6 14.6 5,777 3.9 2000 18,694 Act. 31,768 35.1 14.6 6,186 2.4 2001 22,000 Est. 36A78 35.1 14.6 6,440 2.4 2002 23,000 Est. 36A78 35.1 14.6 6,440 2.4 2003 24,000 Est. 38,000 35.1 14.6 7,245 4.1 2004 26,463 38,000 32.7 15.0 7,257 3.58 Source: (1) 2000 Bureau of the Census Department of Planning, University of Texas (2) Department of Economics, University of Texas United States Department of Labor (Information not Available for Odd Years) (3) Texas Workforce Commission (4) Texas Education Agency District Performance Report 83 (This Page Intentionally Left Blank) 84 z o I- U :::> a: (/)I-(/) <((/)a: xz<( wOw I-U>- ~~<( a:ZU Wo(f) Izu. 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('Y) ('Y) ('Y) co ro LD N ('Y) en 1J l... o U Q.) a: c o ..... u Q.) .r: 0. en U en 1J l... C l... C1J - 0 Q.) OJ U en C Q.) Q.) :0 a: a: :J ~ r..: OJ I- . > >5 .-+'::."t: . uU(J) <j" ('Y) <j" a a N en Q.) U l... :J o (J) LD ro Q.) :J C1J > C1J :J ..... U <{ 1J Q.) ..... co E ..... en Ll.J * ..... u .;:: ..... en o l... (j) ..... c (j) U C1J en co l... 0. 0. <{ .::.t. ..... c ..... en > C1J ~ :J C cosr=:J 2-Eo<l8 .:3:J.::.t.(j) (J)(A~0. N co~ t >- co (j) ..... Q.) lJ (j) ..... C1J {i:S~:J (J)(J)(J)<:J CITY OF SCHERTZ, TEXAS PRINCIPAL TAXPAYERS YEAR ENDED SEPTEMBER 30, 2004 TABLE 16 2003 PERCENTAGE OF ASSESSED TOTAL ASSESSED PRINCIPAL TAXPAYERS TYPE OF BUSINESS V ALUA TION VALUATION 1. Block Distributing, Inc. Distribution $ 22,240,076 1.95% 2. San Antonio MT A, LP/L TD Public Service 16,255,774 1.42 3. Sprint Spectrum, LP Utility Service 13,829,920 1.21 4. Eye Care Centers of America, Inc. Vision Care 11,081,946 .97 5. H.E.B. Grocery Co. Grocery Sales 9,134,151 .80 6. S.P. Richards Co. Banking 6,978,876 .61 7. Sycamore Apartments, Ltd. Apartment Complex 6,224,004 .55 8. C & W Ranches, Ltd. Real Estate 6,173A56 .54 9. VITA Nonwovens Texas Plant Manufacturing 5,370,107 .47 10. AER Manufacturing Industrial 4,883,679 .44 Other Assessed Properties 1.037,820.168 91.04 TOTAL ASSESSMENTS $1 . 1 3 9,-99 2.1 57 lnQ..QQ % Source: Guadalupe County Appraisal District 86 CITY OF SCHERTZ, TEXAS MISCELLANEOUS STATISTICS YEAR ENDED SEPTEMBER 30, 2004 TABLE 17 Date of Incorporation December, 1958 Date of First Charter Adopted April, 1974 Date Present Charter Adopted: Amended May, 1997 Form of Government: Council-Manager YEAR SQUARE MILES 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995 28.00 28.00 26.02 24.18 24.18 24.15 24.15 24.15 24.15 24.15 Miles of Highways, Streets, and Alleys Streets and Highways, Paved Streets, Unpaved Alleys Sidewalks 101.82 Miles 8.98 Miles 3.44 Miles 16.95 Miles Miles of Sewer: Storm Sanitary 4.08 Miles 53.87 Miles Building Permits: VALUE OF BUILDINGS YEAR PERMITS ISSUED 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995 3,055 7,119 2,812 2,754 3,716 3,690 3,767 3,373 2,559 2,066 $ 1 00,51 5,687 79A68,026 50,609,283 70,912,183 61,864,013 76,501,638 82,800,348 71,741,172 64,267,503 21,150,682 (Continued) 87 CITY OF SCHERTZ, TEXAS MISCELLANEOUS STATISTICS YEAR ENDED SEPTEMBER 30, 2004 Fire Protection: Number of Stations Number of Employees (Full and Part-Time) Number of Volunteers Recreation: Parks Playgrounds Other Recreational Facilities: Baseball Fields Baseball Practice Fields Softball Fields Large Pavillion Small Pavillion Picnic Tables: Uncovered Restrooms: Male Female Concessions Stands Community Center City Employees: September 30, 2004 Elections: Number of Registered Voters Number of Votes in: Last Municipal Election Percentage of Registered Voters Voting in: Last Municipal Election Source: Municipal Election Records Population: Census Population Count 2004 2003 (Estimate) 2002 (Estimate) 2001 (Estimate) 2000 1999 (Estimate) 1998 (Estimate) 1997 1990 1980 TABLE 17 1 24 17 7 20 7 4 1 10,000 Square Feet Covered 600 Square Feet Covered 93 11 11 2 1 217 12,922 423 3.3% 26,463 24,000 23,000 22,000 18,694 18,000 17,500 15,000 10,597 7,260 88 SINGLE AUDIT SECTION 89 (This Page Intentionally Left Blank) 90 s NORTH TOWER 800 NW LOOP 410, SUITE 300N SAN ANTONIO, TEXAS 78216-5633 210/341-2581 fAX 210/341-2588 cpas@twbky.com Thompson, Williams, Biediger, Kastor '& YOf1!1g, LC. CERTIfiED PUBLIC ACCOUNTANTS MEMBERS AMERICAN INSTITUTE Of CERTIfiED PUBLIC ACCOUNTANTS REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS The Honorable Mayor and Members of the City Council City of Schertz, Texas We have audited the financial statements of the governmental activities, the business-type activities, the aggregate discretely presented component units, each major fund, and the aggregate remaining fund information of the City of Schertz, Texas, as of and for the year ended September 30, 2004, which collectively comprise the City of Schertz, Texas' basic financial statements, and have issued our report thereon dated February 4, 2005. 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. Internal Control Over Financial Reporting In planning and performing our audit, we considered City of Schertz, Texas', internal control over financial reporting in order to determine our auditing procedures for the purpose of expressing our opinion on the financial statements and not to provide an opinion on the internal control over financial reporting. Our consideration of the internal control would not necessarily disclose all matters in the internal control over financial reporting that might be material weaknesses. A material weakness is a reportable condition in which the design or operation of one or more of the internal control components does not reduce to a relatively low level the risk that misstatements caused by error or fraud in amounts that would be material in relation to the financial statements being audited may occur and not be detected within a timely period by employees in the normal course of performing their assigned functions. We noted no matters involving the internal control over financial reporting and its operation that we consider to be material weaknesses. However, we noted other matters involving the internal control over financial reporting that we have reported to management of the City of Schertz, Texas, in a separate letter dated February 4, 2005. JAMES L. BIEDIGER JR, CPA / C TED KASTOR CPA / CHARUE E. YOUNG, JR, CPA H. LEE SCHWARTZMAN, CPA / f GLENN CRAVEY. CPA. / FRED J. TIMMONS, CPA / JOHN W GREEN, CPA PAUL E WIWAMS, CPA (RETIRED) / R IARRY THOMPSON, CPA (RETIRED) 91 (This Page Intentionally Left Blank) 92 Compliance and Other Matters As part of obtaining reasonable assurance about whether City of Schertz, Texas, financial statements are free of 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 that are required to be reported under Government Auditing Standards. This report is intended solely for the information and use of the audit committee, management, city council, and federal awarding agencies and pass-through entities, and is not intended to be and should not be used by anyone other than these specified parties. ~~lJ}jiU1I1L1fa~dfVJJ ~<ihci(!. Certified Public Accountants San Antonio, Texas February 4, 2005 93 (This Page Intentionally Left Blank) 94 E) NORTH TOWER 800 NW LOOP 410. SUITE 300N SAN ANTONIO. TEXAS 78216.5633 210/341.2581 fAX 210/341.2588 cpas@twbky.com Thompson, Williams, Biediger, Kastor CCQ Y04M, LC. CERTIfiED PUBLIC ACCOUNTANTS MEMBERS AMERICAN INSTITUTE Of CERTIfIED PUBLIC ACCOUNTANTS REPORT ON COMPLIANCE WITH REQUIREMENTS APPLICABLE TO EACH MAJOR PROGRAM AND INTERNAL CONTROL OVER COMPLIANCE IN ACCORDANCE WITH OMB CIRCULAR A-133 The Honorable Mayor and Members of the City Council City of Schertz, Texas Compliance We have audited the compliance of City of Schertz, Texas, with the types of compliance requirements described in the U. S. Office of Management and Budget (OMB) Circular A-133 Compliance Supplement that are applicable to the major federal program for the year ended September 30, 2004. City of Schertz, Texas', major federal program is identified in the summary of auditor's results section of the accompanying schedule of findings and questioned costs. Compliance with the requirements of laws, regulations, contracts, and grants applicable to the major federal program is the responsibility of City of Schertz, Texas' management. Our responsibility is to express an opinion on City of Schertz, Texas' compliance based on our audit. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America, the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and OMB Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations. Those standards and OMB Circular A-133 require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major federal program occurred. An audit includes examining, on a test basis, evidence about City of Schertz, Texas', compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Our audit does not provide a legal determination on City of Schertz, Texas', compliance with those requirements. In our opinion, City of Schertz, Texas, complied, In all material respects, with the requirements referred to above that are applicable to its major federal program for the year ended September 30, 2004. JAMES L. BIEDIGER. JR. CPA / C TED /\ASTOR, CPA. / CHARUE E YOUNG. JR.. CPA H LEE SCHWARTZMAN. CPA / f GLENN CRAVEY CPA / fRED J. TIMMONS. CPA / JOHN W GREEN. CPA PAUL E. WIlliAMS. CPA (RETIRED) / R IARRY TIlOMPSON. CPA (RETIRED) 95 (This Page Intentionally Left Blank) 96 Internal Control Over Compliance The management of City of Schertz, Texas, is responsible for establishing and maintaining effective internal control over compliance with requirements of laws, regulations, contracts, and grants applicable to federal programs. In planning and performing our audit, we considered City of Schertz, Texas', internal control over compliance with requirements that could have a direct and material effect on a major federal program in order to determine our auditing procedures for the purpose of expressing our opinion on compliance and to test and report on the internal control over compliance in accordance with OMB Circular A-133. Our consideration of the internal control over compliance would not necessarily disclose all matters in the internal control that might be material weaknesses. A material weakness is a condition in which the design or operation of one or more of the internal control components does not reduce to a relatively low level the risk that noncompliance with applicable requirements of laws, regulations, contracts, and grants caused by error or fraud that would be material in relation to a major federal program being audited may occur and not be detected within a timely period by employees in the normal course of performing their assigned functions. We noted no matters involving the internal control over compliance and its operation that we consider to be material weaknesses. This report is intended solely for the information and use of the audit committee, management, city council, and federal awarding agencies and pass-through entities and is not intended to be and should not be u:_;;;;;;,.';;an ~hese specified part~ci fI~L(!. Certified Public Accountants San Antonio, Texas February 4, 2005 97 CITY OF SCHERTZ, TEXAS SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS YEAR ENDED SEPTEMBER 30, 2004 FEDERAL GRANTOR/ PASS-THROUGH GRANTOR/PROGRAM OR CLUSTER TITLE FEDERAL CFDA NUMBER PASS-THROUGH ENTITY IDENTIFYING FEDERAL NUMBER EXPENDITURES U.S. Department of Homeland Security, Federal Emergency Management Agency/ Texas Department of Public Safety/Hazard Mitigation Grant-Unmet Needs Project 83.548 2E-02C-l/DR-1257 $1,347,179 U.S. Department of Homeland Security, Office of Domestic Preparedness/ State Homeland Security Grant Program/ Texas Engineering Extension Service 97.073 66128 109,303 TOTAL FEDERAL EXPENDITURES ~j,4liBA82 98 CITY OF SCHERTZ, TEXAS NOTES TO SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS YEAR ENDED SEPTEMBER 30, 2004 NOTE 1: GENERAL The accompanying schedule of expenditures of federal awards includes the federal grant activity of the City of Schertz. The information in this schedule is presented in accordance with the requirements of OMS Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations. NOTE 2: BASIS OF ACCOUNTING The accounting and financial reporting treatment applied to a fund is determined by its measurement focus. The governmental funds are accounted for using a current financial resources measurement focus. With this measurement focus, only current assets and current liabilities generally are included on the balance sheet. Statements of revenues and expenditures and changes in fund balances of these funds present increases (i.e., revenues and other financing sources) and decreases (i.e., expenditures and other financing uses) in net current assets. The modified accrual basis of accounting is used in the governmental funds financial statements. This basis of accounting recognizes revenues in the accounting period in which they become susceptible to accrual (i.e., both measurable and available) and expenditures in the accounting period in which the fund liability is incurred, if measurable, except 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. Federal grant funds are considered to be earned to the extent of expenditures made under the provisions of the grant. All federal grant funds were accounted for in the general fund and the capital projects fund. 99